As filed with the Securities and Exchange Commission on July 31, 1998
File Nos. 33-9645 and 811-4881
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
Post-Effective Amendment No. 55
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 56
NORWEST ADVANTAGE FUNDS
(Formerly "Norwest Funds" and "Prime Value Funds, Inc.")
Two Portland Square
Portland, Maine 04101
(207) 879-1900
Max Berueffy, Esq.
Forum Financial Services, Inc.
Two Portland Square
Portland, Maine 04101
Copies 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:
[ ] 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)(1)
[X] on October 1, 1998 pursuant to Rule 485, paragraph (a)(1)
[ ] 75 days after filing pursuant to Rule 485, paragraph (a)(2)
[ ] on ________ pursuant to Rule 485, paragraph (a)(2)
[ ] 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 Cap Opportunities Fund, Small Company Growth Fund, Performa Strategic
Value Bond Fund, Performa Disciplined Growth Fund, Performa Small Cap Value
Fund, and Performa Global Growth Fund of Registrant are structured as
master-feeder funds and this amendment is also executed by Core Trust
(Delaware).
<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 481(A))
(Prospectuses offering A and B Shares of Stable Income Fund, Intermediate
Government Fund, Income Fund, Total Return Bond Fund, Income Equity Fund,
ValuGrowthSM Stock Fund, Diversified Equity Fund, Growth Equity Fund, Small
Company Stock Fund, Small Cap Opportunities Fund, International Fund, Tax-Free
Income Fund, Colorado Tax-Free Fund, Minnesota Tax-Free Fund, Shares of Cash
Investment Fund, U.S. Government Fund, Treasury Fund, Treasury Plus Fund,
Institutional Shares and Investor Shares of Municipal Money Market Fund and
Investor Shares of Ready Cash Investment Fund)
PART A
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Form N-1A
- ---------
Item No. Location in Prospectus
- --------- ----------------------
Item 1. Cover Page Cover Page
Item 2. Synopsis Overview
Item 3. Condensed Financial Information Financial Highlights; Other Information
Item 4. General Description of Registrant Overview; Investment Objectives and Policies-
Additional Investment Policies and Risk
Considerations; Other Information
Item 5. Management of the Fund Overview; Management
Item 5A. Management's Discussion of Fund Performance Not Applicable
Item 6. Capital Stock and Other Securities Cover Page; Dividends and Tax Matters; Other
Information
Item 7. Purchase of Securities Being Offered How to Buy Shares; Management
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 481(A))
(Prospectus offering Shares of Cash Investment Fund, Investor Shares of Ready
Cash Investment Fund, Shares of U.S. Government Fund, Treasury Fund, Treasury
Plus Fund, Institutional Shares and Investor Shares of Municipal Money Market
Fund, I Shares of Stable Income Fund, Limited Term Government Income Fund,
Intermediate Government Income Fund, Diversified Bond Fund, Income Fund, Total
Return Bond Fund, Strategic Income Fund, Limited Term Tax-Free Fund, Tax-Free
Income Fund, Colorado Tax-Free Fund, Minnesota Intermediate Tax-Free Fund,
Minnesota Tax-Free 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, Diversified Small Cap Fund, Small Company Stock Fund, Small Cap
Opportunities Fund, Small Company Growth Fund, and International Fund)
<TABLE>
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PART A
Form N-1A
- ----------
Item No. Location in Prospectus
- ---------- ----------------------
Item 1. Cover Page Cover Page
Item 2. Synopsis Overview
Item 3. Condensed Financial Information Financial Highlights; Other Information
Item 4. General Description of Registrant Overview; Investment Objectives and Policies;
Risk Considerations; Other Information
Item 5. Management of the Fund Overview; Management of the Funds
Item 5A. Management's Discussion of Fund Performance Not Applicable
Item 6. Capital Stock and Other Securities Cover Page; Dividends and Tax Matters; Other
Information
Item 7. Purchase of Securities Being Offered Purchases and Redemptions of Shares; Management
of the Funds
Item 8. Redemption or Repurchase Purchases and Redemptions of Shares
Item 9. Pending Legal Proceedings Not Applicable
</TABLE>
<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 481(A))
(Prospectuses offering Public Entities Shares of Ready Cash Investment Fund)
PART A
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Form N-1A
- ---------
Item No. Location in Prospectus
- -------- ----------------------
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 Objective and
Policies - Additional Investment Policies and
Risk Considerations; Other Information - The
Trust and Its Shares
Item 5. Management of the Fund Prospectus Summary; Management - Management,
Administration and Distribution Services
Item 5A. Management's Discussion of Fund Performance Not Applicable
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; Management -
Management, Administration and Distribution
Services
Item 8. Redemption or Repurchase Purchases and Redemptions of Shares - Redemption
Procedures
Item 9. Pending Legal Proceedings Not Applicable
</TABLE>
<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 481(A))
(Prospectus offering Exchange Shares of Ready Cash Investment Fund)
PART A
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Form N-1A
- ---------
Item No. Location in Prospectus
- --------- ----------------------
Item 1. Cover Page Cover Page
Item 2. Synopsis Prospectus Summary
Item 3. Condensed Financial Information Financial Highlights
Item 4. General Description of Registrant Prospectus Summary; Investment Objective and
Policies - Additional Investment Policies and
Risk Considerations; Other Information - The
Trust and Its Shares
Item 5. Management of the Fund Prospectus Summary; Management - Management,
Administration and Distribution Services
Item 5A. Management's Discussion of Fund Performance Not Applicable
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 Purchase of Shares; Management - Management,
Administration and Distribution Services
Item 8. Redemption or Repurchase Redemptions of Shares
Item 9. Pending Legal Proceedings Not Applicable
</TABLE>
<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 481(A))
(Prospectus Offering I Shares of Small Company Growth Fund)
PART A
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Form N-1A
- ---------
Item No. Location in Prospectus
- --------- ----------------------
Item 1. Cover Page Cover Page
Item 2. Synopsis Overview
Item 3. Condensed Financial Information Financial Highlights
Item 4. General Description of Registrant Overview; Investment Objective and Policies;
Other Information
Item 5. Management of the Fund Overview; Management - Management of the Fund
Item 5A. Management's Discussion of Fund Performance Not Applicable
Item 6. Capital Stock and Other Securities Cover Page; Dividends and Tax Matters; Other
Information
Item 7. Purchase of Securities Being Offered Purchases and Redemptions of Shares; Management
of the Fund
Item 8. Redemption or Repurchase Purchases and Redemptions of Shares
Item 9. Pending Legal Proceedings Not Applicable
</TABLE>
<PAGE>
CROSS REFERENCE SHEET
(As required by Rule 481(a))
(All other Prospectuses)
PART A
Not Applicable to this Filing
<PAGE>
CROSS REFERENCE SHEET
(As required by Rule 481(a))
(SAI offering Shares of Cash Investment Fund, Ready Cash Investment Fund, U.S.
Government Fund, Treasury Fund, Treasury Plus 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,
Strategic Income Fund, Limited Term Tax-Free Fund, Tax-Free Income Fund,
Colorado Tax-Free Fund, Minnesota Intermediate Tax-Free Fund, Minnesota Tax-Free
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, Diversified Small
Cap Fund, Small Company Stock Fund, Small Company Growth Fund, Small Cap
Opportunities Fund, and International Fund)
PART B
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Form N-1A
- ---------
Item No. Location in Statement of Additional Information
- --------- -----------------------------------------------
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 Other Policies Investment Policies; Investment Limitations
Item 14. Management of the Fund Management - Management and Administrative
Services; Additional Information About the Trust
and the Shareholders of the Funds
Item 15. Control Persons and Principal Holders of Additional Information About the Trust and the
Securities Shareholders of the Funds
Item 16. Investment Advisory and Other Services Management - 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 Additional Purchase and Redemption Information
Securities Being Offered
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 481(A))
(All other SAIs)
PART B
Not Applicable to this Filing
<PAGE>
INCOME FUNDS
October 1, 1998
STABLE INCOME FUND
INTERMEDIATE GOVERNMENT INCOME FUND
INCOME FUND
TOTAL RETURN BOND FUND
AN INVESTMENT IN THE FUNDS IS NOT A DEPOSIT OF NORWEST BANK MINNESOTA, N.A. AND
IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
INVESTING IN ANY MUTUAL FUND HAS RISK, AND IT IS POSSIBLE TO LOSE MONEY BY
INVESTING IN ANY OF THE FUNDS.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED WHETHER OR NOT THIS PROSPECTUS IS ACCURATE OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
Table of Contents
1. OVERVIEW.............................................................
The Funds............................................................
Expense Information..................................................
2. FINANCIAL HIGHLIGHTS ................................................
3. INVESTMENT OBJECTIVES AND POLICIES...................................
Stable Income Fund...................................................
Intermediate Government Income Fund..................................
Income Fund..........................................................
Total Return Bond Fund...............................................
Additional Investment Policies and Risk Considerations...............
4. MANAGEMENT...........................................................
Investment Advisory Services.........................................
5. CHOOSING A SHARE CLASS...............................................
A Shares.............................................................
B Shares.............................................................
6. HOW TO BUY SHARES....................................................
Minimum Investment...................................................
Purchase Procedures..................................................
Account Application..................................................
General Information..................................................
7. HOW TO SELL SHARES...................................................
General Information..................................................
Redemption Procedures................................................
Other Redemption Matters.............................................
8. OTHER SHAREHOLDER SERVICES...........................................
Exchanges............................................................
9. DIVIDENDS AND TAX MATTERS............................................
Dividends............................................................
Tax Matters..........................................................
10. OTHER INFORMATION....................................................
Determination of Net Asset Value.....................................
Core and Gateway Structure...........................................
2
<PAGE>
1. OVERVIEW
The following is a summary of information about the Funds. Before
investing, you should consider the discussion under Investment Objectives
and Policies and Risk Considerations.
The Funds generally seek to preserve capital and provide income.
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FUND PRIMARY INVESTMENTS
- ---- -------------------
STABLE INCOME FUND Investment grade short-term obligations.
INTERMEDIATE GOVERNMENT INCOME FUND Securities issued or guaranteed by the U.S.Government, its
agencies and its instrumentalities with maturities structured
to moderate fluctuations in the price of the Fund's shares.
INCOME FUND Fixed income securities issued by domestic and foreign
issuers.
TOTAL RETURN BOND FUND Strategically diversified portfolio of high-quality fixed
income investments.
</TABLE>
CLASSES OF SHARES
This Prospectus offers two classes of shares of the Funds. The classes,
which have different fee structures, are:
* A Shares: offered at their net asset value plus an initial sales
charge. A Shares do not pay distribution or shareholder servicing
fees.
* B Shares: offered at their net asset value. B Shares pay distribution
and shareholder servicing fees and convert to A Shares within seven
years after purchase. If you redeem your B Shares within six years of
purchase, you may pay a contingent deferred sales charge. The amount
of the charge depends on the length of time you hold the shares.
FUND STRUCTURES
Some of the Funds invest directly in a portfolio of securities. Other Funds
invest in other funds identified in this prospectus as Core Portfolios.
Except when necessary to describe a Fund's investment in a Core Portfolio,
this prospectus discusses a Fund's investments in a Core Portfolio as if
the investments were made directly in portfolio securities.
INVESTMENT ADVISERS
NORWEST INVESTMENT MANAGEMENT, INC. or NORWEST is each Fund's and Core
Portfolio's investment adviser. Norwest, a subsidiary of Norwest Bank
Minnesota, N.A. or Norwest Bank, provides investment advice to
institutions, pension plans and other accounts and currently manages more
than $23.6 billion in assets. An INVESTMENT SUBADVISER makes investment
decisions for two core portfolios under Norwest's general supervision. This
prospectus generally refers to Norwest or the investment subadviser as an
Adviser.
3
<PAGE>
HOW TO BUY SHARES
All Funds except Stable Income Fund require a minimum initial investment of
$1,000. Stable Income Fund requires a minimum initial investment of $5,000.
All of the Funds require minimum subsequent investments of $100.
[Currently, Total Return Bond Fund is closed to new investors.]
EXCHANGES
If you own shares of a Fund, you may exchange them for shares of certain
other Funds. Your exchange rights will vary depending on the class of
shares you own.
DIVIDENDS
Each Fund pays dividends net investment income monthly.
RISK FACTORS
All investments in the Funds are subject to risk and may decline in value.
The amount and types of risk vary from Fund to Fund depending on the Fund's
investment objective, the Adviser's ability to achieve the Fund's
objective, the markets in which the Fund, the investments the Fund makes
and prevailing economic conditions over the period of your investment.
Every Fund also has the risk that its Adviser may not be successful in
carrying out its investment strategy and that the Fund's particular
investment strategy may result in performance that is worse or better than
the performance of the market as a whole. Your investment in a Fund will
also have risk if you do not plan to invest for long enough to permit the
investment to recover from an adverse market movement.
If you invest in a Fund, the income you receive will vary with changes in
interest rates. In addition, the value of the Fund's investments generally
will rise when interest rates fall and fall when interest rates rise. When
interest rates fall, there is a risk that issuers will prepay fixed rate
obligations, forcing the Fund to invest in obligations with lower interest
rates than the prepaid obligations.
The Funds also have "credit risk," which is the risk that an issuer will be
unable, or will perceived to be unable, to repay its obligations at
maturity. Funds that invest primarily in obligations that are highly rated
by a nationally recognized statistical rating organization, such as
Standard & Poor's Corporation, are subject to less credit risk. Funds that
have substantial investments in securities that are not highly rated are
subject to more credit risk.
4
<PAGE>
EXPENSE INFORMATION
The following table will assist you in understanding the expenses that you
will bear directly or indirectly if you invest in a Fund.
SHAREHOLDER TRANSACTION EXPENSES
(APPLICABLE TO EACH FUND)
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INTERMEDIATE
GOVERNMENT INCOME FUND,
STABLE INCOME FUND AND
INCOME FUND TOTAL RETURN BOND FUND
A B A B
SHARES SHARES SHARES SHARES
---------------------------- ----------------------------
Maximum sales charges imposed on purchases
(as a percentage of public offering price)
1.5% Zero 4.0% Zero
Maximum deferred sales charge (as a
percentage of the lesser of original purchase
price or redemption proceeds) Zero 1.5%(1) Zero 3.0%(1)
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS AFTER APPLICABLE FEE WAIVERS
AND EXPENSE REIMBURSEMENTS)
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STABLE INTERMEDIATE
INCOME FUND GOVERNMENT BOND FUND
A B A B
Shares Shares Shares Shares
---------------------------- ---------------------------
Investment Advisory Fees N/A N/A 0.33% 0.33%
Rule 12b-1 Fees (after fee waivers)(2) N/A 0.75% N/A 0.75%
Other Expenses (after fee waivers and 0.28% 0.28% 0.35% 0.35%
reimbursements)
Investment Advisory Fee - Core Portfolio (3) 0.30% 0.30% N/A N/A
Other Expenses - Core Portfolio
after fee waivers and reimbursements) 0.07% 0.07% N/A N/A
Total Operating Expenses(4) 0.65% 1.40% 0.68% 1.43%
INCOME FUND TOTAL RETURN BOND FUND
A B A B
Shares Shares Shares Shares
--------------------------- ----------------------------
Investment Advisory Fees 0.50% 0.50% N/A N/A
Rule 12b-1 Fees (after fee waivers)(2) N/A 0.75% N/A 0.75%
Other Expenses (after fee waivers and
reimbursements) 0.25% 0.25% 0.20% 0.20%
Investment Advisory Fee - Core
Portfolio(3) N/A N/A 0.50% 0.50%
Other Expenses - Core Portfolio
(after fee waivers and reimbursements) N/A N/A 0.05% 0.05%
Total Operating Expenses(4 0.75% 1.50% 0.75% 1.50%
</TABLE>
(1) 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 to 0.75% during the second year and zero the following year. The
maximum 4.0% deferred sales charge on B Shares of the other Funds applies to
redemptions during the first year after purchase; the charge declines to
3.0% during the second and third years, 2.0% during the fourth and fifth
years, 1.0% during the sixth year, and zero the following year.
(2) Absent waivers, Rule 12b-1 Fees would be 1.00% for B Shares of each
Fund.
(3) Investment Advisory Fees -- Core Portfolio states the investment
advisory fees of the Core Portfolios in which Stable Income Fund and Total
Return Bond Fund invest.
(4) Norwest and the Funds' manager have agreed to waive their fees or
reimburse expenses in order to maintain Total Return Bond Fund's total
operating expenses at or below 0.75% for A Shares and 1.50% for B Shares.
Any proposed reduction of those waivers or reimbursements would require
review by the Funds' Board of Trustees.
(5) Absent expense reimbursements and fee waivers, the expenses of Stable
Income Fund, Intermediate Government Income Fund, Income Fund and Total
Return Bond Fund would be: for A Shares, Other Expenses, 0.46%, 0.48%, 0.58%
and 0.44%, respectively; Other Expenses -- Core Portfolio, 0.12%, N/A, N/A
and 0.10%, respectively; and Total Operating Expenses, 0.88%, 0.81%,1.08%
and 1.04%, respectively; and for B Shares, Other Expenses, 1.17%, 0.53%,
0.65% and 0.50%, respectively; Other Expenses -- Core Portfolio, 0.12%, N/A,
N/A and 0.10%, 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.
5
<PAGE>
EXAMPLE
The following Hypothetical Expense Example indicates the dollar amount of
expenses that you 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 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.
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HYPOTHETICAL EXPENSE EXAMPLE
- -----------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
STABLE INCOME FUND
A Shares $22 $35 $51 $95
B Shares
Assuming redemption
at the end of the period 29 44 -- --
Assuming no redemption 14 44 -- --
INTERMEDIATE GOVERNMENT INCOME FUND
A Shares 47 61 76 121
B Shares
Assuming redemption
at the end of the period 55 75 98 --
Assuming no redemption 15 45 78 --
INCOME FUND
A Shares 47 63 80 129
B Shares
Assuming redemption
at the end of the period 55 77 102 --
Assuming no redemption 15 47 82 --
TOTAL RETURN BOND FUND
A Shares 47 63 80 129
B Shares
Assuming redemption
at the end of the period 55 77 102 --
Assuming no redemption 15 47 82 --
</TABLE>
6
<PAGE>
2. FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand each
Fund's financial performance for the [shorter of 10 years or the Fund's
operating history.] Certain information reflects financial results for a
single Fund share. The total returns in the table represent the rate that
an investor would have earned on an investment in the Fund, assuming
reinvestment of all dividends and distributions. The information from May
31, 1994 through May 31, 1998 has been audited by _____________,
independent auditors, whose report, along with each Fund's financial
statements, are included in the Annual Report for the Funds, which is
available upon request. Other independent auditors audited information for
prior periods.
<PAGE>
3. GLOSSARY
Term Definition
---- ----------
AMT Alternative minimum tax.
Board The Board of Trustees of Norwest Advantage Funds
CDSC Contingent deferred sales charge
Duration A measure of a debt security's average life
that reflects the present value of the
security's cash flow.
Non-Investment Grade Neither rated in one of the four highest
long-term rating categories by an NRSRO nor
unrated and determined by the Adviser to be of
comparable quality.
NRSRO A nationally recognized statistical rating
organization, such as S&P or Moody's
Investors Service, that rates fixed income
securities and preferred stock by relative
credit risk.
SAI Statement of Additional Information
SEC Securities and Exchange Commission
STRIPS Separately traded principal or 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
program.
U.S. Government Security An obligation issued or guaranteed as to
principal and interest by the U.S. Government,
its agencies or its instrumentalities.
4. INVESTMENT OBJECTIVES AND POLICIES
This section discusses the investment objectives and policies of the Funds.
After each Fund's description, there is a short, alphabetical listing of
the Fund's primary risks. These risks are discussed below in Risk
Considerations.
STABLE INCOME FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to maintain
safety of principal while providing low volatility total return.
INVESTMENT POLICIES. The Fund invests primarily in investment grade
short-term obligations. The Fund invests in a diversified portfolio of
fixed and variable rate U.S. dollar-denominated fixed income securities of
a broad spectrum of U.S. and foreign issuers, including U.S. Government
Securities and the debt securities of financial institutions, corporations,
and others.
The Fund limits its investments in mortgage-backed securities to not more
than 65% of its total assets and investments
7
<PAGE>
in asset-backed securities to not more than 25% of its total assets. In
addition, the Fund limits its holdings of mortgage-backed securities that
are not U.S. Government Securities to 25% of its total assets. Under normal
circumstances, the Fund will not invest more than 50% of its assets in U.S.
Government Securities. The Fund may not invest more than 30% 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% of its total assets in the securities of any other
issuer.
The Fund 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 or which are unrated and determined by the
Adviser to be of comparable quality.
The Fund invests in debt obligations with maturities (or average life in
the case of mortgage-backed and similar securities) ranging from overnight
to 12 years and seeks to maintain an average dollar-weighted portfolio
maturity of between two and five years.
The Fund may use options, swap agreements, interest rate caps, floors and
collars and futures contracts to manage risk. The Fund may also use options
to enhance return.
RISKS:
Credit risk Leverage risk
Foreign risk Market risk
Interest rate risk Prepayment risk
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 invests primarily in fixed and variable rate
U.S. Government Securities. Under normal circumstances, the Fund intends to
invest at least 65% of its assets in U.S. Government Securities and may
invest up to 35% 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 investments in adjustable rate securities
and swap agreements, to add to the Fund's return over a complete economic
or interest rate cycle.
The Fund limits its investments in mortgage-backed securities to not more
than 50% of its total assets and its investments in other asset-backed
securities to not more than 25% of its total assets. As part of its
mortgage-backed securities investments, the Fund may enter into Dollar
Rolls. The Fund will limit its investment in zero-coupon securities, except
in STRIPS, to not more than 10% of the Fund's total assets. In addition,
the Fund may not invest more than 25% 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
borrow money in order to purchase securities.
The Fund will only purchase securities that are rated, at the time of
purchase, within the two highest rating categories assigned by an NRSRO, or
which are unrated and determined by the Adviser to be of comparable
quality.
The Fund will invest primarily in debt obligations with maturities (or
average life in the case of mortgage-backed and similar securities) ranging
from overnight to 15 years. Under normal circumstances, the Fund's
portfolio securities will have an average dollar-weighted maturity of
between three and ten years and a Duration of between 70% and 130% of the
Duration of a five-year Treasury Note.
The Fund may use options, swap agreements, interest rate caps, floors and
collars and futures contracts to manage risk. The Fund may also use options
to enhance return.
RISKS:
Credit risk Market risk
Interest rate risk Prepayment risk
Leverage risk
8
<PAGE>
INCOME FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to provide
total return consistent with current income.
INVESTMENT POLICIES. The Fund invests in a diversified portfolio of fixed
and variable rate U.S. dollar-denominated fixed income securities issued by
domestic and foreign issuers. The Fund invests in a broad spectrum of U.S.
issuers, including U.S. Government Securities, mortgage- and asset-backed
securities and the debt securities of financial institutions, corporations,
and others. The Adviser 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 normally will invest at least 30% of its total assets in U.S.
Government Securities. The Fund limits its investments in mortgage-backed
securities to not more than 50% of its total assets and its investments in
other asset-backed securities to not more than 25% of its total assets.
The Fund may invest up to 50% of its total assets in convertible
securities, which are corporate securities, such as bonds, debentures and
notes and fixed income securities that can be converted into or exchanged
for common stocks and may invest in zero coupon securities and enter into
Dollar Rolls.
The Fund may invest in debt securities registered and sold in the United
States by foreign issuers and debt securities sold outside the United
States by foreign or U.S. issuers. The Fund intends to restrict its
purchases of debt securities to issues denominated and payable in U. S.
dollars.
The Fund will invest primarily in securities with maturities (or average
life in the case of mortgage-backed and similar securities) ranging from
overnight to 40 years. It is anticipated that the Fund's portfolio will
have an average dollar-weighted maturity of between three 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.
Normally, the Fund will invest at least 80% of its assets in securities
that are rated, at the time of purchase, within the four highest rating
categories assigned by an NRSRO or which are unrated and determined by the
Adviser to be of comparable quality. The Fund may also invest up to 20% of
its total assets in Non-Investment Grade fixed-income securities rated in
the fifth highest rating category by an NRSRO or unrated and determined by
the Adviser to be of comparable quality.
RISKS:
Credit risk Leverage risk
Foreign risk Market risk
Interest rate risk Prepayment risk
TOTAL RETURN BOND FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to seek total
return.
INVESTMENT POLICIES. The Fund 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.
9
<PAGE>
The Adviser focuses on relative value as opposed to predicting the
direction of interest rates. In general, the Fund seeks higher current
income instruments such as corporate bonds and mortgage-backed and
asset-backed securities in order to enhance returns. The Adviser believes
that this exposure enhances performance in varying economic and interest
rate cycles while avoiding excessive risk concentrations. The Adviser's
investment process involves rigorous evaluation of each security, including
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. The Adviser uses this process
to seek to identify securities which represent the best relative economic
value. The Adviser then evaluates the results of the investment process
against the Fund's objective and purchases those securities that will
enhance its positioning.
To limit the Fund's credit risk, the Fund generally will invest 65% of its
assets in fixed income securities rated in one of the three highest rating
categories by at least one NRSRO, or which are unrated and determined by
the Adviser to be of comparable quality. The Fund may invest up to 20% of
its total assets in Non-Investment Grade fixed income securities rated in
the fifth highest rating category by an NRSRO or unrated and determined by
the Adviser to be of comparable quality.
The average maturity of the Fund will vary between five and 15 years. In
the case of mortgage-related, asset-backed and similar securities, the Fund
uses the security's average life in calculating the Fund's average
maturity. The Fund's effective Duration normally will vary between three
and eight years.
The Fund particularly seeks strategic diversification. The Fund 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. The Fund may invest in U.S. Government Securities without
restriction. The Fund generally will not invest more than 5% of its assets
in the corporate bonds of any one issuer.
The Fund may use options, swap agreements, interest rate caps, floors and
collars and futures contracts to manage risk. The Fund may also use options
to enhance return.
RISKS:
Credit risk Market risk
Interest rate risk Prepayment risk
Leverage risk
5. RISK CONSIDERATIONS
The principal risks of the Funds are described below. Each Fund's exposure
to these risks depends upon its specific investment profile. The risks
which apply to each Fund are listed in the Fund's description above in
Investment Objectives and Policies.
CREDIT RISK. The risk that the issuer of a security, or the counterparty to
a contract, will default or otherwise be unable to honor a financial
obligation. Non-Investment Grade securities are especially susceptible to
this risk.
FOREIGN RISK. The risk that foreign issuers may be subject to foreign
political and economic instability, 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
investors' assets. Investments in issuers located or doing business in
emerging or developing markets are especially susceptible to these risks.
INTEREST RATE RISK. The risk that changing interest rates may affect the
value of your investment. With fixed-rate securities, an increase in
interest rates typically causes the value of the Fund's securities to fall,
while a decline in interest rates may produce an increase in the market
value of the securities. Because of this risk, an investment in a Fund that
invests in fixed income securities is subject to risk even if all the fixed
income securities in the Fund's portfolio are paid in full at maturity.
Changes in interest rates will affect the value of longer-term fixed income
securities more than shorter-term securities.
10
<PAGE>
LEVERAGE RISK. The risk that some derivative investments, such as forward
commitment transactions, may multiply smaller market movements into large
changes in value.
MARKET RISK. The risk that the market value of a Fund's investments will
fluctuate as the stock and bond markets fluctuate. Market risk may affect a
single issuer, industry or section of the economy or may affect the market
as a whole.
PREPAYMENT RISK. The risk that issuers will prepay fixed rate obligations
when interest rates fall, forcing the Fund to invest in obligations with
lower interest rates than the prepaid obligations.
6. COMMON POLICIES
Except as otherwise indicated, investment policies of the Funds are not
fundamental and may be changed by the Board without shareholder approval.
UNRATED SECURITIES
Each Fund may retain a security whose rating has been lowered (or a
security of comparable quality to a security 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
In an attempt to respond to adverse market, economic, political, or other
conditions, each Fund may assume a temporary defensive position and invest
without limit in cash or cash equivalents. During periods when and to the
extent that a Fund has assumed a temporary defensive position, it may not
be pursuing its investment objective.
PORTFOLIO TRANSACTIONS
From time to time a Fund may engage in active short-term trading to take
advantage of price movements affecting individual issues, groups of issues
or markets. Higher portfolio turnover rates may result in increased
brokerage costs to a Fund or a Core Portfolio and a possible increase in
short-term capital gains or losses.
YEAR 2000
The Funds could be adversely affected if the computer systems used by the
Advisers and other service providers to the Funds do not properly process
and calculate date-related information and data after December 31, 1999.
Norwest and the Funds' manager are taking steps to address the Year 2000
issue for their computer systems and to obtain reasonable assurances that
comparable steps are being taken by the Funds' other major service
providers. [While the Funds do not anticipate any adverse effect on their
computer systems from the year 2000,] there can be no assurance that these
steps will be sufficient to avoid any adverse impact.
7. MANAGEMENT
INVESTMENT ADVISORY SERVICES
NORWEST INVESTMENT MANAGEMENT, INC. is the investment adviser for each Fund
and each Core Portfolio. In this capacity, Norwest makes investment
decisions for and administers the Funds' and Core Portfolios' investment
programs.
NORWEST INVESTMENT MANAGEMENT, INC., NORWEST CENTER, SIXTH STREET AND
MARQUETTE, MINNEAPOLIS, MN 55479
11
<PAGE>
Norwest, Stable Income Portfolio and Total Return Bond Portfolio have
retained GALLIARD CAPITAL MANAGEMENT, INC. or GALLIARD, as an investment
subadviser to make investment decisions for and administer the investment
programs of those Core Portfolios. Norwest decides which portion of the
Core Portfolios' assets Galliard should
manage and supervises Galliard's performance of its duties. Galliard is an
investment advisory subsidiary of Norwest Bank which provides investment
advisory services to bank and thrift institutions, pension and profit
sharing plans, trusts and charitable organizations and corporate and other
business entities. GALLIARD CAPITAL MANAGEMENT, INC. 800 LASALLE AVE. SUITE
2060, MINNEAPOLIS, MN 55479.
Listed below, for each Fund, are the portfolio managers primarily
responsible for the day-to-day management of the Fund's investments. The
year a portfolio manager began managing a Fund or Core Portfolio follows
the manager's name in parenthesis. The list includes the investment
advisory fees payable to Norwest by the Fund or the Core Portfolio in which
it invests.
How investment advisory fees are paid depends on whether or not a Fund
invests in a Core Portfolio.
* If a Fund invests directly in a portfolio of securities, Norwest
receives an investment advisory fee directly from the Fund.
* If a Fund invests in a Core Portfolio, Norwest or Schroder receives an
investment advisory fee from the Core Portfolio.
Norwest (and not the Funds or Core Portfolios) pays the subadviser's
investment subadvisory fee. The investment subadvisory fee does not
increase the amount of the investment advisory fees paid to Norwest by the
Funds or Core Portfolios.
STABLE INCOME FUND
CORE PORTFOLIO: STABLE INCOME PORTFOLIO
INVESTMENT SUBADVISER: GALLIARD
PORTFOLIO MANAGER: Karl P. Tourville (19__) and John Huber (1998). Mr.
Tourville has been a managing partner of Galliard since 1995 and associated
with Norwest and its affiliates since 1986, most recently as Vice President
and Senior Portfolio Manager of Norwest Bank. Mr. Huber has been a
Portfolio Manager and Director of Trading at Galliard since 1995 and has
been in investment management since 1991.
ADVISORY FEE: 0.30% annually of the Core Portfolio's average daily net
assets.
INTERMEDIATE GOVERNMENT INCOME FUND
INVESTMENT ADVISER: NORWEST
PORTFOLIO MANAGER: Marjorie H. Grace, CFA (19__) is a Director, Taxable
Fixed Income. Ms. Grace has been associated with Norwest or Norwest Bank
since 1992. Before, she was an Institutional Salesperson at Norwest
Investment Services, Inc. from 1991-92; a portfolio manager at United Bank
of Colorado from 1989-91; and a Vice President and portfolio manager at
Columbia Savings and Loan from 1987-89.
ADVISORY FEE: 0.33% annually of each Fund's average daily net assets.
INCOME FUND
INVESTMENT ADVISER: NORWEST
PORTFOLIO MANAGER: Marjorie H. Grace, CFA (19__) is described above under
Government Income Fund.
ADVISORY FEE: 0.50% annually of the Fund's average
daily net assets.
TOTAL RETURN BOND FUND
CORE PORTFOLIO: STRATEGIC VALUE BOND PORTFOLIO
12
<PAGE>
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: GALLIARD
PORTFOLIO MANAGERS: Richard Merriam, CFA (19__), John Huber (19__) and
David Yim (19__). Mr. Merriam, a principal of Galliard since 1995, is
responsible for investment process and strategy. He was previously Chief
Investment Officer of Insight Investment Management. Before, he was the
Senior Vice President of Washington Square Capital Management. Mr. Huber is
described above under Stable Income Fund. Mr. Yim, Portfolio Manager and
Director of Investment Research since 1995, previously worked for six years
for American Express Financial Advisors as a Research Analyst focusing on
the insurance and finance industries.
ADVISORY FEE: 0.50% annually of the Core Portfolio's average daily net
assets.
DORMANT INVESTMENT ADVISORY ARRANGEMENTS
Norwest has been retained as a "dormant" or "back-up" investment adviser to
manage any assets redeemed and invested directly by a Fund that invests in
a Core Portfolio. Norwest does not receive any compensation under this
arrangement as long as a Fund invests entirely in a Core Portfolio. If a
Fund redeems assets from a Core Portfolio and invests them directly,
Norwest receives an investment advisory fee from the Fund for the
management of those assets.
6. CHOOSING A SHARE CLASS
Sales charges and fees vary considerably between a Fund's A Shares and B
Shares. After a set number of years, B Shares, which have higher fees,
convert to A Shares, which have lower fees. Consider the differences in the
classes' fee structures carefully before choosing which class to purchase.
In particular, consider how long you intend to invest in the Fund and
whether during that period the accumulated fees and applicable CDSCs on B
Shares would be less than the initial sales charge on A Shares. Also,
consider whether you might qualify for a reduced sales charge on A Shares
and whether any difference in total expenses between classes would be
offset by A Shares' higher yield. The SAI has more information about ways
to qualify for reduced sales charges and how reduced sales charge
alternatives operate.
A SHARES
The Funds offers A Shares at their next-determined net asset value plus the
following initial sales charge (no sales charge applies to reinvestments of
dividends or distributions):
STABLE INCOME FUND
<TABLE>
<S> <C> <C> <C>
SALES CHARGE
AS A PERCENTAGE OF*
AMOUNT OF PURCHASE OFFERING PRICE NET AMOUNT INVESTED
Less than $50,000........................... 1.50% 1.52%
$50,000 to $99,999.......................... 1.00% 1.01%
$100,000 to $499,000........................ 0.75% 0.60%
$500,000 to $999,000........................ 0.50% 0.50%
$1,000,000 and over...................... None None
*Rounded to the nearest one-hundredth percent
+The amount of the initial sales charge is
included in the offering price
</TABLE>
13
<PAGE>
INTERMEDIATE GOVERNMENT INCOME FUND,
INCOME FUND AND TOTAL RETURN BOND FUND
<TABLE>
<S> <C> <C>
SALES CHARGE
AS A PERCENTAGE OF*
AMOUNT OF PURCHASE OFFERING PRICE+ NET AMOUNT INVESTED
Less than $50,000........................... 4.00% 4.17%
$50,000 to $99,999.......................... 3.50% 3.63%
$100,000 to $249,000........................ 3.00% 3.09%
$250,000 to $499,999........................ 2.50% 2.56%
$500,000 to $999,000........................ 2.00% 2.04%
over $1,000,000 ............................ None None
*Rounded to the nearest one-hundredth
percent
+The amount of the initial sales
charge is included in the offering price
</TABLE>
If you redeem A Shares purchased with a reduced sales charge, the Funds may
impose a charge on the redemption depending on how long you have held the
shares.
B SHARES
The Funds offers B Shares at their net asset value per share. The Funds' B
Shares have distribution and shareholder servicing fees of 1.00% of the
average daily net assets of the class under a Rule 12b-1 distribution plan.
Because Rule 12b-1 fees are paid out of the Funds' assets on an on-going
basis, over time these fees will increase the cost of your investment and
may cost more than paying a front-end sales charge.
CONTINGENT DEFERRED SALES CHARGE. If you redeem B Shares within six
years of purchase (two years in the case of the Stable Income Fund), there
will be a CDSC on the redemption in the amount indicated below. The amount
of the CDSC will vary depending on the number of years between the payment
for the purchase of the shares and their redemption. You will pay the CDSC
on the lesser of the cost of the B Shares redeemed and their net asset
value upon redemption. The Funds do not impose a CDSC on B Shares purchased
through reinvestments of dividends and distributions.
CHARGE FOR STABLE INCOME FUND
YEAR SINCE PURCHASE
First.................................. 1.5%
Second................................. 0.75%
Third and subsequent................... None
14
<PAGE>
CHARGE FOR INTERMEDIATE
GOVERNMENT
YEAR SINCE PURCHASE INCOME FUND, INCOME FUND
AND TOTAL RETURN BOND FUND
First.................................. 4.0%
Second................................. 3.0%
Third.................................. 3.0%
Fourth................................. 2.0%
Fifth.................................. 2.0%
Sixth.................................. 1.0%
Seventh................................ None
The Funds will redeem shares in the manner that results in the imposition
of the lowest CDSC. The Funds will automatically redeem shares first from
any A Shares of the Fund, second from B Shares of the Fund acquired
pursuant to reinvestment of dividends and distributions, third from B
Shares of the Fund held for more than six 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 six years (two years in the case of the
Stable Income Fund).
CONVERSION FEATURE. B Shares will automatically convert to A Shares six
years (four years in the case of Stable Income Fund) from the end of the
calendar month in which the Fund accepted your purchase. 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, the Funds will consider B Shares purchased through the
reinvestment of dividends and distributions to be held in a separate
sub-account. Each time any B Shares in your account (other than those in
the sub-account) convert, a corresponding pro rata portion of the shares in
the sub-account will also convert. The Funds may suspend the conversion
feature in the future; in that event, B Shares might continue to pay their
distribution fee indefinitely.
6. HOW TO BUY AND SELL SHARES
You may purchase Fund shares on "Fund Business Days" at their net asset
value next determined after acceptance of an order plus, in the case of A
Shares, any applicable sales charge. Fund Business Days are all weekdays
except generally observed 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.
GENERAL PURCHASE INFORMATION
All of the Funds except Stable Income Fund require a minimum initial
investment of $1,000. Stable Income Fund requires a minimum initial
investment of $5,000. All of the Funds require minimum subsequent
investments of $100. Your shares will become eligible to receive dividends
the Fund Business Day after a purchase order is accepted.
The Funds reserve the right to reject any subscription for the purchase of
shares, including subscriptions by market timers. You will receive share
certificates for your shares only if you request them in writing. No
certificates are issued for fractional shares.
PURCHASING SHARES DIRECTLY
You may obtain an account application by writing Norwest Advantage Funds at
the following address:
Norwest Advantage Funds
[Name of Fund]
Norwest Bank Minnesota, N.A.
Transfer Agent
733 Marquette Avenue
Minneapolis, MN 55479-0040
15
<PAGE>
When you sign an application for a new Fund account, you are certifying
that your Social Security number or other taxpayer identification number is
correct and that you are not subject to backup withholding. If you violate
certain federal income tax provisions, the Internal Revenue Service can
require the Funds to withhold 31% of your distributions and redemptions.
You 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.
Call or write the transfer agent if you wish to participate in shareholder
services not offered on the account application or change information on
your account (such as addresses). Norwest Advantage Funds may in the future
modify, limit or terminate any shareholder privilege upon appropriate
notice and may charge a fee for certain shareholder services, although no
such fees are currently contemplated. You may terminate your participation
in any shareholder program by writing to Norwest Advantage Funds.
PURCHASES BY MAIL. You may send a check or money order (cash cannot be
accepted) along with a completed account application to Norwest Advantage
Funds 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 your check does not clear, the
purchase order will be canceled and you will be liable for any losses or
fees incurred by Norwest Advantage Funds, the transfer agent or the Funds'
distributor.
To purchase shares for individual or Uniform Gift to Minors Act accounts,
you must write a check or purchase a money order payable to Norwest
Advantage Funds or endorse a check made out to you to Norwest Advantage
Funds. For corporation, partnership, trust, 401(k) plan or other
non-individual type accounts, make the check used to purchase shares
payable to Norwest Advantage Funds. No other methods of payment by check
will be accepted.
PURCHASES BY BANK WIRE. You must first telephone the Funds' transfer agent
at 1-612-667-8833 or 1-800-338-1348 to obtain an account number before
making an initial investment in a Fund by bank wire. Then instruct your
bank to wire your money immediately to:
Norwest Bank Minnesota, N.A.
A091 000 019
For Credit to: Norwest Advantage Funds 0844-131
Re: [Name of Fund][Class of Shares]
Account No.:
Account Name:
Complete and mail the account application promptly. Your bank may charge
for transmitting the money by wire. The Funds do not charge for the receipt
of wire transfers. The Funds treat payment by bank wire as a federal funds
payment when received.
PURCHASES THROUGH FINANCIAL INSTITUTIONS
You may purchase and redeem shares through certain broker-dealers, banks
and other financial institutions. When you purchase a Fund's shares through
a financial institution, the shares may be held in your name or in the name
of the financial institution. Subject to your institution's procedures, you
may have Fund shares held in the name of your financial institution
transferred into your name. If your shares are held in the name of your
financial institution, you must contact the financial institution on
matters involving your shares. Your financial institution may charge you
for purchasing, redeeming or exchanging shares.
SUBSEQUENT PURCHASES OF SHARES
You may make subsequent purchases by mailing a check, by sending a bank
wire or through a financial institution as
16
<PAGE>
indicated above. All payments should clearly indicate your name and account
number.
GENERAL REDEMPTION INFORMATION
You may redeem a Fund shares 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 that the transfer
agent may require) subject to, in the case of B Shares, a CDSC imposed on
most redemptions made within six years of purchase (two in the case of
Stable Income Fund). Redeemed shares are not entitled to receive dividends
after the day on which the redemption is effective.
Normally, redemption proceeds are paid immediately following acceptance of
a redemption order. In any event, you will be paid within seven days,
unless (i) your bank has not cleared the check to purchase the shares
(which may take up to 15 days), (ii) the New York Stock Exchange is closed
(or trading is restricted) for any reason other than normal weekend or
holiday closings, (iii) there is an emergency in which it is not practical
for the Fund to sell its portfolio securities or for the Fund to determine
its net asset value or (iv) the SEC deems it inappropriate for redemption
proceeds to be paid. You can avoid the delay of waiting for your bank to
clear your check by paying for shares with wire transfers. Unless otherwise
indicated, redemption proceeds normally are paid by check mailed to your
record address.
To protect against fraud, the following must be in writing with a signature
guarantee: (1) endorsement on a share certificate; (2) instruction to
change your 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 elections; (6)
election of telephone redemption privileges; (7) election of exchange or
other privileges in connection with your account; (8) written instruction
to redeem shares whose value exceeds $50,000; (9) redemption in an account
when 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 payment of
redemption proceeds to any address, person or account for which there are
not established standing instructions.
You may obtain signature guarantees at any of the following types of
organizations: authorized banks, broker-dealers, national securities
exchanges, credit unions, savings associations or other eligible
institutions. The specific institution providing the guarantee must be
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.
The Funds and the transfer agent will use reasonable procedures to verify
that telephone requests are genuine, including recording telephone
instructions and sending written confirmations of the transactions. Such
procedures are necessary because the Funds and transfer agent could be
liable for losses due to unauthorized or fraudulent telephone instructions.
You should verify the accuracy of a telephone instruction as soon as you
receive the confirmation statement. Telephone redemption and exchanges may
be difficult to implement in times of drastic economic or market changes.
If you cannot reach the transfer agent by telephone, you may mail or
hand-deliver requests to the transfer agent.
Because of the cost of maintaining smaller accounts, Norwest Advantage
Funds may redeem, upon not less than 60 days' written notice, any account
with a net asset value of less than $1,000 ($5,000 in the case of Stable
Income Fund) immediately following any redemption.
REDEMPTION PROCEDURES
If you have invested directly in a Fund you may redeem your shares as
described below. If you have invested through a financial institution you
may redeem shares through the financial institution. If you wish to redeem
shares by telephone or receive redemption proceeds by bank wire you should
complete the appropriate sections of the account application. These
privileges may not be available until several weeks after the application
is received. You may not redeem certificated shares by telephone.
REDEMPTION BY MAIL. You may redeem shares by sending a written request to
the transfer agent accompanied by any share certificate you have been
issued. Sign all requests and endorse all certificates with signature
guaranteed.
17
<PAGE>
REDEMPTION BY TELEPHONE. If you have elected telephone redemption
privileges, you may redeem shares by telephoning the transfer agent at
1-800-338-1348 or 1-612-667-8833 and providing your shareholder account
number, the exact name in which the shares are registered and your Social
Security number or other taxpayer identification number. Norwest Advantage
Funds will mail a check to your record address or, if you have chosen wire
redemption privileges, wire the proceeds.
REDEMPTION BY BANK WIRE. If you have elected wire redemption privileges,
you may request a Fund to transmit redemption proceeds of more than $5,000
by federal funds wire to a bank account you have designated in writing. You
must have chosen the telephone redemption privilege to request bank
redemptions by telephone. Redemption proceeds are wired on the Fund
Business Day after the transfer agent receives a redemption request in
proper form.
EXCHANGES
You may exchange A Shares and B Shares for A Shares and B Shares,
respectively, of the Funds and of other funds of Norwest Advantage Funds
that offer those classes of shares. You may also exchange A Shares and B
Shares for some classes of certain money market funds of Norwest Advantage
Funds. Call or write the transfer agent for both a list of funds that offer
shares exchangeable with those of the Funds and for prospectuses of those
funds.]
The Funds do not charge for exchanges, and there is currently no limit on
the number of exchanges you may make. The Funds, however, may limit your
ability to exchange shares if you exchange too often. Exchanges are subject
to the fees (other than CDSCs) charged by, and the limitations (including
minimum investment restrictions) of, the fund into which you are
exchanging.
You may only exchange shares into a pre-existing account if that account is
identically registered. You must submit a new account application if you
wish to exchange shares into an account registered differently or with
different shareholder privileges. You may exchange into a Fund only if that
Fund's shares may legally be sold in your state of residence.
The Funds and federal tax law treat an exchange as a redemption and a
purchase of shares. You may realize a capital gain or loss depending on
whether the value of the shares redeemed is more or less than your basis in
the shares at the time of the exchange. The Funds may amend or terminate
exchange procedures on 60 days' notice.
SALES CHARGES. Some exchanges of A Shares may require a sales charge in
addition to the sales charge you paid to purchase the shares. If you
exchange into a fund that imposes an initial sales charge greater than the
sales charge you paid, you must pay the difference between the sales charge
of the fund you are exchanging into and your Fund. For example, if you paid
a 2% initial sales charge on a purchase of shares and then exchanged those
shares for shares of another fund with a 3% initial sales charge, you would
pay an additional 1% sales charge on the exchange. The Funds deems A Shares
acquired through the reinvestment of dividends or distributions to have
been acquired with a sales charge equal to the maximum sales charge of the
fund.
You may exchange B Shares without paying a CDSC. If you redeem shares you
received in an exchange, the CDSC will be calculated as if you never
exchanged the B Shares you originally purchased. B Shares acquired through
an exchange will also convert to A Shares when the B Shares originally
purchased would convert to A Shares.
EXCHANGES BY MAIL. You may make an exchange by sending a written request to
the transfer agent accompanied by any share certificates for the shares to
be exchanged. Sign all written requests and endorse all certificates with
signature guaranteed.
EXCHANGES BY TELEPHONE. If you have telephone exchange privileges, you may
make a telephone exchange by calling the transfer agent at 1-800-338-1348
or 1-612-667-8833 and giving your account number, the exact name in which
the shares are registered and your Social Security number or other taxpayer
identification number.
18
<PAGE>
9. DIVIDENDS AND TAX MATTERS
DIVIDENDS
Stable Income Fund, Intermediate Government Income Fund and Total Return
Bond Fund declare and pay dividends of net investment income monthly.
Income Fund declares dividends of net investment income daily and pays
those dividends monthly. Each Fund's net capital gain, if any, is
distributed at least annually. Dividends on B Shares will be lower those on
A Shares per share because of the distribution and other fees applicable to
B Shares.
You have three choices for receiving dividends and distributions: the
Reinvestment Option, the Cash Option and the Directed Dividend Option.
* Under the Reinvestment Option, all dividends and distributions of a
Fund are automatically invested in additional shares of that Fund. You
will be automatically assigned this option unless you select one of
the other two options.
* Under the Cash Option, you are paid all dividends and distributions in
cash.
* Under the Directed Dividend Option, if you own $10,000 or more of a
Fund's shares in a single account, you can have that Fund's dividends
and distributions reinvested in shares of another Fund. Call or write
the transfer agent for more information about 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. All dividends and distributions reinvested in a Fund are reinvested
at the Fund's net asset value as of the payment date of the dividend or
distribution
TAX MATTERS
Dividends paid by a Fund out of its net investment income (including net
short-term capital gain) are taxable as ordinary income. Net capital gain
may be taxable at different rates depending on the length of time the Fund
holds its assets. 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, dividends or a distribution made shortly after
you purchase shares, although in effect a return of capital to you, are
taxable.
If a Fund receives investment income from sources within foreign countries,
that income may be subject to foreign income or other taxes.
10. OTHER INFORMATION
DETERMINATION OF NET ASSET VALUE
Each Fund determines net asset value on each Fund Business Day by dividing
the value of its 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 Funds determine their net asset values
at 4:00 p.m, Eastern Time.
The Funds value portfolio securities at current market value if market
quotations are readily available. If market quotations are not readily
available, the Funds value securities at fair value as determined by or
pursuant to procedures adopted by the Board. The Core Portfolios follow
similar procedures in determining their net asset values.
European, Far Eastern and other international securities exchanges and
over-the-counter markets normally complete trading well before the close of
business on each Fund Business Day. Trading in foreign securities, however,
may not take place on all Fund Business Days or may take place on days that
are not Fund Business Days. The determination of the prices of foreign
securities may be based on the latest market quotations for the securities.
If events occur that
19
<PAGE>
affect the securities' value after the close of the markets on which the
securities trade, the Funds may make an adjustment to the value of the
securities for purposes of determining net asset value.
CORE PORTFOLIOS
Each Fund reserves the right to invest in one or more Core Portfolios. Each
Fund bears its pro rata share of the expenses of any Core Portfolio in
which it invests. The Board may redeem a Fund's investment in a Core
Portfolio at any time. The Fund could then invest directly in portfolio
securities or could re-invest in one or more different Core Portfolios that
could have different fees and expenses. A Fund might redeem, for example,
if other investors had sufficient voting power to change the investment
objectives or policies of the Core Portfolio in a manner detrimental to the
Fund.
BROKER-DEALER REALLOWANCES
The Funds' distributor may pay a "broker-dealer's" reallowance to certain
financial intermediaries purchasing shares as principal or agent. Normally,
the distributor will reallow the amounts indicated below, although it may
at times reallow the entire sales charge. The distributor also may make
additional payments to certain intermediaries out of its own resources of
up to 0.75% (0.50% in the case of Stable Income Fund) of the net asset
value of Fund shares purchased. Norwest Advantage Funds may change the
amount of the reallowance.
In addition, at its own expense, the distributor may provide compensation,
including financial assistance, to financial intermediaries in connection
with their conferences, employee sales or training programs, public
seminars, advertising campaigns or other special events. The distributor
may, for example, compensate the intermediaries with travel arrangements
and lodging, tickets for entertainment events and merchandise. The
distributor may make this compensation available only to intermediaries
that have sold or are expected to sell significant amounts of Fund shares
or who charge an asset based fee, whether or not they have a fiduciary
relationship with their clients.
STABLE INCOME FUND
AMOUNT OF PURCHASE BROKER-DEALERS' REALLOWANCE AS A
PERCENTAGE OF OFFERING PRICE
Less than $50,000......................... 1.35%
$50,000 to $99,999........................ 0.90%
$100,000 to $499,000...................... 0.70%
$500,000 to $999,000...................... 0.45%
$1,000,000 and over....................... None
INTERMEDIATE GOVERNMENT INCOME FUND,
INCOME FUND AND TOTAL RETURN BOND FUND
AMOUNT OF PURCHASE BROKER-DEALERS' REALLOWANCE AS A
PERCENTAGE OF OFFERING PRICE
Less than $50,000........................ 3.50%
$50,000 to $99,999....................... 3.00%
$100,000 to $249,000..................... 2.50%
$250,000 to $499,999..................... 2.25%
$500,000 to $999,000..................... 1.75%
$1,000,000 to $2,499,999................. 0.75%
$2,500,000 to $4,999,999................. 0.50%
Over $5,000,000.......................... 0.25%
20
<PAGE>
NO ONE 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. ANY SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE FUNDS. 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.
21
<PAGE>
If you would like more information about the Funds and their investments,
you may want to read the following documents:
STATEMENT OF ADDITIONAL INFORMATION. The Funds' statement of additional
information, or "SAI," contains detailed information about the Funds, such
as their investments, management and organization. It is incorporated into
this Prospectus by reference.
ANNUAL AND SEMI-ANNUAL REPORTS. Additional Information about each Fund's
investments is available in its annual and semi-annual reports to
shareholders. In the annual report, the Fund's portfolio manager discusses
the market conditions and investment strategies that significantly affected
the Fund's performance during its last fiscal year.
You may obtain free copies of the SAI, annual report and semi-annual report
by contacting your broker, trust officer or by contacting the Fund's
distributor, Forum Financial Services, Inc., at Two Portland Square,
Portland, Maine 04101 or at 1-800- XXX-XXXX or 1-207-879-0001.
The Funds' reports and statement of additional information are available
from the Securities and Exchange Commission in Washington, D.C. You may
obtain copies of these documents, upon payment of a duplicating fee, by
writing the Public Reference Section of the SEC, Washington D.C.
20549-6009. Please call 1-800-SEC-0330 for information about the operation
of the SEC's public reference room. The Fund's reports and other
information are also available on the SEC's Web Site at http://
www.sec.gov.
The SEC's Investment Company Act file number for the Funds is 811-4881.
(C) Norwest Advantage Funds
MFBPB002 10/97
#18811 v1
22
<PAGE>
October 1, 1998
GROWTH BALANCED FUND
INCOME EQUITY FUND
VALUGROWTH SM STOCK FUND
DIVERSIFIED EQUITY FUND
GROWTH EQUITY FUND
LARGE COMPANY GROWTH FUND
DIVERSIFIED SMALL CAP FUND
SMALL COMPANY STOCK FUND
SMALL CAP OPPORTUNITIES FUND
INTERNATIONAL FUND
AN INVESTMENT IN THE FUNDS IS NOT A DEPOSIT OF NORWEST BANK MINNESOTA, N.A. AND
IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
INVESTING IN ANY MUTUAL FUND HAS RISK, AND IT IS POSSIBLE TO LOSE MONEY BY
INVESTING IN ANY OF THE FUNDS.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED WHETHER OR NOT THIS PROSPECTUS IS ACCURATE OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
Table of Contents
1. PROSPECTUS SUMMARY
Highlights of the Funds.......................................
Expense Information...........................................
2. FINANCIAL HIGHLIGHTS .........................................
3. INVESTMENT OBJECTIVES AND POLICIES ...........................
Growth Balanced Fund..........................................
Income Equity Fund............................................
ValuGrowth Stock Fund.........................................
Diversified Equity Fund.......................................
Growth Equity Fund............................................
Large Company Growth Fund.....................................
Small Cap Diversified Fund....................................
Small Company Stock Fund......................................
Small Cap Opportunities Fund..................................
International Fund............................................
Core Portfolio Descriptions...................................
RISK CONSIDERATIONS...........................................
4. MANAGEMENT ...................................................
Investment Advisory Services..................................
5. CHOOSING A SHARE CLASS .......................................
A Shares......................................................
B Shares......................................................
C Shares......................................................
6. HOW TO BUY AND SELL SHARES ...................................
Minimum Investment............................................
Purchase Procedures...........................................
Account Application...........................................
General Information...........................................
Redemption Procedures.........................................
Other Redemption Matters......................................
Exchanges.....................................................
9. Dividends and Tax Matters ....................................
Dividends.....................................................
Tax Matters...................................................
10.Other Information ............................................
Determination of Net Asset Value..............................
Core Portfolios...............................................
Reallowances..................................................
<PAGE>
1. OVERVIEW
The following is a summary of information about the Funds. Before investing, you
should consider the discussion under Investment Objectives and Policies and Risk
Considerations.
WHO SHOULD INVEST
No single Fund is a complete or balanced investment program, but each can serve
as a part of your overall investment program.
THE FUNDS
Growth Balanced Fund seeks a combination of current income and capital
appreciation. The other Funds seek capital growth or high capital return.
FUND PRIMARY INVESTMENTS
- ---- -------------------
Growth Balanced Fund Stocks and bonds in several equity and fixed
income investment styles
Income Equity Fund Stocks with prospects of long-term capital
appreciation and above-average dividend income.
ValuGrowth Stock Fund Stocks of medium and large
capitalization companies that appear
undervalued and have potential for above-
average growth.
Diversified Equity Fund Diversified investments in five different
equity investment styles in order to moderate
fluctuations in the Fund's annual returns.
Growth Equity Fund Diversified investments in three different
equity investment styles in order to emphasize
capital appreciation and moderate
fluctuations in the Fund's annual returns.
Large Company Growth Fund Large, high-quality domestic companies with
potential for superior growth.
Diversified Small Cap Fund Diversified investments in different small
capitalization investment styles.
Small Company Stock Fund Stocks of small and medium-size domestic
companies with a market capitalization below
that of the average company in Standard &
Poor's 500 Composite Stock Price Index(C).
Small Cap Opportunities Fund Stocks of smaller companies with potential for
capital appreciation.
International Fund Stocks of high-quality companies based
outside of the United States.
CLASSES OF SHARES
This Prospectus offers three classes of shares. Each class has a different fee
structure. All of the Funds offer A Shares and B Shares. Growth Balanced Fund,
Income Equity Fund, Diversified Equity Fund and Growth Equity Fund also offer C
Shares.
2
<PAGE>
* A Shares are generally offered at their net asset value plus an initial
sales charge. A Shares do not have distribution or shareholder servicing
fees.
* B Shares are offered at their net asset value. B Shares have distribution
and shareholder servicing fees and convert to A Shares within seven years
after purchase. If you redeem your B Shares within six years of purchase,
you pay a contingent deferred sales charge. The amount of the charge
depends on the length of time you hold the shares.
* C Shares are offered at their net asset value plus an initial sales charge
lower than that applied to A Shares. C Shares have distribution fees. If
you redeem your C Shares within one year of purchase, you pay a contingent
deferred sales charge.
FUND STRUCTURES
Some of the Funds invest directly in a portfolio of securities. Other Funds
invest in one or more other funds identified in this prospectus as Core
Portfolios. Except when necessary to describe a Fund's investment in a Core
Portfolio, this prospectus discusses a Fund's investments in a Core Portfolio as
if the investments were made directly in portfolio securities.
INVESTMENT ADVISERS
NORWEST INVESTMENT MANAGEMENT, INC. or NORWEST is the investment adviser for all
of the Funds and all but three of the Core Portfolios. Norwest, a subsidiary of
Norwest Bank Minnesota, N.A. or Norwest Bank, provides investment advice to
institutions, pension plans and other accounts and currently manages more than
$23.6 billion in assets. SCHRODER CAPITAL MANAGEMENT INC. or SCHRODER is the
investment adviser for three Core Portfolios: Schroder U.S. Smaller Companies
Portfolio, Schroder EM Core Portfolio and International Portfolio. Schroder
specializes in providing international investment advice. INVESTMENT SUBADVISERS
make investment decisions for certain Funds and Core Portfolios under Norwest's
general supervision. This prospectus generally refers to Norwest, Schroder or a
subadviser as an Adviser.
HOW TO BUY SHARES
The Funds require minimum initial investments of $1,000 and minimum subsequent
investments of $100. Currently, Small Cap Opportunities Fund is closed to new
investors.
EXCHANGES
If you own Fund shares, you may exchange them for shares of certain other funds.
Your exchange rights will vary depending on the class of shares you own.
DIVIDENDS AND DISTRIBUTIONS
Each Fund's net capital gain, if any, is distributed at least annually.
* Income Equity Fund, ValuGrowth Stock Fund and Small Company Stock Fund
declare dividends of net investment income quarterly.
* All other Funds declare dividends of net investment income annually.
RISK FACTORS
All investments in the Funds are subject to risk and may decline in value. The
amount and types of risk vary from Fund to Fund depending on the Fund's
investment objective, the Adviser's ability to achieve the Fund's objective, the
markets the Fund invests in, the investments the Fund makes and prevailing
economic conditions over the period of your investment.
Every Fund also has the risk that its Adviser may not be successful in carrying
out its investment strategy. Your investment in a Fund will also have risk if
you do not plan to invest for a period that is long enough to permit the
investment to recover from an adverse market movement.
The Funds are subject to "market risk," which is the general risk that the value
of the Fund's investments may decline if the stock markets perform poorly. There
is a risk that a Fund's investments will underperform either the securities
markets generally or particular segments of the securities markets.
3
<PAGE>
Funds that invest in smaller issuers or foreign issuers are riskier than other
Funds. Investments in smaller issuers are subject to greater market volatility
because securities of smaller issuers may not trade as often or be as widely
owned as the securities of larger issuers. Investments in foreign issuers are
subject to the risks of foreign political and economic instability and changes
in foreign exchange rates. Foreign investments are also subject to government
actions, including exchange controls and limits on repayments of foreign
investments. Foreign governments may nationalize, tax or confiscate investors'
assets.
Growth Balanced Fund divides its investments between fixed income securities and
equity securities in varying proportions, with an emphasis on equity securities.
If you invest in Growth Balanced Fund, your investment will be subject both to
the risks of fixed income securities and to the risks of equity securities. The
value of the Fund's fixed income investments generally will rise when interest
rates fall and fall when interest rates rise. The Fund's fixed income
investments are also subject to "credit risk," which is the risk that an issuer
will be unable, or will be perceived to be unable, to repay its obligations at
maturity.
In addition, the Adviser may vary, within a fixed range, the allocations of
Growth Balanced Fund's assets into each type of investment. There is a risk that
the allocations selected by the Adviser will not achieve the Fund's objective as
effectively as other possible allocations.
EXPENSE INFORMATION
The following table will assist you in understanding the expenses that you will
bear directly and indirectly if you invest in a Fund.
Shareholder Transaction Expenses
(applicable to each Fund)
<TABLE>
<S> <C> <C> <C>
A B C
Shares Shares Shares
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
Maximum sales charge imposed on purchases
(as a percentage of public offering price) 5.5% Zero 1.0%
Maximum deferred dales charge
(as a percentage of the lesser of original purchase Zero 4.0%(1) 1.0%(2)
price or redemption proceeds)
ANNUAL FUND OPERATING EXPENSES(3)(7)
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS AFTER APPLICABLE FEE WAIVERS AND EXPENSE REIMBURSEMENTS)
GROWTH INCOME
BALANCED FUND(6) EQUITY FUND
A B C A B C
Shares Shares Shares Shares Shares Shares
--------- --------- ---------- --------- ---------- ----------
Investment Advisory Fees (4)
Rule 12b-1 Fees (after fee waivers)(5)
Other Expenses (after fee waivers and
reimbursements)
Investment Advisory Fee - Core Portfolio(4)
Other Expenses - Core Portfolio(s)
(after fee waivers and reimbursements)
Total Operating Expenses(7)
VALUGROWTH DIVERSIFIED
STOCK FUND EQUITYFUND(6)
A B A B C
Shares Shares Shares Shares Shares
--------------- -------------- --------- ---------- ----------
Investment Advisory Fees (4) Rule 12b-1 Fees (after fee waivers)(5) Other
Expenses (after fee waivers and reimbursements) Investment Advisory Fee - Core
Portfolio(4) Other Expenses - Core Portfolio(s)
(after fee waivers and reimbursements)
Total Operating Expenses(7)
</TABLE>
4
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
GROWTH LARGE COMPANY
EQUITY FUND(6) GROWTH FUND
A B C A B
Shares Shares Shares Shares Shares
--------- --------- ---------- ---------------- --------------
Investment Advisory Fees (4)
Rule 12b-1 Fees (after fee waivers)(5)
Other Expenses (after fee waivers and
reimbursements)
Investment Advisory Fee - Core Portfolio(4)
Other Expenses - Core Portfolio(s)
(after fee waivers and reimbursements)
Total Operating Expenses(7)
DIVERSIFIED SMALL SMALL COMPANY
CAP FUND STOCK FUND(6)
A B A B
Shares Shares Shares Shares
--------------- -------------- ---------------- --------------
Investment Advisory Fees (4) Rule 12b-1 Fees (after fee waivers)(5) Other
Expenses (after fee waivers and reimbursements) Investment Advisory Fee - Core
Portfolio(4) Other Expenses - Core Portfolio(s)
(after fee waivers and reimbursements)
Total Operating Expenses(7)
SMALL CAP INTERNATIONAL FUND
OPPORTUNITIES FUND
A B A B
Shares Shares Shares Shares
--------------- -------------- ---------------- --------------
</TABLE>
Investment Advisory Fees (4)
Rule 12b-1 Fees (after fee waivers)(5)
Other Expenses (after fee waivers and
reimbursements)
Investment Advisory Fee - Core Portfolio(4)
Other Expenses - Core Portfolio(s)
(after fee waivers and reimbursements)
Total Operating Expenses(7)
(1) The maximum 4.0% deferred sales charge on B Shares applies to redemptions
during the first year after purchase; the charge declines to 3.0% during the
second and third years, 2.0% during the fourth and fifth years, 1.0% during
the sixth year and zero the following year.
(2) The 1.0% deferred sales charge on C Shares applies only to redemptions
during the first year after purchase.
(3) The expenses, and any waivers and fee reimbursements, for Growth Balanced
Fund, Diversified Small Cap Fund, Large Company Growth Fund and Class C
shares of Income Equity Fund, Diversified Equity Fund and Growth Equity Fund
are estimated.
(4) Absent waivers, Investment Advisory Fees for ValuGrowth Stock Fund would be
0.80% and for Growth Balanced Fund, Diversified Equity Fund, Growth Equity
Fund, Diversified Small Cap Fund and International Fund would be 0.25%.
Investment Advisory Fees --Core Portfolio states the investment advisory
fees of any Core Portfolios in which a Funds invests.
(5) Absent waivers, Rule 12b-1 Fees would be 1.00% for B Shares and [0.75%]
for C Shares.
(6) Norwest and the Funds' manager have agreed to waive fees and reimburse
expenses to maintain Small Company Stock Fund's total operating expenses at
or below 0.75% for A Shares and 1.50% for B Shares. Any proposed reduction
of those waivers or reimbursements would require review by the Funds' Board
of Trustees. Norwest and the Funds' manager have agreed to waive their fees
through May 31, 1999 to ensure that the combined investment advisory,
administrative and management services fees borne by Growth Balanced Fund,
Diversified Equity Fund and Growth Equity Fund do not exceed 0.68%, 0.75%
and 1.00%. Any reduction of that waiver after May 31, 1999 requires Board
approval.
(7) Absent estimated expense reimbursements and fee waivers, the expenses of A
Shares of Growth Balanced 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 Cap
Opportunities Fund and International Fund would be: Other Expenses, [___%],
[___%], [___%], [__%], [__%], [__%], [__%], [___%], [___%] and [___%],
respectively; Other Expenses - Core Portfolio(s), [__%], [___%], [__%],
[___%], [___%], [__%], [__%], [___%], [___%], [___%] and [___%],
respectively; and Total Operating Expenses, [__%], [__%],[___%], [___%],
[___%], [__%], [__%], [__%], [__%] and [___%], respectively. Absent expense
reimbursements and fee waivers, the expenses of B Shares of Income Equity
Fund, ValuGrowth Stock Fund, Diversified Equity Fund, Growth Equity Fund,
Small Company Stock Fund, Small Cap Opportunities Fund and International
Fund would be: Other Expenses, [___%], [___%], [___%], [___%], [___%],
[___%] and [___%], respectively; Other Expenses - Core Portfolio(s), [___%],
[___ %], [___%], [___%], [___%], [__%], and [___%], respectively; and Total
Operating Expenses, [___%], [___%], [___%], [___%], [___%], [___%] and
[___%], respectively. Absent estimated expense reimbursements and fee
waivers, the expenses of C Shares of [Growth Balanced Fund, Income Equity
Fund, Diversified Equity Fund and Growth Equity Fund] would be: Other
Expenses, [___%], [__%], [__%], [__%] respectively; Other Expenses - Core
Portfolio(s), [__%], [__%], [__%] and [__%], respectively; and Total
Operating Expenses [__%], [__%], [__%] and [__%] respectively. Except as
otherwise noted, expense reimbursements and fee waivers are voluntary and
may be reduced or eliminated at any time.
5
<PAGE>
EXAMPLE
The Hypothetical Expense Example indicates the dollar amount of expenses you
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 and C Shares, the deduction of the contingent deferred sales
charge for B Shares and C Shares applicable to a redemption at the end of the
period and the conversion of B Shares to A Shares at the end of seven years. The
example does not represent past or future expenses or return. Actual expenses
and return may be greater or less than indicated.
Hypothetical Expense Example
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Growth Balanced Fund
A Shares
B Shares
Assuming redemption
at the end of the period
Assuming no redemption
C Shares
Assuming redemption
at the end of the period
Assuming no redemption
................................................................................
Income Equity Fund
A Shares
B Shares
Assuming redemption
at the end of the period
Assuming no redemption
C Shares
Assuming redemption
at the end of the period
Assuming no redemption
................................................................................
ValuGrowth Stock Fund
A Shares
B Shares
Assuming redemption
at the end of the period
Assuming no redemption
................................................................................
Diversified Equity Fund
A Shares
B Shares
Assuming redemption
at the end of the period
Assuming no redemption
C Shares
Assuming redemption
at the end of the period
Assuming no redemption
................................................................................
Growth Equity Fund
A Shares
B Shares
Assuming redemption
at the end of the period
Assuming no redemption
C Shares
Assuming redemption
at the end of the period
Assuming no redemption
................................................................................
Small Company Stock Fund
A Shares
B Shares
Assuming redemption
at the end of the period
6
<PAGE>
Assuming no redemption
................................................................................
Small Cap Opportunities Fund
A Shares
B Shares
Assuming redemption
at the end of the period
Assuming no redemption
................................................................................
International Fund
A Shares
B Shares
Assuming redemption
at the end of the period
Assuming no redemption
7
<PAGE>
2. FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand each Fund's
financial performance for the shorter of 10 years or the Fund's operating
history. Certain information reflects financial results for a single Fund share.
