As filed with the Securities and Exchange Commission on March 30, 1998
File No. 33-9645
File No. 811-4881
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 52
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 53
NORWEST ADVANTAGE FUNDS
(Formerly "Norwest Funds" and "Prime Value Funds, Inc.")
(Exact Name of Registrant as Specified in its Charter)
Two Portland Square
Portland, Maine 04101
(Address of Principal Executive Office)
Registrant's Telephone Number, including Area Code: (207) 879-1900
Max Berueffy, Esq.
Forum Financial Services, Inc.
Two Portland Square, Portland, Maine 04101
(Name and Address of Agent for Service)
Copies of Communications to:
Anthony C.J. Nuland, Esq.
Seward & Kissel
1200 G Street, N.W.
Washington, D.C. 20005
It is proposed that this filing will become effective:
__X__ immediately upon filing pursuant to Rule 485, paragraph (b)
_____ on [ ] pursuant to Rule 485, paragraph (b)
_____ 60 days after filing pursuant to Rule 485, paragraph (a)(i)
_____ on February 28, 1998 pursuant to Rule 485, paragraph (a)(i)
_____ 75 days after filing pursuant to Rule 485, paragraph (a)(ii)
_____ on [ ] pursuant to Rule 485, paragraph (a)(ii)
_____ this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
READY CASH INVESTMENT FUND, STABLE INCOME FUND, TOTAL RETURN BOND FUND, INDEX
FUND, INCOME EQUITY FUND, LARGE COMPANY GROWTH FUND, SMALL COMPANY STOCK FUND,
SMALL COMPANY GROWTH FUND, SMALL CAP OPPORTUNITIES FUND, INTERNATIONAL FUND,
PERFORMA STRATEGIC VALUE BOND FUND, PERFORMA DISCIPLINED GROWTH FUND, PERFORMA
SMALL CAP VALUE FUND AND PERFORMA GLOBAL GROWTH FUND OF REGISTRANT ARE CURRENTLY
STRUCTURED AS FEEDER FUNDS. THIS AMENDMENT INCLUDES A MANUALLY EXECUTED
SIGNATURE PAGE FOR THE REGISTRANTS WHOSE PORTFOLIOS ARE MASTER FUNDS: SCHRODER
CAPITAL FUNDS AND CORE TRUST (DELAWARE).
<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 404(A))
PART A
(Prospectus offering A and B Shares of Stable Income Fund, Intermediate
Government Income Fund, Income Fund and Total Return Bond Fund)
<TABLE>
<S> <C> <C>
Form N-1A
Item No. (Caption) Location in Prospectus (Caption)
- ---------- --------- --------------------------------
Item 1. Cover Page Cover Page
Item 2. Synopsis Prospectus Summary
Item 3. Condensed Financial Information Financial Highlights; Other Information -
Performance Information
Item 4. General Description of
Registrant Prospectus Summary; Investment Objectives
and Policies; Additional Investment
Policies and Risk Considerations; and
Other Information - The Trust and Its
Shares
Item 5. Management of the Fund Prospectus Summary; Management
Item 5A. Management's Discussion of
Fund Performance Not Applicable
Item 6. Capital Stock and
Other Securities Cover; Dividends and Tax Matters; Other
Information - The Trust and Its Shares
Item 7. Purchase of Securities Being Offered How to Buy Shares; Management -
Management, Administration and
Distribution Services
Item 8. Redemption or Repurchase How to Sell Shares
Item 9. Pending Legal Proceedings Not Applicable
</TABLE>
<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 404(A))
PART A
(Prospectus offering I Shares)
<TABLE>
<S> <C> <C>
Form N-1A
Item No. (Caption) Location in Prospectus (Caption)
- ---------- --------- -------------------------------
Item 1. Cover Page Cover Page
Item 2. Synopsis Prospectus Summary
Item 3. Condensed Financial Information Financial Highlights; Other Information -
Performance Information
Item 4. General Description of
Registrant Prospectus Summary; Investment Objectives
and Policies; Additional Investment
Policies and Risk Considerations; and
Other Information - The Trust and Its
Shares
Item 5. Management of the Fund Prospectus Summary; Management
Item 5A. Management's Discussion of
Fund Performance Not Applicable
Item 6. Capital Stock and
Other Securities Cover; Dividends and Tax Matters; Other
Information - The Trust and Its Shares
Item 7. Purchase of Securities Being Offered How To Buy Shares; Management,
Administration and Distribution Services
Item 8. Redemption or Repurchase How To Sell Shares
Item 9. Pending Legal Proceedings Not Applicable
</TABLE>
<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 404(A))
PART A
(Prospectus offering Shares of Performa Disciplined Growth Fund,Performa Small
Cap Value Fund, Performa Strategic
Value Bond Fund and Performa Global Growth Fund)
<TABLE>
<S> <C> <C>
Form N-1A
Item No. (Caption) Location in Prospectus (Caption)
- --------- --------- --------------------------------
Item 1. Cover Page Cover Page
Item 2. Synopsis About the Funds; About Your Investment
Item 3. Condensed Financial Information Not Applicable
Item 4. General Description of
Registrant About the Funds; How the Funds Pursue
Their Objective -- Risk Considerations;
Risk Factors; Organization and History of
Core & Gateway Structure
Item 5. Management of the Fund About the Funds; How the Funds Are Managed
Item 5A. Management's Discussion of
Fund Performance How Each Fund Makes Distributions to
Shareholders -- Tax
Item 6. Capital Stock and
Other Securities Cover Page; How Each Fund Makes
Distributions to Shareholders -- Tax
Item 7. Purchase of Securities Being Offered How To Buy Shares, How to Exchange Shares;
Types of Account Ownership
Item 8. Redemption or Repurchase How to Sell Shares; How to Exchange Shares
Item 9. Pending Legal Proceedings Not Applicable
</TABLE>
<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 404(A))
PART A
(Prospectus offering Shares of Norwest WealthBuilder II Growth Portfolio,
Norwest WealthBuilder II Growth and
Income Portfolio and Norwest WealthBuilder II Growth Balanced Portfolio)
<TABLE>
<S> <C> <C>
Form N-1A
Item No. (Caption) Location in Prospectus (Caption)
- --------- --------- --------------------------------
Item 1. Cover Page Cover Page
Item 2. Synopsis Prospectus Summary
Item 3. Condensed Financial Information Not Applicable
Item 4. General Description of
Registrant Prospectus Summary; Investment Objectives
and Policies; and Other Information - The
Trust and Its Shares
Item 5. Management of the Fund Prospectus Summary; Management of the
Portfolios
Item 5A. Management's Discussion of
Fund Performance Performance Information
Item 6. Capital Stock and
Other Securities Cover Page; Dividends and Tax Matters;
Other Information - The Trust and Its
Shares
Item 7. Purchase of Securities Being Offered Purchases and Redemptions of Shares; How
to Buy Shares
Item 8. Redemption or Repurchase Purchases and Redemptions of Shares; How
to Sell Shares
Item 9. Pending Legal Proceedings Not Applicable
</TABLE>
<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 404(C))
PART A
(All other Prospectuses)
Not Applicable in this Filing
<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 404(A))
PART B
SAI offering Shares of Cash Investment Fund, Investor Shares of Ready Cash
Investment Fund, Shares of U.S. Government Fund and Treasury 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 and Total Return Bond Fund, Limited Term
Tax-Free Fund, Tax-Free Income Fund, Colorado Tax-Free Fund, Minnesota
Intermediate Tax-Free Fund and Minnesota Tax-Free Fund, Strategic Income Fund
(FORMERLY CONSERVATIVE BALANCED Fund), Moderate Balanced Fund, Growth Balanced
Fund and 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
<TABLE>
<S> <C> <C>
Form N-1A Location in Statement of
Item No. (Caption) Additional Information (Caption)
- --------- --------- ---------------------------------
Item 10. Cover Page Cover Page
Item 11. Table of Contents Cover Page
Item 12. General Information and History Prospectus
Item 13. Investment Objectives and Policies Investment Policies; Investment Limitations
Item 14. Management of the Fund Management; Additional Information about
the Trust and the Shareholders of the Funds
Item 15. Control Persons and Principal
Holders of Securities Additional Information about the Trust;
Shareholdings
Item 16. Investment Advisory and Other Services Management
Item 17. Brokerage Allocation and Other Practices Portfolio Transactions
Item 18. Capital Stock and Other Securities Additional Information about the Trust;
Shareholdings
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered Additional Purchase and Redemption
Information
Item 20. Tax Status Taxation
Item 21. Underwriters Management - Administration and
Distribution
Item 22. Calculation of Performance Data Performance and Advertising Data
Item 23 Financial Statements Other Information - Financial
Statements
</TABLE>
<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 404(A))
PART B
(SAI offering Shares of Performa Smith Disciplined Growth Fund,
Performa Smith Small Cap Value Fund, Performa Large Cap Value Fund,
Performa Galliard Strategic Value Bond Fund and
Performa Schroder Global Growth Fund)
<TABLE>
<S> <C> <C>
Form N-1A Location in Statement of
Item No. (Caption) Additional Information (Caption)
- --------- --------- ---------------------------------
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History Prospectus
Item 13. Investment Objectives and Policies Investment Policies; Investment Limitations
Item 14. Management of the Fund Management and Administrative Services;
Additional Information about the Trust and
the Shareholders of the Funds
Item 15. Control Persons and Principal
Holders of Securities Additional Information about the Trust and
the Shareholders of the Funds -- Shareholdings
Item 16. Investment Advisory and Other Services Investment Advisory Services
Item 17. Brokerage Allocation and Other Practices Portfolio Transactions
Item 18. Capital Stock and Other Securities Additional Information about the Trust and
the Shareholders of the Fund
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered Additional Purchase, Redemption and
Exchange Information
Item 20. Tax Status Taxation
Item 21. Underwriters Portfolio Transactions
Item 22. Calculation of Performance Data Performance and Advertising Data
Item 23 Financial Statements Additional Information about the Trust
and the Shareholders of the Funds --
Financial Statements
</TABLE>
<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 404(A))
PART B
(SAI offering Shares of Norwest WealthBuilder II Growth Portfolio,
Norwest WealthBuilder II Growth and Income Portfolio and]
Norwest WealthBuilder II Growth Balanced Portfolio)
<TABLE>
<S> <C> <C>
Form N-1A Location in Statement of
Item No. (Caption) Additional Information (Caption)
- --------- --------- ---------------------------------
Item 10. Cover Page Cover Page
Item 11. Table of Contents Cover Page
Item 12. General Information and History Prospectus
Item 13. Investment Objectives and Policies Investment Policies; Investment Limitations
Item 14. Management of the Fund Management; Management and Administrative
Services
Item 15. Control Persons and Principal
Holders of Securities Additional Information about the Trust;
and the Shareholders of the Fund --
Shareholding
Item 16. Investment Advisory and Other Services Investment Advisory Services
Item 17. Brokerage Allocation and Other Practices Portfolio Transactions
Item 18. Capital Stock and Other Securities Additional Information about the Trust;
and the Shareholders of the Fund --
Shareholding
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered Additional Purchase, Redemption and
Exchange Information
Item 20. Tax Status Taxation
Item 21. Underwriters Portfolio Transactions
Item 22. Calculation of Performance Data Manager and Administrator
Item 23. Financial Statements Additional Information about the Trust
and the Shareholders of the Fund--
Financial Statements
</TABLE>
<PAGE>
<PAGE>
INCOME FUNDS
PROSPECTUS
APRIL 1, 1998
----------------------------------------
STABLE INCOME FUND
---------------
INTERMEDIATE GOVERNMENT
INCOME FUND
---------------
INCOME FUND
---------------
TOTAL RETURN BOND FUND
[LOGO]
----------------------------------------
NOT FDIC INSURED
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
1. PROSPECTUS SUMMARY......................... 2
2
Highlights of the Funds....................
6
Expense Information........................
2. FINANCIAL HIGHLIGHTS....................... 10
3. INVESTMENT OBJECTIVES AND POLICIES......... 18
18
Stable Income Fund.........................
19
Intermediate Government Income Fund........
21
Income Fund................................
22
Total Return Bond Fund.....................
24
Additional Investment Policies and Risk
Considerations.............................
4. MANAGEMENT................................. 43
43
Investment Advisory Services...............
45
Management, Administration and Distribution
Services...................................
46
Shareholder Servicing and Custody..........
47
Expenses of the Funds......................
5. CHOOSING A SHARE CLASS..................... 49
50
A Shares...................................
54
B Shares...................................
6. HOW TO BUY SHARES.......................... 58
58
Minimum Investment.........................
58
Purchase Procedures........................
60
Account Application........................
60
General Information........................
7. HOW TO SELL SHARES......................... 61
61
General Information........................
61
Redemption Procedures......................
62
Other Redemption Matters...................
8. OTHER SHAREHOLDER SERVICES................. 64
64
Exchanges..................................
65
Automatic Investment Plan..................
66
Individual Retirement Accounts.............
66
Automatic Withdrawal Plan..................
67
Reopening Accounts.........................
9. DIVIDENDS AND TAX MATTERS.................. 68
68
Dividends..................................
68
Tax Matters................................
10. OTHER INFORMATION.......................... 70
70
Banking Law Matters........................
70
Determination of Net Asset Value...........
70
Performance Information....................
71
The Trust and Its Shares...................
72
Core and Gateway Structure.................
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROSPECTUS
APRIL 1, 1998
This Prospectus offers A Shares and B Shares of Stable Income Fund, Intermediate
Government Income Fund, Income Fund and Total Return Bond Fund (each a "Fund"
and collectively the "Funds"). The Funds are separate diversified fixed income
portfolios of Norwest Advantage Funds (the "Trust"), which is a registered,
open-end, management investment company.
Stable Income Fund and Total Return Bond Fund each seeks to achieve its
investment objective by investing all of its investable assets in a separate
portfolio of another registered, open-end, management investment company with
the same investment objective. See "Prospectus Summary" and "Other Information -
Core and Gateway-Registered Trademark- Structure."
Intermediate Government Income Fund and Income Fund each seeks to achieve its
investment objective by investing directly in portfolio securities.
This Prospectus sets forth concisely the information concerning the Trust and
the Funds that a prospective investor should know before investing. The Trust
has filed with the Securities and Exchange Commission (the "SEC") a Statement of
Additional Information ("SAI") dated April 1, 1998, as may be amended from time
to time, which is available for reference on the SEC's Web Site
(http.//www.sec.gov) and which contains more detailed information about the
Trust and each of the Funds and is incorporated into this Prospectus by
reference. An investor may obtain a copy of the SAI without charge by contacting
the Trust's distributor, Forum Financial Services, Inc., at 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 ALSO ARE NOT
OBLIGATIONS, DEPOSITS OR ACCOUNTS OF, OR ENDORSED OR GUARANTEED BY, NORWEST BANK
MINNESOTA, N.A. OR ANY OTHER BANK OR BANK AFFILIATE.
AN INVESTMENT IN SHARES OF ANY MUTUAL FUND IS SUBJECT TO INVESTMENT RISK,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
1
<PAGE>
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1. PROSPECTUS SUMMARY
HIGHLIGHTS OF THE FUNDS
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION CONTAINED IN THIS PROSPECTUS.
INVESTMENT OBJECTIVES AND POLICIES
STABLE INCOME FUND seeks to maintain safety of principal while providing
low-volatility total return. This objective is pursued by investing primarily in
short and intermediate maturity, investment grade fixed income securities.
INTERMEDIATE GOVERNMENT INCOME FUND seeks to provide income and safety of
principal by investing primarily in U.S. Government Securities. This objective
is pursued by investing primarily in U.S. Government Securities. The Fund seeks
to moderate its volatility by using a conservative approach to structuring the
maturities of its investment portfolio.
INCOME FUND seeks to provide total return consistent with current income. This
objective is pursued by investing in a portfolio of fixed income securities
issued by domestic and foreign issuers.
TOTAL RETURN BOND FUND seeks total return. This objective is pursued by
investing in a broad range of fixed income instruments in order to create a
strategically diversified portfolio of high-quality fixed income investments.
FUND STRUCTURES
STABLE INCOME FUND and TOTAL RETURN BOND FUND each seeks to achieve its
investment objective by investing all of its investable assets in a separate
portfolio (each a "Core Portfolio") of Core Trust (Delaware) ("Core Trust"), a
registered, open-end, management investment company, that has substantially the
same investment objective and investment policies as the Fund. Accordingly, the
investment experience of each of these Funds will correspond directly with the
investment experience of its corresponding Core Portfolio. (See "Other
Information - Core and Gateway Structure.") The Funds and the Core Portfolio in
which they invest are:
<TABLE>
<CAPTION>
FUND CORE PORTFOLIO
- ------------------------------ ------------------------------
<S> <C>
Stable Income Fund Stable Income Portfolio
Total Return Bond Fund Strategic Value Bond Portfolio
</TABLE>
INTERMEDIATE GOVERNMENT INCOME FUND and INCOME FUND each seeks to achieve its
investment objective by investing directly in portfolio securities.
INVESTMENT ADVISERS
NORWEST INVESTMENT MANAGEMENT, INC. ("Norwest"), a subsidiary of Norwest Bank
Minnesota, N.A. ("Norwest Bank"), is each Fund's and
2
<PAGE>
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- ----
each Core Portfolio's investment adviser. Norwest also is the investment adviser
of each Core Portfolio. 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 - Investment Advisory
Services.")
Norwest Bank serves as transfer agent, dividend disbursing agent and custodian
of the Trust and serves as the custodian of each Core Portfolio. (See
"Management - Shareholder Servicing and Custody" and " - Management,
Administration and Distribution Services.")
Stable Income Fund and Total Return Bond Fund each incur investment advisory
fees indirectly through the investment advisory fees paid by their respective
Core Portfolios; Norwest is paid an investment advisory fee directly by each of
Intermediate Government Income Fund and Income Fund.
GALLIARD CAPITAL MANAGEMENT, INC. ("Galliard"), an investment advisory
subsidiary of Norwest Bank, is the investment subadviser of Stable Income
Portfolio and Strategic Value Bond Portfolio. Galliard provides investment
advice to bank and thrift institutions, pension and profit sharing plans, trusts
and charitable organizations and corporate and other business entities. (See
"Management - Investment Advisory Services.")
Norwest and Galliard are sometimes referred to collectively as the "Advisers" or
individually as an "Adviser."
FUND MANAGEMENT AND ADMINISTRATION
The manager of the Trust and distributor of its shares is Forum Financial
Services, Inc. ("Forum"), a registered broker-dealer and member of the National
Association of Securities Dealers, Inc. Forum Administrative Services, LLC
("FAS") provides administrative services to the Funds and also serves as
administrator of each Core Portfolio. (See "Management - Management,
Administration and Distribution Services.")
SHARES OF THE FUNDS
EACH FUND CURRENTLY OFFERS THREE SEPARATE CLASSES OF SHARES: A class ("A
Shares"), B class ("B Shares") and I class ("I Shares"). A Shares and B Shares
are sold through this Prospectus and are collectively referred to as the
"Shares."
A SHARES. A Shares are offered at a price equal to their net asset value
plus a sales charge imposed at the time of purchase or, in some cases, a
contingent deferred sales charge imposed on redemptions made within two
years of purchase.
B SHARES. B Shares are offered at a price equal to their net asset value
plus a contingent deferred sales charge imposed on most redemptions made
within four years (two years in the case of Stable Income Fund)
3
<PAGE>
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- ----
of purchase. B Shares pay a distribution services fee at an annual rate of
up to 0.75%, and a maintenance fee in an amount equal to 0.25%, of the B
Shares' average daily net assets. B Shares automatically convert to A
Shares of the same Fund six years (four years in the case of Stable Income
Fund) after the end of the calendar month in which the B Shares were
originally purchased.
The choice of A Shares or B Shares permits each investor to purchase those
shares that the investor believes to be most beneficial given the amount
purchased, the length of time the investor expects to hold the shares and other
circumstances. A Shares will normally be more beneficial to the investor who
qualifies for reduced initial sales charges. (See "Choosing a Share Class.")
I Shares are offered by a separate prospectus to fiduciary, agency and custodial
clients of bank trust departments, trust companies and their affiliates. Shares
of each class of a Fund have identical interests in the investment portfolio of
the Fund and, with certain exceptions, have the same rights. (See "Other
Information - The Trust and Its Shares.")
HOW TO BUY AND SELL SHARES
Shares may be purchased or redeemed by mail, by bank wire and through an
investor's broker-dealer or other financial institution. The minimum initial
investment in Shares is $1,000 ($5,000 in the case of Stable Income Fund). The
minimum subsequent investment is $100. (See "How to Buy Shares" and "How to Sell
Shares.")
EXCHANGES
Shareholders may exchange A Shares and B Shares for A Shares and B Shares,
respectively, of certain other funds of the Trust. In addition, A Shares may be
exchanged for investor class shares of certain money market funds of the Trust
and B Shares may be exchanged for exchange class shares of Ready Cash Investment
Fund of the Trust. (See "Other Shareholder Services - Exchanges.")
SHAREHOLDER FEATURES
Each Fund offers an Automatic Investment Plan, Automatic Withdrawal Plan and
Directed Dividend Option. Purchases of A Shares may be subject to Rights of
Accumulation, Cumulative Quantity Discounts or a Reinstatement Privilege. (See
"Other Shareholder Services" and "Choosing a Share Class.")
DIVIDENDS AND DISTRIBUTIONS
Dividends of Stable Income Fund and Intermediate Government Income Fund's net
investment income are declared and paid monthly. Dividends of Income Fund's and
Total Return Bond Fund's net investment income are declared daily and paid
monthly. Each Fund's net capital gain, if any, is
4
<PAGE>
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distributed annually. All dividends and distributions are reinvested in
additional Fund shares unless the shareholder elects to have them paid in cash.
(See "Dividends and Tax Matters.")
CERTAIN INVESTMENT CONSIDERATIONS AND RISK FACTORS
There can be no assurance that any Fund will achieve its investment objective,
and a Fund's net asset value and total return will fluctuate based upon changes
in the value of its portfolio securities. Upon redemption, an investment in a
Fund may be worth more or less than its original value. The Funds' investments
are subject to "credit risk" relating to the financial condition of the issuers
of the securities that each Fund holds. Stable Income Fund and Intermediate
Government Income Fund invest only in investment grade securities (those rated
in the top four grades by a nationally recognized statistical rating
organization ("NRSRO") such as Standard & Poor's).
All investments made by the Funds entail some risk. Certain investments and
investment techniques, however, entail additional risks, such as the potential
use of leverage by certain Funds through borrowings, securities lending, swap
transactions and other investment techniques. (See "Investment Objectives and
Policies - Additional Investment Policies and Risk Considerations.") Similarly,
a Fund's use of mortgage- and asset-backed securities entails certain risks.
(See "Investment Objectives and Policies - Additional Investment Policies and
Risk Considerations - Mortgage-Backed Securities" and " - Asset-Backed
Securities.") The portfolio turnover rate for certain Funds may from time to
time be high, resulting in increased short-term capital gains or losses. (See
"Investment Objectives and Policies - Additional Investment Policies and Risk
Considerations - Portfolio Transactions.")
By pooling their assets in a Core Portfolio with other institutional investors,
STABLE INCOME FUND and TOTAL RETURN BOND FUND each may be able to achieve
certain efficiencies, economies of scale and enhanced portfolio diversification.
Nonetheless, these investments could have adverse effects on the Funds which
investors should consider. Investment decisions are made by the portfolio
managers of each Core Portfolio independently. Therefore the portfolio manager
of one Core Portfolio in which a Fund invests may purchase shares of the same
issuer whose shares are being sold by the portfolio manager of another Core
Portfolio in which the Fund invests. This could result in an indirect expense to
the Fund without accomplishing any investment purpose. (See "Other Information -
Core and Gateway Structure.")
5
<PAGE>
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- ----
EXPENSE INFORMATION
The purpose of the Shareholder Transaction Expenses and Annual Fund Operating
Expenses tables in this section is to assist investors in understanding the
expenses that an investor in Shares of a Fund will bear directly or indirectly.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
INTERMEDIATE
GOVERNMENT
INCOME FUND,
INCOME FUND AND
STABLE TOTAL RETURN
INCOME FUND BOND FUND
................ ................
A B A B
(APPLICABLE TO EACH FUND) Shares Shares Shares Shares
------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Maximum sales charge imposed
on purchases
(as a percentage of public
offering price)............. ... ... 1.5% (1) Zero 4.0% (1) Zero
Maximum deferred sales charge
(as a percentage of the
lesser of original purchase
price or redemption
proceeds)................... ... ... Zero (2) 1.5% (3) Zero (2) 3.0% (1)(3)
Exchange Fee.................. ... ... Zero Zero Zero Zero
</TABLE>
ANNUAL FUND OPERATING EXPENSES(4)
<TABLE>
<CAPTION>
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS
AFTER APPLICABLE
FEE WAIVERS AND EXPENSE REIMBURSEMENTS)
STABLE INTERMEDIATE
INCOME FUND GOVERNMENT INCOME FUND TOTAL RETURN
INCOME FUND BOND FUND(7)
................ B ................ ................ ................
A A B A B A B
Shares Shares Shares Shares Shares Shares Shares Shares
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Advisory Fees(5)... N/A N/A 0.33% 0.33% 0.50% 0.50% N/A N/A
Rule 12b-1 Fees (after fee
waivers)(6)................. N/A 0.75% N/A 0.75% N/A 0.75% N/A 0.75%
Other Expenses (after fee
waivers and reimbursements)
............................ 0.28% 0.28% 0.35% 0.35% 0.25% 0.25% 0.36% 0.36%
</TABLE>
6
<PAGE>
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<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Advisory Fees -
Core Portfolio(5)........... 0.30% 0.30% N/A N/A N/A N/A 0.35% 0.35%
Other Expenses - Core
Portfolio (after fee waivers
and reimbursements) ........ 0.07% 0.07% N/A N/A N/A N/A 0.04% 0.04%
------- ------- --- -- ------- ------- ------- ------- ------- -------
Total Operating Expenses(8)... 0.65% 1.40% 0.68% 1.43% 0.75% 1.50% 0.75% 1.50%
</TABLE>
(1) Sales charge waivers and reduced sales charge plans are available for
A and B Shares. See "Choosing a Share Class".
(2) If A Shares of a Fund (other than Stable Income Fund) purchased
without an initial sales charge (purchases of $1,000,000 or more) are
redeemed within two years after purchase, a deferred sales charge of
up to 0.75% will be applied to the redemption. If A Shares of Stable
Income Fund purchased without an initial sales charge (purchases of
$1,000,000 or more) are redeemed within two years after purchase, a
deferred sales charge of up to 0.50% will be applied to the
redemption.
(3) The maximum 3.0% deferred sales charge on B Shares of a Fund (other
than Stable Income Fund) applies to redemptions during the first year
after purchase; the charge declines thereafter, and is 2.0% during the
second and third years, 1.0% during the fourth year, and zero the
following years. The maximum 1.5% deferred sales charge on B Shares of
Stable Income Fund applies to redemptions during the first year after
purchase; the charge declines thereafter, and is 0.75% during the
second year and zero the following year.
(4) For a further description of the various expenses associated with
investing in the Funds, (See "Management.") Expenses associated with I
Shares of a Fund differ from those listed in the table. The table is
based on amounts incurred during the Funds' most recent fiscal year
ended May 31, 1997 restated to reflect current fees. Stable Income
Fund and Total Return Bond Fund indirectly bear their pro rata portion
of the expenses of the Core Portfolios in which they invest.
(5) For Stable Income Fund and Total Return Bond Fund, "Investment
Advisory Fees - Core Portfolio" reflects the investment advisory fees
incurred by the Core Portfolio in which the Fund invests.
(6) Absent waivers, "Rule 12b-1 Fees" would be 1.00% for B Shares of each
Fund. Long-term shareholders of B Shares may pay Rule 12b-1 Fees and
contingent deferred sales charges totaling in the aggregate more than
the economic equivalent of the maximum front-end sales charges
permitted by the rules of the National Association of Securities
Dealers, Inc.
7
<PAGE>
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- ----
(7) Norwest and Forum have agreed to waive their respective fees or
reimburse expenses in order to maintain Total Return Bond Fund's total
operating expenses through May 31, 1998 at or below 0.75% for A Shares
and 1.50% for B Shares.
(8) Absent expense reimbursements and fee waivers, the expenses of A
Shares of Stable Income Fund, Intermediate Government Income Fund,
Income Fund and Total Return Bond Fund would be: "Other Expenses,"
0.46%, 0.48%, 0.58% and 0.55%, respectively; "Other Expenses - Core
Portfolio," 0.12%, N/A, N/A and 0.09%, respectively; and "Total
Operating Expenses," 0.88%, 0.81%, 1.08% and 0.99%, respectively.
Absent expense reimbursements and fee waivers, the expenses of B
Shares of Stable Income Fund, Intermediate Government Income Fund,
Income Fund and Total Return Bond Fund would be: "Other Expenses,"
1.17%, 0.53%, 0.65% and 0.66%, respectively; "Other Expenses - Core
Portfolio," 0.12%, N/A, N/A and 0.09%, respectively; and "Total
Operating Expenses," 2.59%, 1.86%, 2.15% and 2.10%, respectively.
Except as otherwise noted, expense reimbursements and fee waivers are
voluntary and may be reduced or eliminated at any time.
EXAMPLE
The following Hypothetical Expense Example indicates the dollar amount of
expenses that an investor would pay, assuming a $1,000 investment in a Fund's
Shares, the expenses listed in the "Annual Fund Operating Expenses" table, a 5%
annual return, reinvestment of all dividends and distributions, the deduction of
the maximum initial sales charge for A Shares, the deduction of the applicable
contingent deferred sales charge for B Shares applicable to a redemption at the
end of the period and the conversion of B Shares to A Shares at the end of six
years (four years in the case of Stable Income Fund). THE EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR RETURN. ACTUAL
EXPENSES AND RETURN MAY BE GREATER OR LESS THAN INDICATED. The 5% annual return
is not predictive of and does not represent the Funds' projected returns;
rather, it is required by government regulation.
8
<PAGE>
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HYPOTHETICAL EXPENSE EXAMPLE
<TABLE>
<CAPTION>
3 5 10
1 Year Years Years Years
------ ------ ------ -------
<S> <C> <C> <C> <C>
Stable Income Fund
A Shares................................... 22 35 51 95
B Shares
Assuming redemption at the end of the
period................................. 29 44 77 168
Assuming no redemption................... 14 44 77 168
...............................
Intermediate Government Income Fund
A Shares................................... 47 61 76 121
B Shares
Assuming redemption at the end of the
period................................. 45 65 78 171
Assuming no redemption................... 15 45 78 171
...............................
Income Fund
A Shares................................... 47 63 80 129
B Shares
Assuming redemption at the end of the
period................................. 45 67 82 179
Assuming no redemption................... 15 47 82 179
...............................
Total Return Bond Fund
A Shares................................... 47 63 80 129
B Shares
Assuming redemption at the end of the
period................................. 45 67 82 179
Assuming no redemption................... 15 47 82 179
</TABLE>
9
<PAGE>
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2. FINANCIAL HIGHLIGHTS
The following tables provide financial highlights for each Fund. This
information represents selected data for a single outstanding A and B Share of
each Fund for the periods shown. Information for the periods ended May 31, 1994
through May 31, 1997 was audited by KPMG Peat Marwick LLP, independent auditors.
Information for prior periods was audited by
STABLE INCOME FUND
<TABLE>
<CAPTION>
Net
Realized
and
Unrealized
Gain Dividends
Beginning Net (Loss) from Net
Asset Value Net Investment on Investment
Per Share Income Investments Income
------------- -------------- -------- --------
<S> <C> <C> <C> <C> <C>
A SHARES
June 1, 1997 to November 30,
1997(a)..................... $ 10.24 $ 0.30 $ 0.05 ($ 0.29)
June 1, 1996 to May 31,
1997........................ $ 10.20 $ 0.58 $ 0.04 ($ 0.58)
May 2, 1996 to May 31,
1996(b)..................... $ 10.22 $ 0.02 - ($ 0.04)
B SHARES
June 1, 1997 to November 30,
1997(a)..................... $ 10.24 $ 0.26 $ 0.05 ($ 0.26)
June 1, 1996 to May 31,
1997........................ $ 10.20 $ 0.52 $ 0.02 ($ 0.50)
May 17, 1996 to May 31,
1996(b)..................... $ 10.23 $ 0.02 ($ 0.01) ($ 0.04)
..........................................................................................
(a) Unaudited.
(b) The Fund commenced the offering of A Shares on May 2, 1996 and B Shares on May 17,
1996.
(c) The ratio of Gross Expenses to Average Net Assets does not reflect fee waivers or
expense reimbursements.
(d) Total Return does not include the effects of sales charges. Total Return would have
been lower absent expense reimbursements and/or fee waivers.
(e) Annualized.
(f) Includes expenses allocated from Stable Income Portfolio of Core Trust (Delaware).
(g) The portfolio turnover rate reflects the activity of the Portfolio in which the Fund
invests.
</TABLE>
10
<PAGE>
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other independent auditors. The information for the six month period ended
November 30, 1997 is unaudited. Each Fund's financial statements for the fiscal
year ended May 31, 1997, and independent auditors' report thereon, are contained
in the Fund's Annual Report. These financial statements are incorporated by
reference into the SAI. Further information about each Fund's performance is
contained in the Fund's Annual Report, which may be obtained from the Trust
without charge.
<TABLE>
<CAPTION>
Net
Ending Assets
Net Ratio to Average Net Assets at End
Distributions Asset ...................................... of
From Net Value Net Portfolio Period
Realized Per Investment Net Gross Total Turnover (000'S
Gain Share Income Expenses Expenses(c) Return(d) Rate Omitted)
--------- -------- -------- ----------- ------------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
A SHARES
June 1, 1997 to November 30,
1997(a)..................... - $ 10.30 5.87% )(f) 0.65%(e)(f) 0.98%(e)(f) 3.49% 11.36%(g) $ 9,565
June 1, 1996 to May 31,
1997........................ - $ 10.24 5.69% 0.65% 0.87% 6.24% 41.30% $12,451
May 2, 1996 to May 31,
1996(b)..................... - $ 10.20 5.77%(e) 0.70%(e) 2.22%(e) 0.23% 109.95% $16,256
B SHARES
June 1, 1997 to November 30,
1997(a)..................... - $ 10.29 5.11% )(f) 1.40%(e)(f) 2.50%(e)(f) 3.02% 11.36%(g) $ 1,531
June 1, 1996 to May 31,
1997........................ - $ 10.24 4.96% 1.39% 2.89% 5.43% 41.30% $ 1,056
May 17, 1996 to May 31,
1996(b)..................... - $ 10.20 5.02%(e) 1.42%(e) 3.07%(e) 0.12% 109.95% $ 867
...............................................................................................................................
(a) Unaudited.
(b) The Fund commenced the offering of A Shares on May 2, 1996 and B Shares on May 17, 1996.
(c) The ratio of Gross Expenses to Average Net Assets does not reflect fee waivers or expense reimbursements.
(d) Total Return does not include the effects of sales charges. Total Return would have been lower absent expense
reimbursements and/or fee waivers.
(e) Annualized.
(f) Includes expenses allocated from Stable Income Portfolio of Core Trust (Delaware).
(g) The portfolio turnover rate reflects the activity of the Portfolio in which the Fund invests.
</TABLE>
11
<PAGE>
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- ----
INTERMEDIATE GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
Net
Realized
and
Unrealized
Gain Dividends
Beginning Net Net (Loss) from Net
Asset Value Investment on Investment
Per Share Income Investments Income
------------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
A SHARES
June 1, 1997 to November 30,
1997(a)..................... $ 10.84 $ 0.36 $ 0.31 ($ 0.35)
June 1, 1996 to May 31,
1997........................ $ 10.89 $ 0.73 ($ 0.05) ($ 0.73)
May 2, 1996 to May 31,
1996(b)..................... $ 10.89 $ 0.03 - ($ 0.03)
B SHARES
June 1, 1997 to November 30,
1997(a)..................... $ 10.83 $ 0.32 $ 0.31 ($ 0.31)
June 1, 1996 to May 31,
1997........................ $ 10.89 $ 0.64 ($ 0.05) ($ 0.65)
May 17, 1996 to May 31,
1996(b)..................... $ 10.97 $ 0.03 ($ 0.08) ($ 0.03)
....................................................................................
(a) Unaudited.
(b) The Fund commenced the offering of A Shares on May 2, 1996 and B Shares on May
17, 1996.
(c) The ratio of Gross Expenses to Average Net Assets does not reflect fee waivers
or expense reimbursements.
(d) Total Return does not include the effects of sales charges. Total Return would
have been lower absent expense reimbursements and/or fee waivers.
(e) Annualized.
</TABLE>
12
<PAGE>
- ----
- ----
<TABLE>
<CAPTION>
Net
Ending Assets
Net Ratio to Average Net Assets at End
Distributions Asset ...................................... of
From Net Value Net Portfolio Period
Realized Per Investment Net Gross Total Turnover (000'S
Gain Share Income Expenses Expenses(c) Return(d) Rate Omitted)
--------- -------- -------- ----------- ------------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
A SHARES
June 1, 1997 to November 30,
1997(a)..................... - $ 11.16 6.45%(e) 0.68%(e) 0.84%(e) 6.23% 53.50% $12,337
June 1, 1996 to May 31,
1997........................ - $ 10.84 6.58% 0.68% 0.80% 6.36% 183.05% $13,038
May 2, 1996 to May 31,
1996(b)..................... - $ 10.89 7.32%(e) 0.75%(e) 1.74%(e) 0.26% 74.64% $16,562
B SHARES
June 1, 1997 to November 30,
1997(a)..................... - $ 11.15 5.70%(e) 1.43%(e) 1.81%(e) 5.85% 53.50% $ 8,614
June 1, 1996 to May 31,
1997........................ - $ 10.83 5.80% 1.42% 1.85% 5.51% 183.05% $ 8,970
May 17, 1996 to May 31,
1996(b)..................... - $ 10.89 5.56%(e) 1.35%(e) 2.65%(e) (0.49%) 74.64% $10,682
...............................................................................................................................
(a) Unaudited.
(b) The Fund commenced the offering of A Shares on May 2, 1996 and B Shares on May 17, 1996.
(c) The ratio of Gross Expenses to Average Net Assets does not reflect fee waivers or expense reimbursements.
(d) Total Return does not include the effects of sales charges. Total Return would have been lower absent expense
reimbursements and/or fee waivers.
(e) Annualized.
</TABLE>
13
<PAGE>
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- ----
INCOME FUND
<TABLE>
<CAPTION>
Net
Realized
and
Unrealized
Gain Dividends
Beginning Net Net (Loss) from Net
Asset Value Investment on Investment
Per Share Income Investments Income
------------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
A SHARES
June 1, 1997 to November 30,
1997(a)..................... $ 9.27 $ 0.30 $ 0.42 ($ 0.30)
June 1, 1996 to May 31,
1997........................ $ 9.27 $ 0.62 - ($ 0.62)
June 1, 1995 to May 31,
1996........................ $ 9.63 $ 0.61 ($ 0.36) ($ 0.61)
June 1, 1994 to May 31,
1995........................ $ 9.52 $ 0.65 $ 0.11 ($ 0.65)
June 1, 1993 to May 31,
1994........................ $ 10.61 $ 0.70 ($ 0.83) ($ 0.70)
June 1, 1992 to May 31,
1993........................ $ 10.52 $ 0.77 $ 0.39 ($ 0.77)
June 1, 1991 to May 31,
1992........................ $ 10.23 $ 0.82 $ 0.53 ($ 0.82)
June 1, 1990 to May 31,
1991........................ $ 9.94 $ 0.89 $ 0.29 ($ 0.89)
June 1, 1989 to May 31,
1990........................ $ 10.00 $ 0.90 ($ 0.06) ($ 0.90)
June 1, 1988 to May 31,
1989........................ $ 9.95 $ 0.79 $ 0.05 ($ 0.79)
June 9, 1987 to May 31,
1988(b)..................... $ 10.00 $ 0.66 $ 0.05 ($ 0.66)
B SHARES
June 1, 1997 to November 30,
1997(a)..................... $ 9.26 $ 0.27 $ 0.41 ($ 0.27)
June 1, 1996 to May 31,
1997........................ $ 9.26 $ 0.55 - ($ 0.55)
June 1, 1995 to May 31,
1996........................ $ 9.61 $ 0.54 ($ 0.35) ($ 0.54)
June 1, 1994 to May 31,
1995........................ $ 9.51 $ 0.58 $ 0.10 ($ 0.58)
August 5, 1993 to May 31,
1994(a)..................... $ 10.67 $ 0.50 ($ 0.90) ($ 0.50)
....................................................................................
(a) Unaudited.
(b) The Fund commenced operations on June 9, 1987. The Fund's original class of
shares subsequently became A Shares. The Fund commenced the offering of B
Shares on August 5, 1993.
(c) The ratio of Gross Expenses to Average Net Assets does not reflect fee waivers
or expense reimbursements.
(d) Total Return does not include the effects of sales charges. Total Return would
have been lower absent expense reimbursements and/or fee waivers.
(e) Annualized.
</TABLE>
14
<PAGE>
- ----
- ----
<TABLE>
<CAPTION>
Net
Ending Assets
Net Ratio to Average Net Assets at End
Distributions Asset ...................................... of
From Net Value Net Portfolio Period
Realized Per Investment Net Gross Total Turnover (000'S
Gain Share Income Expenses Expenses(c) Return(d) Rate Omitted)
--------- -------- -------- ----------- ------------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
A SHARES
June 1, 1997 to November 30,
1997(a)..................... - $ 9.69 6.37%(e) 0.75%(e) 1.23%(e) 7.90% 69.73% $ 5,458
June 1, 1996 to May 31,
1997........................ - $ 9.27 6.59% 0.75% 1.17% 6.79% 231.00% $ 5,142
June 1, 1995 to May 31,
1996........................ - $ 9.27 6.33% 0.75% 1.16% 2.58% 270.17% $ 5,521
June 1, 1994 to May 31,
1995........................ - $ 9.63 7.02% 0.75% 1.24% 8.49% 98.83% $ 6,231
June 1, 1993 to May 31,
1994........................ ($ 0.26) $ 9.52 6.72% 0.60% 1.16% (1.58%) 26.67% $ 6,177
June 1, 1992 to May 31,
1993........................ ($ 0.30) $ 10.61 7.18% 0.60% 1.10% 11.46% 87.98% $85,252
June 1, 1991 to May 31,
1992........................ ($ 0.24) $ 10.52 7.80% 0.31% 1.08% 13.58% 84.24% $63,973
June 1, 1990 to May 31,
1991........................ - $ 10.23 8.82% 0.16% 1.11% 12.38% 61.33% $50,138
June 1, 1989 to May 31,
1990........................ - $ 9.94 8.98% 0.19% 1.13% 8.71% 43.81% $37,932
June 1, 1988 to May 31,
1989........................ - $ 10.00 8.62% 0.07% 1.10% 8.78% 48.08% $27,939
June 9, 1987 to May 31,
1988(b)..................... - $ 9.95 6.92%(e) 0.70%(e) 2.28%(e) 6.45%(e) 0.00% $ 2,279
B SHARES
June 1, 1997 to November 30,
1997(a)..................... - $ 9.67 5.60%(e) 1.50%(e) 2.35%(e) 7.39% 69.73% $ 3,972
June 1, 1996 to May 31,
1997........................ - $ 9.26 5.87% 1.50% 2.25% 6.03% 231.00% $ 3,349
June 1, 1995 to May 31,
1996........................ - $ 9.26 5.57% 1.50% 2.27% 1.92% 270.17% $ 3,292
June 1, 1994 to May 31,
1995........................ - $ 9.61 6.24% 1.50% 2.21% 7.57% 98.83% $ 3,296
August 5, 1993 to May 31,
1994(a)..................... ($ 0.26) $ 9.51 5.82%(e) 1.33%(e) 2.08%(e) (4.82%)(e) 26.67% $ 2,605
...............................................................................................................................
(a) Unaudited.
(b) The Fund commenced operations on June 9, 1987. The Fund's original class of shares subsequently became A Shares. The Fund
commenced the offering of B Shares on August 5, 1993.
(c) The ratio of Gross Expenses to Average Net Assets does not reflect fee waivers or expense reimbursements.
(d) Total Return does not include the effects of sales charges. Total Return would have been lower absent expense
reimbursements and/or fee waivers.
(e) Annualized.
</TABLE>
15
<PAGE>
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- ----
TOTAL RETURN BOND FUND
<TABLE>
<CAPTION>
Net
Realized
and
Unrealized
Gain Dividends
Beginning Net Net (Loss) from Net
Asset Value Investment on Investment
Per Share Income Investments Income
------------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
A SHARES
June 1, 1997 to November 30,
1997(a)..................... $ 9.40 $ 0.30 $ 0.23 ($ 0.30)
June 1, 1996 to May 31,
1997........................ $ 9.40 $ 0.60 $ 0.03 ($ 0.60)
June 1, 1995 to May 31,
1996........................ $ 9.73 $ 0.64 ($ 0.31) ($ 0.64)
June 1, 1994 to May 31,
1995........................ $ 9.54 $ 0.67 $ 0.19 ($ 0.67)
December 31, 1993 to May 31,
1994(a)..................... $ 10.00 $ 0.27 ($ 0.46) ($ 0.27)
B SHARES
June 1, 1997 to November 30,
1997(b)..................... $ 9.42 $ 0.26 $ 0.23 ($ 0.26)
June 1, 1996 to May 31,
1997........................ $ 9.40 $ 0.53 $ 0.05 ($ 0.53)
June 1, 1995 to May 31,
1996........................ $ 9.73 $ 0.57 ($ 0.31) ($ 0.57)
June 1, 1994 to May 31,
1995........................ $ 9.54 $ 0.59 $ 0.19 ($ 0.59)
December 31, 1993 to May 31,
1994(b)..................... $ 10.00 $ 0.24 ($ 0.46) ($ 0.24)
....................................................................................
(a) Unaudited.
(b) The Fund commenced operations and the offering of A Shares and B Shares on
December 31, 1993.
(c) The ratio of Gross Expenses to Average Net Assets does not reflect fee waivers
or expense reimbursements.
(d) Total Return does not include the effects of sales charges. Total Return would
have been lower absent expense reimbursements and/or fee waivers.
(e) Annualized.
(f) Includes expenses allocated from Total Return Bond Portfolio of Core Trust
(Delaware).
(g) The Portfolio turnover rate reflects the activity of the Portfolio in which
the Fund invests.
</TABLE>
16
<PAGE>
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- ----
<TABLE>
<CAPTION>
Net
Ending Assets
Net Ratio to Average Net Assets at End
Distributions Asset ...................................... of
From Net Value Net Portfolio Period
Realized Per Investment Net Gross Total Turnover (000'S
Gain Share Income Expenses Expenses(c) Return(d) Rate Omitted)
--------- -------- -------- ----------- ------------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
A SHARES
June 1, 1997 to November 30,
1997(a)..................... - $ 9.63 6.23% )(f) 0.75%(e)(f) 1.24%(e)(f) 5.68% 18.08%(g) $ 3,014
June 1, 1996 to May 31,
1997........................ ($ 0.03) $ 9.40 6.37% 0.75% 1.31% 6.84% 55.07% $ 3,086
June 1, 1995 to May 31,
1996........................ ($ 0.02) $ 9.40 6.48% 0.76% 1.57% 3.41% 77.49% $ 2,010
June 1, 1994 to May 31,
1995........................ - $ 9.73 6.94% 0.64% 2.38% 9.42% 35.19% $ 599
December 31, 1993 to May 31,
1994(a)..................... - $ 9.54 6.04%(e) 0.37%(e) 13.29%(e) (4.64%)(e) 37.50% $ 150
B SHARES
June 1, 1997 to November 30,
1997(b)..................... - $ 9.65 5.45% )(f) 1.50%(e)(f) 2.44%(e)(f) 5.27% 18.08%(g) $ 2,494
June 1, 1996 to May 31,
1997........................ ($ 0.03) $ 9.42 5.61% 1.49% 2.37% 6.27% 55.07% $ 2,254
June 1, 1995 to May 31,
1996........................ ($ 0.02) $ 9.40 5.75% 1.51% 2.48% 2.63% 77.49% $ 2,098
June 1, 1994 to May 31,
1995........................ - $ 9.73 6.17% 1.41% 3.09% 8.59% 35.19% $ 919
December 31, 1993 to May 31,
1994(b)..................... - $ 9.54 5.40%(e) 1.11%(e) 8.29%(e) (5.23%)(e) 37.50% $ 186
...............................................................................................................................
(a) Unaudited.
(b) The Fund commenced operations and the offering of A Shares and B Shares on December 31, 1993.
(c) The ratio of Gross Expenses to Average Net Assets does not reflect fee waivers or expense reimbursements.
(d) Total Return does not include the effects of sales charges. Total Return would have been lower absent expense
reimbursements and/or fee waivers.
(e) Annualized.
(f) Includes expenses allocated from Total Return Bond Portfolio of Core Trust (Delaware).
(g) The Portfolio turnover rate reflects the activity of the Portfolio in which the Fund invests.
</TABLE>
17
<PAGE>
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3.INVESTMENT OBJECTIVES AND POLICIES
STABLE INCOME FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to maintain safety
of principal while providing low-volatility total return. The Fund currently
pursues its investment objective by investing all of its investable assets in
Stable Income Portfolio, which has the same investment objective and
substantially similar investment policies as the Fund. Therefore, although the
following discusses the investment policies of that Portfolio, it applies
equally to the Fund. There can be no assurance that the Fund or Stable Income
Portfolio will achieve its investment objective.
INVESTMENT POLICIES. The Portfolio seeks to maintain safety of principal while
providing low volatility total return by investing primarily in investment grade
short-term obligations. The Portfolio invests in a diversified portfolio of
fixed and variable rate U.S. dollar denominated fixed income securities of a
broad spectrum of United States and foreign issuers, including U.S. Government
Securities and the debt securities of financial institutions, corporations, and
others.
The securities in which the Portfolio invests include mortgage-backed and other
asset-backed securities, although the Portfolio limits these investments to not
more than 60 percent and 25 percent, respectively, of its total assets. In
addition, the Portfolio limits its holdings of mortgage-backed securities that
are not U.S. Government Securities to 25 percent of its total assets. The
Portfolio may invest any amount of its assets in U.S. Government Securities, but
under normal circumstances less than 50 percent of the Portfolio's total assets
are so invested. The Portfolio may invest in securities that are restricted as
to disposition under the federal securities laws (sometimes referred to as
"private placements" or "restricted securities"). In addition, the Portfolio may
not invest more than 25 percent of its total assets in the securities issued or
guaranteed by any single agency or instrumentality of the U.S. Government,
except the U.S. Treasury, and may not invest more than 10 percent of its total
assets in the securities of any other issuer.
The Portfolio only purchases those securities that are rated, at the time of
purchase, within the three highest long-term or two highest short-term rating
categories assigned by an NRSRO, such as Moody's Investors Service ("Moody's"),
Standard & Poor's ("S&P") or Fitch IBCA, Inc. ("Fitch") or which are unrated and
determined by Galliard to be of comparable quality. (See "Additional Investment
Policies and Risk Considerations - Rating Matters.")
18
<PAGE>
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- ----
The Portfolio invests in debt obligations with maturities (or average life in
the case of mortgage-backed and similar securities) ranging from short-term
(including overnight) to 12 years and seeks to maintain an average dollar-
weighted portfolio maturity of between 2 and 5 years.
In order to manage its exposure to different types of investments, the Portfolio
may enter into interest rate and mortgage swap agreements and may purchase and
sell interest rate caps, floors and collars. The Portfolio may also engage in
certain strategies involving options (both exchange-traded and over-the-counter)
to attempt to enhance the Portfolio's income and may attempt to reduce the
overall risk of its investments or limit the uncertainty in the level of future
foreign exchange rates ("hedge") by using options and futures contracts and
foreign currency forward contracts. The Portfolio's ability to use these
strategies may be limited by market considerations, regulatory limits and tax
considerations. The Portfolio may write covered call and put options, buy put
and call options, buy and sell interest rate and foreign currency futures
contracts and buy options and write covered options on those futures contracts.
An option is covered if, so long as the Portfolio is obligated under the option,
it owns an offsetting position in the underlying security or futures contract or
maintains a segregated account of liquid debt instruments with a value at all
times sufficient to cover the Portfolio's obligations under the option.
INTERMEDIATE GOVERNMENT
INCOME FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to provide income
and safety of principal by investing primarily in U.S. Government Securities.
There can be no assurance that the Fund will achieve its investment objective.
INVESTMENT POLICIES. The Fund seeks to attain its investment objective by
investing primarily in fixed and variable rate U.S. Government Securities. Under
normal circumstances, the Fund intends to invest at least 65 percent of its
assets in U.S. Government Securities and may invest up to 35 percent of its
assets in fixed income securities that are not U.S. Government Securities. The
Fund emphasizes the use of intermediate maturity securities to lessen interest
rate risk, while employing low risk yield enhancement techniques, such as
investment in adjustable rate securities and swap agreements, to add to the
Fund's return over a complete economic or interest rate cycle.
The Fund invests in mortgage-backed and other asset-backed securities, although
the Fund limits these investments to not more than 50 percent and 25 percent,
respectively, of its total assets. As part of its mortgage-backed securities
investments, the Fund may enter into "dollar roll" transactions. Certain fixed
income securities are zero-coupon securities and the Fund will limit its
investment in these securities, except those issued through the U.S.
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Treasury's STRIPS program, to not more than 10 percent of the Fund's total
assets. The Fund may also invest in securities that are restricted as to
disposition under the federal securities laws (sometimes referred to as "private
placements" or "restricted securities"). In addition, the Fund may not invest
more than 25 percent of its total assets in securities issued or guaranteed by
any single agency or instrumentality of the U.S. Government, except the U.S.
Treasury. The Fund may make short sales and may purchase securities on margin
(borrow money in order to purchase securities), which are considered speculative
investment techniques.
The Fund will only purchase securities that are rated, at the time of purchase,
within the two highest rating categories assigned by an NRSRO, such as Moody's
Investors Service, Standard & Poor's or Fitch Investors Service, L.P., or which
are unrated and determined by Norwest to be of comparable quality. (See
"Additional Investment Policies and Risk Considerations - Rating Matters.")
The Fund primarily will invest in debt obligations with maturities (or average
life in the case of mortgage-backed and similar securities) ranging from short-
term (including overnight) to 15 years. Under normal circumstances, the Fund's
portfolio of securities will have an average dollar-weighted maturity of between
3 and 10 years. Under normal circumstances, the Fund's portfolio of securities
will have a duration of between 70 percent and 130 percent of the duration of a
5-year Treasury Note, which is used as the Fund's benchmark index as described
under "Other Information - Performance Information." Duration is a measure of a
debt security's average life that reflects the present value of the security's
cash flow and, accordingly, is a measure of price sensitivity to interest rate
changes ("duration risk"). Because earlier payments on a debt security have a
higher present value, duration of a security, except a zero-coupon security,
will be less than the security's stated maturity.
In order to manage its exposure to different types of investments, the Fund may
enter into interest rate and mortgage swap agreements and may purchase and sell
interest rate caps, floors and collars. The Fund may also engage in certain
strategies involving options (both exchange-traded and over-the-counter) to
attempt to enhance the Fund's return and may attempt to reduce the overall risk
of its investments ("hedge") by using options and futures contracts. The Fund's
ability to use these strategies may be limited by market considerations,
regulatory limits and tax considerations. The Fund may write covered call and
put options, buy put and call options, buy and sell interest rate futures
contracts, and buy options and write covered options on those futures contracts.
An option is covered if, so long as the Fund is obligated under the option, it
owns an offsetting position in the underlying security or
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futures contract or maintains a segregated account of liquid debt instruments
with a value at all times sufficient to cover the Fund's obligations under the
option.
INCOME FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to provide total
return consistent with current income. The Fund pursues this objective by
investing in a portfolio of fixed income securities issued by domestic and
foreign issuers. There can be no assurance that the Fund will achieve its
investment objective.
INVESTMENT POLICIES. The Fund seeks to attain its investment objective by
investing in a diversified portfolio of fixed and variable rate U.S. dollar
denominated fixed income securities. These securities cover a broad spectrum of
United States issuers, including U.S. Government Securities, mortgage- and
asset-backed securities and the debt securities of financial institutions,
corporations, and others. Norwest attempts to increase the Fund's performance by
applying various fixed income management techniques combined with fundamental
economic, credit and market analysis while at the same time controlling total
return volatility by targeting the Fund's duration within a narrow band around
the Lipper Corporate A-Rated Debt Average.
The Fund may invest any amount of its assets, and normally will invest at least
30% of its total assets, in U.S. Government Securities. The fixed income
securities in which the Fund invests also include mortgage-backed and other
asset-backed securities, although the Fund limits these investments to not more
than 50% and 25%, respectively, of its total assets. The Fund may invest up to
50% of its total assets in corporate securities, such as bonds, debentures and
notes and fixed income securities that can be converted into or exchanged for
common stocks ("convertible securities") and may invest in zero coupon
securities and enter into "dollar roll" transactions. The Fund may invest in
securities that are restricted as to disposition under the federal securities
laws (sometimes referred to as "private placements" or "restricted securities").
The Fund will invest primarily in securities with maturities (or average life in
the case of mortgage-backed and similar securities) ranging from short-term
(including overnight) to 40 years, and it is anticipated that the Fund's
portfolio of securities will have an average dollar-weighted maturity of between
3 and 15 years. The Fund's portfolio of securities will normally have a duration
of between 70% and 130% of the duration of the Lipper Corporate A-Rated Debt
Average. Duration is a measure of a debt security's average life that reflects
the present value of the security's cash flow and, accordingly, is a measure of
price sensitivity to interest rate changes ("duration risk"). Because
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earlier payments on a debt security have a higher present value, duration of a
security, except a zero-coupon security, will be less than the security's stated
maturity.
The Fund may invest in debt securities registered and sold in the United States
by foreign issuers (Yankee Bonds) and debt securities sold outside the United
States by foreign or U.S. issuers (Euro-bonds). The Fund intends to restrict its
purchases of debt securities to issues denominated and payable in United States
dollars. For a description of the risks involved in investments in foreign
securities, see "Investment Objectives and Policies - Additional Investment
Policies and Risk Consideration - Foreign Securities."
Normally, at least 80% of the Fund's assets will be invested in securities that
are rated (or unrated and determined by Norwest to be of comparable quality)
within the top four grades by an NRSRO at the time of purchase. For example, for
bonds, these grades are "Aaa", "Aa", "A", and "Baa" in the case of Moody's and
"AAA", "AA", "A" and "BBB" in the case of S&P and Fitch. These securities are
generally considered to be investment grade securities, although Moody's
indicates that securities rated "Baa" have speculative characteristics. A
description of the rating categories of various NRSROs is contained in Appendix
A to the SAI.
NON-INVESTMENT GRADE SECURITIES. The Fund may invest up to 20% of its total
assets in securities rated in the fifth highest rating category by an NRSRO
("Ba" by Moody's or "BB" by S&P or Fitch), or which are unrated and judged by
Norwest to be of comparable quality. Such securities (commonly referred to as
"junk bonds") are not considered to be investment grade and have speculative or
predominantly speculative characteristics. Non-investment grade, high risk
securities provide poor protection for payment of principal and interest but may
have greater potential for capital appreciation than do higher quality
securities. These lower rated securities involve greater risk of default or
price changes due to changes in the issuers' creditworthiness than do higher
quality securities. The market for these securities may be thinner and less
active than that for higher quality securities, which may affect the price at
which the lower rated securities can be sold. In addition, the market prices of
lower rated securities may fluctuate more than the market prices of higher
quality securities and may decline significantly in periods of general economic
difficulty or rising interest rates.
TOTAL RETURN BOND FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to seek total
return. The Fund currently pursues its investment objective by investing all of
its investable assets in Strategic Value Bond Portfolio, which has an investment
objective of seeking total return by investing primarily in income producing
securities and has substantially the same investment policies as the
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Fund. Therefore, although the following discusses the investment policies of
that Portfolio, it applies equally to the Fund. There can be no assurance that
the Fund will achieve its investment objective.
INVESTMENT POLICIES. The Portfolio invests in a broad range of fixed income
instruments including corporate bonds, asset-backed securities, mortgage-related
securities, U.S. Government Securities, preferred stock, convertible bonds and
foreign bonds in order to create a strategically diversified portfolio of
high-quality fixed income investments.
In making investment decisions, Galliard focuses on relative value as opposed to
the prediction of the direction of interest rates. In general, particular
emphasis is placed on higher current income instruments such as corporate bonds
and mortgage/asset-backed securities in order to enhance returns. Galliard
believes that this exposure enhances performance in varying economic and
interest rate cycles while avoiding excessive risk concentrations. The
investment process utilized by Galliard involves rigorous evaluation of each
security. This includes identifying and valuing cash flows, embedded options,
credit quality, structure, liquidity, marketability, current versus historical
trading relationships, supply and demand for the instrument and expected returns
in varying economic/interest rate environments. This process seeks to identify
securities which represent the best relative economic value. The results of the
investment process are then evaluated against the Portfolio's objective and the
Portfolio purchases those securities which will enhance its positioning. The
Portfolio will be repositioned based on market changes and shifts in relative
value of the instruments held by the Portfolio.
The Portfolio's investments are subject to the various risks of investing in
fixed-income securities. To limit the Portfolio's "credit risk," in general, 65%
of the Portfolio's assets will be invested in fixed-income securities rated in
one of the three highest rating categories by at least one NRSRO, such as
Moody's, S&P, Fitch or Duff & Phelps Credit Rating Co. ("D&P"), or which are
unrated and determined by Galliard to be of comparable quality. In addition, the
Portfolio will limit its investment in securities with a less than an investment
grade rating to 20% of the Portfolio's assets. While the average quality of the
Portfolio will vary over an economic cycle, the weighted average rating of the
Portfolio's investments will be "A" or better. A description of the rating
categories of various NRSRO's is contained in the SAI. Investment grade
instruments include those that are rated in one of four highest long-term rating
categories by an NRSRO or are unrated and determined by Galliard to be of
comparable quality.
The average maturity of the Portfolio will vary between five and fifteen years.
In the case of mortgage-related, asset-backed and similar securities, the
Portfolio uses the security's average life in calculating the Portfolio's
average maturity. The Portfolio's effective duration normally will vary between
three and eight years.
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One of the primary tenets of the Portfolio is strategic diversification. Toward
that end, the Portfolio will not invest more than: (1) 75% in corporate bonds,
(2) 25% in one industry of the corporate market, (3) 50% in asset-backed
securities, or (4) 60% in mortgage-related securities. U.S. Government
Securities may be held in any amount without restriction. With respect to
corporate bonds, generally no more than 5% will be held in one issuer.
The Portfolio may enter into derivative transactions to receive favorable
financing or diversify portfolio risk. The Portfolio may invest in securities
that are restricted as to disposition under the federal securities laws
(sometimes referred to as "private placements" or "restricted securities.") In
addition, the Portfolio may invest in interests of other investment companies,
which also may be restricted securities. See "Additional Investment Policies and
Risk Considerations--Futures Contracts and Options."
NON-INVESTMENT GRADE SECURITIES. The Portfolio may invest up to 20% of its total
assets in securities rated in the fifth highest rating category by an NRSRO
("Ba" by Moody's or "BB" by S&P or Fitch), or which are unrated and judged by
Galliard to be of comparable quality. Such securities (commonly referred to as
"junk bonds") are not considered to be investment grade and have speculative or
predominantly speculative characteristics. Non-investment grade, high risk
securities provide poor protection for payment of principal and interest but may
have greater potential for capital appreciation than do higher quality
securities. These lower rated securities involve greater risk of default or
price changes due to changes in the issuers' creditworthiness than do higher
quality securities. The market for these securities may be thinner and less
active than that for higher quality securities, which may affect the price at
which the lower rated securities can be sold. In addition, the market prices of
lower rated securities may fluctuate more than the market prices of higher
quality securities and may decline significantly in periods of general economic
difficulty or rising interest rates.
ADDITIONAL INVESTMENT POLICIES
AND RISK CONSIDERATIONS
Each Fund's (and each Core Portfolio's) investment objective and all investment
policies of the Funds (and Core Portfolios) that are designated as fundamental
may not be changed without approval of the holders of a majority of the
outstanding voting securities of the Fund (or Core Portfolio). A majority of
outstanding voting securities means the lesser of 67% of the shares present or
represented at a shareholders' meeting at which the holders of more than 50% of
the outstanding shares are present or represented, or more than 50% of the
outstanding shares. Except as otherwise indicated, investment policies of the
Funds are not fundamental and may be changed by the Board of Trustees of the
Trust (the "Board") without shareholder
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approval. Likewise, nonfundamental investment policies of a Core Portfolio may
be changed by that investment company's board of trustees ("Core Board") without
shareholder approval.
Unless otherwise indicated, the discussion below of the investment policies of
the Funds refers, in the case of Stable Income Fund and Total Return Bond Fund,
to the investment policies of their respective Core Portfolios. For more
information concerning shareholder voting, (see "Other Information - The Trust
and Its Shares - Shareholder Voting and Other Rights" and "Other Information -
Core and Gateway Structure.") A further description of the Funds' investment
policies, including additional fundamental policies, is contained in the SAI.
No Fund may invest more than 15% of its net assets in illiquid securities,
including repurchase agreements not entitling the Fund to payment within seven
days. As used herein, the term U.S. Government Securities means obligations
issued or guaranteed as to principal and interest by the U.S. Government, its
agencies or instrumentalities.
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 a 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 a Fund.
BORROWING. As a fundamental policy, each of Income Fund and Total Return Bond
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. As a fundamental policy, Stable Income Fund
and Intermediate Government Income Fund may borrow money for temporary or
emergency purposes, including the meeting of redemption requests, but not in
excess of 33 1/3% of the Fund's total assets. Borrowing for other than temporary
or emergency purposes or meeting redemption requests may not exceed 5% of the
value of any Fund's assets, except in the case of Intermediate Government Income
Fund. Each Fund may enter into reverse repurchase agreements (transactions in
which a Fund sells a security and simultaneously commits to repurchase that
security from the buyer at an agreed upon price on an agreed upon future date).
DIVERSIFICATION AND CONCENTRATION. Each Fund is diversified as that term is
defined in the Investment Company Act of 1940 (the "1940 Act"). As a fundamental
policy, with respect to 75% of its assets, no Fund may purchase a security
(other than a U.S. Government Security or shares of investment companies) if, as
a result: (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. Each Fund is prohibited from
concentrating its assets in the securities of issuers in
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any industry. As a fundamental policy, each Fund may not purchase securities if,
immediately after the purchase, more than 25% of the value of the Fund's total
assets would be invested in the securities of issuers conducting their principal
business activities in the same industry. This limit does not apply to
investments in U.S. Government Securities, foreign government securities or
repurchase agreements covering U.S. Government Securities.
Each Fund reserves the right upon notification to shareholders to invest up to
100% of its investable assets in one or more other investment companies such as
the Core Portfolios.
FIXED INCOME SECURITIES AND THEIR CHARACTERISTICS. Although each Fund (other
than Income Fund and Total Return Bond Fund) only invests in investment grade
fixed income securities, including money market instruments, an investment in a
Fund is subject to risk even if all fixed income securities in the Fund's
portfolio are paid in full at maturity. All fixed income securities, including
U.S. Government Securities, can change in value when there is a change in
interest rates or the issuer's actual or perceived creditworthiness or ability
to meet its obligations.
The market value of the interest-bearing debt securities held by the Funds will
be affected by changes in interest rates. There is normally an inverse
relationship between the market value of securities sensitive to prevailing
interest rates and actual changes in interest rates. In other words, an increase
in interest rates produces a decrease in market value. Moreover, the longer the
remaining maturity (and duration) of a security, the greater will be the effect
of interest rate changes on the market value of that security. Changes in the
ability of an issuer to make payments of interest and principal and in the
market's perception of an issuer's creditworthiness will also affect the market
value of the debt securities of that issuer. The possibility exists that, the
ability of any issuer to pay, when due, the principal of and interest on its
debt securities may become impaired.
RATING MATTERS. The Funds' investments are subject to "credit risk" relating to
the financial condition of the issuers of the securities that each Fund holds.
To limit credit risk, each Fund will primarily buy debt securities that are
rated in the top four long-term rating categories by an NRSRO or in the top two
short-term rating categories by an NRSRO, although certain Funds have greater
restrictions. The lowest investment grade for corporate bonds, including
convertible bonds, is "Baa" in the case of Moody's Investors Service ("Moody's")
and "BBB" in the case of Standard & Poor's ("S&P") and Fitch Investors Service,
L.P. ("Fitch"); the lowest investment grade for preferred stock is "Baa" in the
case of Moody's and "BBB" in the case of S&P and Fitch; and the lowest
investment grade for short-term debt, including commercial paper, is Prime-2
(P-2) in the case of Moody's, A-2 in the case of S&P and F-2 in the case of
Fitch.
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The Funds also may purchase unrated securities if the Fund's Adviser determines
the security to be of comparable quality to a rated security that the Fund may
purchase. Unrated securities may not be as actively traded as rated securities.
Each Fund may retain a security whose rating has been lowered below the Fund's
lowest permissible rating category (or that are unrated and determined by the
Fund's Adviser to be of comparable quality to securities whose rating has been
lowered below the Fund's lowest permissible rating category) if the Fund's
Adviser determines that retaining the security is in the best interests of the
Fund. Because a downgrade often results in a reduction in the market price of
the security, sale of a downgraded security may result in a loss.
VARIABLE AND FLOATING RATE SECURITIES. The securities in which the Funds invest
(including mortgage-backed securities) may have variable or floating rates of
interest. These securities pay interest at rates that are adjusted periodically
according to a specified formula, usually with reference to some interest rate
index or market interest rate (the "underlying index"). The interest paid on
these securities is a function primarily of the underlying index upon which the
interest rate adjustments are based. Such adjustments minimize changes in the
market value of the obligation and, accordingly, enhance the ability of the Fund
to maintain a stable net asset value. Similar to fixed rate debt instruments,
variable and floating rate instruments are subject to changes in value based on
changes in market interest rates or changes in the issuer's creditworthiness.
The rate of interest on securities purchased by a Fund may be tied to various
rates of interest or indices. Certain variable rate securities (including
mortgage-related securities) pay interest at a rate that varies inversely to
prevailing short-term interest rates (sometimes referred to as inverse
floaters). For instance, upon reset the interest rate payable on a security may
go down when the underlying index has risen. During times when short-term
interest rates are relatively low as compared to long-term interest rates a Fund
may attempt to enhance its yield by purchasing inverse floaters. Certain inverse
floaters may have an interest rate reset mechanism that multiplies the effects
of changes in the underlying index. This form of leverage may have the effect of
increasing the volatility of the security's market value while increasing the
security's, and thus the Fund's, yield.
There may not be an active secondary market for certain floating or variable
rate instruments (particularly inverse floaters and similar instruments) which
could make it difficult for a Fund to dispose of the instrument during periods
that the Fund is not entitled to exercise any demand rights it may have. A Fund
could, for this or other reasons, suffer a loss with respect to an instrument. A
Fund's investment adviser or subadviser 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.
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U.S. GOVERNMENT SECURITIES. As used in this Prospectus, the term U.S. Government
Securities means obligations issued or guaranteed as to principal and interest
by the United States Government, its agencies or instrumentalities. The U.S.
Government Securities in which a Fund may invest include U.S. Treasury
securities and obligations issued or guaranteed by U.S. Government agencies and
instrumentalities and backed by the full faith and credit of the U.S.
Government, such as those guaranteed by the Small Business Administration or
issued by the Government National Mortgage Association ("Ginnie Mae"). In
addition, the U.S. Government Securities in which the Funds may invest include
securities supported primarily or solely by the creditworthiness of the issuer,
such as securities of the Federal National Mortgage Association ("Fannie Mae"),
the Federal Home Loan Mortgage Corporation ("Freddie Mac") and the Tennessee
Valley Authority. There is no guarantee that the U.S. Government will support
securities not backed by its full faith and credit. Accordingly, although these
securities have historically involved little risk of loss of principal if held
to maturity, they may involve more risk than securities backed by the U.S.
Government's full faith and credit.
ZERO-COUPON SECURITIES. A Fund may invest in separately traded principal and
interest components of securities issued or guaranteed by the U.S. Treasury.
These components are traded independently under the Treasury's Separate Trading
of Registered Interest and Principal of Securities ("STRIPS") program or as
Coupons Under Book Entry Safekeeping ("CUBES"). The Funds may invest in other
types of related zero-coupon securities. For instance, a number of banks and
brokerage firms separate the principal and interest portions of U.S. Treasury
securities and sell them separately in the form of receipts or certificates
representing undivided interests in these instruments. These instruments are
generally held by a bank in a custodial or trust account on behalf of the owners
of the securities and are known by various names, including Treasury Receipts
("TRs"), Treasury Investment Growth Receipts ("TIGRs") and Certificates of
Accrual on Treasury Securities ("CATS"). Zero-coupon securities also may be
issued by corporations and municipalities.
Zero-coupon securities are sold at original issue discount and pay no interest
to holders prior to maturity, but a Fund holding a zero-coupon security must
include a portion of the original issue discount of the security as income.
Because of this, zero-coupon securities may be subject to greater fluctuation of
market value than the other securities in which the Funds may invest. The Funds
distribute all of their net investment income, and may have to sell portfolio
securities to distribute imputed income, which may occur at a time when Norwest
would not have chosen to sell such securities and which may result in a taxable
gain or loss.
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DEMAND NOTES. The Funds may purchase variable and floating rate demand notes of
corporations, which are unsecured obligations redeemable upon not more than 30
days' notice. These obligations include master demand notes that permit
investment of fluctuating amounts at varying rates of interest pursuant to
direct arrangement with the issuer of the instrument. The issuers of these
obligations often have the right, after a given period, to prepay their
outstanding principal amount of the obligations upon a specified number of days'
notice. These obligations generally are not traded, nor generally is there an
established secondary market for these obligations. To the extent a demand note
does not have a seven day or shorter demand feature and there is no readily
available market for the obligation, it is treated as an illiquid security.
Although a Fund would generally not be able to resell a master demand note to a
third party, the Fund is entitled to demand payment from the issuer at any time.
The Fund's Adviser continuously monitors the financial condition of the issuer
to determine the issuer's likely ability to make payment on demand.
CONVERTIBLE SECURITIES AND PREFERRED STOCK. Convertible securities, which
include convertible debt, convertible preferred stock and other securities
exchangeable under certain circumstances for shares of common stock, are fixed
income securities or preferred stock which generally may be converted at a
stated price within a specific amount of time into a specified number of shares
of common stock. A convertible security entitles the holder to receive interest
paid or accrued on debt or the dividend paid on preferred stock until the
convertible security matures or is redeemed, converted or exchanged. Before
conversion, convertible securities have characteristics similar to
nonconvertible debt securities in that they normally provide a stream of income
with generally higher yields than those of common stocks of the same or similar
issuers. These securities are usually senior to common stock in a company's
capital structure, but usually are subordinated to non-convertible debt
securities. In general, the value of a convertible security is the higher of its
investment value (its value as a fixed income security) and its conversion value
(the value of the underlying shares of common stock if the security is
converted). As a fixed income security, the value of a convertible security
generally increases when interest rates decline and generally decreases when
interest rates rise. The value of a convertible security is, however, also
influenced by the value of the underlying common stock.
Preferred stock is a class of stock having priority over common stock as to
dividends or the recovery of investment or both. The owner of preferred stock is
a shareholder in a business and not, like a bondholder, a creditor. Dividends
paid to preferred stockholders are distributions of earnings of a business in
contrast to interest payments to bondholders which are expenses of a business.
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REPURCHASE AGREEMENTS AND LENDING OF PORTFOLIO SECURITIES. Each Fund may seek
additional income by entering into repurchase agreements or by lending
securities from its portfolio to brokers, dealers and other financial
institutions. These investments may entail certain risks not associated with
direct investments in securities. For instance, in the event that bankruptcy or
similar proceedings were commenced against a counterparty in these transactions
or a counterparty defaulted on its obligations, a Fund might suffer a loss.
Repurchase agreements are transactions in which a Fund purchases a security and
simultaneously commits to resell that security to the seller at an agreed-upon
price on an agreed-upon future date, normally one to seven days later. The
resale price reflects a market rate of interest that is not related to the
coupon rate or maturity of the purchased security. When a Fund lends a security
it receives interest from the borrower or from investing cash collateral. The
Trust maintains possession of the purchased securities and any underlying
collateral in these transactions, the total market value of which on a
continuous basis is at least equal to the repurchase price or value of
securities loaned, plus accrued interest. The Funds may pay fees to arrange
securities loans and each Fund will, as a fundamental policy, limit securities
lending to not more than 33 1/3% of the value of its total assets as determined
by SEC guidelines.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS. Each Fund may purchase
securities offered on a "when-issued" basis and may purchase securities on a
"forward commitment" basis. When such transactions are negotiated, the price is
fixed at the time the commitment is made, but delivery and payment for the
securities take place at a later date. Normally, the settlement date occurs
within three months after the transaction, but delayed settlements beyond three
months may be negotiated.
During the period between a commitment and settlement, no payment is made for
the securities purchased and, thus, no interest accrues to the Fund. At the time
a Fund makes a commitment to purchase securities in this manner, however, the
Fund immediately assumes the risk of ownership, including price fluctuation.
Failure by the other party to deliver or pay for a security purchased or sold by
the Fund may result in a loss or a missed opportunity to make an alternative
investment. Any significant commitment of a Fund's assets committed to the
purchase of securities on a when-issued or forward commitment basis may increase
the volatility of its net asset value. Except for dollar roll transactions,
which are described below, each of Stable Income Fund, Intermediate Government
Income Fund and Income Fund limits its investments in when-issued and forward
commitment securities to 15% of the value of the Fund's total assets. Total
Return Bond Fund limits its investments in when-issued and forward commitment
securities to 35% of the value of the Fund's total assets.
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The use of when-issued transactions and forward commitments enables a Fund to
hedge against anticipated changes in interest rates and prices. If Norwest were
to forecast incorrectly the direction of interest rate movements, however, a
Fund might be required to complete when-issued or forward transactions at prices
inferior to the current market values. The Funds enter into when-issued and
forward commitments only with the intention of actually receiving the
securities, but a Fund may sell the securities before the settlement date if
deemed advisable. If a Fund chooses to dispose of the right to acquire a
when-issued security prior to its acquisition or to dispose of its right to
deliver or receive against a forward commitment, it can incur a gain or loss.
DOLLAR ROLL TRANSACTIONS. A Fund may enter into dollar roll transactions wherein
the Fund sells fixed income securities, typically mortgage-backed securities,
and makes a commitment to purchase similar, but not identical, securities at a
later date from the same party. Like a forward commitment, during the roll
period no payment is made for the securities purchased and no interest or
principal payments on the security accrue to the purchaser, but the Fund assumes
the risk of ownership. A Fund is compensated for entering into dollar roll
transactions by the difference between the current sales price and the forward
price for the future purchase, as well as by the interest earned on the cash
proceeds of the initial sale. Like other when-issued securities or firm
commitment agreements, dollar roll transactions involve the risk that the market
value of the securities sold by the Fund may decline below the price at which a
Fund is committed to purchase similar securities. In the event the buyer of
securities under a dollar roll transaction becomes insolvent, the Fund's use of
the proceeds of the transaction may be restricted pending a determination by the
other party, or its trustee or receiver, whether to enforce the Fund's
obligation to repurchase the securities. The Funds will engage in roll
transactions for the purpose of acquiring securities for its portfolio and not
for investment leverage. Each of Stable Income Fund and Intermediate Government
Income Fund will limit its obligations on dollar roll transactions to 35% of the
Fund's net assets.
SWAP AGREEMENTS. To manage their exposure to different types of investments,
Stable Income Fund and Intermediate Government Income Fund may enter into
interest rate and mortgage (or other asset) swap agreements and may purchase
interest rate caps, floors and collars. In a typical interest rate swap
agreement, one party agrees to make regular payments equal to a floating
interest rate on a specified amount (the "notional principal amount") in return
for payments equal to a fixed interest rate on the same amount for a specified
period. Mortgage swap agreements are similar to interest rate swap agreements,
except that the notional principal amount is tied to a reference pool of
mortgages. In a cap or floor, one party agrees, usually in return for a fee, to
make payments under particular circumstances. For example, the purchaser of an
interest rate cap has the right to receive payments to the
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extent a specified interest rate exceeds an agreed upon level; the purchaser of
an interest rate floor has the right to receive payments to the extent a
specified interest rate falls below an agreed upon level. A collar entitles the
purchaser to receive payments to the extent a specified interest rate falls
outside an agreed upon range.
Swap agreements may involve leverage and may be highly volatile; depending on
how they are used, they may have a considerable impact on the Fund's
performance. Swap agreements involve risks depending upon the counterparty's
creditworthiness and ability to perform as well as the Fund's ability to
terminate its swap agreements or reduce its exposure through offsetting
transactions.
SHORT SALES. Intermediate Government Income Fund may make short sales of
securities which it does not own or have the right to acquire in anticipation of
a decline in the market price for the security. When the Fund makes a short
sale, the proceeds it receives are retained by the broker until the Fund
replaces the borrowed security. In order to deliver the security to the buyer,
the Fund must arrange through a broker to borrow the security and, in so doing,
the Fund becomes obligated to replace the security borrowed at its market price
at the time of replacement, whatever that price may be.
Short sales create opportunities to increase the Fund's return but, at the same
time, involve special risk considerations and may be considered a speculative
technique. Since the Fund in effect profits from a decline in the price of the
securities sold short without the need to invest the full purchase price of the
securities on the date of the short sale, the Fund's net asset value per share,
will tend to increase more when the securities it has sold short decrease in
value, and to decrease more when the securities it has sold short increase in
value, than would otherwise be the case if it had not engaged in such short
sales. Short sales theoretically involve unlimited loss potential, as the market
price of securities sold short may continuously increase, although a Fund may
mitigate such losses by replacing the securities sold short before the market
price has increased significantly. Under adverse market conditions a Fund might
have difficulty purchasing securities to meet its short sale delivery
obligations and might have to sell portfolio securities to raise the capital
necessary to meet its short sale obligations at a time when fundamental
investment considerations would not favor those sales.
PURCHASING SECURITIES ON MARGIN. Intermediate Government Income Fund may
purchase securities on margin. When the Fund purchases securities on margin, it
only pays part of the purchase price and borrows the remainder, typically from
the Fund's broker. As a borrowing, the Fund's purchase of securities on margin
is subject to the limitations and risks described in "Borrowing". In addition,
if the value of the securities purchased on margin decreases such that the
Fund's borrowing with respect to the security exceeds the maximum permissible
borrowing amount, the Fund will be required to
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make margin payments (additional payments to the broker to maintain the level of
borrowing at permissible levels). The Fund's obligation to satisfy margin calls
may require the Fund to sell securities at an inappropriate time.
TECHNIQUES INVOLVING LEVERAGE. Utilization of leveraging involves special risks
and may involve speculative investment techniques. The Funds may borrow for
other than temporary or emergency purposes, lend their securities, enter reverse
repurchase agreements, and purchase securities on a when issued or forward
commitment basis. In addition, certain funds may engage in dollar roll
transactions and Intermediate Government Income Fund may purchase securities on
margin and sell securities short (other than against the box). 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. In addition, the use of swap and related agreements may involve
leverage. The Funds use these investment techniques only when the Adviser to a
Fund believes that the leveraging and the returns available to the Fund from
investing the cash will provide shareholders with a potentially higher return.
Leverage exists when a Fund achieves the right to a return on a capital base
that exceeds the Fund's investment. Leverage creates the risk of magnified
capital losses which occur when losses affect an asset base, enlarged by
borrowings or the creation of liabilities, that exceeds the equity base of the
Fund.
The risks of leverage include a higher volatility of the net asset value of the
Fund's shares and the relatively greater effect on the net asset value of the
shares caused by favorable or adverse market movements or changes in the cost of
cash obtained by leveraging and the yield obtained from investing the cash. So
long as a Fund is able to realize a net return on its investment portfolio that
is higher than interest expense incurred, if any, leverage will result in higher
current net investment income being realized by the Fund than if the Fund were
not leveraged. On the other hand, interest rates change from time to time as
does their relationship to each other depending upon such factors as supply and
demand, monetary and tax policies and investor expectations. Changes in such
factors could cause the relationship between the cost of leveraging and the
yield to change so that rates involved in the leveraging arrangement may
substantially increase relative to the yield on the obligations in which the
proceeds of the leveraging have been invested. To the extent that the interest
expense involved in leveraging approaches the net return on the Fund's
investment portfolio, the benefit of leveraging will be reduced, and, if the
interest expense on borrowings were to exceed the net return to shareholders,
the Fund's use of leverage would result in a lower rate of return than if the
Fund were not leveraged. Similarly, the effect of leverage in a declining market
could be a greater decrease in net asset value per share than if the Fund were
not leveraged. In an extreme case, if the Fund's current
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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.
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities represent an interest in
a pool of mortgages originated by lenders such as commercial banks, savings
associations and mortgage bankers and brokers. Mortgage-backed securities may be
issued by governmental or government-related entities or by non-governmental
entities such as special purpose trusts created by banks, savings associations,
private mortgage insurance companies or mortgage bankers.
Interests in mortgage-backed securities differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal payments at maturity or on specified call dates. In
contrast, mortgage-backed securities provide monthly payments which consist of
interest and, in most cases, principal. In effect, these payments are a
"pass-through" of the monthly payments made by the individual borrowers on their
mortgage loans, net of any fees paid to the issuer or guarantor of the
securities or a mortgage loan servicer. Additional payments to holders of these
securities are caused by prepayments resulting from the sale or foreclosure of
the underlying property or refinancing of the underlying loans.
UNDERLYING MORTGAGES. Pools of mortgages consist of whole mortgage loans or
participations in mortgage loans. The majority of these loans are made to
purchasers of 1-4 family homes, but may be made to purchasers of mobile homes or
other real estate interests. The terms and characteristics of the mortgage
instruments are generally uniform within a pool but may vary among pools. For
example, in addition to fixed-rate, fixed-term mortgages, the Fund may purchase
pools of variable rate mortgages, growing equity mortgages, graduated payment
mortgages and other types. Mortgage servicers impose qualification standards for
local lending institutions which originate mortgages for the pools as well as
credit standards and underwriting criteria for individual mortgages included in
the pools. In addition, many mortgages included in pools are insured through
private mortgage insurance companies.
LIQUIDITY AND MARKETABILITY. Generally, government and government-related
pass-through pools are highly liquid. While private conventional pools of
mortgages (pooled by non-government-related entities) have also
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achieved broad market acceptance and an active secondary market has emerged, the
market for conventional pools is smaller and less liquid than the market for
government and government-related mortgage pools.
AVERAGE LIFE AND PREPAYMENTS. The average life of a pass-through pool varies
with the maturities of the underlying mortgage instruments. In addition, a
pool's terms may be shortened by unscheduled or early payments of principal and
interest on the underlying mortgages. Prepayments with respect to securities
during times of declining interest rates will tend to lower the return of the
Fund and may even result in losses to the Fund if the securities were acquired
at a premium. The occurrence of mortgage prepayments is affected by various
factors including the level of interest rates, general economic conditions, the
location and age of the mortgage and other social and demographic conditions. As
prepayment rates of individual pools vary widely, it is not possible to
accurately predict the average life of a particular pool. The assumed average
life of pools of mortgages having terms of 30 years or less is typically between
5 and 12 years.
YIELD CALCULATIONS. Yields on pass-through securities are typically quoted
based on the maturity of the underlying instruments and the associated average
life assumption. In periods of falling interest rates the rate of prepayment
tends to increase, thereby shortening the actual average life of a pool of
mortgages. Conversely, in periods of rising rates the rate of prepayment tends
to decrease, thereby lengthening the actual average life of the pool. Actual
prepayment experience may cause the yield to differ from the assumed average
life yield. Reinvestment of prepayments may occur at higher or lower interest
rates than the original investment, thus affecting the yield of the Fund.
GOVERNMENT AND GOVERNMENT-RELATED GUARANTORS. The principal government
guarantor of mortgage-backed securities is Ginnie Mae, a wholly-owned United
States Government corporation within the Department of Housing and Urban
Development. Mortgage-backed securities are also issued by Fannie Mae, a
government-sponsored corporation owned entirely by private stockholders that is
subject to general regulation by the Secretary of Housing and Urban Development,
and Freddie Mac, a corporate instrumentality of the United States Government.
While Fannie Mae and Freddie Mac each guarantee the payment of principal and
interest on the securities they issue, unlike Ginnie Mae securities, their
securities are not backed by the full faith and credit of the United States
Government.
PRIVATELY ISSUED MORTGAGE-BACKED SECURITIES. Mortgage-backed securities
offered by private issuers include pass-through securities comprised of pools of
conventional mortgage loans; mortgage-backed bonds (which are considered to be
debt obligations of the institution issuing the bonds and which are
collateralized by mortgage loans); and collateralized mortgage
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obligations ("CMOs"), which are described below. Mortgage-backed securities
issued by non-governmental issuers may offer a higher rate of interest than
securities issued by government issuers because of the absence of direct or
indirect government guarantees of payment. Many non-governmental issuers or
servicers of mortgage-backed securities, however, guarantee timely payment of
interest and principal on these securities. Timely payment of interest and
principal also may be supported by various forms of insurance, including
individual loan, title, pool and hazard policies.
ADJUSTABLE RATE MORTGAGE-BACKED SECURITIES. Adjustable rate mortgage-backed
securities ("ARMs") are securities that have interest rates that are reset at
periodic intervals, usually by reference to some interest rate index or market
interest rate. Although the rate adjustment feature may act as a buffer to
reduce sharp changes in the value of adjustable rate securities, these
securities are still subject to changes in value based on changes in market
interest rates or changes in the issuer's creditworthiness. Because of the
resetting of interest rates, adjustable rate securities are less likely than
non-adjustable rate securities of comparable quality and maturity to increase
significantly in value when market interest rates fall. Also, most adjustable
rate securities (or the underlying mortgages) are subject to caps or floors.
"Caps" limit the maximum amount by which the interest rate paid by the borrower
may change at each reset date or over the life of the loan and, accordingly,
fluctuation in interest rates above these levels could cause such mortgage
securities to "cap out" and to behave more like long-term, fixed-rate debt
securities. ARMs may have less risk of a decline in value during periods of
rapidly rising rates, but they also may have less potential for capital
appreciation than other debt securities of comparable maturities due to the
periodic adjustment of the interest rate on the underlying mortgages and due to
the likelihood of increased prepayments of mortgages as interest rates decline.
Furthermore, during periods of declining interest rates, income to the Fund will
decrease as the coupon rate resets along with the decline in interest rates.
During periods of rising interest rates, changes in the coupon rates of the
mortgages underlying the Fund's ARMs may lag behind changes in market interest
rates. This may result in a lower value until the interest rate resets to market
rates.
COLLATERALIZED MORTGAGE OBLIGATIONS. CMOs are debt obligations
collateralized by mortgages or mortgage pass-through securities issued by Ginnie
Mae, Freddie Mac or Fannie Mae or by pools of conventional mortgages ("Mortgage
Assets"). CMOs may be privately issued or U.S. Government Securities. Payments
of principal and interest on the Mortgage Assets are passed through to the
holders of the CMOs on the same schedule as they are received, although, certain
classes (often referred to as tranches) of CMOs have priority over other classes
with respect to the receipt of payments. Multi-class mortgage pass-through
securities are interests in trusts that hold Mortgage Assets and that have
multiple classes similar to those of CMOs.
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Unless the context indicates otherwise, references to CMOs include multi-class
mortgage pass-through securities. Payments of principal of and interest on the
underlying Mortgage Assets (and in the case of CMOs, any reinvestment income
thereon) provide funds to pay debt service on the CMOs or to make scheduled
distributions on the multi-class mortgage pass-through securities. Parallel pay
CMOs are structured to provide payments of principal on each payment date to
more than one class. These simultaneous payments are taken into account in
calculating the stated maturity date or final distribution date of each class,
which, as with other CMO structures, must be retired by its stated maturity date
or final distribution date but may be retired earlier. Planned amortization
class mortgage-based securities ("PAC Bonds") are a form of parallel pay CMO.
PAC Bonds are designed to provide relatively predictable payments of principal
provided that, among other things, the actual prepayment experience on the
underlying mortgage loans falls within a contemplated range. If the actual
prepayment experience on the underlying mortgage loans is at a rate faster or
slower than the contemplated range, or if deviations from other assumptions
occur, principal payments on a PAC Bond may be greater or smaller than
predicted. The magnitude of the contemplated range varies from one PAC Bond to
another; a narrower range increases the risk that prepayments will be greater or
smaller than contemplated. CMOs may have complicated structures and generally
involve more risks than simpler forms of mortgage-related securities.
ASSET-BACKED SECURITIES. Asset-backed securities represent direct or indirect
participations in, or are secured by and payable from, assets other than
mortgage-related assets such as motor vehicle installment sales contracts,
installment loan contracts, leases of various types of real and personal
property and receivables from revolving credit (credit card) agreements. No Fund
may invest more than 15% (10% in the case of Income Fund and Total Return Bond
Fund) of its net assets in asset-backed securities that are backed by a
particular type of credit, for instance, credit card receivables. Asset-backed
securities, including adjustable rate asset-backed securities, have yield
characteristics similar to those of mortgage-related securities and,
accordingly, are subject to many of the same risks.
Assets are securitized through the use of trusts and special purpose
corporations that issue securities that are often backed by a pool of assets
representing the obligations of a number of different parties. Payments of
principal and interest may be guaranteed up to certain amounts and for a certain
time period by a letter of credit issued by a financial institution.
Asset-backed securities do not always have the benefit of a security interest in
collateral comparable to the security interests associated with mortgage-related
securities. As a result, the risk that recovery on repossessed collateral might
be unavailable or inadequate to support payments on asset-backed securities is
greater for asset-backed securities than for mortgage-related securities. In
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addition, because asset-backed securities are relatively new, the market
experience in these securities is limited and the market's ability to sustain
liquidity through all phases of an interest rate or economic cycle has not been
tested.
FOREIGN SECURITIES. Stable Income Fund, Income Fund and Total Return Bond Fund
may invest in debt securities registered and sold in the United States by
foreign issuers (Yankee Bonds) and debt securities sold outside the United
States by foreign or U.S. issuers (Euro-bonds). Each Fund intends to restrict
its purchases of debt securities to issues denominated and payable in United
States dollars. Investments in foreign companies involve certain risks, such as
exchange rate fluctuations, political or economic instability of the issuer or
the country of issue and the possible imposition of exchange controls,
withholding taxes on interest payments, confiscatory taxes or expropriation.
Foreign securities also may be subject to greater fluctuations in price than
securities of domestic corporations denominated in U.S. dollars. Foreign
securities and their markets may not be as liquid as domestic securities and
their markets, and foreign brokerage commissions and custody fees are generally
higher than those in the United States. In addition, less information may be
publicly available about a foreign company than about a domestic company, and
foreign companies may not be subject to uniform accounting, auditing and
financial reporting standards comparable to those applicable to domestic
companies.
FUTURES CONTRACTS AND OPTIONS. Stable Income Fund, Intermediate Government
Income Fund and Total Return Bond Fund each may (and Income Fund may in the
future) seek to enhance its return through the writing (selling) and purchasing
exchange-traded and over-the-counter options on fixed income securities or
indices. Each Fund also may attempt to hedge against a decline in the value of
securities owned by it or an increase in the price of securities which it plans
to purchase through the use of those options and the purchase and sale of
interest rate futures contracts and options on those futures contracts. These
instruments are often referred to as "derivatives," which may be defined as
financial instruments whose performance is derived at least in part, from the
performance of another asset (such as a security, currency or an index of
securities). The Funds only may write options that are covered. An option is
covered if, so long as the Fund is obligated under the option, it owns an
offsetting position in the underlying security or futures contract or maintains
cash or liquid securities in a segregated account with a value at all times
sufficient to cover the Fund's obligation under the option. A Fund may enter
into these futures contracts only if the aggregate of initial deposits for open
futures contract positions does not exceed 5% of the Fund's total assets.
RISK CONSIDERATIONS. A Fund's use of options and futures contracts subjects the
Fund to certain investment risks and transaction costs to which it might not
otherwise be subject. These risks include: (1) dependence on Norwest's
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ability to predict movements in the prices of individual securities and
fluctuations in the general securities markets; (2) imperfect correlations
between movements in the prices of options or futures contracts and movements in
the price of the securities hedged or used for cover which may cause a given
hedge not to achieve its objective; (3) the fact that the skills and techniques
needed to trade these instruments are different from those needed to select the
other securities in which the Fund invests; (4) lack of assurance that a liquid
secondary market will exist for any particular instrument at any particular
time, which, among other things, may limit a Fund's ability to limit exposures
by closing its positions; (5) the possible need to defer closing out of certain
options, futures contracts and related options to avoid adverse tax
consequences; and (6) the potential for unlimited loss when investing in futures
contracts or writing options for which an offsetting position is not held.
Other risks include the inability of a Fund, as the writer of covered call
options, to benefit from any appreciation of the underlying securities above the
exercise price and the possible loss of the entire premium paid for options
purchased by the Fund. In addition, the futures exchanges may limit the amount
of fluctuation permitted in certain futures contract prices during a single
trading day. A Fund may be forced, therefore, to liquidate or close out a
futures contract position at a disadvantageous price.
There can be no assurance that a liquid market will exist at a time when a Fund
seeks to close out a futures position or that a counterparty in an over-
the-counter option transaction will be able to perform its obligations. There
are a limited number of options on interest rate futures contracts and exchange
traded options contracts on fixed income securities. Accordingly, hedging
transactions involving these instruments may entail "cross-hedging." As an
example, a Fund may wish to hedge existing holdings of mortgage-backed
securities, but no listed options may exist on those securities. In that event,
Norwest may attempt to hedge the Fund's securities by the use of options with
respect to similar fixed income securities. The Fund may use various futures
contracts that are relatively new instruments without a significant trading
history. As a result, there can be no assurance that an active secondary market
in those contracts will develop or continue to exist.
LIMITATIONS. The Funds have no current intention of investing in futures
contracts and options thereon for purposes other than hedging. No Fund may
purchase any call or put option on a futures contract if the premiums associated
with all such options held by the Fund would exceed 5% of the Fund's total
assets as of the date the option is purchased. No Fund may sell a put option if
the exercise value of all put options written by the Fund would exceed 50% of
the Fund's total assets or sell a call option if the exercise value
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of all call options written by the Fund would exceed the value of the Fund's
assets. In addition, the current market value of all open futures positions held
by a Fund will not exceed 50% of its total assets.
OPTIONS ON SECURITIES. A call option is a contract pursuant to which the
purchaser of the call option, in return for a premium paid, has the right to buy
the security underlying the option at a specified exercise price at any time
during the term of the option. The writer of the call option, who receives the
premium, has the obligation upon exercise of the option to deliver the
underlying security against payment of the exercise price during the option
period. A put option gives its purchaser, in return for a premium, the right to
sell the underlying security at a specified price during the term of the option.
The writer of the put, who receives the premium, has the obligation to buy the
underlying security, upon exercise at the exercise price during the option
period. The amount of premium received or paid is based upon certain factors,
including the market price of the underlying security or index, the relationship
of the exercise price to the market price, the historical price volatility of
the underlying security or index, the option period, supply and demand and
interest rates.
INDEX FUTURES CONTRACTS. Bond and stock index futures contracts are bilateral
agreements pursuant to which two parties agree to take or make delivery of an
amount of cash equal to a specified dollar amount times the difference between
the bond or stock index value at the close of trading of the contract and the
price at which the futures contract is originally struck. No physical delivery
of the fixed income or equity securities comprising the index is made.
Generally, futures contracts are closed out prior to the expiration date of the
contract.
OPTIONS ON FUTURES CONTRACTS. Options on futures contracts are similar to stock
options except that an option on a futures contract gives the purchaser the
right, in return for the premium paid, to assume a position in a futures
contract rather than to purchase or sell stock, at a specified exercise price at
any time during the period of the option. Upon exercise of the option, the
delivery of the futures position to the holder of the option will be accompanied
by transfer to the holder of an accumulated balance representing the amount by
which the market price of the futures contract exceeds, in the case of a call,
or is less than, in the case of a put, the exercise price of the option on the
future.
TEMPORARY DEFENSIVE POSITION. When business or financial conditions warrant, the
Funds may assume a temporary defensive position and invest without limit in cash
or prime quality cash equivalents, including: (1) short-term U.S. Government
Securities; (2) certificates of deposit, bankers' acceptances and
interest-bearing savings deposits of commercial banks doing business in the
United States; (3) commercial paper; (4) repurchase agreements; and
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(5) shares of "money market funds" registered under the Investment Company Act
of 1940 (the "1940 Act") within the limits specified therein. Prime quality
instruments are those that are rated in one of the two highest short-term rating
categories by an NRSRO or, if not rated, determined by Norwest to be of
comparable quality. During periods when and to the extent that a Fund has
assumed a temporary defensive position, it may not be pursuing its investment
objective. Apart from temporary defensive purposes, a Fund may at any time
invest a portion of its assets in cash and cash equivalents as described above.
PORTFOLIO TRANSACTIONS. The Advisers place orders for the purchase and sale of
assets they manage with brokers and dealers selected by and in the discretion of
the respective Adviser. The Advisers seek "best execution" for all portfolio
transactions, but a Fund or Core Portfolio may pay higher than the lowest
available commission rates when an Adviser believes it is reasonable to do so in
light of the value of the brokerage and research services provided by the broker
effecting the transaction.
Commission rates for brokerage transactions are fixed on many foreign securities
exchanges, and this may cause higher brokerage expenses to accrue to a Fund or
Core Portfolio that invests in foreign securities than would be the case for
comparable transactions effected on United States securities exchanges.
Subject to the policy of obtaining "best execution" each Adviser may employ
broker-dealer affiliates (collectively "Affiliated Brokers") to effect brokerage
transactions. Payment of commissions to Affiliated Brokers is subject to
procedures adopted by the Board and, with respect to a Core Portfolio, that
investment company's board of trustees, to provide that the commissions will not
exceed the usual and customary broker's commissions charged by unaffiliated
brokers. No specific portion of brokerage transactions will be directed to
Affiliated Brokers and in no event will a broker affiliated with the Adviser
directing the transaction receive brokerage transactions in recognition of
research services provided to the Adviser.
The frequency of portfolio transactions of a Fund or Core Portfolio (the
portfolio turnover rate) will vary from year to year depending on many factors.
From time to time a Fund or Core Portfolio may engage in active short-term
trading to take advantage of price movements affecting individual issues, groups
of issues or markets. Portfolio turnover is reported under "Financial
Highlights." An annual portfolio turnover rate of 100% would occur if all of the
securities in a fund were replaced once in a period of one year. Higher
portfolio turnover rates may result in increased brokerage costs and a possible
increase in short-term capital gains or losses.
YEAR 2000 COMPLIANCE. Like other mutual funds, financial and other business
organizations and individuals around the world, the Funds could be
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adversely affected if the computer systems used by the Adviser and other service
providers to the Funds do not properly process and calculate date-related
information and data from and after January 2000. The Adviser has taken steps to
address the Year 2000 issue with respect to the computer systems that it uses
and to obtain reasonable assurances that comparable steps are being taken by the
Funds' other major service providers. The Adviser does not anticipate that the
arrival of the Year 2000 will have a material impact on its ability to continue
to provide the Funds with service at current levels.
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4. MANAGEMENT
The business of the Trust is managed under the direction of the Board of
Trustees, and the business of each Core Portfolio is managed under the direction
of the Core Board. The Board formulates the general policies of the Funds and
meets periodically to review the results of the Funds, monitor investment
activities and practices and discuss other matters affecting the Funds and the
Trust. The Board consists of eight persons.
INVESTMENT ADVISORY SERVICES
NORWEST INVESTMENT MANAGEMENT. Subject to the general supervision of the Board,
Norwest continuously reviews, supervises and administers each Fund's and Core
Portfolio's investment program and makes investment decisions for the Funds and
Core Portfolios or oversees the investment decisions of the investment
subadvisers, as applicable. Norwest provides its investment advisory services
indirectly to Stable Income Fund and Total Return Bond Fund through its
investment advisory services to the Core Portfolios. Norwest, which is located
at Norwest Center, Sixth Street and Marquette, Minneapolis, Minnesota 55479, is
an indirect subsidiary of Norwest Corporation, a multi-bank holding company that
was incorporated under the laws of Delaware in 1929. As of December 31, 1997,
Norwest Corporation had assets of $88.5 billion, which made it the 11th largest
bank holding company in the United States. As of December 31, 1997, Norwest
Corporation and its affiliates managed assets with a value of approximately
$51.7 billion.
INVESTMENT SUBADVISER. To assist Norwest in carrying out its obligations, the
Core Portfolios and Norwest have retained the services of Galliard as an
investment subadviser to Stable Income Portfolio and Strategic Value Bond
Portfolio.
Galliard makes investment decisions for the Core Portfolios to which it acts as
investment subadviser and continuously reviews, supervises and administers the
Core Portfolio's investment programs with respect to that portion, if any, of
the Portfolios' assets that Norwest believes should be managed by Galliard.
Currently, Galliard manages all of the assets of the Core Portfolios which it
subadvises. Norwest supervises the performance of Galliard, including its
adherence to the Portfolios' investment objectives and policies.
GALLIARD CAPITAL MANAGEMENT, INC. Galliard, which is located at 800 LaSalle
Avenue, Suite 2060, Minneapolis, Minnesota 55479, is an investment advisory
subsidiary of Norwest Bank. Galliard provides investment advisory services to
bank and thrift institutions, pension and profit sharing plans, trusts and
charitable organizations and corporate and other business entities. As of March
31, 1997 Galliard managed approximately $3.0 billion in assets.
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PORTFOLIO MANAGERS. Many persons on the advisory staff of Norwest and Galliard
contribute to the investment services provided to the Funds and the Core
Portfolios. The following persons, however, are primarily responsible for
day-to-day management and, unless otherwise noted, have been primarily
responsible since the inception of the Fund or Portfolio. For periods prior to
June 1, 1997, all persons associated with Norwest served in their current
positions with Norwest Bank. Prior to that date Norwest Bank was each Fund's
investment adviser. In addition to their responsibilities as listed below, each
of the portfolio managers may perform portfolio management and other duties for
Norwest Bank.
STABLE INCOME FUND/STABLE INCOME PORTFOLIO - Karl P. Tourville. Mr.
Tourville has been a principal of Galliard since 1995. He has been
associated with Norwest and its affiliates since 1986, most recently as
Vice President and Senior Portfolio Manager.
INTERMEDIATE GOVERNMENT INCOME FUND and INCOME FUND - Marjorie H. Grace,
CFA. Ms. Grace has been a Vice President of Norwest since 1992. Ms. Grace
was a portfolio manager of Norwest Bank from 1992-1993; an Institutional
Salesperson with Norwest Investment Services, Inc. from 1991-1992; a
portfolio manager with United Banks of Colorado from 1989-1991; and a Vice
President and portfolio manager with Colombia Savings and Loan from
1987-1989.
TOTAL RETURN BOND FUND/STRATEGIC VALUE BOND PORTFOLIO - The investment
management team of Richard Merriam, John Huber and David Yim at Galliard
Capital Management. Mr. Merriam, CFA, has been a Principal in the firm
since 1995 and is responsible for Galliard's investment process and
strategy. Prior to joining Galliard, Mr. Merriam was Chief Investment
Officer of Insight Investment Management. Prior thereto, he served as a
Senior Vice President at Washington Square Capital where he oversaw
management of nearly $5.0 billion in assets. He obtained a B.A. from the
University of Michigan and an M.B.A. from the University of Minnesota. Mr.
Huber has been a Portfolio Manager and Director of Trading at Galliard
since 1995 and has been actively involved in the mangement of the Norwest
Advantage Stable Income Fund and other Norwest Advantage Funds. He has over
seven years' investment management experience and has obtained a B.A. from
the University of Iowa and an M.B.A. from the University of Minnesota. Mr.
Yim has been a Portfolio Manager and Director of Investment Research since
1995. Prior to joining Galliard, he worked for American Express Financial
Advisors for 6 years, most recently as a Research Analyst focusing on the
Insurance and Finance Industries. He obtained a B.A. from Middlebury
College and an M.B.A. from the University of Minnesota.
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ADVISORY FEES. For its services, Norwest receives investment advisory fees from
the Funds (or to the extent a Fund invests in a Core Portfolio, from that Core
Portfolio) at the following annual rates of the Fund's or Portfolio's average
daily net assets.
<TABLE>
<CAPTION>
Investment Advisory
Fund Fee
- -----------------------------------------------------------------
<S> <C>
Stable Income Fund (Stable Income
Portfolio)................................ 0.30%
Intermediate Government Income Fund......... 0.33%
Income Fund................................. 0.50%
Total Return Bond Fund (Strategic Value Bond
Portfolio)................................ 0.50%
</TABLE>
Norwest (and not the Core Portfolios) pays Galliard a fee for its investment
subadvisory services. This compensation does not increase the amount paid by the
Core Portfolio to Norwest for investment advisory services.
Stable Income Fund and Total Return Bond Fund each may withdraw its investments
from its Core Portfolio at any time if the Board determines that it is in the
best interests of the Fund to do so. (See "Other Information - Core and Gateway
Structure.") Accordingly, Stable Income Fund and Total Return Bond Fund have
retained Norwest as their investment adviser. Similarly, Stable Income Fund and
Total Return Bond Fund have retained Galliard as their investment subadviser.
Under these "dormant" investment advisory arrangements, neither Norwest nor
Galliard receives any advisory fees with respect to a Fund as long as the Fund
remains completely invested in its respective Core Portfolio or any other
investment companies. In the event that Stable Income Fund or Total Return Bond
Fund were to withdraw their assets from their respective Core Portfolios,
Norwest would receive an investment advisory fee on the withdrawn assets at an
annual rate of 0.30% and 0.50% of the Fund's average daily net assets,
respectively.
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 Funds by others. FAS is responsible for
performing certain administrative services necessary for the Trust's operations
with respect to each Fund including: (1) preparing and printing updates of the
Trust's registration statement, prospectuses and statements of additional
information, the Trust's tax returns, and reports to its shareholders,
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the SEC and state securities administrators; (2) preparing proxy and information
statements and any other communications to shareholders; (3) monitoring the
sales 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 December 1, 1997, Forum and FAS provided management and administrative
services to registered investment companies and collective investment funds with
assets of approximately $30 billion. Forum is a member of the National
Association of Securities Dealers, Inc. For their services, Forum and FAS each
receives a fee with respect to Stable Income Fund and Total Return Bond Fund at
an annual rate of 0.025% of the Fund's average daily net assets and with respect
to Intermediate Government Income Fund and Income Fund at an annual rate of
0.05% of the Fund's average daily net assets.
FAS also serves as an administrator of each Core Portfolio and provides services
to the Core Portfolios that are similar to those provided to the Funds by Forum
and FAS. For its services FAS receives a fee with respect to each Core Portfolio
at an annual rate of 0.05% of the Portfolio's average daily net assets.
Pursuant to a separate agreement, Forum Accounting Services, LLC ("Forum
Accounting") provides portfolio accounting services to each Fund and to each
Core Portfolio. Forum, FAS, and Forum Accounting are members of the Forum
Financial Group of companies which together provide a full range of services to
the investment company and financial services industry. As of April 1, 1998,
Forum, FAS and Forum Accounting were controlled by John Y. Keffer, President and
Chairman of the Trust.
Forum also acts as the distributor of the Shares. As the Funds' distributor,
Forum pays a broker-dealers' reallowance on A Shares and a sales commission on B
Shares to broker-dealers who sell shares of the Funds. Normally, Forum will make
payments to broker-dealers (see, "Characteristics of The Shares.") From its own
resources, Forum may pay additional fees to broker-dealers or other persons for
distribution or other services related to the Funds. For further information
about the Funds' distribution plan, including the fees payable thereunder, see
"Characteristics of The Shares."
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
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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 each Fund at an annual rate of 0.25% of each Fund's average
daily net assets attributable to each class of the Fund.
Norwest Bank also serves as each Fund's and each Core Portfolio'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 each Fund and each Core Portfolio at an annual rate of 0.02% of the
first $100 million of the Fund's or Core Portfolio's average daily net assets,
0.015% of the next $100 million of the Fund's or Core Portfolio's average daily
net assets and 0.01% of the Fund's or Core Portfolio's remaining average daily
net assets. No fee is directly payable by the Fund to the extent the Fund is
invested in a Core Portfolio.
EXPENSES OF THE FUNDS
Subject to the obligation of Norwest to reimburse the Trust for certain expenses
of the Funds, the Trust has confirmed its obligation to pay all the Trust's
expenses. The Funds' expenses include Trust expenses attributable to the Funds,
which are allocated to each Fund, and expenses not specifically attributable to
the Funds, which are allocated among the Funds and all other funds of the Trust
in proportion to their average net assets. Each service provider to a Fund may
elect to waive (or continue to waive) all or a portion of their fees, which are
accrued daily and paid monthly. Any such waivers will have the effect of
increasing a Fund's performance for the period during which the waiver is in
effect. Except as otherwise noted fee waivers are voluntary and may be reduced
or eliminated at any time.
Norwest and Forum have agreed to waive their respective fees or reimburse
expenses in order to maintain Total Return Bond Fund's total combined operating
expenses through May 31, 1998 at the same levels as the Fund's total operating
expenses prior to May 31, 1997 (0.75% for A Shares and 1.50% for B Shares).
After May 31, 1998, any proposed reduction in the amount of those waivers and
reimbursements would be reviewed by the Board.
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
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are shareholders of a Fund. Under agreements with those customers, these
entities may elect to credit against the fees payable to them by their customers
or to rebate to customers all or a portion of any fee received from the Trust
with respect to assets of those customers invested in a Fund.
The expenses of Stable Income Fund and Total Return Bond Fund include the Fund's
pro rata share of the operating expenses of the Core Portfolios in which the
Fund invests, which are borne indirectly by the Fund's shareholders.
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5. CHOOSING A SHARE CLASS
Investors should compare sales charges and fees before selecting a particular
class of shares. Investors should consider whether, during the anticipated life
of their investment in a Fund, the accumulated distribution services fee and
maintenance fee and contingent deferred sales charges on B Shares prior to
conversion would be less than the initial sales charge on A Shares purchased at
the same time and whether that differential would be offset by the higher yield
of A Shares. A summary of the charges applicable to shares of each Fund is
listed under "Prospectus Summary - Expense Information." Sales personnel of
broker-dealers and other financial institutions selling a Fund's shares may
receive differing compensation for selling A Shares and B Shares.
Because initial sales charges are deducted at the time of purchase, investors
purchasing a Fund's A Shares receive fewer shares than if the sales charge were
not deducted and, accordingly, do not have the entire purchase price invested.
Investors not qualifying for reduced initial sales charges who expect to
maintain their investment for an extended period of time should consider
whether, in light of the initial sales charge and its effect on the amount of
the purchase price invested, purchases of A Shares are more or less advantageous
than purchases of B Shares with their associated accumulated continuing
distribution and maintenance charges. For example, based on estimated current
fees and expenses, an investor in each Fund other than Stable Income Fund
subject to the 4.0% initial sales charge who elects to reinvest all dividends
and distributions would have to hold the shareholder's investment approximately
five years for the B Shares' distribution services fee and maintenance fee to
exceed the initial sales charge. An investor in Stable Income Fund subject to
the 1.50% initial sales charge who elects to reinvest all dividends and
distributions would have to hold the shareholder's investment approximately two
years for the B Shares' distribution services fee and maintenance fee to exceed
the initial sales charge. The foregoing examples does not take into account the
time value of money, fluctuations in net asset value or the effects of different
performance assumptions.
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A SHARES
The public offering price of A Shares is their next-determined net asset value
plus an initial sales charge assessed as follows (no sales charge is assessed on
the reinvestment of dividends or distributions):
STABLE INCOME FUND
<TABLE>
<CAPTION>
Broker-
Dealers'
Sales Charge Reallowance As
As a Percentage of a Percentage
................................ of Offering
Amount of Purchase Offering Price Net Asset Value* Price
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000...... 1.50% 1.52% 1.35%
$50,000 to $99,999..... 1.00% 1.01% 0.90%
$100,000 to $499,000... 0.75% 0.76% 0.70%
$500,000 to $999,000... 0.50% 0.50% 0.45%
$1,000,000 and over.... None None None
* Rounded to the nearest one-hundredth percent
</TABLE>
INTERMEDIATE GOVERNMENT INCOME FUND,
INCOME FUND AND TOTAL RETURN BOND FUND
<TABLE>
<CAPTION>
Broker-
Dealers'
Sales Charge Reallowance As
As a Percentage of a Percentage
................................ of Offering
Amount of Purchase Offering Price Net Asset Value* Price
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000...... 4.00% 4.17% 3.50%
$50,000 to $99,999..... 3.50% 3.63% 3.00%
$100,000 to $249,000... 3.00% 3.09% 2.50%
$250,000 to $499,999... 2.50% 2.56% 2.25%
$500,000 to $999,000... 2.00% 2.04% 1.75%
$1,000,000 to
$2,499,999............ 0.00% 0.00% 0.75%
$2,500,000 to
$4,999,999............ 0.00% 0.00% 0.50%
Over $5,000,000........ 0.00% 0.00% 0.25%
* Rounded to the nearest one-hundredth percent
</TABLE>
Forum may pay a broker-dealers' reallowance to selected broker-dealers
purchasing shares as principal or agent, which may include banks, bank
affiliates and Processing Organizations. Normally, Forum will reallow discounts
to selected broker-dealers in the amounts indicated in the table above. In
addition, Forum may elect to reallow the entire sales charge to selected
broker-dealers for all sales with respect to which orders are placed with
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Forum. The broker-dealers' reallowance may be changed from time to time. Forum
may make additional payments (out of its own resources) to selected
broker-dealers of up to 0.75% (0.50% in the case of Stable Income Fund) of the
value of Fund shares purchased at net asset value.
In addition, from time to time and at its own expense, Forum may provide
compensation, including financial assistance, to dealers in connection with
conferences, sales or training programs for their employees, seminars for the
public, advertising campaigns, sales incentive programs or other
dealer-sponsored special events. Compensation may include: (1) the provision of
travel arrangements and lodging; (2) tickets for entertainment events; and (3)
merchandise.
In some instances, this compensation may be made available only to certain
dealers or other financial intermediaries who have sold or are expected to sell
significant amounts of shares of the Funds or who charge an asset based fee
(whether or not they have a fiduciary relationship with their clients).
No sales charge is assessed on purchases: (1) by any bank, trust company or
other institution acting on behalf of its fiduciary customer accounts or any
other account maintained by its trust department (including a pension, profit
sharing or other employee benefit trust created pursuant to a plan qualified
under Section 401 of the Internal Revenue Code of 1986, as amended); (2) by any
bank, trust company or other financial intermediary acting on behalf of its
asset based fee account customers; (3) by trustees and officers of the Trust;
directors, officers and full-time employees of Forum, of Norwest Corporation or
of any of their affiliates; the spouse, direct ancestor or direct descendant
(collectively, "relatives") of any such person; any trust or individual
retirement account or self-employed retirement plan for the benefit of any such
person or relative; or the estate of any such person or relative; (4) by any
registered investment adviser with whom Forum has entered into a Share purchase
agreement and which is acting on behalf of its fiduciary customer accounts; or
(5) of A Shares of a Fund made through the Directed Dividend Option from a fund
of the Trust that charges a front-end sales charge (see "Dividends and Tax
Matters"). Shares sold without a sales charge may not be resold except to the
Fund, and share purchases must be made for investment purposes.
REINSTATEMENT PRIVILEGE. An investor who has redeemed A Shares of a Fund may,
within 60 days following the redemption, purchase without a sales charge A
Shares in an amount up to the amount of the redemption. Investors who desire to
exercise this "Reinstatement Privilege" should contact the Trust for further
information.
INVESTORS IN OTHER FUND FAMILIES. No sales charge is assessed on purchases of A
Shares of a Fund with the proceeds of a redemption, within the preceding 60
days, of shares of a mutual fund that imposed on the redeemed shares
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at the time of their purchase a sales charge equal to or greater than that
applicable to the A Shares of that Fund. Investors should contact the Trust for
further information and to obtain the necessary forms.
REDUCED INITIAL SALES CHARGES. To qualify for a reduced sales charge, an
investor or the investor's Processing Organization must notify the Transfer
Agent at the time of purchase of the investor's intention to qualify and must
provide the Transfer Agent with sufficient information to verify that the
purchase qualifies for the reduced sales charge. Reduced sales charges may be
modified or terminated at any time and are subject to confirmation of an
investor's holdings. Further information about reduced sales charges is
contained in the SAI.
SELF-DIRECTED 401(K) PROGRAMS. Purchases of A Shares of a Fund through
self-directed 401(k) programs and other qualified retirement plans offered by
Norwest, Forum or their affiliates in accumulated amounts of less than $100,000
are subject to a reduced sales charge applicable to a single purchase of
$100,000.
CUMULATIVE QUANTITY DISCOUNT (RIGHT OF ACCUMULATION). An investor's purchase of
additional A Shares of a Fund may qualify for rights of accumulation ("ROA")
under which the applicable sales charge will be based on the total of the
investor's current purchase and the net asset value (at the end of the previous
Fund Business Day) of all A Shares of that Fund held by the investor. For
example, if an investor in Intermediate Government Income Fund, Income Fund or
Total Return Bond Fund owned A Shares of the Fund worth $500,000 at the then
current net asset value and purchased A Shares of that Fund worth an additional
$50,000, the sales charge for the $50,000 purchase would be at the 2.0% rate
applicable to a $550,000 purchase, rather than at the 3.5% rate applicable to a
$50,000 purchase.
In addition, an investor in a Fund that has previously purchased A Shares of any
other fund of the Trust that is sold with a sales charge equal to or greater
than the sales charge imposed on the A Shares of the Fund ("Eligible Fund") also
may qualify for ROA and may aggregate existing investments in A Shares of
Eligible Funds with current purchases of A Shares of the Fund to determine the
applicable sales charge. In addition, purchases of A Shares of a Fund by an
investor and the investor's spouse, direct ancestor or direct descendant may be
combined for purposes of ROA.
STATEMENT OF INTENTION. Investors in A Shares also may obtain reduced sales
charges based on cumulative purchases by means of a written Statement of
Intention, expressing the investor's intention to invest $50,000 or more in A
Shares of a Fund within a period of 13 months. Each purchase of shares under a
Statement of Intention will be made at net asset value plus the sales charge
applicable at the time of the purchase to a single transaction of the dollar
amount indicated in the Statement.
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Investors wishing to enter into a Statement of Intention in conjunction with
their initial investment in shares of a Fund should complete the appropriate
portion to the account application form. Current Fund shareholders can obtain a
Statement of Intention form by contacting the Transfer Agent.
CONTINGENT DEFERRED SALES CHARGE. A Shares of a Fund on which no initial sales
charge was assessed due to the amount purchased in a single transaction or
pursuant to the Cumulative Quantity Discount or a Statement of Intention and
that are redeemed (including certain redemptions in connection with an exchange)
within specified periods after the purchase date of the shares will be subject
to contingent deferred sales charges equal to the percentages set forth below of
the dollar amount subject to the charge. The charge will be assessed on an
amount equal to the lesser of the cost of the shares being redeemed and their
net asset value at the time of redemption. Accordingly, no sales charge will be
imposed on increases in net asset value above the initial purchase price. In
addition, no charge will be assessed on shares derived from the reinvestment of
dividends and distributions.
STABLE INCOME FUND
<TABLE>
<CAPTION>
Contingent Deferred
Sales Charge as a % of
Period Shares Dollar Amount Subject
Amount of Purchase Held to Charge
- -----------------------------------------------------------------
<S> <C> <C>
$1,000,000 to Less than one
$4,999,999......... year 0.50%
One to two years 0.25%
Less than one
Over $5,000,000...... year 0.25%
</TABLE>
INTERMEDIATE GOVERNMENT INCOME FUND,
INCOME FUND AND TOTAL RETURN BOND FUND
<TABLE>
<CAPTION>
Contingent Deferred
Sales Charge as a % of
Period Shares Dollar Amount Subject
Amount of Purchase Held to Charge
- -----------------------------------------------------------------
<S> <C> <C>
$1,000,000 to Less than one
$2,499,999......... year 0.75%
One to two years 0.50%
$2,500,000 to Less than one
$4,999,999......... year 0.50%
Less than one
Over $5,000,000...... year 0.25%
</TABLE>
No contingent deferred sales charge is charged on redemptions to the same extent
as described under "B Shares - Contingent Deferred Sales Charge" below. The
contingent deferred sales charge on shares purchased through an exchange from
another fund of the Trust is based upon the original purchase date and price of
the other fund's shares. For A shareholders with a Statement of Intention that
do not purchase $1,000,000 of a Fund's A Shares pursuant
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to their Statement, no contingent deferred sales charge is imposed. The
Statement of Intention provides for a contingent deferred sales charge in
certain other cases. Further information about the contingent deferred sales
charge is contained in the SAI.
B SHARES
DISTRIBUTION PLAN. B Shares are sold at their net asset value per share without
the imposition of a sales charge at the time of purchase. With respect to B
Shares, each Fund has adopted a distribution plan pursuant to Rule 12b-1 under
the 1940 Act (the "Plan") providing for distribution payments, at an annual rate
of up to 0.75% of the average daily net assets of the Fund attributable to B
Shares (the "distribution services fee"), by each Fund to Forum, to compensate
Forum for its distribution activities. The distribution payments due to Forum
from each Fund comprise: (1) sales commissions at levels set from time to time
by the Board ("sales commissions"); and (2) an interest fee calculated by
applying the rate of 1% over the prime rate to the outstanding balance of
uncovered distribution charges (as described below). The current sales
commission rate is 3% (1.5% in the case of Stable Income Fund) and Forum
currently expects to pay sales commissions to each broker-dealer at the time of
sale of up to 3% (1.5% in the case of Stable Income Fund) of the purchase price
of B Shares of each Fund sold by the broker-dealer.
Under the distribution services agreement between Forum and the Trust, Forum
will receive, in addition to the distribution services fee, all contingent
deferred sales charges due upon redemptions of B Shares. The combined contingent
deferred sales charge and distribution services fee on B Shares are intended to
finance the distribution of those shares by permitting an investor to purchase
shares through broker-dealers without the assessment of an initial sales charge
and, at the same time, permitting Forum to compensate broker-dealers in
connection with the sales of the shares. Proceeds from the contingent deferred
sales charge with respect to a Fund are paid to Forum to defray the expenses
related to providing distribution-related services in connection with the sales
of B Shares, such as the payment of compensation to broker-dealers selling B
Shares. Forum may spend the distribution services fees it receives as it deems
appropriate on any activities primarily intended to result in the sale of B
Shares.
Under the Plan, a Fund will make distribution services fee payments to Forum
only for periods during which there are outstanding uncovered distribution
charges attributable to that Fund. Uncovered distribution charges are equivalent
to all sales commissions previously due (plus interest), less amounts received
pursuant to the Plan and all contingent deferred sales charges previously paid
to Forum. At May 31, 1997, Stable Income Fund, Intermediate Government Income
Fund, Income Fund and Total Return
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Bond Fund had uncovered distribution expenses of $15,281; $153,833; $75,004; and
$45,379, respectively, or approximately 1.45%, 1.71%, 2.24% and 2.01%, of each
respective Fund's net assets attributable to B Shares as of the same date.
The amount of distribution services fees and contingent deferred sales charge
payments received by Forum with respect to a Fund is not related directly to the
amount of expenses incurred by Forum in connection with providing distribution
services to the B Shares and may be higher or lower than those expenses. Forum
may be considered to have realized a profit under the Plan if, at any time, the
aggregate amounts of all distribution services fees and contingent deferred
sales charge payments previously made to Forum exceed the total expenses
incurred by Forum in distributing B Shares.
Pursuant to the Plan, each Fund has agreed also to pay Forum a maintenance fee
in an amount equal to 0.25% of the average daily net assets of the Fund
attributable to the B Shares for providing personal services to shareholder
accounts. The maintenance fee may be paid by Forum to broker-dealers in an
amount not to exceed 0.25% of the value of B Shares held by the customers of the
broker-dealers. The distribution services fee and the maintenance fee are each
accrued daily and paid monthly and will cause a Fund's B Shares to have a higher
expense ratio and to pay lower dividends than A Shares of that Fund.
Notwithstanding the discontinuation of distribution services fees with respect
to a Fund, the Fund may continue to pay maintenance fees.
A Fund does not accrue future distribution services fees as a liability of the
Fund with respect to the B Shares or reduce the Fund's current net assets in
respect of distribution services fees which may become payable under the Plan in
the future.
In the event that the Plan is terminated or not continued with respect to a
Fund, the Fund may, under certain circumstances, continue to pay distribution
services fees to Forum (but only with respect to sales that occurred prior to
the termination or discontinuance of the Plan). Those circumstances are
described in detail in the SAI. In deciding whether to purchase B Shares of a
Fund, investors should consider that payments of distribution services fees
could continue until such time as there are no uncovered distribution charges
under the Plan attributable to that Fund. In approving the Plan, the Board
determined that there was a reasonable likelihood that the Plan would benefit
each Fund and its B shareholders.
Periods with a high level of sales of B Shares of a Fund accompanied by a low
level of redemptions of those shares that are subject to contingent deferred
sales charges will tend to increase uncovered distribution charges. Conversely,
periods with a low level of sales of B Shares of a Fund accompanied by a high
level of redemptions of those shares that are subject to contingent deferred
sales charges will tend to reduce uncovered distribution charges. A
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high level of sales of B Shares during the first few years of operations,
coupled with the limitation on the amount of distribution services fees payable
by a Fund with respect to B Shares during any fiscal year, would cause a large
portion of the distribution services fees attributable to a sale of the B Shares
to be accrued and paid by the Fund to Forum with respect to those shares in
fiscal years subsequent to the years in which those shares were sold. The
payment delay would in turn result in the incurrence and payment of increased
interest fees under the Plan.
CONTINGENT DEFERRED SALES CHARGE. B Shares of a Fund that are redeemed within
four years of purchase (two years of purchase in the case of the Stable Income
Fund) will be subject to contingent deferred sales charges equal to the
percentages set forth below of the dollar amount subject to the charge. The
amount of the contingent deferred sales charge, if any, will vary depending on
the number of years between the payment for the purchase of B Shares of a Fund
and their redemption.
The contingent deferred sales charge will be assessed on an amount equal to the
lesser of the cost of the B Shares being redeemed and their net asset value at
the time of redemption. Accordingly, no sales charge will be imposed on
increases in net asset value above the initial purchase price. In addition, no
charge will be assessed on B Shares derived from the reinvestment of dividends
and distributions.
<TABLE>
<CAPTION>
Contingent Deferred Sales Charge as a % of
Dollar Amount Subject to Charge
..........................................
Intermediate
Government
Income Fund, Income
Fund and Total Return
Year Since Purchase Stable Income Fund Bond Fund
- ----------------------------------------------------------------------
<S> <C> <C>
First..................... 1.5% 3.0%
Second.................... 0.75% 2.0%
Third..................... None 2.0%
Fourth.................... None 1.0 %
Fifth..................... None None
Sixth..................... None None
</TABLE>
Redemptions of Shares will be effected in the manner that results in the
imposition of the lowest deferred sales charge. Redemptions with respect to a
shareholder's investment in a Fund will automatically be made first from any A
Shares in the Fund, second from B Shares of the Fund acquired pursuant to
reinvestment of dividends and distributions, third from B Shares of the Fund
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held for over four years (two years in the case of the Stable Income Fund), and
fourth from the longest outstanding B Shares of the Fund held for less than four
years (two years in the case of the Stable Income Fund).
No contingent deferred sales charge is imposed on: (1) redemptions of Shares
acquired through the reinvestment of dividends and distributions; (2)
involuntary redemptions by a Fund of shareholder accounts with low account
balances; (3) redemptions of Shares following the death or disability of a
shareholder if the Fund is notified within one year of the shareholder's death
or disability; (4) redemptions to effect a distribution (other than a lump sum
distribution) from an IRA, Keogh plan or Section 403(b) custodial account or
from a qualified retirement plan; and (5) redemptions by any registered
investment adviser with whom Forum has entered into a share purchase agreement
and which is acting on behalf of its fiduciary customer accounts. See the SAI
for further information.
CONVERSION FEATURE. After six years (four years in the case of Stable Income
Fund) from the end of the calendar month in which the shareholder's purchase
order for B Shares was accepted, the Shares will automatically convert to A
Shares of that Fund. The conversion will be on the basis of the relative net
asset values of the Shares, without the imposition of any sales load, fee or
other charge. For purposes of conversion, B Shares of a Fund purchased by a
shareholder through the reinvestment of dividends and distributions will be
considered to be held in a separate sub-account. Each time any B Shares in the
shareholder's account (other than those in the sub-account) convert, a
corresponding pro rata portion of those shares in the sub-account will also
convert. The conversion of B Shares to A Shares is subject to the continuing
availability of certain opinions of counsel and the conversion of a Fund's B
Shares to A Shares may be suspended if such an opinion is no longer available at
the time the conversion is to occur. In that event, no further conversions of
the Fund's B Shares would occur, and shares might continue to be subject to a
distribution services and maintenance fee for an indefinite period.
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6.HOW TO BUY SHARES
MINIMUM INVESTMENT
There is a $1,000 minimum for initial purchases ($5,000 in the case of Stable
Income Fund) and a $100 minimum for subsequent purchases of Shares of the Funds.
A Fund may in its discretion waive the investment minimums. Shareholders who
elect electronic share purchase privileges such as the Automatic Investment Plan
or the Directed Dividend Option are not subject to the initial investment
minimum. See "Other Shareholder Services - Automatic Investment Plan" and
"Dividends and Tax Matters."
The Funds reserve the right to reject any subscription for the purchase of their
shares. Share certificates are issued only to shareholders of record upon their
written request and no certificates are issued for fractional shares.
PURCHASE PROCEDURES
INITIAL PURCHASES
THERE ARE THREE WAYS TO PURCHASE SHARES INITIALLY.
1. BY MAIL. Investors may send a check or money order (cash cannot be accepted)
along with a completed account application form to the Trust at the address
listed under "Account Application." Checks or money orders are accepted at full
value subject to collection. If a check or money order 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 Forum.
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 a Fund must be made payable on
its face to "Norwest Advantage Funds." No other method of payment by check will
be accepted.
2. BY BANK WIRE. Investors may make an initial investment in a Fund using the
wire system for transmittal of money among banks. The investor should first
telephone the Transfer Agent at (612) 667-8833 or (800) 338-1348 to obtain an
account number. The investor should then instruct a bank to wire the investor's
money immediately to:
NORWEST BANK MINNESOTA, N.A.
ABA 091 000 019
FOR CREDIT TO: NORWEST ADVANTAGE FUNDS
0844-131
RE: [NAME OF FUND]
[DESIGNATE A SHARES OR B SHARES]
ACCOUNT NO.:
ACCOUNT NAME:
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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.
3. THROUGH FINANCIAL INSTITUTIONS. Shares may be purchased and redeemed through
certain broker-dealers, banks and other financial institutions ("Processing
Organizations"). The Transfer Agent, Forum and their affiliates may be
Processing Organizations. Processing Organizations may receive as a
broker-dealer's reallowance a portion of the sales charge paid by their
customers who purchase A Shares of a Fund, may receive payments from Forum with
respect to sales of B Shares and may receive payments as a processing agent from
the Transfer Agent. In addition, financial institutions, including Processing
Organizations, may charge their customers a fee for their services and are
responsible for promptly transmitting purchase, redemption and other requests to
the Funds.
Investors who purchase shares through a Processing Organization will be subject
to the procedures of their Processing Organization, which may include charges,
limitations, investment minimums, cutoff times and restrictions in addition to,
or different from, those applicable to shareholders who invest in a Fund
directly. These investors should acquaint themselves with their institution's
procedures and should read this Prospectus in conjunction with any materials and
information provided by their institution. Customers who purchase a Fund's
shares through a Processing Organization may or may not be the shareholder of
record and, subject to their institution's and the Funds' procedures, may have
Fund shares transferred into their name. There is typically a three-day
settlement period for purchases and redemptions through broker-dealers. Certain
Processing Organizations also may 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
Subsequent purchases may be made by mailing a check, by sending a bank wire or
through a shareholder's Processing Organization as indicated above. All payments
should clearly indicate the shareholder's name and account number.
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ACCOUNT APPLICATION
Investors may obtain the account application form necessary to open an account
by writing the Trust at the following address:
NORWEST ADVANTAGE FUNDS
[NAME OF FUND]
NORWEST BANK MINNESOTA, N.A.
TRANSFER AGENT
733 MARQUETTE AVENUE
MINNEAPOLIS, MN 55479-0040
To participate in shareholder services not referenced on the account application
form and to change information on a shareholder's account (such as addresses),
investors or existing shareholders should contact the Trust. The Trust reserves
the right in the future to modify, limit or terminate any shareholder privilege
upon appropriate notice to shareholders and to charge a fee for certain
shareholder services, although no such fees are currently contemplated. Any
privilege and participation in any program may be terminated by the shareholder
at any time by writing to the Trust.
GENERAL INFORMATION
Fund shares are continuously sold on every weekday except customary national
business holidays (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"). The purchase price for
Fund shares equals their net asset value next-determined after acceptance of an
order plus, in the case of the A Shares, any applicable sales charge imposed at
the time of purchase.
Fund shares become entitled to receive dividends and distributions on the next
Fund Business Day after a purchase order is accepted.
All payments for Shares must be in U.S. dollars. Investments in the Funds may be
made either through certain financial institutions or by an investor directly.
An investor who invests in a Fund directly will be the shareholder of record.
All transactions in Fund shares are effected through the Transfer Agent, which
accepts orders for redemptions and for subsequent purchases only from
shareholders of record. Shareholders of record will receive from the Trust
periodic statements listing all account activity during the statement period.
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7. HOW TO SELL SHARES
GENERAL INFORMATION
Fund Shares may be sold (redeemed) at their net asset value on any Fund Business
Day subject to a contingent deferred sales charge imposed, in the case of A
Shares, on some redemptions made within two years of purchase and, in the case
of B Shares, on most redemptions made within four years of purchase (two in the
case of Stable Income Fund). 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 that the Transfer Agent may require).
Redeemed shares are not entitled to receive dividends declared after the day the
redemption becomes effective.
Normally, redemption proceeds are paid immediately, but in no event later than
seven days, following receipt of a redemption order. Proceeds of redemption
requests (and exchanges), however, will not be paid unless any check used to
purchase the shares being redeemed has been cleared by the shareholder's bank,
which may take up to 15 days. This delay may be avoided by paying for shares
through wire transfers. Unless otherwise indicated, redemption proceeds normally
are paid by check mailed to the shareholder's record address. The right of
redemption may not be suspended nor the payment dates postponed for more than
seven days after the tender of the shares to a Fund, except when the New York
Stock Exchange is closed (or when trading thereon is restricted) for any reason
other than its customary weekend or holiday closings, for any period during
which an emergency exists as a result of which disposal by the Fund of its
portfolio securities or determination by the Fund of the value of its net assets
is not reasonably practicable and for such other periods as the SEC may permit.
REDEMPTION PROCEDURES
Shareholders who have invested through a Processing Organization may redeem
their shares through the Processing Organization as described above.
Shareholders who have invested directly in a Fund may redeem their Shares as
described below. Shareholders who wish to redeem shares by telephone or receive
redemption proceeds by bank wire must elect these options by properly completing
the appropriate sections of their account application form. These privileges may
not be available until several weeks after a shareholder's application is
received. Shares for which certificates have been issued may not be redeemed by
telephone.
1. BY MAIL. Shareholders may redeem shares by sending a written request to the
Transfer Agent accompanied by any share certificate that may have
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been issued to the shareholder to evidence the shares being redeemed. All
written requests for redemption must be signed by the shareholder with signature
guaranteed, and all certificates submitted for redemption must be endorsed by
the shareholder with signature guaranteed. (See "How to Sell Shares - Other
Redemption Matters.")
2. BY TELEPHONE. A shareholder who has elected telephone redemption privileges
may make a telephone redemption request by calling the Transfer Agent at (800)
338-1348 or (612) 667-8833 and providing the shareholder's account number, the
exact name in which his shares are registered and the shareholder's social
security or taxpayer identification number. In response to the telephone
redemption instruction, the Trust will mail a check to the shareholder's record
address or, if the shareholder has elected wire redemption privileges, wire the
proceeds. (See "How to Sell Shares - Other Redemption Matters.")
3. BY BANK WIRE. For redemptions of more than $5,000, a shareholder who has
elected wire redemption privileges may request a Fund to transmit the redemption
proceeds by federal funds wire to a bank account designated in writing by the
shareholder. To request bank wire redemptions by telephone, the shareholder also
must have elected the telephone redemption privilege. Redemption proceeds are
transmitted by wire on the day after a redemption request in proper form is
received by the Transfer Agent.
OTHER REDEMPTION MATTERS
To protect shareholders and the Funds against fraud, signatures on certain
requests must have a signature guarantee. Requests must be made in writing and
include a signature guarantee for any of the following transactions: (1) any
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) instruction regarding an Automatic Investment Plan or Automatic Withdrawal
Plan; (5) dividend and distribution election; (6) telephone redemption; (7)
exchange option election or any other option election in connection with the
shareholder's account; (8) written instruction to redeem Shares whose value
exceeds $50,000; (9) redemption in an account in which the account address has
changed within the last 30 days; (10) redemption when the proceeds are deposited
in a Norwest Advantage Funds account under a different account registration; and
(11) the remitting of redemption proceeds to any address, person or account for
which there are not established standing instructions on the account.
Signature guarantees may be provided by any bank, broker-dealer, national
securities exchange, credit union, savings association or other eligible
institution that is authorized to guarantee signatures and is acceptable to the
Transfer Agent. Whenever a signature guarantee is required, the signature of
each person required to sign for the account must be guaranteed.
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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 ($5,000 in
the case of Stable Income Fund) immediately following any redemption.
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8.OTHER SHAREHOLDER SERVICES
EXCHANGES
Shareholders of A Shares and B Shares may exchange their shares for A Shares and
B Shares, respectively, of the other funds of the Trust that offer those shares.
As of the date of this Prospectus, the funds of the Trust that offer A Shares
and B Shares, which are offered through separate prospectuses, are Tax-Free
Income Fund, Colorado Tax-Free Fund, Minnesota Tax-Free Fund, Income Equity
Fund, ValuGrowth-SM- Stock Fund, Diversified Equity Fund, Growth Equity Fund,
Small Company Stock Fund, Small Cap Opportunities Fund and International Fund.
It is anticipated that the Trust may in the future create additional funds that
will offer shares that will be exchangeable with the Funds' Shares. In addition,
A Shares may be exchanged for Investor Shares of Ready Cash Investment Fund and
Municipal Money Market Fund of the Trust. B Shares may be exchanged for Exchange
Shares of Ready Cash Investment Fund. Prospectuses for the shares of the funds
listed above, as well as a current list of the funds of the Trust that offer
shares exchangeable with the Shares of the Funds, can be obtained through Forum
by contacting the Transfer Agent.
The Funds do not charge for exchanges, and there is currently no limit on the
number of exchanges a shareholder may make. The Funds reserve the right,
however, to limit excessive exchanges by any shareholder. Exchanges are subject
to the fees (other than contingent deferred sales charges) charged by, and the
limitations (including minimum investment restrictions) of, the fund into which
a shareholder is exchanging.
Exchanges may only be made between identically registered accounts or by opening
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.
Under federal tax law, the Funds treat an exchange as a redemption and a
purchase. Accordingly, a shareholder may realize a capital gain or loss
depending on whether the value of the shares redeemed is more or less than the
shareholder's basis in the shares at the time of the exchange transaction.
Exchange procedures may be amended materially or terminated by the Trust at any
time upon 60 days' notice to shareholders. (See "Additional Purchase and
Redemption Information" in the SAI.)
SALES CHARGES. The exchange of A Shares may result in additional sales charges.
If an exchange of A Shares is made into a fund that imposes an initial sales
charge, the shareholder is required to pay an amount equal to any excess of that
fund's initial sales charge attributable to the number of shares being
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acquired in the exchange over any initial sales charge paid by the shareholder
for the shares being exchanged. For example, if a shareholder paid a 2% initial
sales charge in connection with a purchase of shares and then exchanged those
shares into A Shares of another fund with a 3% initial sales charge, the
shareholder would pay an additional 1% sales charge on the exchange. A Shares
acquired through the reinvestment of dividends or distributions are deemed to
have been acquired with a sales charge rate equal to that applicable to the
shares on which the dividends or distributions were paid.
Shares of a Fund ("Original Shares") may be exchanged without the payment of any
contingent deferred sales charge. A and B Shares acquired as a result of such
exchange ("New Shares") and subsequently redeemed will nonetheless be subject to
the contingent deferred sales charge applicable to the Original Shares as if
those shares were being redeemed at that time. For purposes of computing both
the contingent deferred sales charge payable upon redemption of the New Shares
and, in the case of B Shares, the time remaining before the New B Shares convert
to A Shares of that Fund, the deferred sales charge and the time remaining
applicable to the Original Shares will apply to the New Shares rather than the
deferred sales charge and time remaining that would otherwise apply. The
deferred sales charge and time remaining applicable to Shares first purchased by
a shareholder will apply to New Shares resulting from both an initial and any
subsequent exchanges.
1. EXCHANGES BY MAIL. Exchanges may be made by sending a written request to
the Transfer Agent accompanied by any share certificates for the shares to be
exchanged. All written requests for exchanges must be signed by the shareholder,
and all certificates submitted for exchange must be endorsed by the shareholder
with signature guaranteed. (See "How to Sell Shares - Other Redemption
Matters.")
2. EXCHANGES BY TELEPHONE. A shareholder who has elected telephone exchange
privileges may make a telephone exchange request by calling the Transfer Agent
at (800) 338-1348 or (612) 667-8833 and providing the shareholder's account
number, the exact name in which the shareholder's shares are registered and the
shareholder's social security or taxpayer identification number. (See "How to
Sell Shares - Other Redemption Matters.")
AUTOMATIC INVESTMENT PLAN
Under the Funds' Automatic Investment Plan, shareholders may authorize monthly
amounts of $50 or more to be withdrawn automatically from the shareholder's
designated bank account (other than passbook savings) and sent to the Transfer
Agent for investment in either A or B Shares of a Fund. Shareholders wishing to
use this plan must complete an application which may be obtained by writing or
calling the Transfer Agent. The Trust may modify or terminate the automatic
investment plan with respect to any
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shareholder in the event that the Trust is unable to settle any transaction with
the shareholder's bank. If the Automatic Investment Plan is terminated before
the shareholder's account totals $1,000, the Trust reserves the right to close
the account in accordance with the procedures described under "How to Sell
Shares - Other Redemption Matters."
INDIVIDUAL RETIREMENT ACCOUNTS
The Funds may be a suitable investment vehicle for part or all of the assets
held in 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 filing jointly, either the individual or the individual's
spouse is an active participant in an employer-sponsored retirement plan and has
adjusted gross income above certain levels. 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.
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.
AUTOMATIC WITHDRAWAL PLAN
A shareholder whose Shares in a single account total $1,000 or more may
establish a withdrawal plan to provide for the preauthorized payment from the
shareholder's account of $250 or more on a monthly, quarterly, semi-annual or
annual basis. Under the withdrawal plan, sufficient shares in the shareholder's
account are redeemed to provide the amount of the periodic payment and any
taxable gain or loss is recognized by the shareholder upon
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redemption of the shares. Shareholders wishing to utilize the withdrawal plan
may do so by completing an application which may be obtained by writing or
calling the Transfer Agent. The Trust may suspend a shareholder's withdrawal
plan without notice if the account contains insufficient funds to effect a
withdrawal or if the account balance is less than $1,000 at any time.
REOPENING ACCOUNTS
A shareholder may reopen an account, without filing a new account application
form, at any time within one year after the shareholder's account is closed,
provided that the information on the account application form on file with the
Trust is still applicable.
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9.DIVIDENDS AND TAX MATTERS
DIVIDENDS
Dividends of Stable Income Fund's and Intermediate Government Income Fund's net
investment income are declared and paid monthly. Dividends of Income Fund's and
Total Return Bond Fund's net investment income are declared daily and paid
monthly. Distributions of net capital gain, if any, realized by a Fund are
distributed annually. Dividends and distributions paid by a Fund with respect to
each class of shares are calculated in the same manner and at the same time. The
per share dividends on a Fund's B Shares will be lower than the per share
dividends on A Shares as a result of the distribution services fees and
maintenance fees applicable to B Shares.
Shareholders may choose to have dividends and distributions of a Fund reinvested
in shares of that Fund (the "Reinvestment Option"), to receive dividends and
distributions in cash (the "Cash Option") or to direct dividends and
distributions to be reinvested in shares of another fund of the Trust (the
"Directed Dividend Option"). All dividends and distributions are treated in the
same manner for federal income tax purposes whether received in cash or
reinvested in shares of a fund.
Under the Reinvestment Option, all dividends and distributions of a Fund are
automatically invested in additional shares of that Fund. All dividends and
distributions are reinvested at a Fund's net asset value as of the payment date
of the dividend or distribution. Shareholders are assigned this option unless
one of the other two options is selected. Under the Cash Option, all dividends
and distributions are paid to the shareholder in cash. Under the Directed
Dividend Option, shareholders of a Fund whose shares in a single account of that
Fund total $10,000 or more may elect to have all dividends and distributions
reinvested in shares of another fund of the Trust, provided that those shares
are eligible for sale in the shareholder's state of residence. For further
information concerning the Directed Dividend Option, shareholders should contact
the Transfer Agent.
TAX MATTERS
Each Fund intends to qualify for each fiscal year to be taxed as a "regulated
investment company" under the Internal Revenue Code of 1986 (the "Code"). As
such, each Fund will not be liable for federal income and excise taxes on the
net investment income and capital gain distributed to its shareholders. Because
each Fund intends to distribute all of its net investment income and net capital
gain each year, each Fund should thereby avoid all federal income and excise
taxes.
Dividends paid by a Fund out of its net investment income (including net
short-term capital gain) are taxable to shareholders of the Fund as ordinary
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income. Pursuant to the Taxpayer Relief Act of 1997, two different tax rates
apply to net capital gains -- that is, the excess of net gains from capital
assets held for more than one year over net losses from capital assets held for
not more than one year. One rate (generally 28%) applies to net gains on capital
assets held for more than one year but not more than 18 months ("mid-term
gains"), and a second rate (generally 20%) applies to the balance of such net
capital gains ("adjusted net capital gains"). Distributions of mid-term gains
and adjusted net capital gains 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 will be a long-term capital loss to the extent of
the distribution. Dividends from Stable Income Fund and Intermediate Government
Income Fund and distributions reduce the net asset value of the Fund paying the
dividend or distribution by the amount of the dividend or distribution.
Furthermore, these dividends or a distribution made shortly after the purchase
of Shares by a shareholder, although in affect a return of capital to that
particular shareholder, will be taxable to the shareholder as described above.
Each Fund is required by federal law to withhold 31% of reportable payments
(which may include dividends, capital gain distributions and redemptions) paid
to a shareholder who fails to provide the Fund with a correct taxpayer
identification number or to make required certifications, or who is subject to
backup withholding.
Reports containing appropriate information with respect to the federal income
tax status of dividends and distributions paid during the year by each Fund will
be mailed to shareholders shortly after the close of each calendar year.
CORE PORTFOLIOS. Each Core Portfolio is not required to pay federal income taxes
on its net investment income and capital gain, as it is treated as a partnership
for federal income tax purposes. All interest, dividends and gains and losses of
a Core Portfolio are deemed to have been "passed through" to the Funds investing
in the Core Portfolio in proportion to the Funds' interests in the Core
Portfolio, regardless of whether such amounts have been distributed by the Core
Portfolio to the Funds.
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10.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 each class of each Fund is determined as of
4:00 p.m., Eastern Time, on each Fund Business Day by dividing the value of the
Fund's net assets (i.e., the value of its securities and other assets less its
liabilities) by the number of shares outstanding at the time the determination
is made. Securities owned by a Fund or Portfolio for which market quotations are
readily available are valued at current market value or, in their absence, at
fair value as determined by the Board or the Core Board or pursuant to
procedures approved by the Board or the Core Board, as applicable. The Funds
only determine net asset value on Fund Business Days.
PERFORMANCE INFORMATION
A 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. A Fund's yield is a way of showing the rate of
income the Fund earns on its investments as a percentage of the Fund's share
price. To calculate standardized yield, a Fund takes the income it earned from
its investments for a 30-day period (net of expenses), divides it by the average
number of shares entitled to receive dividends, and expresses the result as an
annualized percentage rate based on the Fund's share price at the end of the
30-day period. A Fund's total return shows its overall change in value,
including changes in share price and assuming all the Fund's dividends and
distributions are reinvested. A cumulative total return reflects a Fund's
performance over a stated period of time. An average annual total return
reflects the hypothetical annually compounded return that would have produced
the same cumulative total return if the Fund's performance had been constant
over the entire period. Because average annual returns tend to smooth out
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variations in the Funds' 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 a 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 Funds' 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 a 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 a Fund that invests its assets using different
investment styles. Indices are not used in the management of a Fund but rather
are standards by which an Adviser and shareholders may compare the performance
of a 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 a 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 a Fund) and may
divide portfolios or series into classes of shares (such as A Shares); the costs
of doing so will be borne by the Trust. Currently the authorized shares of the
Trust are divided into thirty-nine separate series.
OTHER CLASSES OF SHARES. The Funds currently issue three classes of shares, A
Shares, B Shares and I Shares. I Shares are offered to fiduciary, agency and
custodial clients of bank trust departments, trust companies and their
affiliates without any sales charges. Each class of a Fund will have a different
expense ratio and may have different sales charges (including distribution
fees). Each class' performance is affected by its expenses and sales charges.
For more information on any other class of shares of the Funds investors may
contact the Transfer Agent at (612) 667-8833 or (800) 338-1348 or the Funds'
distributor. Investors may also contact their Norwest sales representative to
obtain information about the other classes.
SHAREHOLDER VOTING AND OTHER RIGHTS. Each share of each series of the Trust and
each class of shares has equal dividend, distribution, liquidation and voting
rights, and fractional shares have those rights proportionately, except that
expenses related to the distribution of the shares of each class (and certain
other expenses such as transfer agency and administration expenses) are borne
solely by those shares and each class votes separately with respect
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to the provisions of any Rule 12b-1 plan which pertains to the class and other
matters for which separate class voting is appropriate under applicable law.
Generally, shares will be voted in the aggregate without reference to a
particular series or class, except if the matter affects only one series or
class or voting by series or class is required by law, in which case shares will
be voted separately by series or class, as appropriate. Delaware law does not
require the Trust to hold annual meetings of shareholders, and it is anticipated
that shareholder meetings will be held only when specifically required by
federal or state law. Shareholders (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.
Each Core Portfolio normally will not hold meetings of investors except as
required by the 1940 Act. Each investor in a Core Portfolio will be entitled to
vote in proportion to its relative beneficial interest in the Core Portfolio.
When required by the 1940 Act and other applicable law, a Fund will solicit
proxies from its shareholders and will vote its interest in a Core Portfolio in
proportion to the votes cast by its shareholders.
As of March 2, 1998, Norwest Investment Management Services, Inc., for the
benefit of its customers, owned of record more than 25% of the outstanding A
Shares of Stable Income Fund and Norwest Bank Colorado, N.A., may be deemed to
have controlled Total Return Bond Fund through investment in the Funds by its
customers. From time to time, these shareholders or other shareholders may own a
large percentage of the Shares of a Fund and, accordingly, may be able to
greatly affect (if not determine) the outcome of a shareholder vote.
CORE AND GATEWAY STRUCTURE
Stable Income Fund and Total Return Bond Fund each seeks to achieve its
investment objective by investing all of its investable assets in its
corresponding Core Portfolio, that has the same investment objective and
substantially identical investment policies as the Fund. Accordingly, each Core
Portfolio directly acquires portfolio securities and a Fund investing in the
Core Portfolio acquires an indirect interest in those securities. Each Core
Portfolio is a separate series of Core Trust, a business trust organized under
the laws of the State of Delaware in 1994. Core Trust is registered under the
1940 Act as an
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open-end, management, investment company. The assets of each Core Portfolio
belong only to, and the liabilities of each Core Portfolio are borne solely by,
that Core Portfolio and no other portfolio of Core Trust.
THE CORE PORTFOLIO. A Fund's investment in a Core Portfolio is in the form of a
non-transferable beneficial interest. All investors in a Core Portfolio will
invest on the same terms and conditions and will pay a proportionate share of
the Core Portfolio's expenses. As of March 1, 1998, several other funds of the
Trust invested a portion of their assets in Stable Income Portfolio and
Strategic Value Bond Portfolio.
A Core Portfolio will not sell its shares directly to members of the general
public. Another investor in a Core Portfolio, such as an investment company,
that might sell its shares to members of the general public would not be
required to sell its shares at the same public offering price as any Fund, and
could have different advisory and other fees and expenses than a Fund.
Therefore, Fund shareholders may have different returns than shareholders in
another investment company that invests in a Core Portfolio. Information
regarding any such funds is available from Core Trust by calling Forum at (207)
879-0001.
CERTAIN RISKS OF INVESTING IN CORE PORTFOLIOS. A Fund's investment in a Core
Portfolio may be affected by the actions of other large investors in that Core
Portfolio. For example, if Strategic Value Bond Portfolio had a large investor
other than Total Return Bond Fund that redeemed its interest, Strategic Value
Bond Portfolio's remaining investors (including the Fund) might, as a result,
experience higher pro rata operating expenses, thereby producing lower returns.
As there may be other investors in a Core Portfolio, there can be no assurance
that any issue that receives a majority of the votes cast by a Fund's
shareholders will receive a majority of votes cast by all investors in a Core
Portfolio; indeed, other investors holding a majority interest in a Core
Portfolio could have voting control of the Core Portfolio.
Each Fund may withdraw its entire investment from a Core Portfolio at any time,
if the Board determines that it is in the best interests of the Fund and its
shareholders to do so. A Fund might withdraw, for example, if there were other
investors in a Core Portfolio with power to, and who did by a vote of all
investors (including the Fund), change the investment objective or policies of
the Core Portfolio in a manner not acceptable to the Board. A withdrawal could
result in a distribution in kind of portfolio securities (as opposed to a cash
distribution) by the Core Portfolio. That distribution could result in a less
diversified portfolio of investments for the Fund and could affect adversely the
liquidity of the Fund's portfolio. If the Fund decided to convert those
securities to cash, it would incur brokerage fees or other transaction costs. If
the Fund withdrew its investment from a Core Portfolio, the Board would consider
what action might be taken, including the management of the Fund's assets
directly by the Adviser or the investment of the Fund's assets in
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another pooled investment entity. The inability of the Fund to find a suitable
replacement investment, in the event the Board decided not to permit the
Advisers to manage the Fund's assets directly, could have a significant impact
on shareholders of the Fund.
Investment decisions are made by the portfolio managers of each Core Portfolio
independently. Therefore the portfolio manager of one Core Portfolio in which a
Fund invests may purchase shares of the same issuer whose shares are being sold
by the portfolio manager of another Core Portfolio in which the Fund invests.
This could result in an indirect expense to the Fund without accomplishing any
investment purpose.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE STATEMENT OF
ADDITIONAL INFORMATION AND THE FUNDS' OFFICIAL SALES LITERATURE IN CONNECTION
WITH THE OFFERING OF THE FUNDS' SHARES, AND IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
TRUST. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO
ANY PERSON TO WHOM, SUCH OFFER MAY NOT LAWFULLY BE MADE.
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---------------
[LOGO] BULK RATE
733 MARQUETTE AVENUE U.S. POSTAGE
MINNEAPOLIS, MN 55479-0040 PAID
Permit No. 3489
Minneapolis, MN
---------------
[LOGO]
SHAREHOLDER INFORMATION:
Norwest Bank Minnesota, N.A.
733 Marquette Avenue
Minneapolis, Minnesota 55479-0040
612-667-8833 (MINNEAPOLIS/ST. PAUL)
800-338-1348 (ELSEWHERE)
- -C-1998 NORWEST ADVANTAGE FUNDS
MFBPB002 4/98
<PAGE>
[LOGO] NORWEST
ADVANTAGE FUNDS
------------------------------------------------------------------------------
PROSPECTUS
APRIL 1, 1998
This Prospectus offers shares of thirty-two separate portfolios (each a "Fund"
and collectively the "Funds") of Norwest Advantage Funds (the "Trust"), which is
a registered, open-end, management investment company, as follows: (1) five
MONEY MARKET FUNDS - Shares of Cash Investment Fund and Investor Shares of Ready
Cash Investment Fund, Shares of U.S. Government Fund and Treasury Fund and
Institutional and Investor Shares of Municipal Money Market Fund (the "Money
Market Funds"); (2) I Shares of six FIXED INCOME FUNDS - Stable Income Fund,
Limited Term Government Income Fund, Intermediate Government Income Fund,
Diversified Bond Fund, Income Fund and Total Return Bond Fund (the "Fixed Income
Funds"); (3) I Shares of five TAX-FREE FIXED INCOME FUNDS - Limited Term
Tax-Free Fund, Tax-Free Income Fund, Colorado Tax-Free Fund, Minnesota
Intermediate Tax-Free Fund and Minnesota Tax-Free Fund (the "Tax-Free Fixed
Income Funds"); (4) I Shares of four BALANCED FUNDS - Strategic Income Fund
(FORMERLY CONSERVATIVE BALANCED FUND), Moderate Balanced Fund, Growth Balanced
Fund and Aggressive Balanced-Equity Fund (the "Balanced Funds"); and (5) I
Shares of twelve EQUITY FUNDS - 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
"Equity Funds"). The Institutional Shares, Investor Shares, shares of Cash
Investment Fund, U.S. Government Fund and Treasury Fund (which offer a single
class of shares) and I Shares offered in this Prospectus are collectively
referred to as "Shares."
READY CASH INVESTMENT FUND, STABLE INCOME FUND, TOTAL RETURN BOND FUND, INDEX
FUND, INCOME EQUITY FUND, LARGE COMPANY GROWTH FUND, SMALL COMPANY STOCK FUND,
SMALL COMPANY GROWTH FUND and SMALL CAP OPPORTUNITIES FUND each seeks to achieve
its investment objective by investing all of its investable assets in a separate
portfolio of another registered, open-end, management investment company with
substantially the same investment objective. (See "Summary" and "Other
Information - Core and Gateway-Registered Trademark- - Structure.")
CASH INVESTMENT FUND, DIVERSIFIED BOND FUND, STRATEGIC INCOME FUND, MODERATE
BALANCED FUND, GROWTH BALANCED FUND, AGGRESSIVE BALANCED-EQUITY FUND,
DIVERSIFIED EQUITY FUND, GROWTH EQUITY FUND, DIVERSIFIED SMALL CAP FUND AND
INTERNATIONAL FUND each seeks to achieve its investment objective by investing
in various portfolios of other registered open-end, management investment
companies, each of which invests using a different investment style. (See
"Summary" and "Other Information - Core and Gateway Structure.")
Each other Fund seeks to achieve its investment objective by investing directly
in portfolio securities.
Shares of Colorado Tax-Free Fund, Minnesota Intermediate Tax-Free Fund and
Minnesota Tax-Free Fund are offered solely to residents of Colorado and
Minnesota, respectively.
This Prospectus sets forth concisely the information concerning the Trust and
the Funds that a prospective investor should know before investing. The Trust
has filed with the Securities and Exchange Commission (the "SEC") a Statement of
Additional Information ("SAI") with respect to each Fund dated April 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 each of the Funds. 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 ANY OF
THE MONEY MARKET FUNDS 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.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
<S> <C> <C>
1. SUMMARY.................................................................... 3
2. FINANCIAL HIGHLIGHTS....................................................... 16
3. INVESTMENT OBJECTIVES AND POLICIES......................................... 26
Money Market Funds......................................................... 26
Fixed Income Funds......................................................... 30
Tax-Free Fixed Income Funds................................................ 36
Balanced Funds............................................................. 41
Equity Funds............................................................... 46
Core Portfolio Descriptions................................................ 56
4. ADDITIONAL INVESTMENT POLICIES AND RISK CONSIDERATIONS..................... 61
General Information........................................................ 61
Common Policies of the Funds............................................... 63
5. MANAGEMENT OF THE FUNDS.................................................... 67
Investment Advisory Services............................................... 67
Management, Administration and Distribution Services....................... 76
Shareholder Servicing and Custody.......................................... 77
Expenses of the Funds...................................................... 77
6. PURCHASES AND REDEMPTIONS OF SHARES........................................ 79
General Purchase Information............................................... 79
Purchase Procedures........................................................ 80
General Redemption Information............................................. 81
Redemption Procedures...................................................... 82
Exchanges.................................................................. 83
Shareholder Services....................................................... 84
7. DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS................................... 85
Dividends.................................................................. 85
Tax Matters................................................................ 86
8. OTHER INFORMATION.......................................................... 88
Banking Law Matters........................................................ 88
Determination of Net Asset Value........................................... 89
Performance Information.................................................... 89
The Trust and Its Shares................................................... 90
Core and Gateway Structure................................................. 91
APPENDIX A................................................................. A-1
Investments, Investment Strategies and Risk Considerations
</TABLE>
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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
I Shares are offered to fiduciary, agency and custodial clients of bank trust
departments, trust companies and their affiliates. Institutional Shares and the
single class of shares offered by each of Cash Investment Fund, U.S. Government
Fund and Treasury Fund are designed primarily for institutional clients.
Investor Shares are designed for retail investors and incur more expenses than
Institutional Shares. While no single Fund is intended to provide a complete or
balanced investment program, each can serve as a component of an investor's
investment program.
THE FUNDS
Shares of thirty-two Funds are offered by this Prospectus: (1) five MONEY MARKET
FUNDS - shares of Cash Investment Fund, Investor Shares of Ready Cash Investment
Fund, Shares of U.S. Government Fund, and Treasury Fund and Institutional and
Investor Shares of Municipal Money Market Fund; (2) I Shares of six FIXED INCOME
FUNDS - Stable Income Fund, Limited Term Government Income Fund, Intermediate
Government Income Fund, Diversified Bond Fund, Income Fund and Total Return Bond
Fund; (3) I Shares of five TAX-FREE FIXED INCOME FUNDS - Limited Term Tax-Free
Fund, Tax-Free Income Fund, Colorado Tax-Free Fund, Minnesota Intermediate
Tax-Free Fund and Minnesota Tax-Free Fund; (4) I Shares of four BALANCED FUNDS -
Strategic Income Fund, Moderate Balanced Fund, Growth Balanced Fund and
Aggressive Balanced-Equity Fund; and (5) I Shares of twelve EQUITY FUNDS - Index
Fund, Income Equity Fund, ValuGrowth Stock Fund, Diversified Equity Fund, Growth
Equity Fund, Large Company Growth Fund, Small Company Stock Fund, Small Company
Growth Fund, Diversified Small Cap Fund, Small Cap Opportunities Fund,
Contrarian Stock Fund and International Fund. Only the Shares indicated are
offered by this Prospectus. Other classes of shares of a Fund that currently
offers other classes of shares are offered by separate prospectuses that may be
obtained by contacting the Trust. Shares of each class of each Fund have
identical interests in the investment portfolio of the Fund and, with certain
exceptions, have the same rights. (See "Other Information - The Trust and Its
Shares.")
MONEY MARKET FUNDS
Each of the MONEY MARKET FUNDS (except Municipal Money Market Fund) seeks to
provide high current income to the extent consistent with the preservation of
capital and the maintenance of liquidity. MUNICIPAL MONEY MARKET FUND seeks to
provide high current income which is exempt from federal income tax to the
extent consistent with the preservation of capital and the maintenance of
liquidity. CASH INVESTMENT FUND and READY CASH INVESTMENT FUND each pursue their
investment objectives by investing in a broad spectrum of high quality money
market instruments of United States and foreign issuers. U.S. GOVERNMENT FUND
pursues its investment objective by investing primarily in securities that are
issued or guaranteed by the U.S. Government, its agencies and instrumentalities.
TREASURY FUND pursues its investment objective by investing solely in
obligations that are issued or guaranteed by the United States Treasury.
MUNICIPAL MONEY MARKET FUND pursues its investment objective by investing
primarily in tax-exempt municipal securities.
FIXED INCOME FUNDS
STABLE INCOME FUND seeks to maintain safety of principal and provide low
volatility total return by investing primarily in investment grade short-term
obligations. LIMITED TERM GOVERNMENT INCOME FUND seeks to provide income and
safety of principal by investing primarily in U.S. Government Securities.
INTERMEDIATE GOVERNMENT INCOME FUND seeks to provide income and safety of
principal by investing primarily in U.S. Government Securities. The Fund seeks
to moderate its volatility by using a conservative approach in
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structuring the maturities of its investment portfolio. DIVERSIFIED BOND FUND
seeks to provide total return by diversifying its investments among different
fixed-income investment styles. INCOME FUND seeks to provide total return
consistent with current income. This objective is pursued by investing in a
portfolio of fixed income securities issued by domestic and foreign issuers.
TOTAL RETURN BOND FUND seeks total return. This objective is pursued by
investing in a broad range of fixed income instruments in order to create a
strategically diversified portfolio of high-quality fixed income investments.
THE I SHARES CLASS OF THIS FUND CURRENTLY IS NOT OPEN TO NEW INVESTORS.
TAX-FREE FIXED INCOME FUNDS
LIMITED TERM TAX-FREE FUND seeks to provide current income exempt from federal
income taxes. The Fund pursues this objective by investing primarily in a
portfolio of investment grade fixed income securities the interest on which is
free from federal income tax, and maintains an average dollar weighted portfolio
maturity of between 1 and 5 years. TAX-FREE INCOME FUND seeks to provide current
income exempt from federal income taxes. The Fund pursues this objective by
investing primarily in a portfolio of investment grade fixed income securities
the interest on which is free from federal income tax. COLORADO TAX-FREE FUND
seeks to provide a high level of current income exempt from both federal and
Colorado state income taxes (including the alternative minimum tax) consistent
with preservation of capital. This objective is pursued by investing primarily
in a portfolio of investment grade municipal securities of Colorado issuers.
MINNESOTA INTERMEDIATE TAX-FREE FUND seeks to provide a high level of current
income exempt from both federal and Minnesota state income taxes (including the
alternative minimum tax) without assuming undue risk. This objective is pursued
by investing primarily in a portfolio of intermediate investment grade municipal
securities of Minnesota issuers. MINNESOTA TAX-FREE FUND seeks to provide a high
level of current income exempt from both federal and Minnesota state income
taxes (including the alternative minimum tax) without assuming undue risk. This
objective is pursued by investing primarily in a portfolio of investment grade
municipal securities of Minnesota issuers.
BALANCED FUNDS
STRATEGIC INCOME FUND seeks a combination of current income and capital
appreciation by diversifying investment of the Fund's assets among stocks, bonds
and other fixed income instruments through investment in several equity and
fixed income investment styles. Of the Balanced Funds, Strategic Income Fund
most emphasizes safety of principal through limited exposure to equity
securities. MODERATE BALANCED FUND seeks a combination of current income and
capital appreciation by diversifying investment of the Fund's assets among
stocks, bonds and other fixed income investments through investment in several
equity and fixed income investment styles. GROWTH BALANCED FUND seeks a
combination of current income and capital appreciation by diversifying
investment of the Fund's assets between stocks and bonds through investment in
several equity and fixed income investment styles. AGGRESSIVE BALANCED-EQUITY
FUND seeks to provide a combination of current income and capital appreciation
by diversifying investment of the Fund's assets between stocks and bonds. The
Fund has the largest equity component of the Balanced Funds and may be
considered a non-traditional balanced fund because it may at times invest less
than 25% of its assets in debt securities.
EQUITY FUNDS
INDEX FUND seeks to duplicate the return of the Standard & Poor's 500 Composite
Stock Price Index. INCOME EQUITY FUND seeks to provide long-term capital
appreciation consistent with above-average dividend income. VALUGROWTH STOCK
FUND seeks to provide long-term capital appreciation. The Fund invests primarily
in medium and large capitalization companies that, in the view of the Fund's
investment adviser, possess above average growth prospects and appear to be
undervalued. DIVERSIFIED EQUITY FUND seeks long-term capital appreciation while
moderating annual return volatility by diversifying its investments among five
different equity investment styles. GROWTH EQUITY FUND seeks a high level of
long-term capital appreciation while moderating annual return volatility by
diversifying its investments among three different equity
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investment styles. Growth Equity Fund assumes a higher level of risk than
Diversified Equity Fund in order to seek increased returns. LARGE COMPANY GROWTH
FUND seeks long-term capital appreciation by investing in large, high-quality
domestic companies that the investment adviser believes have superior growth
potential. DIVERSIFIED SMALL CAP FUND seeks to provide long-term capital
appreciation while moderating annual return volatility by diversifying its
investments across different small capitalization equity investment styles.
SMALL COMPANY STOCK FUND seeks long-term capital appreciation. This objective is
pursued by investing primarily in the common stock of small and medium size
domestic companies that have a market capitalization well below that of the
average company in the Standard & Poor's 500 Composite Stock Price Index. SMALL
COMPANY GROWTH FUND seeks to provide long-term capital appreciation by investing
in smaller domestic companies. This objective is pursued by investing primarily
in the common stock of small and medium size domestic companies that are either
growing rapidly or completing a period of significant change. THIS FUND
CURRENTLY IS NOT OPEN TO NEW INVESTORS. SMALL CAP OPPORTUNITIES FUND seeks
capital appreciation. Current income will be incidental to the objective of
capital appreciation. THIS FUND CURRENTLY IS NOT OPEN TO NEW INVESTORS.
CONTRARIAN STOCK FUND seeks capital appreciation. This objective is pursued by
investing primarily in common stocks for which the Fund's investment adviser
believes there is significant potential for price appreciation. THIS FUND
CURRENTLY IS NOT OPEN TO NEW INVESTORS. IT IS ANTICIPATED THAT THE FUND WILL
CEASE OPERATIONS ON OR ABOUT JULY 10, 1998. International Fund seeks long-term
capital appreciation. This objective is pursued by investing, directly or
indirectly, in high quality companies based outside the United States.
FUND STRUCTURES
READY CASH INVESTMENT FUND, STABLE INCOME FUND, TOTAL RETURN BOND FUND, INDEX
FUND, INCOME EQUITY FUND, LARGE COMPANY GROWTH FUND, SMALL COMPANY STOCK FUND,
SMALL COMPANY GROWTH FUND and SMALL CAP OPPORTUNITIES FUND each seek to achieve
its investment objective by investing all of its investable assets in a separate
portfolio (each a "Core Portfolio") of a registered, open-end, management
investment company (each a "Core Trust") that has the same or substantially the
same investment objective and substantially similar investment policies.
Accordingly, the investment experience of each of these Funds will correspond
directly with the investment experience of its corresponding Core Portfolio.
(See "Other Information - Core and Gateway Structure.") The Funds and the Core
Portfolios in which they currently invest are:
<TABLE>
<CAPTION>
FUND CORE PORTFOLIO
- ---------------------------------- ------------------------------------------------
<S> <C>
Ready Cash Investment Fund Prime Money Market Portfolio
Stable Income Fund Stable Income Portfolio
Total Return Bond Fund Strategic Value Bond Portfolio
Index Fund Index Portfolio
Income Equity Fund Income Equity Portfolio
Large Company Growth Fund Large Company Growth Portfolio
Small Company Stock Fund Small Company Stock Portfolio
Small Company Growth Fund Small Company Growth Portfolio
Small Cap Opportunities Fund Schroder U.S. Smaller Companies Portfolio
</TABLE>
CASH INVESTMENT FUND, DIVERSIFIED BOND FUND, STRATEGIC INCOME FUND, MODERATE
BALANCED FUND, GROWTH BALANCED FUND, AGGRESSIVE BALANCED-EQUITY FUND,
DIVERSIFIED EQUITY FUND, DIVERSIFIED SMALL CAP FUND, GROWTH EQUITY FUND and
INTERNATIONAL FUND each seeks to achieve its investment objective by investing
some or all of its investable assets in various portfolios (each a "Core
Portfolio") of other, open-end,
5
<PAGE>
management investment companies (each a "Core Trust"). Each Core Portfolio
invests using a different investment style. (See "Other Information - Core and
Gateway Structure.") The Funds and the Core Portfolios in which they currently
invest are:
<TABLE>
<CAPTION>
FUND CORE PORTFOLIOS
- ----------------------------------------- ------------------------------------------------
<S> <C>
Cash Investment Fund Money Market Portfolio
Prime Money Market Portfolio
Diversified Bond Fund Positive Return Bond Portfolio
Strategic Value Bond Portfolio
Managed Fixed Income Portfolio
Strategic Income Fund Money Market Portfolio
Stable Income Portfolio
Positive Return Bond Portfolio
Strategic Value Bond Portfolio
Managed Fixed Income Portfolio
Each of the ten Core Portfolios in which
Diversified Equity Fund invests
Moderate Balanced Fund Stable Income Portfolio
Positive Return Bond Portfolio
Strategic Value Bond Portfolio
Managed Fixed Income Portfolio
Each of the ten Core Portfolios in which
Diversified Equity Fund invests
Growth Balanced Fund Positive Return Bond Portfolio
Strategic Value Bond Portfolio
Managed Fixed Income Portfolio
Each of the ten Core Portfolios in which
Diversified Equity Fund Invests
Aggressive Balanced-Equity Fund Positive Return Bond Portfolio
Strategic Value Bond Portfolio
Managed Fixed Income Portfolio
Each of the ten Core Portfolios in which
Diversified Equity Fund Invests
Diversified Equity Fund Index Portfolio
Income Equity Portfolio
Large Company Growth Portfolio
Disciplined Growth Portfolio
Small Company Stock Portfolio
Small Company Growth Portfolio
Small Company Value Portfolio
Small Cap Value Portfolio
International Portfolio
Schroder EM Core Portfolio
Diversified Small Cap Fund Small Cap Index Portfolio
Small Company Stock Portfolio
Small Company Growth Portfolio
Small Company Value Portfolio
Small Cap Value Portfolio
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
FUND CORE PORTFOLIOS
- ----------------------------------------- ------------------------------------------------
Growth Equity Fund Large Company Growth Portfolio
Small Company Stock Portfolio
Small Company Growth Portfolio
Small Company Value Portfolio
Small Cap Value Portfolio
International Portfolio
Schroder EM Core Portfolio
<S> <C>
International Fund International Portfolio
Schroder EM Core Portfolio
</TABLE>
The percentage of each of these Funds' (except Cash Investment Fund's) assets
invested in each Core Portfolio may be changed at any time in response to market
or other conditions. Allocations are made within specified ranges as described
under "Investment Objectives and Policies" for each Fund. Upon approval by the
Board of Trustees of the Trust and notification of shareholders, each Fund may
invest in additional or fewer Core Portfolios or invest directly in portfolio
securities.
Each of U.S. GOVERNMENT FUND, TREASURY FUND, MUNICIPAL MONEY MARKET FUND,
LIMITED TERM GOVERNMENT INCOME FUND, INTERMEDIATE GOVERNMENT INCOME FUND, INCOME
FUND, LIMITED TERM TAX-FREE FUND, TAX-FREE INCOME FUND, COLORADO TAX-FREE FUND,
MINNESOTA INTERMEDIATE TAX-FREE FUND, MINNESOTA TAX-FREE FUND, VALUGROWTH STOCK
FUND and CONTRARIAN STOCK FUND seeks to achieve its investment objective by
investing directly in portfolio securities.
MANAGEMENT OF THE FUNDS
ADVISORY SERVICES
NORWEST INVESTMENT MANAGEMENT, INC. ("Norwest"), a subsidiary of Norwest Bank
Minnesota, N.A. ("Norwest Bank"), is each Fund's and each Core Portfolio's
(other than Schroder U.S. Smaller Companies Portfolio, International Portfolio
and Schroder EM Core Portfolio) investment adviser. 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
Funds - Investment Advisory Services.") Norwest Bank serves as transfer agent,
dividend disbursing agent and custodian of the Trust, serves as the custodian of
each Core Portfolio (other than Schroder U.S. Smaller Companies Portfolio and
Schroder EM Core Portfolio) and provides administrative services to Small Cap
Opportunities Fund and International Fund. (See "Management of the Funds -
Shareholder Servicing and Custody" and "- Management, Administration and
Distribution Services.")
Each Fund that invests in one or more Core Portfolios incurs investment advisory
fees indirectly through the investment advisory fees paid by the Core
Portfolios; Norwest is paid an investment advisory fee directly by the other
Funds. In addition, Diversified Bond Fund, Strategic Income Fund, Moderate
Balanced Fund, Growth Balanced Fund, Aggressive Balanced-Equity Fund,
Diversified Equity Fund, Growth Equity Fund, Diversified Small Cap Fund and
International Fund each pay Norwest an asset allocation fee for Norwest's
services with respect to the allocation of the Fund's assets to and among the
various Core Portfolios ("Asset Allocation Services"). Cash Investment Fund does
not vary the percentages of its assets invested in the Core Portfolios in which
it invests and, accordingly, pays no asset allocation Fee.
CRESTONE CAPITAL MANAGEMENT, INC. ("Crestone"), an investment advisory
subsidiary of Norwest Bank, is the investment subadviser of Small Company Stock
Portfolio. Crestone provides investment advice regarding companies with small
capitalization to various clients, including institutional investors.
GALLIARD CAPITAL MANAGEMENT, INC. ("Galliard"), an investment advisory
subsidiary of Norwest Bank, is the investment subadviser of Stable Income
Portfolio, Strategic Value Bond Portfolio and Managed Fixed Income Portfolio.
Galliard provides investment advisory services to bank and thrift institutions,
pension and profit sharing plans, trusts and charitable organizations and
corporate and other business entities.
7
<PAGE>
PEREGRINE CAPITAL MANAGEMENT, INC. ("Peregrine"), an investment advisory
subsidiary of Norwest Bank, is the investment subadviser of Positive Return Bond
Portfolio, Large Company Growth Portfolio, Small Company Growth Portfolio and
Small Company Value Portfolio. Peregrine provides investment advisory services
to corporate and public pension plans, profit sharing plans, savings-investment
plans and 401(k) plans.
SCHRODER CAPITAL MANAGEMENT INTERNATIONAL INC. ("Schroder") is the investment
adviser of Schroder U.S. Smaller Companies Portfolio, International Portfolio
and Schroder EM Core Portfolio. Schroder specializes in providing international
investment advice to various clients.
SMITH ASSET MANAGEMENT GROUP, L.P. ("Smith Group") is the investment subadviser
of Disciplined Growth Portfolio and Small Cap Value Portfolio. Smith Group
provides investment management services to company retirement plans,
foundations, endowments, trust companies, and high net worth individuals using a
discplined equity style.
UNITED CAPITAL MANAGEMENT ("UCM"), a part of Norwest Bank Colorado, N.A., is the
investment subadviser of Contrarian Stock Fund. UCM provides specialized
investment advisory services to various institutional pension accounts.
Norwest, UCM, Galliard, Crestone, Peregrine, Schroder and Smith (or Norwest and
a particular investment subadviser) are sometimes referred to collectively as
the "Advisers." The various investment subadvisers are sometimes referred to as
the "Subadvisers."
FUND MANAGEMENT AND ADMINISTRATION
The business of the Trust is managed under the direction of the Board of
Trustees (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
Funds and also serves as administrator of each Core Portfolio, except Schroder
U.S. Smaller Companies Portfolio and Schroder EM Core Portfolio, for which Forum
serves as subadministrator. Schroder Fund Advisors Inc. serves as the
administrator of Schroder U.S. Smaller Companies Portfolio and Schroder EM Core
Portfolio. (See "Management - 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 for Institutional Shares and the shares of Cash Investment
Fund, U.S. Government Fund and Treasury Fund is $100,000. There is no minimum
subsequent investment for those Shares. The minimum initial investment for
Investor Shares and I Shares is $1,000. The minimum subsequent investment for
Investor Shares and I Shares is $100. (See "Purchases and Redemptions of
Shares.")
EXCHANGES
Holders of Institutional Shares, I Shares and Shares of Cash Investment Fund,
U.S. Government Fund and Treasury Fund may exchange their Shares among those
Funds and those classes. Holders of Investor Shares of a Fund may exchange their
Shares for Investor Shares of the other Fund and A class shares of certain other
Funds of the Trust. ("See Purchases and Redemptions of Shares - Exchanges.")
DIVIDENDS AND DISTRIBUTIONS
Dividends of net investment income are declared and paid as follows:
<TABLE>
<S> <C>
Declared daily and paid Each Money Market Fund, Limited Term Government In-
monthly: come Fund, Income Fund, Total Return Bond Fund and
each Tax-Exempt Fixed Income Fund.
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
Declared and paid monthly: Stable Income Fund, Intermediate Government Income
Fund and Diversified Bond Fund.
Declared and paid quarterly: Income Equity Fund, ValuGrowth Stock Fund, Small
Company Stock Fund and Contrarian Stock Fund.
Declared and paid annually: Strategic Income Fund, Moderate Balanced Fund,
Growth Balanced Fund, Aggressive Balanced-Equity
Fund, Index Fund, Diversified Equity Fund, Growth
Equity Fund, Large Company Growth Fund, Small
Company Growth Fund, Diversified Small Cap Fund,
Small Cap Opportunities Fund and International Fund.
</TABLE>
Each Fund's net capital gain, if any, is distributed at least annually. (See
"Dividends and Tax Matters.")
CERTAIN RISK FACTORS
There can be no assurance that any Fund will achieve its investment objective,
and each Fund's net asset value and total return will fluctuate based upon
changes in the value of its portfolio securities. Upon redemption, an investment
in a Fund may be worth more or less than its original value. All of the equity
funds invest primarily in equity securities and are subject to the general risks
of investing in the stock market.
An investment in any Fund involves certain risks, depending on the types of
investments made and the types of investment techniques employed. All
investments made by the Funds entail some risk. There can be no assurance that
any MONEY MARKET FUND or Core Portfolio in which they invest will maintain a
stable net asset value of $1.00 per share and the amount of income earned by
each Money Market 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 certain Funds through
borrowings, securities lending, investments in foreign issuers and other
investment techniques. (See "Appendix A - Investments, Investment Strategies and
Risk Considerations.") The portfolio turnover rate for certain Funds may from
time to time be high, resulting in increased brokerage costs or short-term
capital gains or losses. (See "Additional Investment Policies and Risk
Considerations - Common Policies of the Funds - Portfolio Transactions.")
Normally, the values of the FIXED INCOME FUNDS' and the TAX-EXEMPT FIXED INCOME
FUNDS' investments vary inversely with changes in interest rates. The securities
in which the Fixed Income Funds and Tax-Exempt Fixed Income Funds invest are
subject to "credit risk" relating to the financial condition of the issuers of
the securities. Each Fund (other than Diversified Bond Fund, Income Fund, Total
Return Bond Fund Minnesota Intermediate Tax-Free Fund, Minnesota Tax-Free Fund,
and Strategic Value Bond Portfolio), however, invests primarily in investment
grade securities (those rated in the top four grades by a nationally recognized
statistical rating organization ("NRSRO") such as Standard & Poor's).
DIVERSIFIED BOND FUND, INCOME FUND, TOTAL RETURN BOND FUND, MINNESOTA
INTERMEDIATE TAX-FREE FUND and MINNESOTA TAX-FREE FUND (and any Fund that
invests in Strategic Value Bond Portfolio) may invest in non-investment grade
securities, which may entail additional risks. (See "Investment Objectives and
Policies - Fixed Income Funds - Income Fund - Non-Investment Grade Securities".
