NORWEST ADVANTAGE FUNDS
STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 1, 1998
as amended December 28, 1998
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CASH INVESTMENT FUND MINNESOTA INTERMEDIATE TAX-FREE FUND
READY CASH INVESTMENT FUND MINNESOTA TAX-FREE 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 VALUGROWTH SM 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 DIVERSIFIED SMALL CAP FUND
STRATEGIC INCOME FUND SMALL COMPANY STOCK FUND
LIMITED TERM TAX-FREE FUND SMALL CAP OPPORTUNITIES FUND
TAX-FREE INCOME FUND SMALL COMPANY GROWTH FUND
COLORADO TAX-FREE FUND INTERNATIONAL FUND
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NORWEST ADVANTAGE FUNDS
STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 1, 1998
as amended December 28, 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, I Shares of Limited Term
Government Income Fund, A Shares, B Shares, and I Shares of Intermediate
Government Income Fund, I Shares of Diversified Bond Fund, A Shares, B Shares
and I Shares of Income Fund and Total Return Bond Fund, I Shares of Strategic
Income Fund and Limited Term Tax-Free Fund, A Shares, B Shares and I Shares of
Tax-Free Income Fund and Colorado Tax-Free Fund, I Shares of Minnesota
Intermediate Tax-Free Fund, A Shares, B Shares and I Shares of Minnesota
Tax-Free Fund, I Shares of Moderate Balanced Fund, A Shares B Shares, C Shares
and I Shares of Growth Balanced Fund, I Shares of Aggressive Balanced Equity
Fund and Index Fund, A Shares, B Shares, C Shares and I Shares of Income Equity
Fund, A Shares, B Shares and I Shares of ValuGrowthSM Stock Fund, A Shares, B
Shares, C Shares and I Shares of Diversified Equity Fund and Growth Equity Fund,
I Shares of Large Company Growth Fund and Diversified Small Cap Fund, A Shares,
B Shares and I Shares of Small Company Stock Fund and Small Cap Opportunities
Fund, I Shares of Small Company Growth Fund and A Shares, B Shares and I Shares
of International 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.
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TABLE OF CONTENTS
Page
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1. Introduction 1
Glossary 1
Background Information 3
2. Additional Information Regarding Investments and Strategies 4
General Information 4
Equity Securities 4
Fixed Income Securities 6
General Money Market Fund Guidelines 12
Borrowing 13
Dollar Roll Transactions 13
Repurchase Agreements 13
Lending Fund Securities 13
When-Issued and Delayed Delivery Securities and Forward
Commitments 14
Illiquid Investments 14
Purchases on Margin and Short Sales 15
Options and Futures Contracts 15
Small Cap Opportunities Fund Options and Futures Contracts 17
Foreign Currency Transactions 19
Swaps, Caps, Floors and Collars 20
Temporary Defensive Position 20
3. Risk Considerations 21
Counterparty Risk 21
Fixed Income Securities 21
Foreign Securities 23
Leverage 24
Options and Futures Contracts 24
Small Capitalization Stocks 25
Geographic Concentration 25
Diversification 25
4. Information Concerning Colorado and Minnesota 26
Colorado 26
Minnesota 28
5. Investment Limitations 29
Fundamental Limitations 29
Non - Fundamental Limitations 33
6. Performance and Advertising Data 37
General 37
SEC Yield Calculations 38
Total Return Calculations 38
Multiclass, Collective Trust Fund and Core and Gateway
Performance 39
Other Advertisement Matters 40
7. Management 42
Trustees and Officers 42
Investment Advisory Services 49
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Management and Administrative Services 55
Distribution 59
Transfer Agent 62
Custodian 63
Portfolio Accounting 63
Expenses 64
8. Portfolio Transactions 66
9. Additional Purchase, Redemption and Exchange Information 68
General 68
Money Market Funds 69
Purchases Through Financial Institutions 69
Shareholder Services 69
Purchases of A Shares 70
Exchanges 72
Redemptions 73
Redemption Charge (A Shares) 73
Redemption Charge and Contingent Deferred Sales Charge
(A Shares, B Shares, and C Shares) 74
Conversion of B Shares and Exchange Shares 75
10. Taxation 75
11. Additional Information About the Trust and the Shareholders
of the Funds 76
Determination of Net Asset Value - Money Market Funds 76
Counsel and Auditors 77
General Information 77
Core and Gateway Structure 78
Banking Law Matters 79
Shareholdings 79
Financial Statements 79
Registration Statement 79
Appendix A - Description of Securities Ratings A-1
Appendix B - Miscellaneous Tables B-1
Table 1 - Investment Advisory Fees B-1
Table 2 - Management Fees B-5
Table 3 - Distribution Fees B-13
Table 4 - Sales Charges B-15
Table 5 - Accounting Fees B-18
Table 6 - Commissions B-21
Table 7 - 5% Shareholders B-23
Appendix C - Performance Data C-1
Table 1 - Money Market Fund C-1
Table 2 - Yields C-1
Table 3 - Total Returns C-4
Appendix D - Other Advertisement Matters D-1
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1. INTRODUCTION
GLOSSARY
"Adviser" means Norwest, Schroder or a Subadviser.
"Board" means the Board of Trustees of the Trust.
"Balanced Fund" means Moderate Balanced Fund, Growth Balanced Fund or
Aggressive Balanced-Equity Fund.
"CFTC" means the U.S. Commodities Futures Trading Commission.
"Code" means the Internal Revenue Code of 1986, as amended.
"Core and Gateway Structure" means a structure in which a Fund invests
in one or more Portfolios.
"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 Cap
Opportunities Fund, Small Company Growth Fund or International Fund.
"FAS" means Forum Administrative Services, Limited Liability Company,
the Trust's administrator.
"Fitch" means Fitch IBCA, Inc.
"Fixed Income Funds" means Stable Income Fund, Limited Term Government
Income Fund, Intermediate Government Income Fund, Diversified Bond
Fund, Income Fund, Total Return Bond Fund and Strategic Income Fund.
"Forum" means Forum Financial Services, Inc., a registered
broker-dealer that is the Trust's manager and the 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
Fund, Strategic Income Fund, Moderate Balanced Fund, Growth Balanced
Fund and Aggressive Balanced-Equity Fund.
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"Money Market Fund" means Cash Investment Fund, Ready Cash Investment
Fund, U.S. Government Fund, Treasury Plus Fund, Treasury Fund or
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 Portfolio except those for which Schroder
serves as investment adviser.
"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, Aggressive Balanced-Equity Fund,
Diversified Equity Fund, Growth Equity Fund, Large Company Growth Fund,
Diversified Small Cap Fund and Small Company Growth Fund.
"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, series of Schroder Core.
"Schroder" means Schroder Capital Management Inc., the investment
adviser to Schroder U.S. Smaller Companies Portfolio, Schroder EM Core
Portfolio and International Portfolio and the investment subadviser to
Strategic Income Fund, Moderate Balanced Fund, Growth Balanced Fund,
Aggressive Balanced-Equity Fund, Diversified Equity Fund, Growth Equity
Fund and International Fund.
"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 Ratings Group.
"Smith" means Smith Asset Management Group, L.P., the investment
adviser to Disciplined Growth Portfolio, Small Cap Value Portfolio,
Aggressive Balanced-Equity Fund and Diversified Small Cap Fund.
"Stock Index Futures" means futures contracts that relate to
broadly-based stock indices.
"Subadviser" means Crestone, Galliard, Peregrine, Schroder and Smith.
"Tax-Free Income Fund" means Limited Term Tax-Free Fund, Tax-Free
Income Fund, Colorado Tax-Free Fund, Minnesota Intermediate Tax-Free
Fund or Minnesota Tax-Free Fund.
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"Transfer Agent" means Norwest Bank acting in its capacity as transfer
and dividend disbursing agent of a Fund.
"Trust" means Norwest Advantage Funds.
"U.S. Government Securities" means obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities.
"1933 Act" means the Securities Act of 1933, as amended.
"1940 Act" means the Investment Company Act of 1940, as amended.
BACKGROUND INFORMATION
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 Fund's investment adviser.
Norwest also is the investment adviser of each Portfolio except those for which
Schroder serves as investment adviser.
Norwest employs the Subadvisers to subadvise certain of the Funds and
Portfolios. Norwest Bank, a subsidiary of Norwest Corporation, is the Trust's
transfer agent, dividend disbursing agent and custodian. Forum serves as the
Trust's manager and as distributor of the Trust's shares. FAS serves as the
Trust's administrator.
Each of the following Funds invests all its investable assets in a Portfolio
with substantially similar investment objectives and policies: Ready Cash
Investment Fund, Stable Income Fund, Total Return Bond Fund, Index Fund, Income
Equity Fund, Large Company Growth Fund, Small Company Stock Fund, Small Company
Growth Fund and Small Cap Opportunities Fund.
Each of the following Funds invests all of its investable assets in multiple
Portfolios with different investment policies: 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. The percentage of each of
these Fund's (except Cash Investment Fund's) assets invested in each 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 Portfolios bears its pro rata share of the
expenses of the Portfolio(s) in which the it invests.
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2. ADDITIONAL INFORMATION REGARDING INVESTMENTS AND STRATEGIES
GENERAL INFORMATION
This section discusses in greater detail than the prospectus certain of the
investments the Funds may make. A Fund will make only those investments
described below that are in accordance with its investment objectives and
policies. If a Fund that invests in one or more Portfolios is described below as
being able to make a certain type of investment, the Fund makes that type of
investment through the Portfolio or Portfolios.
Each Fund's investment objective and all its investment policies that are
designated as fundamental may not be changed without approval by the lesser of:
(i) more than 50% of the outstanding shares of the Fund, or (ii) 67% or more of
the shares present or represented at an investors' meeting, if more than 50% of
the outstanding shares of the Fund are present or represented at the meeting in
person or by proxy. A Fund may change any other investment policy upon
appropriate notice to investors.
EQUITY SECURITIES
Equity securities include common stock, preferred stock, convertible securities,
warrants, depositary receipts, shares of closed-end investment companies and
equity-related securities. The market value of all securities, particularly
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. Overall economic and market conditions also impact an equity
security's price. The market value of an equity security also may fluctuate
based on changes in a company's financial condition. It is possible that a Fund
may experience a substantial or complete loss on an individual equity
investment.
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 equity securities to meet redemptions by
investors 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.
COMMON STOCK. Common stock represents an equity (ownership) interest in a
company, and usually possesses voting rights and earns dividends. Common
stockholders are not creditors of the company, but rather, upon liquidation of
the company are entitled to their pro rata share of the company's assets after
creditors and, if applicable, preferred stockholders are paid. Dividends on
common stock are not fixed but are declared at the discretion of the issuer.
Common stock generally represents the riskiest investment in a company. In
addition, common stock generally has the greatest appreciation and depreciation
potential because increases and decreases in earnings are usually reflected in a
company's stock price.
PREFERRED STOCK. Preferred stock is a class of stock having a preference over
common stock as to the payment of dividends and the recovery of investment
should a company be liquidated. Preferred stock, however, is usually junior to
the debt securities of the issuer. Preferred stock typically does not possess
voting rights and its market value may change based on changes in interest
rates.
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CONVERTIBLE SECURITIES. Convertible securities are fixed income securities,
preferred stock or other securities that may be converted into or exchanged for
a given amount of common stock of the same or a different issuer during a
specified period of time at a specified price or formula. A convertible security
entitles the holder to receive interest on debt or the dividend on preferred
stock until the convertible security matures or is redeemed, converted or
exchanged. Before conversion, convertible securities ordinarily provide a stream
of income with generally higher yields than those of common stock of the same or
similar issuers, but lower than the yield of nonconvertible debt. Convertible
securities rank senior to common stock in a company's capital structure but are
usually subordinated to comparable nonconvertible securities. By investing in
convertible securities, a Fund obtains the right to benefit from the capital
appreciation potential in the underlying common stock upon the exercise of the
conversion right, while earning higher current income than could be available if
the stock was purchased directly.
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 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. Generally, a convertible security's 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.
Because convertible securities are typically issued by smaller capitalized
companies whose stock price may be volatile, the price of a convertible security
may reflect variations in the price of the underlying common stock in a way that
nonconvertible debt does not. Also, while convertible securities generally have
higher yields than common stock, they have lower yields than comparable
nonconvertible securities and are subject to less fluctuations in value than
underlying stock since they have fixed income characteristics. 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 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.
WARRANTS. Warrants are securities, typically issued with preferred stock or
bonds, that give the holder the right to purchase a given number of shares of
common stock at a specified price, usually during a specified period of time.
The price usually represents a premium over the applicable market value of the
common stock at the time of the warrant's issuance. Warrants have no voting
rights with respect to the common stock, receive no dividends and have no rights
with respect to the assets of the issuer. 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 common
stock to rise. A warrant becomes worthless if it is not exercised within the
specified time period.
EQUITY-RELATED SECURITIES. Equity-related securities are securities whose
interest and/or principal payment obligations are linked to a specified index of
equity securities, or determined pursuant to specific formulas. A Fund may
invest in these instruments when the securities provide a higher amount of
dividend income than is available from a company's common stock. The amount
received by an investor at maturity of these securities is not fixed but is
based on the price of the underlying common stock, which may rise or fall.
Adverse changes in the securities markets may reduce interest payments made
under, and/or the principal of, equity-linked securities held by a Fund. In
addition, it is not possible to predict how equity-related securities will trade
in the secondary market or whether the market for the securities will be liquid.
DEPOSITARY RECEIPTS. A depositary receipt is a receipt for shares of a
foreign-based company that entitles the holder to distributions on the
underlying security. Depositary receipts include sponsored and unsponsored
American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs") and
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other similar global instruments. ADRs typically are issued by a U.S. bank or
trust company, evidence ownership of underlying securities issued by a foreign
company, and are designed for use in U.S. securities markets. EDRs (sometimes
called Continental Depositary Receipts) are receipts issued by a European
financial institution evidencing an arrangement similar to that of ADRs, and are
designed for use in European securities markets. The Funds invest in depositary
receipts in order to obtain exposure to foreign securities markets.
Unsponsored depositary receipts may be created without the participation of the
foreign issuer. Holders of these receipts generally bear all the costs of the
depositary receipt facility, whereas foreign issuers typically bear certain
costs in a sponsored depositary receipt. The bank or trust company depositary of
an unsponsored depositary receipt may be under no obligation to distribute
shareholder communications received from the foreign issuer or to pass through
voting rights. Accordingly, available information concerning the issuer may not
be current and the prices of unsponsored depositary receipts may be more
volatile than the prices of sponsored depositary receipts.
CLOSED-END INVESTMENT COMPANIES. International Fund may invest in the securities
of closed-end investment companies that invest primarily in foreign securities.
Because of restrictions on direct investment by U.S. entities in certain
countries, other investment companies may provide the most practical or only way
for the Fund to invest in certain markets. The Fund will invest in such
companies when, in the Adviser's judgment, the potential benefits of the
investment justify the payment of any applicable premium or sales charge. Other
investment companies incur their own fees and expenses.
FIXED INCOME SECURITIES
Fixed income securities include corporate debt obligations, U.S. Government
Securities, municipal securities, mortgage-related securities, asset-backed
securities, guaranteed investment contracts, zero coupon securities, variable
and floating rate securities, financial institution obligations, commercial
paper and participation interests.
CORPORATE DEBT OBLIGATIONS. The Funds may invest in corporate bonds, debentures,
notes, commercial paper and other similar corporate debt instruments. Companies
use these instruments to borrow money from investors. The issuer pays the
investor a fixed or variable rate of interest and must repay the amount borrowed
at maturity. Companies issue commercial paper (short-term unsecured promissory
notes) to finance their current obligations. Commercial paper normally has a
maturity of less than 9 months.
U.S. GOVERNMENT SECURITIES. U.S. Government Securities include securities issued
by the U.S. Treasury and by U.S. Government agencies and instrumentalities. U.S.
Government Securities may be supported by the full faith and credit of the
United States (e.g., mortgage-related securities and certificates of the
Government National Mortgage Association and securities of the Small Business
Administration); by the right of the issuer to borrow from the U.S. Treasury
(e.g., Federal Home Loan Bank securities); by the discretionary authority of the
U.S. Treasury to lend to the issuer (e.g., Fannie Mae (formerly the Federal
National Mortgage Association) securities); or solely by the creditworthiness of
the issuer (e.g., Federal Home Loan Mortgage Corporation securities).
Holders of U.S. Government Securities not backed by the full faith and credit of
the United States must look principally to the agency or instrumentality issuing
the obligation for repayment and may not be able to assert a claim against the
United States in the event that the agency or instrumentality does not meet its
commitment. There is no assurance that the U.S. Government will support
securities not backed by its full faith and credit. Neither the U.S. Government
nor any of its agencies or instrumentalities guarantees the market value of the
securities they issue.
MUNICIPAL SECURITIES. 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 sanitation districts) issue municipal securities. In addition,
municipal securities include securities issued by or on behalf of public
authorities to finance various privately operated facilities, such as industrial
development bonds, that are backed only by the assets and revenues of the
non-governmental user (such as hospitals and airports).
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Municipal securities are issued to obtain funds for a variety of public
purposes, including general financing for state and local governments, or
financing for specific projects or public facilities. Municipal securities
generally are classified as bonds, notes and leases. Municipal securities may be
zero-coupon securities.
General obligation securities are secured by the issuer's pledge of its full
faith, credit and taxing power for the payment of principal and interest.
Revenue securities are payable from revenue derived from a particular facility,
class of facilities or the proceeds of a special excise tax or other specific
revenue source but not from the issuer's general taxing power. 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. Private activity bonds and industrial revenue bonds do not carry
the pledge of the credit of the issuing municipality, but generally are
guaranteed by the corporate entity on whose behalf they are issued. 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.
Municipal bonds meet longer term capital needs of a municipal issuer and
generally have maturities of more than one year when issued. Municipal notes are
intended to fulfill the short-term capital needs of the issuer and generally
have maturities not exceeding one year. They include tax anticipation notes,
revenue anticipation notes, bond anticipation notes, construction loan notes and
tax-exempt commercial paper. Municipal notes also include longer term issues
that are remarketed to investors periodically, usually at one year intervals or
less. 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 equipment and facilities
such as fire and sanitation vehicles, telecommunications equipment and other
capital assets. Leases and installment purchase or conditional sale contracts
(which normally provide for title to the leased asset to pass eventually to the
government issuer) have evolved as a means for governmental issuers to acquire
property and equipment without being required to meet the constitutional and
statutory requirements for the issuance of debt. The debt-issuance limitations
of many state constitutions and statutes are deemed to be inapplicable because
of the inclusion in many leases or contracts of "non-appropriation" clauses that
provide that the governmental issuer has no obligation to make future payments
under the lease or contract unless money is appropriated for such purpose by the
appropriate legislative body on a yearly or other periodic basis. Generally, the
Funds will invest in municipal lease obligations through certificates of
participation.
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 acquisition of a stand-by commitment does not affect the valuation or
maturity of the underlying municipal securities. A Fund values stand-by
commitments 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.
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PUTS. 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
puts only in conjunction with the sale, transfer or assignment of the underlying
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.
The Funds may acquire puts to facilitate the liquidity of portfolio assets. The
Funds may use puts to facilitate the reinvestment of 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).
MORTGAGE-RELATED SECURITIES. Mortgage-related securities represent interests in
a pool of mortgage loans originated by lenders such as commercial banks, savings
associations and mortgage bankers and brokers. Mortgage-related securities may
be issued by governmental or government-related entities or by non-governmental
entities such as special purpose trusts created by commercial lenders.
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.
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 Funds may purchase pools of adjustable-rate mortgages,
growing equity mortgages, graduated payment mortgages and other types. Mortgage
poolers apply qualification standards to 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.
Mortgage-related 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. Most mortgage-related
securities, however, are pass-through securities, which means that investors
receive payments consisting of a pro-rata share of both principal and interest
(less servicing and other fees), as well as unscheduled prepayments, as loans in
the underlying mortgage pool are paid off by the borrowers. Additional
prepayments 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. As prepayment rates of individual pools of mortgage loans vary
widely, it is not possible to predict accurately the average life of a
particular mortgage-related security. Although mortgage-related securities are
issued with stated maturities of up to forty years, unscheduled or early
payments of principal and interest on the mortgages may shorten considerably the
securities' effective maturities. See "Risk Considerations."
GOVERNMENT AND AGENCY MORTGAGE-RELATED SECURITIES. The principal issuers or
guarantors of mortgage-related securities are the Government National Mortgage
Association ("GNMA"), Fannie Mae ("FNMA") and the Federal Home Loan Mortgage
Corporation ("FHLMC"). GNMA, a wholly-owned U.S. Government corporation within
the Department of Housing and Urban Development ("HUD"), creates pass-through
securities from pools of government guaranteed (Federal Housing Authority or
Veterans Administration) mortgages. The principal and interest on GNMA
pass-through securities are backed by the full faith and credit of the U.S.
Government.
FNMA, which is a U.S. Government-sponsored corporation owned entirely by private
stockholders that is subject to regulation by the Secretary of HUD, and FHLMC, a
corporate instrumentality of the U.S. Government, issue pass-through securities
from pools of conventional and federally insured and/or guaranteed residential
mortgages. FNMA guarantees full and timely payment of all interest and
principal, and FHMLC guarantees timely payment of interest and ultimate
collection of principal of its pass-through securities. Mortgage-related
securities from FNMA and FHLMC are not backed by the full faith and credit of
the U.S. Government.
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PRIVATELY ISSUED MORTGAGE-RELATED SECURITIES. Mortgage-related securities
offered by private issuers include pass-through securities comprised of pools of
conventional residential mortgage loans; mortgage-backed bonds, which are
considered to be debt obligations of the institution issuing the bonds and are
collateralized by mortgage loans; and bonds and collateralized mortgage
obligations that are collateralized by mortgage-related securities issued by
GNMA, FNMA or FHLMC or by pools of conventional mortgages of multi-family or of
commercial mortgage loans.
Privately-issued mortgage-related securities generally offer a higher rate of
interest (but greater credit and interest rate risk) than securities issued by
U.S. Government issuers because there are no direct or indirect governmental
guarantees of payment. Many non-governmental issuers or servicers of
mortgage-related securities guarantee or provide insurance for timely payment of
interest and principal on the securities. The market for privately-issued
mortgage-related securities is smaller and less liquid than the market for
mortgage-related securities issued by U.S. government issuers.
STRIPPED MORTGAGE-RELATED SECURITIES. Stripped mortgage-related securities are
multi-class mortgage-related securities that are created by separating the
securities into their principal and interest components and selling each piece
separately. Stripped mortgage-related securities are usually structured with two
classes that receive different proportions of the interest and principal
distributions in a pool of mortgage assets. The market values of these
securities are extremely sensitive to prepayment rates.
ADJUSTABLE RATE MORTGAGE SECURITIES. Adjustable rate mortgage securities
("ARMs") are pass-through securities representing interests in pools of mortgage
loans with adjustable interest rates that are reset at periodic intervals,
usually by reference to some interest rate index or market interest rate, and
that may be subject to certain limits. Although the rate adjustment feature may
reduce sharp changes in the value of adjustable rate securities, these
securities can change in value based on changes in market interest rates or
changes in the issuer's creditworthiness. Changes in the interest rates on ARMs
may lag behind changes in prevailing market interest rates. 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. A Fund could suffer some
principal loss if the Fund sold the securities before the interest rates on the
underlying mortgages were adjusted to reflect current market rates. Some
adjustable rate securities (or the underlying mortgages) are subject to caps or
floors, that limit the maximum change in interest rates during a specified
period or over the life of the security.
COLLATERALIZED MORTGAGE OBLIGATIONS. Collateralized mortgage obligations
("CMOs") are multiple-class debt obligations that are fully collateralized by
mortgage-related pass-through securities or by pools of mortgages ("Mortgage
Assets"). Payments of principal and interest on the Mortgage Assets are passed
through to the holders of the CMOs 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 mortgage prepayments.
Multi-class mortgage pass-through securities are interests in trusts that hold
Mortgage Assets and that have multiple classes similar to those of CMOs.
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-related
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. CMOs may have complicated structures and
generally involve more risks than simpler forms of mortgage-related securities.
Delinquency or loss in excess of that covered by credit enhancement protection
could adversely affect the return on an investment in such a security.
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
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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.
CREDIT ENHANCEMENTS. To lessen the effect of the failures by obligors on
Mortgage Assets to make payments, CMOs and other mortgage-related securities may
contain elements of credit enhancement, consisting of either (1) liquidity
protection or (2) protection against losses resulting after default by an
obligor on the underlying assets and allocation of all amounts recoverable
directly from the obligor and through liquidation of the collateral. This
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 these methods.
The Funds will not pay any additional fees for credit enhancements for
mortgage-related securities, although the credit enhancement may increase the
costs of the mortgage-related securities. 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. Asset-backed securities have structural characteristics
similar to mortgage-related securities but have underlying assets that are not
mortgage loans or interests in mortgage loans. Asset-backed securities represent
fractional interests in, or are secured by and payable from, pools of 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 (e.g., credit card) agreements. Assets are securitized through
the use of trusts and special purpose corporations that issue securities that
are often backed by a pool of assets representing the obligations of a number of
different parties. Asset-backed securities have structures and characteristics
similar to those of mortgage-related securities and, accordingly, are subject to
many of the same risks, although often to a greater extent. See "Risk
Considerations." No Fund may invest more than 10% of its net assets in
asset-backed securities that are backed by a particular type of credit, (e.g.,
credit card receivables).
FOREIGN GOVERNMENT AND SUPRANATIONAL ORGANIZATIONS DEBT SECURITIES. A Fund may
invest in fixed income securities 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 the
Fund's investment objective.