The total returns in the table represent the rate that an investor would have
earned on an investment in a Fund, assuming reinvestment of all dividends and
distributions. The information from May 31, 1994 through May 31, 1998 has been
audited by _______________, independent auditors, whose reports, along with each
Fund's financial statements, are included in the Annual Report for the Funds,
which is available upon request. Other independent auditors audited information
for prior periods.
8
<PAGE>
3. GLOSSARY
Term Definition
- ---- ----------
Board The Board of Trustees of Norwest Advantage Funds
Duration A measure of a debt security's average life
that reflects the present value of the
security's cash flow.
Market Capitalization The total market value of a company's
outstanding common stock.
Non-Investment Grade Neither rated in one of the four highest long-
term rating categories by an NRSRO nor unrated
and determined by the Adviser to be of
comparable quality.
NRSRO A nationally recognized statistical rating
organization, such as S&P or Moody's
Investors Service, that rates fixed income
securities and preferred stock by relative
credit risk.
S&P Standard & Poor's Corporation
S&P 500 Index Standard & Poor's 500 Composite Stock Price
Index, an index of large capitalization
companies
S&P 600 Small Cap Index Standard & Poor's Small Cap 600 Composite Stock
Price Index(C), an index of small capitalization
companies
SEC Securities and Exchange Commission
U.S. Government Security An obligation issued or guaranteed as to
principal and interest by the U.S. Government,
its agencies or its instrumentalities, including
obligations issued or guaranteed by the U.S.
Treasury.
4. INVESTMENT OBJECTIVES AND POLICIES
This section discusses the investment objectives and policies of the Funds.
After each Fund's description, there is a short, alphabetical listing of the
Fund's primary risks. These risks are discussed below in Risk Considerations.
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.
INVESTMENT POLICIES. The Fund is designed for investors seeking long-term
capital appreciation in the equity securities market in a balanced fund. The
Fund currently invests in 14 Core Portfolios.
The equity portion of the Fund's portfolio uses the five 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 Fund invests the fixed income portion of its portfolio in Managed
Fixed Income Portfolio, Strategic Value Bond Portfolio and Positive Return
Portfolio. 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 Fund's fixed income investments.
The percentage of the Fund's assets invested in different styles may temporarily
deviate from the Fund's current allocation due to changes in market values. The
Adviser will effect transactions periodically to reestablish the current
allocation.
As market or other conditions change, the Adviser may attempt to enhance the
Fund's returns by changing the percentage of Fund assets invested in fixed
income and equity securities. The Fund may also invest in more or fewer Core
Portfolios or invest directly in portfolio securities. Absent unstable market
conditions, the Adviser does not anticipate making a substantial number of
percentage changes. When
9
<PAGE>
the Adviser believes that a change in the current allocation percentages is
desirable, it will sell and purchase securities to effect the change. When the
Adviser believes that a change will be temporary (generally, 3 years or less),
it may choose to effect the change by using futures contracts.
GROWTH BALANCED FUND ALLOCATION
The current allocations and ranges of investments by the Fund in each Core
Portfolio are:
<TABLE>
<S> <C> <C>
Investment Style CURRENT ALLOCATION RANGE OF INVESTMENT
- ---------------- ------------------ -------------------
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% 0.75% - 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>
RISKS:
Credit risk Leverage risk
Currency Rate Risk Market risk
Foreign risk Prepayment risk
Interest rate risk Small company risk
INCOME EQUITY FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to provide
long-term capital appreciation consistent with above-average dividend income.
INVESTMENT POLICIES. The Fund invests primarily in the common stock of large,
high-quality domestic companies that have above-average return potential based
on current market valuations. The Fund primarily emphasizes investing in
securities of companies with above-average dividend income. In selecting
securities for the Fund, the Adviser uses various valuation measures, including
above-average dividend yields and below industry average price-to-earnings,
price-to-book and price-to-sales ratios. Large companies are those whose Market
Capitalization is greater than the median of the Russell 1000 Index.
The Fund may invest in preferred stock, convertible securities and foreign
securities. The Fund will not normally invest more than 10% of its assets in the
securities of a single issuer.
RISKS:
Currency risk Leverage risk
Foreign risk Market risk
VALUGROWTH STOCK FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to provide long-
term capital appreciation.
10
<PAGE>
INVESTMENT POLICIES. The Fund invests primarily in medium- and large-
capitalization companies that, in the view of the Adviser, possess above average
growth characteristics and appear to be undervalued. Medium capitalization
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 those companies with earnings and
dividends that the Adviser believes will grow both faster than inflation and
faster than the economy in general and whose growth the Adviser believes has not
yet been fully reflected in the market price of the companies' shares. In
seeking these investments, the Adviser relies primarily on a company by company
analysis rather than on a broader analysis of industry or economic sector
trends. The Adviser 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, the
Adviser 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 may invest in companies that the Adviser considers to be "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 form a
comparatively small portion of the Fund's portfolio.
The Fund may invest up to 20% of its assets in securities of foreign issuers.
The Fund also may write covered calls and purchase calls on equity securities.
RISKS:
Currency Rate Risk Leverage risk
Foreign risk Market risk
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 among different equity investment styles.
INVESTMENT POLICIES. The Fund invests in a "multi-style" approach designed to
minimize the volatility and risk of investing in a single investment style. The
Fund currently invests in 11 Core Portfolios.
The Fund's portfolio combines five different equity investment styles - an index
style, an income equity style, a large company style, a diversified small cap
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 five Core Portfolios and the assets dedicated to
international investments to two Core Portfolios. 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.
DIVERSIFIED EQUITY FUND ALLOCATION
The current allocations and ranges of investments by the Fund in each Core
Portfolio are:
CURRENT ALLOCATION RANGE OF
------------------ INVESTMENT
-----------
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%
11
<PAGE>
TOTAL FUND ASSETS 100%
The percentage of Fund assets invested in each Core Portfolio may temporarily
deviate from the current allocations due to changes in market value. The Adviser
will effect transactions daily to reestablish the current allocations. The
Adviser may make changes in the current allocations at any time in response to
market and other conditions. The Fund may also invest in more or fewer Core
Portfolios or invest directly in portfolio securities.
RISKS:
Currency Rate Risk Market risk
Foreign risk Small company risk
Leverage risk
GROWTH EQUITY FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to provide a high
level of long-term capital appreciation while moderating annual return
volatility by diversifying its investments among different equity investment
styles.
INVESTMENT POLICIES. The Fund invests in a "multi-style" approach designed to
reduce the volatility and risk of investing in a single equity style. The Fund
currently invests in eight Core Portfolios.
The Fund's portfolio combines three different equity styles - a large company
growth style, a diversified small cap style and an international style. The Fund
allocates the assets dedicated to small company investments to five Core
Portfolios and the assets dedicated to international investments to two Core
Portfolios. 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.
GROWTH EQUITY FUND ALLOCATION
The current allocations and ranges of investments by the Fund in each Core
Portfolio are:
<TABLE>
<S> <C> <C>
Current Allocation Range of Investment
------------------ -------------------
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% 8.5% - 12.5%
Small Company Value Portfolio 8.4% 8.5% - 12.5%
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>
The percentage of Fund assets invested in each Core Portfolio may temporarily
deviate from the current allocations due to changes in market values. The
Adviser will effect transactions daily to reestablish the current allocations.
The Adviser may make changes in the current allocations at any time in response
to market or other conditions. The Fund may also invest in more or fewer Core
Portfolios or invest directly in portfolio securities.
RISKS:
Currency Rate Risk Market risk
Foreign risk Small company risk
Leverage risk
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 Adviser believes have superior growth potential.
INVESTMENT POLICIES. The Fund invests primarily in the common stock of large,
high-quality domestic companies that have superior
12
<PAGE>
growth potential. Large companies are those companies whose Market
Capitalization is greater than the median of the Russell 1000 Index. In
selecting securities for the Fund, the Adviser seeks issuers whose stock is
attractively valued and whose fundamental characteristics both are significantly
better than the market average and support internal earnings growth capability.
The Fund's assets may be invested in the securities of companies whose growth
potential is, in the Adviser's opinion, generally unrecognized or misperceived
by the market.
The Fund may invest up to 20% of its assets in the securities of foreign issuers
and may hedge against currency risk by using foreign currency forward contracts.
The Fund will not invest more than 10% of its total assets in the securities of
a single issuer.
RISKS:
Currency risk Leverage risk
Foreign risk Market risk
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 invests in a "multi-style" approach designed to
minimize the volatility and risk of investing in small capitalization equity
securities. The Fund invests in several different small capitalization equity
styles in order to reduce the risk of price and return volatility associated
with reliance on a single investment style. The Fund currently invests in five
Core Portfolios.
DIVERSIFIED SMALL CAP FUND ALLOCATION
The current allocations and ranges of investments by the Fund in each Core
Portfolio are:
<TABLE>
<S> <C> <C>
CURRENT RANGE OF INVESTMENT
ALLOCATION -------------------
----------
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>
The percentage of Fund assets invested in each Core Portfolio may temporarily
deviate from the current allocations due to changes in market values. The
Adviser will effect transactions daily to reestablish the current allocations.
The Adviser may make changes in the current allocations at any time in response
to market and other conditions. The Fund may also invest in more or fewer Core
Portfolios or invest directly in portfolio securities.
RISKS:
Currency risk Market risk
Foreign risk Small company risk
Leverage risk
SMALL COMPANY STOCK FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is long-term capital
appreciation.
INVESTMENT POLICIES. The Fund 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 S&P 500 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 ranges from $500 million to $8 billion.
In selecting securities for the Fund, the Adviser seeks 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 Fund invests may be in a relatively early stage of
development or may produce goods and services that have favorable prospects for
growth due to
13
<PAGE>
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 the Adviser, may result in an enhanced entrepreneurial spirit and
greater focus, thereby allowing such companies to be successful. The Adviser
believes 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.
The Fund may invest up to 20% of its assets in the securities of foreign
issuers.
RISKS:
Currency risk Market risk
Foreign risk Small company risk
Leverage risk
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.
INVESTMENT POLICIES. The Fund invests primarily in equity securities of U.S.
companies that, at the time of purchase, have Market Capitalizations of $1.5
billion or less. The Adviser attempts to identify securities of companies which
it believes can generate above-average earnings growth and sell at favorable
prices in relation to book values and earnings. The Adviser's assessment of the
competency of an issuer's management will be an important consideration in
selecting investments. These criteria are not rigid, and the Fund may make other
investments if they may help the Fund achieve its objective.
The Fund 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 Fund may also invest
to a limited degree in non-convertible debt securities and preferred stocks when
the Adviser believes these investments will help the Fund achieve its objective.
The Fund currently intends to invest no more than 5% of its total assets in
securities of small, unseasoned companies, which, together with any
predecessors, have been in operation for less than three years.
The Fund currently intends to invest no more than 5% of its net assets in
Non-Investment Grade convertible and non-convertible securities. The Fund may
use options and futures contracts to manage risk. The Fund may also use options
to enhance return.
RISKS:
Leverage risk Small company risk
Market risk
INTERNATIONAL FUND
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.
INVESTMENT POLICIES. The Fund invests in a "multi-style" approach designed to
minimize the volatility and risk of investing in international securities. The
Fund's investment portfolio combines two different investment styles - an
international equity investment style and an international emerging markets
investment style. The Fund invests in two Core Portfolios.
INTERNATIONAL FUND ALLOCATION
The current allocations and ranges of investments by the Fund in each Core
Portfolio are:
CURRENT RANGE OF INVESTMENT
ALLOCATION -------------------
----------
International Portfolio 95% 80% - 100%
Schroder EM Core Portfolio 5% 0% - 20%
TOTAL FUND ASSETS 100%
The percentage of Fund assets invested in each Core Portfolio may temporarily
deviate from the current allocations due to changes in market values. The
Adviser will effect transactions daily to reestablish the current allocations.
The Adviser may make changes in the
14
<PAGE>
current allocations at any time in response to market and other conditions. The
Fund may also invest in more or fewer Core Portfolios or invest directly in
portfolio securities.
RISKS:
Credit risk Interest rate risk
Currency rate risk Leverage risk
Foreign risk Market risk
Geographic concentration risk Prepayment risk
DESCRIPTIONS OF CORE PORTFOLIOS
POSITIVE RETURN BOND PORTFOLIO
The Core Portfolio seeks positive total return each calendar year regardless of
the bond market by investing in a portfolio of U.S. Government Securities and
corporate fixed income securities. The Core Portfolio's assets are divided into
two components, short bonds with maturities (or average life) of two 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 Adviser's 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. The average dollar-weighted maturity of the Core Portfolio will
vary between one and 30 years.
Under normal circumstances, the Core Portfolio will invest at least 50% of its
net assets in U.S. Government Securities, including Treasury securities. The
Core Portfolio only purchases securities that are rated, at the time of
purchase, within one of the two highest long-term rating categories assigned by
an NRSRO or that are unrated and determined by the Adviser to be of comparable
quality. The Adviser will not invest more than 25% of its assets in securities
rated in the second highest rating category. The Core Portfolio will limit its
investments in zero-coupon securities, securities with variable or floating
rates of interest and asset-backed securities to 25% of its net assets in each
type of security. The Core Portfolio may not invest in convertible securities,
mortgage pass-through securities or private placement securities. Within these
constraints, the Adviser purchases securities that it believes have
above-average yields.
RISKS:
Credit risk Market risk
Interest rate risk Prepayment risk
Leverage risk
MANAGED FIXED INCOME PORTFOLIO
The Core Portfolio seeks consistent fixed income returns by investing primarily
in investment grade intermediate term obligations. The Core Portfolio invests in
a diversified portfolio of fixed and variable rate U.S. dollar-denominated,
fixed income securities of a broad spectrum of U.S. and foreign issuers,
including U.S. Government Securities and the debt securities of financial
institutions, corporations, and others. The Adviser emphasizes the use of
intermediate maturity securities to lessen Duration, while employing low risk
yield enhancement techniques to enhance return over a complete economic or
interest rate cycle. Intermediate-term obligations are securities with
maturities of between two and 20 years.
The Core Portfolio will limit its investment in mortgage-backed securities to
not more than 50% of its total assets and its investment in other asset-backed
securities to not more than 25% its net assets. In addition, the Core Portfolio
may not invest more than 30% of its assets in the securities issued or
guaranteed by any single agency or instrumentality of the U.S. Government,
except the U.S. Treasury.
The Core 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, or which are unrated and determined by the
Adviser to be of comparable quality.
The Core Portfolio invests in debt obligations with maturities (or average life
in the case of mortgage-backed and similar securities) ranging from overnight to
30 years. Under normal circumstances, the Core Portfolio will have an average
dollar-weighted portfolio maturity of between three and 12 years and a Duration
of between two and six years.
The Portfolio may also invest up to 10% of its total assets in: obligations
issued or guaranteed by governments the Adviser deems stable, or their
subdivisions, agencies or instrumentalities; loan or security participations;
obligations of supranational organizations; and Municipal Securities.
The Portfolio may use options, swap agreements, interest rate caps, floors and
collars and futures contracts to manage risk. The Portfolio may also use options
to enhance return.
15
<PAGE>
Risks:
Credit risk Leverage risk
Foreign risk Market risk
Interest rate risk Prepayment risk
STRATEGIC VALUE BOND PORTFOLIO
The Core Portfolio seeks total return by investing primarily in income-producing
securities. The Core 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.
The Adviser focuses on relative value as opposed to predicting the direction of
interest rates. In general, the Core Portfolio seeks higher current income
instruments such as corporate bonds and mortgage-backed and asset-backed
securities in order to enhance returns. The Adviser believes that this exposure
enhances performance in varying economic and interest rate cycles while avoiding
excessive risk concentrations. The Adviser's investment process involves
rigorous evaluation of each security, including 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.
The Adviser uses this process to seek to identify securities which represent the
best relative economic value. The Adviser then evaluates the results of the
investment process against the Core Portfolio's objective and purchases those
securities that will enhance its positioning.
To limit the Core Portfolio's credit risk, the Core Portfolio generally will
invest 65% of its assets in fixed income securities rated in one of the three
highest rating categories by at least one NRSRO, or which are unrated and
determined by the Adviser to be of comparable quality. In addition, the Core
Portfolio will limit its investment in Non-Investment Grade fixed income
securities to 20% of the Core Portfolio's assets.
The average maturity of the Core Portfolio will vary between five and 15 years.
In the case of mortgage-related, asset-backed and similar securities, the Core
Portfolio uses the security's average life in calculating the Core Portfolio's
average maturity. The Core Portfolio's Duration normally will vary between three
and eight years.
The Core Portfolio particularly seeks strategic diversification. The Core
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. The Core Portfolio may invest in U.S. Government Securities without
restriction. The Core Portfolio generally will not invest more than 5% of its
assets in the corporate bonds of any one issuer.
The Core Portfolio may invest up to 20% of its total assets in Non-Investment
Grade fixed income securities rated in the fifth highest rating category by an
NRSRO or unrated and determined by the Adviser to be of comparable quality.
The Portfolio may use options, swap agreements, interest rate caps, floors and
collars and futures contracts to manage risk. The Portfolio may also use options
to enhance return.
RISKS:
Credit risk Market risk
Interest rate risk Prepayment risk
Leverage risk
INDEX PORTFOLIO
The Core Portfolio is designed to duplicate the return of the S&P 500 Index with
minimum tracking error, while also minimizing transaction costs. Under normal
circumstances, the Core Portfolio will hold stocks representing 100% of the
capitalization-weighted market values of the S&P 500 Index. The Adviser
generally executes portfolio transactions for the Core Portfolio only to
duplicate the composition of the S&P 500 Index, to invest cash received from
portfolio security dividends or investments in the Core Portfolio, and to raise
cash to fund redemptions. The Core Portfolio may hold cash or cash equivalents
to facilitate payment of the Core Portfolio's expenses or redemptions and may
invest in index futures contracts to a limited extent. For these and other
reasons, the Core Portfolio's performance can be expected to approximate but not
equal the S&P 500 Index.
The S&P 500 Index tracks the total return performance of 500 common stocks which
are chosen for inclusion in the S&P 500 Index by S&P on a statistical basis. The
500 securities, most of which trade on the New York Stock Exchange, represent
approximately 70% of the total market value of all U.S. common stocks. Each
stock in the S&P 500 Index is weighted by its market value. Because of the
market-value weighting, the 50 largest companies in the S&P 500 Index currently
account for approximately 47% of its value. The S&P 500 Index emphasizes large
capitalizations and, typically, companies included in the S&P 500 Index are the
largest and most dominant
16
<PAGE>
firms in their respective industries.
RISKS:
Leverage risk Market risk
INCOME EQUITY PORTFOLIO
The Core Portfolio is described in the section of this prospects describing
Income Equity Fund.
LARGE COMPANY GROWTH PORTFOLIO
The Core Portfolio is described in the section of this prospectus describing
Large Company Growth Fund.
DISCIPLINED GROWTH PORTFOLIO
The Core Portfolio seeks capital appreciation by investing in common stocks of
larger companies. The Core Portfolio seeks higher long-term returns by investing
primarily in the common stock of companies that, in the view of the Adviser,
possess above average potential for growth. The Core Portfolio invests in
companies with average Market Capitalizations greater than $5 billion.
The Core 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 Adviser uses both quantitative and fundamental analysis and
may consider, among other factors, 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 Adviser uses a variety of
valuation measures to determine whether the share price already reflects any
positive fundamentals identified by the Adviser. In addition to approximately
equal weighting of portfolio securities, the Adviser attempts to constrain the
variability of the investment returns by employing risk control screens for
price volatility, financial quality and valuation.
RISKS:
Leverage risk Market risk
SMALL CAP INDEX PORTFOLIO
The Core Portfolio seeks to replicate the return of the S&P Small Cap 600 Index
with minimum tracking error, while also minimizing transaction costs. Under
normal circumstances, the Core Portfolio will hold stocks representing 100% of
the capitalization-weighted market values of the S&P 600 Small Cap Index. The
Adviser generally executes portfolio transactions only to duplicate the
composition of the S&P 600 Small Cap Index, to invest cash received from
portfolio security dividends or investments in the Core Portfolio, and to raise
cash to fund redemptions. The Fund may hold cash or cash equivalents to
facilitate payment of the Fund's expenses or redemptions and may invest in index
futures contracts. For these and other reasons, the Core Portfolio's performance
can be expected to approximate but not equal that of the S&P 600 Small Cap
Index.
The S&P 600 Small Cap Index tracks the total return performance of 600 common
stocks which are chosen for inclusion in the S&P 600 Small Cap Index by S&P on a
statistical basis. 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. Each
stock in the S&P 600 Small Cap Index is weighted by its market value. The S&P
600 Small Cap Index emphasizes smaller capitalizations and typically, companies
included in the S&P 600 Small Cap Index may not be the largest nor most dominant
firms in their respective industries.
RISKS:
Leverage risk Market risk
SMALL COMPANY STOCK PORTFOLIO
The Core Portfolio is described in the section of this prospectus describing
Small Company Stock Fund.
SMALL COMPANY GROWTH PORTFOLIO
The Fund seeks long-term capital appreciation by investing primarily in the
common stock of small and medium-sized domestic companies that are either
growing rapidly or completing a period of significant change. Small companies
are those companies whose Market Capitalization is less than the largest stock
in the Russell 2,000 Index. The Fund considers smaller companies to be those
with Market Capitalizations less than $1 billion at the time of the Fund's
purchase.
17
<PAGE>
In selecting securities for the Fund, the Adviser 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 the company's share
price and takeover/asset value.
The Adviser may invest up to 10% of the Core Portfolio's total assets in foreign
securities. The Adviser will not invest more than 10% of the Core Portfolio's
total assets in the securities of a single issuer.
RISKS:
Currency rate risk Market risk
Foreign risk Small company risk
Leverage risk
SMALL COMPANY VALUE PORTFOLIO
The Core Portfolio seeks to provide long-term capital appreciation by investing
primarily in smaller companies whose Market Capitalization is less than the
largest stock in the Russell 2000 Index. The Adviser focuses on securities that
are conservatively valued in the marketplace relative to the stock of comparable
companies, determined by price/earnings ratios, cash flows or other measures.
Value investing provides investors with a less aggressive way to take advantage
of growth opportunities of small companies. 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.
RISKS:
Leverage risk Small company risk
Market risk
SMALL CAP VALUE PORTFOLIO
The Core Portfolio seeks capital appreciation by investing in common stocks of
smaller companies. The Core Portfolio will normally invest substantially all its
assets in companies with Market Capitalizations that reflect the Market
Capitalizations of companies included int the Russell 2000 Index. The Core
Portfolio seeks higher growth rates and greater long-term returns by investing
primarily in the common stock of smaller companies that the Adviser believes to
be undervalued and are likely to report a level of corporate earnings exceeding
the level expected by investors. Companies are valued 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 Adviser uses both quantitative and
fundamental analysis. Among other factors, the Adviser considers changes of
earnings estimates by investment analysts, the recent trend of company earnings
reports and the fundamental business outlook for the company.
RISKS:
Leverage risk Small company risk
Market risk
INTERNATIONAL PORTFOLIO
The Core Portfolio seeks to provide long-term capital appreciation by investing
directly or indirectly in high-quality companies based outside the United
States. The Core Portfolio selects its investments on the basis of their
potential for capital appreciation without regard to current income. The Core
Portfolio may also invest in the securities of domestic closed-end investment
companies that invest primarily in foreign securities. The Core Portfolio's
investments will generally 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, the
Core Portfolio will invest only in securities of companies and governments in
countries that the Adviser, in its judgment, considers both politically and
economically stable. The Core Portfolio may concentrate its investments in a
particular country, region or type of investment.
The Core Portfolio may purchase preferred stock and convertible debt securities,
including convertible preferred stock. The Core Portfolio may also 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.
RISKS:
Currency rate risk Leverage risk
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Foreign risk Market risk
Geographic concentration risk
SCHRODER EM CORE PORTFOLIO
The Core Portfolio seeks 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 Core Portfolio's objective.
The Core 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.
The Adviser considers "Emerging market" countries generally to be all those
countries not included in the Morgan Stanley Capital International World Index
("MSCI World") of major world economies. If, however, the Adviser determines
that the economy of a MSCI World-listed country is an emerging market economy,
the Adviser may include such country in the emerging market category. The Core
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.
The Core Portfolio may invest up to 35% of its total assets in Non-Investment
Grade fixed income securities.
RISKS:
Credit risk Interest rate risk
Currency rate risk Leverage risk
Foreign risk Market risk
Geographic concentration risk Prepayment risk
5. RISK CONSIDERATIONS
The principal risks of the Funds are described below. Each Fund's exposure to
these risks depends upon its specific investment profile. The risks which apply
to each Fund are listed in the Fund's description above in Investment Objectives
and Policies.
CREDIT RISK. The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise be unable to honor a financial obligation.
Non-Investment Grade securities are especially susceptible to this risk.
CURRENCY RATE RISK. The risk that fluctuations in the exchange rates between the
U.S. dollars and foreign currencies may negatively affect an investment.
FOREIGN RISK. The risk that foreign issuers may be subject to foreign political
and economic instability, 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 investors' assets.
Investments in issuers located or doing business in emerging or developing
markets are especially susceptible to these risks.
GEOGRAPHIC CONCENTRATION RISK. The risk that if a Fund concentrates its
investments in a single country or region, its portfolio will be more
susceptible to factors adversely affecting issuers located in that country or
region than would be a more geographically diverse securities portfolio.
INTEREST RATE RISK. The risk that changing interest rates may affect the value
of your investment. With fixed-rate securities, an increase in interest rates
typically causes the value of the Fund's securities to fall, while a decline in
interest rates may produce an increase in the market value of the securities.
Because of this risk, an investment in a Fund that invests in fixed income
securities is subject to risk even if all the fixed income securities in the
Fund's portfolio are paid in full at maturity. Changes in interest rates will
affect the value of longer-term fixed income securities more than shorter-term
securities.
LEVERAGE RISK. The risk that some derivative investments, such as forward
commitment transactions, may multiply smaller market movements into large
changes in value.
MARKET RISK. The risk that the market value of a Fund's investments will
fluctuate as the stock and bond markets fluctuate. Market risk may affect a
single issuer, industry or section of the economy or may affect the market as a
whole.
PREPAYMENT RISK. The risk that issuers will prepay fixed rate obligations when
interest rates fall, forcing the Fund to invest in
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obligations with lower interest rates than the prepaid obligations.
SMALL COMPANY RISK. The risk that investments in smaller companies may be more
volatile than investments in larger companies. Smaller companies generally
experience higher growth rates and higher failure rates than do larger
companies. The trading volume of the securities of smaller companies is normally
lower than that of larger companies. Short term changes in the demand for the
securities of smaller companies generally has a disproportionate effect on their
market price, tending to make prices rise more in response to buying demand and
fall more in response to selling pressure.
6. COMMON POLICIES
Except as otherwise indicated, investment policies of the Funds are not deemed
to be fundamental and may be changed by the Board without shareholder approval.
UNRATED SECURITIES
Each Fund may retain a security whose rating has been lowered (or a security of
comparable quality to a security 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
In an attempt to respond to adverse market, economic, political, or other
conditions, each Fund may assume a temporary defensive position and invest
without limit in cash or cash equivalents. During periods when and to the extent
that a Fund has assumed a temporary defensive position, it may not be pursuing
its investment objective.
PORTFOLIO TRANSACTIONS
From time to time a Fund may engage in active short-term trading to take
advantage of price movements affecting individual issues, groups of issues or
markets. Higher portfolio turnover rates may result in increased brokerage costs
to a Fund or a Core Portfolio and a possible increase in short-term capital
gains or losses.
YEAR 2000
The Funds could be adversely affected if the computer systems used by the
Advisers and other service providers to the Funds do not properly process and
calculate date-related information and data after December 31, 1999. Norwest and
the Funds' manager are taking steps to address the Year 2000 issue for their
computer systems and to obtain reasonable assurances that comparable steps are
being taken by the Funds' other major service providers. While the Funds do not
anticipate any adverse effect on their computer systems from the year 2000,
there can be no assurance that these steps will be sufficient to avoid any
adverse impact.
7. MANAGEMENT OF THE FUNDS
INVESTMENT ADVISORY SERVICES
NORWEST INVESTMENT MANAGEMENT, INC. is the investment adviser for each Fund and
each Core Portfolio except the Core Portfolios advised by Schroder. In this
capacity, Norwest makes investment decisions for and administers the Funds' and
Core Portfolios' investment programs.
NORWEST INVESTMENT MANAGEMENT, INC., NORWEST CENTER, SIXTH STREET AND MARQUETTE,
MINNEAPOLIS, MN 55479
SCHRODER CAPITAL MANAGEMENT INTERNATIONAL INC. is the investment adviser for the
Schroder U.S. Smaller Companies Portfolio, Schroder EM Core Portfolio and
International Portfolio. In this capacity, Schroder makes investment decisions
for and administers those Core Portfolios' investment programs.
SCHRODER CAPITAL MANAGEMENT INTERNATIONAL INC., 787 SEVENTH AVENUE, 34TH FLOOR,
NEW YORK, NY 10019
Norwest and certain of the Funds and the Core Portfolios have retained
investment subadvisers to make investment decisions for and administer the
investment programs of those Funds and Core Portfolios. Norwest decides which
portion of the assets of a Fund or Core Portfolio the subadviser should manage
and supervises the subadvisers' performance of their duties. The subadvisers
are:
CRESTONE CAPITAL MANAGEMENT, INC. ("CRESTONE"), AN INVESTMENT ADVISORY
SUBSIDIARY OF NORWEST BANK, PROVIDES INVESTMENT ADVICE
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REGARDING COMPANIES WITH SMALL MARKET CAPITALIZATION TO VARIOUS CLIENTS,
INCLUDING INSTITUTIONAL INVESTORS. CRESTONE CAPITAL MANAGEMENT, INC., 7720 EAST
BELLVIEW AVE., SUITE 220, ENGLEWOOD, CO 80111
GALLIARD CAPITAL MANAGEMENT, INC. ("GALLIARD"), AN INVESTMENT ADVISORY
SUBSIDIARY OF NORWEST BANK, PROVIDES INVESTMENT ADVISORY SERVICES TO BANK AND
THRIFT INSTITUTIONS, PENSION AND PROFIT SHARING PLANS, TRUSTS AND CHARITABLE
ORGANIZATIONS AND CORPORATE AND OTHER BUSINESS ENTITIES.
GALLIARD CAPITAL MANAGEMENT, INC., 800 LASALLE AVE. SUITE 2060, MINNEAPOLIS, MN
55479
PEREGRINE CAPITAL MANAGEMENT, INC. ("PEREGRINE"), AN INVESTMENT ADVISORY
SUBSIDIARY OF NORWEST BANK, PROVIDES INVESTMENT ADVISORY SERVICES TO CORPORATE
AND PUBLIC PENSION PLANS, PROFIT SHARING PLANS, SAVINGS-INVESTMENT PLANS AND
401(K) PLANS.
PEREGRINE CAPITAL MANAGEMENT, INC., LASALLE PLAZA, 800 LASALLE AVE., SUITE 1850,
MINNEAPOLIS, MN 55402.
SMITH ASSET MANAGEMENT GROUP, L.P. ("SMITH"), AN INVESTMENT ADVISORY AFFILIATE
OF NORWEST BANK, PROVIDES INVESTMENT MANAGEMENT SERVICES TO COMPANY RETIREMENT
PLANS, FOUNDATIONS, ENDOWMENTS, TRUST COMPANIES, AND HIGH NET WORTH INDIVIDUALS
USING A DISCIPLINED EQUITY STYLE.
SMITH ASSET MANAGEMENT GROUP, L.P., 500 CRESCENT COURT, SUITE 250, DALLAS, TX
75201
Listed below, for each Fund, are the portfolio managers primarily responsible
for the day-to-day management of the Fund's investments. The year a portfolio
manager began managing a Fund or Core Portfolio follows the manager's name in
parenthesis. The list includes the investment advisory fees payable to Norwest
or Schroder by the Fund and by any Core Portfolios in which it invests.
How investment advisory fees are paid depends on whether or not a Fund invests
in Core Portfolios.
* If a Fund invests directly in a portfolio of securities, Norwest receives
an investment advisory fee directly from the Fund.
* If a Fund invests in a single Core Portfolio, Norwest or Schroder receives
an investment advisory fee from the Core Portfolio.
* If a Fund invests in more than one Core Portfolio, Norwest or Schroder
receives an investment advisory fee from each of those Core Portfolios. In
addition, Norwest receives a fee from each Fund, except Cash Investment
Fund, for the "asset allocation services" of determining the Funds'
investments in the Core Portfolios and how much of the Fund's assets to
invest in each Core Portfolio.
If a Fund invests in more than one Core Portfolio, the total amount of the
investment advisory fee paid to Norwest or Schroder as a result of the
Fund's investments varies depending on how much of the Fund's assets are
invested in and the investment advisory fee payable to each Core Portfolio.
Norwest (and not the Funds or Core Portfolios) pays the subadvisers'
investment subadvisory fees. The investment subadvisory fees do not
increase the amount of the investment advisory fees paid to Norwest by the
Funds or Core Portfolios.
GROWTH BALANCED FUND
FUND INVESTMENT ADVISER: NORWEST
FUND ADVISORY FEE: 0.25% annually of the Fund's average daily net assets.
CORE PORTFOLIO: POSITIVE RETURN BOND PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: PEREGRINE
PORTFOLIO MANAGER: William D. Giese, CFA (19__) and Patricia Burns (1998). Mr.
Giese, a Senior Vice President of Peregrine, has been a portfolio manager at
Peregrine for more than ten years and has more than 20 years' experience in
fixed income securities management. Ms. Burns, a Senior Vice-President of
Peregrine, has been a portfolio manager at Peregrine for more than ten years.
She has been associated with Norwest since 1983.
ADVISORY FEE: 0.35% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: STRATEGIC VALUE BOND PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: GALLIARD
PORTFOLIO MANAGERS: Richard Merriam, CFA (19__), John Huber (19__) and David Yim
(19__). Mr. Merriam, a managing partner of
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Galliard since 1995, is responsible for investment process and strategy. He was
previously Chief Investment Officer of Insight Investment Management. Before, he
was the Senior Vice President of Washington Square Capital Management. Mr. Huber
is described above under Stable Income Fund. Mr. Yim, Portfolio Manager and
Director of Investment Research since 1995, previously worked for six years for
American Express Financial Advisors as a Research Analyst focusing on the
insurance and finance industries.
ADVISORY FEE: 0.50% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: MANAGED FIXED INCOME PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: GALLIARD
PORTFOLIO MANAGER: Richard Merriam, CFA (19__) and Ajay Mirza (1998). Mr.
Merriam is described above under Strategic Value Bond Portfolio. Mr. Mirza has
been a Portfolio Manager and Mortgage Specialist with Galliard since 1995. He
also has experience as a research analyst at Insight Investment Management and
Lehman Brothers.
ADVISORY FEE: 0.35% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: INDEX PORTFOLIO
INVESTMENT ADVISER: NORWEST
PORTFOLIO MANAGER: David D. Sylvester (19__) and Laurie R. White (19__). Mr.
Sylvester has been associated with Norwest and Norwest Bank since 1979, and
currently is a Managing Director - Reserve Asset Management. He has over 20
years' experience in managing securities portfolios. Ms. White is a
Director-Reserve Asset Management and has been associated with Norwest or
Norwest Bank since 1991; from 1989 to 1991, she was a Portfolio Manager at
Richfield Bank and Trust.
ADVISORY FEE: 0.15% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: INCOME EQUITY PORTFOLIO
INVESTMENT ADVISER: NORWEST
PORTFOLIO MANAGER: David L. Roberts, CFA (19__) a Managing Director, Equities of
Norwest, has been associated with Norwest and its affiliates for over 20 years
in various investment related capacities.
ADVISORY FEE: 0.50% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: LARGE COMPANY GROWTH PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: PEREGRINE
PORTFOLIO MANAGER: John S. Dale, CFA (19__) and Gary E. Nussbaum, CFA (1998).
Mr. Dale, a Senior Vice President of Peregrine, has held various investment
management positions with Norwest, Peregrine and their affiliates since 1968.
Mr. Nussbaum, a Senior Vice President of Peregrine, has been associated with
Peregrine in various investment management positions since 1990. Mr. Nussbaum
was an analyst with Shawmut National Bank from 1988-1990.
ADVISORY FEE: 0.65% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIOS: DISCIPLINED GROWTH PORTFOLIO
SMALL CAP VALUE PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: SMITH
PORTFOLIO MANAGER: Stephen S. Smith, CFA (199_), Chief Investment Officer and
principal of the Smith Group, has held these positions since November 1995. Mr.
Smith previously served as senior portfolio manager with NationsBank, managing
approximately $1 billion in client assets. He also held positions as manager of
the institutional asset management group, manager of the disciplined equity
style, member of the Investment Policy Committee and sub-adviser for a portfolio
of AIM Management Company's Summit Fund.
ADVISORY FEE: Disciplined Growth Portfolio: 0.90% annually of the Core
Portfolio's average daily net assets. Small Cap Value Portfolio: 0.95% annually
of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: SMALL CAP INDEX PORTFOLIO
INVESTMENT ADVISER: NORWEST
PORTFOLIO MANAGER: David D. Sylvester (19__) and Laurie R. White (19__) are
described above under Index Portfolio.
ADVISORY FEE: 0.25% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: SMALL COMPANY GROWTH PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: PEREGRINE
PORTFOLIO MANAGERS: Robert B. Mersky, CFA (19__), and Paul E. von Kuster, CFA
(19__). Mr. Mersky, the President of Peregrine, has held various investment
management positions with Norwest, Peregrine and their affiliates since 1977 and
was head of
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investments for Norwest Bank from 1980 to 1984. Mr. von Kuster, a Senior Vice
President of Peregrine, has held various investment management positions with
Peregrine, Norwest and their affiliates since 1972.
ADVISORY FEE: 0.90% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: SMALL COMPANY VALUE PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: PEREGRINE
PORTFOLIO MANAGERS: Tasso H. Coin, Jr. (19__) and Douglas G. Pugh, CFA (1998)
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. Before joining Lord
Asset Managment, he was associated with Morgan Stanley Asset Management. Mr.
Pugh, a Senior Vice President of Peregrine, has been associated with Peregrine
since December 1997. Before joining Peregrine, Mr. Pugh was a senior equity
analyst and portfolio manager for Advantus Capital Management from 1994-1997 and
an analyst with Kemper Corporation from 1991-1994.
ADVISORY FEE: 0.90% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: SMALL COMPANY STOCK PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: CRESTONE
PORTFOLIO MANAGER: Kirk McCown, CFA (19__) is the founder, President and a
Director of Crestone, which was incorporated in 1990.
ADVISORY FEE: 0.90% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: INTERNATIONAL PORTFOLIO
INVESTMENT ADVISER: SCHRODER
PORTFOLIO MANAGER: Michael Perelstein (1997) has been a Senior Vice President of
Schroder since January 1997. With the assistance of a Schroder investment
committee, he is primarily responsible for the day-to day management of the Core
Portfolio's investments. Previously Mr. Perelstein was a Managing Director at
MacKay Shields. He has more than 12 years of international and global investment
experience.
ADVISORY FEE: 0.45% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: SCHRODER EM CORE PORTFOLIO
INVESTMENT ADVISER: SCHRODER
PORTFOLIO MANAGER: John A. Troiano (1997), assisted by the management team of
Heather Crighton (1997) and Mark Bridgeman (1997). 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 affiliated
companies in the investment research and portfolio management areas since 1981.
Ms. Crighton and Mr. Bridgeman are Vice Presidents of Schroder and have been
employed by various Schroder affiliated companies in the investment research and
portfolio management areas since 1992 and 1990, respectively.
ADVISORY FEE: 1.00% annually of the Core Portfolio's average daily net assets.
INCOME EQUITY FUND
CORE PORTFOLIO: INCOME EQUITY PORTFOLIO
INVESTMENT ADVISER: NORWEST
PORTFOLIO MANAGER: David L. Roberts, CFA (19__) is described above under
Strategic Income Fund.
ADVISORY FEE: 0.50% annually of the Core Portfolio's average daily net assets.
VALUGROWTH STOCK FUND
INVESTMENT ADVISER: NORWEST
PORTFOLIO MANAGER: David S. Lunt, CFA (1996), a Managing Director, Equities, has
been associated with Norwest and its affiliates since 1992. Previously Mr. Lunt
was a portfolio manager for FirsTier Bank and a securities analyst for Woodmen
Accident and Life Company.
ADVISORY FEE: 0.80% annually of the Fund's first $300 million of average daily
net assets; 0.76% annually of the next $400 million of average daily net assets;
0.72% annually of the remaining average daily net assets.
DIVERSIFIED EQUITY FUND
FUND INVESTMENT ADVISER: NORWEST
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FUND ADVISORY FEE: 0.25% annually of the Fund's average daily net assets.
CORE PORTFOLIO: INDEX PORTFOLIO
INVESTMENT ADVISER: NORWEST
PORTFOLIO MANAGER: David D. Sylvester (19__) and Laurie R. White (19__) are
described above under Growth Balanced Fund.
ADVISORY FEE: 0.15% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: INCOME EQUITY PORTFOLIO
INVESTMENT ADVISER: NORWEST
PORTFOLIO MANAGER: David L. Roberts, CFA (19__) is described above under Growth
Balanced Fund.
ADVISORY FEE: 0.50% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: LARGE COMPANY GROWTH PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: PEREGRINE
PORTFOLIO MANAGER: John S. Dale, CFA (19__) and Gary E. Nussbaum, CFA (19__) are
described above under Growth Balanced Fund.
ADVISORY FEE: 0.65% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIOS: DISCIPLINED GROWTH PORTFOLIO
SMALL CAP VALUE PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: SMITH
PORTFOLIO MANAGER: Stephen S. Smith (199_) is described above under Growth
Balanced Fund.
ADVISORY FEE:
DISCIPLINED GROWTH PORTFOLIO: 0.90% annually of the Core Portfolio's average
daily net assets.
SMALL CAP VALUE PORTFOLIO: 0.95% annually of the Core Portfolio's average daily
net assets.
CORE PORTFOLIO: SMALL CAP INDEX PORTFOLIO
INVESTMENT ADVISER: NORWEST
PORTFOLIO MANAGER: David D. Sylvester (19__) and Laurie R. White (19__) are
described above under Growth Balanced Fund.
ADVISORY FEE: 0.25% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: SMALL COMPANY GROWTH PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: PEREGRINE
PORTFOLIO MANAGERS: Robert B. Mersky, CFA (19__) and Paul E. von Kuster, CFA
(19__) are described above under Growth Balanced Fund.
ADVISORY FEE: 0.90% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: SMALL COMPANY VALUE PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: PEREGRINE
PORTFOLIO MANAGERS: Tasso H. Coin, Jr. (19__) and Douglas G. Pugh (19__) are
described above under Growth Balanced Fund.
ADVISORY FEE: 0.90% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: SMALL COMPANY STOCK PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: CRESTONE
PORTFOLIO MANAGER: Kirk McCown, CFA (19__) is described above under Growth
Balanced Fund.
ADVISORY FEE: 0.90% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: INTERNATIONAL PORTFOLIO
INVESTMENT ADVISER: SCHRODER
PORTFOLIO MANAGER: Michael Perelstein (1997) is described above under Growth
Balanced Fund.
ADVISORY FEE: 0.45% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: SCHRODER EM CORE PORTFOLIO
INVESTMENT ADVISER: SCHRODER
PORTFOLIO MANAGER: John A. Troiano (1997), Heather Crighton (1997) and Mark
Bridgeman (1997) are described above under
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Growth Balanced Fund.
ADVISORY FEE: 1.00% annually of the Core Portfolio's average daily net assets.
GROWTH EQUITY FUND
FUND INVESTMENT ADVISER: NORWEST
FUND ADVISORY FEE: 0.25% annually of the Fund's average daily net assets.
CORE PORTFOLIO: LARGE COMPANY GROWTH PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: PEREGRINE
PORTFOLIO MANAGER: John S. Dale, CFA (19__) and Gary E. Nussbaum, CFA (19__) are
described above under Growth Balanced Fund.
ADVISORY FEE: 0.65% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIOS: SMALL CAP VALUE PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: SMITH
PORTFOLIO MANAGER: Stephen S. Smith, CFA (199_) is described above under Growth
Balanced Fund.
ADVISORY FEE: 0.95% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: SMALL CAP INDEX PORTFOLIO
INVESTMENT ADVISER: NORWEST
PORTFOLIO MANAGER: David D. Sylvester (19__) and Laurie R. White (19__) are
described above under Growth Balanced Fund.
ADVISORY FEE: 0.25% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: SMALL COMPANY GROWTH PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: PEREGRINE
PORTFOLIO MANAGERS: Robert B. Mersky, CFA (19__) and Paul E. von Kuster, CFA
(19__) are described above under Growth Balanced Fund.
ADVISORY FEE: 0.90% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: SMALL COMPANY VALUE PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: PEREGRINE
PORTFOLIO MANAGERS: Tasso H. Coin, Jr. (19__) and Douglas G. Pugh (19__) are
described above under Growth Balanced Fund.
ADVISORY FEE: 0.90% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: SMALL COMPANY STOCK PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: CRESTONE
PORTFOLIO MANAGER: Kirk McCown, CFA (19__) is described above under Growth
Balanced Fund.
ADVISORY FEE: 0.90% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: INTERNATIONAL PORTFOLIO
INVESTMENT ADVISER: SCHRODER
PORTFOLIO MANAGER: Michael Perelstein (1997) is described above under Growth
Balanced Fund.
ADVISORY FEE: 0.45% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: SCHRODER EM CORE PORTFOLIO
INVESTMENT ADVISER: SCHRODER
PORTFOLIO MANAGER: John A. Troiano (1997), Heather Crighton (1997) and Mark
ridgeman (1997) are described above under Growth Balanced Fund.
ADVISORY FEE: 1.00% annually of the Core Portfolio's average daily net assets.
LARGE COMPANY GROWTH FUND
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CORE PORTFOLIO: LARGE COMPANY GROWTH PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: PEREGRINE
PORTFOLIO MANAGER: John S. Dale, CFA (19__) and Gary E. Nussbaum, CFA (19__) are
described above under Growth Balanced Fund.
ADVISORY FEE: 0.65% annually of the Core Portfolio's average daily net assets.
DIVERSIFIED SMALL CAP FUND
FUND INVESTMENT ADVISER: NORWEST
FUND ADVISORY FEE: 0.25% annually of the Fund's average daily net assets.
CORE PORTFOLIO: SMALL CAP INDEX PORTFOLIO
INVESTMENT ADVISER: NORWEST
PORTFOLIO MANAGER: David D. Sylvester (19__) and Laurie R. White (19__) are
described above under Growth Balanced Fund.
ADVISORY FEE: 0.25% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: SMALL COMPANY GROWTH PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: PEREGRINE
PORTFOLIO MANAGERS: Robert B. Mersky, CFA (19__) and Paul von Kuster, CFA (19__)
are described above under Growth Balanced Fund.
ADVISORY FEE: 0.90% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: SMALL COMPANY VALUE PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: PEREGRINE
PORTFOLIO MANAGERS: Tasso H. Coin, Jr. (19__) and Douglas G. Pugh (19__) are
described above under Growth Balanced Fund.
ADVISORY FEE: 0.90% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: SMALL COMPANY STOCK PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: CRESTONE
PORTFOLIO MANAGER: Kirk McCown, CFA (19__) is described above under Growth
Balanced Fund.
ADVISORY FEE: 0.90% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIOS: SMALL CAP VALUE PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: SMITH
PORTFOLIO MANAGER: Stephen S. Smith, CFA (199_) is described above under Growth
Balanced Fund.
ADVISORY FEE: 0.95% annually of the Core Portfolio's average daily net assets.
SMALL COMPANY STOCK FUND
CORE PORTFOLIO: SMALL COMPANY STOCK PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: CRESTONE
PORTFOLIO MANAGER: Kirk McCown, CFA (19__) is described above under Growth
Balanced Fund.
ADVISORY FEE: 0.90% annually of the Core Portfolio's average daily net assets.
SMALL CAP OPPORTUNITIES FUND
CORE PORTFOLIO: SCHRODER U.S. SMALLER COMPANIES PORTFOLIO
INVESTMENT ADVISER: SCHRODER
PORTFOLIO MANAGER: Ms. Fariba Talebi (19__), a Group Vice President of Schroder,
is assisted by a small cap investment team. Ms. Talebi has served in Schroder's
investment research and portfolio management areas since 1987.
ADVISORY FEE: 0.60% annually of the Core Portfolio's average daily net assets.
26
<PAGE>
INTERNATIONAL FUND
FUND INVESTMENT ADVISER: NORWEST
FUND ADVISORY FEE: 0.25% annually of the Fund's average daily net assets.
CORE PORTFOLIO: INTERNATIONAL PORTFOLIO
INVESTMENT ADVISER: SCHRODER
PORTFOLIO MANAGER: Michael Perelstein (1997) is described under Growth Balanced
Fund.
ADVISORY FEE: 0.45% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: SCHRODER EM CORE PORTFOLIO
INVESTMENT ADVISER: SCHRODER
PORTFOLIO MANAGER: John A. Troiano (1997), Heather Crighton (1997) and Mark
Bridgeman (1997) are described above under Growth Balanced Fund.
ADVISORY FEE: 1.00% annually of the Core Portfolio's average daily net assets.
DORMANT INVESTMENT ADVISORY ARRANGEMENTS
Norwest has been retained as a "dormant" or "back-up" investment adviser to
manage any assets redeemed and invested directly by a Fund that invests in one
or more Core Portfolios. Norwest does not receive any compensation under this
arrangement as long as a Fund invests entirely in Core Portfolios. If a Fund
redeems assets from a Core Portfolio and invests them directly, Norwest receives
an investment advisory fee from the Fund for the management of those assets.
8. CHOOSING A SHARE CLASS
Sales charges and fees vary considerably between a Fund's classes. Consider the
differences in the classes' fee structures carefully before choosing which class
to purchase. In particular, consider how long you intend to invest in the Fund
and whether during that period it would be more advantageous to invest in a
class with an initial sales charge and comparatively low expenses, a class with
no sales charge but with a CDSC and distribution and shareholder servicing fees
or a class with a comparatively low initial sales charge, a comparatively low
CDSC and a distribution fee. Also, consider whether you might qualify for a
reduced sales charge on A Shares and whether any difference in total expenses
between classes would be offset by A Shares' higher yield. The SAI has more
information about ways to qualify for reduced sales charges and how reduced
sales charge alternatives operate.
A SHARES
The Funds offers A Shares at their next-determined net asset value
plus the following initial sales charge (no sales charge applies to
reinvestments of dividends or distributions):
SALES CHARGE
AS A PERCENTAGE OF*
AMOUNT OF PURCHASE OFFERING PRICE+ NET ASSET VALUE
Less than $50,000............... 5.50% 5.76%
$50,000 to $99,999.............. 4.50% 4.71%
$100,000 to $249,000............ 3.50% 3.63%
$250,000 to $499,000............ 2.50% 2.56%
$500,000 to $999,000............ 2.00% 2.04%
Over $1,000,000................. 0.00% 0.00%
*Rounded to the nearest one-hundredth percent.
+The amount of the initial sales charge is included in the offering price
If you redeem A Shares purchased with a reduced sales charge, the Funds may
impose a charge on the redemption depending on how long you have held the
shares.
27
<PAGE>
B SHARES
The Funds offer B Shares at their net asset value per share. B Shares have
distribution and shareholder servicing fees of 1.00% of the average daily net
assets of the class under a Rule 12b-1 distribution plan. Because distribution
fees are paid out of the Funds' assets on an on-going basis, over time these
fees will increase the cost of your investment and may cost more than paying a
front-end sales charge.
CONTINGENT DEFERRED SALES CHARGE. If you redeem B Shares within six years
of purchase, there will be a CDSC on the redemption in the amount indicated
below. The amount of the CDSC will vary depending on the number of years between
the payment for the purchase of the shares and their redemption. You will pay
the CDSC on the lesser of the cost of the B Shares redeemed and their net asset
value upon redemption. The Funds do not impose a CDSC on B Shares purchased
through reinvestments of dividends and distributions.
<TABLE>
<S> <C> <C>
YEAR SINCE PURCHASE CHARGE FOR EACH FUND
4.0%
First.................................................
3.0%
Second................................................
3.0%
Third.................................................
2.0%
Fourth................................................
2.0%
Fifth.................................................
1.0%
Sixth.................................................
None
Seventh...............................................
</TABLE>
The Funds will redeem shares in the manner that results in the imposition of the
lowest CDSC. The Funds will automatically redeem shares first from any A Shares
of the Fund, second from B Shares and C Shares of the Fund acquired pursuant to
reinvestment of dividends and distributions, third from B Shares of the Fund
held for more than six years, fourth from B Shares held for five years and C
Shares of the Fund and fifth from the longest outstanding B Shares of the Fund
held for less than five years.
CONVERSION FEATURE. B Shares will automatically convert to A Shares six years
from the end of the calendar month in which the Fund accepted your purchase. 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, the Funds will consider B Shares purchased through the reinvestment
of dividends and distributions to be held in a separate sub-account. Each time
any B Shares in your account (other than those in the sub-account) convert, a
corresponding pro rata portion of the shares in the sub-account will also
convert. The Funds may suspend the conversion feature in the future; in that
event, B Shares might continue to pay their distribution fee indefinitely.
C SHARES
The Funds offers C Shares at their next-determined net asset value plus an
initial sales charge of [1.0%] of the shares' offering price ([1.02]% of the
amount invested). There is no sales charge on reinvestments of dividends or
distributions. C Shares have distribution fees of 0.75% of the average daily net
assets of the class under a Rule 12b-1 distribution plan. Because distribution
fees are paid out of the Funds' assets on an on-going basis, over time these
fees will increase the cost of your investment and may cost more than paying a
front-end sales charge.
CONTINGENT DEFERRED SALES CHARGE. If you redeem C Shares within one year of
purchase, there will be a 1.0% CDSC on the redemption. You will pay the CDSC on
the lesser of the cost of the C Shares redeemed and their net asset value upon
redemption. The Funds do not impose a CDSC on C Shares purchased through
reinvestments of dividends and distributions.
The Funds will redeem shares in the manner that results in the imposition of the
lowest CDSC. The Funds will automatically redeem shares first from any A Shares
of the Fund, second from B Shares and C Shares of the Fund acquired pursuant to
reinvestment of dividends and distributions, third from B Shares of the Fund
held for more than six years, fourth from B Shares held for five years and C
Shares of the Fund and fifth from the longest outstanding B Shares of the Fund
held for less than five years.
6. HOW TO BUY AND SELL SHARES
28
<PAGE>
You may purchase Fund shares on "Fund Business Days" at their net asset value
next determined after acceptance of an order plus, in the case of A Shares and C
Shares, any applicable sales charge. Fund Business Days are all weekdays except
generally observed 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.
GENERAL PURCHASE INFORMATION
All of the Funds require a minimum initial investment of $1,000 and minimum
subsequent investments of $100. The Funds may waive their investment minimums.
Your shares will become eligible to receive dividends the Fund Business Day
after a purchase order is accepted.
The Funds reserve the right to reject any subscription for the purchase of
shares, including subscriptions by market timers. You will receive share
certificates for your shares only if you request them in writing. No
certificates are issued for fractional shares.
PURCHASING SHARES DIRECTLY
You may obtain an account application by writing Norwest Advantage Funds at the
following address:
Norwest Advantage Funds
[Name of Fund]
Norwest Bank Minnesota, N.A.
Transfer Agent
733 Marquette Avenue
Minneapolis, MN 55479-0040
When you sign an application for a new Fund account, you are certifying that
your Social Security number or other taxpayer identification number is correct
and that you are not subject to backup withholding. If you violate certain
federal income tax provisions, the Internal Revenue Service can require the
Funds to withhold 31% of your distributions and redemptions.
You 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.
Call or write the transfer agent if you wish to participate in shareholder
services not offered on the account application or change information on your
account (such as addresses). Norwest Advantage Funds may in the future modify,
limit or terminate any shareholder privilege upon appropriate notice and may
charge a fee for certain shareholder services, although no such fees are
currently contemplated. You may terminate your participation in any shareholder
program by writing to Norwest Advantage Funds.
PURCHASES BY MAIL. You may send a check or money order (cash cannot be accepted)
along with a completed account application to Norwest Advantage Funds 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 your check does not clear, the purchase order will be canceled and
you will be liable for any losses or fees incurred by Norwest Advantage Funds,
the transfer agent or the Funds' distributor.
To purchase shares for individual or Uniform Gift to Minors Act accounts, you
must write a check or purchase a money order payable to Norwest Advantage Funds
or endorse a check made out to you to Norwest Advantage Funds. For corporation,
partnership, trust, 401(k) plan or other non-individual type accounts, make the
check used to purchase shares payable to Norwest Advantage Funds. No other
methods of payment by check will be accepted for these types of accounts.
PURCHASES BY BANK WIRE. You must first telephone the Funds' transfer agent at
1-612-667-8833 or 1-800-338-1348 to obtain an account number before making an
initial investment in a Fund by bank wire. Then instruct your bank to wire your
money immediately to:
Norwest Bank Minnesota, N.A.
A091 000 019
For Credit to: Norwest Advantage Funds 0844-131
Re: [Name of Fund][Class of Shares]
Account No.:
Account Name:
29
<PAGE>
Complete and mail the account application promptly. Your bank may charge for
transmitting the money by wire. The Funds do not charge for the receipt of wire
transfers. The Funds treat payment by bank wire as a federal funds payment when
received.
PURCHASES THROUGH FINANCIAL INSTITUTIONS
You may purchase and redeem shares through certain broker-dealers, banks and
other financial institutions. When you purchase a Fund's shares through a
financial institution, the shares may be held in your name or in the name of the
financial institution. Subject to your institution's procedures, you may have
Fund shares held in the name of your financial institution transferred into your
name. If your shares are held in the name of your financial institution, you
must contact the financial institution on matters involving your shares. Your
financial institution may charge you for purchasing, redeeming or exchanging
shares.
SUBSEQUENT PURCHASES OF SHARES
You may make subsequent purchases by mailing a check, by sending a bank wire or
through a financial institution as indicated above. All payments should clearly
indicate your name and account number.
GENERAL REDEMPTION INFORMATION
You may redeem a Fund shares 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 that the transfer agent may
require) subject to, in the case of B Shares and C Shares, a CDSC imposed on
most redemptions made within six years or one year of purchase. Redeemed shares
are not entitled to receive dividends after the day on which the redemption is
effective.
Normally, redemption proceeds are paid immediately following acceptance of a
redemption order. In any event, you will be paid within seven days, unless (i)
your bank has not cleared the check to purchase the shares (which may take up to
15 days), (ii) the New York Stock Exchange is closed (or trading is restricted)
for any reason other than normal weekend or holiday closings, (iii) there is an
emergency in which it is not practical for the Fund to sell its portfolio
securities or for the Fund to determine its net asset value or (iv) the SEC
deems it inappropriate for redemption proceeds to be paid. You can avoid the
delay of waiting for your bank to clear your check by paying for shares with
wire transfers. Unless otherwise indicated, redemption proceeds normally are
paid by check mailed to your record address.
To protect against fraud, the following must be in writing with a signature
guarantee: (1) endorsement on a share certificate; (2) instruction to change
your 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 elections; (6) election of
telephone redemption privileges; (7) election of exchange or other privileges in
connection with your account; (8) written instruction to redeem shares whose
value exceeds $50,000; (9) redemption in an account when 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 payment of redemption proceeds to any address, person or account for
which there are not established standing instructions.
You may obtain signature guarantees at any of the following types of
organizations: authorized banks, broker-dealers, national securities exchanges,
credit unions, savings associations or other eligible institutions. The specific
institution providing the guarantee must be 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.
The Funds and the transfer agent will use reasonable procedures to verify that
telephone requests are genuine, including recording telephone instructions and
sending written confirmations of the transactions. Such procedures are necessary
because the Funds and transfer agent could be liable for losses due to
unauthorized or fraudulent telephone instructions. You should verify the
accuracy of a telephone instruction as soon as you receive the confirmation
statement. Telephone redemption and exchanges may be difficult to implement in
times of drastic economic or market changes. If you cannot reach the transfer
agent by telephone, you may mail or hand-deliver requests to the transfer agent.
Because of the cost of maintaining smaller accounts, Norwest Advantage Funds may
redeem, upon not less than 60 days' written notice, any account with a net asset
value of less than $1,000 immediately following any redemption.
REDEMPTION PROCEDURES
If you have invested directly in a Fund you may redeem your shares as described
below. If you have invested through a financial institution you may redeem
shares through the financial institution. If you wish to redeem shares by
telephone or receive redemption proceeds by bank wire you should complete the
appropriate sections of the account application. These privileges may not be
available until several weeks after the application is received. You may not
redeem certificated shares by telephone.
30
<PAGE>
REDEMPTION BY MAIL. You may redeem shares by sending a written request to the
transfer agent accompanied by any share certificate you have been issued. Sign
all requests and endorse all certificates with signature guaranteed.
REDEMPTION BY TELEPHONE. If you have elected telephone redemption privileges,
you may redeem shares by telephoning the transfer agent at 1-800-338-1348 or
1-612-667-8833 and providing your shareholder account number, the exact name in
which the shares are registered and your Social Security number or other
taxpayer identification number. Norwest Advantage Funds will mail a check to
your record address or, if you have chosen wire redemption privileges, wire the
proceeds.
REDEMPTION BY BANK WIRE. If you have elected wire redemption privileges, you may
request a Fund to transmit redemption proceeds of more than $5,000 by federal
funds wire to a bank account you have designated in writing. You must have
chosen the telephone redemption privilege to request bank redemptions by
telephone. Redemption proceeds are wired on the Fund Business Day after the
transfer agent receives a redemption request in proper form.
EXCHANGES
You may exchange A Shares and B Shares for A Shares and B Shares, respectively,
of the Funds and of other funds of Norwest Advantage Funds that offer those
classes of shares. You may exchange C Shares of a Fund for C Shares of the other
Funds. You may also exchange your shares for some classes of certain money
market funds of Norwest Advantage Funds. Call or write the transfer agent for
both a list of funds that offer shares exchangeable with those of the Funds and
for prospectuses of those funds.
The Funds do not charge for exchanges, and there is currently no limit on the
number of exchanges you may make. The Funds, however, may limit your ability to
exchange shares if you exchange too often. Exchanges are subject to the fees
(other than CDSCs) charged by, and the limitations (including minimum investment
restrictions) of, the fund into which you are exchanging.
You may only exchange shares into a pre-existing account if that account is
identically registered. You must submit a new account application if you wish to
exchange shares into an account registered differently or with different
shareholder privileges. You may exchange into a fund only if that fund's shares
may legally be sold in your state of residence.
The Funds and federal tax law treat an exchange as a redemption and a purchase
of shares. You may realize a capital gain or loss depending on whether the value
of the shares redeemed is more or less than your basis in the shares at the time
of the exchange. The Funds may amend or terminate exchange procedures on 60
days' notice.
SALES CHARGES. Some exchanges of A Shares may require a sales charge in addition
to the sales charge you paid to purchase the shares. If you exchange into a fund
that imposes an initial sales charge greater than the sales charge you paid, you
must pay the difference between the sales charge of the fund you are exchanging
into and your Fund. For example, if you paid a 2% initial sales charge on a
purchase of shares and then exchanged those shares for shares of another fund
with a 3% initial sales charge, you would pay an additional 1% sales charge on
the exchange. The Funds deems A Shares acquired through the reinvestment of
dividends or distributions to have been acquired with a sales charge equal to
the maximum sales charge of the fund.
You may exchange B Shares without paying a CDSC. If you redeem B Shares you
received in an exchange, the CDSC will be calculated as if you never exchanged
the shares you originally purchased. B Shares acquired through an exchange will
also convert to A Shares when the B Shares originally purchased would convert to
A Shares.
EXCHANGES BY MAIL. You may make an exchange by sending a written request to the
transfer agent accompanied by any share certificates for the shares to be
exchanged. Sign all written requests and endorse all certificates with signature
guaranteed.
EXCHANGES BY TELEPHONE. If you have telephone exchange privileges, you may make
a telephone exchange by calling the transfer agent at 1-800-338-1348 or
1-612-667-8833 and giving your account number, the exact name in which the
shares are registered and your Social Security number or other taxpayer
identification number.
9. DIVIDENDS AND TAX MATTERS
DIVIDENDS
Dividends of net investment income are declared and paid as follows:
Declared and paid quarterly: Income Equity Fund, ValuGrowth
Stock Fund and Small Company
Stock Fund.
Declared and paid annually: Each other Fund.
31
<PAGE>
Each Fund's net capital gain, if any, is distributed at least annually.
You have three choices for receiving dividends and distributions: the
Reinvestment Option, the Cash Option and the Directed Dividend Option.
* Under the Reinvestment Option, all dividends and distributions of a Fund
are automatically invested in additional shares of that Fund. You are
automatically assigned this option unless you select one of the other two
options.
* Under the Cash Option, you are paid all dividends and distributions in
cash.
* Under the Directed Dividend Option, if you own $10,000 or more of a Fund's
shares in a single account, you can have that Fund's dividends and
distributions reinvested in shares of another fund of Norwest Advantage
Funds. Call or write the transfer agent for more information about 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.
All dividends and distributions reinvested in a Fund are reinvested at the
Fund's net asset value as of the payment date of the dividend or distribution
TAX MATTERS
Dividends paid by a Fund out of its net investment income (including net
short-term capital gain) are taxable as ordinary income. Net capital gain may be
taxable at different rates depending on the length of time the Fund holds its
assets. 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,
dividends or a distribution made shortly after you purchase shares, although in
effect a return of capital to you, are taxable.
If a Fund receives investment income from sources within foreign countries, that
income may be subject to foreign income or other taxes. International Fund
intends, 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. If you own shares of International Fund, you
will be notified of your share of those foreign taxes and will be required to
treat the amount of the foreign taxes as additional income. In that event, you
may be entitled to claim a credit or deduction for those taxes.
10. OTHER INFORMATION
DETERMINATION OF NET ASSET VALUE
Each Fund determines its net asset value at 4:00p.m., Eastern Time on each Fund
Business Day by dividing the value of its 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 Funds value portfolio
securities at current market value if market quotations are readily available.
If market quotations are not readily available, the Funds value those securities
at fair value as determined by or under procedures adopted by the Board. The
Core Portfolios follow similar procedures in determining their net asset values.
European, Far Eastern and other international securities exchanges and
over-the-counter markets normally complete trading well before the close of
business on each Fund Business Day. Trading in foreign securities, however, may
not take place on all Fund Business Days or may take place on days that are not
Fund Business Days. The determination of the prices of foreign securities may be
based on the latest market quotations for the securities. If events occur that
affect the securities' value after the close of the markets on which they trade,
the Funds may make an adjustment to the value of the securities for purposes of
determining net asset value.
For purposes of determining net asset value, the Funds convert all assets and
liabilities denominated in foreign currencies 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.
CORE PORTFOLIOS
Each Fund reserves the right to invest in one or more Core Portfolios. Each Fund
bears its pro rata share of the expenses of any Core Portfolio in which it
invests. The Board may redeem a Fund's investment in a Core Portfolio at any
time. The Fund could then invest directly in portfolio securities or could
re-invest in one or more different Core Portfolios that could have different
fees and expenses. A Fund might redeem, for example, if other investors had
sufficient voting power to change the investment objectives or policies of the
Core Portfolio in a manner detrimental to the Fund.
32
<PAGE>
BROKER-DEALER REALLOWANCES
The Funds' distributor may pay a "broker-dealer's" reallowance to certain
financial intermediaries purchasing shares as principal or agent. Normally, the
distributor will reallow the amounts indicated below, although it may at times
reallow the entire sales charge. The distributor also may make additional
payments to certain intermediaries out of its own resources of up to 1.00% of
the net asset value of Fund shares purchased. Norwest Advantage Funds may change
the amount of the reallowance.
In addition, at its own expense, the distributor may provide compensation,
including financial assistance, to financial intermediaries in connection with
their conferences, employee sales or training programs, public seminars,
advertising campaigns or other special events. The distributor may, for example,
compensate the intermediaries with travel arrangements and lodging, tickets for
entertainment events and merchandise. The distributor may make this compensation
available only to intermediaries that have sold or are expected to sell
significant amounts of Fund shares or who charge an asset based fee, whether or
not they have a fiduciary relationship with their clients.
AMOUNT OF PURCHASE BROKER-DEALERS'
REALLOWANCE AS A
PERCENTAGE OF OFFERING
PRICE
Less than $50,000............... 5.00%
$50,000 to $99,999.............. 4.00%
$100,000 to $249,000............ 3.00%
$250,000 to $499,000............ 2.25%
$500,000 to $999,000............ 1.80%
$1,000,000 to 2,499,999......... 1.00%
$2,500,000 to 4,999,999......... 0.50%
Over $5,000,000................. 0.25%
NO ONE 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. ANY SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE FUNDS. 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.
33
<PAGE>
If you would like more information about the Funds and their investments, you
may want to read the following documents:
STATEMENT OF ADDITIONAL INFORMATION. The Funds' statement of additional
information, or "SAI," contains detailed information about the Funds, such as
their investments, management and organization. It is incorporated into this
Prospectus by reference.
ANNUAL AND SEMI-ANNUAL REPORTS. Additional Information about each Fund's
investments is available in its annual and semi-annual reports to shareholders.
In the annual report, each Fund's portfolio manager discusses the market
conditions and investment strategies that significantly affected the Fund's
performance during its last fiscal year.
You may obtain free copies of the SAI, annual report and semi-annual report by
contacting your broker, trust officer or by contacting the Fund's distributor,
Forum Financial Services, Inc., at Two Portland Square, Portland, Maine 04101,
1-800-XXX-XXXX or 1-207-879-0001.
The Funds' reports and statement of additional information are available from
the Securities and Exchange Commission in Washington, D.C. You may obtain copies
of these documents, upon payment of a duplicating fee, by writing the Public
Reference Section of the SEC, Washington D.C. 20549-6009. Please call
1-800-SEC-0330 for information about the operation of the SEC's public reference
room. The Fund's reports and other information are also available on the SEC's
Web Site at http:// www.sec.gov.
The SEC's Investment Company Act file number for the Funds is 811-4881.
18881 V1
<PAGE>
P R O S P E C T U S
October 1, 1998
TAX-FREE INCOME FUND
COLORADO TAX-FREE FUND
MINNESOTA TAX-FREE FUND
AN INVESTMENT IN THE FUNDS IS NOT A DEPOSIT OF NORWEST BANK MINNESOTA, N.A. AND
IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
INVESTING IN ANY MUTUAL FUND HAS RISK, AND IT IS POSSIBLE TO LOSE MONEY BY
INVESTING IN ANY OF THE FUNDS.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED WHETHER OR NOT THIS PROSPECTUS IS ACCURATE OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
Table of Contents
1. OVERVIEW............................................................
Expense Information.................................................
2. FINANCIAL HIGHLIGHTS................................................
3. GLOSSARY ...........................................................
4. INVESTMENT OBJECTIVES AND POLICIES..................................
Tax-Free Income Fund................................................
Colorado Tax-Free Fund..............................................