In addition, with respect to the Fixed Income Funds, the potential for
appreciation in the event of a decline in interest rates may be limited or
negated by increased principal repayments on certain mortgage- and asset-backed
securities held by a Fund. The Fixed Income Funds' use of these securities
entails certain risks. (See "Appendix A -- Investments, Investment Strategies
and Risk Considerations - Mortgage-Backed Securities" and " - Asset-Backed
Securities.")
Each of COLORADO TAX-FREE FUND, MINNESOTA INTERMEDIATE TAX-FREE FUND and
MINNESOTA TAX-FREE FUND invests principally in securities issued by the
government of and municipalities in the State of Colorado or Minnesota,
respectively, and is therefore more susceptible to factors adversely affecting
issuers of those
9
<PAGE>
states than would be a more geographically diverse municipal securities
portfolio. Each of these Funds is non-diversified, which means that they have
greater latitude than a diversified Fund to invest in fewer issuers and to
invest more of their assets in any one issuer. Non-diversified funds may present
greater risks than diversified funds. (See "Investment Objectives and Policies -
Tax-Free Fixed Income Funds - Investment Considerations and Risk Factors.")
The policy of investing in securities of smaller companies employed by SMALL
COMPANY STOCK FUND, SMALL COMPANY GROWTH FUND, DIVERSIFIED SMALL CAP FUND and
SMALL CAP OPPORTUNITIES FUND and by STRATEGIC INCOME FUND, MODERATE BALANCED
FUND, GROWTH BALANCED FUND, AGGRESSIVE BALANCED-EQUITY FUND, DIVERSIFIED EQUITY
FUND and GROWTH EQUITY FUND, which invest a portion of their assets in these
securities, entails certain risks in addition to those normally associated with
investments in equity securities. These risks include lower trading volumes and,
therefore, the potential for greater stock price volatility. For a description
of investment considerations and risks involved in investing in small company
securities, see "Investment Objectives and Policies - Equity Funds - Small
Company Investment Considerations and Risk Factors.") SMALL COMPANY STOCK FUND,
SMALL COMPANY GROWTH FUND, DIVERSIFIED SMALL CAP FUND and SMALL CAP
OPPORTUNITIES FUND are designed for the investment of that portion of an
investor's funds that can appropriately bear the special risks associated with
an investment in smaller market capitalization companies.
The policy of investing in foreign issuers employed by INTERNATIONAL FUND and by
STRATEGIC INCOME FUND, MODERATE BALANCED FUND, GROWTH BALANCED FUND, AGGRESSIVE
BALANCED-EQUITY FUND, DIVERSIFIED EQUITY FUND and GROWTH EQUITY FUND, which
invest a portion of their assets in these securities, entails certain risks in
addition to those normally associated with investments in equity securities.
These risks include the risks of foreign political and economic instability,
adverse movements in foreign exchange rates, the imposition or tightening of
exchange controls or other limitations on repatriation of foreign capital, and
changes in foreign governmental attitudes towards private investment, possibly
leading to nationalization, increased taxation or confiscation of foreign
investors' assets. (See "Investment Objectives and Policies - Equity Funds -
International Fund - Foreign Investment Considerations and Risk Factors.")
INTERNATIONAL FUND is designed for the investment of that portion of an
investor's funds that can appropriately bear the special risks associated with
an investment in foreign companies.
By pooling their assets in one or more Core Portfolios with other institutional
investors, CASH INVESTMENT FUND, READY CASH INVESTMENT FUND, STABLE INCOME FUND,
DIVERSIFIED BOND FUND, TOTAL RETURN BOND FUND, STRATEGIC INCOME FUND, MODERATE
BALANCED FUND, GROWTH BALANCED FUND, AGGRESSIVE BALANCED-EQUITY FUND, INDEX
FUND, INCOME EQUITY FUND, DIVERSIFIED EQUITY FUND, GROWTH EQUITY FUND, LARGE
COMPANY GROWTH FUND, SMALL COMPANY STOCK FUND, SMALL COMPANY STOCK FUND,
DIVERSIFIED SMALL CAP FUND, SMALL CAP OPPORTUNITIES FUND and INTERNATIONAL FUND
each may be able to achieve certain efficiencies and economies of scale that
they could not achieve by investing directly in securities. Nevertheless, these
investments could have adverse effects on the Funds which investors should
consider. (See "Other Information - Core and Gateway Structure - Certain Risks
of Investing in Core Portfolios.") Investment decisions are made by the
portfolio managers of each Core Portfolio independently. Therefore the portfolio
manager of one Core Portfolio in which a Fund invests may purchase shares of the
same issuer whose shares are being sold by the portfolio manager of another Core
Portfolio in which the Fund invests. This could result in an indirect expense to
the Fund without accomplishing any investment purpose. (See "Other Information -
Core and Gateway Structure.")
10
<PAGE>
EXPENSES OF INVESTING IN THE FUNDS
The purpose of the following table is to assist investors in understanding the
expenses that an investor in Shares of a Fund will bear directly or indirectly.
There are no transaction charges in connection with purchases, redemptions or
exchanges of the Shares. No Fund has adopted a Rule 12b-1 plan with respect to
the Shares and, accordingly, no Fund incurs distribution expenses with respect
to the Shares.
ANNUAL FUND OPERATING EXPENSES(1)(4)
(as a percentage of average daily net assets after applicable fee waivers and
expense reimbursements)
<TABLE>
<CAPTION>
The Fund Core Portfolio(s)
--------------------------- ---------------------------
Investment Investment Total
Advisory Other Advisory Other Operating
Fees(2) Expenses Fees(2) Expenses Expenses
------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
MONEY MARKET FUNDS
Cash Investment Fund N/A 0.22% 0.22% 0.04% 0.48%(3)
Ready Cash Investment Fund
(Investor Shares) N/A 0.41% 0.34% 0.07% 0.82%(3)
U.S. Government Fund 0.14% 0.36% N/A N/A 0.50%
Treasury Fund 0.16% 0.30% N/A N/A 0.46%
Municipal Money Market Fund
Institutional Shares 0.34% 0.11% N/A N/A 0.45%
Investor Shares 0.34% 0.31% N/A N/A 0.65%
FIXED INCOME FUNDS (I SHARES)
Stable Income Fund N/A 0.28% 0.30% 0.07% 0.65%
Limited Term Government Income Fund 0.33% 0.35% N/A N/A 0.68%
Intermediate Government Income Fund 0.33% 0.35% N/A N/A 0.68%
Diversified Bond Fund 0.00% 0.27% 0.38% 0.05% 0.70%(3)
Income Fund 0.50% 0.25% N/A N/A 0.75%
Total Return Bond Fund N/A 0.20% 0.50% 0.05% 0.75%(3)
TAX-FREE FIXED INCOME FUNDS (I SHARES)
Limited Term Tax-Free Fund 0.36% 0.29% N/A N/A 0.65%
Tax-Free Income Fund 0.44% 0.16% N/A N/A 0.60%
Colorado Tax-Free Fund 0.36% 0.24% N/A N/A 0.60%
Minnesota Intermediate Tax-Free Fund 0.25% 0.35% N/A N/A 0.60%
Minnesota Tax-Free Fund 0.33% 0.27% N/A N/A 0.60%
BALANCED FUNDS (I SHARES)
Strategic Income Fund 0.10% 0.28% 0.36% 0.06% 0.80%(3)
Moderate Balanced Fund 0.14% 0.27% 0.41% 0.06% 0.88%(3)
Growth Balanced Fund 0.14% 0.27% 0.46% 0.06% 0.93%(3)
Aggressive Balanced-Equity Fund 0.18% 0.28% 0.48% 0.06% 1.00%
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
The Fund Core Portfolio(s)
--------------------------- ---------------------------
Investment Investment Total
Advisory Other Advisory Other Operating
EQUITY FUNDS (I SHARES) Fees(2) Expenses Fees(2) Expenses Expenses
------------- ------------ ------------- ------------ -------------
Index Fund N/A 0.07% 0.15% 0.03% 0.25%
<S> <C> <C> <C> <C> <C>
Income Equity Fund N/A 0.31% 0.50% 0.04% 0.85%
ValuGrowth Stock Fund 0.80% 0.20% N/A N/A 1.00%
Diversified Equity Fund 0.17% 0.27% 0.50% 0.06% 1.00%(3)
Growth Equity Fund 0.22% 0.24% 0.69% 0.10% 1.25%(3)
Large Company Growth Fund N/A 0.33% 0.65% 0.02% 1.00%
Small Company Stock Fund N/A 0.26% 0.90% 0.04% 1.20%(3)
Small Company Growth Fund N/A 0.31% 0.90% 0.04% 1.25%
Diversified Small Cap Fund 0.25% 0.25% 0.65% 0.05% 1.20%
Small Cap Opportunities Fund 0.25% 0.21% 0.60% 0.19% 1.25%
Contrarian Stock Fund 0.39% 0.81% N/A N/A 1.20%
International Fund 0.38% 0.39% 0.48% 0.25% 1.50%
</TABLE>
(1) For a further description of the various expenses associated with investing
in the Funds, see "Management." Expenses associated with other classes of a
Fund differ from those listed in the table. The table is based on expenses
incurred during the Funds' most recent fiscal year ended May 31, 1997,
restated to reflect current fees; the expenses and any waivers and
reimbursements for Limited Term Government Income Fund, Minnesota
Intermediate Tax-Free Fund, Aggressive Balanced-Equity Fund and Diversified
Small Cap Fund are based on estimated expenses for those Funds' first fiscal
year of operations ending May 31, 1998. To the extent a Fund invests all or
a portion of its assets in various Core Portfolio(s) (each of which bears
expenses as noted under "Core Portfolios - Investment Advisory Fees" and
"Core Portfolio(s) - Other Expenses"), the Fund indirectly bears its pro
rata portion of the expenses of each Core Portfolio in which it invests.
(2) For Diversified Bond Fund, each of the four Balanced Funds, Diversified
Equity Fund, Growth Equity Fund, Diversified Small Cap Fund and
International Fund, "Investment Advisory Fees" reflects the Asset Allocation
Fee. In addition, for Small Cap Opportunities Fund and International Fund,
"Investment Advisory Fees" reflects the administrative services fee payable
to Norwest. For all Funds that invest in a Core Portfolio, "Core
Portfolio(s) - Investment Advisory Fees" reflects the investment advisory
fees incurred by the Core Portfolio(s) in which the Fund invests. Absent
waivers, "Investment Advisory Fees" for Municipal Money Market Fund -
Institutional Shares, Municipal Money Market Fund - Investor Shares, Limited
Term Tax-Free Fund, Tax-Free Income Fund, Colorado Tax-Free Fund, Minnesota
Intermediate Tax-Free Fund, Minnesota Tax-Free Fund and Contrarian Stock
Fund would be 0.35%, 0.35%, 0.50%, 0.50%, 0.50%, 0.25%, 0.50% and 0.80%, and
for Diversified Bond Fund, each of the four Balanced Funds, Diversified
Equity Fund, Growth Equity Fund and Diversified Small Cap Fund would be
0.25%. The investment advisory fees set forth under "Core Portfolio(s) -
Investment Advisory Fees" paid by Diversified Bond Fund, each of the four
Balanced Funds, Diversified Equity Fund, Growth Equity Fund and Diversified
Small Cap Fund will vary based on the percentage of the Fund's assets
invested in each Core Portfolio.
(3) Norwest and Forum have agreed to waive their respective fees or reimburse
expenses in order to maintain Cash Investment Fund's total combined
operating expenses through May 31, 1999 at 0.48%. Norwest and Forum have
agreed to waive their respective fees or reimburse expenses in order to
maintain Ready Cash Investment Fund's, Total Return Bond Fund's and Small
Company Stock Fund's total operating expenses through May 31, 1998 at or
below the following amounts: Ready Cash Investment Fund, 0.82%; Total Return
Bond Fund, 0.75% and Small Company Stock Fund, 1.20%.
12
<PAGE>
Norwest and Forum have agreed to waive their respective fees through May 31,
1999 in order to ensure that the fees borne by each of Diversified Bond
Fund, Strategic Income Fund, Moderate Balanced Fund, Growth Balanced Fund,
Diversified Equity Fund and Growth Equity Fund for investment advisory,
administrative and management services would not exceed, in the aggregate,
0.45%, 0.55%, 0.63%, 0.68%, 0.75% and 1.00%, respectively.
(4) Absent expense reimbursements and fee waivers the expenses of Cash
Investment Fund, Ready Cash Investment Fund, U.S. Government Fund, Treasury
Fund, Municipal Money Market Fund - Institutional Shares, Municipal Money
Market Fund - Investor Shares, Stable Income Fund, Limited Term Government
Income Fund, Intermediate Government Income Fund, Diversified Bond Fund,
Income Fund, Total Return Bond Fund, Limited Term Tax-Free Fund, Tax-Free
Income Fund, Colorado Tax-Free Fund, Minnesota Intermediate Tax-Free Fund,
Minnesota Tax-Free Fund, Strategic Income Fund, Moderate Balanced Fund,
Growth Balanced Fund, Aggressive Balanced-Equity Fund, Index Fund, Income
Equity Fund, ValuGrowth Stock Fund, Diversified Equity Fund, Growth Equity
Fund, Large Company Growth Fund, Small Company Stock Fund, Small Company
Growth Fund, Diversified Small Cap Fund, Small Cap Opportunities Fund,
Contrarian Stock Fund and International Fund would be: "Other Expenses,"
0.26%, 0.42%, 0.38%, 0.39%, 0.25%, 0.53%, 0.36%, 0.52%, 0.39%, 0.34%, 0.43%,
0.35%, 0.55%, 0.43%, 0.52%, 0.47%, 0.55%, 0.34%, 0.32%, 0.32%, 0.80%, 0.32%,
0.32%, 0.42%, 0.27%, 0.24%, 0.34%, 0.35%, 0.32%, 0.80%, 0.64%, 1.07% and
0.64%, respectively; and "Total Operating Expenses," 0.57%, 0.83%, 0.52%,
0.55%, 0.59%, 0.87%, 0.78%, 0.85%, 0.72%, 1.08%, 0.93%, 0.95%, 1.05%, 0.93%,
1.02%, 0.72%, 1.05%, 1.07%, 1.10%, 1.14%, 1.64%, 0.55%, 0.90%, 1.22%, 1.18%,
1.40%, 1.06%, 1.35%, 1.30%, 2.79%, 1.44%, 1.87% and 1.63%, respectively.
Absent expense reimbursements and fee waivers, "Core Portfolio(s) - Other
Expenses" of Cash Investment Fund, Ready Cash Investment Fund, Stable Income
Fund, Diversified Bond Fund, Total Return Bond Fund, Strategic Income Fund,
Moderate Balanced Fund, Growth Balanced Fund, Aggressive Balanced-Equity
Fund, Index Fund, Income Equity Fund, Diversified Equity Fund, Growth Equity
Fund, Large Company Growth Fund, Small Company Stock Fund, Small Company
Growth Fund, Diversified Small Cap Fund, Small Cap Opportunities Fund and
International Fund would be 0.07%, 0.07%, 0.12%, 0.10%, 0.09%, 0.10%, 0.10%,
0.10%, 0.38%, 0.08%, 0.07%, 0.07%, 0.10%, 0.07%, 0.10%, 0.08%, 1.10%, 0.19%,
and 0.26%, respectively. Except as otherwise noted, expense reimbursements
and fee waivers are voluntary and may be reduced or eliminated at any time.
EXAMPLE
The following is a hypothetical example that indicates the dollar amount of
expenses that an investor would pay, assuming a $1,000 investment in a Fund's
Shares, the expenses listed in the "Annual Fund Operating Expenses" table, a 5%
annual return and reinvestment of all dividends and distributions. THE EXAMPLE
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR RETURN.
ACTUAL EXPENSES AND RETURN MAY BE GREATER OR LESS THAN INDICATED. The 5% annual
return is not predictive of and does not represent the Funds' projected returns;
rather, it is required by government regulation.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
----------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
MONEY MARKET FUNDS
Cash Investment Fund 5 15 27 60
Ready Cash Investment Fund (Investor Shares) 8 26 46 101
U.S. Government Fund 5 16 28 63
Treasury Fund 5 15 26 58
Municipal Money Market Fund
Institutional Shares 5 14 25 57
Investor Shares 7 21 36 81
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
----------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
FIXED INCOME FUNDS (I SHARES)
Stable Income Fund 7 21 36 81
Limited Term Government Income Fund 7 22 38 85
Intermediate Government Income Fund 7 22 38 85
Diversified Bond Fund 7 22 39 87
Income Fund 8 24 42 93
Total Return Bond Fund 8 24 42 93
TAX-FREE FIXED INCOME FUNDS (I SHARES)
Limited Term Tax-Free Fund 7 21 36 81
Tax-Free Income Fund 6 19 33 75
Colorado Tax-Free Fund 6 19 33 75
Minnesota Intermediate Tax-Free Fund 6 19 33 75
Minnesota Tax-Free Fund 6 19 33 75
BALANCED FUNDS (I SHARES)
Strategic Income Fund 8 26 44 99
Moderate Balanced Fund 9 28 49 108
Growth Balanced Fund 9 30 51 114
Aggressive Balanced-Equity Fund 10 32 55 122
EQUITY FUNDS (I SHARES)
Index Fund 3 8 14 32
Income Equity Fund 9 27 47 105
ValuGrowth Stock Fund 10 32 55 122
Diversified Equity Fund 10 32 55 122
Growth Equity Fund 13 40 69 151
Large Company Growth Fund 10 32 55 122
Small Company Stock Fund 12 38 66 145
Small Company Growth Fund 13 40 69 151
Diversified Small Cap Fund 12 38 66 145
Small Cap Opportunities Fund 13 40 69 151
Contrarian Stock Fund 12 38 66 145
International Fund 15 47 82 179
</TABLE>
14
<PAGE>
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15
<PAGE>
2. FINANCIAL HIGHLIGHTS
The following tables provide financial highlights for the Funds. This
information represents selected data for a single outstanding Share of each Fund
for the periods shown. As of November 30, 1997, Aggressive Balanced-Equity Fund
and Diversified Small Cap Fund had not commenced operations. Information for the
periods ended May 31, 1994 through May 31, 1997 was audited by KPMG Peat Marwick
LLP, independent auditors. Information for prior periods was audited by other
independent auditors. The information for the six month period ended November
30, 1997, is
<TABLE>
<CAPTION>
Beginning Net Realized Dividends
Net Asset Net and Unrealized from Net
Value Per Investment Gain (Loss) on Investment Capital
MONEY MARKET FUNDS Share Income Investments Income Contribution
--------- ---------- -------------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
CASH INVESTMENT FUND
- -----------------------------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) $1.00 $0.026 -- $(0.026) --
June 1, 1996 to May 31, 1997 1.00 0.051 -- (0.051) --
June 1, 1995 to May 31, 1996 1.00 0.054 -- (0.054) --
June 1, 1994 to May 31, 1995 1.00 0.049 -- (0.049) --
June 1, 1993 to May 31, 1994 1.00 0.031 -- (0.031) --
June 1, 1992 to May 31, 1993 1.00 0.033 -- (0.033) --
December 1, 1991 to May 31, 1992 1.00 0.021 -- (0.021) --
December 1, 1990 to November 30,
1991 1.00 0.061 -- (0.061) --
December 1, 1989 to November 30,
1990 1.00 0.079 -- (0.079) --
December 1, 1988 to November 30,
1989 1.00 0.088 -- (0.088) --
December 1, 1987 to November 30,
1988 1.00 0.071 -- (0.071) --
October 14, 1987 to November 30,
1987 1.00 0.009 -- (0.009) --
READY CASH INVESTMENT FUND -
INVESTOR SHARES
- -----------------------------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) 1.00 0.025 -- (0.025) --
June 1, 1996 to May 31, 1997 1.00 0.047 -- (0.047) --
June 1, 1995 to May 31, 1996 1.00 0.051 -- (0.051) --
June 1, 1994 to May 31, 1995 1.00 0.045 -- (0.045) --
June 1, 1993 to May 31, 1994 1.00 0.027 -- (0.027) --
June 1, 1992 to May 31, 1993 1.00 0.030 -- (0.030) --
December 1, 1991 to May 31, 1992 1.00 0.020 -- (0.020) --
December 1, 1990 to November 30,
1991 1.00 0.058 -- (0.058) --
December 1, 1989 to November 30,
1990 1.00 0.076 -- (0.076) --
December 1, 1988 to November 30,
1989 1.00 0.085 -- (0.085) --
January 20, 1988 to November 30,
1988 1.00 0.059 -- (0.059) --
U.S. GOVERNMENT FUND
- -----------------------------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) 1.00 0.026 -- (0.026) --
June 1, 1996 to May 31, 1997 1.00 0.049 -- (0.049) --
June 1, 1995 to May 31, 1996 1.00 0.052 -- (0.052) --
June 1, 1994 to May 31, 1995 1.00 0.047 -- (0.047) --
June 1, 1993 to May 31, 1994 1.00 0.030 -- (0.030) --
June 1, 1992 to May 31, 1993 1.00 0.030 -- (0.030) --
December 1, 1991 to May 31, 1992 1.00 0.020 -- (0.020) --
December 1, 1990 to November 30,
1991 1.00 0.058 -- (0.058) --
December 1, 1989 to November 30,
1990 1.00 0.077 -- (0.077) --
December 1, 1988 to November 30,
1989 1.00 0.085 -- (0.085) --
December 1, 1987 to November 30,
1988 1.00 0.069 -- (0.069) --
November 16, 1987 to November 30,
1987 1.00 0.003 -- (0.003) --
TREASURY FUND
- -----------------------------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) 1.00 0.024 -- (0.024) --
June 1, 1996 to May 31, 1997 1.00 0.047 -- (0.047) --
June 1, 1995 to May 31, 1996 1.00 0.050 -- (0.050) --
June 1, 1994 to May 31, 1995 1.00 0.046 -- (0.046) --
June 1, 1993 to May 31, 1994 1.00 0.028 -- (0.028) --
June 1, 1992 to May 31, 1993 1.00 0.029 -- (0.029) --
December 1, 1991 to May 31, 1992 1.00 0.020 -- (0.020) --
December 3, 1990 to November 30,
1991 1.00 0.058 -- (0.058) --
MUNICIPAL MONEY MARKET FUND(B)
- -----------------------------------------------------------------------------------------------------------
INVESTOR SHARES
June 1, 1997 to November 30,
1997(a) 1.00 0.016 -- (0.016) --
June 1, 1996 to May 31, 1997 1.00 0.030 -- (0.030) --
June 1, 1995 to May 31, 1996 1.00 0.033 -- (0.033) --
June 1, 1994 to May 31, 1995 1.00 0.031 $(0.004) (0.031) $ 0.004
June 1, 1993 to May 31, 1994 1.00 0.021 -- (0.021) --
June 1, 1992 to May 31, 1993 1.00 0.021 -- (0.021) --
December 1, 1991 to May 31, 1992 1.00 0.014 -- (0.014) --
December 1, 1990 to November 30,
1991 1.00 0.042 -- (0.042) --
December 1, 1989 to November 30,
1990 1.00 0.053 -- (0.053) --
December 1, 1988 to November 30,
1989 1.00 0.058 -- (0.058) --
January 7, 1988 to November 30,
1988 1.00 0.042 -- (0.042) --
INSTITUTIONAL SHARES
June 1, 1997 to November 30,
1997(a) 1.00 0.017 -- (0.017) --
June 1, 1996 to May 31, 1997 1.00 0.032 -- (0.032) --
June 1, 1995 to May 31, 1996 1.00 0.035 -- (0.035) --
June 1, 1994 to May 31, 1995 1.00 0.033 (0.004) (0.033) 0.004
August 3, 1993 to May 31, 1994(b) 1.00 0.019 -- (0.019) --
</TABLE>
(a) Unaudited.
(b) Municipal Money Market Fund commenced operations on January 7, 1988. The
Fund's original class of shares subsequently became Investor Shares. The
Fund commenced the offer of Institutional Shares on August 3, 1993.
(c) The ratio of Gross Expenses to Average Net Assets does not reflect fee
waivers or expense reimbursements.
(d) Annualized.
(e) Total return for 1995 includes the effect of a capital contribution from
Norwest Bank. Without the capital contribution, total return would have been
2.59% for Investor Shares and 2.79% for Institutional Shares.
16
<PAGE>
unaudited. Each Fund's financial statements for the fiscal year ended May 31,
1997, and independent auditors' report thereon, are contained in the Fund's
Annual Report. These financial statements are incorporated by reference into the
SAI. Further information about each Fund's performance is contained in the
Fund's Annual Report, which may be obtained from the Trust without charge.
<TABLE>
<CAPTION>
Ratio to Average Net Assets Net Assets
------------------------------------- at End of
Ending Net Net Period
Asset Value Investment Net Gross Total (000's
Per Share Income Expenses Expenses(c) Return Omitted)
------------ ----------- --------- ----------- ------ ------------
<S> <C> <C> <C> <C> <C> <C>
CASH INVESTMENT FUND
- -----------------------------------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) $1.00 5.28%(d) 0.48%(d) 0.55%(d) 2.68% $ 4,054,659
June 1, 1996 to May 31, 1997 1.00 5.07% 0.48% 0.49% 5.21% 2,147,894
June 1, 1995 to May 31, 1996 1.00 5.36% 0.48% 0.49% 5.50% 1,739,549
June 1, 1994 to May 31, 1995 1.00 4.87% 0.48% 0.50% 4.96% 1,464,304
June 1, 1993 to May 31, 1994 1.00 3.11% 0.49% 0.49% 3.16% 1,381,402
June 1, 1992 to May 31, 1993 1.00 3.29% 0.50% 0.51% 3.36% 1,944,948
December 1, 1991 to May 31, 1992 1.00 4.23%(d) 0.50%(d) 0.56%(d) 4.29%(d) 1,292,196
December 1, 1990 to November 30,
1991 1.00 6.11% 0.51% 0.54% 6.31% 1,004,979
December 1, 1989 to November 30,
1990 1.00 7.92% 0.45% 0.57% 8.22% 747,744
December 1, 1988 to November 30,
1989 1.00 8.81% 0.45% 0.64% 9.22% 662,698
December 1, 1987 to November 30,
1988 1.00 7.00% 0.43% 0.74% 7.32% 316,349
October 14, 1987 to November 30,
1987 1.00 7.16%(d) 0.45%(d) 1.09%(d) 7.40%(d) 53,951
READY CASH INVESTMENT FUND -
INVESTOR SHARES
- -----------------------------------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) 1.00 4.95%(d) 0.81%(d) 0.81%(d) 2.51% 622,533
June 1, 1996 to May 31, 1997 1.00 4.75% 0.82% 0.83% 4.87% 576,011
June 1, 1995 to May 31, 1996 1.00 5.02% 0.82% 0.87% 5.17% 473,879
June 1, 1994 to May 31, 1995 1.00 4.64% 0.82% 0.91% 4.62% 268,603
June 1, 1993 to May 31, 1994 1.00 2.70% 0.82% 0.92% 2.74% 164,138
June 1, 1992 to May 31, 1993 1.00 3.04% 0.82% 0.94% 3.08% 162,585
December 1, 1991 to May 31, 1992 1.00 4.01%(d) 0.82%(d) 0.93%(d) 4.05%(d) 176,378
December 1, 1990 to November 30,
1991 1.00 5.81% 0.82% 0.96% 5.98% 183,775
December 1, 1989 to November 30,
1990 1.00 7.56% 0.82% 0.97% 7.83% 166,911
December 1, 1988 to November 30,
1989 1.00 8.51% 0.81% 0.99% 8.86% 144,117
January 20, 1988 to November 30,
1988 1.00 7.11%(d) 0.77%(d) 1.13%(d) 6.97%(d) 46,736
U.S. GOVERNMENT FUND
- -----------------------------------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) 1.00 5.09%(d) 0.49%(d) 0.50%(d) 2.58% 2,152,406
June 1, 1996 to May 31, 1997 1.00 4.91% 0.49% 0.49% 5.04% 1,912,574
June 1, 1995 to May 31, 1996 1.00 5.13% 0.50% 0.51% 5.27% 1,649,721
June 1, 1994 to May 31, 1995 1.00 4.68% 0.50% 0.52% 4.81% 1,159,421
June 1, 1993 to May 31, 1994 1.00 3.02% 0.47% 0.53% 3.07% 1,091,141
June 1, 1992 to May 31, 1993 1.00 3.00% 0.45% 0.57% 3.06% 903,274
December 1, 1991 to May 31, 1992 1.00 3.99%(d) 0.45%(d) 0.61%(d) 4.07%(d) 623,685
December 1, 1990 to November 30,
1991 1.00 5.84% 0.45% 0.60% 6.00% 469,487
December 1, 1989 to November 30,
1990 1.00 7.66% 0.45% 0.61% 7.94% 500,794
December 1, 1988 to November 30,
1989 1.00 8.51% 0.45% 0.65% 8.87% 394,137
December 1, 1987 to November 30,
1988 1.00 6.87% 0.42% 0.73% 7.13% 254,104
November 16, 1987 to November 30,
1987 1.00 6.89%(d) 0.00%(d) 2.94%(d) 7.35%(d) 4,343
TREASURY FUND
- -----------------------------------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) 1.00 4.88%(d) 0.46%(d) 0.53%(d) 2.47% 1,253,109
June 1, 1996 to May 31, 1997 1.00 4.74% 0.46% 0.53% 4.87% 1,003,697
June 1, 1995 to May 31, 1996 1.00 4.91% 0.46% 0.56% 5.04% 802,270
June 1, 1994 to May 31, 1995 1.00 4.62% 0.46% 0.57% 4.65% 661,098
June 1, 1993 to May 31, 1994 1.00 2.81% 0.46% 0.58% 2.83% 526,483
June 1, 1992 to May 31, 1993 1.00 2.93% 0.47% 0.58% 2.98% 384,751
December 1, 1991 to May 31, 1992 1.00 4.01%(d) 0.47%(d) 0.59%(d) 4.07%(d) 374,492
December 3, 1990 to November 30,
1991 1.00 5.62%(d) 0.31%(d) 0.66%(d) 6.02%(d) 354,200
MUNICIPAL MONEY MARKET FUND(B)
- -----------------------------------------------------------------------------------------------------------------
INVESTOR SHARES
June 1, 1997 to November 30,
1997(a) 1.00 3.18%(d) 0.65%(d) 0.83%(d) 1.61% 47,482
June 1, 1996 to May 31, 1997 1.00 3.01% 0.65% 0.87% 3.08% 54,616
June 1, 1995 to May 31, 1996 1.00 3.25% 0.65% 0.88% 3.31% 57,021
June 1, 1994 to May 31, 1995 1.00 3.10% 0.65% 0.93% 3.13%(e) 47,424
June 1, 1993 to May 31, 1994 1.00 2.03% 0.65% 0.99% 2.09% 33,554
June 1, 1992 to May 31, 1993 1.00 2.13% 0.65% 0.97% 2.18% 75,521
December 1, 1991 to May 31, 1992 1.00 2.81%(d) 0.63%(d) 0.96%(d) 2.89%(d) 82,678
December 1, 1990 to November 30,
1991 1.00 4.10% 0.64% 1.08% 4.26% 66,327
December 1, 1989 to November 30,
1990 1.00 5.34% 0.64% 1.16% 5.48% 29,801
December 1, 1988 to November 30,
1989 1.00 5.78% 0.62% 1.15% 5.94% 18,639
January 7, 1988 to November 30,
1988 1.00 4.64%(d) 0.60%(d) 1.20%(d) 4.76%(d) 8,963
INSTITUTIONAL SHARES
June 1, 1997 to November 30,
1997(a) 1.00 3.38%(d) 0.45%(d) 0.59%(d) 1.71% 728,870
June 1, 1996 to May 31, 1997 1.00 3.21% 0.45% 0.70% 3.28% 635,655
June 1, 1995 to May 31, 1996 1.00 3.41% 0.45% 0.72% 3.52% 592,436
June 1, 1994 to May 31, 1995 1.00 3.37% 0.45% 0.74% 3.33%(e) 278,953
August 3, 1993 to May 31, 1994(b) 1.00 2.33%(d) 0.45%(d) 0.77%(d) 2.34%(d) 190,356
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Beginning Net Realized Dividends Ending
Net Asset Net and Unrealized from Net Distributions Net Asset
FIXED INCOME Value Per Investment Gain (Loss) on Investment from Net Value Per
FUNDS -- I SHARES Share Income Investments Income Realized Gain Share
--------- ---------- -------------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
STABLE INCOME FUND
- ---------------------------------------------------------------------------------------------------------------------
June 1, 1996 to November 30,
1997(a) $10.24 $0.30 $ 0.04 $(0.29) -- $10.29
June 1, 1996 to May 31, 1997 10.20 0.58 0.04 (0.58) -- 10.24
November 1, 1995 to May 31, 1996 10.72 0.28 0.03 (0.77) $(0.06) 10.20
November 11, 1994 to October 31,
1995 10.00 0.50 0.22 -- -- 10.72
LIMITED TERM GOVERNMENT INCOME
FUND
- ---------------------------------------------------------------------------------------------------------------------
October 1, 1997 to November 30,
1997(a) 10.00 0.10 (0.15) (0.10) -- 9.85
INTERMEDIATE GOVERNMENT INCOME
FUND
- ---------------------------------------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) 10.84 0.36 0.31 (0.35) -- 11.16
June 1, 1996 to May 31, 1997 10.89 0.72 (0.04) (0.73) -- 10.84
November 1, 1995 to May 31, 1996 12.40 0.40 0.53 (1.32) (1.12) 10.89
November 11, 1994 to October 31,
1995(d) 11.11 0.93 0.36 -- -- 12.40
DIVERSIFIED BOND FUND
- ---------------------------------------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) 25.60 0.80 1.16 -- -- 27.56
June 1, 1996 to May 31, 1997 26.03 1.59 0.01 (1.69) (0.34) 25.60
November 1, 1995 to May 31, 1996 27.92 1.07 (0.99) (1.67) (0.30) 26.03
November 11, 1994 to October 31,
1995 25.08 1.65 1.19 -- -- 27.92
INCOME FUND
- ---------------------------------------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) 9.27 0.30 0.41 (0.30) -- 9.68
June 1, 1996 to May 31, 1997 9.26 0.62 0.01 (0.62) -- 9.27
June 1, 1995 to May 31, 1996 9.62 0.61 (0.36) (0.61) -- 9.26
June 1, 1994 to May 31, 1995 9.51 0.65 0.11 (0.65) -- 9.62
August 2, 1993 to May 31, 1994 10.68 0.58 (0.91) (0.58) (0.26) 9.51
TOTAL RETURN BOND FUND
- ---------------------------------------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) 9.41 0.30 0.23 (0.30) -- 9.64
June 1, 1996 to May 31, 1997 9.40 0.60 0.04 (0.60) (0.03) 9.41
June 1, 1995 to May 31, 1996 9.73 0.64 (0.31) (0.64) (0.02) 9.40
June 1, 1994 to May 31, 1995 9.54 0.67 0.19 (0.67) -- 9.73
December 31, 1993 to May 31, 1994 10.00 0.27 (0.46) (0.27) -- 9.54
</TABLE>
(a) Unaudited.
(b) The ratio of Gross Expenses to Average Net Assets does not reflect fee
waivers or expense reimbursements.
(c) Annualized.
(d) Adjusted for a five to one stock split.
(e) Total return would have been lower absent expense reimbursements and/or fee
waivers.
(f) Includes expenses allocated from the Portfolios of Core Trust.
(g) The portfolio turnover rate reflects the activity of the Portfolio in which
the Fund invests.
18
<PAGE>
<TABLE>
<CAPTION>
Ratio to Average Net Assets
-------------------------------------
Net Portfolio Net Assets at
Investment Net Gross Total Turnover End of Period
Income Expenses Expenses(b) Return(e) Rate (000's Omitted)
----------- --------- ----------- ------ -------- ---------------
<S> <C> <C> <C> <C> <C> <C>
STABLE INCOME FUND
- ----------------------------------------------------------------------------------------------------------------
June 1, 1996 to November 30,
1997(a) 5.86%(c)(f) 0.65%(c)(f) 0.84%(c)(f) 3.39% 11.36%(g) $123,511
June 1, 1996 to May 31, 1997 5.73% 0.65% 0.79% 6.24% 41.30% $111,030
November 1, 1995 to May 31, 1996 5.74%(c) 0.65%(c) 0.92%(c) 2.97% 109.95% $ 83,404
November 11, 1994 to October 31,
1995 5.91%(c) 0.65%(c) 0.98%(c) 7.20% 115.85% $ 48,087
LIMITED TERM GOVERNMENT INCOME FUND
- ----------------------------------------------------------------------------------------------------------------
October 1, 1997 to November 30,
1997(a) 5.92%(c) 0.41%(c) 0.92%(c) 1.09% 33.06% $ 63,191
INTERMEDIATE GOVERNMENT INCOME FUND
- ----------------------------------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) 6.45%(c) 0.68%(c) 0.72%(c) 6.23% 53.50% $371,879
June 1, 1996 to May 31, 1997 6.57% 0.68% 0.72% 6.36% 183.05% $371,278
November 1, 1995 to May 31, 1996 6.71%(c) 0.71%(c) 1.17%(c) 0.60% 74.64% $399,324
November 11, 1994 to October 31,
1995(d) 7.79%(c) 0.68%(c) 0.93%(c) 11.58% 240.90% $ 50,213
DIVERSIFIED BOND FUND
- ----------------------------------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) 6.11%(c)(f) 0.70%(c)(f) 1.09%(c)(f) 7.66% N/A $175,674
June 1, 1996 to May 31, 1997 6.19% 0.70% 0.77% 6.23% 57.19% $162,310
November 1, 1995 to May 31, 1996 6.78%(c) 0.70%(c) 0.77%(c) 0.22% 118.92% $167,159
November 11, 1994 to October 31,
1995 5.87%(c) 0.67%(c) 0.82%(c) 11.32% 58.90% $171,453
INCOME FUND
- ----------------------------------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) 6.37%(c) 0.75%(c) 0.92%(c) 7.79% 69.73% $268,070
June 1, 1996 to May 31, 1997 6.59% 0.75% 1.02% 6.90% 231.00% $258,207
June 1, 1995 to May 31, 1996 6.30% 0.75% 1.06% 2.58% 270.17% $271,157
June 1, 1994 to May 31, 1995 7.02% 0.75% 1.06% 8.49% 98.83% $109,994
August 2, 1993 to May 31, 1994 6.75%(c) 0.61%(c) 1.09%(c) (4.04%)(c) 26.67% $ 93,665
TOTAL RETURN BOND FUND
- ----------------------------------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) 6.22%(c)(f) 0.75%(c)(f) 0.85%(c)(f) 5.67% 18.08%(g) $133,538
June 1, 1996 to May 31, 1997 6.36% 0.75% 1.05% 6.95% 55.07% $125,437
June 1, 1995 to May 31, 1996 6.57% 0.75% 1.07% 3.41% 77.49% $120,767
June 1, 1994 to May 31, 1995 7.04% 0.71% 1.17% 9.43% 35.19% $ 96,199
December 31, 1993 to May 31, 1994 6.81%(c) 0.46%(c) 2.10%(c) (4.62%)(c) 37.50% $ 11,694
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
Beginning Net Realized Dividends Ending
Net Asset Net and Unrealized from Net Distributions Net Asset
TAX-FREE FIXED Value Per Investment Gain (Loss) on Investment from Net Value Per
INCOME FUNDS -- I SHARES Share Income Investments Income Realized Gain Share
--------- ---------- -------------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
LIMITED TERM TAX-FREE FUND
- ---------------------------------------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) $10.39 $0.24 $ 0.15 $(0.24) -- $10.54
October 1, 1996 to May 31, 1997 10.00 0.31 0.39 (0.31) -- 10.39
TAX-FREE INCOME FUND
- ---------------------------------------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) 10.06 0.26 0.32 (0.26) -- 10.38
June 1, 1996 to May 31, 1997 9.78 0.54 0.28 (0.54) -- 10.06
June 1, 1995 to May 31, 1996 9.82 0.55 (0.04) (0.55) -- 9.78
June 1, 1994 to May 31, 1995 9.60 0.55 0.22 (0.55) -- 9.82
August 2, 1993 to May 31, 1994 10.14 0.47 (0.47) (0.47) $(0.07) 9.60
COLORADO TAX-FREE FUND
- ---------------------------------------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) 10.22 0.27 0.33 (0.27) -- 10.55
June 1, 1996 to May 31, 1997 9.89 0.54 0.33 (0.54) -- 10.22
June 1, 1995 to May 31, 1996 9.90 0.53 (0.01) (0.53) -- 9.89
June 1, 1994 to May 31, 1995 9.69 0.48 0.21 (0.48) -- 9.90
August 23, 1993 to May 31, 1994 10.22 0.39 (0.52) (0.39) (0.01) 9.69
MINNESOTA INTERMEDIATE TAX-FREE
FUND
- ---------------------------------------------------------------------------------------------------------------------
October 1, 1997 to November 30,
1997(a) 10.00 0.08 (0.04) (0.08) -- 9.96
MINNESOTA TAX-FREE FUND
- ---------------------------------------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) 10.57 0.27 0.30 (0.26) -- 10.88
June 1, 1996 to May 31, 1997 10.30 0.54 0.27 (0.54) -- 10.57
June 1, 1995 to May 31, 1996 10.45 0.56 (0.15) (0.56) -- 10.30
June 1, 1994 to May 31, 1995 10.16 0.53 0.29 (0.53) -- 10.45
August 2, 1993 to May 31, 1994 10.74 0.43 (0.39) (0.43) (0.19) 10.16
</TABLE>
(a) Unaudited.
(b) The ratio of Gross Expenses to Average Net Assets does not reflect fee
waivers or expense reimbursements.
(c) Annualized.
(d) Total Return would have been lower absent expense reimbursements and/or fee
waivers.
20
<PAGE>
<TABLE>
<CAPTION>
Ratio to Average Net Assets
-------------------------------------
Net Portfolio Net Assets at
Investment Net Gross Total Turnover End of Period
Income Expenses Expenses(b) Return(d) Rate (000's Omitted)
----------- --------- ----------- ------ -------- ---------------
<S> <C> <C> <C> <C> <C> <C>
LIMITED TERM TAX-FREE FUND
- ----------------------------------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) 4.51%(c) 0.65%(c) 1.06%(c) 3.77% 28.79% $ 46,752
October 1, 1996 to May 31, 1997 4.45%(c) 0.65%(c) 1.27%(c) 6.99% 16.39% $ 40,990
TAX-FREE INCOME FUND
- ----------------------------------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) 5.13%(c) 0.60%(c) 0.92%(c) 5.86% 78.78% $270,073
June 1, 1996 to May 31, 1997 5.40% 0.50% 1.03% 8.54% 152.33% $259,861
June 1, 1995 to May 31, 1996 5.57% 0.32% 1.06% 5.29% 126.20% $276,159
June 1, 1994 to May 31, 1995 5.84% 0.60% 1.05% 8.42% 130.90% $ 94,454
August 2, 1993 to May 31, 1994 5.71%(c) 0.60%(c) 1.10%(c) (0.21%)(c) 116.54% $102,084
COLORADO TAX-FREE FUND
- ----------------------------------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) 5.07%(c) 0.60%(c) 1.01%(c) 5.89% 34.97% $ 26,577
June 1, 1996 to May 31, 1997 5.35% 0.45% 1.13% 9.00% 129.26% $ 25,917
June 1, 1995 to May 31, 1996 5.30% 0.30% 1.13% 5.35% 171.41% $ 24,074
June 1, 1994 to May 31, 1995 5.08% 0.30% 1.16% 7.47% 47.88% $ 24,539
August 23, 1993 to May 31, 1994 5.03%(c) 0.11%(c) 1.21%(c) 0.90%(c) 40.92% $ 15,153
MINNESOTA INTERMEDIATE TAX-FREE
FUND
- ----------------------------------------------------------------------------------------------------------------
October 1, 1997 to November 30,
1997(a) 5.10%(c) 0.60%(c) 0.92%(c) 0.95% 4.57% $208,896
MINNESOTA TAX-FREE FUND
- ----------------------------------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) 4.90%(c) 0.60%(c) 1.04%(c) 5.48% 33.45% $ 16,469
June 1, 1996 to May 31, 1997 5.12% 0.60% 1.23% 7.98% 96.68% $ 11,135
June 1, 1995 to May 31, 1996 5.24% 0.51% 1.30% 3.97% 77.10% $ 3,988
June 1, 1994 to May 31, 1995 5.29% 0.48% 1.58% 8.44% 139.33% $ 1,799
August 2, 1993 to May 31, 1994 4.90%(c) 0.61%(c) 1.54%(c) 0.29%(c) 84.23% $ 872
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
Beginning Net Realized Dividends Ending
Net Asset Net and Unrealized from Net Distributions Net Asset
BALANCED FUNDS -- Value Per Investment Gain (Loss) on Investment from Net Value Per
I SHARES Share Income Investments Income Realized Gain Share
--------- ---------- -------------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
STRATEGIC INCOME FUND+
- ------------------------------------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) $18.47 $0.43 $0.98 -- -- $19.88
June 1, 1996 to May 31, 1997 18.12 0.97 0.71 $(0.95) $(0.38) 18.47
November 1, 1995 to May 31, 1996 18.21 0.48 0.42 (0.76) (0.23) 18.12
November 11, 1994 to October 31,
1995 16.19 0.75 1.27 -- -- 18.21
MODERATE BALANCED FUND
- ------------------------------------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) 21.59 0.47 1.31 -- -- 23.37
June 1, 1996 to May 31, 1997 20.27 0.77 1.60 (0.76) (0.29) 21.59
November 1, 1995 to May 31, 1996 19.84 0.46 0.89 (0.66) (0.26) 20.27
November 11, 1994 to October 31,
1995 17.25 0.65 1.94 -- -- 19.84
GROWTH BALANCED FUND
- ------------------------------------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) 24.77 0.31 2.12 -- -- 27.20
June 1, 1996 to May 31, 1997 22.83 0.62 2.86 (0.63) (0.91) 24.77
November 1, 1995 to May 31, 1996 21.25 0.31 1.95 (0.51) (0.17) 22.83
November 11, 1994 to October 31,
1995 17.95 0.47 2.83 -- -- 21.25
</TABLE>
+ Prior to October 1, 1997, Strategic Income Fund was named Conservative
Balanced Fund.
(a) Unaudited.
(b) Includes expenses allocated from the Portfolios of Core Trust (Delaware) and
Schroder Capital Funds in which the Fund was invested.
(c) The ratio of Gross Expenses to Average Net Assets does not reflect fee
waivers or expense reimbursements.
(d) Annualized.
(e) Total Return would have been lower absent expense reimbursements and/or fee
waivers.
(f) Represents the average commission per share paid to brokers on the purchase
or sale of portfolio securities. Prior to 1996, this data was not reported
in mutual fund financial statements.
22
<PAGE>
<TABLE>
<CAPTION>
Ratio to Average Net Assets
------------------------------------------
Net Portfolio Average
Investment Net Gross Total Turnover Commission
Income(b) Expenses(b) Expenses(b)(c) Return(e) Rate Rate(f)
----------- ------------ ------------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
STRATEGIC INCOME FUND+
- -------------------------------------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) 4.51%(d) 0.80%(d) 1.08%(d) 7.63% N/A N/A
June 1, 1996 to May 31, 1997 4.38% 0.81% 0.98% 9.58% 72.03% $0.0720
November 1, 1995 to May 31, 1996 4.65%(d) 0.82%(d) 0.97%(d) 5.14% 56.47% 0.0648
November 11, 1994 to October 31,
1995 4.67%(d) 0.82%(d) 1.03%(d) 12.48% 65.53% N/A
MODERATE BALANCED FUND
- -------------------------------------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) 3.68%(d) 0.89%(d) 1.11%(d) 8.24% N/A N/A
June 1, 1996 to May 31, 1997 3.70% 0.88% 1.04% 12.04% 45.33% 0.0684
November 1, 1995 to May 31, 1996 3.95%(d) 0.90%(d) 1.04%(d) 7.03% 52.71% 0.0658
November 11, 1994 to October 31,
1995 3.76%(d) 0.92%(d) 1.11%(d) 15.01% 62.08% N/A
GROWTH BALANCED FUND
- -------------------------------------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) 2.45%(d) 0.94%(d) 1.14%(d) 9.81% N/A N/A
June 1, 1996 to May 31, 1997 2.47% 0.94% 1.16% 15.81% 24.33% 0.0676
November 1, 1995 to May 31, 1996 2.66%(d) 0.98%(d) 1.16%(d) 10.87% 38.78% 0.0696
November 11, 1994 to October 31,
1995 2.63%(d) 0.99%(d) 1.23%(d) 18.38% 41.04% N/A
<CAPTION>
Net Assets at
End of Period
(000's Omitted)
---------------
<S> <C>
STRATEGIC INCOME FUND+
- --------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) $139,529
June 1, 1996 to May 31, 1997 128,777
November 1, 1995 to May 31, 1996 146,950
November 11, 1994 to October 31,
1995 136,710
MODERATE BALANCED FUND
- ------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) 418,246
June 1, 1996 to May 31, 1997 418,680
November 1, 1995 to May 31, 1996 398,005
November 11, 1994 to October 31,
1995 373,998
GROWTH BALANCED FUND
- ----------------------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) 565,694
June 1, 1996 to May 31, 1997 503,382
November 1, 1995 to May 31, 1996 484,641
November 11, 1994 to October 31,
1995 374,892
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
Beginning Net Net Realized Dividends Ending Net
Net Asset Investment and Unrealized from Net Distributions Asset
EQUITY FUNDS -- Value Per Income Gain (Loss) on Investment from Net Value Per
I SHARES Share (Loss) Investments Income Realized Gain Share
--------- ---------- -------------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
INDEX FUND
- ----------------------------------------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) $39.49 $ 0.35 $ 4.95 -- -- $44.79
June 1, 1996 to May 31, 1997 31.49 0.49 8.50 $(0.48) $(0.51) 39.49
November 1, 1995 to May 31, 1996 27.67 0.36 4.08 (0.43) (0.19) 31.49
November 11, 1994 to October 31,
1995 21.80 0.45 5.42 -- -- 27.67
INCOME EQUITY FUND
- ----------------------------------------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) 33.16 0.26 3.95 (0.24) (0.46) 36.67
June 1, 1996 to May 31, 1997 27.56 0.56 5.55 (0.51) -- 33.16
November 1, 1995 to May 31, 1996 24.02 0.29 4.02 (0.69) (0.08) 27.56
November 11, 1994 to October 31,
1995 18.90 0.46 4.66 -- -- 24.02
VALUGROWTH STOCK FUND
- ----------------------------------------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) 25.03 (0.03) 2.20 (0.05) (2.17) 24.98
June 1, 1996 to May 31, 1997 22.61 0.16 4.80 (0.13) (2.41) 25.03
June 1, 1995 to May 31, 1996 18.80 0.14 3.91 (0.12) (0.12) 22.61
June 1, 1994 to May 31, 1995 17.16 0.18 1.64 (0.18) -- 18.80
August 2, 1993 to May 31, 1994 16.91 0.13 0.46 (0.12) (0.22) 17.16
DIVERSIFIED EQUITY FUND
- ----------------------------------------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) 36.50 0.12 3.80 -- -- 40.42
June 1, 1996 to May 31, 1997 30.55 0.25 6.05 (0.16) (0.19) 36.50
November 1, 1995 to May 31, 1996 27.53 0.16 4.25 (0.42) (0.97) 30.55
November 11, 1994 to October 31,
1995 22.21 0.22 5.10 -- -- 27.53
GROWTH EQUITY FUND
- ----------------------------------------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) 32.48 (0.03) 2.95 -- -- 35.40
June 1, 1996 to May 31, 1997 29.08 (0.02) 4.05 (0.04) (0.59) 32.48
November 1, 1995 to May 31, 1996 26.97 -- 4.09 (0.12) (1.86) 29.08
November 11, 1994 to October 31,
1995 22.28 (0.02) 4.71 -- -- 26.97
LARGE COMPANY GROWTH FUND
- ----------------------------------------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) 32.63 (0.07) 5.05 -- -- 37.61
June 1, 1996 to May 31, 1997 26.97 (0.03) 5.91 -- (0.22) 32.63
November 1, 1995 to May 31, 1996 23.59 (0.04) 3.64 -- (0.22) 26.97
November 11, 1994 to October 31,
1995 18.50 (0.05) 5.14 -- -- 23.59
SMALL COMPANY STOCK FUND
- ----------------------------------------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) 13.88 (0.04) 0.95 -- (0.58) 14.21
June 1, 1996 to May 31, 1997 13.96 (0.04) 0.87 -- (0.91) 13.88
June 1, 1995 to May 31, 1996 10.59 0.01 3.93 (0.03) (0.54) 13.96
June 1, 1994 to May 31, 1995 9.80 0.12 0.87 (0.12) (0.08) 10.59
December 31, 1993 to May 31, 1994 10.00 0.08 (0.20) (0.08) -- 9.80
SMALL COMPANY GROWTH FUND
- ----------------------------------------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) 31.08 (0.11) 6.14 -- (0.77) 36.34
June 1, 1996 to May 31, 1997 33.00 (0.18) 1.83 -- (3.57) 31.08
November 1, 1995 to May 31, 1996 29.99 (0.07) 5.94 -- (2.86) 33.00
November 11, 1994 to October 31,
1995 21.88 (0.11) 8.22 -- -- 29.99
SMALL CAP OPPORTUNITIES FUND
- ----------------------------------------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) 19.84 (0.03) 2.94 -- -- 22.75
August 15, 1996 to May 31, 1997 16.26 (0.01) 3.60 -- (0.01) 19.84
CONTRARIAN STOCK FUND
- ----------------------------------------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) 10.25 0.07 (0.06) (0.15) -- 10.11
June 1, 1996 to May 31, 1997 10.82 0.09 1.03 (0.08) (1.16) 10.25
June 1, 1995 to May 31, 1996 10.90 0.10 1.01 (0.10) (1.09) 10.82
June 31, 1994 to May 31, 1995 9.71 0.11 1.19 (0.11) (0.03) 10.90
December 31, 1993 to May 31, 1994 10.00 0.07 (0.29) (0.07) -- 9.71
INTERNATIONAL FUND
- ----------------------------------------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) 21.67 -- (1.26) -- -- 20.41
June 1, 1996 to May 31, 1997 19.84 0.09 1.94 (0.20) -- 21.67
November 1, 1995 to May 31, 1996 17.99 0.14 2.04 (0.33) -- 19.84
November 11, 1994 to October 31,
1995 17.28 0.09 0.62 -- -- 17.99
</TABLE>
(a) Unaudited.
(b) The ratio of Gross Expenses to Average Net Assets does not reflect fee
waivers and expense reimbursements.
(c) Total Return would have been lower absent expense reimbursements and/or fee
waivers.
(d) Annualized.
(e) Includes expenses allocated from the Portfolios of Core Trust (Delaware)
and/or Schroder Capital Funds in which the Fund was invested.
(f) The portfolio turnover rate reflects the activity of the Portfolio in which
the Fund invests.
(g) Represents the average commission per share paid to brokers on the purchase
or sale of portfolio securities. Prior to 1996, this data was not reported
in mutual fund financial statements.
24
<PAGE>
<TABLE>
<CAPTION>
Ratio to Average Net Assets
-------------------------------------------
Net Portfolio Average
Investment Gross Total Turnover Commission
Income Net Expenses Expenses(b) Return(c) Rate Rate(g)
------------ ------------ ------------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
INDEX FUND
- ---------------------------------------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) 1.64%(d)(e) 0.25%(d)(e) 0.58%(d)(e) 13.42% 6.85%(f) $0.0330
June 1, 1996 to May 31, 1997 2.10% 0.25% 0.56% 29.02% 24.17% 0.0417
November 1, 1995 to May 31, 1996 2.25%(d) 0.31%(d) 0.57%(d) 16.27% 9.12% 0.0517
November 11, 1994 to October 31,
1995 2.12%(d) 0.50%(d) 0.64%(d) 26.93% 14.48% N/A
INCOME EQUITY FUND
- ---------------------------------------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) 1.53%(d)(e) 0.85%(d)(e) 0.92%(d)(e) 12.85% 2.43%(f) 0.0600
June 1, 1996 to May 31, 1997 1.97% 0.85% 0.90% 22.40% 4.76% 0.0792
November 1, 1995 to May 31, 1996 2.72%(d) 0.86%(d) 1.13%(d) 18.14% 0.69% 0.0942
November 11, 1994 to October 31,
1995 2.51%(d) 0.85%(d) 1.12%(d) 27.09% 7.03% N/A
VALUGROWTH STOCK FUND
- ---------------------------------------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) 0.31%(d) 1.00%(d) 1.20%(d) 8.86% 51.26% 0.0619
June 1, 1996 to May 31, 1997 0.67% 1.01% 1.33% 23.30% 75.50% 0.0781
June 1, 1995 to May 31, 1996 0.62% 1.20% 1.32% 21.72% 105.43% 0.0603
June 1, 1994 to May 31, 1995 1.02% 1.20% 1.33% 10.67% 63.82% N/A
August 2, 1993 to May 31, 1994 0.92%(d) 1.20%(d) 1.39%(d) 2.99%(d) 86.07% N/A
DIVERSIFIED EQUITY FUND
- ---------------------------------------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) 0.60%(d)(e) 1.00%(d)(e) 1.17%(d)(e) 10.74% N/A N/A
June 1, 1996 to May 31, 1997 0.79%(e) 1.02%(e) 1.31%(e) 20.76% 48.08% 0.0626
November 1, 1995 to May 31, 1996 1.00%(d)(e) 1.06%(d)(e) 1.30%(d)(e) 16.38% 5.76% 0.0671
November 11, 1994 to October 31,
1995 1.01%(d)(e) 1.09%(d)(e) 1.37%(d)(e) 23.95% 10.33% N/A
GROWTH EQUITY FUND
- ---------------------------------------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) (0.17%)(d)(e) 1.25%(d)(e) 1.39%(d)(e) 8.96% N/A N/A
June 1, 1996 to May 31, 1997 (0.09%)(e) 1.30%(e) 1.84%(e) 14.11% 9.06% 0.0565
November 1, 1995 to May 31, 1996 0.01%(d)(e) 1.35%(d)(e) 1.85%(d)(e) 15.83% 7.39% 0.0617
November 11, 1994 to October 31,
1995 (0.11%)(d)(e) 1.38%(d)(e) 1.92%(d)(e) 21.10% 8.90% N/A
LARGE COMPANY GROWTH FUND
- ---------------------------------------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) (0.38%)(d)(e) 1.00%(d)(e) 1.10%(d)(e) 15.26% 8.07%(f) 0.0558
June 1, 1996 to May 31, 1997 (0.18%) 0.99% 1.09% 21.93% 24.37% 0.0564
November 1, 1995 to May 31, 1996 (0.30%)(d) 1.00%(d) 1.13%(d) 15.40% 16.93% 0.0616
November 11, 1994 to October 31,
1995 (0.23%)(d) 1.00%(d) 1.20%(d) 27.51% 31.60% N/A
SMALL COMPANY STOCK FUND
- ---------------------------------------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) (0.54%)(d)(e) 1.20%(d)(e) 1.38%(d)(e) 6.36% 115.24%(f) 0.0635
June 1, 1996 to May 31, 1997 (0.38%) 1.19% 1.56% 6.30% 210.19% 0.0774
June 1, 1995 to May 31, 1996 0.05% 1.21% 1.60% 38.30% 134.53% 0.0555
June 1, 1994 to May 31, 1995 1.14% 0.52% 1.82% 10.13% 68.09% N/A
December 31, 1993 to May 31, 1994 2.03%(d) 0.20%(d) 4.33%(d) (2.93%)(d) 14.98% N/A
SMALL COMPANY GROWTH FUND
- ---------------------------------------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) (0.72%)(d)(e) 1.25%(d)(e) 1.32%(d)(e) 19.45% 53.77%(f) 0.0576
June 1, 1996 to May 31, 1997 (0.71%) 1.24% 1.29% 5.65% 124.03% 0.0565
November 1, 1995 to May 31, 1996 (0.41%)(d) 1.25%(d) 1.29%(d) 21.43% 62.06% 0.0583
November 11, 1994 to October 31,
1995 (0.47%)(d) 1.25%(d) 1.35%(d) 37.07% 106.55% N/A
SMALL CAP OPPORTUNITIES FUND
- ---------------------------------------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) (0.34%)(d)(e) 1.22%(d)(e) 1.42%(d)(e) 14.67% 28.71%(f) 0.0583
August 15, 1996 to May 31, 1997 (0.16%)(d)(e) 1.25%(d)(e) 1.89%(d)(e) 11.42% 34.45%(f) 0.0584
CONTRARIAN STOCK FUND
- ---------------------------------------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) 0.57%(d) 1.20%(d) 2.16%(d) (0.04%) 7.40% 0.0469
June 1, 1996 to May 31, 1997 0.81% 1.19% 1.72% 13.02% 13.36% 0.0472
June 1, 1995 to May 31, 1996 0.87% 1.20% 1.45% 10.90% 28.21% 0.0467
June 31, 1994 to May 31, 1995 0.91% 1.12% 1.57% 13.52% 30.32% N/A
December 31, 1993 to May 31, 1994 1.82%(d) 0.62%(d) 3.52%(d) (5.35%)(d) 2.67% N/A
INTERNATIONAL FUND
- ---------------------------------------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) 0.14%(d)(e) 1.51%(d)(e) 1.52%(d)(e) (5.77%) N/A N/A
June 1, 1996 to May 31, 1997 0.40%(e) 1.43%(e) 1.44%(e) 10.27% 48.23%(f) 0.0202
November 1, 1995 to May 31, 1996 0.60%(d)(e) 1.50%(d)(e) 1.52%(d)(e) 12.31% 14.12%(f) 0.0325
November 11, 1994 to October 31,
1995 0.54%(d)(e) 1.50%(d)(e) 1.66%(d)(e) 4.11% 29.41%(f) N/A
<CAPTION>
Net Assets at
End of Period
(000's Omitted)
---------------
<S> <C>
INDEX FUND
- --------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) $ 575,880
June 1, 1996 to May 31, 1997 513,134
November 1, 1995 to May 31, 1996 249,644
November 11, 1994 to October 31,
1995 186,197
INCOME EQUITY FUND
- ------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) 1,021,990
June 1, 1996 to May 31, 1997 425,197
November 1, 1995 to May 31, 1996 230,831
November 11, 1994 to October 31,
1995 49,000
VALUGROWTH STOCK FUND
- ----------------------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) 616,634
June 1, 1996 to May 31, 1997 180,204
June 1, 1995 to May 31, 1996 156,553
June 1, 1994 to May 31, 1995 136,589
August 2, 1993 to May 31, 1994 113,061
DIVERSIFIED EQUITY FUND
- --------------------------------------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) 1,359,682
June 1, 1996 to May 31, 1997 1,212,565
November 1, 1995 to May 31, 1996 907,223
November 11, 1994 to October 31,
1995 711,111
GROWTH EQUITY FUND
- ---------------------------------------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) 952,658
June 1, 1996 to May 31, 1997 895,420
November 1, 1995 to May 31, 1996 735,728
November 11, 1994 to October 31,
1995 564,004
LARGE COMPANY GROWTH FUND
- ---------------------------------------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) 165,481
June 1, 1996 to May 31, 1997 131,768
November 1, 1995 to May 31, 1996 82,114
November 11, 1994 to October 31,
1995 63,567
SMALL COMPANY STOCK FUND
- ---------------------------------------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) 209,224
June 1, 1996 to May 31, 1997 161,995
June 1, 1995 to May 31, 1996 125,986
June 1, 1994 to May 31, 1995 54,240
December 31, 1993 to May 31, 1994 9,251
SMALL COMPANY GROWTH FUND
- ---------------------------------------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) 725,504
June 1, 1996 to May 31, 1997 447,580
November 1, 1995 to May 31, 1996 378,546
November 11, 1994 to October 31,
1995 278,058
SMALL CAP OPPORTUNITIES FUND
- ---------------------------------------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) 175,571
August 15, 1996 to May 31, 1997 77,174
CONTRARIAN STOCK FUND
- ---------------------------------------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) 5,213
June 1, 1996 to May 31, 1997 8,260
June 1, 1995 to May 31, 1996 36,020
June 31, 1994 to May 31, 1995 45,832
December 31, 1993 to May 31, 1994 4,548
INTERNATIONAL FUND
- ---------------------------------------------------------------------------------------------------------------------
June 1, 1997 to November 30,
1997(a) 233,162
June 1, 1996 to May 31, 1997 228,552
November 1, 1995 to May 31, 1996 143,643
November 11, 1994 to October 31,
1995 91,401
</TABLE>
25
<PAGE>
3. INVESTMENT OBJECTIVES AND POLICIES
The thirty-two Funds offered through this Prospectus each have distinct
investment objectives and policies. There can be no assurance that any Fund or
Core Portfolio will achieve its investment objective or that any Money Market
Fund will maintain a stable net asset value.
The investment objective, policies and risk considerations of each Fund are
described below. For a further description of each 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.
MONEY MARKET FUNDS
For a general description of the limits imposed on the investments of the Money
Market Funds, see "Additional Investment Policies and Risk Considerations -
General Information - General Money Market Fund Guidelines."
CASH INVESTMENT FUND, READY CASH INVESTMENT FUND
INVESTMENT OBJECTIVES. The investment objective of each of Cash Investment Fund
and Ready Cash Investment Fund is to provide high current income to the extent
consistent with the preservation of capital and the maintenance of liquidity.
CASH INVESTMENT FUND currently pursues its investment objective by investing
equally in two Core Portfolios - Money Market Portfolio and Prime Money Market
Portfolio.
READY CASH INVESTMENT FUND currently pursues its investment objective by
investing all of its investable assets in Prime Money Market Portfolio. Cash
Investment Fund, Ready Cash Investment Fund, Money Market Portfolio and Prime
Money Market Portfolio each have the same investment objective and investment
policies, except that Ready Cash Investment Fund and Prime Money Market
Portfolio seek to maintain a rating from at least one NRSRO. Accordingly, Prime
Money Market Portfolio is limited in the type and amount of permissible
securities which it may purchase. Each Core Portfolio invests in a broad
spectrum of high quality money market instruments of United States and foreign
issuers.
Although the following discusses the investment policies of Money Market
Portfolio and Prime Money Market Portfolio, it applies equally to the Funds. It
is anticipated that the percentage of Cash Investment Fund's assets invested in
each Core Portfolio will not change.
INVESTMENT POLICIES. The Portfolios may invest in obligations of financial
institutions. These include negotiable certificates of deposit, bank notes,
bankers' acceptances and time deposits of U.S. banks (including savings banks
and savings associations), foreign branches of U.S. banks, foreign banks and
their non-U.S. branches (Eurodollars), U.S. branches and agencies of foreign
banks (Yankee dollars), and wholly-owned banking-related subsidiaries of foreign
banks. The Portfolios limit their investments in obligations of financial
institutions (including their branches, agencies and subsidiaries) to
institutions which at the time of investment have total assets in excess of one
billion dollars, or the equivalent in other currencies.
Each Portfolio normally will invest more than 25% of its total assets in the
obligations of domestic and foreign financial institutions, their holding
companies, and their subsidiaries. This concentration may result in increased
exposure to risks pertaining to the banking industry. These risks include a
sustained increase in interest rates, which can adversely affect the
availability and cost of a bank's lending activities; exposure to credit losses
during times of economic decline; concentration of loan portfolios in certain
industries; regulatory developments; and competition among financial
institutions. Each Portfolio may not invest more than 25% of its total assets in
any other single industry.
26
<PAGE>
Although the Portfolios invest in dollar-denominated obligations, the foreign
securities in which the Portfolios invest also involve certain risks. (See
"Investment Policies - Equity Funds - International Fund - Foreign Investment
Considerations and Risk Factors.") The Portfolios may invest without limit in
the types of securities eligible for purchase by U.S. Government Fund, as well
as in the types of securities eligible for purchase by Municipal Money Market
Fund. (See "Investment Objectives and Policies - Money Market Funds - U.S.
Government Fund" and "- Municipal Money Market Fund.") The Portfolios may invest
in corporate debt securities, including commercial paper and privately issued
instruments, (see "Appendix A - Corporate Debt Securities and Commercial
Paper,") and may invest in participation interests, (see "Appendix A
- -Participation Interests.") A Portfolio will not invest more than 10% of its
total assets in participation interests in which the Portfolio does not have
demand rights.
U.S. GOVERNMENT FUND
INVESTMENT OBJECTIVE. The investment objective of U.S. Government Fund is to
provide high current income to the extent consistent with the preservation of
capital and the maintenance of liquidity.
INVESTMENT POLICIES. U.S. Government Fund invests primarily 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"). The Fund may also invest in repurchase agreements and certain
zero-coupon securities secured by U.S. Government Securities. Under normal
circumstances, however, the Fund will invest at least 65% of its total assets in
U.S. Government Securities.
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 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. For instance, a number of banks and brokerage firms separate the
principal and interest portions of U.S. Treasury securities and sell them
separately in the form of receipts or certificates representing undivided
interests in these instruments. These instruments are generally held by a bank
in a custodial or trust account on behalf of the owners of the securities and
are known by various names, including Treasury Receipts ("TRs"), Treasury
Investment Growth Receipts ("TIGRs") and Certificates of Accrual on Treasury
Securities ("CATS"). The Fund will not invest more than 35% of its total assets
in zero-coupon securities other than those issued through the STRIPS program.
(See "Appendix A - U.S. Government Securities - Zero Coupon Securities.")
TREASURY FUND
INVESTMENT OBJECTIVE. The investment objective of Treasury Fund is to provide
high current income to the extent consistent with the preservation of capital
and the maintenance of liquidity.
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<PAGE>
INVESTMENT POLICIES. Treasury Fund invests solely in obligations that are issued
or guaranteed by the U.S. Treasury, such as U.S. Treasury bills, bonds and notes
("U.S. Treasury Securities"). This may include separately traded principal and
interest components of securities issued or guaranteed by the U.S. Treasury.
(See "Appendix A - U.S. Government Securities.")
MUNICIPAL MONEY MARKET FUND
INVESTMENT OBJECTIVE. The investment objective of Municipal Money Market Fund is
to provide high current income exempt from federal income taxes to the extent
consistent with the preservation of capital and the maintenance of liquidity. As
part of its objective, during periods of normal market conditions, the Fund will
have at least 80% of its net assets invested in federally tax-exempt instruments
the income from which may be subject to the federal alternative minimum tax
("AMT"). (See "Dividends and Tax Matters - Tax Matters.")
INVESTMENT POLICIES. Municipal Money Market Fund attempts to invest 100% of its
assets in the obligations of the states, territories and possessions of the
United States and of their subdivisions, authorities and corporations, the
interest on which is exempt from federal income tax ("municipal securities").
The Fund reserves the right, however, to invest up to 20% of its assets in
securities the interest income on which is subject to federal income taxation.
The municipal securities in which the Fund may invest include short-term
municipal bonds and municipal notes and leases. These municipal securities may
have fixed, variable or floating rates of interest and may be zero-coupon
securities.
When the assets and revenues of an issuing agency, authority, instrumentality or
other political subdivision are separate from those of the government creating
the issuing entity and a security is backed only by the assets and revenues of
the entity, the entity will be deemed to be the sole issuer of the security.
Similarly, in the case of a security issued by or on behalf of public
authorities to finance various privately operated facilities, such as industrial
development bonds, that is backed only by the assets and revenues of the non-
governmental user, the non-governmental user will be deemed to be the sole
issuer of the security.
The Fund may invest more than 25% of its assets in industrial development bonds
and in participation interests therein issued by banks. The Fund may from time
to time invest more than 25% of its assets in obligations of issuers located in
one state but, under normal circumstances, will not invest more than 35% of its
assets in obligations of issuers located in one state. If the Fund concentrates
its investments in this manner, it will be more susceptible to factors adversely
affecting issuers of those municipal securities than would be a more
geographically diverse municipal securities portfolio. These risks arise from
the financial condition of the particular state and its political subdivisions.
For a description of particular types of municipal securities, such municipal
bonds, notes and leases and participation interests, in which the Fund invests,
(see "Appendix A - Municipal Securities.")
THE SHORT-TERM MUNICIPAL SECURITIES MARKET. Yields on municipal securities are
dependent on a variety of factors, including the general conditions of the
municipal security markets and the fixed income markets in general, the size of
a particular offering, the maturity of the obligation and the rating of the
issue. The achievement of the Fund's investment objective is dependent in part
on the continuing ability of the issuers of municipal securities in which the
Fund invests to meet their obligations for the payment of principal and interest
when due. Under current federal tax law, interest on certain municipal
securities issued after August 7, 1986 to finance "private activities" ("private
activity securities") is a "tax preference item" for purposes of the AMT
applicable to certain individuals and corporations even though such interest
will continue to be fully tax-exempt for regular federal income tax purposes.
The Fund may purchase private activity securities, the interest on which may
constitute a "tax preference item" for purposes of the AMT.
Although the Fund invests primarily in municipal securities, it is anticipated
that a substantial amount of the securities held by the Fund will be supported
by credit and liquidity enhancements, such as letters of credit (which are not
covered by federal deposit insurance) or put or demand features, of third party
financial
28
<PAGE>
institutions, generally domestic and foreign banks. Accordingly, the credit
quality and liquidity of the Fund will be dependent in part upon the credit
quality of the banks supporting the Fund's investments. This will result in
exposure to risks pertaining to the banking industry, including the foreign
banking industry. (See "Investment Objectives and Policies - Money Market Funds
- - Cash Investment Fund and Ready Cash Investment Fund.") Brokerage firms and
insurance companies also provide certain liquidity and credit support. The
Fund's policy is to purchase municipal securities with third party credit or
liquidity support only after Norwest has considered the creditworthiness of the
financial institution providing the support and believes that the security
presents minimal credit risk.
The Fund may purchase long term municipal securities with various maturity
shortening provisions. For instance, variable rate demand notes ("VRDN") are
municipal bonds with maturities of up to 40 years that are sold with a demand
feature (an option for the holder of the security to sell the security back to
the issuer) which may be exercised by the security holder at predetermined
intervals, usually daily or weekly. The interest rate on the security is
typically reset by a remarketing or similar agent at prevailing interest rates.
VRDNs may be issued directly by the municipal issuer or created by a bank,
broker-dealer or other financial institution by selling a previously issued
long-term bond with a demand feature attached. Similarly, tender option bonds
(also referred to as certificates of participation) are municipal securities
with relatively long original maturities and fixed rates of interest that are
coupled with an agreement of a third party financial institution under which the
third party grants the security holders the option to tender the securities to
the institution and receive the face value thereof. The option may be exercised
at periodic intervals, usually six months to a year. As consideration for
providing the option, the financial institution receives a fee equal to the
difference between the underlying municipal security's fixed rate and the rate,
as determined by a remarketing or similar agent, that would cause the
securities, coupled with the tender option, to trade at par on the date of the
interest rate determination. These bonds effectively provide the holder with a
demand obligation that bears interest at the prevailing short-term municipal
securities interest rate. Tender option bonds are generally held pursuant to a
custodial arrangement.
The Fund also may acquire "puts" on municipal securities it purchases. A put
gives the Fund the right to sell the municipal security at a specified price at
any time before a specified date. The Fund will acquire puts only to enhance
liquidity, shorten the maturity of the related municipal security or permit the
Fund to invest its funds at more favorable rates. Generally, the Fund will buy a
municipal security that is accompanied by a put only if the put is available at
no extra cost. In some cases, however, the Fund may pay an extra amount to
acquire a put, either in connection with the purchase of the related municipal
security or separately from the purchase of the security.
The Fund may purchase municipal securities together with the right to resell
them to the seller or a third party at an agreed-upon price or yield within
specified periods prior to their maturity dates. Such a right to resell is
commonly known as a "stand-by commitment," and the aggregate price which the
Fund pays for securities with a stand-by commitment may be higher than the price
which otherwise would be paid. The primary purpose of this practice is to permit
the Fund to be as fully invested as practicable in municipal securities while
preserving the necessary flexibility and liquidity to meet unanticipated
redemptions. In this regard, the Fund acquires stand-by commitments solely to
facilitate portfolio liquidity and does not exercise its rights thereunder for
trading purposes. Stand-by commitments involve certain expenses and risks,
including the inability of the issuer of the commitment to pay for the
securities at the time the commitment is exercised, non-marketability of the
commitment, and differences between the maturity of the underlying security and
the maturity of the commitment.
TAXABLE INVESTMENTS. Although the Fund will attempt to invest 100% of its assets
in municipal securities, the Fund may invest up to 20% of the value of its net
assets in cash and cash equivalents the interest income on which is subject to
federal taxation. In addition, when business or financial conditions warrant or
when an adequate supply of appropriate municipal securities is not available,
the Fund may assume a temporary
29
<PAGE>
defensive position and invest without limit in cash or cash equivalents the
interest income on which is subject to federal income taxation, which include:
(1) short-term U.S. Government Securities; (2) certificates of deposit, Bankers'
acceptances and interest-bearing savings deposits; (3) commercial paper; (4)
repurchase agreements covering any of the preceding securities; and (5) to the
extent permitted by the Investment Company Act of 1940, money market mutual
funds.
FIXED INCOME FUNDS
The six Fixed Income Funds invest primarily in fixed income investments pursuant
to the investment policies described below. For a general description of fixed
income securities, (see "Additional Investment Policies and Risk Considerations
- - Common Policies of the Funds - Fixed Income Investments and their
Characteristics.") Each Fixed Income Fund, except Intermediate Government Income
Fund, may invest in foreign issuers. These investments may involve certain
risks. (See "Investment Policies - Equity Funds - International Fund - Foreign
Investment Risks and Considerations.")
STABLE INCOME FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to maintain safety
of principal while providing low-volatility total return. The Fund currently
pursues its investment objective by investing all of its investable assets in
Stable Income Portfolio, which has the same investment objective and
substantially identical investment policies as the Fund. Therefore, although the
following discusses the investment policies of that Portfolio, it applies
equally to the Fund.
INVESTMENT POLICIES. The Portfolio seeks to maintain safety of principal while
providing low volatility total return by investing primarily in investment grade
short-term obligations. The Portfolio invests in a diversified portfolio of
fixed and variable rate U.S. dollar denominated fixed income securities of a
broad spectrum of United States and foreign issuers, including U.S. Government
Securities and the debt securities of financial institutions, corporations, and
others.
The securities in which the Portfolio invests include mortgage-backed and other
asset-backed securities, although the Portfolio limits these investments to not
more than 60 percent and 25 percent, respectively, of its total assets. In
addition, the Portfolio limits its holdings of mortgage-backed securities that
are not U.S. Government Securities to 25 percent of its total assets. The
Portfolio may invest any amount of its assets in U.S. Government Securities, but
under normal circumstances less than 50 percent of the Portfolio's total assets
are so invested. The Portfolio may invest in securities that are restricted as
to disposition under the federal securities laws (sometimes referred to as
"private placements" or "restricted securities"). In addition, the Portfolio may
not invest more than 25 percent of its total assets in the securities issued or
guaranteed by any single agency or instrumentality of the U.S. Government,
except the U.S. Treasury, and may not invest more than 10 percent of its total
assets in the securities of any other issuer.
The Portfolio only purchases those securities that are rated, at the time of
purchase, within the three highest long-term or two highest short-term rating
categories assigned by an NRSRO, such as Moody's Investors Service, Standard &
Poor's or Fitch IBCA, Inc., or which are unrated and determined by the
Subadviser to be of comparable quality. (See "Additional Investment Policies and
Risk Considerations - Common Policies of the Funds - Rating Matters.")
The Portfolio invests in debt obligations with maturities (or average life in
the case of mortgage-backed and similar securities) ranging from short-term
(including overnight) to 12 years and seeks to maintain an average
dollar-weighted portfolio maturity of between 2 and 5 years.
In order to manage its exposure to different types of investments, the Portfolio
may enter into interest rate and mortgage swap agreements and may purchase and
sell interest rate caps, floors and collars. The Portfolio may also engage in
certain strategies involving options (both exchange-traded and over-the-counter)
to attempt to enhance the Portfolio's income and may attempt to reduce the
overall risk of its
30
<PAGE>
investments or limit the uncertainty in the level of future foreign exchange
rates ("hedge") by using options and futures contracts and foreign currency
forward contracts. The Portfolio's ability to use these strategies may be
limited by market considerations, regulatory limits and tax considerations. The
Portfolio may write covered call and put options, buy put and call options, buy
and sell interest rate and foreign currency futures contracts and buy options
and write covered options on those futures contracts. An option is covered if,
so long as the Portfolio is obligated under the option, it owns an offsetting
position in the underlying security or futures contract or maintains a
segregated account of liquid debt instruments with a value at all times
sufficient to cover the Portfolio's obligations under the option.
LIMITED TERM GOVERNMENT INCOME FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to provide income
and safety of principal by investing primarily in U.S. Government Securities.
INVESTMENT POLICIES. The Fund seeks to attain its investment objective by
investing primarily in fixed and variable rate U.S. Government Securities. Under
normal circumstances, the Fund intends to invest at least 65 percent of its
assets in U.S. Government Securities and may invest up to 35 percent of its
assets in fixed income securities that are not U.S. Government Securities. The
Fund emphasizes the use of short maturity securities to lessen interest rate
risk, while employing low risk yield enhancement techniques, such as investment
in adjustable rate securities and swap agreements, to add to the Fund's return
over a complete economic or interest rate cycle.
The Fund invests in mortgage-backed and other asset-backed securities, although
the Fund limits these investments to not more than 50 percent and 25 percent,
respectively, of its total assets. As part of its mortgage-backed securities
investments, the Fund may enter into "dollar roll" transactions. The Fund will
limit its investment in zero-coupon securities, except those issued through the
U.S. Treasury's STRIPS program, to not more than 10 percent of the Fund's total
assets. The Fund may also invest in securities that are restricted as to
disposition under the federal securities laws (sometimes referred to as "private
placements" or "restricted securities"). In addition, the Fund may not invest
more than 25 percent of its total assets in securities issued or guaranteed by
any single agency or instrumentality of the U.S. Government, except the U.S.
Treasury. The Fund may make short sales and may purchase securities on margin
(borrow money in order to purchase securities), which are considered speculative
investment techniques. (See "Appendix A - Short Sales" and "- Purchasing
Securities on Margin.")
The Fund will only purchase securities that are rated, at the time of purchase,
within the two highest rating categories assigned by an NRSRO, such as Moody's
Investors Service, Standard & Poor's or Fitch Investors Service, L.P., or which
are unrated and determined by Norwest to be of comparable quality. (See
"Additional Investment Policies and Risk Considerations - Common Policies of the
Funds - Rating Matters.")
The Fund primarily will invest in debt obligations with maturities (or average
life in the case of mortgage-backed and similar securities) ranging from
short-term (including overnight) to 10 years. Under normal circumstances, the
Fund's portfolio of securities will have an average dollar-weighted maturity of
between 1 and 5 years.
In order to manage its exposure to different types of investments, the Fund may
enter into interest rate and mortgage swap agreements and may purchase and sell
interest rate caps, floors and collars. The Fund may also engage in certain
strategies involving options (both exchange-traded and over-the-counter) to
attempt to enhance the Fund's return and may attempt to reduce the overall risk
of its investments ("hedge") by using options and futures contracts. The Fund's
ability to use these strategies may be limited by market considerations,
regulatory limits and tax considerations. The Fund may write covered call and
put options, buy put and call options, buy and sell interest rate futures
contracts, and buy options and write covered options on those futures contracts.
An option is covered if, so long as the Fund is obligated under the option,
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<PAGE>
it owns an offsetting position in the underlying security or futures contract or
maintains a segregated account of liquid debt instruments with a value at all
times sufficient to cover the Fund's obligations under the option.
INTERMEDIATE GOVERNMENT INCOME FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to provide income
and safety of principal by investing primarily in U.S. Government Securities.
INVESTMENT POLICIES. The Fund seeks to attain its investment objective by
investing primarily in fixed and variable rate U.S. Government Securities. Under
normal circumstances, the Fund intends to invest at least 65 percent of its
assets in U.S. Government Securities and may invest up to 35 percent of its
assets in fixed income securities that are not U.S. Government Securities. The
Fund emphasizes the use of intermediate maturity securities to lessen interest
rate risk, while employing low risk yield enhancement techniques, such as
investment in adjustable rate securities and swap agreements, to add to the
Fund's return over a complete economic or interest rate cycle.
The Fund invests in mortgage-backed and other asset-backed securities, although
the Fund limits these investments to not more than 50 percent and 25 percent,
respectively, of its total assets. As part of its mortgage-backed securities
investments, the Fund may enter into "dollar roll" transactions. Certain fixed
income securities are zero-coupon securities and the Fund will limit its
investment in these securities, except those issued through the U.S. Treasury's
STRIPS program, to not more than 10 percent of the Fund's total assets. The Fund
may also invest in securities that are restricted as to disposition under the
federal securities laws (sometimes referred to as "private placements" or
"restricted securities"). In addition, the Fund may not invest more than 25
percent of its total assets in securities issued or guaranteed by any single
agency or instrumentality of the U.S. Government, except the U.S. Treasury. The
Fund may make short sales and may purchase securities on margin (borrow money in
order to purchase securities), which are considered speculative investment
techniques. (See "Appendix A - Short Sales" and "- Purchasing Securities on
Margin.")
The Fund will only purchase securities that are rated, at the time of purchase,
within the two highest rating categories assigned by an NRSRO, such as Moody's
Investors Service, Standard & Poor's or Fitch Investors Services, L.P., or which
are unrated and determined by Norwest to be of comparable quality. (See
"Additional Investment Policies and Risk Considerations - Common Policies of the
Funds - Rating Matters.")
The Fund primarily will invest in debt obligations with maturities (or average
life in the case of mortgage-backed and similar securities) ranging from
short-term (including overnight) to 15 years. Under normal circumstances, the
Fund's portfolio of securities will have an average dollar-weighted maturity of
between 3 and 10 years. Under normal circumstances, the Fund's portfolio of
securities will have a duration of between 70 percent and 130 percent of the
duration of a 5-year Treasury Note. Duration is a measure of a debt security's
average life that reflects the present value of the security's cash flow and,
accordingly, is a measure of price sensitivity to interest rate changes
("duration risk"). Because earlier payments on a debt security have a higher
present value, duration of a security, except a zero-coupon security, will be
less than the security's stated maturity.
In order to manage its exposure to different types of investments, the Fund may
enter into interest rate and mortgage swap agreements and may purchase and sell
interest rate caps, floors and collars. The Fund may also engage in certain
strategies involving options (both exchange-traded and over-the-counter) to
attempt to enhance the Fund's return and may attempt to reduce the overall risk
of its investments ("hedge") by using options and futures contracts. The Fund's
ability to use these strategies may be limited by market considerations,
regulatory limits and tax considerations. The Fund may write covered call and
put options, buy put and call options, buy and sell interest rate futures
contracts, and buy options and write covered options on those futures contracts.
An option is covered if, so long as the Fund is obligated under the option,
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<PAGE>
it owns an offsetting position in the underlying security or futures contract or
maintains a segregated account of liquid debt instruments with a value at all
times sufficient to cover the Fund's obligations under the option.
DIVERSIFIED BOND FUND
INVESTMENT OBJECTIVE. The Fund's investment objective is to provide total return
by diversifying its investments among different fixed-income investment styles.
The Fund invests in various Core Portfolios, each of which invests using a
different investment style.
INVESTMENT POLICIES. The Fund follows a "multi-style" approach designed to
reduce the price and return volatility of the Fund and to provide more
consistent returns. The Fund's portfolio combines three different fixed income
investment styles - Managed Fixed Income style, Strategic Value Bond style, and
Positive Return style.
DIVERSIFIED BOND FUND ALLOCATION
Set forth below are the ranges of investments by the Fund in each Core
Portfolio and current allocation among the Core Portfolios.
<TABLE>
<CAPTION>
CURRENT RANGE OF
ALLOCATION INVESTMENT
------------- ------------------
<S> <C> <C>
Managed Fixed Income Portfolio 50.0% 45% - 55%
Strategic Value Bond Portfolio 16.7% 11.7% - 21.7%
Positive Return Portfolio 33.3% 28.3% - 38.3%
---
TOTAL FUND ASSETS 100%
</TABLE>
As market values of the Fund's assets change, the percentage of Fund assets
invested in each Core Portfolio may temporarily deviate from the current
allocations. In response thereto, Norwest periodically effects transactions for
the Fund to reestablish its allocations.
Consistent with the Fund's investment objective and policies and under the
general supervision of the Board, Norwest may make changes in the foregoing
percentage allocations at any time Norwest deems appropriate, including in
response to market and other conditions. In addition, upon approval of the Board
and notification of shareholders, the Fund may invest in additional or fewer
Core Portfolios or invest directly in portfolio securities. When Norwest
believes that a change in the current allocation percentages is desirable, it
will sell and purchase securities to effect the change.
Investors should refer to the descriptions below under "Investment Objective and
Policies - Fixed Income Funds - Total Return Bond Fund" and "Investment
Objectives and Policies - Core Portfolio Descriptions" for a discussion of the
investment objectives, policies and risks involved in the investments and
investment techniques of each investment style.
INCOME FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to provide total
return consistent with current income. The Fund pursues this objective by
investing in a portfolio of fixed income securities issued by domestic and
foreign issuers.
INVESTMENT POLICIES. The Fund seeks to attain its investment objective by
investing in a diversified portfolio of fixed and variable rate U.S. dollar
denominated fixed income securities. These securities cover a broad spectrum of
United States issuers, including U.S. Government Securities, mortgage- and
asset-backed securities and the debt securities of financial institutions,
corporations, and others. Norwest attempts to increase the Fund's performance by
applying various fixed income management techniques combined with fundamental
economic, credit and market analysis while at the same time controlling total
return volatility by targeting the Fund's duration within a narrow band around
the Lipper Corporate A-Rated Debt Average.
33
<PAGE>
The Fund may invest any amount of its assets, and normally will invest at least
30% of its total assets, in U.S. Government Securities. The fixed income
securities in which the Fund invests also include mortgage-backed and other
asset-backed securities, although the Fund limits these investments to not more
than 50% and 25%, respectively, of its total assets. The Fund may invest up to
50% of its total assets in corporate securities, such as bonds, debentures and
notes and fixed income securities that can be converted into or exchanged for
common stocks ("convertible securities") and may invest in zero coupon
securities and enter into "dollar roll" transactions. The Fund may invest in
securities that are restricted as to disposition under the federal securities
laws (sometimes referred to as "private placements" or "restricted securities").
The Fund will invest primarily in securities with maturities (or average life in
the case of mortgage-backed and similar securities) ranging from short-term
(including overnight) to 40 years, and it is anticipated that the Fund's
portfolio of securities will have an average dollar-weighted maturity of between
3 and 15 years. The Fund's portfolio of securities will normally have a duration
of between 70% and 130% of the duration of the Lipper Corporate A-Rated Debt
Average. Duration is a measure of a debt security's average life that reflects
the present value of the security's cash flow and, accordingly, is a measure of
price sensitivity to interest rate changes ("duration risk"). Because earlier
payments on a debt security have a higher present value, duration of a security,
except a zero-coupon security, will be less than the security's stated maturity.
The Fund may invest in debt securities registered and sold in the United States
by foreign issuers (Yankee Bonds) and debt securities sold outside the United
States by foreign or U.S. issuers (Euro-bonds). The Fund intends to restrict its
purchases of debt securities to issues denominated and payable in United States
dollars. For a description of the risks involved in investments in foreign
securities, see "Investment Objectives and Policies - Core Portfolio
Descriptions - International Portfolio."
Normally, at least 80% of the Fund's assets will be invested in securities that
are rated (or unrated and determined by Norwest to be of comparable quality)
within the top four grades by an NRSRO at the time of purchase. For example, for
bonds, these grades are "Aaa", "Aa", "A" and "Baa" in the case of Moody's
Investors Service ("Moody's") and "AAA", "AA", "A" and "BBB" in the case of
Standard & Poor's ("S&P") and Fitch IBCA, Inc. ("Fitch"). These securities are
generally considered to be investment grade securities, although Moody's
indicates that securities rated "Baa" have speculative characteristics. A
description of the rating categories of certain NRSROs is contained in the SAI.
NON-INVESTMENT GRADE SECURITIES. The Fund may invest up to 20% of its total
assets in securities rated in the fifth highest rating category by an NRSRO
("Ba" by Moody's or "BB" by S&P or Fitch), or which are unrated and judged by
Norwest to be of comparable quality. Such securities (commonly referred to as
"junk bonds") are not considered to be investment grade and have speculative or
predominantly speculative characteristics. Non-investment grade, high risk
securities provide poor protection for payment of principal and interest but may
have greater potential for capital appreciation than do higher quality
securities. These lower rated securities involve greater risk of default or
price changes due to changes in the issuers' creditworthiness than do higher
quality securities. The market for these securities may be thinner and less
active than that for higher quality securities, which may affect the price at
which the lower rated securities can be sold. In addition, the market prices of
lower rated securities may fluctuate more than the market prices of higher
quality securities and may decline significantly in periods of general economic
difficulty or rising interest rates.
TOTAL RETURN BOND FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to seek total
return. The Fund currently pursues its investment objective by investing all of
its investable assets in Strategic Value Bond Portfolio, which has an investment
objective of seeking total return by investing primarily in income producing
securities and has substantially the same investment policies as the Fund.
Therefore, although the following discusses the investment policies of that
Portfolio, it applies equally to the Fund.
34
<PAGE>
INVESTMENT POLICIES. The Portfolio invests in a broad range of fixed income
instruments including corporate bonds, asset-backed securities, mortgage-related
securities, U.S. Government Securities, preferred stock, convertible bonds and
foreign bonds in order to create a strategically diversified portfolio of
high-quality fixed income investments.
In making investment decisions, the investment adviser focuses on relative value
as opposed to the prediction of the direction of interest rates. In general,
particular emphasis is placed on higher current income instruments such as
corporate bonds and mortgage/asset-backed securities in order to enhance
returns. The investment adviser believes that this exposure enhances performance
in varying economic and interest rate cycles while avoiding excessive risk
concentrations. The investment adviser's investment process involves rigorous
evaluation of each security. This includes identifying and valuing cash flows,
embedded options, credit quality, structure, liquidity, marketability, current
versus historical trading relationships, supply and demand for the instrument
and expected returns in varying economic/interest rate environments. This
process seeks to identify securities which represent the best relative economic
value. The results of the investment process are then evaluated against the
Portfolio's objective and the Portfolio purchases those securities which will
enhance its positioning. The Portfolio will be repositioned based on market
changes and shifts in relative value of the instruments held by the Portfolio.
The Portfolio's investments are subject to the various risks of investing in
fixed-income securities. To limit the Portfolio's "credit risk," in general, 65%
of the Portfolio's assets will be invested in fixed-income securities rated in
one of the three highest rating categories by at least one NRSRO, such as
Moody's Investors Service ("Moodys"), Standard & Poor's ("S&P"), Fitch IBCA,
Inc. ("Fitch") or Duff & Phelps Credit Rating Co. ("D&P"), or which are unrated
and determined by the investment adviser to be of comparable quality. In
addition, the Portfolio will limit its investment in securities with a less than
an investment grade rating to 20% of the Portfolio's assets. While the average
quality of the Portfolio will vary over an economic cycle, the weighted average
rating of the Portfolio's investments will be "A" or better. A description of
the rating categories of various NRSROs is contained in Appendix A to the SAI.
Investment grade instruments include those that are rated in one of four highest
long-term rating categories by an NRSRO or are unrated and determined by
Galliard to be of comparable quality.
The average maturity of the Portfolio will vary between five and fifteen years.
In the case of mortgage-related, asset-backed and similar securities, the
Portfolio uses the security's average life in calculating the Portfolio's
average maturity. The Portfolio's effective duration normally will vary between
three and eight years.
One of the primary tenets of the Portfolio is strategic diversification. Toward
that end, the Portfolio will not invest more than: (1) 75% of its assets in
corporate bonds, (2) 25% of its assets in one industry of the corporate market,
(3) 50% of its assets in asset-backed securities, or (4) 60% of its assets in
mortgage-related securities. U.S. Government Securities may be held in any
amount without restriction. With respect to corporate bonds, generally no more
than 5% will be held in one issuer.
The Portfolio may enter into derivative transactions to receive favorable
financing or diversify portfolio risk. The Portfolio may invest in securities
that are restricted as to disposition under the federal securities laws
(sometimes referred to as "private placements" or "restricted securities.") In
addition, the Portfolio may invest in interests of other investment companies,
which also may be restricted securities. See "Appendix A - Investments,
Investment Strategies and Risk Considerations - Futures Contracts and Options."
NON-INVESTMENT GRADE SECURITIES. The Portfolio may invest up to 20% of its total
assets in securities rated in the fifth highest rating category by an NRSRO
("Ba" by Moody's or "BB" by S&P or Fitch), or which are unrated and judged by
Galliard to be of comparable quality. Such securities (commonly referred to as
"junk bonds") are not considered to be investment grade and have speculative or
predominantly speculative characteristics. Non-investment grade, high risk
securities provide poor protection for payment of principal and interest but may
have greater potential for capital appreciation than do higher quality
securities. These
35
<PAGE>
lower rated securities involve greater risk of default or price changes due to
changes in the issuers' creditworthiness than do higher quality securities. The
market for these securities may be thinner and less active than that for higher
quality securities, which may affect the price at which the lower rated
securities can be sold. In addition, the market prices of lower rated securities
may fluctuate more than the market prices of higher quality securities and may
decline significantly in periods of general economic difficulty or rising
interest rates.
TAX-FREE FIXED INCOME FUNDS
For a detailed description of fixed income investments, including municipal
securities and related investments in which the Tax-Free Fixed Income Funds
invest, (see "Appendix A" and "Additional Investment Policies and Risk
Considerations - Common Policies of the Funds - Fixed Income Investments and
Their Characteristics.") Under certain circumstances the Tax-Free Fixed Income
Funds may invest in taxable investments. (See "Taxable Investments.")
LIMITED TERM TAX-FREE FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to produce current
income exempt from federal income taxes. The Fund pursues this objective by
investing primarily in a portfolio of investment grade fixed income securities
the interest on which is free from federal income tax and maintains an average
dollar weighted portfolio maturity of between 1 and 5 years.
INVESTMENT POLICIES. Substantially all of the Fund's assets normally will be
invested in municipal securities, which are debt obligations issued by or on
behalf of the states, territories or possessions of the United States, the
District of Columbia and their subdivisions, authorities, instrumentalities and
corporations the interest on which is exempt from federal income tax and not
treated as a preference item for individuals for purposes of the federal
alternative minimum tax ("municipal securities"). As a fundamental investment
policy, except during periods when the Fund assumes a temporary defensive
position, the Fund will invest at least 80% of its total assets in securities
exempt from federal income taxes (including the federal alternative minimum
tax). In order to respond to business and financial conditions, the Fund may
invest up to 20% of its total assets in instruments on which the interest is
subject to federal taxation. (See "Taxable Investments" and "Additional
Investment Policies - Common Policies of the Funds - Temporary Defensive
Position" and "Dividends, Distributions and Tax Matters.")
The average dollar-weighted maturity of the Fund's assets normally will be
between 1 and 5 years. In general, the longer the maturity of a municipal
security, the higher the rate of interest it pays. However, a shorter maturity
is generally associated with a lower level of volatility in the market value of
a security. As the Fund's objective is to provide current income, the Fund
invests in municipal securities with an emphasis on income. The average maturity
of the Fund's portfolio will vary depending on anticipated market conditions.
Substantially all of the Fund's assets will be invested in municipal securities
that are rated within the top four grades by an NRSRO at the time of purchase.
For example, for municipal bonds, these grades are "Aaa", "Aa", "A" and "Baa" in
the case of Moody's Investors Service ("Moody's") and "AAA", "AA", "A" and "BBB"
in the case of Standard & Poor's and Fitch Investors Service, L.P. These
securities are generally considered to be investment grade securities, although
Moody's indicates that municipal securities rated "Baa" have speculative
characteristics. The Fund also may invest in unrated securities that Norwest
believes are comparable in quality to rated securities in which the Fund may
invest. A description of the rating categories of certain NRSROs is contained in
the SAI of the Fund.
TAX-FREE INCOME FUND
INVESTMENT OBJECTIVE. The investment objective of Tax-Free Income Fund is to
produce current income exempt from federal income taxes. The Fund pursues this
objective by investing primarily in a portfolio of investment grade fixed income
securities the interest on which is free from federal income tax.
36
<PAGE>
INVESTMENT POLICIES. Substantially all of the Fund's assets normally will be
invested in municipal securities, which are debt obligations issued by or on
behalf of the states, territories or possessions of the United States, the
District of Columbia and their subdivisions, authorities, instrumentalities and
corporations the interest on which is exempt from federal income tax and not
treated as a preference item for individuals for purposes of the federal
alternative minimum tax ("municipal securities"). As a fundamental investment
policy, except during periods when the Fund assumes a temporary defensive
position, the Fund will invest at least 80% of its total assets in securities
exempt from federal income taxes (including the federal alternative minimum
tax). In order to respond to business and financial conditions, the Fund may
invest up to 20% of its assets in instruments on which the interest is subject
to federal taxation. (See "Taxable Investments", "Additional Investment Policies
- - Common Policies of the Funds - Temporary Defensive Position" and "Dividends,
Distributions and Tax Matters.")
The average dollar-weighted maturity of the Fund's assets normally will be
between 10 and 20 years. Depending on market conditions, however, the average
dollar-weighted maturity could be higher or lower. In general, the longer the
maturity of a municipal security, the higher the rate of interest it pays.
However, a longer maturity is generally associated with a higher level of
volatility in the market value of a security. As the Fund's objective is to
provide high current income, the Fund invests in municipal securities with an
emphasis on income rather than stability of the Fund's net asset value, and the
average maturity of the Fund's portfolio will vary depending on anticipated
market conditions.
Substantially all of the Fund's assets will be invested in municipal securities
that are rated within the top four grades by an NRSRO at the time of purchase.
For example, for municipal bonds, these grades are "Aaa", "Aa", "A" and "Baa" in
the case of Moody's Investors Service ("Moody's") and "AAA", "AA", "A" and "BBB"
in the case of Standard & Poor's and Fitch Investors Service, L.P. These
securities are generally considered to be investment grade securities, although
Moody's indicates that municipal securities rated "Baa" have speculative
characteristics. The Fund also may invest in unrated securities that Norwest
believes are comparable in quality to rated securities in which the Fund may
invest. A description of the rating categories of certain NRSROs is contained in
the SAI of the Fund.
COLORADO TAX-FREE FUND
INVESTMENT OBJECTIVE. The investment objective of Colorado Tax-Free Fund is to
seek to provide shareholders with a high level of current income exempt from
both federal and Colorado state income taxes (including the alternative minimum
tax) consistent with the preservation of capital. Shares of the Fund are offered
only to residents of the State of Colorado.
INVESTMENT POLICIES. Substantially all the Fund's assets normally will be
invested in investment grade municipal securities, which are debt obligations
issued by the state of Colorado and its political subdivisions, various
authorities, instrumentalities, public corporations and special districts
("municipal securities"). Municipal securities also include the securities
issued by the various territories and possessions of the United States, such as
Puerto Rico. As a fundamental policy, except during periods when the Fund
assumes a temporary defensive position, the Fund will invest at least 80% of its
total assets in securities exempt from both federal and Colorado state income
taxes (including the alternative minimum tax). In order to respond to business
and financial conditions, the Fund may invest up to 20% of its assets in
instruments on which the interest is subject to taxation. (See "Taxable
Investments," "Additional Investment Policies and Risk Considerations - Common
Policies of the Funds - Temporary Defensive Position" and "Dividends,
Distributions and Tax Matters.")
The yields of Colorado municipal securities depend on, among other things,
conditions in the Colorado municipal bond market and fixed income markets
generally, the size of a particular offering, the maturity of the obligation and
the rating of the issue. In some cases, Colorado issues may have yields that are
slightly less than the yields of municipal obligations of issuers located in
other states because of the favorable Colorado state tax exemption on Colorado
issues.
37
<PAGE>
There are no restrictions on the Fund's average portfolio maturity, but the
average portfolio maturity is currently expected to be greater than 10 years.
Average portfolio maturity may reach or exceed 20 years in the future. In
general, the longer the maturity of a municipal security, the higher the rate of
interest it pays. However, a longer average maturity is generally associated
with a higher level of volatility in the market value of a security. As the
Fund's objective is to provide high current income, the Fund invests in
municipal securities with an emphasis on income rather than maintaining a stable
net asset value. However, the Fund attempts to limit net asset value
fluctuations.
Substantially all of the Fund's assets will be invested in municipal securities
that are rated within the top four grades by an NRSRO at the time of purchase.
For example, for municipal bonds, these grades are "Aaa", "Aa", "A" and "Baa" in
the case of Moody's Investors Service ("Moody's") and "AAA", "AA", "A" and "BBB"
in the case of Standard & Poor's and Fitch Investors Service, L.P. These
securities are generally considered to be investment grade securities, although
Moody's indicates that municipal securities rated "Baa" have speculative
characteristics. The Fund also may invest in unrated securities that Norwest
believes are comparable in quality to rated securities in which the Fund may
invest. A description of the rating categories of certain NRSROs is contained in
the SAI of the Fund.
MINNESOTA INTERMEDIATE TAX-FREE FUND
MINNESOTA TAX-FREE FUND
INVESTMENT OBJECTIVE. The investment objective of each Fund is to provide
shareholders with a high level of current income exempt from both federal and
Minnesota state income taxes (including the alternative minimum tax) without
assuming undue risk. Shares of the Funds are offered only to residents of the
State of Minnesota.
INVESTMENT POLICIES. Substantially all of the Funds' assets normally will be
invested in investment grade municipal securities, which are debt obligations
issued by the state of Minnesota and its political subdivisions, duly
constituted authorities and corporations ("municipal securities"). Municipal
securities also include the securities issued by the various territories and
possessions of the United States, such as Puerto Rico. As a fundamental policy,
except during periods when the Funds assume a temporary defensive position, the
Funds will invest at least 80% of their total assets in securities exempt from
both federal and Minnesota state income taxes (including the alternative minimum
tax). In order to respond to business and financial conditions, the Funds may
invest up to 20% of their assets in instruments on which the interest is subject
to taxation. (See "Taxable Investments," "Additional Investment Policies -
Common Policies of the Funds - Temporary Defensive Position" and "Dividends,
Distributions and Tax Matters.")
The yields of Minnesota municipal securities depend on, among other things,
conditions in the Minnesota municipal bond market and fixed income markets
generally, the maturity of the obligation, the rating of the issue and the size
of a particular offering. In some cases, Minnesota issues may have yields that
are slightly less than the yields of municipal obligations of issuers located in
other states because of the favorable Minnesota state tax exemption on as
Minnesota issues. (See "Dividends, Distributions and Tax Matters - Tax-Exempt
Distributions - Minnesota Intermediate Tax-Free Funds and Minnesota Tax-Free
Fund" for a description of certain tax matters that may effect the Fund and its
shareholders.)
The average dollar-weighted maturity of the MINNESOTA INTERMEDIATE TAX-FREE
FUND'S assets normally will be between 5 and 10 years. The average maturity of
the Fund's portfolio will vary depending on anticipated market conditions. There
are no restrictions on MINNESOTA TAX-FREE FUND'S average portfolio maturity, but
the average dollar-weighted maturity is currently expected to be greater than 10
years. Average portfolio maturity may reach or exceed 20 years in the future.
Depending on market conditions, however, the average dollar-weighted maturity
could be higher or lower.
In general, the longer the maturity of a municipal security, the higher the rate
of interest it pays. However, a longer average maturity is generally associated
with a higher level of volatility in the market value of a municipal security.
As each Fund's objective is to provide high current income, the Funds invest in
municipal securities with an emphasis on income rather than stability of the
Fund's net asset value.
38
<PAGE>
Normally, at least 75% of the Funds' assets will be invested in municipal
securities that are rated (or unrated and determined by Norwest to be of a
comparable quality) within the top four grades by an NRSRO at the time of
purchase. For example, for municipal bonds, these grades are "Aaa", "Aa", "A"
and "Baa" in the case of Moody's Investors Service ("Moody's") and "AAA", "AA",
"A" and "BBB" in the case of Standard & Poor's ("S&P") and Fitch Investors
Service, L.P. ("Fitch"). These securities are generally considered to be
investment grade securities, although Moody's indicates that municipal
securities rated "Baa" have speculative characteristics. A description of the
rating categories of certain NRSROs is contained in the SAI of the Funds.
NON-INVESTMENT GRADE SECURITIES. The Funds may invest up to 25% of its total
assets in municipal bonds rated in the fifth highest rating category by an NRSRO
("Ba" by Moody's or "BB" by S&P or Fitch), or which are unrated and judged by
Norwest to be of comparable quality. Such securities (commonly referred to as
"junk bonds") are not considered to be investment grade and have speculative or
predominantly speculative characteristics. Non-investment grade, high risk
securities provide poor protection for payment of principal and interest but may
have greater potential for capital appreciation than do higher quality
securities. These lower rated securities involve greater risk of default or
price changes due to changes in the issuers' creditworthiness than do higher
quality securities. The market for these securities may be thinner and less
active than that for higher quality securities, which may affect the price at
which the lower rated securities can be sold. In addition, the market prices of
lower rated securities may fluctuate more than the market prices of higher
quality securities and may decline significantly in periods of general economic
difficulty or rising interest rates.
During its most recent fiscal year ended May 31, 1997, the Minnesota Tax-Free
Fund had 88.8% of its average annual assets in municipal securities rated by
Moody's or S&P and 11.2% of its average annual assets in unrated investments,
including cash and short-term cash equivalents which are typically unrated.
During that year, the Fund had the following percentages of its average annual
net assets invested in rated securities: "Aaa"/"AAA"-36.3%, "Aa"/"AA"-38.4%,
"A"/"A"-9.8%, "Baa"/"BBB"-4.3% and "Ba"/"BB" and below-0%. For this purpose,
securities with different NRSRO ratings were assigned the higher rating. This
information reflects the average composition of the Fund's assets for the Fund's
last fiscal year and is not necessarily representative of the Fund as of the
current fiscal year or any other time.
TAXABLE INVESTMENTS
Apart from temporary defensive purposes, each Fund may invest up to 20% of the
value of its total assets in cash equivalents the interest on which is not
exempt from federal income tax or is treated as a preference item for purposes
of the federal alternative minimum tax. For more information regarding the
alternative minimum tax, (see "Dividends, Distributions and Tax Matters.") In
addition, the Funds may hold a portion of their assets in cash and
cash-equivalents pending investment in municipal securities, to meet requests
for redemptions or to assume a temporary defensive position. With respect to
Limited Term Tax-Free Fund and Tax-Free Income Fund, these securities include
debt securities of corporate issuers meeting the Funds' investment quality
standards described above and bonds or notes issued by or on behalf of a
municipality, the interest on which is an item of tax preference for purposes of
the federal alternative minimum tax on individuals.
INVESTMENT CONSIDERATIONS AND RISK FACTORS
GEOGRAPHIC CONCENTRATION. Because COLORADO TAX-FREE FUND, MINNESOTA INTERMEDIATE
TAX-FREE FUND and MINNESOTA TAX-FREE FUND invest principally in municipal
securities issued by issuers within a particular state and the state's political
subdivisions, those Funds are more susceptible to factors adversely affecting
issuers of those municipal securities than would be a more geographically
diverse municipal securities portfolio. In addition, to the extent they may
concentrate their investments in a particular jurisdiction, LIMITED TERM
TAX-FREE FUND and TAX-FREE INCOME FUND will be subject to similar risks. These
risks arise
39
<PAGE>
from the financial condition of the state and its political subdivisions. To the
extent state or local governmental entities are unable to meet their financial
obligations, the income derived by a Fund, its ability to preserve or realize
appreciation of its portfolio assets or its liquidity could be impaired.
To the extent a Fund's investments are primarily concentrated in issuers located
in a particular state, the value of the Fund's shares may be especially affected
by factors pertaining to that state's economy and other factors specifically
affecting the ability of issuers of that state to meet their obligations. As a
result, the value of the Fund's assets may fluctuate more widely than the value
of shares of a portfolio investing in securities relating to a number of
different states. The ability of state, county or local governments and quasi-
government agencies to meet their obligations will depend primarily on the
availability of tax and other revenues to those governments and on their fiscal
conditions generally. The amounts of tax and other revenues available to
governmental issuers may be affected from time to time by economic, political
and demographic conditions within their state. In addition, constitutional or
statutory restrictions may limit a government's power to raise revenues or
increase taxes. The availability of federal, state and local aid to governmental
issuers may also affect their ability to meet obligations. Payments of principal
of and interest on private activity securities will depend on the economic
condition of the facility or specific revenue source from whose revenues the
payments will be made, which in turn could be affected by economic, political or
demographic conditions in the state.
In 1992, the Colorado constitution was amended to restrict the ability of the
state and local governments to increase taxes, revenues, debt and spending. In
particular, prior voter approval is now required to impose any new tax or tax
rate increase or to issue any multiple-fiscal year debt and revenues collected
in excess of certain limits must be refunded unless voters authorize their
retention. The future impact on the financial operations and obligations of the
state and local governments cannot be determined at this time. Norwest will
continue to monitor the situation closely and will, if necessary, seek the
advice of counsel concerning its effect on instruments being considered for
purchase by the Colorado Tax-Free Fund. A further discussion of potential risks
of investment in Colorado municipal securities is contained in the SAI of the
Fund.
RELATED ISSUERS. Some municipal securities are related in such a way that an
economic, business or political development affecting one municipal security
would have a similar effect on another municipal security. For example, the
repayment of different obligations may depend on similar types of projects.
Except as otherwise noted, no Fund will invest more than 25% of its total assets
in securities that are so related or invest more than 25% of its total assets in
a single type of revenue bond (E.G., electric revenue, housing revenue, etc.).
Similarly, under normal circumstances, Limited Term Tax-Free Fund and Tax-Free
Income Fund will invest more than 25% of their total assets in issuers located
in the same state.
DIVERSIFICATION MATTERS. Each of COLORADO TAX-FREE FUND, MINNESOTA INTERMEDIATE
TAX-FREE FUND and MINNESOTA TAX-FREE FUND is non-diversified, which means that
they each have greater latitude than a diversified fund with respect to the
investment of their assets in the securities of relatively few municipal
issuers. As non-diversified portfolios, these Funds may present greater risks
than a diversified fund. However, each Fund intends to comply with applicable
diversification requirements of the Internal Revenue Code. These requirements
provide that, as of the last day of each fiscal quarter: (1) with respect to 50%
of its assets, a Fund may not: (a) own the securities of a single issuer, other
than a U.S. Government security, with a value of more than 5% of the Fund's
total assets; or (b) own more than 10% of the outstanding voting securities of a
single issuer and (2) a Fund may not own the securities of a single issuer,
other than a U.S. Government security, with a value of more than 25% of the
Fund's total assets.
Except for investment in U.S. Government Securities, no more than 25% of the
total assets of Colorado Tax-Free Fund, no more than 10% of the total assets of
Minnesota Intermediate Tax-Free Fund and no more than 20% of the total assets of
Minnesota Tax-Free Fund, may be invested in securities of any one issuer. These
limitations do not apply to securities of an issuer payable solely from the
proceeds of escrowed U.S. Government Securities.
40
<PAGE>
TAX-FREE INCOME FUND and LIMITED TERM TAX-FREE FUND are diversified and,
therefore, as a fundamental policy, with respect to 75% of their assets, may not
purchase a security (other than a U.S. Government Security) if, as a result,
more than 5% of the Fund's total assets would be invested in the securities of a
single issuer. When the assets and revenues of an issuing agency, authority,
instrumentality or other political subdivision are separate from those of the
government creating the issuing entity and a security is backed only by the
assets and revenues of the entity, the entity will be deemed to be the sole
issuer of the security. Similarly, in the case of a security issued by or on
behalf of public authorities to finance various privately operated facilities,
such as an industrial development bond, that is backed only by the assets and
revenues of the non-governmental user, the non-governmental user will be viewed
as the sole issuer of the bond. For more information concerning diversification
matters (see "Additional Investment Policies and Risk Considerations - Common
Policies of the Funds - Diversification and Concentration.")
BALANCED FUNDS
Each of the four Balanced Funds invests in a balanced portfolio of fixed income
and equity securities. Strategic Income Fund has the smallest equity securities
component of the four Funds and is the most conservative of the Balanced Funds.
Aggressive Balanced-Equity Fund has the largest equity securities component of
the four Funds and is the most aggressive of the Balanced Funds. This Fund may
be considered to be a non-traditional balanced fund because it may at times
invest less than 25% of its assets in debt securities.
The equity portion of each Balanced Fund's portfolio uses the ten different
equity investment styles of Diversified Equity Fund. The blending of multiple
equity investment styles is intended to reduce the risk associated with the use
of a single style, which may move in and out of favor during the course of a
market cycle. The fixed income portion of each Balanced Fund's portfolio uses
from three to five different fixed income investment styles. The blending of
multiple fixed income investment styles is intended to reduce the price and
return volatility of, and provide more consistent returns within, the fixed
income portion of the Funds.
As the securities markets change, Norwest may attempt to enhance the returns of
a Balanced Fund by changing the percentage of Fund assets invested in fixed
income and equity securities. Absent unstable market conditions, Norwest does
not anticipate making a substantial number of percentage changes. When Norwest
believes that a change in the current allocation percentages is desirable, it
will sell and purchase securities to effect the change. When Norwest believes
that a change will be temporary (generally, 3 years or less), it may choose to
effect the change by using futures contract strategies as described below under
"Temporary Allocations."
STRATEGIC INCOME FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to provide a
combination of current income and capital appreciation by diversifying
investment of its assets among stocks, bonds and other fixed income investments.
The Fund emphasizes safety of principal through limited exposure to equity
securities and has the smallest equity securities position of the Balanced
Funds. The Fund invests in various Core Portfolios, each of which invests using
a different investment style.
INVESTMENT POLICIES. The Fund is designed for investors seeking to invest in
fixed income securities with limited exposure to equity securities. The fixed
income portion of the Fund's portfolio uses the three investment styles used by
Diversified Bond Fund - Managed Fixed Income style, Strategic Value Bond style
and Positive Return style - as well as Stable Income style and Money Market
style, in order to reduce the risk of relying on a single fixed income
investment style. The equity portion of the Fund's portfolio uses the investment
style of Diversified Equity Fund, which is based on a multi-style approach
designed to minimize the volatility and risk of investing in equity securities.
41
<PAGE>
STRATEGIC INCOME FUND ALLOCATION
Set forth below are the ranges of investments by the Fund in each Core
Portfolio and current allocation among the Core Portfolios.
<TABLE>
<CAPTION>
CURRENT
INVESTMENT STYLE ALLOCATION RANGE OF INVESTMENT
- ------------------------------------------------------ ----------------- -----------------------
<S> <C> <C>
Diversified Bond Fund style 55% 45% - 65%
Positive Return Bond Portfolio 18.3% 15.0% - 21.7%
Strategic Value Bond Portfolio 9.2% 7.5% - 10.8%
Managed Fixed Income Portfolio 27.5% 22.5% - 32.5%
Stable Income Portfolio 15% 15%
Money Market Portfolio 10% 10%
Diversified Equity Fund style 20% 10% - 30%
Index Portfolio 5% 2.5% - 7.5%
Income Equity Portfolio 5% 2.5% - 7.5%
Large Company style 5% 2.5% - 7.5%
Large Company Growth Portfolio 4% 2% - 6%
Disciplined Growth Portfolio 1% 0.5% - 1.5%
Diversified Small Cap style 2.0% 1% - 3%
Small Cap Index Portfolio 0.4% 0.2% - 0.6%
Small Company Growth Portfolio 0.5% 0.2% - 0.7%
Small Company Value Portfolio 0.5% 0.2% - 0.7%
Small Company Stock Portfolio 0.3% 0.2% - 0.5%
Small Cap Value Portfolio 0.3% 0.2% - 0.5%
International style 3.0% 1.5% - 4.5%
International Portfolio 2.9% 1.2% - 4.5%
Schroder EM Core Portfolio 0.2% 0% - 0.9%
-----
TOTAL FUND ASSETS 100%
</TABLE>
As market values of the Fund's assets change, the percentage of Fund assets
invested in each Core Portfolio may temporarily deviate from the current
allocations. In response thereto, Norwest periodically effects transactions to
reestablish their base allocations.
Consistent with the Fund's investment objective and policies and under the
general supervision of the Board, Norwest may make changes in the foregoing
percentage allocations at any time Norwest deems appropriate, including in
response to market and other conditions. In addition, upon approval of the Board
and notification of shareholders, the Fund may invest in additional or fewer
Core Portfolios or invest directly in portfolio securities.
Investors should refer to "Investment Objectives and Policies - Equity Funds -
Diversified Equity Fund", "Investment Objectives and Policies - Fixed Income
Funds - Total Return Bond Fund" and the descriptions below under "Investment
Objectives and Policies - Core Portfolio Descriptions" for a discussion of the
investment objectives, policies and risks involved in the investments and
investment techniques of each investment style.
MODERATE BALANCED FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to provide a
combination of current income and capital appreciation by diversifying
investment of the Fund's assets among stocks, bonds and other fixed income
investments. The Fund provides a portfolio more evenly-balanced between fixed
income and equity securities than the other Balanced Funds. The Fund invests in
various Core Portfolios, each of which invests using a different investment
style.
42
<PAGE>
INVESTMENT POLICIES. The Fund is designed for investors seeking roughly
equivalent exposures to fixed income securities and equity securities. The fixed
income portion of the Fund's portfolio uses the three investment styles used by
Diversified Bond Fund - Managed Fixed Income style, Strategic Value Bond style
and Positive Return style - and Stable Income style, in order to reduce the risk
of relying on a single fixed income investment style. The equity portion of the
Fund's portfolio uses the investment style of Diversified Equity Fund, which is
based on a multi-style approach designed to minimize the volatility and risk of
investing in equity securities.
MODERATE BALANCED FUND ALLOCATION
Set forth below are the ranges of investments by the Fund in each Core
Portfolio and current allocation among the Core Portfolios.
<TABLE>
<CAPTION>
CURRENT
INVESTMENT STYLE ALLOCATION RANGE OF INVESTMENT
- ------------------------------------------------------ ----------------- -----------------------
<S> <C> <C>
Diversified Bond Fund style 45% 30% - 60%
Positive Return Bond Portfolio 15% 10% - 20%
Strategic Value Bond Portfolio 7.5% 5% - 10%
Managed Fixed Income Portfolio 22.5% 15% - 30%
Stable Income Portfolio 15% 15%
Diversified Equity Fund style 40% 25% - 55%
Index Portfolio 10% 6.3% - 13.8%
Income Equity Portfolio 10% 6.3% - 13.8%
Large Company style 10% 6.3% - 13.8%
Large Company Growth Portfolio 8% 5.0% - 11.0%
Disciplined Growth Portfolio 2% 1.3% - 2.8%
Diversified Small Cap style 4% 2.5% - 5.5%
Small Cap Index Portfolio 0.8% 0.5% - 1.1%
Small Company Growth Portfolio 1.0% 0.6% - 1.3%
Small Company Value Portfolio 1.0% 0.6% - 1.3%
Small Company Stock Portfolio 0.6% 0.4% - 0.9%
Small Cap Value Portfolio 0.6% 0.4% - 0.9%
International style 6% 3.8% - 8.3%
International Portfolio 5.7% 3.0% - 8.3%
Schroder EM Core Portfolio 0.3% 0% - 1.7%
-----
TOTAL FUND ASSETS 100%
</TABLE>
As market values of the Fund's assets change, the percentage of Fund assets
invested in each Core Portfolio may temporarily deviate from the current
allocations. In response thereto, Norwest periodically effects transactions to
reestablish their base allocations.
Consistent with the Fund's investment objective and policies and under the
general supervision of the Board, Norwest may make changes in the foregoing
percentage allocations at any time Norwest deems appropriate, including in
response to market and other conditions. In addition, upon approval of the Board
and notification of shareholders, the Fund may invest in additional or fewer
Core Portfolios or invest directly in portfolio securities.
Investors should refer to "Investment Objectives and Policies - Equity Funds -
Diversified Equity Fund", "Investment Objectives and Policies - Fixed Income
Funds - Total Return Bond Fund" and the descriptions below under "Investment
Objectives and Policies - Core Portfolio Descriptions" for a discussion of the
investment objectives, policies and risks involved in the investments and
investment techniques of each investment style.
43
<PAGE>
GROWTH BALANCED FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to provide a
combination of current income and capital appreciation by diversifying
investment of the Fund's assets between stocks and bonds. The Fund invests in
various Core Portfolios, each of which invests using a different investment
style.
INVESTMENT POLICIES. The Fund is designed for investors seeking long-term
capital appreciation in the equity securities market in a balanced fund. The
fixed income portion of the Fund's portfolio uses the three investment styles
used by Diversified Bond Fund - Managed Fixed Income style, Strategic Value Bond
style and Positive Return style - in order to reduce the risk of relying on a
single fixed income investment style. The equity portion of the Fund's portfolio
uses the investment style of Diversified Equity Fund, which is based on a
multi-style approach designed to minimize the volatility and risk of investing
in equity securities.
GROWTH BALANCED FUND ALLOCATION
Set forth below are the ranges of investments by the Fund in each Core
Portfolio and current allocation among the Core Portfolios.
<TABLE>
<CAPTION>
CURRENT
INVESTMENT STYLE ALLOCATION RANGE OF INVESTMENT
- --------------------------------------------------------- ----------------- ---------------------
<S> <C> <C>
Diversified Equity Fund style 65% 45% - 85%
Index Portfolio 16.3% 11.3% - 21.3%
Income Equity Portfolio 16.3% 11.3% - 21.3%
Large Company style 16.3% 11.3% - 21.3%
Large Company Growth Portfolio 13.0% 9.0% - 17.0%
Disciplined Growth Portfolio 3.3% 2.3% - 4.3%
Diversified Small Cap style 6.5% 4.5% - 8.5%
Small Cap Index Portfolio 1.3% 0.9% - 1.7%
Small Company Growth Portfolio 1.6% 1.1% - 2%
Small Company Value Portfolio 1.6% 1.1% - 2%
Small Company Stock Portfolio 1.0% 0.7% - 1.4%
Small Cap Value Portfolio 1.0% 0.7% - 1.4%
International style 9.8% 6.8% - 12.8%
International Portfolio 9.3% 5.4% - 12.8%
Schroder EM Core Portfolio 0.5% 0% - 2.6%
Diversified Bond Fund style 35% 15% - 55%
Managed Fixed Income Portfolio 17.5% 7.5% - 27.5%
Strategic Value Bond Portfolio 5.8% 2.5% - 9.2%
Positive Return Bond Portfolio 11.7% 5% - 18.3%
-----
TOTAL FUND ASSETS 100%
</TABLE>
As market values of the Fund's assets change, the percentage of Fund assets
invested in each Core Portfolio may temporarily deviate from the current
allocations. In response thereto, Norwest periodically effects transactions to
reestablish their base allocations.
Consistent with the Fund's investment objective and policies and under the
general supervision of the Board, Norwest may make changes in the foregoing
percentage allocations at any time Norwest deems appropriate, including in
response to market and other conditions. In addition, upon approval of the Board
and notification of shareholders, the Fund may invest in additional or fewer
Core Portfolios or invest directly in portfolio securities.
Investors should refer to "Investment Objectives and Policies - Equity Funds -
Diversified Equity Fund", "Investment Objectives and Policies - Fixed Income
Funds - Total Return Bond Fund" and the descriptions below under "Investment
Objectives and Policies - Core Portfolio Descriptions" for a discussion of the
investment objectives, policies and risks involved in the investments and
investment techniques of each investment style.
44
<PAGE>
AGGRESSIVE BALANCED-EQUITY FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to provide a
combination of current income and capital appreciation by diversifying
investment of the Fund's assets between stocks and bonds. The Fund has the
largest equity securities position of the Balanced Funds. The Fund invests in
various Core Portfolios, each of which invests using a different investment
style.
INVESTMENT POLICIES. The Fund is designed for investors seeking long-term
capital appreciation in the equity securities market in a balanced fund. The
fixed income portion of the Fund's portfolio uses the three investment styles
used by Diversified Bond Fund - Managed Fixed Income style, Strategic Value Bond
style and Positive Return style - in order to reduce the risk of relying on a
single fixed income investment style. The equity portion of the Fund's portfolio
uses the investment style of Diversified Equity Fund, which is based on a
multi-style approach designed to minimize the volatility and risk of investing
in equity securities.
AGGRESSIVE BALANCED-EQUITY FUND ALLOCATION
Set forth below are the ranges of investments by the Fund in each Core
Portfolio and current allocation among the Core Portfolios.
<TABLE>
<CAPTION>
CURRENT
INVESTMENT STYLE ALLOCATION RANGE OF INVESTMENT
- --------------------------------------------------------- ----------------- ---------------------
<S> <C> <C>
Diversified Equity Fund style 80% 60% - 100%
Index Portfolio 20% 15% - 25%
Income Equity Portfolio 20% 15% - 25%
Large Company style 20% 15% - 25%
Large Company Growth Portfolio 16% 12% - 20%
Disciplined Growth Portfolio 4% 3% - 5%
Diversified Small Cap style 8% 6% - 10%
Small Cap Index Portfolio 1.6% 1.2% - 2%
Small Company Growth Portfolio 1.9% 1.4% - 2.4%
Small Company Value Portfolio 1.9% 1.4% - 2.4%
Small Company Stock Portfolio 1.3% 1% - 1.6%
Small Cap Value Portfolio 1.3% 1% - 1.6%
International style 12% 9% - 15%
International Portfolio 11.4% 7.2% - 15%
Schroder EM Core Portfolio 0.6% 0% - 3%
Diversified Bond Fund style 20.0% 0% - 40%
Managed Fixed Income Portfolio 10.0% 0% - 20%
Strategic Value Bond Portfolio 3.3% 0% - 6.7%
Positive Return Bond Portfolio 6.7% 0% - 13.3%
-----
TOTAL FUND ASSETS 100%
</TABLE>
As market values of the Fund's assets change, the percentage of Fund assets
invested in each Core Portfolio may temporarily deviate from the current
allocations. In response thereto, Norwest periodically effects transactions to
reestablish their base allocations.
Consistent with the Fund's investment objective and policies and under the
general supervision of the Board, Norwest may make changes in the foregoing
percentage allocations at any time Norwest deems appropriate, including in
response to market and other conditions. In addition, upon approval of the Board
and notification of shareholders, the Fund may invest in additional or fewer
Core Portfolios or invest directly in portfolio securities.
Investors should refer to "Investment Objectives and Policies - Equity Funds -
Diversified Equity Fund", "Investment Objectives and Policies - Fixed Income
Funds - Total Return Bond Fund" and the descriptions
45
<PAGE>
below under "Investment Objectives and Policies - Core Portfolio Descriptions"
for a discussion of the investment objectives, policies and risks involved in
the investments and investment techniques of each investment style.
TEMPORARY ALLOCATIONS
In its discretion, Norwest may increase or decrease the percentage of assets of
each Balanced Fund that are invested in fixed income and equity securities. When
Norwest believes that a percentage reallocation will be of short duration
(generally, up to 3 years), Norwest may determine to achieve the economic
equivalent of a reallocation without incurring securities transaction costs by
using futures contracts rather than selling and purchasing securities. Under
this strategy, to the extent of the percentage asset allocation change, a Fund
would not be invested in nor subject to the risks related to the types of
individual securities purchased in accordance with the various investment styles
used by the Fund. Rather, the Fund would be invested in and subject to the risks
related to futures contracts. For a description of futures contracts and their
risks, (see "Appendix A - Futures Contracts and Options.")
EQUITY FUNDS
To achieve their investment objectives, the Equity Funds invest primarily in
common stocks and other equity securities. The domestic securities in which an
Equity Fund invests are generally listed on a securities exchange or included in
the National Association of Securities Dealers Automated Quotation ("NASDAQ")
National Market System but may be traded in the over-the-counter securities
market. Under normal circumstances, each of the Equity Funds will invest
substantially all of its assets, but not less than 65 percent of its total
assets, in equity securities.
Each Equity Fund, other than Index Fund and Small Cap Opportunities Fund, may
invest in foreign issuers. These investments may involve certain risks. (See
"Investment Objectives and Policies - Equity Funds - International Fund -
Foreign Investment Considerations and Risk Factors.") Each Fund other than Index
Fund may invest in the securities of smaller companies. Small Company Stock
Fund, Small Company Growth Fund and Diversified Small Cap Fund invest primarily
in these securities, which entails special risks. (See "Small Company Investment
Considerations and Risk Factors" below.)
INDEX FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to duplicate the
return of the Standard & Poor's 500 Composite Stock Price Index. The Fund
currently pursues its investment objective by investing all of its investable
assets in Index Portfolio, which has the same investment objective and
substantially identical investment policies as the Fund. Therefore, although the
following discusses the investment policies of that Portfolio, it applies
equally to the Fund.
INVESTMENT POLICIES. The Portfolio is designed to duplicate the return of the
Standard & Poor's 500 Composite Stock Index (the "Index") with minimum tracking
error, while also minimizing transaction costs. Under normal circumstances, the
Portfolio will hold stocks representing 100 percent or more of the
capitalization-weighted market values of the Index. Portfolio transactions for
the Portfolio generally are executed only to duplicate the composition of the
Index, to invest cash received from portfolio security dividends or investments
in the Portfolio, and to raise cash to fund redemptions. The Portfolio may hold
cash or cash equivalents for the purpose of facilitating payment of the
Portfolio's expenses or redemptions. For these and other reasons, the
Portfolio's performance can be expected to approximate but not be equal to that
of the Index.
The Portfolio may utilize index futures contracts to a limited extent. Index
futures contracts are bilateral agreements pursuant to which two parties agree
to take or make delivery of an amount of cash equal to a specified dollar amount
times the difference between the index value at the close of trading of the
contract and the price at which the futures contract is originally struck. As no
physical delivery of securities
46
<PAGE>
comprising the Index is made, a purchaser of index futures contracts may
participate in the performance of the securities contained in the index without
the required capital commitment. Index futures contracts may be used for several
reasons: to simulate full investment in the underlying index while retaining a
cash balance for fund management purposes, to facilitate trading or to reduce
transaction costs. The Portfolio does not invest in futures contracts for
speculative reasons or to leverage the Portfolio.
The Index tracks the total return performance of 500 common stocks which are
chosen for inclusion in the Index by Standard & Poor's ("S&P") on a statistical
basis. The inclusion of a stock in the Index in no way implies that S&P believes
the stock to be an attractive investment. The 500 securities, most of which
trade on the New York Stock Exchange, represent approximately 70 percent of the
total market value of all U.S. common stocks. Each stock in the Index is
weighted by its market value. Because of the market-value weighting, the 50
largest companies in the Index currently account for approximately 47 percent of
its value. The Index emphasizes large capitalizations and, typically, companies
included in the Index are the largest and most dominant firms in their
respective industries.
Neither the Fund nor the Portfolio is sponsored, endorsed, sold or promoted by
S&P, nor does S&P make any representation or warranty, implied or express, to
the purchasers of the Portfolio or the Fund or any member of the public
regarding the advisability of investing in index funds or the ability of the
Index to track general stock market performance. S&P does not guarantee the
accuracy and/or the completeness of the Index or any data included therein. S&P
makes no warranty, express or implied, as to the results to be obtained by the
Portfolio or the Fund, by the owners of the Portfolio or the Fund, or by any
other person or any entity from the use of the Index or any data included
therein. S&P makes no express or implied warranties and hereby expressly
disclaims all such warranties of merchantability or fitness for a particular
purpose for use with respect to the Index or any data included therein.
INDEX FUTURES CONTRACTS. Index Portfolio may invest in index futures contracts
to a limited extent. Index futures contracts are bilateral agreements pursuant
to which two parties agree to take or make delivery of an amount of cash equal
to a specified dollar amount times the difference between the index value at the
close of trading of the contract and the price at which the futures contract is
originally struck. No physical delivery of the securities comprising the index
is made. Generally, these futures contracts are closed out prior to the
expiration date of the contract.
The use of index futures contracts entails certain investment risks and
transaction costs, including: (1) imperfect correlations between movements in
the prices of futures contracts and movements in the price of the securities
hedged which may cause a given hedge not to achieve its objective; (2) the fact
that the skills and techniques needed to trade futures are different from those
needed to select the other securities in which the Portfolio invests; (3) lack
of assurance that a liquid secondary market will exist for any particular
instrument at any particular time, which, among other things, may hinder the
Portfolio's ability to limit exposures by closing its positions; and (4) the
possible need to defer closing out of certain futures contracts to avoid adverse
tax consequences.
INCOME EQUITY FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to provide
long-term capital appreciation consistent with above-average dividend income.
The Fund currently pursues its investment objective by investing all of its
investable assets in Income Equity Portfolio, which has the same investment
objective and substantially identical investment policies as the Fund.
Therefore, although the following discusses the investment policies of that
Portfolio, it applies equally to the Fund.
INVESTMENT POLICIES. Income Equity Portfolio expects to invest primarily in the
common stock of large, high-quality domestic companies that have above-average
return potential based on current market valuations. Primary emphasis is placed
on investing in securities of companies with above-average dividend income. In
selecting securities for the Portfolio, Norwest uses various valuation measures,
including above-average
47
<PAGE>
dividend yields and below industry average price to earnings, price to book and
price to sales ratios. The Portfolio considers large companies are those
companies whose market capitalization is greater than the median of the Russell
1000 Index. The Portfolio also may invest in preferred stock and securities
convertible into common stock and may purchase American Depository Receipts,
European Depository Receipts and other similar securities of foreign issuers.
Under normal circumstances, Income Equity Portfolio will not invest more than
10% of its total assets in the securities of a single issuer.
VALUGROWTH STOCK FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to provide
long-term capital appreciation.
INVESTMENT POLICIES. The Fund invests primarily in medium- and
large-capitalization companies that, in the view of Norwest, possess above
average growth characteristics and appear to be undervalued. Medium companies
are those companies whose market capitalization is in the range of $500 million
to $8 billion. Large companies are those companies whose market capitalization
is greater than the median of the Russell 1000 Index.
The Fund seeks to identify and invest in companies whose earnings and dividends
Norwest believes will grow both faster than inflation and faster than the
economy in general and whose growth Norwest believes has not yet been fully
reflected in the market price of the companies' shares. In seeking these
investments, Norwest relies primarily on a company by company analysis (rather
than on a broader analysis of industry or economic sector trends) and considers
such matters as the quality of a company's management, the existence of a
leading or dominant position in a major product line or market, the soundness of
the company's financial position, and the maintenance of a relatively high rate
of return on invested capital and shareholder's equity. Once companies are
identified as possible investments, Norwest applies a number of valuation
measures to determine the relative attractiveness of each company and selects
those companies whose shares are most attractively priced.
The Fund also may invest in selected companies that Norwest regards as "special
situations." Special situation companies often have the potential for
significant future earnings growth but have not performed well in the recent
past. These situations may include management turnarounds, corporate or asset
restructurings, or significantly undervalued assets. These investments are the
exception, not the rule, and must satisfy Norwest's valuation parameters. In
addition, the Fund may invest up to 20% of its assets in securities of foreign
issuers, American Depository Receipts, European Depository Receipts and other
similar securities of foreign issuers.
DIVERSIFIED EQUITY FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to provide
long-term capital appreciation while moderating annual return volatility by
diversifying its investments in accordance with different equity investment
styles. The Fund invests in various Core Portfolios, each of which invests using
a different investment style.
INVESTMENT POLICIES. The Fund follows a "multi-style" approach designed to
minimize the volatility and risk of investing in equity securities. The Fund's
portfolio combines five different equity investment styles - index style, an
income equity style, a large company style, a small company style and an
international style. The Fund allocates the assets dedicated to large company
investments to two Core Portfolios, the assets allocated to small company
investments to four Core Portfolios and the assets dedicated to international
investments to two Core Portfolios. The Fund utilizes different equity
investment styles in order to reduce the risk of price and return volatility
associated with reliance on a single investment style. Because Diversified
Equity Fund blends five equity investment styles, it is anticipated that its
price and return volatility will be less than that of Growth Equity Fund, which
blends three equity investment styles.
48
<PAGE>
DIVERSIFIED EQUITY FUND ALLOCATION
Set forth below are the ranges of investments by the Fund in each Core
Portfolio and current allocation among the Core Portfolios.
<TABLE>
<CAPTION>
CURRENT
ALLOCATION RANGE OF INVESTMENT
----------------- -------------------
<S> <C> <C>
Index Portfolio 25% 23.5% - 26.5%
Income Equity Portfolio 25% 23.5% - 26.5%
Large Company style 25% 23.5% - 26.5%
Large Company Growth Portfolio 20% 18.5% - 21.5%
Disciplined Growth Portfolio 5% 3.5% - 6.5%
Diversified Small Cap style 10% 8.5% - 11.5%
Small Cap Index Portfolio 2.0% 0.5% - 3.5%
Small Company Growth Portfolio 2.4% 0.9% - 3.9%
Small Company Value Portfolio 2.4% 0.9% - 3.9%
Small Company Stock Portfolio 1.6% 0.1% - 3.1%
Small Cap Value Portfolio 1.6% 0.1% - 3.1%
International Style 15% 13.5% - 16.5%
International Portfolio 14.3% 10.8% - 16.5%
Schroder EM Core Portfolio 0.8% 0% - 3.3%
-----
TOTAL FUND ASSETS 100%
</TABLE>
As market values of the Fund's assets change, the percentage of Fund assets
invested in each Core Portfolio may temporarily deviate from the current
allocations. In response thereto, Norwest daily effects transactions for the
Fund to reestablish its allocations.
Consistent with the Fund's investment objective and policies and under the
general supervision of the Board, Norwest may make changes in the foregoing
percentage allocations at any time Norwest deems appropriate, including in
response to market and other conditions. In addition, upon approval of the Board
and notification of shareholders, the Fund may invest in additional or fewer
Core Portfolios or invest directly in portfolio securities. When Norwest
believes that a change in the allocation percentages is desirable, it will sell
and purchase securities to effect the change.
Investors should refer to the descriptions under "Investment Objectives and
Policies - Core Portfolio Descriptions" for a discussion of the investment
objectives, policies and risks involved in the investments and investment
techniques of each investment style.
GROWTH EQUITY FUND
INVESTMENT OBJECTIVE. Growth Equity Fund's investment objective is to provide a
high level of long-term capital appreciation while moderating annual return
volatility by diversifying its investments in accordance with different equity
investment styles. The Fund currently invests in various Core Portfolios, each
of which invests using a different investment style.
INVESTMENT POLICIES. The Fund follows a "multi-style" approach designed to
reduce the volatility and risk of investing in equity securities. The Fund's
portfolio combines three different equity styles - a large company growth style,
a small company style and an international style. The Fund allocates the assets
dedicated to small company investments to four Core Portfolios and the assets
dedicated to international investments to two Core Portfolios. The Fund utilizes
different equity styles in order to reduce the risk of price and return
volatility associated with reliance on a single style. It is anticipated that
the Fund's price and return volatility will be somewhat greater than those of
Diversified Equity Fund, which blends five equity styles.
49
<PAGE>
GROWTH EQUITY FUND ALLOCATION
Set forth below are the ranges of investments by the Fund in each Core
Portfolio and current allocation among the Core Portfolios.
<TABLE>
<CAPTION>
CURRENT
ALLOCATION RANGE OF INVESTMENT
----------------- -------------------
<S> <C> <C>
Large Company Growth Portfolio 35% 33% - 37%
Diversified Small Cap Style 35% 33% - 37%
Small Cap Index Portfolio 7.0% 5.0% - 9.0%
Small Company Growth Portfolio 8.4% 6.4% - 10.4%
Small Company Value Portfolio 8.4% 6.4% - 10.4%
Small Company Stock Portfolio 5.6% 3.6% - 7.6%
Small Cap Value Portfolio 5.6% 3.6% - 7.6%
International Style 30% 28% - 32%
International Portfolio 28.5% 22.4% - 32.0%
Schroder EM Core Portfolio 1.5% 0% - 6.4%
--------
TOTAL FUND ASSETS 100%
</TABLE>
As market values of the Fund's assets change, the percentage of Fund assets
invested in each Core Portfolio may temporarily deviate from the current
allocations. In response thereto, Norwest daily effects transactions for the
Fund to reestablish its allocations.
Consistent with the Fund's investment objective and policies and under the
general supervision of the Board, Norwest may make changes in the foregoing
percentage allocations at any time Norwest deems appropriate, including in
response to market and other conditions. In addition, upon approval of the Board
and notification of shareholders, the Fund may invest in additional or fewer
Core Portfolios or invest directly in portfolio securities. When Norwest
believes that a change in the allocation percentages is desirable, it will sell
and purchase securities to effect the change.
Investors should refer to the descriptions below under "Investment Objectives
and Policies - Core Portfolio Descriptions" for a discussion of the investment
objectives, policies and risks involved in the investments and investment
techniques of each investment style.
LARGE COMPANY GROWTH FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to provide
long-term capital appreciation by investing primarily in large, high-quality
domestic companies that the investment adviser believes have superior growth
potential. The Fund currently pursues its investment objective by investing all
of its investable assets in Large Company Growth Portfolio, which has the same
investment objective and substantially identical investment policies as the
Fund. Therefore, although the following discusses the investment policies of
that Portfolio, it applies equally to the Fund.
INVESTMENT POLICIES. The Portfolio invests primarily in the common stock of
large, high-quality domestic companies that have superior growth potential.
Large companies are those companies whose market capitalization is greater than
the median of the Russell 1000 Index. Market capitalization refers to the total
market value of a company's outstanding shares of common stock. In selecting
securities for the Portfolio, Norwest seeks issuers whose stock is attractively
valued and whose fundamental characteristics both are significantly better than
the market average and which support internal earnings growth capability. The
Portfolio's assets may be invested in the securities of companies whose growth
potential is, in Norwest's opinion, generally unrecognized or misperceived by
the market. In addition, the Portfolio may invest up to 20 percent of its total
assets in American Depository Receipts, European Depository Receipts and other
50
<PAGE>
similar securities of foreign issuers and may attempt to reduce the overall risk
of its foreign investments by using foreign currency forward contracts. (See
"Investment Objectives and Policies - Equity Portfolios - International Fund -
Foreign Investment Risks and Considerations.") Under normal circumstances, the
Portfolio will not invest more than 10 percent of its total assets in the
securities of a single issuer. The Portfolio does not currently invest in
preferred stock or securities convertible into common stock but reserves the
right to do so in the future.
SMALL COMPANY INVESTMENT CONSIDERATIONS AND RISK FACTORS.
ADDITIONAL INVESTMENT CONSIDERATIONS AND RISK FACTORS. While all investments
have risks, investments in smaller capitalization companies carry greater risk
than investments in larger capitalization companies. Smaller capitalization
companies generally experience higher growth rates and higher failure rates than
do larger capitalization companies; and the trading volume of smaller
capitalization companies' securities is normally lower than that of larger
capitalization companies and, consequently, generally has a disproportionate
effect on market price (tending to make prices rise more in response to buying
demand and fall more in response to selling pressure).
Investments in small, unseasoned issuers generally carry greater risk than is
customarily associated with larger, more seasoned companies. Such issuers often
have products and management personnel that have not been tested by time or the
marketplace and their financial resources may not be as substantial as those of
more established companies. Their securities (which a Portfolio may purchase
when they are offered to the public for the first time) may have a limited
trading market which can adversely affect their sale by the Portfolio and can
result in such securities being priced lower than otherwise might be the case.
If other institutional investors engage in trading this type of security, the
Portfolio may be forced to dispose of its holdings at prices lower than might
otherwise be obtained.
DIVERSIFIED SMALL CAP FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to provide long
term capital appreciation while moderating annual return volatility by
diversifying its investments across different small capitalization equity
investment styles.
INVESTMENT POLICIES. The Fund follows a "multi-style" approach designed to
minimize the volatility and risk of investing in small capitalization equity
securities. The Fund invests in various different small capitalization equity
styles. The Fund uses different equity investment styles in order to reduce the
risk of price and return volatility associated with reliance on a single
investment style.
DIVERSIFIED SMALL CAP FUND ALLOCATION
Set forth below are the ranges of investments by the Fund in each Core
Portfolio and current allocation among the Core Portfolios.
<TABLE>
<CAPTION>
CURRENT
ALLOCATION RANGE OF INVESTMENT
----------------- -------------------
<S> <C> <C>
Small Cap Index Portfolio 20% 18.5% - 21.5%
Small Company Growth Portfolio 24% 22.5% - 25.5%
Small Company Value Portfolio 24% 22.5% - 25.5%
Small Company Stock Portfolio 16% 14.5% - 17.5%
Small Cap Value Portfolio 16% 14.5% - 17.5%
-----
Total Fund Assets 100%
</TABLE>
As market values of the Fund's assets change, the percentage of Fund assets
invested in each Core Portfolio may temporarily deviate from the current
allocations. In response thereto, Norwest daily effects transactions for the
Fund to reestablish its allocations.
51
<PAGE>
Consistent with the Fund's investment objective and policies and under the
general supervision of the Board, Norwest may make changes in the foregoing
percentage allocations at any time Norwest deems appropriate, including in
response to market and other conditions. In addition, upon approval of the Board
and notification of shareholders, the Fund may invest in additional or fewer
Core Portfolios or invest directly in portfolio securities. When Norwest
believes that a change in the allocation percentages is desirable, it will sell
and purchase securities to effect the change.
Investors should refer to the descriptions under "Investment Objectives and
Policies - Core Portfolio Descriptions" for a discussion of the investment
objectives, policies and risks involved in the investments and investment
techniques of each investment style.
SMALL COMPANY STOCK FUND
INVESTMENT OBJECTIVE. The Fund's investment objective is long-term capital
appreciation. The Fund currently pursues its investment objective by investing
all of its investable assets in Small Company Stock Portfolio, which has the
same investment objective and substantially identical investment policies as the
Fund. Therefore, although the following discusses the investment policies of
that Portfolio, it applies equally to the Fund.
INVESTMENT POLICIES. Small Company Stock Portfolio invests primarily in the
common stock of small- and medium-size domestic companies that have a market
capitalization well below that of the average company in the Standard & Poor's
500 Composite Stock Price Index. Small companies are those companies whose
market capitalization is less than the largest stock in the Russell 2000 Index.
Medium companies are those companies whose market capitalization is in the range
of $500 million to $8 billion.
In selecting securities for the Portfolio, Norwest seek securities with
significant price appreciation potential, and attempts to identify companies
that show above-average growth, as compared to long-term overall market growth.
The companies in which the Portfolio invests may be in a relatively early stage
of development or may produce goods and services that have favorable prospects
for growth due to increasing demand or developing markets. Frequently, such
companies have a small management group and single product or product line
expertise, which, in the view of Norwest, may result in an enhanced
entrepreneurial spirit and greater focus, thereby allowing such companies to be
successful. The Advisers believe that such companies may develop into
significant business enterprises and that an investment in such companies offers
a greater opportunity for capital appreciation than an investment in larger,
more established entities.
Securities owned by the Portfolio that are traded in the over-the-counter market
or on a regional securities exchange may not be traded every day or in the
volume typical of securities trading on a national securities exchange. As a
result, disposition by the Portfolio of a portfolio security, to meet redemption
requests by shareholders or otherwise, may require the Portfolio to sell these
securities at a discount from market prices, to sell during periods when
disposition is not desirable, or to make many small sales over a lengthy period
of time.
Small Company Stock Portfolio also may invest up to 20% of its assets in
American Depository Receipts, European Depository Receipts and other similar
securities of foreign issuers.
For a description of the investment considerations and risks involved in
investing in small company securities, see "Investment Objectives and Policies -
Equity Funds - Small Company Investment Considerations and Risk Factors."
SMALL COMPANY GROWTH FUND
INVESTMENT OBJECTIVE. The Fund's investment objective is to provide long-term
capital appreciation by investing in smaller domestic companies. This objective
is pursued by investing primarily in small and medium-sized domestic companies
that are either growing rapidly or completing a period of significant change.
The Fund currently pursues its investment objective by investing all of its
investable assets in Small
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Company Growth Portfolio, which has the same investment objective and
substantially identical investment policies as the Fund. Therefore, although the
following discusses the investment policies of that Portfolio, it applies
equally to the Fund.
INVESTMENT POLICIES. Small Company Growth Portfolio invests primarily in the
common stock of smaller domestic companies. Small companies are those companies
whose market capitalization is less than the largest stock in the Russell 2,000
Index.
In selecting securities for the Small Company Growth Fund, Norwest seeks to
identify companies that are rapidly growing (usually with relatively short
operating histories) or that are emerging from a period of investor neglect by
undergoing a dramatic change. These changes may involve a sharp increase in
earnings, the hiring of new management or measures taken to close the gap
between its share price and takeover/asset value. Norwest may invest up to 10
percent of the total assets of the Portfolio in foreign securities and in
American Depository Receipts and other similar securities of foreign issuers.
Norwest may not invest more than 10 percent of the total assets of the Portfolio
in the securities of a single issuer. The Portfolio does not currently invest in
preferred stock and securities convertible into common stock but reserves the
right to do so in the future.
For a description of the investment considerations and risks involved in
investing in small company securities, see "Investment Objectives and Policies -
Equity Funds - Small Company Investment Considerations and Risk Factors."
SMALL CAP OPPORTUNITIES FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is capital
appreciation. Current income will be incidental to the objective of capital
appreciation. The Fund currently pursues its investment objective by investing
all of its investable assets in Schroder U.S. Smaller Companies Portfolio, which
has the same investment objective and substantially identical investment
policies as the Fund. Therefore, although the following discusses the investment
policies of that Portfolio, it applies equally to the Fund.
INVESTMENT POLICIES. Schroder U.S. Smaller Companies Portfolio seeks to achieve
its investment objective by investing primarily in equity securities of
companies domiciled in the United States that, at the time of purchase, have
market capitalizations of $1.5 billion or less.
In its investment approach, Schroder attempts to identify securities of
companies which it believes can generate above average earnings growth, selling
at favorable prices in relation to book values and earnings. As part of the
investment decision, Schroder's assessment of the competency of an issuer's
management will be an important consideration. These criteria are not rigid, and
other investments may be included in the Portfolio if they may help the
Portfolio to attain its objective.
The Portfolio will invest principally in equity securities (common stocks,
securities convertible into common stocks or, subject to special limitations,
rights or warrants to subscribe for or purchase common stocks). The Portfolio
may also invest to a limited degree in non-convertible debt securities and
preferred stocks when, in the opinion of Schroder, such investments are
warranted to achieve the Portfolio's investment objective.
The Portfolio may invest in securities of small, unseasoned companies (which,
together with any predecessors, have been in operation for less than three
years), as well as in securities of more established companies. In view of the
volatility of price movements of the former, the Portfolio currently intends to
invest no more than 5% of its total assets in securities of small, unseasoned
issuers.
Although there is no minimum rating for debt securities (convertible or
non-convertible) in which the Portfolio may invest, it is the present intention
of the Portfolio to invest no more than 5% of its net assets in debt securities
rated below the fourth highest rating category. These securities are commonly
known as "high yield/high risk" securities or "junk bonds." The Portfolio will
not invest in debt securities that are in default. High yield/high risk
securities are predominantly speculative with respect to the capacity to pay
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interest and repay principal and generally involve a greater volatility of price
than securities in higher rated categories. The Portfolio is not obligated to
dispose of securities due to changes by the rating agencies. (See "Additional
Investment Policies and Risk Considerations - Debt Securities.") (See the SAI
for information about the risks associated with investing in junk bonds.)
For a description of the investment considerations and risks involved in
investing in small company securities, see "Investment Objectives and Policies
- -- Equity Funds -- Small Company Investment Considerations and Risk Factors."
OPTIONS AND FUTURES TRANSACTIONS. While the Portfolio does not presently intend
to do so, it may write covered call options and purchase certain put and call
options, stock index futures, and options on stock index futures and
broadly-based stock indices, all of which are referred to as "Hedging
Instruments." In general, the Portfolio may use Hedging Instruments: (1) to
attempt to protect against declines in the market value of the Portfolio's
securities and thus protect the Fund's net asset value per share against
downward market trends; or (2) to establish a position in the equities markets
as a temporary substitute for purchasing particular equity securities. The
Portfolio will not use Hedging Instruments for speculation. The Hedging
Instruments which the Portfolio is authorized to use have certain risks
associated with them. Principal among such risks are: (1) the possible failure
of such instruments as hedging techniques in cases where the price movements of
the securities underlying the options or futures do not follow the price
movements of the portfolio securities subject to the hedge; (2) potentially
unlimited loss associated with futures transactions and the possible lack of a
liquid secondary market for closing out a futures position; and (3) possible
losses resulting from the inability of the Portfolio's investment adviser to
correctly predict the direction of stock prices, interest rates and other
economic factors. The Hedging Instruments the Portfolio may use and the risks
associated with them are described in greater detail in the SAI.
CONTRARIAN STOCK FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to seek capital
appreciation by investing primarily in common stocks for which Norwest believes
there is significant potential for price appreciation.
INVESTMENT POLICIES. The basic premise of Norwest's "contrarian" investment
approach is to purchase stocks whose prices are temporarily depressed, either
because they are out-of-favor with, or simply ignored by, the investment
community. Norwest believes that security prices change more than fundamental
investment values, as consensus thinking often results in severe undervaluation
of securities whose immediate problems are obvious and whose longer term
prospects are, therefore, viewed too negatively. This consensus pessimism can
create investment opportunity.
The basis of Norwest's contrarian investment approach is the comparison of the
value and the price of a security. Norwest generally analyzes a security's value
in terms of recovery earnings and potential share price over a three-year
investment time horizon. Typically, stocks that Norwest considers for purchase
will tend to have significantly depressed prices and relatively low price/book
value ratios.
The Fund may invest up to 20% of its assets in securities of foreign issuers and
in sponsored and unsponsored American Depository Receipts. For a description of
the investment considerations and risk factors of investing in foreign
securities, (see "Investment Objectives and Policies - Equity Funds -
International Fund - Foreign Investment Considerations and Risk Factors.") The
Fund may also invest in convertible securities, including convertible debt and
convertible preferred stock, that may be rated in any category by an NRSRO or
may be unrated.
The Fund also may invest in corporate debt obligations and U.S. Government
Securities. These instruments may have fixed, floating or variable rates of
interest. These debt securities must be rated in one of the three highest rating
categories by an NRSRO or, if unrated by any NRSRO, judged by Norwest to be of
comparable quality. (See "Additional Investment Policies and Risk Considerations
- - Fixed Income Investments and Their Characteristics.")
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ADDITIONAL INVESTMENT CONSIDERATIONS AND RISK FACTORS. The Fund's policy of
investing in securities that may be temporarily out of favor differs from the
investment approach followed by many other mutual funds with a similar
investment objective. Such mutual funds typically do not invest in securities
that have declined sharply in price, are not widely followed, or are issued by
companies that may have reported poor earnings or that may have suffered a
cyclical downturn in business. Norwest believes, however, that purchasing
securities depressed by temporary factors may provide investment returns
superior to those obtained when premium prices are paid for issues currently in
favor.
INTERNATIONAL FUND
The Fund is designed for investors who desire to achieve international
diversification of their investments by participating in foreign securities
markets. Because international investments generally involve risks in addition
to those risks associated with investments in the United States, the Fund should
be considered only as a vehicle for international diversification and not as a
complete investment program.
INVESTMENT OBJECTIVE. The investment objective of the Fund is to provide
long-term capital appreciation by investing directly or indirectly in high
quality companies based outside the United States. The Fund currently pursues
its investment objective by investing in two Core Portfolios, International
Portfolio and Schroder EM Core Portfolio, each of which invests using a
different investment style.
INVESTMENT POLICIES. The Fund follows a "multi-style" approach designed to
minimize the volatility and risk of investing in international equity
securities. The Fund's investment portfolio combines two different investment
styles - an international equity investment style and an international emerging
markets equity investment style.
INTERNATIONAL FUND ALLOCATION
Set forth below are the ranges of investments by the Fund in each Core
Portfolio and current allocation among the Core Portfolios.
<TABLE>
<CAPTION>
CURRENT
ALLOCATION RANGE OF INVESTMENT
----------- -------------------
<S> <C> <C>
International Portfolio 95% 80% - 100%
Schroder EM Core Portfolio 5% 0% - 20%
-----------
TOTAL FUND ASSETS 100%
</TABLE>
As market values of the Fund's assets change, the percentage of Fund assets
invested in each Core Portfolio may temporarily deviate from the current
allocations. In response thereto, Norwest daily effects transactions for the
Fund to reestablish its allocations.
Consistent with the Fund's investment objective and policies and under the
general supervision of the Board, Norwest may make changes in the foregoing
percentage allocations at any time Norwest deems appropriate, including in
response to market and other conditions. In addition, upon approval of the Board
and notification of shareholders, the Fund may invest in additional or fewer
Core Portfolios or invest directly in portfolio securities. When Norwest
believes that a change in the allocation percentages is desirable, it will sell
and purchase securities to effect the change.
Investors should refer to the descriptions below under "Investment Objectives
and Policies - Core Portfolio Descriptions" for a discussion of the investment
objectives, policies and risks involved in the investments and investment
techniques of each investment style.
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CORE PORTFOLIO DESCRIPTIONS
MONEY MARKET PORTFOLIO and PRIME MONEY MARKET PORTFOLIO. (See "Investment
Objectives and Policies - Money Market Funds - Cash Investment Fund and Ready
Cash Investment Fund.")
POSITIVE RETURN BOND PORTFOLIO. Positive Return Bond Portfolio seeks positive
total return each calendar year regardless of the bond market by investing in a
portfolio of U.S. Government and corporate fixed income investments. The
Portfolio's assets are divided into two components, short bonds with maturities
(or average life) of 2 years or less and long bonds with maturities of 25 years
or more. Shifts between short bonds and long bonds are made based on movement in
the prices of bonds rather than on the Advisers' forecast of interest rates.
During periods of falling prices (generally, increasing interest rate
environments) long bonds are sold to protect capital and limit losses.
Conversely, when bond prices rise, long bonds are purchased. Accordingly, the
average maturity of the Portfolio will vary. It is anticipated that under normal
circumstances the Portfolio will have an average dollar-weighted maturity of
between 1 and 30 years.
Under normal circumstances, at least 50 percent of the net assets of the
Portfolio will be invested in U.S. Government Securities, including Treasury
securities. All securities will be, at the time of purchase: (1) rated in one of
the two highest long-term rating categories assigned by a NRSRO such as Moody's
Investors Service, Standard & Poor's and Fitch Investors Service, L.P.; or (2)
unrated and determined by the Advisers to be of comparable quality. No more than
25 percent of those securities may be in the second highest rating category.
Investments may include zero-coupon securities, securities with variable or
floating rates of interest and asset-backed securities, but only 25 percent of
the net assets allocated to this investment style may be invested in each of
these types of securities. The Portfolio may not invest in convertible
securities, mortgage pass-through securities or private placement securities.
Within these constraints, the Advisers purchase securities that they believe
have above-average yields.
STABLE INCOME PORTFOLIO. (See "Investment Objectives and Policies - Fixed Income
Funds - Stable Income Fund.")
MANAGED FIXED INCOME PORTFOLIO. Managed Fixed Income Portfolio seeks consistent
fixed income returns by investing primarily in investment grade
intermediate-term obligations. The Portfolio invests in a diversified portfolio
of fixed and variable rate U.S. dollar denominated, fixed income securities of a
broad spectrum of United States and foreign issuers, including U.S. Government
Securities and the debt securities of financial institutions, corporations, and
others. The Advisers emphasize the use of intermediate maturity securities to
lessen duration risk (as described below), while employing low risk yield
enhancement techniques to enhance return over a complete economic or interest
rate cycle. Intermediate-term obligations comprise securities with maturities of
between 2 and 20 years.
The Portfolio may invest in mortgage-backed securities and other asset-backed
securities, although these investments are limited to not more than 50 percent
and 25 percent, respectively, of the portfolio's total assets. As part of its
asset-backed securities investments, the Portfolio may enter into "dollar roll"
transactions and may purchase stripped mortgage-backed securities. The Advisers
may invest any amount of the portfolio's assets in U.S. Government Securities,
or in the securities of financial institutions, corporations, and others. The
Portfolio may invest in securities that are restricted as to disposition under
the federal securities laws (sometimes referred to as "private placements" or
"restricted securities"). In addition, the Portfolio may not invest more than 30
percent of its total assets in the securities issued or guaranteed by any single
agency or instrumentality of the U.S. Government, except the U.S. Treasury.
The Portfolio may invest up to 10 percent of its total assets invested in this
style in participations purchased from financial institutions in loans or
securities in which the Portfolio may invest directly. The Portfolio may also
invest up to 10 percent of its total assets in each of: (1) obligations issued
or guaranteed by the governments of countries which Norwest believes do not
present undue risk or by those countries' political subdivisions, agencies or
instrumentalities; (2) obligations of supranational organizations; and (3)
obligations of the states, territories or possessions of the United States and
their subdivisions, authorities and corporations ("municipal securities").
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<PAGE>
The Portfolio only purchases securities that are rated, at the time of purchase,
within the four highest long-term or two highest short-term rating categories
assigned by an NRSRO, such as Moody's Investors Service, Standard & Poor's or
Fitch Investors Service, L.P., or which are unrated and determined by Norwest to
be of comparable quality. (See "Additional Investment Policies and Risk
Considerations - Rating Matters.")
The Portfolio invests in debt obligations with maturities (or average life in
the case of mortgage-backed and similar securities) ranging from short-term
(including overnight) to 30 years. Under normal circumstances, the Portfolio
will have an average dollar-weighted portfolio maturity of between 3 and 12
years and a duration of between 2 and 6 years. Duration is a measure of a debt
security's average life that reflects the present value of the security's cash
flow and, accordingly, is a measure of price sensitivity to interest rate
changes ("duration risk"). Because earlier payments on a debt security have a
higher present value, duration of a security, except a zero-coupon security, is
less than the security's stated maturity.
In order to manage the Portfolio's exposure to different types of investments,
the Portfolio may enter into interest rate and mortgage swap agreements and may
purchase and sell interest rate caps, floors and collars. The Portfolio may also
engage in certain strategies involving options (both exchange-traded and
over-the-counter) to attempt to enhance the Portfolio's return and may attempt
to reduce the overall risk of its investments ("hedge") by using options and
futures contracts. The Advisers' ability to use these strategies may be limited
by market considerations, regulatory limits and tax considerations. The Advisers
may on behalf of the Portfolio write covered call and put options, buy put and
call options, buy and sell interest rate futures contracts and buy options and
write covered options on those futures contracts. An option is covered if, so
long as the Portfolio is obligated under the option, it owns an offsetting
position in the underlying security or futures contract or maintains a
segregated account of liquid debt instruments with a value at all times
sufficient to cover the Portfolio's obligations under the option.
STRATEGIC VALUE BOND PORTFOLIO. (See "Investment Objective and Policies - Fixed
Income Funds - Total Return Bond Fund.")
INDEX PORTFOLIO. (See "Investment Objectives and Policies - Equity Funds - Index
Fund.")
INCOME EQUITY PORTFOLIO. (See "Investment Objectives and Policies - Equity Funds
- - Income Equity Fund.")
LARGE COMPANY GROWTH PORTFOLIO. (See "Investment Objectives and Policies -
Equity Funds - Large Company Growth Fund.")
DISCIPLINED GROWTH PORTFOLIO. Disciplined Growth Portfolio seeks capital
appreciation by investing in common stocks of larger companies. Disciplined
Growth Portfolio seeks greater long-term returns by investing primarily in the
common stock of companies that, in the view of the investment adviser, possess
above average potential for growth. The average market capitalization of the
companies in which the Portfolio invests will be greater than $5 billion.
The Portfolio seeks to identify growth companies that will report a level of
corporate earnings that exceed the level expected by investors. In seeking these
companies, the investment adviser uses both quantitative and fundamental
analysis. Among the factors that the investment adviser considers are changes of
earnings estimates by investment analysts, the recent trend of company earnings
reports, and an analysis of the fundamental business outlook for the company.
The investment adviser uses a variety of valuation measures to determine whether
the share price already reflects any positive fundamentals identified by the
investment adviser. In addition to approximately equal weighting of portfolio
securities, the investment adviser attempts to constrain the variability of the
investment returns by employing risk control screens for price volatility,
financial quality and valuation.
SMALL COMPANY STOCK PORTFOLIO. (See "Investment Objectives and Policies - Equity
Funds - Small Company Stock Fund.")
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SMALL COMPANY GROWTH PORTFOLIO. (See "Investment Objectives and Policies -
Equity Funds - Small Company Growth Fund.")
SMALL COMPANY VALUE PORTFOLIO. Small Company Value Portfolio seeks to provide
long-term capital appreciation by investing primarily in smaller companies. The
Portfolio invests primarily in the common stock of companies that have a market
capitalization well below that of the average company in the Standard & Poor's
500 Composite Stock Price Index. Smaller companies are those companies whose
market capitalization is less than the largest stock in the Russell 2000 Index.
The Advisers focus on securities that are conservatively valued in the
marketplace relative to their underlying fundamentals. Value investing provides
investors with a less aggressive way to take advantage of growth opportunities
of small companies. The Advisers seek to invest in stocks priced low relative to
the stock of comparable companies, determined by price/earnings ratios, cash
flows or other measures. Value investing therefore may reduce downside risk
while offering potential for capital appreciation as a stock gains favor among
other investors and its stock price rises.
For a description of the investment considerations and risks involved in
investing in small company securities, see "Investment Objectives and Policies -
Equity Funds - Small Company Investment Considerations and Risk Factors."
SMALL CAP VALUE PORTFOLIO. Small Cap Value Portfolio seeks capital appreciation
by investing in common stocks of smaller companies. Small Cap Value Portfolio
seeks higher growth rates and greater long-term returns by investing primarily
in the common stock of smaller companies that, in the view of the investment
adviser, are undervalued. Under normal circumstances, the Portfolio will invest
substantially all of its assets, but not less than 65% of its net assets, in
securities of companies with a market capitalization which reflects the market
capitalization of companies included in the Russell 2000 Index.
The Portfolio invests in those smaller companies that the investment adviser
believes to be undervalued and which will report a level of corporate earnings
exceeding the level expected by investors. The determination of value is based
upon both the price to earnings ratio of the company and a comparison of the
public market value of the company to a proprietary model that values the
company in the private market. In seeking companies that will report a level of
earnings exceeding that expected by investors, the investment adviser uses both
quantitative and fundamental analysis. Among the factors that the investment
adviser considers are changes of earnings estimates by investment analysts, the
recent trend of company earnings reports, and the fundamental business outlook
for the company.
For a description of the investment considerations and risks involved in
investing in small company securities, see "Investment Objectives and Policies -
Equity Funds - Small Company Investment Considerations and Risk Factors."
SMALL CAP INDEX PORTFOLIO. Small Cap Index Portfolio seeks to replicate the
return of the Standard & Poor's Small Cap 600 Composite Stock Price Index (the
"Index"). The Portfolio is designed to replicate the return of the Index with
minimum tracking error, while also minimizing transaction costs. Under normal
circumstances, the Portfolio will hold stocks representing 100% of the
capitalization-weighted market values of the Index. Portfolio transactions for
the Portfolio generally are executed only to duplicate the composition of the
Index, to invest cash received from portfolio security dividends or investments
in the Portfolio, and to raise cash to fund redemptions. The Portfolio may hold
cash or cash equivalents for the purpose of facilitating payment of the
Portfolio's expenses or redemptions. Cash positions may be invested in short-
term money market instruments, hedged with Index Futures Contracts, such as
those on the S&P 500 Index or the Russell 2000 Index futures. For these and
other reasons, the Portfolio's performance can be expected to approximate but
not be equal to that of the Index.
Small Cap Index Portfolio may utilize index futures contracts to a limited
extent. Index futures contracts are bilateral agreements pursuant to which two
parties agree to take or make delivery of an amount of cash
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equal to a specified dollar amount times the difference between the index value
at the close of trading of the contract and the price at which the futures
contract is originally struck. As no physical delivery of securities comprising
the Index is made, a purchaser of index futures contracts may participate in the
performance of the securities contained in the index without the required
capital commitment. Index futures contracts may be used for several reasons: to
simulate full investment in the underlying index while retaining a cash balance
for portfolio management purposes; to facilitate trading; or to reduce
transaction costs. The Portfolio does not invest in futures contracts for
speculative reasons or to leverage the Portfolio. (See "Investment Objectives
and Policies - Equity Funds - Index Fund - Index Futures Contracts".)
The Index tracks the total return performance of 600 common stocks which are
chosen for inclusion in the Index by Standard & Poor's Corporation ("S&P") on a
statistical basis. The inclusion of a stock in the Index in no way implies that
S&P believes the stock to be an attractive investment. The 600 securities, most
of which trade on the New York Stock Exchange, represent 4% of the total market
value of all U.S. common stocks. The Index is comprised of industrial, utility,
financial and transportation companies and is a market-value weighted index,
with each stock's weight in the Index proportionate to its market value.
Small Cap Index Portfolio is not sponsored, endorsed, sold or promoted by S&P,
nor does S&P make any representation or warranty, implied or express, to the
investors in the Portfolio or any member of the public regarding the
advisability of investing in index funds or the ability of the Index to track
general stock market performance. S&P does not guarantee the accuracy and/or the
completeness of the Index or any data included therein.
S&P makes no warranty, express or implied, as to the results to be obtained by
Small Cap Index Portfolio, by the investors in the Portfolio, or by any other
person or any entity from the use of the Index or any data included therein. S&P
makes no express or implied warranties and hereby expressly disclaims all such
warranties of merchantability or fitness for a particular purpose for use with
respect to the Index or any data included therein.
INTERNATIONAL PORTFOLIO. The investment objective of International Portfolio is
to provide long-term capital appreciation by investing directly or indirectly in
high quality companies based outside the United States. The Portfolio selects
its investments on the basis of their potential for capital appreciation without
regard to current income. International Portfolio also may invest in the
securities of domestic closed-end investment companies investing primarily in
foreign securities and may invest in debt obligations of foreign governments or
their political subdivisions, agencies or instrumentalities, of supranational
organizations and of foreign corporations. International Portfolio's investments
will be diversified among securities of issuers in foreign countries including,
but not limited to, Japan, Germany, the United Kingdom, France, The Netherlands,
Hong Kong, Singapore and Australia. In general, International Portfolio will
invest only in securities of companies and governments in countries that
Schroder, in its judgment, considers both politically and economically stable.
International Portfolio has no limit on the amount of its assets that may be
invested in any one type of foreign instrument or in any foreign country;
however, to the extent International Portfolio concentrates its assets in a
foreign country, it will incur greater risks.
International Portfolio may purchase preferred stock and convertible debt
securities, including convertible preferred stock, and may purchase American
Depository Receipts, European Depository Receipts or other similar securities of
foreign issuers. International Portfolio also may enter into foreign exchange
contracts, including forward contracts to purchase or sell foreign currencies,
in anticipation of its currency requirements and to protect against possible
adverse movements in foreign exchange rates. Although such contracts may reduce
the risk of loss to International Portfolio from adverse movements in currency
values, the contracts also limit possible gains from favorable movements.
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FOREIGN CURRENCY CONTRACTS. Changes in foreign currency exchange rates will
affect the U.S. dollar values of securities denominated in currencies other than
the U.S. dollar. The rate of exchange between the U.S. dollar and other
currencies fluctuates in response to forces of supply and demand in the foreign
exchange markets. These forces are affected by the international balance of
payments and other economic and financial conditions, government intervention,
speculation and other factors. When investing in foreign securities,
International Portfolio usually effects currency exchange transactions on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign exchange market.
International Portfolio incurs foreign exchange expenses in converting assets
from one currency to another.
International Portfolio may enter into foreign currency forward contracts or
currency futures or options contracts for the purchase or sale of foreign
currency to "lock in" the U.S. dollar price of the securities denominated in a
foreign currency or the U.S. dollar value of interest and dividends to be paid
on such securities, or to hedge against the possibility that the currency of a
foreign country in which International Portfolio has investments may suffer a
decline against the U.S. dollar. A forward currency contract is an obligation to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract agreed upon by the parties, at a
price set at the time of the contract. This method of attempting to hedge the
value of portfolio securities against a decline in the value of a currency does
not eliminate fluctuations in the underlying prices of the securities. Although
the strategy of engaging in foreign currency transactions could reduce the risk
of loss due to a decline in the value of the hedged currency, it could also
limit the potential gain from an increase in the value of the currency.
International Portfolio does not intend to maintain a net exposure to such
contracts where the fulfillment of International Portfolio's obligations under
such contracts would obligate International Portfolio to deliver an amount of
foreign currency in excess of the value of International Portfolio's portfolio
securities or other assets denominated in the currency. International Portfolio
will enter into these contracts for speculative purposes or enter into
non-hedging currency contracts. These contracts involve a risk of loss if
Schroder fails to predict currency values correctly. International Portfolio has
no present intention to enter into currency futures or options contracts but may
do so in the future.
FOREIGN INVESTMENT RISKS. All investments, domestic and foreign, involve certain
risks. Investments in the securities of foreign issuers may involve risks in
addition to those normally associated with investments in the securities of U.S.
issuers. All foreign investments are subject to risks of foreign political and
economic instability, adverse movements in foreign exchange rates, the
imposition or tightening of exchange controls or other limitations on
repatriation of foreign capital, and changes in foreign governmental attitudes
towards private investment, possibly leading to nationalization, increased
taxation or confiscation of foreign investors' assets.
Moreover, dividends payable on foreign securities may be subject to foreign
withholding taxes, thereby reducing the income available to shareholders;
commission rates payable on foreign transactions are generally higher than in
the U.S.; foreign accounting, auditing and financial reporting standards differ
from those in the U.S. and, accordingly, less information may be available about
foreign companies than is available about issuers of comparable securities in
the U.S.; and foreign securities may trade less frequently and with lower volume
and may exhibit greater price volatility than U.S. securities.
Changes in foreign exchange rates will also affect the value in U.S. dollars of
all foreign currency-denominated securities held by the Portfolio. Exchange
rates are influenced generally by the forces of supply and demand in the foreign
currency markets and by numerous other political and economic events occurring
outside the United States, many of which may be difficult, if not impossible, to
predict.
Income from foreign securities will be received and realized in foreign
currencies. A decline in the value of a particular foreign currency against the
U.S. dollar occurring after the Portfolio's income has been earned and computed
in U.S. dollars may require the Portfolio to liquidate portfolio securities to
acquire sufficient
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U.S. dollars to fund redemptions. Similarly, if the exchange rate declines
between the time the Portfolio incurs expenses in U.S. dollars and the time such
expenses are paid, the Portfolio may be required to liquidate additional foreign
securities to purchase the U.S. dollars required to meet such expenses.
SCHRODER EM CORE PORTFOLIO. The investment objective of Schroder EM Core
Portfolio is to seek to achieve long-term capital appreciation through direct or
indirect investment in equity and debt securities of issuers domiciled or doing
business in emerging market countries in regions such as Southeast Asia, Latin
America, and Eastern and Southern Europe. Current income is incidental to the
Portfolio's objective.
The Portfolio may invest, under normal market conditions, up to 65% of its total
assets in emerging market equity and debt securities, including common stocks;
convertible preferred stocks; stock rights and warrants; convertible debt
securities; and non-convertible debt securities. (Investments in stock rights
and warrants will not be considered for purposes of determining compliance with
this policy.) The Portfolio may invest up to 35% of its total assets in
high-risk debt securities that are unrated or rated below investment grade. The
Portfolio may be able to invest in certain emerging markets solely or primarily
through governmentally authorized investment companies or vehicles. When
investing through investment companies, the Portfolio may pay substantial
premiums above such investment companies' net asset value per share. The
Portfolio does not intend to invest in other investment companies unless, in the
judgment of Schroder, the potential benefits of such investment justify the
payments of any applicable premiums or sales charges.
In recent years, many emerging market countries have begun programs of economic
reform: removing import tariffs, dismantling trade barriers, deregulating
foreign investment, privatizing state-owned industries, permitting the value of
their currencies to float against the dollar and other major currencies, and
generally reducing the level of state intervention in industry and commerce.
Important intra-regional economic integration also holds the promise of greater
trade and growth. At the same time, significant progress has been made in
restructuring the heavy external debt burden that certain emerging market
countries accumulated during the 1970s and 1980s. While there is no assurance
that these trends will continue, Schroder will seek out attractive investment
opportunities in these countries.
"Emerging market" countries are all those not included in the Morgan Stanley
Capital International World Index ("MSCI World") of major world economies. If,
however, the investment adviser determines that the economy of a MSCI
World-listed country is an emerging market economy, Schroder may include such
country in the emerging market category. The Portfolio will not necessarily seek
to diversify investments on a geographic basis and may invest more than 25% of
its total assets in issuers located in any one country.
Schroder EM Core Portfolio may invest a portion of its assets in Brady Bonds,
which are securities created through the exchange of existing commercial bank
loans to sovereign entities for new obligations in connection with debt
restructuring.
4. ADDITIONAL INVESTMENT POLICIES AND RISK CONSIDERATIONS
GENERAL INFORMATION
Each Fund's (and each Core Portfolios') investment objective and all investment
policies of the Funds (and the Core Portfolios) that are designated as
fundamental may not be changed without approval of the holders of a majority of
the outstanding voting securities of the Fund (or the Portfolio). A majority of
outstanding voting securities means the lesser of 67% of the shares present or
represented at a shareholders meeting at which the holders of more than 50% of
the outstanding shares are present or represented, or more than 50% of the
outstanding shares. Except as otherwise indicated, investment policies of the
Funds are not
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deemed to be fundamental and may be changed by the Board without shareholder
approval. Likewise, non-fundamental investment policies of the Core Portfolios
may be changed by the respective Core Trust's board of trustees ("Core Board")
without shareholder approval.
Unless otherwise indicated below, the discussion below of the investment
policies of a Fund investing in a single Core Portfolio also refers to the
investment policies of that Core Portfolio. A further description of the Funds'
investment policies, including additional fundamental policies, is contained in
the SAI.
As used herein, the term U.S. Government Securities means obligations issued or
guaranteed as to principal and interest by the U.S. Government, its agencies or
instrumentalities. These policies relate to each Fund and, unless otherwise
noted, not to a portion of a Fund invested in a particular investment style.
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 a 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 a Fund.
GENERAL MONEY MARKET FUND GUIDELINES
Each Money Market Fund (which for purposes of this section, also includes Money
Market Portfolio and Prime Money Market Portfolio) invests only in high quality,
short-term money market instruments that are determined by Norwest, pursuant to
procedures adopted by the Board, to be eligible for purchase and to present
minimal credit risks. Each Fund will invest only in U.S. dollar-denominated
instruments that have a remaining maturity of 397 days or less (as calculated
pursuant to Rule 2a-7 under the Investment Company Act of 1940 ("1940 Act")) and
will maintain a dollar-weighted average portfolio maturity of 90 days or less.
Securities with ultimate maturities of greater than 397 days may be purchased in
accordance with Rule 2a-7. Under that Rule, only those long-term instruments
that have demand features which comply with certain requirements and certain
variable rate U.S. Government Securities, as described below, may be purchased.
The securities in which the Funds may invest may have fixed, variable or
floating rates of interest.
Except to the limited extent permitted by Rule 2a-7 and except for U.S.
Government Securities, each Fund will not invest more than 5% of its total
assets in the securities of any one issuer. Also, a Fund may not purchase a
security if the value of all securities held by the Fund and issued or
guaranteed by the same issuer (including letters of credit in support of a
security) would exceed 10% of the Fund's total assets. Those requirements apply
with respect to only 75% of the total assets of Municipal Money Market Fund. In
addition, to ensure adequate liquidity, no Fund may invest more than 10% of its
net assets in illiquid securities, including repurchase agreements maturing in
more than seven days.
As used herein, high quality instruments include those that: (1) are rated (or,
if unrated, are issued by an issuer with comparable outstanding short-term debt
that is rated) in one of the two highest rating categories by two nationally
recognized statistical rating organizations ("NRSROs") or, if only one NRSRO has
issued a rating, by that NRSRO; or (2) are otherwise unrated and determined by
Norwest, pursuant to guidelines adopted by the Board, to be of comparable
quality. Except for Municipal Money Market Fund, each Fund will invest at least
95% of its total assets in securities in the highest rating category as
determined pursuant to Rule 2a-7. A description of the rating categories of
Standard & Poor's, Moody's Investors Service and certain other NRSROs is
contained in the SAI.
The market value of the interest-bearing debt securities held by the Funds,
including municipal securities, will be affected by changes in interest rates.
There is normally an inverse relationship between the market value of securities
sensitive to prevailing interest rates and actual changes in interest rates;
(I.E., a decline in interest rates produces an increase in market value, while
an increase in rates produces a decrease in market value.) Moreover, the longer
the remaining maturity of a security, the greater will be the effect of interest
rate changes on the market value of that security. In addition, changes in the
ability of an issuer to make payments of interest and principal and in the
market's perception of an issuer's creditworthiness will also
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affect the market value of the debt securities of that issuer. Obligations of
issuers of debt securities, including municipal securities, are also subject to
the provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors. The possibility exists, therefore, that, as a result of
bankruptcy, litigation or other conditions, the ability of any issuer to pay,
when due, the principal of and interest on its debt securities may be materially
affected.
Although each Fund only invests in high quality money market instruments, an
investment in the Fund is subject to risk even if all securities in the Fund's
portfolio are paid in full at maturity. All money market instruments, including
U.S. Government Securities, can change in value as a result of changes interest
rates and/or the issuer's actual or perceived creditworthiness.
COMMON POLICIES OF THE FUNDS
BORROWING
As a fundamental policy, each Money Market Fund, Income Fund, Total Return Bond
Fund, each Tax-Free Fixed Income Fund, ValuGrowth Stock Fund, Small Company
Stock Fund, Small Cap Opportunities Fund and Contrarian Stock 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. As a fundamental policy, Stable Income Fund, Intermediate
Government Income Fund, Limited Term Government Income Fund, Diversified Bond
Fund, the Balanced Funds, Index Fund, Income Equity Fund, Diversified Equity
Fund, Growth Equity Fund, Large Company Growth Fund, Small Company Growth Fund,
Diversified Small Cap Fund and International Fund may borrow money for temporary
or emergency purposes, including the meeting of redemption requests, but not in
excess of 33 1/3% of the value of a Fund's net assets. For each Fund and the
Core Portfolios, borrowing for other than temporary or emergency purposes or
meeting redemption requests may not exceed 5% of the value of each Fund's assets
except in the case of Intermediate Government Income Fund, Diversified Bond Fund
and, with respect to their assets invested in Managed Fixed Income Portfolio,
the Balanced Funds. Each Fund may enter into reverse repurchase agreements. When
a 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
Each Fund (except for Treasury 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, a 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 a Fund purchases a security and
simultaneously commits to resell that security to the seller at an agreed-upon
price on an agreed-upon future date, normally one to seven days later. The
resale price reflects a market rate of interest that is not related to the
coupon rate or maturity of the purchased security. When a Fund lends a security
it receives interest from the borrower or from investing cash collateral. The
Trust maintains possession of the purchased securities and any underlying
collateral in these transactions, the total market value of which on a
continuous basis is at least equal to the repurchase price or value of
securities loaned, plus accrued interest. The Funds may pay fees to arrange
securities loans and each Fund will limit securities lending to not more than 33
1/3% (25% in the case of Small Cap Opportunities Fund) of the value of its total
assets.