GUARANTEED INVESTMENT CONTRACTS. Guaranteed investment contracts ("GICs") are
issued by insurance companies. In purchasing a GIC, a Fund contributes cash to
the insurance company's general account and the insurance company then credits
to the Fund's deposit fund on a monthly basis guaranteed interest at a specified
rate. The GIC provides 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. There is no secondary
market for GICs and, accordingly, GICs are generally treated as illiquid
investments. GICs are typically unrated.
ZERO-COUPON SECURITIES. Zero-coupon securities are debt obligations that are
issued or sold at a significant discount from their face value and do not pay
current interest to holders prior to maturity, a specified redemption date or
cash payment date. The discount approximates the total interest the securities
will accrue and compound over the period to maturity or the first interest
payment date at a rate of interest reflecting the market rate of interest at the
time of issuance. The original issue discount on the zero-coupon securities must
be included ratably in the income of a Fund (and thus an investor's) as the
income accrues, even though payment has not been received. 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. Because interest on zero-coupon securities is not paid on a current basis
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but is in effect compounded, the value of these securities is subject to greater
fluctuations in response to changing interest rates, and may involve greater
credit risks, than the value of debt obligations which distribute income
regularly.
Zero-coupon securities may be securities that have been stripped of their
unmatured interest stream. Zero-coupon securities may be custodial receipts or
certificates, underwritten by securities dealers or banks, that evidence
ownership of future interest payments, principal payments or both on certain
U.S. Government securities. The underwriters of these certificates or receipts
generally purchase a U.S. Government security and deposit the security in an
irrevocable trust or custodial account with a custodian bank, which then issues
receipts or certificates that evidence ownership of the purchased unmatured
coupon payments and the final principal payment of the U.S. Government Security.
These certificates or receipts have the same general attributes as zero-coupon
stripped U.S. Treasury securities but are not supported by the issuer of the
U.S. Government Security. The risks associated with stripped securities are
similar to those of other zero-coupon securities, although stripped securities
may be more volatile, and the value of certain types of stripped securities may
move in the same direction as interest rates.
VARIABLE AND FLOATING RATE SECURITIES. Certain debt securities have variable or
floating rates of interest and, under certain limited circumstances, may have
varying principal amounts. These securities pay interest at rates that are
adjusted periodically according to a specified formula, usually with reference
to one or more interest rate indices or market interest rates (the "underlying
index"). The interest paid on these securities is a function primarily of the
underlying index upon which the interest rate adjustments are based. These
adjustments minimize changes in the market value of the obligation. 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 U.S. Government Securities or indices on those securities as
well as any other rate of interest or index. Certain variable rate securities
pay interest at a rate that varies inversely to prevailing short-term interest
rates (sometimes referred to as "inverse floaters"). Certain inverse floaters
may have an interest rate reset mechanism that multiplies the effects of changes
in the underlying index. This mechanism may increase the volatility of the
security's market value while increasing the security's yield. The Money Market
Funds may not invest in inverse floaters.
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.
Variable and floating rate demand notes of corporations include master demand
notes that permit investment of fluctuating amounts at varying interest rates
under direct arrangements 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.
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 upon a specified period of notice.
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 its 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 the Advisers
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.
There may not be an active secondary market for any particular floating or
variable rate instruments, which could make it difficult for a Fund to dispose
of the instrument during periods that the Fund is not entitled to exercise any
demand rights it may have. A Fund could, for this or other reasons, suffer a
loss with respect to those instruments. The Advisers monitor 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.
FINANCIAL INSTITUTION OBLIGATIONS. A Fund may invest in obligations of financial
institutions, including certificates of deposit, bankers' acceptances, time
deposits and other short-term debt obligations. Certificates of deposit
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represent an institution's obligation to repay funds deposited with it that earn
a specified interest rate over a given period. Bankers' acceptances are
negotiable obligations of a bank to pay a draft which has been drawn by a
customer and are usually backed by goods in international trade. Time deposits
are non-negotiable deposits with a banking institution that earn a specified
interest rate over a given period. Certificates of deposit and fixed time
deposits, which are payable at the stated maturity date and bear a fixed rate of
interest, generally may be withdrawn on demand by a Fund but may be subject to
early withdrawal penalties which could reduce a Fund's performance. Although
fixed time deposits do not in all cases have a secondary market, there are no
contractual restrictions on a Fund's right to transfer a beneficial interest in
the deposits to third parties.
Funds that invest in foreign securities may invest in Eurodollar certificates of
deposit, which are issued by offices of foreign and domestic banks located
outside the United States; Yankee certificates of deposit, which are issued by a
U.S. branch of a foreign bank and held in the United States; Eurodollar time
deposits, which are deposits in a foreign branch of a U.S. bank or a foreign
bank; and Canadian time deposits, which are issued by Canadian offices of major
Canadian banks. Each of these instruments is U.S. dollar denominated.
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.
PARTICIPATION INTERESTS. A Fund may purchase participation interests in loans or
instruments in which the Fund may invest directly that are owned by banks or
other institutions. A participation interest gives a Fund an undivided
proportionate interest in a loan or instrument. Participation interests may
carry a demand feature permitting the holder to tender the interests back to the
bank or other institution. Participation interests, however, do not provide the
Fund with any right to enforce compliance by the borrower, nor any rights of
set-off against the borrower and the Fund may not directly benefit from any
collateral supporting the loan in which it purchased a participation interest.
As a result, the Fund will assume the credit risk of both the borrower and the
lender that is selling the participation interest. A Fund will not invest more
than 10% of its total assets in participation interests in which the Fund does
not have demand rights. Each Tax-Free Income Fund will obtain appropriate
assurances that the interest earned by the Fund from the municipal securities in
which it holds participation interests is exempt from federal and, in the case
of Colorado Tax-Free Fund, Minnesota Tax-Free Fund and Minnesota Intermediate
Tax-Free Fund, applicable state income tax.
GENERAL MONEY MARKET FUND GUIDELINES
Each Money Market Fund will invest only in high-quality, U.S. dollar-denominated
instruments. 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 the Adviser, pursuant to procedures adopted
by the Board, to be of comparable quality. A Money Market Fund (except for
Municipal Money Market Fund) will 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 an NRSRO (a "second tier security") if, immediately after the
acquisition, the Fund would have invested more than (1) the greater of 1% of its
total assets in any single second tier security; or (2) 5% of its total assets
in second tier securities. Municipal Money Market Fund is subject to certain
issuer diversification rules described below under "Investment Limitations,
Non-fundamental Limitations." Appendix A to this SAI contains a description of
the rating categories of Standard & Poor's, Moody's and certain other NRSROs.
In addition, each Money Market Fund (1) will invest only in instruments that
have a remaining maturity of 397 days or less (as calculated in accordance with
Rule 2a-7 under the 1940 Act); (2) will maintain a dollar-weighted average
maturity of 90 days or less; (3) will not invest more than 5% of its total
assets in the securities of any one issuer (except U.S. Government Securities
and to the extent permitted by Rule 2a-7); and (4) will 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. These limitations apply with respect to only 75%
of the total assets of Municipal Money Market Fund.
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INVESTMENT BY FEDERAL CREDIT UNIONS. U.S. Government Fund and Treasury Fund seek
to limit their investments 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 these
statutes and rules and regulations may be amended.
BORROWING
Each Fund may borrow money in accordance with its investment policies set forth
under "Investment Limitations." Interest costs on borrowings may 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. 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.
DOLLAR ROLL TRANSACTIONS
Dollar roll transactions are transactions in which a Fund sells securities to a
bank or securities dealer, and makes a commitment to purchase similar, but not
identical, securities at a later date from the same party. During the period
between the commitment and settlement, no payment is made for the securities
purchased and no interest or principal payments on the securities 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. The Funds will engage
in dollar roll transactions for the purpose of acquiring securities for their
investment portfolios. Each Fund will limit its obligations on dollar roll
transactions to 35% of the Fund's net assets.
REPURCHASE AGREEMENTS
Repurchase agreements are transactions in which a Fund purchases securities from
a bank or securities dealer and simultaneously commits to resell the securities
to the bank or dealer at an agreed-upon date and at a price reflecting a market
rate of interest unrelated to the purchased security. During the term of a
repurchase agreement, the Funds' custodian maintains possession of the purchased
securities and any underlying collateral, which is maintained at not less than
100% of the repurchase price. Repurchase agreements allow a Fund to earn income
on its uninvested cash for periods as short as overnight, while retaining the
flexibility to pursue longer-term investments. A Money Market Fund will only
enter into a repurchase agreement with 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. International Fund may enter into
repurchase agreements with foreign entities. Small Cap Opportunities Fund may
invest only in repurchase agreements maturing in seven days or less.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements are transactions in which a Fund sells a security
and simultaneously commits to repurchase that security from the buyer at an
agreed upon price on an agreed upon future date. The resale price in a reverse
repurchase agreement reflects a market rate of interest that is not related to
the coupon rate or maturity of the sold security. For certain demand agreements,
there is no agreed upon repurchase date and interest payments are calculated
daily, often based upon the prevailing overnight repurchase rate.
LENDING FUND SECURITIES
Each Fund may lend Fund securities in an amount up to 33-1/3% (25% in the case
of Small Cap Opportunities Fund) of its total assets to brokers, dealers and
other financial institutions. Securities loans must be continuously
collateralized and the collateral must have market value at least equal to value
of the Fund's loaned securities, plus accrued interest. 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 fees (such as 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. The terms of a Fund's loans permit the
Fund to reacquire loaned securities on five business days' notice or in time to
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vote on any important matter. Loans are subject to termination at the option of
a Fund or the borrower at any time, and the borrowed securities must be returned
when the loan is terminated. The Funds will not lend portfolio securities to any
officer, director, employee or affiliate of the Funds or an Adviser.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS
Each Fund may purchase or sell portfolio securities on a "when-issued," "delayed
delivery" or "forward commitment" basis. When-issued securities may be purchased
on a "when, as and if issued" basis under which the issuance of the securities
depends upon the occurrence of a subsequent event. When these transactions are
negotiated, the price is fixed at the time the commitment is made, but delivery
and payment for the securities take place at a later date. When-issued
securities and forward commitments may be sold prior to the settlement date, but
the Funds enter into these transactions only with the intention of actually
receiving securities or delivering them, as appropriate. The Funds may dispose
of the right to acquire these securities before the settlement date if deemed
advisable. During the period between the time of commitment and settlement, no
payment is made for the securities purchased and no interest or dividends on the
securities accrue 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. The use of when-issued transactions and
forward commitments enables a Fund to protect against anticipated changes in
interest rates and prices, but also tends to increase the volatility of the
Fund's net asset value per share. Except for dollar-roll transactions, a Fund
will not purchase securities on a when-issued, delayed delivery or forward
commitment basis if, as a result, more than 15% (35% in the case of Total Return
Bond Fund) of the value of the Fund's total assets would be committed to such
transactions.
The use of when-issued transactions and forward commitments enables the Funds 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.
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.
ILLIQUID INVESTMENTS
No Fund may knowingly invest more than 15% (10% in the case of the Money Market
Funds) of the Fund's net assets in illiquid investments. Illiquid investments
are investments 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
investment and include, among other instruments, repurchase agreements not
entitling the Fund to payment of principal within seven days.
An institutional market has developed for certain securities that are not
registered under the 1933 Act. Institutional investors usually will not seek to
sell these instruments to the general public, but instead will often depend on
either an efficient institutional market in which the unregistered security can
be readily resold or on an 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 therefore may not be
determinative of the liquidity of such investments.
If unregistered securities are eligible for purchase by institutional buyers in
accordance with applicable exemptions under guidelines adopted by the Board, an
Adviser may determine that the securities are liquid. Under these guidelines,
the Advisers are required to take into account: (1) the frequency of trades and
quotations for the investment; (2) the number of dealers willing to purchase or
sell the investment; (3) the number of dealers that have undertaken to make a
market in the investment; (4) the number of other potential purchasers; and (5)
the nature of the marketplace trades, including the time needed to dispose of
the investment, the method of soliciting offers and the mechanics of the
transfer.
Illiquid investments may be more difficult to value than liquid investments and
the sale of illiquid investments generally may require more time and result in
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higher selling expenses than the sale of liquid investments. 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.
Restrictions on resale may have an adverse effect on the marketability of
illiquid investments and a Fund might also have to register certain investments
in order to dispose of them, resulting in expense and delay.
PURCHASES ON MARGIN AND SHORT SALES
Limited Term Government Income Fund and Intermediate Government Income Fund may
purchase securities on margin and make short sales that are not "against the
box." 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 of borrowing. In
addition, if the value of the securities purchased on margin decreases such that
the Fund's borrowing with respect to the security exceeds the maximum
permissible borrowing amount, the Fund will be required to make margin payments.
A Fund's obligation to satisfy margin calls may require the Fund to sell
securities at an inappropriate time.
Each of these Funds also 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 a 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.
All Funds may engage in short sales "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. If a Portfolio has unrealized gain with respect to a long position
and enters into a short sale against-the-box, the Portfolio generally will be
deemed to have sold the long position for tax purposes and thus will recognize
gain. Prohibitions on entering short sales other than against the box does not
restrict a Fund's ability to use short-term credits necessary for the clearance
of portfolio transactions and to make margin deposits in connection with
permitted transactions in options and futures contracts. No Fund except Treasury
Plus Fund, Diversified Small Cap Fund and Small Cap Opportunities Fund may make
short sales if, as a result, more than 25% 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.
OPTIONS AND FUTURES CONTRACTS
Each Fund (except for Small Cap Opportunities Fund, whose use of options and
futures contracts is described separately below) may (1) purchase or sell
(write) put and call options on securities to enhance the Fund's performance and
(2) seek to hedge against a decline in the value of securities owned by the Fund
or an increase in the price of securities that the Fund 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 interest-rate futures contracts and options on those
futures contracts. A Fund may only write options that are covered. To the extent
a Fund invests in foreign securities, it may in the future invest in options on
foreign currencies, foreign currency futures contracts and options on those
futures contracts. These instruments are considered to be derivatives. Use of
these instruments is subject to regulation by the SEC, the several options and
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futures exchanges on which futures and options are traded or the CFTC. No
assurance can be given that any hedging or option income strategy will achieve
its intended result. Certain futures strategies employed by Strategic Income
Fund and the Balanced Funds in allocating assets temporarily may not be deemed
to be for bona fide hedging purposes, as defined by the CFTC. A Fund may enter
into futures contracts only if the aggregate of initial margin deposits for open
futures contract positions does not exceed 5% of the Fund's total assets.
COVER FOR OPTIONS AND FUTURES CONTRACTS. A Fund will hold securities,
currencies, or other options or futures positions whose values are expected to
offset ("cover") its obligations under the transactions. A Fund will enter into
a hedging strategy that exposes it to an obligation to another party only if the
Fund owns either (1) an offsetting ("covered") position in the underlying
security, currency or options or futures contract, or (2) cash, receivables and
liquid debt securities with a value sufficient at all times to cover its
potential obligations. Each Fund will comply with SEC guidelines with respect to
coverage of these strategies and, if the guidelines require, will set aside
cash, liquid debt securities and other permissible assets ("Segregated Assets")
in a segregated account with the Custodian in the prescribed amount. Segregated
Assets cannot be sold or closed out while the hedging or option income strategy
is outstanding, unless the Segregated Assets 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 a Fund's ability to meet redemption requests or other current
obligations.
The Funds have no current intention of investing in futures contracts and
options thereon for purposes other than hedging. No Fund may purchase any call
or put option on a futures contract if the premiums associated with all such
options held by the Fund would exceed 5% of the Fund's total assets as of the
date the option is purchased. No Fund may sell a put option if the exercise
value of all put options written by the Fund would exceed 50% of the Fund's
total assets or sell a call option if the exercise value of all call options
written by the Fund would exceed the value of the Fund's assets. In addition,
the current market value of all open futures positions held by a Fund will not
exceed 50% of its total assets.
OPTIONS ON SECURITIES. A call option is a contract under 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 assets, 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.
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 options on securities except that exercises of
stock index options are effected with cash payments and do not involve delivery
of securities (i.e., stock index options are settled exclusively in cash). 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.
OPTIONS ON FUTURES CONTRACTS. Options on futures contracts are similar to
options on securities 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.
FUTURES CONTRACTS AND INDEX FUTURES CONTRACTS. A futures contract is a bilateral
agreement where one party agrees to accept, and the other party agrees to make,
delivery of cash, an underlying debt security or a currency, as called for in
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the contract, at a specified date and at an agreed-upon price. A bond or stock
index futures contract involves the delivery of an amount of cash equal to a
specified dollar amount times the difference between the bond or stock index
value at the close of trading of the contract and the price at which the futures
contract is originally struck. No physical delivery of the securities comprising
the index is made. Generally, these futures contracts are closed out prior to
the expiration date of the contracts.
SMALL CAP OPPORTUNITIES FUND OPTIONS AND FUTURES CONTRACTS
Small Cap Opportunities Fund 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 Fund's securities, to permit the Fund to retain unrealized gains in
the value of Fund securities which have appreciated, or to facilitate selling
securities for investment reasons, the Fund 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 Fund will normally purchase and then terminate the hedging
position), the Fund would: (1) purchase Stock Index Futures, or (2) purchase
calls on such Futures or on securities. The Fund's strategy of hedging with
Stock Index Futures and options on such Futures will be incidental to the Fund's
activities in the underlying cash market.
The Fund 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 Fund owns the securities subject to the call or other
securities acceptable for applicable escrow arrangements) while the call is
outstanding. A call written on a Stock Index Future must be covered by
deliverable securities or segregated liquid assets. If a call written by the
Fund is exercised, the Fund 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 Fund 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 Fund 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 Fund 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 Fund 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 Fund are
taxable as ordinary income. If the Fund 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 Fund 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 Fund covers the call by segregating in escrow an equivalent dollar amount of
liquid assets. The Fund 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 Fund to deliver
a futures contract; it would simply put the Fund in a short futures position,
which is permitted by the Fund's hedging policies.
PURCHASING CALLS AND PUTS. The Fund 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 Fund); or (3) broadly-based stock indices.
The Fund may not sell puts other than those it previously purchased, nor
purchase puts on securities it does not hold. The Fund 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 Fund would not
exceed 5% of the Fund's total assets.
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When the Fund 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 Fund 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 Fund will lose its premium
payments and the right to purchase the underlying investment. When the Fund
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 Fund 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 Fund owns
enables the Fund 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 Fund will
lose its premium payment and the right to sell the underlying investment; the
put may, however, be sold prior to expiration (whether or not at a profit).
Purchasing a put on either a stock index or on a Stock Index Future not held by
the Fund permits the Fund 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 Fund could
exercise or sell the put at a profit to attempt to offset some or all of its
loss on its Fund securities. When the Fund purchases a put on a stock index, or
on a Stock Index Future not held by it, the put protects the Fund 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 Fund's delivery of the underlying investment.
STOCK INDEX FUTURES. The Fund 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 Fund 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 Fund'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 Fund 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 Fund, 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 Fund 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 Fund, a seller of a corresponding call on
the same index will pay the Fund 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
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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 Fund 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 Fund's
exercise of its put, to deliver to the Fund 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.
FOREIGN CURRENCY TRANSACTIONS
Funds that make foreign investments may conduct foreign currency exchange
transactions either on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign exchange market or by entering into a forward foreign currency
contract. A forward foreign currency contract ("forward contract") involves an
obligation to purchase or sell a specific amount of 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. Forward contracts are considered to be derivatives. A Fund
enters into forward contracts in order to "lock in" the exchange rate between
the currency it will deliver and the currency it will receive for the duration
of the contract. In addition, a Fund may enter into forward contracts to hedge
against risks arising from securities a Fund owns or anticipates purchasing, or
the U.S. dollar value of interest and dividends paid on those securities. A Fund
will not enter into forward contracts for speculative purposes. A Fund will not
have more than 25% of its total assets committed to forward contracts, or
maintain a net exposure to forward contracts that 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.
If a Fund makes delivery of the foreign currency at or before the settlement of
a forward contract, 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, in which case it will realize a gain or a loss.
Foreign currency transactions involve certain costs and risks. The Fund incurs
foreign exchange expenses in converting assets from one currency to another.
Forward contracts involve a risk of loss if the Adviser is inaccurate in its
prediction of currency movements. The projection of short-term currency market
movements is extremely difficult, and the successful execution of a short-term
hedging strategy is highly uncertain. The precise matching of forward contract
amounts and the value of the securities involved is generally not possible.
Accordingly, it may be necessary for the Fund to purchase additional foreign
currency if the market value of the security is less than the amount of the
foreign currency the Fund is obligated to deliver under the forward contract and
the decision is made to sell the security and make delivery of the foreign
currency. The use of forward contracts as a hedging technique does not eliminate
fluctuations in the prices of the underlying securities the Fund owns or intends
to acquire, but it does fix a rate of exchange in advance. Although forward
contracts can reduce the risk of loss due to a decline in the value of the
hedged currencies, they also limit any potential gain that might result from an
increase in the value of the currencies.
In addition, 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. 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.
The Funds have no present intention to enter into currency futures or options
contracts, but may do so in the future. A Fund might 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.
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SWAPS, CAPS, FLOORS AND COLLARS
A Fund may enter into interest rate, currency and mortgage (or other asset)
swaps, and may purchase and sell interest rate "caps," "floors" and "collars."
Interest rate swaps involve the exchange by a Fund and a counterparty of their
respective commitments to pay or receive interest (e.g., an exchange of floating
rate payments for fixed rate payments). Mortgage swaps are similar to interest
rate swap agreements, except that the contractually-based principal amount (the
"notional principal amount") is tied to a reference pool of mortgages. Currency
swaps' notional principal amount is tied to one or more currencies, and the
exchange commitments can involve payments in the same or different currencies.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on the notional principal amount from the party selling the cap. The
purchase of an interest rate floor entitles the purchaser, to the extent that a
specified index falls below a predetermined value, to receive payments on a
notional principal amount from the party selling the floor. A collar entitles
the purchaser to receive payments to the extent a specified interest rate falls
outside an agreed range.
A Fund will enter into these transactions primarily to preserve a return or a
spread on a particular investment or portion of its portfolio or to protect
against any interest rate fluctuations or 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, and will enter into
the transactions in order to shift a Fund's investment exposure from one type of
investment to another.
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.
The use of interest rate protection transactions is a highly specialized
activity which involves investment techniques and risks different from those
associated with ordinary portfolio securities transactions. If an Adviser
incorrectly forecasts market values, interest rates and other applicable
factors, there may be considerable impact on a Fund's performance. Even if the
Advisers are correct in their forecasts, there is a risk that the transaction
may correlate imperfectly with the price of the asset or liability being hedged.
TEMPORARY DEFENSIVE POSITION
When, in the judgment of an Adviser, market or economic conditions warrant, each
Fund, other than a Money Market Fund, may assume a defensive position and
temporarily hold cash or invest without limit in cash equivalents to retain
flexibility in meeting redemptions, paying expenses and timing of new
investments. These investments will be 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, 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 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; (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. To the extent that a Fund assumes a
temporary defensive position, it may not be invested to pursue its investment
objective. International Fund may hold cash and invest in bank instruments
denominated in any major foreign currency.
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. 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 distributions received from the Fund.
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3. RISK CONSIDERATIONS
COUNTERPARTY RISK
The Funds may be exposed to the risks of financial failure or insolvency of
another party. To help reduce those risks, the Advisers, subject to the Board's
supervision, monitor and evaluate the creditworthiness of counterparties to the
Funds' transactions and intend to enter into a transaction only when they
believe that the counterparty presents minimal credit risks and the benefits
from the transaction justify the attendant risks.
The use of repurchase agreements, securities lending, reverse repurchase
agreements, interest rate protection transactions (such as swaps, caps, collars
and floors), forward commitments (including dollar roll transactions) and
forward contracts involving currencies present particular counterparty risk. In
the event that bankruptcy, insolvency or similar proceedings were commenced
against a counterparty while these transactions remained open or a counterparty
defaulted on its obligations, a Fund may have difficulties in exercising its
rights to the underlying securities or currencies, as applicable, it may incur
costs and expensive time delays in disposing of the underlying securities and it
may suffer a loss. Failure by the other party to deliver a security or currency
purchased by a Fund may result in a missed opportunity to make an alternative
investment. Counterparty insolvency risk with respect to repurchase agreements
is reduced by favorable insolvency laws that allow a 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, reverse repurchase
agreements and dollar roll transactions, and therefore, those transactions
involve more risk than repurchase agreements. For example, in the event the
purchaser of securities in a dollar roll transaction files for bankruptcy or
becomes insolvent, a Fund's use of the proceeds of the transaction may be
restricted pending a determination by the other party, or its trustee or
receiver, whether to enforce the Fund's obligation to repurchase the securities.
As a result of entering into 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.
FIXED INCOME SECURITIES
GENERAL. The market value of the interest-bearing fixed income securities held
by the Funds will be affected by changes in interest rates. There is normally an
inverse relationship between the market value of securities sensitive to
prevailing interest rates and actual changes in interest rates. The longer the
remaining maturity (and duration) of a security, the more sensitive the security
is to changes in interest rates. All fixed income securities, including U.S.
Government Securities, can change in value when there is a change in interest
rates. 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 that issuer's debt securities. As a result, an
investment in a Fund is subject to risk even if all fixed income securities in
the Fund's investment portfolio are paid in full at maturity. In addition,
certain fixed income securities may be subject to extension risk, which refers
to the change in total return on a security resulting from an extension or
abbreviation of the security's maturity.
Yields on fixed income securities, including municipal securities, are dependent
on a variety of factors, including the general conditions of the fixed income
securities markets, the size of a particular offering, the maturity of the
obligation and the rating of the issue. Fixed income securities with longer
maturities tend to produce higher yields and are generally subject to greater
price movements than obligations with shorter maturities. A portion of the
municipal securities held by the Funds may be supported by credit and liquidity
enhancements, such as letters of credit (which are not covered by federal
deposit insurance) or puts or demand features of third party financial
institutions, generally domestic and foreign banks.