Minnesota Tax-Free Fund.............................................
5. RISK FACTORS........................................................
6. MANAGEMENT..........................................................
Investment Advisory Services........................................
7. CHOOSING A SHARE CLASS..............................................
A Shares............................................................
B Shares............................................................
8. HOW TO BUY AND SELL SHARES..........................................
Minimum Investment..................................................
Purchase Procedures.................................................
Account Application.................................................
General Information.................................................
Redemption Procedures...............................................
Other Redemption Matters............................................
Exchanges...........................................................
9. DIVIDENDS AND TAX MATTERS...........................................
Dividends...........................................................
Tax Matters.........................................................
10. OTHER INFORMATION...................................................
Banking Law Matters.................................................
Determination of Net Asset Value....................................
<PAGE>
1. OVERVIEW
The following is a summary of information about the Funds. Before investing, you
should consider the discussion under Investment Objectives and Policies and Risk
Considerations.
WHO SHOULD INVEST
No single Fund is a complete or balanced investment program, but each can serve
as a part of your overall investment program.
THE FUNDS AT A GLANCE
The Funds generally seek current income exempt from federal or state income
taxes.
<TABLE>
<S> <C> <C>
FUND PRIMARY INVESTMENTS
---- -------------------
TAX-FREE INCOME FUND Investment grade fixed income securities with interest exempt
from federal income tax.
COLORADO TAX-FREE FUND Investment grade municipal securities of Colorado issuers with
interest exempt from federal and Colorado income tax.
MINNESOTA TAX-FREE FUND Investment grade municipal securities of Minnesota issuers with
interest exempt from federal and Minnesota income tax.
</TABLE>
CLASSES OF SHARES
This Prospectus offers two classes of shares of the Funds. The classes, which
have different fee structures, are:
* A Shares: offered at their net asset value plus an initial sales charge. A
Shares do not pay distribution or shareholder servicing fees.
* B Shares: offered at their net asset value. B Shares pay distribution and
shareholder servicing fees and convert to A Shares six years after
purchase. If you redeem your B Shares within four years of purchase, you
may pay a contingent deferred sales charge. The amount of the charge
depends on the length of time you hold the shares.
INVESTMENT ADVISERS
NORWEST INVESTMENT MANAGEMENT, INC. or NORWEST is each Fund's investment
adviser. Norwest, a subsidiary of Norwest Bank Minnesota, N.A. or Norwest Bank,
provides investment advice to institutions, pension plans and other accounts and
currently manages more than $23.6 billion in assets.
HOW TO BUY SHARES
The Funds require a minimum initial investment of $1,000 and minimum subsequent
investments of $100.
EXCHANGES
If you own shares of a Fund, you may exchange them for shares of certain other
funds. Your exchange rights will vary depending on the class of shares you own.
DIVIDENDS AND DISTRIBUTIONS
Dividends of net investment income are paid monthly. Each Fund's net capital
gain, if any, is distributed to shareholders at least annually.
RISK FACTORS
All investments in the Funds are subject to risk and may decline in value. The
amount and types of risk vary from Fund to Fund depending on the Fund's
investment objective, the Adviser's ability to achieve that objective, the
markets in which the Fund invests,
<PAGE>
the investments the Fund makes and prevailing economic conditions over the
period of your investment.
The income you receive from a Fund will vary with changes in interest rates. In
addition, the value of the Fund's investments generally will rise when interest
rates fall and fall when interest rates rise. When interest rates fall, there is
a risk that issuers will prepay fixed rate obligations, forcing the Fund to
invest in obligations with lower interest rates than the prepaid obligations.
In addition, the Funds' investments have "credit risk," which is the risk that
an issuer will be unable, or will be perceived to be unable, to repay its
obligations at maturity. Funds that invest primarily in obligations that are
highly rated by a nationally recognized statistical rating organization, such as
Standard & Poor's Corporation, have less credit risk. Funds that have
substantial investments in securities that are not highly rated are subject to
more credit risk.
The Funds that invest primarily in the obligations of the government and
municipalities of one state are more exposed to adverse economic developments
and other risks affecting that state than the Fund that invests in a number of
different states. Also, Funds that invest in a single state are not required to
spread their investments among as many different issuers as the other Fund.
Investing in fewer issuers increases the potential adverse effects of a decline
in the value of a Fund's investments in the obligations of any one issuer.
Each Fund also has the risk that its Adviser may not be successful in carrying
out its investment strategy and that the Fund's particular investment strategy
may result in performance that is worse or better than the performance of the
market as a whole. Your investment in a Fund will also have risk if you do not
plan to invest for long enough to permit the investment to recover from an
adverse market movement.
EXPENSE INFORMATION
The following table will assist you in understanding the expenses that you will
bear directly or indirectly if you invest in a Fund.
<TABLE>
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
(APPLICABLE TO EACH FUND)
A B
SHARES SHARES
- ----------------------------------------------------------------------------------------------------
Maximum sales charge imposed on purchases
(as a percentage of offering price) 4.0% Zero
Maximum deferred sales charge
(as a percentage of the lesser of original purchase
price or redemption proceeds) Zero 3.0%(1)
</TABLE>
ANNUAL FUND OPERATING EXPENSES(4)
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
TAX-FREE INCOME FUND
A B
Shares Shares
----------------------------
Investment Advisory Fees(2)
Rule 12b-1 Fees (after fee waivers)(3)
Other Expenses (after fee waivers and reimbursements)
Total Operating Expenses(4)
<TABLE>
<S> <C> <C> <C> <C>
COLORADO TAX-FREE FUND MINNESOTA TAX-FREE FUND
A B A B
Shares Shares Shares Shares
---------------------------- ----------------------------
</TABLE>
Investment Advisory Fees (2) Rule 12b-1 Fees (after fee waivers)(3) Other
Expenses (after fee waivers and reimbursements) Total Operating Expenses(4)
(1) The maximum 3.0% deferred sales charge on B Shares of a Fund applies to
redemptions during the first year after purchase; the charge declines
to 2.0% for redemptions during the second and third years, 1.0% for
redemptions during the fourth year, and zero the following year.
2
<PAGE>
(2) Absent waivers, Investment Advisory Fees would be 0.50% for each Fund.
(3) Absent waivers, Rule 12b-1 Fees would be 1.00% for B Shares of each Fund.
(4) Absent expense reimbursements and fee waivers, the expenses of A Shares
of Tax-Free Income Fund, Colorado Tax-Free Fund and Minnesota Tax-Free
Fund would be: Other Expenses, 0.48%, 0.54% and 0.58%, respectively;
and Total Operating Expenses, 0.98%, 1.04% and 1.08%, respectively.
Absent expense reimbursements and fee waivers, the expenses of B Shares
of Tax-Free Income Fund, Colorado Tax-Free Fund and Minnesota Tax-Free
Fund would be: Other Expenses, 0.54%, 0.54% and 0.58%, respectively;
and Total Operating Expenses, 2.04%, 2.04% and 2.08%, respectively.
Expense reimbursements and fee waivers are voluntary and may be reduced
or eliminated at any time.
E X A M P L E
The following Hypothetical Expense Example indicates the dollar amount of
expenses that you 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 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. 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
HYPOTHETICAL EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
1 Year 3 Years 5 Years 10 Years
----------------- ---------------- ----------------- ----------------
TAX-FREE INCOME FUND
A Shares
B Shares
Assuming redemption at the end of the
period
Assuming no redemption
COLORADO TAX-FREE FUND
A Shares
B Shares
Assuming redemption at the end of the
period
Assuming no redemption
MINNESOTA TAX-FREE FUND
A Shares
B Shares
Assuming redemption at the end of the
period
Assuming no redemption
</TABLE>
3
<PAGE>
2. FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand each Fund's
financial performance for the shorter of 10 years or the Fund's operating
history. Certain information reflects financial results for a single Fund share.
The total returns in the table represent the rate that an investor would have
earned on an investment in the Fund, assuming reinvestment of all dividends and
distributions. The information from May 31, 1994 through May 31, 1998 has been
audited by _____________, independent auditors, whose report, along with each
Fund's financial statements, are included in the Annual Report for the Funds,
which is available upon request. Other independent auditors audited information
for prior periods.
4
<PAGE>
3. GLOSSARY
Term Definition
- ---- ----------
AMT Alternative minimum tax.
Board The Board of Trustees of Norwest Advantage
Funds
Municipal Security A debt obligation 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, with interest exempt from
federal income tax.
Non-Investment Grade Neither rated in one of the four
highest long-term rating categories by an
NRSRO nor unrated and determined by the
Adviser to be of comparable quality.
NRSRO A nationally recognized statistical rating
organization, such as Standard & Poor's or
Moody's Investors Service, that rates fixed
income securities and preferred stock by
relative credit risk.
Related Issuers Issuers of Municipal Securities that
economic, business or political developments
affect in similar ways.
SEC Securities and Exchange Commission
4. INVESTMENT OBJECTIVES AND POLICIES
This section discusses the investment objectives and policies of the Funds.
After each Fund's description, there is a short, alphabetical listing of the
Fund's primary risks. These risks are discussed below in Risk Considerations.
Each of the Funds will invest at least 80% of its total assets in securities
with interest exempt from federal income tax. In order to respond to business
and financial conditions, each Fund may invest up to 20% of its assets in
instruments with taxable interest income or instruments that may be a preference
item for purposes of the federal AMT. In addition, each Fund may hold a portion
of its assets in cash and cash-equivalents pending investment in Municipal
Securities, to meet requests for redemptions or to assume a temporary defensive
position.
TAX-FREE INCOME FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to produce current
income exempt from federal income taxes.
INVESTMENT POLICIES. The Fund invests primarily in a portfolio of investment
grade Municipal Securities. The Fund normally invests substantially all its
assets in Municipal Securities. As a fundamental investment policy, the Fund
will invest at least 80% of its total assets in Municipal Securities with
interest exempt from the federal AMT.
The average dollar-weighted maturity of the Fund's assets normally will be
between ten and 20 years, but will vary depending on market conditions. 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 interest income rather than stability of the
Fund's net asset value.
Under normal circumstances, the Fund will not invest more than 25% of its total
assets in issuers located in the same state or in Related Issuers. The Fund
invests substantially all its asset in Municipal Securities rated within the top
four grades by an NRSRO at the time of purchase or which are unrated and
determined to by the Adviser to be of comparable quality. These securities are
generally considered to be investment grade.
5
<PAGE>
RISKS:
Geographic concentration risk
Credit risk Market risk
Interest rate risk Prepayment risk
Leverage risk
COLORADO TAX-FREE FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to provide
shareholders with a high level of current income exempt from both federal and
Colorado state income taxes (including the AMT) consistent with the preservation
of capital. Shares of the Fund are offered only to residents of Colorado.
INVESTMENT POLICIES. The Fund normally invests substantially all its assets in
investment grade Municipal Securities issued by (i) the state of Colorado and
its political subdivisions, authorities, instrumentalities, public corporations
and special districts and (ii) territories and possessions of the United States,
such as Puerto Rico ("Colorado Municipal Securities"). As a fundamental policy,
the Fund will invest at least 80% of its total assets in securities with
interest exempt from both federal and Colorado state income taxes (including the
AMT). The Fund may concentrate its investments in a comparatively small number
of issuers.
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.
The average portfolio maturity is currently expected to be greater than ten
years, but may reach or exceed 20 years in the future. Depending on market
conditions, however, the average dollar-weighted maturity could be higher or
lower. The Fund invests in Municipal Securities with an emphasis on income
rather than maintaining stability of net asset value. The Fund also attempts to
limit net asset value fluctuations.
The Fund invests substantially all its assets in Municipal Securities that are
rated within the top four grades by an NRSRO at the time of purchase or that are
unrated and determined by the Adviser to be of comparable quality. These
securities are generally considered investment grade.
The Fund will not invest more than 25% of its total assets in securities of
Related Issuers or in securities of any one issuer except the U.S. Government.
RISKS:
Credit risk Leverage risk
Diversification risk Market risk
Geographic concentration risk Prepayment risk
Interest rate risk
MINNESOTA TAX-FREE FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to provide
shareholders with a high level of current income exempt from both federal and
Minnesota state income taxes (including the AMT) without assuming undue risk.
Shares of the Fund are offered only to residents of Minnesota.
INVESTMENT POLICIES. The Fund normally invests substantially all its assets in
investment grade municipal securities issued by (i) the state of Minnesota and
its political subdivisions, duly constituted authorities and corporations and
(ii) territories and possessions of the United States, such as Puerto Rico
("Minnesota Municipal Securities"). 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 with interest exempt from
both federal and Minnesota state income taxes (including the AMT). The Fund may
concentrate its investments in a comparatively small number of issuers.
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 Minnesota
issues.
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 ten 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. The Fund invests in Municipal
Securities with an
6
<PAGE>
emphasis on income rather than stability of the Fund's net asset value.
The Fund will not invest more than 25% of its total assets in securities of
Related Issuers or in securities of any one issuer except the U.S. Government.
Normally, the Fund invests at least 75% of its assets in Municipal Securities
rated in the four highest rating categories by an NRSRO or unrated and
determined by the Adviser to be of comparable quality. The Fund may invest up to
25% of its total assets in Non-Investment Grade Municipal Securities rated in
the fifth highest rating category by an NRSRO or unrated and determined by the
Adviser to be of comparable quality.
RISKS:
Credit risk Leverage risk
Diversification risk Market risk
Geographic concentration risk Prepayment risk
Interest rate risk
5. RISK CONSIDERATIONS
The principal risks of the Funds are described below. Each Fund's exposure to
these risks depends upon its specific investment profile. The risks which apply
to each Fund are listed in the Fund's description above in Investment Objectives
and Policies.
CREDIT RISK. The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise be unable to honor a financial obligation.
Non-Investment Grade securities are especially susceptible to this risk.
DIVERSIFICATION RISK. The risk that investments in a comparatively small number
of issuers will increase the potential adverse effects of a decline in the value
of a Fund's investment in any one issuer.
GEOGRAPHIC CONCENTRATION RISK. The risk that if a Fund concentrates its
investments in a single state, country or region, its portfolio will be more
susceptible to factors adversely affecting issuers located in that state,
country or region than would be a more geographically diverse securities
portfolio.
INTEREST RATE RISK. The risk that changing interest rates may affect the value
of your investment. With fixed-rate securities, an increase in interest rates
typically causes the value of the Fund's securities to fall, while a decline in
interest rates may produce an increase in the market value of the securities.
Because of this risk, an investment in a Fund that invests in fixed income
securities is subject to risk even if all the fixed income securities in the
Fund's portfolio are paid in full at maturity. Changes in interest rates will
affect the value of longer-term fixed income securities more than shorter-term
securities.
LEVERAGE RISK. The risk that some derivative investments, such as forward
commitment transactions, may multiply smaller market movements into large
changes in value.
MARKET RISK. The risk that the market value of a Fund's investments will
fluctuate as the stock and bond markets fluctuate. Market risk may affect a
single issuer, industry or section of the economy or may affect the market as a
whole.
PREPAYMENT RISK. The risk that issuers will prepay fixed rate obligations when
interest rates fall, forcing the Fund to invest in obligations with lower
interest rates than the prepaid obligations.
6. COMMON POLICIES
Except as otherwise indicated, investment policies of the Funds are not deemed
to be fundamental and may be changed by the Board without shareholder approval.
UNRATED SECURITIES
Each Fund may retain a security whose rating has been lowered (or a security of
comparable quality to a security whose rating has been lowered) below the Fund's
lowest permissible rating category if the 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.
7
<PAGE>
TEMPORARY DEFENSIVE POSITION
In an attempt to respond to adverse market, economic, political, or other
conditions, each Fund may assume a temporary defensive position and invest
without limit in cash equivalents. During periods when and to the extent that a
Fund has assumed a temporary defensive position, it may not be pursuing its
investment objective. When a 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
From time to time a Fund may engage in active short-term trading to take
advantage of price movements affecting individual issues, groups of issues or
markets. Higher portfolio turnover rates may result in increased brokerage costs
to a Fund and a possible increase in short-term capital gains or losses.
YEAR 2000
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 1, 2000.
Norwest and the Funds' manager are taking steps to address the Year 2000 issue
for their computer systems and to obtain reasonable assurances that comparable
steps are being taken by the Funds' other major service providers. There can be
no assurance that these steps will be sufficient to avoid any adverse impact on
the Funds.
7. MANAGEMENT OF THE FUNDS
INVESTMENT ADVISORY SERVICES
NORWEST INVESTMENT MANAGEMENT, INC. is the investment adviser for each Fund. In
this capacity, Norwest makes investment decisions for and administers the Funds'
investment programs.
NORWEST INVESTMENT MANAGEMENT, INC., NORWEST CENTER, SIXTH STREET AND MARQUETTE,
MINNEAPOLIS, MN 55479
Listed below, for each Fund, are the portfolio managers primarily responsible
for the day-to-day management of the Fund's investments. The year a portfolio
manager began managing a Fund follows the manager's name in parenthesis. The
list includes the investment advisory fees payable to Norwest by the Fund.
TAX-FREE INCOME FUND
PORTFOLIO MANAGER: William T. Jackson, CFA (19__), Vice President of Norwest
since 1993, was previously a Senior Vice President and Institutional Sales
Manager at Norwest Investment Services (1992-93), a Vice President and Municipal
Bond Trading Manager (1991-92); and a Vice President and Municipal Bond Trader
with Kemper Securities, Inc. (1984-91).
ADVISORY FEE: 0.50% annually of the Fund's average daily net assets.
COLORADO TAX-FREE FUND
PORTFOLIO MANAGER: William T. Jackson, CFA (19__) is described above under
Tax-Free Income Fund.
ADVISORY FEE: 0.50% annually of the Fund's first $300 million of average daily
net assets; 0.46% annually of the next $400 million of average daily net assets;
and 0.42% annually of the remaining average daily net assets.
MINNESOTA TAX-FREE FUND
PORTFOLIO MANAGER: Patricia D. Hovanetz, CFA (1991), a Director-Tax-Exempt Fixed
Income, has been associated with Norwest or Norwest Bank 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.
ADVISORY FEE: 0.50% annually of the Fund's first $300 million of average daily
net assets; and 0.46% annually of the next $400 million of average daily net
assets; and 0.42% annually of the remaining average daily net assets.
8
<PAGE>
6. CHOOSING A SHARE CLASS
Sales charges and fees vary considerably between a Fund's A Shares and B Shares.
After a set number of years, B Shares, which have higher fees, convert to A
Shares, which have lower fees. Consider the differences in the classes' fee
structures carefully before choosing which class to purchase. In particular,
consider how long you intend to invest in the Fund and whether during that
period the accumulated fees and applicable CDSCs on B Shares would be less than
the initial sales charge on A Shares. Also, consider whether you might qualify
for a reduced sales charge on A Shares and whether any difference in total
expenses between classes would be offset by A Shares' higher yield. The SAI has
more information about ways to qualify for reduced sales charges and how reduced
sales charge alternatives operate.
A SHARES
The Funds offer A Shares at their next-determined net asset value plus the
following initial sales charge (no sales charge applies to reinvestments of
dividends or distributions):
<TABLE>
<S> <C> <C> <C>
SALES CHARGE
AS A PERCENTAGE OF*
AMOUNT OF PURCHASE OFFERING PRICE+ NET AMOUNT INVESTED
Less than $50,000........................... 4.00% 4.17%
$50,000 to $99,999.......................... 3.50% 3.63%
$100,000 to $249,000........................ 3.00% 3.09%
$250,000 to $499,999........................ 2.50% 2.56%
$500,000 to $999,000........................ 2.00% 2.04%
over $1,000,000............................. None None
*Rounded to the nearest one-hundredth percent
+The amount of the initial sales charge is
included in the offering price
</TABLE>
If you redeem A Shares purchased with a reduced sales charge, the Funds may
impose a charge on the redemption depending on how long you have held the
shares.
B SHARES
The Funds offers B Shares at their net asset value per share. The Funds' B
Shares have distribution and shareholder servicing fees of 1.00% of the average
daily net assets of the class under a Rule 12b-1 distribution plan. Because
distribution fees are paid out of the Funds' assets on an on-going basis, over
time these fees will increase the cost of your investment and may cost more than
paying a front-end sales charge.
CONTINGENT DEFERRED SALES CHARGE. If you redeem B Shares within four years of
purchase, there will be a CDSC on the redemption in the amount indicated below.
The amount of the CDSC will vary depending on the number of years between the
payment for the purchase of the shares and their redemption. You will pay the
CDSC on the lesser of the cost of the B Shares redeemed and their net asset
value upon redemption. The Funds do not impose a CDSC on B Shares purchased
through reinvestments of dividends and distributions.
CHARGE FOR EACH FUND
YEAR SINCE PURCHASE
First................................................ 3.0%
Second............................................... 2.0%
Third................................................ 2.0%
Fourth............................................... 1.0%
Fifth................................................ None
Sixth................................................ None
The Funds will redeem shares in the manner that results in the imposition of the
lowest CDSC. The Funds will automatically redeem shares first from any A Shares
of the Fund, second from B Shares of the Fund acquired pursuant to reinvestment
of dividends and distributions, third from B Shares of the Fund held for more
than four years, and fourth from the longest outstanding B Shares of the Fund
held for less than four years.
9
<PAGE>
CONVERSION FEATURE. B Shares will automatically convert to A Shares six years
from the end of the calendar month in which the Fund accepted your purchase. 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, the Funds will consider B Shares purchased through the reinvestment
of dividends and distributions to be held in a separate sub-account. Each time
any B Shares in your account (other than those in the sub-account) convert, a
corresponding pro rata portion of the shares in the sub-account will also
convert. The Funds may suspend the conversion feature in the future; in that
event, B Shares might continue to pay their distribution fee indefinitely.
6. HOW TO BUY AND SHARES
You may purchase Fund shares on "Fund Business Days" at their net asset value
next determined after acceptance of an order plus, in the case of A Shares, any
applicable sales charge. Fund Business Days are all weekdays except generally
observed 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.
GENERAL PURCHASE INFORMATION
The Funds require a minimum initial investment of $1,000 and minimum subsequent
investments of $100. Your shares will become eligible to receive dividends the
Fund Business Day after a purchase order is accepted.
The Funds reserve the right to reject any subscription for the purchase of
shares, including subscriptions by market timers. You will receive share
certificates for your shares only if you request them in writing. No
certificates are issued for fractional shares.
PURCHASING SHARES DIRECTLY
You may obtain an account application by writing Norwest Advantage Funds at the
following address:
Norwest Advantage Funds
[Name of Fund]
Norwest Bank Minnesota, N.A.
Transfer Agent
733 Marquette Avenue
Minneapolis, MN 55479-0040
When you sign an application for a new Fund account, you are certifying that
your Social Security number or other taxpayer identification number is correct
and that you are not subject to backup withholding. If you violate certain
federal income tax provisions, the Internal Revenue Service can require the
Funds to withhold 31% of your distributions and redemptions.
You 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.
Call or write the transfer agent if you wish to participate in shareholder
services not offered on the account application or change information on your
account (such as addresses). Norwest Advantage Funds may in the future modify,
limit or terminate any shareholder privilege upon appropriate notice and may
charge a fee for certain shareholder services, although no such fees are
currently contemplated. You may terminate your participation in any shareholder
program by writing to Norwest Advantage Funds.
PURCHASES BY MAIL. You may send a check or money order (cash cannot be accepted)
along with a completed account application to Norwest Advantage Funds 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 your check does not clear, the purchase order will be canceled and
you will be liable for any losses or fees incurred by Norwest Advantage Funds,
the transfer agent or the Funds' distributor.
To purchase shares for individual or Uniform Gift to Minors Act accounts, you
must write a check or purchase a money order payable to Norwest Advantage Funds
or endorse a check made out to you to Norwest Advantage Funds. For corporation,
partnership, trust, 401(k) plan or other non-individual type accounts, make the
check used to purchase shares payable to Norwest Advantage Funds. No other
methods of payment by check will be accepted for these types of accounts.
PURCHASES BY BANK WIRE. You must first telephone the Funds' transfer agent at
1-612-667-8833 or 1-800-338-1348 to obtain an account number before making an
initial investment in a Fund by bank wire. Then instruct your bank to wire your
money immediately to:
10
<PAGE>
Norwest Bank Minnesota, N.A.
A091 000 019
For Credit to: Norwest Advantage Funds 0844-131
Re: [Name of Fund][Class of Shares]
Account No.:
Account Name:
Complete and mail the account application promptly. Your bank may charge for
transmitting the money by wire. The Funds do not charge for the receipt of wire
transfers. The Funds treat payment by bank wire as a federal funds payment when
received.
PURCHASES THROUGH FINANCIAL INSTITUTIONS
You may purchase and redeem shares through certain broker-dealers, banks and
other financial institutions. When you purchase a Fund's shares through a
financial institution, the shares may be held in your name or in the name of the
financial institution. Subject to your institution's procedures, you may have
Fund shares held in the name of your financial institution transferred into your
name. If your shares are held in the name of your financial institution, you
must contact the financial institution on matters involving your shares. Your
financial institution may charge you for purchasing, redeeming or exchanging
shares.
SUBSEQUENT PURCHASES OF SHARES
You may make subsequent purchases by mailing a check, by sending a bank wire or
through a financial institution as indicated above. All payments should clearly
indicate your name and account number.
GENERAL REDEMPTION INFORMATION
You may redeem a Fund shares 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 that the transfer agent may
require) subject to, in the case of B Shares, a CDSC imposed on most redemptions
made within four years of purchase. Redeemed shares are not entitled to receive
dividends after the day on which the redemption is effective.
Normally, redemption proceeds are paid immediately following acceptance of a
redemption order. In any event, you will be paid within seven days, unless (i)
your bank has not cleared the check to purchase the shares (which may take up to
15 days), (ii) the New York Stock Exchange is closed (or trading is restricted)
for any reason other than normal weekend or holiday closings, (iii) there is an
emergency in which it is not practical for the Fund to sell its portfolio
securities or for the Fund to determine its net asset value or (iv) the SEC
deems it inappropriate for redemption proceeds to be paid. You can avoid the
delay of waiting for your bank to clear your check by paying for shares with
wire transfers. Unless otherwise indicated, redemption proceeds normally are
paid by check mailed to your record address.
To protect against fraud, the following must be in writing with a signature
guarantee: (1) endorsement on a share certificate; (2) instruction to change
your 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 elections; (6) election of
telephone redemption privileges; (7) election of exchange or other privileges in
connection with your account; (8) written instruction to redeem shares whose
value exceeds $50,000; (9) redemption in an account when 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 payment of redemption proceeds to any address, person or account for
which there are not established standing instructions.
You may obtain signature guarantees at any of the following types of
organizations: authorized banks, broker-dealers, national securities exchanges,
credit unions, savings associations or other eligible institutions. The specific
institution providing the guarantee must be 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.
The Funds and the transfer agent will use reasonable procedures to verify that
telephone requests are genuine, including recording telephone instructions and
sending written confirmations of the transactions. Such procedures are necessary
because the Funds and transfer agent could be liable for losses due to
unauthorized or fraudulent telephone instructions. You should verify the
accuracy of a telephone instruction as soon as you receive the confirmation
statement. Telephone redemption and exchanges may be difficult to implement in
times of drastic economic or market changes. If you cannot reach the transfer
agent by telephone, you may mail or hand-deliver requests to the transfer agent.
Because of the cost of maintaining smaller accounts, Norwest Advantage Funds may
redeem, upon not less than 60 days' written notice, any account with a net asset
value of less than $1,000 immediately following any redemption.
11
<PAGE>
REDEMPTION PROCEDURES
If you have invested directly in a Fund you may redeem your shares as described
below. If you have invested through a financial institution you may redeem
shares through the financial institution. If you wish to redeem shares by
telephone or receive redemption proceeds by bank wire you should complete the
appropriate sections of the account application. These privileges may not be
available until several weeks after the application is received. You may not
redeem certificated shares by telephone.
REDEMPTION BY MAIL. You may redeem shares by sending a written request to the
transfer agent accompanied by any share certificate you have been issued. Sign
all requests and endorse all certificates with signature guaranteed.
REDEMPTION BY TELEPHONE. If you have elected telephone redemption privileges,
you may redeem shares by telephoning the transfer agent at 1-800-338-1348 or
1-612-667-8833 and providing your shareholder account number, the exact name in
which the shares are registered and your Social Security number or other
taxpayer identification number. Norwest Advantage Funds will mail a check to
your record address or, if you have chosen wire redemption privileges, wire the
proceeds.
REDEMPTION BY BANK WIRE. If you have elected wire redemption privileges, you may
request a Fund to transmit redemption proceeds of more than $5,000 by federal
funds wire to a bank account you have designated in writing. You must have
chosen the telephone redemption privilege to request bank redemptions by
telephone. Redemption proceeds are wired on the Fund Business Day after the
transfer agent receives a redemption request in proper form.
EXCHANGES
You may exchange A Shares and B Shares for A Shares and B Shares, respectively,
of the Funds and of other funds of Norwest Advantage Funds that offer those
classes of shares. You may also exchange A Shares and B Shares for some classes
of certain money market funds of Norwest Advantage Funds. Call or write the
transfer agent for both a list of funds that offer shares exchangeable with
those of the Funds and for prospectuses of those funds.
The Funds do not charge for exchanges, and there is currently no limit on the
number of exchanges you may make. The Funds, however, may limit your ability to
exchange shares if you exchange too often. Exchanges are subject to the fees
(other than CDSCs) charged by, and the limitations (including minimum investment
restrictions) of, the fund into which you are exchanging.
You may only exchange shares into a pre-existing account if that account is
identically registered. You must submit a new account application if you wish to
exchange shares into an account registered differently or with different
shareholder privileges. You may exchange into a Fund only if that Fund's shares
may legally be sold in your state of residence.
The Funds and federal tax law treat an exchange as a redemption and a purchase
of shares. You may realize a capital gain or loss depending on whether the value
of the shares redeemed is more or less than your basis in the shares at the time
of the exchange.
The Funds may amend or terminate exchange procedures on 60 days' notice.
SALES CHARGES. Some exchanges of A Shares may require a sales charge in addition
to the sales charge you paid to purchase the shares. If you exchange into a fund
that imposes an initial sales charge greater than the sales charge you paid, you
must pay the difference between the sales charge of the fund you are exchanging
into and your Fund. For example, if you paid a 2% initial sales charge on a
purchase of shares and then exchanged those shares for shares of another fund
with a 3% initial sales charge, you would pay an additional 1% sales charge on
the exchange. The Funds deems A Shares acquired through the reinvestment of
dividends or distributions to have been acquired with a sales charge equal to
the maximum sales charge of the fund.
You may exchange B Shares without paying a CDSC. If you redeem shares you
received in an exchange, the CDSC will be calculated as if you never exchanged
the B Shares you originally purchased. B Shares acquired through an exchange
will also convert to A Shares when the B Shares originally purchased would
convert to A Shares.
EXCHANGES BY MAIL. You may make an exchange by sending a written request to the
transfer agent accompanied by any share certificates for the shares to be
exchanged. Sign all written requests and endorse all certificates with signature
guaranteed.
EXCHANGES BY TELEPHONE. If you have telephone exchange privileges, you may make
a telephone exchange by calling the transfer agent at 1-800-338-1348 or
1-612-667-8833 and giving your account number, the exact name in which the
shares are registered and your Social Security number or other taxpayer
identification number.
9. DIVIDENDS AND TAX MATTERS
DIVIDENDS
12
<PAGE>
Dividends of net investment income are declared daily and paid monthly. Each
Fund's net capital gain, if any, is distributed at least annually.
You have three choices for receiving dividends and distributions: the
Reinvestment Option, the Cash Option and the Directed Dividend Option.
* Under the Reinvestment Option, all dividends and distributions of a Fund
are automatically invested in additional shares of that Fund. You are
automatically assigned this option unless you select one of the other two
options.
* Under the Cash Option, you are paid all dividends and distributions in
cash.
* Under the Directed Dividend Option, if you own $10,000 or more of a Fund's
shares in a single account, you can have that Fund's dividends and
distributions reinvested in shares of another fund of Norwest Advantage
Funds. Call or write the transfer agent for more information about 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.
All dividends and distributions reinvested in a Fund are reinvested at the
Fund's net asset value as of the payment date of the dividend or distribution
TAX MATTERS
Dividends paid by a Fund out of its net investment income (including net
short-term capital gain) are taxable as ordinary income. Net capital gain may be
taxable at different rates depending on the length of time the Fund holds its
assets. Dividends and distributions reduce the net asset value of the Fund
paying the dividend or distribution by the amount of the dividend or
distribution. Furthermore, dividends or a distribution made shortly after you
purchase shares, although in effect a return of capital to you, are taxable.
TAX-EXEMPT DISTRIBUTIONS
Generally, you will not be subject to federal income tax on dividends paid by a
Fund out of tax-exempt interest income earned by the Fund ("exempt-interest
dividends"). If you use, or are related to someone who uses, facilities financed
by private activity securities held by a Fund, you may be subject to federal
income tax on your pro rata share of the interest income from those securities
and should consult your tax adviser before purchasing shares. In addition,
exempt-interest dividends are included in the "adjusted current earnings" of
corporations for AMT purposes. If you borrow money to purchase or carry the
Funds' shares, the interest on your debt generally is not deductible for federal
income tax purposes.
TAX-FREE INCOME FUND. The federal income tax exemption on dividends of Municipal
Securities interest does not necessarily result in an exemption under the income
or other tax laws of any state or local taxing authority. You 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 you
reside. You may, however, be subject to tax on income derived from the Municipal
Securities of other jurisdictions. Consult your tax adviser concerning the
application of state and local taxes to investments in a Fund that 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 for federal income tax purposes. Some differences may arise for
taxpayers subject to the AMT because interest on Colorado private activity bonds
is not a preference item for Colorado income tax purposes. Furthermore, Colorado
has no corporate AMT. 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 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
13
<PAGE>
has expressed its intention that the discrimination be remedied by adding
interest on Minnesota Municipal Securities to the taxable income of Minnesota
residents. This 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 AMT on resident individuals is based in part on their income for
purposes of the federal AMT. Accordingly, individual shareholders of the Fund
may be subject to the Minnesota AMT 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.
10. OTHER INFORMATION
DETERMINATION OF NET ASSET VALUE
Each Fund determines net asset value at 4:00 p.m. on each Fund Business Day by
dividing the value of its 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 Funds value portfolio securities at current market
value if market quotations are readily available. If market quotations are not
readily available, the Funds value securities at fair value as determined by or
pursuant to procedures adopted by the Board.
INVESTING IN FUNDS
The Funds currently invest directly in portfolio securities. Each Fund, however,
may in the future invest in one or more other funds as opposed to investing
directly in portfolio securities.
BROKER-DEALER REALLOWANCES
The Funds' distributor may pay a "broker-dealer's" reallowance to certain
financial intermediaries purchasing shares as principal or agent. Normally, the
distributor will reallow the amounts indicated below, although it may at times
reallow the entire sales charge. The distributor also may make additional
payments to certain intermediaries out of its own resources of up to 0.75% of
the net asset value of Fund shares purchased. Norwest Advantage Funds may change
the amount of the reallowance.
In addition, at its own expense, the distributor may provide compensation,
including financial assistance, to financial intermediaries in connection with
their conferences, employee sales or training programs, public seminars,
advertising campaigns or other special events. The distributor may, for example,
compensate the intermediaries with travel arrangements and lodging, tickets for
entertainment events and merchandise. The distributor may make this compensation
available only to intermediaries that have sold or are expected to sell
significant amounts of Fund shares or who charge an asset based fee, whether or
not they have a fiduciary relationship with their clients.
AMOUNT OF PURCHASE BROKER-DEALERS' REALLOWANCE AS A
PERCENTAGE OF OFFERING PRICE
Less than $50,000........................... 3.50%
$50,000 to $99,999.......................... 3.00%
$100,000 to $249,000........................ 2.50%
$250,000 to $499,999........................ 2.25%
$500,000 to $999,000........................ 1.75%
$1,000,000 to $2,499,999.................... 0.75%
$2,500,000 to $4,999,999.................... 0.50%
Over $5,000,000............................. 0.25%
NO ONE 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. ANY SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE FUNDS. 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.
14
<PAGE>
If you would like more information about the Funds and their investments, you
may want to read the following documents:
STATEMENT OF ADDITIONAL INFORMATION. The Funds' statement of additional
information, or "SAI," contains detailed information about the Funds, such as
their investments, management and organization. It is incorporated into this
Prospectus by reference.
ANNUAL AND SEMI-ANNUAL REPORTS. Additional Information about each Fund's
investments is available in its annual and semi-annual reports to shareholders.
In the annual report, the Fund's portfolio manager discusses the market
conditions and investment strategies that significantly affected the Fund's
performance during its last fiscal year.
You may obtain free copies of the SAI, annual report and semi-annual report by
contacting your broker, trust officer or by contacting the Fund's distributor,
Forum Financial Services, Inc., at Two Portland Square, Portland, Maine 04101,
1-800-XXX-XXXX or 1-207-879-0001.
The Funds' reports and statement of additional information are available from
the Securities and Exchange Commission in Washington, D.C. You may obtain copies
of these documents, upon payment of a duplicating fee, by writing the Public
Reference Section of the SEC, Washington D.C. 20549-6009. Please call
1-800-SEC-0330 for information about the operation of the SEC's public reference
room. The Fund's reports and other information are also available on the SEC's
Web Site at http:// www.sec.gov.
The SEC's Investment Company Act file number for the Funds is 811-4881.
(C) Norwest Advantage Funds
MFBPB002 10/97
#19683 V1
15
<PAGE>
NORWEST ADVANTAGE FUNDS
October 1, 1998
CASH INVESTMENT FUND
READY CASH
INVESTMENT FUND
U.S. GOVERNMENT FUND
TREASURY PLUS FUND
TREASURY FUND
MUNICIPAL
MONEY MARKET FUND
AN INVESTMENT IN THE FUNDS IS NOT A DEPOSIT OF NORWEST BANK MINNESOTA, N.A. AND
IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY
OTHER GOVERNMENT AGENCY.
ALTHOUGH THE FUNDS SEEK TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER
SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THESE FUNDS.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED WHETHER OR NOT THIS PROSPECTUS IS ACCURATE OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
Table of Contents
1 OVERVIEW.......................................................
Expense Information.............................................
2 FINANCIAL HIGHLIGHTS...........................................
Glossary .......................................................
3 INVESTMENT OBJECTIVES AND POLICIES.............................
Cash Investment Fund and Ready Cash Investment Fund.............
U.S. Government Fund............................................
Treasury Plus Fund .............................................
Treasury Fund...................................................
Municipal Money Market Fund.....................................
4 RISK CONSIDERATIONS.............................................
5 Management.....................................................
Investment Advisory Services....................................
6 PURCHASES AND SALES OF SHARES..................................
General Purchase Information....................................
General Redemption Information..................................
Exchanges.......................................................
7 DIVIDENDS AND TAX MATTERS......................................
Dividends.......................................................
Tax Matters.....................................................
8 OTHER INFORMATION..............................................
Determination of Net Asset Value................................
Core and Gateway Structure......................................
<PAGE>
1. OVERVIEW
The following is a summary of information about the Funds. Before investing, you
should consider the discussion under Investment Objectives and Policies and Risk
Considerations.
WHO SHOULD INVEST
No single Fund is a complete or balanced investment program, but each can serve
as a part of your overall investment program.
THE FUNDS AT A GLANCE
The Funds generally seek high current income consistent with the preservation of
capital and the maintenance of liquidity.
<TABLE>
<S> <C> <C>
FUND PRIMARY INVESTMENTS
- ---- -------------------
CASH INVESTMENT FUND AND High-quality money market instruments of U.S. and foreign
READY CASH INVESTMENT FUND issuers.
U.S. GOVERNMENT FUND Securities issued or guaranteed by the U.S. Government,
its agencies and its instrumentalities.
TREASURY PLUS FUND Securities issued or guaranteed by the U.S. Treasury and
repurchase agreements on those obligations.
TREASURY FUND Securities issued or guaranteed by the U.S. Treasury.
MUNICIPAL MONEY MARKET FUND Tax-exempt municipal securities.
</TABLE>
CLASSES OF SHARES
This Prospectus offers certain classes of shares of the Funds. Each class is
designed for a different type of investor and may have different fees or
investment minimums.
* All of the Funds, except Ready Cash Investment Fund, offer Institutional
Shares. Institutional Shares are designed for institutional investors.
* Ready Cash Investment Fund and Municipal Money Market Fund offer Investor
Shares. Investor Shares are designed for retail investors.
FUND STRUCTURES
Some of the Funds invest directly in a portfolio of securities. Other Funds
invest in one or more other funds identified in this prospectus as Core
Portfolios. Except when necessary to describe a Fund's investment in a Core
Portfolio, this prospectus discusses a Fund's investments in a Core Portfolio as
if the investments were made directly in portfolio securities.
MANAGEMENT OF THE FUNDS
NORWEST INVESTMENT MANAGEMENT, INC. or NORWEST is the investment adviser of the
Funds and Core Portfolios. Norwest, a subsidiary of Norwest Bank Minnesota, N.A.
or Norwest Bank, provides investment advice to institutions, pension plans and
other accounts and currently manages more than $23.6 billion in assets. This
prospectus generally refers to Norwest as the Adviser.
<PAGE>
PURCHASE AND REDEMPTION OF SHARES
You may purchase or redeem the Funds' shares without sales or other charges.
* Investor Shares require a minimum initial investment of $1,000 and minimum
subsequent investments of $100.
* Institutional Shares require a minimum initial investment of $100,000 and
have no minimum subsequent investment requirement.
EXCHANGES
If you own shares of a Fund, you may exchange them for shares of certain other
Funds. Your exchange rights will vary depending on the class of shares you own.
DIVIDENDS
Dividends of net investment income are paid monthly.
RISK FACTORS
All investments in the Funds are subject to risk and may decline in value. The
amount and types of risk vary from Fund to Fund depending on the Fund's
investment objective, the Adviser's ability to achieve that objective, the
investments the Fund makes and prevailing economic conditions over the period of
your investment.
If you invest in a Fund, the income you receive will vary with changes in
interest rates. In addition, the Funds' investments have "credit risk," which is
the risk that an issuer will be unable, or will be perceived to be unable, to
repay its obligations at maturity. Some of the Funds reduce credit risk by
investing primarily or exclusively in U.S. Government securities. The Funds also
have the risk that they may not be able to maintain a stable net asset value of
$1.00 per share.
Each Fund has the risk that its Adviser may not be successful in carrying out
its investment strategy and that the Fund's particular investment strategy may
result in performance that is worse or better than the performance of the market
as a whole.
2
<PAGE>
EXPENSE INFORMATION
The following table will assist you in understanding the expenses that you will
bear directly or indirectly if you invest in a Fund. There are no transaction
charges for purchasing, redeeming or exchanging shares. The Funds do not have
distribution expenses or Rule 12b-1 fees.
Annual Fund Operating Expenses(1)(5)
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
<TABLE>
<S> <C> <C> <C> <C>
The Fund The Core Portfolio(1)
-------- ---------------------
INVESTMENT ADVISORY OTHER INVESTMENT OTHER TOTAL
FEES(3) EXPENSES ADVISORY FEES EXPENSES OPERATING
---- -------- ------------- -------- EXPENSES
--------
FUNDS
Cash Investment Fund N/A 0.22% 0.22% 0.04% 0.48%(4)
Ready Cash Investment Fund
(Investor Shares) N/A 0.41% 0.34% 0.07% 0.82%(4)
U.S. Government Fund 0.14% 0.36% N/A N/A 0.50%
Treasury Plus Fund(2) 0.20% 0.30% 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%
</TABLE>
(1) Cash Investment Fund and Ready Cash Investment Fund bear their pro rata
share of the expenses of the Core Portfolios in which they invest.
(2) The expenses, and any waivers and reimbursements, for Treasury Plus
Fund are estimated.
(3) Absent waivers, Investment Advisory Fees for Municipal Money Market
Fund's Investor Shares and Institutional Shares would be 0.34%. Absent
waivers, Investment Advisory Fees - Core Portfolio for Cash Investment
Fund would be 0.24%.
(4) Norwest and the Funds' manager have agreed to waive their fees in order
to maintain Cash Investment Fund's total operating expenses through May
31, 1999 at 0.48%. Any reduction of those waivers after May 31, 1999
requires approval by the Funds' Board of Trustees. Norwest and the
Funds' manager have agreed to waive their respective fees or reimburse
expenses in order to maintain Ready Cash Investment Fund's total
operating expenses at or below 0.82%. Any proposed reduction of those
waivers or reimbursements would require Board review.
(5) Absent expense reimbursements and fee waivers, the expenses of Cash
Investment Fund, Ready Cash Investment Fund, U.S. Government Fund,
Treasury Plus Fund, Treasury Fund and Municipal Money Market Fund's
Investor Shares and Institutional Shares would be: Other Expenses,
[____%],[____%], [____%], [____%], [____%], [____%] and [____%],
respectively; Core Portfolio - Other Expenses, [____%], [____%],
[____%], [____%], [____%], [____%] and [____%], respectively; and Total
Operating Expenses, [____%], [____%], [____%], [____%], [____%],
[____%] and [____%], respectively. Except as otherwise noted, expense
reimbursements and fee waivers are voluntary and may be reduced or
eliminated at any time.
3
<PAGE>
EXAMPLE
The following hypothetical example indicates the dollar amount of expenses you
would pay, assuming a $1,000 investment in a Fund's shares, the expenses listed
in Annual Fund Operating Expenses, 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.
<TABLE>
<S> <C> <C> <C> <C>
Hypothetical Expense Example
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------------------------------------
Cash Investment Fund
...................................................................................................................
Ready Cash Investment Fund
...................................................................................................................
Investor Shares
U.S. Government Fund
Treasury Plus Fund
Treasury Fund
...................................................................................................................
Municipal Money Market Fund
Investor Shares
Institutional Shares
...................................................................................................................
</TABLE>
4
<PAGE>
2. FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand each
Fund's financial performance for the shorter of 10 years or the Fund's
operating history. Certain information reflects financial results for a
single Fund share. The total returns in the table represent the rate that an
investor would have earned on an investment in a Fund, assuming reinvestment
of all dividends and distributions. The information from May 31, 1994
through May 31, 1998 has been audited by _______________, independent
auditors, whose reports, along with each Fund's financial statements, are
included in the Annual Report for the Funds, which is available upon
request. Other independent auditors audited information for prior periods.
5
<PAGE>
3. GLOSSARY
Term Definition
- ---- ----------
AMT Alternative minimum tax.
Board The Board of Trustees of Norwest Advantage
Funds
Municipal Security A debt obligation 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, with interest exempt from
federal income tax.
NRSRO A nationally recognized statistical rating
organization, such as Standard & Poor's
Corporation or Moody's Investors Service,
that rates fixed income securities and
preferred stock by relative credit risk.
SEC Securities and Exchange Commission
STRIPS Separately traded principal or 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
program.
U.S. Government Security An obligation issued or guaranteed as to
principal and interest by the U.S.
Government, its agencies or its
instrumentalities, including a U.S. Treasury
Security.
U.S. Treasury Security An obligation issued or guaranteed by the
U.S. Treasury.
4. INVESTMENT OBJECTIVES AND POLICIES
This section discusses the investment objectives and policies of the Funds.
After each Fund's description, there is a short, alphabetical listing of the
Fund's primary risks. These risks are discussed below in Risk Considerations.
The Funds' investments are made under the requirements of a SEC rule governing
the investments that money market funds may make. Each Fund invests only in
high-quality, short-term money market instruments that are determined by the
Adviser, under procedures adopted by the Board, to be eligible for purchase and
to present minimal credit risks. The Funds may invest in securities with fixed,
variable or floating rates of interest.
High-quality instruments include those that: (1) are rated (or, if unrated, are
issued by an issuer with comparable outstanding short-term debt that is rated)
in one of the two highest rating categories by two NRSROs or, if only one NRSRO
has issued a rating, by that NRSRO; or (2) are otherwise unrated and determined
by the Adviser to be of comparable quality. Each Fund, other than Municipal
Money Market Fund, will invest at least 95% of its total assets in securities in
the highest rating category.
CASH INVESTMENT FUND AND READY CASH INVESTMENT FUND
INVESTMENT OBJECTIVES. The investment objective of each Fund is to provide high
current income to the extent consistent with the preservation of capital and the
maintenance of liquidity.
CASH INVESTMENT FUND invests equally in two Core Portfolios - Money
Market Portfolio and Prime Money Market Portfolio. Cash Investment Fund, Money
Market Portfolio and Prime Money Market Portfolio generally have the same
investment objective and investment policies. Because Prime Money Market
Portfolio seeks to maintain a rating within the two highest short-term
categories assigned by at least one NRSRO, it is further limited in the type and
6
<PAGE>
amount of securities it may purchase.
READY CASH INVESTMENT FUND invests its assets only in Prime Money
Market Portfolio. Ready Cash Investment Fund seeks to maintain a rating within
the two highest short-term categories assigned by at least one NRSRO.
INVESTMENT POLICIES. The Funds invest in a broad spectrum of high-quality money
market instruments of U.S. and foreign issuers, including U.S. Government
Securities, Municipal Securities and corporate debt securities.
The Funds may invest in debt obligations of financial institutions. These
include U.S. dollar-denominated 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, U.S. branches and agencies of foreign banks, and
wholly-owned banking-related subsidiaries of foreign banks. The Funds limit
their investments in obligations of financial institutions to institutions that
at the time of investment have total assets in excess of $1 billion, or the
equivalent in other currencies.
Each Fund 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. Neither Fund may invest more than 25% of its
total assets in any other single industry.
RISKS:
Credit risk Interest rate risk
Foreign risk
U.S. GOVERNMENT FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to provide high
current income to the extent consistent with the preservation of capital and the
maintenance of liquidity.
INVESTMENT POLICIES. The Fund invests primarily in U.S. Government Securities,
including STRIPS. Under normal circumstances, the Fund will invest at least 65%
of its total assets in U.S. Government Securities. The Fund may also invest in
repurchase agreements collateralized by U.S. Government Securities.
RISKS:
Credit risk Interest rate risk
TREASURY PLUS FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to provide high
current income to the extent consistent with the preservation of capital and the
maintenance of liquidity.
INVESTMENT POLICIES. Under normal circumstances, the Fund intends to invest at
least 80% of its assets in U.S. Treasury Securities, including STRIPS, and in
repurchase agreements collateralized by U.S. Treasury Securities. The Fund may
also invest in U.S. Government Securities, including those that are zero-coupon
securities, and in repurchase agreements collateralized by U.S. Government
Securities.
RISKS:
Credit risk Interest rate risk
TREASURY FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to provide high
current income to the extent consistent with the preservation of capital and the
maintenance of liquidity.
INVESTMENT POLICIES. The Fund invests solely in U.S. Treasury Securities,
including STRIPS.
RISKS:
7
<PAGE>
Credit risk Interest rate risk
MUNICIPAL MONEY MARKET FUND
INVESTMENT OBJECTIVE. The investment objective of the 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. The Fund normally
will invest at least 80% of its net assets in federally tax-exempt instruments
whose income may be subject to the federal AMT.
INVESTMENT POLICIES. The Fund expects to invest 100% of its assets in Municipal
Securities, including short-term municipal bonds and municipal notes and leases
that may have fixed, variable or floating rates of interest and may be
zero-coupon securities. The Fund may invest up to 20% of its assets in
securities with interest income that may be subject to federal income taxation.
The Fund may invest more than 25% but, under normal circumstances, will not
invest more than 35% of its assets in issuers located in one state. The Fund may
invest more than 25% of its assets in industrial development bonds and in
participation interests in these types of bonds issued by banks.
RISKS:
Credit risk Interest rate risk
Geographic concentration risk
5. RISK CONSIDERATIONS
The principal risks of the Funds are described below. Each Fund's exposure to
these risks depends upon its specific investment profile. The risks which apply
to each Fund are listed in the Fund's description above in Investment Objectives
and Policies.
CREDIT RISK. The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise be unable to honor a financial obligation.
FOREIGN RISK. The risk that foreign issuers may be subject to foreign political
and economic instability, 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 investors' assets.
GEOGRAPHIC CONCENTRATION RISK. The risk that if a Fund concentrates its
investments in a single state, country or region, its portfolio will be more
susceptible to factors adversely affecting issuers located in that state,
country or region than would be a more geographically diverse securities
portfolio.
INTEREST RATE RISK. The risk that changing interest rates may affect the value
of your investment. With fixed-rate securities, an increase in interest rates
typically causes the value of the Fund's securities to fall, while a decline in
interest rates may produce an increase in the market value of the securities.
Because of this risk, an investment in a Fund is subject to risk even if all the
fixed income securities in the Fund's portfolio are paid in full at maturity.
6. COMMON POLICIES
Except as otherwise indicated, investment policies of the Funds are not deemed
to be fundamental and may be changed by the Board without shareholder approval.
UNRATED SECURITIES
Each Fund may retain a security whose rating has been lowered (or a security of
comparable quality to a security 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.
YEAR 2000
The Funds could be adversely affected if the computer systems used by the
Adviser and other service providers to
8
<PAGE>
the Funds do not properly process and calculate date-related information and
data from and after January 1, 2000. Norwest and the Funds' manager are taking
steps to address the Year 2000 issue for their computer systems and to obtain
reasonable assurances that comparable steps are being taken by the Funds' other
major service providers. There can be no assurance that these steps will be
sufficient to avoid any adverse impact on the Funds.
5. MANAGEMENT
INVESTMENT ADVISORY SERVICES
NORWEST INVESTMENT MANAGEMENT, INC. is the investment adviser for each Fund and
each Core Portfolio. In this capacity, Norwest makes investment decisions for
and administers the Funds' and Core Portfolios' investment programs.
NORWEST INVESTMENT MANAGEMENT, INC., NORWEST CENTER, SIXTH STREET AND MARQUETTE,
MINNEAPOLIS, MN 55479
Listed below, for each Fund, are the portfolio managers primarily responsible
for the day-to-day management of the Funds' investments. The year a portfolio
manager began managing a Fund or Core Portfolio follows the manager's name in
parenthesis. The list includes the investment advisory fees payable to Norwest
by the Fund or any Core Portfolios in which the Fund invests.
How investment advisory fees are paid depends on whether or not a Fund invests
in Core Portfolios.
* If a Fund invests directly in a portfolio of securities, Norwest receives
an investment advisory fee directly from the Fund.
* If a Fund invests in a Core Portfolio or Core Portfolios, Norwest receives
an investment advisory fee from the Core Portfolio or Core Portfolios.
CASH INVESTMENT FUND
CORE PORTFOLIO: PRIME MONEY MARKET PORTFOLIO
INVESTMENT ADVISER: NORWEST
PORTFOLIO MANAGERS: David D. Sylvester (19__), Laurie R. White (19__) and
Robert G. Leuty (1998). Mr. Sylvester has been associated with Norwest and
Norwest Bank since 1979, and currently is a Managing Director - Reserve Asset
Management. He has over 20 years' experience in managing securities portfolios.
Ms. White is a Director-Reserve Asset Management and has been associated with
Norwest or Norwest Bank since 1991; from 1989 to 1991, she was a Portfolio
Manager at Richfield Bank and Trust. Mr. Leuty has been associated with Norwest
or Norwest Bank since 1992, has been associated in various investment management
capacities since 1993 and has been in his present capacity of Senior Portfolio
Manager since 1998. Prior to 1992 he was an In-Charge Accountant with Price
Waterhouse.
ADVISORY FEE: 0.40% annually of the Core Portfolio's first $300 million of
average daily net assets; 0.36% annually for the next $400 million of average
daily net assets; and 0.32% annually for the remaining average daily net assets.
CORE PORTFOLIO: MONEY MARKET PORTFOLIO
INVESTMENT ADVISER: NORWEST
PORTFOLIO MANAGERS: David D. Sylvester (19__), Laurie R. White (19__) and Robert
G. Leuty (1998) are described above under Prime Money Market Portfolio.
ADVISORY FEE: 0.20% annually of the Core Portfolio's first $300 million of
average daily net assets; 0.16% annually of the next $400 million of average
daily net assets; and 0.12% of the remaining average daily net assets.
READY CASH INVESTMENT FUND
CORE PORTFOLIO: PRIME MONEY MARKET PORTFOLIO
INVESTMENT ADVISOR: NORWEST
PORTFOLIO MANAGERS: David D. Sylvester (19__), Laurie R. White (19__) and Robert
G. Leuty (19__) are described above under Cash Investment Fund.
ADVISORY FEE: 0.40% annually of the Core Portfolio's first $300 million of
average daily net assets; 0.36% annually of the next $400 million of average
daily net assets; and 0.32% annually of the remaining average daily net assets.
TREASURY PLUS FUND
9
<PAGE>
INVESTMENT ADVISER: NORWEST
PORTFOLIO MANAGERS: David D. Sylvester (1998), Laurie R. White (1998) and Robert
G. Leuty (1998) are described above under Cash Investment Fund.
ADVISORY FEE: 0.20% annually of the Fund's first $300 million of average daily
net assets; 0.16% annually of the next $400 million of average daily assets; and
0.12% annually of the remaining average daily net assets.
U. S. GOVERNMENT FUND
TREASURY FUND
INVESTMENT ADVISER: NORWEST
PORTFOLIO MANAGERS: David D. Sylvester (19__), Laurie R. White (19__) and Robert
G. Leuty (1998) are described above under Cash Investment Fund.
ADVISORY FEE: for each Fund: 0.20% annually of the Fund's first $300 million of
average daily net assets; 0.16% annually of the next $400 million of average
daily assets; and 0.12% annually of the remaining average daily net assets.
MUNICIPAL MONEY MARKET FUND
INVESTMENT ADVISER: NORWEST
PORTFOLIO MANAGER: David D. Sylvester (19__), Laurie R. White (19__) and Robert
G. Leuty (1998) are described above under Cash Investment Fund.
ADVISORY FEE: 0.35% annually of the Core Portfolio's first $500 million of
average daily net assets; 0.325% annually of the next $500 million of average
daily net assets; and 0.30% annually of the remaining average daily net assets.
DORMANT INVESTMENT ADVISORY ARRANGEMENTS
Norwest has been retained as a "dormant" or "back-up" investment adviser to
manage any assets redeemed and invested directly by a Fund that invests in one
or more Core Portfolios. Norwest does not receive any compensation under this
arrangement as long as a Fund invests entirely in Core Portfolios. If a Fund
redeems assets from a Core Portfolio and invests them directly, Norwest receives
an investment advisory fee from the Fund for the management of those assets.
6. PURCHASES AND SALES OF SHARES
You may purchase or sell (redeem) shares at a price equal to their net asset
value next determined after acceptance of an order, or receipt of a redemption
request, on "Fund Business Days." Fund Business Days are all weekdays except
generally observed 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.
GENERAL PURCHASE INFORMATION
You may purchase shares directly or through a financial institution. The Funds'
transfer agent processes all transactions in Fund shares.
You may purchase and redeem Fund shares without a sales or redemption charge.
Investor Shares require a minimum initial investment of $1,000 and minimum
subsequent investments of $100. Institutional Shares require a minimum initial
investment of $100,000 and have no minimum for subsequent investments. Your
shares will become eligible to receive dividends on the day that an order is
accepted.
The Funds reserve the right to reject any subscription for the purchase of
shares, including subscriptions by market timers. You will receive share
certificates for your shares only if you request them in writing. No
certificates are issued for fractional shares.
Your order to purchase shares will not be accepted or invested by a Fund until
the Fund receives immediately available funds. Norwest Advantage Funds may
accept purchase and redemption orders for the Funds only until the times
indicated below. (Times indicated are Eastern Time.)
10
<PAGE>
Fund
---- Order Must Be Payment
Received By Must Be
----------- Received By
-----------
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 3:00 p.m. 4:00 p.m.
Treasury Plus Fund 5:00 p.m. 5:00 p.m.
Treasury Fund 1:00 p.m. 4:00 p.m.
Municipal Money Market Fund 12:00 p.m. 4:00 p.m.
The Funds may advance the time by which purchase or redemption orders and
payments are received 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 other circumstances
affect a Fund's trading hours.
PURCHASING SHARES DIRECTLY
You may obtain an account application by writing Norwest Advantage Funds at the
following address:
Norwest Advantage Funds
[Name of Fund]
Norwest Bank Minnesota, N.A.
Transfer Agent
733 Marquette Avenue
Minneapolis, MN 55479-0040
When you sign an application for a new Fund account, you are certifying that
your Social Security number or other taxpayer identification number is correct
and that you are not subject to backup withholding. If you violate certain
federal income tax provisions, the Internal Revenue Service can require the
Funds to withhold 31% of your distributions and redemptions.
You 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.
Call or write the transfer agent if you wish to participate in shareholder
services not offered on the account application or change information on your
account (such as addresses). Norwest Advantage Funds may in the future modify,
limit or terminate any shareholder privilege upon appropriate notice and may
charge a fee for certain shareholder services, although no such fees are
currently contemplated. You may terminate your participation in any shareholder
program by writing to Norwest Advantage Funds.
PURCHASES BY MAIL. You may send a check or money order (cash cannot be accepted)
along with a completed account application to Norwest Advantage Funds 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 your check does not clear, the purchase order will be canceled and
you will be liable for any losses or fees incurred by Norwest Advantage Funds,
the transfer agent or the Funds' distributor.
To purchase shares for individual or Uniform Gift to Minors Act accounts, you
must write a check or purchase a money order payable to Norwest Advantage Funds
or endorse a check made out to you to Norwest Advantage Funds. For corporation,
partnership, trust, 401(k) plan or other non-individual type accounts, make the
check used to purchase shares payable to Norwest Advantage Funds. No other
methods of payment by check will be accepted for these types of accounts.
PURCHASES BY BANK WIRE. You must first telephone the Funds' transfer agent at
1-612-667-8833 or 1-800-338-1348 to obtain an account number before making an
initial investment in a Fund by bank wire. Then instruct your bank to wire your
oney immediately to:
Norwest Bank Minnesota, N.A.
A091 000 019
For Credit to: Norwest Advantage Funds 0844-131
Re: [Name of Fund][Class of Shares]
11
<PAGE>
Account No.:
Account Name:
Complete and mail the account application promptly. Your bank may charge for
transmitting the money by wire. The Funds do not charge for the receipt of wire
transfers. The Funds treat payment by bank wire as a federal funds payment when
received.
PURCHASES THROUGH FINANCIAL INSTITUTIONS
You may purchase and redeem shares through certain broker-dealers, banks and
other financial institutions. When you purchase a Fund's shares through a
financial institution, the shares may be held in your name or in the name of the
financial institution. Subject to your institution's procedures, you may have
Fund shares held in the name of your financial institution transferred into your
name. If your shares are held in the name of your financial institution, you
must contact the financial institution on matters involving your shares. Your
financial institution may charge you for purchasing, redeeming or exchanging
shares.
SUBSEQUENT PURCHASES OF SHARES
You can make subsequent purchases by mailing a check, by sending a bank wire or
through a financial institution as indicated above. All payments should clearly
indicate your name and account number.
GENERAL REDEMPTION INFORMATION
You may redeem Fund shares at their net asset value on any Fund Business Day.
There is no minimum period of investment and no restriction on the frequency of
redemptions.
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 on the day on which the
redemption is effective.
Redemption orders for shares are accepted up to the times indicated above for
acceptance of purchase orders. As described above, the Funds may advance the
times for receipt of redemption orders.
Normally, redemption proceeds are paid immediately following acceptance of a
redemption order. In any event, you will be paid within seven days, unless (i)
your bank has not cleared the check to purchase the shares (which may take up to
15 days), (ii) the New York Stock Exchange is closed (or trading is restricted)
for any reason other than normal weekend or holiday closings, (iii) there is an
emergency in which it is not practical for the Fund to sell its portfolio
securities or for the Fund to determine its net asset value or (iv) the SEC
deems it inappropriate for redemption proceeds to be paid. You can avoid the
delay of waiting for your bank to clear your check by paying for shares with
wire transfers. Unless otherwise indicated, redemption proceeds normally are
paid by check mailed to your record address.
To protect against fraud, the following must be in writing with a signature
guarantee: (1) endorsement on a share certificate; (2) instruction to change
your 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 elections; (6) election of
telephone redemption privileges; (7) election of exchange or other privileges in
connection with your account; (8) written instruction to redeem shares whose
value exceeds $50,000; (9) redemption in an account when 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 payment of redemption proceeds to any address, person or account for
which there are not established standing instructions.
You may obtain signature guarantees at any of the following types of
organizations: authorized banks, broker-dealers, national securities exchanges,
credit unions, savings associations or other eligible institutions. The specific
institution must be 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.
The Funds and the transfer agent will use reasonable procedures to verify that
telephone requests are genuine, including recording telephone instructions and
sending written confirmations of the transactions. Such procedures are necessary
because the Funds and transfer agent could be liable for losses due to
unauthorized or fraudulent telephone instructions. You should verify the
accuracy of a telephone instruction as soon as you receive the confirmation
statement.
12
<PAGE>
Telephone redemption and exchanges may be difficult to implement in times of
drastic economic or market changes. If you cannot reach the transfer agent by
telephone, you may mail or hand-deliver requests to the transfer agent.
Because of the cost of maintaining smaller accounts, Norwest Advantage Funds may
redeem, upon not less than 60 days' written notice, any account with a net asset
value of less than $1,000 immediately following any redemption.
REDEMPTION PROCEDURES
If you have invested directly in a Fund you may redeem your shares as described
below. If you have invested through a financial institution you may redeem
shares through the financial institution. If you wish to redeem shares by
telephone or receive redemption proceeds by bank wire you should complete the
appropriate sections of the account application. These privileges may not be
available until several weeks after the application is received. You may not
redeem certificated shares by telephone.
REDEMPTION BY MAIL. You may redeem shares by sending a written request to the
transfer agent accompanied by any share certificate you have been issued. Sign
all requests and endorse all certificates with signatures guaranteed.
REDEMPTION BY TELEPHONE. If you have elected telephone redemption privileges,
you may redeem shares by telephoning the transfer agent at 1-800-338-1348 or
1-612-667-8833 and providing your shareholder account number, the exact name in
which the shares are registered and your Social Security number or other
taxpayer identification number. Norwest Advantage Funds will mail a check to
your record address or, if you have chosen wire redemption privileges, wire the
proceeds.
REDEMPTION BY BANK WIRE. If you have elected wire redemption privileges, you may
request a Fund to transmit redemption proceeds of more than $5,000 by federal
funds wire to a bank account you have designated in writing. You must have
chosen the telephone redemption privilege to request bank redemptions by
telephone. Redemption proceeds are transmitted by wire on the Fund Business Day
after the transfer agent receives a redemption request in proper form.
EXCHANGES
If you hold Institutional Shares, you may exchange those shares for
Institutional Shares of other Funds offering those shares. If you hold Investor
Shares, you may exchange those shares for Investor Shares of the Funds offering
Investor Shares. You may also exchange your shares for shares of other funds of
Norwest Advantage Funds not offered by this prospectus. Call or write the
transfer agent for both a list of funds that offer shares exchangeable with
those of the FUnds and prospectuses of those Funds.
The Funds do not charge for exchanges, and there is currently no limit on the
number of exchanges you may make. The Funds, however, may limit your ability to
exchange shares if you exchange too often. Exchanges are subject to the fees
charged by, and the limitations (including minimum investment restrictions) of
the Fund into which you are exchanging.
You may only exchange shares into a pre-existing account if that account is
identically registered. You must submit a new account application if you wish to
exchange shares into an account registered differently or with different
shareholder privileges. You may exchange into a Fund only if that Fund's shares
may legally be sold in your state of residence.
The Funds and federal tax law treat an exchange as a redemption and a purchase
of shares. You may realize a capital gain or loss depending on whether the value
of the shares redeemed is more or less than your basis in the shares at the time
of the exchange. The Funds may amend or terminate exchange procedures on 60
days' notice.
EXCHANGES BY MAIL. You may make an exchange by sending a written request to the
transfer agent accompanied by any share certificates for the shares to be
exchanged. Sign all written requests and endorse all certificates with signature
guaranteed.
EXCHANGES BY TELEPHONE. If you have telephone exchange privileges, you may make
a telephone exchange by calling the transfer agent at 1-800-338-1348 or
1-612-667-8833 and giving your account number, the exact name in which the
shares are registered and your Social Security number or other taxpayer
identification number.
7. DIVIDENDS AND TAX MATTERS
DIVIDENDS
13
<PAGE>
Dividends of net investment income are declared daily and paid monthly. Net
capital gain, if any, is distributed at least annually.
You have three choices for receiving dividends and distributions: the
Reinvestment Option, the Cash Option and the Directed Dividend Option.
* Under the Reinvestment Option, all dividends and distributions of a Fund
are automatically invested in additional shares of that Fund. You are
automatically assigned this option unless you select one of the other two
options.
* Under the Cash Option, you are paid all dividends and distributions in
cash.
* Under the Directed Dividend Option, if you own $10,000 or more of a Fund's
shares in a single account, you can have that Fund's dividends and
distributions reinvested in shares of another fund of Norwest Advantage
Funds. Call or write the transfer agent for more information about 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.
All dividends and distributions reinvested in a fund are reinvested at the
fund's net asset value as of the payment date of the dividend or distribution.
TAX MATTERS
Dividends paid by a Fund out of its net investment income (including net
short-term capital gain) are taxable as ordinary income. Net capital gain may be
taxable at different rates depending on the length of time the Fund holds its
assets. Dividends or a distribution made shortly after you purchase shares,
although in effect a return of capital to you, are taxable. If a Fund receives
investment income from sources within foreign countries, that income may be
subject to foreign income or other taxes.
TAX-EXEMPT DISTRIBUTIONS
Generally, you will not be subject to federal income tax on dividends paid by
Municipal Money Market Fund out of tax-exempt interest income earned by the Fund
("exempt-interest dividends"). If you use, or are related to someone who uses,
facilities financed by private activity securities held by the Fund, you may be
subject to federal income tax on your pro rata share of the interest income from
those securities and should consult your tax adviser before purchasing shares.
In addition, exempt-interest dividends are included in the "adjusted current
earnings" of corporations for AMT purposes. If you borrow money to purchase or
carry the Fund's shares, the interest on your debt generally is not deductible
for federal income tax purposes.
The federal income tax exemption on dividends of Municipal Securities interest
does not necessarily result in an exemption under the income or other tax laws
of any state or local taxing authority. You 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 you reside. You may,
however, be subject to tax on income derived from the Municipal Securities of
other jurisdictions. Consult your tax adviser concerning the application of
state and local taxes to investments in the Fund that may differ from the
federal income tax consequences described above.
8. OTHER INFORMATION
DETERMINATION OF NET ASSET VALUE
Each Fund determines its net asset value on each Fund Business Day by dividing
the value of its 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 Funds determine their net asset values at the
following times:
<TABLE>
<S> <C> <C>
---------------------------------------------------------- ------------------------------------------------------
Treasury Fund and Municipal Money 12:00 p.m., Eastern Time
Market Fund
---------------------------------------------------------- ------------------------------------------------------
---------------------------------------------------------- ------------------------------------------------------
Cash Investment Fund, Ready Cash 3:00 p.m., Eastern Time
Investment Fund and U.S. Government
Fund
---------------------------------------------------------- ------------------------------------------------------
14
<PAGE>
---------------------------------------------------------- ------------------------------------------------------
Treasury Plus Fund 5:00 p.m., Eastern Time
---------------------------------------------------------- ------------------------------------------------------
</TABLE>
In order to maintain net asset values per share at $1.00, the Funds value their
portfolio securities at amortized cost. Amortized cost valuation involves
valuing an instrument at its cost and then 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 to take any action to prevent any material
effect on shareholders.
