As filed with the Securities and Exchange Commission on September 30, 1998
File Nos. 33-9645 and 811-4881
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
Post-Effective Amendment No. 57
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 58
NORWEST ADVANTAGE FUNDS
(Formerly "Norwest Funds" and "Prime Value Funds, Inc.")
Two Portland Square
Portland, Maine 04101
(207) 879-1900
Don L. Evans, Esq.
Forum Financial Services, Inc.
Two Portland Square
Portland, Maine 04101
Copies to:
Anthony C. J. Nuland, Esq.
Seward & Kissel
1200 G Street, N.W.
Washington, D.C. 20005
It is proposed that this filing will become effective:
[X] immediately upon filing pursuant to Rule 485, paragraph (b)
[ ] on _______pursuant to Rule 485, paragraph (b)
[ ] 60 days after filing pursuant to Rule 485, paragraph (a)(1)
[ ] on _______pursuant to Rule 485, paragraph(a)(1)
[ ] 75 days after filing pursuant to Rule 485, paragraph (a)(2)
[ ] on________pursuant to Rule 485, paragraph (a)(2)
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment ________.
Cash Investment Fund, Ready Cash Investment Fund, Treasury Fund, Stable Income
Fund, Diversified Bond Fund, Total Return Bond Fund, Strategic Income Fund,
Moderate Balanced Fund, Growth Balanced Fund, Aggressive Balanced-Equity Fund,
Index Fund, Income Equity Fund, Diversified Equity Fund, Growth Equity Fund,
Large Company Growth Fund, Diversified Small Cap Fund, Small Company Stock Fund,
Small Cap Opportunities Fund, Small Company Growth Fund, International Fund,
Performa Strategic Value Bond Fund, Performa Disciplined Growth Fund, Performa
Small Cap Value Fund and Performa Global Growth Fund of Registrant are
structured as master-feeder funds and this amendment is also executed by Core
Trust (Delaware) and Schroder Capital Funds.
<PAGE>
CROSS REFERENCE SHEET
(As required by Rule 481(a))
(Prospectuses offering A and B Shares of Stable Income Fund, Intermediate
Government Income Fund, Income Fund, Total Return Bond Fund, A, B and C Shares
of Growth Balanced Fund, Income Equity Fund, A and B Shares of ValuGrowthSM
Stock Fund, A, B and C Shares of Diversified Equity Fund, A and B Shares of
Growth Equity Fund, Large Company Growth Fund, Diversified Small Cap Fund, Small
Company Stock Fund, Small Cap Opportunities Fund, International Fund, Tax-Free
Income Fund, Colorado Tax-Free Fund, Minnesota Tax-Free Fund, Shares of Cash
Investment Fund, Investor Shares of Ready Cash Investment Fund, Shares of U.S.
Government Fund, Treasury Plus Fund, Treasury Fund and Institutional Shares and
Investor Shares of Municipal Money Market Fund and)
PART A
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Form N-1A Item No. Location in Prospectus
Item 1. Cover Page Cover Page
Item 2. Synopsis Overview
Item 3. Condensed Financial Information Financial Highlights; Other Information
Item 4. General Description of Registrant Overview; Investment Objectives and Policies -
Additional Investment Policies and Risk
Considerations; Other Information
Item 5. Management of the Fund Overview; Management
Item 5A. Management's Discussion of Fund Performance Not Applicable
Item 6. Capital Stock and Other Securities Cover Page; Dividends and Tax Matters; Other
Information
Item 7. Purchase of Securities Being Offered How to Buy Shares; Management
Item 8. Redemption or Repurchase How to Sell Shares
Item 9. Pending Legal Proceedings Not Applicable
</TABLE>
<PAGE>
CROSS REFERENCE SHEET
(As required by Rule 481(a))
(Prospectus offering Shares of Cash Investment Fund, Investor Shares of Ready
Cash Investment Fund, Shares of U.S. Government Fund, Treasury Plus Fund,
Treasury Fund, Institutional Shares and Investor Shares of Municipal Money
Market Fund, I Shares of Stable Income Fund, Limited Term Government Income
Fund, Intermediate Government Income Fund, Diversified Bond Fund, Income Fund,
Total Return Bond Fund, Strategic Income Fund, Limited Term Tax-Free Fund,
Tax-Free Income Fund, Colorado Tax-Free Fund, Minnesota Intermediate Tax-Free
Fund, Minnesota Tax-Free Fund, Moderate Balanced Fund, Growth Balanced Fund,
Aggressive Balanced-Equity Fund, Index Fund, Income Equity Fund, ValuGrowthSM
Stock Fund, Diversified Equity Fund, Growth Equity Fund, Large Company Growth
Fund, Diversified Small Cap Fund, Small Company Stock Fund, Small Cap
Opportunities Fund, Small Company Growth Fund and International Fund)
PART A
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Form N-1A Item No. Location in Prospectus
Item 1. Cover Page Cover Page
Item 2. Synopsis Overview
Item 3. Condensed Financial Information Financial Highlights; Other Information
Item 4. General Description of Registrant Overview; Investment Objectives and Policies;
Risk Considerations; Other Information
Item 5. Management of the Fund Overview; Management of the Funds
Item 5A. Management's Discussion of Fund Performance Not Applicable
Item 6. Capital Stock and Other Securities Cover Page; Dividends and Tax Matters; Other
Information
Item 7. Purchase of Securities Being Offered Purchases and Redemptions of Shares; Management
of the Funds
Item 8. Redemption or Repurchase Purchases and Redemptions of Shares
Item 9. Pending Legal Proceedings Not Applicable
</TABLE>
<PAGE>
CROSS REFERENCE SHEET
(As required by Rule 481(a))
(Prospectuses offering Public Entities Shares of Ready Cash Investment Fund)
PART A
<PAGE>
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Form N-1A Item No. Location in Prospectus
Item 1. Cover Page Cover Page
Item 2. Synopsis Prospectus Summary
Item 3. Condensed Financial Information Not Applicable
Item 4. General Description of Registrant Prospectus Summary; Investment Objective and
Policies - Additional Investment Policies and
Risk Considerations; Other Information - The
Trust and Its Shares
Item 5. Management of the Fund Prospectus Summary; Management - Management,
Administration and Distribution Services
Item 5A. Management's Discussion of Fund Performance Not Applicable
Item 6. Capital Stock and Other Securities Cover Page; Dividends and Tax Matters; Other
Information - The Trust and Its Shares
Item 7. Purchase of Securities Being Offered Purchases and Redemptions of Shares; Management -
Management, Administration and Distribution
Services
Item 8. Redemption or Repurchase Purchases and Redemptions of Shares - Redemption
Procedures
Item 9. Pending Legal Proceedings Not Applicable
</TABLE>
CROSS REFERENCE SHEET
(As required by Rule 481(a))
(Prospectus offering Exchange Shares of Ready Cash Investment Fund)
PART A
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Form N-1A Item No. Location in Prospectus
Item 1. Cover Page Cover Page
Item 2. Synopsis Prospectus Summary
Item 3. Condensed Financial Information Financial Highlights
Item 4. General Description of Registrant Prospectus Summary; Investment Objective and
Policies - Additional Investment Policies and
Risk Considerations; Other Information - The
Trust and Its Shares
Item 5. Management of the Fund Prospectus Summary; Management - Management,
Administration and Distribution Services
Item 5A. Management's Discussion of Fund Performance Not Applicable
Item 6. Capital Stock and Other Securities Cover Page; Dividends and Tax Matters; Other
Information - The Trust and Its Shares
Item 7. Purchase of Securities Being Offered Purchase of Shares; Management - Management,
Administration and Distribution Services
Item 8. Redemption or Repurchase Redemptions of Shares
Item 9. Pending Legal Proceedings Not Applicable
</TABLE>
<PAGE>
CROSS REFERENCE SHEET
(As required by Rule 481(a))
(Prospectus offering Shares of Performa Strategic Value Bond Fund, Performa
Disciplined Growth Fund, Performa Small Cap Value Fund,
and Performa Global Growth Fund)
PART A
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Form N-1A Item No. Location in Prospectus
Item 1. Cover Page Cover Page
Item 2. Synopsis Overview
Item 3. Condensed Financial Information Financial Highlights; Other Information
Item 4. General Description of Registrant Overview; Investment Objectives and Policies;
Other Information
Item 5. Management of the Fund Overview; Management of the Funds
Item 5A. Management's Discussion of Fund Performance Not Applicable
Item 6. Capital Stock and Other Securities Cover Page; Distributions and Tax Matters; Other
Information
Item 7. Purchase of Securities Being Offered Purchases and Redemptions of Shares; Management
Item 8. Redemption or Repurchase Purchases and Redemptions of Shares
Item 9. Pending Legal Proceedings Not Applicable
</TABLE>
<PAGE>
CROSS REFERENCE SHEET
(As required by Rule 481(a))
(Prospectus offering Shares of Norwest WealthBuilder II Growth Portfolio,
Norwest WealthBuilder II Growth and Income Portfolio and
Norwest WealthBuilder II Growth Balanced Portfolio)
PART A
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Form N-1A Item No. Location in Prospectus
Item 1. Cover Page Cover Page
Item 2. Synopsis Prospectus Summary
Item 3. Condensed Financial Information Financial Highlights; Other Information - Performance Information
Item 4. General Description of Registrant Prospectus Summary; Investment Objectives and
Policies; Other Matters - The Trust and Its Shares
Item 5. Management of the Fund Prospectus Summary; Management of the Portfolios
Item 5A. Management's Discussion of Fund Performance Performance Information
Item 6. Capital Stock and Other Securities Cover Page; Dividends and Tax Matters; Other
Matters - The Trust and Its Shares
Item 7. Purchase of Securities Being Offered Purchases and Redemptions of Shares; How to Buy
Shares
Item 8. Redemption or Repurchase Purchases and Redemptions of Shares; How to Sell
Shares
Item 9. Pending Legal Proceedings Not Applicable
</TABLE>
<PAGE>
CROSS REFERENCE SHEET
(As required by Rule 481(a))
(SAI offering Shares of Cash Investment Fund, Ready Cash Investment Fund, U.S.
Government Fund, Treasury Fund, Treasury Plus Fund, Municipal Money Market Fund,
Stable Income Fund, Limited Term Government Income Fund, Intermediate Government
Income Fund, Diversified Bond Fund, Income Fund, Total Return Bond Fund,
Strategic Income Fund, Limited Term Tax-Free Fund, Tax-Free Income Fund,
Colorado Tax-Free Fund, Minnesota Intermediate Tax-Free Fund, Minnesota Tax-Free
Fund, Moderate Balanced Fund, Growth Balanced Fund, Aggressive Balanced-Equity
Fund, Index Fund, Income Equity Fund, ValuGrowthSM Stock Fund, Diversified
Equity Fund, Growth Equity Fund, Large Company Growth Fund, Diversified Small
Cap Fund, Small Company Stock Fund, Small Company Growth Fund, Small Cap
Opportunities Fund, Contrarian Stock Fund and International Fund)
PART B
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Form N-1A Item No. Location in Statement of Additional Information
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History Prospectus
Item 13. Investment Objectives and Other Policies Investment Policies; Investment Limitations
Item 14. Management of the Fund Management - Management and Administrative
Services; Additional Information About the Trust
and the Shareholders of the Funds
Item 15. Control Persons and Principal Holders of Additional Information About the Trust and the
Securities Shareholders of the Funds
Item 16. Investment Advisory and Other Services Management - Investment Advisory Services
Item 17. Brokerage Allocation and Other Practices Portfolio Transactions
Item 18. Capital Stock and Other Securities Additional Information About the Trust and the
Shareholders of the Fund
Item 19. Purchase, Redemption and Pricing of Additional Purchase and Redemption Information
Securities Being Offered
Item 20. Tax Status Taxation
Item 21. Underwriters Portfolio Transactions
Item 22. Calculation of Performance Data Performance and Advertising Data
Item 23. Financial Statements Additional Information About the Trust and the
Shareholders of the Funds - Financial Statements
</TABLE>
<PAGE>
CROSS REFERENCE SHEET
(As required by Rule 481(a))
(SAI offering Shares of Performa Strategic Value Bond Fund, Performa
Disciplined Growth Fund, Performa Small Cap Value Fund, and
Performa Global Growth Fund)
PART B
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Form N-1A Item No. Location in Statement of Additional Information
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History Prospectus
Item 13. Investment Objectives and Other Policies Investment Policies; Investment Limitations
Item 14. Management of the Fund Management - Management and Administrative
Services; Additional Information About the Trust
and the Shareholders of the Funds
Item 15. Control Persons and Principal Holders of Additional Information About the Trust and the
Securities Shareholders of the Funds
Item 16. Investment Advisory and Other Services Management - Investment Advisory Services
Item 17. Brokerage Allocation and Other Practices Portfolio Transactions
Item 18. Capital Stock and Other Securities Additional Information About the Trust and the
Shareholders of the Fund
Item 19. Purchase, Redemption and Pricing of Additional Purchase and Redemption Information
Securities Being Offered
Item 20. Tax Status Taxation
Item 21. Underwriters Management
Item 22. Calculation of Performance Data Performance and Advertising Data
Item 23. Financial Statements Additional Information About the Trust and the
Shareholders of the Funds - Financial Statements
</TABLE>
<PAGE>
CROSS REFERENCE SHEET
(As required by Rule 481(a))
(SAI offering Shares of Norwest WealthBuilder II Growth Portfolio, Norwest
WealthBuilder II Growth and Income Portfolio and Norwest
WealthBuilder II Growth Balanced Portfolio)
PART B
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Form N-1A Item No. Location in Statement of Additional Information
Item 10. Cover Page Cover Page
Item 11. Table of Contents Cover Page
Item 12. General Information and History Prospectus
Item 13. Investment Objectives and Other Policies Investment Policies; Investment Limitations
Item 14. Management of the Fund Management - Management and Administrative
Services
Item 15. Control Persons and Principal Holders of Additional Information About the Trust and the
Securities Shareholders of the Portfolios - Shareholdings
Item 16. Investment Advisory and Other Services Management - Investment Advisory Services
Item 17. Brokerage Allocation and Other Practices Portfolio Transactions
Item 18. Capital Stock and Other Securities Additional Information About the Trust and the
Shareholders of the Portfolios - Shareholdings
Item 19. Purchase, Redemption and Pricing of Additional Purchase and Redemption Information
Securities Being Offered
Item 20. Tax Status Taxation
Item 21. Underwriters Portfolio Transactions
Item 22. Calculation of Performance Data Performance and Advertising Data
Item 23. Financial Statements Additional Information About the Trust and the
Shareholders of the Portfolios - Financial
Statements
</TABLE>
<PAGE>
NORWEST ADVANTAGE FUNDS
October 1, 1998
CASH INVESTMENT FUND
READY CASH
INVESTMENT FUND
U.S. GOVERNMENT FUND
TREASURY PLUS FUND
TREASURY FUND
MUNICIPAL
MONEY MARKET FUND
AN INVESTMENT IN A FUND IS NOT A DEPOSIT OF NORWEST BANK MINNESOTA, N.A. OR ANY
OTHER BANK AND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
ALTHOUGH THE FUNDS SEEK TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER
SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THESE FUNDS.
NO GOVERNMENTAL AGENCY, INCLUDING THE U.S. SECURITIES AND EXCHANGE COMMISSION,
HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED WHETHER OR NOT THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
Table of Contents
1 OVERVIEW........................................................
Expense Information.............................................
2 FINANCIAL HIGHLIGHTS............................................
3 GLOSSARY........................................................
4 INVESTMENT OBJECTIVES AND POLICIES..............................
Cash Investment Fund and Ready Cash Investment Fund.............
U.S. Government Fund............................................
Treasury Plus Fund..............................................
Treasury Fund...................................................
Municipal Money Market Fund.....................................
5 RISK CONSIDERATIONS.............................................
6 COMMON POLICIES.................................................
7 MANAGEMENT OF THE FUNDS.........................................
Investment Advisory Services....................................
Other Fund Services.............................................
8 PURCHASES AND SALES OF SHARES...................................
General Purchase Information....................................
General Redemption Information..................................
Exchanges.......................................................
9 DISTRIBUTIONS AND TAX MATTERS...................................
Distributions...................................................
Tax Matters.....................................................
10 OTHER INFORMATION...............................................
Determination of Net Asset Value................................
Additional Information About the Portfolios.....................
i
<PAGE>
1. OVERVIEW
The following is a summary of information about the Funds. Before investing, you
should read the prospectus and consider the discussions under Investment
Objectives and Policies and Risk Considerations.
No single Fund is a complete or balanced investment program, but each can serve
as a part of your overall investment program.
THE FUNDS AT A GLANCE
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FUND OBJECTIVE PRIMARY INVESTMENTS
CASH INVESTMENT FUND AND High current income, preservation High-quality money market
READY CASH INVESTMENT FUND of capital, and liquidity. instruments of U.S. and foreign
issuers.
U.S. GOVERNMENT FUND High current income, preservation Securities issued or guaranteed by
of capital, and liquidity. the U.S. Government, its agencies,
and its instrumentalities.
TREASURY PLUS FUND High current income, preservation Securities issued or guaranteed by
of capital, and liquidity. the U.S. Treasury and repurchase
agreements on those obligations.
TREASURY FUND High current income, preservation Securities issued or guaranteed by
of capital, and liquidity. the U.S. Treasury.
MUNICIPAL MONEY MARKET FUND High current tax-exempt income, Municipal securities paying
preservation of capital, and interest exempt from federal
liquidity. income tax.
</TABLE>
CLASSES OF SHARES
This Prospectus offers certain classes of shares of the Funds. Each class is
designed for a different type of investor and may have different fees or
investment minimums.
* All of the Funds, except Ready Cash Investment Fund, offer Institutional
Shares. Institutional Shares are designed for institutional investors.
* Ready Cash Investment Fund and Municipal Money Market Fund offer Investor
Shares. Investor Shares are designed for retail investors.
FUND STRUCTURES
Some of the Funds invest directly in a portfolio of securities. Other Funds
invest in 1 or more other funds identified in this prospectus as Portfolios.
Portfolios do not offer their shares to the public. Except when necessary to
describe a Fund's investment in a Portfolio, this prospectus discusses a Fund's
investments in a Portfolio as if the investments were made directly in
individual securities.
MANAGEMENT OF THE FUNDS
NORWEST INVESTMENT MANAGEMENT, INC. or NORWEST is the investment adviser of the
Funds and Portfolios. Norwest, a subsidiary of Norwest Bank Minnesota, N.A. or
Norwest Bank, provides investment advice to institutions, pension plans, and
other accounts and currently manages more than $29 billion in assets. This
prospectus generally refers to Norwest as the Adviser.
The FORUM FINANCIAL GROUP of companies provide management, administrative, and
underwriting services to the Funds.
<PAGE>
INVESTMENT MINIMUMS
You may purchase or redeem the Funds' shares without sales or other charges.
* Investor Shares require a minimum initial investment of $1,000 and minimum
subsequent investments of $100.
* Institutional Shares require a minimum initial investment of $100,000 and
have no minimum subsequent investment requirement.
EXCHANGES
If you own shares of a Fund, you may exchange them for shares of certain other
Funds. Your exchange rights will vary depending on the class of shares you own.
DISTRIBUTIONS
Each Fund distributes to shareholders its net capital gain, if any, at least
annually. The DISTRIBUTIONS AND TAX MATTERS section discusses how often the
Funds distribute net investment income.
RISK FACTORS
Investment in a Fund is subject to risk. There is the risk that a Fund may not
be able to maintain a stable net asset value of $1.00 per share. The amount and
types of risk vary from Fund to Fund depending on the Adviser's strategy, the
investments that the Fund makes, and prevailing economic conditions over the
period of your investment.
If you invest in a Fund, the income you receive will vary with changes in
interest rates. In addition, the Funds' investments have "credit risk," which is
the risk that an issuer will be unable, or will be perceived to be unable, to
pay the principal and interest on its obligations when due. Some of the Funds
reduce credit risk by investing primarily or exclusively in U.S.
Government securities.
Each Fund has the risk that its Adviser may not be successful in carrying out
its investment strategy, that a portfolio manager may prove difficult to replace
if he or she becomes unavailable to manage the Fund and that the Fund's
particular investment strategy may result in performance that is worse or better
than the performance of the market as a whole.
2
<PAGE>
EXPENSES OF INVESTING IN THE FUNDS
The following table will assist you in understanding the expenses that you will
bear directly or indirectly when you invest in a Fund. There are no transaction
charges for purchasing, redeeming, or exchanging shares. The Funds do not have
distribution expenses.
ANNUAL FUND OPERATING EXPENSES(5)
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS AFTER
APPLICABLE EXPENSE REIMBURSEMENTS AND FEE WAIVERS)
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THE FUNDS THE PORTFOLIOS
--------- --------------
Investment Advisory Other Expenses Investment Other Total Operating
------------------- -------------- ---------- ----- ---------------
Fees(3) Advisory Fees Expenses Expenses
------- ------------- -------- --------
FUNDS
Cash Investment Fund(1) N/A 0.22% 0.22% 0.04% 0.48%(4)
Ready Cash Investment Fund(1)
(Investor Shares) N/A 0.42% 0.33% 0.07% 0.82%(4)
U.S. Government Fund 0.14% 0.36% N/A N/A 0.50%
Treasury Plus Fund(2) 0.20% 0.30% N/A N/A 0.50%
Treasury Fund 0.15% 0.31% N/A N/A 0.46%
Municipal Money Market Fund(3)
Institutional Shares 0.32% 0.13% N/A N/A 0.45%
Investor Shares 0.32% 0.33% N/A N/A 0.65%
</TABLE>
(1) Cash Investment Fund and Ready Cash Investment Fund bear their pro rata
share of the expenses of the Portfolios in which they invest.
(2) The expenses, and any waivers and reimbursements, for Treasury Plus
Fund are estimated.
(3) Absent waivers, Investment Advisory Fees for Municipal Money Market
Fund Investor Shares and Institutional Shares would be 0.34%. Absent
waivers The Portfolio - Investment Advisory Fees for Cash Investment
Fund would be 0.24%.
(4) Norwest and the Funds' Administrator have agreed to waive their fees
in order to maintain Cash Investment Fund's total operating expenses
through May 31, 1999 at 0.48%. Any reduction of those waivers after
May 31, 1999 requires approval by the Fund's Board of Trustees.
Norwest and the Funds' Administrator have agreed to waive their
respective fees or reimburse expenses in order to maintain Ready Cash
Investment Fund's total operating expenses at 0.82%. Any reduction of
those waivers or reimbursements requires Board review.
(5) Absent expense reimbursements and fee waivers, Funds-Other Expenses
and Total Operating Expenses would be: Cash Investment Fund 0.26% and
0.56%, U.S. Government Fund 0.38% and 0.52%, Treasury Plus Fund 0.40%
and 0.60%, Treasury Fund 0.39% and 0.54% and Municipal Money Market
Fund Investor Shares 0.49% and 0.83% and Institutional Shares 0.25%
and 0.59%. Absent expense reimbursements and fee waivers, Portfolios-
Other Expenses would be Cash Investment Fund 0.07%. Except as
otherwise noted, expense reimbursements and fee waivers are voluntary
and may be reduced or eliminated at any time.
3
<PAGE>
EXAMPLE
The following hypothetical example indicates the dollar amount of expenses you
would pay, assuming a $1,000 investment in a Fund's shares, the expenses listed
in the Annual Fund Operating Expenses table, a 5% annual return, and
reinvestment of all distributions. THE EXAMPLE DOES NOT REPRESENT PAST OR FUTURE
EXPENSES OR RETURN. ACTUAL EXPENSES AND RETURN MAY BE GREATER OR LESS THAN THOSE
SHOWN IN THE EXAMPLE.
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HYPOTHETICAL EXPENSE EXAMPLE
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------------------------------------
Cash Investment Fund $5 $15 $27 $60
Ready Cash Investment Fund
Investor Shares 8 26 46 101
U.S. Government Fund 5 16 28 63
Treasury Plus Fund 5 16 28 63
Treasury Fund 5 15 26 58
Municipal Money Market Fund
Investor Shares 5 14 25 57
Institutional Shares 7 21 36 81
</TABLE>
4
<PAGE>
2. FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand each
Fund's financial performance for 10 years or, if shorter, the Fund's
operating history. Certain information reflects financial results for a
single Fund share. The total returns in the table represent the rate that an
investor would have earned on an investment in a Fund, assuming reinvestment
of all distributions. The information from June 1, 1994 through May 31, 1998
has been audited by KPMG Peat Marwick LLP, independent auditors, whose
report dated July 21, 1998 about a Fund, along with the Fund's financial
statements, are included in the Fund's Annual Report, which is available at
no charge upon request. These financial statements are incorporated by
reference into the SAI. Other independent auditors audited information for
prior periods.
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Distributions Ending
Beginning Net Net from Net Net Asset
Asset Value Investment Investment Value Per
Per Share Income Income Share
- -----------------------------------------------------------------------------------------------------------
CASH INVESTMENT FUND
Year Ended May 31, 1998 $1.00 $0.053 ($0.053) $1.00
Year Ended May 31, 1997 $1.00 $0.051 ($0.051) $1.00
Year Ended May 31, 1996 $1.00 $0.054 ($0.054) $1.00
Year Ended May 31, 1995 $1.00 $0.049 ($0.049) $1.00
Year Ended May 31, 1994 $1.00 $0.031 ($0.031) $1.00
Year Ended May 31, 1993 $1.00 $0.033 ($0.033) $1.00
December 1, 1991 to May 31, 1992 $1.00 $0.021 ($0.021) $1.00
Year Ended November 30, 1991 $1.00 $0.061 ($0.061) $1.00
Year Ended November 30, 1990 $1.00 $0.079 ($0.079) $1.00
Year Ended November 30, 1989 $1.00 $0.088 ($0.088) $1.00
Year Ended November 30, 1988 $1.00 $0.071 ($0.071) $1.00
- ----------------------------------------------------------------------------------------------
(a) The ratio of Gross Expenses to Average Net Assets does not reflect fee
waivers or expense reimbursements.
(b) Includes expenses allocated from the Portfolio(s) in which the Fund
invests.
(c) Annualized.
</TABLE>
Ratio to Average
Net Assets
- ------------------------------------------------------------------
Net Net Assets at
Investment Net Gross Total End of Period
Income Expenses Expenses(a) Return (000's Omitted)
- ------------------------------------------------------------------
5.29%(b) 0.48%(b) 0.57%(b) 5.42% $4,685,818
5.07% 0.48% 0.49% 5.21% $2,147,894
5.36% 0.48% 0.49% 5.50% $1,739,549
4.87% 0.48% 0.50% 4.96% $1,464,304
3.11% 0.49% 0.49% 3.16% $1,381,402
3.29% 0.50% 0.51% 3.36% $1,944,948
4.23%(c) 0.50%(c) 0.56%(c) 4.29%(c) $1,292,196
6.11% 0.51% 0.54% 6.31% $1,004,979
7.92% 0.45% 0.57% 8.22% $747,744
8.81% 0.45% 0.64% 9.22% $662,698
7.00% 0.43% 0.74% 7.32% $316,349
5
<PAGE>
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Distributions Ending
Beginning Net Net from Net Net Asset
Asset Value Investment Investment Value Per
Per Share Income Income Share
- ------------------------------------------------------------------------------------------------------------
READY CASH INVESTMENT FUND
Investor Shares
Year Ended May 31, 1998 $1.00 $0.050 ($0.050) $1.00
Year Ended May 31, 1997 $1.00 $0.047 ($0.047) $1.00
Year Ended May 31, 1996 $1.00 $0.051 ($0.051) $1.00
Year Ended May 31, 1995 $1.00 $0.045 ($0.045) $1.00
Year Ended May 31, 1994 $1.00 $0.027 ($0.027) $1.00
Year Ended May 31, 1993 $1.00 $0.030 ($0.030) $1.00
December 1, 1991 to May 31, 1992 $1.00 $0.020 ($0.020) $1.00
Year Ended November 30, 1991 $1.00 $0.058 ($0.058) $1.00
Year Ended November 30, 1990 $1.00 $0.076 ($0.076) $1.00
Year Ended November 30, 1989 $1.00 $0.085 ($0.085) $1.00
January 20, 1988 to November 30, 1988(d) $1.00 $0.059 ($0.059) $1.00
- -----------------------------------------------------------------------------------------------
(a) The ratio of Gross Expenses to Average Net Assets does not reflect fee
waivers or expense reimbursements.
(b) Includes expenses allocated from Portfolio(s) in which the Fund invests.
(c) Annualized.
(d) Commencement of operations; the initial class of shares became Investor
Shares.
</TABLE>
Ratio to Average
Net Assets
- -------------------------------------------------------------------
Net Net Assets at
Investment Net Gross Total End of Period
Income Expenses Expenses(a) Return (000's Omitted)
- ------------------------------------------------------------------
4.95%(b) 0.82%(b) 0.82%(b) 5.07% $789,380
4.75% 0.82% 0.83% 4.87% $576,011
5.02% 0.82% 0.87% 5.17% $473,879
4.64% 0.82% 0.91% 4.62% $268,603
2.70% 0.82% 0.92% 2.74% $164,138
3.04% 0.82% 0.94% 3.08% $162,585
4.01%(c) 0.82%(c) 0.93%(c) 4.05%(c) $176,378
5.81% 0.82% 0.96% 5.98% $183,775
7.56% 0.82% 0.97% 7.83% $166,911
8.51% 0.81% 0.99% 8.86% $144,117
7.11%(c) 0.77%(c) 1.13%(c) 6.97%(c) $46,736
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Distributions Ending
Beginning Net Net from Net Net Asset
Asset Value Investment Investment Value Per
Per Share Income Income Share
- -----------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT FUND
Year Ended May 31, 1998 $1.00 $0.051 ($0.051) $1.00
Year Ended May 31, 1997 $1.00 $0.049 ($0.049) $1.00
Year Ended May 31, 1996 $1.00 $0.052 ($0.052) $1.00
Year Ended May 31, 1995 $1.00 $0.047 ($0.047) $1.00
Year Ended May 31, 1994 $1.00 $0.030 ($0.030) $1.00
Year Ended May 31, 1993 $1.00 $0.030 ($0.030) $1.00
December 1, 1991 to May 31, 1992 $1.00 $0.020 ($0.020) $1.00
Year Ended November 30, 1991 $1.00 $0.058 ($0.058) $1.00
Year Ended November 30, 1990 $1.00 $0.077 ($0.077) $1.00
Year Ended November 30, 1989 $1.00 $0.085 ($0.085) $1.00
Year Ended November 30, 1988 $1.00 $0.069 ($0.069) $1.00
- -----------------------------------------------------------------------------------------------
(a) The ratio of Gross Expenses to Average Net Assets does not reflect fee
waivers or expense reimbursements.
(b) Annualized.
</TABLE>
Ratio to Average
Net Assets
------------------------------------------------------------------
Net Net Assets at
Investment Net Gross Total End of Period
Income Expenses Expenses(a) Return (000's Omitted)
- -------------------------------------------------------------------
5.08% 0.50% 0.51% 5.20% $2,260,208
4.91% 0.49% 0.49% 5.04% $1,912,574
5.13% 0.50% 0.51% 5.27% $1,649,721
4.68% 0.50% 0.52% 4.81% $1,159,421
3.02% 0.47% 0.53% 3.07% $1,091,141
3.00% 0.45% 0.57% 3.06% $903,274
3.99%(b) 0.45%(b) 0.61%(b) 4.07%(b) $623,685
5.84% 0.45% 0.60% 6.00% $469,487
7.66% 0.45% 0.61% 7.94% $500,794
8.51% 0.45% 0.65% 8.87% $394,137
6.87% 0.42% 0.73% 7.13% $254,104
6
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Distributions Ending
Beginning Net Net from Net Net Asset
Asset Value Investment Investment Value Per
Per Share Income Income Share
- -----------------------------------------------------------------------------------------------------------
TREASURY FUND
Year Ended May 31, 1998 $1.00 $0.049 ($0.049) $1.00
Year Ended May 31, 1997 $1.00 $0.047 ($0.047) $1.00
Year Ended May 31, 1996 $1.00 $0.050 ($0.050) $1.00
Year Ended May 31, 1995 $1.00 $0.046 ($0.046) $1.00
Year Ended May 31, 1994 $1.00 $0.028 ($0.028) $1.00
Year Ended May 31, 1993 $1.00 $0.029 ($0.029) $1.00
December 1, 1991 to May 31, 1992 $1.00 $0.020 ($0.020) $1.00
December 3, 1990(c) to November 30, 1991 $1.00 $0.058 ($0.058) $1.00
- ------------------------------------------------------------------------------------------------------------
(a) The ratio of Gross Expenses to Average Net Assets does not reflect fee
waivers or expense reimbursements.
(b) Annualized.
(c) Commencment of operations.
</TABLE>
Ratio to Average
Net Assets
------------------------------------------------------------------
Net Net Assets at
Investment Net Gross Total End of Period
Income Expenses Expenses(a) Return (000's Omitted)
- -------------------------------------------------------------------
4.89% 0.46% 0.54% 5.00% $1,440,515
4.74% 0.46% 0.53% 4.87% $1,003,697
4.91% 0.46% 0.56% 5.04% $802,270
4.62% 0.46% 0.57% 4.65% $661,098
2.81% 0.46% 0.58% 2.83% $526,483
2.93% 0.47% 0.58% 2.98% $384,751
4.01%(b) 0.47%(b) 0.59%(b) 4.07%(b) $374,492
5.62%(b) 0.31%(b) 0.66%(b) 6.02%(b) $354,200
7
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Net Realized Distributions
Beginning Net Net and Unrealized from Net Capital
Asset Value Investment Gain (Loss) Investment Contribution
Per Share Income on Investments Income from Adviser
- ----------------------------------------------------------------------------------------------------------------------------
MUNICIPAL MONEY MARKET FUND
INVESTOR SHARES
Year Ended May 31, 1998 $1.00 $0.031 -- ($0.031) --
Year Ended May 31, 1997 $1.00 $0.030 -- ($0.030) --
Year Ended May 31, 1996 $1.00 $0.033 -- ($0.033) --
Year Ended May 31, 1995 $1.00 $0.031 ($0.004) ($0.031) $0.004
Year Ended May 31, 1994 $1.00 $0.021 -- ($0.021) --
Year Ended May 31, 1993 $1.00 $0.021 -- ($0.021) --
December 1, 1991 to May 31, 1992 $1.00 $0.014 -- ($0.014) --
Year Ended November 30, 1991 $1.00 $0.042 -- ($0.042) --
Year Ended November 30, 1990 $1.00 $0.053 -- ($0.053) --
Year Ended November 30, 1989 $1.00 $0.058 -- ($0.058) --
January 7, 1988(d) to November 30, 1988 $1.00 $0.042 -- ($0.042) --
INSTITUTIONAL SHARES
Year Ended May 31, 1998 $1.00 $0.033 -- ($0.033) --
Year Ended May 31, 1997 $1.00 $0.032 -- ($0.032) --
Year Ended May 31, 1996 $1.00 $0.035 -- ($0.035) --
Year Ended May 31, 1995 $1.00 $0.033 ($0.004) ($0.033) $0.004
August 3, 1993(d)to May 31, 1994 $1.00 $0.019 -- ($0.019) --
- ------------------------------------------------------------------------------------------------
</TABLE>
(a) The ratio of Gross Expenses to Average Net Assets does not reflect fee
waivers or expense reimbursements.
(b) Total Return for 1995 includes the effect of a capital contribution from
Norwest Bank. Without the capital contribution. Total Return would have
been 2.59% for Investor Shares and 2.79% for Institutional Shares.
(c) Annualized.
(d) Commencement of operations; the initial class of shares became Investor
Shares.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Ratio to Average
Net Assets
--------------------------------------------
Ending
Net Asset Net Net Assets at
Value Per Investment Net Gross Total End of Period
Share Income Expenses Expenses(a) Return (000's Omitted)
------------ --------------------------------------------------------------------
$1.00 3.13% 0.65% 0.83% 3.18% $44,070
$1.00 3.01% 0.65% 0.87% 3.08% $54,616
$1.00 3.25% 0.65% 0.88% 3.31% $57,021
$1.00 3.10% 0.65% 0.93% 3.13%(b) $47,424
$1.00 2.03% 0.65% 0.99% 2.09% $33,554
$1.00 2.13% 0.65% 0.97% 2.18% $75,521
$1.00 2.81%(c) 0.63%(c) 0.96%(c) 2.89%(c) $82,678
$1.00 4.10% 0.64% 1.08% 4.26% $66,327
$1.00 5.34% 0.64% 1.16% 5.48% $29,801
$1.00 5.78% 0.62% 1.15% 5.94% $18,639
$1.00 4.64%(c) 0.60%(c) 1.20%(c) 4.76%(c) $8,963
$1.00 3.32% 0.45% 0.59% 3.39% $977,693
$1.00 3.21% 0.45% 0.70% 3.28% $635,655
$1.00 3.41% 0.45% 0.72% 3.52% $592,436
$1.00 3.37% 0.45% 0.74% 3.33%(b) $278,953
$1.00 2.33%(c) 0.45%(c) 0.77%(c) 2.34%(c) $190,356
</TABLE>
8
<PAGE>
- --------------------------------------------------------------------------------
3. GLOSSARY
- --------------------------------------------------------------------------------
This Glossary of frequently used terms will help you understand the discussion
of the Funds' objectives, policies, and risks. Defined terms are capitalized
when used in this prospectus.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Term Definition
- ---- ----------
AMT Alternative minimum tax.
Board The Board of Trustees of Norwest Advantage
Funds.
Municipal Security A debt security issued by or on behalf of
the states, territories, or possessions of
the United States, the District of Columbia,
and their subdivisions, authorities,
instrumentalities, and corporations, with
interest exempt from federal income tax.
NRSRO A nationally recognized statistical rating
organization, such as Standard & Poor's
Corporation, that rates fixed income
securities and money market funds by
relative credit risk.
Related Issuers Issuers of Municipal Securities that
economic, business, or political
developments affect in similar ways.
SEC The U.S. Securities and Exchange Commission.
U.S. Government Security A security issued or guaranteed as to
principal and interest by the U.S.
Government, its agencies, or its
instrumentalities.
U.S. Treasury Security A security issued or guaranteed by the U.S.
Treasury.
- --------------------------------------------------------------------------------
4. INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
This section discusses the investment objectives and policies of the Funds.
After each Fund's description, there is a short, alphabetical listing of the
Fund's primary risks. The Risk Considerations section below discusses these
risks.
- --------------------------------------------------------------------------------
MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
The Funds' investments are made under the requirements of an SEC rule governing
money market funds. Each Fund invests only in high-quality, U.S.
dollar-denominated short-term money market instruments that are determined by
the Adviser, under procedures adopted by the Board, to be eligible for purchase
and to present minimal credit risks. The Funds may invest in securities with
fixed, variable, or floating rates of interest.
High-quality instruments include those that: (1) are rated (or, if unrated, are
issued by an issuer with comparable outstanding short-term debt that is rated)
in 1 of the 2 highest rating categories by 2 NRSROs or, if only 1 NRSRO has
issued a rating, by that NRSRO; or (2) are otherwise unrated and determined by
the Adviser to be of comparable quality. Each Fund, other than Municipal Money
Market Fund, invests at least 95% of its total assets in securities in the
highest rating category.
CASH INVESTMENT FUND and READY CASH INVESTMENT FUND
INVESTMENT OBJECTIVES. Each Fund's investment objective is to provide high
current income to the extent consistent with the preservation of capital and the
maintenance of liquidity.
CASH INVESTMENT FUND invests equally in 2 Portfolios - Money Market
Portfolio and Prime Money Market Portfolio. Cash Investment Fund, Money
Market Portfolio, and Prime Money Market Portfolio generally have the
same investment objective and investment policies. Because Prime Money
Market Portfolio seeks to maintain a rating within the 2 highest
short-term categories assigned by at least 1 NRSRO, it is more limited
in the type and amount of securities it may purchase.
9
<PAGE>
READY CASH INVESTMENT FUND invests its assets in Prime Money Market
Portfolio. The Fund seeks to maintain a rating within the two highest
categories assigned by an NRSRO.
INVESTMENT POLICIES. The Funds invest in a broad spectrum of high-quality money
market instruments of U.S. and foreign issuers, including U.S. Government
Securities, Municipal Securities, and corporate debt securities.
The Funds may invest in obligations of financial institutions. These include
negotiable certificates of deposit, bank notes, bankers' acceptances, and time
deposits of U.S. banks (including savings banks and savings associations),
foreign branches of U.S. banks, foreign banks and their non-U.S. branches, U.S.
branches and agencies of foreign banks, and wholly-owned banking-related
subsidiaries of foreign banks. The Funds limit their investments in obligations
of financial institutions to institutions that at the time of investment have
total assets in excess of $1 billion, or the equivalent in other currencies.
Each Fund normally will invest more than 25% of its total assets in the
obligations of domestic and foreign financial institutions, their holding
companies, and their subsidiaries. Neither Fund may invest more than 25% of its
total assets in any other single industry.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[RISK ICON]
credit risk interest rate risk foreign risk
U.S. GOVERNMENT FUND
INVESTMENT OBJECTIVE. The Fund's investment objective is to provide high current
income to the extent consistent with the preservation of capital and the
maintenance of liquidity.
INVESTMENT POLICIES. The Fund invests primarily in U.S. Government Securities
and repurchase agreements for U.S. Government Securities. Under normal
circumstances, the Fund invests at least 65% of its total assets in these
securities. The Fund may invest in zero coupon U.S. Government Securities.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[RISK ICON]
credit risk interest rate risk
TREASURY PLUS FUND
INVESTMENT OBJECTIVE. The Fund's investment objective is to provide high current
income to the extent consistent with the preservation of capital, and the
maintenance of liquidity.
INVESTMENT POLICIES. Under normal circumstances, the Fund invests at least 80%
of its total assets in U.S. Treasury Securities and in repurchase agreements for
U.S. Treasury Securities. The Fund also may invest in U.S. Government Securities
and in repurchase agreements for U.S. Government Securities. The Fund may invest
in zero coupon securities.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[RISK ICON]
credit risk interest rate risk
TREASURY FUND
INVESTMENT OBJECTIVE. The Fund's investment objective is to provide high current
income to the extent consistent with the preservation of capital and the
maintenance of liquidity.
INVESTMENT POLICIES. The Fund invests solely in U.S. Treasury Securities,
including zero-coupon securities.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[RISK ICON]
credit risk interest rate risk
10
<PAGE>
MUNICIPAL MONEY MARKET FUND
INVESTMENT OBJECTIVE. The Fund's investment objective is to provide high current
income exempt from federal income taxes to the extent consistent with the
preservation of capital and the maintenance of liquidity.
INVESTMENT POLICIES. The Fund expects to invest 100% of its assets in Municipal
Securities, including short-term municipal bonds and municipal notes and leases.
These investments may have fixed, variable or floating rates of interest and may
be zero coupon securities. As part of its objective, the Fund normally will
invest at least 80% of its total assets in federally tax-exempt instruments
whose income may be subject to the federal AMT. The Fund may invest up to 20% of
its total assets in securities that pay interest income subject to federal
income tax.
The Fund may invest more than 25% but, under normal circumstances, will not
invest more than 35% of its assets in issuers located in a single state. The
Fund may invest more than 25% of its assets in industrial development bonds and
in participation interests in these types of bonds issued by banks.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[RISK ICON]
credit risk interest rate geographic concentration risk
- --------------------------------------------------------------------------------
5. RISK CONSIDERATIONS
- --------------------------------------------------------------------------------
This section describes the principal risks that may apply to the Funds. Each
Fund's exposure to these risks depends upon its specific investment profile. The
Fund's description in INVESTMENT OBJECTIVES AND POLICIES lists the Fund's
principal risks.
- --------------------------------------------------------------------------------
CREDIT RISK
- --------------------------------------------------------------------------------
The risk that the issuer of a security, or the counterparty to a contract, will
default or otherwise be unable to honor a financial obligation.
- --------------------------------------------------------------------------------
FOREIGN RISK
- --------------------------------------------------------------------------------
[RISK ICON] The risk that foreign investments may be subject to political and
economic instability, the imposition or tightening of exchange controls or other
limitations on repatriation of foreign capital or nationalization, increased
taxation, or confiscation of investors' assets. Also, the risk that the price of
a foreign issuer's securities may not reflect the issuer's condition because
there is not sufficient publicly available information about the issues. Also,
the risk that the price of a foreign issuer's securities may not reflect the
issuer's condition because there is not sufficient publicly available
information about the issues.
- --------------------------------------------------------------------------------
GEOGRAPHIC CONCENTRATION RISK
- --------------------------------------------------------------------------------
The risk that factors adversely affecting a Fund's investments in issuers
located in a state, country, or region will affect the Fund's net asset value
more than would be the case if the Fund had made more geographically diverse
investments.
- --------------------------------------------------------------------------------
INTEREST RATE RISK
- --------------------------------------------------------------------------------
The risk that changes in interest rates may affect the value of your investment.
With fixed-rate securities, including Municipal Securities and U.S. Government
Securities, an increase in interest rates typically causes the value of a Fund's
fixed-rate securities to fall, while a decline in interest rates may produce an
increase in the market value of the securities. Because of this risk, an
investment in a Fund that invests in fixed income securities is subject to risk
even if all the fixed income securities in the Fund's portfolio are paid in full
at maturity.
- --------------------------------------------------------------------------------
6. COMMON POLICIES
- --------------------------------------------------------------------------------
Except as otherwise indicated, the Board may change the Funds' investment
policies without shareholder approval. The Funds'
11
<PAGE>
investment objectives require shareholder approval to amend.
- --------------------------------------------------------------------------------
DOWNGRADED SECURITIES
- --------------------------------------------------------------------------------
Each Fund may retain a security whose rating has been lowered (or a security of
comparable quality to a security whose rating has been lowered) below the Fund's
lowest permissible rating category if the Fund's Adviser determines that
retaining the security is in the best interests of the Fund. Because a downgrade
often results in a reduction in the market price of the security, sale of a
downgraded security may result in a loss.
- --------------------------------------------------------------------------------
YEAR 2000 AND EURO
- --------------------------------------------------------------------------------
The Funds could be adversely affected if the computer systems used by the
Adviser and other service providers (and in particular, foreign service
providers) to the Funds do not properly process and calculate date-related
information and data from and after January 1, 2000 or information regarding the
new common currency of the European Union. The Year 2000 and Euro issues also
may adversely affect the Funds' investments.
Norwest and Forum Financial Group are taking steps to address the Year 2000 and
Euro issues for their computer systems and to obtain reasonable assurances that
comparable steps are being taken by the Funds' other major service providers.
While the Funds do not anticipate any adverse effect on their computer systems
from the Year 2000 and Euro issues, there can be no assurance that these steps
will be sufficient to avoid any adverse impact on the Funds.
- --------------------------------------------------------------------------------
7. MANAGEMENT OF THE FUNDS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INVESTMENT ADVISORY SERVICES
- --------------------------------------------------------------------------------
NORWEST INVESTMENT MANAGEMENT, INC. is the investment adviser for each
Fund and each Portfolio. In this capacity, Norwest makes investment
decisions for and administers the Funds' and Portfolios' investment
programs. Norwest Investment Management, Inc.'s, address is NORWEST
CENTER, SIXTH STREET AND MARQUETTE, MINNEAPOLIS, MN 55479.
Listed below, for each Fund, are the portfolio managers primarily
responsible for the day-to-day management of the Fund's investments.
The year a portfolio manager began managing a Fund's or Portfolio's
portfolio follows the manager's name in parenthesis. The list includes
the investment advisory fees payable to Norwest by the Fund and by any
Portfolios in which it invests. The list states the investment advisory
fees on an annualized basis as a percentage of a Fund's or Portfolio's
average daily net assets. Descriptions of the portfolio managers'
recent experience follow the list of portfolio managers and advisory
fees.
How investment advisory fees are paid depends on whether or not a Fund
invests in Portfolios.
* If a Fund invests directly in a portfolio of securities, Norwest
receives an investment advisory fee directly from the Fund.
* If a Fund invests in one or more Portfolios, Norwest receives an
investment advisory fee from the Portfolio or Portfolios.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CASH INVESTMENT FUND
PORTFOLIO: PRIME MONEY MARKET PORTFOLIO
PORTFOLIO MANAGERS: David D. Sylvester (1987), Laurie R. White (1991),
and Robert G. Leuty (1998)
ADVISORY FEE: 0.40% - first $300 million; 0.36% - next $400
million, and 0.32% - balance.
--------------------------------------------------
--------------------------------------------------
PORTFOLIO: MONEY MARKET PORTFOLIO
12
<PAGE>
PORTFOLIO MANAGERS: David D. Sylvester (1987), Laurie R. White (1991),
and Robert G. Leuty (1998)
ADVISORY FEE: 0.20% - first $300 million; 0.16% - next $400
million, and 0.12% - balance.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
READY CASH INVESTMENT FUND
PORTFOLIO: PRIME MONEY MARKET PORTFOLIO
PORTFOLIO MANAGERS David D. Sylvester (1987), Laurie R. White
(1991), and Robert G. Leuty (1998)
ADVISORY FEE: 0.40% - first $300 million; 0.36% - next $400
million, and 0.32% - balance.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U.S. GOVERNMENT FUND
TREASURY FUND
TREASURY PLUS FUND
PORTFOLIO MANAGERS: David D. Sylvester (1987, 1990, 1998), Laurie R.
White (1991, 1991, 1998) and Robert G. Leuty
(1998).
ADVISORY FEE: FOR EACH FUND: 0.20% - first $300 million; 0.16%
- next $400 million; and 0.12% - balance.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MUNICIPAL MONEY MARKET FUND
PORTFOLIO MANAGER: David D. Sylvester (1995), Laurie R. White
(1998), and Robert G. Leuty (1998).
ADVISORY FEE: 0.35% - first $500 million; 0.325% - next
$500 million; and 0.30% - balance.
PORTFOLIO MANAGERS
ROBERT G. LEUTY, associated with Norwest and its affiliates since 1992. Mr.
Leuty is a senior portfolio manager.
DAVID D. SYLVESTER, associated with Norwest and its affiliates since 1979. Mr.
Sylvester currently is a Managing Director - Reserve Asset Management.
LAURIE R. WHITE, associated with Norwest and its affiliates since 1991. Ms.
White is a Director - Reserve Asset Management.
DORMANT INVESTMENT ADVISORY ARRANGEMENTS
Norwest has been retained as a "dormant" or "back-up" investment adviser to
manage any assets redeemed and invested directly by a Fund that invests in 1 or
more Portfolios. Norwest does not receive any compensation under this
arrangement as long as a Fund invests entirely in Portfolios. If a Fund redeems
assets from a Portfolio and invests them directly, Norwest receives an
investment advisory fee from the Fund for the management of those assets.
OTHER FUND SERVICES
The FORUM FINANCIAL GROUP of companies provide managerial, administrative, and
underwriting services to the Funds. NORWEST BANK acts as the Funds' transfer
agent, distribution disbursing agent, and custodian.
8. HOW TO BUY AND SELL SHARES
You may purchase or sell (redeem) shares at a price equal to their net asset
value next determined after receipt of your purchase order or redemption request
in proper form on "Fund Business Days." Fund Business Days are all weekdays
except generally observed national holidays (New Year's Day, Martin Luther King,
Jr. Day, Presidents' Day, Memorial Day, Independence Day, Labor Day,
Thanksgiving, and Christmas) and Good Friday.
GENERAL PURCHASE INFORMATION
13
<PAGE>
You may purchase shares directly or through a financial institution. The Funds'
transfer agent processes all transactions in Fund shares.
You may purchase and redeem Fund shares without a sales or redemption charge.
Investor Shares require a minimum initial investment of $1,000 and minimum
subsequent investments of $100. Institutional Shares require a minimum initial
investment of $100,000 and have no minimum for subsequent investments. Your
shares become eligible to receive distributions on the day that your purchase
order is received in proper form.
The Funds reserve the right to reject any subscription for the purchase of
shares, including subscriptions by market timers. You will receive share
certificates for your shares only if you request them in writing. No
certificates are issued for fractional shares.
Your order to purchase shares will not be complete until the Fund receives
immediately available funds. The Funds must receive purchase and redemption
orders before the times indicated below.
<TABLE>
<S> <C> <C>
Times indicated are Eastern Time.
Fund payment
---- order must be -------
------------- must be
received by -------
------------ received by
-----------
Cash Investment Fund
3:00 p.m. 4:00 p.m.
Ready Cash Investment Fund
3:00 p.m. 4:00 p.m.
U.S. Government Fund
2:00 p.m. 4:00 p.m.
Treasury Plus Fund
5:00 p.m. 5:00 p.m.
Treasury Fund
1:00 p.m. 4:00 p.m.
Municipal Money Market
Fund Noon 4:00 p.m.
</TABLE>
The Funds may advance the time by which purchase or redemption orders and
payments must be received on days that the New York Stock Exchange or
Minneapolis Federal Reserve Bank closes early, the Public Securities Association
recommends that the government securities markets close early or other
circumstances affect a Fund's trading hours.
DIRECT PURCHASES
You may obtain an account application by writing Norwest Advantage Funds at the
following address:
NORWEST ADVANTAGE FUNDS
[NAME OF FUND]
NORWEST BANK MINNESOTA, N.A.
TRANSFER AGENT
733 MARQUETTE AVENUE
MINNEAPOLIS, MN 55479-0040
When you sign an application for a new Fund account, you are certifying that
your Social Security number or other taxpayer identification number is correct
and that you are not subject to backup withholding. Under certain circumstances
as noted in the account application, the Internal Revenue Service can require
the Funds to withhold 31% of your distributions and redemptions.
You must pay for your shares in U.S. dollars by check or money order drawn on a
U.S. bank, by bank or federal funds wire transfer, or by electronic bank
transfer. Cash cannot be accepted.
Call or write the transfer agent if you wish to participate in shareholder
services not offered on the account application or change information on your
account (such as addresses). Norwest Advantage Funds may in the future modify,
limit, or terminate any shareholder privilege upon appropriate notice and may
charge a fee for certain shareholder services, although no such fees are
currently contemplated. You may terminate your participation in any shareholder
program by writing to Norwest Advantage Funds.
PURCHASE PROCEDURES
PURCHASES BY MAIL. You may send a check or money order along with a completed
account application to Norwest Advantage Funds at the address listed above.
Checks and money orders are accepted at full value subject to collection.
14
<PAGE>
Payment by a check drawn on any member of the Federal Reserve System can
normally be converted into federal funds within 2 business days after receipt of
the check. Checks drawn on some non-member banks may take longer. If your check
does not clear, the purchase order will be canceled and you will be liable for
any losses or fees incurred by Norwest Advantage Funds, the transfer agent or
the distributor.
To purchase shares for individual or Uniform Gift to Minors Act accounts, you
must write a check or purchase a money order payable to Norwest Advantage Funds
or endorse a check made out to you to Norwest Advantage Funds. For corporation,
partnership, trust, 401(k) plan or other non-individual type accounts, make the
check used to purchase shares payable to Norwest Advantage Funds. No other
methods of payment by check will be accepted for these types of accounts.
PURCHASES BY BANK WIRE You must first telephone the Funds' transfer agent at
1-612-667-8833 or 1-800-338-1348 to obtain an account number before making an
initial investment in a Fund by bank wire. Then instruct your bank to wire your
money immediately to:
NORWEST BANK MINNESOTA, N.A.
A091 000 019
FOR CREDIT TO: NORWEST ADVANTAGE FUNDS 0844-131
RE: [NAME OF FUND][CLASS OF SHARES]
ACCOUNT NO.:
ACCOUNT NAME:
Complete and mail the account application promptly. Your bank may charge for
transmitting the money by wire. The Funds do not charge for the receipt of wire
transfers. The Funds treat payment by bank wire as a federal funds payment when
received.
PURCHASES THROUGH FINANCIAL INSTITUTIONS
You may purchase and redeem shares through certain broker-dealers, banks, and
other financial institutions. When you purchase a Fund's shares through a
financial institution, the shares may be held in your name or in the name of the
financial institution. Subject to your institution's procedures, you may have
Fund shares held in the name of your financial institution transferred into your
name. If your shares are held in the name of your financial institution, you
must contact the financial institution on matters involving your shares. Your
financial institution may charge you for purchasing, redeeming, or exchanging
shares.
SUBSEQUENT PURCHASES OF SHARES
You can make subsequent purchases by mailing a check, by sending a bank wire, or
through a financial institution as indicated above. All payments should clearly
indicate your name and account number.
GENERAL REDEMPTION INFORMATION
You may redeem Fund shares at their net asset value on any Fund Business Day.
There is no minimum period of investment and no restriction on the frequency of
redemptions.
Fund shares are redeemed as of the next determination of the Fund's net asset
value following receipt by the transfer agent of the redemption order in proper
form (and any supporting documentation that the transfer agent may require).
Redeemed shares are not entitled to receive distributions on the day on which
the redemption is effective.
Redemption orders for shares are accepted up to the times indicated above for
acceptance of purchase orders. As described above, the Funds may advance the
times for receipt of redemption orders.
Normally, redemption proceeds are paid immediately following receipt of a
redemption order in proper form. In any event, you will be paid within 7 days,
unless:(1) your bank has not cleared the check to purchase the shares (which may
take up to 15 days), (2) the New York Stock Exchange is closed (or trading is
restricted) for any reason other than normal weekend or holiday closings; (3)
there is an emergency in which it is not practical for the Fund to sell its
portfolio securities or for the Fund to determine its net asset value; or (4)
the SEC deems it inappropriate for redemption proceeds to be paid. You can avoid
the delay of waiting for your bank to clear your check by paying for shares with
wire transfers. Unless otherwise indicated, redemption proceeds normally are
paid by check mailed to your record address.
15
<PAGE>
To protect against fraud, the following must be in writing with a signature
guarantee: (1) endorsement on a share certificate; (2) instruction to change
your record name; (3) modification of a designated bank account for wire
redemptions; (4) instruction regarding an Automatic Investment Plan or Automatic
Withdrawal Plan; (5) distribution elections; (6) election of telephone
redemption privileges; (7) election of exchange or other privileges in
connection with your account; (8) written instruction to redeem shares whose
value exceeds $50,000; (9) redemption in an account when the account address has
changed within the last 30 days; (10) redemption when the proceeds are deposited
in a Norwest Advantage Funds account under a different account registration; and
(11) the payment of redemption proceeds to any address, person, or account for
which there are not established standing instructions.
You may obtain signature guarantees at any of the following types of
organizations: authorized banks, broker-dealers, national securities exchanges,
credit unions, savings associations, or other eligible institutions. The
specific institution must be acceptable to the transfer agent. Whenever a
signature guarantee is required, the signature of each person required to sign
for the account must be guaranteed.
The Funds and the transfer agent will use reasonable procedures to verify that
telephone requests are genuine, including recording telephone instructions and
sending written confirmations of the transactions. Such procedures are necessary
because the Funds and transfer agent could be liable for losses due to
unauthorized or fraudulent telephone instructions. You should verify the
accuracy of a telephone instruction as soon as you receive the confirmation
statement. Telephone redemption and exchanges may be difficult to implement in
times of drastic economic or market changes. If you cannot reach the transfer
agent by telephone, you may mail or hand-deliver requests to the transfer agent.
Because of the cost of maintaining smaller accounts, Norwest Advantage Funds may
redeem, upon not less than 60 days' written notice, any account with a net asset
value of less than $100,000 immediately following any redemption, in the case of
Institutional Shares, and $1,000 immediately following any redemption, in the
case of Investor Shares.
REDEMPTION PROCEDURES
If you have invested directly in a Fund you may redeem your shares as described
below. If you have invested through a financial institution you may redeem
shares through the financial institution. If you wish to redeem shares by
telephone or receive redemption proceeds by bank wire you should complete the
appropriate sections of the account application. These privileges may not be
available until several weeks after the application is received. You may not
redeem shares by telephone if you have certificates for those shares.
REDEMPTION BY MAIL. You may redeem shares by sending a written request to the
transfer agent accompanied by any share certificate you have been issued. Sign
all requests and endorse all certificates with signatures guaranteed.
REDEMPTION BY TELEPHONE. If you have elected telephone redemption privileges,
you may redeem shares by telephoning the transfer agent at 1-800-338-1348 or
1-612-667-8833 and providing your shareholder account number, the exact name in
which the shares are registered and your Social Security number or other
taxpayer identification number. Norwest Advantage Funds will mail a check to
your record address or, if you have chosen wire redemption privileges, wire the
proceeds.
REDEMPTION BY BANK WIRE. If you have elected wire redemption privileges, you may
request a Fund to transmit redemption proceeds of more than $5,000 by federal
funds wire to a bank account you have designated in writing. You must have
chosen the telephone redemption privilege to request bank redemptions by
telephone. Redemption proceeds are transmitted by wire on the Fund Business Day
the transfer agent receives a redemption request in proper form.
EXCHANGES
If you hold Institutional Shares, you may exchange those shares for
Institutional Shares of other Funds offering those shares. If you hold Investor
Shares, you may exchange those shares for Investor Shares of the Funds offering
Investor Shares. You may also exchange your shares for shares of other funds of
Norwest Advantage Funds not offered by this prospectus. Call or write the
transfer agent for both a list of funds that offer shares exchangeable with
those of the Funds and prospectuses of those funds.
The Funds do not charge for exchanges, and there is currently no limit on the
number of exchanges you may make. The Funds, however, may limit your ability to
exchange shares if you exchange too often. Exchanges are subject to the fees
charged by, and the limitations (including minimum investment restrictions) of
the Fund into which you are exchanging.
16
<PAGE>
You may only exchange shares into a pre-existing account if that account is
identically registered. You must submit a new account application if you wish to
exchange shares into an account registered differently or with different
shareholder privileges. You may exchange into a Fund only if that Fund's shares
legally may be sold in your state of residence.
The Funds and federal tax law treat an exchange as a redemption and a purchase
of shares. The Funds may amend or terminate exchange procedures on 60 days'
notice.
EXCHANGES BY MAIL. You may make an exchange by sending a written request to the
transfer agent accompanied by any share certificates for the shares to be
exchanged. Sign all written requests and endorse all certificates with signature
guaranteed.
EXCHANGES BY TELEPHONE. If you have telephone exchange privileges, you may make
a telephone exchange by calling the transfer agent at 1-800-338-1348 or
1-612-667-8833 and giving your account number, the exact name in which the
shares are registered, and your Social Security number, or other taxpayer
identification number.
9. DISTRIBUTIONS AND TAX MATTERS
DISTRIBUTIONS
Distributions of net investment income are declared daily and paid monthly. Net
capital gain, if any, is distributed at least annually.
You have 3 choices for receiving distributions: the Reinvestment Option, the
Cash Option, and the Directed Dividend Option.
* Under the Reinvestment Option, all distributions of a Fund are
automatically invested in additional shares of that Fund. You are
automatically assigned this option unless you select another option.
* Under the Cash Option, you are paid all distributions in cash.
* Under the Directed Dividend Option, if you own $10,000 or more of a Fund's
shares in a single account, you can have that Fund's distributions
reinvested in shares of another fund of Norwest Advantage Funds. Call or
write the transfer agent for more information about the Directed Dividend
Option.
All distributions are treated in the same manner for federal income tax purposes
whether received in cash or reinvested in shares of a fund. All distributions
reinvested in a fund are reinvested at the fund's net asset value as of the
payment date of the distribution.
TAX MATTERS
The Funds are managed so that they do not owe federal income or excise taxes.
Distributions paid by a Fund out of its net investment income (including net
short-term capital gain) are taxable as ordinary income. Distributions of net
capital gain (i.e., the excess of net long-term capital gain over net short-term
capital loss), if any, are taxable as long-term capital gain, regardless of how
long a shareholder has held shares in the Fund. Distributions of net capital
gain may be taxable at different rates depending on the length of time the Fund
holds its assets. If a Fund receives investment income from sources within
foreign countries, that income may be subject to foreign income or other taxes.
TAX-EXEMPT DISTRIBUTIONS
Generally, you will not be subject to federal income tax on distributions paid
by Municipal Money Market Fund out of tax-exempt interest income earned by the
Fund ("exempt-interest distributions"). If you use, or are related to someone
who uses, facilities financed by private activity bonds held by the Fund, you
may be subject to federal income tax on your pro rata share of the interest
income from those securities and should consult your tax adviser before
purchasing shares. Interest on certain private activity bonds is treated as an
item of tax preference for purposes of the federal AMT imposed on individuals
and corporations. As noted above, Municipal Money Market Fund may invest a
portion of its assets in securities that generate income that is not exempt from
federal income tax. Further, capital gains, if any, distributed by Municipal
Money Market Fund are subject to tax. In addition, exempt-interest distributions
are included in the "adjusted current earnings" of corporations for AMT
purposes. If you borrow money to purchase or
17
<PAGE>
carry the Fund's shares, the interest on your debt generally is not deductible
for federal income tax purposes.
The federal income tax exemption on distributions of Municipal Securities
interest does not necessarily result in an exemption under the income or other
tax laws of any state or local taxing authority. You may be exempt from state
and local taxes on distributions of tax-exempt interest income derived from
obligations of the state and/or municipalities of the state in which you reside.
You may, however, be subject to tax on income derived from the Municipal
Securities of other jurisdictions. Consult your tax adviser concerning the
application of state and local taxes to investments in the Fund that may differ
from the federal income tax consequences described above.
10. OTHER INFORMATION
DETERMINATION OF NET ASSET VALUE
Each Fund determines its net asset value on each Fund Business Day by dividing
the value of its net assets (i.e,. the value of its securities and other assets
less its liabilities) by the number of shares outstanding at the time the
determination is made. The Funds determine their net asset values at the
following times:
<TABLE>
<S> <C> <C> <C>
---------------------------------------------------------- ----------------------------------------
Municipal Money Market Fund Noon, Eastern Time
---------------------------------------------------------- ----------------------------------------
---------------------------------------------------------- ----------------------------------------
Treasury Fund 1:00 p.m., Eastern Time
---------------------------------------------------------- ----------------------------------------
---------------------------------------------------------- ----------------------------------------
Cash Investment Fund, Ready Cash 3:00 p.m., Eastern Time
Investment Fund, and U.S. Government
Fund
---------------------------------------------------------- ----------------------------------------
---------------------------------------------------------- ----------------------------------------
Treasury Plus Fund 5:00 p.m., Eastern Time
---------------------------------------------------------- ----------------------------------------
</TABLE>
In order to maintain net asset values per share at $1.00, the Funds (and
Portfolios) value their portfolio securities at amortized cost. Amortized cost
valuation involves valuing an instrument at its cost and then assuming a
constant amortization to maturity of any discount or premium. If the market
value of a Fund's portfolio deviates more than 1/2 of 1% from the value
determined on the basis of amortized cost, the Board will consider whether to
take any action to prevent any material effect on shareholders.
ADDITIONAL INFORMATION ABOUT THE PORTFOLIOS
Each Fund reserves the right to invest in 1 or more Portfolios. Each Fund bears
its pro rata portion of the expenses of any Portfolio in which it invests. The
Board may redeem a Fund's investment in a Portfolio at any time. The Fund could
then invest directly in portfolio securities or could re-invest in 1 or more
different Portfolios that could have different fees and expenses. A Fund might
redeem, for example, if other investors had sufficient voting power to change
the investment objectives or policies of the Portfolio in a manner detrimental
to the Fund.
NO ONE HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE SAI AND THE
FUNDS' OFFICIAL SALES LITERATURE. ANY SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUNDS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH
OFFER MAY NOT LAWFULLY BE MADE.
18
<PAGE>
If you would like more information about the Funds and their investments, you
may want to read the following documents:
STATEMENT OF ADDITIONAL INFORMATION. A Fund's statement of additional
information, or "SAI," contains detailed information about the Funds, such as
its investments, management, and organization. It is incorporated into this
Prospectus by reference.
ANNUAL AND SEMI-ANNUAL REPORTS. Additional Information about each Fund's
investments is available in its annual and semi-annual reports to shareholders.
In the annual report, each Fund's portfolio manager discusses the market
conditions and investment strategies that significantly affected the Fund's
performance during its last fiscal year.
You may obtain free copies of the SAI, annual report, and semi-annual report by
contacting your investment representative or by contacting Norwest Advantage
Funds, 733 Marquette Avenue, Minneapolis, Minnesota 55479, or by calling 1-800-
338-1348 or 1-612-667-8833.
The Funds' reports and SAI are available from the Securities and Exchange
Commission in Washington, D.C. You may obtain copies of these documents, upon
payment of a duplicating fee, by writing the Public Reference Section of the
SEC, Washington D.C. 20549-6009. Please call 1-800-SEC-0330 for information
about the operation of the SEC's public reference room. The Fund's reports and
other information are also available on the SEC's Web Site at http://
www.sec.gov.
The SEC's Investment Company Act file number for the Funds is 811-4881.
BULK RATE
U.S. POSTAGE
PAID
Permit No. 3489
Minneapolis, MN
733 Marquette Avenue
Minneapolis, MN 55479-0040
Bank Minnesota, N.A.
733 Marquette Avenue
Minneapolis, Minnesota 55479-0040
612-667-8833 (Minneapolis/St. Paul)
800-338-1348 (Elsewhere)
(C)1997 Norwest Advantage Funds
MFBPM001 10/97
47180.160 #31459
19
<PAGE>
PROSPECTUS
October 1, 1998
STABLE INCOME FUND
INTERMEDIATE GOVERNMENT INCOME FUND
INCOME FUND
TOTAL RETURN BOND FUND
AN INVESTMENT IN A FUND IS NOT A DEPOSIT OF NORWEST BANK MINNESOTA, N.A. OR ANY
OTHER BANK AND IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
INVESTING IN ANY MUTUAL FUND HAS RISK. IT IS POSSIBLE TO LOSE MONEY BY INVESTING
IN ANY OF THE FUNDS.
NO GOVERNMENTAL AGENCY, INCLUDING THE U.S. SECURITIES AND EXCHANGE COMMISSION,
HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED WHETHER OR NOT THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
Table of Contents
1. OVERVIEW.............................................................
The Funds............................................................
Expense Information..................................................
2. FINANCIAL HIGHLIGHTS.................................................
3. GLOSSARY.............................................................
4. INVESTMENT OBJECTIVES AND POLICIES...................................
Stable Income Fund...................................................
Intermediate Government Income Fund..................................
Income Fund..........................................................
Total Return Bond Fund...............................................
5. RISK CONSIDERATIONS..................................................
6. COMMON POLICIES......................................................
7. MANAGEMENT...........................................................
Investment Advisory Services.........................................
Other Fund Services..................................................
8. CHOOSING A SHARE CLASS...............................................
A Shares.............................................................
B Shares.............................................................
9. HOW TO BUY AND SELL SHARES...........................................
General Purchase Information.........................................
Purchasing Shares Directly...........................................
Purchases Through Financial Institutions.............................
General Redemption Information.......................................
Redemption Procedures................................................
Exchanges............................................................
10.DISTRIBUTIONS AND TAX MATTERS........................................
Distributions........................................................
Tax Matters..........................................................
11.OTHER INFORMATION....................................................
Determination of Net Asset Value.....................................
Additional Information About the Portfolios..........................
<PAGE>
1. OVERVIEW
The following is a summary of information about the Funds. Before investing, you
should read the prospectus and consider the discussions under Investment
Objectives and Policies and Risk Considerations.
NO SINGLE FUND IS A COMPLETE OR BALANCED INVESTMENT PROGRAM, BUT EACH CAN
SERVE AS A PART OF YOUR OVERALL INVESTMENT PROGRAM.
The Funds generally seek to preserve capital and provide income.
- --------------------------------------------------------------------------------
FUNDS AT A GLANC
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
FUND OBJECTIVE PRIMARY INVESTMENTS
STABLE INCOME FUND Maintain safety of principal while Investment grade short-term
providing low volatility total (average maturity of 2-5 years)
return. securities.
INTERMEDIATE GOVERNMENT Provide income and safety of Investment grade intermediate-term
INCOME FUND principal. (average maturity of 3-10 years)
U.S. Government Securities.
INCOME FUND Total return consistent with Investment grade intermediate term
current income. (average maturity of 3-15 years)
domestic and foreign securities.
TOTAL RETURN BOND FUND Total return. Broad spectrum of investment grade
securities.
</TABLE>
CLASSES OF SHARES
This Prospectus offers 2 classes of shares of the Funds. The classes, which have
different fee structures, are:
* A Shares: offered at their net asset value plus an initial sales charge. A
Shares do not pay distribution or shareholder servicing fees.
* B Shares: offered at their net asset value. B Shares pay distribution and
shareholder servicing fees and convert to A Shares within 7 years after
purchase. If you redeem your B Shares within 4 years of purchase, you may
pay a contingent deferred sales charge. The amount of the charge depends on
the length of time you hold the shares.
FUND STRUCTURES
Some of the Funds invest directly in a portfolio of securities. Other Funds
invest in other funds identified in this prospectus as Portfolios. The
Portfolios do not offer their shares to the public. Except when necessary to
describe a Fund's investment in a Portfolio, this prospectus discusses a Fund's
investments in a Portfolio as if the investments were made directly in
individual securities.
MANAGEMENT
NORWEST INVESTMENT MANAGEMENT, INC. or NORWEST is each Fund's and Portfolio's
investment adviser. Norwest, a subsidiary of Norwest Bank Minnesota, N.A. or
Norwest Bank, provides investment advice to institutions, pension plans, and
other accounts and currently manages more than $29 billion in assets. An
INVESTMENT SUBADVISER makes
<PAGE>
investment decisions for 2 Portfolios under Norwest's general supervision. This
prospectus generally refers to Norwest or the investment subadviser as an
Adviser.
The FORUM FINANCIAL GROUP of companies provide management, administrative, and
underwriting services to the Funds.
INVESTMENT MINIMUMS AND RESTRICTIONS
All Funds except Stable Income Fund require a minimum initial investment of
$1,000. Stable Income Fund requires a minimum initial investment of $5,000. All
of the Funds require minimum subsequent investments of $100. Total Return Bond
Fund is closed to new investors.
EXCHANGES
If you own Fund shares you may exchange them for shares of certain other Funds.
Your exchange rights will vary depending on the class of shares you own.
DISTRIBUTIONS
Each Fund distributes to shareholders its net capital gain, if any, at least
annually. The DISTRIBUTIONS AND TAX MATTERS section discusses how often the
Funds distribute net investment income.
RISK FACTORS
All investments in a Fund are subject to risk and may decline in value. The
amount and types of risk vary from Fund to Fund depending on the Fund's
investment objective, the Adviser's strategy, the markets the Fund invests in,
the investments that the Fund makes, and prevailing economic conditions over the
period of your investment.
Every Fund also has the risk that its Adviser may not be successful in carrying
out its investment strategy, that a portfolio manager may prove difficult to
replace if he or she becomes unavailable to manage the Fund, and that the Fund's
particular investment strategy may result in performance that is worse or better
than the performance of the market as a whole. Your investment in a Fund also
will have risk if you do not plan to invest for a period that is long enough to
permit the investment to recover from an adverse market movement.
If you invest in a Fund, the investment income you receive will vary with
changes in interest rates. In addition, the value of the Fund's investments
generally will fall when interest rates rise and rise when interest rates fall.
When interest rates fall, there is a risk that issuers will prepay fixed rate
securities, forcing the Fund to invest in securities with lower interest rates
than the prepaid securities.
Some of the Funds invest in mortgage- or other asset-backed securities. For
these Funds, a decline in interest rates may result in losses in these
securities' values and a reduction in their yields as the holders of the assets
backing the securities prepay their debts. Rising interest rates may cause the
average maturity of these Funds to rise due to a drop in prepayments. A rise in
average maturity increases a Fund's sensitivity to rising interest rates and
potential for losses in value.
The Funds also have "credit risk," which is the risk that an issuer will be
unable, or will perceived to be unable, to pay the interest or principal on its
securities when due. Funds that invest primarily in securities that are highly
rated by a nationally recognized statistical rating organization, such as
Standard & Poor's Corporation, generally are subject to less credit risk. Funds
that have substantial investments in securities that are not highly rated are
subject to more credit risk.
<PAGE>
EXPENSES OF INVESTING IN THE FUNDS
The following table will assist you in understanding the expenses that you will
bear directly or indirectly when you invest in a Fund.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
INTERMEDIATE
GOVERNMENT INCOME FUND,
STABLE INCOME FUND AND
INCOME FUND TOTAL RETURN BOND FUND
A B A B
SHARES SHARES SHARES SHARES
------------ ------------ ------------ -----------
Maximum sales charges imposed on purchases
(as a percentage of public offering price) 1.5% Zero 4.0% Zero
Maximum deferred sales charge
(as a percentage of the lesser of
original purchase price or redemption Zero 1.5%(1) Zero 3.0%(1)
proceeds)
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS AFTER APPLICABLE FEE WAIVERS
AND EXPENSE REIMBURSEMENTS)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
STABLE INTERMEDIATE
INCOME FUND GOVERNMENT INCOME FUND
A B A B
Shares Shares Shares Shares
------------ ------------ ----------- ------------
Investment Advisory Fee N/A N/A 0.33% 0.33%
Rule 12b-1 Fees (AFTER FEE WAIVERS)(2) N/A 0.75% N/A 0.75%
Other Expenses (AFTER FEE WAIVERS AND 0.28% 0.28% 0.35% 0.35%
REIMBURSEMENTS)(5)
Investment Advisory Fee - Portfolio(3) 0.30% 0.30% N/A N/A
Other Expenses - Portfolio
(AFTER FEE WAIVERS AND REIMBURSEMENTS)(5) 0.07% 0.07% N/A N/A
Total Operating Expenses(5) 0.65% 1.40% 0.68% 1.43%
INCOME FUND TOTAL RETURN BOND FUND
A B A B
Shares Shares Shares Shares
------------ ----------- ------------ ------------
Investment Advisory Fees 0.47% 0.47% N/A N/A
Rule 12b-1 Fees (AFTER FEE WAIVERS)(2) N/A 0.75% N/A 0.75%
Other Expenses (AFTER FEE WAIVERS AND 0.28% 0.28% 0.19% 0.19%
REIMBURSEMENTS)(5)
Investment Advisory Fee - Portfolio(3) N/A N/A 0.50% 0.50%
Other Expenses - Portfolio
(AFTER FEE WAIVERS AND REIMBURSEMENTS)(5) N/A N/A 0.06% 0.06%
Total Operating Expenses(4)(5) 0.75% 1.50% 0.75% 1.50%
</TABLE>
(1) The maximum 1.5% deferred sales charge on B Shares of Stable Income Fund
applies to redemptions during the first year after purchase; the charge
declines to 0.75% during the second year and zero the following year. The
maximum 3.0% deferred sales charge on B Shares of the other Funds applies to
redemptions during the first year after purchase; the charge declines to
2.0% during the second and third years, 1.0% during the fourth year, and
zero the following year.
(2) Absent waivers, Rule 12b-1 Fees would be 1.00% for B Shares of each Fund.
(3) Investment Advisory Fee-- Portfolio states the investment advisory fees of
the Portfolios in which Stable Income Fund and Total Return Bond Fund
invest.
(4) Norwest and the Forum Financial Group have agreed to waive their fees or
reimburse expenses in order to maintain Total Return Bond Fund's total
operating expenses at or below 0.75% for A Shares and 1.50% for B Shares.
Any reduction of those waivers or reimbursements would require review by
the Fund's Board of Trustees.
(5) Absent expense reimbursements and fee waivers, the expenses of Stable
Income Fund, Intermediate Government Income Fund, Income Fund and Total
Return Bond Fund would be: for A Shares, Other Expenses, 0.54%, 0.53%,
0.64%, and 0.70%, respectively; Other Expenses -- Portfolio, 0.13%, N/A,
N/A, and 0.11%, respectively; and Total Operating Expenses, 0.97%, 0.86%,
1.14%, and 1.31%, respectively; and for B Shares, Other Expenses, 0.94%,
0.52%, 0.69%, and 0.75%, respectively; Other Expenses -- Portfolio, 0.13%,
N/A, N/A, and 0.11%, respectively; and Total Operating Expenses, 2.37%,
1.85%, 2.19%, and 2.36%, respectively. Except as otherwise noted, expense
reimbursements and fee waivers are voluntary and may be reduced or
eliminated at any time.
<PAGE>
EXAMPLE
The following Hypothetical Expense Example indicates the dollar amount of
expenses that you would pay, assuming a $1,000 investment in a Fund's shares,
the expenses listed in the Annual Fund Operating Expenses table, a 5% annual
return, reinvestment of all distributions, the deduction of the maximum initial
sales charge for A Shares, the deduction of the deferred sales charge for B
Shares applicable to a redemption at the end of the period, and the conversion
of B Shares to A Shares at the end of 6 years (4 years in the case of Stable
Income Fund). The example does not represent past or future expenses or return.
Actual expenses and return may be greater or less than those shown in the
example.
<TABLE>
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
STABLE INCOME FUND
A Shares $22 $35 $51 $95
B Shares
Assuming redemption
at the end of the period 29 44 77 168
Assuming no redemption 14 44 77 168
INTERMEDIATE GOVERNMENT INCOME FUND
A Shares 47 61 76 121
B Shares
Assuming redemption
at the end of the period 45 65 78 171
Assuming no redemption 15 45 78 171
INCOME FUND
A Shares 47 63 80 129
B Shares
Assuming redemption
at the end of the period 45 67 82 179
Assuming no redemption 15 47 82 179
TOTAL RETURN BOND FUND
A Shares 47 63 80 129
B Shares
Assuming redemption
at the end of the period 45 67 82 179
Assuming no redemption 15 47 82 179
</TABLE>
<PAGE>
2. F I N A N C I A L H I G H L I G H T S
The financial highlights table is intended to help you understand each Fund's
financial performance for 10 years or, if shorter, the Fund's operating history.
Certain information reflects financial results for a single Fund share. The
total returns in the table represent the rate that an investor would have earned
on an investment in the Fund, assuming reinvestment of all distributions. The
information from June 1, 1994 through May 31, 1998 has been audited by KPMG Peat
Marwick LLP, independent auditors, whose report dated July 21, 1998 about a
Fund, along with the Fund's financial statements, are included in the Fund's
Annual Report, which is available at no charge upon request. These financial
statements are incorporated by reference into the SAI. Other independent
auditors audited information for prior periods.
<TABLE>
<S> <C> <C> <C> <C> <C>
Net Realized
and Distributions Ending
Beginning Net Net Unrealized from Net Net Asset
Asset Value Investment Gain (Loss) Investment Value Per
Per Share Income on Investments Income Share
- -----------------------------------------------------------------------------------------------------------------
STABLE INCOME FUND
A SHARES
Year Ended May 31, 1998 $10.24 $0.58 $0.06 ($0.57) $10.31
Year Ended May 31, 1997 $10.20 $0.58 $0.04 ($0.58) $10.24
May 2, 1996(e) to May 31, 1996 $10.22 $0.02 -- ($0.04) $10.20
B SHARES
Year Ended May 31, 1998 $10.24 $0.51 $0.04 ($0.49) $10.30
Year Ended May 31, 1997 $10.20 $0.52 $0.02 ($0.50) $10.24
May 17, 1996(e) to May 31, 1996 $10.23 $0.02 ($0.01) ($0.04) $10.20
- ---------------------------------------------------------------------------------------
</TABLE>
(a) The ratio of Gross Expenses to Average Net Assets does not reflect fee
waivers or expense reimbursements.
(b) Total Return does not include the effects of sales charges. Total Return
would have been lower absent expense reimbursements and fee waivers.
(c) Includes expenses allocated from the Portfolio in which the Fund invests.
(d) Reflects the activity of the Portfolio in which the Fund invests.
(e) The Fund commenced offering A shares on May 2, 1996 and B Shares on May 17,
1996.
(f) Annualized.
Ratio to Net Assets Average
--------------------------------------
Net Portfolio Net Assets at
Investment Net Gross Total Turnover End of Period
Income Expenses Expenses(a) Return(b) Rate (000's Omitted)
- --------------------------------------------------------------------------------
5.74%(c) 0.65%(c) 0.91%(c) 6.38% 37.45%(d) $8,561
5.69% 0.65% 0.87% 6.24% 41.30% $12,451
5.77%(f) 0.70%(f) 2.22%(f) 0.23% 109.95% $16,256
4.94%(c) 1.40%(c) 2.31%(c) 5.50% 37.45%(d) $1,817
4.96% 1.39% 2.89% 5.43% 41.30% $1,056
5.02%(f) 1.42%(f) 3.07%(f) 0.12% 109.95% $867
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Net Realized
and Distributions Ending
Beginning Net Net Unrealized from Net Net Asset
Asset Value Investment Gain (Loss) Investment Value Per
Per Share Income on Investments Income Share
- --------------------------------------------------------------------------------------------------------------------
INTERMEDIATE GOVERNMENT INCOME FUND
A SHARES
Year Ended May 31, 1998 $10.84 $0.77 $0.31 ($0.70) $11.22
Year Ended May 31, 1997 $10.89 $0.73 ($0.05) ($0.73) $10.84
May 2, 1996(c) to May 31, 1996 $10.89 $0.03 -- ($0.03) $10.89
B SHARES
Year Ended May 31, 1998 $10.83 $0.69 $0.31 ($0.62) $11.21
Year Ended May 31, 1997 $10.89 $0.64 ($0.05) ($0.65) $10.83
May 17, 1996(c) to May 31, 1996 $10.97 $0.03 ($0.08) ($0.03) $10.89
- ----------------------------------------------------------------------------------------
(a) The ratio of Gross Expenses to Average Net Assets does not reflect fee
waivers or expense reimbursements.
(b) Total Return does not include the effects of sales charges. Total Return
would have been lower absent expense reimbursements and fee waivers.
(c) The Fund commenced offering A Shares on May 2, 1996 and B Shares on May 17,
1996.
(d) Annualized.
</TABLE>
Ratio to Average Net Assets
-----------------------------------
Net Portfolio Net Assets at
Investment Net Gross Total Turnover End of Period
Income Expenses Expenses(a) Return(b) Rate (000's Omitted)
- -------------------------------------------------------------------------------
6.35% 0.68% 0.86% 10.19% 96.76% $14,325
6.58% 0.68% 0.80% 6.36% 183.05% $13,038
7.32%(d) 0.75%(d) 1.74%(d) 0.26% 74.64% $16,562
5.60% 1.43% 1.85% 9.38% 96.76% $8,277
5.80% 1.42% 1.85% 5.51% 183.05% $8,970
5.56%(d) 1.35%(d) 2.65%(d) (0.49%) 74.64% $10,682
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Net Realized
and Distributions Distributions Ending
Beginning Net Net Unrealized from Net from Net Net Asset
Asset Value Investment Gain (Loss) Investment Realized Value Per
Per Share Income on Investments Income Gain Share
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FUND
A SHARES
Year Ended May 31, 1998 $9.27 $0.61 $0.52 ($0.61) -- $9.79
Year Ended May 31, 1997 $9.27 $0.62 -- ($0.62) -- $9.27
Year Ended May 31, 1996 $9.63 $0.61 ($0.36) ($0.61) -- $9.27
Year Ended May 31, 1995 $9.52 $0.65 $0.11 ($0.65) -- $9.63
Year Ended May 31, 1994 $10.61 $0.70 ($0.83) ($0.70) ($0.26) $9.52
Year Ended May 31, 1993 $10.52 $0.77 $0.39 ($0.77) ($0.30) $10.61
Year Ended May 31, 1992 $10.23 $0.82 $0.53 ($0.82) ($0.24) $10.52
Year Ended May 31, 1991 $9.94 $0.89 $0.29 ($0.89) -- $10.23
Year Ended May 31, 1990 $10.00 $0.90 ($0.06) ($0.90) -- $9.94
Year Ended May 31, 1989 $9.95 $0.79 $0.05 ($0.79) -- $10.00
B SHARES
Year Ended May 31, 1998 $9.26 $0.54 $0.51 ($0.54) -- $9.77
Year Ended May 31, 1997 $9.26 $0.55 -- ($0.55) -- $9.26
Year Ended May 31, 1996 $9.61 $0.54 ($0.35) ($0.54) -- $9.26
Year Ended May 31, 1995 $9.51 $0.58 $0.10 ($0.58) -- $9.61
August 5, 1993(c) to May 31, 1994 $10.67 $0.50 ($0.90) ($0.50) ($0.26) $9.51
- ---------------------------------------------------------------------------------------
</TABLE>
(a) The ratio of Gross Expenses to Average Net Assets does not reflect fee
waivers or expense reimbursements.
(b) Total Return does not include the effects of sales charges. Total Return
would have been lower absent expense Reimbursements and fee waivers.
(c) The Fund commenced operations on June 9, 1987; the original class of shares
subsequently became A Shares. The Fund commenced offering B Shares on
August 5, 1993.
(d) Annualized.
Ratio to Average Net Assets
----------------------------------------
Net Portfolio Net Assets at
Investment Net Gross Total Turnover End of Period
Income Expenses Expenses(a) Return(b) Rate (000's Omitted)
- --------------------------------------------------------------------------------
6.29% 0.75% 1.14% 12.47% 167.09% $7,661
6.59% 0.75% 1.17% 6.79% 231.00% $5,142
6.33% 0.75% 1.16% 2.58% 270.17% $5,521
7.02% 0.75% 1.24% 8.49% 98.83% $6,231
6.72% 0.60% 1.16% (1.58%) 26.67% $6,177
7.18% 0.60% 1.10% 11.46% 87.98% $85,252
7.80% 0.31% 1.08% 13.58% 84.24% $63,973
8.82% 0.16% 1.11% 12.38% 61.33% $50,138
8.98% 0.19% 1.13% 8.71% 43.81% $37,932
8.62% 0.07% 1.10% 8.78% 48.08% $27,939
5.54% 1.50% 2.19% 11.52% 167.09% $4,855
5.87% 1.50% 2.25% 6.03% 231.00% $3,349
5.57% 1.50% 2.27% 1.92% 270.17% $3,292
6.24% 1.50% 2.21% 7.57% 98.83% $3,296
5.82%(d) 1.33%(d) 2.08%(d) (4.82%)(d) 26.67% $2,605
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Net Realized
and Distributions Distributions Ending
Beginning Net Net Unrealized from Net from Net Net Asset
Asset Value Investment Gain (Loss) Investment Realized Value Per
Per Share Income on Investments Income Gain Share
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN BOND FUND
A SHARES
Year Ended May 31, 1998 $9.40 $0.59 $0.28 ($0.59) ($0.05) $9.63
Year Ended May 31, 1997 $9.40 $0.60 $0.03 ($0.60) ($0.03) $9.40
Year Ended May 31, 1996 $9.73 $0.64 ($0.31) ($0.64) ($0.02) $9.40
Year Ended May 31, 1995 $9.54 $0.67 $0.19 ($0.67) -- $9.73
December 31, 1993(e) to May 31, 1994 $10.00 $0.27 ($0.46) ($0.27) -- $9.54
B SHARES
Year Ended May 31, 1998 $9.42 $0.52 $0.28 ($0.52) ($0.05) $9.65
Year Ended May 31, 1997 $9.40 $0.53 $0.05 ($0.53) ($0.03) $9.42
Year Ended May 31, 1996 $9.73 $0.57 ($0.31) ($0.57) ($0.02) $9.40
Year Ended May 31, 1995 $9.54 $0.59 $0.19 ($0.59) -- $9.73
December 31, 1993(e) to May 31, 1994 $10.00 $0.24 ($0.46) ($0.24) -- $9.54
- --------------------------------------------------------------------------------------
</TABLE>
(a) The ratio of Gross Expenses to Average Net Assets does not reflect fee
waivers or expense reimbursements.
(b) Total Return does not include the effects of sales charges. Total Return
would have been lower absent expense reimbursements and fee waivers.
(c) Includes expenses allocated from the Portfolio in which the Fund invests.
(d) Reflects the activity of the Portfolio in which the Fund invests.
(e) The Fund commenced operations on December 31, 1993.
(f) Annualized.
Ratio to Average Net Assets
--------------------------------------
Net Portfolio Net Assets at
Investment Net Gross Total Turnover End of Period
Income Expenses Expenses(a) Return(b) Rate (000's Omitted)
- -----------------------------------------------------------------------------
6.14%(c) 0.75%(c) 1.13%(c) 9.46% 134.56%(d) $3,030
6.37% 0.75% 1.31% 6.84% 55.07% $3,086
6.48% 0.76% 1.57% 3.41% 77.49% $2,010
6.94% 0.64% 2.38% 9.42% 35.19% $599
6.04%(f) 0.37%(f) 13.29%(f) (4.64%)(f) 37.50% $150
5.37%(c) 1.50%(c) 2.22%(c) 8.64% 134.56%(d) $2,648
5.61% 1.49% 2.37% 6.27% 55.07% $2,254
5.75% 1.51% 2.48% 2.63% 77.49% $2,098
6.17% 1.41% 3.09% 8.59% 35.19% $919
5.40%(f) 1.11%(f) 8.29%(f) (5.23%)(f) 37.50% $186
<PAGE>
3. GLOSSARY
This Glossary of frequently used terms will help you understand the discussion
of the Funds' objectives, policies, and risks. Defined terms are capitalized
when used in this prospectus.
Term Definition
- ---- ----------
AMT Alternative minimum tax.
Board The Board of Trustees of Norwest Advantage Funds.
CDSC Contingent deferred sales charge.
Duration A measure of a debt security's average life that reflects
the present value of the security's cash flow. Prices of
securities with longer durations generally are more
volatile.
Fundamental Requiring shareholder approval to change.
Investment Grade Rated at the time of purchase in 1 of the 4 highest
long-term or 2 highest short-term ratings categories by an
NRSRO or unrated and determined by the Adviser to be of
comparable quality.
NRSRO A nationally recognized statistical rating organization,
such as S&P, that rates fixed income securities and
preferred stock by relative credit risk.
Non-Investment Neither rated at the time of purchase in 1 of the 4 highest
Grade long-term or 2 highest short-term ratings categories by an
NRSRO nor unrated and determined by the Adviser to be of
comparable quality.
SAI Statement of Additional Information.
SEC The U.S. Securities and Exchange Commission.
STRIPS Separately traded principal or interest components of
securities issued or guaranteed by the U.S. Treasury under
the Treasury's Separate Trading of Registered Interest and
Principal of Securities program.
U.S. Government A security issued or guaranteed as to principal and interest
Security by the U.S. Government, its agencies or its
instrumentalities.
4. INVESTMENT OBJECTIVES AND POLICIES
This section discusses the investment objectives and policies of the Funds. All
of the Funds invest at least 65% of their total assets in fixed income
securities. After each Fund's description, there is a short, alphabetical
listing of the Fund's primary risks. The RISK CONSIDERATIONS section below
discusses these risks.
STABLE INCOME FUND
INVESTMENT OBJECTIVE. The Fund's investment objective is to maintain safety of
principal while providing low volatility
<PAGE>
total return.
INVESTMENT POLICIES. The Fund invests primarily in short-term Investment Grade
securities. The Fund invests in a diversified portfolio of fixed and variable
rate U.S. dollar-denominated fixed income securities of a broad spectrum of U.S.
and foreign issuers, including U.S. Government Securities and the debt
securities of financial institutions, corporations, and others.
The Fund normally limits its investments in:
* mortgage-backed securities to not more than 65% of its total assets;
* other types of asset-backed securities to not more than 25% of its total
assets;
* mortgage-backed securities that are not U.S. Government Securities to not
more than 25% of its total assets; and
* U.S. Government Securities to not more than 50% of its total assets.
The Fund may not invest more than 30% of its total assets in the securities
issued or guaranteed by any single agency or instrumentality of the U.S.
Government, except the U.S. Treasury, and may not invest more than 10% of its
total assets in the securities of any other issuer.
The Fund only purchases Investment Grade securities. The Fund invests in debt
obligations with maturities (or average life in the case of mortgage-backed and
similar securities) ranging from overnight to 12 years and seeks to maintain an
average dollar-weighted portfolio maturity of between 2 and 5 years.
The Fund may use options, swap agreements, interest rate caps, floors, and
collars, and futures contracts to manage risk. The Fund also may use options to
enhance return.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[RISK ICON]
credit risk foreign risk interest rate risk
leverage risk market risk prepayment risk
INTERMEDIATE GOVERNMENT INCOME FUND
INVESTMENT OBJECTIVE. The Fund's investment objective is to provide income and
safety of principal by investing primarily in U.S. Government Securities.
INVESTMENT POLICIES. The Fund invests primarily in fixed and variable rate U.S.
Government Securities. Under normal circumstances, the Fund intends to invest at
least 65% of its assets in U.S. Government Securities and may invest up to 35%
of its assets in fixed income securities that are not U.S. Government
Securities. The Fund emphasizes the use of intermediate maturity securities to
lessen interest rate risk and uses mortgage-backed securities to enhance yield.
The Fund limits its investments in:
* mortgage-backed securities to not more than 50% of its total assets;
* other types of asset-backed securities to not more than 25% of its total
assets; and
* zero-coupon securities, except in STRIPS, to not more than 10% of its total
assets.
As part of its mortgage-backed securities investments, the Fund may enter into
Dollar Rolls. The Fund may not invest more than 25% of its total assets in
securities issued or guaranteed by any single agency or instrumentality of the
U.S.
<PAGE>
Government, except the U.S. Treasury. The Fund may enter into short sales.
The Fund will purchase only securities that are rated, at the time of purchase,
within the 2 highest rating categories assigned by an NRSRO, or which are
unrated and determined by the Adviser to be of comparable quality.
The Fund will invest primarily in debt obligations with maturities (or average
life in the case of mortgage-backed and similar securities) ranging from
overnight to 30 years. Under normal circumstances, the Fund's portfolio
securities will have an average dollar-weighted maturity of between 3 and 10
years and a Duration of between 70% and 130% of the Duration of a 5 year
Treasury Note.
The Fund may use options, swap agreements, interest rate caps, floors, and
collars, and futures contracts to manage risk. The Fund also may use options to
enhance return.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[RISK ICON]
credit risk interest rate risk leverage risk
market risk market risk prepayment risk
INCOME FUND
INVESTMENT OBJECTIVE. The Fund's investment objective is to provide total return
consistent with current income.
INVESTMENT POLICIES. The Fund invests in a diversified portfolio of fixed and
variable rate fixed income securities issued by domestic and foreign issuers.
The Fund invests in a broad spectrum of U.S. issuers, including U.S. Government
Securities, mortgage- and other asset-backed securities, and the debt securities
of financial institutions, corporations, and others. The Adviser attempts to
increase the Fund's performance by applying various fixed income management
techniques. The Adviser combines these techniques with fundamental economic,
credit and market analysis while at the same time controlling total return
volatility by targeting the Fund's Duration within a narrow band around the
Duration of the Lipper Corporate A-Rated Debt Average.
The Fund normally invests at least 30% of its total assets in U.S. Government
Securities. The Fund limits its investments in mortgage-backed securities to not
more than 50% of its total assets and its investments in other asset-backed
securities to not more than 25% of its total assets.
The Fund may invest up to 70% of its total assets in corporate securities, such
as bonds, debentures, and notes and fixed income securities that can be
converted into or exchanged for common stocks. The Fund also may invest in zero
coupon securities and enter into dollar rolls.
The Fund may invest in debt securities registered and sold in the United States
by foreign issuers and debt securities sold outside the United States by foreign
or U.S. issuers. The Fund restricts its purchases of debt securities to those
denominated and payable in U. S. dollars.
Normally, the Fund will invest at least 80% of its total assets in Investment
Grade securities. The Fund may invest up to 20% of its total assets in
Non-Investment Grade securities rated, at the time of purchase, in the fifth
highest long-term rating category assigned by an NRSRO or unrated and determined
by the Adviser to be of comparable quality.
The Fund invests primarily in securities with maturities (or average life in the
case of mortgage-backed and similar securities) ranging from overnight to 40
years. It is anticipated that the Fund's portfolio will have an average
dollar-weighted maturity of between 3 and 15 years. The Fund's portfolio of
securities will normally have a Duration of between 70% and 130% of the Duration
of the Lipper Corporate A-Rated Debt Average.
[RISK ICON]
credit risk foreign risk interest rate risk
leverage risk market risk prepayment risk
<PAGE>
TOTAL RETURN BOND FUND
INVESTMENT OBJECTIVE. The Fund's investment objective is to seek total.
INVESTMENT POLICIES. The Fund invests in a broad range of fixed income
instruments in order to create a strategically diversified portfolio of fixed
income investments. These investments include corporate bonds, mortgage- and
other asset-backed securities, U.S. Government Securities, preferred stock,
convertible bonds, and foreign bonds.
The Adviser focuses on relative value as opposed to predicting the direction of
interest rates. In general, the Fund seeks higher current income instruments
such as corporate bonds and mortgage-and other asset-backed securities in order
to enhance returns. The Adviser believes that this exposure enhances performance
in varying economic and interest rate cycles and avoids excessive risk
concentrations. The Adviser's investment process involves rigorous evaluation of
each security, including identifying and valuing cash flows, embedded options,
credit quality, structure, liquidity, marketability, current versus historical
trading relationships, supply and demand for the instrument, and expected
returns in varying economic/interest rate environments. The Adviser uses this
process to seek to identify securities which represent the best relative
economic value. The Adviser then evaluates the results of the investment process
against the Fund's objective and purchases those securities that are consistent
with the Fund's investment objective.
The Fund particularly seeks strategic diversification. The Fund will not
invest more than:
* 75% of its total assets in corporate bonds;
* 65% of its total assets in mortgage-backed securities;
* 50% of its total assets in asset-backed securities; or
* 25% of its total assets in a single industry of the corporate market.
The Fund may invest in U.S. Government Securities without restriction. The Fund
generally will not invest more than 5% of its total assets in the corporate
bonds of any single issuer.
The Fund will invest 65% of its total assets in fixed-income securities rated,
at the time of purchase, within the 3 highest rating categories assigned by at
least 1 NRSRO, or which are unrated and determined by the Adviser to be of
comparable quality. The Fund may invest up to 20% of its total assets in
Non-Investment Grade securities.
The average maturity of the Fund will vary between 5 and 15 years. In the case
of mortgage-backed and similar securities, the Fund uses the security's average
life in calculating the Fund's average maturity. The Fund's Duration normally
will vary between 3 and 8 years.
The Fund may use options, swap agreements, interest rate caps, floors, and
collars, and futures contracts to manage risk. The Fund also may use options to
enhance return.
[RISK ICON]
credit risk interest rate risk leverage risk
market risk prepayment risk
5. RISK CONSIDERATIONS
This section describes the principal risks that may apply to the Funds. Each
Fund's exposure to these risks depends upon its specific investment profile. The
Fund's description in INVESTMENT OBJECTIVES AND POLICIES lists the Fund's
principal risks.
<PAGE>
CREDIT RISK. The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise be unable to honor a financial obligation.
This risk is greater for Non-Investment Grade securities.
FOREIGN RISK. The risk that foreign investments may be subject to political and
economic instability, the imposition or tightening of exchange controls, or
other limitations on repatriation of foreign capital or nationalization,
increased taxation, or confiscation of investors' assets. Also, the risk that
the price of a foreign issuer's securities may not reflect the issuer's
condition because there is not sufficient publicly available information about
the issues. This risk may be greater for investments in emerging or developing
markets.
INTEREST RATE RISK. The risk that changes in interest rates may affect the value
of your investment. With fixed-rate securities, including U.S. Government
Securities, an increase in interest rates typically causes the value of the
Fund's fixed-rate securities to fall, while a decline in interest rates may
produce an increase in the market value of the securities. Because of this risk,
an investment in a Fund is subject to risk even if all the fixed-income
securities in the Fund's portfolio are paid in full at maturity. Changes in
interest rates will affect the value of longer-term fixed-income securities more
than shorter-term securities.
LEVERAGE RISK. The risk that some transactions may multiply smaller market
movements into large changes in a Fund's net asset value. This risk may occur
when a Fund borrows money or enters into transactions that have a similar
economic effect, such as short sales or forward commitment transactions. This
risk also may occur when a Fund makes investments in derivatives, such as
options or futures contracts.
MARKET RISK. The risk that the market value of a Fund's investments will
fluctuate as the bond markets fluctuate generally. Market risk may affect a
single issuer, industry, or section of the economy or may affect the market as a
whole.
PREPAYMENT RISK. The risk that issuers will prepay fixed rate securities when
interest rates fall, forcing the Fund to invest in securities with lower
interest rates than the prepaid securities. For a Fund investing in mortgage-
and other asset-backed securities, this is also the risk that a decline in
interest rates may result in holders of the assets backing the securities to
prepay their debts, resulting in potential losses in these securities' values
and yield. Alternatively, rising interest rates may reduce the amount of
prepayments on the assets backing these securities, causing the Fund's average
maturity to rise and increasing the Fund's sensitivity to rising interest rates
and potential for losses in value.
6. COMMON POLICIES
Except as otherwise indicated, investment policies of the Funds may be changed
by the Board without shareholder approval. The Funds' investment objectives are
Fundamental.
VOTING ISSUES
In determining the outcome of shareholder votes, Norwest Advantage Funds
normally counts votes on a share-by-share basis. This means that shareholders of
Funds with comparatively high net asset values will have a comparatively smaller
impact on the outcome of votes by all of the funds than do shareholders of Funds
with lower net asset values.
DOWNGRADED SECURITIES
Each Fund may retain a security whose rating has been lowered (or a security of
comparable quality to a security whose rating has been lowered) below the Fund's
lowest permissible rating category if the Fund's Adviser determines that
retaining the security is in the best interests of the Fund. Because a downgrade
often results in a reduction in the market price of the security, sale of a
downgraded security may result in a loss.
<PAGE>
TEMPORARY DEFENSIVE POSITION
To respond to adverse market, economic, political, or other conditions, each
Fund may assume a temporary defensive position and invest without limit in cash
or cash equivalents. When a Fund makes temporary defensive investments, it may
not pursue its investment objective and is likely that its shareholders may be
subject to Federal and applicable state income taxes on a greater portion of the
fund's income distribution.
PORTFOLIO TRANSACTIONS
From time to time, a Fund may engage in active short-term trading to take
advantage of price movements affecting individual issues, groups of issues, or
markets. Higher portfolio turnover rates may result in increased brokerage costs
and a possible increase in short-term capital gains or losses. The FINANCIAL
HIGHLIGHTS table lists the Funds' portfolio turnover rate.
YEAR 2000 AND EURO
The Funds could be adversely affected if the computer systems used by the
Advisers and other service providers (and in particular, foreign service
providers) to the Funds do not properly process and calculate date-related
information and data from and after January 1, 2000 or information regarding the
new common currency of the European Union. The Year 2000 and Euro issues also
may adversely affect the Funds' investments.
Norwest and Forum Financial Group are taking steps to address the Year 2000 and
Euro issues for their computer systems and to obtain reasonable assurances that
comparable steps are being taken by the Funds' other major service providers.
While the Funds do not anticipate any adverse effect on their computer systems
from the Year 2000 and Euro issues, there can be no assurance that these steps
will be sufficient to avoid any adverse impact on the Funds.
7. MANAGEMENT
INVESTMENT ADVISORY SERVICES
NORWEST INVESTMENT MANAGEMENT, INC. is the investment adviser for each Fund and
each Portfolio. In this capacity, Norwest makes investment decisions for and
administers the Funds' and Portfolios' investment programs. Norwest Investment
Management, Inc.'s address is Norwest Center, Sixth Street and Marquette,
Minneapolis, MN 55479.
Norwest, Stable Income Portfolio and Strategic Value Bond Portfolio have
retained GALLIARD CAPITAL MANAGEMENT, INC. or GALLIARD as an investment
subadviser to make investment decisions for and administer the investment
programs of those Portfolios. Norwest decides which portion of the Portfolios'
assets Galliard should manage and supervises Galliard's performance of its
duties. Galliard is an investment advisory subsidiary of Norwest Bank which
provides investment advisory services to bank and thrift institutions, pension
and profit sharing plans, trusts and charitable organizations, and corporate and
other business entities. Galliard Capital Management, Inc.'s address is 800
Lasalle Ave. Suite 2060, Minneapolis, MN 55479.
Listed below, for each Fund, are the portfolio managers primarily responsible
for the day-to-day management of the Fund's investments. The year a portfolio
manager began managing a Fund's portfolio follows the manager's name in
parenthesis. The list includes the investment advisory fees payable to Norwest
by the Fund or the Portfolio in which it invests. The list states the investment
advisory fees on an annualized basis as a percentage of a Fund's or Portfolio's
average daily net assets. Descriptions of the portfolio managers' recent
experience follow the list of portfolio managers and advisory fees.
How investment advisory fees are paid depends on whether or not a Fund invests
in a Portfolio.
* If a Fund invests directly in a portfolio of securities, Norwest receives
an investment advisory fee directly from the Fund.
<PAGE>
* If a Fund invests in a Portfolio, Norwest receives an investment advisory
fee from the Portfolio.
Norwest (and not the Funds or Portfolios) pays the subadviser's investment
subadvisory fee. The investment subadvisory fee does not increase the amount of
the investment advisory fees paid to Norwest by the Funds or Portfolios.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STABLE INCOME FUND
PORTFOLIO: STABLE INCOME PORTFOLIO
SUBADVISER: GALLIARD
PORTFOLIO MANAGER: Karl P. Tourville (1994) and John Huber (1998).
ADVISORY FEE: 0.30%
INTERMEDIATE GOVERNMENT INCOME FUND
PORTFOLIO MANAGER: Marjorie H. Grace, CFA (1995).
ADVISORY FEE: 0.33%
INCOME FUND
PORTFOLIO MANAGER: Marjorie H. Grace, CFA (1996).
ADVISORY FEE: 0.50%
TOTAL RETURN BOND FUND
PORTFOLIO: STRATEGIC VALUE BOND PORTFOLIO
SUBADVISER: GALLIARD
PORTFOLIO MANAGERS: Richard Merriam, CFA (1997), John Huber (1998),
and David Yim (1998)
ADVISORY FEE: 0.50%
PORTFOLIO MANAGERS
MARJORIE H. GRACE, associated with Norwest or its affiliates since 1992. Ms.
Grace is a Director, Taxable Fixed Income of Norwest.
JOHN HUBER, associated with Norwest or its affiliates since 1990. Mr. Huber has
been a portfolio manager and Corporate Trading Specialist at Galliard since 1995
and has been in investment management since 1990.
RICHARD MERRIAM, associated with Norwest or its affiliates since 1995. Mr.
Merriam has been a managing partner of Galliard since 1995 and is responsible
for investment process and strategy. Mr. Merriam was previously Chief Investment
Officer of Insight Investment Management.
KARL P. TOURVILLE, associated with Norwest or its affiliates since 1986. Mr.
Tourville has been a managing partner of Galliard since 1995.
DAVID YIM, associated with Norwest or its affiliates since 1995. Mr. Yim has
been a portfolio manager and Credit Research Specialist of Galliard since 1995
and previously worked for American Express Financial Advisors as a Research
Analyst.
DORMANT INVESTMENT ADVISORY ARRANGEMENTS
<PAGE>
Norwest has been retained as a "dormant" or "back-up" investment adviser to
manage any assets redeemed and invested directly by a Fund that invests in a
Portfolio. Norwest does not receive any compensation under this arrangement as
long as a Fund invests entirely in a Portfolio. If a Fund redeems assets from a
Portfolio and invests them directly, Norwest receives an investment advisory fee
from the Fund for the management of those assets.
OTHER FUND SERVICES
The FORUM FINANCIAL GROUP of companies provide managerial, administrative, and
underwriting services to the Funds. NORWEST BANK acts as the Funds' transfer
agent, distribution disbursing agent, and custodian.
8. CHOOSING A SHARE CLASS
Sales charges and fees vary considerably between a Fund's A Shares and B Shares.
After a set number of years, B Shares, which have higher fees, convert to A
Shares, which have lower fees. Consider the differences in the classes' fee
structures carefully before choosing which class to purchase. In particular,
consider how long you intend to invest in the Fund and whether during that
period the accumulated fees and applicable CDSCs on B Shares would be less than
the initial sales charge on A Shares. Also, consider whether you might qualify
for a reduced sales charge on A Shares and whether any difference in total
expenses between classes would be offset by A Shares' higher yield. The SAI has
more information about ways to qualify for reduced sales charges and how reduced
sales charge alternatives operate.
A SHARES
The Funds offer A Shares at their next-determined net asset value plus the
following initial sales charge (no sales charge applies to reinvestments of
distributions):
<TABLE>
<S> <C> <C> <C>
STABLE INCOME FUND
SALES CHARGE
AS A PERCENTAGE OF*.
AMOUNT OF PURCHASE OFFERING PRICE+ NET AMOUNT INVESTED
Less than $50,000........................... 1.50% 1.52%
$50,000 to $99,999.......................... 1.00% 1.01%
$100,000 to $499,000........................ 0.75% 0.76%
$500,000 to $999,000........................ 0.50% 0.50%
$1,000,000 and over....................... None None
*Rounded to the nearest one-hundredth percent.
+The amount of the initial sales charge is
included in the offering price.
INTERMEDIATE GOVERNMENT INCOME FUND,
INCOME FUND, AND TOTAL RETURN BOND FUND
SALES CHARGE
AS A PERCENTAGE OF*
AMOUNT OF PURCHASE OFFERING PRICE+ NET AMOUNT INVESTED
Less than $50,000........................... 4.00% 4.17%
$50,000 to $99,999.......................... 3.50% 3.63%
$100,000 to $249,000........................ 3.00% 3.09%
$250,000 to $499,999.............................. 2.50% 2.56%
$500,000 to $999,000............................. 2.00% 2.04%
over $1,000,000 ................................... None None
*Rounded to the nearest one-hundredth percent.
+The amount of the initial sales charge is included in the offering price.
</TABLE>
<PAGE>
+The amount of the initial sales charge is
included in the offering price
If you redeem A Shares purchased with a reduced sales charge, the Funds may
impose a charge on the redemption depending on how long you have held the
shares.
B SHARES
The Funds offer B Shares at their net asset value per share. The Funds' B Shares
have distribution and shareholder servicing fees of 1.00% of the average daily
net assets of the class under a Rule 12b-1 distribution plan. Because
distribution fees are paid out of the Funds' assets on an on-going basis, over
time these fees will increase the cost of your investment and may cost more than
paying a front-end sales charge.
CONTINGENT DEFERRED SALES CHARGE. If you redeem B Shares within 4 years of
purchase (2 years in the case of the Stable Income Fund), there will be a CDSC
on the redemption in the amount indicated below. The amount of the CDSC will
vary depending on the number of years between the payment for the purchase of
the shares and their redemption. You will pay the CDSC on the lesser of the cost
of the B Shares redeemed and their net asset value upon redemption. The Funds do
not impose a CDSC on B Shares purchased through reinvestments of dividends and
distributions.
CHARGE FOR STABLE INCOME FUND
YEAR SINCE PURCHASE
First................................................ 1.50%
Second............................................... 0.75%
Third and subsequent................................. None
CHARGE FOR INTERMEDIATE
GOVERNMENT
YEAR SINCE PURCHASE INCOME FUND, INCOME FUND,
AND TOTAL RETURN BOND FUND
First................................................ 3.0%
Second............................................... 2.0%
Third................................................ 2.0%
Fourth............................................... 1.0%
Fifth................................................ None
Sixth................................................ None
The Funds will redeem shares in the manner that results in the imposition of the
lowest CDSC. The Funds will automatically redeem shares first from any A Shares
of the Fund, second from B Shares of the Fund acquired pursuant to reinvestment
of distributions, third from B Shares of the Fund held for more than 4 years (2
years in the case of the Stable Income Fund), and fourth from the longest-
outstanding B Shares of the Fund held for less than 4 years (2 years in the case
of the Stable Income Fund).
CONVERSION FEATURE. B Shares will automatically convert to A Shares 6 years
(4 years in the case of Stable Income Fund) from the end of the calendar month
in which the Fund accepted your purchase. The conversion will be on the basis of
the relative net asset values of the shares, without the imposition of any sales
load, fee, or other charge. For purposes of conversion, the Funds will consider
B Shares purchased through the reinvestment of dividends and distributions to be
held in a separate sub-account. Each time any B Shares in your account (other
than those in the sub-account) convert, a corresponding pro rata portion of the
shares in the sub-account will also convert. The Funds may suspend the
conversion feature in the future; in that event, B Shares might continue to pay
their distribution fee indefinitely.
9. HOW TO BUY AND SELL SHARES
You may purchase Fund shares on "Fund Business Days" at their net asset value
next determined after receipt of your purchase order in proper form plus, in the
case of A Shares, any applicable sales charge. Fund Business Days are all
weekdays except generally observed national holidays (New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Memorial Day, Independence Day, Labor
Day, Thanksgiving, and Christmas) and Good Friday.
GENERAL PURCHASE INFORMATION
You may purchase shares directly or through a financial institution. The Funds'
transfer agent processes all transactions in Fund shares.
All of the Funds except Stable Income Fund require a minimum initial investment
of $1,000. Stable Income Fund requires a minimum initial investment of $5,000.
All of the Funds require minimum subsequent investments of $100. Your shares
become eligible to receive distributions the Fund Business Day after your
purchase order is received in proper form.
The Funds reserve the right to reject any subscription for the purchase of
shares, including subscriptions by market timers. You will receive share
certificates for your shares only if you request them in writing. No
certificates are issued for fractional shares.
PURCHASING PROCEDURES
DIRECT PURCHASES
You may obtain an account application by writing Norwest Advantage Funds at the
following address:
NORWEST ADVANTAGE FUNDS
[NAME OF FUND]
NORWEST BANK MINNESOTA, N.A.
TRANSFER AGENT
733 MARQUETTE AVENUE
MINNEAPOLIS, MN 55479-0040
When you sign an application for a new Fund account, you are certifying that
your Social Security number or other taxpayer identification number is correct
and that you are not subject to backup withholding. If you violate certain
federal income tax provisions, the Internal Revenue Service can require the
Funds to withhold 31% of your distributions and redemptions.
You must pay for your shares in U.S. dollars by check or money order drawn on a
U.S. bank, by bank or federal funds wire transfer, or by electronic bank
transfer. Cash cannot be accepted.
Call or write the transfer agent if you wish to participate in shareholder
services not offered on the account application or change information on your
account (such as addresses). Norwest Advantage Funds may in the future modify,
limit or terminate any shareholder privilege upon appropriate notice and may
charge a fee for certain shareholder services, although no such fees are
currently contemplated. You may terminate your participation in any shareholder
program by writing to Norwest Advantage Funds.
PURCHASES BY MAIL. You may send a check or money order along with a completed
account application to Norwest Advantage Funds at the address listed above.
Checks and money orders are accepted at full value subject to collection.
Payment by a check drawn on any member of the Federal Reserve System can
normally be converted into federal funds within 2 business days after receipt of
the check. Checks drawn on some non-member banks may take longer. If your check
does not clear, the purchase order will be canceled and you will be liable for
any losses or fees incurred by Norwest Advantage Funds, the transfer agent or
the distributor.
<PAGE>
To purchase shares for individual or Uniform Gift to Minors Act accounts, you
must write a check or purchase a money order payable to Norwest Advantage Funds
or endorse a check made out to you to Norwest Advantage Funds. For corporation,
partnership, trust, 401(k) plan, or other non-individual type accounts, make the
check used to purchase shares payable to Norwest Advantage Funds. No other
methods of payment by check will be accepted for these types of accounts.
PURCHASES BY BANK WIRE You must first telephone the Funds' transfer agent at
1-612-667-8833 or 1-800-338-1348 to obtain an account number before making an
initial investment in a Fund by bank wire. Then instruct your bank to wire your
money immediately to:
NORWEST BANK MINNESOTA, N.A.
A091 000 019
FOR CREDIT TO: NORWEST ADVANTAGE FUNDS 0844-131
RE: [NAME OF FUND][CLASS OF SHARES]
ACCOUNT NO.:
ACCOUNT NAME:
Complete and mail the account application promptly. Your bank may charge for
transmitting the money by wire. The Funds do not charge for the receipt of wire
transfers. The Funds treat payment by bank wire as a federal funds payment when
received.
PURCHASES THROUGH FINANCIAL INSTITUTIONS
You may purchase and redeem shares through certain broker-dealers, banks, and
other financial institutions. When you purchase a Fund's shares through a
financial institution, the shares may be held in your name or in the name of the
financial institution. Subject to your institution's procedures, you may have
Fund shares held in the name of your financial institution transferred into your
name. If your shares are held in the name of your financial institution, you
must contact the financial institution on matters involving your shares. Your
financial institution may charge you for purchasing, redeeming, or exchanging
shares.
SUBSEQUENT PURCHASES OF SHARES
You may make subsequent purchases by mailing a check, by sending a bank wire, or
through a financial institution as indicated above. All payments should clearly
indicate your name and account number.
GENERAL REDEMPTION INFORMATION
You may redeem Fund shares as of the next determination of the Fund's net asset
value following receipt by the transfer agent of your redemption order in proper
form subject to, in the case of B Shares, a CDSC imposed on most redemptions
made within 4 years of purchase (two in the case of Stable Income Fund).
Redeemed shares are not entitled to receive distributions after the day on which
the redemption is effective.
Normally, redemption proceeds are paid immediately following receipt of a
redemption order in proper form. In any event, you will be paid within 7 days,
unless: (1) your bank has not cleared the check to purchase the shares (which
may take up to 15 days); (2) the New York Stock Exchange is closed (or trading
is restricted) for any reason other than normal weekend or holiday closings; (3)
there is an emergency in which it is not practical for the Fund to sell its
portfolio securities or for the Fund to determine its net asset value; or (4)
the SEC deems it inappropriate for redemption proceeds to be paid. You can avoid
the delay of waiting for your bank to clear your check by paying for shares with
wire transfers. Unless otherwise indicated, redemption proceeds normally are
paid by check mailed to your record address.
To protect against fraud, the following must be in writing with a signature
guarantee: (1) endorsement on a share certificate; (2) instruction to change
your record name; (3) modification of a designated bank account for wire
redemptions; (4) instruction regarding an Automatic Investment Plan or Automatic
Withdrawal Plan; (5) distribution
<PAGE>
elections; (6) election of telephone redemption privileges; (7) election of
exchange or other privileges in connection with your account; (8) written
instruction to redeem shares whose value exceeds $50,000; (9) redemption in an
account when the account address has changed within the last 30 days; (10)
redemption when the proceeds are deposited in a Norwest Advantage Funds account
under a different account registration; and (11) the payment of redemption
proceeds to any address, person, or account for which there are not established
standing instructions.
You may obtain signature guarantees at any of the following types of
organizations: authorized banks, broker-dealers, national securities exchanges,
credit unions, savings associations, or other eligible institutions. The
specific institution providing the guarantee must be acceptable to the transfer
agent. Whenever a signature guarantee is required, the signature of each person
required to sign for the account must be guaranteed.
The Funds and the transfer agent will use reasonable procedures to verify that
telephone requests are genuine, including recording telephone instructions and
sending written confirmations of the transactions. Such procedures are necessary
because the Funds and transfer agent could be liable for losses due to
unauthorized or fraudulent telephone instructions. You should verify the
accuracy of a telephone instruction as soon as you receive the confirmation
statement. Telephone redemption and exchanges may be difficult to implement in
times of drastic economic or market changes. If you cannot reach the transfer
agent by telephone, you may mail or hand-deliver requests to the transfer agent.
Because of the cost of maintaining smaller accounts, Norwest Advantage Funds may
redeem, upon not less than 60 days' written notice, any account with a net asset
value of less than $1,000 ($5,000 in the case of Stable Income Fund) immediately
following any redemption.
REDEMPTION PROCEDURES
If you have invested directly in a Fund you may redeem your shares as described
below. If you have invested through a financial institution you may redeem
shares through the financial institution. If you wish to redeem shares by
telephone or receive redemption proceeds by bank wire you should complete the
appropriate sections of the account application. These privileges may not be
available until several weeks after the application is received. You may not
redeem shares by telephone if you have certificates for those shares.
REDEMPTION BY MAIL. You may redeem shares by sending a written request to the
transfer agent accompanied by any share certificate you have been issued. Sign
all requests and endorse all certificates with signature guaranteed.
REDEMPTION BY TELEPHONE. If you have elected telephone redemption privileges,
you may redeem shares by telephoning the transfer agent at 1-800-338-1348 or
1-612-667-8833 and providing your shareholder account number, the exact name in
which the shares are registered, and your Social Security number or other
taxpayer identification number. Norwest Advantage Funds will mail a check to
your record address or, if you have chosen wire redemption privileges, wire the
proceeds.
REDEMPTION BY BANK WIRE. If you have elected wire redemption privileges, you may
request a Fund to transmit redemption proceeds of more than $5,000 by federal
funds wire to a bank account you have designated in writing. You must have
chosen the telephone redemption privilege to request bank redemptions by
telephone. Redemption proceeds are wired on the Fund Business Day after the
transfer agent receives a redemption request in proper form.
EXCHANGES
You may exchange A Shares and B Shares for A Shares and B Shares, respectively,
of the Funds and of other funds of Norwest Advantage Funds that offer those
classes of shares. You may also exchange A Shares and B Shares for some classes
of certain money market funds of Norwest Advantage Funds. Call or write the
transfer agent for both a list of funds that offer shares exchangeable with
those of the Funds and prospectuses of those funds.
The Funds do not charge for exchanges, and there is currently no limit on the
number of exchanges you may make. The Funds, however, may limit your ability to
exchange shares if you exchange too often. Exchanges are subject to the
<PAGE>
fees (other than CDSCs) charged by, and the limitations (including minimum
investment restrictions) of, the Fund into which you are exchanging.
You may only exchange shares into a pre-existing account if that account is
identically registered. You must submit a new account application if you wish to
exchange shares into an account registered differently or with different
shareholder privileges. You may exchange into a Fund only if that Fund's shares
may legally be sold in your state of residence.
The Funds and federal tax law treat an exchange as a redemption and a purchase
of shares. The Funds may amend or terminate exchange procedures on 60 days'
notice.
SALES CHARGES. Some exchanges of A Shares may require a sales charge in addition
to the sales charge you paid to purchase the shares. If you exchange into a fund
that imposes an initial sales charge greater than the sales charge you paid, you
must pay the difference between the sales charge of the fund you are exchanging
into and your Fund. For example, if you paid a 2% initial sales charge on a
purchase of shares and then exchanged those shares for shares of another fund
with a 3% initial sales charge, you would pay an additional 1% sales charge on
the exchange. The Funds deem A Shares acquired through the reinvestment of
distributions to have been acquired with a sales charge equal to the maximum
sales charge of the Fund.
You may exchange B Shares without paying a CDSC. If you redeem shares you
received in an exchange, the CDSC will be calculated as if you never exchanged
the B Shares you originally purchased. B Shares acquired through an exchange
will convert to A Shares when the B Shares originally purchased would convert to
A Shares.
EXCHANGES BY MAIL. You may make an exchange by sending a written request to the
transfer agent accompanied by any share certificates for the shares to be
exchanged. Sign all written requests and endorse all certificates with signature
guaranteed.
EXCHANGES BY TELEPHONE. If you have telephone exchange privileges, you may make
a telephone exchange by calling the transfer agent at 1-800-338-1348 or
1-612-667-8833 and giving your account number, the exact name in which the
shares are registered and your Social Security number or other taxpayer
identification number.
10. DISTRIBUTIONS AND TAX MATTERS
DISTRIBUTIONS
Stable Income Fund, Intermediate Government Income Fund, and Total Return Bond
Fund declare and distribute net investment income monthly. Income Fund declares
distributions of net investment income daily and pays those distributions
monthly. Each Fund's net capital gain, if any, is distributed at least annually.
Distributions on B Shares will be lower than those on A Shares per share because
of the distribution and other fees applicable to B Shares.
You have 3 choices for receiving distributions: the Reinvestment Option, the
Cash Option, and the Directed Dividend Option.
* Under the Reinvestment Option, all distributions of a Fund are automatically
invested in additional shares of that Fund. You are automatically assigned this
option unless you select another option.
* Under the Cash Option, you are paid all distributions in cash.
* Under the Directed Dividend Option, if you own $10,000 or more of a Fund's
shares in a single account, you can have that Fund's distributions
reinvested in shares of another fund of Norwest Advantage Funds. Call or
write the transfer agent for more information about the Directed Dividend
Option.
All distributions are treated in the same manner for federal income tax purposes
whether received in cash or reinvested
<PAGE>
in shares of a fund. All distributions reinvested in a fund are reinvested at
the fund's net asset value as of the payment date of the distribution.
TAX MATTERS
The Funds are managed so that they do not owe federal income or excise tax.
Distributions paid by a Fund out of its net investment income (including net
short-term capital gain) are taxable as ordinary income. Distributions of net
capital gain (i.e., the excess of net long-term capital gain over net short-term
capital loss) are taxable as long-term capital gain, regardless of how long a
shareholder has held shares in the Fund. Distributions of net capital gain may
be taxable at different rates depending on the length of time the Fund holds its
assets. If shares are sold at a loss after being held for six months or less,
the loss will be treated as long-term capital loss to the extent of any
distribution of net capital gain received on those shares.
Distributions (other than distributions of net investment income of Income Fund)
reduce the net asset value of the Fund paying the distribution by the amount of
the distribution. Furthermore, a distribution made shortly after you purchase
shares, although in effect a return of capital to you, is taxable.
If a Fund receives investment income from sources within foreign countries, that
income may be subject to foreign income or other taxes.
11. OTHER INFORMATION
DETERMINATION OF NET ASSET VALUE
Each Fund determines net asset value at 4:00 p.m., Eastern Time on each Fund
Business Day by dividing the value of its net assets (i.e., the value of its
securities and other assets less its liabilities) by the number of shares
outstanding at the time the determination is made. The Funds value portfolio
securities at current market value if market quotations are readily available.
If market quotations are not readily available, the Funds value securities at
fair value as determined by or pursuant to procedures adopted by the Board.
European, Far Eastern, and other international securities exchanges and
over-the-counter markets normally complete trading well before the close of
business on each Fund Business Day. Trading in foreign securities, however, may
not take place on all Fund Business Days or may take place on days that are not
Fund Business Days. The determination of the prices of foreign securities may be
based on the latest market quotations for the securities. If events occur that
affect the securities' value after the close of the markets on which the
securities trade, the Funds may make an adjustment to the value of the
securities for purposes of determining net asset value.
ADDITIONAL INFORMATION ABOUT THE PORTFOLIOS
Each Fund reserves the right to invest in 1 or more Portfolios. Each Fund bears
its pro rata share of the expenses of any Portfolio in which it invests. The
Board may redeem a Fund's investment in a Portfolio at any time. The Fund could
then invest directly in individual securities or could re-invest in 1 or more
different Portfolios that could have different fees and expenses. A Fund might
redeem, for example, if other investors had sufficient voting power to change
the investment objectives or policies of the Portfolio in a manner detrimental
to the Fund.
BROKER-DEALER REALLOWANCES
<PAGE>
The Funds' distributor may pay a "broker-dealer's" reallowance to certain
financial intermediaries purchasing shares as principal or agent. Normally, the
distributor will reallow the amounts indicated below, although it may at times
reallow the entire sales charge. The distributor also may make additional
payments to certain intermediaries out of its own resources of up to 0.75%
(0.50% in the case of Stable Income Fund) of the net asset value of Fund shares
purchased. Norwest Advantage Funds may change the amount of the reallowance.
In addition, at its own expense, the distributor may provide compensation,
including financial assistance, to financial intermediaries in connection with
their conferences, employee sales or training programs, public seminars,
advertising campaigns, or other special events. The distributor may, for
example, compensate the intermediaries with travel arrangements and lodging,
tickets for entertainment events, and merchandise. The distributor may make this
compensation available only to intermediaries that have sold or are expected to
sell significant amounts of Fund shares or who charge an asset based fee,
whether or not they have a fiduciary relationship with their clients.
STABLE INCOME FUND
AMOUNT OF PURCHASE BROKER-DEALERS' REALLOWANCE AS A PERCENTAGE
OF OFFERING PRICE
Less than $50,000........................... 1.35%
$50,000 to $99,999.......................... 0.90%
$100,000 to $499,000........................ 0.70%
$500,000 to $999,000........................ 0.45%
$1,000,000 and over......................... None
INTERMEDIATE GOVERNMENT INCOME FUND,
INCOME FUND, AND TOTAL RETURN BOND FUND
AMOUNT OF PURCHASE BROKER-DEALERS' REALLOWANCE AS A
PERCENTAGE OF OFFERING PRICE
Less than $50,000........................... 3.50%
$50,000 to $99,999.......................... 3.00%
$100,000 to $249,000........................ 2.50%
$250,000 to $499,999........................ 2.25%
$500,000 to $999,000........................ 1.75%
$1,000,000 to $2,499,999.................... 0.75%
$2,500,000 to $4,999,999.................... 0.50%
Over $5,000,000............................. 0.25%
NO ONE HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE STATEMENT OF
ADDITIONAL INFORMATION AND THE FUNDS' OFFICIAL SALES LITERATURE. ANY SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE FUNDS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN
WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER MAY NOT LAWFULLY BE MADE.
<PAGE>
If you would like more information about the Funds and their investments, you
may want to read the following documents:
STATEMENT OF ADDITIONAL INFORMATION. A Fund's statement of additional
information, or "SAI," contains detailed information about the Funds, such as
its investments, management, and organization. It is incorporated into this
Prospectus by reference.
ANNUAL AND SEMI-ANNUAL REPORTS. Additional Information about each Fund's
investments is available in its annual and semi-annual reports to shareholders.
In the annual report, the Fund's portfolio manager discusses the market
conditions and investment strategies that significantly affected the Fund's
performance during its last fiscal year.
You may obtain free copies of the SAI, annual report and semi-annual report by
contacting your investment representatiave or by contacting Norwest Advantage
Funds at 733 Marquette Avenue, Minneapolis, Minnesota 55479 or by calling 1-800-
338-1348 or 1-612-667-8833.
The Funds' reports and statement of additional information are available from
the Securities and Exchange Commission in Washington, D.C. You may obtain copies
of these documents, upon payment of a duplicating fee, by writing the Public
Reference Section of the SEC, Washington D.C. 20549-6009. Please call
1-800-SEC-0330 for information about the operation of the SEC's public reference
room. The Fund's reports and other information are also available on the SEC's
Web Site at http:// www.sec.gov.
The SEC's Investment Company Act file number for the Funds is 811-4881.
<PAGE>
P R O S P E C T U S
October 1, 1998
TAX-FREE INCOME FUND
COLORADO TAX-FREE FUND
MINNESOTA TAX-FREE FUND
AN INVESTMENT IN A FUND IS NOT A DEPOSIT OF NORWEST BANK MINNESOTA, N.A. OR ANY
OTHER BANK AND IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
INVESTING IN ANY MUTUAL FUND HAS RISK. IT IS POSSIBLE TO LOSE MONEY BY INVESTING
IN ANY OF THE FUNDS.
NO GOVERNMENTAL AGENCY, INCLUDING THE U.S. SECURITIES AND EXCHANGE COMMISSION,
HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED WHETHER OR NOT THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
Table of Contents
1. OVERVIEW.................................................................
Expense Information......................................................
2. FINANCIAL HIGHLIGHTS.....................................................
3. GLOSSARY.................................................................
4. INVESTMENT OBJECTIVES AND POLICIES.......................................
Tax-Free Income Fund.....................................................
Colorado Tax-Free Fund...................................................
Minnesota Tax-Free Fund..................................................
5. RISK CONSIDERATIONS......................................................
6. COMMON POLICIES..........................................................
7. MANAGEMENT OF THE FUNDS..................................................
Investment Advisory Services.............................................
Other Fund Services......................................................
8. CHOOSING A SHARE CLASS...................................................
A Shares.................................................................
B Shares.................................................................
9. HOW TO BUY AND SELL SHARES...............................................
General Purchase Information.............................................
Purchase Procedures......................................................
General Redemption Information...........................................
Redemption Procedures....................................................
Exchanges................................................................
10. DISTRIBUTIONS AND TAX MATTERS............................................
Distributions............................................................
Tax Matters..............................................................
11. OTHER INFORMATION........................................................
Determination of Net Asset Value.........................................
Other Funds..............................................................
Broker-Dealers' Reallowances.............................................
<PAGE>
1. OVERVIEW
The following is a summary of information about the Funds. Before investing, you
should read the prospectus and consider the discussions under Investment
Objectives and Policies and Risk Considerations.
No single Fund is a complete or balanced investment program, but each can serve
as a part of your overall investment program.
THE FUNDS AT A GLANCE
The Funds generally seek current income exempt from federal or state income
taxes.
------------------------------------------------------------------------
------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
FUND OBJECTIVE PRIMARY INVESTMENTS
TAX-FREE INCOME FUND Current income exempt from Investment grade (average maturity
federal income taxes. of 10-20+ years) municipal
securities.
COLORADO TAX-FREE FUND A high-level of current income Investment grade (average maturity
exempt from both federal of 10-20+ years) Colorado
(including the AMT) and Colorado municipal securities.
income taxes consistent with the
preservation of capital.
MINNESOTA TAX-FREE FUND A high-level of current income Investment grade (average maturity
exempt from both federal and of 10-20+ years) Minnesota
Minnesota income taxes (including municipal securities.
the AMT) consistent with the
preservation of capital.
</TABLE>
CLASSES OF SHARES
This Prospectus offers 2 classes of shares of the Funds. The classes, which have
different fee structures, are:
* A Shares: offered at their net asset value plus an initial sales charge. A
Shares do not pay distribution or shareholder servicing fees.
* B Shares: offered at their net asset value. B Shares pay distribution and
shareholder servicing fees and convert to A Shares 6 years after purchase.
If you redeem your B Shares within 4 years of purchase, you may pay a
contingent deferred sales charge. The amount of the charge depends on the
length of time you hold the shares.
MANAGEMENT OF THE FUNDS
NORWEST INVESTMENT MANAGEMENT, INC. or NORWEST is each Fund's investment
adviser. Norwest, a subsidiary of Norwest Bank Minnesota, N.A. or Norwest Bank,
provides investment advice to institutions, pension plans, and other accounts,
and currently manages more than $29 billion in assets.
The FORUM FINANCIAL GROUP of companies provide management, administrative, and
underwriting services to the Funds.
INVESTMENT MINIMUMS AND RESTRICTIONS
The Funds require a minimum initial investment of $1,000 and minimum subsequent
investments of $100. Colorado Tax-Free Fund offers shares only to residents of
Colorado. Minnesota Tax-Free Fund offers shares only to residents of Minnesota.
EXCHANGES
If you own shares of a Fund, you may exchange them for shares of certain other
funds. Your exchange rights will vary depending on the class of shares you own.
DISTRIBUTIONS
Each Fund distributes to shareholders its net capital gain, if any, at least
annually. The DISTRIBUTIONS AND TAX MATTERS section discusses how often the
Funds distribute net investment income.
<PAGE>
The Funds pay distributions of net investment income monthly. Each Fund
distributes net capital gain, if any, to shareholders at least annually.
RISK FACTORS
All investments in a Fund are subject to risk and may decline in value. The
amount and types of risk vary from Fund to Fund depending on the Fund's
investment objective, the Adviser's strategy, the markets in which the Fund
invests, the investments that the Fund makes, and prevailing economic conditions
over the period of your investment.
The investment income you receive from a Fund will vary with changes in interest
rates. In addition, the value of the Fund's investments generally will fall when
interest rates rise and rise when interest rates fall. When interest rates fall,
there is a risk that issuers will prepay fixed rate securities, forcing the Fund
to invest in securities with lower interest rates than the prepaid securities.
In addition, the Funds' investments have "credit risk," which is the risk that
an issuer will be unable, or will be perceived to be unable, to pay the
principal and interest on its obligations when due. Funds that invest primarily
in securities that are highly rated by a nationally recognized statistical
rating organization, such as Standard & Poor's Corporation, generally have less
credit risk. Funds that have substantial investments in securities that are not
highly rated are subject to more credit risk.
The Funds that invest primarily in the debt securities of the government and
municipalities of a single state are more exposed to adverse economic
developments and other risks affecting that state than the Fund that invests in
a number of different states. Also, these single state Funds may invest in fewer
issuers than the other Fund; a decline in the value of a Fund's investment in an
issuer could therefore have a more significant effect on the Fund's shares.
Each Fund also has the risk that its Adviser may not be successful in carrying
out its investment strategy, that a portfolio manager may prove difficult to
replace if he or she becomes unavailable to manage the Fund, and that the Fund's
particular investment strategy may result in performance that is worse or better
than the performance of the market as a whole. Your investment in a Fund also
will have risk if you do not plan to invest for a period that is long enough to
permit the investment to recover from an adverse market movement.
EXPENSES OF INVESTING IN THE FUNDS
The following table will assist you in understanding the expenses that you will
bear directly or indirectly when you invest in a Fund.
SHAREHOLDER TRANSACTION EXPENSES
(APPLICABLE TO EACH FUND)
<TABLE>
<S> <C> <C>
A B
SHARES SHARES
- ---------------------------------------------------------------------------------------------------------------------
Maximum sales charge imposed on purchases
(as a percentage of offering price) 4.0% Zero
Maximum deferred sales charge
(as a percentage of the lesser of original purchase
price or redemption proceeds) Zero 3.0%(1)
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
TAX-FREE INCOME FUND
A B
Shares Shares
------------ ------------
Investment Advisory Fee (2) 0.34% 0.34%
Rule 12b-1 Fees (after fee waivers)(3) N/A 0.75%
Other Expenses (after fee waivers and 0.26% 0.26%
reimbursements)
Total Operating Expenses(4) 0.60% 1.35%
COLORADO TAX-FREE FUND MINNESOTA TAX-FREE FUND
A B A B
Shares Shares Shares Shares
------------ ------------ ------------ ------------
Investment Advisory Fee (2) 0.29% 0.29% 0.23% 0.23%
Rule 12b-1 Fees (after fee waivers)(3) N/A 0.75% N/A 0.75%
Other Expenses (after fee waivers and 0.31% 0.31% 0.37% 0.37%
reimbursements)
Total Operating Expenses(4) 0.60% 1.35% 0.60% 1.35%
</TABLE>
<PAGE>
(1) The maximum 3.0% CDSC on B Shares of a Fund applies to redemptions during
the first year after purchase; the CDSC declines to 2.0% for redemptions
during the second and third years, 1.0% for redemptions during the fourth
year, and 0% the following year.
(2) Absent waivers, Investment Advisory Fee would be 0.50% for each Fund.
(3) Absent waivers, Rule 12b-1 Fees would be 1.00% for B Shares of each Fund.
(4) Absent expense reimbursements and fee waivers, the expenses of A Shares of
Tax-Free Income Fund, Colorado Tax-Free Fund, and Minnesota Tax-Free Fund
would be: Other Expenses, 0.49%, 0.54%, and 0.57%, respectively; and Total
Operating Expenses, 0.99%, 1.04%, and 1.07%, respectively. Absent expense
reimbursements and fee waivers, the expenses of B Shares of Tax-Free Income
Fund, Colorado Tax-Free Fund, and Minnesota Tax-Free Fund would be: Other
Expenses, 0.55%, 0.54%, and 0.57%, respectively; and Total Operating
Expenses, 2.05%, 2.04%, and 2.07%, respectively. Expense reimbursements and
fee waivers are voluntary and may be reduced or eliminated at any time.
EXAMPLE
The following Hypothetical Expense Example indicates the dollar amount of
expenses that you would pay, assuming a $1,000 investment in a Fund's shares,
the expenses listed in the Annual Fund Operating Expenses table, a 5% annual
return, reinvestment of all distributions, the deduction of the maximum initial
sales charge for A Shares, the deduction of the deferred sales charge for B
Shares applicable to a redemption at the end of the period and the conversion of
B Shares to A Shares at the end of 6 years. THE EXAMPLE DOES NOT REPRESENT PAST
OR FUTURE EXPENSES OR RETURN. ACTUAL EXPENSES AND RETURN MAY BE GREATER OR LESS
THAN THOSE SHOWN IN THE EXAMPLE.
HYPOTHETICAL EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------------- ---------------- ----------------- ----------------
TAX-FREE INCOME FUND
A Shares $46 $58 $72 $112
B Shares
Assuming redemption at the end of the 44 63 74 162
period
Assuming no redemption 14 43 74 162
COLORADO TAX-FREE FUND
A Shares 46 58 72 112
B Shares
Assuming redemption at the end of the 44 63 74 162
period
Assuming no redemption 14 43 74 162
MINNESOTA TAX-FREE FUND
A Shares 46 58 72 112
B Shares
Assuming redemption at the end of the 44 63 74 162
period
Assuming no redemption 14 43 74 162
</TABLE>
<PAGE>
2. F I N A N C I A L H I G H L I G H T S
The financial highlights table is intended to help you understand each Fund's
financial performance for the Fund's operating history. Certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have earned on an investment in
the Fund, assuming reinvestment of all distributions. The information from June
1, 1994 through May 31, 1998 has been audited by KPMG Peat Marwick LLP,
independent auditors, whose report dated July 21, 1998 about a Fund, along with
the Fund's financial statements, are included in the Fund's Annual Report, which
is available at no charge upon request. These financial statements are
incorporated by reference into the SAI. Other independent auditors audited
information for prior periods.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Net Realized
and Distributions Distributions Ending
Beginning Net Net Unrealized from Net from Net Net Asset
Asset Value Investment Gain (Loss) Investment Realized Value Per
Per Share Income on Investments Income Gain Share
- -----------------------------------------------------------------------------------------------------------------------------------
TAX-FREE INCOME FUND
A SHARES
Year Ended May 31, 1998 $10.05 $0.53 $0.49 ($0.53) -- $10.54
Year Ended May 31, 1997 $9.78 $0.54 $0.27 ($0.54) -- $10.05
Year Ended May 31, 1996 $9.82 $0.55 ($0.04) ($0.55) -- $9.78
Year Ended May 31, 1995 $9.60 $0.55 $0.22 ($0.55) -- $9.82
Year Ended May 31, 1994 $10.06 $0.58 ($0.39) ($0.58) ($0.07) $9.60
Year Ended May 31, 1993 $9.98 $0.66 $0.11 ($0.66) ($0.03) $10.06
Year Ended May 31, 1992 $9.95 $0.70 $0.04 ($0.70) ($0.01) $9.98
Year Ended May 31, 1991 $9.78 $0.70 $0.17 ($0.70) -- $9.95
August 1, 1989(c) to May 31, 1990 $10.00 $0.57 ($0.22) ($0.57) -- $9.78
B SHARES
Year Ended May 31, 1998 $10.05 $0.46 $0.48 ($0.45) -- $10.54
Year Ended May 31, 1997 $9.78 $0.46 $0.27 ($0.46) -- $10.05
Year Ended May 31, 1996 $9.82 $0.48 ($0.04) ($0.48) -- $9.78
Year Ended May 31, 1995 $9.60 $0.48 $0.22 ($0.48) -- $9.82
August 6, 1993(c) to May 31, 1994 $10.17 $0.39 ($0.50) ($0.39) ($0.07) $9.60
- ----------------------------------------------------------------------------------------
</TABLE>
(a) The ratio of Gross Expenses to Average Net Assets does not reflect fee
waivers or expense reimbursements.
(b) Total Return does not include the effects of sales charges. Total Return
would have been lower absent expense reimbursement and fee waivers.
(c) The Fund commenced operations on August 1, 1989; the original class of
shares subsequently became A Shares. The Fund commenced offering B Shares
on August 6, 1993.
(d) Annualized.
Ratio to Average Net Assets
- ------------------------------------
Net Portfolio Net Assets at
Investment Net Gross Total Turnover End of Period
Income Expenses Expenses(a) Return(b) Rate (000's Omitted)
- -------------------------------------------------------------------------------
5.09% 0.60% 0.99% 10.33% 142.81% $35,121
5.41% 0.50% 1.06% 8.43% 152.33% $29,217
5.54% 0.40% 1.06% 5.29% 126.20% $33,914
5.87% 0.60% 1.12% 8.42% 130.90% $30,786
5.77% 0.60% 1.14% 1.74% 116.54% $34,426
6.47% 0.60% 1.12% 7.86% 42.81% $109,983
7.03% 0.34% 1.14% 7.65% 73.66% $56,250
7.09% 0.14% 1.08% 9.16% 101.11% $35,215
6.96%(d) 0.03%(d) 0.97%(d) 4.34%(d) 41.16% $17,439
4.31% 1.35% 2.05% 9.52% 142.81% $11,070
4.64% 1.26% 2.15% 7.63% 152.33% $7,329
4.77% 1.14% 2.21% 4.50% 126.20% $5,897
5.05% 1.35% 2.21% 7.61% 130.90% $3,729
4.76%(d) 1.31%(d) 2.24%(d) (0.98%) 116.54% $2,674
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Net Realized
and Distributions Distributions Ending
Beginning Net Net Unrealized from Net from Net Net Asset
Asset Value Investment Gain (Loss) Investment Realized Value Per
Per Share Income on Investments Income Gain Share
- ----------------------------------------------------------------------------------------------------------------------------------
Colorado Tax-Free Fund
A SHARES
Year Ended May 31, 1998 $10.22 $0.53 $0.47 ($0.53) -- $10.69
Year Ended May 31, 1997 $9.89 $0.54 $0.33 ($0.54) -- $10.22
Year Ended May 31, 1996 $9.90 $0.53 ($0.01) ($0.53) -- $9.89
Year Ended May 31, 1995 $9.69 $0.48 $0.21 ($0.48) -- $9.90
Year Ended May 31, 1994(c) $10.00 $0.51 ($0.30) ($0.51) ($0.01) $9.69
B SHARES
Year Ended May 31, 1998 $10.23 $0.45 $0.48 ($0.45) -- $10.71
Year Ended May 31, 1997 $9.90 $0.47 $0.33 ($0.47) -- $10.23
Year Ended May 31, 1996 $9.91 $0.46 ($0.01) ($0.46) -- $9.90
Year Ended May 31, 1995 $9.70 $0.41 $0.21 ($0.41) -- $9.91
August 6, 1993(c) to May 31, 1994 $10.04 $0.35 ($0.33) ($0.35) ($0.01) $9.70
- ----------------------------------------------------------------------------------------
(a) The ratio of Gross Expenses to Average Net Assets does not reflect fee
waivers or expense reimbursements.
(b) Total Return does not include the effects of sales charges. Total Return
would have been lower absent expense reimbursement and fee waivers.
(c) The Fund commenced operations on June 1, 1993; the original class of shares
subsequently became A Shares. The Fund commenced offering B Shares on
August 2, 1993.
(d) Annualized.
</TABLE>
Ratio to Average Net Assets
- ------------------------------------
Net Portfolio Net Assets at
Investment Net Gross Total Turnover End of Period
Income Expenses Expenses(a) Return(b) Rate (000's Omitted)
- -------------------------------------------------------------------------------
5.00% 0.60% 1.04% 9.96% 69.87% $34,254
5.36% 0.45% 1.14% 9.00% 129.26% $27,806
5.30% 0.30% 1.13% 5.35% 171.41% $26,991
5.10% 0.30% 1.15% 7.47% 47.88% $25,997
4.94% 0.07% 1.23% 2.02% 40.92% $31,724
4.24% 1.35% 2.04% 9.25% 69.87% $9,156
4.60% 1.20% 2.15% 8.19% 129.26% $7,218
4.64% 1.05% 2.16% 4.56% 171.41% $6,400
4.32% 1.05% 2.16% 6.67% 47.88% $5,198
4.08%(d) 0.85%(d) 2.24%(d) 0.27% 40.92% $4,494
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Net Realized
and Distributions Distributions Ending
Beginning Net Net Unrealized from Net from Net Net Asset
Asset Value Investment Gain (Loss) Investment Realized Value Per
Per Share Income on Investments Income Gain Share
- ------------------------------------------------------------------------------------------------------------------------------------
MINNESOTA TAX-FREE FUND
A SHARES
Year Ended May 31, 1998 $10.57 $0.53 $0.48 ($0.53) -- $11.05
Year Ended May 31, 1997 $10.30 $0.54 $0.27 ($0.54) -- $10.57
Year Ended May 31, 1996 $10.45 $0.56 ($0.15) ($0.56) -- $10.30
Year Ended May 31, 1995 $10.15 $0.53 $0.30 ($0.53) -- $10.45
Year Ended May 31, 1994 $10.65 $0.53 ($0.31) ($0.53) ($0.19) $10.15
Year Ended May 31, 1993 $10.27 $0.55 $0.39 ($0.55) ($0.01) $10.65
December 1, 1991 to May 31, 1992 $10.20 $0.30 $0.11 ($0.30) ($0.04) $10.27
Year Ended November 30, 1991 $10.15 $0.61 $0.12 ($0.61) ($0.07) $10.20
Year Ended November 30, 1990 $10.14 $0.62 $0.02 ($0.62) ($0.01) $10.15
Year Ended November 30, 1989 $9.78 $0.62 $0.36 ($0.62) -- $10.14
January 12, 1988(d) to November 30, 1988 $10.00 $0.55 ($0.22) ($0.55) -- $9.78
B SHARES
Year Ended May 31, 1998 $10.57 $0.45 $0.48 ($0.45) -- $11.05
Year Ended May 31, 1997 $10.30 $0.46 $0.27 ($0.46) -- $10.57
Year Ended May 31, 1996 $10.44 $0.48 ($0.14) ($0.48) -- $10.30
Year Ended May 31, 1995 $10.15 $0.45 $0.29 ($0.45) -- $10.44
August 6, 1993(d) to May 31, 1994 $10.77 $0.35 ($0.43) ($0.35) ($0.19) $10.15
- --------------------------------------------------------------------------------------------
</TABLE>
(a) The ratio of Gross Expenses to Average Net Assets does not reflect fee
waivers or expense reimbursements.
(b) Total Return does not reflect the effects of sales charges. Total Return
would have been lower absent expense reimbursement and fee waivers.
(c) Annualized.
(d) The Fund commenced operations on January 12, 1988; the original class of
shares subsequently became A Shares. The Fund commenced offering B Shares
on August 6, 1993.
Ratio to Average Net Assets
-----------------------------------
Net Portfolio Net Assets at
Investment Net Gross Total Turnover End of Period
Income Expenses Expenses(a) Return(b) Rate (000's Omitted)
- --------------------------------------------------------------------------------
4.83% 0.60% 1.07% 9.71% 68.27% $33,597
5.11% 0.60% 1.21% 7.98% 96.68% $25,739
5.26% 0.48% 1.26% 3.97% 77.10% $26,610
5.25% 0.49% 1.61% 8.55% 139.33% $15,559
4.92% 0.61% 1.52% 1.94% 84.23% $10,008
5.13% 0.75% 1.79% 9.35% 44.29% $10,852
5.86%(c) 0.90%(c) 2.38%(c) 8.10%(c) 6.70% $4,896
6.01% 0.90% 2.63% 7.40% 37.32% $4,575
6.21% 0.90% 2.37% 6.50% 30.86% $4,243
6.21% 0.90% 1.70% 10.30% 26.31% $5,309
6.51%(c) 0.76%(c) 1.47%(c) 4.03%(c) 32.34% $5,904
4.07% 1.35% 2.08% 8.89% 68.27% $16,549
4.35% 1.34% 2.21% 7.18% 96.68% $11,128
4.51% 1.23% 2.29% 3.28% 77.10% $8,825
4.52% 1.21% 2.62% 7.63% 139.33% $5,090
3.99%(c) 1.31%(c) 2.45%(c) (0.58%) 84.23% $2,485
<PAGE>
- --------------------------------------------------------------------------------
3. GLOSSARY
- --------------------------------------------------------------------------------
This Glossary of frequently used terms will help you understand the discussion
of the Funds' objectives, policies, and risks. Defined terms are capitalized
when used in this prospectus.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Term Definition
- ---- ----------
AMT Alternative minimum tax.
BOARD The Board of Trustees of Norwest Advantage
Funds.
CDSC Contingent deferred sales charge.
FUNDAMENTAL Requiring shareholder approval to change.
INVESTMENT GRADE Rated at the time of purchase in 1 of the 4
highest long-term or 2 highest short-
term ratings categories by an NRSRO or
unrated and determined by the Adviser to be
of comparable quality.
MUNICIPAL SECURITY A debt security issued by or on behalf of
the states, territories, or possessions of
the United States, the District of
Columbia and their subdivisions,
authorities, instrumentalities, and
corporations, with interest exempt from
federal income tax.
NRSRO A nationally recognized statistical rating
organization, such as Standard & Poor's
Corporation, that rates fixed-income
securities by relative credit risk.
NON-INVESTMENT GRADE Neither rated at the time of purchase in 1 of
the 4 highest long-term or 2 highest
short-term ratings categories by an NRSRO
nor unrated and determined by the Adviser to
be of comparable quality.
NON-INVESTMENT GRADE Rated below Investment Grade.
RELATED ISSUERS Issuers of Municipal Securities that
economic, business, or political
developments affect in similar ways.
SEC The U.S. Securities and Exchange Commission.
- --------------------------------------------------------------------------------
4. INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
This section discusses the investment objectives and policies of the Funds.
After each Fund's description, there is a short, alphabetical listing of the
Fund's primary risks. The Risk Considerations section discusses these risks.
Each Fund invests at least 80% of its total assets in Municipal Securities
paying interest that is exempt from federal income tax. In order to respond to
business and financial conditions, each Fund may invest up to 20% of its total
assets in securities paying taxable interest income or securities paying
interest income that may be a preference item for purposes of the federal AMT.
In addition, each Fund may hold a portion of its assets in cash and
cash-equivalent securities pending investment in Municipal Securities, to meet
requests for redemptions or to assume a temporary defensive position.
TAX-FREE INCOME FUND
INVESTMENT OBJECTIVE. The Fund's investment objective is to produce current
income exempt from federal income taxes.
INVESTMENT POLICIES. The Fund invests primarily in a portfolio of Investment
Grade Municipal Securities. As a Fundamental investment policy, the Fund will
invest at least 80% of its total assets in Municipal Securities paying interest
exempt from federal income taxes, including the federal AMT.
The average dollar-weighted maturity of the Fund's assets normally will be
between 10 and 20 years, but will vary depending on market conditions. In
general, the longer the maturity of a Municipal Security, the higher the rate of
interest it pays. However, a longer maturity is generally associated with a
higher level of volatility in the market value of a security. The Fund
emphasizes investments in Municipal Securities with interest income rather than
stability of the Fund's net asset value.
Under normal circumstances, the Fund will not invest more than 25% of its total
assets in issuers located in the same state or in securities of Related Issuers.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[RISK ICON]
credit risk interest rate risk market risk
prepayment risk
COLORADO TAX-FREE FUND
INVESTMENT OBJECTIVE. The Fund's investment objective is to provide shareholders
with a high level of current income exempt from both federal (including the AMT)
and Colorado state income taxes consistent with the preservation of capital. The
Fund offers shares only to residents of Colorado.
INVESTMENT POLICIES. The Fund normally invests substantially all its assets in
Investment Grade Municipal Securities issued by (1) the state of Colorado and
its subdivisions, authorities, instrumentalities, and corporations, and (2)
territories and possessions of the United States ("Colorado Municipal
Securities"). As a Fundamental policy, the Fund will invest at least 80% of its
total assets in Municipal Securities paying interest exempt from both federal
(including the AMT) and Colorado state income taxes. The Fund invests in
securities of a comparatively small number of issuers. The Fund will not invest
more than 25% of its total assets in securities of Related Issuers or in
securities of any 1 issuer except the U.S. Government.
The yields of Colorado Municipal Securities depend on, among other things,
conditions in the Colorado Municipal Securities market and fixed-income markets
generally, the size of a particular offering, the maturity of the securities,
and the rating of the issue. In some cases, Colorado issues may have yields that
are slightly less than the yields of Municipal Securities of issuers located in
other states because of the favorable Colorado state tax exemption on Colorado
issues.
The Adviser expects that the Fund's average portfolio maturity normally will be
greater than 10 years. The Fund's average portfolio maturity may reach or exceed
20 years in the future. Depending on market conditions, the Fund's average
dollar-weighted maturity could be higher or lower. The Fund emphasizes
investments in Municipal Securities paying interest income rather than
maintaining the Fund's stability of net asset value. The Fund also attempts to
limit net asset value fluctuations.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[RISK ICON]
credit risk diversification risk geographic concentration risk
interest rate risk leverage risk market risk
prepayment risk
MINNESOTA TAX-FREE FUND
INVESTMENT OBJECTIVE. The Fund's investment objective is to provide shareholders
with a high level of current income exempt from both federal and Minnesota state
income taxes (including the AMT) without assuming undue risk. The Fund offers
shares only to residents of Minnesota.
INVESTMENT POLICIES. The Fund normally invests substantially all (and always at
least 75% of) its assets in Investment Grade Municipal Securities issued by (1)
the state of Minnesota and its subdivisions, authorities, instrumentalities, and
corporations and (2) territories and possessions of the United States
("Minnesota Municipal Securities"). As a Fundamental policy, the Fund will
invest at least 80% of its total assets in securities paying interest exempt
from both federal and Minnesota state income taxes (including the AMT). The Fund
may invest in securities of a comparatively small number of issuers. The Fund
will not invest more than 25% of its total assets in securities of Related
Issuers or in securities of any 1 issuer except the U.S. Government.
The yields of Minnesota Municipal Securities depend on, among other things,
conditions in the Minnesota Municipal Securities market and fixed-income markets
generally, the maturity of the securities, the rating of the issue, and the size
of a particular offering. In some cases, Minnesota issues may have yields that
are slightly less than the yields of Municipal Securities of issuers located in
other states because of the favorable Minnesota state tax exemption on Minnesota
issues.
There are no restrictions on Minnesota Tax-Free Fund's average portfolio
maturity. The Adviser expects that the Fund's average dollar-weighted maturity
normally will be greater than 10 years. The Fund's average portfolio maturity
may reach or exceed 20 years in the future. Depending on market conditions, the
Fund's average dollar-weighted maturity could be higher or lower.
The Fund emphasizes investments in Municipal Securities paying interest income
rather than maintaining the Fund's stability of net asset value.
<PAGE>
The Fund may invest up to 25% of its total assets in Non-Investment Grade
Municipal Securities.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[RISK ICON]
credit risk diversification risk geographic concentration risk
interest rate risk leverage risk market risk
prepayment risk
- --------------------------------------------------------------------------------
5. RISK CONSIDERATIONS
- --------------------------------------------------------------------------------
This section describes the principal risks that may apply to the Funds. Each
Fund's exposure to these risks depends upon its specific investment profile. The
Fund's description in Investment Objectives and Policies lists the Funds'
principal risks.
- --------------------------------------------------------------------------------
CREDIT RISK
- --------------------------------------------------------------------------------
The risk that the issuer of a security, or the counterparty to a contract, will
default or otherwise be unable to honor a financial obligation. This risk is
greater for Non-Investment Grade securities.
- --------------------------------------------------------------------------------
DIVERSIFICATION RISK
- --------------------------------------------------------------------------------
The risk that investment in a comparatively small number of issuers will
increase the potential adverse effects of a decline in the value of a Fund's
investment in a single issuer.
- --------------------------------------------------------------------------------
GEOGRAPHIC CONCENTRATION RISK
- --------------------------------------------------------------------------------
The risk that factors adversely affecting a Fund's investments in issuers
located in a state, country, or region will affect the Fund's net asset value
more than would be the case if the Fund had made more geographically diverse
investments.
- --------------------------------------------------------------------------------
INTEREST RATE RISK
- --------------------------------------------------------------------------------
The risk that changes in interest rates may affect the value of your investment.
With fixed-rate securities, including Municipal Securities, an increase in
interest rates typically causes the value of a Fund's fixed-rate securities to
fall, while a decline in interest rates may produce an increase in the market
value of the securities. Because of this risk, an investment in a Fund is
subject to risk even if all the fixed-income securities in the Fund's portfolio
are paid in full at maturity. Changes in interest rates will affect the value of
longer-term fixed-income securities more than shorter-term securities.
- --------------------------------------------------------------------------------
LEVERAGE RISK
- --------------------------------------------------------------------------------
The risk that some transactions may multiply smaller market movements into large
changes in a Fund's net asset value. This risk may occur when a Fund borrows
money or enters into transactions that have a similar economic effect, such as
forward commitment transactions.
- --------------------------------------------------------------------------------
MARKET RISK
- --------------------------------------------------------------------------------
The risk that the market value of a Fund's investments will fluctuate as the
bond markets fluctuate generally. Market risk may affect a single issuer,
industry, or section of the economy or may affect the market as a whole.
- --------------------------------------------------------------------------------
PREPAYMENT RISK
- --------------------------------------------------------------------------------
The risk that issuers will prepay fixed rate securities when interest rates
fall, forcing the Fund to invest in securities with lower interest rates than
the prepaid securities.
<PAGE>
- --------------------------------------------------------------------------------
6. COMMON POLICIES
- --------------------------------------------------------------------------------
Except as otherwise indicated, the Board may change the Funds' investment
policies without shareholder approval. The Funds' investment objectives are
Fundamental.
- --------------------------------------------------------------------------------
VOTING ISSUES
- --------------------------------------------------------------------------------
In determining the outcome of shareholder votes, Norwest Advantage Funds
normally counts votes on a share-by-share basis. This means that shareholders of
Funds will have a comparatively smaller impact on the outcome of votes by all of
the funds with comparitively high net asset values than do shareholders of funds
with lower net asset values.
- --------------------------------------------------------------------------------
DOWNGRADED SECURITIES
- --------------------------------------------------------------------------------
Each Fund may retain a security whose rating has been lowered (or a security of
comparable quality to a security whose rating has been lowered) below the Fund's
lowest permissible rating category if the Fund's Adviser determines that
retaining the security is in the best interests of the Fund. Because a downgrade
often results in a reduction in the market price of the security, sale of a
downgraded security may result in a loss.
- --------------------------------------------------------------------------------
TEMPORARY DEFENSIVE POSITION
- --------------------------------------------------------------------------------
To respond to adverse market, economic, political, or other conditions, each
Fund may assume a temporary defensive position and invest without limit in cash
or cash equivalents. When a Fund makes temporary defensive investments, it may
not pursue its investment objective and is likely that its shareholders may be
subject to federal and applicable state income taxes on a greater portion of the
Fund's income distributions.
- --------------------------------------------------------------------------------
PORTFOLIO TRANSACTIONS
- --------------------------------------------------------------------------------
From time to time, a Fund may engage in active short-term trading to take
advantage of price movements affecting individual issues, groups of issues, or
markets. Higher portfolio turnover rates may result in increased brokerage costs
and a possible increase in short-term capital gains or losses. The FINANCIAL
HIGHLIGHTS table lists the Funds' portfolio turnover rate.
- --------------------------------------------------------------------------------
YEAR 2000 AND EURO
- --------------------------------------------------------------------------------
The Funds could be adversely affected if the computer systems used by the
Advisers and other service providers to the Funds do not properly process and
calculate date-related information and data from and after January 1, 2000 or
information regarding the new common currency of the European Union. The Year
2000 and Euro issues also may adversely affect the Funds' investments.
Norwest and Forum Financial Group are taking steps to address the Year 2000 and
Euro issues for their computer systems and to obtain reasonable assurances that
comparable steps are being taken by the Funds' other major service providers.
While the Funds do not anticipate any adverse effect on their computer systems
from the Year 2000 and Euro issues, there can be no assurance that these steps
will be sufficient to avoid any adverse impact on the Funds.
7. MANAGEMENT OF THE FUNDS
INVESTMENT ADVISORY SERVICES
NORWEST INVESTMENT MANAGEMENT, INC. is the investment adviser for each Fund. In
this capacity, Norwest makes investment decisions for and administers the Funds'
investment programs. Norwest Investment Management, Inc.'s address is Norwest
Center, Sixth Street and Marquette, Minneapolis, MN 55479.
Listed below, for each Fund, are the portfolio managers primarily responsible
for the day-to-day management of the Fund's investments. The year a portfolio
manager began managing a Fund's portfolio follows the manager's name in
parenthesis. The list states the investment advisory fees payable to Norwest by
the Fund on an annualized basis as a percentage of a Fund's average daily net
assets. Descriptions of the portfolio managers' recent experience follow the
list of portfolio managers and advisory fees.
<PAGE>
TAX-FREE FIXED INCOME FUNDS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TAX-FREE INCOME FUND
PORTFOLIO MANAGER: William T. Jackson, CFA (1993).
ADVISORY FEE: 0.50%
COLORADO TAX-FREE FUND
PORTFOLIO MANAGER: William T. Jackson, CFA (1993).
ADVISORY FEE: 0.50% - first $300 million; 0.46% - next
$400 million; and 0.42% - balance.
MINNESOTA TAX-FREE FUND
PORTFOLIO MANAGER: Patricia D. Hovanetz, CFA (1991).
ADVISORY FEE: 0.50% - first $300 million; 0.46% - next
$400 million; and 0.42% - balance.
PORTFOLIO MANAGERS
PATRICIA D. HOVANETZ, associated with Norwest or its affiliates since 1966. Ms.
Hovanetz is a Director-Tax-Exempt Fixed-Income of Norwest and has been
associated with Norwest or Norwest Bank for more than 25 years in capacities
related to municipal bond investments.
WILLIAM T. JACKSON, associated with Norwest or its affiliates since 1993. Mr.
Jackson is a Managing Director, Tax-Exempt Fixed Income.
OTHER FUND SERVICES
The FORUM FINANCIAL GROUP of companies provide managerial, administrative, and
underwriting services to the Funds. NORWEST BANK acts as the Funds' transfer
agent, distribution disbursing agent, and custodian.
8. CHOOSING A SHARE CLASS
Sales charges and fees vary considerably between a Fund's A Shares and B Shares.
After 6 years, B Shares, which have higher fees, convert to A Shares, which have
lower fees. Consider the differences in the classes' fee structures carefully
before choosing which class to purchase. In particular, consider how long you
intend to invest in the Fund and whether during that period the accumulated fees
and applicable CDSCs on B Shares would be less than the initial sales charge on
A Shares. Also, consider whether you might qualify for a reduced sales charge on
A Shares and whether any difference in total expenses between classes would be
offset by A Shares' higher yield.
The SAI has more information about ways to qualify for reduced sales charges and
how reduced sales charge alternatives operate.
A SHARES
The Funds offer A Shares at their next-determined net asset value plus the
following initial sales charge (no sales charge applies to reinvestments of
distributions):
<TABLE>
<S> <C> <C>
SALES CHARGE AS A PERCENTAGE OF*
AMOUNT OF PURCHASE OFFERING PRICE+ NET AMOUNT INVESTED
Less than $50,000........................... 4.00% 4.17%
$50,000 to $99,999.......................... 3.50% 3.63%
$100,000 to $249,000........................ 3.00% 3.09%
$250,000 to $499,999........................ 2.50% 2.56%
$500,000 to $999,000........................ 2.00% 2.04%
over $1,000,000............................. None None
*Rounded to the nearest one-hundredth percent.
+The amount of the initial sales charge is
included in the offering price.
</TABLE>
If you redeem A Shares purchased with a reduced sales charge, the Funds may
impose a charge on the redemption depending on how long
<PAGE>
you have held the shares.
B SHARES
The Funds offer B Shares at their net asset value per share. The Funds' B Shares
have distribution and shareholder servicing fees of 1.00% of the average daily
net assets of the class under a Rule 12b-1 distribution plan. Because
distribution fees are paid out of the Funds' assets on an on-going basis, over
time these fees will increase the cost of your investment and may cost more than
paying a front-end sales charge.
CONTINGENT DEFERRED SALES CHARGE. If you redeem B Shares within 4 years of
purchase, there will be a CDSC on the redemption in the amount indicated below.
The amount of the CDSC will vary depending on the number of years between the
payment for the purchase of the shares and their redemption. You will pay the
CDSC on the lesser of the cost of the B Shares redeemed and their net asset
value upon redemption. The Funds do not impose a CDSC on B Shares purchased
through reinvestments of distributions.
CHARGE FOR EACH FUND
YEAR SINCE PURCHASE
First................................................ 3.0%
Second............................................... 2.0%
Third................................................ 2.0%
Fourth............................................... 1.0%
Fifth................................................ None
Sixth................................................ None
The Funds will redeem shares in the manner that results in the imposition of the
lowest CDSC. The Funds will automatically redeem shares first from any A Shares
of the Fund, second from B Shares of the Fund acquired pursuant to reinvestment
of distributions, third from B Shares of the Fund held for more than 4 years,
and fourth from the longest outstanding B Shares of the Fund held for less than
4 years.
CONVERSION FEATURE. B Shares will automatically convert to A Shares 6 years from
the end of the calendar month in which the Fund accepted your purchase. The
conversion will be on the basis of the relative net asset values of the shares,
without the imposition of any sales load, fee, or other charge. For purposes of
conversion, the Funds will consider B Shares purchased through the reinvestment
of distributions to be held in a separate sub-account. Each time any B Shares in
your account (other than those in the sub-account) convert, a corresponding pro
rata portion of the shares in the sub-account will also convert. The Funds may
suspend the conversion feature in the future; in that event, B Shares might
continue to pay their distribution fee indefinitely.
9. HOW TO BUY AND SELL SHARES
You may purchase Fund shares on "Fund Business Days" at their net asset value
next determined after receipt of your purchase order in proper form plus, in the
case of A Shares, any applicable sales charge. Fund Business Days are all
weekdays except generally observed national holidays (New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Memorial Day, Independence Day, Labor
Day, Thanksgiving, and Christmas) and Good Friday.
GENERAL PURCHASE INFORMATION
You may purchase shares directly or through a financial institution. The Funds'
transfer agent processes all transactions in Fund shares.
The Funds require a minimum initial investment of $1,000 and minimum subsequent
investments of $100. Your shares become eligible to receive distributions the
Fund Business Day after your purchase order is received in proper form.
The Funds reserve the right to reject any subscription for the purchase of
shares, including subscriptions by market timers. You will receive share
certificates for your shares only if you request them in writing. No
certificates are issued for fractional shares.
PURCHASE PROCEDURES
DIRECT PURCHASES
You may obtain an account application by writing Norwest Advantage Funds at the
following address:
<PAGE>
NORWEST ADVANTAGE FUNDS
[NAME OF FUND]
NORWEST BANK MINNESOTA, N.A.
TRANSFER AGENT
733 MARQUETTE AVENUE
MINNEAPOLIS, MN 55479-0040
When you sign an application for a new Fund account, you are certifying that
your Social Security number or other taxpayer identification number is correct
and that you are not subject to backup withholding. If you violate certain
federal income tax provisions, the Internal Revenue Service can require the
Funds to withhold 31% of your distributions and redemptions.
You must pay for your shares in U.S. dollars by check or money order drawn on a
U.S. bank, by bank or federal funds wire transfer, or by electronic bank
transfer. Cash cannot be accepted.
Call or write the transfer agent if you wish to participate in shareholder
services not offered on the account application or change information on your
account (such as addresses). Norwest Advantage Funds may in the future modify,
limit, or terminate any shareholder privilege upon appropriate notice and may
charge a fee for certain shareholder services, although no such fees are
currently contemplated. You may terminate your participation in any shareholder
program by writing to Norwest Advantage Funds.
PURCHASES BY MAIL. You may send a check or money order along with a completed
account application to Norwest Advantage Funds at the address listed above.
Checks and money orders are accepted at full value subject to collection.
Payment by a check drawn on any member of the Federal Reserve System can
normally be converted into federal funds within 2 business days after receipt of
the check. Checks drawn on some non-member banks may take longer. If your check
does not clear, the purchase order will be canceled and you will be liable for
any losses or fees incurred by Norwest Advantage Funds, the transfer agent, or
the distributor.
To purchase shares for individual or Uniform Gift to Minors Act accounts, you
must write a check or purchase a money order payable to Norwest Advantage Funds,
or endorse a check made out to you to Norwest Advantage Funds. For corporation,
partnership, trust, 401(k) plan, or other non-individual type accounts, make the
check used to purchase shares payable to Norwest Advantage Funds. No other
methods of payment by check will be accepted for these types of accounts.
PURCHASES BY BANK WIRE You must first telephone the Funds' transfer agent at
1-612-667-8833 or 1-800-338-1348 to obtain an account number before making an
initial investment in a Fund by bank wire. Then instruct your bank to wire your
money immediately to:
NORWEST BANK MINNESOTA, N.A.
A091 000 019
FOR CREDIT TO: NORWEST ADVANTAGE FUNDS 0844-131
RE: [NAME OF FUND][CLASS OF SHARES]
ACCOUNT NO.:
ACCOUNT NAME:
Complete and mail the account application promptly. Your bank may charge for
transmitting the money by wire. The Funds do not charge for the receipt of wire
transfers. The Funds treat payment by bank wire as a federal funds payment when
received.
PURCHASES THROUGH FINANCIAL INSTITUTIONS
You may purchase and redeem shares through certain broker-dealers, banks, and
other financial institutions. When you purchase a Fund's shares through a
financial institution, the shares may be held in your name or in the name of the
financial institution. Subject to your institution's procedures, you may have
Fund shares held in the name of your financial institution transferred into your
name. If your shares are held in the name of your financial institution, you
must contact the financial institution on matters involving your shares. Your
financial institution may charge you for purchasing, redeeming, or exchanging
shares.
SUBSEQUENT PURCHASES OF SHARES
You may make subsequent purchases by mailing a check, by sending a bank wire, or
through a financial institution as indicated above. All payments should clearly
indicate your name and account number.
GENERAL REDEMPTION INFORMATION
You may redeem Fund shares as of the next determination of the Fund's net asset
value following receipt by the transfer agent of your
<PAGE>
redemption order in proper form subject to, in the case of B Shares, a CDSC
imposed on most redemptions made within 4 years of purchase. Redeemed shares are
not entitled to receive distributions after the day on which the redemption is
effective.
Normally, redemption proceeds are paid immediately following receipt of a
redemption order in proper form. In any event, you will be paid within 7 days,
unless: (1) your bank has not cleared the check to purchase the shares (which
may take up to 15 days); (2) the New York Stock Exchange is closed (or trading
is restricted) for any reason other than normal weekend or holiday closings; (3)
there is an emergency in which it is not practical for the Fund to sell its
portfolio securities or for the Fund to determine its net asset value; or (4)
the SEC deems it inappropriate for redemption proceeds to be paid. You can avoid
the delay of waiting for your bank to clear your check by paying for shares with
wire transfers. Unless otherwise indicated, redemption proceeds normally are
paid by check mailed to your record address.
To protect against fraud, the following must be in writing with a signature
guarantee: (1) endorsement on a share certificate; (2) instruction to change
your record name; (3) modification of a designated bank account for wire
redemptions; (4) instruction regarding an Automatic Investment Plan or Automatic
Withdrawal Plan; (5) distribution elections; (6) election of telephone
redemption privileges; (7) election of exchange or other privileges in
connection with your account; (8) written instruction to redeem shares whose
value exceeds $50,000; (9) redemption in an account when the account address has
changed within the last 30 days; (10) redemption when the proceeds are deposited
in a Norwest Advantage Funds account under a different account registration; and
(11) the payment of redemption proceeds to any address, person, or account for
which there are not established standing instructions.
You may obtain signature guarantees at any of the following types of
organizations: authorized banks, broker-dealers, national securities exchanges,
credit unions, savings associations, or other eligible institutions. The
specific institution providing the guarantee must be acceptable to the transfer
agent. Whenever a signature guarantee is required, the signature of each person
required to sign for the account must be guaranteed.
The Funds and the transfer agent will use reasonable procedures to verify that
telephone requests are genuine, including recording telephone instructions and
sending written confirmations of the transactions. Such procedures are necessary
because the Funds and transfer agent could be liable for losses due to
unauthorized or fraudulent telephone instructions. You should verify the
accuracy of a telephone instruction as soon as you receive the confirmation
statement. Telephone redemption and exchanges may be difficult to implement in
times of drastic economic or market changes. If you cannot reach the transfer
agent by telephone, you may mail or hand-deliver requests to the transfer agent.
Because of the cost of maintaining smaller accounts, Norwest Advantage Funds may
redeem, upon not less than 60 days' written notice, any account with a net asset
value of less than $1,000 immediately following any redemption.
REDEMPTION PROCEDURES
If you have invested directly in a Fund you may redeem your shares as described
below. If you have invested through a financial institution you may redeem
shares through the financial institution. If you wish to redeem shares by
telephone or receive redemption proceeds by bank wire you should complete the
appropriate sections of the account application. These privileges may not be
available until several weeks after the application is received. You may not
redeem shares by telephone if you have certificates for those shares.
REDEMPTION BY MAIL. You may redeem shares by sending a written request to the
transfer agent accompanied by any share certificate you have been issued. Sign
all requests and endorse all certificates with signature guaranteed.
REDEMPTION BY TELEPHONE. If you have elected telephone redemption privileges,
you may redeem shares by telephoning the transfer agent at 1-800-338-1348 or
1-612-667-8833 and providing your shareholder account number, the exact name in
which the shares are registered, and your Social Security number or other
taxpayer identification number. Norwest Advantage Funds will mail a check to
your record address or, if you have chosen wire redemption privileges, wire the
proceeds.
REDEMPTION BY BANK WIRE. If you have elected wire redemption privileges, you may
request a Fund to transmit redemption proceeds of more than $5,000 by federal
funds wire to a bank account you have designated in writing. You must have
chosen the telephone redemption privilege to request bank redemptions by
telephone. Redemption proceeds are wired on the Fund Business Day after the
transfer agent receives a redemption request in proper form.
EXCHANGES
<PAGE>
You may exchange A Shares and B Shares for A Shares and B Shares, respectively,
of the Funds and of other funds of Norwest Advantage Funds that offer those
classes of shares. You may also exchange A Shares and B Shares for some classes
of certain money market funds of Norwest Advantage Funds. Call or write the
transfer agent for both a list of funds that offer shares exchangeable with
those of the Funds and for prospectuses of those funds.
The Funds do not charge for exchanges, and there is currently no limit on the
number of exchanges you may make. The Funds, however, may limit your ability to
exchange shares if you exchange too often. Exchanges are subject to the fees
(other than CDSCs) charged by, and the limitations (including minimum investment
restrictions) of, the fund into which you are exchanging.
You may only exchange shares into a pre-existing account if that account is
identically registered. You must submit a new account application if you wish to
exchange shares into an account registered differently or with different
shareholder privileges. You may exchange into a fund only if that fund's shares
legally may be sold in your state of residence.
The Funds and federal tax law treat an exchange as a redemption and a purchase
of shares. The Funds may amend or terminate exchange procedures on 60 days'
notice.
SALES CHARGES. Some exchanges of A Shares may require a sales charge in addition
to the sales charge you paid to purchase the shares. If you exchange into a fund
that imposes an initial sales charge greater than the sales charge you paid, you
must pay the difference between the sales charge of the fund you are exchanging
into and your Fund. For example, if you paid a 2% initial sales charge on a
purchase of shares and then exchanged those shares for shares of another fund
with a 3% initial sales charge, you would pay an additional 1% sales charge on
the exchange. The Funds deem A Shares acquired through the reinvestment of
distributions to have been acquired with a sales charge equal to the maximum
sales charge of the Fund.