The issuers of fixed income securities are subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors that may restrict the ability of the issuer to pay, when due, the
principal of and interest on its debt securities. The possibility exists
therefore, that, as a result of bankruptcy, litigation or other conditions, the
ability of an issuer to pay, when due, the principal of and interest on its debt
securities may become impaired.
CREDIT RISK. The Funds' investments in fixed income securities 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 Fixed Income Fund, Tax-Free
Fixed Income Fund and Balanced Fund will generally buy debt securities that are
rated in the top four long-term rating categories by an NRSRO or in the top two
short-term rating categories by an NRSRO (although certain Funds have greater
restrictions). Moody's, Standard & Poor's and other NRSROs are private services
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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 securities by several NRSROs is included in Appendix A. The
Advisers may use these ratings to determine whether to purchase, sell or hold a
security. Ratings are not, however, absolute standards of quality. Credit
ratings attempt to evaluate the safety of principal and interest payments and do
not evaluate the risks of fluctuations in market value. Consequently, similar
securities with the same rating may have different market prices. In addition,
rating agencies may fail to make timely changes in credit ratings and the
issuer's current financial condition may be better or worse than a rating
indicates.
Each Fund may retain a security that ceases to be rated or whose rating has been
lowered below the Fund's lowest permissible rating category (except in certain
cases with respect to the Money Market Funds) 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.
Each Fund may purchase unrated securities if the Adviser determines that the
security is of comparable quality to a rated security that the Fund may
purchase. Unrated securities may not be as actively traded as rated securities.
MORTGAGE-RELATED SECURITIES. The value of mortgage-related securities may be
significantly affected by changes in interest rates, the markets' perception of
issuers, the structure of the securities and the creditworthiness of the parties
involved. The ability of the Funds to successfully utilize mortgage-related
securities depends in part upon the ability of the Advisers to forecast interest
rates and other economic factors correctly. Some mortgage-related securities
have structures that make their reaction to interest rate changes and other
factors difficult to predict.
Prepayments of principal of mortgage-related securities by mortgagors or
mortgage foreclosures affect the average life of the mortgage-related
securities. 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 mortgages and other social and demographic conditions.
In periods of rising interest rates, the prepayment rate tends to decrease,
lengthening the average life of a pool of mortgage-related securities. In
periods of falling interest rates, the prepayment rate tends to increase,
shortening the average life of a pool. The volume of prepayments of principal on
the mortgages underlying a particular mortgage-related security will influence
the yield of that security, affecting the Fund's yield. Because prepayments of
principal generally occur when interest rates are declining, it is likely that
the Funds, to the extent they retain the same percentage of debt securities, may
have to reinvest the proceeds of prepayments at lower interest rates then those
of their previous investments. If this occurs, a Fund's yield will
correspondingly decline. Thus, mortgage-related securities may have less
potential for capital appreciation in periods of falling interest rates (when
prepayment of principal is more likely) than other fixed income securities of
comparable duration, although they may have a comparable risk of decline in
market value in periods of rising interest rates. A decrease in the rate of
prepayments may extend the effective maturities of mortgage-related securities,
increasing their sensitivity to changes in market interest rates. To the extent
that the Funds purchase mortgage-related securities at a premium, unscheduled
prepayments, which are made at par, result in a loss equal to any unamortized
premium.
ASSET-BACKED SECURITIES. Like mortgages underlying mortgage-related securities,
the collateral underlying assets are subject to prepayment, which may reduce the
overall return to holders of asset-backed securities. Asset-backed securities
present certain additional and unique risks. Primarily, these securities do not
always have the benefit of a security interest in collateral comparable to the
security interests associated with mortgage-related securities. 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. 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
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mortgage-related 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.
NON-INVESTMENT GRADE SECURITIES. Non-investment grade securities are securities
rated below the fourth highest rating category by an NRSRO or which are unrated
and judged by the Adviser to be of comparable quality. Such high risk securities
(commonly referred to as "junk bonds") are not considered to be investment grade
and have speculative or predominantly speculative characteristics.
Non-investment grade, high risk securities provide poor protection for payment
of principal and interest but may have greater potential for capital
appreciation than do higher quality securities. These lower rated securities
involve greater risk of default or price changes due to changes in the issuers'
creditworthiness than do higher quality securities. The market for these
securities may be thinner and less active than that for higher quality
securities, which may affect the price at which the lower rated securities can
be sold. In addition, the market prices of lower rated securities may fluctuate
more than the market prices of higher quality securities and may decline
significantly in periods of general economic difficulty or rising interest
rates. Under such conditions, the Funds 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.
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 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 Fund to the risks of high
yield/high risk securities.
FOREIGN SECURITIES
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 for distribution to a
Fund's shareholders; commission rates payable on foreign transactions are
generally higher than in the United States; foreign accounting, auditing and
financial reporting standards differ from those in the United States and,
accordingly, less information may be available about foreign companies than is
available about issuers of comparable securities in the United States; and
foreign securities may trade less frequently and with lower volume and may
exhibit greater price volatility than United States securities.
Changes in foreign exchange rates will also affect the value in U.S. dollars of
all foreign currency-denominated securities held by a Fund. 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, and a Fund is required to compute and distribute income in U.S.
dollars. Accordingly, a decline in the value of a particular foreign currency
against the U.S. dollar occurring after the Fund's income has been earned and
computed in U.S. dollars may require the Fund to liquidate portfolio securities
to acquire sufficient U.S. dollars to make a distribution. Similarly, if the
exchange rate declines between the time a Fund incurs expenses in U.S. dollars
and the time such expenses are paid, the Fund may be required to liquidate
additional foreign securities to purchase the U.S. dollars required to meet such
expenses.
Certain Funds may purchase foreign bank obligations. In addition to the risks
described above that are generally applicable to foreign investments, the
investments that the Funds make in obligations of foreign banks, branches or
subsidiaries may involve further risks, including differences between foreign
banks and U.S. banks in applicable accounting, auditing and financial reporting
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standards, and the possible establishment of exchange controls or other foreign
government laws or restrictions applicable to the payment of certificates of
deposit or time deposits that may affect adversely the payment of principal and
interest on the securities held by the Funds.
LEVERAGE
The Funds may use leverage in an effort to increase their returns. Leverage
involves special risks and may involve speculative investment techniques.
Leverage exists when cash made available to a Fund through an investment
technique is used to make additional Fund investments. Borrowing for other than
temporary or emergency purposes, lending portfolio securities, entering into
reverse repurchase agreements, purchasing securities on a when-issued, delayed
delivery or forward commitment basis (including dollar roll transactions) and
the use of swaps and related agreements are transactions that result in
leverage. Certain Funds also may purchase securities on margin or enter into
short sales. The Funds use these investment techniques only when the Advisers
believe that the leveraging and the returns available to the Funds from
investing the cash will provide investors a potentially higher return.
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 a 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 costs). The risks of leverage include a
higher volatility of the net asset value of the Fund's interests and the
relatively greater effect on the net asset value of the interests caused by
favorable or adverse market movements or changes in the cost of cash obtained by
leveraging and the yield from invested 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 for the Fund than if a Fund were not leveraged. Changes in interest rates
and related economic 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 investors,
the Fund's use of leverage would result in a lower rate of return 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.
SEGREGATED ACCOUNTS. In order to attempt to reduce the risks involved in various
transactions involving leverage, a Fund's custodian will set aside and maintain,
in a segregated account, cash and liquid securities. The account's value, which
is marked to market daily, will be at least equal to the Fund's commitments
under these transactions. The use of a segregated account in connection with
leveraged transactions may result in a Fund's investment portfolio being 100%
leveraged.
OPTIONS AND FUTURES CONTRACTS
A Fund's use of options and futures contracts subjects the Fund to certain
unique investment risks. These risks include: (1) dependence on an Adviser's
ability to correctly predict movements in the prices of individual securities
and fluctuations in interest rates, the general securities markets and other
economic factors; (2) imperfect correlations between movements in the prices of
options or futures contracts and movements in the price of the securities hedged
or used for cover which may cause a given hedge not to achieve its objective;
(3) the fact that the skills and techniques needed to trade these instruments
are different from those needed to select the other securities in which a 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 certain options, futures contracts and
related options to avoid adverse tax consequences; and (6) the potential for
unlimited losses when investing in futures contracts or writing options for
which an offsetting position is not held.
Other risks include the inability of a Fund, as the writer of covered call
options, to benefit from any appreciation of the underlying securities above the
exercise price and the possible loss of the entire premium paid for options
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purchased by the Fund. In addition, the futures exchanges may limit the amount
of fluctuation permitted in certain futures contract prices on related options
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 is no
assurance 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. The Funds 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. A Fund's activities in the futures and
options markets may result in higher portfolio turnover rates and additional
brokerage costs, which could reduce a Fund's yield.
SMALL CAPITALIZATION STOCKS
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 rises more in response to buying demand and fall
more in response to selling pressure).
Securities owned by a Fund that are traded in the over-the-counter market or on
a regional securities exchange may not be traded every day or in the volume
typical of securities trading on a national securities exchange. As a result,
disposition by a Fund of a portfolio security, to meet redemption requests by
investors or otherwise, may require the Fund to sell these securities at a
discount from market prices, to sell during periods when disposition is not
desirable, or to make many small sales over a lengthy period of time.
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 Fund 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 Fund 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, a Fund may be
forced to dispose of its holdings at prices lower than might otherwise be
obtained.
GEOGRAPHIC CONCENTRATION
To the extent a Fund's investments are primarily concentrated in issuers located
in a particular state, region or country, the value of the Fund's shares may be
especially affected by factors pertaining to that state, region or country's
economy and other factors specifically affecting the ability of issuers of that
state, region or country 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 more
geographically diverse portfolio.
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.
DIVERSIFICATION
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 a relatively small number of issuers. As non-diversified
portfolios, these Funds may present greater risks than a diversified fund
because each Fund's performance will generally be more heavily influenced by an
adverse movement in a single security's price. Each Fund intends to comply with
applicable diversification requirements of the Internal Revenue Code. These
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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.
4. INFORMATION CONCERNING COLORADO AND MINNESOTA
Following is a brief summary of some of the factors that may affect the
financial condition of the State of Colorado and the State of Minnesota and
their respective political subdivisions. It is not a complete or comprehensive
description of these factors or an analysis of financial conditions and may not
be indicative of the financial condition of issuers of obligations held by
Colorado Tax Free Fund, Minnesota Intermediate Tax-Free Fund and Minnesota
Tax-Free Fund or any particular projects financed with the proceeds of such
obligations. Many factors not included in the summary, such as the national
economy, social and environmental policies and conditions, and the national and
international markets for products produced in each state could have an adverse
impact on the financial condition of a State and its political subdivisions,
including the issuers of obligations held by a Fund. It is not possible to
predict whether and to what extent those factors may affect the financial
condition of a State and its political subdivisions, including the issuers of
obligations held by a Fund.
The following summary is based on publicly available information that has not
been independently verified by the Trust or its legal counsel.
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. During the mid-1980's, 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 1993 through 1997, there has been steady improvement in the Colorado
economy: per-capita income increased approximately 21.1% (5.35% in 1997) and
retail trade sales increased approximately 32.3% (5.6% in 1997). 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 1997 the
State's unemployment rate was 3.3% and the United State's unemployment rate was
5.0%).
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 1997 refers to the fiscal year ended June 30, 1997.
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 31.0% and 54.3%, respectively, of total
General Fund revenues during fiscal year 1996 and approximately 30.5% and 55.0%,
respectively, of total General Fund revenues during fiscal year 1997. The ending
General Fund balance for fiscal year 1996 was $368.5 million and for fiscal year
1997 was approximately $514.1 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
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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 notes to alleviate temporary cash flow shortfalls. The most recent
issue of such notes, issued on July 1, 1998, 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.
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. During fiscal year 1998, revenues in excess of the
limits applicable for the 1997 fiscal year, in the amount of approximately
$139.0 million were refunded to certain taxpayers in the State in accordance
with the Amendment. In fiscal year 1999, preliminary figures indicate that
aproximately $562 million would be refunded for the excess over the fiscal year
1998 limit. 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
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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. Generally, the information below is current only through
1994.
THE GENERAL STRUCTURE OF THE STATE'S ECONOMY
Based on the most current information readily available, derived from the
sources referred to above, a number of general conclusions can be drawn about
Minnesota's economy taken as a whole.
Diversity and a significant natural resource base are two important
characteristics of the State's economy.
When viewed on an aggregate level, the structure of the State's economy,
according to the most recent readily available information, parallels the
structure of the United States economy as a whole. State employment in 10 major
sectors is distributed in approximately the same proportions as national
employment.
Some unique characteristics of the State's economy are apparent in employment
concentrations in many major industries. The State's concentration of employment
in high technology industries is 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. According to the most
recent readily available information, the State's concentration of employment is
higher than the United States average in the food and kindred products industry
and in the forest and forestry products industry. Both of these industries 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 the medical products manufacturing
industry are also relatively more important to employment in the State than in
the United States.
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.
PERFORMANCE OF THE STATE'S ECONOMY
Since 1980, State per capita personal income has been within a few 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.
According to the most recent readily available information, the annual
unemployment rate in Minnesota has been below that of the United States since
1985.
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
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4.4%. Based on the most recent readily available information, the Minnesota
population is forecast to grow 12.3% between 1994 and 2010.
5. 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.
FUNDAMENTAL LIMITATIONS
Each Fund has adopted the following fundamental investment policies.
(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 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
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country; (4) financial service companies are classified
according to the end users of their services (for example,
automobile finance, bank finance and diversified finance);
and (5) utility companies are classified according to their
services (for example, gas, gas transmission, electric and
gas, electric and telephone). 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 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
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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; (2) municipal securities are not
treated as involving a single industry; (3) financial
service companies are classified according to the end users
of their services (for example, automobile finance, bank
finance and diversified finance); and (4) utility companies
are classified according to their services (for example,
gas, gas transmission, electric and gas, electric and
telephone). Notwithstanding anything to the contrary, to the
extent permitted by the 1940 Act, the Fund may invest in one
or more investment companies; provided that, except to the
extent the Fund invests in other investment companies
pursuant to Section 12(d)(1)(A) of the 1940 Act, the Fund
treats the assets of the investment companies in which it
invests as its own for purposes of this policy.
(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 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
31
<PAGE>
pursuant to Section 12(d)(1)(A) of the 1940 Act, the Fund
treats the assets of the investment companies in which it
invests as its own for purposes of this policy.
(3) BORROWING
(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.
(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.
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(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 nonfundamental investment policies. The
Board may change any nonfundamental policy.
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<PAGE>
(1) DIVERSIFICATION
(a) To the extent required to qualify as a regulated investment
company, and with respect to 50% of its assets, MUNICIPAL
MONEY MARKET FUND may not purchase a security other than a
U.S. Government Security, if as a result, more than 5% of the
Fund' s total assets would be invested in 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 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
34
<PAGE>
marketable by virtue of restrictions on the sale of such
securities to the public without registration under the 1933
Act, as amended ("Restricted Securities").
(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.
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<PAGE>
(8) SECURITIES WITH VOTING RIGHTS
NO MONEY MARKET FUND or FIXED INCOME FUND may purchase securities
having voting rights except securities of other investment companies;
provided that the Funds may hold securities with voting rights obtained
through a conversion or other corporate transaction of the issuer of
the securities, whether or not the Fund was permitted to exercise any
rights with respect to the conversion or other transaction.
(9) LENDING OF PORTFOLIO SECURITIES
NO FUND (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.
(10) REAL ESTATE LIMITED PARTNERSHIPS
NO FUND other than TREASURY PLUS FUND may invest in real estate limited
partnerships.
(11) OPTIONS AND FUTURES CONTRACTS
(a) NO MONEY MARKET FUND may invest in options, futures contracts or
options on futures contracts.
(b) NO FIXED INCOME FUND, EQUITY FUND (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.
(12) 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.
(13) TREASURY FUND INVESTMENT LIMITATIONS
TREASURY FUND may not enter into repurchase agreements or purchase any
security other than those that are issued or guaranteed by the U.S.
Treasury, including separately traded principal and interest components
of securities issued or guaranteed by the U.S. Treasury.
(14) PURCHASES AND SALES OF COMMODITIES
NO MONEY MARKET FUND 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.
(15) VALUGROWTH STOCK FUND INVESTMENT LIMITATIONS
VALUGROWTH STOCK FUND may not enter into commitments under when-issued
and forward commitment obligations in an amount greater than 15% of the
value of the Fund's total assets.
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<PAGE>
(16) EXERCISING CONTROL OF ISSUERS
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.
6. PERFORMANCE AND ADVERTISING DATA
GENERAL
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. 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 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, 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 will be
higher than a similar computation that takes into account payment of sales
charges.
For a listing of certain performance data as of May 31, 1998 (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 using different investment styles. Indexes 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.
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<PAGE>
SEC YIELD CALCULATIONS
Although published yield information is useful in reviewing a Fund's
performance, the Fund's yield fluctuates from day to day and 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, financial
institutions that sell Fund shares 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 FUNDS, TAX-FREE FIXED INCOME FUNDS, BALANCED FUNDS AND EQUITY
FUNDS. Standardized yields for the Funds used in advertising are computed by
dividing a Fund's interest income (in accordance with specific standardized
rules) for a given 30 days or one month period, net of expenses, by the average
number of shares entitled to receive distributions during the period, dividing
this figure by the Fund's net asset value per share at the end of the period and
annualizing the result (assuming compounding of income in accordance with
specific standardized rules) in order to arrive at an annual percentage rate. In
general, interest income is reduced with respect to municipal securities
purchased at a premium over their par value by subtracting a portion of the
premium from income on a daily basis. In general, interest income is increased
with respect to municipal securities purchased at original issue at a discount
by adding a portion of the discount to daily income.
Capital gains and losses generally are excluded from these calculations.
The standardized tax equivalent yield is the rate an investor would have to earn
from a fully taxable investment in order to equal a Fund's yield after taxes.
Tax equivalent yields are calculated by dividing the Fund's yield by one minus
the stated Federal or combined Federal and state tax rate. If a portion of a
Fund's yield is tax-exempt, only that portion is adjusted in the calculation.
Income calculated for the purpose of determining each Fund's standardized yield
differs from income as determined for other accounting purposes. Because of the
different accounting methods used, and because of the compounding assumed in
yield calculations, the yield quoted for a Fund may differ from the rate of
distribution the Fund paid over the same period or the rate of income reported
in the Fund's financial statements.
TOTAL RETURN CALCULATIONS
Standardized total returns quoted in advertising and sales literature reflect
all aspects of a Fund's return, including the effect of reinvesting dividends
and capital gain distributions, any change in the Fund's net asset value per
share over the period and maximum sales charge, if any, applicable to purchases
of the Fund's shares. Average annual total returns are calculated, through the
use of a formula prescribed by the SEC, by determining the growth or decline in
value of a hypothetical historical investment in a Fund over a stated period,
and then calculating the annually compounded percentage rate that would have
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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, performance is not constant over time but changes from
year to year, and 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 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 FUND, COMMON TRUST FUND AND CORE AND 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
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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 and C Shares will be calculated only from the inception
date of B Shares, regardless of the existence of prior share classes in the same
Fund.
Prior to November 11, 1994, Norwest Bank Minnesota, N.A. managed a collective
investment fund with an investment objective and policies that were, in all
material respects, equivalent to the Fund. The performance for the Fund includes
the performance of the predecessor collective investment fund for periods before
it became a mutual fund on November 11, 1994. The collective investment fund was
not registered under the 1940 Act nor subject to restrictions imposed by the
Act, which, if applicable, may have adversely affected the performance.
Class B shares for Growth Balanced Fund, Large Company Growth Fund and
Diversified Small Cap Fund commenced operations on October 1, 1998. Returns
prior to October 1, 1998 are for Class I shares, adjusted for Class B share
expenses. Performance shown or advertised for the Class B Shares for each of
these funds for periods prior to November 11, 1994 reflects performance of the
shares of predecessor collective investment funds adjusted to reflect Class B
expenses (before waivers and reimbursements) in effect on November 11, 1994.
Class C shares for Growth Balanced Fund, Income Equity Fund, Diversified Equity
Fund and Growth Equity Fund commenced operations on October 1, 1998. Returns
prior to October 1, 1998 are for Class I shares, adjusted for Class C share
expenses. Performance shown or advertised for the Class C Shares for each of
these funds for periods prior to November 11, 1994 reflects performance of the
shares of predecessor collective investment funds adjusted to reflect Class C
expenses (before waivers and reimbursements) in effect on November 11, 1994.
Class B shares for Income Equity Fund, Diversified Equity Fund, Growth Equity
Fund, Small Company Stock Fund and International Fund commenced operations on
May 2, 1996, May 6, 1996, May 6, 1996, December 31, 1993 and May 12, 1995,
respectively. Returns prior to those dates are for Class I shares, adjusted for
Class B share expenses. Performance shown or advertised for the Class B Shares
for each of these funds for periods prior to November 11, 1994 reflects
performance of the shares of predecessor collective investment funds adjusted to
reflect Class B expenses (before waivers and reimbursements) in effect on
November 11, 1994.
Small Cap Opportunities Fund's Class B shares commenced operations on November
8, 1996. Returns prior to November 8, 1996 are for Class I shares, adjusted for
Class B share expenses.
Class B shares for Income Fund, Tax-Free Income Fund, Colorado Tax-Free Fund,
Minnesota Tax-Free Fund and ValuGrowth (SM) Stock Fund commenced operations on
August 5, 1993, August 5, 1993, August 6, 1993, August 2, 1993 and August 6,
1993, respectively. Returns prior to these dates are for Class A shares,
adjusted for Class B share expenses.
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 common trust
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 AND GATEWAY PERFORMANCE. When a Fund invests all of its investable assets
in a Portfolio that has a performance history prior to the investment by the
Fund, the Fund will assume the performance history of the Portfolio. That
history may be restated to reflect the estimated expenses of the Fund.
OTHER ADVERTISEMENT MATTERS. The Funds may advertise other forms of performance.
For example, the Funds may quote unaveraged or cumulative total returns
reflecting the change in the value of an investment over a stated period.
Average annual and cumulative total returns may be quoted as a percentage or as
a dollar amount, and may be calculated for a single investment, a series of
investments and/or a series of redemptions over any time period. Total returns
may be broken down into their components of income and capital (including
capital gains and changes in share price) in order to illustrate the
relationship of these factors and their contributions to total return. Total
returns may be quoted with or without taking into consideration a Fund's
front-end sales charge or contingent deferred sales charge; excluding sales
charges from a total return calculation produces a higher return figure. Any
performance information may be presented numerically or in a table, graph or
similar illustration.
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
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<PAGE>
markets; (7) the results of a hypothetical investment in a Fund over a given
number of years, including the amount that the investment would be at the end of
the period; (8) the effects of earning Federally and, if applicable, state
tax-exempt income from a Fund or investing in a tax-deferred account, such as an
individual retirement account or Section 401(k) pension plan; and (9) the net
asset value, net assets or number of shareholders of a Fund as of one or more
dates.
As an example of compounding, $1,000 compounded annually at 9.00% will grow to
$1,090 at the end of the first year (an increase in $90) and $1,118 at the end
of the second year (an increase in $98). The extra $8 that was earned on the $90
interest from the first year is the compound interest. One thousand dollars
compounded annually at 9.00% will grow to $2,367 at the end of ten years and
$5,604 at the end of 20 years. Other examples of compounding are as follows: at
7% and 12% annually, $1,000 will grow to $1,967 and $3,106, respectively, at the
end of ten years and $3,870 and $9,646, respectively, at the end of twenty
years. These examples are for illustrative purposes only and are not indicative
of any Fund's performance.
The Funds may advertise information regarding the effects of automatic
investment and systematic withdrawal plans, including the principal of dollar
cost averaging. In a dollar cost averaging program, an investor invests a fixed
dollar amount in a Fund at period intervals, thereby purchasing fewer shares
when prices are high and more shares when prices are low. While such a strategy
does not insure a profit or guard against a loss in a declining market, the
investor's average cost per share can be lower than if fixed numbers of shares
had been purchased at those intervals. In evaluating such a plan, investors
should consider their ability to continue purchasing shares through periods of
low price levels. For example, if an investor invests $100 a month for a period
of six months in a Fund the following will be the relationship between average
cost per share ($14.35 in the example given) and average price per share:
<TABLE>
<S> <C> <C> <C>
SYSTEMATIC SHARE SHARES
PERIOD INVESTMENT PRICE PURCHASED
------ ---------- ----- ---------
1 $100 $10 10.00
2 $100 $12 8.33
3 $100 $15 6.67
4 $100 $20 5.00
5 $100 $18 5.56
6 $100 $16 6.25
---- --- ----
Total Invested $600 Average Price $15.17 Total Shares 41.81
</TABLE>
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.
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7. MANAGEMENT
Those officers, as well as certain other officers and Trustees of the Trust, may
be directors, officers or employees of (and persons providing services to the
Trust may include) Forum, its affiliates or certain non-banking affiliates of
Norwest.
TRUSTEES AND OFFICERS
TRUSTEES AND OFFICERS OF THE TRUST. The Trustees and officers of the Trust and
their principal occupations during the past five years and age as of October 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 56.
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 67.
Director, Federal Farm Credit Banks Funding Corporation and Farm Credit
System Financial Assistance Corporation since February 1993. Prior
thereto, he was Manager of Capital Markets Group, Norwest Corporation
(a multi-bank holding company and parent of Norwest), until 1991. His
address is 1431 Landings Place, Sarasota, Florida 34231.
DONALD H. BURKHARDT, Trustee, Age 72.
Principal of The Burkhardt Law Firm. His address is 777 South Steele
Street, Denver, Colorado 80209.
JAMES C. HARRIS, Trustee, Age 78.
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 65.
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 53.
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 46.
Senior Counselor to the public relations firm of Himle-Horner since
January 1995 and Senior Fellow at the Humphrey Institute, Minneapolis,
Minnesota (a public policy organization) since January 1995. Prior
thereto Mr. Penny was the Representative to the United States Congress
from Minnesota's First Congressional District. His address is 500
North State Street, Waseca, Minnesota 56095.