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DIVERSIFICATION AND CONCENTRATION
Each Fund (other than Colorado Tax-Free Fund, Minnesota Intermediate Tax-Free
Fund and Minnesota Tax-Free Fund) is diversified as that term is defined in the
Investment Company Act of 1940 (the "1940 Act"). As a fundamental policy, with
respect to 75% of its assets, 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. Except for Cash investment
Fund and Ready Cash Investment Fund, each Fund is prohibited from concentrating
its assets in the securities of issuers in any industry. As a fundamental
policy, no Fund (other than Cash Investment Fund and Ready Cash Investment Fund,
may purchase securities if, immediately after the purchase, more than 25% of the
value of the Fund's total assets would be invested in the securities of issuers
conducting their principal business activities in the same industry. This limit
does not apply to investments in U.S. Government Securities, foreign government
securities or repurchase agreements covering U.S. Government Securities. Each
Fund reserves the right to invest up to 100% of its investable assets in one or
more investment companies such as the Core Portfolios.
ILLIQUID SECURITIES
Each of the Funds limits its purchase of illiquid securities. No Fund may
knowingly acquire securities or invest in repurchase agreements with respect to
any securities if, as a result, more than 15 percent (10 percent in the case of
the Money Market Funds) of the Fund's net assets taken at current value would be
invested in securities which are not readily marketable. 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 or
Core Board). Under the supervision of the Board or Core Board, the Advisers
determine and monitor the liquidity of the portfolio securities.
FIXED INCOME INVESTMENTS AND THEIR CHARACTERISTICS
Although each Fund (other than Minnesota Intermediate Tax-Free Fund, Minnesota
Tax-Free Fund, Diversified Bond Fund, Income Fund, Total Return Bond Fund, the
Balanced Funds and Small Cap Opportunities Fund) only invests in investment
grade fixed income securities, including money market instruments, an investment
in a Fund is subject to risk even if all fixed income securities in the Fund's
portfolio are paid in full at maturity. The Fixed Income Funds and, with respect
to their assets invested in fixed income investment styles, the Balanced Funds,
will invest in securities rated in the categories specified by their investment
policies. 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 Funds,
including municipal securities, will be affected by changes in interest rates.
There is normally an inverse relationship between the market value of securities
sensitive to prevailing interest rates and actual changes in interest rates. In
other words, an increase in interest rates produces a decrease in market value.
Moreover, the longer the remaining maturity (and duration) of a security, the
greater will be the effect of interest rate changes on the market value of that
security. Changes in the ability of an issuer to make payments of interest and
principal and in the 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, including municipal issuers, are also subject to
the provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors which may restrict the ability of any issuer to pay, when
due, the principal of and interest on its debt securities. The possibility
exists that the ability of any issuer to pay, when due, the principal of and
interest on its debt securities may become impaired.
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Fixed income securities include those issued by the governments of foreign
countries or by those countries' political subdivisions, agencies or
instrumentalities as well as by supranational organizations such as the
International Bank for Reconstruction and Development and the Inter-American
Development Bank. To the extent otherwise permitted, the Funds may invest in
these securities if an investment adviser believes that the securities do not
present risks inconsistent with a Funds' investment objective.
VARIABLE AND FLOATING RATE SECURITIES. The securities in which the Funds invest
(including mortgage-related securities) may have variable or floating rates of
interest. These securities pay interest at rates that are adjusted periodically
according to a specified formula, usually with reference to some interest rate
index or market interest rate (the "underlying index"). The interest paid on
these securities is a function primarily of the underlying index upon which the
interest rate adjustments are based. Such adjustments minimize changes in the
market value of the obligation and, accordingly, enhance the ability of the Fund
to maintain a stable net asset value. Similar to fixed rate debt instruments,
variable and floating rate instruments are subject to changes in value based on
changes in market interest rates or changes in the issuer's creditworthiness.
The rate of interest on securities purchased by a Fund may be tied to Treasury
or other government securities or indices on those securities as well as any
other rate of interest or index. Certain variable rate securities (including
mortgage-related securities) pay interest at a rate that varies inversely to
prevailing short-term interest rates (sometimes referred to as "inverse
floaters"). For instance, upon reset the interest rate payable on a security may
go down when the underlying index has risen. During times when short-term
interest rates are relatively low as compared to long-term interest rates a Fund
may attempt to enhance its yield by purchasing inverse floaters. Certain inverse
floaters may have an interest rate reset mechanism that multiplies the effects
of changes in the underlying index. This form of leverage may have the effect of
increasing the volatility of the security's market value while increasing the
security's, and thus the Fund's, yield.
There may not be an active secondary market for certain floating or variable
rate instruments (particularly inverse floaters and similar instruments) which
could make it difficult for a Fund to dispose of the instrument during periods
that the Fund is not entitled to exercise any demand rights (such as puts) it
may have. A Fund could, for this or other reasons, suffer a loss with respect to
those instruments. Norwest monitors the liquidity of each Fund's investment in
variable and floating rate instruments, but there can be no guarantee that an
active secondary market will exist.
The Funds, except U.S. Government Fund and Treasury Fund, also may purchase
variable and floating rate demand notes of corporations, which are unsecured
obligations redeemable upon not more than 30 days' notice. These obligations
include master demand notes that permit investment of fluctuating amounts at
varying rates of interest pursuant to direct arrangement with the issuer of the
instrument. The issuer of these obligations often has the right, after a given
period, to prepay their outstanding principal amount of the obligations upon a
specified number of days' notice. These obligations generally are not traded,
nor generally is there an established secondary market for these obligations. To
the extent a demand note does not have a seven day or shorter demand feature and
there is no readily available market for the obligation, it is treated as an
illiquid security.
Certain securities may have an initial principal amount that varies over time
based on an interest rate index, and, accordingly, a Fund might be entitled to
less than the initial principal amount of the security upon the security's
maturity. The Funds intend to purchase these securities only when Norwest
believes the interest income from the instrument justifies any principal risks
associated with the instrument. The Advisers may attempt to limit any potential
loss of principal by purchasing similar instruments that are intended to provide
an offsetting increase in principal. There can be no assurance that an Adviser
will be able to limit the effects of principal fluctuations and, accordingly, a
Fund may incur losses on those securities even if held to maturity without
issuer default.
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RATING MATTERS
The Funds' investments are subject to credit risk relating to the financial
condition of the issuers of the securities that each Fund holds. To limit credit
risk, each Fund will primarily buy debt securities that are rated in the top
four long-term rating categories by an NRSRO or in the top two short-term rating
categories by an NRSRO, although certain Funds have greater restrictions. The
lowest permissible long-term investment grade for corporate bonds, including
convertible bonds, is "Baa" in the case of Moody's and "BBB" in the case of S&P
and Fitch; the lowest investment grade for preferred stock is "Baa" in the case
of Moody's and "BBB" in the case of S&P and Fitch; and the lowest investment
grade for short-term debt, including commercial paper, is Prime-2 (P-2) in the
case of Moody's, "A-2" in the case of S&P and "F-2" in the case of Fitch.
The Funds also may purchase unrated securities if the Fund's Adviser determines
the security to be of comparable quality to a rated security that the Fund may
purchase. Unrated securities may not be as actively traded as rated securities.
Each Fund may retain a security whose rating has been lowered below the Fund's
lowest permissible rating category (or that are unrated and determined by the
Fund's Adviser to be of comparable quality to securities whose rating has been
lowered below the Fund's lowest permissible rating category) if the Fund's
Adviser determines that retaining the security is in the best interests of the
Fund. Because a downgrade often results in a reduction in the market price of
the security, sale of a downgraded security may result in a loss.
TEMPORARY DEFENSIVE POSITION
When business or financial conditions warrant, each Fund may assume a temporary
defensive position and invest without limit in cash or prime quality cash
equivalents, including: (1) short-term U.S. Government Securities; (2)
certificates of deposit, bankers acceptances and interest-bearing savings
deposits of commercial banks doing business in the United States (United States
banks in the case of Small Cap Opportunities Fund); (3) commercial paper; (4)
repurchase agreements; and (5) shares of money market funds registered under the
1940 Act within the limits specified therein. During periods when and to the
extent that a Fund has assumed a temporary defensive position, it may not be
pursuing its investment objective. Prime quality instruments are those that are
rated in one of the two highest short-term rating categories by an NRSRO or, if
not rated, determined by the investment adviser to be of comparable quality.
Apart from temporary defensive purposes, a Fund may at any time invest a portion
of its assets in cash and cash equivalents as described above (in United States
banks in the case of Small Cap Opportunities Fund). Except during periods when
the Fund assumes a temporary defensive position, each Equity Fund and Aggressive
Balanced - Equity Fund will have at least 65% of its total assets invested in
common stock and International Fund will have at least 65% of its net assets
invested in securities of companies domiciled outside the United States.
International Portfolio and Schroder EM Core Portfolio and may hold cash and
bank instruments denominated in any major foreign currency.
When a Tax-Free Fixed Income Fund assumes a temporary defensive position, it is
likely that its shareholders will be subject to federal and applicable state
income taxes on a greater portion of their income dividends received from the
Fund.
PORTFOLIO TRANSACTIONS
The Advisers monitor the creditworthiness of counterparties to the Funds'
transactions and intends to enter into a transaction only when it believes that
the counterparty presents minimal credit risks and the benefits from the
transaction justify the attendant risks.
The Advisers place orders for the purchase and sale of assets they manage with
brokers and dealers selected by and in the discretion of the respective adviser.
The Advisers seek "best execution" for all portfolio transactions, but a Fund
may pay higher than the lowest available commission rates when an investment
adviser believes it is reasonable to do so in light of the value of the
brokerage and research services provided by the broker effecting the
transaction.
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Commission rates for brokerage transactions are fixed on many foreign securities
exchanges, and this may cause higher brokerage expenses to accrue to a Fund that
invests in foreign securities than would be the case for comparable transactions
effected on U.S. securities exchanges.
Subject to the Funds' policy of obtaining the best price consistent with quality
of execution of transactions, each investment adviser may employ broker-dealer
affiliates of the investment adviser (collectively "Affiliated Brokers") to
effect brokerage transactions for the Funds. The Fund's payment of commissions
to Affiliated Brokers is subject to procedures adopted by the Board or the Core
Boards, to provide that the commissions will not exceed the usual and customary
broker's commissions charged by unaffiliated brokers. No specific portion of a
Fund's brokerage will be directed to Affiliated Brokers and in no event will a
broker affiliated with the investment adviser directing the transaction receive
brokerage transactions in recognition of research services provided to the
adviser. The investment advisers may effect transactions for the Funds (or the
Portfolios) through brokers who sell Fund shares. The Funds have no obligation
to deal with any specific broker or dealer in the execution of portfolio
transactions.
The frequency of portfolio transactions of a Fund (the portfolio turnover rate)
will vary from year to year depending on many factors. From time to time a Fixed
Income Fund or Tax-Free Fixed Income Fund may engage in active short-term
trading to take advantage of price movements affecting individual issues, groups
of issues or markets. The Funds' portfolio turnover is reported under "Financial
Highlights." Norwest anticipates that the annual portfolio turnover rate of
Limited Term Government Income Fund, Minnesota Intermediate Tax-Free Fund,
Aggressive Balanced-Equity Fund and Diversified Small Cap Fund will be less than
100% in their first year of operations. An annual portfolio turnover rate of
100% would occur if all of the securities in a Fund were replaced once in a
period of one year. Higher portfolio turnover rates may result in increased
brokerage costs to a Fund or a Portfolio and a possible increase in short-term
capital gains or losses.
YEAR 2000 COMPLIANCE. Like other mutual funds, financial and other business
organizations and individuals around the world, the Funds could be adversely
affected if the computer systems used by the Adviser and other service providers
to the Funds do not properly process and calculate date-related information and
data from and after January 2000. The Adviser has taken steps to address the
Year 2000 issue with respect to the computer systems that it uses and to obtain
reasonable assurances that comparable steps are being taken by the Funds' other
major service providers. The Adviser does not anticipate that the arrival of the
Year 2000 will have a material impact on its ability to continue to provide the
Funds with service at current levels.
5. MANAGEMENT OF THE FUNDS
The business of the Trust is managed under the direction of the Board of
Trustees, and the business of each Core Portfolio is managed under the direction
of that investment company's Core Board. The Board formulates the general
policies of the Funds and meets periodically to review the results of the Funds,
monitor investment activities and practices and discuss other matters affecting
the Funds and the Trust. The Board consists of eight persons.
INVESTMENT ADVISORY SERVICES
NORWEST INVESTMENT MANAGEMENT. Subject to the general supervision of the Board,
Norwest Investment Management, Inc. makes investment decisions for the Funds and
continuously reviews, supervises and administers each Fund's investment program
or oversees the investment decisions of the investment subadvisers, as
applicable. Norwest provides its investment advisory services indirectly to each
Fund that operates in a Core and Gateway Structure (other than Schroder U.S.
Smaller Companies Portfolio, Schroder EM Core Portfolio and International
Portfolio) through its investment advisory services of the Core Portfolios. In
addition, subject to the general supervision of the Board, Norwest continuously
reviews and
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determines the allocation of the assets of Diversified Bond Fund, Strategic
Income Fund, Moderate Balanced Fund, Growth Balanced Fund, Aggressive
Balanced-Equity Fund, Diversified Equity Fund, Growth Equity Fund, Diversified
Small Cap Fund and International Fund among the various investment styles and
Core Portfolios in which those Funds invest. 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.
SMALL CAP OPPORTUNITIES FUND AND INTERNATIONAL FUND. Subject to the general
supervision of the Core Boards, Schroder Capital Management International Inc.
makes investment decisions for Schroder U.S. Smaller Companies Portfolio,
International Portfolio and Schroder EM Core Portfolio and continuously reviews,
supervises and administers those Portfolio's investment programs.
INVESTMENT SUBADVISERS. To assist Norwest in carrying out its obligations,
certain of the Core Portfolios and Norwest, and Contrarian Stock Fund and
Norwest, have retained the services of the Subadvisers as follows:
<TABLE>
<CAPTION>
INVESTMENT
SUBADVISER
FUND CORE PORTFOLIO(S) OF CORE PORTFOLIO
- --------------------------------------------- --------------------------------------------- --------------------
<S> <C> <C>
Stable Income Fund Stable Income Portfolio Galliard
Diversified Bond Fund Positive Return Bond Portfolio Peregrine
Strategic Value Bond Portfolio Galliard
Managed Fixed Income Portfolio Galliard
Total Return Bond Fund Strategic Value Bond Portfolio Galliard
Strategic Income Fund Stable Income Portfolio Galliard
Positive Return Bond Portfolio Peregrine
Strategic Value Bond Portfolio Galliard
Managed Fixed Income Portfolio Galliard
Large Company Growth Portfolio Peregrine
Disciplined Growth Portfolio Smith
Small Company Stock Portfolio Crestone
Small Company Growth Portfolio Peregrine
Small Company Value Portfolio Peregrine
Small Cap Value Portfolio Smith
Moderate Balanced Fund Stable Income Portfolio Galliard
Positive Return Bond Portfolio Peregrine
Strategic Value Bond Portfolio Galliard
Managed Fixed Income Portfolio Galliard
Large Company Growth Portfolio Peregrine
Disciplined Growth Portfolio Smith
Small Company Stock Portfolio Crestone
Small Company Growth Portfolio Peregrine
Small Company Value Portfolio Peregrine
Small Cap Value Portfolio Smith
</TABLE>
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<TABLE>
<CAPTION>
INVESTMENT
SUBADVISER
FUND CORE PORTFOLIO(S) OF CORE PORTFOLIO
- --------------------------------------------- --------------------------------------------- --------------------
Growth Balanced Fund Positive Return Bond Portfolio Peregrine
<S> <C> <C>
Strategic Value Bond Portfolio Galliard
Managed Fixed Income Portfolio Galliard
Large Company Growth Portfolio Peregrine
Disciplined Growth Portfolio Smith
Small Company Stock Portfolio Crestone
Small Company Growth Portfolio Peregrine
Small Company Value Portfolio Peregrine
Small Cap Value Portfolio Smith
Aggressive Balanced-Equity Fund Positive Return Bond Portfolio Peregrine
Strategic Value Bond Portfolio Galliard
Managed Fixed Income Portfolio Galliard
Large Company Growth Portfolio Peregrine
Disciplined Growth Portfolio Smith
Small Company Stock Portfolio Crestone
Small Company Growth Portfolio Peregrine
Small Company Value Portfolio Peregrine
Small Cap Value Portfolio Smith
Diversified Equity Fund Large Company Growth Portfolio Peregrine
Disciplined Growth Portfolio Smith
Small Company Stock Portfolio Crestone
Small Company Growth Portfolio Peregrine
Small Company Value Portfolio Peregrine
Small Cap Value Portfolio Smith
Growth Equity Fund Large Company Growth Portfolio Peregrine
Small Company Growth Portfolio Peregrine
Small Company Value Portfolio Peregrine
Small Company Stock Portfolio Crestone
Small Cap Value Portfolio Smith
Large Company Growth Fund Large Company Growth Portfolio Peregrine
Small Company Stock Fund Small Company Stock Portfolio Crestone
Small Company Growth Fund Small Company Growth Portfolio Peregrine
Diversified Small Cap Fund Small Company Stock Portfolio Crestone
Small Company Growth Portfolio Peregrine
Small Company Value Portfolio Peregrine
Small Cap Value Portfolio Smith
Contrarian Stock Fund N/A UCM
</TABLE>
Galliard, UCM, Peregrine, Crestone and Smith make investment decisions for the
Fund or Core Portfolios to which they act as investment subadviser and
continuously review, supervise and administer those Funds' or Core Portfolios'
investment programs with respect to that portion, if any, of the Fund's or
Portfolio's assets that Norwest believes should be managed by the Subadviser.
Currently, each Subadviser manages all of the assets of each Fund and Core
Portfolio that it subadvises. Norwest supervises the performance of each
Subadviser, including their adherence to the Funds' and Portfolios' investment
objectives and policies.
CRESTONE CAPITAL MANAGEMENT, INC. Crestone, which is located at 7720 East
Belleview Avenue, Suite 220, Englewood Colorado 80111, is an investment adviser
subsidiary of Norwest Bank. Crestone provides
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investment advice regarding companies with small market capitalization to
various clients, including institutional investors. As of June 30, 1997,
Crestone managed assets with a value of approximately $534 million.
GALLIARD CAPITAL MANAGEMENT, INC. Galliard, which is located at 800 LaSalle
Avenue, Suite 2060, Minneapolis, Minnesota 55479, is an investment advisory
subsidiary of Norwest Bank. Galliard provides investment advisory services to
bank and thrift institutions, pension and profit sharing plans, trusts and
charitable organizations and corporate and other business entities. As of June
30, 1997 Galliard managed approximately $3.1 billion in assets.
PEREGRINE CAPITAL MANAGEMENT, INC. Peregrine, which is located at LaSalle Plaza,
800 LaSalle Avenue, Suite 1850, Minneapolis, Minnesota 55402, is an investment
adviser subsidiary of Norwest Bank. Peregrine provides investment advisory
services to corporate and public pension plans, profit sharing plans, savings-
investment plans and 401(k) plans. As of June 30, 1997 Peregrine managed
approximately $5.0 billion in assets.
SCHRODER CAPITAL MANAGEMENT INTERNATIONAL, INC. Schroder, whose principal
business address is 787 Seventh Avenue, New York, New York 10019, is a wholly
owned U.S. subsidiary of Schroders Incorporated (doing business in New York
State as Schroders Holdings), the wholly owned U.S. holding company subsidiary
of Schroders plc. Schroders plc is the holding company parent of a large
worldwide group of banks and financial services companies (referred to as the
"Schroder Group"), with associated companies and branch and representative
offices located in eighteen countries worldwide. The Schroder Group specializes
in providing investment management services and as of June 30, 1997 had assets
under management in excess of $175 billion.
SMITH ASSET MANAGEMENT GROUP, L.P. Smith Group, whose principal business address
is 500 Crescent Court, Suite 250, Dallas, Texas 75201 is a registered investment
adviser. Smith Group provides investment management services to company
retirement plans, foundations, endowments, trust companies, and high net worth
individuals using a disciplined equity style. As of June 13, 1997, the Smith
Group managed over $200 million in assets.
UNITED CAPITAL MANAGEMENT. UCM, which is located at 1700 Lincoln Street, Suite
3301, Denver, Colorado 80274, is a division of Norwest Bank Colorado, N.A., a
subsidiary of Norwest Corporation. UCM provides specialized investment advisory
services to various institutional pension accounts. As of June 30, 1997 UCM
managed over $2 billion in assets.
PORTFOLIO MANAGERS. Many persons on the advisory staffs of Norwest, Schroder and
each Subadviser contribute to the investment services provided to the Funds and
the Core Portfolios. The following persons, however, are primarily responsible
for day-to-day management and, unless otherwise noted, have been since the
inception of the Fund or Portfolio. For periods prior to June 1, 1997, all
persons associated with Norwest served in their current positions with Norwest
Bank. Prior to that date, Norwest Bank was each Fund's investment adviser. 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.
CASH INVESTMENT FUND/READY CASH INVESTMENT FUND/MONEY MARKET PORTFOLIO/PRIME
MONEY MARKET PORTFOLIO - David D. Sylvester and Laurie R. White. Mr.
Sylvester has been associated with Norwest 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 since 1991; from 1989 to
1991, she was a Portfolio Manager at Richfield Bank and Trust. Ms. White
began serving as a portfolio manager of Cash Investment Fund and Ready Cash
Investment Fund in 1991.
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U.S. GOVERNMENT FUND - David D. Sylvester and Laurie R. White. For a
description of Mr. Sylvester and Ms. White, see "Cash Investment Fund/Ready
Cash Investment Fund." Ms. White began serving as a portfolio manager of the
Fund in 1991.
TREASURY FUND - David D. Sylvester and Laurie R. White. For a description of
Mr. Sylvester and Ms. White, see "Cash Investment Fund/Ready Cash Investment
Fund." Ms. White began serving as a portfolio manager of the Fund in 1991.
MUNICIPAL MONEY MARKET FUND - David D. Sylvester. For a description of Mr.
Sylvester, see "Cash Investment Fund/Ready Cash Investment Fund."
STABLE INCOME FUND/STABLE INCOME PORTFOLIO - Karl P. Tourville. Mr.
Tourville has been a principal of Galliard since 1995. He has been
associated with Norwest and its affiliates since 1986, most recently as Vice
President and Senior Portfolio Manager of Norwest Bank.
LIMITED TERM GOVERNMENT INCOME FUND AND INTERMEDIATE GOVERNMENT INCOME FUND
- Marjorie H. Grace, CFA. Ms. Grace has been a Vice President of Norwest
since 1992. Ms. Grace was a portfolio manager of Norwest Bank from
1992-1993; an Institutional Salesperson with Norwest Investment Services,
Inc. from 1991-1992; a portfolio manager with United Banks of Colorado from
1989-1991; and Vice President and portfolio manager with Colombia Savings
and Loan from 1987-1989.
DIVERSIFIED BOND FUND - The day-to-day management of the Fund, with respect
to the portion of the Fund's assets that is invested in a particular Core
Portfolio, is performed by the portfolio managers listed for the Core
Portfolio.
INCOME FUND - Ms. Marjorie H. Grace, CFA. For a description of Ms. Grace,
see "Intermediate Government Income Fund." Ms. Grace has served as a
portfolio manager for the Fund since May 1995.
TOTAL RETURN BOND FUND/STRATEGIC VALUE BOND PORTFOLIO - The investment
management team of Richard Merriam, John Huber and David Yim at Galliard
Capital Management. Mr. Merriam, CFA, has been a Principal in the firm since
1995 and is responsible for Galliard's investment process and strategy.
Prior to joining Galliard, Mr. Merriam was Chief Investment Officer of
Insight Investment Management. Prior thereto, he served as a Senior Vice
President at Washington Square Capital where he oversaw management of nearly
$5.0 billion in assets. He obtained a B.A. from the University of Michigan
and an M.B.A. from the University of Minnesota. Mr. Huber has been a
Portfolio Manager and Director of Trading at Galliard since 1995 and has
been actively involved in the management of the Trust's Stable Income Fund
and the Diversified Bond Fund. He has over seven years' investment
management experience and has obtained a B.A. from the University of Iowa
and an M.B.A. from the University of Minnesota. Mr. Yim has been a Portfolio
Manager and Director of Investment Research since 1995. Prior to joining
Galliard, he worked for American Express Financial Advisors for 6 years,
most recently as a Research Analyst focusing on the Insurance and Finance
Industries. He obtained a B.A. from Middlebury College and an M.B.A. from
the University of Minnesota.
LIMITED TERM TAX-FREE FUND - Mr. William T. Jackson, CFA. Mr. Jackson has
been a Vice President of Norwest since 1993. Prior thereto, Mr. Jackson was
a Senior Vice President and Institutional Sales Manager with Norwest
Investment Services from 1992-1993; a Vice President and Municipal Bond
Trading Manager from 1991-1992; and a Vice President and Municipal Bond
Trader with Kemper Securities, Inc., from 1984-1991.
TAX-FREE INCOME FUND - Mr. William T. Jackson, CFA. For a description of Mr.
Jackson, see "Limited Term Tax-Free Fund." Mr. Jackson has served as
portfolio manager of the Fund since 1993.
COLORADO TAX-FREE FUND - Mr. William T. Jackson, CFA. For a description of
Mr. Jackson, see "Limited Tax-Free Income Fund." Mr. Jackson has served as
portfolio manager of the Fund since July 1995.
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<PAGE>
MINNESOTA INTERMEDIATE TAX-FREE FUND AND MINNESOTA TAX-FREE FUND - Ms.
Patricia D. Hovanetz, CFA. Ms. Hovanetz, a Vice President of Norwest, has
been associated with Norwest for more than 25 years in various capacities
related to municipal bond investments. Ms. Hovanetz has been a municipal
bond fund portfolio manager since 1988 and has served as portfolio manager
of the Fund since 1991.
STRATEGIC INCOME FUND, MODERATE BALANCED FUND, GROWTH BALANCED FUND AND
AGGRESSIVE BALANCED-EQUITY FUND - The day-to-day management of each Fund,
with respect to the portion of the Fund's assets that is invested in a
particular Core Portfolio, is performed by the portfolio managers listed for
the Core Portfolio.
INDEX FUND/INDEX PORTFOLIO - David D. Sylvester and Laurie R. White. Mr.
Sylvester and Ms. White began serving as portfolio managers of Index
Portfolio in January, 1996. For a description of Mr. Sylvester and Ms.
White, see "Cash Investment Fund/Ready Cash Investment Fund."
INCOME EQUITY FUND /INCOME EQUITY PORTFOLIO - David L. Roberts, CFA. Mr.
Roberts has been a Senior Vice President of Norwest since 1991. Mr. Roberts
has been associated with Norwest and its affiliates for over 20 years in
various investment related capacities.
VALUGROWTH STOCK FUND - Mr. David S. Lunt, CFA. Mr. Lunt is a Vice President
of Norwest and has been associated with Norwest and its affiliates since
1992. Prior thereto he was a portfolio manager for FirsTier Bank and a
securities analyst for Woodmen Accident and Life Company. Mr. Lunt began
serving as portfolio manager of ValuGrowth Stock Fund in February, 1996.
DIVERSIFIED EQUITY FUND AND GROWTH EQUITY FUND - The day-to-day management
of each Fund, with respect to the portion of the Fund's assets that is
invested in a particular Core Portfolio, is performed by the portfolio
managers listed for the Core Portfolio.
LARGE COMPANY GROWTH FUND /LARGE COMPANY GROWTH PORTFOLIO - John S. Dale,
CFA. Mr. Dale is a Senior Vice President of Peregrine. Mr. Dale has held
various investment management positions with Norwest, Peregrine and their
affiliates since 1968.
DIVERSIFIED SMALL CAP FUND - The day-to-day management of the Fund, with
respect to the portion of the Fund's assets that is invested in a particular
Core Portfolio, is performed by the portfolio managers listed for the Core
Portfolio.
SMALL COMPANY STOCK FUND /SMALL COMPANY STOCK PORTFOLIO - Kirk McCown, CFA.
Mr. McCown is founder, President and a Director of Crestone, which was
incorporated in 1990.
SMALL COMPANY GROWTH FUND/SMALL COMPANY GROWTH PORTFOLIO - Robert B. Mersky,
CFA and Paul E. von Kuster, CFA. Mr. Mersky is the President of Peregrine
Capital Management, Inc. Mr. Mersky has held various investment management
positions with Norwest, Peregrine and their affiliates since 1977. From 1980
to 1984 he was head of investments for Norwest Bank. Mr. von Kuster is a
Senior Vice President of Peregrine. Mr. von Kuster has held various
investment management positions with Peregrine, Norwest and their affiliates
since 1972.
SMALL CAP OPPORTUNITIES FUND/SCHRODER U.S. SMALLER COMPANIES PORTFOLIO - Ms.
Fariba Talebi. Ms. Talebi is a Group Vice President of Schroder, with the
assistance of a small cap investment team is primarily responsible for the
day-to-day management of the Portfolio's investments. Ms. Talebi has been
employed by Schroder in the investment research and portfolio management
areas since 1987.
CONTRARIAN STOCK FUND - Mr. W. Lon Schreur, CFA. Mr. Schreur is the
President of UCM, a position he has held for sixteen years.
INTERNATIONAL FUND - The day-to-day management of the Fund, with respect to
the portion of the Fund's assets that is invested in a particular Core
Portfolio, is performed by the portfolio managers listed for the Core
Portfolio.
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<PAGE>
POSITIVE RETURN BOND PORTFOLIO - William D. Giese, CFA. Mr. Giese is a
Senior Vice President of Peregrine. Mr. Giese has been a portfolio manager
of Peregrine over ten years and has over 20 years experience in fixed income
securities management.
MANAGED FIXED INCOME PORTFOLIO - Richard Merriam. Mr. Merriam has been a
principal of Galliard since 1995. Prior thereto, he was the Chief Investment
Officer of Insight Investment Management and prior thereto was associated
with Washington Square Capital.
DISCIPLINED GROWTH PORTFOLIO - Stephen S. Smith, CFA. Mr. Smith is the Chief
Investment Officer for Smith Group and is a principal in the firm. He has
held this position since November, 1995. Prior thereto, Mr. Smith served as
senior portfolio manager with NationsBank where he managed approximately $1
billion of client assets. At NationsBank, Mr. Smith held a variety of
management positions including manager of the institutional asset management
group, manager of the disciplined equity style and member of the Investment
Policy Committee. At NationsBank he also served as sub-adviser for a
portfolio of AIM Management Company's Summit Fund. His educational
background includes a B.S. in Industrial Engineering and an M.B.A., both
received from the University of Alabama. He was awarded the Chartered
Financial Analyst (CFA) designation in 1981.
SMALL CAP INDEX PORTFOLIO - David D. Sylvester and Laurie R. White. For a
description of Mr. Sylvester and Ms. White, see "Cash Investment Fund/Ready
Cash Investment Fund."
SMALL COMPANY VALUE PORTFOLIO - Tasso H. Coin, Jr. Mr. Coin has been a
Senior Vice President of Peregrine since 1995. From 1992 to 1995 he was a
research officer at Lord Asset Management, an investment adviser and prior
thereto was associated with Morgan Stanley Asset Management.
SMALL CAP VALUE PORTFOLIO - Stephen S. Smith, CFA. Mr. Smith is the Chief
Investment Officer for Smith Group and is a principal in the firm. He has
held this position since November, 1995. Prior thereto, Mr. Smith served as
senior portfolio manger with NationsBank where he managed approximately $1
billion of client assets. At NationsBank, Mr. Smith held a variety of
management positions including manager of the institutional asset management
group, manager of the disciplined equity style used in a mutual fund and
member of the Investment Policy Committee. At NationsBank he also served as
sub-adviser for an identified segment in the disciplined equity style for an
unaffiliated mutual fund.
INTERNATIONAL PORTFOLIO - Michael Perelstein, a Senior Vice President of
Schroder, with the assistance of an SCMI investment committee, are primarily
responsible for the day-to-day management of the Portfolio's investment
portfolio. Mr. Perelstein has been a Senior Vice President of Schroder since
January 2, 1997. Prior thereto, Mr. Perelstein was a Managing Director at
MacKay Shields. Mr. Perelstein has more than twelve years of international
and global investment experience. Since January 1997, Mr. Perelstein has
served as portfolio manager of International Portfolio.
SCHRODER EM CORE PORTFOLIO - John A. Troiano, a Vice President of Schroder
Capital Funds (Delaware) and Schroder Core, assisted by the management team
of Heather Crighton and Mark Bridgeman, are responsible for the day-to-day
management of the investment portfolio. Mr. Troiano, Chief Executive Officer
of Schroder since April 1, 1997, has been a Managing Director of Schroder
since October 1995 and has been employed by various Schroder Group companies
in the investment research and portfolio management areas since 1981. Ms.
Crighton is a Vice President of Schroder and has been employed by various
Schroder Group companies in the investment research and portfolio management
areas since 1992. Mr. Bridgeman, also a Vice President of Schroder has been
employed by various Schroder Group companies in the investment research and
portfolio management areas since 1990.
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<PAGE>
ADVISORY FEES. For their services, Norwest and Schroder receive investment
advisory fees from the Funds (or to the extent a Fund invests in a single Core
Portfolio, from that Core Portfolio) at the following annual rates of the Fund's
or Portfolio's average daily net assets.
<TABLE>
<CAPTION>
FUND INVESTMENT ADVISORY FEE
- ---------------------------------------------------------------------- ------------------------------------------
<S> <C>
Cash Investment Fund
(Prime Money Market Portfolio) 0.40% (first $300 million of assets)
0.36% (next $400 million of assets)
0.32% (remaining assets)
(Money Market Portfolio) 0.20% (first $300 million of assets)
0.16% (next $400 million of assets)
0.12% (remaining assets)
Ready Cash Investment Fund
(Prime Money Market Portfolio) 0.40% (first $300 million of assets)
0.36% (next $400 million of assets)
0.32% (remaining assets)
U.S. Government Fund and Treasury Fund 0.20% (first $300 million of assets)
0.16% (next $400 million of assets)
0.12% (remaining assets)
Municipal Money Market Fund 0.35% (first $500 million of assets)
0.325% (next $500 million of assets)
0.30% (remaining assets)
Stable Income Fund (Stable Income Portfolio) 0.30%
Limited Term Government Income Fund 0.33%
Intermediate Government Income Fund 0.33%
Income Fund 0.50%
Total Return Bond Fund (Strategic Value Bond Portfolio) 0.50%
Limited Term Tax-Free Fund 0.50%
Tax-Free Income Fund 0.50%
Colorado Tax-Free Fund and Minnesota Tax-Free Fund 0.50% (first $300 million of assets)
0.46% (next $400 million of assets)
0.42% (remaining assets)
Minnesota Intermediate Tax-Free Fund 0.25%
Index Fund (Index Portfolio) 0.15%
Income Equity Fund (Income Equity Portfolio) 0.50%
ValuGrowth Stock Fund 0.80% (first $300 million of assets)
0.76% (next $400 million of assets
0.72% (remaining assets)
Large Company Growth Fund
(Large Company Growth Portfolio) 0.65%
Small Company Stock Fund
(Small Company Stock Portfolio) 0.90%
Small Company Growth Fund
(Small Company Growth Portfolio) 0.90%
Small Cap Opportunities Fund
(Schroder U.S. Smaller Companies Portfolio) 0.60%
Contrarian Stock Fund 0.80% (first $300 million of assets)
0.76% (next $400 million of assets)
0.72% (remaining assets)
</TABLE>
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<PAGE>
With respect to Diversified Bond Fund, Strategic Income Fund, Moderate Balanced
Fund, Growth Balanced Fund, Aggressive Balanced-Equity Fund, Diversified Equity
Fund, Growth Equity Fund, Diversified Small Cap Fund and International Fund,
Norwest is entitled to receive investment advisory fees for its Asset Allocation
Services at an annual rate of 0.25% of each Fund's average daily net assets. In
addition, each Fund bears an investment advisory fee at a blended rate based on
the investment advisory fee of the Core Portfolios in which the Fund invests.
Norwest and Schroder receive investment advisory fees from the Core Portfolios
at the following annual rates of the Portfolios' average daily net assets. The
total fee payable by a Fund through its investments in Core Portfolios will vary
based on the percentage of its assets invested in each Core Portfolio.
<TABLE>
<CAPTION>
FUND OR CORE PORTFOLIO INVESTMENT ADVISORY FEE
- ------------------------------------------------------------------------ ----------------------------------------
<S> <C>
Money Market Portfolio 0.20% (first $300 million of assets)
0.16% (next $400 million of assets)
0.12% (remaining assets)
Stable Income Portfolio 0.30%
Positive Return Bond Portfolio 0.35%
Strategic Value Bond Portfolio 0.50%
Managed Fixed Income Portfolio 0.35%
Index Portfolio 0.15%
Income Equity Portfolio 0.50%
Large Company Growth Portfolio 0.65%
Disciplined Growth Portfolio 0.90%
Small Cap Index Portfolio 0.25%
Small Company Stock Portfolio 0.90%
Small Company Growth Portfolio 0.90%
Small Company Value Portfolio 0.90%
Small Cap Value Portfolio 0.95%
International Portfolio 0.45%
Schroder EM Core Portfolio 1.00%
</TABLE>
Norwest (and not the Funds or Core Portfolios) pays each Subadviser a fee for
their investment subadvisory services. This compensation does not increase the
amount paid by the Funds or Core Portfolios to Norwest for investment advisory
services.
Each Fund investing its assets in one or more Core Portfolios may withdraw its
investments from its corresponding Core Portfolio(s) at any time if the Board
determines that it is in the best interests of the Fund to do so. (See "Other
Information - Core and Gateway Structure.") Accordingly, each of these Funds has
retained Norwest as its investment adviser. Similarly, in the event that a Fund
withdraws its investment from a Core Portfolio, to the extent the Fund invested
in a Core Portfolio advised by Schroder or a Subadviser, the Fund has retained
Schroder and that Subadviser as an investment subadviser (except that Total
Return Bond Fund has not retained Galliard). Under these "dormant" investment
advisory arrangements, none of Norwest, Schroder or any Subadviser receives any
advisory fees with respect to a Fund as long as the Fund remains completely
invested in its respective Core Portfolio(s) or any other investment companies.
In the event that Stable Income Fund, Total Return Bond Fund, Index Fund, Income
Equity Fund, Large Company Growth Fund, Small Company Stock Fund, Small Company
Growth Fund or Small Cap Opportunities Fund were to withdraw their assets from
their respective Core Portfolio, Norwest would receive an investment advisory
fee at an annual rate of 0.30%, 0.35%, 0.15%, 0.50%, 0.65%, 0.90%, 0.90% and
0.925% of the Funds' average daily net assets, respectively. Similarly, to the
extent Diversified Bond Fund, Strategic Income Fund, Moderate Balanced Fund,
Growth Balanced Fund, Aggressive Balanced-Equity Fund, Diversified Equity Fund,
Growth Equity Fund, Diversified Small Cap Fund or International Fund
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<PAGE>
were to withdraw any or all of their assets from their respective Core
Portfolios, Norwest would receive an investment advisory fee on the withdrawn
assets at an annual rate of 0.35%, 0.48%, 0.53%, 0.58%, 0.63%, 0.65%, 0.90%,
0.90% and 0.85% of the Funds' average daily net assets, respectively. To the
extent Cash Investment Fund was to withdraw any or all of its assets from its
respective Core Portfolios, Norwest would receive an investment advisory fee at
the annual rate equal to that paid by Money Market Portfolio. To the extent
Ready Cash Investment Fund was to withdraw any or all of its assets from its
respective Core Portfolio, Norwest would receive an investment advisory fee at
the rate equal to that paid by Prime Money Market Portfolio. Pursuant to the
Funds' dormant investment subadvisory agreement, Norwest (and not the Funds)
would pay Schroder and each Subadviser, as applicable, a fee for its investment
subadvisory services.
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 Funds by others. 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, prospectuses and
statements of additional information, the Trust's tax returns, and reports to
its shareholders, the SEC and state securities administrators; (2) preparing
proxy and information statements and any other communications to shareholders;
(3) monitoring the sale of shares and ensuring that such shares are properly and
duly registered with the SEC and applicable state securities administrators; and
(4) supervising the declaration of dividends and distributions to shareholders.
As of December 1, 1997, Forum and FAS provided management and administrative
services to registered investment companies and collective investment funds with
assets of approximately $30 billion. Forum is a member of the National
Association of Securities Dealers, Inc. For their services, Forum and FAS each
receives a fee with respect to U.S. Government Fund, Treasury Fund,
Institutional Shares of Municipal Money Market Fund, Limited Term Government
Income Fund, Intermediate Government Income Fund, Income Fund, each Tax-Free
Fixed Income Fund, ValuGrowth Stock Fund, Contrarian Stock Fund and
International Fund at an annual rate of 0.05% of the Fund's (of class') average
daily net assets, with respect to Investor Shares of Municipal Money Market Fund
at an annual rate of 0.10% of the class' average daily net assets, with respect
to Investor Shares of Ready Cash Investment Fund at an annual rate of 0.075% of
the class' average daily net asset, and with respect to each other Fund at an
annual rate of 0.025% of the Fund's average daily net assets.
FAS also serves as an administrator of each Core Portfolio (except Schroder U.S.
Smaller Companies Portfolio and Schroder EM Core Portfolio) and provides
services to the Core Portfolios that are similar to those provided to the Funds
by Forum and FAS. For its services FAS receives a fee with respect to each Core
Portfolio (other than Schroder U.S. Smaller Companies Portfolio and Schroder EM
Core Portfolio) at an annual rate of 0.05% of the Portfolio's average daily net
assets (0.15% in the case of International Portfolio). Schroder Advisors Inc.
("Schroder Advisors") serves as the administrator of Schroder U.S. Smaller
Companies Portfolio and Schroder EM Core Portfolio and FAS serves as the
subadministrator of those Portfolios. Schroder Advisors and FAS provide certain
management and administrative services necessary for the Portfolios' operations,
other than the administrative services provided to the Portfolios by Schroder.
For their services, Schroder Advisors receives no fee from Schroder U.S. Smaller
Companies Portfolio and 0.075% from Schroder EM Core Portfolio and FAS receives
a fee at an annual rate of 0.10% of each Portfolio's average daily net assets.
In addition, pursuant to a separate agreement, Norwest receives a fee with
respect to Small Cap Opportunities Fund and International Fund at an annual rate
of 0.25% of the Funds' average daily net assets. Under
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<PAGE>
this agreement, Norwest is responsible for compiling data and preparing
communications between the Fund and its shareholders, maintaining requisite
information flows between the Fund and Schroder, monitoring and reporting to the
Board on the performance of the applicable Core Portfolio and reimbursing the
Fund for certain excess expenses. No fees are payable under this agreement if
the Fund is not completely invested in a Core Portfolio. Small Cap Opportunities
Fund and International Fund incur total management and administrative fees at a
higher rate than many other mutual funds, including other funds of the Trust.
Pursuant to a separate agreement, Forum Accounting Services, LLC ("Forum
Accounting") provides portfolio accounting services to each Fund and to each
Core Portfolio. Forum, FAS, and Forum Accounting are members of the Forum
Financial Group of companies which together provide a full range of services to
the investment company and financial services industry. As of April 1, 1998,
Forum, FAS and Forum Accounting were controlled by John Y. Keffer, President and
Chairman of the Trust.
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 Funds. None of the
Funds has adopted a plan of distribution applicable to the Shares.
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 each Fund at an annual rate of 0.25% of each Fund's average
daily net assets attributable to each class of the Fund (0.20% in the case of
Cash Investment Fund and 0.10% in the case of Municipal Money Market Fund -
Institutional Shares).
Norwest Bank also serves as each Fund's and each Core Portfolio's (other than
Schroder U.S. Smaller Companies Portfolio and Schroder EM Core Portfolio)
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 each Fund and each Core Portfolio at an annual
rate of 0.02% of the first $100 million of the Fund's or Core Portfolio's
average daily net assets, 0.015% of the next $100 million of the Fund's or Core
Portfolio's average daily net assets and 0.01% of the Fund's or Core Portfolio's
remaining average daily net assets. No fee is directly payable by a Fund to the
extent the Fund is invested in a Core Portfolio. With respect to International
Portfolio, Norwest receives a fee at an annual rate of 0.075% of the Portfolio's
average daily net assets. The Chase Manhattan Bank, N.A. serves as custodian of
Schroder U.S. Smaller Companies Portfolio and Schroder EM Core Portfolio and is
paid a fee for its services.
EXPENSES OF THE FUNDS
Subject to the obligation of Norwest to reimburse the Trust for certain expenses
of the Funds, the Trust has confirmed its obligation to pay all the Trust's
expenses. The Funds' expenses include Trust expenses attributable to the Funds,
which are allocated to each Fund, and expenses not specifically attributable to
the Funds, which are allocated among the Funds and all other funds of the Trust
in proportion to their average net assets. Each service provider to a Fund may
elect to waive (or continue to waive) all or a portion of their
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<PAGE>
fees, which are accrued daily and paid monthly. Any such waivers will have the
effect of increasing a Fund's performance for the period during which the waiver
is in effect. Fee waivers are voluntary and may be reduced or eliminated at any
time.
Each Fund bears all costs of its operations. The costs borne by the Funds
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 net assets of each series.
Norwest has agreed to waive its investment advisory fee for Money Market
Portfolio through May 31, 1999 to the extent that the fee exceeds an annual rate
of 0.10% of the Portfolio's average daily net assets. In addition, Norwest and
Forum have agreed to waive their respective fees or reimburse expenses in order
to maintain Cash Investment Fund's total combined operating expenses through May
31, 1999 at the same level as the Fund's total operating expenses prior to May
31, 1997 (0.48%). Any reduction or elimination of the Waiver, however, would
require Board approval (and notice to shareholders), which would be given only
if the Board determined that the amount of the fees to be paid to Norwest or
Forum after the reduction or elimination would be fair and reasonable.
Norwest and Forum have agreed to waive their respective fees or reimburse
expenses in order to maintain each of Ready Cash Investment Fund's, Total Return
Bond Fund's and Small Company Stock Fund's total combined operating expenses
through May 31, 1998 at the same levels as the respective Fund's total operating
expenses prior to May 31, 1997 (0.82% in the case of Ready Cash Investment Fund
Investor Shares, 0.75% in the case of Total Return Bond Fund and 1.20% in the
case of Small Company Stock Fund). After May 31, 1998, any proposed reduction in
the amount of those waivers and reimbursements would be reviewed by the Board.
Norwest and Forum have agreed to waive their respective fees through May 31,
1999 in order to ensure that the fees borne by each of Diversified Bond Fund,
Strategic Income Fund, Moderate Balanced Fund, Growth Balanced Fund, Diversified
Equity Fund and Growth Equity Fund for investment advisory, administrative and
management services would not exceed in the aggregate 0.45%, 0.55%, 0.63%,
0.68%, 0.75% and 1.00%, respectively (the "Waiver"). After May 31, 1999, each
fund's aggregate payment for those services could increase if the Waiver was
reduced or eliminated. Any reduction or elimination of the Waiver, however,
would require Board approval (and notice to shareholders), which would be given
only if the Board determined that the amount of the fees to be paid to Norwest
or Forum after the reduction or elimination would be fair and reasonable.
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 a Fund. Under agreements with those customers, these
entities may elect to credit against the fees payable to them by their customers
or to rebate to customers all or a portion of any fee received from the Trust
with respect to assets of those customers invested in a Fund.
The expenses of each Fund that invest in one or more Core Portfolios include the
Fund's pro rata share of the expenses of the Core Portfolios in which the Fund
invests, which are borne indirectly by the Fund's shareholders.
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6. PURCHASES AND REDEMPTIONS OF SHARES
I Shares are offered to fiduciary, agency and custodial clients of bank trust
departments, trust companies and their affiliates. Institutional Shares and the
single class of shares offered by each of Cash Investment Fund, U.S. Government
Fund and Treasury Fund are designed primarily for institutional clients.
Investor Shares are offered to retail customers. Shares are continuously sold
and redeemed at a price equal to their net asset value next-determined after
acceptance of an order, or receipt of a redemption request, on every weekday
except customary national holidays (New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas) and Good Friday ("Fund Business Day").
GENERAL PURCHASE INFORMATION
Investments in the Funds may be made either through certain financial
institutions or by an investor directly. An investor who invests in a Fund
directly will be the shareholder of record. All transactions in the Funds'
shares are effected through the Transfer Agent, which accepts orders for
redemptions and for subsequent purchases only from shareholders of record and
new investors. Shareholders of record will receive from the Trust periodic
statements listing all account activity during the statement period. You must
pay for your shares in U.S. dollars by check or money order (drawn on a U.S.
bank), by bank or federal funds wire transfer, or by electronic bank transfer;
cash cannot be accepted.
When you sign your application for a new Fund account, you are certifying that
your Social Security or other taxpayer ID number is correct and that you are not
subject to backup withholding. If you violate certain federal income tax
provisions, the Internal Revenue Service can require the Funds to withhold 31%
of your distributions and redemptions.
Shares of each Fund are offered without a sales charge and may be redeemed
without charge. The minimum investment in Investor Shares and I Shares is
$1,000; the minimum subsequent investment in Investor Shares and I Shares is
$100. The minimum investment amount in Institutional Shares and for Shares of
Cash Investment Fund, U.S. Government Fund and Treasury Fund is $100,000 and
there is no minimum subsequent investment for those shares. Shareholders who
elect to purchase Investor Shares or I Shares through electronic share purchase
privileges such as the Automatic Investment Plan or the Directed Dividend Option
are not subject to the initial investment minimums. (See "Purchases and
Redemptions of Shares - Shareholder Services - Automatic Investment Plan" and
"Dividends, Distributions and Tax Matters.")
Shares of the Funds become entitled to receive dividends on the next Fund
Business Day after a purchase or order for the Shares is accepted, except that
Shares of the Money Market Funds become entitled to receive dividends on the
Fund Business Day that a purchase order is accepted. With respect to the Money
Market Funds, an investor's order will not be accepted or invested by a Fund
during the period before the Fund's receipt of immediately available funds. For
the Money Market Funds, purchase and redemption orders will be accepted on Fund
Business Days only until the times indicated below.
<TABLE>
<CAPTION>
Order Must Be Payment Must Be
Money Market Fund Received By Received By
- ---------------------------------------------------------- -------------- ----------------
<S> <C> <C>
Cash Investment Fund 3:00 p.m. 4:00 p.m.
Ready Cash Investment Fund 3:00 p.m. 4:00 p.m.
U.S. Government Fund 2:00 p.m. 4:00 p.m.
Treasury Fund 1:00 p.m. 4:00 p.m.
Municipal Money Market Fund 12:00 p.m. 4:00 p.m.
</TABLE>
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<PAGE>
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 Money Market Funds 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 a Fund's trading hours.
The Funds reserve the right to reject any subscription for the purchase of their
shares. Share certificates are issued only to shareholders of record upon their
written request and no certificates are issued for fractional shares.
PURCHASE PROCEDURES
Investors may obtain the account application form necessary to open an account
by writing the Trust at the following address:
Norwest Funds
[Name of Fund]
Norwest Bank Minnesota, N.A.
Transfer Agent
733 Marquette Avenue
Minneapolis, MN 55479-0040
To participate in shareholder services not referenced on the account application
form and to change information on a shareholder's account (such as addresses),
investors or existing shareholders should contact the Trust. The Trust reserves
the right in the future to modify, limit or terminate any shareholder privilege
upon appropriate notice to shareholders and to charge a fee for certain
shareholder services, although no such fees are currently contemplated. Any
privilege and participation in any program may be terminated by the shareholder
at any time by writing to the Trust.
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 Funds" or to
one or more owners of that account and endorsed to Norwest 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 a Fund must be made payable on its face to "Norwest Funds."
No other method of payment by check will be accepted.
BY BANK WIRE. To make an initial investment in a Fund using the wire system for
transmittal of money among banks, an investor should first telephone the
Transfer Agent at (612) 667-8833 or (800) 338-1348 to obtain an account number.
The investor should then instruct a bank to wire the investor's money
immediately to:
Norwest Bank Minnesota, N.A.
A091 000 019
For Credit to: Norwest Funds 0844-131
Re: [Name of Fund][Name of Shares if applicable]
Account No.:
Account Name:
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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 Funds.
Investors who purchase shares through a Processing Organization will be subject
to the procedures of their Processing Organization, which may include charges,
limitations, investment minimums, cutoff times and restrictions in addition to,
or different from, those applicable to shareholders who invest in a Fund
directly. These investors should acquaint themselves with their institution's
procedures and should read this Prospectus in conjunction with any materials and
information provided by their institution. Customers who purchase a Fund's
shares through a Processing Organization may or may not be the shareholder of
record and, subject to their institution's and the 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 acceptance by the Transfer Agent of the redemption order in
proper form (and any supporting documentation which the Transfer Agent may
require). Redeemed shares are not entitled to receive dividends after the day on
which the redemption is effective, except that Shares of the Money Market Funds
are not entitled to receive dividends on the day on with the redemption is
effective. For the Money Market Funds, redemption orders are accepted up to the
times 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 Money Market Funds must receive purchase or redemption
orders. (See "Purchase and Redemption of Shares - General Purchase
Information.")
Normally, redemption proceeds are paid immediately, but in no event later than
seven days, following acceptance of a redemption order. Proceeds of redemption
requests (and exchanges), however, will not be 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
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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 Funds against fraud, signatures on certain
requests must have a signature guarantee. Requests must be made in writing and
include a signature guarantee for any of the following transactions: (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) instruction regarding an Automatic Investment Plan or Automatic Withdrawal
Plan; (5) dividend and distribution election; (6) telephone redemption; (7)
exchange option election or any other option election in connection with the
shareholder's account; (8) written instruction to redeem Shares whose value
exceeds $50,000; (9) redemption in an account in which the account address has
changed within the last 30 days; (10) redemption when the proceeds are deposited
in a Norwest Funds account under a different account registration; and (11) the
remitting of redemption proceeds to any address, person or account for which
there are not established standing instructions on the account.
Signature guarantees may be provided by any bank, broker-dealer, national
securities exchange, credit union, savings association or other eligible
institution that is authorized to guarantee signatures and is acceptable to the
Transfer Agent. Whenever a signature guarantee is required, the signature of
each person required to sign for the account must be guaranteed. Shareholders
who want telephone redemption or exchange privileges must elect those
privileges. The Trust and Transfer Agent will employ reasonable procedures in
order to verify that telephone requests are genuine, including recording
telephone instructions and causing written confirmations of the resulting
transactions to be sent to shareholders. If the Trust and Transfer Agent did not
employ such procedures, they could be liable for losses due to unauthorized or
fraudulent telephone instructions. Shareholders should verify the accuracy of
telephone instructions immediately upon receipt of confirmation statements.
During times of drastic economic or market changes, telephone redemption and
exchange privileges may be difficult to implement. In the event that a
shareholder is unable to reach the Transfer Agent by telephone, requests may be
mailed or hand-delivered to the Transfer Agent.
Due to the cost to the Trust of maintaining smaller accounts, the Trust reserves
the right to redeem, upon not less than 60 days' written notice, all shares in
any Fund account whose aggregate net asset value is less than $1,000 immediately
following any redemption.
REDEMPTION PROCEDURES
Shareholders who have invested directly in a Fund may redeem their shares as
described below. Shareholders who have invested through a Processing
Organization may redeem their shares through the Processing Organization as
described under "Purchases and Redemptions of Shares - Purchase Procedures -
Through Financial Institutions." Shareholders that wish to redeem shares by
telephone or receive redemption proceeds by bank wire must elect these options
by properly completing the appropriate sections of their account application
form. These privileges may not be available until several weeks after a
shareholder's application is received. Shares for which certificates have been
issued may not be redeemed by telephone.
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.")
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BY TELEPHONE. A shareholder who has elected telephone redemption privileges may
make a telephone redemption request by calling the Transfer Agent at (800)
338-1348 or (612) 667-8833 and providing the shareholder's account number, the
exact name in which the shares are registered and the shareholder's social
security or taxpayer identification number. In response to the telephone
redemption instruction, the Trust will mail a check to the shareholder's record
address or, if the shareholder has elected wire redemption privileges, wire the
proceeds. (See "Purchases and Redemptions of Shares - General Redemption
Information.")
BY BANK WIRE. For redemptions of more than $5,000, a shareholder who has elected
wire redemption privileges may request a Fund to transmit the redemption
proceeds by federal funds wire to a bank account designated in writing by the
shareholder. To request bank wire redemptions by telephone, the shareholder also
must have elected the telephone redemption privilege. Redemption proceeds are
transmitted by wire on the day after a redemption request in proper form is
received by the Transfer Agent.
EXCHANGES
Shareholders of I Shares and Institutional Shares and shareholders of U.S.
Government Fund and Treasury Fund may exchange their Shares for I Shares, for
Institutional and for Shares of U.S. Government Fund and Treasury Fund.
Shareholders of Investor Shares may exchange their Shares for Investor Shares of
the other Fund and A class shares of certain other funds of the Trust. The Trust
may in the future create additional classes of funds the shares of which will be
exchangeable with the Shares of the Funds. A current list of the funds of the
Trust that offer shares exchangeable with the Shares of the Funds can be
obtained through Forum by contacting the Transfer Agent.
The Funds do not charge for exchanges, and there is currently no limit on the
number of exchanges a shareholder may make; the Funds reserve the right,
however, to limit excessive exchanges by any shareholder. Exchanges are subject
to the fees charged by, and the limitations (including minimum investment
restrictions) of, the Fund into which a shareholder is exchanging.
Exchanges may only be made between identically registered accounts or to open a
new account. A new account application is required to open a new account through
an exchange if the new account will not have an identical registration and the
same shareholder privileges as the account from which the exchange is being
made. Shareholders may only exchange into a Fund if that Fund's shares may
legally be sold in the shareholder's state of residence.
The Funds and federal tax law treat an exchange as a redemption and a purchase.
Accordingly, a shareholder may realize a capital gain or loss depending on
whether the value of the shares redeemed is more or less than the shareholder's
basis in the shares at the time of the exchange transaction. Exchange procedures
may be materially amended or terminated by the Trust at any time upon 60 days'
notice to shareholders. (See "Additional Purchase and Redemption Information" in
the 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.")
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SHAREHOLDER SERVICES
AUTOMATIC INVESTMENT PLAN
Under the Automatic Investment Plan which is available to shareholders that
invest in I Shares of each Fund and to shareholders of Investor Shares of Ready
Cash Investment Fund and Municipal Money Market Fund, shareholders may authorize
monthly amounts of $50 or more to be withdrawn automatically from the
shareholder's designated bank account (other than passbook savings) and sent to
the Transfer Agent for investment in a Fund. Shareholders wishing to use this
plan must complete an application which may be obtained by writing or calling
the Transfer Agent. The Trust may modify or terminate the Automatic Investment
Plan with respect to any shareholder in the event that the Trust is unable to
settle any transaction with the shareholder's bank. If the Automatic Investment
Plan is terminated before the shareholders account totals $1,000, the Trust
reserves the right to close the account in accordance with the procedures
described under "General Redemption Information."
RETIREMENT ACCOUNTS
Except for Municipal Money Market Fund and the Tax-Free Fixed Income Funds, the
Funds 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 the individual (or, in some cases, the married couple), 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.
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.
AUTOMATIC WITHDRAWAL PLAN
A shareholder of a Fund, other than a shareholder of Cash Investment Fund, U.S.
Government Fund, Treasury Fund and Institutional Shares of Municipal Money
Market Fund, whose shares in a single account total $1,000 or more may establish
a withdrawal plan to provide for the preauthorized payment from the
shareholder's account of $250 or more on a monthly, quarterly, semi-annual or
annual basis. A shareholder of Cash Investment Fund, U.S. Government Fund,
Treasury Fund or Institutional Shares of Municipal Money Market Fund whose
shares in a single account total $10,000 or more may establish a withdrawal plan
to provide for the preauthorized payment from the shareholder's account of $250
or more on a monthly, quarterly, semi-annual or annual basis. Under the
withdrawal plan, sufficient shares in the
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shareholder's account are redeemed to provide the amount of the periodic payment
and any taxable gain or loss is recognized by the shareholder upon redemption of
the shares. Shareholders wishing to utilize the withdrawal plan may do so by
completing an application which may be obtained by writing or calling the
Transfer Agent. The Trust may suspend a shareholder's withdrawal plan without
notice if the account contains insufficient funds to effect a withdrawal or if
the account balance is less than the required minimum amounts at any time.
CHECKWRITING
Shareholders of the Money Market Funds wishing to establish checkwriting
privileges may do so by completing an application, which may be obtained by
writing or calling the Funds or the Transfer Agent. After the application is
properly completed and returned to a 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.
7. DIVIDENDS, DISTRIBUTIONS AND
TAX MATTERS
DIVIDENDS
Dividends of net investment income are declared and paid as follows:
<TABLE>
<S> <C>
Declared daily and paid Each Money Market Fund, Limited Term Government In-
monthly: come Fund, Income Fund, Total Return Bond Fund and
each Tax-Exempt Fixed Income Fund.
Declared and paid monthly: Stable Income Fund, Intermediate Government Income
Fund and Diversified Bond Fund.
Declared and paid quarterly: Income Equity Fund, ValuGrowth Stock Fund, Small
Company Stock Fund and Contrarian Stock Fund.
Declared and paid annually: Strategic Income Fund, Moderate Balanced Fund,
Growth Balanced Fund, Aggressive Balanced-Equity
Fund, Index Fund, Diversified Equity Fund, Growth
Equity Fund, Large Company Growth Fund, Small
Company Growth Fund, Diversified Small Cap Fund,
Small Cap Opportunities Fund and International Fund.
</TABLE>
Each Fund's net capital gain, if any, is distributed at least annually. (See
"Dividends and Tax Matters.")
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<PAGE>
Shareholders may choose to have dividends and distributions of a Fund reinvested
in shares of that Fund (the "Reinvestment Option"), to receive dividends and
distributions in cash (the "Cash Option") or to direct dividends and
distributions to be reinvested in shares of another fund of the Trust (the
"Directed Dividend Option"). All dividends and distributions are treated in the
same manner for federal income tax purposes whether received in cash or
reinvested in shares of a fund.
Under the Reinvestment Option, all dividends and distributions of a Fund are
automatically invested in additional shares of that Fund. All dividends and
distributions are reinvested at a Fund's net asset value as of the payment date
of the dividend or distribution. Shareholders are assigned this option unless
one of the other two options is selected. Under the Cash Option, all dividends
and distributions are paid to the shareholder in cash. Under the Directed
Dividend Option, shareholders of a Fund whose shares in a single account of that
Fund total $10,000 or more may elect to have all dividends and distributions
reinvested in shares of another fund of the Trust, provided that those shares
are eligible for sale in the shareholder's state of residence. For further
information concerning the Directed Dividend Option, shareholders should contact
the Transfer Agent.
TAX MATTERS
Each Fund intends to 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, each 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 each Fund intends to distribute all of its net investment
income and net capital gain each year, each Fund should thereby avoid all
federal income and excise taxes.
Dividends paid by a Fund out of its net investment income (including 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. Dividends (other than those of Funds that declare dividends
daily) and distributions reduce the net asset value of the Fund paying the
dividend or distribution by the amount of the dividend or distribution.
Furthermore, these dividends or 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.
It is expected that a portion of the dividends of each Equity Fund, except
International Fund, and each Balanced Fund will qualify for the dividends
received deduction for corporations. The amount of such dividends eligible for
the dividends received deduction is limited to the amount of dividends from
domestic corporations received during a Fund's fiscal year. To the extent
International Fund invests in the securities of domestic issuers, a portion of
the dividends of the Fund may qualify for the dividends received deduction for
corporations.
CORE PORTFOLIOS
Each Core Portfolio is not required to pay federal income taxes on its net
investment income and capital gain, as each is treated as a partnership for
federal income tax purposes. All interest, dividends and gains and losses of a
Core Portfolio are deemed to have been "passed through" to the Funds investing
in the Core Portfolio in proportion to the Funds' holdings of the Core
Portfolio, regardless of whether such interest, dividends or gains have been
distributed by the Core Portfolio.
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FUNDS INVESTING IN FOREIGN SECURITIES
Investment income received by a Fund from sources within foreign countries may
be subject to foreign income or other taxes. International Fund intends to
elect, if eligible to do so, to permit its shareholders to take a credit (or a
deduction) for foreign income and other taxes paid by International Portfolio
and Schroder EM Core Portfolio. Shareholders of that Fund will be notified of
their share of those foreign taxes and will be required to treat the amount of
such foreign taxes as additional income. In that event, the shareholder may be
entitled to claim a credit or deduction for those taxes.
TAX-EXEMPT DISTRIBUTIONS
Dividends paid by Municipal Money Market Fund or by a Tax-Free Fixed Income Fund
out of tax-exempt interest income earned by the Fund ("exempt-interest
dividends") generally will not be subject to federal income tax in the hands of
the Fund's shareholders. Persons who are substantial users or related persons
thereof of facilities financed by private activity securities held by a Fund,
however, may be subject to federal income tax on their pro rata share of the
interest income from those securities and should consult their tax advisers
before purchasing Shares. Interest on certain private activity securities is
treated as an item of tax preference for purposes of the AMT imposed on
individuals and corporations. In addition, exempt-interest dividends are
included in the "adjusted current earnings" of corporations for AMT purposes. If
a shareholder holds Shares for six months or less and during that period
receives an exempt-interest dividend, any loss realized on the sale of the
Shares during that six-month period would be disallowed to the extent of the
exempt-interest dividend.
Interest on indebtedness incurred by shareholders to purchase or carry shares of
a Fund generally is not deductible for federal income tax purposes. Under rules
for determining when borrowed funds are used for purchasing or carrying
particular assets, Shares of a Fund may be considered to have been purchased or
carried with borrowed funds even though those funds are not directly linked to
the Shares. Substantially all of the dividends paid by Municipal Money Market
Fund and by each Tax-Free Fixed Income Fund are anticipated to be exempt from
federal income taxes.
Shortly after the close of each calendar year, a statement is sent to each
shareholder of Municipal Money Market Fund and Tax-Free Fixed Income Fund
advising the shareholder of the portion of the Fund's dividends that is derived
from obligations of issuers in the various states and the portion of the Fund's
dividends that is exempt from federal income taxes. These portions are
determined for a Fund's entire year and, thus, are annual averages, rather than
day-by-day determinations for each shareholder.
MUNICIPAL MONEY MARKET FUND, LIMITED TAX-FREE FUND AND TAX-FREE INCOME FUND. The
exemption for federal income tax purposes of dividends derived from interest on
municipal securities does not necessarily result in an exemption under the
income or other tax laws of any state or local taxing authority. Shareholders of
a Fund may be exempt from state and local taxes on distributions of tax-exempt
interest income derived from obligations of the state and/or municipalities of
the state in which they reside but may be subject to tax on income derived from
the municipal securities of other jurisdictions. Shareholders are advised to
consult with their tax advisers concerning the application of state and local
taxes to investments in a Fund which may differ from the federal income tax
consequences described above.
COLORADO TAX-FREE FUND. It is anticipated that substantially all of the
dividends paid by the Fund to individuals will be exempt from Colorado personal
income tax. Dividends and distributions made by the Fund to Colorado
individuals, trusts, estates and corporations subject to the Colorado income tax
generally will be treated for Colorado income tax purposes in the same manner as
they are treated under the Code for federal income tax purposes. Some
differences may arise for taxpayers subject to the AMT, because interest
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on Colorado private activity bonds is not a preference item for Colorado income
tax purposes. Furthermore, Colorado has no corporate alternative minimum tax.
Because the Fund may, except as indicated, purchase only Colorado municipal
securities, none of the exempt interest dividends paid by the Fund will be
subject to Colorado income tax.
MINNESOTA INTERMEDIATE TAX-FREE FUND AND MINNESOTA TAX-FREE FUND. It is
anticipated that substantially all of the dividends paid by the Fund to
individuals will be exempt from Minnesota personal income tax. Interest earned
on Minnesota municipal securities is generally excluded from gross income for
Minnesota state income tax purposes, while interest earned on securities issued
by municipal issuers from other states is not excluded. At least 95% of the
exempt-interest dividends paid by the Fund must be derived from Minnesota
municipal securities in order for any portion of the exempt-interest dividends
paid by the Fund to be exempt from the Minnesota personal income tax.
Exempt-interest dividends paid by the Fund to shareholders that are corporations
are subject to Minnesota franchise tax.
Under Minnesota law, if the difference in state income tax treatment between
Minnesota municipal securities and the municipal securities of issuers in other
states should be judicially determined to discriminate against interstate
commerce, the Minnesota legislature has expressed its intention that the
discrimination be remedied by adding interest on Minnesota municipal securities
to the taxable income of Minnesota residents. Such treatment would begin with
the taxable years that begin during the calendar year in which the court's
decision is final. If the interest on Minnesota municipal securities is
determined in general to be taxable income for Minnesota income tax, the Fund
will consider what actions are to be taken, in light of its current investment
objectives and investment policies.
The Minnesota alternative minimum tax on resident individuals is based in part
on their federal alternative minimum taxable income. Accordingly, individual
shareholders of the Fund may be subject to the Minnesota alternative minimum tax
on exempt-interest dividends paid by the Fund which are attributable to interest
received by the Fund on certain private activity securities issued after August
7, 1986, even though those dividends are exempt from the regular Minnesota
personal income tax.
MISCELLANEOUS
Each Fund is required by federal law to withhold 31% of reportable payments
(which may include dividends, capital gain distributions and redemptions) paid
to a shareholder who fails to provide the Fund with a correct taxpayer
identification number or to make required certifications, or who is subject to
backup withholding.
Reports containing appropriate information with respect to the federal income
tax status of dividends and distributions paid during the year by each Fund will
be mailed to shareholders shortly after the close of each calendar year.
8. 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.
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DETERMINATION OF NET ASSET VALUE
The net asset value per share of each class of each Fund, except the Money
Market Funds, is determined as of 4:00 p.m., Eastern Time, on each Fund Business
Day by dividing the value of the Fund's net assets (I.E., the value of its
securities and other assets less its liabilities) by the number of shares
outstanding at the time the determination is made. The net asset value per share
of each class of Cash Investment Fund, U.S. Government Fund, Treasury Fund and
Municipal Money Market Fund is determined as of 3:00 p.m., 2:00 p.m., 1:00 p.m.
and 12:00 p.m. Eastern Time, respectively, in the same manner as indicated
above. Securities owned by a Fund or Portfolio (other than a Money Market Fund
or Portfolio in which a Money Market Fund invests) for which market quotations
are readily available are valued at current market value or, in their absence,
at fair value as determined by the Board or the Core Board or pursuant to
procedures approved by the Board or the Core Board, as applicable. The Funds
only determine 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 each Money Market Fund and Core Portfolio in which a Money Market
Fund invests 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 a
Fund's portfolio deviates more than 1/2 of 1% from the value determined on the
basis of amortized cost, the Board will consider whether any action should be
initiated to prevent any material effect on shareholders.
Trading in securities on European, Far Eastern and other international
securities exchanges and over-the-counter markets is normally completed well
before the close of business on each Fund Business Day. In addition, trading in
foreign securities generally or in a particular country or countries may not
take place on all Fund Business Days. Trading does take place in various foreign
markets, however, on days on which a Fund's net asset value is not calculated.
Calculation of the net asset value per share of a Fund may not occur
contemporaneously with the determination of the prices of the foreign securities
used in the calculation. Events affecting the values of foreign securities that
occur after the time their prices are determined and before the Fund's
determination of net asset value will not be reflected in the Fund's calculation
of net asset value unless Norwest or Schroder determines that the particular
event would materially affect net asset value, in which case an adjustment will
be made.
All assets and liabilities denominated in foreign currencies are converted into
U.S. dollars at the mean of the bid and asked prices of such currencies against
the U.S. dollar last quoted by a major bank prior to the time of conversion.
PERFORMANCE INFORMATION
A 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. A Fund's yield is a way of showing the rate of
income the Fund earns on its investments as a percentage of the Fund's share
price. To calculate standardized yield for the Money Market Funds, a 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. With respect to each of the other Funds,
to calculate standardized yield, a Fund takes the income it earned from its
investments for a 30-day period (net of expenses), divides it by the average
number of shares entitled to receive dividends, and expresses the result as an
annualized percentage rate based on the Fund's share price at the end of the
30-day period. Municipal Money Market Fund and the Tax-Exempt Fixed Income Funds
may also quote tax-equivalent yields, which show the taxable yields a
shareholder would have to earn to equal the Fund's tax-free yield, after taxes.
A tax equivalent yield is calculated by dividing the Fund's tax-free yield by
one minus a stated federal, state or combined federal and state tax rate.
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A Fund's total return shows its overall change in value, including changes in
share price and assuming all the Fund's dividends and distributions are
reinvested. A cumulative total return reflects a Fund's performance over a
stated period of time. An average annual total return reflects the hypothetical
annually compounded return that would have produced the same cumulative total
return if the Fund's performance had been constant over the entire period.
Because average annual returns tend to smooth out variations in the 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 a 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 Funds' 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 a 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 a Fund that invests its assets using different
investment styles. Indices are not used in the management of a Fund but rather
are standards by which an Adviser and shareholders may compare the performance
of a 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 a 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 Funds) and may
divide portfolios or series into classes of shares (such as I Shares); the costs
of doing so will be borne by the Trust. Currently the authorized shares of the
Trust are divided into thirty-nine separate series.
OTHER CLASSES OF SHARES
Cash Investment Fund, U.S. Government Fund, Treasury Fund, Norwest WealthBuilder
II Growth Portfolio, Norwest WealthBuilder II Growth and Income Portfolio,
Norwest WealthBuilder II Growth Balanced Portfolio, Performa Disciplined Growth
Fund, Performa Small Cap Value Fund, Performa Strategic Value Bond Fund,
Performa Global Growth Fund, Minnesota Intermediate Tax-Free Fund, Aggressive
Balanced-Equity Fund and Diversified Small Cap Fund currently issue one class of
shares. Ready Cash Investment Fund currently issues two classes of shares -
Investor Shares and Exchange Shares. Municipal Money Market Fund currently
issues two classes of shares - Institutional Shares and Investor Shares. The
other Funds issue three classes of shares, I Shares, A Shares and B Shares. A
Shares and B Shares are offered to retail investors. A Shares charge a front-end
sales charge and B Shares (and Exchange Shares) charge a contingent deferred
sales charge. Each class of a Fund will have a different expense ratio and may
have different sales charges (including distribution fees). Each class'
performance is affected by its expenses and sales charges. For more information
on any other class of shares of the Funds investors may contact the Transfer
Agent at (612) 667-8833 or (800) 338-1348 or the Funds' distributor. Investors
may also contact their Norwest sales representative to obtain information on the
other classes.
SHAREHOLDER VOTING AND OTHER RIGHTS
Each share of each series of the Trust and each class of shares has equal
dividend, distribution, liquidation and voting rights, and fractional shares
have those rights proportionately, except that expenses related to the
distribution of the shares of each class (and certain other expenses such as
transfer agency and administration expenses) are borne solely by those shares
and each class votes separately with respect to the provisions of any
distribution plan which pertain to the class and other matters for which
separate class
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voting is appropriate under applicable law. Generally, shares will be voted in
the aggregate without reference to a particular series or class, except if the
matter affects only one series or class or voting by series or class is required
by law, in which case shares will be voted separately by series or class, as
appropriate. Delaware law does not require the Trust to hold annual meetings of
shareholders, and it is anticipated that shareholder meetings will be held only
when specifically required by federal or state law. Shareholders have available
certain procedures for the removal of Trustees. There are no conversion or
preemptive rights in connection with shares of the Trust. All shares when issued
in accordance with the terms of the offering will be fully paid and
nonassessable. Shares are redeemable at net asset value, at the option of the
shareholders, subject to any contingent deferred sales charge that may apply. A
shareholder in a series is entitled to the shareholder's pro rata share of all
dividends and distributions arising from that series' assets and, upon redeeming
shares, will receive the portion of the series' net assets represented by the
redeemed shares.
Each Core Portfolio normally will not hold meetings of investors except as
required by the 1940 Act. Each investor in a Core Portfolio will be entitled to
vote in proportion to its relative beneficial interest in the respective Core
Portfolio. When required by the 1940 Act and other applicable law, a Fund will
solicit proxies from its shareholders and will vote its interest in a Core
Portfolio in proportion to the votes cast by its shareholders.
As of March 2, 1998, Norwest Bank may be deemed to have controlled Small Company
Stock Fund and Contrarian Stock Fund, and Norwest Bank Colorado, N.A. may be
deemed to have controlled Total Return Bond Fund, Tax-Free Income Fund, Colorado
Tax-Free Fund and ValuGrowth Stock Fund, through investment in the Funds by
their consumers. From time to time, these shareholders or other shareholders may
own a large percentage of the Shares of a Fund and, accordingly, may be able to
greatly affect (if not determine) the outcome of a shareholder vote.
CORE AND GATEWAY STRUCTURE
Ready Cash Investment Fund, Stable Income Fund, Total Return Bond Fund, Index
Fund, Income Equity Fund, Large Company Growth Fund, Small Company Stock Fund,
Small Company Growth Fund and Small Cap Opportunities Fund each seek to achieve
its investment objective by investing all of its investable assets in its
corresponding Core Portfolio, that has the same investment objective and
substantially identical investment policies as the Fund. Cash Investment Fund,
Diversified Bond Fund, Strategic Income Fund, Moderate Balanced Fund, Growth
Balanced Fund, Diversified Equity Fund, Growth Equity Fund and International
Fund each seek to achieve its investment objective by investing all or a part of
its assets in two or more Core Portfolios. Accordingly, each Core Portfolio
directly acquires portfolio securities and a Fund investing in the Core
Portfolio acquires an indirect interest in those securities. Schroder U.S.
Smaller Companies Portfolio and Schroder EM Core Portfolio are a separate series
of Schroder Capital Funds, a business trust organized under the laws of the
State of Delaware in 1995. Each other Core Portfolio is a separate series of
Core Trust (Delaware), a business trust organized under the laws of the State of
Delaware in 1994. Each Core Trust is registered under the 1940 Act as an
open-end, management, investment company. The assets of each Core Portfolio
belong only to, and the liabilities of each Core Portfolio are borne solely by,
that Core Portfolio and no other portfolio of a Core Trust.
THE CORE PORTFOLIOS. A Fund's investment in a Core Portfolio is in the form of a
non-transferable beneficial interest. All investors in a Core Portfolio will
invest on the same terms and conditions and will pay a proportionate share of
the Core Portfolio's expenses. As of April 1, 1998, two or more funds of the
Trust invested in each Core Portfolio.
A Core Portfolio will not sell its shares directly to members of the general
public. Another investor in a Core Portfolio, such as an investment company,
that might sell its shares to members of the general public would not be
required to sell its shares at the same public offering price as any Fund, and
could have different
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advisory and other fees and expenses than a Fund. Therefore, Fund shareholders
may have different returns than shareholders in another investment company that
invests in a Core Portfolio. Information regarding any such funds is available
from the Core Trusts by calling Forum at (207) 879-0001.
CERTAIN RISKS OF INVESTING IN CORE PORTFOLIOS. A Funds' investment in a Core
Portfolio may be affected by the actions of other large investors in that Core
Portfolio. For example, if International Portfolio had a large investor other
than International Fund that redeemed its interest International Portfolio's
remaining investors (including the Fund) might, as a result, experience higher
pro rata operating expenses, thereby producing lower returns. As there may be
other investors in a Core Portfolio, there can be no assurance that any issue
that receives a majority of the votes cast by a Fund's shareholders will receive
a majority of votes cast by all investors in a Core Portfolio; indeed, other
investors hold a majority interest in a Core Portfolio, could have voting
control of the Core Portfolio.
The Board retains the right to withdraw each Fund's investment in a Core
Portfolio at any time, and the Fund could thereafter invest directly in
individual securities or could re-invest its assets in one or more other Core
Portfolios. A Fund might withdraw, for example, if there were other investors in
a Core Portfolio with power to, and who did by a vote of all investors
(including the Fund), change the investment objective or policies of the Core
Portfolio in a manner not acceptable to the Board. A withdrawal could result in
a distribution in kind of portfolio securities (as opposed to a cash
distribution) by the Core Portfolio. That distribution could result in a less
diversified portfolio of investments for the Fund and could affect adversely the
liquidity of the Fund's portfolio. If the Fund decided to convert those
securities to cash, it would incur brokerage fees or other transaction costs. If
the Fund withdrew its investment from a Core Portfolio, the Board would consider
what action might be taken, including the management of the Fund's assets
directly by the Advisers or the investment of the Fund's assets in another
pooled investment entity. The inability of the Fund to find a suitable
replacement investment, in the event the Board decided not to permit the
Advisers to manage the Fund's assets directly could have a significant impact on
shareholders of the Fund.
Investment decisions are made by the portfolio managers of each Core Portfolio
independently. Therefore the portfolio manager of one Core Portfolio in which a
Fund invests may purchase shares of the same issuer whose shares are being sold
by the portfolio manager of another Core Portfolio in which the Fund invests.
This could result in an indirect expense to the Fund without accomplishing any
investment purpose.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE STATEMENT OF
ADDITIONAL INFORMATION AND THE FUNDS' OFFICIAL SALES LITERATURE IN CONNECTION
WITH THE OFFERING OF THE FUNDS' SHARES, AND IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
TRUST. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO
ANY PERSON TO WHOM, SUCH OFFER MAY NOT LAWFULLY BE MADE.
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APPENDIX A
INVESTMENTS, INVESTMENT STRATEGIES AND RISK CONSIDERATIONS
COMMON STOCKS, WARRANTS AND PREFERRED STOCK
COMMON STOCKS AND WARRANTS - BALANCED FUNDS, EQUITY FUNDS. PREFERRED STOCK -
BALANCED FUNDS, EQUITY FUNDS, TOTAL RETURN BOND FUND. Common stockholders are
the owners of the company issuing the stock and, accordingly, vote on various
corporate governance matters such as mergers. They are not creditors of the
company, but rather, upon liquidation of the company are entitled to their pro
rata share of the company's assets after creditors (including fixed income
security holders) and, if applicable, preferred stockholders are paid. Preferred
stock is a class of stock having a preference over common stock as to dividends
and, generally, as to the recovery of investment. A preferred stockholder is a
shareholder in the company and not a creditor of the company as is a holder of
the company's fixed income securities. Dividends paid to common and preferred
stockholders are distributions of the earnings of the company and not interest
payments, which are expenses of the company. Equity securities owned by a Fund
may be traded on a securities exchange or in the over-the-counter market and may
not be traded every day or in the volume typical of securities traded on a major
national securities exchange. As a result, disposition by a Fund of a portfolio
security to meet redemptions by shareholders or otherwise may require the Fund
to sell these securities at a discount from market prices, to sell during
periods when disposition is not desirable, or to make many small sales over an
extended period of time. The market value of all securities, including equity
securities, is based upon the market's perception of value and not necessarily
the book value of an issuer or other objective measure of a company's worth. A
Fund may invest in warrants, which are options to purchase an equity security at
a specified price (usually representing a premium over the applicable market
value of the underlying equity security at the time of the warrant's issuance)
and usually during a specified period of time. Unlike convertible securities and
preferred stocks, warrants do not pay a fixed dividend. Investments in warrants
involve certain risks, including the possible lack of a liquid market for the
resale of the warrants, potential price fluctuations as a result of speculation
or other factors and failure of the price of the underlying security to reach a
level at which the warrant can be prudently exercised (in which case the warrant
may expire without being exercised, resulting in the loss of the Fund's entire
investment therein).
CONVERTIBLE SECURITIES
INCOME FUND, BALANCED FUNDS, EQUITY FUNDS. Convertible securities, which include
convertible debt, convertible preferred stock and other securities exchangeable
under certain circumstances for shares of common stock, are fixed income
securities or preferred stock which generally may be converted at a stated price
within a specific amount of time into a specified number of shares of common
stock. A convertible security entitles the holder to receive interest paid or
accrued on debt or the dividend paid on preferred stock until the convertible
security matures or is redeemed, converted or exchanged. Before conversion,
convertible securities have characteristics similar to nonconvertible debt
securities in that they ordinarily provide a stream of income with generally
higher yields than those of common stocks of the same or similar issuers. These
securities are usually senior to common stock in a company's capital structure,
but usually are subordinated to non-convertible debt securities. In general, the
value of a convertible security is the higher of its investment value (its value
as a fixed income security) and its conversion value (the value of the
underlying shares of common stock if the security is converted). As a fixed
income security, the value of a convertible security generally increases when
interest rates decline and generally decreases when interest rates rise. The
value of a convertible security is, however, also influenced by the value of the
underlying common stock. The Funds (other than Minnesota Intermediate Tax-Free
Fund, Minnesota Tax-Free Fund, Diversified Bond Fund, Income Fund, Total Return
Bond Fund, the Balanced Funds and Small Cap Opportunities Fund) may only invest
in convertible securities that are investment grade.
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ADRS AND EDRS
BALANCED FUNDS, EQUITY FUNDS (EXCEPT INDEX FUND). A Fund may invest in sponsored
and unsponsored American Depository Receipts ("ADRs"), which are receipts issued
by an American bank or trust company evidencing ownership of underlying
securities issued by a foreign issuer. ADRs, in registered form, are designed
for use in U.S. securities markets. Unsponsored ADRs may be created without the
participation of the foreign issuer. Holders of these ADRs generally bear all
the costs of the ADR facility, whereas foreign issuers typically bear certain
costs in a sponsored ADR. The bank or trust company depository of an unsponsored
ADR may be under no obligation to distribute shareholder communications received
from the foreign issuer or to pass through voting rights. A Fund (other than
ValuGrowth Stock Fund and Contrarian Stock Fund) may also invest in European
Depository Receipts ("EDRs"), receipts issued by a European financial
institution evidencing an arrangement similar to that of ADRs, and in other
similar instruments representing securities of foreign companies. EDRs, in
bearer form, are designed for use in European securities markets.
U.S. GOVERNMENT SECURITIES
ALL FUNDS. As used in this Prospectus, the term U.S. Government Securities means
obligations issued or guaranteed as to principal and interest by the U.S.
Government, its agencies or instrumentalities. The U.S. Government Securities in
which a Fund may invest include U.S. Treasury Securities and obligations issued
or guaranteed by U.S. Government agencies and instrumentalities and backed by
the full faith and credit of the U.S. Government, such as those guaranteed by
the Small Business Administration or issued by the Government National Mortgage
Association. In addition, the U.S. Government Securities in which the Funds may
invest include securities supported primarily or solely by the creditworthiness
of the issuer, such as securities of the Federal National Mortgage Association,
the Federal Home Loan Mortgage Corporation and the Tennessee Valley Authority.
There is no guarantee that the U.S. Government will support securities not
backed by its full faith and credit. Accordingly, although these securities have
historically involved little risk of loss of principal if held to maturity, they
may involve more risk than securities backed by the U.S. Government's full faith
and credit.
ZERO-COUPON SECURITIES
ALL FUNDS. A Fund may invest in separately traded principal and interest
components of securities issued or guaranteed by the U.S. Treasury. These
components are traded independently under the Treasury's Separate Trading of
Registered Interest and Principal of Securities ("STRIPS") program or as Coupons
Under Book Entry Safekeeping ("CUBES"). The Funds may invest in other types of
related zero-coupon securities. For instance, a number of banks and brokerage
firms separate the principal and interest portions of U.S. Treasury securities
and sell them separately in the form of receipts or certificates representing
undivided interests in these instruments. These instruments are generally held
by a bank in a custodial or trust account on behalf of the owners of the
securities and are known by various names, including Treasury Receipts ("TRs"),
Treasury Investment Growth Receipts ("TIGRs") and Certificates of Accrual on
Treasury Securities ("CATS"). Zero-coupon securities also may be issued by
corporations and municipalities.
Zero-coupon securities are sold at original issue discount and pay no interest
to holders prior to maturity, but a Fund holding a zero-coupon security must
include a portion of the original issue discount of the security as income.
Because of this, zero-coupon securities may be subject to greater fluctuation of
market value than the other securities in which the Funds may invest. The Funds
distribute all of their net investment income, and may have to sell portfolio
securities to distribute imputed income, which may occur at a time when an
investment adviser would not have chosen to sell such securities and which may
result in a taxable gain or loss.
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CORPORATE DEBT SECURITIES AND COMMERCIAL PAPER
CORPORATE DEBT SECURITIES - CASH INVESTMENT FUND, READY CASH INVESTMENT FUND,
FIXED INCOME FUNDS, BALANCED FUNDS, SMALL COMPANY STOCK FUND, CONTRARIAN STOCK
FUND. COMMERCIAL PAPER - ALL FUNDS. The corporate debt securities in which the
Funds may invest include corporate bonds and notes and short-term investments
such as commercial paper and variable rate demand notes. Commercial paper
(short-term promissory notes) is issued by companies to finance their or their
affiliate's current obligations and is frequently unsecured. Variable and
floating rate demand notes are unsecured obligations redeemable upon not more
than 30 days' notice. These obligations include master demand notes that permit
investment of fluctuating amounts at varying rates of interest pursuant to a
direct arrangement with the issuer of the instrument. The issuer of these
obligations often has the right, after a given period, to prepay the outstanding
principal amount of the obligations upon a specified number of days' notice.
These obligations generally are not traded, nor generally is there an
established secondary market for these obligations. To the extent a demand note
does not have a 7 day or shorter demand feature and there is no readily
available market for the obligation, it is treated as an illiquid security.
FINANCIAL INSTITUTION OBLIGATIONS
ALL FUNDS (EXCEPT TREASURY FUND). A Fund may invest in obligations of financial
institutions, including negotiable certificates of deposit, bankers' acceptances
and time deposits of U.S. banks (including savings banks and savings
associations), foreign branches of U.S. banks, foreign banks and their non-U.S.
branches (Eurodollars), U.S. branches and agencies of foreign banks (Yankee
dollars), and wholly-owned banking-related subsidiaries of foreign banks.
Certificates of deposit represent an institution's obligation to repay funds
deposited with it that earn a specified interest rate over a given period. Bank
notes are a debt obligation of a bank. Bankers' acceptances are negotiable
obligations of a bank to pay a draft which has been drawn by a customer and are
usually backed by goods in international trade. Time deposits are non-negotiable
deposits with a banking institution that earn a specified interest rate over a
given period. Certificates of deposit and fixed time deposits, which are payable
at the stated maturity date and bear a fixed rate of interest, generally may be
withdrawn on demand but may be subject to early withdrawal penalties which could
reduce a Fund's performance. Deposits subject to early withdrawal penalties or
that mature in more than 7 days are treated as illiquid securities if there is
no readily available market for the securities. A Fund's investments in the
obligations of foreign banks and their branches, agencies or subsidiaries may be
obligations of the parent, of the issuing branch, agency or subsidiary, or both.
Investments in foreign bank obligations are limited to banks and branches
located in countries which the Advisers believe do not present undue risk.
PARTICIPATION INTERESTS
CASH INVESTMENT FUND, READY CASH INVESTMENT FUND, DIVERSIFIED BOND FUND,
BALANCED FUNDS. A Fund may purchase participation interests in loans or
securities in which the Fund may invest directly that are owned by banks or
other financial institutions. A participation interest gives the Fund an
undivided interest in a loan or security in the proportion that the Fund's
interest bears to the total principal amount of the security. Participation
interests, which may have fixed, floating or variable rates, may carry a demand
feature backed by a letter of credit or guarantee of the bank or institution
permitting the holder to tender them back to the bank or other institution. For
certain participation interests the Fund will have the right to demand payment,
on not more than 7 days notice, for all or a part of the Fund's participation
interest. A Fund will only purchase participation interests from banks or other
financial institutions that Norwest deems to be creditworthy. A Fund will not
invest more than 10 percent of its total assets in participation interests in
which the Fund does not have demand rights.
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ILLIQUID SECURITIES AND RESTRICTED SECURITIES
ILLIQUID SECURITIES - ALL FUNDS. RESTRICTED SECURITIES - MONEY MARKET FUNDS,
FIXED INCOME FUNDS, BALANCED FUNDS, SMALL CAP OPPORTUNITIES FUND, INTERNATIONAL
FUND. Each Fund may invest up to 15 percent of its net assets in securities that
at the time of purchase are illiquid. Historically, illiquid securities have
included securities subject to contractual or legal restrictions on resale
because they have not been registered under the Securities Act of 1933
("restricted securities"), securities which are otherwise not readily
marketable, such as over-the-counter options, and repurchase agreements not
entitling the holder to payment of principal in 7 days. Limitations on resale
may have an adverse effect on the marketability of portfolio securities and a
Fund might also have to register restricted securities in order to dispose of
them, resulting in expense and delay. A Fund might not be able to dispose of
restricted or other securities promptly or at reasonable prices and might
thereby experience difficulty satisfying redemptions. There can be no assurance
that a liquid market will exist for any security at any particular time.
An institutional market has developed for certain securities that are not
registered under the Securities Act of 1933, including repurchase agreements,
commercial paper, foreign securities and corporate bonds and notes.
Institutional investors depend on an efficient institutional market in which the
unregistered security can be readily resold or on the issuer's ability to honor
a demand for repayment of the unregistered security. A 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 Advisers may determine that
such securities are not illiquid securities, under guidelines or other
exemptions adopted by the Board (or, in the case of the Core Portfolios, the
Core Trusts' board of trustees). These guidelines take into account trading
activity in the securities and the availability of reliable pricing information,
among other factors. If there is a lack of trading interest in a particular Rule
144A security, a Fund's holdings of that security may be illiquid.
BORROWING
ALL FUNDS. Borrowing involves special risk considerations. Interest costs on
borrowings may fluctuate with changing market rates of interest and may
partially offset or exceed the return earned on borrowed funds (or on the assets
that were retained rather than sold to meet the needs for which funds were
borrowed). Under adverse market conditions, a Fund might have to sell portfolio
securities to meet interest or principal payments at a time when investment
considerations would not favor such sales. No Fund, other than Intermediate
Government Income Fund, Diversified Bond Fund and, with respect to their assets
invested in Managed Fixed Income Portfolio, the Balanced Funds, may purchase
securities for investment while any borrowing equal to 5 percent or more of the
Fund's total assets is outstanding or borrow for purposes other than meeting
redemptions in an amount exceeding 5 percent of the value of the Fund's total
assets. A Fund's use of borrowed proceeds to make investments would subject the
Fund to the risks of leveraging. Reverse repurchase agreements, short sales not
against the box, dollar roll transactions and other similar investments that
involve a form of leverage have characteristics similar to borrowings but are
not considered borrowings if the Fund maintains a segregated account; the use of
these techniques in connection with a segregated account may result in a Fund's
assets being 100 percent leveraged. (See "Appendix A - Techniques Involving
Leverage.")
PURCHASING SECURITIES ON MARGIN
LIMITED TERM GOVERNMENT INCOME FUND, INTERMEDIATE GOVERNMENT INCOME FUND. When a
Fund purchases securities on margin, it only pays part of the purchase price and
borrows the remainder. As a borrowing, a Fund's purchase of securities on margin
is subject to the limitations and risks described in Borrowing above. In
addition, if the value of the securities purchased on margin decreases such that
the Fund's borrowing with respect to the security exceeds the maximum
permissible borrowing amount, the Fund will be required to
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make margin payments (additional payments to the broker to maintain the level of
borrowing at permissible levels). A Fund's obligation to satisfy margin calls
may require the Fund to sell securities at an inappropriate time.
TECHNIQUES INVOLVING LEVERAGE
ALL FUNDS. Utilization of leveraging involves special risks and may involve
speculative investment techniques. The Funds may borrow for other than temporary
or emergency purposes, lend their securities, enter reverse repurchase
agreements, and purchase securities on a when-issued or forward commitment
basis. In addition, certain funds may engage in dollar roll transactions and
Intermediate Government Income Fund may purchase securities on margin and sell
securities short (other than against the box). Each of these transactions
involve the use of "leverage" when cash made available to the Fund through the
investment technique is used to make additional portfolio investments. In
addition, the use of swap and related agreements may involve leverage. The Funds
use these investment techniques only when Norwest to a Fund believes that the
leveraging and the returns available to the Fund from investing the cash will
provide shareholders a potentially higher return.
Leverage exists when a Fund achieves the right to a return on a capital base
that exceeds the Fund's investment. Leverage creates the risk of magnified
capital losses which occur when losses affect an asset base, enlarged by
borrowings or the creation of liabilities, that exceeds the equity base of the
Fund.
The risks of leverage include a higher volatility of the net asset value of the
Fund's shares and the relatively greater effect on the net asset value of the
shares caused by favorable or adverse market movements or changes in the cost of
cash obtained by leveraging and the yield obtained from investing the cash. So
long as a Fund is able to realize a net return on its investment portfolio that
is higher than interest expense incurred, if any, leverage will result in higher
current net investment income being realized by the Fund than if the Fund were
not leveraged. On the other hand, interest rates change from time to time as
does their relationship to each other depending upon such factors as supply and
demand, monetary and tax policies and investor expectations. Changes in such
factors could cause the relationship between the cost of leveraging and the
yield to change so that rates involved in the leveraging arrangement may
substantially increase relative to the yield on the obligations in which the
proceeds of the leveraging have been invested. To the extent that the interest
expense involved in leveraging approaches the net return on the Fund's
investment portfolio, the benefit of leveraging will be reduced, and, if the
interest expense on borrowings were to exceed the net return to shareholders,
the Fund's use of leverage would result in a lower rate of return than if the
Fund were not leveraged. Similarly, the effect of leverage in a declining market
could be a greater decrease in net asset value per share than if the Fund were
not leveraged. In an extreme case, if the Fund's current investment income were
not sufficient to meet the interest expense of leveraging, it could be necessary
for the Fund to liquidate certain of its investments at an inappropriate time.
The use of leverage may be considered speculative.
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.
REPURCHASE AGREEMENTS, SECURITIES LENDING, REVERSE REPURCHASE AGREEMENTS,
WHEN-ISSUED SECURITIES, FORWARD COMMITMENTS AND DOLLAR ROLL TRANSACTIONS.
A Fund's use of repurchase agreements, securities lending, reverse repurchase
agreements and forward commitments (including "dollar roll" transactions)
entails certain risks not associated with direct investments in securities. For
instance, in the event that bankruptcy or similar proceedings were commenced
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against a counterparty while these transactions remained open or a counterparty
defaulted on its obligations, the Fund might suffer a loss. Failure by the other
party to deliver a security purchased by the Fund may result in a missed
opportunity to make an alternative investment. The Advisers monitor the
creditworthiness of counterparties to these transactions and intend to enter
into these transactions only when they believe the counterparties present
minimal credit risks and the income to be earned from the transaction justifies
the attendant risks. Counterparty insolvency risk with respect to repurchase
agreements is reduced by favorable insolvency laws that allow the Fund, among
other things, to liquidate the collateral held in the event of the bankruptcy of
the counterparty. Those laws do not apply to securities lending and,
accordingly, securities lending involves more risk than does the use of
repurchase agreements. As a result of entering forward commitments and reverse
repurchase agreements, as well as lending its securities, a Fund may be exposed
to greater potential fluctuations in the value of its assets and net asset value
per share. (See "Appendix A - Techniques Involving Leverage.")
REPURCHASE AGREEMENTS - ALL FUNDS (EXCEPT TREASURY FUND). A Fund may enter into
repurchase agreements, transactions in which a Fund purchases a security and
simultaneously commits to resell that security to the seller at an agreed-upon
price on an agreed-upon future date, normally 1 to 7 days later. The resale
price of a repurchase agreement reflects a market rate of interest that is not
related to the coupon rate or maturity of the purchased security. The Trust's
custodian maintains possession of the collateral underlying a repurchase
agreement, which has a market value, determined daily, at least equal to the
repurchase price, and which consists of the types of securities in which the
Fund may invest directly. International Portfolio and, with respect to the
portion of their assets managed in the International Fund style, Diversified
Equity Fund, Growth Equity Fund and each Balanced Fund, may enter into
repurchase agreements with foreign entities.
SECURITIES LENDING - ALL FUNDS. A Fund may lend securities from its portfolios
to brokers, dealers and other financial institutions. Securities loans must be
continuously secured by cash or U.S. Government Securities with a market value,
determined daily, at least equal to the value of the Fund's securities loaned,
including accrued interest. A Fund receives interest in respect of securities
loans from the borrower or from investing cash collateral. A Fund may pay fees
to arrange the loans. Schroder U.S. Smaller Companies Portfolio will not lend
portfolio securities in excess of 25% of the value of the Portfolio's total
assets. No other Fund will 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 - ALL FUNDS. A Fund may enter into reverse
repurchase agreements, transactions in which the Fund sells a security and
simultaneously commits to repurchase that security from the buyer at an agreed
upon price on an agreed upon future date. The resale price in a reverse
repurchase agreement reflects a market rate of interest that is not related to
the coupon rate or maturity of the sold security. For certain demand agreements,
there is no agreed upon repurchase date and interest payments are calculated
daily, often based upon the prevailing overnight repurchase rate. Because
certain of the incidents of ownership of the security are retained by the Fund,
reverse repurchase agreements may be viewed as a form of borrowing by the Fund
from the buyer, collateralized by the security sold by the Fund. A Fund will use
the proceeds of reverse repurchase agreements to fund redemptions or to make
investments. In most cases these investments either mature or have a demand
feature to resell to the issuer on a date not later than the expiration of the
agreement. Interest costs on the money received in a reverse repurchase
agreement may exceed the return received on the investments made by the Fund
with those monies. Any significant commitment of a Fund's assets to the reverse
repurchase agreements will tend to increase the volatility of the Fund's net
asset value per share.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS - ALL FUNDS. A Fund may purchase
fixed income securities on a "when-issued" or "forward commitment" basis. When
these transactions are negotiated, the price, which is generally expressed in
yield terms, is fixed at the time the commitment is made, but delivery and
payment for the securities take place at a later date. Normally, the settlement
date occurs within 3
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months after the transaction. During the period between a commitment and
settlement, no payment is made for the securities purchased and no interest on
the security accrues to the purchaser. At the time a Fund makes a commitment to
purchase securities in this manner, the Fund immediately assumes the risk of
ownership, including price fluctuation. Failure by the other party to deliver a
security purchased by a Fund may result in a loss or a missed opportunity to
make an alternative investment. The use of when-issued transactions and forward
commitments enables a Fund to hedge against anticipated changes in interest
rates and prices. If Norwest or Schroder were to forecast incorrectly the
direction of interest rate movements, however, a Fund might be required to
complete these transactions when the value of the security is lower than the
price paid by the Fund. Except for dollar-roll transactions, a Fund will not
purchase securities on a when-issued or forward commitment basis if, as a
result, more than 15 percent (35 percent in the case of Total Return Bond Fund)
of the value of the Fund's total assets would be committed to such transactions.
When-issued securities and forward commitments may be sold prior to the
settlement date, but the Funds purchase securities on a when-issued and forward
commitment basis only with the intention of actually receiving the securities.
When-issued securities may include bonds purchased on a "when, and if issued"
basis under which the issuance of the securities depends upon the occurrence of
a subsequent event. Commitment of a Fund's assets to the purchase of securities
on a when-issued or forward commitment basis will tend to increase the
volatility of the Funds net asset value per share.
DOLLAR ROLL TRANSACTIONS - FIXED INCOME FUNDS, BALANCED FUNDS. A Fund may enter
into "dollar roll" transactions wherein the Fund sells fixed income securities,
typically mortgage-backed securities, and makes a commitment to purchase
similar, but not identical, securities at a later date from the same party. Like
a forward commitment, during the roll period no payment is made for the
securities purchased and no interest or principal payments on the security
accrue to the purchaser, but the Fund assumes the risk of ownership. A Fund is
compensated for entering into dollar roll transactions by the difference between
the current sales price and the forward price for the future purchase, as well
as by the interest earned on the cash proceeds of the initial sale. Like other
when-issued securities or firm commitment agreements, dollar roll transactions
involve the risk that the market value of the securities sold by the Fund may
decline below the price at which a Fund is committed to purchase similar
securities. In the event the buyer of securities under a dollar roll transaction
becomes insolvent, the Funds use of the proceeds of the transaction may be
restricted pending a determination by the other party, or its trustee or
receiver, whether to enforce the Funds obligation to repurchase the securities.
The Funds will engage in roll transactions for the purpose of acquiring
securities for its portfolio and not for investment leverage. Each Fund will
limit its obligations on dollar roll transactions to 35 percent of the Fund's
net assets.
SWAP AGREEMENTS
STABLE INCOME FUND, LIMITED TERM GOVERNMENT INCOME FUND, INTERMEDIATE GOVERNMENT
INCOME FUND, DIVERSIFIED BOND FUND, TOTAL RETURN BOND FUND, BALANCED FUNDS. To
manage its exposure to different types of investments, a Fund may enter into
interest rate, currency and mortgage (or other asset) swap agreements and may
purchase and sell interest rate "caps," "floors" and "collars." In a typical
interest rate swap agreement, one party agrees to make regular payments equal to
a floating interest rate on a specified amount (the "notional principal amount")
in return for payments equal to a fixed interest rate on the same amount for a
specified period. If a swap agreement provides for payment in different
currencies, the parties may also agree to exchange the notional principal
amount. Mortgage swap agreements are similar to interest rate swap agreements,
except that the notional principal amount is tied to a reference pool of
mortgages. In a cap or floor, one party agrees, usually in return for a fee, to
make payments under particular circumstances. For example, the purchaser of an
interest rate cap has the right to receive payments to the extent a specified
interest rate exceeds an agreed upon level; the purchaser of an interest rate
floor has the right to receive payments to the extent a specified interest rate
falls below an agreed upon level. A collar entitles the purchaser to receive
payments to the extent a specified interest rate falls outside an agreed upon
range.
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Swap agreements may involve leverage and may be highly volatile; depending on
how they are used, they may have a considerable impact on the Funds performance.
(See "Appendix A - Techniques Involving Leverage.") Swap agreements involve
risks depending upon the counterparties' creditworthiness and ability to perform
as well as the Fund's ability to terminate its swap agreements or reduce its
exposure through offsetting transactions.
MUNICIPAL SECURITIES
MUNICIPAL MONEY MARKET FUND, TAX-FREE FIXED INCOME FUNDS. The municipal
securities in which the Funds may invest include municipal bonds, notes and
leases. Municipal securities may be zero-coupon securities. Yields on municipal
securities are dependent on a variety of factors, including the general
conditions of the municipal security markets and the fixed income markets in
general, the size of a particular offering, the maturity of the obligation and
the rating of the issue. The achievement of a Fund's investment objective is
dependent in part on the continuing ability of the issuers of municipal
securities in which the Fund invests to meet their obligations for the payment
of principal and interest when due.
MUNICIPAL BONDS. Municipal bonds can be classified as either "general
obligation" or "revenue" bonds. General obligation bonds are secured by a
municipality's pledge of its full faith, credit and taxing power for the payment
of principal and interest. Revenue bonds are usually payable only from the
revenues derived from a particular facility or class of facilities or, in some
cases, from the proceeds of a special excise or other tax, but not from general
tax revenues. Municipal bonds include industrial development bonds. Municipal
bonds may also be "moral obligation" bonds, which are normally issued by special
purpose public authorities. If the issuer is unable to meet its obligations
under the bonds from current revenues, it may draw on a reserve fund that is
backed by the moral commitment (but not the legal obligation) of the state or
municipality that created the issuer.
The Fund may invest in tax-exempt industrial development bonds, which in most
cases are revenue bonds and generally do not have the pledge of the credit of
the municipality. The payment of the principal and interest on these bonds is
dependent solely on the ability of an initial or subsequent user of the
facilities financed by the bonds to meet its financial obligations and the
pledge, if any, of real and personal property so financed as security for such
payment. The Fund will acquire private activity securities only if the interest
payments on the security are exempt from federal income taxation (other than the
Alternative Minimum Tax (AMT)).
MUNICIPAL NOTES. Municipal notes, which may be either "general obligation" or
"revenue" securities, are intended to fulfill short-term capital needs and
generally have original maturities not exceeding one year. They include tax
anticipation notes, revenue anticipation notes (which generally are issued in
anticipation of various seasonal revenues), bond anticipation notes,
construction loan notes and tax-exempt commercial paper. Tax-exempt commercial
paper generally is issued with maturities of 270 days or less at fixed rates of
interest.
MUNICIPAL LEASES. Municipal Leases, which may take the form of a lease or an
installment purchase or conditional sale contract, are issued by state and local
governments and authorities to acquire a wide variety of equipment and
facilities such as fire and sanitation vehicles, telecommunications equipment
and other capital assets. Municipal leases frequently have special risks not
normally associated with general obligation or revenue bonds. Lease and
installment purchase or conditional sale contracts (which normally provide for
title to the leased assets to pass eventually to the government issuer) have
evolved as a means for governmental issuers to acquire property and equipment
without meeting the constitutional and statutory requirements for the issuance
of debt. The debt-issuance limitations of many state constitutions and statutes
are deemed to be inapplicable because of the inclusion in many leases or
contracts of "non-appropriation" clauses that provide that the governmental
issuer has no obligation to make future payments under the lease
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or contract unless money is appropriated for such purpose by the appropriate
legislative body on a yearly or other periodic basis. Generally, the Fund will
invest in municipal lease obligations through certificates of participation.
PARTICIPATION INTERESTS. The Funds may purchase participation interests in
municipal securities that are owned by banks or other financial institutions.
Participation interests usually carry a demand feature backed by a letter of
credit or guarantee of the bank or institution permitting the holder to tender
them back to the bank or other institution. Prior to purchasing any
participation interest, the Funds will obtain appropriate assurances that the
interest earned by the Funds from the obligations in which it holds
participation interests is exempt from federal and, in the case of Colorado
Tax-Free Fund and Minnesota Tax-Free Fund, applicable state income tax.
STAND-BY COMMITMENTS. The Funds may purchase municipal securities together with
the right to resell them to the seller or a third party at an agreed-upon price
or yield within specified periods prior to their maturity dates. Such a right to
resell is commonly known as a stand-by commitment, and the aggregate price which
a Fund pays for securities with a stand-by commitment may be higher than the
price which otherwise would be paid. The primary purpose of this practice is to
permit a Fund to be as fully invested as practicable in municipal securities
while preserving the necessary flexibility and liquidity to meet unanticipated
redemptions. In this regard, a Fund acquires stand-by commitments solely to
facilitate portfolio liquidity and does not exercise its rights thereunder for
trading purposes. Stand-by commitments involve certain expenses and risks,
including the inability of the issuer of the commitment to pay for the
securities at the time the commitment is exercised, non-marketability of the
commitment, and differences between the maturity of the underlying security and
the maturity of the commitment. The Fund's policy is to enter into stand-by
commitment transactions only with municipal securities dealers which, in the
view of Norwest, present minimal credit risks.
PUTS ON MUNICIPAL SECURITIES. The Funds may acquire "puts" on municipal
securities they purchase. A put gives the Fund the right to sell the municipal
security at a specified price at any time on or before a specified date. The
Fund will acquire puts only to enhance liquidity, shorten the maturity of the
related municipal security or permit the Fund to invest its funds at more
favorable rates. Generally, the Fund will buy a municipal security that is
accompanied by a put only if the put is available at no extra cost. In some
cases, however, the Fund may pay an extra amount to acquire a put, either in
connection with the purchase of the related municipal security or separately
from the purchase of the security. Puts involve the same risks discussed above
with respect to stand-by commitments.
SHORT SALES
LIMITED TERM GOVERNMENT INCOME FUND, INTERMEDIATE GOVERNMENT INCOME FUND. Each
Fund may make short sales of securities which it does not own or have the right
to acquire in anticipation of a decline in the market price for the security.
When the Fund makes a short sale, the proceeds it receives are retained by the
broker until the Fund replaces the borrowed security. In order to deliver the
security to the buyer, a Fund must arrange through a broker to borrow the
security and, in so doing, the Fund becomes obligated to replace the security
borrowed at its market price at the time of replacement, whatever that price may
be. Short sales create opportunities to increase a Fund's return but, at the
same time, involve special risk considerations and may be considered a
speculative technique. Since a Fund in effect profits from a decline in the
price of the securities sold short without the need to invest the full purchase
price of the securities on the date of the short sale, the Fund's net asset
value per share, will tend to increase more when the securities it has sold
short decrease in value, and to decrease more when the securities it has sold
short increase in value, than would otherwise be the case if it had not engaged
in such short sales. Short sales theoretically involve unlimited loss potential,
as the market price of securities sold short may continuously increase, although
a Fund may mitigate such losses by replacing the securities sold short before
the market price has increased significantly. Under adverse market conditions, a
Fund might have difficulty purchasing securities
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to meet its short sale delivery obligations and might have to sell portfolio
securities to raise the capital necessary to meet its short sale obligations at
a time when fundamental investment considerations would not favor those sales.
(See "Appendix A - Techniques Involving Leverage.")
MORTGAGE-BACKED SECURITIES
Mortgage-backed securities represent an interest in a pool of mortgages
originated by lenders such as commercial banks, savings associations and
mortgage bankers and brokers. Mortgage-backed securities may be issued by
governmental or government-related entities or by non-governmental entities such
as special purpose trusts created by banks, savings associations, private
mortgage insurance companies or mortgage bankers.
Interests in mortgage-backed securities differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal payments at maturity or on specified call dates. In
contrast, mortgage-backed securities provide monthly payments which consist of
interest and, in most cases, principal. In effect, these payments are a
"pass-through" of the monthly payments made by the individual borrowers on their
mortgage loans, net of any fees paid to the issuer or guarantor of the
securities or a mortgage loan servicer. Additional payments to holders of these
securities are caused by prepayments resulting from the sale or foreclosure of
the underlying property or refinancing of the underlying loans.
UNDERLYING MORTGAGES. Pools of mortgages consist of whole mortgage loans or
participations in mortgage loans. The majority of these loans are made to
purchasers of 1-4 family homes, but may be made to purchasers of mobile homes or
other real estate interests. The terms and characteristics of the mortgage
instruments are generally uniform within a pool but may vary among pools. For
example, in addition to fixed-rate, fixed-term mortgages, the Fund may purchase
pools of variable rate mortgages, growing equity mortgages, graduated payment
mortgages and other types. Mortgage servicers impose qualification standards for
local lending institutions which originate mortgages for the pools as well as
credit standards and underwriting criteria for individual mortgages included in
the pools. In addition, many mortgages included in pools are insured through
private mortgage insurance companies.
LIQUIDITY AND MARKETABILITY. The market for mortgage-backed securities has
expanded considerably in recent years. The size of the primary issuance market
and active participation in the secondary market by securities dealers and many
types of investors make government and government-related pass-through pools
highly liquid. The recently introduced private conventional pools of mortgages
(pooled by commercial banks, savings and loan institutions and others, with no
relationship with government and government-related entities) have also achieved
broad market acceptance and consequently an active secondary market has emerged,
however, the market for conventional pools is smaller and less liquid than the
market for government and government-related mortgage pools.
AVERAGE LIFE AND PREPAYMENTS. The average life of a pass-through pool varies
with the maturities of the underlying mortgage instruments. In addition, a
pool's terms may be shortened by unscheduled or early payments of principal and
interest on the underlying mortgages. Prepayments with respect to securities
during times of declining interest rates will tend to lower the return of a Fund
and may even result in losses to a Fund if the securities were acquired at a
premium. The occurrence of mortgage prepayments is affected by various factors
including the level of interest rates, general economic conditions, the location
and age of the mortgage and other social and demographic conditions.
As prepayment rates of individual pools vary widely, it is not possible to
accurately predict the average life of a particular pool. For pools of
fixed-rate 30-year mortgages, common industry practice is to assume that
prepayments will result in a 12-year average life. Pools of mortgages with other
maturities or different characteristics will have varying assumptions for
average life. The assumed average life of pools of mortgages having terms of
less than 30 years is less than 12 years, but typically not less than 5 years.
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YIELD CALCULATIONS. Yields on pass-through securities are typically quoted by
investment dealers based on the maturity of the underlying instruments and the
associated average life assumption. In periods of falling interest rates, the
rate of prepayment tends to increase, thereby shortening the actual average life
of a pool of mortgages. Conversely, in periods of rising rates, the rate of
prepayment tends to decrease, thereby lengthening the actual average life of the
pool. Actual prepayment experience may cause the yield to differ from the
assumed average life yield. Reinvestment of prepayments may occur at higher or
lower interest rates than the original investment, thus affecting the yield of a
Fund.
GOVERNMENT AND GOVERNMENT-RELATED GUARANTORS. The principal government guarantor
of mortgage-backed securities is the Government National Mortgage Association
("GNMA"), a wholly-owned United States Government corporation within the
Department of Housing and Urban Development. GNMA is authorized to guarantee,
with the full faith and credit of the United States Government, the timely
payment of principal and interest on securities issued by institutions approved
by GNMA and backed by pools of FHA-insured or VA-guaranteed mortgages.
The Federal National Mortgage Association ("FNMA") is a government-sponsored
corporation owned entirely by private stockholders that is subject to general
regulation by the Secretary of Housing and Urban Development. FNMA purchases
residential mortgages from a list of approved seller-servicers. The Federal Home
Loan Mortgage Corporation ("FHLMC") is a corporate instrumentality of the United
States Government that was created by Congress in 1970 for the purpose of
increasing the availability of mortgage credit for residential housing. Its
stock is owned by the twelve Federal Home Loan Banks. FHLMC issues Participation
Certificates ("PCs") which represent interests in mortgages from FHLMCs national
portfolio. FNMA and FHLMC each guarantee the payment of principal and interest
on the securities they issue. These securities, however, are not backed by the
full faith and credit of the United States Government.
PRIVATELY ISSUED MORTGAGE-BACKED SECURITIES. Mortgage-backed securities offered
by private issuers include pass-through securities comprised of pools of
conventional mortgage loans; mortgage-backed bonds which are considered to be
debt obligations of the institution issuing the bonds and which are
collateralized by mortgage loans; and collateralized mortgage obligations.
Mortgage-backed securities issued by non-governmental issuers may offer a higher
rate of interest than securities issued by government issuers because of the
absence of direct or indirect government guarantees of payment. Many
non-governmental issuers or servicers of mortgage-backed securities, however,
guarantee timely payment of interest and principal on such securities. Timely
payment of interest and principal may also be supported by various forms of
insurance, including individual loan, title, pool and hazard policies. There can
be no assurance that the private issuers or insurers will be able to meet their
obligations under the relevant guarantees and insurance policies.
ADJUSTABLE RATE MORTGAGE-BACKED SECURITIES. Adjustable rate mortgage-backed
securities ("ARMs") are securities that have interest rates that are reset at
periodic intervals, usually by reference to some interest rate index or market
interest rate. Although the rate adjustment feature may act as a buffer to
reduce sharp changes in the value of adjustable rate securities, these
securities are still subject to changes in value based on changes in market
interest rates or changes in the issuer's creditworthiness. Because of the
resetting of interest rates, adjustable rate securities are less likely than
non-adjustable rate securities of comparable quality and maturity to increase
significantly in value when market interest rates fall. Also, most adjustable
rate securities (or the underlying mortgages) are subject to caps or floors.
"Caps" limit the maximum amount by which the interest rate paid by the borrower
may change at each reset date or over the life of the loan and, accordingly,
fluctuation in interest rates above these levels could cause such mortgage
securities to "cap out" and to behave more like long-term, fixed-rate debt
securities.
ARMs may have less risk of a decline in value during periods of rapidly rising
rates, but they may also have less potential for capital appreciation than other
debt securities of comparable maturities due to the periodic
A-11
<PAGE>
adjustment of the interest rate on the underlying mortgages and due to the
likelihood of increased prepayments of mortgages as interest rates decline.
Furthermore, during periods of declining interest rates, income to a Fund will
decrease as the coupon rate resets to reflect the decline in interest rates.
During periods of rising interest rates, changes in the coupon rates of the
mortgages underlying a Fund's ARMs may lag behind changes in market interest
rates. This may result in a slightly lower net value until the interest rate
resets to market rates. Thus, investors could suffer some principal loss if they
sold Fund shares before the interest rates on the underlying mortgages were
adjusted to reflect current market rates.
COLLATERALIZED MORTGAGE OBLIGATIONS. Collateralized Mortgage Obligations
("CMOs") are debt obligations that are collateralized by mortgages or mortgage
pass-through securities issued by GNMA, FHLMC or FNMA or by pools of
conventional mortgages ("Mortgage Assets"). CMOs may be privately issued or U.S.
Government Securities. Payments of principal and interest on the Mortgage Assets
are passed through to the holders of the CMOs on the same schedule as they are
received, although, certain classes (often referred to as tranches) of CMOs have
priority over other classes with respect to the receipt of payments. Multi-class
mortgage pass-through securities are interests in trusts that hold Mortgage
Assets and that have multiple classes similar to those of CMOs. Unless the
context indicates otherwise, references to CMOs include multi-class mortgage
pass-through securities. Payments of principal of and interest on the underlying
Mortgage Assets (and in the case of CMOs, any reinvestment income thereon)
provide funds to pay debt service on the CMOs or to make scheduled distributions
on the multi-class mortgage pass-through securities. Parallel pay CMOs are
structured to provide payments of principal on each payment date to more than
one class. These simultaneous payments are taken into account in calculating the
stated maturity date or final distribution date of each class, which, as with
other CMO structures, must be retired by its stated maturity date or final
distribution date but may be retired earlier. Planned amortization class
mortgage-based securities ("PAC Bonds") are a form of parallel pay CMO. PAC
Bonds are designed to provide relatively predictable payments of principal
provided that, among other things, the actual prepayment experience on the
underlying mortgage loans falls within a contemplated range. If the actual
prepayment experience on the underlying mortgage loans is at a rate faster or
slower than the contemplated range, or if deviations from other assumptions
occur, principal payments on a PAC Bond may be greater or smaller than
predicted. The magnitude of the contemplated range varies from one PAC Bond to
another; a narrower range increases the risk that prepayments will be greater or
smaller than contemplated. CMOs may have complicated structures and generally
involve more risks than simpler forms of mortgage-backed securities.
The final tranche of a CMO may be structured as an accrual bond (sometimes
referred to as a "Z-tranche"). Holders of accrual bonds receive no cash payments
for an extended period of time. During the time that earlier tranches are
outstanding, accrual bonds receive accrued interest which is a credit for
periodic interest payments that increases the face amount of the security at a
compounded rate, but is not paid to the bond holder. After all previous tranches
are retired, accrual bond holders start receiving cash payments that include
both principal and continuing interest. The market value of accrual bonds can
fluctuate widely and their average life depends on the other aspects of the CMO
offering. Interest on accrual bonds is taxable when accrued even though the
holders receive no accrual payment. The Funds distribute all of their net
investment income, and may have to sell portfolio securities to distribute
imputed income, which may occur at a time when an investment adviser would not
have chosen to sell such securities and which may result in a taxable gain or
loss.
STRIPPED MORTGAGE-BACKED SECURITIES. Stripped mortgage-backed securities are
classes of mortgage-backed securities that receive different proportions of the
interest and principal distributions from the underlying Mortgage Assets. They
may be may be privately issued or U.S. Government Securities. In the most
extreme case, one class will be entitled to receive all or a portion of the
interest but none of the principal from the Mortgage Assets (the interest-only
or "IO" class) and one class will be entitled to receive all or a portion of the
principal, but none of the interest (the "PO" class). Currently, no fund may
purchase IOs or POs.
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ASSET-BACKED SECURITIES
LIMITED TERM GOVERNMENT INCOME FUND, INTERMEDIATE GOVERNMENT INCOME FUND,
DIVERSIFIED BOND FUND, INCOME FUND, TOTAL RETURN BOND FUND, BALANCED FUNDS.
Asset-backed securities represent direct or indirect participations in, or are
secured by and payable from, assets other than mortgage-backed assets such as
motor vehicle installment sales contracts, installment loan contracts, leases of
various types of real and personal property and receivables from revolving
credit (credit card) agreements. No Fund may invest more than 10 percent of its
net assets in asset-backed securities that are backed by a particular type of
credit, for instance, credit card receivables. Asset-backed securities,
including adjustable rate asset-backed securities, have yield characteristics
similar to those of mortgage-backed securities and, accordingly, are subject to
many of the same risks. Assets are securitized through the use of trusts and
special purpose corporations that issue securities that are often backed by a
pool of assets representing the obligations of a number of different parties.
Payments of principal and interest may be guaranteed up to certain amounts and
for a certain time period by a letter of credit issued by a financial
institution. Asset-backed securities do not always have the benefit of a
security interest in collateral comparable to the security interests associated
with mortgage-backed securities. As a result, the risk that recovery on
repossessed collateral might be unavailable or inadequate to support payments on
asset-backed securities is greater for asset-backed securities than for
mortgage-backed securities. In addition, because asset-backed securities are
relatively new, the market experience in these securities is limited and the
market's ability to sustain liquidity through all phases of an interest rate or
economic cycle has not been tested.
FOREIGN EXCHANGE CONTRACTS AND FOREIGN CURRENCY FORWARD CONTRACTS
DIVERSIFIED BOND FUND, BALANCED FUNDS, DIVERSIFIED SMALL CAP FUND, DIVERSIFIED
EQUITY FUND, GROWTH EQUITY FUND, LARGE COMPANY GROWTH FUND, SMALL COMPANY GROWTH
FUND, INTERNATIONAL FUND. Changes in foreign currency exchange rates will affect
the U.S. dollar values of securities denominated in currencies other than the
U.S. dollar. The rate of exchange between the U.S. dollar and other currencies
fluctuates in response to forces of supply and demand in the foreign exchange
markets. These forces are affected by the international balance of payments and
other economic and financial conditions, government intervention, speculation
and other factors. When investing in foreign securities a Fund usually effects
currency exchange transactions on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign exchange market. The Fund incurs foreign exchange
expenses in converting assets from one currency to another.
A Fund may enter into foreign currency forward contracts or currency futures or
options contracts for the purchase or sale of foreign currency to "lock in" the
U.S. dollar price of the securities denominated in a foreign currency or the
U.S. dollar value of interest and dividends to be paid on such securities, or to
hedge against the possibility that the currency of a foreign country in which a
Fund has investments may suffer a decline against the U.S. dollar. Like foreign
exchange contracts and foreign currency forward contracts, these instruments are
often referred to as derivatives, which may be defined as financial instruments
whose performance is derived, at least in part, from the performance of another
asset (such as a security, currency or an index of securities. The Funds have no
present intention to enter into currency futures or options contracts but may do
so in the future. A forward currency contract is an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of days
from the date of the contract agreed upon by the parties, at a price set at the
time of the contract. This method of attempting to hedge the value of a Fund's
portfolio securities against a decline in the value of a currency does not
eliminate fluctuations in the underlying prices of the securities. Although the
strategy of engaging in foreign currency transactions could reduce the risk of
loss due to a decline in the value of the hedged currency, it could also limit
the potential gain from an increase in the value of the currency. No Fund
intends to maintain a net exposure to such contracts where the fulfillment of
the Fund's obligations under such contracts would obligate the Fund to deliver
an amount of foreign currency in excess of the value of the Fund's portfolio
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<PAGE>
securities or other assets denominated in that currency. A Fund will not enter
into these contracts for speculative purposes and will not enter into
non-hedging currency contracts. These contracts involve a risk of loss if
Norwest fails to predict currency values correctly.
FUTURES CONTRACTS AND OPTIONS
STABLE INCOME FUND, LIMITED TERM GOVERNMENT INCOME FUND, INTERMEDIATE GOVERNMENT
INCOME FUND, DIVERSIFIED BOND FUND, TOTAL RETURN BOND FUND, BALANCED FUNDS,
INDEX FUND, DIVERSIFIED EQUITY FUND, SMALL CAP OPPORTUNITIES FUND. A Fund may
seek to enhance its return through the writing (selling) and purchasing of
exchange-traded and over-the-counter options on fixed income securities or
indices. A Fund may also to attempt to hedge against a decline in the value of
securities owned by it or an increase in the price of securities which it plans
to purchase through the use of those options and the purchase and sale of
interest rate futures contracts and options on those futures contracts. These
instruments are often referred to as "derivatives," which may be defined as
financial instruments whose performance is derived, at least in part, from the
performance of another asset (such as a security, currency or an index of
securities. A Fund may only write options that are covered. An option is covered
if, so long as the Fund is obligated under the option, it owns an offsetting
position in the underlying security or futures contract or maintains cash, U.S.
Government Securities or other liquid debt securities in a segregated account
with a value at all times sufficient to cover the Fund's obligation under the
option. Certain futures strategies employed by a Balanced Fund in making
temporary allocations may not be deemed to be for bona fide hedging purposes, as
defined by the Commodity Futures Trading Commission. A Fund may enter into these
futures contracts only if the aggregate of initial margin deposits for open
futures contract positions does not exceed 5 percent of the Fund's total assets.
RISK CONSIDERATIONS. The Fund's use of options and futures contracts subjects
the Fund to certain investment risks and transaction costs to which it might not
otherwise be subject. These risks include: (1) dependence on Norwest's ability
to predict movements in the prices of individual securities and fluctuations in
the general securities markets; (2) imperfect correlations between movements in
the prices of options or futures contracts and movements in the price of the
securities hedged or used for cover which may cause a given hedge not to achieve
its objective; (3) the fact that the skills and techniques needed to trade these
instruments are different from those needed to select the other securities in
which the Fund invests; (4) lack of assurance that a liquid secondary market
will exist for any particular instrument at any particular time, which, among
other things, may hinder a Fund's ability to limit exposures by closing its
positions; (5) the possible need to defer closing out of certain options,
futures contracts and related options to avoid adverse tax consequences; and (6)
the potential for unlimited loss when investing in futures contracts or writing
options for which an offsetting position is not held.
Other risks include the inability of the Fund, as the writer of covered call
options, to benefit from any appreciation of the underlying securities above the
exercise price and the possible loss of the entire premium paid for options
purchased by the Fund. In addition, the futures exchanges may limit the amount
of fluctuation permitted in certain futures contract prices during a single
trading day. A Fund may be forced, therefore, to liquidate or close out a
futures contract position at a disadvantageous price. There can be no assurance
that a liquid market will exist at a time when a Fund seeks to close out a
futures position or that a counterparty in an over-the-counter option
transaction will be able to perform its obligations. There are a limited number
of options on interest rate futures contracts and exchange traded options
contracts on fixed income securities. Accordingly, hedging transactions
involving these instruments may entail "cross-hedging." As an example, a Fund
may wish to hedge existing holdings of mortgage-backed securities, but no listed
options may exist on those securities. In that event, Norwest may attempt to
hedge the Fund's securities by the use of options with respect to similar fixed
income securities. The Fund may use various futures contracts that are
relatively new instruments without a significant trading history. As a result,
there can be no assurance that an active secondary market in those contracts
will develop or continue to exist.
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<PAGE>
LIMITATIONS. Except for the futures contracts strategies of the Balanced Funds
used for making temporary allocations among fixed-income and equity securities,
the Funds have no current intention of investing in futures contracts and
options thereon for purposes other than hedging. Schroder U.S. Smaller Companies
Portfolio may purchase a call or put only if, after such purchase, the value of
all put and call options held by the Portfolio would not exceed 5% of the
Portfolio's total assets. No other Fund may purchase any call or put option on a
futures contract if the premiums associated with all such options held by the
Fund would exceed 5 percent of the Fund's total assets as of the date the option
is purchased. No Fund may sell a put option if the exercise value of all put
options written by the Fund would exceed 50 percent of the Fund's total assets
or sell a call option if the exercise value of all call options written by the
Fund would exceed the value of the Fund's assets. In addition, the current
market value of all open futures positions held by a Fund will not exceed 50
percent of its total assets.
OPTIONS ON SECURITIES. A call option is a contract pursuant to which the
purchaser of the call option, in return for a premium paid, has the right to buy
the security underlying the option at a specified exercise price at any time
during the term of the option. The writer of the call option, who receives the
premium, has the obligation upon exercise of the option to deliver the
underlying security against payment of the exercise price during the option
period. A put option gives its purchaser, in return for a premium, the right to
sell the underlying security at a specified price during the term of the option.
The writer of the put, who receives the premium, has the obligation to buy the
underlying security, upon exercise at the exercise price during the option
period. The amount of premium received or paid is based upon certain factors,
including the market price of the underlying security or index, the relationship
of the exercise price to the market price, the historical price volatility of
the underlying security or index, the option period, supply and demand and
interest rates.
OPTIONS ON STOCK INDICES. A stock index assigns relative values to the stock
included in the index, and the index fluctuates with changes in the market
values of the stocks included in the index. Stock index options operate in the
same way as the more traditional stock options except that exercises of stock
index options are effected with cash payments and do not involve delivery of
securities. Thus, upon exercise of stock index options, the purchaser will
realize and the writer will pay an amount based on the differences between the
exercise price and the closing price of the stock index.
INDEX FUTURES CONTRACTS. Bond and stock index futures contracts are bilateral
agreements pursuant to which two parties agree to take or make delivery of an
amount of cash equal to a specified dollar amount times the difference between
the bond or stock index value at the close of trading of the contract and the
price at which the futures contract is originally struck. No physical delivery
of the securities comprising the index is made. Generally, these futures
contracts are closed out prior to the expiration date of the contract. In
addition to the Funds listed at the beginning of this section, "Futures
Contracts and Options," a Fund using the Index Fund investment style may invest
in index futures contracts to a limited extent.
OPTIONS ON FUTURES CONTRACTS. Options on futures contracts are similar to stock
options except that an option on a futures contract gives the purchaser the
right, in return for the premium paid, to assume a position in a futures
contract rather than to purchase or sell stock, at a specified exercise price at
any time during the period of the option. Upon exercise of the option, the
delivery of the futures position to the holder of the option will be accompanied
by transfer to the holder of an accumulated balance representing the amount by
which the market price of the futures contract exceeds, in the case of a call,
or is less than, in the case of a put, the exercise price of the option on the
future.
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PROSPECTUS
APRIL 1, 1998
THE PERFORMA FUNDS
PERFORMA STRATEGIC VALUE BOND FUND
PERFORMA DISCIPLINED GROWTH FUND
PERFORMA SMALL CAP VALUE FUND
PERFORMA GLOBAL GROWTH FUND
This Prospectus explains concisely what you should know before investing in
PERFORMA STRATEGIC VALUE BOND FUND, PERFORMA DISCIPLINED GROWTH FUND, PERFORMA
SMALL CAP VALUE FUND and PERFORMA GLOBAL GROWTH FUND (each a "Fund" and
collectively the "Funds"). Please read it carefully and keep it for future
reference. The Funds are each diversified portfolios of Norwest Advantage Funds
(the "Trust"), a registered, open-end, management investment company.
Each Fund seeks to achieve its investment objective by investing all of its
investable assets in a separate portfolio of another registered, open-end,
management investment company with the same investment objective (each a
"Portfolio" and collectively the "Portfolios"). See "Organization."
Investors should read this Prospectus carefully and retain it for future
reference. You can find more detailed information in the Statement of Additional
Information, dated April 1, 1998 (the "SAI"), which maybe amended from time to
time. For information on purchasing Shares of the Funds call toll free (888)
800-6748. For a free copy of the SAI or other information, call the Funds'
distributor at (207) 879-0001. The SAI has been filed with the Securities and
Exchange Commission ("SEC") and is incorporated into this Prospectus by
reference.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE SYSTEM OR ANY OTHER GOVERNMENT
AGENCY, AND INVOLVE INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
<S> <C> <C>
1. SUMMARY..................................................................... 3
2. FINANCIAL HIGHLIGHTS........................................................ 6
3. INVESTMENT OBJECTIVES....................................................... 7
4. HOW THE FUNDS PURSUE THEIR OBJECTIVES....................................... 7
5. HOW PERFORMANCE IS SHOWN.................................................... 17
6. ORGANIZATION................................................................ 17
7. HOW THE FUNDS ARE MANAGED................................................... 19
8. ABOUT YOUR INVESTMENT....................................................... 25
9. THE FUNDS' DISTRIBUTIONS AND
CERTAIN TAX INFORMATION..................................................... 26
APPENDIX A.................................................................. A-1
Glossary of Investment Terms
APPENDIX B.................................................................. B-1
Explanation of Rating Categories
</TABLE>
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1. SUMMARY
The following summary is qualified in its entirety by the more detailed
information contained in this Prospectus.
INVESTING IN THE FUNDS
You may purchase shares of the Funds through certain broker-dealers, banks and
other financial institutions. While no Fund is intended to provide a complete or
balanced investment program, each can serve as a component of your investment
program.
THE FUNDS
PERFORMA STRATEGIC VALUE BOND FUND seeks total return by investing primarily in
income producing securities. The Fund invests in a broad range of fixed income
instruments in order to create a strategically diversified portfolio of high
quality fixed income investments.
PERFORMA DISCIPLINED GROWTH FUND seeks capital appreciation by investing
primarily in common stocks of larger companies. The Fund invests in companies
that, in the view of the investment adviser, possess above average potential for
growth and which will report a level of corporate earnings that exceeds the
level expected by investors.
PERFORMA SMALL CAP VALUE FUND seeks capital appreciation by investing primarily
in common stocks of smaller companies. The Fund seeks higher growth rates and
greater long-term returns by investing in the stocks of smaller companies that,
in the view of the investment adviser, are undervalued and which will report a
level of corporate earnings that exceeds the level expected by investors.
PERFORMA GLOBAL GROWTH FUND seeks long-term growth of capital by investing
primarily in common stocks of established companies throughout the world,
including the United States. The Fund invests in companies located in developed,
newly industrialized and emerging markets that, in the view of the investment
adviser, have a sustainable competitive advantage and whose growth potential is
undervalued by investors.
STRUCTURE OF THE FUNDS
Each Fund seeks to achieve its investment objective by investing all of its
investable assets in a separate series of a registered, open-end, management
investment company (each a "Portfolio" and collectively the "Portfolios") that
has the same investment objective and substantially similar investment policies.
Accordingly, the investment experience of each Fund will correspond directly
with the investment experience of its respective Portfolio. See "Organization."
The Portfolios in which the Funds invest are:
<TABLE>
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FUND CORRESPONDING PORTFOLIO
- ------------------------------------------- -----------------------------------------
<S> <C>
Performa Strategic Value Bond Fund Strategic Value Bond Portfolio
Performa Disciplined Growth Fund Disciplined Growth Portfolio
Performa Small Cap Value Fund Small Cap Value Portfolio
Performa Global Growth Fund Schroder Global Growth Portfolio
</TABLE>
MANAGEMENT OF THE FUNDS
NORWEST INVESTMENT MANAGEMENT, INC. ("Norwest"), a subsidiary of Norwest Bank
Minnesota, N.A. ("Norwest Bank"), is the investment adviser of each Portfolio
other than Schroder Global Growth Portfolio and each 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. Norwest Bank
serves as transfer agent, dividend disbursing agent and custodian of the Funds,
and serves as the custodian of each Portfolio other than Schroder Global Growth
Portfolio. See "How the Funds are Managed."
Each Fund incurs investment advisory fees indirectly through the investment
advisory fees paid by its corresponding Portfolio.
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<PAGE>
GALLIARD CAPITAL MANAGEMENT, INC. ("Galliard"), an investment advisory
subsidiary of Norwest Bank, is the investment subadviser of Strategic Value Bond
Portfolio. Galliard provides investment advisory services to bank and thrift
institutions, pension and profit sharing plans, trusts and charitable
organizations and corporate and other business entities.
SCHRODER CAPITAL MANAGEMENT INTERNATIONAL INC. ("Schroder"), a wholly owned U.S.
subsidiary of Schroder U.S. Holdings, Inc., the wholly owned U.S. holding
company subsidiary of Schroders plc., is the investment adviser of Schroder
Global Growth Portfolio. As of December 31, 1997, Schroder had over $25 billion
in assets under management.
SMITH ASSET MANAGEMENT GROUP, L.P. ("Smith Group"), a registered investment
adviser, is the investment subadviser of Disciplined Growth Portfolio and Small
Cap Value Portfolio. Smith group provides investment management services to
company retirement plans, foundations, endowments, trust companies, and high net
worth individuals.
Norwest, Schroder, Galliard and Smith (or Norwest and a particular investment
subadviser) are sometimes referred to collectively as the "Advisers."
FUND ADMINISTRATION AND DISTRIBUTION
FORUM ADMINISTRATIVE SERVICES, LLC ("FAS") serves as administrator to the Funds
and also provides administrative services to the Portfolios. Schroder Fund
Advisors Inc. ("Schroder Advisors") serves as the administrator of Schroder
Global Growth Portfolio and FAS serves as that Portfolio's subadministrator. The
manager of the Funds and distributor of their shares is Forum Financial
Services, Inc. ("Forum"). See "How the Funds are Managed - The Funds' Other
Service Providers."
PURCHASE AND REDEMPTION OF SHARES
You may purchase or redeem your shares without a sales or other charge. The
minimum initial investment is $1,000, the minimum subsequent investment is $100
and you may make $100 monthly periodic investments. See "About Your Investment."
DIVIDENDS AND DISTRIBUTIONS
Dividends of net investment income are declared and paid monthly in the case of
PERFORMA STRATEGIC VALUE BOND FUND and declared and paid annually in the case of
all other Funds. Each Fund's net capital gain, if any, is distributed at least
annually. See "The Funds' Distributions and Certain Tax Information."
CERTAIN RISK FACTORS
There can be no assurance that any Fund will achieve its investment objective,
and each Fund's net asset value and total return will fluctuate based upon
changes in the value of the securities held by its corresponding Portfolio. Upon
redemption, an investment in a Fund may be worth more or less than its original
value. An investment in any Fund involves certain risks, depending on the types
of investments made and the types of investment techniques employed. All
investments made by the Portfolios entail some risk.
Each Fund is designed for the investment of that portion of an investor's funds
that can appropriately bear the special risks associated with the Fund. The
risks of investing in each Fund are more specifically described in "How the
Funds Pursue Their Objectives."
Normally, the value of PERFORMA STRATEGIC VALUE BOND FUNDS' investments will
vary inversely with changes in interest rates. While the Fund invests at least
65% of its assets in investment grade securities (securities rated in the top
four highest ratings categories by a nationally recognized statistical rating
organization ("NRSRO") such as Standard & Poor's), it may invest in lower rated
securities. See "How the Funds Pursue Their Objectives - Performa Strategic
Value Bond Fund - Risks of Non-Investment Grade Securities." In addition,
repayment of principal investment in securities entails certain risks.
Your investment in PERFORMA DISCIPLINED GROWTH FUND, PERFORMA SMALL CAP VALUE
FUND and PERFORMA GLOBAL GROWTH FUND, each of which invests primarily in equity
securities, is subject to the general risks of investing in the stock market.
PERFORMA SMALL CAP VALUE FUND and PERFORMA GLOBAL GROWTH FUND invest in
4
<PAGE>
securities of smaller companies. These investments entail certain additional
risks, including lower trading volumes and, therefore, the potential for greater
price volatility. Performa Global Growth Portfolio will, however, generally
concentrate its investments in the larger and, to a lesser extent, medium-sized
companies relative to the particular market. These Funds are designed for the
investment of that portion of your funds that can appropriately bear the special
risks associated with an investment in smaller market capitalization companies.
PERFORMA GLOBAL GROWTH FUND invests in securities of foreign issuers. These
investments entail certain additional risks, including the risks of foreign
political and economic instability, adverse movements in foreign exchange rates,
the imposition or tightening of exchange controls or other limitations on
repatriation of foreign capital, and changes in foreign governmental attitudes
towards private investment, possibly leading to nationalization, increased
taxation or confiscation of foreign investors' assets.
By pooling its assets in a Portfolio with other institutional investors, a Fund
may be able to achieve certain efficiencies and economies of scale that it could
not achieve by investing directly in securities. Nonetheless, these investments
could have adverse effects on the Funds which investors should consider. See
"Organization - Core and Gateway Structure - Certain Risks of Investing in
Portfolios."
EXPENSES OF INVESTING IN THE FUNDS
Fund costs and expenses are one of several factors to consider when investing.
Your costs and expenses are summarized in the following three tables. The
Shareholder Transaction Expenses table summarizes your transaction costs of
buying and selling Fund shares. The Annual Fund Operating Expenses table
summarizes the expenses you will bear directly or indirectly on your investment
in a Fund and is based on estimated expenses for the Funds' initial fiscal year
of operations ending May 31, 1998. The Examples show your cumulative expenses
attributable to a hypothetical $1,000 investment over specified periods.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Sales charges on purchases and reinvested distributions None
Deferred sales charges or redemption fees None
Exchange fees None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets after applicable expense reimbursements)
<TABLE>
<CAPTION>
OTHER
EXPENSES
INVESTMENT (AFTER TOTAL FUND
ADVISORY RULE 12b-1 REIMBURSE- OPERATING
FEES FEES MENTS) EXPENSES
---------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
Performa Strategic Value Bond Fund 0.50% None 0.35% 0.85%
Performa Disciplined Growth Fund 0.90% None 0.35% 1.25%
Performa Small Cap Value Fund 0.95% None 0.35% 1.30%
Performa Global Growth Fund 0.90% None 0.55% 1.45%
</TABLE>
This table is provided to help you understand the expenses of investing and sets
forth your share of a Fund's operating expenses. Each Fund's expenses include
the Fund's pro rata portion of all expenses of the Portfolio in which the Fund
invests. "Investment Advisory Fees" are those incurred by the Portfolio in which
the Fund invests. For Performa Global Growth Fund, "Investment Advisory Fees"
includes the administrative services fee payable to Norwest and the
administration fee and portfolio management fee payable to Schroder. "Other
Expenses" are estimated for the current fiscal year and reflect projected
expense reimbursements. Absent projected expense reimbursements, "Other
Expenses" would be 0.52%, 0.60%, 0.55% and 2.02%, respectively, and "Total Fund
Operating Expenses" would be 1.39%, 1.87%, 1.87% and 2.92%, respectively.
Expense reimbursements are voluntary and may be reduced or eliminated at any
time. For a further description of the fees and expenses incurred in the
operation of the Funds. See "How the Funds are Managed."
5
<PAGE>
EXAMPLES
Your investment of $1,000 would incur the following expenses assuming: (1) the
investment of all of the Fund's assets in its corresponding Portfolio, (2) a 5%
annual return, (3) the reinvestment of all your dividends and distributions and
(4) redemption at the end of each period. The example is based on the expenses
listed in the Annual Fund Operating Expenses table.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Performa Strategic Value Bond Fund $ 9 $ 27 $ 47 $ 105
Performa Disciplined Growth Fund $ 13 $ 40 $ 69 $ 151
Performa Small Cap Value Fund $ 13 $ 41 $ 71 $ 157
Performa Global Growth Fund $ 15 $ 46 $ 79 $ 174
</TABLE>
THE EXAMPLE DOES NOT REPRESENT PAST OR FUTURE EXPENSE LEVELS. ACTUAL EXPENSES
AND RETURN MAY BE GREATER OR LESS THAN THOSE SHOWN. The five percent annual
return is required by government regulation and does not represent the Fund's
actual returns.
2. FINANCIAL HIGHLIGHTS
The following table provides financial highlights for each of the Funds. This
information represents selected data for a single Share outstanding for the
period ended November 30, 1997. The information for this period is unaudited.
The Fund's financial statements for the period ended November 30, 1997, are
contained in the Fund's Semi-Annual Report. These financial statements are
incorporated by reference into the SAI. Further information about each Fund's
performance is contained in the Fund's Semi-Annual Report which may be obtained
from the Trust without charge.
<TABLE>
<CAPTION>
PERFORMA
STRATEGIC PERFORMA PERFORMA PERFORMA
VALUE DISCIPLINED SMALL CAP GLOBAL GROWTH
BOND FUND GROWTH FUND VALUE FUND FUND
------------- ------------ ----------- --------------
PERIOD ENDED NOVEMBER 30, 1997+
--------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period (a) $ 10.00 $ 10.00 $ 10.00 $ 10.00
Investment Operations:
Net Investment Income (Loss) 0.12 -- -- --
Net Realized and Unrealized Gain (Loss) on
Investments 0.04 (0.48) (0.70) (0.67)
------------- ------------ ----------- --------------
Total from Investment Operations 0.16 (0.48) (0.70) (0.67)
------------- ------------ ----------- --------------
Distributions From:
Net Investment Income (0.06) -- -- --
------------- ------------ ----------- --------------
Net Asset Value, End of Period $ 10.10 $ 9.52 $ 9.30 $ 9.33
------------- ------------ ----------- --------------
------------- ------------ ----------- --------------
Total Return(b) 1.55% (4.80)% (7.00)% (6.70)%
Ratio/Supplementary Data
Net Assets at End of Period (000's omitted) $ 1,812 $ 2,601 $ 908 $ 335
Ratios to Average Net Assets:
Expenses Including Reimbursement/Waiver of Fees
(c)(d) 0.91% 1.31% 1.37% 1.45%
Expenses Excluding Reimbursement/Waiver of Fees
(c)(d) 10.80% 9.46% 20.05% 63.51%
Net Investment Income (Loss) including
Reimbursement/Waiver of Fees (c)(d) 5.81% 0.57% (0.39)% 0.15%
Average Commission Rate Per Share (e) N/A $ 0.0587 $ 0.0583 $ 0.0444
Portfolio Turnover Rate (f) 75.17% 7.11% 25.08% 9.40%
</TABLE>
+ Unaudited.
(a) Each of the Funds commenced operations on October 15, 1997.
(b) Total return would have been lower absent expense reimbursements and/or fee
waivers.
(c) Annualized.
(d) Includes expenses allocated from the Portfolios of Core Trust (Delaware) or
Schroder Capital Funds in which the Fund was invested.
(e) Represents the average commission per share paid to brokers on the purchase
or sale of portfolio securities.
(f) The portfolio turnover rate reflects the activity of the Portfolio in which
the Fund invests.
6
<PAGE>
3. INVESTMENT OBJECTIVES
Each Fund pursues its investment objective as listed below in accordance with
its own separate investment policies. No Fund is intended to be a complete
investment program, and there is no assurance that any Fund will achieve its
investment objective.
PERFORMA STRATEGIC VALUE BOND FUND seeks total return by investing primarily in
income producing securities.
PERFORMA DISCIPLINED GROWTH FUND seeks capital appreciation by investing
primarily in common stocks of larger companies.
PERFORMA SMALL CAP VALUE FUND seeks capital appreciation by investing primarily
in common stocks of smaller companies.
PERFORMA GLOBAL GROWTH FUND seeks long-term growth of capital by investing
primarily in common stocks of established companies throughout the world,
including the United States.
4. HOW THE FUNDS PURSUE THEIR OBJECTIVES
STRUCTURE OF THE FUNDS
Each Fund seeks to achieve its objective by investing all of its investable
assets in the Fund's corresponding Portfolio. Each Portfolio has the same
investment objective and substantially similar investment policies as the
corresponding Fund. Accordingly, the investment experience of each Fund will
correspond directly with the investment experience of its corresponding
Portfolio. The Portfolios in which the Funds invest are:
<TABLE>
<CAPTION>
FUND CORRESPONDING PORTFOLIO
- ----------------------------------------- ------------------------------------------------
<S> <C>
Performa Strategic Value Bond Fund Strategic Value Bond Portfolio
Performa Disciplined Growth Fund Disciplined Growth Portfolio
Performa Small Cap Value Fund Small Cap Value Portfolio
Performa Global Growth Fund Schroder Global Growth Portfolio
</TABLE>
By pooling their assets in a Portfolio with other institutional investors, each
of the Funds may be able to achieve certain efficiencies, economies of scale and
enhanced portfolio diversification. Nonetheless, these investments could have
adverse effects on the Funds which investors should consider. Investment
decisions are made by the Advisers of each Portfolio independently. See
"Organization - Core and Gateway Structure."
You should read the "Additional Investment Policies" section and the appendices
in conjunction with this section in order to fully understand the Funds'
investments and risks. Although this section discusses the investment policies
of the Portfolios, it applies equally to the Funds.
THE BOND FUND
PERFORMA STRATEGIC VALUE BOND FUND
Strategic Value Bond Portfolio invests in a broad range of fixed income
instruments including corporate bonds, asset-backed securities, Mortgage-related
securities, U.S. Government Securities, preferred stock, convertible bonds and
foreign bonds in order to create a strategically diversified portfolio of high
quality fixed income investments.
In making investment decisions, the investment adviser focuses on relative value
as opposed to the prediction of the direction of interest rates. In general,
particular emphasis is placed on higher current income instruments such as
corporate bonds and mortgage/asset-backed securities in order to enhance
returns. The investment adviser believes that this exposure enhances performance
in varying economic and interest rate
7
<PAGE>
cycles while avoiding excessive risk concentrations. The investment adviser's
investment process involves rigorous evaluation of each security. This includes
identifying and valuing cash flows, embedded options, credit quality, structure,
liquidity, marketability, current versus historical trading relationships,
supply and demand for the instrument and expected returns in varying
economic/interest rate environments. This process seeks to identify securities
which represent the best relative economic value. The results of the investment
process are then evaluated against the Portfolio's objective and the Portfolio
purchases those securities which will enhance its positioning. The Portfolio
will be repositioned based on market changes and shifts in relative value of the
instruments held by the Portfolio.
The Portfolio's investments are subject to the various risks of investing in
fixed-income securities. To limit the Portfolio's "credit risk," in general 65%
of the Portfolio's assets will be invested in fixed income securities rated in
one of the three highest rating categories by at least one NRSRO, such as
Moody's Investors Service, Standard & Poor's, Fitch IBCA, Inc. or Duff & Phelps
Credit Rating Co., or which are unrated and determined by the investment adviser
to be of comparable quality. In addition, the Portfolio will limit its
investment in securities with a less than an investment grade rating to 20% of
the Portfolio's assets. While the average quality of the Portfolio will vary
over an economic cycle, the average rating of the Portfolio's investments will
be "A" or better. A description of the rating categories of various NRSRO's is
contained in Appendix B. Investment grade instruments include those that are
rated in one of four highest long-term rating categories by an NRSRO or are
unrated and determined by the investment adviser to be of comparable quality.
The average maturity of the Portfolio will vary between five and fifteen years.
In the case of mortgage-related, asset-backed and similar securities, the
Portfolio uses the security's average life in calculating the Portfolio's
average maturity. The Portfolio's effective duration normally will vary between
three and eight years.
One of the primary tenets of the Fund is strategic diversification. Toward that
end, the Fund will not invest more than: (1) 75% in corporate bonds, (2) 25% in
one industry of the corporate market, (3) 50% in asset-backed securities, or (4)
60% in mortgage-related securities. U.S. Government securities may be held in
any amount without restriction. With respect to corporate bonds, generally no
more than 5% will be held in one issuer.
The Portfolio may enter into derivative transactions to receive favorable
financing or diversify portfolio risk. The Portfolio may invest in securities
that are restricted as to disposition under the federal securities laws
(sometimes referred as "private placements" or "restricted securities.") In
addition the Portfolio may invest in interest in other investment companies,
which also may be "restricted securities." See "Additional Investment Policies -
Derivative Investments" and "Appendix A - Glossary of Investment Terms -
Futures, Options and Other Derivatives."
RISKS OF INVESTING IN FIXED INCOME SECURITIES. The primary risks of investing in
any fixed income instrument are market risk (the risk of changing interest
rates) and credit risk. In addition, prepayment risk and extension risk exist
for certain types of fixed income instruments in which the Portfolio may invest.
Market risk refers to the change in the market value of fixed income investments
held by a Portfolio, including money market instruments, when there is a change
in interest rates. There is normally an inverse relationship between the market
value of these securities and actual changes in interest rates. Thus, an
increase in interest rates generally produces a decrease in market value of
fixed income securities, while a decrease in interest rates generally produces
an increase in market value of fixed income securities. Moreover, the longer the
remaining maturity of a security, the greater is the affect of interest rate
changes on the market value of the security.
Fixed income investments are subject to CREDIT RISK which refers to the ability
of the debtor (the issuer of the instrument) and any other obligor, to pay
principal and interest on the debt as it becomes due. Changes in
8
<PAGE>
the ability of an issuer to make payments of interest and principal and the
market's perception of an issuer's creditworthiness will affect the market value
of the debt securities of that issuer. Obligations of issuers of debt securities
are 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.
Mortgage-related and asset-backed securities are subject to PREPAYMENT RISK,
which refers to the fact that holders of these instruments may have all or any
part of their principal investment returned by the issuer as the mortgages or
other assets backing the investment are paid off. Prepayments during times of
declining interest rates tend to lower the return of a Fund. Prepayments also
may result in losses to a Fund if the securities were acquired at a premium
(that is, for an amount above the security's par value).
Certain debt instruments may also be subject to EXTENSION RISK, which refers to
the change in total return on a debt instrument resulting from extension or
abbreviation of the instrument's maturity.
RISKS OF NON-INVESTMENT GRADE SECURITIES. The Portfolio may invest up to 20% of
its assets in non-investment grade securities rated "C" and above (commonly
referred to as "junk bonds"). These securities have speculative or predominantly
speculative characteristics and provide poor protection for payment of principal
and interest, but may have greater potential for capital appreciation than do
higher quality securities. Non-investment grade securities involve greater risk
of default or price changes due to changes in the issuers' creditworthiness than
do investment grade securities. The market for these securities may be thinner
and less active than that for higher quality securities, which may affect the
price at which the lower rated securities can be sold. In addition, the market
prices of lower rated securities may fluctuate more than the market prices of
higher quality securities and may decline significantly in periods of general
economic difficulty.
THE EQUITY FUNDS
Each of Disciplined Growth Portfolio, Small Cap Value Portfolio, and Global
Growth Portfolio (the "Equity Portfolios") invest primarily in common stock. The
fundamental risk of investing in common stock is the risk that the value of the
stock might decrease. Stock values fluctuate in response to the activities of an
individual company or in response to general market and/or economic conditions.
Historically, common stocks have provided greater long-term returns and have
entailed greater short-term risks than preferred stocks, fixed-income and money
market investments. Common stocks in which a Portfolio may invest may be traded
on a securities exchange or in the over-the-counter market and, particularly for
smaller and foreign companies, may not be traded every day in the volume typical
of securities traded on a major U.S. national securities exchange. As a result,
disposition by a Portfolio of a security to meet redemptions by interest holders
or otherwise may require the Portfolio to sell these securities at a discount
from market prices, to sell during periods when disposition is not desirable, or
to make many small sales over a lengthy period of time. The market value of all
securities, including equity securities, is based upon the market's perception
of value and not necessarily the book value of an issuer or other objective
measure of a company's worth.
PERFORMA DISCIPLINED GROWTH FUND
Disciplined Growth Portfolio seeks greater long-term returns by investing
primarily in the common stock of companies that, in the view of the investment
adviser, possess above average potential for growth. The average market
capitalization of the companies in which the Portfolio invests will be greater
than $5 billion.
The Portfolio seeks to identify growth companies that will report a level of
corporate earnings that exceeds the level expected by investors. In seeking
these companies, the investment adviser uses both quantitative and fundamental
analysis. Among the factors that the investment adviser considers are changes of
earnings estimates by investment analysts, the recent trend of company earnings
reports, and an analysis of the
9
<PAGE>
fundamental business outlook for the company. The investment adviser uses a
variety of valuation measures to determine whether the share price already
reflects any positive fundamentals identified by the investment adviser. The
investment adviser attempts to constrain the variability of the investment
returns by employing risk control screens for price volatility, financial
quality and valuation and to the extent possible, gives equal weighting to
portfolio securities.
PERFORMA SMALL CAP VALUE FUND
Small Cap Value Portfolio seeks higher growth rates and greater long-term
returns by investing primarily in the common stock of smaller companies that, in
the view of the investment adviser, are undervalued. Under normal circumstances,
the Portfolio will invest substantially all of its assets, but not less than 65%
of its net assets, in securities of companies with a market capitalization which
reflects the market capitalization of companies included in the Russell 2000
Index.
The Portfolio invests in those smaller companies that the investment adviser
believes to be undervalued and which will report a level of corporate earnings
exceeding the level expected by investors. The determination of value is based
upon both the price to earnings ratio of the company and a comparison of the
public market value of the company to a proprietary model that values the
company in the private market. In seeking companies that will report a level of
earnings exceeding that expected by investors, the investment adviser uses both
quantitative and fundamental analysis. Among the factors that the investment
adviser considers are changes of earnings estimates by investment analysts, the
recent trend of company earnings reports, and the fundamental business outlook
for the company.
RISKS OF INVESTING IN SMALLER COMPANIES. Investment in smaller capitalization
companies carries greater risk than investment in larger capitalization
companies. Smaller capitalization companies generally experience higher growth
rates and higher failure rates than do larger capitalization companies. The
trading volume of smaller capitalization companies' securities is normally lower
than that of larger capitalization companies. Heavy trading generally has a
disproportionate effect on market price (tending to make prices rise more in
response to buying demand and fall more in response to selling pressure).
Accordingly, the net asset value of the Fund can be expected to fluctuate more
that that of other funds that invest in larger capitalization companies.
Smaller companies often have products and management personnel that have not
been tested by time or the marketplace and their financial resources may not be
as substantial as those of more established companies. Their securities (which
the Portfolio may purchase when they are offered to the public for the first
time) may have a limited trading market which can adversely affect the
Portfolio's ability to sell the securities and can result in such securities
being priced lower than otherwise might be the case. If other institutional
investors trade in the securities of a smaller company in which the Portfolio
holds an interest, the Portfolio may be forced to dispose of its holdings at
prices lower than might otherwise be obtained.
PERFORMA GLOBAL GROWTH FUND
Global Growth Portfolio invests in common stocks of established companies
located in the developed, newly industrialized and emerging markets. Under
normal market conditions, the Portfolio will invest at least 65% of the value of
its total assets in companies located in at least five countries, one of which
will be the United States. The Portfolio can purchase stocks without regard to a
company's market capitalization, although investments will generally be
concentrated in the larger and, to a lesser extent, medium-sized companies
relative to the particular market. The percentage of the Portfolio's assets
invested in U.S. and non-U.S. stocks will vary over time in accordance with the
outlook of the investment adviser.
Stock selection is at the heart of the investment adviser's investment process.
The investment adviser emphasizes fundamental company analysis in its approach
to selecting investments for the Portfolio. The investment adviser seeks
companies that it believes have a sustainable competitive advantage and whose
growth potential is undervalued by investors. In selecting companies for
investment, the investment adviser
10
<PAGE>
considers historical growth rates and future growth prospects, management
capability, competitive position in both domestic and export markets and other
factors. The investment adviser will seek to add value through active geographic
allocation. The investment adviser's allocation decisions are based upon its
assessment of the likelihood that the country will have a favorable long-term
business environment in which corporate growth will not be impeded by adverse
macroeconomic or political factors.
The Portfolio may invest in debt securities issued or guaranteed by foreign
governments (including countries, provinces and municipalities) or their
agencies and instrumentalities; debt securities issued or guaranteed by
international organizations designated or supported by multiple foreign
governmental entities (which are not obligations of foreign governments) to
promote economic reconstruction or development; and debt securities issued by
corporations or financial institutions.
GEOGRAPHIC CONCENTRATION. The Portfolio may invest more than 25% of its total
assets in issuers located in any one country and to the extent that it does so,
is susceptible to a range of factors that could adversely affect that country,
including the political and economic developments and foreign exchange rate
fluctuations discussed below. As a result of investing substantially in one
country, the value of the Portfolio's assets may fluctuate more widely than the
value of shares of a comparable fund with a lesser degree of geographic
concentration.
RISKS OF INTERNATIONAL INVESTING. All investments, domestic and foreign, involve
risks. Investment in the securities of foreign issuers may involve risks in
addition to those normally associated with investments in the securities of U.S.
issuers. While the Portfolio will generally invest only in securities of
companies and governments in countries that the investment adviser, in its
judgment, considers both politically and economically stable, all foreign
investments are subject to risks of foreign political and economic instability,
adverse movements in foreign exchange rates, the imposition or tightening of
exchange controls or other limitations on repatriation of foreign capital.
Foreign investments are subject to the risk of changes in foreign governmental
attitudes towards private investment that could lead to nationalization,
increased taxation or confiscation of Portfolio assets.
Moreover, (1) dividends payable on foreign securities may be subject to foreign
withholding taxes, thereby reducing the income earned by the Portfolio; (2)
commission rates payable on foreign portfolio transactions are generally higher
than in the United States; (3) accounting, auditing and financial reporting
standards differ from those in the United States, which means that less
information about foreign companies may be available than is generally available
about issuers of comparable securities in the United States.; (4) foreign
securities often trade less frequently and with lower volume than U.S.
securities and consequently may exhibit greater price volatility; and (5)
foreign securities trading practices, including those involving securities
settlement, may expose the Portfolio to increased risk in the event of a failed
trade or the insolvency of a foreign broker-dealer or registrar.
EMERGING MARKETS. Investing in emerging market countries generally presents
greater risk than does other foreign investing. In any emerging market country,
there is the increased possibility of expropriation of assets, confiscatory
taxation, nationalization of companies or industries, foreign exchange controls,
foreign investment controls on daily stock market movements, default in foreign
government securities, political or social instability, or diplomatic
developments that could affect investments in those countries. In the event of
expropriation, nationalization or other confiscation, the Portfolio could lose
its entire investment in the country involved. The economies of developing
countries are more likely to be adversely affected by trade barriers, exchange
controls, managed adjustments in relative currency values and other
protectionist measures imposed or negotiated by the countries with which they
trade. There may also be less monitoring and regulation of emerging markets and
the activities of brokers there. Investing may require that the Portfolio adopt
special procedures, seek local government approvals or take other actions that
may incur costs for the Portfolio.
11
<PAGE>
Certain emerging market countries may restrict investment by foreign investors.
These restrictions or controls may at times limit or preclude investment in
certain securities and may increase the costs and expenses of the Portfolio.
Several emerging market countries have experienced high, and in some periods
extremely high, rates of inflation in recent years. Inflation and rapid
fluctuations in inflation rates may adversely affect these countries' economies
and securities markets. Further, inflation accounting rules in some emerging
market countries may indirectly generate losses or profits for certain emerging
market companies.
CURRENCY FLUCTUATIONS AND DEVALUATIONS. Because the Portfolio will invest
heavily in non-U.S. currency-denominated securities, changes in foreign currency
exchange rates will affect the value of the Portfolio's investments. A decline
against the dollar in the value of currencies in which the Portfolio's
investments are denominated will result in a corresponding decline in the dollar
value of the Portfolio's assets. This risk is heightened in some emerging market
countries.
The Portfolio may at times have to liquidate portfolio securities in order to
acquire sufficient U.S. dollars to fund redemptions of the Funds or other
investors or to purchase the U.S. dollars in order to pay its expenses. Changes
in foreign currency exchange rates may contribute to the need to liquidate
portfolio securities.
FOREIGN EXCHANGE CONTRACTS. Because the Portfolio will invest in non-U.S. dollar
denominated securities, changes in foreign currency exchange rates will affect
the value of the Portfolio's investments. A decline against the dollar in the
value of currencies in which the Portfolio's investments are denominated will
result in a corresponding decline in the dollar value of its assets. This risk
tends to be heightened in the case of investing in certain emerging market
countries. For example, some currencies of emerging market countries have
experienced repeated devaluations relative to the U.S. dollar, and major
adjustments have periodically been made in certain of such currencies. Some
emerging market countries may also have managed currencies that do not float
freely against the dollar. Exchange rates are influenced generally by the forces
of supply and demand in the foreign currency markets and by numerous other
political and economic events occurring outside the United States, many of which
may be difficult, if not impossible, to predict. When investing in foreign
securities, the Portfolio usually effects currency exchange transactions on a
spot (i.e., cash) basis at the spot rate prevailing in the foreign exchange
market. The Portfolio incurs foreign exchange expenses in converting assets from
one currency to another.
The Portfolio may enter into foreign currency forward contracts to purchase or
sell foreign currencies in anticipation of its currency requirements and to
protect against possible adverse movements in foreign exchange rates. A forward
currency contract is an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days from the date of the contract
agreed upon by the parties, at a price set at the time of the contract. This
method of attempting to hedge the value of portfolio securities against a
decline in the value of a currency does not eliminate fluctuations in the
underlying prices of the securities and may expose the Portfolio to the risk
that the counterparty is unable to perform. Although such contracts may reduce
the risk of loss to the Portfolio due to a decline in the value of the currency
sold, they also limit any possible gain that might result should the value of
such currency rise. The Portfolio does not intend to maintain a net exposure to
such contracts where the fulfillment of obligations under such contracts would
obligate it to deliver an amount of foreign currency in excess of the value of
its portfolio securities or other assets denominated in the currency. The
Portfolio will not enter into these contracts for speculative purposes and will
not enter into non-hedging currency contracts. These contracts involve a risk of
loss if the investment adviser fails to predict currency values correctly. The
Portfolio has no present intention to enter into currency futures or options
contracts, but may do so in the future.
DEBT SECURITIES. The Portfolio may seek capital appreciation through investment
in convertible or non-convertible debt securities. Capital appreciation in debt
securities may arise as a result of a favorable change in relative foreign
exchange rates, in relative interest rate levels, or in the creditworthiness of
issuers. The
12
<PAGE>
receipt of income from these securities is incidental to the Portfolio's
objective of long-term capital appreciation. Such income can be used, however,
to offset the operating expenses of the Portfolio. The Portfolio will not seek
to benefit from anticipated short-term fluctuations in currency exchange rates.
The Portfolio may invest to a certain extent in debt securities in order to
participate in debt-to-equity conversion programs incident to corporate
reorganizations.
ADDITIONAL INVESTMENT POLICIES
Each Fund's (and each Portfolio's) investment objective and all investment
policies of the Funds (and Portfolios) that are designated as fundamental may
not be changed without approval of the holders of a majority of the outstanding
voting securities of the Fund (or Portfolio). A majority of outstanding voting
securities means the lesser of 67% of the shares present or represented at a
shareholders' meeting at which the holders of more than 50% of the outstanding
shares are present or represented, or more than 50% of the outstanding shares.
Except as otherwise indicated, investment policies of the Funds are not
fundamental and may be changed by the Board of Trustees of the Trust (the
"Board") without shareholder approval. Likewise, nonfundamental investment
policies of a Portfolio may be changed by that investment company's board of
trustees without shareholder approval. See "Appendix A" and the SAI for further
information.
BORROWING AND LENDING
As a fundamental policy, each Portfolio may borrow money but will limit
borrowings to amounts not in excess of 33 1/3% of the value of the Portfolio's
total assets. Borrowing for other than temporary or emergency purposes or
meeting redemption requests is not expected to exceed 5% of the value of a
Portfolio's assets. Certain transactions, such as reverse repurchase agreements,
that are similar to borrowings are not treated as borrowings to the extent that
the are fully collateralized. Each Portfolio may lend its investment securities
to brokers, dealers and financial institutions for the purpose of realizing
additional income. The total market value of securities loaned will not at any
time exceed one-third of the value of the total assets of the Portfolio as
determined by SEC guidelines. Lending portfolio securities may result in the
possible loss of rights in the collateral should the borrower fail financially.
DIVERSIFICATION AND CONCENTRATION
Each Portfolio is diversified as that term is defined in the Investment Company
Act of 1940 (the "1940 Act"). As a fundamental policy, with respect to 75% of
its assets, no Portfolio may purchase a security (other than a U.S. Government
Security or a security of an investment company) if, as a result: (1) more than
5% of the Portfolio's total assets would be invested in the securities of a
single issuer; or (2) the Portfolio would own more than 10% of the outstanding
voting securities of any single issuer. No Portfolio may concentrate its assets
in the securities of issuers in any one industry. As a fundamental policy, no
Portfolio may purchase a security if, as a result, more than 25% of the value of
the Portfolio's total assets would be invested in the securities of issuers
conducting their principal business activities in the same industry. This limit
does not apply to investments in U.S. Government Securities, or repurchase
agreements covering U.S. Government Securities.
U.S. GOVERNMENT SECURITIES
U.S. Government Securities are obligations issued or guaranteed as to principal
and interest by the United States Government, its agencies or instrumentalities.
U.S. Government Securities include obligations backed by the full faith and
credit of the U.S. Government as well as securities supported primarily or
solely by the creditworthiness of the agency or instrumentality issuing the
security, such as securities of the Federal National Mortgage Association
("Fannie Mae"), the Federal Home Loan Mortgage Corporation ("Freddie Mac") and
the Student Loan Marketing Association ("Sallie Mae"). There is no guarantee
that the U.S. Government will support securities not backed by its full faith
and credit.
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ILLIQUID SECURITIES AND RESTRICTED SECURITIES
Illiquid securities are securities that cannot be disposed of within seven days
in the ordinary course of business at approximately the amount at which the
Portfolio has valued the securities and include, among other things, repurchase
agreements not entitling the holder to payment within seven days and securities
subject to restrictions on resale, I.E., restricted securities, (other than
those determined to be liquid by the investment advisers). Limitations on resale
may have an adverse effect on the marketability of portfolio securities, and a
Portfolio might also have to register securities subject to restrictions on
resale in order to dispose of them, resulting in expense and delay. A Portfolio
might not be able to dispose of restricted or other securities promptly or at
reasonable prices and might thereby experience difficulty satisfying
redemptions. There can be no assurance that a liquid market will exist for any
security at any particular time.
TEMPORARY DEFENSIVE POSITION
When business or financial conditions warrant, each Portfolio may assume a
temporary defensive position and invest without limit in cash or prime quality
cash equivalents, including: (1) short-term U.S. Government Securities; (2)
certificates of deposit, bankers' acceptances and interest-bearing savings
deposits of commercial banks doing business in the United States; (3) commercial
paper; (4) repurchase agreements; and (5) shares of "money market funds"
registered under the 1940 Act within the limits specified therein. During
periods when and to the extent that a Portfolio has assumed a temporary
defensive position, it may not be pursuing its investment objective. Apart from
temporary defensive purposes, a Portfolio may at any time invest a portion of
its assets in cash and cash equivalents or, in other investment companies to the
extent permitted under the 1940 Act. Except during periods when a Portfolio
assumes a temporary defensive position, each Equity Portfolio will have at least
65% of its total assets invested in common stock and Strategic Value Bond
Portfolio will have at least 65% of its total assets invested in bonds.
REPURCHASE AGREEMENTS
Repurchase Agreements involve the purchase of a security by a Portfolio and a
simultaneous agreement by the seller (generally a bank or dealer) to repurchase
the security from the Portfolio at a specified date or upon demand. This
technique offers a method of earning income on idle cash. Repurchase agreements
involve the risk that the seller will fail to repurchase the security as agreed.
In that case, the Portfolio will bear the risk of market value fluctuations
until the security can be sold and may encounter delays and incur costs in
liquidating the security.
COMMON AND PREFERRED STOCK AND WARRANTS
Each Equity Portfolio may invest in common and preferred stock. Common
stockholders are the owners of the company issuing the stock and, accordingly,
vote on various corporate governance matters such as mergers. They are not
creditors of the company, but rather, upon liquidation of the company, are
entitled to their pro rata share of the company's assets after creditors
(including fixed income security holders) and preferred stockholders, if any,
are paid. Preferred stock is a class of stock having a preference over common
stock as to dividends and, generally, as to the recovery of investment. A
preferred stockholder is also a shareholder and not a creditor of the company.
Equity securities owned by a Portfolio may be traded in the over-the-counter
market or on a securities exchange, but may not be traded every day or in the
volume typical of securities traded on a major U.S. national securities
exchange. As a result, disposition by an Equity Portfolio of a security to meet
withdrawals by interest holders or otherwise may require a Portfolio to sell
these securities at a discount from market prices, to sell during periods when
disposition is not desirable, or to make many small sales over a lengthy period
of time. The market value of all securities, including equity securities, is
based upon the market's perception of value and not necessarily the "book value"
of an issuer or other objective measure of a company's worth.
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The Equity Portfolio(s) may also invest in warrants, which are options to
purchase an equity security at a specified price (usually representing a premium
over the applicable market value of the underlying equity security at the time
of the warrant's issuance) and usually during a specified period of time.
MORTGAGE-RELATED SECURITIES
Strategic Value Bond Portfolio may invest in mortgage-related securities, which
represent an interest in a pool of mortgages originated by lenders such as
commercial banks, savings associations and mortgage bankers and brokers.
Mortgage-related securities may be issued by governmental or government-related
entities or by non-governmental entities. Interests in mortgage-related
securities differ from other forms of debt securities. Mortgage-related
securities provide monthly payments which consist of interest and, in most
cases, principal. In effect, these payments are a "pass-through" of the monthly
payments made by the individual borrowers on their mortgage loans, net of any
fees paid to the issuer or guarantor of the securities or a mortgage loan
servicer. Additional payments to holders of these securities are caused by
prepayments resulting from the sale or foreclosure of the underlying property or
refinancing of the underlying loans.
The market for certain mortgage-related securities may be limited. This may
increase the volatility of the price of a particular security and make it
difficult for the portfolio to sell a security.
The average life of a pass-through pool varies with the maturities of the
underlying mortgage instruments. In addition, a pool's terms may be shortened by
unscheduled or early payments of principal and interest on the underlying
mortgages. Prepayments with respect to securities during times of declining
interest rates will tend to lower the return of a Fund and may even result in
losses to a Fund if the securities were acquired at a premium. The occurrence of
mortgage prepayments is affected by various factors including the level of
interest rates, general economic conditions, the location and age of the
mortgage and other social and demographic conditions.
Adjustable rate mortgage-related securities ("ARMs") are securities that have
interest rates that are reset at periodic intervals, usually by reference to
some interest rate index or market interest rate. Although the rate adjustment
feature may act as a buffer to reduce sharp changes in the value of adjustable
rate securities, these securities are still subject to changes in value based on
changes in market interest rates or changes in the issuer's creditworthiness.
Because of the resetting of interest rates, adjustable rate securities are less
likely than non-adjustable rate securities of comparable quality and maturity to
increase significantly in value when market interest rates fall. Also, most
adjustable rate securities (or the underlying mortgages) are subject to caps or
floors. "Caps" limit the maximum amount by which the interest rate paid by the
borrower may change at each reset date or over the life of the loan and,
accordingly, fluctuation in interest rates above these levels could cause such
mortgage securities to "cap out" and to behave more like long-term, fixed-rate
debt securities.
ARMs may have less risk of a decline in value during periods of rapidly rising
rates, but they may also have less potential for capital appreciation than other
debt securities of comparable maturities due to the periodic adjustment of the
interest rate on the underlying mortgages and due to the likelihood of increased
prepayments of mortgages as interest rates decline. Furthermore, during periods
of declining interest rates, income to a Fund will decrease as the coupon rate
resets to reflect the decline in interest rates. During periods of rising
interest rates, changes in the coupon rates of the mortgages underlying a Fund's
ARMs may lag behind changes in market interest rates. This may result in a
slightly lower net value until the interest rate resets to market rates. Thus,
investors could suffer some principal loss if they sold Fund shares before the
interest rates on the underlying mortgages were adjusted to reflect current
market rates.
Stripped mortgage-related securities are classes of mortgage-related securities
that receive different proportions of the interest and principal distributions
from the underlying assets. In the most extreme case, one
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class will be entitled to receive all or a portion of the interest but none of
the principal from the underlying assets (the interest-only or "IO" class) and
one class will be entitled to receive all or a portion of the principal, but
none of the interest (the "PO" class). Currently, the Portfolio does not
purchase IOs or POs.
ASSET-BACKED SECURITIES
Strategic Value Bond Portfolio may invest in asset-backed securities, which
represent direct or indirect participations in, or are secured by and payable
from, assets other than mortgage-related assets such as motor vehicle
installment sales contracts, leases of various types of real and personal
property and receivables from revolving credit card agreements. Asset-backed
securities, including adjustable rate asset-backed securities, have yield
characteristics similar to those of mortgage-related securities and,
accordingly, are subject to many of the same risks.
Assets are securitized through the use of trusts and special purpose
corporations that issue securities that are often backed by a pool of assets
representing the obligations of a number of different parties. Asset-backed
securities do not always have the benefit of a security interest in collateral
comparable to the security interests associated with mortgage-related
securities. As a result, the risk that recovery on repossessed collateral might
be unavailable or inadequate to support payments on asset-backed securities is
greater for asset-backed securities than for mortgage-related securities. In
addition, the market experience in these asset-backed securities is limited and
the market may not be able to sustain liquidity through all phases of an
interest rate or economic cycle.
DERIVATIVE INVESTMENTS
Each Portfolio may from time to time use various derivative instruments to
protect its investment portfolio from movements in securities prices and
interest rates. The Portfolios may also use a variety of currency hedging
techniques, including forward currency contracts, to manage exchange rate risk
when investing in securities denominated in foreign currencies. See "How the
Funds Pursue Their Objectives - Performa Global Growth Fund - Foreign Exchange
Contracts."
Derivative instruments include futures contracts on securities, financial
indices and foreign currencies, options on contracts and on securities,
financial indices and foreign currencies and interest rate swaps and
swap-related products. The Portfolios use derivative instruments primarily to
hedge the value of its portfolio against potential adverse movements in
securities prices, foreign currency markets or interest rates. To a limited
extent, a Portfolio may also use derivative instruments for non-hedging purposes
such as seeking to increase the Portfolio's income or otherwise seeking to
enhance return. See "Appendix A" and the SAI for a more detailed discussion of
these instruments.
The use of derivative instruments exposes a Portfolio to additional investment
risks and transaction costs. Risks inherent in the use of derivative instruments
include: (1) the risk that interest rates, securities prices and currency
markets will not move in the directions that the portfolio manager anticipates;
(2) imperfect correlation between the price of derivative instruments and
movements in the prices of the securities, interest rates or currencies being
hedged; (3) the fact that skills needed to use these strategies are different
from those needed to select portfolio securities; (4) inability to close out
certain hedged positions to avoid adverse tax consequences; (5) the possible
absence of a liquid secondary market for any particular instrument and possible
exchange-imposed price fluctuation limits, either of which may make it difficult
or impossible to close out a position when desired; (6) leverage risk, that is,
the risk that adverse price movements in an instrument can result in a loss
substantially greater than the Portfolio's initial investment in that instrument
(in some cases, the potential loss is unlimited); and (7) particularly in the
case of privately negotiated instruments, the risk that the counterparty will
fail to perform its obligations, which could leave the Portfolio worse off than
if it had not entered into the position.
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Although the Portfolios believe that the use of derivative instruments will be
beneficial, a Portfolio's performance could be worse than if the Portfolio had
not used such instruments if the investment adviser's judgment proves incorrect.
5. HOW PERFORMANCE IS SHOWN
Fund performance figures are based upon historical results and are not intended
to indicate future performance. Investment returns and net asset value will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost.
This section will help you understand various terms that are commonly used to
describe the Funds' performance. You may see references to these terms in the
Funds' advertisements and in general media articles. These advertisements also
may include comparisons of the Funds' performance relative to their peers,
mutual fund averages or recognized stock market indices. The Funds may measure
performance in terms of yield and total return.
Cumulative total return represents the actual rate of return on an investment
for a specified period. Cumulative total return is generally quoted for more
than one year (i.e., the life of the Fund), and does not show interim
fluctuations in the value of an investment.
Average annual total return represents the average annual percentage change of
an investment over a specified period. It is calculated by taking the cumulative
total return for the stated period and determining what constant annual return
would have produced the same cumulative return. Average annual returns for more
than one year tend to smooth out variations in the Fund's return and are not the
same as actual annual results.
Yield shows the rate of income a Fund earns on its investments as a percentage
of the Fund's share price. It is calculated by dividing the Fund's net
investment income for a 30-day period by the average number of shares entitled
to receive dividends and dividing the result by the Fund's net asset value per
share at the end of the 30-day period. Yield does not include changes in NAV.
Generally, yields are calculated according to standardized SEC formulas and may
not equal the income on an investor's account. Yield is usually quoted on an
annualized basis. An annualized yield represents the amount you would earn if
you remained in a Fund for a year and the Fund continued to have the same yield
for the entire year.
6. ORGANIZATION
The Trust has an unlimited number of authorized shares of beneficial interest.
The Board may, without shareholder approval, divide the authorized shares into
an unlimited number of separate portfolios or series (such as the Funds) and may
divide portfolios or series into classes of shares; the costs of doing so will
be borne by the Trust. As of the date of this Prospectus, each Fund offers one
class of shares. The Trust currently offers thirty-nine separate series.
VOTING AND OTHER RIGHTS
Each share has one vote, with fractional shares voting proportionally. Shares of
the Trust will vote together without regard to series or classes of shares on
all matters except: (1) when required by the 1940 Act or when the Trustees have
determined that the matter affects the interests of one or more series or
classes materially differently, shares will be voted by individual series or
class; and (2) when the Trustees have determined that the matter affects only
the interest of one or more series or classes, only shareholders of that series
or class shall be entitled to vote thereon. Shares are freely transferable, are
entitled to dividends as declared by the Trustees. If a Fund were liquidated,
its shareholder would receive the net assets of the Fund.
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Delaware law does not require the Trust to hold annual meetings of shareholders,
and it is anticipated that shareholder meetings will be held only when
specifically required by federal or state law. Shareholders (and Trustees) have
available certain procedures for the removal of Trustees. There are no
conversion or preemptive rights in connection with shares of the Trust. All
shares when issued in accordance with the terms of the offering will be fully
paid and nonassessable. Shares are redeemable at net asset value, at the option
of the shareholder. A shareholder in a series is entitled to the shareholder's
pro rata share of all dividends and distributions arising from that series'
assets and, upon redeeming shares, will receive the portion of the series' net
assets represented by the redeemed shares.
Each Portfolio normally will not hold meetings of investors except as required
by the 1940 Act. Each investor in a Portfolio will be entitled to vote in
proportion to its relative beneficial interest in the Portfolio. When required
by the 1940 Act and other applicable law, a Fund will solicit proxies from its
shareholders and will vote its interest in a Portfolio in proportion to the
votes cast by its shareholders. If there are other investors in a Portfolio,
there can be no assurance that any issue that receives a majority of the votes
cast by Fund shareholders will receive a majority of votes cast by all investors
in the Portfolio; indeed, if other investors hold a majority interest in the
Portfolio, they could hold have voting control of the Portfolio.
As of March 2, 1998, Norwest Bank Colorado, N.A. may be deemed to have
controlled Performa Disciplined Growth Fund through investment in the Fund by
its customers. As of the same date, Norwest Bank may be deemed to have
controlled Performa Strategic Value Bond Fund, Performa Small Cap Value Fund and
Performa Global Growth Fund through investment in the Funds by its customers.
From time to time, these shareholders or other shareholders may own a large
percentage of the Shares of a Fund and, accordingly, may be able to greatly
affect (if not determine) the outcome of a shareholder vote.
CORE AND GATEWAY STRUCTURE
Each Fund seeks to achieve its investment objective by investing all of its
investable assets in its corresponding Portfolio, that has the same investment
objective and substantially identical investment policies as the Fund.
Accordingly, each Portfolio directly acquires portfolio securities and a Fund
acquires an indirect interest in those securities. Each Portfolio (other than
Schroder Global Growth Portfolio) is a separate series of Core Trust (Delaware)
("Core Trust"), a business trust organized under the laws of the State of
Delaware in 1994. Schroder Global Growth Portfolio is a separate series of
Schroder Capital Funds ("Schroder Core"), a business trust organized under the
laws of the State of Delaware in 1995. Core Trust and Schroder Core are
registered under the 1940 Act as open-end, management, investment companies. The
assets of each Portfolio belong only to, and the liabilities of each Portfolio
are borne solely by, that Portfolio and no other portfolio of Core Trust or
Schroder Core, as applicable.
THE PORTFOLIOS
A Fund's investment in a Portfolio is in the form of a non-transferable
beneficial interest. All investors in a Portfolio will invest on the same terms
and conditions and will pay a proportionate share of the Portfolio's expenses.
The Portfolios do not sell their shares directly to members of the general
public. Another investor in a Portfolio, such as an investment company, that
might sell its shares to members of the general public would not be required to
sell its shares at the same public offering price as any Fund, and could have
different advisory and other fees and expenses than a Fund. Therefore, Fund
shareholders may have different returns than shareholders in another investment
company that invests in a Portfolio. Information regarding any such funds is
available from Core Trust or Schroder Core by calling Forum at (207) 879-1900.