You may exchange B Shares without paying a CDSC. If you redeem shares you
received in an exchange, the CDSC will be calculated as if you never exchanged
the B Shares you originally purchased. B Shares acquired through an exchange
will convert to A Shares when the B Shares originally purchased would convert to
A Shares.
EXCHANGES BY MAIL. You may make an exchange by sending a written request to the
transfer agent accompanied by any share certificates for the shares to be
exchanged. Sign all written requests and endorse all certificates with signature
guaranteed.
EXCHANGES BY TELEPHONE. If you have telephone exchange privileges, you may make
a telephone exchange by calling the transfer agent at 1-800-338-1348 or
1-612-667-8833 and giving your account number, the exact name in which the
shares are registered, and your Social Security number or other taxpayer
identification number.
10. DISTRIBUTIONS AND TAX MATTERS
DISTRIBUTIONS
Distributions of net investment income are declared daily and paid monthly. Each
Fund's net capital gain, if any, is distributed at least annually.
You have 3 choices for receiving distributions: the Reinvestment Option, the
Cash Option, and the Directed Dividend Option.
* Under the Reinvestment Option, all distributions of a Fund are
automatically invested in additional shares of that Fund. You are
automatically assigned this option unless you select another option.
* Under the Cash Option, you are paid all distributions in cash.
* Under the Directed Dividend Option, if you own $10,000 or more of a Fund's
shares in a single account, you can have that Fund's distributions
reinvested in shares of another fund of Norwest Advantage Funds. Call or
write the transfer agent for more information about the Directed Dividend
Option.
All distributions are treated in the same manner for federal income tax purposes
whether received in cash or reinvested in shares of a Fund. All distributions
reinvested in a Fund are reinvested at the Fund's net asset value as of the
payment date of the distribution.
TAX MATTERS
The Funds are managed so that they do not owe federal income or excise tax.
Generally, you will not be subject to federal income tax on distributions paid
by a Fund out of tax-exempt interest income earned by the Fund ("exempt-interest
distributions"). If you use, or are related to someone who uses, facilities
financed by private activity securities held by a Fund, you may be subject to
federal income tax on
<PAGE>
your pro rata share of the interest income from those securities and should
consult your tax adviser before purchasing shares. Interest on certain private
activity bonds is treated as an item of tax preference for purpose of the
federal AMT imposed on individuals and corporations. In addition,
exempt-interest distributions are included in the "adjusted current earnings" of
corporations for AMT purposes.
As noted above, the Funds may invest a portion of their assets in securities
that generate income that is not exempt from federal income tax. Further,
capital gains, if any, distributed by the Funds are subject to tax.
Distributions of net capital gain (i.e., the excess of net long-term capital
gain over net short-term capital loss) are taxable as long-term capital gain.
Distributions of net capital gain may be taxable at different rates depending on
the length of time the Fund holds its assets. Distributions paid by a Fund out
of its interest income that is not tax-exempt and its net short-term capital
gain are taxable as ordinary income. Distributions reduce the net asset value of
a Fund by the amount of the distribution paid by the Fund. Further, a
distribution made shortly after you purchase shares, although in effect a return
of capital to you, is taxable. If shares are sold at a loss after being held for
6 months or less, the loss will be disallowed to the extent of any
exempt-interest dividends received on those shares and then treated as long-term
capital loss to the extent of any distribution of net capital gain received on
those shares. If you borrow money to purchase or carry shares of a Fund, the
interest on your debt generally is not deductible for federal income tax
purposes.
TAX-FREE INCOME FUND. The federal income tax exemption on exempt-interest
distributions does not necessarily result in an exemption under the income or
other tax laws of any state or local taxing authority. You may be exempt from
state and local taxes on distributions of tax-exempt interest income derived
from obligations of the state and/or municipalities of the state in which you
reside. You may, however, be subject to tax on income derived from the Municipal
Securities of other jurisdictions. Consult your tax adviser concerning the
application of state and local taxes to investments in the Fund that may differ
from the federal income tax consequences described above.
COLORADO TAX-FREE FUND. It is anticipated that substantially all of the exempt-
interest distributions paid by the Fund to individuals will be exempt from
Colorado personal income tax. Distributions made by the Fund to Colorado
individuals, trusts, estates, and corporations subject to the Colorado income
tax generally will be treated for Colorado income tax purposes in the same
manner as they are treated for federal income tax purposes. Some differences may
arise for taxpayers subject to the AMT because interest on Colorado private
activity bonds is not a preference item for Colorado income tax purposes.
Furthermore, Colorado has no corporate AMT. Because the Fund may, except as
indicated, purchase only Colorado Municipal Securities, none of the exempt-
interest distributions paid by the Fund will be subject to Colorado income tax.
MINNESOTA TAX-FREE FUND. It is anticipated that substantially all of the exempt-
interest distributions paid by the Fund to individuals will be exempt from
Minnesota personal income tax. Interest earned on Minnesota Municipal Securities
is generally excluded from gross income for Minnesota state income tax purposes,
while interest earned on securities issued by municipal issuers from other
states is not excluded. At least 95% of the exempt-interest distributions paid
by the Fund must be derived from Minnesota Municipal Securities in order for any
portion of the exempt-interest distributions paid by the Fund to be exempt from
the Minnesota personal income tax. Exempt-interest distributions paid by the
Fund to shareholders that are corporations are subject to Minnesota franchise
tax.
Under Minnesota law, if the difference in state income tax treatment between
Minnesota Municipal Securities and the Municipal Securities of issuers in other
states should be judicially determined to discriminate against interstate
commerce, the Minnesota legislature has expressed its intention that the
discrimination be remedied by adding interest on Minnesota Municipal Securities
to the taxable income of Minnesota residents. This treatment would begin with
the taxable years that begin during the calendar year in which the court's
decision is final. If the interest on Minnesota Municipal Securities is
determined in general to be taxable income for Minnesota income tax, the Fund
will consider what actions are to be taken in light of its current investment
objectives and investment policies.
The Minnesota AMT on resident individuals is based in part on their income for
purposes of the federal AMT. Accordingly, individual shareholders of the Fund
may be subject to the Minnesota AMT on exempt-interest distributions paid by the
Fund which are attributable to interest received by the Fund on certain private
activity securities, even though those distributions are exempt from the regular
Minnesota personal income tax.
11. OTHER INFORMATION
DETERMINATION OF NET ASSET VALUE
Each Fund determines net asset value at 4:00 p.m.Eastern Time, on each Fund
Business Day by dividing the value of its net assets (i.e., the value of its
securities and other assets less its liabilities) by the number of shares
outstanding at the time the determination is made. The Funds value portfolio
securities at current market value if market quotations are readily available.
If market quotations are not readily available, the Funds value securities at
fair value as determined by or pursuant to procedures adopted by the Board.
INVESTING IN THE FUNDS
The Funds currently invest directly in portfolio securities. Each Fund, however,
may in the future invest in 1 or more other funds as
<PAGE>
opposed to investing directly in portfolio securities.
BROKER-DEALER REALLOWANCES
The Funds' distributor may pay a "broker-dealer's" reallowance to certain
financial intermediaries purchasing shares as principal or agent. Normally, the
distributor will reallow the amounts indicated below, although it may at times
reallow the entire sales charge. The distributor also may make additional
payments to certain intermediaries out of its own resources of up to 0.75% of
the net asset value of Fund shares purchased. Norwest Advantage Funds may change
the amount of the reallowance.
In addition, at its own expense, the distributor may provide compensation,
including financial assistance, to financial intermediaries in connection with
their conferences, employee sales or training programs, public seminars,
advertising campaigns, or other special events. The distributor may, for
example, compensate the intermediaries with travel arrangements and lodging,
tickets for entertainment events, and merchandise. The distributor may make this
compensation available only to intermediaries that have sold or are expected to
sell significant amounts of Fund shares or who charge an asset based fee,
whether or not they have a fiduciary relationship with their clients.
AMOUNT OF PURCHASE BROKER-DEALERS' REALLOWANCE AS A
PERCENTAGE OF OFFERING PRICE
Less than $50,000........................... 3.50%
$50,000 to $99,999.......................... 3.00%
$100,000 to $249,000........................ 2.50%
$250,000 to $499,999........................ 2.25%
$500,000 to $999,000........................ 1.75%
$1,000,000 to $2,499,999.................... 0.75%
$2,500,000 to $4,999,999.................... 0.50%
Over $5,000,000............................. 0.25%
NO ONE HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE SAI, AND THE
FUNDS' OFFICIAL SALES LITERATURE. ANY SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUNDS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH
OFFER MAY NOT LAWFULLY BE MADE.
<PAGE>
If you would like more information about the Funds and their investments, you
may want to read the following documents:
STATEMENT OF ADDITIONAL INFORMATION. A Fund's statement of additional
information, or "SAI," contains detailed information about the Funds, such as
its investments, management, and organization. It is incorporated into this
Prospectus by reference.
ANNUAL AND SEMI-ANNUAL REPORTS. Additional information about each Fund's
investments is available in its annual and semi-annual reports to shareholders.
In the annual report, the Fund's portfolio manager discusses the market
conditions and investment strategies that significantly affected the Fund's
performance during its last fiscal year.
You may obtain free copies of the SAI, annual report, and semi-annual report by
contacting your investment representative or by contacting Norwest Advantage
Funds at 733 Marquette Avenue, Minneapolis, Minnesota 55479 or by calling 1-800-
338-1348 or 1-612-667-8833.
The Funds' reports and SAI are available from the Securities and Exchange
Commission in Washington, D.C. You may obtain copies of these documents, upon
payment of a duplicating fee, by writing the Public Reference Section of the
SEC, Washington D.C. 20549-6009. Please call 1-800-SEC-0330 for information
about the operation of the SEC's public reference room. The Fund's reports and
other information are also available on the SEC's Web Site at http://
www.sec.gov.
The SEC's Investment Company Act file number for the Funds is 811-4881.
<PAGE>
PROSPECTUS
October 1, 1998
GROWTH BALANCED FUND
INCOME EQUITY FUND
VALUGROWTH (SM) STOCK FUND
DIVERSIFIED EQUITY FUND
GROWTH EQUITY FUND
LARGE COMPANY GROWTH FUND
DIVERSIFIED SMALL CAP FUND
SMALL COMPANY STOCK FUND
SMALL CAP OPPORTUNITIES FUND
INTERNATIONAL FUND
AN INVESTMENT IN A FUND IS NOT A DEPOSIT OF NORWEST BANK MINNESOTA, N.A. OR ANY
OTHER BANK AND IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL
DEPOSIT INSURANCE CORPORATION, or ANY OTHER GOVERNMENT AGENCY.
INVESTING IN ANY MUTUAL FUND HAS RISK. IT IS POSSIBLE TO LOSE MONEY BY INVESTING
IN ANY OF THE FUNDS.
NO GOVERNMENTAL AGENCY, INCLUDING THE SECURITIES AND EXCHANGE COMMISSION, HAS
APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED WHETHER OR NOT THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
Table of Contents
1. OVERVIEW ..................................................
The Funds..................................................
Expense Information........................................
2. FINANCIAL HIGHLIGHTS ......................................
3. GLOSSARY...................................................
4. INVESTMENT OBJECTIVES AND POLICIES ........................
Growth Balanced Fund.......................................
Income Equity Fund.........................................
ValuGrowth Stock Fund......................................
Diversified Equity Fund....................................
Growth Equity Fund.........................................
Large Company Growth Fund..................................
Diversified Small Cap Fund.................................
Small Company Stock Fund...................................
Small Cap Opportunities Fund...............................
International Fund.........................................
Portfolio Descriptions.....................................
5. RISK CONSIDERATIONS........................................
6. COMMON POLICIES............................................
7. MANAGEMENT OF THE FUNDS ...................................
Investment Advisory Services...............................
Other Fund Services........................................
8. CHOOSING A SHARE CLASS ....................................
A Shares...................................................
B Shares...................................................
C Shares...................................................
9. HOW TO BUY AND SELL SHARES ................................
General Purchase Information...............................
Purchasing Shares Directly.................................
Purchasing Shares Through Financial Institutions...........
General Redemption Information.............................
Redemption Procedures......................................
Exchanges..................................................
10. DISTRIBUTIONS AND TAX MATTERS .............................
Distributions..............................................
Tax Matters................................................
11. OTHER INFORMATION .........................................
Determination of Net Asset Value...........................
Additional Information About the Portfolios................
Broker-Dealers'
Reallowances...............................................
<PAGE>
1. OVERVIEW
THE FOLLOWING IS A SUMMARY OF INFORMATION ABOUT THE FUNDS. BEFORE INVESTING, YOU
SHOULD READ THE PROSPECTUS AND CONSIDER THE DISCUSSIONS UNDER INVESTMENT
OBJECTIVES AND POLICIES AND RISK CONSIDERATIONS.
NO SINGLE FUND IS A COMPLETE OR BALANCED INVESTMENT PROGRAM, BUT EACH CAN SERVE
AS A PART OF YOUR OVERALL INVESTMENT PROGRAM.
THE FUNDS AT A GLANCE
Growth Balanced Fund seeks a combination of current income and capital
appreciation. The other Funds seek capital growth or high capital return.
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FUND OBJECTIVE PRIMARY INVESTMENTS
GROWTH BALANCED FUND Combination of current income and 15%-55% fixed income investments
capital appreciation. and 45%-85% equity investments
INCOME EQUITY FUND Long-term capital appreciation Common stock of large high
consistent with above-average quality domestic companies.
dividend income.
VALUGROWTH STOCK FUND Long-term capital appreciation. Stock of medium- and large-
capitalization companies that
have above average growth
characteristics and that appear
to be undervalued.
DIVERSIFIED EQUITY FUND Long-term capital appreciation Diversified investments in 5
while moderating annual return different equity investment
volatility. styles.
GROWTH EQUITY FUND Long-term capital appreciation Diversified investments in 3
while moderating annual return different equity investment
volatility. styles.
LARGE COMPANY GROWTH FUND Long-term capital appreciation. Stock of large high-quality
domestic companies with superior
growth potential.
DIVERSIFIED SMALL CAP FUND Long-term capital appreciation Diversified investments in 5
while moderating annual return different small company equity
volatility. investment styles.
SMALL COMPANY STOCK FUND Long-term capital appreciation. Stock of small and medium sized
domestic companies.
SMALL CAP OPPORTUNITIES FUND Long-term capital appreciation. Equity securities of small
domestic companies.
INTERNATIONAL FUND Long-term capital appreciation. Stock of high-quality companies
based outside of the United
States.
</TABLE>
CLASSES OF SHARES
This Prospectus offers 3 classes of shares. Each class has a different fee
structure. All of the Funds offer A Shares and B Shares. Growth Balanced Fund,
Income Equity Fund, Diversified Equity Fund, and Growth Equity Fund also offer C
Shares. A Shares of Growth Balanced Fund, Large Company Growth Fund, and
Diversified Small Cap Fund are not available until October 6, 1998.
* A Shares are generally offered at their net asset value plus an initial
sales charge. A Shares do not have distribution or
<PAGE>
shareholder servicing fees.
* B Shares are offered at their net asset value. B Shares have distribution
and shareholder servicing fees and convert to A Shares within 7 years after
purchase. If you redeem your B Shares within 6 years of purchase, you pay a
contingent deferred sales charge. The amount of the charge depends on the
length of time you hold the shares.
* C Shares are offered at their net asset value. C Shares have distribution
fees. If you redeem your C Shares within a year of purchase, you pay a
contingent deferred sales charge.
FUND STRUCTURES
Some of the Funds invest directly in a portfolio of securities. Other Funds
invest in 1 or more other funds identified in this prospectus as Portfolios. The
Portfolios do not offer their shares to the public. Except when necessary to
describe a Fund's investment in a Portfolio, this prospectus discusses a Fund's
investments in a Portfolio as if the investments were made directly in
individual securities.
MANAGEMENT OF THE FUNDS
NORWEST INVESTMENT MANAGEMENT, INC. or NORWEST is the investment adviser for all
of the Funds and all but 3 of the Portfolios. Norwest, a subsidiary of Norwest
Bank Minnesota, N.A. or Norwest Bank, provides investment advice to
institutions, pension plans, and other accounts and currently manages more than
$28 billion in assets. SCHRODER CAPITAL MANAGEMENT INTERNATIONAL INC. or
SCHRODER is the investment adviser for 3 Portfolios: Schroder U.S. Smaller
Companies Portfolio, International Portfolio, and Schroder EM Core Portfolio.
Schroder specializes in providing international investment advice. INVESTMENT
SUBADVISERS make investment decisions for certain Funds and Portfolios under
Norwest's general supervision. This prospectus generally refers to Norwest,
Schroder or a subadviser as an Adviser.
THE FORUM FINANCIAL GROUP of companies provide management, administrative, and
underwriting services to the Funds.
HOW TO BUY SHARES
The Funds require minimum initial investments of $1,000 and minimum subsequent
investments of $100. Small Cap Opportunities Fund is closed to new investors.
EXCHANGES
If you own Fund shares, you may exchange them for shares of certain other funds.
Your exchange rights will vary depending on the class of shares you own.
DISTRIBUTIONS
Each Fund distributes to shareholders its net capital gain, if any, at least
annually. The Distributions and Tax Matters section discusses how often the
Funds distribute net investment income.
RISK FACTORS
All investments in a Fund are subject to risk and may decline in value. The
amount and types of risk vary from Fund to Fund depending on the Fund's
investment objective, the Adviser's strategy, the markets the Fund invests in,
the investments that the Fund makes, and prevailing economic conditions over the
period of your investment.
Every Fund also has the risk that its Adviser may not be successful in carrying
out its investment strategy, that a portfolio manager may prove difficult to
replace if he or she becomes unavailable to manage the Fund, and that the Fund's
particular investment strategy may result in performance that is worse or better
than the performance of the market as a whole. Your investment in a Fund also
will have risk if you do not plan to invest for a period that is long enough to
permit the investment to recover from an adverse market movement.
The Funds are subject to "market risk," which is the general risk that the value
of a Fund's investments may decline if the stock markets perform poorly. There
also is a risk that a Fund's investments will underperform either the securities
markets generally or particular segments of the securities markets.
Funds that invest in smaller issuers or foreign issuers are riskier than other
Funds. Investments in smaller issuers are subject to greater market volatility
because securities of smaller issuers may not trade as often or be as widely
owned as the securities of larger issuers.
<PAGE>
Investments in foreign issuers are subject to the risks of foreign political and
economic instability and changes in foreign exchange rates. Foreign investments
also are subject to government actions, including exchange controls and limits
on repayments of foreign investments. Foreign governments may nationalize, tax,
or confiscate investors' assets.
Growth Balanced Fund divides its investments between fixed income securities and
equity securities in varying proportions, with an emphasis on equity securities.
An investment in the Fund will be subject both to the risks of fixed income
securities and to the risks of equity securities.
The investment income you receive from Growth Balanced Fund will vary with
changes in interest rates. The value of the Fund's fixed income investments
generally will fall when interest rates rise and rise when interest rates fall.
The Fund's fixed income investments also are subject to "credit risk," which is
the risk that an issuer will be unable, or will be perceived to be unable, to
pay the interest and principal on its obligations when due. When interest rates
fall, there is a risk that issuers will prepay fixed rate securities, forcing
the Fund to invest in securities with lower interest rates than the prepaid
securities. The Fund also may invest in mortgage- or other asset-backed
securities. A decline in interest rates may result in losses in these
securities' values and a reduction in their yields as the holders of the assets
backing the securities prepay their debts. Rising interest rates may cause the
average maturity of this Fund to rise due to a drop in prepayments. A rise in
average maturity or duration increases the Fund's sensitivity to rising interest
rates and potential for losses in value.
In addition, the Adviser may vary, within a fixed range, the allocations of
Growth Balanced Fund's assets into each type of investment. There is a risk that
the allocations selected by the Adviser will not achieve the Fund's objective as
effectively as other possible allocations.
EXPENSES OF INVESTING IN THE FUNDS
The following table will assist you in understanding the expenses that you will
bear directly and indirectly when you invest in a Fund.
Shareholder Transaction Expenses
(applicable to each Fund)
<TABLE>
<S> <C> <C> <C>
A B C
Shares Shares Shares
- ----------------------------------------------------------------------------------------------------------------------
Maximum sales charge imposed on purchases
(as a percentage of public offering price) 5.5% Zero Zero
Maximum deferred sales charge
(as a percentage of the lesser of original purchase Zero 4.0%(1) 1.0%(2)
price or redemption proceeds)
</TABLE>
ANNUAL FUND OPERATING EXPENSE(7)
(as a percentage of average daily net assets)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
GROWTH INCOME
BALANCED FUND(3)(6) EQUITY FUND
A B C A B C
Shares Shares Shares Shares Shares Shares
--------- --------- ---------- --------- ---------- ----------
Investment Advisory Fee (4) 0.13% 0.13% 0.13% N/A N/A N/A
Rule 12b-1 Fees (AFTER FEE WAIVERS)(5) 0.10% 0.75% 0.75% N/A 0.75% 0.75%
Other Expenses (AFTER FEE WAIVERS AND 0.41% 0.29% 0.29% 0.33% 0.33% 0.33%
REIMBURSEMENTS)
Investment Advisory Fee - Portfolios 0.45% 0.45% 0.45% .050% 0.50% 0.50%
Other Expenses - Portfolios 0.06% 0.06% 0.06% 0.02% 0.02% 0.02%
(AFTER FEE WAIVERS AND REIMBURSEMENTS)
Total Operating Expenses(7) 1.15% 1.68% 1.68% 0.85% 1.60% 1.60%
VALUGROWTH DIVERSIFIED
STOCK FUND EQUITY FUND(6)
A B A B C
Shares Shares Shares Shares Shares
--------------- -------------- --------- ---------- ----------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Investment Advisory Fee (4) 0.78% 0.78% 0.16% 0.16% 0.16%
Rule 12b-1 Fees (AFTER FEE WAIVERS)(5) N/A 0.75% N/A 0.75% 0.75%
Other Expenses (AFTER FEE WAIVERS AND 0.22% 0.22% 0.29% 0.29% 0.29%
REIMBURSEMENTS)
Investment Advisory Fee - Portfolios(4) N/A N/A 0.49% 0.49% 0.49%
Other Expenses - Portfolios N/A N/A 0.06% 0.06% 0.06%
(AFTER FEE WAIVERS AND REIMBURSEMENTS)
Total Operating Expenses(7) 1.00% 1.75% 1.00% 1.75% 1.75%
GROWTH LARGE COMPANY
EQUITY FUND(6) GROWTH FUND(3)
A B C A B
Shares Shares Shares Shares Shares
--------- --------- ---------- ---------------- --------------
Investment Advisory Fee (4) 0.22% 0.22% 0.22% N/A N/A
Rule 12b-1 Fees (AFTER FEE WAIVERS)(5) N/A 0.75% 0.75% 0.10% 0.75%
Other Expenses (AFTER FEE WAIVERS AND 0.26% 0.26% 0.26% 0.43% 0.33%
REIMBURSEMENTS)
Investment Advisory Fee - Portfolios(4) 0.67% 0.67% 0.67% 0.65% 0.65%
Other Expenses - Portfolios 0.10% 0.10% 0.10% 0.02% 0.02%
(AFTER FEE WAIVERS AND REIMBURSEMENTS)
Total Operating Expenses(7) 1.25% 2.00% 2.00% 1.20% 1.75%
DIVERSIFIED SMALL SMALL COMPANY
CAP FUND STOCK FUND(6)
A B A B
Shares Shares Shares Shares
--------------- -------------- ---------------- --------------
Investment Advisory Fee (4) 0.00% 0.00% N/A N/A
Rule 12b-1 Fees (AFTER FEE WAIVERS)(5) 0.10% 0.75% N/A 0.75%
Other Expenses (AFTER FEE WAIVERS AND 0.37% 0.27% 0.25% 0.25%
REIMBURSEMENTS)
Investment Advisory Fee - Portfolios(4) 0.83% 0.83% 0.90% 0.90%
Other Expenses - Portfolios 0.10% 0.10% 0.05% 0.05%
(AFTER FEE WAIVERS AND REIMBURSEMENTS)
Total Operating Expenses(7) 1.40% 1.95% 1.20% 1.95%
SMALL CAP INTERNATIONAL FUND
OPPORTUNITIES FUND
A B A B
Shares Shares Shares Shares
--------------- -------------- ---------------- --------------
Investment Advisory Fee (4) N/A N/A 0.25% 0.25%
Rule 12b-1 Fees (AFTER FEE WAIVERS)(5) N/A 0.75% N/A 0.75%
Other Expenses (AFTER FEE WAIVERS AND 0.50% 0.50% 0.56% 0.56%
REIMBURSEMENTS)
Investment Advisory Fee - Portfolio(4) 0.60% 0.60% 0.42% 0.42%
Other Expenses - Portfolios 0.15% 0.15% 0.27% 0.27%
(AFTER FEE WAIVERS AND REIMBURSEMENTS)
Total Operating Expenses(7) 1.25% 2.00% 1.50% 2.25%
</TABLE>
(1) The maximum 4.0% deferred sales charge on B Shares applies to redemptions
during the first year after purchase; the charge declines to 3.0% during
the second and third years, 2.0% during the fourth and fifth years, 1.0%
during the sixth year and zero the following year.
(2) The 1.0% deferred sales charge on C Shares applies only to redemptions
during the first year after purchase.
(3) The expenses, and any fee waivers and reimbursements, for Growth Balanced
Fund, Large Company Growth Fund, Diversified Small Cap Fund, and C shares
of Income Equity Fund, Diversified Equity Fund and Growth Equity Fund are
estimated.
(4) For Growth Balanced Fund, Diversified Equity Fund, Growth Equity Fund
Diversified Small Cap Fund, and International Fund Investment Advisory Fee
reflects an asset allocation fee, which absent fee waivers, would be 0.25%.
Investment Advisory Fee - Portfolios states the investment advisory fees of
any Portfolios in which a Fund invests. Absent fee waivers, Investment
Advisory Fee - Portfolios for International Fund would be 0.47% and for
Growth Equity Fund 0.68%.
(5) Absent fee waivers, Rule 12b-1 Fees would be 1.00% for B Shares.
(6) Norwest and the Fund's Administrator have agreed to waive fees and
reimburse expenses to maintain Small Company Stock Fund's total operating
expenses at or below 1.20% for A Shares and 1.95% for B Shares. Any
reduction of those waivers or reimbursements requires review by the Funds'
Board of Trustees. Norwest and the Fund's Administrator have agreed to
waive their fees through May 31, 1999 to ensure that the combined
investment advisory, administrative and management services fees borne by
Growth Balanced Fund, Diversified Equity Fund, and Growth Equity Fund do
not exceed 0.68%, 0.75%, and 1.00% respectively. Any reduction of those
waivers after May 31, 1999 requires Board approval.
(7) Absent estimated expense reimbursements and fee waivers, Other Expenses,
Other Expenses-Portfolio(s), and Total Operating Expenses of A Shares would
be: Growth Balanced Fund 0.47%, 0.12%, and 1.39%, Income Equity Fund 0.39%,
0.07, and 0.96%, ValuGrowth Stock Fund 0.47%, N/A, and 1.25%, Diversified
Equity Fund 0.39%, 0.11% and, 1.24%, Growth Equity Fund 0.40%, 0.15%, and
1.48%, Large Company Growth Fund 0.49%, 0.08%, and 1.32%, Diversified Small
Cap Fund 1.61%, 0.15%, and 2.94%, Small Company Stock Fund 0.47%, 0.11%,
and 1.48%, Small Cap Opportunities Fund 1.03%, 0.15%, and 1.78%, and
International Fund 0.83%, 0.31%, and 1.86%. Absent expense reimbursements
and fee waivers, Other Expenses, Other Expenses-Portfolio(s) and Total
Operating Expenses of B Shares would be: Growth Balanced Fund 0.33%, 0.12%,
and 2.15%, Income Equity Fund 0.39%, 0.07%, and 1.96%, ValuGrowth Stock
Fund 0.53%, N/A, and 2.31%, Diversified Equity Fund 0.39%, 0.11%, and
2.24%, Growth Equity Fund 0.43%, 0.15%, and 2.51%, Large Company Growth
Fund 0.35%, 0.08%, and 2.08%, Diversified Small Cap Fund 1.47%, 0.15%, and
3.70%, Small Company Stock Fund 0.52%, 0.11%, and 2.53%, Small Cap
Opportunities Fund 1.30%, 0.15%, and 3.05%, and International Fund 0.92%,
0.31%, and 2.95%. Absent estimated expense reimbursements and fee waivers,
Other Expenses, Other Expenses-Portfolio(s) and Total Operating Expenses of
C Shares would be: Growth Balanced Fund 0.33%, 0.12%, and 1.90%, Income
Equity Fund 0.39%, 0.07%, and 1.71%, Diversified Equity Fund 0.39%, 0.11%,
and 1.99%, and Growth Equity Fund 0.43%, 0.15%, and 2.26%. Except as
otherwise noted, expense reimbursements and fee waivers are voluntary and
may be reduced or eliminated at any time.
<PAGE>
EXAMPLE The hypothetical example indicates the dollar amount of expenses you
would pay, assuming a $1,000 investment in a Fund's shares, the expenses listed
in the Annual Fund Operating Expenses table, a 5% annual return, reinvestment of
all distributions, the deduction of the maximum initial sales charge for A
Shares and C Shares, the deduction of the contingent deferred sales charge for B
Shares and C Shares applicable to a redemption at the end of the period and the
conversion of B Shares to A Shares at the end of 7 years. THE EXAMPLE DOES NOT
REPRESENT PAST OR FUTURE EXPENSES OR RETURN. ACTUAL EXPENSES AND RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN IN THE EXAMPLE.
<TABLE>
<S> <C> <C> <C> <C>
1 year 3 years 5 years 10 years
- ---------------------------------------------------------------------------------------------------------------------------------
Growth Balanced Fund
A Shares $64 $83 $104 $163
B Shares
Assuming redemption
at the end of the period 57 83 111 199
Assuming no redemption 17 53 91 199
C Shares
Assuming redemption
at the end of the period 27 53 91 199
Assuming no redemption 17 53 91 199
Income Equity Fund
A Shares 63 81 100 154
B Shares
Assuming redemption
at the end of the period 56 80 107 190
Assuming no redemption 16 50 87 190
C Shares
Assuming redemption
at the end of the period 26 50 87 190
Assuming no redemption 16 50 87 190
ValuGrowth Stock Fund
A Shares 65 85 107 171
B Shares
Assuming redemption
at the end of the period 58 85 115 206
Assuming no redemption 18 55 95 206
Diversified Equity Fund
A Shares 65 85 107 171
B Shares
Assuming redemption
at the end of the period 58 85 115 206
Assuming no redemption 18 55 95 206
C Shares
Assuming redemption
at the end of the period 28 55 95 206
Assuming no redemption 18 55 95 206
Growth Equity Fund
A Shares 67 92 120 198
B Shares
Assuming redemption
at the end of the period 60 93 128 233
<PAGE>
Assuming no redemption 20 63 108 233
C Shares
Assuming redemption
at the end of the period 30 63 108 233
Assuming no redemption 20 63 108 233
Small Company Stock Fund
A Shares 67 91 117 192
B Shares
Assuming redemption
at the end of the period 60 91 125 227
Assuming no redemption 20 61 105 227
Small Cap Opportunities Fund
A Shares 67 93 120 198
B Shares
Assuming redemption
at the end of the period 60 93 128 233
Assuming no redemption 20 63 108 233
Large Company Growth Fund
A Shares 67 91 117 192
B Shares
Assuming redemption
at the end of the period 58 85 115 206
Assuming no redemption 18 55 95 206
Diversified Small Cap Fund
A Shares 67 91 117 192
B Shares
Assuming redemption
at the end of the period 60 91 125 227
Assuming no redemption 20 61 105 227
International Fund
A Shares 69 100 132 224
B Shares
Assuming redemption
at the end of the period 63 100 140 258
Assuming no redemption 23 70 120 258
</TABLE>
<PAGE>
2. FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand each Fund's
financial performance for 10 years or, if shorter, the Fund's operating history.
Certain information reflects financial results for a single Fund share. The
total returns in the table represent the rate that an investor would have earned
on an investment in a Fund, assuming reinvestment of all distributions. The
information from June 1, 1994 through May 31, 1998 has been audited by KPMG Peat
Marwick LLP, independent auditors, whose report dated July 21, 1998 about a
Fund, along with the Fund's financial statements, are included in the Fund's
Annual Report, which is available at no charge upon request. These financial
statements are incorporated by reference into the SAI. Other independent
auditors audited information for prior periods.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Net Realized
and Dividends Distributions Ending
Beginning Net Net Unrealized from Net from Net Net Asset
Asset Value Investment Gain (Loss) Investment Realized Value Per
Per Share Income on Investments Income Gain Share
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME EQUITY FUND
A SHARES
Year Ended May 31, 1998 $33.16 $0.52 $8.77 ($0.54) ($0.72) $41.19
Year Ended May 31, 1997 $27.56 $0.57 $5.54 ($0.51) -- $33.16
May 2, 1996 to May 31, 1996(f) $26.94 $0.07 $0.55 -- -- $27.56
B SHARES
Year Ended May 31, 1998 $33.09 $0.24 $8.75 ($0.24) ($0.72) $41.12
Year Ended May 31, 1997 $27.54 $0.36 $5.52 ($0.33) -- $33.09
May 2, 1996 to May 31, 1996(f) $26.94 $0.02 $0.58 -- -- $27.54
- ----------------------------------------------------------------------------------------
</TABLE>
(a) The ratio of Gross Expenses to Average Net Assets does not reflect fee
waivers or expense reimbursements.
(b) Total Return does not include the effects of sales charges. Total Return
would have been lower absent expense reimbursements and fee waivers.
(c) Average Commission Rate represents the average commission per share paid to
brokers on the purchase or sale of portfolio securities. Prior to 1996,
this data was not reported in mutual fund financial statements.
(d) Includes expenses allocated from the Portfolio in which the Fund invests.
(e) Reflects the activity of the Portfolio in which the Fund invests.
(f) Commencement of operations.
(g) Annualized.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Ratio to Average Net Assets
- ---------------------------------------
Net Portfolio Average Net Assets at
Investment Net Gross Total Turnover Commission End of Period
Income Expenses Expenses(a) Return(b) Rate Rate (c) (000's Omitted)
- -----------------------------------------------------------------------------------------------
1.44%(d) 0.85%(d) 0.91%(d) 28.64% 3.46%(e) 0.0585(e) $75,144
1.95% 0.85% 0.93% 22.40% 4.76% $0.0792 $43,708
3.69%(g) 0.91%(g) 1.91%(g) 2.30% 0.69% $0.0942 $31,448
0.69%(d) 1.60%(d) 1.91%(d) 27.67% 3.46%(e) 0.0585(e) $67,385
1.24% 1.59% 1.96% 21.48% 4.76% $0.0792 $33,626
1.72%(g) 2.63%(g) 2.92%(g) 2.23% 0.69% $0.0942 $17,318
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Net Realized
and Dividends Distributions Ending
Beginning Net Unrealized from Net from Net Net Asset
Net
Asset Value Investment Gain (Loss) Investment Realized Value Per
Per Share Income on Investments Income Gain Share
- -----------------------------------------------------------------------------------------------------------------------
VALUGROWTH STOCK FUND
A SHARES
Year Ended May 31, 1998 $25.06 $0.13 $4.69 ($0.16) ($3.54) $26.18
Year Ended May 31, 1997 $22.63 $0.17 $4.80 ($0.13) ($2.41) $25.06
Year Ended May 31, 1996 $18.82 $0.13 $3.93 ($0.13) ($0.12) $22.63
Year Ended May 31, 1995 $17.17 $0.17 $1.66 ($0.18) -- $18.82
Year Ended May 31, 1994 $17.27 $0.10 $0.19 ($0.17) ($0.22) $17.17
Year Ended May 31, 1993 $16.30 $0.17 $1.34 ($0.17) ($0.37) $17.27
December 1, 1991 to May 31, 1992 $14.48 $0.09 $1.83 ($0.10) -- $16.30
Year Ended November 30, 1991 $11.67 $0.18 $2.82 ($0.19) -- $14.48
Year Ended November 30, 1990 $12.67 $0.21 ($0.55) ($0.21) ($0.45) $11.67
Year Ended November 30, 1989 $10.03 $0.18 $2.61 ($0.15) -- $12.67
January 8, 1988 to November 30, 1988(e) $10.00 $0.15 $0.03 ($0.15) -- $10.03
B SHARES
Year Ended May 31, 1998 $24.55 ($0.02) $4.56 ($0.03) ($3.54) $25.52
Year Ended May 31, 1997 $22.28 $0.01 $4.68 ($0.01) ($2.41) $24.55
Year Ended May 31, 1996 $18.65 ($0.02) $3.87 ($0.10) ($0.12) $22.28
Year Ended May 31, 1995 $17.10 $0.07 $1.61 ($0.13) -- $18.65
August 5, 1993 to May 31, 1994(e) $17.12 $0.07 $0.23 ($0.10) ($0.22) $17.10
- -----------------------------------------------------------------------------------
</TABLE>
(a) The ratio of Gross Expenses to Average Net Assets does not reflect fee
waivers or expense reimbursements.
(b) Total Return does not include the effects of sales charges. Total Return
would have been lower absent expense reimbursements and fee waivers.
(c) Average Commission Rate represents the average commission per share paid to
brokers on the purchase or sale of portfolio securities. Prior to 1996,
this data was not reported in mutual fund financial statements.
(d) Annualized.
(e) Commencement of operations; the original class of shares became A Shares.
<TABLE>
<S> <C> <C> <C>
Ratio to Average Net Assets
-------------------------------------
Net Portfolio Average Net Assets at
Investment Net Gross Total Turnover Commission End of Period
Income Expenses Expenses(a) Return(b) Rate Rate (c) (000's Omitted)
- -------------------------------------------------------------------------------------------
0.56% 1.00% 1.26% 21.15% 74.25% $0.0588 $27,771
0.70% 1.01% 1.39% 23.32% 75.50% $0.0781 $18,830
0.63% 1.20% 1.42% 21.69% 105.43% $0.0603 $15,232
1.01% 1.20% 1.43% 10.72% 63.82% -- $12,138
1.06% 1.20% 1.43% 1.68% 86.07% -- $12,922
1.02% 1.20% 1.42% 9.32% 57.34% -- $109,669
1.34%(d) 1.19%(d) 1.64%(d) 26.46%(d) 29.50% -- $68,659
1.57% 1.19% 4.33% 25.84% 31.17% -- $4,853
1.88% 1.20% 11.73% (2.91%) 38.67% -- $750
1.58% 1.20% 8.38% 28.00% 65.89% -- $411
1.84%(d) 1.19%(d) 2.50%(d) 2.04%(d) 30.90% -- $281
(0.19%) 1.75% 2.31% 20.30% 74.25% $0.0588 $8,943
(0.07%) 1.76% 2.48% 22.33% 75.50% $0.0781 $6,591
(0.12%) 1.96% 2.54% 20.79% 105.43% $0.0603 $5,130
0.28% 1.95% 2.51% 9.88% 63.82% -- $3,569
0.25%(d) 1.95%(d) 2.55%(d) 2.36%(d) 86.07% -- $2,218
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Net Realized
Beginning and Dividends Distributions Ending
Net Net Unrealized from Net from Net Net Asset Net
Asset Value Investment Gain (Loss) Investment Realized Value Per Investment
Per Share Income on Investments Income Gain Share Income(a)
- -------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED EQUITY FUND
A SHARES
Year Ended May 31, 1998 $36.51 $0.16 $8.99 ($0.27) ($2.33) $43.06 0.60%
Year Ended May 31, 1997 $30.56 $0.20 $6.10 ($0.16) ($0.19) $36.51 0.81%
May 2, 1996 to May 31, 1996(e) $29.89 $0.02 $0.65 -- -- $30.56 1.88%(f)
B SHARES
Year Ended May 31, 1998 $36.31 ($0.06) $8.85 ($0.08) ($2.33) $42.69 (0.15%)
Year Ended May 31, 1997 $30.54 $0.03 $6.00 ($0.07) ($0.19) $36.31 0.09%
May 6, 1996 to May 31, 1996(e) $29.41 $0.02 $1.11 -- -- $30.54 1.24%(f)
- -------------------------------------------------------------------------------
</TABLE>
(a) Includes expenses allocated from the Portfolios in which the Fund invests.
(b) The ratio of Gross Expenses to Average Net Assets does not reflect fee
waivers or expense reimbursements.
(c) Total Return does not include the effects of sales charges. Total Return
would have been lower absent expense reimbursements and fee waivers
(d) Average Commission Rate represents the average commission per share paid to
brokers on the purchase or sale of portfolio securities. Prior to 1996, this
data was not reported in mutual Funds financials statements.
(e) Commencement of operations.
(f) Annualized.
(g) Portfolio Turnover Rate and Average Commission Rate are not applicable as
the Fund invested in more than one Portfolio.
Ratio to Average
Net Assets
- ---------------------------------------
Portfolio Average Net Assets at
Net Gross Total Turnover Commission End of Period
Expenses(a) Expenses(a)(b) Return(c) Rate Rate (d) (000's Omitted)
- --------------------------------------------------------------------------------
1.00% 1.20% 26.08% N/A(g) N/A(g) $56,350
1.02% 1.40% 20.75% 48.08% $0.0626 $25,271
1.52%(f) 4.06%(f) 2.24% 5.76% $0.0671 $2,699
1.75% 2.19% 25.13% N/A(g) N/A(g) $81,548
1.76% 2.41% 19.86% 48.08% $0.0626 $33,870
2.37%(f) 4.95%(f) 3.84% 5.76% $0.0671 $2,447
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Net Realized
Beginning and Dividends Distributions Ending
Net Net Unrealized from Net from Net Net Asset
Asset Value Investment Gain (Loss) Investment Realized Value Per
Per Share Income on Investments Income Gain Share
- --------------------------------------------------------------------------------------------------------------------
GROWTH EQUITY FUND
A SHARES
Year Ended May 31, 1998 $32.49 ($0.06) $6.88 ($0.04) ($3.54) $35.73
Year Ended May 31, 1997 $29.08 ($0.02) $4.06 ($0.04) ($0.59) $32.49
May 2, 1996 to May 31, 1996(e) $28.50 -- $0.58 -- -- $29.08
B SHARES
Year Ended May 31, 1998 $32.28 ($0.23) $6.72 -- ($3.54) $35.23
Year Ended May 31, 1997 $29.07 ($0.13) $3.93 -- ($0.59) $32.28
May 6, 1996 to May 31, 1996(e) $28.18 -- $0.89 -- -- $29.07
- -------------------------------------------------------------------------------
</TABLE>
(a) Includes expenses allocated from the Portfolios in which the Fund invests.
(b) The ratio of Gross Expenses to Average Net Assets does not reflect fee
waivers or expense reimbursements.
(c) Total Return does not include the effects of sales charges. Total Return
would have been lower absent expense reimbursements and fee waivers.
(d) Average Commission Rate represents the average commission per share paid to
brokers on the purchase or sale of portfolio securities. Prior to 1996,
this data was not reported in mutual funds financials statements.
(e) Commencement of operations.
(f) Annualized.
(g) Portfolio Turnover Rate and Average Commission Rate are not applicable as
the Fund invested in more than one Portfolio.
<TABLE>
<S> <C> <C> <C>
Ratio to Average
Net Assets
- -------------------------------------------
Net Portfolio Average Net Assets at
Investment Net Gross Total Turnover Commission End of Period
Income Expenses(a) Expenses(a)(b) Return(c) Rate Rate(d) (000's Omitted)
(Loss)(a)
- ------------------------------------------------------------------------------------------------
(0.11%) 1.25% 1.42% 22.55% N/A(g) N/A(g) $21,567
(0.12%) 1.30% 1.95% 14.11% 9.06% $0.0565 $14,146
0.34%(f) 2.08%(f) 6.40%(f) 2.04% 7.39% $0.0617 $3,338
(0.85%) 2.00% 2.45% 21.63% N/A(g) N/A(g) $16,615
(0.82%) 2.04% 3.02% 13.28% 9.06% $0.0565 $8,713
(0.40%)(f) 2.92%(f) 7.44%(f) 3.16% 7.39% $0.0617 $703
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Net Realized
and Dividends Distributions Ending
Beginning Net Return Unrealized from Net from Net Net Asset
Net
Asset Value Investment of Gain (Loss) Investment Realized Value Per
Per Share Income Capital on Investments Income Gain Share
- ---------------------------------------------------------------------------------------------------------------------------------
SMALL COMPANY STOCK FUND
A SHARES
Year Ended May 31, 1998 $13.95 ($0.07) ($0.07) $1.09 -- ($2.90) $12.00
Year Ended May 31, 1997 $14.02 ($0.04) -- $0.88 -- ($0.91) $13.95
Year Ended May 31, 1996 $10.64 $0.01 -- $3.93 ($0.03) ($0.53) $14.02
Year Ended May 31, 1995 $9.84 $0.12 -- $0.87 ($0.11) ($0.08) $10.64
December 31, 1993 to May 31, 1994(f) $10.00 $0.07 -- ($0.15) ($0.08) -- $9.84
B SHARES
Year Ended May 31, 1998 $13.63 ($0.11) ($0.07) $1.01 -- ($2.90) $11.56
Year Ended May 31, 1997 $13.83 ($0.11) -- $0.82 -- ($0.91) $13.63
Year Ended May 31, 1996 $10.56 ($0.08) -- $3.90 ($0.02) ($0.53) $13.83
Year Ended May 31, 1995 $9.82 $0.07 -- $0.84 ($0.09) ($0.08) $10.56
December 31, 1993 to May 31, 1994(f) $10.00 $0.06 -- ($0.17) ($0.07) -- $9.82
- -----------------------------------------------------------------
</TABLE>
(a) The ratio of Gross Expenses to Average Net Assets does not reflect fee
waivers or expense reimbursements.
(b) Total Return does not include the effects of sales charges. Total Return
would have been lower absent expense reimbursements and fee waivers.
(c) Average Commission Rate represents the average commission per share paid to
brokers on the purchase or sale of portfolio securities. Prior to 1996,
this data was not reported in mutual funds financials statements.
(d) Includes expenses allocated from the Portfolio in which the Fund invests.
(e) Reflects the activity of the Portfolio in which the Fund invests.
(f) Commencement of operations.
(g) Annualized.
<TABLE>
<S> <C> <C> <C>
Ratio to Average Net Assets
- -------------------------------------------
Net Portfolio Average Net Assets at
Investment Net Gross Total Turnover Commission End of Period
Income Expenses Expenses(a) Return(b) Rate Rate(c) (000's Omitted)
(Loss)
- ------------------------------------------------------------------------------------------------
(0.50%) 1.20%(d) 1.42%(d) 8.07% 166.16(e) $0.0616(e) $8,426
(0.38%) 1.19% 1.67% 6.34% 210.19% $0.0774 $7,355
0.03% 1.21% 1.87% 38.22% 134.53% $0.0555 $5,426
1.14% 0.53% 2.32% 10.19% 68.09% - $1,540
1.95%(g) 0.22% 10.66%(g) (1.98%)(g) 14.98% - $265
(1.26%)(d) 1.95%(d) 2.47%(d) 7.29% 166.16%(e) $0.0616(e) $5,799
(1.13%) 1.94% 2.73% 5.46% 210.19% $0.0774 $5,125
(0.74%) 1.96% 2.96% 37.32% 134.53% $0.0555 $4,125
0.38% 1.27% 3.56% 9.31% 68.09% - $963
1.27(g) 0.98%(g) 20.87%(g) (2.77%)(g) 14.98% - $195
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Net Realized
and Distributions Ending
Beginning Net Net Unrealized from Net Net Asset
Asset Value Investment Gain (Loss) Realized Value Per
Per Share Income on Investments Gain Share
- ---------------------------------------------------------------------------------------------------------
SMALL CAP OPPORTUNITIES FUND
A SHARES
Year Ended May 31, 1998 $19.83 ($0.07) $4.37 ($0.53) $23.60
October 9, 1996(f)to May 31, 1997 $17.39 ($0.01) $2.46 ($0.01) $19.83
B SHARES
Year Ended May 31, 1998 $19.75 ($0.05) $4.15 ($0.53) $23.32
November 8, 1996(f) to May 31, 1997 $17.41 ($0.05) $2.40 ($0.01) $19.75
- ---------------------------------------------------------------------------------
</TABLE>
(a) Includes expenses from the Portfolioin which the Fund invests.
(b) The ratio of Gross Expenses to Average Net Assets does not reflect fee
waivers or expense reimbursements.
(c) Total Return does not include the
effects of sales charges. Total Return would have been lower absent expense
reimbursements and fee waivers.
(d) Reflects the activity of the Portfolio in which the Fund invests.
(e) Average Commission Rate represents theaverage commission per share paid to
brokers on the purchase or sale of portfolio securities. Prior to 1996,
this data was not reported in mutual fund financial statements.
(f) Commencement of operations.
(g) Annualized.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Ratio to Average Net Assets
------------------------------------------
Net Portfolio Average Net Assets at
Investment Net Gross Total Turnover Commission End of Period
Income (Loss)(a) Expenses(a) Expenses(a)(b)Return(c) Rate(d) Rate(d)(e) (000's Omitted)
- -----------------------------------------------------------------------------------------------
(0.43%) 1.27% 1.86% 21.97% 54.98% $0.0582 $6,870
(0.18%)(g) 1.25%(g) 10.51%(g) 11.37% 34.45% $0.0584 $522
(1.21%) 2.02% 3.05% 21.03% 54.98% $0.0582 $6,140
(0.99%)(g) 2.06%(g) 27.27%(g) 13.53% 34.45% $0.0584 $158
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Net Realized
Beginning and Dividends Ending
Net Net Unrealized from Net Net Asset
Asset Value Investment Gain (Loss) Investment Value Per
Per Share Income on Income Share
Investments
- ----------------------------------------------------------------------------------------------------
INTERNATIONAL FUND
A SHARES
Year Ended May 31, 1998 $21.66 $0.03 $2.35 ($0.20) $23.84
Year Ended May 31, 1997 $19.82 $0.10 $1.94 ($0.20) $21.66
November 1, 1995 to May 31, 1996 $17.97 $0.35 $1.83 ($0.33) $19.82
April 1, 1995 to October 31, 1995(g) $16.50 $0.01 $1.46 -- $17.97
B SHARES
Year Ended May 31, 1998 $21.55 ($0.09) $2.31 ($0.07) $23.70
Year Ended May 31, 1997 $19.71 ($0.06) $1.93 ($0.03) $21.55
November 1, 1995 to May 31, 1996 $17.91 $0.25 $1.83 ($0.28) $19.71
May 12, 1995 to October 31, 1995(g) $17.20 $0.01 $0.70 -- $17.91
- ----------------------------------------------------------------------------
</TABLE>
(a) Includes expenses allocated from the Portfolios in which the Fund invests.
(b) The ratio of Gross Expenses to Average Net Assets does not reflect fee
waivers or expense reimbursements.
(c) Total Return does not include the effects of sales charges. Total Return
would have been lower absent expense reimbursements and fee waivers.
(d) Average Commission Rate represents the average commission per share paid to
brokers on the purchase or sale of portfolio securities. Prior to 1996,
this data was not reported in mutual fund financial statements.
(e) Reflects the activity of the Portfolios in which the Fund invests.
(f) Annualized.
(g) Commencement of operations.
(h) Portfolio Turnover Rate and Average Commission Rate are not applicable as
the Fund invested in more than one Portfolio.
Ratio to Average
Net Assets
----------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Net Portfolio Average Net Assets at
Investment Net Gross Total Turnover Commission End of Period
Income(a) Expenses(a) Expenses(a)(b) Return(c) Rate Rate(d) (000's Omitted)
- ---------------------------------------------------------------------------------------------
0.44% 1.47% 1.72% 11.20% N/A(h) N/A(h) $3,342
0.42% 1.43% 1.72% 10.33% 48.23%(e) 0.0202(e) $2,240
0.92%(f) 1.50%(f) 2.51%(f) 12.31% 14.12%(e) 0.0325(e) $1,080
0.26%(f) 1.32%(f) 20.95%(f) 8.91% 29.41% (e) -- $216
(0.29%) 2.22% 2.81% 10.39% N/A(h) N/A(h) $2,245
(0.34%) 2.18% 2.76% 9.44% 48.23%(e) 0.0202(e) $1,667
(0.02%)(f) 2.25%(f) 3.11%(f) 11.79% 14.12%(e) 0.0325(e) $995
0.17%(f) 1.27%(f) 14.57%(f) 4.30% 29.41%(e) -- $395
</TABLE>
<PAGE>
3. GLOSSARY
This Glossary of frequently used terms will help you understand the discussion
of the Funds' objectives, policies, and risks. Defined terms are capitalized
when used in this prospectus.
Term Definition
- ---- ----------
Board The Board of Trustees of Norwest Advantage Funds.
CDSC Contingent deferred sales charge.
Duration A measure of a debt security's average life that reflects
the present value of the security's cash flow. The prices of
securities with longer Durations generally are more
volatile.
Fundamental Requiring shareholder approval.
Investment Grade Rated at the time of purchase in 1 of the 4 highest
long-term or 2 highest short-term ratings categories by an
NRSRO or unrated and determined by the Adviser to be
comparable quality.
Market The total market value of a company's outstanding common
Capitalization stock.
NRSRO A nationally recognized statistical rating organization,
such as S&P, that rates fixed income securities and
preferred stock by relative credit risk.
Non-Investment Not Investment Grade.
Grade
Russell 1000(R) An index of large- and medium- capitalization companies.
Index
Russell 2000(R) An index of smaller capitalization companies with a broader
Index base of companies than the S&P 600 Small Cap Index.
S&P Standard & Poor's Corporation.
S&P 500 Index Standard & Poor's 500 Composite Stock Price Index, an index
of large capitalization companies.
S&P 600 Small Cap Standard & Poor's Small Cap 600 Composite Stock Price
Index Index(C), an index of small capitalization companies.
SEC The U.S. Securities and Exchange Commission.
U.S. Government A security issued or guaranteed as to principal and interest
Security by the U.S. Government, its agencies or its
instrumentalities.
4. INVESTMENT OBJECTIVES AND POLICIES
This section discusses the investment objectives and policies of the Funds and
the Portfolios. All the Funds other than Growth Balanced Fund have a policy of
investing at least 65% of total assets in equity securities. After each Fund's
description, there is a short, alphabetical listing of the Fund's primary risks.
The RISK CONSIDERATIONS section below discusses these risks.
GROWTH BALANCED FUND
Investment Objective. The Fund's investment objective is to provide a
combination of current income and capital appreciation by diversified
investments in stocks and bonds.
<PAGE>
INVESTMENT POLICIES. The Fund is designed for investors seeking long-term
capital appreciation in the equity securities market in a balanced fund. The
Fund currently invests in 14 Portfolios.
The Fund invests the equity portion of its portfolio in the different equity
investment styles of Diversified Equity Fund. The blending of multiple equity
investment styles is intended to reduce the risk associated with the use of a
single style, which may move in and out of favor during the course of a market
cycle. The Fund invests the fixed income portion of its portfolio in Positive
Return Bond Portfolio, Strategic Value Bond Portfolio, and Managed Fixed Income
Portfolio. The blending of multiple fixed income investment styles is intended
to reduce the price and return volatility of, and provide more consistent
returns within, the fixed income portion of the Fund's investments.
ALLOCATION. The current allocations and ranges of investments by the Fund in
each Portfolio are:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
current range of
investment style allocation investment
---------------- ---------- ----------
DIVERSIFIED EQUITY FUND STYLE 65% 45% - 85%
INDEX PORTFOLIO 16.3% 11.3% - 21.3%
INCOME EQUITY PORTFOLIO 16.3% 11.3% - 21.3%
LARGE COMPANY STYLE 16.3% 11.3% - 21.3%
LARGE COMPANY GROWTH PORTFOLIO 13.0% 9.0% - 17.0%
DISCIPLINED GROWTH PORTFOLIO 3.3% 2.3% - 4.3%
DIVERSIFIED SMALL CAP STYLE 6.5% 4.5% - 8.5%
SMALL CAP INDEX PORTFOLIO 1.3% 0.9% - 1.7%
SMALL COMPANY GROWTH PORTFOLIO 1.6% 1.1% - 2%
SMALL COMPANY VALUE PORTFOLIO 1.6% 1.1% - 2%
SMALL COMPANY STOCK PORTFOLIO 1.0% 0.7% - 1.4%
SMALL CAP VALUE PORTFOLIO 1.0% 075% - 1.4%
INTERNATIONAL STYLE 9.8% 6.8% - 12.8%
INTERNATIONAL PORTFOLIO 9.3% 5.4% - 12.8%
SCHRODER EM CORE PORTFOLIO 0.5% 0% - 2.6%
DIVERSIFIED BOND FUND STYLE 35% 15% - 55%
MANAGED FIXED INCOME PORTFOLIO 17.5% 7.5% - 27.5%
STRATEGIC VALUE BOND PORTFOLIO 5.8% 2.5% - 9.2%
POSITIVE RETURN BOND PORTFOLIO 11.7% 5% - 18.3%
--------------------------------------------------------------------------------------------------------------
TOTAL FUND ASSETS 100%
</TABLE>
The percentage of the Fund's assets invested in different styles may temporarily
deviate from the Fund's current allocation due to changes in market values. The
Adviser will effect transactions periodically to reestablish the current
allocation.
As market or other conditions change, the Adviser may attempt to enhance the
Fund's returns by changing the percentage of Fund assets invested in fixed
income and equity securities. The Fund also may invest in more or fewer
Portfolios or invest directly in portfolio securities. Absent unstable market
conditions, the Adviser does not anticipate making a substantial number of
percentage changes. When the Adviser believes that a change in the current
allocation percentages is desirable, it will sell and purchase securities to
effect the change. When the Adviser believes that a change will be temporary
(generally, 3 years or less), it may effect the change by using futures
contracts.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RISKS:
credit risk currency rate risk foreign risk
interest rate risk leverage risk market risk
prepayment risk small company risk
INCOME EQUITY FUND
INVESTMENT OBJECTIVE. The Fund's investment objective is to provide long-term
capital appreciation consistent with above-average dividend income.
<PAGE>
INVESTMENT POLICIES. The Fund invests primarily in the common stock of large,
high-quality domestic companies that have above-average return potential based
on current market valuations. The Fund primarily emphasizes investments in
securities of companies with above-average dividend income. In selecting
securities for the Fund, the Adviser uses various valuation measures, including
above-average dividend yields and below industry average price-to-earnings,
price-to-book, and price-to-sales ratios. The Adviser considers large companies
to be those whose Market Capitalization is greater than the median of the
Russell 1000 Index.
The Fund may invest in preferred stock, convertible securities, and securities
of foreign companies. The Fund will not normally invest more than 10% of its
total assets in the securities of a single issuer.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RISKS:
currency risk foreign risk market risk
VALUGROWTH STOCK FUND
INVESTMENT OBJECTIVE. The Fund's investment objective is to provide long-term
capital appreciation.
INVESTMENT POLICIES. The Fund invests primarily in medium- and
large-capitalization companies that, in the view of the Adviser, possess above
average growth characteristics, and appear to be undervalued. The Adviser
considers medium-capitalization companies to be those whose Market
Capitalization is in the range of $500 million to $8 billion. The Adviser
considers large companies to be those whose Market Capitalization is greater
than the median of the Russell 1000 Index.
The Fund seeks to identify and invest in those companies with earnings and
dividends that the Adviser believes will grow faster than both inflation and the
economy in general. The Fund invests in companies with growth potential that, in
the opinion of the Adviser, has not yet been fully reflected in the market price
of the companies' shares. In seeking these investments, the Adviser relies
primarily on a company-by-company analysis (rather than on a broader analysis of
industry or economic sector trends. The Adviser considers such matters as the
quality of a company's management, the existence of a leading or dominant
position in a major product line, or market, the soundness of the company's
financial position, and the maintenance of a relatively high rate of return on
invested capital and shareholder's equity. Once companies are identified as
possible investments, the Adviser applies a number of valuation measures to
determine the relative attractiveness of each company and selects those
companies whose shares are most attractively priced.
The Fund may invest in companies that the Adviser considers to be "special
situations." Special situation companies often have the potential for
significant future earnings growth but have not performed well in the recent
past. These situations may include management turnarounds, corporate or asset
restructurings, or significantly undervalued assets. These investments form a
comparatively small portion of the Fund's portfolio.
The Fund may invest up to 20% of its total assets in securities of foreign
companies. The Fund also may write covered call options and purchase call
options on equity securities to manage risk or enhance returns.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RISKS:
currency rate risk foreign risk leverage risk
market risk
DIVERSIFIED EQUITY FUND
INVESTMENT OBJECTIVE. The Fund's investment objective is to provide long-term
capital appreciation with moderate annual return volatility by diversifying its
investments among different equity investment styles.
INVESTMENT POLICIES. The Fund invests in a "multi-style" approach designed to
minimize the volatility and risk of investing in a single investment style. The
Fund currently invests in 11 Portfolios.
The Fund's investments combine 5 different equity investment styles - an index
style, an income equity style, a large company style, a diversified small cap
style, and an international style. The Fund allocates the assets dedicated to
large company investments to 2 Portfolios, the assets allocated to small company
investments to 5 Portfolios and the assets dedicated to international
investments to 2 Portfolios. Because Diversified Equity Fund blends 5 equity
investment styles, it is anticipated that its price and return volatility will
be less than that of Growth Equity Fund, which blends 3 equity investment
styles.
<PAGE>
ALLOCATION. The current allocations and ranges of investments by the Fund in
each Portfolio are:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
investment style current range of
----------------- allocation investment
------------ ------------
INDEX PORTFOLIO 25% 23.5% - 26.5%
INCOME EQUITY PORTFOLIO 25% 23.5% - 26.5%
LARGE COMPANY STYLE 25% 23.5% - 26.5%
LARGE COMPANY GROWTH PORTFOLIO 20% 18.5% - 21.5%
DISCIPLINED GROWTH PORTFOLIO 5% 3.5% - 6.5%
DIVERSIFIED SMALL CAP STYLE 10% 8.5% - 11.5%
SMALL CAP INDEX PORTFOLIO 2.0% 0.5% - 3.5%
SMALL COMPANY GROWTH PORTFOLIO 2.4% 0.9% - 3.9%
SMALL COMPANY VALUE PORTFOLIO 2.4% 0.9% - 3.9%
SMALL COMPANY STOCK PORTFOLIO 1.6% 0.1% - 3.1%
SMALL CAP VALUE PORTFOLIO 1.6% 0.1% - 3.1%
INTERNATIONAL STYLE 15% 13.5% - 16.5%
INTERNATIONAL PORTFOLIO 14.3% 10.8% - 16.5%
SCHRODER EM CORE PORTFOLIO 0.8% 0% - 3.3%
-----------------------------------------------------------------------
TOTAL FUND ASSETS 100%
</TABLE>
The percentage of Fund assets invested in each Portfolio may temporarily deviate
from the current allocations due to changes in market value. The Adviser will
effect transactions daily to reestablish the current allocations. The Adviser
may make changes in the current allocations at any time in response to market
and other conditions. The Fund also may invest in more or fewer Portfolios or
invest directly in portfolio securities.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RISKS:
currency rate risk foreign risk leverage risk
market risk small company risk
GROWTH EQUITY FUND
INVESTMENT OBJECTIVE. The Fund's investment objective is to provide a high level
of long-term capital appreciation with moderate annual return volatility by
diversifying its investments among different equity investment styles.
INVESTMENT POLICIES. The Fund invests in a "multi-style" approach designed to
reduce the volatility and risk of investing in a single equity style. The Fund
currently invests in 8 Portfolios.
The Fund's investments combine 3 different equity styles - a large company
growth style, a diversified small cap style and an international style. The Fund
allocates the assets dedicated to small company investments to 5 Portfolios and
the assets dedicated to international investments to 2 Portfolios. It is
anticipated that the Fund's price and return volatility will be somewhat greater
than those of Diversified Equity Fund, which blends 5 equity styles.
ALLOCATION. The current allocations and ranges of investments by the Fund in
each Portfolio are:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
current range of
investment style allocation investment
---------------- ---------- ----------
LARGE COMPANY GROWTH PORTFOLIO 35% 33% - 37%
DIVERSIFIED SMALL CAP STYLE 35% 33% - 37%
SMALL CAP INDEX PORTFOLIO 7.0% 5.0% - 9.0%
SMALL COMPANY GROWTH PORTFOLIO 8.4% 8.5% - 12.5%
SMALL COMPANY VALUE PORTFOLIO 8.4% 8.5% - 12.5%
SMALL COMPANY STOCK PORTFOLIO 5.6% 3.6% - 7.6%
SMALL CAP VALUE PORTFOLIO 5.6% 3.6% - 7.6%
INTERNATIONAL STYLE 30% 28% - 32%
INTERNATIONAL PORTFOLIO 28.5% 22.4% - 32.0%
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
SCHRODER EM CORE PORTFOLIO 1.5% 0% - 6.4%
---------------------------------------------------------------------------------------------------------------
TOTAL FUND ASSETS 100%
</TABLE>
The percentage of Fund assets invested in each Portfolio may temporarily deviate
from the current allocations due to changes in market values. The Adviser will
effect transactions daily to reestablish the current allocations. The Adviser
may make changes in the current allocations at any time in response to market or
other conditions. The Fund also may invest in more or fewer Portfolios or invest
directly in portfolio securities.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RISKS:
currency rate risk foreign risk leverage risk
market risk small company risk
LARGE COMPANY GROWTH FUND
INVESTMENT OBJECTIVE. The Fund's investment objective is to provide long-term
capital appreciation by investing primarily in large, high-quality domestic
companies that the Adviser believes have superior growth potential.
INVESTMENT POLICIES. The Fund invests primarily in the common stock of large,
high-quality domestic companies that have superior growth potential. The Adviser
considers large companies to be those whose Market Capitalization is greater
than the median of the Russell 1000 Index. In selecting securities for the Fund,
the Adviser seeks issuers whose stock is attractively valued with fundamental
characteristics that are significantly better than the market average and
support internal earnings growth capability. The Fund may invest in the
securities of companies whose growth potential is, in the Adviser's opinion,
generally unrecognized or misperceived by the market.
The Fund may invest up to 20% of its total assets in the securities of foreign
companies and may hedge against currency risk by using foreign currency forward
contracts. The Fund may not invest more than 10% of its total assets in the
securities of a single issuer.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RISKS:
currency risk foreign risk leverage risk
market risk
DIVERSIFIED SMALL CAP FUND
INVESTMENT OBJECTIVE. The Fund's investment objective is to provide long-term
capital appreciation with moderate annual return volatility by diversifying its
investments across different small capitalization equity investment styles.
INVESTMENT POLICIES. The Fund invests in a "multi-style" approach designed to
minimize the volatility and risk of investing in small capitalization equity
securities. The Fund invests in several different small capitalization equity
styles in order to reduce the risk of price and return volatility associated
with reliance on a single investment style. The Fund currently invests in 5
Portfolios.
ALLOCATION. The current allocations and ranges of investments by the Fund in
each Portfolio are:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
current range of
investment style allocation investment
---------------- ---------- ----------
SMALL CAP INDEX PORTFOLIO 20% 18.5% - 21.5%
SMALL COMPANY GROWTH PORTFOLIO 24% 22.5% - 25.5%
SMALL COMPANY VALUE PORTFOLIO 24% 22.5% - 25.5%
SMALL COMPANY STOCK PORTFOLIO 16% 14.5% - 17.5%
SMALL CAP VALUE PORTFOLIO 16% 14.5% - 17.5%
------------------------------------------------------------------------------------------------------------
TOTAL FUND ASSETS 100%
</TABLE>
The percentage of Fund assets invested in each Portfolio may temporarily deviate
from the current allocations due to changes in market values. The Adviser will
effect transactions daily to reestablish the current allocations. The Adviser
may make changes in the current allocations at any time in response to market
and other conditions. The Fund also may invest in more or fewer Portfolios or
invest directly in portfolio securities.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RISKS:
leverage risk market risk small company risk
SMALL COMPANY STOCK FUND
INVESTMENT OBJECTIVE. The Fund's investment objective is long-term capital
appreciation.
INVESTMENT POLICIES. The Fund invests primarily in the common stock of small-
and medium-size domestic companies that have Market Capitalizations well below
that of the average company in the S&P 500 Index. The Adviser considers small
companies to be those companies whose Market Capitalizations are less than the
largest stock in the Russell 2000 Index. The Adviser considers medium companies
to be those whose Market Capitalizations range from $500 million to $8 billion.
In selecting securities for the Fund, the Adviser seeks securities with
significant price appreciation potential and attempts to identify companies that
show above-average growth, as compared to long-term overall market growth. The
Fund invests in companies that may be in a relatively early stage of development
or may produce goods and services that have favorable prospects for growth due
to increasing demand or developing markets. Frequently, such companies have a
small management group and single product or product line expertise, which, in
the view of the Adviser, may result in an enhanced entrepreneurial spirit and
greater focus. The Adviser believes that such companies may develop into
significant business enterprises and that an investment in these companies
offers a greater opportunity for capital appreciation than an investment in
larger, more established companies.
The Fund may invest up to 20% of its total assets in the securities of foreign
companies. The Fund may also write covered call options and purchase call
options on equity securities to manage risk or enhance returns.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RISKS:
currency risk foreign risk market risk
small company risk
SMALL CAP OPPORTUNITIES FUND
INVESTMENT OBJECTIVE. The Fund's investment objective is to provide capital
appreciation. Current income will be incidental to the objective of capital
appreciation.
INVESTMENT POLICIES. The Fund invests primarily in equity securities of U.S.
companies that, at the time of purchase, have Market Capitalizations of $1.5
billion or less.
The Adviser attempts to identify securities of companies that it believes can
generate above-average earnings growth and sell at favorable prices in relation
to book values and earnings. The Adviser's assessment of a company's
management's competence will be an important consideration. These criteria are
not rigid and the Fund may make other investments to achieve its objective.
The Fund will invest principally in equity securities, including common stocks,
securities convertible into common stocks, or, subject to special limitations,
rights or warrants to subscribe for or purchase common stocks. The Fund also may
invest to a limited degree in non-convertible debt securities and preferred
stocks.
The Fund may use options and futures contracts to manage risk. The Fund also may
use options to enhance return.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RISKS:
leverage risk market risk small company risk
INTERNATIONAL FUND
INVESTMENT OBJECTIVE. The Fund's investment objective is to provide long-term
capital appreciation by investing directly or indirectly in high-quality
companies based outside the United States.
<PAGE>
INVESTMENT POLICIES. The Fund invests in a "multi-style" approach designed to
minimize the volatility and risk of investing in international securities. The
Fund's investment portfolio combines 2 different investment styles - an
international equity investment style and an international emerging markets
investment style. The Fund invests in 2 Portfolios.
ALLOCATION. The current allocations and ranges of investments by the Fund in
each Portfolio are:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
CURRENT RANGE OF
INVESTMENT STYLE ALLOCATION INVESTMENT
INTERNATIONAL PORTFOLIO 95% 80% - 100%
SCHRODER EM CORE PORTFOLIO 5% 0% - 20%
----------------------------------------------------------------------------------------------------------
TOTAL FUND ASSETS 100%
</TABLE>
The percentage of Fund assets invested in each Portfolio may temporarily deviate
from the current allocations due to changes in market values. The Adviser will
effect transactions daily to reestablish the current allocations. The Adviser
may make changes in the current allocations at any time in response to market
and other conditions. The Fund also may invest in more or fewer Portfolios or
invest directly in portfolio securities.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[RISK ICON]
credit risk currency rate risk leverage risk
geographic concentration risk interest rate risk
market risk foreign risk
- --------------------------------------------------------------------------------
DESCRIPTIONS OF PORTFOLIOS
- --------------------------------------------------------------------------------
POSITIVE RETURN BOND PORTFOLIO
The Portfolio seeks positive total return each calendar year regardless of
general bond market performance by investing in a portfolio of U.S. Government
Securities and corporate fixed income securities. The Portfolio's assets are
divided into 2 components, short bonds with maturities (or average life) of 2
years or less and long bonds with maturities of 25 years or more. Shifts between
short bonds and long bonds are made based on movement in the prices of bonds
rather than on the Adviser's forecast of interest rates. During periods of
falling prices (generally, increasing interest rate environments) long bonds are
sold to protect capital and limit losses. Conversely, when bond prices rise,
long bonds are purchased. The average dollar-weighted maturity of the Portfolio
will vary between 1 and 30 years.
Under normal circumstances, the Portfolio invests at least 50% of its net assets
in U.S. Government Securities, including U.S. Treasury Securities. The Portfolio
only purchases securities that are rated, at the time of purchase, within 1 of
the 2 highest long-term rating categories assigned by an NRSRO or that are
unrated and determined by the Adviser to be of comparable quality. The Portfolio
may invest up to 25% of its assets in securities rated in the second highest
rating category. The Portfolio does not invest more than 25% of its total assets
in zero-coupon securities, securities with variable or floating rates of
interest or asset-backed securities.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RISKS:
credit risk interest rate risk
market risk leverage risk
MANAGED FIXED INCOME PORTFOLIO
The Portfolio seeks consistent fixed income returns by investing primarily in
Investment Grade intermediate-term securities. The Portfolio invests in a
diversified portfolio of fixed and variable rate U.S. dollar-denominated, fixed
income securities of a broad spectrum of U.S. and foreign issuers, including
U.S. Government Securities and the debt securities of financial institutions,
corporations, and others. The Adviser emphasizes the use of intermediate
maturity securities to lessen Duration and employs low risk yield enhancement
techniques to enhance return over a complete economic or interest rate cycle.
The Adviser considers intermediate-term securities to be those with maturities
of between 2 and 20 years.
The Portfolio will limit its investment in mortgage-backed securities to not
more than 65% of its total assets and its investment in other asset-backed
securities to not more than 25% of its net assets. In addition, the Portfolio
may not invest more than 30% of its total assets in
<PAGE>
the securities issued or guaranteed by any single agency or instrumentality of
the U.S. Government, except the U.S. Treasury.
The Portfolio only purchases Investment Grade securities. The Portfolio invests
in debt securities with maturities (or average life in the case of
mortgage-backed and similar securities) ranging from overnight to 30 years. The
Portfolio normally will have an average dollar-weighted portfolio maturity of
between 3 and 12 years and a Duration of between 2 and 6 years.
The Portfolio also may invest up to 10% of its total assets in securities issued
or guaranteed by foreign governments the Adviser deems stable, or their
subdivisioins, agencies, or instrumentalities; loan or security participations;
securities of supranational organizations; and municipal securities.
The Portfolio may use options, swap agreements, interest rate caps, floors, and
collars and futures contracts to manage risk. The Portfolio also may use options
to enhance return.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RISKS:
credit risk foreign risk interest rate risk
leverage risk market risk prepayment risk
STRATEGIC VALUE BOND PORTFOLIO
The Portfolio seeks total return by investing primarily in income producing
securities. The Portfolio invests in a broad range of fixed income instruments
in order to create a strategically diversified portfolio of fixed income
investments. These investments include corporate bonds, mortgage- and other
asset-backed securities, U.S. Government Securities, preferred stock,
convertible bonds and foreign bonds.
The Adviser focuses on relative value as opposed to predicting the direction of
interest rates. In general, the Portfolio seeks higher current income
instruments such as corporate bonds and mortgage-and other asset-backed
securities in order to enhance returns. The Adviser believes that this exposure
enhances performance in varying economic and interest rate cycles and avoids
excessive risk concentrations. The Adviser's investment process involves
rigorous evaluation of each security, including identifying and valuing cash
flows, embedded options, credit quality, structure, liquidity, marketability,
current versus historical trading relationships, supply and demand for the
instrument, and expected returns in varying economic/interest rate environments.
The Adviser uses this process to seek to identify securities which represent the
best relative economic value. The Adviser then evaluates the results of the
investment process against the Portfolio's objective and purchases those
securities that are consistent with the Portfolio's investment objective.
The Portfolio particularly seeks strategic diversification. The Portfolio will
not invest more than:
* 75% of its total assets in corporate bonds;
* 65% of its total assets in mortgage-backed securities;
* 50% of its total assets in asset-backed securities; or
* 25% of its total assets in a single industry of the corporate market.
The Portfolio may invest in U.S. Government Securities without restriction. The
Portfolio generally will not invest more than 5% of its total assets in the
corporate bonds of any single issuer.
The Portfolio will invest 65% of its total assets in fixed-income securities
rated, at the time of purchase, within the 3 highest rating categories assigned
by at least 1 NRSRO, or which are unrated and determined by the Adviser to be of
comparable quality. The Portfolio may invest up to 20% of its total assets in
Non-Investment Grade securities.
The average maturity of the Portfolio will vary between 5 and 15 years. In the
case of mortgage-backed and similar securities, the Portfolio uses the
security's average life in calculating the Portfolio's average maturity. The
Portfolio's Duration normally will vary between 3 and 8 years.
The Portfolio may use options, swap agreements, interest rate caps, floors, and
collars and futures contracts to manage risk. The Portfolio also may use options
to enhance return.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RISKS:
credit risk interest rate risk leverage risk
market risk prepayment risk
INDEX PORTFOLIO
The Portfolio is designed to replicate the return of the S&P 500 Index with
minimum tracking error and to minimize transaction costs. Under normal
circumstances, the Portfolio holds stocks representing 100% of the
capitalization-weighted market values of the S&P 500 Index. The Adviser
generally executes portfolio transactions for the Portfolio only to replicate
the composition of the S&P 500 Index, to invest cash received from portfolio
security dividends or investments in the Portfolio, and to raise cash to fund
redemptions. The Portfolio may hold cash or cash equivalents to facilitate
payment of the Portfolio's expenses or redemptions and may invest in index
futures contracts to a limited extent. For these and other reasons, the
Portfolio's performance can be expected to approximate but not equal the S&P 500
Index.
The S&P 500 Index tracks the total return performance of 500 common stocks which
are chosen for inclusion in the S&P 500 Index by S&P on a statistical basis. The
500 securities, most of which trade on the New York Stock Exchange, represent
approximately 70% of the total market value of all U.S. common stocks. Each
stock in the S&P 500 Index is weighted by its market value. Because of the
market-value weighting, the 50 largest companies in the S&P 500 Index currently
account for approximately 47% of its value. The S&P 500 Index emphasizes large
capitalizations and, typically, companies included in the S&P 500 Index are the
largest and most dominant firms in their respective industries.
S&P does not sponsor, sell, promote, or endorse the Portfolio. S&P does not
warrant that the S&P 500 Index is a good investment, is accurate or complete, or
will track general stock market performance.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RISKS:
market risk index risk
INCOME EQUITY PORTFOLIO
The Income Equity Fund section of this prospectus describes this Portfolio.
LARGE COMPANY GROWTH PORTFOLIO
The Large Company Growth Fund section of this prospectus describes this
Portfolio.
DISCIPLINED GROWTH PORTFOLIO
The Portfolio seeks capital appreciation by investing in common stocks of larger
companies. The Portfolio seeks higher long-term returns by investing primarily
in the common stock of companies that, in the view of the Adviser, possess above
average potential for growth. The Portfolio invests in companies with average
Market Capitalizations greater than $5 billion.
The Portfolio seeks to identify growth companies that will report a level of
corporate earnings that exceed the level expected by investors. In seeking these
companies, the Adviser uses both quantitative and fundamental analysis. The
Adviser may consider, among other factors, changes of earnings estimates by
investment analysts, the recent trend of company earnings reports, and an
analysis of the fundamental business outlook for the company. The Adviser uses a
variety of valuation measures to determine whether or not the share price
already reflects any positive fundamentals identified by the Adviser. In
addition to approximately equal weighting of portfolio securities, the Adviser
attempts to constrain the variability of the investment returns by employing
risk control screens for price volatility, financial quality, and valuation.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RISKS:
market risk
SMALL CAP INDEX PORTFOLIO
The Portfolio seeks to replicate the return of the S&P Small Cap 600 Index with
minimum tracking error and to minimize transaction costs. Under normal
circumstances, the Portfolio will hold stocks representing 100% of the
capitalization-weighted market values of the S&P 600 Small Cap Index. The
Adviser generally executes portfolio transactions only to replicate the
composition of the S&P 600 Small Cap Index, to invest cash received from
portfolio security dividends or investments in the Portfolio, and to raise cash
to fund redemptions. The Fund may hold cash or cash equivalents to facilitate
payment of the Fund's expenses or redemptions and may invest in index futures
contracts. For these and other reasons, the Portfolio's performance can be
expected to approximate but not equal that of the S&P 600 Small Cap Index.
The S&P 600 Small Cap Index tracks the total return performance of 600 common
stocks which are chosen for inclusion in the S&P 600 Small Cap Index by S&P on a
statistical basis. The 600 securities, most of which trade on the New York Stock
Exchange, represent 4% of the total market value of all U.S. common stocks. Each
stock in the S&P 600 Small Cap Index is weighted by its market value. The S&P
600 Small Cap Index emphasizes smaller capitalizations and typically, companies
included in the S&P 600 Small Cap Index may not be the largest nor most dominant
firms in their respective industries.
S&P does not sponsor, sell, promote, or endorse the Portfolio. S&P does not
warrant that the S&P 600 Small Cap Index is a good investment, is accurate or
complete, or will track general stock market performance.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RISKS:
leverage risk market risk index risk
SMALL COMPANY STOCK PORTFOLIO
The Small Company Stock Fund section of this prospectus describes this
Portfolio.
SMALL COMPANY GROWTH PORTFOLIO
The Portfolio seeks to provide long-term capital appreciation by investing in
smaller domestic companies. The Portfolio invests primarily in the common stock
of small and medium-sized domestic companies that are either growing rapidly or
completing a period of significant change. Small companies are those companies
whose Market Capitalization is less than the largest stock in the Russell 2000
Index.
In selecting securities for the Portfolio, the Adviser seeks to identify
companies that are rapidly growing (usually with relatively short operating
histories) or that are emerging from a period of investor neglect by undergoing
a dramatic change. These changes may involve a sharp increase in earnings, the
hiring of new management, or measures taken to close the gap between share
price, and takeover/asset value.
The Portfolio will invest up to 10% of its total assets in securities of foreign
companies. The Portfolio will not invest more than 5% of its total assets in
the securities of a single issuer.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RISKS:
Currency risk foreign risk market risk
small company risk
SMALL COMPANY VALUE PORTFOLIO
The Portfolio seeks to provide long-term capital appreciation by investing
primarily in smaller companies whose Market Capitalization is less than the
largest stock in the Russell 2000 Index or approximately $1.4 billion. The
Adviser focuses on securities that are conservatively valued in the marketplace
relative to the stock of comparable companies, determined by price/earnings
ratios, cash flows, or other measures. Value investing provides investors with a
less aggressive way to take advantage of growth opportunities of small
companies. Value investing may reduce downside risk and offer potential for
capital appreciation as a stock gains favor among other
<PAGE>
investors and its stock price rises.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RISKS:
market risk small company risk
SMALL CAP VALUE PORTFOLIO
The Portfolio seeks capital appreciation by investing in common stocks of
smaller companies. The Portfolio will normally invest substantially all of its
assets in securities of companies with Market Capitalizations that reflect the
Market Capitalization of companies included in the Russell 2000 Index. The
Portfolio seeks higher growth rates and greater long-term returns by investing
primarily in the common stock of smaller companies that the Adviser believes to
be undervalued and likely to report a level of corporate earnings exceeding the
level expected by investors. The Adviser values companies based upon both the
price-to-earnings ratio of the company, and a comparison of the public market
value of the company to a proprietary model that values the company in the
private market. In seeking companies that will report a level of earnings
exceeding that expected by investors, the Adviser uses both quantitative and
fundamental analysis. Among other factors, the Adviser considers changes of
earnings estimates by investment analysts, the recent trend of company earnings
reports and the fundamental business outlook for the company.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RISKS:
market risk small company risk
INTERNATIONAL PORTFOLIO
The Portfolio seeks to provide long-term capital appreciation by investing
directly or indirectly in high-quality companies based outside the United
States. The Portfolio selects its investments on the basis of their potential
for capital appreciation without regard to current income. The Portfolio also
may invest in the securities of domestic closed-end investment companies that
invest primarily in foreign securities and may invest in debt securities of
foreign governments or their political subdivisions, agencies, or
instrumentalities, of supranational organizations, and of foreign corporations.
The Portfolio's investments are generally diversified among securities of
issuers in foreign countries including, but not limited to, Japan, Germany, the
United Kingdom, France, the Netherlands, Hong Kong, Singapore, and Australia. In
general, the Portfolio will invest only in securities of companies and
governments in countries that the Adviser, in its judgment, considers both
politically and economically stable. The Fund may invest more than 25% of its
total assets in investments in a particular country, region or type of
investment.
The Portfolio may purchase preferred stock and convertible debt securities,
including convertible preferred stock. The Portfolio also may enter into foreign
exchange contracts, including forward contracts to purchase or sell foreign
currencies, in anticipation of its currency requirements and to protect against
possible adverse movements in foreign exchange rates.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[RISK ICON]
credit risk currency rate risk leverage risk
geographic concentration risk interest rate risk
market risk foreign risk
SCHRODER EM CORE PORTFOLIO
The Portfolio seeks to achieve long-term capital appreciation through direct or
indirect investment in equity and debt securities of companies in emerging
market countries in regions such as Southeast Asia, Latin America, and Eastern
and Southern Europe. Current income is incidental to the Portfolio's objective.
The Portfolio may invest, under normal market conditions, at least 65% of its
total assets in emerging market equity and debt securities, including
convertible securities and stock rights and warrants.
<PAGE>
The Adviser considers "emerging market" countries generally to be all those
countries not included in the Morgan Stanley Capital International World Index
("MSCI World") of major world economies. If the Adviser determines that the
economy of a MSCI World-listed country is an emerging market economy, the
Adviser may include such country in the emerging market category. The Portfolio
will not necessarily seek to diversify investments on a geographic basis and may
invest more than 25% of its total assets in issuers located in a single country.
The Fund may invest up to 35% of its total assets in Non-Investment Grade fixed
income securities. The Fund may enter into foreign exchange contracts, including
forward contracts, in anticipation of its currency requirements and to protect
against possible adverse movements in foreign exchange rates.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RISKS:
credit risk currency rate risk foreign risk
geographic concentration risk interest rate risk leverage risk
market risk prepayment risk
5. RISK CONSIDERATIONS
This section describes the principal risks that may apply to the Funds. Each
Fund's exposure to these risks depends upon its specific investment profile. The
Fund's description in Investment Objectives and Policies lists the Fund's
principal risks.
CREDIT RISK
The risk that the issuer of a security, or the counterparty to a contract, will
default or otherwise be unable to honor a financial obligation. This risk is
greater for Non-Investment Grade securities.
CURRENCY RATE RISK
The risk that fluctuations in the exchange rates between the U.S. dollar and
foreign currencies may negatively affect a Fund's investments.
FOREIGN INVESTMENT RISK
The risk that foreign investments may be subject to political and economic
instability, the imposition or tightening of exchange controls or other
limitations on repatriation of foreign capital, or nationalization, increased
taxation or confiscation of investors' assets. Also, the risk that the price of
a foreign issuer's securities may not reflect the issuer's condition because
there is not sufficient publicly available information about the issues. This
risk may be greater for investments in issuers in emerging or developing
markets.
GEOGRAPHIC CONCENTRATION RISK
The risk that factors adversely affecting a Fund's investments in issuers
located in a state, country, or region will affect the Fund's net asset value
more than would be the case if the Fund had made more geographically diverse
investments.
INDEX RISK
The risk that a Fund designed to replicate the performance of an index of
securities will replicate the performance of the index during adverse market
conditions because the portfolio manager is not permitted to take a temporary
defensive position or otherwise vary the Fund's investments to respond to the
adverse market conditions.
INTEREST RATE RISK
The risk that changes in interest rates may affect the value of your investment.
With fixed-rate securities, including U.S. Government Securities, an increase in
interest rates typically causes the value of a Fund's securities to fall, while
a decline in interest rates may produce an increase in the market value of the
securities. Because of this risk, an investment in a Fund that invests in fixed
income securities is subject to risk even if all the fixed income securities in
the Fund's portfolio are paid in full at maturity. Changes in interest rates
will affect the value of longer-term fixed income securities more than
shorter-term securities.
<PAGE>
LEVERAGE RISK
The risk that some transactions may multiply smaller market movements into large
changes in a Fund's net asset value. This risk may occur when a Fund borrows
money or enters into transactions that have a similar economic effect, such as
short sales or forward commitment transactions. This risk also may occur when a
Fund makes investments in derivatives, such as options or futures contracts.
MARKET RISK
The risk that the market value of a Fund's investments will fluctuate as the
stock and bond markets fluctuate generally. Market risk may affect a single
issuer, industry, or section of the economy or may affect the market as a whole.
PREPAYMENT RISK
The risk that issuers will prepay fixed rate securities when interest rates
fall, forcing the Fund to invest in securities with lower interest rates than
the prepaid securities. For a Fund investing in mortgage- and other asset-backed
securities, this is also the risk that a decline in interest rates may result in
holders of the assets backing the securities to prepay their debts, resulting in
potential losses in these securities' values and yield. Alternatively, rising
interest rates may reduce the amount of prepayments on the assets backing these
securities, causing the Fund's average maturity to rise and increasing the
Fund's sensitivity to rising interest rates and potential for losses in value.
SMALL COMPANY RISK
The risk that investments in smaller companies may be more volatile than
investments in larger companies. Smaller companies may have higher failure rates
than larger companies. A small company's securities may be hard to sell because
the trading volume of the securities of smaller companies is normally lower than
that of larger companies. Short term changes in the demand for the securities of
smaller companies may have a disproportionate effect on their market price,
tending to make prices of these securities fall more in response to selling
pressure.
6. COMMON POLICIES
Except as otherwise indicated, the Board may change the Funds' investment
policies without shareholder approval. The Funds' investment objectives are
Fundamental.
VOTING ISSUES
In determining the outcome of shareholder votes, Norwest Advantage Funds
normally counts votes on a share-by-share basis. This means that shareholders of
Funds with comparatively high net asset values will have a comparatively smaller
impact on the outcome of votes by all of the Funds than do shareholders of Funds
with comparatively low net asset values.
DOWNGRADED SECURITIES
Each Fund may retain a security whose rating has been lowered (or a security of
comparable quality to a security whose rating has been lowered) below the Fund's
lowest permissible rating category if the Fund's Adviser determines that
retaining the security is in the best interests of the Fund. Because a downgrade
often results in a reduction in the market price of the security, sale of a
downgraded security may result in a loss.
TEMPORARY DEFENSIVE POSITION
To respond to adverse market, economic, political, or other conditions, each
Fund may assume a temporary defensive position and invest without limit in cash
and cash equivalents. When a Fund makes temporary defensive investments, it may
not pursue its investment objective and is likely that its shareholders may be
subject to federal and applicable state incoome taxes on a greater portion of
the fund's income distributions.
PORTFOLIO TURNOVER
From time to time, a Fund may engage in active short-term trading to take
advantage of price movements affecting individual issues, groups of issues, or
markets. Higher portfolio turnover rates may result in increased brokerage costs
and a possible increase in short-term capital gains or losses. The FINANCIAL
HIGHLIGHTS table lists the Funds' portfolio turnover rate.
YEAR 2000 AND EURO
The Funds could be adversely affected if the computer systems used by the
Advisers and other service providers (and in particular, foreign service
providers) to the Funds do not properly process and calculate date-related
information and data from and after January 1, 2000 or information regarding the
new common currency of the European Union. The Year 2000 and Euro issues also
may adversely affect the Funds' investments.
Norwest and Forum Financial Group are taking steps to address the Year 2000 and
Euro issues for their computer systems and to obtain reasonable assurances that
comparable steps are being taken by the Funds' other major service providers.
While the Funds do not anticipate any adverse effect on their computer systems
from the Year 2000 and Euro issues, there can be no assurance that these steps
will be sufficient to avoid any adverse impact on the Funds.
7. MANAGEMENT OF THE FUNDS
INVESTMENT ADVISORY SERVICES
NORWEST INVESTMENT MANAGEMENT, INC. is the investment adviser for each Fund and
each Portfolio except the Portfolios advised by Schroder. In this capacity,
Norwest makes investment decisions for and administers the Funds' and
Portfolios' investment programs. Norwest Investment Management, Inc.'s address
is Norwest Center, Sixth Street and Marquette, Minneapolis, MN 55479.
SCHRODER CAPITAL MANAGEMENT INTERNATIONAL INC. is the investment adviser for the
Schroder U.S. Smaller Companies Portfolio, International Portfolio, and Schroder
EM Core Portfolio. In this capacity, Schroder makes investment decisions for and
administers those Portfolios' investment programs.
Schroder Capital Management International Inc.'s address is 787 Seventh Avenue,
34th Floor, New York, NY 10019.
Norwest and certain of the Funds and the Portfolios have retained investment
subadvisers to make investment decisions for and administer the investment
programs of those Funds and Portfolios. Norwest decides which portion of the
assets of a Fund or Portfolio the subadviser should manage and supervises the
subadvisers' performance of their duties. The subadvisers are:
CRESTONE CAPITAL MANAGEMENT, INC. or CRESTONE, AN INVESTMENT ADVISORY SUBSIDIARY
OF NORWEST BANK, PROVIDES INVESTMENT ADVICE REGARDING COMPANIES WITH SMALL
MARKET CAPITALIZATION TO VARIOUS CLIENTS, INCLUDING INSTITUTIONAL INVESTORS.
Crestone Capital Management, Inc.'s address is 7720 East Bellview Avenue, Suite
220, Englewood, CO 80111.
GALLIARD CAPITAL MANAGEMENT, INC. OR GALLIARD, an investment Advisory
subsidiary of Norwest Bank, provides investment advisory services to bank and
thrift institutions, pension and profit sharing plans, trusts and charitable
organizations, and corporate and other business entities. Galliard Capital
Management, Ins.'s address is 800 Lasalle Avenue, Suite 2060, Minneapolis, MN
55479.
PEREGRINE CAPITAL MANAGEMENT, INC. or PEREGRINE, an investment advisory
subsidiary of Norwest Bank, provides investment advisory services to corporate
and public pension plans; profit sharing plans; savings-investment plans, and
401(K) Plans. Peregrine Capital Management Inc.'s address is Lasalle Plaza, 800
Lasalle Avenue., Suite 1850, Minneapolis, MN 55402.
SMITH ASSET MANAGEMENT GROUP, L.P. OR SMITH, an investment advisory affiliate of
Norwest Bank, provides investment management services to company retirement
plans, foundations, endowments, trust companies, and high net worth individuals
using a disciplined equity style. Smith Asset Management Group, L.P.'S Address
is 300 Crescent Court, Suite 750, Dallas, TX 75201.
Listed below, for each Fund, are the portfolio managers primarily
responsible for the day-to-day management of the Funds' investments. The
year a portfolio manager began managing a Fund or Portfolio follows the
manager's name in parenthesis. The list includes the investment advisory
fees payable to Norwest or Schroder by the Fund and by any Portfolios in
which it invests. The list states the investment advisory fees on an
annualized basis as a percentage of a Fund's or Portfolio's average daily
net assets. Descriptions of the portfolio managers' recent experience
follow the list of portfolio managers and advisory fees.
How investment advisory fees are paid depends on whether or not a Fund invests
in Portfolios.
<PAGE>
* If a Fund invests directly in a portfolio of securities, Norwest receives
an investment advisory fee directly from the Fund.
* If a Fund invests in a single Portfolio, Norwest or Schroder receives an
investment advisory fee from the Portfolio.
* If a Fund invests in more than 1 Portfolio, Norwest or Schroder receives an
investment advisory fee from each of those Portfolios. In addition, Norwest
receives a fee from each Fund for the "asset allocation services" of
determining the Funds' investments in the Portfolios and how much of the
Fund's assets to invest in each Portfolio.
If a Fund invests in more than 1 Portfolio, the total amount of the investment
advisory fee paid to Norwest or Schroder as a result of the Fund's investments
varies depending on how much of the Fund's assets are invested in and the
investment advisory fee payable to each Portfolio.
Norwest (and not the Funds or Portfolios) pays the subadvisers' investment
subadvisory fees. The investment subadvisory fees do not increase the amount of
the investment advisory fees paid to Norwest by the Funds or Portfolios.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
GROWTH BALANCED FUND
FUND ADVISORY FEE: 0.25%
PORTFOLIO: POSITIVE RETURN BOND PORTFOLIO
SUBADVISER: PEREGRINE
PORTFOLIO MANAGERS: William D. Giese, CFA (1994) and Patricia Burns (1998).
ADVISORY FEE: 0.35%
PORTFOLIO: STRATEGIC VALUE BOND PORTFOLIO
SUBADVISER: GALLIARD
PORTFOLIO MANAGERS: Richard Merriam, CFA (1997), John Huber (1998), and David Yim
(1998).
ADVISORY FEE: 0.50%
PORTFOLIO: MANAGED FIXED INCOME PORTFOLIO
SUBADVISER: GALLIARD
PORTFOLIO MANAGERS: Richard Merriam, CFA (1995) and Ajay Mirza (1998).
ADVISORY FEE: 0.35%
PORTFOLIO: INDEX PORTFOLIO
PORTFOLIO MANAGERS: David D. Sylvester (1996) and Laurie R. White (1996).
ADVISORY FEE: 0.15%
PORTFOLIO: INCOME EQUITY PORTFOLIO
PORTFOLIO MANAGER: David L. Roberts, CFA (1994).
ADVISORY FEE: 0.50%
PORTFOLIO: LARGE COMPANY GROWTH PORTFOLIO
SUBADVISER: PEREGRINE
PORTFOLIO MANAGERS: John S. Dale, CFA (1994) and Gary E. Nussbaum, CFA (1998).
ADVISORY FEE: 0.65%
PORTFOLIOS: DISCIPLINED GROWTH PORTFOLIO AND SMALL CAP VALUE PORTFOLIO
SUBADVISER: SMITH
PORTFOLIO MANAGER: Stephen S. Smith, CFA (1997)
ADVISORY FEE: DISCIPLINED GROWTH PORTFOLIO: 0.90%
SMALL CAP VALUE PORTFOLIO: 0.95%
PORTFOLIO: SMALL CAP INDEX PORTFOLIO
PORTFOLIO MANAGERS: David D. Sylvester (1998) and Laurie R. White (1998).
ADVISORY FEE: 0.25%
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
PORTFOLIO: SMALL COMPANY GROWTH PORTFOLIO
SUBADVISER: PEREGRINE
PORTFOLIO MANAGERS: Robert B. Mersky, CFA (1994) and Paul E. von Kuster, CFA (1998).
ADVISORY FEE: 0.90%
PORTFOLIO: SMALL COMPANY VALUE PORTFOLIO
SUBADVISER: PEREGRINE
PORTFOLIO MANAGERS: Tasso H. Coin, Jr. (1995) and Douglas G. Pugh (1997).
ADVISORY FEE: 0.90%
PORTFOLIO: SMALL COMPANY STOCK PORTFOLIO
SUBADVISER: CRESTONE
PORTFOLIO MANAGER: Kirk McCown, CFA (1993).
ADVISORY FEE: 0.90%
PORTFOLIO: INTERNATIONAL PORTFOLIO
ADVISER: SCHRODER
PORTFOLIO MANAGER: Michael Perelstein (1997)
ADVISORY FEE: 0.45%
PORTFOLIO: SCHRODER EM CORE PORTFOLIO
ADVISER: SCHRODER
PORTFOLIO MANAGERS: John A. Troiano (1997), Heather Crighton (1997), and Mark
Bridgeman (1997)
ADVISORY FEE: 1.00%
</TABLE>
<TABLE>
<S> <C> <C>
THE EQUITY FUNDS
INCOME EQUITY FUND
PORTFOLIO: INCOME EQUITY PORTFOLIO
PORTFOLIO MANAGER: David L. Roberts, CFA (1994) and Gary J.Dunn (1994).
ADVISORY FEE: 0.50%.
VALUGROWTH STOCK FUND
PORTFOLIO MANAGER: David S. Lunt, CFA (1996)
ADVISORY FEE: 0.80% - first $300 million; 0.76% - next $400 million; 0.72% -
remaining.
DIVERSIFIED EQUITY FUND
GROWTH EQUITY FUND
FUND ADVISORY FEE: 0.25%
PORTFOLIO: INDEX PORTFOLIO (DIVERSIFIED EQUITY FUND ONLY)
PORTFOLIO MANAGERS: David D. Sylvester (1996) and Laurie R. White (1996)
ADVISORY FEE: 0.15%
PORTFOLIO: INCOME EQUITY PORTFOLIO (DIVERSIFIED EQUITY FUND ONLY)
PORTFOLIO MANAGER: David L. Roberts, CFA (1994)and Gary J. Dunn (1994)
ADVISORY FEE: 0.50%
PORTFOLIO: LARGE COMPANY GROWTH PORTFOLIO
SUBADVISER: PEREGRINE
PORTFOLIO MANAGERS: John S. Dale, CFA (1994) and Gary E. Nussbaum, CFA (1998)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
ADVISORY FEE: 0.65%
PORTFOLIOS: DISCIPLINED GROWTH PORTFOLIO (DIVERSIFIED EQUITY FUND ONLY) AND
SMALL CAP VALUE PORTFOLIO
SUBADVISER: SMITH
PORTFOLIO MANAGER: Stephen S. Smith (1997)
ADVISORY FEE: Disciplined Growth Portfolio: 0.90%
Small Cap Value Portfolio 0.95%
PORTFOLIO: SMALL CAP INDEX PORTFOLIO
PORTFOLIO MANAGERS: David D. Sylvester (1998) and Laurie R. White (1998)
ADVISORY FEE: 0.25%
PORTFOLIO: SMALL COMPANY GROWTH PORTFOLIO
SUBADVISER: PEREGRINE
PORTFOLIO MANAGERS: Robert B. Mersky, CFA (1994) and Paul E. von Kuster, CFA (1998)
ADVISORY FEE: 0.90%
PORTFOLIO: SMALL COMPANY VALUE PORTFOLIO
SUBADVISER: PEREGRINE
PORTFOLIO MANAGERS: Tasso H. Coin, Jr. (1995) and Douglas G. Pugh (1997)
ADVISORY FEE: 0.90%
PORTFOLIO: SMALL COMPANY STOCK PORTFOLIO
SUBADVISER: CRESTONE
PORTFOLIO MANAGER: Kirk McCown, CFA (1993)
ADVISORY FEE: 0.90%
PORTFOLIO: INTERNATIONAL PORTFOLIO
ADVISER: SCHRODER
PORTFOLIO MANAGER: Michael Perelstein (1997)
ADVISORY FEE: 0.45%
PORTFOLIO: SCHRODER EM CORE PORTFOLIO
ADVISER: SCHRODER
PORTFOLIO MANAGERS: John A. Troiano (1997), Heather Crighton (1997), and Mark
Bridgeman (1997)
ADVISORY FEE: 1.00%
LARGE COMPANY GROWTH FUND
PORTFOLIO: LARGE COMPANY GROWTH PORTFOLIO
SUBADVISER: PEREGRINE
PORTFOLIO MANAGER: John S. Dale, CFA (1994) and Gary E. Nussbaum, CFA (1998)
ADVISORY FEE: 0.65%
DIVERSIFIED SMALL CAP FUND
FUND ADVISORY FEE: 0.25%
PORTFOLIO: SMALL CAP INDEX PORTFOLIO
PORTFOLIO MANAGERS: David D. Sylvester (1998) and Laurie R. White (1998)
ADVISORY FEE: 0.25%
PORTFOLIO: SMALL COMPANY GROWTH PORTFOLIO
SUBADVISER: PEREGRINE
PORTFOLIO MANAGERS: Robert B. Mersky, CFA (1994) and Paul E. von Kuster, CFA (1998)
ADVISORY FEE: 0.90%
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
PORTFOLIO: SMALL COMPANY VALUE PORTFOLIO
SUBADVISER: PEREGRINE
PORTFOLIO MANAGERS: Tasso H. Coin, Jr. (1995) and Douglas G. Pugh (1998)
ADVISORY FEE: 0.90%
PORTFOLIO: SMALL COMPANY STOCK PORTFOLIO
SUBADVISER: CRESTONE
PORTFOLIO MANAGER: Kirk McCown, CFA (1993).
ADVISORY FEE: 0.90%.
PORTFOLIOS: DISCIPLINED GROWTH PORTFOLIO AND SMALL CAP VALUE PORTFOLIO
SUBADVISER: SMITH
PORTFOLIO MANAGER: Stephen S. Smith, CFA (1997)
ADVISORY FEE: Disciplined Growth Portfolio: 0.90%
Small Cap Value Portfolio: 0.95%
SMALL COMPANY STOCK FUND
PORTFOLIO: SMALL COMPANY STOCK PORTFOLIO
SUBADVISER: CRESTONE
PORTFOLIO MANAGER: Kirk McCown, CFA (1993)
ADVISORY FEE: 0.90%
SMALL CAP OPPORTUNITIES FUND
PORTFOLIO: SCHRODER U.S. SMALLER COMPANIES PORTFOLIO
ADVISER: SCHRODER
PORTFOLIO MANAGER: Ira Unschuld (1998)
ADVISORY FEE: 0.60%
INTERNATIONAL FUND
FUND ADVISORY FEE: 0.25%
PORTFOLIO: INTERNATIONAL PORTFOLIO
ADVISER: SCHRODER
PORTFOLIO MANAGER: Michael Perelstein (1997)
ADVISORY FEE: 0.45%
PORTFOLIO: SCHRODER EM CORE PORTFOLIO
ADVISER: SCHRODER
PORTFOLIO MANAGER: John A. Troiano (1997) Heather Crighton (1997) and Mark
Bridgeman (1997)
ADVISORY FEE: 1.00%
</TABLE>
PORTFOLIO MANAGERS
Norwest Portfolio Managers:
PATRICIA BURNS, associated with Norwest of its affiliates since 1983. Ms. BUrns
is a Senior Vice President of Peregrine and has been a portfolio manager at
Peregrine for more than ten years.
TASSO H. COIN, JR., associated with Norwest or its affiliates since 1995. Mr.
Coin has been a Senior Vice President of Peregrine since 1995. From 1992 to
1995, Mr. Coin was a research officer at Lord Asset Management.
JOHN S. DALE, associated with Norwest or its affiliates since 1968. Mr. Dale is
a Senior Vice President of Peregrine.
GARY J. DUNN, associated with Norwest or its affiliates since 1979. Mr. Dunn is
a Director of Institutional Investments of Norwest.
WILLIAM D. GIESE, associated with Norwest or its affiliates since 1982. Mr.
Giese is a Senior Vice President of Peregrine, has been a portfolio manager at
Peregrine for more than ten years, and has more than 20 years' experience in
fixed income securities management.
JOHN HUBER, associated with Norwest or its affiliates since 1990. Mr. Huber has
been a Portfolio Manager and Corporate Trading Specialist at Galliard since 1995
and has been in investment management since 1990.
DAVID S. LUNT, associated with Norwest or its affiliates since 1992. Mr. Lunt is
a Managing Director, Equities of Norwest.
KIRK MCCOWN, associated with Norwest or its affiliates since 1993. Mr. McCown is
the founder, President and a Director of Crestone.
RICHARD MERRIAM, associated with Norwest or its affiliates since 1995. Mr.
Merriam has been a managing partner of Galliard since 1995 and is responsible
for investment process and strategy. Mr. Merriam was previously Chief Investment
Officer of Insight Investment Management.
ROBERT B. MERSKY, associated wtih Norwest or its affiliates since 1968. Mr.
Mersky is the President of Peregrine.
AJAY MIRZA, associated with Norwest or its affiliates since 1995. Mr. Mirza has
been a Portfolio Manager and Mortgage Specialist with Galliard since 1995.
Before joining Galliard, Mr. Mirza was a research analyst at Insight Investment
Management and at Lehman Brothers.
GARY E. NUSSBAUM, associated with Norwest or its affiliates since 1990. Mr.
Nussbaum is a Senior Vice President of Peregrine.
DOUGLAS G. PUGH, associated with Norwest or its affiliates since 1997. Mr. Pugh
is a Senior Vice President of Peregrine. Before joining Peregrine, Mr. Pugh was
a senior equity analyst and portfolio manager for Advantus Capital Management
and an analyst with Kemper Corporation.
DAVID L. ROBERTS, associated with Norwest or its affiliates since 1972. Mr.
Roberts is a Managing Director, Equities of Norwest.
STEPHEN S. SMITH, associated with Norwest or its affiliates sine 1997. Mr. Smith
has been a Chief Investment Officer and principal of the Smith Group since 1995.
Mr. Smith previously served as senior portfolio manager with NationsBank and in
several capacities with AIM Management Company's Summit Fund.
DAVID D. SYLVESTER, associated with Norwest or its affiliates since 1979. Mr.
Sylvester currently is a Managing Director - Reserve Asset Management.
PAUL E. VON KUSTER, associated with Norwest or its affiliates since 1972. Mr.
Von Kuster is a Senior Vice President of Peregrine.
LAURIE R. WHITE, associated with Norwest or its affiliates since 1991. Ms. White
is a Director-Reserve Asset Management.
DAVID YIM, associated wtih Norwest or its affiliates since 1995. Mr. Yim has
been a Portfolio Manager and Credit Research Specialist of Galliard since 1995
and previously worked for American Express Financial Advisors as a Research
Analyst.
Schroders Portfolio Managers:
MARK BRIDGEMAN, associated with Schroders or its affiliates since 1990. Mr.
Bridgeman is a Vice President of Schroders.
HEATHER CRIGHTON, associated with Schroders or its affiliates since 1992. Ms
Crighton is a Vice President of Schroders.
MICHAEL PERELSTEIN, associated with Schroders or its affiliates since 1997. Mr.
Perelstein has been a Senior Vice President of Schroders since January 1997.
Previously Mr. Perelstein was a Managing Director at MacKay Shields.
JOHN A. TROIANO, associated with Schroders or its affiliates since 1981. Mr.
Troiano has been Chief Executive Officer of Schorders since April 1, 1997 and a
Managing Director of Schroders since October 1995.
IRA UNSCHULD, associated with Schroders or its affiliates since 1990. Mr.
Unschuld is a Group Vice President.
<PAGE>
DORMANT INVESTMENT ADVISORY ARRANGEMENTS
Norwest has been retained as a "dormant" or "back-up" investment adviser to
manage any assets redeemed and invested directly by a Fund that invests in
1 or more Portfolios. Norwest does not receive any compensation under this
arrangement as long as a Fund invests entirely in Portfolios. If a Fund
redeems assets from a Portfolio and invests them directly, Norwest receives
an investment advisory fee from the Fund for the management of those
assets.
OTHER FUND SERVICES
The FORUM FINANCIAL GROUP of companies provide managerial,
administrative, and underwriting services to the Funds. NORWEST BANK acts
as the Funds' transfer agent, dividend disbursing agent, and custodian.
8. CHOOSING A SHARE CLASS
Sales charges and fees vary considerably between a Fund's classes. Consider the
differences in the classes' fee structures carefully before choosing which class
to purchase. In particular, consider how long you intend to invest in the Fund
and whether during that period it would be more advantageous to invest in a
class with an initial sales charge and comparatively low expenses, a class with
no sales charge but with a CDSC and distribution and shareholder servicing fees
or a class with a comparatively low initial sales charge, a comparatively low
CDSC, and a distribution fee. Also, consider whether you might qualify for a
reduced sales charge on A Shares and whether any difference in total expenses
between classes would be offset by A Shares' higher yield. The SAI has more
information about ways to qualify for reduced sales charges and how reduced
sales charge alternatives operate.
A SHARES
The Funds offers A Shares at their next-determined net asset value plus the
following initial sales charge (no sales charge applies to reinvestments of
distributions):
<TABLE>
<S> <C> <C> <C>
SALES CHARGE
AS A PERCENTAGE OF*
AMOUNT OF PURCHASE OFFERING PRICE+ NET ASSET VALUE
Less than $50,000............... 5.50% 5.76%
$50,000 to $99,999.............. 4.50% 4.71%
$100,000 to $249,000............ 3.50% 3.63%
$250,000 to $499,000............ 2.50% 2.56%
$500,000 to $999,000............ 2.00% 2.04%
Over $1,000,000................. 0.00% 0.00%
*Rounded to the nearest one-hundredth percent.
+The amount of the initial sales charge is included in the offering price.
</TABLE>
If you redeem A Shares purchased with a reduced sales charge, the Funds may
impose a charge on the redemption depending on how long you have held the
shares.
B SHARES
The Funds offer B Shares at their net asset value per share. B Shares have
distribution and shareholder servicing fees of 1.00% of the average daily net
assets of the class under a Rule 12b-1 distribution plan. Because distribution
fees are paid out of the Funds' assets on an on-going basis, over time these
fees will increase the cost of your investment and may cost more than paying a
front-end sales charge.
CONTINGENT DEFERRED SALES CHARGE. If you redeem B Shares within 6 years of
purchase, there will be a CDSC on the redemption in the amount indicated below.
The amount of the CDSC will vary depending on the number of years between the
payment for the purchase of the shares and their redemption. You will pay the
CDSC on the lesser of the cost of the B Shares redeemed and their
<PAGE>
net asset value upon redemption. The Funds do not impose a CDSC on B Shares
purchased through reinvestments of distributions.
<TABLE>
<S> <C> <C>
YEAR SINCE PURCHASE CHARGE FOR EACH FUND
4.0%
First.................................................
3.0%
Second................................................
3.0%
Third.................................................
2.0%
Fourth................................................
2.0%
Fifth.................................................
1.0%
Sixth.................................................
None
Seventh...............................................
</TABLE>
The Funds will redeem shares in the manner that results in the imposition of the
lowest CDSC. The Funds will automatically redeem shares first from any A Shares
of the Fund, second from B Shares and C Shares of the Fund acquired pursuant to
reinvestment of distributions, third from B Shares and C Shares of the Fund held
for more than 6 years or 1 year, fourth from B Shares held for 5 years and C
Shares held for less than 1 year, and fifth from the longest outstanding B
Shares of the Fund held for less than 5 years.
CONVERSION FEATURE. B Shares will automatically convert to A Shares 6 years from
the end of the calendar month in which the Fund accepted your purchase. The
conversion will be on the basis of the relative net asset values of the shares,
without the imposition of any sales load, fee, or other charge. For purposes of
conversion, the Funds will consider B Shares purchased through the reinvestment
of distributions to be held in a separate sub-account. Each time any B Shares in
your account (other than those in the sub-account) convert, a corresponding pro
rata portion of the shares in the sub-account will also convert. The Funds may
suspend the conversion feature in the future; in that event, B Shares might
continue to pay their distribution fee indefinitely.
C SHARES
The Funds offer C Shares at their next-determined net asset value. There is no
sales charge on reinvestments of distributions. C Shares have distribution fees
of 0.75% of the average daily net assets of the class under a Rule 12b-1
distribution plan. Because distribution fees are paid out of the Funds' assets
on an on-going basis, over time these fees will increase the cost of your
investment and may cost more than paying a front-end sales charge.
CONTINGENT DEFERRED SALES CHARGE. If you redeem C Shares within a year of
purchase, there will be a 1.0% CDSC on the redemption. You will pay the CDSC on
the lesser of the cost of the C Shares redeemed and their net asset value upon
redemption. The Funds do not impose a CDSC on C Shares purchased through
reinvestments of distributions.
The Funds will redeem shares in the manner that results in the imposition of the
lowest CDSC. The Funds will automatically redeem shares first from any A Shares
of the Fund, second from B Shares and C Shares of the Fund acquired pursuant to
reinvestment of distributions, third from B Shares and C Shares of the Fund held
for more than 6 years or 1 year, fourth from B Shares held for 5 years and C
Shares held for less than 1 year, and fifth from the longest outstanding B
Shares of the Fund held for less than 5 years.
9. HOW TO BUY AND SELL SHARES
You may purchase Fund shares on "Fund Business Days" at their net asset value
next determined after receipt of your purchase order in proper form plus, in the
case of A Shares and C Shares, any applicable sales charge. Fund Business Days
are all weekdays except generally observed national holidays (New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Memorial Day, Independence Day,
Labor Day, Thanksgiving, and Christmas) and Good Friday.
GENERAL PURCHASE INFORMATION
You may purchase shares directly or through a financial institution. The Fund's
transfer agent processes all transactions in Fund shares.
<PAGE>
All of the Funds require a minimum initial investment of $1,000 and minimum
subsequent investments of $100. The Funds may waive their investment minimums.
Your shares become eligible to receive distributions the Fund Business Day after
your purchase order is received in proper form.
The Funds reserve the right to reject any subscription for the purchase of
shares, including subscriptions by market timers. You will receive share
certificates for your shares only if you request them in writing. No
certificates are issued for fractional shares.
PURCHASE PROCEDURES
DIRECT PURCHASES
You may obtain an account application by writing Norwest Advantage Funds at the
following address:
NORWEST ADVANTAGE FUNDS
[NAME OF FUND]
NORWEST BANK MINNESOTA, N.A.
TRANSFER AGENT
733 MARQUETTE AVENUE
MINNEAPOLIS, MN 55479-0040
When you sign an application for a new Fund account, you are certifying that
your Social Security number or other taxpayer identification number is correct
and that you are not subject to backup withholding. If you violate certain
federal income tax provisions, the Internal Revenue Service can require the
Funds to withhold 31% of your distributions and redemptions.
You must pay for your shares in U.S. dollars by check or money order drawn on a
U.S. bank, by bank or federal funds wire transfer, or by electronic bank
transfer. Cash cannot be accepted.
Call or write the transfer agent if you wish to participate in shareholder
services not offered on the account application or change information on your
account (such as addresses). Norwest Advantage Funds may in the future modify,
limit or terminate any shareholder privilege upon appropriate notice and may
charge a fee for certain shareholder services, although no such fees are
currently contemplated. You may terminate your participation in any shareholder
program by writing to Norwest Advantage Funds.
PURCHASES BY MAIL. You may send a check or money order along with a completed
account application to Norwest Advantage Funds at the address listed above.
Checks and money orders are accepted at full value subject to collection.
Payment by a check drawn on any member of the Federal Reserve System can
normally be converted into federal funds within 2 business days after receipt of
the check. Checks drawn on some non-member banks may take longer. If your check
does not clear, the purchase order will be canceled and you will be liable for
any losses or fees incurred by Norwest Advantage Funds, the transfer agent or
the distributor.
To purchase shares for individual or Uniform Gift to Minors Act accounts, you
must write a check or purchase a money order payable to Norwest Advantage Funds
or endorse a check made out to you to Norwest Advantage Funds. For corporation,
partnership, trust, 401(k) plan or other non-individual type accounts, make the
check used to purchase shares payable to Norwest Advantage Funds. No other
methods of payment by check will be accepted for these types of accounts.
PURCHASES BY BANK WIRE You must first telephone the Funds' transfer agent at
1-612-667-8833 or 1-800-338-1348 to obtain an account number before making an
initial investment in a Fund by bank wire. Then instruct your bank to wire your
money immediately to:
NORWEST BANK MINNESOTA, N.A.
A091 000 019
FOR CREDIT TO: NORWEST ADVANTAGE FUNDS 0844-131
RE: [NAME OF FUND][CLASS OF SHARES]
ACCOUNT NO.:
ACCOUNT NAME:
Complete and mail the account application promptly. Your bank may charge for
transmitting the money by wire. The Funds do not charge for the receipt of wire
transfers. The Funds treat payment by bank wire as a federal funds payment when
received.
PURCHASES THROUGH FINANCIAL INSTITUTIONS
You may purchase and redeem shares through certain broker-dealers,
banks, and other financial institutions. When you purchase a Fund's
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shares through a financial institution, the shares may be held in your name or
in the name of the financial institution. Subject to your institution's
procedures, you may have Fund shares held in the name of your financial
institution transferred into your name. If your shares are held in the name of
your financial institution, you must contact the financial institution on
matters involving your shares. Your financial institution may charge you for
purchasing, redeeming, or exchanging shares.
SUBSEQUENT PURCHASES OF SHARES
You may make subsequent purchases by mailing a check, by sending a
bank wire, or through a financial institution as indicated above. All payments
should clearly indicate your name and account number.
GENERAL REDEMPTION INFORMATION
You may redeem a Fund's shares as of the next determination of the Fund's net
asset value following receipt by the transfer agent of your redemption order in
proper form subject to, in the case of B Shares and C Shares, a CDSC imposed on
most redemptions made within 6 years or 1 year of purchase. Redeemed shares are
not entitled to receive distributions after the day on which the redemption is
effective.
Normally, redemption proceeds are paid immediately following receipt of a
redemption order in proper form. In any event, you will be paid within 7 days,
unless: (1) your bank has not cleared the check to purchase the shares (which
may take up to 15 days), (2) the New York Stock Exchange is closed (or trading
is restricted) for any reason other than normal weekend or holiday closings, (3)
there is an emergency in which it is not practical for the Fund to sell its
portfolio securities or for the Fund to determine its net asset value, or (4)
the SEC deems it inappropriate for redemption proceeds to be paid. You can avoid
the delay of waiting for your bank to clear your check by paying for shares with
wire transfers. Unless otherwise indicated, redemption proceeds normally are
paid by check mailed to your record address.
To protect against fraud, the following must be in writing with a signature
guarantee: (1) endorsement on a share certificate; (2) instruction to change
your record name; (3) modification of a designated bank account for wire
redemptions; (4) instruction regarding an Automatic Investment Plan or Automatic
Withdrawal Plan; (5) distribution elections; (6) election of telephone
redemption privileges; (7) election of exchange or other privileges in
connection with your account; (8) written instruction to redeem shares whose
value exceeds $50,000; (9) redemption in an account when the account address has
changed within the last 30 days; (10) redemption when the proceeds are deposited
in a Norwest Advantage Funds account under a different account registration; and
(11) the payment of redemption proceeds to any address, person, or account for
which there are not established standing instructions.
You may obtain signature guarantees at any of the following types of
organizations: authorized banks, broker-dealers, national securities exchanges,
credit unions, savings associations, or other eligible institutions. The
specific institution providing the guarantee must be acceptable to the transfer
agent. Whenever a signature guarantee is required, the signature of each person
required to sign for the account must be guaranteed.
The Funds and the transfer agent will use reasonable procedures to verify that
telephone requests are genuine, including recording telephone instructions and
sending written confirmations of the transactions. Such procedures are necessary
because the Funds and transfer agent could be liable for losses due to
unauthorized or fraudulent telephone instructions. You should verify the
accuracy of a telephone instruction as soon as you receive the confirmation
statement. Telephone redemption and exchanges may be difficult to implement in
times of drastic economic or market changes. If you cannot reach the transfer
agent by telephone, you may mail or hand-deliver requests to the transfer agent.
Because of the cost of maintaining smaller accounts, Norwest Advantage Funds may
redeem, upon not less than 60 days' written notice, any account with a net asset
value of less than $1,000 immediately following any redemption.
REDEMPTION PROCEDURES
If you have invested directly in a Fund you may redeem your shares as described
below. If you have invested through a financial institution you may redeem
shares through the financial institution. If you wish to redeem shares by
telephone or receive redemption proceeds by bank wire you should complete the
appropriate sections of the account application. These privileges may not be
available until several weeks after the application is received. You may not
redeem shares by telephone if you have certificates for those shares.
REDEMPTION BY MAIL. You may redeem shares by sending a written request to the
transfer agent accompanied by any share certificate you have been issued. Sign
all requests and endorse all certificates with signature guaranteed.
REDEMPTION BY TELEPHONE. If you have elected telephone redemption privileges,
you may redeem shares by telephoning the transfer agent at 1-800-338-1348 or
1-612-667-8833 and providing your shareholder account number, the exact name in
which the shares are
<PAGE>
registered, and your Social Security number or other taxpayer identification
number. Norwest Advantage Funds will mail a check to your record address or, if
you have chosen wire redemption privileges, wire the proceeds.
REDEMPTION BY BANK WIRE. If you have elected wire redemption privileges, you may
request a Fund to transmit redemption proceeds of more than $5,000 by federal
funds wire to a bank account you have designated in writing. You must have
chosen the telephone redemption privilege to request bank redemptions by
telephone. Redemption proceeds are wired on the Fund Business Day after the
transfer agent receives a redemption request in proper form.
EXCHANGES
You may exchange A Shares and B Shares for A Shares and B Shares, respectively,
of the Funds and of other funds of Norwest Advantage Funds that offer those
classes of shares. You may exchange C Shares of a Fund for C Shares of the other
Funds. You may also exchange your shares for some classes of certain money
market funds of Norwest Advantage Funds. Call or write the transfer agent for
both a list of funds that offer shares exchangeable with those of the Funds and
for prospectuses of those funds.
The Funds do not charge for exchanges, and there is currently no limit on the
number of exchanges you may make. The Funds, however, may limit your ability to
exchange shares if you exchange too often. Exchanges are subject to the fees
(other than CDSCs) charged by, and the limitations (including minimum investment
restrictions) of, the fund into which you are exchanging.
You may only exchange shares into a pre-existing account if that account is
identically registered. You must submit a new account application if you wish to
exchange shares into an account registered differently or with different
shareholder privileges. You may exchange into a fund only if that fund's shares
may legally be sold in your state of residence.
The Funds and federal tax law treat an exchange as a redemption and a purchase
of shares. The Funds may amend or terminate exchange procedures on 60 days'
notice.
SALES CHARGES. Some exchanges of A Shares may require a sales charge in addition
to the sales charge you paid to purchase the shares. If you exchange into a fund
that imposes an initial sales charge greater than the sales charge you paid, you
must pay the difference between the sales charge of the fund you are exchanging
into and your Fund. For example, if you paid a 2% initial sales charge on a
purchase of shares and then exchanged those shares for shares of another fund
with a 3% initial sales charge, you would pay an additional 1% sales charge on
the exchange. The Funds deem A Shares acquired through the reinvestment of
distributions to have been acquired with a sales charge equal to the maximum
sales charge of the Fund.
You may exchange B Shares and C Shares without paying a CDSC. If you redeem B
Shares or C Shares you received in an exchange, the CDSC will be calculated as
if you never exchanged the shares you originally purchased. B Shares acquired
through an exchange will convert to A Shares when the B Shares originally
purchased would convert to A Shares.
EXCHANGES BY MAIL. You may make an exchange by sending a written request to the
transfer agent accompanied by any share certificates for the shares to be
exchanged. Sign all written requests and endorse all certificates with signature
guaranteed.
EXCHANGES BY TELEPHONE. If you have telephone exchange privileges, you may make
a telephone exchange by calling the transfer agent at 1-800-338-1348 or
1-612-667-8833 and giving your account number, the exact name in which the
shares are registered and your Social Security number or other taxpayer
identification number.
10. DISTRIBUTIONS AND TAX MATTERS
DISTRIBUTIONS
The Funds declare and pay distributions of net investment income as follows:
Declared and paid quarterly: Income Equity Fund, ValuGrowth Stock
Fund, and Small Company Stock Fund.
Declared and paid annually Each other Fund.
Each Fund distributes net capital gain, if any, at least annually.
You have 3 choices for receiving distributions: the Reinvestment Option, the
Cash Option and the Directed Dividend Option.
Under the Reinvestment Option, all distributions of a Fund are automatically
invested in additional shares of that Fund. You are
<PAGE>
automatically assigned this option unless you select another option.
* Under the Cash Option, you are paid all distributions in cash.
* Under the Directed Dividend Option, if you own $10,000 or more of a Fund's
shares in a single account, you can have that Fund's distributions
reinvested in shares of another fund of Norwest Advantage Funds. Call or
write the transfer agent for more information about the Directed Dividend
Option.
All distributions are treated in the same manner for federal income tax purposes
whether received in cash or reinvested in shares of a fund. All distributions
reinvested in a fund are reinvested at the fund's net asset value as of the
payment date of the distribution
TAX MATTERS
The Funds are managed so that they do not owe federal income or excise taxes.
Distributions paid by a Fund out of its net investment income (including net
short-term capital gain) are taxable to shareholders as ordinary income.
Distributions of net capital gain (i.e., the excess of net long-term capital
gain over net short-term capital loss) are taxable as long-term capital gain,
regardless of how long a shareholder has held shares in the Fund. Distributions
of net capital gain may be taxable at different rates depending on the length of
time the Fund holds its assets. If shares are sold at a loss after being held
for six months or less, the loss will be treated as long-term capital loss to
the extent of any distribution of net capital gain received on those shares.
Distributions reduce the net asset value of the Fund paying the distribution by
the amount of the distribution. Furthermore, a distribution made shortly after
you purchase shares, although in effect a return of capital to you, is taxable.
If a Fund receives investment income from sources within foreign countries, that
income may be subject to foreign income or other taxes. International Fund
intends, if eligible to do so, to permit its shareholders to take a credit (or a
deduction) for foreign income and other taxes paid by International Portfolio
and Schroder EM Core Portfolio. If you own shares of International Fund, you
will be notified of your share of those foreign taxes and will be required to
treat the amount of the foreign taxes as additional income. In that event, you
may be entitled to claim a credit or deduction for those taxes on your federal
tax return.
11. OTHER INFORMATION
DETERMINATION OF NET ASSET VALUE
Each Fund determines its net asset value at 4:00 p.m., Eastern Time on each Fund
Business Day by dividing the value of its net assets (i.e., the value of its
securities and other assets less its liabilities) by the number of shares
outstanding at the time the determination is made. The Funds value portfolio
securities at current market value if market quotations are readily available.
If market quotations are not readily available, the Funds value those securities
at fair value as determined by or under procedures adopted by the Board.
European, Far Eastern, and other international securities exchanges and
over-the-counter markets normally complete trading well before the close of
business on each Fund Business Day. Trading in foreign securities, however, may
not take place on all Fund Business Days or may take place on days that are not
Fund Business Days. The determination of the prices of foreign securities may be
based on the latest market quotations for the securities. If events occur that
affect the securities' value after the close of the markets on which they trade,
the Funds may make an adjustment to the value of the securities for purposes of
determining net asset value.
For purposes of determining net asset value, the Funds convert all assets and
liabilities denominated in foreign currencies into U.S. dollars at the mean of
the bid and asked prices of such currencies against the U.S. dollar last quoted
by a major bank prior to the time of conversion.
ADDITIONAL INFORMATION ABOUT THE PORTFOLIOS
Each Fund reserves the right to invest in 1 or more Portfolios. Each Fund bears
its pro rata share of the expenses of any Portfolio in which it invests. The
Board may redeem a Fund's investment in a Portfolio at any time. The Fund could
then invest directly in portfolio securities or could re-invest in 1 or more
different Portfolios that could have different fees and expenses. A Fund might
redeem, for example, if other investors had sufficient voting power to change
the investment objectives or policies of the Portfolio in a manner detrimental
to the Fund.
BROKER-DEALER REALLOWANCES
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The Funds' distributor may pay a "broker-dealer's" reallowance to certain
financial intermediaries purchasing shares as principal or agent. Normally, the
distributor will reallow the amounts indicated below, although it may at times
reallow the entire sales charge. The distributor also may make additional
payments to certain intermediaries out of its own resources of up to 1.00% of
the net asset value of Fund shares purchased. Norwest Advantage Funds may change
the amount of the reallowance.
In addition, at its own expense, the distributor may provide compensation,
including financial assistance, to financial intermediaries in connection with
their conferences, employee sales or training programs, public seminars,
advertising campaigns or other special events. The distributor may, for example,
compensate the intermediaries with travel arrangements and lodging, tickets for
entertainment events, and merchandise. The distributor may make this
compensation available only to intermediaries that have sold or are expected to
sell significant amounts of Fund shares or who charge an asset based fee,
whether or not they have a fiduciary relationship with their clients.
Amount of Purchase Broker-Dealers' Reallowance
as a Percentage of Offering
Price
Less than $50,000............... 5.00%
$50,000 to $99,999.............. 4.00%
$100,000 to $249,000............ 3.00%
$250,000 to $499,000............ 2.25%
$500,000 to $999,000............ 1.80%
$1,000,000 to 2,499,999......... 1.00%
$2,500,000 to 4,999,999......... 0.50%
Over $5,000,000................. 0.25%
NO ONE HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE SAI, AND THE
FUNDS' OFFICIAL SALES LITERATURE. ANY SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUNDS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH
OFFER MAY NOT LAWFULLY BE MADE.
<PAGE>
If you would like more information about the Funds and their investments, you
may want to read the following documents:
STATEMENT OF ADDITIONAL INFORMATION. A Fund's statement of additional
information, or "SAI," contains detailed information about the Funds, such as
its investments, management, and organization. It is incorporated into this
Prospectus by reference.
ANNUAL AND SEMI-ANNUAL REPORTS. Additional Information about each Fund's
investments is available in its annual and semi-annual reports to shareholders.
In the annual report, each Fund's portfolio manager discusses the market
conditions and investment strategies that significantly affected the Fund's
performance during its last fiscal year.
You may obtain free copies of the SAI, annual report, and semi-annual report by
contacting your investment representative or by contacting Norwest Advantage
Funds, 733 Marquette Avenue, Minneapolis, Minnesota 55479 or by calling
1-800-338-1348 or 1-612-667-8833.
The Funds' reports and statement of additional information are available from
the Securities and Exchange Commission in Washington, D.C. You may obtain copies
of these documents, upon payment of a duplicating fee, by writing the Public
Reference Section of the SEC, Washington D.C. 20549-6009. Please call
1-800-SEC-0330 for information about the operation of the SEC's public reference
room. The Fund's reports and other information are also available on the SEC's
Web Site at http:// www.sec.gov.
The SEC's Investment Company Act file number for the Funds is 811-4881.
<PAGE>
PROSPECTUS
OCTOBER 1, 1998
This Prospectus describes the shares of a broad spectrum of mutual funds offered
by Norwest Advantage Funds:
6 MONEY MARKET FUNDS - Cash Investment Fund, Ready Cash Investment
Fund, U.S. Government Fund, Treasury Plus Fund, Treasury Fund, and
Municipal Money Market Fund.
7 FIXED INCOME FUNDS - 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.
5 TAX-FREE FIXED INCOME FUNDS - Limited Term Tax-Free Fund, Tax-Free
Income Fund, Colorado Tax-Free Fund, Minnesota Intermediate Tax-Free
Fund, and Minnesota Tax-Free Fund.
3 BALANCED FUNDS - Moderate Balanced Fund, Growth Balanced Fund, and
Aggressive Balanced-Equity Fund.
11 EQUITY FUNDS - Index Fund, Income Equity Fund, ValuGrowth (SM)
Stock Fund, Diversified Equity Fund, Growth Equity Fund, Large Company
Growth Fund, Diversified Small Cap Fund, Small Company Stock Fund,
Small Cap Opportunities Fund, Small Company Growth Fund, and
International Fund.
AN INVESTMENT IN A FUND IS NOT A DEPOSIT OF NORWEST BANK MINNESOTA, N.A. OR ANY
OTHER BANK AND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
INVESTING IN ANY MUTUAL FUND HAS RISK. IT IS POSSIBLE TO LOSE MONEY BY INVESTING
IN ANY OF THE FUNDS.
ALTHOUGH THE MONEY MARKET FUNDS SEEK TO PRESERVE THE VALUE OF YOUR INVESTMENT AT
$1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THESE FUNDS.
NO GOVERNMENTAL AGENCY, INCLUDING THE U.S. SECURITIES AND EXCHANGE COMMISSION,
HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED WHETHER OR NOT THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
PAGE
1. OVERVIEW ............................................................
2. FINANCIAL HIGHLIGHTS ................................................
3. GLOSSARY ............................................................
4. INVESTMENT OBJECTIVES AND POLICIES ..................................
Money Market Funds ..................................................
Fixed Income Funds ..................................................
Tax-Free Fixed Income Funds .........................................
Balanced Funds ......................................................
Equity Funds ........................................................
Portfolio Descriptions ..............................................
5. RISK CONSIDERATIONS .................................................
6. COMMON POLICIES .....................................................
7. MANAGEMENT OF THE FUNDS .............................................
Investment Advisory Services ........................................
Other Fund Services .................................................
8. HOW TO BUY AND SELL SHARES ..........................................
General Purchase Information ........................................
Purchase Procedures .................................................
General Redemption Information ......................................
Redemption Procedures ...............................................
Exchanges ...........................................................
9. DISTRIBUTIONS AND TAX MATTERS .......................................
Distributions .......................................................
Tax Matters .........................................................
10. OTHER INFORMATION ...................................................
Determination of Net Asset Value ....................................
Additional Information about the Portfolios .........................
<PAGE>
- --------------------------------------------------------------------------------
1. OVERVIEW
- --------------------------------------------------------------------------------
THE FOLLOWING IS A SUMMARY OF INFORMATION ABOUT THE FUNDS. BEFORE INVESTING, YOU
SHOULD READ THE PROSPECTUS AND CONSIDER THE DISCUSSIONS UNDER INVESTMENT
OBJECTIVES AND POLICIES AND RISK CONSIDERATIONS.
NO SINGLE FUND IS A COMPLETE OR BALANCED INVESTMENT PROGRAM, BUT EACH CAN SERVE
AS A PART OF YOUR OVERALL INVESTMENT PROGRAM.
THE FUNDS AT A GLANCE
The MONEY MARKET FUNDS seek high current income consistent with the preservation
of capital and the maintenance of liquidity.
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<S> <C> <C>
FUND OBJECTIVE PRIMARY INVESTMENTS
CASH INVESTMENT FUND and High current income, High-quality money
READY CASH INVESTMENT preservation of capital and market instruments of U.S. and
FUND liquidity foreign issuers.
U.S. GOVERNMENT FUND High current income, Securities issued or
preservation of capital and guaranteed by the U.S. Government,
liquidity its agencies, and its
instrumentalities.
TREASURY PLUS FUND High current income, Securities issued or
preservation of capital and guaranteed by the U.S. Treasury
liquidity and repurchase agreements on those
obligations.
TREASURY FUND High current income, Securities issued or
preservation of capital, and guaranteed by the U.S. Treasury.
liquidity
MUNICIPAL MONEY MARKET High current tax-exempt Tax-exempt municipal
FUND income, preservation of capital, securities.
and liquidity
</TABLE>
The FIXED INCOME FUNDS generally seek to provide income and preserve
capital.
<TABLE>
<S> <C> <C>
FUND OBJECTIVE PRIMARY INVESTMENTS
STABLE INCOME FUND Maintain safety of Investment grade
principal while providing short-term (average maturity
low volatility total return 2-5 years) securities.
LIMITED TERM GOVERNMENT Provide income and safety Investment grade
INCOME FUND of principal. short-term (average maturity of
1-5 years) U.S. Government
securities.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
INTERMEDIATE GOVERNMENT Provide income and safety Investment grade
INCOME FUND of principal. intermediate-term (average
maturity of 3-10 years) U.S.
Government securities.
DIVERSIFIED BOND FUND Total return by Diversifies investments
diversifying its among 3 different
investments among fixed income styles.
different fixed income
investment styles.
INCOME FUND Total return consistent Primarily investment grade
with current income. intermediate term (average
maturity of 3-15 years) domestic
and foreign securities.
TOTAL RETURN BOND FUND Total return. Broad spectrum of primarily
investment grade securities.
STRATEGIC INCOME FUND Combination of current 70%-90% fixed income
income and capital appreciation. investments
10%-30% equity investments.
</TABLE>
<PAGE>
The TAX-FREE FIXED INCOME FUNDS generally seek current income exempt from
federal or state income taxes.
<TABLE>
<S> <C> <C>
FUND OBJECTIVE PRIMARY INVESTMENTS
LIMITED TERM TAX-FREE Current income exempt Investment grade
FUND from federal income taxes. short-term (average maturity of
1-5 years) municipal securities.
TAX-FREE INCOME FUND Current income exempt Investment grade
from federal income taxes. (average maturity of 10-20 years)
municipal securities.
COLORADO TAX-FREE FUND A high-level of current income Investment grade (average
exempt from both federal maturity of 10-20+ years)
(including the AMT) and Colorado municipal securities.
Colorado income taxes
consistent with the
preservation of capital.
MINNESOTA INTERMEDIATE A high-level of current income Investment grade intermediate
TAX FREE FUND exempt from both federal and term (average maturity of 5-10
Minnesota income taxes years) Minnesota municipal
(including the AMT) securities.
consistent with the
preservation of capital.
MINNESOTA TAX-FREE FUND A high-level of current income Investment grade (average
exempt from both federal and maturity of 10-20+ years)
Minnisota income taxes Minnesota municipal
(including the AMT) securities.
consistent with the
preservation of capital.
</TABLE>
The BALANCED FUNDS generally seek a combination of current income and capital
appreciation.
<TABLE>
<S> <C> <C>
FUND OBJECTIVE PRIMARY INVESTMENTS
MODERATE BALANCED FUND Combination of current 45%-75% fixed income
income and capital appreciation. investments
25%-55% equity
investments.
GROWTH BALANCED FUND Combination of current 15%-55% fixed income
income and capital appreciation. investments
45%-85% equity
investments.
AGGRESSIVE BALANCED-EQUITY Combination of current 0%-40% fixed income
FUND income and capital appreciation. investments
60%-100% equity
investments.
<PAGE>
The EQUITY FUNDS generally seek growth of capital.
FUND OBJECTIVE PRIMARY INVESTMENTS
INDEX FUND Replicate the return Common stock of the
of the S&P 500 Composite Stock 500 companies in the S&P 500
Price Index. Composite Stock Price Index.
INCOME EQUITY FUND Long-term capital Common stock of large high
appreciation consistent with quality domestic companies.
above-average dividend
income.
VALUEGROWTH STOCK FUND Long-term capital Common stock of medium-and
appreciation. large-capitalization
companies that have above
average growth
characteristics and that
appear to be undervalued.
DIVERSIFIED EQUITY FUND Long-term capital Diversified investments in 5
appreciation while different equity investment
moderating annual return styles.
volatility.
GROWTH EQUITY FUND Long-term capital Diversified investments in 3
appreciation while different equity investment
moderating annual return styles.
volatility.
LARGE COMPANY GROWTH Long-term capital Common stock of large
FUND appreciation. high-quality domestic
companies with superior
growth potential.
DIVERSIFIED SMALL CAP Long-term capital Diversified investments in 5
FUND appreciation while different small company
moderating annual return equity investment styles.
volatility.
SMALL COMPANY STOCK Long-term capital Common stock of small and
FUND appreciation. medium sized domestic
companies.
SMALL CAP OPPORTUNITIES Long-term capital Equity securities of small
FUND appreciation. domestic companies.
SMALL COMPANY GROWTH Long-term capital Common stock of small and
FUND appreciation. medium sized domestic
companies.
INTERNATIONAL FUND Long-term capital Common stock of high-
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
appreciation. quality companies based
outside of the United States.
</TABLE>
CLASSES OF SHARES
This Prospectus offers certain classes of shares of the Funds. Each class is
designed for a different type of investor and may have different fees or
investment minimums.
* All Money Market Funds, except Ready Cash Investment Fund, offer
Institutional Shares. Institutional Shares are designed for institutional
investors.
* Ready Cash Investment Fund and Municipal Money Market Fund offer Investor
Shares. Investor Shares are designed for retail investors.
* All Funds, other than Money Market Funds, offer I Shares. I Shares are
designed for clients of investment advisers and bank trust departments,
trust companies and their affiliates, including broker-dealers if the Fund
does not offer other classes of shares.
FUND STRUCTURES
Some of the Funds invest directly in a portfolio of securities. Other Funds
invest in 1 or more other funds identified in this prospectus as
Portfolios. Portfolios do not offer their shares to the public. Except when
necessary to describe a Fund's investment in a Portfolio, this prospectus
discusses a Fund's investments in a Portfolio as if the investments were
made directly in individual securities.
MANAGEMENT OF THE FUNDS
NORWEST INVESTMENT MANAGEMENT, INC. or NORWEST is the investment adviser
for all of the Funds and all but 3 of the Portfolios. Norwest, a subsidiary
of Norwest Bank Minnesota, N.A. or Norwest Bank, provides investment advice
to institutions, pension plans, and other accounts and currently manages
more than $28 billion in assets.
SCHRODER CAPITAL MANAGEMENT INTERNATIONAL INC. or SCHRODER is the
investment adviser for 3 Portfolios: Schroder U.S. Smaller Companies
Portfolio, Schroder EM Core Portfolio, and International Portfolio.
Schroder specializes in providing international investment advice.
INVESTMENT SUBADVISERS make investment decisions for certain Funds and
Portfolios under Norwest's general supervision. This prospectus generally
refers to Norwest, Schroder, or a subadviser as an Adviser.
The FORUM FINANCIAL GROUP of companies provide management, administrative,
and underwriting services to the Funds.
<PAGE>
HOW TO BUY AND SELL SHARES
Shares may be purchased or redeemed without sales or other charges.
* I Shares and Investor Shares require a minimum initial investment
of $1,000 and a minimum subsequent investment of $100.
* Institutional Shares require a minimum initial investment of
$100,000 and have no minimum subsequent investment requirement.
Total Return Bond Fund, Small Company Growth Fund, and Small Cap
Opportunities Fund are closed to new investors. Only residents of Colorado
may purchase shares of Colorado Tax-Free Fund. Only residents of Minnesota
may purchase shares of Minnesota Intermediate Tax-Free Fund and Minnesota
Tax-Free Fund.
EXCHANGES
If you own Fund shares you may exchange them for shares of certain other Funds.
Your exchange rights will vary depending on the class of shares you own.
DISTRIBUTIONS
The DISTRIBUTIONS AND TAX MATTERS section discusses how often the Funds
distribute net investment income. Each Fund distributes to shareholders its
net capital gain, if any, at least annually.
<PAGE>
RISK FACTORS
All investments in a Fund are subject to risk and may decline in value. The
amount and types of risk vary from Fund to Fund depending on the Fund's
investment objective, the Adviser's strategy, the markets in which the Fund
invests, the investments that the Fund makes, and prevailing economic
conditions over the period of your investment.
Every Fund also has the risk that its Adviser may not be successful in
carrying out its investment strategy, that a portfolio manager may prove
difficult to replace if he or she becomes unavailable to manage the Fund
and that the Fund's particular investment strategy may result in
performance that is worse or better than the performance of the market as a
whole. Your investment in a Fund also will have risk if you do not plan to
invest for a period that is long enough to permit the investment to recover
from an adverse market movement.
MONEY MARKET FUNDS:
If you invest in a Money Market Fund, the income you receive from the Fund
will vary with changes in interest rates. In addition, the Funds'
investments have "credit risk," which is the risk that an issuer will be
unable, or will be perceived to be unable, to pay the interest or principal
on its obligations when due. Some of the Money Market Funds reduce credit
risk by investing primarily or exclusively in U.S. Government securities.
The Money Market Funds also have the risk that they may not be able to
maintain a stable net asset value of $1.00 per share.
FIXED INCOME FUNDS AND TAX-FREE FIXED INCOME FUNDS:
If you invest in a Fixed Income Fund or a Tax-Free Fixed Income Fund, the
investment income you receive from the Fund will vary with changes in
interest rates. In addition, the value of the Fund's investments generally
will fall when interest rates rise and rise when interest rates fall. When
interest rates fall, there is a risk that issuers will prepay fixed rate
securities, forcing the Fund to invest in securities with lower interest
rates than the prepaid securities.
Some of the Fixed Income Funds invest in mortgage- or other asset-backed
securities. For these Funds, a decline in interest rates may result in
losses in these securities' values and a reduction in their yields as the
holders of the assets backing the securities prepay their debts. Rising
interest rates may cause the average maturity of these Funds to rise due to
a drop in prepayments. A rise in average maturity increases a Fund's
sensitivity to rising interest rates and potential for losses in value.
The Fixed Income Funds and Tax-Free Fixed Income Funds also are subject to
credit risk. Funds that invest primarily in debt securities that are highly
rated by a nationally recognized statistical rating organization, such as
Standard & Poor's Corporation, generally have less credit risk. Funds that
have substantial investments in securities that are not highly rated are
subject to more credit risk.
Some of the Tax-Free Fixed Income Funds invest primarily in debt securities
of the government and municipalities of a single state. Because these Funds
limit their investments to a single state, adverse economic developments
and other factors affecting that state could have a more significant effect
on the Funds' returns. In addition, these Funds may invest in fewer issuers
than the other Funds. A decline in the value of a Fund's investment in an
issuer could therefore have a more significant effect on the value of the
Fund's shares.
<PAGE>
BALANCED FUNDS AND STRATEGIC INCOME FUND:
These Funds divide their investments between fixed income securities and
equity securities in varying proportions, depending on the Fund's
investment policies. As a result, an investment in these Funds will be
subject both to the risks of fixed income securities and to the risks of
equity securities. In addition, the Adviser may vary, within a fixed range,
the allocations of the Fund's assets into each type of investment. There is
a risk that the allocations selected by the Adviser will not achieve the
Fund's objective as effectively as other possible allocations.
EQUITY FUNDS:
The Equity Funds are subject to "market risk," which is the general risk
that the value of a Fund's investments may decline if the stock markets
perform poorly. There also is a risk that a Fund's investments will
underperform either the securities markets generally or particular segments
of the securities markets.
Equity Funds that invest in smaller issuers or foreign issuers are riskier
than other Equity Funds. Investments in smaller issuers are subject to
greater changes in value because securities of smaller issuers may not
trade as often or be as widely owned as the securities of larger issuers.
Investments in foreign issuers are subject to the risks of foreign
political and economic instability and changes in foreign currency exchange
rates. Foreign investments also are subject to government actions,
including exchange controls and limits on repayments of foreign
investments. Foreign governments may nationalize, tax, or confiscate
investors' assets.
<PAGE>
EXPENSES OF INVESTING IN THE FUNDS
The following table will assist you in understanding the expenses that you
will bear directly or indirectly when you invest in a Fund. There are no
transaction charges for purchasing, redeeming, or exchanging shares. The
Funds do not have distribution expenses.
ANNUAL FUND OPERATING EXPENSES(1)(5)
(as a percentage of average daily net assets after applicable fee waivers and
expense reimbursements)
<TABLE>
<S> <C> <C> <C> <C> <C>
the Funds the Portfolios
investment investment total
advisory fees(2) other advisory other expenses operating
expenses Fees expenses
MONEY MARKET FUNDS
Cash Investment Fund N/A 0.22% 0.22% 0.04% 0.48%(4)
Ready Cash Investment Fund (Investor Shares) N/A 0.42% 0.33% 0.07% 0.82%(4)
U.S. Government Fund 0.14% 0.36% N/A N/A 0.50%
Treasury Plus Fund(3) 0.20% 0.30% N/A N/A 0.50%
Treasury Fund 0.15% 0.31% N/A N/A 0.46%
Municipal Money Market Fund
Institutional Shares 0.32% 0.13% N/A N/A 0.45%
Investor Shares 0.32% 0.33% N/A N/A 0.65%
FIXED INCOME FUNDS (I SHARES)
Stable Income Fund N/A 0.28% 0.30% 0.07% 0.65%
Limited Term Government Income Fund 0.33% 0.35% N/A N/A 0.68%
Intermediate Government Income Fund 0.33% 0.35% N/A N/A 0.68%
Diversified Bond Fund 0.00% 0.27% 0.37% 0.06% 0.70%(4)
Income Fund 0.47% 0.28% N/A N/A 0.75%
Total Return Bond Fund N/A 0.19% 0.50% 0.06% 0.75%(4)
Strategic Income Fund 0.09% 0.29% 0.36% 0.06% 0.80%(4)
TAX-FREE FIXED INCOME FUNDS (I SHARES)
Limited Term Tax-Free Fund 0.31% 0.34% N/A N/A 0.65%
Tax-Free Income Fund 0.34% 0.26% N/A N/A 0.60%
Colorado Tax-Free Fund 0.29% 0.31% N/A N/A 0.60%
Minnesota Intermediate Tax-Free Fund 0.25% 0.35% N/A N/A 0.60%
Minnesota Tax-Free Fund 0.23% 0.37% N/A N/A 0.60%
</TABLE>
<PAGE>
ANNUAL FUND OPERATING EXPENSES(1)(5) (continued)
(as a percentage of average daily net assets after applicable fee waivers and
expense reimbursements)
<TABLE>
<S> <C> <C> <C> <C> <C>
the Funds the Portfolios
investment investment total
advisory fees(2) other advisory other expenses operating
expenses fees expenses
BALANCED FUNDS (I SHARES)
Moderate Balanced Fund 0.12% 0.29% 0.41% 0.06% 0.88%(4)
Growth Balanced Fund 0.13% 0.29% 0.45% 0.06% 0.93%(4)
Aggressive Balanced-Equity Fund 0.00% 0.47% 0.46% 0.07% 1.00%
EQUITY FUNDS (I SHARES)
Index Fund N/A 0.06% 0.15% 0.04% 0.25%
Income Equity Fund N/A 0.33% 0.50% 0.02% 0.85%
ValuGrowth Stock Fund 0.78% 0.22% N/A N/A 1.00%
Diversified Equity Fund 0.16% 0.29% 0.49% 0.06% 1.00%(4)
Growth Equity Fund 0.22% 0.26% 0.67% 0.10% 1.25%(4)
Large Company Growth Fund N/A 0.33% 0.65% 0.02% 1.00%
Diversified Small Cap Fund 0.00% 0.27% 0.84% 0.09% 1.20%
Small Company Stock Fund N/A 0.25% 0.90% 0.05% 1.20%(4)
Small Cap Opportunities Fund N/A 0.50% 0.60% 0.15% 1.25%
Small Company Growth Fund N/A 0.32% 0.90% 0.03% 1.25%
International Fund 0.25% 0.56% 0.42% 0.27% 1.50%
</TABLE>
(1) Each Fund bears its pro rata portion of the expenses of any Portfolio
in which it invests.
(2) For Diversified Bond Fund, Strategic Income Fund, each Balanced Fund,
Diversified Equity Fund, Growth Equity Fund, Diversified Small Cap
Fund, and International Fund, Funds - Investment Advisory Fees reflect
an asset allocation fee of 0.25%. Absent waivers, Investment Advisory
Fees for Municipal Money Market Fund Institutional Shares and Investor
Shares, Income Fund, Limited Term Tax-Free Fund, Tax-Free Income Fund,
Colorado Tax-Free Fund, Minnesota Intermediate Tax-Free Fund, Minnesota
Tax-Free Fund, Diversified Small Cap Fund, and International Fund would
be 0.34%, 0.34%, 0.50%, 0.50%, 0.50%, 0.50%, 0.25%, 0.50%, 0.25%, and
0.47%.
(3) The expenses, and any waivers and reimbursements, for Treasury Plus
Fund are estimated.
(4) Norwest and Forum Financial Group have agreed to waive their fees in
order to maintain Cash Investment Fund's total combined operating
expenses through May 31, 1999 at 0.48%. Any reduction of those waivers
after May 31, 1999 requires approval by the Fund's Board of Trustees.
Norwest and Forum Financial Group have agreed to waive fees and
reimburse expenses to maintain Ready Cash Investment Fund's, Total
Return Bond Fund's, and Small Company Stock Fund's total operating
expenses at or below 0.82%; 0.75%, and 1.20%, respectively. Any
reduction of those waivers or reimbursements requires Board review.
Norwest and Forum Financial Group have agreed to waive their fees
through May 31, 1999, to ensure that the investment advisory,
administrative, and management services fees borne by Diversified Bond
Fund, Strategic Income Fund, Moderate Balanced Fund, Growth Balanced
Fund, Diversified Equity Fund, and Growth Equity Fund do not exceed, in
the aggregate, 0.45%, 0.55%, 0.63%, 0.68%, 0.75%, and 1.00%,
respectively. Any reduction of those waivers after May 31, 1999
requires Board approval.
(5) Absent expense reimbursements and fee waivers, Funds - Other Expenses
and Total Operating Expenses would be: Cash Investment Fund 0.26% and
0.56%, Ready Cash Investment Fund 0.42% and 0.82%, U.S. Government Fund
0.38% and 0.52%, Treasury Plus Fund 0.40% and 0.60%, Treasury Fund
0.39% and 0.54%, Municipal Money Market Fund Institutional Shares 0.25%
and 0.59%, and Investor Shares 0.49% and 0.83%, Stable Income Fund
0.38% and 0.81%, Limited Term Government Income Fund 0.56% and 0.89%,
Intermediate Government Income Fund 0.39% and 0.72%, Diversified Bond
Fund 0.35% and 1.09%, Income Fund 0.42% and 0.92%, Total Return Bond
Fund 0.37% and 0.98%, Strategic Income Fund 0.36% and 1.08%, Limited
Term Tax-Free Fund 0.53% and 1.03%, Tax-Free Income Fund 0.42% and
0.92%, Colorado Tax-Free Fund 0.51% and 1.01%, Minnesota Intermediate
Tax-Free Fund 0.47% and 0.72%, Minnesota Tax-Free Fund 0.54% and 1.04%,
Moderate Balanced Fund 0.33% and 1.11%, Growth Balanced Fund 0.33% and
1.15%, Aggressive Balanced-Equity Fund 1.51% and 2.35%, Index Fund
0.33% and 0.57%, Income Equity Fund 0.34% and 0.91%, ValuGrowth Stock
Fund 0.42% and 1.20%, Diversified Equity Fund 0.32% and 1.17%, Growth
Equity Fund 0.33% and 1.41%, Large Company Growth Fund 0.35% and 1.08%,
Diversified Small Cap Fund 1.47% and 2.70%, Small Company Stock Fund
0.36% and 1.37%, Small Cap Opportunities Fund 0.63% and 1.38%, Small
Company Growth Fund 0.33% and 1.31%, and International Fund 0.63% and
1.66%. Absent expense reimbursements and fee waivers, Portfolio(s) --
Other Expenses would be: Cash Investment Fund 0.07%, Ready Cash
Investment Fund 0.07%, Stable Income Fund 0.13%, Diversified Bond Fund
0.12%, Total Return Bond Fund 0.11%, Strategic Income Fund 0.11%,
Moderate Balanced Fund 0.12%, Growth Balanced Fund 0.12%, Aggressive
Balanced-Equity Fund 0.12%, Index Fund 0.09%, Income Equity Fund 0.07%,
Diversified Equity Fund 0.11%, Growth Equity Fund 0.15%, Large Company
Growth Fund 0.08%, Diversified Small Cap Fund 0.15%, Small Company
Stock Fund 0.11%, Small Cap Opportunities Fund 0.15%, Small Company
Growth Fund 0.08%, and International Fund 0.31%. Except as otherwise
noted, expense reimbursements and fee waivers are voluntary and may be
reduced or eliminated at any time.
EXAMPLE
The following hypothetical example indicates the dollar amount of
expenses you would pay, assuming a $1,000 investment in a Fund's
shares, the expenses listed in Annual Fund Operating Expenses table, a
5% annual return, and reinvestment of all distributions. THE EXAMPLE
DOES NOT REPRESENT PAST OR FUTURE EXPENSES OR RETURN. ACTUAL EXPENSES
AND RETURN MAY BE GREATER OR LESS THAN THOSE SHOWN IN THE EXAMPLE.
<TABLE>
<S> <C> <C> <C> <C>
1 year 3 years 5 years 10 years
------ ------- ------- --------
MONEY MARKET FUNDS
Cash Investment Fund $5 $15 $27 $60
Ready Cash Investment Fund (Investor Shares) 8 26 46 101
U.S. Government Fund 5 16 28 63
Treasury Plus Fund 5 16 28 63
Treasury Fund 5 15 26 58
Municipal Money Market Fund
Institutional Shares 5 14 25 57
Investor Shares 7 21 36 81
FIXED INCOME FUNDS (I SHARES)
Stable Income Fund 7 21 36 81
Limited Term Government Income Fund 7 22 38 85
Intermediate Government Income Fund 7 22 38 85
Diversified Bond Fund 7 22 39 87
Income Fund 8 24 42 93
Total Return Bond Fund 8 24 42 93
Strategic Income Fund 8 26 44 99
TAX-FREE FIXED INCOME FUNDS (I SHARES)
Limited Term Tax-Free Fund 7 21 36 81
Tax-Free Income Fund 6 19 33 75
Colorado Tax-Free Fund 6 19 33 75
Minnesota Intermediate Tax-Free Fund 6 19 33 75
Minnesota Tax-Free Fund 6 19 33 75
</TABLE>
<PAGE>
EXAMPLE (Continued)
<TABLE>
<S> <C> <C> <C> <C>
1 year 3 years 5 years 10 years
------ ------- ------- --------
BALANCED FUNDS (I SHARES)
Moderate Balanced Fund 9 28 49 108
Growth Balanced Fund 9 30 51 114
Aggressive Balanced-Equity Fund 10 32 55 122
EQUITY FUNDS (I SHARES)
Index Fund 3 8 14 32
Income Equity Fund 9 27 47 105
ValuGrowth Stock Fund 10 32 55 122
Diversified Equity Fund 10 32 55 122
Growth Equity Fund 13 40 69 151
Large Company Growth Fund 10 32 55 122
Diversified Small Cap Fund 12 38 66 145
Small Company Stock Fund 12 38 66 145
Small Cap Opportunities Fund 13 40 69 151
Small Company Growth Fund 13 40 69 151
International Fund 15 47 82 179
</TABLE>
<PAGE>
2. FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand each Fund's
financial performance for 10 years or, if shorter, the Fund's operating history.
Certain information reflects financial results for a single Fund share. The
total returns in the table represent the rate that an investor would have earned
on an investment in a Fund, assuming reinvestment of all distributions. The
information from June 1, 1994 through May 31, 1998, has been audited by KPMG
Peat Marwick LLP, independent auditors, whose reports dated July 21, 1998 about
a Fund, along with the Fund's financial statements, are included in the Fund's
Annual Report, which is available at no charge upon request. These financial
statements are incorporated by reference into the SAI. Other independent
auditors audited information for prior periods.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Net Realized
and Distributions Capital Ending
Beginning Net Net Unrealized from Net Contribution Net Asset
THE MONEY MARKET FUNDS Asset Value Investment Gain (Loss) Investment From Value Per
Per Share Income on Investments Income Adviser Share
- ----------------------------------------------------------------------------------------------------------------------------------
CASH INVESTMENT FUND
Year Ended May 31, 1998 $1.00 $0.053 -- ($0.053) -- $1.00
Year Ended May 31, 1997 $1.00 $0.051 -- ($0.051) -- $1.00
Year Ended May 31, 1996 $1.00 $0.054 -- ($0.054) -- $1.00
Year Ended May 31, 1995 $1.00 $0.049 -- ($0.049) -- $1.00
Year Ended May 31, 1994 $1.00 $0.031 -- ($0.031) -- $1.00
Year Ended May 31, 1993 $1.00 $0.033 -- ($0.033) -- $1.00
December 1, 1991 to May 31, 1992 $1.00 $0.021 -- ($0.021) -- $1.00
Year Ended November 30, 1991 $1.00 $0.061 -- ($0.061) -- $1.00
Year Ended November 30, 1990 $1.00 $0.079 -- ($0.079) -- $1.00
Year Ended November 30, 1989 $1.00 $0.088 -- ($0.088) -- $1.00
Year Ended November 30, 1988 $1.00 $0.071 -- ($0.071) -- $1.00
READY CASH INVESTMENT FUND- INVESTOR SHARES
Year Ended May 31, 1998 $1.00 $0.050 -- ($0.050) -- $1.00
Year Ended May 31, 1997 $1.00 $0.047 -- ($0.047) -- $1.00
Year Ended May 31, 1996 $1.00 $0.051 -- ($0.051) -- $1.00
Year Ended May 31, 1995 $1.00 $0.045 -- ($0.045) -- $1.00
Year Ended May 31, 1994 $1.00 $0.027 -- ($0.027) -- $1.00
Year Ended May 31, 1993 $1.00 $0.030 -- ($0.030) -- $1.00
December 1, 1991 to May 31, 1992 $1.00 $0.020 -- ($0.020) -- $1.00
Year Ended November 30, 1991 $1.00 $0.058 -- ($0.058) -- $1.00
Year Ended November 30, 1990 $1.00 $0.076 -- ($0.076) -- $1.00
Year Ended November 30, 1989 $1.00 $0.085 -- ($0.085) -- $1.00
January 20, 1988(d) to November 30, 1988 $1.00 $0.059 -- ($0.059) -- $1.00
U.S. GOVERNMENT FUND
Year Ended May 31, 1998 $1.00 $0.051 -- ($0.051) -- $1.00
Year Ended May 31, 1997 $1.00 $0.049 -- ($0.049) -- $1.00
Year Ended May 31, 1996 $1.00 $0.052 -- ($0.052) -- $1.00
Year Ended May 31, 1995 $1.00 $0.047 -- ($0.047) -- $1.00
Year Ended May 31, 1994 $1.00 $0.030 -- ($0.030) -- $1.00
Year Ended May 31, 1993 $1.00 $0.030 -- ($0.030) -- $1.00
December 1, 1991 to May 31, 1992 $1.00 $0.020 -- ($0.020) -- $1.00
Year Ended November 30, 1991 $1.00 $0.058 -- ($0.058) -- $1.00
</TABLE>
Ratio to Average Net Assets
---------------------------------------
Net Net Assets at
Investment Net Gross Total End of Period
Income Expenses Expenses(a) Return(b) (000's Omitted)
- ------------------------------------------------------------------
5.29%(c) 0.48%(c) 0.57% (c) 5.42% $4,685,818
5.07% 0.48% 0.49% 5.21% $2,147,894
5.36% 0.48% 0.49% 5.50% $1,739,549
4.87% 0.48% 0.50% 4.96% $1,464,304
3.11% 0.49% 0.49% 3.16% $1,381,402
3.29% 0.50% 0.51% 3.36% $1,944,948
4.23%(d) 0.50%(d) 0.56%(d) 4.29%(d) $1,292,196
6.11% 0.51% 0.54% 6.31% $1,004,979
7.92% 0.45% 0.57% 8.22% $747,744
8.81% 0.45% 0.64% 9.22% $662,698
7.00% 0.43% 0.74% 7.32% $316,349
4.95%(c) 0.82%(c) 0.82%(c) 5.07% $789,380
4.75% 0.82% 0.83% 4.87% $576,011
5.02% 0.82% 0.87% 5.17% $473,879
4.64% 0.82% 0.91% 4.62% $268,603
2.70% 0.82% 0.92% 2.74% $164,138
3.04% 0.82% 0.94% 3.08% $162,585
4.01%(d) 0.82%(d) 0.93%(d) 4.05%(d) $176,378
5.81% 0.82% 0.96% 5.98% $183,775
7.56% 0.82% 0.97% 7.83% $166,911
8.51% 0.81% 0.99% 8.86% $144,117
7.11%(d) 0.77%(d) 1.13%(d) 6.97%(d) $46,736
5.08% 0.50% 0.51% 5.20% $2,260,208
4.91% 0.49% 0.49% 5.04% $1,912,574
5.13% 0.50% 0.51% 5.27% $1,649,721
4.68% 0.50% 0.52% 4.81% $1,159,421
3.02% 0.47% 0.53% 3.07% $1,091,141
3.00% 0.45% 0.57% 3.06% $903,274
3.99%(d) 0.45%(d) 0.61%(d) 4.07%(d) $623,685
5.84% 0.45% 0.60% 6.00% $469,487
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Year Ended November 30, 1990 $1.00 $0.077 -- ($0.077) -- $1.00
Year Ended November 30, 1989 $1.00 $0.085 -- ($0.085) -- $1.00
Year Ended November 30, 1988 $1.00 $0.069 -- ($0.069) -- $1.00
TREASURY FUND
Year Ended May 31, 1998 $1.00 $0.049 -- ($0.049) -- $1.00
Year Ended May 31, 1997 $1.00 $0.047 -- ($0.047) -- $1.00
Year Ended May 31, 1996 $1.00 $0.050 -- ($0.050) -- $1.00
Year Ended May 31, 1995 $1.00 $0.046 -- ($0.046) -- $1.00
Year Ended May 31, 1994 $1.00 $0.028 -- ($0.028) -- $1.00
Year Ended May 31, 1993 $1.00 $0.029 -- ($0.029) -- $1.00
December 1, 1991 to May 31, 1992 $1.00 $0.020 -- ($0.020) -- $1.00
December 3, 1990(d) to November 30, 1991 $1.00 $0.058 -- ($0.058) -- $1.00
MUNICIPAL MONEY MARKET FUND
Investor Shares
Year Ended May 31, 1998 $1.00 $0.031 -- ($0.031) -- $1.00
Year Ended May 31, 1997 $1.00 $0.030 -- ($0.030) -- $1.00
Year Ended May 31, 1996 $1.00 $0.033 -- ($0.033) -- $1.00
Year Ended May 31, 1995 $1.00 $0.031 ($0.004) ($0.031) $0.004 $1.00
Year Ended May 31, 1994 $1.00 $0.021 -- ($0.021) -- $1.00
Year Ended May 31, 1993 $1.00 $0.021 -- ($0.021) -- $1.00
December 1, 1991 to May 31, 1992 $1.00 $0.014 -- ($0.014) -- $1.00
Year Ended November 30, 1991 $1.00 $0.042 -- ($0.042) -- $1.00
Year Ended November 30, 1990 $1.00 $0.053 -- ($0.053) -- $1.00
Year Ended November 30, 1989 $1.00 $0.058 -- ($0.058) -- $1.00
January 7, 1988(d) to November 30, 1988 $1.00 $0.042 -- ($0.042) -- $1.00
INSTITUTIONAL SHARES
Year Ended May 31, 1998 $1.00 $0.033 -- ($0.033) -- $1.00
Year Ended May 31, 1997 $1.00 $0.032 -- ($0.032) -- $1.00
Year Ended May 31, 1996 $1.00 $0.035 -- ($0.035) -- $1.00
Year Ended May 31, 1995 $1.00 $0.033 ($0.004) ($0.033) $0.004 $1.00
August 3, 1993(d) to May 31, 1994 $1.00 $0.019 -- ($0.019) -- $1.00
- -------------------------------------------------------------------------------------------
</TABLE>
(a) The ratio of Gross Expenses to Average Net Assets does not reflect fee
waivers or expense reimbursements.
(b) Total Return would have been lower absent expense reimbursements and fee
waivers
(c) Includes expenses allocated from the Portfolio(s) in which the Fund
invests.
(d) Annualized.
(e) The Funds commenced operations on January 20, 1988, December 3, 1990,
January 7, 1988, and August 3, 1993, respectively.
(f) Total Return for 1995 includes the effect of a capital contribution from
Norwest Bank. Without the capital contribution, total return would have
been 2.59% for Investor Shares and 2.79% for Institutional Shares.
7.66% 0.45% 0.61% 7.94% $500,794
8.51% 0.45% 0.65% 8.87% $394,137
6.87% 0.42% 0.73% 7.13% $254,104
4.89% 0.46% 0.54% 5.00% $1,440,515
4.74% 0.46% 0.53% 4.87% $1,003,697
4.91% 0.46% 0.56% 5.04% $802,270
4.62% 0.46% 0.57% 4.65% $661,098
2.81% 0.46% 0.58% 2.83% $526,483
2.93% 0.47% 0.58% 2.98% $384,751
4.01%(d) 0.47%(d) 0.59%(d) 4.07%(d) $374,492
5.62%(d) 0.31%(d) 0.66%(d) 6.02%(d) $354,200
3.13% 0.65% 0.83% 3.18% $44,070
3.01% 0.65% 0.87% 3.08% $54,616
3.25% 0.65% 0.88% 3.31% $57,021
3.10% 0.65% 0.93% 3.13%(e) $47,424
2.03% 0.65% 0.99% 2.09% $33,554
2.13% 0.65% 0.97% 2.18% $75,521
2.81%(d) 0.63%(d) 0.96%(d) 2.89%(d) $82,678
4.10% 0.64% 1.08% 4.26% $66,327
5.34% 0.64% 1.16% 5.48% $29,801
5.78% 0.62% 1.15% 5.94% $18,639
4.64%(d) 0.60%(d) 1.20%(d) 4.76%(d) $8,963
3.32% 0.45% 0.59% 3.39% $977,693
3.21% 0.45% 0.70% 3.28% $635,655
3.41% 0.45% 0.72% 3.52% $592,436
3.37% 0.45% 0.74% 3.33%(e) $278,953
2.33%(d) 0.45%(d) 0.77%(d) 2.34%(d) $190,356
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Net Realized
and Distributions Distributions Ending
Beginning Net Net Unrealized from Net from Net Net Asset
FIXED INCOME FUNDS - I SHARES Asset Value Investment Gain (Loss) Investment Realized Value Per
Per Share Income on Investments Income Gain Share
- ----------------------------------------------------------------------------------------------------------------------------
STABLE INCOME FUND
Year Ended May 31, 1998 $10.24 $0.58 $0.05 ($0.57) -- $10.30
Year Ended May 31, 1997 $10.20 $0.58 $0.04 ($0.58) -- $10.24
November 1, 1995 to May 31, 1996 $10.72 $0.28 $0.03 ($0.77) ($0.06) $10.20
November 11, 1994(e) to October 31, 1995 $10.00 $0.50 $0.22 -- -- $10.72
LIMITED TERM GOVERNMENT INCOME FUND
October 1, 1997(e) to May 31, 1998 $10.00 $0.38 ($0.11) ($0.38) ($0.01) $9.88
INTERMEDIATE GOVERNMENT INCOME FUND
Year Ended May 31, 1998 $10.84 $0.71 $0.37 ($0.70) -- $11.22
Year Ended May 31, 1997 $10.89 $0.72 ($0.04) ($0.73) -- $10.84
November 1, 1995 to May 31, 1996 $12.40 $0.40 $0.53 ($1.32) ($1.12) $10.89
November 11, 1994(e) to October 31, $11.11 $0.93 $0.36 -- -- $12.40
1995(g)
DIVERSIFIED BOND FUND
Year Ended May 31, 1998 $25.60 $1.61 $1.51 ($1.66) ($0.03) $27.03
Year Ended May 31, 1997 $26.03 $1.59 $0.01 ($1.69) ($0.34) $25.60
November 1, 1995 to May 31, 1996 $27.92 $1.07 ($0.99) ($1.67) ($0.30) $26.03
November 11, 1994(e) to October 31, 1995 $25.08 $1.65 $1.19 -- -- $27.92
INCOME FUND
Year Ended May 31, 1998 $9.27 $0.61 $0.51 ($0.61) -- $9.78
Year Ended May 31, 1997 $9.26 $0.62 $0.01 ($0.62) -- $9.27
Year Ended May 31, 1996 $9.62 $0.61 ($0.36) ($0.61) -- $9.26
Year Ended May 31, 1995 $9.51 $0.65 $0.11 ($0.65) -- $9.62
August 2, 1993(e) to May 31, 1994 $10.68 $0.58 ($0.91) ($0.58) ($0.26) $9.51
TOTAL RETURN BOND FUND
Year Ended May 31, 1998 $9.41 $0.59 $0.28 ($0.59) ($0.05) $9.64
Year Ended May 31, 1997 $9.40 $0.60 $0.04 ($0.60) ($0.03) $9.41
Year Ended May 31, 1996 $9.73 $0.64 ($0.31) ($0.64) ($0.02) $9.40
Year Ended May 31, 1995 $9.54 $0.67 $0.19 ($0.67) -- $9.73
December 31, 1993(e) to May 31, 1994 $10.00 $0.27 ($0.46) ($0.27) -- $9.54
STRATEGIC INCOME FUND(E)
Year Ended May 31, 1998 $18.47 $0.79 $1.75 ($0.86) ($0.59) $19.56
Year Ended May 31, 1997 $18.12 $0.97 $0.71 ($0.95) ($0.38) $18.47
November 1, 1995 to May 31, 1996 $18.21 $0.48 $0.42 ($0.76) ($0.23) $18.12
November 11, 1994(g) to October 31, 1995 $16.19 $0.75 $1.27 -- -- $18.21
- -------------------------------------------------------------------------------------
(a) The ratio of Gross Expenses to Average Net Assets does not reflect fee
waivers or expense reimbursements.
(b) Total Return would have been lower absent expense reimbursements and/or fee
waivers.
(c) Includes expenses allocated from the Portfolio(s) in which the Fund
invests.
(d) Reflects the activity of the Portfolio(s) in which the Fund invests.
(e) The Funds commenced offering I Shares on November 11, l994, October 1,
l997, November 11, 1994, November 11, 1994, August 2, 1993, and December
31, 1993, respectively.
(f) Annualized.
(g) Adjusted for a five to one stock split. (h) Portfolio Turnover Rate and
Average Commission Rate are not applicable as the Fund invested in more
than one Porfolio.
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Ratio to Average Net Assets
---------------------------------------
Net Portfolio Net Assets at
Investment Net Gross Total Turnover End of Period
Income (Loss) Expenses Expenses(a) Return(b) Rate (000's Omitted)
- -------------------------------------------------------------------------------------
4.47% 0.80% 1.03% 14.13% N/A(h) N/A(h) $235,254
4.38% 0.81% 0.98% 9.58% 72.03% $0.0720 $128,777
4.65%(f) 0.82%(f) 0.97%(f) 5.14% 56.47% $0.0648 $146,950
4.67%(f) 0.82%(f) 1.03%(f) 12.48% 65.53% N/A $136,710
5.69%(c) 0.65%(c) 0.76%(c) 6.28% 37.45%(d) $144,215
5.73% 0.65% 0.79% 6.24% 41.30% $111,030
5.74%(f) 0.65%(f) 0.92%(f) 2.97% 109.95% $83,404
5.91%(f) 0.65%(f) 0.98%(f) 7.20% 115.85% $48,087
5.78%(e)(f) 0.40%(e)(f) 0.89%(e)(f) 4.42% 99.49% $66,113
6.35% 0.68% 0.72% 10.19% 96.76% $400,346
6.57% 0.68% 0.72% 6.36% 183.05% $371,278
6.71%(f) 0.71%(f) 1.17%(f) 0.60% 74.64% $399,324
7.79%(f) 0.68%(f) 0.93%(f) 11.58% 240.90% $50,213
5.98%(c) 0.70%(c) 1.02%(c) 12.39% N/A $134,831
6.19% 0.70% 0.77% 6.23% 57.19% $162,310
6.78%(f) 0.70%(f) 0.77%(f) 0.22% 118.92% $167,159
5.87%(f) 0.67%(f) 0.82%(f) 11.32% 58.90% $171,453
6.32% 0.75% 0.95% 12.35% 167.09% $290,566
6.59% 0.75% 1.02% 6.90% 231.00% $258,207
6.30% 0.75% 1.06% 2.58% 270.17% $271,157
7.02% 0.75% 1.06% 8.49% 98.83% $109,994
6.75%(f) 0.61%(f) 1.09%(f) (4.04%)(f) 26.67% $93,665
6.14%(c) 0.75%(c) 0.86%(c) 9.45% 134.56%(d) $109,084
6.36% 0.75% 1.05% 6.95% 55.07% $125,437
6.57% 0.75% 1.07% 3.41% 77.49% $120,767
7.04% 0.71% 1.17% 9.43% 35.19% $96,199
6.81%(f) 0.46%(f) 2.10%(f) (4.62%)(f) 37.50% $11,694
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Net Realized
and Disbritutions Distributions Ending
TAX-FREE FIXED Beginning Net Unrealized from Net from Net Net Asset Net
Net
INCOME FUNDS - I SHARES Asset Value Investment Gain (Loss) Investment Realized Value Per Investment
Per Share Income on Investments Income Gain Share Income
- ------------------------------------------------------------------------------------------------------------------------------------
LIMITED TERM TAX-FREE FUND
Year Ended May 31, 1998 $10.39 $0.47 $0.21 ($0.47) ($0.01) $10.59 4.47%
October 1, 1996(c) to May 31, 1997 $10.00 $0.31 $0.39 ($0.31) -- $10.39 4.45%(d)
TAX-FREE INCOME FUND
Year Ended May 31, 1998 $10.06 $0.53 $0.48 ($0.53) -- $10.54 5.09%
Year Ended May 31, 1997 $9.78 $0.54 $0.28 ($0.54) -- $10.06 5.40%
Year Ended May 31, 1996 $9.82 $0.55 ($0.04) ($0.55) -- $9.78 5.57%
Year Ended May 31, 1995 $9.60 $0.55 $0.22 ($0.55) -- $9.82 5.84%
August 2, 1993(c) to May 31, 1994 $10.14 $0.47 ($0.47) ($0.47) ($0.07) $9.60 5.71%(d)
COLORADO TAX-FREE FUND
Year Ended May 31, 1998 $10.22 $0.53 $0.47 ($0.53) -- $10.69 5.01%
Year Ended May 31, 1997 $9.89 $0.54 $0.33 ($0.54) -- $10.22 5.35%
Year Ended May 31, 1996 $9.90 $0.53 ($0.01) ($0.53) -- $9.89 5.30%
Year Ended May 31, 1995 $9.69 $0.48 $0.21 ($0.48) -- $9.90 5.08%
August 23, 1993(c) to May 31, 1994 $10.22 $0.39 ($0.52) ($0.39) ($0.01) $9.69 5.03%(d)
MINNESOTA INTERMEDIATE TAX-FREE FUND
October 1, 1997(c) to May 31, 1998 $10.00 $0.33 $0.03 ($0.33) -- $10.03 5.02%(d)
MINNESOTA TAX-FREE FUND
Year Ended May 31, 1998 $10.57 $0.53 $0.48 ($0.53) -- $11.05 4.84%
Year Ended May 31, 1997 $10.30 $0.54 $0.27 ($0.54) -- $10.57 5.12%
Year Ended May 31, 1996 $10.45 $0.56 ($0.15) ($0.56) -- $10.30 5.24%
Year Ended May 31, 1995 $10.16 $0.53 $0.29 ($0.53) -- $10.45 5.29%
August 2, 1993(c) to May 31, 1994 $10.74 $0.43 ($0.39) ($0.43) ($0.19) $10.16 4.90%(d)
- ------------------------------------------------------------------------------------
(a) The ratio of Gross Expenses to Average Net Assets does not reflect fee
waivers or expense reimbursements.
(b) Total Return would have been lower absent expense reimbursements and/or fee
waivers.
(c) The Funds commenced offering I Shares on October 1, 1996, August 2, 1993,
August 23, 1993, Octoer 1, 1997, and August 2, 1993, respectively.
(d) Annualized.