The Core Portfolios follow similar procedures in determining their net asset
values.
CORE PORTFOLIOS
Each Fund reserves the right to invest in one or more Core Portfolios. Each Fund
bears its pro rata portion of the expenses of any Core Portfolio in which it
invests. The Board may redeem a Fund's investment in a Core Portfolio at any
time. The Fund could then invest directly in portfolio securities or could
re-invest in one or more different Core Portfolios that could have different
fees and expenses. A Fund might redeem, for example, if other investors had
sufficient voting power to change the investment objectives or policies of the
Core Portfolio in a manner detrimental to the Fund.
NO ONE 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. ANY SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE FUNDS. 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.
15
<PAGE>
If you would like more information about the Funds and their investments, you
may want to read the following documents:
STATEMENT OF ADDITIONAL INFORMATION. The Funds' statement of additional
information, or "SAI," contains detailed information about the Funds, such as
their investments, management and organization. It is incorporated into this
Prospectus by reference.
ANNUAL AND SEMI-ANNUAL REPORTS. Additional Information about each Fund's
investments is available in its annual and semi-annual reports to shareholders.
In the annual report, each Fund's portfolio manager discusses the market
conditions and investment strategies that significantly affected the Fund's
performance during its last fiscal year.
You may obtain free copies of the SAI, annual report and semi-annual report by
contacting your broker, trust officer or by contacting the Fund's distributor,
Forum Financial Services, Inc., at Two Portland Square, Portland, Maine 04101,
1-800- XXX-XXXX or 1-207-879-0001.
The Funds' reports and statement of additional information are available from
the Securities and Exchange Commission in Washington, D.C. You may obtain copies
of these documents, upon payment of a duplicating fee, by writing the Public
Reference Section of the SEC, Washington D.C. 20549-6009. Please call
1-800-SEC-0330 for information about the operation of the SEC's public reference
room. The Fund's reports and other information are also available on the SEC's
Web Site at http:// www.sec.gov.
The SEC's Investment Company Act file number for the Funds is 811-4881.
BULK RATE
U.S. POSTAGE
PAID
Permit No. 3489
Minneapolis, MN
733 Marquette Avenue
Minneapolis, MN 55479-0040
Bank Minnesota, N.A.
733 Marquette Avenue
Minneapolis, Minnesota 55479-0040
612-667-8833 (Minneapolis/St. Paul)
800-338-1348 (Elsewhere)
(C)1997 Norwest Advantage Funds
MFBPM001 10/97
16
<PAGE>
PROSPECTUS
OCTOBER 1, 1998
This Prospectus offers shares in a broad spectrum of mutual funds
offered by Norwest Advantage Funds:
* Six MONEY MARKET FUNDS - Cash Investment Fund, Ready Cash Investment Fund,
U.S. Government Fund, Treasury Plus Fund, Treasury Fund and Municipal Money
Market Fund
* 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
* 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
* Four BALANCED FUNDS - Strategic Income Fund, Moderate Balanced Fund, Growth
Balanced Fund and Aggressive Balanced-Equity Fund
* Eleven 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 Cap
Opportunities Fund, Small Company Growth Fund and International Fund
AN INVESTMENT IN THE FUNDS IS NOT A DEPOSIT OF NORWEST BANK MINNESOTA, N.A.
AND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
INVESTING IN ANY MUTUAL FUND HAS RISK, AND IT IS POSSIBLE TO LOSE MONEY BY
INVESTING IN ANY OF THE FUNDS.
ALTHOUGH THE MONEY MARKET FUNDS SEEK TO PRESERVE THE VALUE OF YOUR
INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN
THESE FUNDS.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR DETERMINED WHETHER OR NOT THIS PROSPECTUS IS ACCURATE
OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
PAGE
1. OVERVIEW: THE NORWEST ADVANTAGE FUNDS...................................
2. FINANCIAL HIGHLIGHTS.......... .........................................
3. GLOSSARY ...............................................................
4. INVESTMENT OBJECTIVES AND POLICIES .....................................
Money Market Funds .....................................................
Fixed Income Funds .....................................................
Tax-Free Fixed Income Funds ............................................
Balanced Funds .........................................................
Equity Funds ...........................................................
Core Portfolio Descriptions ............................................
5. RISK CONSIDERATIONS ....................................................
6. COMMON POLICIES ........................................................
7. MANAGEMENT OF THE FUNDS ................................................
Investment Advisory Services ...........................................
8. PURCHASES AND REDEMPTIONS OF SHARES ....................................
General Purchase Information ...........................................
Purchase Procedures ....................................................
General Redemption Information .........................................
Redemption Procedures ..................................................
Exchanges ..............................................................
9. DIVIDENDS AND TAX MATTERS ..............................................
Dividends ..............................................................
Tax Matters ............................................................
10. OTHER INFORMATION ......................................................
Determination of Net Asset Value .......................................
Core and Gateway Structure .............................................
<PAGE>
1. OVERVIEW: THE NORWEST ADVANTAGE FUNDS
The following is a summary of information about the Funds. Before
investing, you should consider the discussion under Investment Objectives
and Policies and Risk Considerations.
WHO SHOULD INVEST
No single Fund is a complete or balanced investment program, but each can
serve as a part of your overall investment program.
THE FUNDS AT A GLANCE
MONEY MARKET FUNDS generally seek high current income consistent with the
preservation of capital and the maintenance of liquidity.
<TABLE>
<S> <C> <C>
FUND PRIMARY INVESTMENTS
---- -------------------
CASH INVESTMENT FUND and High-quality money market instruments of U.S.
READY CASH INVESTMENT Fund and foreign issuers.
U.S. GOVERNMENT FUND Securities issued or guaranteed by the U.S.
Government, its agencies and its instrumentalities.
TREASURY PLUS FUND Securities issued or guaranteed by the U.S.Treasury
and repurchase agreements on those obligations.
Treasury Fund Securities issued or guaranteed by the U.S.Treasury.
Municipal Money Market Fund Tax-exempt municipal securities.
FIXED INCOME FUNDS generally seek to preserve capital and provide
income.
FUND PRIMARY INVESTMENTS
---- -------------------
STABLE INCOME FUND Investment grade short-term debt obligations.
LIMITED TERM GOVERNMENT INCOME FUND Securities issued or guaranteed by the U.S.
Government, its agencies and its instrumentalities.
INTERMEDIATE GOVERNMENT INCOME FUND Securities issued or guaranteed by the U.S.
Government,its agencies and its instrumentalities
with maturities structured to moderate fluctuations in
the price of the Fund's shares.
DIVERSIFIED BOND FUND Diversified investments among different fixed income
investment styles.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
INCOME FUND Fixed income securities issued by domestic and
foreign issuers.
TOTAL RETURN BOND Fund Strategically diversified portfolio of high-quality
fixed income investments.
TAX-FREE FIXED INCOME FUNDS generally seek current income exempt from
federal or state income taxes.
FUND PRIMARY INVESTMENTS
---- -------------------
LIMITED TERM TAX-FREE FUND Investment grade fixed income securities with interest
exempt from federal income tax and an average dollar
weighted portfolio maturity from 1 to 5 years.
TAX-FREE INCOME FUND Investment grade fixed income securities with interest
exempt from federal income tax.
COLORADO TAX-FREE FUND Investment grade municipal securities of Colorado
issuers with interest exempt from federal and
Colorado income tax.
MINNESOTA INTERMEDIATE TAX-FREE FUND Intermediate term investment grade municipal
securities of Minnesota issuers with interest exempt
from federal and Minnesota income tax.
MINNESOTA TAX-FREE FUND Investment grade municipal securities of Minnesota
issuers with interest exempt from federal and
Minnesota income tax.
BALANCED FUNDS generally seek a combination of current income and
capital appreciation.
FUND PRIMARY INVESTMENTS
---- -------------------
STRATEGIC INCOME FUND Stocks, bonds and other fixed income investments in
several equity and fixed income investment styles
with an emphasis on safety of principal through
limited exposure to equity securities.
MODERATE BALANCED FUND Stocks, bonds and other fixed income investments in
several equity and fixed income investment styles.
GROWTH BALANCED FUND Stocks and bonds in several equity and fixed income
investment styles.
AGGRESSIVE BALANCED-EQUITY FUND Stocks and bonds in several equity and fixed income
investment styles and may include investments of
more than 75% in equity investment styles.
</TABLE>
<PAGE>
EQUITY FUNDS generally seek capital growth or high capital return.
<TABLE>
<S> <C> <C>
FUND PRIMARY INVESTMENTS
---- -------------------
INDEX FUND Companies in Standard & Poor's 500 Composite Stock
Price Index
INCOME EQUITY FUND Stocks with prospects of long-term capital
appreciation and above-average dividend income.
VALUGROWTH STOCK FUND Stocks of medium and large capitalization companies
that appear undervalued and have potential for above-
average growth.
DIVERSIFIED EQUITY FUND Diversified investments in five different equity
investment styles in order to moderate fluctuations in
the Fund's annual returns.
GROWTH EQUITY FUND Diversified investments in three different equity
investment styles in order to emphasize capital
appreciation and moderate fluctuations in the Fund's
annual returns.
LARGE COMPANY GROWTH FUND Large, high-quality domestic companies with
potential for superior growth.
DIVERSIFIED SMALL CAP FUND Diversified investments in different small
capitalization investment styles.
SMALL COMPANY STOCK Fund Stocks of small and medium-size domestic companies
with a market capitalization below that of the average
company in Standard & Poor's 500 Composite Stock
Price Index.
SMALL CAP OPPORTUNITIES FUND Stocks of smaller companies with potential for capital
appreciation.
SMALL COMPANY GROWTH FUND Stocks of small and medium-size domestic companies
growing rapidly or completing a period of significant
change.
INTERNATIONAL FUND Stocks of high-quality companies based outside of the
United States.
</TABLE>
CLASSES OF SHARES
This Prospectus offers certain classes of shares of the Funds. Each
class is designed for a different type of
<PAGE>
investor and may have different fees or investment minimums.
* All Funds, other than Money Market Funds, offer I Shares. I Shares are
designed for certain clients of bank trust departments, trust companies and
investment advisers.
* All Money Market Funds, except Ready Cash Investment Fund, offer
Institutional Shares. Institutional Shares are designed for institutional
investors.
* Ready Cash Investment Fund and Municipal Money Market Fund offer Investor
Shares. Investor Shares are designed for retail investors.
FUND STRUCTURES
Some of the Funds invest directly in a portfolio of securities. Other Funds
invest in one or more other funds identified in this prospectus as Core
Portfolios. Except when necessary to describe a Fund's investment in a Core
Portfolio, this prospectus discusses a Fund's investments in a Core Portfolio as
if the investments were made directly in portfolio securities.
MANAGEMENT OF THE FUNDS
NORWEST INVESTMENT MANAGEMENT, INC. or NORWEST is the investment adviser for all
of the Funds and all but three of the Core Portfolios. Norwest, a subsidiary of
Norwest Bank Minnesota, N.A. or Norwest Bank, provides investment advice to
institutions, pension plans and other accounts and currently manages more than
$23.6 billion in assets. SCHRODER CAPITAL MANAGEMENT INC. or SCHRODER is the
investment adviser for three Core Portfolios: Schroder U.S. Smaller Companies
Portfolio, Schroder EM Core Portfolio and International Portfolio. Schroder
specializes in providing international investment advice. INVESTMENT SUBADVISERS
make investment decisions for certain Funds and Core Portfolios under Norwest's
general supervision. This prospectus generally refers to Norwest, Schroder or a
subadviser as an Adviser.
PURCHASE AND REDEMPTION OF SHARES
Shares may be purchased or redeemed without sales or other charges.
* I Shares and Investor Shares require a minimum initial investment of $1,000
and a minimum subsequent investment of $100.
* Institutional Shares require a minimum initial investment of $100,000 and
have no minimum subsequent investment requirement.
Currently, Total Return Bond Fund, Small Company Growth Fund and Small
Cap Opportunities Fund are closed to new investors. Only residents of Colorado
may purchase shares of Colorado Tax-Free Fund. Only residents of Minnesota may
purchase shares of Minnesota Intermediate Tax-Free Fund and Minnesota Tax-Free
Fund.
EXCHANGES
If you own shares of a Fund, you may exchange them for shares of certain other
Funds. Your exchange rights will vary depending on the class of shares you own.
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
Each Fund's net capital gain, if any, is distributed to shareholders at least
annually. Dividends of net investment income are paid as follows:
Monthly: Each Money Market Fund, Stable Income
Fund, Limited Term Government Income
Fund, Intermediate Government Income
Fund, Diversified Bond Fund, Income Fund,
Total Return Bond Fund and each Tax-Free
Fixed Income Fund.
Quarterly: Income Equity Fund, ValuGrowth Stock Fund
and Small Company Stock Fund.
Annually: Each Balanced Fund, Index Fund,
Diversified Equity Fund, Growth Equity
Fund, Large Company Growth Fund,
Diversified Small Cap Fund, Small Cap
Opportunities Fund, Small Company Growth
Fund and International Fund.
RISK FACTORS
All investments in the Funds are subject to risk and may decline in value. The
amount and types of risk vary from Fund to Fund depending on the Fund's
investment objective, the Adviser's ability to achieve that objective, the
markets in which the Fund invests, the investments the Fund makes and prevailing
economic conditions over the period of your investment.
Every Fund also has the risk that its Adviser may not be successful in
carrying out its investment strategy and that the Fund's particular investment
strategy may result in performance that is worse or better than the performance
of the market as a whole. Your investment in a Fund will also have risk if you
do not plan to invest for long enough to permit the investment to recover from
an adverse market movement.
Money Market Funds:
- -------------------
If you invest in a Money Market Fund, the income you receive from the
Fund will vary with changes in interest rates. In addition, the Funds'
investments have "credit risk," which is the risk that an issuer will be unable,
or will be perceived to be unable, to repay its obligations at maturity. Some of
the Money Market Funds reduce credit risk by investing primarily or exclusively
in U.S. Government securities. The Money Market Funds also have the risk that
they may not be able to maintain a stable net asset value of $1.00 per share.
Fixed Income Funds and Tax-Free Fixed Income Funds:
- ---------------------------------------------------
If you invest in a Fixed Income Fund or a Tax-Free Fixed Income Fund,
the income you receive from the Fund will vary with changes in interest rates.
In addition, the value of the Fund's investments generally will rise when
interest rates fall and fall when interest rates rise. When interest rates fall,
there is a risk that issuers will prepay fixed rate obligations, forcing the
Fund to invest in obligations with lower interest rates than the prepaid
obligations.
These Funds are also subject to credit risk. Funds that invest
primarily in obligations that are
<PAGE>
highly rated by a nationally recognized statistical rating organization, such as
Standard & Poor's Corporation, have less credit risk. Funds that have
substantial investments in securities that are not highly rated are subject to
more credit risk.
A Tax-Free Fixed Income Fund that invests primarily in the obligations
of the government and municipalities of one state is more exposed to adverse
economic developments and other risks affecting that state than Funds that
invest in a number of different states. Also, these Funds are not required to
spread their investments among as many different issuers as the other Funds.
Investing in fewer issuers increases the potential adverse effects of a decline
in the value of a Fund's investments in the obligations of any one issuer.
Balanced Funds:
- ---------------
A Balanced Fund divides its investments between fixed income securities
and equity securities in varying proportions, depending primarily on the Fund's
investment objective. As a result, if you invest in a Balanced Fund, your
investment will be subject both to the risks of fixed income securities and to
the risks of equity securities. In addition, the Adviser may vary, within a
fixed range, the allocations of the Fund's assets into each type of investment.
There is a risk that the allocations selected by the Adviser will not achieve
the Fund's objective as effectively as other possible allocations.
Equity Funds:
- -------------
The Equity Funds are subject to "market risk," which is the general
risk that the value of the Fund's investments may decline if the stock markets
perform poorly. There is a risk that a Fund's investments will underperform
either the securities markets generally or particular segments of the securities
markets.
Equity Funds that invest in smaller issuers or foreign issuers are
riskier than other Equity Funds. Investments in smaller issuers are subject to
greater changes in value because securities of smaller issuers may not trade as
often or be as widely owned as the securities of larger issuers. Investments in
foreign issuers are subject to the risks of foreign political and economic
instability and changes in foreign currency exchange rates. Foreign investments
are also subject to government actions, including exchange controls and limits
on repayments of foreign investments. Foreign governments may nationalize, tax
or confiscate investors' assets.
EXPENSES OF INVESTING IN THE FUNDS
The following table will assist you in understanding the expenses that you will
bear directly or indirectly if you invest in a Fund. There are no transaction
charges for purchasing, redeeming or exchanging shares. The Funds do not have
distribution expenses or Rule 12b-1 fees.
Annual Fund Operating Expenses(1)(5)
(as a percentage of average daily net assets after applicable fee waivers and
expense reimbursements)
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
The Funds The Core Portfolio(s)(1)
--------- ------------------------
INVESTMENT OTHER INVESTMENT OTHER TOTAL
ADVISORY FEES(2) EXPENSES ADVISORY EXPENSES OPERATING
FEES(S) FEES EXPENSES
MONEY MARKET FUNDS
Cash Investment Fund N/A 0.22% 0.22% 0.04% 0.48%(4)
Ready Cash Investment Fund
(Investor Shares) N/A 0.41% 0.34% 0.07% 0.82%(4)
U.S. Government Fund 0.14% 0.36% N/A N/A 0.50%
Treasury Plus Fund(3) 0.20% 0.30% 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%(4)
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%(4)
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%(4)
Moderate Balanced Fund 0.14% 0.27% 0.41% 0.06% 0.88%(4)
Growth Balanced Fund 0.14% 0.27% 0.46% 0.06% 0.93%(4)
Aggressive Balanced-Equity Fund 0.18% 0.28% 0.48% 0.06% 1.00%
EQUITY FUNDS (I SHARES)
Index Fund N/A 0.07% 0.15% 0.03% 0.25%
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%(4)
Growth Equity Fund 0.22% 0.24% 0.69% 0.10% 1.25%(4)
Large Company Growth Fund N/A 0.33% 0.65% 0.02% 1.00%
Diversified Small Cap Fund 0.25% 0.25% 0.65% 0.05% 1.20%
Small Company Stock Fund N/A 0.26% 0.90% 0.04% 1.21%
Small Cap Opportunities Fund N/A 0.46% 0.60% 0.19% 1.25%
Small Company Growth Fund N/A 0.31% 0.90% 0.04% 1.25%
International Fund 0.13% 0.64% 0.48% 0.25% 1.50%
</TABLE>
(1) Each Fund bears its pro rata portion of the expenses of any Core
Portfolio in which it invests.
<PAGE>
(2) For Diversified Bond Fund, each Balanced Fund, Diversified Equity
Fund, Growth Equity Fund, Diversified Small Cap Fund and International
Fund, Investment Advisory Fees reflect an asset allocation fee of
0.25%. Absent waivers, the Investment Advisory Fees for Municipal
Money Market Fund's Institutional Shares and Investor Shares, Limited
Term Tax-Free Fund, Tax-Free Income Fund, Colorado Tax-Free Fund,
Minnesota Intermediate Tax-Free Fund and Minnesota Tax-Free Fund would
be 0.35%, 0.35%, 0.50%, 0.50%, 0.50%, 0.25% and 0.50%, and for
Diversified Bond Fund, each Balanced Fund, Diversified Equity Fund,
Growth Equity Fund, Diversified Small Cap Fund and International Fund
would be 0.25%.
(3) The expenses, and any waivers and reimbursements, for Treasury Plus
Fund are estimated.
(4) Norwest and the Funds' manager have agreed to waive their fees in
order to maintain Cash Investment Fund's total combined operating
expenses through May 31, 1999 at 0.48%. Any reduction of those waivers
after May 31, 1999 requires approval by the Funds' Board of Trustees.
Norwest and the Funds' manager have agreed to waive fees and reimburse
expenses to maintain Ready Cash Investment Fund's, Total Return Bond
Fund's and Small Company Stock Fund's total operating expenses at or
below 0.82%; 0.75% and 1.20%, respectively. Any proposed reduction of
those waivers or reimbursements would require Board review. Norwest
and the Funds' manager have agreed to waive their fees through May 31,
1999, to ensure that the investment advisory, administrative and
management services fees borne by Diversified Bond Fund, Strategic
Income Fund, Moderate Balanced Fund, Growth Balanced Fund, Diversified
Equity Fund and Growth Equity Fund do not exceed, in the aggregate,
0.45%, 0.55%, 0.63%, 0.68%, 0.75% and 1.00%, respectively. Any
reduction of that waiver after May 31, 1999 requires Board approval.
(5) Absent expense reimbursements and fee waivers, the expenses of Cash
Investment Fund, Ready Cash Investment Fund, U.S. Government Fund,
Treasury Plus Fund, Treasury Fund, Municipal Money Market Fund's
Institutional Shares and 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, Diversified Small Cap Fund, Small Company
Stock Fund, Small Cap Opportunities Fund, Small Company Growth Fund
and International Fund would be: Other Expenses, 0.26%, 0.42%, 0.38%,
0.40%, 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%, 0.80%, 0.35%, 0.64%, 0.32% and
0.64%, respectively; and Total Operating Expenses, 0.57%, 0.83%,
0.52%, 0.60%, 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%, 2.79% 1.35%, 1.44%, 1.30%
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, Diversified Small Cap Fund, Small Company Stock
Fund, Small Cap Opportunities Fund, Small Company Growth 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%, 0.08%, 0.07%, 1.10%,
0.10, and 0.26%, respectively. Except as otherwise noted, expense
reimbursements and fee waivers are voluntary and may be reduced or
<PAGE>
eliminated at any time.
Example
The following hypothetical example indicates the dollar amount of expenses you
would pay, assuming a $1,000 investment in a Fund's shares, the expenses listed
in Annual Fund Operating Expenses, 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.
<TABLE>
<S> <C> <C> <C> <C>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
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 Plus 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
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
Diversified Small Cap Fund 12 38 66 145
Small Company Stock Fund 12 38 66 145
Small Cap Opportunities Fund 13 40 69 151
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Small Company Growth Fund 13 40 69 151
International Fund 15 47 82 179
</TABLE>
<PAGE>
2. FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand each Fund's
financial performance for the shorter of 10 years or the Fund's operating
history. Certain information reflects financial results for a single Fund share.
The total returns in the table represent the rate that an investor would have
earned on an investment in a Fund, assuming reinvestment of all dividends and
distributions. The information from May 31, 1994 through May 31, 1998 has been
audited by _______________, independent auditors, whose reports, along with each
Fund's financial statements, are included in the Annual Report for the Funds,
which is available upon request. Other independent auditors audited information
for prior periods.
<PAGE>
3. GLOSSARY
Term Definition
- ---- ----------
AMT Alternative minimum tax.
Board The Board of Trustees of Norwest Advantage
Funds.
Dollar Roll A transaction in which a Fund sells
fixed income securities and commits to
purchase similar, but not identical,
securities at a later date from the same
party.
Duration A measure of a debt security's average life
that reflects the present value of the
security's cash flow.
Market Capitalization The total market value of a company's
outstanding common stock.
Municipal Security A debt obligation 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, with
interest exempt from federal income tax.
Non-Investment Grade Neither rated in one of the four
highest long-term rating categories by an
NRSRO nor unrated and determined by the
Adviser to be of comparable quality.
NRSRO A nationally recognized statistical rating
organization, such as S&P or Moody's
Investors Service, that rates fixed income
securities and preferred stock by relative
credit risk.
Related Issuers Issuers of Municipal Securities that
economic, business or political developments
affect in similar ways.
S&P Standard & Poor's Corporation
S&P 500 Index Standard & Poor's 500 Composite Stock
Price Index, an index of large
capitalization companies.
S&P 600 Small Cap Index Standard & Poor's Small Cap 600 Composite
Stock Price Index, an index of small
capitalization companies.
SEC Securities and Exchange Commission
STRIPS Separately traded principal or 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
program.
<PAGE>
U.S. Government Security An obligation issued or guaranteed as to
principal and interest by the U.S.
Government, its agencies or its
instrumentalities, including a U.S. Treasury
Security.
U.S. Treasury Security An obligation issued or guaranteed by the
U.S. Treasury.
<PAGE>
4. INVESTMENT OBJECTIVES AND POLICIES
This section discusses the investment objectives and policies of the Funds and
the Core Portfolios. After each Fund's description, there is a short,
alphabetical listing of the Fund's primary risks. These risks are discussed
below in Risk Considerations.
MONEY MARKET FUNDS
The Funds' investments are made under the requirements of a SEC rule governing
the investments that money market funds may make. Each Money Market Fund invests
only in high-quality, short-term money market instruments that are determined by
the Adviser, under procedures adopted by the Board, to be eligible for purchase
and to present minimal credit risks. The Funds may invest in securities with
fixed, variable or floating rates of interest.
High-quality instruments include those that: (1) are rated (or, if
unrated, are issued by an issuer with comparable outstanding short-term debt
that is rated) in one of the two highest rating categories by two NRSROs or, if
only one NRSRO has issued a rating, by that NRSRO; or (2) are otherwise unrated
and determined by the Adviser to be of comparable quality. Each Fund, other than
Municipal Money Market Fund, will invest at least 95% of its total assets in
securities in the highest rating category.
CASH INVESTMENT FUND and READY CASH INVESTMENT FUND
INVESTMENT OBJECTIVES. The investment objective of each Fund is to provide high
current income to the extent consistent with the preservation of capital and the
maintenance of liquidity.
CASH INVESTMENT FUND invests equally in two Core Portfolios - Money
Market Portfolio and Prime Money Market Portfolio. Cash Investment Fund, Money
Market Portfolio and Prime Money Market Portfolio generally have the same
investment objective and investment policies. Because Prime Money Market
Portfolio seeks to maintain a rating within the two highest short-term
categories assigned by at least one NRSRO, it is further limited in the type and
amount of securities it may purchase.
READY CASH INVESTMENT FUND invests its assets only in Prime Money
Market Portfolio. Ready Cash Investment Fund seeks to maintain a rating within
the two highest short-term categories assigned by at least one NRSRO.
INVESTMENT POLICIES. The Funds invest in a broad spectrum of high-quality money
market instruments of U.S. and foreign issuers, including U.S. Government
Securities, Municipal Securities and corporate debt
<PAGE>
securities.
The Funds may invest in debt obligations of financial institutions.
These include U.S. dollar-denominated 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, U.S. branches and agencies of foreign banks, and
wholly-owned banking-related subsidiaries of foreign banks. The Funds limit
their investments in obligations of financial institutions to institutions that
at the time of investment have total assets in excess of $1 billion, or the
equivalent in other currencies.
Each Fund 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. Neither Fund may invest more than 25% of its
total assets in any other single industry.
RISKS:
Credit risk Interest rate risk
Foreign risk
U.S. GOVERNMENT FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to provide high
current income to the extent consistent with the preservation of capital and the
maintenance of liquidity.
INVESTMENT POLICIES. The Fund invests primarily in U.S. Government Securities,
including STRIPS. Under normal circumstances, the Fund will invest at least 65%
of its total assets in U.S. Government Securities. The Fund may also invest in
repurchase agreements collateralized by U.S. Government Securities.
RISKS:
Credit risk Interest rate risk
TREASURY PLUS FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to provide high
current income to the extent consistent with the preservation of capital and the
maintenance of liquidity.
INVESTMENT POLICIES. Under normal circumstances, the Fund intends to invest at
least 80% of its assets in U.S. Treasury Securities, including STRIPS, and in
repurchase agreements collateralized by U.S. Treasury Securities. The Fund may
also invest in U.S. Government Securities, including those that are zero-coupon
securities, and in repurchase agreements collateralized by U.S. Government
Securities.
RISKS:
Credit risk Interest rate risk
TREASURY FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to provide high
current income to the extent
<PAGE>
consistent with the preservation of capital and the maintenance of liquidity.
INVESTMENT POLICIES. The Fund invests solely in U.S. Treasury Securities,
including STRIPS.
RISKS:
Credit risk Interest rate risk
MUNICIPAL MONEY MARKET FUND
INVESTMENT OBJECTIVE. The investment objective of the 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. The Fund normally
will invest at least 80% of its net assets in federally tax-exempt instruments
whose income may be subject to the federal AMT.
INVESTMENT POLICIES. The Fund expects to invest 100% of its assets in Municipal
Securities, including short-term municipal bonds and municipal notes and leases
that may have fixed, variable or floating rates of interest and may be
zero-coupon securities. The Fund may invest up to 20% of its assets in
securities with interest income that may be subject to federal income taxation.
The Fund may invest more than 25% but, under normal circumstances, will not
invest more than 35% of its assets in issuers located in one state. The Fund may
invest more than 25% of its assets in industrial development bonds and in
participation interests in these types of bonds issued by banks.
Risks:
Credit risk Interest rate risk
Geographic concentration risk
FIXED INCOME FUNDS
STABLE INCOME FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to maintain safety
of principal while providing low volatility total return.
INVESTMENT POLICIES. The Fund invests primarily in investment grade short-term
obligations. The Fund invests in a diversified portfolio of fixed and variable
rate U.S. dollar-denominated fixed income securities of a broad spectrum of U.S.
and foreign issuers, including U.S. Government Securities and the debt
securities of financial institutions, corporations, and others.
The Fund limits its investments in mortgage-backed securities to not
more than 65% of its total assets and investments in asset-backed securities to
not more than 25% of its total assets. In addition, the Fund limits its holdings
of mortgage-backed securities that are not U.S. Government Securities to 25% of
its total assets. Under normal circumstances, the Fund will not invest more than
50% of its assets in U.S. Government Securities. The Fund may not invest more
than 30% 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% of its total assets in the securities
of any other issuer.
The Fund 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 or which are unrated and determined by the
Adviser to be of comparable quality.
<PAGE>
The Fund invests in debt obligations with maturities (or average life
in the case of mortgage-backed and similar securities) ranging from overnight to
12 years and seeks to maintain an average dollar-weighted portfolio maturity of
between two and five years.
The Fund may use options, swap agreements, innterest rate caps, floors and
collars and futures contracts to manage risk. The Fund may also use options to
enhance return.
RISKS:
Credit risk Leverage risk
Foreign risk Market risk
Interest rate risk Prepayment risk
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 invests primarily in fixed and variable rate U.S.
Government Securities. Under normal circumstances, the Fund intends to invest at
least 65% of its assets in U.S. Government Securities and may invest up to 35%
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, utilizing mortgage-backed securities to enhance yield.
The Fund limits its investments in mortgage-backed securities to not more than
50% of its total assets and its investments in other asset-backed securities to
not more than 25% of its total assets. The Fund will limit its investment in
zero-coupon securities, except in STRIPS, to not more than 10% of the Fund's
total assets. In addition, the Fund may not invest more than 25% 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
enter into short sales.
The Fund will only purchase securities that are rated, at the time of
purchase, within the two highest rating categories assigned by an NRSRO, or
which are unrated and determined by the Adviser to be of comparable quality.
The Fund will invest primarily in debt obligations with maturities (or
average life in the case of mortgage-backed and similar securities) ranging from
overnight to ten years. Under normal circumstances, the Fund's portfolio of
securities will have an average dollar-weighted maturity of between one and five
years.
The Fund may use options, swap agreements, interest rate caps, floors and
collars and futures contracts to manage risk. The Fund may also use options to
enhance return.
RISKS:
Credit risk Market risk
Interest rate risk Prepayment risk
Leverage risk
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 invests primarily in fixed and variable rate U.S.
Government Securities. Under normal circumstances, the Fund intends to invest at
least 65% of its assets in U.S. Government Securities and may invest up to 35%
of its assets in fixed income securities that are not U.S. Government
<PAGE>
Securities. The Fund emphasizes the use of intermediate maturity securities to
lessen interest rate risk, utilizing mortgage-backed securities to enhance
yield.
The Fund limits its investments in mortgage-backed securities to not
more than 50% of its total assets and its investments in other asset-backed
securities to not more than 25% of its total assets. As part of its
mortgage-backed securities investments, the Fund may enter into Dollar Rolls.
The Fund will limit its investment in zero-coupon securities, except in STRIPS,
to not more than 10% of the Fund's total assets. In addition, the Fund may not
invest more than 25% 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.
The Fund will only purchase securities that are rated, at the time of
purchase, within the two highest rating categories assigned by an NRSRO, or
which are unrated and determined by the Adviser to be of comparable quality.
The Fund will invest primarily in debt obligations with maturities (or
average life in the case of mortgage-backed and similar securities) ranging from
overnight to 30 years. Under normal circumstances, the Fund's portfolio
securities will have an average dollar-weighted maturity of between three and
ten years and a Duration of between 70% and 130% of the Duration of a five-year
Treasury Note.
The Fund may use options, swap agreements, interest rate caps, floors and
collars and futures contracts to manage risk. The Fund may also use options to
enhance return.
RISKS:
Credit risk Market risk
Interest rate risk Prepayment risk
Leverage risk
DIVERSIFIED BOND FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to provide total
return by diversifying its investments among different fixed income investment
styles.
INVESTMENT POLICIES. The Fund uses 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 the different fixed income investment
styles of three Core Portfolios - Managed Fixed Income style, Strategic Value
Bond style, and Positive Return style.
DIVERSIFIED BOND FUND ALLOCATION
The current allocations and ranges of investments by the Fund in each
Core Portfolio are:
CURRENT RANGE OF
ALLOCATION INVESTMENT
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%
The percentage of Fund assets invested in each Core Portfolio may
temporarily deviate from the current allocations due to changes in market
values. The Adviser will effect transactions periodically to reestablish the
current allocations. The Adviser may make changes in the current allocations at
any time in
<PAGE>
response to market or other conditions. The Fund may also invest in
more or fewer Core Portfolios or invest directly in portfolio securities.
RISKS:
Credit risk Market risk
Foreign risk Prepayment risk
Interest rate risk
Leverage risk
INCOME FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to provide total
return consistent with current income.
INVESTMENT POLICIES. The Fund invests in a diversified portfolio of fixed and
variable rate U.S. dollar-denominated fixed income securities issued by domestic
and foreign issuers. The Fund invests in a broad spectrum of U.S. issuers,
including U.S. Government Securities, mortgage- and asset-backed securities and
the debt securities of financial institutions, corporations, and others. The
Adviser 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 normally will invest at least 30% of its total assets in U.S.
Government Securities. The Fund limits its investments in mortgage-backed
securities to not more than 50% of its total assets and its investments in other
asset-backed securities to not more than 25% of its total assets.
The Fund may invest up to 70% 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 and may invest in zero
coupon securities and enter into Dollar Rolls.
The Fund may invest in debt securities registered and sold in the
United States by foreign issuers and debt securities sold outside the United
States by foreign or U.S. issuers. The Fund intends to restrict its purchases of
debt securities to issues denominated and payable in U. S. dollars.
The Fund will invest primarily in securities with maturities (or
average life in the case of mortgage-backed and similar securities) ranging from
overnight to 40 years. It is anticipated that the Fund's portfolio will have an
average dollar-weighted maturity of between three 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.
Normally, the Fund will invest at least 80% of its assets in securities
that are rated, at the time of purchase, within the four highest rating
categories assigned by an NRSRO or which are unrated and determined by the
Adviser to be of comparable quality. The Fund may also invest up to 20% of its
total assets in Non-Investment Grade fixed-income securities rated in the fifth
highest rating category by an NRSRO or unrated and determined by the Adviser to
be of comparable quality.
RISKS:
Credit risk Leverage risk
Foreign risk Prepayment risk
Interest rate risk Prepayment risk
<PAGE>
TOTAL RETURN BOND FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to seek total
return.
INVESTMENT POLICIES. The Fund 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.
The Adviser focuses on relative value as opposed to predicting the
direction of interest rates. In general, the Fund seeks higher current income
instruments such as corporate bonds and mortgage-backed and asset-backed
securities in order to enhance returns. The Adviser believes that this exposure
enhances performance in varying economic and interest rate cycles while avoiding
excessive risk concentrations. The Adviser's investment process involves
rigorous evaluation of each security, including 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.
The Adviser uses this process to seek to identify securities which represent the
best relative economic value. The Adviser then evaluates the results of the
investment process against the Fund's objective and purchases those securities
that will enhance its positioning.
To limit the Fund's credit risk, the Fund generally will invest 65% of its
assets in fixed income securities rated in one of the three highest rating
categories by at least one NRSRO, or which are unrated and determined by the
Adviser to be of comparable quality. The Fund may invest up to 20% of its total
assets in Non-Investment Grade fixed income securities rated in the fifth
highest rating category by an NRSRO or unrated and determined by the Adviser to
be of comparable quality.
The average maturity of the Fund will vary between five and 15 years.
In the case of mortgage-related, asset-backed and similar securities, the Fund
uses the security's average life in calculating the Fund's average maturity. The
Fund's effective Duration normally will vary between three and eight years.
The Fund particularly seeks strategic diversification. The Fund 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.
The Fund may invest in U.S. Government Securities without restriction. The Fund
generally will not invest more than 5% of its assets in the corporate bonds of
any one issuer.
The Fund may use options, swap agreements, interest rate caps, floors and
collars and futures contracts to manage risk. The Fund may also use options to
enhance return.
RISKS:
Credit risk Market risk
Interest rate risk Prepayment risk
Leverage risk
<PAGE>
TAX-FREE FIXED INCOME FUNDS
Each of the Funds will invest at least 80% of its total assets in securities
with interest exempt from federal income tax. In order to respond to business
and financial conditions, each Fund may invest up to 20% of its assets in
instruments with taxable interest income or instruments that may be a preference
item for purposes of the federal AMT. In addition, each Fund may hold a portion
of its assets in cash and cash-equivalents pending investment in Municipal
Securities, to meet requests for redemptions or to assume a temporary defensive
position.
LIMITED TERM TAX-FREE FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to produce current
income exempt from federal income taxes.
INVESTMENT POLICIES. The Fund invests primarily in a portfolio of investment
grade Municipal Securities not treated as preference items for individuals for
purposes of the federal AMT. The Fund normally invests substantially all its
assets in municipal securities. As a fundamental investment policy, the Fund
will invest at least 80% of its total assets in securities with interest exempt
from federal income taxes.
The average dollar-weighted maturity of the Fund's assets normally will
be between one and five years, but will vary depending on anticipated market
conditions. As the Fund's objective is to provide current income, the Fund
invests in Municipal Securities with an emphasis on interest income.
Under normal circumstances, the Fund will not invest more than 25% of
its total assets in issuers located in the same state or in related issuers. The
Fund invests substantially all its assets in Municipal Securities that are rated
within the top four grades by an NRSRO at the time of purchase or which are
unrated and determined by the Adviser to be of comparable quality. These
securities are generally considered to be investment grade.
RISKS:
Credit risk Market risk
Geographic concentration risk
Interest rate risk Prepayment risk
Leverage risk
TAX-FREE INCOME FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to produce current
income exempt from federal income taxes.
INVESTMENT POLICIES. The Fund invests primarily in a portfolio of investment
grade Municipal Securities. The Fund normally invests substantially all its
assets in Municipal Securities. As a fundamental investment policy, the Fund
will invest at least 80% of its total assets in Municipal Securities with
interest exempt from the federal AMT.
The average dollar-weighted maturity of the Fund's assets normally will
be between ten and 20 years, but will vary depending on market conditions. 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 interest income rather than stability of the
Fund's net asset value.
<PAGE>
Under normal circumstances, the Fund will not invest more than 25% of
its total assets in issuers located in the same state or in Related Issuers. The
Fund invests substantially all its asset in municipal securities rated within
the top four grades by an NRSRO at the time of purchase or which are unrated and
determined to by the Adviser to be of comparable quality. These securities are
generally considered to be investment grade.
RISKS:
Credit risk Market risk
Geographic concentration risk
Interest rate risk Prepayment risk
Leverage risk
COLORADO TAX-FREE FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to provide
shareholders with a high level of current income exempt from both federal and
Colorado state income taxes (including the AMT) consistent with the preservation
of capital. Shares of the Fund are offered only to residents of Colorado.
INVESTMENT POLICIES. The Fund normally invests substantially all its assets in
investment grade Municipal Securities issued by (i) the state of Colorado and
its political subdivisions, authorities, instrumentalities, public corporations
and special districts and (ii) territories and possessions of the United States,
such as Puerto Rico ("Colorado Municipal Securities"). As a fundamental policy,
the Fund will invest at least 80% of its total assets in securities with
interest exempt from both federal and Colorado state income taxes (including the
AMT). The Fund may concentrate its investments in a comparatively small number
of issuers.
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.
The average portfolio maturity is currently expected to be greater than
ten years, but may reach or exceed 20 years in the future. Depending on market
conditions, however, the average dollar-weighted maturity could be higher or
lower. The Fund invests in Municipal Securities with an emphasis on income
rather than maintaining stability of net asset value. The Fund also attempts to
limit net asset value fluctuations.
The Fund invests substantially all its assets in Municipal Securities that are
rated within the top four grades by an NRSRO at the time of purchase or that are
unrated and determined by the Adviser to be of comparable quality. These
securities are generally considered investment grade. The Fund will not invest
more than 25% of its total assets in securities of Related Issuers or in
securities of any one issuer except the U.S. Government.
RISKS:
Credit risk Leverage risk
Diversification risk Market risk
Geographic concentration risk Prepayment risk
Interest rate risk
<PAGE>
MINNESOTA INTERMEDIATE TAX-FREE FUND and
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 AMT) without assuming undue risk.
Shares of the Funds are offered only to residents of Minnesota.
INVESTMENT POLICIES. The Funds normally invest substantially all their assets in
investment grade municipal securities issued by (i) the state of Minnesota and
its political subdivisions, duly constituted authorities and corporations and
(ii) territories and possessions of the United States, such as Puerto Rico
("Minnesota Municipal Securities"). 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 with interest exempt
from both federal and Minnesota state income taxes (including the AMT). The
Funds may concentrate their investments in a comparatively small number of
issuers.
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 Minnesota issues.
The average dollar-weighted maturity of the Minnesota Intermediate
Tax-Free Fund's assets normally will be between five and 10 years but 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 ten 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. The Funds invest in
Municipal Securities with an emphasis on income rather than stability of the
Fund's net asset value.
Neither Fund will invest more than 25% of its total assets in
securities of Related Issuers or in securities of any one issuer except the U.S.
Government.
Normally, the Funds invest at least 75% of their assets in Municipal
Securities rated in the four highest rating categories by an NRSRO or unrated
and determined by the Adviser to be of comparable quality. The Funds may invest
up to 25% of their total assets in Non-Investment Grade Municipal Securities
rated in the fifth highest rating category by an NRSRO or unrated and determined
by the Adviser to be of comparable quality.
RISKS:
Credit risk Leverage risk
Diversification risk Market risk
Geographic concentration risk Prepayment risk
Interest rate risk
BALANCED FUNDS
Each Balanced Fund invests in a balanced portfolio of fixed income and equity
securities. Strategic Income Fund has the smallest investment in equity
securities and is the most conservative Balanced Fund. Aggressive
Balanced-Equity Fund has the largest investment in equity securities and is the
most aggressive Balanced Fund.
<PAGE>
The equity portion of each Balanced Fund's portfolio uses the five
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.
The percentage of a Balanced Fund's assets invested in different styles
may temporarily deviate from the Fund's current allocation due to changes in
market values. The Adviser will effect transactions periodically to reestablish
the current allocation.
As market or other conditions change, the Adviser may attempt to
enhance the returns of a Balanced Fund by changing the percentage of Fund assets
invested in fixed income and equity securities. The Fund may also invest in more
or fewer Core Portfolios or invest directly in portfolio securities. Absent
unstable market conditions, the Adviser does not anticipate making a substantial
number of percentage changes. When the Adviser believes that a change in the
current allocation percentages is desirable, it will sell and purchase
securities to effect the change. When the Adviser believes that a change will be
temporary (generally, 3 years or less), it may choose to effect the change by
using futures contracts.
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.
Investment Policies. The Fund is designed for investors seeking to invest in
fixed income securities with limited exposure to equity securities. The Fund
emphasizes safety of principal and has the smallest investment in equity
securities of the Balanced Funds. The Fund currently invests in 16 Core
Portfolios.
The Fund invests the fixed income portion of its portfolio in the same
three Core Portfolios as Diversified Bond Fund, Managed Fixed Income Portfolio,
Strategic Value Bond Portfolio and Positive Return Portfolio, and in Stable
Income Portfolio and Money Market Portfolio. This allocation is intended to
reduce the risk of relying on a single fixed income investment style.
STRATEGIC INCOME FUND ALLOCATION
The current allocations and ranges of investments by the Fund in each
Core Portfolio are:
<TABLE>
<S> <C> <C>
INVESTMENT STYLE CURRENT ALLOCATION RANGE OF INVESTMENT
- ---------------- ------------------ -------------------
Diversified Bond Fund style 55% 45% - 65%
Positive Return Bond Portfolio 18.3% 15% - 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%
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
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% 0.25% - 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%
</TABLE>
TOTAL FUND ASSETS 100%
RISKS:
Credit risk Market risk
Interest rate risk Prepayment risk
Leverage risk
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.
INVESTMENT POLICIES. The Fund is designed for investors seeking roughly
equivalent exposures to fixed income securities and equity securities. The
Fund provides a portfolio more evenly balanced between fixed income and
equity securities than the other Balanced Funds. The Fund currently invests
in 15 Core Portfolios.
The Fund invests the fixed income portion of its portfolio in the same
three Core Portfolios as Diversified Bond Fund, Managed Fixed Income
Portfolio, Strategic Value Bond Portfolio and Positive Return Portfolio,
and in Stable Income Portfolio. This allocation is intended to reduce the
risk of relying on a single fixed income investment style.
MODERATE BALANCED FUND ALLOCATION
The current allocations and ranges of investments by the Fund in each
Core Portfolio are:
<TABLE>
<S> <C> <C>
INVESTMENT STYLE CURRENT ALLOCATION RANGE OF INVESTMENT
- ---------------- ------------------ -------------------
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%
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Large Company style 10% 6.3% - 13.8%
Large Company Growth Portfolio 8% 5.0% - 11.0%
Disciplined Growth Portfolio 2% 1.25% - 2.75%
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>
RISKS:
Credit risk Leverage risk
Currency rate risk Market risk
Foreign risk Prepayment risk
Interest rate risk
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.
INVESTMENT POLICIES. The Fund is designed for investors seeking long-term
capital appreciation in the equity securities market in a balanced fund. The
Fund currently invests in 14 Core Portfolios.
The Fund invests the fixed income portion of its portfolio in Managed
Fixed Income Portfolio, Strategic Value Bond Portfolio and Positive Return
Portfolio, the same three Core Portfolios as Diversified Bond Fund. This
allocation is intended to reduce the risk of relying on a single fixed income
investment style.
GROWTH BALANCED FUND ALLOCATION
The current allocations and ranges of investments by the Fund in each
Core Portfolio are:
<TABLE>
<S> <C> <C>
INVESTMENT STYLE CURRENT ALLOCATION RANGE OF INVESTMENT
- ---------------- ------------------ -------------------
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%
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Small Company Stock Portfolio 1.0% 0.7% - 1.4%
Small Cap Value Portfolio 1.0% 075% - 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>
RISKS:
Credit risk Leverage risk
Currency Rate Risk Market risk
Foreign risk Prepayment risk
Derivatives risk Small company risk
Interest rate risk
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.
INVESTMENT POLICIES. The Fund is designed for investors seeking long-term
capital appreciation in the equity securities market in a balanced fund. The
Fund has the largest equity securities position of the Balanced Funds.
The Fund currently invests in 14 Core Portfolios.
The Fund invests the fixed income portion of its portfolio in Managed
Fixed Income Portfolio, Strategic Value Bond Portfolio and Positive Return
Portfolio, the same three Core Portfolios as Diversified Bond Fund. This
allocation is intended to reduce the risk of relying on a single fixed income
investment style.
AGGRESSIVE BALANCED-EQUITY FUND ALLOCATION
The current allocations and ranges of investments by the Fund in each
Core Portfolio are:
<TABLE>
<S> <C> <C>
INVESTMENT STYLE CURRENT ALLOCATION RANGE OF INVESTMENT
- ---------------- ------------------ -------------------
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%
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
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>
RISKS:
Credit risk Leverage risk
Currency rate risk Market risk
Foreign risk Prepayment risk
Interest rate risk Small company risk
EQUITY FUNDS
INDEX FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to duplicate the
return of the S&P 500 Index.
INVESTMENT POLICIES. The Fund is designed to duplicate the return of the S&P 500
Index with minimum tracking error, while also minimizing transaction costs.
Under normal circumstances, the Fund will hold stocks representing 100% of the
capitalization-weighted market values of the S&P 500 Index. The Adviser
generally executes portfolio transactions for the Fund only to duplicate the
composition of the S&P 500 Index, to invest cash received from portfolio
security dividends or investments in the Fund, and to raise cash to fund
redemptions. The Fund may hold cash or cash equivalents to facilitate payment of
the Fund's expenses or redemptions and may invest in index futures contracts to
a limited extent. For these and other reasons, the Fund's performance can be
expected to approximate but not equal the S&P 500 Index.
The S&P 500 Index tracks the total return performance of 500 common
stocks which are chosen for inclusion in the S&P 500 Index by S&P on a
statistical basis. The 500 securities, most of which trade on the New York Stock
Exchange, represent approximately 70% of the total market value of all U.S.
common stocks. Each stock in the S&P 500 Index is weighted by its market value.
Because of the market-value weighting, the 50 largest companies in the S&P 500
Index currently account for approximately 47% of its value. The S&P 500 Index
emphasizes large capitalizations and, typically, companies included in the S&P
500 Index are the largest and most dominant firms in their respective
industries.
RISKS:
Leverage risk Market risk
INCOME EQUITY FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to provide
long-term capital appreciation consistent with above-average dividend income.
INVESTMENT POLICIES. The Fund invests primarily in the common stock of large,
high-quality domestic
<PAGE>
companies that have above-average return potential based on current market
valuations. The Fund primarily emphasizes on investing in securities of
companies with above-average dividend income. In selecting securities for the
Fund, the Adviser uses various valuation measures, including above-average
dividend yields and below industry average price-to-earnings, price-to-book and
price-to-sales ratios. Large companies are those whose Market Capitalization is
greater than the median of the Russell 1000 Index.
The Fund may invest in preferred stock, convertible securities and foreign
securities. The Fund will not normally invest more than 10% of its assets in the
securities of a single issuer.
RISKS:
Currency risk
Foreign risk
Leverage risk Market risk
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 the Adviser, possess above average
growth characteristics and appear to be undervalued. Medium capitalization
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 those companies with earnings
and dividends that the Adviser believes will grow both faster than inflation and
faster than the economy in general and whose growth the Adviser believes has not
yet been fully reflected in the market price of the companies' shares. In
seeking these investments, the Adviser 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, the Adviser 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 may invest in companies that the Adviser considers to be "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 form a
comparatively small portion of the Fund's portfolio.
The Fund may invest up to 20% of its assets in securities of foreign
issuers. The Fund also may write covered calls and purchase calls on equity
securities.
RISKS:
Currency Rate Risk Leverage risk
Foreign risk Market risk
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 among different equity investment styles.
INVESTMENT POLICIES. The Fund invests in a "multi-style" approach designed to
minimize the volatility and risk of investing in a single investment style. The
Fund currently invests in 11 Core Portfolios.
The Fund's portfolio combines five different equity investment styles -
an index style, an income equity style, a large company style, a diversified
small cap style and an international style. The Fund allocates the assets
dedicated to large company investments to two Core Portfolios, the assets
allocated to small
<PAGE>
company investments to five Core Portfolios and the assets dedicated to
international investments to two Core Portfolios. 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.
DIVERSIFIED EQUITY FUND ALLOCATION
The current allocations and ranges of investments by the Fund in each
Core Portfolio are:
<TABLE>
<S> <C> <C>
CURRENT ALLOCATION RANGE OF INVESTMENT
------------------ -------------------
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>
The percentage of Fund assets invested in each Core Portfolio may
temporarily deviate from the current allocations due to changes in market value.
The Adviser will effect transactions daily to reestablish the current
allocations. The Adviser may make changes in the current allocations at any time
in response to market and other conditions. The Fund may also invest in more or
fewer Core Portfolios or invest directly in portfolio securities.
RISKS:
Currency Rate Risk Market risk
Foreign risk Small company risk
Leverage risk
GROWTH EQUITY FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to provide a high
level of long-term capital appreciation while moderating annual return
volatility by diversifying its investments among different equity investment
styles.
INVESTMENT POLICIES. The Fund invests in a "multi-style" approach designed to
reduce the volatility and risk of investing in a single equity style. The Fund
currently invests in eight Core Portfolios.
The Fund's portfolio combines three different equity styles - a large
company growth style, a diversified small cap style and an international style.
The Fund allocates the assets dedicated to small
<PAGE>
company investments to five Core Portfolios and the assets dedicated to
international investments to two Core Portfolios. 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.
GROWTH EQUITY FUND ALLOCATION
The current allocations and ranges of investments by the Fund in each
Core Portfolio are:
<TABLE>
<S> <C> <C>
CURRENT ALLOCATION RANGE OF INVESTMENT
------------------ -------------------
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% 8.5% - 12.5%
Small Company Value Portfolio 8.4% 8.5% - 12.5%
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>
The percentage of Fund assets invested in each Core Portfolio may
temporarily deviate from the current allocations due to changes in market
values. The Adviser will effect transactions daily to reestablish the current
allocations. The Adviser may make changes in the current allocations at any time
in response to market or other conditions. The Fund may also invest in more or
fewer Core Portfolios or invest directly in portfolio securities.
RISKS:
Currency Rate Risk Market risk
Foreign risk Small company risk
Leverage risk
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 Adviser believes have superior growth potential.
INVESTMENT POLICIES. The Fund 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. In selecting securities for the Fund, the
Adviser seeks issuers whose stock is attractively valued and whose fundamental
characteristics both are significantly better than the market average and
support internal earnings growth capability. The Fund's assets may be invested
in the securities of companies whose growth potential is, in the Adviser's
opinion, generally unrecognized or misperceived by the market.
The Fund may invest up to 20% of its assets in the securities of foreign issuers
and may hedge against currency risk by using foreign currency forward contracts.
The Fund will not invest more than 10% of its total assets in the securities of
a single issuer.
RISKS:
Currency ris Leverage risk
Foreign risk Market risk
<PAGE>
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 invests in a "multi-style" approach designed to
minimize the volatility and risk of investing in small capitalization equity
securities. The Fund invests in several different small capitalization equity
styles in order to reduce the risk of price and return volatility associated
with reliance on a single investment style. The Fund currently invests in five
Core Portfolios.
DIVERSIFIED SMALL CAP FUND ALLOCATION
The current allocations and ranges of investments by the Fund in each
Core Portfolio are:
CURRENT RANGE OF INVESTMENT
ALLOCATION -------------------
----------
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%
The percentage of Fund assets invested in each Core Portfolio may
temporarily deviate from the current allocations due to changes in market
values. The Adviser will effect transactions daily to reestablish the current
allocations. The Adviser may make changes in the current allocations at any time
in response to market and other conditions. The Fund may also invest in more or
fewer Core Portfolios or invest directly in portfolio securities.
RISKS:
Leverage risk Small company risk
Market risk
SMALL COMPANY STOCK FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is long-term capital
appreciation.
INVESTMENT POLICIES. The Fund 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 S&P 500 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 ranges from $500 million to $8 billion.
In selecting securities for the Fund, the Adviser seeks 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 Fund 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
<PAGE>
demand or developing markets. Frequently, such companies have a small management
group and single product or product line expertise, which, in the view of the
Adviser, may result in an enhanced entrepreneurial spirit and greater focus,
thereby allowing such companies to be successful. The Adviser believes 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.
The Fund may invest up to 20% of its assets in the securities of foreign
issuers.
RISKS:
Currency risk Market risk
Foreign risk Small Company risk
Leverage risk
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.
INVESTMENT POLICIES. The Fund invests primarily in equity securities of U.S.
companies that, at the time of purchase, have Market Capitalizations of $1.5
billion or less.
The Adviser attempts to identify securities of companies, which it
believes can generate above average earnings growth and sell at favorable prices
in relation to book values and earnings. The Adviser's assessment of the
competency of an issuer's management will be an important consideration in
selecting investments. These criteria are not rigid, and the Fund may make other
investments if they may help the Fund achieve its objective.
The Fund 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 Fund may
also invest to a limited degree in non-convertible debt securities and preferred
stocks when the Adviser believes these investments will help the Fund achieve
its objective.
The Fund currently intends to invest no more than 5% of its total
assets in securities of small, unseasoned companies, which, together with any
predecessors, have been in operation for less than three years.
The Fund currently intends to invest no more than 5% of its net assets in
Non-Investment Grade convertible and non-convertible securities. The Fund may
use options and futures contracts to manage risk. The Fund may also use options
to enhance return.
RISKS:
Leverage risk Small company risk
Market risk
SMALL COMPANY GROWTH FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to provide
long-term capital appreciation by investing in smaller domestic companies.
INVESTMENT POLICIES. The Fund invests primarily in the common stock of small and
medium-sized domestic companies that are either growing rapidly or completing a
period of significant change. Small companies are those companies whose Market
Capitalization is less than the largest stock in the Russell 2,000 Index. The
Fund considers smaller companies to be those with Market Capitalizations less
than $1
<PAGE>
billion at the time of the Fund's purchase.
The Adviser may invest up to 10% of the Funds total assets in foreign
securities. The Adviser will not invest moe than 10% of the Fund's total assets
in the securities of a single issuer.
In selecting securities for the Fund, the Adviser 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.
RISKS:
Currency rate risk Market risk
Foreign risk Small company risk
Leverage risk
INTERNATIONAL FUND
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.
INVESTMENT POLICIES. The Fund invests in a "multi-style" approach designed to
minimize the volatility and risk of investing in international securities. The
Fund's investment portfolio combines two different investment styles an
international equity investment style and an international emerging markets
investment style. The Fund invests in two Core Portfolios.
International Fund Allocation
The current allocations and ranges of investments by the Fund in each
Core Portfolio are:
CURRENT RANGE OF INVESTMENT
ALLOCATION -------------------
----------
International Portfolio 95% 80% - 100%
Schroder EM Core Portfolio 5% 0% - 20%
TOTAL FUND ASSETS 100%
The percentage of Fund assets invested in each Core Portfolio may
temporarily deviate from the current allocations due to changes in market
values. The Adviser will effect transactions daily to reestablish the current
allocations. The Adviser may make changes in the current allocations at any time
in response to market and other conditions. The Fund may also invest in more or
fewer Core Portfolios or invest directly in portfolio securities.
RISKS:
Credit risk Interest rate risk
Currency rate risk Leverage risk
Foreign risk Market risk
Geographic concentration risk Prepayment risk
<PAGE>
DESCRIPTIONS OF CORE PORTFOLIOS
MONEY MARKET PORTFOLIO and PRIME MONEY MARKET PORTFOLIO
These Core Portfolios are described in the section of this prospectus describing
Cash Investment Fund and Ready Cash Investment Fund.
POSITIVE RETURN BOND PORTFOLIO
The Core 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 Core Portfolio's assets are divided into two
components, short bonds with maturities (or average life) of two 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 Adviser's 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. The average dollar-weighted maturity of the Core Portfolio will
vary between one and 30 years.
Under normal circumstances, the Core Portfolio will invest at least 50%
of its net assets in U.S. Government Securities, including Treasury securities.
The Core Portfolio only purchases securities that are rated, at the time of
purchase, within one of the two highest long-term rating categories assigned by
an NRSRO or that are unrated and determined by the Adviser to be of comparable
quality. The Adviser will not invest more than 25% of its assets in securities
rated in the second highest rating category. The Core Portfolio will limit its
investments in zero-coupon securities, securities with variable or floating
rates of interest and asset-backed securities to 25% of its net assets in each
type of security. The Core Portfolio may not invest in convertible securities,
mortgage pass-through securities or private placement securities. Within these
constraints, the Adviser purchases securities that it believes have
above-average yields.
RISKS:
Credit risk Market risk
Interest rate risk Prepayment risk
Leverage risk
STABLE INCOME PORTFOLIO
This Core Portfolio is described in the section of this prospectus describing
Stable Income Fund.
MANAGED FIXED INCOME PORTFOLIO
The Core Portfolio seeks consistent fixed income returns by investing primarily
in investment grade intermediate term obligations. The Core Portfolio invests in
a diversified portfolio of fixed and variable rate U.S. dollar-denominated,
fixed income securities of a broad spectrum of U.S. and foreign issuers,
including U.S. Government Securities and the debt securities of financial
institutions, corporations, and others. The Adviser emphasizes the use of
intermediate maturity securities to lessen Duration, while employing low risk
yield enhancement techniques to enhance return over a complete economic or
interest rate cycle. Intermediate-term obligations are securities with
maturities of between two and 20 years.
The Core Portfolio will limit its investment in mortgage-backed
securities to not more than 65% of its total assets and its investment in other
asset-backed securities to not more than 25% its net assets.In
<PAGE>
addition, the Core Portfolio may not invest more than 30% of its assets in the
securities issued or guaranteed by any single agency or instrumentality of the
U.S. Government, except the U.S. Treasury.
The Core 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, or which are unrated and determined by
the Adviser to be of comparable quality.
The Core Portfolio invests in debt obligations with maturities (or
average life in the case of mortgage-backed and similar securities) ranging from
overnight to 30 years. Under normal circumstances, the Core Portfolio will have
an average dollar-weighted portfolio maturity of between three and 12 years and
a Duration of between two and six years.
The Portfolio may also invest up to 10% of its total assets in: obligations
issued or guaranteed by governments the Adviser deems stable, or their
subdivisions, agencies or instrumentalities; loan or security participations;
obligations of supranational organizations; and Municipal Securities.
The Portfolio may use options, swap agreements, interest rate caps, floors and
collars and futures contracts to manage risk. The Portfolio may also use options
to enhance return.
RISKS:
Credit risk Leverage risk
Foreign risk Market risk
Interest rate risk Prepayment risk
STRATEGIC VALUE BOND PORTFOLIO
This Core Portfolio is described in the section of this prospectus describing
Total Return Bond Fund, which invests all its assets in the Core Portfolio. The
only difference between the Fund and the Core Portfolio is that the Core
Portfolio's investment objective is to seek total return by investing primarily
in income producing securities.
INDEX PORTFOLIO
This Core Portfolio is described in the section of this prospectus describing
Index Fund.
INCOME EQUITY PORTFOLIO
This Core Portfolio is described in the section of this prospectus describing
Income Equity Fund.
LARGE COMPANY GROWTH PORTFOLIO
This Core Portfolio is described in the section of this prospectus describing
Large Company Growth Fund.
DISCIPLINED GROWTH PORTFOLIO
The Core Portfolio seeks capital appreciation by investing in common stocks of
larger companies. The Core Portfolio seeks higher long-term returns by investing
primarily in the common stock of companies that, in the view of the Adviser,
possess above average potential for growth. The Core Portfolio invests in
companies with average Market Capitalizations greater than $5 billion.
The Core 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 Adviser uses both quantitative and fundamental
analysis and may consider, among other factors, 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 Adviser uses a
variety of valuation measures to determine whether the share price already
reflects any positive fundamentals identified by the Adviser. In addition to
<PAGE>
approximately equal weighting of portfolio securities, the Adviser attempts to
constrain the variability of the investment returns by employing risk control
screens for price volatility, financial quality and valuation.
RISKS:
Leverage risk Market risk
SMALL CAP INDEX PORTFOLIO
The Core Portfolio seeks to replicate the return of the S&P Small Cap 600 Index
with minimum tracking error, while also minimizing transaction costs. Under
normal circumstances, the Core Portfolio will hold stocks representing 100% of
the capitalization-weighted market values of the S&P 600 Small Cap Index. The
Adviser generally executes portfolio transactions only to duplicate the
composition of the S&P 600 Small Cap Index, to invest cash received from
portfolio security dividends or investments in the Core Portfolio, and to raise
cash to fund redemptions. The Fund may hold cash or cash equivalents to
facilitate payment of the Funds expenses or redemptions and may invest in index
futures contracts. For these and other reasons, the Core Portfolio's performance
can be expected to approximate but not equal that of the S&P 600 Small Cap
Index.
The S&P 600 Small Cap Index tracks the total return performance of 600
common stocks which are chosen for inclusion in the S&P 600 Small Cap Index by
S&P on a statistical basis. 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. Each stock in the S&P 600 Small Cap Index is weighted by its market
value. The S&P 600 Small Cap Index emphasizes smaller capitalizations and
typically, companies included in the S&P 600 Small Cap Index may not be the
largest nor most dominant firms in their respective industries.
RISKS:
Leverage risk Market risk
SMALL COMPANY STOCK PORTFOLIO
This Core Portfolio is described in the section of this prospectus describing
Small Company Stock Fund.
SMALL COMPANY GROWTH PORTFOLIO
This Core Portfolio is described in the section of this prospectus describing
Small Company Growth Fund.
SMALL COMPANY VALUE PORTFOLIO
The Core Portfolio seeks to provide long-term capital appreciation by investing
primarily in smaller companies whose Market Capitalization is less than the
largest stock in the Russell 2000 Index. The Adviser focuses on securities that
are conservatively valued in the marketplace relative to the stock of comparable
companies, determined by price/earnings ratios, cash flows or other measures.
Value investing provides investors with a less aggressive way to take advantage
of growth opportunities of small companies. 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.
RISKS:
Leverage risk Small company risk
Market risk
<PAGE>
SMALL CAP VALUE PORTFOLIO.
The Core Portfolio seeks capital appreciation by investing in common stocks of
smaller companies. The Core Portfolio will normally invest substantially all of
its assets in securities of companies with market capitalizations that reflect
the market capitalization of companies included in the Russell 2000 Index. The
Core Portfolio seeks higher growth rates and greater long-term returns by
investing primarily in the common stock of smaller companies that the Adviser
believes to be undervalued and are likely to report a level of corporate
earnings exceeding the level expected by investors. Companies are valued 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 Adviser uses both
quantitative and fundamental analysis. Among other factors, the Adviser
considers changes of earnings estimates by investment analysts, the recent trend
of company earnings reports and the fundamental business outlook for the
company.
RISKS:
Leverage risk Small company risk
Market risk
INTERNATIONAL PORTFOLIO
The Core Portfolio seeks to provide long-term capital appreciation by investing
directly or indirectly in high-quality companies based outside the United
States. The Core Portfolio selects its investments on the basis of their
potential for capital appreciation without regard to current income. The Core
Portfolio may also invest in the securities of domestic closed-end investment
companies that invest primarily in foreign securities. The Core Portfolio's
investments will generally 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, the
Core Portfolio will invest only in securities of companies and governments in
countries that the Adviser, in its judgment, considers both politically and
economically stable. The Fund may concentrate its investments in a particular
country, region or type of investment.
The Core Portfolio may purchase preferred stock and convertible debt
securities, including convertible preferred stock. The Core Portfolio may also
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.
RISKS:
Currency rate risk Leverage risk
Foreign risk Market risk
Geographic concentration risk
SCHRODER EM CORE PORTFOLIO
The Core Portfolio seeks 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 Core Portfolio's objective.
The Core 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
<PAGE>
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 Adviser considers "Emerging market" countries generally to be all
those countries not included in the Morgan Stanley Capital International World
Index ("MSCI World") of major world economies. If, however, the Adviser
determines that the economy of a MSCI World-listed country is an emerging market
economy, the Adviser may include such country in the emerging market category.
The Core 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.
The Fund may invest up to 35% of its total assets in Non-Investment
Grade fixed income securities.
RISKS:
Credit risk Interest rate risk
Currency rate risk Leverage risk
Foreign risk Market risk
Geographic concentration risk Prepayment risk
5. RISK CONSIDERATIONS
The principal risks of the Funds are described below. Each Fund's exposure to
these risks depends upon its specific investment profile. The risks which apply
to each Fund are listed in the Fund's description above in Investment Objectives
and Policies.
CREDIT RISK. The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise be unable to honor a financial obligation.
Non-Investment Grade securities are especially susceptible to this risk.
CURRENCY RATE RISK. The risk that fluctuations in the exchange rates between the
U.S. dollars and foreign currencies may negatively affect an investment.
DIVERSIFICATION RISK. The risk that investments in a comparatively small number
of issuers will increase the potential adverse effects of a decline in the value
of a Fund's investment in any one issuer.
FOREIGN RISK. The risk that foreign issuers may be subject to foreign political
and economic instability, 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 investors' assets.
Investments in issuers located or doing business in emerging or developing
markets are especially susceptible to these risks.
GEOGRAPHIC CONCENTRATION RISK. The risk that if a Fund concentrates its
investments in a single state, country or region, its portfolio will be more
susceptible to factors adversely affecting issuers located in that state,
country or region than would be a more geographically diverse securities
portfolio.
INTEREST RATE RISK. The risk that changing interest rates may affect the value
of your investment. With fixed-rate securities, an increase in interest rates
typically causes the value of the Fund's securities to fall, while a decline in
interest rates may produce an increase in the market value of the securities.
Because of this risk, an investment in a Fund that invests in fixed income
securities is subject to risk even if all the
<PAGE>
fixed income securities in the Fund's portfolio are paid in full at maturity.
Changes in interest rates will affect the value of longer-term fixed income
securities more than shorter-term securities.
LEVERAGE RISK. The risk that some derivative investments, such as forward
commitment transactions, may multiply smaller market movements into large
changes in value.
MARKET RISK. The risk that the market value of a Fund's investments will
fluctuate as the stock and bond markets fluctuate. Market risk may affect a
single issuer, industry or section of the economy or may affect the market as a
whole.
PREPAYMENT RISK. The risk that issuers will prepay fixed rate obligations when
interest rates fall, forcing the Fund to invest in obligations with lower
interest rates than the prepaid obligations.
SMALL COMPANY RISK. The risk that investments in smaller companies may be more
volatile than investments in larger companies. Smaller companies generally
experience higher growth rates and higher failure rates than do larger
companies. The trading volume of the securities of smaller companies is normally
lower than that of larger companies. Short term changes in the demand for the
securities of smaller companies generally has a disproportionate effect on their
market price, tending to make prices rise more in response to buying demand and
fall more in response to selling pressure.
6. COMMON POLICIES
Except as otherwise indicated, investment policies of the Funds are not deemed
to be fundamental and may be changed by the Board without shareholder approval.
UNRATED SECURITIES
Each Fund may retain a security whose rating has been lowered (or a security of
comparable quality to a security 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
In an attempt to respond to adverse market, economic, political, or other
conditions, each Fund may assume a temporary defensive position and invest
without limit in cash and cash equivalents. During periods when and to the
extent that a Fund has assumed a temporary defensive position, it may not be
pursuing its investment objective.