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<PAGE>
DONALD C. WILLEKE, Trustee, Age 58.
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 35.
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 37.
Managing Director and General Counsel, Forum Financial Services, Inc.,
with which he has been associated since 1991. Mr. Goldstein is also an
officer of various registered investment companies for which Forum
Administrative Services, LLC or Forum Financial Services, Inc. serves
as manager, administrator and/or distributor. His address is Two
Portland Square, Portland, Maine 04101.
THOMAS G. SHEEHAN, Vice President and Assistant Secretary, Age 44.
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 39.
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.
DON L. EVANS, Assistant Secretary, Age 50.
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 29.
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.
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<PAGE>
COMPENSATION OF TRUSTEES AND OFFICERS OF THE TRUST. Each Trustee of the Trust is
paid a retainer fee in the total amount of $5,000, payable quarterly, for the
Trustee's service to the Trust and to Norwest Select Funds, a separate
registered open-end management investment company for which each Trustee serves
as trustee. In addition, each Trustee is paid $3,000 for each regular Board
meeting attended (whether in person or by electronic communication) and is paid
$1,000 for each Committee meeting attended on a date when a Board meeting is not
held. Trustees are also reimbursed for travel and related expenses incurred in
attending meetings of the Board. Mr. Keffer received no compensation for his
services as Trustee for the past year or compensation or reimbursement for his
associated expenses. In addition, no officer of the Trust is compensated by the
Trust.
Mr. Burkhardt, Chairman of the Trust's and Norwest Select Funds' audit
committees, receives additional compensation of $6,000 from the Trust and
Norwest Select Funds allocated pro rata between the Trust and Norwest Select
Funds based upon relative net assets, for his services as Chairman. Each Trustee
was elected by shareholders on April 30, 1997.
The following table provides the aggregate compensation paid to the Trustees of
the Trust by the Trust and Norwest Select Funds, combined. Norwest Select Funds
have a December 31 fiscal year end. Information is presented for the twelve
month period ended May 31, 1998, which was the fiscal year end of all of the
Trust's portfolios.
TOTAL COMPENSATION FROM
TOTAL COMPENSATION THE TRUST AND NORWEST
FROM THE TRUST SELECT FUNDS
Mr. Brown $32,870 $33,000
Mr. Burkhardt $39,344 $39,500
Mr. Harris $32,870 $33,000
Mr. Leach $32,870 $33,000
Mr. Penny $32,870 $33,000
Mr. Willeke $32,870 $33,000
Neither the Trust nor Norwest Select Funds has adopted any form of retirement
plan covering Trustees or officers. For the twelve month period ended May 31,
1998 total expenses of the Trustees (other than Mr. Keffer) was $20,869 and
total expenses of the trustees of Norwest Select Funds was $77 .
As of October 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 the Trust and
their principal occupations during the past five years 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 56).
President , Forum Financial Group, LLC (mutual fund services company
holding company). Mr. Keffer is a Trustee/Director and/or officer of
various registered investment companies for which Forum Financial
Services, Inc. serves as manager, administrator and/or distributor.
His address is Two Portland Square, Portland, Maine 04101.
COSTAS AZARIADIS, Trustee (Age 55).
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.
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<PAGE>
JAMES C. CHENG, Trustee (Age 56).
President, Technology Marketing Associates (a marketing company for
small and medium size businesses in New England) since 1991. Prior
thereto, Mr. Cheng was President of Network Dynamics, Inc. (a software
development company). His address is 27 Temple Street, Belmont, MA
02718.
J. MICHAEL PARISH, Trustee (Age 55).
Partner at the law firm of Reid & Priest L.L.P. since 1995. From 1989
to 1995, he was a partner at Winthrop, Stimson, Putnam & Roberts. His
address is 40 West 57th Street, New York, New York 10019.
STACEY HONG, Treasurer (Age 32)
Director, Fund Accounting, Forum Financial Group, LLC, with which he
has been associated since April 1992. Prior thereto, Mr. Hong was a
Senior Accountant at Ernst & Young, LLP. His address is Two Portland
Square, Portland, Maine 04101.
THOMAS G. SHEEHAN, Vice President (Age 44).
Managing Director, Forum Financial Group, LLC with which he has been
associated since October 1993. Prior thereto, Mr. Sheehan was Special
Counsel to the Division of Investment Management of the SEC. Mr.
Sheehan also serves as an officer of other registered investment
companies for which the various Forum Financial Group of Companies
provides services. His address is Two Portland Square, Portland, Maine
04101.
DAVID I. GOLDSTEIN, Secretary (Age 37).
General Counsel, Forum Financial Group , LLC, with which he has been
associated since 1991. Prior thereto, Mr. Goldstein was associated
with the law firm of Kirkpatrick & Lockhart, LLP. Mr. Goldstein is
also an officer of various registered investment companies for which
Forum Financial Services, Inc. serves as manager, administrator and/or
distributor. His address is Two Portland Square, Portland, Maine
04101.
LESLIE K. KLENK, Secretary (Age 34)
Assistant Counsel, Forum Financial Group, LLC with which she has been
associated since April 1998. Prior thereto, Ms. Klenk was Vice
President and Associate General Counsel of Smith Barney Inc. Ms. Klenk
also serves as an officer of other registered investment companies for
which the various Forum Financial Group of Companies provides
services. Her address is Two Portland Square, Portland, Maine 04101.
PAMELA STUTCH, Assistant Secretary (Age 31)
Fund Administrator, Forum Financial Group, LLC with which she has been
associated since May 1998. Prior thereto, Ms. Stutch attended Temple
University School of Law and graduated in 1997. Ms. Stutch was also a
legal intern for the Maine Department of the Attorney General. Ms.
Stutch also serves as an officer of other registered investment
companies for which the various Forum Financial Group of Companies
provides services. Her address is Two Portland Square, Portland, Maine
04101.
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 Schroder Core is indicated by an asterisk. Messrs. Keffer and Sheehan,
officers of Schroder Core, currently serve as officers of the Trust.
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<PAGE>
OFFICERS AND TRUSTEES. The following information relates to the principal
occupations during the past five years of each Trustee and executive officer of
the Trust and shows the nature of any affiliation with Schroder Capital
Management, International, Inc. ("SCMI"). Except as noted, each of these
individuals currently serves in the same capacity for Schroder Capital Funds,
Schroder Capital Funds II and Schroder Series Trust, other registered investment
companies in the Schroder family of funds.
PETER E. GUERNSEY, (Age 75)
Trustee of the Trust; Insurance Consultant since August 1986; prior
thereto Senior Vice President, Marsh & McLennan, Inc., insurance
brokers. His address is c/o the Trust, Two Portland Square, Portland,
Maine
JOHN I. HOWELL, (Age 80)
Trustee of the Trust; Private Consultant since February 1987; Honorary
Director, American International Group, Inc.; Director, American
International Life Assurance Company of New York. His address is c/o
the Trust, Two Portland Square, Portland, Maine.
CLARENCE F. MICHALIS, (Age 75)
Trustee of the Trust; Chairman of the Board of Directors, Josiah Macy,
Jr. Foundation (charitable foundation). His address is c/o the Trust,
Two Portland Square, Portland, Maine.
HERMANN C. SCHWAB, (Age 77)
Chairman and Trustee of the Trust; retired since March, 1988; prior
thereto, consultant to SCMI since February 1, 1984. His address is c/o
the Trust, Two Portland Square, Portland, Maine.
HON. DAVID N. DINKINS, (Age 69)
Trustee of the Trust; Professor, Columbia University School of
International and Public Affairs; Director, American Stock Exchange,
Carver Federal Savings Bank, Transderm Laboratory Corporation, and The
Cosmetic Center, Inc.; formerly, Mayor, The City of New York. His
address is c/o the Trust, Two Portland Square, Portland, Maine.
PETER S. KNIGHT, (Age 46)
Trustee of the Trust; Partner, Wunder, Knight, Levine, Thelen & Forcey;
Director, Comsat Corp., Medicis Pharmaceutical Corp., and Whitman
Education Group Inc., Formerly, Campaign Manager, Clinton/Gore `96.
His address is c/o the Trust, Two Portland Square, Portland, Maine.
SHARON L. HAUGH*, (Age 51)
Trustee of the Trust; Chairman, Schroder Capital Management Inc.
("SCM"), Executive Vice President and Director, SCMI; Chairman and
Director, Schroder Advisors. Her address is 787 Seventh Avenue, New
York, New York.
MARK J. SMITH*, (Age 35)
President and Trustee of the Trust; Senior Vice President and Director
of SCMI since April 1990; Director and Senior Vice President, Schroder
Advisors. His address is 33 Gutter Lane, London, England.
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<PAGE>
MARK ASTLEY, (Age 33).
Vice President of the Trust; First Vice President of SCMI, prior
thereto, employed by various affiliates of SCMI in various positions
in the investment research and portfolio management areas since 1987.
His address is 787 Seventh Avenue, New York, New York.
ROBERT G. DAVY, (Age 36)
Vice President of the Trust; Director of SCMI and Schroder Capital
Management International Ltd. since 1994; First Vice President of SCMI
since July, 1992; prior thereto, employed by various affiliates of
SCMI in various positions in the investment research and portfolio
management areas since 1986. His address is 787 Seventh Avenue, New
York, New York.
MARGARET H. DOUGLAS-HAMILTON, (Age 55)
Vice President of the Trust; Secretary of SCM since July 1995; Senior
Vice President (since April 1997) and General Counsel of Schroders
U.S. Holdings Inc. since May 1987; prior thereto, partner of Sullivan
& Worcester, a law firm. Her address is 787 Seventh Avenue, New York,
New York.
RICHARD R. FOULKES, (Age 51)
Vice President of the Trust; Deputy Chairman of SCMI since October
1995; Director and Executive Vice President of Schroder Capital
Management International Ltd. since 1989. His address is 787 Seventh
Avenue, New York, New York.
FERGAL CASSIDY, (Age 28)
Treasurer of the Trust. Her address is 787 Seventh Avenue, New York,
New York.
JOHN Y. KEFFER, (Age 56)
Vice President of the Trust, President of FAS and other affiliated
entities including Forum Financial Services, Inc., Forum and, Forum
Advisors, Inc. His address is 787 Seventh Avenue, New York, New York.
JANE P. LUCAS, (Age 35)
Vice President of the Trust; Director and Senior Vice President SCMI;
Director of SCM since September 1995; Director of Schroder Advisors
since September 1996; Assistant Director Schroder Investment
Management Ltd. since June 1991. Her address is 787 Seventh Avenue,
New York, New York.
CATHERINE A. MAZZA, (Age 37)
Vice President of the Trust; President of Schroder Advisors since
1997; First Vice President of SCMI and SCM since 1996; prior thereto,
held various marketing positions at Alliance Capital, an investment
adviser, since July 1985. Her address is 787 Seventh Avenue, New York,
New York.
MICHAEL PERELSTEIN, (Age 41)
Vice President of the Trust; Director since May 1997 and Senior Vice
President of SCMI since January 1997; prior thereto, Managing Director
of MacKay - Shields Financial Corp. His address is 787 Seventh Avenue,
New York, New York.
47
<PAGE>
ALEXANDRA POE, (Age 37)
Secretary and Vice President of the Trust; Vice President of SCMI
since August 1996; Fund Counsel and Senior Vice President of Schroder
Advisors since August 1996; Secretary of Schroder Advisors; 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. Her address is 787 Seventh
Avenue, New York, New York.
NICHOLAS ROSSI, (Age 35)
Assistant Secretary of the Trust, Associate of SCMI since October 1997
and Assistant Vice President Schroder Advisors since March 1998; prior
thereto Mutual Fund Specialist, Willkie Farr & Gallagher since May
1996; prior thereto, Fund Administrator with Furman Selz LLC since
1992. His address is 787 Seventh Avenue, New York, New York.
THOMAS G. SHEEHAN, (Age 44)
Assistant Treasurer and Assistant Secretary of the Trust; Relationship
Manager, Forum Administrative Services, LLC since 1993; prior thereto,
Special Counsel, U.S. Securities and Exchange Commission, Division of
Investment Management, Washington, D.C. His address is Two Portland
Square, Portland, Maine.
FARIBA TALEBI, (Age 36)
Vice President of the Trust; Group Vice President of SCMI since April
1993, employed in various positions in the investment research and
portfolio management areas since 1987; Director of SCM since April
1997. His address is 787 Seventh Avenue, New York, New York.
JOHN A. TROIANO, (Age 38)
Vice President of the Trust; Director of SCM since April 1997; Chief
Executive Officer, since July 1, 1997, of SCMI and Managing Director
and Senior Vice President of SCMI since October 1995; prior thereto,
employed by various affiliates of SCMI in various positions in the
investment research and portfolio management areas since 1981. His
address is 787 Seventh Avenue, New York, New York.
CHERYL O. TUMLIN, (Age 32)
Assistant Treasurer and Assistant Secretary of the Trust; Assistant
Counsel, Forum Administrative Services, LLC since July 1996, prior
thereto, attorney with the U.S. Securities and Exchange Commission,
Division of Market Regulation since 1995; prior thereto, attorney with
Robinson Silverman Pearce Aronsohn & Berman since 1991. Her address is
787 Seventh Avenue, New York, New York -
IRA L. UNSCHULD, (Age 31)
Vice President of the Trust; Vice President of SCMI since April, 1993
and an Associate from July, 1990 to April, 1993. His address is 787
Seventh Avenue, New York, New York.
* Interested Trustee of the Trust within the meaning of the 1940 Act.
48
<PAGE>
INVESTMENT ADVISORY SERVICES
GENERAL. Table 1 in Appendix B shows, with respect to each Fund that invests
directly in portfolio securities, the dollar amount of fees payable by the Fund
to Norwest under its Investment Advisory Agreement. The table shows, with
respect to each Fund that invests in a Core and Gateway Structure, the aggregate
dollar amount of (i) the Fund's share of the aggregate investment advisory fees
payable by the Portfolio(s) in which the Fund invests to Norwest and/or
Schroder, as the case may be, under the Investment Advisory Agreement(s) of the
Portfolio(s) and (ii) the asset allocation fees payable by the Fund to Norwest,
if any, if the Fund invests in multiple Portfolios. The table also shows the
amount of the fee that was waived by Norwest and/or Schroder, if any, and the
actual fee received by Norwest and/or Schroder. The data is for the past three
fiscal years or for a shorter period if the Fund has been in operation for a
shorter period.
The advisory fee for each Fund investing directly in portfolio securities is
disclosed in the Fund's prospectuses. If a Fund invests in a Core and Gateway
Structure, the asset allocation fee payable to Norwest, if any, and the
aggregate of the advisory fees payable with respect to the Fund's assets by the
Portfolio or Portfolios in which the Fund invests are also 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.
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. For each Fund investing directly in portfolio
securities, Norwest makes investment decisions for the Fund and continuously
reviews, supervises and administers the Fund's investment program or oversees
the investment decisions of the Fund's Subadviser, as applicable. For Funds that
invest in a Core and Gateway Structure, Norwest provides investment advisory
services to the Funds indirectly through its investment advisory services to the
Portfolios other than those for which Schroder serves as investment adviser. In
this capacity, Norwest makes investment decisions for those Portfolios and
continuously reviews, supervises and administers those Portfolios' investment
programs or oversees the investment decisions of the Subadvisers, as applicable.
For each Fund investing in a Core and Gateway Structure pursuant which the Fund
invests in multiple Portfolios and Norwest allocates the Fund's assets among the
Portfolios, Norwest makes investment decisions regarding the asset allocations
of the Fund and continuously reviews, supervises and administers the Fund's
asset allocations. Norwest provides these investment advisory services to the
Funds and the Portfolios subject to the supervision of the Board or the Core
Board, as appropriate.
Norwest provides investment advisory services to the Funds under the Investment
Advisory Agreement between the Trust and Norwest. Norwest provides investment
advisory services to the Portfolios under an Investment Advisory Agreement
between Core Trust and Norwest. The Investment Advisory Agreement between
Norwest and Core Trust is identical to the Investment Advisory Agreement between
Norwest and the Trust, except for the fees payable thereunder and certain
immaterial matters. Accordingly, the description of the Investment Advisory
Agreement set forth below applies equally to the Investment Advisory Agreement
between Norwest and Core Trust.
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. Under the Investment Advisory Agreement,
Norwest may delegate its responsibilities to any 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
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.
49
<PAGE>
The Investment Advisory Agreement is terminable without penalty with respect to
a Fund on 60 days' written notice: (1) by the Trust to Norwest, if the Board
determines to terminate the Investment Advisory Agreement with respect to the
Fund or a majority of the outstanding voting securities of the Fund vote to
terminate the Investment Advisory Agreement with respect to the Fund or (2) by
the Adviser to the Trust. The Investment Advisory Agreement terminates if
assigned. The Investment Advisory Agreement also provides 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 Agreement shall be deemed to protect, or
purport to protect, the Adviser against liability by reason of willful
misfeasance, bad faith or gross negligence in the performance of Norwest's
duties or by reason of reckless disregard of its obligations and duties under
the Investment Advisory Agreement. The Investment Advisory Agreement provides
that Norwest may render services to others.
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. Norwest Corporation currently has assets in excess of $83 billion. Norwest
and its affiliates currently manage assets with a value of approximately $52.9
billion. Norwest Corporation and Wells Fargo & Company, the parent company of
Wells Fargo Bank, have signed a definitive agreement to merge. The merger is
subject to certain regulatory approvals and must be approved by shareholders of
both holding companies. The merger is expected to close in the fourth quarter of
1998.
"DORMANT" INVESTMENT ADVISORY ARRANGEMENTS. Under its Investment Advisory
Agreement with the Trust, Norwest has been retained as a "dormant" or "back-up"
investment adviser for the Funds currently investing in a Core and Gateway
Structure. In this capacity, Norwest does not receive any compensation from the
Funds as long as the Funds invest entirely in Portfolios. If a Fund were to
redeem assets from a Portfolio and invest them directly, Norwest would receive
an investment advisory fee from the Fund for the management of those assets at
the following rates:
<TABLE>
<S> <C> <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>
50
<PAGE>
SCHRODER CAPITAL MANAGEMENT INTERNATIONAL INC. 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 Portfolios' 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 an Advisory
Agreement between Schroder Core and Schroder, Schroder acts as investment
adviser to Schroder U.S. Smaller Companies Portfolio and Schroder EM Core
Portfolio, and is required to furnish at its expense all services, facilities
and personnel necessary in connection with managing those Portfolios'
investments and effecting portfolio transactions for those Portfolios. 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 that Portfolio's investments and effecting portfolio transactions for
that Portfolio. These Advisory Agreements will continue in effect with respect
to a Portfolio only if such continuance is specifically approved at least
annually: (1) by the Schroder Core Board or the Core Trust Board, as applicable,
or by vote of a majority of the outstanding voting interests of the Portfolio
and, in either case, (2) by a majority of the trustees of Schroder Core or Core
Trust, as applicable, who are not parties to the Advisory Agreement or
interested persons of any such party (other than as trustees of the Schroder
Core or Core Trust, as applicable), 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 Advisory Agreement is not approved
as to a Portfolio, Schroder may continue to render to that Portfolio the
services described herein in the manner and to the extent permitted by the 1940
Act and the rules and regulations thereunder.
The Advisory Agreements between Schroder and Core Trust and Schroder and
Schroder Core are substantially identical to the Investment Advisory Agreement,
except for the parties, the fees payable thereunder and certain immaterial
matters.
"DORMANT" INVESTMENT SUBADVISORY ARRANGEMENTS. Norwest and the Trust have
entered into an Investment Subadvisory Agreement with Schroder on behalf of each
Fund that invests all or a portion of its assets in Schroder U.S. Smaller
Companies Portfolio, International Portfolio or Schroder EM Core Portfolio. The
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 make investment
decisions directly for the Fund and would continuously review, supervise and
administer the Fund's investment program with respect to that portion, if any,
of the Fund's portfolio that Norwest had so delegated. Schroder would furnish at
its own expense all services, facilities and personnel necessary in connection
with managing of the Fund's investments and effecting portfolio transactions for
the Fund, to the extent of Norwest's delegation.
The Investment Subadvisory Agreement will continue in effect only if such
continuance is specifically approved at least annually: (1) by the Board or by
vote of a majority of the outstanding voting securities of the applicable Fund,
and, in either case, (2) by a majority of the Trust's trustees who are not
parties to the Investment Subadvisory Agreement or interested persons of any
such party (other than as trustees of the Trust), at a meeting called for the
purpose of voting on the Investment Subadvisory Agreement; provided further,
however, that if the Investment Subadvisory Agreement or the continuation of the
Investment Subadvisory Agreement is not approved as to a Fund, Schroder may
continue to render to that Fund the services described herein in the manner and
to the extent permitted by the 1940 Act and the rules and regulations
thereunder.
The Investment Subadvisory Agreement is terminable without penalty with respect
to a Fund on 60 days' written notice when authorized either by majority vote of
the Fund's shareholders or by the Board, or by Schroder on 60 days written
notice to the Trust, and will automatically terminate in the event of its
assignment. The Investment Subadvisory Agreement also 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
51
<PAGE>
of willful misfeasance, bad faith or gross negligence in the performance of
Schroder's duties or by reason of reckless disregard of its obligations and
duties under the Investment Subadvisory Agreement. The Investment Subadvisory
Agreement provides that Schroder may render services to others.
The Funds do not currently pay any fees to Schroder under the Investment
Subadvisory Agreement because the Funds currently invest all of their assets in
Portfolios.
SUBADVISERS. As set forth in the Prospectuses, Norwest and Core Trust have
retained the services of Crestone, Galliard, Peregrine and Smith pursuant to
Investment Subadvisory Agreements to assist Norwest in carrying out its
obligations with respect to certain Portfolios. Norwest pays a fee to each such
Subadviser for the investment subadvisory services provided to each Portfolio by
that Subadviser. These fees do not increase the fees paid by the interestholders
of the Portfolios. 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 matters such as the nature and extent of the services (other than
investment selection and order placement activities) provided by the Subadviser,
the cost and complexity of providing services, the investment record of the
Subadviser in managing the Portfolio and the nature and magnitude of the
expenses incurred by the Subadviser in managing the Portfolio's assets and by
Norwest in overseeing the Portfolio.
Generally, Norwest has entered into a dormant Investment Subadvisory Agreement
with each Subadviser on behalf of each Fund that invests all or a portion of its
assets in a Portfolio subadvised by that Subadviser. This is not the case only
with respect to Galliard and Total Return Bond Fund and Smith and Strategic
Income Fund, Moderate Balanced Fund, Growth Balanced Fund, Diversified Equity
Fund and Growth Equity Fund. With respect to each Subadviser, the terms of the
Investment Subadvisory Agreement between Core Trust, Norwest and the Subadviser
and the dormant Investment Subadvisory Agreement between the Trust, Norwest and
the Subadviser are identical, except with respect to the fees payable (no fee is
payable under the investment subadvisory agreements with respect to a Fund to
the extent that the Fund is invested in an investment company) and certain
immaterial matters.
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 fundamental investment objectives and policies, authorizing Subadvisers to
engage in certain investment techniques, and recommending to the Core Board
whether investment subadvisory agreements should be renewed, modified or
terminated. Norwest also may from time to time recommend that the Core Board
replace one or more Subadvisers or appoint additional Subadvisers, depending on
Norwest's assessment of what combination of Subadvisers it believes will
optimize each Portfolio's chances of achieving its investment objectives.
CRESTONE CAPITAL MANAGEMENT, INC. To assist Norwest in carrying out its
obligations with respect to Small Company Stock Portfolio, Norwest and Core
Trust have entered into an Investment Subadvisory Agreement with Crestone,
located at 7720 East Belleview Avenue, Suite 220, Englewood, Colorado 80111.
Strategic Income Fund, Moderate Balanced Fund, Growth Balanced Fund, Aggressive
Balanced-Equity Fund, Diversified Equity Fund, Growth Equity Fund, Small Company
Stock Fund and Diversified Small Cap Fund each invest all or a portion of their
assets in 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 Portfolio and continuously reviews, supervises and administers the
Portfolio's investment program with respect to that portion, if any, of the
Portfolio's investment portfolio that Norwest believes should be invested using
Crestone as a subadviser. 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). Currently, Crestone manages all of the assets
of Small Company Stock Portfolio and has done so since the 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. The fee Norwest pays does not affect
the total fees paid by the Portfolio to Norwest.
52
<PAGE>
The Investment Subadvisory Agreement will continue in effect with respect to the
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 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 Crestone may
continue to render to the Portfolio the services described in the Investment
Subadvisory Agreement in the manner and to the extent permitted by the 1940 Act
and the rules and regulations thereunder.
The Investment Subadvisory Agreement is terminable without penalty with respect
to the Portfolio on 60 days' written notice when authorized either by majority
vote of the Portfolio's shareholders or by the Core Trust Board, or by Crestone
on 60 days' written notice to Core Trust, and will automatically terminate in
the event of its assignment. The Investment Subadvisory Agreement also provides
that, with respect to the 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.