</TABLE>
Ratio to Average Net Assets
-------------------------------------
Portfolio Net Assets at
Net Gross Total Turnover End of Period
Expenses Expenses(a) Return(b) Rate (000's Omitted)
- -------------------------------------------------------------------
0.65% 1.03% 6.70% 46.06% $54,602
0.65%(d) 1.27%(d) 6.99% 16.39% $40,990
0.60% 0.92% 10.22% 142.81% $286,734
0.50% 1.03% 8.54% 152.33% $259,861
0.32% 1.06% 5.29% 126.20% $276,159
0.60% 1.05% 8.42% 130.90% $94,454
0.60%(d) 1.10%(d) (0.21%)(d) 116.54% $102,084
0.60% 1.01% 9.97% 69.87% $32,342
0.45% 1.13% 9.00% 129.26% $25,917
0.30% 1.13% 5.35% 171.41% $24,074
0.30% 1.16% 7.47% 47.88% $24,539
0.11%(d) 1.21%(d) 0.90%(d) 40.92% $15,153
0.60%(d) 0.72%(d) 3.61% 15.13% $209,685
0.60% 1.04% 9.71% 68.27% $20,736
0.60% 1.23% 7.98% 96.68% $11,135
0.51% 1.30% 3.97% 77.10% $3,988
0.48% 1.58% 8.44% 139.33% $1,799
0.61%(d) 1.54%(d) 0.29%(d) 84.23% $872
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Net Realized
and Dividends Distributions Ending
Beginning Net Net Unrealized from Net from Net Net Asset
BALANCED FUNDS - I SHARES Asset Value Investment Gain (Loss) Investment Realized Value Per
Per Share Income on Investments Income Gain Share
- -------------------------------------------------------------------------------------------------------------------------------
MODERATE BALANCED FUND
Year Ended May 31, 1998 $21.59 $0.80 $2.72 ($0.86) ($1.27) $22.98
Year Ended May 31, 1997 $20.27 $0.77 $1.60 ($0.76) ($0.29) $21.59
November 1, 1995 to May 31, 1996 $19.84 $0.46 $0.89 ($0.66) ($0.26) $20.27
November 11, 1994(g) to October 31, 1995 $17.25 $0.65 $1.94 -- -- $19.84
GROWTH BALANCED FUND
Year Ended May 31, 1998 $24.77 $0.58 $4.52 ($0.60) ($1.21) $28.06
Year Ended May 31, 1997 $22.83 $0.62 $2.86 ($0.63) ($0.91) $24.77
November 1, 1995 to May 31, 1996 $21.25 $0.31 $1.95 ($0.51) ($0.17) $22.83
November 11, 1994(g) to October 31, 1995 $17.95 $0.47 $2.83 -- -- $21.25
AGGRESSIVE BALANCED-EQUITY FUND
December 2, 1997(g) to May 31, 1998 $10.00 $0.06 $0.99 ($0.01) -- $11.04
- -----------------------------------------------------------------------------------------
</TABLE>
(a) Includes expenses allocated from the Portfolios in which the Fund
invests.
(b) The ratio of Gross Expenses to Average Net Assets does not reflect fee
waivers or expense reimbursements.
(c) Total Return would have been lower absent expense reimbursements and/or fee
waivers.
(d) Represents the average commission per share paid to brokers on the purchase
or sale of portfolio securities. Prior to 1996, this data wasnot reported
in mutual fund financial statements.
(e) Prior to October 1, 1997, Strategic Income Fund was named Conservative
Balanced Fund.
(f) Annualized.
(g) The Funds commenced offering I Shares on November 11, 1994, November 11,
1994, November 11, 1994, and December 2, 1997, respectively.
(h) Portfolio Turnover Rate and Average Commission Rate are not applicable as
the Fund invested exclusively in more than one Portfolio.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Ratio to Average Net Assets
- --------------------------------------
Net Portfolio Average Net Assets at
Investment Net Gross Total Turnover Commission End of Period
Income(a) Expenses(a) Expenses(a)(b) Return(c) Rate Rate (d) (000's Omitted)
- -------------------------------------------------------------------------------------------
3.57% 0.88% 1.05% 17.04% N/A(h) N/A(h) $464,384
3.70% 0.88% 1.04% 12.04% 45.33% $0.0684 $418,680
3.95%(f) 0.90%(f) 1.04%(f) 7.03% 52.71% $0.0658 $398,005
3.76%(f) 0.92%(f) 1.11%(f) 15.01% 62.08% N/A $373,998
2.38% 0.93% 1.09% 21.40% N/A(h) N/A(h) $665,758
2.47% 0.94% 1.16% 15.81% 24.33% $0.0676 $503,382
2.66%(f) 0.98%(f) 1.16%(f) 10.87% 38.78% $0.0696 $484,641
2.63%(f) 0.99%(f) 1.23%(f) 18.38% 41.04% N/A $374,892
1.58%(f) 1.00%(f) 2.29%(f) 10.55% N/A(h) N/A(h) $8,872
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Net Realized
and Dividends Distributions Ending
Beginning Net Unrealized from Net from Net Return Net Asset
Net
EQUITY FUNDS - I SHARES Asset Value Investment Gain (Loss) Investment Realized of Value Per
Per Share Income (Loss) on Investments Income Gain Capital Share
- --------------------------------------------------------------------------------------------------------------------------------
INDEX FUND
Year Ended May 31, 1998 $39.49 $0.58 $10.74 ($0.65) ($3.80) -- $46.36
Year Ended May 31, 1997 $31.49 $0.49 $8.50 ($0.48) ($0.51) -- $39.49
November 1, 1995 to May 31, 1996 $27.67 $0.36 $4.08 ($0.43) ($0.19) -- $31.49
November 11, 1994(g) to October 31, $21.80 $0.45 $5.42 -- -- -- $27.67
1995
INCOME EQUITY FUND
Year Ended May 31, 1998 $33.16 $0.52 $8.76 ($0.54) ($0.72) -- $41.18
Year Ended May 31, 1997 $27.56 $0.56 $5.55 ($0.51) -- -- $33.16
November 1, 1995 to May 31, 1996 $24.02 $0.29 $4.02 ($0.69) ($0.08) -- $27.56
November 11, 1994(g) to October 31, $18.90 $0.46 $4.66 -- -- -- $24.02
1995
VALUGROWTH STOCK FUND
Year Ended May 31, 1998 $25.03 $0.06 $4.76 ($0.16) ($3.54) -- $26.15
Year Ended May 31, 1997 $22.61 $0.16 $4.80 ($0.13) ($2.41) -- $25.03
Year Ended May 31, 1996 $18.80 $0.14 $3.91 ($0.12) ($0.12) -- $22.61
Year Ended May 31, 1995 $17.16 $0.18 $1.64 ($0.18) -- -- $18.80
August 2, 1993(g) to May 31, 1994 $16.91 $0.13 $0.46 ($0.12) ($0.22) -- $17.16
DIVERSIFIED EQUITY FUND
Year Ended May 31, 1998 $36.50 $0.22 $8.94 ($0.27) ($2.33) -- $43.06
Year Ended May 31, 1997 $30.55 $0.25 $6.05 ($0.16) ($0.19) -- $36.50
November 1, 1995 to May 31, 1996 $27.53 $0.16 $4.25 ($0.42) ($0.97) -- $30.55
November 11, 1994(g) to October 31, $22.21 $0.22 $5.10 -- -- -- $27.53
1995
GROWTH EQUITY FUND
Year Ended May 31, 1998 $32.48 ($0.04) $6.86 ($0.04) ($3.54) -- $35.72
Year Ended May 31, 1997 $29.08 ($0.02) $4.05 ($0.04) ($0.59) -- $32.48
November 1, 1995 to May 31, 1996 $26.97 -- $4.09 ($0.12) ($1.86) -- $29.08
November 11, 1994(g) to October 31, $22.28 ($0.02) $4.71 -- -- -- $26.97
1995
LARGE COMPANY GROWTH FUND
Year Ended May 31, 1998 $32.63 ($0.11) $10.20 -- ($2.78) -- $39.94
Year Ended May 31, 1997 $26.97 ($0.03) $5.91 -- ($0.22) -- $32.63
November 1, 1995 to May 31, 1996 $23.59 ($0.04) $3.64 -- ($0.22) -- $26.97
November 11, 1994(g) to October 31, $18.50 ($0.05) $5.14 -- -- -- $23.59
1995
DIVERSIFIED SMALL CAP FUND
December 31, 1997(g) to May 31, 1998 $10.00 -- $0.52 -- -- -- $10.52
SMALL COMPANY STOCK FUND
Year Ended May 31, 1998 $13.88 ($0.09) $1.11 -- ($2.90) ($0.07) $11.93
Year Ended May 31, 1997 $13.96 ($0.04) $0.87 -- ($0.91) -- $13.88
Year Ended May 31, 1996 $10.59 $0.01 $3.93 ($0.03) ($0.54) -- $13.96
Year Ended May 31, 1995 $9.80 $0.12 $0.87 ($0.12) ($0.08) -- $10.59
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Ratio to Average Net Assets
--------------------------------------
Net Portfolio Average Net Assets at
Investment Net Gross Total Turnover Commission End of Period
Income Expenses Expenses(a) Return(b) Rate Rate (c) (000's Omitted)
- -------------------------------------------------------------------------------------------
1.53%(d) 0.25%(d) 0.58%(d) 30.32% 6.68%(e) 0.0339(e) $784,205
2.10% 0.25% 0.56% 29.02% 24.17% $0.0417 $513,134
2.25%(f) 0.31%(f) 0.57%(f) 16.27% 9.12% $0.0517 $249,644
2.12%(f) 0.50%(f) 0.64%(f) 26.93% 14.48% N/A $186,197
1.43%(d) 0.85%(d) 0.86%(d) 28.61% 3.46%(e) 0.0585(e) $1,214,385
1.97% 0.85% 0.90% 22.40% 4.76% $0.0792 $425,197
2.72%(f) 0.86%(f) 1.13%(f) 18.14% 0.69% $0.0942 $230,831
2.51%(f) 0.85%(f) 1.12%(f) 27.09% 7.03% N/A $49,000
0.53% 1.00% 1.20% 21.18% 74.25% $0.0588 $609,056
0.67% 1.01% 1.33% 23.30% 75.50% $0.0781 $180,204
0.62% 1.20% 1.32% 21.72% 105.43% $0.0603 $156,553
1.02% 1.20% 1.33% 10.67% 63.82% N/A $136,589
0.92%(f) 1.20%(f) 1.39%(f) 2.99%(f) 86.07% N/A $113,061
0.60%(d) 1.00%(d) 1.13%(d) 26.12% N/A(e) N/A(e) $1,520,343
0.79%(d) 1.02%(d) 1.31%(d) 20.76% 48.08% $0.0626 $1,212,565
1.00%(d)(f) 1.06%(d)(f) 1.30%(d)(f) 16.38% 5.76% $0.0671 $907,223
1.01%(d)(f) 1.09%(d)(f) 1.37%(d)(f) 23.95% 10.33% N/A $711,111
(0.11%)(d) 1.25%(d) 1.35%(d) 22.52% N/A(e) N/A(e) $1,033,251
(0.09%)(d) 1.30%(d) 1.84%(d) 14.11% 9.06% $0.0565 $895,420
0.01%(d)(f) 1.35%(d)(f) 1.85%(d)(f) 15.83% 7.39% $0.0617 $735,728
(0.11%)(d)(f)1.38%(d)(f) 1.92%(d)(f) 21.10% 8.90% N/A $564,004
(0.36%)(d) 1.00%(d) 1.03%(d) 32.29% 13.03%(e) 0.0552(e) $232,499
(0.18%) 0.99% 1.09% 21.93% 24.37% $0.0564 $131,768
(0.30%)(f) 1.00%(f) 1.13%(f) 15.40% 16.93% $0.0616 $82,114
(0.23%)(f) 1.00%(f) 1.20%(f) 27.51% 31.60% N/A $63,567
(0.25%)(d)(f)1.21%(d)(f) 2.65%(d)(f) 5.20% N/A(h) N/A(h) $12,551
(0.53%)(d) 1.20%(d) 1.32%(d) 8.12% 166.16%(e) 0.0616(e) $112,713
(0.38%) 1.19% 1.56% 6.30% 210.19% $0.0774 $161,995
0.05% 1.21% 1.60% 38.30% 134.53% $0.0555 $125,986
1.14% 0.52% 1.82% 10.13% 68.09% N/A $54,240
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1993(g) to May 31, 1994 $10.00 $0.08 ($0.20) ($0.08) -- -- $9.80
SMALL CAP OPPORTUNITIES FUND
Year Ended May 31, 1998 $19.84 ($0.06) $4.36 -- ($0.53) -- $23.61
August 15, 1996 to(g) May 31, 1997 $16.26 ($0.01) $3.60 -- ($0.01) -- $19.84
SMALL COMPANY GROWTH FUND
Year Ended May 31, 1998 $31.08 ($0.23) $6.88 -- ($4.04) -- $33.69
Year Ended May 31, 1997 $33.00 ($0.18) $1.83 -- ($3.57) -- $31.08
November 1, 1995 to May 31, 1996 $29.99 ($0.07) $5.94 -- ($2.86) -- $33.00
November 11, 1994(g) to October 31, $21.88 ($0.11) $8.22 -- -- -- $29.99
1995
INTERNATIONAL FUND
Year Ended May 31, 1998 $21.67 $0.09 $2.29 ($0.20) -- -- $23.85
Year Ended May 31, 1997 $19.84 $0.09 $1.94 ($0.20) -- -- $21.67
November 1, 1995 to May 31, 1996 $17.99 $0.14 $2.04 ($0.33) -- -- $19.84
November 11, 1994(g) to October 31, $17.28 $0.09 $0.62 -- -- -- $17.99
1995
- -----------------------------------------------------------------------------------
</TABLE>
(a) The ratio of Gross Expenses to Average Net Assets does not reflect fee
waivers and expense reimbursements.
(b) Total Return would have been lower absent expense reimbursements and fee
waivers.
(c) Average Commission Rate represents the per share fee paid to brokers on the
purchase or sale of portfolio securities. Prior to 1996, this data was not
reported in mutual fund financial statements.
(d) Includes expenses allocated from the Portfolio(s) in which the Fund
invests.
(e) Reflects the activity of the Portfolio(s) in which the Fund invests.
(f) Annualized.
(g) The Funds commenced offering I Shares on November 11, 1994, November 11,
1994, August 2, 1993, November 11, 1994, November 11, 1994, November 11,
1994, December 31, 1997, December 31, 1993, August 15, 1996, November 11,
1994, and November 11, 1994, respectively.
(h) Investment securities were not held directly due to investment in
Portfolios. Portfolio Turnover Rate and Average Commission Rate are not
applicable as the Fund invested in more than one Portfolio.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
2.03%(f) 0.20%(f) 4.33%(f) (2.93%)(f) 14.98% N/A $9,251
(0.40%)(d) 1.25%(d) 1.38%(d) 21.95% 54.98%(e) 0.0582(e) $284,828
(0.16%)(d)(f)1.25%(d)(f) 1.89%(d)(f) 11.42% 34.45%(e) $0.0584 $77,174
(0.73%)(d) 1.25%(d) 1.26%(d) 22.38% 123.36%(e) 0.0567(e) $748,269
(0.71%) 1.24% 1.29% 5.65% 124.03% $0.0565 $447,580
(0.41%)(f) 1.25%(f) 1.29%(f) 21.43% 62.06% $0.0583 $378,546
(0.47%)(f) 1.25%(f) 1.35%(f) 37.07% 106.55% N/A $278,058
0.45%(d) 1.47%(d) 1.50%(d) 11.19% N/A(h) N/A(h) $279,667
0.40%(d) 1.43%(d) 1.44%(d) 10.27% 48.23%(e) $0.0202 $228,552
0.60%(d)(f) 1.50%(d)(f) 1.52%(d)(f) 12.31% 14.12%(e) $0.0325 $143,643
0.54%(d)(f) 1.50%(d)(f) 1.66%(d)(f) 4.11% 29.41%(e) N/A $91,401
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
3. GLOSSARY
- --------------------------------------------------------------------------------
This Glossary of frequently used terms will help you understand the
discussion of the Funds' objectives, policies, and risks. Defined terms are
capitalized when used in this prospectus.
Term Definition
- ---- ----------
AMT Alternative minimum tax.
Board The Board of Trustees of Norwest Advantage
Funds.
Dollar Roll A transaction in which a Fund sells
fixed income securities and commits to
purchase similar, but not identical,
securities at a later date from the same
party.
Duration A measure of a debt security's average life
that reflects the present value of
the security's cash flow. Prices of
securities with longer durations generally
are more volatile.
Fundamental Requiring shareholder approval to change.
Investment Grade Rated at the time of purchase in 1 of
the 4 highest long-term or 2 highest
short-term ratings categories by an NRSRO or
unrated and determined by the Adviser to be
of comparable quality.
Market Capitalization The total market value of a company's
outstanding common stock.
Municipal Security A debt security issued by or on behalf of
the states, territories, or possessions
of the United States, the District of
Columbia and their subdivisions,
authorities, instrumentalities, and
corporations, with interest exempt from
federal income tax.
NRSRO A nationally recognized statistical rating
organization, such as S&P, that rates fixed-
income securities and preferred stock by
relative credit risk. NRSROs also rate money
market mutual funds.
Non-Investment Grade Rated below Investment Grade.
Related Issuers Issuers of Municipal Securities that
economic, business, or political
developments affect in similar ways.
Russell 1000(R) Index An index of large- and medium-capitalization
companies.
Russell 2000(R) Index An index of smaller capitalization
companies with a broader base of companies
than the S&P 600 Small Cap Index.
S&P Standard & Poor's Corporation.
S&P 500 Index Standard & Poor's 500 Composite Stock
Price Index, an index of large
capitalization companies.
S&P 600 Small Cap Index Standard & Poor's Small Cap 600 Composite
Stock Price Index, an index of small
capitalization companies.
SAI Statement of Additional Information.
SEC The U.S. Securities and Exchange Commission.
STRIPS Separately traded principal or interest
components of securities issued or
guaranteed by the U.S. Treasury under the
Treasury's Separate Trading of
<PAGE>
Registered Interest and Principal of
Securities program.
U.S. Government Security A security issued or guaranteed as to
principal and interest by the U.S.
Government, its agencies, or its
instrumentalities.
U.S. Treasury Security A security issued or guaranteed by the U.S.
Treasury.
- --------------------------------------------------------------------------------
4. INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
This section discusses the investment objectives and policies of the Funds
and the Portfolios. After each Fund's description, there is a short,
alphabetical listing of the Fund's primary risks. The Risk Considerations
section below discusses these risks.
MONEY MARKET FUNDS
The Money Market Funds' investments are made under the requirements of an
SEC rule governing the investments that money market funds may make. Each
Fund invests only in high-quality, U.S. dollar-denominated short-term money
market instruments that are determined by the Adviser, under procedures
adopted by the Board, to be eligible for purchase and to present minimal
credit risks. The Funds may invest in securities with fixed, variable, or
floating rates of interest.
High-quality instruments include those that: (1) are rated (or, if unrated,
are issued by an issuer with comparable outstanding short-term debt that is
rated) in 1 of the 2 highest rating categories by 2 NRSROs or, if only 1
NRSRO has issued a rating, by that NRSRO; or (2) are otherwise unrated and
determined by the Adviser to be of comparable quality. Each Fund, other
than Municipal Money Market Fund, invests at least 95% of its total assets
in securities in the highest rating category.
CASH INVESTMENT FUND and READY CASH INVESTMENT FUND
INVESTMENT OBJECTIVES. Each Fund's investment objective is to provide high
current income to the extent consistent with the preservation of capital
and the maintenance of liquidity.
CASH INVESTMENT FUND invests equally in 2 Portfolios - Money Market
Portfolio and Prime Money Market Portfolio. Cash Investment Fund,
Money Market Portfolio, and Prime Money Market Portfolio generally
have the same investment objective and investment policies. Because
Prime Money Market Portfolio seeks to maintain a rating within the 2
highest short-term categories assigned by at least 1 NRSRO, it is more
limited in the type and amount of securities it may purchase.
READY CASH INVESTMENT FUND invests its assets in Prime Money Market
Portfolio. The Fund seeks to maintain a rating within the 2 highest
short-term categories assigned by at least 1 NRSRO.
INVESTMENT POLICIES. The Funds invest in a broad spectrum of high-quality
money market instruments of U.S. and foreign issuers, including U.S.
Government Securities, Municipal Securities, and corporate debt securities.
<PAGE>
The Funds may invest in obligations of financial institutions. These
include negotiable certificates of deposit, bank notes, bankers'
acceptances and time deposits of U.S. banks (including savings banks and
savings associations), foreign branches of U.S. banks, foreign banks and
their non-U.S. branches, U.S. branches and agencies of foreign banks, and
wholly owned banking-related subsidiaries of foreign banks. The Funds limit
their investments in obligations of financial institutions to institutions
that at the time of investment have total assets in excess of $1 billion,
or the equivalent in other currencies.
Each Fund normally will invest more than 25% of its total assets in the
obligations of domestic and foreign financial institutions, their holding
companies, and their subsidiaries. Neither Fund may invest more than 25% of
its total assets in any other single industry.
RISKS:
credit risk interest rate risk foreign risk
U.S. GOVERNMENT FUND
INVESTMENT OBJECTIVE. The Fund's investment objective is to provide high
current income to the extent consistent with the preservation of capital
and the maintenance of liquidity.
INVESTMENT POLICIES. The Fund invests primarily in U.S. Government
Securities and repurchase agreements for U.S. Government Securities. Under
normal circumstances, the Fund invests at least 65% of its total assets in
these securities. The Fund also may invest in zero coupon securities.
RISKS:
credit risk interest rate risk
TREASURY PLUS FUND
INVESTMENT OBJECTIVE. The Fund's investment objective is to provide high
current income to the extent consistent with the preservation of capital
and the maintenance of liquidity.
INVESTMENT POLICIES. Under normal circumstances, the Fund invests at least
80% of its total assets in U.S. Treasury Securities and in repurchase
agreements for U.S. Treasury Securities. The Fund also may invest in U.S.
Government Securities and in repurchase agreements for U.S. Government
Securities. The Fund may invest in zero coupon securities.
RISKS:
credit risk interest rate risk
<PAGE>
TREASURY FUND
INVESTMENT OBJECTIVE. The Fund's investment objective is to provide high
current income to the extent consistent with the preservation of capital
and the maintenance of liquidity.
INVESTMENT POLICIES. The Fund invests solely in U.S. Treasury Securities,
including zero-coupon securities.
RISKS:
credit risk interest rate risk
MUNICIPAL MONEY MARKET FUND
INVESTMENT OBJECTIVE. The Fund's investment objective is to provide high
current income exempt from federal income taxes to the extent consistent
with the preservation of capital and the maintenance of liquidity.
INVESTMENT POLICIES. The Fund expects to invest 100% of its assets in
Municipal Securities, including short-term municipal bonds and municipal
notes, and leases. These investments may have fixed, variable, or floating
rates of interest and may be zero-coupon securities. As part of its
objective, the Fund normally will invest at least 80% of its total assets
in federally tax-exempt instruments whose income may be subject to the
federal AMT. The Fund may invest up to 20% of its total assets in
securities that pay interest income subject to federal income tax.
The Fund may invest more than 25% but, under normal circumstances, will not
invest more than 35% of its assets in issuers located in a single state.
The Fund may invest more than 25% of its assets in industrial development
bonds and in participation interests in these types of bonds issued by
banks.
RISKS:
credit risk interest rate risk geographic concentration risk
<PAGE>
FIXED INCOME FUNDS
STABLE INCOME FUND
INVESTMENT OBJECTIVE. The Fund's investment objective is to maintain safety
of principal while providing low volatility total return.
INVESTMENT POLICIES. The Fund invests primarily in short-term Investment
Grade securities. The Fund invests in a diversified portfolio of fixed and
variable rate U.S. dollar-denominated fixed income securities of a broad
spectrum of U.S. and foreign issuers, including U.S. Government Securities
and the debt securities of financial institutions, corporations, and
others.
The Fund normally limits its investments in:
* mortgage-backed securities to not more than 65% of its total assets;
* other types of asset-backed securities to not more than 25% of its
total assets;
* mortgage-backed securities that are not U.S. Government Securities to
not more than 25% of its total assets; and
* U.S. Government Securities to not more than 50% of its total assets.
The Fund may not invest more than 30% of its total assets in the securities
issued or guaranteed by any single agency or instrumentality of the U.S.
Government, except the U.S. Treasury, and may not invest more than 10% of
its total assets in the securities of any other issuer.
The Fund only purchases Investment Grade securities. The Fund invests in
debt obligations with maturities (or average life in the case of
mortgage-backed and similar securities) ranging from overnight to 12 years
and seeks to maintain an average dollar-weighted portfolio maturity of
between 2 and 5 years.
The Fund may use options, swap agreements, interest rate caps, floors and
collars, and futures contracts to manage risk. The Fund also may use
options to enhance return.
RISKS:
credit risk foreign risk interest rate risk
leverage risk market risk prepayment risk
LIMITED TERM GOVERNMENT INCOME FUND
INVESTMENT OBJECTIVE. The Fund's investment objective is to provide income
and safety of principal by investing primarily in U.S. Government
Securities.
INVESTMENT POLICIES. The Fund invests primarily in fixed and variable rate
U.S. Government Securities. The Fund normally invests at least 65% of its
total assets in U.S. Government Securities and may invest up to 35% of its
total assets in other fixed income securities. The Fund emphasizes
<PAGE>
the use of short maturity securities to lessen interest rate risk and uses
mortgage-backed securities to enhance yield.
The Fund limits its investments in:
* mortgage-backed securities to not more than 50% of its total assets;
* other types of asset-backed securities to not more than 25% of its
total assets; and
* zero-coupon securities, except in STRIPS, to not more than 10% of its
total assets.
In addition, the Fund may not invest more than 25% of its total assets in
securities issued or guaranteed by any single agency or instrumentality of
the U.S. Government, except the U.S. Treasury. The Fund may enter into
short sales.
The Fund will only purchase securities that are rated, at the time of
purchase, within the 2 highest rating categories assigned by an NRSRO, or
which are unrated and determined by the Adviser to be of comparable
quality.
The Fund will invest primarily in debt obligations with maturities (or
average life in the case of mortgage-backed and similar securities) ranging
from overnight to ten years. Under normal circumstances, the Fund's
portfolio of securities will have an average dollar-weighted maturity of
between 1 and 5 years.
The Fund may use options, swap agreements, interest rate caps, floors and
collars, and futures contracts to manage risk. The Fund also may use
options to enhance return.
RISKS:
credit risk interest rate risk leverage risk
market Risk prepayment risk
INTERMEDIATE GOVERNMENT INCOME FUND
INVESTMENT OBJECTIVE. The Fund's investment objective is to provide income
and safety of principal by investing primarily in U.S. Government
Securities.
INVESTMENT POLICIES. The Fund invests primarily in fixed and variable rate
U.S. Government Securities. Under normal circumstances, the Fund intends to
invest at least 65% of its assets in U.S. Government Securities and may
invest up to 35% of its assets in fixed income securities that are not U.S.
Government Securities. The Fund emphasizes the use of intermediate maturity
securities to lessen interest rate risk and uses mortgage-backed securities
to enhance yield.
The Fund limits its investments in:
* mortgage-backed securities to not more than 50% of its total assets;
* other types of asset-backed securities to not more than 25% of its
total assets; and
* zero-coupon securities, except in STRIPS, to not more than 10% of its
total assets.
<PAGE>
As part of its mortgage-backed securities investments, the Fund may enter
into Dollar Rolls. The Fund may not invest more than 25% of its total
assets in securities issued or guaranteed by any single agency or
instrumentality of the U.S. Government, except the U.S. Treasury. The Fund
may enter into short sales.
The Fund will purchase only securities that are rated, at the time of
purchase, within the 2 highest rating categories assigned by an NRSRO, or
which are unrated and determined by the Adviser to be of comparable
quality.
The Fund will invest primarily in debt obligations with maturities (or
average life in the case of mortgage-backed and similar securities) ranging
from overnight to 30 years. Under normal circumstances, the Fund's
portfolio securities will have an average dollar-weighted maturity of
between 3 and 10 years and a duration of between 70% and 130% of the
Duration of a 5 year Treasury Note.
The Fund may use options, swap agreements, interest rate caps, floors and
collars, and futures contracts to manage risk. The Fund also may use
options to enhance return.
RISKS:
credit risk interest rate risk leverage risk
market risk prepayment risk
DIVERSIFIED BOND FUND
INVESTMENT OBJECTIVE. The Fund's investment objective is to provide total
return by diversifying its investments among different fixed income
investment styles.
INVESTMENT POLICIES. The Fund uses a "multi-style" approach designed to
reduce the price and return volatility of the Fund and to provide more
consistent returns. The Fund's portfolio combines the different fixed
income investment styles of 3 Portfolios - Managed Fixed Income style,
Strategic Value Bond style, and Positive Return style.
ALLOCATION. The current allocations and ranges of investments by the Fund
in each Portfolio are:
<TABLE>
<S> <C> <C>
0 current range of
allocation investment
----------- -----------
Managed Fixed Income Portfolio 50.0% 45% - 55%
Strategic Value Bond Portfolio 16.7% 11.7% - 21.7%
Positive Return Portfolio 33.3% 28.3% - 38.3%
--------------------------------------------------------------------------------------------------------
TOTAL FUND ASSETS 100%
</TABLE>
The percentage of Fund assets invested in each Portfolio may temporarily
deviate from the current allocations due to changes in market values. The
Adviser will effect transactions periodically to reestablish the current
allocations. The Adviser may make changes in the current allocations at any
time in response to market or other conditions. The Fund also may invest in
more or fewer Portfolios or invest directly in portfolio securities.
<PAGE>
RISKS:
credit risk foreign risk interest rate risk
leverage risk market risk prepayment risk
INCOME FUND
INVESTMENT OBJECTIVE. The Fund's investment objective is to provide total
return consistent with current income.
INVESTMENT POLICIES. The Fund invests in a diversified portfolio of fixed
and variable rate fixed income securities issued by domestic and foreign
issuers. The Fund invests in a broad spectrum of U.S. issuers, including
U.S. Government Securities, mortgage- and other asset-backed securities,
and the debt securities of financial institutions, corporations, and
others. The Adviser attempts to increase the Fund's performance by applying
various fixed income management techniques. The Adviser combines these
techniques with fundamental economic, credit, and market analysis while at
the same time controlling total return volatility by targeting the Fund's
Duration within a narrow band around the Duration of the Lipper Corporate
A-Rated Debt Average.
The Fund normally invests at least 30% of its total assets in U.S.
Government Securities. The Fund limits its investments in mortgage-backed
securities to not more than 50% of its total assets and its investments in
other asset-backed securities to not more than 25% of its total assets.
The Fund may invest up to 70% of its total assets in corporate securities,
such as bonds, debentures and notes, and fixed income securities that can
be converted into or exchanged for common stocks. The Fund also may invest
in zero coupon securities and enter into Dollar Rolls.
The Fund may invest in debt securities registered and sold in the United
States by foreign issuers and debt securities sold outside the United
States by foreign or U.S. issuers. The Fund restricts its purchases of debt
securities to those denominated and payable in U. S. dollars.
Normally, the Fund will invest at least 80% of its total assets in
Investment Grade securities. The Fund may invest up to 20% of its total
assets in Non-Investment Grade securities rated, at the time of purchase,
in the fifth highest long-term rating category assigned by an NRSRO or
unrated and determined by the Adviser to be of comparable quality.
The Fund invests primarily in securities with maturities (or average life
in the case of mortgage-backed and similar securities) ranging from
overnight to 40 years. It is anticipated that the Fund's portfolio will
have an average dollar-weighted maturity of between 3 and 15 years. The
Fund's portfolio of securities will normally have a Duration of between 70%
and 130% of the Duration of the Lipper Corporate A-Rated Debt Average.
RISKS:
credit risk foreign risk interest rate risk
leverage risk market risk prepayment risk
TOTAL RETURN BOND FUND
INVESTMENT OBJECTIVE. The Fund's investment objective is to seek total
return.
<PAGE>
INVESTMENT POLICIES. The Fund invests in a broad range of fixed income
instruments in order to create a strategically diversified portfolio of
fixed income investments. These investments include corporate bonds,
mortgage- and other asset-backed securities, U.S. Government Securities,
preferred stock, convertible bonds, and foreign bonds.
The Adviser focuses on relative value as opposed to predicting the
direction of interest rates. In general, the Fund seeks higher current
income instruments such as corporate bonds and mortgage-and other
asset-backed securities in order to enhance returns. The Adviser believes
that this exposure enhances performance in varying economic and interest
rate cycles and avoids excessive risk concentrations. The Adviser's
investment process involves rigorous evaluation of each security, including
identifying and valuing cash flows, embedded options, credit quality,
structure, liquidity, marketability, current versus historical trading
relationships, supply and demand for the instrument, and expected returns
in varying economic/interest rate environments. The Adviser uses this
process to seek to identify securities which represent the best relative
economic value. The Adviser then evaluates the results of the investment
process against the Fund's objective and purchases those securities that
are consistent with the Fund's investment objective.
The Fund particularly seeks strategic diversification. The Fund will not invest
more than:
* 75% of its total assets in corporate bonds;
* 65% of its total assets in mortgage-backed securities;
* 50% of its total assets in asset-backed securities; or
* 25% of its total assets in a single industry of the corporate market.
The Fund may invest in U.S. Government Securities without restriction. The
Fund generally will not invest more than 5% of its total assets in the
corporate bonds of any single issuer.
The Fund will invest 65% of its total assets in fixed income securities
rated, at the time of purchase, within the 3 highest rating categories
assigned by at least 1 NRSRO, or which are unrated and determined by the
Adviser to be of comparable quality. The Fund may invest up to 20% of its
total assets in Non-Investment Grade securities.
The average maturity of the Fund will vary between 5 and 15 years. In the
case of mortgage-backed and similar securities, the Fund uses the
security's average life in calculating the Fund's average maturity. The
Fund's Duration normally will vary between 3 and 8 years.
The Fund may use options, swap agreements, interest rate caps, floors and
collars, and futures contracts to manage risk. The Fund also may use
options to enhance return.
RISKS:
credit risk interest rate risk leverage risk
market risk prepayment risk
STRATEGIC INCOME FUND
INVESTMENT OBJECTIVE. The Fund's investment objective is to provide a
combination of current
<PAGE>
income and capital appreciation by diversifying investments in bonds, other
fixed income investments, and stocks.
INVESTMENT POLICIES. The Fund is designed for investors seeking to invest
in fixed income securities with limited exposure to equity securities. The
Fund emphasizes safety of principal. The Fund currently invests in 16
Portfolios.
The Fund invests the fixed income portion of its portfolio in: the same 3
Portfolios as Diversified Bond Fund; in Stable Income Portfolio; and Money
Market Portfolio. The blending of multiple fixed income investment styles
is intended to reduce the price and return volatility of, and provide more
consistent returns within, the fixed income portion of the Fund's
investments. The equity portion of the Fund's portfolio uses the 5
different equity investment styles of Diversified Equity Fund. The blending
of multiple equity investment styles is intended to reduce the risk
associated with the use of a single style, which may move in and out of
favor during the course of a market cycle.
ALLOCATION. The current allocations and ranges of investments by the Fund
in each Portfolio are:
<TABLE>
<S> <C> <C>
CURRENT RANGE
INVESTMENT STYLE ALLOCATION OF INVESTMENT
---------------- ---------- -------------
DIVERSIFIED BOND FUND STYLE 55% 45% - 65%
POSITIVE RETURN BOND PORTFOLIO 15% - 21.7%
18.3%
STRATEGIC VALUE BOND PORTFOLIO 7.5% - 10.8%
9.2%
MANAGED FIXED INCOME PORTFOLIO 22.5% - 32.5%
27.5%
STABLE INCOME PORTFOLIO 15% 15%
MONEY MARKET PORTFOLIO 10% 10%
DIVERSIFIED EQUITY FUND STYLE 20% 10% - 30%
INDEX PORTFOLIO 2.5% - 7.5%
5%
INCOME EQUITY PORTFOLIO 2.5% - 7.5%
5%
LARGE COMPANY STYLE 2.5% - 7.5%
5%
LARGE COMPANY GROWTH PORTFOLIO 2% - 6%
4%
DISCIPLINED GROWTH PORTFOLIO 0.5% - 1.5%
1%
DIVERSIFIED SMALL CAP STYLE 1% - 3%
2.0%
SMALL CAP INDEX PORTFOLIO 0.2% - 0.6%
0.4%
SMALL COMPANY GROWTH PORTFOLIO 0.2% - 0.7%
0.5%
SMALL COMPANY VALUE PORTFOLIO 0.2% - 0.7%
0.5%
SMALL COMPANY STOCK PORTFOLIO 0.25% - 0.5%
0.3%
SMALL CAP VALUE PORTFOLIO 0.2% - 0.5%
0.3%
INTERNATIONAL STYLE 1.5% - 4.5%
3.0%
INTERNATIONAL PORTFOLIO 1.2% - 4.5%
2.9%
SCHRODER EM CORE PORTFOLIO 0% - 0.9%
0.2%
-------------------------------------------------------------------------------------------------------------
TOTAL FUND ASSETS 100%
</TABLE>
The percentage of the Fund's assets invested in different styles may
temporarily deviate from the Fund's current allocation due to changes in
market values. The Adviser will effect transactions periodically to
reestablish the current allocation.
As market or other conditions change, the Adviser may attempt to enhance
the Fund's returns by changing the percentage of Fund assets invested in
fixed income and equity securities. The Fund may also invest in more or
fewer Portfolios or invest directly in portfolio securities. Absent
<PAGE>
unstable market conditions, the Adviser does not anticipate making a
substantial number of changes. When the Adviser believes that a change in
the current allocation percentages is desirable, it will sell and purchase
securities to effect the change. When the Adviser believes that a change
will be temporary (generally, 3 years or less), it may effect the change by
using futures contracts.
RISKS:
credit risk interest rate risk leverage risk
market risk prepayment risk
TAX-FREE FIXED INCOME FUNDS
Each Tax-Free Fixed Income Fund invests at least 80% of its total assets in
Municipal Securities paying interest that is exempt from federal income
tax. In order to respond to business and financial conditions, each Fund
may invest up to 20% of its total assets in securities paying taxable
interest income or securities paying interest income that may be a
preference item for purposes of the federal AMT. In addition, each Fund may
hold a portion of its assets in cash and cash-equivalent securities pending
investment in Municipal Securities, to meet requests for redemptions or to
assume a temporary defensive position.
LIMITED TERM TAX-FREE FUND
INVESTMENT OBJECTIVE. The Fund's investment objective is to produce current
income exempt from federal income taxes.
INVESTMENT POLICIES. The Fund normally invests substantially all its assets
in Investment Grade Municipal Securities. As a Fundamental investment
policy, the Fund will invest at least 80% of its total assets in securities
paying interest exempt from federal income taxes. The Fund invests
primarily in securities that do not pay interest that is treated as a
preference item for individuals for purposes of the federal AMT.
The average dollar-weighted maturity of the Fund's assets normally will be
between 1 and 5 years, but will vary depending on anticipated market
conditions. The Fund emphasizes investment in Municipal Securities with
interest income rather than maintaining stability of the Fund's net asset
value.
The Fund normally will not invest more than 25% of its total assets in
securities of issuers located in the same state or in Related Issuers.
RISKS:
credit risk interest rate risk market risk
prepayment risk
TAX-FREE INCOME FUND
INVESTMENT OBJECTIVE. The Fund's investment objective is to produce current
income exempt from federal income taxes.
INVESTMENT POLICIES. The Fund invests primarily in a portfolio of
Investment Grade Municipal
<PAGE>
Securities. As a Fundamental investment policy, the Fund will invest at
least 80% of its total assets in Municipal Securities paying interest
exempt from federal income taxes, including the federal AMT.
The average dollar-weighted maturity of the Fund's assets normally will be
between 10 and 20 years, but will vary depending on market conditions. In
general, the longer the maturity of a Municipal Security, the higher the
rate of interest it pays. However, a longer maturity is generally
associated with a higher level of volatility in the market value of a
security. The Fund emphasizes investments in Municipal Securities with
interest income rather than stability of the Fund's net asset value.
Under normal circumstances, the Fund will not invest more than 25% of its
total assets in issuers located in the same state or in securities of
Related Issuers.
RISKS:
credit risk interest rate risk market risk
prepayment risk
COLORADO TAX-FREE FUND
INVESTMENT OBJECTIVE. The Fund's investment objective is to provide
shareholders with a high level of current income exempt from both federal
and Colorado state income taxes (including the AMT) consistent with the
preservation of capital. The Fund offers shares only to residents of
Colorado.
INVESTMENT POLICIES. The Fund normally invests substantially all its assets
in Investment Grade Municipal Securities issued by (1) the state of
Colorado and its subdivisions, authorities, instrumentalities, and
corporations and (2) territories and possessions of the United States
("Colorado Municipal Securities"). As a Fundamental policy, the Fund will
invest at least 80% of its total assets in Municipal Securities paying
interest exempt from both federal and Colorado state income taxes
(including the AMT). The Fund invests in securities of a comparatively
small number of issuers. The Fund will not invest more than 25% of its
total assets in securities of Related Issuers or in securities of any 1
issuer except the U.S. Government.
The yields of Colorado Municipal Securities depend on, among other things,
conditions in the Colorado Municipal Securities market and fixed income
markets generally, the size of a particular offering, the maturity of the
securities and the rating of the issue. In some cases, Colorado issues may
have yields that are slightly less than the yields of Municipal Securities
of issuers located in other states because of the favorable effect of the
Colorado state tax exemption on Colorado issues.
The Adviser expects that the Fund's average portfolio maturity normally
will be greater than 10 years. The Fund's average portfolio maturity may
reach or exceed 20 years in the future. Depending on market conditions, the
Fund's average dollar-weighted maturity could be higher or lower. The Fund
emphasizes investments in Municipal Securities paying interest income
rather than maintaining the Fund's stability of net asset value. The Fund
also attempts to limit net asset value fluctuations.
RISKS:
<PAGE>
credit risk diversification risk geographic concentration risk
interest rate risk leverage risk market risk
prepayment risk
MINNESOTA INTERMEDIATE TAX-FREE FUND and MINNESOTA TAX-FREE FUND
INVESTMENT OBJECTIVE. Each Fund's investment objective is to provide
shareholders with a high level of current income exempt from both federal
and Minnesota state income taxes (including the AMT) without assuming undue
risk. The Funds offer shares only to residents of Minnesota.
INVESTMENT POLICIES. The Funds normally invest substantially all (and
always at least 75% of) their assets in Investment Grade Municipal
Securities issued by (1) the state of Minnesota and its subdivisions,
authorities, instrumentalities, and corporations and (2) territories and
possessions of the United States ("Minnesota Municipal Securities"). As a
Fundamental policy, the Funds will invest at least 80% of their total
assets in securities paying interest exempt from both federal and Minnesota
state income taxes (including the AMT). The Funds may invest in securities
of a comparatively small number of issuers. Neither Fund will invest more
than 25% of its total assets in securities of Related Issuers or in
securities of any 1 issuer except the U.S. Government.
The yields of Minnesota Municipal Securities depend on, among other things,
conditions in the Minnesota Municipal Securities market and fixed income
markets generally, the maturity of the securities, the rating of the issue,
and the size of a particular offering. In some cases, Minnesota issues may
have yields that are slightly less than the yields of Municipal Securities
of issuers located in other states because of the favorable effect of the
Minnesota state tax exemption on Minnesota issues.
Minnesota Intermediate Tax-Free Fund's average dollar-weighted maturity
normally will be between 5 and 10 years, but will vary depending on
anticipated market conditions.
There are no restrictions on Minnesota Tax-Free Fund's average portfolio
maturity. The Adviser expects that the Fund's average dollar-weighted
maturity normally will be greater than 10 years. The Fund's average
portfolio maturity may reach or exceed 20 years in the future. Depending on
market conditions, the Fund's average dollar-weighted maturity could be
higher or lower. The Funds emphasize investments in Municipal Securities
paying interest income rather than maintaining the Fund's stability of net
asset value.
The Funds may invest up to 25% of their total assets in Non-Investment
Grade Municipal Securities rated in the fifth highest long-term rating
category assigned by an NRSRO or unrated and determined by the Adviser to
be of comparable quality.
RISKS:
credit risk diversification risk geographic concentration risk
interest rate risk leverage risk market risk
prepayment risk
BALANCED FUNDS
Each Balanced Fund invests in a balanced portfolio of fixed income and
equity securities. Moderate
<PAGE>
Balanced Fund has the smallest investment in equity securities and is the
most conservative Balanced Fund. Aggressive Balanced-Equity Fund has the
largest investment in equity securities and is the most aggressive Balanced
Fund.
The equity portion of each Balanced Fund's portfolio uses the 5 different
equity investment styles of Diversified Equity Fund. The blending of
multiple equity investment styles is intended to reduce the risk associated
with the use of a single style, which may move in and out of favor during
the course of a market cycle. The fixed income portion of each Balanced
Fund's portfolio uses 3 or 4 different fixed income investment styles. The
blending of multiple fixed income investment styles is intended to reduce
the price and return volatility of, and provide more consistent returns
within, the fixed income portion of the Funds.
The percentage of a Balanced Fund's assets invested in different styles may
temporarily deviate from the Fund's current allocation due to changes in
market values. The Adviser will effect transactions periodically to
reestablish the current allocation.
As market or other conditions change, the Adviser may attempt to enhance
the returns of a Balanced Fund by changing the percentage of Fund assets
invested in fixed income and equity securities. The Fund also may invest in
more or fewer Portfolios or invest directly in portfolio securities. Absent
unstable market conditions, the Adviser does not anticipate making a
substantial number of percentage changes. When the Adviser believes that a
change in the current allocation percentages is desirable, it will sell and
purchase securities to effect the change. When the Adviser believes that a
change will be temporary (generally, 3 years or less), it may effect the
change by using futures contracts.
<PAGE>
MODERATE BALANCED FUND
INVESTMENT OBJECTIVE. The Fund's investment objective is to provide a
combination of current income and capital appreciation by diversifying
investments in stocks, bonds, and other fixed income investments.
INVESTMENT POLICIES. The Fund is designed for investors seeking roughly
equivalent exposures to fixed income securities and equity securities. The
Fund's portfolio is more evenly balanced between fixed income and equity
securities than the other Balanced Funds. The Fund currently invests in 15
Portfolios.
The Fund invests the fixed income portion of its portfolio in the same 3
Portfolios as Diversified Bond Fund and in Stable Income Portfolio. This
allocation is intended to reduce the risk of relying on a single fixed
income investment style.
ALLOCATION. The current allocations and ranges of investments by the Fund
in each Portfolio are:
<TABLE>
<S> <C> <C>
CURRENT RANGE OF
INVESTMENT STYLE ALLOCATION INVESTMENT
---------------- ---------- ----------
DIVERSIFIED BOND FUND STYLE 30% - 60%
45%
POSITIVE RETURN BOND PORTFOLIO 10% - 20%
15%
STRATEGIC VALUE BOND PORTFOLIO 5% - 10%
7.5%
MANAGED FIXED INCOME PORTFOLIO 15% - 30%
22.5%
STABLE INCOME PORTFOLIO 15%
15%
DIVERSIFIED EQUITY FUND STYLE 25% - 55%
40%
INDEX PORTFOLIO 6.3% - 13.8%
10%
INCOME EQUITY PORTFOLIO 6.3% - 13.8%
10%
LARGE COMPANY STYLE 6.3% - 13.8%
10%
LARGE COMPANY GROWTH PORTFOLIO 5.0% - 11.0%
8%
DISCIPLINED GROWTH PORTFOLIO 1.25% - 2.75%
2%
DIVERSIFIED SMALL CAP STYLE 2.5% - 5.5%
4%
SMALL CAP INDEX PORTFOLIO 0.5% - 1.1%
0.8%
SMALL COMPANY GROWTH PORTFOLIO 0.6% - 1.3%
1.0%
SMALL COMPANY VALUE PORTFOLIO 0.6% - 1.3%
1.0%
SMALL COMPANY STOCK PORTFOLIO 0.4% - 0.9%
0.6%
SMALL CAP VALUE PORTFOLIO 0.4% - 0.9%
0.6%
INTERNATIONAL STYLE 3.8% - 8.3%
6%
INTERNATIONAL PORTFOLIO 3.0% - 8.3%
5.7%
SCHRODER EM CORE PORTFOLIO 0% - 1.7%
0.3%
-------------------------------------------------------------------------------------------------------------
TOTAL FUND ASSETS
100%
</TABLE>
RISKS:
credit risk currency rate risk foreign risk
interest rate risk leverage risk market risk
prepayment risk
<PAGE>
GROWTH BALANCED FUND
INVESTMENT OBJECTIVE. The Fund's investment objective is to provide a
combination of current income and capital appreciation by diversifying
investments in stocks and bonds.
INVESTMENT POLICIES. The Fund is designed for investors seeking long-term
capital appreciation in the equity securities market in a balanced fund.
The Fund currently invests in 14 Portfolios.
The Fund invests the fixed income portion of its portfolio in the same 3
Portfolios as Diversified Bond Fund. This allocation is intended to reduce
the risk of relying on a single fixed income investment style.
ALLOCATION. The current allocations and ranges of investments by the Fund
in each Portfolio are:
<TABLE>
<S> <C> <C> <C>
CURRENT RANGE
INVESTMENT STYLE ALLOCATION OF INVESTMENT
---------------- ---------- -------------
DIVERSIFIED EQUITY FUND STYLE 45% - 85%
65%
INDEX PORTFOLIO 11.3% - 21.3%
16.3%
INCOME EQUITY PORTFOLIO 11.3% - 21.3%
16.3%
LARGE COMPANY STYLE 11.3% - 21.3%
16.3%
LARGE COMPANY GROWTH PORTFOLIO 9.0% - 17.0%
13.0%
DISCIPLINED GROWTH PORTFOLIO 2.3% - 4.3%
3.3%
DIVERSIFIED SMALL CAP STYLE 4.5% - 8.5%
6.5%
SMALL CAP INDEX PORTFOLIO 0.9% - 1.7%
1.3%
SMALL COMPANY GROWTH PORTFOLIO 1.1% - 2%
1.6%
SMALL COMPANY VALUE PORTFOLIO 1.1% - 2%
1.6%
SMALL COMPANY STOCK PORTFOLIO 0.7% - 1.4%
1.0%
SMALL CAP VALUE PORTFOLIO 0.8% - 1.4%
1.0%
INTERNATIONAL STYLE 6.8% - 12.8%
9.8%
INTERNATIONAL PORTFOLIO 5.4% - 12.8%
9.3%
SCHRODER EM CORE PORTFOLIO 0% - 2.6%
0.5%
DIVERSIFIED BOND FUND STYLE 15% - 55%
35%
MANAGED FIXED INCOME PORTFOLIO 7.5% - 27.5%
17.5%
STRATEGIC VALUE BOND PORTFOLIO 2.5% - 9.2%
5.8%
POSITIVE RETURN BOND PORTFOLIO 5% - 18.3%
11.7%
--------------------------------------------------------------------------------------------------------------
TOTAL FUND ASSETS
100%
RISKS:
credit risk currency rate risk foreign risk
interest rate risk leverage risk market risk
prepayment risk small company risk
</TABLE>
<PAGE>
AGGRESSIVE BALANCED-EQUITY FUND
INVESTMENT OBJECTIVE. The Fund's investment objective is to provide a
combination of current income and capital appreciation by diversifying
investments in stocks and bonds.
INVESTMENT POLICIES. The Fund is designed for investors seeking long-term
capital appreciation in the equity securities market in a balanced fund.
The Fund has the largest equity securities position of the Balanced Funds.
The Fund currently invests in 14 Portfolios.
The Fund invests the fixed income portion of its portfolio in the same 3
Portfolios as Diversified Bond Fund. This allocation is intended to reduce
the risk of relying on a single fixed income investment style.
ALLOCATION. The current allocations and ranges of investments by the Fund
in each Portfolio are:
<TABLE>
<S> <C> <C>
CURRENT RANGE
INVESTMENT STYLE ALLOCATION OF INVESTMENT
---------------- ---------- -------------
DIVERSIFIED EQUITY FUND STYLE 60% - 100%
80%
INDEX PORTFOLIO 15% - 25%
20%
INCOME EQUITY PORTFOLIO 15% - 25%
20%
LARGE COMPANY STYLE 15% - 25%
20%
LARGE COMPANY GROWTH PORTFOLIO 12% - 20%
16%
DISCIPLINED GROWTH PORTFOLIO 3% - 5%
4%
DIVERSIFIED SMALL CAP STYLE 6% - 10%
8%
SMALL CAP INDEX PORTFOLIO 1.2% - 2%
1.6%
SMALL COMPANY GROWTH PORTFOLIO 1.4% - 2.4%
1.9%
SMALL COMPANY VALUE PORTFOLIO 1.4% - 2.4%
1.9%
SMALL COMPANY STOCK PORTFOLIO 1% - 1.6%
1.3%
SMALL CAP VALUE PORTFOLIO 1% - 1.6%
1.3%
INTERNATIONAL STYLE 9% - 15%
12%
INTERNATIONAL PORTFOLIO 7.2% - 15%
11.4%
SCHRODER EM CORE PORTFOLIO 0% - 3%
0.6%
DIVERSIFIED BOND FUND STYLE 0% - 40%
20.0%
MANAGED FIXED INCOME PORTFOLIO 0% - 20%
10.0%
STRATEGIC VALUE BOND PORTFOLIO 0% - 6.7%
3.3%
POSITIVE RETURN BOND PORTFOLIO 0% - 13.3%
6.7%
----------------------------------------------------------------------------------------------------------------
TOTAL FUND ASSETS
100%
</TABLE>
RISKS:
credit risk currency rate risk foreign risk
interest rate risk leverage risk market risk
prepayment risk small company risk
<PAGE>
EQUITY FUNDS
INDEX FUND
INVESTMENT OBJECTIVE. The Fund's investment objective is to replicate the
return of the S&P 500 Index.
INVESTMENT POLICIES. The Fund is designed to replicate the return of the
S&P 500 Index with minimum tracking error and to minimize transaction
costs. Under normal circumstances, the Fund holds stocks representing 100%
of the capitalization-weighted market values of the S&P 500 Index. The
Adviser generally executes portfolio transactions for the Fund only to
replicate the composition of the S&P 500 Index, to invest cash received
from portfolio security dividends or investments in the Fund, and to raise
cash to fund redemptions. The Fund may hold cash or cash equivalents to
facilitate payment of the Fund's expenses or redemptions and may invest in
index futures contracts to a limited extent. For these and other reasons,
the Fund's performance can be expected to approximate but not equal the S&P
500 Index.
The S&P 500 Index tracks the total return performance of 500 common stocks
which are chosen for inclusion in the S&P 500 Index by S&P on a statistical
basis. The 500 securities, most of which trade on the New York Stock
Exchange, represent approximately 70% of the total market value of all U.S.
common stocks. Each stock in the S&P 500 Index is weighted by its market
value. Because of the market-value weighting, the 50 largest companies in
the S&P 500 Index currently account for approximately 47% of its value. The
S&P 500 Index emphasizes large capitalizations and, typically, companies
included in the S&P 500 Index are the largest and most dominant firms in
their respective industries.
S&P does not sponsor, sell, promote, or endorse the Fund. S&P does not
warrant that the S&P 500 Index is a good investment, is accurate or
complete, or will track general stock market performance.
[RISK ICON]
market risk index risk
INCOME EQUITY FUND
INVESTMENT OBJECTIVE. The Fund's investment objective is to provide
long-term capital appreciation consistent with above-average dividend
income.
INVESTMENT POLICIES. The Fund invests primarily in the common stock of
large, high-quality domestic companies that have above-average return
potential based on current market valuations. The Fund primarily emphasizes
investments in securities of companies with above-average dividend income.
In selecting securities for the Fund, the Adviser uses various valuation
measures, including above-average dividend yields and below industry
average price-to-earnings, price-to-book and price-to-sales ratios. The
Adviser considers large companies to be those whose market capitalization
is greater than the median of the Russell 1000 Index.
The Fund may invest in preferred stock, convertible securities, and
securities of foreign companies. The Fund will not normally invest more
than 10% of its total assets in the securities of a single
<PAGE>
issuer.
RISKS:
currency risk foreign risk market risk
VALUGROWTH STOCK FUND
INVESTMENT OBJECTIVE. The Fund's investment objective is to provide
long-term capital appreciation.
INVESTMENT POLICIES. The Fund invests primarily in medium- and
large-capitalization companies that, in the view of the Adviser, possess
above average growth characteristics and appear to be undervalued. The
Adviser considers medium-capitalization companies to be those whose Market
Capitalization is in the range of $500 million to $8 billion. The Adviser
considers large companies to be those whose Market Capitalization is
greater than the median of the Russell 1000 Index.
The Fund seeks to identify and invest in those companies with earnings and
dividends that the Adviser believes will grow faster than both inflation
and the economy in general. The Fund invests in companies with growth
potential that, in the opinion of the Adviser, has not yet been fully
reflected in the market price of the companies' shares. In seeking these
investments, the Adviser relies primarily on a company-by-company analysis
(rather than on a broader analysis of industry or economic sector trends).
The Adviser considers such matters as the quality of a company's
management, the existence of a leading or dominant position in a major
product line or market, the soundness of the company's financial position,
the maintenance of a relatively high rate of return on invested capital,
and shareholder's equity. Once companies are identified as possible
investments, the Adviser applies a number of valuation measures to
determine the relative attractiveness of each company and selects those
companies whose shares are most attractively priced.
The Fund may invest in companies that the Adviser considers to be "special
situations." Special situation companies often have the potential for
significant future earnings growth but have not performed well in the
recent past. These situations may include management turnarounds, corporate
or asset restructurings, or significantly undervalued assets. These
investments form a comparatively small portion of the Fund's portfolio.
The Fund may invest up to 20% of its total assets in securities of foreign
companies. The Fund also may write covered call options and purchase call
options on equity securities to manage risk or enhance returns.
RISKS:
currency rate risk foreign risk leverage risk
market risk
<PAGE>
DIVERSIFIED EQUITY FUND
INVESTMENT OBJECTIVE. The Fund's investment objective is to provide
long-term capital appreciation with moderate annual return volatility by
diversifying its investments among different equity investment styles.
INVESTMENT POLICIES. The Fund invests in a "multi-style" approach designed
to minimize the volatility and risk of investing in a single investment
style. The Fund currently invests in 11 Portfolios.
The Fund's investments combine 5 different equity investment styles - an
index style, an income equity style, a large company style, a diversified
small cap style, and an international style. The Fund allocates the assets
dedicated to large company investments to 2 Portfolios, the assets
allocated to small company investments to 5 Portfolios, and the assets
dedicated to international investments to 2 Portfolios. Because Diversified
Equity Fund blends 5 equity investment styles, it is anticipated that its
price and return volatility will be less than that of Growth Equity Fund,
which blends 3 equity investment styles.
ALLOCATION. The current allocations and ranges of investments by the Fund
in each Portfolio are:
<TABLE>
<S> <C> <C>
CURRENT RANGE OF
INVESTMENT STYLE ALLOCATION INVESTMENT
----------------- ---------- ----------
INDEX PORTFOLIO 23.5% - 26.5%
25%
INCOME EQUITY PORTFOLIO 23.5% - 26.5%
25%
LARGE COMPANY STYLE 23.5% - 26.5%
25%
LARGE COMPANY GROWTH PORTFOLIO 18.5% - 21.5%
20%
DISCIPLINED GROWTH PORTFOLIO 3.5% - 6.5%
5%
DIVERSIFIED SMALL CAP STYLE 8.5% - 11.5%
10%
SMALL CAP INDEX PORTFOLIO 0.5% - 3.5%
2.0%
SMALL COMPANY GROWTH PORTFOLIO 0.9% - 3.9%
2.4%
SMALL COMPANY VALUE PORTFOLIO 0.9% - 3.9%
2.4%
SMALL COMPANY STOCK PORTFOLIO 0.1% - 3.1%
1.6%
SMALL CAP VALUE PORTFOLIO 0.1% - 3.1%
1.6%
INTERNATIONAL STYLE 13.5% - 16.5%
15%
INTERNATIONAL PORTFOLIO 10.8% - 16.5%
14.3%
SCHRODER EM CORE PORTFOLIO 0% - 3.3%
0.8%
----------------------------------------------------------------------------------------------------------------
TOTAL FUND ASSETS
</TABLE>
100%
The percentage of Fund assets invested in each Portfolio may temporarily
deviate from the current allocations due to changes in market value. The
Adviser will effect transactions daily to reestablish the current
allocations. The Adviser may make changes in the current allocations at any
time in response to market and other conditions. The Fund also may invest
in more or fewer Portfolios or invest directly in portfolio securities.
RISKS:
currency rate risk foreign risk leverage risk
market risk small company risk
GROWTH EQUITY FUND
<PAGE>
INVESTMENT OBJECTIVE. The Fund's investment objective is to provide a high level
of long-term capital appreciation with moderate annual return volatility by
diversifying its investments among different equity investment styles.
INVESTMENT POLICIES. The Fund invests in a "multi-style" approach designed to
reduce the volatility and risk of investing in a single equity style. The Fund
currently invests in 8 Portfolios.
The Fund's investments combine 3 different equity styles - a large company
growth style, a diversified small cap style, and an international style. The
Fund allocates the assets dedicated to small company investments to 5 Portfolios
and the assets dedicated to international investments to 2 Portfolios. It is
anticipated that the Fund's price and return volatility will be somewhat greater
than those of Diversified Equity Fund, which blends 5 equity styles.
ALLOCATION. The current allocations and ranges of investments by the Fund in
each Portfolio are:
<TABLE>
<S> <C> <C>
CURRENT RANGE OF
INVESTMENT STYLE LOCATION INVESTMENT
---------------- -------- ----------
LARGE COMPANY GROWTH PORTFOLIO 35% 33% - 37%
DIVERSIFIED SMALL CAP STYLE 35% 33% - 37%
SMALL CAP INDEX PORTFOLIO 5.0% - 9.0%
7.0%
SMALL COMPANY GROWTH PORTFOLIO 8.5% - 12.5%
8.4%
SMALL COMPANY VALUE PORTFOLIO 8.5% - 12.5%
8.4%
SMALL COMPANY STOCK PORTFOLIO 3.6% - 7.6%
5.6%
SMALL CAP VALUE PORTFOLIO 3.6% - 7.6%
5.6%
INTERNATIONAL STYLE 30% 28% - 32%
INTERNATIONAL PORTFOLIO 22.4% - 32.0%
28.5%
SCHRODER EM CORE PORTFOLIO 0% - 6.4%
1.5%
---------------------------------------------------------------------------------------------------------------
TOTAL FUND ASSETS
100%
</TABLE>
The percentage of Fund assets invested in each Portfolio may temporarily
deviate from the current allocations due to changes in market values. The
Adviser will effect transactions daily to reestablish the current
allocations. The Adviser may make changes in the current allocations at any
time in response to market or other conditions. The Fund also may invest in
more or fewer Portfolios or invest directly in portfolio securities.
RISKS:
currency rate risk foreign risk leverage risk
market risk small company risk
<PAGE>
LARGE COMPANY GROWTH FUND
INVESTMENT OBJECTIVE. The Fund's investment objective is to provide
long-term capital appreciation by investing primarily in large,
high-quality domestic companies that the Adviser believes have superior
growth potential.
INVESTMENT POLICIES. The Fund invests primarily in the common stock of
large, high-quality domestic companies that have superior growth potential.
The Adviser considers large companies to be those whose Market
Capitalization is greater than the median of the Russell 1000 Index. In
selecting securities for the Fund, the Adviser seeks issuers whose stock is
attractively valued with fundamental characteristics that are significantly
better than the market average and support internal earnings growth
capability. The Fund may invest in the securities of companies whose growth
potential is, in the Adviser's opinion, generally unrecognized or
misperceived by the market.
The Fund may invest up to 20% of its total assets in the securities of
foreign companies and may hedge against currency risk by using foreign
currency forward contracts. The Fund may not invest more than 10% of its
total assets in the securities of a single issuer.
RISKS:
currency risk foreign risk leverage risk
market risk
DIVERSIFIED SMALL CAP FUND
INVESTMENT OBJECTIVE. The Fund's investment objective is to provide
long-term capital appreciation with moderate annual return volatility by
diversifying its investments across different small capitalization equity
investment styles.
INVESTMENT POLICIES. The Fund invests in a "multi-style" approach designed
to minimize the volatility and risk of investing in small capitalization
equity securities. The Fund invests in several different small
capitalization equity styles in order to reduce the risk of price and
return volatility associated with reliance on a single investment style.
The Fund currently invests in 5 Portfolios.
ALLOCATION. The current allocations and ranges of investments by the Fund
in each Portfolio are:
<TABLE>
<S> <C> <C>
CURRENT RANGE OF
INVESTMENT STYLE ALLOCATION INVESTMENT
---------------- ---------- ----------
SMALL CAP INDEX PORTFOLIO 18.5% - 21.5%
20%
SMALL COMPANY GROWTH PORTFOLIO 22.5% - 25.5%
24%
SMALL COMPANY VALUE PORTFOLIO 22.5% - 25.5%
24%
SMALL COMPANY STOCK PORTFOLIO 14.5% - 17.5%
16%
SMALL CAP VALUE PORTFOLIO 14.5% - 17.5%
16%
------------------------------------------------------------------------------------------------------------
TOTAL FUND ASSETS
100%
</TABLE>
The percentage of Fund assets invested in each Portfolio may temporarily
deviate from the current allocations due to changes in market values. The
Adviser will effect transactions daily to reestablish the current
allocations. The Adviser may make changes in the current allocations at any
<PAGE>
time in response to market and other conditions. The Fund also may invest
in more or fewer Portfolios or invest directly in portfolio securities.
RISKS:
leverage risk market risk small company risk
SMALL COMPANY STOCK FUND
INVESTMENT OBJECTIVE. The Fund's investment objective is long-term capital
appreciation.
INVESTMENT POLICIES. The Fund invests primarily in the common stock of
small- and medium-size domestic companies that have Market Capitalizations
well below that of the average company in the S&P 500 Index. The Adviser
considers small companies to be those companies whose Market
Capitalizations are less than the largest stock in the Russell 2000 Index.
The Adviser considers medium companies to be those whose Market
Capitalizations range from $500 million to $8 billion.
In selecting securities for the Fund, the Adviser seeks securities with
significant price appreciation potential and attempts to identify companies
that show above-average growth, as compared to long-term overall market
growth. The Fund invests in companies that may be in a relatively early
stage of development or may produce goods and services that have favorable
prospects for growth due to increasing demand or developing markets.
Frequently, such companies have a small management group and single product
or product line expertise, which, in the view of the Adviser, may result in
an enhanced entrepreneurial spirit and greater focus. The Adviser believes
that such companies may develop into significant business enterprises and
that an investment in these companies offers a greater opportunity for
capital appreciation than an investment in larger, more established
companies.
The Fund may invest up to 20% of its total assets in the securities of
foreign companies. The Fund may write covered call options and purchase
call options on equity securities to manage risk or enhance returns.
RISKS:
currency risk foreign risk market risk
small company risk
SMALL CAP OPPORTUNITIES FUND
INVESTMENT OBJECTIVE. The Fund's investment objective is to provide capital
appreciation.
INVESTMENT POLICIES. The Fund invests primarily in equity securities of
U.S. companies that, at the time of purchase, have Market Capitalizations
of $1.5 billion or less.
The Adviser attempts to identify securities of companies that it believes
can generate above-average earnings growth and sell at favorable prices in
relation to book values and earnings. The Adviser's assessment of a
company's management's competence will be an important
<PAGE>
consideration. These criteria are not rigid and the Fund may make other
investments to achieve its objective.
The Fund will invest principally in equity securities, including common
stocks, securities convertible into common stocks or, subject to special
limitations, rights or warrants to subscribe for or purchase common stocks.
The Fund also may invest to a limited degree in non-convertible debt
securities and preferred stocks.
The Fund may use options and futures contracts to manage risk. The Fund
also may use options to enhance return.
RISKS:
leverage risk market risk small company risk
SMALL COMPANY GROWTH FUND
INVESTMENT OBJECTIVE. The Fund's investment objective is to provide
long-term capital appreciation by investing in smaller domestic companies.
INVESTMENT POLICIES. The Fund invests primarily in the common stock of
small and medium-sized domestic companies that are either growing rapidly
or completing a period of significant change. Small companies are those
companies whose Market Capitalization is less than the largest stock in the
Russell 2000 Index.
In selecting securities for the Fund, the Adviser seeks to identify
companies that are rapidly growing (usually with relatively short operating
histories) or that are emerging from a period of investor neglect by
undergoing a dramatic change. These changes may involve a sharp increase in
earnings, the hiring of new management or measures taken to close the gap
between share price and takeover/asset value.
The Fund will invest up to 10% of its total assets in securities of foreign
companies. The Fund will not invest more than 10% of its total assets in
the securities of a single issuer.
RISKS:
currency risk foreign risk market risk
small company risk
<PAGE>
INTERNATIONAL FUND
INVESTMENT OBJECTIVE. The Fund's investment objective is to provide
long-term capital appreciation by investing directly or indirectly in
high-quality companies based outside the United States.
INVESTMENT POLICIES. The Fund invests in a "multi-style" approach designed
to minimize the volatility and risk of investing in international
securities. The Fund's investment portfolio combines 2 different investment
styles - an international equity investment style and an international
emerging markets investment style. The Fund invests in 2 Portfolios.
ALLOCATION. The current allocations and ranges of investments by the Fund
in each Portfolio are:
<TABLE>
<S> <C> <C>
CURRENT RANGE OF
INVESTMENT STYLE ALLOCATION INVESTMENT
---------------- ---------- -----------
INTERNATIONAL PORTFOLIO 95% 80% - 100%
SCHRODER EM CORE PORTFOLIO 5% 0% - 20%
----------------------------------------------------------------------------------------------------------
TOTAL FUND ASSETS 100%
</TABLE>
The percentage of Fund assets invested in each Portfolio may temporarily
deviate from the current allocations due to changes in market values. The
Adviser will effect transactions daily to reestablish the current
allocations. The Adviser may make changes in the current allocations at any
time in response to market and other conditions. The Fund also may invest
in more or fewer Portfolios or invest directly in portfolio securities.
RISKS:
credit risk currency rate risk leverage risk
geographic concentration risk interest rate risk
market risk foreign risk
DESCRIPTIONS OF PORTFOLIOS
MONEY MARKET PORTFOLIO and PRIME MONEY MARKET PORTFOLIO
The Cash Investment Fund and Ready Cash Investment Fund section of this
prospectus describes these Portfolios.
POSITIVE RETURN BOND PORTFOLIO
The Portfolio seeks to produce a positive total return each calendar year
regardless of general bond market performance by investing in a portfolio
of U.S. Government Securities and corporate fixed income securities. The
Portfolio's assets are divided into 2 components, short bonds with
maturities (or average life) of 2 years or less and long bonds with
maturities of 25 years or more. Shifts between short bonds and long bonds
are made based on movement in the prices of bonds rather than on the
Adviser's forecast of interest rates. During periods of falling prices
(generally, increasing interest rate environments) long bonds are sold to
protect capital and limit losses. Conversely, when bond prices rise, long
bonds are purchased. The average dollar-weighted maturity of the Portfolio
will vary between 1 and 30 years.
<PAGE>
Under normal circumstances, the Portfolio invests at least 50% of its net
assets in U.S. Government Securities, including U.S. Treasury Securities.
The Portfolio only purchases securities that are rated, at the time of
purchase, within 1 of the 2 highest long-term rating categories assigned by
an NRSRO or that are unrated and determined by the Adviser to be of
comparable quality. The Portfolio may invest up to 25% of its assets in
securities rated in the second highest rating category. The Portfolio does
not invest more than 25% of its total assets in zero-coupon securities,
securities with variable or floating rates of interest, or asset-backed
securities.
RISKS:
credit risk interest rate risk leverage risk
market risk prepayment risk
STABLE INCOME PORTFOLIO
The Stable Income Fund section of this prospectus describes this Portfolio.
MANAGED FIXED INCOME PORTFOLIO
The Portfolio seeks consistent fixed income returns by investing primarily
in Investment Grade intermediate-term securities. The Portfolio invests in
a diversified portfolio of fixed and variable rate U.S. dollar-denominated,
fixed income securities of a broad spectrum of U.S. and foreign issuers,
including U.S. Government Securities, and the debt securities of financial
institutions, corporations, and others. The Adviser emphasizes the use of
intermediate maturity securities to lessen Duration and employs low risk
yield enhancement techniques to enhance return over a complete economic or
interest rate cycle. The Adviser considers intermediate-term securities to
be those with maturities of between 2 and 20 years.
The Portfolio will limit its investment in mortgage-backed securities to
not more than 65% of its total assets and its investment in other
asset-backed securities to not more than 25% of its net assets. In
addition, the Portfolio may not invest more than 30% of its total assets in
the securities issued or guaranteed by any single agency or instrumentality
of the U.S. Government, except the U.S. Treasury.
The Portfolio only purchases Investment Grade securities. The Portfolio
invests in debt securities with maturities (or average life in the case of
mortgage-backed and similar securities) ranging from overnight to 30 years.
The Portfolio normally will have an average dollar-weighted portfolio
maturity of between 3 and 12 years and a Duration of between 2 and 6 years.
The Portfolio also may invest up to 10% of its total assets in securities
issued or guaranteed by foreign governments the Adviser deems stable, or
their subdivisioins, agencies, or instrumentalities; loan or security
participations; securities of supranational organizations; and Municipal
Securities.
The Portfolio may use options, swap agreements, interest rate caps, floors
and collars, and futures contracts to manage risk. The Portfolio also may
use options to enhance return.
<PAGE>
RISKS:
credit risk foreign risk interest rate risk
leverage risk market risk prepayment risk
STRATEGIC VALUE BOND PORTFOLIO
The Total Return Bond Fund section of this prospectus describes this
Portfolio. Total Return Bond Fund invests all its assets in this Portfolio.
The only difference between the Fund and the Portfolio is that the
Portfolio's investment objective is to seek total return by investing
primarily in income producing securities.
INDEX PORTFOLIO
The Index Fund section of this prospectus describes this Portfolio.
INCOME EQUITY PORTFOLIO
The Income Equity Fund section of this prospectus describes this Portfolio.
LARGE COMPANY GROWTH PORTFOLIO
The Large Company Growth Fund section of this prospectus describes this
Portfolio.
DISCIPLINED GROWTH PORTFOLIO
The Portfolio seeks capital appreciation by investing in common stocks of
larger companies. The Portfolio seeks higher long-term returns by investing
primarily in the common stock of companies that, in the view of the
Adviser, possess above average potential for growth. The Portfolio invests
in companies with average Market Capitalizations greater than $5 billion.
The Portfolio seeks to identify growth companies that will report a level
of corporate earnings that exceed the level expected by investors. In
seeking these companies, the Adviser uses both quantitative and fundamental
analysis. The Adviser may consider, among other factors, changes of
earnings estimates by investment analysts, the recent trend of company
earnings reports, and an analysis of the fundamental business outlook for
the company. The Adviser uses a variety of valuation measures to determine
whether or not the share price already reflects any positive fundamentals
identified by the Adviser. In addition to approximately equal weighting of
portfolio securities, the Adviser attempts to constrain the variability of
the investment returns by employing risk control screens for price
volatility, financial quality, and valuation.
RISKS:
market risk
SMALL CAP INDEX PORTFOLIO
The Portfolio seeks to replicate the return of the S&P Small Cap 600 Index
with minimum tracking error and to minimize transaction costs. Under normal
circumstances, the Portfolio will hold stocks
<PAGE>
representing 100% of the capitalization-weighted market values of the S&P
600 Small Cap Index. The Adviser generally executes portfolio transactions
only to replicate the composition of the S&P 600 Small Cap Index, to invest
cash received from portfolio security dividends or investments in the
Portfolio, and to raise cash to fund redemptions. The Fund may hold cash or
cash equivalents to facilitate payment of the Fund's expenses or
redemptions and may invest in index futures contracts. For these and other
reasons, the Portfolio's performance can be expected to approximate but not
equal that of the S&P 600 Small Cap Index.
The S&P 600 Small Cap Index tracks the total return performance of 600
common stocks which are chosen for inclusion in the S&P 600 Small Cap Index
by S&P on a statistical basis. The 600 securities, most of which trade on
the New York Stock Exchange, represent 4% of the total market value of all
U.S. common stocks. Each stock in the S&P 600 Small Cap Index is weighted
by its market value. The S&P 600 Small Cap Index emphasizes smaller
capitalizations and typically, companies included in the S&P 600 Small Cap
Index may not be the largest nor most dominant firms in their respective
industries.
S&P does not sponsor, sell, promote, or endorse the Portfolio. S&P does not
warrant that the S&P 600 Small Cap Index is a good investment, is accurate
or complete, or will track general stock market performance.
RISKS:
leverage risk market risk index risk
small company risk
SMALL COMPANY STOCK PORTFOLIO
The Small Company Stock Fund section of this prospectus describes this
Portfolio.
SMALL COMPANY GROWTH PORTFOLIO
The Small Company Growth Fund section of this prospectus describes this
Portfolio.
SMALL COMPANY VALUE PORTFOLIO
The Portfolio seeks to provide long-term capital appreciation by investing
primarily in smaller companies whose Market Capitalization is less than the
largest stock in the Russell 2000 Index. The Adviser focuses on securities
that are conservatively valued in the marketplace relative to the stock of
comparable companies, determined by price/earnings ratios, cash flows, or
other measures. Value investing provides investors with a less aggressive
way to take advantage of growth opportunities of small companies. Value
investing may reduce downside risk and offer potential for capital
appreciation as a stock gains favor among other investors and its stock
price rises.
RISKS:
leverage risk market risk small company risk
small company risk
<PAGE>
SMALL CAP VALUE PORTFOLIO
The Portfolio seeks capital appreciation by investing in common stocks of
smaller companies. The Portfolio will normally invest substantially all of
its assets in securities of companies with Market Capitalizations that
reflect the Market Capitalization of companies included in the Russell 2000
Index. The Portfolio seeks higher growth rates and greater long-term
returns by investing primarily in the common stock of smaller companies
that the Adviser believes to be undervalued and likely to report a level of
corporate earnings exceeding the level expected by investors. The Adviser
values companies based upon both the price-to-earnings ratio of the company
and a comparison of the public market value of the company to a proprietary
model that values the company in the private market. In seeking companies
that will report a level of earnings exceeding that expected by investors,
the Adviser uses both quantitative and fundamental analysis. Among other
factors, the Adviser considers changes of earnings estimates by investment
analysts, the recent trend of company earnings reports, and the fundamental
business outlook for the company.
RISKS:
market risk small company risk
INTERNATIONAL PORTFOLIO
The Portfolio seeks to provide long-term capital appreciation by investing
directly or indirectly in high-quality companies based outside the United
States. The Portfolio selects its investments on the basis of their
potential for capital appreciation without regard to current income. The
Portfolio also may invest in the securities of domestic closed-end
investment companies that invest primarily in foreign securities and may
invest in debt securities of foreign governments or their political
subdivisions, agencies, or instrumentalities, of supranational
organizations, and of foreign corporations. The Portfolio's investments are
generally diversified among securities of issuers in foreign countries
including, but not limited to, Japan, Germany, the United Kingdom, France,
the Netherlands, Hong Kong, Singapore, and Australia. In general, the
Portfolio will invest only in securities of companies and governments in
countries that the Adviser, in its judgment, considers both politically and
economically stable. The Fund may invest more than 25% of its total assets
in investments in a particular country, region, or type of investment.
The Portfolio may purchase preferred stock and convertible debt securities,
including convertible preferred stock. The Portfolio also may enter into
foreign exchange contracts, including forward contracts to purchase or sell
foreign currencies, in anticipation of its currency requirements and to
protect against possible adverse movements in foreign exchange rates.
RISKS:
credit risk currency rate risk leverage risk
geographic concentration risk interest rate risk
market risk foreign risk
SCHRODER EM CORE PORTFOLIO
<PAGE>
The Portfolio seeks to achieve long-term capital appreciation through
direct or indirect investment in equity and debt securities of companies in
emerging market countries in regions such as Southeast Asia, Latin America,
and Eastern and Southern Europe. Current income is incidental to the
Portfolio's objective.
The Portfolio may invest, under normal market conditions, at least 65% of
its total assets in emerging market equity and debt securities, including
convertible securities and stock rights, and warrants.
The Adviser considers "emerging market" countries generally to be all those
countries not included in the Morgan Stanley Capital International World
Index ("MSCI World") of major world economies. If the Adviser determines
that the economy of a MSCI World-listed country is an emerging market
economy, the Adviser may include such country in the emerging market
category. The Portfolio will not necessarily seek to diversify investments
on a geographic basis and may invest more than 25% of its total assets in
issuers located in a single country.
The Fund may invest up to 35% of its total assets in Non-Investment Grade
fixed income securities. The Fund may enter into foreign exchange
contracts, including forward contracts, in anticipation of its currency
requirements and to protect against possible adverse movements in foreign
exchange rates.
RISKS:
credit risk currency rate risk foreign risk
geographic concentration risk interest rate risk leverage risk
market risk prepayment risk
<PAGE>
- --------------------------------------------------------------------------------
5. RISK CONSIDERATIONS
- --------------------------------------------------------------------------------
This section describes the principal risks that may apply to the Funds.
Each Fund's exposure to these risks depends upon its specific investment
profile. The Fund's description in INVESTMENT OBJECTIVES AND POLICIES lists
the Fund's principal risks.
CREDIT RISK
The risk that the issuer of a security, or the counterparty to a contract,
will default or otherwise be unable to honor a financial obligation. This
risk is greater for Non-Investment Grade securities.
CURRENCY RATE RISK
The risk that fluctuations in the exchange rates between the U.S. dollar
and foreign currencies may negatively affect a Fund's investments.
DIVERSIFICATION RISK
The risk that investment in a comparatively small number of issuers will
increase the potential adverse effects of a decline in the value of a
Fund's investment in a single issuer.
FOREIGN RISK
The risk that foreign investments may be subject to political and economic
instability, the imposition or tightening of exchange controls or other
limitations on repatriation of foreign capital, or nationalization,
increased taxation, or confiscation of investors' assets. Also, the risk
that the price of a foreign issuer's securities may not reflect the
issuer's condition because there is not sufficient publicly available
information about the issues. This risk may be greater for investments in
issuers in emerging or developing markets.
GEOGRAPHIC CONCENTRATION RISK
The risk that factors adversely affecting a Fund's investments in issuers
located in a state, country, or region will affect the Fund's net asset
value more than would be the case if the Fund had made more geographically
diverse investments.
INDEX RISK
The risk that a Fund designed to replicate the performance of an index of
securities will replicate the performance of the index during adverse
market conditions because the portfolio manager is not permitted to take a
temporary defensive position or otherwise vary the Fund's investments to
respond to the adverse market conditions.
INTEREST RATE RISK
The risk that changes in interest rates may affect the value of your
investment. With fixed-rate securities, including Municipal Securities and
U.S. Government Securities, an increase in interest
<PAGE>
rates typically causes the value of a Fund's fixed-rate securities to fall,
while a decline in interest rates may produce an increase in the market
value of the securities. Because of this risk, an investment in a Fund that
invests in fixed income securities is subject to risk even if all the fixed
income securities in the Fund's portfolio are paid in full at maturity.
Changes in interest rates will affect the value of longer-term fixed income
securities more than shorter-term securities.
LEVERAGE RISK
The risk that some transactions may multiply smaller market movements into
large changes in a Fund's net asset value. This risk may occur when a Fund
borrows money or enters into transactions that have a similar economic
effect, such as short sales or forward commitment transactions. This risk
also may occur when a Fund makes investments in derivatives, such as
options or futures contracts.
MARKET RISK
The risk that the market value of a Fund's investments will fluctuate as
the stock and bond markets fluctuate generally. Market risk may affect a
single issuer, industry or section of the economy, or may affect the market
as a whole.
PREPAYMENT RISK
The risk that issuers will prepay fixed rate securities when interest rates
fall, forcing the Fund to invest in securities with lower interest rates
than the prepaid securities. For a Fund investing in mortgage- and other
asset-backed securities, this is also the risk that a decline in interest
rates may result in holders of the assets backing the securities to prepay
their debts, resulting in potential losses in these securities' values and
yield. Alternatively, rising interest rates may reduce the amount of
prepayments on the assets backing these securities, causing the Fund's
average maturity to rise and increasing the Fund's sensitivity to rising
interest rates and potential for losses in value.
SMALL COMPANY RISK
The risk that investments in smaller companies may be more volatile than
investments in larger companies. Smaller companies may have higher failure
rates than larger companies. A small company's securities may be hard to
sell because the trading volume of the securities of smaller companies is
normally lower than that of larger companies. Short term changes in the
demand for the securities of smaller companies may have a disproportionate
effect on their market price, tending to make prices of these securities
fall more in response to selling pressure.
- --------------------------------------------------------------------------------
6. COMMON POLICIES
- --------------------------------------------------------------------------------
Except as otherwise indicated, the Board may change the Funds' investment
policies without shareholder approval. The Funds' investment objectives are
Fundamental.
VOTING ISSUES
<PAGE>
In determining the outcome of shareholder votes, Norwest Advantage Funds
normally counts votes on a share-by-share basis. This means that
shareholders of Funds with comparatively high net asset values will have a
comparatively smaller impact on the outcome of votes by all of the Funds
than do shareholders of Funds with comparatively low net asset values.
DOWNGRADED SECURITIES
Each Fund may retain a security whose rating has been lowered (or a
security of comparable quality to a security whose rating has been lowered)
below the Fund's lowest permissible rating category if the Fund's Adviser
determines that retaining the security is in the best interests of the
Fund. Because a downgrade often results in a reduction in the market price
of the security, sale of a downgraded security may result in a loss.
TEMPORARY DEFENSIVE POSITION
To respond to adverse market, economic, political, or other conditions,
each Fund may assume a temporary defensive position and invest without
limit in cash and cash equivalents. When a Fund makes temporary defensive
investments, it may not pursue its investment objective.
When a Tax-Free Fixed Income Fund assumes a temporary defensive position,
it is likely that its shareholders may be subject to federal and applicable
state income taxes on a greater portion of the Fund's income distributions.
PORTFOLIO TRANSACTIONS
From time to time, a Fund may engage in active short-term trading to take
advantage of price movements affecting individual issues, groups of issues,
or markets. Higher portfolio turnover rates may result in increased
brokerage costs and a possible increase in short-term capital gains or
losses. THE FINANCIAL HIGHLIGHTS TABLE lists each Fund's portfolio turnover
rate.
YEAR 2000 AND EURO
The Funds could be adversely affected if the computer systems used by the
Advisers and other service providers(and in particular, foreign service
providers)to the Funds do not properly process and calculate date-related
information and data from and after January 1, 2000 or information
regarding the new common currency of the European Union. The Year 2000 and
Euro issues also may adversely affect the Funds' investments.
Norwest and Forum Financial Group are taking steps to address the Year 2000
and Euro issues for their computer systems and to obtain reasonable
assurances that comparable steps are being taken by the Funds' other major
service providers. While the Funds do not anticipate any adverse effect on
their computer systems from the Year 2000 and Euro issues, there can be no
assurance that these steps will be sufficient to avoid any adverse impact
on the Funds.
<PAGE>
- --------------------------------------------------------------------------------
7. MANAGEMENT OF THE FUNDS
- --------------------------------------------------------------------------------
INVESTMENT ADVISORY SERVICES
NORWEST INVESTMENT MANAGEMENT, INC. is the investment adviser for each Fund
and each Portfolio except the Portfolios advised by Schroder. In this
capacity, Norwest makes investment decisions for and administers the Funds'
and Portfolios' investment programs. Norwest Investment Management, Inc.'s
address is Norwest Center, Sixth Street and Marquette, Minneapolis, MN
55479.
SCHRODER CAPITAL MANAGEMENT INTERNATIONAL INC. is the investment adviser
for the Schroder U.S. Smaller Companies Portfolio, International Portfolio,
and Schroder EM Core Portfolio. In this capacity, Schroder makes investment
decisions for and administers those Portfolios' investment programs.
Schroder Capital Management International Inc.'s address is 787 Seventh
Avenue, 34th Floor0 New York, NY 10019.
Norwest and certain of the Funds and the Portfolios have retained
investment subadvisers to make investment decisions for and administer the
investment programs of those Funds and Portfolios. Norwest decides which
portion of the assets of a Fund or Portfolio the subadviser should manage
and supervises the subadvisers' performance of their duties. The
subadvisers are:
CRESTONE CAPITAL MANAGEMENT, INC. or CRESTONE, An Inveestment Advisory
subsidiary of Norwest Bank, provides investment advice regarding companies
with small market capitalization to various clients, including
institutional investors. Crestone Capital Management, Inc.'s address is
7720 East Bellview Avenue, Suite 220, Englewood, CO 80111.
GALLIARD CAPITAL MANAGEMENT, INC. or GALLIARD, an investment advisory
subsidiary of Norwest Bank, provides investment advisory services to bank
and thrift institutions, pension and profit sharing plans, trusts and
charitable organizations, and corporate and other business entities.
GALLIARD CAPITAL MANAGEMENT, INC.'s address is 800 Lasalle Ave. Suite 2060,
Minneapolis, MN 55479.
PEREGRINE CAPITAL MANAGEMENT, Inc. or Peregrine, an investment advisory
subsidiary of Norwest Bank, provides investment advisory services to
corporate and public pension plans, profit sharing plans,
savings-investment plans, and 401(K) plans. Peregrine Capital Management,
Inc's address is Lasalle Plaza, 800 Lasalle Avenue, Suite 1850,
Minneapolis, MN 55402.
SMITH ASSET MANAGEMENT GROUP, L.P. or SMITH, an investment advisory
affiliate of Norwest Bank, provides investment management services to
company retirement plans, foundations, endowments, trust companies, and
high net worth individuals using a disciplined equity style. Smith Asset
Management Group, L.P.'s address is 300 Crescent Court, Suite 750, Dallas,
TX 75201
Listed below, for each Fund, are the portfolio managers primarily
responsible for the day-to-day management of the Funds' investments. The
year a portfolio manager began managing a Fund or Portfolio follows the
manager's name in parenthesis. The list includes the investment advisory
fees payable to Norwest or Schroder by the Fund and by any Portfolios in
which it
<PAGE>
invests. The list states the investment advisory fees on an annualized
basis as a percentage of a Fund's or Portfolio's average daily net assets.
Descriptions of the portfolio managers' recent experience follow the list
of portfolio managers and advisory fees.
How investment advisory fees are paid depends on whether or not a Fund
invests in Portfolios.
* If a Fund invests directly in a portfolio of securities, Norwest
receives an investment advisory fee directly from the Fund.
* If a Fund invests in a single Portfolio, Norwest or Schroder receives
an investment advisory fee from the Portfolio.
* If a Fund invests in more than 1 Portfolio, Norwest or Schroder
receives an investment advisory fee from each of those Portfolios. In
addition, Norwest receives a fee from each Fund, except Cash
Investment Fund, for the "asset allocation services" of determining
the Funds' investments in the Portfolios and how much of the Fund's
assets to invest in each Portfolio.
If a Fund invests in more than 1 Portfolio, the total amount of the
investment advisory fee paid to Norwest or Schroder as a result of the
Fund's investments varies depending on how much of the Fund's assets are
invested in, and the investment advisory fee payable to, each Portfolio.
Norwest (and not the Funds or Portfolios) pays the subadvisers' investment
subadvisory fees. The investment subadvisory fees do not increase the
amount of the investment advisory fees paid to Norwest by the Funds or
Portfolios.
MONEY MARKET FUNDS
<TABLE>
<S> <C> <C>
CASH INVESTMENT FUND
PORTFOLIO: PRIME MONEY MARKET PORTFOLIO
PORTFOLIO MANAGERS: David D. Sylvester (1987), Laurie R. White (1991), and Robert G.
Leuty (1998).
ADVISORY FEE: 0.40% - first $300 million; 0.36% - next $400 million; and 0.32%
- remaining.
PORTFOLIO: MONEY MARKET PORTFOLIO
PORTFOLIO MANAGERS: David D. Sylvester (1987), Laurie R. White (1991), and Robert G.
Leuty (1998).
ADVISORY FEE: 0.20% - first $300 million; 0.16% - next $400 million, and
0.12% - remaining.
READY CASH INVESTMENT FUND
PORTFOLIO: PRIME MONEY MARKET PORTFOLIO
PORTFOLIO MANAGERS: David D. Sylvester (1988), Laurie R. White (1991), and Robert G.
Leuty (1998).
ADVISORY FEE: 0.40% - first $300 million; 0.36% - next $400 million; and
0.32% - remaining.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
U.S. GOVERNMENT FUND
TREASURY FUND
TREASURY PLUS FUND
PORTFOLIO MANAGERS: David D. Sylvester (1987, 1990, 1998), Laurie R. White (1991,
1991, 1998), and Robert G. Leuty (1998).
ADVISORY FEE: FOR EACH FUND: 0.20% - first $300 million; 0.16% - next $400
million; and 0.12% - remaining.
MUNICIPAL MONEY MARKET FUND
PORTFOLIO MANAGERS: David D. Sylvester (1995), Laurie R. White (1998), and Robert G.
Leuty (1998).
ADVISORY FEE: 0.35% - first $500 million; 0.325% - next $500 million; and
0.30% - remaining.
FIXED INCOME FUNDS
STABLE INCOME FUND
PORTFOLIO: STABLE INCOME PORTFOLIO
SUBADVISER: GALLIARD
PORTFOLIO MANAGERS: Karl P. Tourville (1994) and John Huber (1998).
ADVISORY FEE: 0.30%
LIMITED TERM GOVERNMENT INCOME FUND
INTERMEDIATE GOVERNMENT INCOME FUND
PORTFOLIO MANAGER: Marjorie H. Grace, CFA (1997, 1995)
ADVISORY FEE: FOR EACH FUND: 0.33%
DIVERSIFIED BOND FUND
FUND ADVISORY FEE: 0.25%
PORTFOLIO: POSITIVE RETURN BOND PORTFOLIO
SUBADVISER: PEREGRINE
PORTFOLIO MANAGERS: William D. Giese, CFA (1994) and Patricia Burns, CFA (1998).
ADVISORY FEE: 0.35%
PORTFOLIO: STRATEGIC VALUE BOND PORTFOLIO
SUBADVISER: GALLIARD
PORTFOLIO MANAGERS: Richard Merriam, CFA (1997), John Huber (1998), and David Yim
(1998).
ADVISORY FEE: 0.50%
PORTFOLIO: MANAGED FIXED INCOME PORTFOLIO
SUBADVISER: GALLIARD
PORTFOLIO MANAGERS: Richard Merriam, CFA (1995) and Ajay Mirza (1998).
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
ADVISORY FEE: 0.35%
INCOME FUND
PORTFOLIO MANAGER: Marjorie H. Grace, CFA (1996)
ADVISORY FEE: 0.50%
TOTAL RETURN BOND FUND
PORTFOLIO: STRATEGIC VALUE BOND PORTFOLIO
SUBADVISER: GALLIARD
PORTFOLIO MANAGERS: Richard Merriam, CFA (1998), John Huber (1998), and David Yim
(1998).
ADVISORY FEE: 0.50%
STRATEGIC INCOME FUND
FUND ADVISORY FEE: 0.25%
PORTFOLIO: POSITIVE RETURN BOND PORTFOLIO
SUBADVISER: PEREGRINE
PORTFOLIO MANAGERS: William D. Giese (1994), CFA and Patricia Burns (1998).
ADVISORY FEE: 0.35%
PORTFOLIO: STRATEGIC VALUE BOND PORTFOLIO
SUBADVISER: GALLIARD
PORTFOLIO MANAGERS: Richard Merriam, CFA (1997), John Huber (1998), and David Yim
(1998).
ADVISORY FEE: 0.50%
PORTFOLIO: MANAGED FIXED INCOME PORTFOLIO
SUBADVISER: GALLIARD
PORTFOLIO MANAGERS: Richard Merriam, CFA (1995) and Ajay Mirza (1998).
ADVISORY FEE: 0.35%
PORTFOLIO: STABLE INCOME PORTFOLIO
SUBADVISER: GALLIARD
PORTFOLIO MANAGER: Karl P. Tourville (1994) and John Huber (1998).
ADVISORY FEE: 0.30%
PORTFOLIO: MONEY MARKET PORTFOLIO
PORTFOLIO MANAGERS: David D. Sylvester (1991), Laurie R. White (1991), and Robert
G. Leuty (1998).
ADVISORY FEES: 0.20% - first $300 million; 0.16% - next $400 million; and
0.12% - remaining.
PORTFOLIO: INDEX PORTFOLIO
PORTFOLIO MANAGERS: David D. Sylvester (1996) and Laurie R. White (1996).
ADVISORY FEE: 0.15%
PORTFOLIO: INCOME EQUITY PORTFOLIO
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
PORTFOLIO MANAGER: David L. Roberts, CFA (1994) and Gary J. Dunn (1994).
ADVISORY FEE: 0.50%
PORTFOLIO: LARGE COMPANY GROWTH PORTFOLIO
SUBADVISER: PEREGRINE
PORTFOLIO MANAGERS: John S. Dale, CFA (1994) and Gary E. Nussbaum, CFA (1998).
ADVISORY FEE: 0.65%
PORTFOLIOS: DISCIPLINED GROWTH PORTFOLIO AND SMALL CAP VALUE PORTFOLIO
SUBADVISER: SMITH
PORTFOLIO MANAGER: Stephen S. Smith, CFA (1997).
ADVISORY FEE: Disciplined Growth Portfolio: 0.90%
Small Cap Value Portfolio: 0.95%
PORTFOLIO: SMALL CAP INDEX PORTFOLIO
PORTFOLIO MANAGERS: David D. Sylvester (1998) and Laurie R. White (1998).
ADVISORY FEE: 0.25%
PORTFOLIO: SMALL COMPANY GROWTH PORTFOLIO
SUBADVISER: PEREGRINE
PORTFOLIO MANAGERS: Robert B. Mersky, CFA (1994), and Paul E. von Kuster, CFA
(1998).
ADVISORY FEE: 0.90%
PORTFOLIO: SMALL COMPANY VALUE PORTFOLIO
SUBADVISER: PEREGRINE
PORTFOLIO MANAGERS: Tasso H. Coin, Jr. (1995) and Douglas G. Pugh, CFA (1997).
ADVISORY FEE: 0.90%
PORTFOLIO: SMALL COMPANY STOCK PORTFOLIO
SUBADVISER: CRESTONE
PORTFOLIO MANAGER: Kirk McCown,.CFA (1993)
ADVISORY FEE: 0.90%
PORTFOLIO: INTERNATIONAL PORTFOLIO
ADVISER: SCHRODER
PORTFOLIO MANAGER: Michael Perelstein (1997).
ADVISORY FEE: 0.45%
PORTFOLIO: SCHRODER EM CORE PORTFOLIO
ADVISER: SCHRODER
PORTFOLIO MANAGERS: John A. Troiano (1997), Heather Crighton (1997), and Mark
Bridgeman (1997).
ADVISORY FEE: 1.00%
TAX-FREE FIXED INCOME FUNDS
LIMITED TERM TAX-FREE FUND
TAX-FREE INCOME FUND
PORTFOLIO MANAGER: William T. Jackson, CFA (1996, 1993).
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
ADVISORY FEE: for each Fund: 0.50%
COLORADO TAX-FREE FUND
PORTFOLIO MANAGER: William T. Jackson, CFA (1993).
ADVISORY FEE: 0.50% -first $300 million; 0.46% - next $400 million; and 0.42%
- remaining.
MINNESOTA INTERMEDIATE TAX-FREE FUND
MINNESOTA TAX-FREE FUND
PORTFOLIO MANAGER: Patricia D. Hovanetz, CFA (1997, 1991).
ADVISORY FEE: MINNESOTA INTERMEDIATE TAX-FREE FUND: 0.25%
MINNESOTA TAX-FREE FUND:
0.50% - first $300 million;
0.46% - next $400 million; and 0.42% -
remaining.
</TABLE>
BALANCED FUNDS
<TABLE>
<S> <C> <C>
MODERATE BALANCED FUND
GROWTH BALANCED FUND
AGGRESSIVE BALANCED-EQUITY FUND
FUND ADVISORY FEE: 0.25%
PORTFOLIO: POSITIVE RETURN BOND PORTFOLIO
SUBADVISER: PEREGRINE
PORTFOLIO MANAGERS: William D. Giese, CFA (1994) and Patricia Burns (1998).
ADVISORY FEE: 0.35%
PORTFOLIO: STRATEGIC VALUE BOND PORTFOLIO
SUBADVISER: GALLIARD
PORTFOLIO MANAGERS: Richard Merriam, CFA (1997), John Huber (1998), and David Yim
(1998).
ADVISORY FEE: 0.50%
PORTFOLIO: MANAGED FIXED INCOME PORTFOLIO
SUBADVISER: GALLIARD
PORTFOLIO MANAGERS: Richard Merriam, CFA (1995) and Ajay Mirza (1998).
ADVISORY FEE: 0.35%
PORTFOLIO: STABLE INCOME PORTFOLIO (MODERATE BALANCED FUND ONLY)
SUBADVISER: GALLIARD.
PORTFOLIO MANAGER: Karl P. Tourville (1994)and John Huber (1998).
ADVISORY FEE: 0.30%
PORTFOLIO: INDEX PORTFOLIO
PORTFOLIO MANAGERS: David D. Sylvester (1996) and Laurie R. White (1996).
ADVISORY FEE: 0.15%
PORTFOLIO: INCOME EQUITY PORTFOLIO
PORTFOLIO MANAGER: David L. Roberts, CFA (1994).
ADVISORY FEE: 0.50%
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
PORTFOLIO: LARGE COMPANY GROWTH PORTFOLIO
SUBADVISER: PEREGRINE
PORTFOLIO MANAGERS: John S. Dale, CFA (1994) and Gary E. Nussbaum, CFA (1998).
ADVISORY FEE: 0.65%
PORTFOLIOS: DISCIPLINED GROWTH PORTFOLIO AND SMALL CAP VALUE PORTFOLIO
SUBADVISER: SMITH
PORTFOLIO MANAGER: Stephen S. Smith, CFA (1997).
ADVISORY FEE: Disciplined Growth Portfolio: 0.90%
Small Cap Value Portfolio: 0.95%
PORTFOLIO: SMALL CAP INDEX PORTFOLIO
PORTFOLIO MANAGERS: David D. Sylvester (1998) and Laurie R. White (1998).
ADVISORY FEE: 0.25%
PORTFOLIO: SMALL COMPANY GROWTH PORTFOLIO
SUBADVISER: PEREGRINE
PORTFOLIO MANAGERS: Robert B. Mersky, CFA (1994) and Paul E. von Kuster, CFA (1998).
ADVISORY FEE: 0.90%
PORTFOLIO: SMALL COMPANY VALUE PORTFOLIO
SUBADVISER: PEREGRINE
PORTFOLIO MANAGERS: Tasso H. Coin (1995), Jr.and Douglas G. Pugh (1997).
Advisory Fee: 0.90%
PORTFOLIO: SMALL COMPANY STOCK PORTFOLIO
SUBADVISER: CRESTONE
PORTFOLIO MANAGER: Kirk McCown, CFA (1993).
ADVISORY FEE: 0.90%
PORTFOLIO: INTERNATIONAL PORTFOLIO
ADVISER: SCHRODER
PORTFOLIO MANAGER: Michael Perelstein (1997).
ADVISORY FEE: 0.45%
PORTFOLIO: SCHRODER EM CORE PORTFOLIO
ADVISER: SCHRODER
PORTFOLIO MANAGERS: John A. Troiano (1997), Heather Crighton (1997), and Mark
Bridgeman (1997).
ADVISORY FEE: 1.00%
EQUITY FUNDS
INDEX FUND
PORTFOLIO: INDEX PORTFOLIO
PORTFOLIO MANAGERS: David D. Sylvester (1996) and Laurie R. White (1996).
ADVISORY FEE: 0.15%
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
INCOME EQUITY FUND
PORTFOLIO: INCOME EQUITY PORTFOLIO
PORTFOLIO MANAGER: David L. Roberts, CFA (1994) and Gary Dunn (1994).
ADVISORY FEE: 0.50%.
VALUGROWTH STOCK FUND
PORTFOLIO MANAGER: David S. Lunt, CFA (1996).
ADVISORY FEE: 0.80% - first $300 million; 0.76% - next $400 million; 0.72% -
remaining.
DIVERSIFIED EQUITY FUND
GROWTH EQUITY FUND
FUND ADVISORY FEE: 0.25%
PORTFOLIO: INDEX PORTFOLIO (DIVERSIFIED EQUITY FUND ONLY)
PORTFOLIO MANAGERS: David D. Sylvester (1996) and Laurie R. White (1996).
ADVISORY FEE: 0.15%
PORTFOLIO: INCOME EQUITY PORTFOLIO (DIVERSIFIED EQUITY FUND ONLY)
PORTFOLIO MANAGER: David L. Roberts, CFA (1994) and Gary J. Dunn (1994).
ADVISORY FEE: 0.50%
PORTFOLIO: LARGE COMPANY GROWTH PORTFOLIO
SUBADVISER: PEREGRINE
PORTFOLIO MANAGERS: John S. Dale, CFA (1994) and Gary E. Nussbaum, CFA (1998).
ADVISORY FEE: 0.65%
PORTFOLIOS: DISCIPLINED GROWTH PORTFOLIO (DIVERSIFIED EQUITY FUND ONLY) AND
SMALL CAP VALUE PORTFOLIO
SUBADVISER: SMITH
PORTFOLIO MANAGER: Stephen S. Smith (1997)
ADVISORY FEE: DISCIPLINED GROWTH PORTFOLIO: 0.90%
SMALL CAP VALUE PORTFOLIO 0.95%
PORTFOLIO: SMALL CAP INDEX PORTFOLIO
PORTFOLIO MANAGERS: David D. Sylvester (1998) and Laurie R. White (1998).
ADVISORY FEE: 0.25%
PORTFOLIO: SMALL COMPANY GROWTH PORTFOLIO
SUBADVISER: PEREGRINE
PORTFOLIO MANAGERS: Robert B. Mersky, CFA (1994) and Paul E. von Kuster, CFA (1998).
ADVISORY FEE: 0.90%
PORTFOLIO: SMALL COMPANY VALUE PORTFOLIO
SUBADVISER: PEREGRINE
PORTFOLIO MANAGERS: Tasso H. Coin, Jr. (1995) and Douglas G. Pugh (1997).
ADVISORY FEE: 0.90%
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
PORTFOLIO: SMALL COMPANY STOCK PORTFOLIO
SUBADVISER: CRESTONE
PORTFOLIO MANAGER: Kirk McCown, CFA (1993).
ADVISORY FEE: 0.90%
PORTFOLIO: INTERNATIONAL PORTFOLIO
ADVISER: SCHRODER
PORTFOLIO MANAGER: Michael Perelstein (1997).
ADVISORY FEE: 0.45%
PORTFOLIO: SCHRODER EM CORE PORTFOLIO
ADVISER: SCHRODER
PORTFOLIO MANAGERS: John A. Troiano (1997), Heather Crighton (1997), and Mark
Bridgeman (1997).
ADVISORY FEE: 1.00%
LARGE COMPANY GROWTH FUND
PORTFOLIO: LARGE COMPANY GROWTH PORTFOLIO
SUBADVISER: PEREGRINE
PORTFOLIO MANAGERS: John S. Dale, CFA (1994) and Gary E. Nussbaum, CFA (1998).
ADVISORY FEE: 0.65%
DIVERSIFIED SMALL CAP FUND
FUND ADVISORY FEE: 0.25%
PORTFOLIO: SMALL CAP INDEX PORTFOLIO
PORTFOLIO MANAGERS: David D. Sylvester (1998) and Laurie R. White (1998).
ADVISORY FEE: 0.25%
PORTFOLIO: SMALL COMPANY GROWTH PORTFOLIO
SUBADVISER: PEREGRINE
PORTFOLIO MANAGERS: Robert B. Mersky, CFA (1994) and Paul von Kuster, CFA (1998).
ADVISORY FEE: 0.90%
PORTFOLIO: SMALL COMPANY VALUE PORTFOLIO
SUBADVISER: PEREGRINE
PORTFOLIO MANAGERS: Tasso H. Coin, Jr. (1995) and Douglas G. Pugh (1997).
ADVISORY FEE: 0.90%
PORTFOLIO: SMALL COMPANY STOCK PORTFOLIO
SUBADVISER: CRESTONE
PORTFOLIO MANAGER: Kirk McCown, CFA (1993).
ADVISORY FEE: 0.90%.
PORTFOLIOS: SMALL CAP VALUE PORTFOLIO
SUBADVISER: SMITH
PORTFOLIO MANAGER: Stephen S. Smith, CFA (1997).
ADVISORY FEE: 0.95%
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
SMALL COMPANY STOCK FUND
PORTFOLIO: SMALL COMPANY STOCK PORTFOLIO
SUBADVISER: CRESTONE
PORTFOLIO MANAGER: Kirk McCown, CFA (1993).
ADVISORY FEE: 0.90%
SMALL CAP OPPORTUNITIES FUND
PORTFOLIO: SCHRODER U.S. SMALLER COMPANIES PORTFOLIO
ADVISER: SCHRODER
PORTFOLIO MANAGER: Ira L. Unschuld (1998).
ADVISORY FEE: 0.60%
SMALL COMPANY GROWTH FUND
PORTFOLIO: SMALL COMPANY GROWTH PORTFOLIO
SUBADVISER: PEREGRINE
PORTFOLIO MANAGERS: Robert B. Mersky, CFA (1994) and Paul E. von Kuster, CFA (1998).
ADVISORY FEE: 0.90%
INTERNATIONAL FUND
FUND ADVISORY FEE: 0.25%
PORTFOLIO: INTERNATIONAL PORTFOLIO
ADVISER: SCHRODER
PORTFOLIO MANAGER: Michael Perelstein (1997).
ADVISORY FEE: 0.45%
PORTFOLIO: SCHRODER EM CORE PORTFOLIO
ADVISER: SCHRODER
PORTFOLIO MANAGERS: John A. Troiano (1997), Heather Crighton (1997), and Mark
Bridgeman (1997).
ADVISORY FEE: 1.00%
</TABLE>
PORTFOLIO MANAGERS
Norwest Portfolio Managers:
PATRICIA BURNS, associated with Norwest or its affiliates since 19__.
Ms. Burns is a Senior Vice-President of Peregrine and has been a
portfolio manager at Peregrine for more than ten years.
TASSO H. COIN, JR., associated with Norwest or its affiliates since
1995. Mr. Coin has been a Senior Vice President of Peregrine since
1995. From 1992 to 1995, Mr. Coin was a research officer at Lord Asset
Management.
JOHN S. DALE, associated with Norwest or its affiliates since 1968.
Mr. Dale is a Senior Vice President of Peregrine.
WILLIAM D. GIESE, associated with Norwest or its affiliates since
19__. Mr. Giese is a Senior Vice President of Peregrine, has been a
portfolio manager at Peregrine for more than ten years, and has more
than 20 years' experience in fixed income securities management.
MARJORIE H. GRACE, associated with Norwest or its affiliates since
1992. Ms. Grace is a Director, Taxable Fixed Income of Norwest.
PATRICIA D. HOVANETZ, associated with Norwest or its affiliates since
19__. Ms. Hovanetz is a Director-Tax-Exempt Fixed Income of Norwest
and has been associated with Norwest or Norwest Bank for more than 25
years in capacities related to municipal bond investments.
JOHN HUBER, associated with Norwest or its affiliates since 1990. Mr.
Huber has been a Portfolio Manager and Director of Trading at Galliard
since 1995 and has been in investment management since 1990.
WILLIAM T. JACKSON, associated with Norwest or its affiliates since
1993. Mr. Jackson is a Managing Director, Tax Exempt Fixed Income of
Norwest.
ROBERT G. LEUTY, associated with Norwest or its affiliates since 1992.
Mr. Leuty is a Senior Portfolio Manager of Norwest.
DAVID S. LUNT, associated with Norwest or its affiliates since 1992.
Mr. Lunt is a Managing Director, Equities of Norwest.
KIRK MCCOWN, associated with Norwest or its affiliates since 1990. Mr.
McCown is the founder, President and a Director of Crestone.
RICHARD MERRIAM, associated with Norwest or its affiliates since 1995.
Mr. Merriam has been a managing partner of Galliard since 1995 and is
responsible for investment process and strategy. Mr. Merriam was
previously Chief Investment Officer of Insight Investment Management.
ROBERT B. MERSKY, associated with Norwest or its affiliates since
1968. Mr. Mersky is the President of Peregrine.
AJAY MIRZA, associated with Norwest or its affiliates since 19__. Mr.
Mirza has been a Portfolio Manager and Mortgage Specialist with
Galliard since 1995. Before joining Galliard, Mr. Mirza was a research
analyst at Insight Investment Management and at Lehman Brothers.
GARY E. NUSSBAUM, associated with Norwest or its affiliates since
1990. Mr. Nussbaum is a Senior Vice President of Peregrine.
DOUGLAS G. PUGH, associated with Norwest or its affiliates since 1997.
Mr. Pugh is a Senior Vice President of Peregrine. Before joining
Peregrine, Mr. Pugh was a senior equity analyst and portfolio manager
for Advantus Capital Management and an analyst with Kemper
Corporation.
DAVID L. ROBERTS, associated with Norwest or its affiliates since
19__. Mr. Roberts is a Managing Director, Equities of Norwest.
STEPHEN S. SMITH, associated with Norwest or its affiliates since
1997. Mr. Smith has been a Chief
<PAGE>
Investment Officer and principal of the Smith Group since 1995. Mr.
Smith previously served as senior portfolio manager with NationsBank
and in several capacities with AIM Management Company's Summit Fund.
DAVID D. SYLVESTER, associated with Norwest or its affiliates since
1979. Mr. Sylvester currently is a Managing Director - Reserve Asset
Management.
KARL P. TOURVILLE, associated with Norwest or its affiliates since
1986. Mr. Tourville has been a managing partner of Galliard since
1995.
PAUL E. VON KUSTER, associated with Norwest or its affiliates since
1972. Mr. Von Kuster is a Senior Vice President of Peregrine.
LAURIE R. WHITE, associated with Norwest or its affiliates since 1991.
Ms. White is a Director-Reserve Asset Management.
DAVID YIM, associated with Norwest or its affiliates since 1995. Mr.
Yim has been a Portfolio Manager and Director of Investment Research
of Galliard since 1995 and previously worked for American Express
Financial Advisors as a Research Analyst.
Schroder Portfolio Managers:
MARK BRIDGEMAN, associated with Schroder or its affiliates since 1990.
Mr. Bridgeman is a Vice President of Schroder.
HEATHER CRIGHTON, associated with Schroder or its affiliates since
1992. Ms. Crighton is a Vice President of Schroder.
MICHAEL PERELSTEIN, associated with Schroder or its affiliates since
1997. Mr. Perelstein has been a Senior Vice President of Schroder
since January 1997. Previously Mr. Perelstein was a Managing Director
at MacKay Shields.
JOHN A. TROIANO, associated with Schroder or its affiliates since
1981. Mr. Troiana has been Chief Executive Officer of Schroder since
April 1, 1997 and a Managing Director of Schroder since October 1995.
FARIBA TALEBI, associated with Schroder or its affiliates since 1987.
Ms. Talebi is a Group Vice President of Schroder.
DORMANT INVESTMENT ADVISORY ARRANGEMENTS
Norwest has been retained as a "dormant" or "back-up" investment
adviser to manage any assets redeemed and invested directly by a
Fund that invests in 1 or more Portfolios. Norwest does not
receive any compensation under this arrangement as long as a Fund
invests entirely in Portfolios. If a Fund redeems assets from a
Portfolio and invests them directly, Norwest receives an
investment advisory fee from the Fund for the management of those
assets.
OTHER FUND SERVICES
The FORUM FINANCIAL GROUP of companies provide managerial,
administrative, and underwriting services to the Funds. NORWEST
BANK acts as the Funds' transfer agent, dividend
<PAGE>
disbursing agent, and custodian.
<PAGE>
- --------------------------------------------------------------------------------
8. HOW TO BUY AND SELL SHARES
- --------------------------------------------------------------------------------
You may purchase or redeem shares at a price equal to their net asset value
next determined after receipt of your purchase order, or redemption request
in proper form on "Fund Business Days." Fund Business Days are all weekdays
except generally observed national holidays (New Year's Day, Martin Luther
King, Jr. Day, Presidents' Day, Memorial Day, Independence Day, Labor Day,
Thanksgiving, and Christmas) and Good Friday.
GENERAL PURCHASE INFORMATION
You may purchase shares directly or through a financial institution. The
Funds' transfer agent processes all transactions in Fund shares.
You may purchase and redeem Fund shares without a sales or redemption
charge. I Shares and Investor Shares require a minimum initial investment
of $1,000 and a minimum subsequent investments of $100. Institutional
Shares require a minimum initial investment of $100,000 and have no minimum
for subsequent investments.
If you purchase Money Market Fund shares, your shares become eligible to
receive distributions on the day that your order is accepted. If you
purchase shares of any other Fund, your shares become eligible to receive
distributions the Fund Business Day after a purchase order is received in
proper form.
The Funds reserve the right to reject any subscription for the purchase of
shares. You will receive share certificates for your shares only if you
request them in writing. No certificates are issued for fractional shares.
If you purchase Money Market Fund shares, your order will not be complete
until the Fund receives immediately available funds. The Money Market Funds
must receive purchase and redemption orders before the times indicated
below.
Times indicated are Eastern Time.
Payment
Orders Must Be Must Be
Received By Received By
------------ -----------
Cash Investment Fund 3:00 p.m. 4:00 p.m.
Ready Cash Investment Fund 3:00 p.m. 4:00 p.m.
U.S. Government Fund 2:00 p.m. 4:00 p.m.
Treasury Plus Fund 5:00 p.m. 5:00 p.m.
Treasury Fund 1:00 p.m. 4:00 p.m.
Municipal Money Market Fund Noon 4:00 p.m.
The Money Market Funds may advance the time by which purchase or redemption
orders and payments must be received on days that the New York Stock
Exchange or Minneapolis Federal Reserve Bank closes early, the Public
Securities Association recommends that the government securities markets
close early or other circumstances affect a Fund's trading hours.
<PAGE>
PURCHASE PROCEDURES
DIRECT PURCHASES
You may obtain an account application by writing Norwest Advantage Funds at
the following address:
NORWEST ADVANTAGE FUNDS
[NAME OF FUND]
NORWEST BANK MINNESOTA, N.A.
TRANSFER AGENT
733 MARQUETTE AVENUE
MINNEAPOLIS, MN 55479-0040
When you sign an application for a new Fund account, you are certifying
that your Social Security number or other taxpayer identification number is
correct and that you are not subject to backup withholding. If you violate
certain federal income tax provisions, the Internal Revenue Service can
require the Funds to withhold 31% of your distributions and redemptions.
You must pay for your shares in U.S. dollars by check or money order drawn
on a U.S. bank, by bank or federal funds wire transfer, or by electronic
bank transfer. Cash cannot be accepted.
Call or write the transfer agent if you wish to participate in shareholder
services not offered on the account application or change information on
your account (such as addresses). Norwest Advantage Funds may in the future
modify, limit or terminate any shareholder privilege upon appropriate
notice and may charge a fee for certain shareholder services, although no
such fees are currently contemplated. You may terminate your participation
in any shareholder program by writing to Norwest Advantage Funds.
PURCHASES BY MAIL
You may send a check or money order along with a completed account
application to Norwest Advantage Funds at the address listed above. Checks
and money orders are accepted at full value subject to collection. Payment
by a check drawn on any member of the Federal Reserve System can normally
be converted into federal funds within 2 business days after receipt of the
check. Checks drawn on some non-member banks may take longer. If your check
does not clear, the purchase order will be canceled and you will be liable
for any losses or fees incurred by Norwest Advantage Funds, the transfer
agent, or the distributor.
To purchase shares for individual or Uniform Gift to Minors Act accounts,
you must write a check or purchase a money order payable to Norwest
Advantage Funds, or endorse a check made out to you to Norwest Advantage
Funds. For corporation, partnership, trust, 401(k) plan, or other
non-individual type accounts, make the check used to purchase shares
payable to Norwest Advantage Funds. No other methods of payment by check
will be accepted.
PURCHASES BY BANK WIRE
You must first telephone the Funds' transfer agent at 1-612-667-8833 or
1-800-338-1348 to obtain an account number before making an initial
investment in a Fund by bank wire. Then instruct your bank to wire your
money immediately to:
<PAGE>
NORWEST BANK MINNESOTA, N.A.
A091 000 019
FOR CREDIT TO: NORWEST ADVANTAGE FUNDS 0844-131
RE: [NAME OF FUND][CLASS OF SHARES]
ACCOUNT NO.:
ACCOUNT NAME:
Complete and mail the account application promptly. Your bank may charge
for transmitting the money by wire. The Funds do not charge for the receipt
of wire transfers. The Funds treat payment by bank wire as a federal funds
payment when received.
PURCHASES THROUGH FINANCIAL INSTITUTIONS
You may purchase and redeem shares through certain broker-dealers, banks,
and other financial institutions. When you purchase a Fund's shares through
a financial institution, the shares may be held in your name or in the name
of the financial institution. Subject to your institution's procedures, you
may have Fund shares held in the name of your financial institution
transferred into your name. If your shares are held in the name of your
financial institution, you must contact the financial institution on
matters involving your shares. Your financial institution may charge you
for purchasing, redeeming, or exchanging shares.
SUBSEQUENT PURCHASES OF SHARES
You can make subsequent purchases by mailing a check, by sending a bank
wire, or through a financial institution as indicated above. All payments
should clearly indicate your name and account number.
GENERAL PURCHASES OF SHARES
You may redeem Fund shares at their net asset value on any Fund Business
Day. There is no minimum period of investment and no restriction on the
frequency of redemptions.
GENERAL REDEMPTION INFORMATION
Fund shares are redeemed as of the next determination of the Fund's net
asset value following receipt by the transfer agent of the redemption order
in proper form (and any supporting documentation that the transfer agent
may require). Redeemed Money Market Fund shares are not entitled to receive
distributions on the day on which the redemption is effective. Redeemed
shares of any other Fund are not entitled to receive distributions after
the day on which the redemption is effective.
Redemption orders for Money Market Fund shares are accepted up to the times
indicated above for acceptance of purchase orders of Money Market Fund
shares. As described above, the Money Market Funds may advance the times
for receipt of redemption orders.
Normally, redemption proceeds are paid immediately following receipt of a
redemption order in proper form. In any event, you will be paid within 7
days, unless: (1) your bank has not cleared the check to purchase the
shares (which may take up to 15 days); (2) the New York Stock Exchange is
closed (or trading is restricted) for any reason other than normal weekend
or holiday closings; (3) there is an emergency in which it is not practical
for the Fund to sell its portfolio securities or for the Fund to determine
its net asset value; or (4) the SEC deems it inappropriate for redemption
proceeds to be paid. You can avoid the delay of waiting for your bank to
clear your check by
<PAGE>
paying for shares with wire transfers. Unless otherwise indicated,
redemption proceeds normally are paid by check mailed to your record
address.
To protect against fraud, the following must be in writing with a signature
guarantee: (1) endorsement on a share certificate; (2) instruction to
change your record name; (3) modification of a designated bank account for
wire redemptions; (4) instruction regarding an Automatic Investment Plan or
Automatic Withdrawal Plan; (5) distribution elections; (6) election of
telephone redemption privileges; (7) election of exchange or other
privileges in connection with your account; (8) written instruction to
redeem shares whose value exceeds $50,000; (9) redemption in an account
when the account address has changed within the last 30 days; (10)
redemption when the proceeds are deposited in a Norwest Advantage Funds
account under a different account registration; and (11) the payment of
redemption proceeds to any address, person or account for which there are
not established standing instructions.
You may obtain signature guarantees at any of the following types of
organizations: authorized banks, broker-dealers, national securities
exchanges, credit unions, savings associations or other eligible
institutions. The specific institution must be acceptable to the transfer
agent. Whenever a signature guarantee is required, the signature of each
person required to sign for the account must be guaranteed.
The Funds and the transfer agent will use reasonable procedures to verify
that telephone requests are genuine, including recording telephone
instructions and sending written confirmations of the transactions. Such
procedures are necessary because the Funds and transfer agent could be
liable for losses due to unauthorized or fraudulent telephone instructions.
You should verify the accuracy of a telephone instruction as soon as you
receive the confirmation statement. Telephone redemption and exchanges may
be difficult to implement in times of drastic economic or market changes.
If you cannot reach the transfer agent by telephone, you may mail or
hand-deliver requests to the transfer agent.
Because of the cost of maintaining smaller accounts, Norwest Advantage
Funds may redeem, upon not less than 60 days' written notice, any account
holding I Shares or Investor Shares with a net asset value of less than
$1,000 or any account holding Institutional Shares with a net asset value
of less than $100,000 immediately following any redemption.
REDEMPTION PROCEDURES
If you have invested directly in a Fund you may redeem your shares as
described below. If you have invested through a financial institution you
may redeem shares through the financial institution. If you wish to redeem
shares by telephone or receive redemption proceeds by bank wire you should
complete the appropriate sections of the account application. These
privileges may not be available until several weeks after the application
is received. You may not redeem shares by telephone if you have
certificates for those shares.
REDEMPTION BY MAIL
You may redeem shares by sending a written request to the transfer agent
accompanied by any share certificate you have been issued. Sign all
requests and endorse all certificates with signatures guaranteed.
REDEMPTION BY TELEPHONE
<PAGE>
If you have elected telephone redemption privileges, you may redeem shares
by telephoning the transfer agent at 1-800-338-1348 or 1-612-667-8833 and
providing your shareholder account number, the exact name in which the
shares are registered and your Social Security number or other taxpayer
identification number. Norwest Advantage Funds will mail a check to your
record address or, if you have chosen wire redemption privileges, wire the
proceeds.
REDEMPTION BY BANK WIRE
If you have elected wire redemption privileges, you may request a Fund to
transmit redemption proceeds of more than $5,000 by federal funds wire to a
bank account you have designated in writing. You must have chosen the
telephone redemption privilege to request bank redemptions by telephone.
Redemption proceeds are transmitted by wire on the Fund Business Day of, in
the case of Money Market Funds, or after, in the case of other Funds, the
transfer agent receives a redemption request in proper form.
EXCHANGES
If you hold I Shares or Institutional Shares, you may exchange those shares
for I Shares or Institutional Shares of other Funds offering those shares.
If you hold Investor Shares, you may exchange those shares for Investor
Shares of the Funds offering Investor Shares or for a class of shares of
certain of the Funds that is not offered by this prospectus. Call or write
the transfer agent for more information.
The Funds do not charge for exchanges, and there is currently no limit on
the number of exchanges you may make. The Funds, however, may limit your
ability to exchange shares if you exchange too often. Exchanges are subject
to the fees charged by, and the limitations (including minimum investment
restrictions) of the Fund into which you are exchanging.
You may only exchange shares into a pre-existing account if that account is
identically registered. You must submit a new account application if you
wish to exchange shares into an account registered differently or with
different shareholder privileges. You may exchange into a Fund only if that
Fund's shares may legally be sold in your state of residence.
The Funds and federal tax law treat an exchange as a redemption and a
purchase of shares. The Funds may amend or terminate exchange procedures on
60 days' notice.
EXCHANGES BY MAIL
You may make an exchange by sending a written request to the transfer agent
accompanied by any share certificates for the shares to be exchanged. Sign
all written requests and endorse all certificates with signature
guaranteed.
EXCHANGES BY TELEPHONE
If you have telephone exchange privileges, you may make a telephone
exchange by calling the transfer agent at 1-800-338-1348 or 1-612-667-8833
and giving your account number, the exact name in which the shares are
registered and your Social Security number or other taxpayer identification
number.
<PAGE>
- --------------------------------------------------------------------------------
9. DISTRIBUTIONS AND TAX MATTERS
- --------------------------------------------------------------------------------
DISTRIBUTIONS
Distributions of net investment income are declared and paid as follows:
Declared daily and paid monthly: Each Money Market Fund,
Limited Term Government
Income Fund, Income Fund,
Total Return Bond Fund,
and each Tax-Free Fixed
Income Fund.
Declared and paid monthly: Stable Income Fund,
Intermediate Government
Income Fund, and
Diversified Bond Fund.
Declared and paid quarterly: Income Equity Fund,
ValuGrowth Stock Fund,
and Small Company Stock
Fund.
Declared and paid annually: Strategic Income Fund,
each Balanced Fund, Index
Fund, Diversified Equity
Fund, Growth Equity Fund,
Large Company Growth
Fund, Diversified Small
Cap Fund, Small Cap
Opportunities Fund, Small
Company Growth Fund, and
International Fund.
Each Fund's net capital gain, if any, is distributed at least
annually.
You have 3 choices for receiving distributions: the Reinvestment
Option, the Cash Option, and the Directed Dividend Option.
* Under the Reinvestment Option, all distributions of a Fund are
automatically invested in additional shares of that Fund. You are
automatically assigned this option unless you select another
option.
* Under the Cash Option, you are paid all distributions in cash.
* Under the Directed Dividend Option, if you own $10,000 or more of
a Fund's shares in a single account, you can have that Fund's
distributions reinvested in shares of another Fund. Call or write
the transfer agent for more information about the Directed
Dividend Option.
All distributions are treated in the same manner for federal income tax purposes
whether received in cash or reinvested in shares of a Fund. All distributions
reinvested in a Fund are reinvested at the Fund's net asset value as of the
payment date of the distribution.
<PAGE>
TAX MATTERS
The Funds are managed so that they do not owe federal income or excise
taxes. Distributions paid by a Fund out of its net investment income
(including net short-term capital gain) are taxable to shareholders as
ordinary income. Distributions of net capital gain (i.e., the excess of net
long-term capital gain over net short-term capital loss) are taxable as
long-term capital gain, regardless of how long a shareholder has held
shares in the Fund. Distributions of net capital gain may be taxable at
different rates depending on the length of time the Fund holds its assets.
If shares are sold at a loss after being held for six months or less, the
loss will be treated as long-term capital loss to the extent of any
distribution of net capital gain received on those shares.
Distributions (other than distributions of net investment income of Funds
that distribute net investment income daily) reduce the net asset value of
the Fund paying the distribution by the amount of the distribution.
Furthermore, a distribution made shortly after you purchase shares,
although in effect a return of capital to you, is taxable.
FUNDS INVESTING IN FOREIGN SECURITIES
If a Fund receives investment income from sources within foreign countries,
that income may be subject to foreign income or other taxes. International
Fund intends, if eligible to do so, to permit its shareholders to take a
credit (or a deduction) for foreign income and other taxes paid by
International Portfolio and Schroder EM Core Portfolio. If you own shares
of International Fund, you will be notified of your share of those foreign
taxes and will be required to treat the amount of the foreign taxes as
additional income. In that event, you may be entitled to claim a credit or
deduction for those taxes on your federal income tax return.
TAX-EXEMPT DISTRIBUTIONS
Generally, you will not be subject to federal income tax on distributions
paid by Municipal Money Market Fund or by a Tax-Free Fixed Income Fund out
of tax-exempt interest income earned by the Fund ("exempt-interest
distributions"). If you use, or are related to someone who uses, facilities
financed by private activity bonds held by a Fund, you may be subject to
federal income tax on your pro rata share of the interest income from those
securities and should consult your tax adviser before purchasing shares.
Interest on certain private activity bonds is treated as an item of tax
preference for purposes of the federal AMT imposed on individuals and
corporations. In addition, exempt-interest distributions are included in
the "adjusted current earnings" of corporations for AMT purposes. As noted
above, the Municipal Money Market Fund and each Tax-Free Fixed Income Fund
may invest a portion of its assets in securities that generate income that
is not exempt from federal income tax. Further, capital gain, if any,
distributed by these Funds are subject to tax. If you borrow money to
purchase or carry shares of these Funds, the interest on your debt
generally is not deductible for federal income tax purposes. If shares are
sold at a loss after being held for six months or less, the loss will be
disallowed to the extent of any exempt-interest dividends received on those
shares.
MUNICIPAL MONEY MARKET FUND, LIMITED-TERM TAX-FREE FUND, AND TAX-FREE
INCOME FUND. The federal income tax exemption on exempt interest
distributions does not necessarily result in an exemption under the income
or other tax laws of any state or local taxing authority. You may be exempt
from state and local taxes on distributions of tax-exempt interest income
derived from obligations of the state and/or municipalities of the state in
which you reside. You may, however, be subject to tax on distributions of
interest derived from the Municipal Securities of other
<PAGE>
jurisdictions. Consult your tax adviser concerning the application of state
and local taxes to investments in a Fund that may differ from the federal
income tax consequences described above.
COLORADO TAX-FREE FUND. It is anticipated that substantially all of the
exempt interest distributions paid by the Fund to individuals will be
exempt from Colorado personal income tax. Distributions made by the Fund to
Colorado individuals, trusts, estates, and corporations subject to the
Colorado income tax generally will be treated for Colorado income tax
purposes in the same manner as they are treated for federal income tax
purposes. Some differences may arise for taxpayers subject to the AMT
because interest on Colorado private activity bonds is not a preference
item for Colorado income tax purposes. Furthermore, Colorado has no
corporate AMT. Because the Fund may, except as indicated, purchase only
Colorado Municipal Securities, none of the exempt interest distributions
paid by the Fund will be subject to Colorado income tax.
MINNESOTA INTERMEDIATE TAX-FREE FUND and MINNESOTA TAX-FREE FUND. It is
anticipated that substantially all of the exempt interest distributions
paid by the Fund to individuals will be exempt from Minnesota personal
income tax. Interest earned on Minnesota Municipal Securities is generally
excluded from gross income for Minnesota state income tax purposes, while
interest earned on securities issued by municipal issuers from other states
is not excluded. At least 95% of the exempt-interest distributions paid by
the Fund must be derived from Minnesota Municipal Securities in order for
any portion of the exempt-interest distributions paid by the Fund to be
exempt from the Minnesota personal income tax. Exempt-interest
distributions paid by the Fund to shareholders that are corporations are
subject to Minnesota franchise tax.
Under Minnesota law, if the difference in state income tax treatment
between Minnesota Municipal Securities and the Municipal Securities of
issuers in other states should be judicially determined to discriminate
against interstate commerce, the Minnesota legislature has expressed its
intention that the discrimination be remedied by adding interest on
Minnesota Municipal Securities to the taxable income of Minnesota
residents. This treatment would begin with the taxable years that begin
during the calendar year in which the court's decision is final. If the
interest on Minnesota Municipal Securities is determined in general to be
taxable income for Minnesota income tax, the Fund will consider what
actions are to be taken in light of its current investment objectives and
investment policies.
The Minnesota AMT on resident individuals is based in part on their income
for purposes of the federal AMT. Accordingly, individual shareholders of
the Fund may be subject to the Minnesota AMT on exempt-interest
distributions paid by the Fund which are attributable to interest received
by the Fund on certain private activity securities, even though those
distributions are exempt from the regular Minnesota personal income tax.
<PAGE>
- --------------------------------------------------------------------------------
10. OTHER INFORMATION
- --------------------------------------------------------------------------------
DETERMINATION OF NET ASSET VALUE
Each Fund determines its net asset value on each Fund Business Day by
dividing the value of its net assets (i.e,. the value of its securities and
other assets less its liabilities) by the number of shares outstanding at
the time the determination is made. The Funds determine their net asset
values at the following times:
Municipal Money Market Fund Noon, Eastern Time
Treasury Fund 1:00 p.m., Eastern Time
Cash Investment Fund, Ready Cash Investment 3:00 p.m., Eastern Time
Fund and U.S. Government Fund
Each other Fund 4:00 p.m., Eastern Time
Treasury Plus Fund 5:00 p.m., Eastern Time
All Funds other than Money Market Funds value portfolio securities at
current market value if market quotations are readily available. If market
quotations are not readily available, the Funds value those securities at
fair value as determined by or pursuant to procedures adopted by the Board.
In order to maintain net asset value per share at $1.00, the Money Market
Funds (and the Portfolios in which they invest) value their portfolio
securities at amortized cost. Amortized cost valuation involves valuing an
instrument at its cost and then assuming a constant amortization to
maturity of any discount or premium. If the market value of a Money Market
Fund's portfolio deviates more than 1/2 of 1% from the value determined on
the basis of amortized cost, the Board will consider whether to take any
action to prevent any material effect on shareholders.
European, Far Eastern, and other international securities exchanges and
over-the-counter markets normally complete trading well before the close of
business on each Fund Business Day. Trading in foreign securities, however,
may not take place on all Fund Business Days or may take place on days that
are not Fund Business Days. The determination of the prices of foreign
securities may be based on the latest market quotations for the securities.
If events occur that affect the securities' value after the close of the
markets on which they trade, the Funds may make an adjustment to the value
of the securities for purposes of determining net asset value.
For purposes of determining net asset value, the Funds convert all assets
and liabilities denominated in foreign currencies into U.S. dollars at the
mean of the bid and asked prices of such currencies against the U.S. dollar
last quoted by a major bank prior to the time of conversion.
<PAGE>
ADDITIONAL INFORMATION ABOUT THE PORTFOLIOS
Each Fund reserves the right to invest in 1 or more Portfolios. Each Fund
bears its pro rata portion of the expenses of any Portfolio in which it
invests. The Board may redeem a Fund's investment in a Portfolio at any
time. The Fund could then invest directly in portfolio securities or could
re-invest in 1 or more different Portfolios that could have different fees
and expenses. A Fund might redeem, for example, if other investors had
sufficient voting power to change the investment objectives or policies of
the Portfolio in a manner detrimental to the Fund.
NO ONE HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE STATEMENT OF
ADDITIONAL INFORMATION AND THE FUNDS' OFFICIAL SALES LITERATURE. ANY SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE FUNDS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN
WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER MAY NOT LAWFULLY BE MADE.
<PAGE>
If you would like more information about the Funds and their investments, you
may want to read the following documents:
STATEMENT OF ADDITIONAL INFORMATION. A Fund's statement of additional
information, or "SAI," contains detailed information about each of the Funds,
such as its investments, management, and organization. It is incorporated into
this Prospectus by reference.
ANNUAL AND SEMI-ANNUAL REPORTS. Additional information about each Fund's
investments is available in its annual and semi-annual reports to shareholders.
In the annual report, each Fund's portfolio manager discusses the market
conditions and investment strategies that significantly affected the Fund's
performance during its last fiscal year.
You may obtain free copies of the SAI, annual report, and semi-annual report by
contacting your investment representative or by contacting Norwest Advantage
Funds at 733 Marquette Avenue, Minneapolis, Minnesota 55479 or by calling
1-800-338-1348 or 1-612-667-8833.
The Funds' reports and statement of additional information are available from
the Securities and Exchange Commission in Washington, D.C. You may obtain copies
of these documents, upon payment of a duplicating fee, by writing the Public
Reference Section of the SEC, Washington D.C. 20549-6009. Please call
1-800-SEC-0330 for information about the operation of the SEC's public reference
room. The Fund's reports and other information are also available on the SEC's
Web Site at http:// www.sec.gov.
The SEC's Investment Company Act file number for the Funds is 811-4881.
<PAGE>
PROSPECTUS
OCTOBER 1, 1998
THE PERFORMA FUNDS
PERFORMA STRATEGIC VALUE BOND FUND
PERFORMA DISCIPLINED GROWTH FUND
PERFORMA SMALL CAP VALUE FUND
PERFORMA GLOBAL GROWTH FUND
AN INVESTMENT IN A FUND IS NOT A DEPOSIT OF NORWEST BANK MINNESOTA, N.A. OR ANY
OTHER BANK AND IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
INVESTING IN ANY MUTUAL FUND HAS RISK. IT IS POSSIBLE TO LOSE MONEY BY INVESTING
IN ANY OF THE FUNDS.
NO GOVERNMENTAL AGENCY, INCLUDING THE SECURITIES AND EXCHANGE COMMISSION, HAS
APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED WHETHER OR NOT THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
PAGE
1. OVERVIEW.................................................
2. FINANCIAL HIGHLIGHTS.....................................
3. GLOSSARY.................................................
4. INVESTMENT OBJECTIVES AND POLICIES.......................
5. RISK CONSIDERATIONS......................................
6. COMMON POLICIES..........................................
7. MANAGEMENT OF THE FUNDS..................................
8. HOW TO BUY AND SELL SHARES...............................
9. DISTRIBUTIONS AND TAX MATTERS............................
10. OTHER INFORMATION........................................
<PAGE>
- --------------------------------------------------------------------------------
1. OVERVIEW
- --------------------------------------------------------------------------------
THE FOLLOWING IS A SUMMARY OF INFORMATION ABOUT THE FUNDS. BEFORE INVESTING, YOU
SHOULD READ THE PROSPECTUS AND CONSIDER THE DISCUSSIONS UNDER INVESTMENT
OBJECTIVES AND POLICIES AND RISK CONSIDERATIONS.
NO SINGLE FUND IS A COMPLETE OR BALANCED INVESTMENT PROGRAM, BUT EACH CAN SERVE
AS A PART OF YOUR OVERALL INVESTMENT PROGRAM.
- --------------------------------------------------------------------------------
THE FUNDS AT A GLANCE
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
FUND OBJECTIVE PRIMARY
INVESTMENT
PERFORMA STRATEGIC VALUE Total return by investing Broad spectrum of
BOND FUND primarily in income investment grade securities.
producing securities.
PERFORMA DISCIPLINED Capital appreciation by Stock of companies that
GROWTH FUND investing primarily in appear to possess above
common stock of larger average potential for growth.
companies.
PERFORMA SMALL CAP VALUE Capital appreciation by Stock of smaller companies
FUND investing primarily in that appear undervalued.
common stocks of smaller
companies.
PERFORMA GLOBAL GROWTH Long-term capital Stocks of companies located
FUND appreciation by investing in developed, newly
primarily in commmon stocks industrialized, and emerging
of established companies markets.
throughout the world,
including the United States.
</TABLE>
- --------------------------------------------------------------------------------
FUND STRUCTURES
- --------------------------------------------------------------------------------
Instead of investing directly in a portfolio of securities, each Fund invests in
1 or more other funds identified in this prospectus as a Portfolio. The
Portfolios do not offer their shares to the public. Except when necessary to
describe a Fund's investment in a Portfolio, this prospectus discusses a Fund's
investments in a Portfolio as if the investments were made directly in portfolio
securities.
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUNDS
- --------------------------------------------------------------------------------
NORWEST INVESTMENT MANAGEMENT, INC. or NORWEST is the investment adviser
for all of the Funds and Portfolios except Schroder Global Growth
Portfolio. Norwest, a subsidiary of Norwest Bank Minnesota, N.A. or Norwest
Bank, provides investment advice to institutions, pension plans, and other
accounts and currently manages more than $29 billion in assets.
SCHRODER CAPITAL MANAGEMENT INC. or SCHRODER is the investment adviser for
Schroder Global Growth Portfolio. Schroder specializes in providing
international investment advice. Investment subadvisers make investment
decisions for the other Portfolios under Norwest's general supervision.
This prospectus generally refers to Norwest or a subadviser as an Adviser.
The FORUM FINANCIAL GROUP of companies provide management, administrative,
and underwriting services to the Funds.
- --------------------------------------------------------------------------------
INVESTMENT MINIMUMS
- --------------------------------------------------------------------------------
You may purchase or redeem shares without sales or other charges. The Funds
require a minimum initial investment of $1,000 and minimum subsequent
investments of $100.
- --------------------------------------------------------------------------------
DISTRIBUTIONS
- --------------------------------------------------------------------------------
Each Fund distributes to shareholders its net capital gain, if any, at
least annually. THE DISTRIBUTIONS AND TAX MATTERS section discusses how
often the Funds distribute net investment income.
- --------------------------------------------------------------------------------
RISK FACTORS
- --------------------------------------------------------------------------------
All investments in a Fund are subject to risk and may decline in value. The
amount and types of risk vary from Fund to Fund depending on the Fund's
investment objective, the Adviser's strategy, the markets in which the Fund
invests, the investments that the Fund makes, and prevailing economic
conditions over the period of your investment.
Every Fund also has the risk that its Adviser may not be successful in
carrying out its investment strategy, that a portfolio manager may prove
difficult to replace if he or she becomes unavailable to manage the Fund
and that the Fund's particular investment strategy may result in
performance that is worse or better than the performance of the market as a
whole. Your investment in a Fund also will have risk if you do not plan to
invest for a period that is long enough to permit the investment to recover
from an adverse market movement.
If you invest in Performa Strategic Value Bond Fund, the investment income
you receive from the Fund will vary with changes in interest rates. In
addition, the value of the Fund's investments generally will fall when
interest rates rise and rise when interest rates fall. When interest rates
fall, there is a risk that issuers will prepay fixed rate securities,
forcing the Fund to invest in securities with lower interest rates than the
prepaid securities.
<PAGE>
A decline in interest rates also may result in losses in the Fund's
mortgage- and other asset-backed securities' values and a reduction in
their yields as the holders of the assets backing the securities prepay
their debts. Rising interest rates may cause the average maturity of the
Fund to rise due to a drop in prepayments. A rise in average maturity
increases the Fund's sensitivity to rising interest rates and potential for
losses in value.
The Fund also is subject to "credit risk," which is the risk that an issuer
will be unable, or will be perceived to be unable, to pay the interest or
principal on its obligations when due. The Fund seeks to limit its credit
risk by investing primarily in debt securities that are highly rated by a
nationally recognized statistical rating organization. The Fund's
investments in securities that are not highly rated are subject to more
credit risk.
Performa Disciplined Growth Fund, Performa Small Cap Value Fund, and
Performa Global Growth Fund are subject to "market risk," which is the
general risk that the value of a Fund's investments may decline if the
stock markets perform poorly. There also is a risk that a Fund's
investments will underperform either the securities markets generally or
particular segments of the securities markets.
Performa Small Cap Value Fund and Performa Global Growth Fund have
additional risks because they invest in smaller and foreign issuers,
respectively. Investments in smaller issuers are subject to greater changes
in value because securities of smaller issuers may not trade as often or be
as widely owned as the securities of larger issuers. Investments in foreign
issuers are subject to the risks of foreign political and economic
instability and changes in foreign currency exchange rates. Foreign
investments also are subject to government actions, including exchange
controls and limits on repayments of foreign investments. Foreign
governments may nationalize, tax or confiscate investors' assets.
<PAGE>
- --------------------------------------------------------------------------------
EXPENSES OF INVESTING IN THE FUNDS
- --------------------------------------------------------------------------------
The following table will assist you in understanding the expenses that you
will bear directly or indirectly when you invest in a Fund. The Funds do
not impose transaction charges for purchasing, redeeming or exchanging
shares. The Funds do not have distribution expenses.
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<S> <C> <C> <C>
INVESTMENT OTHER TOTAL FUND
ADVISORY EXPENSES OPERATING
FEES (after fee waivers EXPENSES
(after fee waivers) and expense
reimbursement)
------------------- ------------ ---------
Performa Strategic Value Bond Fund 0.50% 0.35% 0.85%
Performa Disciplined Growth Fund 0.90% 0.35% 1.25%
Performa Small Cap Value Fund 0.95% 0.35% 1.30%
Performa Global Growth Fund 0.00% 1.45% 1.45%
</TABLE>
Each Fund bears its pro rata portion of the expenses of the Portfolio in which
it invests. Investment Advisory Fees are those incurred by the Portfolios.
Absent waivers, Investment Advisory Fees for Performa Global Growth Fund would
be 0.50%. Other Expenses reflect expense reimbursements. Absent expense
reimbursements and fee waivers, Other Expenses and Total Operating Expenses
would be: Performa Strategic Value Bond Fund 1.49% and 1.99%, Performa
Disciplined Growth Fund 1.59% and 2.49%, Performa Small Cap Value Fund 2.64% and
3.59% and Performa Global Growth Fund 15.23% and 15.73%. Expense reimbursements
are voluntary and may be reduced or eliminated at any time.
EXAMPLE
The following hypothetical example indicates the dollar amount of expenses you
would pay, assuming a $1,000 investment in a Fund's shares, the expenses listed
in Annual Fund Operating Expenses table, a 5% annual return and reinvestment of
all distributions. THE EXAMPLE DOES NOT REPRESENT PAST OR FUTURE EXPENSES OR
RETURN. ACTUAL EXPENSES AND RETURN MAY BE GREATER OR LESS THAN THOSE SHOWN IN
THE EXAMPLE.
<TABLE>
<S> <C> <C> <C> <C>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Performa Strategic Value Bond Fund $9 $27 $47 $105
Performa Disciplined Growth Fund $13 $40 $69 $151
Performa Small Cap Value Fund $13 $41 $71 $157
Performa Global Growth Fund $15 $46 $79 $174
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
2. FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand each Fund's
financial performance for the Fund's operating history. Certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have earned on an investment in
a Fund, assuming reinvestment of all distributions. The information has been
audited by KPMG Peat Marwick LLP, independent auditors, whose report dated July
21, 1998 about a Fund, along with the Fund's financial statements, are included
in the Fund's Annual Report, which is available at no charge upon request. These
financial statements are incorporated by reference into the SAI.
<TABLE>
<S> <C> <C> <C> <C>
PERFORMA PERFORMA PERFORMA PERFORMA
STRATEGIC DISCIPLINED SMALL CAP GLOBAL GROWTH
VALUE BOND GROWTH FUND VALUE FUND FUND
FUND
--------------- -------------- --------------- ----------------
Period Ended May 31, 1998
------------------------------------------------------------------------
Net Asset Value, Beginning of Period(a) $10.00 $10.00 $10.00 $10.00
------ ------ ------ ------
Investment Operations
Net Investment Income (Loss) 0.34 0.01 (0.01) 0.03
Net Realized and Unrealized Gain (Loss) on 0.27 0.44 0.17 0.60
---- ---- ---- ----
Investments
Total from Investment Operations 0.61 0.45 0.16 0.63
---- ---- ---- ----
Distributions From:
Net Investment Income (0.33) (0.01) -- --
------------------------- --------------------------
Net Asset Value, End of Period $10.28 $10.44 $10.16 $10.63
====== ====== ====== ======
Total Return 6.20% 4.50% 1.60% 6.30%
Supplementary Data:
Net Assets at End of Period (000's omitted) $9,168 $12,325 $6,422 $1,066
Ratios to Average Net Assets (b)(c):
Net Investment Income (loss) 5.82% 0.14% (0.56)% 0.68%
Net Expenses 0.85% 1.25% 1.30% 1.45%
(Expenses excluding reimbursement/waiver of 1.95% 2.44% 3.54% 9.82%
fees)
Average Commission Rate Per Share(d) N/A $0.0553 $0.0556 $0.0355
Portfolio Turnover Rate(e) 134.56% 68.08% 79.43% 13.82%
- --------------------------------------------------------------------------------
</TABLE>
(a) The Funds commenced operations on October 15, 1997.
(b) Annualized.
(c) Includes expenses allocated from the Portfolio in which the Fund invests.
(d) Represents the average commission per share paid to brokers on the purchase
or sale of portfolio securities of the Portfolio in which the Fund invests.
(e) Represents the activity of the Portfolio in which the Fund invests.
<PAGE>
- --------------------------------------------------------------------------------
3. GLOSSARY
- --------------------------------------------------------------------------------
This Glossary of frequently used terms will help you understand the
discussion of the Funds' objectives, policies, and risks. Defined terms are
capitalized when used in this prospectus.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Term Definition
- ---- ----------
Board The Board of Trustees of Norwest Advantage
Funds.
Duration A measure of a debt security's average life
that reflects the present value of the
security's cash flow. Prices of securities
with longer durations generally are more
volatile.
Fundamental Requiring shareholder approval to change.
Market Capitalization The total market value of a company's
outstanding common stock.
NRSRO A nationally recognized statistical rating
organization, such as S&P, that rates fixed-
income securities and preferred stock by
relative credit risk.
Non-Investment Grade Neither rated at the time of purchase
in 1 of the 4 highest long-term or 2 highest
short-term ratings categories by an NRSRO
nor unrated and determined by the Adviser to
be of comparable quality.
Russell 2000(R)Index A broad-based index of smaller
capitalization companies.
S&P Standard & Poor's Corporation.
S&P 500 Index Standard & Poor's 500 Composite Stock
Price Index, an index of large
capitalization companies.
SAI State of Additional Information.
SEC The U.S. Securities and Exchange Commission.
U.S. Government Security A security issued or guaranteed as to
principal and interest by the U.S.
Government, its agencies or its
instrumentalities.
<PAGE>
- --------------------------------------------------------------------------------
4. INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
This section discusses the investment objectives and policies of the Funds.
After each Fund's description, there is a short, alphabetical listing of the
Fund's primary risks. The RISK CONSIDERATIONS section discusses these risks.
PERFORMA STRATEGIC VALUE BOND FUND
INVESTMENT OBJECTIVE. The Fund's investment objective is to seek total
return by investing primarily in income producing securities.
INVESTMENT POLICIES. The Fund invests in a broad range of fixed-income
instruments in order to create a strategically diversified portfolio of
fixed-income investments. These investments include corporate bonds,
mortgage- and other asset-backed securities, U.S. Government Securities,
preferred stock, convertible bonds, and foreign bonds.
The Adviser focuses on relative value as opposed to predicting the
direction of interest rates. In general, the Fund seeks higher current
income instruments such as corporate bonds and mortgage-and other
asset-backed securities in order to enhance returns. The Adviser believes
that this exposure enhances performance in varying economic and interest
rate cycles and avoids excessive risk concentrations. The Adviser's
investment process involves rigorous evaluation of each security, including
identifying and valuing cash flows, embedded options, credit quality,
structure, liquidity, marketability, current-versus-historical trading
relationships, supply and demand for the instrument, and expected returns
in varying economic/interest rate environments. The Adviser uses this
process to seek to identify securities which represent the best relative
economic value. The Adviser then evaluates the results of the investment
process against the Fund's objective and purchases those securities that
are consistent with the Fund's investment objective.
The Fund particularly seeks strategic diversification. The Fund will not
invest more than:
* 75% of its total assets in corporate bonds;
* 65% of its total assets in mortgage-backed securities;
* 50% of its total assets in asset-backed securities; or
* 25% of its total assets in a single industry of the corporate
market.
The Fund may invest in U.S. Government Securities without restriction. The
Fund generally will not invest more than 5% of its total assets in the
corporate bonds of any single issuer.
<PAGE>
The Fund will invest 65% of its total assets in fixed-income securities
rated, at the time of purchase, within the 3 highest rating categories
assigned by at least 1 NRSRO, or which are unrated and determined by the
Adviser to be of comparable quality. The Fund may invest up to 20% of its
total assets in Non-Investment Grade securities.
The average maturity of the Fund will vary between 5 and 15 years. In the
case of mortgage-backed and similar securities, the Fund uses the
security's average life in calculating the Fund's average maturity. The
Fund's Duration normally will vary between 3 and 8 years.
The Fund may use options, swap agreements, interest rate caps, floors, and
collars and futures contracts to manage risk. The Fund also may use options
to enhance return.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RISKS:
credit risk interest rate risk leverage risk
market risk prepayment risk
PERFORMA DISCIPLINED GROWTH FUND
INVESTMENT OBJECTIVE. The Fund's investment objective is to seek capital
appreciation by investing primarily in common stocks of larger companies.
INVESTMENT POLICIES. The Fund seeks higher long-term returns by investing
primarily in the common stock of companies that, in the view of the
Adviser, possess above average potential for growth. The Fund invests in
companies with average Market Capitalizations greater than $5 billion.
The Fund seeks to identify growth companies that will report a level of
corporate earnings that exceed the level expected by investors. In seeking
these companies, the Adviser uses both quantitative and fundamental
analysis. The Adviser may consider, among other factors, changes of
earnings estimates by investment analysts, the recent trend of company
earnings reports, and an analysis of the fundamental business outlook for
the company. The Adviser uses a variety of valuation measures to determine
whether or not the share price already reflects any positive fundamentals
identified by the Adviser. In addition to approximately equal weighting of
portfolio securities, the Adviser attempts to constrain the variability of
the investment returns by employing risk control screens for price
volatility, financial quality, and valuation.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RISKS:
market risk
<PAGE>
PERFORMA SMALL CAP VALUE FUND
INVESTMENT OBJECTIVE. The Fund's investment objective is to seek capital
appreciation by investing primarily in common stocks of smaller companies.
INVESTMENT POLICIES. The Fund seeks capital appreciation by investing in
common stocks of smaller companies. The Fund will normally invest
substantially all of its assets in securities of companies with Market
Capitalizations that reflect the Market Capitalization of companies
included in the Russell 2000 Index, which range from approximately $220
million to approximately $1.4 billion.
The Fund seeks higher growth rates and greater long-term returns by
investing primarily in the common stock of smaller companies that the
Adviser believes to be undervalued and likely to report a level of
corporate earnings exceeding the level expected by investors. The Adviser
values companies based upon both the price-to-earnings ratio of the company
and a comparison of the public market value of the company to a proprietary
model that values the company in the private market. In seeking companies
that will report a level of earnings exceeding that expected by investors,
the Adviser uses both quantitative and fundamental analysis. Among other
factors, the Adviser considers changes of earnings estimates by investment
analysts, the recent trend of company earnings reports, and the fundamental
business outlook for the company.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RISKS:
market risk small company risk
PERFORMA GLOBAL GROWTH FUND
INVESTMENT OBJECTIVE. The Fund's investment objective is to seek long-term
growth of capital by investing primarily in common stocks of established
companies throughout the world, including the United States.
INVESTMENT POLICIES. The Fund invests in common stocks of companies located
in developed, newly industrialized, and emerging markets. The Fund normally
invests at least 65% of its total assets in equity securities of companies
located in at least four countries plus the United States. The Fund may
invest in companies of any size, but generally is concentrated in companies
that are large and, to a lesser extent, medium-sized for the particular
market.
The Adviser's investment process emphasizes stock selection and a
fundamental company analysis. The Adviser seeks companies that it believes
have a sustainable competitive advantage and a potential for growth that is
generally undervalued by other investors. The Adviser considers
<PAGE>
historical growth rates and future growth prospects, management capability,
competitive position in both domestic and export markets, and other
factors.
The Adviser seeks to add value by allocating the Fund's investments
geographically. The Adviser selects countries it believes have a favorable
long-term business environment in which adverse macroeconomic or political
conditions are not likely to materially impede corporate growth. The Fund
may invest more than 25% of its total assets in issuers located in a single
country.
The Fund may seek capital appreciation by investing in convertible or
non-convertible debt securities. The Fund may invest in debt securities
issued by corporations or financial institutions. The Fund also may invest
in debt securities issued or guaranteed by international organizations that
promote economic reconstruction or development.
When selecting debt securities, the Adviser considers favorable changes in
relative foreign exchange rates, relative interest rate levels, or the
creditworthiness of issuers. The Adviser seeks income only incidentally to
seeking capital appreciation. The Fund may invest in debt securities in
order to participate in debt-to-equity conversion programs that are part of
corporate reorganizations.
The Fund may enter into foreign currency forward contracts to purchase or
sell foreign currencies in anticipation of its currency requirements and to
protect against possible adverse movements in foreign exchange rates.
The Fund may use various derivative instruments including instruments such
as options, swap agreements, interest rate caps, floors and collars, and
futures contracts to manage risk or enhance return.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RISKS:
credit risk currency rate risk foreign risk
geographic concentration risk interest rate risk leverage risk
market risk prepayment risk
<PAGE>
- --------------------------------------------------------------------------------
5. RISK CONSIDERATIONS
- --------------------------------------------------------------------------------
This section describes the principal risks that may apply to the Funds.
Each Fund's exposure to these risks depends upon its specific investment
profile. The Fund's description in Investment Objectives and Policies lists
the Fund's principal risks.
- --------------------------------------------------------------------------------
CREDIT RISK
- --------------------------------------------------------------------------------
The risk that the issuer of a security, or the counterparty to a contract,
will default or otherwise be unable to honor a financial obligation. This
risk is greater for Non-Investment Grade securities.
- --------------------------------------------------------------------------------
CURRENCY RATE RISK
- --------------------------------------------------------------------------------
The risk that fluctuations in the exchange rates between the U.S. dollar
and foreign currencies may negatively affect a Fund's investments. This
risk may be greater for investments in emerging or developing markets.
- --------------------------------------------------------------------------------
FOREIGN RISK
- --------------------------------------------------------------------------------
The risk that foreign investments may be subject to political and economic
instability, the imposition or tightening of exchange controls or other
limitations on repatriation of foreign capital, or nationalization, increased
taxation, or confiscation of investors' assets. This risk may be greater for
investments in issuers in emerging or developing markets. Also, the risk that
the price of a foreign issuer's securities may not reflect the issuer's
condition because there is not sufficient publicly available information about
the issues.
- --------------------------------------------------------------------------------
GEOGRAPHIC CONCENTRATION RISK
- --------------------------------------------------------------------------------
The risk that factors adversely affecting a Fund's investments in issuers
located in a state, country, or region will affect the Fund's net asset
value more than would be the case if the Fund had made more geographically
diverse investments.
- --------------------------------------------------------------------------------
INTEREST RATE RISK
- --------------------------------------------------------------------------------
The risk that changes in interest rates may affect the value of your
investment. With fixed-rate securities, including U.S. Government
Securities, an increase in interest rates typically causes the value of a
Fund's fixed-rate securities to fall, while a decline in interest rates may
produce an increase in the market value of the securities. Because of this
risk, an investment in a Fund that invests in fixed income securities is
subject to risk even if all the fixed income securities in the Fund's
portfolio are paid in full at maturity. Changes in interest rates will
affect the value of longer-term fixed income securities more than
shorter-term securities.
- --------------------------------------------------------------------------------
LEVERAGE RISK
- --------------------------------------------------------------------------------
<PAGE>
The risk that some transactions may multiply smaller market movements into
large changes in a Fund's net asset value. This risk may occur when a Fund
borrows money or enters into transactions that have a similar economic
effect, such as short sales or forward commitment transactions. This risk
also may occur when a Fund makes investments in derivatives, such as
options or futures contracts.
- --------------------------------------------------------------------------------
MARKET RISK
- --------------------------------------------------------------------------------
The risk that the market value of a Fund's investments will fluctuate as
the stock and bond markets fluctuate generally. Market risk may affect a
single issuer, industry, or section of the economy or may affect the market
as a whole.
- --------------------------------------------------------------------------------
PREPAYMENT RISK
- --------------------------------------------------------------------------------
The risk that issuers will prepay fixed rate securities when interest rates
fall, forcing the Fund to invest in securities with lower interest rates
than the prepaid securities. For a Fund investing in mortgage- and other
asset-backed securities, this is also the risk that a decline in interest
rates may result in holders of the assets backing the securities to prepay
their debts, resulting in potential losses in these securities' values and
yield. Alternatively, rising interest rates may reduce the amount of
prepayments on the assets backing these securities, causing the Fund's
average maturity to rise and increasing the Fund's sensitivity to rising
interest rates and potential for losses in value.
- --------------------------------------------------------------------------------
SMALL COMPANY RISK
- --------------------------------------------------------------------------------
The risk that investments in smaller companies may be more volatile than
investments in larger companies. Smaller companies may have higher failure
rates than larger companies. A small company's securities may be hard to
sell because the trading volume of the securities of smaller companies is
normally lower than that of larger companies. Short term changes in the
demand for the securities of smaller companies may have a disproportionate
effect on their market price, tending to make prices of these securities
fall more in response to selling pressure.
- --------------------------------------------------------------------------------
6. COMMON POLICIES
- --------------------------------------------------------------------------------
Except as otherwise indicated, the Board may change the Funds' investment
policies without shareholder approval. The Funds' investment objectives are
Fundamental.
- --------------------------------------------------------------------------------
VOTING ISSUES
- --------------------------------------------------------------------------------
In determining the outcome of shareholder votes, the Funds and the other
funds in the Funds' fund complex normally count votes on a share-by-share
basis. This means that shareholders of funds in the fund complex with
comparatively high net asset values will have a comparatively
<PAGE>
smaller impact on the outcome of votes by all of the funds in the fund
complex than do shareholders of funds with comparatively low net asset
values.
- --------------------------------------------------------------------------------
DOWNGRADED SECURITIES
- --------------------------------------------------------------------------------
Each Fund may retain a security whose rating has been lowered (or a
security of comparable quality to a security whose rating has been lowered)
below the Fund's lowest permissible rating category if the Fund's Adviser
determines that retaining the security is in the best interests of the
Fund. Because a downgrade often results in a reduction in the market price
of the security, sale of a downgraded security may result in a loss.
- --------------------------------------------------------------------------------
TEMPORARY DEFENSIVE POSITION
- --------------------------------------------------------------------------------
To respond to adverse market, economic, political, or other conditions,
each Fund may assume a temporary defensive position and invest without
limit in cash and cash equivalents. When a Fund makes temporary defensive
investments, it may not pursue its investment objective.
- --------------------------------------------------------------------------------
PORTFOLIO TRANSACTIONS
- --------------------------------------------------------------------------------
From time to time, a Fund may engage in active short-term trading to take
advantage of price movements affecting individual issues, groups of issues,
or markets. Higher portfolio turnover rates may result in increased
brokerage costs and a possible increase in short-term capital gains or
losses. The FINANCIAL HIGHLIGHTS table lists the Funds' portfolio turnover
rate.
- --------------------------------------------------------------------------------
YEAR 2000 AND EURO
- --------------------------------------------------------------------------------
The Funds could be adversely affected if the computer systems used by the
Advisers and other service providers (and in particular, foreign service
providers) to the Funds do not properly process and calculate date-related
information and data from and after January 1, 2000 or information regarding the
new common currency of the European Union. The Year 2000 and Euro issues also
may adversely affect the Funds' investments.
Norwest and Forum Financial Group are taking steps to address the Year 2000
and Euro issues for their computer systems and to obtain reasonable
assurances that comparable steps are being taken by the Funds' other major
service providers. While the Funds do not anticipate any adverse effect on
their computer systems from the Year 2000 and Euro issues, there can be no
assurance that these steps will be sufficient to avoid any adverse impact
on the Funds.
- --------------------------------------------------------------------------------
INVESTMENT ADVISORY SERVICES
- --------------------------------------------------------------------------------
<PAGE>
NORWEST INVESTMENT MANAGEMENT, INC. is the investment adviser for each Fund
and each Portfolio except Schroder Global Growth Portfolio. In this
capacity, Norwest makes investment decisions for and administers the Funds'
and Portfolios' investment programs. Norwest Investment Management, Inc.'s
address is Norwest Center, Sixth Street and Marquette, Minneapolis, MN
55479.
SCHRODER CAPITAL MANAGEMENT INTERNATIONAL INC. is the investment adviser
for Schroder Global Growth Portfolio. In this capacity, Schroder makes
investment decisions for and administers that Portfolio's investment
program. Schroder Capital Management International Inc.'s address is 787
Seventh Avenue 34th Floor, New York, NY 10019.
Norwest and certain of the Portfolios have retained investment subadvisers
to make investment decisions for and administer the investment programs of
those Funds and Portfolios. Norwest decides which portion of the assets of
a Portfolio the subadviser should manage and supervises the subadvisers'
performance of their duties. The subadvisers are:
GALLIARD CAPITAL MANAGEMENT, INC. or GALLIARD, an investment advisory
subsidiary of Norwest Band, provides investment advisory services to bank
and thrift institutions, pension and profit sharing plans, trusts and
charitable organizations, and corporate and other business entities.
Gaillard Capital Management, Inc.'s address is 800 Lasalle Ave. Suite 2060,
Minneapolis, MN 55479.
SMITH ASSET MANAGEMENT GROUP, L.P. OR SMITH, an investment advisory
affiliate of Norwest Bank, provides investment management services to
company retirement plans, foundations, endowments, trust companies, and
high net worth individuals using a disciplined equity style. Smith Asset
Management Group's address is 300 Crescent Court, Suite 750, Dallas, TX
75201
Listed below, for each Fund, are the portfolio managers primarily
responsible for the day-to-day management of the Funds' investments. The
year a portfolio manager began managing a Fund's portfolio follows the
manager's name in parenthesis. The list includes the investment advisory
fees payable to Norwest or Schroder by the Portfolios. The list states the
investment advisory fees on an annualized basis as a percentage of a
Portfolio's average daily net assets. Descriptions of the portfolio
managers' recent experience follow the list of portfolio managers and
advisory fees.
Norwest (and not the Funds or Portfolios) pays the subadvisers' investment
subadvisory fees. The investment subadvisory fees do not increase the
amount of the investment advisory fees paid to Norwest by the Portfolios.
PERFORMA STRATEGIC VALUE BOND FUND
<PAGE>
PERFORMA STRATEGIC VALUE BOND FUND
PORTFOLIO: STRATEGIC VALUE BOND PORTFOLIO
SUBADVISER: GALLIARD
PORTFOLIO MANAGERS: Richard Merriam, CFA (1997), John Huber (1998),
and David Yim (1998).
ADVISORY FEE: 0.50%
PERFORMA DISCIPLINED GROWTH FUND
PORTFOLIOS: DISCIPLINED GROWTH PORTFOLIO
SUBADVISER: SMITH
PORTFOLIO MANAGER: Stephen S. Smith, CFA (1997).
ADVISORY FEE: 0.90%
PERFORMA SMALL CAP VALUE FUND
PORTFOLIO: SMALL CAP VALUE PORTFOLIO
SUBADVISER: SMITH
PORTFOLIO MANAGER: Stephen S. Smith, CFA (1997).
ADVISORY FEE: 0.95%
PERFORMA GLOBAL GROWTH FUND
PORTFOLIO: SCHRODER GLOBAL GROWTH PORTFOLIO
ADVISER: SCHRODER
PORTFOLIO MANAGERS: Michael Perelstein (1997) and Paul Morris (1997).
ADVISORY FEE: 0.50%
PORTFOLIO MANAGERS
Norwest Portfolio Managers:
JOHN HUBER, associated with Norwest or its affiliates since 1990. Mr. Huber
has been a Portfolio Manager and Director of Trading at Galliard since 1995
and has been in investment management since 1990.
RICHARD MERRIAM, associated with Norwest or its affiliates since 1995. Mr.
Merriam has been a managing partner of Galliard since 1995 and is
responsible for investment process and strategy. Mr. Merriam was previously
Chief Investment Officer of Insight Investment Management.
STEPHEN S. SMITH, associated with Norwest or its affiliates since 1997. Mr.
Smith has been a Chief Investment Officer and principal of the Smith Group
since 1995. Mr. Smith previously served as senior portfolio manager with
NationsBank and in several capacities with AIM Management Company's Summit
Fund.
<PAGE>
DAVID YIM, associated with Norwest or its affiliates since 1995. Mr. Yim
has been a Portfolio Manager and Director of Investment Research of
Galliard since 1995 and previously worked for American Express Financial
Advisors as a Research Analyst.
SCHRODER PORTFOLIO MANAGERS:
PAUL MORRIS, associated with Norwest or its affiliates since 1997. Mr.
Morris has been a Senior Vice President of Schroder Capital Management
International and a Director of Schroder since 1997. Prior to joining
Schroder, Mr. Morris was Principal and Senior Portfolio Manager at Weiss
Peck & Greer, L.L.C., Managing Director (Equity Division) of UBS Asset
Management and an Equity Portfolio Manager at Chase Investors Management
Group.
MICHAEL PERELSTEIN, associated with Norwest or its affiliates since 1997.
Mr. Perelstein has been a Senior Vice President of Schroder since January
1997. Previously Mr. Perelstein was a Managing Director at MacKay Shields.
DORMANT INVESTMENT ADVISORY ARRANGEMENTS
Norwest has been retained as a "dormant" or "back-up" investment adviser to
manage any assets redeemed and invested directly by a Fund. Norwest does
not receive any compensation under this arrangement as long as a Fund
invests entirely in a Portfolio. If a Fund redeems assets from a Portfolio
and invests them directly, Norwest receives an investment advisory fee from
the Fund for the management of those assets.
OTHER FUND SERVICES
The Forum Financial Group of companies provide managerial, administrative,
and underwriting services to the Funds. Norwest Bank acts as the Funds'
transfer agent, dividend disbursing agent, and custodian.
BACKGROUND OF SMITH GROUP PERFORMANCE
The table below sets forth composite performance data for the dates
indicated relating to the historical performance of certain separate
accounts and mutual fund portfolios primarily managed by Stephen Smith, the
portfolio manager of Disciplined Growth Portfolio and Small Cap Value
Portfolio. The data illustrate the past performance of Mr. Smith in
managing substantially similar accounts as measured against specified
market indices. It does not represent the performance of the Portfolios.
This performance data is not an indication of future performance of the
Portfolios, the Smith Group or Mr. Smith.
Mr. Smith's composites include all actual, fee-paying, discretionary
institutional private accounts and mutual fund portfolios managed by Mr.
Smith that have substantially the same investment objectives and policies.
Mr. Smith's composite performance was calculated on a total return basis
and includes all dividends and interest, accrued income, and realized and
unrealized gain and loss. The data accounts for securities transactions on
the trade date and uses accrual accounting.
<PAGE>
All returns reflect the deduction of the highest effective investment
advisory fees, brokerage commissions, and execution costs paid by the
Adviser's private accounts, without provision for federal or state income
taxes. Returns include returns from cash and cash equivalents. Account fees
vary depending on, among other things, the applicable fee schedule,
portfolio size and nature of the account. Custodial fees, if any, were not
included in the calculation. A schedule of Mr. Smith's fees is available on
request.
The monthly returns of Mr. Smith's composites combine the individual
accounts' returns (calculated on a time-weighted rate of return) by
asset-weighing each individual account's asset value as of the beginning of
the month. Quarterly and yearly returns are calculated by geometrically
linking the monthly and quarterly returns, respectively.
The institutional private accounts included in Mr. Smith's composites are
not subject to certain investment limitations, diversification
requirements, specific tax restrictions, and investment limitations imposed
on the Portfolios by the Investment Company Act of 1940 or the Internal
Revenue Code. The performance results could have been adversely affected if
the institutional private accounts included in the composite had been
regulated as investment companies.
The composites are unaudited and do not represent the past performance of
nor predict the future returns of the Portfolios or an individual investor
investing in Performa Disciplined Growth Fund or Performa Small Cap Value
Fund. The use of a methodology different from that used to calculate the
performance could result in different performance data.
<TABLE>
<S> <C> <C>
MR. SMITH'S COMPOSITE FOR THE S&P 500 INDEX(3)
----------------
DISCIPLINED GROWTH STYLE(2)
---------------------------
1995 38.05% 37.54%
1996 31.26% 22.99%
1997 39.20% 29.58%
1998 to Date(1) (6.06)% (0.38)%
1 Year(1) (2.36)% 8.09%
3 Years(1) 21.38% 21.72%
Since Inception 28.52% 24.66%
1/1/95(1)
MR. SMITH'S COMPOSITE FOR THE RUSSELL 2000(4)
---------------
SMALL CAP VALUE STYLE
1997 22.38% 20.52%
1 Year(1) (19.55)% (19.22)%
Since Inception
11/1/96(1) 5.64% 0.93%
1998 to Date(1) (18.84)% (22.07)%
</TABLE>
(1) Average annual return through August 31, 1998. Return for less than one
year is not annualized.
(2) The composite returns consist of the total returns for the period January
1995 through August 31, 1998 of accounts for which Stephen S. Smith, now
Chief Investment Officer of the Smith Group, served as the primary manager
as described above, including the period January 1, 1995 - October 31,
1995, during which Mr. Smith was senior portfolio manager for another firm.
The composite does not include the performance of other accounts not
managed similarly to the Portfolio. Since November 1, 1995, when the Smith
Group commenced operations, Mr. Smith has employed the same investment
style in discretionary private accounts as he employed in the accounts
described above. No other person played a significant part in achieving the
prior performance of these accounts during
<PAGE>
Mr. Smith's tenure. The data for January 1, 1995 - October 31, 1995 is
not, and should not be, construed as the performance data of Smith Group.
(3) The S&P 500 Index is an unmanaged index containing common stocks of 500
industrial, transportation, utility, and financial companies, regarded as
generally representative of the U.S. stock market. The Index reflects the
reinvestment of income dividends and capital gain distributions, if any,
but does not reflect fees, brokerage commissions, or other expenses of
investing.
(4) The Russell 2000 Index is an unmanaged index consisting of the securities
of the 2,000 issuers having the smallest capitalization in the Russell 3000
Index, representing approximately 10% of the Russell 3000 total market
capitalization. The Index reflects the reinvestment of income dividends and
capital gain distributions, if any, but does not reflect fees, brokerage
commissions, or other expenses of investing.
- --------------------------------------------------------------------------------
8. HOW TO BUY AND SELL SHARES
- --------------------------------------------------------------------------------
You may purchase Fund shares on "Fund Business Days" at a price equal to
their net asset value next determined after receipt of your purchase order
in proper form. Fund Business Days are all weekdays except generally
observed national holidays (New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Memorial Day, Independence Day, Labor Day, Thanksgiving,
and Christmas) and Good Friday.
- --------------------------------------------------------------------------------
GENERAL PURCHASE INFORMATION
- --------------------------------------------------------------------------------
You may purchase shares only through certain financial institutions. The
Funds' transfer agent processes all transactions in Fund shares. Please
call 1-888-800-6748 for information about opening an account to purchase
Fund shares.
You may purchase and redeem Fund shares without a sales or redemption
charge. Purchases of Fund shares require a minimum initial investment of
$1,000 and minimum subsequent investments of $100. The Funds reserve the
right to reject any subscription for the purchase of shares, including
subscriptions by market timers.
Your shares may be held in your name or in the name of your financial
institution. Subject to your institution's procedures, you may have Fund
shares held in the name of your financial institution transferred into your
name. If your shares are held in the name of your financial institution,
you must contact the financial institution on matters involving your
shares. Your financial institution may charge you for purchasing, redeeming
or exchanging shares. The Funds are not responsible if your financial
institution fails to carry out its obligations to you. There is normally a
three-day settlement period for purchases and redemptions through
broker-dealers.
When you sign an application for a new Fund account, you are certifying
that your Social Security number or other taxpayer identification number is
correct and that you are not subject to backup withholding. If you violate
certain federal income tax provisions, the Internal Revenue Service can
require the Funds to withhold 31% of your distributions and redemptions.
- --------------------------------------------------------------------------------
GENERAL REDEMPTION INFORMATION
- --------------------------------------------------------------------------------
You may redeem Fund shares at their net asset value on any Fund Business
Day. There is no minimum period of investment and no restriction on the
frequency of redemptions.
Fund shares are redeemed as of the next determination of the Fund's net
asset value following receipt by the transfer agent of the redemption order
in proper form (and any supporting documentation that the transfer agent
may require). Redeemed shares are not entitled to receive distributions
after the day on which the redemption is effective.
Normally, redemption proceeds are paid immediately following receipt of a
redemption order in proper form. In any event, you will be paid within 7
days, unless: (1) your bank has not cleared the check to purchase the
shares (which may take up to 15 days); (2) the New York Stock Exchange is
closed (or trading is restricted) for any reason other than normal weekend
or holiday closings; (3) there is an emergency in which it is not practical
for the Fund to sell its portfolio securities or for the Fund to determine
its net asset value; or (4) the SEC deems it inappropriate for redemption
proceeds to be paid. You can avoid the delay of waiting for your bank to
clear your check by paying for shares with wire transfers.
Because of the cost of maintaining smaller accounts, the Performa Funds may
redeem, upon not less than 60 days' written notice, any account with a net
asset value of less than $1,000.
- --------------------------------------------------------------------------------
9. DISTRIBUTIONS AND TAX MATTERS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DISTRIBUTIONS
- --------------------------------------------------------------------------------
Distributions of net investment income are declared and paid monthly for
Performa Strategic Value Bond Fund and annually for the other Funds. Each
Fund distributes net capital gain, if any, at least annually.
You have 3 choices for receiving distributions: the Reinvestment Option,
the Cash Option, and the Directed Dividend Option.
* Under the Reinvestment Option, all distributions of a Fund are
automatically invested in additional shares of that Fund. You are
automatically assigned this option unless you select another option.
* Under the Cash Option, you are paid all distributions in cash.
* Under the Directed Dividend Option, if you own $10,000 or more of a
Fund's shares in a single account, you can have that Fund's
distributions reinvested in shares of another Fund. Call or write the
transfer agent for more information about the Directed Dividend
Option.
<PAGE>
All distributions are treated in the same manner for federal income tax
purposes whether received in cash or reinvested in shares of a Fund. All
distributions reinvested in a Fund are reinvested at the Fund's net asset
value as of the payment date of the distribution
- --------------------------------------------------------------------------------
TAX MATTERS
- --------------------------------------------------------------------------------
The Funds are managed so that they do not owe federal income or excise
taxes. Distributions paid by a Fund out of its net investment income
(including net short-term capital gain) are taxable to shareholders as
ordinary income. Distributions of net capital gain (i.e., the excess of net
long-term capital gain over net short-term capital loss) are taxable as
long-term capital gain, regardless of how long a shareholder has held
shares in the Fund. Distributions of net capital gain may be taxable at
different rates depending on the length of time the Fund holds its assets.
If shares are sold at a loss after being held for six months or less, the
loss will be treated as long-term capital loss to the extent of any
distribution of net capital gain received on those shares.
Distributions reduce the net asset value of the Fund paying the
distribution by the amount of the distribution. Furthermore, a distribution
made shortly after you purchase shares, although in effect a return of
capital to you, is taxable.
If a Fund receives investment income from sources within foreign countries,
that income may be subject to foreign income or other taxes. Performa
Global Growth Fund intends, if eligible to do so, to permit its
shareholders to take a credit (or a deduction) for foreign income and other
taxes paid by Schroder Global Growth Portfolio. If you own shares of
Performa Global Growth Fund, you will be notified of your share of those
foreign taxes and will be required to treat the amount of the foreign taxes
as additional income. In that event, you may be entitled to claim a credit
or deduction for those taxes on your federal income tax return.
<PAGE>
- --------------------------------------------------------------------------------
10. OTHER INFORMATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DETERMINATION OF NET ASSET VALUE
- --------------------------------------------------------------------------------
Each Fund determines its net asset value at 4:00 p.m., Eastern Time on each
Fund Business Day by dividing the value of its net assets (i.e.,. the value
of its securities and other assets less its liabilities) by the number of
shares outstanding at the time the determination is made.
The Funds value portfolio securities at current market value if market
quotations are readily available. If market quotations are not readily
available, the Funds value those securities at fair value as determined by
or pursuant to procedures adopted by the Board.
European, Far Eastern, and other international securities exchanges and
over-the-counter markets normally complete trading well before the close of
business on each Fund Business Day. Trading in foreign securities, however,
may not take place on all Fund Business Days or may take place on days that
are not Fund Business Days. The determination of the prices of foreign
securities may be based on the latest market quotations for the securities.
If events occur that affect the securities' value after the close of the
markets on which they trade, the Funds may make an adjustment to the value
of the securities for purposes of determining net asset value.