CERTAIN RISKS OF INVESTING IN PORTFOLIOS
A Fund's investment in a Portfolio may be affected by the actions of other large
investors in that Portfolio. For example, if Disciplined Growth Portfolio had a
large investor other than Performa Disciplined Growth Fund that redeemed its
interest, Disciplined Growth Portfolio's remaining investors (including
Disciplined
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Growth Fund) might, as a result, experience higher pro rata operating expenses,
thereby producing lower returns. As there may be other investors in a Portfolio,
there can be no assurance that any issue that receives a majority of the votes
cast by a Fund's shareholders will receive a majority of votes cast by all
investors in a Portfolio; indeed, other investors holding a majority interest in
a Portfolio could have voting control of the Portfolio.
The Board retains the right to withdraw each Fund's investment in a Portfolio at
any time, and the Fund could thereafter invest directly in individual securities
or could re-invest its assets in one or more other Portfolios. A Fund might
withdraw its investment from a Portfolio, for example, if there were other
investors in the Portfolio with power to, and who did by a vote of all investors
(including the Fund), change the investment objective or policies of the
Portfolio in a manner not acceptable to the Board. A withdrawal could result in
a distribution in kind of portfolio securities (as opposed to a cash
distribution) by the Portfolio. That distribution could result in a less
diversified portfolio of investments for the Fund and could affect adversely the
liquidity of the Fund's portfolio. If the Fund decided to convert those
securities to cash, it would incur brokerage fees or other transaction costs. If
the Fund withdrew its investment from a Portfolio, the Board would consider what
action might be taken, including the management of the Fund's assets directly by
Norwest or the investment of the Fund's assets in another pooled investment
entity. The inability of the Fund to find a suitable replacement investment, in
the event the Board decided not to permit Norwest to manage the Fund's assets
directly, could have a significant impact on shareholders of the Fund.
7. HOW THE FUNDS ARE MANAGED
TRUSTEES
The Board of Trustees oversees the business affairs of the Funds and is
responsible for major decisions relating to each Fund's investment objective and
policies. The Board formulates the general policies of the Funds and meets
periodically to review the results of the Funds, monitor investment activities
and practices and discuss other matters affecting the Funds and the Trust. The
Board consists of eight persons. A board of trustees for each of Core Trust
(Delaware) and Schroder Capital Funds (each a "Core Board") performs similar
functions with respect to the Portfolios of each investment company. The Board
also monitors the activities of each Portfolio and its service providers.
INVESTMENT ADVISORY SERVICES
Norwest Investment Management, Inc. Subject to the general supervision of the
Core Trust Board, Norwest makes investment decisions for the Portfolios (except
for Global Growth Portfolio) and continuously reviews, supervises and
administers each Portfolio's investment program or oversees the investment
decisions of the subadvisers, as applicable. Norwest, which is located at
Norwest Center, Sixth Street and Marquette, Minneapolis, Minnesota 55479, is an
indirect subsidiary of Norwest Corporation, a multi-bank holding company that
was incorporated under the laws of Delaware in 1929. As of 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 that date, Norwest Corporation
and its affiliates managed assets with a value of approximately $51.7 billion.
As part of its regular banking operations, Norwest Bank Minnesota, N.A. and
other banking affiliates of Norwest may make loans to companies. Thus, it may be
possible, from time to time, for a Portfolio to hold or acquire the securities
of issuers which are also lending clients of Norwest's banking affiliates. A
lending relationship will not be a factor in Norwest's selection of portfolio
securities.
To assist Norwest, the Portfolios and Norwest have retained the services of
three subadvisers. The subadvisers make investment decisions for, and
continuously review, supervise and administer, that portion of a Portfolio's
assets that Norwest believes should be managed by the subadviser. Norwest
supervises the performance of the subadvisers.
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GALLIARD CAPITAL MANAGEMENT, INC.
Galliard, which is located at 800 LaSalle Avenue, Suite 2060, Minneapolis,
Minnesota, is a registered investment adviser that specializes in fixed income
management. The firm manages assets on the premise that outstanding performance
is achieved through fundamental security analysis and strategic portfolio
diversification. As of August 31, 1997, Galliard had over $3.1 billion in assets
under management. Galliard is the subadviser of Strategic Value Bond Portfolio.
SCHRODER CAPITAL MANAGEMENT INTERNATIONAL INC.
Schroder, whose principal business address is 787 7th Avenue, 34th Floor, New
York, New York 10019, is a registered investment adviser. Subject to the general
supervision of the Schroder Core Board, Schroder makes investment decisions for
Schroder Global Growth Portfolio and continuously reviews, supervises and
administers the Portfolio's investment program. Schroder is a wholly owned U.S.
subsidiary of Schroders Incorporated (doing business in New York State as
Schroders Holdings), the wholly owned U.S. holding company subsidiary of
Schroders plc. Schroders plc is the holding company parent of a large world-wide
group of banks and financial services companies (referred to as the "Schroder
Group") with associated companies and branch and representative offices in
eighteen countries. The Schroder Group specializes in providing investment
management services. As of September 30, 1997, Schroder Group had over $175
billion in assets under management.
SMITH ASSET MANAGEMENT GROUP, LP.
Smith Group, whose principal business address is 500 Crescent Court, Suite 250,
Dallas, Texas, is a registered investment adviser. Smith group provides
investment management services to company retirement plans, foundations,
endowments, trust companies, and high net worth individuals. As of August 31,
1997, the Smith Group managed over $230 million in assets. Smith Group is the
subadviser of Disciplined Growth Portfolio and Small Cap Value Portfolio.
PORTFOLIO MANAGERS
The following persons are primarily responsible for the management of the
Portfolios' assets and have served as the portfolio managers since the inception
of the Portfolios.
PERFORMA STRATEGIC VALUE BOND FUND (STRATEGIC VALUE BOND PORTFOLIO)
The investment management team of Richard Merriam, John Huber and David Yim at
Galliard Capital Management. Mr. Merriam, CFA, has been a Principal in the firm
since 1995 and is responsible for Galliard's investment process and strategy.
Prior to joining Galliard, Mr. Merriam was Chief Investment Officer of Insight
Investment Management. Prior thereto, he served as a Senior Vice President at
Washington Square Capital where he oversaw management of nearly $5.0 billion in
assets. He obtained a B.A. from the University of Michigan and an M.B.A. from
the University of Minnesota. Mr. Huber has been a Portfolio Manager and Director
of Trading at Galliard since 1995 and has been actively involved in the
management of the Norwest Advantage Stable Income Fund and the Norwest Advantage
Diversified Bond Fund. He has over seven years' investment management experience
and has obtained a B.A. from the University of Iowa and an M.B.A. from the
University of Minnesota. Mr. Yim has been a Portfolio Manager and Director of
Investment Research since 1995. Prior to joining Galliard, he worked for
American Express Financial Advisors for 6 years, most recently as a Research
Analyst focusing on the Insurance and Finance Industries. He obtained a B.A.
from Middlebury College and an M.B.A. from the University of Minnesota.
PERFORMA DISCIPLINED GROWTH FUND (DISCIPLINED GROWTH PORTFOLIO) AND PERFORMA
SMALL CAP VALUE FUND (SMALL CAP VALUE PORTFOLIO)
Stephen S. Smith, CFA. Mr. Smith is the Chief Investment Officer for Smith Group
and is a principal in the firm. He has held this position since November, 1995.
Prior thereto, Mr. Smith served as senior portfolio manger with NationsBank
where he managed approximately $1 billion of client assets. At NationsBank,
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Mr. Smith held a variety of management positions including manager of the
institutional asset management group, manager of the disciplined equity style
used in a mutual fund and collective investment fund and member of the
Investment Policy Committee. At NationsBank he also served as sub-adviser for an
identified segment in the disciplined equity style for an unaffiliated mutual
fund. His educational background includes a B.S. in Industrial Engineering and
an M.B.A., both received from the University of Alabama. He was awarded the
Chartered Financial Analyst (CFA) designation in 1981.
PERFORMA GLOBAL GROWTH FUND (SCHRODER GLOBAL GROWTH PORTFOLIO)
The investment management team of Michael Perelstein and Paul Morris (with the
assistance of a Schroder investment committee). Mr. Perelstein has been a Senior
Vice President of Schroder since January 2, 1997. Prior thereto, he was a
Managing Director at MacKay Shields. Mr. Perelstein has more than twelve years
of international and global investment experience. Mr. Morris has been a Senior
Vice President of SCMI and a Director of Schroder Capital Management Inc. since
January 1997. Prior thereto he was Principal and Senior Portfolio Manager at
Weiss Peck & Greer, L.L.C.; Managing Director (Equity Division) UBS Asset
Management and Equity Portfolio Manager at Chase Investors Management Corp.
BACKGROUND OF SMITH GROUP PERFORMANCE
The following table sets forth composite performance data relating to the
historical performance of separate accounts and mutual fund portfolios primarily
managed by Stephen Smith, the portfolio manager of Disciplined Growth Portfolio
and Small Cap Value Portfolio, since the dates indicated, that have investment
objectives, policies, strategies and risks substantially similar to those of the
Portfolios. The data are provided to illustrate the past performance of Mr.
Smith in managing substantially similar accounts as measured against specified
market indices and does not represent the performance of the Portfolios.
Investors should not consider this performance data as an indication of future
performance of the Portfolios, the Smith Group or Mr. Smith.
Mr. Smith's composite performance data were calculated on a total return basis
and include all dividends and interest, accrued income and realized and
unrealized gain and loss. All returns reflect the deduction of the highest
effective investment advisory fees, brokerage commissions and execution costs
paid by the investment adviser's private accounts, without provision for federal
or state income taxes. Custodial fees, if any, were not included in the
calculation. Had the Fund's expenses been used, the composite performance would
have been lower. Account fees vary depending on, among other things, the
applicable fee schedule, portfolio size and nature of the account. Mr. Smith's
fees are available on request. Mr. Smith's composites include all actual,
fee-paying, discretionary institutional private accounts and mutual fund
portfolios managed by Mr. Smith that have substantially the same investment
objectives and policies. Securities transactions are accounted for on the trade
date and accrual accounting is used. Cash and equivalents are included in
performance returns. The monthly returns of Mr. Smith's composites combine the
individual accounts' returns (calculated on a time-weighted rate of return) by
asset-weighing each individual account's asset value as of the beginning of the
month. Quarterly and yearly returns are calculated by geometrically linking the
monthly and quarterly returns, respectively.
The institutional private accounts that are included in Mr. Smith's composites
are not subject to the same types of expenses to which the Portfolios are
subject nor to the diversification requirements, specific tax restrictions and
investment limitations imposed on the Portfolios by the 1940 Act or the Internal
Revenue Code. Consequently, the performance results for Mr. Smith's composites
could have been adversely affected if the institutional private accounts
included in the composite had been regulated as investment companies under the
federal securities laws.
The investment results of Mr. Smith's composites presented below are unaudited
and do not represent the past performance of nor predict the future returns that
might be experienced by the Portfolios or an
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individual investor investing in the Performa Disciplined Growth Fund or the
Performa Small Cap Value Fund. Investors should also be aware that the use of a
methodology different from that used below to calculate performance could result
in different performance data.
<TABLE>
<CAPTION>
MR. SMITH'S COMPOSITE FOR THE
DISCIPLINED GROWTH STYLE(2) S&P 500 INDEX(3)
-------------------------------------- -----------------
<S> <C> <C>
1995 38.05% 37.54%
1996 31.26% 22.99%
1997 39.20% 33.34%
1 Year(1) 39.20% 33.34%
2 Years(1) 35.18% 28.06%
Since Inception
1/1/95(1) 36.13% 31.15%
<CAPTION>
MR. SMITH'S COMPOSITE FOR THE
SMALL CAP VALUE STYLE RUSSELL 2000(4)
-------------------------------------- -----------------
<S> <C> <C>
Since Inception
11/1/96(1) 30.36% 25.83%
1997 23.38% 22.36%
</TABLE>
(1) Average annual return through December 31, 1997. Return for less than one
year is not annualized.
(2) The composite returns shown in this chart consists of total returns for the
period January 1995 through September 1997 of accounts for which Stephen S.
Smith, now Chief Investment Officer of the Smith Group, served as the
primary manager as described above, including the period January 1, 1995 -
October 31, 1995, during which Mr. Smith was senior portfolio manager for
another firm. The composite does not include the performance of other
accounts not managed similarly to the Portfolio. Since November 1, 1995 at
Smith Group, Mr. Smith has employed the same investment style in
discretionary private accounts as he employed in the accounts described
above. No other person played a significant part in achieving the prior
performance of these accounts during Mr. Smith's tenure. The data for
January 1, 1995 - October 31, 1995 are not, and should not be, construed as
the performance data of Smith Group, which began business on November 1,
1995.
(3) The S&P 500 Index is an unmanaged index containing common stocks of 500
industrial, transportation, utility and financial companies, regarded as
generally representative of the U.S. stock market. The Index reflects the
reinvestment of income dividends and capital gain distributions, if any, but
does not reflect fees, brokerage commissions, or other expenses of
investing.
(4) The Russell 2000 Index is an unmanaged index consisting of the securities of
the 2,000 issuers having the smallest capitalization in the Russell 3000
Index, representing approximately 10% of the Russell 3000 total market
capitalization. The average market capitalization of companies included in
the Index is approximately $580 million. The Index reflects the reinvestment
of income dividends and capital gain distributions, if any, but does not
reflect fees, brokerage commissions, or other expenses of investing.
ADVISORY FEES
Norwest (Schroder in the case of Global Growth Portfolio) is paid an advisory
fee at the following annual rates of the Portfolios' average daily net assets.
<TABLE>
<CAPTION>
FUND ADVISORY FEE
- ---------------------------------------------------------------------------- ---------------
<S> <C>
Strategic Value Bond Portfolio (Performa Strategic Value Bond Fund) 0.50%
Disciplined Growth Portfolio (Performa Disciplined Growth Fund) 0.90%
Small Cap Value Portfolio (Performa Small Cap Value Fund) 0.95%
Schroder Global Growth Portfolio (Performa Global Growth Fund) 0.50%
</TABLE>
22
<PAGE>
Norwest (and not the Portfolios) pays Smith and Galliard a fee for their
investment subadvisory services. This compensation does not increase the amount
paid by the Portfolio to Norwest.
Each Fund may withdraw its investments from its corresponding Portfolio at any
time if the Board determines that it is in the best interests of the Fund to do
so. See "Organization - Core and Gateway Structure." Accordingly, each Fund has
retained Norwest as its investment adviser and the corresponding Portfolio's
subadviser as a subadviser. Similarly, in the event that Performa Global Growth
Fund withdraws its investment from its corresponding Portfolio, the Fund has
retained Schroder as a subadviser. Under these "dormant" investment advisory
arrangements, no Fund pays any advisory fees as long as the Fund remains
completely invested in its corresponding Portfolio or any other investment
company. In the event that a Fund were to withdraw its assets from its
corresponding Portfolio (other than Schroder Global Growth Portfolio), Norwest
would receive an advisory fee from the Fund at the same rate as the fee paid by
the Portfolio. In the event that Performa Global Growth Fund were to withdraw
its assets from Global Growth Portfolio, Norwest would receive an advisory fee
from the Fund at an annual rate of 0.90% of the Fund's average daily net assets.
Pursuant to the Funds' dormant subadvisory agreements, Norwest (and not the
Funds) would pay Schroder, Smith or Galliard, as applicable, a fee for its
subadvisory services.
THE FUNDS' EXPENSES
Each Fund is responsible for all expenses related to its operations. Theses
expenses include legal and accounting expenses; trustees' fees and expenses;
insurance premiums; fees and expenses of the Fund's service providers; brokerage
fees and expenses; expenses of registering and qualifying shares for sale with
the SEC and with various state securities commissions; expenses of obtaining
quotations on portfolio securities; the expenses of maintaining the Fund's legal
existence and of shareholders' meetings; and expenses of preparation and
distribution to existing shareholders of reports, proxies and prospectuses.
Trust expenses directly attributed to a Fund are charged to the Fund; other
expenses are allocated proportionately among all the series of the Trust in
relation to the net assets of each series. Similar policies pertain to the
Portfolios.
PORTFOLIO TRADING AND TRANSACTIONS
The Advisers place orders for the purchase and sale of assets they manage with
brokers and dealers selected by and in the discretion of the respective Adviser.
Each Adviser seeks "best execution" for all portfolio transactions, but a
Portfolio may pay higher than the lowest available commission rates when the
Adviser believes it is reasonable to do so in light of the value of the
brokerage and research services provided by the broker effecting the
transaction.
Commission rates for brokerage transactions are fixed on many foreign securities
exchanges, and this may cause higher brokerage expenses to accrue to a Portfolio
that invests in foreign securities than would be the case for comparable
transactions effected on U.S. securities exchanges.
Subject to the Portfolios' policy of obtaining the best price consistent with
quality of execution of transactions, each Adviser may employ broker-dealer
affiliates of the Adviser (collectively "Affiliated Brokers") to effect
brokerage transactions. The payment of commissions to Affiliated Brokers is
subject to procedures to provide that the commissions will not exceed the usual
and customary broker's commissions charged by unaffiliated brokers. No specific
portion of a Portfolio's brokerage will be directed to Affiliated Brokers and in
no event will a broker affiliated with the Adviser directing the transaction
receive brokerage transactions in recognition of research services provided to
the Adviser. The Advisers may effect transactions through brokers who sell Fund
shares.
The frequency of portfolio transactions (the portfolio turnover rate) will vary
from year to year depending on many factors. From time to time a Portfolio may
engage in active short-term trading to take advantage of price movements
affecting individual issues, groups of issues or markets. The Advisers
anticipate that the annual portfolio turnover rate of each Portfolio will be
less than 100% in their first year of operations. An
23
<PAGE>
annual portfolio turnover rate of 100% would occur if all of the securities in a
Portfolio were replaced once in a period of one year. Higher portfolio turnover
rates may result in increased brokerage costs and an increase in short term
capital gains or losses to the Portfolio.
YEAR 2000 COMPLIANCE
LIKE OTHER MUTUAL FUNDS, FINANCIAL AND OTHER BUSINESS ORGANIZATIONS AND
INDIVIDUALS AROUND THE WORLD, THE FUNDS COULD BE ADVERSELY AFFECTED IF THE
COMPUTER SYSTEMS USED BY THE ADVISER AND OTHER SERVICE PROVIDERS TO THE FUNDS DO
NOT PROPERLY PROCESS AND CALCULATE DATE-RELATED INFORMATION AND DATA FROM AND
AFTER JANUARY 2000. THE ADVISER HAS TAKEN STEPS TO ADDRESS THE YEAR 2000 ISSUE
WITH RESPECT TO THE COMPUTER SYSTEMS THAT IT USES AND TO OBTAIN REASONABLE
ASSURANCES THAT COMPARABLE STEPS ARE BEING TAKEN BY THE FUNDS' OTHER MAJOR
SERVICE PROVIDERS. THE ADVISER DOES NOT ANTICIPATE THAT THE ARRIVAL OF THE YEAR
2000 WILL HAVE A MATERIAL IMPACT ON ITS ABILITY TO CONTINUE TO PROVIDE THE FUNDS
WITH SERVICE AT CURRENT LEVELS.
THE FUNDS' OTHER SERVICE PROVIDERS
MANAGEMENT, ADMINISTRATION AND DISTRIBUTION SERVICES
As manager, Forum supervised 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 Funds by others.
FAS is responsible for performing certain administrative services necessary for
the Trust's operations with respect to each Fund including preparing and
printing updates of the Trust's registration statement and prospectuses,
preparing proxy and information statements and monitoring the sale of shares and
ensuring that such shares are properly and duly registered with the SEC and
applicable state securities administrators.
As of October 1, 1997, Forum and FAS provided management and administrative
services to registered investment companies and collective investment funds with
assets of approximately $25.5 billion. For their services to the Funds, FAS and
Forum each receives a fee at an annual rate of 0.025% of the Fund's average
daily net assets.
FAS also serves as administrator of each Portfolio, except Schroder Global
Growth Portfolio, for which it serves as subadministrator. FAS provides services
to the Portfolios (other than Schroder Global Growth Portfolio) that are similar
to those provided to the Funds by Forum and FAS. Schroder Advisors serves as
administrator and Forum serves as subadministrator of Schroder Global Growth
Portfolio. Schroder Advisors and Forum provide certain management and
administrative services necessary for the Portfolio's operations, other than the
administrative services provided to the Portfolio by Schroder.
For its services with respect to each Portfolio (other than Schroder Global
Growth Portfolio) FAS receives a fee at an annual rate of 0.05% of the
Portfolio's average daily net assets. For their services to Schroder Global
Growth Portfolio, Schroder Advisors receives a fee at an annual rate of 0.15%
and Forum receives a fee at an annual rate of 0.075% of the Portfolio's average
daily net assets.
Pursuant to a separate agreement, Norwest receives a fee with respect to
Performa Global Growth Fund at an annual rate of 0.25% of the Fund's average
daily net assets. Under this agreement, Norwest is responsible for compiling
data and preparing communications between the Fund and its shareholders,
maintaining requisite information flows between the Fund and Schroder,
monitoring and reporting to the Board on the performance of the Portfolio and
reimbursing the Fund for certain excess expenses. Fees are payable under this
agreement based on the Fund's assets invested in the Portfolio.
Forum Accounting Services, LLC provides portfolio accounting services to each
Fund and to each Portfolio. Forum is the manager of the Funds and distributor of
their shares. Forum is a registered broker-dealer and
24
<PAGE>
member of the National Association of Securities Dealers, Inc. Forum also serves
as the placement agent of the Portfolios. These companies are members of the
Forum Financial Group of companies, Two Portland Square, Portland, Maine 04101,
which together provide a full range of services to the investment company and
financial services industry. As of April 1, 1998, they were controlled by John
Y. Keffer, President and Chairman of the Trust.
TRANSFER AGENT AND CUSTODIAN
Norwest Bank serves as transfer agent and dividend disbursing agent for the
Funds (in this capacity, the "Transfer Agent"). The Transfer Agent maintains an
account for each shareholder of the Funds, performs other transfer agency
functions and acts as dividend disbursing agent for the Funds. The Transfer
Agent is permitted to subcontract any or all of its functions with to qualified
agents. The Transfer Agent is permitted to compensate those agents for their
services; however, that compensation may not increase the aggregate amount of
payments by the Trust to the Transfer Agent. For its services, the Transfer
Agent receives a fee with respect to each Fund at an annual rate of 0.25% of
each Fund's average daily net assets.
Norwest Bank also serves as each Fund's and each Portfolio's (other than Global
Growth Portfolio's) custodian and may appoint subcustodians for the foreign
securities and other assets held in foreign countries. For its custodial
service, Norwest Bank receives a fee with respect to each Portfolio at an annual
rate of 0.02% of the first $100 million of the Portfolio's average daily net
assets, 0.015% of the next $100 million of the Portfolio's average daily net
assets and 0.01% of the Portfolio's remaining average daily net assets. No fee
is directly payable by a Fund to the extent the Fund is invested in a Portfolio.
The Chase Manhattan Bank serves as custodian of Schroder Global Growth Portfolio
and is paid a fee for its services.
BANKING LAW MATTERS
Federal banking rules generally permit a bank or bank affiliate to act as
investment adviser, transfer agent, or custodian to a fund and to purchase
shares of the investment company as agent for and upon the order of a customer
and, in connection therewith, to retain a sales charge or similar payment.
Norwest and any bank or other bank affiliate also may perform Processing
Organization or similar services for the Funds and their shareholders. If a bank
or bank affiliate were prohibited in the future from so acting, changes in the
operation of the Funds could occur and a shareholder serviced by the bank or
bank affiliate may no longer be able to avail itself of those services. It is
not expected that shareholders would suffer any adverse financial consequences
as a result of any of these occurrences.
8. ABOUT YOUR INVESTMENT
GENERAL INFORMATION
Shares are continuously sold and redeemed at a price equal to their net asset
value next-determined after acceptance of an order, or receipt of a redemption
request, on every weekday except customary national holidays (New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Memorial Day, Independence Day,
Labor Day, Thanksgiving and Christmas) and Good Friday ("Fund Business Day").
GENERAL PURCHASE INFORMATION
Accounts may be opened - and shares purchased and redeemed - only through
certain broker-dealers, banks and other financial institutions ("Processing
Organizations"). For information regarding opening an account to purchase shares
of the Funds, please call toll free: (888) 800-6748.
When you purchase shares through a Processing Organization, you are subject to
the Processing Organization's procedures, and you should read this Prospectus
along with all materials and other information provided by the Processing
Organization. Processing Organizations are responsible for promptly transmitting
purchase, redemption and other requests to the Funds and may charge you a fee
for these services. Typically, there is a three-day settlement period for
purchases and redemptions through broker-dealers.
25
<PAGE>
When you purchase and redeem through a Processing Organization the Trust
confirms your transactions directly with the Processing Organization. The
Processing Organization, in turn, provides you with confirmations and periodic
statements. If a Processing Organization fails to carry out its obligations to
you, the Trust is not responsible. The Funds may suspend the sale of shares at
any time and may refuse any order to purchase shares.
Generally, a minimum investment of $1,000 is required to open an account, the
minimum subsequent investment is $100 and you may make $100 monthly periodic
investments. A Processing Organization may set different minimums. Refer to your
Processing Organization for instructions pertaining to the purchase of shares.
GENERAL REDEMPTION INFORMATION
Generally, shares may be redeemed at their net asset value next determined on
any Fund Business Day. The Funds impose no minimum period of investment and no
restriction on the frequency of redemptions, however Processing Organizations
may impose such minimums and restrictions. Refer to your Processing Organization
for instructions pertaining to the redemption of shares. For information
regarding redemption of shares of the Funds, please call toll free: (888)
800-6748.
HOW THE FUNDS VALUE THEIR SHARES
Each Fund calculates the net asset value of its shares on each Fund Business Day
by dividing the total value of its assets, less liabilities, by the number of
its shares outstanding. Shares are valued as of the close of regular trading on
the New York Stock Exchange. The Funds only determine net asset value on Fund
Business Days.
Securities of a Portfolio for which market quotations are readily available are
valued at market value. Short-term investments that will mature in 60 days or
less are valued at amortized cost, which approximates market value. All other
securities and assets are valued at their fair value following procedures
approved by applicable Core Board.
Trading on international securities exchanges and over-the-counter markets is
normally completed well before the close of business on each Fund Business Day.
In addition, trading in foreign securities generally or in a particular country
or countries may not take place on all Fund Business Days. Trading does take
place in various foreign markets, however, on days on which a Fund's net asset
value is not calculated. Calculation of the net asset value per share of a Fund
may not occur contemporaneously with the determination of the prices of the
foreign securities used in the calculation. Events affecting the values of
foreign securities that occur after the time their prices are determined and
before the Fund's determination of net asset value will not be reflected in the
Fund's calculation of net asset value unless Norwest or Schroder, as applicable,
determines that the particular event would materially affect net asset value, in
which case an adjustment will be made.
All assets and liabilities denominated in foreign currencies are converted into
U.S. dollars at the mean of the bid and asked prices of such currencies against
the U.S. dollar last quoted by a major bank prior to the time of conversion.
9. THE FUNDS' DISTRIBUTIONS AND CERTAIN TAX INFORMATION
HOW THE FUNDS MAKE DISTRIBUTIONS TO SHAREHOLDERS
Dividends of net investment income are declared and paid monthly in the case of
Performa Strategic Value Bond Fund and declared and paid annually in the case of
all other Funds. Distributions of net capital gain, if any, realized by a Fund
are distributed annually. You may have dividends and distributions reinvested in
26
<PAGE>
shares of the same Fund (the "Reinvestment Option"), receive dividends and
distributions in cash (the "Cash Option") or have dividends and distributions
reinvested in shares of another Fund or Investor Shares of Ready Cash Investment
Fund (the "Directed Dividend Option"). All dividends and distributions are
treated in the same manner for federal income tax purposes whether received in
cash or reinvested in shares of a fund.
Under the Reinvestment Option, all dividends and distributions of a Fund are
automatically invested in additional shares of that Fund. All dividends and
distributions are reinvested at a Fund's net asset value as of the payment date
of the dividend or distribution. You are assigned this option unless you
selected one of the other two options. Under the Cash Option, all dividends and
distributions are paid to you in cash. Under the Directed Dividend Option, if
you have shares of a Fund in a single account that total $10,000 or more, you
may elect to have all dividends and distributions reinvested in shares of
another fund, provided that those shares are eligible for sale in the your state
of residence. For further information concerning the Directed Dividend Option,
you should contact the Transfer Agent or your Processing Organization.
TAX INFORMATION
Each 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, each 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 each Fund intends to distribute all of its net investment
income and net capital gain each year, each Fund should thereby avoid all
federal income and excise taxes.
Dividends paid by a Fund out of its net investment income (including net
short-term capital gain) are taxable to you 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 from
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 you hold
shares for six months or less and during that period receive a long-term capital
gain distribution, any loss realized on the sale of the shares during that
six-month period will be a long-term capital loss to the extent of the
distribution. Dividends and distributions reduce the net asset value of the Fund
paying the dividend or distribution by the amount of the dividend or
distribution. Dividends or distributions made to you shortly after the purchase
of Shares, although in effect a return of capital to you, will be taxable to you
as described above.
It is expected that a portion of the dividends of each Fund, except Performa
Strategic Value Bond Fund, will be eligible for the dividends received deduction
for corporations. The amount of such dividends eligible for the dividends
received deduction is limited to the amount of dividends from domestic
corporations received during a Fund's fiscal year.
No Portfolio is required to pay federal income taxes on its net investment
income and capital gain, as each Portfolio is treated as a partnership for
federal income tax purposes. All interest, dividends and gains and losses of a
Portfolio are deemed to have been "passed through" to the Funds investing in the
Portfolio in proportion to the Funds' holdings of the Portfolio, regardless of
whether such interest, dividends or gains have been distributed by the Portfolio
or losses have been realized by the Portfolio.
Investment income received by a Fund from sources within foreign countries may
be subject to foreign income or other taxes. Performa Global Growth Fund intends
to elect, if eligible to do so, to permit its shareholders to take a credit (or
a deduction) for foreign income and other taxes paid by its Portfolio. As a
shareholder of that Fund, you will be notified of your share of those foreign
taxes and will be required to treat the amount of such foreign taxes as
additional income. In that event, you may be entitled to claim a credit or
deduction for those taxes.
27
<PAGE>
Each Fund is required by federal law to withhold 31% of reportable payments paid
to you (which may include dividends, capital gain distributions and redemptions)
if you fail to provide the Fund with a correct taxpayer identification number or
make required certifications, or who is subject to backup withholding. Reports
containing appropriate information with respect to the federal income tax status
of dividends and distributions paid during the year by each Fund will be mailed
to you shortly after the close of each calendar year.
You should consult your tax advisor with respect to your specific tax situation
as well as with respect to state and local taxes.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE STATEMENT OF
ADDITIONAL INFORMATION AND THE FUNDS' OFFICIAL SALES LITERATURE IN CONNECTION
WITH THE OFFERING OF THE FUNDS' SHARES, AND IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
TRUST. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO
ANY PERSON TO WHOM, SUCH OFFER MAY NOT LAWFULLY BE MADE.
28
<PAGE>
APPENDIX A
GLOSSARY OF INVESTMENT TERMS
This glossary describes some of the types of securities and other obligations in
which a Fund (or Portfolio) may invest. Although the descriptions refer to
Portfolios only, the descriptions apply also to investments by the Funds. The
Funds (and Portfolios) are not limited to the securities and obligations listed
below, and may invest in the securities and other obligations described below
and in other types of securities and obligations to the extent permitted by its
investment objectives and policies. Refer to the SAI for a more detailed
discussion of the Funds' investment policies and these and other securities and
obligations in which the Funds (and Portfolios) may invest.
EQUITY AND RELATED SECURITIES
COMMON STOCK represents a share of ownership in a company, and usually carries
voting rights and may earn dividends. Common stockholders are not creditors of
the company, but rather, upon liquidation of the company, are entitled to their
pro rata share of the company's assets after creditors (including holders of
debt securities) and, if applicable, preferred stockholders, are paid. Unlike
preferred stock, dividends on common stock are not fixed but are declared at the
discretion of the issuer.
CONVERTIBLE SECURITIES are preferred stocks or bonds that are convertible into
common stock at a specified price or conversion ratio within a specific amount
of time.
DEPOSITARY RECEIPTS are receipts for shares of a foreign-based company that
entitle the holder to dividends and capital gain on the underlying security.
Receipts include those issued by domestic banks (American Depositary Receipts
("ADRs")), foreign financial institutions (Global or European Depositary
Receipts) and broker-dealers (depositary shares). Unsponsored ADRs may be
created without the participation of the foreign issuer. Holders of these ADRs
generally bear all the costs of the ADR facility, whereas foreign issuers
typically bear certain costs in a sponsored ADR. The depository of an
unsponsored ADR may be under no obligation to distribute shareholder
communications received from the foreign issuer or to pass through voting
rights.
PREFERRED STOCK is a class of stock that generally pays dividends at a specified
rate and has preference over common stock in the payment of dividends and
liquidation. A preferred stockholder generally is a shareholder in the company
and not a creditor of the company. Preferred stock generally does not carry
voting rights.
WARRANTS are securities, typically issued with preferred stocks or bonds, that
give the holder the right to buy a proportionate amount of common stock at a
specified price, usually at a price that is higher than the market price at the
time of issuance of the warrant. The right may last for a specified period or
indefinitely. The specified price for warrants usually represents a premium over
the applicable market value of the underlying equity security at the time of the
warrant's issuance.
DEBT AND RELATED INVESTMENTS
BILLS, NOTES, BONDS AND DEBENTURES are debt securities issued by a corporation
or other business entity, municipality, government or government agency. Bills
usually have the shortest maturities and bonds the longest maturities. The
issuer is required to pay the holder the face or principal amount of the loan at
a specified maturity and, except for zero coupon securities, to make scheduled
interest payments during the term of the securities.
COMMERCIAL PAPER is a short-term debt obligation with a maturity ranging from 1
to 270 days issued by banks, corporations and other borrowers.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS") are debt obligations that are
collateralized by mortgages or mortgage pass-through securities ("Mortgage
Assets"). Payments of principal and interest on the Mortgage Assets are passed
through to the holders of the CMOs on the same schedule as they are received,
although,
A-1
<PAGE>
certain classes (often referred to as tranches) of CMOs may have priority over
other classes with respect to the receipt of payments. CMOs may have complicated
structures and generally involve more risks than less complex mortgage-related
securities.
DEMAND NOTES are unsecured obligations redeemable upon a specified number of
days' notice (typically not more than 30 days). These obligations include master
demand notes that permit investment of fluctuating amounts at varying rates of
interest pursuant to direct arrangement with the issuer of the instrument. The
issuers of these obligations often have the right, after a given period, to
prepay the outstanding principal amount of the obligations upon a specified
number of days' notice. These obligations generally are not traded, nor
generally is there an established secondary market for them. Although a
purchaser of a demand note would generally not be able to resell a master demand
note to a third party, the purchaser is entitled to demand payment from the
issuer at any time in accordance with the note's notice provisions.
FIXED-INCOME SECURITIES are securities that pay a specified rate of return. The
term generally includes securities of all maturities (for instance, bills, notes
and bonds), securities on which interest or dividend payments are made before
maturity and zero coupon securities, and securities of various issuers (for
instance, corporate instruments, municipal securities and U.S. Government
Securities) that pay a specified rate of interest for a specified period of
time. The term also can include preferred stock, which pays fixed-dividends.
Coupon, discount and dividend rates usually are fixed for the term of a
security, but can provide for an increase or decrease in rate during the term of
the security.
GUARANTEED INVESTMENT CONTRACTS are arrangements with an insurance companies
under which the purchaser of the contract contributes cash to the insurance
company's general account and the insurance company credits the contribution
with interest on a monthly basis. The interest rate may be fixed or tied to a
specified market index, and the principal and interest are guaranteed by the
insurance company.
HIGH-YIELD/HIGH-RISK SECURITIES are securities that are rated below investment
grade by an NRSRO (i.e., "BB" or lower by S&P's and "Ba" or lower by Moody's).
Other terms commonly used to describe these securities include "lower rated
bonds," "non-investment grade bonds" and "junk bonds." These securities have
speculative or predominantly speculative characteristics.
MORTGAGE-RELATED AND ASSET-BACKED SECURITIES are shares in a pool of mortgages
or other debt. These securities are generally pass-through securities, which
means that principal and interest payments on the underlying securities (less
servicing fees) are passed through to securityholders on a pro rata basis. These
securities involve prepayment risk, which is the risk that during periods of
declining interest rates, the underlying mortgages or other debt may be
refinanced or paid off prior to their maturities, leaving the holder unable to
reinvest the prepaid amount at an interest rate comparable to the rate on the
prepaid securities.
PARTICIPATION INTERESTS are interests in municipal securities that are owned by
banks or other financial institutions. Participation interests usually carry a
demand feature backed by a letter of credit or guarantee of the bank or
institution permitting the holder to tender the participation interests back to
the bank or other institution.
REVERSE REPURCHASE AGREEMENTS involve the sale of a security by a Portfolio to
another party (generally a bank or dealer) in return for cash and an agreement
by the Portfolio to buy the security back at a specified price and time. This
technique is similar to borrowing.
SECURITY LOANS occur when the holder of a security lends it and receives a fee
from the borrower or is able to retain interest from investing cash collateral
deposited by the borrower. The lender may pay fees to arrange securities loans.
Security loans involve the risk that the borrower will fail to return the
borrowed security. In that case, the lender bears the risk of market value
fluctuations until the security is returned or collateral can be liquidated and
the proceeds (which may not cover the effects of fluctuations and the lenders
costs) used to replace the unreturned securities.
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VARIABLE AND FLOATING RATE SECURITIES are securities that have variable or
floating rates of interest that are adjusted periodically according to a
specified formula, usually with reference to some interest rate index or market
interest rate. In certain limited circumstances, adjustments in a security
interest rate may affect the amount of principal paid at maturity. The
adjustable rate tends to decrease the security's price sensitivity to changes in
interest rates.
ZERO COUPON SECURITIES are debt securities that are issued at a discount from
face value and do not pay interest prior to maturity. The discount approximates
the total amount of interest the security will accrue from the date of issuance
to maturity. The market value of these securities generally fluctuates more in
response to changes in interest rates than securities of comparable quality and
maturity that pay interest during their term. Holders of a zero-coupon security
with a term of more than a year must treat a portion of the discount of the
security as income on the purchase price paid for the security. As the Funds
distribute all of their net investment income, a Portfolio may have to sell
portfolio securities to distribute the income resulting from this treatment,
which may result in a taxable gain or loss and occur at a time when the
investment adviser would not otherwise have chosen to sell the securities.
OTHER INVESTMENT TERMS AND TECHNIQUES
DOLLAR ROLL TRANSACTIONS occur when a Portfolio sells fixed income securities,
typically mortgage-related securities, and makes a commitment to purchase
similar, but not identical, securities at a later date from the party to whom
the original securities were sold. Like a forward commitment, during the roll
period no payment is made for the securities purchased and no interest or
principal payments on the security accrue to the Portfolio but it assumes the
risk of ownership. A Portfolio is compensated for entering into dollar roll
transactions by the difference between the current sales price and the price for
the future purchase, as well as by the interest earned on the cash proceeds of
the initial sale. Like other forward commitments, dollar roll transactions
involve the risk that the market value of the securities to be purchased by the
Portfolio may decline below the price at which the Portfolio sold the original
securities. Also, if the buyer of the original securities under a dollar roll
transaction becomes insolvent, the Portfolio's use of the proceeds of the
transaction may be restricted pending a determination by the other buyer, or its
trustee or receiver, whether to enforce the Portfolio's obligation to repurchase
the securities, which may have increased a market value on the price at which
the original securities were sold.
MARKET CAPITALIZATION refers to the value of an issuer's outstanding stock and
is calculated by multiplying the total number of common shares outstanding by
the market price per share of the stock.
RULE 144A SECURITIES are securities that are not registered for sale to the
general public and may be resold only to certain types of institutional
investors. Because of the restrictions on their resale, these securities may be
difficult to resell at the same price as comparable non-restricted securities.
SHORT SALES AGAINST-THE-BOX occur when a Portfolio contemporaneously owns or has
the right to obtain at no added cost securities identical to securities which
the Portfolio has borrowed and sold, otherwise referred to as "sold short." For
federal income tax purposes, short sales against-the-box may in certain cases be
made to defer recognition of gain or loss on the sale of securities until the
short position is closed out. Under recently enacted legislation, if a Portfolio
has unrealized gain on securities it owns and sells identical securities short
against-the-box, the Portfolio generally will be deemed to have sold the long
position for tax purposes and thus will recognize gain.
WHEN-ISSUED, DELAYED DELIVERY and FORWARD TRANSACTIONS generally involve the
purchase of a security under an agreement to make payment and accept delivery at
some time in the future, (i.e., beyond the normal period of securities
settlement). A Portfolio does not earn interest on such securities until
settlement but bears the risk of market value fluctuations between the purchase
and settlement dates. New issues of stocks and bonds, private placements and
U.S. Government Securities may be sold in this manner.
A-3
<PAGE>
CERTIFICATES OF PARTICIPATION are certificates representing an interest in a
pool of securities. Holders are entitled to a proportionate interest in the
underlying securities.
FUTURES, OPTIONS AND OTHER DERIVATIVES
FORWARD CONTRACTS are contracts to purchase or sell a specified amount of
property for an agreed upon price at a specified time. Forward contracts
generally are not exchange traded and are typically negotiated on an individual
basis. The Portfolios may enter into forward currency contracts to hedge against
declines in the value of securities denominated in, or whose value is tied to, a
currency other than the U.S. dollar or to reduce the impact of currency
appreciation on future purchases of such securities. Portfolios may also enter
into forward contracts to purchase or sell securities indicies or other
financial indices.
FUTURES CONTRACTS are contracts that obligate the buyer to receive and the
seller to deliver a commodity at a specified price on a specified date. The
Portfolio may buy and sell futures contracts on foreign currencies, securities
indicies and financial indices, including interest rates or an index of U.S.
government, foreign government, equity or fixed-income securities. The
Portfolios may also buy options on futures contracts. An option on a futures
contract gives the buyer the right, but not the obligation, to buy or sell a
futures contract at a specified price on or before a specified date. Futures
contracts and options on futures contracts are standardized and traded on
exchanges.
INDEXED/STRUCTURED SECURITIES are typically short- to intermediate-term debt
securities whose value at maturity or interest rate is linked to currencies,
interest rates, securities, indices, commodity prices or other financial
indicies. These securities may be positively or negatively indexed (i.e., their
value may increase or decrease based on a movement in the price of the linked
component). Indexed/structured securities may have return characteristics
similar to direct investments in the linked component and may be more volatile
than a direct investment in the linked component. These investments may be
difficult to resell and a purchaser bears both the market risk of an investment
in the linked component and the credit risk of the issuer.
INVERSE FLOATERS, a type of indexed/structured security, are variable or
floating rate securities that pay interest at a rate that varies inversely with
movements in prevailing short-term interest rates. Upon reset of the interest
rate payable on an inverse floater, its interest rate may decrease if the linked
interest rate increases. When short-term interest rates are relatively low
compared to long-term interest rates, a Portfolio may attempt to enhance its
yield by purchasing inverse floaters. Certain inverse floaters may have an
interest rate reset mechanism that multiplies the effects of changes in the
underlying index. This form of leverage may have the effect of increasing the
volatility of the security's market value while increasing the security's,
potential yield. These investments may be difficult to resell and a purchaser
bears both the market risk of the investment and the credit risk of the issuer.
OPTIONS are the right, but not the obligation, to buy or sell a specified amount
of securities or other assets on or before a fixed date at a predetermined
price. Options may have standardized terms and be traded as exchanges or may be
tailor-made and difficult to resell. The Portfolio may purchase and write put
and call options on securities, securities indices and foreign currencies. A
purchaser of a non-standardized option is subject both to market risk and the
credit risk of the issuer.
SWAP AGREEMENTS include interest rate and mortgage (or other asset) swap
agreements. In a typical interest rate swap agreement, one party agrees to make
regular payments equal to a floating interest rate on a specified amount (the
"notional principal amount") in return for payments equal to a fixed interest
rate on the same amount for a specified period. Mortgage swap agreements are
similar to interest rate swap agreements, except that the notional principal
amount is tied to a reference pool of mortgages. In a cap or floor, one party
agrees, usually in return for a fee, to make payments under particular
circumstances. For example, the purchaser of an interest rate cap has the right
to receive payments to the extent a specified interest rate exceeds an agreed
upon level; the purchaser of an interest rate floor has the right to receive
A-4
<PAGE>
payments to the extent a specified interest rate falls below an agreed upon
level. A collar entitles the purchaser to receive payments to the extent a
specified interest rate falls outside an agreed upon range. Swap agreements may
involve leverage and may be highly volatile; depending on how they are used,
they may have a substantial impact on a Portfolio's performance. Swap agreements
expose a Portfolio to movements in the relative value of the obligations being
swapped, to the credit risk of the counterparties and to the Portfolio's ability
to terminate its swap agreements or reduce its exposure to them through
offsetting transactions.
A-5
<PAGE>
APPENDIX B
EXPLANATION OF RATING CATEGORIES
The following is a description of credit ratings issued by two of the major
credit ratings agencies. Credit ratings evaluate only the safety of principal
and interest payments, not the market value risk of lower quality securities.
Credit rating agencies may fail to change credit ratings to reflect subsequent
events on a timely basis. Although the investment advisers consider security
ratings when making investment decisions, each adviser also performs its own
investment analysis and does not rely solely on the ratings assigned by credit
agencies.
BOND RATINGS
STANDARD & POOR'S RATINGS SERVICES
<TABLE>
<S> <C>
INVESTMENT GRADE RATINGS
"AAA" Highest rating; extremely strong capacity to pay principal and interest.
"AA" High quality; very strong capacity to pay principal and interest.
"A" Strong capacity to pay principal and interest; somewhat more susceptible
to the adverse effects of changing circumstances and economic conditions.
"BBB" Adequate capacity to pay principal and interest; normally exhibit
adequate protection parameters, but adverse economic conditions or
changing circumstances more likely to lead to a weakened capacity to pay
principal and interest than for higher rated bonds.
NON-INVESTMENT GRADE RATINGS
"BB," "B" Predominantly speculative with respect to the issuer's capacity to meet
required interest and principal payments.
"CCC," "CC" Progressively higher degrees of speculation.
"C" Highest degree of speculation. Quality and protective characteristics
outweighed by large uncertainties or major risk exposure to adverse
conditions.
"D" In default.
MOODY'S INVESTORS SERVICE, INC.
INVESTMENT GRADE RATINGS
"Aaa" Highest quality, smallest degree of investment risk.
"Aa" High quality; together with Aaa bonds, they compose the high-grade bond
group.
"A" Upper-medium grade obligations; many favorable investment attributes.
"Baa" Medium-grade obligations; neither highly protected nor poorly secured.
Interest and principal appear adequate for the present but certain
protective elements may be lacking or may be unreliable over any great
length of time.
NON-INVESTMENT GRADE RATINGS
"Ba" More uncertain, with speculative elements. Protection of interest and
principal payments not well safeguarded during good and bad times.
"B" Lack characteristics of desirable investment; potentially low assurance
of timely interest and principal payments or maintenance of other
contract terms over time.
"Caa" Poor standing, may be in default; elements of danger with respect to
principal or interest payments.
"Ca" Speculative in a high degree; could be in default or have other marked
shortcomings.
"C" Lowest-rated; extremely poor prospects of ever attaining investment
standing.
</TABLE>
B-1
<PAGE>
NORWEST WEALTHBUILDER II PORTFOLIOS
April 1, 1998
NORWEST WEALTHBUILDER II GROWTH PORTFOLIO
NORWEST WEALTHBUILDER II GROWTH AND INCOME PORTFOLIO
NORWEST WEALTHBUILDER II GROWTH BALANCED PORTFOLIO
------------------------------------------------------------
Not FDIC Insured
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUMMARY..................................................... 2
EXPENSE INFORMATION.................................................... 4
FINANCIAL HIGHLIGHTS
INVESTMENT OBJECTIVES AND POLICIES..................................... 6
Investment Objectives.................................................. 7
Investment Policies.................................................... 7
Additional Investment Policies and Risk Considerations.................12
MANAGEMENT OF THE PORTFOLIOS...........................................13
PURCHASES AND REDEMPTIONS OF SHARES....................................15
General Purchase Information...........................................15
HOW TO BUY SHARES......................................................17
Minimum Investment.....................................................17
Purchase Procedures....................................................17
Subsequent Purchases...................................................18
Account Application....................................................18
General Information....................................................19
HOW TO SELL SHARES.....................................................19
General Information....................................................19
Redemption Procedures..................................................19
Other Redemption Matters...............................................20
OTHER SHAREHOLDER SERVICES.............................................20
Exchanges..............................................................20
Automatic Investment Plan..............................................21
Retirement Account.....................................................21
Automatic Withdrawal Plan..............................................22
Reopening Accounts.....................................................22
DIVIDENDS AND TAX MATTERS..............................................22
Dividends..............................................................22
Tax Matters............................................................22
OTHER INFORMATION......................................................23
Determination of Net Asset Value.......................................23
Performance Information................................................24
The Trust and Its Shares...............................................24
UNDERSTANDING THIS PROSPECTUS: References to "you" and "your" in this Prospectus
refer to current shareholders and/or prospective investors, and references to
"we", "us", and "our" refer to the Portfolios or the Trust, as the context may
indicate.
<PAGE>
APRIL 1, 1998
Norwest WealthBuilder II Growth Portfolio, Norwest WealthBuilder II Growth and
Income Portfolio and Norwest WealthBuilder II Growth Balanced Portfolio (each, a
"Portfolio" and collectively, the "Portfolios") are separate investment
portfolios designed to offer you access to professionally managed mutual funds
from well-known fund groups. Each Portfolio seeks to achieve its objective by
allocating its assets across asset classes of stocks, bonds, and money market
instruments through a number of affiliated and non-affiliated funds ("Underlying
Funds"). Each Portfolio holds a portfolio of stock funds, for growth potential,
and bond and money market funds, for decreased volatility and increased price
stability. The Portfolios' investment adviser may select from a wide range of
mutual funds based upon changing markets and advantageous risk/return
characteristics of the various asset classes. Each Portfolio provides a
different level of risk exposure by allocating its investments in different
proportions among equity and bond investment styles. In addition to its own
expenses, each Portfolio bears a pro rata portion of the expenses of the
Underlying Funds in which it invests. INVESTMENTS IN A PORTFOLIO MAY RESULT IN
YOUR INCURRING GREATER EXPENSES THAN IF YOU WERE TO INVEST DIRECTLY IN THE
MUTUAL FUNDS IN WHICH THE PORTFOLIO INVESTS. The Portfolios are diversified
series of Norwest Advantage Funds (the "Trust"), an open-end, management
investment company.
* NORWEST WEALTHBUILDER II GROWTH PORTFOLIO seeks long-term capital
appreciation.
* NORWEST WEALTHBUILDER II GROWTH AND INCOME PORTFOLIO seeks long-term
capital appreciation with a secondary emphasis on income.
* NORWEST WEALTHBUILDER II GROWTH BALANCED PORTFOLIO seeks a balance of
capital appreciation and income.
This Prospectus provides you with concise information about the Portfolios and
the Trust that you should know before you invest. A Statement of Additional
Information ("SAI") dated April 1, 1998, as amended from time to time,
containing additional information about the Portfolios has been filed with the
Securities and Exchange Commission (the "SEC"). The SAI is available for
reference on the SEC's Web Site (http://www.sec.gov) and is incorporated into
this Prospectus by reference. You also 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.]
Please read this Prospectus and retain it for future reference.
MUTUAL FUND SHARES ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, FDIC,
FEDERAL RESERVE SYSTEM OR ANY OTHER GOVERNMENT AGENCY AND ARE NOT OBLIGATIONS,
DEPOSITS OR ACCOUNTS OF, OR ENDORSED OR GUARANTEED BY, NORWEST BANK MINNESOTA,
N.A. OR ANY OTHER BANK OR BANK AFFILIATE.
AN INVESTMENT IN SHARES OF ANY MUTUAL FUND IS SUBJECT TO INVESTMENT RISK,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SEC OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION CONTAINED IN THIS PROSPECTUS.
INVESTMENT OBJECTIVES
Norwest WealthBuilder II Growth Portfolio seeks long-term capital appreciation.
Norwest WealthBuilder II Growth and Income Portfolio seeks long-term capital
appreciation with a secondary emphasis on income.
Norwest WealthBuilder II Growth Balanced Portfolio seeks a balance of capital
appreciation and income.
INVESTMENT POLICIES
Each Portfolio seeks to achieve its investment objective by investing in a
diverse mix of "Underlying Funds", that consist of affiliated and
non-affiliated, open-end, management investment companies or series thereof. In
addition, each Portfolio may hold other investment securities directly and may
invest otherwise uninvested assets in repurchase agreements. You may choose to
invest in one or more of the Portfolios based on your personal investment goals,
risk tolerance and financial circumstances. (See "Investment Objectives and
Policies.") The Portfolios invest in affiliated funds under exemptive relief
granted to the Trust by the SEC. Investments in unaffiliated funds will be
deferred until the Trust obtains additional relief from the SEC.
PORTFOLIO STRUCTURES
Each Portfolio seeks to achieve its objective by investing in a number of
Underlying Funds. Each Underlying Fund invests using a different investment
objective and a different investment style.
INVESTMENT ADVISER
Norwest Investment Management, Inc. ("Norwest" or the "investment adviser"), a
subsidiary of Norwest Bank Minnesota, N.A. ("Norwest Bank"), serves as each
Portfolio's investment adviser. Norwest also serves as the investment adviser
and, in most cases, affiliates of Norwest serve as investment subadviser for
each affiliated Underlying Fund. Norwest provides investment advice to various
institutions, pension plans and other accounts and, as of August 31, 1997,
managed over $22 billion in assets. (See "Management of the Portfolio --
Investment Advisory Services".) Norwest is paid an investment advisory fee
directly by each Portfolio for its services with respect to allocating and
monitoring the investment of each Portfolio's assets in Underlying Funds and
other investment securities.
PORTFOLIO MANAGEMENT, ADMINISTRATION AND OTHER SERVICES
Forum Financial Services, Inc. ("Forum"), a registered broker-dealer and member
of the National Association of Securities Dealers, Inc. serves as the
Portfolios' manager and distributor of the Portfolios' shares. Forum
Administrative Services, LLC ("FAS") provides administrative services for each
Portfolio. (See "Management of the Portfolios -- Management and Administration"
and "Distribution and Distribution Plan".)
Norwest Bank serves as the Portfolios' transfer and dividend disbursing agent
and custodian. (See "Management of the Portfolios -- Shareholder Servicing and
Custody" and "-- Management, Administration and Distribution Services".)
2
<PAGE>
PORTFOLIO SHARES
The Portfolios offer Class C shares, which are sold at net asset value plus an
initial sales charge of up to 1.50%. The sales charges may be reduced or waived
for certain purchases. (See "Purchases and Redemptions of Shares -- General
Purchase Information".) The Portfolios' Class C shares are subject to a
distribution fee at the annual rate of 0.75% of the average daily net assets of
the Portfolio's Class C shares.
HOW TO BUY AND SELL SHARES
You may purchase or redeem shares by mail, by bank wire, and through your
broker-dealer or financial institution. The minimum initial investment in
Norwest WealthBuilder II is $25,000. There is a $500 minimum subsequent
investment, except for IRA and systematic investing for which the minimum
subsequent investment is reduced to $150. (See "How to Buy Shares" and "How to
Sell Shares".)
EXCHANGES
You may exchange shares of a Portfolio for shares of other Portfolios at the
respective net asset values next determined. (See "Other Shareholder Services --
Exchanges".)
SHAREHOLDER FEATURES
Each Portfolio offers an Automatic Investment Plan, Automatic Withdrawal Plan
and Directed Dividend Option. Your purchases of shares may be eligible for a
Reinstatement Privilege. (See "Other Shareholder Services".)
DIVIDENDS AND DISTRIBUTIONS
The Portfolios will pay dividends of net investment income and distributions of
net capital gain once each year. We reinvest your dividends and distributions in
additional Portfolio shares unless you elect to have them paid in cash. (See
"Dividends and Tax Matters".)
CERTAIN INVESTMENT CONSIDERATIONS AND RISK FACTORS
There can be no assurance that a Portfolio or Underlying Fund will achieve its
investment objective, and each Portfolio's and Underlying Fund's net asset value
and total return will fluctuate based upon changes in the value of its portfolio
of investment securities. Upon redemption, an investment in a Portfolio or
Underlying Fund may be worth more or less than its original value.
The Portfolios seek to reduce the risk of your investment by diversifying among
different assets classes of stock, bonds and money market instruments and among
different fund managers. Investing in a mutual fund that holds a diversified
portfolio of mutual funds provides a wider range of investment management talent
and investment diversification than is available in a single mutual fund. The
Portfolios are designed to provide you with a single investment that offers
diverse asset classes, fund management, and fund categories. You still have,
however, the risks of investing in the various asset classes, such as market
risks related to stocks and bonds as well as the risk of investing in a
particular Underlying Fund, such as risks related to the particular investment
management style.
"Stock risk" is the possibility that stock prices and, therefore the net asset
value of stock funds, will decline over time. Smaller company and international
stocks, and therefore the mutual funds that invest in these stocks, offer
additional risks beyond general stock risk. "Bond risk" is the possibility that
the market value of bonds, and therefore the net asset value of bond funds, will
decline over time because of changes in market interest rates or issuers'
ability to meet its repayment obligations.
Investment techniques used by certain of the Underlying Funds may entail
additional risks, such as the potential use of leverage through borrowings and
securities lending. (See "Investment Objectives and Policies -- Additional
Investment Policies and Risk Considerations.")
3
<PAGE>
HOW THE PORTFOLIOS CAN HELP YOU MEET YOUR INVESTMENT NEEDS
If you are looking for a single, convenient investment that provides broad
diversification among actively managed mutual funds, the Norwest WealthBuilder
II Portfolios may be appropriate for you. Our professional management team
reviews, analyzes, selects and monitors each Portfolio's Underlying Funds for
you.
ASSET ALLOCATION STRATEGY. Each Portfolio diversifies among asset classes.
Commonly referred to as "asset allocation," this strategy can minimize the risks
of investing in a single security or single class of securities. Because the
performance of asset categories does not always move in the same direction at
the same time, investing in a mix of asset classes can help reduce volatility.
This strategy may provide more consistent returns, which may be higher or lower
than a less diversified investment.
The investment adviser allocates each Portfolio's investments among Underlying
Funds that represent a broad spectrum of investment options. The stock, bond and
money market fund allocations and the range of investments are based on the
degree to which the Underlying Funds (and any direct investments) selected are
expected in combination to be appropriate for a Portfolio's particular
investment objective. As a result of appreciation or depreciation, changes in
market factors or otherwise, the percentage of a Portfolio's assets invested in
various Underlying Funds will vary.
The Portfolios are for investors who prefer to be invested in a portfolio
diversified across major asset classes of stocks, bonds, and money market
instruments and investment styles and who want professional, active management
of a portfolio of Underlying Funds from well-known fund families. The Portfolios
are suitable for intermediate or long-term investing, as well as retirement
savings (including IRAs and other retirement plans). Each Portfolio is designed
to provide a level of exposure to the growth potential and risks of the stock
market different from that provided by the other Portfolios. The Portfolios also
differ in the amount of assets they allocate among stock funds that invest
primarily in large capitalization, small capitalization and international
issues.
TYPES OF UNDERLYING FUNDS
INVESTMENT COMPANIES. The Portfolios normally invest in open-end management
investment companies or series thereof. The Portfolios may also invest in
closed-end management investment companies and/or unit investment trusts. Each
Portfolio may hold certain securities directly.
STOCK FUNDS. Stock funds invest primarily in domestic or foreign common stocks
or securities convertible into or exchangeable for common stock. The Underlying
Funds may include stock funds holding large company stocks, small company stocks
and international stocks.
BOND FUNDS. Bond funds invest primarily in debt securities issued by a company,
municipality, government or government agency. The issuer of a bond is required
to pay the holder the amount of the loan (or par value) at a specified maturity
and to make scheduled interest payments.
MONEY MARKET FUNDS. The Portfolios may invest in Underlying Funds that are money
market funds, which means that the fund invests in U.S.-dollar denominated
short-term money market instruments that the Underlying Funds' have determined
present minimal credit risk. Under normal circumstances, the Portfolios may
invest their money market fund investments in affiliated money market Underlying
Funds. The Portfolios may also invest directly in money market instruments,
which include commercial paper and time deposits issued by large banks,
repurchase agreements and U.S. Government securities.
EXPENSE INFORMATION
The following tables are to assist you in understanding the fees and expenses
you bear directly or indirectly through investing a Portfolio's Class C shares.
The tables do not reflect the operating expenses and investment advisory fees of
the Underlying Funds. (See "Management" and "Portfolio Expenses" for further
information.)
4
<PAGE>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge on Purchases 1.50%(1)
Deferred Sales Charge or Redemption Fees None
Exchange Fees None
ANNUAL PORTFOLIO OPERATING EXPENSES(2)
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
Advisory Fee (fund selection and asset allocation services) 0.35%
12b-1 Fees(3) 0.75%
Other Expenses (after fee waivers and expense reimbursements)(4) 0.15%
TOTAL PORTFOLIO OPERATING EXPENSES
(AFTER FEE WAIVERS AND EXPENSE REIMBURSEMENTS) (5) 1.25%
(1) For information on reduced sales charges, see "Purchases and Redemptions of
Shares -- General Purchase Information".
(2) The table is based on estimated expenses for the Portfolios' first fiscal
year of operations ending May 31, 1998.
(3) The unaffiliated Underlying Funds in which a Portfolio invests may charge a
Rule 12b-1 fee; in which event, shareholders of the Portfolio indirectly
bear that expense.
(4) Other Expenses include Transfer Agent fees payable to Norwest Bank, which
currently receives remuneration from unaffiliated fund companies
participating in WealthBuilder II at an annual rate of 0.25% of the average
daily net assets of a Norwest WealthBuilder II Portfolio invested in an
Underlying Fund. Norwest and Norwest Bank provide investment advisory and
other services to affiliated Underlying Funds and receive compensation from
them. In light of this remuneration and compensation, Norwest Bank has
agreed, through at least May 31, 1999, to waive the Portfolios' Transfer
and Shareholder Service Agent fees, which normally total 0.25%. After that
date, the fee waiver may be terminated, modified or continued.
(5) Without waivers and reimbursements, Other Expenses and Total Portfolio
Operating Expenses would be 1.57% and 2.67%, respectively. Except as
otherwise noted, expense reimbursements and fee waivers are voluntary and
may be reduced or eliminated at any time.
EXAMPLE
The following Example indicates the expenses you would pay on a $1,000
investment in a Portfolio's Class C shares assuming: (1) a 5% annual return, (2)
reinvestment of all dividends and distributions and (3) redemption at the end of
each period. THIS IS ONLY AN EXAMPLE AND DOES NOT REPRESENT PAST OR FUTURE
EXPENSES OR RETURN. ACTUAL EXPENSES AND RETURN MAY BE GREATER OR LESS THAN
INDICATED. The 5% annual return neither predicts nor represents a Portfolio's
projected returns; rather, it is required by government regulation.
HYPOTHETICAL EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
NORWEST WEALTHBUILDER II 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------------------------------------
GROWTH PORTFOLIO $25 $52 $80 $162
GROWTH AND INCOME PORTFOLIO $25 $52 $80 $162
GROWTH BALANCED PORTFOLIO $25 $52 $80 $162
</TABLE>
The purpose of the table above is to help you understand the various costs and
expenses that you bear directly or indirectly through investing in the
Portfolios.
5
<PAGE>
FINANCIAL HIGHLIGHTS
The following table provides financial highlights for each of the Portfolios.
This information represents selected data for a single outstanding C Share of
each Portfolio for the period ended November 30, 1997. The information for this
period is unaudited. The Portfolios' financial statements for the period ended
November 30, 1997 are contained in the Portfolios' Semi-Annual Report. These
financial statements are incorporated by reference into the SAI. Further
information about each Portfolio's performance is contained in the Portfolios'
Semi-Annual Report which may be obtained from the Trust without charge.
<TABLE>
<S> <C> <C> <C>
NORWEST NORWEST
NORWEST WEALTHBUILDER WEALTHBUILDER
WEALTHBUILDER II II GROWTH & II GROWTH
GROWTH PORTFOLIO INCOME PORTFOLIO BALANCED
PORTFOLIO
----------------- ----------------- -----------------
Period ended November 30, 1997+
-----------------------------------------------------------
Net Asset Value, Beginning of Period(a) $10.00 $10.00 $10.00
Investment Operations
Net Investment Income (Loss) (0.01) - -
Net Realized and Unrealized Gain (Loss) on (0.10) (0.27) (0.03)
Investments
Total from Investment Operations (0.11) (0.27) (0.03)
Net Asset Value, End of Period $9.89 $9.73 $9.97
Total Return(b)(c) (1.10)% (2.70)% (0.30)%
Ratio/Supplementary Data
Net Assets at End of Period (in thousands) $730 $871 $1,853
Ratios to Average Net Assets:
Expenses including expense reimbursements/fee 1.27% 1.27% 1.27%
waivers(d)
Expenses excluding expense reimbursements/fee 23.60% 28.36% 13.84%
waivers(d)
Net investment income (loss) including expense
reimbursements/fee waivers(d) (0.71)% (0.36)% 0.44%
Portfolio Turnover Rate(e) 41.95% 15.81% 61.93%
</TABLE>
......................................................................
+ Unaudited.
(a) Each of the Portfolios commenced operations with the offering of C Shares
on October 1, 1997.
(b) Total return does not include the effects of sales charges. Total return
would have been lower absent expense reimbursements and/or fee waivers.
(c) Not Annualized.
(d) Annualized.
(e) Portfolio turnover represents the rate of portfolio activity.
6
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT OBJECTIVES.
There can be no assurance that a Portfolio or an Underlying Fund will achieve
its investment objective.
Norwest WealthBuilder II Growth Portfolio seeks capital appreciation.
Norwest WealthBuilder II Growth and Income Portfolio seeks long-term capital
appreciation with a secondary emphasis on income.
Norwest WealthBuilder II Growth Balanced Portfolio seeks a balance of capital
appreciation and income.
INVESTMENT POLICIES.
Each Portfolio invests in a combination of Underlying Funds and, subject to the
Portfolio's investment objective, seeks to maintain different allocations
between those types of funds depending on changing markets and favorable
risk/return characteristics of the various asset classes. Allocating investments
among stock, bond and money market funds permits each Portfolio to attempt to
optimize performance consistent with its investment objective. The chart below
illustrates each Portfolio's market-neutral position with regard to its
investments in stock, bond and money market funds without adjustments based on
market conditions or other factors:
<TABLE>
<S> <C> <C>
NORWEST WEALTHBUILDER II NEUTRAL POSITION INVESTMENT RANGE
PORTFOLIO
- ------------------------------------------------- ------------------------- -------------------------
GROWTH PORTFOLIO
Stock Funds 98.50% 97%-100%
Domestic Large Company 49.00% 20%-90%
Domestic Small Company 20.00% 5%-50%
International 29.50% 5%-55%
Money Market Funds 1.50% 0%-3%
GROWTH & INCOME PORTFOLIO
Stock Funds 98.50% 97%-100%
Domestic Large Company 70.00% 50%-90%
Domestic Small Company 14.25% 5%-30%
International 14.25% 5%-30%
Money Market Funds 1.50% 0%-3%
GROWTH BALANCED PORTFOLIO
Stock Funds 65.00% 45%-85%
Bond Funds 33.50% 15%-55%
Money Market Funds 1.50% 0%-3%
</TABLE>
Under normal market conditions, Growth Balanced Portfolio will invest at least
25% of its total assets in debt securities. Stock funds are funds that invest
primarily in common stocks or securities convertible into or exchangeable for
common stock, including domestic stocks and stocks of foreign issuers from
developed or emerging countries. Bond funds are funds that invest primarily in
long or short-term government or corporate bonds and other fixed- or
variable-rate income securities, including securities issued, guaranteed or
insured by the U.S. Government or its agencies, instrumentalities or
government-sponsored enterprises. Money market funds are funds that invest in
short-term money market instruments. To the extent a Portfolio focuses its
investment in only a few Underlying Funds, the Portfolios may be exposed to
greater risk than if it were to invest in a greater number of Underlying Funds.
Assets that are not invested in stock funds, bond funds and money market funds
may be invested in other types of funds and directly in domestic and foreign
securities and other instruments.
7
<PAGE>
Consistent with each Portfolio's investment objective and policies and under the
general supervision of the Trust's Board of Trustees, the investment adviser has
the authority to select for a Portfolio what it believes is the optimal
combination of Underlying Funds at any time deemed appropriate, including in
response to market and other conditions. In addition, the investment adviser
may, at any time, invest a Portfolio's assets in an Underlying Fund that is
different from or in addition to those presently used.
The investment adviser attempts to identify and select diversified portfolios of
funds based on an analysis of many factors. In the fund selection process, the
investment adviser uses quantitative techniques to analyze and rank potential
Underlying Funds based on their historic total return, volatility and operating
expenses over various time periods. The second step of the process involves a
review of potential Underlying Funds' investment objectives and policies.
Potential Underlying Funds that rank the highest by these criteria are then
subject to further qualitative and quantitative evaluation of size, management,
portfolio holdings, investment practices and policies, investment style of the
funds and their managers, and other factors prior to their purchase by the
Portfolios. The Portfolios do not invest in an Underlying Fund if the investment
would be subject to a sales charge.
POLICIES AND RISK FACTORS. The Portfolios invest in affiliated Underlying Funds
under exemptive relief granted to the Trust by the SEC under the Investment
Company Act of 1940 ("1940 Act"). Investments in unaffiliated Underlying Funds
will be deferred until the Trust obtains additional relief from the SEC. The
1940 Act currently provides that each Portfolio may not purchase the securities
of an Underlying Fund if, as a result, the Portfolio, together with its
affiliates, would own more than 3% of the total outstanding securities of that
Underlying Fund. Thus, each Portfolios ability to invest in shares of certain
Underlying Funds could be restricted, and the investment adviser may have to
select alternative investments. The 1940 Act also provides that an Underlying
Fund whose shares are purchased by a Portfolio will be obligated to redeem
shares held by the Portfolio only in an amount up to 1% of the Underlying Fund's
outstanding securities during any period of less than 30 days. Accordingly, if
the Underlying Fund is an "open-end" fund, the Portfolio will consider shares of
the Underlying Fund owned by the Portfolio in excess of 1% of the Underlying
Fund's outstanding securities to be illiquid. (See "Investment Objectives and
Policies -- Illiquid Securities.") There can be no assurance that the SEC will
grant such relief.
The selection of affiliated funds is subject to the investment adviser's insight
and judgment and the same conditions and criteria that apply to the selection of
unaffiliated funds, except that the Portfolios will ordinarily invest all of
their assets allocated to money market funds in affiliated money market funds.
The Portfolios (and many of the Underlying Funds) are diversified within the
meaning of the 1940 Act. The level of diversification a Portfolio obtains from
being invested in a number of Underlying Funds reduces the risk associated with
an investment in a single Underlying Fund. This risk is further reduced because
each Underlying Fund's investments are also spread over a range of issuers and
industries.
No Portfolio will invest 25% or more of its assets in Underlying Funds that
concentrate its investments in any one industry. A Portfolio may indirectly
invest 25% or more of its assets in one industry, however, if the Underlying
Funds invest their assets in the same industries. Because the scope of
investment alternatives within an industry is limited, the value of the shares
of an Underlying Fund that is concentrated in that industry may be subject to
greater market fluctuation than an investment in a fund which invests in a
broader range of securities. In addition, the Underlying Funds may use certain
investment strategies, such as trading in options and futures, which may also
involve increased risks to the Portfolios.
Under certain circumstances, an Underlying Fund may determine to make payment of
redemption by a Portfolio wholly or in part by an in-kind distribution of
securities from its portfolio in lieu of cash. In such cases, the Portfolio may
hold the securities distributed by an Underlying Fund until the investment
adviser determines that it is appropriate to dispose of such securities.
Investment decisions for the Underlying Funds are made independently of the
Portfolios and their investment adviser. One Underlying Fund, therefore, may
purchase shares of an issuer whose shares are being sold by another Underlying
Fund. The result would be an indirect cost to a Portfolio without accomplishing
any investment purpose. The Portfolios may purchase shares of no-load funds that
are available without a transaction fee and load funds that are available to the
Portfolios without a sales charge.
8
<PAGE>
To seek to enhance each Portfolio's overall performance, the investment adviser
uses various analytical techniques, including quantitative techniques, valuation
formulas and optimization procedures to assess the relative attractiveness of
each asset class of stocks, bonds, or money market instruments. After
identifying the most and least attractive asset classes, consideration is given
to the expected returns from and risks of, an asset class before deciding
whether to overweight or underweight that asset class.
ASSET ALLOCATION STRATEGY. Each Portfolio seeks to meet its investment objective
by allocating among stock funds, bond funds and money market funds. The
Financial Analysts Journal: Brinson, Singer, Beebower: May-June 1991, states
that research shows that the greatest impact on investment returns is due to the
asset allocation decision (the mix of stocks, bonds and cash-equivalents) rather
than market timing or the selection of individual stocks and bonds. A study of
the performance of pension funds indicated that over 90% of the pension fund
performance was determined by asset mix.
PORTFOLIO ALLOCATION STRATEGY. The investment adviser seeks to enhance the
overall performance while minimizing the risk of each Portfolio through the use
of two proprietary asset allocation models. The Tactical Asset Allocation Model
is a stock/bond model that identifies opportunities to add value by shifting
assets between stocks and bonds. The Tactical Equity Allocation Model identifies
opportunities to add value by shifting assets between different equity styles,
such as domestic versus international, or large cap versus small cap or value
versus growth. Portfolios are rebalanced to the appropriate mix when a
five-percent deviation from the target is reached.
STOCK FUNDS. Stock funds invest primarily in domestic or foreign common stocks
or securities convertible into or exchangeable for common stock. The Underlying
Funds may include stock funds holding large company stocks, small company stocks
and international stocks.
Large company stock funds are those that normally invest in U.S. companies with
large and mid-size market capitalization. These companies generally have a
market capitalization in excess of $1.5 billion. Many of these companies' stocks
are included in the Standard & Poor's 500 Composite Stock Index, a widely
recognized, unmanaged index of common stock prices. The Underlying Funds that
invest in these stocks, and indirectly the Portfolios, are exposed to the
possibility that stock prices, and therefore stock funds, may decline over short
or even extended periods ("stock-market risks"). Norwest believes that a diverse
portfolio of large company stock funds, each holding a diverse portfolio of
stocks of various industries, should tend to reduce stock market risk.
Small company stock funds invest in companies with a market capitalization below
that of large and mid-size companies. The market capitalization of these
companies currently is less than $1.5 billion. Small company stocks have
historically been characterized by greater total returns, greater volatility of
price and returns, and lower dividend yields than large company stocks. The
greater price volatility may result from there being less market liquidity and
publicly available information regarding small company stock than large company
stocks. Generally, fewer investors monitor the activities of small companies
than large companies. Norwest believes that a diverse portfolio of small company
stock funds, each holding a diverse portfolio of small company stocks of various
industries, should tend to reduce the risks associated with small company
stocks.
International stock funds generally invest in the securities of foreign issuers.
The Portfolios' investments in international stock funds involves risks similar
to those of investing directly in foreign stocks. Foreign stocks are stocks
issued by publicly traded companies from all countries except the United States.
The Portfolios will invest only in stock funds that invest primarily in publicly
traded stock of foreign issuers. The Underlying Funds' investments may be
denominated in foreign currencies, with the value of these investments affected
by changes in currency exchange rates versus the U.S. dollar in addition to
normal market fluctuations. The exchange rate between the U.S. dollar and
foreign currencies is determined by the forces of supply and demand in foreign
exchange markets, by changes in interest rates, as well as by political and
economic factors. Other risks and considerations of international investing
include: differences in accounting, auditing and financial reporting standards;
generally higher transaction costs on foreign portfolio transactions; small
trading volumes and generally lower liquidity of foreign stock markets, which
may result in greater price volatility; foreign withholding taxes payable on
portfolio holdings, which may reduce dividend income payable to shareholders;
the possibility of expropriation, nationalization or confiscatory taxation;
adverse changes in investment or exchange control
9
<PAGE>
regulations; political instability, which could affect U.S. investment in
foreign countries; and potential restrictions on the flow of international
capital. These international investment risks are present when investing in both
developed and developing emerging markets. Some of the Underlying Funds may
attempt to hedge against currency fluctuations by entering into currency
futures, options or forward contracts. The risks of such investments are
discussed below.
As a portion of its foreign stock fund allocations and subject to its investment
objective, a Portfolio may invest up to 15% of its net assets in Underlying
Funds that invest primarily in developing or emerging market countries. These
countries tend to have economic structures that are less diverse and mature and
political systems that are less stable than developed market countries. A
developing or emerging market country generally is considered to be in the
initial stages of industrialization. The risks of investing in developing or
emerging markets are similar to but greater than the risks of investing in
developed foreign markets.
As a part of their stock fund allocations, the Portfolios may also invest in
Underlying Funds that invest primarily in stock of issuers located throughout
the world, including the United States. As these funds may invest in both
developed and emerging market countries, they share the risks associated with
investments in both markets, as discussed above. In addition, because these
funds may also invest in the United States, they expose a Portfolio to the risks
associated with investing in the stock of U.S. issuers.
BOND FUNDS. Bond funds seek current income and invest primarily in short- or
longer-term U.S. government obligations, investment-grade corporate-debt
obligations, and highly rated mortgage-backed and other asset-backed securities.
Bond Funds are subject to the potential for decline in the market value of
bonds, and therefore bond funds, due to interest rate changes or the ability of
an issuer to meet its obligations ("bond risk"). The Underlying Funds may invest
in bonds having either floating- or fixed-interest rates. The bond category also
includes repurchase agreements collateralized by eligible investments.
The U.S. government obligations which the Underlying Funds may invest are issued
or guaranteed by the U.S. Government, its agencies, instrumentalities and
government-sponsored enterprises and include bills, notes, bonds, discount notes
and stripped government securities. Not all obligations issued or guaranteed by
U.S. Government agencies, instrumentalities and government-sponsored enterprises
are backed by the full faith and credit of the United States. If it were not
obligated to do so, there can be no assurance that the U.S. Government would
provide financial support for obligations issued by its agencies,
instrumentalities and government-sponsored enterprises.
Asset-backed securities, including mortgage-related securities, may also be
included in the Underlying Funds' portfolios. Asset-backed securities may be
secured by company receivables, home equity loans, truck and auto loans, leases
or credit-card receivables. Mortgage-backed securities are securities
collateralized by pools of mortgage loans and may be assembled by various
governmental agencies and government-sponsored enterprises, such as GNMA, FNMA
and FHLMC. When interest rates decline, there is an increased likelihood that
the mortgages underlying a mortgage-backed security will be pre-paid, resulting
in the loss of any unamortized premium paid for the securities and the
probability of having to reinvest the proceeds at lower rates. The Portfolios
will not select Underlying Funds that invest primarily in non-investment grade
asset-backed obligations.
The market value of the Underlying Funds' debt investments changes in response
to interest-rate fluctuations and other factors. During periods of falling
interest rates, the values of outstanding debt securities generally rise;
conversely, during periods of rising interest rates, the values of such
securities generally decline. While securities with longer maturities tend to
produce higher yields, the prices of longer maturity securities are also subject
to greater market fluctuations as a result of changes in interest rates. Changes
in the rating of any debt security by an NSRSO and in the ability of an issuer
to make payments of interest and repayments of principal also affect the value
of these investments. Except under default conditions, changes in the value of
portfolio securities do not affect cash income derived from these securities but
do affect the Underlying Funds' net asset values.
A Portfolio may invest in "balanced funds," which are funds that normally seek
to invest substantial portions of their assets in both stocks and bonds or
preferred stock. Generally, a balanced fund must invest at least 25% of its
assets in fixed-income senior securities. A Portfolio's investment in a balanced
fund exposes the Portfolio to the
10
<PAGE>
risks, described above, of an investment in both a stock fund and a bond fund,
because balanced funds invest in both of these instruments. Each Portfolio may
invest more than 5% of its assets in balanced funds.
MONEY MARKET FUNDS. The Portfolios may invest in Underlying Funds that are money
market funds, which are funds that invest in U.S. dollar denominated short-term
money market instruments that the Underlying Funds' investment adviser has
determined present minimal credit risk. Under normal circumstances and to the
extent permitted by SEC order or interpretation, the Portfolios will invest
their money market fund investments in affiliated money market Underlying Funds.
The Portfolios may also invest directly in money market instruments.
Eligible instruments include:
1. Bank certificates of deposit, time deposits or bankers' acceptances of
domestic banks (including their foreign branches), U.S. branches of
foreign banks and foreign branches of foreign banks, having capital,
surplus and undivided profits in excess of $100 million.
2. Commercial paper rated in one of the two highest rating categories by
an NRSRO, or commercial paper or notes of issuers with an unsecured
debt issue outstanding currently rated in one of the two highest rating
categories by any NRSRO where the obligation is on the same or a higher
level of priority and collateralized to the same extent as the rated
issue.
3. Obligations issued or guaranteed by the U.S. Government or its
agencies, instrumentalities or government-sponsored enterprises.
4. Repurchase agreements involving obligations that are suitable for
investment under the categories set forth above.
CLOSED-END FUNDS. A closed-end fund is a fund with a fixed number of shares.
While an open-end investment company must redeem its shares at net asset value
when tendered for redemption by a shareholder, a closed-end investment company
is not so required. Instead, shares of closed-end investment companies trade on
exchanges and over the counter like conventional stocks.
Shares of a closed-end investment company may, and typically do, trade at a
discount to net asset value. In addition, there may be no readily available
market for closed-end investment company shares, in which case the shares are
generally considered illiquid and subject to a Fund's restriction on holding
illiquid securities.
BORROWING. As a fundamental policy, each Portfolio may borrow money from banks
or by entering into reverse repurchase agreements and will limit bank borrowings
to amounts not in excess of 33 1/3% of the value of the Portfolio's total
assets. Bank borrowing for other than temporary or emergency purposes or meeting
redemption requests is not expected to exceed 5% of the value of any Portfolio's
assets. Irrespective of the Portfolio's policy on borrowings, each Portfolio may
enter into reverse repurchase agreements as described above (transactions in
which a Portfolio sells a security and simultaneously commits to repurchase that
security from the buyer at an agreed upon price on an agreed upon future date).
ILLIQUID SECURITIES. No Portfolio may invest more than 15% of its net assets in
illiquid securities. Illiquid securities are securities that cannot be disposed
of within seven days in the ordinary course of business at approximately the
amount at which the Portfolio 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 of Trustees of the Trust (the
"Board"). Limitations on resale may have an adverse effect on the marketability
of portfolio securities, and a Portfolio might also have to register restricted
securities in order to dispose of them, resulting in expense and/or delay. A
Portfolio might not be able to dispose of restricted or other securities
promptly or at reasonable prices and, thereby, might experience difficulty
satisfying redemptions. There can be no assurance that a liquid market will
exist for any security at any particular time.
11
<PAGE>
An institutional market has developed for certain securities that are not
registered under the Securities Act of 1933 (the "1933 Act"), including
repurchase agreements and foreign securities. Institutional investors depend on
an efficient institutional market in which the unregistered security can be
readily resold or on the issuer's ability to honor a demand for repayment of the
unregistered security. A security's contractual or legal restrictions on resale
to the general public or to certain institutions may not be indicative of the
liquidity of the security. If such securities are eligible for purchase by
institutional buyers in accordance with Rule 144A under the 1933 Act, the
investment adviser may determine that such securities are not illiquid
securities under guidelines adopted by the Board. These guidelines take into
account trading activity in the securities and the availability of reliable
pricing information, among other factors. If there is a lack of trading interest
in a particular Rule 144A security, a Portfolio's holdings of that security may
be illiquid.
REPURCHASE AGREEMENTS and LENDING OF PORTFOLIO SECURITIES. Each Portfolio 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, a Portfolio may have difficulty 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 a fund purchases a security and
simultaneously commits to resell that security to the seller at an agreed-upon
price and future date, normally one to seven days later. The resale price
reflects a market rate of interest that is not related to the coupon rate or
maturity of the purchased security. When a Portfolio lends a security, it
receives payment from the borrower or interest from investing cash collateral.
The Trust maintains possession of the purchased securities and the collateral in
lending 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 Portfolios may pay fees to arrange securities loans and
will limit securities lending to not more than 33 1/3% of the value of its total
assets.
Each Portfolio may invest a certain portion of its cash reserves in repurchase
agreements or an affiliated money market Underlying Fund. A reserve position
provides flexibility in meeting redemptions, expenses and the timing of new
investments and serves as a short-term defense during periods of unusual
volatility.
PORTFOLIO TURNOVER. The Portfolios anticipate that their annual portfolio
turnover rate will not exceed 100%; there can be no guarantee, however, that a
Portfolio's turnover rate, which is based on the turnover rate of the Underlying
Funds, will be less than 100%.
ADDITIONAL INVESTMENT POLICIES AND RISK CONSIDERATIONS
Each Portfolio's investment objective and fundamental investment policies may
not be changed without approval of the holders of a majority of the Portfolio's
outstanding voting securities. 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 each Portfolio are not fundamental
and may be changed by the Board without shareholder approval. A further
description of the Portfolios' investment policies, including additional
fundamental policies, is contained in the SAI.
As used herein, the term U.S. government obligations means obligations issued or
guaranteed as to principal and/or interest by the U.S. Government, its agencies,
instrumentalities and government-sponsored enterprises. All investment policies
relate to each Portfolio and, unless otherwise noted, not to a portion of a
Portfolio that invests in a particular investment style.
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 a Portfolio to hold
or acquire the securities of issuers that are also lending clients of Norwest
Bank. A lending relationship is not a factor in the selection of portfolio
securities for a Portfolio.
12
<PAGE>
YEAR 2000 COMPLIANCE. Like other mutual funds, financial and other business
organizations and individuals around the world, the Portfolios could be
adversely affected if the computer systems used by Norwest and other service
providers to the Portfolios do not properly process and calculate date-related
information and data from and after January 2000. Norwest has taken steps to
address the Year 2000 issue with respect to the computer systems that it uses
and to obtain reasonable assurances that comparable steps are being taken by the
Portfolios' other major service providers. Norwest does not anticipate that the
arrival of the Year 2000 will have a material impact on its ability to continue
to provide the Portfolios with service at current levels.
MANAGEMENT OF THE PORTFOLIOS
GENERAL OVERSIGHT OF THE PORTFOLIOS. The Board meets regularly to review the
Portfolios' general policies, investments, performance, expenses and other
business affairs. The Board consists of eight persons.
INVESTMENT ADVISORY SERVICES. Subject to the general supervision of the Board,
Norwest makes investment decisions for the Portfolios and continuously reviews
and determines the allocation of the assets of the Portfolios among the various
Underlying Funds in which the Portfolios invest. Norwest, 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 June 30, 1997, Norwest
Corporation had assets of $83.6 billion, which made it the 11th largest bank
holding company in the United States. As of June 30, 1997, Norwest and its
affiliates managed assets with a value of approximately $52.9 billion.
ADVISORY FEES. For its services, Norwest is entitled to receive investment
advisory and allocation fees from each Portfolio at the annual rate 0.35% of the
Portfolio's average daily net assets.
PORTFOLIO MANAGERS. Many persons on the advisory staff of Norwest contribute to
the investment services provided to the Portfolios. Galen Blomster, Ph.D., CFA,
Vice President & Director of Research and Amala Thakkar, CFA, Institutional
Product Manager, however, are primarily responsible for day-to-day management
and allocation services and have been since the inception of each Portfolio. Mr.
Blomster and Ms. Thakkar and have been employed by Norwest since 1977 and 1994,
respectively. Prior to Norwest, from August 1991, Ms. Thakkar worked for ATE
Enterprises in Bombay, India, as manager of corporate planning, where she was
responsible for corporate financial investment planning. In addition to their
responsibilities for the Portfolios, each portfolio manager may perform
portfolio management and other duties for other funds of the Trust and for
Norwest Bank.
MANAGEMENT and ADMINISTRATION. As manager, Forum supervises the overall
management of the Trust (including the Trust's receipt of services for which it
is obligated to pay) other than investment advisory services. In this capacity
Forum provides the Trust with general office facilities and persons satisfactory
to the Board to serve as officers of the Trust and oversees the performance of
administrative and professional services rendered to the Portfolios by others,
including the Portfolios' custodian, transfer agent, accountants, auditors and
legal counsel. FAS is responsible for performing certain administrative services
necessary for the Trust's operations with respect to each Portfolio including,
but not limited to: (1) assisting in the preparation, printing and 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; (2) assisting in the preparation of proxy and
information statements and any other communications to shareholders; (3)
assisting the Advisers in monitoring Fund holdings for compliance with
Prospectus and SAI investment restrictions and assisting in preparation of
periodic compliance reports; (4) having responsibility 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;
(5) monitoring the sale of shares and ensuring that such shares are properly and
duly registered with the SEC and applicable state and other securities
commissions; (6) having responsibility for the calculation of performance data
for dissemination to information services covering the investment company
industry, for sales literature of the Trust and other appropriate purposes; and
(7) having responsibility for the determination of the amount of and supervise
the declaration of dividends and other distributions to shareholders as
necessary to, among other things, maintain the qualification of each Fund as a
regulated investment company under the Internal Revenue Code of 1986, as
13
<PAGE>
amended, and prepare and distribute to appropriate parties notices announcing
the declaration of dividends and other distributions to shareholders.
As of June 30, 1997, Forum and FAS provided management and administrative
services to registered investment companies and collective investment funds with
assets of approximately $25.5 billion. Forum is a member of the National
Association of Securities Dealers, Inc. For their services with respect to each
Portfolio, Forum and FAS each are entitled to receive a fee at an annual rate of
0.05% of the Portfolio's average daily net assets.
Pursuant to a separate agreement, Forum Accounting Services, LLC ("Forum
Accounting") provides portfolio accounting services to each Portfolio. Forum,
FAS, and Forum Accounting are members of the Forum Financial Group of companies
that together provide a full range of services to the investment company and
financial services industry. As of June 1, 1997, Forum, FAS and Forum Accounting
were controlled by John Y. Keffer, President and Chairman of the Trust.
DISTRIBUTION AND DISTRIBUTION PLAN. Forum acts as distributor of the Portfolios'
shares. The Trust may compensate Forum under a distribution plan adopted under
Rule 12b-1 under the 1940 Act (the "Distribution Plan") by the Trust for the
Portfolio's shares. Forum, in turn, may use these payments to compensate others
for services provided, or to reimburse others for expenses incurred, in
connection with the distribution of shares. The Distribution Plan authorizes
monthly payments at an annual rate of up to 0.75% of the Portfolios' average
daily net assets.
Payments under the Distribution Plan may be made for various types of costs,
including: (1) advertising expenses; (2) costs of printing prospectuses and
other materials to be given or sent to prospective investors; (3) expenses of
sales employees or agents of Forum, including salary, commissions, travel and
related expenses in connection with the distribution of shares; (4) payments to
broker-dealers who advise shareholders regarding the purchase, sale, or
retention of shares; and (5) payments to banks, trust companies, broker-dealers
(other than Forum) or other financial organizations (collectively, "Processing
Organizations"). Payments to a particular Processing Organization under the
Distribution Plan are calculated by reference to the average daily net assets of
shares owned beneficially by investors who have a brokerage or other service
relationship with the Processing Organization. A Portfolio will not be liable
for distribution expenditures made by Forum in any given year in excess of the
maximum amount payable under the Distribution Plan in that year. Costs or
expenses in excess of the annual limit may not be carried forward to future
years. Salary expenses of sales personnel responsible for marketing various
shares of portfolios of the Trust may be allocated to those portfolios,
including shares of a Portfolio, that have adopted a plan similar to that of the
Portfolios. Travel expenses may be allocated to, or divided among, the
particular portfolios of the Trust for which they are incurred.
Forum receives no fees for its services as the distributor of the shares. From
its own resources, Forum may pay fees to broker-dealers or other persons for
distribution or other services related to the Portfolios.
TRANSFER AND SHAREHOLDER SERVICES AGENT. Norwest Bank which is located at
Norwest Center, Sixth Street and Marquette, Minneapolis, Minnesota 55479, serves
as transfer and shareholder services agent for each Portfolio. As transfer
agent, Norwest Bank maintains an account for each Portfolio shareholder (unless
such accounts are maintained by sub-transfer agents or other 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 Portfolio'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 "Service 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 with respect to the Portfolios.
For its services, Norwest Bank is entitled to receive a fee with respect to each
Portfolio at an annual rate of 0.25% of its average daily net assets.
Norwest Bank also serves as each Portfolio's custodian and may appoint
subcustodians for any securities and other assets held in depositories. For its
custodial services, Norwest Bank is entitled to receive a fee with respect to
each Portfolio at an annual rates of: 0.02% of the first $100 million of a
Portfolio's average daily net assets, 0.015% of the next $100 million of the
Portfolio's average daily net assets and 0.01% of the Portfolio's remaining
average
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<PAGE>
daily net assets. No fee is directly payable by a Portfolio to the extent the
Portfolio is invested in one or more Underlying Funds.
PORTFOLIO EXPENSES. Subject to the obligation of Norwest and Norwest Bank to
waive fees and/or reimburse the Trust for certain expenses of the Portfolios,
each Portfolio is responsible for all expenses related to its operations. Each
Portfolio bears all costs of its operations other than expenses specifically
assumed by the investment adviser. The costs borne by each Portfolio include a
pro rata portion of the following: the Portfolio's share of the expenses of the
Underlying Funds in which a Portfolio invests (borne indirectly by the
Portfolio's shareholders); 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
Portfolio's shares for sale with the SEC and with complying with various state
securities laws and regulations; expenses of obtaining quotations on portfolio
securities and pricing of the Portfolio's shares; a portion of the expenses of
maintaining the Portfolio'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 Portfolio
are charged to the Portfolio; other expenses are allocated proportionately among
all the series of the Trust in relation to the net assets of each series. The
investment adviser has undertaken voluntarily to waive a portion of its fees and
or assume certain expenses of the Portfolio, if necessary, in order to limit
total Portfolio expenses excluding taxes, interest, brokerage commissions and
other Portfolio transaction expenses and extraordinary expenses to 1.25% of the
Portfolio's average daily net assets. If expense reimbursements are required,
they are made on a monthly basis.
Each Portfolio service provider may elect to waive all or a portion of its fees,
which are accrued daily and paid monthly. Any such waivers have the effect of
increasing a Portfolio's performance for the period during which the waiver is
in effect. Except as described above, fee waivers are voluntary and may be
reduced or eliminated at any time.
Each service provider to the Trust or its agents and affiliates also may act in
various capacities for, and receive compensation from, their customers who are
Portfolio shareholders. Under agreements with those customers, these entities
may elect to credit against the fees payable to them by their customers or to
rebate to customers all or a portion of any fee received from the Trust with
respect to assets of those customers invested in a Portfolio.
PURCHASES AND REDEMPTIONS OF SHARES
Shares are continuously sold and redeemed at a price equal to their net asset
value next determined plus any applicable sales charge, after receipt of an
order on every weekday except customary national holidays and Good Friday
("Portfolio Business Day").
GENERAL PURCHASE INFORMATION
Investments in the Portfolios may be made either through certain financial
institutions or by an investor directly. An investor who invests in a Portfolio
directly is the shareholder of record. All transactions in the Portfolios'
shares are effected through the transfer agent, which accepts orders for
redemptions and subsequent purchases only from shareholders of record and new
investors. Shareholders of record receive from the Trust periodic statements
listing all account activity during the statement period. You must pay for your
shares in U.S. dollars by check written to the Trust (drawn on a U.S. bank), by
bank or federal funds wire transfer, or by Automatic Clearing House (ACH)
electronic bank transfer; cash cannot be accepted.
When you sign your application for a new Portfolio 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 Trust to withhold 31%
of your distributions and redemptions.
Each Portfolio offers one class of shares -- Class C shares. Shares are sold to
investors with an initial sales charge of 1.5%.
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Purchase orders received by the transfer agent prior to the close of regular
trading on the New York Stock Exchange ("NYSE") on any Portfolio Business Day
are priced at the net asset value determined that day (the "trade date"). Orders
received by financial institutions prior to the close of regular trading on the
NYSE on a Portfolio Business Day also are priced at the net asset value
determined that day, provided the order is received by the Trust prior to 4:00
p.m. (Eastern time). For shares purchased through a financial institution that
transmits its orders to the Portfolio, payment for Portfolio shares is due on
the third business day after the trade date. In all other cases, payment must be
made with the purchase order.
Forum may pay a broker-dealers' reallowance to selected broker-dealers
purchasing shares as principal or agent, which may include banks, bank
affiliates and Processing Organizations. Normally, Forum reallows discounts to
selected broker-dealers. Forum reallows the entire sales charge to selected
broker-dealers for all sales orders placed with Forum. The broker-dealers'
reallowance may be changed from time to time. Forum may make additional payments
(out of its own resources) to selected broker-dealers of up to 1.00% of the
value of Portfolio shares purchased at net asset value.
In addition, from time to time and at its own expense, Forum may provide
compensation, including financial assistance, to dealers in connection with
conferences, sales or training programs for their employees, seminars for the
public, advertising campaigns or other dealer-sponsored special events.
Compensation may include: (1) the provision of travel arrangements and lodging;
(2) tickets for entertainment events; and (3) merchandise.
In some instances, this compensation may be made available only to certain
dealers or other financial intermediaries who have sold or are expected to sell
significant amounts of shares of the Funds or who charge an asset based fee
(whether or not they have a fiduciary relationship with their clients).
No sales charge is assessed on purchases: (1) by any bank, trust company or
other institution acting on behalf of its fiduciary customer accounts or any
other account maintained by its trust department (including a pension, profit
sharing or other employee benefit trust created pursuant to a plan qualified
under Section 401 of the Internal Revenue Code of 1986, as amended); (2) by
trustees and officers of the Trust; directors, officers and full-time employees
of Forum, of Norwest Corporation or of any of their affiliates; the spouse,
direct ancestor or direct descendant (collectively, "relatives") of any such
person; any trust or individual retirement account or self-employed retirement
plan for the benefit of any such person or relative; or the estate of any such
person or relative; or (3) by any registered investment adviser with whom Forum
has entered into a share purchase agreement and that is acting on behalf of its
fiduciary customer accounts. Shares sold without a sales charge may not be
resold except to the Portfolios, and share purchases must be made for investment
purposes.
REINSTATEMENT PRIVILEGE. If you have redeemed a Portfolio's Class C shares, you
may, within 60 days following the redemption, purchase C shares, without payment
of an additional a front-end sales charge, in any of the Norwest WealthBuilder
II Portfolios in an amount up to the amount of your redemption. If you want to
exercise this "Reinstatement Privilege," please contact the Trust for further
information.
INVESTORS IN OTHER FUND FAMILIES. No sales charge is accessed on purchases of C
Shares of a Portfolio with the proceeds of a redemption, within the preceding 60
days, of shares of a mutual fund that imposed on the redeemed shares at the time
of their purchase a sales charge equal to or greater than that applicable to the
C Shares of that Portfolio. Investors should contact the Trust for further
information and to obtain the necessary forms.
REDUCED INITIAL SALES CHARGES. To qualify for a reduced sales charge, you or
your Processing Organization must notify the transfer agent at the time of
purchase of your intention to so qualify, and you must provide the transfer
agent with sufficient information to verify that your purchase qualifies, for
the reduced sales charges, which are as follows:
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<TABLE>
<S> <C> <C> <C>
SALES CHARGE
AS A PERCENTAGE OF
-----------------------------------------------
BROKER- DEALERS'
REALLOWANCE AS A
PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE NET ASSET VALUE* OFFERING PRICE
- ------------------ -------------- ---------------- -----------------
$25,000 up to $250,00 1.5% 1.52% 1.50%
====
$250,000 up to $500,000 1.25% 1.27% 1.25%
$500,000 up to 1,000,000 1.00% 1.01% 1.00%
$1,000,000 and up 0.75% 0.76% 0.75%
</TABLE>
Reduced sales charges may be modified or terminated at any time and are subject
to confirmation of your holdings. Further information about reduced sales
charges is contained in the SAI.
SELF-DIRECTED 401 PROGRAMS. Purchases of Portfolio shares through self-directed
401(k) programs and other qualified retirement plans offered by Norwest Bank,
Forum or their affiliates in accumulated amounts of less than $100,000 are
subject to a reduced sales charge applicable to a single purchase of $100,000.
HOW TO BUY SHARES
MINIMUM INVESTMENT
There is a $25,000 minimum initial investment in the Norwest WealthBuilder II
Portfolios. There is a $500 minimum for subsequent purchases of Portfolio
shares, except for IRA and systematic investing where the subsequent investment
minimum is reduced to $150. The investment adviser may in its discretion waive
the investment minimums.
PURCHASE PROCEDURES
INITIAL PURCHASES. THERE ARE THREE WAYS TO PURCHASE SHARES INITIALLY.
1. BY MAIL. Investors may send a check (cash cannot be accepted) along
with a completed account application to the Trust at the address listed
under "Account Application". Checks are accepted at full value subject
to collection. If a check does not clear, the purchase order is
canceled, and the investor is liable for any losses or fees incurred by
the Trust, the transfer agent or Forum.
For individual or Uniform Gift to Minors Act accounts, your check used to
purchase shares of a Portfolio must be made payable to Norwest WealthBuilder II
Portfolios ["Portfolio Name"] or to one or more owners of that account and
endorsed to Norwest WealthBuilder II Portfolios ["Portfolio Name"]. For
corporation, partnership, trust, 401(k) plan or other non-individual type
accounts, your check to purchase Portfolio shares must be made payable on its
face to "Norwest WealthBuilder II Portfolios" ["Portfolio Name"]. No other
method of payment by check is accepted.
2. BY BANK WIRE. You may make an initial investment in a Portfolio using
the wire system for transmittal of money among banks. You should first
telephone the transfer agent at [(612) 667-8833] or [(800) 338-1348] to
obtain an account number. You then should instruct your bank to wire
the money immediately to:
NORWEST BANK MINNESOTA, N.A.
ABA 091 000 019
FOR CREDIT TO: NORWEST WEALTHBUILDER II PORTFOLIOS
0844-131
RE: [NAME OF PORTFOLIO]
ACCOUNT NO.:
ACCOUNT NAME:
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You then should promptly complete and mail the account application form. Your
bank may impose a charge on you 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.
3. THROUGH FINANCIAL INSTITUTIONS. You may purchase and redeem shares
through Processing Organizations. The transfer agent, Forum and their
affiliates may be Processing Organizations. Processing Organizations
may receive as a broker-dealer's reallowance a portion of the sales
charge paid by their customers who purchase Class C shares, may receive
payments from Forum with respect to sales of Class C shares, and may
receive payments as a processing agent from the transfer agent. In
addition, financial institutions, including Processing Organizations,
may charge you a fee for their services; they are responsible for
promptly transmitting purchase, redemption and other requests to the
Portfolios.
If you purchase shares through a Processing Organization, you are subject to the
procedures of that Processing Organization, which may include charges,
limitations, investment minimums, cutoff times and restrictions in addition to,
or different from, those applicable to shareholders who invest in a Portfolio
directly. You should acquaint yourself with the Processing Organization's
procedures and should read this Prospectus in conjunction with any materials and
information that the Processing Organization has provided to you. If you
purchase Portfolio shares through a Processing Organization, you may or may not
be the shareholder of record and, subject to their and the Portfolios'
procedures, you may have Portfolio shares transferred into the name of that
Processing Organization. There is typically a three-day settlement period for
purchases and redemptions through broker-dealers. Certain Processing
Organizations also may enter purchase orders with payment to follow.
Certain shareholder services may not be available to you if you have purchased
shares through a Processing Organization. You should contact your 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 would provide you with confirmations and periodic
statements. The Trust is not responsible for the failure of any Processing
Organization to carry out its obligations to you or other customers.
SUBSEQUENT PURCHASES
Subsequent purchases may be made by mailing a check, by sending a bank wire, or
through your Processing Organization as indicated above. All payments should
clearly indicate your name and account number.
ACCOUNT APPLICATION
You may obtain an account application to open an account by writing the Trust at
the following address:
NORWEST WEALTHBUILDER II PORTFOLIOS
[NAME OF PORTFOLIO]
NORWEST BANK MINNESOTA, N.A.
TRANSFER AGENT
733 MARQUETTE AVENUE
MINNEAPOLIS, MN 55479-0040
To participate in shareholder services not referenced on your account
application or to change information on your account (such as addresses), please
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. You may terminate any privilege and participation in any
program at any time by writing the Trust.
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GENERAL INFORMATION
Portfolio shares are continuously sold on every Portfolio Business Day. The
purchase price for Portfolio shares equals their net asset value next-determined
after receipt of an order plus any applicable sales charge imposed at the time
of purchase.
Portfolio shares are entitled to receive dividends and distributions as of the
first Portfolio Business Day after a purchase order is accepted. The Trust
reserves the right to reject any purchase order for shares.
Investments in a Portfolio may be made either through certain Processing
Organizations or by an investor directly. An investor who invests in a Portfolio
directly is the shareholder of record. All transactions in Portfolio shares are
effected through the transfer agent, which accepts orders for redemptions and
for subsequent purchases only from shareholders of record. Shareholders of
record will receive from the Trust periodic statements listing all account
activity during the statement period.
HOW TO SELL SHARES
GENERAL INFORMATION
You may sell your Portfolio shares (redeem) at their net asset value on any
Portfolio Business Day. There is no minimum period of investment and no
restriction on the frequency of redemptions.
Your Portfolio shares are redeemed as of the next determination of the
Portfolio's net asset value following acceptance by the transfer agent of your
redemption order in proper form (and any supporting documentation that the
transfer agent may require). You are not entitled to receive dividends declared
on your redeemed shares after the day the redemption becomes effective.
Normally, your redemption proceeds are paid immediately, but in no event later
than seven days following acceptance of a redemption order. Proceeds of
redemption requests (and exchanges), however, will not be paid unless any check
used to purchase your shares being redeemed has been cleared by your bank, which
may take up to 15 days. This delay may be avoided by paying for shares through
wire transfers or ACH (Automatic Clearing House). Unless otherwise indicated,
redemption proceeds normally are paid by check mailed to your record address.
Your right of redemption may not be suspended nor the payment date postponed for
more than seven days after the tender of the shares to a Portfolio, 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
Portfolio of its portfolio securities or determination by the Portfolio of the
value of its net assets is not reasonably practicable and for such other periods
as the SEC may permit.
REDEMPTION PROCEDURES
If you have invested through a Processing Organization, you may redeem your
shares through the Processing Organization as described above. If you have
invested directly in a Portfolio, you may redeem your shares as described below.
If you wish to redeem shares by telephone or receive redemption proceeds by bank
wire, you must elect these options by properly completing the appropriate
sections of your account application form. These privileges may not be available
until several weeks after your application is received.
1. BY MAIL. You may redeem shares by sending a written request to the
transfer agent. All written requests for redemption must be signed by
the shareholder with signature guaranteed. (See "How to Sell Shares --
Other Redemption Matters".)
2. BY TELEPHONE. A shareholder who has elected telephone redemption
privileges may make a telephone redemption request by calling the
transfer agent at (800) 338-1348 or (612) 667-8833 and providing the
shareholder's account number, the exact name in which his shares are
registered and the shareholder's social
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<PAGE>
security or taxpayer identification number. In response to the
telephone redemption instruction, the Trust will mail a check to the
shareholder's record address or, if the shareholder has elected wire
redemption privileges, wire the proceeds. (See "How to Sell Shares --
Other Redemption Matters".)
3. BY BANK WIRE. For redemptions of more than $5,000, a shareholder who
has elected wire redemption privileges may request a Portfolio to
transmit the redemption proceeds by federal funds wire to a bank
account designated in writing by the shareholder. To request bank wire
redemptions by telephone, the shareholder also must have elected the
telephone redemption privilege. Redemption proceeds are transmitted by
wire on the day after a redemption request in proper form is received
by the transfer agent.
OTHER REDEMPTION MATTERS
To protect shareholders and the Portfolios 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)
instruction to change a shareholder's record name; (2) modification of a
designated bank account for wire redemptions; (3) instruction regarding an
Automatic Investment Plan or Automatic Withdrawal Plan, (4) dividend and
distribution election; (5) telephone redemption; (6) exchange option election or
any other option election in connection with the shareholder's account; (7)
written instruction to redeem Shares whose value exceeds $50,000; (8) redemption
in an account in which the account address has changed within the last 30 days;
(9) redemption when the proceeds are deposited in a Portfolio account under a
different account registration; and (10) the remitting of redemption proceeds to
any address, person or account for which there are not established standing
instructions on the account.
Signature guarantees may be provided by any bank, broker-dealer, national
securities exchange, credit union, savings association or other eligible
institution that is authorized to guarantee signatures and is acceptable to the
transfer agent. Whenever a signature guarantee is required, the signature of
each person required to sign for the account must be guaranteed.
Shareholders who want telephone redemption or exchange privileges must elect
those privileges. The Trust and transfer agent will employ reasonable procedures
in order to verify that telephone requests are genuine, including recording
telephone instructions and causing written confirmations of the resulting
transactions to be sent to shareholders. If the Trust and transfer agent did not
employ such procedures, they could be liable for losses due to unauthorized or
fraudulent telephone instructions. Shareholders should verify the accuracy of
telephone instructions immediately upon receipt of confirmation statements.
During times of drastic economic or market changes, telephone redemption and
exchange privileges may be difficult to implement. In the event that a
shareholder is unable to reach the transfer agent by telephone, requests may be
mailed or hand-delivered to the transfer agent.
Due to the cost to the Trust of maintaining smaller accounts, the Trust reserves
the right to redeem, upon not less than 60 days' written notice, all shares in
any Portfolio account whose aggregate net asset value is less than $1,000
immediately following any redemption.
OTHER SHAREHOLDER SERVICES
EXCHANGES
You may exchange your shares for Class C shares of the other Norwest
WealthBuilder II Portfolios. For information, please contact the transfer agent.
The Portfolios do not charge for exchanges, and there is currently no limit on
the number of exchanges you may make. The Trust reserves the right, however, to
limit excessive exchanges by you or to impose a fee per exchange over a minimum
amount. Exchanges are subject to the fees charged by, and the limitations
(including minimum investment restrictions) of, the Portfolio into which you are
exchanging.
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<PAGE>
Exchanges may only be made between identically registered accounts or by opening
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 your exchange is
being made. You may only exchange into a Portfolio if that Portfolio's shares
may legally be sold in your state of residence.
Under federal tax law, the Portfolios 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. Exchange
procedures may be amended materially or terminated by the Trust at any time upon
60 days' notice to shareholders. (See "Additional Purchase and Redemption
Information" in the SAI.)
SALES CHARGES. The exchange of C shares may result in additional sales charges.
If an exchange of C shares is made into a Portfolio that imposes an initial
sales charge, you are required to pay an amount equal to any excess of that
Portfolio's initial sales charge attributable to the number of shares being
acquired in the exchange over any initial sales charge paid by the shareholder
for the C shares being exchanged. For example, if you paid a 1% initial sales
charge in connection with a purchase of shares and then exchanged those shares
into shares of another Portfolio subject to the 1.5% sales charge, you would pay
the differential sales charge on the exchange. C shares acquired through the
reinvestment of dividends or distributions are deemed to have been acquired with
a sales charge rate equal to that applicable to the shares on which the
dividends or distributions were paid.
1. EXCHANGES BY MAIL. You may make exchanges by mail by writing to the
transfer agent and sending any share certificates for the shares to be
exchanged. You must sign all written requests for exchanges and endorse
all certificates with signature guaranteed. (See "How to Sell Shares --
Other Redemption Matters".)
2. EXCHANGES BY TELEPHONE. If you have elected telephone exchange
privileges, you may make a telephone exchange request by calling the
transfer agent at (800) 338-1348 or (612) 667-8833 and providing your
account number, the exact name in which your shares are registered and
your social security or taxpayer identification number. (See "How to
Sell Shares -- Other Redemption Matters".)
AUTOMATIC INVESTMENT PLAN
Under the Portfolios' Automatic Investment Plan, you may authorize monthly
amounts of $150 or more to be withdrawn automatically from your designated bank
account (other than a passbook savings account) and sent to the transfer agent
for investment in Portfolio shares. If you wish to use this plan, you must
complete an application, which may be obtained by writing or calling the
transfer agent. The Trust may modify or terminate your automatic investment plan
in the event that the Trust is unable to settle any transaction with your bank.
If the Automatic Investment Plan is terminated before your account totals
$25,000, the Trust reserves the right to close your account in accordance with
the procedures described under "How to Sell Shares -- Other Redemption Matters".
RETIREMENT ACCOUNTS
The Portfolios may be a suitable investment vehicle for part or all of the
assets you hold in Traditional or Roth individual retirement accounts
(collectively "IRAs"). An IRA account application may be obtained by contacting
the Trust at (800) 338-1348 or (612) 667-8833. Generally, contributions and
investment earnings in an IRA generally are tax-deferred until you withdrawn
them. In the case of a Roth IRA, if certain requirements are met, your
investment earnings will not be taxed even when you withdraw them. You generally
may make IRA contributions of up to a maximum of $2,000 annually. Only
contributions to your Traditional IRAs are tax deductible. However, your
deduction is reduced if you or, in the case of a married individual, either you
or the your spouse is an active participant in an employer-sponsored retirement
plan and you (or, in some cases, you and your spouse) have adjusted gross income
above certain levels. Your ability to make contributions to a Roth IRA is
restricted if you (or, in some cases, you and your spouse) have adjusted gross
income above certain levels.
Your employer may also contribute to your IRA as part of a Savings Incentive
Match Plan for Employees, or "SIMPLE plan", established after December 31, 1996.
Under a SIMPLE plan, you may contribute up to $6,000 annually to your
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IRA, and your employer must generally match such contributions up to 3% of the
your annual salary. Alternatively, your employer may elect to contribute to your
IRA 2% of the lesser of the your earned income or $160,000.
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. You should
consult your tax advisors with respect to their specific tax situation as well
as with respect to state and local taxes.
AUTOMATIC WITHDRAWAL PLAN
If you have shares in a single account that total $25,000 or more, you may
establish an automatic withdrawal plan to provide for the preauthorized payment
from your account of $250 or more on a monthly, quarterly, semi-annual or annual
basis. Under the automatic withdrawal plan, sufficient shares in your account
are redeemed to provide your periodic payment and any taxable gain or loss is
recognized by your upon redemption of the shares. If you wish to utilize the
withdrawal plan, you may do so by completing an application which may be
obtained by writing or calling the transfer agent. The Trust may suspend your
withdrawal privileges without notice if your account contains insufficient funds
to effect a withdrawal or if your account balance averages less than $25,000
over a period of twelve (12) months.
REOPENING ACCOUNTS
You may reopen an account, without filing a new account application form, at any
time within one year after the your account is closed, provided that the
information on the account application form on file with the Trust is still
applicable.
DIVIDENDS AND TAX MATTERS
DIVIDENDS
Dividends of each Portfolio's net investment income are declared and paid
annually. Distributions of any net capital gain realized by a Portfolio are
distributed annually.
You may choose to have dividends and distributions of a Portfolio reinvested in
shares of that Portfolio (the "Reinvestment Option") or to receive dividends and
distributions in cash (the "Cash Option") or to direct dividends and
distributions to be reinvested in shares of certain series of the Trust (the
"Directed Dividend Option"). All dividends and distributions are treated in the
same manner for federal income tax purposes whether received in cash or
reinvested in shares of a fund.
Under the Reinvestment Option, all of a Portfolio's dividends and distributions
are automatically invested in additional shares of that Portfolio. All dividends
and distributions are reinvested at a Portfolio's net asset value as of the
payment date of the dividend or distribution. You are assigned this option
unless you select another option. Under the Cash Option, all dividends and
distributions are paid to you in cash. Under the Directed Dividend Option, if
you own shares of a Portfolio totaling $25,000 or more in a single account, you
may elect to have all dividends and distributions reinvested in shares of
another Portfolio, provided that those shares are eligible for sale in your
state of residence. For further information concerning the Directed Dividend
Option, please contact the transfer agent.
TAX MATTERS
Each Portfolio 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, no Portfolio will be liable for federal income
and excise taxes on the net investment income and net capital gain distributed
to its shareholders. Because each Portfolio intends to distribute all of its net
investment income and any net capital gain each year, each Portfolio should
thereby avoid all federal income and excise taxes.
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Dividends paid by a Portfolio out of its net investment income (including net
short-term capital gain) are taxable to shareholders of the Portfolio as
ordinary income. Pursuant to the Taxpayer Relief Act of 1997, two different tax
rates apply to net capital gains -- that is, the excess of net gains from
capital assets held for more than one year over net losses from capital assets
held for not more than one year. One rate (generally 28%) applies to net gains
on capital assets held for more than one year but not more than 18 months
("mid-term gains"), and a second rate (generally 20%) applies to the balance of
such net capital gains ("adjusted net capital gains"). Distributions of mid-term
gains and adjusted net capital gains will be taxable to shareholders as such,
regardless of how long a shareholder has held shares in the Fund. If you hold
shares for six months or less and during that period receive a distribution of
net capital gain, any loss realized on the sale of the shares during that
six-month period will be a long-term capital loss to the extent of the
distribution. Dividends and distributions reduce the net asset value of the
Portfolio paying the dividend or distribution by the amount of the dividend or
distribution. Furthermore, a dividend or distribution made shortly after your
purchase of shares, although in effect a return of capital to you, will be
taxable to you as described above.
To the extent a Portfolio or one of its Underlying Funds invests in the
securities of domestic issuers, dividends received by corporate shareholders of
the Portfolio may qualify for the dividends received deduction for corporations.
The amount of such dividends eligible for the dividends received deduction is
limited to the amount of dividends from domestic corporations received during a
Portfolio's fiscal year.
Each Portfolio 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 Portfolio with a correct taxpayer
identification number or to make required certifications, or who is subject to
backup withholding.
Reports containing appropriate information with respect to the federal income
tax status of dividends and distributions paid during the year by each Portfolio
will be mailed to shareholders shortly after the close of each calendar year.
OTHER INFORMATION
BANKING LAW MATTERS
Federal banking rules generally permit a bank or bank affiliate to act as
investment adviser, transfer agent, or custodian to a fund and to purchase
shares of the investment company as agent for and upon the order of a customer
and, in connection therewith, to retain a sales charge or similar payment.
Norwest and any bank or other bank affiliate also may perform Processing
Organization or similar services for the Funds and their shareholders. If a bank
or bank affiliate were prohibited in the future from so acting, changes in the
operation of the Funds could occur and a shareholder serviced by the bank or
bank affiliate may no longer be able to avail itself of those services. It is
not expected that shareholders would suffer any adverse financial consequences
as a result of any of these occurrences.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of each class of each Portfolio is determined as
of 4:00 p.m., Eastern time, on each Portfolio Business Day by dividing the value
of the Portfolio's net assets (I.E., the value of its securities and other
assets less its liabilities) by the number of shares outstanding at the time the
determination is made. Securities owned by a Portfolio for which market
quotations are readily available are valued at current market value or, in their
absence, at fair value as determined by the Board or pursuant to procedures
approved by the Board.
The Underlying Funds are valued at their respective net asset values as
determined by those funds. The Underlying Funds that are money market funds
value their portfolio securities in accordance with Rule 2a-7 under the 1940
Act. The other Underlying Funds value their portfolio securities based on market
quotes if they are readily available.
Trading in securities on European, Far Eastern and other international
securities exchanges and over-the-counter markets normally is completed well
before the close of business on each Portfolio Business Day. In addition,
trading in foreign securities generally or in a particular country or countries
may not take place on all Portfolio Business Days.
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Trading may take place in various foreign markets, however, on days on which a
Portfolio's net asset value is not calculated. Calculation of the net asset
value per share of a Portfolio may not occur contemporaneously with the
determination of the prices of the foreign securities used in the calculation.
Events affecting the values of foreign securities that occur after the time
their prices are determined and before the Portfolio's determination of net
asset value will not be reflected in the Portfolio's calculation of net asset
value unless Norwest determines that the particular event would materially
affect net asset value, in which case an adjustment will be made.
All assets and liabilities denominated in foreign currencies are converted into
United States dollars at the mean of the bid and asked prices of such currencies
against the United States dollar last quoted by a major bank prior to the time
of conversion.
PERFORMANCE INFORMATION
A Portfolio'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. A Portfolio's yield is a way of showing the rate of
income the Portfolio earns on its investments as a percentage of the Portfolio's
share price. To calculate standardized yield, a Portfolio takes the income it
earned from its investments for a 30-day period (net of expenses), divides it by
the average number of shares entitled to receive dividends, and expresses the
result as an annualized percentage rate based on the Portfolio's share price at
the end of the 30-day period. A Portfolio's total return shows its overall
change in value, including changes in share price and assuming all the
Portfolio's dividends and distributions are reinvested. A cumulative total
return reflects a Portfolio'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 Portfolio's
performance had been constant over the entire period. Because average annual
returns tend to smooth out variations in the Portfolios' returns, you 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 a Portfolio 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 Portfolios' 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 a Portfolio 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 a Portfolio that invests its assets using
different investment styles. Indices are not used in the management of a
Portfolio but rather are standards by which the investment adviser and
shareholders may compare the performance of the Portfolio to an unmanaged
composite of securities with similar, but not identical, characteristics as the
Portfolio. This material is not to be considered representative or indicative of
future performance. All performance information for a Portfolio 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 a Portfolio) and
may divide portfolios or series into classes of shares (such as C shares); the
costs of doing so is borne by the Trust or Portfolio in accordance with the
Trust Instrument. Currently the authorized shares of the Trust are divided into
thirty nine separate series. The Portfolios currently offer only one class of
shares: C Class.
SHAREHOLDER VOTING and OTHER RIGHTS. Each share of each series or class thereof
of the Trust 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 a class (and certain other expenses
such as transfer agency and administration expenses) may be borne solely by
those shares and each fund or class votes separately with respect to the
provisions of any Rule 12b-1 plan which pertains to the fund or class and other
matters for which separate fund or class voting is appropriate under applicable
law. Generally, shares are voted in the aggregate without reference to a
particular fund or class, except if the matter affects only one fund 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
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annual meetings of shareholders, and it is anticipated that shareholder meetings
will be held only when specifically required by federal or state law.
Shareholders (and Trustees) have available certain procedures for the removal of
Trustees. There are no conversion or preemptive rights in connection with shares
of the Trust. All shares when issued in accordance with the terms of the
offering will be fully paid and nonassessable shares are redeemable at net asset
value, at the option of the shareholders. A shareholder in a series is entitled
to the shareholder's pro rata share of all dividends and distributions arising
from that series' assets and, upon redeeming shares, will receive the portion of
the series' net assets represented by the redeemed shares.
Each Portfolio reserves the right to seek to achieve its investment objective by
investing all of its assets in one or more registered investment companies
having a substantially similar investment objective and policies.
From time to time certain shareholders may own a large percentage of the shares
of a Portfolio and, accordingly, may be able to greatly affect (if not
determine) the outcome of a shareholder vote.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE STATEMENT OF
ADDITIONAL INFORMATION AND THE PORTFOLIOS' OFFICIAL SALES LITERATURE IN
CONNECTION WITH THE OFFERING OF THE PORTFOLIOS' SHARES, AND IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE TRUST. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY
STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER MAY NOT LAWFULLY BE MADE.
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NORWEST ADVANTAGE FUNDS
STATEMENT OF ADDITIONAL INFORMATION
APRIL 1, 1998
================================================================================
CASH INVESTMENT FUND STRATEGIC INCOME FUND
READY CASH INVESTMENT FUND MODERATE BALANCED FUND
U.S. GOVERNMENT FUND GROWTH BALANCED FUND
TREASURY FUND AGGRESSIVE BALANCED-EQUITY FUND
MUNICIPAL MONEY MARKET FUND INDEX FUND
STABLE INCOME FUND INCOME EQUITY FUND
LIMITED TERM GOVERNMENT INCOME FUND VALUGROWTHSM STOCK FUND
INTERMEDIATE GOVERNMENT INCOME FUND DIVERSIFIED EQUITY FUND
DIVERSIFIED BOND FUND GROWTH EQUITY FUND
INCOME FUND LARGE COMPANY GROWTH FUND
TOTAL RETURN BOND FUND SMALL COMPANY STOCK FUND
LIMITED TERM TAX-FREE FUND SMALL COMPANY GROWTH FUND
TAX-FREE INCOME FUND DIVERSIFIED SMALL CAP FUND
COLORADO TAX-FREE FUND SMALL CAP OPPORTUNITIES FUND
MINNESOTA INTERMEDIATE TAX-FREE FUND CONTRARIAN STOCK FUND
MINNESOTA TAX-FREE FUND INTERNATIONAL FUND
<PAGE>
NORWEST ADVANTAGE FUNDS
STATEMENT OF ADDITIONAL INFORMATION
APRIL 1, 1998
<TABLE>
<S> <C>
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
</TABLE>
Norwest Advantage Funds is registered with the Securities and Exchange
Commission as an open-end management investment company under the Investment
Company Act of 1940, as amended.
This Statement of Additional Information supplements the Prospectuses dated
April 1, 1998, as may be amended from time to time, offering the following
classes of shares of the separate portfolios of Norwest Advantage Funds: Cash
Investment Fund, Ready Cash Investment Fund (Institutional Shares, Investor
Shares and Exchange Shares), U.S. Government Fund, Treasury Fund, Municipal
Money Market Fund (Institutional Shares and Investor Shares), A Shares, B Shares
and I Shares of each of Stable Income Fund, Intermediate Government Income Fund,
Income Fund, Total Return Bond Fund, Tax-Free Income Fund, Colorado Tax-Free
Fund, Minnesota Tax-Free Fund, Income Equity Fund, ValuGrowth Stock Fund,
Diversified Equity Fund, Growth Equity Fund, Small Company Stock Fund, Small Cap
Opportunities Fund, Contrarian Stock Fund and International Fund and I Shares of
each of Limited Term Government Income Fund, Diversified Bond Fund, Limited Term
Tax-Free Fund, Minnesota Intermediate Tax-Free Fund, Strategic Income Fund,
Moderate Balanced Fund, Growth Balanced Fund, Aggressive Balanced-Equity Fund,
Index Fund, Large Company Growth Fund, Small Company Growth Fund and Diversified
Small Cap Fund.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE PROSPECTUS.
THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE READ ONLY IN CONJUNCTION WITH
A CORRESPONDING PROSPECTUS, COPIES OF WHICH MAY BE OBTAINED BY AN INVESTOR
WITHOUT CHARGE BY CONTACTING THE DISTRIBUTOR AT THE ADDRESS LISTED ABOVE.
<PAGE>
<TABLE>
<S> <C>
TABLE OF CONTENTS
Page
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Introduction 1
1. Investment Policies 4
Security Ratings Information 4
Money Market Fund Matters 5
Fixed Income Investments 6
Mortgage-Backed And Asset-Backed Securities 12
Interest Rate Protection Transactions 13
Hedging And Option Income Strategies 14
Foreign Currency Transactions 22
Equity Securities and Additional Information Concerning the Equity Funds 23
Illiquid Securities and Restricted Securities 26
Borrowing And Transactions Involving Leverage 27
Repurchase Agreements 30
Temporary Defensive Position 30
2. Information Concerning Colorado and Minnesota 30
Colorado 31
Minnesota 33
3. Investment Limitations 34
Fundamental Limitations 34
Non-Fundamental Limitations 38
4. Performance and Advertising Data 41
SEC Yield Calculations 41
Total Return Calculations 42
Multiclass, Collective Trust Fund and Core-Gateway Performance 43
Other Advertisement Matters 43
5. Management 45
Trustees and Officers 45
Investment Advisory Services 51
Management and Administrative Services 57
Distribution 60
Transfer Agent 62
Custodian 62
Portfolio Accounting 62
Expenses 64
6. Portfolio Transactions 64
7. Additional Purchase and Redemption Information 68
Statement of Intention 69
Exchanges 69
Redemptions 70
Contingent Deferred Sales Charge (A Shares) 70
Contingent Deferred Sales Charge (A Shares and B Shares) 71
Conversion of B Shares and Exchange Shares 71
</TABLE>
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<TABLE>
<S> <C>
TABLE OF CONTENTS
Page
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8. Taxation 72
9. Additional Information About the Trust and the Shareholders of the Funds 73
Determination of Net Asset Value - Money Market Funds 73
Counsel and Auditors 73
General Information 74
Recent Mergers 74
Shareholdings 74
Financial Statements 75
Registration Statement 75
Appendix A - Description of Securities Ratings A-1
Appendix B - Miscellaneous Tables B-1
Table 1 - Investment Advisory Fees B-1
Table 2 - Management Fees B-5
Table 3 - Distribution Fees B-13
Table 4 - Sales Charges B-15
Table 5 - Accounting Fees B-18
Table 6 - Commissions B-21
Table 7 - 5% Shareholders B-23
Appendix C - Performance Data C-1 Table 1 - Money Market Fund C-1 Table
2 - Yields C-1 Table 3 - Total Returns C-4
</TABLE>
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INTRODUCTION
The Trust was originally organized under the name "Prime Value Funds, Inc." as a
Maryland corporation on August 29, 1986, and on July 30, 1993, was reorganized
as a Delaware business trust under the name "Norwest Funds." On October 1, 1995,
the Trust changed its name to "Norwest Advantage Funds" and on June 1, 1997,
changed its name back to "Norwest Funds." On August 4, 1997, the Trust changed
its name back to "Norwest Advantage Funds." On October 1, 1995 the Trust also
changed the name of its various classes of shares as follows: Investor A class
was renamed A class ("A Shares"); Investor B class was renamed B class ("B
Shares"); Trust class was renamed I class ("I Shares"); and Advantage class also
was renamed I Shares.
Each Fund's investment adviser is Norwest Investment Management, Inc.
("Norwest"), a subsidiary of Norwest Bank Minnesota, N.A. ("Norwest Bank").
Norwest also is the investment adviser of each Core Portfolio other than
Schroder U.S. Smaller Companies Portfolio, Schroder EM Core Portfolio and
International Portfolio. Norwest Bank, a subsidiary of Norwest Corporation,
serves as the Trust's transfer agent, dividend disbursing agent and custodian.
UNITED CAPITAL MANAGEMENT ("UCM") serves as investment subadviser of Contrarian
Stock Fund.
GALLIARD CAPITAL MANAGEMENT, INC. ("Galliard") serves as investment subadviser
of Stable Income Fund/Stable Income Portfolio, Total Return Bond Fund/Strategic
Value Bond Portfolio and Managed Fixed Income Portfolio. Galliard also serves as
an investment subadviser of Diversified Bond Fund, Strategic Income Fund,
Moderate Balanced Fund, Growth Balanced Fund and Aggressive Balanced-Equity
Fund.
CRESTONE CAPITAL MANAGEMENT, INC. ("Crestone") serves as investment subadviser
to Small Company Stock Fund/Small Company Stock Portfolio. Crestone also serves
as investment subadviser of Strategic Income Fund, Moderate Balanced Fund,
Growth Balanced Fund, Aggressive Balanced-Equity Fund, Diversified Equity Fund,
Growth Equity Fund and Diversified Small Cap Fund.
PEREGRINE CAPITAL MANAGEMENT, INC. ("Peregrine") serves as investment subadviser
of Small Company Growth Fund/Small Company Growth Portfolio, Positive Return
Bond Portfolio, Large Company Growth Fund/Large Company Growth Portfolio and
Small Company Value Portfolio. Peregrine also serves as an investment subadviser
of Diversified Bond Fund, Strategic Income Fund, Moderate Balanced Fund, Growth
Balanced Fund, Aggressive Balanced-Equity Fund, Diversified Equity Fund, Growth
Equity Fund and Diversified Small Cap Fund.
SCHRODER CAPITAL MANAGEMENT INTERNATIONAL INC. ("Schroder") serves as investment
adviser to Schroder U.S. Smaller Companies Portfolio, Schroder EM Core Portfolio
and International Portfolio. Schroder also serves as an investment subadviser of
Strategic Income Fund, Moderate Balanced Fund, Growth Balanced Fund, Aggressive
Balanced-Equity Fund, Diversified Equity Fund, Growth Equity Fund, Small Cap
Opportunities Fund and International Fund.
SMITH ASSET MANAGEMENT GROUP, LP ("SMITH GROUP"). Smith Group, whose principal
business address is 500 Crescent Court, Suite 250, Dallas, Texas, is a
registered investment adviser. Smith group provides investment management
services to company retirement plans, foundations, endowments, trust companies,
and high net worth individuals. As of October 1, 1997, the Smith Group managed
over $200 million in assets. Currently, the Smith Group manages all of
Disciplined Growth Portfolio and Small Cap Value Portfolio.
FORUM FINANCIAL SERVICES, INC. ("Forum"), a registered broker-dealer, serves as
the Trust's manager and as distributor of the Trust's shares. Forum
Administrative Services, Limited Liability Company ("FAS") serves as each Fund's
administrator.
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Each of Ready Cash Investment Fund, Stable Income Fund, Total Return Bond Fund,
Index Fund, Income Equity Fund, Large Company Growth Fund, Small Company Stock
Fund, Small Company Growth Fund and Small Cap Opportunities Fund invests all of
its investable assets in a separate portfolio (each a "Core Portfolio") of a
registered, open-end, management investment company that has the same investment
objective and substantially similar investment policies. Accordingly, the
investment experience of each of these Funds will correspond directly with the
investment experience of its respective Core Portfolio.
Each of Cash Investment Fund, Diversified Bond Fund, Strategic Income Fund,
Moderate Balanced Fund, Growth Balanced Fund, Aggressive Balanced-Equity Fund,
Diversified Equity Fund, Growth Equity Fund, Diversified Small Cap Fund and
International Fund invests all of its investable assets in various portfolios
(each a "Core Portfolio") of a registered, open-end, management investment
company portfolios (each a "Core Trust"). Each Core Portfolio invests using a
different investment style.
The percentage of each of these Fund's (except Cash Investment Fund's) assets
invested in each Core Portfolio may be changed at any time in response to market
or other conditions. Allocations are made within specified ranges as described
in each Fund's prospectus under "Investment Objectives and Policies."
Each of U.S. Government Fund, Treasury Fund, Municipal Money Market Fund,
Limited Term Government Income Fund, Intermediate Government Income Fund, Income
Fund, Limited Term Tax-Free Fund, Tax-Free Income Fund, Colorado Tax-Free Fund,
Minnesota Tax-Free Fund, Minnesota Intermediate Tax-Free Fund, ValuGrowth Stock
Fund and Contrarian Stock Fund invests directly in portfolio securities.
The expenses of each Fund that invest in one or more Core Portfolios include the
Fund's pro rata share of the expenses of the Core Portfolio(s) in which the Fund
invests, which are borne indirectly by the Fund's shareholders.
As used in this SAI, the following terms shall have the meanings listed:
"Advisers" or "Investment Advisers" shall mean, collectively, Norwest
and Subadvisors.
"Board" shall mean the Board of Trustees of the Trust.
"Balanced Fund" shall mean each of Strategic Income Fund, Moderate
Balanced Fund , Growth Balanced Fund and Aggressive Balanced-Equity
Fund.
"CFTC" shall mean the U.S. Commodities Futures Trading Commission.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Core Trust" shall mean Core Trust (Delaware), an open-end, management
investment company registered under the 1940 Act.
"Core Trust Board" shall mean the Board of Trustees of Core Trust.
"Crestone" shall mean Crestone Capital Management, Inc., the investment
subadvisor to Strategic Income Fund, Moderate Balanced Fund, Growth
Balanced Fund, Aggressive Balanced-Equity Fund, Diversified Equity
Fund, Growth Equity Fund, Diversified Small Cap Fund and Small Company
Stock Fund/ Small Company Stock Portfolio.
"Custodian" shall mean Norwest acting in its capacity as custodian of a
Fund.
"Equity Fund" shall mean each of Income Equity Fund, Index Fund,
ValuGrowth Stock Fund, Diversified Equity Fund, Growth Equity Fund,
Large Company Growth Fund, Diversified Small Cap Fund, Small
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Company Stock Fund, Small Company Growth Fund, Small Cap Opportunities
Fund, Contrarian Stock Fund and International 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.
"Fund" shall mean each of the thirty-two separate portfolios of the
Trust to which this Statement of Additional Information relates as
identified on the cover page.
"Galliard" shall mean Galliard Capital Management, Inc., the investment
subadviser to Stable Income Fund, Stable Income Portfolio, Strategic
Value Bond Portfolio, Managed Fixed Income Portfolio, Diversified Bond
Fund, Total Return Bond Fund, Strategic Income Fund, Moderate Balanced
Fund , Growth Balanced Fund and Aggressive Balanced-Equity Fund.
"Income Funds" shall mean each of Stable Income Fund, Limited Term
Government Income Fund, Intermediate Government Income Fund,
Diversified Bond Fund, Income Fund and Total Return Bond Fund.
"Money Market Funds" shall mean each of Cash Investment Fund, Ready
Cash Investment Fund, U.S. Government Fund, Treasury Fund and
Municipal Money Market Fund.
"Moody's" shall mean Moody's Investors Service.
"Norwest" shall mean Norwest Investment Management, Inc., a subsidiary
of Norwest Bank Minnesota, N.A.
"Norwest Bank" shall mean Norwest Bank Minnesota, N.A., a subsidiary of
Norwest Corporation.
"NRSRO" shall mean a nationally recognized statistical rating
organization.
"Peregrine" shall mean Peregrine Capital Management, Inc., the
investment subadviser to Positive Return Bond Portfolio, Small Company
Value Portfolio, Diversified Bond Fund, Strategic Income Fund, Moderate
Balanced Fund, Growth Balanced Fund, Diversified Equity Fund, Growth
Equity Fund, Large Company Growth Fund/Large Company Growth Portfolio,
Small Company Growth Fund/Small Company Growth Portfolio.
"Portfolio" shall mean Prime Money Market Portfolio, Money Market
Portfolio, Positive Return Bond Portfolio, Stable Income Portfolio,
Managed Fixed Income Portfolio, Strategic Value Bond Portfolio, Index
Portfolio, Income Equity Portfolio, Large Company Growth Portfolio,
Disciplined Growth Portfolio, Small Company Growth Portfolio, Small
Company Stock Portfolio, Small Company Value Portfolio, Small Cap Value
Portfolio, Small Cap Index Portfolio and International Portfolio,
sixteen separate portfolios of Core Trust.
"Schroder" shall mean Schroder Capital Management Inc., the investment
subadviser to Diversified Equity Fund, Growth Equity Fund,
International Fund, Strategic Income Fund, Moderate Balanced Fund and
Growth Balanced Fund and investment adviser to Schroder EM Core
Portfolio and International Portfolio.
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"Schroder Advisors" shall mean Schroder Fund Advisors Inc., the
administrator to Schroder U.S. Smaller Companies Portfolio and Schroder
EM Core Portfolio.
"Schroder Core" shall mean Schroder Capital Funds, an open-end,
management investment company registered under the 1940 Act.
"Schroder Core Board" shall mean the Board of Trustees of Schroder
Core.
"SEC" shall mean the U.S. Securities and Exchange Commission.
"S&P" shall mean Standard & Poor's.
"Smith" shall mean Smith Asset Management Group, L.P.
"Stock Index Futures" shall mean futures contracts that relate to
broadly-based stock indices.
"Subadvisers or "Investment Subadvisers" shall mean, collectively,
Crestone Capital Management, Inc., Galliard Capital Management, Inc.,
Peregrine Capital Management, Inc. , Schroder Capital Management Inc.,
United Capital Management and Smith Asset Management Group, L.P..
"Tax Free Income Fund" shall mean each of Limited Term Tax-Free Fund,
Tax-Free Income Fund, Colorado Tax-Free Fund, Minnesota Intermediate
Tax-Free Fund and Minnesota Tax-Free Fund.
"Transfer Agent" shall mean Norwest Bank acting in its capacity as
transfer and dividend disbursing agent of a Fund.
"Trust" shall mean Norwest Advantage Funds, an open-end, management
investment company registered under the 1940 Act.
"UCM" shall mean United Capital Management, Inc., the investment
subadviser to Contrarian Stock Fund.
"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 each
Prospectus concerning each Fund's investments, investment techniques and
strategies and the risks associated therewith (as well as those of any
Portfolio(s), in which the Fund invests). Certain of the Funds are designed for
investment of that portion of an investor's funds which can appropriately bear
the special risks associated with certain types of investments (i.e., investment
in smaller capitalization companies). No Fund may make any investment or employ
any investment technique or strategy not referenced in the Prospectus which
relates to that Fund. For example, while the SAI describes "swap" transactions
below, only those Funds whose investment policies, as described in the
Prospectus, allow the Fund to invest in swap transactions may do so. References
to the investment policies and investment limitations of a Fund that invests all
or a portion of its investable assets in one or more Core Portfolios refers to
the Core Portfolio(s) in which that Fund currently invests its assets.
SECURITY RATINGS INFORMATION
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Moody's, S&P and other NRSROs are private services that provide ratings of the
credit quality of debt obligations, including convertible securities. A
description of the range of ratings assigned to various types of bonds and other
securities by several NRSROs is included in Appendix A to this SAI. The Funds
may use these ratings to determine whether to purchase, sell or hold a security.
It should be emphasized, however, that ratings are general and are not absolute
standards of quality. Consequently, securities with the same maturity, interest
rate and rating may have different market prices. If an issue of securities
ceases to be rated or if its rating is reduced after it is purchased by a Fund
(neither event requiring sale of such security by a Fund-except in certain cases
with respect to the Money Market Funds), Norwest will determine whether the Fund
should continue to hold the obligation. To the extent that the ratings given by
a NRSRO may change as a result of changes in such organizations or their rating
systems, the Investment Adviser will attempt to substitute comparable ratings.
Credit ratings attempt to evaluate the safety of principal and interest payments
and do not evaluate the risks of fluctuations in market value. Also, rating
agencies may fail to make timely changes in credit ratings. An issuer's current
financial condition may be better or worse than a rating indicates.
A Fund may purchase unrated securities if its Adviser determines the security to
be of comparable quality to a rated security that the Fund may purchase. Unrated
securities may not be as actively traded as rated securities. A Fund may retain
securities whose rating has been lowered below the lowest permissible rating
category (or that are unrated and determined by its Adviser to be of comparable
quality to securities whose rating has been lowered below the lowest permissible
rating category) if the Adviser determines that retaining such security is in
the best interests of the Fund.
To limit credit risks, International Portfolio may only invest in securities
that are investment grade (rated in the top four long-term investment grades by
an NRSRO or in the top two short-term investment grades by an NRSRO.)
Accordingly, the lowest permissible long-term investment grades for corporate
bonds, including convertible bonds, are Baa in the case of Moody's and BBB in
the case of S&P and Fitch; the lowest permissible long-term investment grades
for preferred stock are Baa in the case of Moody's and BBB in the case of S&P
and Fitch; and the lowest permissible short-term investment grades for
short-term debt, including commercial paper, are Prime-2 (P-2) in the case of
Moody's, A-2 in the case of S&P and F-2 in the case of Fitch. All these ratings
are generally considered to be investment grade ratings, although Moody's
indicates that securities with long-term ratings of Baa have speculative
characteristics.
MONEY MARKET FUND MATTERS
Pursuant to Rule 2a-7 adopted under the 1940 Act, each of the Money Market Funds
may invest only in "eligible securities" as defined in that Rule. Generally, an
eligible security is a security that (i) is denominated in U.S. Dollars and has
a remaining maturity of 397 days or less; (ii) is rated, or is issued by an
issuer with short-term debt outstanding that is rated, in one of the two highest
rating categories by two NRSROs or, if only one NRSRO has issued a rating, by
that NRSRO; and (iii) has been determined by the Investment Adviser to present
minimal credit risks pursuant to procedures approved by the Board. In addition,
the Money Market Funds will maintain a dollar-weighted average maturity of 90
days or less. Unrated securities may also be eligible securities if the
Investment Adviser determines that they are of comparable quality to a rated
eligible security pursuant to guidelines approved by the Board.
Under Rule 2a-7, except for Municipal Money Market Fund, a Money Market Fund may
not invest more than five percent of its total assets in the securities of any
one issuer other than with respect to U.S. Government Securities, provided that
in certain cases a Fund may invest five percent of its assets in a single issuer
for a period of up to three business days. Municipal Money Market Fund is,
however, subject to the issuer diversification rules described in paragraph (1)
under "Investment Limitations, Nonfundamental Limitations." Except for Municipal
Money Market Fund, a Money Market Fund may not invest in a security that has
received, or is deemed comparable in quality to a security that has received,
the second highest rating by the requisite number of NRSROs (a "second tier
security") if immediately after the acquisition thereof the Fund would have
invested more than (A) the greater of one percent of its total assets or one
million dollars in securities issued by that issuer which are second tier
securities, or (B) five percent of its total assets in second tier securities.
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Immediately after the acquisition of any put, no more than five percent of a
Money Market Fund's total assets may be invested in securities issued by or
subject to conditional puts from the same institution and no more than ten
percent of a Money Market Fund's total assets may be invested in securities
issued by or subject to unconditional puts (including guarantees) from the same
institution. However, these restrictions only apply with respect to 75% of
Municipal Money Market Fund's total assets.
INVESTMENT BY FEDERAL CREDIT UNIONS
U.S. Government Fund and Treasury Fund limit their investments, as described in
each of the Prospectuses for those Funds, to investments that are legally
permissible for Federally chartered credit unions under applicable provisions of
the Federal Credit Union Act (including 12 U.S.C. Section 1757(7), (8) and (15))
and the applicable rules and regulations of the National Credit Union
Administration (including 12 C.F.R. Part 703, Investment and Deposit
Activities), as such statutes and rules and regulations may be amended. Treasury
Fund limits its investments to Treasury obligations, including Treasury STRIPS
with a maturity of less than 13 months. U.S. Government Fund limits its
investments to U.S. Government Securities (including Treasury STRIPS),
repurchase agreements fully collateralized by U.S. Government Securities and
other government related zero-coupon securities, such as TIGRs and CATs. All
zero-coupon securities in which the Fund invests will have a maturity of less
than 13 months. Certain U.S. Government Securities owned by the Fund may be
mortgage or asset backed, but, except to reduce interest rate risk, no such
security will be (i) a stripped mortgage backed security ("SMBS"), (ii) a
collateralized mortgage obligation ("CMO") or real estate mortgage investment
conduit ("REMIC") that meets any of the tests outlined in 12 C.F.R. Section
703.5(g) or (iii) a residual interest in a CMO or REMIC. In order to reduce
interest rate risk the Fund may purchase a SMBS, CMO, REMIC or residual interest
in a CMO or REMIC but only in accordance with 12 C.F.R. Section 703.5(i). Each
Fund also may invest in reverse repurchase agreements in accordance with 12
C.F.R. 703.4(e).
FIXED INCOME INVESTMENTS
GENERAL INFORMATION CONCERNING FIXED INCOME SECURITIES
Yields on fixed income securities, including municipal securities, are dependent
on a variety of factors, including the general conditions of the money market
and other fixed income securities markets, the size of a particular offering,
the maturity of the obligation and the rating of the issue. Fixed income
securities with longer maturities tend to produce higher yields and are
generally subject to greater price movements than obligations with shorter
maturities. There is normally an inverse relationship between the market value
of securities sensitive to prevailing interest rates and actual changes in
interest rates. In other words, an increase in interest rates will generally
reduce the market value of portfolio investments, and a decline in interest
rates will generally increase the value of portfolio investments.
Obligations of issuers of fixed income securities (including municipal
securities) are subject to the provisions of bankruptcy, insolvency, and other
laws affecting the rights and remedies of creditors, such as the Federal
Bankruptcy Reform Act of 1978. In addition, the obligations of municipal issuers
may become subject to laws enacted in the future by Congress, state
legislatures, or referenda extending the time for payment of principal and/or
interest, or imposing other constraints upon enforcement of such obligations or
upon the ability of municipalities to levy taxes. Changes in the ability of an
issuer to make payments of interest and principal and in the market's perception
of an issuer's creditworthiness will also affect the market value of the debt
securities of that issuer. The possibility exists, therefore, that, the ability
of any issuer to pay, when due, the principal of and interest on its debt
securities may become impaired.
U.S. GOVERNMENT SECURITIES
In addition to obligations of the U.S. Treasury, each of the Funds (except
Treasury Fund) may invest in U.S. Government Securities. Small Cap Opportunities
Fund may invest in U.S. Government Securities which have remaining maturities
not exceeding one year. 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
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Cooperatives, the Export-Import Bank, the Federal Farm Credit System, the
Federal Home Loan Banks, the Federal Home Loan Mortgage Corporation, the Federal
Intermediate Credit Banks, the Federal Land Banks, the Federal National Mortgage
Association, the Small Business Administration, the Government National Mortgage
Association and the Student Loan Marketing Association. Others are supported by
the right of the issuer to borrow from the Treasury; others are supported by the
discretionary authority of the U.S. government to purchase the agency's
obligations; and still others are supported primarily or solely by the
creditworthiness of the issuer. No assurance can be given that the U.S.
government would provide financial support to U.S. government-sponsored agencies
or instrumentalities if it is not obligated to do so by law. Accordingly,
although these securities have historically involved little risk of loss of
principal if held to maturity, they may involve more risk than securities backed
by the U.S. Government's full faith and credit. A Fund will invest in the
obligations of such agencies or instrumentalities only when Norwest believes
that the credit risk with respect thereto is consistent with the Fund's
investment policies.
BANK OBLIGATIONS
Small Cap Opportunities Fund may invest in obligations (including certificates
of deposit and bankers' acceptances) of U.S. banks that have total assets at the
time of purchase in excess of $1 billion and are members of the Federal Deposit
Insurance Corporation. Each other Fund may, in accordance with the policies
described in its Prospectus, invest in obligations of financial institutions,
including negotiable certificates of deposit, bankers' acceptances and time
deposits of U.S. banks (including savings banks and savings associations),
foreign branches of U.S. banks, foreign banks and their non-U.S. branches
(Eurodollars), U.S. branches and agencies of foreign banks (Yankee dollars), and
wholly-owned banking-related subsidiaries of foreign banks. A Fund's investments
in the obligations of foreign banks and their branches, agencies or subsidiaries
may be obligations of the parent, of the issuing branch, agency or subsidiary,
or both. Investments in foreign bank obligations are limited to banks and
branches located in countries which the Fund's Adviser believes do not present
undue risk.
A certificate of deposit is an interest-bearing negotiable certificate issued by
a bank against funds deposited in the bank. A bankers' acceptance is a
short-term draft drawn on a commercial bank by a borrower, usually in connection
with an international commercial transaction. Although the borrower is liable
for payment of the draft, the bank unconditionally guarantees to pay the draft
at its face value on the maturity date. Time deposits are non-negotiable
deposits with a banking institution that earn a specified interest rate over a
given period. Certificates of deposit and fixed time deposits, which are payable
at the stated maturity date and bear a fixed rate of interest, generally may be
withdrawn on demand by the Fund but may be subject to early withdrawal penalties
which vary depending upon market conditions and the remaining maturity of the
obligation and could reduce the Fund's yield. Although fixed-time deposits do
not in all cases have a secondary market, there are no contractual restrictions
on the Fund's right to transfer a beneficial interest in the deposits to third
parties. Deposits subject to early withdrawal penalties or that mature in more
than seven days are treated as illiquid securities if there is no readily
available market for the securities.
The Funds (other than Small Cap Opportunities Fund) may invest in Eurodollar
certificates of deposit, which are U.S. dollar denominated certificates of
deposit issued by offices of foreign and domestic banks located outside the
United States; Yankee certificates of deposit, which are certificates of deposit
issued by a U.S. branch of a foreign bank denominated in U.S. dollars and held
in the United States; Eurodollar time deposits ("ETDs"), which are U.S. dollar
denominated deposits in a foreign branch of a U.S. bank or a foreign bank; and
Canadian time deposits, which are essentially the same as ETDs, except that they
are issued by Canadian offices of major Canadian banks.
Investments that a Fund may make in instruments of foreign banks, branches or
subsidiaries may involve certain risks, including future political and economic
developments, the possible imposition of foreign withholding taxes on interest
income payable on such securities, the possible seizure or nationalization of
foreign deposits, differences from domestic banks in applicable accounting,
auditing and financial reporting standards, and the possible establishment of
exchange controls or other foreign governmental laws or restrictions applicable
to the payment of certificates of deposit or time deposits which might affect
adversely the payment of principal and interest on such securities held by the
Fund.
SHORT TERM DEBT SECURITIES/COMMERCIAL PAPER
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Small Cap Opportunities Fund may invest in commercial paper, i.e., short-term
unsecured promissory notes issued in bearer form by bank holding companies,
corporations and finance companies. The commercial paper purchased by Small Cap
Opportunities Fund for temporary defensive purposes consists of direct
obligations of domestic issuers which, at the time of investment, are rated
"P-1" by Moody's Investors Service ("Moody's") or "A-1" by Standard & Poor's
("S&P"), or securities which, if not rated, are issued by companies having an
outstanding debt issue currently rated Aa by Moody's or AAA or AA by S&P. The
rating "P-1" is the highest commercial paper rating assigned by Moody's and the
rating "A-1" is the highest commercial paper rating assigned by S&P. Except for
the Money Market Funds and Small Cap Opportunities Fund, each Fund may assume a
temporary defensive position and may invest without limit in commercial paper
that is rated in one of the two highest rating categories by an NRSRO or, if not
rated, determined by the Investment Adviser to be of comparable quality. Certain
additional Funds may invest in commercial paper as an investment and not as a
temporary defensive position. Except as noted below with respect to variable
master demand notes, issues of commercial paper normally have maturities of less
than nine months and fixed rates of return.
Variable amount master demand notes are unsecured demand notes that permit the
indebtedness thereunder to vary and provide for periodic adjustments in the
interest rate according to the terms of the instrument. Because master demand
notes are direct lending arrangements between a Fund and the issuer, they are
not normally traded. Although there is no secondary market in the notes, the
Fund may demand payment of principal and accrued interest at any time. Variable
amount master demand notes must satisfy the same criteria as set forth above for
commercial paper.
GUARANTEED INVESTMENT CONTRACTS
The Fixed Income Funds may invest in guaranteed investment contracts ("GICs")
issued by insurance companies. Pursuant to such contracts, a Fund makes cash
contributions to a deposit fund of the insurance company's general account. The
insurance company then credits to the deposit fund on a monthly basis guaranteed
interest at a rate based on an index. The GICs provide that this guaranteed
interest will not be less than a certain minimum rate. The insurance company may
assess periodic charges against a GIC for expense and service costs allocable to
it, and these charges will be deducted from the value of the deposit fund. A
Fund will purchase a GIC only when the Investment Adviser has determined that
the GIC presents minimal credit risks to the Fund and is of comparable quality
to instruments in which the Fund may otherwise invest. Because a Fund may not
receive the principal amount of a GIC from the insurance company on seven days'
notice or less, a GIC may be considered an illiquid investment. The term of a
GIC will be one year or less.
In determining the average weighted portfolio maturity of a Fund, a GIC will be
deemed to have a maturity equal to the period of time remaining until the next
readjustment of the guaranteed interest rate. The interest rate on a GIC may be
tied to a specified market index and is guaranteed not to be less than a certain
minimum rate.
ZERO COUPON SECURITIES
Zero coupon securities are sold at original issue discount and pay no interest
to holders prior to maturity. Accordingly, these securities usually trade at a
deep discount from their face or par value and will be subject to greater
fluctuations of market value in response to changing interest rates than debt
obligations of comparable maturities which make current distributions of
interest. Federal tax law requires that a Fund accrue a portion of the discount
at which a zero-coupon security was purchased as income each year even though
the Fund receives no interest payment in cash on the security during the year.
Interest on these securities, however, is reported as income by the Fund and
must be distributed to its shareholders. The Funds distribute all of their net
investment income, and may have to sell portfolio securities to distribute
imputed income, which may occur at a time when the Investment Adviser would not
have chosen to sell such securities and which may result in a taxable gain or
loss.
Currently U.S. Treasury securities issued without coupons include Treasury bills
and separately traded principal and interest components of securities issued or
guaranteed by the U.S. Treasury. These stripped components are traded
independently under the Treasury's Separate Trading of Registered Interest and
Principal of Securities ("STRIPS") program or as Coupons Under Book Entry
Safekeeping ("CUBES"). A number of banks and brokerage firms
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separate the principal and interest portions of U.S. Treasury securities and
sell them separately in the form of receipts or certificates representing
undivided interests in these instruments. These instruments are generally held
by a bank in a custodial or trust account on behalf of the owners of the
securities and are known by various names,
including Treasury Receipts ("TRs"), Treasury Investment Growth Receipts
("TIGRs") and Certificates of Accrual on Treasury Securities ("CATS"). In
addition, corporate debt securities may be zero coupon securities. For the
purpose solely of an investment policy of investing at least 65% of a Fund's
assets in U.S. Government Securities, such securities are currently not deemed
to be U.S. Government Securities but rather securities issued by the bank or
brokerage firm involved.
MUNICIPAL SECURITIES
Municipal securities are issued by the states, territories and possessions of
the United States, their political subdivisions (such as cities, counties and
towns) and various authorities (such as public housing or redevelopment
authorities), instrumentalities, public corporations and special districts (such
as water, sewer or sanitary districts) of the states, territories and
possessions of the United States or their political subdivisions. In addition,
municipal securities include securities issued by or on behalf of public
authorities to finance various privately operated facilities, such as industrial
development bonds or other private activity bonds that are backed only by the
assets and revenues of the non-governmental user (such as manufacturing
enterprises, hospitals, colleges or other entities).
Municipal securities historically have not been subject to registration with the
SEC, although there have been proposals which would require registration in the
future.
MUNICIPAL NOTES. Municipal notes, which may be either "general obligation" or
"revenue" securities are intended to fulfill the short-term capital needs of the
issuer and generally have maturities not exceeding one year. They include the
following: tax anticipation notes, revenue anticipation notes, bond anticipation
notes, construction loan notes and tax-exempt commercial paper. Tax anticipation
notes are issued to finance working capital needs of municipalities, and are
payable from various anticipated future seasonal tax revenues, such as income,
sales, use and business taxes. Revenue anticipation notes are issued in
expectation of receipt of other types of revenues, such as federal revenues
available under various federal revenue sharing programs. Bond anticipation
notes are issued to provide interim financing until long-term financing can be
arranged and are typically payable from proceeds of the long-term bonds.
Construction loan notes are sold to provide construction financing. After
successful completion and acceptance, many such projects receive permanent
financing through the Federal Housing Administration under the Federal National
Mortgage Association or the Government National Mortgage Association. Tax-exempt
commercial paper is a short-term obligation with a stated maturity of 365 days
or less. It is issued by agencies of state and local governments to finance
seasonal working capital needs or as short-term financing in anticipation of
longer term financing. Municipal notes also include longer term issues that are
remarketed to investors periodically, usually at one year intervals or less.
MUNICIPAL BONDS. Municipal bonds meet longer term capital needs of a municipal
issuer and generally have maturities of more than one year when issued. General
obligation bonds are used to fund a wide range of public projects, including
construction or improvement of schools, highways and roads, and water and sewer
systems. General obligation bonds are secured by the issuer's pledge of its full
faith and credit and taxing power for the payment of principal and interest. The
taxes that can be levied for the payment of debt service may be limited or
unlimited as to rate or amount. Revenue bonds in recent years have come to
include an increasingly wide variety of types of municipal obligations. As with
other kinds of municipal obligations, the issuers of revenue bonds may consist
of virtually any form of state or local governmental entity. Generally, revenue
bonds are secured by the revenues or net revenues derived from a particular
facility, class of facilities, or, in some cases, from the proceeds of a special
excise or other specific revenue source, but not from general tax revenues.
Revenue bonds are issued to finance a wide variety of capital projects including
electric, gas, water and sewer systems; highways, bridges, and tunnels; port and
airport facilities; colleges and universities; and hospitals. Many of these
bonds are additionally secured by a debt service reserve fund which can be used
to make a limited number of principal and interest payments should the pledged
revenues be insufficient. Various forms of credit enhancement, such as a bank
letter of credit or municipal bond insurance, may also be employed in revenue
bond issues. Revenue bonds issued by
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housing authorities may be secured in a number of ways, including partially or
fully insured mortgages, rent subsidized and/or collateralized mortgages, and/or
the net revenues from housing or other public projects. Some authorities provide
further security in the form of a state's ability (without obligation) to make
up deficiencies in the debt service reserve fund. In recent years, revenue bonds
have been issued in large volumes for projects that are privately owned and
operated, as discussed below.
Municipal bonds are considered private activity bonds if they are issued to
raise money for privately owned or operated facilities used for such purposes as
production or manufacturing, housing, health care and other nonprofit or
charitable purposes. These bonds are also used to finance public facilities such
as airports, mass transit systems and ports. The payment of the principal and
interest on such bonds is dependent solely on the ability of the facility's
owner or user to meet its financial obligations and the pledge, if any, of real
and personal property as security for such payment.
While at one time the pertinent provisions of the Code permitted private
activity bonds to bear tax-exempt interest in connection with virtually any type
of commercial or industrial project (subject to various restrictions as to
authorized costs, size limitations, state per capita volume restrictions, and
other matters), the types of qualifying projects under the Code have become
increasingly limited, particularly since the enactment of the Tax Reform Act of
1986. Under current provisions of the Code, tax-exempt financing remains
available, under prescribed conditions, for certain privately owned and operated
facilities of organizations described in Section 501(c)(3) of the Code,
multi-family rental housing facilities, airports, docks and wharves, mass
commuting facilities and solid waste disposal projects, among others, and for
the tax-exempt refinancing of various kinds of other private commercial projects
originally financed with tax-exempt bonds. In future years, the types of
projects qualifying under the Code for tax-exempt financing could become
increasingly limited.
OTHER MUNICIPAL OBLIGATIONS. Other municipal obligations, incurred for a variety
of financing purposes, include municipal leases, which may take the form of a
lease or an installment purchase or conditional sale contract. Municipal leases
are entered into by state and local governments and authorities to acquire a
wide variety of equipment and facilities such as fire and sanitation vehicles,
telecommunications equipment and other capital assets. Municipal leases
frequently have special risks not normally associated with general obligation or
revenue bonds. Leases and installment purchase or conditional sale contracts
(which normally provide for title to the leased asset to pass eventually to the
government issuer) have evolved as a means for governmental issuers to acquire
property and equipment without being required to meet the constitutional and
statutory requirements for the issuance of debt. The debt-issuance limitations
of many state constitutions and statutes are deemed to be inapplicable because
of the inclusion in many leases or contracts of "non-appropriation" clauses that
provide that the governmental issuer has no obligation to make future payments
under the lease or contract unless money is appropriated for such purpose by the
appropriate legislative body on a yearly or other periodic basis.
ALTERNATIVE MINIMUM TAX. Municipal securities are also categorized according to
(i) whether the interest is or is not includable in the calculation of
alternative minimum taxes imposed on individuals and corporations, (ii) whether
the costs of acquiring or carrying the bonds are or are not deductible in part
by banks and other financial institutions, and (iii) other criteria relevant for
Federal income tax purposes. Due to the increasing complexity of the Code and
related requirements governing the issuance of tax-exempt bonds, industry
practice has uniformly required as a condition to the issuance of such bonds,
but particularly for revenue bonds, an opinion of nationally recognized bond
counsel as to the tax-exempt status of interest on the bonds.
PUTS AND STANDBY COMMITMENTS ON MUNICIPAL SECURITIES. The Funds may acquire
"puts" with respect to municipal securities. A put gives the Fund the right to
sell the municipal security at a specified price at any time on or before a
specified date. The Funds may sell, transfer or assign a put only in conjunction
with its sale, transfer or assignment of the underlying security or securities.
The amount payable to a Fund upon its exercise of a "put" is normally: (1) the
Fund's acquisition cost of the municipal securities (excluding any accrued
interest which the Fund paid on their acquisition), less any amortized market
premium or plus any amortized market or original issue discount during the
period the Fund owned the securities, plus (2) all interest accrued on the
securities since the last interest payment date during that period.
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Puts may be acquired by the Funds to facilitate the liquidity of its portfolio
assets. Puts may also be used to facilitate the reinvestment of a Fund's assets
at a rate of return more favorable than that of the underlying security. The
Funds expect that they will generally acquire puts only where the puts are
available without the payment of any direct or indirect consideration. However,
if necessary or advisable, the Funds may pay for a put either separately in cash
or by paying a higher price for portfolio securities which are acquired subject
to the puts (thus reducing the yield to maturity otherwise available for the
same securities). The Funds intend to enter into puts only with dealers, banks
and broker-dealers which, in the Fund's Investment Adviser's opinion, present
minimal credit risks.
Puts may, under certain circumstances, also be used to shorten the maturity of
underlying variable rate or floating rate securities for purposes of calculating
the remaining maturity of those securities and the dollar-weighted average
portfolio maturity of a Fund's assets.
The Funds may purchase municipal securities together with the right to resell
them to the seller or a third party at an agreed-upon price or yield within
specified periods prior to their maturity dates. Such a right to resell is
commonly known as a "stand-by commitment," and the aggregate price which the
Fund pays for securities with a stand-by commitment may be higher than the price
which otherwise would be paid. The primary purpose of this practice is to permit
a Fund to be as fully invested as practicable in municipal securities while
preserving the necessary flexibility and liquidity to meet unanticipated
redemptions. In this regard, a Fund acquires stand-by commitments solely to
facilitate portfolio liquidity and does not exercise its rights thereunder for
trading purposes. Stand-by commitments involve certain expenses and risks,
including the inability of the issuer of the commitment to pay for the
securities at the time the commitment is exercised, non-marketability of the
commitment, and differences between the maturity of the underlying security and
the maturity of the commitment. The Funds' policy is to enter into stand-by
commitment transactions only with municipal securities dealers which are
determined to present minimal credit risks.
The acquisition of a stand-by commitment does not affect the valuation or
maturity of the underlying municipal securities which continue to be valued in
accordance with the amortized cost method. Stand-by commitments acquired by the
Fund are valued at zero in determining net asset value. When a Fund pays
directly or indirectly for a stand-by commitment, its cost is reflected as
unrealized depreciation for the period during which the commitment is held.
Stand-by commitments do not affect the average weighted maturity of the Fund's
portfolio of securities.
VARIABLE AND FLOATING RATE SECURITIES
The securities in which the Funds invest (including municipal securities or
mortgage- and asset-backed securities, as applicable) may have variable or
floating rates of interest and, under certain limited circumstances, may have
varying principal amounts. These securities pay interest at rates that are
adjusted periodically accordingly to a specified formula, usually with reference
to one or more interest rate indices or market interest rates (the "underlying
index"). The interest paid on these securities is a function primarily of the
underlying index upon which the interest rate adjustments are based. Such
adjustments minimize changes in the market value of the obligation and,
accordingly, enhance the ability of the Fund to maintain a stable net asset
value. Similar to fixed rate debt instruments, variable and floating rate
instruments are subject to changes in value based on changes in market interest
rates or changes in the issuer's creditworthiness. The rate of interest on
securities purchased by a Fund may be tied to Treasury or other government
securities or indices on those securities as well as any other rate of interest
or index. Certain variable rate securities (including mortgage-related
securities or mortgage-backed securities) pay interest at a rate that varies
inversely to prevailing short-term interest rates (sometimes referred to as
inverse floaters). For instance, upon reset the interest rate payable on a
security may go down when the underlying index has risen. During times when
short-term interest rates are relatively low as compared to long-term interest
rates a Fund may attempt to enhance its yield by purchasing inverse floaters.
Certain inverse floaters may have an interest rate reset mechanism that
multiplies the effects of changes in the underlying index. This form of leverage
may have the effect of increasing the volatility of the security's market value
while increasing the security's, and thus the Fund's, yield. Money Market Funds
may not invest in inverse floaters and certain other variable and floating rates
securities that do not imply with Rule 2a-7.
There may not be an active secondary market for any particular floating or
variable rate instruments (particularly inverse floaters and similar
instruments) which could make it difficult for a Fund to dispose of the
instrument if the
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issuer defaulted on its repayment obligation during periods that the Fund is not
entitled to exercise any demand rights it may have. A Fund could, for this or
other reasons, suffer a loss with respect to an instrument. Each Fund's
investment adviser monitors the liquidity of the Funds' investment in variable
and floating rate instruments, but there can be no guarantee that an active
secondary market will exist.
Many variable rate instruments include the right of the holder to demand
prepayment of the principal amount of the obligation prior to its stated
maturity and the right of the issuer to prepay the principal amount prior to
maturity. The payment of principal and interest by issuers of certain securities
purchased by the Funds may be guaranteed by letters of credit or other credit
facilities offered by banks or other financial institutions. Such guarantees
will be considered in determining whether a municipal security meets the Funds'
investment quality requirements.
Variable rate obligations purchased by the Funds may include participation
interests in variable rate obligations purchased by the Funds from banks,
insurance companies or other financial institutions that are backed by
irrevocable letters of credit or guarantees of banks. The Funds can exercise the
right, on not more than thirty days' notice, to sell such an instrument back to
the bank from which it purchased the instrument and draw on the letter of credit
for all or any part of the principal amount of a Fund's participation interest
in the instrument, plus accrued interest, but will do so only (1) as required to
provide liquidity to a Fund, (2) to maintain a high quality investment
portfolio, or (3) upon a default under the terms of the demand instrument. Banks
and other financial institutions retain portions of the interest paid on such
variable rate obligations as their fees for servicing such instruments and the
issuance of related letters of credit, guarantees and repurchase commitments.
The Funds will not purchase participation interests in variable rate obligations
unless it is advised by counsel or receives a ruling of the Internal Revenue
Service that interest earned by the Funds from the obligations in which it holds
participation interests is exempt from Federal income tax. The Internal Revenue
Service has announced that it ordinarily will not issue advance rulings on
certain of the Federal income tax consequences applicable to securities, or
participation interests therein, subject to a put. Each Fund's investment
adviser monitors the pricing, quality and liquidity of variable rate demand
obligations and participation interests therein held by the Fund on the basis of
published financial information, rating agency reports and other research
services to which the Investment Adviser may subscribe.
Certain securities may have an initial principal amount that varies over time
based on an interest rate index, and, accordingly, a Fund might be entitled to
less than the initial principal amount of the security upon the security's
maturity. The Funds intend to purchase such securities only when the Fund's
investment adviser believes the interest income from the instrument justifies
any principal risks associated with the instrument. A Fund may attempt to limit
any potential loss of principal by purchasing similar instruments that are
intended to provide an offsetting increase in principal. There can be no
assurance that a Fund will be able to limit principal fluctuations and,
accordingly, a Fund may incur losses on those securities even if held to
maturity without issuer default.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES
TYPES OF CREDIT ENHANCEMENT
To lessen the effect of failures by obligors on Mortgage Assets (as defined in
the Prospectus) to make payments, mortgage-backed securities may contain
elements of credit enhancement. Credit enhancement falls into two categories:
(1) liquidity protection and (2) protection against losses resulting after
default by an obligor on the underlying assets and collection of all amounts
recoverable directly from the obligor and through liquidation of the collateral.
Liquidity protection refers to the provisions of advances, generally by the
entity administering the pool of assets (usually the bank, savings association
or mortgage banker that transferred the underlying loans to the issuer of the
security), to ensure that the receipt of payments on the underlying pool occurs
in a timely fashion. Protection against losses resulting after default and
liquidation ensures ultimate payment of the obligations on at least a portion of
the assets in the pool. Such protection may be provided through guarantees,
insurance policies or letters of credit obtained by the issuer or sponsor from
third parties, through various means of structuring the transaction or through a
combination of such approaches. The Funds will not pay any additional fees for
such credit enhancement, although the existence of credit enhancement may
increase the price of security.
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Examples of credit enhancement arising out of the structure of the transaction
include: (1) "senior-subordinated securities" (multiple class securities with
one or more classes subordinate to other classes as to the payment of principal
thereof and interest thereon, with the result that defaults on the underlying
assets are borne first by the holders of the subordinated class); (2) creation
of "spread accounts" or "reserve funds" (where cash or investments, sometimes
funded from a portion of the payments on the underlying assets are held in
reserve against future losses); and (3) "over-collateralization" (where the
scheduled payments on, or the principal amount of, the underlying assets exceeds
that required to make payment of the securities and pay any servicing or other
fees). The degree of credit enhancement provided for each issue generally is
based on historical information regarding the level of credit risk associated
with the underlying assets. Delinquency or loss in excess of that covered by
credit enhancement protection could adversely affect the return on an investment
in such a security.
ASSET-BACKED SECURITIES
A Fund may invest in asset-backed securities, which have structural
characteristics similar to mortgage-backed securities but have underlying assets
that are not mortgage loans or interests in mortgage loans. Asset-backed
securities are securities that represent direct or indirect participations in,
or are secured by and payable from, assets such as motor vehicle installment
sales contracts, installment loan contracts, leases of various types of real and
personal property and receivables from revolving credit (credit card)
agreements. Such assets are securitized through the use of trusts and special
purpose corporations.
Asset-backed securities are often backed by a pool of assets representing the
obligations of a number of different parties. Payments of principal and interest
may be guaranteed up to certain amounts and for a certain time period by a
letter of credit issued by a financial institution.
Asset-backed securities present certain risks that are not presented by
mortgage-backed debt securities or other securities in which a Fund may invest.
Primarily, these securities do not always have the benefit of a security
interest in comparable collateral. Credit card receivables are generally
unsecured and the debtors are entitled to the protection of a number of state
and Federal consumer credit laws, many of which give such debtors the right to
set off certain amounts owed on the credit cards, thereby reducing the balance
due. Automobile receivables generally are secured by automobiles. Most issuers
of automobile receivables permit the loan servicers to retain possession of the
underlying obligations. If the servicer were to sell these obligations to
another party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the asset-backed securities. In addition,
because of the large number of vehicles involved in a typical issuance and the
technical requirements under state laws, the trustee for the holders of the
automobile receivables may not have a proper security interest in the underlying
automobiles. Therefore, there is the possibility that recoveries on repossessed
collateral may not, in some cases, be available to support payments on these
securities. Because asset-backed securities are relatively new, the market
experience in these securities is limited and the market's ability to sustain
liquidity through all phases of the market cycle has not been tested.
INTEREST-ONLY AND PRINCIPAL-ONLY SECURITIES
Some tranches of mortgage-backed securities, including CMOs, are structured so
that investors receive only principal payments generated by the underlying
collateral. Principal only securities ("POs") usually sell at a deep discount
from face value on the assumption that the purchaser will ultimately receive the
entire face value through scheduled payments and prepayments; however, the
market values of POs are extremely sensitive to prepayment rates, which, in
turn, vary with interest rate changes. If interest rates are falling and
prepayments accelerate, the value of the PO will increase. On the other hand, if
rates rise and prepayments slow, the value of the PO will drop.
Interest only securities ("IOs") result from the creation of POs; thus, CMOs
with PO tranches also have IO tranches. IO securities sell at a deep discount to
their "notional" principal amount, namely the principal balance used to
calculate the amount of interest due. They have no face or par value and, as the
notional principal amortizes and prepays, the IO cash-flow declines.
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Unlike POs, IOs increase in value when interest rates rise and prepayment rates
slow; consequently they are often used to "hedge" portfolios against interest
rate risk. If prepayment rates are high, a Fund may receive less cash back than
it initially invested.
INTEREST RATE PROTECTION TRANSACTIONS
Certain Funds may enter into interest rate protection transactions, including
interest rate swaps, caps, collars and floors. Interest rate swap transactions
involve an agreement between two parties to exchange interest payment streams
that are based, for example, on variable and fixed rates that are calculated on
the basis of a specified amount of principal (the "notional principal amount")
for a specified period of time. Interest rate cap and floor transactions involve
an agreement between two parties in which the first party agrees to make
payments to the counterparty when a designated market interest rate goes above
(in the case of a cap) or below (in the case of a floor) a designated level on
predetermined dates or during a specified time period. Interest rate collar
transactions involve an agreement between two parties in which the payments are
made when a designated market interest rate either goes above a designated
ceiling or goes below a designated floor on predetermined dates or during a
specified time period.
A Fund expects to enter into interest rate protection transactions to preserve a
return or spread on a particular investment or portion of its portfolio or to
protect against any increase in the price of securities it anticipates
purchasing at a later date. The Funds intend to use these transactions as a
hedge and not as a speculative investment.
A Fund may enter into interest rate protection transactions on an asset-based
basis, depending on whether it is hedging its assets or its liabilities, and
will usually enter into interest rate swaps on a net basis, i.e., the two
payment streams are netted out, with the Fund receiving or paying, as the case
may be, only the net amount of the two payments. Inasmuch as these interest rate
protection transactions are entered into for good faith hedging purposes, and
inasmuch as segregated accounts will be established with respect to such
transactions, the Funds believe such obligations do not constitute senior
securities. The net amount of the excess, if any, of a Fund's obligations over
its entitlements with respect to each interest rate swap will be accrued on a
daily basis and an amount of cash, U.S. Government Securities or other liquid
high grade debt obligations having an aggregate net asset value at least equal
to the accrued excess will be maintained in a segregated account by a custodian
that satisfies the requirements of the 1940 Act. The Funds also will establish
and maintain such segregated accounts with respect to its total obligations
under any interest rate swaps that are not entered into on a net basis and with
respect to any interest rate caps, collars and floors that are written by the
Fund.
A Fund will enter into interest rate protection transactions only with banks and
other institutions believed by the Investment Adviser to the Fund to present
minimal credit risks. If there is a default by the other party to such a
transaction, the Fund will have to rely on its contractual remedies (which may
be limited by bankruptcy, insolvency or similar laws) pursuant to the agreements
related to the transaction.
The swap market has grown substantially in recent years with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. Caps, collars and floors are more
recent innovations for which documentation is less standardized and,
accordingly, are less liquid than swaps.
HEDGING AND OPTION INCOME STRATEGIES
SMALL CAP OPPORTUNITIES FUND
COVERED CALLS AND HEDGING
As described in the Prospectus, the Schroder U.S. Smaller Companies Portfolio
may write covered calls on up to 100% of its total assets or employ one or more
types of instruments to hedge ("Hedging Instruments"). When hedging to attempt
to protect against declines in the market value of the Portfolio's securities,
to permit the Portfolio
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to retain unrealized gains in the value of portfolio securities which have
appreciated, or to facilitate selling securities for investment reasons, the
Portfolio would: (1) sell Stock Index Futures; (2) purchase puts on such futures
or securities; or (3) write covered calls on securities or on Stock Index
Futures. When hedging to establish a position in the equities markets as a
temporary substitute for purchasing particular equity securities (which the
Portfolio will normally purchase and then terminate the hedging position), the
Portfolio would: (1) purchase Stock Index Futures, or (2) purchase calls on such
Futures or on securities. The Portfolio's strategy of hedging with Stock Index
Futures and options on such Futures will be incidental to the Portfolio's
activities in the underlying cash market.
Writing Covered Call Options. The Portfolio may write (I.E., sell) call options
("calls") if: (1) the calls are listed on a domestic securities or commodities
exchange and (2) the calls are "covered" (I.E., the Portfolio owns the
securities subject to the call or other securities acceptable for applicable
escrow arrangements) while the call is outstanding. A call written on a Stock
Index Future must be covered by deliverable securities or segregated liquid
assets. If a call written by the Portfolio is exercised, the Portfolio forgoes
any profit from any increase in the market price above the call price of the
underlying investment on which the call was written.
When the Portfolio writes a call on a security, it receives a premium and agrees
to sell the underlying securities to a purchaser of a corresponding call on the
same security during the call period (usually not more than 9 months) at a fixed
exercise price (which may differ from the market price of the underlying
security), regardless of market price changes during the call period. The risk
of loss will have been retained by the Portfolio if the price of the underlying
security should decline during the call period, which may be offset to some
extent by the premium.
To terminate its obligation on a call it has written, the Portfolio may be
purchase a corresponding call in a "closing purchase transaction." A profit or
loss will be realized, depending upon whether the net of the amount of option
transaction costs and the premium previously received on the call written was
more or less than the price of the call subsequently purchased. A profit may
also be realized if the call lapses unexercised, because the Portfolio retains
the underlying security and the premium received. Any such profits are
considered short-term capital gains for Federal income tax purposes, and when
distributed by the Portfolio are taxable as ordinary income. If the Portfolio
could not effect a closing purchase transaction due to the lack of a market, it
would have to hold the callable securities until the call lapsed or was
exercised.
The Portfolio may also write calls on Stock Index Futures without owning a
futures contract or a deliverable bond, provided that at the time the call is
written, the Portfolio covers the call by segregating in escrow an equivalent
dollar amount of liquid assets. The Portfolio will segregate additional liquid
assets if the value of the escrowed assets drops below 100% of the current value
of the Stock Index Future. In no circumstances would an exercise notice require
the Portfolio to deliver a futures contract; it would simply put the Portfolio
in a short futures position, which is permitted by the Portfolio's hedging
policies.
PURCHASING CALLS AND PUTS. The Portfolio may purchase put options ("puts") which
relate to: (1) securities held by it; (2) Stock Index Futures (whether or not it
holds such Stock Index Futures in its portfolio); or (3) broadly-based stock
indices. The Portfolio may not sell puts other than those it previously
purchased, nor purchase puts on securities it does not hold. The Portfolio may
purchase calls: (1) as to securities, broadly-based stock indices or Stock Index
Futures or (2) to effect a "closing purchase transaction" to terminate its
obligation on a call it has previously written. A call or put may be purchased
only if, after such purchase, the value of all put and call options held by the
Portfolio would not exceed 5% of the Portfolio's total assets.
When the Portfolio purchases a call (other than in a closing purchase
transaction), it pays a premium and, except as to calls on stock indices, has
the right to buy the underlying investment from a seller of a corresponding call
on the same investment during the call period at a fixed exercise price. The
Portfolio benefits only if the call is sold at a profit or if, during the call
period, the market price of the underlying investment is above the sum of the
call price plus the transaction costs and the premium paid for the call and the
call is exercised. If the call is not exercised or sold (whether or not at a
profit), it will become worthless at its expiration date and the Portfolio will
lose its premium payments and the right to purchase the underlying investment.
When the Portfolio purchases a call on a stock index, it pays a premium, but
settlement is in cash rather than by delivery of an underlying investment.
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When the Portfolio purchases a put, it pays a premium and, except as to puts on
stock indices, has the right to sell the underlying investment to a seller of a
corresponding put on the same investment during the put period at a fixed
exercise price. Buying a put on a security or Stock Index Future the Portfolio
owns enables the Portfolio to attempt to protect itself during the put period
against a decline in the value of the underlying investment below the exercise
price by selling the underlying investment at the exercise price to a seller of
a corresponding put. If the market price of the underlying investment is equal
to or above the exercise price and, as a result, the put is not exercised or
resold, the put will become worthless at its expiration date and the Portfolio
will lose its premium payment and the right to sell the underlying investment;
the put may, however, be sold prior to expiration (whether or not at a profit).
Purchasing a put on either a stock index or on a Stock Index Future not held by
the Portfolio permits the Portfolio either to resell the put or to buy the
underlying investment and sell it at the exercise price. The resale price of the
put will vary inversely with the price of the underlying investment. If the
market price of the underlying investment is above the exercise price and, as a
result, the put is not exercised, the put will become worthless on its
expiration date. In the event of a decline in price of the underlying
investment, the Portfolio could exercise or sell the put at a profit to attempt
to offset some or all of its loss on its portfolio securities. When the
Portfolio purchases a put on a stock index, or on a Stock Index Future not held
by it, the put protects the Portfolio to the extent that the index moves in a
similar pattern to the securities held. In the case of a put on a stock index or
Stock Index Future, settlement is in cash rather than by the Portfolio's
delivery of the underlying investment.
STOCK INDEX FUTURES. The Portfolio may buy and sell futures contracts only if
they are Stock Index Futures. A stock index is "broadly-based" if it includes
stocks that are not limited to issuers in any particular industry or group of
industries. Stock Index Futures obligate the seller to deliver (and the
purchaser to take) cash to settle the futures transaction, or to enter into an
offsetting contract. No physical delivery of the underlying stocks in the index
is made.
No price is paid or received upon the purchase or sale of a Stock Index Future.
Upon entering into a futures transaction, the Portfolio will be required to
deposit an initial margin payment in cash or U.S. Treasury bills with a futures
commission merchant (the "futures broker"). The initial margin will be deposited
with the Portfolio's custodian in an account registered in the futures broker's
name; however the futures broker can gain access to that account only under
specified conditions. As the future is marked to market to reflect changes in
its market value, subsequent margin payments, called variation margin, will be
paid to or by the futures broker on a daily basis. Prior to expiration of the
future, if the Portfolio elects to close out its position by taking an opposite
position, a final determination of variation margin is made, additional cash is
required to be paid by or released to the Portfolio, and any loss or gain is
realized for tax purposes. Although Stock Index Futures by their terms call for
settlement by the delivery of cash, in most cases the obligation is fulfilled
without such delivery, by entering into an offsetting transaction. All futures
transactions are effected through a clearinghouse associated with the exchange
on which the contracts are traded.
Puts and calls on broadly-based stock indices or Stock Index Futures are similar
to puts and calls on securities or futures contracts except that all settlements
are in cash and gain or loss depends on changes in the index in question (and
thus on price movements in the stock market generally) rather than on price
movements in individual securities or futures contracts. When the Portfolio buys
a call on a stock index or Stock Index Future, it pays a premium. During the
call period, upon exercise of a call by the Portfolio, a seller of a
corresponding call on the same index will pay the Portfolio an amount of cash to
settle the call if the closing level of the stock index or Stock Index Future
upon which the call is based is greater than the exercise price of the call;
that cash payment is equal to the difference between the closing price of the
index and the exercise price of the call times a specified multiple (the
"multiplier") which determines the total dollar value for each point of
difference. When the Portfolio buys a put on a stock index or Stock Index
Future, it pays a premium and has the right during the put period to require a
seller of a corresponding put, upon the Portfolio's exercise of its put, to
deliver to the Portfolio an amount of cash to settle the put if the closing
level of the stock index or Stock Index Future upon which the put is based is
less than the exercise price of the put; that cash payment is determined by the
multiplier, in the same manner as described above as to calls.
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ADDITIONAL INFORMATION ABOUT HEDGING INSTRUMENTS AND THEIR USE. The Portfolio's
custodian, or a securities depository acting for the custodian, will act as the
Portfolio's escrow agent, through the facilities of the Options Clearing
Corporation ("OCC"), as to the securities on which the Portfolio has written
options, or as to other acceptable escrow securities, so that no margin will be
required for such transactions. OCC will release the securities on the
expiration of the option or upon the Portfolio's entering into a closing
transaction. An option position may be closed out only on a market which
provides secondary trading for options of the same series, and there is no
assurance that a liquid secondary market will exist for any particular option.
The Portfolio's option activities may affect its portfolio turnover rate and
brokerage commissions. The exercise of calls written by the Portfolio may cause
the Portfolio to sell related portfolio securities, thus increasing its turnover
rate in a manner beyond the Portfolio's control. The exercise by the Portfolio
of puts on securities or Stock Index Futures may cause the sale of related
investments, also increasing portfolio turnover. Although such exercise is
within the Portfolio's control, holding a put might cause the Portfolio to sell
the underlying investment for reasons which would not exist in the absence of
the put. The Portfolio will pay a brokerage commission each time it buys or
sells a call, a put or an underlying investment in connection with the exercise
of a put or call. Such commissions may be higher than those which would apply to
direct purchases or sales of the underlying investments. Premiums paid for
options are small in relation to the market value of such investments, and,
consequently, put and call options offer large amounts of leverage. The leverage
offered by trading in options could result in the Portfolio's net asset value
being more sensitive to changes in the value of the underlying investments.