GALLIARD CAPITAL MANAGEMENT, INC. To assist Norwest in carrying out its
obligations with respect to Stable Income Portfolio, Strategic Value Bond
Portfolio and Managed Fixed Income Portfolio, Norwest has entered into an
Investment Subadvisory Agreement with Galliard, located at 800 LaSalle Avenue,
Suite 2060, Minneapolis, Minnesota 55479. Stable Income Fund, Diversified Bond
Fund, Total Return Bond Fund, Strategic Income Fund, Moderate Balanced Fund,
Growth Balanced Fund and Aggressive Balanced-Equity Fund each invest all or a
portion of their assets in at least one of those Portfolios. Galliard is
registered with the SEC as an investment adviser and is an investment advisory
subsidiary of Norwest Bank. Galliard is required to furnish at its own expense
all services, facilities and personnel necessary in connection with managing
each Portfolio's investments and effecting portfolio transactions for each
Portfolio (to the extent of Norwest's delegation). Pursuant to the Investment
Subadvisory Agreement, Galliard makes investment decisions for each of the
Portfolios and continuously reviews, supervises and administers each Portfolio's
investment program with respect to that portion, if any, of the Portfolio's
investment portfolio that Norwest believes should be invested using Galliard as
a subadviser. Currently, Galliard manages all the assets of each Portfolio and
has done so since each Portfolio's inception. Norwest supervises the performance
of Galliard including its adherence to the Portfolios' investment objectives and
policies and pays Galliard a fee for its investment management services. The fee
Norwest pays Galliard does not affect the total fees paid by the Portfolios to
Norwest.
The Investment Subadvisory Agreement will continue in effect with respect to a
Portfolio only if such continuance is specifically approved at least annually:
(1) by the Core Trust Board or by vote of a majority of the outstanding voting
securities of the Portfolios, and, in either case; (2) by a majority of the Core
Trust's trustees who are not parties to the Investment Subadvisory Agreement or
interested persons of any such party (other than as trustees of the Core Trust),
at a meeting called for the purpose of voting on the Investment Subadvisory
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 Portfolio the services described in the
Investment Subadvisory Agreement in the manner and to the extent permitted by
the 1940 Act and the rules and regulations thereunder.
The Investment Subadvisory Agreement is terminable without penalty with respect
to a Portfolio on 60 days' written notice when authorized either by majority
vote of the Portfolio's shareholders or by the Core Trust Board, or by 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 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
53
<PAGE>
disregard of its obligations and duties under the Investment Subadvisory
Agreement. The Investment Subadvisory Agreement provides that Galliard may
render services to others.
PEREGRINE CAPITAL MANAGEMENT, INC. To assist Norwest in carrying out its
obligations with respect to Positive Bond Portfolio, Large Company Growth
Portfolio, Small Company Growth Portfolio and Small Company Value Portfolio,
Norwest has entered into an Investment Subadvisory Agreement with Peregrine,
located at 800 LaSalle Avenue, Suite 1850, Minneapolis, Minnesota 55479.
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 each invest all or a portion of their assets in at least one
of those Portfolios. Peregrine is registered with the SEC as an investment
adviser and is an investment advisory subsidiary of Norwest Bank. Peregrine is
required to furnish at its own expense all services, facilities and personnel
necessary in connection with managing each Portfolio's investments and effecting
portfolio transactions for each Portfolio (to the extent of Norwest's
delegation). Pursuant to the Investment Subadvisory Agreement, Peregrine makes
investment decisions for each of the Portfolios and continuously reviews,
supervises and administers each Portfolio's investment program with respect to
that portion, if any, of the Portfolio's investment portfolio that Norwest
believes should be invested using Peregrine as a subadviser. Currently,
Peregrine manages all the assets of each Portfolio and has done so since each
Portfolio's inception. Norwest supervises the performance of Peregrine including
its adherence to the Portfolios' investment objectives and policies and pays
Peregrine a fee for its investment management services. The fee Norwest pays
Peregrine does not affect the total fees paid by the Portfolios to Norwest.
The Investment Subadvisory Agreement will continue in effect with respect to a
Portfolio only if such continuance is specifically approved at least annually:
(1) by the Core Trust Board or by vote of a majority of the outstanding voting
securities of the 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 each Portfolio the services described in the
Investment Subadvisory Agreement in the manner and to the extent permitted by
the 1940 Act and the rules and regulations thereunder.
The Investment Subadvisory Agreement is terminable without penalty with respect
to a Portfolio on 60 days' written notice when authorized either by majority
vote of the Portfolio's shareholders or by the Core Trust Board, or by 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 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.
54
<PAGE>
SMITH ASSET MANAGEMENT GROUP, L.P. To assist Norwest in carrying out its
obligations with respect to Disciplined Growth Portfolio and Small Cap Value
Portfolio, Norwest has entered into an Investment Subadvisory Agreement with
Smith, located at 500 Crescent Court, Suite 250, Dallas, Texas. Strategic Income
Fund, Moderate Balanced Fund, Growth Balanced Fund, Aggressive Balanced-Equity
Fund, Diversified Equity Fund, Growth Equity Fund and Diversified Small Cap Fund
each invest all or a portion of their assets in at least one of those
Portfolios. Smith is registered with the SEC as an investment adviser. Smith is
required to furnish at its own expense all services, facilities and personnel
necessary in connection with managing each Portfolio's investments and effecting
portfolio transactions for each Portfolio (to the extent of Norwest's
delegation). Pursuant to the Investment Subadvisory Agreement, Smith makes
investment decisions for each of the Portfolios and continuously reviews,
supervises and administers each Portfolio's investment program with respect to
that portion, if any, of the Portfolio's investment portfolio that Norwest
believes should be invested using Smith as a subadviser. Currently, Smith
manages all the assets of each Portfolio and has done so since each Portfolio's
inception. Norwest supervises the performance of Smith including its adherence
to the Portfolios' investment objectives and policies and pays Smith a fee for
its investment management services. The fee Norwest pays Smith does not affect
the total fees paid by the Portfolios to Norwest.
The Investment Subadvisory Agreement will continue in effect with respect to a
Portfolio only if such continuance is specifically approved at least annually:
(1) by the Core Trust Board or by vote of a majority of the outstanding voting
securities of the 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 each Portfolio the services described in the
Investment Subadvisory Agreement in the manner and to the extent permitted by
the 1940 Act and the rules and regulations thereunder.
The Investment Subadvisory Agreement is terminable without penalty with respect
to a Portfolio on 60 days' written notice when authorized either by majority
vote of the Portfolio's shareholders or by the Core Trust Board, or by Smith on
60 days written notice to the Core Trust, and will automatically terminate in
the event of its assignment. The Investment Subadvisory Agreement also provides
that, with respect to each Portfolio, neither Smith nor its personnel shall be
liable for any mistake of judgment or in any event whatsoever, except for lack
of good faith, provided that nothing shall be deemed to protect Smith against
liability by reason of willful misfeasance, bad faith or gross negligence in the
performance of Smith's duties or by reason of reckless disregard of its
obligations and duties under the Investment Subadvisory Agreement. The
Investment Subadvisory Agreement provides that Smith may render services to
others.
MANAGEMENT AND ADMINISTRATIVE SERVICES
FORUM AND FAS MANAGEMENT AND ADMINISTRATIVE SERVICES. 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)
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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.
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
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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 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.
As of August 31, 1998, Forum and FAS provided management and administrative
services to registered investment companies and collective investment funds with
assets of approximately $38 billion.
Table 2 in Appendix B shows the dollar amount of fees payable to Forum and FAS
for management and administrative services with respect to each Fund (or class
thereof for those periods when multiple classes were outstanding), the amount of
fees that were waived by Forum and FAS, if any, and the actual fees received by
Forum and FAS. The data is for the past three fiscal years or shorter period if
the Fund has been in operation for a shorter period.
PORTFOLIOS OF CORE TRUST. FAS manages all aspects of Core Trust's operations
with respect to the Portfolios except those which are the responsibility of
Norwest or Schroder. With respect to each Portfolio, FAS has entered into an
Administration 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 Administration Agreement. Under the
Administration Agreement, FAS performs similar services for each Portfolio as it
and Forum perform for the Funds under the Management Agreement and
Administration Agreement, to the extent the services are applicable to the
Portfolios and their structure.
The Administration Agreement provides that FAS shall not be liable to Core Trust
or any of Core Trust's interestholders for any action or inaction of FAS
relating to any event whatsoever in the absence of bad faith, willful
misfeasance or gross negligence in the performance of FAS' duties or obligations
under the Agreement or by reason of FAS' reckless disregard of its duties and
obligations under this Agreement.
The Administration Agreement may be terminated with respect to a Portfolio at
anytime, without the payment of any penalty (i) by the Core Board on 60 days'
written notice to FAS or (ii) by FAS on 60 days' written notice to Core Trust.
For its services FAS receives a fee with respect to each Portfolio of Core Trust
at an annual rate of 0.05% of the Portfolio's average daily net assets (0.15% in
the case of International Portfolio).
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NORWEST ADMINISTRATIVE SERVICES. Under an Administrative Services Agreement
between the Trust and Norwest Bank 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 Bank gathers performance and
other data from Schroder as the adviser of Schroder U.S. Smaller Companies
Portfolio, International Portfolio and Schroder EM Core Portfolio and from other
sources, formats the data and prepares reports to the Funds' shareholders and
the Trustees. Norwest Bank 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 Bank 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 Bank under the
Administrative Services Agreement unless 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 Administrative Services Agreement or interested persons of any
such party.
The Administrative Services Agreement provides that neither Norwest Bank 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 Bank 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
Administrative Services Agreement, the amount of the fee that was waived, if
any, and the amount received by Norwest Bank for the past three fiscal years of
the Funds.
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 and Schroder EM Core Portfolio, including
coordination of the services performed by the Portfolios' 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.
The Administrative Services Agreement is terminable with respect to the
Portfolio without penalty, at any time, by vote of a majority of the trustees of
Schroder Core who are not "interested persons" of Schroder Core and who have no
direct or indirect financial interest in the operation of the Administrative
Services Agreement, upon not more than 60 days' written notice to Schroder
Advisors or by vote of the holders of a majority of the shares of the Portfolio,
or, upon 60 days' notice, by Schroder Advisors. The Administrative Services
Agreement will terminate automatically in the event of its assignment.
On behalf of the Portfolios, Schroder Core has entered into a Sub-Administration
Agreement with FAS. Pursuant to the Sub-Administration Agreement, FAS assists
Schroder Advisors with certain of its responsibilities under the Administrative
Services Agreement, including shareholder reporting and regulatory compliance.
The Sub-Administration Agreement is terminable with respect to the Portfolio
without penalty, at any time, by the board of trustees of Schroder Core upon 60
days' written notice to Forum or by Forum upon 60 days' written notice to the
Portfolio.
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For its services, Schroder Advisors receives no fee from Schroder U.S. Smaller
Companies Portfolio and 0.10% annually of average daily net assets from Schroder
EM Core Portfolio. FAS, for its services, receives 0.075% annually of average
daily net assets from each 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 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. The Funds
have also adopted the distribution plans described below.
A SHARES DISTRIBUTION PLAN. The Trust, on behalf of Growth Balanced Fund, Large
Company Growth Fund and Diversified Small Cap Fund, has adopted a distribution
plan pursuant to Rule 12b-1 under the 1940 Act (the "A Shares Plan") providing
for distribution payments with respect to A Shares. Each of the Funds
compensates Forum for its distribution activities with respect to A Shares by
making distribution payments on A Shares to Forum at an annual rate of up to
0.10% per annum of the average daily net assets of the Fund attributable to A
Shares (the "distribution services fee"). In consideration of the payment of the
distribution services fee, Forum provides the Funds with distribution-related
services that are primarily intended to result in the sale of A Shares,
including, but not limited to, compensation of employees of Forum, compensation
and expenses, including overhead and telephone and other communication expenses,
of Forum and other broker-dealers, banks and other financial intermediaries that
engage in or support the distribution of A Shares, the preparation, printing and
distribution of prospectuses, statements of additional information, sales
literature and advertising materials relating to the A Shares, and such other
promotional activities in such amounts Forum deems necessary or appropriate. The
amount of distribution services fees is not related directly to the amount of
expenses incurred by Forum in connection with providing distribution services,
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which expenses may be greater or less than those fees and charges. The Fund will
not be obligated to reimburse Forum for those expenses.
B SHARES AND C SHARES DISTRIBUTION PLANS. The Trust, on behalf of Funds offering
B Shares and C Shares, has adopted distribution plans pursuant to Rule 12b-1
under the 1940 Act (each, a "Plan") providing for distribution payments with
respect to B Shares and C Shares. Each of the Funds compensates Forum for its
distribution activities with respect to B Shares by paying a distribution
services fee on B Shares to Forum at an annual rate of up to 0.75% of the
average daily net assets of the Fund attributable to the B Shares. Each Fund
offering C Shares compensates Forum for its distribution activities with respect
to C Shares by paying a distribution services fee to Forum of up to 0.75% of the
average daily net assets of the Fund attributable to the C Shares. 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.
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 and C Shares. The
combined contingent deferred sales charge and distribution services fee on B
Shares and C Shares is 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 or C Shares, such as the payment of
compensation to broker-dealers selling B Shares or C Shares. Forum may spend the
distribution services fees it receives with respect to B Shares or C Shares as
it deems appropriate on any activities primarily intended to result in the sale
of B Shares or C Shares, respectively.
Under the Plans, a Fund will make distribution services fee payments to Forum
only for periods during which there are outstanding uncovered distribution
charges attributable to the appropriate class of that Fund. Uncovered
distribution charges for a class 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 $18,785; $112,707; $90,244; $38,700;
$152,328; $99,195; $273,966; $1,561,075; $115,392; $2,350,252; $465,310;
$111,593; $229,014 and $57,510, respectively, or approximately 1.04%, 1.36%,
1.88%, 1.47%, 1.38%, 1.09%, 1.66%, 2.32%, 1.28%, 2.89%, 2.80%, 1.93%, 3.73%, and
2.56% 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 B Shares or C Shares of a Fund are
not related directly to the amount of expenses incurred by Forum in connection
with providing distribution services to the B Shares or C Shares and may be
higher or lower than those expenses. Forum may be considered to have realized a
profit under a Plan if, at any time, the aggregate amounts of all distribution
services fees and contingent deferred sales charge payments previously made to
Forum with respect to B Shares or C Shares exceed the total expenses incurred by
Forum in distributing B Shares or C 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 a
Plan in the future.
In the event that a Plan is terminated or not continued with respect to B Shares
or C Shares of a Fund, the Fund may, under certain circumstances, continue to
pay distribution services fees to Forum (but only with respect to sales of the
class 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 Plans attributable
to that Fund. In approving the Plans, the Board determined that there was a
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reasonable likelihood that the Plans would benefit each Fund and its B Shares
shareholders and its C Shares shareholders.
Periods with a high level of sales of B Shares or C 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 with
respect to B Shares or C Shares. Conversely, periods with a low level of sales
of B Shares or C 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 with respect to B Shares or C Shares. A
high level of sales of B Shares or C 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 or C Shares during any fiscal
year, would cause a large portion of the distribution services fees attributable
to a sale of the B Shares or C 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 applicable Plan.
Each Plan provides that all written agreements relating to the Plan must be in a
form satisfactory to the Board. In addition, the Plans require 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 Plans
and identifying the distribution activities for which those expenditures were
made.
Each 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. Each 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 Plans may be terminated at any time by
a vote of the Board or by the shareholders of the respective classes.
The Plans are "semi-enhanced" in that under the circumstances described below,
payments to Forum under a Plan continue while there are uncovered distribution
charges even though the Plan has been terminated. With respect to each Plan,
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. Each 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 or C 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 or C Shares.
In the event of a termination of the B Shares 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 the event of a termination of the C Shares Plan that
does not satisfy clauses (2), (3) and (4) of the definition of a Complete
Termination above, the Funds would continue to pay distribution fees for no more
than four years.
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In addition, pursuant to the B Shares Plan, each of Stable Income Fund, Income
Equity Fund and Intermediate Government Income Fund and, pursuant to the C
Shares Plan, each Fund offering C Shares may, subject to approval by the Rule
12b-1 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 B Shares 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 fees assessed under the Plans are accrued daily and paid monthly and will
cause a Fund's B Shares or C 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 B Shares of a Fund, the Fund's B
Shares 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,
1996, 1997 and 1998. With respect to each Fund, Forum has paid brokers that sold
B Shares in amounts greater than the distribution fees received by Forum with
respect to that Fund. The data is for the past three fiscal years or shorter
period if the Fund has been in operation for a shorter period.
Table 4 in Appendix B shows the dollar amount of sales charges payable to Forum
with respect to sales of A Shares (or of the respective Funds prior to the
offering of multiple classes of shares) and the amount of sales charge retained
by Forum and not reallowed to other persons. The data is for the past three
fiscal years or shorter period if the Fund has been in operation for a shorter
period.
TRANSFER AGENT
Norwest Bank, Sixth Street and Marquette, Minneapolis, Minnesota 55479, serves
as transfer agent and dividend disbursing agent for the Trust pursuant to a
Transfer Agency Agreement. 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 sell Fund shares. 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.
The Transfer Agency Agreement will continue in effect only if such continuance
is specifically approved at least annually by the Board or by a vote of the
shareholders of the Trust and in either case by a majority of the Trustees who
are not parties to the Transfer Agency Agreement or interested persons of any
such party, at a meeting called for the purpose of voting on the Transfer Agency
Agreement.
The responsibilities of the Transfer Agent include: (1) answering customer
inquiries regarding account status and history, the manner in which purchases
and redemptions of shares of the Fund may be effected and certain other matters
pertaining to the Fund; (2) assisting shareholders in initiating and changing
account designations and addresses; (3) providing necessary personnel and
facilities to establish and maintain shareholder accounts and records; (4)
assisting in processing purchase and redemption transactions and receiving wired
funds; (5) transmitting and receiving funds in connection with customer orders
to purchase or redeem shares; (6) verifying shareholder signatures in connection
with changes in the registration of shareholder accounts; (7) furnishing
periodic statements and confirmations of purchases and redemptions; (8)
transmitting proxy statements, annual reports, prospectuses and other
communications from the Trust to its shareholders; (9) receiving, tabulating and
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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
(0.10% in the case of Municipal Money Market Fund - Institutional Shares and
Ready Cash Investment Fund Investor Shares and Institutional Shares).
CUSTODIAN
Norwest Bank, Sixth Street and Marquette, Minneapolis, Minnesota 55479, serves
as each Fund's and each 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 Portfolio at an annual rate of 0.02% of the first $100
million of the Fund's or Portfolio's average daily net assets, 0.015% of the
next $100 million of the Fund's or Portfolio's average daily net assets and
0.01% of the Fund's or Portfolio's remaining average daily net assets. Norwest
Bank assesses certain administration, holding and transaction fees in connection
with its custodial services. No fee is directly payable by a Fund to the extent
the Fund is invested in a Portfolio in accordance with Section 12(d)(1)(E) of
the 1940 Act. With respect to International Portfolio, Norwest Bank receives a
fee at an annual rate of 0.075% of the Portfolio's average daily net assets. The
Chase Manhattan Bank, N.A. serves as custodian of Schroder U.S. Smaller
Companies Portfolio and Schroder EM Core Portfolio and is paid a fee for its
services.
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.
Each Fund invested in one or more Portfolios incurs its proportionate share of
the custodial fees of the Portfolio(s) in which it invests.
PORTFOLIO ACCOUNTING
Forum Accounting, an affiliate of Forum, performs portfolio accounting services
for each Fund pursuant to a Fund Accounting Agreement with the Trust. The Fund
Accounting Agreement will continue in effect only if such continuance is
specifically approved at least annually by the Board or by a vote of the
shareholders of the Trust and in either case by a majority of the Trustees who
are not parties to the Fund Accounting Agreement or interested persons of any
such party, at a meeting called for the purpose of voting on the Fund Accounting
Agreement.
Under the Fund Accounting Agreement, Forum Accounting prepares and maintains
books and records of each Fund on behalf of the Trust that are required to be
maintained under the 1940 Act, calculates the net asset value per share of each
Fund (and class thereof) and dividends and capital gain distributions and
prepares periodic reports to shareholders and the SEC. For its services, Forum
Accounting receives from the Trust with respect to each Fund (other than a Fund
investing in a Core and Gateway Structure) 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.
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Forum Accounting receives from the Trust with respect to each Fund investing in
a Core and Gateway Structure 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 Fund investing in a Core and
Gateway Structure 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 Fund
investing in a Core and Gateway Structure 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 Portfolios and, in addition,
acts as the 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 October 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 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
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.
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The expenses of each Fund that invest in one or more Portfolios include the
Fund's pro rata share of the expenses of the Portfolio or Portfolios in which
the Fund invests.
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.
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8. PORTFOLIO TRANSACTIONS
The following discussion of portfolio transactions, while referring to the
Funds, relates equally to the Portfolios.
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 its 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 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
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standards. The Core Trust and Schroder Core Boards have adopted similar policies
with respect to the Portfolios.
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 N/A N/A N/
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 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 Portfolio: (1) to the Fund or Portfolio or (2) to other persons on
behalf of the Fund or Portfolio for services provided to the Fund or Portfolio
for which it would be obligated to pay.
In addition, the Advisers may give consideration to research services furnished
by brokers to the Advisers for their use and may cause the Funds and Portfolios
to pay these brokers a higher amount of commission than may be charged by other
brokers. Such research and analysis is of the types described in Section
28(e)(3) of the Securities Exchange Act of 1934, as amended, and is designed to
augment the 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 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 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
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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.
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
Morgan Stanley Dean Witter, Discover & Co. $124,627
Charles Schwab Corp. 63,253
Bear Stearns & Co., Inc. 56,603
CS First Boston, Inc. 25,000
Donaldson, Lufkin & Jenrette, Inc. 17,211
Amresco, Inc. 10,729
Paine Webber Group, Inc. 4,935
Lehman Brothers Holding, Inc. 4,797
HSBC Holdings PLC 4,222
Merrill Lynch & Co., Inc. 3,257
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 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.
9. 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
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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 next 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. These financial institutions may charge their
customers a fee for their services and are responsible for promptly transmitting
purchase, redemption and other requests to the Funds.
If you purchase shares through a financial institution, you will be subject to
the financial institution'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 financial institution, 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
financial institutions may also enter purchase orders with payment to follow.
You may not be eligible for certain shareholder services when you purchase
shares through a financial institution. Contact your financial institution for
further information. If you hold shares through a financial institution, the
Funds may confirm purchases and redemptions to the financial institution, which
will provide you with confirmations and periodic statements. The Funds are not
responsible for the failure of any financial institution 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. The Trust 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.
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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.
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 WAIVERS OF SALES CHARGES. The Trust does not assess sales
charges 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;
* 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; or
* 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.
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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 financial institution
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.
INVESTORS IN STAGECOACH FUNDS. You will not have to pay a sales charge on a
purchase of A Shares if you have redeemed A Shares of a Stagecoach Fund (series
of Stagecoach Funds, Inc. or Stagecoach Trust) 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,
as defined in the Prospectus) 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 a Fund other than the
Fund you wish to purchase 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 (an "SOI"). A SOI 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 an SOI, 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 SOI.
The SOI 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 each Fund 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, 1998. As of October 1, 1998, the maximum sales charges were
5.5% for each Equity Fund and Growth Balanced 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).
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<TABLE>
<S> <C> <C>
NET ASSET OFFERING
VALUE PER SHARE PRICE
--------------- -----
STABLE INCOME FUND $10.31 $10.72
INTERMEDIATE GOVERNMENT INCOME FUND $11.22 $11.67
INCOME FUND $9.79 $10.18
TOTAL RETURN BOND FUND $9.63 $10.02
TAX-FREE INCOME FUND $10.54 $10.96
COLORADO TAX-FREE FUND $10.69 $11.12
MINNESOTA TAX-FREE FUND $11.05 $11.49
INCOME EQUITY FUND $41.19 $43.46
VALUGROWTH STOCK FUND $26.18 $27.62
DIVERSIFIED EQUITY FUND $43.06 $45.43
GROWTH EQUITY FUND $35.73 $37.70
SMALL COMPANY STOCK FUND $12.00 $12.66
SMALL CAP OPPORTUNITIES FUND $23.60 $24.90
INTERNATIONAL FUND $23.84 $25.15
</TABLE>
EXCHANGES
By making an exchange by telephone, the investor authorizes the Transfer Agent
to act on telephonic instructions believed by the Transfer Agent to be genuine
instructions from any person representing himself or herself to be the investor.
The records of the 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 C Shares may
purchase, with the proceeds from a redemption of all or part of their shares, C
Shares of the other Funds. 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 of
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.
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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.
REDEMPTION CHARGE (A SHARES)
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 an SOI 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 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 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.
<TABLE>
<S> <C> <C>
STABLE INCOME FUND
AMOUNT OF PURCHASE PERIOD SHARES HELD 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%
</TABLE>
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<TABLE>
<S> <C> <C>
INTERMEDIATE GOVERNMENT INCOME FUND,
INCOME FUND, TOTAL RETURN BOND FUND AND THE
TAX-FREE FIXED INCOME FUNDS
AMOUNT OF PURCHASE PERIOD SHARES HELD 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%
EQUITY FUNDS
AMOUNT OF PURCHASE PERIOD SHARES HELD CHARGE
$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>
The charge on shares purchased through an exchange from another Fund is based
upon the original purchase date and price of the other Fund's shares. As
discussed below, there may be charges in connection with the SOI and the ROA in
certain cases.
STATEMENT OF INTENTION. There may be charges on redemptions of A Shares
purchased without an initial sales charge pursuant to an 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, a charge will apply
with respect to the entire amount purchased if the shareholder fails to purchase
$1,000,000 or more of A Shares under the SOI. The holding period for each A
Share 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
charge will be assessed at the time the shareholder has purchased $1,000,000 or
more worth of A Shares pursuant to the SOI 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.
RIGHT OF ACCUMULATION. The charge will be a charge assessed on A Shares
purchased without an initial sales charge pursuant to the ROA 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
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 charge upon
redemption described above. The $900,000 of A Shares would not be subject to the
charge.
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.
REDEMPTION CHARGE AND CONTINGENT DEFERRED SALES CHARGE (A SHARES, B SHARES AND C
SHARES) With respect to A Shares, B Shares and C Shares of the Funds, certain
redemptions are not subject to any redemption or contingent deferred sales
charge. No such 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
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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. For these purposes, the term
disability shall have the meaning ascribed thereto in Section 72(m)(7) of the
Code. Under that provision, a person is considered disabled if the person is
unable to engage in any substantial activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or to be of long-continued and indefinite duration. Appropriate
documentation satisfactory to the Fund is required to substantiate any
shareholder death or disability.