For purposes of determining net asset value, the Funds convert all assets
and liabilities denominated in foreign currencies into U.S. dollars at the
mean of the bid and asked prices of such currencies against the U.S. dollar
last quoted by a major bank prior to the time of conversion.
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION ABOUT THE PORTFOLIOS
- --------------------------------------------------------------------------------
Each Fund bears its pro rata portion of the expenses of the Portfolio in
which it invests. The Board may redeem a Fund's investment in a Portfolio
at any time. The Fund could then invest directly in portfolio securities or
could re-invest in 1 or more different Portfolios that could have different
fees and expenses. A Fund might redeem, for example, if other investors had
sufficient voting power to change the investment objectives or policies of
the Portfolio in a manner detrimental to the Fund.
NO ONE HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE
STATEMENT OF ADDITIONAL INFORMATION, AND THE FUNDS' OFFICIAL SALES
LITERATURE. ANY SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE FUNDS. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER MAY
NOT LAWFULLY BE MADE.
<PAGE>
If you would like more information about the Funds and their investments, you
may want to read the following documents:
Statement of Additional Information. A Fund's statement of additional
information, or "SAI," contains detailed information about the Funds, such as
its investments, management, and organization. It is incorporated into this
Prospectus by reference.
Annual and Semi-Annual Reports. Additional information about each Fund's
investments is available in its annual and semi-annual reports to shareholders.
In the annual report, each Fund's portfolio manager discusses the market
conditions and investment strategies that significantly affected the Fund's
performance during its last fiscal year.
You may obtain free copies of the SAI, annual report, and semi-annual report by
contacting your investment representative or by contacting Norwest Advantage
Funds at 733 Marquette Avenue, Minneapolis, Minnesota 55479, or by calling
1-800- 338-1348 or 1-612-667-8833.
The Funds' reports and statement of additional information are available from
the Securities and Exchange Commission in Washington, D.C. You may obtain copies
of these documents, upon payment of a duplicating fee, by writing the Public
Reference Section of the SEC, Washington D.C. 20549-6009. Please call
1-800-SEC-0330 for information about the operation of the SEC's public reference
room. The Fund's reports and other information are also available on the SEC's
Web Site at http:// www.sec.gov.
The SEC's Investment Company Act file number for the Funds is 811-4881
<PAGE>
Norwest WealthBuilder II Portfolios
October 1, 1998
NORWEST WEALTHBUILDER II GROWTH BALANCED PORTFOLIO
NORWEST WEALTHBUILDER II GROWTH AND INCOME PORTFOLIO
NORWEST WEALTHBUILDER II GROWTH PORTFOLIO
Not FDIC Insured
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUMMARY....................................................
EXPENSE INFORMATION...................................................
FINANCIAL HIGHLIGHTS...................................................
INVESTMENT OBJECTIVES AND POLICIES.....................................
Investment Objectives..................................................
Investment Policies....................................................
Additional Investment Policies and Risk Considerations................
MANAGEMENT OF THE PORTFOLIOS...........................................
PURCHASES AND REDEMPTIONS OF SHARES....................................
General Purchase Information...........................................
HOW TO BUY SHARES......................................................
Minimum Investment.....................................................
Purchase Procedures...................................................
Subsequent Purchases...................................................
Account Application....................................................
General Information...................................................
HOW TO SELL SHARES.....................................................
General Information....................................................
Redemption Procedures..................................................
Other Redemption Matters...............................................
OTHER SHAREHOLDER SERVICES.............................................
Exchanges..............................................................
Automatic Investment Plan..............................................
Retirement Account.....................................................
Automatic Withdrawal Plan..............................................
Reopening Accounts.....................................................
DIVIDENDS AND TAX MATTERs..............................................
Dividends..............................................................
Tax Matters............................................................
OTHER MATTERS..........................................................
Determination of Net Asset Value.......................................
Performance Information................................................
The Trust and Its Shares...............................................
UNDERSTANDING THIS PROSPECTUS: References to "you" and "your" in this
Prospectus refer to current shareholders and/or prospective investors, and
references to "we", "us", and "our" refer to the Portfolios or the Trust,
as the context may indicate.
<PAGE>
OCTOBER 1, 1998
Norwest WealthBuilder II Growth Balanced Portfolio, Norwest WealthBuilder II
Growth and Income Portfolio, and Norwest WealthBuilder II Growth Portfolio
(each, a "Portfolio" and collectively, the "Portfolios") are separate investment
portfolios designed to offer you access to professionally managed mutual funds
from well-known fund groups. Each Portfolio seeks to achieve its objective by
allocating its assets across asset classes of stocks, bonds, and money market
instruments through a number of affiliated and unaffiliated funds ("Underlying
Funds"). Each Portfolio holds an investment portfolio of stock funds, for growth
potential, and bond and money market funds, for decreased volatility and
increased price stability. The Portfolios' investment adviser may select from a
wide range of mutual funds based upon changing markets and risk/return
characteristics of the asset classes. Each Portfolio provides a different level
of risk exposure by allocating its investments in different proportions among
equity and bond investment styles. In addition to its own expenses, each
Portfolio bears a pro rata portion of the expenses of the Underlying Funds in
which it invests. Investments in a Portfolio may result in your incurring
greater expenses than if you were to invest directly in the mutual funds in
which the Portfolio invests. The Portfolios are diversified series of Norwest
Advantage Funds (the "Trust"), an open-end, management investment company.
* NORWEST WEALTHBUILDER II GROWTH BALANCED PORTFOLIO seeks a balance of
capital appreciation and income.
* NORWEST WEALTHBUILDER II GROWTH AND INCOME PORTFOLIO seeks long-term
capital appreciation with a secondary emphasis on income.
* NORWEST WEALTHBUILDER II GROWTH PORTFOLIO seeks long-term capital
appreciation.
This Prospectus provides you with concise information about the Portfolios and
the Trust that you should know before you invest. A Statement of Additional
Information ("SAI") dated October 1, 1998, as amended from time to time,
containing additional information about the Portfolios has been filed with the
Securities and Exchange Commission (the "SEC"). The SAI is available for
reference on the SEC's Web Site (http://www.sec.gov) and is incorporated into
this Prospectus by reference. You also may obtain a copy of the SAI without
charge by contacting the Trust's distributor, Norwest Advantage Funds at 733
Marquette Avenue, Minneapolis, Minnesota 55479 or by calling 1-800-338-1348 or
1-612-667-8833. Please read this Prospectus and retain it for future reference.
MUTUAL FUND SHARES ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, FDIC,
FEDERAL RESERVE SYSTEM OR ANY OTHER GOVERNMENT AGENCY AND ARE NOT OBLIGATIONS,
DEPOSITS, OR ACCOUNTS OF, OR ENDORSED OR GUARANTEED BY, NORWEST BANK MINNESOTA,
N.A. OR ANY OTHER BANK OR BANK AFFILIATE.
AN INVESTMENT IN SHARES OF ANY MUTUAL FUND IS SUBJECT TO INVESTMENT RISK,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC NOR HAS
THE SEC PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION CONTAINED IN THIS PROSPECTUS.
INVESTMENT OBJECTIVES
Norwest WealthBuilder II Growth Balanced Portfolio seeks a balance of capital
appreciation and income.
Norwest WealthBuilder II Growth and Income Portfolio seeks long-term capital
appreciation with a secondary emphasis on income.
Norwest WealthBuilder II Growth Portfolio seeks long-term capital appreciation.
INVESTMENT POLICIES
Each Portfolio seeks to achieve its investment objective by investing in a
diverse mix of "Underlying Funds", that consist of affiliated and unaffiliated
investment companies or series thereof. In addition, each Portfolio may hold
other investment securities directly and may invest otherwise uninvested assets
in repurchase agreements. You may choose to invest in one or more of the
Portfolios based on your personal investment goals, risk tolerance, and
financial circumstances. (See "Investment Objectives and Policies.")
PORTFOLIO STRUCTURES
Each Portfolio seeks to achieve its objective by investing in a number of
Underlying Funds. Each Underlying Fund invests using a different investment
objective and a different investment style.
INVESTMENT ADVISER
Norwest Investment Management, Inc. ("Norwest" or the "investment adviser"), a
subsidiary of Norwest Bank Minnesota, N.A. ("Norwest Bank"), serves as each
Portfolio's investment adviser. Norwest also serves as the investment adviser
and, in most cases, affiliates of Norwest serve as investment subadviser for
each affiliated Underlying Fund. Norwest provides investment advice to various
institutions, pension plans, and other accounts and currently manages more than
$29 billion in assets. (See "Management of the Portfolios -- Investment Advisory
Services".) Norwest is paid an investment advisory fee directly by each
Portfolio for its services with respect to allocating and monitoring the
investment of each Portfolio's assets in Underlying Funds and other investment
securities.
PORTFOLIO MANAGEMENT, ADMINISTRATION, AND OTHER SERVICES
Forum Financial Services, Inc. ("Forum"), a registered broker-dealer and member
of the National Association of Securities Dealers, Inc., serves as the
Portfolios' manager and distributor of the Portfolios' shares. Forum
Administrative Services, LLC ("FAS") provides administrative services for each
Portfolio. (See "Management of the Portfolios -- Management and Administration"
and "Distribution and Distribution Plan".)
Norwest Bank serves as the Portfolios' transfer and disbursing agent and
custodian. (See "Management of the Portfolios-- Shareholder Servicing and
Custody" and "--Management, Administration, and Distribution Services".)
<PAGE>
PORTFOLIO SHARES
The Portfolios offer C Shares at net asset value plus an initial sales charge of
up to 1.50%. The sales charge may be reduced or waived for certain purchases.
(See "Purchases and Redemptions of Shares --General Purchase Information".) The
Portfolios' C Shares are subject to a distribution fee at the annual rate of
0.75% of the average daily net assets of the Portfolios' C Shares.
HOW TO BUY AND SELL SHARES
You may purchase or redeem shares by mail, by bank wire and through your
broker-dealer or financial institution. The minimum initial investment is
$25,000. There is a $500 minimum subsequent investment, except for IRA and
systematic investing for which the minimum subsequent investment is $150. (See
"How to Buy Shares" and "How to Sell Shares".)
EXCHANGES
You may exchange shares of a Portfolio for shares of other Portfolios at the
respective net asset values next determined. (See "Other Shareholder Services--
Exchanges".)
SHAREHOLDER FEATURES
Each Portfolio offers an Automatic Investment Plan, Automatic Withdrawal Plan,
and Directed Dividend Option. Your purchases of shares may be eligible for a
Reinstatement Privilege. (See "Other Shareholder Services".)
DIVIDENDS AND DISTRIBUTIONS
The Portfolios will pay dividends of net investment income and distributions of
net capital gain once each year. We reinvest your dividends and distributions in
additional Portfolio shares unless you elect to have them paid in cash. (See
"Dividends and Tax Matters".)
CERTAIN INVESTMENT CONSIDERATIONS AND RISK FACTORS
There can be no assurance that a Portfolio or Underlying Fund will achieve its
investment objective, and each Portfolio's and Underlying Fund's net asset value
and total return will fluctuate based upon changes in the value of its portfolio
of investment securities. Upon redemption, an investment in a Portfolio or
Underlying Fund may be worth more or less than its original value.
The Portfolios seek to reduce the risk of your investment by diversifying among
different asset classes of stock, bond, and money market instruments and among
different fund managers. Investing in a mutual fund that holds a diversified
portfolio of mutual funds provides a wider range of investment management talent
and investment diversification than is available in a single mutual fund. The
Portfolios are designed to provide you with a single investment that offers
diverse asset classes, fund management, and fund categories. You still have,
however, the risks of investing in the various asset classes, such as market
risks related to stocks and bonds as well as the risk of investing in a
particular Underlying Fund, such as risks related to the particular investment
management style.
"Stock risk" is the possibility that stock prices and, therefore the net asset
value of stock funds, will decline over time. Smaller company and international
stocks, and therefore the mutual funds that invest in these stocks, offer
additional risks beyond general stock risk. "Bond risk" is the possibility that
the market value of bonds, and therefore the net asset value of bond funds, will
decline over time because of changes in market interest rates or issuers'
ability to meet its repayment obligations.
Investment techniques used by certain of the Underlying Funds may entail
additional risks, such as the potential use of leverage through borrowings and
securities lending. (See "Investment Objectives and Policies -- Additional
Investment Policies and Risk Considerations.")
<PAGE>
HOW THE PORTFOLIOS CAN HELP YOU MEET YOUR INVESTMENT NEEDS
If you are looking for a single, convenient investment that provides broad
diversification among actively managed mutual funds, the Norwest WealthBuilder
II Portfolios may be appropriate for you. Our professional management team
reviews, analyzes, selects, and monitors each Portfolio's Underlying Funds for
you.
ASSET ALLOCATION STRATEGY. Each Portfolio diversifies among asset classes.
Commonly referred to as "asset allocation," this strategy can minimize the risks
of investing in a single security or single class of securities. Because the
performance of asset categories does not always move in the same direction at
the same time, investing in a mix of asset classes can help reduce volatility.
This strategy may provide more consistent returns, which may be higher or lower
than a less diversified investment.
The investment adviser allocates each Portfolio's investments among Underlying
Funds that represent a broad spectrum of investment options. The stock, bond,
and money market fund allocations and the range of investments are based on the
degree to which the Underlying Funds (and any direct investments) selected are
expected in combination to be appropriate for a Portfolio's particular
investment objective. As a result of appreciation or depreciation, changes in
market factors or otherwise, the percentage of a Portfolio's assets invested in
various Underlying Funds will vary.
You should invest in the Portfolios if you prefer to invest in a portfolio
diversified across major asset classes of stocks, bonds, and money market
instruments and investment styles and want professional, active management of a
portfolio of funds from well-known fund families. The Portfolios are suitable
for intermediate or long-term investing, as well as retirement savings
(including IRAs and other retirement plans). Each Portfolio is designed to
provide a level of exposure to the growth potential and risks of the stock
market different from that provided by the other Portfolios. The Portfolios also
differ in the amount of assets they allocate among stock funds that invest
primarily in large capitalization, small capitalization, and international
issues.
TYPES OF UNDERLYING FUNDS
INVESTMENT COMPANIES. The Portfolios normally invest in open-end management
investment companies or series thereof. The Portfolios may also invest in
closed-end management investment companies and/or unit investment trusts. Each
Portfolio may hold certain securities directly.
STOCK FUNDS. Stock funds invest primarily in domestic or foreign common stocks
or securities convertible into or exchangeable for common stock. The Underlying
Funds may include stock funds holding large company stocks, small company
stocks, and international stocks.
BOND FUNDS. Bond funds invest primarily in debt securities issued by companies,
municipalities, governments, or government agencies. The issuer of a bond is
required to pay the bond holder the amount of the loan (or par value) at a
specified maturity and to make scheduled interest payments.
MONEY MARKET FUNDS. Money market funds invest in U.S.-dollar denominated
short-term money market instruments determined to present minimal credit risk.
Under normal circumstances, the Portfolios may invest in affiliated Underlying
Funds that are money market funds. The Portfolios may also invest directly in
money market instruments, which include commercial paper and time deposits
issued by large banks, repurchase agreements, and U.S. Government Securities.
EXPENSE INFORMATION
The following tables will assist you in understanding the fees and expenses you
bear directly or indirectly through investing a Portfolio's C Shares. The tables
do not reflect the operating expenses and investment advisory fees of the
Underlying Funds. (See "Management" and "Portfolio Expenses" for more
information.)
<PAGE>
SHAREHOLDER TRANSACTION EXPENSES
(applicable to each Portfolio)
Maximum Sales Charge on Purchases 1.50%(1)
Deferred Sales Charge or Redemption Fees None
Exchange Fees None
ANNUAL PORTFOLIO OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
Advisory Fee (fund selection and asset allocation services) 0.00%
12b-1 Fees(2) 0.75%
Other Expenses (after fee waivers and expense reimbursements)(3) 0.50%
TOTAL PORTFOLIO OPERATING EXPENSES 1.25%
(AFTER FEE WAIVERS AND EXPENSE REIMBURSEMENTS) (4)
(1) For information on reduced sales charges, see "Purchases and Redemptions of
Shares -- General Purchase Information".
(2) The unaffiliated Underlying Funds in which a Portfolio invests may charge a
Rule 12b-1 fee; in which event, shareholders of the Portfolio indirectly
bear that expense.
(3) Other Expenses include transfer agency fees payable to Norwest Bank, which
currently receives remuneration from unaffiliated fund companies
participating in WealthBuilder II at an annual rate of 0.25% of the average
daily net assets of a Norwest WealthBuilder II Portfolio invested in an
Underlying Fund. Norwest and Norwest Bank provide investment advisory and
other services to affiliated Underlying Funds and receive compensation from
them. In light of this remuneration and compensation, Norwest Bank has
agreed, through at least May 31, 1999, to waive the Portfolios' transfer
agency and shareholder servicing fees, which normally total 0.25%. After
that date, the fee waiver may be terminated, modified or continued.
(4) Without waivers and reimbursements, Other Expenses and Total Portfolio
Operating Expenses would be: Growth Balanced Portfolio 1.54% and 2.64%,
Growth and Income Portfolio 1.80% and 2.90%, Growth Portfolio 2.22% and
3.32%. Except as otherwise noted, expense reimbursements and fee waivers
are voluntary and may be reduced or eliminated at any time.
EXAMPLE
The following Example indicates the expenses you would pay on a $1,000
investment in a Portfolio's C Shares assuming: (1) a 5% annual return, (2)
reinvestment of all dividends and distributions, and (3) redemption at the end
of each period. THIS IS ONLY AN EXAMPLE AND DOES NOT REPRESENT PAST OR FUTURE
EXPENSES OR RETURN. ACTUAL EXPENSES AND RETURN MAY BE GREATER OR LESS THAN
INDICATED. The 5% annual return neither predicts nor represents a Portfolio's
projected returns; rather, it is required by government regulation.
<TABLE>
<S> <C> <C> <C> <C>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------------------------------------------------------------------------
GROWTH BALANCED PORTFOLIO $28 $54 $83 $164
GROWTH AND INCOME PORTFOLIO $28 $54 $83 $164
GROWTH PORTFOLIO $28 $54 $83 $164
</TABLE>
The purpose of the table above is to help you understand the various costs and
expenses that you bear directly or indirectly through investing in the
Portfolios.
<PAGE>
FINANCIAL HIGHLIGHTS
The following table provides financial highlights for each of the Portfolios.
This information represents selected data for a single outstanding C Share of
each Portfolio for the fiscal year ended May 31, 1998. The information for the
fiscal year ended May 31, 1998, has been audited by KPMG Peat Marwick LLP,
independent auditors, whose reports dated July 21, 1998 about a Portfolio, along
with the Portfolios' financial statements for the fiscal year ended May 31,
1998, and further information about each Portfolio's performance are contained
in the Portfolios' Annual Report, which may be obtained from the Trust without
charge. The financial statements are incorporated by reference into the SAI.
<TABLE>
<S> <C> <C> <C>
Norwest Norwest
WealthBuilder II WealthBuilder Norwest
Growth Balanced II Growth & WealthBuilder
Portfolio Income Portfolio II Growth
Portfolio
----------------- ----------------- -----------------
Fiscal year ended May 31, 1998
-----------------------------------------------------------
Net Asset Value, Beginning of Period(a) $10.00 $10.00 $10.00
----------------- ----------------- -----------------
Investment Operations
Net Investment Income (Loss) (0.07) -- 0.01
Net Realized and Unrealized Gain (Loss) on 0.76 0.97 1.03
Investments
----------------- ----------------- -----------------
Total from Investment Operations 0.02 0.97 1.02
----------------- ----------------- -----------------
Distributions from
Net Investment Income (0.03) -- (0.01)
------
----------------- ----------------- -----------------
Net Asset Value, End of Period $10.80 $10.97 $11.01
================= ================= =================
Total Return(b) 8.35% 9.75% 10.17%
Supplementary Data
Net Assets at End of Period (in thousands) $9,300 $8,623 $5,695
Ratios to Average Net Assets:(c)
Expenses 1.25% 1.25% 1.25%
Expenses (excluding expense reimbursements/fee 2.64% 2.90% 3.32%
waivers)
Net Investment Income (Loss) (0.02)% (0.41)% 0.50%
Portfolio Turnover Rate(d) 20.20% 7.19% 15.60%
</TABLE>
- -----------------------------------------------------
(a) The Portfolios commenced operations on October 1, 1997.
(b) Total Return does not include the effects of sales charges. Total return
would have been lower absent expense reimbursements and fee waivers.
(c) Not Annualized.
(d) Annualized.
(e) Portfolio turnover represents the rate of portfolio activity.
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT OBJECTIVES.
There can be no assurance that a Portfolio or an Underlying Fund will achieve
its investment objective.
Norwest WealthBuilder II Growth Balanced Portfolio seeks a balance of capital
appreciation and income.
Norwest WealthBuilder II Growth and Income Portfolio seeks long-term capital
appreciation with a secondary emphasis on income.
Norwest WealthBuilder II Growth Portfolio seeks capital appreciation.
INVESTMENT POLICIES.
Each Portfolio seeks to meet its investment objective by allocating among stock
funds, bond funds, and money market funds. Certain research indicates that the
greatest impact on investment returns may be due to the asset allocation
decision (the mix of stocks, bonds, and cash-equivalents) rather than market
timing or the selection of individual stocks and bonds. For example, a study of
the performance of pension funds indicated that over 90% of the pension funds'
performance was determined by asset mix.
Each Portfolio allocates its investments among stock funds, bond funds, and
money market funds by investing in a combination of different types of
Underlying Funds. Each Portfolio, in accordance with its investment objective,
will change its allocations between types of Underlying Funds depending on
changing market conditions and the risk/return characteristics of the asset
classes. The following chart indicates each Portfolio's market-neutral position
and range of investment in different types of Underlying Funds. The amount a
Portfolio has invested in stock, bond, and money market funds at any particular
time may vary from the neutral position or the range of investment due to market
conditions or other factors. The investment adviser rebalances a Portfolio when
the Portfolio's asset allocation deviates by five percent from the target
allocation.
<TABLE>
<S> <C> <C>
NORWEST WEALTHBUILDER II NEUTRAL POSITION INVESTMENT RANGE
PORTFOLIO
- ------------------------------------------------- ------------------------- -------------------------
GROWTH BALANCED PORTFOLIO
Stock Funds 65.00% 50%-85%
Bond Funds 33.50% 20%-50%
Money Market Funds 1.50% 0%-3%
GROWTH & INCOME PORTFOLIO
Stock Funds 98.50% 97%-100%
Domestic Large Company 70.00% 50%-90%
Domestic Small Company 14.25% 5%-30%
International 14.25% 5%-30%
Money Market Funds 1.50% 0%-3%
GROWTH PORTFOLIO
Stock Funds 98.50% 97%-100%
Domestic Large Company 49.00% 25%-81%
Domestic Small Company 20.00% 5%-45%
International 29.50% 10%-50%
Money Market Funds 1.50% 0%-3%
</TABLE>
The investment adviser attempts to identify and select diversified portfolios of
Underlying Funds based on an analysis of many factors. The investment adviser
uses various analytical techniques, including quantitative techniques, valuation
formulas, and optimization procedures to assess the relative attractiveness of
stocks, bonds,
<PAGE>
and money market instruments. The investment adviser uses a Tactical Asset
Allocation Model to identify opportunities to add value by shifting assets
between stocks and bonds. The investment adviser uses a Tactical Equity
Allocation Model to identify opportunities to add value by shifting assets
between different equity styles, such as domestic versus international, large
cap versus small cap, or value versus growth. After identifying the most and
least attractive asset classes, the investment adviser considers the expected
returns from and risks of an asset class before deciding whether to overweight
or underweight that asset class.
The investment adviser uses quantitative techniques to analyze and rank
potential Underlying Funds based on their historic total return, volatility, and
operating expenses over various time periods. The investment adviser then
reviews potential Underlying Funds' investment objectives and policies.
Potential Underlying Funds that rank the highest by these criteria are then
subjected to further qualitative and quantitative evaluation of size,
management, portfolio holdings, investment practices and policies, investment
style, and other factors.
Consistent with each Portfolio's investment objective and policies and under the
general supervision of the Trust's Board of Trustees (the "Board"), the
investment adviser may in response to market and other conditions select what it
believes to be the optimal combination of Underlying Funds for a Portfolio. In
addition, the investment adviser may, at any time, invest a Portfolio's assets
in a type of Underlying Fund that is different from or in addition to those
currently used or may invest directly in domestic and foreign securities and
other instruments. Growth Balanced Portfolio normally will invest at least 25%
of its total assets in bond funds, money market funds and debt securities.
ADDITIONAL INVESTMENT POLICIES AND RISK CONSIDERATIONS.
The net asset values of Underlying Funds that use certain investment strategies,
such as leverage and trading in options and futures, may be more volatile than
the net asset values of other Underlying Funds. The value of the shares of an
Underlying Fund that is concentrated in an industry may be subject to greater
market fluctuation than an investment in an Underlying Fund that invests in a
broader range of securities. No Portfolio will invest 25% or more of its assets
in Underlying Funds that concentrate their investments in any one industry.
If a Portfolio focuses its investment in only a few Underlying Funds, the
Portfolio may be exposed to greater risk than if it were to invest in a greater
number of Underlying Funds. The Portfolios (and many of the Underlying Funds)
are diversified within the meaning of the 1940 Act. The level of diversification
a Portfolio obtains from being invested in a number of Underlying Funds reduces
the risk associated with an investment in a small number of Underlying Funds or
a single Underlying Fund. This risk is further reduced because each Underlying
Fund's investments are also spread over a range of issuers and industries.
An Underlying Fund may redeem a Portfolio's investment wholly or in part by an
in-kind distribution of securities from its portfolio in lieu of cash. In such
cases, the Portfolio may hold the securities distributed by an Underlying Fund
until the investment adviser determines that it is appropriate to dispose of
such securities.
The Investment Company Act of 1940 (the "1940 Act") currently restricts the
Portfolios' ability to invest in shares of unaffiliated Underlying Funds; the
investment adviser at times may have to select alternative investments. The 1940
Act also provides that an Underlying Fund whose shares are purchased by a
Portfolio will be obligated to redeem shares held by the Portfolio only in an
amount up to 1% of the Underlying Fund's outstanding securities during any
period of less than 30 days. Accordingly, if the Underlying Fund is an
"open-end" fund, the Portfolio will consider shares of the Underlying Fund owned
by the Portfolio in excess of 1% of the Underlying Fund's outstanding securities
to be illiquid. (See "Investment Objectives and Policies -- Illiquid
Securities.")
Investment decisions for the Underlying Funds are made independently of the
Portfolios and their investment adviser. One Underlying Fund, therefore, may
purchase shares of an issuer whose shares are being sold by another Underlying
Fund, resulting in an indirect cost to a Portfolio without accomplishing any
investment purpose. The Portfolios may purchase shares of no-load funds that are
available without a transaction fee and load funds that are available to the
Portfolios without a sales charge.
<PAGE>
The investment adviser uses the same conditions and criteria to select
affiliated and unaffiliated funds, except that the Portfolios normally will
invest all of their assets allocated to money market funds in affiliated money
market funds.
STOCK FUNDS. Stock funds invest primarily in domestic or foreign common stocks
or securities convertible into or exchangeable for common stock. The Underlying
Funds may include stock funds holding large company stocks, small company
stocks, and international stocks.
Large company stock funds normally invest in U.S. companies with large and
mid-size market capitalization. These companies generally have a market
capitalization in excess of $1.5 billion. Many of these companies' stocks are
included in the Standard & Poor's 500 Composite Stock Index, a widely
recognized, unmanaged index of common stock prices. The Underlying Funds that
invest in these stocks, and indirectly the Portfolios, are exposed to the
possibility that stock prices, and therefore the net asset value of stock funds,
may decline over short or even extended periods ("stock-market risks"). The
investment adviser believes that a diverse portfolio of large company stock
funds, each holding a diverse portfolio of stocks of various industries, should
tend to reduce stock market risk.
Small company stock funds invest in companies with a market capitalization below
that of large and mid-size companies. The market capitalization of these
companies currently is less than $1.5 billion. Small company stocks have
historically been characterized by greater total returns, greater volatility of
price and returns, and lower dividend yields than large company stocks. The
greater price volatility may result from there being less market liquidity and
publicly available information regarding small company stocks than large company
stocks. Generally, fewer investors monitor the activities of small companies
than large companies. The investment adviser believes that a diverse portfolio
of small company stock funds, each holding a diverse portfolio of small company
stocks of various industries, should tend to reduce the risks associated with
small company stocks.
International stock funds generally invest in the securities of foreign issuers.
The Portfolios' investments in international stock funds involves risks similar
to those of investing directly in foreign stocks. Foreign stocks are stocks
issued by publicly traded companies from all countries except the United States.
The Portfolios will invest only in stock funds that invest primarily in publicly
traded stock of foreign issuers. The Underlying Funds' investments may be
denominated in foreign currencies, with the value of these investments affected
by changes in currency exchange rates versus the U.S. dollar in addition to
normal market fluctuations. The exchange rate between the U.S. dollar and
foreign currencies is determined by the forces of supply and demand in foreign
exchange markets, by changes in interest rates, as well as by political and
economic factors. Other risks and considerations of international investing
include: differences in accounting, auditing, and financial reporting standards;
generally higher transaction costs on foreign portfolio transactions; small
trading volumes and generally lower liquidity of foreign stock markets, which
may result in greater price volatility; foreign withholding taxes payable on
portfolio holdings, which may reduce dividend income payable to shareholders;
the possibility of expropriation, nationalization, or confiscatory taxation;
adverse changes in investment or exchange control regulations; political
instability, which could affect U.S. investment in foreign countries; and
potential restrictions on the flow of international capital. These international
investment risks are present when investing in both developed and developing
emerging markets. Some of the Underlying Funds may attempt to hedge against
currency fluctuations by entering into currency futures, options, or forward
contracts. The risks of such investments are discussed below.
As a portion of its foreign stock fund allocations and subject to its investment
objective, a Portfolio may invest up to 15% of its net assets in Underlying
Funds that invest primarily in developing or emerging market countries. These
countries tend to have economic structures that are less diverse and mature and
political systems that are less stable than developed market countries. A
developing or emerging market country generally is considered to be in the
initial stages of industrialization. The risks of investing in developing or
emerging markets are similar to but greater than the risks of investing in
developed foreign markets.
As a part of their stock fund allocations, the Portfolios may also invest in
Underlying Funds that invest primarily in stock of issuers located throughout
the world, including the United States. As these funds may invest in both
developed and emerging market countries, they share the risks associated with
investments in both markets, as
<PAGE>
discussed above. In addition, because these funds may also invest in the United
States, they expose a Portfolio to the risks associated with investing in the
stock of U.S. issuers.
BOND FUNDS. Bond funds seek current income and invest primarily in short- or
longer-term U.S. government obligations, investment-grade corporate-debt
obligations, and highly rated mortgage-backed and other asset-backed securities.
Bond funds are subject to the potential for decline in the market value of
bonds, and therefore bond funds, due to interest rate changes or the ability of
an issuer to meet its obligations ("bond risk"). The Underlying Funds may invest
in bonds having either floating- or fixed-interest rates. Bond funds also may
invest in repurchase agreements collateralized by eligible investments.
The Underlying Funds may invest in obligations issued or guaranteed by the U.S.
Government, its agencies, instrumentalities, and government-sponsored
enterprises, including bills, notes, bonds, discount notes, and stripped
government securities ("U.S. Government securities"). Not all U.S. Government
securities are backed by the full faith and credit of the United States. If it
were not obligated to do so, there can be no assurance that the U.S. Government
would provide financial support for U.S. Government securities issued by its
agencies, instrumentalities, and government-sponsored enterprises.
The Underlying Funds also may invest in mortgage- and other asset-backed
securities. Mortgage-backed securities are collateralized by pools of mortgage
loans and may be assembled by various governmental agencies and
government-sponsored enterprises, such as GNMA, FNMA, and FHLMC. Asset-backed
securities may be secured by company receivables, home equity loans, truck and
auto loans, leases, or credit-card receivables. When interest rates decline,
there is an increased likelihood that the mortgages or other assets underlying
mortgage- or other asset-backed securities will be pre-paid, resulting in the
loss of any unamortized premium paid for the securities and the probability of
having to reinvest the proceeds at lower rates. The Portfolios will not select
Underlying Funds that invest primarily in non-investment grade asset-backed
obligations.
The market value of the Underlying Funds' debt investments changes in response
to interest-rate fluctuations and other factors. During periods of falling
interest rates, the values of outstanding debt securities generally rise;
conversely, during periods of rising interest rates, the values of such
securities generally decline. While securities with longer maturities tend to
produce higher yields, the prices of longer maturity securities are also subject
to greater market fluctuations as a result of changes in interest rates. Changes
in the rating of any debt security by a nationally recognized statistical rating
organization ("NRSRO") and in the ability of an issuer to make payments of
interest and repayments of principal also affect the value of these investments.
Except under default conditions, changes in the value of portfolio securities do
not affect cash income derived from these securities but do affect the
Underlying Funds' net asset values.
A Portfolio may invest in "balanced funds," which are funds that normally seek
to invest substantial portions of their assets in both stocks and bonds or
preferred stock. Generally, a balanced fund must invest at least 25% of its
assets in fixed income senior securities. A Portfolio's investment in a balanced
fund exposes the Portfolio to the risks, described above, of an investment in
both a stock fund and a bond fund, because balanced funds invest in both of
these instruments. Each Portfolio may invest more than 5% of its assets in
balanced funds.
MONEY MARKET FUNDS. Money market funds invest in U.S. dollar denominated
short-term money market instruments determined by the fund's investment adviser
to present minimal credit risk. The Portfolios may also invest directly in money
market instruments. Eligible instruments include:
1. Bank certificates of deposit, time deposits, or bankers' acceptances of
domestic banks (including their foreign branches), U.S. branches of foreign
banks, and foreign branches of foreign banks, having capital, surplus, and
undivided profits in excess of $100 million.
2. Commercial paper rated in one of the two highest rating categories by an
NRSRO, or commercial paper or notes of issuers with an unsecured debt issue
outstanding currently rated in one of the two highest rating categories by
any NRSRO where the obligation is on the same or a higher level of priority
and collateralized to the same extent as the rated issue.
<PAGE>
3. Obligations issued or guaranteed by the U.S. Government or its agencies,
instrumentalities, or government-sponsored enterprises.
4. Repurchase agreements involving obligations that are suitable for
investment under the categories set forth above.
CLOSED-END FUNDS. A closed-end fund has a fixed number of shares. While an
open-end investment company must redeem its shares at net asset value when
tendered for redemption by a shareholder, a closed-end investment company is not
so required. Instead, shares of closed-end investment companies trade on
exchanges and over the counter like conventional stocks.
Shares of a closed-end investment company may, and typically do, trade at a
discount to net asset value. In addition, there may be no readily available
market for closed-end investment company shares, in which case the shares are
generally considered illiquid and subject to a Fund's restriction on holding
illiquid securities.
BORROWING. As a fundamental policy, each Portfolio may borrow money from banks
or by entering into reverse repurchase agreements and will limit bank borrowings
to amounts not in excess of 33 1/3% of the value of the Portfolio's total
assets. Bank borrowing for other than temporary or emergency purposes or meeting
redemption requests is not expected to exceed 5% of the value of any Portfolio's
assets. Irrespective of the Portfolio's policy on borrowings, each Portfolio may
enter into reverse repurchase agreements as described above (transactions in
which a Portfolio sells a security and simultaneously commits to repurchase that
security from the buyer at an agreed upon price on an agreed upon future date).
ILLIQUID SECURITIES. No Portfolio may invest more than 15% of its net assets in
illiquid securities. Illiquid securities are securities that cannot be disposed
of within seven days in the ordinary course of business at approximately the
amount at which the Portfolio has valued the securities and include, among other
things, repurchase agreements not entitling the holder to payment within seven
days and restricted securities (other than those determined to be liquid
pursuant to guidelines established by the Board). Limitations on resale may have
an adverse effect on the marketability of portfolio securities, and a Portfolio
might also have to register restricted securities in order to dispose of them,
resulting in expense and/or delay. A Portfolio might not be able to dispose of
restricted or other securities promptly or at reasonable prices and, thereby,
might experience difficulty satisfying redemptions. There can be no assurance
that a liquid market will exist for any security at any particular time.
An institutional market has developed for certain securities that are not
registered under the Securities Act of 1933 (the "1933 Act"), including
repurchase agreements and foreign securities. Institutional investors depend on
an efficient institutional market in which the unregistered security can be
readily resold or on the issuer's ability to honor a demand for repayment of the
unregistered security. A security's contractual or legal restrictions on resale
to the general public or to certain institutions may not be indicative of the
liquidity of the security. If such securities are eligible for purchase by
institutional buyers in accordance with Rule 144A under the 1933 Act, the
investment adviser may determine that such securities are not illiquid
securities under guidelines adopted by the Board. These guidelines take into
account trading activity in the securities and the availability of reliable
pricing information, among other factors. If there is a lack of trading interest
in a particular Rule 144A security, a Portfolio's holdings of that security may
be illiquid.
REPURCHASE AGREEMENTS and LENDING of PORTFOLIO SECURITIES. Each Portfolio may
enter into repurchase agreements and may lend securities from its portfolio to
brokers, dealers, and other financial institutions. These investments may entail
certain risks not associated with direct investments in securities. For
instance, in the event that bankruptcy or similar proceedings were commenced
against a counterparty in these transactions or a counterparty defaulted on its
obligations, a Portfolio may have difficulty in exercising its rights to the
underlying securities, may incur costs and experience time delays in disposing
of them and may suffer a loss.
Repurchase agreements are transactions in which a fund purchases a security and
simultaneously commits to resell that security to the seller at an agreed-upon
price and future date, normally one to seven days later. The resale price
<PAGE>
reflects a market rate of interest that is not related to the coupon rate or
maturity of the purchased security. When a Portfolio lends a security, it
receives payment from the borrower or interest from investing cash collateral.
The Trust maintains possession of the purchased securities and the collateral in
lending transactions, the total market value of which on a continuous basis is
at least equal to the repurchase price or value of securities loaned, plus
accrued interest. A Portfolio may pay fees to arrange securities loans and will
limit securities lending to not more than 33 1/3% of the value of its total
assets.
Each Portfolio may invest a certain portion of its cash reserves in repurchase
agreements or an affiliated Underlying Fund that is a money market fund. A
reserve position provides flexibility in meeting redemptions, expenses, and the
timing of new investments and serves as a short-term defense during periods of
unusual volatility.
PORTFOLIO TURNOVER. The Portfolios anticipate that their annual portfolio
turnover rate will not exceed 100%; there can be no guarantee, however, that a
Portfolio's turnover rate, which is based on the turnover rate of the Underlying
Funds, will be less than 100%.
INVESTMENT POLICIES. Each Portfolio's investment objective and fundamental
investment policies may not be changed without approval of the holders of a
majority of the Portfolio's outstanding voting securities. A majority of
outstanding voting securities means the lesser of 67% of the shares present or
represented at a shareholders' meeting at which the holders of more than 50% of
the outstanding shares are present or represented, or more than 50% of the
outstanding shares. Except as otherwise indicated, investment policies of each
Portfolio are not fundamental and may be changed by the Board without
shareholder approval. All investment policies relate to each Portfolio and,
unless otherwise noted, not to a portion of a Portfolio that invests in a
particular investment style. A further description of the Portfolios' investment
policies, including additional fundamental policies, is contained in the SAI.
YEAR 2000 AND EURO. The Portfolios could be adversely affected if the computer
systems used by the investment adviser and other service providers (and in
particular foreign service providers) to the Fund do not properly process and
calculate date-related information and data from and after January 1, 2000 or
information regarding the new common currency of the European Union. The Year
2000 and Euro issues also may adversely affect the Portfolios' investments.
Norwest and Forum are taking steps to address the Year 2000 and Euro issues for
their computer systems and to obtain reasonable assurances that comparable steps
are being taken by the Portfolios' other major service providers. While the
Portfolios do not anticipate any adverse effect on their computer systems from
the Year 2000 and Euro issues, there can be no assurance that these steps will
be sufficient to avoid any adverse impact on the Portfolios.
MANAGEMENT OF THE PORTFOLIOS
GENERAL OVERSIGHT OF THE PORTFOLIOS. The Board meets regularly to review the
Portfolios' general policies, investments, performance, expenses, and other
business affairs. The Board consists of eight persons.
INVESTMENT ADVISORY SERVICES. Subject to the general supervision of the Board,
Norwest makes investment decisions for the Portfolios and continuously reviews
and determines the allocation of the assets of the Portfolios among the
Underlying Funds. Norwest, located at Norwest Center, Sixth Street and
Marquette, Minneapolis, Minnesota 55479, is an indirect subsidiary of Norwest
Corporation, a multi-bank holding company that was incorporated under the laws
of Delaware in 1929. As of June 30, 1998 Norwest Corporation had assets of
approximately $93.2 billion. Norwest currently manages more than $29 billion in
assets.
ADVISORY FEES. For its services, Norwest is entitled to receive investment
advisory and allocation fees from each Portfolio at the annual rate 0.35% of the
Portfolio's average daily net assets.
PORTFOLIO MANAGERS. Many persons on the advisory staff of Norwest contribute to
the investment services provided to the Portfolios. Galen Blomster, Ph.D., CFA,
Vice President & Director of Research and Amala Thakkar, CFA, Institutional
Product Manager are primarily responsible for day-to-day management and
allocation services and have been since the inception of each Portfolio. Mr.
Blomster and Ms. Thakkar have been employed by Norwest
<PAGE>
since 1977 and 1994, respectively. Prior to joining Norwest, Ms. Thakkar worked
for ATE Enterprises in Bombay, India, as manager of corporate planning. In
addition to their responsibilities for the Portfolios, each portfolio manager
may perform portfolio management and other duties for other funds of the Trust
and for Norwest Bank.
MANAGEMENT and ADMINISTRATION. As manager, Forum supervises the overall
management of the Trust (including the Trust's receipt of services for which it
is obligated to pay) other than investment advisory services. In this capacity
Forum provides the Trust with general office facilities and persons satisfactory
to the Board to serve as officers of the Trust and oversees the performance of
administrative and professional services rendered to the Portfolios by others,
including the Portfolios' custodian, transfer agent, accountants, auditors, and
legal counsel.
FAS is responsible for performing or overseeing certain administrative services
necessary for the Trust's operations with respect to the Portfolios including,
but not limited to: (1) assisting in the preparation, printing, and periodic
updating of the Trust's registration statement, Prospectuses, and SAIs, the
Trust's tax returns, and reports to its shareholders, the SEC, and state and
other securities administrators; (2) assisting in the preparation of proxy and
information statements and any other communications to shareholders; (3)
assisting the Advisers in monitoring Fund holdings for compliance with
Prospectus and SAI investment restrictions and assisting in preparation of
periodic compliance reports; (4) preparing, filing, and maintaining the Trust's
governing documents, including the Trust Instrument, Bylaws, and minutes of
meetings of Trustees, Board committees, and shareholders; (5) monitoring the
sale of shares and ensuring that such shares are properly and duly registered
with the SEC and applicable state and other securities commissions; (6)
calculating of performance data for dissemination to information services
covering the investment company industry, for sales literature of the Trust, and
other appropriate purposes; and (7) determining the amount of and supervising
the declaration of dividends and other distributions to shareholders as
necessary to, among other things, maintain the qualification of each Fund as a
regulated investment company under the Internal Revenue Code of 1986, as
amended, and prepare and distribute to appropriate parties notices announcing
the declaration of dividends and other distributions to shareholders.
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. Forum is a member of the National
Association of Securities Dealers, Inc. For their services with respect to each
Portfolio, Forum and FAS each are entitled to receive a fee at an annual rate of
0.05% of the Portfolio's average daily net assets.
Pursuant to a separate agreement, Forum Accounting Services, LLC ("Forum
Accounting") provides portfolio accounting services to each Portfolio. Forum,
FAS, and Forum Accounting are members of the Forum Financial Group of companies
that together provide a full range of services to the investment company and
financial services industry. As of October 1, 1998, Forum, FAS and Forum
Accounting were controlled by John Y. Keffer, President and Chairman of the
Trust.
DISTRIBUTION and DISTRIBUTION PLAN. Forum acts as distributor of the Portfolios'
shares. The Trust may compensate Forum under a distribution plan adopted under
Rule 12b-1 under the 1940 Act (the "Distribution Plan") by the Trust for the
Portfolio's shares. Forum, in turn, may use these payments to compensate others
for services provided, or to reimburse others for expenses incurred, in
connection with the distribution of shares. The Distribution Plan authorizes
monthly payments at an annual rate of up to 0.75% of the Portfolios' average
daily net assets.
Payments under the Distribution Plan may be made for various types of costs,
including: (1) advertising expenses; (2) costs of printing prospectuses and
other materials to be given or sent to prospective investors; (3) expenses of
sales employees or agents of Forum, including salary, commissions, travel, and
related expenses in connection with the distribution of shares; (4) payments to
broker-dealers who advise shareholders regarding the purchase, sale, or
retention of shares; and (5) payments to banks, trust companies, broker-dealers
(other than Forum) or other financial organizations (collectively, "Processing
Organizations"). Payments to a particular Processing Organization under the
Distribution Plan are calculated by reference to the average daily net assets of
shares owned beneficially by investors who have a brokerage or other service
relationship with the Processing Organization. A Portfolio will not be liable
for distribution expenditures made by Forum in any given year in excess of the
maximum amount payable under the Distribution Plan in that year. Costs or
expenses in excess of the annual limit may not be carried forward to future
years. Salary expenses of sales personnel responsible for marketing various
shares of portfolios of the
<PAGE>
Trust may be allocated to those portfolios, including shares of a Portfolio,
that have adopted a plan similar to that of the Portfolios. Travel expenses may
be allocated to, or divided among, the particular portfolios of the Trust for
which they are incurred.
Forum receives no fees for its services as the distributor of the shares. From
its own resources, Forum may pay fees to broker-dealers or other persons for
distribution or other services related to the Portfolios.
TRANSFER and SHAREHOLDER SERVICES AGENT. Norwest Bank which is located at
Norwest Center, Sixth Street and Marquette, Minneapolis, Minnesota 55479, serves
as transfer and shareholder services agent for each Portfolio. As transfer
agent, Norwest Bank maintains an account for each Portfolio shareholder (unless
such accounts are maintained by sub-transfer agents or other processing agents),
performs other transfer agency functions, and acts as dividend disbursing agent
for the Trust. The transfer agent may subcontract any or all of its functions
with respect to all or any portion of the Portfolios' shareholders to one or
more qualified sub-transfer agents or processing agents, which may be affiliates
of the transfer agent. Sub-transfer agents and processing agents may be "Service
Organizations" as described under "How to Buy Shares -- Purchase Procedures".
The transfer agent is permitted to compensate those agents for their services;
however, that compensation may not increase the aggregate amount of payments by
the Trust to the transfer agent with respect to the Portfolios. For its
services, Norwest Bank is entitled to receive a fee with respect to each
Portfolio at an annual rate of 0.25% of its average daily net assets.
Norwest Bank also serves as each Portfolio's custodian and may appoint
subcustodians for any securities and other assets held in depositories. For its
custodial services, Norwest Bank is entitled to receive a fee with respect to
each Portfolio at an annual rates of: 0.02% of the first $100 million of a
Portfolio's average daily net assets, 0.015% of the next $100 million of the
Portfolio's average daily net assets, and 0.01% of the Portfolio's remaining
average daily net assets. No fee is directly payable by a Portfolio to the
extent the Portfolio is invested in one or more Underlying Funds.
PORTFOLIO EXPENSES. Subject to the obligation of Norwest and Norwest Bank to
waive fees and/or reimburse the Trust for certain expenses of the Portfolios,
each Portfolio is responsible for all expenses related to its operations. Each
Portfolio bears all costs of its operations other than expenses specifically
assumed by the investment adviser. The costs borne by each Portfolio include a
pro rata portion of the following: the Portfolio's share of the expenses of the
Underlying Funds in which a Portfolio invests (borne indirectly by the
Portfolio's shareholders); legal and accounting expenses; Trustees' fees and
expenses; insurance premiums, custodian and transfer agent fees and expenses;
brokerage fees and expenses; expenses of registering and qualifying the
Portfolio's shares for sale with the SEC and with complying with various state
securities laws and regulations; expenses of obtaining quotations on portfolio
securities and pricing of the Portfolio's shares; a portion of the expenses of
maintaining the Portfolio's legal existence and of shareholders' meetings; and
expenses of preparation and distribution to existing shareholders of reports,
proxies, and prospectuses. Trust expenses directly attributed to the Portfolio
are charged to the Portfolio; other expenses are allocated proportionately among
all the series of the Trust in relation to the net assets of each series. The
investment adviser has undertaken voluntarily to waive a portion of its fees and
or assume certain expenses of each Portfolio, if necessary, in order to limit
total Portfolio expenses excluding taxes, interest, brokerage commissions and
other Portfolio transaction expenses and extraordinary expenses to 1.25% of the
Portfolio's average daily net assets. If expense reimbursements are required,
they are made on a monthly basis.
Each Portfolio service provider may elect to waive all or a portion of its fees,
which are accrued daily and paid monthly. Any such waivers have the effect of
increasing a Portfolio's performance for the period during which the waiver is
in effect. Except as described above, fee waivers are voluntary and may be
reduced or eliminated at any time.
Each service provider to the Trust or its agents and affiliates also may act in
various capacities for, and receive compensation from, their customers who are
Portfolio shareholders. Under agreements with those customers, these entities
may elect to credit against the fees payable to them by their customers or to
rebate to customers all or a portion of any fee received from the Trust with
respect to assets of those customers invested in a Portfolio.
<PAGE>
PURCHASES AND REDEMPTIONS OF SHARES
Shares are continuously sold and redeemed at a price equal to their net asset
value next determined plus any applicable sales charge, after receipt of an
order on every weekday except customary national holidays (New Year's Day,
Martin Luther King, Jr. Day, President's Day, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day, and Christmas) and Good Friday ("Portfolio Business
Day").
GENERAL PURCHASE INFORMATION
You may invest in the Portfolios directly or through certain financial
institutions. If you invest directly in a Portfolio, you are the shareholder of
record. All transactions in the Portfolios' shares are effected through the
transfer agent, which accepts orders for redemptions and subsequent purchases
only from shareholders of record and new investors. Shareholders of record
receive from the Trust periodic statements listing all account activity during
the statement period. You must pay for your shares in U.S. dollars by check
written to the Trust (drawn on a U.S. bank), by bank or federal funds wire
transfer, or by Automatic Clearing House (ACH) electronic bank transfer; cash
cannot be accepted.
When you sign your application for a new Portfolio account, you are certifying
that your Social Security or other taxpayer ID number is correct and that you
are not subject to backup withholding. If you violate certain federal income tax
provisions, the Internal Revenue Service can require the Trust to withhold 31%
of your distributions and redemptions.
Each Portfolio offers C Shares with an initial sales charge of 1.0%.
Purchase orders received by the transfer agent prior to the close of regular
trading on the New York Stock Exchange ("NYSE") on any Portfolio Business Day
are priced at the net asset value determined that day (the "trade date"). Orders
received by financial institutions prior to the close of regular trading on the
NYSE on a Portfolio Business Day also are priced at the net asset value
determined that day, provided the order is received by the Trust prior to 4:00
p.m. (Eastern time). For shares purchased through a financial institution that
transmits its orders to the Portfolio, payment for Portfolio shares is due on
the third business day after the trade date. In all other cases, payment must be
made with the purchase order.
Forum may pay a broker-dealers' reallowance to selected broker-dealers
purchasing shares as principal or agent, which may include banks, bank
affiliates, and Processing Organizations. Normally, Forum reallows discounts to
selected broker-dealers. Forum reallows the entire sales charge to selected
broker-dealers for all sales orders placed with Forum. The broker-dealers'
reallowance may be changed from time to time. Forum may make additional payments
(out of its own resources) to selected broker-dealers of up to 1.00% of the
value of Portfolio shares purchased at net asset value.
In addition, from time to time and at its own expense, Forum may provide
compensation, including financial assistance, to dealers in connection with
conferences, sales, or training programs for their employees, seminars for the
public, advertising campaigns, or other dealer-sponsored special events.
Compensation may include: (1) the provision of travel arrangements, and lodging;
(2) tickets for entertainment events; and (3) merchandise. In some instances,
this compensation may be made available only to certain dealers or other
financial intermediaries who have sold or are expected to sell significant
amounts of shares of the Funds or who charge an asset based fee (whether or not
they have a fiduciary relationship with their clients).
No sales charge is assessed on purchases: (1) by any bank, trust company, or
other institution acting on behalf of its fiduciary customer accounts or any
other account maintained by its trust department (including a pension, profit
sharing, or other employee benefit trust created pursuant to a plan qualified
under Section 401 of the Internal Revenue Code of 1986, as amended); (2) by
Trustees and officers of the Trust; directors, officers, and full-time employees
of Forum, of Norwest Corporation or of any of their affiliates; the spouse,
direct ancestor, or direct descendant (collectively, "relatives") of any such
person; any trust or individual retirement account or self-employed retirement
plan for the benefit of any such person or relative; or the estate of any such
person or relative; or (3) by any registered
<PAGE>
investment adviser with whom Forum has entered into a share purchase agreement
and that is acting on behalf of its fiduciary customer accounts. Shares sold
without a sales charge may not be resold except to the Portfolios, and share
purchases must be made for investment purposes.
REINSTATEMENT PRIVILEGE. If you have redeemed a Portfolio's shares, you may,
within 60 days following the redemption, purchase shares, without payment of an
additional a front-end sales charge, in any of the Portfolios in an amount up to
the amount of your redemption. If you want to exercise this "Reinstatement
Privilege", please contact the Trust for further information.
INVESTORS IN OTHER FUND FAMILIES. No sales charge is assessed on purchases of C
Shares of a Portfolio with the proceeds of a redemption, within the preceding 60
days, of shares of a mutual fund that imposed on the redeemed shares at the time
of their purchase a sales charge equal to or greater than that applicable to the
C Shares of that Portfolio. You should contact the Trust for further information
and to obtain the necessary forms.
REDUCED INITIAL SALES CHARGES. To qualify for a reduced sales charge, you or
your Processing Organization must notify the transfer agent at the time of
purchase of your intention to so qualify and you must provide the transfer agent
with sufficient information to verify that your purchase qualifies for the
reduced sales charges, which are as follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
SALES CHARGE
AS A PERCENTAGE OF
-----------------------------------------------
BROKER-DEALERS'
REALLOWANCE AS A
PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE NET ASSET VALUE OFFERING PRICE
$25,000 up to $250,00 1.5% 1.52% 1.50%
$250,000 up to $500,000 1.25% 1.27% 1.25%
$500,000 up to 1,000,000 1.00% 1.01% 1.00%
$1,000,000 and up 0.75% 0.76% 0.75%
</TABLE>
Reduced sales charges may be modified or terminated at any time and are subject
to confirmation of your holdings. Further information about reduced sales
charges is contained in the SAI.
SELF-DIRECTED 401 PROGRAMS. Purchases of Portfolio shares through self-directed
401(k) programs and other qualified retirement plans offered by Norwest Bank,
Forum or their affiliates in accumulated amounts of less than $100,000 are
subject to a reduced sales charge applicable to a single purchase of $100,000.
HOW TO BUY SHARES
MINIMUM INVESTMENT
There is a $25,000 minimum initial investment in the Portfolios. There is a $500
minimum for subsequent purchases of Portfolio shares, except for IRA and
systematic investing where the subsequent investment minimum is reduced to $150.
The investment adviser may in its discretion waive the investment minimums.
PURCHASE PROCEDURES
INITIAL PURCHASES. THERE ARE THREE WAYS TO PURCHASE SHARES INITIALLY.
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1. BY MAIL. You may send a check along with a completed account
application to the Trust at the address listed under "Account
Application". Checks are accepted at full value subject to collection.
If a check does not clear, the purchase order is canceled, and you are
liable for any losses or fees incurred by the Trust, the transfer agent
or the distributor.
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For individual or Uniform Gift to Minors Act accounts, the check used
must be made payable to Norwest WealthBuilder II Portfolios ["Portfolio
Name"] or to one or more owners of that account and endorsed to Norwest
WealthBuilder II Portfolios ["Portfolio Name"]. For corporation,
partnership, trust, 401(k) plan or other non-individual type accounts,
your check to purchase Portfolio shares must be made payable on its
face to "Norwest WealthBuilder II Portfolios" ["Portfolio Name"]. No
other methods of payment by check are accepted.
2. BY BANK WIRE. You may make an initial investment in a Portfolio using
the wire system for transmittal of money among banks. You should first
telephone the transfer agent at 1-612-667-8833 or 1-800-338-1348 to
obtain an account number. You then should instruct your bank to wire
the money immediately to:
NORWEST BANK MINNESOTA, N.A.
ABA 091 000 019
FOR CREDIT TO: NORWEST WEALTHBUILDER II PORTFOLIOS
0844-131
RE: [NAME OF PORTFOLIO]
ACCOUNT NO.:
ACCOUNT NAME:
You then should promptly complete and mail the account application
form. Your bank may impose a charge on you for transmitting the money
by bank wire. The Trust does not charge for the receipt of wire
transfers. Payment by bank wire is treated as a federal funds payment
when received.
3. THROUGH FINANCIAL INSTITUTIONS. You may purchase and redeem shares
through Processing Organizations. The transfer agent, Forum, and their
affiliates may be Processing Organizations. Processing Organizations
may receive as a broker-dealer's reallowance a portion of the sales
charge paid by their customers who purchase C Shares, may receive
payments from Forum with respect to sales of C Shares, and may receive
payments as a processing agent from the transfer agent. In addition,
financial institutions, including Processing Organizations, may charge
you a fee for their services; they are responsible for promptly
transmitting purchase, redemption, and other requests to the
Portfolios.
If you purchase shares through a Processing Organization, you are
subject to the procedures of that Processing Organization, which may
include charges, limitations, investment minimums, cutoff times, and
restrictions in addition to, or different from, those applicable to
shareholders who invest in a Portfolio directly. You should acquaint
yourself with the Processing Organization's procedures and should read
this Prospectus in conjunction with any materials and information that
the Processing Organization has provided to you. If you purchase
Portfolio shares through a Processing Organization, you may or may not
be the shareholder of record and, subject to the Processing
Organization's and the Portfolios' procedures, you may have Portfolio
shares transferred into your name. There is typically a three-day
settlement period for purchases and redemptions through broker-dealers.
Certain Processing Organizations also may enter purchase orders with
payment to follow.
Certain shareholder services may not be available to you if you have
purchased shares through a Processing Organization. You should contact
your Processing Organization for further information. The Trust may
confirm purchases and redemptions of a Processing Organization's
customers directly to the Processing Organization, which in turn would
provide you with confirmations and periodic statements. The Trust is
not responsible for the failure of any Processing Organization to carry
out its obligations to you or other customers.
SUBSEQUENT PURCHASES
Subsequent purchases may be made by mailing a check, by sending a bank wire, or
through your Processing Organization as indicated above. All payments should
clearly indicate your name and account number.
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ACCOUNT APPLICATION
You may obtain an account application to open an account by writing the Trust at
the following address:
NORWEST WEALTHBUILDER II PORTFOLIOS
[NAME OF PORTFOLIO]
NORWEST BANK MINNESOTA, N.A.
TRANSFER AGENT
733 MARQUETTE AVENUE
MINNEAPOLIS, MN 55479-0040
To participate in shareholder services not referenced on your account
application or to change information on your account (such as addresses), please
contact the Trust. The Trust reserves the right in the future to modify, limit,
or terminate any shareholder privilege upon appropriate notice and to charge a
fee for certain shareholder services, although no such fees are currently
contemplated. You may terminate any privilege and participation in any program
at any time by writing the Trust.
GENERAL INFORMATION
Portfolio shares are continuously sold on every Portfolio Business Day. The
purchase price for Portfolio shares equals their net asset value next-determined
after receipt of an order plus any applicable sales charge imposed at the time
of purchase.
Portfolio shares are entitled to receive dividends and distributions as of the
first Portfolio Business Day after a purchase order is accepted. The Trust
reserves the right to reject any purchase order for shares.
HOW TO SELL SHARES
GENERAL INFORMATION
You may sell your Portfolio shares (redeem) at their net asset value on any
Portfolio Business Day. There is no minimum period of investment and no
restriction on the frequency of redemptions.
Your Portfolio shares are redeemed as of the next determination of the
Portfolio's net asset value following receipt by the transfer agent of your
redemption order in proper form (and any supporting documentation that the
transfer agent may require). You are not entitled to receive dividends declared
on your redeemed shares after the day the redemption becomes effective.
Normally, your redemption proceeds are paid immediately, but in no event later
than seven days following acceptance of a redemption order. Proceeds of
redemption requests (and exchanges), however, will not be paid unless any check
used to purchase your shares being redeemed has been cleared by your bank, which
may take up to 15 days. This delay may be avoided by paying for shares through
wire transfers or ACH (Automatic Clearing House). Unless otherwise indicated,
redemption proceeds normally are paid by check mailed to your record address.
Your right of redemption may not be suspended nor the payment date postponed for
more than seven days after the tender of the shares to a Portfolio, except when
the New York Stock Exchange is closed (or when trading thereon is restricted)
for any reason other than its customary weekend or holiday closings, for any
period during which an emergency exists as a result of which disposal by the
Portfolio of its portfolio securities or determination by the Portfolio of the
value of its net assets is not reasonably practicable and for such other periods
as the SEC may permit.
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REDEMPTION PROCEDURES
If you have invested through a Processing Organization, you may redeem your
shares through the Processing Organization as described above. If you have
invested directly in a Portfolio, you may redeem your shares as described below.
If you wish to redeem shares by telephone or receive redemption proceeds by bank
wire, you must elect these options by properly completing the appropriate
sections of your account application form. These privileges may not be available
until several weeks after your application is received.
1. BY MAIL. You may redeem shares by sending a written request to the
transfer agent. You must sign all written requests for redemption with
signature guaranteed. (See "How to Sell Shares -- Other Redemption
Matters".)
2. BY TELEPHONE. If you have elected telephone redemption privileges, you
may make a telephone redemption request by calling the transfer agent
at 1-800-338-1348 or 1-612-667-8833 and providing your account number,
the exact name in which your shares are registered and the your social
security or taxpayer identification number. In response to the
telephone redemption instruction, the Trust will mail a check to your
record address or, if you have elected wire redemption privileges, wire
the proceeds. (See "How to Sell Shares -- Other Redemption Matters".)
3. BY BANK WIRE. For redemptions of more than $5,000, if you have elected
wire redemption privileges, you may request a Portfolio to transmit the
redemption proceeds by federal funds wire to a bank account you have
designated in writing. To request bank wire redemptions by telephone,
you also must have elected the telephone redemption privilege.
Redemption proceeds are transmitted by wire on the day after a
redemption request in proper form is received by the transfer agent.
OTHER REDEMPTION MATTERS
To protect against fraud, signatures on certain requests must have a signature
guarantee. Requests must be made in writing and include a signature guarantee
for any of the following transactions: (1) instruction to change your record
name; (2) modification of a designated bank account for wire redemptions; (3)
instruction regarding an Automatic Investment Plan or Automatic Withdrawal Plan,
(4) dividend and distribution election; (5) telephone redemption; (6) exchange
option election or any other option election in connection with your account;
(7) written instruction to redeem shares whose value exceeds $50,000; (8)
redemption in an account in which the account address has changed within the
last 30 days; (9) redemption when the proceeds are deposited in a Portfolio
account under a different account registration; and (10) the remitting of
redemption proceeds to any address, person or account for which there are not
established standing instructions on the account.
Signature guarantees may be provided by any bank, broker-dealer, national
securities exchange, credit union, savings association, or other eligible
institution that is authorized to guarantee signatures and is acceptable to the
transfer agent. Whenever a signature guarantee is required, the signature of
each person required to sign for the account must be guaranteed.
You must elect telephone redemption or exchange privileges. The Trust and
transfer agent will employ reasonable procedures in order to verify that
telephone requests are genuine, including recording telephone instructions and
causing written confirmations of the resulting transactions to be sent to
shareholders. If the Trust and transfer agent did not employ such procedures,
they could be liable for losses due to unauthorized or fraudulent telephone
instructions. You should verify the accuracy of telephone instructions
immediately upon receipt of your confirmation statements. During times of
drastic economic or market changes, telephone redemption, and exchange
privileges may be difficult to implement. In the event that you are unable to
reach the transfer agent by telephone, you may mail or hand-deliver requests to
the transfer agent.
Due to the cost to the Trust of maintaining smaller accounts, the Trust reserves
the right to redeem, upon not less than 60 days' written notice, all shares in
any Portfolio account whose aggregate net asset value is less than $1,000
immediately following any redemption.
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OTHER SHAREHOLDER SERVICES
EXCHANGES
You may exchange your shares for C Shares of the other Norwest WealthBuilder II
Portfolios. For information, please contact the transfer agent.
The Portfolios do not charge for exchanges, and there is currently no limit on
the number of exchanges you may make. The Trust reserves the right, however, to
limit excessive exchanges by you or to impose a fee per exchange over a minimum
amount. Exchanges are subject to the fees charged by, and the limitations
(including minimum investment restrictions) of, the Portfolio into which you are
exchanging.
Exchanges may only be made between identically registered accounts or by opening
a new account. You must submit a new account application to open a new account
through an exchange if the new account will not have an identical registration
and the same shareholder privileges as the account from which your exchange is
being made. You may only exchange into a Portfolio if that Portfolio's shares
may legally be sold in your state of residence.
Under federal tax law, the Portfolios treat an exchange as a redemption and a
purchase. Exchange procedures may be amended materially or terminated by the
Trust at any time upon 60 days' notice. (See "Additional Purchase and Redemption
Information" in the SAI.)
SALES CHARGES. The exchange of C shares may result in additional sales charges.
If you exchange into a Portfolio that imposes an initial sales charge, you must
pay an amount equal to any excess of that Portfolio's initial sales charge
attributable to the number of shares being acquired in the exchange over any
initial sales charge you paid for the shares being exchanged. For example, if
you paid a 1% initial sales charge in connection with a purchase of shares and
then exchanged those shares into shares of another Portfolio subject to a 1.5%
sales charge, you would pay the differential sales charge on the exchange. C
shares acquired through the reinvestment of dividends or distributions are
deemed to have been acquired with a sales charge rate equal to that applicable
to the shares on which the dividends or distributions were paid.
1. EXCHANGES BY MAIL. You may make exchanges by mail by writing to the
transfer agent and sending any share certificates for the shares to be
exchanged. You must sign all written requests for exchanges and endorse
all certificates with signature guaranteed. (See "How to Sell Shares --
Other Redemption Matters".)
2. EXCHANGES BY TELEPHONE. If you have elected telephone exchange
privileges, you may make a telephone exchange request by calling the
transfer agent at 1-800-338-1348 or 1-612-667-8833 and providing your
account number, the exact name in which your shares are registered and
your social security or taxpayer identification number. (See "How to
Sell Shares -- Other Redemption Matters".)
AUTOMATIC INVESTMENT PLAN
Under the Portfolios' Automatic Investment Plan, you may authorize monthly
amounts of $150 or more to be withdrawn automatically from your designated bank
account (other than a passbook savings account) and sent to the transfer agent
for investment in Portfolio shares. If you wish to use this plan, you must
complete an application, which may be obtained by writing or calling the
transfer agent. The Trust may modify or terminate your automatic investment plan
in the event that the Trust is unable to settle any transaction with your bank.
If the Automatic Investment Plan is terminated before your account totals
$25,000, the Trust reserves the right to close your account in accordance with
the procedures described under "How to Sell Shares -- Other Redemption Matters".
RETIREMENT ACCOUNTS
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The Portfolios may be a suitable investment vehicle for part or all of the
assets you hold in Traditional or Roth individual retirement accounts
(collectively, "IRAs"). An IRA account application may be obtained by contacting
the Trust at 1-800-338-1348 or 1-612-667-8833. Generally, investment earnings in
an IRA are tax-deferred until you withdraw them. In the case of a Roth IRA, if
certain requirements are met, your investment earnings will not be taxed even
when you withdraw them. You generally may make IRA contributions of up to a
maximum of $2,000 annually. Only contributions to your Traditional IRAs are tax
deductible. However, your deduction may be reduced if you or, in some cases,
your spouse is an active participant in an employer-sponsored retirement plan
and you (or you and your spouse) have adjusted gross income above certain
levels. Your ability to make contributions to a Roth IRA is restricted if you
(or, in some cases, you and your spouse) have adjusted gross income above
certain levels.
Your employer may also contribute to your IRA as part of a Savings Incentive
Match Plan for Employees, or "SIMPLE plan", established after December 31, 1996.
Under a SIMPLE plan, you may contribute up to $6,000 annually to your IRA, and
your employer must generally match such contributions up to 3% of the your
annual salary. Alternatively, your employer may elect to contribute to your IRA
2% of the lesser of the your earned income or $160,000.
The foregoing discussion regarding IRAs is based on regulations in effect as of
January 1, 1998 and summarizes only some of the important federal tax
considerations generally affecting IRA contributions made by individuals or
their employers. It is not intended as a substitute for tax planning. You should
consult your tax advisors with respect to their specific tax situation as well
as with respect to state and local taxes.
AUTOMATIC WITHDRAWAL PLAN
If you have shares in a single account that total $25,000 or more, you may
establish an automatic withdrawal plan to provide for the preauthorized payment
from your account of $250 or more on a monthly, quarterly, semi-annual, or
annual basis. Under the automatic withdrawal plan, sufficient shares in your
account are redeemed to provide your periodic payment and any taxable gain or
loss is recognized upon redemption of the shares. If you wish to use the
withdrawal plan, you may do so by completing an application which may be
obtained by writing or calling the transfer agent. The Trust may suspend your
withdrawal privileges without notice if your account contains insufficient funds
to effect a withdrawal or if your account balance averages less than $25,000
over a period of twelve (12) months.
REOPENING ACCOUNTS
You may reopen an account, without filing a new account application form, at any
time within one year after the your account is closed, provided that the
information on the account application form on file with the Trust is still
current.
DIVIDENDS AND TAX MATTERS
DIVIDENDS
Dividends of each Portfolio's net investment income are declared and paid
annually. Distributions of any net capital gain realized by a Portfolio are
distributed annually.
You may choose to have dividends and distributions of a Portfolio reinvested in
shares of that Portfolio (the "Reinvestment Option") or to receive dividends and
distributions in cash (the "Cash Option") or to direct dividends and
distributions to be reinvested in shares of certain series of the Trust (the
"Directed Dividend Option"). All dividends and distributions are treated in the
same manner for federal income tax purposes whether received in cash or
reinvested in shares of a series of the Trust.
Under the Reinvestment Option, all of a Portfolio's dividends and distributions
are automatically invested in additional shares of that Portfolio. All dividends
and distributions are reinvested at a Portfolio's net asset value as of the
payment date of the dividend or distribution. You are assigned this option
unless you select another option. Under the Cash Option, all dividends and
distributions are paid to you in cash. Under the Directed Dividend Option, if
you own shares of a Portfolio totaling $25,000 or more in a single account, you
may elect to have all dividends and distributions
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reinvested in shares of another series of the Trust, provided that those shares
are eligible for sale in your state of residence. For further information
concerning the Directed Dividend Option, please contact the transfer agent.
TAX MATTERS
Each Portfolio intends to qualify for each fiscal year to be taxed as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended (the "Code"). As such, no Portfolio will be liable for federal income
and excise taxes on the net investment income and net capital gain distributed
to its shareholders. Because each Portfolio intends to distribute all of its net
investment income and any net capital gain each year, each Portfolio should
thereby avoid all federal income and excise taxes.
Dividends paid by a Portfolio out of its net investment income (including net
short-term capital gain) are taxable to shareholders as ordinary income.
Distributions of net capital gain (i.e., the excess of net long-term capital
gain over net short-term capital loss) are taxable as long-term capital gain,
regardless of how long a shareholder has held shares in a Portfolio.
Distributions of net capital gain may be taxable at different rates depending on
the length of time a Portfolio holds its assets. If you hold shares for six
months or less and during that period receive a distribution of net capital
gain, any loss realized on the sale of the shares during that six-month period
will be a long-term capital loss to the extent of the distribution. Dividends
and distributions reduce the net asset value of the Portfolio paying the
dividend or distribution by the amount of the dividend or distribution.
Furthermore, a dividend or distribution made shortly after your purchase of
shares, although in effect a return of capital to you, will be taxable to you as
described above.
Dividends or distributions received by a shareholder that is exempt from federal
income tax, such as a qualified pension plan, generally will not be taxable to
that shareholder.
To the extent a Portfolio or one of its Underlying Funds invests in the stock of
domestic issuers, dividends received by corporate shareholders of the Portfolio
may qualify for the dividends received deduction for corporations. The amount of
such dividends eligible for the dividends received deduction is limited to the
amount of qualifying dividends from domestic corporations received during a
Portfolio's fiscal year.
Each Portfolio is required by federal law to withhold 31% of reportable payments
(which may include dividends, capital gain distributions and redemptions) paid
to you if you fail to provide the Portfolio with a correct taxpayer
identification number or to make required certifications, or if you are subject
to backup withholding.
Reports containing appropriate information with respect to the federal income
tax status of dividends and distributions paid during the year by each Portfolio
will be mailed to shareholders shortly after the close of each calendar year.
OTHER INFORMATION
BANKING LAW MATTERS
Federal banking rules generally permit a bank or bank affiliate to act as
investment adviser, transfer agent, or custodian to a fund and to purchase
shares of the investment company as agent for and upon the order of a customer
and, in connection therewith, to retain a sales charge or similar payment.
Norwest and any bank or other bank affiliate also may perform Processing
Organization or similar services for the Portfolios and their shareholders. If a
bank or bank affiliate were prohibited in the future from so acting, changes in
the operation of the Portfolios could occur and you, if you were serviced by the
bank or bank affiliate, might no longer be able to avail yourself of those
services. It is not expected that you would suffer any adverse financial
consequences as a result of any of these occurrences.
DETERMINATION OF NET ASSET VALUE
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The Portfolios determine the net asset value of their shares as of 4:00 p.m.,
Eastern time, on each Portfolio Business Day by dividing the value of the
Portfolio's net assets (i.e., the value of its securities and other assets less
its liabilities) by the number of shares outstanding at the time the
determination is made. Securities owned by a Portfolio for which market
quotations are readily available are valued at current market value or, in their
absence, at fair value as determined by the Board or pursuant to procedures
approved by the Board. The Portfolios only determine net asset value on
Portfolio Business Days.
The Underlying Funds are valued at their respective net asset values as
determined by those funds. The Underlying Funds that are money market funds
value their portfolio securities in accordance with Rule 2a-7 under the 1940
Act. The other Underlying Funds value their portfolio securities based on market
quotes if they are readily available.
European, Far Eastern, and other international securities exchanges and
over-the-counter markets normally complete trading well before the close of
business on each Portfolio Business Day. Trading in foreign securities, however,
may not take place on all Portfolio Business Days or may take place on days that
are not Portfolio Business Days. The determination of the prices of foreign
securities may be based on the latest market quotations for the securities. If
events occur that affect the securities' value after the close of the markets on
which they trade, the Portfolio or Underlying Fund may make an adjustment to the
value of the securities for purposes of determining net asset value.
All assets and liabilities denominated in foreign currencies are converted into
United States dollars at the mean of the bid and asked prices of such currencies
against the United States dollar last quoted by a major bank prior to the time
of conversion.
PERFORMANCE INFORMATION
A Portfolio may quote performance in terms of yield or total return. All
performance information is based on historical results and is not intended to
indicate future performance. A Portfolio's yield is a way of showing the rate of
income the Portfolio earns on its investments as a percentage of the Portfolio's
share price. To calculate standardized yield, a Portfolio takes the income it
earned from its investments for a 30-day period (net of expenses), divides it by
the average number of shares entitled to receive dividends, and expresses the
result as an annualized percentage rate based on the Portfolio's share price at
the end of the 30-day period. A Portfolio's total return shows its overall
change in value, including changes in share price and assuming all the
Portfolio's dividends and distributions are reinvested. A cumulative total
return reflects a Portfolio's performance over a stated period of time. An
average annual total return reflects the hypothetical annually compounded return
that would have produced the same cumulative total return if the Portfolio's
performance had been constant over the entire period. Because average annual
returns tend to smooth out variations in the Portfolios' returns, you should
recognize that they are not the same as actual year-by-year results. Published
yield quotations are, and total return figures may be, based on amounts invested
in a Portfolio net of applicable sales charges. 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.
The Portfolios' advertisements may reference ratings and rankings among similar
mutual funds by independent evaluators such as Morningstar, Inc., Lipper
Analytical Services, Inc., and IBC Financial Data, Inc. In addition, the
performance of a Portfolio may be compared to securities indices. These indices
may be comprised of a composite of various recognized securities indices to
reflect the investment policies of a Portfolio that invests its assets using
different investment styles. Indices are not used in the management of a
Portfolio but rather are standards by which the investment adviser and
shareholders may compare the performance of the Portfolio to an unmanaged
composite of securities with similar, but not identical, characteristics as the
Portfolio. This material is not to be considered representative or indicative of
future performance. All performance information for a Portfolio is calculated on
a class basis.
THE TRUST AND ITS SHARES
The Trust has an unlimited number of authorized shares of beneficial interest.
The Board may, without shareholder approval, divide the authorized shares into
an unlimited number of separate portfolios or series (such as a Portfolio) and
may divide portfolios or series into classes of shares (such as C Shares); the
costs of doing so is borne by the Trust or
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Portfolio in accordance with the Trust Instrument. Currently the authorized
shares of the Trust are divided into 39 separate series.
SHAREHOLDER VOTING and OTHER RIGHTS. Each share of each series or class thereof
of the Trust has equal dividend, distribution, liquidation, and voting rights,
and fractional shares have those rights proportionately, except that expenses
related to the distribution of the shares of a class (and certain other expenses
such as transfer agency and administration expenses) may be borne solely by
those shares and each fund or class votes separately with respect to the
provisions of any Rule 12b-1 plan which pertains to the fund or class and other
matters for which separate fund or class voting is appropriate under applicable
law. Generally, shares are voted in the aggregate without reference to a
particular fund or class, except if the matter affects only one fund or class or
voting by series or class is required by law, in which case shares will be voted
separately by series or class, as appropriate. Delaware law does not require the
Trust to hold 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 non-assessable. You may redeem shares at net
asset value. If you hold shares in a series, you are entitled to your pro rata
share of all dividends and distributions arising from that series' assets and,
upon redeeming shares, will receive the portion of the series' net assets
represented by the redeemed shares.
Each Portfolio reserves the right to seek to achieve its investment objective by
investing all of its assets in one or more registered investment companies
having a substantially similar investment objective and policies.
From time to time certain shareholders may own a large percentage of the shares
of a Portfolio and, accordingly, may be able to greatly affect (if not
determine) the outcome of a shareholder vote.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE STATEMENT OF
ADDITIONAL INFORMATION AND THE PORTFOLIOS' OFFICIAL SALES LITERATURE IN
CONNECTION WITH THE OFFERING OF THE PORTFOLIOS' SHARES, AND IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE TRUST. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY
STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER MAY NOT LAWFULLY BE MADE
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NORWEST ADVANTAGE FUNDS
READY CASH INVESTMENT FUND
Exchange Shares
PROSPECTUS
October 1, 1998
AN INVESTMENT IN THE FUND IS NOT A DEPOSIT OF NORWEST BANK MINNESOTA, N.A. OR
ANY OTHER BANK AND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
ALTHOUGH THE FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER
SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUND.
NO GOVERNMENTAL AGENCY, INCLUDING THE U.S. SECURITIES AND EXCHANGE COMMISSION,
HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED WHETHER OR NOT THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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1. OVERVIEW
The following is a summary of information about the Fund. Before investing, you
should read the prospectus and consider the discussion under INVESTMENT
OBJECTIVES, POLICIES AND RISKS.
The Fund is not a complete or balanced investment program, but can serve as a
part of your overall investment program.
THE FUND AT A GLANCE
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OBJECTIVE PRIMARY INVESTMENTS
High current income, High-quality money market instruments of
preservation of capital and U.S. and foreign issuers.
liquidity
CLASS OF SHARES
This prospectus offers Exchange Shares of the Fund. You may purchase Exchange
Shares only through exchanges of B Shares of other funds of Norwest Advantage
Funds. Exchange Shares are offered at net asset value. If you redeem Exchange
Shares, you pay a contingent deferred sales charge. The amount of the charge
depends on the length of time you have held the shares.
FUND STRUCTURES
The Fund invests in another fund identified in this prospectus as a Portfolio.
Except when necessary to describe the Fund's investments in the Portfolio, this
prospectus discusses the Fund's investments in the Portfolio as if the
investments were made directly in portfolio securities.
MANAGEMENT OF THE FUND
NORWEST INVESTMENT MANAGEMENT, INC. or NORWEST is the Portfolio's investment
adviser. Norwest, a subsidiary of Norwest Bank Minnesota, N.A. or Norwest Bank,
provides investment advice to institutions, pension plans and other accounts and
currently manages more than $29 billion in assets. This prospectus generally
refers to Norwest as the Adviser.
The FORUM FINANCIAL GROUP of companies provide management, administrative and
underwriting services to the Funds.
PURCHASE OF SHARES
Exchange Shares require a minimum initial investment of $1,000 and minimum
subsequent investments of $100.
EXCHANGES
You may exchange Exchange Shares for B Shares of other funds of Norwest
Advantage Funds.
DISTRIBUTIONS
The Fund pays distributions of net investment income monthly.
RISK FACTORS
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Investments in the Fund are subject to risk and may decline in value. If you
invest in the Fund, the income you receive will vary with changes in interest
rates. In addition, the Fund's investments have "credit risk," which is the risk
that an issuer will be unable, or will be perceived to be unable, to pay the
interest and principal on its obligations when due. The Fund also has the risk
that it may not be able to maintain a stable net asset value of $1.00 per share.
The Fund has the risk that the Adviser may not be successful in carrying out its
investment strategy, that a portfolio manager may prove difficult to replace if
he or she becomes unavailable to manage the Fund and that the Fund's particular
investment strategy may result in performance that is worse or better than the
performance of the market as a whole.
EXPENSE INFORMATION
The following table will assist you in understanding the expenses that you will
bear directly or indirectly when you invest in the Fund.
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on purchases
(as a percentage of offering price) Zero
Maximum deferred sales charge
(as a percentage of the lesser of original
purchase price or redemption proceeds) 4.0%(1)
ANNUAL FUND OPERATING EXPENSES(2)(6)
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
Investment Advisory Fees None
Rule 12b-1 Fees (after fee waivers)(3) 0.75%
Other Expenses (after reimbursements) 0.42%
Investment Advisory Fees - Portfolio(4) 0.33%
Other Expenses - Portfolio (after reimbursements) 0.07%
TOTAL OPERATING EXPENSES (after reimbursements)(5) 1.57%
(1) The amount of the contingent deferred sales charge applicable to any
Exchange Share will depend upon the deferred sales charges of the B Shares
originally purchased. The maximum possible contingent deferred sales charge
is 4.0%. The charge declines from the maximum each year following the
original purchase of B Shares until it reaches zero.
(2) The Fund bears its pro rata share of the Portfolio's expenses.
(3) Absent fee waivers, Rule 12b-1 Fees would be 1.00%.
(4) Investment Advisory Fees - Portfolio reflects the investment advisory fee
of the Portfolio, which, absent fee waivers, would be 0.34%.
(5) Norwest and Forum Financial Group have agreed to waive their respective
fees or reimburse expenses in order to maintain the Fund's total combined
operating expenses at or below 1.57%. Any reduction of those waivers or
reimbursements would require review by the Fund's Board of Trustees.
(6) Absent estimated expense reimbursements and fee waivers, the expenses of
Exchange Shares would be: Other Expenses, 4.00%; and Total Operating
Expenses, 5.50%. Except as otherwise noted, expense reimbursements and fee
waivers are voluntary and may be reduced or eliminated at any time.
EXAMPLE
The following hypothetical example indicates the dollar amount of expenses that
you would pay, assuming a $1,000 investment in the Fund's Shares, the expenses
listed in the Annual Fund Operating Expenses table, a 5% annual
<PAGE>
return and reinvestment of all distributions. THE EXAMPLE DOES NOT REPRESENT
PAST OR FUTURE EXPENSES OR RETURN. ACTUAL EXPENSES AND RETURN MAY BE GREATER OR
LESS THAN THOSE SHOWN IN THE EXAMPLE.
<TABLE>
<S> <C> <C> <C> <C>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Assuming redemption at the end of the period $56 $80 $106 $187
Assuming no redemption $16 $50 $86 $187
</TABLE>
<PAGE>
2. FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the past 10 years or since inception of the class.
Certain information reflects financial results for a single Fund share. The
total returns in the table represent the rate that an investor would have earned
on an investment in the Fund, assuming reinvestment of all distributions. The
information from June 1, 1994 through May 31, 1998 has been audited by KPMG Peat
Marwick, LLP independent auditors, whose report dated July 21, 1998 about the
Fund, along with the Fund's financial statements, are included in the Fund's
Annual Report, which is available at no charge upon request. These financial
statements are incorporated by reference into the SAI. Other independent
auditors audited information for prior periods.
<TABLE>
<S> <C> <C> <C> <C> <C>
Ready Cash Investment Fund
--------------------------------------------------------------------------
Year Ended Period
May 31, Ended May 31,
......................................................... .............
------------ . -----------
1998 1997 1996 1995 1994(a)
----------- ------------ ----------- ----------- -------------
Beginning Net Asset Value per Share $1.00 $1.00 $1.00 $1.00 $1.00
Net Investment Income 0.050 0.040 0.043 0.038 0.001
Net Realized and Unrealized Loss on
Investments (0.008)
Dividends from Net Investment Income (0.042) (0.040) (0.043) (0.038) (0.001)
Ending Net Asset Value per Share $1.00 $1.00 $1.00 $1.00 $1.00
Ratios to Average Net Assets:
Expenses(b) 1.56% 1.57% 1.57% 1.57% 1.53%(c)
Net Investment Income 4.21% 4.03% 4.32% 3.62% 2.48%(c)
Total Return 4.29% 4.09% 4.38% 3.69% 2.51%(c)
Net Assets at End of Period (000s $337 $655 $129 $160 $151
omitted)
- ------------------------------------- ----------- -- ------------
</TABLE>
(a) The Fund commenced the offering of Exchange Shares on May 9, 1994.
(b) During the periods, various fees and expenses were waived and reimbursed,
respectively. Had these waivers and reimbursements not occurred, the ratio
of expenses to average net assets would have been:
Expenses 5.57% 5.66% 8.24% 6.32% 1.85%(c)
(c) Annualized.
<PAGE>
- --------------------------------------------------------------------------------
3. GLOSSARY
- --------------------------------------------------------------------------------
This Glossary of frequently used terms will help you understand the discussion
of the Fund's objectives, policies and risks. Defined terms are capitalized when
used in this prospectus.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Term Definition
- ---- ----------
Board The Board of Trustees of Norwest Advantage
Funds.
CDSC Contingent deferred sales charge.
NRSRO A nationally recognized statistical rating
organization, such as Standard & Poor's
Corporation, that rates fixed-income
securities and money market mutual funds by
relative credit risk.
SEC The U.S. Securities and Exchange Commission.
U.S. Government Security A security issued or guaranteed as to
principal and interest by the U.S.
Government, its agencies or its
instrumentalities.
- --------------------------------------------------------------------------------
4. INVESTMENT OBJECTIVES, POLICIES AND RISKS
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVES. The Fund's investment objective is to provide high
current income to the extent consistent with the preservation of capital and the
maintenance of liquidity.
INVESTMENT POLICIES. The Fund's investments are made under the requirements of
an SEC rule governing the investments that money market funds may make. The Fund
invests only in high-quality, U.S. dollar-denominated short-term money market
instruments that are determined by the Adviser, under procedures adopted by the
Board, to be eligible for purchase and to present minimal credit risks. The Fund
may invest in securities with fixed, variable or floating rates of interest.
High-quality instruments include those that: (1) are rated (or, if unrated, are
issued by an issuer with comparable outstanding short-term debt that is rated)
in 1 of the 2 highest rating categories by 2 NRSROs or, if only 1 NRSRO has
issued a rating, by that NRSRO; or (2) are otherwise unrated and determined by
the Adviser to be of comparable quality. The Fund invests at least 95% of its
total assets in securities in the highest rating category.
The Fund invests in a broad spectrum of high-quality money market instruments of
U.S. and foreign issuers, including U.S. Government Securities, municipal
securities and corporate debt securities. The Fund seeks to maintain a rating
within the 2 highest short-term categories assigned by at least 1 NRSRO.
The Fund may invest in obligations of financial institutions. These include
negotiable certificates of deposit, bank notes, bankers' acceptances and time
deposits of U.S. banks (including savings banks and savings associations),
foreign branches of U.S. banks, foreign banks and their non-U.S. branches, U.S.
branches and agencies of foreign banks and wholly-owned banking-related
subsidiaries of foreign banks. The Fund limits its investments in obligations of
financial institutions to institutions that at the time of investment have total
assets in excess of $1 billion, or the equivalent in other currencies.
<PAGE>
The Fund normally will invest more than 25% of its total assets in the
obligations of domestic and foreign financial institutions, their holding
companies and their subsidiaries. The Fund may not invest more than 25% of its
total assets in any other single industry.
The Fund has the following types of primary risks, which are listed in
alphabetical order:
CREDIT RISK. The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise be unable to honor a financial obligation.
FOREIGN RISK. The risk that foreign investments may be subject to political and
economic instability, the imposition or tightening of exchange controls or other
limitations on repatriation of foreign capital, or nationalization, increased
taxation or confiscation of investors' assets. Also, the risk that the price of
a foreign issuer's securities may not reflect the issuer's condition because
there is not sufficient publicly available information about the issues.
INTEREST RATE RISK. The risk that changes in interest rates may affect the
value of your investment. With fixed-rate securities, including U.S. Government
Securities, an increase in interest rates typically causes the value of a Fund's
fixed-rate securities to fall, while a decline in interest rates may produce an
increase in the market value of the securities. Because of this risk, an
investment in the Fund is subject to risk even if all the fixed-income
securities in the Fund's portfolio are paid in full at maturity.
5. MANAGEMENT OF THE FUND
INVESTMENT ADVISORY SERVICES
NORWEST INVESTMENT MANAGEMENT, INC. is the investment adviser for the Portfolio.
In this capacity, Norwest makes investment decisions for and administers the
Portfolio's investment programs. Norwest receives an investment advisory fee
from the Portfolio
NORWEST INVESTMENT MANAGEMENT, INC., NORWEST CENTER, SIXTH STREET AND MARQUETTE,
MINNEAPOLIS, MN 55479.
PORTFOLIO MANAGERS: David D. Sylvester, Laurie R. White and Robert G. Leuty are
primarily responsible for the day-to-day management of the Fund's investments.
They became portfolio managers for the Portfolio in 1987, 1991 and 1998,
respectively. Mr. Sylvester has been associated with Norwest and Norwest Bank
since 1979, and currently is a Managing Director - Reserve Asset Management. Ms.
White is a Director-Reserve Asset Management and has been associated with
Norwest or Norwest Bank since 1991. Mr. Leuty has been associated with Norwest
or Norwest Bank since 1992, has been associated in various investment management
capacities since 1993 and has been in his present capacity of Senior Portfolio
Manager since 1998.
ADVISORY FEE: The Adviser receives 0.40% annually of the Portfolio's first $300
million of average daily net assets; 0.36% annually for the next $400 million of
average daily net assets; and 0.32% annually for the remaining average daily net
assets.
DORMANT INVESTMENT ADVISORY ARRANGEMENTS
Norwest has been retained as a "dormant" or "back-up" investment adviser to
manage any assets redeemed and invested directly by the Fund. Norwest does not
receive any compensation under this arrangement as long as the Fund invests
entirely in a Portfolio or Portfolios. If the Fund redeems its assets from the
Portfolio and invests them directly, Norwest receives an investment advisory fee
from the Fund for the management of those assets.
OTHER FUND SERVICES
The FORUM FINANCIAL GROUP of companies provide managerial, administrative and
underwriting services to the Funds. NORWEST BANK acts as the Funds' transfer
agent, distribution disbursing agent and custodian.
6. CHARACTERISTICS OF EXCHANGE SHARES
Exchange Shares have distribution and shareholder servicing fees of 1.00% of the
average daily net assets of the class under a Rule 12b-1 distribution plan.
Because distribution fees are paid out of the Funds' assets on an on-going
basis, over time these fees will increase the cost of your investment and may
cost more than paying a front-end sales charge.
If you redeem Exchange Shares, there will be a CDSC on the redemption to the
extent that there would be a CDSC if you were redeeming the B Shares you
originally purchased. The amount of the CDSC will vary depending which fund's
shares you originally purchased and the number of years between the purchase of
those shares and the redemption of the Exchange Shares. You will pay the CDSC on
the lesser of the cost of the B Shares originally purchased and the net asset
value of the Exchange Shares upon redemption. There is no CDSC on Exchange
Shares purchased through reinvestments of distributions.
The Fund will redeem shares so that you pay the lowest possible CDSC.
Redemptions will automatically be made first from any Investor Shares in the
Fund, second from Exchange Shares acquired pursuant to reinvestment of
distributions, third from Exchange Shares which have been held for long enough
so that there is no applicable CDSC and fourth from the longest outstanding
remaining Exchange Shares.
CONVERSION FEATURE. Exchange Shares will automatically convert to Investor
Shares of the Fund (a class of the Fund's shares that does not have a CDSC or
distribution fees) when the B Shares you originally purchased would have
converted to A Shares had they not been exchanged. The conversion will be on the
basis of the relative net asset values of the shares, without the imposition of
any sales load, fee or other charge. For purposes of conversion, the Fund will
consider Exchange Shares purchased through the reinvestment of distributions to
be held in a separate sub-account. Each time any Exchange Shares in your account
(other than those in the sub-account) convert, a corresponding pro rata portion
of the shares in the sub-account will also convert. The Funds may suspend the
conversion feature in the future; in that event, Exchange Shares might continue
to pay their distribution fee indefinitely.
9. PURCHASE AND REDEMPTION OF SHARES
You may exchange for or redeem shares at a price equal to their net asset value
next determined, subject in the case of redemptions to a CDSC, after receipt of
your exchange order or redemption request in proper form on "Fund Business
Days." Fund Business Days are all weekdays except generally observed national
holidays (New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Memorial
Day, Independence Day, Labor Day, Thanksgiving and Christmas) and Good Friday.
GENERAL PURCHASE INFORMATION
You may exchange for Exchange Shares directly or through a financial
institution. The Fund's transfer agent processes all transactions in Fund
shares. Exchange Shares require a minimum initial investment of $1,000 and
minimum subsequent investments of $100. Your shares become eligible to receive
distributions on the day that your exchange order is received in proper form.
The Fund reserves the right to reject any subscription for the purchase of
shares, including subscriptions by market timers. You will receive share
certificates for your shares only if you request them in writing. No
certificates are issued for fractional shares.
The Fund must receive purchase and redemption orders before the times indicated
below. Times indicated are Eastern Time.
order must be payment must be
received by received by
<PAGE>
3:00 p.m. 4:00 p.m.
The Fund may advance the time by which purchase or redemption orders and
payments must be received on days that the New York Stock Exchange or
Minneapolis Federal Reserve Bank closes early, the Public Securities Association
recommends that the government securities markets close early or other
circumstances affect the Fund's trading hours.
PURCHASING SHARES DIRECTLY
If you exchange B Shares for Exchange Shares, you will have an account opened
automatically. Call or write the transfer agent if you wish to participate in
shareholder services not offered on the account application or change
information on your account (such as addresses). Norwest Advantage Funds may in
the future modify, limit or terminate any shareholder privilege upon appropriate
notice and may charge a fee for certain shareholder services, although no such
fees are currently contemplated. You may terminate your participation in any
shareholder program by writing to Norwest Advantage Funds.
EXCHANGES BY MAIL. You may exchange B Shares for the Fund's Exchange Shares by
sending a written request accompanied by any share certificates you have been
issued to Norwest Advantage Funds at the following address:
Norwest Advantage Funds
Ready Cash Investment Fund, Exchange Shares
Norwest Bank Minnesota, N.A.
Transfer Agent
733 Marquette Avenue
Minneapolis, MN 55479-0040
Sign all requests and endorse all certificates with signature guaranteed.
EXCHANGES BY TELEPHONE. If you have elected telephone exchange privileges, you
may exchange B Shares for Exchange Shares by telephoning the transfer agent at
1-800-338-1348 or 1-612-667-8833 and providing your shareholder account number,
the exact name in which the shares are registered and your Social Security
number or other taxpayer identification number.
EXCHANGES THROUGH FINANCIAL INSTITUTIONS
You may exchange and redeem shares through certain broker-dealers, banks and
other financial institutions. When you exchange for the Fund's shares through a
financial institution, the shares may be held in your name or in the name of the
financial institution. Subject to your institution's procedures, you may have
Fund shares held in the name of your financial institution transferred into your
name. If your shares are held in the name of your financial institution, you
must contact the financial institution on matters involving your shares. Your
financial institution may charge you for redeeming or exchanging shares.
SUBSEQUENT PURCHASES OF SHARES
You can make subsequent exchanges in writing, by telephone or through a
financial institution as indicated above. All payments should clearly indicate
your name and account number.
GENERAL REDEMPTION INFORMATION
You may redeem Exchange Shares on any Fund Business Day at their net asset value
subject to a CDSC in the amount you would have had to pay if you had not
exchanged your original B Shares. There is no minimum period of investment and
no restriction on the frequency of redemptions.
<PAGE>
Fund shares are redeemed as of the next determination of the Fund's net asset
value following receipt by the transfer agent of the redemption order in proper
form (and any supporting documentation that the transfer agent may require).
Redeemed shares are not entitled to receive distributions on the day on which
the redemption is effective.
Redemption orders are accepted up to the times indicated above for acceptance of
exchange orders. As described above, the Fund may advance the times for receipt
of redemption orders.
Normally, redemption proceeds are paid immediately following receipt of a
redemption order in proper form. In any event, you will be paid within 7 days,
unless (1) your bank has not cleared the check originally used to purchase
shares (which may take up to 15 days), (2) the New York Stock Exchange is closed
(or trading is restricted) for any reason other than normal weekend or holiday
closings, (3) there is an emergency in which it is not practical for the Fund to
sell its portfolio securities or for the Fund to determine its net asset value
or (4) the SEC deems it inappropriate for redemption proceeds to be paid. You
can avoid the delay of waiting for your bank to clear your check by paying for
shares with wire transfers. Unless otherwise indicated, redemption proceeds
normally are paid by check mailed to your record address.
To protect against fraud, the following must be in writing with a signature
guarantee: (1) endorsement on a share certificate; (2) instruction to change
your record name; (3) modification of a designated bank account for wire
redemptions; (4) instruction regarding an Automatic Investment Plan or Automatic
Withdrawal Plan; (5) distribution elections; (6) election of telephone
redemption privileges; (7) election of exchange or other privileges in
connection with your account; (8) written instruction to redeem shares whose
value exceeds $50,000; (9) redemption in an account when the account address has
changed within the last 30 days; (10) redemption when the proceeds are deposited
in a Norwest Advantage Funds account under a different account registration; and
(11) the payment of redemption proceeds to any address, person or account for
which there are not established standing instructions.
You may obtain signature guarantees at any of the following types of
organizations: authorized banks, broker-dealers, national securities exchanges,
credit unions, savings associations or other eligible institutions. The specific
institution must be acceptable to the transfer agent. Whenever a signature
guarantee is required, the signature of each person required to sign for the
account must be guaranteed.
The Fund and the transfer agent will use reasonable procedures to verify that
telephone requests are genuine, including recording telephone instructions and
sending written confirmations of the transactions. Such procedures are necessary
because the Fund and transfer agent could be liable for losses due to
unauthorized or fraudulent telephone instructions. You should verify the
accuracy of a telephone instruction as soon as you receive the confirmation
statement. Telephone redemption and exchanges may be difficult to implement in
times of drastic economic or market changes. If you cannot reach the transfer
agent by telephone, you may mail or hand-deliver requests to the transfer agent.
Because of the cost of maintaining smaller accounts, the Fund may redeem, upon
not less than 60 days' written notice, any account with a net asset value of
less than $1,000 immediately following any redemption.
REDEMPTION PROCEDURES
If you have invested directly in the Fund you may redeem your shares as
described below. If you have invested through a financial institution you may
redeem shares through the financial institution. If you wish to redeem shares by
telephone or receive redemption proceeds by bank wire you should contact the
transfer agent to elect those features. These privileges may not be available
until several weeks after the application is received. You may not redeem shares
by telephone if you have certificates for those shares.
REDEMPTION BY MAIL. You may redeem shares by sending a written request to the
transfer agent accompanied by any share certificate you have been issued. Sign
all requests and endorse all certificates with
signatures guaranteed.
REDEMPTION BY TELEPHONE. If you have elected telephone redemption privileges,
you may redeem shares by telephoning the transfer agent at 1-800-338-1348 or
1-612-667-8833 and providing your shareholder account number, the exact name in
which the shares are registered and your Social Security number or other
taxpayer identification
<PAGE>
number. Norwest Advantage Funds will mail a check to your record address or, if
you have chosen wire redemption privileges, wire the proceeds.
REDEMPTION BY BANK WIRE. If you have elected wire redemption privileges, you may
request the Fund to transmit redemption proceeds of more than $5,000 by federal
funds wire to a bank account you have designated in writing. You must have
chosen the telephone redemption privilege to request bank wire redemptions by
telephone. Redemption proceeds are transmitted by wire on the Fund Business Day
the transfer agent receives a redemption request in proper form.
EXCHANGES
You may exchange Exchange Shares for B Shares of the funds of Norwest Advantage
Funds that offer B Shares. Call or write the transfer agent for more
information.
The Fund does not charge for exchanges, and there is currently no limit on the
number of exchanges you may make. The Fund, however, may limit your ability to
exchange shares if you exchange too often. Exchanges are subject to the fees
charged by, and the limitations (including minimum investment restrictions) of
the fund into which you are exchanging.
You may exchange Fund shares without paying a CDSC. If you redeem shares you
received in an exchange, the CDSC will be calculated as if you never exchanged
the shares you originally purchased.
You may only exchange shares into a pre-existing account if that account is
identically registered. You must submit a new account application if you wish to
exchange shares into an account registered differently or with different
shareholder privileges. You may exchange into a fund only if that fund's shares
may legally be sold in your state of residence.
The Fund and federal tax law treat an exchange as a redemption and a purchase of
shares. The Fund may amend or terminate exchange procedures on 60 days' notice.
EXCHANGES BY MAIL. You may make an exchange by sending a written request to the
transfer agent accompanied by any share certificates for the shares to be
exchanged. Sign all written requests and endorse all certificates with signature
guaranteed.
EXCHANGES BY TELEPHONE. If you have telephone exchange privileges, you may make
a telephone exchange by calling the transfer agent at 1-800-338-1348 or
1-612-667-8833 and giving your account number, the exact name in which the
shares are registered and your Social Security number or other taxpayer
identification number.
8. DISTRIBUTIONS AND TAX MATTERS
DISTRIBUTIONS
The Fund declares distributions of net investment income daily and pays
distributions monthly. The Fund distributes net capital gain, if any, at least
annually.
You have 3 choices for receiving distributions: the Reinvestment Option, the
Cash Option and the Directed Dividend Option.
* Under the Reinvestment Option, all distributions are automatically invested
in additional shares of the Fund. You are automatically assigned this
option unless you select another option.
* Under the Cash Option, you are paid all distributions in cash.
<PAGE>
* Under the Directed Dividend Option, if you own $10,000 or more of the
Fund's shares in a single account, you can have the Fund's distributions
reinvested in shares of another fund of Norwest Advantage Funds. Call or
write the transfer agent for more information about the Directed Dividend
Option.
All distributions are treated in the same manner for federal income tax purposes
whether received in cash or reinvested in shares of a fund. All distributions
reinvested in a fund are reinvested at the fund's net asset value as of the
payment date of the distribution.
TAX MATTERS
The Funds are managed so that they do not owe federal income or excise taxes.
The Fund's distributions of net investment income (including net short-term
capital gain) are taxable as ordinary income. Distributions of net capital gain
(i.e., the excess of net long-term capital gain over net short-term capital
loss), if any, are taxable as long-term capital gain, regardless of how long a
shareholder has held shares in the Fund. Distributions of net capital gain may
be taxable at different rates depending on the length of time the Fund holds its
assets. The Fund's income from foreign investments may be subject to foreign
income or other taxes.
9. OTHER INFORMATION
INVESTMENT POLICIES
Except as otherwise indicated, the Board may change the Fund's investment
policies without shareholder approval. The Fund's investment objective requires
shareholder approval to amend.
DOWNGRADED SECURITIES
The Fund may retain a security whose rating has been lowered (or a security of
comparable quality to a security whose rating has been lowered) below the Fund's
lowest permissible rating category if the Fund's Adviser determines that
retaining the security is in the best interests of the Fund.
YEAR 2000 AND EURO
The Funds could be adversely affected if the computer systems used by the
Adviser and other service providers (and in particular, foreign service
providers) to the Funds do not properly process and calculate date-related
information and data from and after January 1, 2000 or information regarding the
new common currency of the European Union. The Year 2000 and Euro issues also
may adversely affect the Funds' investments.
Norwest and Forum Financial Group are taking steps to address the Year 2000 and
Euro issues for their computer systems and to obtain reasonable assurances that
comparable steps are being taken by the Funds' other major service providers.
While the Funds do not anticipate any adverse effect on their computer systems
from the Year 2000 and Euro issues, there can be no assurance that these steps
will be sufficient to avoid any adverse impact on the Funds.
DETERMINATION OF NEW ASSET VALUE
The Fund determines its net asset value at 3:00 p.m., Eastern Time, on each Fund
Business Day by dividing the value of its net assets (i.e., the value of its
securities and other assets less its liabilities) by the number of shares
outstanding at the time the determination is made.
In order to maintain net asset value per share at $1.00, the Fund values its
portfolio securities at amortized cost. Amortized cost valuation involves
valuing an instrument at its cost and then assuming a constant amortization to
maturity of any discount or premium. If the market value of the Fund's portfolio
deviates more than 1/2 of 1% from the
<PAGE>
value determined on the basis of amortized cost, the Board will consider whether
to take any action to prevent any material effect on shareholders.
ADDITIONAL INFORMATION ABOUT THE PORTFOLIO
The Fund bears its pro rata portion of the expenses of the Portfolio. The Board
may redeem the Fund's investment in the Portfolio. The Fund could then invest
directly in portfolio securities or could re-invest in 1 or more different
Portfolios that could have different fees and expenses. The Fund might redeem,
for example, if other investors had sufficient voting power to change the
investment objectives or policies of the Portfolio in a manner detrimental to
the Fund.
NO ONE HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE SAI AND THE
FUND'S OFFICIAL SALES LITERATURE. ANY SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH
OFFER MAY NOT LAWFULLY BE MADE.
If you would like more information about the Fund and its investments, you may
want to read the following documents:
STATEMENT OF ADDITIONAL INFORMATION. The Fund's statement of additional
information, or "SAI," contains detailed information about the Fund, such as its
investments, management and organization. It is incorporated into this
prospectus by reference.
ANNUAL AND SEMI-ANNUAL REPORTS. Additional Information about the Fund's
investments is available in its annual and semi-annual reports to shareholders.
In the annual report, the Fund's portfolio manager discusses the market
conditions and investment strategies that significantly affected the Fund's
performance during its last fiscal year.
You may obtain free copies of the SAI, annual report and semi-annual report by
contacting your broker or trust officer, by contacting Forum Financial Services,
Inc., at Two Portland Square, Portland, Maine 04101 or by calling 1-800-
xxx-xxxx or 1-207-879-0001.
The Fund's reports and SAI are available from the Securities and Exchange
Commission in Washington, D.C. You may obtain copies of these documents, upon
payment of a duplicating fee, by writing the Public Reference Section of the
SEC, Washington D.C. 20549-6009. Please call 1-800-SEC-0330 for information
about the operation of the SEC's public reference room. The Fund's reports and
other information are also available on the SEC's Web Site at http://
www.sec.gov.
The SEC's Investment Company Act file number for the Fund is 811-4881.
#25928 v.1
<PAGE>
NORWEST ADVANTAGE FUNDS
READY CASH INVESTMENT FUND
Public Entities Shares
PROSPECTUS
October 1, 1998
AN INVESTMENT IN THE FUND IS NOT A DEPOSIT OF NORWEST BANK MINNESOTA, N.A. OR
ANY OTHER BANK AND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
ALTHOUGH THE FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER
SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUND.
NO GOVERNMENTAL AGENCY, INCLUDING THE U.S. SECURITIES AND EXCHANGE COMMISSION,
HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED WHETHER OR NOT THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
1. OVERVIEW
The following is a summary of information about the Fund. Before investing, you
should read the prospectus and consider the discussion under Investment
Objectives, Policies and Risks.
The Fund is not a complete or balanced investment program, but can serve as a
part of your overall investment program.
THE FUND AT A GLANCE
- --------------------------------------------------------------------------------
OBJECTIVE PRIMARY INVESTMENTS
- --------------------------------------------------------------------------------
High current income, High-quality money market instruments of
preservation of capital and U.S. and foreign issuers.
liquidity
CLASS OF SHARES
This prospectus offers Public Entities Shares of the Fund. Public Entities
Shares are designed primarily for Minnesota public entities-- including county
treasuries, school and water/sewer districts and other public entities.
FUND STRUCTURES
The Fund invests in another fund identified in this prospectus as a Portfolio.
Except when necessary to describe the Fund's investments in the Portfolio, this
prospectus discusses the Fund's investments in the Portfolio as if the
investments were made directly in portfolio securities.
MANAGEMENT OF THE FUND
NORWEST INVESTMENT MANAGEMENT, INC. or NORWEST is the Portfolio's investment
adviser. Norwest, a subsidiary of Norwest Bank Minnesota, N.A. or Norwest Bank,
provides investment advice to institutions, pension plans and other accounts and
currently manages more than $[ ] billion in assets. This prospectus generally
refers to Norwest as the Adviser.
The FORUM FINANCIAL GROUP of companies provide management, administrative and
underwriting services to the Funds.
PURCHASE AND REDEMPTION OF SHARES
You may purchase or redeem shares without sales or other charges. Public
Entities Shares require a minimum initial investment of $100,000 and have no
minimum subsequent investment requirement.
EXCHANGES
You may exchange your shares for shares of certain other funds of Norwest
Advantage Funds.
DISTRIBUTIONS
<PAGE>
The Fund pays distributions of net investment income monthly.
RISK FACTORS
Investments in the Fund are subject to risk and may decline in value. If you
invest in the Fund, the income you receive will vary with changes in interest
rates. In addition, the Fund's investments have "credit risk," which is the risk
that an issuer will be unable, or will be perceived to be unable, to pay the
interest and principal on its obligations when due. The Fund also has the risk
that it may not be able to maintain a stable net asset value of $1.00 per share.
The Fund has the risk that the Adviser may not be successful in carrying out its
investment strategy, that a portfolio manager may prove difficult to replace if
he or she becomes unavailable to manage the Fund and that the Fund's particular
investment strategy may result in performance that is worse or better than the
performance of the market as a whole.
EXPENSE INFORMATION
The following table will assist you in understanding the expenses that you will
bear directly or indirectly when you invest in the Fund. There are no
transaction charges for purchasing, redeeming or exchanging shares. Public
Entities Shares do not have distribution expenses.
ANNUAL FUND OPERATING EXPENSES(1)
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
Investment Advisory Fee(after fee waivers)(2) 0.33%
Other Expenses (after fee waivers and reimbursements)(3) 0.22%
-----
Total Operating Expenses (after fee waivers and reimbursements)(3) 0.55%
(1) The expenses are estimated. The Fund indirectly bears its pro rata share of
the Portfolio's expenses.
(2) Investment Advisory Fee reflects the investment advisory fee incurred by
the Portfolio.
(3) Absent estimated expense reimbursements and fee waivers, the expenses would
be: Other Expenses, 0.56% and Total Operating Expenses, 0.89%. Expense
reimbursements and fee waivers are voluntary and may be reduced or
eliminated at any time.
EXAMPLE
The following hypothetical example indicates the dollar amount of expenses you
would pay, assuming a $1,000 investment in the Fund's shares, the expenses
listed in the Annual Fund Operating Expenses table, a 5% annual return and
reinvestment of all distributions. THE EXAMPLE DOES NOT REPRESENT OF PAST OR
FUTURE EXPENSES OR RETURN. ACTUAL EXPENSES AND RETURN MAY BE GREATER OR LESS
THAN THOSE SHOWN IN THE EXAMPLE.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
$6 18 31 69
<PAGE>
2. GLOSSARY
This Glossary of frequently used terms will help you understand the discussion
of the Fund's objectives, policies and risks. Defined terms are capitalized when
used in this prospectus.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Term Definition
- ---- -----------
Board The Board of Trustees of Norwest Advantage
Funds.
NRSRO A nationally recognized statistical rating
organization, such as Standard & Poor's
Corporation, that rates fixed-income
securities and preferred stock by relative
credit risk. NRSROs also rate money market
mutual funds.
SEC The U.S. Securities and Exchange Commission.
U.S. Government Security A security issued or guaranteed as to
principal and interest by the U.S.
Government, its agencies or its
instrumentalities.
- --------------------------------------------------------------------------------
3. INVESTMENT OBJECTIVES, POLICIES AND RISKS
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVES. The Fund's investment objective is to provide high
current income to the extent consistent with the preservation of capital and the
maintenance of liquidity.
INVESTMENT POLICIES. The Fund's investments are made under the requirements of
an SEC rule governing the investments that money market funds may make. The Fund
invests only in high-quality, U.S. dollar-denominated short-term money market
instruments that are determined by the Adviser, under procedures adopted by the
Board, to be eligible for purchase and to present minimal credit risks. The Fund
may invest in securities with fixed, variable or floating rates of interest.
High-quality instruments include those that: (1) are rated (or, if unrated, are
issued by an issuer with comparable outstanding short-term debt that is rated)
in 1 of the 2 highest rating categories by 2 NRSROs or, if only 1 NRSRO has
issued a rating, by that NRSRO; or (2) are otherwise unrated and determined by
the Adviser to be of comparable quality. The Fund invests at least 95% of its
total assets in securities in the highest rating category.
The Fund invests in a broad spectrum of high-quality money market instruments of
U.S. and foreign issuers, including U.S. Government Securities, municipal
securities and corporate debt securities. The Fund seeks to maintain a rating
within the 2 highest short-term categories assigned by at least 1 NRSRO.
<PAGE>
The Fund may invest in obligations of financial institutions. These include
negotiable certificates of deposit, bank notes, bankers' acceptances and time
deposits of U.S. banks (including savings banks and savings associations),
foreign branches of U.S. banks, foreign banks and their non-U.S. branches, U.S.
branches and agencies of foreign banks and wholly-owned banking-related
subsidiaries of foreign banks. The Fund limits its investments in obligations of
financial institutions to institutions that at the time of investment have total
assets in excess of $1 billion, or the equivalent in other currencies.
The Fund normally will invest more than 25% of its total assets in the
obligations of domestic and foreign financial institutions, their holding
companies and their subsidiaries. The Fund may not invest more than 25% of its
total assets in any other single industry.
The Fund has the following types of primary risks, which are listed in
alphabetical order:
CREDIT RISK. The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise be unable to honor a financial obligation.
FOREIGN RISK. The risk that foreign investments may be subject to political and
economic instability, the imposition or tightening of exchange controls or other
limitations on repatriation of foreign capital, or nationalization, increased
taxation or confiscation of investors' assets. Also, the risk that the price of
a foreign issuer's securities may not reflect the issuer's condition because
there is not sufficient publicly available information about the issues.
INTEREST RATE RISK. The risk that changes in interest rates may affect the
value of your investment. With fixed-rate securities, including U.S. Government
Securities, an increase in interest rates typically causes the value of a Fund's
fixed-rate securities to fall, while a decline in interest rates may produce an
increase in the market value of the securities. Because of this risk, an
investment in the Fund is subject to risk even if all the fixed-income
securities in the Fund's portfolio are paid in full at maturity.
4. MANAGEMENT OF THE FUND
INVESTMENT ADVISORY SERVICES
NORWEST INVESTMENT MANAGEMENT, INC. is the investment adviser for the Portfolio.
In this capacity, Norwest makes investment decisions for and administers the
Portfolio's investment programs. Norwest receives an investment advisory fee
from the Portfolio.
NORWEST INVESTMENT MANAGEMENT, INC., NORWEST CENTER, SIXTH STREET AND MARQUETTE,
MINNEAPOLIS, MN 55479.
PORTFOLIO MANAGERS: David D. Sylvester, Laurie R. White and Robert G. Leuty are
primarily responsible for the day-to-day management of the Fund's investments.
They became portfolio managers for the Portfolio in 1987, 1991 and 1998,
respectively. Mr. Sylvester has been associated with Norwest and Norwest Bank
since 1979, and currently is a Managing Director - Reserve Asset Management. Ms.
White is a Director-Reserve Asset Management and has been associated with
Norwest or Norwest Bank since 1991. Mr. Leuty has been associated with Norwest
or Norwest Bank since 1992, has been associated in various investment management
capacities since 1993 and has been in his present capacity of Senior Portfolio
Manager since 1998.
ADVISORY FEE: The Adviser receives 0.40% annually of the Portfolio's first $300
million of average daily net assets; 0.36% annually for the next $400 million of
average daily net assets; and 0.32% annually for the remaining average daily net
assets.
<PAGE>
DORMANT INVESTMENT ADVISORY ARRANGEMENTS
Norwest has been retained as a "dormant" or "back-up" investment adviser to
manage any assets redeemed and invested directly by the Fund. Norwest does not
receive any compensation under this arrangement as long as the Fund invests
entirely in a Portfolio or Portfolios. If the Fund redeems its assets from the
Portfolio and invests them directly, Norwest receives an investment advisory fee
from the Fund for the management of those assets.
OTHER FUND SERVICES
The FORUM FINANCIAL GROUP of companies provide managerial, administrative and
underwriting services to the Funds. NORWEST BANK acts as the Funds' transfer
agent, distribution disbursing agent and custodian.
5. PURCHASES AND REDEMPTIONS OF SHARES
You may purchase or redeem shares at a price equal to their net asset value next
determined after receipt of your purchase order or redemption request in proper
form on "Fund Business Days." Fund Business Days are all weekdays except
generally observed national holidays (New Year's Day, Martin Luther King, Jr.
Day, Presidents' Day, Memorial Day, Independence Day, Labor Day, Thanksgiving
and Christmas) and Good Friday.
GENERAL PURCHASE INFORMATION
You may purchase shares directly or through a financial institution. The Fund's
transfer agent processes all transactions in Fund shares.
You may purchase and redeem Fund shares without a sales or redemption charge.
Public Entities Shares require a minimum initial investment of $100,000 and have
no minimum for subsequent investments. Your shares become eligible to receive
distributions on the day that your purchase order is received in proper form.
The Fund reserves the right to reject any subscription for the purchase of
shares, including subscriptions by market timers. You will receive share
certificates for your shares only if you request them in writing. No
certificates are issued for fractional shares.
Your order will not be complete until the Fund receives immediately available
funds. The Fund must receive purchase and redemption orders before the times
indicated below. Times indicated are Eastern Time.
order must be payment must be
received by received by
----------- -----------
3:00 p.m. 4:00 p.m.
The Fund may advance the time by which purchase or redemption orders and
payments must be received on days that the New York Stock Exchange or
Minneapolis Federal Reserve Bank closes early, the Public Securities Association
recommends that the government securities markets close early or other
circumstances affect the Fund's trading hours.
<PAGE>
PURCHASE PROCEDURES
PURCHASING SHARES DIRECTLY
You may obtain an account application by writing Norwest Advantage
Funds at the following address:
Norwest Advantage Funds
Ready Cash Investment Fund, Public Entities Shares
Norwest Bank Minnesota, N.A.
Transfer Agent
733 Marquette Avenue
Minneapolis, MN 55479-0040
When you sign an application for a new Fund account, you are certifying that
your Social Security number or other taxpayer identification number is correct
and that you are not subject to backup withholding. If you violate certain
federal income tax provisions, the Internal Revenue Service can require the Fund
to withhold 31% of your distributions and redemptions.
You must pay for your shares in U.S. dollars by check or money order drawn on a
U.S. bank, by bank or federal funds wire transfer or by electronic bank
transfer. Cash cannot be accepted.
Call or write the transfer agent if you wish to participate in shareholder
services not offered on the account application or change information on your
account (such as addresses). Norwest Advantage Funds may in the future modify,
limit or terminate any shareholder privilege upon appropriate notice and may
charge a fee for certain shareholder services, although no such fees are
currently contemplated. You may terminate your participation in any shareholder
program by writing to Norwest Advantage Funds.
PURCHASES BY MAIL. You may send a check or money order along with a completed
account application to Norwest Advantage Funds at the address listed above.
Checks and money orders are accepted at full value subject to collection.
Payment by a check drawn on any member of the Federal Reserve System can
normally be converted into federal funds within 2 business days after receipt of
the check. Checks drawn on some non-member banks may take longer. If your check
does not clear, the purchase order will be canceled and you will be liable for
any losses or fees incurred by Norwest Advantage Funds, the transfer agent or
the Fund's distributor.
To purchase shares for individual or Uniform Gift to Minors Act accounts, you
must write a check or purchase a money order payable to Norwest Advantage Funds
or endorse a check made out to you to Norwest Advantage Funds. For corporation,
partnership, trust, 401(k) plan or other non-individual type accounts, make the
check used to purchase shares payable to Norwest Advantage Funds. No other
methods of payment by check will be accepted for these types of accounts.
PURCHASES BY BANK WIRE You must first telephone the Fund's transfer agent at
1-612-667-8833 or 1-800-338-1348 to obtain an account number before making an
initial investment by bank wire. Then instruct your bank to wire your money
immediately to:
Norwest Bank Minnesota, N.A.
A091 000 019
For Credit to: Norwest Advantage Funds 0844-131
<PAGE>
Re: Ready Cash Investment Fund, Public Entities Shares
Account No.:
Account Name:
Complete and mail the account application promptly. Your bank may charge for
transmitting the money by wire. The Fund does not charge for the receipt of wire
transfers. The Fund treats payment by bank wire as a federal funds payment when
received.
PURCHASES THROUGH FINANCIAL INSTITUTIONS
You may purchase and redeem shares through certain broker-dealers, banks and
other financial institutions. When you purchase the Fund's shares through a
financial institution, the shares may be held in your name or in the name of the
financial institution. Subject to your institution's procedures, you may have
Fund shares held in the name of your financial institution transferred into your
name. If your shares are held in the name of your financial institution, you
must contact the financial institution on matters involving your shares. Your
financial institution may charge you for purchasing, redeeming or exchanging
shares.
SUBSEQUENT PURCHASES OF SHARES
You can make subsequent purchases by mailing a check, by sending a bank wire or
through a financial institution as indicated above. All payments should clearly
indicate your name and account number.
GENERAL REDEMPTION INFORMATION
You may redeem Fund shares at their net asset value on any Fund Business Day.
There is no minimum period of investment and no restriction on the frequency of
redemptions.
Fund shares are redeemed as of the next determination of the Fund's net asset
value following receipt by the transfer agent of the redemption order in proper
form (and any supporting documentation that the transfer agent may require).
Redeemed shares are not entitled to receive distributions on the day on which
the redemption is effective.
Redemption orders are accepted up to the times indicated above for acceptance of
purchase orders. As described above, the Fund may advance the times for receipt
of redemption orders.
Normally, redemption proceeds are paid immediately following receipt of a
redemption order in proper form. In any event, you will be paid within 7 days,
unless (i) your bank has not cleared the check to purchase the shares (which may
take up to 15 days), (ii) the New York Stock Exchange is closed (or trading is
restricted) for any reason other than normal weekend or holiday closings, (iii)
there is an emergency in which it is not practical for the Fund to sell its
portfolio securities or for the Fund to determine its net asset value or (iv)
the SEC deems it inappropriate for redemption proceeds to be paid. You can avoid
the delay of waiting for your bank to clear your check by paying for shares with
wire transfers. Unless otherwise indicated, redemption proceeds normally are
paid by check mailed to your record address.
To protect against fraud, the following must be in writing with a signature
guarantee: (1) endorsement on a share certificate; (2) instruction to change
your record name; (3) modification of a designated bank account for wire
redemptions; (4) instruction regarding an Automatic Investment Plan or Automatic
Withdrawal Plan; (5) distribution elections; (6) election of telephone
redemption privileges; (7) election of exchange or other privileges in
connection with your account; (8) written instruction to redeem shares whose
value
<PAGE>
exceeds $50,000; (9) redemption in an account when the account address has
changed within the last 30 days; (10) redemption when the proceeds are deposited
in a Norwest Advantage Funds account under a different account registration; and
(11) the payment of redemption proceeds to any address, person or account for
which there are not established standing instructions.
You may obtain signature guarantees at any of the following types of
organizations: authorized banks, broker-dealers, national securities exchanges,
credit unions, savings associations or other eligible institutions. The specific
institution must be acceptable to the transfer agent. Whenever a signature
guarantee is required, the signature of each person required to sign for the
account must be guaranteed.
The Fund and the transfer agent will use reasonable procedures to verify that
telephone requests are genuine, including recording telephone instructions and
sending written confirmations of the transactions. Such procedures are necessary
because the Fund and transfer agent could be liable for losses due to
unauthorized or fraudulent telephone instructions. You should verify the
accuracy of a telephone instruction as soon as you receive the confirmation
statement. Telephone redemption and exchanges may be difficult to implement in
times of drastic economic or market changes. If you cannot reach the transfer
agent by telephone, you may mail or hand-deliver requests to the transfer agent.
Because of the cost of maintaining smaller accounts, the Fund may redeem, upon
not less than 60 days' written notice, any account with a net asset value of
less than $100,000 immediately following any redemption.
REDEMPTION PROCEDURES
If you have invested directly in the Fund you may redeem your shares as
described below. If you have invested through a financial institution you may
redeem shares through the financial institution. If you wish to redeem shares by
telephone or receive redemption proceeds by bank wire you should complete the
appropriate sections of the account application. These privileges may not be
available until several weeks after the application is received. You may not
redeem shares by telephone if you have certificates for those shares.
REDEMPTION BY MAIL. You may redeem shares by sending a written request to the
transfer agent accompanied by any share certificate you have been issued. Sign
all requests and endorse all certificates with signatures guaranteed.
REDEMPTION BY TELEPHONE. If you have elected telephone redemption privileges,
you may redeem shares by telephoning the transfer agent at 1-800-338-1348 or
1-612-667-8833 and providing your shareholder account number, the exact name in
which the shares are registered and your Social Security number or other
taxpayer identification number. Norwest Advantage Funds will mail a check to
your record address or, if you have chosen wire redemption privileges, wire the
proceeds.
REDEMPTION BY BANK WIRE. If you have elected wire redemption privileges, you may
request the Fund to transmit redemption proceeds of more than $5,000 by federal
funds wire to a bank account you have designated in writing. You must have
chosen the telephone redemption privilege to request bank redemptions by
telephone. Redemption proceeds are transmitted by wire on the Fund Business Day
the transfer agent receives a redemption request in proper form.
EXCHANGES
<PAGE>
You may exchange Public Entities Shares for shares of other funds of Norwest
Advantage Funds. Call or write the transfer agent for more information.
The Fund does not charge for exchanges, and there is currently no limit on the
number of exchanges you may make. The Fund, however, may limit your ability to
exchange shares if you exchange too often. Exchanges are subject to the fees
charged by, and the limitations (including minimum investment restrictions) of
the fund into which you are exchanging.
You may only exchange shares into a pre-existing account if that account is
identically registered. You must submit a new account application if you wish to
exchange shares into an account registered differently or with different
shareholder privileges. You may exchange into a fund only if that fund's shares
may legally be sold in your state of residence.
The Fund and federal tax law treat an exchange as a redemption and a purchase of
shares. The Fund may amend or terminate exchange procedures on 60 days' notice.
EXCHANGES BY MAIL. You may make an exchange by sending a written request to the
transfer agent accompanied by any share certificates for the shares to be
exchanged. Sign all written requests and endorse all certificates with signature
guaranteed.
EXCHANGES BY TELEPHONE. If you have telephone exchange privileges, you may make
a telephone exchange by calling the transfer agent at 1-800-338-1348 or
1-612-667-8833 and giving your account number, the exact name in which the
shares are registered and your Social Security number or other taxpayer
identification number.
6. DISTRIBUTIONS AND TAX MATTERS
DISTRIBUTIONS
The Fund declares distributions of net investment income daily and pays
distributions monthly. The Fund distributes net capital gain, if any, at least
annually.
You have 3 choices for receiving distributions: the Reinvestment Option, the
Cash Option and the Directed Dividend Option.
* Under the Reinvestment Option, all distributions are automatically invested
in additional shares of the Fund. You are automatically assigned this
option unless you select another option.
* Under the Cash Option, you are paid all distributions in cash.
* Under the Directed Dividend Option, if you own $10,000 or more of the
Fund's shares in a single account, you can have the Fund's distributions
reinvested in shares of another fund of Norwest Advantage Funds. Call or
write the transfer agent for more information about the Directed Dividend
Option.
All distributions are treated in the same manner for federal income tax
purposes whether received in cash or reinvested in shares of a fund. All
distributions reinvested in a fund are reinvested at the fund's net asset
value as of the payment date of the distribution.
<PAGE>
TAX MATTERS
The Funds are managed so that they do not owe Federal income or excise taxes.
The Fund's distributions of net investment income (including net short-term
capital gain) are taxable as ordinary income. Distributions of net capital gain
(i.e., the excess of net long-term capital gain over net short-term capital
loss), if any, are taxable as long-term capital gain, regardless of how long a
shareholder has held shares in the Fund. Distributions of net capital gain may
be taxable at different rates depending on the length of time the Fund holds its
assets. The Fund's income from foreign investments may be subject to foreign
income or other taxes.
7. OTHER INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT POLICIES
- --------------------------------------------------------------------------------
Except as otherwise indicated, the Board may change the Fund's investment
policies without shareholder approval. The Fund's investment objective requires
shareholder approval to amend.
- --------------------------------------------------------------------------------
DOWNGRADED SECURITIES
- --------------------------------------------------------------------------------
The Fund may retain a security whose rating has been lowered (or a security of
comparable quality to a security whose rating has been lowered) below the Fund's
lowest permissible rating category if the Fund's Adviser determines that
retaining the security is in the best interests of the Fund.
- --------------------------------------------------------------------------------
YEAR 2000 AND EURO
- --------------------------------------------------------------------------------
The Funds could be adversely affected if the computer systems used by the
Adviser and other service providers (and in particular, foreign service
providers) to the Funds do not properly process and calculate date-related
information and data from and after January 1, 2000 or information regarding the
new common currency of the European Union. The Year 2000 and Euro issues also
may adversely affect the Funds' investments.
Norwest and Forum Financial Group are taking steps to address the Year 2000 and
Euro issues for their computer systems and to obtain reasonable assurances that
comparable steps are being taken by the Funds' other major service providers.
While the Funds do not anticipate any adverse effect on their computer systems
from the Year 2000 and Euro issues, there can be no assurance that these steps
will be sufficient to avoid any adverse impact on the Funds.
- --------------------------------------------------------------------------------
DETERMINATION OF NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund determines its net asset value at 3:00p.m., Eastern Time, on each Fund
Business Day by dividing the value of its net assets (i.e., the value of its
securities and other assets less its liabilities) by the number of shares
outstanding at the time the determination is made.
In order to maintain net asset value per share at $1.00, the Fund values its
portfolio securities at amortized cost. Amortized cost valuation involves
valuing an instrument at its cost and then assuming a constant amortization to
maturity of any discount or premium. If the market value of the Fund's portfolio
deviates more than 1/2 of 1% from the value determined on the basis of amortized
cost, the Board will consider whether to take any action to prevent any material
effect on shareholders.
<PAGE>
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION ABOUT THE PORTFOLIO
- --------------------------------------------------------------------------------
The Fund bears its pro rata portion of the expenses of the Portfolio. The Board
may redeem the Fund's investment in the Portfolio. The Fund could then invest
directly in portfolio securities or could re-invest in 1 or more different
Portfolios that could have different fees and expenses. The Fund might redeem,
for example, if other investors had sufficient voting power to change the
investment objectives or policies of the Portfolio in a manner detrimental to
the Fund.
NO ONE HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE SAI AND THE
FUND'S OFFICIAL SALES LITERATURE. ANY SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH
OFFER MAY NOT LAWFULLY BE MADE
<PAGE>
If you would like more information about the Fund and its investments, you may
want to read the following documents:
STATEMENT OF ADDITIONAL INFORMATION. The Fund's statement of additional
information, or "SAI," contains detailed information about the Fund, such as its
investments, management and organization. It is incorporated into this
prospectus by reference.
ANNUAL AND SEMI-ANNUAL REPORTS. Additional Information about the Fund's
investments is available in its annual and semi-annual reports to shareholders.
In the annual report, the Fund's portfolio manager discusses the market
conditions and investment strategies that significantly affected the Fund's
performance during its last fiscal year.
You may obtain free copies of the SAI, annual report and semi-annual report by
contacting your broker or trust officer, by contacting Forum Financial Services,
Inc., at Two Portland Square, Portland, Maine 04101 or by calling 1-800-
xxx-xxxx or 1-207-879-0001.
The Fund's reports and SAI are available from the Securities and Exchange
Commission in Washington, D.C. You may obtain copies of these documents, upon
payment of a duplicating fee, by writing the Public Reference Section of the
SEC, Washington D.C. 20549-6009. Please call 1-800-SEC-0330 for information
about the operation of the SEC's public reference room. The Fund's reports and
other information are also available on the SEC's Web Site at http://
www.sec.gov.
The SEC's Investment Company Act file number for the Fund is 811-4881.
NORWEST ADVANTAGE FUNDS
STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 1, 1998
- --------------------------------------------------------------------------------
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
<PAGE>
NORWEST ADVANTAGE FUNDS
STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 1, 1998
ACCOUNT INFORMATION AND
SHAREHOLDER SERVICING: DISTRIBUTION:
Norwest Bank Minnesota, N.A. Forum Financial Services, Inc.
Transfer Agent Manager and Distributor
733 Marquette Avenue Two Portland Square
Minneapolis, MN 55479-0040 Portland, Maine 04101
(612) 667-8833/(800) 338-1348 (207) 879-1900
Norwest Advantage Funds is registered with the Securities and Exchange
Commission as an open-end management investment company under the Investment
Company Act of 1940, as amended.
This Statement of Additional Information supplements the Prospectuses dated
October 1, 1998, as may be amended from time to time, offering the following
classes of shares of the series of Norwest Advantage Funds: Cash Investment
Fund, Ready Cash Investment Fund (Public Entities Shares, Investor Shares and
Exchange Shares), U.S. Government Fund, Treasury Plus Fund, Treasury Fund,
Municipal Money Market Fund (Institutional Shares and Investor Shares), A
Shares, B Shares and I Shares of Stable Income Fund, 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 ValuGrowth 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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Introduction
1. Investment Policies
Security Ratings Information
Money Market Fund Matters
Fixed Income Investments
Mortgage-Backed And Asset-Backed Securities
Interest Rate Protection Transactions
Hedging And Option Income Strategies
Foreign Currency Transactions
Equity Securities and Additional Information Concerning the
Equity Funds
Illiquid Securities and Restricted Securities
Borrowing And Transactions Involving Leverage
Repurchase Agreements
Temporary Defensive Position
2. Information Concerning Colorado and Minnesota
Colorado
Minnesota
3. Investment Limitations
Fundamental Limitations
Non-Fundamental Limitations
4. Performance and Advertising Data
SEC Yield Calculations
Total Return Calculations
Multiclass, Collective Trust Fund and Core-Gateway Performance
Other Advertisement Matters
5. Management
Trustees and Officers
Investment Advisory Services
Management and Administrative Services
Distribution
Transfer Agent
Custodian
Portfolio Accounting
Expenses
6. Portfolio Transactions
7. Additional Purchase and Redemption Information Statement of
Intention Exchanges Redemptions Contingent Deferred Sales
Charge (A Shares) Contingent Deferred Sales Charge (A Shares
and B Shares) Conversion of B Shares and Exchange Shares
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TABLE OF CONTENTS
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8. Taxation
9. Additional Information About the Trust and the Shareholders of
the Funds
Determination of Net Asset Value - Money Market Funds
Counsel and Auditors
General Information
Shareholdings
Financial Statements
Registration Statement
Appendix A - Description of Securities Ratings A-1
Appendix B - Miscellaneous Tables B-1
Table 1 - Investment Advisory Fees B-
Table 2 - Management Fees B-
Table 3 - Distribution Fees B-
Table 4 - Sales Charges B-
Table 5 - Accounting Fees B-
Table 6 - Commissions B-
Table 7 - 5% Shareholders B-
Appendix C - Performance Data C-1
Table 1 - Money Market Fund C-1
Table 2 - Yields C-1
Table 3 - Total Returns C-
Appendix D - Other Advertisement Matters D-1
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INTRODUCTION
GLOSSARY
"Adviser" means Norwest, Schroder or a Subadviser.
"Board" means the Board of Trustees of the Trust.
"Balanced Fund" means Strategic Income Fund, Moderate Balanced Fund,
Growth Balanced Fund and Aggressive Balanced-Equity Fund.
"CFTC" means the U.S. Commodities Futures Trading Commission.
"Code" means the Internal Revenue Code of 1986, as amended.
"Core Portfolio" means Prime Money Market Portfolio, Money Market
Portfolio, Positive Return Bond Portfolio, Stable Income Portfolio,
Managed Fixed Income Portfolio, Strategic Value Bond Portfolio, Index
Portfolio, Income Equity Portfolio, Large Company Growth Portfolio,
Disciplined Growth Portfolio, Small Company Growth Portfolio, Small
Company Stock Portfolio, Small Company Value Portfolio, Small Cap
Value Portfolio, Small Cap Index Portfolio and International
Portfolio, series of Core Trust, and Schroder U.S. Smaller Companies
Portfolio and Schroder EM Core Portfolio, two series of Schroder Core.
"Core Trust" means Core Trust (Delaware), an open-end, management
investment company registered under the 1940 Act.
"Core Trust Board" means the Board of Trustees of Core Trust.
"Crestone" means Crestone Capital Management, Inc., the investment
subadvisor to Small Company Stock Portfolio, Strategic Income Fund,
Moderate Balanced Fund, Growth Balanced Fund, Aggressive
Balanced-Equity Fund, Diversified Equity Fund, Growth Equity Fund,
Diversified Small Cap Fund and Small Company Stock Fund.
"Custodian" means Norwest Bank acting in its capacity as custodian of
a Fund.
"Equity Fund" means Income Equity Fund, Index Fund, ValuGrowth Stock
Fund, Diversified Equity Fund, Growth Equity Fund, Large Company
Growth Fund, Diversified Small Cap Fund, Small Company Stock Fund,
Small Company Growth Fund, Small Cap Opportunities Fund and
International Fund.
"FAS" means Forum Administrative Services, Limited Liability Company,
the Trust's administrator.
"Fitch" means Fitch IBCA, Inc.
"Forum" means Forum Financial Services, Inc., a registered
broker-dealer and distributor of the Trust's shares.
"Forum Accounting" means Forum Accounting Services, Limited Liability
Company, the Trust's fund accountant.
"Fund" means each of the thirty-two separate series of the Trust to
which this SAI relates as identified on the cover page.
"Galliard" means Galliard Capital Management, Inc., the investment
subadviser to Stable Income Portfolio, Strategic Value Bond Portfolio,
Managed Fixed Income Portfolio, Stable Income Fund, Diversified Bond
Fund,
<PAGE>
Strategic Income Fund, Moderate Balanced Fund, Growth Balanced Fund
and Aggressive Balanced-Equity Fund.
"Income Funds" means Stable Income Fund, Limited Term Government
Income Fund, Intermediate Government Income Fund, Diversified Bond
Fund, Income Fund and Total Return Bond Fund.
"Money Market Funds" means Cash Investment Fund, Ready Cash Investment
Fund, U.S. Government Fund, Treasury Plus Fund, Treasury Fund and
Municipal Money Market Fund.
"Moody's" means Moody's Investors Service.
"Norwest" means Norwest Investment Management, Inc., the investment
adviser to each Fund and each Core Portfolio except Schroder U.S.
Smaller Companies Portfolio, International Portfolio and Schroder EM
Core Portfolio.
"Norwest Bank" means Norwest Bank Minnesota, N.A.
"NRSRO" means a nationally recognized statistical rating organization.
"Peregrine" means Peregrine Capital Management, Inc., the investment
subadviser to Positive Return Bond Portfolio, Small Company Value
Portfolio, Large Company Growth Portfolio, Small Company Growth
Portfolio, Diversified Bond Fund, Strategic Income Fund, Moderate
Balanced Fund, Growth Balanced Fund, Diversified Equity Fund, Growth
Equity Fund, Large Company Growth Fund and Small Company Growth Fund.
"Schroder" means Schroder Capital Management Inc., the investment
subadviser to Diversified Equity Fund, Growth Equity Fund,
International Fund, Strategic Income Fund, Moderate Balanced Fund,
Growth Balanced Fund and Aggressive Balanced-Equity Fund and
investment adviser to Schroder U.S. Smaller Companies Portfolio,
Schroder EM Core Portfolio and International Portfolio.
"Schroder Advisors" means Schroder Fund Advisors Inc., the
administrator to Schroder U.S. Smaller Companies Portfolio and
Schroder EM Core Portfolio.
"Schroder Core" means Schroder Capital Funds, an open-end, management
investment company registered under the 1940 Act.
"Schroder Core Board" means the Board of Trustees of Schroder Core.
"SEC" means the U.S. Securities and Exchange Commission.
"S&P" means Standard & Poor's.
"Smith" means Smith Asset Management Group, L.P.
"Stock Index Futures" means futures contracts that relate to
broadly-based stock indices.
"Subadviser" means Crestone Capital Management, Inc., Galliard Capital
Management, Inc., Peregrine Capital Management, Inc., Schroder Capital
Management Inc. and Smith Asset Management Group, L.P.
"Tax Free Income Fund" means each of Limited Term Tax-Free Fund,
Tax-Free Income Fund, Colorado Tax-Free Fund, Minnesota Intermediate
Tax-Free Fund and Minnesota Tax-Free Fund.
"Transfer Agent" means Norwest Bank acting in its capacity as transfer
and dividend disbursing agent of a Fund.
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"Trust" means Norwest Advantage Funds.
"U.S. Government Securities" means obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities.
"U.S. Treasury Securities" means obligations issued or guaranteed by
the U.S. Treasury.
"1933 Act" means the Securities Act of 1933, as amended.
"1940 Act" means the Investment Company Act of 1940, as amended.
The Trust was originally organized under the name "Prime Value Funds, Inc." as a
Maryland corporation on August 29, 1986. On July 30, 1993, Prime Value Funds,
Inc. was reorganized as a Delaware business trust under the name "Norwest
Funds." The Trust is currently named "Norwest Advantage Funds."
Norwest, a subsidiary of Norwest Bank, is each Funds' investment adviser.
Norwest also is the investment adviser of each Core Portfolio except Schroder
U.S. Smaller Companies Portfolio, Schroder EM Core Portfolio and International
Portfolio. Norwest Bank, a subsidiary of Norwest Corporation, is the Trust's
transfer agent, dividend disbursing agent and custodian. Norwest employs the
Subadvisers to subadvise certain of the Funds and Core Portfolios. Forum serves
as the Trust's manager and as distributor of the Trust's shares. FAS serves as
each Fund's administrator.
Each of Ready Cash Investment Fund, Stable Income Fund, Total Return Bond Fund,
Index Fund, Income Equity Fund, Large Company Growth Fund, Small Company Stock
Fund, Small Company Growth Fund and Small Cap Opportunities Fund invests all of
its investable assets in a Core Portfolio with substantially similar investment
objectives and policies.
Each of Cash Investment Fund, Diversified Bond Fund, Strategic Income Fund,
Moderate Balanced Fund, Growth Balanced Fund, Aggressive Balanced-Equity Fund,
Diversified Equity Fund, Growth Equity Fund, Diversified Small Cap Fund and
International Fund invests all of its investable assets in more than one Core
Portfolio. Each Core Portfolio invests using a different investment style. The
percentage of each of these Fund's (except Cash Investment Fund's) assets
invested in each Core Portfolio may be changed at any time in response to market
or other conditions. Allocations are made within specified ranges as described
in each Fund's prospectus under "Investment Objectives and Policies."
The other Funds invest directly in portfolio securities.
Each Fund that invest in one or more Core Portfolios bears its pro rata share of
the expenses of the Core Portfolio(s) in which the it invests.
1. INVESTMENT POLICIES
The following discussion supplements the disclosure in the prospectuses about
each Fund's investments, investment techniques, strategies and risks (as well as
those of any Core Portfolio(s), in which the Fund invests). Certain Funds are
designed for investment of that portion of an investor's funds which can
appropriately bear the special risks associated with certain types of
investments (i.e., investment in smaller capitalization companies). If a Fund
that invests in one or more Core Portfolios is described as being able to make a
certain type of investment, the Fund is making that type of investment through
the Core Portfolio or Core Portfolios.
<PAGE>
SECURITY RATINGS INFORMATION
The Funds' investments are subject to credit risk relating to the financial
condition of the issuers of the securities that each Fund holds. To limit credit
risk, each Fund invests at least 65% of its assets in debt securities that are
considered investment grade, which means rated in the top four long-term rating
categories or top two short-term rating categories by an NRSRO, or unrated and
determined by the Adviser to be of comparable quality. Certain Funds have
greater restrictions. T
The lowest long-term ratings that are investment grade for corporate bonds,
including convertible bonds, are "Baa" in the case of Moody's and "BBB" in the
case of S&P and Fitch; for preferred stock are "Baa" in the case of Moody's and
"BBB" in the case of S&P and Fitch; and for short-term debt, including
commercial paper, are Prime-2 (P-2) in the case of Moody's, "A-2" in the case of
S&P and "F-2" in the case of Fitch.
Unrated securities may not be as actively traded as rated securities. A Fund may
retain securities whose rating has been lowered below the lowest permissible
rating category (or that are unrated and determined by the Adviser to be of
comparable quality to securities whose rating has been lowered below the lowest
permissible rating category) if the Adviser determines that retaining such
security is in the best interests of the Fund. Because a downgrade often results
in a reduction in the market price of the security, sale of a downgraded
security may result in a loss.
Moody's, S&P and other NRSROs are private services that provide ratings of the
credit quality of debt obligations, including convertible securities. A
description of the range of ratings assigned to various types of bonds and other
securities by several NRSROs is included in Appendix A to this SAI. The Funds
may use these ratings to determine whether to purchase, sell or hold a security.
Ratings are general and are not absolute standards of quality. Securities with
the same maturity, interest rate and rating may have different market prices. If
an issue of securities ceases to be rated or if its rating is reduced after it
is purchased by a Fund (neither event requiring sale of such security by a Fund
- - except in certain cases with respect to the Money Market Funds), Norwest will
determine whether the Fund should continue to hold the obligation. To the extent
that the ratings given by a NRSRO may change as a result of changes in such
organizations or their rating systems, the Investment Adviser will attempt to
substitute comparable ratings. Credit ratings attempt to evaluate the safety of
principal and interest payments and do not evaluate the risks of fluctuations in
market value. Also, rating agencies may fail to make timely changes in credit
ratings. An issuer's current financial condition may be better or worse than a
rating indicates.
MONEY MARKET FUND MATTERS
The MONEY MARKET FUNDS invest only in high quality, short-term money market
instruments determined by the Adviser, under procedures adopted by the Board, to
be eligible for purchase and to present minimal credit risks. Each Fund will
invest only in U.S. dollar-denominated instruments that have a remaining
maturity of 397 days or less (as calculated pursuant to Rule 2a-7 under the 1940
Act and will maintain a dollar-weighted average portfolio maturity of 90 days or
less. Securities with ultimate maturities of greater than 397 days may be
purchased in accordance with Rule 2a-7. Under that Rule, only those long-term
instruments that have demand features which comply with certain requirements and
certain variable rate U.S. Government Securities, as described below, may be
purchased. The securities in which the Funds may invest may have fixed, variable
or floating rates of interest.
Except to the limited extent permitted by Rule 2a-7 and except for U.S.
Government Securities, no Fund will invest more than 5% of its total assets in
the securities of any one issuer. Also, a Fund may not purchase a security if
the value of all securities held by the Fund and issued or guaranteed by the
same issuer (including letters of credit in support of a security) would exceed
10% of the Fund's total assets. Those requirements apply with respect to only
75% of the total assets of Municipal Money Market Fund. In addition, to ensure
adequate liquidity, no Fund may invest more than 10% of its net assets in
illiquid securities, including repurchase agreements maturing in more than seven
days.
As used herein, high quality instruments include those that: (1) are rated (or,
if unrated, are issued by an issuer with comparable outstanding short-term debt
that is rated) in one of the two highest rating categories by two
<PAGE>
NRSROs or, if only one NRSRO has issued a rating, by that NRSRO; or (2) are
otherwise unrated and determined by Norwest, pursuant to guidelines adopted by
the Board, to be of comparable quality. Except for Municipal Money Market Fund,
each Fund will invest at least 95% of its total assets in securities in the
highest rating category as determined pursuant to Rule 2a-7.
The market value of the interest-bearing debt securities held by the Funds,
including municipal securities, will be affected by changes in interest rates.
There is normally an inverse relationship between the market value of securities
sensitive to prevailing interest rates and actual changes in interest rates;
(i.e., a decline in interest rates produces an increase in market value, while
an increase in rates produces a decrease in market value.) Moreover, the longer
the remaining maturity of a security, the greater will be the effect of interest
rate changes on the market value of that security. In addition, changes in the
ability of an issuer to make payments of interest and principal and in the
market's perception of an issuer's creditworthiness will also affect the market
value of the debt securities of that issuer. Obligations of issuers of debt
securities, including municipal securities, are also subject to the provisions
of bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors. The possibility exists, therefore, that, as a result of bankruptcy,
litigation or other conditions, the ability of any issuer to pay, when due, the
principal of and interest on its debt securities may be materially affected.
Although each Fund only invests in high quality money market instruments, an
investment in the Fund is subject to risk even if all securities in the Fund's
portfolio are paid in full at maturity. All money market instruments, including
U.S. Government Securities, can change in value as a result of changes interest
rates and/or the issuer's actual or perceived creditworthiness.
Municipal Money Market Fund is subject to the issuer diversification rules
described in paragraph (1) under "Investment Limitations, Nonfundamental
Limitations." Except for Municipal Money Market Fund, a Money Market Fund may
not invest in a security that has received, or is deemed comparable in quality
to a security that has received, the second highest rating by the requisite
number of NRSROs (a "second tier security") if immediately after the acquisition
thereof the Fund would have invested more than (A) the greater of one percent of
its total assets or one million dollars in securities issued by that issuer
which are second tier securities, or (B) five percent of its total assets in
second tier securities.
Immediately after the acquisition of any put, no more than five percent of a
Money Market Fund's total assets may be invested in securities issued by or
subject to conditional puts from the same institution and no more than ten
percent of a Money Market Fund's total assets may be invested in securities
issued by or subject to unconditional puts (including guarantees) from the same
institution. However, these restrictions only apply with respect to 75% of
Municipal Money Market Fund's total assets.
INVESTMENT BY FEDERAL CREDIT UNIONS
U.S. GOVERNMENT FUND and TREASURY FUND limit their investments, as described in
each of the Prospectuses for those Funds, to investments that are legally
permissible for Federally chartered credit unions under applicable provisions of
the Federal Credit Union Act (including 12 U.S.C. Section 1757(7), (8) and (15))
and the applicable rules and regulations of the National Credit Union
Administration (including 12 C.F.R. Part 703, Investment and Deposit
Activities), as such statutes and rules and regulations may be amended. Treasury
Fund limits its investments to Treasury obligations, including Treasury STRIPS
with a maturity of less than 13 months. U.S. Government Fund limits its
investments to U.S. Government Securities (including Treasury STRIPS),
repurchase agreements fully collateralized by U.S. Government Securities and
other government related zero-coupon securities, such as TIGRs and CATs. All
zero-coupon securities in which the Fund invests will have a maturity of less
than 13 months. Certain U.S. Government Securities owned by the Fund may be
mortgage or asset backed, but, except to reduce interest rate risk, no such
security will be (i) a stripped mortgage backed security ("SMBS"), (ii) a
collateralized mortgage obligation ("CMO") or real estate mortgage investment
conduit ("REMIC") that meets any of the tests outlined in 12 C.F.R. Section
703.5(g) or (iii) a residual interest in a CMO or REMIC. In order to reduce
interest rate risk the Fund may purchase a SMBS, CMO, REMIC or residual interest
in a CMO or REMIC but only in accordance with 12 C.F.R. Section 703.5(i). Each
Fund also may invest in reverse repurchase agreements in accordance with 12
C.F.R. 703.4(e).
<PAGE>
FIXED INCOME INVESTMENTS
ALL FUNDS. Yields on fixed income securities, including municipal securities,
are dependent on a variety of factors, including the general conditions of the
money market and other fixed income securities markets, the size of a particular
offering, the maturity of the obligation and the rating of the issue. An
investment in a Fund that invests in fixed income securities is subject to risk
even if all fixed income securities in the Fund's portfolio are paid in full at
maturity. All fixed income securities, including U.S. Government Securities, can
change in value when there is a change in interest rates or the issuer's actual
or perceived creditworthiness or ability to meet its obligations.
There is normally an inverse relationship between the market value of securities
sensitive to prevailing interest rates and actual changes in interest rates. In
other words, an increase in interest rates produces a decrease in market value.
The longer the remaining maturity (and duration) of a security, the greater will
be the effect of interest rate changes on the market value of that security.
Changes in the ability of an issuer to make payments of interest and principal
and in the markets' perception of an issuer's creditworthiness will also affect
the market value of the debt securities of that issuer. Obligations of issuers
of fixed income securities (including municipal securities) are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors, such as the Federal Bankruptcy Reform Act of 1978. In
addition, the obligations of municipal issuers may become subject to laws
enacted in the future by Congress, state legislatures, or referenda extending
the time for payment of principal and/or interest, or imposing other constraints
upon enforcement of such obligations or upon the ability of municipalities to
levy taxes. Changes in the ability of an issuer to make payments of interest and
principal and in the market's perception of an issuer's creditworthiness will
also affect the market value of the debt securities of that issuer. The
possibility exists, therefore, that, the ability of any issuer to pay, when due,
the principal of and interest on its debt securities may become impaired.
A Fund may invest in fixed income securities include those issued by the
governments of foreign countries or by those countries' political subdivisions,
agencies or instrumentalities as well as by supranational organizations such as
the International Bank for Reconstruction and Development and the Inter-American
Development Bank if the Adviser believes that the securities do not present
risks inconsistent with a Funds' investment objective.
The corporate debt securities in which the Funds may invest include corporate
bonds and notes and short-term investments such as commercial paper and variable
rate demand notes. Commercial paper (short-term promissory notes) is issued by
companies to finance their or their affiliate's current obligations and is
frequently unsecured. Variable and floating rate demand notes are unsecured
obligations redeemable upon not more than 30 days' notice. These obligations
include master demand notes that permit investment of fluctuating amounts at
varying rates of interest pursuant to a direct arrangement with the issuer of
the instrument. The issuer of these obligations often has the right, after a
given period, to prepay the outstanding principal amount of the obligations upon
a specified number of days' notice. These obligations generally are not traded,
nor generally is there an established secondary market for these obligations. To
the extent a demand note does not have a 7 day or shorter demand feature and
there is no readily available market for the obligation, it is treated as an
illiquid security.
U.S. GOVERNMENT SECURITIES
ALL FUNDS. The Funds may invest in U.S. Government Securities that are U.S.
Treasury Securities and obligations issued or guaranteed by U.S. Government
agencies and instrumentalities and backed by the full faith and credit of the
U.S. Government, such as those guaranteed by the Small Business Administration
or issued by the Government National Mortgage Association. In addition, Funds
may invest in U.S. Government Securities that are supported primarily or solely
by the creditworthiness of the issuer, such as securities of the Federal
National Mortgage Association, the Federal Home Loan Mortgage Corporation and
the Tennessee Valley Authority. There is no guarantee that the U.S. Government
will support securities not backed by its full faith and credit. Accordingly,
although these securities have historically involved little risk of loss of
principal if held to maturity, they may involve more risk than securities backed
by the U.S. Government's full faith and credit. A Fund will invest in the
obligations of such agencies or instrumentalities only when Norwest believes
that the credit risk with respect thereto is consistent with the Fund's
investment policies.
BANK OBLIGATIONS
ALL FUNDS (EXCEPT TREASURY FUND AND TREASURY PLUS FUND). A Fund may invest in
obligations of financial institutions, including negotiable certificates of
deposit, bankers' acceptances and time deposits of U.S. banks (including savings
banks and savings associations), foreign branches of U.S. banks, foreign banks
and their non-U.S. branches (Eurodollars), U.S. branches and agencies of foreign
banks (Yankee dollars), and wholly-owned banking-related subsidiaries of foreign
banks.
A certificate of deposit is an interest-bearing negotiable certificate issued by
a bank against funds deposited in the bank. A bankers' acceptance is a
short-term draft drawn on a commercial bank by a borrower, usually in connection
with an international commercial transaction. Although the borrower is liable
for payment of the draft, the bank unconditionally guarantees to pay the draft
at its face value on the maturity date. Time deposits are non-negotiable
deposits with a banking institution that earn a specified interest rate over a
given period. Certificates of deposit and fixed time deposits, which are payable
at the stated maturity date and bear a fixed rate of interest, generally may be
withdrawn on demand by the Fund but may be subject to early withdrawal penalties
which vary depending upon market conditions and the remaining maturity of the
obligation and could reduce the Fund's yield. Although fixed-time deposits do
not in all cases have a secondary market, there are no contractual restrictions
on the Fund's right to transfer a beneficial interest in the deposits to third
parties. Deposits subject to early withdrawal penalties or that mature in more
than seven days are treated as illiquid securities if there is no readily
available market for the securities. A Fund's investments in the obligations of
foreign banks and their branches, agencies or subsidiaries may be obligations of
the parent, of the issuing branch, agency or subsidiary, or both. Investments in
foreign bank obligations are limited to banks and branches located in countries
which the Advisers believe do not present undue risk.
Small Cap Opportunities Fund may invest in obligations (including certificates
of deposit and bankers' acceptances) of U.S. banks that have total assets at the
time of purchase in excess of $1 billion and are members of the Federal Deposit
Insurance Corporation. Each other Fund may, invest in obligations of financial
institutions, including negotiable certificates of deposit, bankers' acceptances
and time deposits of U.S. banks (including savings banks and savings
associations), foreign branches of U.S. banks, foreign banks and their non-U.S.
branches (Eurodollars), U.S. branches and agencies of foreign banks (Yankee
dollars), and wholly-owned banking-related subsidiaries of foreign banks. A
Fund's investments in the obligations of foreign banks and their branches,
agencies or subsidiaries may be obligations of the parent, of the issuing
branch, agency or subsidiary, or both. Investments in foreign bank obligations
are limited to banks and branches located in countries which the Fund's Adviser
believes do not present undue risk.
The Funds (other than Small Cap Opportunities Fund) may invest in Eurodollar
certificates of deposit, which are U.S. dollar denominated certificates of
deposit issued by offices of foreign and domestic banks located outside the
United States; Yankee certificates of deposit, which are certificates of deposit
issued by a U.S. branch of a foreign bank denominated in U.S. dollars and held
in the United States; Eurodollar time deposits ("ETDs"), which are U.S. dollar
denominated deposits in a foreign branch of a U.S. bank or a foreign bank; and
Canadian time deposits, which are essentially the same as ETDs, except that they
are issued by Canadian offices of major Canadian banks.
Investments in instruments of foreign banks, branches or subsidiaries may
involve certain risks, including future political and economic developments, the
possible imposition of foreign withholding taxes on interest income payable on
such securities, the possible seizure or nationalization of foreign deposits,
differences from domestic banks in applicable accounting, auditing and financial
reporting standards, and the possible establishment of exchange controls or
other foreign governmental laws or restrictions applicable to the payment of
certificates of deposit or time deposits which might affect adversely the
payment of principal and interest on such securities held by the Fund.
SHORT TERM DEBT SECURITIES/COMMERCIAL PAPER
<PAGE>
ALL FUNDS EXCEPT THE MONEY MARKET FUNDS. Except for the Money Market Funds and
Small Cap Opportunities Fund, each Fund may assume a temporary defensive
position and may invest without limit in commercial paper that is rated in one
of the two highest rating categories by an NRSRO or, if not rated, determined by
the Adviser to be of comparable quality. Certain additional Funds may invest in
commercial paper as an investment and not as a temporary defensive position.
Except as noted below with respect to variable master demand notes, issues of
commercial paper normally have maturities of less than nine months and fixed
rates of return.
Variable amount master demand notes are unsecured demand notes that permit the
indebtedness thereunder to vary and provide for periodic adjustments in the
interest rate according to the terms of the instrument. Because master demand
notes are direct lending arrangements between a Fund and the issuer, they are
not normally traded. Although there is no secondary market in the notes, the
Fund may demand payment of principal and accrued interest at any time. Variable
amount master demand notes must satisfy the same criteria as set forth above for
commercial paper.
Small Cap Opportunities Fund may invest in commercial paper, i.e., short-term
unsecured promissory notes issued in bearer form by bank holding companies,
corporations and finance companies. The commercial paper purchased by Small Cap
Opportunities Fund for temporary defensive purposes consists of direct
obligations of domestic issuers which, at the time of investment, are rated
"P-1" by Moody's Investors Service ("Moody's") or "A-1" by Standard & Poor's
("S&P"), or securities which, if not rated, are issued by companies having an
outstanding debt issue currently rated Aa by Moody's or AAA or AA by S&P.
GUARANTEED INVESTMENT CONTRACTS
The FIXED INCOME FUNDS may invest in guaranteed investment contracts ("GICs")
issued by insurance companies. Pursuant to such contracts, a Fund makes cash
contributions to a deposit fund of the insurance company's general account. The
insurance company then credits to the deposit fund on a monthly basis guaranteed
interest at a rate based on an index. The GICs provide that this guaranteed
interest will not be less than a certain minimum rate. The insurance company may
assess periodic charges against a GIC for expense and service costs allocable to
it, and these charges will be deducted from the value of the deposit fund. A
Fund will purchase a GIC only when the Adviser has determined that the GIC
presents minimal credit risks to the Fund and is of comparable quality to
instruments in which the Fund may otherwise invest. Because a Fund may not
receive the principal amount of a GIC from the insurance company on seven days'
notice or less, a GIC may be considered an illiquid investment. The term of a
GIC will be one year or less.
In determining the average weighted portfolio maturity of a Fund, a GIC will be
deemed to have a maturity equal to the period of time remaining until the next
readjustment of the guaranteed interest rate. The interest rate on a GIC may be
tied to a specified market index and is guaranteed not to be less than a certain
minimum rate.
ZERO COUPON SECURITIES
ALL FUNDS. A Fund may invest in Treasury Bills and separately traded principal
and interest components of securities issued or guaranteed by the U.S. Treasury.
The separately traded components are traded independently under the Treasury's
Separate Trading of Registered Interest and Principal of Securities ("STRIPS")
program or as Coupons Under Book Entry Safekeeping ("CUBES"). The Funds may
invest in other types of related zero-coupon securities. For instance, a number
of banks and brokerage firms separate the principal and interest portions of
U.S. Treasury securities and sell them separately in the form of receipts or
certificates representing undivided interests in these instruments. These
instruments are generally held by a bank in a custodial or trust account on
behalf of the owners of the securities and are known by various names, including
Treasury Receipts ("TRs"), Treasury Investment Growth Receipts ("TIGRs") and
Certificates of Accrual on Treasury Securities ("CATS"). For the purpose solely
of an investment policy of investing at least 65% of a Fund's assets in U.S.
Government Securities, such securities are currently not deemed to be U.S.
Government Securities but rather securities issued by the bank or brokerage firm
involved. Zero-coupon securities also may be issued by corporations and
municipalities.
Zero-coupon securities are sold at original issue discount and pay no interest
to holders prior to maturity, but a Fund holding a zero-coupon security must
include a portion of the original issue discount of the security as income.
Because of this, zero-coupon securities may be subject to greater fluctuation of
market value than the other securities in which the Funds may invest. The Funds
distribute all of their net investment income, and may have to sell portfolio
securities to distribute imputed income, which may occur at a time when an
Adviser would not have chosen to sell such securities and which may result in a
taxable gain or loss.
Zero coupon securities are sold at original issue discount and pay no interest
to holders prior to maturity. These securities usually trade at a deep discount
from their face or par value and will be subject to greater fluctuations of
market value in response to changing interest rates than debt obligations of
comparable maturities which make current distributions of interest. Federal tax
law requires that a Fund accrue a portion of the discount at which a zero-coupon
security was purchased as income each year even though the Fund receives no
interest payment in cash on the security during the year. Interest on these
securities, however, is reported as income by the Fund and must be distributed
to its shareholders. The Funds distribute all of their net investment income,
and may have to sell portfolio securities to distribute imputed income, which
may occur at a time when the Adviser would not have chosen to sell such
securities and which may result in a taxable gain or loss.
MUNICIPAL SECURITIES
CASH INVESTMENT FUND, MUNICIPAL MONEY MARKET FUND, FIXED INCOME FUNDS AND
TAX-EXEMPT FIXED INCOME FUNDS. Municipal securities are issued by the states,
territories and possessions of the United States, their political subdivisions
(such as cities, counties and towns) and various authorities (such as public
housing or redevelopment authorities), instrumentalities, public corporations
and special districts (such as water, sewer or sanitary districts) of the
states, territories and possessions of the United States or their political
subdivisions. In addition, municipal securities include securities issued by or
on behalf of public authorities to finance various privately operated
facilities, such as industrial development bonds or other private activity bonds
that are backed only by the assets and revenues of the non-governmental user
(such as manufacturing enterprises, hospitals, colleges or other entities).
The Funds may invest in municipal bonds, notes and leases. Municipal securities
may be zero-coupon securities. Yields on municipal securities are dependent on a
variety of factors, including the general conditions of the municipal security
markets and the fixed income markets in general, the size of a particular
offering, the maturity of the obligation and the rating of the issue. The
achievement of a Fund's investment objective is dependent in part on the
continuing ability of the issuers of municipal securities in which the Fund
invests to meet their obligations for the payment of principal and interest when
due.
Municipal securities historically have not been subject to registration with the
SEC, although there have been proposals which would require registration in the
future.
MUNICIPAL BONDS. Municipal bonds can be classified as either "general
obligation" or "revenue" bonds. General obligation bonds are secured by a
municipality's pledge of its full faith, credit and taxing power for the payment
of principal and interest. Revenue bonds are usually payable only from the
revenues derived from a particular facility or class of facilities or, in some
cases, from the proceeds of a special excise or other tax, but not from general
tax revenues. Municipal bonds include industrial development bonds. Municipal
bonds may also be "moral obligation" bonds, which are normally issued by special
purpose public authorities. If the issuer is unable to meet its obligations
under the bonds from current revenues, it may draw on a reserve fund that is
backed by the moral commitment (but not the legal obligation) of the state or
municipality that created the issuer.
A Fund may invest in tax-exempt industrial development bonds, which in most
cases are revenue bonds and generally do not have the pledge of the credit of
the municipality. The payment of the principal and interest on these bonds is
dependent solely on the ability of an initial or subsequent user of the
facilities financed by the bonds to meet its financial obligations and the
pledge, if any, of real and personal property so financed as security for such
payment. The Fund will acquire private activity securities only if the interest
payments on the security are exempt from federal income taxation (other than the
Alternative Minimum Tax (AMT)).
<PAGE>
Municipal bonds meet longer term capital needs of a municipal issuer and
generally have maturities of more than one year when issued. General obligation
bonds are used to fund a wide range of public projects, including construction
or improvement of schools, highways and roads, and water and sewer systems. The
taxes that can be levied for the payment of debt service may be limited or
unlimited as to rate or amount. Revenue bonds in recent years have come to
include an increasingly wide variety of types of municipal obligations. As with
other kinds of municipal obligations, the issuers of revenue bonds may consist
of virtually any form of state or local governmental entity. Generally, revenue
bonds are secured by the revenues or net revenues derived from a particular
facility, class of facilities, or, in some cases, from the proceeds of a special
excise or other specific revenue source, but not from general tax revenues.
Revenue bonds are issued to finance a wide variety of capital projects including
electric, gas, water and sewer systems; highways, bridges, and tunnels; port and
airport facilities; colleges and universities; and hospitals. Many of these
bonds are additionally secured by a debt service reserve fund which can be used
to make a limited number of principal and interest payments should the pledged
revenues be insufficient. Various forms of credit enhancement, such as a bank
letter of credit or municipal bond insurance, may also be employed in revenue
bond issues. Revenue bonds issued by housing authorities may be secured in a
number of ways, including partially or fully insured mortgages, rent subsidized
and/or collateralized mortgages, and/or the net revenues from housing or other
public projects. Some authorities provide further security in the form of a
state's ability (without obligation) to make up deficiencies in the debt service
reserve fund. In recent years, revenue bonds have been issued in large volumes
for projects that are privately owned and operated, as discussed below.
Municipal bonds are considered private activity bonds if they are issued to
raise money for privately owned or operated facilities used for such purposes as
production or manufacturing, housing, health care and other nonprofit or
charitable purposes. These bonds are also used to finance public facilities such
as airports, mass transit systems and ports. The payment of the principal and
interest on such bonds is dependent solely on the ability of the facility's
owner or user to meet its financial obligations and the pledge, if any, of real
and personal property as security for such payment.
While at one time the pertinent provisions of the Code permitted private
activity bonds to bear tax-exempt interest in connection with virtually any type
of commercial or industrial project (subject to various restrictions as to
authorized costs, size limitations, state per capita volume restrictions, and
other matters), the types of qualifying projects under the Code have become
increasingly limited, particularly since the enactment of the Tax Reform Act of
1986. Under current provisions of the Code, tax-exempt financing remains
available, under prescribed conditions, for certain privately owned and operated
facilities of organizations described in Section 501(c)(3) of the Code,
multi-family rental housing facilities, airports, docks and wharves, mass
commuting facilities and solid waste disposal projects, among others, and for
the tax-exempt refinancing of various kinds of other private commercial projects
originally financed with tax-exempt bonds. In future years, the types of
projects qualifying under the Code for tax-exempt financing could become
increasingly limited.
MUNICIPAL NOTES. Municipal notes, which may be either "general obligation" or
"revenue" securities are intended to fulfill the short-term capital needs of the
issuer and generally have maturities not exceeding one year. They include the
following: tax anticipation notes, revenue anticipation notes, bond anticipation
notes, construction loan notes and tax-exempt commercial paper. Tax anticipation
notes are issued to finance working capital needs of municipalities, and are
payable from various anticipated future seasonal tax revenues, such as income,
sales, use and business taxes. Revenue anticipation notes are issued in
expectation of receipt of other types of revenues, such as federal revenues
available under various federal revenue sharing programs. Bond anticipation
notes are issued to provide interim financing until long-term financing can be
arranged and are typically payable from proceeds of the long-term bonds.
Construction loan notes are sold to provide construction financing. After
successful completion and acceptance, many such projects receive permanent
financing through the Federal Housing Administration under the Federal National
Mortgage Association or the Government National Mortgage Association. Tax-exempt
commercial paper is a short-term obligation with a stated maturity of 365 days
or less. It is issued by agencies of state and local governments to finance
seasonal working capital needs or as short-term financing in anticipation of
longer term financing. Municipal notes also include longer term issues that are
remarketed to investors periodically, usually at one year intervals or less.
<PAGE>
MUNICIPAL LEASES. Municipal leases generally take the form of a lease or an
installment purchase or conditional sale contract. Municipal leases are entered
into by state and local governments and authorities to acquire a wide variety of
equipment and facilities such as fire and sanitation vehicles,
telecommunications equipment and other capital assets. Municipal leases
frequently have special risks not normally associated with general obligation or
revenue bonds. Leases and installment purchase or conditional sale contracts
(which normally provide for title to the leased asset to pass eventually to the
government issuer) have evolved as a means for governmental issuers to acquire
property and equipment without being required to meet the constitutional and
statutory requirements for the issuance of debt. The debt-issuance limitations
of many state constitutions and statutes are deemed to be inapplicable because
of the inclusion in many leases or contracts of "non-appropriation" clauses that
provide that the governmental issuer has no obligation to make future payments
under the lease or contract unless money is appropriated for such purpose by the
appropriate legislative body on a yearly or other periodic basis. Generally, the
Funds will invest in municipal lease obligations through certificates of
participation.
PARTICIPATION INTERESTS. The Funds may purchase participation interests in
municipal securities that are owned by banks or other financial institutions.
Participation interests may sometimes carry a demand feature backed by a letter
of credit or guarantee of the bank or institution permitting the holder to
tender them back to the bank or other institution. Prior to purchasing any
participation interest, the Funds will obtain appropriate assurances that the
interest earned by the Funds from the obligations in which it holds
participation interests is exempt from federal and, in the case of Colorado
Tax-Free Fund and Minnesota Tax-Free Fund, applicable state income tax.
STAND-BY COMMITMENTS. The Funds may purchase municipal securities together with
the right to resell them to the seller or a third party at an agreed-upon price
or yield within specified periods prior to their maturity dates. Such a right to
resell is commonly known as a stand-by commitment, and the aggregate price which
a Fund pays for securities with a stand-by commitment may be higher than the
price which otherwise would be paid. The primary purpose of this practice is to
permit a Fund to be as fully invested as practicable in municipal securities
while preserving the necessary flexibility and liquidity to meet unanticipated
redemptions. In this regard, a Fund acquires stand-by commitments solely to
facilitate portfolio liquidity and does not exercise its rights thereunder for
trading purposes. Stand-by commitments involve certain expenses and risks,
including the inability of the issuer of the commitment to pay for the
securities at the time the commitment is exercised, non-marketability of the
commitment, and differences between the maturity of the underlying security and
the maturity of the commitment. The Fund's policy is to enter into stand-by
commitment transactions only with municipal securities dealers which, in the
view of Norwest, present minimal credit risks.
The acquisition of a stand-by commitment does not affect the valuation or
maturity of the underlying municipal securities which continue to be valued in
accordance with the amortized cost method. Stand-by commitments acquired by the
Fund are valued at zero in determining net asset value. When a Fund pays
directly or indirectly for a stand-by commitment, its cost is reflected as
unrealized depreciation for the period during which the commitment is held.
Stand-by commitments do not affect the average weighted maturity of the Fund's
portfolio of securities.
PUTS ON MUNICIPAL SECURITIES. The Funds may acquire "puts" with respect to
municipal securities. A put gives the Fund the right to sell the municipal
security at a specified price at any time on or before a specified date. The
Funds may sell, transfer or assign a put only in conjunction with its sale,
transfer or assignment of the underlying security or securities. The amount
payable to a Fund upon its exercise of a "put" is normally: (1) the Fund's
acquisition cost of the municipal securities (excluding any accrued interest
which the Fund paid on their acquisition), less any amortized market premium or
plus any amortized market or original issue discount during the period the Fund
owned the securities, plus (2) all interest accrued on the securities since the
last interest payment date during that period.
Puts may be acquired by the Funds to facilitate the liquidity of its portfolio
assets. Puts may also be used to facilitate the reinvestment of a Fund's assets
at a rate of return more favorable than that of the underlying security. The
Funds expect that they will generally acquire puts only where the puts are
available without the payment of any direct or indirect consideration. However,
if necessary or advisable, the Funds may pay for a put either
<PAGE>
separately in cash or by paying a higher price for portfolio securities which
are acquired subject to the puts (thus reducing the yield to maturity otherwise
available for the same securities). The Funds intend to enter into puts only
with dealers, banks and broker-dealers which, in the Fund's Adviser's opinion,
present minimal credit risks.
Puts may, under certain circumstances, also be used to shorten the maturity of
underlying variable rate or floating rate securities for purposes of calculating
the remaining maturity of those securities and the dollar-weighted average
portfolio maturity of a Fund's assets.
ALTERNATIVE MINIMUM TAX. Municipal securities are also categorized according to
(i) whether the interest is or is not includable in the calculation of
alternative minimum taxes imposed on individuals and corporations, (ii) whether
the costs of acquiring or carrying the bonds are or are not deductible in part
by banks and other financial institutions, and (iii) other criteria relevant for
Federal income tax purposes. Due to the increasing complexity of the Code and
related requirements governing the issuance of tax-exempt bonds, industry
practice has uniformly required as a condition to the issuance of such bonds,
but particularly for revenue bonds, an opinion of nationally recognized bond
counsel as to the tax-exempt status of interest on the bonds.
VARIABLE AND FLOATING RATE SECURITIES
ALL FUNDS. The Funds may invest in securities (including mortgage-related
securities) with variable or floating rates of interest. These securities pay
interest at rates that are adjusted periodically according to a specified
formula, usually with reference to some interest rate index or market interest
rate (the "underlying index"). The interest paid on these securities is a
function primarily of the underlying index upon which the interest rate
adjustments are based. Such adjustments minimize changes in the market value of
the obligation and, accordingly, enhance the ability of the Fund to maintain a
stable net asset value. Similar to fixed rate debt instruments, variable and
floating rate instruments are subject to changes in value based on changes in
market interest rates or changes in the issuer's creditworthiness. The rate of
interest on securities purchased by a Fund may be tied to Treasury or other
government securities or indices on those securities as well as any other rate
of interest or index. Certain variable rate securities (including
mortgage-related securities) pay interest at a rate that varies inversely to
prevailing short-term interest rates (sometimes referred to as "inverse
floaters"). For instance, upon reset the interest rate payable on a security may
go down when the underlying index has risen. During times when short-term
interest rates are relatively low as compared to long-term interest rates a Fund
may attempt to enhance its yield by purchasing inverse floaters. Certain inverse
floaters may have an interest rate reset mechanism that multiplies the effects
of changes in the underlying index. This form of leverage may have the effect of
increasing the volatility of the security's market value while increasing the
security's, and thus the Fund's, yield. Money Market Funds may not invest in
inverse floaters and certain other variable and floating rates securities that
do not imply with Rule 2a-7.
There may not be an active secondary market for certain floating or variable
rate instruments (particularly inverse floaters and similar instruments) which
could make it difficult for a Fund to dispose of the instrument during periods
that the Fund is not entitled to exercise any demand rights (such as puts) it
may have. A Fund could, for this or other reasons, suffer a loss with respect to
those instruments. The Adviser monitors the liquidity of each Fund's investment
in variable and floating rate instruments, but there can be no guarantee that an
active secondary market will exist.
The Funds, except U.S. Government Fund and Treasury Fund, also may purchase
variable and floating rate demand notes of corporations, which are unsecured
obligations redeemable upon not more than 30 days' notice. These obligations
include master demand notes that permit investment of fluctuating amounts at
varying rates of interest pursuant to direct arrangement with the issuer of the
instrument. The issuer of these obligations often has the right, after a given
period, to prepay their outstanding principal amount of the obligations upon a
specified number of days' notice. These obligations generally are not traded,
nor generally is there an established secondary market for these obligations. To
the extent a demand note does not have a seven day or shorter demand feature and
there is no readily available market for the obligation, it is treated as an
illiquid security.
<PAGE>
Certain securities may have an initial principal amount that varies over time
based on an interest rate index, and, accordingly, a Fund might be entitled to
less than the initial principal amount of the security upon the security's
maturity. A Fund will purchase these securities only when the Adviser believes
the interest income from the instrument justifies any principal risks associated
with the instrument. The Advisers may attempt to limit any potential loss of
principal by purchasing similar instruments that are intended to provide an
offsetting increase in principal. There can be no assurance that an Adviser will
be able to limit the effects of principal fluctuations and, accordingly, a Fund
may incur losses on those securities even if held to maturity without issuer
default.
Many variable rate instruments include the right of the holder to demand
prepayment of the principal amount of the obligation prior to its stated
maturity and the right of the issuer to prepay the principal amount prior to
maturity. The payment of principal and interest by issuers of certain securities
purchased by the Funds may be guaranteed by letters of credit or other credit
facilities offered by banks or other financial institutions. Such guarantees
will be considered in determining whether a municipal security meets the Funds'
investment quality requirements.
Variable rate obligations purchased by the Funds may include participation
interests in variable rate obligations purchased by the Funds from banks,
insurance companies or other financial institutions that are backed by
irrevocable letters of credit or guarantees of banks. The Funds can exercise the
right, on not more than thirty days' notice, to sell such an instrument back to
the bank from which it purchased the instrument and draw on the letter of credit
for all or any part of the principal amount of a Fund's participation interest
in the instrument, plus accrued interest, but will do so only (1) as required to
provide liquidity to a Fund, (2) to maintain a high quality investment
portfolio, or (3) upon a default under the terms of the demand instrument. Banks
and other financial institutions retain portions of the interest paid on such
variable rate obligations as their fees for servicing such instruments and the
issuance of related letters of credit, guarantees and repurchase commitments.
A Fund will not purchase participation interests in variable rate obligations
unless it is advised by counsel or receives a ruling of the Internal Revenue
Service that interest earned by the Funds from the obligations in which it holds
participation interests is exempt from Federal income tax. The Internal Revenue
Service has announced that it ordinarily will not issue advance rulings on
certain of the Federal income tax consequences applicable to securities, or
participation interests therein, subject to a put. Each Fund's Adviser monitors
the pricing, quality and liquidity of variable rate demand obligations and
participation interests therein held by the Fund on the basis of published
financial information, rating agency reports and other research services to
which the Adviser may subscribe.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES
ALL FUNDS. Mortgage-backed securities represent an interest in a pool of
mortgages originated by lenders such as commercial banks, savings associations
and mortgage bankers and brokers. Mortgage-backed securities may be issued by
governmental or government-related entities or by non-governmental entities such
as special purpose trusts created by banks, savings associations, private
mortgage insurance companies or mortgage bankers.
Interests in mortgage-backed securities differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal payments at maturity or on specified call dates. In
contrast, mortgage-backed securities provide monthly payments which consist of
interest and, in most cases, principal. In effect, these payments are a
"pass-through" of the monthly payments made by the individual borrowers on their
mortgage loans, net of any fees paid to the issuer or guarantor of the
securities or a mortgage loan servicer. Additional payments to holders of these
securities are caused by prepayments resulting from the sale or foreclosure of
the underlying property or refinancing of the underlying loans.