REGULATORY ASPECTS OF HEDGING INSTRUMENTS AND COVERED CALLS. The Portfolio must
operate within certain restrictions as to its long and short positions in Stock
Index Futures and options thereon under a rule (the "CFTC Rule") adopted by the
CFTC under the Commodity Exchange Act (the "CEA"), which excludes the Portfolio
from registration with the CFTC as a "commodity pool operator" (as defined in
the CEA) if it complies with the CFTC Rule. Under these restrictions the
Portfolio will not, as to any positions, whether short, long or a combination
thereof, enter into Stock Index Futures and options thereon for which the
aggregate initial margins and premiums exceed 5% of the fair market value of its
total assets, with certain exclusions as defined in the CFTC Rule. Under the
restrictions, the Portfolio also must, as to its short positions, use Stock
Index Futures and options thereon solely for bona-fide hedging purposes within
the meaning and intent of the applicable provisions under the CEA.
Transactions in options by the Portfolio are subject to limitations established
by each of the exchanges governing the maximum number of options that may be
written or held by a single investor or group of investors acting in concert,
regardless of whether the options were written or purchased on the same or
different exchanges or are held in one or more accounts or through one or more
exchanges or brokers. Thus, the number of options which the Portfolio may write
or hold may be affected by options written or held by other entities, including
other investment companies having the same or an affiliated investment adviser.
Position limits also apply to Stock Index Futures. An exchange may order the
liquidation of positions found to be in violation of those limits and may impose
certain other sanctions. Due to requirements under the 1940 Act, when the
Portfolio purchases a Stock Index Future, the Portfolio will maintain, in a
segregated account or accounts with its custodian bank, cash or liquid assets in
an amount equal to the market value of the securities underlying such Stock
Index Future, less the margin deposit applicable to it.
LIMITS ON USE OF HEDGING INSTRUMENTS. The Portfolio intends to qualify as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended (the "Code"). One of the tests for such qualification for taxable years
beginning on or before August 5, 1997 is that less than 30% of its gross income
in that year must be derived from gains realized on the sale of securities held
for less than three months. Due to this limitation, the Portfolio will limit the
extent to which it engages in the following activities, but will not be
precluded from them: (1) selling investments, including Stock Index Futures,
held for less than three months, whether or not they were purchased on the
exercise of a call held by the Portfolio; (2) purchasing calls or puts which
expire in less than three months; (3) effecting closing transactions with
respect to calls or puts purchased less than three months previously; (4)
exercising puts held for less than three months; and (5) writing calls on
investments held for less than three months.
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POSSIBLE RISK FACTORS IN HEDGING. In addition to the risks discussed above,
there is a risk in using short hedging by selling Stock Index Futures or
purchasing puts on stock indices that the prices of the applicable index (thus
the prices of the Hedging Instruments) will correlate imperfectly with the
behavior of the cash (i.e., market value) prices of the Portfolio's equity
securities. The ordinary spreads between prices in the cash and futures markets
are subject to distortions due to differences in the natures of those markets.
First, all participants in the futures markets are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures markets depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures markets could be reduced, thus producing distortion. Third, from
the point of view of speculators, the deposit requirements in the futures
markets are less onerous than margin requirements in the securities markets.
Therefore, increased participation by speculators in the futures markets may
cause temporary price distortions.
The risk of imperfect correlation increases as the composition of the
Portfolio's portfolio diverges from the securities included in the applicable
index. To compensate for the imperfect correlation of movements in the price of
the equity securities being hedged and movements in the price of the Hedging
Instruments, the Portfolio may use Hedging Instruments in a greater dollar
amount than the dollar amount of equity securities being hedged if the
historical volatility of the prices of such equity securities being hedged is
more than the historical volatility of the applicable index. It is also possible
that where the Portfolio has used Hedging Instruments in a short hedge, the
market may advance and the value of equity securities held in the Portfolio's
portfolio may decline. If this occurred, the Portfolio would lose money on the
Hedging Instruments and also experience a decline in value in its equity
securities. However, while this could occur for a very brief period or to a very
small degree, the value of a diversified portfolio of equity securities will
tend to move over time in the same direction as the indices upon which the
Hedging Instruments are based.
If the Portfolio uses Hedging Instruments to establish a position in the
equities markets as a temporary substitute for the purchase of individual equity
securities (long hedging) by buying Stock Index Futures and/or calls on such
Futures, on securities or on stock indices, it is possible that the market may
decline; if the Portfolio then concludes not to invest in equity securities at
that time because of concerns as to possible further market decline or for other
reasons, the Portfolio will realize a loss on the Hedging Instruments that is
not offset by a reduction in the price of the equity securities purchased.
Additionally, each other Fund (other than the Money Market Funds), may (i)
purchase or sell (write) put and call options on securities to enhance the
Fund's performance and (ii) seek to hedge against a decline in the value of
securities owned by it or an increase in the price of securities which it plans
to purchase through the writing and purchase of exchange-traded and
over-the-counter options on individual securities or securities or financial
indices and through the purchase and sale of financial futures contracts and
related options. Certain Funds currently do no not intend to enter into any such
transactions. Whether or not used for hedging purposes, these investments
techniques involve risks that are different in certain respects from the
investment risks associated with the other investments of a Fund. Principal
among such risks are: (1) the possible failure of such instruments as hedging
techniques in cases where the price movements of the securities underlying the
options or futures do not follow the price movements of the portfolio securities
subject to the hedge; (2) potentially unlimited loss associated with futures
transactions and the possible lack of a liquid secondary market for closing out
a futures position; and (3) possible losses resulting from the inability of the
Portfolio's investment adviser to correctly predict the direction of stock
prices, interest rates and other economic factors. To the extent a Fund invests
in foreign securities, it may also invest in options on foreign currencies,
foreign currency futures contracts and options on those futures contracts. Use
of these instruments is subject to regulation by the SEC, the several options
and futures exchanges upon which options and futures are traded or the CFTC.
No assurance can be given, however, that any hedging or option income strategy
will succeed in achieving its intended result.
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Except as otherwise noted in the Prospectus or herein, the Funds will not use
leverage in their option income and hedging strategies. In the case of
transactions entered into as a hedge, a Fund will hold securities, currencies or
other options or futures positions whose values are expected to offset ("cover")
its obligations thereunder. A Fund will not enter into a hedging strategy that
exposes it to an obligation to another party unless it owns either: (1) an
offsetting ("covered") position or (2) cash, U.S. Government Securities or other
liquid securities (or other assets as may be permitted by the SEC) with a value
sufficient at all times to cover its potential obligations. When required by
applicable regulatory guidelines, the Funds will set aside cash, U.S. Government
Securities or other liquid securities (or other assets as may be permitted by
the SEC) in a segregated account with its custodian in the prescribed amount.
Any assets used for cover or held in a segregated account cannot be sold or
closed out while the hedging or option income strategy is outstanding, unless
they are replaced with similar assets. As a result, there is a possibility that
the use of cover or segregation involving a large percentage of a Fund's assets
could impede portfolio management or the Fund's ability to meet redemption
requests or other current obligations.
OPTIONS STRATEGIES
A Fund may purchase put and call options written by others and sell put and call
options covering specified individual securities, securities or financial
indices or currencies. A put option (sometimes called a "standby commitment")
gives the buyer of the option, upon payment of a premium, the right to deliver a
specified amount of currency to the writer of the option on or before a fixed
date at a predetermined price. A call option (sometimes called a "reverse
standby commitment") gives the purchaser of the option, upon payment of a
premium, the right to call upon the writer to deliver a specified amount of
currency on or before a fixed date, at a predetermined price. The predetermined
prices may be higher or lower than the market value of the underlying currency.
A Fund may buy or sell both exchange-traded and over-the-counter ("OTC")
options. A Fund will purchase or write an option only if that option is traded
on a recognized U.S. options exchange or if the Investment Adviser believes that
a liquid secondary market for the option exists. When a Fund purchases an OTC
option, it relies on the dealer from which it has purchased the OTC option to
make or take delivery of the currency underlying the option. Failure by the
dealer to do so would result in the loss of the premium paid by the Fund as well
as the loss of the expected benefit of the transaction. OTC options and the
securities underlying these options currently are treated as illiquid securities
by the Funds.
Upon selling an option, a Fund receives a premium from the purchaser of the
option. Upon purchasing an option the Fund pays a premium to the seller of the
option. The amount of premium received or paid by the Fund is based upon certain
factors, including the market price of the underlying securities, index or
currency, the relationship of the exercise price to the market price, the
historical price volatility of the underlying assets, the option period, supply
and demand and interest rates.
Certain Funds may purchase call options on debt securities that the Fund's
Investment Adviser intends to include in the Fund's portfolio in order to fix
the cost of a future purchase. Call options may also be purchased as a means of
participating in an anticipated price increase of a security on a more limited
risk basis than would be possible if the security itself were purchased. In the
event of a decline in the price of the underlying security, use of this strategy
would serve to limit the potential loss to the Fund to the option premium paid;
conversely, if the market price of the underlying security increases above the
exercise price and the Fund either sells or exercises the option, any profit
eventually realized will be reduced by the premium paid. A Fund may similarly
purchase put options in order to hedge against a decline in market value of
securities held in its portfolio. The put enables the Fund to sell the
underlying security at the predetermined exercise price; thus the potential for
loss to the Fund is limited to the option premium paid. If the market price of
the underlying security is lower than the exercise price of the put, any profit
the Fund realizes on the sale of the security would be reduced by the premium
paid for the put option less any amount for which the put may be sold.
An Investment Adviser may write call options when it believes that the market
value of the underlying security will not rise to a value greater than the
exercise price plus the premium received. Call options may also be written to
provide limited protection against a decrease in the market price of a security,
in an amount equal to the call premium received less any transaction costs.
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Certain Funds may purchase and write put and call options on fixed income or
equity security indexes in much the same manner as the options discussed above,
except that index options may serve as a hedge against overall fluctuations in
the fixed income or equity securities markets (or market sectors) or as a means
of participating in an anticipated price increase in those markets. The
effectiveness of hedging techniques using index options will depend on the
extent to which price movements in the index selected correlate with price
movements of the securities which are being hedged. Index options are settled
exclusively in cash.
FOREIGN CURRENCY OPTIONS AND RELATED RISKS
A Fund may take positions in options on foreign currencies in order to hedge
against the risk of foreign exchange fluctuation on foreign securities the Fund
holds in its portfolio or which it intends to purchase. Options on foreign
currencies are affected by the factors discussed in "Hedging and Option Income
Strategies -- Options Strategies" and "Foreign Currency Transactions" which
influence foreign exchange sales and investments generally.
The value of foreign currency options is dependent upon the value of the foreign
currency relative to the U.S. dollar and has no relationship to the investment
merits of a foreign security. Because foreign currency transactions occurring in
the interbank market involve substantially larger amounts than those that may be
involved in the use of foreign currency options, a Fund may be disadvantaged by
having to deal in an odd lot market (generally consisting of transactions of
less than $1 million) for the underlying foreign currencies at prices that are
less favorable than for round lots.
To the extent that the U.S. options markets are closed while the market for the
underlying currencies remains open, significant price and rate movements may
take place in the underlying markets that cannot be reflected in the options
markets.
SPECIAL CHARACTERISTICS AND RISKS OF OPTIONS TRADING
A Fund may effectively terminate its right or obligation under an option
contract by entering into a closing transaction. For instance, if the Fund
wished to terminate its potential obligation to sell securities or currencies
under a call option it had written, a call option of the same type would be
purchased by the Fund. Closing transactions essentially permit the Fund to
realize profits or limit losses on its options positions prior to the exercise
or expiration of the option. In addition:
(1) The successful use of options depends upon the Investment Adviser's
ability to forecast the direction of price fluctuations in the underlying
securities or currency markets, or in the case of an index option, fluctuations
in the market sector represented by the index.
(2) Options normally have expiration dates of up to nine months.
Options that expire unexercised have no value. Unless an option purchased by a
Fund is exercised or unless a closing transaction is effected with respect to
that position, a loss will be realized in the amount of the premium paid.
(3) A position in an exchange-listed option may be closed out only on
an exchange which provides a market for identical options. Most exchange-listed
options relate to equity securities. Exchange markets for options on foreign
currencies are relatively new, and the ability to establish and close out
positions on the exchanges is subject to the maintenance of a liquid secondary
market. Closing transactions may be effected with respect to options traded in
the over-the-counter markets (currently the primary markets for options on
foreign currencies) only by negotiating directly with the other party to the
option contract or in a secondary market for the option if such market exists.
There is no assurance that a liquid secondary market will exist for any
particular option at any specific time. If it is not possible to effect a
closing transaction, a Fund would have to exercise the option which it purchased
in order to realize any profit. The inability to effect a closing transaction on
an option written by a Fund may result in material losses to the Fund.
(4) A Fund's activities in the options markets may result in a higher
portfolio turnover rate and additional brokerage costs.
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(5) When a Fund enters into an over-the-counter contract with a
counterparty, the Fund will assume the risk that the counterparty will fail to
perform its obligations, in which case the Fund could be worse off than if the
contract had not been entered into.
FUTURES STRATEGIES
A futures contract is a bilateral agreement wherein one party agrees to accept,
and the other party agrees to make, delivery of cash, an underlying debt
security or the currency as called for in the contract at a specified future
date and at a specified price. For futures contracts with respect to an index,
delivery is of an amount of cash equal to a specified dollar amount times the
difference between the index value at the time of the contract and the close of
trading of the contract.
A Fund may sell interest rate futures contracts in order to continue to receive
the income from a fixed income security, while endeavoring to avoid part of or
all of a decline in the market value of that security which would accompany an
increase in interest rates.
A Fund may purchase index futures contracts for several reasons: to simulate
full investment in the underlying index while retaining a cash balance for fund
management purposes, to facilitate trading, to reduce transactions costs, or to
seek higher investment returns when a futures contract is priced more
attractively than securities in the index.
A Fund may purchase call options on a futures contract as a means of obtaining
temporary exposure to market appreciation at limited risk. This strategy is
analogous to the purchase of a call option on an individual security, in that it
can be used as a temporary substitute for a position in the security itself.
A Fund may sell foreign currency futures contracts to hedge against possible
variations in the exchange rate of the foreign currency in relation to the U.S.
dollar. In addition, a Fund may sell foreign currency futures contracts when its
Investment Adviser anticipates a general weakening of foreign currency exchange
rates that could adversely affect the market values of the Fund's foreign
securities holdings. A Fund may purchase a foreign currency futures contract to
hedge against an anticipated foreign exchange rate increase pending completion
of anticipated transactions. Such a purchase would serve as a temporary measure
to protect the Fund against such increase. A Fund may also purchase call or put
options on foreign currency futures contracts to obtain a fixed foreign exchange
rate at limited risk. A Fund may write call options on foreign currency futures
contracts as a partial hedge against the effects of declining foreign exchange
rates on the value of foreign securities.
SPECIAL CHARACTERISTICS AND RISKS OF FUTURES AND RELATED OPTIONS TRADING
No price is paid upon entering into futures contracts; rather, a Fund is
required to deposit (typically with its custodian in a segregated account in the
name of the futures broker) an amount of cash or U.S. Government Securities
generally equal to 5% or less of the contract value. This amount is known as
initial margin. Subsequent payments, called variation margin, to and from the
broker, would be made on a daily basis as the value of the futures position
varies. When writing a call on a futures contract, variation margin must be
deposited in accordance with applicable exchange rules. The initial margin in
futures transactions is in the nature of a performance bond or good-faith
deposit on the contract that is returned to the Fund upon termination of the
contract, assuming all contractual obligations have been satisfied.
Holders and writers of futures and options on futures contracts can enter into
offsetting closing transactions, similar to closing transactions on options, by
selling or purchasing, respectively, a futures contract or related option with
the same terms as the position held or written. Positions in futures contracts
may be closed only on an exchange or board of trade providing a secondary market
for such futures contracts.
Under certain circumstances, futures exchanges may establish daily limits in the
amount that the price of a futures contract or related option may vary either up
or down from the previous day's settlement price. Once the daily limit has been
reached in a particular contract, no trades may be made that day at a price
beyond that limit. Prices could move to the daily limit for several consecutive
trading days with little or no trading and thereby prevent prompt liquidation of
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positions. In that event, it may not be possible for a Fund to close a position,
and in the event of adverse price movements, it would have to make daily cash
payments of variation margin. In addition:
(1) Successful use by a Fund of futures contracts and related options
will depend upon the Investment Adviser's ability to predict movements in the
direction of the overall securities and currency markets, which requires
different skills and techniques than predicting changes in the prices of
individual securities. Moreover, futures contracts relate not to the current
level of the underlying instrument but to the anticipated levels at some point
in the future; thus, for example, trading of stock index futures may not reflect
the trading of the securities which are used to formulate an index or even
actual fluctuations in the relevant index itself.
(2) The price of futures contracts may not correlate perfectly with
movement in the price of the hedged currencies due to price distortions in the
futures market or otherwise. There may be several reasons unrelated to the value
of the underlying currencies which causes this situation to occur. As a result,
a correct forecast of general market trends may still not result in successful
hedging through the use of futures contracts over the short term.
(3) There is no assurance that a liquid secondary market will exist for
any particular contract at any particular time. In such event, it may not be
possible to close a position, and in the event of adverse price movements, the
Fund would continue to be required to make daily cash payments of variation
margin.
(4) Like other options, options on futures contracts have a limited
life. A Fund will not trade options on futures contracts on any exchange or
board of trade unless and until, in Norwest's opinion, the market for such
options has developed sufficiently that the risks in connection with options on
futures transactions are not greater than the risks in connection with futures
transactions.
(5) Purchasers of options on futures contracts pay a premium in cash at
the time of purchase. This amount and the transaction costs is all that is at
risk. Sellers of options on futures contracts, however, must post an initial
margin and are subject to additional margin calls which could be substantial in
the event of adverse price movements.
(6) A Fund's activities in the futures markets may result in a higher
portfolio turnover rate and additional transaction costs in the form of added
brokerage commissions.
(7) Buyers and sellers of foreign currency futures contracts are
subject to the same risks that apply to the buying and selling of futures
generally. In addition, there are risks associated with foreign currency futures
contracts and their use as a hedging device similar to those associated with
options on foreign currencies described above. In addition, settlement of
foreign currency futures contracts must occur within the country issuing that
currency. Thus, a Fund must accept or make delivery of the underlying foreign
currency in accordance with any U.S. or foreign restrictions or regulations
regarding the maintenance of foreign banking arrangements by U.S. residents, and
the Fund may be required to pay any fees, taxes or charges associated with such
delivery which are assessed in the issuing country.
COMMODITY FUTURES CONTRACTS AND COMMODITY OPTIONS
A Fund may invest in certain financial futures contracts and options contracts
in accordance with the policies described in the Prospectus and above. A Fund
will only invest in futures contracts, options on futures contracts and other
options contracts that are subject to the jurisdiction of the CFTC after filing
a notice of eligibility and otherwise complying with the requirements of Section
4.5 of the rules of the CFTC. Under that section a Fund will not enter into any
futures contract or option on a futures contract if, as a result, the aggregate
initial margin and premiums required to establish such positions would exceed 5%
of the Fund's net assets.
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FOREIGN CURRENCY TRANSACTIONS
Investments in foreign companies will usually involve the currencies of foreign
countries. In addition, a Fund may temporarily hold funds in bank deposits in
foreign currencies pending the completion of certain investment programs.
Accordingly, the value of the assets of a Fund, as measured in U.S. dollars, may
be affected by changes in foreign currency exchange rates and exchange control
regulations. In addition, the Fund may incur costs in connection with
conversions between various currencies. A Fund may conduct foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market or by entering into foreign
currency forward contracts ("forward contracts") to purchase or sell foreign
currencies. A forward contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days
(usually less than one year) from the date of the contract agreed upon by the
parties, at a price set at the time of the contract. These contracts are traded
in the interbank market conducted directly between currency traders (usually
large commercial banks) and their customers and involve the risk that the other
party to the contract may fail to deliver currency when due, which could result
in losses to the Fund. A forward contract generally has no deposit requirement,
and no commissions are charged at any stage for trades. Foreign exchange dealers
realize a profit based on the difference between the price at which they buy and
sell various currencies.
A Fund may enter into forward contracts under two circumstances. First, with
respect to specific transactions, when the Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency, it may desire
to "lock in" the U.S. dollar price of the security. By entering into a forward
contract for the purchase or sale, for a fixed amount of dollars, of the amount
of foreign currency involved in the underlying security transactions, the Fund
may be able to protect itself against a possible loss resulting from an adverse
change in the relationship between the U.S. dollar and the subject foreign
currency during the period between the date the security is purchased or sold
and the date on which payment is made or received.
Second, a Fund may enter into forward contracts in connection with existing
portfolio positions. For example, when an Investment Adviser believes that the
currency of a particular foreign country may suffer a substantial decline
against the U.S. dollar, the Fund may enter into a forward contract to sell, for
a fixed amount of dollars, the amount of foreign currency approximating the
value of some or all of the Fund's investment securities denominated in such
foreign currency.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible since the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. The projection of short-term currency
market movement is extremely difficult, and the successful execution of a
short-term hedging strategy is highly uncertain. Forward contracts involve the
risk of inaccurate predictions of currency price movements, which may cause the
Fund to incur losses on these contracts and transaction costs. The Advisers do
not intend to enter into forward contracts on a regular or continuous basis and
will not do so if, as a result, a Fund will have more than 25 percent of the
value of its total assets committed to such contracts or the contracts would
obligate the Fund to deliver an amount of foreign currency in excess of the
value of the Fund's investment securities or other assets denominated in that
currency.
At or before the settlement of a forward contract, a Fund may either make
delivery of the foreign currency or terminate its contractual obligation to
deliver the foreign currency by purchasing an offsetting contract. If the Fund
chooses to make delivery of the foreign currency, it may be required to obtain
the`currency through the conversion of assets of the Fund into the currency. The
Fund may close out a forward contract obligating it to purchase a foreign
currency by selling an offsetting contract. If the Fund engages in an offsetting
transaction, it will realize a gain or a loss to the extent that there has been
a change in forward contract prices. Additionally, although forward contracts
may tend to minimize the risk of loss due to a decline in the value of the
hedged currency, at the same time they tend to limit any potential gain which
might result should the value of such currency increase.
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There is no systematic reporting of last sale information for foreign
currencies, and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Quotation information available is generally representative of very large
transactions in the interbank market. The interbank market in foreign currencies
is a global around-the-clock market.
When required by applicable regulatory guidelines, a Fund will set aside cash,
U.S. Government Securities or other liquid assets in a segregated account with
its custodian in the prescribed amount.
EQUITY SECURITIES AND ADDITIONAL INFORMATION CONCERNING THE EQUITY FUNDS
CONTRARIAN STOCK FUND
Contrarian Stock Fund invests primarily in common stocks which may be out of
favor with the investment community when purchased but for which Norwest
believes there is significant potential for price appreciation. The basic
premise to Norwest's "contrarian" investment approach is that security prices
change more than fundamental investment values. Norwest monitors a universe of
depressed issues as a starting point in making investment decisions for the
Fund. It then projects the earnings of these depressed companies in normal and
peak years and estimates how the market might value these earnings. Analysis of
possible investments is intensive and fundamental, with emphasis on the quality
of a firm's assets and its ability to earn good returns on those assets.
COMMON STOCK AND PREFERRED STOCK
Common stockholders are the owners of the company issuing the stock and,
accordingly, vote on various corporate governance matters such as mergers. They
are not creditors of the company, but rather, upon liquidation of the company
are entitled to their pro rata share of the company's assets after creditors
(including fixed income security holders) and, if applicable, preferred
stockholders are paid. Preferred stock is a class of stock having a preference
over common stock as to dividends and, in general, as to the recovery of
investment. A preferred stockholder is a shareholder in the company and not a
creditor of the company as is a holder of the company's fixed income securities.
Dividends paid to common and preferred stockholders are distributions of the
earnings of the company and not interest payments, which are expenses of the
company. Equity securities owned by a Fund may be traded in the over-the-counter
market or on a regional securities exchange and may not be traded every day or
in the volume typical of securities trading on a national securities exchange.
As a result, disposition by a Fund of a portfolio security to meet redemptions
by shareholders or otherwise may require the Fund to sell these securities at a
discount from market prices, to sell during periods when disposition is not
desirable, or to make many small sales over a lengthy period of time. The market
value of all securities, including equity securities, is based upon the market's
perception of value and not necessarily the book value of an issuer or other
objective measure of a company's worth.
CONVERTIBLE SECURITIES
A Fund may invest in convertible securities. A convertible security is a bond,
debenture, note, preferred stock or other security that may be converted into or
exchanged for a prescribed amount of common stock of the same or a different
issuer within a particular period of time at a specified price or formula. A
convertible security entitles the holder to receive interest paid or accrued on
debt or the dividend paid on preferred stock until the convertible security
matures or is redeemed, converted or exchanged. Before conversion, convertible
securities have characteristics similar to nonconvertible debt securities in
that they ordinarily provide a stable stream of income with generally higher
yields than those of common stocks of the same or similar issuers. Convertible
securities rank senior to common stock in a corporation's capital structure but
are usually subordinated to comparable nonconvertible securities. Although no
securities investment is without some risk, investment in convertible securities
generally entails less risk than in the issuer's common stock. However, the
extent to which such risk is reduced depends in large measure upon the degree to
which the convertible security sells above its value as a fixed income security.
Convertible securities have unique investment characteristics in that they
generally: (1) have higher yields than common stocks, but lower yields than
comparable non-convertible securities, (2) are less subject to fluctuation in
value than the underlying stocks since they have fixed income characteristics
and (3) provide the potential for capital appreciation if the market price of
the underlying common stock increases.
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The value of a convertible security is a function of its "investment value"
(determined by a comparison of its yield with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and its
"conversion value" (the security's worth, at market value, if converted into the
underlying common stock). The investment value of a convertible security is
influenced by changes in interest rates, with investment value declining as
interest rates increase and increasing as interest rates decline. The credit
standing of the issuer and other factors also may have an effect on the
convertible security's investment value. The conversion value of a convertible
security is determined by the market price of the underlying common stock. If
the conversion value is low relative to the investment value, the price of the
convertible security is governed principally by its investment value and
generally the conversion value decreases as the convertible security approaches
maturity. To the extent the market price of the underlying common stock
approaches or exceeds the conversion price, the price of the convertible
security will be increasingly influenced by its conversion value. In addition, a
convertible security generally will sell at a premium over its conversion value
determined by the extent to which investors place value on the right to acquire
the underlying common stock while holding a fixed income security.
A convertible security may be subject to redemption at the option of the issuer
at a price established in the convertible security's governing instrument. If a
convertible security held by the Fund is called for redemption, the Fund will be
required to permit the issuer to redeem the security, convert it into the
underlying common stock or sell it to a third party.
EQUITY-LINKED SECURITIES
Equity-linked securities are securities that are convertible into or based upon
the value of, equity securities upon certain terms and conditions. The following
are three examples of equity-linked securities.
Preferred Equity Redemption Cumulative Stock ("PERCS") technically are preferred
stock with some characteristics of common stock. PERCS are mandatorily
convertible into common stock after a period of time, usually three years,
during which the investors' capital gains are capped, usually at 30%. Commonly,
PERCS may be redeemed by the issuer either at any time or when the issuer's
common stock is trading at a specified price level or better. The redemption
price starts at the beginning of the PERCS' duration period at a price that is
above the cap by the amount of the extra dividends the PERCS holder is entitled
to receive relative to the common stock over the duration of the PERCS and
declines to the cap price shortly before maturity of the PERCS. In exchange for
having the cap on capital gains and giving the issuer the option to redeem the
PERCS at any time or at the specified common stock price level, a Fund may be
compensated with a substantially higher dividend yield than that on the
underlying common stock. Funds that seek current income find PERCS attractive
because a PERCS provides a higher dividend income than that paid with respect to
a company's common stock.
Equity-Linked Securities ("ELKS") differ from ordinary debt securities, in that
the principal amount received at maturity is not fixed but is based on the price
of the issuer's common stock. ELKS are debt securities commonly issued in fully
registered form for a term of three years under an indenture trust. At maturity,
the holder of ELKS will be entitled to receive a principal amount equal to the
lesser of a cap amount, commonly in the range of 30% to 55% greater than the
current price of the issuer's common stock, or the average closing price per
share of the issuer's common stock, subject to adjustment as a result of certain
dilution events, for the 10 trading days immediately prior to maturity. Unlike
PERCS, ELKS are commonly not subject to redemption prior to maturity. ELKS
usually bear interest during the three-year term at a substantially higher rate
than the dividend yield on the underlying common stock. In exchange for having
the cap on the return that might have been received as capital gains on the
underlying common stock, the Investment Fund may be compensated with the higher
yield, contingent on how well the underlying common stock does. Funds that seek
current income find ELKS attractive because ELKS provide a higher dividend
income than that paid with respect to a company's common stock.
Liquid Yield Option Notes ("LYONs") differ from ordinary debt securities in that
the amount received prior to maturity is not fixed but is based on the price of
the issuer's common stock. LYONs are zero-coupon notes that sell at a large
discount from face value. For an investment in LYONs, a Fund will not receive
any interest payments until the notes mature, typically in 15 or 20 years, when
the notes are redeemed at face, or par, value. The yield on
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LYONs, typically, is lower-than-market rate for debt securities of the same
maturity, due in part to the fact that the LYONs are convertible into common
stock of the issuer at any time at the option of the holder of the LYON.
Commonly, LYONs are redeemable by the issuer at any time after an initial period
or if the issuer's common stock is trading at a specified price level or better,
or, at the option of the holder, upon certain fixed dates. The redemption price
typically is the purchase price of the LYONs plus accrued original issue
discount to the date of redemption, which amounts to the lower-than-market
yield. A Fund will receive only the lower-than-market yield unless the
underlying common stock increases in value at a substantial rate. LYONs are
attractive to investors when it appears that they will increase in value due to
the rise in value of the underlying common stock.
WARRANTS
A warrant is an option to purchase an equity security at a specified price
(usually representing a premium over the applicable market value of the
underlying equity security at the time of the warrant's issuance) and usually
during a specified period of time. The price of warrants does not necessarily
move parallel to the prices of the underlying securities. Warrants have no
voting rights, receive no dividends and have no rights with respect to the
assets of the issuer. Unlike convertible securities and preferred stocks,
warrants do not pay a fixed dividend. Investments in warrants involve certain
risks, including the possible lack of a liquid market for the resale of the
warrants, potential price fluctuations as a result of speculation or other
factors and failure of the price of the underlying security to reach a level at
which the warrant can be prudently exercised. To the extent that the market
value of the security that may be purchased upon exercise of the warrant rises
above the exercise price, the value of the warrant will tend to rise. To the
extent that the exercise price equals or exceeds the market value of such
security, the warrants will have little or no market value. If a warrant is not
exercised within the specified time period, it will become worthless and the
Fund will lose the purchase price paid for the warrant and the right to purchase
the underlying security.
HIGH YIELD/JUNK BONDS
Each of Income Fund, Diversified Bond Fund, Total Return Bond Fund, Minnesota
Intermediate Tax-Free Fund, Minnesota Tax-Free Fund, Strategic Income Fund,
Moderate Balanced Fund, Growth Balanced Fund, Aggressive Balanced-Equity Fund
and Small Cap Opportunities Fund may invest in bonds rated below "Baa" by
Moody's or "BBB" by S&P (commonly known as "high yield/high risk securities" or
"junk bonds"). Securities rated less than "Baa" by Moody's or "BBB" by S&P are
classified as non-investment grade securities and are considered speculative by
those rating agencies. Junk bonds may be issued as a consequence of corporate
restructurings, such as leveraged buyouts, mergers, acquisitions, debt
recapitalizations, or similar events or by smaller or highly leveraged
companies. Although the growth of the high yield/high risk securities market in
the 1980's had paralleled a long economic expansion, many issuers subsequently
have been affected by adverse economic and market conditions. It should be
recognized that an economic downturn or increase in interest rates is likely to
have a negative effect on: (1) the high yield bond market; (2) the value of high
yield/high risk securities; and (3) the ability of the securities' issuers to
service their principal and interest payment obligations, to meet their
projected business goals or to obtain additional financing. In addition, the
market for high yield/high risk securities, which is concentrated in relatively
few market makers, may not be as liquid as the market for investment grade
securities. Under adverse market or economic conditions, the market for high
yield/high risk securities could contract further, independent of any specific
adverse changes in the condition of a particular issuer. As a result, the Fund
could find it more difficult to sell these securities or may be able to sell the
securities only at prices lower than if such securities were widely traded.
Prices realized upon the sale of such lower rated or unrated securities, under
these circumstances, may be less than the prices used in calculating the Fund's
net asset value.
In periods of reduced market liquidity, prices of high yield/high risk
securities may become more volatile and may experience sudden and substantial
price declines. Also, there may be significant disparities in the prices quoted
for high yield/high risk securities by various dealers. Under such conditions,
the Fund may have to use subjective rather than objective criteria to value its
high yield/high risk securities investments accurately and rely more heavily on
the judgment of the Fund's investment adviser.
Prices for high yield/high risk securities also may be affected by legislative
and regulatory developments. For example, Congress has considered legislation to
restrict or eliminate the corporate tax deduction for interest
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payments or to regulate corporate restructurings such as takeovers, mergers or
leveraged buyouts. These laws could adversely affect the Fund's net asset value
and investment practices, the market for high yield/high risk securities, the
financial condition of issuers of these securities and the value of outstanding
high yield/high risk securities.
Lower rated or unrated debt obligations also present risks based on payment
expectations. If an issuer calls the obligation for redemption, the Fund's
Investment Adviser may have to replace the security with a lower yielding
security, resulting in a decreased return for investors. If a Fund experiences
unexpected net redemptions, the Fund's Investment Adviser may be forced to sell
the Fund's higher rated securities, resulting in a decline in the overall credit
quality of the Fund's portfolio and increasing the exposure of the Portfolio to
the risks of high yield/high risk securities.
ILLIQUID AND RESTRICTED SECURITIES
Each Fund may invest up to 15 percent (ten percent in the case of the Money
Market Funds) of its net assets in securities that at the time of purchase are
illiquid. Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the 1933 Act ("restricted securities"), securities that cannot
be disposed of within seven days in the ordinary course of business at
approximately the amount at which the Fund has valued the securities and which
are otherwise not readily marketable and includes, among other things, purchased
over-the-counter (OTC) options and repurchase agreements not entitling the
holder to repayment within seven days. The Board and, in the case of the
Portfolios, the Core Trust Board, has the ultimate responsibility for
determining whether specific securities are liquid or illiquid and has delegated
the function of making day-to-day determinations of liquidity to the Investment
Adviser of each Fund, pursuant to guidelines approved by the applicable board.
The Investment Advisers take into account a number of factors in reaching
liquidity decisions, including but not limited to: (1) the frequency of trades
and quotations for the security; (2) the number of dealers willing to purchase
or sell the security and the number of other potential buyers; (3) the
willingness of dealers to undertake to make a market in the security; and (4)
the nature of the marketplace trades, including the time needed to dispose of
the security, the method of soliciting offers and the mechanics of the transfer.
The Investment Advisers monitor the liquidity of the securities held by each
Fund and report periodically on such decisions to the Board or Core Trust Board,
as applicable.
In connection with a 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 a 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, a 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 a Fund might also have to register restricted
securities in order to dispose of them, resulting in expense and delay. A Fund
might not be able to dispose of restricted or other securities promptly or at
reasonable prices and might thereby experience difficulty satisfying
redemptions. There can be no assurance that a liquid market will exist for any
security at any particular time.
A institutional market has developed for certain securities that are not
registered under the 1933 Act, including repurchase agreements, commercial
paper, foreign securities and corporate bonds and notes. Institutional investors
depend on an efficient institutional market in which the unregistered security
can be readily resold or on the issuer's ability to honor a demand for repayment
of the unregistered security. A security's contractual or legal restrictions on
resale to the general public or to certain institutions may not be indicative of
the liquidity of the security. If such securities are eligible for purchase by
institutional buyers in accordance with Rule 144A under the 1933 Act under
guidelines adopted by the Board or the Core Trust Board, the Investment Advisers
may determine that such securities are not illiquid securities. These guidelines
take into account trading activity in the securities and the availability of
reliable pricing information, among other factors. If there is a lack of trading
interest in a particular Rule 144A security, a Fund's holdings of that security
may be illiquid.
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LOANS OF PORTFOLIO SECURITIES
Each Fund may lend its portfolio securities subject to the restrictions stated
in its Prospectus. Under applicable regulatory requirements (which are subject
to change), the loan collateral must, on each business day, at least equal the
market value of the loaned securities and must consist of cash, bank letters of
credit, U.S. Government securities, or other cash equivalents in which the Fund
is permitted to invest. To be acceptable as collateral, letters of credit must
obligate a bank to pay amounts demanded by the Fund if the demand meets the
terms of the letter. Such terms and the issuing bank must be satisfactory to the
Fund. In a portfolio securities lending transaction, the Fund receives from the
borrower an amount equal to the interest paid or the dividends declared on the
loaned securities during the term of the loan as well as the interest on the
collateral securities, less any finders' or administrative fees the Fund pays in
arranging the loan. The Fund may share the interest it receives on the
collateral securities with the borrower as long as it realizes at least a
minimum amount of interest required by the lending guidelines established by the
Trust's Board of Trustees. The Fund will not lend its portfolio securities to
any officer, director, employee or affiliate of the Fund or an Adviser. The
terms of the Portfolio's loans must meet certain tests under the Code and permit
the Portfolio to reacquire loaned securities on five business days' notice or in
time to vote on any important matter.
BORROWING AND TRANSACTIONS INVOLVING LEVERAGE
Each Fund may borrow money for temporary or emergency purposes, including the
meeting of redemption requests, in amounts up to 33 1/3 percent of the Fund's
total assets. Borrowing involves special risk considerations. Interest costs on
borrowings may fluctuate with changing market rates of interest and may
partially offset or exceed the return earned on borrowed funds (or on the assets
that were retained rather than sold to meet the needs for which funds were
borrowed). Under adverse market conditions, a Fund might have to sell portfolio
securities to meet interest or principal payments at a time when investment
considerations would not favor such sales. Except as otherwise noted, no Fund
may purchase securities for investment while any borrowing equaling five percent
or more of the Fund's total assets is outstanding or borrow for purposes other
than meeting redemptions in an amount exceeding five percent of the value of the
Fund's total assets. A Fund's use of borrowed proceeds to make investments would
subject the Fund to the risks of leveraging. Reverse repurchase agreements,
short sales not against the box, dollar roll transactions and other similar
investments that involve a form of leverage have characteristics similar to
borrowings but are not considered borrowings if the Fund maintains a segregated
account.
OTHER TECHNIQUES INVOLVING LEVERAGE
Utilization of leveraging involves special risks and may involve speculative
investment techniques. Certain Funds may borrow for other than temporary or
emergency purposes, lend their securities, enter reverse repurchase agreements,
and purchase securities on a when issued or forward commitment basis. In
addition, certain Funds may engage in dollar roll transactions. Each of these
transactions involve the use of "leverage" when cash made available to the Fund
through the investment technique is used to make additional portfolio
investments. The Funds use these investment techniques only when Norwest
believes that the leveraging and the returns available to the Fund from
investing the cash will provide shareholders a potentially higher return.
Leverage exists when a Fund achieves the right to a return on a capital base
that exceeds the investment the Fund has invested. Leverage creates the risk of
magnified capital losses which occur when losses affect an asset base, enlarged
by borrowings or the creation of liabilities, that exceeds the equity base of
the Fund. Leverage may involve the creation of a liability that requires the
Fund to pay interest (for instance, reverse repurchase agreements) or the
creation of a liability that does not entail any interest costs (for instance,
forward commitment transactions).
The risks of leverage include a higher volatility of the net asset value of the
Fund's shares and the relatively greater effect on the net asset value of the
shares caused by favorable or adverse market movements or changes in the cost of
cash obtained by leveraging and the yield obtained from investing the cash. So
long as a Fund is able to realize a net return on its investment portfolio that
is higher than interest expense incurred, if any, leverage will result in higher
current net investment income being realized by the Fund than if the Fund were
not leveraged. On the other
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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, settle when-issued and forward commitment transactions and make
payments under a cap or floor (see "Swap Agreements"); 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). The net amount of the
excess, if any, of a Fund's obligations over its entitlements with respect to
each interest rate swap will be calculated on a daily basis and an amount at
least equal to the accrued excess will be maintained in the segregated account.
If the Fund enters into an interest rate swap on other than a net basis, the
Fund will maintain the full amount accrued on a daily basis of the Fund's
obligations with respect to the swap in their segregated account.
MARGIN AND SHORT SALES
Certain Funds may enter into short sales as described in the prospectus of that
Fund. The Funds may make short sales of securities against the box. A short sale
is "against the box" to the extent that while the short position is open, the
Fund must own an equal amount of the securities sold short, or by virtue of
ownership of securities have the right, without payment of further
consideration, to obtain an equal amount of the securities sold short. Short
sales against-the-box may 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 a
Portfolio has unrealized gain with respect to a long position and enters into a
short sale against-the-box, the Portfolio 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 a Fund's
ability to use short-term credits necessary for the clearance of portfolio
transactions and to make margin deposits in connection with permitted
transactions in options and futures contracts.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements are transactions in which a Fund sells a security
and simultaneously commits to repurchase that security from the buyer at an
agreed upon price on an agreed upon future date. The resale price in a reverse
repurchase agreement reflects a market rate of interest that is not related to
the coupon rate or maturity of the sold security. For certain demand agreements,
there is no agreed upon repurchase date and interest payments are calculated
daily, often based upon the prevailing overnight repurchase rate. Counterparties
to a Money Market Fund's reverse repurchase agreements must be a primary dealer
that reports to the Federal Reserve Bank of New York ("primary dealers") or one
of the largest 100 commercial banks in the United States.
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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 a Fund with those monies. The use of reverse repurchase
agreement proceeds to make investments may be considered to be a speculative
technique.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
Certain Funds may purchase or sell portfolio securities on a when-issued or
delayed delivery basis. When-issued or delayed delivery transactions arise when
securities are purchased by a Fund with payment and delivery to take place in
the future in order to secure what is considered to be an advantageous price and
yield to the Fund at the time it enters into the transaction. In those cases,
the purchase price and the interest rate payable on the securities are fixed on
the transaction date and delivery and payment may take place a month or more
after the date of the transaction. When a Fund enters into a delayed delivery
transaction, it becomes obligated to purchase securities and it has all of the
rights and risks attendant to ownership of the security, although delivery and
payment occur at a later date. To facilitate such acquisitions, the Fund will
maintain with its custodian a separate account with portfolio securities in an
amount at least equal to such commitments.
At the time a Fund makes the commitment to purchase securities on a when-issued
or delayed delivery basis, the Fund will record the transaction as a purchase
and thereafter reflect the value each day of such securities in determining its
net asset value. The value of the fixed income securities to be delivered in the
future will fluctuate as interest rates and the credit of the underlying issuer
vary. On delivery dates for such transactions, the Fund will meet its
obligations from maturities, sales of the securities held in the separate
account or from other available sources of cash. A Fund generally has the
ability to close out a purchase obligation on or before the settlement date,
rather than purchase the security. If a Fund chooses to dispose of the right to
acquire a when-issued security prior to its acquisition, it could, as with the
disposition of any other portfolio obligation, realize a gain or loss due to
market fluctuation.
To the extent a Fund engages in when-issued or delayed delivery transactions, it
will do so for the purpose of acquiring securities consistent with the Fund's
investment objectives and policies and not for the purpose of investment
leverage or to speculate in interest rate changes. A Fund will only make
commitments to purchase securities on a when-issued or delayed delivery basis
with the intention of actually acquiring the securities, but the Fund reserves
the right to dispose of the right to acquire these securities before the
settlement date if deemed advisable.
The use of when-issued transactions and forward commitments enables the Fund to
hedge against anticipated changes in interest rates and prices. If an Investment
Adviser were to forecast incorrectly the direction of interest rate movements,
however, a Fund might be required to complete when-issued or forward
transactions at prices inferior to the current market values. When-issued
securities and forward commitments may be sold prior to the settlement date, but
a Fund enters into when-issued and forward commitments only with the intention
of actually receiving or delivering the securities, as the case may be. In some
instances, the third-party seller of when-issued or forward commitment
securities may determine prior to the settlement date that it will be unable to
meet its existing transaction commitments without borrowing securities. If
advantageous from a yield perspective, a Fund may, in that event, agree to
resell its purchase commitment to the third-party seller at the current market
price on the date of sale and concurrently enter into another purchase
commitment for such securities at a later date. As an inducement for a Fund to
"roll over" its purchase commitment, the Fund may receive a negotiated fee.
When-issued securities may include bonds purchased on a "when, as and if issued"
basis under which the issuance of the securities depends upon the occurrence of
a subsequent event. Any significant commitment of a Fund's assets to the
purchase of securities on a "when, as and if issued" basis may increase the
volatility of the Fund's net asset value. For purposes of the Funds' investment
policies, the purchase of securities with a settlement date occurring on a
Public Securities Association approved settlement date is considered a normal
delivery and not a when-issued or forward commitment purchase.
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REPURCHASE AGREEMENTS
The Funds may invest in securities subject to repurchase agreements with U.S.
banks or broker-dealers. Small Cap Opportunities Fund may invest only in
repurchase agreements maturing in seven days or less. In a typical repurchase
agreement, the seller of a security commits itself at the time of the sale to
repurchase that security from the buyer at a mutually agreed-upon time and
price. The repurchase price exceeds the sale price, reflecting an agreed-upon
interest rate effective for the period the buyer owns the security subject to
repurchase. The agreed-upon rate is unrelated to the interest rate on that
security. The Adviser will monitor the value of the underlying security at the
time the transaction is entered into and at all times during the term of the
repurchase agreement to ensure that the value of the security always equals or
exceeds the repurchase price (including accrued interest). In the event of
default by the seller under the repurchase agreement, the Portfolio may have
difficulties in exercising its rights to the underlying securities and may incur
costs and experience time delays in connection with the disposition of such
securities. To evaluate potential risks, the Adviser reviews the
credit-worthiness of those banks and dealers with which the Portfolio enters
into repurchase agreements.
Counterparties to a Money Market Fund's repurchase agreements must be a primary
dealer that reports to the Federal Reserve Bank of New York ("primary dealers")
or one of the largest 100 commercial banks in the United States.
Securities subject to repurchase agreements will be held by the Fund's custodian
or another qualified custodian or in the Federal Reserve book-entry system.
Repurchase agreements are considered to be loans by a Fund for certain purposes
under the 1940 Act.
TEMPORARY DEFENSIVE POSITION
When a Fund other than a Money Market Fund, in accordance with the policies
described in its Prospectus, assumes a temporary defensive position, it may
invest in: (1) short-term U.S. Government Securities; (2) certificates of
deposit, bankers' acceptances and interest-bearing savings deposits of
commercial banks doing business in the United States that have, at the time of
investment, except in the case of International Fund, total assets in excess of
one billion dollars and that are insured by the Federal Deposit Insurance
Corporation; (3) commercial paper of prime quality rated Prime-2 or higher by
Moody's or A-2 or higher by S&P or, if not rated, determined by the investment
adviser to be of comparable quality; (4) repurchase agreements covering any of
the securities in which the Fund may invest directly; and (5) money market
mutual funds.
II. INFORMATION CONCERNING COLORADO AND MINNESOTA
Following is a brief summary of some of the factors that may affect the
financial condition of the State of Colorado and the State of Minnesota and
their respective political subdivisions. It is not a complete or comprehensive
description of these factors or an analysis of financial conditions and may not
be indicative of the financial condition of issuers of obligations held by
Colorado Tax Free Fund, Minnesota Intermediate Tax-Free Fund and Minnesota
Tax-Free Fund or any particular projects financed with the proceeds of such
obligations. Many factors not included in the summary, such as the national
economy, social and environmental policies and conditions, and the national and
international markets for products produced in each state could have an adverse
impact on the financial condition of a State and its political subdivisions,
including the issuers of obligations held by a Fund. It is not possible to
predict whether and to what extent those factors may affect the financial
condition of a State and its political subdivisions, including the issuers of
obligations held by a Fund.
The following summary is based on publicly available information that has not
been independently verified by the Trust or its legal counsel.
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COLORADO
THE COLORADO STATE ECONOMY
Among the most significant sectors of the State's economy are services, trade,
manufacture of durable and non-durable goods and tourism. Between late 1984 and
mid-1987, the State's economy was adversely affected by numerous factors,
including the contraction of the energy sector, layoffs by advanced technology
firms and an excess supply of both residential and nonresidential buildings
causing employment in the construction sector to decline. As a result of these
conditions, certain areas of the State experienced particularly high
unemployment. Furthermore, in 1986, for the first time in 32 years, job
generation in the State was negative and, in 1986, for the first time in 21
years, the State experienced negative migration, with more people leaving the
State than moving in.
From 1987 through 1996, there has been moderate but steady improvement in the
Colorado economy: per-capita income increased approximately 54.9% (4.5% in 1996)
and retail trade sales increased approximately 81.9% (6.9% in 1996). The State's
estimated growth rate is above the national growth rate and the State's
unemployment rate is still below the national unemployment rate (in 1996 the
State's unemployment rate was 4.2% and the United State's unemployment rate was
5.4%).
The State of Colorado's political subdivisions include approximately 1,600 units
of local government in Colorado, including counties, statutory cities and towns,
home-rule cities and counties, school districts and a variety of water,
irrigation, and other special districts and special improvement districts, all
with various constitutional and statutory authority to levy taxes and incur
indebtedness.
STATE REVENUES
The State operates on a fiscal year beginning July 1 and ending June 30. Fiscal
year 1996 refers to the fiscal year ended June 30, 1996.
The State derives all of its General Fund revenues from taxes. The two most
important sources of these revenues are sales and use taxes and personal income
taxes, which accounted for approximately 31.5% and 53.2%, respectively, of total
General Fund revenues during fiscal year 1995 and approximately 31.0% and 54.3%,
respectively, of total General Fund revenues during fiscal year 1996. The ending
General Fund balance for fiscal year 1995 was $488.5 million and for fiscal year
1996 was approximately $368.5 million.
The Colorado Constitution contains strict limitations on the ability of the
State to create debt except under certain very limited circumstances. However,
the constitutional provision has been interpreted not to limit the ability of
the State to issue certain obligations which do not constitute debt, including
short-term obligations which do not extend beyond the fiscal year in which they
are incurred and lease purchase obligations which are subject to annual
appropriation. The State is authorized pursuant to State statutes to issue
short-term notices to alleviate temporary cash flow shortfalls. The most recent
issue of such notes, issued on July 1, 1997, was given the highest rating
available for short-term obligations by S&P (SP-1+) and Fitch (F-1+) (A rating
on such notes was not requested from, and consequently no rating was given by,
Moody's). Because of the short-term nature of such notes, their ratings should
not be considered necessarily indicative of the State's general financial
condition.
TAX AND SPENDING LIMITATION AMENDMENT
On November 3, 1992, the Colorado voters approved a State constitutional
amendment (the "Amendment") that restricts the ability of the State and local
governments to increase taxes, revenues, debt and spending. The Amendment
provides that its provisions supersede conflicting State constitutional, State
statutory, charter or other State or local provisions.
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The provisions of the Amendment apply to "districts," which are defined in the
Amendment as the State or any local government, with certain exclusions. Under
the terms of the Amendment, districts must have prior voter approval to impose
any new tax, tax rate increase, mill levy increase, valuation for assessment
ratio increase and extension of an expiring tax. Such prior voter approval is
also required, except in certain limited circumstances, for the creation of "any
multiple-fiscal year direct or indirect district debt or other financial
obligation." The Amendment prescribes the timing and procedures for any
elections required by the Amendment.
Because the Amendment's voter approval requirements apply to any "multiple
fiscal year" debt or financial obligation, short-term obligations which do not
extend beyond the fiscal year in which they are incurred are exempt from the
voter approval requirements of the Amendment. In addition, the Colorado Court of
Appeals has determined that lease purchase obligations subject to annual
appropriation are not subject to the voter approval requirements of the
Amendment. The Amendment's voter approval requirements and other limitations
(discussed in the following paragraph) do not apply to "enterprises," which are
defined in the Amendment as follows: "a government-owned business authorized to
issue its own revenue bonds and receiving under 10% of annual revenue in grants
from all Colorado state and local governments combined."
Among other provisions, the Amendment requires the establishment of emergency
reserves, limits increases in district revenues and limits increases in district
fiscal year spending. As a general matter, annual State fiscal year spending may
change not more than inflation plus the percentage change in State population in
the prior calendar year. Annual local district fiscal year spending may change
no more than inflation in the prior calendar year plus annual local growth, as
defined in and subject to the adjustments provided in the Amendment. The
Amendment provides that annual district property tax revenues may change no more
than inflation in the prior calendar year plus annual local growth, as defined
in and subject to the adjustments provided in the Amendment. District revenues
in excess of the limits prescribed by the Amendment are required, absent voter
approval, to be refunded by any reasonable method, including temporary tax
credits or rate reductions. The State anticipates that revenues in excess of the
limits applicable for the 1996 fiscal year will be refunded to certain taxpayers
in the State in accordance with the Amendment. In addition, the Amendment
prohibits new or increased real property transfer taxes, new State real property
taxes and new local district income taxes. The Amendment also provides that a
local district may reduce or end its subsidy to any program (other than public
education through grade 12 or as required by federal law) delegated to it by the
State General Assembly for administration.
This description is not intended to constitute a complete description of all of
the provisions of the Amendment. Furthermore, many provisions of the Amendment
and their application are unclear. Several statutes have been enacted since the
passage of the Amendment attempting to clarify the application of the Amendment
with respect to certain governmental entities and activities and numerous court
decisions have been rendered interpreting certain of the Amendment's provisions.
However, many provisions of the Amendment may require further legislative or
judicial clarification. The future impact of the Amendment on the financial
operations and obligations of the State and local governments in the State
cannot be determined at this time. Attempts to apply the provisions of the
Amendment to obligations issued prior to the approval of the Amendment may be
challenged as violation of protections afforded by the federal constitution
against impairment of contracts.
MINNESOTA
The following information has been derived from the 1997 edition of HISTORICAL
ECONOMIC STATISTICS and the ECONOMIC REPORT TO THE GOVERNOR for 1993 and 1994,
both prepared by the Economic Resource Group, and COMPARE MINNESOTA: AN ECONOMIC
AND STATISTICAL FACT BOOK 1996/1997 by the Minnesota Department of Trade and
Economic Development. In a number of instances, the information in these sources
is current through 1994.
THE STRUCTURE OF THE MINNESOTA STATE'S ECONOMY
Diversity and a significant natural resource base are two important
characteristics of the State's economy.
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When viewed in 1994 on an aggregate level, the structure of the State's economy
parallels the structure of the United States economy as a whole. State
employment in 10 major sectors was distributed in approximately the same
proportions as national employment. In all sectors, the share of total State
employment was within 2.5 percentage points of national employment share.
Some unique characteristics of the State's economy are apparent in employment
concentrations in many major industries. The State's high technology industries
accounted for more than 7% of all employment in the State of 1994, and the
State's concentration of high technology employment is 50% higher than the
United States average. This emphasis is partly explained by the location in the
State of Honeywell, IBM, 3M Company, Unisys and Seagate Technology.
The importance of the State's resource base for overall employment is apparent
in the employment mix in non-durable goods industries. The State's concentration
of employment in 1994 was 50% higher than the United States average in the food
and kindred products industry and almost 50% higher in the forest and forestry
products industry. Both of these rely heavily on renewable resources in the
State. Over half of the State's acreage is devoted to agricultural purposes, and
nearly one-third to forestry.
The printing and publishing industry and medical products manufacturing industry
are also relatively more important in the State than in the United States. From
1985 to 1994, employment in the State's printing and publishing industry grew
28.2%, compared to the United States growth rate of 7.8% over the same period.
Printing and publishing companies provided 2.9% of all of the State's private
industry jobs in 1994. In the medical products manufacturing industry, the
State's concentration of employment in 1994 was the second highest in the nation
and twice the United States average.
Mining is currently a less significant factor in the State economy than it once
was. Mining employment, primarily in the iron ore or taconite industry, dropped
from 17.3 thousand in 1979 to 7.4 thousand in 1994. It is not expected that
mining employment will return to 1979 levels. However, Minnesota retains
significant quantities of taconite as well as copper, nickel, cobalt, and peat
which may be utilized in the future.
EMPLOYMENT GROWTH IN THE STATE
In the period 1985 to 1994, employment in non-farm industries increased 24.1%,
compared to an increase of 16.9% in the United States. Manufacturing has been a
strong sector, with Minnesota employment outperforming its United States
counterpart in the period from 1985 to 1994 with an increase of 10.5% compared
to a decrease of 4.9% in the United States in the same period. Over 40% of the
total increase in Minnesota non-farm employment between the years 1985-1994
resulted from a 45.5% increase in employees in the services industry during this
period. Mining was the only industry where employment decreased between
1985-1994 in both Minnesota and the United States, dropping by 9.4% in Minnesota
and 34.8% in the United States.
PERFORMANCE OF THE STATE'S ECONOMY
Since 1980, State per capita personal income has been within three percentage
points of national per capita personal income. The State's per capita income,
which is computed by dividing personal income by total resident population, has
generally remained above the national average in spite of the early 1980's
recessions and some difficult years in agriculture. In 1994, Minnesota per
capita personal income was 102.6% of its U.S. counterpart.
In the level of personal income per capita, Minnesota ranked second among twelve
north central states in both 1992 and 1994. During the period 1985 to 1994,
Minnesota ranked second among such states in annual average growth of personal
income and fifth during the period 1993 to 1994. Minnesota ranked twentieth
nationally and third among the twelve north central states with a per capita
disposable income of $18,792 in 1994. During 1990-1992, wage and salary
disbursements which constitute some 60% of total personal income grew 12.3% in
Minnesota as compared to 8.3% for the United States. Personal income in
Minnesota grew more rapidly than seven other north central states' averages
during 1993-1994, and faster than the United States average. From 1985 to 1994,
Minnesota non-agricultural employment grew 24.1% while such employment in the
United States grew 16.9%.
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During the 1990-1993 period, Minnesota non-agricultural employment increased
5.1%, while regional employment increased 1.3%.
The annual employment rate in Minnesota was below that of the United States and
of the twelve north central states for every year during the ten-year period of
1985 to 1994. In 1994, the State's unemployment rate was 3.9% compared to the
United States average of 6.1% and the twelve north central state's average of
5.1%.
POPULATION TRENDS IN THE STATE
Minnesota resident population grew from 4,074,000 in 1980 to 4,565,000 in 1994,
for a growth rate of 12.1%. The United States growth rate between 1980 and 1994
was 15.1% and the overall growth rate for the twelve north central states was
4.4%. Minnesota population is currently forecast to grow 12.3% between 1994 and
2010.
III. 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 a Fund's assets or purchases and redemptions of shares will not be considered
a violation of the limitation.
A fundamental policy cannot be changed without the affirmative vote of the
lesser of: (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
Each Fund has adopted the following investment limitations which are fundamental
policies of the Fund. Reference to any Fund that invests in one or more Core
Portfolios includes reference to the Core Portfolio(s) in which that Fund
invests, which has the same fundamental policies as the Fund.
(1) DIVERSIFICATION
EACH FUND (other than Colorado Tax-Free Fund, Minnesota
Intermediate Tax-Free Fund and Minnesota Tax-Free Fund) may
not, with respect to 75% of its assets, purchase a security
(other than a U.S. Government Security or a security of an
investment company) if, as a result: (1) more than 5% of the
Fund's total assets would be invested in the securities of a
single issuer or (2) the Fund would own more than 10% of the
outstanding voting securities of any single issuer
(2) CONCENTRATION
(a) CASH INVESTMENT FUND and READY CASH INVESTMENT FUND may not
purchase a security if, as a result, more than 25% of the
Fund's total assets would be invested in securities of
issuers conducting their principal business activities in
the same industry; provided: (1) there is no limit on
investments in U.S. Government Securities, in repurchase
agreements covering U.S. Government Securities or in foreign
government securities; (2) municipal securities are not
treated as involving a single industry; (3) there is no
limit on investment in issuers domiciled in a single
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country; (4) financial service companies are classified
according to the end users of their services (for example,
automobile finance, bank finance and diversified finance);
and (5) utility companies are classified according to their
services (for example, gas, gas transmission, electric and
gas, electric and telephone); and provided the Fund will
invest more than 25% of the value of the Fund's total assets
in obligations of domestic and foreign financial
institutions and their holding companies. Notwithstanding
anything to the contrary, to the extent permitted by the
1940 Act, the Fund may invest in one or more investment
companies; provided that, except to the extent the Fund
invests in other investment companies pursuant to Section
12(d)(1)(A) of the 1940 Act, the Fund treats the assets of
the investment companies in which it invests as its own for
purposes of this policy.
(b) TREASURY FUND, U.S. GOVERNMENT FUND and MUNICIPAL MONEY
MARKET FUND may not purchase a security if, as a result,
more than 25% of the Fund's total assets would be invested
in securities of issuers conducting their principal business
activities in the same industry; provided: (1) there is no
limit on investments in U.S. Government Securities, in
repurchase agreements covering U.S. Government Securities,
in foreign government securities, or in obligations of
domestic commercial banks (including U.S. branches of
foreign banks subject to regulations under U.S. laws
applicable to domestic banks and, to the extent that its
parent is unconditionally liable for the obligation, foreign
branches of U.S. banks); (2) municipal securities are not
treated as involving a single industry; (3) there is no
limit on investment in issuers domiciled in a single
country; (4) financial service companies are classified
according to the end users of their services (for example,
automobile finance, bank finance and diversified finance);
and (5) utility companies are classified according to their
services (for example, gas, gas transmission, electric and
gas, electric and telephone). Notwithstanding anything to
the contrary, to the extent permitted by the 1940 Act, the
Fund may invest in one or more investment companies;
provided that, except to the extent the Fund invests in
other investment companies pursuant to Section 12(d)(1)(A)
of the 1940 Act, the Fund treats the assets of the
investment companies in which it invests as its own for
purposes of this policy.
(c) INCOME FUND, LIMITED TERM TAX-FREE FUND, TAX-FREE INCOME
FUND, COLORADO TAX-FREE FUND, MINNESOTA INTERMEDIATE
TAX-FREE FUND, MINNESOTA TAX-FREE FUND and VALUGROWTH STOCK
FUND may not purchase a security if, as a result, more than
25% of the Fund's total assets would be invested in
securities of issuers conducting their principal business
activities in the same industry; provided: (1) there is no
limit on investments in repurchase agreements covering U.S.
Government Securities; (2) municipal securities are not
treated as involving a single industry; (3) financial
service companies are classified according to the end users
of their services (for example, automobile finance, bank
finance and diversified finance); and (4) utility companies
are classified according to their services (for example,
gas, gas transmission, electric and gas, electric and
telephone). Notwithstanding anything to the contrary, to the
extent permitted by the 1940 Act, the Fund may invest in one
or more investment companies; provided that, except to the
extent the Fund invests in other investment companies
pursuant to Section 12(d)(1)(A) of the 1940 Act, the Fund
treats the assets of the investment companies in which it
invests as its own for purposes of this policy.
(d) TOTAL RETURN BOND FUND may not purchase a security if, as a
result, more than 25% of the Fund's total assets would be
invested in securities of issuers conducting their principal
business activities in the same industry; provided: (1)
there is no limit on investments in U.S. Government
Securities, or in repurchase agreements covering U.S.
Government Securities; (2) mortgage-related or
housing-related securities (including mortgage-related or
housing-related U.S. Government Securities) and municipal
securities are not treated as involving a single industry;
(3) financial service companies are classified according to
the end users of their services (for example, automobile
finance, bank finance and diversified finance); and (4)
utility companies are classified according to their services
(for example, gas, gas transmission, electric and gas,
electric and telephone). Notwithstanding anything to the
contrary, to the extent permitted by the 1940
36
<PAGE>
Act, the Fund may invest in one or more investment
companies; provided that, except to the extent the Fund
invests in other investment companies pursuant to Section
12(d)(1)(A) of the 1940 Act, the Fund treats the assets of
the investment companies in which it invests as its own for
purposes of this policy.
(e) SMALL COMPANY STOCK FUND and CONTRARIAN STOCK FUND may not
purchase a security if, as a result, more than 25% of the
Fund's total assets would be invested in securities of
issuers conducting their principal business activities in
the same industry; provided: (1) there is no limit on
investments in U.S. Government Securities, or in repurchase
agreements covering U.S. Government Securities, municipal
securities are not treated as involving a single industry;
(2) financial service companies are classified according to
the end users of their services (for example, automobile
finance, bank finance and diversified finance); and (3)
utility companies are classified according to their services
(for example, gas, gas transmission, electric and gas,
electric and telephone). Notwithstanding anything to the
contrary, to the extent permitted by the 1940 Act, the Fund
may invest in one or more investment companies; provided
that, except to the extent the Fund invests in other
investment companies pursuant to Section 12(d)(1)(A) of the
1940 Act, the Fund treats the assets of the investment
companies in which it invests as its own for purposes of
this policy.
(f) DIVERSIFIED SMALL CAP FUND and SMALL CAP OPPORTUNITIES FUND
may not purchase a security if, as a result, more than 25%
of the Fund's total assets would be invested in securities
of issuers conducting their principal business activities in
the same industry; provided, however, that there is no limit
on investments in U.S. Government Securities.
Notwithstanding anything to the contrary, to the extent
permitted by the 1940 Act, the Fund may invest in one or
more investment companies; provided that, except to the
extent the Fund invests in other investment companies
pursuant to Section 12(d)(1)(A) of the 1940 Act, the Fund
treats the assets of the investment companies in which it
invests as its own for purposes of this policy.
(g) STABLE INCOME FUND, LIMITED TERM GOVERNMENT INCOME FUND,
INTERMEDIATE GOVERNMENT INCOME FUND, DIVERSIFIED BOND FUND,
STRATEGIC INCOME FUND, MODERATE BALANCED FUND, GROWTH
BALANCED FUND, AGGRESSIVE BALANCED FUND, INCOME EQUITY FUND,
INDEX FUND, DIVERSIFIED EQUITY FUND, GROWTH EQUITY FUND,
LARGE COMPANY GROWTH FUND, and SMALL COMPANY GROWTH FUND may
not purchase a security if, as a result, more than 25% of
the Fund's total assets would be invested in securities of
issuers conducting their principal business activities in
the same industry; provided, however, that there is no limit
on investments in U.S. Government Securities, repurchase
agreements covering U.S. Government Securities, foreign
government securities, mortgage-related or housing-related
securities, municipal securities and issuers domiciled in a
single country; that financial service companies are
classified according to the end users of their services (for
example, automobile finance, bank finance and diversified
finance); and that utility companies are classified
according to their services (for example, gas, gas
transmission, electric and gas, electric and telephone.
Notwithstanding anything to the contrary, to the extent
permitted by the 1940 Act, the Fund may invest in one or
more investment companies; provided that, except to the
extent the Fund invests in other investment companies
pursuant to Section 12(d)(1)(A) of the 1940 Act, the Fund
treats the assets of the investment companies in which it
invests as its own for purposes of this policy.
(h) INTERNATIONAL FUND may not purchase a security if, as a
result, more than 25% of the Fund's total assets would be
invested in securities of issuers conducting their principal
business activities in the same industry; provided: (1)
there is no limit on investments in U.S. Government
Securities, or in repurchase agreements covering U.S.
Government Securities; (2) there is no limit on investment
in issuers domiciled in a single country; (3) financial
service companies are classified according to the end users
of their services (for example, automobile finance, bank
finance and diversified finance); and (4) utility companies
are classified according to their services (for example,
gas, gas transmission, electric and gas, electric and
telephone). Notwithstanding anything to the contrary,
37
<PAGE>
to the extent permitted by the 1940 Act, the Fund may invest
in one or more investment companies; provided that, except
to the extent the Fund invests in other investment companies
pursuant to Section 12(d)(1)(A) of the 1940 Act, the Fund
treats the assets of the investment companies in which it
invests as its own for purposes of this policy.
(3) BORROWING
(a) Each MONEY MARKET FUND, INCOME FUND, TOTAL RETURN BOND FUND,
each TAX-FREE INCOME FUND, VALUGROWTH STOCK FUND, SMALL
COMPANY STOCK FUND, CONTRARIAN STOCK FUND, DIVERSIFIED SMALL
CAP FUND and SMALL CAP OPPORTUNITIES FUND may borrow money
from banks or by entering into reverse repurchase agreements,
but the Fund will limit borrowings to amounts not in excess of
33 1/3% of the value of the Fund's total assets (computed
immediately after the borrowing).
(b) STABLE INCOME FUND, LIMITED TERM GOVERNMENT INCOME FUND,
INTERMEDIATE GOVERNMENT INCOME FUND, DIVERSIFIED BOND FUND,
STRATEGIC INCOME FUND, MODERATE BALANCED FUND, GROWTH BALANCED
FUND, AGGRESSIVE BALANCED-EQUITY FUND, INDEX FUND, INCOME
EQUITY FUND, DIVERSIFIED EQUITY FUND, GROWTH EQUITY FUND,
LARGE COMPANY GROWTH FUND, SMALL COMPANY GROWTH FUND and
INTERNATIONAL FUND may borrow money for temporary or emergency
purposes, including the meeting of redemption requests, but
not in excess of 33 1/3% of the value of the Fund's total
assets (as computed immediately after the borrowing).
(4) ISSUANCE OF SENIOR SECURITIES
NO FUND may issue senior securities except to the extent permitted by
the 1940 Act.
(5) UNDERWRITING ACTIVITIES
NO FUND may underwrite securities of other issuers, except to the
extent that the Fund may be considered to be acting as an underwriter
in connection with the disposition of portfolio securities.
(6) MAKING LOANS
NO FUND may make loans, except a Fund may enter into repurchase
agreements, purchase debt securities that are otherwise permitted
investments and lend portfolio securities.
(7) PURCHASES AND SALES OF REAL ESTATE
EACH FUND (other than DIVERSIFIED SMALL CAP FUND, and SMALL CAP
OPPORTUNITIES FUND) may not purchase or sell real estate or any
interest therein or real estate limited partnership interests, except
that the Fund may invest in debt obligations secured by real estate or
interests therein or securities issued by companies that invest in real
estate or interests therein.
DIVERSIFIED SMALL CAP FUND and SMALL CAP OPPORTUNITIES FUND may not
purchase or sell real estate or any interest therein, except that it
may invest in debt obligations secured by real estate or interests
therein or securities issued by companies that invest in real estate or
interests therein.
(8) PURCHASES AND SALES OF COMMODITIES
EACH FIXED INCOME FUND, EQUITY FUND (other than DIVERSIFIED SMALL CAP
FUND and SMALL CAP OPPORTUNITIES FUND) and BALANCED FUND may not
purchase or sell physical commodities or contracts, options or options
on contracts to purchase or sell physical commodities; provided that
currency and currency-related contracts and contracts on indices will
not be deemed to be physical commodities.
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<PAGE>
DIVERSIFIED SMALL CAP FUND and SMALL CAP OPPORTUNITIES FUND may not
purchase or sell physical commodities unless acquired as a result of
owning securities or other instruments, but it may purchase, sell or
enter into financial options and futures and forward currency contracts
and other financial contracts or derivative instruments.
NONFUNDAMENTAL LIMITATIONS
Each Fund has adopted the following investment limitations which are not
fundamental policies of the Fund. Reference to a Fund includes reference to its
corresponding Portfolio, if applicable, which has the same fundamental policies
as the Fund. The policies of a Fund may be changed by the Board, or in the case
of its corresponding Portfolio, the Core Trust Board.
(1) DIVERSIFICATION
(a) To the extent required to qualify as a regulated investment
company, and with respect to 50% of its assets, MUNICIPAL
MONEY MARKET FUND may not purchase a security other than a
U.S. Government Security, if as a result, more than 5% of the
Fund' s total assets would be invested in the section as a
single issuer or the Fund would own more than 10% of the
outstanding rated securities of any single issuer.
(b) With respect to each of COLORADO TAX-FREE FUND, MINNESOTA
INTERMEDIATE TAX-FREE FUND and MINNESOTA TAX-FREE FUND, the
Fund is "non-diversified" as that term is defined in the 1940
Act.
(c) With respect to each of COLORADO TAX-FREE FUND, MINNESOTA
INTERMEDIATE TAX-FREE FUND and MINNESOTA TAX-FREE FUND, to
the extent required to qualify as a regulated investment
company under the Code, as amended, the Fund may not
purchase a security (other than a U.S. Government security
or a security of an investment company) if, as a result: (1)
with respect to 50% of its assets, more than 5% of the
Fund's total assets would be invested in the securities of
any single issuer; (2) with respect to 50% of its assets,
the Fund would own more than 10% of the outstanding
securities of any single issuer; or (3) more than 25% of the
Fund's total assets would be invested in the securities of
any single issuer.
(2) BORROWING
EACH FUND'S (other than INTERMEDIATE GOVERNMENT INCOME FUND'S and
DIVERSIFIED BOND FUND'S) borrowings for other than temporary or
emergency purposes or meeting redemption requests may not exceed an
amount equal to 5% of the value of the Fund's net assets. When STABLE
INCOME FUND, LIMITED TERM GOVERNMENT INCOME FUND, INTERMEDIATE
GOVERNMENT INCOME FUND, DIVERSIFIED BOND FUND, STRATEGIC INCOME FUND,
MODERATE BALANCED FUND, GROWTH BALANCED FUND, AGGRESSIVE
BALANCED-EQUITY FUND, INCOME EQUITY FUND, INDEX FUND, DIVERSIFIED
EQUITY FUND, GROWTH EQUITY FUND, LARGE COMPANY GROWTH FUND, SMALL
COMPANY GROWTH FUND and INTERNATIONAL FUND establish a segregated
account to limit the amount of leveraging with respect to certain
investment techniques, they do not treat those techniques as involving
borrowings for purposes of this or other borrowing limitations.
(3) ILLIQUID SECURITIES
(a) EACH MONEY MARKET FUND may not acquire securities or invest in
repurchase agreements with respect to any securities if, as a
result, more than 10% of the Fund's net assets (taken at
current value) would be invested in repurchase agreements not
entitling the holder to payment of principal within seven days
and in securities which are not readily marketable, including
securities that are not readily marketable by virtue of
restrictions on the sale of such securities to the public
without registration under the 1933 Act, as amended
("Restricted Securities").
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<PAGE>
(b) EACH FIXED INCOME FUND, EQUITY FUND and BALANCED FUND may not
acquire securities or invest in repurchase agreements with
respect to any securities if, as result, more than 15% of the
Fund's net assets (taken at current value) would be invested
in repurchase agreements not entitling the holder to payment
of principal within seven days and in securities which are not
readily marketable, including securities that are not readily
marketable by virtue of restrictions on the sale of such
securities to the public without registration under the 1933
Act, as amended ("Restricted Securities").
(4) OTHER INVESTMENT COMPANIES
EACH FUND may not invest in securities of another investment company,
except to the extent permitted by the 1940 Act.
(5) MARGIN AND SHORT SALES
EACH FUND (other than LIMITED TERM GOVERNMENT INCOME FUND and
INTERMEDIATE GOVERNMENT INCOME FUND) may not purchase securities on
margin, or make short sales of securities (except short sales against
the box), except for the use of short-term credit necessary for the
clearance of purchases and sales of portfolio securities. EACH FUND may
make margin deposits in connection with permitted transactions in
options, futures contracts and options on futures contracts. NO FUND
(other than [DIVERSIFIED SMALL CAP FUND] and SMALL CAP OPPORTUNITIES
Fund) may enter short sales if, as a result, more that 25% of the value
of the Fund's total assets would be so invested, or such a position
would represent more than 2% of the outstanding voting securities of
any single issuer or class of an issuer.
(6) UNSEASONED ISSUERS
NO FUND (other than DIVERSIFIED SMALL CAP FUND and SMALL CAP
OPPORTUNITIES FUND) may invest in securities (other than
fully-collateralized debt obligations) issued by companies that have
conducted continuous operations for less than three years, including
the operations of predecessors, unless guaranteed as to principal and
interest by an issuer in whose securities the Fund could invest, if, as
a result, more than 5% of the value of the Fund's total assets would be
so invested; provided, that each Fund may invest all or a portion of
its assets in another diversified, open-end management investment
company with substantially the same investment objective, policies and
restrictions as the Fund.
(7) PLEDGING
NO FUND may pledge, mortgage, hypothecate or encumber any of its assets
except to secure permitted borrowings or to secure other permitted
transactions.
(9) SECURITIES WITH VOTING RIGHTS
NO MONEY MARKET FUND or FIXED INCOME FUND may purchase securities
having voting rights except securities of other investment companies;
provided that the Funds may hold securities with voting rights obtained
through a conversion or other corporate transaction of the issuer of
the securities, whether or not the Fund was permitted to exercise any
rights with respect to the conversion or other transaction.
(10) LENDING OF PORTFOLIO SECURITIES
NO FUND (other than SMALL CAP OPPORTUNITIES FUND) may lend portfolio
securities if the total value of all loaned securities would exceed 33
1/3% of the Fund's total assets, as determined by SEC guidelines.
SMALL CAP OPPORTUNITIES FUND may not lend portfolio securities if the
total value of all loaned securities would exceed 25% of its total
assets.
40
<PAGE>
(11) REAL ESTATE LIMITED PARTNERSHIPS
NO FUND may invest in real estate limited partnerships.
(12) OPTIONS AND FUTURES CONTRACTS
(a) NO MONEY MARKET FUND may invest in options, futures contracts or
options on futures contracts.
(b) NO FIXED INCOME FUND, EQUITY FUND (other than SMALL CAP
OPPORTUNITIES FUND) or BALANCED FUND may purchase an option if,
as a result, more that 5% of the value of the Fund's total assets
would be so invested.
(13) WARRANTS
NO FUND may 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 a Fund attached to securities are deemed to have
no value.
(14) TREASURY FUND INVESTMENT LIMITATIONS
TREASURY FUND may not enter into repurchase agreements or purchase any
security other than those that are issued or guaranteed by the U.S.
Treasury, including separately traded principal and interest components
of securities issued or guaranteed by the U.S. Treasury.
(15) PURCHASES AND SALES OF COMMODITIES
NO MONEY MARKET FUND may purchase or sell physical commodities or
contracts, options or options on contracts to purchase or sell physical
commodities, provided that currencies and currency-related contracts
and contracts on indices are not be deemed to be physical commodities.
(16) VALUGROWTH STOCK FUND INVESTMENT LIMITATIONS
VALUGROWTH STOCK FUND may not enter into commitments under when-issued
and forward commitment obligations in an amount greater than 15% of the
value of the Fund's total assets.
IV. PERFORMANCE AND ADVERTISING DATA
Quotations of performance may from time to time be used in advertisements, sales
literature, shareholder reports or other communications to shareholders or
prospective investors. All performance information supplied by the Funds is
historical and is not intended to indicate future returns. Each Fund's yield and
total return fluctuate in response to market conditions and other factors.
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 Money Market Funds will be able to maintain a stable net asset value of
$1.00. For a listing of certain performance data as of November 30, 1997 (see
Appendix C -- Performance Data, Table 3 --Total Returns).
In performance advertising, the Funds may compare any of their performance
information with data published by independent evaluators such as Morningstar,
Inc., Lipper Analytical Services, Inc., or other companies which track the
investment performance of investment companies ("Fund Tracking Companies"). The
Funds may also compare any of their performance information with the performance
of recognized stock, bond and other indexes, including but not limited to the
Municipal Bond Buyers Indices, the Salomon Brothers Bond Index, Shearson Lehman
Bond
41
<PAGE>
Index, the Standard & Poor's 500 Composite Stock Price Index, Russell 2000
Index, Morgan Stanley - Europe, Australian and Far East Index, Lehman Brothers
Intermediate Government Index, Lehman Brothers Intermediate Government/Corporate
Index, the Dow Jones Industrial Average, U.S. Treasury bonds, bills or notes and
changes in the Consumer Price Index as published by the U.S. Department of
Commerce. The Funds may refer to general market performances over past time
periods such as those published by Ibbotson Associates (for instance, its
"Stocks, Bonds, Bills and Inflation Yearbook"). In addition, the Funds may also
refer in such materials to mutual fund performance rankings and other data
published by Fund Tracking Companies. Performance advertising may also refer to
discussions of the Funds and comparative mutual fund data and ratings reported
in independent periodicals, such as newspapers and financial magazines.
SEC YIELD CALCULATIONS
Although published yield information is useful to investors in reviewing a
Fund's performance, investors should be aware that each Fund's yield fluctuates
from day to day and that the Fund's yield for any given period is not an
indication or representation by the Fund of future yields or rates of return on
the Fund's shares. Norwest, Processing Organizations and others may charge their
customers, various retirement plans or other shareholders that invest in a Fund
fees in connection with an investment in a Fund, which will have the effect of
reducing the Fund's net yield to those shareholders. The yields of a Fund are
not fixed or guaranteed, and an investment in a Fund is not insured or
guaranteed. Accordingly, yield information may not necessarily be used to
compare shares of a Fund with investment alternatives which, like money market
instruments or bank accounts, may provide a fixed rate of interest. Also, it may
not be appropriate to compare a Fund's yield information directly to similar
information regarding investment alternatives which are insured or guaranteed.
MONEY MARKET FUNDS
Yield quotations for the Money Market Funds will include an annualized
historical yield, carried at least to the nearest hundredth of one percent,
based on a specific seven-calendar-day period and are calculated by dividing the
net change during the seven-day period in the value of an account having a
balance of one share at the beginning of the period by the value of the account
at the beginning of the period, and multiplying the quotient by 365/7. For this
purpose, the net change in account value reflects the value of additional shares
purchased with dividends declared on the original share and dividends declared
on both the original share and any such additional shares, but would not reflect
any realized gains or losses from the sale of securities or any unrealized
appreciation or depreciation on portfolio securities. In addition, any effective
annualized yield quotation used by a Money Market Fund is calculated by
compounding the current yield quotation for such period by adding 1 to the
product, raising the sum to a power equal to 365/7, and subtracting 1 from the
result. The standardized tax equivalent yield is the rate an investor would have
to earn from a fully taxable investment in order to equal a Fund's yield after
taxes. Tax equivalent yields are calculated by dividing the Fund's yield by one
minus the stated Federal or combined Federal and state tax rate. If a portion of
a Fund's yield is tax-exempt, only that portion is adjusted in the calculation.
FIXED INCOME AND EQUITY FUNDS
Standardized yields for the Funds used in advertising are computed by dividing a
Fund's interest income (in accordance with specific standardized rules) for a
given 30 days or one month period, net of expenses, by the average number of
shares entitled to receive distributions during the period, dividing this figure
by the Fund's net asset value per share at the end of the period and annualizing
the result (assuming compounding of income in accordance with specific
standardized rules) in order to arrive at an annual percentage rate. In general,
interest income is reduced with respect to municipal securities purchased at a
premium over their par value by subtracting a portion of the premium from income
on a daily basis. In general, interest income is increased with respect to
municipal securities purchased at original issue at a discount by adding a
portion of the discount to daily income. Capital gains and losses generally are
excluded from these calculations.
The standardized tax equivalent yield is the rate an investor would have to earn
from a fully taxable investment in order to equal a Fund's yield after taxes.
Tax equivalent yields are calculated by dividing the Fund's yield by one
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<PAGE>
minus the stated Federal or combined Federal and state tax rate. If a portion of
a Fund's yield is tax-exempt, only that portion is adjusted in the calculation.
Income calculated for the purpose of determining each Fund's standardized yield
differs from income as determined for other accounting purposes. Because of the
different accounting methods used, and because of the compounding assumed in
yield calculations, the yield quoted for a Fund may differ from the rate of
distribution the Fund paid over the same period or the rate of income reported
in the Fund's financial statements.
TOTAL RETURN CALCULATIONS
Standardized total returns quoted in advertising and sales literature reflect
all aspects of a Fund's return, including the effect of reinvesting dividends
and capital gain distributions, any change in the Fund's net asset value per
share over the period and maximum sales charge, if any, applicable to purchases
of the Fund's shares. Average annual total returns are calculated, through the
use of a formula prescribed by the SEC, by determining the growth or decline in
value of a hypothetical historical investment in a Fund over a stated period,
and then calculating the annually compounded percentage rate that would have
produced the same result if the rate of growth or decline in value had been
constant over the period. For example, a cumulative return of 100% over ten
years would produce an average annual return of 7.18%, which is the steady
annual rate that would equal 100% growth on a compounded basis in ten years. The
average annual total return is computed separately for each class of shares of a
Fund. While average annual returns are a convenient means of comparing
investment alternatives, investors should realize that the performance is not
constant over time but changes from year to year, and that average annual
returns represent averaged figures as opposed to the actual year-to-year
performance of the Funds.
Average annual total return is calculated by finding the average annual
compounded rates of return of a hypothetical investment, over such periods
according to the following formula:
P(1+T)n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return n = number of years
ERV = ending redeemable value: ERV is the value, at the
end of the applicable period, of a hypothetical $1,000
payment made at the beginning of the applicable period
Standardized total return quotes may be accompanied by non-standardized total
return figures calculated by alternative methods. For example, average annual
total return may be calculated without assuming payment of the sales load
according to the following formula:
P(1+U)n = ERV
Where P = a hypothetical initial payment of $1,000.
U = average annual total return assuming non payment of the maximum
sales load at the beginning of the stated period.
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment at the
end of the stated period
In addition to average annual returns, each Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Total returns may be broken down into their
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<PAGE>
components of income and capital (including capital gains and changes in share
price) in order to illustrate the relationship of these factors and their
contributions to total return. Total returns, yields, and other performance
information may be quoted numerically or in a table, graph, or similar
illustration. Period total return is calculated according to the following
formula:
PT = (ERV/P-1)
Where:
PT = period total return
The other definitions are the same as in average annual total
return above
MULTICLASS, COLLECTIVE INVESTMENT AND COMMON TRUST FUND AND CORE-GATEWAY
PERFORMANCE
MULTICLASS PERFORMANCE
When a Fund has more than one class of shares, performance calculations for the
classes of shares that are created after the initial class may be stated so as
to include the performance of the initial class or classes of the Fund.
Generally, performance of the initial class is not restated to reflect the
expenses or expense ratio of the subsequent class. For instance, if A Shares of
a Fund are created after I Shares have been in existence, the inception of
performance for the A Shares will be deemed to be the inception date of the I
Shares and the performance of the I Shares (based on the I Shares actual
expenses) from the inception of I Shares to the inception of A Shares will be
deemed to be the performance of A Shares for that period. For standardized total
return calculations, the current maximum initial sales load and applicable 12b-1
fees on A Shares would be used in determining the total return of A Shares as if
assessed at the inception of I Shares. Generally, the performance of B Shares
will be calculated only from the inception date of B Shares, regardless of the
existence of prior share classes in the same Fund.
COLLECTIVE INVESTMENT AND COMMON TRUST FUND PERFORMANCE
Prior to November 11, 1994, Norwest Bank managed several collective investment
funds each of which had an investment objective and investment policies that
were in all material respects equivalent to a particular Fund which became the
successor to the collective investment fund. Therefore, the performance for
these Funds includes the performance of their predecessor collective investment
funds for periods before those Funds became mutual funds on November 11, 1994.
The collective investment fund performance was adjusted to reflect those Funds'
1994 estimate of their expense ratios for the first year of operations as a
mutual fund (without giving effect to any fee waivers or expense
reimbursements). Prior to October 1, 1997, Norwest Bank managed a common trust
fund which had an investment objective and investment policies that were in all
material respects equivalent to one of the Funds which became the successor to
the collective investment fund. Therefore, the performance for the Fund includes
the performance of the predecessor common trust fund for the period before the
Fund became a mutual fund on October 1, 1997. The common trust fund performance
was adjusted to reflect the Fund's 1997 estimate of its expense ratio for the
first year of operation as a mutual fund (without giving effect to any fee
waivers or expense reimbursements). The collective investment funds and common
trust fund were not registered under the 1940 Act nor subject to certain
investment limitations, diversification requirements, and other restrictions
imposed by the 1940 Act and the Code, which, if applicable, may have adversely
affected the performance result. The performance of International Fund reflects
the historical performance of Schroder International Equity Fund (managed by
Schroder Capital Management International Inc.) in which International Fund's
predecessor collective investment fund invested.
CORE-GATEWAY PERFORMANCE
When a Fund (a "Gateway fund") invests all of its investable assets in another
investment company (a "Core portfolio") that has a performance history prior to
the investment by the Gateway fund, the Gateway fund will assume the performance
history of the Core portfolio. That history may be restated to reflect the
estimated expenses of the Gateway fund.
44
<PAGE>
OTHER ADVERTISEMENT MATTERS
The Funds may advertise other forms of performance. For example, the Funds may
quote unaveraged or cumulative total returns reflecting the change in the value
of an investment over a stated period. Average annual and cumulative total
returns may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments and/or a series of
redemptions over any time period. Total returns may be broken down into their
components of income and capital (including capital gains and changes in share
price) in order to illustrate the relationship of these factors and their
contributions to total return. Total returns may be quoted with or without
taking into consideration a Fund's front-end sales charge or contingent deferred
sales charge; excluding sales charges from a total return calculation produces a
higher return figure. Any performance information may be presented numerically
or in a table, graph or similar illustration.
The Funds may also include various information in their 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 Funds'
portfolio managers and the portfolio management staff of the Investment Advisers
or summaries of the views of the portfolio managers with respect to the
financial markets; (7) the results of a hypothetical investment in a Fund over a
given number of years, including the amount that the investment would be at the
end of the period; (8) the effects of earning Federally and, if applicable,
state tax-exempt income from a Fund or investing in a tax-deferred account, such
as an individual retirement account or Section 401(k) pension plan; and (9) the
net asset value, net assets or number of shareholders of a Fund as of one or
more dates.
As an example of compounding, $1,000 compounded annually at 9.00% will grow to
$1,090 at the end of the first year (an increase in $90) and $1,118 at the end
of the second year (an increase in $98). The extra $8 that was earned on the $90
interest from the first year is the compound interest. One thousand dollars
compounded annually at 9.00% will grow to $2,367 at the end of ten years and
$5,604 at the end of 20 years. Other examples of compounding are as follows: at
7% and 12% annually, $1,000 will grow to $1,967 and $3,106, respectively, at the
end of ten years and $3,870 and $9,646, respectively, at the end of twenty
years. These examples are for illustrative purposes only and are not indicative
of any Fund's performance.
The Funds may advertise information regarding the effects of automatic
investment and systematic withdrawal plans, including the principal of dollar
cost averaging. In a dollar cost averaging program, an investor invests a fixed
dollar amount in a Fund at period intervals, thereby purchasing fewer shares
when prices are high and more shares when prices are low. While such a strategy
does not insure a profit or guard against a loss in a declining market, the
investor's average cost per share can be lower than if fixed numbers of shares
had been purchased at those intervals. In evaluating such a plan, investors
should consider their ability to continue purchasing shares through periods of
low price levels. For example, if an investor invests $100 a month for a period
of six months in a Fund the following will be the relationship between average
cost per share ($14.35 in the example given) and average price per share:
45
<PAGE>
<TABLE>
<S> <C> <C> <C>
SYSTEMATIC SHARE SHARES
PERIOD INVESTMENT PRICE PURCHASED
------ ---------- ----- ---------
1 $100 $10 10.00
2 $100 $12 8.33
3 $100 $15 6.67
4 $100 $20 5.00
5 $100 $18 5.56
6 $100 $16 6.25
---- --- ----
Total Invested $600 Average Price $15.17 Total Shares 41.81
</TABLE>
With respect to the Funds that invest in municipal securities and distribute
Federally tax-exempt (and in certain cases state tax exempt) dividends, the
Funds may advertise the benefits of and other effects of investing in municipal
securities. For instance, the Funds' advertisements may note that municipal
bonds have historically offered higher after tax yields than comparable taxable
alternatives for those persons in the higher tax brackets, that municipal bond
yields may tend to outpace inflation and that changes in tax law have eliminated
many of the tax advantages of other investments. The combined Federal and state
income tax rates for a particular state may also be described and advertisements
may indicate equivalent taxable and tax-free yields at various approximate
combined marginal Federal and state tax bracket rates. All yields so advertised
are for illustration only are not necessarily representative of a Fund's yield.
In connection with its advertisements each Fund may provide "shareholders
letters" which serve to provide shareholders or investors an introduction into
the Fund's, the Trust's or any of the Trust's service provider's policies or
business practices. For instance, advertisements may provide for a message from
Norwest or its parent corporation that Norwest has for more than 60 years been
committed to quality products and outstanding service to assist its customers in
meeting their financial goals and setting forth the reasons that Norwest
believes that it has been successful as a national financial service firm. V.
MANAGEMENT
Those officers, as well as certain other officers and Trustees of the Trust, may
be directors, officers or employees of (and persons providing services to the
Trust may include) Forum, its affiliates or certain non-banking affiliates of
Norwest.
TRUSTEES AND OFFICERS
TRUSTEES AND OFFICERS OF THE TRUST
The Trustees and officers of the Trust and their principal occupations during
the past five years and age as of April 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.
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.
46
<PAGE>
ROBERT C. BROWN, Trustee,* Age 65.
Director, Federal Farm Credit Banks Funding Corporation and Farm Credit
System Financial Assistance Corporation since February 1993. Prior thereto,
he was Manager of Capital Markets Group, Norwest Corporation (a multi-bank
holding company and parent of Norwest), until 1991. His address is 1431
Landings Place, Sarasota, Florida 34231.
DONALD H. BURKHARDT, Trustee, Age 70.
Principal of The Burkhardt Law Firm. His address is 777 South Steele
Street, Denver, Colorado 80209.
JAMES C. HARRIS, Trustee, Age 76.
President and sole Director of James C. Harris & Co., Inc. (a financial
consulting firm). Mr. Harris is also a liquidating trustee and former
Director of First Midwest Corporation (a small business investment
company). His address is 6950 France Avenue South, Minneapolis, Minnesota
55435.
RICHARD M. LEACH, Trustee, Age 63.
President of Richard M. Leach Associates (a financial consulting firm)
since 1992. Prior thereto, Mr. Leach was Senior Adviser of Taylor
Investments (a registered investment adviser), a Director of Mountainview
Broadcasting (a radio station) and Managing Director of Digital Techniques,
Inc. (an interactive video design and manufacturing company). His address
is P.O. Box 1888, New London, New Hampshire 03257.
JOHN S. MCCUNE,* Trustee, Age 46.
President, Norwest Investment Services, Inc. (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.
47
<PAGE>
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.
** 1 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 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.
48
<PAGE>
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 $5,000,
payable quarterly, for the Trustee's service to the Trust and to Norwest Select
Funds, a separate registered open-end management investment company for which
each Trustee serves as trustee. In addition, each Trustee is paid $3,000 for
each regular Board meeting attended (whether in person or by electronic
communication) and is paid $1,000 for each Committee meeting attended on a date
when a Board meeting is not held. Trustees are also reimbursed for travel and
related expenses incurred in attending meetings of the Board. Mr. Keffer
received no compensation for his services as Trustee for the past year or
compensation or reimbursement for his associated expenses. In addition, no
officer of the Trust is compensated by the Trust.
Mr. Burkhardt, Chairman of the Trust's and Norwest Select Funds' audit
committees, receives additional compensation of $6,000 from the Trust and
Norwest Select Funds allocated pro rata between the Trust and Norwest Select
Funds based upon relative net assets, for his services as Chairman. Each Trustee
was elected by shareholders on April 30, 1997.
The following table provides the aggregate compensation paid to the Trustees of
the Trust by the Trust and Norwest Select Funds, combined. Norwest Select Funds
have a December 31 fiscal year end. Information is presented for the twelve
month period ended May 31, 1997, which was the fiscal year end of all of the
Trust's portfolios.
<TABLE>
<S> <C> <C>
TOTAL COMPENSATION FROM
TOTAL COMPENSATION THE TRUST AND NORWEST
FROM THE TRUST SELECT FUNDS
-------------- ------------
Mr. Brown $30,942 $31,000
Mr. Burkhardt $36,932 $37,000
Mr. Harris $30,942 $31,000
Mr. Leach $30,942 $31,000
Mr. Penny $30,942 $31,000
Mr. Willeke $30,942 $31,000
</TABLE>
49
<PAGE>
Neither the Trust nor Norwest Select Funds has adopted any form of retirement
plan covering Trustees or officers. For the twelve month period ended May 31,
1997 total expenses of the Trustees (other than Mr. Keffer) was $22,804 and
total expenses of the trustees of Norwest Select Funds was $46.
As of April 1, 1998, the Trustees and officers of the Trust in the aggregate
owned less than 1% of the outstanding shares of the Funds.
TRUSTEES AND OFFICERS OF CORE TRUST
The Trustees and officers of Core Trust and their principal occupations during
the past five years and ages are set forth below. Each Trustee who is an
"interested person" (as defined by the 1940 Act) of Core Trust is indicated by
an asterisk. Messrs. Keffer, Goldstein, Butt, Sheehan, and Misses Clark and
Walker, officers of Core Trust, all currently serve as officers of the Trust.
Accordingly, for background information pertaining to these officers, (see
"Management -- Trustees and Officers -- Trustees and Officers of the Trust.")
JOHN Y. KEFFER,* Chairman and President.
COSTAS AZARIADIS, Trustee, Age 53.
Professor of Economics, University of California, Los Angeles, since July
1992. Prior thereto, Dr. Azariadis was Professor of Economics at the
University of Pennsylvania. His address is Department of Economics,
University of California, Los Angeles, 405 Hilgard Avenue, Los Angeles,
California 90024.
JAMES C. CHENG, Trustee, Age 54.
Managing Director, Forum Financial Services, Inc. since September 1991.
President of Technology Marketing Associates (a marketing consulting
company) since September 1991. Prior thereto, Mr. Cheng was President and
Chief Executive Officer of Network Dynamics, Incorporated (a software
development company). His address is Two Portland Square, Portland, Maine
04101.
J. MICHAEL PARISH, Trustee, Age 53.
Partner at the law firm of Reid & Priest. Prior thereto he was a partner at
the law firm of Winthrop Stimson Putnam & Roberts since 1989. His address
is 40 Wall Street, New York, New York 10005.
SARA M. MORRIS, Treasurer
PAMELA J. WHEATON, Assistant Treasurer
DAVID I. GOLDSTEIN, Secretary.
THOMAS G. SHEEHAN, Assistant Secretary.
CATHERINE S. WOOLEDGE, 55, Two Portland Square, Portland, Maine - Assistant
Secretary. Counsel, Forum Financial Services, Inc. since November 1996. Prior
thereto, associate at Morrison & Foerster, Washington, D.C. from October 1994 to
November 1996, associate corporate counsel at Franklin Resources, Inc. from
September 1993 to September 1994, and prior thereto associate at Drinker Biddle
& Reath, Philadelphia, PA.
TRUSTEES AND OFFICERS OF SCHRODER CORE
The Trustees and officers of Schroder Core and their principal occupations
during the past five years and ages are set forth below. Each Trustee who is an
"interested person" (as defined by the 1940 Act) of Core Trust is indicated by
an asterisk. Messrs. Keffer and Sheehan, officers of Schroder Core, currently
serve as officers of the Trust. Accordingly, for background information
pertaining to these officers, (see "Management-Trustees and Officers - Trustees
and Officers of the Trust.") Ms. Wooledge an officer of Schroder Core, currently
serves as an officer of Core Trust. Accordingly, for background information
pertaining to her, (see "Management- Trustees and Officers - Trustees and
Officers of Core Trust.")
PETER E. GUERNSEY, Oyster Bay, New York - Trustee of the Trust - Insurance
Consultant since August 1986; prior thereto Senior Vice President, Marsh &
McLennan, Inc., insurance brokers.
JOHN I. HOWELL, Greenwich, Connecticut - Trustee of the Trust - Private
Consultant since February 1987; Honorary Director, American International Group,
Inc.; Director, American International Life Assurance Company of New York.
CLARENCE F. MICHALIS, 44 East 64th Street, New York, New York - Trustee of the
Trust - Chairman of the Board of Directors, Josiah Macy, Jr. Foundation
(charitable foundation).
50
<PAGE>
MARK J. SMITH(b), 33 Gutter Lane, London, England - President and Trustee of the
Trust - Senior Vice President and Director of Schroder; Director and Senior Vice
President, Schroder Fund Advisors Inc..
ROBERT G. DAVY, 787 Seventh Avenue, New York, New York - a Vice -President of
the Trust - Director of Schroder and Schroder Capital Management International
Ltd. since 1994; Senior Vice President and Director of Schroder; prior thereto,
employed by various affiliates of Schroders plc in various positions in the
investment research and portfolio management areas since 1986.
MARGARET H. DOUGLAS-HAMILTON(b)(c), 787 Seventh Avenue, New York, New York -
Vice President of the Trust - Secretary of SCM since July 1995; Senior Vice
President and General Counsel of Schroders U.S. Holdings Inc. since May 1987;
prior thereto, partner of Sullivan & Worcester, a law firm.
RICHARD R. FOULKES, 787 Seventh Avenue, New York, New York - a Vice President of
the Trust; Deputy Chairman of Schroder since October 1995; Director and
Executive Vice President of Schroder Capital Management International Ltd. since
1989.
CATHERINE S. WOOLEDGE, 2 Portland Square, Portland, Maine - Assistant Treasurer
and Assistant Secretary of the Trust.
BARBARA GOTTLIEB(c), 787 Seventh Avenue, New York, New York - Assistant
Secretary of the Trust and Vice President of Schroder Fund Advisors Inc.; prior
thereto held various positions with SWIS affiliates.
JOHN Y. KEFFER, 2 Portland Square, Portland, Maine - Vice President of the
Trust. President of Forum Financial Services, Inc., the Fund's
sub-administrator, and Forum Financial Corp., the Fund's transfer and dividend
disbursing agent and fund accountant.
JANE P. LUCAS, (c) 787 Seventh Avenue, New York, New York - Vice President of
the Trust - Director and Senior Vice President Schroder; Director of SCM since
September 1995; Director of Schroder Fund Advisors Inc.; Assistant Director
Schroder Investment Management Ltd. since June 1991.
GERARDO MACHADO, 787 Seventh Avenue, New York, New York - Assistant Secretary of
the Trust - Associate, Schroder.
CATHERINE A. MAZZA, 787 Seventh Avenue, New York, New York - Vice President of
the Trust - President of Schroder Fund Advisors Inc. since 1997; Group Vice
President of Schroder; prior thereto, held various marketing positions at
Alliance Capital, an investment adviser, since July 1985.
THOMAS G. SHEEHAN, 2 Portland Square, Portland, Maine - Assistant Treasurer and
Assistant Secretary of the Trust - Counsel, Forum Financial Services, Inc. since
1993; prior thereto, Special Counsel, U.S. Securities and Exchange Commission,
Division of Investment Management, Washington, D.C.
FARIBA TALEBI, 787 Seventh Avenue, New York, New York - Vice President of the
Trust - Group Vice President of Schroder, employed in various positions in the
investment research and portfolio management areas since 1987.
JOHN A. TROIANO(b), 787 Seventh Avenue, New York, New York - Vice President of
the Trust - Managing Director and Senior Vice President of Schroder since
October 1995; Director of Schroder Fund Advisors Inc.; Director of Schroder
since 1991; prior thereto, employed by various affiliates of Schroder in various
positions in the investment research and portfolio management areas since 1981.
IRA L. UNSCHULD, 787 Seventh Avenue, New York, New York - Vice President of the
Trust - Vice President of Schroder since April, 1993 and an Associate from July,
1990 to April, 1993; prior to July, 1990, employed by various financial
institutions as a securities or financial analyst.
51
<PAGE>
ALEXANDRA POE, 787 Seventh Avenue, New York, New York - Secretary and Vice
President of the Trust - First Vice President of Schroder; Fund Counsel and
Senior Vice President of Schroder Fund Advisors Inc. since August 1996; prior
thereto an investment management attorney with Gordon Altman Butowsky Weitzen
Shalov & Wein since July 1994; prior thereto counsel and Vice President of
Citibank, N.A. since 1989.
MARY KUNKEMUELLER, 787 Seventh Avenue, New York, New York - Vice President of
Schroder Fund Advisors Inc.
INVESTMENT ADVISORY SERVICES
GENERAL
Table 1 in Appendix B shows, with respect to each Fund, the dollar amount of
fees payable under the Investment Advisory Agreements between Norwest and the
Trust or Norwest and Core Trust, if the Fund invests in one or more Portfolios,
the amount of fee that was waived by Norwest, if any, and the actual fee
received by Norwest. That table also shows similar information with respect to
Schroder for its services to International Portfolio and Schroder U.S. Smaller
Companies Portfolio. The data is for the past three fiscal years or a shorter
period if the Fund has been in operation for a shorter period.
The advisory fee for each Fund 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. Each investment adviser, in
its sole discretion, may waive or continue to waive all or any portion of its
investment advisory fees.
In addition to receiving its advisory fee from the Funds, each investment
adviser or its affiliates may act and be compensated as investment manager for
its clients with respect to assets which are invested in a Fund. In some
instances Norwest or its affiliates may elect to credit against any investment
management, custodial or other fee received from, or rebate to, a client who is
also a shareholder in a Fund an amount equal to all or a portion of the fees
received by Norwest or any of its affiliates from a Fund with respect to the
client's assets invested in the Fund.
NORWEST INVESTMENT MANAGEMENT
Norwest furnishes at its expense all services, facilities and personnel
necessary in connection with managing each Fund's investments and effecting
portfolio transactions for each Fund. For further information about the
investment subadvisory services for certain Funds and the advisory services for
International Portfolio of Core Trust. (See "Management -- Investment Advisory
Services -- Schroder Capital Management International, Inc.," "--Sub- Advisers"
- -- Crestone Capital Management, Inc.," "-- Galliard Capital Management, Inc.,"
"-- Peregrine Capital Management, Inc.," "-- United Capital Management, Inc."
And "-- Smith Asset Management Group, L.P.") Under its various Investment
Advisory Agreements, Norwest may delegate its responsibilities to any investment
subadviser approved by the Board and, as applicable, shareholders, with respect
to all or a portion of the assets of the Fund. With respect to each 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.
Each 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. Each Investment Advisory
Agreement shall terminate upon assignment. The Investment Advisory Agreements
also provide that, with respect to the Funds, neither Norwest nor its personnel
shall be liable for any mistake of judgment or in any event whatsoever, except
for lack of good faith, provided that nothing in the Investment Advisory
Agreements shall be deemed to protect, or purport to protect, the Adviser
against liability by reason of willful misfeasance, bad faith or gross
negligence in the performance of Norwest's duties or by reason of reckless
52
<PAGE>
disregard of its obligations and duties under the Investment Advisory
Agreements. The Investment Advisory Agreements provide that Norwest may render
services to others.
Norwest acts as investment adviser to Cash Investment Fund, Ready Cash
Investment Fund, U.S. Government Fund, Treasury Fund, Municipal Money Market
Fund, Stable Income Fund, Limited Term Government Income Fund, Intermediate
Government Income Fund, Diversified Bond Fund, Income Fund, Total Return Bond
Fund, Limited Term Tax-Free Fund, Tax-Free Income Fund, Colorado Tax-Free Fund,
Minnesota Intermediate Tax-Free Fund, Minnesota Tax-Free Fund, Strategic Income
Fund, Moderate Balanced Fund, Growth Balanced Fund, Aggressive Balanced-Equity
Fund, Index Fund, Income Equity Fund, ValuGrowthSM Stock Fund, Diversified
Equity Fund, Growth Equity Fund, Large Company Growth Fund, Small Company Stock
Fund, Small Company Growth Fund, Small Cap Opportunities Fund, Diversified Small
Cap Fund, Contrarian Stock Fund and International Fund. The investment advisory
agreements between Norwest and Core Trust on behalf of the portfolios are
identical to the Investment Advisory Agreements between the Trust and Norwest,
except for the fees payable thereunder and certain immaterial matters.
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.
SCHRODER CAPITAL MANAGEMENT INTERNATIONAL INC.-- SCHRODER U.S. SMALLER COMPANIES
PORTFOLIO/INTERNATIONAL PORTFOLIO
Small Cap Opportunities Fund invests all of its assets in Schroder U.S. Smaller
Companies Portfolio and International Fund invests all of its assets in
International Portfolio and Schroder EM Core Portfolio. Pursuant to a separate
Advisory Agreement between Schroder Core and Schroder, Schroder acts as
investment adviser to Schroder U.S. Smaller Companies Portfolio and is required
to furnish at its expense all services, facilities and personnel necessary in
connection with managing Schroder U.S. Smaller Companies Portfolio's investments
and effecting portfolio transactions for Schroder U.S. Smaller Companies
Portfolio. Pursuant to a separate Advisory Agreement between Core Trust and
Schroder, Schroder acts as investment adviser to International Portfolio and is
required to furnish at its expense all services, facilities and personnel
necessary in connection with managing International Portfolio's investments and
effecting portfolio transactions for International Portfolio. The Advisory
Agreements between Schroder U.S. Smaller Companies Portfolio, International
Portfolio, Schroder EM Core Portfolio and Schroder will continue in effect only
if such continuance is specifically approved at least annually: (1) by the
applicable Trust Board or by vote of a majority of the outstanding voting
interests of the Portfolio, and, in either case (2) by a majority of the
applicable Trust's trustees who are not parties to the Advisory Agreement or
interested persons of any such party (other than as trustees of the applicable
Trust), at a meeting called for the purpose of voting on the Advisory Agreement;
provided further, however, that if the Advisory Agreement or the continuation of
the Agreement is not approved as to a Portfolio, the Adviser may continue to
render to that Portfolio the services described herein in the manner and to the
extent permitted by the Act and the rules and regulations thereunder.
On behalf of each Fund that invests all or a portion of its assets in Schroder
U.S. Smaller Companies Portfolio or International Portfolio, Norwest and the
Trust have entered into an Investment Subadvisory Agreement with Schroder. An
Investment Subadvisory Agreement would become operative and Schroder would
directly manage a Fund's assets if the Board determined it was no longer in the
best interest of the Fund to invest in smaller companies or international
securities by investing in another registered investment company. In that event,
pursuant to the Investment Subadvisory Agreement Schroder would makes investment
decisions directly for a Fund and continuously review, supervise and administer
the Fund's investment program with respect to that portion, if any, of the
Fund's portfolio that Norwest has so delegated. Schroder would be required to
furnish at its own expense all services, facilities and personnel necessary in
connection with managing of the Funds' investments and effecting portfolio
transactions for the Funds (to the extent of Norwest's delegation).
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The Investment Subadvisory Agreements will continue in effect only if such
continuance is specifically approved at least annually: (1) by the Board or by
vote of a majority of the outstanding voting securities of the applicable Fund,
and, in either case, (2) by a majority of the applicable Trust's trustees who
are not parties to the Investment Subadvisory Agreements or interested persons
of any such party (other than as trustees of the applicable Trust), at a meeting
called for the purpose of voting on the Investment Subadvisory Agreements;
provided further, however, that if the Investment Subadvisory Agreements or the
continuation of the Agreements is not approved as to a Fund, the Subadviser may
continue to render to that Fund the services described herein in the manner and
to the extent permitted by the Act and the rules and regulations thereunder.
Each Investment Subadvisory Agreement is terminable without penalty with respect
to the Fund on 60 days' written notice when authorized either by majority vote
of the Fund's shareholders or by the Board, or by Schroder on 60 days written
notice to the Trust, and will automatically terminate in the event of its
assignment. The Investment Subadvisory Agreements also provide that, with
respect to the Funds, neither Schroder nor its personnel shall be liable for any
mistake of judgment or in any event whatsoever, except for lack of good faith,
provided that nothing shall be deemed to protect the Adviser against liability
by reason of willful misfeasance, bad faith or gross negligence in the
performance of Schroder's duties or by reason of reckless disregard of its
obligations and duties under the Investment Subadvisory Agreements. The
Investment Subadvisory Agreements provide that Schroder may render services to
others.
No payments are made under the Funds' Investment Subadvisory Agreements with
Schroder because no assets are allocated to Schroder to manage directly.
The Advisory Agreements between Schroder and Core Trust and Schroder and
Schroder Core on behalf of International Portfolio, Schroder EM Core Portfolio
and Schroder U.S. Smaller Companies Portfolio, respectively are identical to the
Investment Advisory Agreements between the Trust and Norwest, except for the
fees payable thereunder and certain immaterial matters.
SUB-ADVISERS
The Adviser pays a fee to each of the Subadvisers. These fees do not increase
the fees paid by shareholders of the Funds. The amount of the fees paid by
Norwest to each Subadviser may vary from time to time as a result of periodic
negotiations with the Subadviser regarding such matters as the nature and extent
of the services (other than investment selection and order placement activities)
provided by the Subadviser to the Fund, the increased cost and complexity of
providing services to the Fund, the investment record of the Subadviser in
managing the Fund and the nature and magnitude of the expenses incurred by the
Subadviser in managing the Fund's assets and by the Adviser in overseeing and
administering management of the Fund. However, the contractual fee payable to
each Fund by Norwest for investment advisory services will not vary as a result
of those negotiations.
Norwest performs internal due diligence on each Subadviser and monitors each
Subadviser's performance using its proprietary investment adviser selection and
monitoring process. Norwest will be responsible for communicating performance
targets and evaluations to Subadvisers, supervising each Subadviser's compliance
with the Fund's fundamental investment objectives and policies, authorizing
Subadvisers to engage in certain investment techniques for the Fund, and
recommending to the Board of Trustees whether sub-advisory agreements should be
renewed, modified or terminated. Norwest also may from time to time recommend
that the Board of Trustees replace one or more Subadvisers or appoint additional
Subadvisers, depending on the Adviser's assessment of what combination of
Subadvisers it believes will optimize each Fund's chances of achieving its
investment objectives. The sub-advisory agreements with respect to the Funds
and, with respect to the Portfolios, are identical, except for the fees payable
and certain other non-material matters.
CRESTONE CAPITAL MANAGEMENT, INC.
To assist Norwest in carrying out its obligations under the Investment Advisory
Agreement with the Small Company Stock Fund (the "Fund"), Norwest has entered
into an Investment Subadvisory Agreement with Crestone, located at 7720 East
Belleview Avenue, Suite 220, Englewood, Colorado 80111. Crestone is registered
with the
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SEC as an investment adviser and is a non-wholly owned subsidiary of Norwest.
Pursuant to the Sub-Investment Advisory Agreement, Crestone makes investment
decisions for the Fund and continuously reviews, supervises and administers the
Fund's investment program with respect to that portion, if any, of the Fund's
portfolio that Norwest believes should be invested using Crestone as a
subadviser. Currently, Crestone manages the entire portfolio of the Fund and has
done so since the Fund's inception. Norwest supervises the performance of
Crestone including its adherence to the Fund's investment objectives and
policies and pays Crestone a fee for its investment management services. For its
services under the Sub-Investment Advisory Agreement, Norwest pays Crestone a
fee based on the Fund's average daily net assets at an annual rate of 0.40% on
the first $30 million; 0.30% on the next $30 million; 0.20% on the next $40
million and 0.15% on all sums in excess of $100 million. For the Fund's fiscal
years ended May 31, 1996, 1995 and 1994, Norwest paid Crestone subadvisory fees
of $180,748, $137,862 and $8,792, respectively.
Under its Investment Subadvisory Agreement, Crestone makes investment decisions
for the Fund and continuously reviews, supervises and administers the Fund's
investment program with respect to that portion, if any, of the Fund's portfolio
for which Norwest has delegated management responsibility. Crestone is required
to furnish at its own expense all services, facilities and personnel necessary
in connection with managing of the Fund's investments and effecting portfolio
transactions for the Fund (to the extent of Norwest's delegation).
The Investment Subadvisory Agreement will continue in effect only if such
continuance is specifically approved at least annually: (1) by the Board or by
vote of a majority of the outstanding voting securities of the Fund, and, in
either case, (2) by a majority of the Trust's trustees who are not parties to
the Investment Subadvisory Agreement or interested persons of any such party
(other than as trustees of the Trust), at a meeting called for the purpose of
voting on the Investment Subadvisory Agreements; provided further, however, that
if the Investment Subadvisory Agreement or the continuation of the Agreement is
not approved, the Subadviser may continue to render to the Fund the services
described in the Investment Subadvisory Agreement in the manner and to the
extent permitted by the Act and the rules and regulations thereunder.
The Investment Subadvisory Agreement is terminable without penalty with respect
to the Fund on 60 days' written notice when authorized either by majority vote
of the Fund's shareholders or by the Board, or by Crestone on 60 days written
notice to the Trust, and will automatically terminate in the event of its
assignment. The Investment Subadvisory Agreement also provides that, with
respect to the Fund, neither Crestone nor its personnel shall be liable for any
mistake of judgment or in any event whatsoever, except for lack of good faith,
provided that nothing shall be deemed to protect Crestone against liability by
reason of willful misfeasance, bad faith or gross negligence in the performance
of Crestone's duties or by reason of reckless disregard of its obligations and
duties under the Investment Subadvisory Agreement. The Investment Subadvisory
Agreement provides that Crestone may render services to others.
GALLIARD CAPITAL MANAGEMENT, INC.
To assist Norwest in carrying out its obligations under the Investment Advisory
Agreement with Stable Income Fund, Diversified Bond Fund, Strategic Income Fund,
Moderate Balanced Fund , Growth Balanced Fund and Aggressive Balanced-Equity
Fund (the "Funds"), Norwest has entered into an Investment Subadvisory Agreement
with Galliard, located at 800 LaSalle Avenue, Suite 2060, Minneapolis, Minnesota
55479. Galliard is registered with the SEC as an investment adviser and is an
investment advisory subsidiary of Norwest Bank. Pursuant to the Sub-Investment
Advisory Agreement, Galliard makes investment decisions for each of the Funds
and continuously reviews, supervises and administers each Fund's investment
program with respect to that portion, if any, of the Fund's portfolio that
Norwest believes should be invested using Galliard as a subadviser. Currently,
Galliard manages the entire portfolio of each Fund and has done so since the
Fund's inception. Norwest supervises the performance of Galliard including its
adherence to the Portfolio's investment objectives and policies and pays
Galliard a fee for its investment management services.
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Under its Investment Subadvisory Agreement, Galliard makes investment decisions
for each Fund and continuously reviews, supervises and administers each Fund's
investment program with respect to that portion, if any, of the Fund's portfolio
for which Norwest has delegated management responsibility. Galliard is required
to furnish at its own expense all services, facilities and personnel necessary
in connection with managing of each Fund's investments and effecting portfolio
transactions for each Fund (to the extent of Norwest's delegation).
The Investment Subadvisory Agreement will continue in effect only if such
continuance is specifically approved at least annually: (1) by the Board or by
vote of a majority of the outstanding voting securities of the Funds, and, in
either case, (2) by a majority of the Trust's trustees who are not parties to
the Investment Subadvisory Agreement or interested persons of any such party
(other than as trustees of the Trust), at a meeting called for the purpose of
voting on the Investment Subadvisory Agreements; provided further, however, that
if the Investment Subadvisory Agreement or the continuation of the Agreement is
not approved, the Subadviser may continue to render to each Fund the services
described in the Investment Subadvisory Agreement in the manner and to the
extent permitted by the Act and the rules and regulations thereunder.
The Investment Subadvisory Agreement is terminable without penalty with respect
to a Fund on 60 days' written notice when authorized either by majority vote of
the Fund's shareholders or by the Board, or by Galliard on 60 days written
notice to the Trust, and will automatically terminate in the event of its
assignment. The Investment Subadvisory Agreement also provides that, with
respect to each Fund, neither Galliard nor its personnel shall be liable for any
mistake of judgment or in any event whatsoever, except for lack of good faith,
provided that nothing shall be deemed to protect Galliard against liability by
reason of willful misfeasance, bad faith or gross negligence in the performance
of Galliard's duties or by reason of reckless disregard of its obligations and
duties under the Investment Subadvisory Agreement. The Investment Subadvisory
Agreements provides that Galliard may render services to others.
PEREGRINE CAPITAL MANAGEMENT, INC.
To assist Norwest in carrying out its obligations under the Investment Advisory
Agreement with Diversified Bond Fund, Strategic Income Fund, Moderate Balanced
Fund, Growth Balanced Fund, Aggressive Balanced-Equity Fund, Diversified Equity
Fund, Growth Equity Fund, Large Company Growth Fund, Diversified Small Cap Fund
and Small Company Growth Fund (the "Funds"), Norwest has entered into an
Investment Subadvisory Agreement with Peregrine, located at 800 LaSalle Avenue,
Suite 1850, Minneapolis, Minnesota 55479. Peregrine is registered with the SEC
as an investment adviser and is an investment advisory subsidiary of Norwest
Bank. Pursuant to the Sub-Investment Advisory Agreement, Peregrine makes
investment decisions for each of the Funds and continuously reviews, supervises
and administers each Fund's investment program with respect to that portion, if
any, of the Fund's portfolio that Norwest believes should be invested using
Peregrine as a subadviser. Currently, Peregrine manages the entire portfolio of
each Fund and has done so since the Fund's inception. Norwest supervises the
performance of Peregrine including its adherence to the Portfolio's investment
objectives and policies and pays Peregrine a fee for its investment management
services.
Under its Investment Subadvisory Agreement, Peregrine makes investment decisions
for each Fund and continuously reviews, supervises and administers each Fund's
investment program with respect to that portion, if any, of the Fund's portfolio
for which Norwest has delegated management responsibility. Peregrine is required
to furnish at its own expense all services, facilities and personnel necessary
in connection with managing of each Fund's investments and effecting portfolio
transactions for each Fund (to the extent of Norwest's delegation).
The Investment Subadvisory Agreement will continue in effect only if such
continuance is specifically approved at least annually: (1) by the Board or by
vote of a majority of the outstanding voting securities of the Funds, and, in
either case, (2) by a majority of the Trust's trustees who are not parties to
the Investment Subadvisory Agreement or interested persons of any such party
(other than as trustees of the Trust), at a meeting called for the purpose of
voting on the Investment Subadvisory Agreements; provided further, however, that
if the Investment Subadvisory Agreement or the continuation of the Agreement is
not approved, the Subadviser may continue to render to each Fund the services
described in the Investment Subadvisory Agreement in the manner and to the
extent permitted by the Act and the rules and regulations thereunder.
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The Investment Subadvisory Agreement is terminable without penalty with respect
to a Fund on 60 days' written notice when authorized either by majority vote of
the Fund's shareholders or by the Board, or by Peregrine on 60 days written
notice to the Trust, and will automatically terminate in the event of its
assignment. The Investment Subadvisory Agreement also provides that, with
respect to each Fund, neither Peregrine nor its personnel shall be liable for
any mistake of judgment or in any event whatsoever, except for lack of good
faith, provided that nothing shall be deemed to protect Peregrine against
liability by reason of willful misfeasance, bad faith or gross negligence in the
performance of Peregrine's duties or by reason of reckless disregard of its
obligations and duties under the Investment Subadvisory Agreement. The
Investment Subadvisory Agreements provides that Peregrine may render services to
others.
UNITED CAPITAL MANAGEMENT
To assist Norwest in carrying out its obligations under the Investment Advisory
Agreement with Contrarian Stock Fund (the "Fund"), Norwest has entered into an
Investment Subadvisory Agreement with UCM, located at 1700 Lincoln Street, Suite
3301, Denver, Colorado 80274. UCM is registered with the SEC as an investment
adviser and is a division of Norwest Bank Colorado, N.A.. Pursuant to the
Sub-Investment Advisory Agreement, UCM makes investment decisions for the Fund
and continuously reviews, supervises and administers the Fund's investment
program with respect to that portion, if any, of the Fund's portfolio that
Norwest believes should be invested using UCM as a subadviser. Currently, UCM
manages the entire portfolio of the Fund and has done so since the Fund's
inception. Norwest supervises the performance of UCM including its adherence to
the Fund's investment objective and policies and pays UCM a fee for its
investment management services.
Under its Investment Subadvisory Agreement, UCM makes investment decisions for
the Fund and continuously reviews, supervises and administers the Fund's
investment program with respect to that portion, if any, of the Fund's portfolio
for which Norwest has delegated management responsibility. UCM is required to
furnish at its own expense all services, facilities and personnel necessary in
connection with managing of the Fund's investments and effecting portfolio
transactions for the Fund (to the extent of Norwest's delegation).
The Investment Subadvisory Agreement will continue in effect only if such
continuance is specifically approved at least annually: (1) by the Board or by
vote of a majority of the outstanding voting securities of the Fund, and, in
either case, (2) by a majority of the Trust's trustees who are not parties to
the Investment Subadvisory Agreement or interested persons of any such party
(other than as trustees of the Trust), at a meeting called for the purpose of
voting on the Investment Subadvisory Agreement; provided further, however, that
if the Investment Subadvisory Agreement or the continuation of the Agreement is
not approved, the Subadviser may continue to render to the Fund the services
described in the Investment Subadvisory Agreement in the manner and to the
extent permitted by the Act and the rules and regulations thereunder.
The Investment Subadvisory Agreement is terminable without penalty with respect
to the Fund on 60 days' written notice when authorized either by majority vote
of the Fund's shareholders or by the Board, or by UCM on 60 days written notice
to the Trust, and will automatically terminate in the event of its assignment.
The Investment Subadvisory Agreement also provides that, with respect to the
Fund, neither UCM nor its personnel shall be liable for any mistake of judgment
or in any event whatsoever, except for lack of good faith, provided that nothing
shall be deemed to protect UCM against liability by reason of willful
misfeasance, bad faith or gross negligence in the performance of UCM's duties or
by reason of reckless disregard of its obligations and duties under the
Investment Subadvisory Agreement. The Investment Subadvisory Agreement provides
that UCM may render services to others.
SMITH ASSET MANAGEMENT GROUP, L.P.
To assist Norwest in carrying out its obligations under the Investment Advisory
Agreement with Disciplined Growth Portfolio and Small Cap Value Portfolio,
Norwest has entered into an Investment Subadvisory Agreement with Smith, located
at 500 Crescent Court, Suite 250, Dallas, Texas. Smith is registered with the
SEC as an investment adviser . Pursuant to the Sub-Investment Advisory
Agreement, Smith makes investment decisions for
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each of the Portfolios and continuously reviews, supervises and administers each
Portfolio's investment program with respect to that portion, if any, of the
Fund's portfolio that Norwest believes should be invested using Smith as a
subadviser. Currently, Smith manages the entire portfolio of each Portfolio and
has done so since the Portfolio's inception. Norwest supervises the performance
of Smith including its adherence to the Portfolio's investment objectives and
policies and pays Smith a fee for its investment management services. As of
October 1, 1997, for its services under the Investment Subadvisory Agreement,
Norwest pays Smith a fee based on Disciplined Growth Portfolio's and Small Cap
Value Portfolio's average daily net assets at an annual rate of 0.35% and 0.45%,
respectively.
Under its Investment Subadvisory Agreement, Smith makes investment decisions for
each Portfolio and continuously reviews, supervises and administers each
Portfolio's investment program with respect to that portion, if any, of the
Portfolio's portfolio for which Norwest has delegated management responsibility.
Galliard is required to furnish at its own expense all services, facilities and
personnel necessary in connection with managing of each Portfolio's investments
and effecting portfolio transactions for each Portfolio (to the extent of
Norwest's delegation).
The Investment Subadvisory Agreement will continue in effect with respect to a
Portfolio only if such continuance is specifically approved at least annually:
(1) by the Core Trust Board or by vote of a majority of the outstanding voting
securities of the Portfolios, and, in either case; (2) by a majority of the Core
Trust's trustees who are not parties to the Investment Subadvisory Agreement or
interested persons of any such party (other than as trustees of the Core Trust),
at a meeting called for the purpose of voting on the Investment Subadvisory
Agreements; provided further, however, that if the Investment Subadvisory
Agreement or the continuation of the Agreement is not approved, the Subadviser
may continue to render to each Portfolio the services described in the
Investment Subadvisory Agreement in the manner and to the extent permitted by
the Act and the rules and regulations thereunder.
The Investment Subadvisory Agreement is terminable without penalty with respect
to a Portfolio on 60 days' written notice when authorized either by majority
vote of the Portfolio's shareholders or by the Core Trust Board, or by Smith on
60 days written notice to the Core Trust, and will automatically terminate in
the event of its assignment. The Investment Subadvisory Agreement also provides
that, with respect to each Portfolio, neither Smith nor its personnel shall be
liable for any mistake of judgment or in any event whatsoever, except for lack
of good faith, provided that nothing shall be deemed to protect Smith against
liability by reason of willful misfeasance, bad faith or gross negligence in the
performance of Smith's duties or by reason of reckless disregard of its
obligations and duties under the Investment Subadvisory Agreement. The
Investment Subadvisory Agreements provides that Smith may render services to
others.
Smith also currently serves as Investment Subadviser to the Funds pursuant to an
investment advisory agreement between Smith and Norwest. The investment
subadvisory agreement with respect to the Funds is identical to the Investment
Subadvisory Agreement, except for the fees payable thereunder (no fee is payable
under the investment subadvisory agreement with respect to a Fund to the extent
that the Fund is invested in an investment company) and certain immaterial
matters.
MANAGEMENT AND ADMINISTRATIVE SERVICES
MANAGER AND ADMINISTRATOR
Forum manages all aspects of the Trust's operations with respect to each Fund
except those which are the responsibility of FAS, Norwest, any other investment
adviser or investment subadviser to a Fund, or Norwest in its capacity as
administrator pursuant to an investment administration or similar agreement.
With respect to each Fund, Forum has entered into a Management Agreement that
will continue in effect only if such continuance is specifically approved at
least annually by the Board or by the shareholders and, in either case, by a
majority of the Trustees who are not interested persons of any party to the
Management Agreement.
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On behalf of the Trust and with respect to each Fund, Forum: (1) oversees: (a)
the preparation and maintenance by the Advisers and the Trust's administrator,
custodian, transfer agent, dividend disbursing agent and fund accountant (or if
appropriate, prepares and maintains) in such form, for such periods and in such
locations as may be required by applicable law, of all documents and records
relating to the operation of the Trust required to be prepared or maintained by
the Trust or its agents pursuant to applicable law; (b) the reconciliation of
account information and balances among the Advisers and the Trust's custodian,
transfer agent, dividend disbursing agent and fund accountant; (c) the
transmission of purchase and redemption orders for Shares; (d) the notification
of the Advisers of available funds for investment; and (e) the performance of
fund accounting, including the calculation of the net asset value per Share; (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 each 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 any Fund by vote of that Fund's
shareholders or by either party on not more than 60 days' nor less than 30 days'
written notice. The Management Agreement also provides that neither Forum nor
its personnel shall be liable for any error of judgment or mistake of law or for
any act or omission in the administration or management of the Trust, except for
willful misfeasance, bad faith or gross negligence in the performance of Forum's
or their duties or by reason of reckless disregard of their obligations and
duties under the Management Agreement.
FAS manages all aspects of the Trust's operations with respect to each Fund
except those which are the responsibility of Forum, Norwest, or any other
investment adviser or investment subadviser to a Fund, or Norwest in its
capacity as administrator pursuant to an investment administration or similar
agreement. With respect to each Fund, Forum has entered into a Administrative
Agreement that will continue in effect only if such continuance is specifically
approved at least annually by the Board or by the shareholders and, in either
case, by a majority of the Trustees who are not interested persons of any party
to the Management Agreement.
On behalf of the Trust and with respect to each Fund, FAS: (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, the Investment
Advisers, the officers of the
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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 each Fund as
a regulated investment company under the Code, as amended, and prepares and
distributes to appropriate parties notices announcing the declaration of
dividends and other distributions to shareholders.
The Administrative Agreement terminates automatically if assigned and may be
terminated without penalty with respect to any Fund by vote of that Fund's
shareholders or by either party on not more than 60 days' nor less than 30 days'
written notice. The Administrative Agreement also provides that neither FAS nor
its personnel shall be liable for any error of judgment or mistake of law or for
any act or omission in the administration or management of the Trust, except for
willful misfeasance, bad faith or gross negligence in the performance of FAS's
or their duties or by reason of reckless disregard of their obligations and
duties under the Administrative Agreement.
Pursuant to their agreements with the Trust, Forum and FAS may subcontract any
or all of their duties to one or more qualified subadministrators who agree to
comply with the terms of Forum's Management Agreement or FAS's Administration
Agreement, respectively. Forum and FAS may compensate those agents for their
services; however, no such compensation may increase the aggregate amount of
payments by the Trust to Forum or FAS pursuant to their Management and
Administration Agreements with the Trust.
Table 2 in Appendix B shows the dollar amount of fees payable to Forum for its
management services with respect to each Fund (or class thereof for those
periods when multiple classes were outstanding), the amount of fee that was
waived by Forum, if any, and the actual fee received by Forum. The data is for
the past three fiscal years or shorter period if the Fund has been in operation
for a shorter period.
PORTFOLIOS OF CORE TRUST
Forum manages all aspects of Core Trust's operations with respect to the
portfolios except those which are the responsibility of Norwest or Schroder.
With respect to each Portfolio, Forum has entered into a management agreement
(the "Core Trust Management Agreement") that will continue in effect only if
such continuance is specifically approved at least annually by the Core Trust
Board or by the shareholders and, in either case, by a majority of the Trustees
who are not interested persons of any party to the Core Trust Management
Agreement. Under the Core Trust Management Agreement, Forum performs similar
services for each Portfolio as it and FAS perform for the Blended Funds under
the Management and Administration Agreements, to the extent the services are
applicable to the Portfolios and their structure. Forum and FAS waive their fees
payable by each of the Blended Funds under the Management and Administration
Agreements to the extent those Funds incur indirectly management fees charged by
Forum to a Blended Portfolio.
NORWEST ADMINISTRATIVE SERVICES
Under an Administrative Servicing Agreement between the Trust and Norwest with
respect to Small Cap Opportunities Fund and International Fund, Norwest performs
ministerial, administrative and oversight functions for the Funds and undertakes
to reimburse certain excess expenses of the Funds. Among other things, Norwest
gathers performance and other data from Schroder as the adviser of Schroder U.S.
Smaller Companies Portfolio and International Portfolio and from other sources,
formats the data and prepares reports to the Funds' shareholders and the
Trustees. Norwest also ensures that Schroder is aware of pending net purchases
or redemptions of each Fund's shares and other matters that may affect
Schroder's performance of its duties. Lastly, Norwest has agreed to reimburse
each Fund for any amounts by which its operating expenses (exclusive of
interest, taxes and brokerage fees, organization expenses and, if applicable,
distribution expenses, all to the extent permitted by applicable state
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<PAGE>
law or regulation) exceed the limits prescribed by any state in which the Funds'
shares are qualified for sale. No fees will be paid to Norwest under the
Administrative Servicing Agreement unless the each of the Fund's assets are
invested solely in Schroder U.S. Smaller Companies Portfolio or International
Portfolio and Schroder EM Core Portfolio (in the case of Small Cap Opportunities
Fund and International Fund, respectively) or in a portfolio of another
registered investment company. This agreement will continue in effect only if
such continuance is specifically approved at least annually by the Board or by
the shareholders and, in either case, by a majority of the Trustees who are not
parties to the Management Agreement or interested persons of any such party.
The Administrative Service Agreement provides that neither Norwest nor its
personnel shall be liable for any error of judgment or mistake of law or for any
act or omission in the performance of its or their duties to the Fund, except
for willful misfeasance, bad faith or gross negligence in the performance of
Forum's or their duties or by reason of reckless disregard of its or their
obligations and duties under the agreement.
Table 2 in Appendix B shows the dollar amount of fees payable under the
Servicing Agreement, the amount of the fee that was waived, if any, and the
amount received by Norwest for the past three fiscal years of the Fund.
SCHRODER ADMINISTRATIVE SERVICES
Schroder Core has entered into an Administrative Services Agreement with
Schroder Advisors, 787 Seventh Avenue, New York, New York 10019, pursuant to
which Schroder Advisors provides management and administrative services
necessary for the operation of Schroder U.S. Smaller Companies Portfolio,
including coordination of the services performed by the Portfolio's investment
adviser, transfer agent, custodian, independent accountants, legal counsel and
others. Schroder Advisors is a wholly-owned subsidiary of Schroder, and is a
registered broker-dealer organized to act as administrator and distributor of
mutual funds.
For these services, Schroder Advisors will receive a fee from Schroder Core at
the annual rate of 0.10% of the average daily net assets of the Portfolio. The
Administrative Services Agreement is terminable with respect to the Portfolio
without penalty, at any time, by vote of a majority of the trustees of Schroder
Core who are not "interested persons" of Schroder Core and who have no direct or
indirect financial interest in the operation of the Administrative Services
Agreement, upon not more than 60 days' written notice to Schroder Advisors or by
vote of the holders of a majority of the shares of the Portfolio, or, upon 60
days' notice, by Schroder Advisors. The Administrative Services Agreement will
terminate automatically in the event of its assignment.
On behalf of the Portfolio, Schroder Core has entered into a Sub-Administration
Agreement with Forum. Pursuant to the Sub-Administration Agreement, Forum
assists Schroder Advisors with certain of its responsibilities under the
Administrative Services Agreement, including shareholder reporting and
regulatory compliance.
The Sub-Administration Agreement is terminable with respect to the Portfolio
without penalty, at any time, by the board of trustees of Schroder Core upon 60
days' written notice to Forum or by Forum upon 60 days' written notice to the
Portfolio.
DISTRIBUTION
Forum also acts as distributor of the shares of the Fund. Forum acts as the
agent of the Trust in connection with the offering of shares of the Funds on a
"best efforts" basis pursuant to a Distribution Services Agreement.
Under the Distribution Services Agreement, the Trust has agreed to indemnify,
defend and hold Forum, and any person who controls Forum within the meaning of
Section 15 of the 1933 Act, free and harmless from and against any and all
claims, demands, liabilities and expenses (including the cost of investigating
or defending such claims, demands or liabilities and any counsel fees incurred
in connection therewith) which Forum or any such controlling person may incur,
under the 1933 Act, or under common law or otherwise, arising out of or based
upon any alleged untrue statement of a material fact contained in the Trust's
Registration Statement or a Fund's Prospectus or Statement of Additional
Information in effect from time to time under the 1933 Act or arising out of or
based upon any alleged omission to state a material fact required to be stated
in any one thereof or necessary to make the
61
<PAGE>
statements in any one thereof not misleading. Forum is not, however, protected
against any liability to the Trust or its shareholders to which Forum would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of Forum's reckless
disregard of its obligations and duties under the Distribution Services
Agreement.
With respect to each Fund, the Distribution Services Agreement will continue in
effect only if such continuance is specifically approved at least annually by
the Board or by the shareholders and, in either case, by a majority of the
Trustees who are not parties to the Distribution Services Agreement or
interested persons of any such party and, with respect to each class of a Fund
for which there is an effective plan of distribution adopted pursuant to Rule
12b-1, who do not have any direct or indirect financial interest in any
distribution plan of the Fund or in any agreement related to the distribution
plan cast in person at a meeting called for the purpose of voting on such
approval ("12b-1 Trustees").
The Distribution Services Agreement terminates automatically if assigned. With
respect to each Fund, the Distribution Services Agreement may be terminated at
any time without the payment of any penalty: (1) by the Board or by a vote of
the Fund's shareholders or, with respect to each class of a Fund for which there
is an effective plan of distribution adopted pursuant to Rule 12b-1, a majority
of 12b-1 Trustees, on 60 days' written notice to Forum or (2) by Forum on 60
days' written notice to the Trust.
Under the Distribution Services Agreement related to the Funds that offer A
Shares, Forum receives, and may reallow to certain financial institutions, the
initial sales charges assessed on purchases of A Shares of the Funds. With
respect to B Shares of each Fund that offers B Shares, and with respect to
Exchange Shares of Ready Cash Investment Fund, the Funds have adopted a
distribution plan pursuant to Rule 12b-1 under the 1940 Act (the "Plan") which
authorizes the payment to Forum under the Distribution Services Agreement of a
distribution services fee, which may not exceed an annual rate of 0.75%, and a
maintenance fee in an amount equal to 0.25%, of the average daily net assets of
the Fund attributable to the B Shares and Exchange Shares.
The Plan provides that all written agreements relating to the Plan must be in a
form satisfactory to the Board. In addition, the Plan requires the Trust and
Forum to prepare, at least quarterly, written reports setting forth all amounts
expended for distribution purposes by the Funds and Forum pursuant to the Plan
and identifying the distribution activities for which those expenditures were
made.
The Plan provides that, with respect to each class of each Fund to which it
applies, it will remain in effect for one year from the date of its adoption and
thereafter may continue in effect for successive annual periods provided it is
approved by the shareholders of the respective class or by the Board, including
a majority of the 12b-1 trustees. The Plan further provides that it may not be
amended to increase materially the costs which may be borne by the Trust for
distribution pursuant to the Plan without shareholder approval and that other
material amendments to the Plan must be approved by the trustees in the manner
described in the preceding sentence. The Plan may be terminated at any time by a
vote of the Board or by the shareholders of the respective classes.
The Plan is "semi-enhanced" in that under the circumstances described below,
payments to Forum under the Plan continue while there are uncovered distribution
charges even though the Plan has been terminated. Uncovered distribution charges
include all sales commissions previously due, plus interest, less amounts
previously received by Forum (or other distributor) pursuant to the Plan and
contingent deferred sales charges previously paid to Forum. The Plan provides
that in the event of a Complete Termination (as defined below) of the Plan with
respect to a Fund, payments by a Fund in consideration of sales of B Shares that
occurred prior to termination of the Plan will cease. A Complete Termination in
respect of any Fund means: (1) the 12b-1 Trustees acting in good faith have
determined that termination is in the best interest of the Trust and the
shareholders of the Fund; (2) the Trust does not alter the terms of the CDSC
applicable to the B Shares of the Fund outstanding at the time of the
termination; (3) the Trust does not pay any portion of the asset based sales
charge or service fees to an entity other than the distributor or its assignee
(unless the distributor at the time of the termination was in material breach
under the Distribution Agreement in respect of the Fund); and (4) the Fund does
not adopt a distribution plan relating to a class of shares of the Fund that has
a sales load structure substantially similar (as defined in the Plan) to that of
the B shares.
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<PAGE>
In the event of a termination of the Plan that does not satisfy clauses (2), (3)
and (4) of the definition of a Complete Termination above, Ready Cash Investment
Fund, ValuGrowth Stock Fund, Small Company Stock Fund, Contrarian Stock Fund,
Income Fund, Tax-Free Income Fund, Total Return Bond Fund and Minnesota Tax-Free
Fund would continue to pay distribution services fees for no more than four
years. In contrast, payments by Stable Income Fund, Intermediate Government
Income Fund, Growth Equity Fund and Diversified Equity Fund would continue until
such time as there exist no outstanding uncovered distribution charges
attributable to the Fund and, therefore, could continue for periods of time
beyond four years after the date of termination.
In addition, pursuant to the Plan, each of Stable Income Fund, Income Equity
Fund, Intermediate Government Income Fund, Diversified Equity Fund and Growth
Equity Fund may, subject to approval by the Trustees, assume and pay: (i) any
uncovered distribution charges of the distributor of a fund whose assets are
being acquired by the Fund and (ii) any other amounts expended for distribution
on behalf of such fund that are not reimbursed or paid by the fund upon the
merger or combination with or acquisition of substantially all of the assets of
that fund.
Table 3 in Appendix B shows the dollar amount of fees payable to Forum for its
distribution services with respect to each Fund (or class thereof), the amount
of fee that was waived by Forum, if any, and the actual fee received by Forum.
All maintenance fees were waived by Forum during the fiscal years ended May 31,
1994, 1995 and 1996. With respect to each Fund, Forum has paid brokers that sold
B Shares in amounts greater than the distribution fees received by Forum with
respect to that Fund. The data is for the past three fiscal years or shorter
period if the Fund has been in operation for a shorter period.
Table 4 in Appendix B shows the dollar amount of sales charges payable to Forum
with respect to sales of A Shares (or of the respective Funds prior to the
offering of multiple classes of shares) and the amount of sales charge retained
by Forum and not reallowed to other persons. The data is for the past three
fiscal years or shorter period if the Fund has been in operation for a shorter
period.
TRANSFER AGENT
Norwest Bank, 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 each Fund, at an annual rate of 0.25% of
the Fund's average daily net assets attributable to each class of the Fund
(0.20% plus expenses in the case of Cash Investment Fund and 0.10% plus expenses
in the case of Municipal Money Market Fund - Institutional Shares).
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<PAGE>
CUSTODIAN
Pursuant to a Custodian Agreement, Norwest Bank, Sixth Street and Marquette,
Minneapolis, Minnesota 55479 serves as each Fund's and each Core Portfolio's
(other than Schroder U.S. Smaller Companies Portfolio's) custodian (in this
capacity the "Custodian"). The Chase Manhattan Bank, N.A., acts as custodian for
Schroder U.S. Smaller Companies Portfolio, but plays no role in making decisions
as to the purchase or sale of portfolio securities. The Custodian's
responsibilities include safeguarding and controlling the Trust's cash and
securities, determining income and collecting interest on Fund investments. The
fee is computed and paid monthly, based on the average daily net assets of the
Fund, the number of portfolio transactions of the Fund and the number of
securities in the Fund's portfolio.
Pursuant to rules adopted under the 1940 Act, a Fund may maintain its foreign
securities and cash in the custody of certain eligible foreign banks and
securities depositories. Selection of these foreign custodial institutions is
made by the Board upon consideration of a number of factors, including (but not
limited to) the reliability and financial stability of the institution; the
ability of the institution to perform capably custodial services for the Fund;
the reputation of the institution in its national market; the political and
economic stability of the country in which the institution is located; and
possible risks of potential nationalization or expropriation of Fund assets. The
Custodian employs qualified foreign subcustodians to provide custody of the
Funds foreign assets in accordance with applicable regulations.
No Fund will pay custodian fees to the extent the Fund invests in shares of
another registered investment company. Each Fund so invested incurs, however,
its proportionate share of the custodial fees of the Core Portfolio(s) in which
it invests.
PORTFOLIO ACCOUNTING
Forum Accounting, an affiliate of Forum, performs portfolio accounting services
for each Fund pursuant to a Fund Accounting Agreement with the Trust. The Fund
Accounting Agreement will continue in effect only if such continuance is
specifically approved at least annually by the Board or by a vote of the
shareholders of the Trust and in either case by a majority of the Trustees who
are not parties to the Fund Accounting Agreement or interested persons of any
such party, at a meeting called for the purpose of voting on the Fund Accounting
Agreement.
Under the Fund Accounting Agreement, Forum Accounting prepares and maintains
books and records of each Fund on behalf of the Trust that are required to be
maintained under the 1940 Act, calculates the net asset value per share of each
Fund (and class thereof) and dividends and capital gain distributions and
prepares periodic reports to shareholders and the SEC. For its services, Forum
Accounting receives from the Trust with respect to each Fund (other than a
Gateway Fund) a fee of $3,000 per month plus for each additional class of the
Fund above one $1,000 per month. In addition, Forum Accounting is paid
additional surcharges for each of the following: (1) Funds with asset levels
exceeding $100 million - $500/month, Funds with asset levels exceeding $250
million - $1000/month, Funds with asset levels exceeding $500 million -
$1,500/month, Funds with asset levels exceeding $1,000 million - $2,000/month;
(2) Funds requiring international custody - $1,000/month; (3) Funds with more
than 30 international positions - $1,000/month; (4) Tax free money market Funds
- - $1,000/month; (5) Funds with more than 25% of net assets invested in asset
backed securities - $1,000/month, Funds with more than 50% of net assets
invested in asset backed securities - $2,000/month; (6) Funds with more than 100
security positions - $1,000/month; and (7) Funds with a monthly portfolio
turnover rate of 10% or greater - $1,000/month.
Forum Accounting receives from the Trust with respect to each Gateway Fund a
standard gateway fee of $1,000 per month plus for each additional class of the
Fund above one - $1,000 per month. Forum Accounting also receives a fee of
$2,000 per month for each Gateway Fund operating pursuant to Section 12(d)(1)(E)
of the 1940 Act that invests in more than one security. In addition to the
standard gateway fees, Forum Accounting is entitled to receive from the Trust
with respect to each Gateway Fund operating pursuant to Section 12(d)(1)(H) of
the 1940 Act additional surcharges as described above if the Fund invests in
securities other than investment companies (calculated as if the securities were
the Fund's only assets)
Surcharges are determined based upon the total assets, security positions or
other factors as of the end of the prior month and on the portfolio turnover
rate for the prior month. The rates set forth above shall remain fixed through
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<PAGE>
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 be liable to the Trust for any action or
inaction in the absence of bad faith, willful misconduct or gross negligence.
Forum Accounting is not responsible or liable for any failure or delay in
performance of its fund accounting obligations arising out of or caused,
directly or indirectly, by circumstances beyond its reasonable control and the
Trust has agreed to indemnify and hold harmless Forum Accounting, its employees,
agents, officers and directors against and from any and all claims, demands,
actions, suits, judgments, liabilities, losses, damages, costs, charges, counsel
fees and other expenses of every nature and character arising out of or in any
way related to Forum Accounting's actions taken or failures to act with respect
to a Fund or based, if applicable, upon information, instructions or requests
with respect to a Fund given or made to Forum Accounting by an officer of the
Trust duly authorized. This indemnification does not apply to Forum Accounting's
actions taken or failures to act in cases of Forum Accounting's own bad faith,
willful misconduct or gross negligence.
Forum Accounting performs similar services for the Portfolios and, in addition,
acts as the Portfolios' transfer agent.
Table 5 in Appendix B shows the dollar amount of fees payable to Forum
Accounting for its accounting services with respect to each Fund, the amount of
fee that was waived by Forum Accounting, if any, and the actual fee received by
Forum Accounting. The data is for the past three fiscal years or shorter period
if the Fund has been in operation for a shorter period.
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.
VI. PORTFOLIO TRANSACTIONS
The following discussion of portfolio transactions, while referring to the
Funds, relates equally to the Portfolios.
Purchases and sales of portfolio securities for the Money Market Funds and Fixed
Income Funds usually are principal transactions. Debt instruments are normally
purchased directly from the issuer or from an underwriter or market maker for
the securities. There usually are no brokerage commissions paid for such
purchases. The Equity Funds and the Balanced Funds generally will effect
purchases and sales of equity securities through brokers who charge commissions
except in the over-the-counter markets. Purchases of debt and equity securities
from underwriters of the securities include a disclosed fixed commission or
concession paid by the issuer to the underwriter, and purchases from dealers
serving as market makers include the spread between the bid and asked
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<PAGE>
price. In the case of debt securities and equity securities traded in the
foreign and domestic over-the-counter markets, there is generally no stated
commission, but the price usually includes an undisclosed commission or markup.
Allocations of transactions to brokers and dealers and the frequency of
transactions are determined by the Advisers in their best judgment and in a
manner deemed to be in the best interest of shareholders of each Fund rather
than by any formula. The primary consideration is prompt execution of orders in
an effective manner and at the most favorable price available to the Fund. In
transactions on stock exchanges in the United States, commissions are
negotiated, whereas on foreign stock exchanges commissions are generally fixed.
Where transactions are executed in the over-the-counter market, each Fund will
seek to deal with the primary market makers; but when necessary in order to
obtain best execution, they will utilize the services of others. In all cases
the Funds will attempt to negotiate best execution.
The Money Market Funds and Fixed Income Funds may effect purchases and sales
through brokers who charge commissions, although the Trust does not anticipate
that the Money Market Funds will do so. Table 6 in Appendix B shows the
aggregate brokerage commissions with respect to each Fund. The data presented is
for the past three fiscal years or a shorter period if the Fund has been in
operation for a shorter period, except as otherwise noted. Any material change
in the last two years in the amount of brokerage commissions paid by a fund was
due to an increase or decrease in the Fund's assets.
Subject to the general policies regarding allocation of portfolio brokerage as
set forth above, each of the Board, Core Trust Board and Schroder Core Board has
authorized the Investment Advisers to employ their respective affiliates to
effect securities transactions of the Funds or the Portfolios, provided certain
other conditions are satisfied. Payment of brokerage commissions to an affiliate
of an Investment Adviser for effecting such transactions is subject to Section
17(e) of the 1940 Act, which requires, among other things, that commissions for
transactions on securities exchanges paid by a registered investment company to
a broker which is an affiliated person of such investment company, or an
affiliated person of another person so affiliated, not exceed the usual and
customary brokers' commissions for such transactions. It is the Fund's policy
that commissions paid to Schroder Securities Limited, Norwest Investment
Services, Inc. ("NISI") and other affiliates of an Investment Adviser will, in
the judgment of the Investment Adviser responsible for making portfolio
decisions and selecting brokers, be: (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 an Adviser by the Funds satisfy the foregoing standards. The
Core Trust and Schroder Core Boards have adopted similar policies with respect
to the Portfolios.
No Fund has an understanding or arrangement to direct any specific portion of
its brokerage to an affiliate of an Investment Adviser, and will not direct
brokerage to an affiliate of an Investment Adviser in recognition of research
services.
From time to time, a Fund may purchase securities of a broker or dealer through
which it regularly engages in securities transactions.
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<PAGE>
During the last three fiscal years certain Funds paid brokerage commissions to
NISI, a wholly-owned broker-dealer subsidiary of the parent of Norwest, Norwest
Corporation. The following table indicates the Funds that paid commissions to
NISI, the aggregate amounts of commissions paid, the percentage of aggregate
brokerage commissions paid to NISI and the percentage of the aggregate dollar
amount of transactions involving payment of commissions that were effected
through NISI.
<TABLE>
<S> <C> <C> <C>
PERCENTAGE OF
COMMISSION
AGGREGATE PERCENTAGE TRANSACTIONS
COMMISSIONS OF COMMISSIONS EXECUTED
PAID TO NISI PAID TO NISI THROUGH NISI
VALUGROWTH STOCK FUND ------------ ------------ ------------
- ---------------------
Year Ended May 31, 1997 $41,474 8.25% 8.05%
Year Ended May 31, 1996 $10,494 2.41% 1.73%
Year Ended May 31, 1995 $12,213 1.78% 2.28%
</TABLE>
The practice of placing orders with NISI is consistent with each Fund's
objective of obtaining best execution and is not dependent on the fact that NISI
is an affiliate of Norwest.
The Funds and the Portfolios may not always pay the lowest commission or spread
available. Rather, in determining the amount of commissions, including certain
dealer spreads, paid in connection with securities transactions, an Investment
Adviser takes into account 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. The
Investment Advisers may also take into account payments made by brokers
effecting transactions for a Fund or Portfolio: (1) to the Fund or Portfolio or
(2) to other persons on behalf of the Fund or Portfolio for services provided to
the Fund or Portfolio for which it would be obligated to pay.
In addition, the Investment Advisers may give consideration to research services
furnished by brokers to the Advisers for their use and may cause the Funds and
Portfolios to pay these brokers a higher amount of commission than may be
charged by other brokers. Such research and analysis is of the types described
in Section 28(e)(3) of the Securities Exchange Act of 1934, as amended, and is
designed to augment the Investment Adviser's own internal research and
investment strategy capabilities. Such research and analysis may be used by the
Investment Advisers in connection with services to clients other than the Funds
and Portfolios, and not all such services may be used by the Investment Adviser
in connection with the Funds. An Investment Adviser's fees are not reduced by
reason of the Investment Adviser's receipt of the research services.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. and subject to the obligation to seek the most
favorable price and execution available and such other policies as the Boards
may determine, an Adviser may consider sales of shares of the Fund as a factor
in the selection of broker-dealers to execute portfolio transactions for the
Fund.
Investment decisions for the Funds (and for the Portfolios) will be made
independently from those for any other account or investment company that is or
may in the future become managed by the Investment Advisers or their affiliates.
Investment decisions are the product of many factors, including basic
suitability for the particular client involved. Thus, a particular security may
be bought or sold for certain clients even though it could have been bought or
sold for other clients at the same time. Likewise, a particular security may be
bought for one or more clients when one or more clients are selling the
security. In some instances, one client may sell a particular security to
another client. It also sometimes happens that two or more clients
simultaneously purchase or sell the same security, in which event each day's
transactions in such security are, insofar as is possible, averaged as to price
and allocated between such clients in a manner which, in the respective
investment adviser's opinion, is equitable to each and in accordance with the
amount being purchased or sold by each. There may be circumstances when
purchases or sales of a portfolio security for one client could have an adverse
effect on another client that has a position in that security. In addition, when
purchases or sales of the same security for a Fund and other client
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<PAGE>
accounts managed by the investment advisers occur contemporaneously, the
purchase or sale orders may be aggregated in order to obtain any price
advantages available to large denomination purchases or sales.
During their last fiscal year, certain Funds acquired securities issued by their
"regular brokers and dealers" or the parents of those brokers and dealers.
Regular brokers and dealers means the 10 brokers or dealers that: (1) received
the greatest amount of brokerage commissions during the Fund's last fiscal year;
(2) engaged in the largest amount of principal transactions for portfolio
transactions of the Fund during the Fund's last fiscal year; or (3) sold the
largest amount of the Fund's shares during the Fund's last fiscal year.
Following is a list of the regular brokers and dealers of the Funds whose
securities (or the securities of the parent company) were acquired during the
past fiscal year and the aggregate value of the Funds' holdings of those
securities as of May 31, 1997.
<TABLE>
<S> <C> <C>
REGULAR BROKER VALUE OF
OR DEALER SECURITIES HELD
--------- ---------------
CASH INVESTMENT FUND Bear, Stearns & Company $75,000,000
CS First Boston $15,000,000
Merrill Lynch & Co. $47,497,784
Morgan Stanley $345,781,386
READY CASH INVESTMENT FUND Bear, Stearns & Company $50,000,000
CS First Boston $10,000,000
Merrill Lynch & Co. $37,499,817
Morgan Stanley $55,000,000
U.S. GOVERNMENT FUND Bank of America Securities 345,781,386
TREASURY FUND None 0
MUNICIPAL MONEY MARKET FUND None 0
STABLE INCOME FUND Lehman Brothers Holdings 1,043,889
INTERMEDIATE GOVERNMENT FUND None 0
DIVERSIFIED BOND FUND Lehman Brothers Holdings 1,092,216
Paine Webber Group, Inc. 991,450
Dean Witter 977,500
Charles Schwab Corporation 562,630
INCOME FUND None 0
TOTAL RETURN BOND FUND Salomon Brothers Inc. 1,205,617
LIMITED TERM TAX-FREE FUND None 0
TAX-FREE INCOME FUND None 0
COLORADO TAX FREE FUND None 0
MINNESOTA TAX FREE FUND` None 0
STRATEGIC INCOME FUND Charles Schwab Corporation 187,544
Dean Witter 293,598
Paine Webber Group, Inc. 495,725
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Salomon Brothers Inc. 497,433
Bear Stearns Company 500,232
Charles Schwab Corporation 487,425
Donaldson, Lufkin & Jenrette, Inc. 111,562
MODERATE BALANCED FUND Charles Schwab Corporation 562,630
Dean Witter 636,131
Lehman Brothers Inc. 819,162
Paine Webber Group, Inc. 1,090,595
Salomon Brothers Inc. 895,522
Charles Schwab Corporation 1,940,000
Donaldson, Lufkin & Jenrette, Inc. 427,126
GROWTH BALANCED FUND Charles Schwab Corporation 562,629
Dean Witter 636,130
Lehman Brothers, Inc. 819,162
Paine Webber Group, Inc. 991,450
Salomon Brothers Inc. 497,432
Charles Schwab Corp. 3,533,225
Donaldson, Lufkin & Jenrette, Inc. 784,125
INCOME EQUITY FUND None 0
INDEX FUND Merrill Lynch & Co., Inc. 498,575
Morgan Stanley Group, Inc. 336,600
Salomon Brothers, Inc. 192,626
VALUGROWTH STOCK FUND None 0
DIVERSIFIED EQUITY FUND Charles Schwab Corporation 9,971,600
Donaldson, Lufkin & Jenrette, Inc. 2,218,502
GROWTH EQUITY FUND Charles Schwab Corporation 11,300,500
Donaldson, Lufkin & Jenrette, Inc. 2,524,500
LARGE COMPANY GROWTH FUND Charles Schwab Corporation 11,300,500
Donaldson, Lufkin & Jenrette, Inc. 2,524,500
SMALL COMPANY STOCK FUND None 0
SMALL COMPANY GROWTH FUND None 0
CONTRARIAN STOCK FUND None 0
INTERNATIONAL FUND None 0
</TABLE>
PORTFOLIO TURNOVER. A high rate of portfolio turnover involves corresponding
greater expenses than a lower rate, which expenses must be borne by a fund and
its shareholders. High portfolio turnover also may result in the realization of
substantial net short-term capital gains. In order to qualify as a regulated
investment company for Federal tax purposes for taxable years beginning on or
before August 5, 1997, less than 30% of the gross income of the Fund in that
year must be derived from the sale of securities held by the Fund for less than
three months. See "Taxation" below. Portfolio turnover rates are set forth under
"Financial Highlights" in the Funds Prospectuses. The change in portfolio
turnover rate for Income Fund and Intermediate Government Income Fund from 1995
to
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1996 was due in part to the change in portfolio managers. Other significant
changes in portfolio turnover rates was due to changing market conditions and
the effect of those conditions on the Funds' investment policies.
VII. ADDITIONAL PURCHASE, REDEMPTION AND
EXCHANGE INFORMATION GENERAL
Shares of all Funds are sold on a continuous basis by the distributor.
The per share net asset values of each class of shares of a Fund are expected to
be substantially the same. Under certain circumstances, however, the per share
net asset value of each class may vary. Due to the higher expenses of B Shares,
the net asset value of B Shares will generally be lower than the net asset value
of the other classes. The per share net asset value of each class of a Fund
eventually will tend to converge immediately after the payment of dividends,
which will differ by approximately the amount of the expense accrual
differential among the classes.
MONEY MARKET FUNDS
As described in the Prospectuses, under certain circumstances a Money Market
Fund may close early and advance time by which the Fund must receive a purchase
or redemption order and payments. In that case, if an investor placed an order
after the cut-off time the order would be processed on the follow-up business
day and the investor's access to the fund would be temporarily limited.
CLASS A SHARES
OFFERING PRICE. Set forth below is an example of the method of computing the
offering price of the A Shares of the Funds that offer A Shares. Other shares of
the Trust are offered at their next determined net asset value. The example
assumes a purchase of A Shares of the Fixed Income and Equity Funds' in an
amount such that the purchase would be subject to each Fund's maximum sales
charges set forth in the Prospectus at a price based on the net asset value per
share of A Shares of each Fund at May 31, 1997. The maximum sales charge as of
October 1, 1997 are 5.5% for each Equity Fund and 4.0% for each Fixed Income
Fund, except Stable Income Fund, for which it was 1.50%. Offering price is
determined as follows: Net asset value per share times the sum of one (1) plus
the sales charge expressed as a percentage (for example 5.5% would equal 0.055).
<TABLE>
<S> <C> <C>
NET ASSET OFFERING
VALUE PER SHARE PRICE
--------------- -----
STABLE INCOME FUND $10.24 $10.39
INTERMEDIATE GOVERNMENT INCOME FUND $10.84 $11.27
INCOME FUND $ 9.27 $ 9.64
TOTAL RETURN BOND FUND $ 9.40 $ 9.78
TAX-FREE INCOME FUND $10.05 $10.45
COLORADO TAX-FREE FUND $10.22 $10.63
MINNESOTA TAX-FREE FUND $10.57 $10.99
INCOME EQUITY FUND $33.16 $34.98
VALUGROWTH STOCK FUND $25.06 $26.44
DIVERSIFIED EQUITY FUND $36.51 $38.52
GROWTH EQUITY FUND $32.49 $34.28
SMALL COMPANY STOCK FUND $13.95 $14.72
SMALL CAP OPPORTUNITIES FUND $19.83 $20.92
INTERNATIONAL FUND $21.66 $22.85
</TABLE>
STATEMENT OF INTENTION
As more fully described in the Prospectus, investors may obtain reduced sales
charges with respect to the purchase of A Shares of the Funds by means of a
written Statement of Intention, which expresses the investor's intention to
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invest $50,000 or more within a period of 13 months in A Shares of a Fund. The
Statement of Intention is not a binding obligation upon the investor to purchase
the full amount indicated. A Shares purchased with the first 5% of such amount
will be held subject to a registered pledge (while remaining registered in the
name of the investor) to secure payment of the higher sales charge applicable to
the shares actually purchased if the full amount indicated is not purchased, and
such pledged shares will be involuntarily redeemed to pay the additional sales
charge, if necessary. When the full amount indicated has been purchased, the
shares will be released from pledge.
EXCHANGES
By making an exchange by telephone, the investor authorizes the Trust's transfer
agent to act on telephonic instructions believed by the Trust's transfer agent
to be genuine instructions from any person representing himself or herself to be
the investor. The records of the Trust's transfer agent of such instructions are
binding. The exchange procedures may be modified or terminated at any time upon
appropriate notice to shareholders. For Federal income tax purposes, exchanges
are treated as sales on which a purchaser will realize a capital gain or loss
depending on whether the value of the shares redeemed is more or less than the
shareholder's basis in such shares at the time of such transaction.
Shareholders of A Shares may purchase, with the proceeds from a redemption of
all or part of their shares, A Shares of the other Funds that offer A Shares or
Investor Shares of Ready Cash Investment Fund or Municipal Money Market Fund.
Shareholders of B Shares may purchase, with the proceeds from a redemption of
all or part of their shares, B Shares of the other Funds that offer B Shares or
Exchange Shares of Ready Cash Investment Fund. Shareholders of I Shares may
purchase, with the proceeds from a redemption of all or part of their shares, I
Shares of the other Funds or Institutional Shares of Ready Cash Investment Fund
or Municipal Money Market Fund or shares of U.S. Government Fund and Treasury
Fund.
Shareholders of Investor Shares of Ready Cash Investment Fund and Municipal
Money Market Fund may purchase, with the proceeds from a redemption of all or
part of their shares, Investor Shares of the other Fund or A Shares of the Funds
that offer A Shares. Shareholders of Exchange Shares of Ready Cash Investment
Fund may purchase, with the proceeds from a redemption of all or part of their
shares, B Shares of the Funds that offer B Shares.
Shareholders of Institutional Shares of Ready Cash Investment Fund and Municipal
Money Market Fund and others who are eligible to purchase I Shares may purchase,
with the proceeds from a redemption of all or part of their shares,
Institutional Shares of these Funds, or I Shares of the other Funds of the
Trust.
Shareholders of Institutional Shares of Municipal Money Market Fund who are not
eligible to purchase I Shares may purchase, with the proceeds from a redemption
of all or part of their shares, shares of Cash Investment Fund, U.S. Government
Fund and Treasury Fund. Similarly, shareholders of Cash Investment Fund, U.S.
Government Fund and Treasury Fund who are not eligible to purchase I Shares may
purchase, with the proceeds from a redemption of all or part of their shares,
shares of the other two Funds or Institutional Shares of Municipal Money Market
Fund.
Shareholders of A Shares or Investor Shares making an exchange will be subject
to the applicable sales charge of any A Shares acquired in the exchange;
provided, that the sales charge charged with respect to the acquired shares will
be assessed at a rate that is equal to the excess (if any) of the rate of the
sales charge that would be applicable to the acquired shares in the absence of
an exchange over the rate of the sales charge previously paid on the exchanged
shares. For purposes of the preceding sentence, A Shares acquired through the
reinvestment of dividends or distributions are deemed to have been acquired with
a sales charge rate equal to that paid on the shares on which the dividend or
distribution was paid.
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In addition, A Shares and Investor Shares acquired by a previous exchange
transaction involving shares on which a sales charge has directly or indirectly
been paid (e.g., shares purchased with a sales charge or issued in connection
with an exchange transaction involving shares that had been purchased with a
sales charge), as well as additional shares acquired through reinvestment of
dividends or distributions on such shares will be treated as if they had been
acquired subject to that sales charge.
Exchange Shares may only be acquired in exchange for B Shares of a Fund. B
Shares ("original B Shares") may be exchanged for Exchange Shares without the
payment of any contingent deferred sales charge; however, B Shares or Exchange
Shares acquired as a result of an exchange and subsequently redeemed will
nonetheless be subject to the contingent deferred sales charge applicable to the
original B Shares as if those shares were being redeemed at that time. Exchange
Shares may be exchanged without the payment of any contingent deferred sales
charge; however, B Shares acquired as a result of such exchange and subsequently
redeemed will nonetheless be subject to the contingent deferred sales charge
applicable to the original B Shares as if those shares were being redeemed at
that time.
REDEMPTIONS
In addition to the situations described in the Prospectus with respect to the
redemptions of shares, the Trust may redeem shares involuntarily to reimburse a
Fund for any loss sustained by reason of the failure of a shareholder to make
full payment for shares purchased by the shareholder or to collect any charge
relating to transactions effected for the benefit of a shareholder which is
applicable to a Fund's shares as provided in the Prospectus from time to time.
Proceeds of redemptions normally are paid in cash. However, payments may be made
wholly or partially in portfolio securities if the Board determines that payment
in cash would be detrimental to the best interests of the Fund. If payment for
shares redeemed is made wholly or partially in portfolio securities, brokerage
costs may be incurred by the shareholder in converting the securities to cash.
The Trust has filed a formal election with the SEC pursuant to which a Fund will
only effect a redemption in portfolio securities if the particular shareholder
is redeeming more than $250,000 or 1% of the Fund's total net assets, whichever
is less, during any 90-day period.
CONTINGENT DEFERRED SALES CHARGE (A SHARES)
A Shares of the Funds on which no initial sales charge was assessed pursuant to
the Right of Accumulation or Statement of Intention, that are redeemed within
specified periods after the purchase date will be subject to a contingent
deferred sales charge upon redemption.
RIGHT OF ACCUMULATION
Contingent deferred sales charges may be charged on A Shares purchased without
an initial sales charge pursuant to the Cumulative Quantity Discount (Right of
Accumulation) that are redeemed within the first two years after purchase. No
initial sales charge will apply to A Shares purchased if the value of those
shares on the date of purchase plus the net asset value of all A Shares held by
the shareholder (as of the close of business on the previous Fund Business Day)
exceed $1,000,000. In that case the contingent deferred sales charge will apply
to redemptions of shares within the first two years after purchase. For example,
if a shareholder has made prior purchases of A Shares which now have a value of
$900,000, the purchase of $150,000 of A Shares will not be subject to an initial
sales charge but will be subject to the contingent deferred sales charge. The
$900,000 of A Shares is not subject to the contingent deferred sales charge.
STATEMENT OF INTENTION
Contingent deferred sales charges may be charged on redemptions of A Shares
purchased without an initial sales charge pursuant to a Statement of Intention
("SOI") that are redeemed within the first two years after purchase. If a
shareholder purchases $1,000,000 or more within a 13 month period under an SOI,
no initial sales charge will apply with respect
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to the entire amount purchased. However, the contingent deferred sales charge
will apply with respect to the entire amount purchased amount if the shareholder
never purchases $1,000,000 or more of A Shares under the SOI. The contingent
deferred sales charge will not apply to SOIs of under $1,000,000 and will not be
applied to SOIs for a greater amount. The holding period for each A Share,
however, shall be determined from the date the share was purchased. If the
shareholder redeems A Shares during the period that the SOI is in effect, a
contingent deferred sales charge will be charged at the time the shareholder has
purchased $1,000,000 or more worth of A Shares pursuant to the SOI and will be
assessed at the rate applicable in the case of a single purchase of the minimum
amount specified in the SOI. If the shareholder purchases less than the amount
specified under the SOI, an additional contingent deferred sales charge may be
assessed in respect of A Shares previously redeemed based on the amount actually
purchased pursuant to the SOI.
REINSTATEMENT PRIVILEGE
A Shares purchased by a shareholder within 60 days following the redemption by
the shareholder of A Shares in the same Fund with a value at least equal to the
A Shares being purchased will not be subject to a contingent deferred sales
charge; provided, however, that this exemption is not applicable to more than
two purchases within a 12-month period.
CONTINGENT DEFERRED SALES CHARGE (A SHARES AND B SHARES)
With respect to A Shares and B Shares of the Funds, certain redemptions are not
subject to any contingent deferred sales charge. No contingent deferred sales
charge is imposed on: (1) redemptions of shares acquired through the
reinvestment of dividends and distributions; (2) involuntary redemptions by a
Fund of shareholder accounts with low account balances; (3) redemptions of
shares following the death or disability of a shareholder if the Fund is
notified within one year of the shareholder's death or disability; and (4)
redemptions to effect a distribution (other than a lump sum distribution) from
an IRA, Keogh plan or Section 403(b) custodial account or from a qualified
retirement plan. For these purposes, the term disability shall have the meaning
ascribed thereto in Section 72(m)(7) of the Code. Under that provision, a person
is considered disabled if the person is unable to engage in any substantial
activity by reason of any medically determinable physical or mental impairment
which can be expected to result in death or to be of long-continued and
indefinite duration. Appropriate documentation satisfactory to the Fund is
required to substantiate any shareholder death or disability.
CONVERSION OF B SHARES AND EXCHANGE SHARES
The conversion of Exchange Shares to Investor Shares and B Shares to A Shares is
subject to the continuing availability of an opinion of counsel to the effect
that: (1) the assessment of the distribution services fee with respect to the
Exchange Shares and B Shares does not result in the Funds dividends or
distributions constituting "preferential dividends" under the Code and (2) the
conversion of Exchange Shares and B Shares does not constitute a taxable event
under Federal income tax law. The conversion of Exchange Shares to Investor
Shares and B Shares to A Shares may be suspended if such an opinion is no longer
available at the time the conversion is to occur. In that event, no further
conversions would occur, and shares might continue to be subject to a
distribution services fee for an indefinite period, which may extend beyond the
specified number of years for conversion of the original B Shares.
VIII. TAXATION
Each Fund intends for each taxable year to qualify for tax treatment as a
"regulated investment company" under the Code. Such qualification does not, of
course, involve governmental supervision of management or investment practices
or policies. Investors should consult their own counsel for a complete
understanding of the requirements each Fund must meet to qualify for such
treatment, and of the application of state and local tax laws to his or her
particular situation.
Since each Money Market Fund and Fixed Income Fund expects to derive
substantially all of its gross income (exclusive of capital gains) from sources
other than dividends, it is expected that none of such Funds' dividends or
distributions will qualify for the dividends-received deduction for
corporations.
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Certain listed options, regulated futures contracts and forward currency
contracts are considered "section 1256 contracts" for Federal income tax
purposes. Section 1256 contracts held by a Fund or Core Portfolio at the end of
each taxable year will be "marked to market" and treated for Federal income tax
purposes as though sold for fair market value on the last business day of such
taxable year. Gain or loss realized by a Fund or Core Portfolio on section 1256
contracts generally will be considered 60% long-term and 40% short-term capital
gain or loss. Each Fund or Core Portfolio can elect to exempt its section 1256
contracts which are part of a "mixed straddle" (as described below) from the
application of section 1256.
With respect to over-the-counter put and call options, gain or loss realized by
a Fund or Core Portfolio upon the lapse or sale of such options held by such
Fund or Core Portfolio will be either long-term or short-term capital gain or
loss depending upon the Fund's (or Core Portfolio's) holding period with respect
to such option. However, gain or loss realized upon the lapse or closing out of
such options that are written by a Fund or Core Portfolio will be treated as
short-term capital gain or loss. In general, if a Fund or Core Portfolio
exercises an option, or an option that a Fund or Core Portfolio has written is
exercised, gain or loss on the option will not be separately recognized but the
premium received or paid will be included in the calculation of gain or loss
upon disposition of the property underlying the option.
Any option, futures contract, or other position entered into or held by a Fund
in conjunction with any other position held by such Fund or Core Portfolio may
constitute a "straddle" for Federal income tax purposes. A straddle of which at
least one, but not all, the positions are section 1256 contracts may constitute
a "mixed straddle". In general, straddles are subject to certain rules that may
affect the character and timing of a Fund's (or Core Portfolio's) gains and
losses with respect to straddle positions by requiring, among other things,
that: (1) loss realized on disposition of one position of a straddle not be
recognized to the extent that a Fund has unrealized gains with respect to the
other position in such straddle; (2) a Fund's (or Core Portfolio's) holding
period in straddle positions be suspended while the straddle exists (possibly
resulting in gain being treated as short-term capital gain rather than long-term
capital gain); (3) losses recognized with respect to certain straddle positions
which are part of a mixed straddle and which are non-section 1256 positions be
treated as 60% long-term and 40% short-term capital loss; (4) losses recognized
with respect to certain straddle positions which would otherwise constitute
short-term capital losses be treated as long-term capital losses; and (5) the
deduction of interest and carrying charges attributable to certain straddle
positions may be deferred. Various elections are available to a Fund or Core
Portfolio which may mitigate the effects of the straddle rules, particularly
with respect to mixed straddles. In general, the straddle rules described above
do not apply to any straddles held by a Fund or Core Portfolio all of the
offsetting positions of which consist of section 1256 contracts.
For federal income tax purposes, gains and losses attributable to fluctuations
in exchange rates which occur between the time a Fund accrues interest or other
receivables or accrues expenses or other liabilities denominated in a foreign
currency and the time the Fund actually collects such receivables or pays such
liabilities are treated as ordinary income or ordinary loss. Similarly, gains or
losses from the disposition of foreign currencies, from the disposition of debt
securities denominated in a foreign currency, or from the disposition of a
forward contract denominated in a foreign currency which are attributable to
fluctuations in the value of the foreign currency between the date of
acquisition of the asset and the date of disposition also are treated as
ordinary gain or loss.
A Fund's (or Core Portfolio'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 or Core Portfolio may be forced to sell other portfolio
securities.
If International Fund is eligible to do so, the Fund intends to file an election
with the Internal Revenue Service to pass through to its shareholders its share
of the foreign taxes paid by the Fund. Pursuant to this election, a shareholder
will be required to: (1) include in gross income rata share of foreign taxes
paid by the Fund; (2) treat his pro rata share of such foreign taxes as having
been paid by him; and (3) either deduct such pro rata share of foreign taxes in
computing his taxable income or treat such foreign taxes as a credit against
federal income taxes.
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No deduction for foreign taxes may be claimed by an individual shareholder who
does not itemize deductions. In addition, certain shareholders may be subject to
rules which limit or reduce their ability to fully deduct, or claim a credit
for, their pro rata share of the foreign taxes paid by the Fund. Under recently
enacted legislation, a shareholder's foreign tax credit with respect to a
dividend received from the Fund will be disallowed unless the shareholder holds
shares in the Fund at least 16 days during the 30-day period beginning 15 days
before the date on which the shareholder becomes entitled to receive the
dividend.
IX. ADDITIONAL INFORMATION ABOUT THE TRUST AND
THE SHAREHOLDERS OF THE FUNDS
DETERMINATION OF NET ASSET VALUE - MONEY MARKET FUNDS
Pursuant to the rules of the SEC, the Board has established procedures to
stabilize each Money Market Funds' net asset value at $1.00 per share. These
procedures include a review of the extent of any deviation of net asset value
per share as a result of fluctuating interest rates, based on available market
rates, from the Fund's $1.00 amortized cost price per share. Should that
deviation exceed 1/2 of 1%, the Board will consider whether any action should be
initiated to eliminate or reduce material dilution or other unfair results to
shareholders. Such action may include redemption of shares in kind, selling
portfolio securities prior to maturity, reducing or withholding dividends and
utilizing a net asset value per share as determined by using available market
quotations. Each Fund will maintain a dollar-weighted average portfolio maturity
of 90 days or less, will not purchase any instrument with a remaining maturity
greater than 397 days or subject to a repurchase agreement having a duration of
greater than 397 days, will limit portfolio investments, including repurchase
agreements, to those U.S. dollar-denominated instruments that the Board has
determined present minimal credit risks and will comply with certain reporting
and recordkeeping procedures. The Trust has also established procedures to
ensure that portfolio securities meet the Funds' high quality criteria.
COUNSEL AND AUDITORS
Legal matters in connection with the issuance of shares of beneficial interest
of the Trust are passed upon by the law firm of Seward & Kissel, One Battery
Park Plaza, New York, NY 10004.
KPMG Peat Marwick LLP, 99 High Street, Boston, MA 02110, independent auditors,
served as the independent auditors for the Trust for the fiscal years ended May
31, 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 is divided into thirty nine separate series representing shares of the
Funds. The Trust received an order from the SEC permitting the issuance and sale
of separate classes of shares representing interests in each of the Trust's
existing funds; however, the Trust currently issues and operates the various
Funds, separate classes of shares under the provisions of 1940 Act.
The Board has determined that currently no conflict of interest exists between
or among each Fund's A Shares, B Shares and I Shares, among Ready Cash
Investment Fund's Institutional, Investor and Exchange Shares and between
Municipal Money Market Fund's Institutional and Investor Shares. On an ongoing
basis, the Board, pursuant to its fiduciary duties under the 1940 Act and state
law, will seek to ensure that no such conflict arises.
The Trust's shareholders are not personally liable for the obligations of the
Trust under Delaware law. The Delaware Business Trust Act (the "Delaware Act")
provides that a shareholder of a Delaware business trust shall be entitled to
the same limitation of liability extended to shareholders of private
corporations for profit. However, no similar statutory or other authority
limiting business trust shareholder liability exists in many other states. As a
result, to the extent that the Trust or a shareholder is subject to the
jurisdiction of courts in those states, the courts may not apply Delaware law,
and may thereby subject the Trust shareholders to liability. To guard against
this risk, the Trust Instrument of the Trust disclaims shareholder liability for
acts or obligations of the Trust and requires that
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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 Funds, the Trust agreed in each Investment
Advisory Agreement with Norwest that if Norwest ceases to act as investment
adviser to the Trust or any Fund whose name includes the word "Norwest," or if
Norwest requests in writing, the Trust shall take prompt action to change the
name of the Trust and any such Fund to a name that does not include the word
"Norwest." Norwest may from time to time make available without charge to the
Trust for the Trust's use any marks or symbols owned by Norwest, including marks
or symbols containing the word "Norwest" or any variation thereof, as Norwest
deems appropriate. Upon Norwest's request in writing, the Trust shall cease to
use any such mark or symbol at any time. The Trust has acknowledged that any
rights in or to the word "Norwest" and any such marks or symbols which exist or
may exist, and under any and all circumstances, shall continue to be, the sole
property of Norwest. Norwest may permit other parties, including other
investment companies, to use the word "Norwest" in their names without the
consent of the Trust. The Trust shall not use the word "Norwest" in conducting
any business other than that of an investment company registered under the Act
without the permission of Norwest.
RECENT MERGERS
As of May 17, 1996, three portfolios of the Trust, Adjustable U.S. Government
Reserve Fund, Government Income Fund and Income Stock Fund (the "Acquired
Funds") were reorganized into Stable Income Fund, Intermediate Government Income
Fund and Income Equity Fund (the "Acquiring Funds"), respectively through the
acquisition of all the assets and liabilities of the Acquired Funds by the
corresponding Acquiring Funds. Each Acquiring Fund commenced operations prior to
that date and was the entity that continued its existence after the
transactions. Performance information for the Acquiring Funds only reflects the
Acquiring Funds, performance and all fees listed in this Statement of Additional
Information reflect the fees paid by the Acquiring Funds.
SHAREHOLDINGS
Table 7 to Appendix A lists the persons who owned of record 5% or more of the
outstanding shares of a class of shares of a Fund as of March 2, 1998.
FINANCIAL STATEMENTS
The financial statements of each Fund for the semi-annual period ended November
30, 1997 (which include statements of assets and liabilities, statements of
operations, statements of changes in net assets, notes to financial statements,
financial highlights and portfolios of investments) are included in the
Semi-Annual Report to Shareholders of the Trust delivered along with this SAI
and are incorporated herein by reference. The financial statements of each Fund
for the year ended May 31, 1997 (which include statements of assets and
liabilities, statements of operations, statements of changes in net assets,
notes to financial statements, financial highlights, portfolios of investments
and the independent auditors' report thereon) are included in the Annual Report
to Shareholders of the Trust delivered along with this SAI and are incorporated
herein by reference.
REGISTRATION STATEMENT
This SAI and the Prospectus do not contain all the information included in the
Trust's registration statement filed with the SEC under the 1933 Act with
respect to the securities offered hereby, certain portions of which have been
omitted pursuant to the rules and regulations of the SEC. The registration
statement, including the exhibits filed therewith, may be examined at the office
of the SEC in Washington, D.C.
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Statements contained herein and in the Prospectus as to the contents of any
contract or other documents are not necessarily complete, and, in each instance,
are qualified by, reference is made to the copy of such contract or other
documents filed as exhibits to the registration statement.
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APPENDIX A - DESCRIPTION OF SECURITIES RATINGS
MUNICIPAL AND CORPORATE BONDS (INCLUDING CONVERTIBLE BONDS)
MOODY'S INVESTORS SERVICE ("MOODY'S")
Moody's rates corporate bond issues, including convertible debt issues, as
follows:
Bonds which are rated "Aaa" are judged by Moody's to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Bonds which are rated "Aa" are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long term risks appear somewhat larger than in "Aaa"
securities.
Bonds which are rated "A" possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment some time in the future.
Bonds which are rated "Baa" are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payment and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Bonds which are rated "Ba" are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
Bonds which are rated "B" generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Bonds which are rated "Caa" are of poor standing. Such issues may be in default
or there may be present elements of danger with respect to principal or
interest.
Bonds which are rated "Ca" represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
Bonds which are rated "C" are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Note: Those bonds in the "Aa", "A", "Baa", "Ba" or "B" groups which Moody's
believes possess the strongest investment attributes are designated by the
symbols "Aa1", "A1", "Baa1", "Ba1", and "B1".
A-1
<PAGE>
STANDARD AND POOR'S CORPORATION ("S&P")
S&P rates corporate bond issues, including convertible debt issues, as follows:
Bonds rated "AAA" have the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
Bonds rated "AA" have a very strong capacity to pay interest and repay principal
and differ from the highest rated issues only in small degree.
Bonds rated "A" have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt rated in higher rated
categories.
Bonds rated "BBB" are regarded as having an adequate capacity to pay interest
and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to weakened capacity to pay interest and repay principal for debt
in this category than in higher rated categories.
Bonds rated "BB", "B", "CCC", "CC" and "C" are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. "BB"
indicates the lowest degree of speculation and "C" the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions. Bonds rated "BB" have less near-term
vulnerability to default than other speculative issues. However, they face major
ongoing uncertainties or exposure to adverse business, financial, or economic
conditions which could lead to inadequate capacity to meet timely interest and
principal payments.
Bonds rated "B" have a greater vulnerability to default but currently have the
capacity to meet interest payments and principal payments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal.
Bonds rated "CCC" have currently identifiable vulnerability to default, and are
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, they are not likely to have the
capacity to pay interest and repay principal.
Bonds rated "C" typically are subordinated to senior debt which as assigned an
actual or implied "CCC" debt rating. This rating may also be used to indicate
imminent default.
The "C" rating may be used to cover a situation where a bankruptcy petition has
been filed, but debt service payments are continued. The rating "Cl" is reserved
for income bonds on which no interest is being paid.
Bonds are rated "D" when the issue is in payment default, or the obligor has
filed for bankruptcy. The "D" rating category is used when interest payments or
principal payments are not made on the date due, even if the applicable grace
period has not expired, unless S&P believes that such payments will made during
such grace period.
Note: The ratings from "AA" to "CCC" may be modified by the addition of a plus
(+) or minus (-) sign to show the relative standing within the rating category.
A-2
<PAGE>
DUFF & PHELPS CREDIT RATING CO. ("D&P")
Duff & Phelps Long-Term Rating Scale
AAA: Highest credit quality. The risk factors are negligible.
AA+, AA, AA-: High credit quality. Protection factors are strong. Risk
is modest but may vary slightly from time to time because of economic
conditions.
A+, A, A-: Protection factors are average but adequate. However, risk
factors are more variable and greater in periods of economic stress.