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
From time to time a Fund may engage in active short-term trading to take
advantage of price movements affecting individual issues, groups of issues or
markets. Higher portfolio turnover rates may result in increased brokerage costs
to a Fund or a Core Portfolio and a possible increase in short-term capital
gains or
<PAGE>
losses.
YEAR 2000
The Funds could be adversely affected if the computer systems used by the
Advisers and other service providers to the Funds do not properly process and
calculate date-related information and data from and after January 1, 2000.
Norwest and the Funds' manager are taking steps to address the Year 2000 issue
for their computer systems and to obtain reasonable assurances that comparable
steps are being taken by the Funds' other major service providers. There can be
no assurance that these steps will be sufficient to avoid any adverse impact on
the Funds.
7. MANAGEMENT OF THE FUNDS
INVESTMENT ADVISORY SERVICES
NORWEST INVESTMENT MANAGEMENT, INC. is the investment adviser for each Fund and
each Core Portfolio except the Core Portfolios advised by Schroder. In this
capacity, Norwest makes investment decisions for and administers the Funds' and
Core Portfolios' investment programs. NORWEST INVESTMENT MANAGEMENT, INC.,
NORWEST CENTER, SIXTH STREET AND MARQUETTE, MINNEAPOLIS, MN 55479
SCHRODER CAPITAL MANAGEMENT INTERNATIONAL INC. is the investment adviser for the
Schroder U.S. Smaller Companies Portfolio, Schroder EM Core Portfolio and
International Portfolio. In this capacity, Schroder makes investment decisions
for and administers those Core Portfolios' investment programs. SCHRODER CAPITAL
MANAGEMENT INTERNATIONAL INC., 787 SEVENTH AVENUE, 34TH FLOOR, NEW YORK, NY
10019
Norwest and certain of the Funds and the Core Portfolios have retained
INVESTMENT SUBADVISERS to make investment decisions for and administer the
investment programs of those Funds and Core Portfolios. Norwest decides which
portion of the assets of a Fund or Core Portfolio the subadviser should manage
and supervises the subadvisers' performance of their duties. The subadvisers
are:
CRESTONE CAPITAL MANAGEMENT, INC. ("CRESTONE"), AN INVESTMENT ADVISORY
SUBSIDIARY OF NORWEST BANK, PROVIDES INVESTMENT ADVICE REGARDING COMPANIES WITH
SMALL MARKET CAPITALIZATION TO VARIOUS CLIENTS, INCLUDING INSTITUTIONAL
INVESTORS. CRESTONE CAPITAL MANAGEMENT, INC., 7720 EAST BELLVIEW AVE., SUITE
220, ENGLEWOOD, CO 80111
GALLIARD CAPITAL MANAGEMENT, INC. ("GALLIARD"), AN INVESTMENT ADVISORY
SUBSIDIARY OF NORWEST BANK, PROVIDES INVESTMENT ADVISORY SERVICES TO BANK AND
THRIFT INSTITUTIONS, PENSION AND PROFIT SHARING PLANS, TRUSTS AND CHARITABLE
ORGANIZATIONS AND CORPORATE AND OTHER BUSINESS ENTITIES. GALLIARD CAPITAL
MANAGEMENT, INC., 800 LASALLE AVE. SUITE 2060, MINNEAPOLIS, MN 55479
PEREGRINE CAPITAL MANAGEMENT, INC. ("PEREGRINE"), AN INVESTMENT ADVISORY
SUBSIDIARY OF NORWEST BANK, PROVIDES INVESTMENT ADVISORY SERVICES TO CORPORATE
AND PUBLIC PENSION PLANS, PROFIT SHARING PLANS, SAVINGS-INVESTMENT PLANS AND
401(K) PLANS. PEREGRINE CAPITAL MANAGEMENT, INC., LASALLE PLAZA, 800 LASALLE
AVE., SUITE 1850, MINNEAPOLIS, MN 55402.
SMITH ASSET MANAGEMENT GROUP, L.P. ("SMITH"), AN INVESTMENT ADVISER, AFFILIATED
WITH NORWEST BANK,
<PAGE>
PROVIDES INVESTMENT MANAGEMENT SERVICES TO COMPANY RETIREMENT PLANS,
FOUNDATIONS, ENDOWMENTS, TRUST COMPANIES, AND HIGH NET WORTH INDIVIDUALS USING A
DISCIPLINED EQUITY STYLE. SMITH ASSET MANAGEMENT GROUP, L.P., 500 CRESCENT
COURT, SUITE 250, DALLAS, TX 75201
Listed below, for each Fund, are the portfolio managers primarily
responsible for the day-to-day management of the Fund's investments. The year a
portfolio manager began managing the Fund or Core Portfolio follows the
manager's name in parenthesis. The list includes the investment advisory fees
payable to Norwest or Schroder by the Fund and by any Core Portfolios in which
it invests.
How investment advisory fees are paid depends on whether or not a Fund
invests in Core Portfolios.
If a Fund invests directly in a portfolio of securities, Norwest receives
an investment advisory fee directly from the Fund.
If a Fund invests in a single Core Portfolio, Norwest or Schroder receives
an investment advisory fee from the Core Portfolio.
If a Fund invests in more than one Core Portfolio, Norwest or Schroder
receives an investment advisory fee from each of those Core Portfolios. In
addition, Norwest receives a fee from each Fund, except Cash Investment
Fund, for the "asset allocation services" of determining the Funds'
investments in the Core Portfolios and how much of the Fund's assets to
invest in each Core Portfolio.
If a Fund invests in more than one Core Portfolio, the total
amount of the investment advisory fee paid to Norwest or Schroder as a result of
the Fund's investments varies depending on how much of the Fund's assets are
invested in and the investment advisory fee payable to each Core Portfolio.
Norwest (and not the Funds or Core Portfolios) pays the
subadvisers' investment subadvisory fees. The investment subadvisory fees do not
increase the amount of the investment advisory fees paid to Norwest by the Funds
or Core Portfolios.
MONEY MARKET FUNDS
CASH INVESTMENT FUND
CORE PORTFOLIO: PRIME MONEY MARKET PORTFOLIO INVESTMENT ADVISER: NORWEST
PORTFOLIO MANAGERS: David D. Sylvester (19__), Laurie R. White (19__) and Robert
G. Leuty (1998). Mr. Sylvester has been associated with Norwest and Norwest Bank
since 1979, and currently is a Managing Director Reserve Asset Management. He
has over 20 years' experience in managing securities portfolios. Ms. White is
the Director-Reserve Asset Management and has been associated with Norwest or
Norwest Bank since 1991; from 1989 to 1991, she was a Portfolio Manager at
Richfield Bank and Trust. Mr. Leuty has been associated with Norwest or Norwest
Bank since 1992 and has been associated in various investment management
capacities since 1993 and in his present capacity of Senior Portfolio Manager
since 1998. Prior to 1992 he was an In-Charge Accountant with Price Waterhouse.
ADVISORY FEE: 0.40% annually of the Core Portfolio's first $300 million of
average daily net assets; 0.36% annually for the next $400 million of average
daily net assets; and 0.32% annually for the
<PAGE>
remaining average daily net assets.
CORE PORTFOLIO: MONEY MARKET PORTFOLIO INVESTMENT ADVISER: NORWEST PORTFOLIO
MANAGERS: David D. Sylvester (19__), Laurie R. White (19__) and Robert G. Leuty
(1998) are described above under Prime Money Market Portfolio.
ADVISORY FEE: 0.20% annually of the Core Portfolio's first $300 million of
average daily net assets; 0.16% annually of the next $400 million of average
daily net assets; and 0.12% of the remaining average daily net assets.
READY CASH INVESTMENT FUND
CORE PORTFOLIO: PRIME MONEY MARKET PORTFOLIO
INVESTMENT ADVISOR: NORWEST
PORTFOLIO MANAGERS: David D. Sylvester (19__), Laurie R. White (19__) and Robert
G. Leuty (19__) are described above under Cash Investment Fund.
ADVISORY FEE: 0.40% annually of the Core Portfolio's first $300
million of average daily net assets; 0.36% annually of the next $400 million of
average daily net assets; and 0.32% annually of the remaining average daily net
assets.
TREASURY PLUS FUND
INVESTMENT ADVISER: NORWEST
PORTFOLIO MANAGERS: David D. Sylvester (1998), Laurie R. White (1998) and Robert
G. Leuty (1998) are described above under Cash Investment Fund.
ADVISORY FEE: 0.20% annually of the Fund's first $300 million of average daily
net assets; 0.16% annually of the next $400 million of average daily assets; and
0.12% annually of the remaining average daily net assets.
U. S. GOVERNMENT FUND
TREASURY FUND
INVESTMENT ADVISER: NORWEST
PORTFOLIO MANAGERS: David D. Sylvester (19__), Laurie R. White (19__) and Robert
G. Leuty (1998) are described above under Cash Investment Fund.
ADVISORY FEE: for each Fund: 0.20% annually of the Fund's first $300 million of
average daily net assets; 0.16% annually of the next $400 million of average
daily assets; and 0.12% annually of the remaining average daily net assets.
MUNICIPAL MONEY MARKET FUND
INVESTMENT ADVISER: NORWEST
PORTFOLIO MANAGER: David D. Sylvester (19__), Laurie R. White (19__) and Robert
G. Leuty (1998) are described above under Cash Investment Fund.
ADVISORY FEE: 0.35% annually of the Core Portfolio's first $500 million of
average daily net assets; 0.325% annually of the next $500 million of average
daily net assets; and 0.30% annually of the
<PAGE>
remaining average daily net assets.
FIXED INCOME FUNDS
STABLE INCOME FUND
CORE PORTFOLIO: STABLE INCOME PORTFOLIO
INVESTMENT SUBADVISER: GALLIARD
PORTFOLIO MANAGER: Karl P. Tourville (19__) and John Huber (1998). Mr. Tourville
has been a managing partner of Galliard since 1995 and associated with Norwest
and its affiliates since 1986, most recently as Vice President and Senior
Portfolio Manager of Norwest Bank. Mr. Huber has been a Portfolio Manager and
Director of Trading at Galliard since 1995 and has been in investment management
since 1991.
ADVISORY FEE: 0.30% annually of the Core Portfolio's average daily net assets.
LIMITED TERM GOVERNMENT INCOME FUND
INTERMEDIATE GOVERNMENT INCOME FUND
INVESTMENT ADVISER: NORWEST
PORTFOLIO MANAGER: Marjorie H. Grace, CFA (19__) is a Director, Taxable Fixed
Income. Ms. Grace has been associated with Norwest or Norwest Bank since 1992.
Before, she was an Institutional Salesperson at Norwest Investment Services,
Inc. from 1991-92; a portfolio manager at United Bank of Colorado from 1989-91;
and a Vice President and portfolio manager at Columbia Savings and Loan from
1987-89.
ADVISORY FEE: 0.33% annually of each Fund's average daily net assets.
DIVERSIFIED BOND FUND
FUND INVESTMENT ADVISER: NORWEST
FUND ADVISORY FEE: 0.25% annually of the Fund's average daily net assets.
CORE PORTFOLIO: POSITIVE RETURN BOND PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: PEREGRINE
PORTFOLIO MANAGER: William D. Giese, CFA (19__) and Patricia Burns (1998). Mr.
Giese, a Senior Vice President of Peregrine, has been a portfolio manager at
Peregrine for more than ten years and has more than 20 years' experience in
fixed income securities management. Ms. Burns, a Senior Vice-President of
Peregrine, has been a portfolio manager at Peregrine for more than ten years.
She has been associated with Norwest since 1983.
ADVISORY FEE: 0.35% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: STRATEGIC VALUE BOND PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: GALLIARD
PORTFOLIO MANAGERS: Richard Merriam, CFA (19__), John Huber (19__) and David Yim
(19__). Mr.
<PAGE>
Merriam, a managing partner of Galliard since 1995, is responsible for
investment process and strategy. He was previously Chief Investment Officer of
Insight Investment Management. Before, he was the Senior Vice President of
Washington Square Capital Management. Mr. Huber is described above under Stable
Income Fund. Mr. Yim, Portfolio Manager and Director of Investment Research
since 1995, previously worked for six years for American Express Financial
Advisors as a Research Analyst focusing on the insurance and finance industries.
ADVISORY FEE: 0.50% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: MANAGED FIXED INCOME PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: GALLIARD
PORTFOLIO MANAGER: Richard Merriam, CFA (19__) and Ajay Mirza (1998). Mr.
Merriam is described above under Strategic Value Bond Portfolio. Mr. Mirza has
been a Portfolio Manager and Mortgage Specialist with Galliard since 1995. He
also has experience as a research analyst at Insight Investment Management and
Lehman Brothers.
ADVISORY FEE: 0.35% annually of the Core Portfolio's average daily net assets.
INCOME FUND
INVESTMENT ADVISER: NORWEST
PORTFOLIO MANAGER: Marjorie H. Grace, CFA (19__)is described above under Limited
Term Government Income Fund.
ADVISORY FEE: 0.50% annually of each Fund's average daily net assets.
TOTAL RETURN BOND FUND
CORE PORTFOLIO: STRATEGIC VALUE BOND PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: GALLIARD
PORTFOLIO MANAGERS: Richard Merriam, CFA (19__), John Huber (19__) and David Yim
(19__). Mr. Merriam and Mr. Yim are described above under Diversified Bond Fund.
Mr. Huber is described above under Stable Income Fund.
ADVISORY FEE: 0.50% annually of the Core Portfolio's average daily net assets.
TAX-FREE FIXED INCOME FUNDS
LIMITED TERM TAX-FREE FUND
TAX-FREE INCOME FUND
INVESTMENT ADVISER: NORWEST
PORTFOLIO MANAGER: William T. Jackson, CFA (19__), Vice President of
Norwest since 1993, was previously a Senior Vice President and Institutional
Sales Manager at Norwest Investment Services (1992-93), a Vice President and
Municipal Bond Trading Manager (1991-92); and a Vice President and Municipal
Bond Trader with Kemper Securities, Inc. (1984-91).
ADVISORY FEE: for each Fund: 0.50% annually of the Fund's average daily net
assets.
<PAGE>
COLORADO TAX-FREE FUND
INVESTMENT ADVISER: NORWEST
PORTFOLIO MANAGER: William T. Jackson, CFA (19__) is described above under
Limited Term Tax-Free Fund.
ADVISORY FEE: 0.50% annually of the Fund's first $300 million of average daily
net assets; 0.46% annually of the next $400 million of average daily net assets;
and 0.42% annually of the remaining average daily net assets.
MINNESOTA INTERMEDIATE TAX-FREE FUND
MINNESOTA TAX-FREE FUND
INVESTMENT ADVISER: NORWEST
PORTFOLIO MANAGER: Patricia D. Hovanetz, CFA (1991), a Director-Tax-Exempt Fixed
Income, has been associated with Norwest or Norwest Bank 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.
ADVISORY FEE: MINNESOTA INTERMEDIATE TAX-FREE FUND: 0.25% ANNUALLY OF THE FUND'S
AVERAGE DAILY NET ASSETS MINNESOTA TAX-FREE FUND: 0.50% annually of the Fund's
first $300 million of average daily net assets; and 0.46% annually of the next
$400 million of average daily net assets; and 0.42% annually of the remaining
average daily net assets.
BALANCED FUNDS
STRATEGIC INCOME FUND
FUND INVESTMENT ADVISER: NORWEST
FUND ADVISORY FEE: 0.25% annually of the Fund's average daily net assets.
CORE PORTFOLIO: POSITIVE RETURN BOND PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: PEREGRINE
PORTFOLIO MANAGERS: William D. Giese, CFA (19__) and Patricia Burns (1998) are
described above under Diversified Bond Fund.
ADVISORY FEE: 0.35% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: STRATEGIC VALUE BOND PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: GALLIARD
PORTFOLIO MANAGERS: Richard Merriam, CFA (19__), John Huber (19__) and David Yim
(19__). Mr. Merriam and Mr. Yim are described above under Diversified Bond Fund.
Mr. Huber is described above under Stable Income Fund.
ADVISORY FEE: 0.50% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: MANAGED FIXED INCOME PORTFOLIO
INVESTMENT ADVISER: NORWEST
<PAGE>
INVESTMENT SUBADVISER: GALLIARD
PORTFOLIO MANAGER: Richard Merriam, CFA (19__) and Ajay Mirza (1998). Mr.
Merriam and Mr. Mirza are described above under Diversified Bond Fund.
ADVISORY FEE: 0.35% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: STABLE INCOME PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: GALLIARD.
PORTFOLIO MANAGER: Karl P. Tourville (19__) is described above under Stable
Income Fund.
ADVISORY FEE: 0.30% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: MONEY MARKET PORTFOLIO
INVESTMENT ADVISER: NORWEST
PORTFOLIO MANAGERS: David D. Sylvester (19__), Laurie R. White (19__) and Robert
G. Leuty (19__) are described above under Cash Investment Fund.
ADVISORY FEES: 0.20% annually of the Core Portfolio's first $300 million of
average daily net assets; 0.16% annually of the next $400 million of average
daily net assets; and 0.12% for the remaining average daily net assets.
CORE PORTFOLIO: INDEX PORTFOLIO
INVESTMENT ADVISER: NORWEST
PORTFOLIO MANAGER: David D. Sylvester (19__) and Laurie R. White (19__) are
described above under Cash Investment Fund.
ADVISORY FEE: 0.15% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: INCOME EQUITY PORTFOLIO
INVESTMENT ADVISER: NORWEST
PORTFOLIO MANAGER: David L. Roberts, CFA (19__) a Managing Director, Equities of
Norwest, has been associated with Norwest and its affiliates for over 20 years
in various investment related capacities.
ADVISORY FEE: 0.50% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: LARGE COMPANY GROWTH PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: PEREGRINE
PORTFOLIO MANAGER: John S. Dale, CFA (19__) and Gary E. Nussbaum, CFA (1998).
Mr. Dale, a Senior Vice President of Peregrine, has held various investment
management positions with Norwest, Peregrine and their affiliates since 1968.
Mr. Nussbaum, a Senior Vice President of Peregrine, has been associated with
Peregrine in various investment management positions since 1990. Mr. Nussbaum
was an analyst with Shawmut National Bank from 1988-1990.
ADVISORY FEE: 0.65% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIOS: DISCIPLINED GROWTH PORTFOLIO
SMALL CAP VALUE PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: SMITH
PORTFOLIO MANAGER: Stephen S. Smith, CFA (199_), Chief Investment
Officer and principal of the Smith Group, has held these positions since
November 1995. Mr. Smith previously served as senior portfolio manager with
NationsBank, managing approximately $1 billion in client assets. He also held
positions as manager of the institutional asset management group, manager of the
disciplined equity style,
<PAGE>
member of the Investment Policy Committee and sub-adviser for a portfolio of AIM
Management Company's Summit Fund.
ADVISORY FEE:
DISCIPLINED GROWTH PORTFOLIO: 0.90% ANNUALLY OF THE CORE PORTFOLIO'S AVERAGE
DAILY NET ASSETS. SMALL CAP VALUE PORTFOLIO: 0.95% ANNUALLY OF THE CORE
PORTFOLIO'S AVERAGE DAILY NET ASSETS.
CORE PORTFOLIO: SMALL CAP INDEX PORTFOLIO
INVESTMENT ADVISER: NORWEST
PORTFOLIO MANAGER: David D. Sylvester (19__) and Laurie R. White (19__) are
described above under Cash Investment Fund.
ADVISORY FEE: 0.25% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: SMALL COMPANY GROWTH PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: PEREGRINE
PORTFOLIO MANAGERS: Robert B. Mersky, CFA (19__), and Paul E. von Kuster, CFA
(19__). Mr. Mersky, the President of Peregrine, has held various investment
management positions with Norwest, Peregrine and their affiliates since 1977 and
was head of investments for Norwest Bank from 1980 to 1984. Mr. von Kuster, a
Senior Vice President of Peregrine, has held various investment management
positions with Peregrine, Norwest and their affiliates since 1972.
ADVISORY FEE: 0.90% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: SMALL COMPANY VALUE PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: PEREGRINE
PORTFOLIO MANAGERS: Tasso H. Coin, Jr. (19__) and Douglas G. Pugh, CFA (1998)
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. Before joining
Peregrine, he was associated with Morgan Stanley Asset Management. Mr. Pugh, a
Senior Vice President of Peregrine, has been associated with Peregrine since
December 1997. Before joining Peregrine, Mr. Pugh was a senior equity analyst
and portfolio manager for Advantus Capital Management from 1994-1997 and an
analyst with Kemper Corporation from 1991-1994.
ADVISORY FEE: 0.90% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: SMALL COMPANY STOCK PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: CRESTONE
PORTFOLIO MANAGER: Kirk McCown, CFA (19__) is the founder, President and a
Director of Crestone, which was incorporated in 1990.
ADVISORY FEE: 0.90%
annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: INTERNATIONAL PORTFOLIO
INVESTMENT ADVISER: SCHRODER
PORTFOLIO MANAGER: Michael Perelstein (1997) has been a Senior Vice President of
Schroder since January 1997. With the assistance of a Schroder investment
committee, he is primarily responsible for the day-to day management of the Core
Portfolio's investments. Previously Mr. Perelstein was a Managing Director at
MacKay Shields. He has more than 12 years of international and global investment
experience.
ADVISORY FEE: 0.45% annually of the Core Portfolio's average daily net assets.
<PAGE>
CORE PORTFOLIO: SCHRODER EM CORE PORTFOLIO
INVESTMENT ADVISER: SCHRODER
PORTFOLIO MANAGER: John A. Troiano (1997), assisted by the management team of
Heather Crighton (1997) and Mark Bridgeman (1997). 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 affiliated
companies in the investment research and portfolio management areas since 1981.
Ms. Crighton and Mr. Bridgeman are Vice Presidents of Schroder and have been
employed by various Schroder affiliated companies in the investment research and
portfolio management areas since 1992 and 1990, respectively.
ADVISORY FEE: 1.00% annually of the Core Portfolio's average daily net assets.
MODERATE BALANCED FUND
FUND INVESTMENT ADVISER: NORWEST
FUND ADVISORY FEE: 0.25% annually of the Fund's average daily net assets.
CORE PORTFOLIO: POSITIVE RETURN BOND PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: PEREGRINE
PORTFOLIO MANAGER: William D. Geise, CFA (19__) and Patricia Burns (1998) are
described above under Diversified Bond Fund.
ADVISORY FEE: 0.35% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: STRATEGIC VALUE BOND PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: GALLIARD
PORTFOLIO MANAGERS: Richard Merriam, CFA (19__), John Huber (19__) and David Yim
(19__). Mr. Merriam and Mr. Yim are described above under Diversified Bond Fund.
Mr. Huber is described above under Stable Income Fund.
ADVISORY FEE: 0.50% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: MANAGED FIXED INCOME PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: GALLIARD
PORTFOLIO MANAGER: Richard Merriam, CFA (19__) and Ajay Mirza (19__) are
described above under Diversified Bond Fund.
ADVISORY FEE: 0.35% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: STABLE INCOME PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: GALLIARD.
PORTFOLIO MANAGER: Karl P. Tourville (19__) is described above under Stable
Income Fund.
ADVISORY FEE: 0.30% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: INDEX PORTFOLIO
INVESTMENT ADVISER: NORWEST
<PAGE>
PORTFOLIO MANAGER: David D. Sylvester (19__) and Laurie R. White (19__) are
described above under Cash Investment Fund.
ADVISORY FEE: 0.15% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: INCOME EQUITY PORTFOLIO
INVESTMENT ADVISER: NORWEST
PORTFOLIO MANAGER: David L. Roberts, CFA (19__) is described above under
Strategic Income Fund.
ADVISORY FEE: 0.50% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: LARGE COMPANY GROWTH PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: PEREGRINE
PORTFOLIO MANAGER: John S. Dale, CFA (19__) and Gary E. Nussbaum, CFA (19__) are
described above under Strategic Income Fund.
ADVISORY FEE: 0.65% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIOS: DISCIPLINED GROWTH PORTFOLIO
SMALL CAP VALUE PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: SMITH
PORTFOLIO MANAGER: Stephen S. Smith, CFA (199_) is described above under
Strategic Income Fund.
ADVISORY FEE:
DISCIPLINED GROWTH PORTFOLIO: 0.90% annually of the Core Portfolio's average
daily net assets.
SMALL CAP VALUE PORTFOLIO: 0.95% annually of the Core Portfolio's average daily
net assets.
CORE PORTFOLIO: SMALL CAP INDEX PORTFOLIO
INVESTMENT ADVISER: NORWEST
PORTFOLIO MANAGER: David D. Sylvester (19__) and Laurie R. White (19__) are
described above under Cash Investment Fund.
ADVISORY FEE: 0.25% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: SMALL COMPANY GROWTH PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: PEREGRINE
PORTFOLIO MANAGERS: Robert B. Mersky, CFA (19__), and Paul E. von Kuster, CFA
(19__) are described above under Strategic Income Fund.
ADVISORY FEE: 0.90% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: SMALL COMPANY VALUE PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: PEREGRINE
PORTFOLIO MANAGERS: Tasso H. Coin, Jr. (19__) and Douglas G. Pugh (19__) are
described under Strategic Income Fund.
ADVISORY FEE: 0.90% annually of the Core
Portfolio's average daily net assets.
CORE PORTFOLIO: SMALL COMPANY STOCK PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: CRESTONE
PORTFOLIO MANAGER: Kirk McCown, CFA (19__) is described above under Strategic
Income Fund.
<PAGE>
ADVISORY FEE: 0.90% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: INTERNATIONAL PORTFOLIO
INVESTMENT ADVISER: SCHRODER
PORTFOLIO MANAGER: Michael Perelstein (1997) is described above under Strategic
Income Fund.
ADVISORY FEE: 0.45% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: SCHRODER EM CORE PORTFOLIO
INVESTMENT ADVISER: SCHRODER
PORTFOLIO MANAGER: John A. Troiano (1997), Heather Crighton (1997) and Mark
Bridgeman (1997) are described above under Strategic Income Fund.
ADVISORY FEE: 1.00% annually of the Core Portfolio's average daily net assets.
GROWTH BALANCED FUND
AGGRESSIVE BALANCED-EQUITY FUND
FUND INVESTMENT ADVISER: NORWEST
FUND ADVISORY FEE: 0.25% annually of the Fund's average daily net assets.
CORE PORTFOLIO: INDEX PORTFOLIO
INVESTMENT ADVISER: NORWEST
PORTFOLIO MANAGER: David D. Sylvester (19__) and Laurie R. White (19__) are
described above under Cash Investment Fund.
ADVISORY FEE: 0.15% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: INCOME EQUITY PORTFOLIO
INVESTMENT ADVISER: NORWEST
PORTFOLIO MANAGER: David L. Roberts, CFA (19__) is described above under
Strategic Income Fund.
ADVISORY FEE: 0.50% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: LARGE COMPANY GROWTH PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: PEREGRINE
PORTFOLIO MANAGER: John S. Dale, CFA (19__) and Gary E. Nussbaum, CFA (19__) are
described above under Strategic Income Fund.
ADVISORY FEE: 0.65% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIOS: DISCIPLINED GROWTH PORTFOLIO
SMALL CAP VALUE PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: SMITH
PORTFOLIO MANAGER: Stephen S. Smith (199_) is described above under Strategic
Income Fund.
ADVISORY FEE:
DISCIPLINED GROWTH PORTFOLIO: 0.90% annually of the Core Portfolio's average
daily net assets.
SMALL CAP VALUE PORTFOLIO: 0.95% annually of the Core
Portfolio's average daily net assets.
CORE PORTFOLIO: SMALL CAP INDEX PORTFOLIO
<PAGE>
INVESTMENT ADVISER: NORWEST
PORTFOLIO MANAGER: David D. Sylvester (19__) and Laurie R. White (19__) are
described above under Cash Investment Fund.
ADVISORY FEE: 0.25% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: SMALL COMPANY GROWTH PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: PEREGRINE
PORTFOLIO MANAGERS: Robert B. Mersky, CFA (19__) and Paul E. von Kuster, CFA
(19__) are described above under Strategic Income Fund.
ADVISORY FEE: 0.90% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: SMALL COMPANY VALUE PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: PEREGRINE
PORTFOLIO MANAGERS: Tasso H. Coin, Jr. (19__) and Douglas G. Pugh (19__) are
described above under Strategic Income Fund.
ADVISORY FEE: 0.90% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: SMALL COMPANY STOCK PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: CRESTONE
PORTFOLIO MANAGER: Kirk McCown, CFA (19__) is described above under Strategic
Income Fund.
ADVISORY FEE: 0.90% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: INTERNATIONAL PORTFOLIO
INVESTMENT ADVISER: SCHRODER
PORTFOLIO MANAGER: Michael Perelstein (1997) is described above under Strategic
Income Fund.
ADVISORY FEE: 0.45% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: SCHRODER EM CORE PORTFOLIO
INVESTMENT ADVISER: SCHRODER
PORTFOLIO MANAGER: John A. Troiano (1997), Heather Crighton (1997) and Mark
Bridgeman (1997) are described above under Strategic Income Fund.
ADVISORY FEE: 1.00% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: POSITIVE RETURN BOND PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: PEREGRINE
PORTFOLIO MANAGER: William D. Geise, CFA (19__) and Patricia Burns (1998) are
described above under Diversified Bond Fund.
ADVISORY FEE: 0.35% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: STRATEGIC VALUE BOND PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: GALLIARD
PORTFOLIO MANAGERS: Richard Merriam, CFA (19__), John Huber (19__) and David Yim
(19__). Mr. Merriam and Mr. Yim are described above under Diversified Bond Fund.
Mr. Huber is described above under Stable Income Fund.
<PAGE>
ADVISORY FEE: 0.50% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: MANAGED FIXED INCOME PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: GALLIARD
PORTFOLIO MANAGER: Richard Merriam, CFA (19__) and Ajay Mirza (1998) are
described above under Diversified Bond Fund.
ADVISORY FEE: 0.35% annually of the Core Portfolio's average daily net assets.
EQUITY FUNDS
INDEX FUND
CORE PORTFOLIO: INDEX PORTFOLIO
INVESTMENT ADVISER: NORWEST
PORTFOLIO MANAGER: David D. Sylvester (19__) and Laurie R. White (19__) are
described above under Cash Investment Fund.
ADVISORY FEE: 0.15% annually of the Core Portfolio's average daily net assets.
INCOME EQUITY FUND
CORE PORTFOLIO: INCOME EQUITY PORTFOLIO
INVESTMENT ADVISER: NORWEST
PORTFOLIO MANAGER: David L. Roberts, CFA (19__) is described above under
Strategic Income Fund.
ADVISORY FEE: 0.50% annually of the Core Portfolio's average daily net assets.
VALUGROWTH STOCK FUND
INVESTMENT ADVISER: NORWEST
PORTFOLIO MANAGER: David S. Lunt, CFA (1996), a Managing Director, Equities, has
been associated with Norwest and its affiliates since 1992. Previously Mr. Lunt
was a portfolio manager for FirsTier Bank and a securities analyst for Woodmen
Accident and Life Company.
ADVISORY FEE: 0.80% annually of the Fund's first $300 million of average daily
net assets; 0.76% annually of the next $400 million of average daily net assets;
0.72% annually of the remaining average daily net assets.
DIVERSIFIED EQUITY FUND
FUND INVESTMENT ADVISER: NORWEST
FUND ADVISORY FEE: 0.25% annually of the Fund's average daily net assets.
CORE PORTFOLIO: INDEX PORTFOLIO
INVESTMENT ADVISER: NORWEST
PORTFOLIO MANAGER: David D. Sylvester (19__) and Laurie R. White (19__) are
described above under
<PAGE>
CASH INVESTMENT FUND.
ADVISORY FEE: 0.15% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: INCOME EQUITY PORTFOLIO
INVESTMENT ADVISER: NORWEST
PORTFOLIO MANAGER: David L. Roberts, CFA (19__) is described above under
Strategic Income Fund.
ADVISORY FEE: 0.50% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: LARGE COMPANY GROWTH PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: PEREGRINE
PORTFOLIO MANAGER: John S. Dale, CFA (19__) and Gary E. Nussbaum, CFA (19__) are
described above under Strategic Income Fund.
ADVISORY FEE: 0.65% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIOS: DISCIPLINED GROWTH PORTFOLIO
SMALL CAP VALUE PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: SMITH
PORTFOLIO MANAGER: Stephen S. Smith (199_) is described above under Strategic
Income Fund.
ADVISORY FEE:
DISCIPLINED GROWTH PORTFOLIO: 0.90% annually of the Core Portfolio's average
daily net assets.
SMALL CAP VALUE PORTFOLIO: 0.95% annually of the Core Portfolio's average daily
net assets.
CORE PORTFOLIO: SMALL CAP INDEX PORTFOLIO
INVESTMENT ADVISER: NORWEST
PORTFOLIO MANAGER: David D. Sylvester (19__) and Laurie R. White (19__) are
described above under Cash Investment Fund.
ADVISORY FEE: 0.25% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: SMALL COMPANY GROWTH PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: PEREGRINE
PORTFOLIO MANAGERS: Robert B. Mersky, CFA (19__) and Paul E. von Kuster, CFA
(19__) are described above under Strategic Income Fund.
ADVISORY FEE: 0.90% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: SMALL COMPANY VALUE PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: PEREGRINE
PORTFOLIO MANAGERS: Tasso H. Coin, Jr. (19__) and Douglas G. Pugh (19__) are
described above under Strategic Income Fund.
ADVISORY FEE: 0.90% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: SMALL COMPANY STOCK PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: CRESTONE
PORTFOLIO MANAGER: Kirk McCown, CFA (19__) is described above under Strategic
Income Fund.
ADVISORY FEE: 0.90% annually of the Core Portfolio's average daily net assets.
<PAGE>
CORE PORTFOLIO: INTERNATIONAL PORTFOLIO
INVESTMENT ADVISER: SCHRODER
PORTFOLIO MANAGER: Michael Perelstein (1997) is described above under Strategic
Income Fund.
ADVISORY FEE: 0.45% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: SCHRODER EM CORE PORTFOLIO
INVESTMENT ADVISER: SCHRODER
PORTFOLIO MANAGER: John A. Troiano (1997), Heather Crighton (1997) and Mark
Bridgeman (1997) are described above under Strategic Income Fund.
ADVISORY FEE: 1.00% annually of the Core Portfolio's average daily net assets.
GROWTH EQUITY FUND
FUND INVESTMENT ADVISER: NORWEST FUND ADVISORY FEE: 0.25% annually of the Fund's
average daily net assets.
CORE PORTFOLIO: LARGE COMPANY GROWTH PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: PEREGRINE
PORTFOLIO MANAGER: John S. Dale, CFA (19__) and Gary E. Nussbaum, CFA (19__) are
described above under Strategic Income Fund.
ADVISORY FEE: 0.65% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIOS: SMALL CAP VALUE PORTFOLIO
SMALL CAP VALUE PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: SMITH
PORTFOLIO MANAGER: Stephen S. Smith, CFA (199_) is described above under
Strategic Income Fund.
ADVISORY FEE: 0.95% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: SMALL CAP INDEX PORTFOLIO
INVESTMENT ADVISER: NORWEST
PORTFOLIO MANAGER: David D. Sylvester (19__) and Laurie R. White (19__) are
described above under Cash Investment Fund.
ADVISORY FEE: 0.25% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: SMALL COMPANY GROWTH PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: PEREGRINE
PORTFOLIO MANAGERS: Robert B. Mersky, CFA (19__) and Paul E. von Kuster, CFA
(19__) are described above under Strategic Income Fund.
ADVISORY FEE: 0.90% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: SMALL COMPANY VALUE PORTFOLIO
<PAGE>
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: PEREGRINE
PORTFOLIO MANAGERS: Tasso H. Coin, Jr. (19__) and Douglas G. Pugh (19__) are
described above under Strategic Income Fund.
ADVISORY FEE: 0.90% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: SMALL COMPANY STOCK PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: CRESTONE
PORTFOLIO MANAGER: Kirk McCown, CFA (19__) is described above under Strategic
Income Fund.
ADVISORY FEE: 0.90% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: INTERNATIONAL PORTFOLIO
INVESTMENT ADVISER: SCHRODER
PORTFOLIO MANAGER: Michael Perelstein (1997) is described above under Strategic
Income Fund.
ADVISORY FEE: 0.45% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: SCHRODER EM CORE PORTFOLIO
INVESTMENT ADVISER: SCHRODER
PORTFOLIO MANAGER: John A. Troiano (1997), Heather Crighton (1997) and Mark
Bridgeman (1997) are described above under Strategic Income Fund.
ADVISORY FEE: 1.00% annually of the Core Portfolio's average daily net assets.
LARGE COMPANY GROWTH FUND
CORE PORTFOLIO: LARGE COMPANY GROWTH PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: PEREGRINE
PORTFOLIO MANAGER: John S. Dale, CFA (19__) and Gary E. Nussbaum, CFA (19__) are
described above under Strategic Income Fund.
ADVISORY FEE: 0.65% annually of the Core Portfolio's average daily net assets.
DIVERSIFIED SMALL CAP FUND
FUND INVESTMENT ADVISER: NORWEST
FUND ADVISORY FEE: 0.25% annually of the Fund's average daily net assets.
CORE PORTFOLIO: SMALL CAP INDEX PORTFOLIO
INVESTMENT ADVISER: NORWEST
PORTFOLIO MANAGER: David D. Sylvester (19__) and Laurie R. White (19__) are
described above under Cash Investment Fund.
ADVISORY FEE: 0.25% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: SMALL COMPANY GROWTH PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: PEREGRINE
<PAGE>
PORTFOLIO MANAGERS: Robert B. Mersky, CFA (19__) and Paul von Kuster, CFA (19__)
are described above under Strategic Income Fund.
ADVISORY FEE: 0.90% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: SMALL COMPANY VALUE PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: PEREGRINE
PORTFOLIO MANAGERS: Tasso H. Coin, Jr. (19__) and Douglas G. Pugh (19__) are
described above under Strategic Income Fund.
ADVISORY FEE: 0.90% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: SMALL COMPANY STOCK PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: CRESTONE
PORTFOLIO MANAGER: Kirk McCown, CFA (19__) is described above under Strategic
Income Fund.
ADVISORY FEE: 0.90% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIOS: SMALL CAP VALUE PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: SMITH
PORTFOLIO MANAGER: Stephen S. Smith, CFA (199_) is described above under
Strategic Income Fund.
ADVISORY FEE:
DISCIPLINED GROWTH PORTFOLIO: 0.90% annually of the Core Portfolio's average
daily net assets.
SMALL CAP VALUE PORTFOLIO: 0.95% annually of the Core Portfolio's average daily
net assets.
SMALL COMPANY STOCK FUND
CORE PORTFOLIO: SMALL COMPANY STOCK PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: CRESTONE
PORTFOLIO MANAGER: Kirk McCown, CFA (19__) is described above under Strategic
Income Fund.
ADVISORY FEE: 0.90% annually of the Core Portfolio's average daily net assets.
SMALL CAP OPPORTUNITIES FUND
CORE PORTFOLIO: SCHRODER U.S. SMALLER COMPANIES PORTFOLIO
INVESTMENT ADVISER: SCHRODER
PORTFOLIO MANAGER: Ms. Fariba Talebi (19__), a Group Vice President of Schroder,
is assisted by a small cap investment team. Ms. Talebi has served in Schroder's
investment research and portfolio management areas since 1987.
ADVISORY FEE: 0.60% annually of the Core Portfolio's average daily net assets.
SMALL COMPANY GROWTH FUND
CORE PORTFOLIO: SMALL COMPANY GROWTH PORTFOLIO
<PAGE>
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: PEREGRINE
PORTFOLIO MANAGERS: Robert B. Mersky, CFA (19__) and Paul E. von Kuster, CFA
(19__) are described above under Strategic Income Fund.
ADVISORY FEE: 0.90% annually of the Core Portfolio's average daily net assets.
INTERNATIONAL FUND
FUND INVESTMENT ADVISER: NORWEST
FUND ADVISORY FEE: 0.25% annually of the Fund's average daily net assets.
CORE PORTFOLIO: INTERNATIONAL PORTFOLIO
INVESTMENT ADVISER: SCHRODER
PORTFOLIO MANAGER: Michael Perelstein (1997) is described under Strategic Income
Fund.
ADVISORY FEE: 0.45% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: SCHRODER EM CORE PORTFOLIO
INVESTMENT ADVISER: SCHRODER
PORTFOLIO MANAGER: John A. Troiano (1997), Heather Crighton (1997) and Mark
Bridgeman (1997) are described above under Strategic Income Fund.
ADVISORY FEE: 1.00% annually of the Core Portfolio's average daily net assets.
DORMANT INVESTMENT ADVISORY ARRANGEMENTS
Norwest has been retained as a "dormant" or "back-up" investment adviser to
manage any assets redeemed and invested directly by a Fund that invests in one
or more Core Portfolios. Norwest does not receive any compensation under this
arrangement as long as a Fund invests entirely in Core Portfolios. If a Fund
redeems assets from a Core Portfolio and invests them directly, Norwest receives
an investment advisory fee from the Fund for the management of those assets.
8. PURCHASES AND REDEMPTIONS OF SHARES
You may purchase or redeem shares at a price equal to their net asset value next
determined after acceptance of an order, or receipt of a redemption request, on
"Fund Business Days." Fund Business Days are all weekdays except generally
observed 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.
GENERAL PURCHASE INFORMATION
You may purchase shares directly or through a financial institution. The Funds'
transfer agent processes all transactions in Fund shares.
You may purchase and redeem Fund shares without a sales or redemption
charge. I Shares and Investor Shares require a minimum initial investment of
$1,000 and a minimum subsequent investments of
<PAGE>
$100. Institutional Shares require a minimum initial investment of $100,000 and
have no minimum for subsequent investments.
If you purchase Money Market Fund shares, your shares will become
eligible to receive dividends on the day that an order is accepted. If you
purchase shares of any other type of Fund, your shares will become eligible to
receive dividends the Fund Business Day after a purchase order is accepted.
The Funds reserve the right to reject any subscription for
the purchase of shares. You will receive share certificates for your shares only
if you request them in writing. No certificates are issued for fractional
shares.
If you purchase Money Market Fund shares, your order will not
be accepted or invested by a Fund until the Fund receives immediately available
funds. Norwest Advantage Funds may accept purchase and redemption orders for
Money Market Funds only until the times indicated below. (Times indicated are
Eastern Time.)
Order Must Be Payment Must Be
Money Market Fund Received By Received By
------------------- -------------- --------------
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 3:00 p.m. 4:00 p.m.
Treasury Plus Fund 5:00 p.m. 5:00 p.m.
Treasury Fund 1:00 p.m. 4:00 p.m.
Municipal Money Market Fund 12:00 p.m. 4:00 p.m.
The Money Market Funds may advance the time by which
purchase or redemption orders and payments are received 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 other circumstances affect a Fund's trading hours.
PURCHASING SHARES DIRECTLY
You may obtain an account application by writing Norwest Advantage
Funds at the following address:
Norwest Advantage Funds
[Name of Fund]
Norwest Bank Minnesota, N.A.
Transfer Agent
733 Marquette Avenue
Minneapolis, MN 55479-0040
When you sign an application for a new Fund account, you are
certifying that your Social Security number or other taxpayer identification
number is correct and that you are not subject to backup withholding. If you
violate certain federal income tax provisions, the Internal Revenue Service can
require the Funds to withhold 31% of your distributions and redemptions.
You 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.
<PAGE>
Call or write the transfer agent if you wish to participate
in shareholder services not offered on the account application or change
information on your account (such as addresses). Norwest Advantage Funds may in
the future modify, limit or terminate any shareholder privilege upon appropriate
notice and may charge a fee for certain shareholder services, although no such
fees are currently contemplated. You may terminate your participation in any
shareholder program by writing to Norwest Advantage Funds.
Purchases by Mail. You may send a check or money order (cash cannot be
accepted) along with a completed account application to Norwest Advantage Funds
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 your check does not clear, the purchase order will be canceled and
you will be liable for any losses or fees incurred by Norwest Advantage Funds,
the transfer agent or the Funds' distributor.
To purchase shares for individual or Uniform Gift to Minors
Act accounts, you must write a check or purchase a money order payable to
Norwest Advantage Funds or endorse a check made out to you to Norwest Advantage
Funds. For corporation, partnership, trust, 401(k) plan or other non-individual
type accounts, make the check used to purchase shares payable to Norwest
Advantage Funds. No other method of payment by check will be accepted.
Purchases by Bank Wire You must first telephone the Funds'
transfer agent at 1-612-667-8833 or 1-800-338-1348 to obtain an account number
before making an initial investment in a Fund by bank wire. Then instruct your
bank to wire your money immediately to:
Norwest Bank Minnesota, N.A.
A091 000 019
For Credit to: Norwest Advantage Funds 0844-131
Re: [Name of Fund][Class of Shares]
Account No.:
Account Name:
Complete and mail the account application promptly. Your bank
may charge for transmitting the money by wire. The Funds do not charge for the
receipt of wire transfers. The Funds treat payment by bank wire as a federal
funds payment when received.
PURCHASES THROUGH FINANCIAL INSTITUTIONS
You may purchase and redeem shares through certain broker-dealers, banks and
other financial institutions. When you purchase a Fund's shares through a
financial institution, the shares may be held in your name or in the name of the
financial institution. Subject to your institution's procedures, you may have
Fund shares held in the name of your financial institution transferred into your
name. If your shares are held in the name of your financial institution, you
must contact the financial institution on matters involving your shares. Your
financial institution may charge you for redeeming shares.
SUBSEQUENT PURCHASES OF SHARES
You can make subsequent purchases by mailing a check, by sending a bank wire or
through a financial institution as indicated above. All payments should clearly
indicate your name and account number.
<PAGE>
GENERAL REDEMPTION INFORMATION
You may redeem Fund shares at their net asset value on any Fund Business Day.
There is no minimum period of investment and no restriction on the frequency of
redemptions.
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 Money Market Fund shares are not entitled to receive
dividends on the day on which the redemption is effective. Redeemed shares of
any other type of Fund are not entitled to receive dividends after the day on
which the redemption is effective.
Redemption orders for Money Market Fund shares are accepted
up to the times indicated above for acceptance of purchase orders of Money
Market Fund shares. As described above, the Money Market Funds may advance the
times for receipt of redemption orders.
Normally, redemption proceeds are paid immediately following
acceptance of a redemption order. In any event, you will be paid within seven
days, unless (i) your bank has not cleared the check to purchase the shares
(which may take up to 15 days), (ii) the New York Stock Exchange is closed (or
trading is restricted) for any reason other than normal weekend or holiday
closings, (iii) there is an emergency in which it is not practical for the Fund
to sell its portfolio securities or for the Fund to determine its net asset
value or (iv) the SEC deems it inappropriate for redemption proceeds to be paid.
You can avoid the delay of waiting for your bank to clear your check by paying
for shares with wire transfers. Unless otherwise indicated, redemption proceeds
normally are paid by check mailed to your record address.
To protect against fraud, the following must be in writing
with a signature guarantee: (1) endorsement on a share certificate; (2)
instruction to change your 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 elections; (6)
election of telephone redemption privileges; (7) election of exchange or other
privileges in connection with your account; (8) written instruction to redeem
shares whose value exceeds $50,000; (9) redemption in an account when 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 payment of redemption proceeds to any
address, person or account for which there are not established standing
instructions.
You may obtain signature guarantees at any of the following
types of organizations: authorized banks, broker-dealers, national securities
exchanges, credit unions, savings associations or other eligible institutions.
The specific institution must be 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.
The Funds and the transfer agent will use reasonable
procedures to verify that telephone requests are genuine, including recording
telephone instructions and sending written confirmations of the transactions.
Such procedures are necessary because the Funds and transfer agent could be
liable for losses due to unauthorized or fraudulent telephone instructions. You
should verify the accuracy of a telephone instruction as soon as you receive the
confirmation statement. Telephone redemption and exchanges may be difficult to
implement in times of drastic economic or market changes. If you cannot reach
the transfer agent by telephone, you may mail or hand-deliver requests to the
transfer agent.
Because of the cost of maintaining smaller accounts, Norwest
Advantage Funds may redeem,
<PAGE>
upon not less than 60 days' written notice, any account with a net asset value
of less than $1,000 immediately following any redemption.
REDEMPTION PROCEDURES
If you have invested directly in a Fund you may redeem your shares as
described below. If you have invested through a financial institution you may
redeem shares through the financial institution. If you wish to redeem shares by
telephone or receive redemption proceeds by bank wire you should complete the
appropriate sections of the account application. These privileges may not be
available until several weeks after the application is received. You may not
redeem certificated shares by telephone.
REDEMPTION BY MAIL. You may redeem shares by sending a written request to the
transfer agent accompanied by any share certificate you have been issued. Sign
all requests and endorse all certificates with signatures guaranteed.
REDEMPTION BY TELEPHONE. If you have elected telephone redemption privileges,
you may redeem shares by telephoning the transfer agent at 1-800-338-1348 or
1-612-667-8833 and providing your shareholder account number, the exact name in
which the shares are registered and your Social Security number or other
taxpayer identification number. Norwest Advantage Funds will mail a check to
your record address or, if you have chosen wire redemption privileges, wire the
proceeds.
REDEMPTION BY BANK WIRE. If you have elected wire redemption privileges, you may
request a Fund to transmit redemption proceeds of more than $5,000 by federal
funds wire to a bank account you have designated in writing. You must have
chosen the telephone redemption privilege to request bank redemptions by
telephone. Redemption proceeds are transmitted by wire on the Fund Business Day
after the transfer agent receives a redemption request in proper form.
EXCHANGES
If you hold I Shares or Institutional Shares, you may exchange those shares for
I Shares or Institutional Shares of other Funds offering those shares. If you
hold Investor Shares, you may exchange those shares for Investor Shares of the
Funds offering Investor Shares or for a class of shares of certain of the Funds
that is not offered by this prospectus. Call or write the transfer agent for
more information.
The Funds do not charge for exchanges, and there is currently
no limit on the number of exchanges you may make. The Funds, however, may limit
your ability to exchange shares if you exchange too often. Exchanges are subject
to the fees charged by, and the limitations (including minimum investment
restrictions) of the Fund into which you are exchanging.
You may only exchange shares into a pre-existing account if
that account is identically registered. You must submit a new account
application if you wish to exchange shares into an account registered
differently or with different shareholder privileges. You may exchange into a
Fund only if that Fund's shares may legally be sold in your state of residence.
The Funds and federal tax law treat an exchange as a
redemption and a purchase of shares. You may realize a capital gain or loss
depending on whether the value of the shares redeemed is more or less than your
basis in the shares at the time of the exchange. The Funds may amend or
terminate exchange procedures on 60 days' notice.
<PAGE>
EXCHANGES BY MAIL. You may make an exchange by sending a written request to the
transfer agent accompanied by any share certificates for the shares to be
exchanged. Sign all written requests and endorse all certificates with signature
guaranteed.
EXCHANGES BY TELEPHONE. If you have telephone exchange privileges, you may make
a telephone exchange by calling the transfer agent at 1-800-338-1348 or
1-612-667-8833 and giving your account number, the exact name in which the
shares are registered and your Social Security number or other taxpayer
identification number.
<PAGE>
9. DIVIDENDS AND TAX MATTERS
DIVIDENDS
Dividends of net investment income are declared and paid as follows:
Declared daily and paid monthly: Each Money Market Fund, Limited
Term Government Income Fund,
Income Fund, Total Return Bond
Fund and each Tax-Free 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 and Small Company Stock
Fund.
Declared and paid annually: Each Balanced Fund, Index Fund,
Diversified Equity Fund, Growth
Equity Fund, Large Company Growth
Fund, Diversified Small Cap Fund,
Small Cap Opportunities Fund,
Small Company Growth Fund and
International Fund.
Each Fund's net capital gain, if any, is distributed at least
annually.
You have three choices for receiving dividends and distributions:
the Reinvestment Option, the Cash Option and the Directed Dividend Option.
* Under the Reinvestment Option, all dividends and distributions of a Fund
are automatically invested in additional shares of that Fund. You
are automatically assigned this option unless you select one of the
other two options.
* Under the Cash Option, you are paid all dividends and distributions in
cash.
* Under the Directed Dividend Option, if you own $10,000 or more of a Fund's
shares in a single account, you can have that Fund's dividends and
distributions reinvested in shares of another Fund.
Call or write the transfer agent for more information about 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. All dividends and distributions reinvested in a Fund are reinvested at
the Fund's net asset value as of the payment date of the dividend or
distribution
TAX MATTERS
Dividends paid by a Fund out of its net investment income (including net
short-term capital gain) are taxable as ordinary income. Net capital gain may be
taxable at different rates depending on the length of time the Fund holds its
assets. 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,
dividends or a distribution made shortly after you purchase shares, although in
effect a return of capital to you, are taxable.
FUNDS INVESTING IN FOREIGN SECURITIES
<PAGE>
If a Fund receives investment income from sources within foreign countries, that
income may be subject to foreign income or other taxes. International Fund
intends, 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. If you own shares of International Fund, you
will be notified of your share of those foreign taxes and will be required to
treat the amount of the foreign taxes as additional income. In that event, you
may be entitled to claim a credit or deduction for those taxes.
TAX-EXEMPT DISTRIBUTIONS
Generally, you will not be subject to federal income tax on 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"). If you use, or
are related to someone who uses, facilities financed by private activity
securities held by a Fund, you may be subject to federal income tax on your pro
rata share of the interest income from those securities and should consult your
tax adviser before purchasing shares. In addition, exempt-interest dividends are
included in the "adjusted current earnings" of corporations for AMT purposes. If
you borrow money to purchase or carry the Funds' shares, the interest on your
debt generally is not deductible for federal income tax purposes.
MUNICIPAL MONEY MARKET FUND, LIMITED-TERM TAX-FREE FUND and TAX-FREE INCOME
FUND. The federal income tax exemption on dividends of Municipal Securities
interest does not necessarily result in an exemption under the income or other
tax laws of any state or local taxing authority. You 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 you reside.
You may, however, be subject to tax on income derived from the Municipal
Securities of other jurisdictions. Consult your tax adviser concerning the
application of state and local taxes to investments in a Fund that 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 for federal income tax purposes. Some differences may arise for
taxpayers subject to the AMT because interest on Colorado private activity bonds
is not a preference item for Colorado income tax purposes. Furthermore, Colorado
has no corporate AMT. 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
<PAGE>
discrimination be remedied by adding interest on Minnesota Municipal Securities
to the taxable income of Minnesota residents. This 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 AMT on resident individuals is based in part on their
income for purposes of the federal AMT. Accordingly, individual shareholders of
the Fund may be subject to the Minnesota AMT 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.
10. OTHER INFORMATION
DETERMINATION OF NET ASSET VALUE
Each Fund determines its net asset value on each Fund Business Day by dividing
the value of its 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 Funds determines their net asset values at the
following times:
<TABLE>
<S> <C> <C> <C>
---------------------------------------------------------- ------------------------------------------------------
Treasury Fund and Municipal Money Market Fund 12:00 p.m., Eastern Time
---------------------------------------------------------- ------------------------------------------------------
---------------------------------------------------------- ------------------------------------------------------
Cash Investment Fund, Ready Cash Investment Fund and 3:00 p.m., Eastern Time
U.S. Government Fund
---------------------------------------------------------- ------------------------------------------------------
---------------------------------------------------------- ------------------------------------------------------
Treasury Plus Fund 5:00 p.m., Eastern Time
---------------------------------------------------------- ------------------------------------------------------
---------------------------------------------------------- ------------------------------------------------------
Each other Fund 4:00 p.m., Eastern Time
---------------------------------------------------------- ------------------------------------------------------
</TABLE>
All Funds other than Money Market Funds value portfolio securities at current
market value if market quotations are readily available. If market quotations
are not readily available, the Funds value those securities at fair value as
determined by or pursuant to procedures adopted by the Board.
In order to maintain net asset value per share at $1.00, the Money
Market Funds value their portfolio securities at amortized cost. Amortized cost
valuation involves valuing an instrument at its cost and then assuming a
constant amortization to maturity of any discount or premium. If the market
value of a Money Market 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
to take any action to prevent any material effect on shareholders.
The Core Portfolios follow similar procedures in determining their net
asset values.
European, Far Eastern and other international securities exchanges and
over-the-counter markets normally complete trading well before the close of
business on each Fund Business Day. Trading in foreign securities, however, may
not take place on all Fund Business Days or may take place on days that are not
Fund Business Days. The determination of the prices of foreign securities may be
based on the latest market quotations for the securities. If events occur that
affect the securities' value after the close of the markets on which they trade,
the Funds may make an
<PAGE>
adjustment to the value of the securities for purposes of determining net asset
value.
For purposes of determining net asset value, the Funds convert all
assets and liabilities denominated in foreign currencies 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.
CORE PORTFOLIOS
Each Fund reserves the right to invest in one or more Core Portfolios. Each Fund
bears its pro rata portion of the expenses of any Core Portfolio in which it
invests. The Board may redeem a Fund's investment in a Core Portfolio at any
time. The Fund could then invest directly in portfolio securities or could
re-invest in one or more different Core Portfolios that could have different
fees and expenses. A Fund might redeem, for example, if other investors had
sufficient voting power to change the investment objectives or policies of the
Core Portfolio in a manner detrimental to the Fund.
NO ONE 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. ANY SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE FUNDS. 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.
<PAGE>
If you would like more information about the Funds and their investments, you
may want to read the following documents:
STATEMENT OF ADDITIONAL INFORMATION. The Funds' statement of additional
information, or "SAI," contains detailed information about the Funds, such as
their investments, management and organization. It is incorporated into this
Prospectus by reference.
ANNUAL AND SEMI-ANNUAL REPORTS. Additional Information about each Fund's
investments is available in its annual and semi-annual reports to shareholders.
In the annual report, each Fund's portfolio manager discusses the market
conditions and investment strategies that significantly affected the Fund's
performance during its last fiscal year.
You may obtain free copies of the SAI, annual report and semi-annual report by
contacting your broker, trust officer or by contacting the Fund's distributor,
Forum Financial Services, Inc., at Two Portland Square, Portland, Maine 04101 or
by calling 1-800- XXX-XXXX or 1-207-879-0001.
The Funds' reports and statement of additional information are available from
the Securities and Exchange Commission in Washington, D.C. You may obtain copies
of these documents, upon payment of a duplicating fee, by writing the Public
Reference Section of the SEC, Washington D.C. 20549-6009. Please call
1-800-SEC-0330 for information about the operation of the SEC's public reference
room. The Fund's reports and other information are also available on the SEC's
Web Site at http:// www.sec.gov.
The SEC's Investment Company Act file number for the Funds is 811-4881.
<PAGE>
NORWEST ADVANTAGE FUNDS
READY CASH INVESTMENT FUND
Public Entities Shares
PROSPECTUS
October 1, 1998
AN INVESTMENT IN THE FUND IS NOT A DEPOSIT OF NORWEST BANK MINNESOTA, N.A. AND
IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY
OTHER GOVERNMENT AGENCY.
ALTHOUGH THE FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER
SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUND.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED WHETHER OR NOT THIS PROSPECTUS IS ACCURATE OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
1. OVERVIEW
The following is a summary of information about the Fund. Before investing, you
should consider the discussion under Investment Objectives and Policies.
WHO SHOULD INVEST
The Fund is not a complete or balanced investment program, but can serve as a
part of your overall investment program.
THE FUND AT A GLANCE
The Fund seeks high current income consistent with the preservation of capital
and the maintenance of liquidity. The Fund invests primarily in high-quality
money market instruments of U.S. and foreign issuers.
CLASS OF SHARES
This prospectus offers Public Entities Shares of the Fund. Public Entities
Shares are designed primarily for Minnesota public entities -- including county
treasuries, school and water/sewer districts and other public entities.
FUND STRUCTURES
The Fund invests in another fund identified in this prospectus as the Core
Portfolio. Except when necessary to describe the Fund's investments in the Core
Portfolio, this prospectus discusses the Fund's investments in the Core
Portfolio as if the investments were made directly in portfolio securities.
MANAGEMENT OF THE FUND
NORWEST INVESTMENT MANAGEMENT, INC. or NORWEST is the Core Portfolio's
investment adviser. Norwest, a subsidiary of Norwest Bank Minnesota, N.A. or
Norwest Bank, provides investment advice to institutions, pension plans and
other accounts and currently manages more than $23.6 billion in assets. This
prospectus generally refers to Norwest as the Adviser.
PURCHASE AND REDEMPTION OF SHARES
You may purchase or redeem shares without sales or other charges. Public
Entities Shares require a minimum initial investment of $100,000 and have no
minimum subsequent investment requirement.
EXCHANGES
You may exchange your shares for shares of certain other funds of Norwest
Advantage Funds.
DIVIDENDS
Dividends of net investment income are paid monthly.
RISK FACTORS
<PAGE>
Investments in the Fund are subject to risk and may decline in value. If you
invest in the Fund, the income you receive will vary with changes in interest
rates. In addition, the Fund's investments have "credit risk," which is the risk
that an issuer will be unable, or will be perceived to be unable, to repay its
obligations at maturity. The Fund also has the risk that it may not be able to
maintain a stable net asset value of $1.00 per share.
The Fund has the risk that the Adviser may not be successful in carrying out its
investment strategy and that the Fund's particular investment strategy may
result in performance that is worse or better than the performance of the market
as a whole.
EXPENSE INFORMATION
The following table will assist you in understanding the expenses that you will
bear directly or indirectly if you invest in the Fund. There are no transaction
charges for purchasing, redeeming or exchanging shares. Public Entities Shares
do not have distribution expenses or Rule 12b-1 fees.
ANNUAL FUND OPERATING EXPENSES(1)
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
Investment Advisory Fees(after fee waivers)(2) 0.33%
Other Expenses (after fee waivers/reimbursements)(3) 0.22%
-----
Total Operating Expenses (after fee waivers/reimbursements)(3) 0.55%
(1) The expenses are estimated. The Fund indirectly bears its pro rata share of
the Core Portfolio's expenses.
(2) Investment Advisory Fees reflects the investment advisory fees incurred
by the Core Portfolio.
(3) Absent estimated expense reimbursements and fee waivers, the expenses would
be: Other Expenses, 0.56% and Total Operating Expenses, 0.89%. Except
as otherwise noted, expense reimbursements and fee waivers are voluntary and
may be reduced or eliminated at any time.
EXAMPLE
The following hypothetical example indicates the dollar amount of expenses you
would pay, assuming a $1,000 investment in the Fund's shares, the expenses
listed in Annual Fund Operating Expenses, 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.
<TABLE>
<S> <C> <C> <C> <C>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
$6 18 31 69
</TABLE>
2. GLOSSARY
Term Definition
- ---- ----------
Board The Board of Trustees of Norwest Advantage
Funds
Municipal Security A debt obligation 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, with interest
<PAGE>
exempt from federal income tax.
NRSRO A nationally recognized statistical rating
organization, such as Standard & Poor's
Corporation or Moody's Investors Service,
that rates fixed income securities and
preferred stock by relative credit risk.
SEC Securities and Exchange Commission
U.S. Government Security An obligation issued or guaranteed as to
principal and interest by the U.S.
Government, its agencies or its
instrumentalities.
3. INVESTMENT OBJECTIVES AND POLICIES
The Fund's investments are made under the requirements of a SEC rule governing
the investments that money market funds may make. The Fund invests only in
high-quality, short-term money market instruments that are determined by the
Adviser, under procedures adopted by the Board, to be eligible for purchase and
to present minimal credit risks.
High-quality instruments include those that: (1) are rated (or, if unrated, are
issued by an issuer with comparable outstanding short-term debt that is rated)
in one of the two highest rating categories by two NRSROs or, if only one NRSRO
has issued a rating, by that NRSRO; or (2) are otherwise unrated and determined
by the Adviser to be of comparable quality. The Fund will invest at least 95% of
its total assets in securities in the highest rating category.
INVESTMENT OBJECTIVE. The investment objective of the Fund is to provide high
current income to the extent consistent with the preservation of capital and the
maintenance of liquidity.
INVESTMENT POLICIES. The Fund invests in a broad spectrum of high-quality money
market instruments of U.S. and foreign issuers, including U.S. Government
Securities, Municipal Securities and corporate debt securities. The Fund may
invest in securities with fixed, variable or floating rates of interest.
The Fund may invest in debt obligations of financial institutions. These include
U.S. dollar-denominated 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, U.S. branches and agencies of foreign banks, and wholly-owned
banking-related subsidiaries of foreign banks. The Fund limits its investments
in obligations of financial institutions to institutions that at the time of
investment have total assets in excess of $1 billion, or the equivalent in other
currencies.
The Fund 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. The Fund may not invest more than 25% of its
total assets in any other single industry.
The Fund seeks to maintain a rating within the two highest short-term categories
assigned by at least one NRSRO.
<PAGE>
The Fund has the following types of risks, which are listed in alphabetical
order:
CREDIT RISK. The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise be unable to honor a financial obligation.
FOREIGN RISK. The risk that foreign issuers may be subject to foreign political
and economic instability, 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 investors' assets.
INTEREST RATE RISK. The risk that changing interest rates may affect the value
of your investment. With fixed-rate securities, an increase in interest rates
typically causes the value of the Fund's securities to fall, while a decline in
interest rates may produce an increase in the market value of the securities.
Because of this risk, an investment in the Fund is subject to risk even if all
the securities in the Fund's portfolio are paid in full at maturity.
4. MANAGEMENT OF THE FUND
INVESTMENT ADVISORY SERVICES
NORWEST INVESTMENT MANAGEMENT, INC. is the investment adviser for the Core
Portfolio. In this capacity, Norwest makes investment decisions for and
administers the Core Portfolio's investment programs. Norwest receives an
investment advisory fee from the Core Portfolio.
NORWEST INVESTMENT MANAGEMENT, INC., NORWEST CENTER, SIXTH STREET AND MARQUETTE,
MINNEAPOLIS, MN 55479
PORTFOLIO MANAGERS: David D. Sylvester, Laurie R. White and Robert G. Leuty are
primarily responsible for the day-to-day management of the Fund's investments.
They became portfolio managers for the Core Portfolio in 19__, 19__ and 1998,
respectively. Mr. Sylvester has been associated with Norwest and Norwest Bank
since 1979, and currently is a Managing Director - Reserve Asset Management. He
has over 20 years' experience in managing securities portfolios. Ms. White is a
Director-Reserve Asset Management and has been associated with Norwest or
Norwest Bank since 1991; from 1989 to 1991, she was a Portfolio Manager at
Richfield Bank and Trust. Mr. Leuty has been associated with Norwest or Norwest
Bank since 1992, has been associated in various investment management capacities
since 1993 and has been in his present capacity of Senior Portfolio Manager
since 1998. Prior to 1992 he was an In-Charge Accountant with Price Waterhouse.
ADVISORY FEE: The Adviser receives 0.40% annually of the Core Portfolio's first
$300 million of average daily net assets; 0.36% annually for the next $400
million of average daily net assets; and 0.32% annually for the remaining
average daily net assets.
DORMANT INVESTMENT ADVISORY ARRANGEMENTS
Norwest has been retained as a "dormant" or "back-up" investment adviser to
manage any assets redeemed and invested directly by the Fund. Norwest does not
receive any compensation under this arrangement as long as the Fund invests
entirely in a Core Portfolio or Core Portfolios. If the Fund redeems its assets
from the Core Portfolio and invests them directly, Norwest receives an
investment advisory fee from the Fund for the management of those assets.
<PAGE>
5. PURCHASES AND REDEMPTIONS OF SHARES
You may purchase or redeem shares at a price equal to their net asset value next
determined after acceptance of an order, or receipt of a redemption request, on
"Fund Business Days." Fund Business Days are all weekdays except generally
observed 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.
GENERAL PURCHASE INFORMATION
You may purchase shares directly or through a financial institution. The Fund's
transfer agent processes all transactions in Fund shares.
You may purchase and redeem Fund shares without a sales or redemption charge.
Public Entities Shares require a minimum initial investment of $100,000 and have
no minimum for subsequent investments.
Your shares will become eligible to receive dividends on the day that an order
is accepted.
The Fund reserves the right to reject any subscription for the purchase of
shares, including subscriptions by market timers. You will receive share
certificates for your shares only if you request them in writing. No
certificates are issued for fractional shares.
Your order will not be accepted or invested by the Fund until the Fund receives
immediately available funds. Norwest Advantage Funds may accept purchase and
redemption orders for the Fund only until the times indicated below. Times
indicated are Eastern Time.
Order Must Be Payment Must Be
Received By Received By
------------- ----------------
3:00 p.m. 4:00 p.m.
The Fund may advance the time by which purchase or redemption orders and
payments are received 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 other circumstances
affect the Fund's trading hours.
PURCHASING SHARES DIRECTLY
You may obtain an account application by writing Norwest Advantage
Funds at the following address:
Norwest Advantage Funds
Ready Cash Investment Fund
Norwest Bank Minnesota, N.A.
Transfer Agent
733 Marquette Avenue
Minneapolis, MN 55479-0040
<PAGE>
When you sign an application for a new Fund account, you are certifying that
your Social Security number or other taxpayer identification number is correct
and that you are not subject to backup withholding. If you violate certain
federal income tax provisions, the Internal Revenue Service can require the Fund
to withhold 31% of your distributions and redemptions.
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.
Call or write the transfer agent if you wish to participate in shareholder
services not offered on the account application or change information on your
account (such as addresses). Norwest Advantage Funds may in the future modify,
limit or terminate any shareholder privilege upon appropriate notice and may
charge a fee for certain shareholder services, although no such fees are
currently contemplated. You may terminate your participation in any shareholder
program by writing to Norwest Advantage Funds.
PURCHASES BY MAIL. You may send a check or money order (cash cannot be accepted)
along with a completed account application to Norwest Advantage Funds 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 your check does not clear, the purchase order will be canceled and
you will be liable for any losses or fees incurred by Norwest Advantage Funds,
the transfer agent or the Fund's distributor.
To purchase shares for individual or Uniform Gift to Minors Act accounts, you
must write a check or purchase a money order payable to Norwest Advantage Funds
or endorse a check made out to you to Norwest Advantage Funds. For corporation,
partnership, trust, 401(k) plan or other non-individual type accounts, make the
check used to purchase shares payable to Norwest Advantage Funds. No other
methods of payment by check will be accepted for these types of accounts.
PURCHASES BY BANK WIRE. You must first telephone the Fund's transfer agent at
1-612-667-8833 or 1-800-338-1348 to obtain an account number before making an
initial investment by bank wire. Then instruct your bank to wire your money
immediately to:
Norwest Bank Minnesota, N.A.
A091 000 019
For Credit to: Norwest Advantage Funds 0844-131
Re:Ready Cash Investment Fund, Public Entities Shares
Account No.:
Account Name:
Complete and mail the account application promptly. Your bank may charge for
transmitting the money by wire. The Fund does not charge for the receipt of wire
transfers. The Fund treats payment by bank wire as a federal funds payment when
received.