CONVERSION OF B SHARES AND EXCHANGE SHARES
The conversion of Exchange Shares to Investor Shares and B Shares to A Shares is
subject to the continuing availability of an opinion of counsel to the effect
that: (1) the assessment of the distribution services fee with respect to the
Exchange Shares and B Shares does not result in the Funds dividends or
distributions constituting "preferential dividends" under the Code and (2) the
conversion of Exchange Shares and B Shares does not constitute a taxable event
under Federal income tax law. The conversion of Exchange Shares to Investor
Shares and B Shares to A Shares may be suspended if such an opinion is no longer
available at the time the conversion is to occur. In that event, no further
conversions would occur, and shares might continue to be subject to a
distribution services fee for an indefinite period, which may extend beyond the
specified number of years for conversion of the original B Shares.
10. 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 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 Portfolio on section 1256
contracts generally will be considered 60% long-term and 40% short-term capital
gain or loss. Each Fund or 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 Portfolio upon the lapse or sale of such options held by such Fund or
Portfolio will be either long-term or short-term capital gain or loss depending
upon the Fund's (or 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 Portfolio will be treated as short-term capital
gain or loss. In general, if a Fund or Portfolio exercises an option, or an
option that a Fund or 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 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
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affect the character and timing of a Fund's (or 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 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 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 Portfolio all of the offsetting positions of which consist of
section 1256 contracts.
For federal income tax purposes, gains and losses attributable to fluctuations
in exchange rates which occur between the time a Fund accrues interest or other
receivables or accrues expenses or other liabilities denominated in a foreign
currency and the time the Fund actually collects such receivables or pays such
liabilities are treated as ordinary income or ordinary loss. Similarly, gains or
losses from the disposition of foreign currencies, from the disposition of debt
securities denominated in a foreign currency, or from the disposition of a
forward contract denominated in a foreign currency which are attributable to
fluctuations in the value of the foreign currency between the date of
acquisition of the asset and the date of disposition also are treated as
ordinary gain or loss.
A Fund's (or 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 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.
11. 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.
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COUNSEL AND AUDITORS
Legal matters in connection with the issuance of shares of beneficial interest
of the Trust are passed upon by the law firm of Seward & Kissel, 1200 G Street,
NW, Washington DC 20005.
KPMG Peat Marwick LLP, 99 High Street, Boston, MA 02110, independent auditors,
served as the independent auditors for the Trust for the fiscal years ended May
31, 1994 and thereafter. For the prior fiscal periods another audit firm acted
as independent auditors of the Trust's predecessor corporation.
GENERAL INFORMATION
The Trust is divided into thirty nine separate series representing shares of the
Funds. The Trust received an order from the SEC permitting the issuance and sale
of separate classes of shares representing interests in each of the Trust's
existing funds; however, the Trust currently issues and operates the various
Funds, separate classes of shares under the provisions of 1940 Act.
The Board has determined that currently no conflict of interest exists between
or among each Fund's classes of 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 the 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 Funds) 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.
Each share of each series of the Trust and each class of shares has equal
dividend, distribution, liquidation and voting rights, and fractional shares
have those rights proportionately, except that expenses related to the
distribution of the shares of each class (and certain other expenses such as
transfer agency and administration expenses) are borne solely by those shares
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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 (and Trustees)
have available certain procedures for the removal of Trustees. There are no
conversion or preemptive rights in connection with shares of the Trust. All
shares, when issued in accordance with the terms of the offering, will be fully
paid and nonassessable. Shares are redeemable at net asset value, at the option
of the shareholders, subject to any contingent deferred sales charge that may
apply. A shareholder in a series is entitled to the shareholder's pro rata share
of all dividends and distributions arising from that series' assets and, upon
redeeming shares, will receive the portion of the series' net assets represented
by the redeemed shares.
A Portfolio normally will not hold meetings of investors except as required by
the 1940 Act. Each investor in a Portfolio will be entitled to vote in
proportion to its relative beneficial interest in the Portfolio. When required
by the 1940 Act and other applicable law, a Fund investing in a Portfolio will
solicit proxies from its shareholders and will vote its interest in the
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 Portfolios. Accordingly, the Portfolios directly
acquires portfolio securities and the Funds acquire an indirect interest in
those securities. The 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 Portfolio belong only to, and the liabilities of each
Portfolio are borne solely by, that Portfolio and no other series of Core Trust
or Schroder Core.
THE PORTFOLIOS. The Funds' investments in the Portfolios are in the form of
non-transferable beneficial interests. All investors in a Portfolio will invest
on the same terms and conditions and will pay a proportionate share of the
Portfolio's expenses.
Portfolios do not sell its shares directly to members of the general public.
Other investors in 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 Portfolios. Information regarding any such funds is available by calling
Forum at (207) 879-0001.
CERTAIN RISKS OF INVESTING IN PORTFOLIOS. The Funds' investment in the
Portfolios may be affected by the actions of other large investors in the
Portfolios. For example, if a Portfolio had a large investor other than a Fund
that redeemed its interest, the Portfolio's remaining investors (including the
Fund) might, as a result, experience higher pro rata operating expenses, thereby
producing lower returns. As there may be other investors in a Portfolio, there
can be no assurance that any issue that receives a majority of the votes cast by
a Fund's shareholders will receive a majority of votes cast by all investors in
the Portfolio; indeed, other investors holding a majority interest in a
Portfolio could have voting control of the Portfolio.
A Fund may withdraw its entire investment from a 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 Portfolio with power to, and who did by a vote of all investors
(including the Fund), change the investment objective or policies of the
Portfolio in a manner not acceptable to the Board. A withdrawal could result in
a distribution in kind of portfolio securities (as opposed to a cash
distribution) by the Portfolio. That distribution could result in a less
diversified portfolio of investments for the Fund and could affect adversely the
liquidity of the Fund's portfolio. If the Fund decided to convert those
securities to cash, it would incur brokerage fees or other transaction costs. If
the Fund withdrew its investment from the Portfolio, the Board would consider
78
<PAGE>
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 transfer agency 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 B lists the persons who owned of record 5% or more of the
outstanding shares of a class of shares of a Fund as of September 1, 1998.
FINANCIAL STATEMENTS
The financial statements of each Fund for the fiscal year ended May 31, 1998
(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 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
offices 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,
reference is made to the copy of such contract or other documents filed as
exhibits to the registration statement.
79
<PAGE>
APPENDIX A - DESCRIPTION OF SECURITIES RATINGS
MUNICIPAL AND CORPORATE BONDS (INCLUDING CONVERTIBLE BONDS)
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
Moody's rates municipal and corporate bond issues, including convertible 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 edged." 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 risk 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 payments 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 ranks in the
higher end of its generic rating category are designated by the symbols AA1, A1,
BAA1, BA1 and B1.
STANDARD & POOR'S ("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. The capacity to meet
the financial commitment on the obligation is extremely strong.
A-1
<PAGE>
Bonds rated AA have a very strong capacity to meet the financial commitment on
the obligation and differ from the highest-rated issues only in small degree.
Bonds rated A have a strong capacity to meet the financial commitment on the
obligation, although they are somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than obligations rated in
higher-rated categories.
Bonds rated BBB exhibit adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to meet the financial commitment on the obligation than in
higher-rated categories.
Bonds rated BB, B, CCC, CC and C are regarded, as having significant speculative
characteristics. BB indicates the least degree of speculation and C the highest
degree of speculation. While such bonds will likely have some quality and
protective characteristics, these may be outweighed by large uncertainties or
major exposures to adverse conditions. Bonds rated BB have less vulnerability to
nonpayment 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 the financial commitment on the
obligation.
Bonds rated B are more vulnerable to nonpayment then bonds rated BB, but
currently have the capacity to meet the financial commitment on the obligation.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to meet the financial commitment on the obligation.
Bonds rated CCC are currently vulnerable to nonpayment, and are dependent upon
favorable business, financial, and economic conditions to meet the financial
commitment on the obligation. In the event of adverse business, financial, or
economic conditions, they are not likely to have the capacity to meet the
financial commitment on the obligation.
Bonds rated CC are currently highly vulnerable to nonpayment.
The C rating may be used to cover a situation where a bankruptcy petition has
been filed or similar action taken, but payments are being continued.
Bonds are rated D when the issue is in payment default. The D rating category is
used when payments on an obligation 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. The D rating will also be used upon the
filing of the bankruptcy petition or the taking of a similar action if payments
on the obligation are jeopardized.
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 major rating
categories.
FITCH INVESTORS SERVICE, INC. ("FITCH")
Fitch rates corporate bond issues, including convertible debt issues, as
follows:
AAA Bonds are considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and/or
dividends 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/or dividends 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, short-term debt of these issuers is generally
rate F-1+.
A-2
<PAGE>
A Bonds are considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and/or dividends 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 or dividends 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 or
dividends 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 or paying dividends, 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 that 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.
PREFERRED STOCK
MOODY'S
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
within the universe of preferred stock.
An issue rated AA is considered a high-grade preferred stock. This rating
indicates that there is a reasonable assurance the 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 preferred stock, 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.
A-3
<PAGE>
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. 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.
S&P
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.
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.
FITCH
Fitch utilizes the same ratings criteria in rating preferred stock as it does in
rating corporate bond issues, as described earlier in this Appendix.
A-4
<PAGE>
SHORT TERM MUNICIPAL LOANS
MOODY'S. 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.
S&P. 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'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.
The short-term rating places greater emphasis than a long-term rating on the
existence of liquidity necessary to meet the issuer's obligations in a timely
manner.
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.
SHORT TERM DEBT (INCLUDING COMMERCIAL PAPER)
MOODY'S
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 capacity of rated issuers.
Issuers rated PRIME-1 have a superior capacity for repayment of short-term
promissory obligations. PRIME-1 repayment capacity will normally be evidenced by
the following characteristics: Leading market positions in well-established
industries; high rates of return on funds employed; conservative capitalization
structures 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 have a strong capacity for repayment of short-term
promissory 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, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
S&P
A S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market. An A-1
designation indicates the highest category and that the degree of safety
regarding timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus (+) sign designation. The
capacity for timely payment on issues with an A-2 designation is satisfactory.
However, the relative degree of safety is not as high as for issues designated
A-1. Issues carrying an A-3 designation have an adequate capacity for timely
A-5
<PAGE>
payment. They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
FITCH
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.
The short-term rating places greater emphasis than a long-term rating on the
existence of liquidity necessary to meet the issuer's obligations in a timely
manner.
F-1+. Exceptionally strong credit quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1. Very strong credit quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
F-2. Good credit quality. Issues assigned this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as for
issues assigned F-1+ or F-1 rating.
F-3. Fair credit quality. Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate; however,
near-term adverse changes could cause these securities to be rated below
investment grade.
F-5. Weak credit quality. Issues assigned this rating have characteristics
suggesting a minimal degree of assurance for timely payment and are vulnerable
to near-term adverse changes in financial and economic conditions.
D. Default. Issues assigned this rating are in actual or imminent payment
default.
LOC. The symbol LOC indicates that the rating is based on a letter of credit
issued by a commercial bank.
A-6
<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
each applicable portfolio the amount of fee that was waived by Schroder, if any,
and the actual fee received by Schroder. The data is for the past three fiscal
years or shorter period if the Fund/Portfolio has been in operation for a
shorter period.
<TABLE>
<S> <C> <C> <C>
ADVISORY FEE ADVISORY FEE ADVISORY FEE
PAYABLE WAIVED RETAINED
CASH INVESTMENT FUND
Year Ended May 31, 1998 8,604,888 640,532 7,964,356
Year Ended May 31, 1997 2,805,919 0 2,805,919
Year Ended May 31, 1996 2,383,128 0 2,383,128
READY CASH INVESTMENT FUND
Year Ended May 31, 1998 3,344,445 0 3,344,445
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
U.S. GOVERNMENT FUND
Year Ended May 31, 1998 3,114,327 0 3,114,327
Year Ended May 31, 1997 2,538,240 0 2,538,240
Year Ended May 31, 1996 2,205,102 0 2,205,102
TREASURY FUND
Year Ended May 31, 1998 1,836,567 0 1,836,567
Year Ended May 31, 1997 1,548,275 0 1,548,275
Year Ended May 31, 1996 1,308,984 0 1,308,984
MUNICIPAL MONEY MARKET FUND
Year Ended May 31, 1998 2,961,387 165,379 2,796,008
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
STABLE INCOME FUND
Year Ended May 31, 1998 406,937 0 406,937
Year Ended May 31, 1997 334,768 0 334,768
Year Ended May 31, 1996 106,127 0 106,127
</TABLE>
B-1
<PAGE>
<TABLE>
<S> <C> <C> <C>
ADVISORY FEE ADVISORY FEE ADVISORY FEE
PAYABLE WAIVED RETAINED
LIMITED TERM GOVERNMENT INCOME FUND
Year Ended May 31, 1998 141,185 119,793 21,392
INTERMEDIATE GOVERNMENT INCOME FUND
Year Ended May 31, 1998 1,315,676 0 1,315,676
Year Ended May 31, 1997 1,355,907 0 1,355,907
Year Ended May 31, 1996 142,125 0 142,125
DIVERSIFIED BOND FUND
Year Ended May 31, 1998 928,687 376,973 551,714
Year Ended May 31, 1997 598,019 0 598,019
Year Ended May 31, 1996 344,777 0 344,777
INCOME FUND
Year Ended May 31, 1998 1,404,711 90,387 1,314,324
Year Ended May 31, 1997 1,385,988 277,198 1,108,790
Year Ended May 31, 1996 981,244 196,249 784,995
TOTAL RETURN BOND FUND
Year Ended May 31, 1998 524,944 0 524,944
Year Ended May 31, 1997 651,181 357,998 293,183
Year Ended May 31, 1996 584,872 352,590 232,282
LIMITED TERM TAX-FREE FUND
Year Ended May 31, 1998 242,621 89,967 152,654
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 1,566,676 488,601 1,078,075
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
COLORADO TAX-FREE FUND
Year Ended May 31, 1998 332,299 137,295 195,005
Year Ended May 31, 1997 299,582 238,690 60,892
Year Ended May 31, 1996 286,768 286,768 0
MINNESOTA INTERMEDIATE TAX-FREE FUND
Year Ended May 31, 1998 348,564 0 348,564
</TABLE>
B-2
<PAGE>
<TABLE>
<S> <C> <C> <C>
ADVISORY FEE ADVISORY FEE ADVISORY FEE
PAYABLE WAIVED RETAINED
MINNESOTA TAX-FREE FUND
Year Ended May 31, 1998 298,301 163,748 134,553
Year Ended May 31, 1997 212,616 190,702 21,914
Year Ended May 31, 1996 154,733 154,733 0
STRATEGIC INCOME FUND
Year Ended May 31, 1998 1,096,749 289,099 807,650
Year Ended May 31, 1997 589,365 0 589,365
Year Ended May 31, 1996 376,529 0 376,529
MODERATE BALANCED FUND
Year Ended May 31, 1998 2,851,253 561,191 2,290,062
Year Ended May 31, 1997 2,185,490 0 2,185,490
Year Ended May 31, 1996 1,208,825 0 1,208,825
GROWTH BALANCED FUND
Year Ended May 31, 1998 4,082,857 713,392 3,369,466
Year Ended May 31, 1997 2,688,223 0 2,688,223
Year Ended May 31, 1996 1,424,260 0 1,424,260
AGGRESSIVE BALANCED-EQUITY FUND
Year Ended May 31, 1998 17,317 6,163 11,154
INCOME EQUITY FUND
Year Ended May 31, 1998 5,115,544 0 5,115,544
Year Ended May 31, 1997 1,906,693 0 1,906,693
Year Ended May 31, 1996 227,790 0 227,790
INDEX FUND
Year Ended May 31, 1998 915,590 0 915,590
Year Ended May 31, 1997 563,081 212,327 350,754
Year Ended May 31, 1996 193,373 143,795 49,578
VALUGROWTH STOCK FUND
Year Ended May 31, 1998 4,141,066 25,276 4,115,790
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
DIVERSIFIED EQUITY FUND
Year Ended May 31, 1998 11,044,445 1,443,556 9,600,889
Year Ended May 31, 1997 6,874,776 0 6,874,776
Year Ended May 31, 1996 3,038,858 0 3,038,858
</TABLE>
B-3
<PAGE>
<TABLE>
<S> <C> <C> <C>
ADVISORY FEE ADVISORY FEE ADVISORY FEE
PAYABLE WAIVED RETAINED
GROWTH EQUITY FUND
Year Ended May 31, 1998 9,442,925 410,824 9,032,101
Year Ended May 31, 1997 7,205,405 0 7,205,405
Year Ended May 31, 1996 3,342,391 0 3,342,390
LARGE COMPANY GROWTH FUND
Year Ended May 31, 1998 1,153,835 0 1,153,835
Year Ended May 31, 1997 651,110 0 651,110
Year Ended May 31, 1996 274,152 0 274,152
SMALL COMPANY STOCK FUND
Year Ended May 31, 1998 1,679,232 0 1,679,232
Year Ended May 31, 1997 1,481,914 419,413 1,062,501
Year Ended May 31, 1996 909,200 327,218 581,982
SMALL COMPANY GROWTH FUND
Year Ended May 31, 1998 6,198,447 0 6,198,447
Year Ended May 31, 1997 3,513,581 0 3,513,581
Year Ended May 31, 1996 1,653,578 0 1,653,578
DIVERSIFIED SMALL CAP FUND
Year Ended May 31, 1998 24,811 5,712 19,099
Year Ended May 31, 1997 N/A N/A N/A
SMALL CAP OPPORTUNITIES FUND
Year Ended May 31, 1998 1,161,941 0 1,161,941
Year Ended May 31, 1997 N/A N/A N/A
INTERNATIONAL FUND*
Year Ended May 31, 1998 1,550,535 75,568 1,474,967
Year Ended May 31, 1997 812,485 0 812,485
Year Ended May 31, 1996 316,701 0 316,701
* Represents investment advisory fees paid to Schroder Capital Management
Inc. by International Portfolio of Core Trust.
</TABLE>
B-4
<PAGE>
TABLE 2 - MANAGEMENT FEES
The following table shows the dollar amount of fees payable to: (1) Forum for
its management services with respect to each Fund (or class thereof for those
periods when multiple classes were outstanding); (2) Norwest for its
administrative services with respect to Small Cap Opportunities Fund and
International Fund; and (3) Forum with respect to its administrative securities
with respect to each applicable Portfolio. Also shown are the amount of fees
that were waived by Forum and Norwest, if any, and the actual fees received by
Forum and Norwest. The data is for the past three fiscal years or shorter period
if the Fund has been in operation for a shorter period.
<TABLE>
<S> <C> <C> <C>
(I) MANAGEMENT FEES TO FORUM
MANAGEMENT MANAGEMENT MANAGEMENT
FEE FEE FEE
PAYABLE WAIVED RETAINED
CASH INVESTMENT FUND
Year Ended May 31, 1998 3,708,842 2,416,284 1,292,558
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
U.S. GOVERNMENT FUND
Year Ended May 31, 1998 2,134,700 281,603 1,853,097
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
TREASURY FUND
Year Ended May 31, 1998 1,154,681 854,503 300,178
Year Ended May 31, 1997 728,447 595,668 132,779
Year Ended May 31, 1996 627,992 448,841 179,151
READY CASH INVESTMENT FUND
Investor Shares
Year Ended May 31, 1998 1,181,535 0 1,181,535
Year Ended May 31, 1997 1,070,654 14,082 1,056,572
Year Ended May 31, 1996 760,979 60,072 700,907
Institutional Shares
Year Ended May 31, 1998 343,952 334,461 9,492
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
Exchange Shares
Year Ended May 31, 1998 643 511 132
Year Ended May 31, 1997 850 850 0
Year Ended May 31, 1996 273 273 0
</TABLE>
B-5
<PAGE>
<TABLE>
<S> <C> <C> <C>
MANAGEMENT MANAGEMENT MANAGEMENT
FEE FEE FEE
PAYABLE WAIVED RETAINED
MUNICIPAL MONEY MARKET FUND
Investor Shares
Year Ended May 31, 1998 90,303 54,201 36,102
Year Ended May 31, 1997 121,330 78,834 42,496
Year Ended May 31, 1996 115,294 65,869 49,425
Institutional Shares
Year Ended May 31, 1998 806,431 581,515 224,915
Year Ended May 31, 1997 1,275,270 1,017,363 257,907
Year Ended May 31, 1996 990,763 814,669 176,094
STABLE INCOME FUND
A Shares
Year Ended May 31, 1998 10,850 10,698 152
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 1,632 1,608 24
Year Ended May 31, 1997 799 799 0
Year Ended May 31, 1996 33 33 0
I Shares
Year Ended May 31, 1998 143,795 135,804 7,991
Year Ended May 31, 1997 98,060 98,060 0
Year Ended May 31, 1996 34,720 34,720 0
LIMITED TERM GOVERNMENT INCOME FUND
I Shares
Year Ended May 31, 1998 42,783 35,705 7,078
INTERMEDIATE GOVERNMENT INCOME FUND
A Shares
Year Ended May 31, 1998 12,708 12,708 0
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 8,527 8,527 0
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 373,544 169,833 203,711
Year Ended May 31, 1997 386,457 151,928 234,529
Year Ended May 31, 1996 41,991 41,991 0
</TABLE>
B-6
<PAGE>
<TABLE>
<S> <C> <C> <C>
MANAGEMENT MANAGEMENT MANAGEMENT
FEE FEE FEE
PAYABLE WAIVED RETAINED
DIVERSIFIED BOND FUND
I Shares
Year Ended May 31, 1998 175,669 143,270 32,399
Year Ended May 31, 1997 170,862 110,901 59,961
Year Ended May 31, 1996 98,508 69,269 29,239
INCOME FUND
A Shares
Year Ended May 31, 1998 5,783 5,783 0
Year Ended May 31, 1997 10,585 10,585 0
Year Ended May 31, 1996 11,894 11,894 0
B Shares
Year Ended May 31, 1998 3,966 3,966 0
Year Ended May 31, 1997 6,826 6,826 0
Year Ended May 31, 1996 6,732 6,732 0
I Shares
Year Ended May 31, 1998 271,193 155,655 115,539
Year Ended May 31, 1997 536,985 436,300 100,685
Year Ended May 31, 1996 373,872 353,908 19,964
TOTAL RETURN BOND FUND
A Shares
Year Ended May 31, 1998 3,833 3,557 275
Year Ended May 31, 1997 5,187 5,187 0
Year Ended May 31, 1996 2,416 2,416 0
B Shares
Year Ended May 31, 1998 2,996 2,890 107
Year Ended May 31, 1997 4508 4508 0
Year Ended May 31, 1996 3,264 3,264 0
I Shares
Year Ended May 31, 1998 149,374 108,471 40,903
Year Ended May 31, 1997 250,777 24,127 226,650
Year Ended May 31, 1996 228,269 12,744 215,525
LIMITED TERM TAX-FREE FUND
I Shares
Year Ended May 31, 1998 48,524 2,408 46,116
Year Ended May 31, 1997 17,748 17,748 0
Year Ended May 31, 1996 N/A N/A N/A
</TABLE>
B-7
<PAGE>
<TABLE>
<S> <C> <C> <C>
MANAGEMENT MANAGEMENT MANAGEMENT
FEE FEE FEE
PAYABLE WAIVED RETAINED
TAX-FREE INCOME FUND
A Shares
Year Ended May 31, 1998 30,973 21,230 9,743
Year Ended May 31, 1997 58,862 42,638 16,224
Year Ended May 31, 1996 67,046 27,085 39,961
B Shares
Year Ended May 31, 1998 9,109 9,109 0
Year Ended May 31, 1997 13,295 13,295 0
Year Ended May 31, 1996 9,866 9,866 0
I Shares
Year Ended May 31, 1998 273,202 13,953 259,249
Year Ended May 31, 1997 543,029 288,245 254,784
Year Ended May 31, 1996 397,898 304,725 93,173
COLORADO TAX-FREE FUND
A Shares
Year Ended May 31, 1998 30,680 13,964 16,715
Year Ended May 31, 1997 54,902 49,840 5,062
Year Ended May 31, 1996 53,988 48,022 5,966
B Shares
Year Ended May 31, 1998 7,903 3,625 4,279
Year Ended May 31, 1997 13,532 13,115 417
Year Ended May 31, 1996 11,566 11,566 0
I Shares
Year Ended May 31, 1998 27,877 2,466 25,411
Year Ended May 31, 1997 51,399 44,432 6,967
Year Ended May 31, 1996 49,153 41,507 7,646
MINNESOTA INTERMEDIATE TAX-FREE FUND
I Shares
Year Ended May 31, 1998 139,426 97,043 42,382
MINNESOTA TAX-FREE FUND
A Shares
Year Ended May 31, 1998 30,180 13,327 16,853
Year Ended May 31, 1997 51,795 33,434 18,361
Year Ended May 31, 1996 43,885 26,289 17,596
B Shares
Year Ended May 31, 1998 13,523 6,377 7,146
Year Ended May 31, 1997 20,364 14,581 5,783
Year Ended May 31, 1996 13,910 10,499 3,411
I Shares
Year Ended May 31, 1998 15,957 2,320 13,637
Year Ended May 31, 1997 12,888 10,362 2,526
Year Ended May 31, 1996 4,098 2,630 1,468
</TABLE>
B-8
<PAGE>
<TABLE>
<S> <C> <C> <C>
MANAGEMENT MANAGEMENT MANAGEMENT
FEE FEE FEE
PAYABLE WAIVED RETAINED
STRATEGIC INCOME FUND
Year Ended May 31, 1998 205,059 175,249 29,810
Year Ended May 31, 1997 130,970 115,223 15,747
Year Ended May 31, 1996 83,673 69,584 14,089
MODERATE BALANCED FUND
Year Ended May 31, 1998 515,913 362,625 153,288
Year Ended May 31, 1997 412,357 278,998 133,359
Year Ended May 31, 1996 228,080 126,077 102,003
GROWTH BALANCED FUND
Year Ended May 31, 1998 706,519 467,784 238,734
Year Ended May 31, 1997 463,486 303,389 160,097
Year Ended May 31, 1996 245,562 136,905 108,657
AGGRESSIVE BALANCED-EQUITY FUND
I Shares
Year Ended May 31, 1998 2,799 2,363 436
INCOME EQUITY FUND
A Shares
Year Ended May 31, 1998 63,767 57,043 6,724
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 53,134 49,294 3,840
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 998,134 508,066 490,067
Year Ended May 31, 1997 320,654 168,477 152,177
Year Ended May 31, 1996 43,691 43,691 0
INDEX FUND
Year Ended May 31, 1998 688,118 460,858 227,260
Year Ended May 31, 1997 375,387 213,759 161,628
Year Ended May 31, 1996 128,916 93,961 34,955
</TABLE>
B-9
<PAGE>
<TABLE>
<S> <C> <C> <C>
MANAGEMENT MANAGEMENT MANAGEMENT
FEE FEE FEE
PAYABLE WAIVED RETAINED
VALUGROWTH STOCK FUND
A Shares
Year Ended May 31, 1998 22,896 13,687 9,209
Year Ended May 31, 1997 33,232 29,323 3,909
Year Ended May 31, 1996 27,427 27,427 0
B Shares
Year Ended May 31, 1998 7,763 7,763 0
Year Ended May 31, 1997 11,318 11,318 0
Year Ended May 31, 1996 8,763 8,763 0
I Shares
Year Ended May 31, 1998 499,641 22,453 477,188
Year Ended May 31, 1997 324,366 194,534 129,832
Year Ended May 31, 1996 297,630 147,086 150,544
DIVERSIFIED EQUITY FUND
A Shares
Year Ended May 31, 1998 48,577 39,759 8,818
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 68,828 55,455 13,373
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 1,699,994 938,395 761,599
Year Ended May 31, 1997 1,027,423 723,040 304,383
Year Ended May 31, 1996 467,322 238,224 229,098
GROWTH EQUITY FUND
A Shares
Year Ended May 31, 1998 25,645 17,603 8,042
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 16,845 11,552 5,292
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 1,342,900 788,748 554,152
Year Ended May 31, 1997 785,917 545,815 240,102
Year Ended May 31, 1996 371,252 187,661 183,591
LARGE COMPANY GROWTH FUND
Year Ended May 31, 1998 204,037 127,981 76,056
Year Ended May 31, 1997 100,171 87,896 12,275
Year Ended May 31, 1996 42,177 40,150 2,027
</TABLE>
B-10
<PAGE>
<TABLE>
<S> <C> <C> <C>
MANAGEMENT MANAGEMENT MANAGEMENT
FEE FEE FEE
PAYABLE WAIVED RETAINED
DIVERSIFIED SMALL CAP FUND
I Shares
Year Ended May 31, 1998 2,430 2,294 136
SMALL COMPANY STOCK FUND
A Shares
Year Ended May 31, 1998 10,418 10,094 324
Year Ended May 31, 1997 11,966 10,318 1,648
Year Ended May 31, 1996 5,800 5,800 0
B Shares
Year Ended May 31, 1998 6,721 6,646 75
Year Ended May 31, 1997 8,329 8,329 0
Year Ended May 31, 1996 4,426 4,426 0
I Shares
Year Ended May 31, 1998 200,997 124,654 76,342
Year Ended May 31, 1997 276,089 90,214 185,875
Year Ended May 31, 1996 171,614 15,664 155,950
SMALL COMPANY GROWTH FUND
Year Ended May 31, 1998 766,560 383,589 382,971
Year Ended May 31, 1997 390,398 185,644 204,754
Year Ended May 31, 1996 183,731 76,278 107,453
SMALL CAP OPPORTUNITIES FUND
A Shares
Year Ended May 31, 1998 4,015 1,641 2,374
Year Ended May 31, 1997 122 122 0
B Shares
Year Ended May 31, 1998 2,836 1,147 1,689
Year Ended May 31, 1997 44 44 0
I Shares
Year Ended May 31, 1998 243,348 39,205 204,143
Year Ended May 31, 1997 26,560 26,560 0
INTERNATIONAL FUND
A Shares
Year Ended May 31, 1998 6,976 1,907 5,069
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 4,704 1,709 2,995
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 601,498 850 600,649
Year Ended May 31, 1997 177,707 4,264 173,443
Year Ended May 31, 1996 69,616 0 69,616
</TABLE>
B-11
<PAGE>
<TABLE>
<S> <C> <C> <C>
(II) ADMINISTRATIVE FEES TO NORWEST
ADMINISTRATIVE ADMINISTRATIVE ADMINISTRATIVE
FEE FEE FEE
PAYABLE WAIVED RETAINED
SMALL CAP OPPORTUNITIES FUND
A Shares
Year Ended May 31, 1998 7,924 0 7,924
B Shares
Year Ended May 31, 1998 5,640 0 5,640
I Shares
Year Ended May 31, 1998 471,297 0 471,297
INTERNATIONAL FUND
A Shares
Year Ended May 31, 1998 7,230 0 7,230
B Shares
Year Ended May 31, 1998 4,875 0 4,875
I Shares
Year Ended May 31, 1998 623,325 0 623,325
Year Ended May 31, 1997 451,118 0 451,118
Year Ended May 31, 1996 175,887 0 175,887
</TABLE>
B-12
<PAGE>
TABLE 3 - DISTRIBUTION FEES
The following table shows the dollar amount of fees payable to Forum for its
distribution services with respect to each Fund (or class thereof), the amount
of fee that was waived by Forum, if any, and the actual fee received by Forum.