BBB+, BBB, BBB-: Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
BB+, BB, BB-: Below investment grade but deemed likely to meet
obligations when due. Present or prospective financial protection factors
fluctuate according to industry conditions or company fortunes. Overall quality
may move up or down frequently within this category.
B+, B, B-: Below investment grade and possessing risk that obligations
will not be met when due. Financial protection factors will fluctuate widely
according to economic cycles, industry conditions and/or company fortunes.
Potential exists for frequent changes in the rating within this category or into
a higher or lower rating grade.
CCC: Well below investment grade securities. Considerable uncertainty
exists as to timely payment of principal, interest or preferred dividends.
Protection factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.
DD: Defaulted debt obligations. Issuer failed to meet schedule
principal and/or interest payments.
A-3
<PAGE>
FITCH IBCA, INC . ("FITCH")
Fitch rates corporate bond issues, including convertible debt issues, as
follows:
"AAA" Bonds are considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
"AA" Bonds are considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA". Because bonds rated
in the "AAA" and "AA" categories are not significantly vulnerable to foreseeable
future developments, shorter-term debt of these issuers is generally rated F-1+.
"A" Bonds are considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
"BBB" Bonds are considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds, and therefore
impair timely payment. The likelihood that the ratings of these bonds will fall
below investment grade is higher than for bonds with higher ratings.
"BB" Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
"B" Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
"CCC" Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
"CC" Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
"C" Bonds are in imminent default in payment of interest or principal.
"DDD", "DD", and "D" Bonds are in default on interest and/or principal payments.
Such bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. "DDD"
represents the highest potential for recovery on these bonds, and "D" represents
the lowest potential for recovery.
Plus (+) and minus (-) signs are used with a rating symbol to indicate the
relative position of a credit within the rating category. Plus and minus signs,
however, are not used in the "AAA", "DDD", "DD", or "D" categories.
A-4
<PAGE>
PREFERRED STOCK
MOODY'S INVESTORS SERVICE
Moody's rates preferred stock as follows:
An issue rated "aaa" is considered to be a top-quality preferred stock. This
rating indicates good asset protection and the least risk of dividend impairment
among preferred stock issues.
An issue rated "aa" is considered a high-grade preferred stock. This rating
indicates that there is a reasonable assurance that earnings and asset
protection will remain relatively well maintained in the foreseeable future.
An issue rated "a" is considered to be an upper-medium grade preferred stock.
While risks are judged to be somewhat greater than in the "aaa" and "aa"
classification, earnings and asset protection are, nevertheless, expected to be
maintained at adequate levels.
An issue rated "baa" is considered to be a medium-grade, neither highly
protected nor poorly secured. Earnings and asset protection appear adequate at
present but may be questionable over any great length of time.
An issue rated "ba" is considered to have speculative elements and its future
cannot be considered well assured. Earnings and asset protection may be very
moderate and not well safeguarded during adverse periods. Uncertainty of
position characterizes preferred stocks in this class.
An issue which is rated "b" generally lacks the characteristics of a desirable
investment. Assurance of dividend payments and maintenance of other terms of the
issue over any long period of time may be small.
An issue which is rated "caa" is likely to be in arrears on dividend payments.
This rating designation does not purport to indicate the future status of
payments.
An issue which is rated "ca" is speculative in a high degree and is likely to be
in arrears on dividends with little likelihood of eventual payment.
An issue which is rated "c" can be regarded as having extremely poor prospects
of ever attaining any real investment standing. This is the lowest rated class
of preferred or preference stock.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each rating
classification from "aa" through "b" in its preferred stock rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issuer ranks in the lower end of its generic rating
category.
STANDARD & POOR'S
S&P rates preferred stock as follows:
"AAA" is the highest rating that is assigned by S&P to a preferred stock issue
and indicates an extremely strong capacity to pay the preferred stock
obligations.
A preferred stock issue rated "AA" also qualifies as a high-quality fixed income
security. The capacity to pay preferred stock obligations is very strong,
although not as overwhelming as for issues rated "AAA".
An issue rated "A" is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
A-5
<PAGE>
An issue rated "BBB" is regarded as backed by an adequate capacity to pay the
preferred stock obligations. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to make payments for a preferred stock in
this category than for issues in the "A" category.
Preferred stock rated "BB", "B", and "CCC" are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay preferred
stock obligations. "BB" indicates the lowest degree of speculation and "CCC" the
highest degree of speculation. While such issues will likely have some quality
and protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
The rating "CC" is reserved for a preferred stock issue in arrears on dividends
or sinking fund payments but that is currently paying.
A preferred stock rated "C" is a non-paying issue.
A preferred stock rated "D" is a non-paying issue with the issuer in default on
debt instruments.
To provide more detailed indications of preferred stock quality, the ratings
from "AA" to "CCC" may be modified by the addition of a plus (+) or minus (-)
sign to show relative standing within the major rating categories.
SHORT TERM MUNICIPAL LOANS
MOODY'S INVESTORS SERVICE. Moody's highest rating for short-term municipal loans
is "MIG-1/VMIG-1". A rating of "MIG-1/VMIG-1" denotes best quality. There is
present strong protection by established cash flows, superior liquidity support
or demonstrated broadbased access to the market for refinancing. Loans bearing
the "MIG-2/VMIG-2" designation are of high quality. Margins of protection are
ample although not so large as in the "MIG-1/VMIG-1" group. A rating of
"MIG-3/VMIG-3" denotes favorable quality. All security elements are accounted
for but there is lacking the undeniable strength of the preceding grades.
Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established. A rating of "MIG- 4/VMIG-4"
denotes adequate quality. Protection commonly regarded as required of an
investment security is present and although not distinctly or predominantly
speculative, there is specific risk.
STANDARD & POOR'S. S&P's highest rating for short-term municipal loans is
"SP-1". S&P states that short-term municipal securities bearing the "SP-1"
designation have very strong or strong capacity to pay principal and interest.
Those issues rated "SP-1" which are determined to possess overwhelming safety
characteristics will be given a plus (+) designation. Issues rated "SP-2" have
satisfactory capacity to pay principal and interest.
Issues rated "SP-3" have speculative capacity to pay principal and interest.
FITCH 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.
Short-term issues rated "F-1+" are regarded as having the strongest degree of
assurance for timely payment. Issues assigned a rating of "F-1" reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
Issues assigned a rating of "F-2" have a satisfactory degree of assurance for
timely payment, but the margin of safety is not as great as for issues assigned
"F-1+" or "F-1".
OTHER MUNICIPAL SECURITIES AND COMMERCIAL PAPER
MOODY'S INVESTORS SERVICE
Moody's two highest ratings for short-term debt, including commercial paper, are
"Prime-1" and "Prime-2". Both are judged investment grade, to indicate the
relative repayment ability of rated issuers.
A-6
<PAGE>
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-7
<PAGE>
APPENDIX B - MISCELLANEOUS TABLES
TABLE 1 - INVESTMENT ADVISORY FEES
The following Table shows the dollar amount of fees payable under the Investment
Advisory Agreements between Norwest and the Trust with respect to each Fund, the
amount of fee that was waived by Norwest, if any, and the actual fee received by
Norwest. That table also shows the dollar amount of fees payable under the
investment advisory agreements between Schroder and Core Trust with respect to
International Portfolio and Small Cap Opportunities Fund, the amount of fee that
was waived by Schroder, if any, and the actual fee received by Schroder. The
data is for the past three fiscal years or shorter period if the Fund/Portfolio
has been in operation for a shorter period.
<TABLE>
<S> <C> <C> <C>
ADVISORY FEE ADVISORY FEE ADVISORY FEE
PAYABLE WAIVED RETAINED
CASH INVESTMENT FUND --------- -------- ----------
Year Ended May 31, 1997 2,805,919 0 2,805,919
Year Ended May 31, 1996 2,383,128 0 2,383,128
Year Ended May 31, 1995 2,067,323 0 2,067,323
READY CASH INVESTMENT FUND
Year Ended May 31, 1997 6,267,045 50,148 6,216,897
Year Ended May 31, 1996 4,128,532 44,547 4,083,985
Year Ended May 31, 1995 2,153,906 71,093 2,082,813
U.S. GOVERNMENT FUND
Year Ended May 31, 1997 2,538,240 0 2,538,240
Year Ended May 31, 1996 2,205,102 0 2,205,102
Year Ended May 31, 1995 1,687,958 0 1,687,958
TREASURY FUND
Year Ended May 31, 1997 1,548,275 0 1,548,275
Year Ended May 31, 1996 1,308,984 0 1,308,984
Year Ended May 31, 1995 1,152,801 0 1,152,801
MUNICIPAL MONEY MARKET FUND
Year Ended May 31, 1997 2,394,475 369,405 2,025,070
Year Ended May 31, 1996 1,907,103 303,321 1,603,782
Year Ended May 31, 1995 987,273 175,377 811,896
STABLE INCOME FUND
Year Ended May 31, 1997 334,768 0 334,768
Year Ended May 31, 1996 106,127 0 106,127
Year End October 31, 1995 114,429 0 114,429
</TABLE>
B-1
<PAGE>
<TABLE>
<S> <C> <C> <C>
ADVISORY FEE ADVISORY FEE ADVISORY FEE
PAYABLE WAIVED RETAINED
-------- ------- --------
INTERMEDIATE GOVERNMENT INCOME FUND
Year Ended May 31, 1997 1,355,907 0 1,355,907
Year Ended May 31, 1996 142,125 0 142,125
Year End October 31, 1995 160,764 0 160,764
DIVERSIFIED BOND FUND
Year Ended May 31, 1997 598,019 0 598,019
Year Ended May 31, 1996 344,777 0 344,777
Year End October 31, 1995 607,061 0 607,061
INCOME FUND
Year Ended May 31, 1997 1,385,988 277,198 1,108,790
Year Ended May 31, 1996 981,244 196,249 784,995
Year Ended May 31, 1995 560,463 149,529 410,934
TOTAL RETURN BOND FUND
Year Ended May 31, 1997 651,181 357,998 293,183
Year Ended May 31, 1996 584,872 352,590 232,282
Year Ended May 31, 1995 305,162 244,711 60,451
LIMITED TERM TAX-FREE FUND
Year Ended May 31, 1997 88,741 63,145 25,596
Year Ended May 31, 1996 N/A N/A N/A
TAX-FREE INCOME FUND
Year Ended May 31, 1997 1,537,966 1,236,539 301,427
Year Ended May 31, 1996 1,187,026 1,032,179 154,847
Year Ended May 31, 1995 671,570 306,789 364,781
COLORADO TAX-FREE FUND
Year Ended May 31, 1997 299,582 238,690 60,892
Year Ended May 31, 1996 286,768 286,768 0
Year Ended May 31, 1995 257,147 257,147 0
MINNESOTA TAX-FREE FUND
Year Ended May 31, 1997 212,616 190,702 21,914
Year Ended May 31, 1996 154,733 154,733 0
Year Ended May 31, 1995 67,504 67,504 0
</TABLE>
B-2
<PAGE>
<TABLE>
<S> <C> <C> <C>
ADVISORY FEE ADVISORY FEE ADVISORY FEE
PAYABLE WAIVED RETAINED
------- ------ --------
STRATEGIC INCOME FUND
Year Ended May 31, 1997 589,365 0 589,365
Year Ended May 31, 1996 376,529 0 376,529
Year Ended October 31, 1995 547,353 0 547,353
MODERATE BALANCED FUND
Year Ended May 31, 1997 2,185,490 0 2,185,490
Year Ended May 31, 1996 1,208,825 0 1,208,825
Year End October 31, 1995 1,722,174 0 1,722,174
GROWTH BALANCED FUND
Year Ended May 31, 1997 2,688,223 0 2,688,223
Year Ended May 31, 1996 1,424,260 0 1,424,260
Year End October 31, 1995 1,849,672 0 1,849,672
INCOME EQUITY FUND
Year Ended May 31, 1997 1,906,693 0 1,906,693
Year Ended May 31, 1996 227,790 0 227,790
Year End October 31, 1995 187,584 0 187,584
INDEX FUND
Year Ended May 31, 1997 563,081 212,327 350,754
Year Ended May 31, 1996 193,373 143,795 49,578
Year End October 31, 1995 212,875 0 212,875
VALUGROWTH STOCK FUND
Year Ended May 31, 1997 1,475,664 18,446 1,457,218
Year Ended May 31, 1996 1,335,281 16,691 1,318,590
Year Ended May 31, 1995 1,132,507 4,813 1,127,694
DIVERSIFIED EQUITY FUND
Year Ended May 31, 1997 6,874,776 0 6,874,776
Year Ended May 31, 1996 3,038,858 0 3,038,858
Year End October 31, 1995 3,737,147 0 3,737,147
</TABLE>
B-3
<PAGE>
<TABLE>
<S> <C> <C> <C>
ADVISORY FEE ADVISORY FEE ADVISORY FEE
PAYABLE WAIVED RETAINED
------- ------ --------
GROWTH EQUITY FUND
Year Ended May 31, 1997 7,205,405 0 7,205,405
Year Ended May 31, 1996 3,342,391 0 3,342,390
Year End October 31, 1995 3,961,897 0 3,961,897
LARGE COMPANY GROWTH FUND
Year Ended May 31, 1997 651,110 0 651,110
Year Ended May 31, 1996 274,152 0 274,152
Year End October 31, 1995 362,480 0 362,480
SMALL COMPANY STOCK FUND
Year Ended May 31, 1997 1,481,914 419,413 1,062,501
Year Ended May 31, 1996 909,200 327,218 581,982
Year Ended May 31, 1995 322,908 322,908 0
SMALL COMPANY GROWTH FUND
Year Ended May 31, 1997 3,513,581 0 3,513,581
Year Ended May 31, 1996 1,653,578 0 1,653,578
Year End October 31, 1995 1,984,348 0 1,984,348
DIVERSIFIED SMALL CAP FUND
Year Ended May 31, 1997 N/A N/A N/A
SMALL CAP OPPORTUNITIES FUND
Year Ended May 31, 1997 N/A N/A N/A
CONTRARIAN STOCK FUND
Year Ended May 31, 1997 161,601 61,290 100,311
Year Ended May 31, 1996 349,877 70,170 279,707
Year Ended May 31, 1995 258,669 128,979 129,690
INTERNATIONAL FUND*
Year Ended May 31, 1997 812,485 0 812,485
Year Ended May 31, 1996 316,701 0 316,701
Year End October 31, 1995 367,007 0 367,007
</TABLE>
* Represents investment advisory fees paid to Schroder Capital Management Inc.
by International Portfolio of Core Trust.
B-4
<PAGE>
TABLE 2 - MANAGEMENT FEES
The following table shows the dollar amount of fees payable to: (1) Forum for
its management services with respect to each Fund (or class thereof for those
periods when multiple classes were outstanding); (2) Norwest for its
administrative services with respect to International Fund; and (3) Forum with
respect to its administrative securities with respect to International
Portfolio. Also shown are the amount of fees that were waived by Forum and
Norwest, if any, and the actual fees received by Forum and Norwest. The data is
for the past three fiscal years or shorter period if the Fund has been in
operation for a shorter period.
<TABLE>
<S> <C> <C> <C>
(I) MANAGEMENT FEES TO FORUM
MANAGEMENT MANAGEMENT MANAGEMENT
FEE FEE FEE
PAYABLE WAIVED RETAINED
CASH INVESTMENT FUND ------- ------ --------
Year Ended May 31, 1997 1,252,466 127,192 1,125,274
Year Ended May 31, 1996 1,076,303 160,959 915,344
Year Ended May 31, 1995 944,718 263,073 681,645
U.S. GOVERNMENT FUND
Year Ended May 31, 1997 1,140,934 12,114 1,128,820
Year Ended May 31, 1996 1,002,126 40,949 961,177
Year Ended May 31, 1995 786,649 135,127 651,522
TREASURY FUND
Year Ended May 31, 1997 728,447 595,668 132,779
Year Ended May 31, 1996 627,992 448,841 179,151
Year Ended May 31, 1995 558,734 467,978 90,756
READY CASH INVESTMENT FUND
Investor Shares
Year Ended May 31, 1997 1,070,654 14,082 1,056,572
Year Ended May 31, 1996 760,979 60,072 700,907
Year Ended May 31, 1995 391,466 147,704 243,762
Institutional Shares
Year Ended May 31, 1997 2,595,399 2,413,208 182,191
Year Ended May 31, 1996 1,569,081 1,569,081 0
Year Ended May 31, 1995 739,794 589,996 149,797
Exchange Shares
Year Ended May 31, 1997 850 850 0
Year Ended May 31, 1996 273 273 0
Year Ended May 31, 1995 417 331 86
</TABLE>
B-5
<PAGE>
<TABLE>
<S> <C> <C> <C>
MANAGEMENT MANAGEMENT MANAGEMENT
FEE FEE FEE
PAYABLE WAIVED RETAINED
------- ------ --------
MUNICIPAL MONEY MARKET FUND
Investor Shares
Year Ended May 31, 1997 121,330 78,834 42,496
Year Ended May 31, 1996 115,294 65,869 49,425
Year Ended May 31, 1995 82,763 75,983 6,780
Institutional Shares
Year Ended May 31, 1997 1,275,270 1,017,363 257,907
Year Ended May 31, 1996 990,763 814,669 176,094
Year Ended May 31, 1995 481,393 393,600 87,793
STABLE INCOME FUND
A Shares
Year Ended May 31, 1997 12,730 12,730 0
Year Ended May 31, 1996 623 623 0
B Shares
Year Ended May 31, 1997 799 799 0
Year Ended May 31, 1996 33 33 0
I Shares
Year Ended May 31, 1997 98,060 98,060 0
Year Ended May 31, 1996 34,720 34,720 0
Year End October 31, 1995 38,143 38,143 0
INTERMEDIATE GOVERNMENT INCOME FUND
A Shares
Year Ended May 31, 1997 14,471 14,471 0
Year Ended May 31, 1996 666 666 0
B Shares
Year Ended May 31, 1997 9,953 9,953 0
Year Ended May 31, 1996 412 412 0
I Shares
Year Ended May 31, 1997 386,457 151,928 234,529
Year Ended May 31, 1996 41,991 41,991 0
Year End October 31, 1995 48,716 48,716 0
DIVERSIFIED BOND FUND
I Shares
Year Ended May 31, 1997 170,862 110,901 59,961
Year Ended May 31, 1996 98,508 69,269 29,239
Year Ended October 31, 1995 173,446 147,461 25,985
</TABLE>
B-6
<PAGE>
<TABLE>
<S> <C> <C> <C>
MANAGEMENT MANAGEMENT MANAGEMENT
FEE FEE FEE
PAYABLE WAIVED RETAINED
------- ------ --------
INCOME FUND
A Shares
Year Ended May 31, 1997 10,585 10,585 0
Year Ended May 31, 1996 11,894 11,894 0
Year Ended May 31, 1995 12,210 11,607 603
B Shares
Year Ended May 31, 1997 6,826 6,826 0
Year Ended May 31, 1996 6,732 6,732 0
Year Ended May 31, 1995 5,559 3,553 2,006
I Shares
Year Ended May 31, 1997 536,985 436,300 100,685
Year Ended May 31, 1996 373,872 353,908 19,964
Year Ended May 31, 1995 206,416 124,725 81,691
TOTAL RETURN BOND FUND
A Shares
Year Ended May 31, 1997 5,187 5,187 0
Year Ended May 31, 1996 2,416 2,416 0
Year Ended May 31, 1995 674 674 0
B Shares
Year Ended May 31, 1997 4508 4508 0
Year Ended May 31, 1996 3,264 3,264 0
Year Ended May 31, 1995 923 923 0
I Shares
Year Ended May 31, 1997 250,777 24,127 226,650
Year Ended May 31, 1996 228,269 12,744 215,525
Year Ended May 31, 1995 120,468 17,639 102,829
LIMITED TERM TAX-FREE FUND
I Shares
Year Ended May 31, 1997 17,748 17,748 0
Year Ended May 31, 1996 N/A N/A N/A
</TABLE>
B-7
<PAGE>
<TABLE>
<S> <C> <C> <C>
MANAGEMENT MANAGEMENT MANAGEMENT
FEE FEE FEE
PAYABLE WAIVED RETAINED
------- ------ --------
TAX-FREE INCOME FUND
A Shares
Year Ended May 31, 1997 58,862 42,638 16,224
Year Ended May 31, 1996 67,046 27,085 39,961
Year Ended May 31, 1995 64,084 64,084 0
B Shares
Year Ended May 31, 1997 13,295 13,295 0
Year Ended May 31, 1996 9,866 9,866 0
Year Ended May 31, 1995 6,348 5,591 757
I Shares
Year Ended May 31, 1997 543,029 288,245 254,784
Year Ended May 31, 1996 397,898 304,725 93,173
Year Ended May 31, 1995 198,196 139,199 58,997
COLORADO TAX-FREE FUND
A Shares
Year Ended May 31, 1997 54,902 49,840 5,062
Year Ended May 31, 1996 53,988 48,022 5,966
Year Ended May 31, 1995 56,039 40,684 15,355
B Shares
Year Ended May 31, 1997 13,532 13,115 417
Year Ended May 31, 1996 11,566 11,566 0
Year Ended May 31, 1995 9,429 7,791 1,638
I Shares
Year Ended May 31, 1997 51,399 44,432 6,967
Year Ended May 31, 1996 49,153 41,507 7,646
Year Ended May 31, 1995 37,392 31,974 5,418
MINNESOTA TAX-FREE FUND
A Shares
Year Ended May 31, 1997 51,795 33,434 18,361
Year Ended May 31, 1996 43,885 26,289 17,596
Year Ended May 31, 1995 19,236 19,236 0
B Shares
Year Ended May 31, 1997 20,364 14,581 5,783
Year Ended May 31, 1996 13,910 10,499 3,411
Year Ended May 31, 1995 5,974 5,974 0
I Shares
Year Ended May 31, 1997 12,888 10,362 2,526
Year Ended May 31, 1996 4,098 2,630 1,468
Year Ended May 31, 1995 1,781 1,622 159
STRATEGIC INCOME FUND
Year Ended May 31, 1997 130,970 115,223 15,747
Year Ended May 31, 1996 83,673 69,584 14,089
Year Ended October 31, 1995 121,634 121,634 0
</TABLE>
B-8
<PAGE>
<TABLE>
<S> <C> <C> <C>
MANAGEMENT MANAGEMENT MANAGEMENT
FEE FEE FEE
PAYABLE WAIVED RETAINED
MODERATE BALANCED FUND ------- ------ --------
Year Ended May 31, 1997 412,357 278,998 133,359
Year Ended May 31, 1996 228,080 126,077 102,003
Year Ended October 31, 1995 324,938 212,921 112,017
GROWTH BALANCED FUND
Year Ended May 31, 1997 463,486 303,389 160,097
Year Ended May 31, 1996 245,562 136,905 108,657
Year Ended October 31, 1995 318,909 209,411 109,498
INCOME EQUITY FUND
A Shares
Year Ended May 31, 1997 37,101 30,944 6,157
Year Ended May 31, 1996 1,196 1,196 0
B Shares
Year Ended May 31, 1997 23,583 23,583 0
Year Ended May 31, 1996 670 670 0
I Shares
Year Ended May 31, 1997 320,654 168,477 152,177
Year Ended May 31, 1996 43,691 43,691 0
Year Ended October 31, 1995 37,517 37,517 0
INDEX FUND
Year Ended May 31, 1997 375,387 213,759 161,628
Year Ended May 31, 1996 128,916 93,961 34,955
Year Ended October 31, 1995 141,917 141,917 0
VALUGROWTH STOCK FUND
A Shares
Year Ended May 31, 1997 33,232 29,323 3,909
Year Ended May 31, 1996 27,427 27,427 0
Year Ended May 31, 1995 24,465 24,465 0
B Shares
Year Ended May 31, 1997 11,318 11,318 0
Year Ended May 31, 1996 8,763 8,763 0
Year Ended May 31, 1995 5,593 4,617 976
I Shares
Year Ended May 31, 1997 324,366 194,534 129,832
Year Ended May 31, 1996 297,630 147,086 150,544
Year Ended May 31, 1995 253,243 148,800 104,443
</TABLE>
B-9
<PAGE>
<TABLE>
<S> <C> <C> <C>
MANAGEMENT MANAGEMENT MANAGEMENT
FEE FEE FEE
PAYABLE WAIVED RETAINED
------- ------ --------
DIVERSIFIED EQUITY FUND
A Shares
Year Ended May 31, 1997 14,322 14,322 0
Year Ended May 31, 1996 99 99 0
B Shares
Year Ended May 31, 1997 15,913 15,913 0
Year Ended May 31, 1996 96 96 0
I Shares
Year Ended May 31, 1997 1,027,423 723,040 304,383
Year Ended May 31, 1996 467,322 238,224 229,098
Year Ended October 31, 1995 574,946 287,473 287,473
GROWTH EQUITY FUND
A Shares
Year Ended May 31, 1997 10,336 10,336 0
Year Ended May 31, 1996 100 100 0
B Shares
Year Ended May 31, 1997 4,347 4,347 0
Year Ended May 31, 1996 25 25 0
I Shares
Year Ended May 31, 1997 785,917 545,815 240,102
Year Ended May 31, 1996 371,252 187,661 183,591
Year Ended October 31, 1995 440,211 286,104 154,107
LARGE COMPANY GROWTH FUND
Year Ended May 31, 1997 100,171 87,896 12,275
Year Ended May 31, 1996 42,177 40,150 2,027
Year Ended October 31, 1995 55,766 55,766 0
SMALL COMPANY STOCK FUND
A Shares
Year Ended May 31, 1997 11,966 10,318 1,648
Year Ended May 31, 1996 5,800 5,800 0
Year Ended May 31, 1995 1,655 1,515 140
B Shares
Year Ended May 31, 1997 8,329 8,329 0
Year Ended May 31, 1996 4,426 4,426 0
Year Ended May 31, 1995 1,051 1,051 0
I Shares
Year Ended May 31, 1997 276,089 90,214 185,875
Year Ended May 31, 1996 171,614 15,664 155,950
Year Ended May 31, 1995 61,876 14,997 46,878
</TABLE>
B-10
<PAGE>
<TABLE>
<S> <C> <C> <C>
MANAGEMENT MANAGEMENT MANAGEMENT
FEE FEE FEE
PAYABLE WAIVED RETAINED
SMALL COMPANY GROWTH FUND ------- ------ --------
Year Ended May 31, 1997 390,398 185,644 204,754
Year Ended May 31, 1996 183,731 76,278 107,453
Year Ended October 31, 1995 220,483 177,287 43,196
SMALL CAP OPPORTUNITIES FUND
A Shares
Year Ended May 31, 1997 122 122 0
B Shares
Year Ended May 31, 1997 44 44 0
I Shares
Year Ended May 31, 1997 26,560 26,560 0
CONTRARIAN STOCK FUND
A Shares
Year Ended May 31, 1997 995 995 0
Year Ended May 31, 1996 1,439 1,439 0
Year Ended May 31, 1995 646 646 0
B Shares
Year Ended May 31, 1997 668 668 0
Year Ended May 31, 1996 1,194 1,194 0
Year Ended May 31, 1995 328 328 0
I Shares
Year Ended May 31, 1997 38,738 35,577 3,160
Year Ended May 31, 1996 84,836 37,213 47,623
Year Ended May 31, 1995 63,693 543 63,150
INTERNATIONAL FUND
A Shares
Year Ended May 31, 1997 1,494 1,494 0
Year Ended May 31, 1996 345 345 0
B Shares
Year Ended May 31, 1997 1,247 1,247 0
Year Ended May 31, 1996 395 395 0
I Shares
Year Ended May 31, 1997 177,707 4,264 173,443
Year Ended May 31, 1996 69,616 0 69,616
Year Ended October 31, 1995 205,140 41,566 163,574
</TABLE>
B-11
<PAGE>
<TABLE>
<S> <C> <C> <C>
(II) ADMINISTRATIVE FEES TO NORWEST
INTERNATIONAL FUND
Year Ended May 31, 1997 451,118 0 451,118
Year Ended May 31, 1996 175,887 0 175,887
Year Ended October 31, 1995 205,150 0 205,150
(III) ADMINISTRATIVE FEES TO FORUM
INTERNATIONAL PORTFOLIO
Year Ended May 31, 1997 270,828 0 270,828
Year Ended May 31, 1996 105,567 11,873 93,694
Year Ended October 31, 1995 122,669 70,043 52,626
</TABLE>
B-12
<PAGE>
TABLE 3 - DISTRIBUTION FEES
The following table shows the dollar amount of fees payable to Forum for its
distribution services with respect to each Fund (or class thereof), the amount
of fee that was waived by Forum, if any, and the actual fee received by Forum.
All maintenance fees were waived by Forum during the fiscal years ended May 31,
1995 and 1996. The data is for the past three fiscal years or shorter period if
the Fund has been in operation for a shorter period. Only Exchange Shares and B
Shares incur distribution fees.
<TABLE>
<S> <C> <C> <C>
DISTRIBUTION DISTRIBUTION DISTRIBUTION
FEE FEE FEE
PAYABLE WAIVED RETAINED
READY CASH INVESTMENT FUND ------- ------ --------
Exchange Shares
Year Ended May 31, 1997 4,249 1,062 3,187
Year Ended May 31, 1996 1,023 1,023 0
Year Ended May 31, 1995 2,050 2,050 0
STABLE INCOME FUND
B Shares
Year Ended May 31, 1997 7,992 1,998 5,994
Year Ended May 31, 1996 245 245 0
INTERMEDIATE GOVERNMENT INCOME FUND
B Shares
Year Ended May 31, 1997 99,968 24,882 75,086
Year Ended May 31, 1996 2,646 2,646 0
INCOME FUND
B Shares
Year Ended May 31, 1997 34,127 8,532 25,595
Year Ended May 31, 1996 25,247 6,666 18,581
Year Ended May 31, 1995 27,796 6,949 20,847
TOTAL RETURN BOND FUND
B Shares
Year Ended May 31, 1997 22,540 5,635 16,905
Year Ended May 31, 1996 12,239 3,619 8,620
Year Ended May 31, 1995 4,612 1,153 3,459
TAX-FREE INCOME FUND
B Shares
Year Ended May 31, 1997 66,476 16,619 49,857
Year Ended May 31, 1996 36,997 2,390 34,607
Year Ended May 31, 1995 31,738 7,934 23,803
COLORADO TAX-FREE FUND
B Shares
Year Ended May 31, 1997 67,660 16,915 50,745
Year Ended May 31, 1996 43,374 207 43,167
Year Ended May 31, 1995 47,144 11,786 35,358
</TABLE>
B-13
<PAGE>
<TABLE>
<S> <C> <C> <C>
DISTRIBUTION DISTRIBUTION DISTRIBUTION
FEE FEE FEE
PAYABLE WAIVED RETAINED
MINNESOTA TAX-FREE FUND ------- ------ --------
B Shares
Year Ended May 31, 1997 101,817 25,454 76,363
Year Ended May 31, 1996 52,163 0 52,163
Year Ended May 31, 1995 30,386 8,880 21,506
INCOME EQUITY FUND
B Shares
Year Ended May 31, 1997 235,827 58,957 176,872
Year Ended May 31, 1996 5,031 0 5,031
VALUGROWTH STOCK FUND
B Shares
Year Ended May 31, 1997 56,592 14,148 42,444
Year Ended May 31, 1996 32,860 5,269 27,591
Year Ended May 31, 1995 27,965 6,991 20,974
DIVERSIFIED EQUITY FUND
B Shares
Year Ended May 31, 1997 159,132 39,783 119,349
Year Ended May 31, 1996 719 719 0
GROWTH EQUITY FUND
B Shares
Year Ended May 31, 1997 43,471 10,868 32,603
Year Ended May 31, 1996 187 187 0
SMALL COMPANY STOCK FUND
B Shares
Year Ended May 31, 1997 41,641 10,410 31,231
Year Ended May 31, 1996 16,598 4,077 12,521
Year Ended May 31, 1995 5,256 2,038 3,218
SMALL CAP OPPORTUNITIES FUND
B Shares
Year Ended May 31, 1997 431 108 323
CONTRARIAN STOCK FUND
B Shares
Year Ended May 31, 1997 3,340 835 2,505
Year Ended May 31, 1996 4,479 4,479 0
Year Ended May 31, 1995 1,642 411 1,232
INTERNATIONAL FUND
B Shares
Year Ended May 31, 1997 12,465 3,116 9,349
Year Ended May 31, 1996 2,959 2,930 29
</TABLE>
B-14
<PAGE>
TABLE 4 - SALES CHARGES
The following table shows: (1) the dollar amount of sales charges payable to
Forum with respect to sales of A Shares (or of the respective Funds prior to the
offering of multiple classes of shares); (2) the amount of sales charge retained
by Forum and not reallowed to other persons; and (3) the amount of contingent
deferred sales charge ("CDSL") paid to Forum. The data is for the past three
fiscal years or shorter period if the Fund has been in operation for a shorter
period.
<TABLE>
<S> <C> <C> <C>
SALES RETAINED CDSL
CHARGES AMOUNT PAID
------- ------ ----
STABLE INCOME FUND
A Shares
Year Ended May 31, 1997 3,200 320 --
Year Ended May 31, 1996 423 52 --
B Shares
Year Ended May 31, 1997 -- -- 6,526
Year Ended May 31, 1996 -- -- 75
INTERMEDIATE GOVERNMENT INCOME FUND
A Shares
Year Ended May 31, 1997 13,182 1,187 --
Year Ended May 31, 1996 1,482 129 --
B Shares
Year Ended May 31, 1997 -- -- 31,694
Year Ended May 31, 1996 -- -- 964
INCOME FUND
A Shares
Year Ended May 31, 1997 11,979 1,121 --
Year Ended May 31, 1996 1,567,755 4,428 --
B Shares
Year Ended May 31, 1997 -- -- 11,887
Year Ended May 31, 1996 -- -- 8,272
TOTAL RETURN BOND FUND
A Shares
Year Ended May 31, 1997 3,908 363 --
Year Ended May 31, 1996 1,194,198 3,074 --
B Shares
Year Ended May 31, 1997 -- -- 7,505
Year Ended May 31, 1996 -- -- 2,853
TAX-FREE INCOME FUND
A Shares
Year Ended May 31, 1997 74,101 6,646 --
Year Ended May 31, 1996 5,429,389 12,264 --
B Shares
Year Ended May 31, 1997 -- -- 15,724
Year Ended May 31, 1996 -- -- 6,576
</TABLE>
B-15
<PAGE>
<TABLE>
<S> <C> <C> <C>
SALES RETAINED CDSL
CHARGES AMOUNT PAID
COLORADO TAX-FREE FUND ------- ------ ----
A Shares
Year Ended May 31, 1997 38,085 3,321 --
Year Ended May 31, 1996 2,889,945 7,135 --
B Shares
Year Ended May 31, 1997 -- -- 11,889
Year Ended May 31, 1996 -- -- 12,557
MINNESOTA TAX-FREE FUND
A Shares
Year Ended May 31, 1997 53,290 4,744 --
Year Ended May 31, 1996 4,598,204 12,506 --
B Shares
Year Ended May 31, 1997 -- -- 13,097
Year Ended May 31, 1996 -- -- 8,412
INCOME EQUITY FUND
A Shares
Year Ended May 31, 1997 320,385 1,121 --
Year Ended May 31, 1996 10,996 1,088 --
B Shares
Year Ended May 31, 1997 -- -- 38,812
Year Ended May 31, 1996 -- -- 570
VALUGROWTH STOCK FUND
A Shares
Year Ended May 31, 1997 38,540 3,759 --
Year Ended May 31, 1996 1,162,647 4,628 --
B Shares
Year Ended May 31, 1997 -- -- 10,770
Year Ended May 31, 1996 -- -- 12,911
DIVERSIFIED EQUITY FUND
A Shares
Year Ended May 31, 1997 485,324 8,286 --
Year Ended May 31, 1996 50,658 15 --
B Shares
Year Ended May 31, 1997 -- -- 23,510
Year Ended May 31, 1996 -- -- 0
GROWTH EQUITY FUND
A Shares
Year Ended May 31, 1997 175,495 5,347 --
Year Ended May 31, 1996 26,825 7 --
B Shares
Year Ended May 31, 1997 -- -- 6,972
Year Ended May 31, 1996 -- -- 0
</TABLE>
B-16
<PAGE>
<TABLE>
<S> <C> <C> <C>
SALES RETAINED CDSL
CHARGES AMOUNT PAID
SMALL COMPANY STOCK FUND ------- ------ ----
A Shares
Year Ended May 31, 1997 23,419 2,335 --
Year Ended May 31, 1996 1,309,565 5,153 2,972
B Shares
Year Ended May 31, 1997 -- -- 6,411
Year Ended May 31, 1996 -- -- --
SMALL CAP OPPORTUNITIES FUND
A Shares
Year Ended May 31, 1997 11,604 1,178 --
B Shares
Year Ended May 31, 1997 -- -- --
CONTRARIAN STOCK FUND
A Shares
Year Ended May 31, 1997 40 1 --
Year Ended May 31, 1996 103,499 425 --
B Shares
Year Ended May 31, 1997 -- -- 4,630
Year Ended May 31, 1996 -- -- 1,432
INTERNATIONAL FUND
A Shares
Year Ended May 31, 1997 8,728 874 --
Year Ended May 31, 1996 269 30 --
B Shares
Year Ended May 31, 1997 -- -- 2,086
Year Ended May 31, 1996 -- -- 213
</TABLE>
B-17
<PAGE>
TABLE 5 - ACCOUNTING FEES
The following table shows the dollar amount of fees payable to Forum Accounting
for its accounting services with respect to each Fund, the amount of fee that
was waived by Forum Accounting, if any, and the actual fee received by Forum
Accounting. The table also shows similar information with respect to
International Portfolio. The data is for the past three fiscal years or shorter
period if the Fund has been in operation for a shorter period.
<TABLE>
<S> <C> <C> <C>
FEE FEE FEE
PAYABLE WAIVED RETAINED
CASH INVESTMENT FUND ------- ------ --------
Year Ended May 31, 1997 65,000 0 65,000
Year Ended May 31, 1996 49,000 0 49,000
Year Ended May 31, 1995 36,000 0 36,000
U.S. GOVERNMENT FUND
Year Ended May 31, 1997 60,000 0 60,000
Year Ended May 31, 1996 46,000 0 46,000
Year Ended May 31, 1995 36,000 0 36,000
TREASURY FUND
Year Ended May 31, 1997 54,500 0 54,500
Year Ended May 31, 1996 43,500 0 43,500
Year Ended May 31, 1995 36,000 0 36,000
READY CASH INVESTMENT FUND
Year Ended May 31, 1997 86,000 0 86,000
Year Ended May 31, 1996 63,000 0 63,000
Year Ended May 31, 1995 48,000 0 48,000
MUNICIPAL MONEY MARKET FUND
Year Ended May 31, 1997 90,000 0 90,000
Year Ended May 31, 1996 72,500 0 72,500
Year Ended May 31, 1995 60,000 0 60,000
STABLE INCOME FUND
Year Ended May 31, 1997 92,500 26,041 66,459
Year Ended May 31, 1996 37,452 7,136 30,316
Year Ended October 31, 1995 51,700 0 51,700
INTERMEDIATE GOVERNMENT INCOME FUND
Year Ended May 31, 1997 85,500 24,146 61,354
Year Ended May 31, 1996 29,452 5,322 24,130
Year Ended October 31, 1995 52,700 0 52,700
DIVERSIFIED BOND FUND
Year Ended May 31, 1997 54,000 15,223 38,777
Year Ended May 31, 1996 29,500 5,561 23,939
Year Ended October 31, 1995 36,700 0 36,700
INCOME FUND
Year Ended May 31, 1997 93,000 0 93,000
Year Ended May 31, 1996 79,500 0 79,500
Year Ended May 31, 1995 64,000 0 64,000
</TABLE>
B-18
<PAGE>
<TABLE>
<S> <C> <C> <C>
FEE FEE FEE
PAYABLE WAIVED RETAINED
TOTAL RETURN BOND FUND ------- ------ --------
Year Ended May 31, 1997 66,000 0 66,000
Year Ended May 31, 1996 57,500 0 57,500
Year Ended May 31, 1995 50,000 0 50,000
LIMITED TERM TAX-FREE FUND
Year Ended May 31, 1997 24,000 0 24,000
Year Ended May 31, 1996 N/A N/A N/A
TAX-FREE INCOME FUND
Year Ended May 31, 1997 91,000 0 91,000
Year Ended May 31, 1996 66,000 0 66,000
Year Ended May 31, 1995 62,000 0 62,000
COLORADO TAX-FREE FUND
Year Ended May 31, 1997 66,000 0 66,000
Year Ended May 31, 1996 60,000 0 60,000
Year Ended May 31, 1995 55,000 0 55,000
MINNESOTA TAX-FREE FUND
Year Ended May 31, 1997 64,000 0 64,000
Year Ended May 31, 1996 56,000 0 56,000
Year Ended May 31, 1995 55,300 0 55,300
STRATEGIC INCOME FUND
Year Ended May 31, 1997 60,000 17,019 42,981
Year Ended May 31, 1996 32,500 6,054 26,446
Year Ended October 31, 1995 54,266 0 54,266
MODERATE BALANCED FUND
Year Ended May 31, 1997 62,000 17,546 44,454
Year Ended May 31, 1996 36,000 7,104 28,896
Year Ended October 31, 1995 52,266 0 52,266
GROWTH BALANCED FUND
Year Ended May 31, 1997 61,000 17,237 43,763
Year Ended May 31, 1996 34,000 6,591 27,409
Year Ended October 31, 1995 50,833 0 50,833
INCOME EQUITY FUND
Year Ended May 31, 1997 71,500 20,160 51,340
Year Ended May 31, 1996 22,935 4,293 18,642
Year Ended October 31, 1995 34,700 0 34,700
VALUGROWTH STOCK FUND
Year Ended May 31, 1997 66,000 0 66,000
Year Ended May 31, 1996 57,500 0 57,500
Year Ended May 31, 1995 48,500 0 48,500
</TABLE>
B-19
<PAGE>
<TABLE>
<S> <C> <C> <C>
FEE FEE FEE
PAYABLE WAIVED RETAINED
INDEX FUND ------- ------ --------
Year Ended May 31, 1997 60,000 8,393 51,607
Year Ended May 31, 1996 30,500 5,659 24,841
Year Ended October 31, 1995 46,266 0 46,266
DIVERSIFIED EQUITY FUND
Year Ended May 31, 1997 81,500 22,995 58,505
Year Ended May 31, 1996 30,306 6,216 24,090
Year Ended October 31, 1995 34,700 0 34,700
GROWTH EQUITY FUND
Year Ended May 31, 1997 79,000 22,311 56,689
Year Ended May 31, 1996 30,306 6,216 24,090
Year Ended October 31, 1995 34,700 0 34,700
LARGE COMPANY GROWTH FUND
Year Ended May 31, 1997 38,000 10,750 27,250
Year Ended May 31, 1996 21,000 3,755 17,245
Year Ended October 31, 1995 34,700 0 34,700
SMALL COMPANY STOCK FUND
Year Ended May 31, 1997 76,000 0 76,000
Year Ended May 31, 1996 60,500 0 60,500
Year Ended May 31, 1995 51,000 0 51,000
SMALL COMPANY GROWTH FUND
Year Ended May 31, 1997 55,000 5,536 49,464
Year Ended May 31, 1996 30,000 5,759 24,241
Year Ended October 31, 1995 36,700 0 36,700
SMALL CAP OPPORTUNITIES FUND
Year Ended May 31, 1997 26,057 26,057 0
CONTRARIAN STOCK FUND
Year Ended May 31, 1997 60,000 0 60,000
Year Ended May 31, 1996 52,000 0 52,000
Year Ended May 31, 1995 50,000 0 50,000
INTERNATIONAL FUND
Year Ended May 31, 1997 36,000 10,148 25,852
Year Ended May 31, 1996 23,000 3,952 19,048
Year Ended October 31, 1995 51,766 39,766 12,000
INTERNATIONAL PORTFOLIO
Year Ended May 31, 1997 90,000 0 90,000
Year Ended May 31, 1996 50,500 8,500 42,000
Year Ended October 31, 1995 77,967 8,567 69,400
</TABLE>
B-20
<PAGE>
TABLE 6 - COMMISSIONS
The following table shows the aggregate brokerage commissions with respect to
each Fund that incurred brokerage costs. The data is for the past three fiscal
years or shorter period if the Fund has been in operation for a shorter period.
<TABLE>
<S> <C>
AGGREGATE
COMMISSIONS PAID
DIVERSIFIED BOND FUND
Year Ended May 31, 1997 N/A
Year Ended May 31, 1996 5,261
Year Ended October 31, 1995 1,750
STRATEGIC INCOME FUND
Year Ended May 31, 1997 14,867
Year Ended May 31, 1996 8,406
Year Ended October 31, 1995 9,298
MODERATE BALANCED FUND
Year Ended May 31, 1997 50,414
Year Ended May 31, 1996 54,332
Year Ended October 31, 1995 57,931
GROWTH BALANCED FUND
Year Ended May 31, 1997 83,720
Year Ended May 31, 1996 69,732
Year Ended October 31, 1995 66,361
INCOME EQUITY FUND
Year Ended May 31, 1997 301,308
Year Ended May 31, 1996 52,904
Year Ended October 31, 1995 25,321
INDEX FUND
Year Ended May 31, 1997 157,319
Year Ended May 31, 1996 121,170
Year Ended October 31, 1995 107,321
VALUGROWTH STOCK FUND
Year Ended May 31, 1997 502,785
Year Ended May 31, 1996 436,274
Year Ended May 31, 1995 485,176
Year Ended May 31, 1994 553,049
DIVERSIFIED EQUITY FUND
Year Ended May 31, 1997 226,652
Year Ended May 31, 1996 175,648
Year Ended October 31, 1995 180,093
</TABLE>
B-21
<PAGE>
<TABLE>
<S> <C>
AGGREGATE
COMMISSIONS PAID
GROWTH EQUITY FUND
Year Ended May 31, 1997 130,483
Year Ended May 31, 1996 127,666
Year Ended October 31, 1995 115,993
LARGE COMPANY GROWTH FUND
Year Ended May 31, 1997 59,924
Year Ended May 31, 1996 42,229
Year Ended October 31, 1995 60,264
SMALL COMPANY STOCK FUND
Year Ended May 31, 1997 458,447
Year Ended May 31, 1996 208,021
Year Ended May 31, 1995 67,471
SMALL COMPANY GROWTH FUND
Year Ended May 31, 1997 1,365,750
Year Ended May 31, 1996 785,875
Year Ended October 31, 1995 600,341
SMALL CAP OPPORTUNITIES FUND
Year Ended May 31, 1997 N/A
CONTRARIAN STOCK FUND
Year Ended May 31, 1997 74,313
Year Ended May 31, 1996 52,162
Year Ended May 31, 1995 43,397
INTERNATIONAL FUND*
Year Ended May 31, 1997 N/A
Year Ended May 31, 1996 188,849
Year Ended October 31, 1995 348,358
</TABLE>
* Reflects commission paid by International Portfolio; International Fund paid
no commissions directly during either year.
B-22
<PAGE>
TABLE 7 - 5% SHAREHOLDERS
The following table lists the persons who owned of record 5% or more of the
outstanding shares of a class of shares of a Fund as of March 2, 1998, as well
as their percentage holding of all shares of the Fund. Certain persons own
shares of the Funds of record only, including Alpine & Co., BHC Securities,
Inc., EMSEG & Co., First Stock Co., Norwest Bank Minnesota, N.A. and Stout & Co.
<TABLE>
<S> <C> <C> <C> <C>
SHARE % OF % OF FUND
NAME AND ADDRESS BALANCE CLASS
---------------- -------------- ----- ----------
CASH INVESTMENT FUND
Norwest Investment Services 2,207,848,268.120 48.40% 48.40%
c/o Greg Wraalstad
608 2nd Ave S, 8th Fl, MS 0162
Minneapolis MN 55479-0162
Norwest Bank Minnesota NA 1,367,230,791.280 29.97% 29.97%
VP 4500022
Attn: Cash Sweep Processing-Judy
Jeska
733 Marquette Ave, 4th Fl.
Minneapolis MN 55479-0050
Dentru & Co. 364,761,198.820 8.00% 8.00%
Non Discretionary
1740 Broadway MS 8751
Denver CO 80274
READY CASH INVESTMENT FUND
Investor Shares Norwest Investment Services 720,411,442.640 99.25% 99.16%
c/o Greg Wraalstad
608 2nd Avenue South 8th
Floor, MS 0162
Minneapolis MN 55479-0162
Exchange Shares Stephen P. Arkulary 59,361.080 18.09% 0.01%
and Helen M. Doane
JT TEN 711266
595 W. Wabasha Street
Duluth MN 55803
BHC Securities Inc. 31,184.840 9.50% 0.004%
One Commerce Square
2005 Market Street
Philadelphia PA 19103-3212
Norwest Investment Services, Inc. 49,481.870 15.08% 0.01%
FBO 730593391
Northstar Building East - 8th Fl.
608 Second Avenue South
Minneapolis MN 55479- 0162
</TABLE>
B-23
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Norwest Investment Services, Inc. 97,291.960 29.65% 0.01%
FBO 731891281
Northstar Building East - 8th Fl.
608 Second Avenue South
Minneapolis MN 55479- 0162
Norwest Investment Services, Inc. 28,346.450 8.64% 0.004%
FBO 731273341
Northstar Building East - 8th Fl.
608 Second Avenue South
Minneapolis MN 55479-0162
U.S. GOVERNMENT FUND
Alpine & Co 179,889,137.810 8.17% 8.17%
Non-Discretionary
1740 Broadway MS 8751
Denver CO 80274
Norwest Bank Minnesota NA AMS 1,608,964,126.150 73.09% 73.09%
Collective Trust Funds
Clearing Account
Attn: Cash Sweep Processing -
Judy Jeska
733 Marquette Avenue 4th Floor
Minneapolis MN 55479- 0050
Norwest Investment Services 350,988,522.820 15.94% 15.94%
c/o Greg Wraalstad
608 2nd Avenue South
8th Floor - MS 0162
Minneapolis MN 55479-0162
TREASURY FUND
Norwest Investment Services 484,757,671.580 33.37% 33.37%
c/o Greg Wraalstad
608 2nd Avenue South
8th Floor -- MS 0162
Minneapolis MN 55479-0162
Norwest Bank Minnesota NA AMS 723,380,111.920 49.79% 49.79%
Collective Trust Funds
Clearing Account
Attn: Cash Sweep Processing -
Judy Jeska
733 Marquette Avenue 4th Floor
Minneapolis MN 55479- 0050
</TABLE>
B-24
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
MUNICIPAL MONEY MARKET FUND
Investor Shares Norwest Investment Services 50,654,517.200 97.85% 20.37%
c/o Greg Wraalstad
608 2nd Ave S.
8th Floor MS - 0162
Minneapolis MN 55479-0162
Institutional Shares Norwest Bank Minnesota NA AMS 363,794,657.470 39.32% 37.23%
Collective Trust Funds
Clearing Account
Attn: Cash Sweep Processing -
Judy Jeska
733 Marquette Ave., 4th Floor
Minneapolis MN 55479-0050
Norwest Bank Minnesota NA 190,810,496.740 20.62% 19.53%
VP4620002
Attn: Cash Sweep Processing-
Judy Jeska
733 Marquette Avenue 4th Floor
Minneapolis MN 55479- 0050
Finaba 53,565,530.440 5.79% 5.48%
Non Discretionary Cash Acct.
Attn: Jon Rutter
1314 Avenue K
Lubbock TX 79401
Kiro & Co. 110,549,797.330 11.95% 11.31%
C/O Norwest Bank TX Mutual Funds
P.O. Box 6000
San Antonio TX 78286-9646
Norwest Investment Services 148,374,181.670 16.04% 20.37%
c/o Greg Wraalstad
608 2nd Ave. S, 8th Fl MS 0162
Minneapolis MN 55479- 0162
STABLE INCOME FUND
A Shares Norwest Investment Services Inc. 216,969.473 25.78% 1.59%
FBO 018193581
Northstar Building East-8th Fl.
608 Second Avenue South
Minneapolis MN 55479- 0162
Norwest Investment Services, Inc. 136,738.146 16.25% 1.00%
FBO 015642691
Northstar Building East-8th Fl.
608 Second Avenue South
Minneapolis MN 55479- 0162
</TABLE>
B-25
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Norwest Investment Services Inc. 90,810.627 10.79% 0.66%
FBO 021219031
Northstar Building East-8th Fl.
608 Second Avenue South
Minneapolis MN 55479- 0162
Norwest Investment Services Inc. 45,360.579 5.39% 0.33%
FBO 021263991
Northstar Building East-8th Fl.
608 Second Avenue South
Minneapolis MN 55479-0162
B Shares Fred P. Mattson 7,979.911 5.34% 0.06%
and Betty J. Mattson
JT Ten
P.O. Box 248
Elmwood WI 54740-0248
Charles Amjad-Ali 9,916.390 6.64% 0.07%
1305 Dayton Avenue
St. Paul MN 55104
UTE Plumbing Heating, Inc. 16,882.142 11.31% 0.12%
Retirement Account
Employee Pension Plan Trust
U A DTD 07-01-86
2315 Bott Ave.
Colorado Springs CO 80904-3727
Norwest Investment Svcs., Inc. 19,118.713 12.81% 0.14%S
FBO 102953761
Northstar Building E - 8th
Floor 608 Second Ave. S
Minneapolis MN 55479- 0162
INTERMEDIATE GOVERNMENT INCOME
FUND
A Shares Norwest Investment Services, 70,686.721 6.27% 0.20%
Inc. and FBO 016176381
Northstar Building East-8th Fl.
608 Second Avenue South
Minneapolis MN 55479- 0162
</TABLE>
B-26
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Wealthbuilder II Growth Balanced 56,486.299 5.01% 0.16%
Intermediate US Govt. Fund
c/o Mutual Fund Processing
P.O. Box 1450 NW 8477
Minneapolis MN 55480-8477
INCOME FUND
A Shares Norwest Wealthbuilder 43,865.642 7.21% 0.15%
Reinvest Account
733 Marquette Ave.
Minneapolis MN 55479-0040
I Shares Dentru & Co. 5,795,445.700 20.26% 19.55%
Non-Discretionary Cash
1740 Broadway Mail 8676
Denver CO 80274
FINABA 2,657,154.537 9.29% 8.96%
Non-Discretionary Cash Acct.
Attn: Jon Rutter
PO Box 10523
Lubbock TX 79408
TOTAL RETURN BOND FUND
A Shares Norwest Wealthbuilder 187,235.052 57.38% 0.72%
Reinvest Account
733 Marquette Avenue
Minneapolis MN 55479- 0040
B Shares Norwest Investment Services, Inc. 13,332.139 5.06% 0.11%
FBO 100293201
Northstar Building East-8th Fl.
608 Second Avenue South
Minneapolis MN 55479-0162
I Shares Kiwils & Co. 678,176.811 5.85% 5.56%
Discretionary Reinvest
1700 Broadway MS 0076
Denver CO 80274
Dentru & Co 3,261,248.631 28.12% 26.76%
Non-Discretionary Cash
1740 Broadway Mail 8676
Denver CO 80274
Seret & Co. 4,732,140.102 40.80% 38.83%
Discretionary Reinvest
1740 Broadway MS 8751
Denver CO 80274
</TABLE>
B-27
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
LIMITED TERM TAX-FREE FUND
I Shares Finaba 1,270,711.809 24.97% 24.97%
Non Discretionary Cash Acct.
Attn: Jon Rutter
P.O. Box 10523
Lubbock TX 79408
Victoria & Co. 616,209.760 12.11% 12.11%
c/o Regional Mutual Funds
P.O. Box 6000
San Antonio TX 78286-9646
Norwest Bank North Dakota NA 719,319.454 14.14% 14.14%
Trst Acme Electric IMA
U/A/DT 11-25-97
733 Marquette Ave. MS 0036
Minneapolis MN 55479-0036
TAX-FREE INCOME FUND
A Shares Norwest Wealthbuilder 190,002.692 6.32% 0.63%
Reinvest Account
733 Marquette Ave.
Minneapolis MN 55479-0040
B Shares Norwest Investment Services, Inc. 47,824.431 5.02% 0.16%
FBO 015757941
Northstar Building East-8th Fl.
608 Second Avenue South
Minneapolis MN 55479-0162
I Shares Dentru & Co 7,666,457.659 29.11% 25.31%
Non-Discretionary Cash
1740 Broadway Mail 8676
Denver CO 80274
FINABA 1,631,598.809 6.20% 5.39%
Non-Discretionary Cash Acct.
ATTN: Jon Rutter
PO Box 10523
Lubbock TX 79408
COLORADO TAX-FREE FUND
A Shares Norwest Investment Services, Inc. 562,299.463 18.76% 8.57%
FBO 017337991
Northstar Building East-8th Fl.
608 Second Avenue South
Minneapolis MN 55479-0162
</TABLE>
B-28
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
B Shares Norwest Investment Services, Inc. 41,213.594 5.04% 0.63%
FBO 300319751
Northstar Building East-8th Fl.
608 Second Avenue South
Minneapolis MN 55479-0162
I Shares Dentru & Co 2,630,664.278 95.81% 40.10%
Non Discretionary Cash
1740 Broadway Mail 8676
Denver CO 80274
MINNESOTA TAX-FREE FUND
I Shares Norwest Bank Minnesota, NA 178,848.533 10.64% 2.96%
Agnt Madri Inc. Agency
U/A/DT 5/14/96
733 Marquette Avenue MS-0036
Minneapolis MN 55479-0036
VALUGROWTH STOCK FUND
A Shares Norwest WealthBuilder 54,819.238 5.60% 0.21%
Reinvest Account
733 Marquette Ave.
Minneapolis MN 55479-0040
VALUGROWTH STOCK FUND
I Shares Dentru & Co. 3,333,942.905 13.54% 12.85%
Non-Discretionary Cash
1740 Broadway Mail 8676
Denver CO 80274
EMSEG & Co. 17,643,611.066 71.65% 68.02%
Valugrowth Stock Fund I
c/o Mutual Fund Processing
P.O. Box 1450 NW 8477
Minneapolis MN 55480-8477
GROWTH EQUITY FUND
A Shares Norwest Wealthbuilder 211,211.674 34.92% 0.69%
Reinvest Account
733 Marquette Avenue
Minneapolis MN 55479-0040
SMALL COMPANY STOCK FUND
A Shares Norwest Wealthbuilder 155,613.543 18.63% 1.20%
Reinvest Account
733 Marquette Avenue
Minneapolis MN 55479-0040
Koch Industries Inc. 94,334.148 11.29% 0.73%
c/o Wilshire Asset Mgmt.
1299 Ocean Ave. Suite 700
Santa Monica CA 90401
</TABLE>
B-29
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
B Shares Norwest Investment Services, Inc. 34,177.234 6.87% 0.26%
FBO 731400141
Northstar Building E - 8th Fl.
608 Second Ave. S
Minneapolis MN 55479-0162
I Shares Dentru & Co 2,026,569.109 17.42% 15.63%
Non-Discretionary Cash
1740 Broadway Mail 8676
Denver CO 80274
EMSEG & Co. 8,511,597.138 73.15% 65.64%
Small Company Stock Fund I
c/o Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis MN 55480-8477
SMALL CAP OPPORTUNITIES FUND
A Shares Norwest Investment Services, Inc. 10,309.659 5.23% 0.09%
FBO 302660761
Northstar Building East-8th Fl.
608 Second Avenue South
Minneapolis MN 55479-0162
Wells Fargo Bank NA 13,443.346 6.82% 0.12%
Agnt Noggle Crat I Trust
MAC 913-027
Mutual Fund Transfer Unit
26610 West Agoura Rd.
Calabasa CA 91302
Norwest Investment Services, Inc. 9,886.372 5.01% 0.09%
FBO 102739511
Northstar Building East-8th Fl.
608 Second Avenue South
Minneapolis MN 55479-0162
CONTRARIAN STOCK FUND
I Shares Dentru & Co 51,225.808 12.56% 12.56%
Non-Discretionary Cash
1740 Broadway Mail 8676
Denver CO 80274
Kiwils & Co. 47,731.162 11.70% 11.70%
Discretionary Reinvest
1740 Broadway MS 8751
Denver CO 80274
</TABLE>
B-30
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Seret & Co. 44,642.176 10.94% 10.94%
Discretionary Reinvest
1740 Broadway MS 8751
Denver CO 80274
Emseg & Co. 132,534.030 32.49% 32.49%
Contrarian Stock Fund I
c/o Mutual Fund Processing
P.O. Box 1450 NW 8477
Minneapolis MN 55480-8477
Norwest Investment Services Inc. 52,524.471 12.88% 12.88%
FBO 302137221
Northstar Building East-8th Fl.
608 Second Avenue South
Minneapolis MN 55479-0162
Norwest Investment Services Inc. 52,524.937 12.88% 12.88%
FBO 017259691
Northstar Buildilng East-8th Fl.
608 Second Avenue South
Minneapolis MN 55479-0162
INTERNATIONAL FUND
A Shares Norwest Wealthbuilder 45,489.224 32.20% 0.39%
Reinvest Account
733 Marquette Avenue
Minneapolis MN 55479- 0040
Wells Fargo Bank NA 15,295.794 10.83% 0.13%
Agnt Noggle Crat I Trust
MAC 913-027
Mutual Fund Transfer Unit
26610 West Agoura Rd.
Calabasa CA 91302
B Shares
Norwest Investment Services, Inc. 9,936.114 10.51% 0.08%
FBO 015097851
Northstar Building E - 8th Fl.
608 Second Ave. S
Minneapolis MN 55479-0162
</TABLE>
B-31
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Norwest Investment Services Inc. 4,779.933 5.05% 0.04%
FBO 012957081
Northstar Building East-8th Fl.
608 Second Avenue South
Minneapolis MN 55479- 0162
I Shares Emseg & Co. 9,036,156.177 78.85% 77.26%
International Fund I
c/o Mutual Fund Porcessing
P.O. Box 1450 NW 8477
Minneapolis MN 55480-8477
Dentru & Co. 1,167,178.741 10.18% 9.98%
1740 Broadway Mail 8676
Denver CO 80274
</TABLE>
B-32
<PAGE>
APPENDIX C - PERFORMANCE DATA
TABLE 1 - MONEY MARKET FUND YIELDS
As of May 31, 1997, the seven day yield, seven day effective yield and, for
Municipal Money Market Fund, the seven day tax equivalent yield, of each class
of the Money Market Funds was as follows. For the tax-equivalent yield
quotations, the assumed federal income tax rate is 39.6%.
<TABLE>
<S> <S> <C> <C> <C>
EFFECTIVE TAX-EQUIVALENT TAX-EQUIVALENT
YIELD YIELD YIELD EFFECTIVE YIELD
----- ----- ----- ----------------
CASH INVESTMENT FUND 5.26% 5.40% N/A N/A
READY CASH INVESTMENT FUND
Investor Shares 4.92% 5.04% N/A N/A
Institutional Shares 5.26% 5.40% N/A N/A
Exchange Shares 4.17% 4.26% N/A N/A
U.S. GOVERNMENT FUND 5.00% 5.13% N/A N/A
TREASURY FUND 4.85% 4.96% N/A N/A
MUNICIPAL MONEY MARKET FUND
Investor Shares 3.34% 3.40% N/A N/A
Institutional Shares 3.54% 3.61% N/A N/A
</TABLE>
C-1
<PAGE>
TABLE 2 - YIELDS
For the 30-day period ended May 31, 1997 the annualized yield and, where
applicable, the tax equivalent yield of each class of the Fixed Income Funds,
Balanced Funds and Equity Funds was as follows. For the tax-equivalent yield
quotations, the assumed Federal income tax rate is 39.6%. In addition, for the
tax-equivalent yields of the Colorado and Minnesota Tax-Free Funds, the assumed
Colorado and Minnesota income tax rates are 5% and 8.5%, respectively. Limited
Term Tax-Free Fund had not commenced operations as of November 30, 1996.
<TABLE>
<S> <C> <C>
TAX EQUIVALENT
YIELD YIELD
STABLE INCOME FUND
A Shares 5.84% N/A
B Shares 5.18% N/A
I Shares 5.93% N/A
INTERMEDIATE GOVERNMENT INCOME FUND
A Shares 5.81% N/A
B Shares 5.29% N/A
I Shares 6.03% N/A
DIVERSIFIED BOND FUND
A Shares N/A N/A
B Shares N/A N/A
I Shares 6.03% N/A
INCOME FUND
A Shares 6.09% N/A
B Shares 5.59% N/A
I Shares 6.34% N/A
TOTAL RETURN BOND FUND
A Shares 5.70% N/A
B Shares 5.15% N/A
I Shares 5.92% N/A
LIMITED TERM TAX-FREE FUND
A Shares N/A N/A
B Shares N/A N/A
I Shares 4.65% 7.69%
TAX-FREE INCOME FUND
A Shares 5.18% 8.57%
B Shares 4.63% 7.66%
I Shares 5.38% 8.90%
COLORADO TAX-FREE FUND
A Shares 5.22% 9.09%
B Shares 4.66% 8.12%
I Shares 5.42% 9.45%
MINNESOTA TAX-FREE FUND
A Shares 4.93% 8.91%
B Shares 4.36% 7.90%
I Shares 5.12% 9.26%
STRATEGIC INCOME FUND
I Shares N/A N/A
MODERATE BALANCED FUND
I Shares N/A N/A
GROWTH BALANCED FUND
I Shares N/A N/A
DIVERSIFIED EQUITY FUND
A Shares N/A N/A
B Shares N/A N/A
I Shares N/A N/A
GROWTH EQUITY FUND
A Shares N/A N/A
B Shares N/A N/A
I Shares N/A N/A
INDEX FUND
I Shares 2.44% N/A
</TABLE>
C-2
<PAGE>
<TABLE>
<S> <C> <C>
TAX EQUIVALENT
YIELD YIELD
VALUGROWTH STOCK FUND
A Shares 1.03% N/A
B Shares 0.40% N/A
I Shares 1.08% N/A
INCOME EQUITY FUND
A Shares 2.38% N/A
B Shares 1.76% N/A
I Shares 2.50% N/A
LARGE COMPANY GROWTH FUND
I Shares 0.08% N/A
SMALL COMPANY STOCK FUND
A Shares 0.56% N/A
B Shares 1.26% N/A
I Shares 0.59% N/A
SMALL COMPANY GROWTH FUND
I Shares 0.80% N/A
SMALL CAP OPPORTUNITIES FUND
A Shares N/A N/A
B Shares N/A N/A
I Shares N/A N/A
CONTRARIAN STOCK FUND
A Shares N/A N/A
B Shares N/A N/A
I Shares 0.39% N/A
INTERNATIONAL FUND
A Shares N/A N/A
B Shares N/A N/A
I Shares N/A N/A
</TABLE>
C-3
<PAGE>
TABLE 3 - TOTAL RETURNS
The average annual total return of each class of each Fund for the periods ended
November 30, 1997 was as follows. For the money market funds, the yields shown
in Table 1 more closely reflect the current earnings of each fund than the total
return quotation. The actual dates of the commencement of each Fund's
operations, or the commencement of the offering of each class' shares, is listed
in the Fund's financial statements. The performance of the Funds marked with an
asterisk (*) includes the performance of a collective investment fund or a
common trust fund prior to its conversion into the Fund. (See "Performance and
Advertising Data -- Multiclass, Collective Investment Fund, Common Trust Fund
and Core-Gateway Performance.") Prior to 1989, the collective investment funds
and common trust fund were valued on the calendar quarter; therefore the
following chart does not reflect a Since Inception figure as of the fiscal year
end for those funds adopting collective investment or common trust fund
performance. Calendar quarter performance is available from the adviser.
SEC STANDARDIZED RETURNS
<TABLE>
<S> <C> <C> <C> <C>
ONE YEAR FIVE TEN YEARS SINCE
YEARS INCEPTION
-------- ------ --------- ---------
CASH INVESTMENT FUND 5.33% 4.62% 5.79% 5.81%
READY CASH INVESTMENT FUND
Investor Shares 4.98% 4.27% N/A 5.43%
Institutional Shares 5.29% 4.54% N/A 5.57%
Exchange Shares 4.20% N/A N/A 4.10%
U.S. GOVERNMENT FUND 5.14% 4.45% 5.57% 5.57%
TREASURY FUND 4.93% 4.25% N/A 4.41%
MUNICIPAL MONEY MARKET FUND
Investor Shares 3.18% 2.85% N/A 3.71%
Institutional Shares 3.38% 3.02% N/A 3.80%
STABLE INCOME FUND
A Shares 4.55% N/A N/A 6.00%
B Shares 4.56% N/A N/A 5.11%
I Shares 6.08% N/A N/A 6.49%
LIMITED TERM GOVERNMENT
INCOME FUND
I Shares N/A N/A N/A 6.72%
INTERMEDIATE GOVERNMENT
INCOME FUND*
A Shares 2.22% 4.63% 6.74% 7.46%
B Shares 3.74% N/A N/A 5.83%
I Shares 6.52% 5.50% 7.21% 7.80%
DIVERSIFIED BOND FUND*
I Shares 7.97% 6.02% 7.58% 8.53%
INCOME FUND
A Shares 3.44% 5.13% 7.72% 7.65%
B Shares 4.95% N/A N/A 4.26%
I Shares 7.75% 5.97% N/A 8.06%
TOTAL RETURN BOND FUND
A Shares 2.21% N/A N/A 4.81%
B Shares 3.65% N/A N/A 4.97%
I Shares 6.44% N/A N/A 5.95%
LIMITED TERM TAX-FREE FUND
I Shares 5.37% N/A N/A 9.37%
TAX-FREE INCOME FUND
A Shares 3.56% 6.02% N/A 6.42%
B Shares 5.07% N/A N/A 5.60%
I Shares 7.96% 6.90% N/A 6.96%
COLORADO TAX-FREE FUND
A Shares 3.87% N/A N/A 5.61%
B Shares 5.54% N/A N/A 5.78%
I Shares 8.35% N/A N/A 6.59%
</TABLE>
C-4
<PAGE>
SEC STANDARDIZED RETURNS (CONTINUED)
<TABLE>
<S> <C> <C> <C> <C>
ONE YEAR FIVE TEN YEARS SINCE
YEARS INCEPTION
-------- ------ --------- ---------
MINNESOTA INTERMEDIATE
TAX-FREE FUND*
I Shares N/A N/A N/A 5.74%
MINNESOTA TAX-FREE FUND
A Shares 2.66% 5.77% N/A 6.53%
B Shares 4.29% N/A N/A 5.20%
I Shares 6.98% 6.64% N/A 6.97%
STRATEGIC INCOME FUND*
I Shares 11.55% 8.80% N/A 9.40%
MODERATE BALANCED FUND*
I Shares 13.92% 10.55% N/A 11.05%
GROWTH BALANCED FUND*
I Shares 18.12% 13.36% N/A 13.01%
INCOME EQUITY FUND*
A Shares 16.56% 17.50% N/A 16.29%
B Shares 19.39% N/A N/A 21.75%
I Shares 23.30% 18.85% N/A 17.09%
INDEX FUND*
I Shares 28.14% 19.42% 18.07% 14.95%
VALUGROWTH STOCK FUND
A Shares 13.01% 11.94% N/A 13.25%
B Shares 15.71% N/A N/A 14.17%
I Shares 19.54% 13.15% N/A 13.87%
DIVERSIFIED EQUITY FUND*
A Shares 15.89% 16.12% N/A 16.17%
B Shares 18.72% N/A N/A 20.66%
I Shares 22.61% 17.52% N/A 17.05%
GROWTH EQUITY FUND*
A Shares 12.71% 14.96% N/A 15.38%
B Shares 15.36% N/A N/A 14.50%
I Shares 19.25% 16.41% N/A 16.38%
LARGE COMPANY GROWTH FUND*
I Shares 29.40% 15.89% 17.92% 15.58%
SMALL COMPANY STOCK FUND
A Shares 7.47% N/A N/A 13.00%
B Shares 9.88% N/A N/A 13.41%
I Shares 13.71% N/A N/A 14.52%
SMALL COMPANY GROWTH FUND*
I Shares 26.59% 20.70% 24.01% 18.57%
SMALL CAP OPPORTUNITIES FUND
A Shares 20.82% N/A N/A 24.11%
B Shares 23.91% N/A N/A 24.92%
I Shares 27.84% N/A N/A 25.75%
CONTRARIAN STOCK FUND
A Shares N/A N/A N/A N/A
B Shares N/A N/A N/A N/A
I Shares 16.48% N/A N/A 8.77%
INTERNATIONAL FUND*
A Shares -3.40% 11.85% 9.12% 6.50%
B Shares -1.61% N/A N/A 6.17%
I Shares 2.13% 13.12% 9.73% 7.11%
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NON STANDARDIZED RETURNS (WITHOUT A SALES LOAD)
CALENDAR
ONE MONTH THREE YEAR TO ONE YEAR THREE FIVE TEN YEARS SINCE
MONTHS DATE YEARS YEARS INCEPTION
--------- ------ --------- -------- ------- ------ --------- ---------
CASH INVESTMENT FUND 0.44% 1.32% 4.87% 5.33% 5.43% 4.62% 5.79% 5.81%
READY CASH INVESTMENT FUND
Investor Shares 0.41% 1.25% 4.56% 4.98% 5.10% 4.27% N/A 5.43%
Institutional Shares 0.43% 1.29% 4.83% 5.29% 5.44% 4.54% N/A 5.57%
Exchange Shares 0.35% 1.06% 3.85% 4.20% 4.31% N/A N/A 4.10%
U.S. GOVERNMENT FUND 0.42% 1.28% 4.71% 5.14% 5.23% 4.45% 5.77% 5.57%
TREASURY FUND 0.40% 1.22% 4.51% 4.93% 5.02% 4.25% N/A 4.41%
MUNICIPAL MONEY MARKET FUND
Investor Shares 0.27% 0.80% 2.91% 3.18% 3.27% 2.85% N/A 3.71%
Institutional Shares 0.28% 0.85% 3.10% 3.38% 3.48% 3.02% N/A 3.80%
STABLE INCOME FUND
A Shares 0.25% 1.76% 5.88% 6.18% N/A N/A N/A 6.52%
B Shares 0.09% 1.47% 5.15% 5.31% N/A N/A N/A 5.58%
I Shares 0.15% 1.66% 5.77% 6.08% 6.53% N/A N/A 6.49%
LIMITED TERM GOVERNMENT
INCOME FUND
I Shares 0.19% N/A N/A N/A N/A N/A N/A 6.72%
INTERMEDIATE GOVERNMENT
INCOME FUND*
A Shares 0.31% 3.45% 7.72% 6.52% 8.24% 5.49% 7.18% 7.76%
B Shares 0.25% 3.26% 6.95% 5.74% N/A N/A N/A 7.08%
I Shares 0.31% 3.45% 7.72% 6.52% 8.23% 5.48% 7.18% 7.75%
DIVERSIFIED BOND FUND*
I Shares 0.62% 4.75% 8.80% 7.97% 8.42% 6.00% 7.54% 8.48%
INCOME FUND
A Shares 0.52% 4.37% 9.00% 7.75% 9.47% 5.99% 8.16% 8.07%
B Shares 0.35% 4.19% 8.15% 6.95% 8.68% N/A N/A 4.26%
I Shares 0.52% 4.38% 9.00% 7.75% 9.48% 5.97% N/A 8.06%
TOTAL RETURN BOND FUND
A Shares 0.19% 2.95% 7.82% 6.44% 8.27% N/A N/A 5.91%
B Shares 0.23% 2.76% 7.20% 5.65% 7.49% N/A N/A 5.19%
I Shares 0.19% 2.95% 7.82% 6.44% 8.31% N/A N/A 5.95%
LIMITED TERM TAX-FREE FUND
I Shares 0.27% 1.80% 5.58% 5.37% N/A N/A N/A 9.37%
TAX-FREE INCOME FUND
A Shares 0.81% 2.86% 8.12% 7.86% 10.60% 6.88% N/A 6.95%
B Shares 0.75% 2.67% 7.40% 7.07% 9.77% N/A N/A 5.60%
I Shares 0.91% 2.96% 8.23% 7.96% 10.59% 6.90% N/A 6.96%
COLORADO TAX-FREE FUND
A Shares 0.61% 3.02% 8.28% 8.23% 10.67% N/A N/A 6.57%
B Shares 0.64% 2.92% 7.65% 7.54% 9.88% N/A N/A 5.78%
I Shares 0.70% 3.12% 8.39% 8.35% 10.71% N/A N/A 6.59%
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NON STANDARDIZED RETURNS (WITHOUT A SALES LOAD) (CONTINUED)
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CALENDAR
ONE MONTH THREE YEAR TO ONE YEAR THREE FIVE TEN YEARS SINCE
MONTHS DATE YEARS YEARS INCEPTION
--------- ------- -------- -------- ------- ------ ---------- ---------
MINNESOTA INTERMEDIATE
TAX-FREE FUND*
I Shares 0.32% N/A N/A N/A N/A 6.67% 7.75% 6.74%
MINNESOTA TAX-FREE FUND
A Shares 0.59% 2.73% 7.43% 6.98% 10.24% 6.64% N/A 6.97%
B Shares 0.52% 2.54% 6.70% 6.29% 9.41% N/A N/A 5.20%
I Shares 0.59% 2.64% 7.43% 6.98% 10.24% 6.64% N/A 6.97%
STRATEGIC INCOME FUND*
I Shares 0.96% 4.08% 12.00% 11.55% 11.88% 8.76% N/A 9.35%
MODERATE BALANCED FUND*
I Shares 1.34% 4.05% 14.56% 13.92% 14.59% 10.51% N/A 10.97%
GROWTH BALANCED FUND*
I Shares 1.91% 4.41% 19.14% 18.12% 19.09% 13.29% N/A 12.91%
INCOME EQUITY FUND*
A Shares 4.77% 6.66% 25.66% 23.34% 28.39% 18.83% N/A 17.05%
B Shares 4.73% 6.49% 24.80% 22.39% N/A N/A N/A 23.43%
I Shares 4.77% 6.69% 25.66% 23.30% 28.39% 18.83% N/A 17.05%
INDEX FUND*
I Shares 4.58% 6.54% 30.96% 28.14% 30.19% 19.40% 18.03% 14.91%
VALUGROWTH STOCK FUND
A Shares 2.21% 2.08% 21.81% 19.61% 22.13% 13.22% N/A 13.89%
B Shares 2.17% 1.92% 20.97% 18.71% 21.20% N/A N/A 14.46%
I Shares 2.17% 2.04% 21.74% 19.54% 22.10% 13.15% N/A 13.87%
DIVERSIFIED EQUITY FUND*
A Shares 2.64% 4.28% 23.94% 22.64% 25.57% 17.44% N/A 16.91%
B Shares 2.59% 4.11% 23.11% 21.72% N/A N/A N/A 22.37%
I Shares 2.61% 4.26% 23.95% 22.61% 25.56% 17.43% N/A 16.91%
GROWTH EQUITY FUND*
A Shares -0.03% 1.58% 18.91% 19.25% 21.58% 16.26% N/A 16.14%
B Shares -0.06% 1.42% 18.10% 18.36% N/A N/A N/A 16.25%
I Shares N/A 1.61% 18.91% 19.25% 21.58% 16.26% N/A 16.14%
LARGE COMPANY GROWTH FUND*
I Shares 3.07% 6.09% 31.09% 29.40% 28.88% 15.87% 17.88% 15.54%
SMALL COMPANY STOCK FUND
A Shares -4.48% -4.42% 10.03% 13.72% 20.04% N/A N/A 14.64%
B Shares -4.54% -4.60% 9.32% 12.88% 19.16% N/A N/A 13.77%
I Shares -4.44% -4.37% 10.09% 13.71% 20.08% N/A N/A 14.52%
SMALL COMPANY GROWTH FUND*
I Shares -2.68% 1.94% 23.87% 26.59% 29.45% 20.67% 23.96% 18.52%
SMALL CAP OPPORTUNITIES FUND
A Shares -0.79% 1.16% 26.40% 27.85% 33.33% N/A N/A 25.74%
B Shares -0.84% 0.98% 25.54% 26.91% N/A N/A N/A 27.70%
I Shares -0.74% 1.20% 26.39% 27.84% 33.35% N/A N/A 25.75%
CONTRARIAN STOCK FUND
A Shares N/A N/A N/A N/A N/A N/A N/A N/A
B Shares N/A N/A N/A N/A N/A N/A N/A N/A
I Shares -2.51% -7.00% 16.21% 16.48% 11.68% N/A N/A 8.77%
INTERNATIONAL FUND*
A Shares -1.83% -3.27% 2.26% 2.21% 7.49% 13.13% 9.74% 7.11%
B Shares -1.89% -3.44% 1.56% 1.39% N/A N/A N/A 7.23%
I Shares -1.83% -3.27% 2.25% 2.13% 7.49% 13.12% 9.73% 7.11%
</TABLE>
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PERFORMA FUNDS
STATEMENT OF ADDITIONAL INFORMATION
APRIL 1, 1998
PERFORMA DISCIPLINED GROWTH FUND
PERFORMA SMALL CAP VALUE FUND
PERFORMA STRATEGIC VALUE BOND FUND
PERFORMA GLOBAL GROWTH FUND
<PAGE>
PERFORMA FUNDS
STATEMENT OF ADDITIONAL INFORMATION
APRIL 1, 1998
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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
</TABLE>
The Performa Funds are 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 April
1, 1998, as may be amended from time to time, offering shares of Performa
Disciplined Growth Fund, Performa Small Cap Value Fund, Performa Strategic Value
Bond Fund and Performa Global Growth Fund.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE PROSPECTUS.
THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE READ ONLY IN CONJUNCTION WITH
A 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
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Page
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Introduction 1
1. Investment Policies 3
Security Ratings Information 3
Fixed Income Investments 3
Mortgage-Backed And Asset-Backed Securities 7
Interest Rate Protection Transactions 8
Hedging And Option Income Strategies 9
Foreign Currency Transactions 13
Equity Securities and Additional Information 14
Illiquid Securities and Restricted Securities 17
Loans of Portfolio Securities 18
Borrowing And Transactions Involving Leverage 18
Repurchase Agreements 21
Temporary Defensive Position 21
2. Investment Limitations 21
Fundamental Limitations 22
Non-Fundamental Limitations 23
3. Performance and Advertising Data 24
SEC Yield Calculations 25
Total Return Calculations 25
Other Advertisement Matters 26
4. Management 27
Trustees and Officers 27
Investment Advisory Services 33
Management and Administrative Services 36
Distribution 38
Transfer Agent 39
Custodian 39
Portfolio Accounting 40
Expenses 41
5. Portfolio Transactions 41
6. Additional Purchase and Redemption Information 43
General 43
Exchanges 43
Redemptions 43
7. Taxation 44
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TABLE OF CONTENTS
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Page
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8. Additional Information About the Trust and the Shareholders of the Funds 45
Counsel and Auditors 45
General Information 45
Shareholdings 46
Financial Statements 46
Registration Statement 46
Appendix A - Description of Securities Ratings A-1
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INTRODUCTION
The Trust was originally organized under the name "Prime Value Funds, Inc." as a
Maryland corporation on August 29, 1986, and on July 30, 1993, was reorganized
as a Delaware business trust under the name "Norwest Funds." On October 1, 1997,
the Trust changed its name to "Norwest Advantage Funds."
Each Fund's investment adviser is Norwest Investment Management, Inc.
("Norwest"), a subsidiary of Norwest Bank Minnesota, N.A. ("Norwest Bank").
Norwest also is the investment adviser of each Core Portfolio (other than
Schroder Global Growth Portfolio). Norwest Bank, a subsidiary of Norwest
Corporation, serves as the Trust's transfer agent, dividend disbursing agent and
custodian.
Smith Asset Management Group, LP ("Smith") serves as investment subadviser of
Performa Disciplined Growth Fund/ Disciplined Growth Portfolio and Performa
Small Cap Value Fund/ Small Cap Value Portfolio.
Galliard Capital Management, Inc. ("Galliard") serves as investment subadviser
of Performa Strategic Value Bond Fund/Strategic Value Bond Portfolio.
Schroder Capital Management International Inc. ("Schroder") serves as investment
adviser to Schroder Global Growth Portfolio. Schroder also serves as an
investment subadviser of Performa Global Growth Fund.
Forum Financial Services, Inc. ("Forum"), a registered broker-dealer, serves as
the Trust's manager and as distributor of the Trust's shares. Forum
Administrative Services, Limited Liability Company ("FAS") serves as each Fund's
administrator.
As used in this SAI, the following terms shall have the meanings listed:
"Advisers" or "Investment Advisers" shall mean, collectively, Norwest,
Schroder and the Subadvisers.
"Board" shall mean the Board of Trustees of the Trust.
"CFTC" shall mean the U.S. Commodities Futures Trading Commission.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Core Trust" shall mean Core Trust (Delaware), an open-end, management
investment company registered under the 1940 Act.
"Core Trust Board" shall mean the Board of Trustees of Core Trust.
"Custodian" shall mean Norwest acting in its capacity as custodian of a
Fund.
"Bond" includes fixed income investments issued with a final maturity
of 3 years or more, or that on their face are described as "bonds."
"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.
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"Fund" shall mean each of the four separate portfolios of the Trust to
which this Statement of Additional Information relates as identified on
the cover page.
"Galliard" shall mean Galliard Capital Management, Inc., the investment
subadviser to Performa Strategic Value Bond Fund/Strategic Value Bond
Portfolio.
"Moody's" shall mean Moody's Investors Service.
"Norwest" shall mean Norwest Investment Management, Inc., a subsidiary
of Norwest Bank Minnesota, N.A.
"Norwest Bank" shall mean Norwest Bank Minnesota, N.A., a subsidiary of
Norwest Corporation.
"NRSRO" shall mean a nationally recognized statistical rating
organization.
"Performa Funds" shall mean the Funds set forth on the cover page of
this Statement of Additional Information.
"Portfolio" shall mean, Disciplined Growth Portfolio, Small Cap Value
Portfolio, Strategic Value Bond Portfolio and Schroder Global Growth
Portfolio, each a separate portfolio of Core Trust.
"Schroder" shall mean Schroder Capital Management International Inc.,
the investment adviser to Schroder Global Growth Portfolio.
"Schroder Core" shall mean Schroder Capital Funds, open-end, management
investment company registered under the 1940 Act.
"Schroder Core Board" shall mean the Board of Trustees of Schroder
Capital Funds.
"SEC" shall mean the U.S. Securities and Exchange Commission.
"S&P" shall mean Standard & Poor's.
"Smith" shall mean Smith Asset Management Group, L.P.
"Stock Index Futures" shall mean futures contracts that relate to
broadly-based stock indices.
"Subadvisers or "Investment Subadvisers: shall mean, collectively,
Galliard Capital Management, Inc., Smith Asset Management Group, LP and
Schroder Capital Management Inc., as applicable.
"Transfer Agent" shall mean Norwest Bank acting in its capacity as
transfer and dividend disbursing agent of a Fund.
"Trust" shall mean Norwest Advantage Funds, an open-end, management
investment company registered under the 1940 Act.
"U.S. Government Securities" shall mean obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities.
"1933 Act" shall mean the Securities Act of 1933, as amended.
"1940 Act" shall mean the Investment Company Act of 1940, as amended.
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1. INVESTMENT POLICIES
The following discussion is intended to supplement the discussion in the
Prospectus concerning each Portfolio's investments, investment techniques and
strategies and the risks associated therewith (as well as those of each Fund, to
the extent that the Fund is invested in a Portfolio). Certain of the Funds are
designed for investment of that portion of an investor's funds which can
appropriately bear the special risks associated with certain types of
investments (i.e., investment in smaller capitalization companies). No Fund or
Portfolio may make any investment or employ any investment technique or strategy
not referenced in the Prospectus which relates to that Fund or Portfolio. For
example, while the SAI describes "swap" transactions below, only those Funds or
Portfolios whose investment policies, as described in the Prospectus, allow the
Fund or Portfolio to invest in swap transactions may do so. The discussion below
refers to the investment policies of the Portfolios. Because the investment
policies of each Fund are substantially similar to the investment policies of
the Portfolio in which the Fund invests, the discussion below is equally
applicable to the Fund.
SECURITY RATINGS INFORMATION
Moody's, S&P and other NRSROs are private services that provide ratings of the
credit quality of debt obligations, including convertible securities. A
description of the range of ratings assigned to various types of bonds and other
securities by several NRSROs is included in Appendix A to this SAI. The
Portfolios may use these ratings to determine whether to purchase, sell or hold
a security. It should be emphasized, however, that ratings are general and are
not absolute standards of quality. Consequently, securities with the same
maturity, interest rate and rating may have different market prices. If an issue
of securities ceases to be rated or if its rating is reduced after it is
purchased by a Portfolio (neither event requiring sale of such security by a
Portfolio, the Portfolio's Adviser will determine whether the Portfolio should
continue to hold the obligation. To the extent that the ratings given by a NRSRO
may change as a result of changes in such organizations or their rating systems,
the Investment Adviser will attempt to substitute comparable ratings. Credit
ratings attempt to evaluate the safety of principal and interest payments and do
not evaluate the risks of fluctuations in market value. Also, rating agencies
may fail to make timely changes in credit ratings. An issuer's current financial
condition may be better or worse than a rating indicates.
A Portfolio may purchase unrated securities if its Adviser determines the
security to be of comparable quality to a rated security that the Portfolio may
purchase. Unrated securities may not be as actively traded as rated securities.
A Portfolio may retain securities whose rating has been lowered below the lowest
permissible rating category (or that are unrated and determined by its Adviser
to be of comparable quality to securities whose rating has been lowered below
the lowest permissible rating category) if the Adviser determines that retaining
such security is in the best interests of the Portfolio.
FIXED INCOME INVESTMENTS
GENERAL INFORMATION CONCERNING FIXED INCOME SECURITIES
Yields on fixed income securities, including municipal securities, are dependent
on a variety of factors, including the general conditions of the money market
and other fixed income securities markets, the size of a particular offering,
the maturity of the obligation and the rating of the issue. Fixed income
securities with longer maturities tend to produce higher yields and are
generally subject to greater price movements than obligations with shorter
maturities. There is normally an inverse relationship between the market value
of securities sensitive to prevailing interest rates and actual changes in
interest rates. In other words, an increase in interest rates will generally
reduce the market value of portfolio investments, and a decline in interest
rates will generally increase the value of portfolio investments.
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<PAGE>
Obligations of issuers of fixed income securities (including municipal
securities) are subject to the provisions of bankruptcy, insolvency, and other
laws affecting the rights and remedies of creditors, such as the Federal
Bankruptcy Reform Act of 1978. In addition, the obligations of municipal issuers
may become subject to laws enacted in the future by Congress, state
legislatures, or referenda extending the time for payment of principal and/or
interest, or imposing other constraints upon enforcement of such obligations or
upon the ability of municipalities to levy taxes. Changes in the ability of an
issuer to make payments of interest and principal and in the market's perception
of an issuer's creditworthiness will also affect the market value of the debt
securities of that issuer. The possibility exists, therefore, that, the ability
of any issuer to pay, when due, the principal of and interest on its debt
securities may become impaired.
U.S. GOVERNMENT SECURITIES
In addition to obligations of the U.S. Treasury, each Fund may invest in U.S.
Government Securities. Agencies, instrumentalities and government sponsored
enterprises that 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. Some 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 government-sponsored agencies or
instrumentalities if it is not obligated to do so by law. Accordingly, although
these securities have historically involved little risk of loss of principal if
held to maturity, they may involve more risk than securities backed by the U.S.
Government's full faith and credit. A Portfolio will invest in the obligations
of such agencies or instrumentalities only when its Adviser believes that the
credit risk with respect thereto is consistent with the Portfolio's investment
policies.
BANK OBLIGATIONS
Each Portfolio may, in accordance with the policies described in the Prospectus,
invest in obligations of financial institutions, including negotiable
certificates of deposit, bankers' acceptances and time deposits of U.S. banks
(including savings banks and savings associations), foreign branches of U.S.
banks, foreign banks and their non-U.S. branches (Eurodollars), U.S. branches
and agencies of foreign banks (Yankee dollars), and wholly-owned banking-related
subsidiaries of foreign banks. A Portfolio's investments in the obligations of
foreign banks and their branches, agencies or subsidiaries may be obligations of
the parent, of the issuing branch, agency or subsidiary, or both. Investments in
foreign bank obligations are limited to banks and branches located in countries
which the Portfolio's Adviser believes do not present undue risk.
A certificate of deposit is an interest-bearing negotiable certificate issued by
a bank against funds deposited in the bank. A bankers' acceptance is a
short-term draft drawn on a commercial bank by a borrower, usually in connection
with an international commercial transaction. Although the borrower is liable
for payment of the draft, the bank unconditionally guarantees to pay the draft
at its face value on the maturity date. Time deposits are non-negotiable
deposits with a banking institution that earn a specified interest rate over a
given period. Certificates of deposit and fixed time deposits, which are payable
at the stated maturity date and bear a fixed rate of interest, generally may be
withdrawn on demand by a Portfolio but may be subject to early withdrawal
penalties which vary depending upon market conditions and the remaining maturity
of the obligation and could reduce the Portfolio's yield. Although fixed-time
deposits do not in all cases have a secondary market, there are no contractual
restrictions on a Portfolio's right to transfer a beneficial interest in the
deposits to third parties. Deposits subject to early withdrawal penalties or
that mature in more than seven days are treated as illiquid securities if there
is no readily available market for the securities.
The Portfolios may invest in Eurodollar certificates of deposit, which are U.S.
dollar denominated certificates of deposit issued by offices of foreign and
domestic banks located outside the United States; Yankee certificates of
deposit, which are certificates of deposit issued by a U.S. branch of a foreign
bank denominated in U.S. dollars and
4
<PAGE>
held in the United States; Eurodollar time deposits ("ETDs"), which are U.S.
dollar denominated deposits in a foreign branch of a U.S. bank or a foreign
bank; and Canadian time deposits, which are essentially the same as ETDs, except
that they are issued by Canadian offices of major Canadian banks.
Investments that a Portfolio may make in instruments of foreign banks, branches
or subsidiaries may involve certain risks, including future political and
economic developments, the possible imposition of foreign withholding taxes on
interest income payable on such securities, the possible seizure or
nationalization of foreign deposits, differences from domestic banks in
applicable accounting, auditing and financial reporting standards, and the
possible establishment of exchange controls or other foreign governmental laws
or restrictions applicable to the payment of certificates of deposit or time
deposits which might affect adversely the payment of principal and interest on
such securities held by the Portfolio.
SHORT TERM DEBT SECURITIES/COMMERCIAL PAPER
Each Portfolio may assume a temporary defensive position and may invest without
limit in commercial paper that is rated in one of the two highest rating
categories by an NRSRO or, if not rated, determined by the Adviser to be of
comparable quality. Certain Portfolios may invest in commercial paper as an
investment and not as a temporary defensive position. Except as noted below with
respect to variable master demand notes, issues of commercial paper normally
have maturities of less than nine months and fixed rates of return.
Variable amount master demand notes are unsecured demand notes that permit the
indebtedness thereunder to vary and provide for periodic adjustments in the
interest rate according to the terms of the instrument. Because master demand
notes are direct lending arrangements between a Portfolio and the issuer, they
are not normally traded. Although there is no secondary market in the notes, the
Portfolio may demand payment of principal and accrued interest at any time.
Variable amount master demand notes must satisfy the same criteria as set forth
above for commercial paper.
GUARANTEED INVESTMENT CONTRACTS
Strategic Value Bond Portfolio may invest in guaranteed investment contracts
("GICs") issued by insurance companies. Pursuant to such contracts, the
Portfolio makes cash contributions to a deposit fund of the insurance company's
general account. The insurance company then credits to the deposit fund on a
monthly basis guaranteed interest at a rate based on an index. The GICs provide
that this guaranteed interest will not be less than a certain minimum rate. The
insurance company may assess periodic charges against a GIC for expense and
service costs allocable to it, and these charges will be deducted from the value
of the deposit fund. The Portfolio will purchase a GIC only when the Adviser has
determined that the GIC presents minimal credit risks to the Portfolio and is of
comparable quality to instruments in which the Portfolio may otherwise invest.
Because a Portfolio may not receive the principal amount of a GIC from the
insurance company on seven days' notice or less, the GIC may be considered an
illiquid investment. The term of a GIC will be one year or less.
In determining the average weighted portfolio maturity of the Portfolio, a GIC
will be deemed to have a maturity equal to the period of time remaining until
the next readjustment of the guaranteed interest rate. The interest rate on a
GIC may be tied to a specified market index and is guaranteed not to be less
than a certain minimum rate.
ZERO COUPON SECURITIES
Zero coupon securities are sold at original issue discount and pay no interest
to holders prior to maturity. Accordingly, these securities usually trade at a
deep discount from their face or par value and will be subject to greater
fluctuations of market value in response to changing interest rates than debt
obligations of comparable maturities which make current distributions of
interest. Federal tax law requires a Portfolio to accrue a portion of the
discount at which a zero-coupon security was purchased as income each year even
though the Portfolio receives no interest payment in cash on the security during
the year. Interest on these securities, however, is reported as income by the
Portfolio and must be distributed to its shareholders. The Portfolios distribute
all of their net investment income, and may have to sell portfolio securities to
distribute imputed income, which may occur at a
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time when the Investment Adviser would not have chosen to sell such securities
and which may result in a taxable gain or loss.
Currently, U.S. Treasury securities issued without coupons include Treasury
bills and separately traded principal and interest components of securities
issued or guaranteed by the U.S. Treasury. These stripped components are traded
independently under the Treasury's Separate Trading of Registered Interest and
Principal of Securities ("STRIPS") program or as Coupons Under Book Entry
Safekeeping ("CUBES"). A number of banks and brokerage firms separate the
principal and interest portions of U.S. Treasury securities and sell them
separately in the form of receipts or certificates representing undivided
interests in these instruments. These instruments are generally held by a bank
in a custodial or trust account on behalf of the owners of the securities and
are known by various names, including Treasury Receipts ("TRs"), Treasury
Investment Growth Receipts ("TIGRs") and Certificates of Accrual on Treasury
Securities ("CATS"). In addition, corporate debt securities may be zero coupon
securities.
VARIABLE AND FLOATING RATE SECURITIES
The securities in which the Portfolios invest (including municipal securities or
mortgage- and asset-backed securities, as applicable) may have variable or
floating rates of interest and, under certain limited circumstances, may have
varying principal amounts. These securities pay interest at rates that are
adjusted periodically accordingly to a specified formula, usually with reference
to one or more interest rate indices or market interest rates (the "underlying
index"). The interest paid on these securities is a function primarily of the
underlying index upon which the interest rate adjustments are based. Similar to
fixed rate debt instruments, variable and floating rate instruments are subject
to changes in value based on changes in market interest rates or changes in the
issuer's creditworthiness. The rate of interest on securities purchased by a
Portfolio may be tied to Treasury or other government securities or indices on
those securities as well as any other rate of interest or index. Certain
variable rate securities (including mortgage-related securities or
mortgage-backed securities) pay interest at a rate that varies inversely to
prevailing short-term interest rates (sometimes referred to as inverse
floaters). For instance, upon reset the interest rate payable on a security may
go down when the underlying index has risen. During times when short-term
interest rates are relatively low as compared to long-term interest rates a
Portfolio may attempt to enhance its yield by purchasing inverse floaters.
Certain inverse floaters may have an interest rate reset mechanism that
multiplies the effects of changes in the underlying index. This form of leverage
may have the effect of increasing the volatility of the security's market value
while increasing the security's, and thus the Portfolio's, yield.
There may not be an active secondary market for any particular floating or
variable rate instruments (particularly inverse floaters and similar
instruments) which could make it difficult for a Portfolio to dispose of the
instrument if the issuer defaulted on its repayment obligation during periods
that the Portfolio is not entitled to exercise any demand rights it may have. A
Portfolio could, for this or other reasons, suffer a loss with respect to an
instrument. Each Portfolio's Adviser monitors the liquidity of the Portfolios'
investment in variable and floating rate instruments, but there can be no
guarantee that an active secondary market will exist.
Many variable rate instruments include the right of the holder to demand
prepayment of the principal amount of the obligation prior to its stated
maturity and the right of the issuer to prepay the principal amount prior to
maturity. The payment of principal and interest by issuers of certain securities
purchased by the Portfolios may be guaranteed by letters of credit or other
credit facilities offered by banks or other financial institutions. Such
guarantees will be considered in determining whether a municipal security meets
the Portfolios' investment quality requirements.
Variable rate obligations purchased by the Portfolios may include participation
interests in variable rate obligations purchased by the Portfolios from banks,
insurance companies or other financial institutions that are backed by
irrevocable letters of credit or guarantees of banks. The Portfolios can
exercise the right, on not more than thirty days' notice, to sell such an
instrument back to the bank from which it purchased the instrument and draw on
the letter of credit for all or any part of the principal amount of a
Portfolio's participation interest in the instrument, plus accrued interest, but
will do so only: (1) as required to provide liquidity to a Portfolio; (2) to
maintain a high quality
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investment portfolio; or (3) upon a default under the terms of the demand
instrument. Banks and other financial institutions retain portions of the
interest paid on such variable rate obligations as their fees for servicing such
instruments and the issuance of related letters of credit, guarantees and
repurchase commitments.
Certain securities may have an initial principal amount that varies over time
based on an interest rate index, and, accordingly, a Portfolio might be entitled
to less than the initial principal amount of the security upon the security's
maturity. The Portfolios intend to purchase such securities only when the
Portfolio's Adviser believes the interest income from the instrument justifies
any principal risks associated with the instrument. A Portfolio may attempt to
limit any potential loss of principal by purchasing similar instruments that are
intended to provide an offsetting increase in principal. There can be no
assurance that a Portfolio will be able to limit principal fluctuations and,
accordingly, a Portfolio may incur losses on those securities even if held to
maturity without issuer default.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES
TYPES OF CREDIT ENHANCEMENT
To lessen the effect of failures by obligors to make payments, mortgage-backed
securities may contain elements of credit enhancement. Credit enhancement falls
into two categories: (1) liquidity protection; and (2) protection against losses
resulting after default by an obligor on the underlying assets and collection of
all amounts recoverable directly from the obligor and through liquidation of the
collateral. Liquidity protection refers to the provisions of advances, generally
by the entity administering the pool of assets (usually the bank, savings
association or mortgage banker that transferred the underlying loans to the
issuer of the security), to ensure that the receipt of payments on the
underlying pool occurs in a timely fashion. Protection against losses resulting
after default and liquidation ensures ultimate payment of the obligations on at
least a portion of the assets in the pool. Such protection may be provided
through guarantees, insurance policies or letters of credit obtained by the
issuer or sponsor from third parties, through various means of structuring the
transaction or through a combination of such approaches. The Portfolios will not
pay any additional fees for such credit enhancement, although the existence of
credit enhancement may increase the price of security.
Examples of credit enhancement arising out of the structure of the transaction
include: (1) "senior-subordinated securities" (multiple class securities with
one or more classes subordinate to other classes as to the payment of principal
thereof and interest thereon, with the result that defaults on the underlying
assets are borne first by the holders of the subordinated class); (2) creation
of "spread accounts" or "reserve funds" (where cash or investments, sometimes
funded from a portion of the payments on the underlying assets are held in
reserve against future losses); and (3) "over-collateralization" (where the
scheduled payments on, or the principal amount of, the underlying assets exceeds
that required to make payment of the securities and pay any servicing or other
fees). The degree of credit enhancement provided for each issue generally is
based on historical information regarding the level of credit risk associated
with the underlying assets. Delinquency or loss in excess of that covered by
credit enhancement protection could adversely affect the return on an investment
in such a security.
ASSET-BACKED SECURITIES
A Portfolio may invest in asset-backed securities, which have structural
characteristics similar to mortgage-backed securities but have underlying assets
that are not mortgage loans or interests in mortgage loans. Asset-backed
securities are securities that represent direct or indirect participations in,
or are secured by and payable from, assets such as motor vehicle installment
sales contracts, installment loan contracts, leases of various types of real and
personal property and receivables from revolving credit (credit card)
agreements. Such assets are securitized through the use of trusts and special
purpose corporations.
Asset-backed securities are often backed by a pool of assets representing the
obligations of a number of different parties. Payments of principal and interest
may be guaranteed up to certain amounts and for a certain time period by a
letter of credit issued by a financial institution.
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Asset-backed securities present certain risks that are not presented by
mortgage-backed debt securities or other securities in which a Portfolio may
invest. Primarily, these securities do not always have the benefit of a security
interest in comparable collateral. Credit card receivables are generally
unsecured and the debtors are entitled to the protection of a number of state
and Federal consumer credit laws, many of which give such debtors the right to
set off certain amounts owed on the credit cards, thereby reducing the balance
due. Automobile receivables generally are secured by automobiles. Most issuers
of automobile receivables permit the loan servicers to retain possession of the
underlying obligations. If the servicer were to sell these obligations to
another party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the asset-backed securities. In addition,
because of the large number of vehicles involved in a typical issuance and the
technical requirements under state laws, the trustee for the holders of the
automobile receivables may not have a proper security interest in the underlying
automobiles. Therefore, there is the possibility that recoveries on repossessed
collateral may not, in some cases, be available to support payments on these
securities. Because asset-backed securities are relatively new, the market
experience in these securities is limited and the market's ability to sustain
liquidity through all phases of the market cycle has not been tested.
INTEREST-ONLY AND PRINCIPAL-ONLY SECURITIES
Some tranches of mortgage-backed securities, including CMOs, are structured so
that investors receive only principal payments generated by the underlying
collateral. Principal only securities ("POs") usually sell at a deep discount
from face value on the assumption that the purchaser will ultimately receive the
entire face value through scheduled payments and prepayments; however, the
market values of POs are extremely sensitive to prepayment rates, which, in
turn, vary with interest rate changes. If interest rates are falling and
prepayments accelerate, the value of the PO will increase. On the other hand, if
rates rise and prepayments slow, the value of the PO will drop.
Interest only securities ("IOs") result from the creation of POs; thus, CMOs
with PO tranches also have IO tranches. IO securities sell at a deep discount to
their "notional" principal amount, namely the principal balance used to
calculate the amount of interest due. They have no face or par value and, as the
notional principal amortizes and prepays, the IO cash-flow declines.
Unlike POs, IOs increase in value when interest rates rise and prepayment rates
slow; consequently they are often used to "hedge" portfolios against interest
rate risk. If prepayment rates are high, a Fund may receive less cash back than
it initially invested.
INTEREST RATE PROTECTION TRANSACTIONS
Certain Portfolios may enter into interest rate protection transactions,
including interest rate swaps, caps, collars and floors. Interest rate swap
transactions involve an agreement between two parties to exchange interest
payment streams that are based, for example, on variable and fixed rates that
are calculated on the basis of a specified amount of principal (the "notional
principal amount") for a specified period of time. Interest rate cap and floor
transactions involve an agreement between two parties in which the first party
agrees to make payments to the counterparty when a designated market interest
rate goes above (in the case of a cap) or below (in the case of a floor) a
designated level on predetermined dates or during a specified time period.
Interest rate collar transactions involve an agreement between two parties in
which the payments are made when a designated market interest rate either goes
above a designated ceiling or goes below a designated floor on predetermined
dates or during a specified time period.
A Portfolio may enter into interest rate protection transactions to preserve a
return or spread on a particular investment or portion of its portfolio or to
protect against any increase in the price of securities it anticipates
purchasing at a later date. The Portfolios intend to use these transactions as a
hedge and not as a speculative investment.
A Portfolio may enter into interest rate protection transactions on an
asset-based basis, depending on whether it is hedging its assets or its
liabilities, and will usually enter into interest rate swaps on a net basis,
i.e., the two payment streams are netted out, with the Portfolio receiving or
paying, as the case may be, only the net amount of the two
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payments. Inasmuch as these interest rate protection transactions are entered
into for good faith hedging purposes, and inasmuch as segregated accounts will
be established with respect to such transactions, the Portfolios believe such
obligations do not constitute senior securities. The net amount of the excess,
if any, of a Portfolio's obligations over its entitlements with respect to each
interest rate swap will be accrued on a daily basis and an amount of cash, U.S.
Government Securities or other liquid assets having an aggregate net asset value
at least equal to the accrued excess will be maintained in a segregated account
by a custodian that satisfies the requirements of the 1940 Act. The Portfolios
also will establish and maintain such segregated accounts with respect to its
total obligations under any interest rate swaps that are not entered into on a
net basis and with respect to any interest rate caps, collars and floors that
are written by the Portfolio.
A Portfolio will enter into interest rate protection transactions only with
banks and other institutions believed by the adviser to the Portfolio to present
minimal credit risks. If there is a default by the other party to such a
transaction, the Portfolio will have to rely on its contractual remedies (which
may be limited by bankruptcy, insolvency or similar laws) pursuant to the
agreements related to the transaction.
The swap market has grown substantially in recent years with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. Caps, collars and floors are more
recent innovations for which documentation is less standardized and,
accordingly, are less liquid than swaps.
HEDGING AND OPTION INCOME STRATEGIES
Each Portfolio may: (1) purchase or sell (write) put and call options on
securities to enhance the Portfolio's performance and (2) seek to hedge against
a decline in the value of securities owned by it or an increase in the price of
securities which it plans to purchase through the writing and purchase of
exchange-traded and over-the-counter options on individual securities or
securities or financial indices and through the purchase and sale of financial
futures contracts and related options. Certain Portfolios currently do no not
intend to enter into any such transactions. Whether or not used for hedging
purposes, these investments techniques involve risks that are different in
certain respects from the investment risks associated with the other investments
of a Portfolio. Principal among such risks are: (1) the possible failure of such
instruments as hedging techniques in cases where the price movements of the
securities underlying the options or futures do not follow the price movements
of the portfolio securities subject to the hedge; (2) potentially unlimited loss
associated with futures transactions and the possible lack of a liquid secondary
market for closing out a futures position; and (3) possible losses resulting
from the inability of the Portfolio's Investment Adviser to correctly predict
the direction of stock prices, interest rates and other economic factors. To the
extent a Portfolio invests in foreign securities, it may also invest in options
on foreign currencies, foreign currency futures contracts and options on those
futures contracts. Use of these instruments is subject to regulation by the SEC,
the several options and futures exchanges upon which options and futures are
traded or the CFTC.
No assurance can be given that any hedging or option income strategy will
succeed in achieving its intended result.
Except as otherwise noted in the Prospectus or herein, the Portfolios will not
use leverage in their option income and hedging strategies. In the case of
transactions entered into as a hedge, a Portfolio will hold securities,
currencies or other options or futures positions whose values are expected to
offset ("cover") its obligations thereunder. A Portfolio will not enter into a
hedging strategy that exposes it to an obligation to another party unless it
owns either: (1) an offsetting ("covered") position or (2) cash, U.S. Government
Securities or other liquid securities (or other assets as may be permitted by
the SEC) with a value sufficient at all times to cover its potential
obligations. When required by applicable regulatory guidelines, the Portfolios
will set aside cash, U.S. Government Securities or other liquid securities (or
other assets as may be permitted by the SEC) in a segregated account with its
custodian in the prescribed amount. Any assets used for cover or held in a
segregated account cannot be sold or closed out while the hedging or option
income strategy is outstanding, unless they are replaced with similar assets. As
a result, there is a possibility that the use of cover or segregation involving
a large percentage of a Portfolio's assets could impede portfolio management or
the Portfolio's ability to meet redemption requests or other current
obligations.
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OPTIONS STRATEGIES
A Portfolio may purchase put and call options written by others and sell put and
call options covering specified individual securities, securities or financial
indices or currencies. A put option (sometimes called a "standby commitment")
gives the buyer of the option, upon payment of a premium, the right to deliver a
specified amount of currency to the writer of the option on or before a fixed
date at a predetermined price. A call option (sometimes called a "reverse
standby commitment") gives the purchaser of the option, upon payment of a
premium, the right to call upon the writer to deliver a specified amount of
currency on or before a fixed date, at a predetermined price. The predetermined
prices may be higher or lower than the market value of the underlying currency.
A Portfolio may buy or sell both exchange-traded and over-the-counter ("OTC")
options. A Portfolio will purchase or write an option only if that option is
traded on a recognized U.S. options exchange or if the Adviser believes that a
liquid secondary market for the option exists. When a Portfolio purchases an OTC
option, it relies on the dealer from which it has purchased the OTC option to
make or take delivery of the currency underlying the option. Failure by the
dealer to do so would result in the loss of the premium paid by the Portfolio as
well as the loss of the expected benefit of the transaction. OTC options and the
securities underlying these options currently are treated as illiquid securities
by the Portfolios.
Upon selling an option, a Portfolio receives a premium from the purchaser of the
option. Upon purchasing an option the Portfolio pays a premium to the seller of
the option. The amount of premium received or paid by the Portfolio is based
upon certain factors, including the market price of the underlying securities,
index or currency, the relationship of the exercise price to the market price,
the historical price volatility of the underlying assets, the option period,
supply and demand and interest rates.
Certain Portfolios may purchase call options on debt securities that the adviser
intends to include in the Portfolio's portfolio in order to fix the cost of a
future purchase. Call options may also be purchased as a means of participating
in an anticipated price increase of a security on a more limited risk basis than
would be possible if the security itself were purchased. In the event of a
decline in the price of the underlying security, use of this strategy would
serve to limit the potential loss to the Portfolio to the option premium paid;
conversely, if the market price of the underlying security increases above the
exercise price and the Portfolio either sells or exercises the option, any
profit eventually realized will be reduced by the premium paid. A Portfolio may
similarly purchase put options in order to hedge against a decline in market
value of securities held in its portfolio. The put enables the Portfolio to sell
the underlying security at the predetermined exercise price; thus the potential
for loss to the Portfolio is limited to the option premium paid. If the market
price of the underlying security is lower than the exercise price of the put,
any profit the Portfolio realizes on the sale of the security would be reduced
by the premium paid for the put option less any amount for which the put may be
sold.
An investment adviser of a Portfolio may write call options when it believes
that the market value of the underlying security will not rise to a value
greater than the exercise price plus the premium received. Call options may also
be written to provide limited protection against a decrease in the market price
of a security, in an amount equal to the call premium received less any
transaction costs.
Certain Portfolios may purchase and write put and call options on fixed income
or equity security indices in much the same manner as the options discussed
above, except that index options may serve as a hedge against overall
fluctuations in the fixed income or equity securities markets (or market
sectors) or as a means of participating in an anticipated price increase in
those markets. The effectiveness of hedging techniques using index options will
depend on the extent to which price movements in the index selected correlate
with price movements of the securities which are being hedged. Index options are
settled exclusively in cash.
FOREIGN CURRENCY OPTIONS AND RELATED RISKS
A Portfolio may take positions in options on foreign currencies in order to
hedge against the risk of foreign exchange fluctuation on foreign securities the
Fund holds in its portfolio or which it intends to purchase. Options on foreign
currencies are affected by the factors discussed in "Hedging and Option Income
Strategies --Options Strategies" and "Foreign Currency Transactions" which
influence foreign exchange sales and investments generally.
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The value of foreign currency options is dependent upon the value of the foreign
currency relative to the U.S. dollar and has no relationship to the investment
merits of a foreign security. Because foreign currency transactions occurring in
the interbank market involve substantially larger amounts than those that may be
involved in the use of foreign currency options, a Portfolio may be
disadvantaged by having to deal in an odd lot market (generally consisting of
transactions of less than $1 million) for the underlying foreign currencies at
prices that are less favorable than for round lots.
To the extent that the U.S. options markets are closed while the market for the
underlying currencies remains open, significant price and rate movements may
take place in the underlying markets that cannot be reflected in the options
markets.
SPECIAL CHARACTERISTICS AND RISKS OF OPTIONS TRADING
A Portfolio may effectively terminate its right or obligation under an option
contract by entering into a closing transaction. For instance, if the Portfolio
wished to terminate its potential obligation to sell securities or currencies
under a call option it had written, a call option of the same type would be
purchased by the Portfolio. Closing transactions essentially permit the
Portfolio to realize profits or limit losses on its options positions prior to
the exercise or expiration of the option. In addition:
(1) The successful use of options depends upon the investment adviser's
ability to forecast the direction of price fluctuations in the underlying
securities or currency markets, or in the case of an index option, fluctuations
in the market sector represented by the index.
(2) Options normally have expiration dates of up to nine months.
Options that expire unexercised have no value. Unless an option purchased by a
Portfolio is exercised or unless a closing transaction is effected with respect
to that position, a loss will be realized in the amount of the premium paid.
(3) A position in an exchange-listed option may be closed out only on
an exchange which provides a market for identical options. Most exchange-listed
options relate to equity securities. Exchange markets for options on foreign
currencies are relatively new, and the ability to establish and close out
positions on the exchanges is subject to the maintenance of a liquid secondary
market. Closing transactions may be effected with respect to options traded in
the over-the-counter markets (currently the primary markets for options on
foreign currencies) only by negotiating directly with the other party to the
option contract or in a secondary market for the option if such market exists.
There is no assurance that a liquid secondary market will exist for any
particular option at any specific time. If it is not possible to effect a
closing transaction, a Portfolio would have to exercise the option which it
purchased in order to realize any profit. The inability to effect a closing
transaction on an option written by a Portfolio may result in material losses to
the Portfolio.
(4) A Portfolio's activities in the options markets may result in a
higher portfolio turnover rate and additional brokerage costs.
(5) When a Portfolio enters into an over-the-counter contract with a
counterparty, the Portfolio will assume the risk that the counterparty will fail
to perform its obligations, in which case the Portfolio could be worse off than
if the contract had not been entered into.
FUTURES STRATEGIES
A futures contract is a bilateral agreement wherein one party agrees to accept,
and the other party agrees to make, delivery of cash, an underlying debt
security or the currency as called for in the contract at a specified future
date and at a specified price. For futures contracts with respect to an index,
delivery is of an amount of cash equal to a specified dollar amount times the
difference between the index value at the time of the contract and the close of
trading of the contract.
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A Portfolio may sell interest rate futures contracts in order to continue to
receive the income from a fixed income security, while endeavoring to avoid part
of or all of a decline in the market value of that security which would
accompany an increase in interest rates.
A Portfolio may purchase index futures contracts for several reasons: to
simulate full investment in the underlying index while retaining a cash balance
for fund management purposes, to facilitate trading, to reduce transactions
costs, or to seek higher investment returns when a futures contract is priced
more attractively than securities in the index.
A Portfolio may purchase call options on a futures contract as a means of
obtaining temporary exposure to market appreciation at limited risk. This
strategy is analogous to the purchase of a call option on an individual
security, in that it can be used as a temporary substitute for a position in the
security itself.
A Portfolio may sell foreign currency futures contracts to hedge against
possible variations in the exchange rate of the foreign currency in relation to
the U.S. dollar. In addition, a Portfolio may sell foreign currency futures
contracts when its Investment Adviser anticipates a general weakening of foreign
currency exchange rates that could adversely affect the market values of the
Portfolio's foreign securities holdings. A Portfolio may purchase a foreign
currency futures contract to hedge against an anticipated foreign exchange rate
increase pending completion of anticipated transactions. Such a purchase would
serve as a temporary measure to protect the Portfolio against such increase. A
Portfolio may also purchase call or put options on foreign currency futures
contracts to obtain a fixed foreign exchange rate at limited risk. A Portfolio
may write call options on foreign currency futures contracts as a partial hedge
against the effects of declining foreign exchange rates on the value of foreign
securities.
SPECIAL CHARACTERISTICS AND RISKS OF FUTURES AND RELATED OPTIONS TRADING
No price is paid upon entering into futures contracts; rather, a Portfolio is
required to deposit (typically with its custodian in a segregated account in the
name of the futures broker) an amount of cash or U.S. Government Securities
generally equal to 5% or less of the contract value. This amount is known as
initial margin. Subsequent payments, called variation margin, to and from the
broker, would be made on a daily basis as the value of the futures position
varies. When writing a call on a futures contract, variation margin must be
deposited in accordance with applicable exchange rules. The initial margin in
futures transactions is in the nature of a performance bond or good-faith
deposit on the contract that is returned to the Portfolio upon termination of
the contract, assuming all contractual obligations have been satisfied.
Holders and writers of futures and options on futures contracts can enter into
offsetting closing transactions, similar to closing transactions on options, by
selling or purchasing, respectively, a futures contract or related option with
the same terms as the position held or written. Positions in futures contracts
may be closed only on an exchange or board of trade providing a secondary market
for such futures contracts.
Under certain circumstances, futures exchanges may establish daily limits in the
amount that the price of a futures contract or related option may vary either up
or down from the previous day's settlement price. Once the daily limit has been
reached in a particular contract, no trades may be made that day at a price
beyond that limit. Prices could move to the daily limit for several consecutive
trading days with little or no trading and thereby prevent prompt liquidation of
positions. In that event, it may not be possible for a Portfolio to close a
position, and in the event of adverse price movements, it would have to make
daily cash payments of variation margin. In addition:
(1) Successful use by a Portfolio of futures contracts and related
options will depend upon the investment adviser's ability to predict movements
in the direction of the overall securities and currency markets, which requires
different skills and techniques than predicting changes in the prices of
individual securities. Moreover, futures contracts relate not to the current
level of the underlying instrument but to the anticipated levels at some point
in the future; thus, for example, trading of stock index futures may not reflect
the trading of the securities which are used to formulate an index or even
actual fluctuations in the relevant index itself.
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(2) The price of futures contracts may not correlate perfectly with
movement in the price of the hedged currencies due to price distortions in the
futures market or otherwise. There may be several reasons unrelated to the value
of the underlying currencies which causes this situation to occur. As a result,
a correct forecast of general market trends may still not result in successful
hedging through the use of futures contracts over the short term.
(3) There is no assurance that a liquid secondary market will exist for
any particular contract at any particular time. In such event, it may not be
possible to close a position, and in the event of adverse price movements, the
Portfolio would continue to be required to make daily cash payments of variation
margin.
(4) Like other options, options on futures contracts have a limited
life. A Portfolio will not trade options on futures contracts on any exchange or
board of trade unless and until, in the Adviser's opinion, the market for such
options has developed sufficiently that the risks in connection with options on
futures transactions are not greater than the risks in connection with futures
transactions.
(5) Purchasers of options on futures contracts pay a premium in cash at
the time of purchase. This amount and the transaction costs is all that is at
risk. Sellers of options on futures contracts, however, must post an initial
margin and are subject to additional margin calls which could be substantial in
the event of adverse price movements.
(6) A Portfolio's activities in the futures markets may result in a
higher portfolio turnover rate and additional transaction costs in the form of
added brokerage commissions.
(7) Buyers and sellers of foreign currency futures contracts are
subject to the same risks that apply to the buying and selling of futures
generally. In addition, there are risks associated with foreign currency futures
contracts and their use as a hedging device similar to those associated with
options on foreign currencies described above. In addition, settlement of
foreign currency futures contracts must occur within the country issuing that
currency. Thus, a Portfolio must accept or make delivery of the underlying
foreign currency in accordance with any U.S. or foreign restrictions or
regulations regarding the maintenance of foreign banking arrangements by U.S.
residents, and the Portfolio may be required to pay any fees, taxes or charges
associated with such delivery which are assessed in the issuing country.
COMMODITY FUTURES CONTRACTS AND COMMODITY OPTIONS
A Portfolio may invest in certain financial futures contracts and options
contracts in accordance with the policies described in the Prospectus and above.
A Portfolio will only invest in futures contracts, options on futures contracts
and other options contracts that are subject to the jurisdiction of the CFTC
after filing a notice of eligibility and otherwise complying with the
requirements of Section 4.5 of the rules of the CFTC. Pursuant to that section,
a Portfolio will not enter into any futures contract or option on a futures
contract if, as a result, the aggregate initial margin and premiums required to
establish such positions would exceed 5% of the Portfolio's net assets.
FOREIGN CURRENCY TRANSACTIONS
Investments in foreign companies will usually involve the currencies of foreign
countries. In addition, a Portfolio may temporarily hold funds in bank deposits
in foreign currencies pending the completion of certain investment programs.
Accordingly, the value of the assets of a Portfolio, as measured in U.S.
dollars, may be affected by changes in foreign currency exchange rates and
exchange control regulations. In addition, the Portfolio may incur costs in
connection with conversions between various currencies. A Portfolio may conduct
foreign currency exchange transactions either on a spot (i.e., cash) basis at
the spot rate prevailing in the foreign currency exchange market or by entering
into foreign currency forward contracts ("forward contracts") to purchase or
sell foreign currencies. A forward contract involves an obligation to purchase
or sell a specific currency at a future date, which may be any fixed number of
days (usually less than one year) from the date of the contract agreed upon by
the parties, at a price set at the time of the contract. These contracts are
traded in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers and involve the risk that
the other party to the contract may fail to deliver currency when due, which
could result in losses to the Portfolio. A forward contract generally has no
deposit requirement, and no
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commissions are charged at any stage for trades. Foreign exchange dealers
realize a profit based on the difference between the price at which they buy and
sell various currencies.
A Portfolio may enter into forward contracts under two circumstances. First,
with respect to specific transactions, when the Portfolio enters into a contract
for the purchase or sale of a security denominated in a foreign currency, it may
desire to "lock in" the U.S. dollar price of the security. By entering into a
forward contract for the purchase or sale, for a fixed amount of dollars, of the
amount of foreign currency involved in the underlying security transactions, the
Portfolio may be able to protect itself against a possible loss resulting from
an adverse change in the relationship between the U.S. dollar and the subject
foreign currency during the period between the date the security is purchased or
sold and the date on which payment is made or received.
Second, a Portfolio may enter into forward contracts in connection with existing
portfolio positions. For example, when an Investment Adviser believes that the
currency of a particular foreign country may suffer a substantial decline
against the U.S. dollar, the Portfolio may enter into a forward contract to
sell, for a fixed amount of dollars, the amount of foreign currency
approximating the value of some or all of the Portfolio's investment securities
denominated in such foreign currency.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible since the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. The projection of short-term currency
market movement is extremely difficult, and the successful execution of a
short-term hedging strategy is highly uncertain. Forward contracts involve the
risk of inaccurate predictions of currency price movements, which may cause the
Fund to incur losses on these contracts and transaction costs. The Advisers do
not intend to enter into forward contracts on a regular or continuous basis and
will not do so if, as a result, a Portfolio will have more than 25 percent of
the value of its total assets committed to such contracts or the contracts would
obligate the Portfolio to deliver an amount of foreign currency in excess of the
value of the Portfolio's investment securities or other assets denominated in
that currency.
At or before the settlement of a forward contract, a Portfolio may either make
delivery of the foreign currency or terminate its contractual obligation to
deliver the foreign currency by purchasing an offsetting contract. If the
Portfolio chooses to make delivery of the foreign currency, it may be required
to obtain the currency through the conversion of assets of the Portfolio into
the currency. The Portfolio may close out a forward contract obligating it to
purchase a foreign currency by selling an offsetting contract. If the Fund
engages in an offsetting transaction, it will realize a gain or a loss to the
extent that there has been a change in forward contract prices. Additionally,
although forward contracts may tend to minimize the risk of loss due to a
decline in the value of the hedged currency, at the same time they tend to limit
any potential gain which might result should the value of such currency
increase.
There is no systematic reporting of last sale information for foreign
currencies, and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Quotation information available is generally representative of very large
transactions in the interbank market. The interbank market in foreign currencies
is a global, around-the-clock market.
When required by applicable regulatory guidelines, a Portfolio will set aside
cash, U.S. Government Securities or other liquid assets in a segregated account
with its custodian in the prescribed amount.
EQUITY SECURITIES AND ADDITIONAL INFORMATION
COMMON STOCK AND PREFERRED STOCK
Common stockholders are the owners of the company issuing the stock and,
accordingly, vote on various corporate governance matters, such as mergers. They
are not creditors of the company, but rather, upon liquidation of the company
are entitled to their pro rata share of the company's assets after creditors
(including fixed income security holders) and, if applicable, preferred
stockholders are paid. Preferred stock is a class of stock having a preference
over common stock as to dividends and, in general, as to the recovery of
investment. A preferred stockholder is a
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shareholder in the company and not a creditor of the company as is a holder of
the company's fixed income securities. Dividends paid to common and preferred
stockholders are distributions of the earnings of the company and not interest
payments, which are expenses of the company. Equity securities owned by a
Portfolio may be traded in the over-the-counter market or on a regional
securities exchange and may not be traded every day or in the volume typical of
securities trading on a national securities exchange. As a result, disposition
by a Portfolio of a portfolio security to meet redemptions by shareholders or
otherwise may require the Portfolio to sell these securities at a discount from
market prices, to sell during periods when disposition is not desirable, or to
make many small sales over a lengthy period of time. The market value of all
securities, including equity securities, is based upon the market's perception
of value and not necessarily the book value of an issuer or other objective
measure of a company's worth.
CONVERTIBLE SECURITIES
A Portfolio may invest in convertible securities. A convertible security is a
bond, debenture, note, preferred stock or other security that may be converted
into or exchanged for a prescribed amount of common stock of the same or a
different issuer within a particular period of time at a specified price or
formula. A convertible security entitles the holder to receive interest paid or
accrued on debt or the dividend paid on preferred stock until the convertible
security matures or is redeemed, converted or exchanged. Before conversion,
convertible securities have characteristics similar to nonconvertible debt
securities in that they ordinarily provide a stable stream of income with
generally higher yields than those of common stocks of the same or similar
issuers. Convertible securities rank senior to common stock in a corporation's
capital structure but are usually subordinated to comparable nonconvertible
securities. Although no securities investment is without some risk, investment
in convertible securities generally entails less risk than in the issuer's
common stock. However, the extent to which such risk is reduced depends in large
measure upon the degree to which the convertible security sells above its value
as a fixed income security. Convertible securities have unique investment
characteristics in that they generally: (1) have higher yields than common
stocks, but lower yields than comparable non-convertible securities; (2) are
less subject to fluctuation in value than the underlying stocks since they have
fixed income characteristics; and (3) provide the potential for capital
appreciation if the market price of the underlying common stock increases.
The value of a convertible security is a function of its "investment value"
(determined by a comparison of its yield with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and its
"conversion value" (the security's worth, at market value, if converted into the
underlying common stock). The investment value of a convertible security is
influenced by changes in interest rates, with investment value declining as
interest rates increase and increasing as interest rates decline. The credit
standing of the issuer and other factors also may have an effect on the
convertible security's investment value. The conversion value of a convertible
security is determined by the market price of the underlying common stock. If
the conversion value is low relative to the investment value, the price of the
convertible security is governed principally by its investment value and
generally the conversion value decreases as the convertible security approaches
maturity. To the extent the market price of the underlying common stock
approaches or exceeds the conversion price, the price of the convertible
security will be increasingly influenced by its conversion value. In addition, a
convertible security generally will sell at a premium over its conversion value
determined by the extent to which investors place value on the right to acquire
the underlying common stock while holding a fixed income security.
A convertible security may be subject to redemption at the option of the issuer
at a price established in the convertible security's governing instrument. If a
convertible security held by a Portfolio is called for redemption, the Portfolio
will be required to permit the issuer to redeem the security, convert it into
the underlying common stock or sell it to a third party.
EQUITY-LINKED SECURITIES
Equity-linked securities are securities that are convertible into or based upon
the value of, equity securities upon certain terms and conditions. The following
are three examples of equity-linked securities.
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Preferred Equity Redemption Cumulative Stock ("PERCS") technically are preferred
stock with some characteristics of common stock. PERCS are mandatorily
convertible into common stock after a period of time, usually three years,
during which the investors' capital gains are capped, usually at 30%. Commonly,
PERCS may be redeemed by the issuer either at any time or when the issuer's
common stock is trading at a specified price level or better. The redemption
price starts at the beginning of the PERCS' duration period at a price that is
above the cap by the amount of the extra dividends the PERCS holder is entitled
to receive relative to the common stock over the duration of the PERCS and
declines to the cap price shortly before maturity of the PERCS. In exchange for
having the cap on capital gains and giving the issuer the option to redeem the
PERCS at any time or at the specified common stock price level, a Portfolio may
be compensated with a substantially higher dividend yield than that on the
underlying common stock. Portfolios that seek current income find PERCS
attractive because a PERCS provides a higher dividend income than that paid with
respect to a company's common stock.
Equity-Linked Securities ("ELKS") differ from ordinary debt securities, in that
the principal amount received at maturity is not fixed but is based on the price
of the issuer's common stock. ELKS are debt securities commonly issued in fully
registered form for a term of three years under an indenture trust. At maturity,
the holder of ELKS will be entitled to receive a principal amount equal to the
lesser of a cap amount, commonly in the range of 30% to 55% greater than the
current price of the issuer's common stock, or the average closing price per
share of the issuer's common stock, subject to adjustment as a result of certain
dilution events, for the 10 trading days immediately prior to maturity. Unlike
PERCS, ELKS are commonly not subject to redemption prior to maturity. ELKS
usually bear interest during the three-year term at a substantially higher rate
than the dividend yield on the underlying common stock. In exchange for having
the cap on the return that might have been received as capital gains on the
underlying common stock, the investing Portfolio may be compensated with the
higher yield, contingent on how well the underlying common stock does. Portfolio
s that seek current income find ELKS attractive because ELKS provide a higher
dividend income than that paid with respect to a company's common stock.
Liquid Yield Option Notes ("LYONs") differ from ordinary debt securities in that
the amount received prior to maturity is not fixed but is based on the price of
the issuer's common stock. LYONs are zero-coupon notes that sell at a large
discount from face value. For an investment in LYONs, a Portfolio will not
receive any interest payments until the notes mature, typically in 15 or 20
years, when the notes are redeemed at face, or par, value. The yield on LYONs,
typically, is lower-than-market rate for debt securities of the same maturity,
due in part to the fact that the LYONs are convertible into common stock of the
issuer at any time at the option of the holder of the LYON. Commonly, LYONs are
redeemable by the issuer at any time after an initial period or if the issuer's
common stock is trading at a specified price level or better, or, at the option
of the holder, upon certain fixed dates. The redemption price typically is the
purchase price of the LYONs plus accrued original issue discount to the date of
redemption, which amounts to the lower-than-market yield. A Portfolio will
receive only the lower-than-market yield unless the underlying common stock
increases in value at a substantial rate. LYONs are attractive to investors when
it appears that they will increase in value due to the rise in value of the
underlying common stock.
WARRANTS
A warrant is an option to purchase an equity security at a specified price
(usually representing a premium over the applicable market value of the
underlying equity security at the time of the warrant's issuance) and usually
during a specified period of time. The price of warrants does not necessarily
move parallel to the prices of the underlying securities. Warrants have no
voting rights, receive no dividends and have no rights with respect to the
assets of the issuer. Unlike convertible securities and preferred stocks,
warrants do not pay a fixed dividend. Investments in warrants involve certain
risks, including the possible lack of a liquid market for the resale of the
warrants, potential price fluctuations as a result of speculation or other
factors and failure of the price of the underlying security to reach a level at
which the warrant can be prudently exercised. To the extent that the market
value of the security that may be purchased upon exercise of the warrant rises
above the exercise price, the value of the warrant will tend to rise. To the
extent that the exercise price equals or exceeds the market value of such
security, the warrants will have little or no market value. If a warrant is not
exercised within the specified time period, it will become worthless and the
Portfolio will lose the purchase price paid for the warrant and the right to
purchase the underlying security.
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HIGH YIELD/JUNK BONDS
Securities rated less than Baa by Moody's or BBB by S&P are classified as
non-investment grade securities and are considered speculative by those rating
agencies. Junk bonds may be issued as a consequence of corporate restructurings,
such as leveraged buyouts, mergers, acquisitions, debt recapitalizations, or
similar events or by smaller or highly leveraged companies. Although the growth
of the high yield/high risk securities market in the 1980's had paralleled a
long economic expansion, many issuers subsequently have been affected by adverse
economic and market conditions. It should be recognized that an economic
downturn or increase in interest rates is likely to have a negative effect on:
(1) the high yield bond market; (2) the value of high yield/high risk
securities; and (3) the ability of the securities' issuers to service their
principal and interest payment obligations, to meet their projected business
goals or to obtain additional financing. In addition, the market for high
yield/high risk securities, which is concentrated in relatively few market
makers, may not be as liquid as the market for investment grade securities.
Under adverse market or economic conditions, the market for high yield/high risk
securities could contract further, independent of any specific adverse changes
in the condition of a particular issuer. As a result, a Portfolio could find it
more difficult to sell these securities or may be able to sell the securities
only at prices lower than if such securities were widely traded. Prices realized
upon the sale of such lower rated or unrated securities, under these
circumstances, may be less than the prices used in calculating the Portfolio's
net asset value.
In periods of reduced market liquidity, prices of high yield/high risk
securities may become more volatile and may experience sudden and substantial
price declines. Also, there may be significant disparities in the prices quoted
for high yield/high risk securities by various dealers. Under such conditions,
the Portfolio under supervision of the Board of Trustees, may have to use
subjective rather than objective criteria to value its high yield/high risk
securities investments accurately and rely more heavily on the judgment of the
Portfolio's Investment Adviser.
Prices for high yield/high risk securities also may be affected by legislative
and regulatory developments. For example, Congress has considered legislation to
restrict or eliminate the corporate tax deduction for interest payments or to
regulate corporate restructurings such as takeovers, mergers or leveraged
buyouts. These laws could adversely affect the Portfolio's net asset value and
investment practices, the market for high yield/high risk securities, the
financial condition of issuers of these securities and the value of outstanding
high yield/high risk securities.
Lower rated or unrated debt obligations also present risks based on payment
expectations. If an issuer calls the obligation for redemption, the Adviser may
have to replace the security with a lower yielding security, resulting in a
decreased return for investors. If a Portfolio experiences unexpected net
redemptions, the Adviser may be forced to sell the Portfolio's higher rated
securities, resulting in a decline in the overall credit quality of the
Portfolio's portfolio and increasing the exposure of the Portfolio to the risks
of high yield/high risk securities.
ILLIQUID AND RESTRICTED SECURITIES
Each Portfolio may invest up to 15 percent of its net assets in securities that
at the time of purchase are illiquid. Historically, illiquid securities have
included securities subject to contractual or legal restrictions on resale
because they have not been registered under the 1933 Act ("restricted
securities"), securities that cannot be disposed of within seven days in the
ordinary course of business at approximately the amount at which a Portfolio has
valued the securities, and which are otherwise not readily marketable and
includes, among other things, purchased over-the-counter (OTC) options and
repurchase agreements not entitling the holder to repayment within seven days.
The Board and, in the case of the Portfolios, the Core Trust Board and Schroder
Core Board, has the ultimate responsibility for determining whether specific
securities are liquid or illiquid and has delegated the function of making
day-to-day determinations of liquidity to the investment adviser of each
Portfolio, pursuant to guidelines approved by the applicable board. The
Investment Advisers take into account a number of factors in reaching liquidity
decisions, including but not limited to: (1) the frequency of trades and
quotations for the security; (2) the number of dealers willing to purchase or
sell the security and the number of other potential buyers; (3) the willingness
of dealers to undertake to make a market in the security; and (4) the nature of
the marketplace trades, including the time needed to dispose of the security,
the method of soliciting offers and the mechanics of the transfer. The
investment advisers
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monitor the liquidity of the securities held by each Portfolio and report
periodically on such decisions to the Board, Core Trust Board or Schroder Core
Board, as applicable.
In connection with a Portfolio's original purchase of restricted securities, it
may negotiate rights with the issuer to have such securities registered for sale
at a later time. Further, the expenses of registration of restricted securities
that are illiquid may also be negotiated by a Portfolio with the issuer at the
time such securities are purchased by the Portfolio. When registration is
required, however, a considerable period may elapse between a decision to sell
the securities and the time the Portfolio would be permitted to sell such
securities. A similar delay might be experienced in attempting to sell such
securities pursuant to an exemption from registration. Thus, a Portfolio may not
be able to obtain as favorable a price as that prevailing at the time of the
decision to sell.
Limitations on resale may have an adverse effect on the marketability of
portfolio securities and a Portfolio might also have to register restricted
securities in order to dispose of them, resulting in expense and delay. A
Portfolio might not be able to dispose of restricted or other securities
promptly or at reasonable prices and might thereby experience difficulty
satisfying redemptions. There can be no assurance that a liquid market will
exist for any security at any particular time.
A institutional market has developed for certain securities that are not
registered under the 1933 Act, including repurchase agreements, commercial
paper, foreign securities and corporate bonds and notes. Institutional investors
depend on an efficient institutional market in which the unregistered security
can be readily resold or on the issuer's ability to honor a demand for repayment
of the unregistered security. A security's contractual or legal restrictions on
resale to the general public or to certain institutions may not be indicative of
the liquidity of the security. If such securities are eligible for purchase by
institutional buyers in accordance with Rule 144A under the 1933 Act under
guidelines adopted by the Board, Core Trust Board and Schroder Core Board, the
investment advisers may determine that such securities are not illiquid
securities. These guidelines take into account trading activity in the
securities and the availability of reliable pricing information, among other
factors. If there is a lack of trading interest in a particular Rule 144A
security, a Portfolio 's holdings of that security may be illiquid.
LOANS OF PORTFOLIO SECURITIES
Each Portfolio may lend its portfolio securities subject to the restrictions
stated in the Prospectus. Under applicable regulatory requirements (which are
subject to change), the loan collateral must, on each business day, at least
equal the market value of the loaned securities and must consist of cash, bank
letters of credit, U.S. Government securities, or other cash equivalents in
which the Portfolio is permitted to invest. To be acceptable as collateral,
letters of credit must obligate a bank to pay amounts demanded by the Portfolio
if the demand meets the terms of the letter. Such terms and the issuing bank
must be satisfactory to the Portfolio. In a portfolio securities lending
transaction, the Portfolio 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 Portfolio pays in arranging the loan. The
Portfolio 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 Core Trust or Schroder
Core Board. No Portfolio will lend its portfolio securities to any officer,
director, employee or affiliate of the Portfolio or the Portfolio's Adviser. The
terms of the Portfolio's loans must meet certain tests under the Internal
Revenue Code and permit the Portfolio to reacquire loaned securities on five
business days' notice or in time to vote on any important matter.
BORROWING AND TRANSACTIONS INVOLVING LEVERAGE
Each Portfolio may borrow money for temporary or emergency purposes, including
the meeting of redemption requests, in amounts up to 33 1/3 percent of the
Portfolio's total assets. Borrowing involves special risk considerations.
Interest costs on borrowings may fluctuate with changing market rates of
interest and may partially offset or exceed the return earned on borrowed funds
(or on the assets that were retained rather than sold to meet the needs for
which funds were borrowed). Under adverse market conditions, a Portfolio might
have to sell portfolio securities to meet interest or principal payments at a
time when investment considerations would not favor such sales. Except as
otherwise noted, no Portfolio may purchase securities for investment while any
borrowing equaling
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five percent or more of the Portfolio's total assets is outstanding or borrow
for purposes other than meeting redemptions in an amount exceeding five percent
of the value of the Portfolio's total assets. A Portfolio's use of borrowed
proceeds to make investments would subject the Portfolio 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 Portfolio maintains a segregated account.
OTHER TECHNIQUES INVOLVING LEVERAGE
Utilization of leveraging involves special risks and may involve speculative
investment techniques. Certain Funds may borrow for other than temporary or
emergency purposes, lend their securities, enter reverse repurchase agreements,
and purchase securities on a when issued or forward commitment basis. In
addition, certain Portfolios may engage in dollar roll transactions. Each of
these transactions involve the use of "leverage" when cash made available to the
Portfolio through the investment technique is used to make additional portfolio
investments. A Portfolio uses these investment techniques only when the
Portfolio's Adviser believes that the leveraging and the returns available to
the Portfolio from investing the cash will provide shareholders a potentially
higher return.
Leverage exists when a Portfolio achieves the right to a return on a capital
base that exceeds the amount the Portfolio has invested. Leverage creates the
risk of magnified capital losses which occur when losses affect an asset base,
enlarged by borrowings or the creation of liabilities, that exceeds the equity
base of the Portfolio. Leverage may involve the creation of a liability that
requires the Portfolio to pay interest (for instance, reverse repurchase
agreements) or the creation of a liability that does not entail any interest
costs (for instance, forward commitment transactions).
The risks of leverage include a higher volatility of the net asset value of the
Portfolio's shares and the relatively greater effect on the net asset value of
the shares caused by favorable or adverse market movements or changes in the
cost of cash obtained by leveraging and the yield obtained from investing the
cash. So long as a Portfolio 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 Portfolio
than if the Portfolio 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 Portfolio'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 Portfolio's use of leverage would result in a lower
rate of return than if the Portfolio 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 Portfolio were not leveraged. In an extreme case, if the
Portfolio's current investment income were not sufficient to meet the interest
expense of leveraging, it could be necessary for the Portfolio 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 Core Trust or Schroder Core custodian will setup and maintain in a
segregated account for each Portfolio cash, U.S. Government Securities (or other
assets as may be permitted by the SEC) in accordance with SEC guidelines. The
account's value, which is marked to market daily, will be at least equal to the
Portfolio's commitments under these transactions. The Portfolio's commitments
include the Portfolio's obligations to repurchase securities under a reverse
repurchase agreement and settle when-issued and forward commitment transactions.
When a Portfolio invests in a derivative instrument, it may be required to
segregate cash and other assets with its custodian. Segregating assets could
diminish the Portfolio's return due to the opportunity losses of foregoing other
potential investments with the segregated assets.
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MARGIN AND SHORT SALES
The Portfolios 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
Portfolio 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 a
Portfolio has unrealized gain with respect to a long position and enters into a
short sale against-the-box, the Portfolio 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 a Portfolio's
ability to use short-term credits necessary for the clearance of portfolio
transactions and to make margin deposits in connection with permitted
transactions in options and futures contracts.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements are transactions in which Portfolio sells a
security and simultaneously commits to repurchase that security from the buyer
at an agreed upon price on an agreed upon future date. The resale price in a
reverse repurchase agreement reflects a market rate of interest that is not
related to the coupon rate or maturity of the sold security. For certain demand
agreements, there is no agreed upon repurchase date and interest payments are
calculated daily, often based upon the prevailing overnight repurchase rate.
Generally, a reverse repurchase agreement enables a Portfolio 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 Portfolio of the reverse repurchase transaction is less than the
cost of obtaining the cash otherwise. In addition, interest costs on the money
received in a reverse repurchase agreement may exceed the return received on the
investments made by a Portfolio with those monies. The use of reverse repurchase
agreement proceeds to make investments may be considered to be a speculative
technique.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
Certain Portfolios may purchase or sell portfolio securities on a when-issued or
delayed delivery basis. When-issued or delayed delivery transactions arise when
securities are purchased by a Portfolio 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 Portfolio at the time it enters into the transaction. In those
cases, the purchase price and the interest rate payable on the securities are
fixed on the transaction date and delivery and payment may take place a month or
more after the date of the transaction. When a Portfolio 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
Portfolio will maintain with its custodian a separate account with portfolio
securities in an amount at least equal to such commitments.
At the time a Portfolio makes the commitment to purchase securities on a
when-issued or delayed delivery basis, the Portfolio 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 Portfolio
will meet its obligations from maturities, sales of the securities held in the
separate account or from other available sources of cash. A Portfolio generally
has the ability to close out a purchase obligation on or before the settlement
date, rather than purchase the security. If a Portfolio chooses to dispose of
the right to acquire a when-issued security prior to its acquisition, it could,
as with the disposition of any other portfolio obligation, realize a gain or
loss due to market fluctuation.
To the extent a Portfolio engages in when-issued or delayed delivery
transactions, it will do so for the purpose of acquiring securities consistent
with the Portfolio's investment objectives and policies and not for the purpose
of
20
<PAGE>
investment leverage or to speculate in interest rate changes. A Portfolio 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
Portfolio reserves the right to dispose of the right to acquire these securities
before the settlement date if deemed advisable.
The use of when-issued and delayed delivery transactions enables the Portfolio
to hedge against anticipated changes in interest rates and prices. If an
investment adviser were to forecast incorrectly the direction of interest rate
movements, however, a Portfolio advised by the investment adviser might be
required to complete when-issued or delayed delivery transactions at prices
inferior to the current market values. When-issued securities and delayed
delivery transactions may be sold prior to the settlement date, but a Portfolio
enters into when-issued and delayed delivery transaction 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 delayed delivery securities
may determine prior to the settlement date that it will be unable to meet its
existing transaction commitments without borrowing securities. If advantageous
from a yield perspective, a Portfolio may, in that event, agree to resell its
purchase commitment to the third-party seller at the current market price on the
date of sale and concurrently enter into another purchase commitment for such
securities at a later date. As an inducement for a Fund to "roll over" its
purchase commitment, the Portfolio may receive a negotiated fee. When-issued
securities may include bonds purchased on a "when, as and if issued" basis under
which the issuance of the securities depends upon the occurrence of a subsequent
event. Any significant commitment of a Portfolio's assets to the purchase of
securities on a "when, as and if issued" basis may increase the volatility of
the Portfolio's net asset value. For purposes of the Portfolios' 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 delayed delivery purchase.
REPURCHASE AGREEMENTS
The Portfolio s 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. Each Adviser will, with respect
to the Funds it advises, 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, a Portfolio may have
difficulties in exercising its rights to the underlying securities and may incur
costs and experience time delays in connection with the disposition of such
securities. To evaluate potential risks, the Adviser reviews the
credit-worthiness of those banks and dealers with which the Portfolio enters
into repurchase agreements.
Securities subject to repurchase agreements will be held by the Portfolio's
custodian or another qualified custodian or in the Federal Reserve book-entry
system. Repurchase agreements are considered to be loans by a Portfolio for
certain purposes under the 1940 Act.
TEMPORARY DEFENSIVE POSITION
When a Portfolio, in accordance with the policies described in the Prospectus,
assumes a temporary defensive position, it may invest without limit in: (1)
short-term U.S. Government Securities; (2) certificates of deposit, bankers'
acceptances and interest-bearing savings deposits of commercial banks doing
business in the United States that have, at the time of investment, total assets
in excess of one billion dollars and that are insured by the Federal Deposit
Insurance Corporation; (3) commercial paper of prime quality rated Prime-2 or
higher by Moody's or A-2 or higher by S&P or, if not rated, determined by the
investment adviser to be of comparable quality; (4) repurchase agreements
covering any of the securities in which the Portfolio may invest directly; and
(5) money market mutual funds.
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<PAGE>
2. INVESTMENT LIMITATIONS
For purposes of all fundamental and nonfundamental investment policies of each
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.
Each 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 or other applicable law.
Except as required by the 1940 Act or the Code, if any percentage restriction on
investment or utilization of assets is adhered to at the time an investment is
made, a later change in percentage resulting from a change in the market values
of a Fund's assets or purchases and redemptions of shares will not be considered
a violation of the limitation.
A fundamental policy cannot be changed without the affirmative vote of the
lesser of: (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
Each Fund has adopted the following investment limitations which are fundamental
policies of the Fund. Each Portfolio has the same fundamental investment
policies as the Fund that invests in the Portfolio.
1. DIVERSIFICATION
No Fund may, with respect to 75% of its assets, purchase a
security (other than a U.S. Government Security or a security
of an investment company) if, as a result: (1) more than 5% of
the Fund's total assets would be invested in the securities of
a single issuer; or (2) the Fund would own more than 10% of
the outstanding voting securities of any single issuer.
2. INDUSTRY CONCENTRATION
No Fund may purchase a security if, as a result, more than 25%
of the Fund's total assets would be invested in securities of
issuers conducting their principal business activities in the
same industry. For purposes of this limitation, there is no
limit on: (1) investments in U.S. Government securities, in
repurchase agreements covering U.S. Government Securities, in
securities issued by the states, territories or possessions of
the United States ("municipal securities") or in foreign
government securities; or (2) investment in issuers domiciled
in a single jurisdiction. Notwithstanding anything to the
contrary, to the extent permitted by the 1940 Act, each Fund
may invest in one or more investment companies; provided that,
except to the extent the Fund invests in other investment
companies pursuant to Section 12(d)(1)(A) of the 1940 Act, the
Fund treats the assets of the investment companies in which it
invests as its own for purposes of this policy.
For purposes of this policy: (1) "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; (2) financial
service companies are classified according to the end users of
their services (for example, automobile finance, bank finance
and diversified finance); and (3) utility companies are
classified according to their services (for example, gas, gas
transmission, electric and gas, electric and telephone).
22
<PAGE>
3. BORROWING
No Fund may borrow money if, as a result, outstanding
borrowings would exceed an amount equal to 33 1/3% of the
Fund's total assets.
4. REAL ESTATE
No Fund may purchase or sell real estate unless acquired as a
result of ownership of securities or other instruments (but
this shall not prevent the Fund from investing in securities
or other instruments backed by real estate or securities of
companies engaged in the real estate business).
5. LENDING
No Fund may make loans to other parties. For purposes of this
limitation, entering into repurchase agreements, lending
securities and acquiring any debt security are not deemed to
be the making of loans.
No Fund may lend a security if, as a result, the amount of
loaned securities would exceed an amount equal to 33 1/3% of
the Fund's total assets.
6. COMMODITIES
No Fund may purchase or sell physical commodities unless
acquired as a result of ownership of securities or other
instruments (but this shall not prevent the Fund from
purchasing or selling options and futures contracts or from
investing in securities or other instruments backed by
physical commodities).
7. UNDERWRITING
No Fund may underwrite (as that term is defined in the 1933
Act) securities issued by other persons except, to the extent
that in connection with the disposition of the Fund's assets,
the Fund may be deemed to be an underwriter.
8. SENIOR SECURITIES
No Fund may issue senior securities except to the extent
permitted by the 1940 Act.
NONFUNDAMENTAL LIMITATIONS
Each Fund has adopted the following investment limitations which are not
fundamental policies of the Fund. A nonfundamental policy will not be used to
defeat a fundamental limitation of a Portfolio. Reference to a Fund includes
reference to its corresponding Portfolio, if applicable, which has the same
fundamental policies as the Fund. The policies of a Fund may be changed by the
Board, or in the case of its corresponding Portfolio, the Core Trust or Schroder
Core Board, if applicable.
1. BORROWING
For purposes of the limitation on borrowing, the following
are not treated as borrowings to the extent they are fully
collateralized: (1) the delayed delivery of purchased
securities (such as the purchase of when-issued securities);
(2) reverse repurchase agreements; (3) dollar-roll
transactions; and (5) the lending of securities ("leverage
transactions"). (See Fundamental Limitation No. 3
"Borrowing" above.
23
<PAGE>
2. LIQUIDITY
No Fund may invest more than 15% of its net assets in illiquid
assets such as: (1) securities that cannot be disposed of
within seven days at their then-current value; (2) repurchase
agreements not entitling the holder to payment of principal
within seven days; and (3) securities subject to restrictions
on the sale of the securities to the public without
registration under the 1933 Act ("restricted securities") that
are not readily marketable. Each Fund may treat certain
restricted securities as liquid pursuant to guidelines adopted
by the Board.
3. EXERCISING CONTROL OF ISSUERS
No Fund may make investments for the purpose of exercising
control of an issuer. Investments by a Fund in entities
created under the laws of foreign countries solely to
facilitate investment in securities in that country will not
be deemed the making of investments for the purpose of
exercising control.
4. OTHER INVESTMENT COMPANIES
No Fund may invest in securities of another investment
company, except to the extent permitted by the 1940 Act.
5. SHORT SALES AND PURCHASING ON MARGIN
No Fund may sell securities short, unless it owns or has the
right to obtain securities equivalent in kind and amount to
the securities sold short (short sales "against the box"), and
provided that transactions in futures contracts and options
are not deemed to constitute selling securities short.
No Fund may purchase securities on margin, except that a Fund
may use short-term credit for the clearance of the Fund's
transactions, and provided that initial and variation margin
payments in connection with futures contracts and options on
futures contracts shall not constitute purchasing securities
on margin.
6. OPTIONS, WARRANTS AND FUTURES CONTRACTS
No Fund may invest in futures or options contracts regulated
by the CFTC for: (1) bona fide hedging purposes within the
meaning of the rules of the CFTC and (2) for other purposes
if, as a result, no more than 5% of the Fund's net assets
would be invested in initial margin and premiums (excluding
amounts "in-the-money") required to establish the contracts.
No Fund: (1) will hedge more than 50% of its total assets by
selling futures contracts, buying put options, and writing
call options (so called "short positions"); (2) will buy
futures contracts or write put options whose underlying value
exceeds 25% of the Fund's total assets; and (3) will buy call
options with a value exceeding 5% of the Fund's total assets.
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 Funds is
historical and is not intended to indicate future returns. Each Fund's yield and
total return fluctuate in response to market conditions and other factors.
Investment return and principal value will fluctuate, and shares, when redeemed,
may be worth more or less than their original cost.
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<PAGE>
In performance advertising, the Funds may compare any of their performance
information with data published by independent evaluators such as Morningstar,
Inc., Lipper Analytical Services, Inc., or other companies which track the
investment performance of investment companies ("Fund Tracking Companies"). The
Funds may also compare any of their performance information with the performance
of recognized stock, bond and other 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, Australasia and Far East Index, Lehman Brothers
Intermediate Government Index, Lehman Brothers Intermediate Government/Corporate
Index, the Dow Jones Industrial Average, U.S. Treasury bonds, bills or notes and
changes in the Consumer Price Index as published by the U.S. Department of
Commerce. The Funds may refer to general market performances over past time
periods such as those published by Ibbotson Associates (for instance, its
"Stocks, Bonds, Bills and Inflation Yearbook"). In addition, the Funds may also
refer in such materials to mutual fund performance rankings and other data
published by Fund Tracking Companies. Performance advertising may also refer to
discussions of the Funds' and comparative mutual fund data and ratings reported
in independent periodicals, such as newspapers and financial magazines.
SEC YIELD CALCULATIONS
Although published yield information is useful to investors in reviewing a
Fund's performance, investors should be aware that each Fund's yield fluctuates
from day to day and that the Fund's yield for any given period is not an
indication or representation by the Fund of future yields or rates of return on
the Fund's shares. Norwest, Processing Organizations and others may charge their
customers, various retirement plans or other shareholders that invest in a Fund
fees in connection with an investment in a Fund, which will have the effect of
reducing the Fund's net yield to those shareholders. The yields of a Fund are
not fixed or guaranteed, and an investment in a Fund is not insured or
guaranteed. Accordingly, yield information may not necessarily be used to
compare shares of a Fund with investment alternatives which, like money market
instruments or bank accounts, may provide a fixed rate of interest. Also, it may
not be appropriate to compare a Fund's yield information directly to similar
information regarding investment alternatives which are insured or guaranteed.
FIXED INCOME AND EQUITY FUNDS
Standardized yields for the Funds used in advertising are computed by dividing a
Fund's dividends and interest earned (in accordance with specific standardized
rules) for a given 30 days or one month period, net of expenses, by the average
number of shares entitled to receive distributions during the period, dividing
this figure by the Fund's net asset value per share at the end of the period and
annualizing the result (assuming compounding of income in accordance with
specific standardized rules) in order to arrive at an annual percentage rate. In
general, interest income is reduced with respect to municipal securities
purchased at a premium over their par value by subtracting a portion of the
premium from income on a daily basis. In general, interest income is increased
with respect to municipal securities purchased at original issue at a discount
by adding a portion of the discount to daily income. Capital gains and losses
generally are excluded from these calculations.
Income calculated for the purpose of determining each Fund's standardized yield
differs from income as determined for other accounting purposes. Because of the
different accounting methods used, and because of the compounding assumed in
yield calculations, the yield quoted for a Fund may differ from the rate of
distribution the Fund paid over the same period or the rate of income reported
in the Fund's financial statements.
TOTAL RETURN CALCULATIONS
Standardized total returns quoted in advertising and sales literature reflect
all aspects of a Fund's return, including the effect of reinvesting dividends
and capital gain distributions, any change in the Fund's net asset value per
share over the period and maximum sales charge, if any, applicable to purchases
of the Fund's shares. Average annual total returns are calculated, through the
use of a formula prescribed by the SEC, by determining the growth or decline in
value of a hypothetical historical investment in a Fund over a stated period,
and then calculating the annually compounded percentage rate that would have
produced the same result if the rate of growth or decline in value had been
constant over the period. For example, a cumulative return of 100% over ten
years would produce
25
<PAGE>
an average annual return of 7.18%, which is the steady annual rate that would
equal 100% growth on a compounded basis in ten years. The average annual total
return is computed separately for each class of shares of a Fund. While average
annual returns are a convenient means of comparing investment alternatives,
investors should realize that the performance is not constant over time but
changes from year to year, and that average annual returns represent averaged
figures as opposed to the actual year-to-year performance of the Funds.
Average annual total return is calculated by finding the average annual
compounded rates of return of a hypothetical investment, over such periods
according to the following formula:
P(1+T)n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return n = number of years
ERV = ending redeemable value: ERV is the value, at the
end of the applicable period, of a hypothetical $1,000
payment made at the beginning of the applicable period
In addition to average annual returns, each Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Total returns may be broken down into their components of
income and capital (including capital gains and changes in share price) in order
to illustrate the relationship of these factors and their contributions to total
return. Total returns, yields, and other performance information may be quoted
numerically or in a table, graph, or similar illustration. Period total return
is calculated according to the following formula:
PT = (ERV/P-1)
Where:
PT = period total return
The other definitions are the same as in average annual total
return above
CORE-GATEWAY PERFORMANCE
When a Fund (a "Gateway fund") invests all of its investable assets in another
investment company (a "Core portfolio") that has a performance history prior to
the investment by the Gateway fund, the Gateway fund will assume the performance
history of the Core portfolio. That history may be restated to reflect the
estimated expenses of the Gateway fund.
OTHER ADVERTISEMENT MATTERS
The Funds may advertise other forms of performance. For example, the Funds may
quote unaveraged or cumulative total returns reflecting the change in the value
of an investment over a stated period. Average annual and cumulative total
returns may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments and/or a series of
redemptions over any time period. Total returns may be broken down into their
components of income and capital (including capital gains and changes in share
price) in order to illustrate the relationship of these factors and their
contributions to total return. Any performance information may be presented
numerically or in a table, graph or similar illustration.
The Funds may also include various information in their advertisements
including, but not limited to: (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
26
<PAGE>
earning interest on principal plus interest that was earned earlier; interest
can be compounded at different intervals, such as annually, quartile 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) descriptions of the Funds' portfolio
managers and the portfolio management staff of the Investment Advisers or
summaries of the views of the portfolio managers with respect to the financial
markets; (7) the results of a hypothetical investment in a Fund over a given
number of years, including the amount that the investment would be at the end of
the period; (8) the effects of earning Federally and, if applicable, state
tax-exempt income from a Fund or investing in a tax-deferred account, such as an
individual retirement account or Section 401(k) pension plan; and (9) the net
asset value, net assets or number of shareholders of a Fund as of one or more
dates.
As an example of compounding, $1,000 compounded annually at 9.00% will grow to
$1,090 at the end of the first year (an increase in $90) and $1,118 at the end
of the second year (an increase in $98). The extra $8 that was earned on the $90
interest from the first year is the compound interest. One thousand dollars
compounded annually at 9.00% will grow to $2,367 at the end of ten years and
$5,604 at the end of 20 years. Other examples of compounding are as follows: at
7% and 12% annually, $1,000 will grow to $1,967 and $3,106, respectively, at the
end of ten years and $3,870 and $9,646, respectively, at the end of twenty
years. These examples are for illustrative purposes only and are not indicative
of any Fund's performance.
The Funds may advertise information regarding the effects of automatic
investment and systematic withdrawal plans, including the principal of dollar
cost averaging. In a dollar cost averaging program, an investor invests a fixed
dollar amount in a Fund at period intervals, thereby purchasing fewer shares
when prices are high and more shares when prices are low. While such a strategy
does not insure a profit or guard against a loss in a declining market, the
investor's average cost per share can be lower than if fixed numbers of shares
had been purchased at those intervals. In evaluating such a plan, investors
should consider their ability to continue purchasing shares through periods of
low price levels. For example, if an investor invests $100 a month for a period
of six months in a Fund the following will be the relationship between average
cost per share ($14.35 in the example given) and average price per share:
<TABLE>
<S> <C> <C> <C>
Systematic Share Shares
Period Investment Price Purchased
------ ---------- ----- ---------
1 $100 $10 10.00
2 $100 $12 8.33
3 $100 $15 6.67
4 $100 $20 5.00
5 $100 $18 5.56
6 $100 $16 6.25
---- --- ----
Total Invested $600 Average Price $15.17 Total Shares 41.81
</TABLE>
In connection with its advertisements each Fund may provide "shareholders
letters" which serve to provide shareholders or investors an introduction into
the Fund's, the Trust's or any of the Trust's service provider's policies or
business practices. For instance, advertisements may provide for a message from
Norwest or its parent corporation that Norwest has for more than 60 years been
committed to quality products and outstanding service to assist its customers in
meeting their financial goals and setting forth the reasons that Norwest
believes that it has been successful as a national financial services firm.
4. MANAGEMENT
The 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.
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<PAGE>
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 April 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.
John Y. Keffer, Chairman and President,* Age 54.
President and Owner, Forum Financial Services, Inc. (a registered
broker-dealer), Forum Administrative Services, Limited Liability
Company (a mutual fund administrator), Forum Financial Corp. (a
registered transfer agent), and other companies within the Forum
Financial Group of companies. Mr. Keffer is a Director, Trustee and/or
officer of various registered investment companies for which Forum
Financial Services, Inc. or its affiliates serves as manager,
administrator or distributor. His address is Two Portland Square,
Portland, Maine 04101.
Robert C. Brown, Trustee,* Age 65.
Director, Federal Farm Credit Banks Funding Corporation and Farm
Credit System Financial Assistance Corporation since February 1993.
Prior thereto, he was Manager of Capital Markets Group, Norwest
Corporation (a multi-bank holding company and parent of Norwest),
until 1991. His address is 1431 Landings Place, Sarasota, Florida
34231.
Donald H. Burkhardt, Trustee, Age 70.
Principal of The Burkhardt Law Firm. His address is 777 South Steele
Street, Denver, Colorado 80209.
James C. Harris, Trustee, Age 76.
President and sole Director of James C. Harris & Co., Inc. (a
financial consulting firm). Mr. Harris is also a liquidating trustee
and former Director of First Midwest Corporation (a small business
investment company). His address is 6950 France Avenue South,
Minneapolis, Minnesota 55435.
Richard M. Leach, Trustee, Age 63.
President of Richard M. Leach Associates (a financial consulting firm)
since 1992. Prior thereto, Mr. Leach was Senior Adviser of Taylor
Investments (a registered investment adviser), a Director of
Mountainview Broadcasting (a radio station) and Managing Director of
Digital Techniques, Inc. (an interactive video design and
manufacturing company). His address is P.O. Box 1888, New London, New
Hampshire 03257.
John S. McCune,* Trustee, Age 46.
President, Norwest Investment Services, Inc. (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.
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<PAGE>
Donald C. Willeke, Trustee, Age 56.
Principal of the law firm of Willeke & Daniels. His address is 201
Ridgewood Avenue, Minneapolis, Minnesota 55403.
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
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.
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<PAGE>
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 $5,000,
payable quarterly, for the Trustee's service to the Trust and to Norwest Select
Funds, a separate registered open-end management investment company for which
each Trustee serves as trustee. In addition, each Trustee is paid $3,000 for
each regular Board meeting attended (whether in person or by electronic
communication) and is paid $1,000 for each Committee meeting attended on a date
when a Board meeting is not held. Trustees are also reimbursed for travel and
related expenses incurred in attending meetings of the Board. Mr. Keffer
received no compensation for his services as Trustee for the past year or
compensation or reimbursement for his associated expenses. In addition, no
officer of the Trust is compensated by the Trust.
Mr. Burkhardt, Chairman of the Trust's and Norwest Select Funds' audit
committees, receives additional compensation of $6,000 from the Trust and
Norwest Select Funds allocated pro rata between the Trust and Norwest Select
Funds based upon relative net assets, for his services as Chairman. Each Trustee
was elected by shareholders on April 30, 1997.
The following table provides the aggregate compensation paid to the Trustees of
the Trust by the Trust and Norwest Select Funds, combined. Norwest Select Funds
have a December 31 fiscal year end. Information is presented for the twelve
month period ended May 31, 1997, which was the fiscal year end of all of the
Trust's portfolios.
<TABLE>
<S> <C> <C>
TOTAL COMPENSATION FROM
TOTAL COMPENSATION THE TRUST AND NORWEST
FROM THE TRUST SELECT FUNDS
-------------- ------------
Mr. Brown $30,942 $31,000
Mr. Burkhardt $36,932 $37,000
Mr. Harris $30,942 $31,000
Mr. Leach $30,942 $31,000
Mr. Penny $30,942 $31,000
Mr. Willeke $30,942 $31,000
</TABLE>
Neither the Trust nor Norwest Select Funds has adopted any form of retirement
plan covering Trustees or officers. For the twelve month period ended May 31,
1997 total expenses of the Trustees (other than Mr. Keffer) was $22,804 and
total expenses of the trustees of Norwest Select Funds was $46.
As of April 1, 1998, the Trustees and officers of the Trust in the aggregate
owned less than 1% of the outstanding shares of the Funds.
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TRUSTEES AND OFFICERS OF CORE TRUST
The Trustees and officers of Core Trust and their principal occupations during
the past five years and ages are set forth below. Each Trustee who is an
"interested person" (as defined by the 1940 Act) of Core Trust is indicated by
an asterisk. Messrs. Keffer, Goldstein, Sheehan, and Misses. Clark and Wheaton,
officers of Core Trust, all currently serve as officers of the Trust.
Accordingly, for background information pertaining to these officers, (see
"Management - Trustees and Officers - Trustees and Officers of the Trust.")
John Y. Keffer,* Trustee, Chairman and President (age 55)
Costas Azariadis, Trustee (age 54)
Professor of Economics, University of California, Los Angeles, since
July 1992. Prior thereto, Dr. Azariadis was Professor of Economics at
the University of Pennsylvania. His address is Department of Economics,
University of California, Los Angeles, 405 Hilgard Avenue, Los Angeles,
California 90024.
James C. Cheng, Trustee (age 55)
President of Technology Marketing Associates (a marketing consulting
company) since September 1991. His address is Two Portland Square,
Portland, Maine 04101.
J. Michael Parish, Trustee (age 54)
Partner at the law firm of Reid & Priest. Prior to 1995, Mr. Parish was
a partner at Winthrop Stimson Putnam & Roberts since 1989. His address
is 40 West 57th Street, New York, New York 10019.
Sara M. Morris, Vice President and Treasurer (age 34)
David I. Goldstein, Vice President and Secretary (age 36)
Thomas G. Sheehan, Vice President and Assistant Secretary (age 43)
Pamela J. Wheaton, Assistant Treasurer, Age 38.
Catherine S. Wooledge, Assistant Secretary (age 54)
Counsel, Forum Financial Services, Inc. Prior thereto, associate at
Morrison & Foerster from September 1994 through October 1996; associate
corporate counsel at Franklin Resources, Inc. September 1993 through
September 1994; and prior thereto, associate at Drinker Biddle & Reath,
Washington, D.C.
TRUSTEES AND OFFICERS OF SCHRODER CORE
The Trustees and officers of Schroder Core and their principal occupations
during the past five years and ages are set forth below. Each Trustee who is an
"interested person" (as defined by the 1940 Act) of Core Trust is indicated by
an asterisk. Messrs. Keffer and Sheehan, officers of Schroder Core, currently
serve as officers of the Trust. Accordingly, for background information
pertaining to these officers, (see "Management - Trustees and Officers -
Trustees and Officers of the Trust.") Ms. Wooledge an officer of Schroder Core,
currently serves as an officer of Core Trust. Accordingly, for background
information pertaining to her, (see "Management-Trustees and Officers - Trustees
and Officers of Core Trust.")
PETER E. GUERNSEY, Oyster Bay, New York - Trustee of the Trust -
Insurance Consultant since August 1986; prior thereto Senior Vice
President, Marsh & McLennan, Inc., insurance brokers.
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<PAGE>
JOHN I. HOWELL, Greenwich, Connecticut - Trustee of the Trust - Private
Consultant since February 1987; Honorary Director, American
International Group, Inc.; Director, American International Life
Assurance Company of New York.
CLARENCE F. MICHALIS, 44 East 64th Street, New York, New York - Trustee
of the Trust - Chairman of the Board of Directors, Josiah Macy, Jr.
Foundation (charitable foundation).
MARK J. SMITH(b), 33 Gutter Lane, London, England - President and
Trustee of the Trust - Senior Vice President and Director of Schroder ;
Director and Senior Vice President, Schroder Fund Advisors Inc..
ROBERT G. DAVY, 787 Seventh Avenue, New York, New York - a
Vice-President of the Trust - Director of Schroder and Schroder Capital
Management International Ltd. since 1994; Senior Vice President and
Director of Schroder ; prior thereto, employed by various affiliates of
Schroders plc in various positions in the investment research and
portfolio management areas since 1986.
MARGARET H. DOUGLAS-HAMILTON(b)(c), 787 Seventh Avenue, New York, New
York - Vice President of the Trust - Secretary of SCM since July 1995;
Senior Vice President and General Counsel of Schroders U.S. Holdings
Inc. since May 1987; prior thereto, partner of Sullivan & Worcester, a
law firm.
RICHARD R. FOULKES, 787 Seventh Avenue, New York, New York - a Vice
President of the Trust; Deputy Chairman of Schroder since October 1995;
Director and Executive Vice President of Schroder Capital Management
International Ltd. since 1989.
CATHERINE S. WOOLEDGE, 2 Portland Square, Portland, Maine - Assistant
Treasurer and Assistant Secretary of the Trust.
BARBARA GOTTLIEB(c), 787 Seventh Avenue, New York, New York - Assistant
Secretary of the Trust and Vice President of Schroder Fund Advisors
Inc.; prior thereto held various positions with SWIS affiliates. JOHN
Y. KEFFER, 2 Portland Square, Portland, Maine - Vice President of the
Trust. President of Forum Financial Services, Inc., the Fund's
sub-administrator, and Forum Financial Corp., the Fund's transfer and
dividend disbursing agent and fund accountant.
JANE P. LUCAS, (c) 787 Seventh Avenue, New York, New York - Vice
President of the Trust - Director and Senior Vice President Schroder;
Director of SCM since September 1995; Director of Schroder Fund
Advisors Inc.; Assistant Director Schroder Investment Management Ltd.
since June 1991.
GERARDO MACHADO, 787 Seventh Avenue, New York, New York - Assistant
Secretary of the Trust - Associate, Schroder.
CATHERINE A. MAZZA, 787 Seventh Avenue, New York, New York - Vice
President of the Trust - President of Schroder Fund Advisors Inc. since
1997; Group Vice President of Schroder ; prior thereto, held various
marketing positions at Alliance Capital, an investment adviser, since
July 1985.
THOMAS G. SHEEHAN, 2 Portland Square, Portland, Maine - Assistant
Treasurer and Assistant Secretary of the Trust - Counsel, Forum
Financial Services, Inc. since 1993; prior thereto, Special Counsel,
U.S. Securities and Exchange Commission, Division of Investment
Management, Washington, D.C.
FARIBA TALEBI, 787 Seventh Avenue, New York, New York - Vice President
of the Trust - Group Vice President of Schroder , employed in various
positions in the investment research and portfolio management areas
since 1987.
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<PAGE>
JOHN A. TROIANO(b), 787 Seventh Avenue, New York, New York - Vice
President of the Trust - Managing Director and Senior Vice President of
Schroder since October 1995; Director of Schroder Fund Advisors Inc.;
Director of Schroder since 1991; prior thereto, employed by various
affiliates of Schroder in various positions in the investment research
and portfolio management areas since 1981.
IRA L. UNSCHULD, 787 Seventh Avenue, New York, New York - Vice
President of the Trust - Vice President of Schroder since April, 1993
and an Associate from July, 1990 to April, 1993; prior to July, 1990,
employed by various financial institutions as a securities or financial
analyst.
ALEXANDRA POE, 787 Seventh Avenue, New York, New York - Secretary and
Vice President of the Trust-First Vice President of Schroder ; Fund
Counsel and Senior Vice President of Schroder Fund Advisors Inc. since
August 1996; prior thereto an investment management attorney with
Gordon Altman Butowsky Weitzen Shalov & Wein since July 1994; prior
thereto counsel and Vice President of Citibank, N.A. since 1989.
MARY KUNKEMUELLER, 787 Seventh Avenue, New York, New York - Vice
President of Schroder Fund Advisors Inc.
INVESTMENT ADVISORY SERVICES
GENERAL
The advisory fee for each Fund is based on the average daily net assets of the
Fund at the annual rate disclosed in the Fund's prospectus. To the extent that a
Fund invests in one or more core portfolios, the advisory fee paid by the Fund
will be with respect to the core portfolio for advisory services rendered at the
portfolio level.
All investment advisory fees are accrued daily and paid monthly. Each investment
adviser, in its sole discretion, may waive or continue to waive all or any
portion of its investment advisory fees.
In addition to receiving its advisory fee from the Funds, each investment
adviser or its affiliates may act and be compensated as investment manager for
its clients with respect to assets which are invested in a Fund. In some
instances an investment adviser or its affiliates may elect to credit against
any investment management, custodial or other fee received from, or rebate to, a
client who is also a shareholder in a Fund an amount equal to all or a portion
of the fees received by the investment adviser or any of its affiliates from a
Fund with respect to the client's assets invested in the Fund.
NORWEST INVESTMENT MANAGEMENT
Norwest furnishes at its expense all services, facilities and personnel
necessary in connection with managing each Portfolio's investments and effecting
portfolio transactions for each Portfolio (except Schroder Global Growth
Portfolio). Under an Investment Advisory Agreement between Norwest and Core
Trust on behalf of the Portfolios (other than Schroder Global Growth Portfolio),
Norwest may delegate its responsibilities to any investment subadviser approved
by the Board and, as applicable, interestholders, with respect to all or a
portion of the assets of the Portfolio. The Investment Advisory Agreement will
continue in effect only if such continuance is specifically approved at least
annually by the Core Trust Board or by vote of the shareholders, and in either
case, by a majority of the trustees who are not interested persons of any party
to the Investment Advisory Agreement, at a meeting called for the purpose of
voting on the Investment Advisory Agreement.
Each Investment Advisory Agreement is terminable without penalty with respect to
the Portfolio 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 Core Trust. Each Investment
Advisory Agreement shall terminate upon assignment. The Investment Advisory
Agreements also provide that, with respect to the Portfolios (other than
Schroder Global Growth Portfolio), 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
33
<PAGE>
Advisory Agreements shall be deemed to protect, or purport to protect, the
Adviser against liability by reason of willful misfeasance, bad faith or gross
negligence in the performance of Norwest's duties or by reason of reckless
disregard of its obligations and duties under the Investment Advisory
Agreements. The Investment Advisory Agreements provide that Norwest may render
services to others.
Norwest also currently acts as investment adviser to each Performa Fund. The
investment advisory agreements between Norwest and the Trust on behalf of the
Funds are identical to the Investment Advisory Agreements between Core Trust and
Norwest on behalf of the Portfolios (other than Schroder Global Growth
Portfolio), except for the fees payable thereunder (no fee is payable to the
extent that a Fund is invested in an investment company) and certain immaterial
matters.
SCHRODER CAPITAL MANAGEMENT INTERNATIONAL, INC.
Pursuant to a separate Advisory Agreement between Schroder Core and Schroder,
Schroder acts as investment adviser to Schroder Global Growth Portfolio and is
required to furnish at its expenses all services, facilities and personnel
necessary in connection with managing the Portfolio's investments and effecting
portfolio transactions for the Portfolio. The Advisory Agreement between
Schroder Core and Schroder will continue in effect only if such continuance is
specifically approved at least annually: (1) by the Schroder Core Board or by
vote of a majority of the outstanding voting interests of the Portfolio, and ,
in either case, (2) by a majority of Schroder Core's trustees who are not
parties to the Advisory Agreement or interested persons of any such party (other
than as trustees of the Schroder Core); provided further, however, that if the
Advisory Agreement or the continuation of the Agreement is not approved as to
the Portfolio, the adviser may continue to render to the Portfolio the services
described herein in the manner and to the extent permitted by the 1940 Act and
the rules and regulations thereunder.
On behalf of Performa Global Growth Fund, Norwest and the Trust have entered
into an Investment Subadvisory Agreement with Schroder. The Investment
Subadvisory Agreement would become operative and Schroder would directly manage
the Fund's assets if the Board determined it was no longer in the best interest
of the Fund to invest in another registered investment company. In that event,
pursuant to the Investment Subadvisory Agreement, Schroder would make investment
decisions directly for the Fund and continuously review, supervise and
administer the Fund's investment program with respect to that portion, if any,
of the Fund's portfolio that Norwest had so delegated. Schroder would be
required to furnish at its own expense all services, facilities and personnel
necessary in connection with managing of the Fund's investments and effecting
portfolio transactions for the Funds (to the extent of Norwest's delegation).
The Investment Subadvisory Agreement will continue in effect only if such
continuance is specifically approved at least annually: (1) by the Board or by
vote of a majority of the outstanding voting securities of the Fund, and, in
either case, (2) by a majority of the Trust's trustees who are not parties to
the Investment Subadvisory Agreement or interested persons of any such party
(other than as trustees of the Trust), at a meeting called for the purpose of
voting on the Investment Subadvisory Agreements. If the Investment Subadvisory
Agreement is not approved as to the Fund, the Subadviser may continue to render
to the Fund the services described herein in the manner and to the extent
permitted by the 1940 Act and the rules and regulations thereunder.
The Investment Subadvisory Agreement is terminable without penalty with respect
to the Fund on 60 days' written notice when authorized either by majority vote
of the Fund's shareholders or by the Board, or by Schroder on 60 days' written
notice to the Trust, and will automatically terminate in the event of its
assignment. The Investment Subadvisory Agreement also provides that, with
respect to the Fund, neither Schroder nor its personnel shall be liable for any
mistake of judgment or in any event whatsoever, except for lack of good faith,
provided that nothing shall be deemed to protect Schroder against liability by
reason of willful misfeasance, bad faith or gross negligence in the performance
of Schroder's duties or by reason of reckless disregard of its obligations and
duties under the Investment Subadvisory Agreement. The Investment Subadvisory
Agreement provides that Schroder may render services to others.
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<PAGE>
No payments currently are made under the Fund's Investment Subadvisory Agreement
with Schroder because the Fund currently invests all its investable assets in
the Portfolio.
SUB-ADVISERS
Norwest pays a fee to each of the Subadvisers. These fees do not increase the
fees paid by shareholders of the Funds. The amount of the fees paid by Norwest
to each Subadviser may vary from time to time as a result of periodic
negotiations with the Subadviser regarding such matters as the nature and extent
of the services (other than investment selection and order placement activities)
provided by the Subadviser to the Portfolio, the increased cost and complexity
of providing services to the Portfolio, the investment record of the Subadviser
in managing the Portfolio and the nature and magnitude of the expenses incurred
by the Subadviser in managing the Portfolio's assets and by the Adviser in
overseeing and administering management of the Portfolio. However, the
contractual fee payable to each Portfolio by Norwest for investment advisory
services will not vary as a result of those negotiations.
Norwest performs internal due diligence on each Subadviser and monitors each
Subadviser's performance using its proprietary investment adviser selection and
monitoring process. Norwest will be responsible for communicating performance
targets and evaluations to Subadvisers, supervising each Subadviser's compliance
with the Portfolio's fundamental investment objectives and policies, authorizing
Subadvisers to engage in certain investment techniques for the Portfolio, and
recommending to the Board of Trustees whether sub-advisory agreements should be
renewed, modified or terminated. Norwest also may from time to time recommend
that the Core Trust Board replace one or more Subadvisers or appoint additional
Subadvisers, depending on the Norwest's assessment of what combination of
Subadvisers it believes will optimize each Portfolio's chances of achieving its
investment objectives.
GALLIARD
To assist Norwest in carrying out its obligations under the Investment Advisory
Agreement with Performa Strategic Value Bond Fund, Norwest has entered into an
Investment Subadvisory Agreement with Galliard, located at 800 LaSalle Avenue,
Suite 2060, Minneapolis, Minnesota 55479. Galliard is registered with the SEC as
an investment adviser and is an investment advisory subsidiary of Norwest Bank.
Pursuant to the Investment Subadvisory Agreement, Galliard makes investment
decisions for the Portfolio and continuously reviews, supervises and administers
the Portfolio's investment program with respect to that portion, if any, of the
Fund's portfolio that Norwest believes should be invested using Galliard as a
subadviser. Currently, Galliard manages the entire portfolio of the Portfolio
and has done so since the Fund's inception. Galliard is required to furnish at
its own expense all services, facilities and personnel necessary in connection
with managing of the Portfolio's investments and effecting portfolio
transactions for each Fund (to the extent of Norwest's delegation). Norwest
supervises the performance of Galliard including its adherence to the
Portfolio's investment objectives and policies and pays Galliard a fee for its
investment management services. As of October 1, 1997, for its services under
the Sub-Investment Advisory Agreement, Norwest pays Galliard a fee based on each
Fund's average daily net assets at an annual rate of 0.50%.
The Investment Subadvisory Agreement will continue in effect only if such
continuance is specifically approved at least annually: (1) by the Core Board or
by vote of a majority of the outstanding voting securities of the Portfolio,
and, in either case; (2) by a majority of the Core Trust's trustees who are not
parties to the Investment Subadvisory Agreement or interested persons of any
such party (other than as trustees of the Core Trust), at a meeting called for
the purpose of voting on the Investment Subadvisory Agreements; provided
further, however, that if the Investment Subadvisory Agreement or the
continuation of the Agreement is not approved, the Subadviser may continue to
render to the Portfolio the services described in the Investment Subadvisory
Agreement in the manner and to the extent permitted by the 1940 Act and the
rules and regulations thereunder.
The Investment Subadvisory Agreement is terminable without penalty with respect
to the Portfolio on 60 days' written notice when authorized either by majority
vote of the Fund's shareholders or by the Core Board, or by Galliard on 60 days
written notice to Core Trust, and will automatically terminate in the event of
its assignment. The Investment Subadvisory Agreement also provides that, with
respect to each Portfolio, neither Galliard nor its personnel shall be liable
for any mistake of judgment or in any event whatsoever, except for lack of good
faith, provided that nothing shall be deemed to protect Galliard against
liability by reason of willful misfeasance, bad faith
35
<PAGE>
or gross negligence in the performance of Galliard's duties or by reason of
reckless disregard of its obligations and duties under the Investment
Subadvisory Agreement. The Investment Subadvisory Agreements provides that
Galliard may render services to others.
Galliard also currently serves as investment subadviser to Performa Strategic
Value Bond Fund pursuant to an investment subadvisory agreement between Galliard
and Norwest. The investment subadvisory agreement with respect to the Fund is
identical to the Investment Subadvisory Agreement, except for the fees payable
thereunder (no fee is payable under the investment subadvisory agreement to the
extent that the Fund is invested in an investment company) and certain
immaterial matters.
SMITH ASSET MANAGEMENT GROUP, L.P.
To assist Norwest in carrying out its obligations under the Investment Advisory
Agreement with Performa Disciplined Growth Fund and Performa Small Cap Value
Fund, Norwest has entered into an Investment Subadvisory Agreement with Smith,
located at 500 Crescent Court, Suite 250, Dallas, Texas. Smith is registered
with the SEC as an investment adviser and is an investment advisory subsidiary
of Norwest Bank. Pursuant to the Sub-Investment Advisory Agreement, Smith makes
investment decisions for each of the Portfolios and continuously reviews,
supervises and administers each Portfolios' investment program with respect to
that portion, if any, of the Fund's portfolio that Norwest believes should be
invested using Smith as a subadviser. Currently, Smith manages the entire
investment portfolio of each Portfolio and has done so since the Portfolios'
inception. Norwest supervises the performance of Smith including its adherence
to the Portfolio's investment objectives and policies and pays Smith a fee for
its investment management services. As of October 1, 1997, for its services
under the Investment Subadvisory Agreement, Norwest pays Smith a fee based on
Disciplined Growth Portfolio's and Small Cap Value Portfolio's average daily net
assets at an annual rate of 0.35% and 0.45%, respectively.