UNDERLYING MORTGAGES. Pools of mortgages consist of whole mortgage loans or
participations in mortgage loans. The majority of these loans are made to
purchasers of 1-4 family homes, but may be made to purchasers of mobile homes or
other real estate interests. The terms and characteristics of the mortgage
instruments are generally uniform within a pool but may vary among pools. For
example, in addition to fixed-rate, fixed-term mortgages, the Fund may purchase
pools of variable rate mortgages, growing equity mortgages, graduated payment
<PAGE>
mortgages and other types. Mortgage servicers impose qualification standards for
local lending institutions which originate mortgages for the pools as well as
credit standards and underwriting criteria for individual mortgages included in
the pools. In addition, many mortgages included in pools are insured through
private mortgage insurance companies.
LIQUIDITY AND MARKETABILITY. The market for mortgage-backed securities has
expanded considerably in recent years. The size of the primary issuance market
and active participation in the secondary market by securities dealers and many
types of investors make government and government-related pass-through pools
highly liquid. The recently introduced private conventional pools of mortgages
(pooled by commercial banks, savings and loan institutions and others, with no
relationship with government and government-related entities) have also achieved
broad market acceptance and consequently an active secondary market has emerged,
however, the market for conventional pools is smaller and less liquid than the
market for government and government-related mortgage pools.
AVERAGE LIFE AND PREPAYMENTS. The average life of a pass-through pool varies
with the maturities of the underlying mortgage instruments. In addition, a
pool's terms may be shortened by unscheduled or early payments of principal and
interest on the underlying mortgages. Prepayments with respect to securities
during times of declining interest rates will tend to lower the return of a Fund
and may even result in losses to a Fund if the securities were acquired at a
premium. The occurrence of mortgage prepayments is affected by various factors
including the level of interest rates, general economic conditions, the location
and age of the mortgage and other social and demographic conditions.
As prepayment rates of individual pools vary widely, it is not possible to
accurately predict the average life of a particular pool. For pools of
fixed-rate 30-year mortgages, common industry practice is to assume that
prepayments will result in a 12-year average life. Pools of mortgages with other
maturities or different characteristics will have varying assumptions for
average life. The assumed average life of pools of mortgages having terms of
less than 30 years is less than 12 years, but typically not less than 5 years.
YIELD CALCULATIONS. Yields on pass-through securities are typically quoted by
investment dealers based on the maturity of the underlying instruments and the
associated average life assumption. In periods of falling interest rates, the
rate of prepayment tends to increase, thereby shortening the actual average life
of a pool of mortgages. Conversely, in periods of rising rates, the rate of
prepayment tends to decrease, thereby lengthening the actual average life of the
pool. Actual prepayment experience may cause the yield to differ from the
assumed average life yield. Reinvestment of prepayments may occur at higher or
lower interest rates than the original investment, thus affecting the yield of a
Fund.
GOVERNMENT AND GOVERNMENT-RELATED GUARANTORS. The principal government guarantor
of mortgage-backed securities is the Government National Mortgage Association
("GNMA"), a wholly-owned United States Government corporation within the
Department of Housing and Urban Development. GNMA is authorized to guarantee,
with the full faith and credit of the United States Government, the timely
payment of principal and interest on securities issued by institutions approved
by GNMA and backed by pools of FHA-insured or VA-guaranteed mortgages.
The Federal National Mortgage Association ("FNMA") is a government-sponsored
corporation owned entirely by private stockholders that is subject to general
regulation by the Secretary of Housing and Urban Development. FNMA purchases
residential mortgages from a list of approved seller-servicers. The Federal Home
Loan Mortgage Corporation ("FHLMC") is a corporate instrumentality of the United
States Government that was created by Congress in 1970 for the purpose of
increasing the availability of mortgage credit for residential housing. Its
stock is owned by the twelve Federal Home Loan Banks. FHLMC issues Participation
Certificates ("PCs") which represent interests in mortgages from FHLMCs national
portfolio. FNMA and FHLMC each guarantee the payment of principal and interest
on the securities they issue. These securities, however, are not backed by the
full faith and credit of the United States Government.
<PAGE>
PRIVATELY ISSUED MORTGAGE-BACKED SECURITIES. Mortgage-backed securities offered
by private issuers include pass-through securities comprised of pools of
conventional mortgage loans; mortgage-backed bonds which are considered to be
debt obligations of the institution issuing the bonds and which are
collateralized by mortgage loans; and collateralized mortgage obligations.
Mortgage-backed securities issued by non-governmental issuers may offer a higher
rate of interest than securities issued by government issuers because of the
absence of direct or indirect government guarantees of payment. Many
non-governmental issuers or servicers of mortgage-backed securities, however,
guarantee timely payment of interest and principal on such securities. Timely
payment of interest and principal may also be supported by various forms of
insurance, including individual loan, title, pool and hazard policies. There can
be no assurance that the private issuers or insurers will be able to meet their
obligations under the relevant guarantees and insurance policies.
ADJUSTABLE RATE MORTGAGE-BACKED SECURITIES. Adjustable rate mortgage-backed
securities ("ARMs") are securities that have interest rates that are reset at
periodic intervals, usually by reference to some interest rate index or market
interest rate. Although the rate adjustment feature may act as a buffer to
reduce sharp changes in the value of adjustable rate securities, these
securities are still subject to changes in value based on changes in market
interest rates or changes in the issuer's creditworthiness. Because of the
resetting of interest rates, adjustable rate securities are less likely than
non-adjustable rate securities of comparable quality and maturity to increase
significantly in value when market interest rates fall. Also, most adjustable
rate securities (or the underlying mortgages) are subject to caps or floors.
"Caps" limit the maximum amount by which the interest rate paid by the borrower
may change at each reset date or over the life of the loan and, accordingly,
fluctuation in interest rates above these levels could cause such mortgage
securities to "cap out" and to behave more like long-term, fixed-rate debt
securities.
ARMs may have less risk of a decline in value during periods of rapidly rising
rates, but they may also have less potential for capital appreciation than other
debt securities of comparable maturities due to the periodic adjustment of the
interest rate on the underlying mortgages and due to the likelihood of increased
prepayments of mortgages as interest rates decline. Furthermore, during periods
of declining interest rates, income to a Fund will decrease as the coupon rate
resets to reflect the decline in interest rates. During periods of rising
interest rates, changes in the coupon rates of the mortgages underlying a Fund's
ARMs may lag behind changes in market interest rates. This may result in a
slightly lower net value until the interest rate resets to market rates. Thus,
investors could suffer some principal loss if they sold Fund shares before the
interest rates on the underlying mortgages were adjusted to reflect current
market rates.
COLLATERALIZED MORTGAGE OBLIGATIONS. Collateralized Mortgage Obligations
("CMOs") are debt obligations that are collateralized by mortgages or mortgage
pass-through securities issued by GNMA, FHLMC or FNMA or by pools of
conventional mortgages ("Mortgage Assets"). CMOs may be privately issued or U.S.
Government Securities. Payments of principal and interest on the Mortgage Assets
are passed through to the holders of the CMOs on the same schedule as they are
received, although, certain classes (often referred to as tranches) of CMOs have
priority over other classes with respect to the receipt of payments. Multi-class
mortgage pass-through securities are interests in trusts that hold Mortgage
Assets and that have multiple classes similar to those of CMOs. Unless the
context indicates otherwise, references to CMOs include multi-class mortgage
pass-through securities. Payments of principal of and interest on the underlying
Mortgage Assets (and in the case of CMOs, any reinvestment income thereon)
provide funds to pay debt service on the CMOs or to make scheduled distributions
on the multi-class mortgage pass-through securities. Parallel pay CMOs are
structured to provide payments of principal on each payment date to more than
one class. These simultaneous payments are taken into account in calculating the
stated maturity date or final distribution date of each class, which, as with
other CMO structures, must be retired by its stated maturity date or final
distribution date but may be retired earlier. Planned amortization class
mortgage-based securities ("PAC Bonds") are a form of parallel pay CMO. PAC
Bonds are designed to provide relatively predictable payments of principal
provided that, among other things, the actual prepayment experience on the
underlying mortgage loans falls within a contemplated range. If the actual
prepayment experience on the underlying mortgage loans is at a rate faster or
slower than the contemplated range, or if deviations from other assumptions
occur, principal payments on a PAC Bond may be greater or smaller than
predicted. The magnitude of the contemplated range varies from one PAC Bond to
another; a narrower range
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increases the risk that prepayments will be greater or smaller than
contemplated. CMOs may have complicated structures and generally involve more
risks than simpler forms of mortgage-backed securities.
The final tranche of a CMO may be structured as an accrual bond (sometimes
referred to as a "Z-tranche"). Holders of accrual bonds receive no cash payments
for an extended period of time. During the time that earlier tranches are
outstanding, accrual bonds receive accrued interest which is a credit for
periodic interest payments that increases the face amount of the security at a
compounded rate, but is not paid to the bond holder. After all previous tranches
are retired, accrual bond holders start receiving cash payments that include
both principal and continuing interest. The market value of accrual bonds can
fluctuate widely and their average life depends on the other aspects of the CMO
offering. Interest on accrual bonds is taxable when accrued even though the
holders receive no accrual payment. The Funds distribute all of their net
investment income, and may have to sell portfolio securities to distribute
imputed income, which may occur at a time when an Adviser would not have chosen
to sell such securities and which may result in a taxable gain or loss.
STRIPPED MORTGAGE-BACKED SECURITIES. Stripped mortgage-backed securities are
classes of mortgage-backed securities that receive different proportions of the
interest and principal distributions from the underlying Mortgage Assets. They
may be may be privately issued or U.S. Government Securities. In the most
extreme case, one class will be entitled to receive all or a portion of the
interest but none of the principal from the Mortgage Assets (the interest-only
or "IO" class) and one class will be entitled to receive all or a portion of the
principal, but none of the interest (the "PO" class). Currently, no fund may
purchase IOs or POs.
TYPES OF CREDIT ENHANCEMENT. To lessen the effect of failures by obligors on
Mortgage Assets to make payments, mortgage-backed securities may contain
elements of credit enhancement. Credit enhancement falls into two categories:
(1) liquidity protection and (2) protection against losses resulting after
default by an obligor on the underlying assets and collection of all amounts
recoverable directly from the obligor and through liquidation of the collateral.
Liquidity protection refers to the provisions of advances, generally by the
entity administering the pool of assets (usually the bank, savings association
or mortgage banker that transferred the underlying loans to the issuer of the
security), to ensure that the receipt of payments on the underlying pool occurs
in a timely fashion. Protection against losses resulting after default and
liquidation ensures ultimate payment of the obligations on at least a portion of
the assets in the pool. Such protection may be provided through guarantees,
insurance policies or letters of credit obtained by the issuer or sponsor from
third parties, through various means of structuring the transaction or through a
combination of such approaches. The Funds will not pay any additional fees for
such credit enhancement, although the existence of credit enhancement may
increase the price of security.
Examples of credit enhancement arising out of the structure of the transaction
include: (1) "senior-subordinated securities" (multiple class securities with
one or more classes subordinate to other classes as to the payment of principal
thereof and interest thereon, with the result that defaults on the underlying
assets are borne first by the holders of the subordinated class); (2) creation
of "spread accounts" or "reserve funds" (where cash or investments, sometimes
funded from a portion of the payments on the underlying assets are held in
reserve against future losses); and (3) "over-collateralization" (where the
scheduled payments on, or the principal amount of, the underlying assets exceeds
that required to make payment of the securities and pay any servicing or other
fees). The degree of credit enhancement provided for each issue generally is
based on historical information regarding the level of credit risk associated
with the underlying assets. Delinquency or loss in excess of that covered by
credit enhancement protection could adversely affect the return on an investment
in such a security.
ASSET-BACKED SECURITIES
LIMITED TERM GOVERNMENT INCOME FUND, INTERMEDIATE GOVERNMENT INCOME FUND,
DIVERSIFIED BOND FUND, INCOME FUND, TOTAL RETURN BOND FUND, and BALANCED FUNDS.
Asset-backed securities represent direct or indirect participations in, or are
secured by and payable from, assets other than mortgage-backed assets such as
motor vehicle installment sales contracts, installment loan contracts, leases of
various types of real and personal property and receivables from revolving
credit (credit card) agreements. No Fund may invest more than 10 percent of its
net assets in asset-backed securities that are backed by a particular type of
credit, for instance, credit card receivables. Asset-backed securities,
including adjustable rate asset-backed securities, have yield
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characteristics similar to those of mortgage-backed securities and, accordingly,
are subject to many of the same risks. Assets are securitized through the use of
trusts and special purpose corporations that issue securities that are often
backed by a pool of assets representing the obligations of a number of different
parties. Payments of principal and interest may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution. Asset-backed securities do not always have the benefit of
a security interest in collateral comparable to the security interests
associated with mortgage-backed securities. As a result, the risk that recovery
on repossessed collateral might be unavailable or inadequate to support payments
on asset-backed securities is greater for asset-backed securities than for
mortgage-backed securities. In addition, because asset-backed securities are
relatively new, the market experience in these securities is limited and the
market's ability to sustain liquidity through all phases of an interest rate or
economic cycle has not been tested.
A Fund may invest in asset-backed securities, which have structural
characteristics similar to mortgage-backed securities but have underlying assets
that are not mortgage loans or interests in mortgage loans. Asset-backed
securities are securities that represent direct or indirect participations in,
or are secured by and payable from, assets such as motor vehicle installment
sales contracts, installment loan contracts, leases of various types of real and
personal property and receivables from revolving credit (credit card)
agreements. Such assets are securitized through the use of trusts and special
purpose corporations.
Asset-backed securities are often backed by a pool of assets representing the
obligations of a number of different parties. Payments of principal and interest
may be guaranteed up to certain amounts and for a certain time period by a
letter of credit issued by a financial institution.
Asset-backed securities present certain risks that are not presented by
mortgage-backed debt securities or other securities in which a Fund may invest.
Primarily, these securities do not always have the benefit of a security
interest in comparable collateral. Credit card receivables are generally
unsecured and the debtors are entitled to the protection of a number of state
and Federal consumer credit laws, many of which give such debtors the right to
set off certain amounts owed on the credit cards, thereby reducing the balance
due. Automobile receivables generally are secured by automobiles. Most issuers
of automobile receivables permit the loan servicers to retain possession of the
underlying obligations. If the servicer were to sell these obligations to
another party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the asset-backed securities. In addition,
because of the large number of vehicles involved in a typical issuance and the
technical requirements under state laws, the trustee for the holders of the
automobile receivables may not have a proper security interest in the underlying
automobiles. Therefore, there is the possibility that recoveries on repossessed
collateral may not, in some cases, be available to support payments on these
securities. Because asset-backed securities are relatively new, the market
experience in these securities is limited and the market's ability to sustain
liquidity through all phases of the market cycle has not been tested.
INTEREST RATE PROTECTION TRANSACTIONS
STABLE INCOME FUND, LIMITED TERM GOVERNMENT INCOME FUND, INTERMEDIATE GOVERNMENT
INCOME FUND, DIVERSIFIED BOND FUND, BALANCED FUNDS. To manage its exposure to
different types of investments, a Fund may enter into interest rate, currency
and mortgage (or other asset) swap agreements and may purchase and sell interest
rate "caps," "floors" and "collars." In a typical interest rate swap agreement,
one party agrees to make regular payments equal to a floating interest rate on a
specified amount (the "notional principal amount") in return for payments equal
to a fixed interest rate on the same amount for a specified period. If a swap
agreement provides for payment in different currencies, the parties may also
agree to exchange the notional principal amount. Mortgage swap agreements are
similar to interest rate swap agreements, except that the notional principal
amount is tied to a reference pool of mortgages. In a cap or floor, one party
agrees, usually in return for a fee, to make payments under particular
circumstances. For example, the purchaser of an interest rate cap has the right
to receive payments to the extent a specified interest rate exceeds an agreed
upon level; the purchaser of an interest rate floor has the right to receive
payments to the extent a specified interest rate falls below an agreed upon
level. A collar entitles the purchaser to receive payments to the extent a
specified interest rate falls outside an agreed upon range.
Swap agreements may involve leverage and may be highly volatile; depending on
how they are used, they may have a considerable impact on the Funds performance.
Swap agreements involve risks depending upon the counterparties'
creditworthiness and ability to perform as well as the Fund's ability to
terminate its swap agreements or reduce its exposure through offsetting
transactions.
A Fund expects to enter into interest rate protection transactions to preserve a
return or spread on a particular investment or portion of its portfolio or to
protect against any increase in the price of securities it anticipates
purchasing at a later date. The Funds intend to use these transactions as a
hedge and not as a speculative investment.
A Fund may enter into interest rate protection transactions on an asset-based
basis, depending on whether it is hedging its assets or its liabilities, and
will usually enter into interest rate swaps on a net basis, i.e., the two
payment streams are netted out, with the Fund receiving or paying, as the case
may be, only the net amount of the two payments. Inasmuch as these interest rate
protection transactions are entered into for good faith hedging purposes, and
inasmuch as segregated accounts will be established with respect to such
transactions, the Funds believe such obligations do not constitute senior
securities. The net amount of the excess, if any, of a Fund's obligations over
its entitlements with respect to each interest rate swap will be accrued on a
daily basis and an amount of cash, U.S. Government Securities or other liquid
high grade debt obligations having an aggregate net asset value at least equal
to the accrued excess will be maintained in a segregated account by a custodian
that satisfies the requirements of the 1940 Act. The Funds also will establish
and maintain such segregated accounts with respect to its total obligations
under any interest rate swaps that are not entered into on a net basis and with
respect to any interest rate caps, collars and floors that are written by the
Fund.
A Fund will enter into interest rate protection transactions only with banks and
other institutions the Adviser believes to present minimal credit risks. If
there is a default by the other party to such a transaction, the Fund will have
to rely on its contractual remedies (which may be limited by bankruptcy,
insolvency or similar laws) pursuant to the agreements related to the
transaction.
The swap market has grown substantially in recent years with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. Caps, collars and floors are more
recent innovations for which documentation is less standardized and,
accordingly, are less liquid than swaps.
<PAGE>
HEDGING AND OPTION INCOME STRATEGIES
STABLE INCOME FUND, LIMITED TERM GOVERNMENT INCOME FUND, INTERMEDIATE GOVERNMENT
INCOME FUND, DIVERSIFIED BOND FUND, TOTAL RETURN BOND FUND, BALANCED FUNDS,
INDEX FUND, DIVERSIFIED EQUITY FUND and SMALL CAP OPPORTUNITIES FUND. A Fund may
seek to enhance its return through the writing (selling) and purchasing of
exchange-traded and over-the-counter options on fixed income securities or
indices. A Fund may also to attempt to hedge against a decline in the value of
securities owned by it or an increase in the price of securities which it plans
to purchase through the use of those options and the purchase and sale of
interest rate futures contracts and options on those futures contracts. These
instruments are often referred to as "derivatives," which may be defined as
financial instruments whose performance is derived, at least in part, from the
performance of another asset (such as a security, currency or an index of
securities. A Fund may only write options that are covered. An option is covered
if, so long as the Fund is obligated under the option, it owns an offsetting
position in the underlying security or futures contract or maintains cash, U.S.
Government Securities or other liquid debt securities in a segregated account
with a value at all times sufficient to cover the Fund's obligation under the
option. Certain futures strategies employed by a Balanced Fund in making
temporary allocations may not be deemed to be for bona fide hedging purposes, as
defined by the Commodity Futures Trading Commission. A Fund may enter into these
futures contracts only if the aggregate of initial margin deposits for open
futures contract positions does not exceed 5 percent of the Fund's total assets.
RISK CONSIDERATIONS. The Fund's use of options and futures contracts subjects
the Fund to certain investment risks and transaction costs to which it might not
otherwise be subject. These risks include: (1) dependence on Norwest's ability
to predict movements in the prices of individual securities and fluctuations in
the general securities markets; (2) imperfect correlations between movements in
the prices of options or futures contracts and movements in the price of the
securities hedged or used for cover which may cause a given hedge not to achieve
its objective; (3) the fact that the skills and techniques needed to trade these
instruments are different from those needed to select the other securities in
which the Fund invests; (4) lack of assurance that a liquid secondary market
will exist for any particular instrument at any particular time, which, among
other things, may hinder a Fund's ability to limit exposures by closing its
positions; (5) the possible need to defer closing out of certain options,
futures contracts and related options to avoid adverse tax consequences; and (6)
the potential for unlimited loss when investing in futures contracts or writing
options for which an offsetting position is not held.
Other risks include the inability of the Fund, as the writer of covered call
options, to benefit from any appreciation of the underlying securities above the
exercise price and the possible loss of the entire premium paid for options
purchased by the Fund. In addition, the futures exchanges may limit the amount
of fluctuation permitted in certain futures contract prices during a single
trading day. A Fund may be forced, therefore, to liquidate or close out a
futures contract position at a disadvantageous price. There can be no assurance
that a liquid market will exist at a time when a Fund seeks to close out a
futures position or that a counterparty in an over-the-counter option
transaction will be able to perform its obligations. There are a limited number
of options on interest rate futures contracts and exchange traded options
contracts on fixed income securities. Accordingly, hedging transactions
involving these instruments may entail "cross-hedging." As an example, a Fund
may wish to hedge existing holdings of mortgage-backed securities, but no listed
options may exist on those securities. In that event, Norwest may attempt to
hedge the Fund's securities by the use of options with respect to similar fixed
income securities. The Fund may use various futures contracts that are
relatively new instruments without a significant trading history. As a result,
there can be no assurance that an active secondary market in those contracts
will develop or continue to exist.
LIMITATIONS. Except for the futures contracts strategies of the Balanced Funds
used for making temporary allocations among fixed-income and equity securities,
the Funds have no current intention of investing in futures contracts and
options thereon for purposes other than hedging. Schroder U.S. Smaller Companies
Portfolio may purchase a call or put only if, after such purchase, the value of
all put and call options held by the Core Portfolio would not exceed 5% of the
Core Portfolio's total assets. No other Fund may purchase any call or put option
on a futures contract if the premiums associated with all such options held by
the Fund would exceed 5 percent of the Fund's total assets as of the date the
option is purchased. No Fund may sell a put option if the exercise value of all
put options written by the Fund would exceed 50 percent of the Fund's total
assets or sell a call option if the
<PAGE>
exercise value of all call options written by the Fund would exceed the value of
the Fund's assets. In addition, the current market value of all open futures
positions held by a Fund will not exceed 50 percent of its total assets.
OPTIONS ON SECURITIES. A call option is a contract pursuant to which the
purchaser of the call option, in return for a premium paid, has the right to buy
the security underlying the option at a specified exercise price at any time
during the term of the option. The writer of the call option, who receives the
premium, has the obligation upon exercise of the option to deliver the
underlying security against payment of the exercise price during the option
period. A put option gives its purchaser, in return for a premium, the right to
sell the underlying security at a specified price during the term of the option.
The writer of the put, who receives the premium, has the obligation to buy the
underlying security, upon exercise at the exercise price during the option
period. The amount of premium received or paid is based upon certain factors,
including the market price of the underlying security or index, the relationship
of the exercise price to the market price, the historical price volatility of
the underlying security or index, the option period, supply and demand and
interest rates.
OPTIONS ON STOCK INDICES. A stock index assigns relative values to the stock
included in the index, and the index fluctuates with changes in the market
values of the stocks included in the index. Stock index options operate in the
same way as the more traditional stock options except that exercises of stock
index options are effected with cash payments and do not involve delivery of
securities. Thus, upon exercise of stock index options, the purchaser will
realize and the writer will pay an amount based on the differences between the
exercise price and the closing price of the stock index.
INDEX FUTURES CONTRACTS. Bond and stock index futures contracts are bilateral
agreements pursuant to which two parties agree to take or make delivery of an
amount of cash equal to a specified dollar amount times the difference between
the bond or stock index value at the close of trading of the contract and the
price at which the futures contract is originally struck. No physical delivery
of the securities comprising the index is made. Generally, these futures
contracts are closed out prior to the expiration date of the contract. In
addition to the Funds listed at the beginning of this section, "Futures
Contracts and Options," a Fund using the Index Fund investment style may invest
in index futures contracts to a limited extent.
OPTIONS ON FUTURES CONTRACTS. Options on futures contracts are similar to stock
options except that an option on a futures contract gives the purchaser the
right, in return for the premium paid, to assume a position in a futures
contract rather than to purchase or sell stock, at a specified exercise price at
any time during the period of the option. Upon exercise of the option, the
delivery of the futures position to the holder of the option will be accompanied
by transfer to the holder of an accumulated balance representing the amount by
which the market price of the futures contract exceeds, in the case of a call,
or is less than, in the case of a put, the exercise price of the option on the
future.
COVERED CALLS AND HEDGING
Each Fund (other than the Money Market Funds), may (i) purchase or sell (write)
put and call options on securities to enhance the Fund's performance and (ii)
seek to hedge against a decline in the value of securities owned by it or an
increase in the price of securities which it plans to purchase through the
writing and purchase of exchange-traded and over-the-counter options on
individual securities or securities or financial indices and through the
purchase and sale of financial futures contracts and related options. Certain
Funds currently do no not intend to enter into any such transactions. Whether or
not used for hedging purposes, these investments techniques involve risks that
are different in certain respects from the investment risks associated with the
other investments of a Fund. Principal among such risks are: (1) the possible
failure of such instruments as hedging techniques in cases where the price
movements of the securities underlying the options or futures do not follow the
price movements of the portfolio securities subject to the hedge; (2)
potentially unlimited loss associated with futures transactions and the possible
lack of a liquid secondary market for closing out a futures position; and (3)
possible losses resulting from the inability of the Core Portfolio's Adviser to
correctly predict the direction of stock prices, interest rates and other
economic factors. To the extent a Fund invests in foreign securities, it may
also invest in options on foreign currencies, foreign currency futures contracts
and options on those futures contracts. Use of these
<PAGE>
instruments is subject to regulation by the SEC, the several options and futures
exchanges upon which options and futures are traded or the CFTC.
No assurance can be given, however, that any hedging or option income strategy
will succeed in achieving its intended result.
Except as otherwise noted in the Prospectus or herein, the Funds will not use
leverage in their option income and hedging strategies. In the case of
transactions entered into as a hedge, a Fund will hold securities, currencies or
other options or futures positions whose values are expected to offset ("cover")
its obligations thereunder. A Fund will not enter into a hedging strategy that
exposes it to an obligation to another party unless it owns either: (1) an
offsetting ("covered") position or (2) cash, U.S. Government Securities or other
liquid securities (or other assets as may be permitted by the SEC) with a value
sufficient at all times to cover its potential obligations. When required by
applicable regulatory guidelines, the Funds will set aside cash, U.S. Government
Securities or other liquid securities (or other assets as may be permitted by
the SEC) in a segregated account with its custodian in the prescribed amount.
Any assets used for cover or held in a segregated account cannot be sold or
closed out while the hedging or option income strategy is outstanding, unless
they are replaced with similar assets. As a result, there is a possibility that
the use of cover or segregation involving a large percentage of a Fund's assets
could impede portfolio management or the Fund's ability to meet redemption
requests or other current obligations.
OPTIONS STRATEGIES
A Fund may purchase put and call options written by others and sell put and call
options covering specified individual securities, securities or financial
indices or currencies. A put option (sometimes called a "standby commitment")
gives the buyer of the option, upon payment of a premium, the right to deliver a
specified amount of currency to the writer of the option on or before a fixed
date at a predetermined price. A call option (sometimes called a "reverse
standby commitment") gives the purchaser of the option, upon payment of a
premium, the right to call upon the writer to deliver a specified amount of
currency on or before a fixed date, at a predetermined price. The predetermined
prices may be higher or lower than the market value of the underlying currency.
A Fund may buy or sell both exchange-traded and over-the-counter ("OTC")
options. A Fund will purchase or write an option only if that option is traded
on a recognized U.S. options exchange or if the Adviser believes that a liquid
secondary market for the option exists. When a Fund purchases an OTC option, it
relies on the dealer from which it has purchased the OTC option to make or take
delivery of the currency underlying the option. Failure by the dealer to do so
would result in the loss of the premium paid by the Fund as well as the loss of
the expected benefit of the transaction. OTC options and the securities
underlying these options currently are treated as illiquid securities by the
Funds.
Upon selling an option, a Fund receives a premium from the purchaser of the
option. Upon purchasing an option the Fund pays a premium to the seller of the
option. The amount of premium received or paid by the Fund is based upon certain
factors, including the market price of the underlying securities, index or
currency, the relationship of the exercise price to the market price, the
historical price volatility of the underlying assets, the option period, supply
and demand and interest rates.
Certain Funds may purchase call options on debt securities that the Fund's
Adviser intends to include in the Fund's portfolio in order to fix the cost of a
future purchase. Call options may also be purchased as a means of participating
in an anticipated price increase of a security on a more limited risk basis than
would be possible if the security itself were purchased. In the event of a
decline in the price of the underlying security, use of this strategy would
serve to limit the potential loss to the Fund to the option premium paid;
conversely, if the market price of the underlying security increases above the
exercise price and the Fund either sells or exercises the option, any profit
eventually realized will be reduced by the premium paid. A Fund may similarly
purchase put options in order to hedge against a decline in market value of
securities held in its portfolio. The put enables the Fund to sell the
underlying security at the predetermined exercise price; thus the potential for
loss to the Fund is limited to the option premium paid. If the market price of
the underlying security is lower than the exercise price of the put, any profit
the Fund realizes on the sale of the security would be reduced by the premium
paid for the put option less any amount for which the put may be sold.
<PAGE>
An Adviser may write call options when it believes that the market value of the
underlying security will not rise to a value greater than the exercise price
plus the premium received. Call options may also be written to provide limited
protection against a decrease in the market price of a security, in an amount
equal to the call premium received less any transaction costs.
Certain Funds may purchase and write put and call options on fixed income or
equity security indexes in much the same manner as the options discussed above,
except that index options may serve as a hedge against overall fluctuations in
the fixed income or equity securities markets (or market sectors) or as a means
of participating in an anticipated price increase in those markets. The
effectiveness of hedging techniques using index options will depend on the
extent to which price movements in the index selected correlate with price
movements of the securities which are being hedged. Index options are settled
exclusively in cash.
SCHRODER U.S. SMALLER COMPANIES PORTFOLIO The Core Portfolio may write covered
calls on up to 100% of its total assets or employ one or more types of
instruments to hedge ("Hedging Instruments"). When hedging to attempt to protect
against declines in the market value of the Core Portfolio's securities, to
permit the Core Portfolio to retain unrealized gains in the value of portfolio
securities which have appreciated, or to facilitate selling securities for
investment reasons, the Core Portfolio would: (1) sell Stock Index Futures; (2)
purchase puts on such futures or securities; or (3) write covered calls on
securities or on Stock Index Futures. When hedging to establish a position in
the equities markets as a temporary substitute for purchasing particular equity
securities (which the Core Portfolio will normally purchase and then terminate
the hedging position), the Core Portfolio would: (1) purchase Stock Index
Futures, or (2) purchase calls on such Futures or on securities. The Core
Portfolio's strategy of hedging with Stock Index Futures and options on such
Futures will be incidental to the Core Portfolio's activities in the underlying
cash market.
The Core Portfolio may write (i.e., sell) call options ("calls") if: (1) the
calls are listed on a domestic securities or commodities exchange and (2) the
calls are "covered" (i.e., the Core Portfolio owns the securities subject to the
call or other securities acceptable for applicable escrow arrangements) while
the call is outstanding. A call written on a Stock Index Future must be covered
by deliverable securities or segregated liquid assets. If a call written by the
Core Portfolio is exercised, the Core Portfolio forgoes any profit from any
increase in the market price above the call price of the underlying investment
on which the call was written.
When the Core Portfolio writes a call on a security, it receives a premium and
agrees to sell the underlying securities to a purchaser of a corresponding call
on the same security during the call period (usually not more than 9 months) at
a fixed exercise price (which may differ from the market price of the underlying
security), regardless of market price changes during the call period. The risk
of loss will have been retained by the Core Portfolio if the price of the
underlying security should decline during the call period, which may be offset
to some extent by the premium.
To terminate its obligation on a call it has written, the Core Portfolio may be
purchase a corresponding call in a "closing purchase transaction." A profit or
loss will be realized, depending upon whether the net of the amount of option
transaction costs and the premium previously received on the call written was
more or less than the price of the call subsequently purchased. A profit may
also be realized if the call lapses unexercised, because the Core Portfolio
retains the underlying security and the premium received. Any such profits are
considered short-term capital gains for Federal income tax purposes, and when
distributed by the Core Portfolio are taxable as ordinary income. If the Core
Portfolio could not effect a closing purchase transaction due to the lack of a
market, it would have to hold the callable securities until the call lapsed or
was exercised.
The Core Portfolio may also write calls on Stock Index Futures without owning a
futures contract or a deliverable bond, provided that at the time the call is
written, the Core Portfolio covers the call by segregating in escrow an
equivalent dollar amount of liquid assets. The Core Portfolio will segregate
additional liquid assets if the value of the escrowed assets drops below 100% of
the current value of the Stock Index Future. In no circumstances would an
exercise notice require the Core Portfolio to deliver a futures contract; it
would simply put the Core Portfolio in a short futures position, which is
permitted by the Core Portfolio's hedging policies.
<PAGE>
PURCHASING CALLS AND PUTS. The Core Portfolio may purchase put options ("puts")
which relate to: (1) securities held by it; (2) Stock Index Futures (whether or
not it holds such Stock Index Futures in its portfolio); or (3) broadly-based
stock indices. The Core Portfolio may not sell puts other than those it
previously purchased, nor purchase puts on securities it does not hold. The Core
Portfolio may purchase calls: (1) as to securities, broadly-based stock indices
or Stock Index Futures or (2) to effect a "closing purchase transaction" to
terminate its obligation on a call it has previously written. A call or put may
be purchased only if, after such purchase, the value of all put and call options
held by the Core Portfolio would not exceed 5% of the Core Portfolio's total
assets.
When the Core Portfolio purchases a call (other than in a closing purchase
transaction), it pays a premium and, except as to calls on stock indices, has
the right to buy the underlying investment from a seller of a corresponding call
on the same investment during the call period at a fixed exercise price. The
Core Portfolio benefits only if the call is sold at a profit or if, during the
call period, the market price of the underlying investment is above the sum of
the call price plus the transaction costs and the premium paid for the call and
the call is exercised. If the call is not exercised or sold (whether or not at a
profit), it will become worthless at its expiration date and the Core Portfolio
will lose its premium payments and the right to purchase the underlying
investment. When the Core Portfolio purchases a call on a stock index, it pays a
premium, but settlement is in cash rather than by delivery of an underlying
investment.
When the Core Portfolio purchases a put, it pays a premium and, except as to
puts on stock indices, has the right to sell the underlying investment to a
seller of a corresponding put on the same investment during the put period at a
fixed exercise price. Buying a put on a security or Stock Index Future the Core
Portfolio owns enables the Core Portfolio to attempt to protect itself during
the put period against a decline in the value of the underlying investment below
the exercise price by selling the underlying investment at the exercise price to
a seller of a corresponding put. If the market price of the underlying
investment is equal to or above the exercise price and, as a result, the put is
not exercised or resold, the put will become worthless at its expiration date
and the Core Portfolio will lose its premium payment and the right to sell the
underlying investment; the put may, however, be sold prior to expiration
(whether or not at a profit).
Purchasing a put on either a stock index or on a Stock Index Future not held by
the Core Portfolio permits the Core Portfolio either to resell the put or to buy
the underlying investment and sell it at the exercise price. The resale price of
the put will vary inversely with the price of the underlying investment. If the
market price of the underlying investment is above the exercise price and, as a
result, the put is not exercised, the put will become worthless on its
expiration date. In the event of a decline in price of the underlying
investment, the Core Portfolio could exercise or sell the put at a profit to
attempt to offset some or all of its loss on its portfolio securities. When the
Core Portfolio purchases a put on a stock index, or on a Stock Index Future not
held by it, the put protects the Core Portfolio to the extent that the index
moves in a similar pattern to the securities held. In the case of a put on a
stock index or Stock Index Future, settlement is in cash rather than by the Core
Portfolio's delivery of the underlying investment.
STOCK INDEX FUTURES. The Core Portfolio may buy and sell futures contracts only
if they are Stock Index Futures. A stock index is "broadly-based" if it includes
stocks that are not limited to issuers in any particular industry or group of
industries. Stock Index Futures obligate the seller to deliver (and the
purchaser to take) cash to settle the futures transaction, or to enter into an
offsetting contract. No physical delivery of the underlying stocks in the index
is made.
No price is paid or received upon the purchase or sale of a Stock Index Future.
Upon entering into a futures transaction, the Core Portfolio will be required to
deposit an initial margin payment in cash or U.S. Treasury bills with a futures
commission merchant (the "futures broker"). The initial margin will be deposited
with the Core Portfolio's custodian in an account registered in the futures
broker's name; however the futures broker can gain access to that account only
under specified conditions. As the future is marked to market to reflect changes
in its market value, subsequent margin payments, called variation margin, will
be paid to or by the futures broker on a daily basis. Prior to expiration of the
future, if the Core Portfolio elects to close out its position by taking an
opposite position, a final determination of variation margin is made, additional
cash is required to be paid by or
<PAGE>
released to the Core Portfolio, and any loss or gain is realized for tax
purposes. Although Stock Index Futures by their terms call for settlement by the
delivery of cash, in most cases the obligation is fulfilled without such
delivery, by entering into an offsetting transaction. All futures transactions
are effected through a clearinghouse associated with the exchange on which the
contracts are traded.
Puts and calls on broadly-based stock indices or Stock Index Futures are similar
to puts and calls on securities or futures contracts except that all settlements
are in cash and gain or loss depends on changes in the index in question (and
thus on price movements in the stock market generally) rather than on price
movements in individual securities or futures contracts. When the Core Portfolio
buys a call on a stock index or Stock Index Future, it pays a premium. During
the call period, upon exercise of a call by the Core Portfolio, a seller of a
corresponding call on the same index will pay the Core Portfolio an amount of
cash to settle the call if the closing level of the stock index or Stock Index
Future upon which the call is based is greater than the exercise price of the
call; that cash payment is equal to the difference between the closing price of
the index and the exercise price of the call times a specified multiple (the
"multiplier") which determines the total dollar value for each point of
difference. When the Core Portfolio buys a put on a stock index or Stock Index
Future, it pays a premium and has the right during the put period to require a
seller of a corresponding put, upon the Core Portfolio's exercise of its put, to
deliver to the Core Portfolio an amount of cash to settle the put if the closing
level of the stock index or Stock Index Future upon which the put is based is
less than the exercise price of the put; that cash payment is determined by the
multiplier, in the same manner as described above as to calls.
ADDITIONAL INFORMATION ABOUT HEDGING INSTRUMENTS AND THEIR USE. The Core
Portfolio's custodian, or a securities depository acting for the custodian, will
act as the Core Portfolio's escrow agent, through the facilities of the Options
Clearing Corporation ("OCC"), as to the securities on which the Core Portfolio
has written options, or as to other acceptable escrow securities, so that no
margin will be required for such transactions. OCC will release the securities
on the expiration of the option or upon the Core Portfolio's entering into a
closing transaction. An option position may be closed out only on a market which
provides secondary trading for options of the same series, and there is no
assurance that a liquid secondary market will exist for any particular option.
The Core Portfolio's option activities may affect its portfolio turnover rate
and brokerage commissions. The exercise of calls written by the Core Portfolio
may cause the Core Portfolio to sell related portfolio securities, thus
increasing its turnover rate in a manner beyond the Core Portfolio's control.
The exercise by the Core Portfolio of puts on securities or Stock Index Futures
may cause the sale of related investments, also increasing portfolio turnover.
Although such exercise is within the Core Portfolio's control, holding a put
might cause the Core Portfolio to sell the underlying investment for reasons
which would not exist in the absence of the put. The Core Portfolio will pay a
brokerage commission each time it buys or sells a call, a put or an underlying
investment in connection with the exercise of a put or call. Such commissions
may be higher than those which would apply to direct purchases or sales of the
underlying investments. Premiums paid for options are small in relation to the
market value of such investments, and, consequently, put and call options offer
large amounts of leverage. The leverage offered by trading in options could
result in the Core Portfolio's net asset value being more sensitive to changes
in the value of the underlying investments.
REGULATORY ASPECTS OF HEDGING INSTRUMENTS AND COVERED CALLS. The Core Portfolio
must operate within certain restrictions as to its long and short positions in
Stock Index Futures and options thereon under a rule (the "CFTC Rule") adopted
by the CFTC under the Commodity Exchange Act (the "CEA"), which excludes the
Core Portfolio from registration with the CFTC as a "commodity pool operator"
(as defined in the CEA) if it complies with the CFTC Rule. Under these
restrictions the Core Portfolio will not, as to any positions, whether short,
long or a combination thereof, enter into Stock Index Futures and options
thereon for which the aggregate initial margins and premiums exceed 5% of the
fair market value of its total assets, with certain exclusions as defined in the
CFTC Rule. Under the restrictions, the Core Portfolio also must, as to its short
positions, use Stock Index Futures and options thereon solely for bona-fide
hedging purposes within the meaning and intent of the applicable provisions
under the CEA.
Transactions in options by the Core Portfolio are subject to limitations
established by each of the exchanges governing the maximum number of options
that may be written or held by a single investor or group of investors
<PAGE>
acting in concert, regardless of whether the options were written or purchased
on the same or different exchanges or are held in one or more accounts or
through one or more exchanges or brokers. Thus, the number of options which the
Core Portfolio may write or hold may be affected by options written or held by
other entities, including other investment companies having the same or an
affiliated Adviser. Position limits also apply to Stock Index Futures. An
exchange may order the liquidation of positions found to be in violation of
those limits and may impose certain other sanctions. Due to requirements under
the 1940 Act, when the Core Portfolio purchases a Stock Index Future, the Core
Portfolio will maintain, in a segregated account or accounts with its custodian
bank, cash or liquid assets in an amount equal to the market value of the
securities underlying such Stock Index Future, less the margin deposit
applicable to it.
LIMITS ON USE OF HEDGING INSTRUMENTS. The Core Portfolio intends to qualify as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended (the "Code").
POSSIBLE RISK FACTORS IN HEDGING. In addition to the risks discussed above,
there is a risk in using short hedging by selling Stock Index Futures or
purchasing puts on stock indices that the prices of the applicable index (thus
the prices of the Hedging Instruments) will correlate imperfectly with the
behavior of the cash (i.e., market value) prices of the Core Portfolio's equity
securities. The ordinary spreads between prices in the cash and futures markets
are subject to distortions due to differences in the natures of those markets.
First, all participants in the futures markets are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures markets depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures markets could be reduced, thus producing distortion. Third, from
the point of view of speculators, the deposit requirements in the futures
markets are less onerous than margin requirements in the securities markets.
Therefore, increased participation by speculators in the futures markets may
cause temporary price distortions.
The risk of imperfect correlation increases as the composition of the Core
Portfolio's portfolio diverges from the securities included in the applicable
index. To compensate for the imperfect correlation of movements in the price of
the equity securities being hedged and movements in the price of the Hedging
Instruments, the Core Portfolio may use Hedging Instruments in a greater dollar
amount than the dollar amount of equity securities being hedged if the
historical volatility of the prices of such equity securities being hedged is
more than the historical volatility of the applicable index. It is also possible
that where the Core Portfolio has used Hedging Instruments in a short hedge, the
market may advance and the value of equity securities held in the Core
Portfolio's portfolio may decline. If this occurred, the Core Portfolio would
lose money on the Hedging Instruments and also experience a decline in value in
its equity securities. However, while this could occur for a very brief period
or to a very small degree, the value of a diversified portfolio of equity
securities will tend to move over time in the same direction as the indices upon
which the Hedging Instruments are based.
If the Core Portfolio uses Hedging Instruments to establish a position in the
equities markets as a temporary substitute for the purchase of individual equity
securities (long hedging) by buying Stock Index Futures and/or calls on such
Futures, on securities or on stock indices, it is possible that the market may
decline; if the Core Portfolio then concludes not to invest in equity securities
at that time because of concerns as to possible further market decline or for
other reasons, the Core Portfolio will realize a loss on the Hedging Instruments
that is not offset by a reduction in the price of the equity securities
purchased.
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FOREIGN CURRENCY OPTIONS AND RELATED RISKS
Foreign currency options are discussed below under Foreign Currency
Transactions.
SPECIAL CHARACTERISTICS AND RISKS OF OPTIONS TRADING
A Fund may effectively terminate its right or obligation under an option
contract by entering into a closing transaction. For instance, if the Fund
wished to terminate its potential obligation to sell securities or currencies
under a call option it had written, a call option of the same type would be
purchased by the Fund. Closing transactions essentially permit the Fund to
realize profits or limit losses on its options positions prior to the exercise
or expiration of the option. In addition:
(1) The successful use of options depends upon the Adviser's ability to
forecast the direction of price fluctuations in the underlying securities or
currency markets, or in the case of an index option, fluctuations in the market
sector represented by the index.
(2) Options normally have expiration dates of up to nine months.
Options that expire unexercised have no value. Unless an option purchased by a
Fund is exercised or unless a closing transaction is effected with respect to
that position, a loss will be realized in the amount of the premium paid.
(3) A position in an exchange-listed option may be closed out only on
an exchange which provides a market for identical options. Most exchange-listed
options relate to equity securities. Exchange markets for options on foreign
currencies are relatively new, and the ability to establish and close out
positions on the exchanges is subject to the maintenance of a liquid secondary
market. Closing transactions may be effected with respect to options traded in
the over-the-counter markets (currently the primary markets for options on
foreign currencies) only by negotiating directly with the other party to the
option contract or in a secondary market for the option if such market exists.
There is no assurance that a liquid secondary market will exist for any
particular option at any specific time. If it is not possible to effect a
closing transaction, a Fund would have to exercise the option which it purchased
in order to realize any profit. The inability to effect a closing transaction on
an option written by a Fund may result in material losses to the Fund.
(4) A Fund's activities in the options markets may result in a higher
portfolio turnover rate and additional brokerage costs.
(5) When a Fund enters into an over-the-counter contract with a
counterparty, the Fund will assume the risk that the counterparty will fail to
perform its obligations, in which case the Fund could be worse off than if the
contract had not been entered into.
FUTURES STRATEGIES
A futures contract is a bilateral agreement wherein one party agrees to accept,
and the other party agrees to make, delivery of cash, an underlying debt
security or the currency as called for in the contract at a specified future
date and at a specified price. For futures contracts with respect to an index,
delivery is of an amount of cash equal to a specified dollar amount times the
difference between the index value at the time of the contract and the close of
trading of the contract.
A Fund may sell interest rate futures contracts in order to continue to receive
the income from a fixed income security, while endeavoring to avoid part of or
all of a decline in the market value of that security which would accompany an
increase in interest rates.
A Fund may purchase index futures contracts for several reasons: to simulate
full investment in the underlying index while retaining a cash balance for fund
management purposes, to facilitate trading, to reduce transactions costs, or to
seek higher investment returns when a futures contract is priced more
attractively than securities in the index.
<PAGE>
A Fund may purchase call options on a futures contract as a means of obtaining
temporary exposure to market appreciation at limited risk. This strategy is
analogous to the purchase of a call option on an individual security, in that it
can be used as a temporary substitute for a position in the security itself.
A Fund may sell foreign currency futures contracts to hedge against possible
variations in the exchange rate of the foreign currency in relation to the U.S.
dollar. In addition, a Fund may sell foreign currency futures contracts when its
Adviser anticipates a general weakening of foreign currency exchange rates that
could adversely affect the market values of the Fund's foreign securities
holdings. A Fund may purchase a foreign currency futures contract to hedge
against an anticipated foreign exchange rate increase pending completion of
anticipated transactions. Such a purchase would serve as a temporary measure to
protect the Fund against such increase. A Fund may also purchase call or put
options on foreign currency futures contracts to obtain a fixed foreign exchange
rate at limited risk. A Fund may write call options on foreign currency futures
contracts as a partial hedge against the effects of declining foreign exchange
rates on the value of foreign securities.
SPECIAL CHARACTERISTICS AND RISKS OF FUTURES AND RELATED OPTIONS TRADING
No price is paid upon entering into futures contracts; rather, a Fund is
required to deposit (typically with its custodian in a segregated account in the
name of the futures broker) an amount of cash or U.S. Government Securities
generally equal to 5% or less of the contract value. This amount is known as
initial margin. Subsequent payments, called variation margin, to and from the
broker, would be made on a daily basis as the value of the futures position
varies. When writing a call on a futures contract, variation margin must be
deposited in accordance with applicable exchange rules. The initial margin in
futures transactions is in the nature of a performance bond or good-faith
deposit on the contract that is returned to the Fund upon termination of the
contract, assuming all contractual obligations have been satisfied.
Holders and writers of futures and options on futures contracts can enter into
offsetting closing transactions, similar to closing transactions on options, by
selling or purchasing, respectively, a futures contract or related option with
the same terms as the position held or written. Positions in futures contracts
may be closed only on an exchange or board of trade providing a secondary market
for such futures contracts.
Under certain circumstances, futures exchanges may establish daily limits in the
amount that the price of a futures contract or related option may vary either up
or down from the previous day's settlement price. Once the daily limit has been
reached in a particular contract, no trades may be made that day at a price
beyond that limit. Prices could move to the daily limit for several consecutive
trading days with little or no trading and thereby prevent prompt liquidation of
positions. In that event, it may not be possible for a Fund to close a position,
and in the event of adverse price movements, it would have to make daily cash
payments of variation margin. In addition:
(1) Successful use by a Fund of futures contracts and related options
will depend upon the Adviser's ability to predict movements in the direction of
the overall securities and currency markets, which requires different skills and
techniques than predicting changes in the prices of individual securities.
Moreover, futures contracts relate not to the current level of the underlying
instrument but to the anticipated levels at some point in the future; thus, for
example, trading of stock index futures may not reflect the trading of the
securities which are used to formulate an index or even actual fluctuations in
the relevant index itself.
(2) The price of futures contracts may not correlate perfectly with
movement in the price of the hedged currencies due to price distortions in the
futures market or otherwise. There may be several reasons unrelated to the value
of the underlying currencies which causes this situation to occur. As a result,
a correct forecast of general market trends may still not result in successful
hedging through the use of futures contracts over the short term.
(3) There is no assurance that a liquid secondary market will exist for
any particular contract at any particular time. In such event, it may not be
possible to close a position, and in the event of adverse price movements, the
Fund would continue to be required to make daily cash payments of variation
margin.
(4) Like other options, options on futures contracts have a limited
life. A Fund will not trade options on futures contracts on any exchange or
board of trade unless and until, in Norwest's opinion, the market for such
options
<PAGE>
has developed sufficiently that the risks in connection with options on futures
transactions are not greater than the risks in connection with futures
transactions.
(5) Purchasers of options on futures contracts pay a premium in cash at
the time of purchase. This amount and the transaction costs is all that is at
risk. Sellers of options on futures contracts, however, must post an initial
margin and are subject to additional margin calls which could be substantial in
the event of adverse price movements.
(6) A Fund's activities in the futures markets may result in a higher
portfolio turnover rate and additional transaction costs in the form of added
brokerage commissions.
(7) Buyers and sellers of foreign currency futures contracts are
subject to the same risks that apply to the buying and selling of futures
generally. In addition, there are risks associated with foreign currency futures
contracts and their use as a hedging device similar to those associated with
options on foreign currencies described above. In addition, settlement of
foreign currency futures contracts must occur within the country issuing that
currency. Thus, a Fund must accept or make delivery of the underlying foreign
currency in accordance with any U.S. or foreign restrictions or regulations
regarding the maintenance of foreign banking arrangements by U.S. residents, and
the Fund may be required to pay any fees, taxes or charges associated with such
delivery which are assessed in the issuing country.
COMMODITY FUTURES CONTRACTS AND COMMODITY OPTIONS
A Fund may invest in certain financial futures contracts and options contracts
in accordance with the policies described in the Prospectus and above. A Fund
will only invest in futures contracts, options on futures contracts and other
options contracts that are subject to the jurisdiction of the CFTC after filing
a notice of eligibility and otherwise complying with the requirements of Section
4.5 of the rules of the CFTC. Under that section a Fund will not enter into any
futures contract or option on a futures contract if, as a result, the aggregate
initial margin and premiums required to establish such positions would exceed 5%
of the Fund's net assets.
FOREIGN CURRENCY TRANSACTIONS
DIVERSIFIED BOND FUND, BALANCED FUNDS, DIVERSIFIED SMALL CAP FUND, DIVERSIFIED
EQUITY FUND, GROWTH EQUITY FUND, LARGE COMPANY GROWTH FUND, SMALL COMPANY GROWTH
FUND, and INTERNATIONAL FUND. Investments in foreign companies will usually
involve the currencies of foreign countries. In addition, a Fund may temporarily
hold funds in bank deposits in foreign currencies pending the completion of
certain investment programs. Accordingly, the value of the assets of a Fund, as
measured in U.S. dollars, may be affected by changes in foreign currency
exchange rates and exchange control regulations. In addition, the Fund may incur
costs in connection with conversions between various currencies.
Changes in foreign currency exchange rates will affect the U.S. dollar values of
securities denominated in currencies other than the U.S. dollar. The rate of
exchange between the U.S. dollar and other currencies fluctuates in response to
forces of supply and demand in the foreign exchange markets. These forces are
affected by the international balance of payments and other economic and
financial conditions, government intervention, speculation and other factors.
When investing in foreign securities a Fund usually effects currency exchange
transactions on a spot (i.e., cash) basis at the spot rate prevailing in the
foreign exchange market. The Fund incurs foreign exchange expenses in converting
assets from one currency to another.
A Fund may enter into foreign currency forward contracts or currency futures or
options contracts for the purchase or sale of foreign currency to "lock in" the
U.S. dollar price of the securities denominated in a foreign currency or the
U.S. dollar value of interest and dividends to be paid on such securities, or to
hedge against the possibility that the currency of a foreign country in which a
Fund has investments may suffer a decline against the U.S. dollar.
<PAGE>
A forward contract involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days (usually less
than one year) from the date of the contract agreed upon by the parties, at a
price set at the time of the contract. These contracts are traded in the
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers and involve the risk that the other party
to the contract may fail to deliver currency when due, which could result in
losses to the Fund. A forward contract generally has no deposit requirement, and
no commissions are charged at any stage for trades. Foreign exchange dealers
realize a profit based on the difference between the price at which they buy and
sell various currencies.
A Fund may enter into forward contracts under two circumstances. First, with
respect to specific transactions, when the Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency, it may desire
to "lock in" the U.S. dollar price of the security. By entering into a forward
contract for the purchase or sale, for a fixed amount of dollars, of the amount
of foreign currency involved in the underlying security transactions, the Fund
may be able to protect itself against a possible loss resulting from an adverse
change in the relationship between the U.S. dollar and the subject foreign
currency during the period between the date the security is purchased or sold
and the date on which payment is made or received.
Second, a Fund may enter into forward contracts in connection with existing
portfolio positions. For example, when an Adviser believes that the currency of
a particular foreign country may suffer a substantial decline against the U.S.
dollar, the Fund may enter into a forward contract to sell, for a fixed amount
of dollars, the amount of foreign currency approximating the value of some or
all of the Fund's investment securities denominated in such foreign currency.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible since the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. The projection of short-term currency
market movement is extremely difficult, and the successful execution of a
short-term hedging strategy is highly uncertain. Forward contracts involve the
risk of inaccurate predictions of currency price movements, which may cause the
Fund to incur losses on these contracts and transaction costs. The Advisers do
not intend to enter into forward contracts on a regular or continuous basis and
will not do so if, as a result, a Fund will have more than 25 percent of the
value of its total assets committed to such contracts or the contracts would
obligate the Fund to deliver an amount of foreign currency in excess of the
value of the Fund's investment securities or other assets denominated in that
currency.
At or before the settlement of a forward contract, a Fund may either make
delivery of the foreign currency or terminate its contractual obligation to
deliver the foreign currency by purchasing an offsetting contract. If the Fund
chooses to make delivery of the foreign currency, it may be required to obtain
the currency through the conversion of assets of the Fund into the currency. The
Fund may close out a forward contract obligating it to purchase a foreign
currency by selling an offsetting contract. If the Fund engages in an offsetting
transaction, it will realize a gain or a loss to the extent that there has been
a change in forward contract prices. Additionally, although forward contracts
may tend to minimize the risk of loss due to a decline in the value of the
hedged currency, at the same time they tend to limit any potential gain which
might result should the value of such currency increase.
Like foreign exchange contracts and foreign currency forward contracts, options
contracts are often referred to as derivatives, which may be defined as
financial instruments whose performance is derived, at least in part, from the
performance of another asset (such as a security, currency or an index of
securities). The Funds have no present intention to enter into currency futures
or options contracts but may do so in the future. A forward currency contract is
an obligation to purchase or sell a specific currency at a future date, which
may be any fixed number of days from the date of the contract agreed upon by the
parties, at a price set at the time of the contract. This method of attempting
to hedge the value of a Fund's portfolio securities against a decline in the
value of a currency does not eliminate fluctuations in the underlying prices of
the securities. Although the strategy of engaging in foreign currency
transactions could reduce the risk of loss due to a decline in the value of the
hedged currency, it could also limit the potential gain from an increase in the
value of the currency. No Fund intends to maintain a net exposure to such
contracts where the fulfillment of the Fund's obligations under such contracts
would obligate the Fund to deliver an amount of foreign currency in excess of
the value of the Fund's portfolio securities or other assets denominated in that
currency. A Fund will not enter into these contracts for speculative
<PAGE>
purposes and will not enter into non-hedging currency contracts. These contracts
involve a risk of loss if the Adviser fails to predict currency values
correctly.
A Fund may take positions in options on foreign currencies in order to hedge
against the risk of foreign exchange fluctuation on foreign securities the Fund
holds in its portfolio or which it intends to purchase. Options on foreign
currencies are affected by the factors discussed in "Hedging and Option Income
Strategies -- Options Strategies" which influence foreign exchange sales and
investments generally.
The value of foreign currency options is dependent upon the value of the foreign
currency relative to the U.S. dollar and has no relationship to the investment
merits of a foreign security. Because foreign currency transactions occurring in
the interbank market involve substantially larger amounts than those that may be
involved in the use of foreign currency options, a Fund may be disadvantaged by
having to deal in an odd lot market (generally consisting of transactions of
less than $1 million) for the underlying foreign currencies at prices that are
less favorable than for round lots.
To the extent that the U.S. options markets are closed while the market for the
underlying currencies remains open, significant price and rate movements may
take place in the underlying markets that cannot be reflected in the options
markets.
There is no systematic reporting of last sale information for foreign
currencies, and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Quotation information available is generally representative of very large
transactions in the interbank market. The interbank market in foreign currencies
is a global around-the-clock market. When required by applicable regulatory
guidelines, a Fund will set aside cash, U.S. Government Securities or other
liquid assets in a segregated account with its custodian in the prescribed
amount.
EQUITY SECURITIES AND ADDITIONAL INFORMATION CONCERNING THE EQUITY FUNDS
COMMON STOCK AND PREFERRED STOCK
COMMON STOCKS AND WARRANTS -- BALANCED FUNDS, EQUITY FUNDS. PREFERRED STOCK --
BALANCED FUNDS, EQUITY FUNDS, TOTAL RETURN BOND FUND. Common stockholders are
the owners of the company issuing the stock and, accordingly, vote on various
corporate governance matters such as mergers. They are not creditors of the
company, but rather, upon liquidation of the company are entitled to their pro
rata share of the company's assets after creditors (including fixed income
security holders) and, if applicable, preferred stockholders are paid. Preferred
stock is a class of stock having a preference over common stock as to dividends
and, generally, as to the recovery of investment. A preferred stockholder is a
shareholder in the company and not a creditor of the company as is a holder of
the company's fixed income securities. Dividends paid to common and preferred
stockholders are distributions of the earnings of the company and not interest
payments, which are expenses of the company. Equity securities owned by a Fund
may be traded on a securities exchange or in the over-the-counter market and may
not be traded every day or in the volume typical of securities traded on a major
national securities exchange. As a result, disposition by a Fund of a portfolio
security to meet redemptions by shareholders or otherwise may require the Fund
to sell these securities at a discount from market prices, to sell during
periods when disposition is not desirable, or to make many small sales over an
extended period of time. The market value of all securities, including equity
securities, is based upon the market's perception of value and not necessarily
the book value of an issuer or other objective measure of a company's worth. A
Fund may invest in warrants, which are options to purchase an equity security at
a specified price (usually representing a premium over the applicable market
value of the underlying equity security at the time of the warrant's issuance)
and usually during a specified period of time. Unlike convertible securities and
preferred stocks, warrants do not pay a fixed dividend. Investments in warrants
involve certain risks, including the possible lack of a liquid market for the
resale of the warrants, potential price fluctuations as a result of speculation
or other factors and failure of the price of the underlying security to reach a
level at which the warrant can be prudently exercised (in which case the warrant
may expire without being exercised, resulting in the loss of the Fund's entire
investment therein).
CONVERTIBLE SECURITIES
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INCOME FUND, TOTAL RETURN BOND FUND, BALANCED FUNDS, EQUITY FUNDS. Convertible
securities, which include convertible debt, convertible preferred stock and
other securities exchangeable under certain circumstances for shares of common
stock, are fixed income securities or preferred stock which generally may be
converted at a stated price within a specific amount of time into a specified
number of shares of common stock. A convertible security entitles the holder to
receive interest paid or accrued on debt or the dividend paid on preferred stock
until the convertible security matures or is redeemed, converted or exchanged.
Before conversion, convertible securities have characteristics similar to
nonconvertible debt securities in that they ordinarily provide a stream of
income with generally higher yields than those of common stocks of the same or
similar issuers. These securities are usually senior to common stock in a
company's capital structure, but usually are subordinated to non-convertible
debt securities. In general, the value of a convertible security is the higher
of its investment value (its value as a fixed income security) and its
conversion value (the value of the underlying shares of common stock if the
security is converted). As a fixed income security, the value of a convertible
security generally increases when interest rates decline and generally decreases
when interest rates rise. The value of a convertible security is, however, also
influenced by the value of the underlying common stock. Except for Small Cap
Opportunities Fund, the Funds may only invest in convertible securities that are
investment grade.
Although no securities investment is without some risk, investment in
convertible securities generally entails less risk than in the issuer's common
stock. However, the extent to which such risk is reduced depends in large
measure upon the degree to which the convertible security sells above its value
as a fixed income security. Convertible securities have unique investment
characteristics in that they generally: (1) have higher yields than common
stocks, but lower yields than comparable non-convertible securities, (2) are
less subject to fluctuation in value than the underlying stocks since they have
fixed income characteristics and (3) provide the potential for capital
appreciation if the market price of the underlying common stock increases.
The value of a convertible security is a function of its "investment value"
(determined by a comparison of its yield with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and its
"conversion value" (the security's worth, at market value, if converted into the
underlying common stock). The investment value of a convertible security is
influenced by changes in interest rates, with investment value declining as
interest rates increase and increasing as interest rates decline. The credit
standing of the issuer and other factors also may have an effect on the
convertible security's investment value. The conversion value of a convertible
security is determined by the market price of the underlying common stock. If
the conversion value is low relative to the investment value, the price of the
convertible security is governed principally by its investment value and
generally the conversion value decreases as the convertible security approaches
maturity. To the extent the market price of the underlying common stock
approaches or exceeds the conversion price, the price of the convertible
security will be increasingly influenced by its conversion value. In addition, a
convertible security generally will sell at a premium over its conversion value
determined by the extent to which investors place value on the right to acquire
the underlying common stock while holding a fixed income security.
A convertible security may be subject to redemption at the option of the issuer
at a price established in the convertible security's governing instrument. If a
convertible security held by the Fund is called for redemption, the Fund will be
required to permit the issuer to redeem the security, convert it into the
underlying common stock or sell it to a third party.
EQUITY-LINKED SECURITIES
BALANCED FUNDS AND EQUITY FUNDS. Equity-linked securities are securities that
are convertible into or based upon the value of, equity securities upon certain
terms and conditions. The following are three examples of equity-linked
securities.
Preferred Equity Redemption Cumulative Stock ("PERCS") technically are preferred
stock with some characteristics of common stock. PERCS are mandatory convertible
into common stock after a period of time, usually three years, during which the
investors' capital gains are capped, usually at 30%. Commonly, PERCS may be
redeemed by the issuer either at any time or when the issuer's common stock is
trading at a specified price
<PAGE>
level or better. The redemption price starts at the beginning of the PERCS'
duration period at a price that is above the cap by the amount of the extra
dividends the PERCS holder is entitled to receive relative to the common stock
over the duration of the PERCS and declines to the cap price shortly before
maturity of the PERCS. In exchange for having the cap on capital gains and
giving the issuer the option to redeem the PERCS at any time or at the specified
common stock price level, a Fund may be compensated with a substantially higher
dividend yield than that on the underlying common stock. Funds that seek current
income find PERCS attractive because a PERCS provides a higher dividend income
than that paid with respect to a company's common stock.
Equity-Linked Securities ("ELKS") differ from ordinary debt securities, in that
the principal amount received at maturity is not fixed but is based on the price
of the issuer's common stock. ELKS are debt securities commonly issued in fully
registered form for a term of three years under an indenture trust. At maturity,
the holder of ELKS will be entitled to receive a principal amount equal to the
lesser of a cap amount, commonly in the range of 30% to 55% greater than the
current price of the issuer's common stock, or the average closing price per
share of the issuer's common stock, subject to adjustment as a result of certain
dilution events, for the 10 trading days immediately prior to maturity. Unlike
PERCS, ELKS are commonly not subject to redemption prior to maturity. ELKS
usually bear interest during the three-year term at a substantially higher rate
than the dividend yield on the underlying common stock. In exchange for having
the cap on the return that might have been received as capital gains on the
underlying common stock, the Investment Fund may be compensated with the higher
yield, contingent on how well the underlying common stock does. Funds that seek
current income find ELKS attractive because ELKS provide a higher dividend
income than that paid with respect to a company's common stock.
Liquid Yield Option Notes ("LYONs") differ from ordinary debt securities in that
the amount received prior to maturity is not fixed but is based on the price of
the issuer's common stock. LYONs are zero-coupon notes that sell at a large
discount from face value. For an investment in LYONs, a Fund will not receive
any interest payments until the notes mature, typically in 15 or 20 years, when
the notes are redeemed at face, or par, value. The yield on LYONs, typically, is
lower-than-market rate for debt securities of the same maturity, due in part to
the fact that the LYONs are convertible into common stock of the issuer at any
time at the option of the holder of the LYON. Commonly, LYONs are redeemable by
the issuer at any time after an initial period or if the issuer's common stock
is trading at a specified price level or better, or, at the option of the
holder, upon certain fixed dates. The redemption price typically is the purchase
price of the LYONs plus accrued original issue discount to the date of
redemption, which amounts to the lower-than-market yield. A Fund will receive
only the lower-than-market yield unless the underlying common stock increases in
value at a substantial rate. LYONs are attractive to investors when it appears
that they will increase in value due to the rise in value of the underlying
common stock.
WARRANTS
EQUITY FUNDS. A warrant is an option to purchase an equity security at a
specified price (usually representing a premium over the applicable market value
of the underlying equity security at the time of the warrant's issuance) and
usually during a specified period of time. The price of warrants does not
necessarily move parallel to the prices of the underlying securities. Warrants
have no voting rights, receive no dividends and have no rights with respect to
the assets of the issuer. Unlike convertible securities and preferred stocks,
warrants do not pay a fixed dividend. Investments in warrants involve certain
risks, including the possible lack of a liquid market for the resale of the
warrants, potential price fluctuations as a result of speculation or other
factors and failure of the price of the underlying security to reach a level at
which the warrant can be prudently exercised. To the extent that the market
value of the security that may be purchased upon exercise of the warrant rises
above the exercise price, the value of the warrant will tend to rise. To the
extent that the exercise price equals or exceeds the market value of such
security, the warrants will have little or no market value. If a warrant is not
exercised within the specified time period, it will become worthless and the
Fund will lose the purchase price paid for the warrant and the right to purchase
the underlying security.
HIGH YIELD/JUNK BONDS
INCOME FUND, DIVERSIFIED BOND FUND, TOTAL RETURN BOND FUND, MINNESOTA
INTERMEDIATE TAX-FREE FUND, MINNESOTA TAX-FREE FUND, STRATEGIC INCOME FUND,
MODERATE BALANCED FUND, GROWTH BALANCED FUND,
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AGGRESSIVE BALANCED-EQUITY FUND AND SMALL CAP OPPORTUNITIES FUND may invest in
bonds rated below "Baa" by Moody's or "BBB" by S&P (commonly known as "high
yield/high risk securities" or "junk bonds"). Securities rated less than "Baa"
by Moody's or "BBB" by S&P are classified as non-investment grade securities and
are considered speculative by those rating agencies. Junk bonds may be issued as
a consequence of corporate restructurings, such as leveraged buyouts, mergers,
acquisitions, debt recapitalizations, or similar events or by smaller or highly
leveraged companies. Although the growth of the high yield/high risk securities
market in the 1980's had paralleled a long economic expansion, many issuers
subsequently have been affected by adverse economic and market conditions. It
should be recognized that an economic downturn or increase in interest rates is
likely to have a negative effect on: (1) the high yield bond market; (2) the
value of high yield/high risk securities; and (3) the ability of the securities'
issuers to service their principal and interest payment obligations, to meet
their projected business goals or to obtain additional financing. In addition,
the market for high yield/high risk securities, which is concentrated in
relatively few market makers, may not be as liquid as the market for investment
grade securities. Under adverse market or economic conditions, the market for
high yield/high risk securities could contract further, independent of any
specific adverse changes in the condition of a particular issuer. As a result,
the Fund could find it more difficult to sell these securities or may be able to
sell the securities only at prices lower than if such securities were widely
traded. Prices realized upon the sale of such lower rated or unrated securities,
under these circumstances, may be less than the prices used in calculating the
Fund's net asset value.
In periods of reduced market liquidity, prices of high yield/high risk
securities may become more volatile and may experience sudden and substantial
price declines. Also, there may be significant disparities in the prices quoted
for high yield/high risk securities by various dealers. Under such conditions,
the Fund may have to use subjective rather than objective criteria to value its
high yield/high risk securities investments accurately and rely more heavily on
the judgment of the Fund's Adviser.
Prices for high yield/high risk securities also may be affected by legislative
and regulatory developments. For example, Congress has considered legislation to
restrict or eliminate the corporate tax deduction for interest payments or to
regulate corporate restructurings such as takeovers, mergers or leveraged
buyouts. These laws could adversely affect the Fund's net asset value and
investment practices, the market for high yield/high risk securities, the
financial condition of issuers of these securities and the value of outstanding
high yield/high risk securities.
Lower rated or unrated debt obligations also present risks based on payment
expectations. If an issuer calls the obligation for redemption, the Fund's
Adviser may have to replace the security with a lower yielding security,
resulting in a decreased return for investors. If a Fund experiences unexpected
net redemptions, the Fund's Adviser may be forced to sell the Fund's higher
rated securities, resulting in a decline in the overall credit quality of the
Fund's portfolio and increasing the exposure of the Core Portfolio to the risks
of high yield/high risk securities.
ILLIQUID AND RESTRICTED SECURITIES
EACH FUND limits its purchase of illiquid securities. No Fund may knowingly
acquire securities or invest in repurchase agreements with respect to any
securities if, as a result, more than 15 percent (10 percent in the case of the
Money Market Funds) of the Fund's net assets taken at current value would be
invested in securities which are not readily marketable. Illiquid securities are
securities that cannot be disposed of within seven days in the ordinary course
of business at approximately the amount at which the Fund has valued the
securities and include, among other things, repurchase agreements not entitling
the holder to payment within seven days and restricted securities (other than
those determined to be liquid pursuant to guidelines established by the Board or
Core Board). Under the supervision of the Board or Core Board, the Advisers
determine and monitor the liquidity of the portfolio securities.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933 ("restricted securities"),
securities which are otherwise not readily marketable, such as over-the-counter
options, and repurchase agreements not entitling
<PAGE>
the holder to payment of principal in 7 days. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a Fund might
also have to register restricted securities in order to dispose of them,
resulting in expense and delay. A Fund might not be able to dispose of
restricted or other securities promptly or at reasonable prices and might
thereby experience difficulty satisfying redemptions. There can be no assurance
that a liquid market will exist for any security at any particular time.
An institutional market has developed for certain securities that are not
registered under the Securities Act of 1933, including repurchase agreements,
commercial paper, foreign securities and corporate bonds and notes.
Institutional investors depend on an efficient institutional market in which the
unregistered security can be readily resold or on the issuer's ability to honor
a demand for repayment of the unregistered security. A security's contractual or
legal restrictions on resale to the general public or to certain institutions
may not be indicative of the liquidity of the security. If such securities are
eligible for purchase by institutional buyers in accordance with Rule 144A under
the Securities Act of 1933 or other exemptions, the Advisers may determine that
such securities are not illiquid securities, under guidelines or other
exemptions adopted by the Board (or, in the case of the Core Portfolios, the
Core Trusts' board of trustees). These guidelines take into account trading
activity in the securities and the availability of reliable pricing information,
among other factors. If there is a lack of trading interest in a particular Rule
144A security, a Fund's holdings of that security may be illiquid.
The Board and, in the case of the Core Portfolios, the Core Trust Board, has the
ultimate responsibility for determining whether specific securities are liquid
or illiquid and has delegated the function of making day-to-day determinations
of liquidity to the Adviser of each Fund, pursuant to guidelines approved by the
applicable board. The Advisers take into account a number of factors in reaching
liquidity decisions, including but not limited to: (1) the frequency of trades
and quotations for the security; (2) the number of dealers willing to purchase
or sell the security and the number of other potential buyers; (3) the
willingness of dealers to undertake to make a market in the security; and (4)
the nature of the marketplace trades, including the time needed to dispose of
the security, the method of soliciting offers and the mechanics of the transfer.
The Advisers monitor the liquidity of the securities held by each Fund and
report periodically on such decisions to the Board or Core Trust Board, as
applicable.
In connection with a Fund's original purchase of restricted securities, it may
negotiate rights with the issuer to have such securities registered for sale at
a later time. Further, the expenses of registration of restricted securities
that are illiquid may also be negotiated by the Fund with the issuer at the time
such securities are purchased by a Fund. When registration is required, however,
a considerable period may elapse between a decision to sell the securities and
the time the Fund would be permitted to sell such securities. A similar delay
might be experienced in attempting to sell such securities pursuant to an
exemption from registration. Thus, a Fund may not be able to obtain as favorable
a price as that prevailing at the time of the decision to sell.
Limitations on resale may have an adverse effect on the marketability of
portfolio securities and a Fund might also have to register restricted
securities in order to dispose of them, resulting in expense and delay. A Fund
might not be able to dispose of restricted or other securities promptly or at
reasonable prices and might thereby experience difficulty satisfying
redemptions. There can be no assurance that a liquid market will exist for any
security at any particular time.
<PAGE>
LOANS OF PORTFOLIO SECURITIES
EACH FUND may lend its portfolio securities. Under applicable regulatory
requirements (which are subject to change), the loan collateral must, on each
business day, at least equal the market value of the loaned securities and must
consist of cash, bank letters of credit, U.S. Government securities, or other
cash equivalents in which the Fund is permitted to invest. To be acceptable as
collateral, letters of credit must obligate a bank to pay amounts demanded by
the Fund if the demand meets the terms of the letter. Such terms and the issuing
bank must be satisfactory to the Fund. In a portfolio securities lending
transaction, the Fund receives from the borrower an amount equal to the interest
paid or the dividends declared on the loaned securities during the term of the
loan as well as the interest on the collateral securities, less any finders' or
administrative fees the Fund pays in arranging the loan. The Fund may share the
interest it receives on the collateral securities with the borrower as long as
it realizes at least a minimum amount of interest required by the lending
guidelines established by the Trust's Board of Trustees. The Fund will not lend
its portfolio securities to any officer, director, employee or affiliate of the
Fund or an Adviser. The terms of the Core Portfolio's loans must meet certain
tests under the Code and permit the Core Portfolio to reacquire loaned
securities on five business days' notice or in time to vote on any important
matter.
BORROWING AND TRANSACTIONS INVOLVING LEVERAGE
TECHNIQUES INVOLVING LEVERAGE
ALL FUNDS. Use of leveraging involves special risks and may involve speculative
investment techniques. The Funds may borrow for other than temporary or
emergency purposes, lend their securities, enter reverse repurchase agreements,
and purchase securities on a when-issued or forward commitment basis. In
addition, certain funds may engage in dollar roll transactions and Intermediate
Government Income Fund may purchase securities on margin and sell securities
short (other than against the box). Each of these transactions involve the use
of "leverage" when cash made available to the Fund through the investment
technique is used to make additional portfolio investments. In addition, the use
of swap and related agreements may involve leverage. The Funds use these
investment techniques only when Norwest to a Fund believes that the leveraging
and the returns available to the Fund from investing the cash will provide
shareholders a potentially higher return.
Leverage exists when a Fund achieves the right to a return on a capital base
that exceeds the Fund's investment. Leverage creates the risk of magnified
capital losses which occur when losses affect an asset base, enlarged by
borrowings or the creation of liabilities, that exceeds the equity base of the
Fund. Leverage may involve the creation of a liability that requires the Fund to
pay interest (for instance, reverse repurchase agreements) or the creation of a
liability that does not entail any interest costs (for instance, forward
commitment transactions).
The risks of leverage include a higher volatility of the net asset value of the
Fund's shares and the relatively greater effect on the net asset value of the
shares caused by favorable or adverse market movements or changes in the cost of
cash obtained by leveraging and the yield obtained from investing the cash. So
long as a Fund is able to realize a net return on its investment portfolio that
is higher than interest expense incurred, if any, leverage will result in higher
current net investment income being realized by the Fund than if the Fund were
not leveraged. On the other hand, interest rates change from time to time as
does their relationship to each other depending upon such factors as supply and
demand, monetary and tax policies and investor expectations. Changes in such
factors could cause the relationship between the cost of leveraging and the
yield to change so that rates involved in the leveraging arrangement may
substantially increase relative to the yield on the obligations in which the
proceeds of the leveraging have been invested. To the extent that the interest
expense involved in leveraging approaches the net return on the Fund's
investment portfolio, the benefit of leveraging will be reduced, and, if the
interest expense on borrowings were to exceed the net return to shareholders,
the Fund's use of leverage would result in a lower rate of return than if the
Fund were not leveraged. Similarly, the effect of leverage in a declining market
could be a greater decrease in net asset value per share than if the Fund were
not leveraged. In an extreme case, if the Fund's current investment income were
not sufficient to meet the interest expense of leveraging, it could be necessary
for the Fund to liquidate certain of its investments at an inappropriate time.
The use of leverage may be considered speculative.
<PAGE>
In order to limit the risks involved in various transactions involving leverage,
the Trust's custodian will set aside and maintain in a segregated account cash
and other liquid securities in accordance with SEC guidelines. The account
value, which is marked to market daily, will be at least equal to the Fund's
commitments under these transactions. The Fund's commitments may include: (1)
the Fund's obligations to repurchase securities under a reverse repurchase
agreement, settle when-issued and forward commitment transactions and make
payments under a cap or floor (see "Swap Agreements"); and (2) the greater of
the market value of securities sold short or the value of the securities at the
time of the short sale (reduced by any margin deposit). The net amount of the
excess, if any, of a Fund's obligations over its entitlements with respect to
each interest rate swap will be calculated on a daily basis and an amount at
least equal to the accrued excess will be maintained in the segregated account.
If the Fund enters into an interest rate swap on other than a net basis, the
Fund will maintain the full amount accrued on a daily basis of the Fund's
obligations with respect to the swap in their segregated account.
REPURCHASE AGREEMENTS, SECURITIES LENDING, REVERSE REPURCHASE AGREEMENTS,
WHEN-ISSUED SECURITIES, FORWARD COMMITMENTS AND DOLLAR ROLL TRANSACTIONS.
A Fund's use of repurchase agreements, securities lending, reverse repurchase
agreements and forward commitments (including "dollar roll" transactions)
entails certain risks not associated with direct investments in securities. For
instance, in the event that bankruptcy or similar proceedings were commenced
against a counterparty while these transactions remained open or a counterparty
defaulted on its obligations, the Fund might suffer a loss. Failure by the other
party to deliver a security purchased by the Fund may result in a missed
opportunity to make an alternative investment. The Advisers monitor the
creditworthiness of counterparties to these transactions and intend to enter
into these transactions only when they believe the counterparties present
minimal credit risks and the income to be earned from the transaction justifies
the attendant risks. Counterparty insolvency risk with respect to repurchase
agreements is reduced by favorable insolvency laws that allow the Fund, among
other things, to liquidate the collateral held in the event of the bankruptcy of
the counterparty. Those laws do not apply to securities lending and,
accordingly, securities lending involves more risk than does the use of
repurchase agreements. As a result of entering forward commitments and reverse
repurchase agreements, as well as lending its securities, a Fund may be exposed
to greater potential fluctuations in the value of its assets and net asset value
per share.
REPURCHASE AGREEMENTS -- ALL FUNDS (EXCEPT TREASURY FUND) may enter into
repurchase agreements and may lend portfolio securities to brokers, dealers and
other financial institutions. These investments may entail certain risks not
associated with direct investments in securities. For instance, in the event
that bankruptcy or similar proceedings were commenced against a counterparty in
these transactions or a counterparty defaulted on its obligations, a Fund may
have difficulties in exercising its rights to the underlying securities, may
incur costs and experience time delays in disposing of them and may suffer a
loss.
Repurchase agreements are transactions in which a Fund purchases a security and
simultaneously commits to resell that security to the seller at an agreed-upon
price on an agreed-upon future date, normally one to seven days later. The
resale price reflects a market rate of interest that is not related to the
coupon rate or maturity of the purchased security. When a Fund lends a security
it receives interest from the borrower or from investing cash collateral. The
Trust maintains possession of the purchased securities and any underlying
collateral in these transactions, the total market value of which on a
continuous basis is at least equal to the repurchase price or value of
securities loaned, plus accrued interest. The Funds may pay fees to arrange
securities loans and each Fund will limit securities lending to not more than 33
1/3% (25% in the case of Small Cap Opportunities Fund) of the value of its total
assets.
The Funds may invest in securities subject to repurchase agreements with U.S.
banks or broker-dealers. Small Cap Opportunities Fund may invest only in
repurchase agreements maturing in seven days or less. In a typical repurchase
agreement, the seller of a security commits itself at the time of the sale to
repurchase that security from the buyer at a mutually agreed-upon time and
price. The repurchase price exceeds the sale price, reflecting an agreed-upon
interest rate effective for the period the buyer owns the security subject to
repurchase. The agreed-upon rate is unrelated to the interest rate on that
security. The Adviser will monitor the value of the
<PAGE>
underlying security at the time the transaction is entered into and at all times
during the term of the repurchase agreement to ensure that the value of the
security always equals or exceeds the repurchase price (including accrued
interest). In the event of default by the seller under the repurchase agreement,
the Core Portfolio may have difficulties in exercising its rights to the
underlying securities and may incur costs and experience time delays in
connection with the disposition of such securities. To evaluate potential risks,
the Adviser reviews the credit-worthiness of those banks and dealers with which
the Core Portfolio enters into repurchase agreements.
Counterparties to a Money Market Fund's repurchase agreements must be a primary
dealer that reports to the Federal Reserve Bank of New York ("primary dealers")
or one of the largest 100 commercial banks in the United States.
Securities subject to repurchase agreements will be held by the Fund's custodian
or another qualified custodian or in the Federal Reserve book-entry system.
Repurchase agreements are considered to be loans by a Fund for certain purposes
under the 1940 Act. The Trust's custodian maintains possession of the collateral
underlying a repurchase agreement, which has a market value, determined daily,
at least equal to the repurchase price, and which consists of the types of
securities in which the Fund may invest directly. International Portfolio and,
with respect to the portion of their assets managed in the International Fund
style, Diversified Equity Fund, Growth Equity Fund and each Balanced Fund, may
enter into repurchase agreements with foreign entities.
SECURITIES LENDING -- ALL FUNDS. A Fund may lend securities from its portfolios
to brokers, dealers and other financial institutions. Securities loans must be
continuously secured by cash or U.S. Government Securities with a market value,
determined daily, at least equal to the value of the Fund's securities loaned,
including accrued interest. A Fund receives interest in respect of securities
loans from the borrower or from investing cash collateral. A Fund may pay fees
to arrange the loans. Schroder U.S. Smaller Companies Portfolio will not lend
portfolio securities in excess of 25% of the value of the Core Portfolio's total
assets. No other Fund will lend portfolio securities in excess of 33 1/3 percent
of the value of the Fund's total assets.
REVERSE REPURCHASE AGREEMENTS -- ALL FUNDS. A Fund may enter into reverse
repurchase agreements, transactions in which the Fund sells a security and
simultaneously commits to repurchase that security from the buyer at an agreed
upon price on an agreed upon future date. The resale price in a reverse
repurchase agreement reflects a market rate of interest that is not related to
the coupon rate or maturity of the sold security. For certain demand agreements,
there is no agreed upon repurchase date and interest payments are calculated
daily, often based upon the prevailing overnight repurchase rate. Because
certain of the incidents of ownership of the security are retained by the Fund,
reverse repurchase agreements may be viewed as a form of borrowing by the Fund
from the buyer, collateralized by the security sold by the Fund. A Fund will use
the proceeds of reverse repurchase agreements to fund redemptions or to make
investments. In most cases these investments either mature or have a demand
feature to resell to the issuer on a date not later than the expiration of the
agreement. Interest costs on the money received in a reverse repurchase
agreement may exceed the return received on the investments made by the Fund
with those monies. Any significant commitment of a Fund's assets to the reverse
repurchase agreements will tend to increase the volatility of the Fund's net
asset value per share.
Counterparties to a Money Market Fund's reverse repurchase agreements must be a
primary dealer that reports to the Federal Reserve Bank of New York ("primary
dealers") or one of the largest 100 commercial banks in the United States.
Generally, a reverse repurchase agreement enables the Fund to recover for the
term of the reverse repurchase agreement all or most of the cash invested in the
portfolio securities sold and to keep the interest income associated with those
portfolio securities. Such transactions are only advantageous if the interest
cost to the Fund of the reverse repurchase transaction is less than the cost of
obtaining the cash otherwise. In addition, interest costs on the money received
in a reverse repurchase agreement may exceed the return received on the
investments made by a Fund with those monies. The use of reverse repurchase
agreement proceeds to make investments may be considered to be a speculative
technique.
<PAGE>
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS -- ALL FUNDS. A Fund may purchase
fixed income securities on a "when-issued" or "forward commitment" basis. When
these transactions are negotiated, the price, which is generally expressed in
yield terms, is fixed at the time the commitment is made, but delivery and
payment for the securities take place at a later date. Normally, the settlement
date occurs within 3 months after the transaction. During the period between a
commitment and settlement, no payment is made for the securities purchased and
no interest on the security accrues to the purchaser. At the time a Fund makes a
commitment to purchase securities in this manner, the Fund immediately assumes
the risk of ownership, including price fluctuation. Failure by the other party
to deliver a security purchased by a Fund may result in a loss or a missed
opportunity to make an alternative investment. The use of when-issued
transactions and forward commitments enables a Fund to hedge against anticipated
changes in interest rates and prices. If Norwest or Schroder were to forecast
incorrectly the direction of interest rate movements, however, a Fund might be
required to complete these transactions when the value of the security is lower
than the price paid by the Fund. Except for dollar-roll transactions, a Fund
will not purchase securities on a when-issued or forward commitment basis if, as
a result, more than 15 percent (35 percent in the case of Total Return Bond
Fund) of the value of the Fund's total assets would be committed to such
transactions.
When-issued securities and forward commitments may be sold prior to the
settlement date, but the Funds purchase securities on a when-issued and forward
commitment basis only with the intention of actually receiving the securities.
When-issued securities may include bonds purchased on a "when, and if issued"
basis under which the issuance of the securities depends upon the occurrence of
a subsequent event. Commitment of a Fund's assets to the purchase of securities
on a when-issued or forward commitment basis will tend to increase the
volatility of the Funds net asset value per share.
When-issued or delayed delivery transactions arise when securities are purchased
by a Fund with payment and delivery to take place in the future in order to
secure what is considered to be an advantageous price and yield to the Fund at
the time it enters into the transaction. In those cases, the purchase price and
the interest rate payable on the securities are fixed on the transaction date
and delivery and payment may take place a month or more after the date of the
transaction. When a Fund enters into a delayed delivery transaction, it becomes
obligated to purchase securities and it has all of the rights and risks
attendant to ownership of the security, although delivery and payment occur at a
later date. To facilitate such acquisitions, the Fund will maintain with its
custodian a separate account with portfolio securities in an amount at least
equal to such commitments.
At the time a Fund makes the commitment to purchase securities on a when-issued
or delayed delivery basis, the Fund will record the transaction as a purchase
and thereafter reflect the value each day of such securities in determining its
net asset value. The value of the fixed income securities to be delivered in the
future will fluctuate as interest rates and the credit of the underlying issuer
vary. On delivery dates for such transactions, the Fund will meet its
obligations from maturities, sales of the securities held in the separate
account or from other available sources of cash. A Fund generally has the
ability to close out a purchase obligation on or before the settlement date,
rather than purchase the security. If a Fund chooses to dispose of the right to
acquire a when-issued security prior to its acquisition, it could, as with the
disposition of any other portfolio obligation, realize a gain or loss due to
market fluctuation.
To the extent a Fund engages in when-issued or delayed delivery transactions, it
will do so for the purpose of acquiring securities consistent with the Fund's
investment objectives and policies and not for the purpose of investment
leverage or to speculate in interest rate changes.
The use of when-issued transactions and forward commitments enables the Fund to
hedge against anticipated changes in interest rates and prices. If an Adviser
were to forecast incorrectly the direction of interest rate movements, however,
a Fund might be required to complete when-issued or forward transactions at
prices inferior to the current market values. When-issued securities and forward
commitments may be sold prior to the settlement date, but a Fund enters into
when-issued and forward commitments only with the intention of actually
receiving or delivering the securities, as the case may be. In some instances,
the third-party seller of when-issued or forward commitment securities may
determine prior to the settlement date that it will be unable to meet its
existing transaction commitments without borrowing securities. If advantageous
from a yield perspective, a Fund
<PAGE>
may, in that event, agree to resell its purchase commitment to the third-party
seller at the current market price on the date of sale and concurrently enter
into another purchase commitment for such securities at a later date. As an
inducement for a Fund to "roll over" its purchase commitment, the Fund may
receive a negotiated fee. When-issued securities may include bonds purchased on
a "when, as and if issued" basis under which the issuance of the securities
depends upon the occurrence of a subsequent event. Any significant commitment of
a Fund's assets to the purchase of securities on a "when, as and if issued"
basis may increase the volatility of the Fund's net asset value. For purposes of
the Funds' investment policies, the purchase of securities with a settlement
date occurring on a Public Securities Association approved settlement date is
considered a normal delivery and not a when-issued or forward commitment
purchase.
DOLLAR ROLL TRANSACTIONS -- FIXED INCOME FUNDS AND BALANCED FUNDS. A Fund may
enter into "dollar roll" transactions wherein the Fund sells fixed income
securities, typically mortgage-backed securities, and makes a commitment to
purchase similar, but not identical, securities at a later date from the same
party. Like a forward commitment, during the roll period no payment is made for
the securities purchased and no interest or principal payments on the security
accrue to the purchaser, but the Fund assumes the risk of ownership. A Fund is
compensated for entering into dollar roll transactions by the difference between
the current sales price and the forward price for the future purchase, as well
as by the interest earned on the cash proceeds of the initial sale. Like other
when-issued securities or firm commitment agreements, dollar roll transactions
involve the risk that the market value of the securities sold by the Fund may
decline below the price at which a Fund is committed to purchase similar
securities. In the event the buyer of securities under a dollar roll transaction
becomes insolvent, the Funds use of the proceeds of the transaction may be
restricted pending a determination by the other party, or its trustee or
receiver, whether to enforce the Funds obligation to repurchase the securities.
The Funds will engage in roll transactions for the purpose of acquiring
securities for its portfolio and not for investment leverage. Each Fund will
limit its obligations on dollar roll transactions to 35 percent of the Fund's
net assets.
BORROWING. EACH FUND may borrow money for temporary or emergency purposes,
including the meeting of redemption requests, in amounts up to 33 1/3 percent of
the Fund's total assets. Borrowing involves special risk considerations.
Interest costs on borrowings may fluctuate with changing market rates of
interest and may partially offset or exceed the return earned on borrowed funds
(or on the assets that were retained rather than sold to meet the needs for
which funds were borrowed). Under adverse market conditions, a Fund might have
to sell portfolio securities to meet interest or principal payments at a time
when investment considerations would not favor such sales. Except as otherwise
noted, no Fund may purchase securities for investment while any borrowing
equaling five percent or more of the Fund's total assets is outstanding or
borrow for purposes other than meeting redemptions in an amount exceeding five
percent of the value of the Fund's total assets. A Fund's use of borrowed
proceeds to make investments would subject the Fund to the risks of leveraging.
Reverse repurchase agreements, short sales not against the box, dollar roll
transactions and other similar investments that involve a form of leverage have
characteristics similar to borrowings but are not considered borrowings if the
Fund maintains a segregated account.
MARGIN AND SHORT SALES
LIMITED TERM GOVERNMENT INCOME FUND AND INTERMEDIATE GOVERNMENT INCOME FUND.
When a Fund purchases securities on margin, it only pays part of the purchase
price and borrows the remainder. As a borrowing, a Fund's purchase of securities
on margin is subject to the limitations and risks described in Borrowing above.
In addition, if the value of the securities purchased on margin decreases such
that the Fund's borrowing with respect to the security exceeds the maximum
permissible borrowing amount, the Fund will be required to make margin payments
(additional payments to the broker to maintain the level of borrowing at
permissible levels). A Fund's obligation to satisfy margin calls may require the
Fund to sell securities at an inappropriate time.
Each Fund may make short sales of securities which it does not own or have the
right to acquire in anticipation of a decline in the market price for the
security. When the Fund makes a short sale, the proceeds it receives are
retained by the broker until the Fund replaces the borrowed security. In order
to deliver the security to the buyer, a Fund must arrange through a broker to
borrow the security and, in so doing, the Fund becomes obligated to
<PAGE>
replace the security borrowed at its market price at the time of replacement,
whatever that price may be. Short sales create opportunities to increase a
Fund's return but, at the same time, involve special risk considerations and may
be considered a speculative technique. Since a Fund in effect profits from a
decline in the price of the securities sold short without the need to invest the
full purchase price of the securities on the date of the short sale, the Fund's
net asset value per share, will tend to increase more when the securities it has
sold short decrease in value, and to decrease more when the securities it has
sold short increase in value, than would otherwise be the case if it had not
engaged in such short sales. Short sales theoretically involve unlimited loss
potential, as the market price of securities sold short may continuously
increase, although a Fund may mitigate such losses by replacing the securities
sold short before the market price has increased significantly. Under adverse
market conditions, a Fund might have difficulty purchasing securities to meet
its short sale delivery obligations and might have to sell portfolio securities
to raise the capital necessary to meet its short sale obligations at a time when
fundamental investment considerations would not favor those sales.
Certain Funds may enter into short sales as described in the prospectus of that
Fund. The Funds may make short sales of securities against the box. A short sale
is "against the box" to the extent that while the short position is open, the
Fund must own an equal amount of the securities sold short, or by virtue of
ownership of securities have the right, without payment of further
consideration, to obtain an equal amount of the securities sold short. Short
sales against-the-box may in certain cases be made to defer, for Federal income
tax purposes, recognition of gain or loss on the sale of securities "in the box"
until the short position is closed out. Under recently enacted legislation, if a
Core Portfolio has unrealized gain with respect to a long position and enters
into a short sale against-the-box, the Core Portfolio generally will be deemed
to have sold the long position for tax purposes and thus will recognize gain.
Prohibitions on entering short sales other than against the box does not
restrict a Fund's ability to use short-term credits necessary for the clearance
of portfolio transactions and to make margin deposits in connection with
permitted transactions in options and futures contracts.
TEMPORARY DEFENSIVE POSITION
EACH FUND EXCEPT THE MONEY MARKET FUNDS, when business or financial conditions
warrant, may assume a temporary defensive position and invest without limit in
cash or prime quality cash equivalents, including: (1) short-term U.S.
Government Securities; (2) certificates of deposit, bankers acceptances and
interest-bearing savings deposits of commercial banks doing business in the
United States (United States banks in the case of Small Cap Opportunities Fund)
that have, at the time of investment, except in the case of International Fund,
total assets in excess of one billion dollars and that are insured by the
Federal Deposit Insurance Corporation; (3) commercial paper of prime quality
rated Prime-2 or higher by Moody's or A-2 or higher by S&P or, if not rated,
determined by the Adviser to be of comparable quality; (4) repurchase agreements
covering any of the securities in which the Fund may invest directly; and (5)
shares of money market funds registered under the 1940 Act within the limits
specified therein. During periods when and to the extent that a Fund has assumed
a temporary defensive position, it may not be pursuing its investment objective.
Prime quality instruments are those that are rated in one of the two highest
short-term rating categories by an NRSRO or, if not rated, determined by the
Adviser to be of comparable quality. Apart from temporary defensive purposes, a
Fund may at any time invest a portion of its assets in cash and cash equivalents
as described above (in United States banks in the case of Small Cap
Opportunities Fund). Except during periods when the Fund assumes a temporary
defensive position, each Equity Fund and Aggressive Balanced -- Equity Fund will
have at least 65% of its total assets invested in common stock and International
Fund will have at least 65% of its net assets invested in securities of
companies domiciled outside the United States. International Portfolio and
Schroder EM Core Portfolio and may hold cash and bank instruments denominated in
any major foreign currency.
When a Tax-Exempt Fixed Income Fund assumes a temporary defensive position, it
is likely that its shareholders will be subject to federal and applicable state
income taxes on a greater portion of their income dividends received from the
Fund.
SMALL COMPANY INVESTMENT CONSIDERATIONS AND RISK FACTORS.
<PAGE>
GROWTH BALANCED FUND, AGGRESSIVE BALANCED-EQUITY FUND, DIVERSIFIED EQUITY FUND,
GROWTH EQUITY FUND, DIVERSIFIED SMALL CAP FUND, SMALL COMPANY STOCK FUND, SMALL
COMPANY GROWTH FUND AND SMALL CAP OPPORTUNITIES FUND. While all investments have
risks, investments in smaller capitalization companies carry greater risk than
investments in larger capitalization companies. Smaller capitalization companies
generally experience higher growth rates and higher failure rates than do larger
capitalization companies; and the trading volume of smaller capitalization
companies' securities is normally lower than that of larger capitalization
companies and, consequently, generally has a disproportionate effect on market
price (tending to make prices rise more in response to buying demand and fall
more in response to selling pressure).
Investments in small, unseasoned issuers generally carry greater risk than is
customarily associated with larger, more seasoned companies. Such issuers often
have products and management personnel that have not been tested by time or the
marketplace and their financial resources may not be as substantial as those of
more established companies. Their securities (which a Core Portfolio may
purchase when they are offered to the public for the first time) may have a
limited trading market which can adversely affect their sale by the Core
Portfolio and can result in such securities being priced lower than otherwise
might be the case. If other institutional investors engage in trading this type
of security, the Core Portfolio may be forced to dispose of its holdings at
prices lower than might otherwise be obtained.
FOREIGN INVESTMENT RISKS.
MODERATE BALANCED FUND, GROWTH BALANCED FUND, AGGRESSIVE BALANCED-EQUITY FUND,
DIVERSIFIED EQUITY FUND, GROWTH EQUITY FUND, LARGE COMPANY GROWTH FUND, SMALL
COMPANY GROWTH FUND All investments, domestic and foreign, involve certain
risks. Investments in the securities of foreign issuers may involve risks in
addition to those normally associated with investments in the securities of U.S.
issuers. All foreign investments are subject to risks of foreign political and
economic instability, adverse movements in foreign exchange rates, the
imposition or tightening of exchange controls or other limitations on
repatriation of foreign capital, and changes in foreign governmental attitudes
towards private investment, possibly leading to nationalization, increased
taxation or confiscation of foreign investors' assets.
Moreover, dividends payable on foreign securities may be subject to foreign
withholding taxes, thereby reducing the income available to shareholders;
commission rates payable on foreign transactions are generally higher than in
the U.S.; foreign accounting, auditing and financial reporting standards differ
from those in the U.S. and, accordingly, less information may be available about
foreign companies than is available about issuers of comparable securities in
the U.S.; and foreign securities may trade less frequently and with lower volume
and may exhibit greater price volatility than U.S. securities.
Changes in foreign exchange rates will also affect the value in U.S. dollars of
all foreign currency-denominated securities held by the Core Portfolio. Exchange
rates are influenced generally by the forces of supply and demand in the foreign
currency markets and by numerous other political and economic events occurring
outside the United States, many of which may be difficult, if not impossible, to
predict.
Income from foreign securities will be received and realized in foreign
currencies. A decline in the value of a particular foreign currency against the
U.S. dollar occurring after the Core Portfolio's income has been earned and
computed in U.S. dollars may require the Core Portfolio to liquidate portfolio
securities to acquire sufficient U.S. dollars to fund redemptions. Similarly, if
the exchange rate declines between the time the Core Portfolio incurs expenses
in U.S. dollars and the time such expenses are paid, the Core Portfolio may be
required to liquidate additional foreign securities to purchase the U.S. dollars
required to meet such expenses.
GEOGRAPHIC CONCENTRATION.
COLORADO TAX-FREE FUND, MINNESOTA INTERMEDIATE TAX-FREE FUND and MINNESOTA
TAX-FREE FUND invest principally in municipal securities issued by issuers
within a particular state and the state's political subdivisions. Those Funds
are more susceptible to factors adversely affecting issuers of those municipal
securities than would be a more geographically diverse municipal securities
portfolio. In addition, to the extent they may concentrate
<PAGE>
their investments in a particular jurisdiction, MUNICIPAL MONEY MARKET FUND,
LIMITED TERM TAX-FREE FUND and TAX-FREE INCOME FUND will be subject to similar
risks. These risks arise from the financial condition of the state and its
political subdivisions. To the extent state or local governmental entities are
unable to meet their financial obligations, the income derived by a Fund, its
ability to preserve or realize appreciation of its portfolio assets or its
liquidity could be impaired.
To the extent a Fund's investments are primarily concentrated in issuers located
in a particular state, the value of the Fund's shares may be especially affected
by factors pertaining to that state's economy and other factors specifically
affecting the ability of issuers of that state to meet their obligations. As a
result, the value of the Fund's assets may fluctuate more widely than the value
of shares of a portfolio investing in securities relating to a number of
different states. The ability of state, county or local governments and
quasi-government agencies to meet their obligations will depend primarily on the
availability of tax and other revenues to those governments and on their fiscal
conditions generally. The amounts of tax and other revenues available to
governmental issuers may be affected from time to time by economic, political
and demographic conditions within their state. In addition, constitutional or
statutory restrictions may limit a government's power to raise revenues or
increase taxes. The availability of federal, state and local aid to governmental
issuers may also affect their ability to meet obligations. Payments of principal
of and interest on private activity securities will depend on the economic
condition of the facility or specific revenue source from whose revenues the
payments will be made, which in turn could be affected by economic, political or
demographic conditions in the state.
DIVERSIFICATION MATTERS.
COLORADO TAX-FREE FUND, MINNESOTA INTERMEDIATE TAX-FREE FUND and MINNESOTA
TAX-FREE FUND are non-diversified, which means that they have greater latitude
than a diversified fund with respect to the investment of their assets in the
securities of relatively few municipal issuers. As non-diversified portfolios,
these Funds may present greater risks than a diversified fund. However, each
Fund intends to comply with applicable diversification requirements of the
Internal Revenue Code. These requirements provide that, as of the last day of
each fiscal quarter: (1) with respect to 50% of its assets, a Fund may not: (a)
own the securities of a single issuer, other than a U.S. Government security,
with a value of more than 5% of the Fund's total assets; or (b) own more than
10% of the outstanding voting securities of a single issuer; and (2) a Fund may
not own the securities of a single issuer, other than a U.S. Government
security, with a value of more than 25% of the Fund's total assets.
II. INFORMATION CONCERNING COLORADO AND MINNESOTA
Following is a brief summary of some of the factors that may affect the
financial condition of the State of Colorado and the State of Minnesota and
their respective political subdivisions. It is not a complete or comprehensive
description of these factors or an analysis of financial conditions and may not
be indicative of the financial condition of issuers of obligations held by
Colorado Tax Free Fund, Minnesota Intermediate Tax-Free Fund and Minnesota
Tax-Free Fund or any particular projects financed with the proceeds of such
obligations. Many factors not included in the summary, such as the national
economy, social and environmental policies and conditions, and the national and
international markets for products produced in each state could have an adverse
impact on the financial condition of a State and its political subdivisions,
including the issuers of obligations held by a Fund. It is not possible to
predict whether and to what extent those factors may affect the financial
condition of a State and its political subdivisions, including the issuers of
obligations held by a Fund.
The following summary is based on publicly available information that has not
been independently verified by the Trust or its legal counsel.
<PAGE>
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% (5.3% 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
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.
<PAGE>
The provisions of the Amendment apply to "districts," which are defined in the
Amendment as the State or any local government, with certain exclusions. Under
the terms of the Amendment, districts must have prior voter approval to impose
any new tax, tax rate increase, mill levy increase, valuation for assessment
ratio increase and extension of an expiring tax. Such prior voter approval is
also required, except in certain limited circumstances, for the creation of "any
multiple-fiscal year direct or indirect district debt or other financial
obligation." The Amendment prescribes the timing and procedures for any
elections required by the Amendment.
Because the Amendment's voter approval requirements apply to any "multiple
fiscal year" debt or financial obligation, short-term obligations which do not
extend beyond the fiscal year in which they are incurred are exempt from the
voter approval requirements of the Amendment. In addition, the Colorado Court of
Appeals has determined that lease purchase obligations subject to annual
appropriation are not subject to the voter approval requirements of the
Amendment. The Amendment's voter approval requirements and other limitations
(discussed in the following paragraph) do not apply to "enterprises," which are
defined in the Amendment as follows: "a government-owned business authorized to
issue its own revenue bonds and receiving under 10% of annual revenue in grants
from all Colorado state and local governments combined."
Among other provisions, the Amendment requires the establishment of emergency
reserves, limits increases in district revenues and limits increases in district
fiscal year spending. As a general matter, annual State fiscal year spending may
change not more than inflation plus the percentage change in State population in
the prior calendar year. Annual local district fiscal year spending may change
no more than inflation in the prior calendar year plus annual local growth, as
defined in and subject to the adjustments provided in the Amendment. The
Amendment provides that annual district property tax revenues may change no more
than inflation in the prior calendar year plus annual local growth, as defined
in and subject to the adjustments provided in the Amendment. District revenues
in excess of the limits prescribed by the Amendment are required, absent voter
approval, to be refunded by any reasonable method, including temporary tax
credits or rate reductions. 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
approximately $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
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
4.4%. Based on the most recent readily available information, the Minnesota
population is forecast to grow 12.3% between 1994 and 2010.
III. INVESTMENT LIMITATIONS
For purposes of all fundamental and nonfundamental investment policies of the
Fund: (1) the term 1940 Act includes the rules thereunder, SEC interpretations
and any exemptive order upon which the Fund may rely and (2) the term Code
includes the rules thereunder, IRS interpretations and any private letter ruling
or similar authority upon which the Fund may rely.
Except as required by the 1940 Act or the Code, if any percentage restriction on
investment or utilization of assets is adhered to at the time an investment is
made, a later change in percentage resulting from a change in the market values
of a Fund's assets or purchases and redemptions of shares will not be considered
a violation of the limitation.
A fundamental policy cannot be changed without the affirmative vote of the
lesser of: (1) more than 50% of the outstanding shares of the Fund or (2) 67% of
the shares of the Fund present or represented at a shareholders meeting at which
the holders of more than 50% of the outstanding shares of the Fund are present
or represented.
FUNDAMENTAL LIMITATIONS
Each Fund has adopted the following investment limitations which are fundamental
policies of the Fund. Reference to any Fund that invests in one or more Core
Portfolios includes reference to the Core Portfolio(s) in which that Fund
invests, which has the same fundamental policies as the Fund.
(1) DIVERSIFICATION
EACH FUND (other than Colorado Tax-Free Fund, Minnesota
Intermediate Tax-Free Fund and Minnesota Tax-Free Fund) may
not, with respect to 75% of its assets, purchase a security
(other than a U.S. Government Security or a security of an
investment company) if, as a result: (1) more than 5% of the
Fund's total assets would be invested in the securities of a
single issuer or (2) the Fund would own more than 10% of the
outstanding voting securities of any single issuer
(2) CONCENTRATION
(a) CASH INVESTMENT FUND and READY CASH INVESTMENT FUND may not
purchase a security if, as a result, more than 25% of the Fund's
total assets would be invested in securities of issuers
conducting their principal business activities in the same
industry; provided: (1) there is no limit on investments in U.S.
Government Securities, in repurchase agreements covering U.S.
Government Securities or in foreign government securities; (2)
municipal securities are not treated as involving a single
industry; (3) there is no limit on investment in issuers
domiciled in a single country; (4) financial service companies
are classified according to the end users of their services (for
example, automobile finance, bank finance and diversified
finance); and (5) utility companies are classified according to
their services (for example, gas, gas transmission, electric and
gas, electric and telephone); and provided the Fund will invest
more than 25% of the value of the Fund's total assets in
obligations of domestic and foreign financial institutions and
their holding companies. Notwithstanding anything to the
contrary, to the extent permitted by the 1940 Act, the Fund may
invest in one or more investment companies; provided that, except
to the extent the Fund invests in other investment companies
pursuant to Section 12(d)(1)(A) of the 1940 Act, the Fund treats
the assets of the investment companies in which it invests as its
own for purposes of this policy.
(b) TREASURY FUND, U.S. GOVERNMENT FUND and MUNICIPAL MONEY MARKET
FUND may not purchase a security if, as a result, more than 25%
of the Fund's total assets would be invested in securities of
issuers conducting their principal business activities in the
same industry; provided: (1) there is no limit on investments in
U.S. Government Securities, in repurchase agreements covering
U.S. Government Securities, in foreign government securities, or
in obligations of domestic commercial banks (including U.S.
branches of foreign banks subject to regulations under U.S. laws
applicable to domestic banks and, to the extent that its parent
is unconditionally liable for the obligation, foreign branches of
U.S. banks); (2) municipal securities are not treated as
involving a single industry; (3) there is no limit on investment
in issuers domiciled in a single country; (4) financial service
companies are classified according to the end users of their
services (for example, automobile finance, bank finance and
diversified finance); and (5) utility companies are classified
according to their services (for example, gas, gas transmission,
electric and gas, electric and telephone). Notwithstanding
anything to the contrary, to the extent permitted by the 1940
Act, the Fund may invest in one or more investment companies;
provided that, except to the extent the Fund invests in other
investment companies pursuant to Section 12(d)(1)(A) of the 1940
Act, the Fund treats the assets of the investment companies in
which it invests as its own for purposes of this policy.
(c) TREASURY PLUS FUND may not purchase a security if, as a result,
more than 25% of the Fund's total assets would be invested in
securities of issuers conducting their principal business
activities in the same industry. For purposes of this limitation,
there is no limit on (i) investments in U.S. Government
securities, in repurchase agreements covering U.S. Government
securities, in securities issued by the states, territories and
possessions of the United States ("municipal securities") or in
foreign government securities or (ii) investment in issuers
domiciled in a single jurisdiction. Notwithstanding anything to
the contrary, to the extent permitted by the 1940 Act, the Fund
may invest in one or more investment companies; provided that,
except to the extent the Fund invests in other investment
companies pursuant to Section 12(d)(1)(A) of the 1940 Act, the
Fund treats the assets of the investment companies in which it
invests as its own for purposes of this policy. For purposes of
this policy (i) "mortgage related securities," as that term is
defined in the 1934 Act are treated as securities of an issuer in
the industry of the primary type of asset backing the security,
(ii) financial service companies are classified according to the
end users of their services (for example, automobile finance,
bank finance and diversified finance) and (iii) utility companies
are classified according to their services (for example, gas, gas
transmission, electric and gas, electric and telephone).
(d) INCOME FUND, LIMITED TERM TAX-FREE FUND, TAX-FREE INCOME FUND,
COLORADO TAX-FREE FUND, MINNESOTA INTERMEDIATE TAX-FREE FUND,
MINNESOTA TAX-FREE FUND and VALUGROWTH STOCK FUND may not
purchase a security if, as a result, more than 25% of the Fund's
total assets would be invested in securities of issuers
conducting their principal business activities in the same
industry; provided: (1) there is no limit on investments in
repurchase agreements covering U.S. Government Securities; (2)
municipal securities are not treated as involving a single
industry; (3) financial service companies are classified
according to the end users of their services (for example,
automobile finance, bank finance and diversified finance); and
(4) utility companies are classified according to their services
(for example, gas, gas transmission, electric and gas, electric
and telephone). Notwithstanding anything to the contrary, to the
extent permitted by the 1940 Act, the Fund may invest in one or
more investment companies; provided that,
<PAGE>
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 1940 Act, the Fund treats the assets
of the investment companies in which it invests as its own for
purposes of this policy.
(f) SMALL COMPANY STOCK FUND may not purchase a security if, as a
result, more than 25% of the Fund's total assets would be
invested in securities of issuers conducting their principal
business activities in the same industry; provided: (1) there is
no limit on investments in U.S. Government Securities, or in
repurchase agreements covering U.S. Government Securities,
municipal securities are not treated as involving a single
industry; (2) financial service companies are classified
according to the end users of their services (for example,
automobile finance, bank finance and diversified finance); and
(3) utility companies are classified according to their services
(for example, gas, gas transmission, electric and gas, electric
and telephone). Notwithstanding anything to the contrary, to the
extent permitted by the 1940 Act, the Fund may invest in one or
more investment companies; provided that, except to the extent
the Fund invests in other investment companies pursuant to
Section 12(d)(1)(A) of the 1940 Act, the Fund treats the assets
of the investment companies in which it invests as its own for
purposes of this policy.
(g) DIVERSIFIED SMALL CAP FUND and SMALL CAP OPPORTUNITIES FUND may
not purchase a security if, as a result, more than 25% of the
Fund's total assets would be invested in securities of issuers
conducting their principal business activities in the same
industry; provided, however, that there is no limit on
investments in U.S. Government Securities. Notwithstanding
anything to the contrary, to the extent permitted by the 1940
Act, the Fund may invest in one or more investment companies;
provided that, except to the extent the Fund invests in other
investment companies pursuant to Section 12(d)(1)(A) of the 1940
Act, the Fund treats the assets of the investment companies in
which it invests as its own for purposes of this policy.
(h) STABLE INCOME FUND, LIMITED TERM GOVERNMENT INCOME FUND,
INTERMEDIATE GOVERNMENT INCOME FUND, DIVERSIFIED BOND FUND,
STRATEGIC INCOME FUND, MODERATE BALANCED FUND, GROWTH BALANCED
FUND, AGGRESSIVE BALANCED FUND, INCOME EQUITY FUND, INDEX FUND,
DIVERSIFIED EQUITY FUND, GROWTH EQUITY FUND, LARGE COMPANY GROWTH
FUND, and SMALL COMPANY GROWTH FUND may not purchase a security
if, as a result, more than 25% of the Fund's total assets would
be invested in securities of issuers conducting their principal
business activities in the same industry; provided, however, that
there is no limit on investments in U.S. Government Securities,
repurchase agreements covering U.S. Government Securities,
foreign government securities, mortgage-related or
housing-related securities, municipal securities and issuers
domiciled in a single country; that financial service companies
are classified according to the end users of their services (for
example, automobile finance, bank finance and diversified
finance); and that utility companies are classified according to
their services (for example, gas, gas transmission, electric and
gas, electric and telephone. Notwithstanding anything to the
<PAGE>
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 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.
<PAGE>
(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.
(7) PURCHASES AND SALES OF REAL ESTATE
(a) EACH FUND (other than DIVERSIFIED SMALL CAP FUND, SMALL CAP
OPPORTUNITIES FUND and TREASURY PLUS FUND) may not purchase or
sell real estate or any interest therein or real estate
limited partnership interests, except that the Fund may invest
in debt obligations secured by real estate or interests
therein or securities issued by companies that invest in real
estate or interests therein.
(b) DIVERSIFIED SMALL CAP FUND and SMALL CAP OPPORTUNITIES FUND
may not purchase or sell real estate or any interest therein,
except that it may invest in debt obligations secured by real
estate or interests therein or securities issued by companies
that invest in real estate or interests therein.
(c) TREASURY PLUS FUND may not purchase or sell real estate,
unless acquired as a result of ownership of securities or
other investments (but this shall not prevent the Fund from
investing in securities or other instruments backed by real
estate or securities of companies engaged in the real estate
business).
(8) PURCHASES AND SALES OF COMMODITIES
(a) EACH FIXED INCOME FUND, EQUITY FUND (other than DIVERSIFIED
SMALL CAP FUND and SMALL CAP OPPORTUNITIES FUND) and BALANCED
FUND may not purchase or sell physical commodities or
contracts, options or options on contracts to purchase or sell
physical commodities; provided that currency and
currency-related contracts and contracts on indices will not
be deemed to be physical commodities.
(b) DIVERSIFIED SMALL CAP FUND and SMALL CAP OPPORTUNITIES FUND
may not purchase or sell physical commodities unless acquired
as a result of owning securities or other instruments, but it
may purchase, sell or enter into financial options and futures
and forward currency contracts and other financial contracts
or derivative instruments.
(c) TREASURY PLUS FUND may not purchase or sell physical
commodities unless acquired as a result of the ownership of
securities or other instruments (but this shall not prevent
the Fund from purchasing or selling options and futures
contracts or from investing in securities or other instruments
backed by physical commodities).
NONFUNDAMENTAL LIMITATIONS
Each Fund has adopted the following investment limitations which are not
fundamental policies of the Fund. Reference to a Fund includes reference to its
corresponding Core Portfolio, if applicable, which has the same fundamental
policies as the Fund. The policies of a Fund may be changed by the Board, or in
the case of its corresponding Core Portfolio, the Core Trust Board.
<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 the section as a
single issuer or the Fund would own more than 10% of the
outstanding rated securities of any single issuer.
(b) COLORADO TAX-FREE FUND, MINNESOTA INTERMEDIATE TAX-FREE FUND
AND MINNESOTA TAX-FREE FUND, the Fund are "non-diversified" as
that term is defined in the 1940 Act.
(c) With respect to each of COLORADO TAX-FREE FUND, MINNESOTA
INTERMEDIATE TAX-FREE FUND and MINNESOTA TAX-FREE FUND, to
the extent required to qualify as a regulated investment
company under the Code, as amended, the Fund may not
purchase a security (other than a U.S. Government security
or a security of an investment company) if, as a result: (1)
with respect to 50% of its assets, more than 5% of the
Fund's total assets would be invested in the securities of
any single issuer; (2) with respect to 50% of its assets,
the Fund would own more than 10% of the outstanding
securities of any single issuer; or (3) more than 25% of the
Fund's total assets would be invested in the securities of
any single issuer.
(2) BORROWING
(a) EACH FUND'S (other than TREASURY PLUS FUND'S, INTERMEDIATE
GOVERNMENT INCOME FUND'S and DIVERSIFIED BOND FUND'S)
borrowings for other than temporary or emergency purposes or
meeting redemption requests may not exceed an amount equal
to 5% of the value of the Fund's net assets. When STABLE
INCOME FUND, LIMITED TERM GOVERNMENT INCOME FUND,
INTERMEDIATE GOVERNMENT INCOME FUND, DIVERSIFIED BOND FUND,
STRATEGIC INCOME FUND, MODERATE BALANCED FUND, GROWTH
BALANCED FUND, AGGRESSIVE BALANCED-EQUITY FUND, INCOME
EQUITY FUND, INDEX FUND, DIVERSIFIED EQUITY FUND, GROWTH
EQUITY FUND, LARGE COMPANY GROWTH FUND, SMALL COMPANY GROWTH
FUND and INTERNATIONAL FUND establish a segregated account
to limit the amount of leveraging with respect to certain
investment techniques, they do not treat those techniques as
involving borrowings for purposes of this or other borrowing
limitations.
(b) TREASURY PLUS FUND may not purchase or sell physical
commodities unless acquired as a result of the ownership of
securities or other instruments (but this shall not prevent
the Fund from purchasing or selling options and futures
contracts or from investing in securities or other
instruments backed by physical commodities).
(3) ILLIQUID SECURITIES
(a) No MONEY MARKET FUND other than TREASURY PLUS FUND may acquire
securities or invest in repurchase agreements with respect to
any securities if, as a result, more than 10% of the Fund's
net assets (taken at current value) would be invested in
repurchase agreements not entitling the holder to payment of
principal within seven days and in securities which are not
readily marketable, including securities that are not readily
marketable by virtue of restrictions on the sale of such
securities to the public without registration under the 1933
Act, as amended ("Restricted Securities").
(b) EACH FIXED INCOME FUND, EQUITY FUND and BALANCED FUND may not
acquire securities or invest in repurchase agreements with
respect to any securities if, as result, more than 15% of the
Fund's net assets (taken at current value) would be invested
in repurchase agreements not entitling the holder to payment
of principal within seven days and in securities
<PAGE>
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").
(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.
(8) SECURITIES WITH VOTING RIGHTS
<PAGE>
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
<PAGE>
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.
(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
IV. PERFORMANCE AND ADVERTISING DATA
Quotations of performance may from time to time be used in advertisements, sales
literature, shareholder reports or other communications to shareholders or
prospective investors. All performance information supplied by the Funds is
historical and is not intended to indicate future returns. All performance
information for a Fund is calculated on a class basis. Each Fund's yield and
total return fluctuate in response to market conditions and other factors.
Investment return and principal value will fluctuate, and shares, when redeemed,
may be worth more or less than their original cost.
A Fund's performance may be quoted in terms of yield or total return. A Fund's
yield is a way of showing the rate of income the Fund earns on its investments
as a percentage of the Fund's share price. To calculate standardized yield for
the Money Market Funds, a Fund takes the income it earned from its investments
for a 7-day period (net of expenses), divides it by the average number of shares
entitled to receive dividends, and expresses the result as an annualized
percentage rate based on the Fund's share price at the end of the 7-day period.
With respect to each of the other Funds, to calculate standardized yield, a Fund
takes the income it earned from its investments for a 30-day period (net of
expenses), divides it by the average number of shares entitled to receive
dividends, and expresses the result as an annualized percentage rate based on
the Fund's share price at the end of the 30-day period. Municipal Money Market
Fund and the Tax-Exempt Fixed Income Funds may also quote tax-equivalent yields,
which show the taxable yields a shareholder would have to earn to equal the
Fund's tax-free yield, after taxes. A tax equivalent yield is calculated by
dividing the Fund's tax-free yield by one minus a stated federal, state or
combined federal and state tax rate.
A Fund's total return shows its overall change in value, including changes in
share price and assuming all the Fund's dividends and distributions are
reinvested. A cumulative total return reflects a Fund's performance over a
stated period of time. An average annual total return reflects the hypothetical
annually compounded return that would have produced the same cumulative total
return if the Fund's performance had been constant over the entire period.
Because average annual returns tend to smooth out variations in the Fund's
returns, shareholders should recognize that they are not the same as actual
year-by-year results. Published yield quotations are, and total return figures
may be, based on amounts invested in a Fund net of sales charges that may be
paid by an investor. A computation of yield or total return that does not take
into account sales charges paid by an investor will be higher than a similar
computation that takes into account payment of sales charges.
For a listing of certain performance data as of 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
<PAGE>
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. Indices are not
used in the management of a Fund but rather are standards by which an Adviser
and shareholders may compare the performance of a Fund to an unmanaged composite
of securities with similar, but not identical, characteristics as the Fund. This
material is not to be considered representative or indicative of future
performance. The Funds may refer to general market performances over past time
periods such as those published by Ibbotson Associates (for instance, its
"Stocks, Bonds, Bills and Inflation Yearbook"). In addition, the Funds may also
refer in such materials to mutual fund performance rankings and other data
published by Fund Tracking Companies. Performance advertising may also refer to
discussions of the Funds and comparative mutual fund data and ratings reported
in independent periodicals, such as newspapers and financial magazines.
SEC YIELD CALCULATIONS
Although published yield information is useful to investors in reviewing a
Fund's performance, investors should be aware that each Fund's yield fluctuates
from day to day and that the Fund's yield for any given period is not an
indication or representation by the Fund of future yields or rates of return on
the Fund's shares. Norwest, Processing Organizations and others may charge their
customers, various retirement plans or other shareholders that invest in a Fund
fees in connection with an investment in a Fund, which will have the effect of
reducing the Fund's net yield to those shareholders. The yields of a Fund are
not fixed or guaranteed, and an investment in a Fund is not insured or
guaranteed. Accordingly, yield information may not necessarily be used to
compare shares of a Fund with investment alternatives which, like money market
instruments or bank accounts, may provide a fixed rate of interest. Also, it may
not be appropriate to compare a Fund's yield information directly to similar
information regarding investment alternatives which are insured or guaranteed.
MONEY MARKET FUNDS
Yield quotations for the Money Market Funds will include an annualized
historical yield, carried at least to the nearest hundredth of one percent,
based on a specific seven-calendar-day period and are calculated by dividing the
net change during the seven-day period in the value of an account having a
balance of one share at the beginning of the period by the value of the account
at the beginning of the period, and multiplying the quotient by 365/7. For this
purpose, the net change in account value reflects the value of additional shares
purchased with dividends declared on the original share and dividends declared
on both the original share and any such additional shares, but would not reflect
any realized gains or losses from the sale of securities or any unrealized
appreciation or depreciation on portfolio securities. In addition, any effective
annualized yield quotation used by a Money Market Fund is calculated by
compounding the current yield quotation for such period by adding 1 to the
product, raising the sum to a power equal to 365/7, and subtracting 1 from the
result. The standardized tax equivalent yield is the rate an investor would have
to earn from a fully taxable investment in order to equal a Fund's yield after
taxes. Tax equivalent yields are calculated by dividing the Fund's yield by one
minus the stated Federal or combined Federal and state tax rate. If a portion of
a Fund's yield is tax-exempt, only that portion is adjusted in the calculation.
FIXED INCOME AND EQUITY FUNDS
Standardized yields for the Funds used in advertising are computed by dividing a
Fund's interest income (in accordance with specific standardized rules) for a
given 30 days or one month period, net of expenses, by the average number of
shares entitled to receive distributions during the period, dividing this figure
by the Fund's net asset value per share at the end of the period and annualizing
the result (assuming compounding of income in accordance with specific
standardized rules) in order to arrive at an annual percentage rate. In general,
interest income is reduced with respect to municipal securities purchased at a
premium over their par value by subtracting a portion of the premium from income
on a daily basis. In general, interest income is increased with respect to
<PAGE>
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
produced the same result if the rate of growth or decline in value had been
constant over the period. For example, a cumulative return of 100% over ten
years would produce an average annual return of 7.18%, which is the steady
annual rate that would equal 100% growth on a compounded basis in ten years. The
average annual total return is computed separately for each class of shares of a
Fund. While average annual returns are a convenient means of comparing
investment alternatives, investors should realize that the performance is not
constant over time but changes from year to year, and that average annual
returns represent averaged figures as opposed to the actual year-to-year
performance of the Funds.
Average annual total return is calculated by finding the average annual
compounded rates of return of a hypothetical investment, over such periods
according to the following formula:
P(1+T)n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value: ERV is the value, at the
end of the applicable period, of a hypothetical $1,000
payment made at the beginning of the applicable period
Standardized total return quotes may be accompanied by non-standardized total
return figures calculated by alternative methods. For example, average annual
total return may be calculated without assuming payment of the sales load
according to the following formula:
<PAGE>
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 AND COMMON TRUST FUND AND CORE-GATEWAY
PERFORMANCE
MULTICLASS PERFORMANCE
When a Fund has more than one class of shares, performance calculations for the
classes of shares that are created after the initial class may be stated so as
to include the performance of the initial class or classes of the Fund.
Generally, performance of the initial class is not restated to reflect the
expenses or expense ratio of the subsequent class. For instance, if A Shares of
a Fund are created after I Shares have been in existence, the inception of
performance for the A Shares will be deemed to be the inception date of the I
Shares and the performance of the I Shares (based on the I Shares actual
expenses) from the inception of I Shares to the inception of A Shares will be
deemed to be the performance of A Shares for that period. For standardized total
return calculations, the current maximum initial sales load and applicable 12b-1
fees on A Shares would be used in determining the total return of A Shares as if
assessed at the inception of I Shares. Generally, the performance of B Shares
will be calculated only from the inception date of B Shares, regardless of the
existence of prior share classes in the same Fund.
COLLECTIVE INVESTMENT AND COMMON TRUST FUND PERFORMANCE
Prior to November 11, 1994, Norwest Bank managed several collective investment
funds each of which had an investment objective and investment policies that
were in all material respects equivalent to a particular Fund which became the
successor to the collective investment fund. Therefore, the performance for
these Funds includes the performance of their predecessor collective investment
funds for periods before those Funds became mutual funds on November 11, 1994.
The collective investment fund performance was adjusted to reflect those Funds'
1994 estimate of their expense ratios for the first year of operations as a
mutual fund (without giving effect to any fee waivers or expense
reimbursements). Prior to October 1, 1997, Norwest Bank managed a common trust
fund which had an investment objective and investment policies that were in all
material respects equivalent to one of the Funds which became the successor to
the collective investment fund. Therefore, the performance for the Fund includes
the performance of the predecessor common trust fund for the period before the
Fund became a mutual fund on October 1, 1997. The common trust fund performance
was adjusted to reflect the Fund's 1997
<PAGE>
estimate of its expense ratio for the first year of operation as a mutual fund
(without giving effect to any fee waivers or expense reimbursements). The
collective investment funds and common trust fund were not registered under the
1940 Act nor subject to certain investment limitations, diversification
requirements, and other restrictions imposed by the 1940 Act and the Code,
which, if applicable, may have adversely affected the performance result. The
performance of International Fund reflects the historical performance of
Schroder International Equity Fund (managed by Schroder Capital Management
International Inc.) in which International Fund's predecessor collective
investment fund invested.
CORE-GATEWAY PERFORMANCE
When a Fund invests all of its investable assets in Core portfolio that has a
performance history prior to the investment by the Fund, the Fund will assume
the performance history of the Core Portfolio. That history may be restated to
reflect the estimated expenses of the Fund.
OTHER ADVERTISEMENT MATTERS
The Funds may advertise other forms of performance. For example, the Funds may
quote unaveraged or cumulative total returns reflecting the change in the value
of an investment over a stated period. Average annual and cumulative total
returns may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments and/or a series of
redemptions over any time period. Total returns may be broken down into their
components of income and capital (including capital gains and changes in share
price) in order to illustrate the relationship of these factors and their
contributions to total return. Total returns may be quoted with or without
taking into consideration a Fund's front-end sales charge or contingent deferred
sales charge; excluding sales charges from a total return calculation produces a
higher return figure. Any performance information may be presented numerically
or in a table, graph or similar illustration.
The Funds may also include various information in their advertisements
including, but not limited to: (1) portfolio holdings and portfolio allocation
as of certain dates, such as portfolio diversification by instrument type, by
instrument, by location of issuer or by maturity; (2) statements or
illustrations relating to the appropriateness of types of securities and/or
mutual funds that may be employed by an investor to meet specific financial
goals, such as funding retirement, paying for children's education and
financially supporting aging parents; (3) information (including charts and
illustrations) showing the effects of compounding interest (compounding is the
process of earning interest on principal plus interest that was earned earlier;
interest can be compounded at different intervals, such as annually, quarterly
or daily); (4) information relating to inflation and its effects on the dollar;
for example, after ten years the purchasing power of $25,000 would shrink to
$16,621, $14,968, $13,465 and $12,100, respectively, if the annual rates of
inflation were 4%, 5%, 6% and 7%, respectively; (5) information regarding the
effects of automatic investment and systematic withdrawal plans, including the
principal of dollar cost averaging; (6) biographical descriptions of the Funds'
portfolio managers and the portfolio management staff of the Advisers or
summaries of the views of the portfolio managers with respect to the financial
markets; (7) the results of a hypothetical investment in a Fund over a given
number of years, including the amount that the investment would be at the end of
the period; (8) the effects of earning Federally and, if applicable, state
tax-exempt income from a Fund or investing in a tax-deferred account, such as an
individual retirement account or Section 401(k) pension plan; and (9) the net
asset value, net assets or number of shareholders of a Fund as of one or more
dates.
As an example of compounding, $1,000 compounded annually at 9.00% will grow to
$1,090 at the end of the first year (an increase in $90) and $1,118 at the end
of the second year (an increase in $98). The extra $8 that was earned on the $90
interest from the first year is the compound interest. One thousand dollars
compounded annually at 9.00% will grow to $2,367 at the end of ten years and
$5,604 at the end of 20 years. Other examples of compounding are as follows: at
7% and 12% annually, $1,000 will grow to $1,967 and $3,106, respectively, at the
end of ten years and $3,870 and $9,646, respectively, at the end of twenty
years. These examples are for illustrative purposes only and are not indicative
of any Fund's performance.
<PAGE>
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.
V. MANAGEMENT
Those officers, as well as certain other officers and Trustees of the Trust, may
be directors, officers or employees of (and persons providing services to the
Trust may include) Forum, its affiliates or certain non-banking affiliates of
Norwest.
TRUSTEES AND OFFICERS
TRUSTEES AND OFFICERS OF THE TRUST
The Trustees and officers of the Trust and their principal occupations during
the past five years and age as of 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.
<PAGE>
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.
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
<PAGE>
defender for the Missouri State Public Defender's Office. His address is
Two Portland Square, Portland, Maine 04101.
COMPENSATION OF TRUSTEES AND OFFICERS OF THE TRUST
Each Trustee of the Trust is paid a retainer fee in the total amount of $5,000,
payable quarterly, for the Trustee's service to the Trust and to Norwest Select
Funds, a separate registered open-end management investment company for which
each Trustee serves as trustee. In addition, each Trustee is paid $3,000 for
each regular Board meeting attended (whether in person or by electronic
communication) and is paid $1,000 for each Committee meeting attended on a date
when a Board meeting is not held. Trustees are also reimbursed for travel and
related expenses incurred in attending meetings of the Board. Mr. Keffer
received no compensation for his services as Trustee for the past year or
compensation or reimbursement for his associated expenses. In addition, no
officer of the Trust is compensated by the Trust.
Mr. Burkhardt, Chairman of the Trust's and Norwest Select Funds' audit
committees, receives additional compensation of $6,000 from the Trust and
Norwest Select Funds allocated pro rata between the Trust and Norwest Select
Funds based upon relative net assets, for his services as Chairman. Each Trustee
was elected by shareholders on April 30, 1997.
The following table provides the aggregate compensation paid to the Trustees of
the Trust by the Trust and Norwest Select Funds, combined. Norwest Select Funds
have a December 31 fiscal year end. Information is presented for the twelve
month period ended May 31, 1998, which was the fiscal year end of all of the
Trust's portfolios.
<TABLE>
<S> <C> <C>
TOTAL COMPENSATION FROM
TOTAL COMPENSATION THE TRUST AND NORWEST
FROM THE TRUST SELECT FUNDS
-------------- ------------
Mr. Brown $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
=================================
</TABLE>
Neither the Trust nor Norwest Select Funds has adopted any form of retirement
plan covering Trustees or officers. For the twelve month period ended May 31,
1998 total expenses of the Trustees (other than Mr. Keffer) was $20,870 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.
<PAGE>
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.
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 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. Her
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.
<PAGE>
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. Accordingly, for background information
pertaining to these officers, (see "Management - Trustees and Officers -
Trustees and Officers of the Trust.")
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 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)
c/o the Trust, Two Portland Square, Portland, Maine - Trustee of the Trust;
Insurance Consultant since August 1986; prior thereto Senior Vice
President, Marsh & McLennan, Inc., insurance brokers.
JOHN I. HOWELL, (Age 80)
c/o the Trust, Two Portland Square, Portland, Maine - Trustee of the Trust;
Private Consultant since February 1987; Honorary Director, American
International Group, Inc.; Director, American International Life Assurance
Company of New York.
CLARENCE F. MICHALIS, (Age 75)
c/o the Trust, Two Portland Square, Portland, Maine - Trustee of the Trust;
Chairman of the Board of Directors, Josiah Macy, Jr. Foundation (charitable
foundation).
HERMANN C. SCHWAB, (Age 77)
c/o the Trust, Two Portland Square, Portland, Maine - Chairman and
Trustee of the Trust; retired since March, 1988; prior thereto,
consultant to SCMI since February 1, 1984.
HON. DAVID N. DINKINS, (Age 69)
c/o the Trust, Two Portland Square, Portland, Maine, 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.
PETER S. KNIGHT, (Age 46)
<PAGE>
c/o the Trust, Two Portland Square, Portland, Maine, 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.
SHARON L. HAUGH*, (Age 51)
787 Seventh Avenue, New York, New York, Trustee of the Trust; Chairman,
Schroder Capital Management Inc. ("SCM"), Executive Vice President and
Director, SCMI; Chairman and Director, Schroder Advisors.
MARK J. SMITH*, (Age 35)
33 Gutter Lane, London, England - President and Trustee of the Trust;
Senior Vice President and Director of SCMI since April 1990; Director and
Senior Vice President, Schroder Advisors.
MARK ASTLEY, (Age 33)
787 Seventh Avenue, New York, New York - 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.
ROBERT G. DAVY, (Age 36)
787 Seventh Avenue, New York, New York - 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.
MARGARET H. DOUGLAS-HAMILTON, (Age 55)
787 Seventh Avenue, New York, New York - 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.
RICHARD R. FOULKES, (Age 51)
787 Seventh Avenue, New York, New York - 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.
FERGAL CASSIDY, (Age 28)
787 Seventh Avenue, New York, New York - Treasurer of the Trust.
JOHN Y. KEFFER, (Age 56)
Two Portland Square, Portland, Maine - Vice President of the Trust;
President of FFC, the Fund's transfer and dividend disbursing agent and
other affiliated entities including Forum Financial Services, Inc.,
Forum Administrative Services, LLC, and Forum Advisors, Inc.
JANE P. LUCAS, (Age 35)
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787 Seventh Avenue, New York, New York - 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.
CATHERINE A. MAZZA, (Age 37)
787 Seventh Avenue, New York, New York - 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.
MICHAEL PERELSTEIN, (Age 41)
787 Seventh Avenue, New York, New York - 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.
ALEXANDRA POE, (Age 37)
787 Seventh Avenue, New York, New York - 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.
NICHOLAS ROSSI, (Age 35)
787 Seventh Avenue, New York, New York - 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.
THOMAS G. SHEEHAN, (Age 44)
Two Portland Square, Portland, Maine - 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.
FARIBA TALEBI, (Age 36)
787 Seventh Avenue, New York, New York - 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.
JOHN A. TROIANO, (Age 38)
787 Seventh Avenue, New York, New York - 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.
CHERYL O. TUMLIN, (Age 32)
<PAGE>
Two Portland Square, Portland, Maine - 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.
IRA L. UNSCHULD, (Age 31)
787 Seventh Avenue, New York, New York - Vice President of the Trust; Vice
President of SCMI since April, 1993 and an Associate from July, 1990 to
April, 1993.
* Interested Trustee of the Trust within the meaning of the 1940 Act.
INVESTMENT ADVISORY SERVICES
GENERAL
Table 1 in Appendix B shows, with respect to each Fund, the dollar amount of
fees payable under the Investment Advisory Agreements between Norwest and the
Trust or Norwest and Core Trust, if the Fund invests in one or more Core
Portfolios, the amount of fee that was waived by Norwest, if any, and the actual
fee received by Norwest. That table also shows similar information with respect
to Schroder for its services to International Portfolio and Schroder U.S.
Smaller Companies Portfolio. The data is for the past three fiscal years or a
shorter period if the Fund has been in operation for a shorter period.
The advisory fee for each Fund is disclosed in the Fund's prospectuses. All
investment advisory fees are accrued daily and paid monthly. Each Adviser, in
its sole discretion, may waive or continue to waive all or any portion of its
investment advisory fees.
In addition to receiving its advisory fee from the Funds, each Adviser or its
affiliates may act and be compensated as investment manager for its clients with
respect to assets which are invested in a Fund. In some instances Norwest or its
affiliates may elect to credit against any investment management, custodial or
other fee received from, or rebate to, a client who is also a shareholder in a
Fund an amount equal to all or a portion of the fees received by Norwest or any
of its affiliates from a Fund with respect to the client's assets invested in
the Fund.
NORWEST INVESTMENT MANAGEMENT
Subject to the general supervision of the Board, Norwest makes investment
decisions for the Funds and continuously reviews, supervises and administers
each Fund's investment program or oversees the investment decisions of the
investment subadvisers, as applicable. Norwest provides its investment advisory
services indirectly to each Fund that operates in a Core and Gateway Structure
(other than Schroder U.S. Smaller Companies Portfolio, Schroder EM Core
Portfolio and International Portfolio) through its investment advisory services
of the Core Portfolios. In addition, subject to the general supervision of the
Board, Norwest continuously reviews and determines the allocation of the assets
of Diversified Bond Fund, Strategic Income Fund, Moderate Balanced Fund, Growth
Balanced Fund, Aggressive Balanced-Equity Fund, Diversified Equity Fund, Growth
Equity Fund, Diversified Small Cap Fund and International Fund among the various
investment styles and Core Portfolios in which those Funds invest. Norwest,
which is located at Norwest Center, Sixth Street and Marquette, Minneapolis,
Minnesota 55479, is an indirect subsidiary of Norwest Corporation, a multi-bank
holding company that was incorporated under the laws of Delaware in 1929. As of
June 30, 1998, Norwest Corporation had assets of $93.2 billion, which made it
the 12th largest bank holding company in the United States. As of June 30, 1998,
Norwest managed assets with a value of approximately $29 billion.
Norwest furnishes at its expense all services, facilities and personnel
necessary in connection with managing each Fund's investments and effecting
portfolio transactions for each Fund. For further information about the
<PAGE>
investment subadvisory services for certain Funds and the advisory services for
International Portfolio of Core Trust. (See "Management -- Investment Advisory
Services -- Schroder Capital Management International, Inc.," "--Sub-Advisers"
- -- Crestone Capital Management, Inc.," "-- Galliard Capital Management, Inc.,"
"-- Peregrine Capital Management, Inc.," "-- United Capital Management, Inc."
And "-- Smith Asset Management Group, L.P.") Under its various Investment
Advisory Agreements, Norwest may delegate its responsibilities to any investment
subadviser approved by the Board and, as applicable, shareholders, with respect
to all or a portion of the assets of the Fund. With respect to each Fund, the
Investment Advisory Agreement between the Trust and Norwest will continue in
effect only if such continuance is specifically approved at least annually by
the Board or by vote of the shareholders, and in either case, by a majority of
the Trustees who are not interested persons of any party to the Investment
Advisory Agreement, at a meeting called for the purpose of voting on the
Investment Advisory Agreement.
Each Investment Advisory Agreement is terminable without penalty with respect to
the Fund on 60 days' written notice: (1) by the Board or by a vote of a majority
of the outstanding voting securities of the Fund to the Adviser or (2) by the
Adviser on 60 days' written notice to the Trust. Each Investment Advisory
Agreement shall terminate upon assignment. The Investment Advisory Agreements
also provide that, with respect to the Funds, neither Norwest nor its personnel
shall be liable for any mistake of judgment or in any event whatsoever, except
for lack of good faith, provided that nothing in the Investment Advisory
Agreements shall be deemed to protect, or purport to protect, the Adviser
against liability by reason of willful misfeasance, bad faith or gross
negligence in the performance of Norwest's duties or by reason of reckless
disregard of its obligations and duties under the Investment Advisory
Agreements. The Investment Advisory Agreements provide that Norwest may render
services to others.
Norwest acts as investment adviser to Cash Investment Fund, Ready Cash
Investment Fund, U.S. Government Fund, Treasury Plus Fund, Treasury Fund,
Municipal Money Market Fund, Stable Income Fund, Limited Term Government Income
Fund, Intermediate Government Income Fund, Diversified Bond Fund, Income Fund,
Total Return Bond Fund, Limited Term Tax-Free Fund, Tax-Free Income Fund,
Colorado Tax-Free Fund, Minnesota Intermediate Tax-Free Fund, Minnesota Tax-Free
Fund, Strategic Income Fund, Moderate Balanced Fund, Growth Balanced Fund,
Aggressive Balanced-Equity Fund, Index Fund, Income Equity Fund, ValuGrowthSM
Stock Fund, Diversified Equity Fund, Growth Equity Fund, Large Company Growth
Fund, Small Company Stock Fund, Small Company Growth Fund, Small Cap
Opportunities Fund, Diversified Small Cap Fund and International Fund. The
investment advisory agreements between Norwest and Core Trust on behalf of the
portfolios are identical to the Investment Advisory Agreements between the Trust
and Norwest, except for the fees payable thereunder and certain immaterial
matters.
Norwest Investment Management, Inc. is a part of Norwest Corporation which as of
June 30, 1998, was a $93.2 billion financial services company providing banking,
insurance, investments, mortgage and consumer finance through 3,844 stores in
all 50 states, Canada, the Caribbean, Central America and elsewhere
internationally.
SCHRODER CAPITAL MANAGEMENT INTERNATIONAL INC.-- SCHRODER U.S. SMALLER COMPANIES
PORTFOLIO/INTERNATIONAL PORTFOLIO
Subject to the general supervision of the Core Boards, Schroder Capital
Management International Inc. makes investment decisions for Schroder U.S.
Smaller Companies Portfolio, International Portfolio and Schroder EM Core
Portfolio and continuously reviews, supervises and administers those Core
Portfolio's investment programs.
Small Cap Opportunities Fund invests all of its assets in Schroder U.S. Smaller
Companies Portfolio and International Fund invests all of its assets in
International Portfolio and Schroder EM Core Portfolio. Pursuant to a separate
Advisory Agreement between Schroder Core and Schroder, Schroder acts as
investment adviser to Schroder U.S. Smaller Companies Portfolio and is required
to furnish at its expense all services, facilities and personnel necessary in
connection with managing Schroder U.S. Smaller Companies Portfolio's investments
and effecting portfolio transactions for Schroder U.S. Smaller Companies
Portfolio. Pursuant to a separate Advisory Agreement between Core Trust and
Schroder, Schroder acts as investment adviser to International Portfolio and is
required to furnish at its expense all services, facilities and personnel
necessary in connection with
<PAGE>
managing International Portfolio's investments and effecting portfolio
transactions for International Portfolio. The Advisory Agreements between
Schroder U.S. Smaller Companies Portfolio, International Portfolio, Schroder EM
Core Portfolio and Schroder will continue in effect only if such continuance is
specifically approved at least annually: (1) by the applicable Trust Board or by
vote of a majority of the outstanding voting interests of the Core Portfolio,
and, in either case (2) by a majority of the applicable Trust's trustees who are
not parties to the Advisory Agreement or interested persons of any such party
(other than as trustees of the applicable Trust), at a meeting called for the
purpose of voting on the Advisory Agreement; provided further, however, that if
the Advisory Agreement or the continuation of the Agreement is not approved as
to a Core Portfolio, the Adviser may continue to render to that Core Portfolio
the services described herein in the manner and to the extent permitted by the
Act and the rules and regulations thereunder.
On behalf of each Fund that invests all or a portion of its assets in Schroder
U.S. Smaller Companies Portfolio or International Portfolio, Norwest and the
Trust have entered into an Investment Subadvisory Agreement with Schroder. An
Investment Subadvisory Agreement would become operative and Schroder would
directly manage a Fund's assets if the Board determined it was no longer in the
best interest of the Fund to invest in smaller companies or international
securities by investing in another registered investment company. In that event,
pursuant to the Investment Subadvisory Agreement Schroder would makes investment
decisions directly for a Fund and continuously review, supervise and administer
the Fund's investment program with respect to that portion, if any, of the
Fund's portfolio that Norwest has so delegated. Schroder would be required to
furnish at its own expense all services, facilities and personnel necessary in
connection with managing of the Funds' investments and effecting portfolio
transactions for the Funds (to the extent of Norwest's delegation).
The Investment Subadvisory Agreements will continue in effect only if such
continuance is specifically approved at least annually: (1) by the Board or by
vote of a majority of the outstanding voting securities of the applicable Fund,
and, in either case, (2) by a majority of the applicable Trust's trustees who
are not parties to the Investment Subadvisory Agreements or interested persons
of any such party (other than as trustees of the applicable Trust), at a meeting
called for the purpose of voting on the Investment Subadvisory Agreements;
provided further, however, that if the Investment Subadvisory Agreements or the
continuation of the Agreements is not approved as to a Fund, the Subadviser may
continue to render to that Fund the services described herein in the manner and
to the extent permitted by the Act and the rules and regulations thereunder.
Each Investment Subadvisory Agreement is terminable without penalty with respect
to the Fund on 60 days' written notice when authorized either by majority vote
of the Fund's shareholders or by the Board, or by Schroder on 60 days written
notice to the Trust, and will automatically terminate in the event of its
assignment. The Investment Subadvisory Agreements also provide that, with
respect to the Funds, neither Schroder nor its personnel shall be liable for any
mistake of judgment or in any event whatsoever, except for lack of good faith,
provided that nothing shall be deemed to protect the Adviser against liability
by reason of willful misfeasance, bad faith or gross negligence in the
performance of Schroder's duties or by reason of reckless disregard of its
obligations and duties under the Investment Subadvisory Agreements. The
Investment Subadvisory Agreements provide that Schroder may render services to
others.
No payments are made under the Funds' Investment Subadvisory Agreements with
Schroder because no assets are allocated to Schroder to manage directly.
The Advisory Agreements between Schroder and Core Trust and Schroder and
Schroder Core on behalf of International Portfolio, Schroder EM Core Portfolio
and Schroder U.S. Smaller Companies Portfolio, respectively are identical to the
Investment Advisory Agreements between the Trust and Norwest, except for the
fees payable thereunder and certain immaterial matters.
SUB-ADVISERS
The Adviser pays a fee to each of the Subadvisers. These fees do not increase
the fees paid by shareholders of the Funds. The amount of the fees paid by
Norwest to each Subadviser may vary from time to time as a result of periodic
negotiations with the Subadviser regarding such matters as the nature and extent
of the services (other
<PAGE>
than investment selection and order placement activities) provided by the
Subadviser to the Fund, the increased cost and complexity of providing services
to the Fund, the investment record of the Subadviser in managing the Fund and
the nature and magnitude of the expenses incurred by the Subadviser in managing
the Fund's assets and by the Adviser in overseeing and administering management
of the Fund. However, the contractual fee payable to each Fund by Norwest for
investment advisory services will not vary as a result of those negotiations.
Norwest performs internal due diligence on each Subadviser and monitors each
Subadviser's performance using its proprietary investment adviser selection and
monitoring process. Norwest will be responsible for communicating performance
targets and evaluations to Subadvisers, supervising each Subadviser's compliance
with the Fund's fundamental investment objectives and policies, authorizing
Subadvisers to engage in certain investment techniques for the Fund, and
recommending to the Board of Trustees whether sub-advisory agreements should be
renewed, modified or terminated. Norwest also may from time to time recommend
that the Board of Trustees replace one or more Subadvisers or appoint additional
Subadvisers, depending on the Adviser's assessment of what combination of
Subadvisers it believes will optimize each Fund's chances of achieving its
investment objectives. The sub-advisory agreements with respect to the Funds
and, with respect to the Core Portfolios, are identical, except for the fees
payable and certain other non-material matters.
CRESTONE CAPITAL MANAGEMENT, INC.
To assist Norwest in carrying out its obligations under the Investment Advisory
Agreement with the Small Company Stock Fund, Strategic Income Fund, Moderate
Balanced Fund, Growth Balanced Fund, Aggressive Balanced-Equity Fund,
Diversified Equity Fund, Growth Equity Fund and Diversified Small Cap Fund (the
"Funds"), Norwest has entered into an Investment Subadvisory Agreement with
Crestone, located at 7720 East Belleview Avenue, Suite 220, Englewood, Colorado
80111 with respect to Small Company Stock Portfolio. Crestone is registered with
the SEC as an investment adviser and is a non-wholly owned subsidiary of
Norwest. Pursuant to the Investment Subadvisory Agreement, Crestone makes
investment decisions for the Funds and continuously reviews, supervises and
administers the Funds' investment program with respect to that portion, if any,
of the Funds' investment portfolio that Norwest believes should be invested
using Crestone as a subadviser. Currently, Crestone manages all of the assets of
Small Company Stock Portfolio and has done so since the Core Portfolio's
inception. Norwest supervises the performance of Crestone including its
adherence to the Funds' investment objectives and policies and pays Crestone a
fee for its investment management services. For its services under the
Investment Subadvisory Agreement, Norwest pays Crestone a fee based on the Core
Portfolio's average daily net assets at an annual rate of 0.40% on the first $30
million; 0.30% on the next $30 million; 0.20% on the next $40 million and 0.15%
on all sums in excess of $100 million. For Small Company Stock Fund's fiscal
years ended May 31, 1998, 1997 and 1996, Norwest paid Crestone subadvisory fees
of $108,264, $180,748 and $137,862, respectively.
Under its Investment Subadvisory Agreement, Crestone makes investment decisions
for the Core Portfolio and continuously reviews, supervises and administers each
Fund's investment program with respect to that portion, if any, of the Fund's
investment portfolio for which Norwest has delegated management responsibility.
Crestone is required to furnish at its own expense all services, facilities and
personnel necessary in connection with managing of the Funds' investments and
effecting portfolio transactions for each Fund (to the extent of Norwest's
delegation).
The Investment Subadvisory Agreement will continue in effect with respect to a
Core Portfolio only if such continuance is specifically approved at least
annually: (1) by the Core Trust Board or by vote of a majority of the
outstanding voting securities of the Core Portfolio, and, in either case; (2) by
a majority of the Core Trust's trustees who are not parties to the Investment
Subadvisory Agreement or interested persons of any such party (other than as
trustees of the Core Trust), at a meeting called for the purpose of voting on
the Investment Subadvisory Agreement; provided further, however, that if the
Investment Subadvisory Agreement or the continuation of the Agreement is not
approved, the Subadviser may continue to render to the Core Portfolio the
services described in the Investment Subadvisory Agreement in the manner and to
the extent permitted by the Act and the rules and regulations thereunder.
<PAGE>
The Investment Subadvisory Agreement is terminable without penalty with respect
to the Core Portfolio on 60 days' written notice when authorized either by
majority vote of the Core Portfolio's shareholders or by the Core Trust Board,
or by Crestone on 60 days written notice to the Core Trust, and will
automatically terminate in the event of its assignment. The Investment
Subadvisory Agreement also provides that, with respect to the Core Portfolio,
neither Crestone nor its personnel shall be liable for any mistake of judgment
or in any event whatsoever, except for lack of good faith, provided that nothing
shall be deemed to protect Crestone against liability by reason of willful
misfeasance, bad faith or gross negligence in the performance of Crestone's
duties or by reason of reckless disregard of its obligations and duties under
the Investment Subadvisory Agreement. The Investment Subadvisory Agreement
provides that Crestone may render services to others.
Crestone also currently serves as Investment Subadviser to the Funds pursuant to
a separate investment subadvisory agreement between Crestone and Norwest. The
investment subadvisory agreement with respect to the Funds is identical to the
Investment Subadvisory Agreement, except for the fees payable thereunder (no fee
is payable under the investment subadvisory agreement with respect to a Fund to
the extent that the Fund is invested in an investment company) and certain
immaterial matters.
GALLIARD CAPITAL MANAGEMENT, INC.
To assist Norwest in carrying out its obligations under the Investment Advisory
Agreement with Stable Income Fund, Diversified Bond Fund, Total Return Bond
Fund, Strategic Income Fund, Moderate Balanced Fund, Growth Balanced Fund and
Aggressive Balanced-Equity Fund (the "Funds"), Norwest has entered into an
Investment Subadvisory Agreement with Galliard, located at 800 LaSalle Avenue,
Suite 2060, Minneapolis, Minnesota 55479 with respect to Stable Income
Portfolio, Strategic Value Bond Portfolio and Managed Fixed Income Portfolio.
Galliard is registered with the SEC as an investment adviser and is an
investment advisory subsidiary of Norwest Bank. Pursuant to the Investment
Subadvisory Agreement, Galliard makes investment decisions for each of the Funds
and continuously reviews, supervises and administers each Fund's investment
program with respect to that portion, if any, of the Fund's investment portfolio
that Norwest believes should be invested using Galliard as a subadviser.
Currently, Galliard manages all the assets of each Core Portfolio and has done
so since each Core Portfolio's inception. Norwest supervises the performance of
Galliard including its adherence to the Core Portfolios' investment objectives
and policies and pays Galliard a fee for its investment management services.
Under its Investment Subadvisory Agreement, Galliard makes investment decisions
for each Core Portfolio and continuously reviews, supervises and administers
each Fund's investment program with respect to that portion, if any, of the
Fund's investment portfolio for which Norwest has delegated management
responsibility. Galliard is required to furnish at its own expense all services,
facilities and personnel necessary in connection with managing of each Fund's
investments and effecting portfolio transactions for each Fund (to the extent of
Norwest's delegation).
The Investment Subadvisory Agreement will continue in effect with respect to a
Core Portfolio only if such continuance is specifically approved at least
annually: (1) by the Core Trust Board or by vote of a majority of the
outstanding voting securities of the Core Portfolios, and, in either case; (2)
by a majority of the Core Trust's trustees who are not parties to the Investment
Subadvisory Agreement or interested persons of any such party (other than as
trustees of the Core Trust), at a meeting called for the purpose of voting on
the Investment Subadvisory Agreement; provided further, however, that if the
Investment Subadvisory Agreement or the continuation of the Agreement is not
approved, the Subadviser may continue to render to each Core Portfolio the
services described in the Investment Subadvisory Agreement in the manner and to
the extent permitted by the Act and the rules and regulations thereunder.
<PAGE>
The Investment Subadvisory Agreement is terminable without penalty with respect
to a Core Portfolio on 60 days' written notice when authorized either by
majority vote of the Core Portfolio's shareholders or by the Core Trust Board,
or by Galliard on 60 days written notice to the Core Trust, and will
automatically terminate in the event of its assignment. The Investment
Subadvisory Agreement also provides that, with respect to each Core Portfolio,
neither Galliard nor its personnel shall be liable for any mistake of judgment
or in any event whatsoever, except for lack of good faith, provided that nothing
shall be deemed to protect Galliard against liability by reason of willful
misfeasance, bad faith or gross negligence in the performance of Galliard's
duties or by reason of reckless disregard of its obligations and duties under
the Investment Subadvisory Agreement. The Investment Subadvisory Agreement
provides that Galliard may render services to others.
Galliard also currently serves as Investment Subadviser to the Funds pursuant to
a separate investment subadvisory agreement between Smith and Norwest. The
investment subadvisory agreement with respect to the Funds is identical to the
Investment Subadvisory Agreement, except for the fees payable thereunder (no fee
is payable under the investment subadvisory agreement with respect to a Fund to
the extent that the Fund is invested in an investment company) and certain
immaterial matters.
PEREGRINE CAPITAL MANAGEMENT, INC.
To assist Norwest in carrying out its obligations under the Investment Advisory
Agreement with Diversified Bond Fund, Strategic Income Fund, Moderate Balanced
Fund, Growth Balanced Fund, Aggressive Balanced-Equity Fund, Diversified Equity
Fund, Growth Equity Fund, Large Company Growth Fund, Diversified Small Cap Fund
and Small Company Growth Fund (the "Funds"), Norwest has entered into an
Investment Subadvisory Agreement with Peregrine, located at 800 LaSalle Avenue,
Suite 1850, Minneapolis, Minnesota 55479 with respect to Positive Bond
Portfolio, Large Company Growth Portfolio, Small Company Growth Portfolio and
Small Company Value Portfolio. Peregrine is registered with the SEC as an
investment adviser and is an investment advisory subsidiary of Norwest Bank.
Pursuant to the Investment Subadvisory Agreement, Peregrine makes investment
decisions for each of the Funds and continuously reviews, supervises and
administers each Fund's investment program with respect to that portion, if any,
of the Fund's investment portfolio that Norwest believes should be invested
using Peregrine as a subadviser. Currently, Peregrine manages all the assets of
each Core Portfolio and has done so since each Core Portfolio's inception.
Norwest supervises the performance of Peregrine including its adherence to the
Core Portfolios' investment objectives and policies and pays Peregrine a fee for
its investment management services.
Under its Investment Subadvisory Agreement, Peregrine makes investment decisions
for each Core Portfolio and continuously reviews, supervises and administers
each Fund's investment program with respect to that portion, if any, of the
Fund's investment portfolio for which Norwest has delegated management
responsibility. Peregrine is required to furnish at its own expense all
services, facilities and personnel necessary in connection with managing of each
Fund's investments and effecting portfolio transactions for each Fund (to the
extent of Norwest's delegation).
The Investment Subadvisory Agreement will continue in effect with respect to a
Core Portfolio only if such continuance is specifically approved at least
annually: (1) by the Core Trust Board or by vote of a majority of the
outstanding voting securities of the Core Portfolios, and, in either case; (2)
by a majority of the Core Trust's trustees who are not parties to the Investment
Subadvisory Agreement or interested persons of any such party (other than as
trustees of the Core Trust), at a meeting called for the purpose of voting on
the Investment Subadvisory Agreement; provided further, however, that if the
Investment Subadvisory Agreement or the continuation of the Agreement is not
approved, the Subadviser may continue to render to each Core Portfolio the
services described in the Investment Subadvisory Agreement in the manner and to
the extent permitted by the Act and the rules and regulations thereunder.
<PAGE>
The Investment Subadvisory Agreement is terminable without penalty with respect
to a Core Portfolio on 60 days' written notice when authorized either by
majority vote of the Core Portfolio's shareholders or by the Core Trust Board,
or by Peregrine on 60 days written notice to the Core Trust, and will
automatically terminate in the event of its assignment. The Investment
Subadvisory Agreement also provides that, with respect to each Core Portfolio,
neither Peregrine nor its personnel shall be liable for any mistake of judgment
or in any event whatsoever, except for lack of good faith, provided that nothing
shall be deemed to protect Peregrine against liability by reason of willful
misfeasance, bad faith or gross negligence in the performance of Peregrine's
duties or by reason of reckless disregard of its obligations and duties under
the Investment Subadvisory Agreement. The Investment Subadvisory Agreement
provides that Peregrine may render services to others.
Peregrine also currently serves as Investment Subadviser to the Funds pursuant
to a separate investment subadvisory agreement between Peregrine and Norwest.
The investment subadvisory agreement with respect to the Funds is identical to
the Investment Subadvisory Agreement, except for the fees payable thereunder (no
fee is payable under the investment subadvisory agreement with respect to a Fund
to the extent that the Fund is invested in an investment company) and certain
immaterial matters.
SMITH ASSET MANAGEMENT GROUP, L.P.
To assist Norwest in carrying out its obligations under the Investment Advisory
Agreement with Strategic Income Fund, Moderate Balanced Fund, Growth Balanced
Fund, Aggressive Balanced-Equity Fund, Diversified Equity Fund, Growth Equity
Fund and Diversified Small Cap Fund (the "Funds") , Norwest has entered into an
Investment Subadvisory Agreement with Smith, located at 500 Crescent Court,
Suite 250, Dallas, Texas with respect to Disciplined Growth Portfolio and Small
Cap Value Portfolio. Smith is registered with the SEC as an investment adviser.
Pursuant to the Investment Subadvisory Agreement, Smith makes investment
decisions for each of the Portfolios and continuously reviews, supervises and
administers each Core Portfolio's investment program with respect to that
portion, if any, of the Fund's investment portfolio that Norwest believes should
be invested using Smith as a subadviser. Currently, Smith manages all the assets
of each Core Portfolio and has done so since each Core Portfolio's inception.
Norwest supervises the performance of Smith including its adherence to the Core
Portfolios' investment objectives and policies and pays Smith a fee for its
investment management services. As of October 1, 1997, for its services under
the Investment Subadvisory Agreement, Norwest pays Smith a fee based on
Disciplined Growth Portfolio's and Small Cap Value Portfolio's average daily net
assets at an annual rate of 0.35% and 0.45%, respectively.
Under its Investment Subadvisory Agreement, Smith makes investment decisions for
each Core Portfolio and continuously reviews, supervises and administers each
Fund's investment program with respect to that portion, if any, of the Fund's
investment portfolio for which Norwest has delegated management responsibility.
Smith is required to furnish at its own expense all services, facilities and
personnel necessary in connection with managing of each Fund's investments and
effecting portfolio transactions for each Fund (to the extent of Norwest's
delegation).
The Investment Subadvisory Agreement will continue in effect with respect to a
Core Portfolio only if such continuance is specifically approved at least
annually: (1) by the Core Trust Board or by vote of a majority of the
outstanding voting securities of the Core Portfolios, and, in either case; (2)
by a majority of the Core Trust's trustees who are not parties to the Investment
Subadvisory Agreement or interested persons of any such party (other than as
trustees of the Core Trust), at a meeting called for the purpose of voting on
the Investment Subadvisory Agreement; provided further, however, that if the
Investment Subadvisory Agreement or the continuation of the Agreement is not
approved, the Subadviser may continue to render to each Core Portfolio the
services described in the Investment Subadvisory Agreement in the manner and to
the extent permitted by the Act and the rules and regulations thereunder.
<PAGE>
The Investment Subadvisory Agreement is terminable without penalty with respect
to a Core Portfolio on 60 days' written notice when authorized either by
majority vote of the Core Portfolio's shareholders or by the Core Trust Board,
or by Smith on 60 days written notice to the Core Trust, and will automatically
terminate in the event of its assignment. The Investment Subadvisory Agreement
also provides that, with respect to each Core Portfolio, neither Smith nor its
personnel shall be liable for any mistake of judgment or in any event
whatsoever, except for lack of good faith, provided that nothing shall be deemed
to protect Smith against liability by reason of willful misfeasance, bad faith
or gross negligence in the performance of Smith's duties or by reason of
reckless disregard of its obligations and duties under the Investment
Subadvisory Agreement. The Investment Subadvisory Agreement provides that Smith
may render services to others.
Smith also currently serves as Investment Subadviser to the Funds pursuant to a
separate investment subadvisory agreement between Smith and Norwest. The
investment subadvisory agreement with respect to the Funds is identical to the
Investment Subadvisory Agreement, except for the fees payable thereunder (no fee
is payable under the investment subadvisory agreement with respect to a Fund to
the extent that the Fund is invested in an investment company) and certain
immaterial matters.
DORMANT INVESTMENT ADVISORY ARRANGEMENTS
Norwest has been retained as a "dormant" or "back-up" investment adviser to
manage any assets redeemed and invested directly by a Fund that invests in one
or more Core Portfolios. Norwest does not receive any compensation under this
arrangement as long as a Fund invests entirely in Core Portfolios. If a Fund
redeems assets from a Core Portfolio and invests them directly, Norwest receives
an investment advisory fee from the Fund for the management of those assets.
Norwest's dormant investment advisory fees are at the following rates:
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%
If a Core Portfolio is advised by Schroder or by a Subadviser, Schroder
or the Subadviser has also been retained as a dormant subadviser of each Fund
that invests in that Core Portfolio (except that Galliard, investment subadviser
to Strategic Value Bond Portfolio, has not been retained as a subadviser to
Total Return Bond Portfolio
<PAGE>
and Smith has not been retained as an investment subadviser for any Fund).
Norwest (and not the Funds) would pay Schroder and the Subadviser the fees for
providing those services.
SHAREHOLDER SERVICING AND CUSTODY
Norwest Bank serves as transfer agent and dividend disbursing agent for the
Trust (in this capacity, the "Transfer Agent"). The Transfer Agent maintains an
account for each shareholder of the Trust (unless such accounts are maintained
by sub-transfer agents or processing agents), performs other transfer agency
functions and acts as dividend disbursing agent for the Trust. The Transfer
Agent is permitted to subcontract any or all of its functions with respect to
all or any portion of the Trust's shareholders to one or more qualified
sub-transfer agents or processing agents, which may be affiliates of the
Transfer Agent. Sub-transfer agents and processing agents may be "Processing
Organizations" as described under "How to Buy Shares -- Purchase Procedures."
The Transfer Agent is permitted to compensate those agents for their services;
however, that compensation may not increase the aggregate amount of payments by
the Trust to the Transfer Agent. For its services, the Transfer Agent receives a
fee with respect to each Fund at an annual rate of 0.25% of each Fund's average
daily net assets attributable to each class of the Fund (0.20% in the case of
Cash Investment Fund and 0.10% in the case of Municipal Money Market Fund -
Institutional Shares).
MANAGER AND ADMINISTRATOR
Forum manages all aspects of the Trust's operations with respect to each Fund
except those which are the responsibility of FAS, Norwest, any other investment
adviser or investment subadviser to a Fund, or Norwest in its capacity as
administrator pursuant to an investment administration or similar agreement.
With respect to each Fund, Forum has entered into a Management Agreement that
will continue in effect only if such continuance is specifically approved at
least annually by the Board or by the shareholders and, in either case, by a
majority of the Trustees who are not interested persons of any party to the
Management Agreement.
On behalf of the Trust and with respect to each Fund, Forum: (1) oversees: (a)
the preparation and maintenance by the Advisers and the Trust's administrator,
custodian, transfer agent, dividend disbursing agent and fund accountant (or if
appropriate, prepares and maintains) in such form, for such periods and in such
locations as may be required by applicable law, of all documents and records
relating to the operation of the Trust required to be prepared or maintained by
the Trust or its agents pursuant to applicable law; (b) the reconciliation of
account information and balances among the Advisers and the Trust's custodian,
transfer agent, dividend disbursing agent and fund accountant; (c) the
transmission of purchase and redemption orders for Shares; (d) the notification
of the Advisers of available funds for investment; and (e) the performance of
fund accounting, including the calculation of the net asset value per Share; (2)
oversees the Trust's receipt of the services of persons competent to perform
such supervisory, administrative and clerical functions as are necessary to
provide effective operation of the Trust; (3) oversees the performance of
administrative and professional services rendered to the Trust by others,
including its administrator, custodian, transfer agent, dividend disbursing
agent and fund accountant, as well as accounting, auditing, legal and other
services performed for the Trust; (4) provides the Trust with adequate general
office space and facilities and provides, at the Trust's request and expense,
persons suitable to the Board to serve as officers of the Trust; (5) oversees
the preparation and the printing of the periodic updating of the Trust's
registration statement, Prospectuses and SAIs, the Trust's tax returns, and
reports to its shareholders, the SEC and state and other securities
administrators; (6) oversees the preparation of proxy and information statements
and any other communications to shareholders; (7) with the cooperation of the
Trust's counsel, Advisers and other relevant parties, oversees the preparation
and dissemination of materials for meetings of the Board; (8) oversees the
preparation, filing and maintenance of the Trust's governing documents,
including the Trust Instrument, Bylaws and minutes of meetings of Trustees,
Board committees and shareholders; (9) oversees registration and sale of Fund
shares, to ensure that such shares are properly and duly registered with the SEC
and applicable state and other securities commissions; (10) oversees the
calculation of performance data for dissemination to information services
covering the investment company industry, sales literature of the Trust and
other appropriate purposes; (11) oversees the determination of the amount of and
supervises the declaration of dividends and other distributions to shareholders
as necessary to, among other things, maintain the qualification of each Fund as
a regulated investment company under the Code, as amended, and oversees the
preparation and distribution to
<PAGE>
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
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
<PAGE>
Government Income Fund, Income Fund, each Tax-Free Fixed Income Fund, ValuGrowth
Stock Fund, Contrarian Stock Fund and International Fund at an annual rate of
0.05% of the Fund's (of class') average daily net assets, with respect to
Investor Shares of Municipal Money Market Fund at an annual rate of 0.10% of the
class' average daily net assets, with respect to Investor Shares of Ready Cash
Investment Fund at an annual rate of 0.075% of the class' average daily net
asset, and with respect to each other Fund at an annual rate of 0.025% of the
Fund's average daily net assets.
Table 2 in Appendix B shows the dollar amount of fees payable to Forum for its
management services with respect to each Fund (or class thereof for those
periods when multiple classes were outstanding), the amount of fee that was
waived by Forum, if any, and the actual fee received by Forum. The data is for
the past three fiscal years or shorter period if the Fund has been in operation
for a shorter period.
CORE PORTFOLIOS OF CORE TRUST
Forum manages all aspects of Core Trust's operations with respect to the
portfolios except those which are the responsibility of Norwest or Schroder.
With respect to each Core Portfolio, Forum has entered into a management
agreement (the "Core Trust Management Agreement") that will continue in effect
only if such continuance is specifically approved at least annually by the Core
Trust Board or by the shareholders and, in either case, by a majority of the
Trustees who are not interested persons of any party to the Core Trust
Management Agreement. Under the Core Trust Management Agreement, Forum performs
similar services for each Core Portfolio as it and FAS perform for the Blended
Funds under the Management and Administration Agreements, to the extent the
services are applicable to the Core Portfolios and their structure. Forum and
FAS waive their fees payable by each of the Blended Funds under the Management
and Administration Agreements to the extent those Funds incur indirectly
management fees charged by Forum to a Blended Portfolio.
FAS also serves as an administrator of each Core Portfolio (except Schroder U.S.
Smaller Companies Portfolio and Schroder EM Core Portfolio) and provides
services to the Core Portfolios that are similar to those provided to the Funds
by Forum and FAS. For its services FAS receives a fee with respect to each Core
Portfolio (other than Schroder U.S. Smaller Companies Portfolio and Schroder EM
Core Portfolio) at an annual rate of 0.05% of the Core Portfolio's average daily
net assets (0.15% in the case of International Portfolio). Schroder Advisors
Inc. ("Schroder Advisors") serves as the administrator of Schroder U.S. Smaller
Companies Portfolio and Schroder EM Core Portfolio and FAS serves as the
subadministrator of those Core Portfolios. FAS provides certain management and
administrative services necessary for the Schroder Core Core Portfolios'
operations, other than the administrative services provided to those Core
Portfolios by Schroder. For its services, FAS receives a fee at an annual rate
of 0.10% of each Core Portfolio's average daily net assets.
NORWEST ADMINISTRATIVE SERVICES
Under an Administrative Servicing Agreement between the Trust and Norwest with
respect to Small Cap Opportunities Fund and International Fund, Norwest performs
ministerial, administrative and oversight functions for the Funds and undertakes
to reimburse certain excess expenses of the Funds. Among other things, Norwest
gathers performance and other data from Schroder as the adviser of Schroder U.S.
Smaller Companies Portfolio and International Portfolio and from other sources,
formats the data and prepares reports to the Funds' shareholders and the
Trustees. Norwest also ensures that Schroder is aware of pending net purchases
or redemptions of each Fund's shares and other matters that may affect
Schroder's performance of its duties. Lastly, Norwest has agreed to reimburse
each Fund for any amounts by which its operating expenses (exclusive of
interest, taxes and brokerage fees, organization expenses and, if applicable,
distribution expenses, all to the extent permitted by applicable state law or
regulation) exceed the limits prescribed by any state in which the Funds' shares
are qualified for sale. No fees will be paid to Norwest under the Administrative
Servicing Agreement unless the each of the Fund's assets are invested solely in
Schroder U.S. Smaller Companies Portfolio or International Portfolio and
Schroder EM Core Portfolio (in the case of Small Cap Opportunities Fund and
International Fund, respectively) or in a portfolio of another registered
investment company. This agreement will continue in effect only if such
continuance is specifically approved at least annually by the Board or by the
<PAGE>
shareholders and, in either case, by a majority of the Trustees who are not
parties to the Management Agreement or interested persons of any such party.
The Administrative Service Agreement provides that neither Norwest nor its
personnel shall be liable for any error of judgment or mistake of law or for any
act or omission in the performance of its or their duties to the Fund, except
for willful misfeasance, bad faith or gross negligence in the performance of
Forum's or their duties or by reason of reckless disregard of its or their
obligations and duties under the agreement.
Under the agreement, Norwest receives a fee with respect to Small Cap
Opportunities Fund and International Fund at an annual rate of 0.25% of the
Funds' average daily net assets Small Cap Opportunities Fund and International
Fund incur total management and administrative fees at a higher rate than many
other mutual funds, including other funds of the Trust.
Table 2 in Appendix B shows the dollar amount of fees payable under the
Servicing Agreement, the amount of the fee that was waived, if any, and the
amount received by Norwest for the past three fiscal years of the Fund.
SCHRODER ADMINISTRATIVE SERVICES
Schroder Core has entered into an Administrative Services Agreement with
Schroder Advisors, 787 Seventh Avenue, New York, New York 10019, pursuant to
which Schroder Advisors provides management and administrative services
necessary for the operation of Schroder U.S. Smaller Companies Portfolio,
including coordination of the services performed by the Core Portfolio's
Adviser, transfer agent, custodian, independent accountants, legal counsel and
others. Schroder Advisors is a wholly-owned subsidiary of Schroder, and is a
registered broker-dealer organized to act as administrator and distributor of
mutual funds.
For these services, Schroder Advisors will receive a fee from Schroder Core at
the annual rate of 0.10% of the average daily net assets of the Core Portfolio.
The Administrative Services Agreement is terminable with respect to the Core
Portfolio without penalty, at any time, by vote of a majority of the trustees of
Schroder Core who are not "interested persons" of Schroder Core and who have no
direct or indirect financial interest in the operation of the Administrative
Services Agreement, upon not more than 60 days' written notice to Schroder
Advisors or by vote of the holders of a majority of the shares of the Core
Portfolio, or, upon 60 days' notice, by Schroder Advisors. The Administrative
Services Agreement will terminate automatically in the event of its assignment.
On behalf of the Core Portfolio, Schroder Core has entered into a
Sub-Administration Agreement with Forum. Pursuant to the Sub-Administration
Agreement, Forum assists Schroder Advisors with certain of its responsibilities
under the Administrative Services Agreement, including shareholder reporting and
regulatory compliance.
The Sub-Administration Agreement is terminable with respect to the Core
Portfolio without penalty, at any time, by the board of trustees of Schroder
Core upon 60 days' written notice to Forum or by Forum upon 60 days' written
notice to the Core Portfolio.
Schroder Advisors provides certain management and administrative services
necessary for the Core Portfolios' operations, other than the administrative
services provided to the Core Portfolios by Schroder. For its services, Schroder
Advisors receives no fee from Schroder U.S. Smaller Companies Portfolio and
0.075% from Schroder EM Core Portfolio.
DISTRIBUTION
Forum also acts as distributor of the shares of the Fund. Forum acts as the
agent of the Trust in connection with the offering of shares of the Funds on a
"best efforts" basis pursuant to a Distribution Services Agreement.
Under the Distribution Services Agreement, the Trust has agreed to indemnify,
defend and hold Forum, and any person who controls Forum within the meaning of
Section 15 of the 1933 Act, free and harmless from and against
<PAGE>
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. With
respect to B Shares of each Fund that offers B Shares and C Shares of each Fund
that offers C Shares and with respect to Exchange Shares of Ready Cash
Investment Fund, the Funds have adopted a distribution plan pursuant to Rule
12b-1 under the 1940 Act (the "Plan") which authorizes the payment to Forum
under the Distribution Services Agreement of a distribution services fee for B
Shares, C Shares and Exchange Shares, which may not exceed an annual rate of
0.75%, and a maintenance fee for B Shares and Exchange Shares in an amount equal
to 0.25%, of the average daily net assets of the Fund attributable to the B
Shares and Exchange Shares.
DISTRIBUTION PLAN. B Shares and C Sharesof a Fund are sold at their net asset
value per share without the imposition of a sales charge at the time of
purchase. With respect to B Shares and C Shares, each Fund has adopted a
distribution plan pursuant to Rule 12b-1 under the 1940 Act (the "Plan")
providing for distribution payments, at an annual rate of up to 0.75% of the
average daily net assets of the Fund attributable to the B Shares (the
"distribution services fee"), by each Fund to Forum, to compensate Forum for its
distribution activities. The distribution payments due to Forum from each Fund
comprise: (1) sales commissions at levels set from time to time by the Board
("sales commissions"); and (2) an interest fee calculated by applying the rate
of 1% over the prime rate to the outstanding balance of uncovered distribution
charges. The current sales commission rate for 3.0% for the Tax-Free Fixed
Income Funds and 4.0% for other Funds and Forum currently expects to pay sales
commissions to each broker-dealer at the time of sale of up to 3.0% or 4.0%, as
applicable, of the purchase price of B Shares of each Fund sold by the
broker-dealer.
Under the distribution services agreement between Forum and the Trust, Forum
will receive, in addition to the distribution services fee, all contingent
deferred sales charges due upon redemptions of B Shares. The combined contingent
deferred sales charge and distribution services fee on B Shares are intended to
finance the distribution of those shares by permitting an investor to purchase
shares through broker-dealers without the assessment of an initial sales charge
and, at the same time, permitting Forum to compensate broker-dealers in
connection with the sales of the shares. Proceeds from the contingent deferred
sales charge with respect to a Fund are paid to Forum to defray the expenses
related to providing distribution-related services in connection with the sales
of B Shares, such as the payment of compensation to broker-dealers selling B
Shares. Forum may spend the distribution
<PAGE>
services fees it receives as it deems appropriate on any activities primarily
intended to result in the sale of B Shares.
Under the Plan, a Fund will make distribution services fee payments to Forum
only for periods during which there are outstanding uncovered distribution
charges attributable to that Fund. Uncovered distribution charges are equivalent
to all sales commissions previously due (plus interest), less amounts received
pursuant to the Plan and all contingent deferred sales charges previously paid
to Forum. At May 31, 1998, 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 a Fund is not related directly to the
amount of expenses incurred by Forum in connection with providing distribution
services to the B Shares and may be higher or lower than those expenses. Forum
may be considered to have realized a profit under the Plan if, at any time, the
aggregate amounts of all distribution services fees and contingent deferred
sales charge payments previously made to Forum exceed the total expenses
incurred by Forum in distributing B Shares.
A Fund does not accrue future distribution services fees as a liability of the
Fund with respect to the B Shares or C Shares or reduce the Fund's current net
assets in respect of distribution services fees which may become payable under
the Plan in the future.
In the event that the Plan is terminated or not continued with respect to a
Fund, the Fund may, under certain circumstances, continue to pay distribution
services fees to Forum (but only with respect to sales that occurred prior to
the termination or discontinuance of the Plan). In deciding whether to purchase
B Shares and C Shares of a Fund, investors should consider that payments of
distribution services fees could continue until such time as there are no
uncovered distribution charges under the Plan attributable to that Fund. In
approving the Plan, the Board determined that there was a reasonable likelihood
that the Plan would benefit each Fund and its B shareholders.