PURCHASES THROUGH FINANCIAL INSTITUTIONS
You may purchase and redeem shares through certain broker-dealers, banks and
other financial institutions. When you purchase the Fund's shares through a
financial institution, the shares may be held in your name or in the name of the
financial institution. Subject to your institution's procedures, you may have
Fund shares held in the name of your financial institution transferred into your
name. If your shares are held in
<PAGE>
the name of your financial institution, you must contact the financial
institution on matters involving your shares. Your financial institution may
charge you for purchasing, redeeming or exchanging shares.
SUBSEQUENT PURCHASES OF SHARES
You can make subsequent purchases by mailing a check, by sending a bank wire or
through a financial institution as indicated above. All payments should clearly
indicate your name and account number.
GENERAL REDEMPTION INFORMATION
You may redeem Fund shares at their net asset value on any Fund Business Day.
There is no minimum period of investment and no restriction on the frequency of
redemptions.
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 on the day on which the
redemption is effective.
Redemption orders are accepted up to the times indicated above for acceptance of
purchase orders. As described above, the Fund may advance the times for receipt
of redemption orders.
Normally, redemption proceeds are paid immediately following acceptance of a
redemption order. In any event, you will be paid within seven days, unless (i)
your bank has not cleared the check to purchase the shares (which may take up to
15 days), (ii) the New York Stock Exchange is closed (or trading is restricted)
for any reason other than normal weekend or holiday closings, (iii) there is an
emergency in which it is not practical for the Fund to sell its portfolio
securities or for the Fund to determine its net asset value or (iv) the SEC
deems it inappropriate for redemption proceeds to be paid. You can avoid the
delay of waiting for your bank to clear your check by paying for shares with
wire transfers. Unless otherwise indicated, redemption proceeds normally are
paid by check mailed to your record address.
To protect against fraud, the following must be in writing with a signature
guarantee: (1) endorsement on a share certificate; (2) instruction to change
your 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 elections; (6) election of
telephone redemption privileges; (7) election of exchange or other privileges in
connection with your account; (8) written instruction to redeem shares whose
value exceeds $50,000; (9) redemption in an account when 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 payment of redemption proceeds to any address, person or account for
which there are not established standing instructions.
You may obtain signature guarantees at any of the following types of
organizations: authorized banks, broker-dealers, national securities exchanges,
credit unions, savings associations or other eligible institutions. The specific
institution must be 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.
The Fund and the transfer agent will use reasonable procedures to verify that
telephone requests are genuine, including recording telephone instructions and
sending written confirmations of the transactions. Such procedures are necessary
because the Fund and transfer agent could be liable for losses due to
unauthorized or fraudulent telephone instructions. You should verify the
accuracy of a telephone
<PAGE>
instruction as soon as you receive the confirmation statement. Telephone
redemption and exchanges may be difficult to implement in times of drastic
economic or market changes. If you cannot reach the transfer agent by telephone,
you may mail or hand-deliver requests to the transfer agent.
Because of the cost of maintaining smaller accounts, the Fund may redeem, upon
not less than 60 days' written notice, any account with a net asset value of
less than $100,000 immediately following any redemption.
REDEMPTION PROCEDURES
If you have invested directly in the Fund you may redeem your shares as
described below. If you have invested through a financial institution you may
redeem shares through the financial institution. If you wish to redeem shares by
telephone or receive redemption proceeds by bank wire you should complete the
appropriate sections of the account application. These privileges may not be
available until several weeks after the application is received. You may not
redeem certificated shares by telephone.
REDEMPTION BY MAIL. You may redeem shares by sending a written request to the
transfer agent accompanied by any share certificate you have been issued. Sign
all requests and endorse all certificates with signatures guaranteed.
REDEMPTION BY TELEPHONE. If you have elected telephone redemption privileges,
you may redeem shares by telephoning the transfer agent at 1-800-338-1348 or
1-612-667-8833 and providing your shareholder account number, the exact name in
which the shares are registered and your Social Security number or other
taxpayer identification number. Norwest Advantage Funds will mail a check to
your record address or, if you have chosen wire redemption privileges, wire the
proceeds.
REDEMPTION BY BANK WIRE. If you have elected wire redemption privileges, you may
request the Fund to transmit redemption proceeds of more than $5,000 by federal
funds wire to a bank account you have designated in writing. You must have
chosen the telephone redemption privilege to request bank redemptions by
telephone. Redemption proceeds are transmitted by wire on the Fund Business Day
after the transfer agent receives a redemption request in proper form.
EXCHANGES
You may exchange Public Entities Shares for shares of other funds of Norwest
Advantage Funds. Call or write the transfer agent for more information.
The Fund does not charge for exchanges, and there is currently no limit on the
number of exchanges you may make. The Fund, however, may limit your ability to
exchange shares if you exchange too often. Exchanges are subject to the fees
charged by, and the limitations (including minimum investment restrictions) of
the fund into which you are exchanging.
You may only exchange shares into a pre-existing account if that account is
identically registered. You must submit a new account application if you wish to
exchange shares into an account registered differently or with different
shareholder privileges. You may exchange into a fund only if that fund's shares
may legally be sold in your state of residence.
The Fund and federal tax law treat an exchange as a redemption and a purchase of
shares. You may realize a capital gain or loss depending on whether the value of
the shares redeemed is more or less than your basis in
<PAGE>
the shares at the time of the exchange. The Fund may amend or terminate exchange
procedures on 60 days' notice.
EXCHANGES BY MAIL. You may make an exchange by sending a written request to the
transfer agent accompanied by any share certificates for the shares to be
exchanged. Sign all written requests and endorse all certificates with signature
guaranteed.
EXCHANGES BY TELEPHONE. If you have telephone exchange privileges, you may make
a telephone exchange by calling the transfer agent at 1-800-338-1348 or
1-612-667-8833 and giving your account number, the exact name in which the
shares are registered and your Social Security number or other taxpayer
identification number.
6. DIVIDENDS AND TAX MATTERS
DIVIDENDS
Dividends of net investment income are declared daily and paid monthly. The
Fund's net capital gain, if any, is distributed at least annually.
You have three choices for receiving dividends and distributions: the
Reinvestment Option, the Cash Option and the Directed Dividend Option.
* Under the Reinvestment Option, all dividends and distributions are
automatically invested in additional shares of the Fund. You are
automatically assigned this option unless you select one of the other two
options.
* Under the Cash Option, you are paid all dividends and distributions in
cash.
* Under the Directed Dividend Option, if you own $10,000 or more of the
Fund's shares in a single account, you can have the Fund's dividends and
distributions reinvested in shares of another fund of Norwest Advantage
Funds. Call or write the transfer agent for more information about 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.
All dividends and distributions reinvested in a fund are reinvested at the
fund's net asset value as of the payment date of the dividend or distribution.
TAX MATTERS
The Fund's dividends of net investment income (including net short-term capital
gain) are taxable as ordinary income. Net capital gain may be taxable at
different rates depending on the length of time the Fund holds its assets.
Dividends or a distribution made shortly after you purchase shares, although in
effect a return of capital to you, are taxable.
7. OTHER INFORMATION
INVESTMENT POLICIES
<PAGE>
Except as otherwise indicated, the Fund's investment policies are not deemed to
be fundamental and may be changed by the Board without shareholder approval.
DETERMINATION OF NET ASSET VALUE
The Fund determines its net asset value at 3:00p.m., Eastern Time, on each Fund
Business Day by dividing the value of its 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.
In order to maintain net asset value per share at $1.00, the Fund values its
portfolio securities at amortized cost. Amortized cost valuation involves
valuing an instrument at its cost and then assuming a constant amortization to
maturity of any discount or premium. If the market value of the Fund's portfolio
deviates more than 1/2 of 1% from the value determined on the basis of amortized
cost, the Board will consider whether to take any action to prevent any material
effect on shareholders.
The Core Portfolio follows similar procedures in determining its net asset
value.
YEAR 2000
The Fund could be adversely affected if the computer systems used by the Adviser
and other service providers to the Fund do not properly process and calculate
date-related information and data from and after January 1, 2000. Norwest and
the Fund's manager are taking steps to address the Year 2000 issue for their
computer systems and to obtain reasonable assurances that comparable steps are
being taken by the Fund's other major service providers. There can be no
assurance that these steps will be sufficient to avoid any adverse impact on the
Fund.
CORE PORTFOLIOS
The Fund bears its pro rata portion of the expenses of the Core Portfolio. The
Board may redeem the Fund's investment in the Core Portfolio. The Fund could
then invest directly in portfolio securities or could re-invest in one or more
different Core Portfolios that could have different fees and expenses. The Fund
might redeem, for example, if other investors had sufficient voting power to
change the investment objectives or policies of the Core Portfolio in a manner
detrimental to the Fund.
NO ONE HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE STATEMENT OF
ADDITIONAL INFORMATION AND THE FUND'S OFFICIAL SALES LITERATURE. ANY SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE FUND. 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.
<PAGE>
If you would like more information about the Fund and its investments, you may
want to read the following documents:
STATEMENT OF ADDITIONAL INFORMATION. The Fund's statement of additional
information, or "SAI," contains detailed information about the Fund, such as its
investments, management and organization. It is incorporated into this
Prospectus by reference.
ANNUAL AND SEMI-ANNUAL REPORTS. Additional Information about the Fund's
investments is available in its annual and semi-annual reports to shareholders.
In the annual report, the Fund's portfolio manager discusses the market
conditions and investment strategies that significantly affected the Fund's
performance during its last fiscal year.
You may obtain free copies of the SAI, annual report and semi-annual report by
contacting your broker, trust officer or by contacting the Fund's distributor,
Forum Financial Services, Inc., at Two Portland Square, Portland, Maine 04101,
1-800-XXX-XXXX or 1-207-879-0001.
The Fund's reports and statement of additional information are available from
the Securities and Exchange Commission in Washington, D.C. You may obtain copies
of these documents, upon payment of a duplicating fee, by writing the Public
Reference Section of the SEC, Washington D.C. 20549-6009. Please call
1-800-SEC-0330 for information about the operation of the SEC's public reference
room. The Fund's reports and other information are also available on the SEC's
Web Site at http:// www.sec.gov.
The SEC's Investment Company Act file number for the Fund is 811-4881.
<PAGE>
NORWEST ADVANTAGE FUNDS
READY CASH INVESTMENT FUND
Exchange Shares
PROSPECTUS
October 1, 1998
AN INVESTMENT IN THE FUND IS NOT A DEPOSIT OF NORWEST BANK MINNESOTA, N.A. AND
IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY
OTHER GOVERNMENT AGENCY.
ALTHOUGH THE FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER
SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUND.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED WHETHER OR NOT THIS PROSPECTUS IS ACCURATE OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
1. OVERVIEW
The following is a summary of information about the Fund. Before investing, you
should consider the discussion under Investment Objectives and Policies.
WHO SHOULD INVEST
The Fund is not a complete or balanced investment program, but can serve as a
part of your overall investment program.
THE FUND AT A GLANCE
The Fund seeks high current income consistent with the preservation of capital
and the maintenance of liquidity. The Fund invests primarily in high-quality
money market instruments of U.S. and foreign issuers.
CLASS OF SHARES
This prospectus offers Exchange Shares of the Fund. You may purchase Exchange
Shares only through exchanges of B Shares of other funds of Norwest Advantage
Funds. Exchange Shares are offered at net asset value and will convert to
Institutional Shares of the Fund in a fixed number of years. If you redeem
Exchange Shares, you pay a contingent deferred sales charge. The amount of the
charge depends on the length of time you have held the shares.
FUND STRUCTURES
The Fund invests in another fund identified in this prospectus as the Core
Portfolio. Except when necessary to describe the Fund's investments in the Core
Portfolio, this prospectus discusses the Fund's investments in the Core
Portfolio as if the investments were made directly in portfolio securities.
MANAGEMENT OF THE FUND
NORWEST INVESTMENT MANAGEMENT, INC. or NORWEST is the Core Portfolio's
investment adviser. Norwest, a subsidiary of Norwest Bank Minnesota, N.A. or
Norwest Bank, provides investment advice to institutions, pension plans and
other accounts and currently manages more than $23.6 billion in assets. This
prospectus generally refers to Norwest as the Adviser.
PURCHASE OF SHARES
Exchange Shares require a minimum initial investment of $1,000 and minimum
subsequent investments of $100.
EXCHANGES
You may exchange Exchange Shares for B Shares of other funds of Norwest
Advantage Funds.
DIVIDENDS
The Fund pays dividends of net investment income monthly.
RISK FACTORS
Investments in the Fund are subject to risk and may decline in value. If you
invest in the Fund, the income you receive will vary with changes in interest
rates. In addition, the Fund's investments have "credit risk," which is the risk
that an issuer will be unable, or will be perceived to be unable, to repay its
obligations at maturity. The Fund also has the risk that it may not be able to
maintain a stable net asset value of $1.00 per share.
<PAGE>
The Fund has the risk that the Adviser may not be successful in carrying out its
investment strategy and that the Fund's particular investment strategy may
result in performance that is worse or better than the performance of the market
as a whole.
EXPENSE INFORMATION
The following table will assist you in understanding the expenses that you will
bear directly or indirectly if you invest in the Fund.
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on purchases
(as a percentage of offering price) Zero
Maximum deferred sales charge
(as a percentage of the lesser of original
purchase price or redemption proceeds) 4.0%(1)
ANNUAL FUND OPERATING EXPENSES(2)(6)
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
Investment Advisory Fees None
Rule 12b-1 Fees (after fee waivers)(3) 0.75%
Other Expenses (after reimbursements) 0.41%
Investment Advisory Fees - Core Portfolio(4) 0.34%
Other Expenses - Core Portfolio (after reimbursements) 0.07%
-----
TOTAL OPERATING EXPENSES (after reimbursements)(5) 1.57%
(1) The amount of the contingent deferred sales charge applicable to any
Exchange Share will depend upon the deferred sales charges of the B Shares
originally purchased. The maximum possible contingent deferred sales charge
is 4.0%. The charge declines from the maximum each year following the
original purchase of B Shares until it reaches zero.
(2) The Fund bears its pro rata share of the Core Portfolio's expenses.
(3) Absent fee waivers, Rule 12b-1 Fees would be 1.00%.
(4) Investment Advisory Fees - Core Portfolio reflects the investment advisory
fee of the Core Portfolio, which, absent fee waivers, would be 0.34%.
(5) Norwest and the Fund's manager have agreed to waive their respective fees
or reimburse expenses in order to maintain the Fund's total combined
operating expenses through May 31, 1998 at or below 1.57%. Any proposed
reduction of those waivers or reimbursements would require review by the
Fund's Board of Trustees.
(6) Absent estimated expense reimbursements and fee waivers, the expenses of
Exchange Shares would be: Other Expenses, 3.09%; Other Expenses -- Core
Portfolio, 0.07%; and Total Operating Expenses, 4.50%. Except as otherwise
noted, expense reimbursements and fee waivers are voluntary and may be
reduced or eliminated at any time.
EXAMPLE
The following hypothetical example indicates the dollar amount of expenses that
you would pay, assuming a $1,000 investment in the Fund's Shares, the expenses
listed in the Annual Fund Operating Expenses table, a 5% annual return and
reinvestment of all dividends and distributions. The example should not be
considered a representation of past or future expenses or return. Actual
expenses and return may be greater or less than indicated.
<TABLE>
<S> <C> <C> <C> <C>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
</TABLE>
<PAGE>
Assuming redemption at the end of the period
Assuming no redemption
2. FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the Fund's operating history. Certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have earned on an investment in
the Fund, assuming reinvestment of all dividends and distributions. The
information from May 31, 1994 through May 31, 1998 has been audited by
_______________, independent auditors, whose reports, along with the Fund's
financial statements, are included in the Annual Report for the Fund, which is
available upon request. Other independent auditors audited information for prior
periods.
<PAGE>
3. GLOSSARY
Term Definition
- ---- ----------
Board The Board of Trustees of Norwest Advantage
Funds
CDSC Contingent Deferred Sales Charge
Municipal Security A debt obligation 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, with interest exempt from
federal income tax.
NRSRO A nationally recognized statistical rating
organization, such as Standard & Poor's
Corporation or Moody's Investors Service,
that rates fixed income securities and
preferred stock by relative credit risk.
SEC Securities and Exchange Commission
U.S. Government Security An obligation issued or guaranteed as to
principal and interest by the U.S.
Government, its agencies or its
instrumentalities.
4. INVESTMENT OBJECTIVES AND POLICIES
The Fund's investments are made under the requirements of a SEC rule governing
the investments that money market funds may make. The Fund invests only in
high-quality, short-term money market instruments that are determined by the
Adviser, under procedures adopted by the Board, to be eligible for purchase and
to present minimal credit risks.
High-quality instruments include those that: (1) are rated (or, if unrated, are
issued by an issuer with comparable outstanding short-term debt that is rated)
in one of the two highest rating categories by two NRSROs or, if only one NRSRO
has issued a rating, by that NRSRO; or (2) are otherwise unrated and determined
by the Adviser to be of comparable quality. The Fund will invest at least 95% of
its total assets in securities in the highest rating category.
INVESTMENT OBJECTIVE. The investment objective of the Fund is to provide high
current income to the extent consistent with the preservation of capital and the
maintenance of liquidity.
INVESTMENT POLICIES. The Fund invests in a broad spectrum of high-quality money
market instruments of U.S. and foreign issuers, including U.S. Government
Securities, Municipal Securities and corporate debt securities. The Fund may
invest in securities with fixed, variable or floating rates of interest.
The Fund may invest in debt obligations of financial institutions. These include
U.S. dollar-denominated 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, U.S. branches and agencies of foreign banks, and wholly-owned
banking-related subsidiaries of foreign banks. The Fund limits its investments
in obligations of financial institutions to institutions that at the time of
investment have total assets in excess of $1 billion, or the equivalent in other
currencies.
The Fund 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. The Fund may not invest more than 25% of its
total assets in any other single industry.
The Fund seeks to maintain a rating within the two highest short-term categories
assigned by at least one NRSRO.
<PAGE>
The Fund has the following types of risks, which are listed in alphabetical
order:
CREDIT RISK. The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise be unable to honor a financial obligation.
FOREIGN RISK. The risk that foreign issuers may be subject to foreign political
and economic instability, 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 investors' assets.
INTEREST RATE RISK. The risk that changing interest rates may affect the value
of your investment. With fixed-rate securities, an increase in interest rates
typically causes the value of the Fund's securities to fall, while a decline in
interest rates may produce an increase in the market value of the securities.
Because of this risk, an investment in the Fund is subject to risk even if all
the securities in the Fund's portfolio are paid in full at maturity.
5. MANAGEMENT OF THE FUND
INVESTMENT ADVISORY SERVICES
NORWEST INVESTMENT MANAGEMENT, INC. is the investment adviser for the Core
Portfolio. In this capacity, Norwest makes investment decisions for and
administers the Core Portfolio's investment programs. Norwest receives an
investment advisory fee from the Core Portfolio.
NORWEST INVESTMENT MANAGEMENT, INC., NORWEST CENTER, SIXTH STREET AND MARQUETTE,
MINNEAPOLIS, MN 55479
PORTFOLIO MANAGERS: David D. Sylvester, Laurie R. White and Robert G. Leuty are
primarily responsible for the day-to-day management of the Fund's investments.
They became portfolio managers for the Core Portfolio in 19__, 19__ and 1998,
respectively. Mr. Sylvester has been associated with Norwest and Norwest Bank
since 1979, and currently is a Managing Director - Reserve Asset Management. He
has over 20 years' experience in managing securities portfolios. Ms. White is a
Director-Reserve Asset Management and has been associated with Norwest or
Norwest Bank since 1991; from 1989 to 1991, she was a Portfolio Manager at
Richfield Bank and Trust. Mr. Leuty has been associated with Norwest or Norwest
Bank since 1992, has been associated in various investment management capacities
since 1993 and has been in his present capacity of Senior Portfolio Manager
since 1998. Prior to 1992 he was an In-Charge Accountant with Price Waterhouse.
ADVISORY FEE: The Adviser receives 0.40% annually of the Core Portfolio's first
$300 million of average daily net assets; 0.36% annually for the next $400
million of average daily net assets; and 0.32% annually for the remaining
average daily net assets.
DORMANT INVESTMENT ADVISORY ARRANGEMENTS
Norwest has been retained as a "dormant" or "back-up" investment adviser to
manage any assets redeemed and invested directly by the Fund. Norwest does not
receive any compensation under this arrangement as long as the Fund invests
entirely in a Core Portfolio or Core Portfolios. If the Fund redeems its assets
from the Core Portfolio and invests them directly, Norwest receives an
investment advisory fee from the Fund for the management of those assets.
6. CHARACTERISTICS OF EXCHANGE SHARES
Exchange Shares have distribution and shareholder servicing fees of 1.00% of the
average daily net assets of the class under a Rule 12b-1 distribution plan.
Because distribution fees are paid out of the Funds' assets on an on-going
basis,
<PAGE>
over time these fees will increase the cost of your investment and may cost more
than paying a front-end sales charge.
If you redeem Exchange Shares, there will be a CDSC on the redemption to the
extent that there would be a CDSC if you were redeeming the B Shares you
originally purchased. The amount of the CDSC will vary depending which fund's
shares you originally purchased and the number of years between the purchase of
those shares and the redemption of the Exchange Shares. You will pay the CDSC on
the lesser of the cost of the B Shares originally purchased and the net asset
value of the Exchange Shares upon redemption. There is no CDSC on Exchange
Shares purchased through reinvestments of dividends and distributions.
The Fund will redeem shares so that you pay the lowest possible CDSC.
Redemptions will automatically be made first from any Investor Shares in the
Fund, second from Exchange Shares acquired pursuant to reinvestment of dividends
and distributions, third from Exchange Shares which have been held for long
enough so that there is no applicable CDSC and fourth from the longest
outstanding remaining Exchange Shares.
CONVERSION FEATURE. Exchange Shares will automatically convert to Investor
Shares of the Fund (a class of the Fund's shares that does not have a CDSC or
distribution fees) when the B Shares you originally purchased would have
converted to A Shares had they not been exchanged. 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, the Fund will
consider Exchange Shares purchased through the reinvestment of dividends and
distributions to be held in a separate sub-account. Each time any Exchange
Shares in your account (other than those in the sub-account) convert, a
corresponding pro rata portion of the shares in the sub-account will also
convert. The Funds may suspend the conversion feature in the future; in that
event, Exchange Shares might continue to pay their distribution fee
indefinitely.
9. PURCHASE AND REDEMPTION OF SHARES
You may exchange for or redeem shares at a price equal to their net asset value
next determined, subject in the case of redemptions to a CDSC, after acceptance
of an order or receipt of a redemption request on "Fund Business Days." Fund
Business Days are all weekdays except generally observed 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.
GENERAL PURCHASE INFORMATION
You may exchange for Exchange Shares directly or through a financial
institution. The Fund's transfer agent processes all transactions in Fund
shares. Exchange Shares require a minimum initial investment of $1,000 and have
minimum subsequent investments of $100. Your shares will become eligible to
receive dividends on the day that an order is accepted.
The Fund reserves the right to reject any subscription for the purchase of
shares, including subscriptions by market timers. You will receive share
certificates for your shares only if you request them in writing. No
certificates are issued for fractional shares.
The Fund may may accept purchase and redemption orders only until the times
indicated below. Times indicated are Eastern Time.
Order Must Be Payment Must Be
Received By Received By
3:00 p.m. 4:00 p.m.
<PAGE>
The Fund may advance the time by which purchase or redemption orders and
payments are received 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 other circumstances
affect the Fund's trading hours.
PURCHASING SHARES DIRECTLY
If you exchange B Shares for Exchange Shares, you will have an account opened
automatically. Call or write the transfer agent if you wish to participate in
shareholder services not offered on the account application or change
information on your account (such as addresses). Norwest Advantage Funds may in
the future modify, limit or terminate any shareholder privilege upon appropriate
notice and may charge a fee for certain shareholder services, although no such
fees are currently contemplated. You may terminate your participation in any
shareholder program by writing to Norwest Advantage Funds.
EXCHANGES BY MAIL. You may exchange B Shares for the Fund's Exchange Shares by
sending a written request accompanied by any share certificates you have been
issued to Norwest Advantage Funds at the following address:
Norwest Advantage Funds
Ready Cash Investment Fund, Exchange Shares
Norwest Bank Minnesota, N.A.
Transfer Agent
733 Marquette Avenue
Minneapolis, MN 55479-0040
Sign all requests and endorse all certificates with signature guaranteed.
EXCHANGES BY TELEPHONE. If you have elected telephone exchange privileges, you
may exchange B Shares for Exchange Shares by telephoning the transfer agent at
1-800-338-1348 or 1-612-667-8833 and providing your shareholder account number,
the exact name in which the shares are registered and your Social Security
number or other taxpayer identification number.
EXCHANGES THROUGH FINANCIAL INSTITUTIONS
You may exchange and redeem shares through certain broker-dealers, banks and
other financial institutions. When you exchange for the Fund's shares through a
financial institution, the shares may be held in your name or in the name of the
financial institution. Subject to your institution's procedures, you may have
Fund shares held in the name of your financial institution transferred into your
name. If your shares are held in the name of your financial institution, you
must contact the financial institution on matters involving your shares. Your
financial institution may charge you for purchasing, redeeming or exchanging
shares.
SUBSEQUENT PURCHASES OF SHARES
You can make subsequent exchanges in writing, by telephone or through a
financial institution as indicated above. All payments should clearly indicate
your name and account number.
GENERAL REDEMPTION INFORMATION
You may redeem Exchange Shares on any Fund Business Day at their net asset value
subject to a CDSC in the amount you would have had to pay if you had not
exchanged your original B Shares. There is no minimum period of investment and
no restriction on the frequency of redemptions.
Fund shares are redeemed as of the next determination of the Fund's net asset
value following 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 on the day on which the
redemption is effective.
<PAGE>
Redemption orders are accepted up to the times indicated above for acceptance of
exchange orders. As described above, the Fund may advance the times for receipt
of redemption orders.
Normally, redemption proceeds are paid immediately following acceptance of a
redemption order. In any event, you will be paid within seven days, unless (i)
your bank has not cleared the check originally used to purchase shares (which
may take up to 15 days), (ii) the New York Stock Exchange is closed (or trading
is restricted) for any reason other than normal weekend or holiday closings,
(iii) there is an emergency in which it is not practical for the Fund to sell
its portfolio securities or for the Fund to determine its net asset value or
(iv) the SEC deems it inappropriate for redemption proceeds to be paid. You can
avoid the delay of waiting for your bank to clear your check by paying for
shares with wire transfers. Unless otherwise indicated, redemption proceeds
normally are paid by check mailed to your record address.
To protect against fraud, the following must be in writing with a signature
guarantee: (1) endorsement on a share certificate; (2) instruction to change
your 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 elections; (6) election of
telephone redemption privileges; (7) election of exchange or other privileges in
connection with your account; (8) written instruction to redeem shares whose
value exceeds $50,000; (9) redemption in an account when 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 payment of redemption proceeds to any address, person or account for
which there are not established standing instructions.
You may obtain signature guarantees at any of the following types of
organizations: authorized banks, broker-dealers, national securities exchanges,
credit unions, savings associations or other eligible institutions. The specific
institution must be 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.
The Fund and the transfer agent will use reasonable procedures to verify that
telephone requests are genuine, including recording telephone instructions and
sending written confirmations of the transactions. Such procedures are necessary
because the Fund and transfer agent could be liable for losses due to
unauthorized or fraudulent telephone instructions. You should verify the
accuracy of a telephone instruction as soon as you receive the confirmation
statement. Telephone redemption and exchanges may be difficult to implement in
times of drastic economic or market changes. If you cannot reach the transfer
agent by telephone, you may mail or hand-deliver requests to the transfer agent.
Because of the cost of maintaining smaller accounts, the Fund may redeem, upon
not less than 60 days' written notice, any account with a net asset value of
less than $1,000 immediately following any redemption.
REDEMPTION PROCEDURES
If you have invested directly in the Fund you may redeem your shares as
described below. If you have invested through a financial institution you may
redeem shares through the financial institution. If you wish to redeem shares by
telephone or receive redemption proceeds by bank wire you should contact the
transfer agent to elect those features. These privileges may not be available
until several weeks after the application is received. You may not redeem
certificated shares by telephone.
REDEMPTION BY MAIL. You may redeem shares by sending a written request to the
transfer agent accompanied by any share certificate you have been issued. Sign
all requests and endorse all certificates with signatures guaranteed.
REDEMPTION BY TELEPHONE. If you have elected telephone redemption privileges,
you may redeem shares by telephoning the transfer agent at 1-800-338-1348 or
1-612-667-8833 and providing your shareholder account number, the exact name in
which the shares are registered and your Social Security number or other
taxpayer identification number. Norwest Advantage Funds will mail a check to
your record address or, if you have chosen wire redemption privileges, wire the
proceeds.
<PAGE>
REDEMPTION BY BANK WIRE. If you have elected wire redemption privileges, you may
request the Fund to transmit redemption proceeds of more than $5,000 by federal
funds wire to a bank account you have designated in writing. You must have
chosen the telephone redemption privilege to request bank redemptions by
telephone. Redemption proceeds are transmitted by wire on the Fund Business Day
after the transfer agent receives a redemption request in proper form.
EXCHANGES
You may exchange Exchange Shares for B Shares of the funds of Norwest Advantage
Funds that offer B Shares. Call or write the transfer agent for more
information.
The Fund does not charge for exchanges, and there is currently no limit on the
number of exchanges you may make. The Fund, however, may limit your ability to
exchange shares if you exchange too often. Exchanges are subject to the fees
charged by, and the limitations (including minimum investment restrictions) of
the fund into which you are exchanging.
You may exchange Fund shares without paying a CDSC. If you redeem shares you
received in an exchange, the CDSC will be calculated as if you never exchanged
the shares you originally purchased.
You may only exchange shares into a pre-existing account if that account is
identically registered. You must submit a new account application if you wish to
exchange shares into an account registered differently or with different
shareholder privileges. You may exchange into a fund only if that fund's shares
may legally be sold in your state of residence.
The Fund and federal tax law treat an exchange as a redemption and a purchase of
shares. You may realize a capital gain or loss depending on whether the value of
the shares redeemed is more or less than your basis in the shares at the time of
the exchange. The Fund may amend or terminate exchange procedures on 60 days'
notice.
EXCHANGES BY MAIL. You may make an exchange by sending a written request to the
transfer agent accompanied by any share certificates for the shares to be
exchanged. Sign all written requests and endorse all certificates with signature
guaranteed.
EXCHANGES BY TELEPHONE. If you have telephone exchange privileges, you may make
a telephone exchange by calling the transfer agent at 1-800-338-1348 or
1-612-667-8833 and giving your account number, the exact name in which the
shares are registered and your Social Security number or other taxpayer
identification number.
8. DIVIDENDS AND TAX MATTERS
DIVIDENDS
Dividends of net investment income are declared daily and paid monthly. The
Fund's net capital gain, if any, is distributed at least annually.
You have three choices for receiving dividends and distributions: the
Reinvestment Option, the Cash Option and the Directed Dividend Option.
* Under the Reinvestment Option, all dividends and distributions are
automatically invested in additional shares of the Fund. You are
automatically assigned this option unless you select one of the other two
options.
* Under the Cash Option, you are paid all dividends and distributions in
cash.
<PAGE>
* Under the Directed Dividend Option, if you own $10,000 or more of the
Fund's shares in a single account, you can have the Fund's dividends and
distributions reinvested in shares of another fund of Norwest Advantage
Funds. Call or write the transfer agent for more information about 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.
All dividends and distributions reinvested in a fund are reinvested at the
fund's net asset value as of the payment date of the dividend or distribution
TAX MATTERS
The Fund's dividends of net investment income (including net short-term capital
gain) are taxable as ordinary income. Net capital gain may be taxable at
different rates depending on the length of time the Fund holds its assets.
Dividends or a distribution made shortly after you purchase shares, although in
effect a return of capital to you, are taxable.
9. OTHER INFORMATION
INVESTMENT POLICIES
Except as otherwise indicated, the Fund's investment policies are not deemed to
be fundamental and may be changed by the Board without shareholder approval.
DETERMINATION OF NET ASSET VALUE
The Fund determines its net asset value at 3:00p.m., Eastern Time, on each Fund
Business Day by dividing the value of its 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.
In order to maintain net asset value per share at $1.00, the Fund values its
portfolio securities at amortized cost. Amortized cost valuation involves
valuing an instrument at its cost and then assuming a constant amortization to
maturity of any discount or premium. If the market value of the Fund's portfolio
deviates more than 1/2 of 1% from the value determined on the basis of amortized
cost, the Board will consider whether to take any action to prevent any material
effect on shareholders.
The Core Portfolio follows similar procedures in determining its net asset
value.
YEAR 2000
The Fund could be adversely affected if the computer systems used by the Adviser
and other service providers to the Fund do not properly process and calculate
date-related information and data from and after January 1, 2000. Norwest and
the Fund's manager are taking steps to address the Year 2000 issue for their
computer systems and to obtain reasonable assurances that comparable steps are
being taken by the Fund's other major service providers. There can be no
assurance that these steps will be sufficient to avoid any adverse impact on the
Fund.
CORE PORTFOLIOS
The Fund bears its pro rata portion of the expenses of the Core Portfolio. The
Board may redeem the Fund's investment in the Core Portfolio. The Fund could
then invest directly in portfolio securities or could re-invest in one or more
different Core Portfolios that could have different fees and expenses. The Fund
might redeem, for example, if other investors had sufficient voting power to
change the investment objectives or policies of the Core Portfolio in a manner
detrimental to the Fund.
NO ONE HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE STATEMENT OF
ADDITIONAL INFORMATION AND THE FUND'S OFFICIAL SALES LITERATURE. ANY SUCH
<PAGE>
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE FUND. 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.
<PAGE>
<PAGE>
If you would like more information about the Fund and its investments, you may
want to read the following documents:
STATEMENT OF ADDITIONAL INFORMATION. The Fund's statement of additional
information, or "SAI," contains detailed information about the Fund, such as its
investments, management and organization. It is incorporated into this
Prospectus by reference.
ANNUAL AND SEMI-ANNUAL REPORTS. Additional Information about the Fund's
investments is available in its annual and semi-annual reports to shareholders.
In the annual report, the Fund's portfolio manager discusses the market
conditions and investment strategies that significantly affected the Fund's
performance during its last fiscal year.
You may obtain free copies of the SAI, annual report and semi-annual report by
contacting your broker, trust officer or by contacting the Fund's distributor,
Forum Financial Services, Inc., at Two Portland Square, Portland, Maine 04101,
1-800-XXX-XXXX or 1-207-879-0001.
The Fund's reports and statement of additional information are available from
the Securities and Exchange Commission in Washington, D.C. You may obtain copies
of these documents, upon payment of a duplicating fee, by writing the Public
Reference Section of the SEC, Washington D.C. 20549-6009. Please call
1-800-SEC-0330 for information about the operation of the SEC's public reference
room. The Fund's reports and other information are also available on the SEC's
Web Site at http:// www.sec.gov.
The SEC's Investment Company Act file number for the Fund is 811-4881.
<PAGE>
NORWEST ADVANTAGE FUNDS
SMALL COMPANY GROWTH FUND
PROSPECTUS
October 1, 1998
AN INVESTMENT IN THE FUND IS NOT A DEPOSIT OF NORWEST BANK MINNESOTA, N.A. AND
IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
INVESTING IN ANY MUTUAL FUND HAS RISK, AND IT IS POSSIBLE TO LOSE MONEY BY
INVESTING IN THE FUND.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED WHETHER OR NOT THIS PROSPECTUS IS ACCURATE OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
PAGE
1. OVERVIEW.................................................................
2. FINANCIAL HIGHLIGHTS.....................................................
3. INVESTMENT OBJECTIVE AND POLICIES........................................
4. MANAGEMENT OF THE FUND........... .......................................
5. PURCHASES AND REDEMPTIONS OF SHARES......................................
6. DIVIDENDS AND TAX MATTERS................................................
7. OTHER INFORMATION........................................................
<PAGE>
1. OVERVIEW
The following is a summary of information about the Fund. Before investing, you
should consider the discussion under Investment Objectives and Policies.
WHO SHOULD INVEST
The Fund is not a complete or balanced investment program, but can serve as a
part of your overall investment program.
THE FUND AT A GLANCE
The Fund seeks to provide long-term capital appreciation by investing primarily
in stocks of small and medium-size domestic companies growing rapidly or
completing a period of significant change.
CLASSES OF SHARES
This Prospectus offers I Shares of the Fund. I Shares are designed for certain
clients of bank trust departments, trust companies and investment advisers.
FUND STRUCTURES
The Fund invests in another fund identified in this prospectus as the Core
Portfolio. Except when necessary to describe the Fund's investment in the Core
Portfolio, this prospectus discusses the Fund's investments in the Core
Portfolio as if the investments were made directly in portfolio securities.
MANAGEMENT OF THE FUND
NORWEST INVESTMENT MANAGEMENT, INC. or NORWEST is the investment adviser for the
Core Portfolio. Norwest, a subsidiary of Norwest Bank Minnesota, N.A. or Norwest
Bank, provides investment advice to institutions, pension plans and other
accounts and currently manages more than $23.6 billion in assets. An INVESTMENT
SUBADVISER makes investment decisions for the Core Portfolio under Norwest's
general supervision. This prospectus generally refers to Norwest or the
subadviser as an Adviser.
PURCHASE AND REDEMPTION OF SHARES
You may purchase or redeem shares without sales or other charges. I Shares
require a minimum initial investment of $1,000 and minimum subsequent
investments of $100. The Fund is currently closed to new investors.
EXCHANGES
<PAGE>
If you own shares of the Fund, you may exchange them for shares of certain other
funds.
DIVIDENDS AND DISTRIBUTIONS
The Fund's net capital gain, if any, is distributed to shareholders at least
annually. The Fund pays dividends of net investment income annually.
RISK FACTORS
Investments in the Fund are subject to risk and may decline in value. The Fund
is subject to "market risk," which is the general risk that the value of the
Fund's investments may decline if the stock markets perform poorly. There is a
risk that the Fund's investments will underperform either the securities markets
generally or particular segments of the securities markets.
The Fund is riskier than other equity funds because it invests in smaller and
foreign issuers. Investments in smaller issuers are subject to greater changes
in value because securities of smaller issuers may not trade as often or be as
widely owned as the securities of larger issuers. Investments in foreign issuers
are subject to the risks of foreign political and economic instability and
changes in foreign exchange rates. Foreign investments are also subject to
government actions, including exchange controls and limits on repayments of
foreign investments. Foreign governments may nationalize, tax or confiscate
investors' assets.
The Fund also has the risk that its Adviser may not be successful in carrying
out its investment strategy and that the Fund's particular investment strategy
may result in performance that is worse or better than the performance of the
market as a whole. Your investment in the Fund will have risk if you do not plan
to invest for long enough to permit the investment to recover from an adverse
market movement.
EXPENSES OF INVESTING IN THE FUND
The following table will assist you in understanding the expenses that you will
bear directly or indirectly if you invest in the Fund. There are no transaction
charges for purchasing, redeeming or exchanging shares. The Fund does not have
distribution expenses or Rule 12b-1 fees.
ANNUAL FUND OPERATING EXPENSES(1) (2)
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS AFTER APPLICABLE FEE WAIVERS AND
EXPENSE REIMBURSEMENTS)
Total
-----
Investment Other Expenses Operating
---------- -------------- ---------
Advisory Fees(3) Expenses
--------------- --------
0.90% 0.35% 1.25%
(1) The Fund bears its pro rata share of the expenses of the Core Portfolio.
<PAGE>
(2) Absent expense reimbursements and fee waivers the Fund's expenses would
be: Other Expenses, 0.40%; and Total Operating Expenses, 1.30%. Except
as otherwise noted, expense reimbursements and fee waivers are
voluntary and may be reduced or eliminated at any time.
(3) Investment Advisory Fees reflect the investment advisory fee incurred
by the Core Portfolio.
EXAMPLE
The following hypothetical example indicates the dollar amount of expenses you
would pay, assuming a $1,000 investment in the Fund's shares, the expenses
listed in Annual Fund Operating Expenses, 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
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
13 40 69 151
<PAGE>
2. FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance over the Fund's operating history. Certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have earned on an investment in
the Fund, assuming reinvestment of all dividends and distributions. The
information from May 31, 1994 through May 31, 1998 has been audited by
_______________, independent auditors, whose reports, along with the Fund's
financial statements, are included in the Annual Report for the Fund, which is
available upon request. Other independent auditors audited information for prior
periods.
<PAGE>
3. INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE. The investment objective of the Fund is to provide
long-term capital appreciation by investing in smaller domestic companies.
INVESTMENT POLICIES. The Fund invests primarily in the common stock of small and
medium-sized domestic companies that are either growing rapidly or completing a
period of significant change. Small companies are those companies whose market
capitalization (the total market value of a company's outstanding common stock)
is less than the largest stock in the Russell 2,000 Index. The Fund considers
smaller companies to be those with market capitalizations less than $1 billion
at the time of the Fund's purchase.
In selecting securities for the Fund, the Adviser 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.
The Adviser may invest up to 10% of the Fund's total assets in foreign
securities. The Adviser will not invest more than 10% of the Fund's total assets
in the securities of a single issuer.
The Fund has the following types of risks, which are listed in alphabetical
order:
CURRENCY RATE RISK. The risk that fluctuations in the exchange rates between the
U.S. dollars and foreign currencies may negatively affect an investment.
FOREIGN RISK. The risk that foreign issuers may be subject to foreign political
and economic instability, 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 investors' assets.
LEVERAGE RISK. The risk that some derivative investments, such as forward
commitment transactions, may multiply smaller market movements into large
changes in value.
MARKET RISK. The risk that the market value of the Fund's investments will
fluctuate as the stock and bond markets fluctuate. Market risk may affect a
single issuer, industry or section of the economy or may affect the market as a
whole.
SMALL COMPANY RISK. The risk that investments in smaller companies may be more
volatile than investments in larger companies. Smaller companies generally
experience higher growth rates and higher failure rates than do larger
companies. The trading volume of the securities of smaller companies is normally
lower than that of larger companies. Short term changes in the demand for the
securities of smaller companies generally has a disproportionate effect on their
market price, tending to make prices rise more in response to buying demand and
fall more in response to selling pressure.
<PAGE>
4. MANAGEMENT OF THE FUND
INVESTMENT ADVISORY SERVICES
NORWEST INVESTMENT MANAGEMENT, INC. is the investment adviser for the Core
Portfolio. In this capacity, Norwest makes investment decisions for and
administers the Core Portfolio's investment programs. Norwest receives an
investment advisory fee from the Core Portfolio equal to 0.90% of the Core
Portfolio's average daily net assets.
NORWEST INVESTMENT MANAGEMENT, INC., NORWEST CENTER, SIXTH STREET AND MARQUETTE,
MINNEAPOLIS, MN 55479
Norwest and the Core Portfolio have retained PEREGRINE CAPITAL MANAGEMENT, INC.
or PEREGRINE to make investment decisions for and administer the investment
program of the Core Portfolio. Peregrine, an investment advisory subsidiary of
Norwest Bank, provides investment advisory services to corporate and public
pension plans, profit sharing plans, savings-investment plans and 401(k) plans.
Norwest decides which portion of the assets of the Core Portfolio Peregrine
should manage and supervises Peregrine's performance of its duties. Norwest (and
not the Core Portfolio) pays Peregrine's investment subadvisory fee. The
investment subadvisory fee does not increase the amount of the investment
advisory fee paid to Norwest by the Core Portfolio.
PEREGRINE CAPITAL MANAGEMENT, INC., LASALLE PLAZA, 800 LASALLE AVE., SUITE 1850,
MINNEAPOLIS, MN 55402.
PORTFOLIO MANAGERS: Robert B. Mersky, CFA (19__), and Paul E. von Kuster, CFA
(19__) are primarily responsible for the day-to-day management of the Fund's
investments. Mr. Mersky and Mr. Von Kuster became portfolio managers of the Core
Portfolio in 19__ and 19__, respectively. Mr. Mersky, the President of
Peregrine, has held various investment management positions with Norwest,
Peregrine and their affiliates since 1977 and was head of investments for
Norwest Bank from 1980 to 1984. Mr. von Kuster, a Senior Vice President of
Peregrine, has held various investment management positions with Peregrine,
Norwest and their affiliates since 1972.
DORMANT INVESTMENT ADVISORY ARRANGEMENTS
Norwest has been retained as a "dormant" or "back-up" investment adviser to
manage any assets redeemed and invested directly by the Fund. Norwest does not
receive any compensation under this arrangement as long as the Fund invests
entirely in the Core Portfolio. If the Fund redeems assets from the Core
Portfolio and invests them directly, Norwest receives an investment advisory fee
from the Fund for the management of those assets. Norwest and the Fund have also
retained Peregrine as a dormant subadviser.
<PAGE>
5. PURCHASES AND REDEMPTIONS OF SHARES
You may purchase or redeem shares at a price equal to their net asset value next
determined after acceptance of an order, or receipt of a redemption request, on
"Fund Business Days." Fund Business Days are all weekdays except generally
observed 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.
GENERAL PURCHASE INFORMATION
You may purchase shares directly or through a financial institution. The Fund's
transfer agent processes all transactions in Fund shares.
You may purchase and redeem Fund shares without a sales or redemption charge. I
Shares require a minimum initial investment of $1,000 and minimum subsequent
investments of $100. Your Fund shares will become eligible to receive dividends
the Fund Business Day after your purchase order is accepted.
The Fund reserves the right to reject any subscription for the purchase of
shares, including subscriptions by market timers. You will receive share
certificates for your shares only if you request them in writing. No
certificates are issued for fractional shares.
PURCHASING SHARES DIRECTLY
You may obtain an account application by writing Norwest Advantage Funds at the
following address:
Norwest Advantage Funds
Small Company Growth Fund
Norwest Bank Minnesota, N.A.
Transfer Agent
733 Marquette Avenue
Minneapolis, MN 55479-0040
When you sign an application for a new Fund account, you are certifying that
your Social Security number or other taxpayer identification number is correct
and that you are not subject to backup withholding. If you violate certain
federal income tax provisions, the Internal Revenue Service can require the Fund
to withhold 31% of your distributions and redemptions.
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.
Call or write the transfer agent if you wish to participate in shareholder
services not offered on the account application or change information on your
account (such as addresses). Norwest Advantage
<PAGE>
Funds may in the future modify, limit or terminate any shareholder privilege
upon appropriate notice and may charge a fee for certain shareholder services,
although no such fees are currently contemplated. You may terminate your
participation in any shareholder program by writing to Norwest Advantage Funds.
PURCHASES BY MAIL. You may send a check or money order (cash cannot be accepted)
along with a completed account application to Norwest Advantage Funds 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 your check does not clear, the purchase order will be canceled and
you will be liable for any losses or fees incurred by Norwest Advantage Funds,
the transfer agent or the Fund's distributor.
To purchase shares for individual or Uniform Gift to Minors Act accounts, you
must write a check or purchase a money order payable to Norwest Advantage Funds
or endorse a check made out to you to Norwest Advantage Funds. For corporation,
partnership, trust, 401(k) plan or other non-individual type accounts, make the
check used to purchase shares payable to Norwest Advantage Funds. No other
methods of payment by check will be accepted for these types of accounts.
PURCHASES BY BANK WIRE. You must first telephone the Fund's transfer agent at
1-612-667-8833 or 1-800-338-1348 to obtain an account number before making an
initial investment in the Fund by bank wire. Then instruct your bank to wire
your money immediately to:
Norwest Bank Minnesota, N.A.
A091 000 019
For Credit to: Norwest Advantage Funds 0844-131
Re: Small Company Growth Fund, I Shares
Account No.:
Account Name:
Complete and mail the account application promptly. Your bank may charge for
transmitting the money by wire. The Fund does not charge for the receipt of wire
transfers. The Fund treats payment by bank wire as a federal funds payment when
received.
PURCHASES THROUGH FINANCIAL INSTITUTIONS
You may purchase and redeem shares through certain broker-dealers, banks and
other financial institutions. When you purchase the Fund's shares through a
financial institution, the shares may be held in your name or in the name of the
financial institution. Subject to your institution's procedures, you may have
Fund shares held in the name of your financial institution transferred into your
name. If your shares are held in the name of your financial institution, you
must contact the financial institution on matters involving your shares. Your
financial institution may charge you for purchasing, redeeming or exchanging
shares.
<PAGE>
SUBSEQUENT PURCHASES OF SHARES
You can make subsequent purchases by mailing a check, by sending a bank wire or
through a financial institution as indicated above. All payments should clearly
indicate your name and account number.
GENERAL REDEMPTION INFORMATION
You may redeem Fund shares at their net asset value on any Fund Business Day.
There is no minimum period of investment and no restriction on the frequency of
redemptions.
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 after the day on which the
redemption is effective.
Normally, redemption proceeds are paid immediately following acceptance of a
redemption order. In any event, you will be paid within seven days, unless (i)
your bank has not cleared the check to purchase the shares (which may take up to
15 days), (ii) the New York Stock Exchange is closed (or trading is restricted)
for any reason other than normal weekend or holiday closings, (iii) there is an
emergency in which it is not practical for the Fund to sell its portfolio
securities or for the Fund to determine its net asset value or (iv) the
Securities and Exchange Commission deems it inappropriate for redemption
proceeds to be paid. You can avoid the delay of waiting for your bank to clear
your check by paying for shares with wire transfers. Unless otherwise indicated,
redemption proceeds normally are paid by check mailed to your record address.
To protect against fraud, the following must be in writing with a signature
guarantee: (1) endorsement on a share certificate; (2) instruction to change
your 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 elections; (6) election of
telephone redemption privileges; (7) election of exchange or other privileges in
connection with your account; (8) written instruction to redeem shares whose
value exceeds $50,000; (9) redemption in an account when 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 payment of redemption proceeds to any address, person or account for
which there are not established standing instructions.
You may obtain signature guarantees at any of the following types of
organizations: authorized banks, broker-dealers, national securities exchanges,
credit unions, savings associations or other eligible institutions. The specific
institution must be 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.
<PAGE>
The Fund and the transfer agent will use reasonable procedures to verify that
telephone requests are genuine, including recording telephone instructions and
sending written confirmations of the transactions. Such procedures are necessary
because the Fund and transfer agent could be liable for losses due to
unauthorized or fraudulent telephone instructions. You should verify the
accuracy of a telephone instruction as soon as you receive the confirmation
statement. Telephone redemption and exchanges may be difficult to implement in
times of drastic economic or market changes. If you cannot reach the transfer
agent by telephone, you may mail or hand-deliver requests to the transfer agent.
Because of the cost of maintaining smaller accounts, Norwest Advantage Funds may
redeem, upon not less than 60 days' written notice, any account with a net asset
value of less than $1,000 immediately following any redemption.
REDEMPTION PROCEDURES
If you have invested directly in the Fund you may redeem your shares as
described below. If you have invested through a financial institution you may
redeem shares through the financial institution. If you wish to redeem shares by
telephone or receive redemption proceeds by bank wire you should complete the
appropriate sections of the account application. These privileges may not be
available until several weeks after the application is received. You may not
redeem certificated shares by telephone.
REDEMPTION BY MAIL. You may redeem shares by sending a written request to the
transfer agent accompanied by any share certificate you have been issued. Sign
all requests and endorse all certificates with signatures guaranteed.
REDEMPTION BY TELEPHONE. If you have elected telephone redemption privileges,
you may redeem shares by telephoning the transfer agent at 1-800-338-1348 or
1-612-667-8833 and providing your shareholder account number, the exact name in
which the shares are registered and your Social Security number or other
taxpayer identification number. Norwest Advantage Funds will mail a check to
your record address or, if you have chosen wire redemption privileges, wire the
proceeds.
REDEMPTION BY BANK WIRE. If you have elected wire redemption privileges, you may
request the Fund to transmit redemption proceeds of more than $5,000 by federal
funds wire to a bank account you have designated in writing. You must have
chosen the telephone redemption privilege to request bank redemptions by
telephone. Redemption proceeds are transmitted by wire on the Fund Business Day
after the transfer agent receives a redemption request in proper form.
EXCHANGES
You may exchange your shares for shares of other funds of Norwest Advantage
Funds. Call or write the transfer agent for more information.
The Fund does not charge for exchanges, and there is currently no limit on the
number of exchanges you may make. The Fund, however, may limit your ability to
exchange shares if you
<PAGE>
exchange too often. Exchanges are subject to the fees charged by, and the
limitations (including minimum investment restrictions) of the fund into which
you are exchanging.
You may only exchange shares into a pre-existing account if that account is
identically registered. You must submit a new account application if you wish to
exchange shares into an account registered differently or with different
shareholder privileges. You may exchange into a fund only if that fund's shares
may legally be sold in your state of residence.
The Fund and federal tax law treat an exchange as a redemption and a purchase of
shares. You may realize a capital gain or loss depending on whether the value of
the shares redeemed is more or less than your basis in the shares at the time of
the exchange. The Fund may amend or terminate exchange procedures on 60 days'
notice.
EXCHANGES BY MAIL. You may make an exchange by sending a written request to the
transfer agent accompanied by any share certificates for the shares to be
exchanged. Sign all written requests and endorse all certificates with signature
guaranteed.
EXCHANGES BY TELEPHONE. If you have telephone exchange privileges, you may make
a telephone exchange by calling the transfer agent at 1-800-338-1348 or
1-612-667-8833 and giving your account number, the exact name in which the
shares are registered and your Social Security number or other taxpayer
identification number.
<PAGE>
6. DIVIDENDS AND TAX MATTERS
DIVIDENDS
Dividends of net investment income are declared and paid annually. The Fund's
net capital gain, if any, is distributed at least annually.
You have three choices for receiving dividends and distributions: the
Reinvestment Option, the Cash Option and the Directed Dividend Option.
* Under the Reinvestment Option, all dividends and distributions of the Fund
are automatically invested in additional shares of the Fund. You are
automatically assigned this option unless you select one of the other two
options.
* Under the Cash Option, you are paid all dividends and distributions in
cash.
* Under the Directed Dividend Option, if you own $10,000 or more of the
Fund's shares in a single account, you can have the Fund's dividends and
distributions reinvested in shares of another fund of Norwest Advantage
Funds. Call or write the transfer agent for more information about 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.
All dividends and distributions reinvested in a fund are reinvested at the
fund's net asset value as of the payment date of the dividend or distribution
TAX MATTERS
Dividends paid by the Fund out of its net investment income (including net
short-term capital gain) are taxable as ordinary income. Net capital gain may be
taxable at different rates depending on the length of time the Fund holds its
assets. Dividends and distributions reduce the net asset value of the Fund by
the amount of the dividend or distribution. Furthermore, dividends or a
distribution made shortly after you purchase shares, although in effect a return
of capital to you, are taxable. The income from the Fund's foreign investments
may be subject to foreign income or other taxes.
7. OTHER INFORMATION
TEMPORARY DEFENSIVE POSITION
In an attempt to respond to adverse market, economic, political, or other
conditions, the Fund may assume a temporary defensive position and invest
without limit in cash and cash equivalents.
<PAGE>
During periods when and to the extent that the Fund has assumed a temporary
defensive position, it may not be pursuing its investment objective.
PORTFOLIO TRANSACTIONS
From time to time the Fund may engage in active short-term trading to take
advantage of price movements affecting individual issues, groups of issues or
markets. Higher portfolio turnover rates may result in increased brokerage costs
to the Fund and a possible increase in short-term capital gains or losses.
YEAR 2000
The Fund could be adversely affected if the computer systems used by the
Advisers and other service providers to the Fund do not properly process and
calculate date-related information and data from and after January 1, 2000.
Norwest and the Fund's manager are taking steps to address the Year 2000 issue
for their computer systems and to obtain reasonable assurances that comparable
steps are being taken by the Fund's other major service providers. There can be
no assurance that these steps will be sufficient to avoid any adverse impact on
the Fund.
DETERMINATION OF NET ASSET VALUE
The Fund determines its net asset value at 4:00 p.m. on each Fund Business Day
by dividing the value of its net assets (i.e. the value of its securities and
other assets less its liabilities) by the number of shares outstanding at the
time the determination is made.
The Fund values portfolio securities at current market value if market
quotations are readily available. If market quotations are not readily
available, the Fund values those securities at fair value as determined by or
pursuant to procedures adopted by the Board of Trustees of Norwest Advantage
Funds.
The Core Portfolio follows similar procedures in determining its net asset
value.
European, Far Eastern and other international securities exchanges and
over-the-counter markets normally complete trading well before the close of
business on each Fund Business Day. Trading in foreign securities, however, may
not take place on all Fund Business Days or may take place on days that are not
Fund Business Days. The determination of the prices of foreign securities may be
based on the latest market quotations for the securities. If events occur that
affect the securities' value after the close of the markets on which they trade,
the Fund may make an adjustment to the value of the securities for purposes of
determining net asset value.
<PAGE>
For purposes of determining net asset value, the Fund converts all assets and
liabilities denominated in foreign currencies 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.
CORE PORTFOLIOS
The Fund bears its pro rata portion of the expenses of the Core Portfolio. The
Board of Trustees may redeem the Fund's investment in the Core Portfolio at any
time. The Fund could then invest directly in portfolio securities or could
re-invest in one or more different Core Portfolios that could have different
fees and expenses. The Fund might redeem, for example, if other investors had
sufficient voting power to change the investment objectives or policies of the
Core Portfolio in a manner detrimental to the Fund.
NO ONE HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE STATEMENT OF
ADDITIONAL INFORMATION AND THE FUND'S OFFICIAL SALES LITERATURE. ANY SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE FUND. 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.
<PAGE>
If you would like more information about the Fund and its investments, you may
want to read the following documents:
STATEMENT OF ADDITIONAL INFORMATION. The Fund's statement of additional
information, or "SAI," contains detailed information about the Fund, such as its
investments, management and organization. It is incorporated into this
Prospectus by reference.
ANNUAL AND SEMI-ANNUAL REPORTS. Additional Information about the Fund's
investments is available in its annual and semi-annual reports to shareholders.
In the annual report, the Fund's portfolio manager discusses the market
conditions and investment strategies that significantly affected the Fund's
performance during its last fiscal year.
You may obtain free copies of the SAI, annual report and semi-annual report by
contacting your broker, trust officer or by contacting the Fund's distributor,
Forum Financial Services, Inc., at Two Portland Square, Portland, Maine 04101,
1-800-XXX-XXXX or 1-207-879-0001.
The Fund's reports and statement of additional information are available from
the Securities and Exchange Commission in Washington, D.C. You may obtain copies
of these documents, upon payment of a duplicating fee, by writing the Public
Reference Section of the SEC, Washington D.C. 20549-6009. Please call
1-800-SEC-0330 for information about the operation of the SEC's public reference
room. The Fund's reports and other information are also available on the SEC's
Web Site at http:// www.sec.gov.
The SEC's Investment Company Act file number for the Fund is 811-4881.
<PAGE>
NORWEST ADVANTAGE FUNDS
STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 1, 1998
- --------------------------------------------------------------------------------
Cash Investment Fund Minnesota Tax-Free Fund
Ready Cash Investment Fund Strategic Income Fund
U.S. Government Fund Moderate Balanced Fund
Treasury Plus 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 International Fund
<PAGE>
NORWEST ADVANTAGE FUNDS
STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 1, 1998
ACCOUNT INFORMATION AND
SHAREHOLDER SERVICING: DISTRIBUTION:
Norwest Bank Minnesota, N.A. Forum Financial Services, Inc.
Transfer Agent Manager and Distributor
733 Marquette Avenue Two Portland Square
Minneapolis, MN 55479-0040 Portland, Maine 04101
(612) 667-8833/(800) 338-1348 (207) 879-1900
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
October 1, 1998, as may be amended from time to time, offering the following
classes of shares of the series of Norwest Advantage Funds: Cash Investment
Fund, Ready Cash Investment Fund (Public Entities Shares, Investor Shares and
Exchange Shares), U.S. Government Fund, Treasury Plus Fund, Treasury Fund,
Municipal Money Market Fund (Institutional Shares and Investor Shares), A
Shares, B Shares and I Shares of Stable Income Fund, Intermediate Government
Income Fund, Income Fund, Total Return Bond Fund, Tax-Free Income Fund, Colorado
Tax-Free Fund, Minnesota Tax-Free Fund, ValuGrowth Stock Fund, Small Company
Stock Fund, Small Cap Opportunities Fund and International Fund, A Shares, B
Shares, C Shares and I Shares of Growth Balanced Fund, Income Equity Fund,
Diversified Equity Fund and Growth Equity Fund and I Shares Limited Term
Government Income Fund, Diversified Bond Fund, Limited Term Tax-Free Fund,
Minnesota Intermediate Tax-Free Fund, Strategic Income Fund, Moderate 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> <C>
TABLE OF CONTENTS
Page
Introduction
1. Investment Policies
Security Ratings Information
Money Market Fund Matters
Fixed Income Investments
Mortgage-Backed And Asset-Backed Securities
Interest Rate Protection Transactions
Hedging And Option Income Strategies
Foreign Currency Transactions
Equity Securities and Additional Information Concerning the Equity Funds
Illiquid Securities and Restricted Securities
Borrowing And Transactions Involving Leverage
Repurchase Agreements
Temporary Defensive Position
2. Information Concerning Colorado and Minnesota
Colorado
Minnesota
3. Investment Limitations
Fundamental Limitations
Non-Fundamental Limitations
4. Performance and Advertising Data
SEC Yield Calculations
Total Return Calculations
Multiclass, Collective Trust Fund and Core-Gateway Performance
Other Advertisement Matters
5. Management
Trustees and Officers
Investment Advisory Services
Management and Administrative Services
Distribution
Transfer Agent
Custodian
Portfolio Accounting
Expenses
6. Portfolio Transactions
7. Additional Purchase and Redemption Information Statement of
Intention Exchanges Redemptions Contingent Deferred Sales
Charge (A Shares) Contingent Deferred Sales Charge (A Shares
and B Shares) Conversion of B Shares and Exchange Shares
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
TABLE OF CONTENTS
Page
8. Taxation
9. Additional Information About the Trust and the Shareholders of
the Funds Determination of Net Asset Value - Money Market
Funds Counsel and Auditors General Information Shareholdings
Financial Statements Registration Statement
Appendix A - Description of Securities Ratings A-1
Appendix B - Miscellaneous Tables B-1
Table 1 - Investment Advisory Fees B-
Table 2 - Management Fees B-
Table 3 - Distribution Fees B-
Table 4 - Sales Charges B-
Table 5 - Accounting Fees B-
Table 6 - Commissions B-
Table 7 - 5% Shareholders B-
Appendix C - Performance Data C-1 Table 1 - Money Market Fund C-1 Table
2 - Yields C-1 Table 3 - Total Returns C-
Appendix D - Other Advertisement Matters D-1
</TABLE>
<PAGE>
INTRODUCTION
GLOSSARY
"Adviser" means Norwest, Schroder or a Subadviser.
"Board" means the Board of Trustees of the Trust.
"Balanced Fund" means Strategic Income Fund, Moderate Balanced Fund,
Growth Balanced Fund and Aggressive
Balanced-Equity Fund.
"CFTC" means the U.S. Commodities Futures Trading Commission.
"Code" means the Internal Revenue Code of 1986, as amended.
"Core Portfolio" means 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, series of Core Trust, and Schroder U.S. Smaller Companies
Portfolio and Schroder EM Core Portfolio, two series of Schroder Core.
"Core Trust" means Core Trust (Delaware), an open-end, management
investment company registered under the 1940 Act.
"Core Trust Board" means the Board of Trustees of Core Trust.
"Crestone" means Crestone Capital Management, Inc., the investment
subadvisor to Small Company Stock Portfolio, 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.
"Custodian" means Norwest Bank acting in its capacity as custodian of a
Fund.
"Equity Fund" means Income Equity Fund, Index 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 and International
Fund.
"FAS" means Forum Administrative Services, Limited Liability Company,
the Trust's administrator.
"Fitch" means Fitch IBCA, Inc.
"Forum" means Forum Financial Services, Inc., a registered
broker-dealer and distributor of the Trust's shares.
"Forum Accounting" means Forum Accounting Services, Limited Liability
Company, the Trust's fund accountant.
"Fund" means each of the thirty-two separate series of the Trust to
which this SAI relates as identified on the cover page.
"Galliard" means Galliard Capital Management, Inc., the investment
subadviser to Stable Income Portfolio, Strategic Value Bond Portfolio,
Managed Fixed Income Portfolio, Stable Income Fund, Diversified Bond
<PAGE>
Fund, Strategic Income Fund, Moderate Balanced Fund, Growth Balanced
Fund and Aggressive Balanced-Equity Fund.
"Income Funds" means 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" means Cash Investment Fund, Ready Cash Investment
Fund, U.S. Government Fund, Treasury Plus Fund, Treasury Fund and
Municipal Money Market Fund.
"Moody's" means Moody's Investors Service.
"Norwest" means Norwest Investment Management, Inc., the investment
adviser to each Fund and each Core Portfolio except Schroder U.S.
Smaller Companies Portfolio, International Portfolio and Schroder EM
Core Portfolio.
"Norwest Bank" means Norwest Bank Minnesota, N.A.
"NRSRO" means a nationally recognized statistical rating organization.
"Peregrine" means Peregrine Capital Management, Inc., the investment
subadviser to Positive Return Bond Portfolio, Small Company Value
Portfolio, Large Company Growth Portfolio, Small Company Growth
Portfolio, 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.
"Schroder" means Schroder Capital Management Inc., the investment
subadviser to Diversified Equity Fund, Growth Equity Fund,
International Fund, Strategic Income Fund, Moderate Balanced Fund,
Growth Balanced Fund and Aggressive Balanced-Equity Fund and
investment adviser to Schroder U.S. Smaller Companies Portfolio,
Schroder EM Core Portfolio and International Portfolio.
"Schroder Advisors" means Schroder Fund Advisors Inc., the
administrator to Schroder U.S. Smaller Companies Portfolio and
Schroder EM Core Portfolio.
"Schroder Core" means Schroder Capital Funds, an open-end, management
investment company registered under the 1940 Act.
"Schroder Core Board" means the Board of Trustees of Schroder Core.
"SEC" means the U.S. Securities and Exchange Commission.
"S&P" means Standard & Poor's.
"Smith" means Smith Asset Management Group, L.P.
"Stock Index Futures" means futures contracts that relate to
broadly-based stock indices.
"Subadviser" means Crestone Capital Management, Inc., Galliard Capital
Management, Inc., Peregrine Capital Management, Inc., Schroder Capital
Management Inc. and Smith Asset Management Group, L.P.
"Tax Free Income Fund" means 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" means Norwest Bank acting in its capacity as transfer
and dividend disbursing agent of a Fund.
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"Trust" means Norwest Advantage Funds.
"U.S. Government Securities" means obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities.
"U.S. Treasury Securities" means obligations issued or guaranteed by
the U.S. Treasury.
"1933 Act" means the Securities Act of 1933, as amended.
"1940 Act" means the Investment Company Act of 1940, as amended.
The Trust was originally organized under the name "Prime Value Funds, Inc." as a
Maryland corporation on August 29, 1986. On July 30, 1993, Prime Value Funds,
Inc. was reorganized as a Delaware business trust under the name "Norwest
Funds." The Trust is currently named "Norwest Advantage Funds."
Norwest, a subsidiary of Norwest Bank, is each Funds' investment adviser.
Norwest also is the investment adviser of each Core Portfolio except Schroder
U.S. Smaller Companies Portfolio, Schroder EM Core Portfolio and International
Portfolio. Norwest Bank, a subsidiary of Norwest Corporation, is the Trust's
transfer agent, dividend disbursing agent and custodian. Norwest employs the
Subadvisers to subadvise certain of the Funds and Core Portfolios. Forum serves
as the Trust's manager and as distributor of the Trust's shares. FAS serves as
each Fund's administrator.
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 Core Portfolio with substantially similar investment
objectives and policies.
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 more than one Core
Portfolio. 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."
The other Funds invest directly in portfolio securities.
Each Fund that invest in one or more Core Portfolios bears its pro rata share of
the expenses of the Core Portfolio(s) in which the it invests.
1. INVESTMENT POLICIES
The following discussion supplements the disclosure in the prospectuses about
each Fund's investments, investment techniques, strategies and risks (as well as
those of any Core Portfolio(s), in which the Fund invests). Certain 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). If a Fund
that invests in one or more Core Portfolios is described as being able to make a
certain type of investment, the Fund is making that type of investment through
the Core Portfolio or Core Portfolios.
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SECURITY RATINGS INFORMATION
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 invests at least 65% of its assets in debt securities that are
considered investment grade, which means rated in the top four long-term rating
categories or top two short-term rating categories by an NRSRO, or unrated and
determined by the Adviser to be of comparable quality. Certain Funds have
greater restrictions. T
The lowest long-term ratings that are investment grade for corporate bonds,
including convertible bonds, are "Baa" in the case of Moody's and "BBB" in the
case of S&P and Fitch; for preferred stock are "Baa" in the case of Moody's and
"BBB" in the case of S&P and Fitch; and 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.
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 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 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.
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.
Ratings are general and are not absolute standards of quality. 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.
MONEY MARKET FUND MATTERS
The MONEY MARKET Funds invest only in high quality, short-term money market
instruments determined by the Adviser, under 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 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, no Fund will 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 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.
<PAGE>
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 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.
Municipal Money Market Fund is subject to the issuer diversification rules
described in paragraph (1) under "Investment Limitations, Nonfundamental
Limitations." Except for Municipal Money Market Fund, a Money Market Fund may
not invest in a security that has received, or is deemed comparable in quality
to a security that has received, the second highest rating by the requisite
number of NRSROs (a "second tier security") if immediately after the acquisition
thereof the Fund would have invested more than (A) the greater of one percent of
its total assets or one million dollars in securities issued by that issuer
which are second tier securities, or (B) five percent of its total assets in
second tier securities.
Immediately after the acquisition of any put, no more than five percent of a
Money Market Fund's total assets may be invested in securities issued by or
subject to conditional puts from the same institution and no more than ten
percent of a Money Market Fund's total assets may be invested in securities
issued by or subject to unconditional puts (including guarantees) from the same
institution. However, these 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
<PAGE>
ALL FUNDS. 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. An
investment in a Fund that invests in fixed income securities 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.
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.
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 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.
A Fund may invest in 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 if the Adviser believes that the securities do not present
risks inconsistent with a Funds' investment objective.
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.
U.S. GOVERNMENT SECURITIES
ALL FUNDS. The Funds may invest in U.S. Government Securities that are 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, Funds
may invest in U.S. Government Securities that are supported primarily or solely
by the creditworthiness of the issuer, such as securities of the Federal
National Mortgage Association, the Federal Home Loan Mortgage Corporation and
the Tennessee Valley Authority. 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. 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
<PAGE>
ALL FUNDS (EXCEPT TREASURY FUND AND TREASURY PLUS 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.
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. 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.
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, 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.
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 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
ALL FUNDS EXCEPT THE MONEY MARKET FUNDS. 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 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.
<PAGE>
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.
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.
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 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
ALL FUNDS. A Fund may invest in Treasury Bills and separately traded principal
and interest components of securities issued or guaranteed by the U.S. Treasury.
The separately traded 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"). 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. 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
Adviser would not have chosen to sell such securities and which may result in a
taxable gain or loss.