Under its Investment Subadvisory Agreement, Smith makes investment decisions for
each Portfolio and continuously reviews, supervises and administers each
Portfolios' investment program with respect to that portion, if any, of the
Portfolio's portfolio for which Norwest has delegated management responsibility.
Smith is required to furnish at its own expense all services, facilities and
personnel necessary in connection with managing of each Portfolio's investments
and effecting portfolio transactions for each Portfolio (to the extent of
Norwest's delegation).
During the past 17 years, Smith, the portfolio manager of Performa Disciplined
Growth Fund and Performa Small Cap Value Fund, has developed a proprietary model
investment style which utilizes the concept of earnings surprise to aid in
successful stock selection. This proprietary model, known as the EARNINGS
SURPRISE PREDICTOR ("ESP") model, is based on the idea that companies reporting
positive earnings surprises have consistently outperformed those companies
reporting negative earnings surprises. The ESP model works on the following
three-discipline approach: (1) Buy Discipline - buy based on an objective
strategy driven by earnings surprise; (2) Portfolio Discipline - eliminate
factors that may dilute the positive impact of earnings surprise on return; and
(3) Sell Discipline - sell using objective criteria to eliminate factors that
cloud judgment, including emotion.
The Investment Subadvisory Agreement will continue in effect with respect to a
Portfolio only if such continuance is specifically approved at least annually:
(1) by the Core Trust Board or by vote of a majority of the outstanding voting
securities of the Portfolios, and, in either case; (2) by a majority of the Core
Trust's trustees who are not parties to the Investment Subadvisory Agreement or
interested persons of any such party (other than as trustees of the Core Trust),
at a meeting called for the purpose of voting on the Investment Subadvisory
Agreements; provided further, however, that if the Investment Subadvisory
Agreement or the continuation of the Agreement is not approved, the Subadviser
may continue to render to each Portfolio the services described in the
Investment Subadvisory Agreement in the manner and to the extent permitted by
the Act and the rules and regulations thereunder.
The Investment Subadvisory Agreement is terminable without penalty with respect
to a Portfolio on 60 days' written notice when authorized either by majority
vote of the Portfolio's shareholders or by the Core Trust Board, or by Smith on
60 days written notice to the Core Trust, and will automatically terminate in
the event of its assignment.
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The Investment Subadvisory Agreement also provides that, with respect to each
Portfolio, neither Smith nor its personnel shall be liable for any mistake of
judgment or in any event whatsoever, except for lack of good faith, provided
that nothing shall be deemed to protect Smith against liability by reason of
willful misfeasance, bad faith or gross negligence in the performance of Smith's
duties or by reason of reckless disregard of its obligations and duties under
the Investment Subadvisory Agreement. The Investment Subadvisory Agreements
provides that Smith may render services to others. Smith also currently serves
as Investment Subadviser to the Funds pursuant to an investment advisory
agreement between Smith and Norwest. The investment subadvisory agreement with
respect to the Funds is identical to the Investment Subadvisory Agreement,
except for the fees payable thereunder (no fee is payable under the investment
subadvisory agreement with respect to a Fund to the extent that the Fund is
invested in an investment company) and certain immaterial matters.
MANAGEMENT AND ADMINISTRATIVE SERVICES
MANAGER AND ADMINISTRATOR
Forum manages all aspects of the Trust's operations with respect to each Fund
except those which are the responsibility of Forum, Norwest, any other
Investment Adviser or Investment Subadviser to a Fund, or Norwest in its
capacity as administrator pursuant to an investment administration or similar
agreement. With respect to each Fund, Forum has entered into a Management
Agreement that will continue in effect only if such continuance is specifically
approved at least annually by the Board or by the shareholders and, in either
case, by a majority of the Trustees who are not interested persons of any party
to the Management Agreement.
On behalf of the Trust and with respect to each Fund, Forum: (1) oversees (a)
the preparation and maintenance by the Advisers and the Trust's administrator,
custodian, transfer agent, dividend disbursing agent and fund accountant (or if
appropriate, prepares and maintains) in such form, for such periods and in such
locations as may be required by applicable law, of all documents and records
relating to the operation of the Trust required to be prepared or maintained by
the Trust or its agents pursuant to applicable law; (b) the reconciliation of
account information and balances among the Advisers and the Trust's custodian,
transfer agent, dividend disbursing agent and fund accountant; (c) the
transmission of purchase and redemption orders for Shares; (d) the notification
of the Advisers of available funds for investment; and (e) the performance of
fund accounting, including the calculation of the net asset value per Share; (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 each Fund as
a regulated investment company under the Internal Revenue Code of 1986, as
amended, and oversees the preparation and distribution to appropriate parties of
notices announcing the declaration of dividends and other distributions to
shareholders; (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.
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The Management Agreement terminates automatically if assigned and may be
terminated without penalty with respect to any Fund by vote of that Fund's
shareholders or by either party on not more than 60 days' nor less than 30 days'
written notice. The Management Agreement also provides that neither Forum nor
its personnel shall be liable for any error of judgment or mistake of law or for
any act or omission in the administration or management of the Trust, except for
willful misfeasance, bad faith or gross negligence in the performance of Forum's
or their duties or by reason of reckless disregard of their obligations and
duties under the Management Agreement.
FAS manages all aspects of the Trust's operations with respect to each Fund
except those which are the responsibility of Forum, Norwest, or any other
Investment Adviser or Investment Subadviser to a Fund, or Norwest in its
capacity as administrator pursuant to an investment administration or similar
agreement. With respect to each Fund, FAS has entered into an Administrative
Agreement that will continue in effect only if such continuance is specifically
approved at least annually by the Board or by the shareholders and, in either
case, by a majority of the Trustees who are not interested persons of any party
to the Management Agreement.
On behalf of the Trust and with respect to each 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 assists in preparation of periodic compliance
reports; (5) with the cooperation of the Trust's counsel, the Investment
Advisers, the officers of the Trust and other relevant parties, is responsible
for the preparation and dissemination of materials for meetings of the Board;
(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 each Fund as a regulated investment company under the Code, as
amended, and prepares and distributes to appropriate parties notices announcing
the declaration of dividends and other distributions to shareholders.
The Administrative Agreement terminates automatically if assigned and may be
terminated without penalty with respect to any Fund by vote of that Fund's
shareholders or by either party on not more than 60 days' nor less than 30 days'
written notice. The Administrative Agreement also provides that neither FAS nor
its personnel shall be liable for any error of judgment or mistake of law or for
any act or omission in the administration or management of the Trust, except for
willful misfeasance, bad faith or gross negligence in the performance of FAS's
or their duties or by reason of reckless disregard of their obligations and
duties under the Administrative Agreement.
Pursuant to their agreements with the Trust, Forum and FAS may subcontract any
or all of their duties to one or more qualified subadministrators who agree to
comply with the terms of Forum's Management Agreement or FAS's Administration
Agreement, as applicable. Forum and FAS may compensate those agents for their
services; however, no such compensation may increase the aggregate amount of
payments by the Trust to Forum or FAS pursuant to their Management and
Administration Agreements with the Trust.
PORTFOLIOS OF CORE TRUST
Forum manages all aspects of Core Trust's operations with respect to the
Portfolios except those which are the responsibility of Norwest or Schroder.
With respect to each Portfolio, Forum has entered into a management agreement
(the "Core Trust Management Agreement") that will continue in effect only if
such continuance is specifically approved at least annually by the Core Trust
Board or by the interestholders and, in either case, by a majority of the
trustees who are not interested persons of any party to the Core Trust
Management Agreement.
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Under the Core Trust Management Agreement, Forum performs similar services for
each Portfolio as it and FAS perform under the Management and Administration
Agreements, to the extent the services are applicable to the Portfolios and
their structure.
NORWEST ADMINISTRATIVE SERVICES
Under an Administrative Servicing Agreement between the Trust and Norwest with
respect to certain funds of the Trust, Norwest performs ministerial,
administrative and oversight functions for the Funds and undertakes to reimburse
certain excess expenses of the Funds. Among other things, Norwest gathers
performance and other data from Schroder as the adviser of certain Portfolios
and from other sources, formats the data and prepares reports to the Funds'
shareholders and the Trustees. Norwest also ensures that Schroder is aware of
pending net purchases or redemptions of each Fund's shares and other matters
that may affect Schroder's performance of its duties. Lastly, Norwest has agreed
to reimburse each Fund for any amounts by which its operating expenses
(exclusive of interest, taxes and brokerage fees, organization expenses and, if
applicable, distribution expenses, all to the extent permitted by applicable
state law or regulation) exceed the limits prescribed by any state in which the
Funds' shares are qualified for sale. No fees will be paid to Norwest under the
Administrative Servicing Agreement unless the assets of each Fund that is
subject to the agreement are invested in a portfolio of another registered
investment company. The Administrative Servicing Agreement will continue in
effect only if such continuance is specifically approved at least annually by
the Board or by the shareholders and, in either case, by a majority of the
Trustees who are not parties to the Management Agreement or interested persons
of any such party.
The Administrative Servicing Agreement provides that neither Norwest nor its
personnel shall be liable for any error of judgment or mistake of law or for any
act or omission in the performance of its or their duties to the Fund, except
for willful misfeasance, bad faith or gross negligence in the performance of
Forum's or their duties or by reason of reckless disregard of its or their
obligations and duties under the agreement.
DISTRIBUTION
Forum also acts as distributor of the shares of the Fund. Forum acts as the
agent of the Trust in connection with the offering of shares of the Funds on a
"best efforts" basis pursuant to a Distribution Services Agreement.
Under the Distribution Services Agreement, the Trust has agreed to indemnify,
defend and hold Forum, and any person who controls Forum within the meaning of
Section 15 of the 1933 Act, free and harmless from and against any and all
claims, demands, liabilities and expenses (including the cost of investigating
or defending such claims, demands or liabilities and any counsel fees incurred
in connection therewith) which Forum or any such controlling person may incur,
under the 1933 Act, or under common law or otherwise, arising out of or based
upon any alleged untrue statement of a material fact contained in the Trust's
Registration Statement or a Fund's Prospectus or Statement of Additional
Information in effect from time to time under the 1933 Act or arising out of or
based upon any alleged omission to state a material fact required to be stated
in any one thereof or necessary to make the statements in any one thereof not
misleading. Forum is not, however, protected against any liability to the Trust
or its shareholders to which Forum would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of its
duties, or by reason of Forum's reckless disregard of its obligations and duties
under the Distribution Services Agreement.
With respect to each Fund, the Distribution Services Agreement will continue in
effect only if such continuance is specifically approved at least annually by
the Board or by the shareholders and, in either case, by a majority of the
Trustees who are not parties to the Distribution Services Agreement or
interested persons of any such party.
The Distribution Services Agreement terminates automatically if assigned. With
respect to each Fund, the Distribution Services Agreement may be terminated at
any time without the payment of any penalty by the Board or by a vote of the
Fund's shareholders on 60 days' written notice to Forum; or by FAS on 60 days'
written notice to the Trust.
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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 each Fund, at an annual rate of 0.25% of
the Fund's average daily net assets attributable to each class of the Fund.
CUSTODIAN
Pursuant to a Custodian Agreement, Norwest Bank, Sixth Street and Marquette,
Minneapolis, Minnesota 55479 serves as each Fund's and each Portfolio'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.
Pursuant to rules adopted under the 1940 Act, a Fund may maintain its foreign
securities and cash in the custody of certain eligible foreign banks and
securities depositories. Selection of these foreign custodial institutions is
made by the Board upon consideration of a number of factors, including (but not
limited to) the reliability and financial stability of the institution; the
ability of the institution to perform capably custodial services for the Fund;
the reputation of the institution in its national market; the political and
economic stability of the country in which the institution is located; and
possible risks of potential nationalization or expropriation of Fund assets. The
Custodian employs qualified foreign subcustodians to provide custody of the
Funds foreign assets in accordance with applicable regulations.
No Fund will pay custodian fees to the extent the Fund invests in shares of
another registered investment company. Each Fund so invested incurs, however,
its proportionate share of the custodial fees of the Portfolio in which it
invests.
PORTFOLIO ACCOUNTING
Forum Accounting, an affiliate of Forum, performs portfolio accounting services
for each Fund pursuant to a Fund Accounting Agreement with the Trust. The Fund
Accounting Agreement will continue in effect only if such continuance is
specifically approved at least annually by the Board or by a vote of the
shareholders of the Trust and in either case by a majority of the Trustees who
are not parties to the Fund Accounting Agreement or interested persons of any
such party, at a meeting called for the purpose of voting on the Fund Accounting
Agreement.
Under the Fund Accounting Agreement, Forum Accounting prepares and maintains
books and records of each Fund on behalf of the Trust that are required to be
maintained under the 1940 Act, calculates the net asset value per
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share of each Fund (and class thereof) and dividends and capital gain
distributions and prepares periodic reports to shareholders and the SEC. For its
services, Forum Accounting receives from the Trust with respect to each Fund a
fee of $1,000 per month plus for each additional class of the Fund above one
$1,000 per month. In addition, Forum Accounting is paid additional surcharges
for each of the following: (1) Funds with asset levels exceeding $100 million -
$500/month, Funds with asset levels exceeding $250 million - $1000/month, Funds
with asset levels exceeding $500 million - $1,500/month, Funds with asset levels
exceeding $1,000 million - $2,000/month; (2) Funds requiring international
custody - $1,000/month; (3) Funds with more than 30 international positions -
$1,000/month; (4) Tax free money market Funds - $1,000/month; (5) Funds with
more than 25% of net assets invested in asset backed securities - $1,000/month,
Funds with more than 50% of net assets invested in asset backed securities -
$2,000/month; (6) Funds with more than 100 security positions - $1,000/month;
and (7) Funds with a monthly portfolio turnover rate of 10% or greater -
$1,000/month.
Forum Accounting receives from the Trust with respect to each Gateway Fund a
standard gateway fee of $1,000 per month plus for each additional class of the
Fund above one - $1,000 per month. Forum Accounting also receives a fee of
$2,000 per month for each Gateway Fund operating pursuant to Section 12(d)(1)(E)
of the 1940 Act that invests in more than one security. In addition to the
standard gateway fees, Forum Accounting is entitled to receive from the Trust
with respect to each Gateway Fund operating pursuant to Section 12(d)(1)(H) of
the 1940 Act additional surcharges as described above if the Fund invests in
securities other than investment companies (calculated as if the securities were
the Fund's only assets)
Surcharges are determined based upon the total assets, security positions or
other factors as of the end of the prior month and on the portfolio turnover
rate for the prior month. The rates set forth above shall remain fixed through
December 31, 1997. On January 1, 1998, and on each successive January 1, the
rates may be adjusted automatically by Forum without action of the Trust to
reflect changes in the Consumer Price Index for the preceding calendar year, as
published by the U.S. Department of Labor, Bureau of Labor Statistics. Forum
shall notify the Trust each year of the new rates, if applicable.
Forum Accounting is required to use its best judgment and efforts in rendering
fund accounting services and is not liable to the Trust for any action or
inaction in the absence of bad faith, willful misconduct or gross negligence.
Forum Accounting is not responsible or liable for any failure or delay in
performance of its fund accounting obligations arising out of or caused,
directly or indirectly, by circumstances beyond its reasonable control and the
Trust has agreed to indemnify and hold harmless Forum Accounting, its employees,
agents, officers and directors against and from any and all claims, demands,
actions, suits, judgments, liabilities, losses, damages, costs, charges, counsel
fees and other expenses of every nature and character arising out of or in any
way related to Forum Accounting's actions taken or failures to act with respect
to a Fund or based, if applicable, upon information, instructions or requests
with respect to a Fund given or made to Forum Accounting by an officer of the
Trust duly authorized. This indemnification does not apply to Forum Accounting's
actions taken or failures to act in cases of Forum Accounting's own bad faith,
willful misconduct or gross negligence.
Forum Accounting performs similar services for the Portfolios and, in addition,
acts as the Portfolios' transfer agent.
EXPENSES
Subject to the obligations of Norwest to reimburse the Trust for its excess
expenses as described above, the Trust has, under its Investment Advisory
Agreements, confirmed its obligation to pay all its other expenses, including:
(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 maintenance of 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
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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) expenses incurred pursuant to state securities
laws; 14) fees and out-of-pocket expenses payable to Forum Financial Services,
Inc. under any distribution, management or similar agreement; (15) and all other
fees and expenses paid by the Trust pursuant to any distribution or shareholder
service plan adopted pursuant to Rule 12b-1 under the Act.
5. PORTFOLIO TRANSACTIONS
The following discussion of portfolio transactions, while referring generally to
the Funds, relates equally to the Portfolios.
Purchases and sales of portfolio securities for Funds that invest in
fixed-income investments usually are principal transactions. Debt instruments
are normally purchased directly from the issuer or from an underwriter or market
maker for the securities. There usually are no brokerage commissions paid for
such purchases. The Funds generally will effect purchases and sales of equity
securities through brokers who charge commissions except in the over-the-counter
markets. Purchases of debt and equity securities from underwriters of the
securities include a disclosed fixed commission or concession paid by the issuer
to the underwriter, and purchases from dealers serving as market makers include
the spread between the bid and asked price. In the case of debt securities and
equity securities traded in the foreign and domestic over-the-counter markets,
there is generally no stated commission, but the price usually includes an
undisclosed commission or markup. Allocations of transactions to brokers and
dealers and the frequency of transactions are determined by the Advisers in
their best judgment and in a manner deemed to be in the best interest of
shareholders of each Fund rather than by any formula. The primary consideration
is prompt execution of orders in an effective manner and at the most favorable
price available to the Fund. In transactions on stock exchanges in the United
States, commissions are negotiated, whereas on foreign stock exchanges
commissions are generally fixed. Where transactions are executed in the
over-the-counter market, each Fund will seek to deal with the primary market
makers; but when necessary in order to obtain best execution, they will utilize
the services of others. In all cases the Funds will attempt to negotiate best
execution.
Subject to the general policies regarding allocation of portfolio brokerage as
set forth above, each of the Board, and Core Trust Board has authorized the
Investment Advisers to employ their respective affiliates to effect securities
transactions of the Funds or the Portfolios, provided certain other conditions
are satisfied. Payment of brokerage commissions to an affiliate of an Investment
Adviser for effecting such transactions is subject to Section 17(e) of the 1940
Act, which requires, among other things, that commissions for transactions on
securities exchanges paid by a registered investment company to a broker which
is an affiliated person of such investment company, or an affiliated person of
another person so affiliated, not exceed the usual and customary brokers'
commissions for such transactions. It is the Fund's policy that commissions paid
to Schroder Securities Limited, Norwest Investment Services, Inc. ("NISI") and
other affiliates of an Investment Adviser will, in the judgment of the
Investment Adviser responsible for making portfolio decisions and selecting
brokers, be: (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 an Adviser
by the Funds satisfy the foregoing standards. The Core Trust has adopted similar
policies with respect to the Portfolios.
No Fund has an understanding or arrangement to direct any specific portion of
its brokerage to an affiliate of an Investment Adviser, and will not direct
brokerage to an affiliate of an Investment Adviser in recognition of research
services. The practice of placing orders with NISI is consistent with each
Fund's objective of obtaining best execution and is not dependent on the fact
that NISI is an affiliate of Norwest.
From time to time, a Fund may purchase securities of a broker or dealer through
which it regularly engages in securities transactions.
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A Fund or Portfolio 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, the Investment
Adviser of the Fund or Portfolio 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. The Investment Advisers may also take into account payments made by
brokers effecting transactions for a Fund or Portfolio: (1) to the Fund or
Portfolio or (2) to other persons on behalf of the Fund or Portfolio for
services provided to the Fund or Portfolio for which it would be obligated to
pay.
In addition, the Investment Advisers may give consideration to research services
furnished by brokers to the Advisers for their use and may cause the Funds and
Portfolios to pay these brokers a higher amount of commission than may be
charged by other brokers. Such research and analysis is of the types described
in Section 28(e)(3) of the Securities Exchange Act of 1934, as amended, and is
designed to augment the Investment Adviser's own internal research and
investment strategy capabilities. Such research and analysis may be used by the
Investment Advisers in connection with services to clients other than the Funds
and Portfolios, and not all such services may be used by the Investment Adviser
in connection with the Funds. An Investment Adviser's fees are not reduced by
reason of the Investment Adviser's receipt of the research services.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. and subject to the obligation to seek the most
favorable price and execution available and such other policies as the Boards
may determine, an Adviser may consider sales of shares of a Fund as a factor in
the selection of broker-dealers to execute portfolio transactions for the Fund.
Investment decisions for the Funds (and for the Portfolios) will be made
independently from those for any other account or investment company that is or
may in the future become managed by the Investment Advisers or their affiliates.
Investment decisions are the product of many factors, including basic
suitability for the particular client involved. Thus, a particular security may
be bought or sold for certain clients even though it could have been bought or
sold for other clients at the same time. Likewise, a particular security may be
bought for one or more clients when one or more clients are selling the
security. In some instances, one client may sell a particular security to
another client. It also sometimes happens that two or more clients
simultaneously purchase or sell the same security, in which event each day's
transactions in such security are, insofar as is possible, averaged as to price
and allocated between such clients in a manner which, in the respective
Investment Adviser's opinion, is equitable to each and in accordance with the
amount being purchased or sold by each. There may be circumstances when
purchases or sales of a portfolio security for one client could have an adverse
effect on another client that has a position in that security. In addition, when
purchases or sales of the same security for a Fund and other client accounts
managed by the Investment Advisers occur contemporaneously, the purchase or sale
orders may be aggregated in order to obtain any price advantages available to
large denomination purchases or sales.
Certain Funds may acquire securities issued by their "regular brokers and
dealers" or the parents of those brokers and dealers. Regular brokers and
dealers means the 10 brokers or dealers that: (1) received the greatest amount
of brokerage commissions during the Fund's last fiscal year, (2) engaged in the
largest amount of principal transactions for portfolio transactions of the Fund
during the Fund's last fiscal year; or (3) sold the largest amount of the Fund's
shares during the Fund's last fiscal year.
PORTFOLIO TURNOVER. A high rate of portfolio turnover involves corresponding
greater expenses than a lower rate, which expenses must be borne by a Fund and
its shareholders. High portfolio turnover also may result in the realization of
substantial net short-term capital gains. In order to continue for Federal tax
purposes, less than 30% of the annual gross income of the Fund must be desired
from the sale of securities held by the Fund for less than three months. (See
"Taxation.")
6. ADDITIONAL PURCHASE, REDEMPTION AND EXCHANGE INFORMATION
GENERAL
Shares of all Funds are sold on a continuous basis by the distributor.
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EXCHANGES
By making an exchange by telephone, the investor authorizes the Trust's transfer
agent to act on telephonic instructions believed by the Trust's transfer agent
to be genuine instructions from any person representing himself or herself to be
the investor. The records of the Trust's transfer agent of such instructions are
binding. The exchange procedures may be modified or terminated at any time upon
appropriate notice to shareholders. For Federal income tax purposes, exchanges
are treated as sales on which a purchaser will realize a capital gain or loss
depending on whether the value of the shares redeemed is more or less than the
shareholder's basis in such shares at the time of such transaction.
Shareholders of Shares may purchase, with the proceeds from a redemption of all
or part of their shares, Shares of the other Funds.
REDEMPTIONS
In addition to the situations described in the Prospectus with respect to the
redemptions of shares, the Trust may redeem shares involuntarily to reimburse a
Fund for any loss sustained by reason of the failure of a shareholder to make
full payment for shares purchased by the shareholder or to collect any charge
relating to transactions effected for the benefit of a shareholder which is
applicable to a Fund's shares as provided in the Prospectus from time to time.
Proceeds of redemptions normally are paid in cash. However, payments may be made
wholly or partially in portfolio securities if the Board determines that payment
in cash would be detrimental to the best interests of the Fund. The Funds have
chosen not to make an election with the SEC to pay in cash all redemptions
requested by any shareholder of record limited in amount during any 90-day
period to the lesser of $250,000 or 1% of its net assets at the beginning of
such period. Redemption requests in excess of applicable limits may be paid, in
whole or in part, in investment securities or in cash, as the Trust's Board of
Trustees may deem advisable; however, payment will be made wholly in cash unless
the Board of Trustees believes that economic or market conditions exist that
would make such a practice detrimental to the best interests of the Fund. If
redemption proceeds are paid in investment securities, such securities will be
valued as set forth in the Prospectus and a redeeming shareholder would normally
incur brokerage expenses if he or she were to convert the securities to cash.
7. TAXATION
Each Fund intends for each taxable year to qualify for tax treatment as a
"regulated investment company" under the Code. Such qualification does not, of
course, involve governmental supervision of management or investment practices
or policies. Investors should consult their own counsel for a complete
understanding of the requirements each Fund must meet to qualify for such
treatment, and of the application of state and local tax laws to his or her
particular situation.
Certain listed options, regulated futures contracts and forward currency
contracts are considered "section 1256 contracts" for Federal income tax
purposes. Section 1256 contracts held by a Portfolio at the end of each taxable
year will be "marked to market" and treated for Federal income tax purposes as
though sold for fair market value on the last business day of such taxable year.
Gain or loss realized by a Portfolio on section 1256 contracts generally will be
considered 60% long-term and 40% short-term capital gain or loss. Each Portfolio
can elect to exempt its section 1256 contracts which are part of a "mixed
straddle" (as described below) from the application of section 1256.
With respect to over-the-counter put and call options, gain or loss realized by
a Portfolio upon the lapse or sale of such options held by such Portfolio will
be either long-term or short-term capital gain or loss depending upon the
Portfolio's holding period with respect to such option. However, gain or loss
realized upon the lapse or closing out of such options that are written by a
Portfolio will be treated as short-term capital gain or loss. In general, if a
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Portfolio exercises an option, or an option that a Portfolio has written is
exercised, gain or loss on the option will not be separately recognized but the
premium received or paid will be included in the calculation of gain or loss
upon disposition of the property underlying the option.
Any option, futures contract, or other position entered into or held by a
Portfolio in conjunction with any other position held by such Portfolio may
constitute a "straddle" for Federal income tax purposes. A straddle of which at
least one, but not all, the positions are section 1256 contracts may constitute
a "mixed straddle". In general, straddles are subject to certain rules that may
affect the character and timing of a Portfolio's gains and losses with respect
to straddle positions by requiring, among other things, that: (1) loss realized
on disposition of one position of a straddle not be recognized to the extent
that a Portfolio has unrealized gains with respect to the other position in such
straddle; (2) a Portfolio's holding period in straddle positions be suspended
while the straddle exists (possibly resulting in gain being treated as
short-term capital gain rather than long-term capital gain); (3) losses
recognized with respect to certain straddle positions which are part of a mixed
straddle and which are non-section 1256 positions be treated as 60% long-term
and 40% short-term capital loss; (4) losses recognized with respect to certain
straddle positions which would otherwise constitute short-term capital losses be
treated as long-term capital losses; and (5) the deduction of interest and
carrying charges attributable to certain straddle positions may be deferred.
Various elections are available to a Portfolio which may mitigate the effects of
the straddle rules, particularly with respect to mixed straddles. In general,
the straddle rules described above do not apply to any straddles held by a
Portfolio all of the offsetting positions of which consist of section 1256
contracts.
For federal income tax purposes, gains and losses attributable to fluctuations
in exchange rates which occur between the time a Portfolio accrues interest or
other receivables or accrues expenses or other liabilities denominated in a
foreign currency and the time the Portfolio actually collects such receivables
or pays such liabilities are treated as ordinary income or ordinary loss.
Similarly, gains or losses from the disposition of foreign currencies, from the
disposition of debt securities denominated in a foreign currency, or from the
disposition of a forward contract denominated in a foreign currency which are
attributable to fluctuations in the value of the foreign currency between the
date of acquisition of the asset and the date of disposition also are treated as
ordinary gain or loss.
A Portfolio's investments in zero coupon securities will be subject to special
provisions of the Code which may cause the Portfolio to recognize income without
receiving cash necessary to pay dividends or make distributions in amounts
necessary to satisfy the distribution requirements for avoiding federal income
and excise taxes. In order to satisfy those distribution requirements the
Portfolio may be forced to sell other portfolio securities.
If Performa Global Growth Fund is eligible to do so, the Fund intends to file an
election with the Internal Revenue Service to pass through to its shareholders
its share of the foreign taxes paid by the Schroder Global Growth Portfolio.
Pursuant to this election, a shareholder will be required to: (1) include in
gross income (in addition to taxable dividends actually received) his pro rata
share of foreign taxes considered to have been paid by the Fund; (2) treat his
pro rata share of such foreign taxes as having been paid by him; and (3) either
deduct such pro rata share of foreign taxes in computing his taxable income or
treat such foreign taxes as a credit against federal income taxes. No deduction
for foreign taxes may be claimed by an individual shareholder who does not
itemize deductions. In addition, certain shareholders may be subject to rules
which limit or reduce their ability to fully deduct, or claim a credit for,
their pro rata share of the foreign taxes considered to have been paid by the
Fund. Under recently enacted legislation, a shareholder's foreign tax credit
with respect to a dividend received from the Fund will be disallowed unless the
shareholder holds shares in the Fund at least 16 days during the 30-day period
beginning 15 days before the date on which the shareholder becomes entitled to
receive the dividend.
8. ADDITIONAL INFORMATION ABOUT THE TRUST AND THE SHAREHOLDERS
OF THE FUNDS
COUNSEL AND AUDITORS
Legal matters in connection with the issuance of shares of beneficial interest
of the Trust are passed upon by the law firm of Seward & Kissel, One Battery
Park Plaza, New York, NY 10004.
KPMG Peat Marwick LLP, 99 High Street, Boston, MA 02110, independent auditors,
serve as the independent auditors for the Trust.
OWNERSHIP OF FUND SHARES
The following persons owned of record 5% or more of the outstanding shares of a
Fund as of March 2, 1998:
<TABLE>
<S> <C> <C> <C> <C>
SHARE BALANCE % OF % OF FUND
NAME AND ADDRESS CLASS
---------------- ------------- ------ ----------
PERFORMA DISCIPLINED GROWTH
FUND EMSEG & Co. 107,089.159 17.88% 17.88%
Performa Disciplined Growth Fund
c/o Mutual Fund Processing
P.O. Box 1450 NW 8477
Minneapolis MN 55480-8477
FUNDA & Co. 41,257.775 6.89% 6.89%
Non-Discretionary Reinvest
1740 Broadway MS 8751
Denver, CO 80274-8751
DENTRU & Co. 277,506.191 46.34% 46.34%
Non-Discretionary Cash
1740 Broadway MS 8751
Denver, CO 80274-8751
FINABA 95,525.714 15.95% 15.95%
Non-Discretionary Cash Acct.
Attn: Jon Rutter
P.O. Box 10523
Lubbock, TX 79408
PERFORMA SMALL CAP VALUE
FUND EMSEG & Co. 198,116.785 70.51% 70.51%
Performa Small Cap Value Fund
c/o Mutual Fund Processing
P.O. Box 1450 NW 8477
Minneapolis MN 55480-8477
DENTRU & Co. 17,438.727 6.21% 6.21%
Non-Discretionary Cash
1740 Broadway MS 8751
Denver, CO 80274-8751
FINABA 42,990.711 15.30% 15.30%
Non-Discretionary Cash Acct.
Attn: Jon Rutter
P.O. Box 10523
Lubbock, TX 79408
</TABLE>
46
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
PERFORMA STRATEGIC VALUE
BOND FUND EMSEG & Co. 663,814.834 87.47% 87.47%
Performa Strategic Value Bond Fund
c/o Mutual Fund Processing
P.O. Box 1450 NW 8477
Minneapolis MN 55480-8477
PERFORMA GLOBAL GROWTH FUND
EMSEG & Co. 54,970.275 74.64% 74.64%
Performa Global Growth Fund
c/o Mutual Fund Processing
P.O. Box 1450 NW 8477
Minneapolis MN 55480-8477
10,553.871 14.33% 14.33%
DENTRU & Co.
Non-Discretionary Cash
1740 Broadway MS 8751
Denver, CO 80274-8751
5,684.247 7.72% 7.72%
FINABA
Non-Discretionary Cash Acct.
Attn: Jon Rutter
P.O. Box 10523
Lubbock, TX 79408
</TABLE>
GENERAL INFORMATION
The Trust is divided into thirty-nine separate series representing shares of the
Funds. The Trust received an order from the SEC permitting the issuance and sale
of separate classes of shares representing interests in each of the Trust's
existing funds; however, the Trust currently issues and operates the various
Funds, and separate classes of shares under the provisions of 1940 Act.
The Trust's shareholders are not personally liable for the obligations of the
Trust under Delaware law. The Delaware Business Trust Act (the "Delaware Act")
provides that a shareholder of a Delaware business trust shall be entitled to
the same limitation of liability extended to shareholders of private
corporations for profit. However, no similar statutory or other authority
limiting business trust shareholder liability exists in many other states. As a
result, to the extent that the Trust or a shareholder is subject to the
jurisdiction of courts in those states, the courts may not apply Delaware law,
and may thereby subject the Trust shareholders to liability. To guard against
this risk, the Trust Instrument of the Trust disclaims shareholder liability for
acts or obligations of the Trust and requires that notice of such disclaimer be
given in each agreement, obligation and instrument entered into by the Trust or
its Trustees, and provides for indemnification out of Trust property of any
shareholder held personally liable for the obligations of the Trust. Thus, the
risk of a shareholder incurring financial loss beyond his investment because of
shareholder liability is limited to circumstances in which: (1) a court refuses
to apply Delaware law; (2) no contractual limitation of liability is in effect;
and (3) the Trust itself is unable to meet its obligations. In light of Delaware
law, the nature of the Trust's business, and the nature of its assets, the Board
believes that the risk of personal liability to a Trust shareholder is extremely
remote.
In order to adopt the name Norwest 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
47
<PAGE>
symbols containing the word "Norwest" or any variation thereof, as Norwest deems
appropriate. Upon Norwest's request in writing, the Trust shall cease to use any
such mark or symbol at any time. The Trust has acknowledged that any rights in
or to the word "Norwest" and any such marks or symbols which exist or may exist,
and under any and all circumstances, shall continue to be, the sole property of
Norwest. Norwest may permit other parties, including other investment companies,
to use the word "Norwest" in their names without the consent of the Trust. The
Trust shall not use the word "Norwest" in conducting any business other than
that of an investment company registered under the Act without the permission of
Norwest. FINANCIAL STATEMENTS
The fiscal year end of the Funds is May 31. Financial statements for each Fund's
semi-annual period and fiscal year will be distributed to shareholders of
record. The Board in the future may change the fiscal year end of the Fund.
REGISTRATION STATEMENT
This SAI and the Prospectus do not contain all the information included in the
Trust's registration statement filed with the SEC under the 1933 Act with
respect to the securities offered hereby, certain portions of which have been
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.
48
<PAGE>
APPENDIX A - DESCRIPTION OF SECURITIES RATINGS
MUNICIPAL AND CORPORATE BONDS (INCLUDING CONVERTIBLE BONDS)
MOODY'S INVESTORS SERVICE ("MOODY'S")
Moody's rates corporate bond issues, including convertible debt issues, as
follows:
Bonds which are rated Aaa are judged by Moody's to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
Bonds which are rated A possess many favorable investment attributes and are to
be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment some time in the future.
Bonds which are rated Baa are considered as medium grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payment and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Bonds which are rated Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Bonds which are rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Bonds which are rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
Bonds which are rated C are the lowest rated class of bonds and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
Note: Those bonds in the Aa, A, Baa, Ba or B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa1,
A1, Baa1, Ba1, and B1.
A-1
<PAGE>
STANDARD AND POOR'S CORPORATION ("S&P")
S&P rates corporate bond issues, including convertible debt issues, as follows:
Bonds rated AAA have the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
Bonds rated AA have a very strong capacity to pay interest and repay principal
and differ from the highest rated issues only in small degree.
Bonds rated A have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt rated in higher rated
categories.
Bonds rated BBB are regarded as having an adequate capacity to pay interest and
repay principal. Whereas they normally exhibit adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
weakened capacity to pay interest and repay principal for debt in this category
than in higher rated categories.
Bonds rated BB, B, CCC, CC and C are regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
bonds will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
Bonds rated BB have less near-term vulnerability to default than other
speculative issues. However, they face major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments.
Bonds rated B have a greater vulnerability to default but currently have the
capacity to meet interest payments and principal payments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal.
Bonds rated CCC have currently identifiable vulnerability to default, and are
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, they are not likely to have the
capacity to pay interest and repay principal.
Bonds rated C typically are subordinated to senior debt which as assigned an
actual or implied CCC debt rating. This rating may also be used to indicate
imminent default.
The C rating may be used to cover a situation where a bankruptcy petition has
been filed, but debt service payments are continued. The rating Cl is reserved
for income bonds on which no interest is being paid.
Bonds are rated D when the issue is in payment default, or the obligor has filed
for bankruptcy. The D rating category is used when interest payments or
principal payments are not made on the date due, even if the applicable grace
period has not expired, unless S&P believes that such payments will made during
such grace period.
Note: The ratings from AA to CCC may be modified by the addition of a plus (+)
or minus (-) sign to show the relative standing within the rating category.
A-2
<PAGE>
FITCH IBCA, INC. ("FITCH")
Fitch rates corporate bond issues, including convertible debt issues, as
follows:
AAA Bonds are considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA Bonds are considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated AAA. Because bonds rated in the AAA
and AA categories are not significantly vulnerable to foreseeable future
developments, shorter-term debt of these issuers is generally rated F-1+.
A Bonds are considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB Bonds are considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds, and therefore
impair timely payment. The likelihood that the ratings of these bonds will fall
below investment grade is higher than for bonds with higher ratings.
BB Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C Bonds are in imminent default in payment of interest or principal.
DDD, DD, and D Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. DDD
represents the highest potential for recovery on these bonds, and D represents
the lowest potential for recovery.
Plus (+) and minus (-) signs are used with a rating symbol to indicate the
relative position of a credit within the rating category. Plus and minus signs,
however, are not used in the AAA, DDD, DD, or D categories.
A-3
<PAGE>
PREFERRED STOCK
MOODY'S INVESTORS SERVICE
Moody's rates preferred stock as follows:
An issue rated aaa is considered to be a top-quality preferred stock. This
rating indicates good asset protection and the least risk of dividend impairment
among preferred stock issues.
An issue rated aa is considered a high-grade preferred stock. This rating
indicates that there is a reasonable assurance that earnings and asset
protection will remain relatively well maintained in the foreseeable future.
An issue rated a is considered to be an upper-medium grade preferred stock.
While risks are judged to be somewhat greater than in the aaa and aa
classification, earnings and asset protection are, nevertheless, expected to be
maintained at adequate levels.
An issue rated baa is considered to be a medium-grade, neither highly protected
nor poorly secured. Earnings and asset protection appear adequate at present but
may be questionable over any great length of time.
An issue rated ba is considered to have speculative elements and its future
cannot be considered well assured. Earnings and asset protection may be very
moderate and not well safeguarded during adverse periods. Uncertainty of
position characterizes preferred stocks in this class.
An issue which is rated b generally lacks the characteristics of a desirable
investment. Assurance of dividend payments and maintenance of other terms of the
issue over any long period of time may be small.
An issue which is rated caa is likely to be in arrears on dividend payments.
This rating designation does not purport to indicate the future status of
payments.
An issue which is rated ca is speculative in a high degree and is likely to be
in arrears on dividends with little likelihood of eventual payment.
An issue which is rated c can be regarded as having extremely poor prospects of
ever attaining any real investment standing. This is the lowest rated class of
preferred or preference stock.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each rating
classification from aa through b in its preferred stock rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issuer ranks in the lower end of its generic rating
category.
STANDARD & POOR'S
S&P rates preferred stock as follows:
AAA is the highest rating that is assigned by S&P to a preferred stock issue and
indicates an extremely strong capacity to pay the preferred stock obligations.
A preferred stock issue rated AA also qualifies as a high-quality fixed income
security. The capacity to pay preferred stock obligations is very strong,
although not as overwhelming as for issues rated AAA.
An issue rated A is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
A-4
<PAGE>
An issue rated BBB is regarded as backed by an adequate capacity to pay the
preferred stock obligations. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to make payments for a preferred stock in
this category than for issues in the A category.
Preferred stock rated BB, B, and CCC are regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay preferred stock
obligations. BB indicates the lowest degree of speculation and CCC the highest
degree of speculation. While such issues will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
The rating CC is reserved for a preferred stock issue in arrears on dividends or
sinking fund payments but that is currently paying.
A preferred stock rated C is a non-paying issue.
A preferred stock rated D is a non-paying issue with the issuer in default on
debt instruments.
To provide more detailed indications of preferred stock quality, the ratings
from AA to CCC may be modified by the addition of a plus (+) or minus (-) sign
to show relative standing within the major rating categories.
SHORT TERM MUNICIPAL LOANS
MOODY'S INVESTORS SERVICE. Moody's highest rating for short-term municipal loans
is MIG-1/VMIG-1. A rating of MIG-1/VMIG-1 denotes best quality. There is present
strong protection by established cash flows, superior liquidity support or
demonstrated broadbased access to the market for refinancing. Loans bearing the
MIG-2/VMIG-2 designation are of high quality. Margins of protection are ample
although not so large as in the MIG-1/VMIG-1 group. A rating of MIG 3/VMIG 3
denotes favorable quality. All security elements are accounted for but there is
lacking the undeniable strength of the preceding grades. Liquidity and cash flow
protection may be narrow and market access for refinancing is likely to be less
well established. A rating of MIG 4/VMIG 4 denotes adequate quality. Protection
commonly regarded as required of an investment security is present and although
not distinctly or predominantly speculative, there is specific risk.
STANDARD & POOR'S. S&P's highest rating for short-term municipal loans is SP-1.
S&P states that short-term municipal securities bearing the SP-1 designation
have very strong or strong capacity to pay principal and interest. Those issues
rated SP-1 which are determined to possess overwhelming safety characteristics
will be given a plus (+) designation. Issues rated SP-2 have satisfactory
capacity to pay principal and interest. Issues rated SP-3 have speculative
capacity to pay principal and interest.
FITCH 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.
Short-term issues rated F-1+ are regarded as having the strongest degree of
assurance for timely payment. Issues assigned a rating of F-1 reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
Issues assigned a rating of F-2 have a satisfactory degree of assurance for
timely payment, but the margin of safety is not as great as for issues assigned
F-1+ or F-1.
OTHER MUNICIPAL SECURITIES AND COMMERCIAL PAPER
MOODY'S INVESTORS SERVICE
Moody's two highest ratings for short-term debt, including commercial paper, are
Prime-1 and Prime-2. Both are judged investment grade, to indicate the relative
repayment ability of rated issuers.
A-5
<PAGE>
Issuers rated Prime-1 have a superior ability for repayment of senior short-term
debt obligations. Prime-1 repayment ability will often be evidenced by many of
the following characteristics: Leading market positions in well-established
industries; high rates of return on funds employed; conservative capitalization
structure with moderate reliance on debt and ample asset protection; broad
margins in earnings coverage of fixed financial charges and high internal cash
generation; well-established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated Prime-2 by Moody's have a strong ability for repayment of senior
short-term debt obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1 but to a lesser degree. Earnings trends
and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
STANDARD AND POOR'S CORPORATION
S&P's two highest commercial paper ratings are A-1 and A-2. Issues assigned an A
rating are regarded as having the greatest capacity for timely payment. Issues
in this category are delineated with the numbers 1, 2 and 3 to indicate the
relative degree of safety. An A-1 designation indicates that the degree of
safety regarding timely payment is either overwhelming or very strong. Those
issues determined to possess overwhelming safety characteristics are denoted
with a plus (+) sign designation. The capacity for timely payment on issues with
an A-2 designation is strong. However, the relative degree of safety is not as
high as for issues designated A-1. A-3 issues have a satisfactory capacity for
timely payment. They are, however, somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations. Issues rated A-2 are regarded as having only an adequate capacity
for timely payment. However, such capacity may be damaged by changing conditions
or short-term adversities.
FITCH 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-6
<PAGE>
NORWEST WEALTHBUILDER II PORTFOLIOS
STATEMENT OF ADDITIONAL INFORMATION
APRIL 1, 1998
NORWEST WEALTHBUILDER II GROWTH PORTFOLIO
NORWEST WEALTHBUILDER II GROWTH AND INCOME PORTFOLIO
NORWEST WEALTHBUILDER II GROWTH BALANCED PORTFOLIO
<PAGE>
NORWEST ADVANTAGE PORTFOLIOS
STATEMENT OF ADDITIONAL INFORMATION
APRIL 1, 1998
<TABLE>
<S> <C>
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
</TABLE>
Norwest Advantage Funds is registered with the Securities and Exchange
Commission as an open-end management investment company under the Investment
Company Act of 1940, as amended.
This Statement of Additional Information supplements the Prospectus dated April
1, 1998, as may be amended from time to time, offering Class C shares of the
Norwest WealthBuilder II Portfolios of Norwest Advantage Funds: Norwest
WealthBuilder II Growth Portfolio, Norwest WealthBuilder II Growth and Income
Portfolio and Norwest WealthBuilder II Growth Balanced Portfolio.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE PROSPECTUS.
THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE READ ONLY IN CONJUNCTION WITH
A THE CURRENT PROSPECTUS OF THE PORTFOLIOS, COPIES OF WHICH MAY BE OBTAINED BY
AN INVESTOR WITHOUT CHARGE BY CONTACTING THE DISTRIBUTOR AT THE ADDRESS LISTED
ABOVE.
<PAGE>
<TABLE>
<S> <C>
TABLE OF CONTENTS
Page
----
Introduction 1
1. Investment Policies 3
Security Ratings Information 3
Fixed Income Investments 3
Mortgage-Backed And Asset-Backed Securities 9
Interest Rate Protection Transactions 11
Hedging And Option Income Strategies 11
Foreign Currency Transactions 19
Equity Securities 20
Illiquid Securities and Restricted Securities 23
Loans of Portfolio Securities 24
Borrowing And Transactions Involving Leverage 24
Repurchase Agreements 27
Temporary Defensive Position 27
2. Investment Limitations 27
Fundamental Limitations 27
Non-Fundamental Limitations 29
3. Performance and Advertising Data 30
SEC Yield Calculations 30
Total Return Calculations 31
Other Advertisement Matters 32
4. Management 33
Trustees and Officers 33
Investment Advisory Services 36
Management and Administrative Services 36
Distribution 38
Transfer Agent 40
Custodian 40
Portfolio Accounting 40
Expenses 41
5. Portfolio Transactions 41
6. Additional Purchase and Redemption Information 43
General 43
Exchanges 43
Redemptions 44
7. Taxation 44
</TABLE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Page
----
8. Additional Information About the Trust and the Shareholders of the Portfolios 45
Counsel and Auditors 45
General Information 45
Shareholdings 46
Financial Statements 46
Registration Statement 46
Appendix A - Investments, Strategies and Risk Considerations A-1
Appendix B - Description of Securities Ratings B-1
</TABLE>
<PAGE>
INTRODUCTION
The Trust was originally organized under the name "Prime Value Portfolios, 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 Portfolios
currently offer one class of shares: Class C shares.
Each Portfolio's investment adviser is Norwest Investment Management, Inc.
("Norwest"), a subsidiary of Norwest Bank Minnesota, N.A. ("Norwest Bank").
Norwest Bank, a subsidiary of Norwest Corporation, serves as the Trust's
transfer agent, dividend disbursing agent and custodian.
Forum Financial Services, Inc. ("Forum"), a registered broker-dealer, serves as
the Trust's manager and as distributor of the Trust's shares. Forum
Administrative Services, Limited Liability Company ("FAS") serves as each
Portfolio's administrator.
As used in this SAI, the following terms shall have the meanings listed:
"Adviser" or "Investment Adviser" shall mean Norwest.
"Board" shall mean the Board of Trustees of the Trust.
"CFTC" shall mean the U.S. Commodities Futures Trading Commission.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Custodian" shall mean Norwest acting in its capacity as custodian of a
Portfolio.
"FAS" shall mean Forum Administrative Services, LLC, the Trust's
administrator.
"Fitch" shall mean Fitch IBCA, Inc.
"Forum" shall mean Forum Financial Services, Inc., a registered
broker-dealer and distributor of the Trust's shares.
"Forum Accounting" shall mean Forum Accounting Services, LLC, the
Trust's accountant.
"Portfolio" shall mean each of the three separate series of the Trust
to which this Statement of Additional Information relates as identified
on the cover page.
"Moody's" shall mean Moody's Investors Service.
"Norwest" shall mean Norwest Investment Management, Inc., a subsidiary
of Norwest Bank Minnesota, N.A.
"Norwest Bank" shall mean Norwest Bank Minnesota, N.A., a subsidiary of
Norwest Corporation.
"NRSRO" shall mean a nationally recognized statistical rating
organization.
"SEC" shall mean the U.S. Securities and Exchange Commission.
"S&P" shall mean Standard & Poor's.
1
<PAGE>
"Stock Index Futures" shall mean futures contracts that relate to
broadly-based stock indices.
"Transfer Agent" shall mean Norwest Bank acting in its capacity as
transfer and dividend disbursing agent of a Portfolio.
"Trust" shall mean Norwest Advantage Funds, an open-end, management
investment company registered under the 1940 Act.
"Underlying Funds" means the affiliated and non-affiliated open-end,
management investment companies or series in which the Portfolios
invest.
"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.
2
<PAGE>
1. INVESTMENT POLICIES
The following discussion is intended to supplement the disclosure in each
Prospectus concerning each Portfolio's investments, investment techniques and
strategies and the risks associated therewith. No Portfolio may make any
investment or employ any investment technique or strategy not referenced in the
Prospectus which relates to that Portfolio. Each Portfolio seeks to achieve its
investment objective by investing substantially all of its investable assets in
the Underlying Funds. Accordingly, the investment experience of each of these
Portfolios will correspond directly with the investment experience of its
respective Underlying Funds. Therefore, although the following discusses the
investment policies of the Portfolios, it applies equally to the Underlying
Funds.
SECURITY RATINGS INFORMATION
Moody's, S&P and other NRSROs are private services that provide ratings of the
credit quality of debt obligations, including convertible securities. A
description of the range of ratings assigned to various types of bonds and other
securities by several NRSROs is included in Appendix A to this SAI. The
Portfolios may use these ratings to determine whether to purchase, sell or hold
a security. It should be emphasized, however, that ratings are general and are
not absolute standards of quality. Consequently, securities with the same
maturity, interest rate and rating may have different market prices. If an issue
of securities ceases to be rated or if its rating is reduced after it is
purchased by a Portfolio (neither event requiring sale of such security by a
Portfolio), Norwest will determine whether the Portfolio should continue to hold
the obligation. To the extent that the ratings given by a NRSRO may change as a
result of changes in such organizations or their rating systems, the Investment
Adviser will attempt to substitute comparable ratings. Credit ratings attempt to
evaluate the safety of principal and interest payments and do not evaluate the
risks of fluctuations in market value. Also, rating agencies may fail to make
timely changes in credit ratings. An issuer's current financial condition may be
better or worse than a rating indicates.
A Portfolio may purchase unrated securities if the Adviser determines the
security to be of comparable quality to a rated security that the Portfolio may
purchase. Unrated securities may not be as actively traded as rated securities.
A Portfolio may retain securities whose rating has been lowered below the lowest
permissible rating category (or that are unrated and determined by the Adviser
to be of comparable quality to securities whose rating has been lowered below
the lowest permissible rating category) if the Adviser determines that retaining
such security is in the best interests of the Portfolio.
To limit credit risks, certain Portfolios may only invest in securities that are
investment grade (rated in the top four long-term investment grades by an NRSRO
or in the top two short-term investment grades by an NRSRO.) Accordingly, the
lowest permissible long-term investment grades for corporate bonds, including
convertible bonds, are Baa in the case of Moody's and BBB in the case of S&P and
Fitch; the lowest permissible long-term investment grades for preferred stock
are Baa in the case of Moody's and BBB in the case of S&P and Fitch; and the
lowest permissible short-term investment grades for short-term debt, including
commercial paper, are Prime-2 (P-2) in the case of Moody's, A-2 in the case of
S&P and F-2 in the case of Fitch. All these ratings are generally considered to
be investment grade ratings, although Moody's indicates that securities with
long-term ratings of Baa have speculative characteristics.
FIXED INCOME INVESTMENTS
GENERAL INFORMATION CONCERNING FIXED INCOME SECURITIES
Yields on fixed income securities, including municipal securities, are dependent
on a variety of factors, including the general conditions of the money market
and other fixed income securities markets, the size of a particular offering,
the maturity of the obligation and the rating of the issue. Fixed income
securities with longer maturities tend to produce higher yields and are
generally subject to greater price movements than obligations with shorter
maturities. There is normally an inverse relationship between the market value
of securities sensitive to prevailing interest rates and actual changes in
interest rates. In other words, an increase in interest rates will generally
reduce the
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market value of portfolio investments, and a decline in interest rates will
generally increase the value of portfolio investments.
Obligations of issuers of fixed income securities (including municipal
securities) are subject to the provisions of bankruptcy, insolvency, and other
laws affecting the rights and remedies of creditors, such as the Federal
Bankruptcy Reform Act of 1978. In addition, the obligations of municipal issuers
may become subject to laws enacted in the future by Congress, state
legislatures, or referenda extending the time for payment of principal and/or
interest, or imposing other constraints upon enforcement of such obligations or
upon the ability of municipalities to levy taxes. Changes in the ability of an
issuer to make payments of interest and principal and in the market's perception
of an issuer's creditworthiness will also affect the market value of the debt
securities of that issuer. The possibility exists, therefore, that, the ability
of any issuer to pay, when due, the principal of and interest on its debt
securities may become impaired.
U.S. GOVERNMENT SECURITIES
In addition to obligations of the U.S. Treasury, each of the Portfolios may
invest in U.S. Government Securities. Agencies and instrumentalities which issue
or guarantee debt securities and which have been established or sponsored by the
United States government include the Bank for Cooperatives, the Export-Import
Bank, the Federal Farm Credit System, the Federal Home Loan Banks, the Federal
Home Loan Mortgage Corporation, the Federal Intermediate Credit Banks, the
Federal Land Banks, the Federal National Mortgage Association, the Small
Business Administration, the Government National Mortgage Association and the
Student Loan Marketing Association. Others are supported by the right of the
issuer to borrow from the Treasury; others are supported by the discretionary
authority of the U.S. government to purchase the agency's obligations; and still
others are supported primarily or solely by the creditworthiness of the issuer.
No assurance can be given that the U.S. government would provide financial
support to U.S. government-sponsored agencies or instrumentalities if it is not
obligated to do so by law. Accordingly, although these securities have
historically involved little risk of loss of principal if held to maturity, they
may involve more risk than securities backed by the U.S. Government's full faith
and credit. A Portfolio 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 Portfolio's investment policies.
BANK OBLIGATIONS
Each Portfolio may invest in obligations of financial institutions, including
negotiable certificates of deposit, bankers' acceptances and time deposits of
U.S. banks (including savings banks and savings associations), foreign branches
of U.S. banks, foreign banks and their non-U.S. branches (Eurodollars), U.S.
branches and agencies of foreign banks (Yankee dollars), and wholly-owned
banking-related subsidiaries of foreign banks. A Portfolio's investments in the
obligations of foreign banks and their branches, agencies or subsidiaries may be
obligations of the parent, of the issuing branch, agency or subsidiary, or both.
Investments in foreign bank obligations are limited to banks and branches
located in countries which the Investment Adviser believes do not present undue
risk.
A certificate of deposit is an interest-bearing negotiable certificate issued by
a bank against funds deposited in the bank. A bankers' acceptance is a
short-term draft drawn on a commercial bank by a borrower, usually in connection
with an international commercial transaction. Although the borrower is liable
for payment of the draft, the bank unconditionally guarantees to pay the draft
at its face value on the maturity date. Time deposits are non-negotiable
deposits with a banking institution that earn a specified interest rate over a
given period. Certificates of deposit and fixed time deposits, which are payable
at the stated maturity date and bear a fixed rate of interest, generally may be
withdrawn on demand by the Portfolio but may be subject to early withdrawal
penalties which vary depending upon market conditions and the remaining maturity
of the obligation and could reduce the Portfolio's yield. Although fixed-time
deposits do not in all cases have a secondary market, there are no contractual
restrictions on the right to transfer a beneficial interest in the deposits to
third parties. Deposits subject to early withdrawal penalties or that mature in
more than seven days are treated as illiquid securities if there is no readily
available market for the securities.
The Portfolios may invest in Eurodollar certificates of deposit, which are U.S.
dollar denominated certificates of deposit issued by offices of foreign and
domestic banks located outside the United States; Yankee certificates of
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deposit, which are certificates of deposit issued by a U.S. branch of a foreign
bank denominated in U.S. dollars and held in the United States; Eurodollar time
deposits ("ETDs"), which are U.S. dollar denominated deposits in a foreign
branch of a U.S. bank or a foreign bank; and Canadian time deposits, which are
essentially the same as ETDs, except that they are issued by Canadian offices of
major Canadian banks.
Investments that a Portfolio may make in instruments of foreign banks, branches
or subsidiaries may involve certain risks, including future political and
economic developments, the possible imposition of foreign withholding taxes on
interest income payable on such securities, the possible seizure or
nationalization of foreign deposits, differences from domestic banks in
applicable accounting, auditing and financial reporting standards, and the
possible establishment of exchange controls or other foreign governmental laws
or restrictions applicable to the payment of certificates of deposit or time
deposits which might affect adversely the payment of principal and interest on
such securities held by the Portfolio.
SHORT TERM DEBT SECURITIES/COMMERCIAL PAPER
Each Portfolio may assume a temporary defensive position and may invest without
limit in commercial paper that is rated in one of the two highest rating
categories by an NRSRO or, if not rated, determined by the Investment Adviser to
be of comparable quality. Portfolios also may invest in commercial paper as an
investment and not as a temporary defensive position. Except as noted below with
respect to variable master demand notes, issues of commercial paper normally
have maturities of less than nine months and fixed rates of return.
Variable amount master demand notes are unsecured demand notes that permit the
indebtedness thereunder to vary and provide for periodic adjustments in the
interest rate according to the terms of the instrument. Because master demand
notes are direct lending arrangements between a Portfolio and the issuer, they
are not normally traded. Although there is no secondary market in the notes, the
Portfolio may demand payment of principal and accrued interest at any time.
Variable amount master demand notes must satisfy the same criteria as set forth
above for commercial paper.
GUARANTEED INVESTMENT CONTRACTS
The Portfolios may invest in guaranteed investment contracts ("GICs") issued by
insurance companies. Pursuant to such contracts, a Portfolio makes cash
contributions to a deposit fund of the insurance company's general account. The
insurance company then credits to the deposit Portfolio on a monthly basis
guaranteed interest at a rate based on an index. The GICs provide that this
guaranteed interest will not be less than a certain minimum rate. The insurance
company may assess periodic charges against a GIC for expense and service costs
allocable to it, and these charges will be deducted from the value of the
deposit Portfolio. A Portfolio will purchase a GIC only when the Investment
Adviser has determined that the GIC presents minimal credit risks to the
Portfolio and is of comparable quality to instruments in which the Portfolio may
otherwise invest. Because a Portfolio may not receive the principal amount of a
GIC from the insurance company on seven days' notice or less, a GIC may be
considered an illiquid investment. The term of a GIC will be one year or less.
The interest rate on a GIC may be tied to a specified market index and is
guaranteed not to be less than a certain minimum rate.
ZERO COUPON SECURITIES
Zero coupon securities are sold at original issue discount and pay no interest
to holders prior to maturity. Accordingly, these securities usually trade at a
deep discount from their face or par value and will be subject to greater
fluctuations of market value in response to changing interest rates than debt
obligations of comparable maturities which make current distributions of
interest. Federal tax law requires that a Portfolio accrue a portion of the
discount at which a zero-coupon security was purchased as income each year even
though the Portfolio receives no interest payment in cash on the security during
the year. Interest on these securities, however, is reported as income by the
Portfolio and must be distributed to its shareholders. The Portfolios distribute
all of their net investment income, and may have to sell portfolio securities to
distribute imputed income, which may occur at a
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time when the Investment Adviser would not have chosen to sell such securities
and which may result in a taxable gain or loss.
Currently, U.S. Treasury securities issued without coupons include Treasury
bills and separately traded principal and interest components of securities
issued or guaranteed by the U.S. Treasury. These stripped components are traded
independently under the Treasury's Separate Trading of Registered Interest and
Principal of Securities ("STRIPS") program or as Coupons Under Book Entry
Safekeeping ("CUBES"). A number of banks and brokerage firms separate the
principal and interest portions of U.S. Treasury securities and sell them
separately in the form of receipts or certificates representing undivided
interests in these instruments. These instruments are generally held by a bank
in a custodial or trust account on behalf of the owners of the securities and
are known by various names, including Treasury Receipts ("TRs"), Treasury
Investment Growth Receipts ("TIGRs") and Certificates of Accrual on Treasury
Securities ("CATS"). In addition, corporate debt securities may be zero coupon
securities.
MUNICIPAL SECURITIES
Municipal securities are issued by the States, territories and possessions of
the United States, their political subdivisions (such as cities, counties and
towns) and various authorities (such as public housing or redevelopment
authorities), instrumentalities, public corporations and special districts (such
as water, sewer or sanitary districts) of the States, territories and
possessions of the United States or their political subdivisions. In addition,
municipal securities include securities issued by or on behalf of public
authorities to finance various privately operated facilities, such as industrial
development bonds or other private activity bonds that are backed only by the
assets and revenues of the non-governmental user (such as manufacturing
enterprises, hospitals, colleges or other entities).
Municipal securities historically have not been subject to registration with the
SEC, although there have been proposals which would require registration in the
future.
MUNICIPAL NOTES. Municipal notes, which may be either "general obligation" or
"revenue" securities are intended to fulfill the short-term capital needs of the
issuer and generally have maturities not exceeding one year. They include the
following: tax anticipation notes, revenue anticipation notes, bond anticipation
notes, construction loan notes and tax-exempt commercial paper. Tax anticipation
notes are issued to finance working capital needs of municipalities, and are
payable from various anticipated future seasonal tax revenues, such as income,
sales, use and business taxes. Revenue anticipation notes are issued in
expectation of receipt of other types of revenues, such as federal revenues
available under various federal revenue sharing programs. Bond anticipation
notes are issued to provide interim financing until long-term financing can be
arranged and are typically payable from proceeds of the long-term bonds.
Construction loan notes are sold to provide construction financing. After
successful completion and acceptance, many such projects receive permanent
financing through the Federal Housing Administration under the Federal National
Mortgage Association or the Government National Mortgage Association. Tax-exempt
commercial paper is a short-term obligation with a stated maturity of 365 days
or less. It is issued by agencies of state and local governments to finance
seasonal working capital needs or as short-term financing in anticipation of
longer term financing. Municipal notes also include longer term issues that are
remarketed to investors periodically, usually at one year intervals or less.
MUNICIPAL BONDS. Municipal bonds meet longer term capital needs of a municipal
issuer and generally have maturities of more than one year when issued. General
obligation bonds are used to fund a wide range of public projects, including
construction or improvement of schools, highways and roads, and water and sewer
systems. General obligation bonds are secured by the issuer's pledge of its full
faith and credit and taxing power for the payment of principal and interest. The
taxes that can be levied for the payment of debt service may be limited or
unlimited as to rate or amount. Revenue bonds in recent years have come to
include an increasingly wide variety of types of municipal obligations. As with
other kinds of municipal obligations, the issuers of revenue bonds may consist
of virtually any form of state or local governmental entity. Generally, revenue
bonds are secured by the revenues or net revenues derived from a particular
facility, class of facilities, or, in some cases, from the proceeds of a special
excise or other specific revenue source, but not from general tax revenues.
Revenue bonds are issued to finance a wide variety of capital projects including
electric, gas, water and sewer systems; highways, bridges, and
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tunnels; port and airport facilities; colleges and universities; and hospitals.
Many of these bonds are additionally secured by a debt service reserve fund
which can be used to make a limited number of principal and interest payments
should the pledged revenues be insufficient. Various forms of credit
enhancement, such as a bank letter of credit or municipal bond insurance, may
also be employed in revenue bond issues. Revenue bonds issued by housing
authorities may be secured in a number of ways, including partially or fully
insured mortgages, rent subsidized and/or collateralized mortgages, and/or the
net revenues from housing or other public projects. Some authorities provide
further security in the form of a state's ability (without obligation) to make
up deficiencies in the debt service reserve fund. In recent years, revenue bonds
have been issued in large volumes for projects that are privately owned and
operated, as discussed below.
Municipal bonds are considered private activity bonds if they are issued to
raise money for privately owned or operated facilities used for such purposes as
production or manufacturing, housing, health care and other nonprofit or
charitable purposes. These bonds are also used to finance public facilities such
as airports, mass transit systems and ports. The payment of the principal and
interest on such bonds is dependent solely on the ability of the facility's
owner or user to meet its financial obligations and the pledge, if any, of real
and personal property as security for such payment.
While at one time the pertinent provisions of the Code permitted private
activity bonds to bear tax-exempt interest in connection with virtually any type
of commercial or industrial project (subject to various restrictions as to
authorized costs, size limitations, state per capita volume restrictions, and
other matters), the types of qualifying projects under the Code have become
increasingly limited, particularly since the enactment of the Tax Reform Act of
1986. Under current provisions of the Code, tax-exempt financing remains
available, under prescribed conditions, for certain privately owned and operated
facilities of organizations described in Section 501(c)(3) of the Code,
multi-family rental housing facilities, airports, docks and wharves, mass
commuting facilities and solid waste disposal projects, among others, and for
the tax-exempt refinancing of various kinds of other private commercial projects
originally financed with tax-exempt bonds. In future years, the types of
projects qualifying under the Code for tax-exempt financing could become
increasingly limited.
OTHER MUNICIPAL OBLIGATIONS. Other municipal obligations, incurred for a variety
of financing purposes, include municipal leases, which may take the form of a
lease or an installment purchase or conditional sale contract. Municipal leases
are entered into by state and local governments and authorities to acquire a
wide variety of equipment and facilities such as fire and sanitation vehicles,
telecommunications equipment and other capital assets. Municipal leases
frequently have special risks not normally associated with general obligation or
revenue bonds. Leases and installment purchase or conditional sale contracts
(which normally provide for title to the leased asset to pass eventually to the
government issuer) have evolved as a means for governmental issuers to acquire
property and equipment without being required to meet the constitutional and
statutory requirements for the issuance of debt. The debt-issuance limitations
of many state constitutions and statutes are deemed to be inapplicable because
of the inclusion in many leases or contracts of "non-appropriation" clauses that
provide that the governmental issuer has no obligation to make future payments
under the lease or contract unless money is appropriated for such purpose by the
appropriate legislative body on a yearly or other periodic basis.
ALTERNATIVE MINIMUM TAX. Municipal securities are also categorized according to:
(1) whether the interest is or is not includable in the calculation of
alternative minimum taxes imposed on individuals and corporations, (2) whether
the costs of acquiring or carrying the bonds are or are not deductible in part
by banks and other financial institutions, and (3) other criteria relevant for
Federal income tax purposes. Due to the increasing complexity of the Code and
related requirements governing the issuance of tax-exempt bonds, industry
practice has uniformly required as a condition to the issuance of such bonds,
but particularly for revenue bonds, an opinion of nationally recognized bond
counsel as to the tax-exempt status of interest on the bonds.
PUTS AND STANDBY COMMITMENTS ON MUNICIPAL SECURITIES. The Portfolios may acquire
"puts" with respect to municipal securities. A put gives the Portfolio the right
to sell the municipal security at a specified price at any time on or before a
specified date. The Portfolios may sell, transfer or assign a put only in
conjunction with its sale, transfer or assignment of the underlying security or
securities. The amount payable to a Portfolio upon its exercise of a "put" is
normally: (1) the Portfolio's acquisition cost of the municipal securities
(excluding any accrued
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interest which the Portfolio paid on their acquisition), less any amortized
market premium or plus any amortized market or original issue discount during
the period the Portfolio owned the securities, plus (2) all interest accrued on
the securities since the last interest payment date during that period.
Puts may be acquired by the Portfolios to facilitate the liquidity of its
portfolio assets. Puts may also be used to facilitate the reinvestment of a
Portfolio's assets at a rate of return more favorable than that of the
underlying security. The Portfolios expect that they will generally acquire puts
only where the puts are available without the payment of any direct or indirect
consideration. However, if necessary or advisable, the Portfolios may pay for a
put either separately in cash or by paying a higher price for portfolio
securities which are acquired subject to the puts (thus reducing the yield to
maturity otherwise available for the same securities). The Portfolios intend to
enter into puts only with dealers, banks and broker-dealers which, in Norwest's
opinion, present minimal credit risks.
The Portfolios may purchase municipal securities together with the right to
resell them to the seller or a third party at an agreed-upon price or yield
within specified periods prior to their maturity dates. Such a right to resell
is commonly known as a "stand-by commitment," and the aggregate price which the
Portfolio pays for securities with a stand-by commitment may be higher than the
price which otherwise would be paid. A Portfolio acquires stand-by commitments
solely to facilitate portfolio liquidity and does not exercise its rights
thereunder for trading purposes. Stand-by commitments involve certain expenses
and risks, including the inability of the issuer of the commitment to pay for
the securities at the time the commitment is exercised, non-marketability of the
commitment, and differences between the maturity of the underlying security and
the maturity of the commitment. The Portfolios' policy is to enter into stand-by
commitment transactions only with municipal securities dealers which are
determined to present minimal credit risks.
The acquisition of a stand-by commitment does not affect the valuation or
maturity of the underlying municipal securities which continue to be valued in
accordance with the amortized cost method. Stand-by commitments acquired by the
Portfolio are valued at zero in determining net asset value. When a Portfolio
pays directly or indirectly for a stand-by commitment, its cost is reflected as
unrealized depreciation for the period during which the commitment is held.
Stand-by commitments do not affect the average weighted maturity of the
Portfolio's portfolio of securities.
VARIABLE AND FLOATING RATE SECURITIES
The securities in which the Portfolios invest (including municipal securities or
mortgage- and asset-backed securities, as applicable) may have variable or
floating rates of interest and, under certain limited circumstances, may have
varying principal amounts. These securities pay interest at rates that are
adjusted periodically accordingly to a specified formula, usually with reference
to one or more interest rate indices or market interest rates (the "underlying
index"). The interest paid on these securities is a function primarily of the
underlying index upon which the interest rate adjustments are based. Such
adjustments minimize changes in the market value of the obligation and,
accordingly, enhance the ability of the Portfolio to maintain a stable net asset
value. Similar to fixed rate debt instruments, variable and floating rate
instruments are subject to changes in value based on changes in market interest
rates or changes in the issuer's creditworthiness. The rate of interest on
securities purchased by a Portfolio may be tied to Treasury or other government
securities or indices on those securities as well as any other rate of interest
or index. Certain variable rate securities (including mortgage-related
securities or mortgage-backed securities) pay interest at a rate that varies
inversely to prevailing short-term interest rates (sometimes referred to as
inverse floaters). For instance, upon reset the interest rate payable on a
security may go down when the underlying index has risen. During times when
short-term interest rates are relatively low as compared to long-term interest
rates a Portfolio may attempt to enhance its yield by purchasing inverse
floaters. Certain inverse floaters may have an interest rate reset mechanism
that multiplies the effects of changes in the underlying index. This form of
leverage may have the effect of increasing the volatility of the security's
market value while increasing the security's, and thus the Portfolio's, yield.
There may not be an active secondary market for any particular floating or
variable rate instruments (particularly inverse floaters and similar
instruments) which could make it difficult for a Portfolio to dispose of the
instrument if the issuer defaulted on its repayment obligation during periods
that the Portfolio is not entitled to exercise any
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demand rights it may have. A Portfolio could, for this or other reasons, suffer
a loss with respect to an instrument. The Portfolios' Investment Adviser
monitors the liquidity of the Portfolios' investment in variable and floating
rate instruments, but there can be no guarantee that an active secondary market
will exist.
Many variable rate instruments include the right of the holder to demand
prepayment of the principal amount of the obligation prior to its stated
maturity and the right of the issuer to prepay the principal amount prior to
maturity. The payment of principal and interest by issuers of certain securities
purchased by the Portfolios may be guaranteed by letters of credit or other
credit facilities offered by banks or other financial institutions. Such
guarantees will be considered in determining whether a municipal security meets
the Portfolios' investment quality requirements.
Variable rate obligations purchased by the Portfolios may include participation
interests in variable rate obligations purchased by the Portfolios from banks,
insurance companies or other financial institutions that are backed by
irrevocable letters of credit or guarantees of banks. The Portfolios can
exercise the right, on not more than thirty days' notice, to sell such an
instrument back to the bank from which it purchased the instrument and draw on
the letter of credit for all or any part of the principal amount of a
Portfolio's participation interest in the instrument, plus accrued interest, but
will do so only: (1) as required to provide liquidity to a Portfolio; (2) to
maintain a high quality investment portfolio; or (3) upon a default under the
terms of the demand instrument. Banks and other financial institutions retain
portions of the interest paid on such variable rate obligations as their fees
for servicing such instruments and the issuance of related letters of credit,
guarantees and repurchase commitments.
The Portfolios will not purchase participation interests in variable rate
obligations unless it is advised by counsel or receives a ruling of the Internal
Revenue Service that interest earned by the Portfolios from the obligations in
which it holds participation interests is exempt from Federal income tax. The
Internal Revenue Service has announced that it ordinarily will not issue advance
rulings on certain of the Federal income tax consequences applicable to
securities, or participation interests therein, subject to a put. Each
Portfolio's investment adviser monitors the pricing, quality and liquidity of
variable rate demand obligations and participation interests therein held by the
Portfolio on the basis of published financial information, rating agency reports
and other research services to which the Investment Adviser may subscribe.
Certain securities may have an initial principal amount that varies over time
based on an interest rate index, and, accordingly, a Portfolio might be entitled
to less than the initial principal amount of the security upon the security's
maturity. The Portfolios intend to purchase such securities only when the
Investment Adviser believes the interest income from the instrument justifies
any principal risks associated with the instrument. A Portfolio may attempt to
limit any potential loss of principal by purchasing similar instruments that are
intended to provide an offsetting increase in principal. There can be no
assurance that a Portfolio will be able to limit principal fluctuations and,
accordingly, a Portfolio may incur losses on those securities even if held to
maturity without issuer default.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES
TYPES OF CREDIT ENHANCEMENT
To lessen the effect of failures by obligors on Mortgage Assets to make
payments, mortgage-backed securities may contain elements of credit enhancement.
Credit enhancement falls into two categories: (1) liquidity protection; and (2)
protection against losses resulting after default by an obligor on the
underlying assets and collection of all amounts recoverable directly from the
obligor and through liquidation of the collateral. Liquidity protection refers
to the provisions of advances, generally by the entity administering the pool of
assets (usually the bank, savings association or mortgage banker that
transferred the underlying loans to the issuer of the security), to ensure that
the receipt of payments on the underlying pool occurs in a timely fashion.
Protection against losses resulting after default and liquidation ensures
ultimate payment of the obligations on at least a portion of the assets in the
pool. Such protection may be provided through guarantees, insurance policies or
letters of credit obtained by the issuer or sponsor from third parties, through
various means of structuring the transaction or through a combination of such
approaches. The Portfolios will not pay any additional fees for such credit
enhancement, although the existence of credit enhancement may increase the price
of security.
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Examples of credit enhancement arising out of the structure of the transaction
include: (1) "senior-subordinated securities" (multiple class securities with
one or more classes subordinate to other classes as to the payment of principal
thereof and interest thereon, with the result that defaults on the underlying
assets are borne first by the holders of the subordinated class); (2) creation
of "spread accounts" or "reserve Portfolios" (where cash or investments,
sometimes funded from a portion of the payments on the underlying assets are
held in reserve against future losses); and (3) "over-collateralization" (where
the scheduled payments on, or the principal amount of, the underlying assets
exceeds that required to make payment of the securities and pay any servicing or
other fees). The degree of credit enhancement provided for each issue generally
is based on historical information regarding the level of credit risk associated
with the underlying assets. Delinquency or loss in excess of that covered by
credit enhancement protection could adversely affect the return on an investment
in such a security.
ASSET-BACKED SECURITIES
A Portfolio may invest in asset-backed securities, which have structural
characteristics similar to mortgage-backed securities but have underlying assets
that are not mortgage loans or interests in mortgage loans. Asset-backed
securities are securities that represent direct or indirect participations in,
or are secured by and payable from, assets such as motor vehicle installment
sales contracts, installment loan contracts, leases of various types of real and
personal property and receivables from revolving credit (credit card)
agreements. Such assets are securitized through the use of trusts and special
purpose corporations.
Asset-backed securities are often backed by a pool of assets representing the
obligations of a number of different parties. Payments of principal and interest
may be guaranteed up to certain amounts and for a certain time period by a
letter of credit issued by a financial institution.
Asset-backed securities present certain risks that are not presented by
mortgage-backed debt securities or other securities in which a Portfolio may
invest. Primarily, these securities do not always have the benefit of a security
interest in comparable collateral. Credit card receivables are generally
unsecured and the debtors are entitled to the protection of a number of state
and Federal consumer credit laws, many of which give such debtors the right to
set off certain amounts owed on the credit cards, thereby reducing the balance
due. Automobile receivables generally are secured by automobiles. Most issuers
of automobile receivables permit the loan servicers to retain possession of the
underlying obligations. If the servicer were to sell these obligations to
another party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the asset-backed securities. In addition,
because of the large number of vehicles involved in a typical issuance and the
technical requirements under state laws, the trustee for the holders of the
automobile receivables may not have a proper security interest in the underlying
automobiles. Therefore, there is the possibility that recoveries on repossessed
collateral may not, in some cases, be available to support payments on these
securities. Because asset-backed securities are relatively new, the market
experience in these securities is limited and the market's ability to sustain
liquidity through all phases of the market cycle has not been tested.
INTEREST-ONLY AND PRINCIPAL-ONLY SECURITIES
Some tranches of mortgage-backed securities, including CMOs, are structured so
that investors receive only principal payments generated by the underlying
collateral. Principal only securities ("POs") usually sell at a deep discount
from face value on the assumption that the purchaser will ultimately receive the
entire face value through scheduled payments and prepayments; however, the
market values of POs are extremely sensitive to prepayment rates, which, in
turn, vary with interest rate changes. If interest rates are falling and
prepayments accelerate, the value of the PO will increase. On the other hand, if
rates rise and prepayments slow, the value of the PO will drop.
Interest only securities ("IOs") result from the creation of POs; thus, CMOs
with PO tranches also have IO tranches. IO securities sell at a deep discount to
their "notional" principal amount, namely the principal balance used to
calculate the amount of interest due. They have no face or par value and, as the
notional principal amortizes and prepays, the IO cash-flow declines.
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Unlike POs, IOs increase in value when interest rates rise and prepayment rates
slow; consequently they are often used to "hedge" portfolios against interest
rate risk. If prepayment rates are high, a Portfolio may receive less cash back
than it initially invested.
INTEREST RATE PROTECTION TRANSACTIONS
Certain Portfolios may enter into interest rate protection transactions,
including interest rate swaps, caps, collars and floors. Interest rate swap
transactions involve an agreement between two parties to exchange interest
payment streams that are based, for example, on variable and fixed rates that
are calculated on the basis of a specified amount of principal (the "notional
principal amount") for a specified period of time. Interest rate cap and floor
transactions involve an agreement between two parties in which the first party
agrees to make payments to the counterparty when a designated market interest
rate goes above (in the case of a cap) or below (in the case of a floor) a
designated level on predetermined dates or during a specified time period.
Interest rate collar transactions involve an agreement between two parties in
which the payments are made when a designated market interest rate either goes
above a designated ceiling or goes below a designated floor on predetermined
dates or during a specified time period.
A Portfolio expects to enter into interest rate protection transactions to
preserve a return or spread on a particular investment or portion of its
portfolio or to protect against any increase in the price of securities it
anticipates purchasing at a later date. The Portfolios intend to use these
transactions as a hedge and not as a speculative investment.
A Portfolio may enter into interest rate protection transactions on an
asset-based basis, depending on whether it is hedging its assets or its
liabilities, and will usually enter into interest rate swaps on a net basis,
i.e., the two payment streams are netted out, with the Portfolio receiving or
paying, as the case may be, only the net amount of the two payments. Inasmuch as
these interest rate protection transactions are entered into for good faith
hedging purposes, and inasmuch as segregated accounts will be established with
respect to such transactions, the Portfolios believe such obligations do not
constitute senior securities. The net amount of the excess, if any, of a
Portfolio's obligations over its entitlements with respect to each interest rate
swap will be accrued on a daily basis and an amount of cash, U.S. Government
Securities or other liquid high grade debt obligations having an aggregate net
asset value at least equal to the accrued excess will be maintained in a
segregated account by a custodian that satisfies the requirements of the 1940
Act. Each Portfolio also will establish and maintain such segregated accounts
with respect to its total obligations under any interest rate swaps that are not
entered into on a net basis and with respect to any interest rate caps, collars
and floors that are written by the Portfolio.
A Portfolio will enter into interest rate protection transactions only with
banks and other institutions believed by the Investment Adviser to present
minimal credit risks. If there is a default by the other party to such a
transaction, the Portfolio will have to rely on its contractual remedies (which
may be limited by bankruptcy, insolvency or similar laws) pursuant to the
agreements related to the transaction.
The swap market has grown substantially in recent years with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. Caps, collars and floors are more
recent innovations for which documentation is less standardized. Accordingly,
those instruments are less liquid than swaps.
HEDGING AND OPTION INCOME STRATEGIES
COVERED CALLS AND HEDGING
The Portfolios may write covered calls on up to 100% of their total assets or
may employ one or more types of instruments to hedge ("Hedging Instruments").
When hedging to attempt to protect against declines in the market value of its
securities, to permit the it to retain unrealized gains in the value of
portfolio securities which have appreciated, or to facilitate selling securities
for investment reasons, a Portfolio would: (1) sell Stock Index Futures; (2)
purchase puts on such futures or securities; or (3) write covered calls on
securities or on Stock Index Futures.
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When hedging to establish a position in the equities markets as a temporary
substitute for purchasing particular equity securities (which a Portfolio will
normally purchase and then terminate the hedging position), a Portfolio would:
(1) purchase Stock Index Futures or (2) purchase calls on such Futures or on
securities. The Portfolios' strategy of hedging with Stock Index Futures and
options on such Futures will be incidental to the Portfolios' activities in the
underlying cash market.
WRITING COVERED CALL OPTIONS. A Portfolio may write (I.E., sell) call options
("calls") if: (1) the calls are listed on a domestic securities or commodities
exchange and (2) the calls are "covered" (I.E., the Portfolio owns the
securities subject to the call or other securities acceptable for applicable
escrow arrangements) while the call is outstanding. A call written on a Stock
Index Future must be covered by deliverable securities or segregated liquid
assets. If a call written by the Portfolio is exercised, the Portfolio forgoes
any profit from any increase in the market price above the call price of the
underlying investment on which the call was written.
When a Portfolio writes a call on a security, it receives a premium and agrees
to sell the underlying securities to a purchaser of a corresponding call on the
same security during the call period (usually not more than 9 months) at a fixed
exercise price (which may differ from the market price of the underlying
security), regardless of market price changes during the call period. The risk
of loss will have been retained by the Portfolio if the price of the underlying
security should decline during the call period, which may be offset to some
extent by the premium.
To terminate its obligation on a call it has written, a Portfolio may purchase a
corresponding call in a "closing purchase transaction." A profit or loss will be
realized, depending upon whether the net of the amount of option transaction
costs and the premium previously received on the call written was more or less
than the price of the call subsequently purchased. A profit may also be realized
if the call lapses unexercised, because the Portfolio retains the underlying
security and the premium received. Any such profits are considered short-term
capital gains for Federal income tax purposes, and when distributed by the
Portfolio are taxable as ordinary income. If the Portfolio could not effect a
closing purchase transaction due to the lack of a market, it would have to hold
the callable securities until the call lapsed or was exercised.
A Portfolio may also write calls on Stock Index Futures without owning a futures
contract or a deliverable bond, provided that at the time the call is written,
the Portfolio covers the call by segregating in escrow an equivalent dollar
amount of liquid assets. The Portfolio will segregate additional liquid assets
if the value of the escrowed assets drops below 100% of the current value of the
Stock Index Future. In no circumstances would an exercise notice require the
Portfolio to deliver a futures contract; it would simply put the Portfolio in a
short futures position, which is permitted by the Portfolio's hedging policies.
PURCHASING CALLS AND PUTS. A Portfolio may purchase put options ("puts") which
relate to: (1) securities held by it, (2) Stock Index Futures (whether or not it
holds such Stock Index Futures in its portfolio); or (3) broadly-based stock
indices. A Portfolio may not sell puts other than those it previously purchased,
nor purchase puts on securities it does not hold. A Portfolio may purchase
calls: (1) as to securities, broadly-based stock indices or Stock Index Futures
or (2) to effect a "closing purchase transaction" to terminate its obligation on
a call it has previously written. A call or put may be purchased only if, after
such purchase, the value of all put and call options held by a Portfolio would
not exceed 5% of the Portfolio's total assets.
When a Portfolio purchases a call (other than in a closing purchase
transaction), it pays a premium and, except as to calls on stock indices, has
the right to buy the underlying investment from a seller of a corresponding call
on the same investment during the call period at a fixed exercise price. The
Portfolio benefits only if the call is sold at a profit or if, during the call
period, the market price of the underlying investment is above the sum of the
call price plus the transaction costs and the premium paid for the call and the
call is exercised. If the call is not exercised or sold (whether or not at a
profit), it will become worthless at its expiration date and the Portfolio will
lose its premium payments and the right to purchase the underlying investment.
When a Portfolio purchases a call on a stock index, it pays a premium, but
settlement is in cash rather than by delivery of an underlying investment.
When a Portfolio purchases a put, it pays a premium and, except as to puts on
stock indices, has the right to sell the underlying investment to a seller of a
corresponding put on the same investment during the put period at a fixed
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exercise price. Buying a put on a security or Stock Index Future a Portfolio
owns enables the Portfolio to attempt to protect itself during the put period
against a decline in the value of the underlying investment below the exercise
price by selling the underlying investment at the exercise price to a seller of
a corresponding put. If the market price of the underlying investment is equal
to or above the exercise price and, as a result, the put is not exercised or
resold, the put will become worthless at its expiration date and the Portfolio
will lose its premium payment and the right to sell the underlying investment;
the put may, however, be sold prior to expiration (whether or not at a profit).
Purchasing a put on either a stock index or on a Stock Index Future not held by
a Portfolio permits the Portfolio either to resell the put or to buy the
underlying investment and sell it at the exercise price. The resale price of the
put will vary inversely with the price of the underlying investment. If the
market price of the underlying investment is above the exercise price and, as a
result, the put is not exercised, the put will become worthless on its
expiration date. In the event of a decline in price of the underlying
investment, the Portfolio could exercise or sell the put at a profit to attempt
to offset some or all of its loss on its portfolio securities. When a Portfolio
purchases a put on a stock index, or on a Stock Index Future not held by it, the
put protects the Portfolio to the extent that the index moves in a similar
pattern to the securities held. In the case of a put on a stock index or Stock
Index Future, settlement is in cash rather than by the Portfolio's delivery of
the underlying investment.
STOCK INDEX FUTURES. A Portfolio may buy and sell futures contracts only if they
are Stock Index Futures. A stock index is "broadly-based" if it includes stocks
that are not limited to issuers in any particular industry or group of
industries. Stock Index Futures obligate the seller to deliver (and the
purchaser to take) cash to settle the futures transaction, or to enter into an
offsetting contract. No physical delivery of the underlying stocks in the index
is made.
No price is paid or received upon the purchase or sale of a Stock Index Future.
Upon entering into a futures transaction, a Portfolio will be required to
deposit an initial margin payment in cash or U.S. Treasury bills with a futures
commission merchant (the "futures broker"). The initial margin will be deposited
with the Portfolio's custodian in an account registered in the futures broker's
name; however the futures broker can gain access to that account only under
specified conditions. As the futures contract is marked to market to reflect
changes in its market value, subsequent margin payments, called variation
margin, will be paid to or by the futures broker on a daily basis. Prior to
expiration of the future, if a Portfolio elects to close out its position by
taking an opposite position, a final determination of variation margin is made,
additional cash is required to be paid by or released to the Portfolio, and any
loss or gain is realized for tax purposes. Although Stock Index Futures by their
terms call for settlement by the delivery of cash, in most cases the obligation
is fulfilled without such delivery, by entering into an offsetting transaction.
All futures transactions are effected through a clearinghouse associated with
the exchange on which the contracts are traded.
Puts and calls on broadly-based stock indices or Stock Index Futures are similar
to puts and calls on securities or futures contracts except that all settlements
are in cash and gain or loss depends on changes in the index in question (and
thus on price movements in the stock market generally) rather than on price
movements in individual securities or futures contracts. When a Portfolio buys a
call on a stock index or Stock Index Future, it pays a premium. During the call
period, upon exercise of a call by the Portfolio, a seller of a corresponding
call on the same index will pay the Portfolio an amount of cash to settle the
call if the closing level of the stock index or Stock Index Future upon which
the call is based is greater than the exercise price of the call; that cash
payment is equal to the difference between the closing price of the index and
the exercise price of the call times a specified multiple (the "multiplier")
which determines the total dollar value for each point of difference. When a
Portfolio buys a put on a stock index or Stock Index Future, it pays a premium
and has the right during the put period to require a seller of a corresponding
put, upon the Portfolio's exercise of its put, to deliver to the Portfolio an
amount of cash to settle the put if the closing level of the stock index or
Stock Index Future upon which the put is based is less than the exercise price
of the put; that cash payment is determined by the multiplier, in the same
manner as described above as to calls.
ADDITIONAL INFORMATION ABOUT HEDGING INSTRUMENTS AND THEIR USE. A Portfolio's
custodian, or a securities depository acting for the custodian, will act as the
Portfolio's escrow agent, through the facilities of the Options Clearing
Corporation ("OCC"), as to the securities on which the Portfolio has written
options, or as to other
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acceptable escrow securities, so that no margin will be required for such
transactions. The OCC will release the securities on the expiration of the
option or upon the Portfolio's entering into a closing transaction. An option
position may be closed out only on a market which provides secondary trading for
options of the same series, and there is no assurance that a liquid secondary
market will exist for any particular option.
A Portfolio's option activities may affect its portfolio turnover rate and
brokerage commissions. The exercise of calls written by a Portfolio may cause
the Portfolio to sell related portfolio securities, thus increasing its turnover
rate in a manner beyond the Portfolio's control. The exercise by a Portfolio of
puts on securities or Stock Index Futures may cause the sale of related
investments, also increasing portfolio turnover. Although such exercise is
within the Portfolio's control, holding a put might cause the Portfolio to sell
the underlying investment for reasons which would not exist in the absence of
the put. A Portfolio will pay a brokerage commission each time it buys or sells
a call, a put or an underlying investment in connection with the exercise of a
put or call. Such commissions may be higher than those which would apply to
direct purchases or sales of the underlying investments. Premiums paid for
options are small in relation to the market value of such investments, and,
consequently, put and call options offer large amounts of leverage. The leverage
offered by trading in options could result in a Portfolio's net asset value
being more sensitive to changes in the value of the underlying investments.
REGULATORY ASPECTS OF HEDGING INSTRUMENTS AND COVERED CALLS. A Portfolio must
operate within certain restrictions as to its long and short positions in Stock
Index Futures and options thereon under a rule (the "CFTC Rule") adopted by the
CFTC under the Commodity Exchange Act (the "CEA"), which excludes the Portfolio
from registration with the CFTC as a "commodity pool operator" (as defined in
the CEA) if it complies with the CFTC Rule. Except as permitted by the CFTC
Rule, no Portfolio will, as to any positions, whether short, long or a
combination thereof, enter into Stock Index Futures and options thereon for
which the aggregate initial margins and premiums exceed 5% of the fair market
value of its total assets. Under the CFTC Rule also, a Portfolio must, as to its
short positions, use Stock Index Futures and options thereon solely for
bona-fide hedging purposes within the meaning and intent of the applicable
provisions under the CEA.
Transactions in options by a Portfolio are subject to limitations established by
each of the exchanges governing the maximum number of options that may be
written or held by a single investor or group of investors acting in concert,
regardless of whether the options were written or purchased on the same or
different exchanges or are held in one or more accounts or through one or more
exchanges or brokers. Thus, the number of options which a Portfolio may write or
hold may be affected by options written or held by other entities, including
other investment companies having the same or an affiliated investment adviser.
Position limits also apply to Stock Index Futures. An exchange may order the
liquidation of positions found to be in violation of those limits and may impose
certain other sanctions. Due to requirements under the 1940 Act, when a
Portfolio purchases a Stock Index Future, the Portfolio will maintain, in a
segregated account or accounts with its custodian bank, cash or liquid assets in
an amount equal to the market value of the securities underlying such Stock
Index Future, less the margin deposit applicable to it.
LIMITS ON USE OF HEDGING INSTRUMENTS. Each Portfolio intends to qualify as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended (the "Code"). One of the tests for such qualification is that less than
30% of its gross income must be derived from gains realized on the sale of
securities held for less than three months. Due to this limitation, each
Portfolio will limit the extent to which it engages in the following activities,
but will not be precluded from them: (1) selling investments, including Stock
Index Futures, held for less than three months, whether or not they were
purchased on the exercise of a call held by the Portfolio; (2) purchasing calls
or puts which expire in less than three months; (3) effecting closing
transactions with respect to calls or puts purchased less than three months
previously; (4) exercising puts held for less than three months; and (5) writing
calls on investments held for less than three months.
POSSIBLE RISK FACTORS IN HEDGING. In addition to the risks discussed above,
there is a risk in using short hedging by selling Stock Index Futures or
purchasing puts on stock indices that the prices of the applicable index (thus
the prices of the Hedging Instruments) will correlate imperfectly with the
behavior of the cash (i.e., market value) prices of a Portfolio's equity
securities. The ordinary spreads between prices in the cash and futures markets
are subject to distortions due to differences in the natures of those markets.
First, all participants in the futures markets are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements,
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investors may close futures contracts through offsetting transactions which
could distort the normal relationship between the cash and futures markets.
Second, the liquidity of the futures markets depends on participants entering
into offsetting transactions rather than making or taking delivery. To the
extent participants decide to make or take delivery, liquidity in the futures
markets could be reduced, thus producing distortion. Third, from the point of
view of speculators, the deposit requirements in the futures markets are less
onerous than margin requirements in the securities markets. Therefore, increased
participation by speculators in the futures markets may cause temporary price
distortions.
The risk of imperfect correlation increases as the composition of a Portfolio's
portfolio diverges from the securities included in the applicable index. To
compensate for the imperfect correlation of movements in the price of the equity
securities being hedged and movements in the price of the Hedging Instruments, a
Portfolio may use Hedging Instruments in a greater dollar amount than the dollar
amount of equity securities being hedged if the historical volatility of the
prices of such equity securities being hedged is more than the historical
volatility of the applicable index. It is also possible that where a Portfolio
has used Hedging Instruments in a short hedge, the market may advance and the
value of equity securities held in the Portfolio's portfolio may decline. If
this occurred, the Portfolio would lose money on the Hedging Instruments and
also experience a decline in value in its equity securities. However, while this
could occur for a very brief period or to a very small degree, the value of a
diversified portfolio of equity securities will tend to move over time in the
same direction as the indices upon which the Hedging Instruments are based.
If a Portfolio uses Hedging Instruments to establish a position in the equities
markets as a temporary substitute for the purchase of individual equity
securities (long hedging) by buying Stock Index Futures and/or calls on such
Futures, on securities or on stock indices, it is possible that the market may
decline; if the Portfolio then concludes not to invest in equity securities at
that time because of concerns as to possible further market decline or for other
reasons, the Portfolio will realize a loss on the Hedging Instruments that is
not offset by a reduction in the price of the equity securities purchased.
Additionally, each Portfolio may: (1) purchase or sell (write) put and call
options on securities to enhance the Portfolio's performance and (2) seek to
hedge against a decline in the value of securities owned by it or an increase in
the price of securities which it plans to purchase through the writing and
purchase of exchange-traded and over-the-counter options on individual
securities or securities or financial indices and through the purchase and sale
of financial futures contracts and related options. Certain Portfolios currently
do no not intend to enter into any such transactions. Whether or not used for
hedging purposes, these investments techniques involve risks that are different
in certain respects from the investment risks associated with the other
investments of a Portfolio. Principal among such risks are: (1) the possible
failure of such instruments as hedging techniques in cases where the price
movements of the securities underlying the options or futures do not follow the
price movements of the portfolio securities subject to the hedge; (2)
potentially unlimited loss associated with futures transactions and the possible
lack of a liquid secondary market for closing out a futures position; and (3)
possible losses resulting from the inability of the Portfolio's investment
adviser to correctly predict the direction of stock prices, interest rates and
other economic factors. To the extent a Portfolio invests in foreign securities,
it may also invest in options on foreign currencies, foreign currency futures
contracts and options on those futures contracts. Use of these instruments is
subject to regulation by the SEC, the several options and futures exchanges upon
which options and futures are traded or the CFTC.
No assurance can be given that any hedging or option income strategy will
succeed in achieving its intended result.
Except as otherwise noted in the Prospectus or herein, a Portfolio will not use
leverage in its option income and hedging strategies. In the case of
transactions entered into as a hedge, a Portfolio will hold securities,
currencies or other options or futures positions whose values are expected to
offset ("cover") its obligations thereunder. A Portfolio will not enter into a
hedging strategy that exposes it to an obligation to another party unless it
owns either: (1) an offsetting ("covered") position or (2) cash, U.S. Government
Securities or other liquid securities (or other assets as may be permitted by
the SEC) with a value sufficient at all times to cover its potential
obligations. When required by applicable regulatory guidelines, the Portfolios
will set aside cash, U.S. Government Securities or other liquid securities (or
other assets as may be permitted by the SEC) in a segregated account with its
custodian in the prescribed amount.
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Any assets used for cover or held in a segregated account cannot be sold or
closed out while the hedging or option income strategy is outstanding, unless
they are replaced with similar assets. As a result, there is a possibility that
the use of cover or segregation involving a large percentage of a Portfolio's
assets could impede portfolio management or the Portfolio's ability to meet
redemption requests or other current obligations.
OPTIONS STRATEGIES
A Portfolio may purchase put and call options written by others and sell put and
call options covering specified individual securities, securities or financial
indices or currencies. A put option (sometimes called a "standby commitment")
gives the buyer of the option, upon payment of a premium, the right to deliver a
specified amount of currency to the writer of the option on or before a fixed
date at a predetermined price. A call option (sometimes called a "reverse
standby commitment") gives the purchaser of the option, upon payment of a
premium, the right to call upon the writer to deliver a specified amount of
currency on or before a fixed date, at a predetermined price. The predetermined
prices may be higher or lower than the market value of the underlying currency.
A Portfolio may buy or sell both exchange-traded and over-the-counter ("OTC")
options. A Portfolio will purchase or write an option only if that option is
traded on a recognized U.S. options exchange or if the Investment Adviser
believes that a liquid secondary market for the option exists. When a Portfolio
purchases an OTC option, it relies on the dealer from which it has purchased the
OTC option to make or take delivery of the currency underlying the option.
Failure by the dealer to do so would result in the loss of the premium paid by
the Portfolio as well as the loss of the expected benefit of the transaction.
OTC options and the securities underlying these options currently are treated as
illiquid securities by the Portfolios.
Upon selling an option, a Portfolio receives a premium from the purchaser of the
option. Upon purchasing an option the Portfolio pays a premium to the seller of
the option. The amount of premium received or paid by the Portfolio is based
upon certain factors, including the market price of the underlying securities,
index or currency, the relationship of the exercise price to the market price,
the historical price volatility of the underlying assets, the option period,
supply and demand and interest rates.
Certain Portfolios may purchase call options on debt securities that Norwest
intends to include in the Portfolio's investment portfolio in order to fix the
cost of a future purchase. Call options may also be purchased as a means of
participating in an anticipated price increase of a security on a more limited
risk basis than would be possible if the security itself were purchased. In the
event of a decline in the price of the underlying security, use of this strategy
would serve to limit the potential loss to the Portfolio to the option premium
paid; conversely, if the market price of the underlying security increases above
the exercise price and the Portfolio either sells or exercises the option, any
profit eventually realized will be reduced by the premium paid. A Portfolio may
similarly purchase put options in order to hedge against a decline in market
value of securities held in its portfolio. The put enables the Portfolio to sell
the underlying security at the predetermined exercise price; thus the potential
for loss to the Portfolio is limited to the option premium paid. If the market
price of the underlying security is lower than the exercise price of the put,
any profit the Portfolio realizes on the sale of the security would be reduced
by the premium paid for the put option less any amount for which the put may be
sold.
The Investment Adviser may write call options when it believes that the market
value of the underlying security will not rise to a value greater than the
exercise price plus the premium received. Call options may also be written to
provide limited protection against a decrease in the market price of a security,
in an amount equal to the call premium received less any transaction costs.
Certain Portfolios may purchase and write put and call options on fixed income
or equity security indices in much the same manner as the options discussed
above, except that index options may serve as a hedge against overall
fluctuations in the fixed income or equity securities markets (or market
sectors) or as a means of participating in an anticipated price increase in
those markets. The effectiveness of hedging techniques using index options will
depend on the extent to which price movements in the index selected correlate
with price movements of the securities which are being hedged. Index options are
settled exclusively in cash.
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FOREIGN CURRENCY OPTIONS AND RELATED RISKS
A Portfolio may take positions in options on foreign currencies in order to
hedge against the risk of foreign exchange fluctuation on foreign securities the
Portfolio holds in its portfolio or which it intends to purchase. Options on
foreign currencies are affected by the factors discussed in "Hedging and Option
Income Strategies --Options Strategies" and "Foreign Currency Transactions"
which influence foreign exchange sales and investments generally.
The value of foreign currency options is dependent upon the value of the foreign
currency relative to the U.S. dollar and has no relationship to the investment
merits of a foreign security. Because foreign currency transactions occurring in
the interbank market involve substantially larger amounts than those that may be
involved in the use of foreign currency options, a Portfolio may be
disadvantaged by having to deal in an odd lot market (generally consisting of
transactions of less than $1 million) for the underlying foreign currencies at
prices that are less favorable than for round lots.
To the extent that the U.S. options markets are closed while the market for the
underlying currencies remains open, significant price and rate movements may
take place in the underlying markets that cannot be reflected in the options
markets.
SPECIAL CHARACTERISTICS AND RISKS OF OPTIONS TRADING
A Portfolio may effectively terminate its right or obligation under an option
contract by entering into a closing transaction. For instance, if the Portfolio
wished to terminate its potential obligation to sell securities or currencies
under a call option it had written, a call option of the same type would be
purchased by the Portfolio. Closing transactions essentially permit the
Portfolio to realize profits or limit losses on its options positions prior to
the exercise or expiration of the option. In addition:
(1) The successful use of options depends upon the Investment Adviser's
ability to forecast the direction of price fluctuations in the underlying
securities or currency markets, or in the case of an index option, fluctuations
in the market sector represented by the index.
(2) Options normally have expiration dates of up to nine months.
Options that expire unexercised have no value. Unless an option purchased by a
Portfolio is exercised or unless a closing transaction is effected with respect
to that position, a loss will be realized in the amount of the premium paid.
(3) A position in an exchange-listed option may be closed out only on
an exchange which provides a market for identical options. Most exchange-listed
options relate to equity securities. Exchange markets for options on foreign
currencies are relatively new, and the ability to establish and close out
positions on the exchanges is subject to the maintenance of a liquid secondary
market. Closing transactions may be effected with respect to options traded in
the over-the-counter markets (currently the primary markets for options on
foreign currencies) only by negotiating directly with the other party to the
option contract or in a secondary market for the option if such market exists.
There is no assurance that a liquid secondary market will exist for any
particular option at any specific time. If it is not possible to effect a
closing transaction, a Portfolio would have to exercise the option which it
purchased in order to realize any profit. The inability to effect a closing
transaction on an option written by a Portfolio may result in material losses to
the Portfolio.
(4) A Portfolio's activities in the options markets may result in a
higher portfolio turnover rate and additional brokerage costs.
(5) When a Portfolio enters into an over-the-counter contract with a
counterparty, the Portfolio will assume the risk that the counterparty will fail
to perform its obligations, in which case the Portfolio could be worse off than
if the contract had not been entered into.
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FUTURES STRATEGIES
A futures contract is a bilateral agreement wherein one party agrees to accept,
and the other party agrees to make, delivery of cash, an underlying debt
security or the currency as called for in the contract at a specified future
date and at a specified price. For futures contracts with respect to an index,
delivery is of an amount of cash equal to a specified dollar amount times the
difference between the index value at the time of the contract and the close of
trading of the contract.
A Portfolio may sell interest rate futures contracts in order to continue to
receive the income from a fixed income security, while endeavoring to avoid part
of or all of a decline in the market value of that security which would
accompany an increase in interest rates.
A Portfolio may purchase index futures contracts for several reasons: to
simulate full investment in the underlying index while retaining a cash balance
for Portfolio management purposes, to facilitate trading, to reduce transactions
costs, or to seek higher investment returns when a futures contract is priced
more attractively than securities in the index.
A Portfolio may purchase call options on a futures contract as a means of
obtaining temporary exposure to market appreciation at limited risk. This
strategy is analogous to the purchase of a call option on an individual
security, in that it can be used as a temporary substitute for a position in the
security itself.
A Portfolio may sell foreign currency futures contracts to hedge against
possible variations in the exchange rate of the foreign currency in relation to
the U.S. dollar. In addition, a Portfolio may sell foreign currency futures
contracts when its Investment Adviser anticipates a general weakening of foreign
currency exchange rates that could adversely affect the market values of the
Portfolio's foreign securities holdings. A Portfolio may purchase a foreign
currency futures contract to hedge against an anticipated foreign exchange rate
increase pending completion of anticipated transactions. Such a purchase would
serve as a temporary measure to protect the Portfolio against such increase. A
Portfolio may also purchase call or put options on foreign currency futures
contracts to obtain a fixed foreign exchange rate at limited risk. A Portfolio
may write call options on foreign currency futures contracts as a partial hedge
against the effects of declining foreign exchange rates on the value of foreign
securities.
SPECIAL CHARACTERISTICS AND RISKS OF FUTURES AND RELATED OPTIONS TRADING
No price is paid upon entering into futures contracts; rather, a Portfolio is
required to deposit (typically with its custodian in a segregated account in the
name of the futures broker) an amount of cash or U.S. Government Securities
generally equal to 5% or less of the contract value. This amount is known as
initial margin. Subsequent payments, called variation margin, to and from the
broker, would be made on a daily basis as the value of the futures position
varies. When writing a call on a futures contract, variation margin must be
deposited in accordance with applicable exchange rules. The initial margin in
futures transactions is in the nature of a performance bond or good-faith
deposit on the contract that is returned to the Portfolio upon termination of
the contract, assuming all contractual obligations have been satisfied.
Holders and writers of futures and options on futures contracts can enter into
offsetting closing transactions, similar to closing transactions on options, by
selling or purchasing, respectively, a futures contract or related option with
the same terms as the position held or written. Positions in futures contracts
may be closed only on an exchange or board of trade providing a secondary market
for such futures contracts.
Under certain circumstances, futures exchanges may establish daily limits in the
amount that the price of a futures contract or related option may vary either up
or down from the previous day's settlement price. Once the daily limit has been
reached in a particular contract, no trades may be made that day at a price
beyond that limit. Prices could move to the daily limit for several consecutive
trading days with little or no trading and thereby prevent prompt liquidation of
positions. In that event, it may not be possible for a Portfolio to close a
position, and in the event of adverse price movements, it would have to make
daily cash payments of variation margin. In addition:
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(1) Successful use by a Portfolio of futures contracts and related
options will depend upon the Investment Adviser's ability to predict movements
in the direction of the overall securities and currency markets, which requires
different skills and techniques than predicting changes in the prices of
individual securities. Moreover, futures contracts relate not to the current
level of the underlying instrument but to the anticipated levels at some point
in the future; thus, for example, trading of stock index futures may not reflect
the trading of the securities which are used to formulate an index or even
actual fluctuations in the relevant index itself.
(2) The price of futures contracts may not correlate perfectly with
movement in the price of the hedged currencies due to price distortions in the
futures market or otherwise. There may be several reasons unrelated to the value
of the underlying currencies which causes this situation to occur. As a result,
a correct forecast of general market trends may still not result in successful
hedging through the use of futures contracts over the short term.
(3) There is no assurance that a liquid secondary market will exist for
any particular contract at any particular time. In such event, it may not be
possible to close a position, and in the event of adverse price movements, the
Portfolio would continue to be required to make daily cash payments of variation
margin.
(4) Like other options, options on futures contracts have a limited
life. A Portfolio will not trade options on futures contracts on any exchange or
board of trade unless and until, in Norwest's opinion, the market for such
options has developed sufficiently that the risks in connection with options on
futures transactions are not greater than the risks in connection with futures
transactions.
(5) Purchasers of options on futures contracts pay a premium in cash at
the time of purchase. This amount and the transaction costs is all that is at
risk. Sellers of options on futures contracts, however, must post an initial
margin and are subject to additional margin calls which could be substantial in
the event of adverse price movements.
(6) A Portfolio's activities in the futures markets may result in a
higher portfolio turnover rate and additional transaction costs in the form of
added brokerage commissions.
(7) Buyers and sellers of foreign currency futures contracts are
subject to the same risks that apply to the buying and selling of futures
generally. In addition, there are risks associated with foreign currency futures
contracts and their use as a hedging device similar to those associated with
options on foreign currencies described above. In addition, settlement of
foreign currency futures contracts must occur within the country issuing that
currency. Thus, a
Portfolio must accept or make delivery of the underlying foreign currency in
accordance with any U.S. or foreign restrictions or regulations regarding the
maintenance of foreign banking arrangements by U.S. residents, and the Portfolio
may be required to pay any fees, taxes or charges associated with such delivery
which are assessed in the issuing country.
COMMODITY FUTURES CONTRACTS AND COMMODITY OPTIONS
A Portfolio may invest in certain financial futures contracts and options
contracts in accordance with the policies described in the Prospectus and above.
A Portfolio will only invest in futures contracts, options on futures contracts
and other options contracts that are subject to the jurisdiction of the CFTC
after filing a notice of eligibility and otherwise complying with the
requirements of Section 4.5 of the rules of the CFTC. Under that section a
Portfolio will not enter into any futures contract or option on a futures
contract if, as a result, the aggregate initial margin and premiums required to
establish such positions would exceed 5% of the Portfolio's net assets.
FOREIGN CURRENCY TRANSACTIONS
Investments in foreign companies will usually involve the currencies of foreign
countries. In addition, a Portfolio may temporarily hold funds in bank deposits
in foreign currencies pending the completion of certain investment programs.
Accordingly, the value of the assets of a Portfolio, as measured in U.S.
dollars, may be affected by changes in foreign currency exchange rates and
exchange control regulations. In addition, the Portfolio may incur costs in
connection with
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conversions between various currencies. A Portfolio may conduct foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market or by entering into foreign
currency forward contracts ("forward contracts") to purchase or sell foreign
currencies. A forward contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days
(usually less than one year) from the date of the contract agreed upon by the
parties, at a price set at the time of the contract. These contracts are traded
in the interbank market conducted directly between currency traders (usually
large commercial banks) and their customers and involve the risk that the other
party to the contract may fail to deliver currency when due, which could result
in losses to the Portfolio. A forward contract generally has no deposit
requirement, and no commissions are charged at any stage for trades. Foreign
exchange dealers realize a profit based on the difference between the price at
which they buy and sell various currencies.
A Portfolio may enter into forward contracts under two circumstances. First,
with respect to specific transactions, when the Portfolio enters into a contract
for the purchase or sale of a security denominated in a foreign currency, it may
desire to "lock in" the U.S. dollar price of the security. By entering into a
forward contract for the purchase or sale, for a fixed amount of dollars, of the
amount of foreign currency involved in the underlying security transactions, the
Portfolio may be able to protect itself against a possible loss resulting from
an adverse change in the relationship between the U.S. dollar and the subject
foreign currency during the period between the date the security is purchased or
sold and the date on which payment is made or received.
Second, a Portfolio may enter into forward contracts in connection with existing
portfolio positions. For example, when the Investment Adviser believes that the
currency of a particular foreign country may suffer a substantial decline
against the U.S. dollar, the Portfolio may enter into a forward contract to
sell, for a fixed amount of dollars, the amount of foreign currency
approximating the value of some or all of the Portfolio's investment securities
denominated in such foreign currency.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible since the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. The projection of short-term currency
market movement is extremely difficult, and the successful execution of a
short-term hedging strategy is highly uncertain. Forward contracts involve the
risk of inaccurate predictions of currency price movements, which may cause the
Portfolio to incur losses on these contracts and transaction costs. The Adviser
does not intend to enter into forward contracts on a regular or continuous basis
and will not do so with respect to a Portfolio if, as a result, a Portfolio will
have more than 25 percent of the value of its total assets committed to such
contracts or the contracts would obligate the Portfolio to deliver an amount of
foreign currency in excess of the value of the Portfolio's investment securities
or other assets denominated in that currency.
At or before the settlement of a forward contract, a Portfolio may either make
delivery of the foreign currency or terminate its contractual obligation to
deliver the foreign currency by purchasing an offsetting contract. If the
Portfolio chooses to make delivery of the foreign currency, it may be required
to obtain the currency through the conversion of assets of the Portfolio into
the currency. The Portfolio may close out a forward contract obligating it to
purchase a foreign currency by selling an offsetting contract. If the Portfolio
engages in an offsetting transaction, it will realize a gain or a loss to the
extent that there has been a change in forward contract prices. Additionally,
although forward contracts may tend to minimize the risk of loss due to a
decline in the value of the hedged currency, at the same time they tend to limit
any potential gain which might result should the value of such currency
increase.
There is no systematic reporting of last sale information for foreign
currencies, and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Quotation information available is generally representative of very large
transactions in the interbank market. The interbank market in foreign currencies
is a global around-the-clock market.
When required by applicable regulatory guidelines, a Portfolio will set aside
cash, U.S. Government Securities or other liquid assets in a segregated account
with its custodian in the prescribed amount.
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EQUITY SECURITIES
COMMON STOCK AND PREFERRED STOCK
Common stockholders are the owners of the company issuing the stock and,
accordingly, vote on various corporate governance matters such as mergers. They
are not creditors of the company, but rather, upon liquidation of the company
are entitled to their pro rata share of the company's assets after creditors
(including fixed income security holders) and, if applicable, preferred
stockholders are paid. Preferred stock is a class of stock having a preference
over common stock as to dividends and, in general, as to the recovery of
investment. A preferred stockholder is a shareholder in the company and not a
creditor of the company as is a holder of the company's fixed income securities.
Dividends paid to common and preferred stockholders are distributions of the
earnings of the company and not interest payments, which are expenses of the
company. Equity securities owned by a Portfolio may be traded in the
over-the-counter market or on a regional securities exchange and may not be
traded every day or in the volume typical of securities trading on a national
securities exchange. As a result, disposition by a Portfolio of a portfolio
security to meet redemptions by shareholders or otherwise may require the
Portfolio to sell these securities at a discount from market prices, to sell
during periods when disposition is not desirable, or to make many small sales
over a lengthy period of time. The market value of all securities, including
equity securities, is based upon the market's perception of value and not
necessarily the book value of an issuer or other objective measure of a
company's worth.
CONVERTIBLE SECURITIES
A Portfolio may invest in convertible securities. A convertible security is a
bond, debenture, note, preferred stock or other security that may be converted
into or exchanged for a prescribed amount of common stock of the same or a
different issuer within a particular period of time at a specified price or
formula. A convertible security entitles the holder to receive interest paid or
accrued on debt or the dividend paid on preferred stock until the convertible
security matures or is redeemed, converted or exchanged. Before conversion,
convertible securities have characteristics similar to nonconvertible debt
securities in that they ordinarily provide a stable stream of income with
generally higher yields than those of common stocks of the same or similar
issuers. Convertible securities rank senior to common stock in a corporation's
capital structure but are usually subordinated to comparable nonconvertible
securities. Although no securities investment is without some risk, investment
in convertible securities generally entails less risk than in the issuer's
common stock. However, the extent to which such risk is reduced depends in large
measure upon the degree to which the convertible security sells above its value
as a fixed income security. Convertible securities have unique investment
characteristics in that they generally: (1) have higher yields than common
stocks, but lower yields than comparable non-convertible securities; (2) are
less subject to fluctuation in value than the underlying stocks since they have
fixed income characteristics; and (3) provide the potential for capital
appreciation if the market price of the underlying common stock increases.
The value of a convertible security is a function of its "investment value"
(determined by a comparison of its yield with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and its
"conversion value" (the security's worth, at market value, if converted into the
underlying common stock). The investment value of a convertible security is
influenced by changes in interest rates, with investment value declining as
interest rates increase and increasing as interest rates decline. The credit
standing of the issuer and other factors also may have an effect on the
convertible security's investment value. The conversion value of a convertible
security is determined by the market price of the underlying common stock. If
the conversion value is low relative to the investment value, the price of the
convertible security is governed principally by its investment value and
generally the conversion value decreases as the convertible security approaches
maturity. To the extent the market price of the underlying common stock
approaches or exceeds the conversion price, the price of the convertible
security will be increasingly influenced by its conversion value. In addition, a
convertible security generally will sell at a premium over its conversion value
determined by the extent to which investors place value on the right to acquire
the underlying common stock while holding a fixed income security.
A convertible security may be subject to redemption at the option of the issuer
at a price established in the convertible security's governing instrument. If a
convertible security held by a Portfolio is called for redemption,
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the Portfolio will be required to permit the issuer to redeem the security,
convert it into the underlying common stock or sell it to a third party.
EQUITY-LINKED SECURITIES
Equity-linked securities are securities that are convertible into or based upon
the value of, equity securities upon certain terms and conditions. The following
are three examples of equity-linked securities.
Preferred Equity Redemption Cumulative Stock ("PERCS") technically are preferred
stock with some characteristics of common stock. PERCS are mandatorily
convertible into common stock after a period of time, usually three years,
during which the investors' capital gains are capped, usually at 30%. Commonly,
PERCS may be redeemed by the issuer either at any time or when the issuer's
common stock is trading at a specified price level or better. The redemption
price starts at the beginning of the PERCS' duration period at a price that is
above the cap by the amount of the extra dividends the PERCS holder is entitled
to receive relative to the common stock over the duration of the PERCS and
declines to the cap price shortly before maturity of the PERCS. In exchange for
having the cap on capital gains and giving the issuer the option to redeem the
PERCS at any time or at the specified common stock price level, a Portfolio may
be compensated with a substantially higher dividend yield than that on the
underlying common stock. Portfolios that seek current income find PERCS
attractive because a PERCS provides a higher dividend income than that paid with
respect to a company's common stock.
Equity-Linked Securities ("ELKS") differ from ordinary debt securities, in that
the principal amount received at maturity is not fixed but is based on the price
of the issuer's common stock. ELKS are debt securities commonly issued in fully
registered form for a term of three years under an indenture trust. At maturity,
the holder of ELKS will be entitled to receive a principal amount equal to the
lesser of a cap amount, commonly in the range of 30% to 55% greater than the
current price of the issuer's common stock, or the average closing price per
share of the issuer's common stock, subject to adjustment as a result of certain
dilution events, for the 10 trading days immediately prior to maturity. Unlike
PERCS, ELKS are commonly not subject to redemption prior to maturity. ELKS
usually bear interest during the three-year term at a substantially higher rate
than the dividend yield on the underlying common stock. In exchange for having
the cap on the return that might have been received as capital gains on the
underlying common stock, a Portfolio may be compensated with the higher yield,
contingent on how well the underlying common stock does. Portfolios that seek
current income find ELKS attractive because ELKS provide a higher dividend
income than that paid with respect to a company's common stock.
Liquid Yield Option Notes ("LYONs") differ from ordinary debt securities in that
the amount received prior to maturity is not fixed but is based on the price of
the issuer's common stock. LYONs`are zero-coupon notes that sell at a large
discount from face value. For an investment in LYONs, a Portfolio will not
receive any interest payments until the notes mature, typically in 15 or 20
years, when the notes are redeemed at face, or par, value. The yield on LYONs,
typically, is lower-than-market rate for debt securities of the same maturity,
due in part to the fact that the LYONs are convertible into common stock of the
issuer at any time at the option of the holder of the LYON. Commonly, LYONs are
redeemable by the issuer at any time after an initial period or if the issuer's
common stock is trading at a specified price level or better, or, at the option
of the holder, upon certain fixed dates. The redemption price typically is the
purchase price of the LYONs plus accrued original issue discount to the date of
redemption, which amounts to the lower-than-market yield. A Portfolio will
receive only the lower-than-market yield unless the underlying common stock
increases in value at a substantial rate. LYONs are attractive to investors when
it appears that they will increase in value due to the rise in value of the
underlying common stock.
WARRANTS
A warrant is an option to purchase an equity security at a specified price
(usually representing a premium over the applicable market value of the
underlying equity security at the time of the warrant's issuance) and usually
during a specified period of time. The price of warrants does not necessarily
move parallel to the prices of the underlying securities. Warrants have no
voting rights, receive no dividends and have no rights with respect to the
assets of the issuer. Unlike convertible securities and preferred stocks,
warrants do not pay a fixed dividend. Investments in warrants involve certain
risks, including the possible lack of a liquid market for the resale of the
warrants, potential
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price fluctuations as a result of speculation or other factors and failure of
the price of the underlying security to reach a level at which the warrant can
be prudently exercised. To the extent that the market value of the security that
may be purchased upon exercise of the warrant rises above the exercise price,
the value of the warrant will tend to rise. To the extent that the exercise
price equals or exceeds the market value of such security, the warrants will
have little or no market value. If a warrant is not exercised within the
specified time period, it will become worthless and the Portfolio will lose the
purchase price paid for the warrant and the right to purchase the underlying
security.
HIGH YIELD/JUNK BONDS
Securities rated less than Baa by Moody's or BBB by S&P are classified as
non-investment grade securities and are considered speculative by those rating
agencies. Junk bonds may be issued as a consequence of corporate restructurings,
such as leveraged buyouts, mergers, acquisitions, debt recapitalizations, or
similar events or by smaller or highly leveraged companies. Although the growth
of the high yield/high risk securities market in the 1980's had paralleled a
long economic expansion, many issuers subsequently have been affected by adverse
economic and market conditions. It should be recognized that an economic
downturn or increase in interest rates is likely to have a negative effect on:
(1) the high yield bond market; (2) the value of high yield/high risk
securities; and (3) the ability of the securities' issuers to service their
principal and interest payment obligations, to meet their projected business
goals or to obtain additional financing. In addition, the market for high
yield/high risk securities, which is concentrated in relatively few market
makers, may not be as liquid as the market for investment grade securities.
Under adverse market or economic conditions, the market for high yield/high risk
securities could contract further, independent of any specific adverse changes
in the condition of a particular issuer. As a result, the Portfolio could find
it more difficult to sell these securities or may be able to sell the securities
only at prices lower than if such securities were widely traded. Prices realized
upon the sale of such lower rated or unrated securities, under these
circumstances, may be less than the prices used in calculating the Portfolio's
net asset value.
In periods of reduced market liquidity, prices of high yield/high risk
securities may become more volatile and may experience sudden and substantial
price declines. Also, there may be significant disparities in the prices quoted
for high yield/high risk securities by various dealers. Under such conditions,
the Portfolio may have to use subjective rather than objective criteria to value
its high yield/high risk securities investments accurately and rely more heavily
on the judgment of the Investment Adviser.
Prices for high yield/high risk securities also may be affected by legislative
and regulatory developments. For example, Congress has considered legislation to
restrict or eliminate the corporate tax deduction for interest payments or to
regulate corporate restructurings such as takeovers, mergers or leveraged
buyouts. These laws could adversely affect the Portfolio's net asset value and
investment practices, the market for high yield/high risk securities, the
financial condition of issuers of these securities and the value of outstanding
high yield/high risk securities.
Lower rated or unrated debt obligations also present risks based on payment
expectations. If an issuer calls the obligation for redemption, the Investment
Adviser may have to replace the security with a lower yielding security,
resulting in a decreased return for investors. If a Portfolio experiences
unexpected net redemptions, the Investment Adviser may be forced to sell the
Portfolio's higher rated securities, resulting in a decline in the overall
credit quality of the Portfolio's investment portfolio and increasing the
exposure of the Portfolio to the risks of high yield/high risk securities.
ILLIQUID AND RESTRICTED SECURITIES
Each Portfolio may invest up to 15 percent of its net assets in securities that
at the time of purchase are illiquid. Historically, illiquid securities have
included securities subject to contractual or legal restrictions on resale
because they have not been registered under the 1933 Act ("restricted
securities"), securities that cannot be disposed of within seven days in the
ordinary course of business at approximately the amount at which the Portfolio
has valued the securities and which are otherwise not readily marketable and
includes, among other things, purchased over-the-counter (OTC) options and
repurchase agreements not entitling the holder to repayment within seven days.
The Board has the ultimate responsibility for determining whether specific
securities are liquid or illiquid and has delegated
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the function of making day-to-day determinations of liquidity to the Investment
Adviser of the Portfolios, pursuant to guidelines approved by the Board. The
Investment Adviser takes into account a number of factors in reaching liquidity
decisions, including but not limited to: (1) the frequency of trades and
quotations for the security; (2) the number of dealers willing to purchase or
sell the security and the number of other potential buyers; (3) the willingness
of dealers to undertake to make a market in the security; and (4) the nature of
the marketplace trades, including the time needed to dispose of the security,
the method of soliciting offers and the mechanics of the transfer. The
Investment Adviser monitors the liquidity of the securities held by each
Portfolio and reports periodically on such decisions to the Board.
In connection with a Portfolio's original purchase of restricted securities, it
may negotiate rights with the issuer to have such securities registered for sale
at a later time. Further, the expenses of registration of restricted securities
that are illiquid may also be negotiated by the Portfolio with the issuer at the
time such securities are purchased by the Portfolio. When registration is
required, however, a considerable period may elapse between a decision to sell
the securities and the time the Portfolio would be permitted to sell such
securities. A similar delay might be experienced in attempting to sell such
securities pursuant to an exemption from registration. Thus, the Portfolio may
not be able to obtain as favorable a price as that prevailing at the time of the
decision to sell.
Limitations on resale may have an adverse effect on the marketability of
portfolio securities and a Portfolio might also have to register restricted
securities in order to dispose of them, resulting in expense and delay. A
Portfolio might not be able to dispose of restricted or other securities
promptly or at reasonable prices and might thereby experience difficulty
satisfying redemptions. There can be no assurance that a liquid market will
exist for any security at any particular time.
A institutional market has developed for certain securities that are not
registered under the 1933 Act, including repurchase agreements, commercial
paper, foreign securities and corporate bonds and notes. Institutional investors
depend on an efficient institutional market in which the unregistered security
can be readily resold or on the issuer's ability to honor a demand for repayment
of the unregistered security. A security's contractual or legal restrictions on
resale to the general public or to certain institutions may not be indicative of
the liquidity of the security. If such securities are eligible for purchase by
institutional buyers in accordance with Rule 144A under the 1933 Act under
guidelines adopted by the Board, the Investment Adviser may determine that such
securities are not illiquid securities. These guidelines take into account
trading activity in the securities and the availability of reliable pricing
information, among other factors. If there is a lack of trading interest in a
particular Rule 144A security, a Portfolio's holdings of that security may be
illiquid.
LOANS OF PORTFOLIO SECURITIES
Each Portfolio may lend its portfolio securities subject to the restrictions
stated in the Prospectus. Under applicable regulatory requirements (which are
subject to change), the loan collateral must, on each business day, at least
equal the market value of the loaned securities and must consist of cash, bank
letters of credit, U.S. Government securities, or other cash equivalents in
which the Portfolio is permitted to invest. To be acceptable as collateral,
letters of credit must obligate a bank to pay amounts demanded by the Portfolio
if the demand meets the terms of the letter. Such terms and the issuing bank
must be satisfactory to the Portfolio. In a portfolio securities lending
transaction, the Portfolio 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 Portfolio pays in arranging the loan. The
Portfolio may share the interest it receives on the collateral securities with
the borrower as long as it realizes at least a minimum amount of interest
required by the lending guidelines established by the Board. The Portfolio will
not lend its portfolio securities to any officer, director, employee or
affiliate of the Portfolio or the Adviser. The terms of a Portfolio's loans must
meet certain tests under the Code and permit the Portfolio to reacquire loaned
securities on five business days' notice or in time to vote on any important
matter.
BORROWING AND TRANSACTIONS INVOLVING LEVERAGE
Each Portfolio may borrow money for temporary or emergency purposes, including
the meeting of redemption requests, in amounts not expected to exceed five (5)
percent of the value of any Portfolio's assets. Borrowing
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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 Portfolios (or on the assets that were retained rather
than sold to meet the needs for which Portfolios were borrowed). Under adverse
market conditions, a Portfolio might have to sell portfolio securities to meet
interest or principal payments at a time when investment considerations would
not favor such sales. Except as otherwise noted, no Portfolio may purchase
securities for investment while any borrowing equaling five percent or more of
the Portfolio's total assets is outstanding or borrow for purposes other than
meeting redemptions in an amount exceeding five percent of the value of the
Portfolio's total assets. A Portfolio's use of borrowed proceeds to make
investments would subject the Portfolio 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
Portfolio maintains a segregated account.
OTHER TECHNIQUES INVOLVING LEVERAGE
Utilization of leveraging involves special risks and may involve speculative
investment techniques. Certain Portfolios may borrow for other than temporary or
emergency purposes, lend their securities, enter reverse repurchase agreements,
and purchase securities on a when issued or forward commitment basis. In
addition, certain Portfolios may engage in dollar roll transactions. Each of
these transactions involve the use of "leverage" when cash made available to a
Portfolio through the investment technique is used to make additional portfolio
investments. The Portfolios use these investment techniques only when Norwest
believes that the leveraging and the returns available to the Portfolio from
investing the cash will provide shareholders a potentially higher return.
Leverage exists when a Portfolio achieves the right to a return on a capital
base that exceeds the investment the Portfolio has invested. Leverage creates
the risk of magnified capital losses which occur when losses affect an asset
base, enlarged by borrowings or the creation of liabilities, that exceeds the
equity base of the Portfolio. Leverage may involve the creation of a liability
that requires the Portfolio to pay interest (for instance, reverse repurchase
agreements) or the creation of a liability that does not entail any interest
costs (for instance, forward commitment transactions).
The risks of leverage include a higher volatility of the net asset value of the
Portfolio's shares and the relatively greater effect on the net asset value of
the shares caused by favorable or adverse market movements or changes in the
cost of cash obtained by leveraging and the yield obtained from investing the
cash. So long as a Portfolio 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 Portfolio
than if the Portfolio 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 a Portfolio'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 Portfolio's use of leverage would result in a lower
rate of return than if the Portfolio 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 Portfolio were not leveraged. In an extreme case, if the
Portfolio's current investment income were not sufficient to meet the interest
expense of leveraging, it could be necessary for the Portfolio to liquidate
certain of its investments at an inappropriate time. The use of leverage may be
considered speculative.
SEGREGATED ACCOUNT
In order to limit the risks involved in various transactions involving leverage,
the Trust's custodian will set and maintain in a segregated account cash, U.S.
Government Securities and liquid securities (or other assets as may be permitted
by the SEC) in accordance with SEC guidelines. The account's value, which is
marked to market daily, will be at least equal to the Portfolio's commitments
under these transactions. The Portfolio's commitments include
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<PAGE>
the Portfolio's obligations to repurchase securities under a reverse repurchase
agreement and settle when-issued and forward commitment transactions.
MARGIN AND SHORT SALES
Prohibitions on entering short sales do not restrict a Portfolio's ability to
use short-term credits necessary for the clearance of portfolio transactions and
to make margin deposits in connection with permitted transactions in options and
futures contracts.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements are transactions in which a Portfolio sells a
security and simultaneously commits to repurchase that security from the buyer
at an agreed upon price on an agreed upon future date. The resale price in a
reverse repurchase agreement reflects a market rate of interest that is not
related to the coupon rate or maturity of the sold security. For certain demand
agreements, there is no agreed upon repurchase date and interest payments are
calculated daily, often based upon the prevailing overnight repurchase rate.
Generally, a reverse repurchase agreement enables the Portfolio 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 Portfolio of the reverse repurchase transaction is less
than the cost of obtaining the cash otherwise. In addition, interest costs on
the money received in a reverse repurchase agreement may exceed the return
received on the investments made by a Portfolio 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 Portfolios may purchase or sell portfolio securities on a when-issued or
delayed delivery basis. When-issued or delayed delivery transactions arise when
securities are purchased by a Portfolio 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 Portfolio at the time it enters into the transaction. In those
cases, the purchase price and the interest rate payable on the securities are
fixed on the transaction date and delivery and payment may take place a month or
more after the date of the transaction. When a Portfolio 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
Portfolio will maintain with its custodian a separate account with portfolio
securities in an amount at least equal to such commitments.
At the time a Portfolio makes the commitment to purchase securities on a
when-issued or delayed delivery basis, the Portfolio 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 Portfolio
will meet its obligations from maturities, sales of the securities held in the
separate account or from other available sources of cash. A Portfolio generally
has the ability to close out a purchase obligation on or before the settlement
date, rather than purchase the security. If a Portfolio chooses to dispose of
the right to acquire a when-issued security prior to its acquisition, it could,
as with the disposition of any other portfolio obligation, realize a gain or
loss due to market fluctuation.
To the extent a Portfolio engages in when-issued or delayed delivery
transactions, it will do so for the purpose of acquiring securities consistent
with the Portfolio's investment objectives and policies and not for the purpose
of investment leverage or to speculate in interest rate changes. A Portfolio
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
Portfolio reserves the right to dispose of the right to acquire these securities
before the settlement date if deemed advisable.
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<PAGE>
The use of when-issued and delayed delivery transactions enables the Portfolio
to hedge against anticipated changes in interest rates and prices. If the
Investment Adviser were to forecast incorrectly the direction of interest rate
movements, however, a Portfolio might be required to complete when-issued or
delayed delivery transactions at prices inferior to the current market values.
Securities purchased pursuant to when-issued and delayed delivery transactions
may be sold prior to the settlement date, but a Portfolio enters into
when-issued and delayed delivery transactions 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 delayed delivery securities
may determine prior to the settlement date that it will be unable to meet its
existing transaction commitments without borrowing securities. If advantageous
from a yield perspective, a Portfolio may, in that event, agree to resell its
purchase commitment to the third-party seller at the current market price on the
date of sale and concurrently enter into another purchase commitment for such
securities at a later date. As an inducement for a Portfolio to "roll over" its
purchase commitment, the Portfolio may receive a negotiated fee. When-issued
securities may include bonds purchased on a "when, as and if issued" basis under
which the issuance of the securities depends upon the occurrence of a subsequent
event. Any significant commitment of a Portfolio's assets to the purchase of
securities on a "when, as and if issued" basis may increase the volatility of
the Portfolio's net asset value. For purposes of the Portfolios' 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 delayed delivery purchase.
REPURCHASE AGREEMENTS
The Portfolios may invest in securities subject to repurchase agreements with
U.S. banks or broker-dealers. In a typical repurchase agreement, the seller of a
security commits itself at the time of the sale to repurchase that security from
the buyer at a mutually agreed-upon time and price. The repurchase price exceeds
the sale price, reflecting an agreed-upon interest rate effective for the period
the buyer owns the security subject to repurchase. The agreed-upon rate is
unrelated to the interest rate on that security. The Adviser will monitor the
value of the underlying security at the time the transaction is entered into and
at all times during the term of the repurchase agreement to ensure that the
value of the security always equals or exceeds the repurchase price (including
accrued interest). In the event of default by the seller under the repurchase
agreement, a Portfolio may have difficulties in exercising its rights to the
underlying securities and may incur costs and experience time delays in
connection with the disposition of such securities. To evaluate potential risks,
the Adviser reviews the credit-worthiness of those banks and dealers with which
the Portfolios enter into repurchase agreements.
Securities subject to repurchase agreements will be held by the Portfolio's
custodian or another qualified custodian or in the Federal Reserve book-entry
system. Repurchase agreements are considered to be loans by a Portfolio for
certain purposes under the 1940 Act.
TEMPORARY DEFENSIVE POSITION
When a Portfolio, in accordance with the policies described in its Prospectus,
assumes a temporary defensive position, it may invest without limit in: (1)
short-term U.S. Government Securities; (2) certificates of deposit, bankers'
acceptances and interest-bearing savings deposits of commercial banks doing
business in the United States that have, at the time of investment, total assets
in excess of one billion dollars and that are insured by the Federal Deposit
Insurance Corporation; (3) commercial paper of prime quality rated Prime-2 or
higher by Moody's or A-2 or higher by S&P or, if not rated, determined by the
investment adviser to be of comparable quality; (4) repurchase agreements
covering any of the securities in which the Portfolio may invest directly; and
(5) money market mutual funds.
2. INVESTMENT LIMITATIONS
For purposes of all fundamental and nonfundamental investment policies of each
Portfolio: (1) the term 1940 Act includes the rules thereunder, SEC
interpretations and any exemptive order upon which the Portfolio may rely and
(2) the term Code includes the rules thereunder, IRS interpretations and any
private letter ruling or similar authority upon which the Portfolio may rely.
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<PAGE>
Each Portfolio 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 Portfolio has not adopted any Fundamental
policies except as required by the 1940 Act.
Except as required by the 1940 Act or the Code, if any percentage restriction on
investment or utilization of assets is adhered to at the time an investment is
made, a later change in percentage resulting from a change in the market values
of a Portfolio's assets or purchases and redemptions of shares will not be
considered a violation of the limitation.
A Fundamental policy of a Portfolio cannot be changed without the affirmative
vote of the lesser of: (1) more than 50% of the outstanding shares of the
Portfolio or (2) 67% of the shares of the Portfolio present or represented at a
shareholders meeting at which the holders of more than 50% of the outstanding
shares of the Portfolio are present or represented.
FUNDAMENTAL LIMITATIONS
Each Portfolio has adopted the following investment limitations that are
fundamental policies.
(1) DIVERSIFICATION
No Portfolio may, with respect to 75% of its assets, purchase
a security (other than a U.S. Government Security or a
security of an investment company) if, as a result: (1) more
than 5% of the Portfolio's total assets would be invested in
the securities of a single issuer or (2) the Portfolio would
own more than 10% of the outstanding voting securities of any
single issuer.
2. INDUSTRY CONCENTRATION
No Portfolio may purchase a security if, as a result, more
than 25% of the Portfolio'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: (1) investments in U.S.
Government securities, in repurchase agreements covering U.S.
Government Securities, in securities issued by the states,
territories or possessions of the United States ("municipal
securities") or in foreign government securities or (2)
investment in issuers domiciled in a single jurisdiction.
Notwithstanding anything to the contrary, to the extent
permitted by the 1940 Act, each Portfolio may invest in one or
more investment companies; provided that, except to the extent
the Portfolio invests in other investment companies pursuant
to Section 12(d)(1)(A) of the 1940 Act, the Portfolio treats
the assets of the investment companies in which it invests as
its own for purposes of this policy.
For purposes of this policy: (1) "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; (2) financial
service companies are classified according to the end users of
their services (for example, automobile finance, bank finance
and diversified finance); and (3) utility companies are
classified according to their services (for example, gas, gas
transmission, electric and gas, electric and telephone).
3. BORROWING
No Portfolio may borrow money if, as a result, outstanding
borrowings would exceed an amount equal to 33 1/3% of the
Portfolio's total assets.
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<PAGE>
4. REAL ESTATE
No Portfolio may purchase or sell real estate unless acquired
as a result of ownership of securities or other instruments
(but this shall not prevent the Portfolio from investing in
securities or other instruments backed by real estate or
securities of companies engaged in the real estate business).
5. LENDING
No Portfolio may make loans to other parties. For purposes of
this limitation, entering into repurchase agreements, lending
securities and acquiring any debt security are not deemed to
be the making of loans.
No Portfolio may lend a security if, as a result, the amount
of loaned securities would exceed an amount equal to 33 1/3%
of the Portfolio's total assets.
6. COMMODITIES
No Portfolio may purchase or sell physical commodities unless
acquired as a result of ownership of securities or other
instruments (but this shall not prevent the Portfolio from
purchasing or selling options and futures contracts or from
investing in securities or other instruments backed by
physical commodities).
7. UNDERWRITING
No Portfolio may underwrite (as that term is defined in the
1933 Act) securities issued by other persons except, to the
extent that in connection with the disposition of the
Portfolio's assets, the Portfolio may be deemed to be an
underwriter.
8. SENIOR SECURITIES
No Portfolio may issue senior securities except to the extent
permitted by the 1940 Act.
NONFUNDAMENTAL LIMITATIONS
Each Portfolio has adopted the following investment limitations which are not
fundamental policies of the Portfolio. A nonfundamental policy will not be used
to defeat a fundamental limitation of a Portfolio. These nonfundamental policies
may be changed by the Board.
1. BORROWING
For purposes of the limitation on borrowing, the following are
not treated as borrowings to the extent they are fully
collateralized: (1) the delayed delivery of purchased
securities (such as the purchase of when-issued securities);
(2) reverse repurchase agreements; (3) dollar-roll
transactions; and (4) the lending of securities ("leverage
transactions").
2. LIQUIDITY
No Portfolio may invest more than 15% of its net assets in
illiquid assets such as: (1) securities that cannot be
disposed of within seven days at their then-current value; (2)
repurchase agreements not entitling the holder to payment of
principal within seven days; and (3) securities subject to
restrictions on the sale of the securities to the public
without registration under the 1933 Act ("restricted
securities") that are not readily marketable. Each Portfolio
may treat certain restricted securities as liquid pursuant to
guidelines adopted by the Board of Trustees.
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3. EXERCISING CONTROL OF ISSUERS
No Portfolio may make investments for the purpose of
exercising control of an issuer. Investments by a Portfolio in
entities created under the laws of foreign countries solely to
facilitate investment in securities in that country will not
be deemed the making of investments for the purpose of
exercising control.
4. OTHER INVESTMENT COMPANIES
No Fund may invest in securities of another investment
company, except to the extent permitted by the 1940 Act.
5. SHORT SALES AND PURCHASING ON MARGIN
Under normal circumstances, no Portfolio may sell securities
short, provided that transactions in futures contracts and
options are not deemed to constitute selling securities short.
No Portfolio may purchase securities on margin, except that a
Portfolio may use short-term credit for the clearance of the
Portfolio's transactions, and provided that initial and
variation margin payments in connection with futures contracts
and options on futures contracts shall not constitute
purchasing securities on margin.
6. OPTIONS, WARRANTS AND FUTURES CONTRACTS
No Portfolio may invest in futures or options contracts
regulated by the CFTC for: (1) bona fide hedging purposes
within the meaning of the rules of the CFTC and (2) for other
purposes if, as a result, no more than 5% of the Portfolio's
net assets would be invested in initial margin and premiums
(excluding amounts "in-the-money") required to establish the
contracts.
No Portfolio: (1) will hedge more than [50%] of its total
assets by selling futures contracts, buying put options, and
writing call options (so called "short positions"); (2) will
buy futures contracts or write put options whose underlying
value exceeds [25%] of the Portfolio's total assets; and (3)
will buy call options with a value exceeding [5%] of the
Portfolio's total assets.
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 Portfolios is
historical and is not intended to indicate future returns. Each Portfolio's
yield and total return fluctuate in response to market conditions and other
factors. The value of a Portfolio's shares when redeemed may be more or less
than their original cost.
In performance advertising, the Portfolios may compare any of their performance
information with data published by independent evaluators such as Morningstar,
Inc., Lipper Analytical Services, Inc., or other companies which track the
investment performance of investment companies ("Portfolio Tracking Companies").
The Portfolios may also compare any of their 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 Portfolios 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 Portfolios may also refer in such materials to mutual Portfolio
performance rankings and other data published by Portfolio Tracking
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Companies. Performance advertising may also refer to discussions of the
Portfolios' and comparative mutual fund data and ratings reported in independent
periodicals, such as newspapers and financial magazines.
SEC YIELD CALCULATIONS
Although published yield information is useful to investors in reviewing a
Portfolio's performance, investors should be aware that each Portfolio's yield
fluctuates from day to day and that the Portfolio's yield for any given period
is not an indication or representation by the Portfolio of future yields or
rates of return on the Portfolio's shares. Norwest, Processing Organizations and
others may charge their customers, various retirement plans or other
shareholders that invest in a Portfolio fees in connection with an investment in
a Portfolio, which will have the effect of reducing the Portfolio's net yield to
those shareholders. The yields of a Portfolio are not fixed or guaranteed, and
an investment in a Portfolio is not insured or guaranteed. Accordingly, yield
information may not necessarily be used to compare shares of a Portfolio with
investment alternatives which, like money market instruments or bank accounts,
may provide a fixed rate of interest. Also, it may not be appropriate to compare
a Portfolio's yield information directly to similar information regarding
investment alternatives which are insured or guaranteed.
FIXED INCOME AND EQUITY PORTFOLIOS
Standardized yields for the Portfolios used in advertising are computed by
dividing a Portfolio's dividends and interest earned (in accordance with
specific standardized rules) for a given 30 days or one month period, net of
expenses, by the average number of shares entitled to receive distributions
during the period, dividing this figure by the Portfolio's net asset value per
share at the end of the period and annualizing the result (assuming compounding
of income in accordance with specific standardized rules) in order to arrive at
an annual percentage rate. In general, interest income is reduced with respect
to municipal securities purchased at a premium over their par value by
subtracting a portion of the premium from income on a daily basis. In general,
interest income is increased with respect to municipal securities purchased at
original issue at a discount by adding a portion of the discount to daily
income. Capital gains and losses generally are excluded from these calculations.
Income calculated for the purpose of determining each Portfolio's standardized
yield differs from income as determined for other accounting purposes. Because
of the different accounting methods used, and because of the compounding assumed
in yield calculations, the yield quoted for a Portfolio may differ from the rate
of distribution the Portfolio paid over the same period or the rate of income
reported in the Portfolio's financial statements.
TOTAL RETURN CALCULATIONS
Standardized total returns quoted in advertising and sales literature reflect
all aspects of a Portfolio's return, including the effect of reinvesting
dividends and capital gain distributions, any change in the Portfolio's net
asset value per share over the period and maximum sales charge, if any,
applicable to purchases of the Portfolio's shares. Average annual total returns
are calculated, through the use of a formula prescribed by the SEC, by
determining the growth or decline in value of a hypothetical historical
investment in a Portfolio over a stated period, and then calculating the
annually compounded percentage rate that would have produced the same result if
the rate of growth or decline in value had been constant over the period. For
example, a cumulative return of 100% over ten years would produce an average
annual return of 7.18%, which is the steady annual rate that would equal 100%
growth on a compounded basis in ten years. The average annual total return is
computed separately for each class of shares of a Portfolio. While average
annual returns are a convenient means of comparing investment alternatives,
investors should realize that the performance is not constant over time but
changes from year to year, and that average annual returns represent averaged
figures as opposed to the actual year-to-year performance of the Portfolios.
Average annual total return is calculated by finding the average annual
compounded rates of return of a hypothetical investment, over such periods
according to the following formula:
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P(1+T)n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return n = number of years
ERV = ending redeemable value: ERV is the value, at the
end of the applicable period, of a hypothetical $1,000
payment made at the beginning of the applicable period
Standardized total return quotes may be accompanied by non-standardized total
return figures calculated by alternative methods. For example, average annual
total return may be calculated without assuming payment of the sales load
according to the following formula:
P(1+U)n = ERV
Where P = a hypothetical initial payment of $1,000.
U = average annual total return assuming non payment of the maximum
sales load at the beginning of the stated period.
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment at the
end of the stated period
In addition to average annual returns, each Portfolio may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Total returns may be broken down into their components of
income and capital (including capital gains and changes in share price) in order
to illustrate the relationship of these factors and their contributions to total
return. Total returns, yields, and other performance information may be quoted
numerically or in a table, graph, or similar illustration. Period total return
is calculated according to the following formula:
PT = (ERV/P-1)
Where:
PT = period total return
The other definitions are the same as in average annual total
return above
OTHER ADVERTISEMENT MATTERS
The Portfolios may advertise other forms of performance. Average annual and
cumulative total returns may be quoted as a percentage or as a dollar amount,
and may be calculated for a single investment, a series of investments and/or a
series of redemptions over any time period. Total returns may be broken down
into their components of income and capital (including capital gains and changes
in share price) in order to illustrate the relationship of these factors and
their contributions to total return. Total returns may be quoted with or without
taking into consideration a Portfolio's front-end sales charge or contingent
deferred sales charge; excluding sales charges from a total return calculation
produces a higher return figure. Any performance information may be presented
numerically or in a table, graph or similar illustration.
The Portfolios may also include various information in their 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 Portfolios that may be employed by an investor to meet specific financial
goals, such as fund retirement, paying for children's education and financially
supporting aging parents; (3) information
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(including charts and illustrations) showing the effects of compounding interest
(compounding is the process of earning interest on principal plus interest that
was earned earlier; interest can be compounded at different intervals, such as
annually, quartile or daily); (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)
descriptions of the Portfolios' portfolio managers and the portfolio management
staff of the Investment Adviser or summaries of the views of the portfolio
managers with respect to the financial markets; (7) the results of a
hypothetical investment in a Portfolio 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 a
Portfolio 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 a Portfolio as of one or more dates.
As an example of compounding, $1,000 compounded annually at 9.00% will grow to
$1,090 at the end of the first year (an increase in $90) and $1,118 at the end
of the second year (an increase in $98). The extra $8 that was earned on the $90
interest from the first year is the compound interest. One thousand dollars
compounded annually at 9.00% will grow to $2,367 at the end of ten years and
$5,604 at the end of 20 years. Other examples of compounding are as follows: at
7% and 12% annually, $1,000 will grow to $1,967 and $3,106, respectively, at the
end of ten years and $3,870 and $9,646, respectively, at the end of twenty
years. These examples are for illustrative purposes only and are not indicative
of any Portfolio's performance.
The Portfolios may advertise information regarding the effects of automatic
investment and systematic withdrawal plans, including the principal of dollar
cost averaging. In a dollar cost averaging program, an investor invests a fixed
dollar amount in a Portfolio at period intervals, thereby purchasing fewer
shares when prices are high and more shares when prices are low. While such a
strategy does not insure a profit or guard against a loss in a declining market,
the investor's average cost per share can be lower than if fixed numbers of
shares had been purchased at those intervals. In evaluating such a plan,
investors should consider their ability to continue purchasing shares through
periods of low price levels. For example, if an investor invests $100 a month
for a period of six months in a Portfolio the following will be the relationship
between average cost per share ($14.35 in the example given) and average price
per share:
<TABLE>
<S> <C> <C> <C>
Systematic Share Shares
Period Investment Price Purchased
------ ---------- ----- ---------
1 $100 $10 10.00
2 $100 $12 8.33
3 $100 $15 6.67
4 $100 $20 5.00
5 $100 $18 5.56
6 $100 $16 6.25
---- --- ----
Total Invested $600 Average Price $15.17 Total Shares 41.81
</TABLE>
In connection with its advertisements each Portfolio may provide "shareholders
letters" which serve to provide shareholders or investors an introduction into
the Portfolio'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
Those officers, as well as certain other officers and Trustees of the Trust, may
be directors, officers or employees of (and persons providing services to the
Trust may include) Forum, its affiliates or certain non-banking affiliates of
Norwest.
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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 April 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.
John Y. Keffer, Chairman and President,* Age 54.
President and Owner, Forum Financial Services, Inc. (a registered
broker-dealer), Forum Administrative Services, Limited Liability Company (a
mutual fund administrator), Forum Financial Corp. (a registered transfer
agent), and other companies within the Forum Financial Group of companies.
Mr. Keffer is a Director, Trustee and/or officer of various registered
investment companies for which Forum Financial Services, Inc. or its
affiliates serves as manager, administrator or distributor. His address is
Two Portland Square, Portland, Maine 04101.
Robert C. Brown, Trustee,* Age 65.
Director, Federal Farm Credit Banks Funding Corporation and Farm Credit
System Financial Assistance Corporation since February 1993. Prior thereto,
he was Manager of Capital Markets Group, Norwest Corporation (a multi-bank
holding company and parent of Norwest), until 1991. His address is 1431
Landings Place, Sarasota, Florida 34231.
Donald H. Burkhardt, Trustee, Age 70.
Principal of The Burkhardt Law Firm. His address is 777 South Steele
Street, Denver, Colorado 80209.
James C. Harris, Trustee, Age 76.
President and sole Director of James C. Harris & Co., Inc. (a financial
consulting firm). Mr. Harris is also a liquidating trustee and former
Director of First Midwest Corporation (a small business investment
company). His address is 6950 France Avenue South, Minneapolis, Minnesota
55435.
Richard M. Leach, Trustee, Age 63.
President of Richard M. Leach Associates (a financial consulting firm)
since 1992. Prior thereto, Mr. Leach was Senior Adviser of Taylor
Investments (a registered investment adviser), a Director of Mountainview
Broadcasting (a radio station) and Managing Director of Digital Techniques,
Inc. (an interactive video design and manufacturing company). His address
is P.O. Box 1888, New London, New Hampshire 03257.
John S. McCune,* Trustee, Age 46.
President, Norwest Investment Services, Inc. (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.
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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. Clark, 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. Clark was
Controller of Wright Express Corporation (a national credit card company)
and for six years prior thereto was employed at Deloitte & Touche LLP as an
accountant. Ms. Clark is also an officer of various registered investment
companies for which Forum 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 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
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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 $5,000,
payable quarterly, for the Trustee's service to the Trust and to Norwest Select
Funds, a separate registered open-end management investment company for which
each Trustee serves as trustee. In addition, each Trustee is paid $3,000 for
each regular Board meeting attended (whether in person or by electronic
communication) and is paid $1,000 for each Committee meeting attended on a date
when a Board meeting is not held. Trustees are also reimbursed for travel and
related expenses incurred in attending meetings of the Board. Mr. Keffer
received no compensation for his services as Trustee for the past year or
compensation or reimbursement for his associated expenses. In addition, no
officer of the Trust is compensated by the Trust.
Mr. Burkhardt, Chairman of the Trust's and Norwest Select Funds' audit
committees, receives additional compensation of $6,000 from the Trust and
Norwest Select Funds allocated pro rata between the Trust and Norwest Select
Funds based upon relative net assets, for his services as Chairman. Each Trustee
was elected by shareholders on April 30, 1997.
The following table provides the aggregate compensation paid to the Trustees of
the Trust by the Trust and Norwest Select Funds, combined. Norwest Select Funds
have a December 31 fiscal year end. Information is presented for the twelve
month period ended May 31, 1997, which was the fiscal year end of all of the
Trust's portfolios.
<TABLE>
<S> <C> <C>
TOTAL COMPENSATION FROM
TOTAL COMPENSATION THE TRUST AND NORWEST
FROM THE TRUST SELECT FUNDS
-------------- ------------
Mr. Brown $30,942 $31,000
Mr. Burkhardt $36,932 $37,000
Mr. Harris $30,942 $31,000
Mr. Leach $30,942 $31,000
Mr. Penny $30,942 $31,000
Mr. Willeke $30,942 $31,000
</TABLE>
Neither the Trust nor Norwest Select Funds has adopted any form of retirement
plan covering Trustees or officers. For the twelve month period ended May 31,
1997 total expenses of the Trustees (other than Mr. Keffer) was $22,804 and
total expenses of the trustees of Norwest Select Funds was $46.
As of April 1, 1998, the Trustees and officers of the Trust in the aggregate
owned less than 1% of the outstanding shares of the Portfolios.
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INVESTMENT ADVISORY SERVICES
GENERAL
The advisory fee for each Portfolio is based on the average daily net assets of
the Portfolio at the annual rate disclosed in the Portfolio's prospectus.
All investment advisory fees are accrued daily and paid monthly. Norwest, the
investment adviser, in its sole discretion, may waive or continue to waive all
or any portion of its investment advisory fees.
In addition to receiving its advisory fee from the Portfolios, the investment
adviser or its affiliates may act and be compensated as investment manager for
its clients with respect to assets which are invested in a Portfolio. In some
instances Norwest or its affiliates may elect to credit against any investment
management, custodial or other fee received from, or rebate to, a client who is
also a shareholder in a Portfolio an amount equal to all or a portion of the
fees received by Norwest or any of its affiliates from a Portfolio with respect
to the client's assets invested in the Portfolio.
NORWEST INVESTMENT MANAGEMENT
Norwest furnishes at its expense all services, facilities and personnel
necessary in connection with managing each Portfolio's investments and effecting
portfolio transactions for each Portfolio. The Investment Advisory Agreement
between each Portfolio 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 is terminable without penalty with respect to
the Portfolio on 60 days' written notice: (1) by the Board or by a vote of a
majority of the outstanding voting securities of the Portfolio 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 Portfolios, 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
Agreements. The Investment Advisory Agreement provides that Norwest may render
services to others.
MANAGEMENT AND ADMINISTRATIVE SERVICES
MANAGER AND ADMINISTRATOR
Forum manages all aspects of the Trust's operations with respect to each
Portfolio except those which are the responsibility of FAS, Norwest, any other
investment adviser or investment subadviser to a Portfolio, or Norwest in its
capacity as administrator pursuant to an investment administration or similar
agreement. With respect to each Portfolio, Forum has entered into a Management
Agreement that will continue in effect only if such continuance is specifically
approved at least annually by the Board or by the shareholders and, in either
case, by a majority of the Trustees who are not interested persons of any party
to the Management Agreement.
On behalf of the Trust and with respect to each Portfolio, Forum: (1) oversees
(a) the preparation and maintenance by the Adviser and the Trust's
administrator, custodian, transfer agent, dividend disbursing agent and
Portfolio 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
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agent and Portfolio 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 Portfolio 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 Portfolio 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 Adviser 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 Portfolio shares, to ensure that such shares are
properly and duly registered with the SEC and that appropriate action has been
taken under applicable state law; (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 each Portfolio as a regulated investment
company under the Internal Revenue Code of 1986, as amended, and oversees the
preparation and distribution to appropriate parties of notices announcing the
declaration of dividends and other distributions to shareholders; (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 any Portfolio by vote of that
Portfolio'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.
FAS manages all aspects of the Trust's operations with respect to each Portfolio
except those which are the responsibility of Forum, Norwest, or any other
investment adviser or investment subadviser to a Portfolio, or Norwest in its
capacity as administrator pursuant to an investment administration or similar
agreement. With respect to each Portfolio, Forum has entered into a
Administrative Agreement that will continue in effect only if such continuance
is specifically approved at least annually by the Board or by the shareholders
and, in either case, by a majority of the Trustees who are not interested
persons of any party to the Management Agreement.
On behalf of the Trust and with respect to each Portfolio, 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 Adviser
in monitoring Portfolio 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, the Investment
Adviser, 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 other applicable securities commissions; (9) is responsible for the
calculation of performance data for dissemination to information services
covering the
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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 each
Portfolio as a regulated investment company under the Code, as amended, and
prepares and distributes to appropriate parties notices announcing the
declaration of dividends and other distributions to shareholders.
The Administrative Agreement terminates automatically if assigned and may be
terminated without penalty with respect to any Portfolio by vote of that
Portfolio'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.
The Administration Agreement became effective on June 1, 1997.
DISTRIBUTION
Forum also acts as distributor of the shares of each Portfolio. Forum acts as
the agent of the Trust in connection with the offering of shares of the
Portfolios on a "best efforts" basis pursuant to a Distribution Services
Agreement. Under the Distribution Services Agreement, the Trust has agreed to
indemnify, defend and hold Forum, and any person who controls Forum within the
meaning of Section 15 of the 1933 Act, free and harmless from and against any
and all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which Forum or any such controlling
person may incur, under the 1933 Act, or under common law or otherwise, arising
out of or based upon any alleged untrue statement of a material fact contained
in the Trust's Registration Statement or a Portfolio's Prospectus or Statement
of Additional Information in effect from time to time under the 1933 Act or
arising out of or based upon any alleged omission to state a material fact
required to be stated in any one thereof or necessary to make the statements in
any one thereof not misleading. Forum is not, however, protected against any
liability to the Trust or its shareholders to which Forum would otherwise be
subject by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of Forum's reckless disregard of its
obligations and duties under the Distribution Services Agreement.
With respect to each Portfolio, the Distribution Services Agreement will
continue in effect only if such continuance is specifically approved at least
annually by the Board or by the shareholders and, in either case, by a majority
of the Trustees who are not parties to the Distribution Services Agreement or
interested persons of any such party and, with respect to each class of a
Portfolio for which there is an effective plan of distribution adopted pursuant
to Rule 12b-1, who do not have any direct or indirect financial interest in any
distribution plan of the Portfolio or in any agreement related to the
distribution plan cast in person at a meeting called for the purpose of voting
on such approval ("12b-1 Trustees").
The Distribution Services Agreement terminates automatically if assigned. With
respect to each Portfolio, 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 Portfolio's shareholders or, with respect to each class of a Portfolio for
which there is an effective plan of distribution adopted pursuant to Rule 12b-1,
a majority of 12b-1 Trustees, on 60 days' written notice to Forum or (2) by
Forum on 60 days' written notice to the Trust.
Under the Distribution Services Agreement, Forum receives, and may reallow to
certain financial institutions, the initial sales charges assessed on purchases
of C Shares of the Portfolios. With respect to C Shares of each Portfolio,
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Trust has adopted a distribution plan pursuant to Rule 12b-1 under the 1940 Act
(the "Plan") which authorizes monthly payments to Forum under the Distribution
Services Agreement of a distribution services fee, at an annual rate of up to
0.75% of the average daily net assets of the Portfolio attributable to the C
Shares.
The Plan provides that all written agreements relating to the Plan must be in a
form satisfactory to the Board. In addition, the Plan requires the Trust and
Forum to prepare, at least quarterly, written reports setting forth all amounts
expended for distribution purposes by the Portfolios and Forum pursuant to the
Plan and identifying the distribution activities for which those expenditures
were made.
The Plan provides that, with respect to each class of each Portfolio to which it
applies, it will remain in effect for one year from the date of its adoption and
thereafter may continue in effect for successive annual periods provided it is
approved by the shareholders of the respective class or by the Board, including
a majority of the 12b-1 trustees. The Plan further provides that it may not be
amended to increase materially the costs which may be borne by the Trust for
distribution pursuant to the Plan without shareholder approval and that other
material amendments to the Plan must be approved by the Trustees in the manner
described in the preceding sentence. The Plan may be terminated at any time by a
vote of the Board or by the shareholders of the respective classes. 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 a Portfolio may be effected and certain other
matters pertaining to the Portfolios; (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 each Portfolio, at an annual rate of
0.25% of the Portfolio's average daily net assets attributable to each class of
the Portfolio.
CUSTODIAN
Pursuant to a Custodian Agreement, Norwest Bank, Sixth Street and Marquette,
Minneapolis, Minnesota 55479 serves as each Portfolio'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 Portfolio investments. The fee is computed and paid
monthly, based on the average daily net assets of the Portfolios, the number of
portfolio transactions of the Portfolios and the number of securities in each
Portfolio's portfolio.
Pursuant to rules adopted under the 1940 Act, a Portfolio may maintain its
foreign securities and cash in the custody of certain eligible foreign banks and
securities depositories. Selection of these foreign custodial institutions is
made by the Board upon consideration of a number of factors, including (but not
limited to) the reliability and financial
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stability of the institution; the ability of the institution to perform capably
custodial services for the Portfolio; the reputation of the institution in its
national market; the political and economic stability of the country in which
the institution is located; and possible risks of potential nationalization or
expropriation of Portfolio assets. The Custodian employs qualified foreign
subcustodians to provide custody of the Portfolios foreign assets in accordance
with applicable regulations.
PORTFOLIO ACCOUNTING
Forum Accounting, an affiliate of Forum, performs portfolio accounting services
for each Portfolio pursuant to a Portfolio Accounting Agreement with the Trust.
The Portfolio 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 Portfolio Accounting Agreement or interested
persons of any such party, at a meeting called for the purpose of voting on the
Portfolio Accounting Agreement.
Under the Portfolio Accounting Agreement, Forum Accounting prepares and
maintains books and records of each Portfolio on behalf of the Trust that are
required to be maintained under the 1940 Act, calculates the net asset value per
share of each Portfolio (and class thereof) and dividends and capital gain
distributions and prepares periodic reports to shareholders and the SEC. For its
services, Forum Accounting receives from the Trust with respect to each
Portfolio a fee of $1,000 per month plus for each additional class of the
Portfolio above one $1,000 per month. In addition, Forum Accounting is paid
additional surcharges for each of the following: (1) Portfolios with asset
levels exceeding $100 million - $500/month, Portfolios with asset levels
exceeding $250 million - $1000/month, Portfolios with asset levels exceeding
$500 million - $1,500/month, Portfolios with asset levels exceeding $1,000
million - $2,000/month (2) Portfolios requiring international custody -
$1,000/month, (3) Portfolios with more than 30 international positions -
$1,000/month (4) Portfolios with more than 25% of net assets invested in asset
backed securities - $1,000/month, (5) Portfolios with more than 50% of net
assets invested in asset backed securities - $2,000/month, (6) Portfolios with
more than 100 security positions - $1,000/month; and (7) Portfolios with 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
Portfolio accounting services and is not be liable to the Trust for any action
or inaction in the absence of bad faith, willful misconduct or gross negligence.
Forum Accounting is not responsible or liable for any failure or delay in
performance of its Portfolio accounting obligations arising out of or caused,
directly or indirectly, by circumstances beyond its reasonable control and the
Trust has agreed to indemnify and hold harmless Forum Accounting, its employees,
agents, officers and directors against and from any and all claims, demands,
actions, suits, judgments, liabilities, losses, damages, costs, charges, counsel
fees and other expenses of every nature and character arising out of or in any
way related to Forum Accounting's actions taken or failures to act with respect
to a Portfolio or based, if applicable, upon information, instructions or
requests with respect to a Portfolio 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
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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
Portfolio 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; (9) 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; (10)
costs of corporate meetings; (11) 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; (12) state securities law
registration fees and related expenses; (13) fees and out-of-pocket expenses
payable to Forum Financial Services, Inc. under any distribution, management or
similar agreement; (14) 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 Portfolios usually are
principal transactions. Debt instruments and shares of open-end investment
companies are normally purchased directly from the issuer or from an underwriter
or market maker for the securities. There usually are no brokerage commissions
paid for such purchases. The Portfolios generally will effect purchases and
sales of equity securities through brokers who charge commissions except in the
over-the-counter markets. Purchases of debt and equity securities from
underwriters of the securities include a disclosed fixed commission or
concession paid by the issuer to the underwriter, and purchases from dealers
serving as market makers include the spread between the bid and asked price. In
the case of debt securities and equity securities traded in the foreign and
domestic over-the-counter markets, there is generally no stated commission, but
the price usually includes an undisclosed commission or markup. The Portfolios
will not invest in an Underlying Fund if the investment would be subject to a
sales charge. 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 each Portfolio
rather than by any formula. The primary consideration is prompt execution of
orders in an effective manner and at the most favorable price available to the
Portfolio. In transactions on stock exchanges in the United States, commissions
are negotiated, whereas on foreign stock exchanges commissions are generally
fixed. Where transactions are executed in the over-the-counter market, each
Portfolio will seek to deal with the primary market makers; but when necessary
in order to obtain best execution, they will utilize the services of others.
In all cases the Portfolios will attempt to negotiate best execution.
Subject to the general policies regarding allocation of portfolio brokerage as
set forth above, the Board has authorized the Investment Adviser to employ its
affiliates to effect securities transactions of the Portfolios, provided certain
other conditions are satisfied. Payment of brokerage commissions to an affiliate
of an Investment Adviser for effecting such transactions is subject to Section
17(e) of the 1940 Act, which requires, among other things, that commissions for
transactions on securities exchanges paid by a registered investment company to
a broker which is an affiliated person of such investment company, or an
affiliated person of another person so affiliated, not exceed the usual and
customary brokers' commissions for such transactions. It is the Portfolio's
policy that commissions paid to Norwest Investment Services, Inc. ("NISI") and
other affiliates of an Investment Adviser will, in the judgment of the
Investment Adviser responsible for making portfolio decisions and selecting
brokers, be: (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 the Adviser
by the Portfolios satisfy the foregoing standards.
No Portfolio has an understanding or arrangement to direct any specific portion
of its brokerage to an affiliate of the Investment Adviser, and will not direct
brokerage to the affiliate of an Investment Adviser in recognition of research
services. The practice of placing orders with NISI is consistent with each
Portfolio's objective of obtaining best execution and is not dependent on the
fact that NISI is an affiliate of Norwest.
42
<PAGE>
From time to time, a Portfolio may purchase securities of a broker or dealer
through which it regularly engages in securities transactions.
The Portfolios may not always pay the lowest commission or spread available.
Rather, in determining the amount of commissions, including certain dealer
spreads, paid in connection with securities transactions, the Investment Adviser
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. The Investment
Advisers may also take into account payments made by brokers effecting
transactions for a Portfolio: (1) to the Portfolio or (2) to other persons on
behalf of the Portfolio for services provided to the Portfolio for which it
would be obligated to pay.
In addition, the Investment Advisers may give consideration to research services
furnished by brokers to the Advisers for their use and may cause the Portfolios
to pay these brokers a higher amount of commission than may be charged by other
brokers. Such research and analysis is of the types described in Section
28(e)(3) of the Securities Exchange Act of 1934, as amended, and is designed to
augment the Investment Adviser's own internal research and investment strategy
capabilities. Such research and analysis may be used by the Investment Adviser
in connection with services to clients other than the Portfolios, and not all
such services may be used by the Investment Adviser in connection with the
Portfolios. An Investment Adviser's fees are not reduced by reason of the
Investment Adviser's receipt of the research services.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. and subject to the obligation to seek the most
favorable price and execution available and such other policies as the Board may
determine, the Investment Adviser may consider sales of shares of the Portfolio
as a factor in the selection of broker-dealers to execute portfolio transactions
for the Portfolio.
Investment decisions for the Portfolios will be made independently from those
for any other account or investment company that is or may in the future become
managed by the Investment Adviser or its affiliates. Investment decisions are
the product of many factors, including basic suitability for the particular
client involved. Thus, a particular security may be bought or sold for certain
clients even though it could have been bought or sold for other clients at the
same time. Likewise, a particular security may be bought for one or more clients
when one or more clients are selling the security. In some instances, one client
may sell a particular security to another client. It also sometimes happens that
two or more clients simultaneously purchase or sell the same security, in which
event each day's transactions in such security are, insofar as is possible,
averaged as to price and allocated between such clients in a manner which, in
the Investment Adviser's opinion, is equitable to each and in accordance with
the amount being purchased or sold by each. There may be circumstances when
purchases or sales of a portfolio security for one client could have an adverse
effect on another client that has a position in that security. In addition, when
purchases or sales of the same security for a Portfolio and other client
accounts managed by the Investment Adviser occur contemporaneously, the purchase
or sale orders may be aggregated in order to obtain any price advantages
available to large denomination purchases or sales.
PORTFOLIO TURNOVER. A high rate of portfolio turnover involves corresponding
greater expenses than a lower rate, which expenses must be borne by a Portfolio
and its shareholders. High portfolio turnover also may result in the realization
of substantial net short-term capital gains. In order to continue for Federal
tax purposes, less than 30% of the annual gross income of the Portfolio must be
desired from the sale of securities held by the Portfolio for less than three
months. (See "Taxation.") Portfolio turnover rates are set forth under
"Financial Highlight's" in the Portfolios Prospectus.
6. ADDITIONAL PURCHASE, REDEMPTION AND EXCHANGE INFORMATION
GENERAL
Shares of all Portfolios are sold on a continuous basis by the distributor.
EXCHANGES
43
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By making an exchange by telephone, the investor authorizes the Trust's transfer
agent to act on telephonic instructions believed by the Trust's transfer agent
to be genuine instructions from any person representing himself or herself to be
the investor. The records of the Trust's transfer agent of such instructions are
binding. The exchange procedures may be modified or terminated at any time upon
appropriate notice to shareholders. For Federal income tax purposes, exchanges
are treated as sales on which a purchaser will realize a capital gain or loss
depending on whether the value of the shares redeemed is more or less than the
shareholder's basis in such shares at the time of such transaction.
Shareholders of Shares making an exchange will be subject to the applicable
sales charge of any Shares acquired in the exchange; provided, that the sales
charge charged with respect to the acquired shares will be assessed at a rate
that is equal to the excess (if any) of the rate of the sales charge that would
be applicable to the acquired shares in the absence of an exchange over the rate
of the sales charge previously paid on the exchanged shares. For purposes of the
preceding sentence, Shares acquired through the reinvestment of dividends or
distributions are deemed to have been acquired with a sales charge rate equal to
that paid on the shares on which the dividend or distribution was paid.
In addition, shares acquired by a previous exchange transaction involving shares
on which a sales charge has directly or indirectly been paid (E.G., shares
purchased with a sales charge or issued in connection with an exchange
transaction involving shares that had been purchased with a sales charge), as
well as additional shares acquired through reinvestment of dividends or
distributions on such shares will be treated as if they had been acquired
subject to that sales charge.
REDEMPTIONS
In addition to the situations described in the Prospectus with respect to the
redemptions of shares, the Trust may redeem shares involuntarily to reimburse a
Portfolio for any loss sustained by reason of the failure of a shareholder to
make full payment for shares purchased by the shareholder or to collect any
charge relating to transactions effected for the benefit of a shareholder which
is applicable to a Portfolio'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 Portfolio. The
Portfolios have chosen not to make an election with the SEC to pay in cash all
redemptions requested by any shareholder of record limited in amount during any
90-day period to the lesser of $250,000 or 1% of its net assets at the beginning
of such period. Redemption requests in excess of applicable limits may be paid,
in whole or in part, in investment securities or in cash, as the Trust's Board
of Trustees may deem advisable; however, payment will be made wholly in cash
unless the Board of Trustees believes that economic or market conditions exist
that would make such a practice detrimental to the best interests of the
Portfolio. If redemption proceeds are paid in investment securities, such
securities will be valued as set forth in the Prospectus under "Other
Information - Determination of Net Asset Value" and a redeeming shareholder
would normally incur brokerage expenses if he or she were to convert the
securities to cash.
7. TAXATION
Each Portfolio intends for each taxable year to qualify for tax treatment as a
"regulated investment company" under the Code. Such qualification does not, of
course, involve governmental supervision of management or investment practices
or policies. Investors should consult their own counsel for a complete
understanding of the requirements each Portfolio must meet to qualify for such
treatment, and of the application of state and local tax laws to his or her
particular situation.
Certain listed options, regulated futures contracts and forward currency
contracts are considered "section 1256 contracts" for Federal income tax
purposes. Section 1256 contracts held by a Portfolio at the end of each taxable
44
<PAGE>
year will be "marked to market" and treated for Federal income tax purposes as
though sold for fair market value on the last business day of such taxable year.
Gain or loss realized by a Portfolio on section 1256 contracts generally will be
considered 60% long-term and 40% short-term capital gain or loss. Each Portfolio
can elect to exempt its section 1256 contracts which are part of a "mixed
straddle" (as described below) from the application of section 1256.
With respect to over-the-counter put and call options, gain or loss realized by
a Portfolio upon the lapse or sale of such options held by such Portfolio will
be either long-term or short-term capital gain or loss depending upon the
Portfolio's holding period with respect to such option. However, gain or loss
realized upon the lapse or closing out of such options that are written by a
Portfolio will be treated as short-term capital gain or loss. In general, if a
Portfolio exercises an option, or an option that a Portfolio has written is
exercised, gain or loss on the option will not be separately recognized but the
premium received or paid will be included in the calculation of gain or loss
upon disposition of the property underlying the option.
Any option, futures contract, or other position entered into or held by a
Portfolio in conjunction with any other position held by such Portfolio may
constitute a "straddle" for Federal income tax purposes. A straddle of which at
least one, but not all, the positions are section 1256 contracts may constitute
a "mixed straddle". In general, straddles are subject to certain rules that may
affect the character and timing of a Portfolio's gains and losses with respect
to straddle positions by requiring, among other things, that: (1) loss realized
on disposition of one position of a straddle not be recognized to the extent
that a Portfolio has unrealized gains with respect to the other position in such
straddle; (2) a Portfolio's holding period in straddle positions be suspended
while the straddle exists (possibly resulting in gain being treated as
short-term capital gain rather than long-term capital gain); (3) losses
recognized with respect to certain straddle positions which are part of a mixed
straddle and which are non-section 1256 positions be treated as 60% long-term
and 40% short-term capital loss; (4) losses recognized with respect to certain
straddle positions which would otherwise constitute short-term capital losses be
treated as long-term capital losses; and (5) the deduction of interest and
carrying charges attributable to certain straddle positions may be deferred.
Various elections are available to a Portfolio which may mitigate the effects of
the straddle rules, particularly with respect to mixed straddles. In general,
the straddle rules described above do not apply to any straddles held by a
Portfolio all of the offsetting positions of which consist of section 1256
contracts.
For federal income tax purposes, gains or losses attributable to fluctuations in
exchange rates which occur between the time a Portfolio accrues interest or
other receivables or accrues expenses or other liabilities denominated in a
foreign currency and the time the Portfolio actually collects such receivables
or pays such liabilities are treated as ordinary income and ordinary loss.
Similarly, gains or losses from the disposition of foreign currencies, from the
disposition of debt securities denominated in a foreign currency, or from the
disposition of a forward contract denominated in a foreign currency which are
attributable to fluctuations in the value of the foreign currency between the
date of acquisition of the asset and the date of disposition also are treated as
ordinary gain or loss.
A Portfolio's investments in zero coupon securities will be subject to special
provisions of the Code which may cause the Portfolio to recognize income without
receiving cash necessary to pay dividends or make distributions in amounts
necessary to satisfy the distribution requirements for avoiding federal income
and excise taxes. In order to satisfy those distribution requirements the
Portfolio may be forced to sell other portfolio securities.
8. ADDITIONAL INFORMATION ABOUT THE TRUST AND THE SHAREHOLDERS
OF THE PORTFOLIOS
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,
serve as the independent auditors for the Trust.
45
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OWNERSHIP OF PORTFOLIO SHARES
As of March 2, 1998, the following persons owned of record 5% or more of the
outstanding shares of a Portfolio:
<TABLE>
<S> <C> <C> <C> <C>
SHARE BALANCE % OF % OF FUND
NAME AND ADDRESS CLASS
---------------- ` ------------- ----- ---------
WEALTHBUILDER II
GROWTH PORTFOLIO Norwest Investment Services Inc. 17,247.953 5.74% 5.74%
FBO 731508561
Northstar Building East- 8th Floor
608 2nd Ave S,
Minneapolis MN 55479-0162
Norwest Investment Services Inc. 57,398.038 19.09% 19.09%
FBO 730742961
Northstar Building East- 8th Floor
608 2nd Ave S,
Minneapolis MN 55479-0162
Norwest Investment Services Inc. 16,975.508 5.65% 5.65%
FBO 016650171
Northstar Building East- 8th Floor
608 2nd Ave S,
Minneapolis MN 55479-0162
Norwest Investment Services Inc. 16,377.649 5.45% 5.45%
FBO 021455891
Northstar Building East- 8th Floor
608 2nd Ave S,
Minneapolis MN 55479-0162
</TABLE>
46
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
WEALTHBUILDER II GROWTH AND
INCOME PORTFOLIO Norwest Investment Services Inc. 19,483.137 5.15% 5.15%
FBO 010262691
Northstar Building East- 8th Floor
608 2nd Ave S,
Minneapolis MN 55479-0162
Norwest Investment Services Inc. 47,801.147 12.65% 12.65%
FBO 704370411
Northstar Building East- 8th Floor
608 2nd Ave S,
Minneapolis MN 55479-0162
WEALTHBUILDER II GROWTH
BALANCED PORTFOLIO Norwest Investment Services, Inc. 34,670.474 7.09% 7.09%
FBO 103873061
Northstar Building East - 8th Fl.
608 Second Avenue South
Minneapolis MN 55479-0162
Norwest Investment Services, Inc. 24,606.299 5.03% 5.03%
FBO 703706631
Northstar Building East - 8th Fl.
608 Second Avenue South
Minneapolis MN 55479-0162
Norwest Investment Services, Inc. 47,755.492 9.76% 9.76%
FBO 103686601
Northstar Building East - 8th Fl.
608 Second Avenue South
Minneapolis MN 55479-0162
</TABLE>
GENERAL INFORMATION
The Trust is divided into thirty-nine separate series representing shares of the
Trust Portfolios. The Trust received an order from the SEC permitting the
issuance and sale of separate classes of shares representing interests in each
of the Trust's existing Portfolios; however, the Trust currently issues and
operates the various Portfolios, separate classes of shares under the provisions
of 1940 Act.
The Trust's shareholders are not personally liable for the obligations of the
Trust under Delaware law. The Delaware Business Trust Act (the "Delaware Act")
provides that a shareholder of a Delaware business trust shall be entitled to
the same limitation of liability extended to shareholders of private
corporations for profit. However, no similar statutory or other authority
limiting business trust shareholder liability exists in many other states. As a
result, to the extent that the Trust or a shareholder is subject to the
jurisdiction of courts in those states, the courts may not apply Delaware law,
and may thereby subject the Trust shareholders to liability. To guard against
this risk, the Trust Instrument of the Trust disclaims shareholder liability for
acts or obligations of the Trust and requires that notice of such disclaimer be
given in each agreement, obligation and instrument entered into by the Trust or
its Trustees, and provides for indemnification out of Trust property of any
shareholder held personally liable for the obligations of the Trust. Thus, the
risk of a shareholder incurring financial loss beyond his investment because of
shareholder liability is limited to circumstances in which: (1) a court refuses
to apply Delaware law; (2) no contractual limitation of liability is in effect;
and (3) the Trust itself is unable to meet its obligations. In light of Delaware
law, the nature of the Trust's business, and the nature of its assets, the Board
believes that the risk of personal liability to a Trust shareholder is extremely
remote.
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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 Portfolio 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 Portfolio to a name that does not
include the word "Norwest." Norwest may from time to time make available without
charge to the Trust for the Trust's use any marks or symbols owned by Norwest,
including marks or symbols containing the word "Norwest" or any variation
thereof, as Norwest deems appropriate. Upon Norwest's request in writing, the
Trust shall cease to use any such mark or symbol at any time. The Trust has
acknowledged that any rights in or to the word "Norwest" and any such marks or
symbols which exist or may exist, and under any and all circumstances, shall
continue to be, the sole property of Norwest. Norwest may permit other parties,
including other investment companies, to use the word "Norwest" in their names
without the consent of the Trust. The Trust shall not use the word "Norwest" in
conducting any business other than that of an investment company registered
under the Act without the permission of Norwest.
FINANCIAL STATEMENTS
The fiscal year end of the Portfolios is May 31. Financial statements for each
Portfolio's semi-annual period and fiscal year will be distributed to
shareholders of record. The Board in the future may change the fiscal year end
of the Portfolio.
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.
48
<PAGE>
APPENDIX A
INVESTMENTS, STRATEGIES AND RISK CONSIDERATIONS
Each of the Portfolios may invest in certain Underlying Funds which may have
investment objectives or investment policies which allow the Underlying Funds to
invest in one or more of the following types of investments:
COMMON STOCKS, WARRANTS AND PREFERRED STOCK
Common stockholders are the owners of the company issuing the stock and,
accordingly, vote on various corporate governance matters such as mergers. They
are not creditors of the company, but rather, upon liquidation of the company
are entitled to their pro rata share of the company's assets after creditors
(including fixed income security holders) and, if applicable, preferred
stockholders are paid. Preferred stock is a class of stock having a preference
over common stock as to dividends and, generally, as to the recovery of
investment. A preferred stockholder is a shareholder in the company and not a
creditor of the company as is a holder of the company's fixed income securities.
Dividends paid to common and preferred stockholders are distributions of the
earnings of the company and not interest payments, which are expenses of the
company. Equity securities owned by a Portfolio may be traded on a securities
exchange or in the over-the-counter market and may not be traded every day or in
the volume typical of securities traded on a major national securities exchange.
As a result, disposition by a Fund of a portfolio security to meet redemptions
by shareholders or otherwise may require the Fund to sell these securities at a
discount from market prices, to sell during periods when disposition is not
desirable, or to make many small sales over an extended period of time. The
market value of all securities, including equity securities, is based upon the
market's perception of value and not necessarily the book value of an issuer or
other objective measure of a company's worth. A Fund may invest in warrants,
which are options to purchase an equity security at a specified price (usually
representing a premium over the applicable market value of the underlying equity
security at the time of the warrant's issuance) and usually during a specified
period of time. Unlike convertible securities and preferred stocks, warrants do
not pay a fixed dividend. Investments in warrants involve certain risks,
including the possible lack of a liquid market for the resale of the warrants,
potential price fluctuations as a result of speculation or other factors and
failure of the price of the underlying security to reach a level at which the
warrant can be prudently exercised (in which case the warrant may expire without
being exercised, resulting in the loss of the Portfolio's entire investment
therein).
CONVERTIBLE SECURITIES
Convertible securities, which include convertible debt, convertible preferred
stock and other securities exchangeable under certain circumstances for shares
of common stock, are fixed income securities or preferred stock which generally
may be converted at a stated price within a specific amount of time into a
specified number of shares of common stock. A convertible security entitles the
holder to receive interest paid or accrued on debt or the dividend paid on
preferred stock until the convertible security matures or is redeemed, converted
or exchanged. Before conversion, convertible securities have characteristics
similar to nonconvertible debt securities in that they ordinarily provide a
stream of income with generally higher yields than those of common stocks of the
same or similar issuers. These securities are usually senior to common stock in
a company's capital structure, but usually are subordinated to non-convertible
debt securities. In general, the value of a convertible security is the higher
of its investment value (its value as a fixed income security) and its
conversion value (the value of the underlying shares of common stock if the
security is converted). As a fixed income security, the value of a convertible
security generally increases when interest rates decline and generally decreases
when interest rates rise. The value of a convertible security is, however, also
influenced by the value of the underlying common stock.
A Fund may invest in equity-linked securities, including Preferred Equity
Redemption Cumulative Stock ("PERCS"), Equity-Linked Securities ("ELKS"), and
Liquid Yield Option Notes ("LYONS"). Equity-Linked
A-1
<PAGE>
Securities are securities that are convertible into or based upon the value of,
equity securities upon certain terms and conditions. The amount received by an
investor at maturity of these securities is not fixed but is based on the price
of the underlying common stock, which may rise or fall. In addition, it is not
possible to predict how equity-linked securities will trade in the secondary
market or whether the market for them will be liquid or illiquid.
ADRS AND EDRS
A Fund may invest in sponsored and unsponsored American Depository Receipts
("ADRs"), which are receipts issued by an American bank or trust company
evidencing ownership of underlying securities issued by a foreign issuer. ADRs,
in registered form, are designed for use in U.S. securities markets. Unsponsored
ADRs may be created without the participation of the foreign issuer. Holders of
these ADRs generally bear all the costs of the ADR facility, whereas foreign
issuers typically bear certain costs in a sponsored ADR. The bank or trust
company depository of an unsponsored ADR may be under no obligation to
distribute shareholder communications received from the foreign issuer or to
pass through voting rights. A may also invest in European Depository Receipts
("EDRs"), receipts issued by a European financial institution evidencing an
arrangement similar to that of ADRs, and in other similar instruments
representing securities of foreign companies. EDRs, in bearer form, are designed
for use in European securities markets.