Periods with a high level of sales of B Shares of a Fund accompanied by a low
level of redemptions of those shares that are subject to contingent deferred
sales charges will tend to increase uncovered distribution charges. Conversely,
periods with a low level of sales of B Shares of a Fund accompanied by a high
level of redemptions of those shares that are subject to contingent deferred
sales charges will tend to reduce uncovered distribution charges. A high level
of sales of B Shares during the first few years of operations, coupled with the
limitation on the amount of distribution services fees payable by a Fund with
respect to B Shares during any fiscal year, would cause a large portion of the
distribution services fees attributable to a sale of the B Shares to be accrued
and paid by the Fund to Forum with respect to those shares in fiscal years
subsequent to the years in which those shares were sold. The payment delay would
in turn result in the incurrence and payment of increased interest fees under
the Plan.
The Plan provides that all written agreements relating to the Plan must be in a
form satisfactory to the Board. In addition, the Plan requires the Trust and
Forum to prepare, at least quarterly, written reports setting forth all amounts
expended for distribution purposes by the Funds and Forum pursuant to the Plan
and identifying the distribution activities for which those expenditures were
made.
The Plan provides that, with respect to each class of each Fund to which it
applies, it will remain in effect for one year from the date of its adoption and
thereafter may continue in effect for successive annual periods provided it is
approved by the shareholders of the respective class or by the Board, including
a majority of the 12b-1 trustees. The Plan further provides that it may not be
amended to increase materially the costs which may be borne by the
<PAGE>
Trust for distribution pursuant to the Plan without shareholder approval and
that other material amendments to the Plan must be approved by the trustees in
the manner described in the preceding sentence. The Plan may be terminated at
any time by a vote of the Board or by the shareholders of the respective
classes.
The Plan is "semi-enhanced" in that under the circumstances described below,
payments to Forum under the Plan continue while there are uncovered distribution
charges even though the Plan has been terminated. Uncovered distribution charges
include all sales commissions previously due, plus interest, less amounts
previously received by Forum (or other distributor) pursuant to the Plan and
contingent deferred sales charges previously paid to Forum. The Plan provides
that in the event of a Complete Termination (as defined below) of the Plan with
respect to a Fund, payments by a Fund in consideration of sales of B Shares that
occurred prior to termination of the Plan will cease. A Complete Termination in
respect of any Fund means: (1) the 12b-1 Trustees acting in good faith have
determined that termination is in the best interest of the Trust and the
shareholders of the Fund; (2) the Trust does not alter the terms of the CDSC
applicable to the B Shares of the Fund outstanding at the time of the
termination; (3) the Trust does not pay any portion of the asset based sales
charge or service fees to an entity other than the distributor or its assignee
(unless the distributor at the time of the termination was in material breach
under the Distribution Agreement in respect of the Fund); and (4) the Fund does
not adopt a distribution plan relating to a class of shares of the Fund that has
a sales load structure substantially similar (as defined in the Plan) to that of
the B shares.
In the event of a termination of the Plan that does not satisfy clauses (2), (3)
and (4) of the definition of a Complete Termination above, Ready Cash Investment
Fund, ValuGrowth Stock Fund, Small Company Stock Fund, Income Fund, Tax-Free
Income Fund, Total Return Bond Fund and Minnesota Tax-Free Fund would continue
to pay distribution services fees for no more than four years. In contrast,
payments by Stable Income Fund, Intermediate Government Income Fund, Growth
Equity Fund and Diversified Equity Fund would continue until such time as there
exist no outstanding uncovered distribution charges attributable to the Fund
and, therefore, could continue for periods of time beyond four years after the
date of termination.
In addition, pursuant to the Plan, each of Stable Income Fund, Income Equity
Fund, Intermediate Government Income Fund, Diversified Equity Fund and Growth
Equity Fund may, subject to approval by the Trustees, assume and pay: (i) any
uncovered distribution charges of the distributor of a fund whose assets are
being acquired by the Fund and (ii) any other amounts expended for distribution
on behalf of such fund that are not reimbursed or paid by the fund upon the
merger or combination with or acquisition of substantially all of the assets of
that fund.
Pursuant to the Plan, each Fund has agreed also to pay Forum a maintenance fee
for B Shares in an amount equal to 0.25% of the average daily net assets of the
Fund attributable to B Shares for providing personal services to shareholder
accounts. The maintenance fee may be paid by Forum to broker-dealers in an
amount not to exceed 0.25% of the value of the B Shares held by the customers of
the broker-dealers. The distribution services fee and the maintenance fee are
each accrued daily and paid monthly and will cause a Fund's B Shares to have a
higher expense ratio and to pay lower dividends than A Shares of that Fund.
Notwithstanding the discontinuation of distribution services fees with respect
to a Fund, the Fund may continue to pay maintenance fees.
Table 3 in Appendix B shows the dollar amount of fees payable to Forum for its
distribution services with respect to each Fund (or class thereof), the amount
of fee that was waived by Forum, if any, and the actual fee received by Forum.
All maintenance fees were waived by Forum during the fiscal years ended May 31,
1994, 1995 and 1996. With respect to each Fund, Forum has paid brokers that sold
B Shares in amounts greater than the distribution fees received by Forum with
respect to that Fund. The data is for the past three fiscal years or shorter
period if the Fund has been in operation for a shorter period.
Table 4 in Appendix B shows the dollar amount of sales charges payable to Forum
with respect to sales of A Shares (or of the respective Funds prior to the
offering of multiple classes of shares) and the amount of sales charge retained
by Forum and not reallowed to other persons. The data is for the past three
fiscal years or shorter period if the Fund has been in operation for a shorter
period.
<PAGE>
TRANSFER AGENT
Norwest Bank serves as transfer agent and dividend disbursing agent for the
Trust (in this capacity, the "Transfer Agent"). The Transfer Agent maintains an
account for each shareholder of the Trust (unless such accounts are maintained
by sub-transfer agents or processing agents), performs other transfer agency
functions and acts as dividend disbursing agent for the Trust. The Transfer
Agent is permitted to subcontract any or all of its functions with respect to
all or any portion of the Trust's shareholders to one or more qualified
sub-transfer agents or processing agents, which may be affiliates of the
Transfer Agent. Sub-transfer agents and processing agents may be "Processing
Organizations" as described below. The Transfer Agent is permitted to compensate
those agents for their services; however, that compensation may not increase the
aggregate amount of payments by the Trust to the Transfer Agent.
Norwest Bank, Sixth Street and Marquette, Minneapolis, Minnesota 55479 acts as
Transfer Agent of the Trust pursuant to a Transfer Agency Agreement. The
Transfer Agency Agreement will continue in effect only if such continuance is
specifically approved at least annually by the Board or by a vote of the
shareholders of the Trust and in either case by a majority of the Trustees who
are not parties to the Transfer Agency Agreement or interested persons of any
such party, at a meeting called for the purpose of voting on the Transfer Agency
Agreement.
The responsibilities of the Transfer Agent include: (1) answering customer
inquiries regarding account status and history, the manner in which purchases
and redemptions of shares of the Fund may be effected and certain other matters
pertaining to the Fund; (2) assisting shareholders in initiating and changing
account designations and addresses; (3) providing necessary personnel and
facilities to establish and maintain shareholder accounts and records; (4)
assisting in processing purchase and redemption transactions and receiving wired
funds; (5) transmitting and receiving funds in connection with customer orders
to purchase or redeem shares; (6) verifying shareholder signatures in connection
with changes in the registration of shareholder accounts; (7) furnishing
periodic statements and confirmations of purchases and redemptions; (8)
transmitting proxy statements, annual reports, prospectuses and other
communications from the Trust to its shareholders; (9) receiving, tabulating and
transmitting to the Trust proxies executed by shareholders with respect to
meetings of shareholders of the Trust; and (10) providing such other related
services as the Trust or a shareholder may request.
For its services, the Transfer Agent receives a fee computed daily and paid
monthly from the Trust, with respect to each Fund, at an annual rate of 0.25% of
the Fund's average daily net assets attributable to each class of the Fund
(0.20% plus expenses in the case of Cash Investment Fund and 0.10% plus expenses
in the case of Municipal Money Market Fund - Institutional Shares).
CUSTODIAN
Norwest Bank serves as each Fund's and each Core Portfolio's (other than
Schroder U.S. Smaller Companies Portfolio and Schroder EM Core Portfolio)
custodian and may appoint subcustodians for the foreign securities and other
assets held in foreign countries. For its custodial services, Norwest Bank
receives a fee with respect to each Fund and each Core Portfolio at an annual
rate of 0.02% of the first $100 million of the Fund's or Core Portfolio's
average daily net assets, 0.015% of the next $100 million of the Fund's or Core
Portfolio's average daily net assets and 0.01% of the Fund's or Core Portfolio's
remaining average daily net assets. No fee is directly payable by a Fund to the
extent the Fund is invested in a Core Portfolio. With respect to International
Portfolio, Norwest receives a fee at an annual rate of 0.075% of the Core
Portfolio's average daily net assets. The Chase Manhattan Bank, N.A. serves as
custodian of Schroder U.S. Smaller Companies Portfolio and Schroder EM Core
Portfolio and is paid a fee for its services.
Pursuant to a Custodian Agreement, Norwest Bank, Sixth Street and Marquette,
Minneapolis, Minnesota 55479 serves as each Fund's and each Core Portfolio's
(other than Schroder U.S. Smaller Companies Portfolio's) custodian (in this
capacity the "Custodian"). The Chase Manhattan Bank, N.A., acts as custodian for
Schroder U.S. Smaller Companies Portfolio, but plays no role in making decisions
as to the purchase or sale of portfolio securities. The Custodian's
responsibilities include safeguarding and controlling the Trust's cash and
securities,
<PAGE>
determining income and collecting interest on Fund investments. The fee is
computed and paid monthly, based on the average daily net assets of the Fund,
the number of portfolio transactions of the Fund and the number of securities in
the Fund's portfolio.
Pursuant to rules adopted under the 1940 Act, a Fund may maintain its foreign
securities and cash in the custody of certain eligible foreign banks and
securities depositories. Selection of these foreign custodial institutions is
made by the Board upon consideration of a number of factors, including (but not
limited to) the reliability and financial stability of the institution; the
ability of the institution to perform capably custodial services for the Fund;
the reputation of the institution in its national market; the political and
economic stability of the country in which the institution is located; and
possible risks of potential nationalization or expropriation of Fund assets. The
Custodian employs qualified foreign subcustodians to provide custody of the
Funds foreign assets in accordance with applicable regulations.
No Fund will pay custodian fees to the extent the Fund invests in shares of
another registered investment company. Each Fund so invested incurs, however,
its proportionate share of the custodial fees of the Core Portfolio(s) in which
it invests.
PORTFOLIO ACCOUNTING
Forum Accounting, an affiliate of Forum, performs portfolio accounting services
for each Fund pursuant to a Fund Accounting Agreement with the Trust. The Fund
Accounting Agreement will continue in effect only if such continuance is
specifically approved at least annually by the Board or by a vote of the
shareholders of the Trust and in either case by a majority of the Trustees who
are not parties to the Fund Accounting Agreement or interested persons of any
such party, at a meeting called for the purpose of voting on the Fund Accounting
Agreement.
Under the Fund Accounting Agreement, Forum Accounting prepares and maintains
books and records of each Fund on behalf of the Trust that are required to be
maintained under the 1940 Act, calculates the net asset value per share of each
Fund (and class thereof) and dividends and capital gain distributions and
prepares periodic reports to shareholders and the SEC. For its services, Forum
Accounting receives from the Trust with respect to each Fund (other than a
Gateway Fund) a fee of $3,000 per month plus for each additional class of the
Fund above one $1,000 per month. In addition, Forum Accounting is paid
additional surcharges for each of the following: (1) Funds with asset levels
exceeding $100 million - $500/month, Funds with asset levels exceeding $250
million - $1000/month, Funds with asset levels exceeding $500 million -
$1,500/month, Funds with asset levels exceeding $1,000 million - $2,000/month;
(2) Funds requiring international custody - $1,000/month; (3) Funds with more
than 30 international positions - $1,000/month; (4) Tax free money market Funds
- - $1,000/month; (5) Funds with more than 25% of net assets invested in asset
backed securities - $1,000/month, Funds with more than 50% of net assets
invested in asset backed securities - $2,000/month; (6) Funds with more than 100
security positions - $1,000/month; and (7) Funds with a monthly portfolio
turnover rate of 10% or greater - $1,000/month.
Forum Accounting receives from the Trust with respect to each Gateway Fund a
standard gateway fee of $1,000 per month plus for each additional class of the
Fund above one - $1,000 per month. Forum Accounting also receives a fee of
$2,000 per month for each Gateway Fund operating pursuant to Section 12(d)(1)(E)
of the 1940 Act that invests in more than one security. In addition to the
standard gateway fees, Forum Accounting is entitled to receive from the Trust
with respect to each Gateway Fund operating pursuant to Section 12(d)(1)(H) of
the 1940 Act additional surcharges as described above if the Fund invests in
securities other than investment companies (calculated as if the securities were
the Fund's only assets)
Surcharges are determined based upon the total assets, security positions or
other factors as of the end of the prior month and on the portfolio turnover
rate for the prior month. The rates set forth above shall remain fixed through
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.
<PAGE>
Forum Accounting is required to use its best judgment and efforts in rendering
fund accounting services and is not be liable to the Trust for any action or
inaction in the absence of bad faith, willful misconduct or gross negligence.
Forum Accounting is not responsible or liable for any failure or delay in
performance of its fund accounting obligations arising out of or caused,
directly or indirectly, by circumstances beyond its reasonable control and the
Trust has agreed to indemnify and hold harmless Forum Accounting, its employees,
agents, officers and directors against and from any and all claims, demands,
actions, suits, judgments, liabilities, losses, damages, costs, charges, counsel
fees and other expenses of every nature and character arising out of or in any
way related to Forum Accounting's actions taken or failures to act with respect
to a Fund or based, if applicable, upon information, instructions or requests
with respect to a Fund given or made to Forum Accounting by an officer of the
Trust duly authorized. This indemnification does not apply to Forum Accounting's
actions taken or failures to act in cases of Forum Accounting's own bad faith,
willful misconduct or gross negligence.
Forum Accounting performs similar services for the Core Portfolios and, in
addition, acts as the Core Portfolios' transfer agent.
Forum, FAS, and Forum Accounting are members of the Forum Financial Group of
companies which together provide a full range of services to the investment
company and financial services industry. As of 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
Subject to the obligation of Norwest to reimburse the Trust for certain expenses
of the Funds, the Trust has confirmed its obligation to pay all the Trust's
expenses. The Funds' expenses include Trust expenses attributable to the Funds,
which are allocated to each Fund, and expenses not specifically attributable to
the Funds, which are allocated among the Funds and all other funds of the Trust
in proportion to their average net assets. Each service provider to a Fund may
elect to waive (or continue to waive) all or a portion of their fees, which are
accrued daily and paid monthly. Any such waivers will have the effect of
increasing a Fund's performance for the period during which the waiver is in
effect. Fee waivers are voluntary and may be reduced or eliminated at any time.
Each Fund bears all costs of its operations. The costs borne by the Funds
include a pro rata portion of the following: legal and accounting expenses;
Trustees' fees and expenses; insurance premiums, custodian and transfer agent
fees and expenses; brokerage fees and expenses; expenses of registering and
qualifying the Fund's shares for sale with the SEC and with various state
securities commissions; expenses of obtaining quotations on fund securities and
pricing of the Fund's shares; a portion of the expenses of maintaining the
Fund's legal existence and of shareholders' meetings; and expenses of
preparation and distribution to existing shareholders of reports, proxies and
prospectuses. Trust expenses directly attributed to the Fund are charged to the
Fund; other expenses are allocated proportionately among all the series of the
Trust in relation to the net assets of each series.
Each service provider to the Trust or their agents and affiliates also may act
in various capacities for, and receive compensation from, their customers who
are shareholders of a Fund. Under agreements with those customers, these
entities may elect to credit against the fees payable to them by their customers
or to rebate to customers all or a portion of any fee received from the Trust
with respect to assets of those customers invested in a Fund.
<PAGE>
The expenses of each Fund that invest in one or more Core Portfolios include the
Fund's pro rata share of the expenses of the Core Portfolios in which the Fund
invests, which are borne indirectly by the Fund's shareholders.
Subject to the obligations of Norwest to reimburse the Trust for its excess
expenses as described above, the Trust has, under its Investment Advisory
Agreements, confirmed its obligation to pay all its other expenses, including:
(1) interest charges, taxes, brokerage fees and commissions; (2) certain
insurance premiums; (3) fees, interest charges and expenses of the Trust's
custodian, transfer agent and dividend disbursing agent; (4) telecommunications
expenses; (5) auditing, legal and compliance expenses; (6) costs of the Trust's
formation and maintaining its existence; (7) costs of preparing and printing the
Trust's prospectuses, statements of additional information, account application
forms and shareholder reports and delivering them to existing and prospective
shareholders; (8) costs of maintaining books of original entry for portfolio and
fund accounting and other required books and accounts and of calculating the net
asset value of shares of the Trust; (9) costs of reproduction, stationery and
supplies; (10) compensation of the Trust's trustees, officers and employees and
costs of other personnel performing services for the Trust who are not officers
of Norwest, Forum or affiliated persons of Norwest or Forum; (11) costs of
corporate meetings; (12) registration fees and related expenses for registration
with the SEC and the securities regulatory authorities of other countries in
which the Trust's shares are sold; (13) state securities law registration fees
and related expenses; (14) fees and out-of-pocket expenses payable to Forum
Financial Services, Inc. under any distribution, management or similar
agreement; (15) and all other fees and expenses paid by the Trust pursuant to
any distribution or shareholder service plan adopted pursuant to Rule 12b-1
under the Act.
<PAGE>
VI. PORTFOLIO TRANSACTIONS
The following discussion of portfolio transactions, while referring to the
Funds, relates equally to the Core Portfolios.
PORTFOLIO TRANSACTIONS
The Advisers place orders for the purchase and sale of assets they manage with
brokers and dealers selected by and in the discretion of the respective Adviser.
The Funds have no obligation to deal with any specific broker or dealer in the
execution of portfolio transactions. The Advisers seek "best execution" for all
portfolio transactions, but a Fund may pay higher than the lowest available
commission rates when an Adviser believes it is reasonable to do so in light of
the value of the brokerage and research services provided by the broker
effecting the transaction.
Commission rates for brokerage transactions are fixed on many foreign securities
exchanges, and this may cause higher brokerage expenses to accrue to a Fund that
invests in foreign securities than would be the case for comparable transactions
effected on U.S. securities exchanges.
Purchases and sales of portfolio securities for the Money Market Funds and Fixed
Income Funds usually are principal transactions. Debt instruments are normally
purchased directly from the issuer or from an underwriter or market maker for
the securities. There usually are no brokerage commissions paid for such
purchases. The Equity Funds and the Balanced Funds generally will effect
purchases and sales of equity securities through brokers who charge commissions
except in the over-the-counter markets. Purchases of debt and equity securities
from underwriters of the securities include a disclosed fixed commission or
concession paid by the issuer to the underwriter, and purchases from dealers
serving as market makers include the spread between the bid and asked price. In
the case of debt securities and equity securities traded in the foreign and
domestic over-the-counter markets, there is generally no stated commission, but
the price usually includes an undisclosed commission or markup. Allocations of
transactions to brokers and dealers and the frequency of transactions are
determined by the Advisers in their best judgment and in a manner deemed to be
in the best interest of shareholders of each Fund rather than by any formula.
The primary consideration is prompt execution of orders in an effective manner
and at the most favorable price available to the Fund. In transactions on stock
exchanges in the United States, commissions are negotiated, whereas on foreign
stock exchanges commissions are generally fixed. Where transactions are executed
in the over-the-counter market, each Fund will seek to deal with the primary
market makers; but when necessary in order to obtain best execution, they will
utilize the services of others. In all cases the Funds will attempt to negotiate
best execution.
The Money Market Funds and Fixed Income Funds may effect purchases and sales
through brokers who charge commissions, although the Trust does not anticipate
that the Money Market Funds will do so. Table 6 in Appendix B shows the
aggregate brokerage commissions with respect to each Fund. The data presented is
for the past three fiscal years or a shorter period if the Fund has been in
operation for a shorter period, except as otherwise noted. Any material change
in the last two years in the amount of brokerage commissions paid by a fund was
due to an increase or decrease in the Fund's assets.
Subject to the general policies regarding allocation of portfolio brokerage as
set forth above, each of the Board, Core Trust Board and Schroder Core Board has
authorized the Advisers to employ their respective affiliates to effect
securities transactions of the Funds or the Core Portfolios, provided certain
other conditions are satisfied. No Fund has an understanding or arrangement to
direct any specific portion of its brokerage to an affiliate of an Adviser, and
will not direct brokerage to an affiliate of an Adviser in recognition of
research services. Payment of brokerage commissions to an affiliate of an
Adviser for effecting such transactions is subject to Section 17(e) of the 1940
Act, which requires, among other things, that commissions for transactions on
securities exchanges paid by a registered investment company to a broker which
is an affiliated person of such investment company, or an affiliated person of
another person so affiliated, not exceed the usual and customary brokers'
commissions for such transactions. It is the Fund's policy that commissions paid
to Schroder Securities Limited, Norwest Investment Services, Inc. ("NISI") and
other affiliates of an Adviser will, in the judgment of the Adviser
<PAGE>
responsible for making portfolio decisions and selecting brokers, be: (1) at
least as favorable as commissions contemporaneously charged by the affiliate on
comparable transactions for its most favored unaffiliated customers and (2) at
least as favorable as those which would be charged on comparable transactions by
other qualified brokers having comparable execution capability. The Board,
including a majority of the disinterested Trustees, has adopted procedures to
ensure that commissions paid to affiliates of an Adviser by the Funds satisfy
the foregoing standards. The Core Trust and Schroder Core Boards have adopted
similar policies with respect to the Core Portfolios.
During the last three fiscal years certain Funds paid brokerage commissions to
NISI, a wholly-owned broker-dealer subsidiary of the parent of Norwest, Norwest
Corporation. The following table indicates the Funds that paid commissions to
NISI, the aggregate amounts of commissions paid, the percentage of aggregate
brokerage commissions paid to NISI and the percentage of the aggregate dollar
amount of transactions involving payment of commissions that were effected
through NISI.
<TABLE>
<S> <C> <C> <C>
PERCENTAGE OF
COMMISSION
AGGREGATE PERCENTAGE TRANSACTIONS
COMMISSIONS OF COMMISSIONS EXECUTED
PAID TO NISI PAID TO NISI THROUGH NISI
VALUGROWTH STOCK FUND ------------ ------------ ------------
- ---------------------
Year Ended May 31, 1998
Year Ended May 31, 1997 $41,474 8.25% 8.05%
Year Ended May 31, 1996 $10,494 2.41% 1.73%
</TABLE>
The practice of placing orders with NISI is consistent with each Fund's
objective of obtaining best execution and is not dependent on the fact that NISI
is an affiliate of Norwest.
The Funds and the Core Portfolios may not always pay the lowest commission or
spread available. Rather, in determining the amount of commissions, including
certain dealer spreads, paid in connection with securities transactions, an
Adviser takes into account factors such as size of the order, difficulty of
execution, efficiency of the executing broker's facilities (including the
services described below) and any risk assumed by the executing broker. The
Advisers may also take into account payments made by brokers effecting
transactions for a Fund or Core Portfolio: (1) to the Fund or Core Portfolio or
(2) to other persons on behalf of the Fund or Core Portfolio for services
provided to the Fund or Core Portfolio for which it would be obligated to pay.
In addition, the Advisers may give consideration to research services furnished
by brokers to the Advisers for their use and may cause the Funds and Core
Portfolios to pay these brokers a higher amount of commission than may be
charged by other brokers. Such research and analysis is of the types described
in Section 28(e)(3) of the Securities Exchange Act of 1934, as amended, and is
designed to augment the Adviser's own internal research and investment strategy
capabilities. Such research and analysis may be used by the Advisers in
connection with services to clients other than the Funds and Core Portfolios,
and not all such services may be used by the Adviser in connection with the
Funds. An Adviser's fees are not reduced by reason of the Adviser's receipt of
the research services.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. and subject to the obligation to seek the most
favorable price and execution available and such other policies as the Boards
may determine, an Adviser may consider sales of shares of the Fund as a factor
in the selection of broker-dealers to execute portfolio transactions for the
Fund.
Investment decisions for the Funds (and for the Core Portfolios) will be made
independently from those for any other account or investment company that is or
may in the future become managed by the Advisers or their affiliates. Investment
decisions are the product of many factors, including basic suitability for the
particular client involved. Thus, a particular security may be bought or sold
for certain clients even though it could have been bought or sold for other
clients at the same time. Likewise, a particular security may be bought for one
or more
<PAGE>
clients when one or more clients are selling the security. In some instances,
one client may sell a particular security to another client. It also sometimes
happens that two or more clients simultaneously purchase or sell the same
security, in which event each day's transactions in such security are, insofar
as is possible, averaged as to price and allocated between such clients in a
manner which, in the respective Adviser's opinion, is equitable to each and in
accordance with the amount being purchased or sold by each. There may be
circumstances when purchases or sales of a portfolio security for one client
could have an adverse effect on another client that has a position in that
security. In addition, when purchases or sales of the same security for a Fund
and other client accounts managed by the Advisers occur contemporaneously, the
purchase or sale orders may be aggregated in order to obtain any price
advantages available to large denomination purchases or sales.
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
Core Portfolio and a possible increase in short-term capital gains or losses. In
order to qualify as a regulated investment company for Federal tax purposes for
taxable years beginning on or before August 5, 1997, less than 30% of the gross
income of the Fund in that year must be derived from the sale of securities held
by the Fund for less than three months. See "Taxation" below. The change in
portfolio turnover rate for Income Fund and Intermediate Government Income Fund
from 1995 to 1996 was due in part to the change in portfolio managers. Other
significant changes in portfolio turnover rates was due to changing market
conditions and the effect of those conditions on the Funds' investment policies.
VII. ADDITIONAL PURCHASE, REDEMPTION AND
EXCHANGE INFORMATION GENERAL
Shares of all Funds are sold on a continuous basis by the distributor.
The per share net asset values of each class of shares of a Fund are expected to
be substantially the same. Under certain circumstances, however, the per share
net asset value of each class may vary. Due to the higher expenses of B Shares,
the net asset value of B Shares will generally be lower than the net asset value
of the other classes. The per share net asset value of each class of a Fund
eventually will tend to converge immediately after the payment of dividends,
which will differ by approximately the amount of the expense accrual
differential among the classes.
MONEY MARKET FUNDS
<PAGE>
As described in the Prospectuses, under certain circumstances a Money Market
Fund may close early and advance time by which the Fund must receive a purchase
or redemption order and payments. In that case, if an investor placed an order
after the cut-off time the order would be processed on the follow-up business
day and the investor's access to the fund would be temporarily limited.
PURCHASES THROUGH FINANCIAL INSTITUTIONS
You may purchase and redeem shares through certain broker-dealers, banks and
other financial institutions. The Funds' transfer agent and distributor or their
affiliates may be Processing Organizations. Financial institutions, including
Processing Organizations, may charge their customers a fee for their services
and are responsible for promptly transmitting purchase, redemption and other
requests to the Funds.
If you purchase shares through a Processing Organization, you will be subject to
the Processing Organization's procedures, which may include charges,
limitations, investment minimums, cutoff times and restrictions in addition to,
or different from, those applicable when you invest in a Fund directly. When you
purchase a Fund's shares through a Processing Organization, you may or may not
be the shareholder of record and, subject to your institution's procedures, you
may have Fund shares transferred into your name. There is typically a three-day
settlement period for purchases and redemptions through broker-dealers. Certain
Processing Organizations may also enter purchase orders with payment to follow.
You may not be eligible for certain shareholder services when you purchase
shares through a Processing Organization. Contact your Processing Organization
for further information. If you hold shares through a Processing Organization,
the Funds may confirm purchases and redemptions to the Processing Organization,
which will provide you with confirmations and periodic statements. The Funds are
not responsible for the failure of any Processing Organization to carry out its
obligations.
SHAREHOLDER SERVICES
AUTOMATIC INVESTMENT PLAN. You may elect the Automatic Investment Plan if you
purchase A Shares, B Shares, C Shares, I Shares or Investor Shares. Under the
Automatic Investment Plan, you may authorize monthly amounts of $50 or more to
be withdrawn automatically from a designated bank account (other than a passbook
savings account) and sent to the transfer agent for investment in a Fund. Call
or write the transfer agent for an application. Norwest Advantage Funds may
modify or terminate the Automatic Investment Plan if it is unable to settle any
transaction with your bank. If the Automatic Investment Plan is terminated
before your account totals $1,000, the Funds may redeem your account.
RETIREMENT ACCOUNTS The Funds (except Municipal Money Market Fund and the
Tax-Free Fixed Income Funds) may be a suitable investment vehicle for part or
all of the assets held in Traditional or Roth individual retirement accounts
(collectively, "IRAs"). Call the Funds at 1-800-338-1348 or 1-612-667-8833 to
obtain an IRA account application. Generally, all contributions and investment
earnings in an IRA will be tax-deferred until withdrawn. If certain requirements
are met, investment earnings held in a Roth IRA will not be taxed even when
withdrawn. You may contribute up to $2,000 annually to an IRA. Only
contributions to Traditional IRAs are tax-deductible. However, that deduction
may be reduced if you or your spouse is an active participant in an
employer-sponsored retirement plan and you have adjusted gross income above
certain levels. Your ability to contribute to a Roth IRA also may be restricted
if you or, if you are married, you and your spouse has adjusted gross income
above certain levels.
Your employer may also contribute to your IRA as part of a Savings Incentive
Match Plan for Employees, or "SIMPLE plan," established after December 31, 1996.
Under a SIMPLE plan, you may contribute up to $6,000 annually to your IRA, and
your employer must generally match such contributions up to 3% of your annual
salary. Alternatively, your employer may elect to contribute to your IRA 2% of
the lesser of your earned income or $160,000.
<PAGE>
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: SALES CHARGE WAIVERS
WAIVERS OF SALES CHARGES. The Trust does not assess sales charge on the
following types of purchases:
* purchases by any bank, trust company or other institution acting on behalf
of its fiduciary customer accounts or any other account maintained by its
trust department (including a pension, profit sharing or other employee
benefit trust created pursuant to a plan qualified under Section 401 of the
Internal Revenue Code of 1986, as amended);
* purchases by any financial intermediary acting on behalf of its asset based
fee account customers;
* purchases by trustees and officers of the Trust; directors, officers and
full-time employees of the Trust's manager, of Norwest Corporation or of
any of their affiliates; the spouse, direct ancestor or direct descendant
("relatives") of any such person; any trust or individual retirement
account or self-employed retirement plan for the benefit of any such person
or relative; or the estate of any such person or relative;
* purchases by any registered investment adviser with whom the distributor
has entered into a share purchase agreement and which is acting on behalf
of its fiduciary customer accounts; or
* purchases of A Shares made pursuant to the Directed Dividend Option from
the proceeds of dividends and distributions of another fund of the Trust
that assesses a sales charge.
* purchases of at least $50,000 through an individual retirement account in A
Shares of Diversified Equity Fund or Growth Equity Fund, when the
shareholder makes a non-binding commitment to subsequently enroll the
assets in the Norwest WealthBuilder IRA program, an asset allocation
program offered by Norwest Investment Services, Inc. ("NISI"). In
connection with purchases of A Shares of Diversified Equity Fund or
<PAGE>
Growth Equity Fund with no sales charge, Forum makes payments to NISI of up
to 1.00% of the value of the shares purchased.
If you purchase A Shares without paying a sales charge, you many only resell the
shares to the Fund and you must make the purchase with the intent of investing
in the Fund.
If you qualify for a reduced sales charge, you or your Processing Organization
must both notify the transfer agent when you purchase the shares that you intend
to qualify for the reduced sales charge and verify that you qualify. The Trust
may modify or terminate reduced sales charge privileges at any time.
REINSTATEMENT PRIVILEGE. If you redeem a Fund's A Shares, you will not have to
pay a sales charge if you repurchase some or all of the shares you redeemed
within 60 days of the redemption.
INVESTORS IN OTHER FUND FAMILIES. You will not have to pay a sales charge on a
purchase of A Shares if, within the past 60 days, you have redeemed at net asset
value shares of a mutual fund that imposed a sales charge equal to or greater
than that applicable to the A Shares and you use those redemption proceeds to
purchase the Fund's shares.
SELF-DIRECTED 401(K) PROGRAMS. If you purchase less than $100,000 of a Fund's A
Shares through a self-directed 401(k) program or other qualified retirement plan
offered by Norwest, the Trust's manager or their affiliates, your purchase will
eligible for the reduced sales charge applicable to a single purchase of
$100,000.
RIGHT OF ACCUMULATION. If you purchase A Shares, you may qualify for a
cumulative quantity discount or right of accumulation ("ROA"). If you elect a
ROA, the applicable sales charge will be based on the total of your current
purchase and the net asset value (at the end of the previous Fund Business Day)
of some or all of the A Shares you hold. For example, if you own A Shares of
Income Fund with a net asset value of $500,000 and purchase an additional
$50,000 of the Fund's A Shares, the additional purchase would be subject to a
sales charge at the 2.0% rate applicable to a $550,000 purchase rather than at
the 3.5% rate applicable to a $50,000 purchase.
In addition, if you have previously purchased A Shares of another fund of the
Trust that is sold with a sales charge equal to or greater than the sales charge
imposed on the Fund's A Shares, you also may qualify for a ROA and may aggregate
existing investments in A Shares of all those funds with your current purchase
of the Fund's A Shares to determine the applicable sales charge. In addition, if
your spouse, direct ancestor or direct descendant holds A Shares, those
shareholdings also may be combined for purposes of the ROA.
<PAGE>
STATEMENT OF INTENTION. You also may obtain a reduced sales charge by making
cumulative purchases under a "Statement of Intention." A Statement of Intention
is a written statement expressing your intent to invest $50,000 or more in a
Fund's A Shares within a period of 13 months. Under a Statement of Intention,
you may make a series of purchases of shares where each purchase will be at net
asset value plus the sales charge applicable at the time of the purchase to a
single purchase of the total dollar amount of shares you promised to purchase.
Complete the appropriate portion of the account application to select the
Statement of Intention.
The Statement of Intention is not a binding obligation upon you to purchase the
full amount indicated. A Shares purchased with the first 5% of such amount will
be held subject to a registered pledge (while remaining registered in the name
of the investor) to secure payment of the higher sales charge applicable to the
shares actually purchased if the full amount indicated is not purchased, and
such pledged shares will be involuntarily redeemed to pay the additional sales
charge, if necessary. When the full amount indicated has been purchased, the
shares will be released from pledge.
CALCULATION OF OFFERING PRICE. Set forth below is an example of the method of
computing the offering price of the A Shares of the Funds that offer A Shares.
Other shares of the Trust are offered at their next determined net asset value.
The example assumes a purchase of A Shares of the Fixed Income and Equity Funds'
in an amount such that the purchase would be subject to each Fund's maximum
sales charges set forth in the Prospectus at a price based on the net asset
value per share of A Shares of each Fund at May 31, 1998. The maximum sales
charge as of October 1, 1998 are 5.5% for each Equity Fund and 4.0% for each
Fixed Income Fund, except Stable Income Fund, for which it was 1.50%. Offering
price is determined as follows: Net asset value per share times the sum of one
(1) plus the sales charge expressed as a percentage (for example 5.5% would
equal 0.055).
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
EXCHANGES
By making an exchange by telephone, the investor authorizes the Trust's transfer
agent to act on telephonic instructions believed by the Trust's transfer agent
to be genuine instructions from any person representing himself or herself to be
the investor. The records of the Trust's transfer agent of such instructions are
binding. The exchange procedures may be modified or terminated at any time upon
appropriate notice to shareholders. For Federal income tax purposes, exchanges
are treated as sales on which a purchaser will realize a capital gain or loss
depending on whether the value of the shares redeemed is more or less than the
shareholder's basis in such shares at the time of such transaction.
Shareholders of A Shares may purchase, with the proceeds from a redemption of
all or part of their shares, A Shares of the other Funds that offer A Shares or
Investor Shares of Ready Cash Investment Fund or
<PAGE>
Municipal Money Market Fund. Shareholders of B Shares may purchase, with the
proceeds from a redemption of all or part of their shares, B Shares of the other
Funds that offer B Shares or Exchange Shares of Ready Cash Investment Fund.
Shareholders of I Shares may purchase, with the proceeds from a redemption of
all or part of their shares, I Shares of the other Funds or Institutional Shares
of Ready Cash Investment Fund or Municipal Money Market Fund or shares of U.S.
Government Fund and Treasury Fund.
Shareholders of Investor Shares of Ready Cash Investment Fund and Municipal
Money Market Fund may purchase, with the proceeds from a redemption of all or
part of their shares, Investor Shares of the other Fund or A Shares of the Funds
that offer A Shares. Shareholders of Exchange Shares of Ready Cash Investment
Fund may purchase, with the proceeds from a redemption of all or part of their
shares, B Shares of the Funds that offer B Shares.
Shareholders of Public Entities Shares of Ready Cash Investment Fund and
Municipal Money Market Fund and others who are eligible to purchase I Shares may
purchase, with the proceeds from a redemption of all or part of their shares,
Institutional Shares of these Funds, or I Shares of the other Funds of the
Trust.
Shareholders of Institutional Shares of Municipal Money Market Fund who are not
eligible to purchase I Shares may purchase, with the proceeds from a redemption
of all or part of their shares, shares of Cash Investment Fund, U.S. Government
Fund and Treasury Fund. Similarly, shareholders of Cash Investment Fund, U.S.
Government Fund and Treasury Fund who are not eligible to purchase I Shares may
purchase, with the proceeds from a redemption of all or part of their shares,
shares of the other two Funds or Institutional Shares of Municipal Money Market
Fund.
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.
<PAGE>
Proceeds of redemptions normally are paid in cash. However, payments may be made
wholly or partially in portfolio securities if the Board determines that payment
in cash would be detrimental to the best interests of the Fund. If payment for
shares redeemed is made wholly or partially in portfolio securities, brokerage
costs may be incurred by the shareholder in converting the securities to cash.
The Trust has filed a formal election with the SEC pursuant to which a Fund will
only effect a redemption in portfolio securities if the particular shareholder
is redeeming more than $250,000 or 1% of the Fund's total net assets, whichever
is less, during any 90-day period.
CONTINGENT DEFERRED SALES CHARGE (A SHARES)
CONTINGENT DEFERRED SALES CHARGE. A Shares of a Fund on which no initial sales
charge was assessed due to the amount purchased in a single transaction or
pursuant to the Cumulative Quantity Discount or a Statement of Intention and
that are redeemed (including certain redemptions in connection with an exchange)
within specified periods after the purchase date of the shares will be subject
to contingent deferred sales charges equal to the percentages set forth below of
the dollar amount subject to the charge. The charge will be assessed on an
amount equal to the lesser of the cost of the shares being redeemed and their
net asset value at the time of redemption. Accordingly, no sales charge will be
imposed on increases in net asset value above the initial purchase price. In
addition, no charge will be assessed on shares derived from the reinvestment of
dividends and distributions.
<TABLE>
<S> <C> <C>
STABLE INCOME FUND
AMOUNT OF PURCHASE PERIOD SHARES HELD REIMBURSEMENT CHARGE
$1,000,000 to $4,999,999 Less than one year 0.50%
One to two years 0.25%
Over $5,000,000 Less than one year 0.25%
INTERMEDIATE GOVERNMENT INCOME FUND,
INCOME FUND, TOTAL RETURN BOND FUND AND THE
TAX-FREE FIXED INCOME FUNDS
AMOUNT OF PURCHASE PERIOD SHARES HELD REIMBURSEMENT CHARGE
$1,000,000 to $2,499,999 Less than one year 0.75%
One to two years 0.50%
$2,500,000 to $4,999,999 Less than one year 0.50%
Over $5,000,000 Less than one year 0.25%
CONTINGENT DEFERRED SALES
EQUITY FUNDS CHARGED AS A % OF DOLLAR
AMOUNT OF PURCHASE PERIOD SHARES HELD AMOUNT SUBJECT TO CHANGE
$1,000,000 to $2,499,999 Less than one year 1.00%
One to two years 0.75%
$2,500,000 to $4,999,999 Less than one year 0.50%
Over $5,000,000 Less than one year 0.25%
</TABLE>
No contingent deferred sales charge is charged on redemptions to the same extent
as is the case for B Shares. The contingent deferred sales charge on shares
purchased through an exchange from another fund of the Trust is based upon the
original purchase date and price of the other Fund's shares. For A shareholders
with a Statement of Intention that do not purchase $1,000,000 of a Fund's A
Shares pursuant to their Statement, no contingent deferred sales charge is
imposed. The Statement of Intention provides for a contingent deferred sales
charge in certain other cases. Further information about the contingent deferred
sales charge is contained in the SAI.
<PAGE>
A Shares of the Funds on which no initial sales charge was assessed pursuant to
the Right of Accumulation or Statement of Intention, that are redeemed within
specified periods after the purchase date will be subject to a contingent
deferred sales charge upon redemption.
RIGHT OF ACCUMULATION
Contingent deferred sales charges may be charged on A Shares purchased without
an initial sales charge pursuant to the Cumulative Quantity Discount (Right of
Accumulation) that are redeemed within the first two years after purchase. No
initial sales charge will apply to A Shares purchased if the value of those
shares on the date of purchase plus the net asset value of all A Shares held by
the shareholder (as of the close of business on the previous Fund Business Day)
exceed $1,000,000. In that case the contingent deferred sales charge will apply
to redemptions of shares within the first two years after purchase. For example,
if a shareholder has made prior purchases of A Shares which now have a value of
$900,000, the purchase of $150,000 of A Shares will not be subject to an initial
sales charge but will be subject to the contingent deferred sales charge. The
$900,000 of A Shares is not subject to the contingent deferred sales charge.
STATEMENT OF INTENTION
Contingent deferred sales charges may be charged on redemptions of A Shares
purchased without an initial sales charge pursuant to a Statement of Intention
("SOI") that are redeemed within the first two years after purchase. If a
shareholder purchases $1,000,000 or more within a 13 month period under an SOI,
no initial sales charge will apply with respect to the entire amount purchased.
However, the contingent deferred sales charge will apply with respect to the
entire amount purchased amount if the shareholder never purchases $1,000,000 or
more of A Shares under the SOI. The contingent deferred sales charge will not
apply to SOIs of under $1,000,000 and will not be applied to SOIs for a greater
amount. The holding period for each A Share, however, shall be determined from
the date the share was purchased. If the shareholder redeems A Shares during the
period that the SOI is in effect, a contingent deferred sales charge will be
charged at the time the shareholder has purchased $1,000,000 or more worth of A
Shares pursuant to the SOI and will be assessed at the rate applicable in the
case of a single purchase of the minimum amount specified in the SOI. If the
shareholder purchases less than the amount specified under the SOI, an
additional contingent deferred sales charge may be assessed in respect of A
Shares previously redeemed based on the amount actually purchased pursuant to
the SOI.
REINSTATEMENT PRIVILEGE
A Shares purchased by a shareholder within 60 days following the redemption by
the shareholder of A Shares in the same Fund with a value at least equal to the
A Shares being purchased will not be subject to a contingent deferred sales
charge; provided, however, that this exemption is not applicable to more than
two purchases within a 12-month period.
CONTINGENT DEFERRED SALES CHARGE (A SHARES AND B SHARES)
With respect to A Shares and B Shares of the Funds, certain redemptions are not
subject to any contingent deferred sales charge. No contingent deferred sales
charge is imposed on: (1) redemptions of shares acquired through the
reinvestment of dividends and distributions; (2) involuntary redemptions by a
Fund of shareholder accounts with low account balances; (3) redemptions of
shares following the death or disability of a shareholder if the Fund is
notified within one year of the shareholder's death or disability; and (4)
redemptions to effect a distribution (other than a lump sum distribution) from
an IRA, Keogh plan or Section 403(b) custodial account or from a qualified
retirement plan. For these purposes, the term disability shall have the meaning
ascribed thereto in Section 72(m)(7) of the Code. Under that provision, a person
is considered disabled if the person is unable to engage in any substantial
activity by reason of any medically determinable physical or mental impairment
which can be expected to result in death or to be of long-continued and
indefinite duration. Appropriate documentation satisfactory to the Fund is
required to substantiate any shareholder death or disability.
<PAGE>
No contingent deferred sales charge is imposed on: (1) redemptions of Shares
acquired through the reinvestment of dividends and distributions; (2)
involuntary redemptions by a Fund of shareholder accounts with low account
balances; (3) redemptions of Shares following the death or disability of a
shareholder if the Fund is notified within one year of the shareholder's death
or disability; (4) redemptions to effect a distribution (other than a lump sum
distribution) from an IRA, Keogh plan or Section 403(b) custodial account or
from a qualified retirement plan; and (5) redemptions by any registered
investment adviser with whom Forum has entered into a share purchase agreement
and which is acting on behalf of its fiduciary customer accounts. See the SAI
for further information.
CONVERSION OF B SHARES AND EXCHANGE SHARES
The conversion of Exchange Shares to Investor Shares and B Shares to A Shares is
subject to the continuing availability of an opinion of counsel to the effect
that: (1) the assessment of the distribution services fee with respect to the
Exchange Shares and B Shares does not result in the Funds dividends or
distributions constituting "preferential dividends" under the Code and (2) the
conversion of Exchange Shares and B Shares does not constitute a taxable event
under Federal income tax law. The conversion of Exchange Shares to Investor
Shares and B Shares to A Shares may be suspended if such an opinion is no longer
available at the time the conversion is to occur. In that event, no further
conversions would occur, and shares might continue to be subject to a
distribution services fee for an indefinite period, which may extend beyond the
specified number of years for conversion of the original B Shares.
VIII. TAXATION
Each Fund intends for each taxable year to qualify for tax treatment as a
"regulated investment company" under the Code. Such qualification does not, of
course, involve governmental supervision of management or investment practices
or policies. Investors should consult their own counsel for a complete
understanding of the requirements each Fund must meet to qualify for such
treatment, and of the application of state and local tax laws to his or her
particular situation.
Since each Money Market Fund and Fixed Income Fund expects to derive
substantially all of its gross income (exclusive of capital gains) from sources
other than dividends, it is expected that none of such Funds' dividends or
distributions will qualify for the dividends-received deduction for
corporations.
Certain listed options, regulated futures contracts and forward currency
contracts are considered "section 1256 contracts" for Federal income tax
purposes. Section 1256 contracts held by a Fund or Core Portfolio at the end of
each taxable year will be "marked to market" and treated for Federal income tax
purposes as though sold for fair market value on the last business day of such
taxable year. Gain or loss realized by a Fund or Core Portfolio on section 1256
contracts generally will be considered 60% long-term and 40% short-term capital
gain or loss. Each Fund or Core Portfolio can elect to exempt its section 1256
contracts which are part of a "mixed straddle" (as described below) from the
application of section 1256.
With respect to over-the-counter put and call options, gain or loss realized by
a Fund or Core Portfolio upon the lapse or sale of such options held by such
Fund or Core Portfolio will be either long-term or short-term capital gain or
loss depending upon the Fund's (or Core Portfolio's) holding period with respect
to such option. However, gain or loss realized upon the lapse or closing out of
such options that are written by a Fund or Core Portfolio will be treated as
short-term capital gain or loss. In general, if a Fund or Core Portfolio
exercises an option, or an option that a Fund or Core Portfolio has written is
exercised, gain or loss on the option will not be separately recognized but the
premium received or paid will be included in the calculation of gain or loss
upon disposition of the property underlying the option.
Any option, futures contract, or other position entered into or held by a Fund
in conjunction with any other position held by such Fund or Core Portfolio may
constitute a "straddle" for Federal income tax purposes. A straddle of which at
least one, but not all, the positions are section 1256 contracts may constitute
a "mixed straddle". In general, straddles are subject to certain rules that may
affect the character and timing of a Fund's (or
<PAGE>
Core Portfolio's) gains and losses with respect to straddle positions by
requiring, among other things, that: (1) loss realized on disposition of one
position of a straddle not be recognized to the extent that a Fund has
unrealized gains with respect to the other position in such straddle; (2) a
Fund's (or Core Portfolio's) holding period in straddle positions be suspended
while the straddle exists (possibly resulting in gain being treated as
short-term capital gain rather than long-term capital gain); (3) losses
recognized with respect to certain straddle positions which are part of a mixed
straddle and which are non-section 1256 positions be treated as 60% long-term
and 40% short-term capital loss; (4) losses recognized with respect to certain
straddle positions which would otherwise constitute short-term capital losses be
treated as long-term capital losses; and (5) the deduction of interest and
carrying charges attributable to certain straddle positions may be deferred.
Various elections are available to a Fund or Core Portfolio which may mitigate
the effects of the straddle rules, particularly with respect to mixed straddles.
In general, the straddle rules described above do not apply to any straddles
held by a Fund or Core Portfolio all of the offsetting positions of which
consist of section 1256 contracts.
For federal income tax purposes, gains and losses attributable to fluctuations
in exchange rates which occur between the time a Fund accrues interest or other
receivables or accrues expenses or other liabilities denominated in a foreign
currency and the time the Fund actually collects such receivables or pays such
liabilities are treated as ordinary income or ordinary loss. Similarly, gains or
losses from the disposition of foreign currencies, from the disposition of debt
securities denominated in a foreign currency, or from the disposition of a
forward contract denominated in a foreign currency which are attributable to
fluctuations in the value of the foreign currency between the date of
acquisition of the asset and the date of disposition also are treated as
ordinary gain or loss.
A Fund's (or Core Portfolio's) investments in zero coupon securities will be
subject to special provisions of the Code which may cause the Fund to recognize
income without receiving cash necessary to pay dividends or make distributions
in amounts necessary to satisfy the distribution requirements for avoiding
federal income and excise taxes. In order to satisfy those distribution
requirements the Fund or Core Portfolio may be forced to sell other portfolio
securities.
If International Fund is eligible to do so, the Fund intends to file an election
with the Internal Revenue Service to pass through to its shareholders its share
of the foreign taxes paid by the Fund. Pursuant to this election, a shareholder
will be required to: (1) include in gross income rata share of foreign taxes
paid by the Fund; (2) treat his pro rata share of such foreign taxes as having
been paid by him; and (3) either deduct such pro rata share of foreign taxes in
computing his taxable income or treat such foreign taxes as a credit against
federal income taxes. No deduction for foreign taxes may be claimed by an
individual shareholder who does not itemize deductions. In addition, certain
shareholders may be subject to rules which limit or reduce their ability to
fully deduct, or claim a credit for, their pro rata share of the foreign taxes
paid by the Fund. Under recently enacted legislation, a shareholder's foreign
tax credit with respect to a dividend received from the Fund will be disallowed
unless the shareholder holds shares in the Fund at least 16 days during the
30-day period beginning 15 days before the date on which the shareholder becomes
entitled to receive the dividend.
IX. ADDITIONAL INFORMATION ABOUT THE TRUST AND
THE SHAREHOLDERS OF THE FUNDS
DETERMINATION OF NET ASSET VALUE - MONEY MARKET FUNDS
Pursuant to the rules of the SEC, the Board has established procedures to
stabilize each Money Market Funds' net asset value at $1.00 per share. These
procedures include a review of the extent of any deviation of net asset value
per share as a result of fluctuating interest rates, based on available market
rates, from the Fund's $1.00 amortized cost price per share. Should that
deviation exceed 1/2 of 1%, the Board will consider whether any action should be
initiated to eliminate or reduce material dilution or other unfair results to
shareholders. Such action may include redemption of shares in kind, selling
portfolio securities prior to maturity, reducing or withholding dividends and
utilizing a net asset value per share as determined by using available market
quotations. Each Fund will maintain a dollar-weighted average portfolio maturity
of 90 days or less, will not purchase any instrument with a remaining maturity
greater than 397 days or subject to a repurchase agreement having a duration of
greater than 397 days, will limit portfolio investments, including repurchase
agreements, to those U.S. dollar
<PAGE>
- -denominated instruments that the Board has determined present minimal credit
risks and will comply with certain reporting and recordkeeping procedures. The
Trust has also established procedures to ensure that portfolio securities meet
the Funds' high quality criteria.
COUNSEL AND AUDITORS
Legal matters in connection with the issuance of shares of beneficial interest
of the Trust are passed upon by the law firm of Seward & Kissel, One Battery
Park Plaza, New York, NY 10004.
KPMG Peat Marwick LLP, 99 High Street, Boston, MA 02110, independent auditors,
served as the independent auditors for the Trust for the fiscal years ended May
31, 1994 and thereafter. For the prior fiscal periods another audit firm acted
as independent auditors of the Trust's predecessor corporation.
GENERAL INFORMATION
The Trust is divided into thirty nine separate series representing shares of the
Funds. The Trust received an order from the SEC permitting the issuance and sale
of separate classes of shares representing interests in each of the Trust's
existing funds; however, the Trust currently issues and operates the various
Funds, separate classes of shares under the provisions of 1940 Act.
The Board has determined that currently no conflict of interest exists between
or among each Fund's A Shares, B Shares, C Shares and I Shares, among Ready Cash
Investment Fund's Public Entities, Investor and Exchange Shares and between
Municipal Money Market Fund's Institutional and Investor Shares. On an ongoing
basis, the Board, pursuant to its fiduciary duties under the 1940 Act and state
law, will seek to ensure that no such conflict arises.
The Trust's shareholders are not personally liable for the obligations of the
Trust under Delaware law. The Delaware Business Trust Act (the "Delaware Act")
provides that a shareholder of a Delaware business trust shall be entitled to
the same limitation of liability extended to shareholders of private
corporations for profit. However, no similar statutory or other authority
limiting business trust shareholder liability exists in many other states. As a
result, to the extent that the Trust or a shareholder is subject to the
jurisdiction of courts in those states, the courts may not apply Delaware law,
and may thereby subject the Trust shareholders to liability. To guard against
this risk, the Trust Instrument of the Trust disclaims shareholder liability for
acts or obligations of the Trust and requires that notice of such disclaimer be
given in each agreement, obligation and instrument entered into by the Trust or
its Trustees, and provides for indemnification out of Trust property of any
shareholder held personally liable for the obligations of the Trust. Thus, the
risk of a shareholder incurring financial loss beyond his investment because of
shareholder liability is limited to circumstances in which: (1) a court refuses
to apply Delaware law; (2) no contractual limitation of liability is in effect;
and (3) the Trust itself is unable to meet its obligations. In light of Delaware
law, the nature of the Trust's business, and the nature of its assets, the Board
believes that the risk of personal liability to a Trust shareholder is extremely
remote.
In order to adopt the name Norwest Funds, the Trust agreed in each Investment
Advisory Agreement with Norwest that if Norwest ceases to act as Adviser to the
Trust or any Fund whose name includes the word "Norwest," or if Norwest requests
in writing, the Trust shall take prompt action to change the name of the Trust
and any such Fund to a name that does not include the word "Norwest." Norwest
may from time to time make available without charge to the Trust for the Trust's
use any marks or symbols owned by Norwest, including marks or symbols containing
the word "Norwest" or any variation thereof, as Norwest deems appropriate. Upon
Norwest's request in writing, the Trust shall cease to use any such mark or
symbol at any time. The Trust has acknowledged that any rights in or to the word
"Norwest" and any such marks or symbols which exist or may exist, and under any
and all circumstances, shall continue to be, the sole property of Norwest.
Norwest may permit other parties, including other investment companies, to use
the word "Norwest" in their names without the consent of the Trust. The Trust
shall not use the word "Norwest" in conducting any business other than that of
an investment company registered under the Act without the permission of
Norwest.
<PAGE>
The Trust has an unlimited number of authorized shares of beneficial interest.
The Board may, without shareholder approval, divide the authorized shares into
an unlimited number of separate portfolios or series (such as the Fund) and may
divide portfolios or series into classes of shares (such as Exchange Shares);
the costs of doing so will be borne by the Trust. Currently the authorized
shares of the Trust are divided into thirty-nine separate series.
CLASSES OF SHARES. Each class of a Fund may have a different expense ratio and
different sales charges (including distribution fees) and each class'
performance will be affected by its expenses and sales charges. For more
information on any other class of shares of the Fund, investors may contact the
Transfer Agent at (612)667-8833 or (800) 338-1348 or the Fund's distributor.
Investors may also contact their Norwest sales representative to obtain
information about the other classes. Sales personnel of broker-dealers and other
financial institutions selling the Fund's shares may receive differing
compensation for selling different classes of shares.
SHAREHOLDER VOTING AND OTHER RIGHTS. Each share of each series of the Trust and
each class of shares has equal dividend, distribution, liquidation and voting
rights, and fractional shares have those rights proportionately, except that
expenses related to the distribution of the shares of each class (and certain
other expenses such as transfer agency and administration expenses) are borne
solely by those shares and each class votes separately with respect to the
provisions of any Rule 12b-1 plan which pertains to the class and other matters
for which separate class voting is appropriate under applicable law. Generally,
shares will be voted in the aggregate without reference to a particular series
or class, except if the matter affects only one series or class or voting by
series or class is required by law, in which case shares will be voted
separately by series or class, as appropriate. Delaware law does not require the
Trust to hold annual meetings of shareholders, and it is anticipated that
shareholder meetings will be held only when specifically required by federal or
state law. Shareholders have available certain procedures for the removal of
Trustees. There are no conversion or preemptive rights in connection with shares
of the Trust. All shares, when issued in accordance with the terms of the
offering, will be fully paid and nonassessable. Shares are redeemable at net
asset value, at the option of the shareholders, subject to any contingent
deferred sales charge that may apply. A shareholder in a series is entitled to
the shareholder's pro rata share of all dividends and distributions arising from
that series' assets and, upon redeeming shares, will receive the portion of the
series' net assets represented by the redeemed shares.
The Core Portfolio normally will not hold meetings of investors except as
required by the 1940 Act. Each investor in the Core Portfolio will be entitled
to vote in proportion to its relative beneficial interest in the Core Portfolio.
When required by the 1940 Act and other applicable law, the Fund will solicit
proxies from its shareholders and will vote its interest in the Core Portfolio
in proportion to the votes cast by its shareholders.
From time to time, certain shareholders may own a large percentage of the Shares
of the Fund and, accordingly, may be able to greatly affect (if not determine)
the outcome of a shareholder vote.
CORE AND GATEWAY STRUCTURE
Certain Funds seek to achieve their investment objectives by investing all of
their investable assets in Core Portfolios. Accordingly, the Core Portfolios
directly acquires portfolio securities and the Funds acquire an indirect
interest in those securities. The Core Portfolios are separate series of Core
Trust and Schroder Core, business trusts organized under the laws of the State
of Delaware in 1994. The assets of each Core Portfolios belong only to, and the
liabilities of each Core Portfolios are borne solely by, that Core Portfolio and
no other series of Core Trust or Schroder Core.
THE CORE PORTFOLIO. The Funds' investments in the Core Portfolios are in the
form of non-transferable beneficial interests. All investors in a Core Portfolio
will invest on the same terms and conditions and will pay a proportionate share
of the Core Portfolio's expenses.
Core Portfolios do not sell its shares directly to members of the general
public. Other investors in Core Portfolios, such as other investment companies,
that might sell their shares to the public are not be required to sell their
shares at the same public offering price as the Funds, and could have different
advisory and other fees and
<PAGE>
expenses than the Funds. Therefore, Fund shareholders may have different returns
than shareholders in other investment companies that invest in the Core
Portfolios. Information regarding any such funds is available by calling Forum
at (207) 879-0001.
CERTAIN RISKS OF INVESTING IN CORE PORTFOLIOS. The Funds' investment in the Core
Portfolios may be affected by the actions of other large investors in the Core
Portfolios. For example, if a Core Portfolio had a large investor other than a
Fund that redeemed its interest, the Core Portfolio's remaining investors
(including the Fund) might, as a result, experience higher pro rata operating
expenses, thereby producing lower returns. As there may be other investors in a
Core Portfolio, there can be no assurance that any issue that receives a
majority of the votes cast by a Fund's shareholders will receive a majority of
votes cast by all investors in the Core Portfolio; indeed, other investors
holding a majority interest in a Core Portfolio could have voting control of the
Core Portfolio.
A Fund may withdraw its entire investment from a Core Portfolio at any time, if
the Board determines that it is in the best interests of the Fund and its
shareholders to do so. A Fund might withdraw, for example, if there were other
investors in the Core Portfolio with power to, and who did by a vote of all
investors (including the Fund), change the investment objective or policies of
the Core Portfolio in a manner not acceptable to the Board. A withdrawal could
result in a distribution in kind of portfolio securities (as opposed to a cash
distribution) by the Core Portfolio. That distribution could result in a less
diversified portfolio of investments for the Fund and could affect adversely the
liquidity of the Fund's portfolio. If the Fund decided to convert those
securities to cash, it would incur brokerage fees or other transaction costs. If
the Fund withdrew its investment from the Core Portfolio, the Board would
consider what action might be taken, including the management of the Fund's
assets directly by the Adviser or the investment of the Fund's assets in another
pooled investment entity. The inability of the Fund to find a suitable
replacement investment, in the event the Board decided not to permit the Adviser
to manage the Fund's assets directly, could have a significant impact on
shareholders of the Fund.
BANKING LAW MATTERS
Federal banking rules generally permit a bank or bank affiliate to act as
investment adviser, transfer agent, and custodian to an investment company and
to purchase shares of the investment company as agent for and upon the order of
a customer and, in connection therewith, to retain a sales charge or similar
payment. Forum believes that Norwest and any bank or other bank affiliate that
may also perform Processing Organization or similar services for the Trust and
its shareholders without violating applicable federal banking rules. If a bank
or bank affiliate were prohibited in the future from so acting, changes in the
operation of the Trust could occur and a shareholder serviced by the bank or
bank affiliate may no longer be able to avail itself of those services. It is
not expected that shareholders would suffer any adverse financial consequences
as a result of any of these occurrences.
SHAREHOLDINGS
Table 7 to Appendix A lists the persons who owned of record 5% or more of the
outstanding shares of a class of shares of a Fund as of September 1, 1998.
FINANCIAL STATEMENTS
The financial statements of each Fund for the 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, portfolios of investments and the independent auditors' report
thereon) are included in the Annual Report to Shareholders of the Trust
delivered along with this SAI and are incorporated herein by reference.
<PAGE>
REGISTRATION STATEMENT
This SAI and the Prospectus do not contain all the information included in the
Trust's registration statement filed with the SEC under the 1933 Act with
respect to the securities offered hereby, certain portions of which have been
omitted pursuant to the rules and regulations of the SEC. The registration
statement, including the exhibits filed therewith, may be examined at the office
of the SEC in Washington, D.C.
Statements contained herein and in the Prospectus as to the contents of any
contract or other documents are not necessarily complete, and, in each instance,
are qualified by, reference is made to the copy of such contract or other
documents filed as exhibits to the registration statement.
<PAGE>
APPENDIX A - DESCRIPTION OF SECURITIES RATINGS
MUNICIPAL AND CORPORATE BONDS (INCLUDING CONVERTIBLE BONDS)
MOODY'S INVESTORS SERVICE ("MOODY'S")
Moody's rates corporate bond issues, including convertible debt issues, as
follows:
Bonds which are rated "Aaa" are judged by Moody's to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Bonds which are rated "Aa" are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long term risks appear somewhat larger than in "Aaa"
securities.
Bonds which are rated "A" possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment some time in the future.
Bonds which are rated "Baa" are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payment and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Bonds which are rated "Ba" are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
Bonds which are rated "B" generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Bonds which are rated "Caa" are of poor standing. Such issues may be in default
or there may be present elements of danger with respect to principal or
interest.
Bonds which are rated "Ca" represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
Bonds which are rated "C" are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Note: Those bonds in the "Aa", "A", "Baa", "Ba" or "B" groups which Moody's
believes possess the strongest investment attributes are designated by the
symbols "Aa1", "A1", "Baa1", "Ba1", and "B1".
<PAGE>
STANDARD AND POOR'S CORPORATION ("S&P")
S&P rates corporate bond issues, including convertible debt issues, as follows:
Bonds rated "AAA" have the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
Bonds rated "AA" have a very strong capacity to pay interest and repay principal
and differ from the highest rated issues only in small degree.
Bonds rated "A" have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt rated in higher rated
categories.
Bonds rated "BBB" are regarded as having an adequate capacity to pay interest
and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to weakened capacity to pay interest and repay principal for debt
in this category than in higher rated categories.
Bonds rated "BB", "B", "CCC", "CC" and "C" are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. "BB"
indicates the lowest degree of speculation and "C" the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions. Bonds rated "BB" have less near-term
vulnerability to default than other speculative issues. However, they face major
ongoing uncertainties or exposure to adverse business, financial, or economic
conditions which could lead to inadequate capacity to meet timely interest and
principal payments.
Bonds rated "B" have a greater vulnerability to default but currently have the
capacity to meet interest payments and principal payments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal.
Bonds rated "CCC" have currently identifiable vulnerability to default, and are
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, they are not likely to have the
capacity to pay interest and repay principal.
Bonds rated "C" typically are subordinated to senior debt which as assigned an
actual or implied "CCC" debt rating. This rating may also be used to indicate
imminent default.
The "C" rating may be used to cover a situation where a bankruptcy petition has
been filed, but debt service payments are continued. The rating "Cl" is reserved
for income bonds on which no interest is being paid.
Bonds are rated "D" when the issue is in payment default, or the obligor has
filed for bankruptcy. The "D" rating category is used when interest payments or
principal payments are not made on the date due, even if the applicable grace
period has not expired, unless S&P believes that such payments will made during
such grace period.
Note: The ratings from "AA" to "CCC" may be modified by the addition of a plus
(+) or minus (-) sign to show the relative standing within the rating category.
<PAGE>
DUFF & PHELPS CREDIT RATING CO. ("D&P")
Duff & Phelps Long-Term Rating Scale
- ------------------------------------
AAA: Highest credit quality. The risk factors are negligible.
AA+, AA, AA-: High credit quality. Protection factors are strong. Risk is
modest but may vary slightly from time to time because of economic conditions.
A+, A, A-: Protection factors are average but adequate. However, risk
factors are more variable and greater in periods of economic stress.
BBB+, BBB, BBB-: Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
BB+, BB, BB-: Below investment grade but deemed likely to meet obligations
when due. Present or prospective financial protection factors fluctuate
according to industry conditions or company fortunes. Overall quality may move
up or down frequently within this category.
B+, B, B-: Below investment grade and possessing risk that obligations will
not be met when due. Financial protection factors will fluctuate widely
according to economic cycles, industry conditions and/or company fortunes.
Potential exists for frequent changes in the rating within this category or into
a higher or lower rating grade.
CCC: Well below investment grade securities. Considerable uncertainty
exists as to timely payment of principal, interest or preferred dividends.
Protection factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.
DD: Defaulted debt obligations. Issuer failed to meet scheduled principal
and/or interest payments.
<PAGE>
FITCH IBCA, INC. ("FITCH")
Fitch rates corporate bond issues, including convertible debt issues, as
follows:
"AAA" Bonds are considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
"AA" Bonds are considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA". Because bonds rated
in the "AAA" and "AA" categories are not significantly vulnerable to foreseeable
future developments, shorter-term debt of these issuers is generally rated F-1+.
"A" Bonds are considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
"BBB" Bonds are considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds, and therefore
impair timely payment. The likelihood that the ratings of these bonds will fall
below investment grade is higher than for bonds with higher ratings.
"BB" Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
"B" Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
"CCC" Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
"CC" Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
"C" Bonds are in imminent default in payment of interest or principal.
"DDD", "DD", and "D" Bonds are in default on interest and/or principal payments.
Such bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. "DDD"
represents the highest potential for recovery on these bonds, and "D" represents
the lowest potential for recovery.
Plus (+) and minus (-) signs are used with a rating symbol to indicate the
relative position of a credit within the rating category. Plus and minus signs,
however, are not used in the "AAA", "DDD", "DD", or "D" categories.
1
<PAGE>
PREFERRED STOCK
MOODY'S INVESTORS SERVICE
Moody's rates preferred stock as follows:
An issue rated "aaa" is considered to be a top-quality preferred stock. This
rating indicates good asset protection and the least risk of dividend impairment
among preferred stock issues.
An issue rated "aa" is considered a high-grade preferred stock. This rating
indicates that there is a reasonable assurance that earnings and asset
protection will remain relatively well maintained in the foreseeable future.
An issue rated "a" is considered to be an upper-medium grade preferred stock.
While risks are judged to be somewhat greater than in the "aaa" and "aa"
classification, earnings and asset protection are, nevertheless, expected to be
maintained at adequate levels.
An issue rated "baa" is considered to be a medium-grade, neither highly
protected nor poorly secured. Earnings and asset protection appear adequate at
present but may be questionable over any great length of time.
An issue rated "ba" is considered to have speculative elements and its future
cannot be considered well assured. Earnings and asset protection may be very
moderate and not well safeguarded during adverse periods. Uncertainty of
position characterizes preferred stocks in this class.
An issue which is rated "b" generally lacks the characteristics of a desirable
investment. Assurance of dividend payments and maintenance of other terms of the
issue over any long period of time may be small.
An issue which is rated "caa" is likely to be in arrears on dividend payments.
This rating designation does not purport to indicate the future status of
payments.
An issue which is rated "ca" is speculative in a high degree and is likely to be
in arrears on dividends with little likelihood of eventual payment.
An issue which is rated "c" can be regarded as having extremely poor prospects
of ever attaining any real investment standing. This is the lowest rated class
of preferred or preference stock.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each rating
classification from "aa" through "b" in its preferred stock rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issuer ranks in the lower end of its generic rating
category.
STANDARD & POOR'S
S&P rates preferred stock as follows:
"AAA" is the highest rating that is assigned by S&P to a preferred stock issue
and indicates an extremely strong capacity to pay the preferred stock
obligations.
A preferred stock issue rated "AA" also qualifies as a high-quality fixed income
security. The capacity to pay preferred stock obligations is very strong,
although not as overwhelming as for issues rated "AAA".
An issue rated "A" is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
<PAGE>
An issue rated "BBB" is regarded as backed by an adequate capacity to pay the
preferred stock obligations. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to make payments for a preferred stock in
this category than for issues in the "A" category.
Preferred stock rated "BB", "B", and "CCC" are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay preferred
stock obligations. "BB" indicates the lowest degree of speculation and "CCC" the
highest degree of speculation. While such issues will likely have some quality
and protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
The rating "CC" is reserved for a preferred stock issue in arrears on dividends
or sinking fund payments but that is currently paying.
A preferred stock rated "C" is a non-paying issue.
A preferred stock rated "D" is a non-paying issue with the issuer in default on
debt instruments.
To provide more detailed indications of preferred stock quality, the ratings
from "AA" to "CCC" may be modified by the addition of a plus (+) or minus (-)
sign to show relative standing within the major rating categories.
SHORT TERM MUNICIPAL LOANS
MOODY'S INVESTORS SERVICE. Moody's highest rating for short-term municipal loans
is "MIG-1/VMIG-1". A rating of "MIG-1/VMIG-1" denotes best quality. There is
present strong protection by established cash flows, superior liquidity support
or demonstrated broadbased access to the market for refinancing. Loans bearing
the "MIG-2/VMIG-2" designation are of high quality. Margins of protection are
ample although not so large as in the "MIG-1/VMIG-1" group. A rating of
"MIG-3/VMIG-3" denotes favorable quality. All security elements are accounted
for but there is lacking the undeniable strength of the preceding grades.
Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established. A rating of "MIG- 4/VMIG-4"
denotes adequate quality. Protection commonly regarded as required of an
investment security is present and although not distinctly or predominantly
speculative, there is specific risk.
STANDARD & POOR'S. S&P's highest rating for short-term municipal loans is
"SP-1". S&P states that short-term municipal securities bearing the "SP-1"
designation have very strong or strong capacity to pay principal and interest.
Those issues rated "SP-1" which are determined to possess overwhelming safety
characteristics will be given a plus (+) designation. Issues rated "SP-2" have
satisfactory capacity to pay principal and interest.
Issues rated "SP-3" have speculative capacity to pay principal and interest.
FITCH IBCA, INC. Fitch's short-term ratings apply to debt obligations that are
payable on demand or have original maturities of generally up to three years,
including commercial paper, certificates of deposit, medium-term notes, and
municipal and investment notes.
Short-term issues rated "F-1+" are regarded as having the strongest degree of
assurance for timely payment. Issues assigned a rating of "F-1" reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
Issues assigned a rating of "F-2" have a satisfactory degree of assurance for
timely payment, but the margin of safety is not as great as for issues assigned
"F-1+" or "F-1".
<PAGE>
OTHER MUNICIPAL SECURITIES AND COMMERCIAL PAPER
MOODY'S INVESTORS SERVICE
Moody's two highest ratings for short-term debt, including commercial paper, are
"Prime-1" and "Prime-2". Both are judged investment grade, to indicate the
relative repayment ability of rated issuers.
Issuers rated Prime-1 have a superior ability for repayment of senior short-term
debt obligations. "Prime-1" repayment ability will often be evidenced by many of
the following characteristics: Leading market positions in well-established
industries; high rates of return on funds employed; conservative capitalization
structure with moderate reliance on debt and ample asset protection; broad
margins in earnings coverage of fixed financial charges and high internal cash
generation; well-established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated "Prime-2" by Moody's have a strong ability for repayment of senior
short-term debt obligations. This will normally be evidenced by many of the
characteristics of issuers rated "Prime-1" but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
STANDARD AND POOR'S
S&P's two highest commercial paper ratings are "A-1" and "A-2". Issues assigned
an "A" rating are regarded as having the greatest capacity for timely payment.
Issues in this category are delineated with the numbers 1, 2 and 3 to indicate
the relative degree of safety. An "A-1" designation indicates that the degree of
safety regarding timely payment is either overwhelming or very strong. Those
issues determined to possess overwhelming safety characteristics are denoted
with a plus (+) sign designation. The capacity for timely payment on issues with
an "A-2" designation is strong. However, the relative degree of safety is not as
high as for issues designated "A-1". "A-3" issues have a satisfactory capacity
for timely payment. They are, however, somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations. Issues rated "A-2" are regarded as having only an adequate
capacity for timely payment. However, such capacity may be damaged by changing
conditions or short-term adversities.
FITCH IBCA, INC.
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
"F-1+". Issues assigned this rating are regarded as having the strongest degree
of assurance for timely payment.
"F-1". Issues assigned this rating reflect an assurance of timely payment only
slightly less in degree than issues rated "F-1+".
<PAGE>
APPENDIX B - MISCELLANEOUS TABLES
TABLE 1 - INVESTMENT ADVISORY FEES
The following Table shows the dollar amount of fees payable under the Investment
Advisory Agreements between Norwest and the Trust with respect to each Fund, the
amount of fee that was waived by Norwest, if any, and the actual fee received by
Norwest. That table also shows the dollar amount of fees payable under the
investment advisory agreements between Schroder and Core Trust with respect to
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>
<PAGE>
<TABLE>
<S> <C> <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>
<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>
<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
</TABLE>
* Represents investment advisory fees paid to Schroder Capital Management
Inc. by International Portfolio of Core Trust.
<PAGE>
TABLE 2 - MANAGEMENT FEES
The following table shows the dollar amount of fees payable to: (1) Forum for
its management services with respect to each Fund (or class thereof for those
periods when multiple classes were outstanding); (2) Norwest for its
administrative services with respect to 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>
<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>
<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>
<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>
<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>
<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>
<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>
<PAGE>
(II) ADMINISTRATIVE FEES TO NORWEST
<TABLE>
<S> <C> <C> <C>
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>
<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>
<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>
<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 1 1
Year Ended May 31, 1997 3,200 320 --
Year Ended May 31, 1996 423 52 --
B Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 -- -- 6,526
Year Ended May 31, 1996 -- -- 75
INTERMEDIATE GOVERNMENT INCOME FUND
A Shares
Year Ended May 31, 1998 26 0 14
Year Ended May 31, 1997 13,182 1,187 --
Year Ended May 31, 1996 1,482 129 --
B Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 -- -- 31,694
Year Ended May 31, 1996 -- -- 964
INCOME FUND
A Shares
Year Ended May 31, 1998 68 8 6
Year Ended May 31, 1997 11,979 1,121 --
Year Ended May 31, 1996 1,567,755 4,428 --
B Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 -- -- 11,887
Year Ended May 31, 1996 -- -- 8,272
TOTAL RETURN BOND FUND
A Shares
Year Ended May 31, 1998 8 1 4
Year Ended May 31, 1997 3,908 363 --
Year Ended May 31, 1996 1,194,198 3,074 --
B Shares
Year Ended May 31, 1997 -- -- 7,505
Year Ended May 31, 1996 -- -- 2,853
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
SALES RETAINED CDSL
CHARGES AMOUNT PAID
TAX-FREE INCOME FUND
A Shares
Year Ended May 31, 1998 132 2 9
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
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 4 12
Year Ended May 31, 1997 38,085 3,321 --
Year Ended May 31, 1996 2,889,945 7,135 --
B Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 -- -- 11,889
Year Ended May 31, 1996 -- -- 12,557
MINNESOTA TAX-FREE FUND
A Shares
Year Ended May 31, 1998 139 6 13
Year Ended May 31, 1997 53,290 4,744 --
Year Ended May 31, 1996 4,598,204 12,506 --
B Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 -- -- 13,097
Year Ended May 31, 1996 -- -- 8,412
INCOME EQUITY FUND
A Shares
Year Ended May 31, 1998 692 69 62
Year Ended May 31, 1997 320,385 1,121 --
Year Ended May 31, 1996 10,996 1,088 --
B Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 -- -- 38,812
Year Ended May 31, 1996 -- -- 570
VALUGROWTH STOCK FUND
A Shares
Year Ended May 31, 1998 92 9 9
Year Ended May 31, 1997 38,540 3,759 --
Year Ended May 31, 1996 1,162,647 4,628 --
B Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 -- -- 10,770
Year Ended May 31, 1996 -- -- 12,911
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
SALES RETAINED CDSL
CHARGES AMOUNT PAID
------- ------ ----
DIVERSIFIED EQUITY FUND
A Shares
Year Ended May 31, 1998 853 70 87
Year Ended May 31, 1997 485,324 8,286 --
Year Ended May 31, 1996 50,658 15 --
B Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 -- -- 23,510
Year Ended May 31, 1996 -- -- 0
Growth Equity Fund
A Shares
Year Ended May 31, 1998 173 17 25
Year Ended May 31, 1997 175,495 5,347 --
Year Ended May 31, 1996 26,825 7 --
B Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 -- -- 6,972
Year Ended May 31, 1996 -- -- 0
SMALL COMPANY STOCK FUND
A Shares
Year Ended May 31, 1998 28 3 7
Year Ended May 31, 1997 23,419 2,335 --
Year Ended May 31, 1996 1,309,565 5,153 2,972
B Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 -- -- 6,411
Year Ended May 31, 1996 -- -- --
SMALL CAP OPPORTUNITIES FUND
A Shares
Year Ended May 31, 1998 148 12 5
Year Ended May 31, 1997 11,604 1,178 --
B Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 -- -- --
INTERNATIONAL FUND
A Shares
Year Ended May 31, 1998 12 1 3
Year Ended May 31, 1997 8,728 874 --
Year Ended May 31, 1996 269 30 --
B Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 -- -- 2,086
Year Ended May 31, 1996 -- -- 213
</TABLE>
<PAGE>
TABLE 5 - ACCOUNTING FEES
The following table shows the dollar amount of fees payable to Forum Accounting
for its accounting services with respect to each Fund, the amount of fee that
was waived by Forum Accounting, if any, and the actual fee received by Forum
Accounting. The table also shows similar information with respect to 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>
<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>
<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>
<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
STRATEGIC INCOME FUND*
Year Ended May 31, 1998 N/A
Year Ended May 31, 1997 14,867
Year Ended May 31, 1996 8,406
MODERATE BALANCED FUND*
Year Ended May 31, 1998 N/A
Year Ended May 31, 1997 50,414
Year Ended May 31, 1996 54,332
GROWTH BALANCED FUND*
Year Ended May 31, 1998 N/A
Year Ended May 31, 1997 83,720
Year Ended May 31, 1996 69,732
INCOME EQUITY FUND*
Year Ended May 31, 1998 N/A
Year Ended May 31, 1997 301,308
Year Ended May 31, 1996 52,904
INDEX FUND*
Year Ended May 31, 1998 N/A
Year Ended May 31, 1997 157,319
Year Ended May 31, 1996 121,170
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
<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 Portfolios; in which the Fund invests the Fund
paid no commissions directly during either year.
<PAGE>
TABLE 7 - 5% SHAREHOLDERS
The following table lists the persons who owned of record 5% or more of the
outstanding shares of a class of shares of a Fund as of 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 % OF % OF
NAME AND ADDRESS BALANCE CLASS FUNDS
--------------- ------- ----- -----
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>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
SHARE % OF % OF
NAME AND ADDRESS BALANCE CLASS FUNDS
--------------- ------- ----- -----
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>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
SHARE % OF % OF
NAME AND ADDRESS BALANCE CLASS FUNDS
--------------- ------- ----- -----
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>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
SHARE % OF % OF
NAME AND ADDRESS BALANCE CLASS FUNDS
--------------- ------- ----- -----
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>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
SHARE % OF % OF
NAME AND ADDRESS BALANCE CLASS FUNDS
--------------- ------- ----- -----
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>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
SHARE % OF % OF
NAME AND ADDRESS BALANCE CLASS FUNDS
--------------- ------- ----- -----
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>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
SHARE % OF % OF
NAME AND ADDRESS BALANCE CLASS FUNDS
--------------- ------- ----- -----
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>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
SHARE % OF % OF
NAME AND ADDRESS BALANCE CLASS FUNDS
--------------- ------- ----- -----
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>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
SHARE % OF % OF
NAME AND ADDRESS BALANCE CLASS FUNDS
--------------- ------- ----- -----
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>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
SHARE % OF % OF
NAME AND ADDRESS BALANCE CLASS FUNDS
--------------- ------- ----- -----
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>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
SHARE % OF % OF
NAME AND ADDRESS BALANCE CLASS FUNDS
--------------- ------- ----- -----
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>
<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 7 DAY
7 DAY EFFECTIVE TAX-EQUIVALENT TAX-EQUIVALENT
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%
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>
<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
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
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>
<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 FIVE TEN SINCE
YEARS 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%
<PAGE>
SEC STANDARDIZED RETURNS (CONTINUED)
ONE FIVE TEN SINCE
YEAR 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%
<PAGE>
NON STANDARDIZED RETURNS (WITHOUT A SALES LOAD)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CALENDAR
ONE THREE YEAR TO ONE THREE FIVE TEN SINCE
MONTH MONTHS DATE YEAR 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%
Institutional Shares
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>
<PAGE>
NON STANDARDIZED RETURNS (WITHOUT A SALES LOAD)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CALENDAR
ONE THREE YEAR TO ONE THREE FIVE TEN SINCE
MONTH MONTHS DATE YEAR 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 -8.055 -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>
APPENDIX D - OTHER ADVERTISEMENT MATTERS
From time to time, the sales material for the Funds may include a discussion of,
and commentary by senior management of the Adviser on, the following.
The Trust may compare the Fund family against other bank-managed mutual funds or
other investment companies based on asset size. The Adviser believes the Funds'
growth may be attributed to three things: disciplined investment process,
utilizing talented people and focusing on customer needs.
The Funds utilize a disciplined process which relies heavily upon its investment
managers and an experienced investment research team. This approach maximizes
consistency by ensuring that no individual manager's style unduly influences a
fund's style.
NORWEST CORPORATION
1929
Northwestern National Bank and several upper midwest banks form a
holding company called Northwestern National Bancorporation.
"Banco" acquires 90 banks in its first year.
1932 At is peak, Banco owns a total of 139 affiliate banks.
1982 Banco enters the consumer finance business by acquiring Dial
Finance Company.
1983 The 87 affiliates of Banco are reborn as "Norwest Corporation."
1989 Norwest consolidates its operations in the new 57-story Norwest
Center in downtown Minneapolis.
1997 Norwest reaches $50 billion in assets under management, including
$19 billion in mutual funds.
NORWEST ADVANTAGE FUNDS
1946 Inception of the Common Trust Funds, the company's first pooled
investment vehicles.
1987 Norwest introduces two new open-ended registered investment
company funds (commonly known as mutual funds), called the Prime
Value Funds. In less than one year, assets under management reach
$500 million.
1992 The Norwest mutual fund family expands to 11 mutual funds. Assets
under management grow to $3.2 billion.
1994 Conversion to Norwest Collective Funds (bank collective
investment funds) into Norwest Advantage Funds (mutual funds).
1998 Norwest Advantage Funds family includes 41 mutual funds with over
$20 billion in assets under management.
<PAGE>
NORWEST CENTER
MINNEAPOLIS, MINNESOTA
DESIGNED BY WORLD-RENOWNED ARCHITECT CESAR PELLI, THE NORWEST CENTER WAS
CONSTRUCTED IN 1988. SINCE THEN, IT HAS RECEIVED SEVERAL PRESTIGIOUS
ARCHITECTURAL AWARDS, INCLUDING THE LARGE SCALE OFFICE AWARD OF EXCELLENCE, FROM
THE URBAN LAND INSTITUTE (1989); THE NAIOP (MINNESOTA) AWARD FOR EXCELLENCE --
DOWNTOWN BUILDING OF THE YEAR (1989); THE BOMA (MINNEAPOLIS) OFFICE BUILDING OF
THE YEAR, OVER 500,000 SQ. FT. (1993); AND THE BOMA (MIDWEST NORTHERN REGION)
OFFICE BUILDING OF THE YEAR, OVER 500,000 SQ. FT. (1994). THE NORWEST CENTER IS
LOCATED IN THE FINANCIAL DISTRICT OF MINNEAPOLIS AT 90 SOUTH SEVENTH STREET.
<PAGE>
PERFORMA FUNDS
STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 1, 1998
PERFORMA DISCIPLINED GROWTH FUND
PERFORMA SMALL CAP VALUE FUND
PERFORMA STRATEGIC VALUE BOND FUND
PERFORMA GLOBAL GROWTH FUND
<PAGE>
PERFORMA FUNDS
STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 1, 1998
ACCOUNT INFORMATION AND
SHAREHOLDER SERVICING: DISTRIBUTION:
Norwest Bank Minnesota, N.A. Forum Financial Services, Inc.
Transfer Agent Manager and Distributor
733 Marquette Avenue Two Portland Square
Minneapolis, MN 55479-0040 Portland, Maine 04101
(612) 667-8833/(800) 338-1348 (207) 879-1900
The Performa Funds are separate series of Norwest Advantage Funds, an open-end,
management investment company registered under the Investment Company Act of
1940, as amended.
This Statement of Additional Information supplements the Prospectus dated
October 1, 1998, as may be amended from time to time, offering shares of
Performa Disciplined Growth Fund, Performa Small Cap Value Fund, Performa
Strategic Value Bond Fund and Performa Global Growth Fund.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE PROSPECTUS.
THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE READ ONLY IN CONJUNCTION WITH
THE CURRENT PROSPECTUS, COPIES OF WHICH MAY BE OBTAINED BY AN INVESTOR WITHOUT
CHARGE BY CONTACTING THE DISTRIBUTOR AT THE ADDRESS LISTED ABOVE.
<PAGE>
TABLE OF CONTENTS
PAGE
Introduction
1. Investment Policies
Security Ratings Information
Fixed Income Investments
Mortgage-Backed And Asset-Backed Securities Interest Rate
Protection Transactions Hedging And Option Income Strategies
Foreign Currency Transactions Equity Securities and Additional
Information Illiquid Securities and Restricted Securities
Loans of Portfolio Securities Borrowing And Transactions
Involving Leverage Repurchase Agreements Temporary Defensive
Position
2. Investment Limitations
Fundamental Limitations
Non-Fundamental Limitations
3. Performance and Advertising Data
SEC Yield Calculations
Total Return Calculations
Other Advertisement Matters
4. Management
Trustees and Officers
Investment Advisory Services
Management and Administrative Services
Distribution
Transfer Agent
Custodian
Portfolio Accounting
Expenses
5. Portfolio Transactions
6. Additional Purchase and Redemption Information
General
Exchanges
Redemptions
7. Taxation
<PAGE>
TABLE OF CONTENTS
PAGE
8. Additional Information About the Trust and the Shareholders of the
Funds
Counsel and Auditors
General Information
Shareholdings
Financial Statements
Registration Statement
Appendix A - Description of Securities Ratings
<PAGE>
INTRODUCTION
Glossary:
"Adviser" means Norwest, Schroder or a Subadviser.
"Board" means the Board of Trustees of the Trust.
"CFTC" means the U.S. Commodities Futures Trading Commission.
"Code" means the Internal Revenue Code of 1986, as amended.
"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.
"Custodian" means Norwest acting in its capacity as custodian of a
Fund.
"Bond" includes fixed income investments issued with a final maturity
of 3 years or more, or that on their face are described as "bonds."
"FAS" means Forum Administrative Services, Limited Liability Company,
the Trust's administrator.
"Fitch" means Fitch IBCA, Inc.
"Forum" means Forum Financial Services, Inc., a registered
broker-dealer and 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 four separate portfolios of the Trust to which
this Statement of Additional Information relates as identified on the
cover page.
"Galliard" means Galliard Capital Management, Inc., the investment
subadviser to Performa Strategic Value Bond Fund and Strategic Value
Bond Portfolio.
"Moody's" means Moody's Investors Service.
"Norwest" means Norwest Investment Management, Inc., a subsidiary of
Norwest Bank Minnesota, N.A.
"Norwest Bank" means Norwest Bank Minnesota, N.A., a subsidiary of
Norwest Corporation.
"NRSRO" means a nationally recognized statistical rating organization.
"Performa Funds" means the Funds set forth on the cover page of this
Statement of Additional Information.
"Portfolio" means, Disciplined Growth Portfolio, Small Cap Value
Portfolio, Strategic Value Bond Portfolio and Schroder Global Growth
Portfolio, each a separate portfolio of Core Trust or Schroder Core.
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<PAGE>
"Schroder" means Schroder Capital Management International Inc.,
the investment adviser to Schroder Global Growth 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 Capital
Funds.
"SEC" means the U.S. Securities and Exchange Commission.
"S&P" means Standard & Poor's.
"Smith" means Smith Asset Management Group, L.P.
"Stock Index Futures" means futures contracts that relate to broadly
based stock indices.
"Subadviser" means Galliard, Smith or Schroder.
"Transfer Agent" means Norwest Bank acting in its capacity as transfer
and dividend disbursing agent of a Fund.
"Trust" means Norwest Advantage Funds, an open-end, management
investment company registered under the 1940 Act.
"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.
The Trust was originally organized under the name "Prime Value Funds, Inc." as a
Maryland corporation on August 29, 1986, and on July 30, 1993, was reorganized
as a Delaware business trust under the name "Norwest Funds." The Trust is
currently named "Norwest Advantage Funds."
Norwest is each Fund's investment adviser. Norwest also is the investment
adviser of each Portfolio other than Schroder Global Growth Portfolio. Norwest
Bank serves as the Trust's transfer agent, dividend disbursing agent and
custodian. Schroder serves as investment adviser to Schroder Global Growth
Portfolio.
Smith serves as investment subadviser of Performa Disciplined Growth Fund,
Disciplined Growth Portfolio, Performa Small Cap Value Fund and Small Cap Value
Portfolio. Galliard serves as investment subadviser of Performa Strategic Value
Bond Fund and Strategic Value Bond Portfolio. Schroder serves as an investment
subadviser of Performa Global Growth Fund.
Forum serves as the Trust's manager and as distributor of the Trust's shares.
FAS serves as each Fund's administrator.
2
<PAGE>
1. INVESTMENT POLICIES
The following discussion supplements that in the Prospectus concerning the
Funds' investments, investment techniques and strategies and the risks
associated therewith. The discussion below refers to the investment policies of
the Funds. Because the investment policies of a Fund are substantially similar
to the investment policies of the Portfolio in which the Fund invests, the
discussion below is equally applicable to the Portfolios.
SECURITY RATINGS INFORMATION
Moody's, S&P and other NRSROs are private services that provide ratings of the
credit quality of debt obligations, including convertible securities. A
description of the range of ratings assigned to various types of bonds and other
securities by several NRSROs is included in Appendix A to this SAI. The Funds
may use these ratings to determine whether to purchase, sell or hold a security.
Ratings, however, are general and are not absolute standards of quality.
Consequently, securities with the same maturity, interest rate and rating may
have different market prices. If an issue of securities ceases to be rated or if
its rating is reduced after it is purchased by a Fund (neither event requiring
sale of such security by a Fund), the Fund's Adviser will determine whether the
Fund should continue to hold the obligation. To the extent that the ratings
given by a NRSRO may change as a result of changes in such organizations or
their rating systems, the Adviser will attempt to substitute comparable ratings.
Credit ratings attempt to evaluate the safety of principal and interest payments
and do not evaluate the risks of fluctuations in market value. Also, rating
agencies may fail to make timely changes in credit ratings. An issuer's current
financial condition may be better or worse than a rating indicates.
A Fund may purchase unrated securities if its Adviser determines the security to
be of comparable quality to a rated security that the Fund may purchase. Unrated
securities may not be as actively traded as rated securities. A Fund may retain
securities whose rating has been lowered below the lowest permissible rating
category (or that are unrated and determined by its Adviser to be of comparable
quality to securities whose rating has been lowered below the lowest permissible
rating category) if the Adviser determines that retaining such security is in
the best interests of the Fund.
FIXED INCOME INVESTMENTS
PERFORMA STRATEGIC VALUE BOND FUND AND PERFORMA GLOBAL GROWTH FUND. Fixed-income
securities are subject to INTEREST RATE risk. There is normally an inverse
relationship between the market value of these securities and actual changes in
interest rates. Thus, an increase in interest rates generally produces a
decrease in market value of fixed income securities, while a decrease in
interest rates generally produces an increase in market value of fixed income
securities. Moreover, the longer the remaining maturity of a security, the
greater is the affect of interest rate changes on the market value of the
security.
Fixed income investments are also subject to CREDIT RISK which refers to the
ability of the debtor (the issuer of the instrument) and any other obligor, to
pay principal and interest on the debt as it becomes due. Changes in the ability
of an issuer to make payments of interest and principal and the market's
perception of an issuer's creditworthiness will affect the market value of the
debt securities of that issuer. Obligations of issuers of debt securities are
subject to the provisions of bankruptcy, insolvency and other laws affecting the
rights and remedies of creditors which may restrict the ability of any issuer to
pay, when due, the principal of and interest on its debt securities. The
possibility exists that, the ability of any issuer to pay, when due, the
principal of and interest on its debt securities may become impaired.
Mortgage-related and asset-backed securities are subject to PREPAYMENT RISK,
which refers to the fact that holders of these instruments may have all or any
part of their principal investment returned by the issuer as the mortgages or
other assets backing the investment are paid off. Prepayments during times of
declining interest rates tend to lower the return of a Fund. Prepayments also
may result in losses to a Fund if the securities were acquired at a premium
(that is, for an amount above the security's par value).
Certain debt instruments may also be subject to EXTENSION RISK, which refers to
the change in total return on a debt instrument resulting from extension or
abbreviation of the instrument's maturity.
3
<PAGE>
Yields on fixed income securities are dependent on a variety of factors,
including the general conditions of the money market and other fixed income
securities markets, the size of a particular offering, the maturity of the
obligation and the rating of the issue. Fixed income securities with longer
maturities tend to produce higher yields and are generally subject to greater
price movements than obligations with shorter maturities. There is normally an
inverse relationship between the market value of securities sensitive to
prevailing interest rates and actual changes in interest rates. In other words,
an increase in interest rates will generally reduce the market value of
portfolio investments, and a decline in interest rates will generally increase
the value of portfolio investments.
Obligations of issuers of fixed income securities (including municipal
securities) are subject to the provisions of bankruptcy, insolvency, and other
laws affecting the rights and remedies of creditors, such as the Federal
Bankruptcy Reform Act of 1978. In addition, the obligations of municipal issuers
may become subject to laws enacted in the future by Congress, state
legislatures, or referenda extending the time for payment of principal and/or
interest, or imposing other constraints upon enforcement of such obligations or
upon the ability of municipalities to levy taxes. Changes in the ability of an
issuer to make payments of interest and principal and in the market's perception
of an issuer's creditworthiness will also affect the market value of the debt
securities of that issuer. The possibility exists, therefore, that, the ability
of any issuer to pay, when due, the principal of and interest on its debt
securities may become impaired.
U.S. GOVERNMENT SECURITIES
ALL FUNDS. U.S. Government Securities are obligations issued or guaranteed as to
principal and interest by the United States Government, its agencies or
instrumentalities. In addition to obligations of the U.S. Treasury, each Fund
may invest in U.S. Government Securities. Agencies, instrumentalities and
government sponsored enterprises that issue or guarantee debt securities and
which have been established or sponsored by the United States Government include
the Bank for Cooperatives, the Export-Import Bank, the Federal Farm Credit
System, the Federal Home Loan Banks, the Federal Home Loan Mortgage Corporation,
the Federal Intermediate Credit Banks, the Federal Land Banks, the Federal
National Mortgage Association, the Small Business Administration, the Government
National Mortgage Association and the Student Loan Marketing Association. Some
are supported by the right of the issuer to borrow from the Treasury; others are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations; and still others are supported primarily or solely by the
creditworthiness of the issuer. No assurance can be given that the U.S.
government would provide financial support to government-sponsored agencies or
instrumentalities if it is not obligated to do so by law. Accordingly, although
these securities have historically involved little risk of loss of principal if
held to maturity, they may involve more risk than securities backed by the U.S.
Government's full faith and credit. A Fund will invest in the obligations of
such agencies or instrumentalities only when its Adviser believes that the
credit risk with respect thereto is consistent with the Fund's investment
policies.
BANK OBLIGATIONS
ALL FUNDS. Each Fund may invest in obligations of financial institutions,
including negotiable certificates of deposit, bankers' acceptances and time
deposits of U.S. banks (including savings banks and savings associations),
foreign branches of U.S. banks, foreign banks and their non-U.S. branches
(Eurodollars), U.S. branches and agencies of foreign banks (Yankee dollars), and
wholly-owned banking-related subsidiaries of foreign banks. A Fund's investments
in the obligations of foreign banks and their branches, agencies or subsidiaries
may be obligations of the parent, of the issuing branch, agency or subsidiary,
or both. Investments in foreign bank obligations are limited to banks and
branches located in countries which the Fund's Adviser believes do not present
undue risk.
A certificate of deposit is an interest-bearing negotiable certificate issued by
a bank against funds deposited in the bank. A bankers' acceptance is a
short-term draft drawn on a commercial bank by a borrower, usually in connection
with an international commercial transaction. Although the borrower is liable
for payment of the draft, the bank unconditionally guarantees to pay the draft
at its face value on the maturity date. Time deposits are non-negotiable
deposits with a banking institution that earn a specified interest rate over a
given period. Certificates of deposit and fixed time deposits, which are payable
at the stated maturity date and bear a fixed rate of interest, generally may be
4
<PAGE>
withdrawn on demand by a Fund but may be subject to early withdrawal penalties
which vary depending upon market conditions and the remaining maturity of the
obligation and could reduce the Fund's yield. Although fixed-time deposits do
not in all cases have a secondary market, there are no contractual restrictions
on a Fund's right to transfer a beneficial interest in the deposits to third
parties. Deposits subject to early withdrawal penalties or that mature in more
than seven days are treated as illiquid securities if there is no readily
available market for the securities.
The Funds may invest in Eurodollar certificates of deposit, which are U.S.
dollar denominated certificates of deposit issued by offices of foreign and
domestic banks located outside the United States; Yankee certificates of
deposit, which are certificates of deposit issued by a U.S. branch of a foreign
bank denominated in U.S. dollars and held in the United States; Eurodollar time
deposits ("ETDs"), which are U.S. dollar denominated deposits in a foreign
branch of a U.S. bank or a foreign bank; and Canadian time deposits, which are
essentially the same as ETDs, except that they are issued by Canadian offices of
major Canadian banks.
Investments that a Fund may make in instruments of foreign banks, branches or
subsidiaries may involve certain risks, including future political and economic
developments, the possible imposition of foreign withholding taxes on interest
income payable on such securities, the possible seizure or nationalization of
foreign deposits, differences from domestic banks in applicable accounting,
auditing and financial reporting standards, and the possible establishment of
exchange controls or other foreign governmental laws or restrictions applicable
to the payment of certificates of deposit or time deposits which might affect
adversely the payment of principal and interest on such securities held by the
Fund.
SHORT TERM DEBT SECURITIES/COMMERCIAL PAPER
ALL FUNDS. Except for variable master demand notes, issues of commercial paper
normally have maturities of less than nine months and fixed rates of return.
Variable amount master demand notes are unsecured demand notes that permit the
indebtedness thereunder to vary and provide for periodic adjustments in the
interest rate according to the terms of the instrument. Because master demand
notes are direct lending arrangements between a Fund and the issuer, they are
not normally traded. Although there is no secondary market in the notes, the
Fund may demand payment of principal and accrued interest at any time. Variable
amount master demand notes must satisfy the same criteria as set forth above for
commercial paper.
GUARANTEED INVESTMENT CONTRACTS
PERFORMA STRATEGIC VALUE BOND FUND. The Fund may invest in guaranteed investment
contracts ("GICs") issued by insurance companies. Pursuant to such contracts,
the Fund makes cash contributions to a deposit fund of the insurance company's
general account. The insurance company then credits to the deposit fund on a
monthly basis guaranteed interest at a rate based on an index. The GICs provide
that this guaranteed interest will not be less than a certain minimum rate. The
insurance company may assess periodic charges against a GIC for expense and
service costs allocable to it, and these charges will be deducted from the value
of the deposit fund. The Fund will purchase a GIC only when the Adviser has
determined that the GIC presents minimal credit risks to the Fund and is of
comparable quality to instruments in which the Fund may otherwise invest.
Because a Fund may not receive the principal amount of a GIC from the insurance
company on seven days' notice or less, the GIC may be considered an illiquid
investment. The term of a GIC will be one year or less.
In determining the average weighted portfolio maturity of the Fund, a GIC will
be deemed to have a maturity equal to the period of time remaining until the
next readjustment of the guaranteed interest rate. The interest rate on a GIC
may be tied to a specified market index and is guaranteed not to be less than a
certain minimum rate.
ZERO COUPON SECURITIES
PERFORMA STRATEGIC VALUE BOND FUND. Zero coupon securities are sold at original
issue discount and pay no interest to holders prior to maturity. Accordingly,
these securities usually trade at a deep discount from their face or par value
and will be subject to greater fluctuations of market value in response to
changing interest rates than debt obligations of comparable maturities which
make current distributions of interest. Federal tax law requires a Fund to
accrue a portion of the discount at which a zero-coupon security was purchased
as income each year even though the
5
<PAGE>
Fund receives no interest payment in cash on the security during the year.
Interest on these securities, however, is reported as income by the Fund and
must be distributed to its shareholders. The Funds distribute all of their net
investment income, and may have to sell portfolio securities to distribute
imputed income, which may occur at a time when the Adviser would not have chosen
to sell such securities and which may result in a taxable gain or loss.
Currently, U.S. Treasury securities issued without coupons include Treasury
bills and separately traded principal and interest components of securities
issued or guaranteed by the U.S. Treasury. These stripped components are traded
independently under the Treasury's Separate Trading of Registered Interest and
Principal of Securities ("STRIPS") program or as Coupons Under Book Entry
Safekeeping ("CUBES"). A number of banks and brokerage firms separate the
principal and interest portions of U.S. Treasury securities and sell them
separately in the form of receipts or certificates representing undivided
interests in these instruments. These instruments are generally held by a bank
in a custodial or trust account on behalf of the owners of the securities and
are known by various names, including Treasury Receipts ("TRs"), Treasury
Investment Growth Receipts ("TIGRs") and Certificates of Accrual on Treasury
Securities ("CATS"). In addition, corporate debt securities may be zero coupon
securities.
VARIABLE AND FLOATING RATE SECURITIES
PERFORMA STRATEGIC VALUE BOND FUND. The securities in which the Funds invest
(including mortgage- and asset-backed securities) may have variable or floating
rates of interest and, under certain limited circumstances, may have varying
principal amounts. These securities pay interest at rates that are adjusted
periodically accordingly to a specified formula, usually with reference to one
or more interest rate indices or market interest rates (the "underlying index").
The interest paid on these securities is a function primarily of the underlying
index upon which the interest rate adjustments are based. Similar to fixed rate
debt instruments, variable and floating rate instruments are subject to changes
in value based on changes in market interest rates or changes in the issuer's
creditworthiness. The rate of interest on securities purchased by a Fund may be
tied to Treasury or other government securities or indices on those securities
as well as any other rate of interest or index. Certain variable rate securities
(including mortgage-related securities or mortgage-backed securities) pay
interest at a rate that varies inversely to prevailing short-term interest rates
(sometimes referred to as inverse floaters). For instance, upon reset the
interest rate payable on a security may go down when the underlying index has
risen. During times when short-term interest rates are relatively low as
compared to long-term interest rates a Fund may attempt to enhance its yield by
purchasing inverse floaters. Certain inverse floaters may have an interest rate
reset mechanism that multiplies the effects of changes in the underlying index.
This form of leverage may have the effect of increasing the volatility of the
security's market value while increasing the security's, and thus the Fund's,
yield.
There may not be an active secondary market for any particular floating or
variable rate instruments (particularly inverse floaters and similar
instruments) which could make it difficult for a Fund to dispose of the
instrument if the issuer defaulted on its repayment obligation during periods
that the Fund is not entitled to exercise any demand rights it may have. A Fund
could, for this or other reasons, suffer a loss with respect to an instrument.
Each Fund's Adviser monitors the liquidity of the Funds' investment in variable
and floating rate instruments, but there can be no guarantee that an active
secondary market will exist.
Many variable rate instruments include the right of the holder to demand
prepayment of the principal amount of the obligation prior to its stated
maturity and the right of the issuer to prepay the principal amount prior to
maturity. The payment of principal and interest by issuers of certain securities
purchased by the Funds may be guaranteed by letters of credit or other credit
facilities offered by banks or other financial institutions. Such guarantees
will be considered in determining whether a municipal security meets the Funds'
investment quality requirements.
Variable rate obligations purchased by the Funds may include participation
interests in variable rate obligations purchased by the Funds from banks,
insurance companies or other financial institutions that are backed by
irrevocable letters of credit or guarantees of banks. The Funds can exercise the
right, on not more than thirty days' notice, to sell such an instrument back to
the bank from which it purchased the instrument and draw on the letter of credit
for all or any part of the principal amount of a Fund's participation interest
in the instrument, plus accrued interest, but will do so only: (1) as required
6
<PAGE>
to provide liquidity to a Fund; (2) to maintain a high quality investment
portfolio; or (3) upon a default under the terms of the demand instrument. Banks
and other financial institutions retain portions of the interest paid on such
variable rate obligations as their fees for servicing such instruments and the
issuance of related letters of credit, guarantees and repurchase commitments.
Certain securities may have an initial principal amount that varies over time
based on an interest rate index, and, accordingly, a Fund might be entitled to
less than the initial principal amount of the security upon the security's
maturity. The Funds intend to purchase such securities only when the Fund's
Adviser believes the interest income from the instrument justifies any principal
risks associated with the instrument. A Fund may attempt to limit any potential
loss of principal by purchasing similar instruments that are intended to provide
an offsetting increase in principal. There can be no assurance that a Fund will
be able to limit principal fluctuations and, accordingly, a Fund may incur
losses on those securities even if held to maturity without issuer default.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES
PERFORMA STRATEGIC VALUE BOND FUND. The Fund may invest in mortgage-related
securities, which represent an interest in a pool of mortgages originated by
lenders such as commercial banks, savings associations and mortgage bankers and
brokers. Mortgage-related securities may be issued by governmental or
government-related entities or by non-governmental entities. Interests in
mortgage-related securities differ from other forms of debt securities.
Mortgage-related securities provide monthly payments which consist of interest
and, in most cases, principal. In effect, these payments are a "pass-through" of
the monthly payments made by the individual borrowers on their mortgage loans,
net of any fees paid to the issuer or guarantor of the securities or a mortgage
loan servicer. Additional payments to holders of these securities are caused by
prepayments resulting from the sale or foreclosure of the underlying property or
refinancing of the underlying loans.
The market for certain mortgage-related securities may be limited. This may
increase the volatility of the price of a particular security and make it
difficult for the portfolio to sell a security.
The average life of a pass-through pool varies with the maturities of the
underlying mortgage instruments. In addition, a pool's terms may be shortened by
unscheduled or early payments of principal and interest on the underlying
mortgages. Prepayments with respect to securities during times of declining
interest rates will tend to lower the return of the Fund and may even result in
losses to the Fund if the securities were acquired at a premium. The occurrence
of mortgage prepayments is affected by various factors including the level of
interest rates, general economic conditions, the location and age of the
mortgage and other social and demographic conditions.
Adjustable rate mortgage-related securities ("ARMs") are securities that have
interest rates that are reset at periodic intervals, usually by reference to
some interest rate index or market interest rate. Although the rate adjustment
feature may act as a buffer to reduce sharp changes in the value of adjustable
rate securities, these securities are still subject to changes in value based on
changes in market interest rates or changes in the issuer's creditworthiness.
Because of the resetting of interest rates, adjustable rate securities are less
likely than non-adjustable rate securities of comparable quality and maturity to
increase significantly in value when market interest rates fall. Also, most
adjustable rate securities (or the underlying mortgages) are subject to caps or
floors. "Caps" limit the maximum amount by which the interest rate paid by the
borrower may change at each reset date or over the life of the loan and,
accordingly, fluctuation in interest rates above these levels could cause such
mortgage securities to "cap out" and to behave more like long-term, fixed-rate
debt securities.
ARMs may have less risk of a decline in value during periods of rapidly rising
rates, but they may also have less potential for capital appreciation than other
debt securities of comparable maturities due to the periodic adjustment of the
interest rate on the underlying mortgages and due to the likelihood of increased
prepayments of mortgages as interest rates decline. Furthermore, during periods
of declining interest rates, income to the Fund will decrease as the coupon rate
resets to reflect the decline in interest rates. During periods of rising
interest rates, changes in the coupon rates of the mortgages underlying the
Fund's ARMs may lag behind changes in market interest rates. This may result in
a slightly lower net value until the interest rate resets to market rates. Thus,
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investors could suffer some principal loss if they sold Fund shares before the
interest rates on the underlying mortgages were adjusted to reflect current
market rates.
Stripped mortgage-related securities are classes of mortgage-related securities
that receive different proportions of the interest and principal distributions
from the underlying assets. In the most extreme case, one class will be entitled
to receive all or a portion of the interest but none of the principal from the
underlying assets (the interest-only or "IO" class) and one class will be
entitled to receive all or a portion of the principal, but none of the interest
(the "PO" class). Currently, the Portfolio does not purchase IOs or POs.
TYPES OF CREDIT ENHANCEMENT
To lessen the effect of failures by obligors to make payments, mortgage-backed
securities may contain elements of credit enhancement. Credit enhancement falls
into two categories: (1) liquidity protection; and (2) protection against losses
resulting after default by an obligor on the underlying assets and collection of
all amounts recoverable directly from the obligor and through liquidation of the
collateral. Liquidity protection refers to the provisions of advances, generally
by the entity administering the pool of assets (usually the bank, savings
association or mortgage banker that transferred the underlying loans to the
issuer of the security), to ensure that the receipt of payments on the
underlying pool occurs in a timely fashion. Protection against losses resulting
after default and liquidation ensures ultimate payment of the obligations on at
least a portion of the assets in the pool. Such protection may be provided
through guarantees, insurance policies or letters of credit obtained by the
issuer or sponsor from third parties, through various means of structuring the
transaction or through a combination of such approaches. The Funds will not pay
any additional fees for such credit enhancement, although the existence of
credit enhancement may increase the price of security.
Examples of credit enhancement arising out of the structure of the transaction
include: (1) "senior-subordinated securities" (multiple class securities with
one or more classes subordinate to other classes as to the payment of principal
thereof and interest thereon, with the result that defaults on the underlying
assets are borne first by the holders of the subordinated class); (2) creation
of "spread accounts" or "reserve funds" (where cash or investments, sometimes
funded from a portion of the payments on the underlying assets are held in
reserve against future losses); and (3) "over-collateralization" (where the
scheduled payments on, or the principal amount of, the underlying assets exceeds
that required to make payment of the securities and pay any servicing or other
fees). The degree of credit enhancement provided for each issue generally is
based on historical information regarding the level of credit risk associated
with the underlying assets. Delinquency or loss in excess of that covered by
credit enhancement protection could adversely affect the return on an investment
in such a security.
ASSET-BACKED SECURITIES
PERFORMA STRATEGIC VALUE BOND FUND. The Fund may invest in asset-backed
securities, which represent direct or indirect participations in, or are secured
by and payable from, assets other than mortgage-related assets such as motor
vehicle installment sales contracts, leases of various types of real and
personal property and receivables from revolving credit card agreements.
Asset-backed securities, including adjustable rate asset-backed securities, have
yield characteristics similar to those of mortgage-related securities and,
accordingly, are subject to many of the same risks.
Assets are securitized through the use of trusts and special purpose
corporations that issue securities that are often backed by a pool of assets
representing the obligations of a number of different parties. Payments of
principal and interest may be guaranteed up to certain amounts and for a certain
time period by a letter of credit issued by a financial institution.
Asset-backed securities present certain risks that are not presented by
mortgage-backed debt securities or other securities in which a Fund may invest.
Primarily, these securities do not always have the benefit of a security
interest in comparable collateral. Credit card receivables are generally
unsecured and the debtors are entitled to the protection of a number of state
and Federal consumer credit laws, many of which give such debtors the right to
set off certain amounts owed on the credit cards, thereby reducing the balance
due. Automobile receivables generally are secured by automobiles. Most issuers
of automobile receivables permit the loan servicers to retain possession of the
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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 mortgage-related securities.
Because asset-backed securities are relatively new, the market experience in
these securities is limited and the market's ability to sustain liquidity
through all phases of the market cycle has not been tested.
INTEREST-ONLY AND PRINCIPAL-ONLY SECURITIES
Some tranches of mortgage-backed securities, including CMOs, are structured so
that investors receive only principal payments generated by the underlying
collateral. Principal only securities ("POs") usually sell at a deep discount
from face value on the assumption that the purchaser will ultimately receive the
entire face value through scheduled payments and prepayments; however, the
market values of POs are extremely sensitive to prepayment rates, which, in
turn, vary with interest rate changes. If interest rates fall and prepayments
accelerate, the value of the PO will increase. On the other hand, if rates rise
and prepayments slow, the value of the PO will drop.
Interest only securities ("IOs") result from the creation of POs; thus, CMOs
with PO tranches also have IO tranches. IO securities sell at a deep discount to
their "notional" principal amount, namely the principal balance used to
calculate the amount of interest due. They have no face or par value and, as the
notional principal amortizes and prepays, the IO cash-flow declines.
Unlike POs, IOs increase in value when interest rates rise and prepayment rates
slow; consequently they are often used to "hedge" portfolios against interest
rate risk. If prepayment rates are high, the Fund may receive less cash back
than it initially invested.
INTEREST RATE PROTECTION TRANSACTIONS
ALL FUNDS. The Funds may enter into interest rate protection transactions,
including interest rate swaps, caps, collars and floors. Interest rate swap
transactions involve an agreement between two parties to exchange interest
payment streams that are based, for example, on variable and fixed rates that
are calculated on the basis of a specified amount of principal (the "notional
principal amount") for a specified period of time. Interest rate cap and floor
transactions involve an agreement between two parties in which the first party
agrees to make payments to the counterparty when a designated market interest
rate goes above (in the case of a cap) or below (in the case of a floor) a
designated level on predetermined dates or during a specified time period.
Interest rate collar transactions involve an agreement between two parties in
which the payments are made when a designated market interest rate either goes
above a designated ceiling or goes below a designated floor on predetermined
dates or during a specified time period.
A Fund may enter into interest rate protection transactions to preserve a return
or spread on a particular investment or portion of its portfolio or to protect
against any increase in the price of securities it anticipates purchasing at a
later date. The Funds intend to use these transactions as a hedge and not as a
speculative investment.
A Fund may enter into interest rate protection transactions on an asset-based
basis, depending on whether it is hedging its assets or its liabilities, and
will usually enter into interest rate swaps on a net basis, i.e., the two
payment streams are netted out, with the Fund receiving or paying, as the case
may be, only the net amount of the two payments. Inasmuch as these interest rate
protection transactions are entered into for good faith hedging purposes, and
inasmuch as segregated accounts will be established with respect to such
transactions, the Funds believe such obligations do not constitute senior
securities. The net amount of the excess, if any, of a Fund's obligations over
its entitlements with respect to each interest rate swap will be accrued on a
daily basis and an amount of cash, U.S. Government Securities or other liquid
assets having an aggregate net asset value at least equal to the accrued excess
will be maintained in a segregated account by a custodian that satisfies the
requirements of the 1940 Act. A Fund also will establish and maintain such
segregated accounts with respect to its total obligations under any interest
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rate swaps that are not entered into on a net basis and with respect to any
interest rate caps, collars and floors that are written by the Fund.
A Fund will enter into interest rate protection transactions only with banks and
other institutions believed by the Adviser to present minimal credit risks. If
there is a default by the other party to such a transaction, the Fund will have
to rely on its contractual remedies (which may be limited by bankruptcy,
insolvency or similar laws) pursuant to the agreements related to the
transaction.
The swap market has grown substantially in recent years with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. Caps, collars and floors are more
recent innovations for which documentation is less standardized and,
accordingly, are less liquid than swaps.
HEDGING AND OPTION INCOME STRATEGIES
ALL FUNDS. Each Fund may from time to time use various derivative instruments to
protect its investment portfolio from movements in securities prices and
interest rates. The Funds may also use a variety of currency hedging techniques,
including forward currency contracts, to manage exchange rate risk when
investing in securities denominated in foreign currencies.
Derivative instruments include futures contracts on securities, financial
indices and foreign currencies, options on contracts and on securities,
financial indices and foreign currencies and interest rate swaps and
swap-related products. The Funds use derivative instruments primarily to hedge
the value of its portfolio against potential adverse movements in securities
prices, foreign currency markets or interest rates. To a limited extent, a Fund
may also use derivative instruments for non-hedging purposes such as seeking to
increase the Fund's income or otherwise seeking to enhance return.
The use of derivative instruments exposes a Fund to additional investment risks
and transaction costs. Risks inherent in the use of derivative instruments
include: (1) the risk that interest rates, securities prices and currency
markets will not move in the directions that the portfolio manager anticipates;
(2) imperfect correlation between the price of derivative instruments and
movements in the prices of the securities, interest rates or currencies being
hedged; (3) the fact that skills needed to use these strategies are different
from those needed to select portfolio securities; (4) inability to close out
certain hedged positions to avoid adverse tax consequences; (5) the possible
absence of a liquid secondary market for any particular instrument and possible
exchange-imposed price fluctuation limits, either of which may make it difficult
or impossible to close out a position when desired; (6) leverage risk, that is,
the risk that adverse price movements in an instrument can result in a loss
substantially greater than the Fund's initial investment in that instrument (in
some cases, such as with futures transactions, the potential loss is unlimited);
and (7) particularly in the case of privately negotiated instruments, the risk
that the counterparty will fail to perform its obligations, which could leave
the Fund worse off than if it had not entered into the position. There is no
assurance that any hedging or option income strategy will succeed in achieving
its intended result.
Although the Funds believe that the use of derivative instruments will be
beneficial, a Fund's performance could be worse than if the Fund had not used
such instruments if the investment adviser's judgment proves incorrect.
Each Fund 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 it or an increase in the price of securities which
it plans to purchase through the writing and purchase of exchange-traded and
over-the-counter options on individual securities or securities or financial
indices and through the purchase and sale of financial futures contracts and
related options. To the extent a Fund invests in foreign securities, it may also
invest in options on foreign currencies, foreign currency futures contracts and
options on those futures contracts. Use of these instruments is subject to
regulation by the SEC, the options and futures exchanges upon which options and
futures are traded or the CFTC.
Except as otherwise noted, the Funds will not use leverage in their option
income and hedging strategies. In the case of transactions entered into as a
hedge, a Fund will hold securities, currencies or other options or futures
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positions whose values are expected to offset ("cover") its obligations
thereunder. A Fund will not enter into a hedging strategy that exposes it to an
obligation to another party unless it owns either: (1) an offsetting ("covered")
position or (2) cash, U.S. Government Securities or other liquid securities (or
other assets as may be permitted by the SEC) with a value sufficient at all
times to cover its potential obligations. When required by applicable regulatory
guidelines, the Funds will set aside cash, U.S. Government Securities or other
liquid securities (or other assets as may be permitted by the SEC) in a
segregated account with its custodian in the prescribed amount. Any assets used
for cover or held in a segregated account cannot be sold or closed out while the
hedging or option income strategy is outstanding, unless they are replaced with
similar assets. As a result, there is a possibility that the use of cover or
segregation involving a large percentage of a Fund's assets could impede
portfolio management or the Fund's ability to meet redemption requests or other
current obligations.
OPTIONS STRATEGIES
A Fund may purchase put and call options written by others and sell put and call
options covering specified individual securities, securities or financial
indices or currencies. A put option (sometimes called a "standby commitment")
gives the buyer of the option, upon payment of a premium, the right to deliver a
specified amount of currency to the writer of the option on or before a fixed
date at a predetermined price. A call option (sometimes called a "reverse
standby commitment") gives the purchaser of the option, upon payment of a
premium, the right to call upon the writer to deliver a specified amount of
currency on or before a fixed date, at a predetermined price. The predetermined
prices may be higher or lower than the market value of the underlying currency.
A Fund may buy or sell both exchange-traded and over-the-counter ("OTC")
options. A Fund will purchase or write an option only if that option is traded
on a recognized U.S. options exchange or if the Adviser believes that a liquid
secondary market for the option exists. When a Fund purchases an OTC option, it
relies on the dealer from which it has purchased the OTC option to make or take
delivery of the currency underlying the option. Failure by the dealer to do so
would result in the loss of the premium paid by the Fund as well as the loss of
the expected benefit of the transaction. OTC options and the securities
underlying these options currently are treated as illiquid securities by the
Funds.
Upon selling an option, a Fund receives a premium from the purchaser of the
option. Upon purchasing an option the Fund pays a premium to the seller of the
option. The amount of premium received or paid by the Fund is based upon certain
factors, including the market price of the underlying securities, index or
currency, the relationship of the exercise price to the market price, the
historical price volatility of the underlying assets, the option period, supply
and demand and interest rates.
Certain Funds may purchase call options on debt securities that the Adviser
intends to include in the Fund's portfolio in order to fix the cost of a future
purchase. Call options may also be purchased as a means of participating in an
anticipated price increase of a security on a more limited risk basis than would
be possible if the security itself were purchased. In the event of a decline in
the price of the underlying security, use of this strategy would serve to limit
the potential loss to the Fund to the option premium paid; conversely, if the
market price of the underlying security increases above the exercise price and
the Fund either sells or exercises the option, any profit eventually realized
will be reduced by the premium paid. A Fund may similarly purchase put options
in order to hedge against a decline in market value of securities held in its
portfolio. The put enables the Fund to sell the underlying security at the
predetermined exercise price; thus the potential for loss to the Fund is limited
to the option premium paid. If the market price of the underlying security is
lower than the exercise price of the put, any profit the Fund realizes on the
sale of the security would be reduced by the premium paid for the put option
less any amount for which the put may be sold.
An Adviser of a Fund may write call options when it believes that the market
value of the underlying security will not rise to a value greater than the
exercise price plus the premium received. Call options may also be written to
provide limited protection against a decrease in the market price of a security,
in an amount equal to the call premium received less any transaction costs.
Certain Funds may purchase and write put and call options on fixed income or
equity security indices in much the same manner as the options discussed above,
except that index options may serve as a hedge against overall fluctuations in
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the fixed income or equity securities markets (or market sectors) or as a means
of participating in an anticipated price increase in those markets. The
effectiveness of hedging techniques using index options will depend on the
extent to which price movements in the index selected correlate with price
movements of the securities which are being hedged. Index options are settled
exclusively in cash.
FOREIGN CURRENCY OPTIONS AND RELATED RISKS
A Fund may take positions in options on foreign currencies in order to hedge
against the risk of foreign exchange fluctuation on foreign securities the Fund
holds in its portfolio or which it intends to purchase. Options on foreign
currencies are affected by the factors discussed in "Hedging and Option Income
Strategies -- Options Strategies" and "Foreign Currency Transactions" which
influence foreign exchange sales and investments generally.
The value of foreign currency options is dependent upon the value of the foreign
currency relative to the U.S. dollar and has no relationship to the investment
merits of a foreign security. Because foreign currency transactions occurring in
the interbank market involve substantially larger amounts than those that may be
involved in the use of foreign currency options, a Fund may be disadvantaged by
having to deal in an odd lot market (generally consisting of transactions of
less than $1 million) for the underlying foreign currencies at prices that are
less favorable than for round lots.
To the extent that the U.S. options markets are closed while the market for the
underlying currencies remains open, significant price and rate movements may
take place in the underlying markets that cannot be reflected in the options
markets.
SPECIAL CHARACTERISTICS AND RISKS OF OPTIONS TRADING
A Fund may effectively terminate its right or obligation under an option
contract by entering into a closing transaction. For instance, if the Fund
wished to terminate its potential obligation to sell securities or currencies
under a call option it had written, a call option of the same type would be
purchased by the Fund. Closing transactions essentially permit the Fund to
realize profits or limit losses on its options positions prior to the exercise
or expiration of the option. In addition:
(1) The successful use of options depends upon the Adviser's ability to
forecast the direction of price fluctuations in the underlying securities or
currency markets, or in the case of an index option, fluctuations in the market
sector represented by the index.
(2) Options normally have expiration dates of up to nine months.
Options that expire unexercised have no value. Unless an option purchased by a
Fund is exercised or unless a closing transaction is effected with respect to
that position, a loss will be realized in the amount of the premium paid.
(3) A position in an exchange-listed option may be closed out only on
an exchange which provides a market for identical options. Most exchange-listed
options relate to equity securities. Exchange markets for options on foreign
currencies are relatively new, and the ability to establish and close out
positions on the exchanges is subject to the maintenance of a liquid secondary
market. Closing transactions may be effected with respect to options traded in
the over-the-counter markets (currently the primary markets for options on
foreign currencies) only by negotiating directly with the other party to the
option contract or in a secondary market for the option if such market exists.
There is no assurance that a liquid secondary market will exist for any
particular option at any specific time. If it is not possible to effect a
closing transaction, a Fund would have to exercise the option which it purchased
in order to realize any profit. The inability to effect a closing transaction on
an option written by a Fund may result in material losses to the Fund.
(4) A Fund's activities in the options markets may result in a higher
portfolio turnover rate and additional brokerage costs.
(5) When a Fund enters into an over-the-counter contract with a
counterparty, the Fund will assume the risk that the counterparty will fail to
perform its obligations, in which case the Fund could be worse off than if the
contract had not been entered into.
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FUTURES STRATEGIES
A futures contract is a bilateral agreement wherein one party agrees to accept,
and the other party agrees to make, delivery of cash, an underlying debt
security or the currency as called for in the contract at a specified future
date and at a specified price. For futures contracts with respect to an index,
delivery is of an amount of cash equal to a specified dollar amount times the
difference between the index value at the time of the contract and the close of
trading of the contract.
A Fund may sell interest rate futures contracts in order to continue to receive
the income from a fixed income security, while endeavoring to avoid part of or
all of a decline in the market value of that security which would accompany an
increase in interest rates.
A Fund may purchase index futures contracts for several reasons: to simulate
full investment in the underlying index while retaining a cash balance for fund
management purposes, to facilitate trading, to reduce transactions costs, or to
seek higher investment returns when a futures contract is priced more
attractively than securities in the index.
A Fund may purchase call options on a futures contract as a means of obtaining
temporary exposure to market appreciation at limited risk. This strategy is
analogous to the purchase of a call option on an individual security, in that it
can be used as a temporary substitute for a position in the security itself.
A Fund may sell foreign currency futures contracts to hedge against possible
variations in the exchange rate of the foreign currency in relation to the U.S.
dollar. In addition, a Fund may sell foreign currency futures contracts when its
Adviser anticipates a general weakening of foreign currency exchange rates that
could adversely affect the market values of the Fund's foreign securities
holdings. A Fund may purchase a foreign currency futures contract to hedge
against an anticipated foreign exchange rate increase pending completion of
anticipated transactions. Such a purchase would serve as a temporary measure to
protect the Fund against such increase. A Fund may also purchase call or put
options on foreign currency futures contracts to obtain a fixed foreign exchange
rate at limited risk. A Fund may write call options on foreign currency futures
contracts as a partial hedge against the effects of declining foreign exchange
rates on the value of foreign securities.
SPECIAL CHARACTERISTICS AND RISKS OF FUTURES AND RELATED OPTIONS TRADING
No price is paid upon entering into futures contracts; rather, a Fund is
required to deposit (typically with its custodian in a segregated account in the
name of the futures broker) an amount of cash or U.S. Government Securities
generally equal to 5% or less of the contract value. This amount is known as
initial margin. Subsequent payments, called variation margin, to and from the
broker, would be made on a daily basis as the value of the futures position
varies. When writing a call on a futures contract, variation margin must be
deposited in accordance with applicable exchange rules. The initial margin in
futures transactions is in the nature of a performance bond or good-faith
deposit on the contract that is returned to the Fund upon termination of the
contract, assuming all contractual obligations have been satisfied.
Holders and writers of futures and options on futures contracts can enter into
offsetting closing transactions, similar to closing transactions on options, by
selling or purchasing, respectively, a futures contract or related option with
the same terms as the position held or written. Positions in futures contracts
may be closed only on an exchange or board of trade providing a secondary market
for such futures contracts.
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Under certain circumstances, futures exchanges may establish daily limits in the
amount that the price of a futures contract or related option may vary either up
or down from the previous day's settlement price. Once the daily limit has been
reached in a particular contract, no trades may be made that day at a price
beyond that limit. Prices could move to the daily limit for several consecutive
trading days with little or no trading and thereby prevent prompt liquidation of
positions. In that event, it may not be possible for a Fund to close a position,
and in the event of adverse price movements, it would have to make daily cash
payments of variation margin. In addition:
(1) Successful use by a Fund of futures contracts and related options
will depend upon the Adviser's ability to predict movements in the direction of
the overall securities and currency markets, which requires different skills and
techniques than predicting changes in the prices of individual securities.
Moreover, futures contracts relate not to the current level of the underlying
instrument but to the anticipated levels at some point in the future; thus, for
example, trading of stock index futures may not reflect the trading of the
securities which are used to formulate an index or even actual fluctuations in
the relevant index itself.
(2) The price of futures contracts may not correlate perfectly with
movement in the price of the hedged currencies due to price distortions in the
futures market or otherwise. There may be several reasons unrelated to the value
of the underlying currencies which causes this situation to occur. As a result,
a correct forecast of general market trends may still not result in successful
hedging through the use of futures contracts over the short term.
(3) There is no assurance that a liquid secondary market will exist for
any particular contract at any particular time. In such event, it may not be
possible to close a position, and in the event of adverse price movements, the
Fund would continue to be required to make daily cash payments of variation
margin.
(4) Like other options, options on futures contracts have a limited
life. A Fund will not trade options on futures contracts on any exchange or
board of trade unless and until, in the Adviser's opinion, the market for such
options has developed sufficiently that the risks in connection with options on
futures transactions are not greater than the risks in connection with futures
transactions.
(5) Purchasers of options on futures contracts pay a premium in cash at
the time of purchase. This amount and the transaction costs is all that is at
risk. Sellers of options on futures contracts, however, must post an initial
margin and are subject to additional margin calls which could be substantial in
the event of adverse price movements.
(6) A Fund's activities in the futures markets may result in a higher
portfolio turnover rate and additional transaction costs in the form of added
brokerage commissions.
(7) Buyers and sellers of foreign currency futures contracts are
subject to the same risks that apply to the buying and selling of futures
generally. In addition, there are risks associated with foreign currency futures
contracts and their use as a hedging device similar to those associated with
options on foreign currencies described above. In addition, settlement of
foreign currency futures contracts must occur within the country issuing that
currency. Thus, a Fund must accept or make delivery of the underlying foreign
currency in accordance with any U.S. or foreign restrictions or regulations
regarding the maintenance of foreign banking arrangements by U.S. residents, and
the Fund may be required to pay any fees, taxes or charges associated with such
delivery which are assessed in the issuing country.
COMMODITY FUTURES CONTRACTS AND COMMODITY OPTIONS
A Fund may invest in certain financial futures contracts and options contracts
in accordance with the policies described in the Prospectus and above. A Fund
will only invest in futures contracts, options on futures contracts and other
options contracts that are subject to the jurisdiction of the CFTC after filing
a notice of eligibility and otherwise complying with the requirements of Section
4.5 of the rules of the CFTC. Pursuant to that section, a Fund will not enter
into any futures contract or option on a futures contract if, as a result, the
aggregate initial margin and premiums required to establish such positions would
exceed 5% of the Fund's net assets.
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FOREIGN CURRENCY TRANSACTIONS
ALL FUNDS. If a Fund invests in non-U.S. dollar denominated securities, changes
in foreign currency exchange rates will affect the value of the Fund's
investments. A Fund may temporarily hold funds in bank deposits in foreign
currencies pending the completion of certain investment programs. The value of
the assets of a Fund, as measured in U.S. dollars, may therefore be affected by
changes in foreign currency exchange rates and exchange control regulations. In
addition, a Fund may incur costs in connection with conversions between various
currencies.
A decline against the dollar in the value of currencies in which a Fund's
investments are denominated will result in a corresponding decline in the dollar
value of its assets. This risk tends to be heightened in the case of investing
in certain emerging market countries. For example, some currencies of emerging
market countries have experienced repeated devaluations relative to the U.S.
dollar, and major adjustments have periodically been made in certain of such
currencies. Some emerging market countries may also have managed currencies that
do not float freely against the dollar. Exchange rates are influenced generally
by the forces of supply and demand in the foreign currency markets and by
numerous other political and economic events occurring outside the United
States, many of which may be difficult, if not impossible, to predict. When
investing in foreign securities, the Fund usually effects currency exchange
transactions on a spot (I.E., cash) basis at the spot rate prevailing in the
foreign exchange market. The Fund incurs foreign exchange expenses in converting
assets from one currency to another.
The Funds may enter into foreign currency forward contracts to purchase or sell
foreign currencies in anticipation of currency requirements and to protect
against possible adverse movements in foreign exchange rates. A forward currency
contract is an obligation to purchase or sell a specific currency at a future
date, which may be any fixed number of days from the date of the contract agreed
upon by the parties, at a price set at the time of the contract. This method of
attempting to hedge the value of portfolio securities against a decline in the
value of a currency does not eliminate fluctuations in the underlying prices of
the securities and may expose the Fund to the risk that the counterparty is
unable to perform. Although such contracts may reduce the risk of loss to the
Fund due to a decline in the value of the currency sold, they also limit any
possible gain that might result should the value of such currency rise. The Fund
does not intend to maintain a net exposure to such contracts where the
fulfillment of obligations under such contracts would obligate it to deliver an
amount of foreign currency in excess of the value of its portfolio securities or
other assets denominated in the currency. The Fund will not enter into these
contracts for speculative purposes and will not enter into non-hedging currency
contracts. These contracts involve a risk of loss if the investment adviser
fails to predict currency values correctly. The Fund has no present intention to
enter into currency futures or options contracts, but may do so in the future.
A Fund may conduct foreign currency exchange transactions either on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market or by entering into foreign currency forward contracts ("forward
contracts") to purchase or sell foreign currencies. A forward contract involves
an obligation to purchase or sell a specific currency at a future date, which
may be any fixed number of days (usually less than one year) from the date of
the contract agreed upon by the parties, at a price set at the time of the
contract. These contracts are traded in the interbank market conducted directly
between currency traders (usually large commercial banks) and their customers
and involve the risk that the other party to the contract may fail to deliver
currency when due, which could result in losses to the Fund. A forward contract
generally has no deposit requirement, and no commissions are charged at any
stage for trades. Foreign exchange dealers realize a profit based on the
difference between the price at which they buy and sell various currencies.
A Fund may enter into forward contracts under two circumstances. First, with
respect to specific transactions, when the Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency, it may desire
to "lock in" the U.S. dollar price of the security. By entering into a forward
contract for the purchase or sale, for a fixed amount of dollars, of the amount
of foreign currency involved in the underlying security transactions, the Fund
may be able to protect itself against a possible loss resulting from an adverse
change in the relationship between the U.S. dollar and the subject foreign
currency during the period between the date the security is purchased or sold
and the date on which payment is made or received.
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Second, a Fund may enter into forward contracts in connection with existing
portfolio positions. For example, when an Adviser believes that the currency of
a particular foreign country may suffer a substantial decline against the U.S.
dollar, the Fund may enter into a forward contract to sell, for a fixed amount
of dollars, the amount of foreign currency approximating the value of some or
all of the Fund's investment securities denominated in such foreign currency.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible since the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. The projection of short-term currency
market movement is extremely difficult, and the successful execution of a
short-term hedging strategy is highly uncertain. Forward contracts involve the
risk of inaccurate predictions of currency price movements, which may cause the
Fund to incur losses on these contracts and transaction costs. The Advisers do
not intend to enter into forward contracts on a regular or continuous basis and
will not do so if, as a result, a Fund will have more than 25 percent of the
value of its total assets committed to such contracts or the contracts would
obligate the Fund to deliver an amount of foreign currency in excess of the
value of the Fund's investment securities or other assets denominated in that
currency.
At or before the settlement of a forward contract, a Fund may either make
delivery of the foreign currency or terminate its contractual obligation to
deliver the foreign currency by purchasing an offsetting contract. If the Fund
chooses to make delivery of the foreign currency, it may be required to obtain
the currency through the conversion of assets of the Fund into the currency. The
Fund may close out a forward contract obligating it to purchase a foreign
currency by selling an offsetting contract. If the Fund engages in an offsetting
transaction, it will realize a gain or a loss to the extent that there has been
a change in forward contract prices. Additionally, although forward contracts
may tend to minimize the risk of loss due to a decline in the value of the
hedged currency, at the same time they tend to limit any potential gain which
might result should the value of such currency increase.
There is no systematic reporting of last sale information for foreign
currencies, and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Quotation information available is generally representative of very large
transactions in the interbank market. The interbank market in foreign currencies
is a global, around-the-clock market.
When required by applicable regulatory guidelines, a Fund will set aside cash,
U.S. Government Securities or other liquid assets in a segregated account with
its custodian in the prescribed amount.
EQUITY SECURITIES AND ADDITIONAL INFORMATION
COMMON AND PREFERRED STOCK AND WARRANTS.
PERFORMA DISCIPLINED GROWTH FUND, PERFORMA SMALL CAP VALUE FUND AND PERFORMA
GLOBAL GROWTH FUND. Each Fund may invest in common and preferred stock. Common
stockholders are the owners of the company issuing the stock and, accordingly,
vote on various corporate governance matters such as mergers. They are not
creditors of the company, but rather, upon liquidation of the company, are
entitled to their pro rata share of the company's assets after creditors
(including fixed income security holders) and preferred stockholders, if any,
are paid. Preferred stock is a class of stock having a preference over common
stock as to dividends and, generally, as to the recovery of investment. A
preferred stockholder is also a shareholder and not a creditor of the company.
Equity securities owned by a Fund may be traded in the over-the-counter market
or on a securities exchange, but may not be traded every day or in the volume
typical of securities traded on a major U.S. national securities exchange. As a
result, disposition by an Equity Fund of a security to meet withdrawals by
interest holders or otherwise may require a Fund to sell these securities at a
discount from market prices, to sell during periods when disposition is not
desirable, or to make many small sales over a lengthy period of time. The market
value of all securities, including equity securities, is based upon the market's
perception of value and not necessarily the "book value" of an issuer or other
objective measure of a company's worth.
The Funds may also invest in warrants, which are options to purchase an equity
security at a specified price (usually representing a premium over the
applicable market value of the underlying equity security at the time of the
warrant's issuance) and usually during a specified period of time. The price of
warrants does not necessarily move parallel to the prices of the underlying
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securities. Warrants have no voting rights, receive no dividends and have no
rights with respect to the assets of the issuer. Unlike convertible securities
and preferred stocks, warrants do not pay a fixed dividend. Investments in
warrants involve certain risks, including the possible lack of a liquid market
for the resale of the warrants, potential price fluctuations as a result of
speculation or other factors and failure of the price of the underlying security
to reach a level at which the warrant can be prudently exercised. To the extent
that the market value of the security that may be purchased upon exercise of the
warrant rises above the exercise price, the value of the warrant will tend to
rise. To the extent that the exercise price equals or exceeds the market value
of such security, the warrants will have little or no market value. If a warrant
is not exercised within the specified time period, it will become worthless and
the Fund will lose the purchase price paid for the warrant and the right to
purchase the underlying security.
Equity securities owned by a Fund may be traded in the over-the-counter market
or on a regional securities exchange and may not be traded every day or in the
volume typical of securities trading on a national securities exchange. As a
result, disposition by a Fund of a portfolio security to meet redemptions by
shareholders or otherwise may require the Fund to sell these securities at a
discount from market prices, to sell during periods when disposition is not
desirable, or to make many small sales over a lengthy period of time. The market
value of all securities, including equity securities, is based upon the market's
perception of value and not necessarily the book value of an issuer or other
objective measure of a company's worth.
CONVERTIBLE SECURITIES
ALL FUNDS. A Fund may invest in convertible securities. A convertible security
is a bond, debenture, note, preferred stock or other security that may be
converted into or exchanged for a prescribed amount of common stock of the same
or a different issuer within a particular period of time at a specified price or
formula. A convertible security entitles the holder to receive interest paid or
accrued on debt or the dividend paid on preferred stock until the convertible
security matures or is redeemed, converted or exchanged. Before conversion,
convertible securities have characteristics similar to nonconvertible debt
securities in that they ordinarily provide a stable stream of income with
generally higher yields than those of common stocks of the same or similar
issuers. Convertible securities rank senior to common stock in a corporation's
capital structure but are usually subordinated to comparable nonconvertible
securities. Although no securities investment is without some risk, investment
in convertible securities generally entails less risk than in the issuer's
common stock. However, the extent to which such risk is reduced depends in large
measure upon the degree to which the convertible security sells above its value
as a fixed income security. Convertible securities have unique investment
characteristics in that they generally: (1) have higher yields than common
stocks, but lower yields than comparable non-convertible securities; (2) are
less subject to fluctuation in value than the underlying stocks since they have
fixed income characteristics; and (3) provide the potential for capital
appreciation if the market price of the underlying common stock increases.
The value of a convertible security is a function of its "investment value"
(determined by a comparison of its yield with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and its
"conversion value" (the security's worth, at market value, if converted into the
underlying common stock). The investment value of a convertible security is
influenced by changes in interest rates, with investment value declining as
interest rates increase and increasing as interest rates decline. The credit
standing of the issuer and other factors also may have an effect on the
convertible security's investment value. The conversion value of a convertible
security is determined by the market price of the underlying common stock. If
the conversion value is low relative to the investment value, the price of the
convertible security is governed principally by its investment value and
generally the conversion value decreases as the convertible security approaches
maturity. To the extent the market price of the underlying common stock
approaches or exceeds the conversion price, the price of the convertible
security will be increasingly influenced by its conversion value. In addition, a
convertible security generally will sell at a premium over its conversion value
determined by the extent to which investors place value on the right to acquire
the underlying common stock while holding a fixed income security.
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A convertible security may be subject to redemption at the option of the issuer
at a price established in the convertible security's governing instrument. If a
convertible security held by a Fund is called for redemption, the Fund will be
required to permit the issuer to redeem the security, convert it into the
underlying common stock or sell it to a third party.
EQUITY-LINKED SECURITIES
ALL FUNDS (except Performa Global Growth Fund). Equity-linked securities are
securities that are convertible into or based upon the value of, equity
securities upon certain terms and conditions. The following are three examples
of equity-linked securities.
Preferred Equity Redemption Cumulative Stock ("PERCS") technically are preferred
stock with some characteristics of common stock. PERCS are mandatorily
convertible into common stock after a period of time, usually three years,
during which the investors' capital gains are capped, usually at 30%. Commonly,
PERCS may be redeemed by the issuer either at any time or when the issuer's
common stock is trading at a specified price level or better. The redemption
price starts at the beginning of the PERCS' duration period at a price that is
above the cap by the amount of the extra dividends the PERCS holder is entitled
to receive relative to the common stock over the duration of the PERCS and
declines to the cap price shortly before maturity of the PERCS. In exchange for
having the cap on capital gains and giving the issuer the option to redeem the
PERCS at any time or at the specified common stock price level, a Fund may be
compensated with a substantially higher dividend yield than that on the
underlying common stock. Funds that seek current income find PERCS attractive
because a PERCS provides a higher dividend income than that paid with respect to
a company's common stock.
Equity-Linked Securities ("ELKS") differ from ordinary debt securities, in that
the principal amount received at maturity is not fixed but is based on the price
of the issuer's common stock. ELKS are debt securities commonly issued in fully
registered form for a term of three years under an indenture trust. At maturity,
the holder of ELKS will be entitled to receive a principal amount equal to the
lesser of a cap amount, commonly in the range of 30% to 55% greater than the
current price of the issuer's common stock, or the average closing price per
share of the issuer's common stock, subject to adjustment as a result of certain
dilution events, for the 10 trading days immediately prior to maturity. Unlike
PERCS, ELKS are commonly not subject to redemption prior to maturity. ELKS
usually bear interest during the three-year term at a substantially higher rate
than the dividend yield on the underlying common stock. In exchange for having
the cap on the return that might have been received as capital gains on the
underlying common stock, the investing Fund may be compensated with the higher
yield, contingent on how well the underlying common stock does. Fund s that seek
current income find ELKS attractive because ELKS provide a higher dividend
income than that paid with respect to a company's common stock.
Liquid Yield Option Notes ("LYONs") differ from ordinary debt securities in that
the amount received prior to maturity is not fixed but is based on the price of
the issuer's common stock. LYONs are zero-coupon notes that sell at a large
discount from face value. For an investment in LYONs, a Fund will not receive
any interest payments until the notes mature, typically in 15 or 20 years, when
the notes are redeemed at face, or par, value. The yield on LYONs, typically, is
lower-than-market rate for debt securities of the same maturity, due in part to
the fact that the LYONs are convertible into common stock of the issuer at any
time at the option of the holder of the LYON. Commonly, LYONs are redeemable by
the issuer at any time after an initial period or if the issuer's common stock
is trading at a specified price level or better, or, at the option of the
holder, upon certain fixed dates. The redemption price typically is the purchase
price of the LYONs plus accrued original issue discount to the date of
redemption, which amounts to the lower-than-market yield. A Fund will receive
only the lower-than-market yield unless the underlying common stock increases in
value at a substantial rate. LYONs are attractive to investors when it appears
that they will increase in value due to the rise in value of the underlying
common stock.
HIGH YIELD/JUNK BONDS
PERFORMA STRATEGIC VALUE BOND FUND. Securities rated less than Baa by Moody's or
BBB by S&P are classified as non-investment grade securities and are considered
speculative by those rating agencies. Junk bonds may be issued as a consequence
of corporate restructurings, such as leveraged buyouts, mergers, acquisitions,
debt recapitalizations, or similar events or by smaller or highly leveraged
companies. Although the growth of the high yield/high risk securities market in
the 1980's had paralleled a long economic expansion, many issuers subsequently
have been affected by adverse
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economic and market conditions. It should be recognized that an economic
downturn or increase in interest rates is likely to have a negative effect on:
(1) the high yield bond market; (2) the value of high yield/high risk
securities; and (3) the ability of the securities' issuers to service their
principal and interest payment obligations, to meet their projected business
goals or to obtain additional financing. In addition, the market for high
yield/high risk securities, which is concentrated in relatively few market
makers, may not be as liquid as the market for investment grade securities.
Under adverse market or economic conditions, the market for high yield/high risk
securities could contract further, independent of any specific adverse changes
in the condition of a particular issuer. As a result, a Fund could find it more
difficult to sell these securities or may be able to sell the securities only at
prices lower than if such securities were widely traded. Prices realized upon
the sale of such lower rated or unrated securities, under these circumstances,
may be less than the prices used in calculating the Fund's net asset value.
In periods of reduced market liquidity, prices of high yield/high risk
securities may become more volatile and may experience sudden and substantial
price declines. Also, there may be significant disparities in the prices quoted
for high yield/high risk securities by various dealers. Under such conditions,
the Fund under supervision of the Board of Trustees, may have to use subjective
rather than objective criteria to value its high yield/high risk securities
investments accurately and rely more heavily on the judgment of the Fund's
Adviser.
Prices for high yield/high risk securities also may be affected by legislative
and regulatory developments. For example, Congress has considered legislation to
restrict or eliminate the corporate tax deduction for interest payments or to
regulate corporate restructurings such as takeovers, mergers or leveraged
buyouts. These laws could adversely affect the Fund's net asset value and
investment practices, the market for high yield/high risk securities, the
financial condition of issuers of these securities and the value of outstanding
high yield/high risk securities.
Lower rated or unrated debt obligations also present risks based on payment
expectations. If an issuer calls the obligation for redemption, the 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 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.
ILLIQUID AND RESTRICTED SECURITIES
ALL FUNDS. Each Fund may invest up to 15 percent of its net assets in securities
that at the time of purchase are illiquid. Historically, illiquid securities
have included securities subject to contractual or legal restrictions on resale
because they have not been registered under the 1933 Act ("restricted
securities"), securities that cannot be disposed of within seven days in the
ordinary course of business at approximately the amount at which a Fund has
valued the securities, and which are otherwise not readily marketable and
includes, among other things, purchased over-the-counter (OTC) options and
repurchase agreements not entitling the holder to repayment within seven days.
The Board and, in the case of the Portfolios, the Core Trust Board and Schroder
Core Board, has the ultimate responsibility for determining whether specific
securities are liquid or illiquid and has delegated the function of making
day-to-day determinations of liquidity to the Adviser of each Fund, pursuant to
guidelines approved by the applicable board. The Advisers take into account a
number of factors in reaching liquidity decisions, including but not limited to:
(1) the frequency of trades and quotations for the security; (2) the number of
dealers willing to purchase or sell the security and the number of other
potential buyers; (3) the willingness of dealers to undertake to make a market
in the security; and (4) the nature of the marketplace trades, including the
time needed to dispose of the security, the method of soliciting offers and the
mechanics of the transfer. The Advisers monitor the liquidity of the securities
held by each Fund and report periodically on such decisions to the Board, Core
Trust Board or Schroder Core Board, as applicable.
In connection with a Fund's original purchase of restricted securities, it may
negotiate rights with the issuer to have such securities registered for sale at
a later time. Further, the expenses of registration of restricted securities
that are illiquid may also be negotiated by a Fund with the issuer at the time
such securities are purchased by the Fund. When registration is required,
however, a considerable period may elapse between a decision to sell the
securities and the time the Fund would be permitted to sell such securities. A
similar delay might be experienced in attempting to sell such securities
pursuant to an exemption from registration. Thus, a Fund may not be able to
obtain as favorable a price as that prevailing at the time of the decision to
sell.
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Limitations on resale may have an adverse effect on the marketability of
portfolio securities and a Fund might also have to register restricted
securities in order to dispose of them, resulting in expense and delay. A Fund
might not be able to dispose of restricted or other securities promptly or at
reasonable prices and might thereby experience difficulty satisfying
redemptions. There can be no assurance that a liquid market will exist for any
security at any particular time.
A institutional market has developed for certain securities that are not
registered under the 1933 Act, including repurchase agreements, commercial
paper, foreign securities and corporate bonds and notes. Institutional investors
depend on an efficient institutional market in which the unregistered security
can be readily resold or on the issuer's ability to honor a demand for repayment
of the unregistered security. A security's contractual or legal restrictions on
resale to the general public or to certain institutions may not be indicative of
the liquidity of the security. If such securities are eligible for purchase by
institutional buyers in accordance with Rule 144A under the 1933 Act under
guidelines adopted by the Board, Core Trust Board and Schroder Core Board, the
Advisers may determine that such securities are not illiquid securities. These
guidelines take into account trading activity in the securities and the
availability of reliable pricing information, among other factors. If there is a
lack of trading interest in a particular Rule 144A security, a Fund 's holdings
of that security may be illiquid.
LOANS OF PORTFOLIO SECURITIES
ALL FUNDS. Each Fund may lend its investment securities to brokers, dealers and
financial institutions for the purpose of realizing additional income. The total
market value of securities loaned will not at any time exceed one-half of the
value of the total assets of the Fund. Lending portfolio securities may result
in the possible loss of rights in the collateral should the borrower fail
financially.
Under applicable regulatory requirements (which are subject to change), the loan
collateral must, on each business day, at least equal the market value of the
loaned securities and must consist of cash, bank letters of credit, U.S.
Government securities, or other cash equivalents in which the Fund is permitted
to invest. To be acceptable as collateral, letters of credit must obligate a
bank to pay amounts demanded by the Fund if the demand meets the terms of the
letter. Such terms and the issuing bank must be satisfactory to the Fund. In a
portfolio securities lending transaction, the Fund receives from the borrower an
amount equal to the interest paid or the dividends declared on the loaned
securities during the term of the loan as well as the interest on the collateral
securities, less any finders' or administrative fees the Fund pays in arranging
the loan. The Fund may share the interest it receives on the collateral
securities with the borrower as long as it realizes at least a minimum amount of
interest required by the lending guidelines established by the Core Trust or
Schroder Core Board. No Fund will lend its portfolio securities to any officer,
director, employee or affiliate of the Fund or the Fund's Adviser. The terms of
the Fund's loans must meet certain tests under the Internal Revenue Code and
permit the Fund to reacquire loaned securities on five business days' notice or
in time to vote on any important matter.
BORROWING AND TRANSACTIONS INVOLVING LEVERAGE
ALL FUNDS. Each Fund may borrow money for temporary or emergency purposes,
including the meeting of redemption requests, in amounts up to 33 1/3 percent of
the Fund's total assets. Borrowing involves special risk considerations.
Interest costs on borrowings may fluctuate with changing market rates of
interest and may partially offset or exceed the return earned on borrowed funds
(or on the assets that were retained rather than sold to meet the needs for
which funds were borrowed). Under adverse market conditions, a Fund might have
to sell portfolio securities to meet interest or principal payments at a time
when investment considerations would not favor such sales. Except as otherwise
noted, no Fund may purchase securities for investment while any borrowing
equaling five percent or more of the Fund's total assets is outstanding or
borrow for purposes other than meeting redemptions in an amount exceeding five
percent of the value of the Fund's total assets. A Fund's use of borrowed
proceeds to make investments would subject the Fund to the risks of leveraging.
Reverse repurchase agreements, short sales not against the box, dollar roll
transactions and other similar investments that involve a form of leverage have
characteristics similar to borrowings but are not considered borrowings if the
Fund maintains a segregated account.
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OTHER TECHNIQUES INVOLVING LEVERAGE
Utilization of leveraging involves special risks and may involve speculative
investment techniques. Certain Funds may borrow for other than temporary or
emergency purposes, lend their securities, enter reverse repurchase agreements,
and purchase securities on a when issued or forward commitment basis. In
addition, certain Funds may engage in dollar roll transactions. Each of these
transactions involve the use of "leverage" when cash made available to the Fund
through the investment technique is used to make additional portfolio
investments. A Fund uses these investment techniques only when the Fund's
Adviser believes that the leveraging and the returns available to the Fund from
investing the cash will provide shareholders a potentially higher return.
Leverage exists when a Fund achieves the right to a return on a capital base
that exceeds the amount the Fund has invested. Leverage creates the risk of
magnified capital losses which occur when losses affect an asset base, enlarged
by borrowings or the creation of liabilities, that exceeds the equity base of
the Fund. Leverage may involve the creation of a liability that requires the
Fund to pay interest (for instance, reverse repurchase agreements) or the
creation of a liability that does not entail any interest costs (for instance,
forward commitment transactions).
The risks of leverage include a higher volatility of the net asset value of the
Fund's shares and the relatively greater effect on the net asset value of the
shares caused by favorable or adverse market movements or changes in the cost of
cash obtained by leveraging and the yield obtained from investing the cash. So
long as a Fund is able to realize a net return on its investment portfolio that
is higher than interest expense incurred, if any, leverage will result in higher
current net investment income being realized by the Fund than if the Fund were
not leveraged. On the other hand, interest rates change from time to time as
does their relationship to each other depending upon such factors as supply and
demand, monetary and tax policies and investor expectations. Changes in such
factors could cause the relationship between the cost of leveraging and the
yield to change so that rates involved in the leveraging arrangement may
substantially increase relative to the yield on the obligations in which the
proceeds of the leveraging have been invested. To the extent that the interest
expense involved in leveraging approaches the net return on the Fund's
investment portfolio, the benefit of leveraging will be reduced, and, if the
interest expense on borrowings were to exceed the net return to shareholders,
the Fund's use of leverage would result in a lower rate of return than if the
Fund were not leveraged. Similarly, the effect of leverage in a declining market
could be a greater decrease in net asset value per share than if the Fund were
not leveraged. In an extreme case, if the Fund's current investment income were
not sufficient to meet the interest expense of leveraging, it could be necessary
for the Fund to liquidate certain of its investments at an inappropriate time.
The use of leverage may be considered speculative.
SEGREGATED ACCOUNT
In order to limit the risks involved in various transactions involving leverage,
the Funds' custodian will setup and maintain in a segregated account for each
Fund cash, U.S. Government Securities (or other assets as may be permitted by
the SEC) in accordance with SEC guidelines. The account's value, which is marked
to market daily, will be at least equal to the Fund's commitments under these
transactions. The Fund's commitments include the Fund's obligations to
repurchase securities under a reverse repurchase agreement and settle
when-issued and forward commitment transactions.
When a Fund invests in a derivative instrument, it may be required to segregate
cash and other assets with its custodian. Segregating assets could diminish the
Fund's return due to the opportunity losses of foregoing other potential
investments with the segregated assets.
MARGIN AND SHORT SALES
The Funds may make short sales of securities against the box. A short sale is
"against the box" to the extent that while the short position is open, the Fund
must own an equal amount of the securities sold short, or by virtue of ownership
of securities have the right, without payment of further consideration, to
obtain an equal amount of the securities sold short. Short sales against the box
may in certain cases be made to defer, for Federal income tax purposes,
recognition of gain or loss on the sale of securities "in the box" until the
short position is closed out. Under recently enacted legislation, if a Fund has
unrealized gain with respect to a long position and enters into a short sale
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against-the-box, the Fund generally will be deemed to have sold the long
position for tax purposes and thus will recognize gain. Prohibitions on entering
short sales other than against the box does not restrict a Fund's ability to use
short-term credits necessary for the clearance of portfolio transactions and to
make margin deposits in connection with permitted transactions in options and
futures contracts.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements are transactions in which a Fund sells a security
and simultaneously commits to repurchase that security from the buyer at an
agreed upon price on an agreed upon future date. The resale price in a reverse
repurchase agreement reflects a market rate of interest that is not related to
the coupon rate or maturity of the sold security. For certain demand agreements,
there is no agreed upon repurchase date and interest payments are calculated
daily, often based upon the prevailing overnight repurchase rate.
Generally, a reverse repurchase agreement enables a Fund to recover for the term
of the reverse repurchase agreement all or most of the cash invested in the
portfolio securities sold and to keep the interest income associated with those
portfolio securities. Such transactions are only advantageous if the interest
cost to the Fund of the reverse repurchase transaction is less than the cost of
obtaining the cash otherwise. In addition, interest costs on the money received
in a reverse repurchase agreement may exceed the return received on the
investments made by a Fund with those monies. The use of reverse repurchase
agreement proceeds to make investments may be considered to be a speculative
technique.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
Certain Funds may purchase or sell portfolio securities on a when-issued or
delayed delivery basis. When-issued or delayed delivery transactions arise when
securities are purchased by a Fund with payment and delivery to take place in
the future in order to secure what is considered to be an advantageous price and
yield to the Fund at the time it enters into the transaction. In those cases,
the purchase price and the interest rate payable on the securities are fixed on
the transaction date and delivery and payment may take place a month or more
after the date of the transaction. When a Fund enters into a delayed delivery
transaction, it becomes obligated to purchase securities and it has all of the
rights and risks attendant to ownership of the security, although delivery and
payment occur at a later date. To facilitate such acquisitions, the Fund will
maintain with its custodian a separate account with portfolio securities in an
amount at least equal to such commitments.
At the time a Fund makes the commitment to purchase securities on a when-issued
or delayed delivery basis, the Fund will record the transaction as a purchase
and thereafter reflect the value each day of such securities in determining its
net asset value. The value of the fixed income securities to be delivered in the
future will fluctuate as interest rates and the credit of the underlying issuer
vary. On delivery dates for such transactions, the Fund will meet its
obligations from maturities, sales of the securities held in the separate
account or from other available sources of cash. A Fund generally has the
ability to close out a purchase obligation on or before the settlement date,
rather than purchase the security. If a Fund chooses to dispose of the right to
acquire a when-issued security prior to its acquisition, it could, as with the
disposition of any other portfolio obligation, realize a gain or loss due to
market fluctuation.
To the extent a Fund engages in when-issued or delayed delivery transactions, it
will do so for the purpose of acquiring securities consistent with the Fund's
investment objectives and policies and not for the purpose of investment
leverage or to speculate in interest rate changes. A Fund will only make
commitments to purchase securities on a when-issued or delayed delivery basis
with the intention of actually acquiring the securities, but the Fund reserves
the right to dispose of the right to acquire these securities before the
settlement date if deemed advisable.
The use of when-issued and delayed delivery transactions enables the Fund to
hedge against anticipated changes in interest rates and prices. If an Adviser
were to forecast incorrectly the direction of interest rate movements, however,
a Fund advised by the Adviser might be required to complete when-issued or
delayed delivery transactions at prices inferior to the current market values.
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When-issued securities and delayed delivery transactions may be sold prior to
the settlement date, but a Fund enters into when-issued and delayed delivery
transaction only with the intention of actually receiving or delivering the
securities, as the case may be. In some instances, the third-party seller of
when-issued or delayed delivery securities may determine prior to the settlement
date that it will be unable to meet its existing transaction commitments without
borrowing securities. If advantageous from a yield perspective, a Fund may, in
that event, agree to resell its purchase commitment to the third-party seller at
the current market price on the date of sale and concurrently enter into another
purchase commitment for such securities at a later date. As an inducement for a
Fund to "roll over" its purchase commitment, the Fund may receive a negotiated
fee. When-issued securities may include bonds purchased on a "when, as and if
issued" basis under which the issuance of the securities depends upon the
occurrence of a subsequent event. Any significant commitment of a Fund's assets
to the purchase of securities on a "when, as and if issued" basis may increase
the volatility of the Fund's net asset value. For purposes of the Funds'
investment policies, the purchase of securities with a settlement date occurring
on a Public Securities Association approved settlement date is considered a
normal delivery and not a when-issued or delayed delivery purchase.
REPURCHASE AGREEMENTS
Repurchase Agreements involve the purchase of a security by a Fund and a
simultaneous agreement by the seller (generally a bank or dealer) to repurchase
the security from the Fund at a specified date or upon demand. This technique
offers a method of earning income on idle cash. Repurchase agreements involve
the risk that the seller will fail to repurchase the security as agreed. In that
case, the Fund will bear the risk of market value fluctuations until the
security can be sold and may encounter delays and incur costs in liquidating the
security.
The Funds may invest in securities subject to repurchase agreements with U.S.
banks or broker-dealers. In a typical repurchase agreement, the seller of a
security commits itself at the time of the sale to repurchase that security from
the buyer at a mutually agreed-upon time and price. The repurchase price exceeds
the sale price, reflecting an agreed-upon interest rate effective for the period
the buyer owns the security subject to repurchase. The agreed-upon rate is
unrelated to the interest rate on that security. Each Adviser will, with respect
to the Funds it advises, monitor the value of the underlying security at the
time the transaction is entered into and at all times during the term of the
repurchase agreement to ensure that the value of the security always equals or
exceeds the repurchase price (including accrued interest). In the event of
default by the seller under the repurchase agreement, a Fund may have
difficulties in exercising its rights to the underlying securities and may incur
costs and experience time delays in connection with the disposition of such
securities. To evaluate potential risks, the Adviser reviews the
credit-worthiness of those banks and dealers with which the Fund enters into
repurchase agreements.
Securities subject to repurchase agreements will be held by the Fund's custodian
or another qualified custodian or in the Federal Reserve book-entry system.
Repurchase agreements are considered to be loans by a Fund for certain purposes
under the 1940 Act.
TEMPORARY DEFENSIVE POSITION
When business or financial conditions warrant, each Fund may assume a temporary
defensive position and invest without limit in cash or prime quality cash
equivalents, including: (1) short-term U.S. Government Securities; (2)
certificates of deposit, bankers' acceptances and interest-bearing savings
deposits of commercial banks doing business in the United States; (3) commercial
paper; (4) repurchase agreements; and (5) shares of "money market funds"
registered under the 1940 Act within the limits specified therein. During
periods when and to the extent that a Fund has assumed a temporary defensive
position, it may not be pursuing its investment objective. Apart from temporary
defensive purposes, a Fund may at any time invest a portion of its assets in
cash and cash equivalents or, in other investment companies to the extent
permitted under the 1940 Act.
RISKS OF INVESTING IN SMALLER COMPANIES
Investment in smaller capitalization companies carries greater risk than
investment in larger capitalization companies. Smaller capitalization companies
generally experience higher growth rates and higher failure rates than do larger
capitalization companies. The trading volume of smaller capitalization
companies' securities is normally lower than that of larger capitalization
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companies. Heavy trading generally has a disproportionate effect on market price
(tending to make prices rise more in response to buying demand and fall more in
response to selling pressure). Accordingly, the net asset value of the Fund can
be expected to fluctuate more that that of other funds that invest in larger
capitalization companies.
Smaller companies often have products and management personnel that have not
been tested by time or the marketplace and their financial resources may not be
as substantial as those of more established companies. Their securities (which
the Fund may purchase when they are offered to the public for the first time)
may have a limited trading market which can adversely affect the Fund's ability
to sell the securities and can result in such securities being priced lower than
otherwise might be the case. If other institutional investors trade in the
securities of a smaller company in which the Fund holds an interest, the Fund
may be forced to dispose of its holdings at prices lower than might otherwise be
obtained.
RISKS OF INTERNATIONAL INVESTING
All investments, domestic and foreign, involve risks. Investment in the
securities of foreign issuers may involve risks in addition to those normally
associated with investments in the securities of U.S. issuers. While the Fund
will generally invest only in securities of companies and governments in
countries that the investment adviser, in its judgment, considers both
politically and economically stable, all foreign investments are subject to
risks of foreign political and economic instability, adverse movements in
foreign exchange rates, the imposition or tightening of exchange controls or
other limitations on repatriation of foreign capital. Foreign investments are
subject to the risk of changes in foreign governmental attitudes towards private
investment that could lead to nationalization, increased taxation or
confiscation of Fund assets.
Moreover, (1) dividends payable on foreign securities may be subject to foreign
withholding taxes, thereby reducing the income earned by the Fund; (2)
commission rates payable on foreign portfolio transactions are generally higher
than in the United States; (3) accounting, auditing and financial reporting
standards differ from those in the United States, which means that less
information about foreign companies may be available than is generally available
about issuers of comparable securities in the United States.; (4) foreign
securities often trade less frequently and with lower volume than U.S.
securities and consequently may exhibit greater price volatility; and (5)
foreign securities trading practices, including those involving securities
settlement, may expose the Fund to increased risk in the event of a failed trade
or the insolvency of a foreign broker-dealer or registrar.
EMERGING MARKETS. Investing in emerging market countries generally presents
greater risk than does other foreign investing. In any emerging market country,
there is the increased possibility of expropriation of assets, confiscatory
taxation, nationalization of companies or industries, foreign exchange controls,
foreign investment controls on daily stock market movements, default in foreign
government securities, political or social instability, or diplomatic
developments that could affect investments in those countries. In the event of
expropriation, nationalization or other confiscation, the Fund could lose its
entire investment in the country involved. The economies of developing countries
are more likely to be adversely affected by trade barriers, exchange controls,
managed adjustments in relative currency values and other protectionist measures
imposed or negotiated by the countries with which they trade. There may also be
less monitoring and regulation of emerging markets and the activities of brokers
there. Investing may require that the Fund adopt special procedures, seek local
government approvals or take other actions that may incur costs for the Fund.
Certain emerging market countries may restrict investment by foreign investors.
These restrictions or controls may at times limit or preclude investment in
certain securities and may increase the costs and expenses of the Fund. Several
emerging market countries have experienced high, and in some periods extremely
high, rates of inflation in recent years. Inflation and rapid fluctuations in
inflation rates may adversely affect these countries' economies and securities
markets. Further, inflation accounting rules in some emerging market countries
may indirectly generate losses or profits for certain emerging market companies.
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CURRENCY FLUCTUATIONS AND DEVALUATIONS. Because Performa Global Growth Fund will
invest heavily in non-U.S. currency-denominated securities, changes in foreign
currency exchange rates will affect the value of the Fund's investments. A
decline against the dollar in the value of currencies in which the Fund's
investments are denominated will result in a corresponding decline in the dollar
value of the Fund's assets. This risk is heightened in some emerging market
countries.
The Fund may at times have to liquidate portfolio securities in order to acquire
sufficient U.S. dollars to fund redemptions of the Funds or other investors or
to purchase the U.S. dollars in order to pay its expenses. Changes in foreign
currency exchange rates may contribute to the need to liquidate portfolio
securities.
2. INVESTMENT LIMITATIONS
For purposes of all fundamental and nonfundamental investment policies of each
Fund: (1) the term 1940 Act includes the rules thereunder, SEC interpretations
and any exemptive order upon which the Fund may rely; and (2) the term Code
includes the rules thereunder, IRS interpretations and any private letter ruling
or similar authority upon which the Fund may rely.
Each Fund has adopted the investment policies listed in this section which are
nonfundamental policies unless otherwise noted. Except for its investment
objective, which is fundamental, the Fund has not adopted any fundamental
policies except as required by the 1940 Act or other applicable law.
Each Fund's investment objective and all investment policies of the Funds (and
Portfolios) that are designated as fundamental may not be changed without
approval of the holders of a majority of the outstanding voting securities of
the Fund. A majority of outstanding voting securities means the lesser of 67% of
the shares present or represented at a shareholders' meeting at which the
holders of more than 50% of the outstanding shares are present or represented,
or more than 50% of the outstanding shares.
Except as 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 investment limitations which are fundamental
policies of the Fund. Each Portfolio has the same fundamental investment
policies as the Fund that invests in the Portfolio.
1. DIVERSIFICATION
No Fund may, with respect to 75% of its assets, purchase a
security (other than a U.S. Government Security or a security
of an investment company) if, as a result: (1) more than 5% of
the Fund's total assets would be invested in the securities of
a single issuer; or (2) the Fund would own more than 10% of
the outstanding voting securities of any single issuer.
2. INDUSTRY CONCENTRATION
No Fund may purchase a security if, as a result, more than 25%
of the Fund's total assets would be invested in securities of
issuers conducting their principal business activities in the
same industry. For purposes of this limitation, there is no
limit on: (1) investments in U.S. Government securities, in
repurchase agreements covering U.S. Government Securities, in
securities issued by the states, territories or possessions of
the United States ("municipal securities") or in foreign
government securities; or (2) investment in issuers domiciled
in a single jurisdiction. Notwithstanding anything to the
contrary, to the extent permitted by the 1940 Act, each Fund
may invest in one or more investment companies; provided that,
except to the extent the Fund invests in other investment
companies pursuant to Section 12(d)(1)(A) of the 1940 Act, the
Fund treats the assets of the investment companies in which it
invests as its own for purposes of this policy.
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For purposes of this policy: (1) "mortgage related
securities," as that term is defined in the 1934 Act, are
treated as securities of an issuer in the industry of the
primary type of asset backing the security; (2) financial
service companies are classified according to the end users of
their services (for example, automobile finance, bank finance
and diversified finance); and (3) utility companies are
classified according to their services (for example, gas, gas
transmission, electric and gas, electric and telephone).
3. BORROWING
No Fund may borrow money if, as a result, outstanding
borrowings would exceed an amount equal to 33 1/3% of the
Fund's total assets.
4. REAL ESTATE
No Fund may purchase or sell real estate unless acquired as a
result of ownership of securities or other instruments (but
this shall not prevent the Fund from investing in securities
or other instruments backed by real estate or securities of
companies engaged in the real estate business).
5. LENDING
No Fund may make loans to other parties. For purposes of this
limitation, entering into repurchase agreements, lending
securities and acquiring any debt security are not deemed to
be the making of loans.
No Fund may lend a security if, as a result, the amount of
loaned securities would exceed an amount equal to 33 1/3% of
the Fund's total assets.
6. COMMODITIES
No Fund may purchase or sell physical commodities unless
acquired as a result of ownership of securities or other
instruments (but this shall not prevent the Fund from
purchasing or selling options and futures contracts or from
investing in securities or other instruments backed by
physical commodities).
7. UNDERWRITING
No Fund may underwrite (as that term is defined in the 1933
Act) securities issued by other persons except, to the extent
that in connection with the disposition of the Fund's assets,
the Fund may be deemed to be an underwriter.
8. SENIOR SECURITIES
No Fund may issue senior securities except to the extent
permitted by the 1940 Act.
NONFUNDAMENTAL LIMITATIONS
Each Fund has adopted the following investment limitations which are not
fundamental policies of the Fund. A nonfundamental policy will not be used to
defeat a fundamental limitation of a Portfolio. Reference to a Fund includes
reference to its corresponding Portfolio, if applicable, which has the same
fundamental policies as the Fund. The policies of a Fund may be changed by the
Board, or in the case of its corresponding Portfolio, the Core Trust or Schroder
Core Board, if applicable.
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1. BORROWING
For purposes of the limitation on borrowing, the following are
not treated as borrowings to the extent they are fully collateralized: (1) the
delayed delivery of purchased securities (such as the purchase of when-issued
securities); (2) reverse repurchase agreements; (3) dollar-roll transactions;
and (5) the lending of securities ("leverage transactions"). (See Fundamental
Limitation No. 3 "Borrowing" above.
2. LIQUIDITY
No Fund may invest more than 15% of its net assets in illiquid
assets such as: (1) securities that cannot be disposed of
within seven days at their then-current value; (2) repurchase
agreements not entitling the holder to payment of principal
within seven days; and (3) securities subject to restrictions
on the sale of the securities to the public without
registration under the 1933 Act ("restricted securities") that
are not readily marketable. Each Fund may treat certain
restricted securities as liquid pursuant to guidelines adopted
by the Board.
3. EXERCISING CONTROL OF ISSUERS
No Fund may make investments for the purpose of exercising
control of an issuer. Investments by a Fund in entities
created under the laws of foreign countries solely to
facilitate investment in securities in that country will not
be deemed the making of investments for the purpose of
exercising control.
4. OTHER INVESTMENT COMPANIES
No Fund may invest in securities of another investment
company, except to the extent permitted by the 1940 Act.
5. SHORT SALES AND PURCHASING ON MARGIN
No Fund may sell securities short, unless it owns or has the
right to obtain securities equivalent in kind and amount to
the securities sold short (short sales "against the box"), and
provided that transactions in futures contracts and options
are not deemed to constitute selling securities short.
No Fund may purchase securities on margin, except that a Fund
may use short-term credit for the clearance of the Fund's
transactions, and provided that initial and variation margin
payments in connection with futures contracts and options on
futures contracts shall not constitute purchasing securities
on margin.
6. OPTIONS, WARRANTS AND FUTURES CONTRACTS
No Fund may invest in futures or options contracts regulated
by the CFTC for: (1) bona fide hedging purposes within the
meaning of the rules of the CFTC and (2) for other purposes
if, as a result, no more than 5% of the Fund's net assets
would be invested in initial margin and premiums (excluding
amounts "in-the-money") required to establish the contracts.
No Fund: (1) will hedge more than 50% of its total assets by
selling futures contracts, buying put options, and writing
call options (so called "short positions"); (2) will buy
futures contracts or write put options whose underlying value
exceeds 25% of the Fund's total assets; and (3) will buy call
options with a value exceeding 5% of the Fund's total assets.
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3. 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. 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.Advertisements
may include comparisons of the Funds' performance relative to their peers,
mutual fund averages or recognized stock market indices. The Funds may measure
performance in terms of yield and total return.
Cumulative total return represents the actual rate of return on an investment
for a specified period. Cumulative total return is generally quoted for more
than one year (I.E., the life of the Fund), and does not show interim
fluctuations in the value of an investment.
Average annual total return represents the average annual percentage change of
an investment over a specified period. It is calculated by taking the cumulative
total return for the stated period and determining what constant annual return
would have produced the same cumulative return. Average annual returns for more
than one year tend to smooth out variations in the Fund's return and are not the
same as actual annual results.
Yield shows the rate of income a Fund earns on its investments as a percentage
of the Fund's share price. It is calculated by dividing the Fund's net
investment income for a 30-day period by the average number of shares entitled
to receive dividends and dividing the result by the Fund's net asset value per
share at the end of the 30-day period. Yield does not include changes in NAV.
Generally, yields are calculated according to standardized SEC formulas and may
not equal the income on an investor's account. Yield is usually quoted on an
annualized basis. An annualized yield represents the amount you would earn if
you remained in a Fund for a year and the Fund continued to have the same yield
for the entire year.
In performance advertising, the Funds may compare any of their performance
information with data published by independent evaluators such as Morningstar,
Inc., Lipper Analytical Services, Inc., or other companies which track the
investment performance of investment companies ("Fund Tracking Companies"). The
Funds may also compare any of their performance information with the performance
of recognized stock, bond and other indices, including but not limited to, the
Municipal Bond Buyers Indices, the Salomon Brothers Bond Index, Shearson Lehman
Bond Index, the Standard & Poor's 500 Composite Stock Price Index, Russell 2000
Index, Morgan Stanley - Europe, Australasia and Far East Index, Lehman Brothers
Intermediate Government Index, Lehman Brothers Intermediate Government/Corporate
Index, the Dow Jones Industrial Average, U.S. Treasury bonds, bills or notes and
changes in the Consumer Price Index as published by the U.S. Department of
Commerce. The Funds may refer to general market performances over past time
periods such as those published by Ibbotson Associates (for instance, its
"Stocks, Bonds, Bills and Inflation Yearbook"). In addition, the Funds may also
refer in such materials to mutual fund performance rankings and other data
published by Fund Tracking Companies. Performance advertising may also refer to
discussions of the Funds' and comparative mutual fund data and ratings reported
in independent periodicals, such as newspapers and financial magazines.
SEC YIELD CALCULATIONS
Although published yield information is useful to investors in reviewing a
Fund's performance, investors should be aware that each Fund's yield fluctuates
from day to day and that the Fund's yield for any given period is not an
indication or representation by the Fund of future yields or rates of return on
the Fund's shares. Norwest, Processing Organizations and others may charge their
customers, various retirement plans or other shareholders that invest in a Fund
fees in connection with an investment in a Fund, which will have the effect of
reducing the Fund's net yield to those shareholders. The yields of a Fund are
not fixed or guaranteed, and an investment in a Fund is not insured or
guaranteed. Accordingly, yield information may not necessarily be used to
compare shares of a Fund with investment alternatives which, like money market
instruments or bank accounts, may provide a fixed rate of interest. Also, it may
not be appropriate to compare a Fund's yield information directly to similar
information regarding investment alternatives which are insured or guaranteed.
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FIXED INCOME AND EQUITY FUNDS
Standardized yields for the Funds used in advertising are computed by dividing a
Fund's dividends and interest earned (in accordance with specific standardized
rules) for a given 30 days or one month period, net of expenses, by the average
number of shares entitled to receive distributions during the period, dividing
this figure by the Fund's net asset value per share at the end of the period and
annualizing the result (assuming compounding of income in accordance with
specific standardized rules) in order to arrive at an annual percentage rate. In
general, interest income is reduced with respect to municipal securities
purchased at a premium over their par value by subtracting a portion of the
premium from income on a daily basis. In general, interest income is increased
with respect to municipal securities purchased at original issue at a discount
by adding a portion of the discount to daily income. Capital gains and losses
generally are excluded from these calculations.
Income calculated for the purpose of determining each Fund's standardized yield
differs from income as determined for other accounting purposes. Because of the
different accounting methods used, and because of the compounding assumed in
yield calculations, the yield quoted for a Fund may differ from the rate of
distribution the Fund paid over the same period or the rate of income reported
in the Fund's financial statements.
TOTAL RETURN CALCULATIONS
Standardized total returns quoted in advertising and sales literature reflect
all aspects of a Fund's return, including the effect of reinvesting dividends
and capital gain distributions, any change in the Fund's net asset value per
share over the period and maximum sales charge, if any, applicable to purchases
of the Fund's shares. Average annual total returns are calculated, through the
use of a formula prescribed by the SEC, by determining the growth or decline in
value of a hypothetical historical investment in a Fund over a stated period,
and then calculating the annually compounded percentage rate that would have
produced the same result if the rate of growth or decline in value had been
constant over the period. For example, a cumulative return of 100% over ten
years would produce an average annual return of 7.18%, which is the steady
annual rate that would equal 100% growth on a compounded basis in ten years. The
average annual total return is computed separately for each class of shares of a
Fund. While average annual returns are a convenient means of comparing
investment alternatives, investors should realize that the performance is not
constant over time but changes from year to year, and that average annual
returns represent averaged figures as opposed to the actual year-to-year
performance of the Funds.
Average annual total return is calculated by finding the average annual
compounded rates of return of a hypothetical investment, over such periods
according to the following formula:
P(1+T)n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value: ERV is the value, at the
end of the applicable period, of a hypothetical $1,000
payment made at the beginning of the applicable period
In addition to average annual returns, each Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Total returns may be broken down into their components of
income and capital (including capital gains and changes in share price) in order
to illustrate the relationship of these factors and their contributions to total
return. Total returns, yields, and other performance information may be quoted
numerically or in a table, graph, or similar illustration. Period total return
is calculated according to the following formula:
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PT = (ERV/P-1)
Where:
PT = period total return
The other definitions are the same as in average annual total
return above
CORE-GATEWAY PERFORMANCE
When a Fund (a "Gateway fund") invests all of its investable assets in another
investment company (a "Portfolio") that has a performance history prior to the
investment by the Gateway fund, the Gateway fund will assume the performance
history of the Portfolio. That history may be restated to reflect the estimated
expenses of the Gateway fund.