All maintenance fees were waived by Forum during the fiscal year ended May 31,
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 3,759 940 2,819
Year Ended May 31, 1997 4,249 1,062 3,187
Year Ended May 31, 1996 1,023 1,023 0
STABLE INCOME FUND
B Shares
Year Ended May 31, 1998 14,253 3,563 10,690
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, 1998 86,167 21,542 64,625
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, 1998 39,664 9,916 29,748
Year Ended May 31, 1997 34,127 8,532 25,595
Year Ended May 31, 1996 25,247 6,666 18,581
TOTAL RETURN BOND FUND
B Shares
Year Ended May 31, 1998 24,563 6,141 18,422
Year Ended May 31, 1997 22,540 5,635 16,905
Year Ended May 31, 1996 12,239 3,619 8,620
TAX-FREE INCOME FUND
B Shares
Year Ended May 31, 1998 91,107 22,777 68,330
Year Ended May 31, 1997 66,476 16,619 49,857
Year Ended May 31, 1996 36,997 2,390 34,607
COLORADO TAX-FREE FUND
B Shares
Year Ended May 31, 1998 79,031 19,758 59,273
Year Ended May 31, 1997 67,660 16,915 50,745
Year Ended May 31, 1996 43,374 207 43,167
</TABLE>
B-13
<PAGE>
<TABLE>
<S> <C> <C> <C>
DISTRIBUTION DISTRIBUTION DISTRIBUTION
FEE FEE FEE
PAYABLE WAIVED RETAINED
MINNESOTA TAX-FREE FUND
B Shares
Year Ended May 31, 1998 135,230 33,808 101,423
Year Ended May 31, 1997 101,817 25,454 76,363
Year Ended May 31, 1996 52,163 0 52,163
INCOME EQUITY FUND
B Shares
Year Ended May 31, 1998 481,065 120,266 360,799
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, 1998 77,628 19,407 58,221
Year Ended May 31, 1997 56,592 14,148 42,444
Year Ended May 31, 1996 32,860 5,269 27,591
DIVERSIFIED EQUITY FUND
B Shares
Year Ended May 31, 1998 567,355 141,839 425,516
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, 1998 124,429 31,107 93,322
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, 1998 57,698 14,424 43,273
Year Ended May 31, 1997 41,641 10,410 31,231
Year Ended May 31, 1996 16,598 4,077 12,521
SMALL CAP OPPORTUNITIES FUND
B Shares
Year Ended May 31, 1998 22,558 5,640 16,919
Year Ended May 31, 1997 431 108 323
INTERNATIONAL FUND
B Shares
Year Ended May 31, 1998 19,501 4,875 14,626
Year Ended May 31, 1997 12,465 3,116 9,349
Year Ended May 31, 1996 2,959 2,930 29
</TABLE>
B-14
<PAGE>
TABLE 4 - SALES CHARGES
The following table shows: (1) the dollar amount of sales charges payable to
Forum with respect to sales of A Shares (or of the respective Funds prior to the
offering of multiple classes of shares); (2) the amount of sales charge retained
by Forum and not reallowed to other persons; and (3) the amount of contingent
deferred sales charge ("CDSL") paid to Forum. The data is for the past three
fiscal years or shorter period if the Fund has been in operation for a shorter
period.
<TABLE>
<S> <C> <C> <C>
SALES RETAINED CDSL
CHARGES AMOUNT PAID
STABLE INCOME FUND
A Shares
Year Ended May 31, 1998 1,000 1,000 --
Year Ended May 31, 1997 3,200 320 --
Year Ended May 31, 1996 423 52 --
B Shares
Year Ended May 31, 1998 -- -- 1,000
Year Ended May 31, 1997 -- -- 6,526
Year Ended May 31, 1996 -- -- 75
INTERMEDIATE GOVERNMENT INCOME FUND
A Shares
Year Ended May 31, 1998 26,000 -- --
Year Ended May 31, 1997 13,182 1,187 --
Year Ended May 31, 1996 1,482 129 --
B Shares
Year Ended May 31, 1998 -- -- 14,000
Year Ended May 31, 1997 -- -- 31,694
Year Ended May 31, 1996 -- -- 964
INCOME FUND
A Shares
Year Ended May 31, 1998 68,000 8,000 --
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 -- -- 6,000
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 8 000 1,000 --
Year Ended May 31, 1997 3,908 363 --
Year Ended May 31, 1996 1,194,198 3,074 --
B Shares
Year Ended May 31, 1998 -- -- 4,000
Year Ended May 31, 1997 -- -- 7,505
Year Ended May 31, 1996 -- -- 2,853
</TABLE>
B-15
<PAGE>
<TABLE>
<S> <C> <C> <C>
SALES RETAINED CDSL
CHARGES AMOUNT PAID
TAX-FREE INCOME FUND
A Shares
Year Ended May 31, 1998 132,000 2,000 --
Year Ended May 31, 1997 74,101 6,646 --
Year Ended May 31, 1996 5,429,389 12,264 --
B Shares
Year Ended May 31, 1998 -- -- 9,000
Year Ended May 31, 1997 -- -- 15,724
Year Ended May 31, 1996 -- -- 6,576
COLORADO TAX-FREE FUND
A Shares
Year Ended May 31, 1998 127,000 4,000 --
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 -- -- 12,000
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 139,000 6,000 --
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 -- -- 13,000
Year Ended May 31, 1997 -- -- 13,097
Year Ended May 31, 1996 -- -- 8,412
INCOME EQUITY FUND
A Shares
Year Ended May 31, 1998 692,000 69,000 --
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 -- -- 62,000
Year Ended May 31, 1997 -- -- 38,812
Year Ended May 31, 1996 -- -- 570
VALUGROWTH STOCK FUND
A Shares
Year Ended May 31, 1998 92,000 9,000 --
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 -- -- 9,000
Year Ended May 31, 1997 -- -- 10,770
Year Ended May 31, 1996 -- -- 12,911
</TABLE>
B-16
<PAGE>
<TABLE>
<S> <C> <C> <C>
SALES RETAINED CDSL
CHARGES AMOUNT PAID
DIVERSIFIED EQUITY FUND
A Shares
Year Ended May 31, 1998 853,000 70,000 --
Year Ended May 31, 1997 485,324 8,286 --
Year Ended May 31, 1996 50,658 15 --
B Shares
Year Ended May 31, 1998 -- -- 87,000
Year Ended May 31, 1997 -- -- 23,510
Year Ended May 31, 1996 -- -- --
GROWTH EQUITY FUND
A Shares
Year Ended May 31, 1998 173,000 17,000 --
Year Ended May 31, 1997 175,495 5,347 --
Year Ended May 31, 1996 26,825 7 --
B Shares
Year Ended May 31, 1998 -- -- 25,000
Year Ended May 31, 1997 -- -- 6,972
Year Ended May 31, 1996 -- -- --
SMALL COMPANY STOCK FUND
A Shares
Year Ended May 31, 1998 28,000 3,000 --
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 -- -- 7,000
Year Ended May 31, 1997 -- -- 6,411
Year Ended May 31, 1996 -- -- --
SMALL CAP OPPORTUNITIES FUND
A Shares
Year Ended May 31, 1998 148,000 12,000 --
Year Ended May 31, 1997 11,604 1,178 --
B Shares
Year Ended May 31, 1998 -- -- 5,000
Year Ended May 31, 1997 -- -- --
INTERNATIONAL FUND
A Shares
Year Ended May 31, 1998 12,000 1,000 --
Year Ended May 31, 1997 8,728 874 --
Year Ended May 31, 1996 269 30 --
B Shares
Year Ended May 31, 1998 -- -- 3,000
Year Ended May 31, 1997 -- -- 2,086
Year Ended May 31, 1996 -- -- 213
</TABLE>
B-17
<PAGE>
TABLE 5 - ACCOUNTING FEES
The following table shows the dollar amount of fees payable to Forum Accounting
for its accounting services with respect to each Fund, the amount of fee that
was waived by Forum Accounting, if any, and the actual fee received by Forum
Accounting. The table also shows similar information with respect to each
applicable 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 151,975 0 151,975
Year Ended May 31, 1997 65,000 0 65,000
Year Ended May 31, 1996 49,000 0 49,000
U.S. GOVERNMENT FUND
Year Ended May 31, 1998 65,500 0 65,500
Year Ended May 31, 1997 60,000 0 60,000
Year Ended May 31, 1996 46,000 0 46,000
TREASURY FUND
Year Ended May 31, 1998 63,000 0 63,000
Year Ended May 31, 1997 54,500 0 54,500
Year Ended May 31, 1996 43,500 0 43,500
READY CASH INVESTMENT FUND
Year Ended May 31, 1998 61,678 0 61,678
Year Ended May 31, 1997 86,000 0 86,000
Year Ended May 31, 1996 63,000 0 63,000
MUNICIPAL MONEY MARKET FUND
Year Ended May 31, 1998 95,000 0 95,000
Year Ended May 31, 1997 90,000 0 90,000
Year Ended May 31, 1996 72,500 0 72,500
STABLE INCOME FUND
Year Ended May 31, 1998 93,585 0 93,585
Year Ended May 31, 1997 92,500 26,041 66,459
Year Ended May 31, 1996 37,452 7,136 30,316
LIMITED TERM GOVERNMENT INCOME FUND
I Shares
Year Ended May 31, 1998 33,000 0 33,000
INTERMEDIATE GOVERNMENT INCOME FUND
Year Ended May 31, 1998 84,000 0 84,000
Year Ended May 31, 1997 85,500 24,146 61,354
Year Ended May 31, 1996 29,452 5,322 24,130
DIVERSIFIED BOND FUND
Year Ended May 31, 1998 60,241 0 60,241
Year Ended May 31, 1997 54,000 15,223 38,777
Year Ended May 31, 1996 29,500 5,561 23,939
</TABLE>
B-18
<PAGE>
<TABLE>
<S> <C> <C> <C>
FEE FEE FEE
PAYABLE WAIVED RETAINED
INCOME FUND
Year Ended May 31, 1998 89,000 0 89,000
Year Ended May 31, 1997 93,000 0 93,000
Year Ended May 31, 1996 79,500 0 79,500
TOTAL RETURN BOND FUND
Year Ended May 31, 1998 77,536 0 77,536
Year Ended May 31, 1997 66,000 0 66,000
Year Ended May 31, 1996 57,500 0 57,500
LIMITED TERM TAX-FREE FUND
Year Ended May 31, 1998 38,000 0 38,000
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 91,000 0 91,000
Year Ended May 31, 1997 91,000 0 91,000
Year Ended May 31, 1996 66,000 0 66,000
COLORADO TAX-FREE FUND
Year Ended May 31, 1998 62,000 0 62,000
Year Ended May 31, 1997 66,000 0 66,000
Year Ended May 31, 1996 60,000 0 60,000
MINNESOTA INTERMEDIATE TAX-FREE FUND
I Shares
Year Ended May 31, 1998 39,000 0 39,000
MINNESOTA TAX-FREE FUND
Year Ended May 31, 1998 64,000 0 64,000
Year Ended May 31, 1997 64,000 0 64,000
Year Ended May 31, 1996 56,000 0 56,000
STRATEGIC INCOME FUND
Year Ended May 31, 1998 61,046 0 61,046
Year Ended May 31, 1997 60,000 17,019 42,981
Year Ended May 31, 1996 32,500 6,054 26,446
MODERATE BALANCED FUND
Year Ended May 31, 1998 123,798 0 123,798
Year Ended May 31, 1997 62,000 17,546 44,454
Year Ended May 31, 1996 36,000 7,104 28,896
</TABLE>
B-19
<PAGE>
<TABLE>
<S> <C> <C> <C>
FEE FEE FEE
PAYABLE WAIVED RETAINED
GROWTH BALANCED FUND
Year Ended May 31, 1998 131,371 0 131,371
Year Ended May 31, 1997 61,000 17,237 43,763
Year Ended May 31, 1996 34,000 6,591 27,409
AGGRESSIVE BALANCED-EQUITY FUND
I Shares
Year Ended May 31, 1998 9,943 9,468 475
INCOME EQUITY FUND
Year Ended May 31, 1998 88,615 0 88,615
Year Ended May 31, 1997 71,500 20,160 51,340
Year Ended May 31, 1996 22,935 4,293 18,642
VALUGROWTH STOCK FUND
Year Ended May 31, 1998 77,500 0 77,500
Year Ended May 31, 1997 66,000 0 66,000
Year Ended May 31, 1996 57,500 0 57,500
INDEX FUND
Year Ended May 31, 1998 89,560 0 89,560
Year Ended May 31, 1997 60,000 8,393 51,607
Year Ended May 31, 1996 30,500 5,659 24,841
DIVERSIFIED EQUITY FUND
Year Ended May 31, 1998 253,735 0 253,735
Year Ended May 31, 1997 81,500 22,995 58,505
Year Ended May 31, 1996 30,306 6,216 24,090
GROWTH EQUITY FUND
Year Ended May 31, 1998 242,383 0 242,383
Year Ended May 31, 1997 79,000 22,311 56,689
Year Ended May 31, 1996 30,306 6,216 24,090
LARGE COMPANY GROWTH FUND
Year Ended May 31, 1998 27,725 0 27,725
Year Ended May 31, 1997 38,000 10,750 27,250
Year Ended May 31, 1996 21,000 3,755 17,245
DIVERSIFIED SMALL CAP FUND
I Shares
Year Ended May 31, 1998 8,779 7,694 1,085
SMALL COMPANY STOCK FUND
Year Ended May 31, 1998 79,136 0 79,136
Year Ended May 31, 1997 76,000 0 76,000
Year Ended May 31, 1996 60,500 0 60,500
</TABLE>
B-20
<PAGE>
<TABLE>
<S> <C> <C> <C>
FEE FEE FEE
PAYABLE WAIVED RETAINED
SMALL COMPANY GROWTH FUND
Year Ended May 31, 1998 75,865 0 75,865
Year Ended May 31, 1997 55,000 5,536 49,464
Year Ended May 31, 1996 30,000 5,759 24,241
SMALL CAP OPPORTUNITIES FUND
Year Ended May 31, 1998 70,244 0 70,244
Year Ended May 31, 1997 26,057 26,057 0
INTERNATIONAL FUND
Year Ended May 31, 1998 84,830 0 84,830
Year Ended May 31, 1997 36,000 10,148 25,852
Year Ended May 31, 1996 23,000 3,952 19,048
</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 N/A
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 N/A
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 N/A
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 N/A
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 N/A
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 N/A
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 1,011,840
Year Ended May 31, 1997 502,785
Year Ended May 31, 1996 436,274
B-21
<PAGE>
AGGREGATE
COMMISSIONS PAID
DIVERSIFIED EQUITY FUND*
Year Ended May 31, 1998 N/A
Year Ended May 31, 1997 226,652
Year Ended May 31, 1996 175,648
GROWTH EQUITY FUND*
Year Ended May 31, 1998 N/A
Year Ended May 31, 1997 130,483
Year Ended May 31, 1996 127,666
LARGE COMPANY GROWTH FUND*
Year Ended May 31, 1998 N/A
Year Ended May 31, 1997 59,924
Year Ended May 31, 1996 42,229
SMALL COMPANY STOCK FUND*
Year Ended May 31, 1998 N/A
Year Ended May 31, 1997 458,447
Year Ended May 31, 1996 208,021
SMALL COMPANY GROWTH FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 1,365,750
Year Ended May 31, 1996 785,875
SMALL CAP OPPORTUNITIES FUND*
Year Ended May 31, 1998 N/A
Year Ended May 31, 1997 N/A
INTERNATIONAL FUND*
Year Ended May 31, 1998 N/A
Year Ended May 31, 1997 N/A
Year Ended May 31, 1996 188,849
* Reflects commission paid by the Portfolio(s) in which the Fund invests, the
Funds paid no commissions directly during either year.