<PAGE>
Zero coupon securities are sold at original issue discount and pay no interest
to holders prior to maturity. 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 Adviser would not have chosen to sell such
securities and which may result in a taxable gain or loss.
MUNICIPAL SECURITIES
CASH INVESTMENT FUND, MUNICIPAL MONEY MARKET FUND, FIXED INCOME FUNDS AND
TAX-EXEMPT FIXED INCOME FUNDS. 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).
The Funds may invest in 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 securities historically have not been subject to registration with the
SEC, although there have been proposals which would require registration in the
future.
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.
A 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 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. 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,
<PAGE>
class of facilities, or, in some cases, from the proceeds of a special excise or
other specific revenue source, but not from general tax revenues. Revenue bonds
are issued to finance a wide variety of capital projects including electric,
gas, water and sewer systems; highways, bridges, and tunnels; port and airport
facilities; colleges and universities; and hospitals. Many of these bonds are
additionally secured by a debt service reserve fund which can be used to make a
limited number of principal and interest payments should the pledged revenues be
insufficient. Various forms of credit enhancement, such as a bank letter of
credit or municipal bond insurance, may also be employed in revenue bond issues.
Revenue bonds issued by housing authorities may be secured in a number of ways,
including partially or fully insured mortgages, rent subsidized and/or
collateralized mortgages, and/or the net revenues from housing or other public
projects. Some authorities provide further security in the form of a state's
ability (without obligation) to make up deficiencies in the debt service reserve
fund. In recent years, revenue bonds have been issued in large volumes for
projects that are privately owned and operated, as discussed below.
Municipal bonds are considered private activity bonds if they are issued to
raise money for privately owned or operated facilities used for such purposes as
production or manufacturing, housing, health care and other nonprofit or
charitable purposes. These bonds are also used to finance public facilities such
as airports, mass transit systems and ports. The payment of the principal and
interest on such bonds is dependent solely on the ability of the facility's
owner or user to meet its financial obligations and the pledge, if any, of real
and personal property as security for such payment.
While at one time the pertinent provisions of the Code permitted private
activity bonds to bear tax-exempt interest in connection with virtually any type
of commercial or industrial project (subject to various restrictions as to
authorized costs, size limitations, state per capita volume restrictions, and
other matters), the types of qualifying projects under the Code have become
increasingly limited, particularly since the enactment of the Tax Reform Act of
1986. Under current provisions of the Code, tax-exempt financing remains
available, under prescribed conditions, for certain privately owned and operated
facilities of organizations described in Section 501(c)(3) of the Code,
multi-family rental housing facilities, airports, docks and wharves, mass
commuting facilities and solid waste disposal projects, among others, and for
the tax-exempt refinancing of various kinds of other private commercial 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.
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 LEASES. Municipal leases generally 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
<PAGE>
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 Funds 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.
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.
PUTS 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.
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 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.
<PAGE>
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.
VARIABLE AND FLOATING RATE SECURITIES
ALL FUNDS. The Funds may invest in securities (including mortgage-related
securities) with 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. 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 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. The Adviser 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. A Fund will purchase these securities only when the Adviser 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.
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
<PAGE>
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.
A Fund will not purchase participation interests in variable rate obligations
unless it is advised by counsel or receives a ruling of the Internal Revenue
Service that interest earned by the 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 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 Adviser may subscribe.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES
ALL FUNDS. 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.
<PAGE>
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. 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
<PAGE>
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.
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 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.
<PAGE>
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 Funds will not pay any additional fees for
such credit enhancement, although the existence of credit enhancement may
increase the price of security.
Examples of credit enhancement arising out of the structure of the transaction
include: (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
LIMITED TERM GOVERNMENT INCOME FUND, INTERMEDIATE GOVERNMENT INCOME FUND,
DIVERSIFIED BOND FUND, INCOME FUND, TOTAL RETURN BOND FUND, and 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.
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.
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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 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
ALL FUNDS. 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
STABLE INCOME FUND, LIMITED TERM GOVERNMENT INCOME FUND, INTERMEDIATE GOVERNMENT
INCOME FUND, DIVERSIFIED 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.
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.
Swap agreements involve risks depending upon the counterparties'
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creditworthiness and ability to perform as well as the Fund's ability to
terminate its swap agreements or reduce its exposure through offsetting
transactions.
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 the Adviser believes 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
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 AND 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
<PAGE>
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.
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 Core Portfolio would not exceed 5% of the
Core 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
<PAGE>
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.
COVERED CALLS AND HEDGING
Each 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 Core Portfolio's Adviser to
correctly predict the direction of stock prices, interest rates and other
economic factors. To the extent a Fund invests in foreign securities, it may
also invest in options on foreign currencies, foreign currency futures contracts
and options on those futures contracts. Use of these instruments is subject to
regulation by the SEC, the several options and futures exchanges upon which
options and futures are traded or the CFTC.
No assurance can be given, however, that any hedging or option income strategy
will succeed in achieving its intended result.
Except as otherwise noted in the Prospectus or herein, the Funds will not use
leverage in their option income and hedging strategies. In the case of
transactions entered into as a hedge, a Fund will hold securities, currencies or
other options or futures positions whose values are expected to offset ("cover")
its obligations thereunder. A Fund will not enter into a hedging strategy that
exposes it to an obligation to another party unless it owns either: (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
<PAGE>
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 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
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 Adviser may write call options when it believes that the market value of the
underlying security will not rise to a value greater than the exercise price
plus the premium received. Call options may also be written to provide limited
protection against a decrease in the market price of a security, in an amount
equal to the call premium received less any transaction costs.
Certain Funds may purchase and write put and call options on fixed income or
equity security indexes in much the same manner as the options discussed above,
except that index options may serve as a hedge against overall fluctuations in
the fixed income or equity securities markets (or market sectors) or as a means
of participating in an anticipated price increase in those markets. The
effectiveness of hedging techniques using index options will depend on the
extent to which price movements in the index selected correlate with price
movements of the securities which are being hedged. Index options are settled
exclusively in cash.
SCHRODER U.S. SMALLER COMPANIES PORTFOLIO. The Core 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 Core Portfolio's securities, to
permit the Core Portfolio to retain unrealized gains in the value of portfolio
securities which have appreciated, or to facilitate selling securities for
investment reasons, the Core 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 Core Portfolio will normally purchase and then terminate
the hedging position), the Core Portfolio would: (1) purchase Stock Index
Futures, or (2) purchase calls on such Futures or on securities. The Core
Portfolio's strategy of hedging with Stock Index Futures and options on such
Futures will be incidental to the Core Portfolio's activities in the underlying
cash market.
The Core 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 Core 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
<PAGE>
Stock Index Future must be covered by deliverable securities or segregated
liquid assets. If a call written by the Core Portfolio is exercised, the Core
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 Core 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 Core 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 Core 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 Core 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 Core Portfolio are taxable as ordinary income. If the Core
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 Core 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 Core Portfolio covers the call by segregating in escrow an
equivalent dollar amount of liquid assets. The Core 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 Core Portfolio to deliver a futures contract; it
would simply put the Core Portfolio in a short futures position, which is
permitted by the Core Portfolio's hedging policies.
PURCHASING CALLS AND PUTS. The Core 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 Core Portfolio may not sell puts other than those it
previously purchased, nor purchase puts on securities it does not hold. The Core
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 Core Portfolio would not exceed 5% of the Core Portfolio's total
assets.
When the Core 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
Core 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 Core Portfolio
will lose its premium payments and the right to purchase the underlying
investment. When the Core 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 the Core 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 Core
Portfolio owns enables the Core 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 Core 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).
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Purchasing a put on either a stock index or on a Stock Index Future not held by
the Core Portfolio permits the Core 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 Core 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
Core Portfolio purchases a put on a stock index, or on a Stock Index Future not
held by it, the put protects the Core 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 Core
Portfolio's delivery of the underlying investment.
STOCK INDEX FUTURES. The Core 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 Core 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 Core 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 Core 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 Core 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 Core 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 Core Portfolio, a seller of a
corresponding call on the same index will pay the Core 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 Core 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 Core Portfolio's exercise of its put, to
deliver to the Core 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. The Core
Portfolio's custodian, or a securities depository acting for the custodian, will
act as the Core Portfolio's escrow agent, through the facilities of the Options
Clearing Corporation ("OCC"), as to the securities on which the Core 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 Core 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 Core Portfolio's option activities may affect its portfolio turnover rate
and brokerage commissions. The exercise of calls written by the Core Portfolio
may cause the Core Portfolio to sell related portfolio securities, thus
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increasing its turnover rate in a manner beyond the Core Portfolio's control.
The exercise by the Core 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 Core Portfolio's control, holding a put
might cause the Core Portfolio to sell the underlying investment for reasons
which would not exist in the absence of the put. The Core 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 Core 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 Core 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
Core 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 Core 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 Core 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 Core 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 Core 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 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 Core
Portfolio purchases a Stock Index Future, the Core 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 Core 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 Core 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 Core 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 the Core 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
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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 Core
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 Core 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 Core Portfolio has used Hedging Instruments in a short hedge, the
market may advance and the value of equity securities held in the Core
Portfolio's portfolio may decline. If this occurred, the Core 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 Core 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 Core 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 Core Portfolio will realize a loss on the Hedging Instruments
that is not offset by a reduction in the price of the equity securities
purchased.
FOREIGN CURRENCY OPTIONS AND RELATED RISKS
Foreign currency options are discussed below under Foreign Currency
Transactions.
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 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.
<PAGE>
(4) A Fund's activities in the options markets may result in a higher
portfolio turnover rate and additional brokerage costs.
(5) When a Fund enters into an over-the-counter contract with a
counterparty, the Fund will assume the risk that the counterparty will fail to
perform its obligations, in which case the Fund could be worse off than if the
contract had not been entered into.
FUTURES STRATEGIES
A futures contract is a bilateral agreement wherein one party agrees to accept,
and the other party agrees to make, delivery of cash, an underlying debt
security or the currency as called for in the contract at a specified future
date and at a specified price. For futures contracts with respect to an index,
delivery is of an amount of cash equal to a specified dollar amount times the
difference between the index value at the time of the contract and the close of
trading of the contract.
A Fund may sell interest rate futures contracts in order to continue to receive
the income from a fixed income security, while endeavoring to avoid part of or
all of a decline in the market value of that security which would accompany an
increase in interest rates.
A Fund may purchase index futures contracts for several reasons: to simulate
full investment in the underlying index while retaining a cash balance for fund
management purposes, to facilitate trading, to reduce transactions costs, or to
seek higher investment returns when a futures contract is priced more
attractively than securities in the index.
A Fund may purchase call options on a futures contract as a means of obtaining
temporary exposure to market appreciation at limited risk. This strategy is
analogous to the purchase of a call option on an individual security, in that it
can be used as a temporary substitute for a position in the security itself.
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
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.
<PAGE>
Under certain circumstances, futures exchanges may establish daily limits in the
amount that the price of a futures contract or related option may vary either up
or down from the previous day's settlement price. Once the daily limit has been
reached in a particular contract, no trades may be made that day at a price
beyond that limit. Prices could move to the daily limit for several consecutive
trading days with little or no trading and thereby prevent prompt liquidation of
positions. In that event, it may not be possible for a Fund to close a position,
and in the event of adverse price movements, it would have to make daily cash
payments of variation margin. In addition:
(1) Successful use by a Fund of futures contracts and related options
will depend upon the 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.
<PAGE>
FOREIGN CURRENCY TRANSACTIONS
DIVERSIFIED BOND FUND, BALANCED FUNDS, DIVERSIFIED SMALL CAP FUND, DIVERSIFIED
EQUITY FUND, GROWTH EQUITY FUND, LARGE COMPANY GROWTH FUND, SMALL COMPANY GROWTH
FUND, AND INTERNATIONAL FUND. 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.
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.
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 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.
<PAGE>
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.
Like foreign exchange contracts and foreign currency forward contracts, options
contracts 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 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 the Adviser fails to predict currency values correctly.
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" 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.
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
COMMON STOCK 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,
<PAGE>
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, TOTAL RETURN BOND 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. Except for Small Cap
Opportunities Fund, the Funds may only invest in convertible securities that are
investment grade.
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
<PAGE>
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
BALANCED FUNDS AND EQUITY FUNDS. 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 mandatory 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 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.
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WARRANTS
EQUITY FUNDS. 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
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 Adviser.
Prices for high yield/high risk securities also may be affected by legislative
and regulatory developments. For example, Congress has considered legislation to
restrict or eliminate the corporate tax deduction for interest payments or to
regulate corporate restructurings such as takeovers, mergers or leveraged
buyouts. These laws could adversely affect the Fund's net asset value and
investment practices, the market for high yield/high risk securities, the
financial condition of issuers of these securities and the value of outstanding
high yield/high risk securities.
Lower rated or unrated debt obligations also present risks based on payment
expectations. If an issuer calls the obligation for redemption, the Fund's
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 Adviser
<PAGE>
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 Core Portfolio to the risks of high yield/high risk securities.
ILLIQUID AND RESTRICTED SECURITIES
EACH FUND 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.
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.
The Board and, in the case of the Core 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 Adviser of each Fund, pursuant to guidelines approved by the
applicable board. The 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 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.
<PAGE>
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.
LOANS OF PORTFOLIO SECURITIES
EACH FUND may lend its portfolio securities. 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 Core Portfolio's loans must meet certain
tests under the Code and permit the Core Portfolio to reacquire loaned
securities on five business days' notice or in time to vote on any important
matter.
BORROWING AND TRANSACTIONS INVOLVING LEVERAGE
TECHNIQUES INVOLVING LEVERAGE
ALL FUNDS. Use 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. Leverage may involve the creation of a liability that requires the Fund to
pay interest (for instance, reverse repurchase agreements) or the creation of a
liability that does not entail any interest costs (for instance, forward
commitment transactions).
The risks of leverage include a higher volatility of the net asset value of the
Fund's shares and the relatively greater effect on the net asset value of the
shares caused by favorable or adverse market movements or changes in the cost of
cash obtained by leveraging and the yield obtained from investing the cash. So
long as a Fund is able to realize a net return on its investment portfolio that
is higher than interest expense incurred, if any, leverage will result in higher
current net investment income being realized by the Fund than if the Fund were
not leveraged. On the other hand, interest rates change from time to time as
does their relationship to each other depending upon such factors as supply and
demand, monetary and tax policies and investor expectations. Changes in such
factors could cause the relationship between the cost of leveraging and the
yield to change so that rates involved in the leveraging arrangement may
substantially increase relative to the yield on the obligations in which the
proceeds of the leveraging have been invested. To the extent that the interest
expense involved in leveraging approaches the net return on the Fund's
investment portfolio, the benefit of leveraging will be reduced, and, if the
interest expense on borrowings were to exceed the net return to shareholders,
the Fund's use of leverage would result in a lower rate of return than if the
Fund were not
<PAGE>
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 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.
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 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.
REPURCHASE AGREEMENTS -- ALL FUNDS (EXCEPT TREASURY FUND) may enter into
repurchase agreements and may lend portfolio securities 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.
<PAGE>
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.
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 Core 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 Core 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. 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 Core 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.
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
<PAGE>
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.
Counterparties to a Money Market Fund's reverse repurchase agreements must be a
primary dealer that reports to the Federal Reserve Bank of New York ("primary
dealers") or one of the largest 100 commercial banks in the United States.
Generally, a reverse repurchase agreement enables the Fund to recover for the
term of the reverse repurchase agreement all or most of the cash invested in the
portfolio securities sold and to keep the interest income associated with those
portfolio securities. Such transactions are only advantageous if the interest
cost to the Fund of the 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 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 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.
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
<PAGE>
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.
The use of when-issued transactions and forward commitments enables the Fund to
hedge against anticipated changes in interest rates and prices. If an 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.
DOLLAR ROLL TRANSACTIONS -- FIXED INCOME FUNDS AND 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.
BORROWING. 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.
MARGIN AND SHORT SALES
<PAGE>
LIMITED TERM GOVERNMENT INCOME FUND AND 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 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.
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 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.
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
Core Portfolio has unrealized gain with respect to a long position and enters
into a short sale against-the-box, the Core 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.
TEMPORARY DEFENSIVE POSITION
EACH FUND EXCEPT THE MONEY MARKET FUNDS, when business or financial conditions
warrant, 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)
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 Adviser to be of comparable quality; (4) repurchase agreements
covering any of the securities in which the Fund may invest directly; 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
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
<PAGE>
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-Exempt 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.
SMALL COMPANY INVESTMENT CONSIDERATIONS AND RISK FACTORS.
GROWTH BALANCED FUND, AGGRESSIVE BALANCED-EQUITY FUND, DIVERSIFIED EQUITY FUND,
GROWTH EQUITY FUND, DIVERSIFIED SMALL CAP FUND, SMALL COMPANY STOCK FUND, SMALL
COMPANY GROWTH FUND AND SMALL CAP OPPORTUNITIES FUND. 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 Core 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 Core
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 Core Portfolio may be forced to dispose of its holdings at
prices lower than might otherwise be obtained.
FOREIGN INVESTMENT RISKS.
MODERATE BALANCED FUND, GROWTH BALANCED FUND, AGGRESSIVE BALANCED-EQUITY FUND,
DIVERSIFIED EQUITY FUND, GROWTH EQUITY FUND, LARGE COMPANY GROWTH FUND, SMALL
COMPANY GROWTH FUND 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 Core 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 Core Portfolio's income has been earned and
computed in U.S. dollars may require the Core Portfolio to liquidate portfolio
securities to acquire sufficient U.S. dollars to fund redemptions. Similarly, if
the exchange rate declines between the time the Core Portfolio incurs expenses
in U.S.
<PAGE>
dollars and the time such expenses are paid, the Core Portfolio may be required
to liquidate additional foreign securities to purchase the U.S. dollars required
to meet such expenses.
GEOGRAPHIC CONCENTRATION.
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, MUNICIPAL MONEY MARKET FUND, LIMITED TERM TAX-FREE
FUND AND TAX-FREE INCOME FUND will be subject to similar risks. These risks
arise 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.
DIVERSIFICATION MATTERS.
COLORADO TAX-FREE FUND, MINNESOTA INTERMEDIATE TAX-FREE FUND AND MINNESOTA
TAX-FREE FUND are non-diversified, which means that they 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.
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.
<PAGE>
The following summary is based on publicly available information that has not
been independently verified by the Trust or its legal counsel.
COLORADO
THE COLORADO STATE ECONOMY
Among the most significant sectors of the State's economy are services, trade,
manufacture of durable and non-durable goods and tourism. Between late 1984 and
mid-1987, the State's economy was adversely affected by numerous factors,
including the contraction of the energy sector, layoffs by advanced technology
firms and an excess supply of both residential and nonresidential buildings
causing employment in the construction sector to decline. As a result of these
conditions, certain areas of the State experienced particularly high
unemployment. Furthermore, in 1986, for the first time in 32 years, job
generation in the State was negative and, in 1986, for the first time in 21
years, the State experienced negative migration, with more people leaving the
State than moving in.
From 1987 through 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.
<PAGE>
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.
<PAGE>
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%.
<PAGE>
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.
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
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
<PAGE>
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) Treasury Plus Fund may not purchase a security if, as a
result, more than 25% of the Fund's total assets would be
invested in securities of issuers conducting their principal
business activities in the same industry. For purposes of
this limitation, there is no limit on (i) investments in
U.S. Government securities, in repurchase agreements
covering U.S. Government securities, in securities issued by
the states, territories and possessions of the United States
("municipal securities") or in foreign government securities
or (ii) investment in issuers domiciled in a single
jurisdiction. Notwithstanding anything to the contrary, to
the extent permitted by the 1940 Act, the Fund may invest in
one or more investment companies; provided that, except to
the extent the Fund invests in other investment companies
pursuant to Section 12(d)(1)(A) of the 1940 Act, the Fund
treats the assets of the investment companies in which it
invests as its own for purposes of this policy. For purposes
of this policy (i) "mortgage related securities," as that
term is defined in the 1934 Act are treated as securities of
an issuer in the industry of the primary type of asset
backing the security, (ii) financial service companies are
classified according to the end users of their services (for
example, automobile finance, bank finance and diversified
finance) and (iii) utility companies are classified
according to their services (for example, gas, gas
transmission, electric and gas, electric and telephone).
(d) 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
<PAGE>
1940 Act, the Fund treats the assets of the investment
companies in which it invests as its own for purposes of
this policy.
(e) 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 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) SMALL COMPANY 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.
(g) 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.
(h) 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
<PAGE>
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.
(i) 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, 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, 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).
(c) TREASURY PLUS FUND may not borrow money if, as a result,
outstanding borrowings would exceed an amount equal to 33 1/3%
of the Fund's total assets. For purposes of this limitation,
the following are not treated as borrowing to the extent they
are fully collateralized: (i) the delayed delivery of
purchased securities (such as the purchase of when-issued
securities), (ii) reverse repurchase agreements; (iii) dollar
roll transactions; and (iv) the lending of securities.
(4) ISSUANCE OF SENIOR SECURITIES
NO FUND may issue senior securities except to the extent permitted by
the 1940 Act.
(5) UNDERWRITING ACTIVITIES
(a) TREASURY PLUS FUND may not underwrite (as that term is defined
by the 1933 Act) securities issued by other persons except, to
the extent that in connection with the disposition of the
Fund's assets, the Fund may be considered to be an
underwriter.
(b) NO OTHER 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.
<PAGE>
(6) MAKING LOANS
(a) TREASURY PLUS FUND may not make loans to other parties. For
purposes of this limitation, entering into repurchase
agreements, lending securities and acquiring any debt security
are not deemed to be the making of loans.
(b) NO OTHER 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
(a) EACH FUND (other than DIVERSIFIED SMALL CAP FUND, SMALL CAP
OPPORTUNITIES FUND AND TREASURY PLUS 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.
(b) 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.
(c) TREASURY PLUS FUND may not purchase or sell real estate,
unless acquired as a result of ownership of securities or
other investments (but this shall not prevent the Fund from
investing in securities or other instruments backed by real
estate or securities of companies engaged in the real estate
business).
(8) PURCHASES AND SALES OF COMMODITIES
(a) 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.
(b) 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.
(c) TREASURY PLUS FUND may not purchase or sell physical
commodities unless acquired as a result of the ownership of
securities or other instruments (but this shall not prevent
the Fund from purchasing or selling options and futures
contracts or from investing in securities or other instruments
backed by physical commodities).
NONFUNDAMENTAL LIMITATIONS
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 Core 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 Core Portfolio, the Core Trust Board.
(1) DIVERSIFICATION
<PAGE>
(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) COLORADO TAX-FREE FUND, MINNESOTA INTERMEDIATE TAX-FREE FUND
and MINNESOTA TAX-FREE FUND, the Fund are "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
(a) EACH FUND'S (other than TREASURY PLUS FUND'S, 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.
(b) TREASURY PLUS FUND may not purchase or sell physical
commodities unless acquired as a result of the ownership of
securities or other instruments (but this shall not prevent
the Fund from purchasing or selling options and futures
contracts or from investing in securities or other
instruments backed by physical commodities).
(3) ILLIQUID SECURITIES
(a) No MONEY MARKET FUND other than TREASURY PLUS FUND may
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").
(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").
<PAGE>
(c) TREASURY PLUS FUND may not invest more than 10% of its net
assets in illiquid assets such as: (i) securities that
cannot be disposed of within seven days at their
then-current value, (ii) repurchase agreements not entitling
the holder to payment of principal within seven days and
(iii) securities subject to restrictions on the sale of the
securities to the public without registration under the 1933
Act ("restricted securities") that are not readily
marketable. The Fund may treat certain restricted securities
as liquid pursuant to guidelines adopted by the Board of
Trustees.
(4) OTHER INVESTMENT COMPANIES
NO FUND may invest in securities of another investment
company, except to the extent permitted by the 1940 Act.
(5) MARGIN AND SHORT SALES
(a) EACH FUND (other than TREASURY PLUS FUND, 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 other than Treasury Plus Fund may make margin
deposits in connection with permitted transactions in
options, futures contracts and options on futures contracts.
No Fund (other than Treasury Plus Fund, 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.
(b) Treasury Plus Fund may not sell securities short, unless it
owns or has the right to obtain securities equivalent in
kind and amount to the securities sold short (short sales
"against the box"), and provided that transactions in
futures contracts and options are not deemed to constitute
selling securities short. The Fund may not purchase
securities on margin, except that the Fund may use
short-term credit for clearance of the Fund's transactions,
and provided that the initial and variation margin payments
in connection with futures contracts and options on futures
contracts shall not constitute purchasing securities on
margin.
(6) UNSEASONED ISSUERS
NO FUND (other than TREASURY PLUS FUND, 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
<PAGE>
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.
(11) REAL ESTATE LIMITED PARTNERSHIPS
NO FUND other than TREASURY PLUS 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 except TREASURY PLUS 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.
TREASURY PLUS FUND may not purchase or sell physical commodities or
contracts, options or options on contracts to purchase or sell 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.
(17) EXERCISING CONTROL OF ISSUERS
<PAGE>
TREASURY PLUS FUND may not make investments for the purpose of
exercising control of an issuer. Investments by the Fund in entities
created under the laws of foreign countries solely to facilitate
investment in securities in that country will not be deemed the making
of investments for the purpose of exercising control
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. All performance
information for a Fund is calculated on a class basis. 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.
A Fund's performance may be quoted in terms of yield or total return. 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.
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.
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 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. 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
<PAGE>
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. 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 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.
<PAGE>
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 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
<PAGE>
information may be quoted numerically or in a table, graph, or similar
illustration. Period total return is calculated according to the following
formula:
PT = (ERV/P-1)
Where:
PT = period total return
The other definitions are the same as in average annual total return above
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 invests all of its investable assets in Core portfolio that has a
performance history prior to the investment by the Fund, the Fund will assume
the performance history of the Core Portfolio. That history may be restated to
reflect the estimated expenses of the Fund.
OTHER ADVERTISEMENT MATTERS
<PAGE>
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 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:
<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.
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
<PAGE>
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.
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.
<PAGE>
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.
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
<PAGE>
Select Funds allocated pro rata between the Trust and Norwest Select Funds based
upon relative net assets, for his services as Chairman. Each Trustee was elected
by shareholders on April 30, 1997.
The following table provides the aggregate compensation paid to the Trustees of
the Trust by the Trust and Norwest Select Funds, combined. Norwest Select Funds
have a December 31 fiscal year end. Information is presented for the twelve
month period ended May 31, 1998, which was the fiscal year end of all of the
Trust's portfolios.
<TABLE>
<S> <C> <C>
TOTAL COMPENSATION FROM
TOTAL COMPENSATION THE TRUST AND NORWEST
FROM THE TRUST SELECT FUNDS
-------------- ------------
Mr. Brown $ $
Mr. Burkhardt $ $
Mr. Harris $ $
Mr. Leach $ $
Mr. Penny $ $
Mr. Willeke $ $
</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 $ and total
expenses of the trustees of Norwest Select Funds was $.
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
<PAGE>
PAMELA J. WHEATON, Assistant Treasurer
DAVID I. GOLDSTEIN, Secretary.
THOMAS G. SHEEHAN, Assistant Secretary.
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.")
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).
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.
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.
<PAGE>
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.
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 Core
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 disclosed in the Fund's prospectuses. All
investment advisory fees are accrued daily and paid monthly. Each Adviser, in
its sole discretion, may waive or continue to waive all or any portion of its
investment advisory fees.
<PAGE>
In addition to receiving its advisory fee from the Funds, each 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
Subject to the general supervision of the Board, Norwest 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 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
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.
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
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 Plus 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
<PAGE>
Company Growth Fund, Small Cap Opportunities Fund, Diversified Small Cap 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
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 Core
Portfolio's investment programs.
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 Core 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 Core Portfolio, the Adviser may continue
to render to that Core 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).
<PAGE>
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 Core 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, Strategic Income Fund, Moderate
Balanced Fund, Growth Balanced Fund, Aggressive Balanced-Equity Fund,
Diversified Equity Fund, Growth Equity Fund and Diversified Small Cap Fund (the
<PAGE>
"Funds"), Norwest has entered into an Investment Subadvisory Agreement with
Crestone, located at 7720 East Belleview Avenue, Suite 220, Englewood, Colorado
80111 with respect to Small Company Stock Portfolio. Crestone is registered with
the SEC as an investment adviser and is a non-wholly owned subsidiary of
Norwest. Pursuant to the Investment Subadvisory Agreement, Crestone makes
investment decisions for the Funds and continuously reviews, supervises and
administers the Funds' investment program with respect to that portion, if any,
of the Funds' investment portfolio that Norwest believes should be invested
using Crestone as a subadviser. Currently, Crestone manages all of the assets of
Small Company Stock Portfolio and has done so since the Core Portfolio's
inception. Norwest supervises the performance of Crestone including its
adherence to the Funds' investment objectives and policies and pays Crestone a
fee for its investment management services. For its services under the
Investment Subadvisory Agreement, Norwest pays Crestone a fee based on the Core
Portfolio'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 Small Company Stock 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 Core Portfolio and continuously reviews, supervises and administers each
Fund's investment program with respect to that portion, if any, of the Fund's
investment 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 Funds' investments and
effecting portfolio transactions for each Fund (to the extent of Norwest's
delegation).
The Investment Subadvisory Agreement will continue in effect with respect to a
Core 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 Core 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 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 Core 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 the Core Portfolio on 60 days' written notice when authorized either by
majority vote of the Core Portfolio's shareholders or by the Core Trust Board,
or by Crestone 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 the Core Portfolio,
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.
Crestone also currently serves as Investment Subadviser to the Funds pursuant to
a separate investment subadvisory agreement between Crestone 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.
GALLIARD CAPITAL MANAGEMENT, INC.
To assist Norwest in carrying out its obligations under the Investment Advisory
Agreement with Stable Income Fund, Diversified Bond Fund, Total Return 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 with respect to Stable Income
Portfolio, Strategic Value Bond Portfolio and Managed Fixed Income Portfolio.
<PAGE>
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 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 investment portfolio
that Norwest believes should be invested using Galliard as a subadviser.
Currently, Galliard manages all the assets of each Core Portfolio and has done
so since each Core Portfolio's inception. Norwest supervises the performance of
Galliard including its adherence to the Core Portfolios' investment objectives
and policies and pays Galliard a fee for its investment management services.
Under its Investment Subadvisory Agreement, Galliard makes investment decisions
for each Core Portfolio and continuously reviews, supervises and administers
each Fund's investment program with respect to that portion, if any, of the
Fund's investment 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 with respect to a
Core 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 Core 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 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 each Core 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 Core Portfolio on 60 days' written notice when authorized either by
majority vote of the Core Portfolio's shareholders or by the Core Trust Board,
or by Galliard 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 Core 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 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 Agreement
provides that Galliard may render services to others.
Galliard also currently serves as Investment Subadviser to the Funds pursuant to
a separate investment subadvisory 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.
<PAGE>
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 with respect to Positive Bond
Portfolio, Large Company Growth Portfolio, Small Company Growth Portfolio and
Small Company Value Portfolio. Peregrine is registered with the SEC as an
investment adviser and is an investment advisory subsidiary of Norwest Bank.
Pursuant to the Investment Subadvisory 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 investment portfolio that Norwest believes should be invested
using Peregrine as a subadviser. Currently, Peregrine manages all the assets of
each Core Portfolio and has done so since each Core Portfolio's inception.
Norwest supervises the performance of Peregrine including its adherence to the
Core Portfolios' 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 Core Portfolio and continuously reviews, supervises and administers
each Fund's investment program with respect to that portion, if any, of the
Fund's investment 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 with respect to a
Core 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 Core 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 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 each Core 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 Core Portfolio on 60 days' written notice when authorized either by
majority vote of the Core Portfolio's shareholders or by the Core Trust Board,
or by Peregrine 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 Core Portfolio,
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 Agreement
provides that Peregrine may render services to others.
Peregrine also currently serves as Investment Subadviser to the Funds pursuant
to a separate investment subadvisory agreement between Peregrine 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.
<PAGE>
SMITH ASSET MANAGEMENT GROUP, L.P.
To assist Norwest in carrying out its obligations under the Investment Advisory
Agreement with Strategic Income Fund, Moderate Balanced Fund, Growth Balanced
Fund, Aggressive Balanced-Equity Fund, Diversified Equity Fund, Growth Equity
Fund and Diversified Small Cap Fund (the "Funds") , Norwest has entered into an
Investment Subadvisory Agreement with Smith, located at 500 Crescent Court,
Suite 250, Dallas, Texas with respect to Disciplined Growth Portfolio and Small
Cap Value Portfolio. Smith is registered with the SEC as an investment adviser.
Pursuant to the Investment Subadvisory Agreement, Smith makes investment
decisions for each of the Portfolios and continuously reviews, supervises and
administers each Core Portfolio's investment program with respect to that
portion, if any, of the Fund's investment portfolio that Norwest believes should
be invested using Smith as a subadviser. Currently, Smith manages all the assets
of each Core Portfolio and has done so since each Core Portfolio's inception.
Norwest supervises the performance of Smith including its adherence to the Core
Portfolios' 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 Core Portfolio and continuously reviews, supervises and administers each
Fund's investment program with respect to that portion, if any, of the Fund's
investment 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 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 with respect to a
Core 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 Core 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 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 each Core 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 Core Portfolio on 60 days' written notice when authorized either by
majority vote of the Core 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 Core 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 Agreement provides that Smith
may render services to others.
Smith also currently serves as Investment Subadviser to the Funds pursuant to a
separate investment subadvisory 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.
DORMANT INVESTMENT ADVISORY ARRANGEMENTS
Norwest has been retained as a "dormant" or "back-up" investment adviser to
manage any assets redeemed and invested directly by a Fund that invests in one
or more Core Portfolios. Norwest does not receive any compensation under this
arrangement as long as a Fund invests entirely in Core Portfolios. If a Fund
redeems assets from a Core
<PAGE>
Portfolio and invests them directly, Norwest receives an investment advisory fee
from the Fund for the management of those assets. Norwest's dormant investment
advisory fees are at the following rates:
<TABLE>
<S> <C>
Fee as a
Fund % of the Fund's average daily net assets
---- ----------------------------------------
Cash Investment Fund 0.20% for the first $300 million;
0.16% for the next $400 million;
0.12% for the remaining assets.
Ready Cash Investment Fund 0.40% for the first $300 million;
0.36% for the next $400 million;
0.32% for the remaining assets
Stable Income Fund 0.30%
Diversified Bond Fund 0.35%
Total Return Bond Fund 0.50%
Strategic Income Fund 0.45%
Moderate Balanced Fund 0.53%
Growth Balanced Fund 0.58%
Aggressive Balanced-Equity Fund 0.63%
Index Fund 0.15%
Income Equity Fund 0.50%
Diversified Equity Fund 0.65%
Growth Equity Fund 0.90%
Large Company Growth Fund 0.65%
Diversified Small Cap Fund 0.90%
Small Company Stock Fund 0.90%
Small Cap Opportunities Fund 0.60%
Small Company Growth Fund 0.90%
International Fund 0.85%
</TABLE>
If a Core Portfolio is advised by Schroder or by a Subadviser, Schroder
or the Subadviser has also been retained as a dormant subadviser of each Fund
that invests in that Core Portfolio (except that Galliard, investment subadviser
to Strategic Value Bond Portfolio, has not been retained as a subadviser to
Total Return Bond Portfolio and Smith has not been retained as an investment
subadviser for any Fund). Norwest (and not the Funds) would pay Schroder and the
Subadviser the fees for providing those services.
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).
<PAGE>
MANAGER AND ADMINISTRATOR
Forum manages all aspects of the Trust's operations with respect to each Fund
except those which are the responsibility of FAS, Norwest, any other investment
adviser or investment subadviser to a Fund, or Norwest in its capacity as
administrator pursuant to an investment administration or similar agreement.
With respect to each Fund, Forum has entered into a Management Agreement that
will continue in effect only if such continuance is specifically approved at
least annually by the Board or by the shareholders and, in either case, by a
majority of the Trustees who are not interested persons of any party to the
Management Agreement.
On behalf of the Trust and with respect to each Fund, Forum: (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, 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.
<PAGE>
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 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, 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.
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.
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.
CORE 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 Core 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.
<PAGE>
Under the Core Trust Management Agreement, Forum performs similar services for
each Core 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 Core 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.
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 Core 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 Core Portfolios. FAS provides certain management and
administrative services necessary for the Schroder Core Core Portfolios'
operations, other than the administrative services provided to those Core
Portfolios by Schroder. For its services, FAS receives a fee at an annual rate
of 0.10% of each Core Portfolio's average daily net assets.
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 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.
Under the 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 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.
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.
<PAGE>
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 Core Portfolio's
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 Core Portfolio.
The Administrative Services Agreement is terminable with respect to the Core
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 Core
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 Core 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 Core
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 Core Portfolio.
Schroder Advisors provides certain management and administrative services
necessary for the Core Portfolios' operations, other than the administrative
services provided to the Core Portfolios by Schroder. For its services, Schroder
Advisors receives no fee from Schroder U.S. Smaller Companies Portfolio and
0.075% from Schroder EM Core 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 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
<PAGE>
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 C Shares of each Fund
that offers C 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 for B
Shares, C Shares and Exchange Shares, which may not exceed an annual rate of
0.75%, and a maintenance fee for B Shares and Exchange Shares in an amount equal
to 0.25%, of the average daily net assets of the Fund attributable to the B
Shares and Exchange Shares.
DISTRIBUTION PLAN. B Shares and C Sharesof a Fund 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 and C 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 the 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. The current sales commission rate for 3.0% for the Tax-Free Fixed
Income Funds and 4.0% for other Funds and Forum currently expects to pay sales
commissions to each broker-dealer at the time of sale of up to 3.0% or 4.0%, as
applicable, 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, 1998, Ready Cash Investment Fund (Exchange Shares), 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 and
International Fund had uncovered distribution expenses of $,$,$,$,$,$,$,$,$, $,
$, $, $ and $, respectively, or approximately %,%,%,%,%,%,%,%,%, %, %, %, %, %
and % 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
<PAGE>
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.
A Fund does not accrue future distribution services fees as a liability of the
Fund with respect to the B Shares or C 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). In deciding whether to purchase
B Shares and C 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 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.
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.
<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, 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.
Pursuant to the Plan, each Fund has agreed also to pay Forum a maintenance fee
for B Shares in an amount equal to 0.25% of the average daily net assets of the
Fund attributable to 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 the 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.
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 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 below. 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.
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
<PAGE>
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).
CUSTODIAN
Norwest Bank 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 Core
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.
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
<PAGE>
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
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 Core Portfolios and, in
addition, acts as the Core Portfolios' transfer agent.
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 March 1, 1998, Forum, FAS and
Forum Accounting were controlled by John Y. Keffer, President and Chairman of
the Trust.
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
<PAGE>
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 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. 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.
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.
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 Core Portfolios.
PORTFOLIO TRANSACTIONS
<PAGE>
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 Funds have no obligation to deal with any specific broker or dealer in the
execution of portfolio transactions. The Advisers seek "best execution" for all
portfolio transactions, but a Fund 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 that
invests in foreign securities than would be the case for comparable transactions
effected on U.S. securities exchanges.
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 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 Advisers to employ their respective affiliates to effect
securities transactions of the Funds or the Core Portfolios, provided certain
other conditions are satisfied. No Fund has an understanding or arrangement to
direct any specific portion of its brokerage to an affiliate of an Adviser, and
will not direct brokerage to an affiliate of an Adviser in recognition of
research services. Payment of brokerage commissions to an affiliate of an
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 Adviser will, in the judgment of the 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 Core Portfolios.
<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, 1998
Year Ended May 31, 1997 $41,474 8.25% 8.05%
Year Ended May 31, 1996 $10,494 2.41% 1.73%
</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 Core 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
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
Advisers may also take into account payments made by brokers effecting
transactions for a Fund or Core Portfolio: (1) to the Fund or Core Portfolio or
(2) to other persons on behalf of the Fund or Core Portfolio for services
provided to the Fund or Core Portfolio for which it would be obligated to pay.
In addition, the Advisers may give consideration to research services furnished
by brokers to the Advisers for their use and may cause the Funds and Core
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 Adviser's own internal research and investment strategy
capabilities. Such research and analysis may be used by the Advisers in
connection with services to clients other than the Funds and Core Portfolios,
and not all such services may be used by the Adviser in connection with the
Funds. An Adviser's fees are not reduced by reason of the 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 Core 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 Advisers or their affiliates. Investment
decisions are the product of many factors, including basic suitability for the
particular client involved. Thus, a particular security may be bought or sold
for certain clients even though it could have been bought or sold for other
clients at the same time. Likewise, a particular security may be bought for one
or more clients when one or more clients are selling the security. In some
instances, one client may sell a particular security to another client. It also
sometimes happens that two or more clients simultaneously purchase or sell the
same security, in which event each day's transactions in such security are,
insofar as is possible, averaged as to price and allocated between such clients
in a manner which, in the respective Adviser's opinion, is equitable to each and
in accordance with the amount being purchased or sold by each. There may be
circumstances when purchases or sales of a portfolio security for one client
could have an adverse effect on another client that has a position in that
security. In addition, when purchases or sales of the same security for a Fund
and other client accounts managed by the Advisers occur contemporaneously, the
purchase or sale orders may be aggregated in order to obtain any price
advantages available to large denomination purchases or sales.
<PAGE>
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.
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, 1998.
Regular Broker Value of
or Dealer Securities Held
--------- ---------------
PORTFOLIO TURNOVER. 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 Fund may engage in active short-term trading to take
advantage of price movements affecting individual issues, groups of issues or
markets. 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
Core Portfolio and a possible increase in short-term capital gains or losses. 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. The change in
portfolio turnover rate for Income Fund and Intermediate Government Income Fund
from 1995 to 1996 was due in part to the change in portfolio managers. Other
significant changes in portfolio turnover rates was due to changing market
conditions and the effect of those conditions on the Funds' investment policies.
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.
PURCHASES THROUGH FINANCIAL INSTITUTIONS
You may purchase and redeem shares through certain broker-dealers, banks and
other financial institutions. The Funds' transfer agent and distributor 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.
<PAGE>
If you purchase shares through a Processing Organization, you will be subject to
the Processing Organization's procedures, which may include charges,
limitations, investment minimums, cutoff times and restrictions in addition to,
or different from, those applicable when you invest in a Fund directly. When you
purchase a Fund's shares through a Processing Organization, you may or may not
be the shareholder of record and, subject to your institution's procedures, you
may have Fund shares transferred into your 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.
You may not be eligible for
certain shareholder services when you purchase shares through a Processing
Organization.
Contact your Processing Organization for further information. If you hold shares
through a Processing Organization, the Funds may confirm purchases and
redemptions to the Processing Organization, which will provide you with
confirmations and periodic statements. The Funds are not responsible for the
failure of any Processing Organization to carry out its obligations.
SHAREHOLDER SERVICES
AUTOMATIC INVESTMENT PLAN. You may elect the Automatic Investment Plan if you
purchase A Shares, B Shares, C Shares, I Shares or Investor Shares. Under the
Automatic Investment Plan, you may authorize monthly amounts of $50 or more to
be withdrawn automatically from a designated bank account (other than a passbook
savings account) and sent to the transfer agent for investment in a Fund. Call
or write the transfer agent for an application. Norwest Advantage Funds may
modify or terminate the Automatic Investment Plan if it is unable to settle any
transaction with your bank. If the Automatic Investment Plan is terminated
before your account totals $1,000, the Funds may redeem your account.
RETIREMENT ACCOUNTS The Funds (except Municipal Money Market Fund and the
Tax-Free Fixed Income Funds) may be a suitable investment vehicle for part or
all of the assets held in Traditional or Roth individual retirement accounts
(collectively, "IRAs"). Call the Funds at 1-800-338-1348 or 1-612-667-8833 to
obtain an IRA account application. Generally, all contributions and investment
earnings in an IRA will be tax-deferred until withdrawn. If certain requirements
are met, investment earnings held in a Roth IRA will not be taxed even when
withdrawn. You may contribute up to $2,000 annually to an IRA. Only
contributions to Traditional IRAs are tax-deductible. However, that deduction
may be reduced if you or your spouse is an active participant in an
employer-sponsored retirement plan and you have adjusted gross income above
certain levels. Your ability to contribute to a Roth IRA also may be restricted
if you or, if you are married, you and your spouse has 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 IRA, and
your employer must generally match such contributions up to 3% of your annual
salary. Alternatively, your employer may elect to contribute to your IRA 2% of
the lesser of your earned income or $160,000.
This information on IRAs is based on regulations in effect as of January 1, 1998
and summarizes only some of the important federal tax considerations affecting
IRA contributions. These comments are not meant to be a substitute for tax
planning. Consult your tax advisors about your specific tax situation.
AUTOMATIC WITHDRAWAL PLAN If you hold more than $1,000 of a Fund's A Shares, B
Shares, C Shares, I Shares or Investor Shares or $10,000 of a Fund's
Institutional Shares in an account, 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. The transfer agent will
redeem the number of shares necessary to provide the amount of the payment. Any
taxable gain or loss is recognized upon redemption of the shares. Call or write
the transfer agent for an application. The Funds may suspend a 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.
<PAGE>
CHECKWRITING You may elect checkwriting privileges if you own shares of a Money
Market Fund. Call or write the transfer agent for an application. If you elect
checkwriting privileges, you will receive checks that may be made payable to any
person in any amount of $500.00 or more. When a check is presented for payment,
the transfer agent will redeem the number of shares necessary to cover the
amount of the check. You cannot write checks against shares for which
certificates have been issued. The Funds will not honor a check for an amount
greater than the value of the uncertificated shares held in your account. In
addition, you may not liquidate your entire account by means of a check. Normal
restrictions on your ability to redeem shares will apply to redemptions by
check. The transfer agent may also restrict your ability to use checks.
Checkwriting procedures may be changed, modified or terminated at any time upon
written notification.
REOPENING ACCOUNTS You may reopen an account without filing a new account
application at any time within one year after your account is closed, provided
that the information on the account application on file with the Funds is still
applicable.
PURCHASES OF A SHARES: SALES CHARGE WAIVERS
WAIVERS OF SALES CHARGES. The Trust does not assess sales charge on the
following types of purchases:
* purchases 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);
* purchases by any financial intermediary acting on behalf of its asset based
fee account customers;
* purchases by trustees and officers of the Trust; directors, officers and
full-time employees of the Trust's manager, of Norwest Corporation or of
any of their affiliates; the spouse, direct ancestor or direct descendant
("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;
* purchases by any registered investment adviser with whom the distributor
has entered into a share purchase agreement and which is acting on behalf
of its fiduciary customer accounts; or
* purchases of A Shares made pursuant to the Directed Dividend Option from
the proceeds of dividends and distributions of another fund of the Trust
that assesses a sales charge.
* purchases of at least $50,000 through an individual retirement account in A
Shares of Diversified Equity Fund or Growth Equity Fund, when the
shareholder makes a non-binding commitment to subsequently enroll the
assets in the Norwest WealthBuilder IRA program, an asset allocation
program offered by Norwest Investment Services, Inc. ("NISI"). In
connection with purchases of A Shares of Diversified Equity Fund or Growth
Equity Fund with no sales charge, Forum makes payments to NISI of up to
1.00% of the value of the shares purchased.
If you purchase A Shares without paying a sales charge, you many only resell the
shares to the Fund and you must make the purchase with the intent of investing
in the Fund.
If you qualify for a reduced sales charge, you or your Processing Organization
must both notify the transfer agent when you purchase the shares that you intend
to qualify for the reduced sales charge and verify that you qualify. The Trust
may modify or terminate reduced sales charge privileges at any time.
REINSTATEMENT PRIVILEGE. If you redeem a Fund's A Shares, you will not have to
pay a sales charge if you repurchase some or all of the shares you redeemed
within 60 days of the redemption.
<PAGE>
INVESTORS IN OTHER FUND FAMILIES. You will not have to pay a sales charge on a
purchase of A Shares if, within the past 60 days, you have redeemed at net asset
value shares of a mutual fund that imposed a sales charge equal to or greater
than that applicable to the A Shares and you use those redemption proceeds to
purchase the Fund's shares.
SELF-DIRECTED 401(K) PROGRAMS. If you purchase less than $100,000 of a Fund's A
Shares through a self-directed 401(k) program or other qualified retirement plan
offered by Norwest, the Trust's manager or their affiliates, your purchase will
eligible for the reduced sales charge applicable to a single purchase of
$100,000.
RIGHT OF ACCUMULATION. If you purchase A Shares, you may qualify for a
cumulative quantity discount or right of accumulation ("ROA"). If you elect a
ROA, the applicable sales charge will be based on the total of your current
purchase and the net asset value (at the end of the previous Fund Business Day)
of some or all of the A Shares you hold. For example, if you own A Shares of
Income Fund with a net asset value of $500,000 and purchase an additional
$50,000 of the Fund's A Shares, the additional purchase would be subject to a
sales charge 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, if you have previously purchased A Shares of another fund of the
Trust that is sold with a sales charge equal to or greater than the sales charge
imposed on the Fund's A Shares, you also may qualify for a ROA and may aggregate
existing investments in A Shares of all those funds with your current purchase
of the Fund's A Shares to determine the applicable sales charge. In addition, if
your spouse, direct ancestor or direct descendant holds A Shares, those
shareholdings also may be combined for purposes of the ROA.
STATEMENT OF INTENTION. You also may obtain a reduced sales charge by making
cumulative purchases under a "Statement of Intention." A Statement of Intention
is a written statement expressing your intent to invest $50,000 or more in a
Fund's A Shares within a period of 13 months. Under a Statement of Intention,
you may make a series of purchases of shares where each purchase will be at net
asset value plus the sales charge applicable at the time of the purchase to a
single purchase of the total dollar amount of shares you promised to purchase.
Complete the appropriate portion of the account application to select the
Statement of Intention.
The Statement of Intention is not a binding obligation upon you 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.
CALCULATION OF 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 April 1, 1998 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).
<PAGE>
<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>
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 Public Entities 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.
<PAGE>
Shareholders of A Shares or Investor Shares making an exchange will be subject
to the applicable sales charge of any A Shares acquired in the exchange;
provided, that the sales charge charged with respect to the acquired shares will
be assessed at a rate that is equal to the excess (if any) of the rate of the
sales charge that would be applicable to the acquired shares in the absence of
an exchange over the rate of the sales charge previously paid on the exchanged
shares. For purposes of the preceding sentence, A Shares acquired through the
reinvestment of dividends or distributions are deemed to have been acquired with
a sales charge rate equal to that paid on the shares on which the dividend or
distribution was paid.
In addition, A Shares and Investor Shares acquired by a previous exchange
transaction involving shares on which a sales charge has directly or indirectly
been paid (e.g., shares purchased with a sales charge or issued in connection
with an exchange transaction involving shares that had been purchased with a
sales charge), as well as additional shares acquired through reinvestment of
dividends or distributions on such shares will be treated as if they had been
acquired subject to that sales charge.
Exchange Shares may only be acquired in exchange for B Shares of a Fund. B
Shares ("original B Shares") may be exchanged for Exchange Shares without the
payment of any contingent deferred sales charge; however, B Shares or Exchange
Shares acquired as a result of an exchange and subsequently redeemed will
nonetheless be subject to the contingent deferred sales charge applicable to the
original B Shares as if those shares were being redeemed at that time. Exchange
Shares may be exchanged without the payment of any contingent deferred sales
charge; however, B Shares acquired as a result of such exchange and subsequently
redeemed will nonetheless be subject to the contingent deferred sales charge
applicable to the original B Shares as if those shares were being redeemed at
that time.
REDEMPTIONS
In addition to the situations described in the Prospectus with respect to the
redemptions of shares, the Trust may redeem shares involuntarily to reimburse a
Fund for any loss sustained by reason of the failure of a shareholder to make
full payment for shares purchased by the shareholder or to collect any charge
relating to transactions effected for the benefit of a shareholder which is
applicable to a Fund's shares as provided in the Prospectus from time to time.
Proceeds of redemptions normally are paid in cash. However, payments may be made
wholly or partially in portfolio securities if the Board determines that payment
in cash would be detrimental to the best interests of the Fund. If payment for
shares redeemed is made wholly or partially in portfolio securities, brokerage
costs may be 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)
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.
<PAGE>
<TABLE>
<S> <C> <C>
STABLE INCOME FUND
AMOUNT OF PURCHASE PERIOD SHARES HELD REIMBURSEMENT CHARGE
$1,000,000 to $4,999,999........................... Less than one year 0.50%
One to two years 0.25%
Over $5,000,000...................................... Less than one year 0.25%
INTERMEDIATE GOVERNMENT INCOME FUND,
INCOME FUND, TOTAL RETURN BOND FUND AND THE
TAX-FREE FIXED INCOME FUNDS
AMOUNT OF PURCHASE PERIOD SHARES HELD REIMBURSEMENT CHARGE
$1,000,000 to $2,499,999........................... Less than one year 0.75%
One to two years 0.50%
$2,500,000 to $4,999,999............................. Less than one year 0.50%
Over $5,000,000...................................... Less than one year 0.25%
CONTINGENT DEFERRED SALES
EQUITY FUNDS CHARGED AS A % OF DOLLAR
AMOUNT OF PURCHASE PERIOD SHARES HELD AMOUNT SUBJECT TO CHANGE
$1,000,000 to $2,499,999.......... Less than one year 1.00%
One to two years 0.75%
$2,500,000 to $4,999,999.......... Less than one year 0.50%
Over $5,000,000................... Less than one year 0.25%
</TABLE>
No contingent deferred sales charge is charged on redemptions to the same extent
as is the case for B Shares. 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 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.
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
<PAGE>
Contingent deferred sales charges may be charged on redemptions of A Shares
purchased without an initial sales charge pursuant to a Statement of Intention
("SOI") that are redeemed within the first two years after purchase. If a
shareholder purchases $1,000,000 or more within a 13 month period under an SOI,
no initial sales charge will apply with respect to the entire amount purchased.
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.
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 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.
<PAGE>
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.
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
<PAGE>
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. 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.
_____________________, 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.
<PAGE>
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, C Shares and I Shares, among Ready Cash
Investment Fund's Public Entities, Investor and Exchange Shares and between
Municipal Money Market Fund's Institutional and Investor Shares. On an ongoing
basis, the Board, pursuant to its fiduciary duties under the 1940 Act and state
law, will seek to ensure that no such conflict arises.
The Trust's shareholders are not personally liable for the obligations of the
Trust under Delaware law. The Delaware Business Trust Act (the "Delaware Act")
provides that a shareholder of a Delaware business trust shall be entitled to
the same limitation of liability extended to shareholders of private
corporations for profit. However, no similar statutory or other authority
limiting business trust shareholder liability exists in many other states. As a
result, to the extent that the Trust or a shareholder is subject to the
jurisdiction of courts in those states, the courts may not apply Delaware law,
and may thereby subject the Trust shareholders to liability. To guard against
this risk, the Trust Instrument of the Trust disclaims shareholder liability for
acts or obligations of the Trust and requires that notice of such disclaimer be
given in each agreement, obligation and instrument entered into by the Trust or
its Trustees, and provides for indemnification out of Trust property of any
shareholder held personally liable for the obligations of the Trust. Thus, the
risk of a shareholder incurring financial loss beyond his investment because of
shareholder liability is limited to circumstances in which: (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 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.
The Trust has an unlimited number of authorized shares of beneficial interest.
The Board may, without shareholder approval, divide the authorized shares into
an unlimited number of separate portfolios or series (such as the Fund) and may
divide portfolios or series into classes of shares (such as Exchange Shares);
the costs of doing so will be borne by the Trust. Currently the authorized
shares of the Trust are divided into thirty-nine separate series.
CLASSES OF SHARES. Each class of a Fund may have a different expense ratio and
different sales charges (including distribution fees) and each class'
performance will be affected by its expenses and sales charges. For more
information on any other class of shares of the Fund, investors may contact the
Transfer Agent at (612)667-8833 or (800) 338-1348 or the Fund's distributor.
Investors may also contact their Norwest sales representative to obtain
information about the other classes. Sales personnel of broker-dealers and other
financial institutions selling the Fund's shares may receive differing
compensation for selling different classes of shares.
SHAREHOLDER VOTING AND OTHER RIGHTS. Each share of each series of the Trust and
each class of shares has equal dividend, distribution, liquidation and voting
rights, and fractional shares have those rights proportionately, except
<PAGE>
that expenses related to the distribution of the shares of each class (and
certain other expenses such as transfer agency and administration expenses) are
borne solely by those shares and each class votes separately with respect to the
provisions of any Rule 12b-1 plan which pertains to the class and other matters
for which separate class voting is appropriate under applicable law. Generally,
shares will be voted in the aggregate without reference to a particular series
or class, except if the matter affects only one series or class or voting by
series or class is required by law, in which case shares will be voted
separately by series or class, as appropriate. Delaware law does not require the
Trust to hold annual meetings of shareholders, and it is anticipated that
shareholder meetings will be held only when specifically required by federal or
state law. Shareholders have available certain procedures for the removal of
Trustees. There are no conversion or preemptive rights in connection with shares
of the Trust. All shares, when issued in accordance with the terms of the
offering, will be fully paid and nonassessable. Shares are redeemable at net
asset value, at the option of the shareholders, subject to any contingent
deferred sales charge that may apply. A shareholder in a series is entitled to
the shareholder's pro rata share of all dividends and distributions arising from
that series' assets and, upon redeeming shares, will receive the portion of the
series' net assets represented by the redeemed shares.
The Core Portfolio normally will not hold meetings of investors except as
required by the 1940 Act. Each investor in the Core Portfolio will be entitled
to vote in proportion to its relative beneficial interest in the Core Portfolio.
When required by the 1940 Act and other applicable law, the Fund will solicit
proxies from its shareholders and will vote its interest in the Core Portfolio
in proportion to the votes cast by its shareholders.
From time to time, certain shareholders may own a large percentage of the Shares
of the Fund and, accordingly, may be able to greatly affect (if not determine)
the outcome of a shareholder vote.
CORE AND GATEWAY STRUCTURE
Certain Funds seek to achieve their investment objectives by investing all of
their investable assets in Core Portfolios. Accordingly, the Core Portfolios
directly acquires portfolio securities and the Funds acquire an indirect
interest in those securities. The Core Portfolios are separate series of Core
Trust and Schroder Core, business trusts organized under the laws of the State
of Delaware in 1994. The assets of each Core Portfolios belong only to, and the
liabilities of each Core Portfolios are borne solely by, that Core Portfolio and
no other series of Core Trust or Schroder Core.
THE CORE PORTFOLIO. The Funds' investments in the Core Portfolios are in the
form of non-transferable beneficial interests. 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.
Core Portfolios do not sell its shares directly to members of the general
public. Other investors in Core Portfolios, such as other investment companies,
that might sell their shares to the public are not be required to sell their
shares at the same public offering price as the Funds, and could have different
advisory and other fees and expenses than the Funds. Therefore, Fund
shareholders may have different returns than shareholders in other investment
companies that invest in the Core Portfolios. Information regarding any such
funds is available by calling Forum at (207) 879-0001.
CERTAIN RISKS OF INVESTING IN CORE PORTFOLIOS. The Funds' investment in the Core
Portfolios may be affected by the actions of other large investors in the Core
Portfolios. For example, if a Core Portfolio had a large investor other than a
Fund that redeemed its interest, the Core 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 the Core Portfolio; indeed, other investors
holding a majority interest in a Core Portfolio could have voting control of the
Core Portfolio.
A 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 the Core Portfolio with power to, and who did by a vote of all
investors (including the Fund), change
<PAGE>
the investment objective or policies of the Core Portfolio in a manner not
acceptable to the Board. A withdrawal could result in a distribution in kind of
portfolio securities (as opposed to a cash distribution) by the Core Portfolio.
That distribution could result in a less diversified portfolio of investments
for the Fund and could affect adversely the liquidity of the Fund's portfolio.
If the Fund decided to convert those securities to cash, it would incur
brokerage fees or other transaction costs. If the Fund withdrew its investment
from the Core Portfolio, the Board would consider what action might be taken,
including the management of the Fund's assets directly by the Adviser or the
investment of the Fund's assets in another pooled investment entity. The
inability of the Fund to find a suitable replacement investment, in the event
the Board decided not to permit the Adviser to manage the Fund's assets
directly, could have a significant impact on shareholders of the Fund.
BANKING LAW MATTERS
Federal banking rules generally permit a bank or bank affiliate to act as
investment adviser, transfer agent, and custodian to an investment company and
to purchase shares of the investment company as agent for and upon the order of
a customer and, in connection therewith, to retain a sales charge or similar
payment. Forum believes that Norwest and any bank or other bank affiliate that
may also perform Processing Organization or similar services for the Trust and
its shareholders without violating applicable federal banking rules. If a bank
or bank affiliate were prohibited in the future from so acting, changes in the
operation of the Trust could occur and a shareholder serviced by the bank or
bank affiliate may no longer be able to avail itself of those services. It is
not expected that shareholders would suffer any adverse financial consequences
as a result of any of these occurrences.
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.
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.
<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".
<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.
<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 scheduled
principal and/or interest payments.
<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.
<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.
<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.
<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+".
<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, 1998
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, 1998
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, 1998
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, 1998
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, 1998
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, 1998
Year Ended May 31, 1997 334,768 0 334,768
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Year Ended May 31, 1996 106,127 0 106,127
Year End October 31, 1995 114,429 0 114,429
ADVISORY FEE ADVISORY FEE ADVISORY FEE
PAYABLE WAIVED RETAINED
------- ------ --------
INTERMEDIATE GOVERNMENT INCOME FUND
Year Ended May 31, 1998
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, 1998
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, 1998
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, 1998
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, 1998
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, 1998
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, 1998
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
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
MINNESOTA TAX-FREE FUND
Year Ended May 31, 1998
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
ADVISORY FEE ADVISORY FEE ADVISORY FEE
PAYABLE WAIVED RETAINED
------- ------ --------
STRATEGIC INCOME FUND
Year Ended May 31, 1998
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, 1998
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, 1998
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, 1998
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, 1998
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, 1998
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
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
DIVERSIFIED EQUITY FUND
Year Ended May 31, 1998
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
ADVISORY FEE ADVISORY FEE ADVISORY FEE
PAYABLE WAIVED RETAINED
------- ----- --------
GROWTH EQUITY FUND
Year Ended May 31, 1998
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, 1998
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, 1998
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, 1998
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, 1998
Year Ended May 31, 1997 N/A N/A N/A
SMALL CAP OPPORTUNITIES FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 N/A N/A N/A
INTERNATIONAL FUND*
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Year Ended May 31, 1998
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.
<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.
(I) MANAGEMENT FEES TO FORUM
<TABLE>
<S> <C> <C> <C>
MANAGEMENT MANAGEMENT MANAGEMENT
FEE FEE FEE
PAYABLE WAIVED RETAINED
CASH INVESTMENT FUND ------- ------ --------
Year Ended May 31, 1998
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, 1998
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, 1998
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, 1998
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, 1998
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, 1998
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>
<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, 1998
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, 1998
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, 1998
Year Ended May 31, 1997 12,730 12,730 0
Year Ended May 31, 1996 623 623 0
B Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 799 799 0
Year Ended May 31, 1996 33 33 0
I Shares
Year Ended May 31, 1998
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, 1998
Year Ended May 31, 1997 14,471 14,471 0
Year Ended May 31, 1996 666 666 0
B Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 9,953 9,953 0
Year Ended May 31, 1996 412 412 0
I Shares
Year Ended May 31, 1998
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, 1998
Year Ended May 31, 1997 170,862 110,901 59,961
Year Ended May 31, 1996 98,508 69,269 29,239
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Year Ended October 31, 1995 173,446 147,461 25,985
MANAGEMENT MANAGEMENT MANAGEMENT
FEE FEE FEE
PAYABLE WAIVED RETAINED
------- ------ --------
INCOME FUND
A Shares
Year Ended May 31, 1998
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, 1998
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, 1998
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, 1998
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, 1998
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, 1998
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, 1998
Year Ended May 31, 1997 17,748 17,748 0
Year Ended May 31, 1996 N/A N/A N/A
MANAGEMENT MANAGEMENT MANAGEMENT
FEE FEE FEE
PAYABLE WAIVED RETAINED
------- ------ --------
TAX-FREE INCOME FUND
A Shares
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Year Ended May 31, 1998
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, 1998
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, 1998
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, 1998
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, 1998
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, 1998
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, 1998
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, 1998
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, 1998
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, 1998
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
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>
<PAGE>
<TABLE>
<S> <C> <C> <C>
MANAGEMENT MANAGEMENT MANAGEMENT
FEE FEE FEE
PAYABLE WAIVED RETAINED
MODERATE BALANCED FUND ------- ------ --------
Year Ended May 31, 1998
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, 1998
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, 1998
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, 1998
Year Ended May 31, 1997 23,583 23,583 0
Year Ended May 31, 1996 670 670 0
I Shares
Year Ended May 31, 1998
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, 1998
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, 1998
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, 1998
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, 1998
Year Ended May 31, 1997 324,366 194,534 129,832
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Year Ended May 31, 1996 297,630 147,086 150,544
Year Ended May 31, 1995 253,243 148,800 104,443
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
MANAGEMENT MANAGEMENT MANAGEMENT
FEE FEE FEE
PAYABLE WAIVED RETAINED
------- ------ --------
DIVERSIFIED EQUITY FUND
A Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 14,322 14,322 0
Year Ended May 31, 1996 99 99 0
B Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 15,913 15,913 0
Year Ended May 31, 1996 96 96 0
I Shares
Year Ended May 31, 1998
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, 1998
Year Ended May 31, 1997 10,336 10,336 0
Year Ended May 31, 1996 100 100 0
B Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 4,347 4,347 0
Year Ended May 31, 1996 25 25 0
I Shares
Year Ended May 31, 1998
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, 1998
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, 1998
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
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Year Ended May 31, 1998
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, 1998
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>
<PAGE>
<TABLE>
<S> <C> <C> <C>
MANAGEMENT MANAGEMENT MANAGEMENT
FEE FEE FEE
PAYABLE WAIVED RETAINED
SMALL COMPANY GROWTH FUND ------- ------ --------
Year Ended May 31, 1998
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, 1998
Year Ended May 31, 1997 122 122 0
B Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 44 44 0
I Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 26,560 26,560 0
INTERNATIONAL FUND
A Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 1,494 1,494 0
Year Ended May 31, 1996 345 345 0
B Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 1,247 1,247 0
Year Ended May 31, 1996 395 395 0
I Shares
Year Ended May 31, 1998
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>
<PAGE>
<TABLE>
<S> <C> <C> <C>
(II) ADMINISTRATIVE FEES TO NORWEST
INTERNATIONAL FUND
Year Ended May 31, 1998
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, 1998
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>
<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, 1998
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, 1998
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>
<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
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>
<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, 1998
Year Ended May 31, 1997 3,200 320 --
Year Ended May 31, 1996 423 52 --
B Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 -- -- 6,526
Year Ended May 31, 1996 -- -- 75
INTERMEDIATE GOVERNMENT INCOME FUND
A Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 13,182 1,187 --
Year Ended May 31, 1996 1,482 129 --
B Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 -- -- 31,694
Year Ended May 31, 1996 -- -- 964
INCOME FUND
A Shares
Year Ended May 31, 1998
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, 1998
Year Ended May 31, 1997 -- -- 11,887
Year Ended May 31, 1996 -- -- 8,272
TOTAL RETURN BOND FUND
A Shares
Year Ended May 31, 1998
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, 1998
Year Ended May 31, 1997 74,101 6,646 --
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Year Ended May 31, 1996 5,429,389 12,264 --
B Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 -- -- 15,724
Year Ended May 31, 1996 -- -- 6,576
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
SALES RETAINED CDSL
CHARGES AMOUNT PAID
COLORADO TAX-FREE FUND ------- ------ ----
A Shares
Year Ended May 31, 1998
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, 1998
Year Ended May 31, 1997 -- -- 11,889
Year Ended May 31, 1996 -- -- 12,557
MINNESOTA TAX-FREE FUND
A Shares
Year Ended May 31, 1998
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, 1998
Year Ended May 31, 1997 -- -- 13,097
Year Ended May 31, 1996 -- -- 8,412
INCOME EQUITY FUND
A Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 320,385 1,121 --
Year Ended May 31, 1996 10,996 1,088 --
B Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 -- -- 38,812
Year Ended May 31, 1996 -- -- 570
VALUGROWTH STOCK FUND
A Shares
Year Ended May 31, 1998
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, 1998
Year Ended May 31, 1997 -- -- 10,770
Year Ended May 31, 1996 -- -- 12,911
DIVERSIFIED EQUITY FUND
A Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 485,324 8,286 --
Year Ended May 31, 1996 50,658 15 --
B Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 -- -- 23,510
Year Ended May 31, 1996 -- -- 0
GROWTH EQUITY FUND
A Shares
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Year Ended May 31, 1998
Year Ended May 31, 1997 175,495 5,347 --
Year Ended May 31, 1996 26,825 7 --
B Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 -- -- 6,972
Year Ended May 31, 1996 -- -- 0
SALES RETAINED CDSL
CHARGES AMOUNT PAID
SMALL COMPANY STOCK FUND ------- ------ ----
A Shares
Year Ended May 31, 1998
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, 1998
Year Ended May 31, 1997 -- -- 6,411
Year Ended May 31, 1996 -- -- --
SMALL CAP OPPORTUNITIES FUND
A Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 11,604 1,178 --
B Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 -- -- --
INTERNATIONAL FUND
A Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 8,728 874 --
Year Ended May 31, 1996 269 30 --
B Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 -- -- 2,086
Year Ended May 31, 1996 -- -- 213
</TABLE>
<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, 1998
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, 1998
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, 1998
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, 1998
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, 1998
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, 1998
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, 1998
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, 1998
Year Ended May 31, 1997 54,000 15,223 38,777
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
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, 1998
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
FEE FEE FEE
PAYABLE WAIVED RETAINED
------- ------ --------
TOTAL RETURN BOND FUND
Year Ended May 31, 1998
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, 1998
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, 1998
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, 1998
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, 1998
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, 1998
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, 1998
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, 1998
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
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, 1998
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, 1998
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>
<PAGE>
<TABLE>
<S> <C> <C> <C>
FEE FEE FEE
PAYABLE WAIVED RETAINED
------- ------ --------
INDEX FUND
Year Ended May 31, 1998
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, 1998
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, 1998
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, 1998
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, 1998
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, 1998
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, 1998
Year Ended May 31, 1997 26,057 26,057 0
INTERNATIONAL FUND
Year Ended May 31, 1998
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, 1998
Year Ended May 31, 1997 90,000 0 90,000
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Year Ended May 31, 1996 50,500 8,500 42,000
Year Ended October 31, 1995 77,967 8,567 69,400
</TABLE>
<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.
AGGREGATE
COMMISSIONS PAID
DIVERSIFIED BOND FUND
Year Ended May 31, 1998
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, 1998
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, 1998
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, 1998
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, 1998
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, 1998
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, 1998
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, 1998
<PAGE>
Year Ended May 31, 1997 226,652
Year Ended May 31, 1996 175,648
Year Ended October 31, 1995 180,093
AGGREGATE
COMMISSIONS PAID
GROWTH EQUITY FUND
Year Ended May 31, 1998
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, 1998
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, 1998
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, 1998
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, 1998
Year Ended May 31, 1997 N/A
INTERNATIONAL FUND*
Year Ended May 31, 1998
Year Ended May 31, 1997 N/A
Year Ended May 31, 1996 188,849
Year Ended October 31, 1995 348,358
* Reflects commission paid by International Portfolio; International Fund paid
no commissions directly during either year.