OTHER ADVERTISEMENT MATTERS
The Funds may advertise other forms of performance. For example, the Funds may
quote unaveraged or cumulative total returns reflecting the change in the value
of an investment over a stated period. Average annual and cumulative total
returns may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments and/or a series of
redemptions over any time period. Total returns may be broken down into their
components of income and capital (including capital gains and changes in share
price) in order to illustrate the relationship of these factors and their
contributions to total return. Any performance information may be presented
numerically or in a table, graph or similar illustration.
The Funds may also include various information in their advertisements
including, but not limited to: (1) portfolio holdings and portfolio allocation
as of certain dates, such as portfolio diversification by instrument type, by
instrument, by location of issuer or by maturity; (2) statements or
illustrations relating to the appropriateness of types of securities and/or
mutual funds that may be employed by an investor to meet specific financial
goals, such as funding retirement, paying for children's education and
financially supporting aging parents; (3) information (including charts and
illustrations) showing the effects of compounding interest (compounding is the
process of earning interest on principal plus interest that was earned earlier;
interest can be compounded at different intervals, such as annually, quartile or
daily); (4) information relating to inflation and its effects on the dollar; for
example, after ten years the purchasing power of $25,000 would shrink to
$16,621, $14,968, $13,465 and $12,100, respectively, if the annual rates of
inflation were 4%, 5%, 6% and 7%, respectively; (5) information regarding the
effects of automatic investment and systematic withdrawal plans, including the
principal of dollar cost averaging; (6) descriptions of the Funds' portfolio
managers and the portfolio management staff of the Advisers or summaries of the
views of the portfolio managers with respect to the financial markets; (7) the
results of a hypothetical investment in a Fund over a given number of years,
including the amount that the investment would be at the end of the period; (8)
the effects of earning Federally and, if applicable, state tax-exempt income
from a Fund or investing in a tax-deferred account, such as an individual
retirement account or Section 401(k) pension plan; and (9) the net asset value,
net assets or number of shareholders of a Fund as of one or more dates.
As an example of compounding, $1,000 compounded annually at 9.00% will grow to
$1,090 at the end of the first year (an increase in $90) and $1,118 at the end
of the second year (an increase in $98). The extra $8 that was earned on the $90
interest from the first year is the compound interest. One thousand dollars
compounded annually at 9.00% will grow to $2,367 at the end of ten years and
$5,604 at the end of 20 years. Other examples of compounding are as follows: at
7% and 12% annually, $1,000 will grow to $1,967 and $3,106, respectively, at the
end of ten years and $3,870 and $9,646, respectively, at the end of twenty
years. These examples are for illustrative purposes only and are not indicative
of any Fund's performance.
The Funds may advertise information regarding the effects of automatic
investment and systematic withdrawal plans, including the principal of dollar
cost averaging. In a dollar cost averaging program, an investor invests a fixed
dollar amount in a Fund at period intervals, thereby purchasing fewer shares
when prices are high and more shares when prices are low. While such a strategy
does not insure a profit or guard against a loss in a declining market, the
investor's average cost per share can be lower than if fixed numbers of shares
had been purchased at those intervals. In evaluating such a plan, investors
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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:
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
In connection with its advertisements each Fund may provide "shareholders
letters" which serve to provide shareholders or investors an introduction into
the Fund's, the Trust's or any of the Trust's service provider's policies or
business practices. For instance, advertisements may provide for a message from
Norwest or its parent corporation that Norwest has for more than 60 years been
committed to quality products and outstanding service to assist its customers in
meeting their financial goals and setting forth the reasons that Norwest
believes that it has been successful as a national financial services firm.
4. MANAGEMENT
The officers and Trustees of the Trust may be directors, officers or employees
of (and persons providing services to the Trust may include) Forum, its
affiliates or certain non-banking affiliates of Norwest.
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 55.
President and Owner, Forum Financial Services, Inc. (a registered
broker-dealer), Forum Administrative Services, Limited Liability
Company (a mutual fund administrator), Forum Financial Corp. (a
registered transfer agent), and other companies within the Forum
Financial Group of companies. Mr. Keffer is a Director, Trustee and/or
officer of various registered investment companies for which Forum
Financial Services, Inc. or its affiliates serves as manager,
administrator or distributor. His address is Two Portland Square,
Portland, Maine 04101.
ROBERT C. BROWN, Trustee,* Age 66.
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.
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DONALD H. BURKHARDT, Trustee, Age 71.
Principal of The Burkhardt Law Firm. His address is 777 South Steele
Street, Denver, Colorado 80209.
JAMES C. HARRIS, Trustee, Age 77.
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 64.
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 52.
President, Norwest Investment Services, Inc. (a broker-dealer
subsidiary of Norwest bank) His address is 608 2nd Avenue South,
Minneapolis, Minnesota 55479.
TIMOTHY J. PENNY, Trustee, Age 45.
Senior Counselor to the public relations firm of Himle-Horner since
January 1995 and Senior Fellow at the Humphrey Institute, Minneapolis,
Minnesota (a public policy organization) since January 1995. Prior
thereto Mr. Penny was the Representative to the United States Congress
from Minnesota's First Congressional District. His address is 500
North State Street, Waseca, Minnesota 56095.
DONALD C. WILLEKE, Trustee, Age 57.
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 34.
Managing Director, Forum Financial Services, Inc., with which she has
been associated since 1994. Prior thereto, from 1991 to 1994 Ms. Morris
was Controller of Wright Express Corporation (a national credit card
company) and for six years prior thereto was employed at Deloitte &
Touche LLP as an accountant. Ms. Morris is also an officer of various
registered investment companies for which Forum Administrative
Services, LLC or Forum Financial Services, Inc. serves as manager,
administrator and/or distributor.
Her address is Two Portland Square, Portland, Maine 04101.
DAVID I. GOLDSTEIN, Vice President and Secretary, Age 36.
Managing Director and General Counsel, Forum Financial Services, Inc.,
with which he has been associated since 1991. Mr. Goldstein is also an
officer of various registered investment companies for which Forum
Administrative Services, LLC or Forum Financial Services, Inc. serves
as manager, administrator and/or distributor. His address is Two
Portland Square, Portland, Maine 04101.
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THOMAS G. SHEEHAN, Vice President and Assistant Secretary, Age 43.
Managing Director and Counsel, Forum Financial Services, Inc., with
which he has been associated since 1993. Prior thereto, Mr. Sheehan
was Special Counsel to the Division of Investment Management of the
SEC. Mr. Sheehan is also an officer of various registered investment
companies for which Forum Administrative Services, LLC or Forum
Financial Services, Inc. serves as manager, administrator and/or
distributor. His address is Two Portland Square, Portland, Maine
04101.
PAMELA J. WHEATON, Assistant Treasurer, Age 38.
Manager - Tax and Compliance Group, Forum Financial Services, Inc.,
with which she has been associated since 1989. Ms. Wheaton is also an
officer of various registered investment companies for which Forum
Administrative Services, LLC or Forum Financial Services, Inc. serves
as manager, administrator and/or distributor. Her address is Two
Portland Square, Portland, Maine 04101.
DON L. EVANS, Assistant Secretary, Age 49.
Assistant Counsel, Forum Financial Services, Inc., with which he has
been associated since 1995. Prior thereto, Mr. Evans was associated
with the law firm of Bisk & Lutz and prior thereto was associated with
the law firm of Weiner & Strother. Mr. Evans is also an officer of
various registered investment companies for which Forum Administrative
Services, LLC or Forum Financial Services, Inc. serves as manager,
administrator and/or distributor. His address is Two Portland Square,
Portland, Maine.
EDWARD C. LAWRENCE, Assistant Secretary, Age 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.
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
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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 $20,870 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 Core Trust and their principal occupations during
the past five years and ages are set forth below. Each Trustee who is an
"interested person" (as defined by the 1940 Act) of Core Trust is indicated by
an asterisk. Messrs. Keffer, Goldstein, Sheehan, and Misses. Clark and Wheaton,
officers of Core Trust, all currently serve as officers of the Trust.
Accordingly, for background information pertaining to these officers, (see
"Management - Trustees and Officers - Trustees and Officers of the Trust.")
JOHN Y. KEFFER*, 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.
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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.
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 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. Her 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.
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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. Accordingly, for background information
pertaining to these officers, see "Management - Trustees and Officers - Trustees
and Officers of the Trust." Accordingly, for background information pertaining
to her, (see "Management - Trustees and Officers - Trustees and Officers of Core
Trust.")
PETER E. GUERNSEY, (Age 75)
c/o the Trust, Two Portland Square, Portland, Maine - Trustee of the
Trust; Insurance Consultant since August 1986; prior thereto Senior
Vice President, Marsh & McLennan, Inc., insurance brokers.
JOHN I. HOWELL, (Age 80)
c/o the Trust, Two Portland Square, Portland, Maine - Trustee of the
Trust; Private Consultant since February 1987; Honorary Director,
American International Group, Inc.; Director, American International
Life Assurance Company of New York.
CLARENCE F. MICHALIS, (Age 75)
c/o the Trust, Two Portland Square, Portland, Maine - Trustee of the
Trust; Chairman of the Board of Directors, Josiah Macy, Jr. Foundation
(charitable foundation).
HERMANN C. SCHWAB, (Age 77)
c/o the Trust, Two Portland Square, Portland, Maine - Chairman and
Trustee of the Trust; retired since March, 1988; prior thereto,
consultant to SCMI since February 1, 1984.
HON. DAVID N. DINKINS, (Age 69)
c/o the Trust, Two Portland Square, Portland, Maine, 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.
PETER S. KNIGHT, (Age 46)
c/o the Trust, Two Portland Square, Portland, Maine, 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.
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SHARON L. HAUGH*, (Age 51)
787 Seventh Avenue, New York, New York, Trustee of the Trust;
Chairman, Schroder Capital Management Inc. ("SCM"), Executive Vice
President and Director, SCMI; Chairman and Director, Schroder
Advisors.
MARK J. SMITH*, (Age 35)
33 Gutter Lane, London, England - President and Trustee of the Trust;
Senior Vice President and Director of SCMI since April 1990; Director
and Senior Vice President, Schroder Advisors.
MARK ASTLEY, (Age 33)
787 Seventh Avenue, New York, New York - 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.
ROBERT G. DAVY, (Age 36)
787 Seventh Avenue, New York, New York - 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.
MARGARET H. DOUGLAS-HAMILTON*, (Age 55)
787 Seventh Avenue, New York, New York - 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.
RICHARD R. FOULKES, (Age 51)
787 Seventh Avenue, New York, New York - 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.
FERGAL CASSIDY, (Age 28)
787 Seventh Avenue, New York, New York - Treasurer of the Trust.
JOHN Y. KEFFER, (Age 56)
Two Portland Square, Portland, Maine - Vice President of the Trust;
President of FFC, the Fund's transfer and dividend disbursing agent and
other affiliated entities including Forum Financial Services, Inc.,
Forum Administrative Services, LLC, and Forum Advisors, Inc.
JANE P. LUCAS, (Age 35)
787 Seventh Avenue, New York, New York - 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.
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CATHERINE A. MAZZA, (Age 37)
787 Seventh Avenue, New York, New York - 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.
MICHAEL PERELSTEIN, (Age 41)
787 Seventh Avenue, New York, New York - 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.
ALEXANDRA POE, (Age 37)
787 Seventh Avenue, New York, New York - 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.
NICHOLAS ROSSI, (Age 35)
787 Seventh Avenue, New York, New York - 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.
THOMAS G. SHEEHAN, (Age 43)
Two Portland Square, Portland, Maine - 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.
FARIBA TALEBI, (Age 36)
787 Seventh Avenue, New York, New York - 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.
JOHN A. TROIANO, (Age 38)
787 Seventh Avenue, New York, New York - 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.
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CHERYL O. TUMLIN, (Age 32)
Two Portland Square, Portland, Maine - 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.
IRA L. UNSCHULD, (Age 31)
787 Seventh Avenue, New York, New York - Vice President of the Trust;
Vice President of SCMI since April, 1993 and an Associate from July,
1990 to April, 1993.
INVESTMENT ADVISORY SERVICES
GENERAL
The advisory fee for each Fund is based on the average daily net assets of the
Fund at the annual rate disclosed in the Fund's prospectus. To the extent that a
Fund invests in one or more Portfolios, the advisory fee paid by the Fund will
be with respect to the Portfolio for advisory services rendered at the portfolio
level.
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 an Adviser or
its affiliates may elect to credit against any investment management, custodial
or other fee received from, or rebate to, a client who is also a shareholder in
a Fund an amount equal to all or a portion of the fees received by the Adviser
or any of its affiliates from a Fund with respect to the client's assets
invested in the Fund.
NORWEST INVESTMENT MANAGEMENT
Subject to the general supervision of the Core Board, Norwest makes investment
decisions for the Portfolios (except for Global Growth Portfolio) and
continuously reviews, supervises and administers each Portfolio's investment
program or oversees the investment decisions of the subadvisers, as applicable.
Norwest, which is located at Norwest Center, Sixth Street and Marquette,
Minneapolis, Minnesota 55479, is an indirect subsidiary of Norwest Corporation,
a multi-bank holding company that was incorporated under the laws of Delaware in
1929. As of June 30, 1998, Norwest Corporation had assets of $93.20 billion,
which made it the 12TH largest bank holding company in the United States. As of
that date, Norwest managed assets with a value of approximately $29 billion.
As part of its regular banking operations, Norwest Bank Minnesota, N.A. and
other banking affiliates of Norwest may make loans to companies. Thus, it may be
possible, from time to time, for a Portfolio to hold or acquire the securities
of issuers which are also lending clients of Norwest's banking affiliates. A
lending relationship will not be a factor in Norwest's selection of portfolio
securities.
Norwest furnishes at its expense all services, facilities and personnel
necessary in connection with managing each Portfolio's investments and effecting
portfolio transactions for each Portfolio (except Schroder Global Growth
Portfolio). Under an Investment Advisory Agreement between Norwest and Core
Trust on behalf of the Portfolios (other than Schroder Global Growth Portfolio),
Norwest may delegate its responsibilities to any investment subadviser approved
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by the Board and, as applicable, interestholders, with respect to all or a
portion of the assets of the Portfolio. The Investment Advisory Agreement will
continue in effect only if such continuance is specifically approved at least
annually by the Core Trust Board or by vote of the shareholders, and in either
case, by a majority of the trustees who are not interested persons of any party
to the Investment Advisory Agreement, at a meeting called for the purpose of
voting on the Investment Advisory Agreement.
Each Investment Advisory Agreement is terminable without penalty with respect to
the Portfolio on 60 days' written notice: (1) by the Board or by a vote of a
majority of the outstanding voting securities of the Fund to the Adviser or (2)
by the Adviser on 60 days' written notice to the Core Trust. Each Investment
Advisory Agreement shall terminate upon assignment. The Investment Advisory
Agreements also provide that, with respect to the Portfolios (other than
Schroder Global Growth Portfolio), neither Norwest nor its personnel shall be
liable for any mistake of judgment or in any event whatsoever, except for lack
of good faith, provided that nothing in the Investment Advisory Agreements shall
be deemed to protect, or purport to protect, the Adviser against liability by
reason of willful misfeasance, bad faith or gross negligence in the performance
of Norwest's duties or by reason of reckless disregard of its obligations and
duties under the Investment Advisory Agreements. The Investment Advisory
Agreements provide that Norwest may render services to others.
Norwest also currently acts as investment adviser to each Performa Fund. The
investment advisory agreements between Norwest and the Trust on behalf of the
Funds are identical to the Investment Advisory Agreements between Core Trust and
Norwest on behalf of the Portfolios (other than Schroder Global Growth
Portfolio), except for the fees payable thereunder (no fee is payable to the
extent that a Fund is invested in an investment company) and certain immaterial
matters.
SCHRODER CAPITAL MANAGEMENT INTERNATIONAL, INC.
Pursuant to a separate Advisory Agreement between Schroder Core and Schroder,
Schroder acts as investment adviser to Schroder Global Growth Portfolio and is
required to furnish at its expense all services, facilities and personnel
necessary in connection with managing the Portfolio's investments and effecting
portfolio transactions for the Portfolio. Schroder, whose principal business
address is 787 Seventh Avenue, 34th Floor, New York, New York 10019, is a
registered investment adviser. Subject to the general supervision of the
Schroder Core Board, Schroder makes investment decisions for the Schroder Global
Growth Portfolio and continuously reviews, supervises and administers the
Portfolio's investment program. Schroder is a wholly owned U.S. subsidiary of
Schroders Incorporated (doing business in New York State as Schroders Holdings),
the wholly owned U.S. holding company subsidiary of Schroders plc. Schroders plc
is the holding company parent of a large world-wide group of banks and financial
services companies (referred to as the "Schroder Group") with associated
companies and branch and representative offices in eighteen countries. The
Schroder Group specializes in providing investment management services. As of
June 30, 1998, Schroder Group had over $175 billion in assets under management.
The Advisory Agreement between Schroder Core and Schroder will continue in
effect only if such continuance is specifically approved at least annually: (1)
by the Schroder Core Board or by vote of a majority of the outstanding voting
interests of the Portfolio, and , in either case, (2) by a majority of Schroder
Core's trustees who are not parties to the Advisory Agreement or interested
persons of any such party (other than as trustees of the Schroder Core);
provided further, however, that if the Advisory Agreement or the continuation of
the Agreement is not approved as to the Portfolio, the adviser may continue to
render to the Portfolio the services described herein in the manner and to the
extent permitted by the 1940 Act and the rules and regulations thereunder.
On behalf of Performa Global Growth Fund, Norwest and the Trust have entered
into an Investment Subadvisory Agreement with Schroder. The Investment
Subadvisory Agreement would become operative and Schroder would directly manage
the Fund's assets if the Board determined it was no longer in the best interest
of the Fund to invest in another registered investment company. In that event,
pursuant to the Investment Subadvisory Agreement, Schroder would make investment
decisions directly for the Fund and continuously review, supervise and
administer the Fund's investment program with respect to that portion, if any,
of the Fund's portfolio that Norwest had so delegated. Schroder would be
required to furnish at its own expense all services, facilities and personnel
40
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necessary in connection with managing of the Fund's investments and effecting
portfolio transactions for the Funds (to the extent of Norwest's delegation).
The Investment Subadvisory Agreement will continue in effect only if such
continuance is specifically approved at least annually: (1) by the Board or by
vote of a majority of the outstanding voting securities of the Fund, and, in
either case, (2) by a majority of the Trust's trustees who are not parties to
the Investment Subadvisory Agreement or interested persons of any such party
(other than as trustees of the Trust), at a meeting called for the purpose of
voting on the Investment Subadvisory Agreements. If the Investment Subadvisory
Agreement is not approved as to the Fund, the Subadviser may continue to render
to the Fund the services described herein in the manner and to the extent
permitted by the 1940 Act and the rules and regulations thereunder.
The Investment Subadvisory Agreement is terminable without penalty with respect
to the Fund on 60 days' written notice when authorized either by majority vote
of the Fund's shareholders or by the Board, or by Schroder on 60 days' written
notice to the Trust, and will automatically terminate in the event of its
assignment. The Investment Subadvisory Agreement also provides that, with
respect to the Fund, neither Schroder nor its personnel shall be liable for any
mistake of judgment or in any event whatsoever, except for lack of good faith,
provided that nothing shall be deemed to protect Schroder against liability by
reason of willful misfeasance, bad faith or gross negligence in the performance
of Schroder's duties or by reason of reckless disregard of its obligations and
duties under the Investment Subadvisory Agreement. The Investment Subadvisory
Agreement provides that Schroder may render services to others.
No payments currently are made under the Fund's Investment Subadvisory Agreement
with Schroder because the Fund currently invests all its investable assets in
the Portfolio.
SUB-ADVISERS
Norwest pays a fee to each of the Subadvisers. These fees do not increase the
fees paid by shareholders of the Funds. The amount of the fees paid by Norwest
to each Subadviser may vary from time to time as a result of periodic
negotiations with the Subadviser regarding such matters as the nature and extent
of the services (other than investment selection and order placement activities)
provided by the Subadviser to the Portfolio, the increased cost and complexity
of providing services to the Portfolio, the investment record of the Subadviser
in managing the Portfolio and the nature and magnitude of the expenses incurred
by the Subadviser in managing the Portfolio's assets and by the Adviser in
overseeing and administering management of the Portfolio. However, the
contractual fee payable to each Portfolio by Norwest for investment advisory
services will not vary as a result of those negotiations.
Norwest performs internal due diligence on each Subadviser and monitors each
Subadviser's performance using its proprietary investment adviser selection and
monitoring process. Norwest will be responsible for communicating performance
targets and evaluations to Subadvisers, supervising each Subadviser's compliance
with the Portfolio's fundamental investment objectives and policies, authorizing
Subadvisers to engage in certain investment techniques for the Portfolio, and
recommending to the Board of Trustees whether sub-advisory agreements should be
renewed, modified or terminated. Norwest also may from time to time recommend
that the Core Trust Board replace one or more Subadvisers or appoint additional
Subadvisers, depending on the Norwest's assessment of what combination of
Subadvisers it believes will optimize each Portfolio's chances of achieving its
investment objectives.
GALLIARD CAPITAL MANAGEMENT, INC.
To assist Norwest in carrying out its obligations under the Investment Advisory
Agreement with Strategic Value Bond Portfolio, Norwest has entered into an
Investment Subadvisory Agreement with Galliard, located at 800 LaSalle Avenue,
Suite 2060, Minneapolis, Minnesota 55479. Galliard specializes in fixed income
management. The firm manages assets on the premise that outstanding performance
is achieved through fundamental security analysis and strategic portfolio
diversification. As of June 30, 1998, Galliard had approximately $3.8 billion in
assets under management. Galliard is the subadviser of Strategic Value Bond
Portfolio. Galliard is registered with the SEC as an investment adviser and is
an investment advisory subsidiary of Norwest Bank.
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Pursuant to the Investment Subadvisory Agreement, Galliard makes investment
decisions for the Portfolio and continuously reviews, supervises and administers
the Portfolio's investment program with respect to that portion, if any, of the
Portfolio's portfolio that Norwest believes should be invested using Galliard as
a subadviser. Currently, Galliard manages the entire portfolio of the Portfolio
and has done so since the Portfolio's inception. Galliard is required to furnish
at its own expense all services, facilities and personnel necessary in
connection with managing of the Portfolio's investments and effecting portfolio
transactions for the Portfolio (to the extent of Norwest's delegation). Norwest
supervises the performance of Galliard including its adherence to the
Portfolio's investment objectives and policies and pays Galliard a fee for its
investment management services. As of October 1, 1998, for its services under
the Sub-Investment Advisory Agreement, Norwest pays Galliard a fee based on each
Fund's average daily net assets at an annual rate of 0.50%.
The Investment Subadvisory Agreement will continue in effect only if such
continuance is specifically approved at least annually: (1) by the Core Board or
by vote of a majority of the outstanding voting securities of the Portfolio,
and, in either case; (2) by a majority of the Core Trust's trustees who are not
parties to the Investment Subadvisory Agreement or interested persons of any
such party (other than as trustees of the Core Trust), at a meeting called for
the purpose of voting on the Investment Subadvisory Agreements; provided
further, however, that if the Investment Subadvisory Agreement or the
continuation of the Agreement is not approved, the Subadviser may continue to
render to the Portfolio the services described in the Investment Subadvisory
Agreement in the manner and to the extent permitted by the 1940 Act and the
rules and regulations thereunder.
The Investment Subadvisory Agreement is terminable without penalty with respect
to the Portfolio on 60 days' written notice when authorized either by majority
vote of the Fund's shareholders or by the Core Board, or by Galliard on 60 days
written notice to Core Trust, and will automatically terminate in the event of
its assignment. The Investment Subadvisory Agreement also provides that, with
respect to each Portfolio, neither Galliard nor its personnel shall be liable
for any mistake of judgment or in any event whatsoever, except for lack of good
faith, provided that nothing shall be deemed to protect Galliard against
liability by reason of willful misfeasance, bad faith or gross negligence in the
performance of Galliard's duties or by reason of reckless disregard of its
obligations and duties under the Investment Subadvisory Agreement. The
Investment Subadvisory Agreements provides that Galliard may render services to
others.
Galliard also currently serves as investment subadviser to Performa Strategic
Value Bond Fund pursuant to an investment subadvisory agreement between Galliard
and Norwest. The investment subadvisory agreement with respect to the Fund is
identical to the Investment Subadvisory Agreement, except for the fees payable
thereunder (no fee is payable under the investment subadvisory agreement to the
extent that the Fund is invested in an investment company) and certain
immaterial matters.
SMITH ASSET MANAGEMENT GROUP, L.P.
To assist Norwest in carrying out its obligations under the Investment Advisory
Agreement with Disciplined Growth Portfolio and Small Cap Value Portfolio,
Norwest has entered into an Investment Subadvisory Agreement with Smith, located
at 500 Crescent Court, Suite 250, Dallas, Texas. Smith is registered with the
SEC as an investment adviser and is an investment advisory affiliate of Norwest
Bank. Smith group provides investment management services to company retirement
plans, foundations, endowments, trust companies, and high net worth individuals.
As of June 30, 1998, the Smith Group managed over $634 million in assets.
Pursuant to the Sub-Investment Advisory Agreement, Smith makes investment
decisions for each of the Portfolios and continuously reviews, supervises and
administers each Portfolios' investment program with respect to that portion, if
any, of the Portfolio's portfolio that Norwest believes should be invested using
Smith as a subadviser. Currently, Smith manages the entire investment portfolio
of each Portfolio and has done so since the Portfolios' inception. Norwest
supervises the performance of Smith including its adherence to the Portfolio's
investment objectives and policies and pays Smith a fee for its investment
management services. As of October 1, 1998, for its services under the
Investment Subadvisory Agreement, Norwest pays Smith a fee based on Disciplined
Growth Portfolio's and Small Cap Value Portfolio's average daily net assets at
an annual rate of 0.35% and 0.45%, respectively.
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Under its Investment Subadvisory Agreement, Smith makes investment decisions for
each Portfolio and continuously reviews, supervises and administers each
Portfolios' investment program with respect to that portion, if any, of the
Portfolio's portfolio for which Norwest has delegated management responsibility.
Smith is required to furnish at its own expense all services, facilities and
personnel necessary in connection with managing of each Portfolio's investments
and effecting portfolio transactions for each Portfolio (to the extent of
Norwest's delegation).
During the past 17 years, Smith has developed a proprietary model investment
style which utilizes the concept of earnings surprise to aid in successful stock
selection. This proprietary model, known as the EARNINGS SURPRISE PREDICTOR
("ESP") model, is based on the idea that companies reporting positive earnings
surprises have consistently outperformed those companies reporting negative
earnings surprises. The ESP model works on the following three-discipline
approach: (1) Buy Discipline - buy based on an objective strategy driven by
earnings surprise; (2) Portfolio Discipline - eliminate factors that may dilute
the positive impact of earnings surprise on return; and (3) Sell Discipline -
sell using objective criteria to eliminate factors that cloud judgment,
including emotion.
The Investment Subadvisory Agreement will continue in effect with respect to a
Portfolio only if such continuance is specifically approved at least annually:
(1) by the Core Trust Board or by vote of a majority of the outstanding voting
securities of the Portfolios, and, in either case; (2) by a majority of the Core
Trust's trustees who are not parties to the Investment Subadvisory Agreement or
interested persons of any such party (other than as trustees of the Core Trust),
at a meeting called for the purpose of voting on the Investment Subadvisory
Agreements; provided further, however, that if the Investment Subadvisory
Agreement or the continuation of the Agreement is not approved, the Subadviser
may continue to render to each Portfolio the services described in the
Investment Subadvisory Agreement in the manner and to the extent permitted by
the Act and the rules and regulations thereunder.
The Investment Subadvisory Agreement is terminable without penalty with respect
to a Portfolio on 60 days' written notice when authorized either by majority
vote of the Portfolio's shareholders or by the Core Trust Board, or by Smith on
60 days written notice to the Core Trust, and will automatically terminate in
the event of its assignment. The Investment Subadvisory Agreement also provides
that, with respect to each Portfolio, neither Smith nor its personnel shall be
liable for any mistake of judgment or in any event whatsoever, except for lack
of good faith, provided that nothing shall be deemed to protect Smith against
liability by reason of willful misfeasance, bad faith or gross negligence in the
performance of Smith's duties or by reason of reckless disregard of its
obligations and duties under the Investment Subadvisory Agreement. The
Investment Subadvisory Agreements provides that Smith may render services to
others. Smith also currently serves as investment subadviser to the Funds
pursuant to an investment advisory agreement between Smith and Norwest. The
investment subadvisory agreement with respect to the Funds is identical to the
Investment Subadvisory Agreement, except for the fees payable thereunder (no fee
is payable under the investment subadvisory agreement with respect to a Fund to
the extent that the Fund is invested in an investment company) and certain
immaterial matters.
DORMANT ADVISORY ARRANGEMENTS
Each Fund may withdraw its investments from its corresponding Portfolio at any
time if the Board determines that it is in the best interests of the Fund to do
so. Accordingly, each Fund has retained Norwest as its investment adviser and
the corresponding Portfolio's subadviser as a subadviser. Similarly, in the
event that Performa Global Growth Fund withdraws its investment from its
corresponding Portfolio, the Fund has retained Schroder as a subadviser. Under
these "dormant" investment advisory arrangements, no Fund pays any advisory fees
as long as the Fund remains completely invested in its corresponding Portfolio
or any other investment company. In the event that a Fund were to withdraw its
assets from its corresponding Portfolio (other than Schroder Global Growth
Portfolio), Norwest would receive an advisory fee from the Fund at the same rate
as the fee paid by the Portfolio. In the event that Performa Global Growth Fund
were to withdraw its assets from Global Growth Portfolio, Norwest would receive
an advisory fee from the Fund at an annual rate of 0.90% of the Fund's average
daily net assets. Pursuant to the Funds' dormant subadvisory agreements, Norwest
(and not the Funds) would pay Schroder, Smith or Galliard, as applicable, a fee
for its subadvisory services.
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MANAGEMENT AND ADMINISTRATIVE SERVICES
GENERAL. As manager, Forum supervises the overall management of the Trust
(including the Trust's receipt of services for which the Trust is obligated to
pay) other than investment advisory services. In this capacity, Forum provides
the Trust with general office facilities, provides persons satisfactory to the
Board to serve as officers of the Trust and oversees the performance of
administrative and professional services rendered to the Funds by others.
FAS is responsible for performing certain administrative services necessary for
the Trust's operations with respect to each Fund including preparing and
printing updates of the Trust's registration statement and prospectuses,
preparing proxy and information statements and monitoring the sale of shares and
ensuring that such shares are properly and duly registered with the SEC and
applicable state securities administrators.
As of 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. For their services to the Funds, FAS and
Forum each receives a fee at an annual rate of 0.025% of the Fund's average
daily net assets.
FAS also serves as administrator of each Portfolio, except Schroder Global
Growth Portfolio, for which it serves as subadministrator. FAS provides services
to the Portfolios (other than Schroder Global Growth Portfolio) that are similar
to those provided to the Funds by Forum and FAS. Schroder Advisors serves as
administrator and Forum serves as subadministrator of Schroder Global Growth
Portfolio. Schroder Advisors and Forum provide certain management and
administrative services necessary for the Portfolio's operations, other than the
administrative services provided to the Portfolio by Schroder.
For its services with respect to each Portfolio (other than Schroder Global
Growth Portfolio) FAS receives a fee at an annual rate of 0.05% of the
Portfolio's average daily net assets. For their services to Schroder Global
Growth Portfolio, Schroder Advisors receives a fee at an annual rate of 0.15%
and Forum receives a fee at an annual rate of 0.075% of the Portfolio's average
daily net assets.
Forum is a registered broker-dealer and member of the National Association of
Securities Dealers, Inc. Forum, FAS and Forum Accounting Services, LLC are
members of the Forum Financial Group of companies, Two Portland Square,
Portland, Maine 04101, which together provide a full range of services to the
investment company and financial services industry. As of October 1, 1998, they
were controlled by John Y. Keffer, President and Chairman of the Trust.
MANAGEMENT SERVICES. Forum manages all aspects of the Trust's operations with
respect to each Fund except those which are the responsibility of Forum,
Norwest, any other Adviser or Subadviser to a Fund, or Norwest in its capacity
as administrator pursuant to an investment administration or similar agreement.
With respect to each Fund, Forum has entered into a Management Agreement that
will continue in effect only if such continuance is specifically approved at
least annually by the Board or by the shareholders and, in either case, by a
majority of the Trustees who are not interested persons of any party to the
Management Agreement.
On behalf of the Trust and with respect to each Fund, Forum: (1) oversees (a)
the preparation and maintenance by the Advisers and the Trust's administrator,
custodian, transfer agent, dividend disbursing agent and fund accountant (or if
appropriate, prepares and maintains) in such form, for such periods and in such
locations as may be required by applicable law, of all documents and records
relating to the operation of the Trust required to be prepared or maintained by
the Trust or its agents pursuant to applicable law; (b) the reconciliation of
account information and balances among the Advisers and the Trust's custodian,
transfer agent, dividend disbursing agent and fund accountant; (c) the
transmission of purchase and redemption orders for Shares; (d) the notification
of the Advisers of available funds for investment; and (e) the performance of
fund accounting, including the calculation of the net asset value per Share; (2)
oversees the Trust's receipt of the services of persons competent to perform
such supervisory, administrative and clerical functions as are necessary to
provide effective operation of the Trust; (3) oversees the performance of
administrative and professional services rendered to the Trust by others,
including its administrator, custodian, transfer agent, dividend disbursing
agent and fund accountant, as well as accounting, auditing, legal and other
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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 Internal Revenue Code of 1986, as
amended, and oversees the preparation and distribution to appropriate parties of
notices announcing the declaration of dividends and other distributions to
shareholders; (12) reviews and negotiates on behalf of the Trust normal course
of business contracts and agreements; (13) maintains and reviews periodically
the Trust's fidelity bond and errors and omission insurance coverage; and (14)
advises the Trust and the Board on matters concerning the Trust and its affairs.
The Management Agreement terminates automatically if assigned and may be
terminated without penalty with respect to any 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.
ADMINISTRATIVE SERVICES. 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 Adviser or Subadviser to a Fund, or Norwest in its
capacity as administrator pursuant to an investment administration or similar
agreement. With respect to each Fund, FAS has entered into an Administrative
Agreement that will continue in effect only if such continuance is specifically
approved at least annually by the Board or by the shareholders and, in either
case, by a majority of the Trustees who are not interested persons of any party
to the Management Agreement.
On behalf of the Trust and with respect to each Fund, FAS: (1) provides the
Trust with, or arranges for the provision of, the services of persons competent
to perform such supervisory, administrative and clerical functions as are
necessary to provide effective operation of the Trust; (2) assists in the
preparation and the printing and the periodic updating of the Trust's
registration statement, Prospectuses and SAIs, the Trust's tax returns, and
reports to its shareholders, the SEC and state and other securities
administrators; (3) assists in the preparation of proxy and information
statements and any other communications to shareholders; (4) assists the
Advisers in monitoring Fund holdings for compliance with Prospectus and SAI
investment restrictions and assists in preparation of periodic compliance
reports; (5) with the cooperation of the Trust's counsel, the Advisers, the
officers of the Trust and other relevant parties, is responsible for the
preparation and dissemination of materials for meetings of the Board; (6) is
responsible for preparing, filing and maintaining the Trust's governing
documents, including the Trust Instrument, Bylaws and minutes of meetings of
Trustees, Board committees and shareholders; (7) is responsible for maintaining
the Trust's existence and good standing under state law; (8) monitors sales of
shares and ensures that such shares are properly and duly registered with the
SEC and applicable state and other securities commissions; (9) is responsible
for the calculation of performance data for dissemination to information
services covering the investment company industry, sales literature of the Trust
and other appropriate purposes; and (10) is responsible for the determination of
the amount of and supervises the declaration of dividends and other
distributions to shareholders as necessary to, among other things, maintain the
qualification of each Fund as a regulated investment company under the Code, as
amended, and prepares and distributes to appropriate parties notices announcing
the declaration of dividends and other distributions to shareholders.
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The Administrative Agreement terminates automatically if assigned and may be
terminated without penalty with respect to any Fund by vote of that Fund's
shareholders or by either party on not more than 60 days' nor less than 30 days'
written notice. The Administrative Agreement also provides that neither FAS nor
its personnel shall be liable for any error of judgment or mistake of law or for
any act or omission in the administration or management of the Trust, except for
willful misfeasance, bad faith or gross negligence in the performance of FAS's
or their duties or by reason of reckless disregard of their obligations and
duties under the Administrative Agreement.
Pursuant to their agreements with the Trust, Forum and FAS may subcontract any
or all of their duties to one or more qualified subadministrators who agree to
comply with the terms of Forum's Management Agreement or FAS's Administration
Agreement, as applicable. Forum and FAS may compensate those agents for their
services; however, no such compensation may increase the aggregate amount of
payments by the Trust to Forum or FAS pursuant to their Management and
Administration Agreements with the Trust.
PORTFOLIOS OF CORE TRUST
Forum manages all aspects of Core Trust's operations with respect to the
Portfolios except those which are the responsibility of Norwest or Schroder.
With respect to each Portfolio, Forum has entered into a management agreement
(the "Core Trust Management Agreement") that will continue in effect only if
such continuance is specifically approved at least annually by the Core Trust
Board or by the interestholders and, in either case, by a majority of the
trustees who are not interested persons of any party to the Core Trust
Management Agreement. Under the Core Trust Management Agreement, Forum performs
similar services for each Portfolio as it and FAS perform under the Management
and Administration Agreements, to the extent the services are applicable to the
Portfolios and their structure.
NORWEST ADMINISTRATIVE SERVICES
Under an Administrative Servicing Agreement between the Trust and Norwest with
respect to Performa Global Growth Fund, Norwest performs ministerial,
administrative and oversight functions for the Funds and undertakes to reimburse
certain excess expenses of the Funds. Among other things, Norwest gathers
performance and other data from Schroder as the adviser of certain Portfolios
and from other sources, formats the data and prepares reports to the Funds'
shareholders and the Trustees. Norwest also ensures that Schroder is aware of
pending net purchases or redemptions of each Fund's shares and other matters
that may affect Schroder's performance of its duties. Lastly, Norwest has agreed
to reimburse each Fund for any amounts by which its operating expenses
(exclusive of interest, taxes and brokerage fees, organization expenses and, if
applicable, distribution expenses, all to the extent permitted by applicable
state law or regulation) exceed the limits prescribed by any state in which the
Funds' shares are qualified for sale. No fees will be paid to Norwest under the
Administrative Servicing Agreement unless the assets of each Fund that is
subject to the agreement are invested in a portfolio of another registered
investment company. The Administrative Servicing Agreement will continue in
effect only if such continuance is specifically approved at least annually by
the Board or by the shareholders and, in either case, by a majority of the
Trustees who are not parties to the Management Agreement or interested persons
of any such party.
The Administrative Servicing Agreement provides that neither Norwest nor its
personnel shall be liable for any error of judgment or mistake of law or for any
act or omission in the performance of its or their duties to the Fund, except
for willful misfeasance, bad faith or gross negligence in the performance of
Forum's or their duties or by reason of reckless disregard of its or their
obligations and duties under the agreement. The Agreement provides for a fee of
0.25% of the Fund's average daily net assets.
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.
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Under the Distribution Services Agreement, the Trust has agreed to indemnify,
defend and hold Forum, and any person who controls Forum within the meaning of
Section 15 of the 1933 Act, free and harmless from and against any and all
claims, demands, liabilities and expenses (including the cost of investigating
or defending such claims, demands or liabilities and any counsel fees incurred
in connection therewith) which Forum or any such controlling person may incur,
under the 1933 Act, or under common law or otherwise, arising out of or based
upon any alleged untrue statement of a material fact contained in the Trust's
Registration Statement or a Fund's Prospectus or Statement of Additional
Information in effect from time to time under the 1933 Act or arising out of or
based upon any alleged omission to state a material fact required to be stated
in any one thereof or necessary to make the statements in any one thereof not
misleading. Forum is not, however, protected against any liability to the Trust
or its shareholders to which Forum would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of its
duties, or by reason of Forum's reckless disregard of its obligations and duties
under the Distribution Services Agreement.
With respect to each Fund, the Distribution Services Agreement will continue in
effect only if such continuance is specifically approved at least annually by
the Board or by the shareholders and, in either case, by a majority of the
Trustees who are not parties to the Distribution Services Agreement or
interested persons of any such party.
The Distribution Services Agreement terminates automatically if assigned. With
respect to each Fund, the Distribution Services Agreement may be terminated at
any time without the payment of any penalty by the Board or by a vote of the
Fund's shareholders on 60 days' written notice to Forum; or by FAS on 60 days'
written notice to the Trust.
Forum also acts as placement agent for the Portfolios.
TRANSFER AGENT
Norwest Bank serves as transfer agent and dividend disbursing agent for the
Funds (in this capacity, the "Transfer Agent"). The Transfer Agent maintains an
account for each shareholder of the Funds, performs other transfer agency
functions and acts as dividend disbursing agent for the Funds. The Transfer
Agent is permitted to subcontract any or all of its functions with to qualified
agents. The Transfer Agent is permitted to compensate those agents for their
services; however, that compensation may not increase the aggregate amount of
payments by the Trust to the Transfer Agent. For its services, the Transfer
Agent receives a fee with respect to each Fund at an annual rate of 0.25% of
each Fund's average daily net assets.
Norwest Bank, Sixth Street and Marquette, Minneapolis, Minnesota 55479 acts as
Transfer Agent of the Trust pursuant to a Transfer Agency Agreement. The
Transfer Agency Agreement will continue in effect only if such continuance is
specifically approved at least annually by the Board or by a vote of the
shareholders of the Trust and in either case by a majority of the Trustees who
are not parties to the Transfer Agency Agreement or interested persons of any
such party, at a meeting called for the purpose of voting on the Transfer Agency
Agreement.
The responsibilities of the Transfer Agent include: (1) answering customer
inquiries regarding account status and history, the manner in which purchases
and redemptions of shares of the Fund may be effected and certain other matters
pertaining to the Fund; (2) assisting shareholders in initiating and changing
account designations and addresses; (3) providing necessary personnel and
facilities to establish and maintain shareholder accounts and records; (4)
assisting in processing purchase and redemption transactions and receiving wired
funds; (5) transmitting and receiving funds in connection with customer orders
to purchase or redeem shares; (6) verifying shareholder signatures in connection
with changes in the registration of shareholder accounts; (7) furnishing
periodic statements and confirmations of purchases and redemptions; (8)
transmitting proxy statements, annual reports, prospectuses and other
communications from the Trust to its shareholders; (9) receiving, tabulating and
transmitting to the Trust proxies executed by shareholders with respect to
meetings of shareholders of the Trust; and (10) providing such other related
services as the Trust or a shareholder may request.
For its services, the Transfer Agent receives a fee computed daily and paid
monthly from the Trust, with respect to each Fund, at an annual rate of 0.25% of
the Fund's average daily net assets attributable to each class of the Fund.
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CUSTODIAN
Pursuant to a Custodian Agreement, Norwest Bank, Sixth Street and Marquette,
Minneapolis, Minnesota 55479, also serves as each Fund's and each Portfolio's
(other than Global Growth Portfolio's) custodian and may appoint subcustodians
for the foreign securities and other assets held in foreign countries. For its
custodial service, Norwest Bank receives a fee with respect to each Portfolio at
an annual rate of 0.02% of the first $100 million of the Portfolio's average
daily net assets, 0.015% of the next $100 million of the Portfolio's average
daily net assets and 0.01% of the Portfolio's remaining average daily net
assets. The fee is computed and paid monthly, based on the average daily net
assets of the Fund, the number of portfolio transactions of the Fund and the
number of securities in the Fund's portfolio. No fee is directly payable by a
Fund to the extent the Fund is invested in a Portfolio. The Chase Manhattan Bank
serves as custodian of Schroder Global Growth Portfolio and is paid a fee for
its services.
The custodian's responsibilities include safeguarding and controlling the
Trust's cash and securities, determining income and collecting interest on Fund
investments.
Pursuant to rules adopted under the 1940 Act, a Fund may maintain its foreign
securities and cash in the custody of certain eligible foreign banks and
securities depositories. Selection of these foreign custodial institutions is
made by the Board upon consideration of a number of factors, including (but not
limited to) the reliability and financial stability of the institution; the
ability of the institution to perform capably custodial services for the Fund;
the reputation of the institution in its national market; the political and
economic stability of the country in which the institution is located; and
possible risks of potential nationalization or expropriation of Fund assets. The
Custodian employs qualified foreign subcustodians to provide custody of the
Funds foreign assets in accordance with applicable regulations.
No Fund will pay custodian fees to the extent the Fund invests in shares of
another registered investment company. Each Fund so invested incurs, however,
its proportionate share of the custodial fees of the Portfolio in which it
invests.
PORTFOLIO ACCOUNTING
Forum Accounting, an affiliate of Forum, performs portfolio accounting services
for each Fund pursuant to a Fund Accounting Agreement with the Trust. The Fund
Accounting Agreement will continue in effect only if such continuance is
specifically approved at least annually by the Board or by a vote of the
shareholders of the Trust and in either case by a majority of the Trustees who
are not parties to the Fund Accounting Agreement or interested persons of any
such party, at a meeting called for the purpose of voting on the Fund Accounting
Agreement.
Under the Fund Accounting Agreement, Forum Accounting prepares and maintains
books and records of each Fund on behalf of the Trust that are required to be
maintained under the 1940 Act, calculates the net asset value per share of each
Fund (and class thereof) and dividends and capital gain distributions and
prepares periodic reports to shareholders and the SEC. For its services, Forum
Accounting receives from the Trust with respect to each Fund a fee of $1,000 per
month plus for each additional class of the Fund above one $1,000 per month. In
addition, Forum Accounting is paid additional surcharges for each of the
following: (1) Funds with asset levels exceeding $100 million - $500/month,
Funds with asset levels exceeding $250 million - $1000/month, Funds with asset
levels exceeding $500 million - $1,500/month, Funds with asset levels exceeding
$1,000 million - $2,000/month; (2) Funds requiring international custody -
$1,000/month; (3) Funds with more than 30 international positions -
$1,000/month; (4) Tax free money market Funds - $1,000/month; (5) Funds with
more than 25% of net assets invested in asset backed securities - $1,000/month,
Funds with more than 50% of net assets invested in asset backed securities -
$2,000/month; (6) Funds with more than 100 security positions - $1,000/month;
and (7) Funds with a monthly portfolio turnover rate of 10% or greater -
$1,000/month.
Forum Accounting receives from the Trust with respect to each Gateway Fund a
standard gateway fee of $1,000 per month plus for each additional class of the
Fund above one - $1,000 per month. Forum Accounting also receives a fee of
$2,000 per month for each Gateway Fund operating pursuant to Section 12(d)(1)(E)
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of the 1940 Act that invests in more than one security. In addition to the
standard gateway fees, Forum Accounting is entitled to receive from the Trust
with respect to each Gateway Fund operating pursuant to Section 12(d)(1)(H) of
the 1940 Act additional surcharges as described above if the Fund invests in
securities other than investment companies (calculated as if the securities were
the Fund's only assets)
Surcharges are determined based upon the total assets, security positions or
other factors as of the end of the prior month and on the portfolio turnover
rate for the prior month. The rates set forth above shall remain fixed through
December 31, 1997. On January 1, 1998, and on each successive January 1, the
rates may be adjusted automatically by Forum without action of the Trust to
reflect changes in the Consumer Price Index for the preceding calendar year, as
published by the U.S. Department of Labor, Bureau of Labor Statistics. Forum
shall notify the Trust each year of the new rates, if applicable.
Forum Accounting is required to use its best judgment and efforts in rendering
fund accounting services and is not liable to the Trust for any action or
inaction in the absence of bad faith, willful misconduct or gross negligence.
Forum Accounting is not responsible or liable for any failure or delay in
performance of its fund accounting obligations arising out of or caused,
directly or indirectly, by circumstances beyond its reasonable control and the
Trust has agreed to indemnify and hold harmless Forum Accounting, its employees,
agents, officers and directors against and from any and all claims, demands,
actions, suits, judgments, liabilities, losses, damages, costs, charges, counsel
fees and other expenses of every nature and character arising out of or in any
way related to Forum Accounting's actions taken or failures to act with respect
to a Fund or based, if applicable, upon information, instructions or requests
with respect to a Fund given or made to Forum Accounting by an officer of the
Trust duly authorized. This indemnification does not apply to Forum Accounting's
actions taken or failures to act in cases of Forum Accounting's own bad faith,
willful misconduct or gross negligence.
Forum Accounting performs similar services for the Portfolios and, in addition,
acts as the Portfolios' transfer agent.
EXPENSES
Subject to the obligations of Norwest to reimburse the Trust for its excess
expenses as described above, the Trust has, under its Investment Advisory
Agreements, confirmed its obligation to pay all its other expenses, including:
(1) interest charges, taxes, brokerage fees and commissions; (2) certain
insurance premiums; (3) fees, interest charges and expenses of the Trust's
custodian, transfer agent and dividend disbursing agent; (4) telecommunications
expenses; (5) auditing, legal and compliance expenses; (6) costs of the Trust's
formation and maintenance of its existence; (7) costs of preparing and printing
the Trust's prospectuses, statements of additional information, account
application forms and shareholder reports and delivering them to existing and
prospective shareholders; (8) costs of maintaining books of original entry for
portfolio and fund accounting and other required books and accounts and of
calculating the net asset value of shares of the Trust; (9) costs of
reproduction, stationery and supplies; (10) compensation of the Trust's
trustees, officers and employees and costs of other personnel performing
services for the Trust who are not officers of Norwest, Forum or affiliated
persons of Norwest or Forum; (11) costs of corporate meetings; (12) registration
fees and related expenses for registration with the SEC and the securities
regulatory authorities of other countries in which the Trust's shares are sold;
(13) expenses incurred pursuant to state securities laws; 14) fees and
out-of-pocket expenses payable to Forum Financial Services, Inc. under any
distribution, management or similar agreement; (15) and all other fees and
expenses paid by the Trust pursuant to any distribution or shareholder service
plan adopted pursuant to Rule 12b-1 under the Act.
Trust expenses directly attributed to a Fund are charged to the Fund; other
expenses are allocated proportionately among all the series of the Trust in
relation to the net assets of each series. Similar policies pertain to the
Portfolios.
5. PORTFOLIO TRANSACTIONS
The following discussion of portfolio transactions, while referring generally to
the Funds, relates equally to the Portfolios.
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The Advisers place orders for the purchase and sale of assets they manage with
brokers and dealers selected by and in the discretion of the respective Adviser.
Each Adviser seeks "best execution" for all portfolio transactions, but a
Portfolio may pay higher than the lowest available commission rates when the
Adviser believes it is reasonable to do so in light of the value of the
brokerage and research services provided by the broker effecting the
transaction.
Commission rates for brokerage transactions are fixed on many foreign securities
exchanges, and this may cause higher brokerage expenses to accrue to a Portfolio
that invests in foreign securities than would be the case for comparable
transactions effected on U.S. securities exchanges.
Subject to the Portfolios' policy of obtaining the best price consistent with
quality of execution of transactions, each Adviser may employ broker-dealer
affiliates of the Adviser (collectively "Affiliated Brokers") to effect
brokerage transactions. The payment of commissions to Affiliated Brokers is
subject to procedures to provide that the commissions will not exceed the usual
and customary broker's commissions charged by unaffiliated brokers. No specific
portion of a Portfolio's brokerage will be directed to Affiliated Brokers and in
no event will a broker affiliated with the Adviser directing the transaction
receive brokerage transactions in recognition of research services provided to
the Adviser. The Advisers may effect transactions through brokers who sell Fund
shares.
Purchases and sales of portfolio securities for Funds that invest in
fixed-income investments usually are principal transactions. Debt instruments
are normally purchased directly from the issuer or from an underwriter or market
maker for the securities. There usually are no brokerage commissions paid for
such purchases. The Funds generally will effect purchases and sales of equity
securities through brokers who charge commissions except in the over-the-counter
markets. Purchases of debt and equity securities from underwriters of the
securities include a disclosed fixed commission or concession paid by the issuer
to the underwriter, and purchases from dealers serving as market makers include
the spread between the bid and asked price. In the case of debt securities and
equity securities traded in the foreign and domestic over-the-counter markets,
there is generally no stated commission, but the price usually includes an
undisclosed commission or markup. Allocations of transactions to brokers and
dealers and the frequency of transactions are determined by the Advisers in
their best judgment and in a manner deemed to be in the best interest of
shareholders of each Fund rather than by any formula. The primary consideration
is prompt execution of orders in an effective manner and at the most favorable
price available to the Fund. In transactions on stock exchanges in the United
States, commissions are negotiated, whereas on foreign stock exchanges
commissions are generally fixed. Where transactions are executed in the
over-the-counter market, each Fund will seek to deal with the primary market
makers; but when necessary in order to obtain best execution, they will utilize
the services of others. In all cases the Funds will attempt to negotiate best
execution.
Subject to the general policies regarding allocation of portfolio brokerage as
set forth above, each of the Board, and Core Trust Board has authorized the
Advisers to employ their respective affiliates to effect securities transactions
of the Funds or the Portfolios, provided certain other conditions are satisfied.
Payment of brokerage commissions to an affiliate of an Adviser for effecting
such transactions is subject to Section 17(e) of the 1940 Act, which requires,
among other things, that commissions for transactions on securities exchanges
paid by a registered investment company to a broker which is an affiliated
person of such investment company, or an affiliated person of another person so
affiliated, not exceed the usual and customary brokers' commissions for such
transactions. It is the Fund's policy that commissions paid to Schroder
Securities Limited, Norwest Investment Services, Inc. ("NISI") and other
affiliates of an Adviser will, in the judgment of the Adviser responsible for
making portfolio decisions and selecting brokers, be: (1) at least as favorable
as commissions contemporaneously charged by the affiliate on comparable
transactions for its most favored unaffiliated customers and (2) at least as
favorable as those which would be charged on comparable transactions by other
qualified brokers having comparable execution capability. The Board, including a
majority of the disinterested Trustees, has adopted procedures to ensure that
commissions paid to affiliates of an Adviser by the Funds satisfy the foregoing
standards. The Core Trust has adopted similar policies with respect to the
Portfolios.
No Fund has an understanding or arrangement to direct any specific portion of
its brokerage to an affiliate of an Adviser, and will not direct brokerage to an
affiliate of an Adviser in recognition of research services. The practice of
placing orders with NISI is consistent with each Fund's objective of obtaining
best execution and is not dependent on the fact that NISI is an affiliate of
Norwest.
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From time to time, a Fund may purchase securities of a broker or dealer through
which it regularly engages in securities transactions.
A Fund or Portfolio may not always pay the lowest commission or spread
available. Rather, in determining the amount of commissions, including certain
dealer spreads, paid in connection with securities transactions, the Adviser of
the Fund or Portfolio takes into account factors such as size of the order,
difficulty of execution, efficiency of the executing broker's facilities
(including the services described below) and any risk assumed by the executing
broker. The 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 a Fund as a factor in
the selection of broker-dealers to execute portfolio transactions for the Fund.
Investment decisions for the Funds (and for the Portfolios) will be made
independently from those for any other account or investment company that is or
may in the future become managed by the Advisers or their affiliates. Investment
decisions are the product of many factors, including basic suitability for the
particular client involved. Thus, a particular security may be bought or sold
for certain clients even though it could have been bought or sold for other
clients at the same time. Likewise, a particular security may be bought for one
or more clients when one or more clients are selling the security. In some
instances, one client may sell a particular security to another client. It also
sometimes happens that two or more clients simultaneously purchase or sell the
same security, in which event each day's transactions in such security are,
insofar as is possible, averaged as to price and allocated between such clients
in a manner which, in the respective Adviser's opinion, is equitable to each and
in accordance with the amount being purchased or sold by each. There may be
circumstances when purchases or sales of a portfolio security for one client
could have an adverse effect on another client that has a position in that
security. In addition, when purchases or sales of the same security for a Fund
and other client accounts managed by the Advisers occur contemporaneously, the
purchase or sale orders may be aggregated in order to obtain any price
advantages available to large denomination purchases or sales.
Certain Funds may acquire securities issued by their "regular brokers and
dealers" or the parents of those brokers and dealers. Regular brokers and
dealers means the 10 brokers or dealers that: (1) received the greatest amount
of brokerage commissions during the Fund's last fiscal year, (2) engaged in the
largest amount of principal transactions for portfolio transactions of the Fund
during the Fund's last fiscal year; or (3) sold the largest amount of the Fund's
shares during the Fund's last fiscal year.
PORTFOLIO TURNOVER. A high rate of portfolio turnover involves corresponding
greater expenses than a lower rate, which expenses must be borne by a Fund and
its shareholders. High portfolio turnover also may result in the realization of
substantial net short-term capital gains. In order to continue for Federal tax
purposes, less than 30% of the annual gross income of the Fund must be desired
from the sale of securities held by the Fund for less than three months.
The frequency of portfolio transactions (the portfolio turnover rate) will vary
from year to year depending on many factors. From time to time a Portfolio may
engage in active short-term trading to take advantage of price movements
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affecting individual issues, groups of issues or markets. The Advisers
anticipate that the annual portfolio turnover rate of each Portfolio will be
less than 100% in their first year of operations. An annual portfolio turnover
rate of 100% would occur if all of the securities in a Portfolio were replaced
once in a period of one year. Higher portfolio turnover rates may result in
increased brokerage costs and an increase in short term capital gains or losses
to the Portfolio.
6. ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
GENERAL
Shares of all Funds are sold on a continuous basis by the distributor.
REDEMPTIONS
In addition to the situations described in the Prospectus with respect to the
redemptions of shares, the Trust may redeem shares involuntarily to reimburse a
Fund for any loss sustained by reason of the failure of a shareholder to make
full payment for shares purchased by the shareholder or to collect any charge
relating to transactions effected for the benefit of a shareholder which is
applicable to a Fund's shares as provided in the Prospectus from time to time.
Proceeds of redemptions normally are paid in cash. However, payments may be made
wholly or partially in portfolio securities if the Board determines that payment
in cash would be detrimental to the best interests of the Fund. The Funds have
chosen not to make an election with the SEC to pay in cash all redemptions
requested by any shareholder of record limited in amount during any 90-day
period to the lesser of $250,000 or 1% of its net assets at the beginning of
such period. Redemption requests in excess of applicable limits may be paid, in
whole or in part, in investment securities or in cash, as the Trust's Board of
Trustees may deem advisable; however, payment will be made wholly in cash unless
the Board of Trustees believes that economic or market conditions exist that
would make such a practice detrimental to the best interests of the Fund. If
redemption proceeds are paid in investment securities, such securities will be
valued as set forth in the Prospectus and a redeeming shareholder would normally
incur brokerage expenses if he or she were to convert the securities to cash.
7. TAXATION
TAX INFORMATION
Each Fund intends to qualify for each fiscal year to be taxed as a "regulated
investment company" under the Internal Revenue Code of 1986, as amended. As
such, each Fund will not be liable for federal income and excise taxes on the
net investment income and net capital gain distributed to its shareholders.
Because each Fund intends to distribute all of its net investment income and net
capital gain each year, each Fund should thereby avoid all federal income and
excise taxes.
Dividends paid by a Fund out of its net investment income (including net
short-term capital gain) are taxable to you as ordinary income. Two different
tax rates apply to net capital gain - that is, the excess of gains from capital
assets held for more than one year over net losses from capital assets held for
not more than one year. One rate (generally 28%) may apply to net gain from
capital assets held for more than one year but not more than 18 months
("mid-term gain"), and a second rate (generally 20%) may apply to the balance of
net capital gain ("adjusted net capital gain"). Distributions of mid-term gain
and adjusted net capital gain will be taxable to shareholders as such,
regardless of how long a shareholder has held shares in the Fund. If you hold
shares for six months or less and during that period receive a long-term capital
gain distribution, any loss realized on the sale of the shares during that
six-month period will be a long-term capital loss to the extent of the
distribution. Dividends and distributions reduce the net asset value of the Fund
paying the dividend or distribution by the amount of the dividend or
distribution. Dividends or distributions made to you shortly after the purchase
of Shares, although in effect a return of capital to you, will be taxable to you
as described above.
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It is expected that a portion of the dividends of each Fund, except Performa
Strategic Value Bond Fund, will be eligible for the dividends received deduction
for corporations. The amount of such dividends eligible for the dividends
received deduction is limited to the amount of dividends from domestic
corporations received during a Fund's fiscal year.
No Portfolio is required to pay federal income taxes on its net investment
income and capital gain, as each Portfolio is treated as a partnership for
federal income tax purposes. All interest, dividends and gains and losses of a
Portfolio are deemed to have been "passed through" to the Funds investing in the
Portfolio in proportion to the Funds' holdings of the Portfolio, regardless of
whether such interest, dividends or gains have been distributed by the Portfolio
or losses have been realized by the Portfolio.
Investment income received by a Fund from sources within foreign countries may
be subject to foreign income or other taxes. Performa Global Growth Fund intends
to elect, if eligible to do so, to permit its shareholders to take a credit (or
a deduction) for foreign income and other taxes paid by its Portfolio. As a
shareholder of that Fund, you will be notified of your share of those foreign
taxes and will be required to treat the amount of such foreign taxes as
additional income. In that event, you may be entitled to claim a credit or
deduction for those taxes.
Each Fund is required by federal law to withhold 31% of reportable payments paid
to you (which may include dividends, capital gain distributions and redemptions)
if you fail to provide the Fund with a correct taxpayer identification number or
make required certifications, or who is subject to backup withholding. Reports
containing appropriate information with respect to the federal income tax status
of dividends and distributions paid during the year by each Fund will be mailed
to you shortly after the close of each calendar year.
Qualification as a regulated investment company does not, of course, involve
governmental supervision of management or investment practices or policies.
Investors should consult their own counsel for a complete understanding of the
requirements each Fund must meet to qualify for such treatment, and of the
application of state and local tax laws to his or her particular situation.
Certain listed options, regulated futures contracts and forward currency
contracts are considered "section 1256 contracts" for Federal income tax
purposes. Section 1256 contracts held by a Portfolio at the end of each taxable
year will be "marked to market" and treated for Federal income tax purposes as
though sold for fair market value on the last business day of such taxable year.
Gain or loss realized by a Portfolio on section 1256 contracts generally will be
considered 60% long-term and 40% short-term capital gain or loss. Each Portfolio
can elect to exempt its section 1256 contracts which are part of a "mixed
straddle" (as described below) from the application of section 1256.
With respect to over-the-counter put and call options, gain or loss realized by
a Portfolio upon the lapse or sale of such options held by such Portfolio will
be either long-term or short-term capital gain or loss depending upon the
Portfolio's holding period with respect to such option. However, gain or loss
realized upon the lapse or closing out of such options that are written by a
Portfolio will be treated as short-term capital gain or loss. In general, if a
Portfolio exercises an option, or an option that a Portfolio has written is
exercised, gain or loss on the option will not be separately recognized but the
premium received or paid will be included in the calculation of gain or loss
upon disposition of the property underlying the option.
Any option, futures contract, or other position entered into or held by a
Portfolio in conjunction with any other position held by such Portfolio may
constitute a "straddle" for Federal income tax purposes. A straddle of which at
least one, but not all, the positions are section 1256 contracts may constitute
a "mixed straddle". In general, straddles are subject to certain rules that may
affect the character and timing of a Portfolio's gains and losses with respect
to straddle positions by requiring, among other things, that: (1) loss realized
on disposition of one position of a straddle not be recognized to the extent
that a Portfolio has unrealized gains with respect to the other position in such
straddle; (2) a Portfolio's holding period in straddle positions be suspended
while the straddle exists (possibly resulting in gain being treated as
short-term capital gain rather than long-term capital gain); (3) losses
recognized with respect to certain straddle positions which are part of a mixed
straddle and which are non-section 1256 positions be treated as 60% long-term
and 40% short-term capital loss; (4) losses recognized with respect to certain
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straddle positions which would otherwise constitute short-term capital losses be
treated as long-term capital losses; and (5) the deduction of interest and
carrying charges attributable to certain straddle positions may be deferred.
Various elections are available to a Portfolio which may mitigate the effects of
the straddle rules, particularly with respect to mixed straddles. In general,
the straddle rules described above do not apply to any straddles held by a
Portfolio all of the offsetting positions of which consist of section 1256
contracts.
For federal income tax purposes, gains and losses attributable to fluctuations
in exchange rates which occur between the time a Portfolio accrues interest or
other receivables or accrues expenses or other liabilities denominated in a
foreign currency and the time the Portfolio actually collects such receivables
or pays such liabilities are treated as ordinary income or ordinary loss.
Similarly, gains or losses from the disposition of foreign currencies, from the
disposition of debt securities denominated in a foreign currency, or from the
disposition of a forward contract denominated in a foreign currency which are
attributable to fluctuations in the value of the foreign currency between the
date of acquisition of the asset and the date of disposition also are treated as
ordinary gain or loss.
A Portfolio's investments in zero coupon securities will be subject to special
provisions of the Code which may cause the Portfolio to recognize income without
receiving cash necessary to pay dividends or make distributions in amounts
necessary to satisfy the distribution requirements for avoiding federal income
and excise taxes. In order to satisfy those distribution requirements the
Portfolio may be forced to sell other portfolio securities.
If Performa Global Growth Fund is eligible to do so, the Fund intends to file an
election with the Internal Revenue Service to pass through to its shareholders
its share of the foreign taxes paid by the Schroder Global Growth Portfolio.
Pursuant to this election, a shareholder will be required to: (1) include in
gross income (in addition to taxable dividends actually received) his pro rata
share of foreign taxes considered to have been paid by the Fund; (2) treat his
pro rata share of such foreign taxes as having been paid by him; and (3) either
deduct such pro rata share of foreign taxes in computing his taxable income or
treat such foreign taxes as a credit against federal income taxes. No deduction
for foreign taxes may be claimed by an individual shareholder who does not
itemize deductions. In addition, certain shareholders may be subject to rules
which limit or reduce their ability to fully deduct, or claim a credit for,
their pro rata share of the foreign taxes considered to have been paid by the
Fund. Under recently enacted legislation, a shareholder's foreign tax credit
with respect to a dividend received from the Fund will be disallowed unless the
shareholder holds shares in the Fund at least 16 days during the 30-day period
beginning 15 days before the date on which the shareholder becomes entitled to
receive the dividend.
8. ADDITIONAL INFORMATION ABOUT THE TRUST AND THE SHAREHOLDERS
OF THE FUNDS
COUNSEL AND AUDITORS
Legal matters in connection with the issuance of shares of beneficial interest
of the Trust are passed upon by the law firm of Seward & Kissel, One Battery
Park Plaza, New York, NY 10004.
KPMG Peat Marwick LLP, 99 High Street, Boston, MA 02110, independent auditors,
serve as the independent auditors for the Trust.
OWNERSHIP OF FUND SHARES
As of September 1, 1998 there were no persons who owned of record 5% or more of
the outstanding shares of a Fund.
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GENERAL INFORMATION
The Board of Trustees oversees the business affairs of the Funds and is
responsible for major decisions relating to each Fund's investment objective and
policies. The Board formulates the general policies of the Funds and meets
periodically to review the results of the Funds, monitor investment activities
and practices and discuss other matters affecting the Funds and the Trust. The
Board consists of eight persons. A board of trustees for each Core Trust (each a
"Core Board") performs similar functions with respect to the Portfolios of those
investment companies. The Core Board also monitors the activities of each
Portfolio and its service providers.
The Trust has an unlimited number of authorized shares of beneficial interest.
The Board may, without shareholder approval, divide the authorized shares into
an unlimited number of separate portfolios or series (such as the Funds) and may
divide portfolios or series into classes of shares; the costs of doing so will
be borne by the Trust. As of the date of this SAI, each Fund offers one class of
shares. The Trust currently offers thirty-nine separate series.
VOTING AND OTHER RIGHTS
Each share has one vote, with fractional shares voting proportionally. Shares of
the Trust will vote together without regard to series or classes of shares on
all matters except: (1) when required by the 1940 Act or when the Trustees have
determined that the matter affects the interests of one or more series or
classes materially differently, shares will be voted by individual series or
class; and (2) when the Trustees have determined that the matter affects only
the interest of one or more series or classes, only shareholders of that series
or class shall be entitled to vote thereon. Shares are freely transferable, are
entitled to dividends as declared by the Trustees. If a Fund were liquidated,
its shareholder would receive the net assets of the Fund.
Delaware law does not require the Trust to hold annual meetings of shareholders,
and it is anticipated that shareholder meetings will be held only when
specifically required by federal or state law. Shareholders (and Trustees) have
available certain procedures for the removal of Trustees. There are no
conversion or preemptive rights in connection with shares of the Trust. All
shares when issued in accordance with the terms of the offering will be fully
paid and nonassessable. Shares are redeemable at net asset value, at the option
of the shareholder. A shareholder in a series is entitled to the shareholder's
pro rata share of all dividends and distributions arising from that series'
assets and, upon redeeming shares, will receive the portion of the series' net
assets represented by the redeemed shares.
Each Portfolio normally will not hold meetings of investors except as required
by the 1940 Act. Each investor in a Portfolio will be entitled to vote in
proportion to its relative beneficial interest in the Portfolio. When required
by the 1940 Act and other applicable law, a Fund will solicit proxies from its
shareholders and will vote its interest in a Portfolio in proportion to the
votes cast by its shareholders. If there are other investors in a Portfolio,
there can be no assurance that any issue that receives a majority of the votes
cast by Fund shareholders will receive a majority of votes cast by all investors
in the Portfolio; indeed, if other investors hold a majority interest in the
Portfolio, they could hold have voting control of the Portfolio.
From time to time, certain shareholders may own a large percentage of the Fund
shares and, accordingly, may be able to greatly affect (if not determine) the
outcome of a shareholder vote. Due to its initial investment in each Fund, prior
to the public offering of each Fund, Forum may be deemed to control each Fund.
The Trust received an order from the SEC permitting the issuance and sale of
separate classes of shares representing interests in each of the Trust's
existing funds; however, the Trust currently issues and operates the various
Funds, and separate classes of shares under the provisions of 1940 Act.
The Trust's shareholders are not personally liable for the obligations of the
Trust under Delaware law. The Delaware Business Trust Act (the "Delaware Act")
provides that a shareholder of a Delaware business trust shall be entitled to
the same limitation of liability extended to shareholders of private
corporations for profit. However, no similar statutory or other authority
limiting business trust shareholder liability exists in many other states. As a
result, to the extent that the Trust or a shareholder is subject to the
jurisdiction of courts in those states, the courts may not apply Delaware law,
and may thereby subject the Trust shareholders to liability. To guard against
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this risk, the Trust Instrument of the Trust disclaims shareholder liability for
acts or obligations of the Trust and requires that notice of such disclaimer be
given in each agreement, obligation and instrument entered into by the Trust or
its Trustees, and provides for indemnification out of Trust property of any
shareholder held personally liable for the obligations of the Trust. Thus, the
risk of a shareholder incurring financial loss beyond his investment because of
shareholder liability is limited to circumstances in which: (1) a court refuses
to apply Delaware law; (2) no contractual limitation of liability is in effect;
and (3) the Trust itself is unable to meet its obligations. In light of Delaware
law, the nature of the Trust's business, and the nature of its assets, the Board
believes that the risk of personal liability to a Trust shareholder is extremely
remote.
In order to adopt the name Norwest Funds, the Trust agreed in each Investment
Advisory Agreement with Norwest that if Norwest ceases to act as investment
adviser to the Trust or any Fund whose name includes the word "Norwest," or if
Norwest requests in writing, the Trust shall take prompt action to change the
name of the Trust and any such Fund to a name that does not include the word
"Norwest." Norwest may from time to time make available without charge to the
Trust for the Trust's use any marks or symbols owned by Norwest, including marks
or 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.
BANKING LAW MATTERS
Federal banking rules generally permit a bank or bank affiliate to act as
investment adviser, transfer agent, or custodian to a fund and to purchase
shares of the investment company as agent for and upon the order of a customer
and, in connection therewith, to retain a sales charge or similar payment.
Norwest and any bank or other bank affiliate also may perform Processing
Organization or similar services for the Funds and their shareholders. If a bank
or bank affiliate were prohibited in the future from so acting, changes in the
operation of the Funds could occur and a shareholder serviced by the bank or
bank affiliate may no longer be able to avail itself of those services. It is
not expected that shareholders would suffer any adverse financial consequences
as a result of any of these occurrences.
CORE AND GATEWAY STRUCTURE
Each Fund seeks to achieve its investment objective by investing all of its
investable assets in its corresponding Portfolio, that has the same investment
objective and substantially identical investment policies as the Fund.
Accordingly, each Portfolio directly acquires portfolio securities and a Fund
acquires an indirect interest in those securities. Each Portfolio (other than
Schroder Global Growth Portfolio) is a separate series of Core, a business trust
organized under the laws of the State of Delaware in 1994. Schroder Global
Growth Portfolio is a separate series of Schroder Core, a business trust
organized under the laws of the State of Delaware in 1995. Core Trust and
Schroder Core are registered under the 1940 Act as open-end, management,
investment companies. The assets of each Portfolio belong only to, and the
liabilities of each Portfolio are borne solely by, that Portfolio and no other
portfolio of Core Trust or Schroder Core, as applicable.
THE PORTFOLIOS. A Fund's investment in a Portfolio is in the form of a
non-transferable beneficial interest. All investors in a Portfolio will invest
on the same terms and conditions and will pay a proportionate share of the
Portfolio's expenses.
The Portfolios do not sell their shares directly to members of the general
public. Another investor in a Portfolio, such as an investment company, that
might sell its shares to members of the general public would not be required to
sell its shares at the same public offering price as any Fund, and could have
different advisory and other fees and expenses than a Fund. Therefore, Fund
shareholders may have different returns than shareholders in another investment
company that invests in a Portfolio. Information regarding any such funds is
available from Core Trust by calling Forum at (207) 879-1900.
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CERTAIN RISKS OF INVESTING IN PORTFOLIOS. A Fund's investment in a Portfolio may
be affected by the actions of other large investors in that Portfolio. For
example, if Disciplined Growth Portfolio had a large investor other than
Performa Disciplined Growth Fund that redeemed its interest, Disciplined Growth
Portfolio's remaining investors (including Disciplined Growth Fund) might, as a
result, experience higher pro rata operating expenses, thereby producing lower
returns. As there may be other investors in a Portfolio, there can be no
assurance that any issue that receives a majority of the votes cast by a Fund's
shareholders will receive a majority of votes cast by all investors in a
Portfolio; indeed, other investors holding a majority interest in a Portfolio
could have voting control of the Portfolio.
The Board retains the right to withdraw each Fund's investment in a Portfolio at
any time, and the Fund could thereafter invest directly in individual securities
or could re-invest its assets in one or more other Core Portfolios. A Fund might
withdraw its investment from a Portfolio, for example, if there were other
investors in the Portfolio with power to, and who did by a vote of all investors
(including the Fund), change the investment objective or policies of the
Portfolio in a manner not acceptable to the Board. A withdrawal could result in
a distribution in kind of portfolio securities (as opposed to a cash
distribution) by the Portfolio. That distribution could result in a less
diversified portfolio of investments for the Fund and could affect adversely the
liquidity of the Fund's portfolio. If the Fund decided to convert those
securities to cash, it would incur brokerage fees or other transaction costs. If
the Fund withdrew its investment from a Portfolio, the Board would consider what
action might be taken, including the management of the Fund's assets directly by
Norwest or the investment of the Fund's assets in another pooled investment
entity. The inability of the Fund to find a suitable replacement investment, in
the event the Board decided not to permit Norwest to manage the Fund's assets
directly, could have a significant impact on shareholders of the Fund.
FINANCIAL STATEMENTS
The financial statements of each Fund for the 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, portfolios of investments and the independent auditors' report
thereon) are included in the Annual Report to Shareholders of the Trust
delivered along with this SAI and are incorporated herein by reference.
REGISTRATION STATEMENT
This SAI and the Prospectus do not contain all the information included in the
Trust's registration statement filed with the SEC under the 1933 Act with
respect to the securities offered hereby, certain portions of which have been
omitted pursuant to the rules and regulations of the SEC. The registration
statement, including the exhibits filed therewith, may be examined at the office
of the SEC in Washington, D.C.
Statements contained herein and in the Prospectus as to the contents of any
contract or other documents are not necessarily complete, and, in each instance,
are qualified by, reference is made to the copy of such contract or other
documents filed as exhibits to the registration statement.
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APPENDIX A - DESCRIPTION OF SECURITIES RATINGS
MUNICIPAL AND CORPORATE BONDS (INCLUDING CONVERTIBLE BONDS)
MOODY'S INVESTORS SERVICE ("MOODY'S")
Moody's rates corporate bond issues, including convertible debt issues, as
follows:
Bonds which are rated Aaa are judged by Moody's to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
Bonds which are rated A possess many favorable investment attributes and are to
be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment some time in the future.
Bonds which are rated Baa are considered as medium grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payment and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Bonds which are rated Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Bonds which are rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Bonds which are rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
Bonds which are rated C are the lowest rated class of bonds and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
Note: Those bonds in the Aa, A, Baa, Ba or B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa1,
A1, Baa1, Ba1, and B1.
A-1
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STANDARD AND POOR'S CORPORATION ("S&P")
S&P rates corporate bond issues, including convertible debt issues, as follows:
Bonds rated AAA have the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
Bonds rated AA have a very strong capacity to pay interest and repay principal
and differ from the highest rated issues only in small degree.
Bonds rated A have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt rated in higher rated
categories.
Bonds rated BBB are regarded as having an adequate capacity to pay interest and
repay principal. Whereas they normally exhibit adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
weakened capacity to pay interest and repay principal for debt in this category
than in higher rated categories.
Bonds rated BB, B, CCC, CC and C are regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
bonds will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
Bonds rated BB have less near-term vulnerability to default than other
speculative issues. However, they face major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments.
Bonds rated B have a greater vulnerability to default but currently have the
capacity to meet interest payments and principal payments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal.
Bonds rated CCC have currently identifiable vulnerability to default, and are
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, they are not likely to have the
capacity to pay interest and repay principal.
Bonds rated C typically are subordinated to senior debt which as assigned an
actual or implied CCC debt rating. This rating may also be used to indicate
imminent default.
The C rating may be used to cover a situation where a bankruptcy petition has
been filed, but debt service payments are continued. The rating Cl is reserved
for income bonds on which no interest is being paid.
Bonds are rated D when the issue is in payment default, or the obligor has filed
for bankruptcy. The D rating category is used when interest payments or
principal payments are not made on the date due, even if the applicable grace
period has not expired, unless S&P believes that such payments will made during
such grace period.
Note: The ratings from AA to CCC may be modified by the addition of a plus (+)
or minus (-) sign to show the relative standing within the rating category.
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FITCH IBCA, INC. ("FITCH")
Fitch rates corporate bond issues, including convertible debt issues, as
follows:
AAA Bonds are considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA Bonds are considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated AAA. Because bonds rated in the AAA
and AA categories are not significantly vulnerable to foreseeable future
developments, shorter-term debt of these issuers is generally rated F-1+.
A Bonds are considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB Bonds are considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds, and therefore
impair timely payment. The likelihood that the ratings of these bonds will fall
below investment grade is higher than for bonds with higher ratings.
BB Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C Bonds are in imminent default in payment of interest or principal.
DDD, DD, and D Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. DDD
represents the highest potential for recovery on these bonds, and D represents
the lowest potential for recovery.
Plus (+) and minus (-) signs are used with a rating symbol to indicate the
relative position of a credit within the rating category. Plus and minus signs,
however, are not used in the AAA, DDD, DD, or D categories.
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PREFERRED STOCK
MOODY'S INVESTORS SERVICE
Moody's rates preferred stock as follows:
An issue rated aaa is considered to be a top-quality preferred stock. This
rating indicates good asset protection and the least risk of dividend impairment
among preferred stock issues.
An issue rated aa is considered a high-grade preferred stock. This rating
indicates that there is a reasonable assurance that earnings and asset
protection will remain relatively well maintained in the foreseeable future.
An issue rated a is considered to be an upper-medium grade preferred stock.
While risks are judged to be somewhat greater than in the aaa and aa
classification, earnings and asset protection are, nevertheless, expected to be
maintained at adequate levels.
An issue rated baa is considered to be a medium-grade, neither highly protected
nor poorly secured. Earnings and asset protection appear adequate at present but
may be questionable over any great length of time.
An issue rated ba is considered to have speculative elements and its future
cannot be considered well assured. Earnings and asset protection may be very
moderate and not well safeguarded during adverse periods. Uncertainty of
position characterizes preferred stocks in this class.
An issue which is rated b generally lacks the characteristics of a desirable
investment. Assurance of dividend payments and maintenance of other terms of the
issue over any long period of time may be small.
An issue which is rated caa is likely to be in arrears on dividend payments.
This rating designation does not purport to indicate the future status of
payments.
An issue which is rated ca is speculative in a high degree and is likely to be
in arrears on dividends with little likelihood of eventual payment.
An issue which is rated c can be regarded as having extremely poor prospects of
ever attaining any real investment standing. This is the lowest rated class of
preferred or preference stock.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each rating
classification from aa through b in its preferred stock rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issuer ranks in the lower end of its generic rating
category.
STANDARD & POOR'S
S&P rates preferred stock as follows:
AAA is the highest rating that is assigned by S&P to a preferred stock issue and
indicates an extremely strong capacity to pay the preferred stock obligations.
A preferred stock issue rated AA also qualifies as a high-quality fixed income
security. The capacity to pay preferred stock obligations is very strong,
although not as overwhelming as for issues rated AAA.
An issue rated A is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
A-4
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An issue rated BBB is regarded as backed by an adequate capacity to pay the
preferred stock obligations. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to make payments for a preferred stock in
this category than for issues in the A category.
Preferred stock rated BB, B, and CCC are regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay preferred stock
obligations. BB indicates the lowest degree of speculation and CCC the highest
degree of speculation. While such issues will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
The rating CC is reserved for a preferred stock issue in arrears on dividends or
sinking fund payments but that is currently paying.
A preferred stock rated C is a non-paying issue.
A preferred stock rated D is a non-paying issue with the issuer in default on
debt instruments.
To provide more detailed indications of preferred stock quality, the ratings
from AA to CCC may be modified by the addition of a plus (+) or minus (-) sign
to show relative standing within the major rating categories.
SHORT TERM MUNICIPAL LOANS
MOODY'S INVESTORS SERVICE. Moody's highest rating for short-term municipal loans
is MIG-1/VMIG-1. A rating of MIG-1/VMIG-1 denotes best quality. There is present
strong protection by established cash flows, superior liquidity support or
demonstrated broadbased access to the market for refinancing. Loans bearing the
MIG-2/VMIG-2 designation are of high quality. Margins of protection are ample
although not so large as in the MIG-1/VMIG-1 group. A rating of MIG 3/VMIG 3
denotes favorable quality. All security elements are accounted for but there is
lacking the undeniable strength of the preceding grades. Liquidity and cash flow
protection may be narrow and market access for refinancing is likely to be less
well established. A rating of MIG 4/VMIG 4 denotes adequate quality. Protection
commonly regarded as required of an investment security is present and although
not distinctly or predominantly speculative, there is specific risk.
STANDARD & POOR'S. S&P's highest rating for short-term municipal loans is SP-1.
S&P states that short-term municipal securities bearing the SP-1 designation
have very strong or strong capacity to pay principal and interest. Those issues
rated SP-1 which are determined to possess overwhelming safety characteristics
will be given a plus (+) designation. Issues rated SP-2 have satisfactory
capacity to pay principal and interest. Issues rated SP-3 have speculative
capacity to pay principal and interest.
FITCH IBCA, INC. Fitch's short-term ratings apply to debt obligations that are
payable on demand or have original maturities of generally up to three years,
including commercial paper, certificates of deposit, medium-term notes, and
municipal and investment notes.
Short-term issues rated F-1+ are regarded as having the strongest degree of
assurance for timely payment. Issues assigned a rating of F-1 reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
Issues assigned a rating of F-2 have a satisfactory degree of assurance for
timely payment, but the margin of safety is not as great as for issues assigned
F-1+ or F-1.
A-5
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OTHER MUNICIPAL SECURITIES AND COMMERCIAL PAPER
MOODY'S INVESTORS SERVICE
Moody's two highest ratings for short-term debt, including commercial paper, are
Prime-1 and Prime-2. Both are judged investment grade, to indicate the relative
repayment ability of rated issuers.
Issuers rated Prime-1 have a superior ability for repayment of senior short-term
debt obligations. Prime-1 repayment ability will often be evidenced by many of
the following characteristics: Leading market positions in well-established
industries; high rates of return on funds employed; conservative capitalization
structure with moderate reliance on debt and ample asset protection; broad
margins in earnings coverage of fixed financial charges and high internal cash
generation; well-established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated Prime-2 by Moody's have a strong ability for repayment of senior
short-term debt obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1 but to a lesser degree. Earnings trends
and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
STANDARD AND POOR'S CORPORATION
S&P's two highest commercial paper ratings are A-1 and A-2. Issues assigned an A
rating are regarded as having the greatest capacity for timely payment. Issues
in this category are delineated with the numbers 1, 2 and 3 to indicate the
relative degree of safety. An A-1 designation indicates that the degree of
safety regarding timely payment is either overwhelming or very strong. Those
issues determined to possess overwhelming safety characteristics are denoted
with a plus (+) sign designation. The capacity for timely payment on issues with
an A-2 designation is strong. However, the relative degree of safety is not as
high as for issues designated A-1. A-3 issues have a satisfactory capacity for
timely payment. They are, however, somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations. Issues rated A-2 are regarded as having only an adequate capacity
for timely payment. However, such capacity may be damaged by changing conditions
or short-term adversities.
FITCH IBCA, INC.
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
F-1+. Issues assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F-1. Issues assigned this rating reflect an assurance of timely payment only
slightly less in degree than issues rated F-1+.
A-6
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APPENDIX B
GLOSSARY OF INVESTMENT TERMS
This glossary describes some of the types of securities and other obligations in
which a Fund (or Portfolio) may invest. Although the descriptions refer to
Portfolios only, the descriptions apply also to investments by the Funds. The
Funds (and Portfolios) are not limited to the securities and obligations listed
below, and may invest in the securities and other obligations described below
and in other types of securities and obligations to the extent permitted by its
investment objectives and policies. Refer to the SAI for a more detailed
discussion of the Funds' investment policies and these and other securities and
obligations in which the Funds (and Portfolios) may invest.
EQUITY AND RELATED SECURITIES
COMMON STOCK represents a share of ownership in a company, and usually carries
voting rights and may earn dividends. Common stockholders are not creditors of
the company, but rather, upon liquidation of the company, are entitled to their
pro rata share of the company's assets after creditors (including holders of
debt securities) and, if applicable, preferred stockholders, are paid. Unlike
preferred stock, dividends on common stock are not fixed but are declared at the
discretion of the issuer.
CONVERTIBLE SECURITIES are preferred stocks or bonds that are convertible into
common stock at a specified price or conversion ratio within a specific amount
of time.
DEPOSITORY RECEIPTS are receipts for shares of a foreign-based company that
entitle the holder to dividends and capital gain on the underlying security.
Receipts include those issued by domestic banks (American Depository Receipts
("ADRs"), foreign financial institutions (Global or European Depository
Receipts) and broker-dealers (depository shares). Unsponsored ADRs may be
created without the participation of the foreign issuer. Holders of these ADRs
generally bear all the costs of the ADR facility, whereas foreign issuers
typically bear certain costs in a sponsored ADR. The depository of an
unsponsored ADR may be under no obligation to distribute shareholder
communications received from the foreign issuer or to pass through voting
rights.
PREFERRED STOCK is a class of stock that generally pays dividends at a specified
rate and has preference over common stock in the payment of dividends and
liquidation. A preferred stockholder generally is a shareholder in the company
and not a creditor of the company. Preferred stock generally does not carry
voting rights.
WARRANTS are securities, typically issued with preferred stocks or bonds, that
give the holder the right to buy a proportionate amount of common stock at a
specified price, usually at a price that is higher than the market price at the
time of issuance of the warrant. The right may last for a specified period or
indefinitely. The specified price for warrants usually represents a premium over
the applicable market value of the underlying equity security at the time of the
warrant's issuance.
DEBT AND RELATED INVESTMENTS
BILLS, NOTES, BONDS AND DEBENTURES are debt securities issued by a corporation
or other business entity, municipality, government or government agency. Bills
usually have the shortest maturities and bonds the longest maturities. The
issuer is required to pay the holder the face or principal amount of the loan at
a specified maturity and, except for zero coupon securities, to make scheduled
interest payments during the term of the securities.
COMMERCIAL PAPER is a short-term debt obligation with a maturity ranging from 1
to 270 days issued by banks, corporations and other borrowers.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS") are debt obligations that are
collateralized by mortgages or mortgage pass-through securities ("Mortgage
Assets"). Payments of principal and interest on the Mortgage Assets are passed
through to the holders of the CMOs on the same schedule as they are received,
although, certain classes (often referred to as tranches) of CMOs may have
priority over other classes with respect to the receipt of payments. CMOs may
have complicated structures and generally involve more risks than less complex
mortgage-related securities.
B-1
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DEMAND NOTES are unsecured obligations redeemable upon a specified number of
days' notice (typically not more than 30 days). These obligations include master
demand notes that permit investment of fluctuating amounts at varying rates of
interest pursuant to direct arrangement with the issuer of the instrument. The
issuers of these obligations often have the right, after a given period, to
prepay the outstanding principal amount of the obligations upon a specified
number of days' notice. These obligations generally are not traded, nor
generally is there an established secondary market for them. Although a
purchaser of a demand note would generally not be able to resell a master demand
note to a third party, the purchaser is entitled to demand payment from the
issuer at any time in accordance with the note's notice provisions.
FIXED-INCOME SECURITIES are securities that pay a specified rate of return. The
term generally includes securities of all maturities (for instance, bills, notes
and bonds), securities on which interest or dividend payments are made before
maturity and zero coupon securities, and securities of various issuers (for
instance, corporate instruments, municipal securities and U.S. Government
Securities) that pay a specified rate of interest for a specified period of
time. The term also can include preferred stock, which pays fixed-dividends.
Coupon, discount and dividend rates usually are fixed for the term of a
security, but can provide for an increase or decrease in rate during the term of
the security.
GUARANTEED INVESTMENT CONTRACTS are arrangements with an insurance companies
under which the purchaser of the contract contributes cash to the insurance
company's general account and the insurance company credits the contribution
with interest on a monthly basis. The interest rate may be fixed or tied to a
specified market index, and the principal and interest are guaranteed by the
insurance company.
HIGH-YIELD/HIGH-RISK SECURITIES are securities that are rated below investment
grade by an NRSRO (I.E., "BB" or lower by S&P's and "Ba" or lower by Moody's).
Other terms commonly used to describe these securities include "lower rated
bonds," "non-investment grade bonds" and "junk bonds." These securities have
speculative or predominantly speculative characteristics.
MORTGAGE-RELATED AND ASSET-BACKED SECURITIES are shares in a pool of mortgages
or other debt. These securities are generally pass-through securities, which
means that principal and interest payments on the underlying securities (less
servicing fees) are passed through to securityholders on a pro rata basis. These
securities involve prepayment risk, which is the risk that during periods of
declining interest rates, the underlying mortgages or other debt may be
refinanced or paid off prior to their maturities, leaving the holder unable to
reinvest the prepaid amount at an interest rate comparable to the rate on the
prepaid securities.
PARTICIPATION INTERESTS are interests in municipal securities that are owned by
banks or other financial institutions. Participation interests usually carry a
demand feature backed by a letter of credit or guarantee of the bank or
institution permitting the holder to tender the participation interests back to
the bank or other institution.
REVERSE REPURCHASE AGREEMENTS involve the sale of a security by a Portfolio to
another party (generally a bank or dealer) in return for cash and an agreement
by the Portfolio to buy the security back at a specified price and time. This
technique is similar to borrowing.
SECURITY LOANS occur when the holder of a security lends it and receives a fee
from the borrower or is able to retain interest from investing cash collateral
deposited by the borrower. The lender may pay fees to arrange securities loans.
Security loans involve the risk that the borrower will fail to return the
borrowed security. In that case, the lender bears the risk of market value
fluctuations until the security is returned or collateral can be liquidated and
the proceeds (which may not cover the effects of fluctuations and the lenders
costs) used to replace the unreturned securities.
VARIABLE AND FLOATING RATE SECURITIES are securities that have variable or
floating rates of interest that are adjusted periodically according to a
specified formula, usually with reference to some interest rate index or market
interest rate. In certain limited circumstances, adjustments in a security
interest rate may affect the amount of principal paid at maturity. The
adjustable rate tends to decrease the security's price sensitivity to changes in
interest rates.
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ZERO COUPON SECURITIES are debt securities that are issued at a discount from
face value and do not pay interest prior to maturity. The discount approximates
the total amount of interest the security will accrue from the date of issuance
to maturity. The market value of these securities generally fluctuates more in
response to changes in interest rates than securities of comparable quality and
maturity that pay interest during their term. Holders of a zero-coupon security
with a term of more than a year must treat a portion of the discount of the
security as income on the purchase price paid for the security. As the Funds
distribute all of their net investment income, a Portfolio may have to sell
portfolio securities to distribute the income resulting from this treatment,
which may result in a taxable gain or loss and occur at a time when the
investment adviser would not otherwise have chosen to sell the securities.
OTHER INVESTMENT TERMS AND TECHNIQUES
DOLLAR ROLL TRANSACTIONS occur when a Portfolio sells fixed income securities,
typically mortgage-related securities, and makes a commitment to purchase
similar, but not identical, securities at a later date from the party to whom
the original securities were sold. Like a forward commitment, during the roll
period no payment is made for the securities purchased and no interest or
principal payments on the security accrue to the Portfolio but it assumes the
risk of ownership. A Portfolio is compensated for entering into dollar roll
transactions by the difference between the current sales price and the price for
the future purchase, as well as by the interest earned on the cash proceeds of
the initial sale. Like other forward commitments, dollar roll transactions
involve the risk that the market value of the securities to be purchased by the
Portfolio may decline below the price at which the Portfolio sold the original
securities. Also, if the buyer of the original securities under a dollar roll
transaction becomes insolvent, the Portfolio's use of the proceeds of the
transaction may be restricted pending a determination by the other buyer, or its
trustee or receiver, whether to enforce the Portfolio's obligation to repurchase
the securities, which may have increased a market value on the price at which
the original securities were sold.
MARKET CAPITALIZATION refers to the value of an issuer's outstanding stock and
is calculated by multiplying the total number of common shares outstanding by
the market price per share of the stock.
RULE 144A SECURITIES are securities that are not registered for sale to the
general public and may be resold only to certain types of institutional
investors. Because of the restrictions on their resale, these securities may be
difficult to resell at the same price as comparable non-restricted securities.
SHORT SALES AGAINST-THE-BOX occur when a Portfolio contemporaneously owns or has
the right to obtain at no added cost securities identical to securities which
the Portfolio has borrowed and sold, otherwise referred to as "sold short." For
federal income tax purposes, short sales against-the-box may in certain cases be
made to defer recognition of gain or loss on the sale of securities until the
short position is closed out. Under recently enacted legislation, if a Portfolio
has unrealized gain on securities it owns and sells identical securities short
against-the-box, the Portfolio generally will be deemed to have sold the long
position for tax purposes and thus will recognize gain.
WHEN-ISSUED, DELAYED DELIVERY and FORWARD TRANSACTIONS generally involve the
purchase of a security under an agreement to make payment and accept delivery at
some time in the future, (I.E., beyond the normal period of securities
settlement). A Portfolio does not earn interest on such securities until
settlement but bears the risk of market value fluctuations between the purchase
and settlement dates. New issues of stocks and bonds, private placements and
U.S. Government Securities may be sold in this manner.
CERTIFICATES OF PARTICIPATION are certificates representing an interest in a
pool of securities. Holders are entitled to a proportionate interest in the
underlying securities.
FUTURES, OPTIONS AND OTHER DERIVATIVES
FORWARD CONTRACTS are contracts to purchase or sell a specified amount of
property for an agreed upon price at a specified time. Forward contracts
generally are not exchange traded and are typically negotiated on an individual
basis. The Portfolios may enter into forward currency contracts to hedge against
declines in the value of securities denominated in, or whose value is tied to, a
currency other than the U.S. dollar or to reduce the impact of currency
appreciation on future purchases of such securities. Portfolios may also enter
into forward contracts to purchase or sell securities indices or other financial
indices.
B-3
<PAGE>
FUTURES CONTRACTS are contracts that obligate the buyer to receive and the
seller to deliver a commodity at a specified price on a specified date. The
Portfolio may buy and sell futures contracts on foreign currencies, securities
indices and financial indices, including interest rates or an index of U.S.
government, foreign government, equity or fixed-income securities. The
Portfolios may also buy options on futures contracts. An option on a futures
contract gives the buyer the right, but not the obligation, to buy or sell a
futures contract at a specified price on or before a specified date. Futures
contracts and options on futures contracts are standardized and traded on
exchanges.
INDEXED/STRUCTURED SECURITIES are typically short-to-intermediate-term debt
securities whose value at maturity or interest rate is linked to currencies,
interest rates, securities, indices, commodity prices or other financial
indices. These securities may be positively or negatively indexed (I.E., their
value may increase or decrease based on a movement in the price of the linked
component). Indexed/structured securities may have return characteristics
similar to direct investments in the linked component and may be more volatile
than a direct investment in the linked component. These investments may be
difficult to resell and a purchaser bears both the market risk of an investment
in the linked component and the credit risk of the issuer.
INVERSE FLOATERS, a type of indexed/structured security, are variable or
floating rate securities that pay interest at a rate that varies inversely with
movements in prevailing short-term interest rates. Upon reset of the interest
rate payable on an inverse floater, its interest rate may decrease if the linked
interest rate increases. When short-term interest rates are relatively low
compared to long-term interest rates, a Portfolio may attempt to enhance its
yield by purchasing inverse floaters. Certain inverse floaters may have an
interest rate reset mechanism that multiplies the effects of changes in the
underlying index. This form of leverage may have the effect of increasing the
volatility of the security's market value while increasing the security's,
potential yield. These investments may be difficult to resell and a purchaser
bears both the market risk of the investment and the credit risk of the issuer.
OPTIONS are the right, but not the obligation, to buy or sell a specified amount
of securities or other assets on or before a fixed date at a predetermined
price. Options may have standardized terms and be traded as exchanges or may be
tailor-made and difficult to resell. The Portfolio may purchase and write put
and call options on securities, securities indices and foreign currencies. A
purchaser of a non-standardized option is subject both to market risk and the
credit risk of the issuer.
SWAP AGREEMENTS include interest rate and mortgage (or other asset) swap
agreements. In a typical interest rate swap agreement, one party agrees to make
regular payments equal to a floating interest rate on a specified amount (the
"notional principal amount") in return for payments equal to a fixed interest
rate on the same amount for a specified period. Mortgage swap agreements are
similar to interest rate swap agreements, except that the notional principal
amount is tied to a reference pool of mortgages. In a cap or floor, one party
agrees, usually in return for a fee, to make payments under particular
circumstances. For example, the purchaser of an interest rate cap has the right
to receive payments to the extent a specified interest rate exceeds an agreed
upon level; the purchaser of an interest rate floor has the right to receive
payments to the extent a specified interest rate falls below an agreed upon
level. A collar entitles the purchaser to receive payments to the extent a
specified interest rate falls outside an agreed upon range. Swap agreements may
involve leverage and may be highly volatile; depending on how they are used,
they may have a substantial impact on a Portfolio's performance. Swap agreements
expose a Portfolio to movements in the relative value of the obligations being
swapped, to the credit risk of the counterparties and to the Portfolio's ability
to terminate its swap agreements or reduce its exposure to them through
offsetting transactions.
B-4
<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 the Trust and Core Trust with respect to
each Fund and applicable Core Portfolio, 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 Schroder Global Growth Portfolio
and Performa Global Growth Fund, the amount of fee that was waived by Schroder,
if any, and the actual fee received by Schroder. The data is for the past three
fiscal years or shorter period if the Fund/Portfolio has been in operation for a
shorter period.
<TABLE>
ADVISORY FEE ADVISORY FEE ADVISORY FEE
PAYABLE WAIVED RETAINED
<S> <C> <C> <C>
PERFORMA STRATEGIC VALUE BOND FUND
Year Ended May 31, 1998 16,556 0 16,556
PERFORMA DISCIPLINED GROWTH FUND
Year Ended May 31, 1998 29,904 0 29,904
PERFORMA SMALL CAP VALUE FUND
Year Ended May 31, 1998 15,710 0 15,710
PERFORMA GLOBAL GROWTH FUND
Year Ended May 31, 1998 2,503 2,503 0
</TABLE>
B-1
<PAGE>
TABLE 2 - MANAGEMENT FEES
The following table shows the dollar amount of fees payable to: Forum for its
management services with respect to each Fund. 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>
(I) MANAGEMENT FEES TO FORUM
MANAGEMENT MANAGEMENT MANAGEMENT
FEE FEE FEE
PAYABLE WAIVED RETAINED
<S> <C> <C> <C>
PERFORMA STRATEGIC VALUE BOND FUND
Year Ended May 31, 1998 3,317 3,205 112
PERFORMA DISCIPLINED GROWTH FUND
Year Ended May 31, 1998 3,307 3,151 156
PERFORMA SMALL CAP VALUE FUND
Year Ended May 31, 1998 1,644 1,563 81
PERFORMA GLOBAL GROWTH FUND
Year Ended May 31, 1998 3,887 3,595 292
(II) ADMINISTRATIVE FEES TO NORWEST
PERFORMA GLOBAL GROWTH FUND
Year Ended May 31, 1998 968 968 0
</TABLE>
B-2
<PAGE>
TABLE 3 - ACCOUNTING FEES
The following table shows the dollar amount of fees payable to Forum Accounting
for its accounting services with respect to each Fund, the amount of fee that
was waived by Forum Accounting, if any, and the actual fee received by Forum
Accounting. The table also shows similar information with respect to
International Portfolio. The data is for the past three fiscal years or shorter
period if the Fund has been in operation for a shorter period.
<TABLE>
FEE FEE FEE
PAYABLE WAIVED RETAINED
<S> <C> <C> <C>
PERFORMA STRATEGIC VALUE BOND FUND
Year Ended May 31, 1998 12,411 10,500 1,911
PERFORMA DISCIPLINED GROWTH FUND
Year Ended May 31, 1998 13,225 10,500 2,725
PERFORMA SMALL CAP VALUE FUND
Year Ended May 31, 1998 12,320 10,500 1,820
PERFORMA GLOBAL GROWTH FUND
Year Ended May 31, 1998 19,935 10,500 9,435
</TABLE>
B-3
<PAGE>
APPENDIX C - PERFORMANCE DATA
TABLE 4 - TOTAL RETURNS
The average annual total return of each Fund for the period ended May 31, 1998
was as follows. The actual dates of the commencement of each Fund's operations
is listed in the Fund's financial statements. The performance of the Funds
marked with an asterisk (*) includes the performance of a collective investment
fund or a common trust fund prior to its conversion into the Fund. (See
"Performance and Advertising Data -- Multiclass, Collective INVESTMENT Fund,
Common Trust Fund and Core-Gateway Performance.") Prior to 1989, the collective
investment funds and common trust fund were valued on the calendar quarter;
therefore the following chart does not reflect a Since Inception figure as of
the fiscal year end for those funds adopting collective investment or common
trust fund performance. Calendar quarter performance is available from the
adviser.
SEC STANDARDIZED RETURNS
ONE FIVE TEN SINCE
YEAR YEARS YEARS INCEPTION
PERFORMA STRATEGIC VALUE BOND FUND
N/A N/A N/A 6.20%
PERFORMA DISCIPLINED GROWTH FUND
N/A N/A N/A 4.50%
PERFORMA SMALL CAP VALUE FUND
N/A N/A N/A 1.60%
PERFORMA GLOBAL GROWTH FUND
N/A N/A N/A 6.30%
D-1
<PAGE>
APPENDIX E - OTHER ADVERTISEMENT MATTERS
From time to time, the sales material for the Funds may include a discussion of,
and commentary by senior management of the Adviser on, the following.
The Trust may compare the Fund family against other bank-managed mutual funds or
other investment companies based on asset size. The Adviser believes the Funds'
growth may be attributed to three things: disciplined investment process,
utilizing talented people and focusing on customer needs.
The Funds utilize a disciplined process which relies heavily upon its investment
managers and an experienced investment research team. This approach maximizes
consistency by ensuring that no individual manager's style unduly influences a
fund's style.
NORWEST CORPORATION
1929 Northwestern National Bank and several
upper midwest banks form a holding company called Northwestern
National Bancorporation. "Banco" acquires 90 banks in its first year.
1932 At is peak, Banco owns a total of 139 affiliate banks.
1982 Banco enters the consumer finance business by acquiring Dial Finance
Company.
1983 The 87 affiliates of Banco are reborn as
"Norwest Corporation."
1989 Norwest consolidates its operations in the new 57-story Norwest Center
in downtown Minneapolis.
1997 Norwest reaches $50 billion in assets under management, including $19
billion in mutual funds.
NORWEST ADVANTAGE FUNDS
1946 Inception of the Common Trust Funds, the company's first pooled
investment vehicles.
1987 Norwest introduces two new open-ended
registered investment company funds
(commonly known as mutual funds), called the Prime Value Funds. In less
than one year, assets under management reach $500 million.
1992 The Norwest mutual fund family expands to 11 mutual funds. Assets under
management grow to $3.2 billion.
1994 Conversion to Norwest Collective Funds (bank collective investment
funds) into NORWEST ADVANTAGE FUNDS (mutual funds).
1998 NORWEST ADVANTAGE FUNDS family includes 41 mutual funds with over $20
billion in assets under management.
<PAGE>
NORWEST CENTER
MINNEAPOLIS, MINNESOTA
DESIGNED BY WORLD-RENOWNED ARCHITECT CESAR PELLI, THE NORWEST CENTER WAS
CONSTRUCTED IN 1988. SINCE THEN, IT HAS RECEIVED SEVERAL PRESTIGIOUS
ARCHITECTURAL AWARDS, INCLUDING THE LARGE SCALE OFFICE AWARD OF EXCELLENCE, FROM
THE URBAN LAND INSTITUTE (1989); THE NAIOP (MINNESOTA) AWARD FOR EXCELLENCE --
DOWNTOWN BUILDING OF THE YEAR (1989); THE BOMA (MINNEAPOLIS) OFFICE BUILDING OF
THE YEAR, OVER 500,000 SQ. FT. (1993); AND THE BOMA (MIDWEST NORTHERN REGION)
OFFICE BUILDING OF THE YEAR, OVER 500,000 SQ. FT. (1994). THE NORWEST CENTER IS
LOCATED IN THE FINANCIAL DISTRICT OF MINNEAPOLIS AT 90 SOUTH SEVENTH STREET.
<PAGE>
NORWEST WEALTHBUILDER II PORTFOLIOS
STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 1, 1998
NORWEST WEALTHBUILDER II GROWTH BALANCED PORTFOLIO
NORWEST WEALTHBUILDER II GROWTH AND INCOME PORTFOLIO
NORWEST WEALTHBUILDER II GROWTH PORTFOLIO
<PAGE>
NORWEST ADVANTAGE PORTFOLIOS
STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 1, 1998
ACCOUNT INFORMATION AND
SHAREHOLDER SERVICING: DISTRIBUTION:
Norwest Bank Minnesota, N.A. Forum Financial Services, Inc.
Transfer Agent Manager and Distributor
733 Marquette Avenue Two Portland Square
Minneapolis, MN 55479-0040 Portland, Maine 04101
(612) 667-8833/(800) 338-1348 (207) 879-1900
Norwest Advantage Funds is registered with the Securities and Exchange
Commission as an open-end management investment company under the Investment
Company Act of 1940, as amended.
This Statement of Additional Information supplements the Prospectus dated
October 1, 1998, as may be amended from time to time, offering Class C shares of
the Norwest WealthBuilder II Portfolios of Norwest Advantage Funds: Norwest
WealthBuilder II Growth Portfolio, Norwest WealthBuilder II Growth and Income
Portfolio and Norwest WealthBuilder II Growth Balanced Portfolio.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE PROSPECTUS.
THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE READ ONLY IN CONJUNCTION WITH
A THE CURRENT PROSPECTUS OF THE PORTFOLIOS, COPIES OF WHICH MAY BE OBTAINED BY
AN INVESTOR WITHOUT CHARGE BY CONTACTING THE DISTRIBUTOR AT THE ADDRESS LISTED
ABOVE.
<PAGE>
TABLE OF CONTENTS
Page
----
Introduction 1
1. Investment Policies 3
Security Ratings Information 3
Fixed Income Investments 3
Mortgage-Backed And Asset-Backed Securities 9
Interest Rate Protection Transactions 11
Hedging And Option Income Strategies 11
Foreign Currency Transactions 19
Equity Securities 20
Illiquid Securities and Restricted Securities 23
Loans of Portfolio Securities 24
Borrowing And Transactions Involving Leverage 24
Repurchase Agreements 27
Temporary Defensive Position 27
2. Investment Limitations 27
Fundamental Limitations 27
Non-Fundamental Limitations 29
3. Performance and Advertising Data 30
SEC Yield Calculations 30
Total Return Calculations 31
Other Advertisement Matters 32
4. Management 33
Trustees and Officers 33
Investment Advisory Services 36
Management and Administrative Services 36
Distribution 38
Transfer Agent 40
Custodian 40
Portfolio Accounting 40
Expenses 41
5. Portfolio Transactions 41
6. Additional Purchase and Redemption Information 43
General 43
Exchanges 43
Redemptions 44
7. Taxation 44
<PAGE>
TABLE OF CONTENTS
Page
8. Additional Information About the Trust
and the Shareholders of the Portfolios 45
Counsel and Auditors 45
General Information 45
Shareholdings 46
Financial Statements 46
Registration Statement 46
Appendix A - Investments, Strategies and Risk Considerations A-1
Appendix B - Description of Securities Ratings B-1
<PAGE>
INTRODUCTION
The Trust was originally organized under the name "Prime Value Portfolios, Inc."
as a Maryland corporation on August 29, 1986, and on July 30, 1993, was
reorganized as a Delaware business trust under the name "Norwest Funds." On
October 1, 1995, the Trust changed its name to "Norwest Advantage Funds" and on
June 1, 1997, changed its name back to "Norwest Funds." On August 4, 1997, the
Trust changed its name back to "Norwest Advantage Funds." The Portfolios
currently offer one class of shares: Class C shares.
Each Portfolio's investment adviser is Norwest Investment Management, Inc.
("Norwest"), a subsidiary of Norwest Bank Minnesota, N.A. ("Norwest Bank").
Norwest Bank, a subsidiary of Norwest Corporation, serves as the Trust's
transfer agent, dividend disbursing agent and custodian.
Forum Financial Services, Inc. ("Forum"), a registered broker-dealer, serves as
the Trust's manager and as distributor of the Trust's shares. Forum
Administrative Services, Limited Liability Company ("FAS") serves as each
Portfolio's administrator.
As used in this SAI, the following terms shall have the meanings listed:
"Adviser" or "Investment Adviser" shall mean Norwest.
"Board" shall mean the Board of Trustees of the Trust.
"CFTC" shall mean the U.S. Commodities Futures Trading Commission.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Custodian" shall mean Norwest acting in its capacity as custodian of
a Portfolio.
"FAS" shall mean Forum Administrative Services, LLC, the Trust's
administrator.
"Fitch" shall mean Fitch IBCA, Inc.
"Forum" shall mean Forum Financial Services, Inc., a registered
broker-dealer and distributor of the Trust's shares.
"Forum Accounting" shall mean Forum Accounting Services, LLC, the
Trust's accountant.
"Portfolio" shall mean each of the three separate series of the Trust
to which this Statement of Additional Information relates as
identified on the cover page.
"Moody's" shall mean Moody's Investors Service.
"Norwest" shall mean Norwest Investment Management, Inc., a subsidiary
of Norwest Bank Minnesota, N.A.
"Norwest Bank" shall mean Norwest Bank Minnesota, N.A., a subsidiary
of Norwest Corporation.
"NRSRO" shall mean a nationally recognized statistical rating
organization.
"SEC" shall mean the U.S. Securities and Exchange Commission.
"S&P" shall mean Standard & Poor's.
<PAGE>
"Stock Index Futures" shall mean futures contracts that relate to
broadly-based stock indices.
"Transfer Agent" shall mean Norwest Bank acting in its capacity as
transfer and dividend disbursing agent of a Portfolio.
"Trust" shall mean Norwest Advantage Funds, an open-end, management
investment company registered under the 1940 Act.
"Underlying Funds" means the affiliated and non-affiliated open-end,
management investment companies or series in which the Portfolios
invest.
"U.S. Government Securities" shall mean obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities.
"1933 Act" shall mean the Securities Act of 1933, as amended.
"1940 Act" shall mean the Investment Company Act of 1940, as amended.
<PAGE>
1. INVESTMENT POLICIES
The following discussion is intended to supplement the disclosure in each
Prospectus concerning each Portfolio's investments, investment techniques and
strategies and the risks associated therewith. No Portfolio may make any
investment or employ any investment technique or strategy not referenced in the
Prospectus which relates to that Portfolio. Each Portfolio seeks to achieve its
investment objective by investing substantially all of its investable assets in
the Underlying Funds. Accordingly, the investment experience of each of these
Portfolios will correspond directly with the investment experience of its
respective Underlying Funds. Therefore, although the following discusses the
investment policies of the Portfolios, it applies equally to the Underlying
Funds.
SECURITY RATINGS INFORMATION
Moody's, S&P and other NRSROs are private services that provide ratings of the
credit quality of debt obligations, including convertible securities. A
description of the range of ratings assigned to various types of bonds and other
securities by several NRSROs is included in Appendix A to this SAI. The
Portfolios may use these ratings to determine whether to purchase, sell or hold
a security. It should be emphasized, however, that ratings are general and are
not absolute standards of quality. Consequently, securities with the same
maturity, interest rate and rating may have different market prices. If an issue
of securities ceases to be rated or if its rating is reduced after it is
purchased by a Portfolio (neither event requiring sale of such security by a
Portfolio), Norwest will determine whether the Portfolio should continue to hold
the obligation. To the extent that the ratings given by a NRSRO may change as a
result of changes in such organizations or their rating systems, the Investment
Adviser will attempt to substitute comparable ratings. Credit ratings attempt to
evaluate the safety of principal and interest payments and do not evaluate the
risks of fluctuations in market value. Also, rating agencies may fail to make
timely changes in credit ratings. An issuer's current financial condition may be
better or worse than a rating indicates.
A Portfolio may purchase unrated securities if the Adviser determines the
security to be of comparable quality to a rated security that the Portfolio may
purchase. Unrated securities may not be as actively traded as rated securities.
A Portfolio may retain securities whose rating has been lowered below the lowest
permissible rating category (or that are unrated and determined by the Adviser
to be of comparable quality to securities whose rating has been lowered below
the lowest permissible rating category) if the Adviser determines that retaining
such security is in the best interests of the Portfolio.
To limit credit risks, certain Portfolios may only invest in securities that are
investment grade (rated in the top four long-term investment grades by an NRSRO
or in the top two short-term investment grades by an NRSRO.) Accordingly, the
lowest permissible long-term investment grades for corporate bonds, including
convertible bonds, are Baa in the case of Moody's and BBB in the case of S&P and
Fitch; the lowest permissible long-term investment grades for preferred stock
are Baa in the case of Moody's and BBB in the case of S&P and Fitch; and the
lowest permissible short-term investment grades for short-term debt, including
commercial paper, are Prime-2 (P-2) in the case of Moody's, A-2 in the case of
S&P and F-2 in the case of Fitch. All these ratings are generally considered to
be investment grade ratings, although Moody's indicates that securities with
long-term ratings of Baa have speculative characteristics.
FIXED INCOME INVESTMENTS
GENERAL INFORMATION CONCERNING FIXED INCOME SECURITIES
Yields on fixed income securities, including municipal securities, are dependent
on a variety of factors, including the general conditions of the money market
and other fixed income securities markets, the size of a particular offering,
the maturity of the obligation and the rating of the issue. Fixed income
securities with longer maturities tend to produce higher yields and are
generally subject to greater price movements than obligations with shorter
maturities. There is normally an inverse relationship between the market value
of securities sensitive to prevailing interest rates and actual changes in
interest rates. In other words, an increase in interest rates will generally
reduce the
<PAGE>
market value of portfolio investments, and a decline in interest rates will
generally increase the value of portfolio investments.
Obligations of issuers of fixed income securities (including municipal
securities) are subject to the provisions of bankruptcy, insolvency, and other
laws affecting the rights and remedies of creditors, such as the Federal
Bankruptcy Reform Act of 1978. In addition, the obligations of municipal issuers
may become subject to laws enacted in the future by Congress, state
legislatures, or referenda extending the time for payment of principal and/or
interest, or imposing other constraints upon enforcement of such obligations or
upon the ability of municipalities to levy taxes. Changes in the ability of an
issuer to make payments of interest and principal and in the market's perception
of an issuer's creditworthiness will also affect the market value of the debt
securities of that issuer. The possibility exists, therefore, that, the ability
of any issuer to pay, when due, the principal of and interest on its debt
securities may become impaired.
U.S. GOVERNMENT SECURITIES
In addition to obligations of the U.S. Treasury, each of the Portfolios may
invest in U.S. Government Securities. Agencies and instrumentalities which issue
or guarantee debt securities and which have been established or sponsored by the
United States government include the Bank for Cooperatives, the Export-Import
Bank, the Federal Farm Credit System, the Federal Home Loan Banks, the Federal
Home Loan Mortgage Corporation, the Federal Intermediate Credit Banks, the
Federal Land Banks, the Federal National Mortgage Association, the Small
Business Administration, the Government National Mortgage Association and the
Student Loan Marketing Association. Others are supported by the right of the
issuer to borrow from the Treasury; others are supported by the discretionary
authority of the U.S. government to purchase the agency's obligations; and still
others are supported primarily or solely by the creditworthiness of the issuer.
No assurance can be given that the U.S. government would provide financial
support to U.S. government-sponsored agencies or instrumentalities if it is not
obligated to do so by law. Accordingly, although these securities have
historically involved little risk of loss of principal if held to maturity, they
may involve more risk than securities backed by the U.S. Government's full faith
and credit. A Portfolio will invest in the obligations of such agencies or
instrumentalities only when Norwest believes that the credit risk with respect
thereto is consistent with the Portfolio's investment policies.
BANK OBLIGATIONS
Each Portfolio may invest in obligations of financial institutions, including
negotiable certificates of deposit, bankers' acceptances and time deposits of
U.S. banks (including savings banks and savings associations), foreign branches
of U.S. banks, foreign banks and their non-U.S. branches (Eurodollars), U.S.
branches and agencies of foreign banks (Yankee dollars), and wholly-owned
banking-related subsidiaries of foreign banks. A Portfolio's investments in the
obligations of foreign banks and their branches, agencies or subsidiaries may be
obligations of the parent, of the issuing branch, agency or subsidiary, or both.
Investments in foreign bank obligations are limited to banks and branches
located in countries which the Investment Adviser believes do not present undue
risk.
A certificate of deposit is an interest-bearing negotiable certificate issued by
a bank against funds deposited in the bank. A bankers' acceptance is a
short-term draft drawn on a commercial bank by a borrower, usually in connection
with an international commercial transaction. Although the borrower is liable
for payment of the draft, the bank unconditionally guarantees to pay the draft
at its face value on the maturity date. Time deposits are non-negotiable
deposits with a banking institution that earn a specified interest rate over a
given period. Certificates of deposit and fixed time deposits, which are payable
at the stated maturity date and bear a fixed rate of interest, generally may be
withdrawn on demand by the Portfolio but may be subject to early withdrawal
penalties which vary depending upon market conditions and the remaining maturity
of the obligation and could reduce the Portfolio's yield. Although fixed-time
deposits do not in all cases have a secondary market, there are no contractual
restrictions on the right to transfer a beneficial interest in the deposits to
third parties. Deposits subject to early withdrawal penalties or that mature in
more than seven days are treated as illiquid securities if there is no readily
available market for the securities.
The Portfolios may invest in Eurodollar certificates of deposit, which are U.S.
dollar denominated certificates of deposit issued by offices of foreign and
domestic banks located outside the United States; Yankee certificates of
<PAGE>
deposit, which are certificates of deposit issued by a U.S. branch of a foreign
bank denominated in U.S. dollars and held in the United States; Eurodollar time
deposits ("ETDs"), which are U.S. dollar denominated deposits in a foreign
branch of a U.S. bank or a foreign bank; and Canadian time deposits, which are
essentially the same as ETDs, except that they are issued by Canadian offices of
major Canadian banks.
Investments that a Portfolio may make in instruments of foreign banks, branches
or subsidiaries may involve certain risks, including future political and
economic developments, the possible imposition of foreign withholding taxes on
interest income payable on such securities, the possible seizure or
nationalization of foreign deposits, differences from domestic banks in
applicable accounting, auditing and financial reporting standards, and the
possible establishment of exchange controls or other foreign governmental laws
or restrictions applicable to the payment of certificates of deposit or time
deposits which might affect adversely the payment of principal and interest on
such securities held by the Portfolio.
SHORT TERM DEBT SECURITIES/COMMERCIAL PAPER
Each Portfolio may assume a temporary defensive position and may invest without
limit in commercial paper that is rated in one of the two highest rating
categories by an NRSRO or, if not rated, determined by the Investment Adviser to
be of comparable quality. Portfolios also may invest in commercial paper as an
investment and not as a temporary defensive position. Except as noted below with
respect to variable master demand notes, issues of commercial paper normally
have maturities of less than nine months and fixed rates of return.
Variable amount master demand notes are unsecured demand notes that permit the
indebtedness thereunder to vary and provide for periodic adjustments in the
interest rate according to the terms of the instrument. Because master demand
notes are direct lending arrangements between a Portfolio and the issuer, they
are not normally traded. Although there is no secondary market in the notes, the
Portfolio may demand payment of principal and accrued interest at any time.
Variable amount master demand notes must satisfy the same criteria as set forth
above for commercial paper.
GUARANTEED INVESTMENT CONTRACTS
The Portfolios may invest in guaranteed investment contracts ("GICs") issued by
insurance companies. Pursuant to such contracts, a Portfolio makes cash
contributions to a deposit fund of the insurance company's general account. The
insurance company then credits to the deposit Portfolio on a monthly basis
guaranteed interest at a rate based on an index. The GICs provide that this
guaranteed interest will not be less than a certain minimum rate. The insurance
company may assess periodic charges against a GIC for expense and service costs
allocable to it, and these charges will be deducted from the value of the
deposit Portfolio. A Portfolio will purchase a GIC only when the Investment
Adviser has determined that the GIC presents minimal credit risks to the
Portfolio and is of comparable quality to instruments in which the Portfolio may
otherwise invest. Because a Portfolio may not receive the principal amount of a
GIC from the insurance company on seven days' notice or less, a GIC may be
considered an illiquid investment. The term of a GIC will be one year or less.
The interest rate on a GIC may be tied to a specified market index and is
guaranteed not to be less than a certain minimum rate.
ZERO COUPON SECURITIES
Zero coupon securities are sold at original issue discount and pay no interest
to holders prior to maturity. Accordingly, these securities usually trade at a
deep discount from their face or par value and will be subject to greater
fluctuations of market value in response to changing interest rates than debt
obligations of comparable maturities which make current distributions of
interest. Federal tax law requires that a Portfolio accrue a portion of the
discount at which a zero-coupon security was purchased as income each year even
though the Portfolio receives no interest payment in cash on the security during
the year. Interest on these securities, however, is reported as income by the
Portfolio and must be distributed to its shareholders. The Portfolios distribute
all of their net investment income, and may have to sell portfolio securities to
distribute imputed income, which may occur at a
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time when the Investment Adviser would not have chosen to sell such securities
and which may result in a taxable gain or loss.
Currently, U.S. Treasury securities issued without coupons include Treasury
bills and separately traded principal and interest components of securities
issued or guaranteed by the U.S. Treasury. These stripped components are traded
independently under the Treasury's Separate Trading of Registered Interest and
Principal of Securities ("STRIPS") program or as Coupons Under Book Entry
Safekeeping ("CUBES"). A number of banks and brokerage firms separate the
principal and interest portions of U.S. Treasury securities and sell them
separately in the form of receipts or certificates representing undivided
interests in these instruments. These instruments are generally held by a bank
in a custodial or trust account on behalf of the owners of the securities and
are known by various names, including Treasury Receipts ("TRs"), Treasury
Investment Growth Receipts ("TIGRs") and Certificates of Accrual on Treasury
Securities ("CATS"). In addition, corporate debt securities may be zero coupon
securities.
MUNICIPAL SECURITIES
Municipal securities are issued by the States, territories and possessions of
the United States, their political subdivisions (such as cities, counties and
towns) and various authorities (such as public housing or redevelopment
authorities), instrumentalities, public corporations and special districts (such
as water, sewer or sanitary districts) of the States, territories and
possessions of the United States or their political subdivisions. In addition,
municipal securities include securities issued by or on behalf of public
authorities to finance various privately operated facilities, such as industrial
development bonds or other private activity bonds that are backed only by the
assets and revenues of the non-governmental user (such as manufacturing
enterprises, hospitals, colleges or other entities).
Municipal securities historically have not been subject to registration with the
SEC, although there have been proposals which would require registration in the
future.
MUNICIPAL NOTES. Municipal notes, which may be either "general obligation" or
"revenue" securities are intended to fulfill the short-term capital needs of the
issuer and generally have maturities not exceeding one year. They include the
following: tax anticipation notes, revenue anticipation notes, bond anticipation
notes, construction loan notes and tax-exempt commercial paper. Tax anticipation
notes are issued to finance working capital needs of municipalities, and are
payable from various anticipated future seasonal tax revenues, such as income,
sales, use and business taxes. Revenue anticipation notes are issued in
expectation of receipt of other types of revenues, such as federal revenues
available under various federal revenue sharing programs. Bond anticipation
notes are issued to provide interim financing until long-term financing can be
arranged and are typically payable from proceeds of the long-term bonds.
Construction loan notes are sold to provide construction financing. After
successful completion and acceptance, many such projects receive permanent
financing through the Federal Housing Administration under the Federal National
Mortgage Association or the Government National Mortgage Association. Tax-exempt
commercial paper is a short-term obligation with a stated maturity of 365 days
or less. It is issued by agencies of state and local governments to finance
seasonal working capital needs or as short-term financing in anticipation of
longer term financing. Municipal notes also include longer term issues that are
remarketed to investors periodically, usually at one year intervals or less.
MUNICIPAL BONDS. Municipal bonds meet longer term capital needs of a municipal
issuer and generally have maturities of more than one year when issued. General
obligation bonds are used to fund a wide range of public projects, including
construction or improvement of schools, highways and roads, and water and sewer
systems. General obligation bonds are secured by the issuer's pledge of its full
faith and credit and taxing power for the payment of principal and interest. The
taxes that can be levied for the payment of debt service may be limited or
unlimited as to rate or amount. Revenue bonds in recent years have come to
include an increasingly wide variety of types of municipal obligations. As with
other kinds of municipal obligations, the issuers of revenue bonds may consist
of virtually any form of state or local governmental entity. Generally, revenue
bonds are secured by the revenues or net revenues derived from a particular
facility, class of facilities, or, in some cases, from the proceeds of a special
excise or other specific revenue source, but not from general tax revenues.
Revenue bonds are issued to finance a wide variety of capital projects including
electric, gas, water and sewer systems; highways, bridges, and
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tunnels; port and airport facilities; colleges and universities; and hospitals.
Many of these bonds are additionally secured by a debt service reserve fund
which can be used to make a limited number of principal and interest payments
should the pledged revenues be insufficient. Various forms of credit
enhancement, such as a bank letter of credit or municipal bond insurance, may
also be employed in revenue bond issues. Revenue bonds issued by housing
authorities may be secured in a number of ways, including partially or fully
insured mortgages, rent subsidized and/or collateralized mortgages, and/or the
net revenues from housing or other public projects. Some authorities provide
further security in the form of a state's ability (without obligation) to make
up deficiencies in the debt service reserve fund. In recent years, revenue bonds
have been issued in large volumes for projects that are privately owned and
operated, as discussed below.
Municipal bonds are considered private activity bonds if they are issued to
raise money for privately owned or operated facilities used for such purposes as
production or manufacturing, housing, health care and other nonprofit or
charitable purposes. These bonds are also used to finance public facilities such
as airports, mass transit systems and ports. The payment of the principal and
interest on such bonds is dependent solely on the ability of the facility's
owner or user to meet its financial obligations and the pledge, if any, of real
and personal property as security for such payment.
While at one time the pertinent provisions of the Code permitted private
activity bonds to bear tax-exempt interest in connection with virtually any type
of commercial or industrial project (subject to various restrictions as to
authorized costs, size limitations, state per capita volume restrictions, and
other matters), the types of qualifying projects under the Code have become
increasingly limited, particularly since the enactment of the Tax Reform Act of
1986. Under current provisions of the Code, tax-exempt financing remains
available, under prescribed conditions, for certain privately owned and operated
facilities of organizations described in Section 501(c)(3) of the Code,
multi-family rental housing facilities, airports, docks and wharves, mass
commuting facilities and solid waste disposal projects, among others, and for
the tax-exempt refinancing of various kinds of other private commercial projects
originally financed with tax-exempt bonds. In future years, the types of
projects qualifying under the Code for tax-exempt financing could become
increasingly limited.
OTHER MUNICIPAL OBLIGATIONS. Other municipal obligations, incurred for a variety
of financing purposes, include municipal leases, which may take the form of a
lease or an installment purchase or conditional sale contract. Municipal leases
are entered into by state and local governments and authorities to acquire a
wide variety of equipment and facilities such as fire and sanitation vehicles,
telecommunications equipment and other capital assets. Municipal leases
frequently have special risks not normally associated with general obligation or
revenue bonds. Leases and installment purchase or conditional sale contracts
(which normally provide for title to the leased asset to pass eventually to the
government issuer) have evolved as a means for governmental issuers to acquire
property and equipment without being required to meet the constitutional and
statutory requirements for the issuance of debt. The debt-issuance limitations
of many state constitutions and statutes are deemed to be inapplicable because
of the inclusion in many leases or contracts of "non-appropriation" clauses that
provide that the governmental issuer has no obligation to make future payments
under the lease or contract unless money is appropriated for such purpose by the
appropriate legislative body on a yearly or other periodic basis.
ALTERNATIVE MINIMUM TAX. Municipal securities are also categorized according to:
(1) whether the interest is or is not includable in the calculation of
alternative minimum taxes imposed on individuals and corporations, (2) whether
the costs of acquiring or carrying the bonds are or are not deductible in part
by banks and other financial institutions, and (3) other criteria relevant for
Federal income tax purposes. Due to the increasing complexity of the Code and
related requirements governing the issuance of tax-exempt bonds, industry
practice has uniformly required as a condition to the issuance of such bonds,
but particularly for revenue bonds, an opinion of nationally recognized bond
counsel as to the tax-exempt status of interest on the bonds.
PUTS AND STANDBY COMMITMENTS ON MUNICIPAL SECURITIES. The Portfolios may acquire
"puts" with respect to municipal securities. A put gives the Portfolio the right
to sell the municipal security at a specified price at any time on or before a
specified date. The Portfolios may sell, transfer or assign a put only in
conjunction with its sale, transfer or assignment of the underlying security or
securities. The amount payable to a Portfolio upon its exercise of a "put" is
normally: (1) the Portfolio's acquisition cost of the municipal securities
(excluding any accrued
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interest which the Portfolio paid on their acquisition), less any amortized
market premium or plus any amortized market or original issue discount during
the period the Portfolio owned the securities, plus (2) all interest accrued on
the securities since the last interest payment date during that period.
Puts may be acquired by the Portfolios to facilitate the liquidity of its
portfolio assets. Puts may also be used to facilitate the reinvestment of a
Portfolio's assets at a rate of return more favorable than that of the
underlying security. The Portfolios expect that they will generally acquire puts
only where the puts are available without the payment of any direct or indirect
consideration. However, if necessary or advisable, the Portfolios may pay for a
put either separately in cash or by paying a higher price for portfolio
securities which are acquired subject to the puts (thus reducing the yield to
maturity otherwise available for the same securities). The Portfolios intend to
enter into puts only with dealers, banks and broker-dealers which, in Norwest's
opinion, present minimal credit risks.
The Portfolios may purchase municipal securities together with the right to
resell them to the seller or a third party at an agreed-upon price or yield
within specified periods prior to their maturity dates. Such a right to resell
is commonly known as a "stand-by commitment," and the aggregate price which the
Portfolio pays for securities with a stand-by commitment may be higher than the
price which otherwise would be paid. A Portfolio acquires stand-by commitments
solely to facilitate portfolio liquidity and does not exercise its rights
thereunder for trading purposes. Stand-by commitments involve certain expenses
and risks, including the inability of the issuer of the commitment to pay for
the securities at the time the commitment is exercised, non-marketability of the
commitment, and differences between the maturity of the underlying security and
the maturity of the commitment. The Portfolios' policy is to enter into stand-by
commitment transactions only with municipal securities dealers which are
determined to present minimal credit risks.
The acquisition of a stand-by commitment does not affect the valuation or
maturity of the underlying municipal securities which continue to be valued in
accordance with the amortized cost method. Stand-by commitments acquired by the
Portfolio are valued at zero in determining net asset value. When a Portfolio
pays directly or indirectly for a stand-by commitment, its cost is reflected as
unrealized depreciation for the period during which the commitment is held.
Stand-by commitments do not affect the average weighted maturity of the
Portfolio's portfolio of securities.
VARIABLE AND FLOATING RATE SECURITIES
The securities in which the Portfolios invest (including municipal securities or
mortgage- and asset-backed securities, as applicable) may have variable or
floating rates of interest and, under certain limited circumstances, may have
varying principal amounts. These securities pay interest at rates that are
adjusted periodically accordingly to a specified formula, usually with reference
to one or more interest rate indices or market interest rates (the "underlying
index"). The interest paid on these securities is a function primarily of the
underlying index upon which the interest rate adjustments are based. Such
adjustments minimize changes in the market value of the obligation and,
accordingly, enhance the ability of the Portfolio to maintain a stable net asset
value. Similar to fixed rate debt instruments, variable and floating rate
instruments are subject to changes in value based on changes in market interest
rates or changes in the issuer's creditworthiness. The rate of interest on
securities purchased by a Portfolio may be tied to Treasury or other government
securities or indices on those securities as well as any other rate of interest
or index. Certain variable rate securities (including mortgage-related
securities or mortgage-backed securities) pay interest at a rate that varies
inversely to prevailing short-term interest rates (sometimes referred to as
inverse floaters). For instance, upon reset the interest rate payable on a
security may go down when the underlying index has risen. During times when
short-term interest rates are relatively low as compared to long-term interest
rates a Portfolio may attempt to enhance its yield by purchasing inverse
floaters. Certain inverse floaters may have an interest rate reset mechanism
that multiplies the effects of changes in the underlying index. This form of
leverage may have the effect of increasing the volatility of the security's
market value while increasing the security's, and thus the Portfolio's, yield.
There may not be an active secondary market for any particular floating or
variable rate instruments (particularly inverse floaters and similar
instruments) which could make it difficult for a Portfolio to dispose of the
instrument if the issuer defaulted on its repayment obligation during periods
that the Portfolio is not entitled to exercise
<PAGE>
any demand rights it may have. A Portfolio could, for this or other reasons,
suffer a loss with respect to an instrument. The Portfolios' Investment Adviser
monitors the liquidity of the Portfolios' investment in variable and floating
rate instruments, but there can be no guarantee that an active secondary market
will exist.
Many variable rate instruments include the right of the holder to demand
prepayment of the principal amount of the obligation prior to its stated
maturity and the right of the issuer to prepay the principal amount prior to
maturity. The payment of principal and interest by issuers of certain securities
purchased by the Portfolios may be guaranteed by letters of credit or other
credit facilities offered by banks or other financial institutions. Such
guarantees will be considered in determining whether a municipal security meets
the Portfolios' investment quality requirements.
Variable rate obligations purchased by the Portfolios may include participation
interests in variable rate obligations purchased by the Portfolios from banks,
insurance companies or other financial institutions that are backed by
irrevocable letters of credit or guarantees of banks. The Portfolios can
exercise the right, on not more than thirty days' notice, to sell such an
instrument back to the bank from which it purchased the instrument and draw on
the letter of credit for all or any part of the principal amount of a
Portfolio's participation interest in the instrument, plus accrued interest, but
will do so only: (1) as required to provide liquidity to a Portfolio; (2) to
maintain a high quality investment portfolio; or (3) upon a default under the
terms of the demand instrument. Banks and other financial institutions retain
portions of the interest paid on such variable rate obligations as their fees
for servicing such instruments and the issuance of related letters of credit,
guarantees and repurchase commitments.
The Portfolios will not purchase participation interests in variable rate
obligations unless it is advised by counsel or receives a ruling of the Internal
Revenue Service that interest earned by the Portfolios from the obligations in
which it holds participation interests is exempt from Federal income tax. The
Internal Revenue Service has announced that it ordinarily will not issue advance
rulings on certain of the Federal income tax consequences applicable to
securities, or participation interests therein, subject to a put. Each
Portfolio's investment adviser monitors the pricing, quality and liquidity of
variable rate demand obligations and participation interests therein held by the
Portfolio on the basis of published financial information, rating agency reports
and other research services to which the Investment Adviser may subscribe.
Certain securities may have an initial principal amount that varies over time
based on an interest rate index, and, accordingly, a Portfolio might be entitled
to less than the initial principal amount of the security upon the security's
maturity. The Portfolios intend to purchase such securities only when the
Investment Adviser believes the interest income from the instrument justifies
any principal risks associated with the instrument. A Portfolio may attempt to
limit any potential loss of principal by purchasing similar instruments that are
intended to provide an offsetting increase in principal. There can be no
assurance that a Portfolio will be able to limit principal fluctuations and,
accordingly, a Portfolio may incur losses on those securities even if held to
maturity without issuer default.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES
TYPES OF CREDIT ENHANCEMENT
To lessen the effect of failures by obligors on Mortgage Assets to make
payments, mortgage-backed securities may contain elements of credit enhancement.
Credit enhancement falls into two categories: (1) liquidity protection; and (2)
protection against losses resulting after default by an obligor on the
underlying assets and collection of all amounts recoverable directly from the
obligor and through liquidation of the collateral. Liquidity protection refers
to the provisions of advances, generally by the entity administering the pool of
assets (usually the bank, savings association or mortgage banker that
transferred the underlying loans to the issuer of the security), to ensure that
the receipt of payments on the underlying pool occurs in a timely fashion.
Protection against losses resulting after default and liquidation ensures
ultimate payment of the obligations on at least a portion of the assets in the
pool. Such protection may be provided through guarantees, insurance policies or
letters of credit obtained by the issuer or sponsor from third parties, through
various means of structuring the transaction or through a combination of such
approaches. The Portfolios will not pay any additional fees for such credit
enhancement, although the existence of credit enhancement may increase the price
of security.
<PAGE>
Examples of credit enhancement arising out of the structure of the transaction
include: (1) "senior-subordinated securities" (multiple class securities with
one or more classes subordinate to other classes as to the payment of principal
thereof and interest thereon, with the result that defaults on the underlying
assets are borne first by the holders of the subordinated class); (2) creation
of "spread accounts" or "reserve Portfolios" (where cash or investments,
sometimes funded from a portion of the payments on the underlying assets are
held in reserve against future losses); and (3) "over-collateralization" (where
the scheduled payments on, or the principal amount of, the underlying assets
exceeds that required to make payment of the securities and pay any servicing or
other fees). The degree of credit enhancement provided for each issue generally
is based on historical information regarding the level of credit risk associated
with the underlying assets. Delinquency or loss in excess of that covered by
credit enhancement protection could adversely affect the return on an investment
in such a security.
ASSET-BACKED SECURITIES
A Portfolio may invest in asset-backed securities, which have structural
characteristics similar to mortgage-backed securities but have underlying assets
that are not mortgage loans or interests in mortgage loans. Asset-backed
securities are securities that represent direct or indirect participations in,
or are secured by and payable from, assets such as motor vehicle installment
sales contracts, installment loan contracts, leases of various types of real and
personal property and receivables from revolving credit (credit card)
agreements. Such assets are securitized through the use of trusts and special
purpose corporations.
Asset-backed securities are often backed by a pool of assets representing the
obligations of a number of different parties. Payments of principal and interest
may be guaranteed up to certain amounts and for a certain time period by a
letter of credit issued by a financial institution.
Asset-backed securities present certain risks that are not presented by
mortgage-backed debt securities or other securities in which a Portfolio may
invest. Primarily, these securities do not always have the benefit of a security
interest in comparable collateral. Credit card receivables are generally
unsecured and the debtors are entitled to the protection of a number of state
and Federal consumer credit laws, many of which give such debtors the right to
set off certain amounts owed on the credit cards, thereby reducing the balance
due. Automobile receivables generally are secured by automobiles. Most issuers
of automobile receivables permit the loan servicers to retain possession of the
underlying obligations. If the servicer were to sell these obligations to
another party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the asset-backed securities. In addition,
because of the large number of vehicles involved in a typical issuance and the
technical requirements under state laws, the trustee for the holders of the
automobile receivables may not have a proper security interest in the underlying
automobiles. Therefore, there is the possibility that recoveries on repossessed
collateral may not, in some cases, be available to support payments on these
securities. Because asset-backed securities are relatively new, the market
experience in these securities is limited and the market's ability to sustain
liquidity through all phases of the market cycle has not been tested.
INTEREST-ONLY AND PRINCIPAL-ONLY SECURITIES
Some tranches of mortgage-backed securities, including CMOs, are structured so
that investors receive only principal payments generated by the underlying
collateral. Principal only securities ("POs") usually sell at a deep discount
from face value on the assumption that the purchaser will ultimately receive the
entire face value through scheduled payments and prepayments; however, the
market values of POs are extremely sensitive to prepayment rates, which, in
turn, vary with interest rate changes. If interest rates are falling and
prepayments accelerate, the value of the PO will increase. On the other hand, if
rates rise and prepayments slow, the value of the PO will drop.
Interest only securities ("IOs") result from the creation of POs; thus, CMOs
with PO tranches also have IO tranches. IO securities sell at a deep discount to
their "notional" principal amount, namely the principal balance used to
calculate the amount of interest due. They have no face or par value and, as the
notional principal amortizes and prepays, the IO cash-flow declines.
<PAGE>
Unlike POs, IOs increase in value when interest rates rise and prepayment rates
slow; consequently they are often used to "hedge" portfolios against interest
rate risk. If prepayment rates are high, a Portfolio may receive less cash back
than it initially invested.
INTEREST RATE PROTECTION TRANSACTIONS
Certain Portfolios may enter into interest rate protection transactions,
including interest rate swaps, caps, collars and floors. Interest rate swap
transactions involve an agreement between two parties to exchange interest
payment streams that are based, for example, on variable and fixed rates that
are calculated on the basis of a specified amount of principal (the "notional
principal amount") for a specified period of time. Interest rate cap and floor
transactions involve an agreement between two parties in which the first party
agrees to make payments to the counterparty when a designated market interest
rate goes above (in the case of a cap) or below (in the case of a floor) a
designated level on predetermined dates or during a specified time period.
Interest rate collar transactions involve an agreement between two parties in
which the payments are made when a designated market interest rate either goes
above a designated ceiling or goes below a designated floor on predetermined
dates or during a specified time period.
A Portfolio expects to enter into interest rate protection transactions to
preserve a return or spread on a particular investment or portion of its
portfolio or to protect against any increase in the price of securities it
anticipates purchasing at a later date. The Portfolios intend to use these
transactions as a hedge and not as a speculative investment.
A Portfolio may enter into interest rate protection transactions on an
asset-based basis, depending on whether it is hedging its assets or its
liabilities, and will usually enter into interest rate swaps on a net basis,
i.e., the two payment streams are netted out, with the Portfolio receiving or
paying, as the case may be, only the net amount of the two payments. Inasmuch as
these interest rate protection transactions are entered into for good faith
hedging purposes, and inasmuch as segregated accounts will be established with
respect to such transactions, the Portfolios believe such obligations do not
constitute senior securities. The net amount of the excess, if any, of a
Portfolio's obligations over its entitlements with respect to each interest rate
swap will be accrued on a daily basis and an amount of cash, U.S. Government
Securities or other liquid high grade debt obligations having an aggregate net
asset value at least equal to the accrued excess will be maintained in a
segregated account by a custodian that satisfies the requirements of the 1940
Act. Each Portfolio also will establish and maintain such segregated accounts
with respect to its total obligations under any interest rate swaps that are not
entered into on a net basis and with respect to any interest rate caps, collars
and floors that are written by the Portfolio.
A Portfolio will enter into interest rate protection transactions only with
banks and other institutions believed by the Investment Adviser to present
minimal credit risks. If there is a default by the other party to such a
transaction, the Portfolio will have to rely on its contractual remedies (which
may be limited by bankruptcy, insolvency or similar laws) pursuant to the
agreements related to the transaction.
The swap market has grown substantially in recent years with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. Caps, collars and floors are more
recent innovations for which documentation is less standardized. Accordingly,
those instruments are less liquid than swaps.
HEDGING AND OPTION INCOME STRATEGIES
COVERED CALLS AND HEDGING
The Portfolios may write covered calls on up to 100% of their total assets or
may employ one or more types of instruments to hedge ("Hedging Instruments").
When hedging to attempt to protect against declines in the market value of its
securities, to permit the it to retain unrealized gains in the value of
portfolio securities which have appreciated, or to facilitate selling securities
for investment reasons, a Portfolio would: (1) sell Stock Index Futures; (2)
purchase puts on such futures or securities; or (3) write covered calls on
securities or on Stock Index Futures.
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When hedging to establish a position in the equities markets as a temporary
substitute for purchasing particular equity securities (which a Portfolio will
normally purchase and then terminate the hedging position), a Portfolio would:
(1) purchase Stock Index Futures or (2) purchase calls on such Futures or on
securities. The Portfolios' strategy of hedging with Stock Index Futures and
options on such Futures will be incidental to the Portfolios' activities in the
underlying cash market.
WRITING COVERED CALL OPTIONS. A Portfolio may write (i.e., sell) call options
("calls") if: (1) the calls are listed on a domestic securities or commodities
exchange and (2) the calls are "covered" (i.e., the Portfolio owns the
securities subject to the call or other securities acceptable for applicable
escrow arrangements) while the call is outstanding. A call written on a Stock
Index Future must be covered by deliverable securities or segregated liquid
assets. If a call written by the Portfolio is exercised, the Portfolio forgoes
any profit from any increase in the market price above the call price of the
underlying investment on which the call was written.
When a Portfolio writes a call on a security, it receives a premium and agrees
to sell the underlying securities to a purchaser of a corresponding call on the
same security during the call period (usually not more than 9 months) at a fixed
exercise price (which may differ from the market price of the underlying
security), regardless of market price changes during the call period. The risk
of loss will have been retained by the Portfolio if the price of the underlying
security should decline during the call period, which may be offset to some
extent by the premium.
To terminate its obligation on a call it has written, a Portfolio may purchase a
corresponding call in a "closing purchase transaction." A profit or loss will be
realized, depending upon whether the net of the amount of option transaction
costs and the premium previously received on the call written was more or less
than the price of the call subsequently purchased. A profit may also be realized
if the call lapses unexercised, because the Portfolio retains the underlying
security and the premium received. Any such profits are considered short-term
capital gains for Federal income tax purposes, and when distributed by the
Portfolio are taxable as ordinary income. If the Portfolio could not effect a
closing purchase transaction due to the lack of a market, it would have to hold
the callable securities until the call lapsed or was exercised.
A Portfolio may also write calls on Stock Index Futures without owning a futures
contract or a deliverable bond, provided that at the time the call is written,
the Portfolio covers the call by segregating in escrow an equivalent dollar
amount of liquid assets. The Portfolio will segregate additional liquid assets
if the value of the escrowed assets drops below 100% of the current value of the
Stock Index Future. In no circumstances would an exercise notice require the
Portfolio to deliver a futures contract; it would simply put the Portfolio in a
short futures position, which is permitted by the Portfolio's hedging policies.
PURCHASING CALLS AND PUTS. A Portfolio may purchase put options ("puts") which
relate to: (1) securities held by it, (2) Stock Index Futures (whether or not it
holds such Stock Index Futures in its portfolio); or (3) broadly-based stock
indices. A Portfolio may not sell puts other than those it previously purchased,
nor purchase puts on securities it does not hold. A Portfolio may purchase
calls: (1) as to securities, broadly-based stock indices or Stock Index Futures
or (2) to effect a "closing purchase transaction" to terminate its obligation on
a call it has previously written. A call or put may be purchased only if, after
such purchase, the value of all put and call options held by a Portfolio would
not exceed 5% of the Portfolio's total assets.
When a Portfolio purchases a call (other than in a closing purchase
transaction), it pays a premium and, except as to calls on stock indices, has
the right to buy the underlying investment from a seller of a corresponding call
on the same investment during the call period at a fixed exercise price. The
Portfolio benefits only if the call is sold at a profit or if, during the call
period, the market price of the underlying investment is above the sum of the
call price plus the transaction costs and the premium paid for the call and the
call is exercised. If the call is not exercised or sold (whether or not at a
profit), it will become worthless at its expiration date and the Portfolio will
lose its premium payments and the right to purchase the underlying investment.
When a Portfolio purchases a call on a stock index, it pays a premium, but
settlement is in cash rather than by delivery of an underlying investment.
When a Portfolio purchases a put, it pays a premium and, except as to puts on
stock indices, has the right to sell the underlying investment to a seller of a
corresponding put on the same investment during the put period at a fixed
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exercise price. Buying a put on a security or Stock Index Future a Portfolio
owns enables the Portfolio to attempt to protect itself during the put period
against a decline in the value of the underlying investment below the exercise
price by selling the underlying investment at the exercise price to a seller of
a corresponding put. If the market price of the underlying investment is equal
to or above the exercise price and, as a result, the put is not exercised or
resold, the put will become worthless at its expiration date and the Portfolio
will lose its premium payment and the right to sell the underlying investment;
the put may, however, be sold prior to expiration (whether or not at a profit).
Purchasing a put on either a stock index or on a Stock Index Future not held by
a Portfolio permits the Portfolio either to resell the put or to buy the
underlying investment and sell it at the exercise price. The resale price of the
put will vary inversely with the price of the underlying investment. If the
market price of the underlying investment is above the exercise price and, as a
result, the put is not exercised, the put will become worthless on its
expiration date. In the event of a decline in price of the underlying
investment, the Portfolio could exercise or sell the put at a profit to attempt
to offset some or all of its loss on its portfolio securities. When a Portfolio
purchases a put on a stock index, or on a Stock Index Future not held by it, the
put protects the Portfolio to the extent that the index moves in a similar
pattern to the securities held. In the case of a put on a stock index or Stock
Index Future, settlement is in cash rather than by the Portfolio's delivery of
the underlying investment.
STOCK INDEX FUTURES. A Portfolio may buy and sell futures contracts only if they
are Stock Index Futures. A stock index is "broadly-based" if it includes stocks
that are not limited to issuers in any particular industry or group of
industries. Stock Index Futures obligate the seller to deliver (and the
purchaser to take) cash to settle the futures transaction, or to enter into an
offsetting contract. No physical delivery of the underlying stocks in the index
is made.
No price is paid or received upon the purchase or sale of a Stock Index Future.
Upon entering into a futures transaction, a Portfolio will be required to
deposit an initial margin payment in cash or U.S. Treasury bills with a futures
commission merchant (the "futures broker"). The initial margin will be deposited
with the Portfolio's custodian in an account registered in the futures broker's
name; however the futures broker can gain access to that account only under
specified conditions. As the futures contract is marked to market to reflect
changes in its market value, subsequent margin payments, called variation
margin, will be paid to or by the futures broker on a daily basis. Prior to
expiration of the future, if a Portfolio elects to close out its position by
taking an opposite position, a final determination of variation margin is made,
additional cash is required to be paid by or released to the Portfolio, and any
loss or gain is realized for tax purposes. Although Stock Index Futures by their
terms call for settlement by the delivery of cash, in most cases the obligation
is fulfilled without such delivery, by entering into an offsetting transaction.
All futures transactions are effected through a clearinghouse associated with
the exchange on which the contracts are traded.
Puts and calls on broadly-based stock indices or Stock Index Futures are similar
to puts and calls on securities or futures contracts except that all settlements
are in cash and gain or loss depends on changes in the index in question (and
thus on price movements in the stock market generally) rather than on price
movements in individual securities or futures contracts. When a Portfolio buys a
call on a stock index or Stock Index Future, it pays a premium. During the call
period, upon exercise of a call by the Portfolio, a seller of a corresponding
call on the same index will pay the Portfolio an amount of cash to settle the
call if the closing level of the stock index or Stock Index Future upon which
the call is based is greater than the exercise price of the call; that cash
payment is equal to the difference between the closing price of the index and
the exercise price of the call times a specified multiple (the "multiplier")
which determines the total dollar value for each point of difference. When a
Portfolio buys a put on a stock index or Stock Index Future, it pays a premium
and has the right during the put period to require a seller of a corresponding
put, upon the Portfolio's exercise of its put, to deliver to the Portfolio an
amount of cash to settle the put if the closing level of the stock index or
Stock Index Future upon which the put is based is less than the exercise price
of the put; that cash payment is determined by the multiplier, in the same
manner as described above as to calls.
ADDITIONAL INFORMATION ABOUT HEDGING INSTRUMENTS AND THEIR USE. A Portfolio's
custodian, or a securities depository acting for the custodian, will act as the
Portfolio's escrow agent, through the facilities of the Options Clearing
Corporation ("OCC"), as to the securities on which the Portfolio has written
options, or as to other
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acceptable escrow securities, so that no margin will be required for such
transactions. The OCC will release the securities on the expiration of the
option or upon the Portfolio's entering into a closing transaction. An option
position may be closed out only on a market which provides secondary trading for
options of the same series, and there is no assurance that a liquid secondary
market will exist for any particular option.
A Portfolio's option activities may affect its portfolio turnover rate and
brokerage commissions. The exercise of calls written by a Portfolio may cause
the Portfolio to sell related portfolio securities, thus increasing its turnover
rate in a manner beyond the Portfolio's control. The exercise by a Portfolio of
puts on securities or Stock Index Futures may cause the sale of related
investments, also increasing portfolio turnover. Although such exercise is
within the Portfolio's control, holding a put might cause the Portfolio to sell
the underlying investment for reasons which would not exist in the absence of
the put. A Portfolio will pay a brokerage commission each time it buys or sells
a call, a put or an underlying investment in connection with the exercise of a
put or call. Such commissions may be higher than those which would apply to
direct purchases or sales of the underlying investments. Premiums paid for
options are small in relation to the market value of such investments, and,
consequently, put and call options offer large amounts of leverage. The leverage
offered by trading in options could result in a Portfolio's net asset value
being more sensitive to changes in the value of the underlying investments.
REGULATORY ASPECTS OF HEDGING INSTRUMENTS AND COVERED CALLS. A Portfolio must
operate within certain restrictions as to its long and short positions in Stock
Index Futures and options thereon under a rule (the "CFTC Rule") adopted by the
CFTC under the Commodity Exchange Act (the "CEA"), which excludes the Portfolio
from registration with the CFTC as a "commodity pool operator" (as defined in
the CEA) if it complies with the CFTC Rule. Except as permitted by the CFTC
Rule, no Portfolio will, as to any positions, whether short, long or a
combination thereof, enter into Stock Index Futures and options thereon for
which the aggregate initial margins and premiums exceed 5% of the fair market
value of its total assets. Under the CFTC Rule also, a Portfolio must, as to its
short positions, use Stock Index Futures and options thereon solely for
bona-fide hedging purposes within the meaning and intent of the applicable
provisions under the CEA.
Transactions in options by a Portfolio are subject to limitations established by
each of the exchanges governing the maximum number of options that may be
written or held by a single investor or group of investors acting in concert,
regardless of whether the options were written or purchased on the same or
different exchanges or are held in one or more accounts or through one or more
exchanges or brokers. Thus, the number of options which a Portfolio may write or
hold may be affected by options written or held by other entities, including
other investment companies having the same or an affiliated investment adviser.
Position limits also apply to Stock Index Futures. An exchange may order the
liquidation of positions found to be in violation of those limits and may impose
certain other sanctions. Due to requirements under the 1940 Act, when a
Portfolio purchases a Stock Index Future, the Portfolio will maintain, in a
segregated account or accounts with its custodian bank, cash or liquid assets in
an amount equal to the market value of the securities underlying such Stock
Index Future, less the margin deposit applicable to it.
LIMITS ON USE OF HEDGING INSTRUMENTS. Each Portfolio intends to qualify as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended (the "Code"). One of the tests for such qualification is that less than
30% of its gross income must be derived from gains realized on the sale of
securities held for less than three months. Due to this limitation, each
Portfolio will limit the extent to which it engages in the following activities,
but will not be precluded from them: (1) selling investments, including Stock
Index Futures, held for less than three months, whether or not they were
purchased on the exercise of a call held by the Portfolio; (2) purchasing calls
or puts which expire in less than three months; (3) effecting closing
transactions with respect to calls or puts purchased less than three months
previously; (4) exercising puts held for less than three months; and (5) writing
calls on investments held for less than three months.
POSSIBLE RISK FACTORS IN HEDGING. In addition to the risks discussed above,
there is a risk in using short hedging by selling Stock Index Futures or
purchasing puts on stock indices that the prices of the applicable index (thus
the prices of the Hedging Instruments) will correlate imperfectly with the
behavior of the cash (i.e., market value) prices of a Portfolio's equity
securities. The ordinary spreads between prices in the cash and futures markets
are subject to distortions due to differences in the natures of those markets.
First, all participants in the futures markets are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements,
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investors may close futures contracts through offsetting transactions which
could distort the normal relationship between the cash and futures markets.
Second, the liquidity of the futures markets depends on participants entering
into offsetting transactions rather than making or taking delivery. To the
extent participants decide to make or take delivery, liquidity in the futures
markets could be reduced, thus producing distortion. Third, from the point of
view of speculators, the deposit requirements in the futures markets are less
onerous than margin requirements in the securities markets. Therefore, increased
participation by speculators in the futures markets may cause temporary price
distortions.
The risk of imperfect correlation increases as the composition of a Portfolio's
portfolio diverges from the securities included in the applicable index. To
compensate for the imperfect correlation of movements in the price of the equity
securities being hedged and movements in the price of the Hedging Instruments, a
Portfolio may use Hedging Instruments in a greater dollar amount than the dollar
amount of equity securities being hedged if the historical volatility of the
prices of such equity securities being hedged is more than the historical
volatility of the applicable index. It is also possible that where a Portfolio
has used Hedging Instruments in a short hedge, the market may advance and the
value of equity securities held in the Portfolio's portfolio may decline. If
this occurred, the Portfolio would lose money on the Hedging Instruments and
also experience a decline in value in its equity securities. However, while this
could occur for a very brief period or to a very small degree, the value of a
diversified portfolio of equity securities will tend to move over time in the
same direction as the indices upon which the Hedging Instruments are based.
If a Portfolio uses Hedging Instruments to establish a position in the equities
markets as a temporary substitute for the purchase of individual equity
securities (long hedging) by buying Stock Index Futures and/or calls on such
Futures, on securities or on stock indices, it is possible that the market may
decline; if the Portfolio then concludes not to invest in equity securities at
that time because of concerns as to possible further market decline or for other
reasons, the Portfolio will realize a loss on the Hedging Instruments that is
not offset by a reduction in the price of the equity securities purchased.
Additionally, each Portfolio may: (1) purchase or sell (write) put and call
options on securities to enhance the Portfolio's performance and (2) seek to
hedge against a decline in the value of securities owned by it or an increase in
the price of securities which it plans to purchase through the writing and
purchase of exchange-traded and over-the-counter options on individual
securities or securities or financial indices and through the purchase and sale
of financial futures contracts and related options. Certain Portfolios currently
do no not intend to enter into any such transactions. Whether or not used for
hedging purposes, these investments techniques involve risks that are different
in certain respects from the investment risks associated with the other
investments of a Portfolio. Principal among such risks are: (1) the possible
failure of such instruments as hedging techniques in cases where the price
movements of the securities underlying the options or futures do not follow the
price movements of the portfolio securities subject to the hedge; (2)
potentially unlimited loss associated with futures transactions and the possible
lack of a liquid secondary market for closing out a futures position; and (3)
possible losses resulting from the inability of the Portfolio's investment
adviser to correctly predict the direction of stock prices, interest rates and
other economic factors. To the extent a Portfolio invests in foreign securities,
it may also invest in options on foreign currencies, foreign currency futures
contracts and options on those futures contracts. Use of these instruments is
subject to regulation by the SEC, the several options and futures exchanges upon
which options and futures are traded or the CFTC.
No assurance can be given that any hedging or option income strategy will
succeed in achieving its intended result.
Except as otherwise noted in the Prospectus or herein, a Portfolio will not use
leverage in its option income and hedging strategies. In the case of
transactions entered into as a hedge, a Portfolio will hold securities,
currencies or other options or futures positions whose values are expected to
offset ("cover") its obligations thereunder. A Portfolio will not enter into a
hedging strategy that exposes it to an obligation to another party unless it
owns either: (1) an offsetting ("covered") position or (2) cash, U.S. Government
Securities or other liquid securities (or other assets as may be permitted by
the SEC) with a value sufficient at all times to cover its potential
obligations. When required by applicable regulatory guidelines, the Portfolios
will set aside cash, U.S. Government Securities or other liquid securities (or
other assets as may be permitted by the SEC) in a segregated account with its
custodian in the prescribed amount.
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Any assets used for cover or held in a segregated account cannot be sold or
closed out while the hedging or option income strategy is outstanding, unless
they are replaced with similar assets. As a result, there is a possibility that
the use of cover or segregation involving a large percentage of a Portfolio's
assets could impede portfolio management or the Portfolio's ability to meet
redemption requests or other current obligations.
OPTIONS STRATEGIES
A Portfolio may purchase put and call options written by others and sell put and
call options covering specified individual securities, securities or financial
indices or currencies. A put option (sometimes called a "standby commitment")
gives the buyer of the option, upon payment of a premium, the right to deliver a
specified amount of currency to the writer of the option on or before a fixed
date at a predetermined price. A call option (sometimes called a "reverse
standby commitment") gives the purchaser of the option, upon payment of a
premium, the right to call upon the writer to deliver a specified amount of
currency on or before a fixed date, at a predetermined price. The predetermined
prices may be higher or lower than the market value of the underlying currency.
A Portfolio may buy or sell both exchange-traded and over-the-counter ("OTC")
options. A Portfolio will purchase or write an option only if that option is
traded on a recognized U.S. options exchange or if the Investment Adviser
believes that a liquid secondary market for the option exists. When a Portfolio
purchases an OTC option, it relies on the dealer from which it has purchased the
OTC option to make or take delivery of the currency underlying the option.
Failure by the dealer to do so would result in the loss of the premium paid by
the Portfolio as well as the loss of the expected benefit of the transaction.
OTC options and the securities underlying these options currently are treated as
illiquid securities by the Portfolios.
Upon selling an option, a Portfolio receives a premium from the purchaser of the
option. Upon purchasing an option the Portfolio pays a premium to the seller of
the option. The amount of premium received or paid by the Portfolio is based
upon certain factors, including the market price of the underlying securities,
index or currency, the relationship of the exercise price to the market price,
the historical price volatility of the underlying assets, the option period,
supply and demand and interest rates.
Certain Portfolios may purchase call options on debt securities that Norwest
intends to include in the Portfolio's investment portfolio in order to fix the
cost of a future purchase. Call options may also be purchased as a means of
participating in an anticipated price increase of a security on a more limited
risk basis than would be possible if the security itself were purchased. In the
event of a decline in the price of the underlying security, use of this strategy
would serve to limit the potential loss to the Portfolio to the option premium
paid; conversely, if the market price of the underlying security increases above
the exercise price and the Portfolio either sells or exercises the option, any
profit eventually realized will be reduced by the premium paid. A Portfolio may
similarly purchase put options in order to hedge against a decline in market
value of securities held in its portfolio. The put enables the Portfolio to sell
the underlying security at the predetermined exercise price; thus the potential
for loss to the Portfolio is limited to the option premium paid. If the market
price of the underlying security is lower than the exercise price of the put,
any profit the Portfolio realizes on the sale of the security would be reduced
by the premium paid for the put option less any amount for which the put may be
sold.
The Investment Adviser may write call options when it believes that the market
value of the underlying security will not rise to a value greater than the
exercise price plus the premium received. Call options may also be written to
provide limited protection against a decrease in the market price of a security,
in an amount equal to the call premium received less any transaction costs.
Certain Portfolios may purchase and write put and call options on fixed income
or equity security indices in much the same manner as the options discussed
above, except that index options may serve as a hedge against overall
fluctuations in the fixed income or equity securities markets (or market
sectors) or as a means of participating in an anticipated price increase in
those markets. The effectiveness of hedging techniques using index options will
depend on the extent to which price movements in the index selected correlate
with price movements of the securities which are being hedged. Index options are
settled exclusively in cash.
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FOREIGN CURRENCY OPTIONS AND RELATED RISKS
A Portfolio may take positions in options on foreign currencies in order to
hedge against the risk of foreign exchange fluctuation on foreign securities the
Portfolio holds in its portfolio or which it intends to purchase. Options on
foreign currencies are affected by the factors discussed in "Hedging and Option
Income Strategies --Options Strategies" and "Foreign Currency Transactions"
which influence foreign exchange sales and investments generally.
The value of foreign currency options is dependent upon the value of the foreign
currency relative to the U.S. dollar and has no relationship to the investment
merits of a foreign security. Because foreign currency transactions occurring in
the interbank market involve substantially larger amounts than those that may be
involved in the use of foreign currency options, a Portfolio may be
disadvantaged by having to deal in an odd lot market (generally consisting of
transactions of less than $1 million) for the underlying foreign currencies at
prices that are less favorable than for round lots.
To the extent that the U.S. options markets are closed while the market for the
underlying currencies remains open, significant price and rate movements may
take place in the underlying markets that cannot be reflected in the options
markets.
SPECIAL CHARACTERISTICS AND RISKS OF OPTIONS TRADING
A Portfolio may effectively terminate its right or obligation under an option
contract by entering into a closing transaction. For instance, if the Portfolio
wished to terminate its potential obligation to sell securities or currencies
under a call option it had written, a call option of the same type would be
purchased by the Portfolio. Closing transactions essentially permit the
Portfolio to realize profits or limit losses on its options positions prior to
the exercise or expiration of the option. In addition:
(1) The successful use of options depends upon the Investment Adviser's
ability to forecast the direction of price fluctuations in the underlying
securities or currency markets, or in the case of an index option, fluctuations
in the market sector represented by the index.
(2) Options normally have expiration dates of up to nine months.
Options that expire unexercised have no value. Unless an option purchased by a
Portfolio is exercised or unless a closing transaction is effected with respect
to that position, a loss will be realized in the amount of the premium paid.
(3) A position in an exchange-listed option may be closed out only on
an exchange which provides a market for identical options. Most exchange-listed
options relate to equity securities. Exchange markets for options on foreign
currencies are relatively new, and the ability to establish and close out
positions on the exchanges is subject to the maintenance of a liquid secondary
market. Closing transactions may be effected with respect to options traded in
the over-the-counter markets (currently the primary markets for options on
foreign currencies) only by negotiating directly with the other party to the
option contract or in a secondary market for the option if such market exists.
There is no assurance that a liquid secondary market will exist for any
particular option at any specific time. If it is not possible to effect a
closing transaction, a Portfolio would have to exercise the option which it
purchased in order to realize any profit. The inability to effect a closing
transaction on an option written by a Portfolio may result in material losses to
the Portfolio.
(4) A Portfolio's activities in the options markets may result in a
higher portfolio turnover rate and additional brokerage costs.
(5) When a Portfolio enters into an over-the-counter contract with a
counterparty, the Portfolio will assume the risk that the counterparty will fail
to perform its obligations, in which case the Portfolio could be worse off than
if the contract had not been entered into.
FUTURES STRATEGIES
A futures contract is a bilateral agreement wherein one party agrees to accept,
and the other party agrees to make, delivery of cash, an underlying debt
security or the currency as called for in the contract at a specified future
date and at a specified price. For futures contracts with respect to an index,
delivery is of an amount of cash equal to a specified dollar amount times the
difference between the index value at the time of the contract and the close of
trading of the contract.
A Portfolio may sell interest rate futures contracts in order to continue to
receive the income from a fixed income security, while endeavoring to avoid part
of or all of a decline in the market value of that security which would
accompany an increase in interest rates.
A Portfolio may purchase index futures contracts for several reasons: to
simulate full investment in the underlying index while retaining a cash balance
for Portfolio management purposes, to facilitate trading, to reduce transactions
costs, or to seek higher investment returns when a futures contract is priced
more attractively than securities in the index.
A Portfolio may purchase call options on a futures contract as a means of
obtaining temporary exposure to market appreciation at limited risk. This
strategy is analogous to the purchase of a call option on an individual
security, in that it can be used as a temporary substitute for a position in the
security itself.
A Portfolio may sell foreign currency futures contracts to hedge against
possible variations in the exchange rate of the foreign currency in relation to
the U.S. dollar. In addition, a Portfolio may sell foreign currency futures
contracts when its Investment Adviser anticipates a general weakening of foreign
currency exchange rates that could adversely affect the market values of the
Portfolio's foreign securities holdings. A Portfolio may purchase a foreign
currency futures contract to hedge against an anticipated foreign exchange rate
increase pending completion of anticipated transactions. Such a purchase would
serve as a temporary measure to protect the Portfolio against such increase. A
Portfolio may also purchase call or put options on foreign currency futures
contracts to obtain a fixed foreign exchange rate at limited risk. A Portfolio
may write call options on foreign currency futures contracts as a partial hedge
against the effects of declining foreign exchange rates on the value of foreign
securities.
SPECIAL CHARACTERISTICS AND RISKS OF FUTURES AND RELATED OPTIONS TRADING
No price is paid upon entering into futures contracts; rather, a Portfolio is
required to deposit (typically with its custodian in a segregated account in the
name of the futures broker) an amount of cash or U.S. Government Securities
generally equal to 5% or less of the contract value. This amount is known as
initial margin. Subsequent payments, called variation margin, to and from the
broker, would be made on a daily basis as the value of the futures position
varies. When writing a call on a futures contract, variation margin must be
deposited in accordance with applicable exchange rules. The initial margin in
futures transactions is in the nature of a performance bond or good-faith
deposit on the contract that is returned to the Portfolio upon termination of
the contract, assuming all contractual obligations have been satisfied.
Holders and writers of futures and options on futures contracts can enter into
offsetting closing transactions, similar to closing transactions on options, by
selling or purchasing, respectively, a futures contract or related option with
the same terms as the position held or written. Positions in futures contracts
may be closed only on an exchange or board of trade providing a secondary market
for such futures contracts.
Under certain circumstances, futures exchanges may establish daily limits in the
amount that the price of a futures contract or related option may vary either up
or down from the previous day's settlement price. Once the daily limit has been
reached in a particular contract, no trades may be made that day at a price
beyond that limit. Prices could move to the daily limit for several consecutive
trading days with little or no trading and thereby prevent prompt liquidation of
positions. In that event, it may not be possible for a Portfolio to close a
position, and in the event of adverse price movements, it would have to make
daily cash payments of variation margin. In addition:
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(1) Successful use by a Portfolio of futures contracts and related
options will depend upon the Investment Adviser's ability to predict movements
in the direction of the overall securities and currency markets, which requires
different skills and techniques than predicting changes in the prices of
individual securities. Moreover, futures contracts relate not to the current
level of the underlying instrument but to the anticipated levels at some point
in the future; thus, for example, trading of stock index futures may not reflect
the trading of the securities which are used to formulate an index or even
actual fluctuations in the relevant index itself.
(2) The price of futures contracts may not correlate perfectly with
movement in the price of the hedged currencies due to price distortions in the
futures market or otherwise. There may be several reasons unrelated to the value
of the underlying currencies which causes this situation to occur. As a result,
a correct forecast of general market trends may still not result in successful
hedging through the use of futures contracts over the short term.
(3) There is no assurance that a liquid secondary market will exist for
any particular contract at any particular time. In such event, it may not be
possible to close a position, and in the event of adverse price movements, the
Portfolio would continue to be required to make daily cash payments of variation
margin.
(4) Like other options, options on futures contracts have a limited
life. A Portfolio will not trade options on futures contracts on any exchange or
board of trade unless and until, in Norwest's opinion, the market for such
options has developed sufficiently that the risks in connection with options on
futures transactions are not greater than the risks in connection with futures
transactions.
(5) Purchasers of options on futures contracts pay a premium in cash at
the time of purchase. This amount and the transaction costs is all that is at
risk. Sellers of options on futures contracts, however, must post an initial
margin and are subject to additional margin calls which could be substantial in
the event of adverse price movements.
(6) A Portfolio's activities in the futures markets may result in a
higher portfolio turnover rate and additional transaction costs in the form of
added brokerage commissions.
(7) Buyers and sellers of foreign currency futures contracts are
subject to the same risks that apply to the buying and selling of futures
generally. In addition, there are risks associated with foreign currency futures
contracts and their use as a hedging device similar to those associated with
options on foreign currencies described above. In addition, settlement of
foreign currency futures contracts must occur within the country issuing that
currency. Thus, a
Portfolio must accept or make delivery of the underlying foreign currency in
accordance with any U.S. or foreign restrictions or regulations regarding the
maintenance of foreign banking arrangements by U.S. residents, and the Portfolio
may be required to pay any fees, taxes or charges associated with such delivery
which are assessed in the issuing country.
COMMODITY FUTURES CONTRACTS AND COMMODITY OPTIONS
A Portfolio may invest in certain financial futures contracts and options
contracts in accordance with the policies described in the Prospectus and above.
A Portfolio will only invest in futures contracts, options on futures contracts
and other options contracts that are subject to the jurisdiction of the CFTC
after filing a notice of eligibility and otherwise complying with the
requirements of Section 4.5 of the rules of the CFTC. Under that section a
Portfolio will not enter into any futures contract or option on a futures
contract if, as a result, the aggregate initial margin and premiums required to
establish such positions would exceed 5% of the Portfolio's net assets.
FOREIGN CURRENCY TRANSACTIONS
Investments in foreign companies will usually involve the currencies of foreign
countries. In addition, a Portfolio may temporarily hold funds in bank deposits
in foreign currencies pending the completion of certain investment programs.
Accordingly, the value of the assets of a Portfolio, as measured in U.S.
dollars, may be affected by changes in foreign currency exchange rates and
exchange control regulations. In addition, the Portfolio may incur costs in
connection with
<PAGE>
conversions between various currencies. A Portfolio may conduct foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market or by entering into foreign
currency forward contracts ("forward contracts") to purchase or sell foreign
currencies. A forward contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days
(usually less than one year) from the date of the contract agreed upon by the
parties, at a price set at the time of the contract. These contracts are traded
in the interbank market conducted directly between currency traders (usually
large commercial banks) and their customers and involve the risk that the other
party to the contract may fail to deliver currency when due, which could result
in losses to the Portfolio. A forward contract generally has no deposit
requirement, and no commissions are charged at any stage for trades. Foreign
exchange dealers realize a profit based on the difference between the price at
which they buy and sell various currencies.
A Portfolio may enter into forward contracts under two circumstances. First,
with respect to specific transactions, when the Portfolio enters into a contract
for the purchase or sale of a security denominated in a foreign currency, it may
desire to "lock in" the U.S. dollar price of the security. By entering into a
forward contract for the purchase or sale, for a fixed amount of dollars, of the
amount of foreign currency involved in the underlying security transactions, the
Portfolio may be able to protect itself against a possible loss resulting from
an adverse change in the relationship between the U.S. dollar and the subject
foreign currency during the period between the date the security is purchased or
sold and the date on which payment is made or received.
Second, a Portfolio may enter into forward contracts in connection with existing
portfolio positions. For example, when the Investment Adviser believes that the
currency of a particular foreign country may suffer a substantial decline
against the U.S. dollar, the Portfolio may enter into a forward contract to
sell, for a fixed amount of dollars, the amount of foreign currency
approximating the value of some or all of the Portfolio's investment securities
denominated in such foreign currency.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible since the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. The projection of short-term currency
market movement is extremely difficult, and the successful execution of a
short-term hedging strategy is highly uncertain. Forward contracts involve the
risk of inaccurate predictions of currency price movements, which may cause the
Portfolio to incur losses on these contracts and transaction costs. The Adviser
does not intend to enter into forward contracts on a regular or continuous basis
and will not do so with respect to a Portfolio if, as a result, a Portfolio will
have more than 25 percent of the value of its total assets committed to such
contracts or the contracts would obligate the Portfolio to deliver an amount of
foreign currency in excess of the value of the Portfolio's investment securities
or other assets denominated in that currency.
At or before the settlement of a forward contract, a Portfolio may either make
delivery of the foreign currency or terminate its contractual obligation to
deliver the foreign currency by purchasing an offsetting contract. If the
Portfolio chooses to make delivery of the foreign currency, it may be required
to obtain the currency through the conversion of assets of the Portfolio into
the currency. The Portfolio may close out a forward contract obligating it to
purchase a foreign currency by selling an offsetting contract. If the Portfolio
engages in an offsetting transaction, it will realize a gain or a loss to the
extent that there has been a change in forward contract prices. Additionally,
although forward contracts may tend to minimize the risk of loss due to a
decline in the value of the hedged currency, at the same time they tend to limit
any potential gain which might result should the value of such currency
increase.
There is no systematic reporting of last sale information for foreign
currencies, and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Quotation information available is generally representative of very large
transactions in the interbank market. The interbank market in foreign currencies
is a global around-the-clock market.
When required by applicable regulatory guidelines, a Portfolio will set aside
cash, U.S. Government Securities or other liquid assets in a segregated account
with its custodian in the prescribed amount.
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EQUITY SECURITIES
COMMON STOCK AND PREFERRED STOCK
Common stockholders are the owners of the company issuing the stock and,
accordingly, vote on various corporate governance matters such as mergers. They
are not creditors of the company, but rather, upon liquidation of the company
are entitled to their pro rata share of the company's assets after creditors
(including fixed income security holders) and, if applicable, preferred
stockholders are paid. Preferred stock is a class of stock having a preference
over common stock as to dividends and, in general, as to the recovery of
investment. A preferred stockholder is a shareholder in the company and not a
creditor of the company as is a holder of the company's fixed income securities.
Dividends paid to common and preferred stockholders are distributions of the
earnings of the company and not interest payments, which are expenses of the
company. Equity securities owned by a Portfolio may be traded in the
over-the-counter market or on a regional securities exchange and may not be
traded every day or in the volume typical of securities trading on a national
securities exchange. As a result, disposition by a Portfolio of a portfolio
security to meet redemptions by shareholders or otherwise may require the
Portfolio to sell these securities at a discount from market prices, to sell
during periods when disposition is not desirable, or to make many small sales
over a lengthy period of time. The market value of all securities, including
equity securities, is based upon the market's perception of value and not
necessarily the book value of an issuer or other objective measure of a
company's worth.
CONVERTIBLE SECURITIES
A Portfolio may invest in convertible securities. A convertible security is a
bond, debenture, note, preferred stock or other security that may be converted
into or exchanged for a prescribed amount of common stock of the same or a
different issuer within a particular period of time at a specified price or
formula. A convertible security entitles the holder to receive interest paid or
accrued on debt or the dividend paid on preferred stock until the convertible
security matures or is redeemed, converted or exchanged. Before conversion,
convertible securities have characteristics similar to nonconvertible debt
securities in that they ordinarily provide a stable stream of income with
generally higher yields than those of common stocks of the same or similar
issuers. Convertible securities rank senior to common stock in a corporation's
capital structure but are usually subordinated to comparable nonconvertible
securities. Although no securities investment is without some risk, investment
in convertible securities generally entails less risk than in the issuer's
common stock. However, the extent to which such risk is reduced depends in large
measure upon the degree to which the convertible security sells above its value
as a fixed income security. Convertible securities have unique investment
characteristics in that they generally: (1) have higher yields than common
stocks, but lower yields than comparable non-convertible securities; (2) are
less subject to fluctuation in value than the underlying stocks since they have
fixed income characteristics; and (3) provide the potential for capital
appreciation if the market price of the underlying common stock increases.
The value of a convertible security is a function of its "investment value"
(determined by a comparison of its yield with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and its
"conversion value" (the security's worth, at market value, if converted into the
underlying common stock). The investment value of a convertible security is
influenced by changes in interest rates, with investment value declining as
interest rates increase and increasing as interest rates decline. The credit
standing of the issuer and other factors also may have an effect on the
convertible security's investment value. The conversion value of a convertible
security is determined by the market price of the underlying common stock. If
the conversion value is low relative to the investment value, the price of the
convertible security is governed principally by its investment value and
generally the conversion value decreases as the convertible security approaches
maturity. To the extent the market price of the underlying common stock
approaches or exceeds the conversion price, the price of the convertible
security will be increasingly influenced by its conversion value. In addition, a
convertible security generally will sell at a premium over its conversion value
determined by the extent to which investors place value on the right to acquire
the underlying common stock while holding a fixed income security.
A convertible security may be subject to redemption at the option of the issuer
at a price established in the convertible security's governing instrument. If a
convertible security held by a Portfolio is called for redemption,
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the Portfolio will be required to permit the issuer to redeem the security,
convert it into the underlying common stock or sell it to a third party.
EQUITY-LINKED SECURITIES
Equity-linked securities are securities that are convertible into or based upon
the value of, equity securities upon certain terms and conditions. The following
are three examples of equity-linked securities.
Preferred Equity Redemption Cumulative Stock ("PERCS") technically are preferred
stock with some characteristics of common stock. PERCS are mandatorily
convertible into common stock after a period of time, usually three years,
during which the investors' capital gains are capped, usually at 30%. Commonly,
PERCS may be redeemed by the issuer either at any time or when the issuer's
common stock is trading at a specified price level or better. The redemption
price starts at the beginning of the PERCS' duration period at a price that is
above the cap by the amount of the extra dividends the PERCS holder is entitled
to receive relative to the common stock over the duration of the PERCS and
declines to the cap price shortly before maturity of the PERCS. In exchange for
having the cap on capital gains and giving the issuer the option to redeem the
PERCS at any time or at the specified common stock price level, a Portfolio may
be compensated with a substantially higher dividend yield than that on the
underlying common stock. Portfolios that seek current income find PERCS
attractive because a PERCS provides a higher dividend income than that paid with
respect to a company's common stock.