B-22
<PAGE>
TABLE 7 - 5% SHAREHOLDERS
The following table lists the persons who owned of record 5% or more of the
outstanding shares of a class of shares of a Fund as of September 1, 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 BALANCE % OF % OF FUND
NAME AND ADDRESS CLASS
CASH INVESTMENT FUND Norwest Investment Services 2,187,733,420.880 41.81 41.81
c/o Andrew Duffy
608 2nd Ave S
8th Floor MS 0130
Minneapolis, MN 55479-0130
Norwest Bank Minnesota NA 1,685,535,639.280 32.21 32.21
VP4500022
Attn Cash Sweep Processing - Judy
Jeska
733 Marquette Ave 4th Floor
Minneapolis, MN 55479-0050
Dentru & Co 643,087,524.248 12.29 12.29
Non Discretionary
1740 Broadway MS 8751
Denver, CO 80274
READY CASH INVESTMENT FUND
Investor Shares Norwest Investment Services 79,680,342.950 99.17 99.11
c/o Andrew Duffy
608 2nd Ave S
8th Floor MS 0130
Minneapolis, MN 55479-0130
Exchange Shares Norwest Bank MN Custodian for IRA 30,250.900 5.80 0.00
Account of
Ralph F. Henkensiefken
918 S Broadway
New Ulm, MN 56075
Norwest Bank MN Custodian for IRA 99,332.460 19.85 0.01
Account of
Walter W. Pillsbury
2849 Evergreen Road
Fargo, ND 58102-1712
Norwest Bank MN Custodian for IRA 48,048.750 9.21 0.00
Account of
Raymond C. Sink
1315 Anderson Rd
Duluth, MN 55811
</TABLE>
B-23
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
SHARE BALANCE % OF % OF FUND
NAME AND ADDRESS CLASS
READY CASH INVESTMENT FUND Norwest Bank MN Custodian for IRA 60,572.380 11.61 0.01
Exchange Shares (cont.) Account of
John D. Jeffries
301 E Howard St
Hibbing, MN 55746
Norwest Bank MN Custodian for IRA 127,891.648 24.52 0.02
Account of Norwest Mank MN NA IRA
C/F Cust
Mary G. Koerber
Mason City, IA 50401
U.S. GOVERNMENT FUND Alpine & Co 212,815,376.650 8.57 8.57
Non Discretionary
1740 Broadway MS 8751
Denver, CO 80274
Norwest Bank Minnesota NA AMS 1,843,998,761.370 74.21 74.21
Collective Trust Funds Clearing
Acct
Attn Cash Sweep Processing - Judy
Jeska
733 Marquette Ave 4th Fl
Minneapolis, MN 55479-0050
Norwest Investment Services 375,216,323.730 15.18 15.81
c/o Andrew Duffy
608 2nd Ave S 8th Fl MS 0130
Minneapolis, MN 55479-0130
TREASURY FUND Norwest Bank Minnesota NA AMS 858,796,225.160 60.34 60.34
Collective Trust Funds Clearing
Acct
Attn Cash Sweep Processing - Judy
Jeska
733 Marquette Ave 4th Fl
Minneapolis, MN 55479-0050
Norwest Bank Investment Services 308,801,383.250 21.70 21.70
c/o Andrew Duffy
608 2nd Ave S 8th Fl MS 0130
Minneapolis, MN 55479-0130
</TABLE>
B-24
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
SHARE BALANCE % OF % OF FUND
NAME AND ADDRESS CLASS
MUNICIPAL MONEY MARKET FUND
Investor Shares
Norwest Bank Investment Services 39,979,447.550 97.95 3.60
c/o Andrew Duffy
608 2nd Ave S 8th Fl MS 0130
Minneapolis, MN 5547-0130
STABLE INCOME FUND
A Shares Norwest Investment Services Inc. 216,969.473 23.67 20.16
FBO 018193581
Norwest Building East - 8th Floor
608 Second Avenue South
Minneapolis, MN 55479-0162
Norwest Investment Services Inc. 90,810.63 9.90 8.44
FBO 021219031
Northstar Building East - 8th
Floor
608 Second Avenue South
Minneapolis, MN 55479-0162
Koch Industries Inc. 113,735.098 12.41 10.57
c/o Wilshire Asset Mgmt
1299 Ocean Ave Suite 700
Santa Monica, CA 90401
Norwest Investment Services Inc. 80,847.464 8.82 7.51
FBO 705734561
Northstar Building East - 9th
Floor
608 Second Avenue South
Minneapolis, MN 55479-0162
B Shares Fred P. Mattson 7,979.911 5.01 0.74
and Betty J. Mattson
JT Ten
PO Box 248
Elmwood, WI 54740-0248
Charles Amjad-Ali 10,161.595 6.38 0.94
1305 Dayton Ave
St Paul, MN 55104
</TABLE>
B-25
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
SHARE BALANCE % OF % OF FUND
NAME AND ADDRESS CLASS
STABLE INCOME FUND Ute Plumbing Heating Inc 17,299.590 10.86 1.61
B Shares Retirement Account
Employee Pension Plan Trust
U A DTO 07-01-86
2315 Bott Ave
Colorado Springs, CO 80904-3727
Norwest Investment Services Inc. 19,591.464 12.30 1.82
FBO 102953761
Norwest Building East - 8th Floor
608 Second Avenue South
Minneapolis, MN 55479-0162
Norwest Investment Services Inc. 8,081.444 5.07 0.75
FBO 019657481
Northstar Building East - 8th
Floor
608 Second Avenue South
Minneapolis, MN 55479-0162
INTERMEDIATE GOVERNMENT INCOME
FUND
A Shares WealthBuilder II Growth Balanced 158,524.584 10.48 10.48
Intermediate US Govt Fund
c/o Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55480-8477
Norwest Investment Services, Inc. 90,994.208 6.02 6.02
FBO 106727721
Northstar Building East - 8th
Floor
608 Second Avenue South
Minneapolis, MN 55479-0162
</TABLE>
B-26
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
SHARE BALANCE % OF % OF FUND
NAME AND ADDRESS CLASS
INCOME FUND Norwest Investment Services, Inc. 33,364.834 5.89 0.10
B Shares FBO 705648691
Northstar Building East - 9th
Floor
608 Second Avenue South
Minneapolis, MN 55479-0162
I Shares Dentru & co 5,918,741.212 19.06 18.24
Non-Discretionary Cash
1740 Broadway Mail 8676
Denver, Co 80274
FINABA 2,460,089.376 7.93 7.58
Non-Discretionary Cash Account
Attn John Ruttter
PO Box 10523
Lubbock, TX 79408
EMSEG & Co 6,398,685.123 20.63 19.72
Income Fund I
c/o Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55480-8477
EMSEG & Co 12,514,035.063 40.34 38.56
Income Fund I
c/o Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55480-8477
TOTAL RETURN BOND FUND
A Shares Norwest WealthBuilder 160,548.312 53.92 1.38
Reinvest Account
733 Marquette Ave
Minneapolis, MN 55479-0040
I Shares Dentru & Co 3,290,530.434 29.72 28.23
Non-Discretionary Cash
1740 Broadway Mail 8676
Denver, CO 80274
Kiwils & Co 630,932.725 5.70 5.41
Discretionary Reinvest
1700 Broadway MS 0076
Denver, CO 80274
</TABLE>
B-27
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
SHARE BALANCE % OF % OF FUND
NAME AND ADDRESS CLASS
TOTAL RETURN BOND FUND Seret & Co 4,364,276.706 39.41 37.44
I Shares (cont.) Discretionary Reinvest
1740 Broadway MS 8751
Denver, CO 80274
EMSEG & Co 598,343.719 5.40 5.13
Total Return Bond Fund I
c/o Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55480-0477
EMSEG & Co 796,940.767 7.20 6.84
Total Return Bond Fund I
c/o Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55480-8477
LIMITED TERM TAX-FREE FUND
I Shares FIHABA 1,532,715.059 28.24 28.24
Non-Discretionary Cash Acct
Attn Jon Rutter
PO Box 10523
Lubbock, TX 79408
Victoria & Co 663,868.836 12.23 12.23
c/o Regional Mutual Funds
PO Box 6000
San Antonio, TX 78286-7646
EMSEG & Co 595,453.000 10.97 10.97
Limited Term Tax Free Fund I
c/o Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55480-8477
EMSEG & Co 1,753,257.638 32.30 32.30
Limited Term Tax Free Fund I
c/o Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55480-8477
EMSEG & Co 759,336.828 13.99 13.99
Limited Term Tax Free Fund I
c/o Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55480-8477
</TABLE>
B-28
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
SHARE BALANCE % OF % OF FUND
NAME AND ADDRESS CLASS
TAX-FREE INCOME FUND
A Shares Norwest WealthBuilder 283,525.342 7.40 0.86
Reinvest Account
733 Marquette Ave
Minneapolis, MN 55479-0040
I Shares Dentru & Co 7,650,475.013 27.46 23.32
Non-Discretionary Cash
1740 Broadway Mail 8676
Denver, CO 80274
FINABA 1,695,872.179 6.09 5.17
Non-Discretionary Cash Acct
Attn Jon Rutter
PO Box 10523
Lubbock, TX 79408
EMSEG & Co 2,991,785.112 10.74 9.12
Tax Free Income I
c/o Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55480-8477
EMSEG & Co 12,145,369.987 43.60 37.02
Tax Free Income Fund I
c/o Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55480-8477
EMSEG & Co 2,094,448.257 7.52 6.38
Tax Free Income Fund I
c/o Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55480-8477
COLORADO TAX-FREE FUND
A Shares Norwest Investment Services, 576,171.628 16.44 7.48
Inc.
FBO 017357991
Northstar Building East - 8th
Floor
608 Second Avenue South
Minneapolis, MN 55479-0162
I Shares Dentru & Co 3,076,770.798 92.27 39.95
Non-Discretionary Cash
1740 Broadway Mail 8676
Denver, CO 80274
</TABLE>
B-29
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
SHARE BALANCE % OF % OF FUND
NAME AND ADDRESS CLASS
MINNESOTA TAX-FREE FUND
I Shares EMSEG & Co 300,588.366 15.14 4.42
Minnesota Tax Free I
c/o Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55480-8477
EMSEG & Co 117,349.088 5.91 1.72
Minnesota Tax Free I
c/o Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55480-8477
EMSEG & Co 478,607.041 24.10 7.04
Minnesota Tax Free I
c/o Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55480-8477
EMSEG & Co 1,069,236.870 53.85 15.72
Minnesota Tax Free I
c/o Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55480-8477
VALUGROWTH STOCK FUND
A Shares WealthBuilder II Growth And 61,332.807 6.01 0.27
Income
ValuGrowth Stock Fund
c/o Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55480-8477
VALUGROWTH STOCK FUND
I Shares Dentru & Co 3,160,584.713 14.56 13.69
Non-Discretionary Cash
1740 Broadway Mail 8676
Denver, CO 80274
Victoria & Co 1,146,811.465 5.28 4.97
c/o Regional Mutual Funds
PO Box 6000
San Antonio, TX 78286-9646
</TABLE>
B-30
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
SHARE BALANCE % OF % OF FUND
NAME AND ADDRESS CLASS
VALUGROWTH STOCK FUND EMSEG & Co 2,703,893.522 12.45 11.71
I Shares (cont.) ValuGrowth Stock Fund I
c/o Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55480-8477
EMSEG & Co 12,506,074.748 57.60 54.17
ValuGrowth Stock Fund I
c/o Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55480-8477
GROWTH EQUITY FUND
A Shares Norwest WealthBuilder 191,406.805 32.76 0.68
Reinvest Account
733 Marquette Ave
Minneapolis, MN 55479-0040
SMALL COMPANY STOCK FUND
A Shares Norwest WealthBuilder 144,076.453 22.49 1.61
Reinvest Account
733 Marquette Ave
Minneapolis, MN 55479-0040
B Shares Norwest Investment Services, Inc. 34,177.234 6.93 0.38
FBO 731400141
Northstar Building East - 8th
Floor
608 Second Avenue South
Minneapolis, MN 55479-0162
I Shares Dentru & Co 1,103,824.065 14.15 12.36
Non-Discretionary Cash
1740 Broadway Mail 8676
Denver, CO 80274
EMSEG & Co 3,873,860.726 49.68 43.37
Small Company Stock Fund I
c/o Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55480-8477
</TABLE>
B-31
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
SHARE BALANCE % OF % OF FUND
NAME AND ADDRESS CLASS
SMALL COMPANY STOCK FUND EMSEG & Co 945,101.317 12.12 10.58
I Shares (cont.) Small Company Stock Fund I
c/o Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55480-8477
EMSEG & Co 1,041,262.497 13.35 11.66
Small Company Stock Fund I
c/o Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55480-8477
INTERNATIONAL FUND
A Shares Norwest WealthBuilder 42,263.743 29.95 0.35
Reinvest Account
733 Marquette Ave
Minneapolis, MN 55479-0040
Wells Fargo Bank NA 15,295.794 10.84 0.13
Agnt Noggle Crat I Trust
MAC 913-027
Mutual Fund Transfer Unit
26610 West Agoura Rd
Calabasa, CA 91302
B Shares Norwest Investment Services, Inc. 9,936.114 10.52 0.08
FBO 015097851
Northstar Building East - 8th
Floor
608 Second Avenue South
Minneapolis, MN 55479-0162
Norwest Investment Services, Inc. 4,779.933 5.06 .04
FBO 012957081
Northstar Building East - 8th
Floor
608 Second Avenue South
Minneapolis, MN 55479-0162
</TABLE>
B-32
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
SHARE BALANCE % OF % OF FUND
NAME AND ADDRESS CLASS
INTERNATIONAL FUND EMSEG & Co 1,1220,273.442 10.18 9.98
I Shares International Fund I
c/o Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55480-8477
EMSEG & Co 8,156,430.569 68.03 66.72
International Fund I
c/o Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55480-8477
Dentru & Co 1,183,127.346 9.87 9.68
1740 Broadway Mail 8676
Denver, CO 80274
DIVERSIFIED EQUITY FUND
A Shares Norwest Investment Svcs., Inc. 70,355.633 5.06
FBO 019023601
Northstar Building East-8th Fl.
608 Second Ave. South
Minneapolis, MN 55479-0162
</TABLE>
B-33
<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>
7 DAY 7 DAY EFFECTIVE 7 DAY TAX-EQUIV 7 DAY TAX-EQUIV
YIELD YIELD YIELD EFFECTIVE YIELD
CASH INVESTMENT FUND 5.24% 5.37% N/A N/A
READY CASH INVESTMENT FUND
Investor Shares 4.86% 4.97% N/A N/A
Exchange Shares 4.11% 4.19% N/A N/A
U.S. GOVERNMENT FUND 5.05% 5.18% N/A N/A
TREASURY PLUS FUND N/A N/A N/A N/A
TREASURY FUND 4.77% 4.89% N/A N/A
MUNICIPAL MONEY MARKET FUND
Investor Shares 3.21% 3.26% 5.31% 5.40%
Institutional Shares 3.41% 3.47% 5.65% 5.75%
</TABLE>
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 5.60% N/A
B Shares 4.88% N/A
I Shares 5.69% N/A
LIMITED TERM GOVERNMENT INCOME FUND
I Shares 5.65% N/A
INTERMEDIATE GOVERNMENT INCOME FUND
A Shares 5.27% N/A
B Shares 4.75% N/A
I Shares 5.50% N/A
DIVERSIFIED BOND FUND
I Shares 5.67% N/A
</TABLE>
C-1
<PAGE>
<TABLE>
<S> <C> <C>
TAX EQUIVALENT
YIELD YIELD
INCOME FUND
A Shares 5.40% N/A
B Shares 4.89% N/A
I Shares 5.64% N/A
TOTAL RETURN BOND FUND
A Shares 5.42% N/A
B Shares 4.88% N/A
I Shares 5.64% N/A
LIMITED TERM TAX-FREE FUND
I Shares 4.11% N/A
TAX-FREE INCOME FUND
A Shares 4.98% 8.25%
B Shares 4.44% 7.35%
I Shares 5.19% 8.60%
COLORADO TAX-FREE FUND
A Shares 4.63% 8.07%
B Shares 4.07% 7.10%
I Shares 4.83% 8.42%
MINNESOTA INTERMEDIATE TAX-FREE FUND
I Shares 4.14% 7.49%
MINNESOTA TAX-FREE FUND
A Shares 4.47% 8.09%
B Shares 3.91% 7.08%
I Shares 4.66% 8.43%
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
AGGRESSIVE BALANCED-EQUITY FUND
I Shares 0.19% 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
C-2
<PAGE>
TAX EQUIVALENT
YIELD YIELD
INDEX FUND
I Shares 1.61% N/A
VALUGROWTH STOCK FUND
A Shares 0.66% N/A
B Shares -0.04% N/A
I Shares 0.68% N/A
INCOME EQUITY FUND
A Shares 1.53% N/A
B Shares 0.87% N/A
I Shares 1.63% N/A
LARGE COMPANY GROWTH FUND
I Shares -0.33% N/A
DIVERSIFIED SMALL CAP FUND
I Shares -0.42% N/A
SMALL COMPANY STOCK FUND
A Shares -0.49% N/A
B Shares -1.27% N/A
I Shares -0.51% N/A
SMALL COMPANY GROWTH FUND
I Shares -0.96% N/A
SMALL CAP OPPORTUNITIES FUND
A Shares N/A N/A
B Shares N/A N/A
I Shares N/A N/A
CONTRARIAN STOCK FUND
I Shares 0.88% N/A
INTERNATIONAL FUND
A Shares N/A N/A
B Shares N/A N/A
I Shares N/A N/A
</TABLE>
C-3
<PAGE>
TABLE 3 - TOTAL RETURNS
The average annual total return of each class of each Fund for the periods ended
May 31, 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 YEAR FIVE TEN SINCE
YEARS YEARS INCEPTION
CASH INVESTMENT FUND 5.42% 4.85% 5.72% 5.80%
READY CASH INVESTMENT FUND
Investor Shares 5.07% 4.49% 5.38% 5.42%
Exchange Shares 4.29% N/A N/A 4.13%
U.S. GOVERNMENT FUND 5.20% 4.68% 5.49% 5.55%
TREASURY FUND 5.00% 4.47% N/A 4.45%
MUNICIPAL MONEY MARKET FUND
Investor Shares 3.18% 2.96% 3.65% 3.68%
Institutional Shares 3.39% 3.15% 3.76% 3.78%
STABLE INCOME FUND
A Shares 4.74% N/A N/A 5.95%
B Shares 4.75% N/A N/A 5.06%
I Shares 6.28% N/A N/A 6.38%
LIMITED TERM GOVERNMENT INCOME FUND
I Shares N/A N/A N/A 4.42%
INTERMEDIATE GOVERNMENT INCOME FUND*
A Shares 5.80% 4.15% 6.78% 7.47%
B Shares 7.38% N/A N/A 6.10%
I Shares 10.19% 5.00% 7.21% 7.75%
DIVERSIFIED BOND FUND*
I Shares 12.39% 6.22% 7.57% 8.50%
INCOME FUND
A Shares 7.97% 4.78% 7.83% 7.70%
B Shares 9.52% N/A N/A 4.63%
I Shares 12.35% 5.62% 8.26% 8.09%
TOTAL RETURN BOND FUND
A Shares 5.08% N/A N/A 5.09%
B Shares 6.64% N/A N/A 5.15%
I Shares 9.45% N/A N/A 6.10%
LIMITED TERM TAX-FREE FUND
I Shares 6.70% N/A N/A 8.27%
TAX-FREE INCOME FUND
A Shares 5.91% 5.93% N/A 6.55%
B Shares 7.52% N/A N/A 5.83%
I Shares 10.22% 6.80% N/A 7.04%
COLORADO TAX-FREE FUND
A Shares 5.56% N/A N/A 5.85%
B Shares 7.25% N/A N/A 5.93%
I Shares 9.97% N/A N/A 6.72%
C-4
<PAGE>
SEC STANDARDIZED RETURNS (CONTINUED)
ONE YEAR FIVE TEN SINCE
YEARS YEARS INCEPTION
MINNESOTA INTERMEDIATE TAX-FREE FUND*
I Shares 7.90% 5.72% 6.87% 6.30%
MINNESOTA TAX-FREE FUND
A Shares 5.33% 5.53% 7.00% 6.61%
B Shares 6.89% N/A N/A 5.43%
I Shares 9.71% 6.39% 7.44% 7.03%
STRATEGIC INCOME FUND*
I Shares 14.13% 9.25% N/A 9.51%
MODERATE BALANCED FUND*
I Shares 17.04% 11.35% N/A 11.29%
GROWTH BALANCED FUND*
I Shares 21.40% 14.57% N/A 13.41%
AGGRESSIVE BALANCED
EQUITY FUND
I Shares N/A N/A N/A 10.55%
INCOME EQUITY FUND*
A Shares 21.56% 19.15% N/A 17.00%
B Shares 24.67% N/A N/A 23.60%
I Shares 28.61% 20.50% N/A 17.72%
INDEX FUND*
I Shares 30.32% 21.44% 17.96% 15.62%
VALUGROWTH STOCK FUND
A Shares 14.48% 14.09% 14.56% 13.73%
B Shares 17.30% N/A N/A 15.08%
I Shares 21.18% 15.35% 15.19% 14.33%
DIVERSIFIED EQUITY FUND*
A Shares 19.16% 18.00% N/A 16.85%
B Shares 22.13% N/A N/A 22.72%
I Shares 26.12% 19.34% N/A 17.56%
GROWTH EQUITY FUND*
A Shares 15.82% 16.14% N/A 15.97%
B Shares 18.63% N/A N/A 17.23%
I Shares 22.52% 17.45% N/A 16.69%
LARGE COMPANY GROWTH FUND*
I Shares 32.29% 20.39% 18.97% 16.03%
DIVERSIFIED SMALL CAP FUND
I Shares N/A N/A N/A 5.20%
SMALL COMPANY STOCK FUND
A Shares 2.14% N/A N/A 11.86%
B Shares 4.29% N/A N/A 12.14%
I Shares 8.12% N/A N/A 13.20%
SMALL COMPANY GROWTH FUND*
I Shares 22.38% 18.79% 20.76% 18.05%
SMALL CAP OPPORTUNITIES FUND
A Shares 15.26% N/A N/A 22.93%
B Shares 18.03% N/A N/A 20.85%
I Shares 21.95% N/A N/A 24.39%
CONTRARIAN STOCK FUND
I Shares 8.87% N/A N/A 9.85%
INTERNATIONAL FUND*
A Shares 5.09% 12.03% 9.10% 7.82%
B Shares 7.39% N/A N/A 11.26%
I Shares 11.19% 13.30% 9.72% 8.38%
C-5
<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 SINCE
MONTHS DATE YEARS YEARS YEARS INCEPTION
CASH INVESTMENT FUND 0.45% 1.33% 2.20% 5.42% 5.38% 4.85% 5.72% 5.80%
READY CASH INVESTMENT FUND
Investor Shares 0.41% 1.23% 2.06% 5.07% 5.04% 4.49% 5.38% 5.42%
Exchange Shares 0.35% 1.04% 1.74% 4.29% 4.25% N/A N/A 4.13%
U.S. GOVERNMENT FUND 0.43% 1.27% 2.11% 5.20% 5.17% 4.68% 5.49% 5.55%
TREASURY FUND 0.41% 1.24% 2.04% 5.00% 4.97% 4.47% N/A 4.45%
MUNICIPAL MONEY MARKET FUND
Investor Shares 0.27% 0.78% 1.27% 3.18% 3.19% 2.96% 3.65% 3.68%
Institutional Shares 0.29% 0.84% 1.35% 3.39% 3.40% 3.15% 3.76% 3.78%
STABLE INCOME FUND
A Shares 0.35% 1.13% 2.23% 6.38% 6.08% N/A N/A 6.41%
B Shares 0.30% 0.86% 1.83% 5.50% N/A N/A N/A 5.41%
I Shares 0.26% 1.04% 2.13% 6.28% 6.04% N/A N/A 6.38%
LIMITED TERM GOVERNMENT
INCOME FUND
I Shares 0.68% 1.52% 2.38% N/A N/A N/A N/A N/A
INTERMEDIATE GOVERNMENT
INCOME FUND*
A Shares 0.95% 1.57% 2.78% 10.19% 6.62% 5.01% 7.21% 7.75%
B Shares 0.80% 1.38% 2.38% 9.38% N/A N/A N/A 7.01%
I Shares 0.86% 1.48% 2.69% 10.19% 6.62% 5.00% 7.21% 7.75%
DIVERSIFIED BOND FUND*
I Shares 1.20% 1.81% 3.05% 12.39% 7.49% 6.22% 7.57% 8.50%
INCOME FUND
A Shares 1.35% 2.00% 3.04% 12.47% 7.20% 5.64% 8.26% 8.10%
B Shares 1.19% 1.81% 2.72% 11.52% 6.42% N/A N/A 4.63%
I Shares 1.35% 2.01% 3.04% 12.35% 7.20% 5.62% 8.26% 8.09%
TOTAL RETURN BOND FUND
A Shares 1.03% 1.84% 2.55% 9.46% 6.54% N/A N/A 6.07%
B Shares 0.96% 1.65% 2.23% 8.64% 5.82% N/A N/A 5.34%
I Shares 1.02% 1.73% 2.54% 9.45% 6.58% N/A N/A 6.10%
LIMITED TERM TAX-FREE FUND
I Shares 1.14% 1.12% 1.85% 6.70% N/A N/A N/A 8.27%
TAX-FREE INCOME FUND
A Shares 2.27% 1.47% 2.20% 10.33% 8.00% 6.80% N/A 7.04%
B Shares 2.20% 1.18% 1.89% 9.52% 7.20% N/A N/A 5.83%
I Shares 2.17% 1.38% 2.20% 10.22% 8.00% 6.80% N/A 7.04%
COLORADO TAX-FREE FUND
A Shares 2.03% 1.15% 2.06% 9.96% 8.08% N/A N/A 6.72%
B Shares 1.97% 1.05% 1.74% 9.25% 7.31% N/A N/A 5.93%
I Shares 1.94% 1.15% 2.06% 9.97% 8.09% N/A N/A 6.72%
</TABLE>
C-6
<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 SINCE
MONTHS DATE YEARS YEARS YEARS INCEPTION
MINNESOTA INTERMEDIATE
TAX-FREE FUND*
I Shares 0.68% 1.52% 2.38% N/A N/A N/A N/A N/A
MINNESOTA TAX-FREE FUND
A Shares 1.98% 1.30% 2.37% 9.71% 7.19% 6.39% 7.44% 7.03%
B Shares 1.91% 1.20% 2.05% 8.89% 6.43% N/A N/A 5.43%
I Shares 1.98% 1.30% 2.37% 9.71% 7.19% 6.39% 7.44% 7.03%
STRATEGIC INCOME FUND*
I Shares 0.20% 2.09% 4.88% 14.13% 11.26% 9.25% N/A 9.51%
MODERATE BALANCED FUND*
I Shares -0.39% 2.50% 6.78% 17.04% 14.28% 11.35% N/A 11.29%
GROWTH BALANCED FUND*
I Shares -1.02% 3.05% 9.06% 21.40% 18.95% 14.57% 0.00% 13.41%
INCOME EQUITY FUND*
A Shares -1.46% 4.68% 11.85% 28.64% 26.42% 20.50% N/A 17.72%
B Shares -1.51% 4.49% 11.51% 27.67% N/A N/A N/A 24.74%
I Shares -1.46% 4.66% 11.85% 28.61% 26.41% 20.50% N/A 17.72%
INDEX FUND*
I Shares -1.76% 4.27% 12.99% 30.32% 28.88% 21.44% 17.96% 15.62%
VALUGROWTH STOCK FUND
A Shares -3.04% 1.75% 10.53% 21.15% 22.05% 15.41% 15.20% 14.35%
B Shares -3.11% 1.58% 10.21% 20.30% 21.14% N/A N/A 15.32%
I Shares -3.04% 1.79% 10.54% 21.18% 22.06% 15.35% 15.19% 14.33%
DIVERSIFIED EQUITY FUND*
A Shares 0.95% 1.57% 2.78% 10.19% 6.62% 5.01% 7.21% 7.75%
B Shares 0.80% 1.38% 2.38% 9.38% N/A N/A N/A 7.01%
I Shares 0.86% 1.48% 2.69% 10.19% 6.62% 5.00% 7.21% 7.75%
GROWTH EQUITY FUND*
A Shares -3.09% 2.29% 11.38% 22.55% 21.72% 17.46% N/A 16.70%
B Shares -3.16% 2.09% 11.03% 21.63% N/A N/A N/A 18.44%
I Shares -2.09% 3.68% 12.28% 26.12% 24.99% 19.34% N/A 17.56%
LARGE COMPANY GROWTH FUND*
I Shares -3.22% 1.86% 12.82% 32.29% 28.73% 20.39% 18.97% 16.03%
SMALL COMPANY STOCK FUND
A Shares -7.69% -4.76% 2.30% 8.07% 16.68% N/A N/A 13.30%
B Shares -7.81% -4.93% 1.94% 7.29% 15.83% N/A N/A 12.44%
I Shares -7.73% -4.71% 2.32% 8.12% 16.70% N/A N/A 13.20%
SMALL COMPANY GROWTH FUND*
I Shares -8.05% -2.74% 3.89% 22.38% 23.97% 18.79% 20.76% 18.05%
SMALL CAP OPPORTUNITIES FUND
A Shares -5.14% 0.85% 5.50% 21.97% 28.99% N/A N/A 24.38%
B Shares -5.16% 0.69% 5.19% 21.03% N/A N/A N/A 22.57%
I Shares -5.10% 0.90% 5.50% 21.95% 29.01% N/A N/A 24.39%
INTERNATIONAL FUND*
A Shares 0.80% 7.34% 17.09% 11.20% 12.32% 13.30% 9.72% 8.42%
B Shares 0.72% 7.14% 16.75% 10.39% 11.46% N/A N/A 11.79%
I Shares 0.76% 7.34% 17.08% 11.19% 12.29% 13.30% 9.72% 8.38%
</TABLE>
C-7
<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.
The Large Company Growth Fund's investment policy of seeking to invest in
companies whose long term earnings are expected to grow 50% faster than the
market, as measure by the earnings of S&P 500 Index stocks.
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.
D-1
<PAGE>
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.