U.S. GOVERNMENT SECURITIES
The term U.S. Government Securities means obligations issued or guaranteed as to
principal and interest by the U.S. Government, its agencies or
instrumentalities. The U.S. Government Securities in which a Portfolio 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 Portfolios 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
A Fund may invest in separately traded principal and interest components of
securities issued or guaranteed by the U.S. Treasury. These components are
traded independently under the Treasury's Separate Trading of Registered
Interest and Principal of Securities ("STRIPS") program or as Coupons Under Book
Entry Safekeeping ("CUBES"). The Funds may invest in other types of related
zero-coupon securities. For instance, a number of banks and brokerage firms
separate the principal and interest portions of U.S. Treasury securities and
sell them separately in the form of receipts or certificates representing
undivided interests in these instruments. These instruments are generally held
by a bank in a custodial or trust account on behalf of the owners of the
securities and are known by various names, including Treasury Receipts ("TRs"),
Treasury Investment Growth Receipts ("TIGRs") and Certificates of Accrual on
Treasury Securities ("CATS"). Zero-coupon securities also may be issued by
corporations and municipalities.
Zero-coupon securities are sold at original issue discount and pay no interest
to holders prior to maturity, but a Fund holding a zero-coupon security must
include a portion of the original issue discount of the security as income.
Because of this, zero-coupon securities may be subject to greater fluctuation of
market value than the other securities in which the Portfolios may invest. The
Funds distribute all of their net investment income, and may have to sell
portfolio securities to distribute imputed income, which may occur at a time
when an investment adviser would not have chosen to sell such securities and
which may result in a taxable gain or loss.
A-2
<PAGE>
CORPORATE DEBT SECURITIES AND COMMERCIAL PAPER
The corporate debt securities in which a Portfolio may invest include corporate
bonds and notes and short-term investments such as commercial paper and variable
rate demand notes. Commercial paper (short-term promissory notes) is issued by
companies to finance their or their affiliate's current obligations and is
frequently unsecured. Variable and floating rate demand notes are unsecured
obligations redeemable upon not more than 30 days' notice. These obligations
include master demand notes that permit investment of fluctuating amounts at
varying rates of interest pursuant to a direct arrangement with the issuer of
the instrument. The issuer of these obligations often has the right, after a
given period, to prepay the outstanding principal amount of the obligations upon
a specified number of days' notice. These obligations generally are not traded,
nor generally is there an established secondary market for these obligations. To
the extent a demand note does not have a 7 day or shorter demand feature and
there is no readily available market for the obligation, it is treated as an
illiquid security.
FINANCIAL INSTITUTION OBLIGATIONS
A Portfolio may invest in obligations of financial institutions, including
negotiable certificates of deposit, bankers' acceptances and time deposits of
U.S. banks (including savings banks and savings associations), foreign branches
of U.S. banks, foreign banks and their non-U.S. branches (Eurodollars), U.S.
branches and agencies of foreign banks (Yankee dollars), and wholly owned
banking-related subsidiaries of foreign banks.
Certificates of deposit represent an institution's obligation to repay
Portfolios deposited with it that earn a specified interest rate over a given
period. Bank notes are a debt obligation of a bank. Bankers' acceptances are
negotiable obligations of a bank to pay a draft which has been drawn by a
customer and are usually backed by goods in international trade. Time deposits
are non-negotiable deposits with a banking institution that earn a specified
interest rate over a given period. Certificates of deposit and fixed time
deposits, which are payable at the stated maturity date and bear a fixed rate of
interest, generally may be withdrawn on demand but may be subject to early
withdrawal penalties which could reduce a Portfolio's performance. Deposits
subject to early withdrawal penalties or that mature in more than 7 days are
treated as illiquid securities if there is no readily available market for the
securities. A Portfolio's investments in the obligations of foreign banks and
their branches, agencies or subsidiaries may be obligations of the parent, of
the issuing branch, agency or subsidiary, or both. Investments in foreign bank
obligations are limited to banks and branches located in countries which the
Advisers believe do not present undue risk.
PARTICIPATION INTERESTS
A Fund may purchase participation interests in loans or securities in which the
Fund may invest directly that are owned by banks or other financial
institutions. A participation interest gives the Portfolio an undivided interest
in a loan or security in the proportion that the Portfolio's interest bears to
the total principal amount of the security. Participation interests, which may
have fixed, floating or variable rates, may carry a demand feature backed by a
letter of credit or guarantee of the bank or institution permitting the holder
to tender them back to the bank or other institution. For certain participation
interests the Fund will have the right to demand payment, on not more than 7
days notice, for all or a part of the Portfolio's participation interest.
ILLIQUID SECURITIES AND RESTRICTED SECURITIES
A Portfolio may invest up to 15 percent of its net assets in securities that at
the time of purchase are illiquid. Historically, illiquid securities have
included securities subject to contractual or legal restrictions on resale
because they have not been registered under the Securities Act of 1933
("restricted securities"), securities which are otherwise not readily
marketable, such as over-the-counter options, and repurchase agreements not
entitling the holder to payment of principal in 7 days. Limitations on resale
may have an adverse effect on the marketability of portfolio securities and a
Portfolio might also have to register restricted securities in order to dispose
of them, resulting in expense and delay. A Fund might not be able to dispose of
restricted or other securities promptly or at reasonable prices and might
thereby experience difficulty satisfying redemptions. There can be no assurance
that a liquid market will exist for any security at any particular time. An
institutional market has developed for certain
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securities that are not registered under the Securities Act of 1933, including
repurchase agreements, commercial paper, foreign securities and corporate bonds
and notes. Institutional investors depend on an efficient institutional market
in which the unregistered security can be readily resold or on the issuer's
ability to honor a demand for repayment of the unregistered security. A
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 Underlying Fund's investment adviser may determine that such securities are
not illiquid securities, under guidelines or other exemptions adopted by the.
These guidelines take into account trading activity in the securities and the
availability of reliable pricing information, among other factors. If there is a
lack of trading interest in a particular Rule 144A security, a Fund's holdings
of that security may be illiquid.
BORROWING
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 Portfolios (or on the assets that were
retained rather than sold to meet the needs for which Portfolios 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. A Fund's use of borrowed proceeds to make
investments would subject the Fund to the risks of leveraging. Reverse
repurchase agreements, short sales not against the box, dollar roll transactions
and other similar investments that involve a form of leverage have
characteristics similar to borrowings but are not considered borrowings.
PURCHASING SECURITIES ON MARGIN
When the Fund purchases securities on margin, it only pays part of the purchase
price and borrows the remainder. As a borrowing, a Portfolio's purchase of
securities on margin is subject to the limitations and risks described in
"Borrowing" above. In addition, if the value of the securities purchased on
margin decreases such that the Portfolio's borrowing with respect to the
security exceeds the maximum permissible borrowing amount, the Portfolio will be
required to make margin payments (additional payments to the broker to maintain
the level of borrowing at permissible levels). A Fund's obligation to satisfy
margin calls may require the Fund to sell securities at an inappropriate time.
TECHNIQUES INVOLVING LEVERAGE
Utilization of leveraging involves special risks and may involve speculative
investment techniques. The Funds may borrow for other than temporary or
emergency purposes, lend their securities, enter reverse repurchase agreements,
and purchase securities on a when-issued or forward commitment basis. In
addition, certain Funds may engage in dollar roll transactions and may purchase
securities on margin and sell securities short (other than against the box).
Each of these transactions involve the use of "leverage" when cash made
available to the Fund through the investment technique is used to make
additional portfolio investments. In addition, the use of swap and related
agreements may involve leverage.
Leverage exists when a Fund achieves the right to a return on a capital base
that exceeds the Fund's investment. Leverage creates the risk of magnified
capital losses which occur when losses affect an asset base, enlarged by
borrowings or the creation of liabilities, that exceeds the equity base of the
Portfolio.
The risks of leverage include a higher volatility of the net asset value of the
Fund's shares and the relatively greater effect on the net asset value of the
shares caused by favorable or adverse market movements or changes in the cost of
cash obtained by leveraging and the yield obtained from investing the cash. So
long as a Portfolio 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 Portfolio than if the
Portfolio 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
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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 Portfolio's use of leverage would
result in a lower rate of return than if the Portfolio 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 Portfolio were not leveraged.
In an extreme case, if the Portfolio's current investment income were not
sufficient to meet the interest expense of leveraging, it could be necessary for
the Portfolio 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 securities in accordance with SEC guidelines. The
account's value, which is marked to market daily, will be at least equal to the
Portfolio's commitments under these transactions. The Fund's commitments may
include: (1) the Fund's obligations to repurchase securities under a reverse
repurchase agreement, settle when-issued and forward commitment transactions and
make payments under a cap or floor; 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). The net amount of the excess, if any, of a
Portfolio's obligations over its entitlements with respect to each interest rate
swap will be calculated on a daily basis and an amount at least equal to the
accrued excess will be maintained in the segregated account. If the Portfolio
enters into an interest rate swap on other than a net basis, the Portfolio will
maintain the full amount accrued on a daily basis of the Portfolio's obligations
with respect to the swap in their segregated account. The use of a segregated
account in connection with leveraged transactions may result in a Portfolio's
portfolio being 100 percent leveraged.
REPURCHASE AGREEMENTS, SECURITIES LENDING, REVERSE REPURCHASE AGREEMENTS,
WHEN-ISSUED SECURITIES, FORWARD COMMITMENTS AND DOLLAR ROLL TRANSACTIONS. A
Fund's use of repurchase agreements, securities lending, reverse repurchase
agreements and forward commitments (including "dollar roll" transactions)
entails certain risks not associated with direct investments in securities. For
instance, in the event that bankruptcy or similar proceedings were commenced
against a counterparty while these transactions remained open or a counterparty
defaulted on its obligations, the Portfolio 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. 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.
REPURCHASE AGREEMENTS. A Fund may enter into repurchase agreements, transactions
in which a Fund purchases a security and simultaneously commits to resell that
security to the seller at an agreed-upon price on an agreed-upon future date,
normally 1 to 7 days later. The resale price of a repurchase agreement reflects
a market rate of interest that is not related to the coupon rate or maturity of
the purchased security.
SECURITIES LENDING. A Portfolio may lend securities from its portfolios to
brokers, dealers and other financial institutions. Securities loans must be
continuously secured by cash or U.S. Government Securities with a market value,
determined daily, at least equal to the value of the Fund's securities loaned,
including accrued interest. A Fund receives interest in respect of securities
loans from the borrower or from investing cash collateral. A Fund may pay fees
to arrange the loans.
REVERSE REPURCHASE AGREEMENTS. A Fund may enter into reverse repurchase
agreements, transactions in which the Fund sells a security and simultaneously
commits to repurchase that security from the buyer at an agreed upon price on an
agreed upon future date. The resale price in a reverse repurchase agreement
reflects a market rate of interest that is not related to the coupon rate or
maturity of the sold security. For certain demand agreements, there is no agreed
upon repurchase date and interest payments are calculated daily, often based
upon
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the prevailing overnight repurchase rate. Because certain of the incidents of
ownership of the security are retained by the Portfolio, reverse repurchase
agreements may be viewed as a form of borrowing by the Fund from the buyer,
collateralized by the security sold by the Portfolio. A Portfolio 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
Portfolio with those monies. Any significant commitment of a Fund's assets to
the reverse repurchase agreements will tend to increase the volatility of the
Fund's net asset value per share.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS. A Fund may purchase fixed income
securities on a "when-issued" or "forward commitment" basis. When these
transactions are negotiated, the price, which is generally expressed in yield
terms, is fixed at the time the commitment is made, but delivery and payment for
the securities take place at a later date. Normally, the settlement date occurs
within 3 months after the transaction. During the period between a commitment
and settlement, no payment is made for the securities purchased and no interest
on the security accrues to the purchaser. At the time a Portfolio makes a
commitment to purchase securities in this manner, the Fund immediately assumes
the risk of ownership, including price fluctuation. Failure by the other party
to deliver a security purchased by a Portfolio may result in a loss or a missed
opportunity to make an alternative investment. The use of when-issued
transactions and forward commitments enables a Fund to hedge against anticipated
changes in interest rates and prices. If the Underlying Funds were to forecast
incorrectly the direction of interest rate movements, however, a Fund might be
required to complete these transactions when the value of the security is lower
than the price paid by the Fund.
When-issued securities and forward commitments may be sold prior to the
settlement date. When-issued securities may include bonds purchased on a "when,
and if issued" basis under which the issuance of the securities depends upon the
occurrence of a subsequent event. Commitment of a Fund's assets to the purchase
of securities on a when-issued or forward commitment basis will tend to increase
the volatility of the Portfolios net asset value per share.
DOLLAR ROLL TRANSACTIONS. A Fund may enter into "dollar roll" transactions
wherein the Fund sells fixed income securities, typically mortgage-backed
securities, and makes a commitment to purchase similar, but not identical,
securities at a later date from the same party. Like a forward commitment,
during the roll period no payment is made for the securities purchased and no
interest or principal payments on the security accrue to the purchaser, but the
Fund assumes the risk of ownership. A Fund is compensated for entering into
dollar roll transactions by the difference between the current sales price and
the forward price for the future purchase, as well as by the interest earned on
the cash proceeds of the initial sale. Like other when-issued securities or firm
commitment agreements, dollar roll transactions involve the risk that the market
value of the securities sold by the Portfolio may decline below the price at
which a Portfolio is committed to purchase similar securities. In the event the
buyer of securities under a dollar roll transaction becomes insolvent, the Funds
use of the proceeds of the transaction may be restricted pending a determination
by the other party, or its trustee or receiver, whether to enforce the Funds
obligation to repurchase the securities.
SWAP AGREEMENTS
To manage its exposure to different types of investments, a Fund may enter into
interest rate, currency and mortgage (or other asset) swap agreements and may
purchase and sell interest rate "caps," "floors" and "collars." In a typical
interest rate swap agreement, one party agrees to make regular payments equal to
a floating interest rate on a specified amount (the "notional principal amount")
in return for payments equal to a fixed interest rate on the same amount for a
specified period. If a swap agreement provides for payment in different
currencies, the parties may also agree to exchange the notional principal
amount. Mortgage swap agreements are similar to interest rate swap agreements,
except that the notional principal amount is tied to a reference pool of
mortgages. In a cap or floor, one party agrees, usually in return for a fee, to
make payments under particular circumstances. For example, the purchaser of an
interest rate cap has the right to receive payments to the extent a specified
interest rate exceeds an agreed upon level; the purchaser of an interest rate
floor has the right to receive payments to the extent a specified interest rate
falls below an agreed upon level. A collar entitles the purchaser to receive
payments to the extent a specified interest rate falls outside an agreed upon
range.
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Swap agreements may involve leverage and may be highly volatile; depending on
how they are used, they may have a considerable impact on the Portfolio's
performance. Swap agreements involve risks depending upon the counterparties'
creditworthiness and ability to perform as well as the Fund's ability to
terminate its swap agreements or reduce its exposure through offsetting
transactions.
MUNICIPAL SECURITIES
The municipal securities in which the Portfolios may invest include municipal
bonds, notes and leases. Municipal securities may be zero-coupon securities.
Yields on municipal securities are dependent on a variety of factors, including
the general conditions of the municipal security markets and the fixed income
markets in general, the size of a particular offering, the maturity of the
obligation and the rating of the issue. The achievement of a Fund's investment
objective is dependent in part on the continuing ability of the issuers of
municipal securities in which the Fund invests to meet their obligations for the
payment of principal and interest when due.
Municipal bonds can be classified as either "general obligation" or "revenue"
bonds. General obligation bonds are secured by a municipality's pledge of its
full faith, credit and taxing power for the payment of principal and interest.
Revenue bonds are usually payable only from the revenues derived from a
particular facility or class of facilities or, in some cases, from the proceeds
of a special excise or other tax, but not from general tax revenues. Municipal
bonds include industrial development bonds. Municipal bonds may also be "moral
obligation" bonds, which are normally issued by special purpose public
authorities. If the issuer is unable to meet its obligations under the bonds
from current revenues, it may draw on a reserve Fund that is backed by the moral
commitment (but not the legal obligation) of the state or municipality that
created the issuer.
The Fund may invest in tax-exempt industrial development bonds, which in most
cases are revenue bonds and generally do not have the pledge of the credit of
the municipality. The payment of the principal and interest on these bonds is
dependent solely on the ability of an initial or subsequent user of the
facilities financed by the bonds to meet its financial obligations and the
pledge, if any, of real and personal property so financed as security for such
payment. The Portfolio will acquire private activity securities only if the
interest payments on the security are exempt from federal income taxation (other
than the Alternative Minimum Tax (AMT)).
MUNICIPAL NOTES. Municipal notes, which may be either "general obligation" or
"revenue" securities, are intended to fulfill short-term capital needs and
generally have original maturities not exceeding one year. They include tax
anticipation notes, revenue anticipation notes (which generally are issued in
anticipation of various seasonal revenues), bond anticipation notes,
construction loan notes and tax-exempt commercial paper. Tax-exempt commercial
paper generally is issued with maturities of 270 days or less at fixed rates of
interest.
MUNICIPAL LEASES. Municipal Leases, which may take the form of a lease or an
installment purchase or conditional sale contract, are issued by state and local
governments and authorities to acquire a wide variety of equipment and
facilities such as fire and sanitation vehicles, telecommunications equipment
and other capital assets. Municipal leases frequently have special risks not
normally associated with general obligation or revenue bonds. Lease and
installment purchase or conditional sale contracts (which normally provide for
title to the leased assets to pass eventually to the government issuer) have
evolved as a means for governmental issuers to acquire property and equipment
without meeting the constitutional and statutory requirements for the issuance
of debt. The debt-issuance limitations of many state constitutions and statutes
are deemed to be inapplicable because of the inclusion in many leases or
contracts of "non-appropriation" clauses that provide that the governmental
issuer has no obligation to make future payments under the lease or contract
unless money is appropriated for such purpose by the appropriate legislative
body on a yearly or other periodic basis. Generally, the Fund will invest in
municipal lease obligations through certificates of participation.
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PARTICIPATION INTERESTS. The Portfolios may purchase participation interests in
municipal securities that are owned by banks or other financial institutions.
Participation interests usually carry a demand feature backed by a letter of
credit or guarantee of the bank or institution permitting the holder to tender
them back to the bank or other institution. Prior to purchasing any
participation interest, the Funds will obtain appropriate assurances that the
interest earned by the Funds from the obligations in which it holds
participation interests is exempt from federal and, in the case of state
tax-free Funds, applicable state income tax.
STAND-BY COMMITMENTS. The Funds may purchase municipal securities together with
the right to resell them to the seller or a third party at an agreed-upon price
or yield within specified periods prior to their maturity dates. Such a right to
resell is commonly known as a stand-by commitment, and the aggregate price which
a Portfolio pays for securities with a stand-by commitment may be higher than
the price which otherwise would be paid. The primary purpose of this practice is
to permit a Portfolio to be as fully invested as practicable in municipal
securities while preserving the necessary flexibility and liquidity to meet
unanticipated redemptions. In this regard, a Portfolio acquires stand-by
commitments solely to facilitate portfolio liquidity and does not exercise its
rights thereunder for trading purposes. Stand-by commitments involve certain
expenses and risks, including the inability of the issuer of the commitment to
pay for the securities at the time the commitment is exercised,
non-marketability of the commitment, and differences between the maturity of the
underlying security and the maturity of the commitment.
PUTS ON MUNICIPAL SECURITIES. The Funds may acquire "puts" on municipal
securities they purchase. A put gives the Portfolio the right to sell the
municipal security at a specified price at any time on or before a specified
date. The Fund will acquire puts only to enhance liquidity, shorten the maturity
of the related municipal security or permit the Fund to invest its Funds at more
favorable rates. The Portfolios may pay an extra amount to acquire a put, either
in connection with the purchase of the related municipal security or separately
from the purchase of the security. Puts involve the same risks discussed above
with respect to stand-by commitments.
SHORT SALES
Certain Funds may make short sales of securities they own or have the right to
acquire at no added cost through conversion or exchange of other securities they
own (referred to as short sales "against the box") and to make short sales of
securities which they does not own or have the right to acquire. A short sale
that is not made "against the box" is a transaction in which a Fund sells a
security it does not own in anticipation of a decline in the market price for
the security. When the Fund makes a short sale, the proceeds it receives are
retained by the broker until the Fund replaces the borrowed security. In order
to deliver the security to the buyer, the Portfolio must arrange through a
broker to borrow the security and, in so doing, the Fund becomes obligated to
replace the security borrowed at its market price at the time of replacement,
whatever that price may be. Short sales that are not made "against the box"
create opportunities to increase the Fund's return but, at the same time,
involve special risk considerations and may be considered a speculative
technique. Since the Fund in effect profits from a decline in the price of the
securities sold short without the need to invest the full purchase price of the
securities on the date of the short sale, the Fund's net asset value per share,
will tend to increase more when the securities it has sold short decrease in
value, and to decrease more when the securities it has sold short increase in
value, than would otherwise be the case if it had not engaged in such short
sales. Short sales theoretically involve unlimited loss potential, as the market
price of securities sold short may continuously increase, although a Fund may
mitigate such losses by replacing the securities sold short before the market
price has increased significantly. Under adverse market conditions a Fund might
have difficulty purchasing securities to meet its short sale delivery
obligations and might have to sell portfolio securities to raise the capital
necessary to meet its short sale obligations at a time when fundamental
investment considerations would not favor those sales.
If the Fund makes a short sale "against the box," the Fund would not immediately
deliver the securities sold and would not receive the proceeds from the sale.
The seller is said to have a short position in the securities sold until it
delivers the securities sold, at which time it receives the proceeds of the
sale. The Portfolio's decision to make a short sale "against the box" may be a
technique to hedge against market risks when Investment Adviser believes that
the price of a security may decline, causing a decline in the value of a
security owned by the Portfolio or a security convertible into or exchangeable
for such security. In such case, any future losses in the Fund's long
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position would be reduced by an offsetting future gain in the short position.
The Portfolio's ability to enter into short sales transactions is limited by
certain tax requirements.
MORTGAGE-BACKED SECURITIES
Mortgage-backed securities represent an interest in a pool of mortgages
originated by lenders such as commercial banks, savings associations and
mortgage bankers and brokers. Mortgage-backed securities may be issued by
governmental or government-related entities or by non-governmental entities such
as special purpose trusts created by banks, savings associations, private
mortgage insurance companies or mortgage bankers.
Interests in mortgage-backed securities differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal payments at maturity or on specified call dates. In
contrast, mortgage-backed securities provide monthly payments which consist of
interest and, in most cases, principal. In effect, these payments are a
"pass-through" of the monthly payments made by the individual borrowers on their
mortgage loans, net of any fees paid to the issuer or guarantor of the
securities or a mortgage loan servicer. Additional payments to holders of these
securities are caused by prepayments resulting from the sale or foreclosure of
the underlying property or refinancing of the underlying loans.
UNDERLYING MORTGAGES. Pools of mortgages consist of whole mortgage loans or
participations in mortgage loans. The majority of these loans are made to
purchasers of 1-4 family homes, but may be made to purchasers of mobile homes or
other real estate interests. The terms and characteristics of the mortgage
instruments are generally uniform within a pool but may vary among pools. For
example, in addition to fixed-rate, fixed-term mortgages, the Portfolio may
purchase pools of variable rate mortgages, growing equity mortgages, graduated
payment mortgages and other types of mortgages. Mortgage servicers impose
qualification standards for local lending institutions which originate mortgages
for the pools as well as credit standards and underwriting criteria for
individual mortgages included in the pools. In addition, many mortgages included
in pools are insured through private mortgage insurance companies.
LIQUIDITY AND MARKETABILITY. The market for mortgage-backed securities has
expanded considerably in recent years. The size of the primary issuance market
and active participation in the secondary market by securities dealers and many
types of investors make government and government-related pass-through pools
highly liquid. The recently introduced private conventional pools of mortgages
(pooled by commercial banks, savings and loan institutions and others, with no
relationship with government and government-related entities) have also achieved
broad market acceptance and consequently an active secondary market has emerged,
however, the market for conventional pools is smaller and less liquid than the
market for government and government-related mortgage pools.
AVERAGE LIFE AND PREPAYMENTS. The average life of a pass-through pool varies
with the maturities of the underlying mortgage instruments. In addition, a
pool's terms may be shortened by unscheduled or early payments of principal and
interest on the underlying mortgages. Prepayments with respect to securities
during times of declining interest rates will tend to lower the return of a Fund
and may even result in losses to a Fund if the securities were acquired at a
premium. The occurrence of mortgage prepayments is affected by various factors
including the level of interest rates, general economic conditions, the location
and age of the mortgage and other social and demographic conditions.
As prepayment rates of individual pools vary widely, it is not possible to
accurately predict the average life of a particular pool. For pools of
fixed-rate 30-year mortgages, common industry practice is to assume that
prepayments will result in a 12-year average life. Pools of mortgages with other
maturities or different characteristics will have varying assumptions for
average life. The assumed average life of pools of mortgages having terms of
less than 30 years is less than 12 years, but typically not less than 5 years.
YIELD CALCULATIONS. Yields on pass-through securities are typically quoted by
investment dealers based on the maturity of the underlying instruments and the
associated average life assumption. In periods of falling interest rates, the
rate of prepayment tends to increase, thereby shortening the actual average life
of a pool of mortgages.
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Conversely, in periods of rising rates, the rate of prepayment tends to
decrease, thereby lengthening the actual average life of the pool. Actual
prepayment experience may cause the yield to differ from the assumed average
life yield. Reinvestment of prepayments may occur at higher or lower interest
rates than the original investment, thus affecting the yield of a Fund.
GOVERNMENT AND GOVERNMENT-RELATED GUARANTORS. The principal government guarantor
of mortgage-backed securities is the Government National Mortgage Association
("GNMA"), a wholly owned United States Government corporation within the
Department of Housing and Urban Development. GNMA is authorized to guarantee,
with the full faith and credit of the United States Government, the timely
payment of principal and interest on securities issued by institutions approved
by GNMA and backed by pools of FHA-insured or VA-guaranteed mortgages.
The Federal National Mortgage Association ("FNMA") is a government-sponsored
corporation owned entirely by private stockholders that is subject to general
regulation by the Secretary of Housing and Urban Development. FNMA purchases
residential mortgages from a list of approved seller-servicers. The Federal Home
Loan Mortgage Corporation ("FHLMC") is a corporate instrumentality of the United
States Government that was created by Congress in 1970 for the purpose of
increasing the availability of mortgage credit for residential housing. Its
stock is owned by the twelve Federal Home Loan Banks. FHLMC issues Participation
Certificates ("PCs") which represent interests in mortgages from FHLMCs national
portfolio. FNMA and FHLMC each guarantee the payment of principal and interest
on the securities they issue. These securities, however, are not backed by the
full faith and credit of the United States Government.
PRIVATELY ISSUED MORTGAGE-BACKED SECURITIES. Mortgage-backed securities offered
by private issuers include pass-through securities comprised of pools of
conventional mortgage loans; mortgage-backed bonds which are considered to be
debt obligations of the institution issuing the bonds and which are
collateralized by mortgage loans; and collateralized mortgage obligations.
Mortgage-backed securities issued by non-governmental issuers may offer a higher
rate of interest than securities issued by government issuers because of the
absence of direct or indirect government guarantees of payment. Many
non-governmental issuers or servicers of mortgage-backed securities, however,
guarantee timely payment of interest and principal on such securities. Timely
payment of interest and principal may also be supported by various forms of
insurance, including individual loan, title, pool and hazard policies. There can
be no assurance that the private issuers or insurers will be able to meet their
obligations under the relevant guarantees and insurance policies.
ADJUSTABLE RATE MORTGAGE-BACKED SECURITIES. Adjustable rate mortgage-backed
securities ("ARMs") are securities that have interest rates that are reset at
periodic intervals, usually by reference to some interest rate index or market
interest rate. Although the rate adjustment feature may act as a buffer to
reduce sharp changes in the value of adjustable rate securities, these
securities are still subject to changes in value based on changes in market
interest rates or changes in the issuer's creditworthiness. Because of the
resetting of interest rates, adjustable rate securities are less likely than
non-adjustable rate securities of comparable quality and maturity to increase
significantly in value when market interest rates fall. Also, most adjustable
rate securities (or the underlying mortgages) are subject to caps or floors.
"Caps" limit the maximum amount by which the interest rate paid by the borrower
may change at each reset date or over the life of the loan and, accordingly,
fluctuation in interest rates above these levels could cause such mortgage
securities to "cap out" and to behave more like long-term, fixed-rate debt
securities.
ARMs may have less risk of a decline in value during periods of rapidly rising
rates, but they may also have less potential for capital appreciation than other
debt securities of comparable maturities due to the periodic adjustment of the
interest rate on the underlying mortgages and due to the likelihood of increased
prepayments of mortgages as interest rates decline. Furthermore, during periods
of declining interest rates, income to a Portfolio will decrease as the coupon
rate resets to reflect the decline in interest rates. During periods of rising
interest rates, changes in the coupon rates of the mortgages underlying a
Portfolio's ARMs may lag behind changes in market interest rates. This may
result in a slightly lower net value until the interest rate resets to market
rates. Thus, investors could suffer some principal loss if Fund shares were sold
before the interest rates on the underlying mortgages were adjusted to reflect
current market rates.
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COLLATERALIZED MORTGAGE OBLIGATIONS. Collateralized Mortgage Obligations
("CMOs") are debt obligations that are collateralized by mortgages or mortgage
pass-through securities issued by GNMA, FHLMC or FNMA or by pools of
conventional mortgages ("Mortgage Assets"). CMOs may be privately issued or U.S.
Government Securities. Payments of principal and interest on the Mortgage Assets
are passed through to the holders of the CMOs on the same schedule as they are
received, although, certain classes (often referred to as tranches) of CMOs have
priority over other classes with respect to the receipt of payments. Multi-class
mortgage pass-through securities are interests in trusts that hold Mortgage
Assets and that have multiple classes similar to those of CMOs. Unless the
context indicates otherwise, references to CMOs include multi-class mortgage
pass-through securities. Payments of principal of and interest on the underlying
Mortgage Assets (and in the case of CMOs, any reinvestment income thereon)
provide Portfolios to pay debt service on the CMOs or to make scheduled
distributions on the multi-class mortgage pass-through securities. Parallel pay
CMOs are structured to provide payments of principal on each payment date to
more than one class. These simultaneous payments are taken into account in
calculating the stated maturity date or final distribution date of each class,
which, as with other CMO structures, must be retired by its stated maturity date
or final distribution date but may be retired earlier. Planned amortization
class mortgage-based securities ("PAC Bonds") are a form of parallel pay CMO.
PAC Bonds are designed to provide relatively predictable payments of principal
provided that, among other things, the actual prepayment experience on the
underlying mortgage loans falls within a contemplated range. If the actual
prepayment experience on the underlying mortgage loans is at a rate faster or
slower than the contemplated range, or if deviations from other assumptions
occur, principal payments on a PAC Bond may be greater or smaller than
predicted. The magnitude of the contemplated range varies from one PAC Bond to
another; a narrower range increases the risk that prepayments will be greater or
smaller than contemplated. CMOs may have complicated structures and generally
involve more risks than simpler forms of mortgage-backed securities.
The final tranche of a CMO may be structured as an accrual bond (sometimes
referred to as a "Z-tranche"). Holders of accrual bonds receive no cash payments
for an extended period of time. During the time that earlier tranches are
outstanding, accrual bonds receive accrued interest which is a credit for
periodic interest payments that increases the face amount of the security at a
compounded rate, but is not paid to the bond holder. After all previous tranches
are retired, accrual bond holders start receiving cash payments that include
both principal and continuing interest. The market value of accrual bonds can
fluctuate widely and their average life depends on the other aspects of the CMO
offering. Interest on accrual bonds is taxable when accrued even though the
holders receive no accrual payment. The Funds distribute all of their net
investment income, and may have to sell portfolio securities to distribute
imputed income, which may occur at a time when an investment adviser would not
have chosen to sell such securities and which may result in a taxable gain or
loss.
STRIPPED MORTGAGE-BACKED SECURITIES. Stripped mortgage-backed securities are
classes of mortgage-backed securities that receive different proportions of the
interest and principal distributions from the underlying Mortgage Assets. They
may be may be privately issued or U.S. Government Securities. In the most
extreme case, one class will be entitled to receive all or a portion of the
interest but none of the principal from the Mortgage Assets (the interest-only
or "IO" class) and one class will be entitled to receive all or a portion of the
principal, but none of the interest (the "PO" class).
ASSET-BACKED SECURITIES
Asset-backed securities represent direct or indirect participations in, or are
secured by and payable from, assets other than mortgage-backed assets such as
motor vehicle installment sales contracts, installment loan contracts, leases of
various types of real and personal property and receivables from revolving
credit (credit card) agreements. No Portfolio may invest more than 10 percent of
its net assets in asset-backed securities that are backed by a particular type
of credit, for instance, credit card receivables. Asset-backed securities,
including adjustable rate asset-backed securities, have yield characteristics
similar to those of mortgage-backed securities and, accordingly, are subject to
many of the same risks. Assets are securitized through the use of trusts and
special purpose corporations that issue securities that are often backed by a
pool of assets representing the obligations of a number of different parties.
Payments of principal and interest may be guaranteed up to certain amounts and
for a certain
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time period by a letter of credit issued by a financial institution.
Asset-backed securities do not always have the benefit of a security interest in
collateral comparable to the security interests associated with mortgage-backed
securities. As a result, the risk that recovery on repossessed collateral might
be unavailable or inadequate to support payments on asset-backed securities is
greater for asset-backed securities than for mortgage-backed securities. In
addition, because asset-backed securities are relatively new, the market
experience in these securities is limited and the market's ability to sustain
liquidity through all phases of an interest rate or economic cycle has not been
tested.
FOREIGN EXCHANGE CONTRACTS AND FOREIGN CURRENCY FORWARD CONTRACTS. Changes in
foreign currency exchange rates will affect the U.S. dollar values of securities
denominated in currencies other than the U.S. dollar. The rate of exchange
between the U.S. dollar and other currencies fluctuates in response to forces of
supply and demand in the foreign exchange markets. These forces are affected by
the international balance of payments and other economic and financial
conditions, government intervention, speculation and other factors. When
investing in foreign securities a Fund usually effects currency exchange
transactions on a spot (I.E., cash) basis at the spot rate prevailing in the
foreign exchange market. The Fund incurs foreign exchange expenses in converting
assets from one currency to another.
A Fund may enter into foreign currency forward contracts or currency futures or
options contracts for the purchase or sale of foreign currency to "lock in" the
U.S. dollar price of the securities denominated in a foreign currency or the
U.S. dollar value of interest and dividends to be paid on such securities, or to
hedge against the possibility that the currency of a foreign country in which a
Fund has investments may suffer a decline against the U.S. dollar. Like foreign
exchange contracts and foreign currency forward contracts, these instruments are
often referred to as derivatives, which may be defined as financial instruments
whose performance is derived, at least in part, from the performance of another
asset (such as a security, currency or an index of securities. A forward
currency contract is an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days from the date of the contract
agreed upon by the parties, at a price set at the time of the contract. This
method of attempting to hedge the value of a Fund's portfolio securities against
a decline in the value of a currency does not eliminate fluctuations in the
underlying prices of the securities. Although the strategy of engaging in
foreign currency transactions could reduce the risk of loss due to a decline in
the value of the hedged currency, it could also limit the potential gain from an
increase in the value of the currency. No Portfolio intends to maintain a net
exposure to such contracts where the fulfillment of the Portfolio's obligations
under such contracts would obligate the Portfolio to deliver an amount of
foreign currency in excess of the value of the Portfolio's portfolio securities
or other assets denominated in that currency. A Portfolio will not enter into
these contracts for speculative purposes and will not enter into non-hedging
currency contracts. These contracts involve a risk of loss if Norwest fails to
predict currency values correctly.
FUTURES CONTRACTS AND OPTIONS
A Fund may seek to enhance its return through the writing (selling) and
purchasing of exchange-traded and over-the-counter options on fixed income
securities or indices. A Fund may also to attempt to hedge against a decline in
the value of securities owned by it or an increase in the price of securities
which it plans to purchase through the use of those options and the purchase and
sale of interest rate futures contracts and options on those futures contracts.
These instruments are often referred to as "derivatives," which may be defined
as financial instruments whose performance is derived, at least in part, from
the performance of another asset (such as a security, currency or an index of
securities. An option is covered if, so long as the Fund is obligated under the
option, it owns an offsetting position in the underlying security or futures
contract or maintains cash, U.S. Government Securities or other liquid debt
securities in a segregated account with a value at all times sufficient to cover
the Portfolio's obligation under the option. Certain futures strategies employed
by a Fund in making temporary allocations may not be deemed to be for bona fide
hedging purposes, as defined by the Commodity Futures Trading Commission. A
Portfolio may enter into these futures contracts only if the aggregate of
initial margin deposits for open futures contract positions does not exceed 5
percent of the Portfolio's total assets.
RISK CONSIDERATIONS. The Fund's use of options and futures contracts subjects
the Fund to certain investment risks and transaction costs to which it might not
otherwise be subject. These risks include: (1) dependence on Investment
Adviser's ability to predict movements in the prices of individual securities
and
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fluctuations in the general securities markets; (2) imperfect correlations
between movements in the prices of options or futures contracts and movements in
the price of the securities hedged or used for cover which may cause a given
hedge not to achieve its objective; (3) the fact that the skills and techniques
needed to trade these instruments are different from those needed to select the
other securities in which the Portfolio invests; (4) lack of assurance that a
liquid secondary market will exist for any particular instrument at any
particular time, which, among other things, may hinder a Portfolio's ability to
limit exposures by closing its positions; (5) the possible need to defer closing
out of certain options, futures contracts and related options to avoid adverse
tax consequences; and (6) the potential for unlimited loss when investing in
futures contracts or writing options for which an offsetting position is not
held.
Other risks include the inability of the Fund, as the writer of covered call
options, to benefit from any appreciation of the underlying securities above the
exercise price and the possible loss of the entire premium paid for options
purchased by the Portfolio. In addition, the futures exchanges may limit the
amount of fluctuation permitted in certain futures contract prices during a
single trading day. A Fund may be forced, therefore, to liquidate or close out a
futures contract position at a disadvantageous price. There can be no assurance
that a liquid market will exist at a time when a Fund seeks to close out a
futures position or that a counterparty in an over-the-counter option
transaction will be able to perform its obligations. There are a limited number
of options on interest rate futures contracts and exchange traded options
contracts on fixed income securities. Accordingly, hedging transactions
involving these instruments may entail "cross-hedging." As an example, a Fund
may wish to hedge existing holdings of mortgage-backed securities, but no listed
options may exist on those securities. In that event, Norwest may attempt to
hedge the Fund's securities by the use of options with respect to similar fixed
income securities. The Fund may use various futures contracts that are
relatively new instruments without a significant trading history. As a result,
there can be no assurance that an active secondary market in those contracts
will develop or continue to exist.
LIMITATIONS. Except for the futures contracts strategies of a Portfolio used for
making temporary allocations among bonds and stocks, the Portfolios have no
current intention of investing in futures contracts and options thereon for
purposes other than hedging. Certain Underlying Portfolios may purchase a call
or put only if, after such purchase, the value of all put and call options held
by the Underlying Portfolio would not exceed 5% of its total assets. No
Portfolio may sell a put option if the exercise value of all put options written
by the Portfolio would exceed 50 percent of the Portfolio's total assets or sell
a call option if the exercise value of all call options written by the Portfolio
would exceed the value of the Portfolio's assets. In addition, the current
market value of all open futures positions held by a Portfolio will not exceed
50 percent of its total assets.
OPTIONS ON SECURITIES. A call option is a contract pursuant to which the
purchaser of the call option, in return for a premium paid, has the right to buy
the security underlying the option at a specified exercise price at any time
during the term of the option. The writer of the call option, who receives the
premium, has the obligation upon exercise of the option to deliver the
underlying security against payment of the exercise price during the option
period. A put option gives its purchaser, in return for a premium, the right to
sell the underlying security at a specified price during the term of the option.
The writer of the put, who receives the premium, has the obligation to buy the
underlying security, upon exercise at the exercise price during the option
period. The amount of premium received or paid is based upon certain factors,
including the market price of the underlying security or index, the relationship
of the exercise price to the market price, the historical price volatility of
the underlying security or index, the option period, supply and demand and
interest rates.
OPTIONS ON STOCK INDICES. A stock index assigns relative values to the stock
included in the index, and the index fluctuates with changes in the market
values of the stocks included in the index. Stock index options operate in the
same way as the more traditional stock options except that exercises of stock
index options are effected with cash payments and do not involve delivery of
securities. Thus, upon exercise of stock index options, the purchaser will
realize and the writer will pay an amount based on the differences between the
exercise price and the closing price of the stock index.
INDEX FUTURES CONTRACTS. Bond and stock index futures contracts are bilateral
agreements pursuant to which two parties agree to take or make delivery of an
amount of cash equal to a specified dollar amount times the difference between
the bond or stock index value at the close of trading of the contract and the
price at which the
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futures contract is originally struck. No physical delivery of the securities
comprising the index is made. Generally, these futures contracts are closed out
prior to the expiration date of the contract.
OPTIONS ON FUTURES CONTRACTS. Options on futures contracts are similar to stock
options except that an option on a futures contract gives the purchaser the
right, in return for the premium paid, to assume a position in a futures
contract rather than to purchase or sell stock, at a specified exercise price at
any time during the period of the option. Upon exercise of the option, the
delivery of the futures position to the holder of the option will be accompanied
by transfer to the holder of an accumulated balance representing the amount by
which the market price of the futures contract exceeds, in the case of a call,
or is less than, in the case of a put, the exercise price of the option on the
future.
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APPENDIX B
DESCRIPTION OF SECURITIES RATINGS
MUNICIPAL AND CORPORATE BONDS (INCLUDING CONVERTIBLE BONDS)
MOODY'S INVESTORS SERVICE ("MOODY'S")
Moody's rates corporate bond issues, including convertible debt issues, as
follows:
Bonds which are rated Aaa are judged by Moody's to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
Bonds which are rated A possess many favorable investment attributes and are to
be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment some time in the future.
Bonds which are rated Baa are considered as medium grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payment and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Bonds which are rated Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Bonds which are rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Bonds which are rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
Bonds which are rated C are the lowest rated class of bonds and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
Note: Those bonds in the Aa, A, Baa, Ba or B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa1,
A1, Baa1, Ba1, and B1.
B-1
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STANDARD AND POOR'S CORPORATION ("S&P")
S&P rates corporate bond issues, including convertible debt issues, as follows:
Bonds rated AAA have the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
Bonds rated AA have a very strong capacity to pay interest and repay principal
and differ from the highest rated issues only in small degree.
Bonds rated A have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt rated in higher rated
categories.
Bonds rated BBB are regarded as having an adequate capacity to pay interest and
repay principal. Whereas they normally exhibit adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
weakened capacity to pay interest and repay principal for debt in this category
than in higher rated categories.
Bonds rated BB, B, CCC, CC and C are regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
bonds will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
Bonds rated BB have less near-term vulnerability to default than other
speculative issues. However, they face major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments.
Bonds rated B have a greater vulnerability to default but currently have the
capacity to meet interest payments and principal payments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal.
Bonds rated CCC have currently identifiable vulnerability to default, and are
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, they are not likely to have the
capacity to pay interest and repay principal.
Bonds rated C typically are subordinated to senior debt which as assigned an
actual or implied CCC debt rating. This rating may also be used to indicate
imminent default.
The C rating may be used to cover a situation where a bankruptcy petition has
been filed, but debt service payments are continued. The rating Cl is reserved
for income bonds on which no interest is being paid.
Bonds are rated D when the issue is in payment default, or the obligor has filed
for bankruptcy. The D rating category is used when interest payments or
principal payments are not made on the date due, even if the applicable grace
period has not expired, unless S&P believes that such payments will made during
such grace period.
Note: The ratings from AA to CCC may be modified by the addition of a plus (+)
or minus (-) sign to show the relative standing within the rating category.
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<PAGE>
FITCH IBCA, INC. ("FITCH")
Fitch rates corporate bond issues, including convertible debt issues, as
follows:
AAA Bonds are considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA Bonds are considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated AAA. Because bonds rated in the AAA
and AA categories are not significantly vulnerable to foreseeable future
developments, shorter-term debt of these issuers is generally rated F-1+.
A Bonds are considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB Bonds are considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds, and therefore
impair timely payment. The likelihood that the ratings of these bonds will fall
below investment grade is higher than for bonds with higher ratings.
BB Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C Bonds are in imminent default in payment of interest or principal.
DDD, DD, and D Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. DDD
represents the highest potential for recovery on these bonds, and D represents
the lowest potential for recovery.
Plus (+) and minus (-) signs are used with a rating symbol to indicate the
relative position of a credit within the rating category. Plus and minus signs,
however, are not used in the AAA, DDD, DD, or D categories.
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PREFERRED STOCK
MOODY'S INVESTORS SERVICE
Moody's rates preferred stock as follows:
An issue rated aaa is considered to be a top-quality preferred stock. This
rating indicates good asset protection and the least risk of dividend impairment
among preferred stock issues.
An issue rated aa is considered a high-grade preferred stock. This rating
indicates that there is a reasonable assurance that earnings and asset
protection will remain relatively well maintained in the foreseeable future.
An issue rated a is considered to be an upper-medium grade preferred stock.
While risks are judged to be somewhat greater than in the aaa and aa
classification, earnings and asset protection are, nevertheless, expected to be
maintained at adequate levels.
An issue rated baa is considered to be a medium-grade, neither highly protected
nor poorly secured. Earnings and asset protection appear adequate at present but
may be questionable over any great length of time.
An issue rated ba is considered to have speculative elements and its future
cannot be considered well assured. Earnings and asset protection may be very
moderate and not well safeguarded during adverse periods. Uncertainty of
position characterizes preferred stocks in this class.
An issue which is rated b generally lacks the characteristics of a desirable
investment. Assurance of dividend payments and maintenance of other terms of the
issue over any long period of time may be small.
An issue which is rated caa is likely to be in arrears on dividend payments.
This rating designation does not purport to indicate the future status of
payments.
An issue which is rated ca is speculative in a high degree and is likely to be
in arrears on dividends with little likelihood of eventual payment.
An issue which is rated c can be regarded as having extremely poor prospects of
ever attaining any real investment standing. This is the lowest rated class of
preferred or preference stock.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each rating
classification from aa through b in its preferred stock rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issuer ranks in the lower end of its generic rating
category.
STANDARD & POOR'S
S&P rates preferred stock as follows:
AAA is the highest rating that is assigned by S&P to a preferred stock issue and
indicates an extremely strong capacity to pay the preferred stock obligations.
A preferred stock issue rated AA also qualifies as a high-quality fixed income
security. The capacity to pay preferred stock obligations is very strong,
although not as overwhelming as for issues rated AAA.
An issue rated A is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
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An issue rated BBB is regarded as backed by an adequate capacity to pay the
preferred stock obligations. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to make payments for a preferred stock in
this category than for issues in the A category.
Preferred stock rated BB, B, and CCC are regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay preferred stock
obligations. BB indicates the lowest degree of speculation and CCC the highest
degree of speculation. While such issues will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
The rating CC is reserved for a preferred stock issue in arrears on dividends or
sinking Portfolio payments but that is currently paying.
A preferred stock rated C is a non-paying issue.
A preferred stock rated D is a non-paying issue with the issuer in default on
debt instruments.
To provide more detailed indications of preferred stock quality, the ratings
from AA to CCC may be modified by the addition of a plus (+) or minus (-) sign
to show relative standing within the major rating categories.
SHORT TERM MUNICIPAL LOANS
MOODY'S INVESTORS SERVICE. Moody's highest rating for short-term municipal loans
is MIG-1/VMIG-1. A rating of MIG-1/VMIG-1 denotes best quality. There is present
strong protection by established cash flows, superior liquidity support or
demonstrated broadbased access to the market for refinancing. Loans bearing the
MIG-2/VMIG-2 designation are of high quality. Margins of protection are ample
although not so large as in the MIG-1/VMIG-1 group. A rating of MIG 3/VMIG 3
denotes favorable quality. All security elements are accounted for but there is
lacking the undeniable strength of the preceding grades. Liquidity and cash flow
protection may be narrow and market access for refinancing is likely to be less
well established. A rating of MIG 4/VMIG 4 denotes adequate quality. Protection
commonly regarded as required of an investment security is present and although
not distinctly or predominantly speculative, there is specific risk.
STANDARD & POOR'S. S&P's highest rating for short-term municipal loans is SP-1.
S&P states that short-term municipal securities bearing the SP-1 designation
have very strong or strong capacity to pay principal and interest. Those issues
rated SP-1 which are determined to possess overwhelming safety characteristics
will be given a plus (+) designation. Issues rated SP-2 have satisfactory
capacity to pay principal and interest. Issues rated SP-3 have speculative
capacity to pay principal and interest.
FITCH 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.
Short-term issues rated F-1+ are regarded as having the strongest degree of
assurance for timely payment. Issues assigned a rating of F-1 reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
Issues assigned a rating of F-2 have a satisfactory degree of assurance for
timely payment, but the margin of safety is not as great as for issues assigned
F-1+ or F-1.
OTHER MUNICIPAL SECURITIES AND COMMERCIAL PAPER
MOODY'S INVESTORS SERVICE
Moody's two highest ratings for short-term debt, including commercial paper, are
Prime-1 and Prime-2. Both are judged investment grade, to indicate the relative
repayment ability of rated issuers.
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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 Portfolios employed; conservative
capitalization structure with moderate reliance on debt and ample asset
protection; broad margins in earnings coverage of fixed financial charges and
high internal cash generation; well-established access to a range of financial
markets and assured sources of alternate liquidity.
Issuers rated Prime-2 by Moody's have a strong ability for repayment of senior
short-term debt obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1 but to a lesser degree. Earnings trends
and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
STANDARD AND POOR'S CORPORATION
S&P's two highest commercial paper ratings are A-1 and A-2. Issues assigned an A
rating are regarded as having the greatest capacity for timely payment. Issues
in this category are delineated with the numbers 1, 2 and 3 to indicate the
relative degree of safety. An A-1 designation indicates that the degree of
safety regarding timely payment is either overwhelming or very strong. Those
issues determined to possess overwhelming safety characteristics are denoted
with a plus (+) sign designation. The capacity for timely payment on issues with
an A-2 designation is strong. However, the relative degree of safety is not as
high as for issues designated A-1. A-3 issues have a satisfactory capacity for
timely payment. They are, however, somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations. Issues rated A-2 are regarded as having only an adequate capacity
for timely payment. However, such capacity may be damaged by changing conditions
or short-term adversities.
FITCH 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+.
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 PORTFOLIOS' OFFICIAL SALES LITERATURE IN
CONNECTION WITH THE OFFERING OF THE PORTFOLIOS' 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.
B-6
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS.
Included in the Prospectus:
Financial Highlights.
Included in the Statement of Additional Information:
For all Funds (A Shares, B Shares and I Shares) for which a Prospectus
is contained in this amendment to the Registration Statement:
Audited financial statements for the fiscal year ended May 31, 1997
including Statements of Assets and Liabilities, Statements of
Operations, Statements of Changes in Net Assets, Notes to Financial
Statements, Financial Highlights, Portfolio of Investments and Report
of Independent Auditors.
Unaudited financial statements for the six months ended November 30,
1997 including Statements of Assets and Liabilities, Statements of
Operations, Statements of Changes in Net Assets, Notes to Financial
Statements, Financial Highlights and Portfolio of Investments.
(B) EXHIBITS.
NOTE: "*" INDICATES THAT THE EXHIBIT IS INCORPORATED HEREIN BY REFERENCE. ALL
REFERENCES TO A POST-EFFECTIVE AMENDMENT ("PEA") OR PRE-EFFECTIVE AMENDMENT
("PREEA") ARE TO PEAS AND PREEAS TO REGISTRANT'S REGISTRATION STATEMENT ON FORM
N-1A, FILE NO. 33-9645.
(1)* Trust Instrument of Registrant as now in effect (filed as Exhibit 1
to PEA No. 35 via EDGAR on March 8, 1996, accession number
0000912057-96-004243).
(2)* By-Laws of Registrant as now in effect (filed as Exhibit 2 to PEA
No. 35 via EDGAR on March 8, 1996, accession number
0000912057-96-004243).
(3) Not Applicable.
(4)* Specimen Certificate for shares of beneficial interest of each class of
each portfolio of Registrant. Except for the names of the classes of
shares and CUSIP numbers. The certificate of each class of each
portfolio of Registrant is substantially the same as the specimen
certificate, and therefore, is omitted pursuant to Rule 483(d)(2) under
the 1933 Act (filed as Exhibit 4 to PEA No. 35 via EDGAR on March 8,
1996, accession number 0000912057-96-004243).
(5) (a)* Form of Investment Advisory Agreement between Registrant and Norwest
Investment Management, Inc. relating to Cash Investment Fund, Ready
Cash Investment Fund, U.S. Government Fund, Treasury Fund, Municipal
Money Market Fund, Stable Income Fund, Short Maturity Government Bond
Fund, Intermediate Government Income Fund, Diversified Bond Fund,
Income Fund, Total Return Bond Fund, Limited Term Tax-Free Fund,
Tax-Free Income Fund, Colorado Tax-Free Fund, Minnesota Intermediate
Tax-Free Fund, Minnesota Tax-Free Fund, Strategic Income Fund,
Moderate Balanced Fund, Growth Balanced Fund, Aggressive Balanced
Fund, Index Fund, Income Equity Fund, ValuGrowth-SM- Stock Fund,
Diversified Equity Fund, Growth Equity Fund, Large Company Growth
Fund, Small Company Stock Fund, Small Company Growth Fund, Diversified
Small Cap Fund, Small Cap Opportunities Fund, Contrarian Stock Fund,
International Fund, Norwest WealthBuilder II High Growth Portfolio,
Norwest
<PAGE>
WealthBuilder II Growth Portfolio, Norwest WealthBuilder II Growth and
Income Balanced Portfolio, Performa Smith Disciplined Growth Fund,
Performa Smith Small Cap Value Fund, Performa Large Cap Value Fund,
Performa Galliard Strategic Value Bond Fund and Performa Schroder
Global Growth Fund. Except for the names of each series of the
Registrant, the Investment Advisory Agreement of each series of
Registrant is substantially the same as the Investment Advisory
Agreement, and therefore, is omitted pursuant to Rule 483(d)(2) under
the 1933 Act (filed as Exhibit 5(a) to PEA No. 43 via EDGAR on July
16, 1997, accession number 0000912057-97-024361).
(b)* Investment Sub-Advisory Agreement between Registrant and Crestone
Capital Management, Inc. relating to Small Company Stock Fund (filed
as Exhibit 5(c) to PEA No. 35 via EDGAR on March 8, 1996, accession
number 0000912057-96-004243).
(c)* Investment Sub-Advisory Agreement between Registrant and Schroder
Capital Management International Inc. relating to the Diversified
Equity Fund, Growth Equity Fund, International Fund, Strategic Income
Fund, Moderate Balanced Fund and Growth Balanced Fund (filed as
Exhibit 5(d) to PEA No. 35 via EDGAR on March 8, 1996, accession
number 0000912057-96-004243).
(e)* Form of Investment Sub-Advisory Agreement between Registrant and
Galliard Capital Management International Inc. relating to the Stable
Income Fund (filed as Exhibit 5(e) to PEA No. 43 via EDGAR on July 16,
1997, accession number 0000912057-97-024361).
(f)* Form of Investment Sub-Advisory Agreement between Registrant and
Peregrine Capital Management International Inc. relating to the Small
Company Growth Fund and Large Company Growth Fund (filed as Exhibit
5(f) to PEA No. 43 via EDGAR on July 16, 1997, accession number
0000912057-97-024361).
(g)* Form of Investment Sub-Advisory Agreement between Registrant and
United Capital Management relating to Total Return Bond Fund and
Contrarian Stock Fund (filed as Exhibit 5(g) to PEA No. 43 via EDGAR
on July 16, 1997, accession number 0000912057-97-024361).
(h)* Form of Investment Sub-Advisory Agreement between Registrant and
Galliard Capital Management International Inc. relating to Performa
Galliard Strategic Value Bond Fund (filed as Exhibit 5(c) to PEA No.
35 via EDGAR on March 8, 1997, accession number 0000912057-96-004243).
(i)* Form of Investment Sub-Advisory Agreement between Registrant and Smith
Asset Management Group, LP relating to Performa Smith Disciplined
Growth Fund and Performa Smith Small Cap Value Fund (filed as Exhibit
5(i) to PEA No. 46 via EDGAR on September 30, 1997, accession number
00000912057-97-032214).
(6)* Distribution Agreement between Registrant and Forum Financial
Services, Inc. relating to each portfolio of Registrant (filed as
Exhibit 6 to PEA No. 35 via EDGAR on March 8, 1996, accession number
0000912057-96-004243).
(7) Not Applicable.
(8) (a)* Custodian Agreement between Registrant and Norwest Bank Minnesota,
N.A. dated August 1, 1993 as amended November 11, 1994 (filed as
Exhibit 8(a) to PEA No. 35 via EDGAR on March 8, 1996, accession
number 0000912057-96-004243).
(b)* Transfer Agency Agreement to be between Registrant and Norwest Bank
Minnesota, N.A. (filed as Exhibit 8(b) to PEA No. 35 via EDGAR on
March 8, 1996, accession number 0000912057-96-004243).
<PAGE>
(9) (a)* Management Agreement between Registrant and Forum Financial Services,
Inc. relating to each portfolio of Registrant (filed as Exhibit 9(a)
to PEA No. 35 via EDGAR on March 8, 1996, accession number
0000912057-96-004243).
(b)* Fund Accounting Agreement between Registrant and Forum Financial Corp.
(filed as Exhibit 9(b) to PEA No. 35 via EDGAR on March 8, 1996,
accession number 0000912057-96-004243).
(c)* Administration Services Agreement between Registrant and Norwest Bank
Minnesota, N.A. relating to International Fund (filed as Exhibit 9(c)
to PEA No. 35 via EDGAR on March 8, 1996, accession number
0000912057-96-004243).
(10) (a)* Opinion of Seward & Kissel (filed on December 31, 1986 as Exhibit
10(a) of PreEA 2).
(b)* Opinion of Seward & Kissel (filed as Exhibit 10(a) to PEA No. 35 via
EDGAR on March 8, 1996, accession number 0000912057-96-004243).
(11) (a) Consent of KPMG Peat Marwick LLP, independent auditors (filed
herewith).
(11) (b) Not applicable.
(12) Not Applicable.
(13)* Investment representation letter of John Y. Keffer as initial purchaser
of shares of stock of Registrant (filed on December 31, 1986 as Exhibit
13 of PreEA 2).
(14)* Individual Retirement Account materials (filed on April 22, 1994 as
Exhibit 14 to PEA 24).
(15)* Rule 12b-1 Plan adopted by Registrant with respect to the Income Fund,
Tax-Free Income Fund, Minnesota Tax-Free Fund, ValuGrowth Stock Fund,
Adjustable U.S. Government Reserve Fund, Colorado Tax-Free Fund, Income
Stock Fund, Arizona Tax-Free Fund, Contrarian Stock Fund, Small Company
Stock Fund, Government Income Fund, Total Return Bond Fund, Stable
Income Fund, Income Equity Fund, Diversified Equity Fund, Intermediate
U.S. Government Fund, Growth Equity Fund and Exchange Shares of Ready
Cash Investment Fund (filed as Exhibit 15 to PEA No. 35 via EDGAR on
March 8, 1996, accession number 0000912057-96-004243).
(16) Schedule for Computation of each Performance Quotation provided in the
Registration Statement in response to Item 22 (filed herewith).
(17)* Financial Data Schedule (filed as Exhibit 17 to PEA No. 46 via EDGAR
on September 30, 1997, accession number 00000912057-97-032214).
(18)* Multiclass (Rule 18f-3) Plan adopted by Registrant (filed as Exhibit
18 to PEA No. 35 via EDGAR on March 8, 1996, accession number
0000912057-96-004243).
OTHER EXHIBITS
(A)* Power of Attorney of James C. Harris, Trustee of Registrant (filed as
Other Exhibit A to PEA No. 35 via EDGAR on March 8, 1996, accession
number 0000912057-96-004243).
(B)* Power of Attorney of Richard M. Leach, Trustee of Registrant (filed as
Other Exhibit B to PEA No. 35 via EDGAR on March 8, 1996, accession
number 0000912057-96-004243).
(C)* Power of Attorney of Robert C. Brown, Trustee of Registrant (filed as
Other Exhibit C to PEA No. 35 via EDGAR on March 8, 1996, accession
number 0000912057-96-004243).
(D)* Power of Attorney of Donald H. Burkhardt, Trustee of Registrant (filed
as Other Exhibit D to PEA No. 35 via EDGAR on March 8, 1996, accession
number 0000912057-96-004243).
<PAGE>
(E)* Power of Attorney of John Y. Keffer, Trustee of Registrant (filed as
Other Exhibit E to PEA No. 35 via EDGAR on March 8, 1996, accession
number 0000912057-96-004243).
(F)* Power of Attorney of Donald C. Willeke, Trustee of Registrant (filed as
Other Exhibit F to PEA No. 35 via EDGAR on March 8, 1996, accession
number 0000912057-96-004243).
(G)* Power of Attorney of Timothy J. Penny, Trustee of Registrant (filed as
Other Exhibit G to PEA No. 35 via EDGAR on March 8, 1996, accession
number 0000912057-96-004243).
(H)* Power of Attorney of John S. McCune, Trustee of Registrant (filed as
Other Exhibit H to PEA No. 46 via EDGAR on September 30, 1997,
accession number 00000912057-97-032214).
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES AS OF MARCH 2, 1998.
NUMBER OF
TITLE OF CLASS OF UNIT OF BENEFICIAL INTEREST RECORD HOLDERS
- --------------------------------------------- --------------
CASH INVESTMENT FUND 73
U.S. GOVERNMENT FUND 33
TREASURY FUND 30
MUNICIPAL MONEY MARKET FUND
Investor Shares 20
Institutional Shares 17
READY CASH INVESTMENT FUND
Investor Shares 192
Exchange Class 19
INCOME FUND
A Shares 382
B Shares 302
I Shares 3,021
<PAGE>
TOTAL RETURN BOND FUND
A Shares 110
B Shares 208
I Shares 350
LIMITED TERM TAX-FREE FUND
I Shares 348
COLORADO TAX-FREE FUND
A Shares 462
B Shares 197
I Shares 350
MINNESOTA TAX-FREE FUND
A Shares 546
B Shares 405
I Shares 176
MINNESOTA INTERMEDIATE TAX-FREE FUND
I Shares 1,375
TAX-FREE INCOME FUND
A Shares 645
B Shares 271
I Shares 1,391
VALUGROWTH STOCK FUND
A Shares 1,682
B Shares 787
I Shares 47
CONTRARIAN STOCK FUND
A Shares 0
B Shares 0
I Shares 52
SMALL COMPANY STOCK FUND
A Shares 780
B Shares 710
I Shares 232
DIVERSIFIED EQUITY FUND
A Shares 3,203
B Shares 4,935
I Shares 827
GROWTH EQUITY FUND
A Shares 1,195
B Shares 1,576
I Shares 760
LARGE COMPANY GROWTH FUND
I Shares 316
SMALL COMPANY GROWTH FUND
I Shares 125
<PAGE>
DIVERSIFIED SMALL CAP FUND
I Shares 3
SMALL CAP OPPORTUNITIES FUND
A Shares 576
B Shares 581
I Shares 206
INTERNATIONAL FUND
A Shares 271
B Shares 255
I Shares 198
INCOME EQUITY FUND
A Shares 3,626
B Shares 3,838
I Shares 423
INDEX FUND
I Shares 459
STRATEGIC INCOME FUND
I Shares 170
MODERATE BALANCED FUND
I Shares 433
GROWTH BALANCED FUND
I Shares 548
AGGRESSIVE BALANCED-EQUITY FUND
I Shares 6
LIMITED TERM GOVERNMENT INCOME FUND
I Shares 1,354
INTERMEDIATE GOVERNMENT INCOME FUND
A Shares 542
B Shares 449
I Shares 100
DIVERSIFIED BOND FUND
I Shares 143
STABLE INCOME FUND
A Shares 98
B Shares 65
I Shares 309
ITEM 27. INDEMNIFICATION.
The general effect of Section 10.02 of Registrant's Trust Instrument is to
indemnify existing or former trustees and officers of the Trust to the fullest
extent permitted by law against liability and expenses. There is no
indemnification if, among other things, any such person is adjudicated liable to
Registrant or its shareholders by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office. This description is modified in its entirety by the provisions of
Section 10.02 of Registrant's Trust Instrument contained in this Registration
Statement as Exhibit 1 and incorporated herein by reference.
<PAGE>
Registrant's Investment Advisory Agreements, Investment Subadvisory Agreements,
Management and Distribution Agreements and Distribution Services Agreements
provide that Registrant's investment advisers and principal underwriter are
protected against liability to the extent permitted by Section 17(i) of the
Investment Company Act of 1940. Similar provisions are contained in the
Management Agreement and Transfer Agency and Fund Accounting Agreement.
Registrant's principal underwriter is also provided with indemnification against
various liabilities and expenses under the Management and Distribution
Agreements and Distribution Services Agreements between Registrant and the
principal underwriter; provided, however, that in no event shall the
indemnification provision be construed as to protect the principal underwriter
against any liability to Registrant or its security holders to which the
principal underwriter would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance of its duties, or
by reason of its reckless disregard of its obligations and duties under those
agreements. Registrant's transfer agent and fund accountant and certain related
individuals are also provided with indemnification against various liabilities
and expenses under the Transfer Agency and Fund Accounting Agreements between
Registrant and the transfer agent and fund accountant; provided, however, that
in no event shall the transfer agent, fund accountant or such persons be
indemnified against any liability or expense that is the direct result of
willful misfeasance, bad faith or gross negligence by the transfer agent or such
persons.
The preceding paragraph is modified in its entirety by the provisions of the
Investment Advisory Agreements, Investment SubAdvisory Agreements, Management
and Distribution Agreements, Distribution Services Agreements, Management
Agreements, Transfer Agency Agreement and Fund Accounting Agreement of
Registrant filed as Exhibits 5, 6, and 9 to Registrant's Registration Statement
and incorporated herein by reference.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to trustees, officers and controlling persons of
Registrant pursuant to the foregoing provisions, or otherwise, Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Registrant of expenses incurred or
paid by a trustee, officer or controlling person of Registrant in the successful
defense of any action, suit or proceeding) is asserted by such trustee, officer
or controlling person in connection with the securities being registered,
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
NORWEST INVESTMENT MANAGEMENT, INC.
The description of Norwest Investment Management, Inc., under the caption
"Management -- Advisor" or Management of the Funds -- Norwest Investment
Management" in each Prospectus and under the caption "Management -- Adviser" or
"Management -Investment Advisory Services -- Norwest Investment Management" in
each Statement of Additional Information constituting Parts A and B,
respectively, of this Registration Statement are incorporated by reference
herein.
The following are the directors and principal executive officers of NIM,
including their business connections which are of a substantial nature. The
address of Norwest Corporation, the parent of Norwest Bank Minnesota, N.A.
("Norwest Bank"), which is the parent of NIM, is Norwest Center, Sixth Street
and Marquette Avenue, Minneapolis, MN 55479. Unless otherwise indicated below,
the principal business address of any company with which the directors and
principal executive officers are connected is also Sixth Street and Marquette
Avenue, Minneapolis, MN 55479.
P. Jay Kiedrowski, Chairman, Chief Executive Officer and President, has
been affiliated with NIM since 1989. Mr. Kiedrowski is also Executive
Vice President of Norwest Bank Minnesota, N.A., and has served in
various capacities as an employee of Norwest Bank Minnesota, N.A.
and/or its affiliates since August, 1987.
James W. Paulsen, Chief Investment Officer, has served in this capacity
since January, 1997.
<PAGE>
Stephen P. Gianoli, Senior Vice President and Chief Executive Officer
has been affiliated with NIM in various capacities since 1986.
David S. Lunt, Vice President and Senior Portfolio Manager has been
affiliated with NIM since 1997.
Richard C. Villars, Vice President and Senior Portfolio Manager has
been affiliated with NIM since 1997.
Lee K. Chase, Vice President, has been affiliated with NIM since 1997.
Andrew Owen, Vice President, has been affiliated with NIM since 1997.
Eileen A. Kuhry, Investment Compliance Specialist, has been affiliated
with NIM since 1997.
SCHRODER CAPITAL MANAGEMENT INTERNATIONAL INC.
The description of Schroder Capital Management International Inc. ("Schroder")
under the caption "Management of the Funds -- Investment Advisory Services --
Schroder Capital Management International Inc." in the Prospectus and
"Management -- Investment Advisory Services" in the Statement of Additional
Information relating to International Fund, Diversified Equity Fund, Growth
Equity Fund, Strategic Income Fund, Moderate Balanced Fund and Growth Balanced
Fund, constituting certain of Parts A and B, respectively, of the Registration
Statement, are incorporated by reference herein.
The following are the directors and principal officers of Schroder, including
their business connections of a substantial nature. The address of each company
listed, unless otherwise noted, is 33 Gutter Lane, London EC2V 8AS, United
Kingdom. Schroder Capital Management International Limited ("Schroder Ltd.") is
a United Kingdom affiliate of Schroder which provides investment management
services international clients located principally in the United States.
David M. Salisbury. Chief Executive Officer, Director and Chairman of
SCMI; Joint Chief Executive and Director of Schroder Ltd.
Richard R. Foulkes. Deputy Chairman/Executive Vice President of SCMI.
Mr. Foulkes is also a Director of Schroder Ltd.
John A. Troiano. Chief Executive and Director of SCMI. Mr. Troiano is
also a Director of Schroder Ltd.
David Gibson. Senior Vice President and Director of SCMI. Director of
Schroder Capital Management and Senior Vice President of Schroder Ltd.
John S. Ager. Senior Vice President and Director of SCMI. Mr. Ager is
also a Director of Schroder Ltd.
Sharon L. Haugh. Executive Vice President and Director of SCMI,
Director and Chairman of Schroder Advisors Inc., and Director of
Schroder Ltd.
Gavin D. L. Ralston. Senior Vice President and Managing Director of
SCMI; Director of Schroder Ltd.
Mark J. Smith. Senior Vice President and Director of SCMI. Mr. Smith
is also Director of Schroder Ltd.
Robert G. Davy. Senior Vice President. Mr. Davy is also a Director of
Schroder Ltd. and an officer of open end investment companies for
which SCMI and/or its affiliates provide investment services.
Jane P. Lucas. Senior Vice President and Director of SCMI; Director of
Schroder Advisors Inc.; Director of Schroder Capital Management.
C. John Govett. Director of SCMI; Group Managing Director of Schroder
Ltd. And Director of Schroders plc.
<PAGE>
Phillipa J. Gould. Senior Vice President and Director of SCMI.
Louise Croset. First Vice President and Director of SCMI, also First
Vice President of Schroder Ltd.
Abdallah Nauphal, Group Vice President and Director of SCMI.
CRESTONE CAPITAL MANAGEMENT, INC.
The description of Crestone Capital Management, Inc. ("Crestone") under the
caption "Management -- SubAdviser" in the Prospectus and "Management -- Adviser
- -- SubAdviser -- Small Company Stock Fund" in the Statement of Additional
Information relating to the Small Company Stock Fund, constituting certain of
Parts A and B, respectively, of the Registration Statement, are incorporated by
reference herein.
The following are the directors and principal executive officers of Crestone,
including their business connections which are of a substantial nature. The
address of Crestone is 7720 East Belleview Avenue, Suite 220, Englewood Colorado
80111 and, unless otherwise indicated below, that address is the principal
business address of any company with which the directors and principal executive
officers are connected.
Kirk McCown, President and Director.
Mark Steven Sunderhuse, Senior Vice President and Director.
P. Jay Kiedrowski, Director. Mr. Kiedrowski is also President and
Chairman of the Board of Norwest and an Executive Vice President of
Norwest Bank. His address is Sixth and Marquette Avenue, Minneapolis,
Minnesota 55479.
Steven P. Gianoli, Director. Mr. Gianoli is a Vice President of
Norwest and Norwest Bank. His address is Sixth and Marquette Avenue,
Minneapolis, Minnesota 55479.
Susan Koonsman, Director. Ms. Koonsman is President of Norwest
Investments & Trust. Her address is 1740 Broadway, Denver, Colorado
80274.
PEREGRINE CAPITAL MANAGEMENT, INC.
The description of Peregrine Capital Management, Inc. ("Peregrine") under the
caption "Management - SubAdviser" in the Prospectus and "Management- Adviser -
SubAdviser - Diversified Bond Fund, Strategic Income Fund, Moderate Balanced
Fund, Growth Balanced Fund, Diversified Equity Fund, Growth Equity Fund, Large
Company Growth Fund and Small Company Growth Fund in the Statement of Additional
Information relating to Diversified Bond Fund, Strategic Income Fund, Moderate
Balanced Fund, Growth Balanced Fund, Diversified Equity Fund, Growth Equity
Fund, Large Company Growth Fund and Small Company Growth Fund, constituting
certain of Parts A and B, respectively, of the Registration Statement, are
incorporated by reference herein.
The following are the directors and principal executive officers of Peregrine,
including their business connections which are of a substantial nature. The
address of Peregrine is LaSalle Plaza, 800 LaSalle Avenue, Suite 1850,
Minneapolis, Minnesota 55402 and, unless otherwise indicated below, that address
is the principal business address of any company with which the directors and
principal executive officers are connected.
James R. Campbell, Director. Mr. Campbell is President, Chief
Executive Officer and a Director of Norwest Bank. His address is Sixth
and Marquette Avenue, Minneapolis, Minnesota 55479-0116
Patricia D. Burns, Senior Vice President.
Tasso H. Coin, Senior Vice President.
John S. Dale, Senior Vice President.
<PAGE>
Julie M. Gerend, Senior Vice President. Prior to September, 1995, Ms.
Gerend was Manager, Account Executive at Fidelity Institutional
Retirement Services, Co.
William D. Giese, Senior Vice President.
Daniel J. Hagen, Vice President. Prior to May, 1996, Mr. Hagen was
Managing Director of Piper Jaffray, Inc.
Ronald G. Hoffman, Senior Vice President and Secretary.
Frank T. Matthews, Vice President.
Jeannine McCormick, Senior Vice President.
Barbara K. McFadden, Senior Vice President.
Robert B. Mersky, Chairman, President and Chief Executive Officer.
Gary E. Nussbaum, Senior Vice President.
James P. Ross, Vice President. Prior to November, 1996, Mr. Ross was
Vice President of Norwest Bank.
Jonathan L. Scharlau, Assistant Vice President.
Jay H. Strohmaier, Senior Vice President. Prior to September, 1996,
Mr. Strohmaier was Senior Vice President/Managed Accounts for Voyageur
Asset Management.
Paul E. von Kuster, Senior Vice President.
Janelle M. Walter, Assistant Vice President.
Paul R. Wurm, Senior Vice President.
J. Daniel Vandermark, Vice President. His address is Sixth and
Marquette Avenue, Minneapolis, Minnesota 55479-1013
Albert J. Edwards, Senior Vice President. Prior to June 9, 1997, Mr.
Edwards was Vice President/Marketing for U.S. Trust Company of
California.
GALLIARD CAPITAL MANAGEMENT, INC.
The description of Galliard Capital Management, Inc. ("Galliard") under the
caption "Management -- SubAdviser" in the Prospectus and "Management -- Adviser
- -- SubAdviser -- Stable Income Fund, Diversified Bond Fund, Total Return Bond
Fund, Strategic Income Fund, Moderate Balanced Fund and Growth Balanced Fund" in
the Statement of Additional Information relating to the Stable Income Fund,
Diversified Bond Fund, Strategic Income Fund, Moderate Balanced Fund and Growth
Balanced Fund", constituting certain of Parts A and B, respectively, of the
Registration Statement, are incorporated by reference herein.
The following are the directors and principal executive officers of Galliard,
including their business connections which are of a substantial nature. The
address of Galliard is LaSalle Plaza, Suite 2060, 800 LaSalle Avenue,
Minneapolis, Minnesota 55479 and, unless otherwise indicated below, that address
is the principal business address of any company with which the directors and
principal executive officers are connected.
Peter Jay Kiedrowski, Chairman. Mr. Kiedrowski is President and Chief
Executive Officer of NIM; Chairman of Crestone and Executive Vice
President of Norwest Bank.
Richard Merriam, Principal and Senior Portfolio Manager.
<PAGE>
John Caswell, Principal and Senior Portfolio Manager.
Karl Tourville, Principal and Senior Portfolio Manager.
Laura Gideon, Senior Vice President of Marketing.
Leela Scattum, Vice President of Operations.
UNITED CAPITAL MANAGEMENT
The description of United Capital Management ("UCM") under the caption
"Management - SubAdviser" in the Prospectus and "Management- Adviser -
SubAdviser - Contrarian Stock Fund" in the Statement of Additional Information
relating to Contrarian Stock Fund" constituting certain of Parts A and B,
respectively, of the Registration Statement, are incorporated by reference
herein.
The following are the directors and principal executive officers of UCM,
including their business connections which are of a substantial nature. The
address of UCM is 1700 Lincoln Street, Suite 3301, Denver, Colorado 80274 and,
unless otherwise indicated below, that address is the principal business address
of any company with which the directors and principal executive officers are
connected.
W. Lon Schreur, President. Mr. Schreur is Senior Vice President of
Norwest Bank Colorado, N.A..
John T. Groton, Vice President. Mr. Groton is Vice President of
Norwest Bank Colorado, N.A.
David B. Kinney, Vice President. Mr. Kinney is Vice President of
Norwest Bank Colorado, N.A.
James C. Peery, Senior Vice President. Mr. Peery is Vice President of
Norwest Bank Colorado, N.A.
Leona F. Bennett, Vice President. Ms. Bennett is Vice President of
Norwest Bank Colorado, N.A.
Denise B. Johnson, Vice President. Ms. Johnson is Vice President of
Norwest Bank Colorado, N.A.
SMITH ASSET MANAGEMENT GROUP
The description of Smith Asset Management Group ("Smith") under the caption
"Management -- SubAdviser" in the Prospectus and "Management -- Adviser --
SubAdviser -- Performa Disciplined Growth Fund and Performa Small Cap Value
Fund" in the Statement of Additional Information relating to Performa
Disciplined Growth Fund and Performa Small Cap Value Fund", constituting certain
of Parts A and B, respectively, of the Registration Statement, are incorporated
by reference herein.
The following are the directors and principal executive officers of Smith,
including their business connections which are of a substantial nature. The
address of Smith is 500 Crescent Court, Suite 250, Dallas, Texas 75201 and,
unless otherwise indicated below, that address is the principal business address
of any company with which the directors and principal executive officers are
connected.
Stephen S. Smith, President. Mr. Smith is President and Chief
Executive Officer. Mr. Smith is also a partner of Discovery
Management.
Stephen J. Summers, Chief Operating Officer. Mr. Summers is also a
partner of Discovery Management.
Sarah C. Castleman, Vice President. Ms. Castleman is also a partner of
Discovery Management and prior thereto was an Assistant Vice President
at NationsBank, 901 Main Street, 16th Floor, Dallas, Texas 75201.
<PAGE>
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) Forum Financial Services, Inc., Registrant's underwriter, serves as
underwriter to Core Trust (Delaware), The CRM Funds, The Cutler Trust,
Forum Funds, The Highland Family of Funds, Monarch Funds, Norwest
Funds, Norwest Select Funds, Sound Shore Fund, Inc. and Trans Adviser
Funds, Inc.
(b) John Y. Keffer, President and Secretary of Forum Financial Services,
Inc., is the Chairman and President of Registrant. David R. Keffer,
Vice President and Treasurer of Forum Financial Services, Inc., is the
Vice President, Assistant Treasurer and Assistant Secretary of
Registrant. Their business address is Two Portland Square, Portland,
Maine.
(c) Not Applicable.
ITEM 30. LOCATION OF BOOKS AND RECORDS.
The majority of accounts, books and other documents required to be maintained by
31(a) of the Investment Company Act of 1940 and the Rules thereunder are
maintained at the offices of Forum Financial Services, Inc. at Two Portland
Square, Portland, Maine 04101, at Forum Financial Corp., Two Portland Square,
Portland, Maine 04101 and Forum Administrative Services, Limited Liability
Company, Two Portland Square, Portland, Maine 04101. The records required to be
maintained under Rule 31a-1(b)(1) with respect to journals of receipts and
deliveries of securities and receipts and disbursements of cash are maintained
at the offices of Registrant's custodian. The records required to be maintained
under Rule 31a-1(b)(5), (6) and (9) are maintained at the offices of
Registrant's investment advisers as indicated in the various prospectuses
constituting Part A of this Registration Statement.
Additional records are maintained at the offices of Norwest Bank Minnesota,
N.A., 733 Marquette Avenue, Minneapolis, MN 55479-0040, Registrant's investment
adviser, custodian and transfer agent.
ITEM 31. MANAGEMENT SERVICES.
Not Applicable.
ITEM 32. UNDERTAKINGS.
(i) Registrant undertakes to file a post-effective amendment, using
financial statements which need not be certified, within four to six
months from the latter of the effective date of Registrant's Securities
Act of 1933 Registration Statement relating to the prospectuses
offering those shares or the commencement of public shares of the
respective shares; and,
(ii) Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of Registrant's latest annual report to
shareholders relating to the portfolio or class thereof to which the
prospectus relates upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this amendment to
its Registration Statement to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of Portland, and State of Maine on the 17th
day of March, 1998.
NORWEST ADVANTAGE FUNDS
By: /s/ John Y. Keffer
---------------------------
John Y. Keffer
President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement amendment has been signed below by the following persons on the 17th
day of March, 1998.
SIGNATURES TITLE
(a) Principal Executive Officer
/s/ John Y. Keffer Chairman and
----------------------------- President
John Y. Keffer
(b) Principal Financial and Accounting Officer
/s/ Sara M. Morris Treasurer
------------------------------
Sara M. Morris
(c) A Majority of the Trustees
/s/ John Y. Keffer Chairman
------------------------------
John Y. Keffer
Robert C. Brown* Trustee
Donald H. Burkhardt* Trustee
James C. Harris* Trustee
Richard M. Leach* Trustee
Donald C. Willeke* Trustee
Timothy J. Penny* Trustee
John S. McCune* Trustee
*By: /s/ John Y. Keffer
--------------------------
John Y. Keffer
Attorney in Fact
<PAGE>
SIGNATURES
On behalf of Schroder Capital Funds, being duly authorized, I have duly caused
this amendment to the Registration Statement of Norwest Advantage Funds, solely
with respect to Small Cap Opportunities Fund and Performa Global Growth Fund,
each a series of Norwest Advantage Funds, to be signed in the City of New York,
State of New York on the 18th day of March, 1998.
SCHRODER CAPITAL FUNDS
By: /s/ Catherine A. Mazza
---------------------------
Catherine A. Mazza
This amendment to the Registration Statement of Norwest Advantage Funds, solely
with respect to Small Cap Opportunities Fund and Performa Global Growth Fund,
each a series of Norwest Advantage Funds, has been signed below by the following
persons in the capacities indicated on the 18th day of March, 1998.
SIGNATURES TITLE
(a) Principal Executive Officer
MARK J. SMITH
*By: /s/ Thomas G. Sheehan President and Trustee
--------------------------
Thomas G. Sheehan
Attorney-in-Fact
(b) Principal Financial and
Accounting Officer
/s/ Fergal Cassidy Treasurer
------------------------------
Fergal Cassidy
(c) Majority of the Trustees
PETER E. GUERNSEY* Trustee
JOHN I. HOWELL* Trustee
HERMANN C. SCHWAB* Trustee
CLARENCE F. MICHALIS* Trustee
MARK J. SMITH* Trustee
HON. DAVID N. DINKINS* Trustee
PETER S. KNIGHT* Trustee
SHARON L. HAUGH* Trustee
*By: Thomas G. Sheehan
---------------------------
Thomas G. Sheehan
Attorney-in-Fact
<PAGE>
INDEX TO EXHIBITS
Sequential
Exhibit Page Number
- ------- -----------
11 Consent of KPMG Peat Marwick LLP, Independent Auditors.
16 Schedule for Computation of each Performance Quotation provided in
the Registration Statement in response to Item 22.
<PAGE>
EXHIBIT 11
<PAGE>
Consent of Independent Auditors
The Board of Trustees and Shareholders
Norwest Advantage Funds:
We consent to the use of our reports incorporated herein by reference and to the
references to our firm under the headings "Financial Highlights" in the
prospectuses and "Counsel and Auditors" in the Statement of Additional
Information included herein.
KPMG Peat Marwick LLP
Boston, Massachusetts
March 30, 1998
<PAGE>
EXHIBIT 16
<PAGE>
EXHIBIT 16
SCHEDULE OF SAMPLE PERFORMANCE QUOTATION CALCULATIONS
Norwest Performa Disciplined Growth
Note: All performance is for the period ended: 11/30/97
1. AVERAGE ANNUAL TOTAL RETURN (PURSUANT TO SEC STANDARDIZED FORMULA)
SEC Formula: T = ({{[((ERV/P)-1)(1-S)-S](1-R)-R}+1}1/n)-1
where: T = average annual total return
P = initial payment of $1,000
n = number of years
ERV = ending redeemable value of the initial
payment at the end of the period S = Maximum
initial sales charge R = Maximum redemption
charge (calculated based on _______)(i.e.,
lower of purchase amount or redemption
amount)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
a. AVERAGE ANNUAL TOTAL RETURN (assuming deduction of the maximum sales/purchase/redemption charges)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
CAL YR 1 MTH 3 MTH 6 MTH 1 YR 3 YR 5 YR 10 YR INCEPT
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
P($) 1000 1000 1000 1000 1000 1000 1000 1000 1000
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
N(YR) 1/12 1/4 1/2 1 3 5 10
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
ERV
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
S
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
R
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
T(%)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
b. AVERAGE ANNUAL TOTAL RETURN (assuming no deduction of sales/purchase/redemption charges)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
CAL YR 1 MTH 3 MTH 6 MTH 1 YR 3 YR 5 YR 10 YR INCEPT
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
P($) 1000 1000 1000 1000 1000 1000 1000 1000 1000
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
N(YR) - 1/12 1/4 1/2 1 3 5 10 .13
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
ERV - 1,023.70 - - - - - - 952.00
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
T(%) - 31.69 - - - - - - (31.75)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
</TABLE>
<PAGE>
2. CUMULATIVE TOTAL RETURN (PURSUANT TO NON-STANDARDIZED FORMULA)
Formula: C = {{[(T + 1)n - 1 - R]/(1 - R)} + S}/(1 - S)
where: C = cumulative total return of the
investment over the specified period T =
average annual total return (see above) P =
initial payment of $1,000 n = number of
years ERV = ending redeemable value of the
initial payment at the end of the period
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
a. CUMULATIVE TOTAL RETURN (assuming deduction of the maximum sales/purchase/redemption charges)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
CAL YR 1 MTH 3 MTH 6 MTH 1 YR 3 YR 5 YR 10 YR INCEPT
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
P($) 1000 1000 1000 1000 1000 1000 1000 1000 1000
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
N(YR) 1/12 1/4 1/2 1 3 5 10
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
ERV
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
S
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
R
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
C(%)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
b. CUMULATIVE OR AGGREGATE TOTAL RETURN (assuming no deduction of sales/purchase/redemption charges)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
CAL YR 1 MTH 3 MTH 6 MTH 1 YR 3 YR 5 YR 10 YR INCEPT
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
P($) 1000 1000 1000 1000 1000 1000 1000 1000 1000
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
N(YR) - 1/12 1/4 1/2 1 3 5 10 .13
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
ERV - 1,023.70 - - - - - - 952.00
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
C(%) - 2.37 - - - - - - (4.80)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
</TABLE>
<PAGE>
3. 30 DAY YIELD (PURSUANT TO SEC STANDARDIZED FORMULA)
SEC Formula: Y = 2{[(a - b)/(cd) + 1]6 - 1]}
where: Y = 30 day yield
a = dividends and interest earned during the
period b = expenses accrued for the period
(net of reimbursements) c = the average
daily number of shares outstanding during
the period that were entitled to receive
dividends d = the maximum offering price per
share on the last day of the period
<TABLE>
<S> <C> <C> <C> <C>
- ------------------------ ---------------------- ---------------------- ----------------------- ----------------------
A($) B($) C D($) Y(%)
- ------------------------ ---------------------- ---------------------- ----------------------- ----------------------
N/A N/A N/A N/A N/A
- ------------------------ ---------------------- ---------------------- ----------------------- ----------------------
</TABLE>
4. 30 DAY TAX-EQUIVALENT YIELD (PURSUANT TO SEC STANDARDIZED FORMULA)
SEC Formula: TEY = Y/(1 - TR)
where: TEY = 30 day tax-equivalent yield
Y = 30 day yield (see above)
TR = assumed applicable tax rate
<TABLE>
<S> <C>
- ----------------------------------------------------------- ---------------------------------------------------------
TR(%) TEY(%)
- ----------------------------------------------------------- ---------------------------------------------------------
N/A N/A
- ----------------------------------------------------------- ---------------------------------------------------------
</TABLE>
5. 30-DAY DISTRIBUTION RATE (PURSUANT TO NON-STANDARDIZED FORMULA)
Formula: 30 Day Distribution Rate ("Rate")= (ab)/c
where: Rate = 30 day distribution rate
a = distributions in last 30 days
b = number of 30 day periods in year
c = maximum offering price per share on last
day of period
<TABLE>
<S> <C> <C> <C> <C>
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
A B C RATE(%)
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
N/A N/A N/A N/A
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
</TABLE>
SCHEDULE OF SAMPLE PERFORMANCE QUOTATION CALCULATIONS
Norwest Performa Small Cap Value
Note: All performance is for the period ended: 11/30/97
1. AVERAGE ANNUAL TOTAL RETURN (PURSUANT TO SEC STANDARDIZED FORMULA)
SEC Formula: T = ({{[((ERV/P)-1)(1-S)-S](1-R)-R}+1}1/n)-1
where: T = average annual total return
P = initial payment of $1,000
n = number of years
ERV = ending redeemable value of the initial
payment at the end of the period S = Maximum
initial sales charge R = Maximum redemption
charge (calculated based on _______)(i.e.,
lower of purchase amount or redemption
amount)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
a. AVERAGE ANNUAL TOTAL RETURN (assuming deduction of the maximum sales/purchase/redemption charges)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
CAL YR 1 MTH 3 MTH 6 MTH 1 YR 3 YR 5 YR 10 YR INCEPT
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
P($) 1000 1000 1000 1000 1000 1000 1000 1000 1000
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
N(YR) 1/12 1/4 1/2 1 3 5 10
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
ERV
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
S
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
R
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
T(%)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
b. AVERAGE ANNUAL TOTAL RETURN (assuming no deduction of sales/purchase/redemption charges)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
CAL YR 1 MTH 3 MTH 6 MTH 1 YR 3 YR 5 YR 10 YR INCEPT
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
P($) 1000 1000 1000 1000 1000 1000 1000 1000 1000
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
N(YR) - 1/12 1/4 1/2 1 3 5 10 .13
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
ERV - 1,001.10 - - - - - - 930.00
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
T(%) - 1.27 - - - - - - (43.08)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
</TABLE>
<PAGE>
2. CUMULATIVE TOTAL RETURN (PURSUANT TO NON-STANDARDIZED FORMULA)
Formula: C = {{[(T + 1)n - 1 - R]/(1 - R)} + S}/(1 - S)
where: C = cumulative total return of the
investment over the specified period T =
average annual total return (see above) P =
initial payment of $1,000 n = number of
years ERV = ending redeemable value of the
initial payment at the end of the period
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
a. CUMULATIVE TOTAL RETURN (assuming deduction of the maximum sales/purchase/redemption charges)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
CAL YR 1 MTH 3 MTH 6 MTH 1 YR 3 YR 5 YR 10 YR INCEPT
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
P($) 1000 1000 1000 1000 1000 1000 1000 1000 1000
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
N(YR) 1/12 1/4 1/2 1 3 5 10
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
ERV
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
S
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
R
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
C(%)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
b. CUMULATIVE OR AGGREGATE TOTAL RETURN (assuming no deduction of sales/purchase/redemption charges)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
CAL YR 1 MTH 3 MTH 6 MTH 1 YR 3 YR 5 YR 10 YR INCEPT
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
P($) 1000 1000 1000 1000 1000 1000 1000 1000 1000
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
N(YR) - 1/12 1/4 1/2 1 3 5 10 .13
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
ERV - 1,001.10 - - - - - - 930.00
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
C(%) - .11 - - - - - - (7.00)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
</TABLE>
<PAGE>
3. 30 DAY YIELD (PURSUANT TO SEC STANDARDIZED FORMULA)
SEC Formula: Y = 2{[(a - b)/(cd) + 1]6 - 1]}
where: Y = 30 day yield
a = dividends and interest earned during the
period b = expenses accrued for the period
(net of reimbursements) c = the average
daily number of shares outstanding during
the period that were entitled to receive
dividends d = the maximum offering price per
share on the last day of the period
<TABLE>
<S> <C> <C> <C> <C>
- ------------------------ ---------------------- ---------------------- ----------------------- ----------------------
A($) B($) C D($) Y(%)
- ------------------------ ---------------------- ---------------------- ----------------------- ----------------------
N/A N/A N/A N/A N/A
- ------------------------ ---------------------- ---------------------- ----------------------- ----------------------
</TABLE>
4. 30 DAY TAX-EQUIVALENT YIELD (PURSUANT TO SEC STANDARDIZED FORMULA)
SEC Formula: TEY = Y/(1 - TR)
where: TEY = 30 day tax-equivalent yield
Y = 30 day yield (see above)
TR = assumed applicable tax rate
<TABLE>
<S> <C>
- ----------------------------------------------------------- ---------------------------------------------------------
TR(%) TEY(%)
- ----------------------------------------------------------- ---------------------------------------------------------
N/A N/A
- ----------------------------------------------------------- ---------------------------------------------------------
</TABLE>
5. 30-DAY DISTRIBUTION RATE (PURSUANT TO NON-STANDARDIZED FORMULA)
Formula: 30 Day Distribution Rate ("Rate")= (ab)/c
where: Rate = 30 day distribution rate
a = distributions in last 30 days
b = number of 30 day periods in year
c = maximum offering price per share on last
day of period
<TABLE>
<S> <C> <C> <C>
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
A B C RATE(%)
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
N/A N/A N/A N/A
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
</TABLE>
SCHEDULE OF SAMPLE PERFORMANCE QUOTATION CALCULATIONS
Norwest Performa Strategic Value
Note: All performance is for the period ended: 11/30/97
1. AVERAGE ANNUAL TOTAL RETURN (PURSUANT TO SEC STANDARDIZED FORMULA)
SEC Formula: T = ({{[((ERV/P)-1)(1-S)-S](1-R)-R}+1}1/n)-1
where: T = average annual total return
P = initial payment of $1,000
n = number of years
ERV = ending redeemable value of the initial
payment at the end of the period S = Maximum
initial sales charge R = Maximum redemption
charge (calculated based on _______)(i.e.,
lower of purchase amount or redemption
amount)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
a. AVERAGE ANNUAL TOTAL RETURN (assuming deduction of the maximum sales/purchase/redemption charges)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
CAL YR 1 MTH 3 MTH 6 MTH 1 YR 3 YR 5 YR 10 YR INCEPT
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
P($) 1000 1000 1000 1000 1000 1000 1000 1000 1000
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
N(YR) 1/12 1/4 1/2 1 3 5 10
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
ERV
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
S
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
R
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
T(%)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
b. AVERAGE ANNUAL TOTAL RETURN (assuming no deduction of sales/purchase/redemption charges)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
CAL YR 1 MTH 3 MTH 6 MTH 1 YR 3 YR 5 YR 10 YR INCEPT
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
P($) 1000 1000 1000 1000 1000 1000 1000 1000 1000
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
N(YR) - 1/12 1/4 1/2 1 3 5 10 .13
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
ERV - 1,004.40 - - - - - - 1,015.50
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
T(%) - 5.26 - - - - - - 12.70
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
</TABLE>
<PAGE>
2. CUMULATIVE TOTAL RETURN (PURSUANT TO NON-STANDARDIZED FORMULA)
Formula: C = {{[(T + 1)n - 1 - R]/(1 - R)} + S}/(1 - S)
where: C = cumulative total return of the
investment over the specified period T =
average annual total return (see above) P =
initial payment of $1,000 n = number of
years ERV = ending redeemable value of the
initial payment at the end of the period
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
a. CUMULATIVE TOTAL RETURN (assuming deduction of the maximum sales/purchase/redemption charges)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
CAL YR 1 MTH 3 MTH 6 MTH 1 YR 3 YR 5 YR 10 YR INCEPT
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
P($) 1000 1000 1000 1000 1000 1000 1000 1000 1000
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
N(YR) 1/12 1/4 1/2 1 3 5 10
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
ERV
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
S
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
R
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
C(%)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
b. CUMULATIVE OR AGGREGATE TOTAL RETURN (assuming no deduction of sales/purchase/redemption charges)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
CAL YR 1 MTH 3 MTH 6 MTH 1 YR 3 YR 5 YR 10 YR INCEPT
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
P($) 1000 1000 1000 1000 1000 1000 1000 1000 1000
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
N(YR) - 1/12 1/4 1/2 1 3 5 10 .13
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
ERV - 1,004.40 - - - - - - 1,015.50
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
C(%) - .44 - - - - - - 1.55
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
</TABLE>
<PAGE>
3. 30 DAY YIELD (PURSUANT TO SEC STANDARDIZED FORMULA)
SEC Formula: Y = 2{[(a - b)/(cd) + 1]6 - 1]}
where: Y = 30 day yield
a = dividends and interest earned during the
period b = expenses accrued for the period
(net of reimbursements) c = the average
daily number of shares outstanding during
the period that were entitled to receive
dividends d = the maximum offering price per
share on the last day of the period
<TABLE>
<S> <C> <C> <C> <C>
- ------------------------ ---------------------- ---------------------- ----------------------- ----------------------
A($) B($) C D($) Y(%)
- ------------------------ ---------------------- ---------------------- ----------------------- ----------------------
10,316.93 1,354.53 177,117.49 10.10 6.09
- ------------------------ ---------------------- ---------------------- ----------------------- ----------------------
</TABLE>
4. 30 DAY TAX-EQUIVALENT YIELD (PURSUANT TO SEC STANDARDIZED FORMULA)
SEC Formula: TEY = Y/(1 - TR)
where: TEY = 30 day tax-equivalent yield
Y = 30 day yield (see above)
TR = assumed applicable tax rate
<TABLE>
<S> <C>
- ----------------------------------------------------------- ---------------------------------------------------------
TR(%) TEY(%)
- ----------------------------------------------------------- ---------------------------------------------------------
N/A N/A
- ----------------------------------------------------------- ---------------------------------------------------------
</TABLE>
5. 30-DAY DISTRIBUTION RATE (PURSUANT TO NON-STANDARDIZED FORMULA)
Formula: 30 Day Distribution Rate ("Rate")= (ab)/c
where: Rate = 30 day distribution rate
a = distributions in last 30 days
b = number of 30 day periods in year
c = maximum offering price per share on last
day of period
<TABLE>
<S> <C> <C> <C>
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
A B C RATE(%)
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
N/A N/A N/A N/A
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
</TABLE>
SCHEDULE OF SAMPLE PERFORMANCE QUOTATION CALCULATIONS
Norwest Performa Global Growth
Note: All performance is for the period ended: 11/30/97
1. AVERAGE ANNUAL TOTAL RETURN (PURSUANT TO SEC STANDARDIZED FORMULA)
SEC Formula: T = ({{[((ERV/P)-1)(1-S)-S](1-R)-R}+1}1/n)-1
where: T = average annual total return
P = initial payment of $1,000
n = number of years
ERV = ending redeemable value of the initial
payment at the end of the period S = Maximum
initial sales charge R = Maximum redemption
charge (calculated based on _______)(i.e.,
lower of purchase amount or redemption
amount)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
a. AVERAGE ANNUAL TOTAL RETURN (assuming deduction of the maximum sales/purchase/redemption charges)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
CAL YR 1 MTH 3 MTH 6 MTH 1 YR 3 YR 5 YR 10 YR INCEPT
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
P($) 1000 1000 1000 1000 1000 1000 1000 1000 1000
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
N(YR) 1/12 1/4 1/2 1 3 5 10
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
ERV
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
S
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
R
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
T(%)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
b. AVERAGE ANNUAL TOTAL RETURN (assuming no deduction of sales/purchase/redemption charges)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
CAL YR 1 MTH 3 MTH 6 MTH 1 YR 3 YR 5 YR 10 YR INCEPT
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
P($) 1000 1000 1000 1000 1000 1000 1000 1000 1000
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
N(YR) - 1/12 1/4 1/2 1 3 5 10 .13
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
ERV - 993.60 - - - - - - 933.00
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
T(%) - (7.27) - - - - - - (41.64)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
</TABLE>
<PAGE>
2. CUMULATIVE TOTAL RETURN (PURSUANT TO NON-STANDARDIZED FORMULA)
Formula: C = {{[(T + 1)n - 1 - R]/(1 - R)} + S}/(1 - S)
where: C = cumulative total return of the
investment over the specified period T =
average annual total return (see above) P =
initial payment of $1,000 n = number of
years ERV = ending redeemable value of the
initial payment at the end of the period
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
a. CUMULATIVE TOTAL RETURN (assuming deduction of the maximum sales/purchase/redemption charges)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
CAL YR 1 MTH 3 MTH 6 MTH 1 YR 3 YR 5 YR 10 YR INCEPT
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
P($) 1000 1000 1000 1000 1000 1000 1000 1000 1000
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
N(YR) 1/12 1/4 1/2 1 3 5 10
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
ERV
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
S
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
R
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
C(%)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
b. CUMULATIVE OR AGGREGATE TOTAL RETURN (assuming no deduction of sales/purchase/redemption charges)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
CAL YR 1 MTH 3 MTH 6 MTH 1 YR 3 YR 5 YR 10 YR INCEPT
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
P($) 1000 1000 1000 1000 1000 1000 1000 1000 1000
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
N(YR) - 1/12 1/4 1/2 1 3 5 10 .13
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
ERV - 993.60 - - - - - - 933.00
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
C(%) - (.64) - - - - - - (6.70)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
</TABLE>
<PAGE>
3. 30 DAY YIELD (PURSUANT TO SEC STANDARDIZED FORMULA)
SEC Formula: Y = 2{[(a - b)/(cd) + 1]6 - 1]}
where: Y = 30 day yield
a = dividends and interest earned during the
period b = expenses accrued for the period
(net of reimbursements) c = the average
daily number of shares outstanding during
the period that were entitled to receive
dividends d = the maximum offering price per
share on the last day of the period
<TABLE>
<S> <C> <C> <C> <C>
- ------------------------ ---------------------- ---------------------- ----------------------- ----------------------
A($) B($) C D($) Y(%)
- ------------------------ ---------------------- ---------------------- ----------------------- ----------------------
N/A N/A N/A N/A N/A
- ------------------------ ---------------------- ---------------------- ----------------------- ----------------------
</TABLE>
4. 30 DAY TAX-EQUIVALENT YIELD (PURSUANT TO SEC STANDARDIZED FORMULA)
SEC Formula: TEY = Y/(1 - TR)
where: TEY = 30 day tax-equivalent yield
Y = 30 day yield (see above)
TR = assumed applicable tax rate
<TABLE>
<S> <C>
- ----------------------------------------------------------- ---------------------------------------------------------
TR(%) TEY(%)
- ----------------------------------------------------------- ---------------------------------------------------------
- ----------------------------------------------------------- ---------------------------------------------------------
N/A N/A
- ----------------------------------------------------------- ---------------------------------------------------------
</TABLE>
5. 30-DAY DISTRIBUTION RATE (PURSUANT TO NON-STANDARDIZED FORMULA)
Formula: 30 Day Distribution Rate ("Rate")= (ab)/c
where: Rate = 30 day distribution rate
a = distributions in last 30 days
b = number of 30 day periods in year
c = maximum offering price per share on las
day of period
<TABLE>
<S> <C> <C> <C>
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
A B C RATE(%)
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
N/A N/A N/A N/A
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
</TABLE>
SCHEDULE OF SAMPLE PERFORMANCE QUOTATION CALCULATIONS
Norwest Minnesota Intermediate Tax-Free
Note: All performance is for the period ended: 11/30/97
1. AVERAGE ANNUAL TOTAL RETURN (PURSUANT TO SEC STANDARDIZED FORMULA)
SEC Formula: T = ({{[((ERV/P)-1)(1-S)-S](1-R)-R}+1}1/n)-1
where: T = average annual total return
P = initial payment of $1,000
n = number of years
ERV = ending redeemable value of the initial
payment at the end of the period S = Maximum
initial sales charge R = Maximum redemption
charge (calculated based on _______)(i.e.,
lower of purchase amount or redemption
amount)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
a. AVERAGE ANNUAL TOTAL RETURN (assuming deduction of the maximum sales/purchase/redemption charges)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
CAL YR 1 MTH 3 MTH 6 MTH 1 YR 3 YR 5 YR 10 YR INCEPT
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
P($) 1000 1000 1000 1000 1000 1000 1000 1000 1000
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
N(YR) 1/12 1/4 1/2 1 3 5 10
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
ERV
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
S
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
R
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
T(%)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
b. AVERAGE ANNUAL TOTAL RETURN (assuming no deduction of sales/purchase/redemption charges)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
CAL YR 1 MTH 3 MTH 6 MTH 1 YR 3 YR 5 YR 10 YR INCEPT
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
P($) 1000 1000 1000 1000 1000 1000 1000 1000 1000
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
N(YR) - 1/12 1/4 1/2 1 3 5 10 .17
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
ERV - 1,003.20 - - - - - - 1,009.50
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
T(%) - 3.79 - - - - - - 5.74
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
</TABLE>
<PAGE>
2. CUMULATIVE TOTAL RETURN (PURSUANT TO NON-STANDARDIZED FORMULA)
Formula: C = {{[(T + 1)n - 1 - R]/(1 - R)} + S}/(1 - S)
where: C = cumulative total return of the
investment over the specified period T =
average annual total return (see above) P =
initial payment of $1,000 n = number of
years ERV = ending redeemable value of the
initial payment at the end of the period
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
a. CUMULATIVE TOTAL RETURN (assuming deduction of the maximum sales/purchase/redemption charges)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
CAL YR 1 MTH 3 MTH 6 MTH 1 YR 3 YR 5 YR 10 YR INCEPT
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
P($) 1000 1000 1000 1000 1000 1000 1000 1000 1000
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
N(YR) 1/12 1/4 1/2 1 3 5 10
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
ERV
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
S
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
R
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
C(%)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
b. CUMULATIVE OR AGGREGATE TOTAL RETURN (assuming no deduction of sales/purchase/redemption charges)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
CAL YR 1 MTH 3 MTH 6 MTH 1 YR 3 YR 5 YR 10 YR INCEPT
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
P($) 1000 1000 1000 1000 1000 1000 1000 1000 1000
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
N(YR) - 1/12 1/4 1/2 1 3 5 10 .17
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
ERV - 1,003.20 - - - - - - 1,009.50
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
C(%) - .32 - - - - - - .95
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
</TABLE>
<PAGE>
3. 30 DAY YIELD (PURSUANT TO SEC STANDARDIZED FORMULA)
SEC Formula: Y = 2{[(a - b)/(cd) + 1]6 - 1]}
where: Y = 30 day yield
a = dividends and interest earned during the
period b = expenses accrued for the period
(net of reimbursements) c = the average
daily number of shares outstanding during
the period that were entitled to receive
dividends d = the maximum offering price per
share on the last day of the period
<TABLE>
<S> <C> <C> <C> <C>
- ------------------------ ---------------------- ---------------------- ----------------------- ----------------------
A($) B($) C D($) Y(%)
- ------------------------ ---------------------- ---------------------- ----------------------- ----------------------
830,512.26 103,375.26 21,070,292.34 9.96 4.19
- ------------------------ ---------------------- ---------------------- ----------------------- ----------------------
</TABLE>
4. 30 DAY TAX-EQUIVALENT YIELD (PURSUANT TO SEC STANDARDIZED FORMULA)
SEC Formula: TEY = Y/(1 - TR)
where: TEY = 30 day tax-equivalent yield
Y = 30 day yield (see above)
TR = assumed applicable tax rate
<TABLE>
<S> <C>
- ----------------------------------------------------------- ---------------------------------------------------------
TR(%) TEY(%)
- ----------------------------------------------------------- ---------------------------------------------------------
44.80 7.59
- ----------------------------------------------------------- ---------------------------------------------------------
</TABLE>
5. 30-DAY DISTRIBUTION RATE (PURSUANT TO NON-STANDARDIZED FORMULA)
Formula: 30 Day Distribution Rate ("Rate")= (ab)/c
where: Rate = 30 day distribution rate
a = distributions in last 30 days
b = number of 30 day periods in year
c = maximum offering price per share on last
day of period
<TABLE>
<S> <C> <C> <C>
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
A B C RATE(%)
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
N/A N/A N/A N/A
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
</TABLE>
SCHEDULE OF SAMPLE PERFORMANCE QUOTATION CALCULATIONS
Norwest Limited Term Government Income
Note: All performance is for the period ended: 11/30/97
1. AVERAGE ANNUAL TOTAL RETURN (PURSUANT TO SEC STANDARDIZED FORMULA)
SEC Formula: T = ({{[((ERV/P)-1)(1-S)-S](1-R)-R}+1}1/n)-1
where: T = average annual total return
P = initial payment of $1,000
n = number of years
ERV = ending redeemable value of the initial
payment at the end of the period S = Maximum
initial sales charge R = Maximum redemption
charge (calculated based on _______)(i.e.,
lower of purchase amount or redemption
amount)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
a. AVERAGE ANNUAL TOTAL RETURN (assuming deduction of the maximum sales/purchase/redemption charges)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
CAL YR 1 MTH 3 MTH 6 MTH 1 YR 3 YR 5 YR 10 YR INCEPT
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
P($) 1000 1000 1000 1000 1000 1000 1000 1000 1000
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
N(YR) 1/12 1/4 1/2 1 3 5 10
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
ERV
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
S
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
R
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
T(%)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
b. AVERAGE ANNUAL TOTAL RETURN (assuming no deduction of sales/purchase/redemption charges)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
CAL YR 1 MTH 3 MTH 6 MTH 1 YR 3 YR 5 YR 10 YR INCEPT
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
P($) 1000 1000 1000 1000 1000 1000 1000 1000 1000
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
N(YR) - 1/12 1/4 1/2 1 3 5 10 .16
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
ERV - 1,001.90 - - - - - - 1,010.90
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
T(%) - 2.23 - - - - - - 6.72
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
</TABLE>
<PAGE>
2. CUMULATIVE TOTAL RETURN (PURSUANT TO NON-STANDARDIZED FORMULA)
Formula: C = {{[(T + 1)n - 1 - R]/(1 - R)} + S}/(1 - S)
where: C = cumulative total return of the
investment over the specified period T =
average annual total return (see above) P =
initial payment of $1,000 n = number of
years ERV = ending redeemable value of the
initial payment at the end of the period
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
a. CUMULATIVE TOTAL RETURN (assuming deduction of the maximum sales/purchase/redemption charges)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
CAL YR 1 MTH 3 MTH 6 MTH 1 YR 3 YR 5 YR 10 YR INCEPT
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
P($) 1000 1000 1000 1000 1000 1000 1000 1000 1000
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
N(YR) 1/12 1/4 1/2 1 3 5 10
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
ERV
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
S
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
R
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
C(%)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
b. CUMULATIVE OR AGGREGATE TOTAL RETURN (assuming no deduction of sales/purchase/redemption charges)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
CAL YR 1 MTH 3 MTH 6 MTH 1 YR 3 YR 5 YR 10 YR INCEPT
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
P($) 1000 1000 1000 1000 1000 1000 1000 1000 1000
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
N(YR) - 1/12 1/4 1/2 1 3 5 10 .16
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
ERV - 1,001.90 - - - - - - 1,010.90
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
C(%) - .19 - - - - - - 1.09
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
</TABLE>
<PAGE>
3. 30 DAY YIELD (PURSUANT TO SEC STANDARDIZED FORMULA)
SEC Formula: Y = 2{[(a - b)/(cd) + 1]6 - 1]}
where: Y = 30 day yield
a = dividends and interest earned during the
period b = expenses accrued for the period
(net of reimbursements) c = the average
daily number of shares outstanding during
the period that were entitled to receive
dividends d = the maximum offering price per
share on the last day of the period
<TABLE>
<S> <C> <C> <C> <C>
- ------------------------ ---------------------- ---------------------- ----------------------- ----------------------
A($) B($) C D($) Y(%)
- ------------------------ ---------------------- ---------------------- ----------------------- ----------------------
309,493.83 20,763.66 6,402,736.49 9.85 5.56
- ------------------------ ---------------------- ---------------------- ----------------------- ----------------------
</TABLE>
4. 30 DAY TAX-EQUIVALENT YIELD (PURSUANT TO SEC STANDARDIZED FORMULA)
SEC Formula: TEY = Y/(1 - TR)
where: TEY = 30 day tax-equivalent yield
Y = 30 day yield (see above)
TR = assumed applicable tax rate
<TABLE>
<S> <C>
- ----------------------------------------------------------- ---------------------------------------------------------
TR(%) TEY(%)
- ----------------------------------------------------------- ---------------------------------------------------------
N/A N/A
- ----------------------------------------------------------- ---------------------------------------------------------
</TABLE>
5. 30-DAY DISTRIBUTION RATE (PURSUANT TO NON-STANDARDIZED FORMULA)
Formula: 30 Day Distribution Rate ("Rate")= (ab)/c
where: Rate = 30 day distribution rate
a = distributions in last 30 days
b = number of 30 day periods in year
c = maximum offering price per share on last
day of period
<TABLE>
<S> <C> <C> <C>
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
A B C RATE(%)
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
N/A N/A N/A N/A
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
</TABLE>
SCHEDULE OF SAMPLE PERFORMANCE QUOTATION CALCULATIONS
WealthBuilder II Growth Portfolio
Note: All performance is for the period ended: 11/30/97
1. AVERAGE ANNUAL TOTAL RETURN (PURSUANT TO SEC STANDARDIZED FORMULA)
SEC Formula: T = ({{[((ERV/P)-1)(1-S)-S](1-R)-R}+1}1/n)-1
where: T = average annual total return
P = initial payment of $1,000
n = number of years
ERV = ending redeemable value of the initial
payment at the end of the period S = Maximum
initial sales charge R = Maximum redemption
charge (calculated based on _______)(i.e.,
lower of purchase amount or redemption
amount)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
a. AVERAGE ANNUAL TOTAL RETURN (assuming deduction of the maximum sales/purchase/redemption charges)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
CAL YR 1 MTH 3 MTH 6 MTH 1 YR 3 YR 5 YR 10 YR INCEPT
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
P($) 1000 1000 1000 1000 1000 1000 1000 1000 1000
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
N(YR) - 1/12 1/4 1/2 1 3 5 10 0.16
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
ERV - 997.10 - - - - - - 975.00
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
S - 1.50 - - - - - - 1.50
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
R - - - - - - - - -
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
T(%) - (3.46) - - - - - - (14.50)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
b. AVERAGE ANNUAL TOTAL RETURN (assuming no deduction of sales/purchase/redemption charges)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
CAL YR 1 MTH 3 MTH 6 MTH 1 YR 3 YR 5 YR 10 YR INCEPT
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
P($) 1000 1000 1000 1000 1000 1000 1000 1000 1000
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
N(YR) - 1/12 1/4 1/2 1 3 5 10 0.16
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
ERV - 1012.30 - - - - - - 989.00
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
T(%) - 15.46 - - - - - - (6.40)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
</TABLE>
<PAGE>
2. CUMULATIVE TOTAL RETURN (PURSUANT TO NON-STANDARDIZED FORMULA)
Formula: C = {{[(T + 1)n - 1 - R]/(1 - R)} + S}/(1 - S)
where: C = cumulative total return of the
investment over the specified period T =
average annual total return (see above) P =
initial payment of $1,000 n = number of
years ERV = ending redeemable value of the
initial payment at the end of the period
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
a. CUMULATIVE TOTAL RETURN (assuming deduction of the maximum sales/purchase/redemption charges)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
CAL YR 1 MTH 3 MTH 6 MTH 1 YR 3 YR 5 YR 10 YR INCEPT
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
P($) 1000 1000 1000 1000 1000 1000 1000 1000 1000
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
N(YR) - 1/12 1/4 1/2 1 3 5 10 0.16
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
ERV - 997.10 - - - - - - 975.00
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
S - 1.50 - - - - - - 1.50
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
R - - - - - - - - -
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
C(%) - (0.29) - - - - - - (2.50)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
b. CUMULATIVE OR AGGREGATE TOTAL RETURN (assuming no deduction of sales/purchase/redemption charges)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
CAL YR 1 MTH 3 MTH 6 MTH 1 YR 3 YR 5 YR 10 YR INCEPT
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
P($) 1000 1000 1000 1000 1000 1000 1000 1000 1000
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
N(YR) - 1/12 1/4 1/2 1 3 5 10 0.16
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
ERV - 1012.30 - - - - - - 989.00
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
C(%) - 1.23 - - - - - - (1.10)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
</TABLE>
<PAGE>
3. 30 DAY YIELD (PURSUANT TO SEC STANDARDIZED FORMULA)
SEC Formula: Y = 2{[(a - b)/(cd) + 1]6 - 1]}
where: Y = 30 day yield
a = dividends and interest earned during the
period b = expenses accrued for the period
(net of reimbursements) c = the average
daily number of shares outstanding during
the period that were entitled to receive
dividends d = the maximum offering price per
share on the last day of the period
<TABLE>
<S> <C> <C> <C> <C>
- ------------------------ ---------------------- ---------------------- ----------------------- ----------------------
A($) B($) C D($) Y(%)
- ------------------------ ---------------------- ---------------------- ----------------------- ----------------------
N/A N/A N/A N/A N/A
- ------------------------ ---------------------- ---------------------- ----------------------- ----------------------
</TABLE>
4. 30 DAY TAX-EQUIVALENT YIELD (PURSUANT TO SEC STANDARDIZED FORMULA)
SEC Formula: TEY = Y/(1 - TR)
where: TEY = 30 day tax-equivalent yield
Y = 30 day yield (see above)
TR = assumed applicable tax rate
<TABLE>
<S> <C>
- ----------------------------------------------------------- ---------------------------------------------------------
TR(%) TEY(%)
- ----------------------------------------------------------- ---------------------------------------------------------
N/A N/A
- ----------------------------------------------------------- ---------------------------------------------------------
</TABLE>
5. 30-DAY DISTRIBUTION RATE (PURSUANT TO NON-STANDARDIZED FORMULA)
Formula: 30 Day Distribution Rate ("Rate")= (ab)/c
where: Rate = 30 day distribution rate
a = distributions in last 30 days
b = number of 30 day periods in year
c = maximum offering price per share on last
day of period
<TABLE>
<S> <C> <C> <C>
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
A B C RATE(%)
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
N/A N/A N/A N/A
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
</TABLE>
SCHEDULE OF SAMPLE PERFORMANCE QUOTATION CALCULATIONS
WealthBuilder II Growth & Income Portfolio
Note: All performance is for the period ended: 11/30/97
1. AVERAGE ANNUAL TOTAL RETURN (PURSUANT TO SEC STANDARDIZED FORMULA)
SEC Formula: T = ({{[((ERV/P)-1)(1-S)-S](1-R)-R}+1}1/n)-1
where: T = average annual total return
P = initial payment of $1,000
n = number of years
ERV = ending redeemable value of the initial
payment at the end of the period S = Maximum
initial sales charge R = Maximum redemption
charge (calculated based on _______)(i.e.,
lower of purchase amount or redemption
amount)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
a. AVERAGE ANNUAL TOTAL RETURN (assuming deduction of the maximum sales/purchase/redemption charges)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
CAL YR 1 MTH 3 MTH 6 MTH 1 YR 3 YR 5 YR 10 YR INCEPT
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
P($) 1000 1000 1000 1000 1000 1000 1000 1000 1000
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
N(YR) - 1/12 1/4 1/2 1 3 5 10 0.16
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
ERV - 999.40 - - - - - - 958.40
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
S - 1.50 - - - - - - 1.50
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
R - - - - - - - - -
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
T(%) - (0.75) - - - - - - (22.45)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
b. AVERAGE ANNUAL TOTAL RETURN (assuming no deduction of sales/purchase/redemption charges)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
CAL YR 1 MTH 3 MTH 6 MTH 1 YR 3 YR 5 YR 10 YR INCEPT
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
P($) 1000 1000 1000 1000 1000 1000 1000 1000 1000
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
N(YR) - 1/12 1/4 1/2 1 3 5 10 0.16
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
ERV - 1014.60 - - - - - - 973.00
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
T(%) - 18.61 - - - - - - (15.11)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
</TABLE>
<PAGE>
2. CUMULATIVE TOTAL RETURN (PURSUANT TO NON-STANDARDIZED FORMULA)
Formula: C = {{[(T + 1)n - 1 - R]/(1 - R)} + S}/(1 - S)
where: C = cumulative total return of the
investment over the specified period T =
average annual total return (see above) P =
initial payment of $1,000 n = number of
years ERV = ending redeemable value of the
initial payment at the end of the period
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
a. CUMULATIVE TOTAL RETURN (assuming deduction of the maximum sales/purchase/redemption charges)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
CAL YR 1 MTH 3 MTH 6 MTH 1 YR 3 YR 5 YR 10 YR INCEPT
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
P($) 1000 1000 1000 1000 1000 1000 1000 1000 1000
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
N(YR) - 1/12 1/4 1/2 1 3 5 10 0.16
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
ERV - 999.40 - - - - - - 958.40
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
S - 1.50 - - - - - - 1.50
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
R - - - - - - - - -
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
C(%) - (0.06) - - - - - - (4.16)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
b. CUMULATIVE OR AGGREGATE TOTAL RETURN (assuming no deduction of sales/purchase/redemption charges)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
CAL YR 1 MTH 3 MTH 6 MTH 1 YR 3 YR 5 YR 10 YR INCEPT
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
P($) 1000 1000 1000 1000 1000 1000 1000 1000 1000
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
N(YR) - 1/12 1/4 1/2 1 3 5 10 0.16
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
ERV - 1014.60 - - - - - - 973.00
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
C(%) - 1.46 - - - - - - (2.70)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
</TABLE>
<PAGE>
3. 30 DAY YIELD (PURSUANT TO SEC STANDARDIZED FORMULA)
SEC Formula: Y = 2{[(a - b)/(cd) + 1]6 - 1]}
where: Y = 30 day yield
a = dividends and interest earned during the
period b = expenses accrued for the period
(net of reimbursements) c = the average
daily number of shares outstanding during
the period that were entitled to receive
dividends d = the maximum offering price per
share on the last day of the period
<TABLE>
<S> <C> <C> <C> <C>
- ------------------------ ---------------------- ---------------------- ----------------------- ----------------------
A($) B($) C D($) Y(%)
- ------------------------ ---------------------- ---------------------- ----------------------- ----------------------
N/A N/A N/A N/A N/A
- ------------------------ ---------------------- ---------------------- ----------------------- ----------------------
</TABLE>
4. 30 DAY TAX-EQUIVALENT YIELD (PURSUANT TO SEC STANDARDIZED FORMULA)
SEC Formula: TEY = Y/(1 - TR)
where: TEY = 30 day tax-equivalent yield
Y = 30 day yield (see above)
TR = assumed applicable tax rate
<TABLE>
<S> <C>
- ----------------------------------------------------------- ---------------------------------------------------------
TR(%) TEY(%)
- ----------------------------------------------------------- ---------------------------------------------------------
N/A N/A
- ----------------------------------------------------------- ---------------------------------------------------------
</TABLE>
5. 30-DAY DISTRIBUTION RATE (PURSUANT TO NON-STANDARDIZED FORMULA)
Formula: 30 Day Distribution Rate ("Rate")= (ab)/c
where: Rate = 30 day distribution rate
a = distributions in last 30 days
b = number of 30 day periods in year
c = maximum offering price per share on last
day of period
<TABLE>
<S> <C> <C> <C>
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
A B C RATE(%)
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
N/A N/A N/A N/A
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
</TABLE>
SCHEDULE OF SAMPLE PERFORMANCE QUOTATION CALCULATIONS
WealthBuilder II Growth Balanced Portfolio
Note: All performance is for the period ended: 11/30/97
1. AVERAGE ANNUAL TOTAL RETURN (PURSUANT TO SEC STANDARDIZED FORMULA)
SEC Formula: T = ({{[((ERV/P)-1)(1-S)-S](1-R)-R}+1}1/n)-1
where: T = average annual total return
P = initial payment of $1,000
n = number of years
ERV = ending redeemable value of the initial
payment at the end of the period S = Maximum
initial sales charge R = Maximum redemption
charge (calculated based on _______)(i.e.,
lower of purchase amount or redemption
amount)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
a. AVERAGE ANNUAL TOTAL RETURN (assuming deduction of the maximum sales/purchase/redemption charges)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
CAL YR 1 MTH 3 MTH 6 MTH 1 YR 3 YR 5 YR 10 YR INCEPT
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
P($) 1000 1000 1000 1000 1000 1000 1000 1000 1000
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
N(YR) - 1/12 1/4 1/2 1 3 5 10 0.16
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
ERV - 986.00 - - - - - - 982.00
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
S - 1.50 - - - - - - 1.50
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
R - - - - - - - - -
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
T(%) - (15.77) - - - - - - (10.27)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
b. AVERAGE ANNUAL TOTAL RETURN (assuming no deduction of sales/purchase/redemption charges)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
CAL YR 1 MTH 3 MTH 6 MTH 1 YR 3 YR 5 YR 10 YR INCEPT
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
P($) 1000 1000 1000 1000 1000 1000 1000 1000 1000
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
N(YR) - 1/12 1/4 1/2 1 3 5 10 0.16
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
ERV - 1001.00 - - - - - - 997.00
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
T(%) - 1.19 - - - - - - (1.78)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
</TABLE>
<PAGE>
2. CUMULATIVE TOTAL RETURN (PURSUANT TO NON-STANDARDIZED FORMULA)
Formula: C = {{[(T + 1)n - 1 - R]/(1 - R)} + S}/(1 - S)
where: C = cumulative total return of the
investment over the specified period T =
average annual total return (see above) P =
initial payment of $1,000 n = number of
years ERV = ending redeemable value of the
initial payment at the end of the period
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
a. CUMULATIVE TOTAL RETURN (assuming deduction of the maximum sales/purchase/redemption charges)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
CAL YR 1 MTH 3 MTH 6 MTH 1 YR 3 YR 5 YR 10 YR INCEPT
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
P($) 1000 1000 1000 1000 1000 1000 1000 1000 1000
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
N(YR) - 1/12 1/4 1/2 1 3 5 10 0.16
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
ERV - 986.00 - - - - - - 982.00
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
S - 1.50 - - - - - - 1.50
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
R - - - - - - - - -
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
C(%) - (1.40) - - - - - - (1.80)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
b. CUMULATIVE OR AGGREGATE TOTAL RETURN (assuming no deduction of sales/purchase/redemption charges)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
CAL YR 1 MTH 3 MTH 6 MTH 1 YR 3 YR 5 YR 10 YR INCEPT
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
P($) 1000 1000 1000 1000 1000 1000 1000 1000 1000
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
N(YR) - 1/12 1/4 1/2 1 3 5 10 0.16
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
ERV - 1001.00 - - - - - - 997.00
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
C(%) - 0.10 - - - - - - (0.30)
- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
</TABLE>
<PAGE>
3. 30 DAY YIELD (PURSUANT TO SEC STANDARDIZED FORMULA)
SEC Formula: Y = 2{[(a - b)/(cd) + 1]6 - 1]}
where: Y = 30 day yield
a = dividends and interest earned during the
period b = expenses accrued for the period
(net of reimbursements) c = the average
daily number of shares outstanding during
the period that were entitled to receive
dividends d = the maximum offering price per
share on the last day of the period
<TABLE>
<S> <C> <C> <C> <C>
- ------------------------ ---------------------- ---------------------- ----------------------- ----------------------
A($) B($) C D($) Y(%)
- ------------------------ ---------------------- ---------------------- ----------------------- ----------------------
N/A N/A N/A N/A N/A
- ------------------------ ---------------------- ---------------------- ----------------------- ----------------------
</TABLE>
4. 30 DAY TAX-EQUIVALENT YIELD (PURSUANT TO SEC STANDARDIZED FORMULA)
SEC Formula: TEY = Y/(1 - TR)
where: TEY = 30 day tax-equivalent yield
Y = 30 day yield (see above)
TR = assumed applicable tax rate
<TABLE>
<S> <C>
- ----------------------------------------------------------- ---------------------------------------------------------
TR(%) TEY(%)
- ----------------------------------------------------------- ---------------------------------------------------------
N/A N/A
- ----------------------------------------------------------- ---------------------------------------------------------
</TABLE>
5. 30-DAY DISTRIBUTION RATE (PURSUANT TO NON-STANDARDIZED FORMULA)
Formula: 30 Day Distribution Rate ("Rate")= (ab)/c
where: Rate = 30 day distribution rate
a = distributions in last 30 days
b = number of 30 day periods in year
c = maximum offering price per share on last
day of period
<TABLE>
<S> <C> <C> <C>
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
A B C RATE(%)
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
N/A N/A N/A N/A
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NORWEST
ADVANTAGE ANNUAL REPORT DATED NOVEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 010
<NAME> CASH INVESTMENT FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 4,063,189,309
<INVESTMENTS-AT-VALUE> 4,063,189,309
<RECEIVABLES> 119,074
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4,063,308,383
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 8,649,102
<TOTAL-LIABILITIES> 8,649,102
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4,056,544,932
<SHARES-COMMON-STOCK> 4,056,470,093
<SHARES-COMMON-PRIOR> 2,149,671,799
<ACCUMULATED-NII-CURRENT> (147,522)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,738,129)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 4,054,659,281
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 88,730,614
<OTHER-INCOME> 0
<EXPENSES-NET> 4,643,087
<NET-INVESTMENT-INCOME> 84,087,527
<REALIZED-GAINS-CURRENT> (32,653)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 84,054,874
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 84,087,527
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,979,728,152
<NUMBER-OF-SHARES-REDEEMED> 3,943,476,008
<SHARES-REINVESTED> 52,546,150
<NET-CHANGE-IN-ASSETS> 1,906,765,641
<ACCUMULATED-NII-PRIOR> (147,522)
<ACCUMULATED-GAINS-PRIOR> (1,705,476)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 709,326
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,309,867
<AVERAGE-NET-ASSETS> 3,174,281,804
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .03
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .03
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .48
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NORWEST
ADVANTAGE ANNUAL REPORT DATED NOVEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 143
<NAME> COLORADO TAX-FREE FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 59,104,386
<INVESTMENTS-AT-VALUE> 62,510,652
<RECEIVABLES> 1,834,410
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 64,345,062
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 367,650
<TOTAL-LIABILITIES> 367,650
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 61,129,325
<SHARES-COMMON-STOCK> 2,519,990
<SHARES-COMMON-PRIOR> 2,535,381
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (558,179)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,406,266
<NET-ASSETS> 63,977,412
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,794,848
<OTHER-INCOME> 0
<EXPENSES-NET> 216,842
<NET-INVESTMENT-INCOME> 1,578,006
<REALIZED-GAINS-CURRENT> 472,229
<APPREC-INCREASE-CURRENT> 1,487,062
<NET-CHANGE-FROM-OPS> 3,537,297
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 666,870
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,119,956
<NUMBER-OF-SHARES-REDEEMED> 2,289,220
<SHARES-REINVESTED> 15,396
<NET-CHANGE-IN-ASSETS> 3,036,913
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (1,030,408)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 158,360
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 358,955
<AVERAGE-NET-ASSETS> 26,227,597
<PER-SHARE-NAV-BEGIN> 10.22
<PER-SHARE-NII> 0.27
<PER-SHARE-GAIN-APPREC> 0.33
<PER-SHARE-DIVIDEND> 0.27
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.55
<EXPENSE-RATIO> 0.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NORWEST
ADVANTAGE ANNUAL REPORT DATED NOVEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 141
<NAME> COLORADO TAX-FREE FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 59,104,386
<INVESTMENTS-AT-VALUE> 62,510,652
<RECEIVABLES> 1,834,410
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 64,345,062
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 367,650
<TOTAL-LIABILITIES> 367,650
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 61,129,325
<SHARES-COMMON-STOCK> 2,831,956
<SHARES-COMMON-PRIOR> 2,720,629
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (558,179)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,406,266
<NET-ASSETS> 63,977,412
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,794,848
<OTHER-INCOME> 0
<EXPENSES-NET> 216,842
<NET-INVESTMENT-INCOME> 1,578,006
<REALIZED-GAINS-CURRENT> 472,229
<APPREC-INCREASE-CURRENT> 1,487,062
<NET-CHANGE-FROM-OPS> 3,537,297
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 756,990
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,820,355
<NUMBER-OF-SHARES-REDEEMED> 2,286,003
<SHARES-REINVESTED> 600,688
<NET-CHANGE-IN-ASSETS> 3,036,913
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (1,030,408)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 158,360
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 358,955
<AVERAGE-NET-ASSETS> 29,807,806
<PER-SHARE-NAV-BEGIN> 10.22
<PER-SHARE-NII> 0.26
<PER-SHARE-GAIN-APPREC> 0.32
<PER-SHARE-DIVIDEND> 0.26
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.54
<EXPENSE-RATIO> 0.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NORWEST
ADVANTAGE ANNUAL REPORT DATED NOVEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 142
<NAME> COLORADO TAX-FREE FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 59,104,386
<INVESTMENTS-AT-VALUE> 62,510,652
<RECEIVABLES> 1,834,410
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 64,345,062
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 367,650
<TOTAL-LIABILITIES> 367,650
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 61,129,325
<SHARES-COMMON-STOCK> 713,990
<SHARES-COMMON-PRIOR> 705,343
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (558,179)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,406,266
<NET-ASSETS> 63,977,412
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,794,848
<OTHER-INCOME> 0
<EXPENSES-NET> 216,842
<NET-INVESTMENT-INCOME> 1,578,006
<REALIZED-GAINS-CURRENT> 472,229
<APPREC-INCREASE-CURRENT> 1,487,062
<NET-CHANGE-FROM-OPS> 3,537,297
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 154,146
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,031,300
<NUMBER-OF-SHARES-REDEEMED> 1,040,319
<SHARES-REINVESTED> 105,469
<NET-CHANGE-IN-ASSETS> 3,036,913
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (1,030,408)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 158,360
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 358,955
<AVERAGE-NET-ASSETS> 7,135,421
<PER-SHARE-NAV-BEGIN> 10.23
<PER-SHARE-NII> 0.23
<PER-SHARE-GAIN-APPREC> 0.33
<PER-SHARE-DIVIDEND> 0.23
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.56
<EXPENSE-RATIO> 1.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NORWEST
ADVANTAGE ANNUAL REPORT DATED NOVEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 180
<NAME> CONTRARIAN STOCK FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 4,439,379
<INVESTMENTS-AT-VALUE> 5,083,753
<RECEIVABLES> 179,549
<ASSETS-OTHER> 505,142
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5,768,444
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 555,749
<TOTAL-LIABILITIES> 555,749
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,643,805
<SHARES-COMMON-STOCK> 515,725
<SHARES-COMMON-PRIOR> 805,532
<ACCUMULATED-NII-CURRENT> 10,507
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,085,981)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 644,374
<NET-ASSETS> 5,212,705
<DIVIDEND-INCOME> 53,339
<INTEREST-INCOME> 14,004
<OTHER-INCOME> 0
<EXPENSES-NET> 45,602
<NET-INVESTMENT-INCOME> 21,741
<REALIZED-GAINS-CURRENT> 832,468
<APPREC-INCREASE-CURRENT> (621,042)
<NET-CHANGE-FROM-OPS> 233,167
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 86,876
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,290,248
<NUMBER-OF-SHARES-REDEEMED> 4,493,498
<SHARES-REINVESTED> 9,441
<NET-CHANGE-IN-ASSETS> (3,047,518)
<ACCUMULATED-NII-PRIOR> 75,642
<ACCUMULATED-GAINS-PRIOR> (1,918,449)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 30,389
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 81,943
<AVERAGE-NET-ASSETS> 7,576,373
<PER-SHARE-NAV-BEGIN> 10.25
<PER-SHARE-NII> .07
<PER-SHARE-GAIN-APPREC> (.06)
<PER-SHARE-DIVIDEND> (.15)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.11
<EXPENSE-RATIO> 1.20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NORWEST
ADVANTAGE ANNUAL REPORT DATED NOVEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 260
<NAME> DIVERSIFIED BOND FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 169,669,343
<INVESTMENTS-AT-VALUE> 175,404,424
<RECEIVABLES> 322,591
<ASSETS-OTHER> 23,277
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 175,750,292
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 762,225
<TOTAL-LIABILITIES> 762,225
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 158,778,926
<SHARES-COMMON-STOCK> 6,374,996
<SHARES-COMMON-PRIOR> 6,340,340
<ACCUMULATED-NII-CURRENT> 11,210,087
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (50,027)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,735,081
<NET-ASSETS> 175,674,067
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5,711,043
<OTHER-INCOME> (355,597)
<EXPENSES-NET> 233,411
<NET-INVESTMENT-INCOME> 5,122,035
<REALIZED-GAINS-CURRENT> 732,606
<APPREC-INCREASE-CURRENT> 6,461,838
<NET-CHANGE-FROM-OPS> 12,316,479
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 24,955,766
<NUMBER-OF-SHARES-REDEEMED> 23,907,951
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 13,364,294
<ACCUMULATED-NII-PRIOR> 6,088,052
<ACCUMULATED-GAINS-PRIOR> (782,633)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 508,318
<AVERAGE-NET-ASSETS> 167,214,161
<PER-SHARE-NAV-BEGIN> 25.60
<PER-SHARE-NII> 0.80
<PER-SHARE-GAIN-APPREC> 1.16
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 27.56
<EXPENSE-RATIO> 0.70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NORWEST
ADVANTAGE ANNUAL REPORT DATED NOVEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 252
<NAME> DIVERSIFIED EQUITY FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 999,291,380
<INVESTMENTS-AT-VALUE> 1,452,703,964
<RECEIVABLES> 1,117,390
<ASSETS-OTHER> 23,277
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,453,844,631
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,492,313
<TOTAL-LIABILITIES> 1,492,313
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 902,818,855
<SHARES-COMMON-STOCK> 953,804
<SHARES-COMMON-PRIOR> 692,261
<ACCUMULATED-NII-CURRENT> 11,194,257
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 84,926,622
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 453,412,584
<NET-ASSETS> 1,452,352,318
<DIVIDEND-INCOME> 9,618,819
<INTEREST-INCOME> 1,659,319
<OTHER-INCOME> (3,859,755)
<EXPENSES-NET> 3,376,423
<NET-INVESTMENT-INCOME> 4,041,960
<REALIZED-GAINS-CURRENT> 67,905,873
<APPREC-INCREASE-CURRENT> 63,435,984
<NET-CHANGE-FROM-OPS> 135,383,817
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 12,440,759
<NUMBER-OF-SHARES-REDEEMED> 1,979,602
<SHARES-REINVESTED> 271
<NET-CHANGE-IN-ASSETS> 180,645,806
<ACCUMULATED-NII-PRIOR> 7,152,297
<ACCUMULATED-GAINS-PRIOR> 17,020,749
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,268,114
<AVERAGE-NET-ASSETS> 32,582,549
<PER-SHARE-NAV-BEGIN> 36.51
<PER-SHARE-NII> .06
<PER-SHARE-GAIN-APPREC> 3.86
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 40.43
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NORWEST
ADVANTAGE ANNUAL REPORT DATED NOVEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 251
<NAME> DIVERSIFIED EQUITY FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 999,291,380
<INVESTMENTS-AT-VALUE> 1,452,703,964
<RECEIVABLES> 1,117,390
<ASSETS-OTHER> 23,277
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,453,844,631
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,492,313
<TOTAL-LIABILITIES> 1,492,313
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 902,818,855
<SHARES-COMMON-STOCK> 33,635,596
<SHARES-COMMON-PRIOR> 33,218,060
<ACCUMULATED-NII-CURRENT> 11,194,257
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 84,926,622
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 453,412,584
<NET-ASSETS> 1,452,352,318
<DIVIDEND-INCOME> 9,618,819
<INTEREST-INCOME> 1,659,319
<OTHER-INCOME> (3,859,755)
<EXPENSES-NET> 3,376,423
<NET-INVESTMENT-INCOME> 4,041,960
<REALIZED-GAINS-CURRENT> 67,905,873
<APPREC-INCREASE-CURRENT> 63,435,984
<NET-CHANGE-FROM-OPS> 135,383,817
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 163,268,850
<NUMBER-OF-SHARES-REDEEMED> 145,001,786
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 180,645,806
<ACCUMULATED-NII-PRIOR> 7,152,297
<ACCUMULATED-GAINS-PRIOR> 17,020,749
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,268,114
<AVERAGE-NET-ASSETS> 1,326,303,087
<PER-SHARE-NAV-BEGIN> 36.50
<PER-SHARE-NII> .12
<PER-SHARE-GAIN-APPREC> 3.80
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 40.42
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NORWEST
ADVANTAGE ANNUAL REPORT DATED NOVEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 300
<NAME> GROWTH BALANCED FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 429,574,508
<INVESTMENTS-AT-VALUE> 565,869,693
<RECEIVABLES> 300,304
<ASSETS-OTHER> 23,277
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 566,193,274
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 449,607
<TOTAL-LIABILITIES> 449,607
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 389,322,125
<SHARES-COMMON-STOCK> 20,796,830
<SHARES-COMMON-PRIOR> 20,319,060
<ACCUMULATED-NII-CURRENT> 13,584,495
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 26,491,862
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 136,295,185
<NET-ASSETS> 565,693,667
<DIVIDEND-INCOME> 2,459,847
<INTEREST-INCOME> 6,759,905
<OTHER-INCOME> (1,379,014)
<EXPENSES-NET> 1,171,686
<NET-INVESTMENT-INCOME> 6,669,052
<REALIZED-GAINS-CURRENT> 19,626,950
<APPREC-INCREASE-CURRENT> 22,703,410
<NET-CHANGE-FROM-OPS> 48,999,412
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 71,010,663
<NUMBER-OF-SHARES-REDEEMED> 57,698,242
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 62,311,833
<ACCUMULATED-NII-PRIOR> 6,915,443
<ACCUMULATED-GAINS-PRIOR> 6,864,912
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,584,731
<AVERAGE-NET-ASSETS> 543,551,503
<PER-SHARE-NAV-BEGIN> 24.77
<PER-SHARE-NII> .31
<PER-SHARE-GAIN-APPREC> 2.12
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 27.20
<EXPENSE-RATIO> .94
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NORWEST
ADVANTAGE ANNUAL REPORT DATED NOVEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 242
<NAME> GROWTH EQUITY
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 764,347,239
<INVESTMENTS-AT-VALUE> 981,752,611
<RECEIVABLES> 1,884,976
<ASSETS-OTHER> 23,277
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 983,660,864
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 712,718
<TOTAL-LIABILITIES> 712,718
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 662,545,989
<SHARES-COMMON-STOCK> 522,349
<SHARES-COMMON-PRIOR> 435,432
<ACCUMULATED-NII-CURRENT> 333,611
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 102,663,174
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 217,405,372
<NET-ASSETS> 982,948,146
<DIVIDEND-INCOME> 3,951,212
<INTEREST-INCOME> 1,405,364
<OTHER-INCOME> (3,849,653)
<EXPENSES-NET> 2,407,362
<NET-INVESTMENT-INCOME> (900,439)
<REALIZED-GAINS-CURRENT> 83,032,773
<APPREC-INCREASE-CURRENT> (680,314)
<NET-CHANGE-FROM-OPS> 81,452,020
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,925,848
<NUMBER-OF-SHARES-REDEEMED> 1,846,434
<SHARES-REINVESTED> 536
<NET-CHANGE-IN-ASSETS> 64,668,927
<ACCUMULATED-NII-PRIOR> 1,234,050
<ACCUMULATED-GAINS-PRIOR> 19,630,401
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,920,336
<AVERAGE-NET-ASSETS> 17,186,167
<PER-SHARE-NAV-BEGIN> 32.49
<PER-SHARE-NII> (.05)
<PER-SHARE-GAIN-APPREC> 2.96
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 35.40
<EXPENSE-RATIO> 1.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NORWEST
ADVANTAGE ANNUAL REPORT DATED NOVEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 241
<NAME> GROWTH EQUITY
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 764,347,239
<INVESTMENTS-AT-VALUE> 981,752,611
<RECEIVABLES> 1,884,976
<ASSETS-OTHER> 23,277
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 983,660,864
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 712,718
<TOTAL-LIABILITIES> 712,718
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 662,545,989
<SHARES-COMMON-STOCK> 26,912,606
<SHARES-COMMON-PRIOR> 27,564,448
<ACCUMULATED-NII-CURRENT> 333,611
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 102,663,174
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 217,405,372
<NET-ASSETS> 982,948,146
<DIVIDEND-INCOME> 3,951,212
<INTEREST-INCOME> 1,405,364
<OTHER-INCOME> (3,849,653)
<EXPENSES-NET> 2,407,362
<NET-INVESTMENT-INCOME> (900,439)
<REALIZED-GAINS-CURRENT> 83,032,773
<APPREC-INCREASE-CURRENT> (680,314)
<NET-CHANGE-FROM-OPS> 81,452,020
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 98,927,876
<NUMBER-OF-SHARES-REDEEMED> 121,157,253
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 64,668,927
<ACCUMULATED-NII-PRIOR> 1,234,050
<ACCUMULATED-GAINS-PRIOR> 19,630,401
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,920,336
<AVERAGE-NET-ASSETS> 961,771,420
<PER-SHARE-NAV-BEGIN> 32.48
<PER-SHARE-NII> (.03)
<PER-SHARE-GAIN-APPREC> 2.95
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 35.40
<EXPENSE-RATIO> 1.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NORWEST
ADVANTAGE ANNUAL REPORT DATED NOVEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 243
<NAME> GROWTH EQUITY
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 764,347,239
<INVESTMENTS-AT-VALUE> 981,752,611
<RECEIVABLES> 1,884,976
<ASSETS-OTHER> 23,277
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 983,660,864
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 712,718
<TOTAL-LIABILITIES> 712,718
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 662,545,989
<SHARES-COMMON-STOCK> 336,719
<SHARES-COMMON-PRIOR> 269,957
<ACCUMULATED-NII-CURRENT> 333,611
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 102,663,174
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 217,405,372
<NET-ASSETS> 982,948,146
<DIVIDEND-INCOME> 3,951,212
<INTEREST-INCOME> 1,405,364
<OTHER-INCOME> (3,849,653)
<EXPENSES-NET> 2,407,362
<NET-INVESTMENT-INCOME> (900,439)
<REALIZED-GAINS-CURRENT> 83,032,773
<APPREC-INCREASE-CURRENT> (680,314)
<NET-CHANGE-FROM-OPS> 81,452,020
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,920,794
<NUMBER-OF-SHARES-REDEEMED> 554,460
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 64,668,927
<ACCUMULATED-NII-PRIOR> 1,234,050
<ACCUMULATED-GAINS-PRIOR> 19,630,401
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,920,336
<AVERAGE-NET-ASSETS> 10,512,681
<PER-SHARE-NAV-BEGIN> 32.28
<PER-SHARE-NII> (.15)
<PER-SHARE-GAIN-APPREC> 2.91
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 35.04
<EXPENSE-RATIO> 2.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NORWEST
ADVANTAGE ANNUAL REPORT DATED NOVEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 102
<NAME> INCOME FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 270,609,076
<INVESTMENTS-AT-VALUE> 277,735,282
<RECEIVABLES> 3,625,772
<ASSETS-OTHER> 72,934,613
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 354,295,667
<PAYABLE-FOR-SECURITIES> 2,299,741
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 74,496,202
<TOTAL-LIABILITIES> 76,795,943
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 286,800,505
<SHARES-COMMON-STOCK> 410,575
<SHARES-COMMON-PRIOR> 361,657
<ACCUMULATED-NII-CURRENT> 17,328
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (16,444,315)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7,126,206
<NET-ASSETS> 277,499,724
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 9,704,700
<OTHER-INCOME> 0
<EXPENSES-NET> 1,035,168
<NET-INVESTMENT-INCOME> 8,669,532
<REALIZED-GAINS-CURRENT> 1,726,581
<APPREC-INCREASE-CURRENT> 10,053,305
<NET-CHANGE-FROM-OPS> 20,449,418
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 102,006
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 582,102
<NUMBER-OF-SHARES-REDEEMED> 201,058
<SHARES-REINVESTED> 85,321
<NET-CHANGE-IN-ASSETS> 10,802,083
<ACCUMULATED-NII-PRIOR> 17,328
<ACCUMULATED-GAINS-PRIOR> (18,170,896)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 681,117
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,292,731
<AVERAGE-NET-ASSETS> 3,631,785
<PER-SHARE-NAV-BEGIN> 9.26
<PER-SHARE-NII> 0.27
<PER-SHARE-GAIN-APPREC> 0.41
<PER-SHARE-DIVIDEND> 0.27
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.67
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NORWEST
ADVANTAGE ANNUAL REPORT DATED NOVEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 101
<NAME> INCOME FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 270,609,076
<INVESTMENTS-AT-VALUE> 277,735,282
<RECEIVABLES> 3,625,772
<ASSETS-OTHER> 72,934,613
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 354,295,667
<PAYABLE-FOR-SECURITIES> 2,299,741
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 74,496,202
<TOTAL-LIABILITIES> 76,795,943
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 286,800,505
<SHARES-COMMON-STOCK> 563,394
<SHARES-COMMON-PRIOR> 554,472
<ACCUMULATED-NII-CURRENT> 17,328
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (16,444,315)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7,126,206
<NET-ASSETS> 277,499,724
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 9,704,700
<OTHER-INCOME> 0
<EXPENSES-NET> 1,035,168
<NET-INVESTMENT-INCOME> 8,669,532
<REALIZED-GAINS-CURRENT> 1,726,581
<APPREC-INCREASE-CURRENT> 10,053,305
<NET-CHANGE-FROM-OPS> 20,449,418
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 170,262
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 654,481
<NUMBER-OF-SHARES-REDEEMED> 713,172
<SHARES-REINVESTED> 141,672
<NET-CHANGE-IN-ASSETS> 10,802,083
<ACCUMULATED-NII-PRIOR> 17,328
<ACCUMULATED-GAINS-PRIOR> (18,170,896)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 681,117
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,292,731
<AVERAGE-NET-ASSETS> 5,327,961
<PER-SHARE-NAV-BEGIN> 9.27
<PER-SHARE-NII> 0.30
<PER-SHARE-GAIN-APPREC> 0.42
<PER-SHARE-DIVIDEND> 0.30
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.69
<EXPENSE-RATIO> 0.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NORWEST
ADVANTAGE ANNUAL REPORT DATED NOVEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 103
<NAME> INCOME FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 270,609,076
<INVESTMENTS-AT-VALUE> 277,735,282
<RECEIVABLES> 3,625,772
<ASSETS-OTHER> 72,934,613
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 354,295,667
<PAYABLE-FOR-SECURITIES> 2,299,741
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 74,496,202
<TOTAL-LIABILITIES> 76,795,943
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 286,800,505
<SHARES-COMMON-STOCK> 27,694,960
<SHARES-COMMON-PRIOR> 27,868,740
<ACCUMULATED-NII-CURRENT> 17,328
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (16,444,315)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7,126,206
<NET-ASSETS> 277,499,724
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 9,704,700
<OTHER-INCOME> 0
<EXPENSES-NET> 1,035,168
<NET-INVESTMENT-INCOME> 8,669,532
<REALIZED-GAINS-CURRENT> 1,726,581
<APPREC-INCREASE-CURRENT> 10,053,305
<NET-CHANGE-FROM-OPS> 20,449,418
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8,397,264
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 150,887,618
<NUMBER-OF-SHARES-REDEEMED> 152,605,583
<SHARES-REINVESTED> 190,816
<NET-CHANGE-IN-ASSETS> 10,802,083
<ACCUMULATED-NII-PRIOR> 17,328
<ACCUMULATED-GAINS-PRIOR> (18,170,896)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 681,117
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,292,731
<AVERAGE-NET-ASSETS> 262,742,651
<PER-SHARE-NAV-BEGIN> 9.27
<PER-SHARE-NII> 0.30
<PER-SHARE-GAIN-APPREC> 0.41
<PER-SHARE-DIVIDEND> 0.30
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.68
<EXPENSE-RATIO> 0.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NORWEST
ADVANTAGE ANNUAL REPORT DATED NOVEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 210
<NAME> INDEX FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 414,115,035
<INVESTMENTS-AT-VALUE> 574,531,659
<RECEIVABLES> 1,397,291
<ASSETS-OTHER> 23,277
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 575,952,227
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 72,289
<TOTAL-LIABILITIES> 72,289
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 357,371,952
<SHARES-COMMON-STOCK> 12,857,731
<SHARES-COMMON-PRIOR> 12,993,418
<ACCUMULATED-NII-CURRENT> 9,273,373
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 48,817,989
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 160,416,624
<NET-ASSETS> 575,879,938
<DIVIDEND-INCOME> 4,269,650
<INTEREST-INCOME> 794,863
<OTHER-INCOME> (494,964)
<EXPENSES-NET> 174,267
<NET-INVESTMENT-INCOME> 4,395,282
<REALIZED-GAINS-CURRENT> 13,875,481
<APPREC-INCREASE-CURRENT> 44,896,353
<NET-CHANGE-FROM-OPS> 63,167,116
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 113,723,318
<NUMBER-OF-SHARES-REDEEMED> 114,144,392
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 62,746,042
<ACCUMULATED-NII-PRIOR> 4,878,091
<ACCUMULATED-GAINS-PRIOR> 34,942,508
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 889,002
<AVERAGE-NET-ASSETS> 535,030,923
<PER-SHARE-NAV-BEGIN> 39.49
<PER-SHARE-NII> .35
<PER-SHARE-GAIN-APPREC> 4.95
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 44.79
<EXPENSE-RATIO> .25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NORWEST
ADVANTAGE ANNUAL REPORT DATED NOVEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 222
<NAME> INCOME EQUITY FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 741,344,105
<INVESTMENTS-AT-VALUE> 1,122,779,563
<RECEIVABLES> 599,188
<ASSETS-OTHER> 23,277
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,123,402,028
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 708,630
<TOTAL-LIABILITIES> 708,630
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 919,036,803
<SHARES-COMMON-STOCK> 1,506,928
<SHARES-COMMON-PRIOR> 1,317,923
<ACCUMULATED-NII-CURRENT> 3,829,698
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 8,529,502
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 191,297,395
<NET-ASSETS> 1,122,693,398
<DIVIDEND-INCOME> 9,402,216
<INTEREST-INCOME> 349,650
<OTHER-INCOME> (2,071,503)
<EXPENSES-NET> 1,434,356
<NET-INVESTMENT-INCOME> 5,886,007
<REALIZED-GAINS-CURRENT> 8,532,029
<APPREC-INCREASE-CURRENT> 68,820,294
<NET-CHANGE-FROM-OPS> 83,238,330
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 333,604
<DISTRIBUTIONS-OF-GAINS> 650,324
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9,400,609
<NUMBER-OF-SHARES-REDEEMED> 3,679,928
<SHARES-REINVESTED> 967,080
<NET-CHANGE-IN-ASSETS> 620,162,159
<ACCUMULATED-NII-PRIOR> 1,669,443
<ACCUMULATED-GAINS-PRIOR> 7,518,036
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,558,224
<AVERAGE-NET-ASSETS> 50,610,280
<PER-SHARE-NAV-BEGIN> 33.16
<PER-SHARE-NII> .27
<PER-SHARE-GAIN-APPREC> 3.94
<PER-SHARE-DIVIDEND> .24
<PER-SHARE-DISTRIBUTIONS> .46
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 36.67
<EXPENSE-RATIO> .85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NORWEST
ADVANTAGE ANNUAL REPORT DATED NOVEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 221
<NAME> INCOME EQUITY FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 741,344,105
<INVESTMENTS-AT-VALUE> 1,122,779,563
<RECEIVABLES> 599,188
<ASSETS-OTHER> 23,277
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,123,402,028
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 708,630
<TOTAL-LIABILITIES> 708,630
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 919,036,803
<SHARES-COMMON-STOCK> 27,870,834
<SHARES-COMMON-PRIOR> 12,822,741
<ACCUMULATED-NII-CURRENT> 3,829,698
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 8,529,502
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 191,297,395
<NET-ASSETS> 1,122,693,398
<DIVIDEND-INCOME> 9,402,216
<INTEREST-INCOME> 349,650
<OTHER-INCOME> (2,071,503)
<EXPENSES-NET> 1,434,356
<NET-INVESTMENT-INCOME> 5,886,007
<REALIZED-GAINS-CURRENT> 8,532,029
<APPREC-INCREASE-CURRENT> 68,820,294
<NET-CHANGE-FROM-OPS> 83,238,330
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,241,872
<DISTRIBUTIONS-OF-GAINS> 6,351,116
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,062,154,264
<NUMBER-OF-SHARES-REDEEMED> 530,054,094
<SHARES-REINVESTED> 1,366,480
<NET-CHANGE-IN-ASSETS> 620,162,159
<ACCUMULATED-NII-PRIOR> 1,669,443
<ACCUMULATED-GAINS-PRIOR> 7,518,036
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,558,224
<AVERAGE-NET-ASSETS> 696,304,400
<PER-SHARE-NAV-BEGIN> 33.16
<PER-SHARE-NII> .26
<PER-SHARE-GAIN-APPREC> 3.95
<PER-SHARE-DIVIDEND> .24
<PER-SHARE-DISTRIBUTIONS> .46
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 36.67
<EXPENSE-RATIO> .85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NORWEST
ADVANTAGE ANNUAL REPORT DATED NOVEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 223
<NAME> INCOME EQUITY FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 741,344,105
<INVESTMENTS-AT-VALUE> 1,122,779,563
<RECEIVABLES> 599,188
<ASSETS-OTHER> 23,277
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,123,402,028
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 708,630
<TOTAL-LIABILITIES> 708,630
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 919,036,803
<SHARES-COMMON-STOCK> 1,242,716
<SHARES-COMMON-PRIOR> 1,016,062
<ACCUMULATED-NII-CURRENT> 3,829,698
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 8,529,502
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 191,297,395
<NET-ASSETS> 1,122,693,398
<DIVIDEND-INCOME> 9,402,216
<INTEREST-INCOME> 349,650
<OTHER-INCOME> (2,071,503)
<EXPENSES-NET> 1,434,356
<NET-INVESTMENT-INCOME> 5,886,007
<REALIZED-GAINS-CURRENT> 8,532,029
<APPREC-INCREASE-CURRENT> 68,820,294
<NET-CHANGE-FROM-OPS> 83,238,330
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 150,276
<DISTRIBUTIONS-OF-GAINS> 519,123
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9,571,315
<NUMBER-OF-SHARES-REDEEMED> 2,203,830
<SHARES-REINVESTED> 648,248
<NET-CHANGE-IN-ASSETS> 620,162,159
<ACCUMULATED-NII-PRIOR> 1,669,443
<ACCUMULATED-GAINS-PRIOR> 7,518,036
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,558,224
<AVERAGE-NET-ASSETS> 40,409,215
<PER-SHARE-NAV-BEGIN> 33.09
<PER-SHARE-NII> .13
<PER-SHARE-GAIN-APPREC> 3.95
<PER-SHARE-DIVIDEND> .14
<PER-SHARE-DISTRIBUTIONS> .46
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 36.57
<EXPENSE-RATIO> 1.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NORWEST
ADVANTAGE ANNUAL REPORT DATED NOVEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 272
<NAME> INTERMEDIATE GOVERNMENT INCOME FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 381,688,193
<INVESTMENTS-AT-VALUE> 388,021,877
<RECEIVABLES> 5,292,113
<ASSETS-OTHER> 112,763,817
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 506,077,807
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 113,247,456
<TOTAL-LIABILITIES> 113,247,456
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 412,461,571
<SHARES-COMMON-STOCK> 1,105,946
<SHARES-COMMON-PRIOR> 1,202,891
<ACCUMULATED-NII-CURRENT> 393,727
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (26,358,631)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6,333,684
<NET-ASSETS> 392,830,351
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 14,023,873
<OTHER-INCOME> 0
<EXPENSES-NET> 1,370,106
<NET-INVESTMENT-INCOME> 12,653,767
<REALIZED-GAINS-CURRENT> 1,016,514
<APPREC-INCREASE-CURRENT> 9,921,425
<NET-CHANGE-FROM-OPS> 23,591,706
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 401,857
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 974,916
<NUMBER-OF-SHARES-REDEEMED> 2,332,961
<SHARES-REINVESTED> 286,250
<NET-CHANGE-IN-ASSETS> (455,820)
<ACCUMULATED-NII-PRIOR> 10,583
<ACCUMULATED-GAINS-PRIOR> (27,375,145)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 648,998
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,473,386
<AVERAGE-NET-ASSETS> 12,846,796
<PER-SHARE-NAV-BEGIN> 10.84
<PER-SHARE-NII> 0.36
<PER-SHARE-GAIN-APPREC> 0.31
<PER-SHARE-DIVIDEND> 0.35
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.16
<EXPENSE-RATIO> 0.68
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NORWEST
ADVANTAGE ANNUAL REPORT DATED NOVEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 273
<NAME> INTERMEDIATE GOVERNMENT INCOME FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 381,688,193
<INVESTMENTS-AT-VALUE> 388,021,877
<RECEIVABLES> 5,292,113
<ASSETS-OTHER> 112,763,817
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 506,077,807
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 113,247,456
<TOTAL-LIABILITIES> 113,247,456
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 412,461,571
<SHARES-COMMON-STOCK> 772,661
<SHARES-COMMON-PRIOR> 828,046
<ACCUMULATED-NII-CURRENT> 393,727
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (26,358,631)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6,333,684
<NET-ASSETS> 392,830,351
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 14,023,873
<OTHER-INCOME> 0
<EXPENSES-NET> 1,370,106
<NET-INVESTMENT-INCOME> 12,653,767
<REALIZED-GAINS-CURRENT> 1,016,514
<APPREC-INCREASE-CURRENT> 9,921,425
<NET-CHANGE-FROM-OPS> 23,591,706
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 242,783
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 921,312
<NUMBER-OF-SHARES-REDEEMED> 1,683,347
<SHARES-REINVESTED> 148,361
<NET-CHANGE-IN-ASSETS> (455,820)
<ACCUMULATED-NII-PRIOR> 10,583
<ACCUMULATED-GAINS-PRIOR> (27,375,145)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 648,998
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,473,386
<AVERAGE-NET-ASSETS> 8,785,607
<PER-SHARE-NAV-BEGIN> 10.83
<PER-SHARE-NII> 0.32
<PER-SHARE-GAIN-APPREC> 0.31
<PER-SHARE-DIVIDEND> 0.31
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.15
<EXPENSE-RATIO> 1.43
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NORWEST
ADVANTAGE ANNUAL REPORT DATED NOVEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 271
<NAME> INTERMEDIATE GOVERNMENT INCOME FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 381,688,193
<INVESTMENTS-AT-VALUE> 388,021,877
<RECEIVABLES> 5,292,113
<ASSETS-OTHER> 112,763,817
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 506,077,807
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 113,247,456
<TOTAL-LIABILITIES> 113,247,456
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 412,461,571
<SHARES-COMMON-STOCK> 33,323,151
<SHARES-COMMON-PRIOR> 34,242,058
<ACCUMULATED-NII-CURRENT> 393,727
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (26,358,631)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6,333,684
<NET-ASSETS> 392,830,351
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 14,023,873
<OTHER-INCOME> 0
<EXPENSES-NET> 1,370,106
<NET-INVESTMENT-INCOME> 12,653,767
<REALIZED-GAINS-CURRENT> 1,016,514
<APPREC-INCREASE-CURRENT> 9,921,425
<NET-CHANGE-FROM-OPS> 23,591,706
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 11,625,983
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 251,867,687
<NUMBER-OF-SHARES-REDEEMED> 263,158,384
<SHARES-REINVESTED> 1,199,263
<NET-CHANGE-IN-ASSETS> (455,820)
<ACCUMULATED-NII-PRIOR> 10,583
<ACCUMULATED-GAINS-PRIOR> (27,375,145)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 648,998
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,473,386
<AVERAGE-NET-ASSETS> 370,624,829
<PER-SHARE-NAV-BEGIN> 10.84
<PER-SHARE-NII> 0.36
<PER-SHARE-GAIN-APPREC> 0.31
<PER-SHARE-DIVIDEND> 0.35
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.16
<EXPENSE-RATIO> 0.68
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NORWEST
ADVANTAGE ANNUAL REPORT DATED NOVEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 232
<NAME> INTERNATIONAL FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 222,300,067
<INVESTMENTS-AT-VALUE> 238,370,553
<RECEIVABLES> 24,694
<ASSETS-OTHER> 23,277
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 238,418,524
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 464,400
<TOTAL-LIABILITIES> 464,400
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 218,669,261
<SHARES-COMMON-STOCK> 143,762
<SHARES-COMMON-PRIOR> 103,425
<ACCUMULATED-NII-CURRENT> 2,607,840
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 606,537
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 16,070,486
<NET-ASSETS> 237,954,124
<DIVIDEND-INCOME> 1,481,953
<INTEREST-INCOME> 572,238
<OTHER-INCOME> (833,923)
<EXPENSES-NET> 1,056,225
<NET-INVESTMENT-INCOME> 164,043
<REALIZED-GAINS-CURRENT> 1,703,155
<APPREC-INCREASE-CURRENT> (17,332,330)
<NET-CHANGE-FROM-OPS> (15,465,132)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,236,245
<NUMBER-OF-SHARES-REDEEMED> 334,885
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 5,494,812
<ACCUMULATED-NII-PRIOR> 2,442,797
<ACCUMULATED-GAINS-PRIOR> (1,096,618)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,066,445
<AVERAGE-NET-ASSETS> 2,655,651
<PER-SHARE-NAV-BEGIN> 21.66
<PER-SHARE-NII> (.06)
<PER-SHARE-GAIN-APPREC> (1.20)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 20.40
<EXPENSE-RATIO> 1.51
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NORWEST
ADVANTAGE ANNUAL REPORT DATED NOVEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 233
<NAME> INTERNATIONAL FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 222,300,067
<INVESTMENTS-AT-VALUE> 238,370,553
<RECEIVABLES> 24,694
<ASSETS-OTHER> 23,277
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 238,418,524
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 464,400
<TOTAL-LIABILITIES> 464,400
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 218,669,261
<SHARES-COMMON-STOCK> 91,996
<SHARES-COMMON-PRIOR> 77,359
<ACCUMULATED-NII-CURRENT> 2,607,840
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 606,537
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 16,070,486
<NET-ASSETS> 237,954,124
<DIVIDEND-INCOME> 1,481,953
<INTEREST-INCOME> 572,238
<OTHER-INCOME> (833,923)
<EXPENSES-NET> 1,056,225
<NET-INVESTMENT-INCOME> 164,043
<REALIZED-GAINS-CURRENT> 1,703,155
<APPREC-INCREASE-CURRENT> (17,332,330)
<NET-CHANGE-FROM-OPS> (15,465,132)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 396,428
<NUMBER-OF-SHARES-REDEEMED> 75,714
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 5,494,812
<ACCUMULATED-NII-PRIOR> 2,442,797
<ACCUMULATED-GAINS-PRIOR> (1,096,618)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,066,445
<AVERAGE-NET-ASSETS> 1,830,083
<PER-SHARE-NAV-BEGIN> 21.55
<PER-SHARE-NII> (.10)
<PER-SHARE-GAIN-APPREC> (1.23)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 20.22
<EXPENSE-RATIO> 2.26
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NORWEST
ADVANTAGE ANNUAL REPORT DATED NOVEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 231
<NAME> INTERNATIONAL FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 222,300,067
<INVESTMENTS-AT-VALUE> 238,370,553
<RECEIVABLES> 24,694
<ASSETS-OTHER> 23,277
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 238,418,524
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 464,400
<TOTAL-LIABILITIES> 464,400
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 218,669,261
<SHARES-COMMON-STOCK> 11,424,212
<SHARES-COMMON-PRIOR> 10,546,701
<ACCUMULATED-NII-CURRENT> 2,607,840
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 606,537
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 16,070,486
<NET-ASSETS> 237,954,124
<DIVIDEND-INCOME> 1,481,953
<INTEREST-INCOME> 572,238
<OTHER-INCOME> (833,923)
<EXPENSES-NET> 1,056,225
<NET-INVESTMENT-INCOME> 164,043
<REALIZED-GAINS-CURRENT> 1,703,155
<APPREC-INCREASE-CURRENT> (17,332,330)
<NET-CHANGE-FROM-OPS> (15,464,132)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 31,908,065
<NUMBER-OF-SHARES-REDEEMED> 12,171,195
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 5,494,812
<ACCUMULATED-NII-PRIOR> 2,442,797
<ACCUMULATED-GAINS-PRIOR> (1,096,618)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,066,445
<AVERAGE-NET-ASSETS> 243,904,405
<PER-SHARE-NAV-BEGIN> 21.67
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> (1.26)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 20.41
<EXPENSE-RATIO> 1.51
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NORWEST
ADVANTAGE ANNUAL REPORT DATED NOVEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 200
<NAME> LARGE COMPANY GROWTH FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 112,048,060
<INVESTMENTS-AT-VALUE> 165,465,018
<RECEIVABLES> 34,051
<ASSETS-OTHER> 23,277
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 165,522,346
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 41,009
<TOTAL-LIABILITIES> 41,009
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 100,276,596
<SHARES-COMMON-STOCK> 4,400,206
<SHARES-COMMON-PRIOR> 4,038,037
<ACCUMULATED-NII-CURRENT> (290,787)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 12,078,570
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 53,416,958
<NET-ASSETS> 165,481,337
<DIVIDEND-INCOME> 398,245
<INTEREST-INCOME> 83,758
<OTHER-INCOME> (521,641)
<EXPENSES-NET> 251,149
<NET-INVESTMENT-INCOME> (290,787)
<REALIZED-GAINS-CURRENT> 10,973,751
<APPREC-INCREASE-CURRENT> 9,748,700
<NET-CHANGE-FROM-OPS> 20,431,664
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 30,222,678
<NUMBER-OF-SHARES-REDEEMED> 16,941,098
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 33,713,244
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,104,819
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 278,014
<AVERAGE-NET-ASSETS> 154,259,823
<PER-SHARE-NAV-BEGIN> 32.63
<PER-SHARE-NII> (.07)
<PER-SHARE-GAIN-APPREC> 5.05
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 37.61
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NORWEST
ADVANTAGE ANNUAL REPORT DATED NOVEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 350
<NAME> LIMITED TERM GOVERNMENT INCOME FUND
<S> <C>
<PERIOD-TYPE> 2-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 62,172,747
<INVESTMENTS-AT-VALUE> 62,671,172
<RECEIVABLES> 838,881
<ASSETS-OTHER> 9,096,170
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 75,606,223
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 9,414,954
<TOTAL-LIABILITIES> 9,414,951
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 62,629,385
<SHARES-COMMON-STOCK> 6,412,987
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 63,459
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 498,425
<NET-ASSETS> 63,191,269
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 667,436
<OTHER-INCOME> 0
<EXPENSES-NET> 43,167
<NET-INVESTMENT-INCOME> 624,269
<REALIZED-GAINS-CURRENT> 63,459
<APPREC-INCREASE-CURRENT> 498,425
<NET-CHANGE-FROM-OPS> 1,186,153
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 624,269
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 127,109,383
<NUMBER-OF-SHARES-REDEEMED> 64,483,406
<SHARES-REINVESTED> 3,408
<NET-CHANGE-IN-ASSETS> 63,191,269
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 34,818
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 97,150
<AVERAGE-NET-ASSETS> 63,132,220
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .10
<PER-SHARE-GAIN-APPREC> (0.15)
<PER-SHARE-DIVIDEND> 0.10
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.85
<EXPENSE-RATIO> 0.41
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NORWEST
ADVANTAGE ANNUAL REPORT DATED NOVEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 330
<NAME> LIMITED TERM TAX-FREE FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 45,429,973
<INVESTMENTS-AT-VALUE> 46,118,583
<RECEIVABLES> 862,291
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 46,980,874
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 228,864
<TOTAL-LIABILITIES> 228,864
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 46,028,271
<SHARES-COMMON-STOCK> 4,434,877
<SHARES-COMMON-PRIOR> 3,946,129
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 35,129
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 688,610
<NET-ASSETS> 46,752,010
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,123,098
<OTHER-INCOME> 0
<EXPENSES-NET> 141,407
<NET-INVESTMENT-INCOME> 981,691
<REALIZED-GAINS-CURRENT> 82,890
<APPREC-INCREASE-CURRENT> 541,366
<NET-CHANGE-FROM-OPS> 1,605,947
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 981,691
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 38,793,095
<NUMBER-OF-SHARES-REDEEMED> 33,701,431
<SHARES-REINVESTED> 45,967
<NET-CHANGE-IN-ASSETS> 5,761,887
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (47,761)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 108,780
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 231,226
<AVERAGE-NET-ASSETS> 43,393,194
<PER-SHARE-NAV-BEGIN> 10.39
<PER-SHARE-NII> 0.24
<PER-SHARE-GAIN-APPREC> 0.15
<PER-SHARE-DIVIDEND> 0.24
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.54
<EXPENSE-RATIO> 0.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NORWEST
ADVANTAGE ANNUAL REPORT DATED NOVEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 340
<NAME> MINNESOTA INTERMEDIATE TAX-FREE FUND
<S> <C>
<PERIOD-TYPE> 2-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 196,566,929
<INVESTMENTS-AT-VALUE> 206,492,183
<RECEIVABLES> 3,363,872
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 209,856,055
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 960,538
<TOTAL-LIABILITIES> 960,538
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 198,750,903
<SHARES-COMMON-STOCK> 20,969,442
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 219,360
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 9,925,254
<NET-ASSETS> 208,895,517
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,013,196
<OTHER-INCOME> 0
<EXPENSES-NET> 211,856
<NET-INVESTMENT-INCOME> 1,801,340
<REALIZED-GAINS-CURRENT> 219,360
<APPREC-INCREASE-CURRENT> 9,925,254
<NET-CHANGE-FROM-OPS> 11,945,954
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,801,340
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 419,166,190
<NUMBER-OF-SHARES-REDEEMED> 220,440,029
<SHARES-REINVESTED> 24,742
<NET-CHANGE-IN-ASSETS> 208,895,517
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 176,527
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 324,906
<AVERAGE-NET-ASSETS> 211,253,739
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .08
<PER-SHARE-GAIN-APPREC> (.04)
<PER-SHARE-DIVIDEND> .08
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.96
<EXPENSE-RATIO> .60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NORWEST
ADVANTAGE ANNUAL REPORT DATED NOVEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 073
<NAME> MINNESOTA TAX-FREE FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 55,519,591
<INVESTMENTS-AT-VALUE> 58,001,801
<RECEIVABLES> 955,898
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 58,957,699
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 123,087
<TOTAL-LIABILITIES> 123,087
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 56,753,356
<SHARES-COMMON-STOCK> 1,513,343
<SHARES-COMMON-PRIOR> 1,053,649
<ACCUMULATED-NII-CURRENT> (41,762)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (359,192)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,482,210
<NET-ASSETS> 58,834,612
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,482,098
<OTHER-INCOME> 0
<EXPENSES-NET> 207,319
<NET-INVESTMENT-INCOME> 1,274,779
<REALIZED-GAINS-CURRENT> 194,218
<APPREC-INCREASE-CURRENT> 1,330,944
<NET-CHANGE-FROM-OPS> 2,799,941
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 332,720
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,994,131
<NUMBER-OF-SHARES-REDEEMED> 1,147,424
<SHARES-REINVESTED> 108,925
<NET-CHANGE-IN-ASSETS> 10,832,303
<ACCUMULATED-NII-PRIOR> (41,761)
<ACCUMULATED-GAINS-PRIOR> (553,410)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 134,976
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 347,964
<AVERAGE-NET-ASSETS> 13,543,101
<PER-SHARE-NAV-BEGIN> 10.57
<PER-SHARE-NII> .27
<PER-SHARE-GAIN-APPREC> .30
<PER-SHARE-DIVIDEND> .26
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.88
<EXPENSE-RATIO> .60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NORWEST
ADVANTAGE ANNUAL REPORT DATED NOVEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 072
<NAME> MINNESOTA TAX-FREE FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 55,519,591
<INVESTMENTS-AT-VALUE> 58,001,801
<RECEIVABLES> 955,898
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 58,957,699
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 123,087
<TOTAL-LIABILITIES> 123,087
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 56,753,356
<SHARES-COMMON-STOCK> 1,183,528
<SHARES-COMMON-PRIOR> 1,053,215
<ACCUMULATED-NII-CURRENT> (41,762)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (359,192)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,482,210
<NET-ASSETS> 58,834,612
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,482,098
<OTHER-INCOME> 0
<EXPENSES-NET> 207,319
<NET-INVESTMENT-INCOME> 1,274,779
<REALIZED-GAINS-CURRENT> 194,218
<APPREC-INCREASE-CURRENT> 1,330,944
<NET-CHANGE-FROM-OPS> 2,799,941
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 250,063
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,800,641
<NUMBER-OF-SHARES-REDEEMED> 584,375
<SHARES-REINVESTED> 190,973
<NET-CHANGE-IN-ASSETS> 10,832,303
<ACCUMULATED-NII-PRIOR> (41,761)
<ACCUMULATED-GAINS-PRIOR> (553,410)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 134,976
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 347,964
<AVERAGE-NET-ASSETS> 12,062,601
<PER-SHARE-NAV-BEGIN> 10.57
<PER-SHARE-NII> .22
<PER-SHARE-GAIN-APPREC> .31
<PER-SHARE-DIVIDEND> .22
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.88
<EXPENSE-RATIO> 1.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NORWEST
ADVANTAGE ANNUAL REPORT DATED NOVEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 071
<NAME> MINNESOTA TAX-FREE FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 55,519,591
<INVESTMENTS-AT-VALUE> 58,001,801
<RECEIVABLES> 955,898
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 58,957,699
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 123,087
<TOTAL-LIABILITIES> 123,087
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 56,753,356
<SHARES-COMMON-STOCK> 2,709,761
<SHARES-COMMON-PRIOR> 2,435,632
<ACCUMULATED-NII-CURRENT> (41,762)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (359,192)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,482,210
<NET-ASSETS> 58,834,612
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,482,098
<OTHER-INCOME> 0
<EXPENSES-NET> 207,319
<NET-INVESTMENT-INCOME> 1,274,779
<REALIZED-GAINS-CURRENT> 194,218
<APPREC-INCREASE-CURRENT> 1,330,944
<NET-CHANGE-FROM-OPS> 2,799,941
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 691,997
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,948,023
<NUMBER-OF-SHARES-REDEEMED> 1,517,040
<SHARES-REINVESTED> 513,288
<NET-CHANGE-IN-ASSETS> 10,832,303
<ACCUMULATED-NII-PRIOR> (41,761)
<ACCUMULATED-GAINS-PRIOR> (553,410)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 134,976
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 347,964
<AVERAGE-NET-ASSETS> 28,237,093
<PER-SHARE-NAV-BEGIN> 10.57
<PER-SHARE-NII> .27
<PER-SHARE-GAIN-APPREC> .30
<PER-SHARE-DIVIDEND> .26
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.88
<EXPENSE-RATIO> .60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NORWEST
ADVANTAGE ANNUAL REPORT DATED NOVEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 032
<NAME> MUNICIPAL MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 768,010,100
<INVESTMENTS-AT-VALUE> 768,010,100
<RECEIVABLES> 10,028,927
<ASSETS-OTHER> 199,625
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 778,238,652
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,886,916
<TOTAL-LIABILITIES> 1,886,916
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 776,423,487
<SHARES-COMMON-STOCK> 728,814,050
<SHARES-COMMON-PRIOR> 635,746,998
<ACCUMULATED-NII-CURRENT> (136,840)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 65,089
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 776,351,736
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 14,478,235
<OTHER-INCOME> 0
<EXPENSES-NET> 1,751,100
<NET-INVESTMENT-INCOME> 12,727,135
<REALIZED-GAINS-CURRENT> 158,883
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 12,886,018
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 11,923,308
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 936,885,968
<NUMBER-OF-SHARES-REDEEMED> 846,167,295
<SHARES-REINVESTED> 2,348,379
<NET-CHANGE-IN-ASSETS> 86,081,125
<ACCUMULATED-NII-PRIOR> (136,840)
<ACCUMULATED-GAINS-PRIOR> (93,794)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,290,854
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,279,749
<AVERAGE-NET-ASSETS> 703,364,419
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .02
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .02
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NORWEST
ADVANTAGE ANNUAL REPORT DATED NOVEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 031
<NAME> MUNICIPAL MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 768,010,100
<INVESTMENTS-AT-VALUE> 768,010,100
<RECEIVABLES> 10,028,927
<ASSETS-OTHER> 199,625
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 778,238,652
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,886,916
<TOTAL-LIABILITIES> 1,886,916
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 776,423,487
<SHARES-COMMON-STOCK> 47,486,308
<SHARES-COMMON-PRIOR> 54,631,118
<ACCUMULATED-NII-CURRENT> (136,840)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 65,089
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 776,351,736
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 14,478,235
<OTHER-INCOME> 0
<EXPENSES-NET> 1,751,100
<NET-INVESTMENT-INCOME> 12,727,135
<REALIZED-GAINS-CURRENT> 158,883
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 12,886,018
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 803,827
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 45,505,521
<NUMBER-OF-SHARES-REDEEMED> 53,454,029
<SHARES-REINVESTED> 803,698
<NET-CHANGE-IN-ASSETS> 86,081,125
<ACCUMULATED-NII-PRIOR> (136,840)
<ACCUMULATED-GAINS-PRIOR> (93,794)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,290,854
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,279,749
<AVERAGE-NET-ASSETS> 50,375,281
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .02
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .02
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NORWEST
ADVANTAGE ANNUAL REPORT DATED NOVEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 290
<NAME> MODERATE BALANCED FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 343,390,490
<INVESTMENTS-AT-VALUE> 418,723,303
<RECEIVABLES> 66,313
<ASSETS-OTHER> 23,277
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 418,812,893
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 566,527
<TOTAL-LIABILITIES> 566,527
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 302,885,379
<SHARES-COMMON-STOCK> 17,893,690
<SHARES-COMMON-PRIOR> 19,390,986
<ACCUMULATED-NII-CURRENT> 17,474,339
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 22,553,835
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 75,332,813
<NET-ASSETS> 418,246,366
<DIVIDEND-INCOME> 1,221,807
<INTEREST-INCOME> 8,385,848
<OTHER-INCOME> (989,151)
<EXPENSES-NET> 874,208
<NET-INVESTMENT-INCOME> 7,744,296
<REALIZED-GAINS-CURRENT> 10,914,092
<APPREC-INCREASE-CURRENT> 14,803,693
<NET-CHANGE-FROM-OPS> 33,462,081
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 53,119,753
<NUMBER-OF-SHARES-REDEEMED> 87,015,705
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (433,871)
<ACCUMULATED-NII-PRIOR> 9,730,043
<ACCUMULATED-GAINS-PRIOR> 11,639,743
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,235,888
<AVERAGE-NET-ASSETS> 420,038,433
<PER-SHARE-NAV-BEGIN> 21.59
<PER-SHARE-NII> .47
<PER-SHARE-GAIN-APPREC> 1.31
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 23.37
<EXPENSE-RATIO> .89
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NORWEST
ADVANTAGE ANNUAL REPORT DATED NOVEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 370
<NAME> PERFORMA DISCIPLINED GROWTH FUND
<S> <C>
<PERIOD-TYPE> 2-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 2,581,594
<INVESTMENTS-AT-VALUE> 2,561,136
<RECEIVABLES> 40,215
<ASSETS-OTHER> 3,364
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,604,715
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,559
<TOTAL-LIABILITIES> 3,559
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,638,120
<SHARES-COMMON-STOCK> 273,227
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 1,361
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (17,867)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (20,458)
<NET-ASSETS> 2,601,156
<DIVIDEND-INCOME> 4,013
<INTEREST-INCOME> 457
<OTHER-INCOME> (2,366)
<EXPENSES-NET> 743
<NET-INVESTMENT-INCOME> 1,361
<REALIZED-GAINS-CURRENT> (17,867)
<APPREC-INCREASE-CURRENT> (20,458)
<NET-CHANGE-FROM-OPS> (36,964)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,988,410
<NUMBER-OF-SHARES-REDEEMED> 1,350,300
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 2,601,146
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 19,902
<AVERAGE-NET-ASSETS> 1,838,593
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> (.48)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.52
<EXPENSE-RATIO> 1.31
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NORWEST
ADVANTAGE ANNUAL REPORT DATED NOVEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 390
<NAME> PERFORMA GLOBAL GROWTH FUND
<S> <C>
<PERIOD-TYPE> 2-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 346,756
<INVESTMENTS-AT-VALUE> 334,548
<RECEIVABLES> 352
<ASSETS-OTHER> 3,364
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 338,264
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,364
<TOTAL-LIABILITIES> 3,364
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 350,020
<SHARES-COMMON-STOCK> 35,890
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 52
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,964)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (12,208)
<NET-ASSETS> 334,900
<DIVIDEND-INCOME> 165
<INTEREST-INCOME> 378
<OTHER-INCOME> (288)
<EXPENSES-NET> 203
<NET-INVESTMENT-INCOME> 52
<REALIZED-GAINS-CURRENT> (2,964)
<APPREC-INCREASE-CURRENT> (12,208)
<NET-CHANGE-FROM-OPS> (15,120)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 350,010
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 350,000
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 85
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 19,378
<AVERAGE-NET-ASSETS> 263,022
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> (.67)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.33
<EXPENSE-RATIO> 1.45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NORWEST
ADVANTAGE ANNUAL REPORT DATED NOVEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 380
<NAME> PERFORMA SMALL CAP VALUE
<S> <C>
<PERIOD-TYPE> 2-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 941,502
<INVESTMENTS-AT-VALUE> 908,157
<RECEIVABLES> 222
<ASSETS-OTHER> 3,364
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 911,743
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,364
<TOTAL-LIABILITIES> 3,364
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 963,094
<SHARES-COMMON-STOCK> 97,713
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (409)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (20,961)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (33,345)
<NET-ASSETS> 908,379
<DIVIDEND-INCOME> 781
<INTEREST-INCOME> 230
<OTHER-INCOME> (1,091)
<EXPENSES-NET> 329
<NET-INVESTMENT-INCOME> (409)
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<TABLE> <S> <C>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NORWEST
ADVANTAGE ANNUAL REPORT DATED NOVEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
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<NAME> PERFORMA STRATEGIC VALUE BOND FUND
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<TABLE> <S> <C>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NORWEST
ADVANTAGE ANNUAL REPORT DATED NOVEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
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<NAME> READY CASH INVESTMENT FUND
<S> <C>
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<TABLE> <S> <C>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NORWEST
ADVANTAGE ANNUAL REPORT DATED NOVEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 081
<NAME> READY CASH INVESTMENT FUND
<S> <C>
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NORWEST
ADVANTAGE ANNUAL REPORT DATED NOVEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
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<NAME> READY CASH INVESTMENT FUND
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