<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 ___________, 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
NAME AND ADDRESS BALANCE CLASS FUND
---------------- ----------- ----- ----
CASH INVESTMENT FUND
READY CASH INVESTMENT FUND
Investor Shares
Exchange Shares
Public Entities Shares
</TABLE>
<PAGE>
U.S. GOVERNMENT FUND
TREASURY FUND
<PAGE>
MUNICIPAL MONEY MARKET
FUND
Investor Shares
Institutional Shares
STABLE INCOME FUND
A Shares
B Shares
INTERMEDIATE GOVERNMENT
INCOME FUND
A Shares
INCOME FUND
A Shares
I Shares
TOTAL RETURN BOND FUND
A Shares
B Shares
I Shares
<PAGE>
LIMITED TERM TAX-FREE FUND
I Shares
TAX-FREE INCOME FUND
A Shares
B Shares
I Shares
COLORADO TAX-FREE FUND
A Shares
<PAGE>
B Shares
I Shares
MINNESOTA TAX-FREE FUND
I Shares
VALUGROWTH STOCK FUND
A Shares
VALUGROWTH STOCK FUND
I Shares
GROWTH EQUITY FUND
A Shares
SMALL COMPANY STOCK FUND
A Shares
B Shares
I Shares
SMALL CAP OPPORTUNITIES
FUND
A Shares
INTERNATIONAL FUND
A Shares
B Shares
I Shares
<PAGE>
APPENDIX C - PERFORMANCE DATA
TABLE 1 - MONEY MARKET FUND YIELDS
As of May 31, 1998, the seven day yield, seven day effective yield and, for
Municipal Money Market Fund, the seven day tax equivalent yield, of each class
of the Money Market Funds was as follows. For the tax-equivalent yield
quotations, the assumed federal income tax rate is 39.6%.
<TABLE>
<S> <C> <C> <C> <C>
EFFECTIVE TAX-EQUIVALENT TAX-EQUIVALENT
YIELD YIELD YIELD EFFECTIVE YIELD
----- ----- ----- ---------------
</TABLE>
CASH INVESTMENT FUND
READY CASH INVESTMENT FUND
Investor Shares
Institutional Shares
Exchange Shares
U.S. GOVERNMENT FUND
TREASURY FUND
MUNICIPAL MONEY MARKET FUND
Investor Shares
Institutional Shares
TABLE 2 - YIELDS
For the 30-day period ended May 31, 1998 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.
<TABLE>
<S> <C> <C>
TAX EQUIVALENT
YIELD YIELD
STABLE INCOME FUND ----- -----
A Shares
B Shares
I Shares
INTERMEDIATE GOVERNMENT INCOME FUND
A Shares
B Shares
I Shares
DIVERSIFIED BOND FUND
A Shares
B Shares
I Shares
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
TAX EQUIVALENT
YIELD YIELD
INCOME FUND ----- -----
A Shares N/A
B Shares N/A
I Shares N/A
TOTAL RETURN BOND FUND
A Shares N/A
B Shares N/A
I Shares N/A
LIMITED TERM TAX-FREE FUND
A Shares N/A
B Shares N/A
I Shares
TAX-FREE INCOME FUND
A Shares
B Shares
I Shares
COLORADO TAX-FREE FUND
A Shares
B Shares
I Shares
MINNESOTA TAX-FREE FUND
A Shares
B Shares
I Shares
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 N/A
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
TAX EQUIVALENT
YIELD YIELD
VALUGROWTH STOCK FUND
A Shares N/A
B Shares N/A
I Shares N/A
INCOME EQUITY FUND
A Shares N/A
B Shares N/A
I Shares N/A
LARGE COMPANY GROWTH FUND
I Shares N/A
SMALL COMPANY STOCK FUND
A Shares N/A
B Shares N/A
I Shares N/A
SMALL COMPANY GROWTH FUND
I Shares N/A
SMALL CAP OPPORTUNITIES FUND
A Shares N/A N/A
B Shares N/A N/A
I Shares N/A N/A
INTERNATIONAL FUND
A Shares N/A N/A
B Shares N/A N/A
I Shares N/A N/A
</TABLE>
<PAGE>
TABLE 3 - TOTAL RETURNS
The average annual total return of each class of each Fund for the periods ended
____________, 1998 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
ONE FIVE TEN SINCE
YEAR YEARS YEARS INCEPTION
- --------------------------------------------------------------------------------
CASH INVESTMENT FUND
READY CASH INVESTMENT FUND
Investor Shares
Institutional Shares
Exchange Shares
U.S. GOVERNMENT FUND
TREASURY FUND
MUNICIPAL MONEY MARKET FUND
Investor Shares
Institutional Shares
STABLE INCOME FUND
A Shares
B Shares
I Shares
LIMITED TERM GOVERNMENT
INCOME FUND
I Shares
INTERMEDIATE GOVERNMENT
INCOME FUND*
A Shares
B Shares
I Shares
DIVERSIFIED BOND FUND*
I Shares
INCOME FUND
A Shares
B Shares
I Shares
TOTAL RETURN BOND FUND
A Shares
B Shares
I Shares
LIMITED TERM TAX-FREE FUND
I Shares
TAX-FREE INCOME FUND
A Shares
B Shares
I Shares
COLORADO TAX-FREE FUND
A Shares
B Shares
I Shares
SEC STANDARDIZED RETURNS (CONTINUED)
<PAGE>
ONE FIVE TEN SINCE
YEAR YEARS YEARS INCEPTION
- --------------------------------------------------------------------------------
MINNESOTA INTERMEDIATE
TAX-FREE FUND*
I Shares
MINNESOTA TAX-FREE FUND
A Shares
B Shares
I Shares
STRATEGIC INCOME FUND*
I Shares
MODERATE BALANCED FUND*
I Shares
GROWTH BALANCED FUND*
I Shares
INCOME EQUITY FUND*
A Shares
B Shares
I Shares
INDEX FUND*
I Shares
VALUGROWTH STOCK FUND
A Shares
B Shares
I Shares
DIVERSIFIED EQUITY FUND*
A Shares
B Shares
I Shares
GROWTH EQUITY FUND*
A Shares
B Shares
I Shares
LARGE COMPANY GROWTH FUND*
I Shares
SMALL COMPANY STOCK FUND
A Shares
B Shares
I Shares
SMALL COMPANY GROWTH FUND*
I Shares
SMALL CAP OPPORTUNITIES FUND
A Shares
B Shares
I Shares
INTERNATIONAL FUND*
A Shares
B Shares
I Shares
<PAGE>
NON STANDARDIZED RETURNS (WITHOUT A SALES LOAD)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CALENDAR
ONE MONTH THREE YEAR TO ONE YEAR THREE FIVE TEN YEARS SINCE
MONTHS DATE YEARS YEARS INCEPTION
- ---------------------------------------------------------------------------------------------------------------------
CASH INVESTMENT FUND
READY CASH INVESTMENT FUND
Investor Shares
Institutional Shares
Exchange Shares
U.S. GOVERNMENT FUND
TREASURY FUND
MUNICIPAL MONEY MARKET FUND
Investor Shares
Institutional Shares
STABLE INCOME FUND
A Shares
B Shares
I Shares
LIMITED TERM GOVERNMENT
INCOME FUND
I Shares
INTERMEDIATE GOVERNMENT
INCOME FUND*
A Shares
B Shares
I Shares
DIVERSIFIED BOND FUND*
I Shares
INCOME FUND
A Shares
B Shares
I Shares
TOTAL RETURN BOND FUND
A Shares
B Shares
I Shares
LIMITED TERM TAX-FREE FUND
I Shares
TAX-FREE INCOME FUND
A Shares
B Shares
I Shares
COLORADO TAX-FREE FUND
A Shares
B Shares
I Shares
</TABLE>
<PAGE>
NON STANDARDIZED RETURNS (WITHOUT A SALES LOAD) (CONTINUED)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
MINNESOTA TAX-FREE FUND
A Shares
B Shares
I Shares
STRATEGIC INCOME FUND*
I Shares
MODERATE BALANCED FUND*
I Shares
GROWTH BALANCED FUND*
I Shares
INCOME EQUITY FUND*
A Shares
B Shares
I Shares
INDEX FUND*
I Shares
VALUGROWTH STOCK FUND
A Shares
B Shares
I Shares
DIVERSIFIED EQUITY FUND*
A Shares
B Shares
I Shares
GROWTH EQUITY FUND*
A Shares
B Shares
I Shares
LARGE COMPANY GROWTH FUND*
I Shares
SMALL COMPANY STOCK FUND
A Shares
B Shares
I Shares
SMALL COMPANY GROWTH FUND*
I Shares
SMALL CAP OPPORTUNITIES FUND
A Shares
B Shares
I Shares
INTERNATIONAL FUND*
A Shares
B Shares
I Shares
</TABLE>
<PAGE>
APPENDIX D - OTHER ADVERTISEMENT MATTERS
From time to time, the sales material for the Funds may include a discussion of,
and commentary by senior management of the Adviser on, the following.
The Trust may compare the Fund family against other bank-managed mutual funds or
other investment companies based on asset size. The Adviser believes the Funds'
growth may be attributed to three things: disciplined investment process,
utilizing talented people and focusing on customer needs.
The Funds utilize a disciplined process which relies heavily upon its investment
managers and an experienced investment research team. This approach maximizes
consistency by ensuring that no individual manager's style unduly influences a
fund's style.
NORWEST CORPORATION
1929 Northwestern National Bank and several upper midwest banks form a
holding company called Northwestern National Bancorporation. "Banco"
acquires 90 banks in its first year.
1932 At is peak, Banco owns a total of 139 affiliate banks.
1982 Banco enters the consumer finance business by acquiring Dial Finance
Company.
1983 The 87 affiliates of Banco are reborn as
"Norwest Corporation."
1989 Norwest consolidates its operations in the new 57-story Norwest Center
in downtown Minneapolis.
1997 Norwest reaches $50 billion in assets under management, including $19
billion in mutual funds.
NORWEST ADVANTAGE FUNDS
1946 Inception of the Common Trust Funds, the company's first pooled
investment vehicles.
1987 Norwest introduces two new open-ended
registered investment company funds
(commonly known as mutual funds), called the Prime Value Funds. In less
than one year, assets under management reach $500 million.
1992 The Norwest mutual fund family expands to 11 mutual funds. Assets under
management grow to $3.2 billion.
1994 Conversion to Norwest Collective Funds (bank collective investment
funds) into NORWEST ADVANTAGE FUNDS (mutual funds).
1998 NORWEST ADVANTAGE FUNDS family includes 41 mutual funds with over $20
billion in assets under management.
NORWEST CENTER
MINNEAPOLIS, MINNESOTA
DESIGNED BY WORLD-RENOWNED ARCHITECT CESAR PELLI, THE NORWEST CENTER WAS
CONSTRUCTED IN 1988. SINCE THEN, IT HAS RECEIVED SEVERAL PRESTIGIOUS
ARCHITECTURAL AWARDS, INCLUDING THE LARGE SCALE OFFICE AWARD OF EXCELLENCE, FROM
THE URBAN LAND INSTITUTE (1989); THE NAIOP (MINNESOTA) AWARD FOR EXCELLENCE --
DOWNTOWN BUILDING OF THE YEAR (1989); THE BOMA (MINNEAPOLIS) OFFICE BUILDING OF
THE YEAR, OVER 500,000 SQ. FT. (1993); AND THE BOMA (MIDWEST NORTHERN REGION)
OFFICE BUILDING OF THE YEAR, OVER 500,000 SQ. FT. (1994). THE NORWEST CENTER IS
LOCATED IN THE FINANCIAL DISTRICT OF MINNEAPOLIS AT 90 SOUTH SEVENTH STREET.
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements.
Included in the Prospectus:
Not Applicable to this filing.
Included in the Statement of Additional Information:
Not Applicable to this filing.
(b) Exhibits.
(1) Trust Instrument of Registrant as amended and
restated August 4, 1997 (see Note 1).
(2) By-Laws of Registrant as now in effect (see Note 2).
(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 (see Note 2).
(5) (a) Form of Investment Advisory Agreement
between Registrant and Norwest Investment
Management, Inc. ("NIM") relating to Cash
Investment Fund, Ready Cash Investment Fund,
U.S. Government Fund, Treasury Fund,
Treasury Plus 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,
Strategic Income Fund, Limited Term Tax-Free
Fund, Tax-Free Income Fund, Colorado Tax-
Free Fund, Minnesota Intermediate Tax-Free
Fund, Minnesota Tax-Free 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, Diversified Small
Cap Fund, Small Company Stock Fund, Small
Cap Opportunities Fund, Small Company Growth
Fund, Contrarian Stock Fund, International
Fund, Performa Strategic Value Bond Fund,
Performa Disciplined Growth Fund, Performa
Small Cap Value Fund, Performa Global Growth
Fund, WealthBuilder II Growth Portfolio,
WealthBuilder II Growth and Income Portfolio
and WealthBuilder II Growth Portfolio,.
Except for the names of each series of
Registrant, the Investment Advisory
Agreement of each series of the Registrant
is substantially the same as the Investment
Advisory Agreement, and therefore, is
omitted pursuant to Rule 483(d)(2) under the
1933 Act (see Note 3).
(b) Form of Investment Subadvisory Agreement
between Registrant and Crestone Capital
Management Inc. relating to Small Company
Stock Fund, Strategic Income Fund, Moderate
Balanced Fund, Growth Balanced Fund,
Diversified Equity Fund and Growth Equity
Fund dated as of June 1, 1997 (see Note 2).
<PAGE>
(c) Investment Subadvisory Agreement between
Registrant and Schroder Capital Management
Inc. relating to Strategic Income Fund,
Moderate Balanced Fund, Growth Balanced
Fund, Diversified Equity Fund, Growth Equity
Fund and International Fund dated as of
November 11, 1994 (see Note 2).
(d) Form of Investment Subadvisory Agreement
between Registrant and Schroder Capital
Management International Inc. relating to
Small Cap Opportunities Fund dated as of
April 28, 1996 (see Note 4).
(e) Form of Investment Subadvisory Agreement
between Registrant and Galliard Capital
Management International Inc. relating to
Stable Income Fund, Performa Strategic Value
Bond Fund, Diversified Bond Fund, Strategic
Income Fund, Moderate Balanced Fund, Growth
Balanced Fund and Aggressive Balanced-Equity
Fund dated as of June 1, 1997 (see Note 3).
(f) Form of Investment Subadvisory Agreement
between Registrant and Peregrine Capital
Management International Inc. relating to
Small Company Growth Fund, Large Company
Growth Fund, Growth Balanced Fund, Moderate
Balanced Fund, Strategic Income Fund, Growth
Equity Fund, Diversified Equity Fund and
Diversified Bond Fund dated as of June 1,
1997 (see Note 3).
(g) Form of Investment Subadvisory Agreement
between Registrant and United Capital
Management relating to Total Return Bond
Fund and Contrarian Stock Fund dated as of
June 1, 1997 (see Note 3).
(h) Form of Investment Subadvisory Agreement
between Registrant and Smith Asset
Management Group, LP relating to Performa
Disciplined Growth Fund, Performa Small Cap
Value Fund, Growth Equity Fund, Diversified
Equity Fund, Aggressive Balanced-Equity
Fund, Growth Balanced Fund, Moderate
Balanced Fund, Strategic Income Fund and
Diversified Small Cap Fund dated as of
October 1, 1997 (see Note 1).
(6) Distribution Services Agreement between Registrant
and Forum Financial Services, Inc. relating to each
portfolio of Registrant dated as of October 1, 1995,
as amended January 29, 1996 (see Note 2).
(7) Not Applicable.
(8) (a) Custodian Agreement between Registrant
and Norwest Bank Minnesota, N.A. dated as of
August 1, 1993, as amended November 11, 1994
(see Note 2).
(b) Transfer Agency Agreement between Registrant
and Norwest Bank Minnesota, N.A. dated as of
August 1, 1993 and restated as of
December 8, 1993 (see Note 2).
(9) (a) Form of Management Agreement between
Registrant and Forum Financial Services,
Inc. relating to each portfolio of
Registrant dated as August 1, 1997 (see
Note 4).
(b) Form of Fund Accounting Agreement between
Registrant and Forum Accounting Services,
LLC dated as of June 1, 1997 (see Note 4).
(c) Administration Services Agreement between
Registrant and Norwest Bank Minnesota, N.A.
relating to International Fund and Small Cap
Opportunities Fund dated as of November 11,
1994, as amended April 27, 1996 (see Note
2).
<PAGE>
(d) Administration Agreement between Registrant
and Forum Administrative Services, LLC
relating to Cash Investment Fund, U.S.
Government Fund, Treasury Fund, Municipal
Money Market Fund - Institutional Shares,
Municipal Money Market Fund - Investor
Shares, Ready Cash Investment Fund,
Intermediate Government Income Fund,
Diversified Bond Fund, Stable Income Fund,
Income Fund, Total Return Bond Fund, Limited
Term Tax-Free Fund, Limited Term Government
Income 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, Income Equity Fund,
Index Fund, ValuGrowth SM Stock Fund,
Diversified Equity Fund, Growth Equity Fund,
Large Company Growth Fund, Diversified Small
Cap Fund, Small Company Growth Fund, Small
Company Stock Fund, Small Cap Opportunities
Fund, Contrarian Stock Fund, International
Fund, Performa Strategic Value Bond Fund,
Performa Disciplined Growth Fund, Performa
Small Cap Value Fund, Performa Global Growth
Fund, Norwest WealthBuilder II Growth
Portfolio, Norwest WealthBuilder II Growth
and Income Portfolio and Norwest
WealthBuilder II Growth Balanced Portfolio
dated as of October 1, 1996 and amended
January 26, 1998 (filed herewith).
(10) (a) Opinion of Seward & Kissel (see Note 5).
(b) Opinion of Seward & Kissel (see Note 2).
(11) Not Applicable.
(12) Not Applicable.
(13) Investment Representation letter of John Y. Keffer as
original purchaser of shares of stock of Registrant
(see Note 5).
(14) Individual Retirement Account materials (see Note 6).
(15) (a) Rule 12b-1 Plan adopted by Registrant
relating to Exchange Shares of Ready Cash
Investment Fund and Investor B Shares of
Stable Income Fund, Intermediate Government
Fund, Income Fund, Total Return Bond Fund,
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 Company Growth
Fund, Small Cap Opportunities Fund and
International Fund (see Note 2).
(16) Schedules for computation of each Performance
Quotation provided in the Registration Statement in
response to Item 22 relating to (see Note 7):
<TABLE>
<S> <C> <C> <C> <C>
Series Share
Class(es)
Cash Investment Fund Shares
Ready Cash Investment Fund Investor Shares Exchange Class
U.S. Government Fund Shares
Treasury Fund Shares
Treasury Plus Fund Shares
Municipal Money Market Fund Investor Shares Institutional Shares
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Stable Income Fund A Shares B Shares I Shares
Limited Term Government Income Fund I Shares
Intermediate Government Income Fund A Shares B Shares I Shares
Diversified Bond Fund I Shares
Income Fund A Shares B Shares I Shares
Total Return Bond Fund A Shares B Shares I Shares
Limited Term Tax-Free Fund I Shares
Tax-Free Income Fund A Shares B Shares I Shares
Colorado Tax-Free Fund A Shares B Shares I Shares
Minnesota Intermediate Tax-Free Fund I Shares
Minnesota Tax-Free Fund A Shares B Shares I Shares
Strategic Income Fund I Shares
Moderate Balanced Fund I Shares
Growth Balanced Fund I Shares
Aggressive Balanced-Equity Fund I Shares
Index Fund I Shares
Income Equity Fund A Shares B Shares I Shares
ValuGrowthSM Stock Fund A Shares B Shares I Shares
Diversified Equity Fund A Shares B Shares I Shares
Growth Equity Fund A Shares B Shares I Shares
Large Company Growth Fund I Shares
Diversified Small Cap Fund I Shares
Small Company Stock Fund A Shares B Shares I Shares
Small Company Growth Fund I Shares
Small Cap Opportunities Fund A Shares B Shares I Shares
Contrarian Stock Fund A Shares B Shares I Shares
International Fund A Shares B Shares I Shares
WealthBuilder II Growth Portfolio C Shares
WealthBuilder II Growth and Income Portfolio C Shares
WealthBuilder II Growth Balanced Portfolio C Shares
Performa Disciplined Growth Fund Shares
Performa Small Cap Value Fund Shares
Performa Strategic Value Bond Fund Shares
Performa Global Fund Shares
</TABLE>
(17) Financial Data Schedules (will be filed in subsequent
amendment).
(18) Multiclass (Rule 18f-3) Plan adopted by Registrant (filed
herewith).
Other Exhibits
(A) Power of Attorney from James C. Harris, Trustee of Registrant (see
Note 2).
(B) Power of Attorney from Richard M. Leach, Trustee of Registrant (see
Note 2).
(C) Power of Attorney from Robert C. Brown, Trustee of Registrant (see
Note 2).
(D) Power of Attorney from Donald H. Burkhardt, Trustee of Registrant
(see Note 2).
(E) Power of Attorney from John Y. Keffer, Trustee of Registrant (see
Note 2).
(F) Power of Attorney from Donald C. Willeke, Trustee of Registrant
(see Note 2).
(G) Power of Attorney from Timothy J. Penny, Trustee of Registrant (see
Note 2).
<PAGE>
(H) Power of Attorney from John S. McCune, Trustee of Registrant (see
Note 1).
<TABLE>
<S> <C> <C> <C>
-------------
Note: (1) Exhibit incorporated by reference as filed in PEA No. 46 via EDGAR on September 30, 1997,
accession number 0000912057-97-032214.
(2) Exhibit incorporated by reference as filed in PEA No. 35 via EDGAR on March 8, 1996, accession
number 0000912057-96-004243.
(3) Exhibit incorporated by reference as filed in PEA No. 43 via EDGAR on July 16, 1997, accession
number 0000912057-97-024361.
(4) Exhibit incorporated by reference as filed in PEA No. 54 via EDGAR on May 6, 1998, accession
number 0001004402-98-000281.
(5) Exhibit incorporated by reference as filed in PreEA No. 2 on December 31, 1986.
(6) Exhibit incorporated by reference as filed in PEA No. 24 on April 22, 1994.
(7) Exhibit incorporated by reference as filed in PEA No. 42 via EDGAR on June 2, 1997, accession
number 0000912057-97-019290.
</TABLE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Title of Class Of Unit Number of Recordholders
of Beneficial Interest as of June 30, 1998
Shares A Shares B Shares I Shares Investor Exchange Institutional C Shares
Shares Shares Shares
Cash Investment Fund 74 N/A N/A N/A N/A N/A N/A N/A
Ready Cash Investment Fund N/A N/A N/A N/A 193 24 N/A N/A
U.S. Government Fund 39 N/A N/A N/A N/A N/A N/A N/A
Treasury Fund 32 N/A N/A N/A N/A N/A N/A N/A
Treasury Plus Fund 0 N/A N/A N/A N/A N/A N/A N/A
Municipal Money Market Fund N/A N/A N/A N/A 19 N/A 27 N/A
Stable Income Fund N/A 112 74 341 N/A N/A N/A N/A
Limited Term Government
Income Fund N/A N/A N/A 1329 N/A N/A N/A N/A
Intermediate Government N/A 45 451 112 N/A N/A N/A N/A
Income Fund
Diversified Bond Fund N/A N/A N/A 152 N/A N/A N/A N/A
Income Fund N/A 55 372 3191 N/A N/A N/A N/A
Total Return Bond Fund N/A 108 216 381 N/A N/A N/A N/A
Limited Term Tax-Free Fund N/A N/A N/A 382 N/A N/A N/A N/A
Tax-Free Income Fund N/A 65 292 1420 N/A N/A N/A N/A
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Title of Class Of Unit Number of Recordholders
of Beneficial Interest as of June 30, 1998
Shares A Shares B Shares I Shares Investor Exchange Institutional C Shares
Shares Shares Shares
Colorado Tax-Free Fund N/AA 73 207 17 N/A N/A N/AB Shares N/AI
Shares Shares
Minnesota Intermediate N/AI N/A N/A 1376 N/A N/A N/A N/A
Tax-Free Fund Shares
Minnesota Tax-Free Fund N/AA 551 457 185 N/A N/A N/AB Shares N/AI
Shares Shares
Strategic Income Fund N/AI N/A N/A 192 N/A N/A N/A N/A
Shares
Moderate Balanced Fund N/AI N/A N/A 509 N/A N/A N/A N/A
Shares
Growth Balanced Fund N/AI N/A N/A 678 N/A N/A N/A N/A
Shares
Aggressive N/AI N/A N/A 25 N/A N/A N/A N/A
Balanced-Equity Shares
Fund
Index Fund N/A N/A N/A 560 N/A N/A N/A N/A
Income Equity Fund N/A 4505 5124 504 N/A N/A N/A N/A
ValuGrowthSM Stock Fund N/A 672 862 68 N/A N/A N/A N/A
Diversified Equity Fund N/A 4567 6835 966 N/A N/A N/A N/A
Growth Equity Fund N/A 1358 1892 823 N/A N/A N/A N/A
Large Company Growth Fund N/A N/A N/A 355 N/A N/A N/A N/A
Diversified Small Cap N/A N/A N/A 16 N/A N/A N/A N/A
Fund
Small Company Stock Fund N/A 768 729 234 N/A N/A N/A N/A
Small Company Growth Fund N/A N/A N/A 155 N/A N/A N/A N/A
Small Cap Opportunities
Fund N/A 1065 1171 240 N/A N/A N/A N/A
Contrarian Stock Fund N/A 0 0 49 N/A N/A N/A N/A
International Fund N/A 84 261 213 N/A N/A N/A N/A
Norwest WealthBuilder II N/A N/A N/A N/A N/A N/A N/A 106
Growth Portfolio
Norwest WealthBuilder II N/A N/A N/A N/A N/A N/A N/A 156
Growth and Income Portfolio
Norwest WealthBuilder II N/A N/A N/A N/A N/A N/A N/A 156
Growth Balanced Portfolio
Performa Disciplined 17 N/A N/A N/A N/A N/A N/A N/A
Growth Fund
Performa Small Cap Value 14 N/A N/A N/A N/A N/A N/A N/A
Fund
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Title of Class Of Unit Number of Recordholders
of Beneficial Interest as of June 30, 1998
Shares A Shares B Shares I Shares Investor Exchange Institutional C Shares
Shares Shares Shares
Performa Strategic Value 9 N/A N/A N/A N/A N/A N/A N/A
Bond Fund
Performa Global 12 N/A N/A N/A N/A N/A N/A N/A
Growth Fund
</TABLE>
ITEM 27. INDEMNIFICATION
The general effect of Section 10.02 of Registrant's Trust Instrument is
to indemnify existing or former trustees and officers of the Trust to
the fullest extent permitted by law against liability and expenses.
There is no indemnification if, among other things, any such person is
adjudicated liable to Registrant or its shareholders by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office. This description
is modified in its entirety by the provisions of Section 10.02 of
Registrant's Trust Instrument contained in this Registration Statement
as Exhibit 1 and incorporated herein by reference.
Registrant's Investment Advisory Agreements, Investment Subadvisory
Agreements 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, 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
<PAGE>
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
(a) 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 is 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.
<TABLE>
<S> <C> <C>
---------------------------------- ------------------------------------ ----------------------------------
Name Title Business Connection
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
P. Jay Kiedrowski Chairman, Chief Executive Officer, Norwest Investment Management,
President Inc.
------------------------------------ ----------------------------------
Executive Vice President, Employee Norwest Bank Minnesota, N.A.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Crestone Capital Management, Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Chairman Galliard Capital Management, Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
James W. Paulsen Senior Vice President, Chief Norwest Investment Management,
Investment Officer Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Stephen P. Gianoli Senior Vice President, Chief Norwest Investment Management,
Executive Officer Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Crestone Capital Management, Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
David S. Lunt Vice President, Senior Portfolio Norwest Investment Management,
Manager Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Richard C. Villars Vice President, Senior Portfolio Norwest Investment Management,
Manager Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Lee K. Chase Senior Vice President Norwest Investment Management,
Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Andrew Owen Vice President Norwest Investment Management,
Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Eileen A. Kuhry Investment Compliance Specialist Norwest Investment Management,
Inc.
---------------------------------- ------------------------------------ ----------------------------------
</TABLE>
<PAGE>
(b) Schroder Capital Management International Inc.
The description of Schroder Capital Management International Inc.
("SCMI") 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, is
incorporated by reference herein.
The following are the directors and principal officers of SCMI,
including their business connections of a substantial nature. The
address of each company listed, unless otherwise noted, is 787 Seventh
Avenue, 34th Floor, New York, NY 10019. Schroder Capital Management
International Limited ("Schroder Ltd.") is a United Kingdom affiliate
of Schroder which provides investment management services to
international clients located principally in the United States.
<TABLE>
<S> <C> <C>
---------------------------------- ------------------------------------ ----------------------------------
Name Title Business Connection
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
David M. Salisbury Chairman, Director SCMI
------------------------------------ ----------------------------------
Chief Executive, Director Schroder Ltd.*
------------------------------------ ----------------------------------
Director Schroders plc.*
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Trustee and Officer Schroder Series Trust II
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Richard R. Foulkes Deputy Chairman, Director SCMI
------------------------------------ ----------------------------------
Deputy Chairman Schroder Ltd.*
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Officer Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
John A. Troiano Chief Executive, Director SCMI
------------------------------------
----------------------------------
Chief Executive, Director Schroder Ltd.*
------------------------------------ ----------------------------------
----------------------------------
Officer Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Sharon L. Haugh Executive Vice President, Director SCMI
----------------------------------
------------------------------------ ----------------------------------
Director, Chairman Schroder Fund Advisors Inc.
------------------------------------ ----------------------------------
Director Schroder Ltd.*
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Chairman, Director Schroder Capital Management Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Trustee Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Gavin D. L. Ralston Senior Vice President, Managing SCMI
Director
------------------------------------ ----------------------------------
Director Schroder Ltd.*
---------------------------------- ------------------------------------ ----------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
---------------------------------- ------------------------------------ ----------------------------------
Name Title Business Connection
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Mark J. Smith Senior Vice President, Director SCMI
------------------------------------ ----------------------------------
Senior Vice President, Director Schroder Ltd.*
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Schroder Fund Advisors Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Trustee and Officer Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Robert G. Davy Senior Vice President, Director SCMI
------------------------------------ ----------------------------------
Director Schroder Ltd.*
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Officer Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Jane P. Lucas Senior Vice President, Director SCMI
------------------------------------ ----------------------------------
Director Schroder Fund Advisors Inc.
------------------------------------ ----------------------------------
Director Schroder Capital Management Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Officer Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
David R. Robertson Group Vice President SCMI
------------------------------------ ----------------------------------
Senior Vice President Schroder Fund Advisors Inc..
----------------------------------
------------------------------------
Director of Institutional Business Oppenheimer Funds, Inc.
resigned 2/98
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Michael M. Perlstein Senior Vice President, Director SCMI
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Senior Vice President, Director Schroders Ltd.*
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Managing Director MacKay Shields Financial
Corporation
resigned 11/96
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Louise Croset First Vice President, Director SCMI
------------------------------------ ----------------------------------
First Vice President Schroder Ltd.*
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Trustee and Officer Schroder Series Trust II
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Abdallah Nauphal Group Vice President, Director SCMI
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Group Vice President, Director Schroder Capital Management Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Ellen B. Sullivan Group Vice President, Director SCMI
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Schroder Capital Management Inc.
---------------------------------- ------------------------------------ ----------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
---------------------------------- ------------------------------------ ----------------------------------
Name Title Business Connection
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Catherine A. Mazza Group Vice President SCMI
------------------------------------ ----------------------------------
President, Director Schroder Fund Advisors Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Schroder Capital Management Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Trustee and Officer Certain open end management
investment companies for which
SCMI and/or its
affiliates provide
investment services.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Heather Crighton First Vice President, Director SCMI
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
First Vice President, Director Schroder Ltd.*
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Fariba Talebi Group Vice President SCMI
------------------------------------ ----------------------------------
Director Schroder Capital Management Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Officer Certain open end management
investment companies for which SCMI
and/or its affiliates provide
investment services.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Ira Unschuld Group Vice President SCMI
------------------------------------ ----------------------------------
Officer Certain open end management
investment companies for which SCMI
and/or its affiliates provide
investment services.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Paul M. Morris Senior Vice President SCMI
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Schroder Capital Management Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Principal, Senior Portfolio Manager Weiss, Peck & Greer LLC
resigned 12/96
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Susan B. Kenneally First Vice President, Director SCMI
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
First Vice President, Director Schroder Ltd.*
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Jennifer A. Bonathan First Vice President, Director SCMI
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
First Vice President, Director Schroder Ltd.*
---------------------------------- ------------------------------------ ----------------------------------
</TABLE>
*Schroder Ltd and Schroders plc. are located at 33 Gutter Lane, London EC2V 8AS,
United Kingdom.
(c) 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, is 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 80111-2614 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.
<PAGE>
<TABLE>
<S> <C> <C>
---------------------------------- ------------------------------------ ----------------------------------
Name (Address if Different) Title Business Connection
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Kirk McCown President, Director Crestone Capital Management, Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
P. Jay Kiedrowski Director Crestone Capital Management, Inc.
------------------------------------ ----------------------------------
Sixth and Marquette Ave., Chairman, Chief Executive Officer, Norwest Investment Management,
Minneapolis, MN 55479 President Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Executive Vice President, Employee Norwest Bank Minnesota, N.A.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Chairman Galliard Capital Management, Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Stephen P. Gianoli Director Crestone Capital Management, Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Sixth and Marquette Ave., Senior Vice President, Chief Norwest Investment Management,
Minneapolis, MN 55479 Executive Officer Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Susan Koonsman Director Crestone Capital Management, Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
1740 Broadway President Norwest Investments & Trust
Denver, CO 80274
---------------------------------- ------------------------------------ ----------------------------------
</TABLE>
(d) 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, is 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.
<TABLE>
<S> <C> <C>
---------------------------------- ------------------------------------ ----------------------------------
Name (Address if Different) Title Business Connection
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
James R. Campbell Director Peregrine Capital Management,
Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Sixth and Marquette Ave., President, Chief Executive Norwest Bank
Minneapolis, MN 55479-0116 Officer, Director
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Patricia D. Burns Senior Vice President Peregrine Capital Management,
Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Tasso H. Coin Senior Vice President Peregrine Capital Management,
Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
---------------------------------- ------------------------------------ ----------------------------------
Name Title Business Connection
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
John S. Dale Senior Vice President Peregrine Capital Management,
Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Julie M. Gerend Senior Vice President Peregrine Capital Management,
Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
William D. Giese Senior Vice President Peregrine Capital Management,
Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Daniel J. Hagen Vice President Peregrine Capital Management,
Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Ronald G. Hoffman Senior Vice President, Secretary Peregrine Capital Management,
Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Frank T. Matthews Vice President Peregrine Capital Management,
Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Jeannine McCormick Senior Vice President Peregrine Capital Management,
Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Barbara K. McFadden Senior Vice President Peregrine Capital Management,
Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Robert B. Mersky Chairman, President, Chief Peregrine Capital Management,
Executive Officer Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Gary E. Nussbaum Senior Vice President Peregrine Capital Management,
Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
James P. Ross Vice President Peregrine Capital Management,
Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Vice President Norwest Bank (prior to November,
1996)
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Jonathan L. Scharlau Assistant Vice President Peregrine Capital Management,
Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Jay H. Strohmaier Senior Vice President Peregrine Capital Management,
Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Senior Vice President/Managed Voyageur Asset Management (prior
Accounts to September, 1996)
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Paul E. von Kuster Senior Vice President Peregrine Capital Management,
Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Janelle M. Walter Assistant Vice President Peregrine Capital Management,
Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Paul R. Wurm Senior Vice President Peregrine Capital Management,
Inc.
---------------------------------- ------------------------------------ ----------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
---------------------------------- ------------------------------------ ----------------------------------
Name Title Business Connection
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
J. Daniel Vendermark Vice President Peregrine Capital Management,
Sixth and Marquette Avenue Inc.
Minneapolis, MN 55479-1013
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Albert J. Edwards Senior Vice President Peregrine Capital Management,
Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Vice President/Marketing U.S. Trust Company of California
(prior to June 9, 1997)
---------------------------------- ------------------------------------ ----------------------------------
</TABLE>
(e) Galliard Capital Management.
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, 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, is
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.
<TABLE>
<S> <C> <C>
---------------------------------- ------------------------------------ ----------------------------------
Name (Address if Different) Title Business Connection
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
P. Jay Kiedrowski Chairman Galliard Capital Management, Inc.
------------------------------------ ----------------------------------
Sixth and Marquette Ave., Chairman, Chief Executive Officer, Norwest Investment Management,
Minneapolis, MN 55479 President Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Executive Vice President, Employee Norwest Bank Minnesota, N.A.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Crestone Capital Management, Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Richard Merriam Principal, Senior Portfolio Manager Galliard Capital Management, Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
John Caswell Principal, Senior Portfolio Manager Galliard Capital Management, Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Karl Tourville Principal, Senior Portfolio Manager Galliard Capital Management, Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Laura Gideon Senior Vice President of Marketing Galliard Capital Management, Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Leela Scattum Vice President of Operations Galliard Capital Management, Inc.
---------------------------------- ------------------------------------ ----------------------------------
</TABLE>
<PAGE>
(f) United Capital Management
The description of United Capital Management ("UCM") under the caption
"Management - SubAdviser" in the Prospectus and "Management- Adviser -
SubAdviser - Diversified Bond Fund, Total Return Bond Fund, Strategic
Income Fund, Moderate Balanced Fund, Growth Balanced Fund and
Contrarian Stock Fund" in the Statement of Additional Information
relating to the, Diversified Bond Fund, Total Return Bond Fund,
Strategic Income Fund, Moderate Balanced Fund, Growth Balanced Fund and
Contrarian Stock Fund" constituting certain of Parts A and B,
respectively, of the Registration Statement, is 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.
<TABLE>
<S> <C> <C>
---------------------------------- ------------------------------------ ----------------------------------
Name Title Business Connection
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
W. Lon Schreur President United Capital Management
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Senior Vice President Norwest Bank Colorado, N.A.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
John T. Groton Vice President United Capital Management
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Vice President Norwest Bank Colorado, N.A.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Name Title Business Connection
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
David B. Kinney Vice President United Capital Management
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Vice President Norwest Bank Colorado, N.A.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
James C. Peery Senior Vice President United Capital Management
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Vice President Norwest Bank Colorado, N.A.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Leona F. Bennett Vice President United Capital Management
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Vice President Norwest Bank Colorado, N.A.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Denise B. Johnson Vice President United Capital Management
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Vice President Norwest Bank Colorado, N.A.
---------------------------------- ------------------------------------ ----------------------------------
</TABLE>
(g) 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, is 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 300 Crescent Court, Suite 750, 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.
<TABLE>
<S> <C> <C>
---------------------------------- ------------------------------------ ----------------------------------
Name Title Business Connection
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Stephen S. Smith President, Chief Executive Officer Smith Asset Management Group
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Partner Discovery Management
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
---------------------------------- ------------------------------------ ----------------------------------
Name Title Business Connection
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Stephen J. Summers Chief Operating Officer Smith Asset Management Group
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Partner Discovery Management
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Sarah C. Castleman Vice President Smith Asset Management Group
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Partner Discovery Management
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Assistant Vice President NationsBank (formerly)
---------------------------------- ------------------------------------ ----------------------------------
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Forum Financial Services, Inc., Registrant's underwriter,
serves as underwriter for the following investment companies
registered under the Investment Company Act of 1940, as
amended:
The CRM Funds The Cutler Trust Forum Funds Memorial Funds
Monarch Funds Norwest Advantage Funds Norwest Select Funds
Sound Shore Fund, Inc.
(b) The following directors and officers of Forum Financial
Services, Inc. hold the following positions with Registrant.
Their business address is Two Portland Square, Portland, Maine
04101:
<TABLE>
<S> <C> <C>
-------------------- ---------------------------------- -------------------------------------
Name Position with Underwriter Position with Registrant
-------------------- ---------------------------------- -------------------------------------
-------------------- ---------------------------------- -------------------------------------
John Y. Keffer President Chairman, President
-------------------- ---------------------------------- -------------------------------------
David I. Goldstein Secretary Vice President and Secretary
-------------------- ---------------------------------- -------------------------------------
-------------------- ---------------------------------- -------------------------------------
Sara M. Morris Treasurer Vice President and Treasurer
-------------------- ---------------------------------- -------------------------------------
</TABLE>
(c) Not Applicable.
ITEM 30. LOCATION OF ACCOUNTS 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
Shareholder Services, LLC, Two Portland Square, Portland, Maine 04101
and Forum Administrative Services, LLC, 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
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, as amended, the Registrant has duly caused this amendment
to its Registration Statement to be signed on its behalf by the undersigned,
duly authorized in the City of Portland, and State of Maine on the 31st day of
July, 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 has been signed below by the following persons on the 31st day of
July, 1998.
(a) Principle Executive Officer
/s/ John Y. Keffer
------------------------------------------
John Y. Keffer
Chairman and President
(b) Principle Financial and Accounting Officer
/s/ Sara M. Morris
-----------------------------------------
Sara M. Morris
Treasurer
(c) A majority of the Trustees
/s/ John Y. Keffer
-----------------------------------------
John Y. Keffer
Chairman
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 C. McCune,* Trustee
*By:/s/John Y. Keffer
-----------------------------------------
John Y. Keffer
Attorney in Fact
<PAGE>
SIGNATURES
On behalf of Core Trust (Delaware), being duly authorized, I have duly caused
this amendment to the Registration Statement of Norwest Advantage Funds to be
signed in the City of Portland, State of Maine on the 31st day of July, 1998.
Core Trust (Delaware)
By: /s/ John Y. Keffer
-----------------------
John Y. Keffer
President
This amendment to the Registration Statement of Norwest Advantage Funds has been
signed below by the following persons in the capacities indicated on the 31st
day of July, 1998.
(a) Principal Executive Officer
/s/ John Y. Keffer
----------------------------------------
John Y. Keffer
Chairman and President
(b) Principal Financial and Accounting Officer
/s/ Sara M. Morris
----------------------------------------
Sara M. Morris
Treasurer
(c) A Majority of the Trustees
/s/ John Y. Keffer
----------------------------------------
John Y. Keffer
Chairman
J. Michael Parish,* Trustee
James C. Cheng,* Trustee
Costas Azariadis,* Trustee
*By: /s/ John Y. Keffer
----------------------------------------
John Y. Keffer
Attorney in Fact
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
(9)(d) Administration Agreement between Registrant and Forum Administrative
Services, LLC relating to Cash Investment Fund, U.S. Government Fund,
Treasury Fund, Municipal Money Market Fund - Institutional Shares,
Municipal Money Market Fund - Investor Shares, Ready Cash Investment
Fund, Intermediate Government Income Fund, Diversified Bond Fund,
Stable Income Fund, Income Fund, Total Return Bond Fund, Limited Term
Tax-Free Fund, Limited Term Government Income 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, Income Equity
Fund, Index Fund, ValuGrowth SM Stock Fund, Diversified Equity Fund,
Growth Equity Fund, Large Company Growth Fund, Diversified Small Cap
Fund, Small Company Growth Fund, Small Company Stock Fund, Small Cap
Opportunities Fund, Contrarian Stock Fund, International Fund, Performa
Strategic Value Bond Fund, Performa Disciplined Growth Fund, Performa
Small Cap Value Fund, Performa Global Growth Fund, Norwest
WealthBuilder II Growth Portfolio, Norwest WealthBuilder II Growth and
Income Portfolio and Norwest WealthBuilder II Growth Balanced Portfolio
dated as of October 1, 1996 and amended January 26, 1998.
(18) 18f-3 Plan adopted by Registrant.
Exhibit 9(d)
NORWEST ADVANTAGE FUNDS
ADMINISTRATION AGREEMENT
October 1, 1996
Amended January 26, 1998
AGREEMENT made this 26th day of January, 1998, between Norwest
Advantage Funds (the "Trust"), a business trust organized under the laws of the
State of Delaware with its principal place of business at Two Portland Square,
Portland, Maine 04101, and Forum Administrative Services, LLC ("FAdS"), a
limited liability corporation organized under the laws of State of Delaware with
its principal place of business at Two Portland Square, Portland, Maine 04101.
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended (the "Act") as an open-end management investment company and
may issue its shares of beneficial interest, no par value, in separate series
and classes; and
WHEREAS, the Fund has entered into a Management Agreement with Forum
Financial Services, Inc. (the "Manager"), pursuant to which Manager provides
certain management services for the Trust; and
WHEREAS, the Trust desires that FAdS perform administrative services
for each of the series of the Trust as listed in Appendix A hereto (each a
"Fund" and collectively the "Funds") other than any administrative services
performed by the Manager incidental to the aforesaid Management Agreement, and
FAdS is willing to provide those services on the terms and conditions set forth
in this Agreement;
NOW THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, the Trust and FAdS agree as follows:
SECTION 1. THE TRUST; DELIVERY OF DOCUMENTS
The Trust is engaged in the business of investing and reinvesting its
assets in securities of the type and in accordance with the limitations
specified in the Trust's Trust Instrument, By-Laws and registration statement
filed with the Securities and Exchange Commission (the "SEC") under the Act and
the Securities Act of 1933 (the "Securities Act"), including any representations
made in a prospectus ("Prospectus") or statement of additional information
("SAI") relating to a Fund contained therein and as may be supplemented from
time to time, all in such manner and to such extent as may from time to time be
authorized by the Trust's Board of Trustees (the "Board"). The Trust has
delivered copies of the documents listed in this Section to FAdS and will from
time to time furnish FAdS with any amendments thereof.
SECTION 2. APPOINTMENT
The Trust hereby employs FAdS, subject to the direction and control of
the Board and the Manager, to provide certain administrative services necessary
for the Trust's operations with respect to each Fund except those that are the
responsibility of the Manager, Norwest Bank Minnesota, N.A. ("Norwest"), each
Fund's investment adviser, or any other investment adviser or investment
subadviser to a Fund (each an "Adviser"), or Norwest in its capacity as
administrator pursuant to an investment administration or similar agreement.
SECTION 3. ADMINISTRATIVE DUTIES
(a) On behalf of the Trust and with respect to each Fund, FAdS will
<PAGE>
(i) at the Trust's expense, provide the Trust with, or arrange for the
provision of, the services of persons competent to perform such legal,
administrative and clerical functions not otherwise described in this
Section 3(a) as are necessary to provide effective operation of the
Trust;
(ii) assist in the preparation and the printing and the periodic
updating of the Trust's registration statement, Prospectuses and SAIs,
the Trust's tax returns, and reports to its shareholders, the SEC and
state and other securities administrators;
(iii) assist in the preparation of proxy and information statements and
any other communications to shareholders;
(iv) assist the Advisers in monitoring Fund holdings for compliance
with Prospectus and SAI investment restrictions and assist in
preparation of periodic compliance reports;
(v) with the cooperation of counsel to the Trust, Advisers, the
officers of the Trust and other relevant parties, be responsible for
preparation and dissemination of materials for meetings of the Board;
(vi) be responsible for preparing, filing and maintaining the Trust's
governing documents, including the Trust Instrument, Bylaws and minutes
of meetings of Trustees, Board committees and shareholders;
(vii) be responsible for maintaining the Trust's existence and good
standing under state law;
(viii) monitor sales of shares and ensure that such shares are properly
and duly registered with the SEC and applicable state and other
securities commissions;
(ix) be responsible 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
(x) be responsible 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 amended, and prepare and distribute to appropriate parties
notices announcing the declaration of dividends and other distributions
to shareholders.
(b) Any of the legal services identified in Appendix B hereto may be
provided to the Trust by personnel of the Legal Department of FAdS or its
affiliates, subject to satisfaction of the conditions contained in Section 7(c)
and to the consents and waivers by the Trust and FAdS of any general conflict of
interest existing as a result of the provision of those services. FAdS shall not
charge the Trust for providing the legal services identified in Appendix B,
except for those matters designated as Special Legal Services, as to which FAdS
may charge and, subject to review and approval by the Chairman of the Audit
Committee or counsel to the Trust, the Trust shall pay, an additional amount as
reimbursement of the cost to FAdS of providing the Special Legal Services.
Nothing in this Agreement shall require FAdS to provide any of the services
listed in Appendix B, and each of those services may be performed by an outside
vendor if appropriate in the judgment of FAdS or the Trust; and be it further
(c) FAdS shall maintain records relating to its services, such as
journals, ledger accounts and other records, as are required to be maintained
under the Act and Rule 31a-1 under the Act. The books and records pertaining to
the Trust which are in possession of FAdS shall be the property of the Trust.
The Trust, or the Trust's authorized representatives, shall have access to such
books and records at all times during FAdS's normal business hours. Upon the
reasonable request of the Trust, copies of any such books and records shall be
provided promptly by FAdS to the Trust or the Trust's authorized
representatives.
<PAGE>
SECTION 4. STANDARD OF CARE
The Trust shall expect of FAdS, and FAdS will give the Trust the
benefit of, FAdS's best judgment and efforts in rendering these services to the
Trust, and the Trust agrees as an inducement to FAdS's undertaking these
services that FAdS shall not be liable under this Agreement for any mistake of
judgment or in any event whatsoever, except for lack of good faith, provided
that nothing herein shall be deemed to protect, or purport to protect, FAdS
against any liability to the Trust or to its security holders to which FAdS
would otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of FAdS's duties under this Agreement, or by
reason of FAdS's reckless disregard of its obligations and duties under this
Agreement.
SECTION 5. COMPENSATION; EXPENSES
(a) In consideration of the administrative services performed by FAdS
as described herein, the Trust will pay FAdS, with respect to each class of
Shares of each Fund a fee at the annual rate as listed in Appendix A hereto plus
such additional payments as contemplated hereby. FAdS's fees shall be accrued by
the Trust daily and shall be payable monthly in arrears on the first day of each
calendar month for services performed under the Agreement during the prior
calendar month.
(b) Notwithstanding that other persons may, in investment advisory
agreements or otherwise, agree to assume certain expenses of the Trust or of any
Fund or class of Shares thereof, the Trust shall be responsible and hereby
assumes the obligation for payment of all the Trust's expenses, including (i)
payment of the fee payable to FAdS under this Section 5 hereof, the fee payable
to the Manager pursuant to the Management Agreement, and the fee payable to the
Advisers of each Fund pursuant to any investment advisory or similar agreement
between the Adviser and the Trust; (ii) interest charges, taxes, brokerage fees
and commissions; (iii) insurance and fidelity bond premiums; (iv) fees, interest
charges and expenses of the Trust's manager, custodian, transfer agent, dividend
disbursing agent and fund accountant and providers of pricing, credit analysis
and dividend services; (v) telecommunications expenses; (vi) auditing, legal and
compliance expenses; (vii) costs of forming the Trust and maintaining its
existence; (viii) costs of preparing and printing the Trust's Prospectuses,
SAIs, subscription application forms and stockholder reports and their delivery
to existing and prospective stockholders; (ix) 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 the Trust's shares; (x) costs
of reproduction, stationery and supplies; (xi) compensation of the Trust's
trustees, officers and employees and costs of other personnel performing
services for the Trust, whether or not any such persons are affiliated persons
of FAdS or any Adviser of the Trust; (xii) costs of Board, Board committee,
shareholder and other corporate meetings; (xiii) SEC registration fees and
related expenses; (xiv) state and other jurisdiction securities laws
registration fees and related expenses, including costs of personnel to perform
such securities registration; and (xv) all costs borne by the Trust pursuant to
any distribution plan adopted by the Trust pursuant to Rule 12b-1 under the Act,
shareholder service or similar plan.
SECTION 6. EFFECTIVENESS, DURATION; TERMINATION AND
ASSIGNMENT
(a) This Agreement shall become effective with respect to each Fund on
the date hereof or, with respect to additional series of the Trust to which this
agreement shall apply by amendment of Appendix A, upon the date of such
amendment. Upon effectiveness of this Agreement, it shall supersede all previous
agreements between the parties hereto covering the subject matter hereof insofar
as such Agreement may have been deemed to relate to the Funds.
(b) This Agreement shall continue in effect with respect to a Fund for
a period of one year from its effectiveness and shall continue in effect for
successive one year periods; provided, however, that continuance is specifically
approved at least annually (i) by the Board or by a vote of a majority of the
outstanding voting securities of the Fund and (ii) by a vote of a majority of
Trustees of the Trust who are not parties to this agreement or interested
persons of any such party (other than as Trustees of the Trust); provided
further, however, that if the continuation of this agreement is not approved as
to a Fund, FAdS may continue to render to the Fund the services described herein
in the manner and to the extent permitted by the Act and the rules and
regulations thereunder.
<PAGE>
(c) This Agreement may be terminated with respect to a Fund at any
time, without the payment of any penalty, (i) by the Board on 60 days' written
notice to FAdS or (ii) by FAdS on 60 days' written notice to the Trust.
(d) This Agreement and the rights and duties under this Agreement
otherwise shall not be assignable by either FAdS or the Trust except by the
specific written consent of the other party. All terms and provisions of this
Agreement shall be binding upon, inure to the benefit of and be enforceable by
the respective successors and assigns of the parties hereto.
SECTION 7. ACTIVITIES OF FADS
(a) Except to the extent necessary to perform FAdS's obligations under
this Agreement, nothing herein shall be deemed to limit or restrict FAdS's
right, or the right of any of FAdS's officers, directors or employees who also
may be a trustee, officer or employee of the Trust, or persons otherwise
affiliated persons of the Trust to engage in any other business or to devote
time and attention to the management or other aspects of any other business,
whether of a similar or dissimilar nature, or to render services of any kind to
any other corporation, trust, firm, individual or association.
(b) FAdS may subcontract any or all of its functions or
responsibilities pursuant to this Agreement to one or more corporations, trusts,
firms, individuals or associations, which may be affiliates of FAdS, who agree
to comply with the terms of this Agreement. FAdS may pay those persons for their
services, but no such payment will increase FAdS's compensation from the Trust.
(c) Without limiting the generality of the Sections 7(a) and (b), the
Trust acknowledges that certain legal services may be provided to it by lawyers
who are employed by FAdS or its affiliates and who render services to FAdS and
its affiliates. A lawyer who provides such services to the Trust, and any lawyer
who supervises such lawyer, although employed generally by FAdS or its
affiliates, will have a direct professional attorney-client relationship with
the Trust. Those services for which such a direct relationship will exist are
listed in Appendix B hereto. Provided (i) FAdS agrees with any attorney
performing legal services for the Trust not to direct the professional judgment
of the attorney in performing those legal services and (ii) the attorney agrees
to disclose to the Chairman of the Audit Committee or to counsel to the Trust
any circumstance in which a legal service the attorney proposes to provide
relates to a matter in which the Trust and FAdS, or the Trust and any other
investment company to which the attorney is providing legal services, may
reasonably be expected to have divergent legal or economic interests, each of
FAdS and the Trust hereby consents to the simultaneous representation by the
attorney of both FAdS and the Trust and waives any general conflict of interest
existing in such simultaneous representation, and the Trust agrees that, in the
event the attorney ceases to represent the Trust, whether at the request of the
Trust or otherwise, the attorney may continue thereafter to represent FAdS, and
the Trust expressly consents to such continued representation.
SECTION 8. LIMITATION OF SHAREHOLDER AND TRUSTEE LIABILITY
The Trustees of the Trust and the shareholders of each Fund shall not
be liable for any obligations of the Trust or of the Funds under this Agreement,
and FAdS agrees that, in asserting any rights or claims under this Agreement, it
shall look only to the assets and property of the Trust or the Fund to which
FAdS's rights or claims relate in settlement of such rights or claims, and not
to the Trustees of the Trust or the shareholders of the Funds.
SECTION 9. MISCELLANEOUS
(a) No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties hereto.
(b) If any part, term or provision of this Agreement is held to be
illegal, in conflict with any law or otherwise invalid, the remaining portion or
portions shall be considered severable and not be affected, and the rights
<PAGE>
and obligations of the parties shall be construed and enforced as if the
Agreement did not contain the particular part, term or provision held to be
illegal or invalid.
(c) Section headings in this Agreement are included for convenience
only and are not to be used to construe or interpret this Agreement.
(d) Notices, requests, instructions and communications received by the
parties at their respective principal addresses, or at such other address as a
party may have designated in writing, shall be deemed to have been properly
given.
(e) This Agreement shall be governed by and shall be construed in
accordance with the laws of the State of New York.
(f) The terms "vote of a majority of the outstanding voting
securities," "interested person," and "assignment" shall have the meanings
ascribed thereto in the Act.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
NORWEST ADVANTAGE FUNDS
____/s/ Donald H. Burkhardt______________
By: Donald H. Burkhardt
Trustee
FORUM ADMINISTRATIVE SERVICES, LLC
____/s/ John Y. Keffer____________________
By: John Y. Keffer
President
<PAGE>
NORWEST ADVANTAGE FUNDS
ADMINISTRATION AGREEMENT
January 26, 1998
Appendix A
<TABLE>
<S> <C>
Fee as a % of
the Annual Average Daily
Funds of the Trust Net Assets of each Class of the Fund
- ------------------ ------------------------------------
Cash Investment Fund 0.025%
U.S. Government Fund 0.05%
Treasury Fund 0.05%
Municipal Money Market Fund, Institutional Shares 0.05%
Municipal Money Market Fund, Investor Shares 0.10%
Ready Cash Investment Fund 0.075%
Intermediate Government Income Fund 0.05%
Diversified Bond Fund 0.025%
Stable Income Fund 0.025%
Income Fund 0.05%
Total Return Bond Fund 0.025%
Limited Term Tax-Free Fund 0.05%
Limited Term Government Income Fund 0.05%
Tax-Free Income Fund 0.05%
Colorado Tax-Free Fund 0.05%
Minnesota Intermediate Tax-Free Fund 0.05%
Minnesota Tax-Free Fund 0.05%
Strategic Income Fund 0.025%
Moderate Balanced Fund 0.025%
Growth Balanced Fund 0.025%
Aggressive Balanced-Equity Fund 0.025%
Income Equity Fund 0.025%
Index Fund 0.025%
ValuGrowth Stock Fund 0.05%
Diversified Equity Fund 0.025%
Growth Equity Fund 0.025%
Large Company Growth Fund 0.025%
Diversified Small Cap Fund 0.025%
Small Company Growth Fund 0.025%
Small Company Stock Fund 0.025%
Small Cap Opportunities Fund 0.025%
Contrarian Stock Fund 0.05%
International Fund 0.05%
Performa Strategic Value Bond Fund 0.025%
Performa Disciplined Growth Fund 0.025%
Performa Small Cap Value Fund 0.025%
Performa Global Growth Fund 0.025%
Norwest WealthBuilder II Growth Portfolio 0.05%
Norwest WealthBuilder II Growth and Income Portfolio 0.05%
Norwest WealthBuilder II Growth Balanced Portfolio 0.05%
</TABLE>
<PAGE>
NORWEST ADVANTAGE FUNDS
ADMINISTRATION AGREEMENT
APPENDIX B
LEGAL SERVICES
1. Advise the Trust on compliance with applicable U.S. laws and regulations
with respect to matters that are within the ordinary course of the Trust's
business.
2. Advise the Trust on compliance with applicable U.S. laws and regulations
with respect to matters that are outside the ordinary course of the Trust's
business(*).
3. Liaison with the SEC.
4. Draft correspondences to SEC and respond to SEC comments.
5. Liaison with the Trust's outside counsel.
6. Provide attorney letters to the Trust's auditors.
7. Assist Trust's outside counsel in the preparation of exemptive
applications, no-action letters, prospectuses, registration statements and
proxy statements and related material.
8. Prepare exemptive applications, no-action letters, prospectuses,
registration statements and proxy statements and related material, and
draft correspondences to SEC and respond to SEC comments with respect
thereto(*).
9. Prepare prospectus supplements.
10. Review and authorize Section 24 filings.
11. Prepare and/or review agendas and minutes for and respond to inquiries at
board and shareholder meetings regarding applicable U.S. laws and
regulations.
12. Prepare and/or review agreements between the Trust and any third parties.
Note: Items designated with an (*) are Special Legal Services.
Exhibit 18
NORWEST ADVANTAGE FUNDS
MULTICLASS (RULE 18F-3) PLAN
May 1, 1995, as amended July [ ], 1998
This Plan is adopted by Norwest Advantage Funds (the "Trust") pursuant
to Rule 18f-3 under the Investment Company Act of 1940 (the "Act") in order to
document the separate arrangements and expense allocations of each class of
shares of beneficial interest (the "Classes") of each of the investment
portfolios of the Trust (the "Funds") specified on Schedule A attached hereto
(each a "Multiclass Fund") and the related exchange privileges and conversion
features.
SECTION 1. CLASS DESIGNATIONS
The types of Classes of the Multiclass Funds that operate pursuant to
Rule 2a-7 under the Act ("Money Funds") are: "Exchange Shares," "Institutional
Shares," "Investor Shares and "Public Entities Shares." The types of Classes of
the other Multiclass Funds ("Non-Money Funds") are: "A Shares," "B Shares," "C
Shares" and "I Shares." Each Class has a different arrangement for shareholder
services or distribution or both, as follows:
(a) EXCHANGE SHARES. Are offered solely through the exchange privilege
to shareholders of B Shares subject to a contingent deferred sales charge
(subject to certain reductions or elimination of the sales charge as described
in the applicable prospectus) and a distribution plan adopted in accordance with
Rule 12b-1 under the Act.
(b) INSTITUTIONAL SHARES. Are offered by each applicable Multiclass
Fund at net asset value with no distribution expenses, with an investment
minimum of $100,000.
(c) INVESTOR SHARES. Are offered by each applicable Multiclass Fund at
net asset value with no distribution expenses, with an investment minimum of
$1,000.
(d) PUBLIC ENTITIES SHARES. Are offered by each applicable Multiclass
Fund at net asset value with no distribution expenses, with an investment
minimum of $100,000.
(e) A SHARES. Are offered by each applicable Multiclass Fund subject to
a front-end sales charge (subject to certain reductions or elimination of the
sales charge as described in the applicable prospectus), with an investment
minimum of $1,000 to $5,000.
(f) B SHARES. Are offered by each applicable Multiclass Fund subject to
a contingent deferred sales charge (subject to certain reductions or elimination
of the sales charge as described in the applicable prospectus) and a
distribution plan adopted in accordance with Rule 12b-1 under the Act with a
minimum investment of $1,000 to $5,000.
<PAGE>
(g) C SHARES. Are offered by each applicable Multiclass Fund subject to
a front-end sales charge and subject to a contingent deferred sales charge (each
charge of which is subject to certain reductions or elimination as described in
the applicable prospectus) and a distribution plan adopted in accordance with
Rule 12b-1 under the Act with a minimum investment of $1,000.
(h) I SHARES. Are offered by each applicable Multiclass Fund solely to
fiduciary, agency, and custodial clients of bank trust departments, trust
companies and their affiliates and to clients of investment advisers registered
under the Investment Advisers Act of 1940 at net asset value with no
distribution expenses, with an investment minimum of $1,000.
SECTION 2. VOTING
Each Class shall have exclusive voting rights on any matter submitted
to a shareholder vote that relates solely to the Class' arrangement for
shareholder services or distribution and each Class shall have separate voting
rights with respect to any matter submitted to a shareholder vote in which the
interests of one Class differ from the interests of another Class.
SECTION 3. CLASS EXPENSE ALLOCATIONS
(a) DISTRIBUTION EXPENSES. All expenses incurred under a Class's
distribution plan adopted in accordance with Rule 12b-1 under the Act shall be
allocated to that Class.
(b) OTHER CLASS EXPENSES. The following expenses, which are incurred by
Classes in different amounts or reflect differences in the amount or kind of
services that different Classes receive (collectively with distribution expenses
under Section 3(a) "Class Expenses"), shall be allocated to the Class that
incurred the expenses:
(i) Transfer agent fees and expenses;
(ii) Administrative fees and expenses;
(iii) Litigation, legal and audit fees;
(iv) State and foreign securities registration fees;
(v) Shareholder report expenses;
(vi) Trustee fees and expenses;
(vii) Preparation, printing and related fees and expenses for proxy
statements and, with respect to current shareholders,
shareholder reports, prospectuses and statements of additional
information; and
(viii) Subject to approval by the Trustees, such other fees and
expenses as Forum Financial Services, Inc. ("Forum"), manager
of the Trust, pursuant to Rule 18f-3 deems to be allocable to
specified Classes.
(c) Class Expense Allocations. Class Expenses are to be borne solely by
the Class to which they relate. Items (i) and (ii) of Section 3(b) in their
entirety are incurred by the Funds on a Class by Class basis and, accordingly,
are wholly allocated to specific Classes. All other items in
<PAGE>
Section 3(b) are allocated to a specific Class only to the extent they are
attributable to the Classes in different amounts.
SECTION 4. OTHER ALLOCATIONS AND WAIVERS/REIMBURSEMENTS
(a) EXPENSES APPLICABLE TO MORE THAN ONE FUND. Expenses (other than
Class Expenses) incurred by the Trust on behalf of a Fund shall be allocated to
that Fund and expenses (other than Class Expenses) incurred by the Trust on
behalf of more than one Fund shall be allocated among the Funds that incurred
the expenses based on the net asset values of the Funds in relation to the net
asset value of all Funds to which the expense relates.
(b) GENERAL ALLOCATION RULE. Unless otherwise noted, income, realized
and unrealized capital gains and losses and expenses other than Class Expenses
related to a Fund shall be allocated to each share of the Fund pro rata on the
basis of its net asset value.
(c) SETTLED SHARE METHOD - MONEY FUNDS. With respect to Money Funds,
income, realized and unrealized capital gains and losses and expenses other than
Class Expenses related to a Fund shall be allocated to each class of the Fund
based on the net asset value of the Class (excluding the value of subscriptions
receivable) in relation to the net asset value of the Fund.
(d) SETTLED SHARE METHOD - OTHER DAILY DIVIDEND FUNDS. With respect to
funds other than Money Funds that declare dividends daily, income and expenses
other than Class Expenses related to a Fund shall be allocated to each class of
the Fund based on the net asset value of the Class (excluding the value of
subscriptions receivable) in relation to the net asset value of the Fund.
(e) WAIVERS AND REIMBURSEMENTS. Nothing in this Plan shall be construed
as limiting the ability of any person to waive any fee paid by a Fund or Class
to that person or to reimburse any or all expenses of a Fund or Class; provided,
however, that no waiver or reimbursement shall be made such that the waiver or
reimbursement is, in effect, a de facto modification of the fees provided for in
the Fund's various service agreements.
SECTION 5. EXCHANGE PRIVILEGES
Shareholders of a Class may exchange their shares of a Class for shares
of another Fund in accordance with Section 11(a) of the Act, the rules
thereunder and the requirements of the applicable prospectuses as follows:
(a) EXCHANGE SHARES. Exchange Shares of a Fund may be exchanged for
(i) Exchange Shares of any other Fund or (ii) B Shares.
(b) INSTITUTIONAL SHARES. Institutional Shares of a Fund may be
exchanged for (i) Institutional Shares of any other Fund, (ii) I
Shares or (iii) shares of U. S. Government Fund, Cash Investment
Fund or Treasury Fund.
<PAGE>
(c) INVESTOR SHARES. Investor Shares of a Fund may be exchanged for
(i) Investor Shares of any other Fund or (ii) A Shares.
(d) PUBLIC ENTITIES SHARES. Public Entities Shares of a Fund may be
exchanged for (i) Institutional Shares of any other Fund, (ii) I
Shares or (iii) shares of U. S. Government Fund, Cash Investment
Fund or Treasury Fund.
(e) A SHARES. A Shares of a Fund may be exchanged for (i) A Shares
of any other Fund or (ii) Investor Shares of any other Fund.
(f) B SHARES. B Shares of a Fund may be exchanged for (i) B Shares of
any other Fund or (ii) Exchange Shares of any other Fund.
(g) C SHARES. C Shares of a Fund may be exchanged for C Shares of any
other Fund.
(h) I SHARES. I Shares of a Fund may be exchanged for (i) I Shares of
any other Fund or (ii) Institutional Shares.
SECTION 6. CONVERSIONS
(a) Automatic B Share to A Share Conversion. B Shares shall
automatically convert into A Shares of the same Fund at the end of the month
following the expiration of a specified holding period (the "Holding Period")
for the B Shares. If the B Shares were obtained through an exchange, the Holding
Period shall be the specified Holding Period for the B Shares of the Fund from
which the shareholder initially exchanged. The Holding Period for B Shares shall
be specified in each prospectus offering B Shares.
(b) Automatic Exchange Share to Investor Share Conversion. Exchange
Shares shall automatically convert into Investor Shares of the same Fund at the
end of the month following the expiration of a specified holding period (the
"Holding Period") for the Exchange Shares. If the Exchange Shares were obtained
through an exchange, the Holding Period shall be the specified Holding Period
for the B Shares of the Fund from which the shareholder initially exchanged. The
Holding Period for Exchange Shares shall be specified in each prospectus
offering Exchange Shares.
(c) Non-Eligibility Conversion. I Shares shall automatically convert to
A Shares of the same Fund after the beneficial shareholder of the I Shares
becomes ineligible to own I Shares and is so informed by the Fund.
(d) Basis of Conversions. All conversions shall be effected on the
basis of the relative net asset values per share of the two Classes as last
determined on the day of the conversion without the imposition of any fee or
charge.
<PAGE>
SECTION 7. AMENDMENTS AND BOARD REVIEW
(a) Non-Material Amendments. Non-material amendments to this Plan may
be made at any time by Forum after consultation with the investment advisers of
each Fund affected by the amendment.
(b) Material Amendments. Material amendments to this Plan may only be
made by a majority of the Trustees of the Trust, including a majority of the
Trustees who are not interested persons of the Trust as defined by the Act, upon
a finding that the amendment is in the best interests of the Classes affected by
the amendment and of the Fund and the Trust. Prior to any material amendment to
this Plan, the Board of Trustees (the "Board") shall request such information as
may be reasonably necessary to evaluate the Plan as proposed to be amended.
(c) Board Review. The Board, including a majority of those Trustees who
are not interested persons of the Trust as defined in the Act, shall review
periodically (i) this Plan for its continuing appropriateness and (ii) any fee
waivers and expense reimbursements to determine that the Funds are in compliance
with Section 4(d).
<PAGE>
NORWEST ADVANTAGE FUNDS
MULTICLASS (RULE 18F-3) PLAN
AS OF JULY [ ], 1998
SCHEDULE A
----------
<PAGE>
Municipal Money Market Fund
Ready Cash Investment Fund
Intermediate Government Income Fund
Stable Income Fund
Income Fund
Total Return Bond Fund
Tax-Free Income Fund
Colorado Tax-Free Fund
Minnesota Tax-Free Fund
Growth Balanced Fund
<PAGE>
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 Cap Opportunities Fund
International Fund