Equity-Linked Securities ("ELKS") differ from ordinary debt securities, in that
the principal amount received at maturity is not fixed but is based on the price
of the issuer's common stock. ELKS are debt securities commonly issued in fully
registered form for a term of three years under an indenture trust. At maturity,
the holder of ELKS will be entitled to receive a principal amount equal to the
lesser of a cap amount, commonly in the range of 30% to 55% greater than the
current price of the issuer's common stock, or the average closing price per
share of the issuer's common stock, subject to adjustment as a result of certain
dilution events, for the 10 trading days immediately prior to maturity. Unlike
PERCS, ELKS are commonly not subject to redemption prior to maturity. ELKS
usually bear interest during the three-year term at a substantially higher rate
than the dividend yield on the underlying common stock. In exchange for having
the cap on the return that might have been received as capital gains on the
underlying common stock, a Portfolio may be compensated with the higher yield,
contingent on how well the underlying common stock does. Portfolios that seek
current income find ELKS attractive because ELKS provide a higher dividend
income than that paid with respect to a company's common stock.
Liquid Yield Option Notes ("LYONs") differ from ordinary debt securities in that
the amount received prior to maturity is not fixed but is based on the price of
the issuer's common stock. LYONs are zero-coupon notes that sell at a large
discount from face value. For an investment in LYONs, a Portfolio will not
receive any interest payments until the notes mature, typically in 15 or 20
years, when the notes are redeemed at face, or par, value. The yield on LYONs,
typically, is lower-than-market rate for debt securities of the same maturity,
due in part to the fact that the LYONs are convertible into common stock of the
issuer at any time at the option of the holder of the LYON. Commonly, LYONs are
redeemable by the issuer at any time after an initial period or if the issuer's
common stock is trading at a specified price level or better, or, at the option
of the holder, upon certain fixed dates. The redemption price typically is the
purchase price of the LYONs plus accrued original issue discount to the date of
redemption, which amounts to the lower-than-market yield. A Portfolio will
receive only the lower-than-market yield unless the underlying common stock
increases in value at a substantial rate. LYONs are attractive to investors when
it appears that they will increase in value due to the rise in value of the
underlying common stock.
WARRANTS
A warrant is an option to purchase an equity security at a specified price
(usually representing a premium over the applicable market value of the
underlying equity security at the time of the warrant's issuance) and usually
during a specified period of time. The price of warrants does not necessarily
move parallel to the prices of the underlying securities. Warrants have no
voting rights, receive no dividends and have no rights with respect to the
assets of the issuer. Unlike convertible securities and preferred stocks,
warrants do not pay a fixed dividend. Investments in warrants involve certain
risks, including the possible lack of a liquid market for the resale of the
warrants, potential
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price fluctuations as a result of speculation or other factors and failure of
the price of the underlying security to reach a level at which the warrant can
be prudently exercised. To the extent that the market value of the security that
may be purchased upon exercise of the warrant rises above the exercise price,
the value of the warrant will tend to rise. To the extent that the exercise
price equals or exceeds the market value of such security, the warrants will
have little or no market value. If a warrant is not exercised within the
specified time period, it will become worthless and the Portfolio will lose the
purchase price paid for the warrant and the right to purchase the underlying
security.
HIGH YIELD/JUNK BONDS
Securities rated less than Baa by Moody's or BBB by S&P are classified as
non-investment grade securities and are considered speculative by those rating
agencies. Junk bonds may be issued as a consequence of corporate restructurings,
such as leveraged buyouts, mergers, acquisitions, debt recapitalizations, or
similar events or by smaller or highly leveraged companies. Although the growth
of the high yield/high risk securities market in the 1980's had paralleled a
long economic expansion, many issuers subsequently have been affected by adverse
economic and market conditions. It should be recognized that an economic
downturn or increase in interest rates is likely to have a negative effect on:
(1) the high yield bond market; (2) the value of high yield/high risk
securities; and (3) the ability of the securities' issuers to service their
principal and interest payment obligations, to meet their projected business
goals or to obtain additional financing. In addition, the market for high
yield/high risk securities, which is concentrated in relatively few market
makers, may not be as liquid as the market for investment grade securities.
Under adverse market or economic conditions, the market for high yield/high risk
securities could contract further, independent of any specific adverse changes
in the condition of a particular issuer. As a result, the Portfolio could find
it more difficult to sell these securities or may be able to sell the securities
only at prices lower than if such securities were widely traded. Prices realized
upon the sale of such lower rated or unrated securities, under these
circumstances, may be less than the prices used in calculating the Portfolio's
net asset value.
In periods of reduced market liquidity, prices of high yield/high risk
securities may become more volatile and may experience sudden and substantial
price declines. Also, there may be significant disparities in the prices quoted
for high yield/high risk securities by various dealers. Under such conditions,
the Portfolio may have to use subjective rather than objective criteria to value
its high yield/high risk securities investments accurately and rely more heavily
on the judgment of the Investment Adviser.
Prices for high yield/high risk securities also may be affected by legislative
and regulatory developments. For example, Congress has considered legislation to
restrict or eliminate the corporate tax deduction for interest payments or to
regulate corporate restructurings such as takeovers, mergers or leveraged
buyouts. These laws could adversely affect the Portfolio's net asset value and
investment practices, the market for high yield/high risk securities, the
financial condition of issuers of these securities and the value of outstanding
high yield/high risk securities.
Lower rated or unrated debt obligations also present risks based on payment
expectations. If an issuer calls the obligation for redemption, the Investment
Adviser may have to replace the security with a lower yielding security,
resulting in a decreased return for investors. If a Portfolio experiences
unexpected net redemptions, the Investment Adviser may be forced to sell the
Portfolio's higher rated securities, resulting in a decline in the overall
credit quality of the Portfolio's investment portfolio and increasing the
exposure of the Portfolio to the risks of high yield/high risk securities.
ILLIQUID AND RESTRICTED SECURITIES
Each Portfolio may invest up to 15 percent of its net assets in securities that
at the time of purchase are illiquid. Historically, illiquid securities have
included securities subject to contractual or legal restrictions on resale
because they have not been registered under the 1933 Act ("restricted
securities"), securities that cannot be disposed of within seven days in the
ordinary course of business at approximately the amount at which the Portfolio
has valued the securities and which are otherwise not readily marketable and
includes, among other things, purchased over-the-counter (OTC) options and
repurchase agreements not entitling the holder to repayment within seven days.
The Board has the ultimate responsibility for determining whether specific
securities are liquid or illiquid and has delegated
<PAGE>
the function of making day-to-day determinations of liquidity to the Investment
Adviser of the Portfolios, pursuant to guidelines approved by the Board. The
Investment Adviser takes into account a number of factors in reaching liquidity
decisions, including but not limited to: (1) the frequency of trades and
quotations for the security; (2) the number of dealers willing to purchase or
sell the security and the number of other potential buyers; (3) the willingness
of dealers to undertake to make a market in the security; and (4) the nature of
the marketplace trades, including the time needed to dispose of the security,
the method of soliciting offers and the mechanics of the transfer. The
Investment Adviser monitors the liquidity of the securities held by each
Portfolio and reports periodically on such decisions to the Board.
In connection with a Portfolio's original purchase of restricted securities, it
may negotiate rights with the issuer to have such securities registered for sale
at a later time. Further, the expenses of registration of restricted securities
that are illiquid may also be negotiated by the Portfolio with the issuer at the
time such securities are purchased by the Portfolio. When registration is
required, however, a considerable period may elapse between a decision to sell
the securities and the time the Portfolio would be permitted to sell such
securities. A similar delay might be experienced in attempting to sell such
securities pursuant to an exemption from registration. Thus, the Portfolio may
not be able to obtain as favorable a price as that prevailing at the time of the
decision to sell.
Limitations on resale may have an adverse effect on the marketability of
portfolio securities and a Portfolio might also have to register restricted
securities in order to dispose of them, resulting in expense and delay. A
Portfolio might not be able to dispose of restricted or other securities
promptly or at reasonable prices and might thereby experience difficulty
satisfying redemptions. There can be no assurance that a liquid market will
exist for any security at any particular time.
A institutional market has developed for certain securities that are not
registered under the 1933 Act, including repurchase agreements, commercial
paper, foreign securities and corporate bonds and notes. Institutional investors
depend on an efficient institutional market in which the unregistered security
can be readily resold or on the issuer's ability to honor a demand for repayment
of the unregistered security. A security's contractual or legal restrictions on
resale to the general public or to certain institutions may not be indicative of
the liquidity of the security. If such securities are eligible for purchase by
institutional buyers in accordance with Rule 144A under the 1933 Act under
guidelines adopted by the Board, the Investment Adviser may determine that such
securities are not illiquid securities. These guidelines take into account
trading activity in the securities and the availability of reliable pricing
information, among other factors. If there is a lack of trading interest in a
particular Rule 144A security, a Portfolio's holdings of that security may be
illiquid.
LOANS OF PORTFOLIO SECURITIES
Each Portfolio may lend its portfolio securities subject to the restrictions
stated in the Prospectus. Under applicable regulatory requirements (which are
subject to change), the loan collateral must, on each business day, at least
equal the market value of the loaned securities and must consist of cash, bank
letters of credit, U.S. Government securities, or other cash equivalents in
which the Portfolio is permitted to invest. To be acceptable as collateral,
letters of credit must obligate a bank to pay amounts demanded by the Portfolio
if the demand meets the terms of the letter. Such terms and the issuing bank
must be satisfactory to the Portfolio. In a portfolio securities lending
transaction, the Portfolio receives from the borrower an amount equal to the
interest paid or the dividends declared on the loaned securities during the term
of the loan as well as the interest on the collateral securities, less any
finders' or administrative fees the Portfolio pays in arranging the loan. The
Portfolio may share the interest it receives on the collateral securities with
the borrower as long as it realizes at least a minimum amount of interest
required by the lending guidelines established by the Board. The Portfolio will
not lend its portfolio securities to any officer, director, employee or
affiliate of the Portfolio or the Adviser. The terms of a Portfolio's loans must
meet certain tests under the Code and permit the Portfolio to reacquire loaned
securities on five business days' notice or in time to vote on any important
matter.
BORROWING AND TRANSACTIONS INVOLVING LEVERAGE
Each Portfolio may borrow money for temporary or emergency purposes, including
the meeting of redemption requests, in amounts not expected to exceed five (5)
percent of the value of any Portfolio's assets. Borrowing
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involves special risk considerations. Interest costs on borrowings may fluctuate
with changing market rates of interest and may partially offset or exceed the
return earned on borrowed Portfolios (or on the assets that were retained rather
than sold to meet the needs for which Portfolios were borrowed). Under adverse
market conditions, a Portfolio might have to sell portfolio securities to meet
interest or principal payments at a time when investment considerations would
not favor such sales. Except as otherwise noted, no Portfolio may purchase
securities for investment while any borrowing equaling five percent or more of
the Portfolio's total assets is outstanding or borrow for purposes other than
meeting redemptions in an amount exceeding five percent of the value of the
Portfolio's total assets. A Portfolio's use of borrowed proceeds to make
investments would subject the Portfolio to the risks of leveraging. Reverse
repurchase agreements, short sales not against the box, dollar roll transactions
and other similar investments that involve a form of leverage have
characteristics similar to borrowings but are not considered borrowings if the
Portfolio maintains a segregated account.
OTHER TECHNIQUES INVOLVING LEVERAGE
Utilization of leveraging involves special risks and may involve speculative
investment techniques. Certain Portfolios may borrow for other than temporary or
emergency purposes, lend their securities, enter reverse repurchase agreements,
and purchase securities on a when issued or forward commitment basis. In
addition, certain Portfolios may engage in dollar roll transactions. Each of
these transactions involve the use of "leverage" when cash made available to a
Portfolio through the investment technique is used to make additional portfolio
investments. The Portfolios use these investment techniques only when Norwest
believes that the leveraging and the returns available to the Portfolio from
investing the cash will provide shareholders a potentially higher return.
Leverage exists when a Portfolio achieves the right to a return on a capital
base that exceeds the investment the Portfolio has invested. Leverage creates
the risk of magnified capital losses which occur when losses affect an asset
base, enlarged by borrowings or the creation of liabilities, that exceeds the
equity base of the Portfolio. Leverage may involve the creation of a liability
that requires the Portfolio to pay interest (for instance, reverse repurchase
agreements) or the creation of a liability that does not entail any interest
costs (for instance, forward commitment transactions).
The risks of leverage include a higher volatility of the net asset value of the
Portfolio's shares and the relatively greater effect on the net asset value of
the shares caused by favorable or adverse market movements or changes in the
cost of cash obtained by leveraging and the yield obtained from investing the
cash. So long as a Portfolio is able to realize a net return on its investment
portfolio that is higher than interest expense incurred, if any, leverage will
result in higher current net investment income being realized by the Portfolio
than if the Portfolio were not leveraged. On the other hand, interest rates
change from time to time as does their relationship to each other depending upon
such factors as supply and demand, monetary and tax policies and investor
expectations. Changes in such factors could cause the relationship between the
cost of leveraging and the yield to change so that rates involved in the
leveraging arrangement may substantially increase relative to the yield on the
obligations in which the proceeds of the leveraging have been invested. To the
extent that the interest expense involved in leveraging approaches the net
return on a Portfolio's investment portfolio, the benefit of leveraging will be
reduced, and, if the interest expense on borrowings were to exceed the net
return to shareholders, the Portfolio's use of leverage would result in a lower
rate of return than if the Portfolio were not leveraged. Similarly, the effect
of leverage in a declining market could be a greater decrease in net asset value
per share than if the Portfolio were not leveraged. In an extreme case, if the
Portfolio's current investment income were not sufficient to meet the interest
expense of leveraging, it could be necessary for the Portfolio to liquidate
certain of its investments at an inappropriate time. The use of leverage may be
considered speculative.
SEGREGATED ACCOUNT
In order to limit the risks involved in various transactions involving leverage,
the Trust's custodian will set and maintain in a segregated account cash, U.S.
Government Securities and liquid securities (or other assets as may be permitted
by the SEC) in accordance with SEC guidelines. The account's value, which is
marked to market daily, will be at least equal to the Portfolio's commitments
under these transactions. The Portfolio's commitments include
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the Portfolio's obligations to repurchase securities under a reverse repurchase
agreement and settle when-issued and forward commitment transactions.
MARGIN AND SHORT SALES
Prohibitions on entering short sales do not restrict a Portfolio's ability to
use short-term credits necessary for the clearance of portfolio transactions and
to make margin deposits in connection with permitted transactions in options and
futures contracts.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements are transactions in which a Portfolio sells a
security and simultaneously commits to repurchase that security from the buyer
at an agreed upon price on an agreed upon future date. The resale price in a
reverse repurchase agreement reflects a market rate of interest that is not
related to the coupon rate or maturity of the sold security. For certain demand
agreements, there is no agreed upon repurchase date and interest payments are
calculated daily, often based upon the prevailing overnight repurchase rate.
Generally, a reverse repurchase agreement enables the Portfolio to recover for
the term of the reverse repurchase agreement all or most of the cash invested in
the portfolio securities sold and to keep the interest income associated with
those portfolio securities. Such transactions are only advantageous if the
interest cost to the Portfolio of the reverse repurchase transaction is less
than the cost of obtaining the cash otherwise. In addition, interest costs on
the money received in a reverse repurchase agreement may exceed the return
received on the investments made by a Portfolio with those monies. The use of
reverse repurchase agreement proceeds to make investments may be considered to
be a speculative technique.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Portfolios may purchase or sell portfolio securities on a when-issued or
delayed delivery basis. When-issued or delayed delivery transactions arise when
securities are purchased by a Portfolio with payment and delivery to take place
in the future in order to secure what is considered to be an advantageous price
and yield to the Portfolio at the time it enters into the transaction. In those
cases, the purchase price and the interest rate payable on the securities are
fixed on the transaction date and delivery and payment may take place a month or
more after the date of the transaction. When a Portfolio enters into a delayed
delivery transaction, it becomes obligated to purchase securities and it has all
of the rights and risks attendant to ownership of the security, although
delivery and payment occur at a later date. To facilitate such acquisitions, the
Portfolio will maintain with its custodian a separate account with portfolio
securities in an amount at least equal to such commitments.
At the time a Portfolio makes the commitment to purchase securities on a
when-issued or delayed delivery basis, the Portfolio will record the transaction
as a purchase and thereafter reflect the value each day of such securities in
determining its net asset value. The value of the fixed income securities to be
delivered in the future will fluctuate as interest rates and the credit of the
underlying issuer vary. On delivery dates for such transactions, the Portfolio
will meet its obligations from maturities, sales of the securities held in the
separate account or from other available sources of cash. A Portfolio generally
has the ability to close out a purchase obligation on or before the settlement
date, rather than purchase the security. If a Portfolio chooses to dispose of
the right to acquire a when-issued security prior to its acquisition, it could,
as with the disposition of any other portfolio obligation, realize a gain or
loss due to market fluctuation.
To the extent a Portfolio engages in when-issued or delayed delivery
transactions, it will do so for the purpose of acquiring securities consistent
with the Portfolio's investment objectives and policies and not for the purpose
of investment leverage or to speculate in interest rate changes. A Portfolio
will only make commitments to purchase securities on a when-issued or delayed
delivery basis with the intention of actually acquiring the securities, but the
Portfolio reserves the right to dispose of the right to acquire these securities
before the settlement date if deemed advisable.
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The use of when-issued and delayed delivery transactions enables the Portfolio
to hedge against anticipated changes in interest rates and prices. If the
Investment Adviser were to forecast incorrectly the direction of interest rate
movements, however, a Portfolio might be required to complete when-issued or
delayed delivery transactions at prices inferior to the current market values.
Securities purchased pursuant to when-issued and delayed delivery transactions
may be sold prior to the settlement date, but a Portfolio enters into
when-issued and delayed delivery transactions only with the intention of
actually receiving or delivering the securities, as the case may be. In some
instances, the third-party seller of when-issued or delayed delivery securities
may determine prior to the settlement date that it will be unable to meet its
existing transaction commitments without borrowing securities. If advantageous
from a yield perspective, a Portfolio may, in that event, agree to resell its
purchase commitment to the third-party seller at the current market price on the
date of sale and concurrently enter into another purchase commitment for such
securities at a later date. As an inducement for a Portfolio to "roll over" its
purchase commitment, the Portfolio may receive a negotiated fee. When-issued
securities may include bonds purchased on a "when, as and if issued" basis under
which the issuance of the securities depends upon the occurrence of a subsequent
event. Any significant commitment of a Portfolio's assets to the purchase of
securities on a "when, as and if issued" basis may increase the volatility of
the Portfolio's net asset value. For purposes of the Portfolios' investment
policies, the purchase of securities with a settlement date occurring on a
Public Securities Association approved settlement date is considered a normal
delivery and not a when-issued or delayed delivery purchase.
REPURCHASE AGREEMENTS
The Portfolios may invest in securities subject to repurchase agreements with
U.S. banks or broker-dealers. In a typical repurchase agreement, the seller of a
security commits itself at the time of the sale to repurchase that security from
the buyer at a mutually agreed-upon time and price. The repurchase price exceeds
the sale price, reflecting an agreed-upon interest rate effective for the period
the buyer owns the security subject to repurchase. The agreed-upon rate is
unrelated to the interest rate on that security. The Adviser will monitor the
value of the underlying security at the time the transaction is entered into and
at all times during the term of the repurchase agreement to ensure that the
value of the security always equals or exceeds the repurchase price (including
accrued interest). In the event of default by the seller under the repurchase
agreement, a Portfolio may have difficulties in exercising its rights to the
underlying securities and may incur costs and experience time delays in
connection with the disposition of such securities. To evaluate potential risks,
the Adviser reviews the credit-worthiness of those banks and dealers with which
the Portfolios enter into repurchase agreements.
Securities subject to repurchase agreements will be held by the Portfolio's
custodian or another qualified custodian or in the Federal Reserve book-entry
system. Repurchase agreements are considered to be loans by a Portfolio for
certain purposes under the 1940 Act.
TEMPORARY DEFENSIVE POSITION
When a Portfolio, in accordance with the policies described in its Prospectus,
assumes a temporary defensive position, it may invest without limit in: (1)
short-term U.S. Government Securities; (2) certificates of deposit, bankers'
acceptances and interest-bearing savings deposits of commercial banks doing
business in the United States that have, at the time of investment, total assets
in excess of one billion dollars and that are insured by the Federal Deposit
Insurance Corporation; (3) commercial paper of prime quality rated Prime-2 or
higher by Moody's or A-2 or higher by S&P or, if not rated, determined by the
investment adviser to be of comparable quality; (4) repurchase agreements
covering any of the securities in which the Portfolio may invest directly; and
(5) money market mutual funds.
2. INVESTMENT LIMITATIONS
For purposes of all fundamental and nonfundamental investment policies of each
Portfolio: (1) the term 1940 Act includes the rules thereunder, SEC
interpretations and any exemptive order upon which the Portfolio may rely and
(2) the term Code includes the rules thereunder, IRS interpretations and any
private letter ruling or similar authority upon which the Portfolio may rely.
<PAGE>
Each Portfolio has adopted the investment policies listed in this section which
are nonfundamental policies unless otherwise noted. Except for its investment
objective, which is Fundamental, the Portfolio has not adopted any Fundamental
policies except as required by the 1940 Act.
Except as required by the 1940 Act or the Code, if any percentage restriction on
investment or utilization of assets is adhered to at the time an investment is
made, a later change in percentage resulting from a change in the market values
of a Portfolio's assets or purchases and redemptions of shares will not be
considered a violation of the limitation.
A Fundamental policy of a Portfolio cannot be changed without the affirmative
vote of the lesser of: (1) more than 50% of the outstanding shares of the
Portfolio or (2) 67% of the shares of the Portfolio present or represented at a
shareholders meeting at which the holders of more than 50% of the outstanding
shares of the Portfolio are present or represented.
FUNDAMENTAL LIMITATIONS
Each Portfolio has adopted the following investment limitations that are
fundamental policies.
(1) DIVERSIFICATION
No Portfolio may, with respect to 75% of its assets, purchase
a security (other than a U.S. Government Security or a
security of an investment company) if, as a result: (1) more
than 5% of the Portfolio's total assets would be invested in
the securities of a single issuer or (2) the Portfolio would
own more than 10% of the outstanding voting securities of any
single issuer.
2. INDUSTRY CONCENTRATION
No Portfolio may purchase a security if, as a result, more
than 25% of the Portfolio's total assets would be invested in
securities of issuers conducting their principal business
activities in the same industry. For purposes of this
limitation, there is no limit on: (1) investments in U.S.
Government securities, in repurchase agreements covering U.S.
Government Securities, in securities issued by the states,
territories or possessions of the United States ("municipal
securities") or in foreign government securities or (2)
investment in issuers domiciled in a single jurisdiction.
Notwithstanding anything to the contrary, to the extent
permitted by the 1940 Act, each Portfolio may invest in one or
more investment companies; provided that, except to the extent
the Portfolio invests in other investment companies pursuant
to Section 12(d)(1)(A) of the 1940 Act, the Portfolio treats
the assets of the investment companies in which it invests as
its own for purposes of this policy.
For purposes of this policy: (1) "mortgage related
securities," as that term is defined in the 1934 Act, are
treated as securities of an issuer in the industry of the
primary type of asset backing the security; (2) financial
service companies are classified according to the end users of
their services (for example, automobile finance, bank finance
and diversified finance); and (3) utility companies are
classified according to their services (for example, gas, gas
transmission, electric and gas, electric and telephone).
3. BORROWING
No Portfolio may borrow money if, as a result, outstanding
borrowings would exceed an amount equal to 33 1/3% of the
Portfolio's total assets.
<PAGE>
4. REAL ESTATE
No Portfolio may purchase or sell real estate unless
acquired as a result of ownership of securities or other
instruments (but this shall not prevent the Portfolio from
investing in securities or other instruments backed by real
estate or securities of companies engaged in the real estate
business).
5. LENDING
No Portfolio may make loans to other parties. For purposes
of this limitation, entering into repurchase agreements,
lending securities and acquiring any debt security are not
deemed to be the making of loans.
No Portfolio may lend a security if, as a result, the amount
of loaned securities would exceed an amount equal to 33 1/3%
of the Portfolio's total assets.
6. Commodities
No Portfolio may purchase or sell physical commodities
unless acquired as a result of ownership of securities or
other instruments (but this shall not prevent the Portfolio
from purchasing or selling options and futures contracts or
from investing in securities or other instruments backed by
physical commodities).
7. UNDERWRITING
No Portfolio may underwrite (as that term is defined in the
1933 Act) securities issued by other persons except, to the
extent that in connection with the disposition of the
Portfolio's assets, the Portfolio may be deemed to be an
underwriter.
8. SENIOR SECURITIES
No Portfolio may issue senior securities except to the
extent permitted by the 1940 Act.
NONFUNDAMENTAL LIMITATIONS
Each Portfolio has adopted the following investment limitations which are not
fundamental policies of the Portfolio. A nonfundamental policy will not be used
to defeat a fundamental limitation of a Portfolio. These nonfundamental policies
may be changed by the Board.
(1) BORROWING
For purposes of the limitation on borrowing, the following are
not treated as borrowings to the extent they are fully
collateralized: (1) the delayed delivery of purchased
securities (such as the purchase of when-issued securities);
(2) reverse repurchase agreements; (3) dollar-roll
transactions; and (4) the lending of securities ("leverage
transactions").
2. LIQUIDITY
No Portfolio may invest more than 15% of its net assets in
illiquid assets such as: (1) securities that cannot be
disposed of within seven days at their then-current value; (2)
repurchase agreements not entitling the holder to payment of
principal within seven days; and (3) securities subject to
restrictions on the sale of the securities to the public
without registration under the 1933 Act ("restricted
securities") that are not readily marketable. Each Portfolio
may treat certain restricted securities as liquid pursuant to
guidelines adopted by the Board of Trustees.
<PAGE>
3. EXERCISING CONTROL OF ISSUERS
No Portfolio may make investments for the purpose of
exercising control of an issuer. Investments by a Portfolio in
entities created under the laws of foreign countries solely to
facilitate investment in securities in that country will not
be deemed the making of investments for the purpose of
exercising control.
4. OTHER INVESTMENT COMPANIES
No Fund may invest in securities of another investment
company, except to the extent permitted by the 1940 Act.
5. SHORT SALES AND PURCHASING ON MARGIN
Under normal circumstances, no Portfolio may sell securities
short, provided that transactions in futures contracts and
options are not deemed to constitute selling securities short.
No Portfolio may purchase securities on margin, except that a
Portfolio may use short-term credit for the clearance of the
Portfolio's transactions, and provided that initial and
variation margin payments in connection with futures contracts
and options on futures contracts shall not constitute
purchasing securities on margin.
6. OPTIONS, WARRANTS AND FUTURES CONTRACTS
No Portfolio may invest in futures or options contracts
regulated by the CFTC for: (1) bona fide hedging purposes
within the meaning of the rules of the CFTC and (2) for other
purposes if, as a result, no more than 5% of the Portfolio's
net assets would be invested in initial margin and premiums
(excluding amounts "in-the-money") required to establish the
contracts.
No Portfolio: (1) will hedge more than [50%] of its total
assets by selling futures contracts, buying put options, and
writing call options (so called "short positions"); (2) will
buy futures contracts or write put options whose underlying
value exceeds [25%] of the Portfolio's total assets; and (3)
will buy call options with a value exceeding [5%] of the
Portfolio's total assets.
3. PERFORMANCE AND ADVERTISING DATA
Quotations of performance may from time to time be used in advertisements, sales
literature, shareholder reports or other communications to shareholders or
prospective investors. All performance information supplied by the Portfolios is
historical and is not intended to indicate future returns. Each Portfolio's
yield and total return fluctuate in response to market conditions and other
factors. The value of a Portfolio's shares when redeemed may be more or less
than their original cost.
In performance advertising, the Portfolios may compare any of their performance
information with data published by independent evaluators such as Morningstar,
Inc., Lipper Analytical Services, Inc., or other companies which track the
investment performance of investment companies ("Portfolio Tracking Companies").
The Portfolios may also compare any of their performance information with the
performance of recognized stock, bond and other indices, including but not
limited to the Municipal Bond Buyers Indices, the Salomon Brothers Bond Index,
Shearson Lehman Bond Index, the Standard & Poor's 500 Composite Stock Price
Index, Russell 2000 Index, Morgan Stanley-Europe, Australian and Far East Index,
Lehman Brothers Intermediate Government Index, Lehman Brothers Intermediate
Government/Corporate Index, the Dow Jones Industrial Average, U.S. Treasury
bonds, bills or notes and changes in the Consumer Price Index as published by
the U.S. Department of Commerce. The Portfolios may refer to general market
performances over past time periods such as those published by Ibbotson
Associates (for instance, its "Stocks, Bonds, Bills and Inflation Yearbook"). In
addition, the Portfolios may also refer in such materials to mutual Portfolio
performance rankings and other data published by Portfolio Tracking
<PAGE>
Companies. Performance advertising may also refer to discussions of the
Portfolios' and comparative mutual fund data and ratings reported in independent
periodicals, such as newspapers and financial magazines.
SEC YIELD CALCULATIONS
Although published yield information is useful to investors in reviewing a
Portfolio's performance, investors should be aware that each Portfolio's yield
fluctuates from day to day and that the Portfolio's yield for any given period
is not an indication or representation by the Portfolio of future yields or
rates of return on the Portfolio's shares. Norwest, Processing Organizations and
others may charge their customers, various retirement plans or other
shareholders that invest in a Portfolio fees in connection with an investment in
a Portfolio, which will have the effect of reducing the Portfolio's net yield to
those shareholders. The yields of a Portfolio are not fixed or guaranteed, and
an investment in a Portfolio is not insured or guaranteed. Accordingly, yield
information may not necessarily be used to compare shares of a Portfolio with
investment alternatives which, like money market instruments or bank accounts,
may provide a fixed rate of interest. Also, it may not be appropriate to compare
a Portfolio's yield information directly to similar information regarding
investment alternatives which are insured or guaranteed.
FIXED INCOME AND EQUITY PORTFOLIOS
Standardized yields for the Portfolios used in advertising are computed by
dividing a Portfolio's dividends and interest earned (in accordance with
specific standardized rules) for a given 30 days or one month period, net of
expenses, by the average number of shares entitled to receive distributions
during the period, dividing this figure by the Portfolio's net asset value per
share at the end of the period and annualizing the result (assuming compounding
of income in accordance with specific standardized rules) in order to arrive at
an annual percentage rate. In general, interest income is reduced with respect
to municipal securities purchased at a premium over their par value by
subtracting a portion of the premium from income on a daily basis. In general,
interest income is increased with respect to municipal securities purchased at
original issue at a discount by adding a portion of the discount to daily
income. Capital gains and losses generally are excluded from these calculations.
Income calculated for the purpose of determining each Portfolio's standardized
yield differs from income as determined for other accounting purposes. Because
of the different accounting methods used, and because of the compounding assumed
in yield calculations, the yield quoted for a Portfolio may differ from the rate
of distribution the Portfolio paid over the same period or the rate of income
reported in the Portfolio's financial statements.
TOTAL RETURN CALCULATIONS
Standardized total returns quoted in advertising and sales literature reflect
all aspects of a Portfolio's return, including the effect of reinvesting
dividends and capital gain distributions, any change in the Portfolio's net
asset value per share over the period and maximum sales charge, if any,
applicable to purchases of the Portfolio's shares. Average annual total returns
are calculated, through the use of a formula prescribed by the SEC, by
determining the growth or decline in value of a hypothetical historical
investment in a Portfolio over a stated period, and then calculating the
annually compounded percentage rate that would have produced the same result if
the rate of growth or decline in value had been constant over the period. For
example, a cumulative return of 100% over ten years would produce an average
annual return of 7.18%, which is the steady annual rate that would equal 100%
growth on a compounded basis in ten years. The average annual total return is
computed separately for each class of shares of a Portfolio. While average
annual returns are a convenient means of comparing investment alternatives,
investors should realize that the performance is not constant over time but
changes from year to year, and that average annual returns represent averaged
figures as opposed to the actual year-to-year performance of the Portfolios.
Average annual total return is calculated by finding the average annual
compounded rates of return of a hypothetical investment, over such periods
according to the following formula:
<PAGE>
P(1+T)n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value: ERV is the value, at the
end of the applicable period, of a hypothetical $1,000
payment made at the beginning of the applicable period
Standardized total return quotes may be accompanied by non-standardized total
return figures calculated by alternative methods. For example, average annual
total return may be calculated without assuming payment of the sales load
according to the following formula:
P(1+U)n = ERV
Where P = a hypothetical initial payment of $1,000.
U = average annual total return assuming non payment of
the maximum sales load at the beginning of the stated
period.
n number of years
ERV = ending redeemable value of a hypothetical $1,000 payment
at the end of the stated period
In addition to average annual returns, each Portfolio may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Total returns may be broken down into their components of
income and capital (including capital gains and changes in share price) in order
to illustrate the relationship of these factors and their contributions to total
return. Total returns, yields, and other performance information may be quoted
numerically or in a table, graph, or similar illustration. Period total return
is calculated according to the following formula:
PT = (ERV/P-1)
Where:
PT = period total return
The other definitions are the same as in average annual
total return above
OTHER ADVERTISEMENT MATTERS
The Portfolios may advertise other forms of performance. Average annual and
cumulative total returns may be quoted as a percentage or as a dollar amount,
and may be calculated for a single investment, a series of investments and/or a
series of redemptions over any time period. Total returns may be broken down
into their components of income and capital (including capital gains and changes
in share price) in order to illustrate the relationship of these factors and
their contributions to total return. Total returns may be quoted with or without
taking into consideration a Portfolio's front-end sales charge or contingent
deferred sales charge; excluding sales charges from a total return calculation
produces a higher return figure. Any performance information may be presented
numerically or in a table, graph or similar illustration.
The Portfolios may also include various information in their advertisements
including, but not limited to: (1) portfolio holdings and portfolio allocation
as of certain dates, such as portfolio diversification by instrument type, by
instrument, by location of issuer or by maturity; (2) statements or
illustrations relating to the appropriateness of types of securities and/or
mutual Portfolios that may be employed by an investor to meet specific financial
goals, such as fund retirement, paying for children's education and financially
supporting aging parents; (3) information
<PAGE>
(including charts and illustrations) showing the effects of compounding interest
(compounding is the process of earning interest on principal plus interest that
was earned earlier; interest can be compounded at different intervals, such as
annually, quartile or daily); (4) information relating to inflation and its
effects on the dollar; for example, after ten years the purchasing power of
$25,000 would shrink to $16,621, $14,968, $13,465 and $12,100, respectively, if
the annual rates of inflation were 4%, 5%, 6% and 7%, respectively; (5)
information regarding the effects of automatic investment and systematic
withdrawal plans, including the principal of dollar cost averaging; (6)
descriptions of the Portfolios' portfolio managers and the portfolio management
staff of the Investment Adviser or summaries of the views of the portfolio
managers with respect to the financial markets; (7) the results of a
hypothetical investment in a Portfolio over a given number of years, including
the amount that the investment would be at the end of the period; (8) the
effects of earning Federally and, if applicable, state tax-exempt income from a
Portfolio or investing in a tax-deferred account, such as an individual
retirement account or Section 401(k) pension plan; and (9) the net asset value,
net assets or number of shareholders of a Portfolio as of one or more dates.
As an example of compounding, $1,000 compounded annually at 9.00% will grow to
$1,090 at the end of the first year (an increase in $90) and $1,118 at the end
of the second year (an increase in $98). The extra $8 that was earned on the $90
interest from the first year is the compound interest. One thousand dollars
compounded annually at 9.00% will grow to $2,367 at the end of ten years and
$5,604 at the end of 20 years. Other examples of compounding are as follows: at
7% and 12% annually, $1,000 will grow to $1,967 and $3,106, respectively, at the
end of ten years and $3,870 and $9,646, respectively, at the end of twenty
years. These examples are for illustrative purposes only and are not indicative
of any Portfolio's performance.
The Portfolios may advertise information regarding the effects of automatic
investment and systematic withdrawal plans, including the principal of dollar
cost averaging. In a dollar cost averaging program, an investor invests a fixed
dollar amount in a Portfolio at period intervals, thereby purchasing fewer
shares when prices are high and more shares when prices are low. While such a
strategy does not insure a profit or guard against a loss in a declining market,
the investor's average cost per share can be lower than if fixed numbers of
shares had been purchased at those intervals. In evaluating such a plan,
investors should consider their ability to continue purchasing shares through
periods of low price levels. For example, if an investor invests $100 a month
for a period of six months in a Portfolio the following will be the relationship
between average cost per share ($14.35 in the example given) and average price
per share:
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
In connection with its advertisements each Portfolio may provide "shareholders
letters" which serve to provide shareholders or investors an introduction into
the Portfolio's, the Trust's or any of the Trust's service provider's policies
or business practices. For instance, advertisements may provide for a message
from Norwest or its parent corporation that Norwest has for more than 60 years
been committed to quality products and outstanding service to assist its
customers in meeting their financial goals and setting forth the reasons that
Norwest believes that it has been successful as a national financial service
firm.
<PAGE>
4. MANAGEMENT
Those officers, as well as certain other officers and Trustees of the Trust, may
be directors, officers or employees of (and persons providing services to the
Trust may include) Forum, its affiliates or certain non-banking affiliates of
Norwest.
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.
<PAGE>
TIMOTHY J. PENNY, Trustee, Age 45.
Senior Counselor to the public relations firm of Himle-Horner since
January 1995 and Senior Fellow at the Humphrey Institute, Minneapolis,
Minnesota (a public policy organization) since January 1995. Prior
thereto Mr. Penny was the Representative to the United States Congress
from Minnesota's First Congressional District. His address is 500
North State Street, Waseca, Minnesota 56095.
DONALD C. WILLEKE, Trustee, Age 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.
<PAGE>
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.
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 $22,870 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 Portfolios.
<PAGE>
INVESTMENT ADVISORY SERVICES
GENERAL
The advisory fee for each Portfolio is based on the average daily net assets of
the Portfolio at the annual rate disclosed in the Portfolio's prospectus.
All investment advisory fees are accrued daily and paid monthly. Norwest, the
investment adviser, in its sole discretion, may waive or continue to waive all
or any portion of its investment advisory fees.
In addition to receiving its advisory fee from the Portfolios, the investment
adviser or its affiliates may act and be compensated as investment manager for
its clients with respect to assets which are invested in a Portfolio. In some
instances Norwest or its affiliates may elect to credit against any investment
management, custodial or other fee received from, or rebate to, a client who is
also a shareholder in a Portfolio an amount equal to all or a portion of the
fees received by Norwest or any of its affiliates from a Portfolio with respect
to the client's assets invested in the Portfolio.
NORWEST INVESTMENT MANAGEMENT
Norwest furnishes at its expense all services, facilities and personnel
necessary in connection with managing each Portfolio's investments and effecting
portfolio transactions for each Portfolio. The Investment Advisory Agreement
between each Portfolio and Norwest will continue in effect only if such
continuance is specifically approved at least annually by the Board or by vote
of the shareholders, and in either case, by a majority of the Trustees who are
not interested persons of any party to the Investment Advisory Agreement, at a
meeting called for the purpose of voting on the Investment Advisory Agreement.
The Investment Advisory Agreement is terminable without penalty with respect to
the Portfolio on 60 days' written notice: (1) by the Board or by a vote of a
majority of the outstanding voting securities of the Portfolio to the Adviser or
(2) by the Adviser on 60 days' written notice to the Trust. The Investment
Advisory Agreement shall terminate upon assignment. The Investment Advisory
Agreement also provides that, with respect to the Portfolios, neither Norwest
nor its personnel shall be liable for any mistake of judgment or in any event
whatsoever, except for lack of good faith, provided that nothing in the
Investment Advisory Agreement shall be deemed to protect, or purport to protect,
the Adviser against liability by reason of willful misfeasance, bad faith or
gross negligence in the performance of Norwest's duties or by reason of reckless
disregard of its obligations and duties under the Investment Advisory
Agreements. The Investment Advisory Agreement provides that Norwest may render
services to others.
MANAGEMENT AND ADMINISTRATIVE SERVICES
MANAGER AND ADMINISTRATOR
Forum manages all aspects of the Trust's operations with respect to each
Portfolio except those which are the responsibility of FAS, Norwest, any other
investment adviser or investment subadviser to a Portfolio, or Norwest in its
capacity as administrator pursuant to an investment administration or similar
agreement. With respect to each Portfolio, Forum has entered into a Management
Agreement that will continue in effect only if such continuance is specifically
approved at least annually by the Board or by the shareholders and, in either
case, by a majority of the Trustees who are not interested persons of any party
to the Management Agreement.
On behalf of the Trust and with respect to each Portfolio, Forum: (1) oversees
(a) the preparation and maintenance by the Adviser and the Trust's
administrator, custodian, transfer agent, dividend disbursing agent and
Portfolio accountant (or if appropriate, prepares and maintains) in such form,
for such periods and in such locations as may be required by applicable law, of
all documents and records relating to the operation of the Trust required to be
prepared or maintained by the Trust or its agents pursuant to applicable law;
(b) the reconciliation of account information and balances among the Adviser and
the Trust's custodian, transfer agent, dividend disbursing agent
<PAGE>
and Portfolio accountant; (c) the transmission of purchase and redemption orders
for Shares; (d) the notification of the Adviser of available funds for
investment; and (e) the performance of Portfolio accounting, including the
calculation of the net asset value per Share; (2) oversees the Trust's receipt
of the services of persons competent to perform such supervisory, administrative
and clerical functions as are necessary to provide effective operation of the
Trust; (3) oversees the performance of administrative and professional services
rendered to the Trust by others, including its administrator, custodian,
transfer agent, dividend disbursing agent and Portfolio accountant, as well as
accounting, auditing, legal and other services performed for the Trust; (4)
provides the Trust with adequate general office space and facilities and
provides, at the Trust's request and expense, persons suitable to the Board to
serve as officers of the Trust; (5) oversees the preparation and the printing of
the periodic updating of the Trust's registration statement, Prospectuses and
SAIs, the Trust's tax returns, and reports to its shareholders, the SEC and
state and other securities administrators; (6) oversees the preparation of proxy
and information statements and any other communications to shareholders; (7)
with the cooperation of the Trust's counsel, Investment Adviser and other
relevant parties, oversees the preparation and dissemination of materials for
meetings of the Board; (8) oversees the preparation, filing and maintenance of
the Trust's governing documents, including the Trust Instrument, Bylaws and
minutes of meetings of Trustees, Board committees and shareholders; (9) oversees
registration and sale of Portfolio shares, to ensure that such shares are
properly and duly registered with the SEC and that appropriate action has been
taken under applicable state law; (10) oversees the calculation of performance
data for dissemination to information services covering the investment company
industry, sales literature of the Trust and other appropriate purposes; (11)
oversees the determination of the amount of and supervises the declaration of
dividends and other distributions to shareholders as necessary to, among other
things, maintain the qualification of each Portfolio as a regulated investment
company under the Internal Revenue Code of 1986, as amended, and oversees the
preparation and distribution to appropriate parties of notices announcing the
declaration of dividends and other distributions to shareholders; (12) reviews
and negotiates on behalf of the Trust normal course of business contracts and
agreements; (13) maintains and reviews periodically the Trust's fidelity bond
and errors and omission insurance coverage; and (14) advises the Trust and the
Board on matters concerning the Trust and its affairs.
The Management Agreement terminates automatically if assigned and may be
terminated without penalty with respect to any Portfolio by vote of that
Portfolio's shareholders or by either party on not more than 60 days' nor less
than 30 days' written notice. The Management Agreement also provides that
neither Forum nor its personnel shall be liable for any error of judgment or
mistake of law or for any act or omission in the administration or management of
the Trust, except for willful misfeasance, bad faith or gross negligence in the
performance of Forum's or their duties or by reason of reckless disregard of
their obligations and duties under the Management Agreement.
FAS manages all aspects of the Trust's operations with respect to each Portfolio
except those which are the responsibility of Forum, Norwest, or any other
investment adviser or investment subadviser to a Portfolio, or Norwest in its
capacity as administrator pursuant to an investment administration or similar
agreement. With respect to each Portfolio, Forum has entered into a
Administrative Agreement that will continue in effect only if such continuance
is specifically approved at least annually by the Board or by the shareholders
and, in either case, by a majority of the Trustees who are not interested
persons of any party to the Management Agreement.
On behalf of the Trust and with respect to each Portfolio, FAS: (1) provides the
Trust with, or arranges for the provision of, the services of persons competent
to perform such supervisory, administrative and clerical functions as are
necessary to provide effective operation of the Trust; (2) assists in the
preparation and the printing and the periodic updating of the Trust's
registration statement, Prospectuses and SAIs, the Trust's tax returns, and
reports to its shareholders, the SEC and state and other securities
administrators; (3) assists in the preparation of proxy and information
statements and any other communications to shareholders; (4) assists the Adviser
in monitoring Portfolio holdings for compliance with Prospectus and SAI
investment restrictions and assist in preparation of periodic compliance
reports; (5) with the cooperation of the Trust's counsel, the Investment
Adviser, the officers of the Trust and other relevant parties, is responsible
for the preparation and dissemination of materials for meetings of the Board;
(6) is responsible for preparing, filing and maintaining the Trust's governing
documents, including the Trust Instrument, Bylaws and minutes of meetings of
Trustees, Board committees and shareholders; (7) is responsible for maintaining
the Trust's existence and good standing under state law; (8) monitors sales of
shares and ensures that such shares are properly and duly registered with the
SEC and other applicable securities commissions; (9) is responsible for the
calculation of performance data for dissemination to information services
covering the
<PAGE>
investment company industry, sales literature of the Trust and other appropriate
purposes; and (10) is responsible for the determination of the amount of and
supervises the declaration of dividends and other distributions to shareholders
as necessary to, among other things, maintain the qualification of each
Portfolio as a regulated investment company under the Code, as amended, and
prepares and distributes to appropriate parties notices announcing the
declaration of dividends and other distributions to shareholders.
The Administrative Agreement terminates automatically if assigned and may be
terminated without penalty with respect to any Portfolio by vote of that
Portfolio's shareholders or by either party on not more than 60 days' nor less
than 30 days' written notice. The Administrative Agreement also provides that
neither FAS nor its personnel shall be liable for any error of judgment or
mistake of law or for any act or omission in the administration or management of
the Trust, except for willful misfeasance, bad faith or gross negligence in the
performance of FAS's or their duties or by reason of reckless disregard of their
obligations and duties under the Administrative Agreement.
Pursuant to their agreements with the Trust, Forum and FAS may subcontract any
or all of their duties to one or more qualified subadministrators who agree to
comply with the terms of Forum's Management Agreement or FAS's Administration
Agreement, respectively. Forum and FAS may compensate those agents for their
services; however, no such compensation may increase the aggregate amount of
payments by the Trust to Forum or FAS pursuant to their Management and
Administration Agreements with the Trust.
The Administration Agreement became effective on June 1, 1997.
DISTRIBUTION
Forum also acts as distributor of the shares of each Portfolio. Forum acts as
the agent of the Trust in connection with the offering of shares of the
Portfolios on a "best efforts" basis pursuant to a Distribution Services
Agreement. Under the Distribution Services Agreement, the Trust has agreed to
indemnify, defend and hold Forum, and any person who controls Forum within the
meaning of Section 15 of the 1933 Act, free and harmless from and against any
and all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which Forum or any such controlling
person may incur, under the 1933 Act, or under common law or otherwise, arising
out of or based upon any alleged untrue statement of a material fact contained
in the Trust's Registration Statement or a Portfolio's Prospectus or Statement
of Additional Information in effect from time to time under the 1933 Act or
arising out of or based upon any alleged omission to state a material fact
required to be stated in any one thereof or necessary to make the statements in
any one thereof not misleading. Forum is not, however, protected against any
liability to the Trust or its shareholders to which Forum would otherwise be
subject by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of Forum's reckless disregard of its
obligations and duties under the Distribution Services Agreement.
With respect to each Portfolio, the Distribution Services Agreement will
continue in effect only if such continuance is specifically approved at least
annually by the Board or by the shareholders and, in either case, by a majority
of the Trustees who are not parties to the Distribution Services Agreement or
interested persons of any such party and, with respect to each class of a
Portfolio for which there is an effective plan of distribution adopted pursuant
to Rule 12b-1, who do not have any direct or indirect financial interest in any
distribution plan of the Portfolio or in any agreement related to the
distribution plan cast in person at a meeting called for the purpose of voting
on such approval ("12b-1 Trustees").
The Distribution Services Agreement terminates automatically if assigned. With
respect to each Portfolio, the Distribution Services Agreement may be terminated
at any time without the payment of any penalty: (1) by the Board or by a vote of
the Portfolio's shareholders or, with respect to each class of a Portfolio for
which there is an effective plan of distribution adopted pursuant to Rule 12b-1,
a majority of 12b-1 Trustees, on 60 days' written notice to Forum or (2) by
Forum on 60 days' written notice to the Trust.
Under the Distribution Services Agreement, Forum receives, and may reallow to
certain financial institutions, the initial sales charges assessed on purchases
of C Shares of the Portfolios. With respect to C Shares of each Portfolio,
<PAGE>
Trust has adopted a distribution plan pursuant to Rule 12b-1 under the 1940 Act
(the "Plan") which authorizes monthly payments to Forum under the Distribution
Services Agreement of a distribution services fee, at an annual rate of up to
0.75% of the average daily net assets of the Portfolio attributable to the C
Shares.
The Plan provides that all written agreements relating to the Plan must be in a
form satisfactory to the Board. In addition, the Plan requires the Trust and
Forum to prepare, at least quarterly, written reports setting forth all amounts
expended for distribution purposes by the Portfolios and Forum pursuant to the
Plan and identifying the distribution activities for which those expenditures
were made.
The Plan provides that, with respect to each class of each Portfolio to which it
applies, it will remain in effect for one year from the date of its adoption and
thereafter may continue in effect for successive annual periods provided it is
approved by the shareholders of the respective class or by the Board, including
a majority of the 12b-1 trustees. The Plan further provides that it may not be
amended to increase materially the costs which may be borne by the Trust for
distribution pursuant to the Plan without shareholder approval and that other
material amendments to the Plan must be approved by the Trustees in the manner
described in the preceding sentence. The Plan may be terminated at any time by a
vote of the Board or by the shareholders of the respective classes.
TRANSFER AGENT
Norwest Bank, Sixth Street and Marquette, Minneapolis, Minnesota 55479 acts as
Transfer Agent of the Trust pursuant to a Transfer Agency Agreement. The
Transfer Agency Agreement will continue in effect only if such continuance is
specifically approved at least annually by the Board or by a vote of the
shareholders of the Trust and in either case by a majority of the Trustees who
are not parties to the Transfer Agency Agreement or interested persons of any
such party, at a meeting called for the purpose of voting on the Transfer Agency
Agreement.
The responsibilities of the Transfer Agent include: (1) answering customer
inquiries regarding account status and history, the manner in which purchases
and redemptions of shares of a Portfolio may be effected and certain other
matters pertaining to the Portfolios; (2) assisting shareholders in initiating
and changing account designations and addresses; (3) providing necessary
personnel and facilities to establish and maintain shareholder accounts and
records, (4) assisting in processing purchase and redemption transactions and
receiving wired funds; (5) transmitting and receiving funds in connection with
customer orders to purchase or redeem shares; (6) verifying shareholder
signatures in connection with changes in the registration of shareholder
accounts; (7) furnishing periodic statements and confirmations of purchases and
redemptions; (8) transmitting proxy statements, annual reports, prospectuses and
other communications from the Trust to its shareholders; (9) receiving,
tabulating and transmitting to the Trust proxies executed by shareholders with
respect to meetings of shareholders of the Trust; and (10) providing such other
related services as the Trust or a shareholder may request.
For its services, the Transfer Agent receives a fee computed daily and paid
monthly from the Trust, with respect to each Portfolio, at an annual rate of
0.25% of the Portfolio's average daily net assets attributable to each class of
the Portfolio.
CUSTODIAN
Pursuant to a Custodian Agreement, Norwest Bank, Sixth Street and Marquette,
Minneapolis, Minnesota 55479 serves as each Portfolio's custodian (in this
capacity the "Custodian"). The Custodian's responsibilities include safeguarding
and controlling the Trust's cash and securities, determining income and
collecting interest on Portfolio investments. The fee is computed and paid
monthly, based on the average daily net assets of the Portfolios, the number of
portfolio transactions of the Portfolios and the number of securities in each
Portfolio's portfolio.
Pursuant to rules adopted under the 1940 Act, a Portfolio may maintain its
foreign securities and cash in the custody of certain eligible foreign banks and
securities depositories. Selection of these foreign custodial institutions is
made by the Board upon consideration of a number of factors, including (but not
limited to) the reliability and financial stability of the institution; the
ability of the institution to perform capably custodial services for the
Portfolio; the reputation of the institution in its national market; the
political and economic stability of the country in which the
<PAGE>
institution is located; and possible risks of potential nationalization or
expropriation of Portfolio assets. The Custodian employs qualified foreign
subcustodians to provide custody of the Portfolios foreign assets in accordance
with applicable regulations.
PORTFOLIO ACCOUNTING
Forum Accounting, an affiliate of Forum, performs portfolio accounting services
for each Portfolio pursuant to a Portfolio Accounting Agreement with the Trust.
The Portfolio Accounting Agreement will continue in effect only if such
continuance is specifically approved at least annually by the Board or by a vote
of the shareholders of the Trust and in either case by a majority of the
Trustees who are not parties to the Portfolio Accounting Agreement or interested
persons of any such party, at a meeting called for the purpose of voting on the
Portfolio Accounting Agreement.
Under the Portfolio Accounting Agreement, Forum Accounting prepares and
maintains books and records of each Portfolio on behalf of the Trust that are
required to be maintained under the 1940 Act, calculates the net asset value per
share of each Portfolio (and class thereof) and dividends and capital gain
distributions and prepares periodic reports to shareholders and the SEC. For its
services, Forum Accounting receives from the Trust with respect to each
Portfolio a fee of $1,000 per month plus for each additional class of the
Portfolio above one $1,000 per month. In addition, Forum Accounting is paid
additional surcharges for each of the following: (1) Portfolios with asset
levels exceeding $100 million - $500/month, Portfolios with asset levels
exceeding $250 million - $1000/month, Portfolios with asset levels exceeding
$500 million - $1,500/month, Portfolios with asset levels exceeding $1,000
million - $2,000/month (2) Portfolios requiring international custody -
$1,000/month, (3) Portfolios with more than 30 international positions -
$1,000/month (4) Portfolios with more than 25% of net assets invested in asset
backed securities - $1,000/month, (5) Portfolios with more than 50% of net
assets invested in asset backed securities - $2,000/month, (6) Portfolios with
more than 100 security positions - $1,000/month; and (7) Portfolios with a
monthly portfolio turnover rate of 10% or greater - $1,000/month.
Surcharges are determined based upon the total assets, security positions or
other factors as of the end of the prior month and on the portfolio turnover
rate for the prior month. The rates set forth above shall remain fixed through
December 31, 1998. On January 1, 1999, and on each successive January 1, the
rates may be adjusted automatically by Forum without action of the Trust to
reflect changes in the Consumer Price Index for the preceding calendar year, as
published by the U.S. Department of Labor, Bureau of Labor Statistics. Forum
shall notify the Trust each year of the new rates, if applicable.
Forum Accounting is required to use its best judgment and efforts in rendering
Portfolio accounting services and is not be liable to the Trust for any action
or inaction in the absence of bad faith, willful misconduct or gross negligence.
Forum Accounting is not responsible or liable for any failure or delay in
performance of its Portfolio accounting obligations arising out of or caused,
directly or indirectly, by circumstances beyond its reasonable control and the
Trust has agreed to indemnify and hold harmless Forum Accounting, its employees,
agents, officers and directors against and from any and all claims, demands,
actions, suits, judgments, liabilities, losses, damages, costs, charges, counsel
fees and other expenses of every nature and character arising out of or in any
way related to Forum Accounting's actions taken or failures to act with respect
to a Portfolio or based, if applicable, upon information, instructions or
requests with respect to a Portfolio given or made to Forum Accounting by an
officer of the Trust duly authorized. This indemnification does not apply to
Forum Accounting's actions taken or failures to act in cases of Forum
Accounting's own bad faith, willful misconduct or gross negligence.
EXPENSES
Subject to the obligations of Norwest to reimburse the Trust for its excess
expenses as described above, the Trust has, under its Investment Advisory
Agreements, confirmed its obligation to pay all its other expenses, including:
(1) interest charges, taxes, brokerage fees and commissions; (2) certain
insurance premiums; (3) fees, interest charges and expenses of the Trust's
custodian, transfer agent and dividend disbursing agent; (4) telecommunications
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
<PAGE>
application forms and shareholder reports and delivering them to existing and
prospective shareholders; (8) costs of maintaining books of original entry for
portfolio and Portfolio accounting and other required books and accounts and of
calculating the net asset value of shares of the Trust; (9) costs of
reproduction, stationery and supplies; (9) compensation of the Trust's trustees,
officers and employees and costs of other personnel performing services for the
Trust who are not officers of Norwest, Forum or affiliated persons of Norwest or
Forum; (10) costs of corporate meetings; (11) registration fees and related
expenses for registration with the SEC and the securities regulatory authorities
of other countries in which the Trust's shares are sold; (12) state securities
law registration fees and related expenses; (13) fees and out-of-pocket expenses
payable to Forum Financial Services, Inc. under any distribution, management or
similar agreement; (14) and all other fees and expenses paid by the Trust
pursuant to any distribution or shareholder service plan adopted pursuant to
Rule 12b-1 under the Act.
5. PORTFOLIO TRANSACTIONS
Purchases and sales of portfolio securities for the Portfolios usually are
principal transactions. Debt instruments and shares of open-end investment
companies are normally purchased directly from the issuer or from an underwriter
or market maker for the securities. There usually are no brokerage commissions
paid for such purchases. The Portfolios generally will effect purchases and
sales of equity securities through brokers who charge commissions except in the
over-the-counter markets. Purchases of debt and equity securities from
underwriters of the securities include a disclosed fixed commission or
concession paid by the issuer to the underwriter, and purchases from dealers
serving as market makers include the spread between the bid and asked price. In
the case of debt securities and equity securities traded in the foreign and
domestic over-the-counter markets, there is generally no stated commission, but
the price usually includes an undisclosed commission or markup. The Portfolios
will not invest in an Underlying Fund if the investment would be subject to a
sales charge. Allocations of transactions to brokers and dealers and the
frequency of transactions are determined by the Adviser in its best judgment and
in a manner deemed to be in the best interest of shareholders of each Portfolio
rather than by any formula. The primary consideration is prompt execution of
orders in an effective manner and at the most favorable price available to the
Portfolio. In transactions on stock exchanges in the United States, commissions
are negotiated, whereas on foreign stock exchanges commissions are generally
fixed. Where transactions are executed in the over-the-counter market, each
Portfolio will seek to deal with the primary market makers; but when necessary
in order to obtain best execution, they will utilize the services of others.
In all cases the Portfolios will attempt to negotiate best execution.
Subject to the general policies regarding allocation of portfolio brokerage as
set forth above, the Board has authorized the Investment Adviser to employ its
affiliates to effect securities transactions of the Portfolios, provided certain
other conditions are satisfied. Payment of brokerage commissions to an affiliate
of an Investment Adviser for effecting such transactions is subject to Section
17(e) of the 1940 Act, which requires, among other things, that commissions for
transactions on securities exchanges paid by a registered investment company to
a broker which is an affiliated person of such investment company, or an
affiliated person of another person so affiliated, not exceed the usual and
customary brokers' commissions for such transactions. It is the Portfolio's
policy that commissions paid to Norwest Investment Services, Inc. ("NISI") and
other affiliates of an Investment Adviser will, in the judgment of the
Investment Adviser responsible for making portfolio decisions and selecting
brokers, be: (1) at least as favorable as commissions contemporaneously charged
by the affiliate on comparable transactions for its most favored unaffiliated
customers and (2) at least as favorable as those which would be charged on
comparable transactions by other qualified brokers having comparable execution
capability. The Board, including a majority of the disinterested Trustees, has
adopted procedures to ensure that commissions paid to affiliates of the Adviser
by the Portfolios satisfy the foregoing standards.
No Portfolio has an understanding or arrangement to direct any specific portion
of its brokerage to an affiliate of the Investment Adviser, and will not direct
brokerage to the affiliate of an Investment Adviser in recognition of research
services. The practice of placing orders with NISI is consistent with each
Portfolio's objective of obtaining best execution and is not dependent on the
fact that NISI is an affiliate of Norwest.
From time to time, a Portfolio may purchase securities of a broker or dealer
through which it regularly engages in securities transactions.
<PAGE>
The Portfolios may not always pay the lowest commission or spread available.
Rather, in determining the amount of commissions, including certain dealer
spreads, paid in connection with securities transactions, the Investment Adviser
takes into account factors such as size of the order, difficulty of execution,
efficiency of the executing broker's facilities (including the services
described below) and any risk assumed by the executing broker. The Investment
Advisers may also take into account payments made by brokers effecting
transactions for a Portfolio: (1) to the Portfolio or (2) to other persons on
behalf of the Portfolio for services provided to the Portfolio for which it
would be obligated to pay.
In addition, the Investment Advisers may give consideration to research services
furnished by brokers to the Advisers for their use and may cause the Portfolios
to pay these brokers a higher amount of commission than may be charged by other
brokers. Such research and analysis is of the types described in Section
28(e)(3) of the Securities Exchange Act of 1934, as amended, and is designed to
augment the Investment Adviser's own internal research and investment strategy
capabilities. Such research and analysis may be used by the Investment Adviser
in connection with services to clients other than the Portfolios, and not all
such services may be used by the Investment Adviser in connection with the
Portfolios. An Investment Adviser's fees are not reduced by reason of the
Investment Adviser's receipt of the research services.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. and subject to the obligation to seek the most
favorable price and execution available and such other policies as the Board may
determine, the Investment Adviser may consider sales of shares of the Portfolio
as a factor in the selection of broker-dealers to execute portfolio transactions
for the Portfolio.
Investment decisions for the Portfolios will be made independently from those
for any other account or investment company that is or may in the future become
managed by the Investment Adviser or its affiliates. Investment decisions are
the product of many factors, including basic suitability for the particular
client involved. Thus, a particular security may be bought or sold for certain
clients even though it could have been bought or sold for other clients at the
same time. Likewise, a particular security may be bought for one or more clients
when one or more clients are selling the security. In some instances, one client
may sell a particular security to another client. It also sometimes happens that
two or more clients simultaneously purchase or sell the same security, in which
event each day's transactions in such security are, insofar as is possible,
averaged as to price and allocated between such clients in a manner which, in
the Investment Adviser's opinion, is equitable to each and in accordance with
the amount being purchased or sold by each. There may be circumstances when
purchases or sales of a portfolio security for one client could have an adverse
effect on another client that has a position in that security. In addition, when
purchases or sales of the same security for a Portfolio and other client
accounts managed by the Investment Adviser occur contemporaneously, the purchase
or sale orders may be aggregated in order to obtain any price advantages
available to large denomination purchases or sales.
PORTFOLIO TURNOVER. A high rate of portfolio turnover involves corresponding
greater expenses than a lower rate, which expenses must be borne by a Portfolio
and its shareholders. High portfolio turnover also may result in the realization
of substantial net short-term capital gains. In order to continue for Federal
tax purposes, less than 30% of the annual gross income of the Portfolio must be
desired from the sale of securities held by the Portfolio for less than three
months. (See "Taxation.") Portfolio turnover rates are set forth under
"Financial Highlight's" in the Portfolios Prospectus.
<PAGE>
6. ADDITIONAL PURCHASE, REDEMPTION AND EXCHANGE INFORMATION
GENERAL
Shares of all Portfolios are sold on a continuous basis by the distributor.
EXCHANGES
By making an exchange by telephone, the investor authorizes the Trust's transfer
agent to act on telephonic instructions believed by the Trust's transfer agent
to be genuine instructions from any person representing himself or herself to be
the investor. The records of the Trust's transfer agent of such instructions are
binding. The exchange procedures may be modified or terminated at any time upon
appropriate notice to shareholders. For Federal income tax purposes, exchanges
are treated as sales on which a purchaser will realize a capital gain or loss
depending on whether the value of the shares redeemed is more or less than the
shareholder's basis in such shares at the time of such transaction.
Shareholders of Shares making an exchange will be subject to the applicable
sales charge of any Shares acquired in the exchange; provided, that the sales
charge charged with respect to the acquired shares will be assessed at a rate
that is equal to the excess (if any) of the rate of the sales charge that would
be applicable to the acquired shares in the absence of an exchange over the rate
of the sales charge previously paid on the exchanged shares. For purposes of the
preceding sentence, Shares acquired through the reinvestment of dividends or
distributions are deemed to have been acquired with a sales charge rate equal to
that paid on the shares on which the dividend or distribution was paid.
In addition, shares acquired by a previous exchange transaction involving shares
on which a sales charge has directly or indirectly been paid (e.g., shares
purchased with a sales charge or issued in connection with an exchange
transaction involving shares that had been purchased with a sales charge), as
well as additional shares acquired through reinvestment of dividends or
distributions on such shares will be treated as if they had been acquired
subject to that sales charge.
REDEMPTIONS
In addition to the situations described in the Prospectus with respect to the
redemptions of shares, the Trust may redeem shares involuntarily to reimburse a
Portfolio for any loss sustained by reason of the failure of a shareholder to
make full payment for shares purchased by the shareholder or to collect any
charge relating to transactions effected for the benefit of a shareholder which
is applicable to a Portfolio's shares as provided in the Prospectus from time to
time.
Proceeds of redemptions normally are paid in cash. However, payments may be made
wholly or partially in portfolio securities if the Board determines that payment
in cash would be detrimental to the best interests of the Portfolio. The
Portfolios have chosen not to make an election with the SEC to pay in cash all
redemptions requested by any shareholder of record limited in amount during any
90-day period to the lesser of $250,000 or 1% of its net assets at the beginning
of such period. Redemption requests in excess of applicable limits may be paid,
in whole or in part, in investment securities or in cash, as the Trust's Board
of Trustees may deem advisable; however, payment will be made wholly in cash
unless the Board of Trustees believes that economic or market conditions exist
that would make such a practice detrimental to the best interests of the
Portfolio. If redemption proceeds are paid in investment securities, such
securities will be valued as set forth in the Prospectus under "Other
Information - Determination of Net Asset Value" and a redeeming shareholder
would normally incur brokerage expenses if he or she were to convert the
securities to cash.
7. TAXATION
Each Portfolio intends for each taxable year to qualify for tax treatment as a
"regulated investment company" under the Code. Such qualification does not, of
course, involve governmental supervision of management or investment
<PAGE>
practices or policies. Investors should consult their own counsel for a complete
understanding of the requirements each Portfolio must meet to qualify for such
treatment, and of the application of state and local tax laws to his or her
particular situation.
Certain listed options, regulated futures contracts and forward currency
contracts are considered "section 1256 contracts" for Federal income tax
purposes. Section 1256 contracts held by a Portfolio at the end of each taxable
year will be "marked to market" and treated for Federal income tax purposes as
though sold for fair market value on the last business day of such taxable year.
Gain or loss realized by a Portfolio on section 1256 contracts generally will be
considered 60% long-term and 40% short-term capital gain or loss. Each Portfolio
can elect to exempt its section 1256 contracts which are part of a "mixed
straddle" (as described below) from the application of section 1256.
With respect to over-the-counter put and call options, gain or loss realized by
a Portfolio upon the lapse or sale of such options held by such Portfolio will
be either long-term or short-term capital gain or loss depending upon the
Portfolio's holding period with respect to such option. However, gain or loss
realized upon the lapse or closing out of such options that are written by a
Portfolio will be treated as short-term capital gain or loss. In general, if a
Portfolio exercises an option, or an option that a Portfolio has written is
exercised, gain or loss on the option will not be separately recognized but the
premium received or paid will be included in the calculation of gain or loss
upon disposition of the property underlying the option.
Any option, futures contract, or other position entered into or held by a
Portfolio in conjunction with any other position held by such Portfolio may
constitute a "straddle" for Federal income tax purposes. A straddle of which at
least one, but not all, the positions are section 1256 contracts may constitute
a "mixed straddle". In general, straddles are subject to certain rules that may
affect the character and timing of a Portfolio's gains and losses with respect
to straddle positions by requiring, among other things, that: (1) loss realized
on disposition of one position of a straddle not be recognized to the extent
that a Portfolio has unrealized gains with respect to the other position in such
straddle; (2) a Portfolio's holding period in straddle positions be suspended
while the straddle exists (possibly resulting in gain being treated as
short-term capital gain rather than long-term capital gain); (3) losses
recognized with respect to certain straddle positions which are part of a mixed
straddle and which are non-section 1256 positions be treated as 60% long-term
and 40% short-term capital loss; (4) losses recognized with respect to certain
straddle positions which would otherwise constitute short-term capital losses be
treated as long-term capital losses; and (5) the deduction of interest and
carrying charges attributable to certain straddle positions may be deferred.
Various elections are available to a Portfolio which may mitigate the effects of
the straddle rules, particularly with respect to mixed straddles. In general,
the straddle rules described above do not apply to any straddles held by a
Portfolio all of the offsetting positions of which consist of section 1256
contracts.
For federal income tax purposes, gains or losses attributable to fluctuations in
exchange rates which occur between the time a Portfolio accrues interest or
other receivables or accrues expenses or other liabilities denominated in a
foreign currency and the time the Portfolio actually collects such receivables
or pays such liabilities are treated as ordinary income and ordinary loss.
Similarly, gains or losses from the disposition of foreign currencies, from the
disposition of debt securities denominated in a foreign currency, or from the
disposition of a forward contract denominated in a foreign currency which are
attributable to fluctuations in the value of the foreign currency between the
date of acquisition of the asset and the date of disposition also are treated as
ordinary gain or loss.
A Portfolio's investments in zero coupon securities will be subject to special
provisions of the Code which may cause the Portfolio to recognize income without
receiving cash necessary to pay dividends or make distributions in amounts
necessary to satisfy the distribution requirements for avoiding federal income
and excise taxes. In order to satisfy those distribution requirements the
Portfolio may be forced to sell other portfolio securities.
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8. ADDITIONAL INFORMATION ABOUT THE TRUST AND THE SHAREHOLDERS
OF THE PORTFOLIOS
COUNSEL AND AUDITORS
Legal matters in connection with the issuance of shares of beneficial interest
of the Trust are passed upon by the law firm of Seward & Kissel, One Battery
Park Plaza, New York, NY 10004.
KPMG Peat Marwick LLP, 99 High Street, Boston, MA 02110, independent auditors,
serve as the independent auditors for the Trust.
OWNERSHIP OF PORTFOLIO SHARES
As of September 1, 1998 no persons owned of record 5% or more of the outstanding
shares of a Portfolio.
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GENERAL INFORMATION
The Trust is divided into thirty-nine separate series representing shares of the
Trust Portfolios. The Trust received an order from the SEC permitting the
issuance and sale of separate classes of shares representing interests in each
of the Trust's existing Portfolios; however, the Trust currently issues and
operates the various Portfolios, separate classes of shares under the provisions
of 1940 Act.
The Trust's shareholders are not personally liable for the obligations of the
Trust under Delaware law. The Delaware Business Trust Act (the "Delaware Act")
provides that a shareholder of a Delaware business trust shall be entitled to
the same limitation of liability extended to shareholders of private
corporations for profit. However, no similar statutory or other authority
limiting business trust shareholder liability exists in many other states. As a
result, to the extent that the Trust or a shareholder is subject to the
jurisdiction of courts in those states, the courts may not apply Delaware law,
and may thereby subject the Trust shareholders to liability. To guard against
this risk, the Trust Instrument of the Trust disclaims shareholder liability for
acts or obligations of the Trust and requires that notice of such disclaimer be
given in each agreement, obligation and instrument entered into by the Trust or
its Trustees, and provides for indemnification out of Trust property of any
shareholder held personally liable for the obligations of the Trust. Thus, the
risk of a shareholder incurring financial loss beyond his investment because of
shareholder liability is limited to circumstances in which: (1) a court refuses
to apply Delaware law; (2) no
<PAGE>
contractual limitation of liability is in effect; and (3) the Trust itself is
unable to meet its obligations. In light of Delaware law, the nature of the
Trust's business, and the nature of its assets, the Board believes that the risk
of personal liability to a Trust shareholder is extremely remote.
In order to adopt the name Norwest Advantage Funds, the Trust agreed in each
Investment Advisory Agreement with Norwest that if Norwest ceases to act as
investment adviser to the Trust or any Portfolio whose name includes the word
"Norwest," or if Norwest requests in writing, the Trust shall take prompt action
to change the name of the Trust and any such Portfolio to a name that does not
include the word "Norwest." Norwest may from time to time make available without
charge to the Trust for the Trust's use any marks or symbols owned by Norwest,
including marks or symbols containing the word "Norwest" or any variation
thereof, as Norwest deems appropriate. Upon Norwest's request in writing, the
Trust shall cease to use any such mark or symbol at any time. The Trust has
acknowledged that any rights in or to the word "Norwest" and any such marks or
symbols which exist or may exist, and under any and all circumstances, shall
continue to be, the sole property of Norwest. Norwest may permit other parties,
including other investment companies, to use the word "Norwest" in their names
without the consent of the Trust. The Trust shall not use the word "Norwest" in
conducting any business other than that of an investment company registered
under the Act without the permission of Norwest.
FINANCIAL STATEMENTS
The financial statements of each Fund for the 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, portfolios of investments and the independent auditors' report
thereon) are included in the Annual Report to Shareholders of the Trust
delivered along with this SAI and are incorporated herein by reference.
REGISTRATION STATEMENT
This SAI and the Prospectus do not contain all the information included in the
Trust's registration statement filed with the SEC under the 1933 Act with
respect to the securities offered hereby, certain portions of which have been
omitted pursuant to the rules and regulations of the SEC. The registration
statement, including the exhibits filed therewith, may be examined at the office
of the SEC in Washington, D.C.
Statements contained herein and in the Prospectus as to the contents of any
contract or other documents are not necessarily complete, and, in each instance,
are qualified by, reference is made to the copy of such contract or other
documents filed as exhibits to the registration statement.
<PAGE>
APPENDIX A
INVESTMENTS, STRATEGIES AND RISK CONSIDERATIONS
Each of the Portfolios may invest in certain Underlying Funds which may have
investment objectives or investment policies which allow the Underlying Funds to
invest in one or more of the following types of investments:
COMMON STOCKS, WARRANTS AND PREFERRED STOCK
Common stockholders are the owners of the company issuing the stock and,
accordingly, vote on various corporate governance matters such as mergers. They
are not creditors of the company, but rather, upon liquidation of the company
are entitled to their pro rata share of the company's assets after creditors
(including fixed income security holders) and, if applicable, preferred
stockholders are paid. Preferred stock is a class of stock having a preference
over common stock as to dividends and, generally, as to the recovery of
investment. A preferred stockholder is a shareholder in the company and not a
creditor of the company as is a holder of the company's fixed income securities.
Dividends paid to common and preferred stockholders are distributions of the
earnings of the company and not interest payments, which are expenses of the
company. Equity securities owned by a Portfolio may be traded on a securities
exchange or in the over-the-counter market and may not be traded every day or in
the volume typical of securities traded on a major national securities exchange.
As a result, disposition by a Fund of a portfolio security to meet redemptions
by shareholders or otherwise may require the Fund to sell these securities at a
discount from market prices, to sell during periods when disposition is not
desirable, or to make many small sales over an extended period of time. The
market value of all securities, including equity securities, is based upon the
market's perception of value and not necessarily the book value of an issuer or
other objective measure of a company's worth. A Fund may invest in warrants,
which are options to purchase an equity security at a specified price (usually
representing a premium over the applicable market value of the underlying equity
security at the time of the warrant's issuance) and usually during a specified
period of time. Unlike convertible securities and preferred stocks, warrants do
not pay a fixed dividend. Investments in warrants involve certain risks,
including the possible lack of a liquid market for the resale of the warrants,
potential price fluctuations as a result of speculation or other factors and
failure of the price of the underlying security to reach a level at which the
warrant can be prudently exercised (in which case the warrant may expire without
being exercised, resulting in the loss of the Portfolio's entire investment
therein).
CONVERTIBLE SECURITIES
Convertible securities, which include convertible debt, convertible preferred
stock and other securities exchangeable under certain circumstances for shares
of common stock, are fixed income securities or preferred stock which generally
may be converted at a stated price within a specific amount of time into a
specified number of shares of common stock. A convertible security entitles the
holder to receive interest paid or accrued on debt or the dividend paid on
preferred stock until the convertible security matures or is redeemed, converted
or exchanged. Before conversion, convertible securities have characteristics
similar to nonconvertible debt securities in that they ordinarily provide a
stream of income with generally higher yields than those of common stocks of the
same or similar issuers. These securities are usually senior to common stock in
a company's capital structure, but usually are subordinated to non-convertible
debt securities. In general, the value of a convertible security is the higher
of its investment value (its value as a fixed income security) and its
conversion value (the value of the underlying shares of common stock if the
security is converted). As a fixed income security, the value of a convertible
security generally increases when interest rates decline and generally decreases
when interest rates rise. The value of a convertible security is, however, also
influenced by the value of the underlying common stock.
A Fund may invest in equity-linked securities, including Preferred Equity
Redemption Cumulative Stock ("PERCS"), Equity-Linked Securities ("ELKS"), and
Liquid Yield Option Notes ("LYONS"). Equity-Linked
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Securities are securities that are convertible into or based upon the value of,
equity securities upon certain terms and conditions. The amount received by an
investor at maturity of these securities is not fixed but is based on the price
of the underlying common stock, which may rise or fall. In addition, it is not
possible to predict how equity-linked securities will trade in the secondary
market or whether the market for them will be liquid or illiquid.
ADRS AND EDRS
A Fund may invest in sponsored and unsponsored American Depository Receipts
("ADRs"), which are receipts issued by an American bank or trust company
evidencing ownership of underlying securities issued by a foreign issuer. ADRs,
in registered form, are designed for use in U.S. securities markets. Unsponsored
ADRs may be created without the participation of the foreign issuer. Holders of
these ADRs generally bear all the costs of the ADR facility, whereas foreign
issuers typically bear certain costs in a sponsored ADR. The bank or trust
company depository of an unsponsored ADR may be under no obligation to
distribute shareholder communications received from the foreign issuer or to
pass through voting rights. A may also invest in European Depository Receipts
("EDRs"), receipts issued by a European financial institution evidencing an
arrangement similar to that of ADRs, and in other similar instruments
representing securities of foreign companies. EDRs, in bearer form, are designed
for use in European securities markets.
U.S. GOVERNMENT SECURITIES
The term U.S. Government Securities means obligations issued or guaranteed as to
principal and interest by the U.S. Government, its agencies or
instrumentalities. The U.S. Government Securities in which a Portfolio may
invest include U.S. Treasury Securities and obligations issued or guaranteed by
U.S. Government agencies and instrumentalities and backed by the full faith and
credit of the U.S. Government, such as those guaranteed by the Small Business
Administration or issued by the Government National Mortgage Association. In
addition, the U.S. Government Securities in which the Portfolios may invest
include securities supported primarily or solely by the creditworthiness of the
issuer, such as securities of the Federal National Mortgage Association, the
Federal Home Loan Mortgage Corporation and the Tennessee Valley Authority. There
is no guarantee that the U.S. Government will support securities not backed by
its full faith and credit. Accordingly, although these securities have
historically involved little risk of loss of principal if held to maturity, they
may involve more risk than securities backed by the U.S. Government's full faith
and credit.
ZERO-COUPON SECURITIES
A Fund may invest in separately traded principal and interest components of
securities issued or guaranteed by the U.S. Treasury. These components are
traded independently under the Treasury's Separate Trading of Registered
Interest and Principal of Securities ("STRIPS") program or as Coupons Under Book
Entry Safekeeping ("CUBES"). The Funds may invest in other types of related
zero-coupon securities. For instance, a number of banks and brokerage firms
separate the principal and interest portions of U.S. Treasury securities and
sell them separately in the form of receipts or certificates representing
undivided interests in these instruments. These instruments are generally held
by a bank in a custodial or trust account on behalf of the owners of the
securities and are known by various names, including Treasury Receipts ("TRs"),
Treasury Investment Growth Receipts ("TIGRs") and Certificates of Accrual on
Treasury Securities ("CATS"). Zero-coupon securities also may be issued by
corporations and municipalities.
Zero-coupon securities are sold at original issue discount and pay no interest
to holders prior to maturity, but a Fund holding a zero-coupon security must
include a portion of the original issue discount of the security as income.
Because of this, zero-coupon securities may be subject to greater fluctuation of
market value than the other securities in which the Portfolios may invest. The
Funds distribute all of their net investment income, and may have to sell
portfolio securities to distribute imputed income, which may occur at a time
when an investment adviser would not have chosen to sell such securities and
which may result in a taxable gain or loss.
<PAGE>
CORPORATE DEBT SECURITIES AND COMMERCIAL PAPER
The corporate debt securities in which a Portfolio may invest include corporate
bonds and notes and short-term investments such as commercial paper and variable
rate demand notes. Commercial paper (short-term promissory notes) is issued by
companies to finance their or their affiliate's current obligations and is
frequently unsecured. Variable and floating rate demand notes are unsecured
obligations redeemable upon not more than 30 days' notice. These obligations
include master demand notes that permit investment of fluctuating amounts at
varying rates of interest pursuant to a direct arrangement with the issuer of
the instrument. The issuer of these obligations often has the right, after a
given period, to prepay the outstanding principal amount of the obligations upon
a specified number of days' notice. These obligations generally are not traded,
nor generally is there an established secondary market for these obligations. To
the extent a demand note does not have a 7 day or shorter demand feature and
there is no readily available market for the obligation, it is treated as an
illiquid security.
FINANCIAL INSTITUTION OBLIGATIONS
A Portfolio may invest in obligations of financial institutions, including
negotiable certificates of deposit, bankers' acceptances and time deposits of
U.S. banks (including savings banks and savings associations), foreign branches
of U.S. banks, foreign banks and their non-U.S. branches (Eurodollars), U.S.
branches and agencies of foreign banks (Yankee dollars), and wholly owned
banking-related subsidiaries of foreign banks.
Certificates of deposit represent an institution's obligation to repay
Portfolios deposited with it that earn a specified interest rate over a given
period. Bank notes are a debt obligation of a bank. Bankers' acceptances are
negotiable obligations of a bank to pay a draft which has been drawn by a
customer and are usually backed by goods in international trade. Time deposits
are non-negotiable deposits with a banking institution that earn a specified
interest rate over a given period. Certificates of deposit and fixed time
deposits, which are payable at the stated maturity date and bear a fixed rate of
interest, generally may be withdrawn on demand but may be subject to early
withdrawal penalties which could reduce a Portfolio's performance. Deposits
subject to early withdrawal penalties or that mature in more than 7 days are
treated as illiquid securities if there is no readily available market for the
securities. A Portfolio's investments in the obligations of foreign banks and
their branches, agencies or subsidiaries may be obligations of the parent, of
the issuing branch, agency or subsidiary, or both. Investments in foreign bank
obligations are limited to banks and branches located in countries which the
Advisers believe do not present undue risk.
PARTICIPATION INTERESTS
A Fund may purchase participation interests in loans or securities in which the
Fund may invest directly that are owned by banks or other financial
institutions. A participation interest gives the Portfolio an undivided interest
in a loan or security in the proportion that the Portfolio's interest bears to
the total principal amount of the security. Participation interests, which may
have fixed, floating or variable rates, may carry a demand feature backed by a
letter of credit or guarantee of the bank or institution permitting the holder
to tender them back to the bank or other institution. For certain participation
interests the Fund will have the right to demand payment, on not more than 7
days notice, for all or a part of the Portfolio's participation interest.
ILLIQUID SECURITIES AND RESTRICTED SECURITIES
A Portfolio may invest up to 15 percent of its net assets in securities that at
the time of purchase are illiquid. Historically, illiquid securities have
included securities subject to contractual or legal restrictions on resale
because they have not been registered under the Securities Act of 1933
("restricted securities"), securities which are otherwise not readily
marketable, such as over-the-counter options, and repurchase agreements not
entitling the holder to payment of principal in 7 days. Limitations on resale
may have an adverse effect on the marketability of portfolio securities and a
Portfolio might also have to register restricted securities in order to dispose
of them, resulting in expense and delay. A Fund might not be able to dispose of
restricted or other securities promptly or at reasonable prices and might
thereby experience difficulty satisfying redemptions. There can be no assurance
that a liquid market will exist for any security at any particular time. An
institutional market has developed for certain
<PAGE>
securities that are not registered under the Securities Act of 1933, including
repurchase agreements, commercial paper, foreign securities and corporate bonds
and notes. Institutional investors depend on an efficient institutional market
in which the unregistered security can be readily resold or on the issuer's
ability to honor a demand for repayment of the unregistered security. A
security's contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of the security.
If such securities are eligible for purchase by institutional buyers in
accordance with Rule 144A under the Securities Act of 1933 or other exemptions,
the Underlying Fund's investment adviser may determine that such securities are
not illiquid securities, under guidelines or other exemptions adopted by the.
These guidelines take into account trading activity in the securities and the
availability of reliable pricing information, among other factors. If there is a
lack of trading interest in a particular Rule 144A security, a Fund's holdings
of that security may be illiquid.
BORROWING
Borrowing involves special risk considerations. Interest costs on borrowings may
fluctuate with changing market rates of interest and may partially offset or
exceed the return earned on borrowed Portfolios (or on the assets that were
retained rather than sold to meet the needs for which Portfolios were borrowed).
Under adverse market conditions, a Fund might have to sell portfolio securities
to meet interest or principal payments at a time when investment considerations
would not favor such sales. A Fund's use of borrowed proceeds to make
investments would subject the Fund to the risks of leveraging. Reverse
repurchase agreements, short sales not against the box, dollar roll transactions
and other similar investments that involve a form of leverage have
characteristics similar to borrowings but are not considered borrowings.
PURCHASING SECURITIES ON MARGIN
When the Fund purchases securities on margin, it only pays part of the purchase
price and borrows the remainder. As a borrowing, a Portfolio's purchase of
securities on margin is subject to the limitations and risks described in
"Borrowing" above. In addition, if the value of the securities purchased on
margin decreases such that the Portfolio's borrowing with respect to the
security exceeds the maximum permissible borrowing amount, the Portfolio will be
required to make margin payments (additional payments to the broker to maintain
the level of borrowing at permissible levels). A Fund's obligation to satisfy
margin calls may require the Fund to sell securities at an inappropriate time.
TECHNIQUES INVOLVING LEVERAGE
Utilization of leveraging involves special risks and may involve speculative
investment techniques. The Funds may borrow for other than temporary or
emergency purposes, lend their securities, enter reverse repurchase agreements,
and purchase securities on a when-issued or forward commitment basis. In
addition, certain Funds may engage in dollar roll transactions and may purchase
securities on margin and sell securities short (other than against the box).
Each of these transactions involve the use of "leverage" when cash made
available to the Fund through the investment technique is used to make
additional portfolio investments. In addition, the use of swap and related
agreements may involve leverage.
Leverage exists when a Fund achieves the right to a return on a capital base
that exceeds the Fund's investment. Leverage creates the risk of magnified
capital losses which occur when losses affect an asset base, enlarged by
borrowings or the creation of liabilities, that exceeds the equity base of the
Portfolio.
The risks of leverage include a higher volatility of the net asset value of the
Fund's shares and the relatively greater effect on the net asset value of the
shares caused by favorable or adverse market movements or changes in the cost of
cash obtained by leveraging and the yield obtained from investing the cash. So
long as a Portfolio is able to realize a net return on its investment portfolio
that is higher than interest expense incurred, if any, leverage will result in
higher current net investment income being realized by the Portfolio than if the
Portfolio were not leveraged. On the other hand, interest rates change from time
to time as does their relationship to each other depending upon such factors as
supply and demand, monetary and tax policies and investor expectations. Changes
in such factors could cause the relationship between the cost of leveraging and
the yield to change so that rates
<PAGE>
involved in the leveraging arrangement may substantially increase relative to
the yield on the obligations in which the proceeds of the leveraging have been
invested. To the extent that the interest expense involved in leveraging
approaches the net return on the Fund's investment portfolio, the benefit of
leveraging will be reduced, and, if the interest expense on borrowings were to
exceed the net return to shareholders, the Portfolio's use of leverage would
result in a lower rate of return than if the Portfolio were not leveraged.
Similarly, the effect of leverage in a declining market could be a greater
decrease in net asset value per share than if the Portfolio were not leveraged.
In an extreme case, if the Portfolio's current investment income were not
sufficient to meet the interest expense of leveraging, it could be necessary for
the Portfolio to liquidate certain of its investments at an inappropriate time.
The use of leverage may be considered speculative.
SEGREGATED ACCOUNT. In order to limit the risks involved in various transactions
involving leverage, the Trust's custodian will set aside and maintain in a
segregated account cash and securities in accordance with SEC guidelines. The
account's value, which is marked to market daily, will be at least equal to the
Portfolio's commitments under these transactions. The Fund's commitments may
include: (1) the Fund's obligations to repurchase securities under a reverse
repurchase agreement, settle when-issued and forward commitment transactions and
make payments under a cap or floor; and (2) the greater of the market value of
securities sold short or the value of the securities at the time of the short
sale (reduced by any margin deposit). The net amount of the excess, if any, of a
Portfolio's obligations over its entitlements with respect to each interest rate
swap will be calculated on a daily basis and an amount at least equal to the
accrued excess will be maintained in the segregated account. If the Portfolio
enters into an interest rate swap on other than a net basis, the Portfolio will
maintain the full amount accrued on a daily basis of the Portfolio's obligations
with respect to the swap in their segregated account. The use of a segregated
account in connection with leveraged transactions may result in a Portfolio's
portfolio being 100 percent leveraged.
REPURCHASE AGREEMENTS, SECURITIES LENDING, REVERSE REPURCHASE AGREEMENTS,
WHEN-ISSUED SECURITIES, FORWARD COMMITMENTS AND DOLLAR ROLL TRANSACTIONS. A
Fund's use of repurchase agreements, securities lending, reverse repurchase
agreements and forward commitments (including "dollar roll" transactions)
entails certain risks not associated with direct investments in securities. For
instance, in the event that bankruptcy or similar proceedings were commenced
against a counterparty while these transactions remained open or a counterparty
defaulted on its obligations, the Portfolio might suffer a loss. Failure by the
other party to deliver a security purchased by the Fund may result in a missed
opportunity to make an alternative investment. Counterparty insolvency risk with
respect to repurchase agreements is reduced by favorable insolvency laws that
allow the Fund, among other things, to liquidate the collateral held in the
event of the bankruptcy of the counterparty. Those laws do not apply to
securities lending and, accordingly, securities lending involves more risk than
does the use of repurchase agreements. As a result of entering forward
commitments and reverse repurchase agreements, as well as lending its
securities, a Fund may be exposed to greater potential fluctuations in the value
of its assets and net asset value per share.
REPURCHASE AGREEMENTS. A Fund may enter into repurchase agreements, transactions
in which a Fund purchases a security and simultaneously commits to resell that
security to the seller at an agreed-upon price on an agreed-upon future date,
normally 1 to 7 days later. The resale price of a repurchase agreement reflects
a market rate of interest that is not related to the coupon rate or maturity of
the purchased security.
SECURITIES LENDING. A Portfolio may lend securities from its portfolios to
brokers, dealers and other financial institutions. Securities loans must be
continuously secured by cash or U.S. Government Securities with a market value,
determined daily, at least equal to the value of the Fund's securities loaned,
including accrued interest. A Fund receives interest in respect of securities
loans from the borrower or from investing cash collateral. A Fund may pay fees
to arrange the loans.
REVERSE REPURCHASE AGREEMENTS. A Fund may enter into reverse repurchase
agreements, transactions in which the Fund sells a security and simultaneously
commits to repurchase that security from the buyer at an agreed upon price on an
agreed upon future date. The resale price in a reverse repurchase agreement
reflects a market rate of interest that is not related to the coupon rate or
maturity of the sold security. For certain demand agreements, there is no agreed
upon repurchase date and interest payments are calculated daily, often based
upon
<PAGE>
the prevailing overnight repurchase rate. Because certain of the incidents of
ownership of the security are retained by the Portfolio, reverse repurchase
agreements may be viewed as a form of borrowing by the Fund from the buyer,
collateralized by the security sold by the Portfolio. A Portfolio will use the
proceeds of reverse repurchase agreements to Fund redemptions or to make
investments. In most cases these investments either mature or have a demand
feature to resell to the issuer on a date not later than the expiration of the
agreement. Interest costs on the money received in a reverse repurchase
agreement may exceed the return received on the investments made by the
Portfolio with those monies. Any significant commitment of a Fund's assets to
the reverse repurchase agreements will tend to increase the volatility of the
Fund's net asset value per share.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS. A Fund may purchase fixed income
securities on a "when-issued" or "forward commitment" basis. When these
transactions are negotiated, the price, which is generally expressed in yield
terms, is fixed at the time the commitment is made, but delivery and payment for
the securities take place at a later date. Normally, the settlement date occurs
within 3 months after the transaction. During the period between a commitment
and settlement, no payment is made for the securities purchased and no interest
on the security accrues to the purchaser. At the time a Portfolio makes a
commitment to purchase securities in this manner, the Fund immediately assumes
the risk of ownership, including price fluctuation. Failure by the other party
to deliver a security purchased by a Portfolio may result in a loss or a missed
opportunity to make an alternative investment. The use of when-issued
transactions and forward commitments enables a Fund to hedge against anticipated
changes in interest rates and prices. If the Underlying Funds were to forecast
incorrectly the direction of interest rate movements, however, a Fund might be
required to complete these transactions when the value of the security is lower
than the price paid by the Fund.
When-issued securities and forward commitments may be sold prior to the
settlement date. When-issued securities may include bonds purchased on a "when,
and if issued" basis under which the issuance of the securities depends upon the
occurrence of a subsequent event. Commitment of a Fund's assets to the purchase
of securities on a when-issued or forward commitment basis will tend to increase
the volatility of the Portfolios net asset value per share.
DOLLAR ROLL TRANSACTIONS. A Fund may enter into "dollar roll" transactions
wherein the Fund sells fixed income securities, typically mortgage-backed
securities, and makes a commitment to purchase similar, but not identical,
securities at a later date from the same party. Like a forward commitment,
during the roll period no payment is made for the securities purchased and no
interest or principal payments on the security accrue to the purchaser, but the
Fund assumes the risk of ownership. A Fund is compensated for entering into
dollar roll transactions by the difference between the current sales price and
the forward price for the future purchase, as well as by the interest earned on
the cash proceeds of the initial sale. Like other when-issued securities or firm
commitment agreements, dollar roll transactions involve the risk that the market
value of the securities sold by the Portfolio may decline below the price at
which a Portfolio is committed to purchase similar securities. In the event the
buyer of securities under a dollar roll transaction becomes insolvent, the Funds
use of the proceeds of the transaction may be restricted pending a determination
by the other party, or its trustee or receiver, whether to enforce the Funds
obligation to repurchase the securities.
SWAP AGREEMENTS
To manage its exposure to different types of investments, a Fund may enter into
interest rate, currency and mortgage (or other asset) swap agreements and may
purchase and sell interest rate "caps," "floors" and "collars." In a typical
interest rate swap agreement, one party agrees to make regular payments equal to
a floating interest rate on a specified amount (the "notional principal amount")
in return for payments equal to a fixed interest rate on the same amount for a
specified period. If a swap agreement provides for payment in different
currencies, the parties may also agree to exchange the notional principal
amount. Mortgage swap agreements are similar to interest rate swap agreements,
except that the notional principal amount is tied to a reference pool of
mortgages. In a cap or floor, one party agrees, usually in return for a fee, to
make payments under particular circumstances. For example, the purchaser of an
interest rate cap has the right to receive payments to the extent a specified
<PAGE>
interest rate exceeds an agreed upon level; the purchaser of an interest rate
floor has the right to receive payments to the extent a specified interest rate
falls below an agreed upon level. A collar entitles the purchaser to receive
payments to the extent a specified interest rate falls outside an agreed upon
range.
Swap agreements may involve leverage and may be highly volatile; depending on
how they are used, they may have a considerable impact on the Portfolio's
performance. Swap agreements involve risks depending upon the counterparties'
creditworthiness and ability to perform as well as the Fund's ability to
terminate its swap agreements or reduce its exposure through offsetting
transactions.
MUNICIPAL SECURITIES
The municipal securities in which the Portfolios may invest include municipal
bonds, notes and leases. Municipal securities may be zero-coupon securities.
Yields on municipal securities are dependent on a variety of factors, including
the general conditions of the municipal security markets and the fixed income
markets in general, the size of a particular offering, the maturity of the
obligation and the rating of the issue. The achievement of a Fund's investment
objective is dependent in part on the continuing ability of the issuers of
municipal securities in which the Fund invests to meet their obligations for the
payment of principal and interest when due.
Municipal bonds can be classified as either "general obligation" or "revenue"
bonds. General obligation bonds are secured by a municipality's pledge of its
full faith, credit and taxing power for the payment of principal and interest.
Revenue bonds are usually payable only from the revenues derived from a
particular facility or class of facilities or, in some cases, from the proceeds
of a special excise or other tax, but not from general tax revenues. Municipal
bonds include industrial development bonds. Municipal bonds may also be "moral
obligation" bonds, which are normally issued by special purpose public
authorities. If the issuer is unable to meet its obligations under the bonds
from current revenues, it may draw on a reserve Fund that is backed by the moral
commitment (but not the legal obligation) of the state or municipality that
created the issuer.
The Fund may invest in tax-exempt industrial development bonds, which in most
cases are revenue bonds and generally do not have the pledge of the credit of
the municipality. The payment of the principal and interest on these bonds is
dependent solely on the ability of an initial or subsequent user of the
facilities financed by the bonds to meet its financial obligations and the
pledge, if any, of real and personal property so financed as security for such
payment. The Portfolio will acquire private activity securities only if the
interest payments on the security are exempt from federal income taxation (other
than the Alternative Minimum Tax (AMT)).
MUNICIPAL NOTES. Municipal notes, which may be either "general obligation" or
"revenue" securities, are intended to fulfill short-term capital needs and
generally have original maturities not exceeding one year. They include tax
anticipation notes, revenue anticipation notes (which generally are issued in
anticipation of various seasonal revenues), bond anticipation notes,
construction loan notes and tax-exempt commercial paper. Tax-exempt commercial
paper generally is issued with maturities of 270 days or less at fixed rates of
interest.
MUNICIPAL LEASES. Municipal Leases, which may take the form of a lease or an
installment purchase or conditional sale contract, are issued by state and local
governments and authorities to acquire a wide variety of equipment and
facilities such as fire and sanitation vehicles, telecommunications equipment
and other capital assets. Municipal leases frequently have special risks not
normally associated with general obligation or revenue bonds. Lease and
installment purchase or conditional sale contracts (which normally provide for
title to the leased assets to pass eventually to the government issuer) have
evolved as a means for governmental issuers to acquire property and equipment
without meeting the constitutional and statutory requirements for the issuance
of debt. The debt-issuance limitations of many state constitutions and statutes
are deemed to be inapplicable because of the inclusion in many leases or
contracts of "non-appropriation" clauses that provide that the governmental
issuer has no obligation to make future payments under the lease or contract
unless money is appropriated for such purpose by the appropriate legislative
body on a yearly or other periodic basis. Generally, the Fund will invest in
municipal lease obligations through certificates of participation.
<PAGE>
PARTICIPATION INTERESTS. The Portfolios may purchase participation interests in
municipal securities that are owned by banks or other financial institutions.
Participation interests usually carry a demand feature backed by a letter of
credit or guarantee of the bank or institution permitting the holder to tender
them back to the bank or other institution. Prior to purchasing any
participation interest, the Funds will obtain appropriate assurances that the
interest earned by the Funds from the obligations in which it holds
participation interests is exempt from federal and, in the case of state
tax-free Funds, applicable state income tax.
STAND-BY COMMITMENTS. The Funds may purchase municipal securities together with
the right to resell them to the seller or a third party at an agreed-upon price
or yield within specified periods prior to their maturity dates. Such a right to
resell is commonly known as a stand-by commitment, and the aggregate price which
a Portfolio pays for securities with a stand-by commitment may be higher than
the price which otherwise would be paid. The primary purpose of this practice is
to permit a Portfolio to be as fully invested as practicable in municipal
securities while preserving the necessary flexibility and liquidity to meet
unanticipated redemptions. In this regard, a Portfolio acquires stand-by
commitments solely to facilitate portfolio liquidity and does not exercise its
rights thereunder for trading purposes. Stand-by commitments involve certain
expenses and risks, including the inability of the issuer of the commitment to
pay for the securities at the time the commitment is exercised,
non-marketability of the commitment, and differences between the maturity of the
underlying security and the maturity of the commitment.
PUTS ON MUNICIPAL SECURITIES. The Funds may acquire "puts" on municipal
securities they purchase. A put gives the Portfolio the right to sell the
municipal security at a specified price at any time on or before a specified
date. The Fund will acquire puts only to enhance liquidity, shorten the maturity
of the related municipal security or permit the Fund to invest its Funds at more
favorable rates. The Portfolios may pay an extra amount to acquire a put, either
in connection with the purchase of the related municipal security or separately
from the purchase of the security. Puts involve the same risks discussed above
with respect to stand-by commitments.
SHORT SALES
Certain Funds may make short sales of securities they own or have the right to
acquire at no added cost through conversion or exchange of other securities they
own (referred to as short sales "against the box") and to make short sales of
securities which they does not own or have the right to acquire. A short sale
that is not made "against the box" is a transaction in which a Fund sells a
security it does not own in anticipation of a decline in the market price for
the security. When the Fund makes a short sale, the proceeds it receives are
retained by the broker until the Fund replaces the borrowed security. In order
to deliver the security to the buyer, the Portfolio must arrange through a
broker to borrow the security and, in so doing, the Fund becomes obligated to
replace the security borrowed at its market price at the time of replacement,
whatever that price may be. Short sales that are not made "against the box"
create opportunities to increase the Fund's return but, at the same time,
involve special risk considerations and may be considered a speculative
technique. Since the Fund in effect profits from a decline in the price of the
securities sold short without the need to invest the full purchase price of the
securities on the date of the short sale, the Fund's net asset value per share,
will tend to increase more when the securities it has sold short decrease in
value, and to decrease more when the securities it has sold short increase in
value, than would otherwise be the case if it had not engaged in such short
sales. Short sales theoretically involve unlimited loss potential, as the market
price of securities sold short may continuously increase, although a Fund may
mitigate such losses by replacing the securities sold short before the market
price has increased significantly. Under adverse market conditions a Fund might
have difficulty purchasing securities to meet its short sale delivery
obligations and might have to sell portfolio securities to raise the capital
necessary to meet its short sale obligations at a time when fundamental
investment considerations would not favor those sales.
If the Fund makes a short sale "against the box," the Fund would not immediately
deliver the securities sold and would not receive the proceeds from the sale.
The seller is said to have a short position in the securities sold until it
delivers the securities sold, at which time it receives the proceeds of the
sale. The Portfolio's decision to make a short sale "against the box" may be a
technique to hedge against market risks when Investment Adviser believes that
the price of a security may decline, causing a decline in the value of a
security owned by the Portfolio or a security convertible into or exchangeable
for such security. In such case, any future losses in the Fund's long
<PAGE>
position would be reduced by an offsetting future gain in the short position.
The Portfolio's ability to enter into short sales transactions is limited by
certain tax requirements.
MORTGAGE-BACKED SECURITIES
Mortgage-backed securities represent an interest in a pool of mortgages
originated by lenders such as commercial banks, savings associations and
mortgage bankers and brokers. Mortgage-backed securities may be issued by
governmental or government-related entities or by non-governmental entities such
as special purpose trusts created by banks, savings associations, private
mortgage insurance companies or mortgage bankers.
Interests in mortgage-backed securities differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal payments at maturity or on specified call dates. In
contrast, mortgage-backed securities provide monthly payments which consist of
interest and, in most cases, principal. In effect, these payments are a
"pass-through" of the monthly payments made by the individual borrowers on their
mortgage loans, net of any fees paid to the issuer or guarantor of the
securities or a mortgage loan servicer. Additional payments to holders of these
securities are caused by prepayments resulting from the sale or foreclosure of
the underlying property or refinancing of the underlying loans.
UNDERLYING MORTGAGES. Pools of mortgages consist of whole mortgage loans or
participations in mortgage loans. The majority of these loans are made to
purchasers of 1-4 family homes, but may be made to purchasers of mobile homes or
other real estate interests. The terms and characteristics of the mortgage
instruments are generally uniform within a pool but may vary among pools. For
example, in addition to fixed-rate, fixed-term mortgages, the Portfolio may
purchase pools of variable rate mortgages, growing equity mortgages, graduated
payment mortgages and other types of mortgages. Mortgage servicers impose
qualification standards for local lending institutions which originate mortgages
for the pools as well as credit standards and underwriting criteria for
individual mortgages included in the pools. In addition, many mortgages included
in pools are insured through private mortgage insurance companies.
LIQUIDITY AND MARKETABILITY. The market for mortgage-backed securities has
expanded considerably in recent years. The size of the primary issuance market
and active participation in the secondary market by securities dealers and many
types of investors make government and government-related pass-through pools
highly liquid. The recently introduced private conventional pools of mortgages
(pooled by commercial banks, savings and loan institutions and others, with no
relationship with government and government-related entities) have also achieved
broad market acceptance and consequently an active secondary market has emerged,
however, the market for conventional pools is smaller and less liquid than the
market for government and government-related mortgage pools.
AVERAGE LIFE AND PREPAYMENTS. The average life of a pass-through pool varies
with the maturities of the underlying mortgage instruments. In addition, a
pool's terms may be shortened by unscheduled or early payments of principal and
interest on the underlying mortgages. Prepayments with respect to securities
during times of declining interest rates will tend to lower the return of a Fund
and may even result in losses to a Fund if the securities were acquired at a
premium. The occurrence of mortgage prepayments is affected by various factors
including the level of interest rates, general economic conditions, the location
and age of the mortgage and other social and demographic conditions.
As prepayment rates of individual pools vary widely, it is not possible to
accurately predict the average life of a particular pool. For pools of
fixed-rate 30-year mortgages, common industry practice is to assume that
prepayments will result in a 12-year average life. Pools of mortgages with other
maturities or different characteristics will have varying assumptions for
average life. The assumed average life of pools of mortgages having terms of
less than 30 years is less than 12 years, but typically not less than 5 years.
YIELD CALCULATIONS. Yields on pass-through securities are typically quoted by
investment dealers based on the maturity of the underlying instruments and the
associated average life assumption. In periods of falling interest rates, the
rate of prepayment tends to increase, thereby shortening the actual average life
of a pool of mortgages.
<PAGE>
Conversely, in periods of rising rates, the rate of prepayment tends to
decrease, thereby lengthening the actual average life of the pool. Actual
prepayment experience may cause the yield to differ from the assumed average
life yield. Reinvestment of prepayments may occur at higher or lower interest
rates than the original investment, thus affecting the yield of a Fund.
GOVERNMENT AND GOVERNMENT-RELATED GUARANTORS. The principal government guarantor
of mortgage-backed securities is the Government National Mortgage Association
("GNMA"), a wholly owned United States Government corporation within the
Department of Housing and Urban Development. GNMA is authorized to guarantee,
with the full faith and credit of the United States Government, the timely
payment of principal and interest on securities issued by institutions approved
by GNMA and backed by pools of FHA-insured or VA-guaranteed mortgages.
The Federal National Mortgage Association ("FNMA") is a government-sponsored
corporation owned entirely by private stockholders that is subject to general
regulation by the Secretary of Housing and Urban Development. FNMA purchases
residential mortgages from a list of approved seller-servicers. The Federal Home
Loan Mortgage Corporation ("FHLMC") is a corporate instrumentality of the United
States Government that was created by Congress in 1970 for the purpose of
increasing the availability of mortgage credit for residential housing. Its
stock is owned by the twelve Federal Home Loan Banks. FHLMC issues Participation
Certificates ("PCs") which represent interests in mortgages from FHLMCs national
portfolio. FNMA and FHLMC each guarantee the payment of principal and interest
on the securities they issue. These securities, however, are not backed by the
full faith and credit of the United States Government.
PRIVATELY ISSUED MORTGAGE-BACKED SECURITIES. Mortgage-backed securities offered
by private issuers include pass-through securities comprised of pools of
conventional mortgage loans; mortgage-backed bonds which are considered to be
debt obligations of the institution issuing the bonds and which are
collateralized by mortgage loans; and collateralized mortgage obligations.
Mortgage-backed securities issued by non-governmental issuers may offer a higher
rate of interest than securities issued by government issuers because of the
absence of direct or indirect government guarantees of payment. Many
non-governmental issuers or servicers of mortgage-backed securities, however,
guarantee timely payment of interest and principal on such securities. Timely
payment of interest and principal may also be supported by various forms of
insurance, including individual loan, title, pool and hazard policies. There can
be no assurance that the private issuers or insurers will be able to meet their
obligations under the relevant guarantees and insurance policies.
ADJUSTABLE RATE MORTGAGE-BACKED SECURITIES. Adjustable rate mortgage-backed
securities ("ARMs") are securities that have interest rates that are reset at
periodic intervals, usually by reference to some interest rate index or market
interest rate. Although the rate adjustment feature may act as a buffer to
reduce sharp changes in the value of adjustable rate securities, these
securities are still subject to changes in value based on changes in market
interest rates or changes in the issuer's creditworthiness. Because of the
resetting of interest rates, adjustable rate securities are less likely than
non-adjustable rate securities of comparable quality and maturity to increase
significantly in value when market interest rates fall. Also, most adjustable
rate securities (or the underlying mortgages) are subject to caps or floors.
"Caps" limit the maximum amount by which the interest rate paid by the borrower
may change at each reset date or over the life of the loan and, accordingly,
fluctuation in interest rates above these levels could cause such mortgage
securities to "cap out" and to behave more like long-term, fixed-rate debt
securities.
ARMs may have less risk of a decline in value during periods of rapidly rising
rates, but they may also have less potential for capital appreciation than other
debt securities of comparable maturities due to the periodic adjustment of the
interest rate on the underlying mortgages and due to the likelihood of increased
prepayments of mortgages as interest rates decline. Furthermore, during periods
of declining interest rates, income to a Portfolio will decrease as the coupon
rate resets to reflect the decline in interest rates. During periods of rising
interest rates, changes in the coupon rates of the mortgages underlying a
Portfolio's ARMs may lag behind changes in market interest rates. This may
result in a slightly lower net value until the interest rate resets to market
rates. Thus, investors could suffer some principal loss if Fund shares were sold
before the interest rates on the underlying mortgages were adjusted to reflect
current market rates.
<PAGE>
COLLATERALIZED MORTGAGE OBLIGATIONS. Collateralized Mortgage Obligations
("CMOs") are debt obligations that are collateralized by mortgages or mortgage
pass-through securities issued by GNMA, FHLMC or FNMA or by pools of
conventional mortgages ("Mortgage Assets"). CMOs may be privately issued or U.S.
Government Securities. Payments of principal and interest on the Mortgage Assets
are passed through to the holders of the CMOs on the same schedule as they are
received, although, certain classes (often referred to as tranches) of CMOs have
priority over other classes with respect to the receipt of payments. Multi-class
mortgage pass-through securities are interests in trusts that hold Mortgage
Assets and that have multiple classes similar to those of CMOs. Unless the
context indicates otherwise, references to CMOs include multi-class mortgage
pass-through securities. Payments of principal of and interest on the underlying
Mortgage Assets (and in the case of CMOs, any reinvestment income thereon)
provide Portfolios to pay debt service on the CMOs or to make scheduled
distributions on the multi-class mortgage pass-through securities. Parallel pay
CMOs are structured to provide payments of principal on each payment date to
more than one class. These simultaneous payments are taken into account in
calculating the stated maturity date or final distribution date of each class,
which, as with other CMO structures, must be retired by its stated maturity date
or final distribution date but may be retired earlier. Planned amortization
class mortgage-based securities ("PAC Bonds") are a form of parallel pay CMO.
PAC Bonds are designed to provide relatively predictable payments of principal
provided that, among other things, the actual prepayment experience on the
underlying mortgage loans falls within a contemplated range. If the actual
prepayment experience on the underlying mortgage loans is at a rate faster or
slower than the contemplated range, or if deviations from other assumptions
occur, principal payments on a PAC Bond may be greater or smaller than
predicted. The magnitude of the contemplated range varies from one PAC Bond to
another; a narrower range increases the risk that prepayments will be greater or
smaller than contemplated. CMOs may have complicated structures and generally
involve more risks than simpler forms of mortgage-backed securities.
The final tranche of a CMO may be structured as an accrual bond (sometimes
referred to as a "Z-tranche"). Holders of accrual bonds receive no cash payments
for an extended period of time. During the time that earlier tranches are
outstanding, accrual bonds receive accrued interest which is a credit for
periodic interest payments that increases the face amount of the security at a
compounded rate, but is not paid to the bond holder. After all previous tranches
are retired, accrual bond holders start receiving cash payments that include
both principal and continuing interest. The market value of accrual bonds can
fluctuate widely and their average life depends on the other aspects of the CMO
offering. Interest on accrual bonds is taxable when accrued even though the
holders receive no accrual payment. The Funds distribute all of their net
investment income, and may have to sell portfolio securities to distribute
imputed income, which may occur at a time when an investment adviser would not
have chosen to sell such securities and which may result in a taxable gain or
loss.
STRIPPED MORTGAGE-BACKED SECURITIES. Stripped mortgage-backed securities are
classes of mortgage-backed securities that receive different proportions of the
interest and principal distributions from the underlying Mortgage Assets. They
may be may be privately issued or U.S. Government Securities. In the most
extreme case, one class will be entitled to receive all or a portion of the
interest but none of the principal from the Mortgage Assets (the interest-only
or "IO" class) and one class will be entitled to receive all or a portion of the
principal, but none of the interest (the "PO" class).
ASSET-BACKED SECURITIES
Asset-backed securities represent direct or indirect participations in, or are
secured by and payable from, assets other than mortgage-backed assets such as
motor vehicle installment sales contracts, installment loan contracts, leases of
various types of real and personal property and receivables from revolving
credit (credit card) agreements. No Portfolio may invest more than 10 percent of
its net assets in asset-backed securities that are backed by a particular type
of credit, for instance, credit card receivables. Asset-backed securities,
including adjustable rate asset-backed securities, have yield characteristics
similar to those of mortgage-backed securities and, accordingly, are subject to
many of the same risks. Assets are securitized through the use of trusts and
special purpose corporations that issue securities that are often backed by a
pool of assets representing the obligations of a number of different parties.
Payments of principal and interest may be guaranteed up to certain amounts and
for a certain
<PAGE>
time period by a letter of credit issued by a financial institution.
Asset-backed securities do not always have the benefit of a security interest in
collateral comparable to the security interests associated with mortgage-backed
securities. As a result, the risk that recovery on repossessed collateral might
be unavailable or inadequate to support payments on asset-backed securities is
greater for asset-backed securities than for mortgage-backed securities. In
addition, because asset-backed securities are relatively new, the market
experience in these securities is limited and the market's ability to sustain
liquidity through all phases of an interest rate or economic cycle has not been
tested.
FOREIGN EXCHANGE CONTRACTS AND FOREIGN CURRENCY FORWARD CONTRACTS. Changes in
foreign currency exchange rates will affect the U.S. dollar values of securities
denominated in currencies other than the U.S. dollar. The rate of exchange
between the U.S. dollar and other currencies fluctuates in response to forces of
supply and demand in the foreign exchange markets. These forces are affected by
the international balance of payments and other economic and financial
conditions, government intervention, speculation and other factors. When
investing in foreign securities a Fund usually effects currency exchange
transactions on a spot (i.e., cash) basis at the spot rate prevailing in the
foreign exchange market. The Fund incurs foreign exchange expenses in converting
assets from one currency to another.
A Fund may enter into foreign currency forward contracts or currency futures or
options contracts for the purchase or sale of foreign currency to "lock in" the
U.S. dollar price of the securities denominated in a foreign currency or the
U.S. dollar value of interest and dividends to be paid on such securities, or to
hedge against the possibility that the currency of a foreign country in which a
Fund has investments may suffer a decline against the U.S. dollar. Like foreign
exchange contracts and foreign currency forward contracts, these instruments are
often referred to as derivatives, which may be defined as financial instruments
whose performance is derived, at least in part, from the performance of another
asset (such as a security, currency or an index of securities. A forward
currency contract is an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days from the date of the contract
agreed upon by the parties, at a price set at the time of the contract. This
method of attempting to hedge the value of a Fund's portfolio securities against
a decline in the value of a currency does not eliminate fluctuations in the
underlying prices of the securities. Although the strategy of engaging in
foreign currency transactions could reduce the risk of loss due to a decline in
the value of the hedged currency, it could also limit the potential gain from an
increase in the value of the currency. No Portfolio intends to maintain a net
exposure to such contracts where the fulfillment of the Portfolio's obligations
under such contracts would obligate the Portfolio to deliver an amount of
foreign currency in excess of the value of the Portfolio's portfolio securities
or other assets denominated in that currency. A Portfolio will not enter into
these contracts for speculative purposes and will not enter into non-hedging
currency contracts. These contracts involve a risk of loss if Norwest fails to
predict currency values correctly.
FUTURES CONTRACTS AND OPTIONS
A Fund may seek to enhance its return through the writing (selling) and
purchasing of exchange-traded and over-the-counter options on fixed income
securities or indices. A Fund may also to attempt to hedge against a decline in
the value of securities owned by it or an increase in the price of securities
which it plans to purchase through the use of those options and the purchase and
sale of interest rate futures contracts and options on those futures contracts.
These instruments are often referred to as "derivatives," which may be defined
as financial instruments whose performance is derived, at least in part, from
the performance of another asset (such as a security, currency or an index of
securities. An option is covered if, so long as the Fund is obligated under the
option, it owns an offsetting position in the underlying security or futures
contract or maintains cash, U.S. Government Securities or other liquid debt
securities in a segregated account with a value at all times sufficient to cover
the Portfolio's obligation under the option. Certain futures strategies employed
by a Fund in making temporary allocations may not be deemed to be for bona fide
hedging purposes, as defined by the Commodity Futures Trading Commission. A
Portfolio may enter into these futures contracts only if the aggregate of
initial margin deposits for open futures contract positions does not exceed 5
percent of the Portfolio's total assets.
RISK CONSIDERATIONS. The Fund's use of options and futures contracts subjects
the Fund to certain investment risks and transaction costs to which it might not
otherwise be subject. These risks include: (1) dependence on Investment
Adviser's ability to predict movements in the prices of individual securities
and
<PAGE>
fluctuations in the general securities markets; (2) imperfect correlations
between movements in the prices of options or futures contracts and movements in
the price of the securities hedged or used for cover which may cause a given
hedge not to achieve its objective; (3) the fact that the skills and techniques
needed to trade these instruments are different from those needed to select the
other securities in which the Portfolio invests; (4) lack of assurance that a
liquid secondary market will exist for any particular instrument at any
particular time, which, among other things, may hinder a Portfolio's ability to
limit exposures by closing its positions; (5) the possible need to defer closing
out of certain options, futures contracts and related options to avoid adverse
tax consequences; and (6) the potential for unlimited loss when investing in
futures contracts or writing options for which an offsetting position is not
held.
Other risks include the inability of the Fund, as the writer of covered call
options, to benefit from any appreciation of the underlying securities above the
exercise price and the possible loss of the entire premium paid for options
purchased by the Portfolio. In addition, the futures exchanges may limit the
amount of fluctuation permitted in certain futures contract prices during a
single trading day. A Fund may be forced, therefore, to liquidate or close out a
futures contract position at a disadvantageous price. There can be no assurance
that a liquid market will exist at a time when a Fund seeks to close out a
futures position or that a counterparty in an over-the-counter option
transaction will be able to perform its obligations. There are a limited number
of options on interest rate futures contracts and exchange traded options
contracts on fixed income securities. Accordingly, hedging transactions
involving these instruments may entail "cross-hedging." As an example, a Fund
may wish to hedge existing holdings of mortgage-backed securities, but no listed
options may exist on those securities. In that event, Norwest may attempt to
hedge the Fund's securities by the use of options with respect to similar fixed
income securities. The Fund may use various futures contracts that are
relatively new instruments without a significant trading history. As a result,
there can be no assurance that an active secondary market in those contracts
will develop or continue to exist.
LIMITATIONS. Except for the futures contracts strategies of a Portfolio used for
making temporary allocations among bonds and stocks, the Portfolios have no
current intention of investing in futures contracts and options thereon for
purposes other than hedging. Certain Underlying Portfolios may purchase a call
or put only if, after such purchase, the value of all put and call options held
by the Underlying Portfolio would not exceed 5% of its total assets. No
Portfolio may sell a put option if the exercise value of all put options written
by the Portfolio would exceed 50 percent of the Portfolio's total assets or sell
a call option if the exercise value of all call options written by the Portfolio
would exceed the value of the Portfolio's assets. In addition, the current
market value of all open futures positions held by a Portfolio will not exceed
50 percent of its total assets.
OPTIONS ON SECURITIES. A call option is a contract pursuant to which the
purchaser of the call option, in return for a premium paid, has the right to buy
the security underlying the option at a specified exercise price at any time
during the term of the option. The writer of the call option, who receives the
premium, has the obligation upon exercise of the option to deliver the
underlying security against payment of the exercise price during the option
period. A put option gives its purchaser, in return for a premium, the right to
sell the underlying security at a specified price during the term of the option.
The writer of the put, who receives the premium, has the obligation to buy the
underlying security, upon exercise at the exercise price during the option
period. The amount of premium received or paid is based upon certain factors,
including the market price of the underlying security or index, the relationship
of the exercise price to the market price, the historical price volatility of
the underlying security or index, the option period, supply and demand and
interest rates.
OPTIONS ON STOCK INDICES. A stock index assigns relative values to the stock
included in the index, and the index fluctuates with changes in the market
values of the stocks included in the index. Stock index options operate in the
same way as the more traditional stock options except that exercises of stock
index options are effected with cash payments and do not involve delivery of
securities. Thus, upon exercise of stock index options, the purchaser will
realize and the writer will pay an amount based on the differences between the
exercise price and the closing price of the stock index.
INDEX FUTURES CONTRACTS. Bond and stock index futures contracts are bilateral
agreements pursuant to which two parties agree to take or make delivery of an
amount of cash equal to a specified dollar amount times the difference between
the bond or stock index value at the close of trading of the contract and the
price at which the
<PAGE>
futures contract is originally struck. No physical delivery of the securities
comprising the index is made. Generally, these futures contracts are closed out
prior to the expiration date of the contract.
OPTIONS ON FUTURES CONTRACTS. Options on futures contracts are similar to stock
options except that an option on a futures contract gives the purchaser the
right, in return for the premium paid, to assume a position in a futures
contract rather than to purchase or sell stock, at a specified exercise price at
any time during the period of the option. Upon exercise of the option, the
delivery of the futures position to the holder of the option will be accompanied
by transfer to the holder of an accumulated balance representing the amount by
which the market price of the futures contract exceeds, in the case of a call,
or is less than, in the case of a put, the exercise price of the option on the
future.
<PAGE>
APPENDIX B
DESCRIPTION OF SECURITIES RATINGS
MUNICIPAL AND CORPORATE BONDS (INCLUDING CONVERTIBLE BONDS)
MOODY'S INVESTORS SERVICE ("MOODY'S")
Moody's rates corporate bond issues, including convertible debt issues, as
follows:
Bonds which are rated Aaa are judged by Moody's to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
Bonds which are rated A possess many favorable investment attributes and are to
be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment some time in the future.
Bonds which are rated Baa are considered as medium grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payment and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Bonds which are rated Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Bonds which are rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Bonds which are rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
Bonds which are rated C are the lowest rated class of bonds and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
Note: Those bonds in the Aa, A, Baa, Ba or B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa1,
A1, Baa1, Ba1, and B1.
<PAGE>
STANDARD AND POOR'S CORPORATION ("S&P")
S&P rates corporate bond issues, including convertible debt issues, as follows:
Bonds rated AAA have the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
Bonds rated AA have a very strong capacity to pay interest and repay principal
and differ from the highest rated issues only in small degree.
Bonds rated A have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt rated in higher rated
categories.
Bonds rated BBB are regarded as having an adequate capacity to pay interest and
repay principal. Whereas they normally exhibit adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
weakened capacity to pay interest and repay principal for debt in this category
than in higher rated categories.
Bonds rated BB, B, CCC, CC and C are regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
bonds will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
Bonds rated BB have less near-term vulnerability to default than other
speculative issues. However, they face major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments.
Bonds rated B have a greater vulnerability to default but currently have the
capacity to meet interest payments and principal payments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal.
Bonds rated CCC have currently identifiable vulnerability to default, and are
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, they are not likely to have the
capacity to pay interest and repay principal.
Bonds rated C typically are subordinated to senior debt which as assigned an
actual or implied CCC debt rating. This rating may also be used to indicate
imminent default.
The C rating may be used to cover a situation where a bankruptcy petition has
been filed, but debt service payments are continued. The rating Cl is reserved
for income bonds on which no interest is being paid.
Bonds are rated D when the issue is in payment default, or the obligor has filed
for bankruptcy. The D rating category is used when interest payments or
principal payments are not made on the date due, even if the applicable grace
period has not expired, unless S&P believes that such payments will made during
such grace period.
Note: The ratings from AA to CCC may be modified by the addition of a plus (+)
or minus (-) sign to show the relative standing within the rating category.
<PAGE>
FITCH IBCA, INC. ("FITCH")
Fitch rates corporate bond issues, including convertible debt issues, as
follows:
AAA Bonds are considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA Bonds are considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated AAA. Because bonds rated in the AAA
and AA categories are not significantly vulnerable to foreseeable future
developments, shorter-term debt of these issuers is generally rated F-1+.
A Bonds are considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB Bonds are considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds, and therefore
impair timely payment. The likelihood that the ratings of these bonds will fall
below investment grade is higher than for bonds with higher ratings.
BB Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C Bonds are in imminent default in payment of interest or principal.
DDD, DD, and D Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. DDD
represents the highest potential for recovery on these bonds, and D represents
the lowest potential for recovery.
Plus (+) and minus (-) signs are used with a rating symbol to indicate the
relative position of a credit within the rating category. Plus and minus signs,
however, are not used in the AAA, DDD, DD, or D categories.
<PAGE>
PREFERRED STOCK
MOODY'S INVESTORS SERVICE
Moody's rates preferred stock as follows:
An issue rated aaa is considered to be a top-quality preferred stock. This
rating indicates good asset protection and the least risk of dividend impairment
among preferred stock issues.
An issue rated aa is considered a high-grade preferred stock. This rating
indicates that there is a reasonable assurance that earnings and asset
protection will remain relatively well maintained in the foreseeable future.
An issue rated a is considered to be an upper-medium grade preferred stock.
While risks are judged to be somewhat greater than in the aaa and aa
classification, earnings and asset protection are, nevertheless, expected to be
maintained at adequate levels.
An issue rated baa is considered to be a medium-grade, neither highly protected
nor poorly secured. Earnings and asset protection appear adequate at present but
may be questionable over any great length of time.
An issue rated ba is considered to have speculative elements and its future
cannot be considered well assured. Earnings and asset protection may be very
moderate and not well safeguarded during adverse periods. Uncertainty of
position characterizes preferred stocks in this class.
An issue which is rated b generally lacks the characteristics of a desirable
investment. Assurance of dividend payments and maintenance of other terms of the
issue over any long period of time may be small.
An issue which is rated caa is likely to be in arrears on dividend payments.
This rating designation does not purport to indicate the future status of
payments.
An issue which is rated ca is speculative in a high degree and is likely to be
in arrears on dividends with little likelihood of eventual payment.
An issue which is rated c can be regarded as having extremely poor prospects of
ever attaining any real investment standing. This is the lowest rated class of
preferred or preference stock.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each rating
classification from aa through b in its preferred stock rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issuer ranks in the lower end of its generic rating
category.
STANDARD & POOR'S
S&P rates preferred stock as follows:
AAA is the highest rating that is assigned by S&P to a preferred stock issue and
indicates an extremely strong capacity to pay the preferred stock obligations.
A preferred stock issue rated AA also qualifies as a high-quality fixed income
security. The capacity to pay preferred stock obligations is very strong,
although not as overwhelming as for issues rated AAA.
An issue rated A is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
<PAGE>
An issue rated BBB is regarded as backed by an adequate capacity to pay the
preferred stock obligations. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to make payments for a preferred stock in
this category than for issues in the A category.
Preferred stock rated BB, B, and CCC are regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay preferred stock
obligations. BB indicates the lowest degree of speculation and CCC the highest
degree of speculation. While such issues will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
The rating CC is reserved for a preferred stock issue in arrears on dividends or
sinking Portfolio payments but that is currently paying.
A preferred stock rated C is a non-paying issue.
A preferred stock rated D is a non-paying issue with the issuer in default on
debt instruments.
To provide more detailed indications of preferred stock quality, the ratings
from AA to CCC may be modified by the addition of a plus (+) or minus (-) sign
to show relative standing within the major rating categories.
SHORT TERM MUNICIPAL LOANS
MOODY'S INVESTORS SERVICE. Moody's highest rating for short-term municipal loans
is MIG-1/VMIG-1. A rating of MIG-1/VMIG-1 denotes best quality. There is present
strong protection by established cash flows, superior liquidity support or
demonstrated broadbased access to the market for refinancing. Loans bearing the
MIG-2/VMIG-2 designation are of high quality. Margins of protection are ample
although not so large as in the MIG-1/VMIG-1 group. A rating of MIG 3/VMIG 3
denotes favorable quality. All security elements are accounted for but there is
lacking the undeniable strength of the preceding grades. Liquidity and cash flow
protection may be narrow and market access for refinancing is likely to be less
well established. A rating of MIG 4/VMIG 4 denotes adequate quality. Protection
commonly regarded as required of an investment security is present and although
not distinctly or predominantly speculative, there is specific risk.
STANDARD & POOR'S. S&P's highest rating for short-term municipal loans is SP-1.
S&P states that short-term municipal securities bearing the SP-1 designation
have very strong or strong capacity to pay principal and interest. Those issues
rated SP-1 which are determined to possess overwhelming safety characteristics
will be given a plus (+) designation. Issues rated SP-2 have satisfactory
capacity to pay principal and interest. Issues rated SP-3 have speculative
capacity to pay principal and interest.
FITCH IBCA, INC. Fitch's short-term ratings apply to debt obligations that are
payable on demand or have original maturities of generally up to three years,
including commercial paper, certificates of deposit, medium-term notes, and
municipal and investment notes.
Short-term issues rated F-1+ are regarded as having the strongest degree of
assurance for timely payment. Issues assigned a rating of F-1 reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
Issues assigned a rating of F-2 have a satisfactory degree of assurance for
timely payment, but the margin of safety is not as great as for issues assigned
F-1+ or F-1.
<PAGE>
OTHER MUNICIPAL SECURITIES AND COMMERCIAL PAPER
MOODY'S INVESTORS SERVICE
Moody's two highest ratings for short-term debt, including commercial paper, are
Prime-1 and Prime-2. Both are judged investment grade, to indicate the relative
repayment ability of rated issuers.
<PAGE>
Issuers rated Prime-1 have a superior ability for repayment of senior short-term
debt obligations. Prime-1 repayment ability will often be evidenced by many of
the following characteristics: Leading market positions in well-established
industries; high rates of return on Portfolios employed; conservative
capitalization structure with moderate reliance on debt and ample asset
protection; broad margins in earnings coverage of fixed financial charges and
high internal cash generation; well-established access to a range of financial
markets and assured sources of alternate liquidity.
Issuers rated Prime-2 by Moody's have a strong ability for repayment of senior
short-term debt obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1 but to a lesser degree. Earnings trends
and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
STANDARD AND POOR'S CORPORATION
S&P's two highest commercial paper ratings are A-1 and A-2. Issues assigned an A
rating are regarded as having the greatest capacity for timely payment. Issues
in this category are delineated with the numbers 1, 2 and 3 to indicate the
relative degree of safety. An A-1 designation indicates that the degree of
safety regarding timely payment is either overwhelming or very strong. Those
issues determined to possess overwhelming safety characteristics are denoted
with a plus (+) sign designation. The capacity for timely payment on issues with
an A-2 designation is strong. However, the relative degree of safety is not as
high as for issues designated A-1. A-3 issues have a satisfactory capacity for
timely payment. They are, however, somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations. Issues rated A-2 are regarded as having only an adequate capacity
for timely payment. However, such capacity may be damaged by changing conditions
or short-term adversities.
FITCH IBCA, INC.
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
F-1+. Issues assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F-1. Issues assigned this rating reflect an assurance of timely payment only
slightly less in degree than issues rated F-1+.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE STATEMENT OF
ADDITIONAL INFORMATION AND THE PORTFOLIOS' OFFICIAL SALES LITERATURE IN
CONNECTION WITH THE OFFERING OF THE PORTFOLIOS' SHARES, AND IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE TRUST. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY
STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER MAY NOT LAWFULLY BE MADE.
<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. The data is for the past three fiscal years or shorter period if the
Portfolio has been in operation for a shorter period.
<TABLE>
<S> <C> <C> <C>
ADVISORY FEE ADVISORY FEE ADVISORY FEE
PAYABLE WAIVED RETAINED
------- ------ --------
WEALTHBUILDER II GROWTH BALANCED PORTFOLIO
C Shares
Year Ended May 31, 1998 9,786 9,786 0
WEALTHBUILDER II GROWTH AND INCOME PORTFOLIO
C Shares
Year Ended May 31, 1998 7,907 7,907 0
WEALTHBUILDER II GROWTH PORTFOLIO
C Shares
Year Ended May 31, 1998 5,939 5,939 0
</TABLE>
<PAGE>
TABLE 2 - MANAGEMENT FEES
The following table shows the dollar amount of fees payable to: Forum for its
management services with respect to each 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>
(I) MANAGEMENT FEES TO FORUM
MANAGEMENT MANAGEMENT MANAGEMENT
FEE FEE FEE
PAYABLE WAIVED RETAINED
------- ------ --------
WEALTHBUILDER II GROWTH BALANCED PORTFOLIO
C Shares
Year Ended May 31, 1998 2,796 2,796 0
WEALTHBUILDER II GROWTH AND INCOME PORTFOLIO
C Shares
Year Ended May 31, 1998 2,259 2,259 0
WEALTHBUILDER II GROWTH PORTFOLIO
C Shares
Year Ended May 31, 1998 1,697 1,697 0
</TABLE>
<PAGE>
TABLE 3 - DISTRIBUTION FEES
The following table shows the dollar amount of fees payable to Forum for its
distribution services with respect to each Portfolio, the amount of fee that was
waived by Forum, if any, and the actual fee received by Forum. The data is for
the past three fiscal years or shorter period if the Portfolio has been in
operation for a shorter period.
<TABLE>
<S> <C> <C> <C>
DISTRIBUTION DISTRIBUTION DISTRIBUTION
FEE FEE FEE
PAYABLE WAIVED RETAINED
------- ------ --------
WEALTHBUILDER II GROWTH BALANCED PORTFOLIO
C Shares
Year Ended May 31, 1998 20,971 0 20,971
WEALTHBUILDER II GROWTH AND INCOME PORTFOLIO
C Shares
Year Ended May 31, 1998 16,944 0 16,944
WEALTHBUILDER II GROWTH PORTFOLIO
C Shares
Year Ended May 31, 1998 12,726 0 12,726
</TABLE>
<PAGE>
TABLE 4 - SALES CHARGES
The following table shows: (1) the dollar amount of sales charges payable to
Forum with respect to sales of C Shares and (2) 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 Portfolio has been in operation for
a shorter period.
SALES RETAINED
CHARGES AMOUNT
------- ------
WEALTHBUILDER II GROWTH BALANCED PORTFOLIO $55 0
Year Ended May 31, 1998
WEALTHBUILDER II GROWTH AND INCOME PORTFOLIO $94 0
Year Ended May 31, 1998
WEALTHBUILDER II GROWTH PORTFOLIO $116 0
Year Ended May 31, 1998
<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 Portfolio, 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 Portfolio has been in operation for a shorter period.
<TABLE>
<S> <C> <C> <C>
FEE FEE FEE
PAYABLE WAIVED RETAINED
------- ------ --------
WEALTHBUILDER II GROWTH BALANCED PORTFOLIO
C Shares
Year Ended May 31, 1998 11,500 11,500 0
WEALTHBUILDER II GROWTH AND INCOME PORTFOLIO
C Shares
Year Ended May 31, 1998 11,500 11,500 0
WEALTHBUILDER II GROWTH PORTFOLIO
C Shares
Year Ended May 31, 1998 11,500 11,500 0
</TABLE>
<PAGE>
APPENDIX C - PERFORMANCE DATA
TABLE 1 - TOTAL RETURNS
The average annual total return of each class of each Portfolio for the period
ended May 31, 1998 was as follows. The actual dates of the commencement of each
Portfolio's operations, is listed in the Portfolio's financial statements.
Calendar quarter performance is available from the adviser.
SEC STANDARDIZED RETURNS
ONE FIVE TEN SINCE
YEAR YEARS YEARS INCEPTION
NORWEST WEALTHBUILDER II GROWTH BALANCED N/A N/A N/A 6.73%
PORTFOLIO
NORWEST WEALTHBUILDER II GROWTH & INCOME N/A N/A N/A 8.11%
PORTFOLIO
NORWEST WEALTHBUILDER II GROWTH PORTFOLIO N/A N/A N/A 8.51%
<PAGE>
NON STANDARDIZED RETURNS (WITHOUT A SALES LOAD)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CALENDAR
ONE THREE YEAR TO ONE THREE FIVE TEN SINCE
MONTH MONTHS DATE YEAR YEARS YEARS YEARS INCEPTION
WEALTHBUILDER II GROWTH
BALANCED PORTFOLIO (1.28)% 2.76% 7.68% N/A N/A N/A N/A 8.35%
WEALTHBUILDER II GROWTH (2.32)% 3.39% 11.14% N/A N/A N/A N/A 9.75%
AND INCOME PORTFOLIO
WEALTHBUILDER II GROWTH (2.39)% 3.28% 10.43% N/A N/A N/A N/A 10.17%
PORTFOLIO
</TABLE>
<PAGE>
<PAGE>
APPENDIX D - OTHER ADVERTISEMENT MATTERS
From time to time, the sales material for the Portfolios may include a
discussion of, and commentary by senior management of the Adviser on, the
following.
The Trust may compare the Portfolio family against other bank-managed mutual
funds or other investment companies based on asset size. The Adviser believes
the Portfolios' growth may be attributed to three things: disciplined investment
process, utilizing talented people and focusing on customer needs.
The Portfolios 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 Portfolio's style.
NORWEST CORPORATION
1929 Northwestern National Bank and several upper midwest banks form a
holding company called Northwestern National Bancorporation. "Banco"
acquires 90 banks in its first year.
1932 At is peak, Banco owns a total of 139 affiliate banks.
1982 Banco enters the consumer finance business by acquiring Dial Finance
Company.
1983 The 87 affiliates of Banco are reborn as "Norwest Corporation."
1989 Norwest consolidates its operations in the new 57-story Norwest Center
in downtown Minneapolis.
1997 Norwest reaches $50 billion in assets under management, including $19
billion in mutual funds.
NORWEST ADVANTAGE FUNDS
1946 Inception of the Common Trust Funds, the company's first pooled
investment vehicles.
1987 Norwest introduces two new open-ended registered investment company funds
(commonly known as mutual funds), called the Prime Value Funds. In less
than one year, assets under management reach $500 million.
1992 The Norwest mutual fund family expands to 11 mutual funds. Assets under
management grow to $3.2 billion.
1994 Conversion to Norwest Collective Funds (bank collective investment
funds) into NORWEST ADVANTAGE FUNDS (mutual funds).
1998 NORWEST ADVANTAGE FUNDS family includes 41 mutual funds with over $20
billion in assets under management.
NORWEST CENTER
MINNEAPOLIS, MINNESOTA
DESIGNED BY WORLD-RENOWNED ARCHITECT CESAR PELLI, THE NORWEST CENTER WAS
CONSTRUCTED IN 1988. SINCE THEN, IT HAS RECEIVED SEVERAL PRESTIGIOUS
ARCHITECTURAL AWARDS, INCLUDING THE LARGE SCALE OFFICE AWARD OF EXCELLENCE, FROM
THE URBAN LAND INSTITUTE (1989); THE NAIOP (MINNESOTA) AWARD FOR EXCELLENCE --
DOWNTOWN BUILDING OF THE YEAR (1989); THE BOMA (MINNEAPOLIS) OFFICE BUILDING OF
THE YEAR, OVER 500,000 SQ. FT. (1993); AND THE BOMA (MIDWEST NORTHERN REGION)
OFFICE BUILDING OF THE YEAR, OVER 500,000 SQ. FT. (1994). THE NORWEST CENTER IS
LOCATED IN THE FINANCIAL DISTRICT OF MINNEAPOLIS AT 90 SOUTH SEVENTH STREET.
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements.
Included in the Prospectuses:
Financial Highlights.
Included in the Statements of Additional Information:
Audited financial statements for the fiscal year
ended May 31, 1998 including Statements of Assets and
Liabilities, Statements of Operations, Statements of
Changes in Net Assets, Financial Highlights, Notes to
Financial Statements and Independent Auditors
Reports.
(b) Exhibits.
(1) Trust Instrument of Registrant as amended and restated
August 4, 1997 (see Note 1).
(2) By-Laws of Registrant as now in effect (see Note 2).
(3) Not Applicable.
(4) Specimen Certificate for shares of beneficial interest
of each class of each portfolio of Registrant. Except
for the names of the classes of shares and CUSIP
numbers, the certificate of each class of each
portfolio of Registrant is substantially the same as
the specimen certificate, and therefore, is omitted
pursuant to Rule 483(d)(2) under the 1933 Act (see Note
2).
(5) (a) Form of Investment Advisory Agreement between
Registrant and Norwest Investment Management, Inc.
relating to Cash Investment Fund, Ready Cash Investment
Fund, U.S. Government Fund, Treasury Fund, Treasury
Plus Fund, Municipal Money Market Fund - Institutional
Shares, Municipal Money Market Fund- Investor Shares,
Intermediate Government Income Fund, Diversified Bond
Fund, Stable Income Fund, Income Fund, Total Return
Bond Fund, Limited Term Tax-Free Fund, Limited Term
Government Income Fund, Tax-Free Income Fund, Colorado
Tax-Free Fund, Minnesota Intermediate Tax- Free Fund,
Minnesota Tax-Free Fund, Strategic Income Fund,
Moderate Balanced Fund, Growth Balanced Fund,
Aggressive Balanced - Equity Fund, Income Equity Fund,
Index Fund, ValuGrowth SM Stock Fund, Diversified
Equity Fund, Growth Equity Fund, Large Company Growth
Fund, Diversified Small Cap Fund, Small Company Stock
Fund, Small Company Growth Fund, Small Cap
Opportunities Fund, International Fund, Performa
Strategic Value Bond Fund, Performa Disciplined Growth
Fund, Performa Small Cap Value Fund and Performa Global
Growth Fund dated as of June 1, 1997, as amended July
28, 1998. Except for the names of each series of
Registrant, the Investment Advisory Agreement of each
series of the Registrant is substantially the same as
the Investment Advisory Agreement, and therefore, is
omitted pursuant to Rule 483(d) (2) under the 1933 Act
(filed herewith).
(b) Form of Investment Subadvisory Agreement between
Registrant and Crestone Capital Management Inc.
relating to Small Company Stock Fund, Strategic Income
Fund, Moderate Balanced Fund, Growth Balanced Fund,
Aggressive Balanced Equity Fund, Diversified Equity
Fund, Growth Equity Fund and Diversified Small Cap Fund
dated as of June 1, 1997, as amended July 28, 1998
(filed herewith).
(c) Investment Subadvisory Agreement between Registrant and
Schroder Capital Management Inc. relating to Strategic
Income Fund, Moderate Balanced Fund, Growth Balanced
Fund, Diversified Equity Fund, Growth Equity Fund and
International Fund dated as of November 11, 1994 (see
Note 2).
(d) Form of Investment Subadvisory Agreement between
Registrant and Schroder Capital Management
International Inc. relating to Small Cap Opportunities
Fund dated as of April 28, 1996 (see Note 3).
(e) Form of Investment Subadvisory Agreement among
Registrant, Norwest Investment Management, Inc. and
Galliard Capital Management Inc. relating to Performa
Strategic Value Bond Fund, Diversified Bond Fund,
Strategic Income Fund, Moderate Balanced Fund, Growth
Balanced Fund and Aggressive Balanced-Equity Fund dated
as of October 1, 1997 (filed herewith).
(f) Form of Investment Subadvisory Agreement among
Registrant, Norwest Investment Management, Inc. and
Peregrine Capital Management International Inc.
relating to 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,
Small Company Growth Fund and Diversified Small Cap
Fund dated as of June 1, 1997, as amended July 28, 1998
(will be filed with subsequent amendment).
(g) Form of Investment Subadvisory Agreement between
Registrant and Smith Asset Management Group, LP
relating to Strategic Income Fund, Moderate Balanced
Fund, Growth Balanced Fund, Aggressive Balanced-Equity
Fund, Diversified Equity Fund, Growth Equity Fund,
Diversified Small Cap Fund, Performa Disciplined Growth
Fund and Performa Small Cap Value Fund dated as of
October 1, 1997, as amended July 28, 1998 (filed
herewith).
(6) Form of Distribution Services Agreement between
Registrant and Forum Financial Services, Inc. relating
to each series of Registrant dated as of October 1,
1995, as amended July 28, 1998 (filed herewith).
(7) Not Applicable.
(8) (a) Form of Custodian Agreement between Registrant and
Norwest Bank Minnesota, N.A., relating to each series
of Registrant dated as of August 1, 1993, as amended
July 28, 1998 (filed herewith).
(b) Form of Transfer Agency Agreement between Registrant
and Norwest Bank Minnesota, N.A. relating to each
series of Registrant dated as of August 1, 1993, as
amended July 28, 1998 (filed herewith).
(9) (a) Form of Management Agreement between Registrant and
Forum Financial Services, Inc. relating to each series
of Registrant dated as August 1, 1997, as amended July
28, 1998 (filed herewith).
(b) Form of Fund Accounting Agreement between Registrant
and Forum Accounting Services, LLC relating to each
series of Registrant dated as of June 1, 1997, as
amended July 28, 1998 (filed herewith).
(c) Form of Administration Services Agreement between
Registrant and Norwest Bank Minnesota, N.A. relating to
Small Cap Opportunities Fund, International Fund and
Performa Global Growth Fund dated as of November 11,
1994, as amended July 28, 1998 (filed herewith).
(d) Form of Administration Agreement between Registrant and
Forum Administrative Services, LLC relating to Cash
Investment Fund, Ready Cash Investment Fund, U.S.
Government Fund, Treasury Fund, Treasury Plus Fund,
Municipal Money Market Fund - Institutional Shares,
Municipal Money Market Fund - Investor Shares,
Intermediate Government Income Fund, Diversified Bond
Fund, Stable Income Fund, Income Fund, Total Return
Bond Fund,Limited Term Tax-Free Fund, Limited Term
Government Income Fund, Tax- Free Income Fund, Colorado
Tax-Free Fund, Minnesota Intermediate Tax-Free Fund,
Minnesota Tax-Free Fund, Strategic Income Fund,
Moderate Balanced Fund, Growth Balanced Fund,
Aggressive Balanced-Equity Fund, Income Equity Fund,
Index Fund, ValuGrowthSM Stock Fund, Diversified Equity
Fund, Growth Equity Fund, Large Company Growth Fund,
Diversified Small Cap Fund, Small Company Stock Fund,
Small Company Growth Fund, Small Cap Opportunities
Fund, International Fund, Performa Strategic Value Bond
Fund, Disciplined Growth Fund, Performa Small Cap Value
Fund, Performa Global Growth Fund, Norwest
WealthBuilder II Growth Portfolio, Norwest
WealthBuilder II Growth and Income Portfolio and
Norwest WealthBuilder II Growth Balanced Portfolio
dated as of October 1, 1996, as amended July 28, 1998
(filed herewith).
(10) (a) Opinion of Seward & Kissel (see Note 4).
(b) Opinion of Seward & Kissel (see Note 2).
(11) Consent of Independent Auditors-KPMG Peat Marwick LLP,
(filed herewith).
(12) Not Applicable.
(13) Investment Representation letter of John Y. Keffer as
original purchaser of shares of stock of Registrant
(see Note 4).
(14) Individual Retirement Account materials (see Note 5).
(15) (a) Rule 12b-1 Plan adopted by Registrant relating to
Exchange Shares of Ready Cash Investment Fund and
Investor B Shares of Stable Income Fund, Intermediate
Government Fund, Income Fund, Total Return Bond Fund,
Tax-Free Income Fund, Colorado Tax-Free Fund, Minnesota
Tax-Free Fund, Growth Balanced Fund, Income Equity
Fund, ValuGrowthSM Stock Fund, Diversified Equity Fund,
Growth Equity Fund, Large Company Growth Fund,
Diversified Small Cap Fund, Small Company Stock Fund,
Small Company Growth Fund, Small Cap Opportunities Fund
and International Fund dated as of August 1, 1993, as
amended July 28, 1998 (filed herewith).
(b) Rule 12b-1 Plan adopted by Registrant relating to C
Shares of Growth Balanced Fund, Income Equity Fund,
Diversified Equity Fund and Growth Equity Fund dated as
of July 28, 1998 (filed herewith).
(16) Schedules for computation of each Performance
Quotation provided in the Registration Statement in
response to Item 22 relating to (see Note 6):
<TABLE>
<S> <C> <C> <C>
Series Share
Class(es)
Cash Investment Fund Shares
Ready Cash Investment Fund Investor Shares Exchange Class
U.S. Government Fund Shares
Treasury Fund Shares
Treasury Plus Fund Shares
Municipal Money Market Fund Investor Shares Institutional
Shares
Stable Income Fund A Shares B Shares I Shares
Limited Term Government Income Fund I Shares
Intermediate Government Income Fund A Shares B Shares I Shares
Diversified Bond Fund I Shares
Income Fund A Shares B Shares I Shares
Total Return Bond Fund A Shares B Shares I Shares
Limited Term Tax-Free Fund I Shares
Tax-Free Income Fund A Shares B Shares I Shares
Colorado Tax-Free Fund A Shares B Shares I Shares
Minnesota Intermediate Tax-Free Fund I Shares
Minnesota Tax-Free Fund A Shares B Shares I Shares
Strategic Income Fund I Shares
Moderate Balanced Fund I Shares
Growth Balanced Fund I Shares
Aggressive Balanced-Equity Fund I Shares
Index Fund I Shares
Income Equity Fund A Shares B Shares I Shares
ValuGrowthSM Stock Fund A Shares B Shares I Shares
Diversified Equity Fund A Shares B Shares I Shares
Growth Equity Fund A Shares B Shares I Shares
Large Company Growth Fund I Shares
Diversified Small Cap Fund I Shares
Small Company Stock Fund A Shares B Shares I Shares
Small Company Growth Fund I Shares
Small Cap Opportunities Fund A Shares B Shares I Shares
Contrarian Stock Fund A Shares B Shares I Shares
International Fund A Shares B Shares I Shares
WealthBuilder II Growth Portfolio C Shares
WealthBuilder II Growth and Income Portfolio C Shares
WealthBuilder II Growth Balanced Portfolio C Shares
Performa Disciplined Growth Fund Shares
Performa Small Cap Value Fund Shares
Performa Strategic Value Bond Fund Shares
Performa Global Fund Shares
</TABLE>
(17) Financial Data Schedules (see Note 8).
(18) Multiclass (Rule 18f-3) Plan adopted by Registrant (see
Note 7).
Other Exhibits
(A) Power of Attorney from James C. Harris, Trustee of Registrant (see Note 2).
(B) Power of Attorney from Richard M. Leach, Trustee of Registrant (see Note
2).
(C) Power of Attorney from Robert C. Brown, Trustee of Registrant (see Note 2).
(D) Power of Attorney from Donald H. Burkhardt, Trustee of Registrant (see Note
2).
(E) Power of Attorney from John Y. Keffer, Trustee of Registrant (see Note 2).
(F) Power of Attorney from Donald C. Willeke, Trustee of Registrant (see Note
2).
(G) Power of Attorney from Timothy J. Penny, Trustee of Registrant (see Note
2).
(H) Power of Attorney from John S. McCune, Trustee of Registrant (see Note 1).
-------------
Note:
(1) Exhibit incorporated by reference as filed in PEA No. 46 via EDGAR on
September 30, 1997, accession number 0000912057-97-032214.
(2) Exhibit incorporated by reference as filed in PEA No. 35 via EDGAR on
March 8, 1996, accession number 0000912057-96-004243.
(3) Exhibit incorporated by reference as filed in PEA No. 54 via EDGAR on
May 6, 1998, accession number 0001004402-98-000281.
(4) Exhibit incorporated by reference as filed in PreEA No. 2 on December
31, 1986.
(5) Exhibit incorporated by reference as filed in PEA No. 24 on April 22,
1994.
(6) Exhibit incorporated by reference as filed in PEA No. 42 via EDGAR on
June 2, 1997, accession number 0000912057-97-019290.
(7) Exhibit incorporated by reference as filed in PEA No. 55 via EDGAR on
July 31, 1998, accession number 0001004402-98-000418.
(8) Exhibit incorporated by reference as filed in PEA No. 56 via EDGAR on
August 21, 1998, accession number 0001004402-98-000456.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
<TABLE>
<CAPTION>
Title of Class Of Unit Number of Recordholders
of Beneficial Interest as of August 31, 1998
---------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investor Exchange Institutional
Shares A Shares B Shares I Shares Shares Shares Shares C Shares
Cash Investment Fund 59 N/A N/A N/A N/A N/A N/A N/A
Ready Cash Investment Fund N/A N/A N/A N/A 202 27 1 N/A
U.S. Government Fund 29 N/A N/A N/A N/A N/A N/A N/A
Treasury Fund 26 N/A N/A N/A N/A N/A N/A N/A
Treasury Plus Fund 3 N/A N/A N/A N/A N/A N/A N/A
Municipal Money Market Fund N/A N/A N/A N/A 18 N/A 26 N/A
Stable Income Fund N/A 119 89 360 N/A N/A N/A N/A
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Title of Class Of Unit Number of Recordholders
of Beneficial Interest as of August 31, 1998
---------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investor Exchange Institutional
Shares A Shares B Shares I Shares Shares Shares Shares C Shares
Limited Term Government
Income Fund N/A N/A N/A 16 N/A N/A N/A N/A
Intermediate Government N/A 592 447 121 N/A N/A N/A N/A
Income Fund
Diversified Bond Fund N/A N/A N/A 171 N/A N/A N/A N/A
Income Fund N/A 479 401 57 N/A N/A N/A N/A
Total Return Bond Fund N/A 108 222 91 N/A N/A N/A N/A
Limited Term Tax-Free Fund N/A N/A N/A 12 N/A N/A N/A N/A
Tax-Free Income Fund N/A 682 306 22 N/A N/A N/A N/A
Colorado Tax-Free Fund N/A 485 210 12 N/A N/A N/A N/A
Minnesota Intermediate N/A N/A N/A 21 N/A N/A N/A N/A
Tax-Free Fund
Minnesota Tax-Free Fund N/A 558 465 9 N/A N/A N/A N/A
Strategic Income Fund N/A N/A N/A 202 N/A N/A N/A N/A
Moderate Balanced Fund N/A N/A N/A 512 N/A N/A N/A N/A
Growth Balanced Fund N/A N/A N/A 693 N/A N/A N/A N/A
Aggressive N/A N/A N/A 33 N/A N/A N/A N/A
Balanced-Equity
Fund
Index Fund N/A N/A N/A 602 N/A N/A N/A N/A
Income Equity Fund N/A 4840 5694 563 N/A N/A N/A N/A
ValuGrowthSM Stock Fund N/A 1665 868 76 N/A N/A N/A N/A
Diversified Equity Fund N/A 5061 7466 1009 N/A N/A N/A N/A
Growth Equity Fund N/A 1401 1982 858 N/A N/A N/A N/A
Large Company Growth Fund N/A N/A N/A 389 N/A N/A N/A N/A
Diversified Small Cap N/A N/A N/A 17 N/A N/A N/A N/A
Fund
Small Company Stock Fund N/A 754 722 234 N/A N/A N/A N/A
Small Company Growth Fund N/A N/A N/A 156 N/A N/A N/A N/A
Small Cap Opportunities
Fund N/A 1041 1158 243 N/A N/A N/A N/A
Contrarian Stock Fund N/A 0 0 0 N/A N/A N/A N/A
International Fund N/A 287 267 223 N/A N/A N/A N/A
Norwest WealthBuilder II N/A N/A N/A N/A N/A N/A N/A 128
Growth Portfolio
Norwest WealthBuilder II N/A N/A N/A N/A N/A N/A N/A 177
Growth and Income
Portfolio
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Title of Class Of Unit Number of Recordholders
of Beneficial Interest as of August 31, 1998
---------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investor Exchange Institutional
Shares A Shares B Shares I Shares Shares Shares Shares C Shares
Norwest WealthBuilder II N/A N/A N/A N/A N/A N/A N/A 189
Growth Balanced Portfolio
Norwest Performa 17 N/A N/A N/A N/A N/A N/A N/A
Disciplined Growth Fund
Norwest Performa Small 15 N/A N/A N/A N/A N/A N/A N/A
Cap Value Fund
Performa Strategic Value 10 N/A N/A N/A N/A N/A N/A N/A
Bond Fund
Performa Global Growth 12 N/A N/A N/A N/A N/A N/A N/A
Fund
</TABLE>
ITEM 27. INDEMNIFICATION
The general effect of Section 10.02 of Registrant's Trust Instrument is
to indemnify existing or former trustees and officers of the Trust to
the fullest extent permitted by law against liability and expenses.
There is no indemnification if, among other things, any such person is
adjudicated liable to Registrant or its shareholders by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office. This description
is modified in its entirety by the provisions of Section 10.02 of
Registrant's Trust Instrument contained in this Registration Statement
as Exhibit 1 and incorporated herein by reference.
Registrant's Investment Advisory Agreements, Investment Subadvisory
Agreements and Distribution Services Agreements provide that
Registrant's investment advisers and principal underwriter are
protected against liability to the extent permitted by Section 17(i) of
the Investment Company Act of 1940. Similar provisions are contained in
the Management Agreement and Transfer Agency and Fund Accounting
Agreement. Registrant's principal underwriter is also provided with
indemnification against various liabilities and expenses under the
Management and Distribution Agreements and Distribution Services
Agreements between Registrant and the principal underwriter; provided,
however, that in no event shall the indemnification provision be
construed as to protect the principal underwriter against any liability
to Registrant or its security holders to which the principal
underwriter would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance of its
duties, or by reason of its reckless disregard of its obligations and
duties under those agreements. Registrant's transfer agent and fund
accountant and certain related individuals are also provided with
indemnification against various liabilities and expenses under the
Transfer Agency and Fund Accounting Agreements between Registrant and
the transfer agent and fund accountant; provided, however, that in no
event shall the transfer agent, fund accountant or such persons be
indemnified against any liability or expense that is the direct result
of willful misfeasance, bad faith or gross negligence by the transfer
agent or such persons.
The preceding paragraph is modified in its entirety by the provisions
of the Investment Advisory Agreements, Investment Subadvisory
Agreements, Distribution Services Agreements, Management Agreements,
Transfer Agency Agreement and Fund Accounting Agreement of Registrant
filed as Exhibits 5, 6, and 9 to Registrant's Registration Statement
and incorporated herein by reference.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to trustees, officers and controlling
persons of Registrant pursuant to the foregoing provisions, or
otherwise, Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by Registrant of expenses incurred or paid by a
trustee, officer or controlling person of Registrant in the successful
defense of any action, suit or proceeding) is asserted by such trustee,
officer or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
(a) Norwest Investment Management, Inc.
The description of Norwest Investment Management, Inc. ("NIM"), under
the caption "Management-Advisor" or Management of the Funds-Norwest
Investment Management" in each Prospectus and under the caption
"Management-Adviser" or "Management -Investment Advisory
Services-Norwest Investment Management" in each Statement of Additional
Information constituting Parts A and B, respectively, of this
Registration Statement is incorporated by reference herein.
The following are the directors and principal executive officers of
NIM, including their business connections which are of a substantial
nature. The address of Norwest Corporation, the parent of Norwest Bank
Minnesota, N.A. ("Norwest Bank"), which is the parent of NIM, is
Norwest Center, Sixth Street and Marquette Avenue, Minneapolis, MN
55479. Unless otherwise indicated below, the principal business address
of any company with which the directors and principal executive
officers are connected is also Sixth Street and Marquette Avenue,
Minneapolis, MN 55479.
<TABLE>
<S> <C> <C>
---------------------------------- ------------------------------------ ----------------------------------
Name Title Business Connection
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
P. Jay Kiedrowski Chairman, Chief Executive Officer, Norwest Investment Management,
President Inc.
------------------------------------ ----------------------------------
Executive Vice President, Employee Norwest Bank Minnesota, N.A.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Crestone Capital Management, Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Chairman Galliard Capital Management, Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
James W. Paulsen Senior Vice President, Chief Norwest Investment Management,
Investment Officer Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Stephen P. Gianoli Senior Vice President, Chief Norwest Investment Management,
Executive Officer Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Crestone Capital Management, Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
David S. Lunt Vice President, Senior Portfolio Norwest Investment Management,
Manager Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Richard C. Villars Vice President, Senior Portfolio Norwest Investment Management,
Manager Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Lee K. Chase Senior Vice President Norwest Investment Management,
Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Andrew Owen Vice President Norwest Investment Management,
Inc.
---------------------------------- ------------------------------------ ----------------------------------
<PAGE>
---------------------------------- ------------------------------------ ----------------------------------
Name Title Business Connection
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Eileen A. Kuhry Investment Compliance Specialist Norwest Investment Management,
Inc.
---------------------------------- ------------------------------------ ----------------------------------
</TABLE>
(b) Schroder Capital Management International Inc.
The description of Schroder Capital Management International Inc.
("SCMI") under the caption "Management of the Funds-Investment Advisory
Services-Schroder Capital Management International Inc." in the
Prospectus and "Management-Investment Advisory Services" in the
Statement of Additional Information relating to International Fund,
Diversified Equity Fund, Growth Equity Fund, Strategic Income Fund,
Moderate Balanced Fund and Growth Balanced Fund, constituting certain
of Parts A and B, respectively, of the Registration Statement, is
incorporated by reference herein.
The following are the directors and principal officers of SCMI,
including their business connections of a substantial nature. The
address of each company listed, unless otherwise noted, is 787 Seventh
Avenue, 34th Floor, New York, NY 10019. Schroder Capital Management
International Limited ("Schroder Ltd.") is a United Kingdom affiliate
of Schroder which provides investment management services to
international clients located principally in the United States.
<TABLE>
<S> <C> <C>
---------------------------------- ------------------------------------ ----------------------------------
Name Title Business Connection
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
David M. Salisbury Chairman, Director SCMI
------------------------------------ ----------------------------------
Chief Executive, Director Schroder Ltd.*
------------------------------------ ----------------------------------
Director Schroders plc.*
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Trustee and Officer Schroder Series Trust II
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Richard R. Foulkes Deputy Chairman, Director SCMI
------------------------------------ ----------------------------------
Deputy Chairman Schroder Ltd.*
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Officer Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
John A. Troiano Chief Executive, Director SCMI
------------------------------------
----------------------------------
Chief Executive, Director Schroder Ltd.*
------------------------------------ ----------------------------------
----------------------------------
Officer Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Sharon L. Haugh Executive Vice President, Director SCMI
----------------------------------
------------------------------------ ----------------------------------
Director, Chairman Schroder Fund Advisors Inc.
------------------------------------ ----------------------------------
Director Schroder Ltd.*
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Chairman, Director Schroder Capital Management Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Trustee Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
---------------------------------- ------------------------------------ ----------------------------------
<PAGE>
---------------------------------- ------------------------------------ ----------------------------------
Name Title Business Connection
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Gavin D. L. Ralston Senior Vice President, Managing SCMI
Director
------------------------------------ ----------------------------------
Director Schroder Ltd.*
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Mark J. Smith Senior Vice President, Director SCMI
------------------------------------ ----------------------------------
Senior Vice President, Director Schroder Ltd.*
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Schroder Fund Advisors Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Trustee and Officer Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Robert G. Davy Senior Vice President, Director SCMI
------------------------------------ ----------------------------------
Director Schroder Ltd.*
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Officer Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Jane P. Lucas Senior Vice President, Director SCMI
------------------------------------ ----------------------------------
Director Schroder Fund Advisors Inc.
------------------------------------ ----------------------------------
Director Schroder Capital Management Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Officer Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
David R. Robertson Group Vice President SCMI
------------------------------------ ----------------------------------
Senior Vice President Schroder Fund Advisors Inc..
----------------------------------
------------------------------------
Director of Institutional Business Oppenheimer Funds, Inc.
resigned 2/98
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Michael M. Perlstein Senior Vice President, Director SCMI
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Senior Vice President, Director Schroder Ltd.*
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Managing Director MacKay Shields Financial
Corporation
resigned 11/96
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Louise Croset First Vice President, Director SCMI
------------------------------------ ----------------------------------
First Vice President Schroder Ltd.*
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Trustee and Officer Schroder Series Trust II
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Ellen B. Sullivan Group Vice President, Director SCMI
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Schroder Capital Management Inc.
---------------------------------- ------------------------------------ ----------------------------------
<PAGE>
---------------------------------- ------------------------------------ ----------------------------------
Name Title Business Connection
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Catherine A. Mazza Group Vice President SCMI
------------------------------------ ----------------------------------
President, Director Schroder Fund Advisors Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Schroder Capital Management Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Trustee and Officer Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Heather Crighton First Vice President, Director SCMI
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
First Vice President, Director Schroder Ltd.*
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Fariba Talebi Group Vice President SCMI
------------------------------------ ----------------------------------
Director Schroder Capital Management Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Officer
Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Ira Unschuld Group Vice President SCMI
------------------------------------ ----------------------------------
Officer
Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Paul M. Morris Senior Vice President SCMI
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Schroder Capital Management Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Principal, Senior Portfolio Manager Weiss, Peck & Greer LLC
resigned 12/96
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Susan B. Kenneally First Vice President, Director SCMI
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
First Vice President, Director Schroder Ltd.*
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Jennifer A. Bonathan First Vice President, Director SCMI
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
First Vice President, Director Schroder Ltd.*
---------------------------------- ------------------------------------ ----------------------------------
</TABLE>
*Schroder Ltd and Schroders plc. are located at 31 Gresham St., London EC2V 7QA
United Kingdom.
(c) Crestone Capital Management, Inc.
The description of Crestone Capital Management, Inc. ("Crestone") under
the caption "Management-SubAdviser" in the Prospectus and
"Management-Adviser-SubAdviser-Small Company Stock Fund" in the
Statement of Additional Information relating to the Small Company Stock
Fund, constituting certain of Parts A and B, respectively, of the
Registration Statement, is incorporated by reference herein.
The following are the directors and principal executive officers of
Crestone, including their business connections which are of a
substantial nature. The address of Crestone is 7720 East Belleview
Avenue, Suite 220, Englewood Colorado 80111-2614 and, unless otherwise
indicated below, that address is the principal business address of any
company with which the directors and principal executive officers are
connected.
<TABLE>
<S> <C> <C>
---------------------------------- ------------------------------------ ----------------------------------
Name (Address if Different) Title Business Connection
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Kirk McCown President, Director Crestone Capital Management, Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
P. Jay Kiedrowski Director Crestone Capital Management, Inc.
------------------------------------ ----------------------------------
Sixth and Marquette Ave., Chairman, Chief Executive Officer, Norwest Investment Management,
Minneapolis, MN 55479 President Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Executive Vice President, Employee Norwest Bank Minnesota, N.A.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Chairman Galliard Capital Management, Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Stephen P. Gianoli Director Crestone Capital Management, Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Sixth and Marquette Ave., Senior Vice President, Chief Norwest Investment Management,
Minneapolis, MN 55479 Executive Officer Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Susan Koonsman Director Crestone Capital Management, Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
1740 Broadway President Norwest Investments & Trust
Denver, CO 80274
---------------------------------- ------------------------------------ ----------------------------------
</TABLE>
(d) Peregrine Capital Management, Inc.
The description of Peregrine Capital Management, Inc. ("Peregrine")
under the caption "Management-SubAdviser" in the Prospectus and
"Management-Adviser-SubAdviser-Diversified Bond Fund, Strategic Income
Fund, Moderate Balanced Fund, Growth Balanced Fund, Diversified Equity
Fund, Growth Equity Fund, Large Company Growth Fund and Small Company
Growth Fund in the Statement of Additional Information relating to
Diversified Bond Fund, Strategic Income Fund, Moderate Balanced Fund,
Growth Balanced Fund, Diversified Equity Fund, Growth Equity Fund,
Large Company Growth Fund and Small Company Growth Fund, constituting
certain of Parts A and B, respectively, of the Registration Statement,
is incorporated by reference herein.
The following are the directors and principal executive officers of
Peregrine, including their business connections which are of a
substantial nature. The address of Peregrine is LaSalle Plaza, 800
LaSalle Avenue, Suite 1850, Minneapolis, Minnesota 55402 and, unless
otherwise indicated below, that address is the principal business
address of any company with which the directors and principal executive
officers are connected.
<TABLE>
<S> <C> <C>
---------------------------------- ------------------------------------ ----------------------------------
Name (Address if Different) Title Business Connection
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
James R. Campbell Director Peregrine Capital Management,
Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Sixth and Marquette Ave., President, Chief Executive Norwest Bank
Minneapolis, MN 55479-0116 Officer, Director
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Patricia D. Burns Senior Vice President Peregrine Capital Management,
Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Tasso H. Coin Senior Vice President Peregrine Capital Management,
Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Name Title Business Connection
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
John S. Dale Senior Vice President Peregrine Capital Management,
Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Julie M. Gerend Senior Vice President Peregrine Capital Management,
Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
William D. Giese Senior Vice President Peregrine Capital Management,
Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Daniel J. Hagen Vice President Peregrine Capital Management,
Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Ronald G. Hoffman Senior Vice President, Secretary Peregrine Capital Management,
Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Frank T. Matthews Vice President Peregrine Capital Management,
Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Jeannine McCormick Senior Vice President Peregrine Capital Management,
Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Barbara K. McFadden Senior Vice President Peregrine Capital Management,
Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Robert B. Mersky Chairman, President, Chief Peregrine Capital Management,
Executive Officer Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Gary E. Nussbaum Senior Vice President Peregrine Capital Management,
Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
James P. Ross Vice President Peregrine Capital Management,
Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Vice President Norwest Bank (prior to November,
1996)
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Jonathan L. Scharlau Assistant Vice President Peregrine Capital Management,
Inc.
---------------------------------- ------------------------------------ ----------------------------------
<PAGE>
---------------------------------- ------------------------------------ ----------------------------------
Jay H. Strohmaier Senior Vice President Peregrine Capital Management,
Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Senior Vice President/Managed Voyageur Asset Management (prior
Accounts to September, 1996)
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Paul E. von Kuster Senior Vice President Peregrine Capital Management,
Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Janelle M. Walter Assistant Vice President Peregrine Capital Management,
Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Paul R. Wurm Senior Vice President Peregrine Capital Management,
Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Name Title Business Connection
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
J. Daniel Vendermark Vice President Peregrine Capital Management,
Sixth and Marquette Avenue Inc.
Minneapolis, MN 55479-1013
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Albert J. Edwards Senior Vice President Peregrine Capital Management,
Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Vice President/Marketing U.S. Trust Company of California
(prior to June 9, 1997)
---------------------------------- ------------------------------------ ----------------------------------
</TABLE>
(e) Galliard Capital Management, Inc.
The description of Galliard Capital Management, Inc. ("Galliard") under
the caption "Management-SubAdviser" in the Prospectus and
"Management-Adviser-SubAdviser-Stable Income Fund, Diversified Bond
Fund, Strategic Income Fund, Moderate Balanced Fund and Growth Balanced
Fund" in the Statement of Additional Information relating to the Stable
Income Fund, Diversified Bond Fund, Strategic Income Fund, Moderate
Balanced Fund and Growth Balanced Fund", constituting certain of Parts
A and B, respectively, of the Registration Statement, is incorporated
by reference herein.
The following are the directors and principal executive officers of
Galliard, including their business connections which are of a
substantial nature. The address of Galliard is LaSalle Plaza, Suite
2060, 800 LaSalle Avenue, Minneapolis, Minnesota 55479 and, unless
otherwise indicated below, that address is the principal business
address of any company with which the directors and principal executive
officers are connected.
<TABLE>
<S> <C> <C>
---------------------------------- ------------------------------------ ----------------------------------
Name (Address if Different) Title Business Connection
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
P. Jay Kiedrowski Chairman Galliard Capital Management, Inc.
------------------------------------ ----------------------------------
Sixth and Marquette Ave., Chairman, Chief Executive Officer, Norwest Investment Management,
Minneapolis, MN 55479 President Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Executive Vice President, Employee Norwest Bank Minnesota, N.A.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Crestone Capital Management, Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Richard Merriam Principal, Senior Portfolio Manager Galliard Capital Management, Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
John Caswell Principal, Senior Portfolio Manager Galliard Capital Management, Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Karl Tourville Principal, Senior Portfolio Manager Galliard Capital Management, Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Laura Gideon Senior Vice President of Marketing Galliard Capital Management, Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Leela Scattum Vice President of Operations Galliard Capital Management, Inc.
---------------------------------- ------------------------------------ ----------------------------------
</TABLE>
<PAGE>
(f) Smith Asset Management Group, L.P.
The description of Smith Asset Management Group, L.P. ("Smith") under
the caption "Management-SubAdviser" in the Prospectus and
"Management-Adviser-SubAdviser-Performa Disciplined Growth Fund and
Performa Small Cap Value Fund" in the Statement of Additional
Information relating to Performa Disciplined Growth Fund and Performa
Small Cap Value Fund", constituting certain of Parts A and B,
respectively, of the Registration Statement, is incorporated by
reference herein.
The following are the directors and principal executive officers of
Smith, including their business connections which are of a substantial
nature. The address of Smith is 300 Crescent Court, Suite 750, Dallas,
Texas 75201 and, unless otherwise indicated below, that address is the
principal business address of any company with which the directors and
principal executive officers are connected.
<TABLE>
<S> <C> <C>
---------------------------------- ------------------------------------ ----------------------------------
Name Title Business Connection
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Stephen S. Smith President, Chief Executive Officer Smith Asset Management Group
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Partner Discovery Management
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Stephen J. Summers Chief Operating Officer Smith Asset Management Group
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Partner Discovery Management
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Sarah C. Castleman Vice President Smith Asset Management Group
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Partner Discovery Management
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Assistant Vice President NationsBank (formerly)
---------------------------------- ------------------------------------ ----------------------------------
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Forum Financial Services, Inc., Registrant's underwriter,
serves as underwriter for the following investment companies
registered under the Investment Company Act of 1940, as
amended:
The CRM Funds The Cutler Trust Forum Funds Memorial Funds
Monarch Funds Norwest Advantage Funds Norwest Select Funds
Sound Shore Fund, Inc.
(b) The following directors and officers of Forum Financial
Services, Inc. hold the following positions with Registrant.
Their business address is Two Portland Square, Portland, Maine
04101:
<TABLE>
<S> <C> <C>
-------------------- ---------------------------------- -------------------------------------
Name Position with Underwriter Position with Registrant
-------------------- ---------------------------------- -------------------------------------
-------------------- ---------------------------------- -------------------------------------
John Y. Keffer President Chairman, President
-------------------- ---------------------------------- -------------------------------------
David I. Goldstein Secretary Vice President and Secretary
-------------------- ---------------------------------- -------------------------------------
-------------------- ---------------------------------- -------------------------------------
Sara M. Morris Treasurer Vice President and Treasurer
-------------------- ---------------------------------- -------------------------------------
</TABLE>
(c) Not Applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The majority of accounts, books and other documents required to be
maintained by 31(a) of the Investment Company Act of 1940 and the Rules
thereunder are maintained at the offices of Forum Financial Services,
Inc. at Two Portland Square, Portland, Maine 04101, at Forum
Shareholder Services, LLC, Two Portland Square, Portland, Maine 04101
and Forum Administrative Services, LLC, Two Portland Square, Portland,
Maine 04101. The records required to be maintained under Rule
31a-1(b)(1) with respect to journals of receipts and deliveries of
securities and receipts and disbursements of cash are maintained at the
offices of Registrant's custodian. The records required to be
maintained under Rule 31a-1(b)(5), (6) and (9) are maintained at the
offices of Registrant's investment advisers as indicated in the various
prospectuses constituting Part A of this Registration Statement.
Additional records are maintained at the offices of Norwest Bank
Minnesota, N.A., 733 Marquette Avenue, Minneapolis, MN 55479-0040,
Registrant's custodian and transfer agent and at the offices of Norwest
Investment Management, Inc., Norwest Center, Sixth Street and Marquette
Avenue, Minneapolis, MN 55479, Registrant's investment adviser.
ITEM 31. MANAGEMENT SERVICES
Not Applicable.
ITEM 32. UNDERTAKINGS
Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of Registrant's latest annual report to
shareholders relating to the portfolio or class thereof to which the
prospectus relates upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, as amended, the Registrant has duly caused this amendment
to its Registration Statement to be signed on its behalf by the undersigned,
duly authorized in the City of Portland, and State of Maine on the 25th day of
September, 1998.
Norwest Advantage Funds
By:/s/ John Y. Keffer
John Y. Keffer
President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons on the 25th day of
September, 1998.
(a) Principle Executive Officer
/s/ John Y. Keffer
John Y. Keffer
Chairman and President
(b) Principle Financial and Accounting Officer
/s/ Sara M. Morris
Sara M. Morris
Treasurer
(c) A majority of the Trustees
/s/ John Y. Keffer
John Y. Keffer
Chairman
Robert C. Brown,* Trustee
Donald H. Burkhardt,* Trustee
James C. Harris,* Trustee
Richard M. Leach,* Trustee
Donald C. Willeke,* Trustee
Timothy J. Penny,* Trustee
John C. McCune,* Trustee
*By:/s/John Y. Keffer
John Y. Keffer
Attorney in Fact
<PAGE>
SIGNATURES
On behalf of Core Trust (Delaware), being duly authorized, I have duly caused
this amendment to the Registration Statement of Norwest Advantage Funds to be
signed in the City of Portland, State of Maine on the 25th day of September,
1998.
Core Trust (Delaware)
By: /s/ John Y. Keffer
John Y. Keffer
President
This amendment to the Registration Statement of Norwest Advantage Funds has been
signed below by the following persons in the capacities indicated on the 25th
day of September, 1998.
(a) Principal Executive Officer
/s/ John Y. Keffer
John Y. Keffer
Chairman and President
(b) Principal Financial and Accounting Officer
/s/ Sara M. Morris
Sara M. Morris
Treasurer
(c) A Majority of the Trustees
/s/ John Y. Keffer
John Y. Keffer
Chairman
J. Michael Parish,* Trustee
James C. Cheng,* Trustee
Costas Azariadis,* Trustee
*By: /s/ John Y. Keffer
John Y. Keffer
Attorney in Fact
<PAGE>
SIGNATURES
On behalf of Schroder Capital Funds, being duly authorized, I have duly caused
this amendment to the Registration Statement of Norwest Advantage Funds, soley
with respect to Performa Global Growth Fund, a series of Norwest Advantage
Funds, to be signed in the City of New York, State of New York on the 30th day
of September, 1998.
SCHRODER CAPITAL FUNDS
By: /s/ Catherine A. Mazza
Catherine Mazza
Vice President
This amendment to the Registration Statement of Norwest Advantage Funds, soley
with respect to Performa Global Growth Fund, a series of Norwest Advantage
Funds, has been signed below by the following persons in the capacities
indicated on the 30th day of September, 1998.
Signatures Title
(a) Principal Executive Officer
Mark J. Smith
*By: /s/ Thomas G. Sheehan President and Trustee
Thomas G. Sheehan
Attorney-in-Fact
(b) Principal Financial and
Accounting Officer
/s/ Fergal Cassidy Treasurer
Fergal Cassidy
(c) Majority of the Trustees
Peter E. Guernsey* Trustee
John I. Howell* Trustee
Hermann C. Schwab* Trustee
Clarence F. Michalis* Trustee
Mark J. Smith* Trustee
Hon. David N. Dinkins* Trustee
Peter S. Knight* Trustee
Sharon L. Haugh* Trustee
*By: /s/Thomas G. Sheehan
Thomas G. Sheehan
Attorney-in-Fact
<PAGE>
Index to Exhibits
Exhibit
(5)(a) Form of Investment Advisory Agreement between Registrant and Norwest
Investment Management, Inc.
(5)(b) Form of Investment Subadvisory Agreement between Registrant and
Crestone Capital Management Inc.
(5)(e) Form of Investment Subadvisory Agreement among Registrant, Norwest
Investment Management, Inc. and Galliard Capital Management Inc.
(5)(g) Form of Investment Subadvisory Agreement between Registrant and
Smith Asset Management Group, LP.
(6) Form of Distribution Services Agreement between Registrant and Forum
Financial Services, Inc.
(8)(a) Form of Custodian Agreement between Registrant and Norwest Bank
Minnesota, N.A.
(8)(b) Form of Fund Accounting Agreement between Registrant and Forum
Accounting Services, LLC.
(8)(c) Form of Administration Services Agreement between Registrant and
Norwest Bank Minnesota, N.A.
(8)(d) Form of Administration Agreement between Registrant and Forum
Administrative Services, LLC.
(11) Independent Auditors' Consent
(15)(a) Rule 12b-1 Plan adopted by Registrant.
(15)(b) Rule 12b-1 Plan adopted by Registrant.
Exhibit (5)(a)
NORWEST ADVANTAGE FUNDS
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of the 1st day of June, 1997, as amended July 28,
1998, between Norwest Advantage Funds (the "Trust"), a business trust organized
under the laws of the State of Delaware with its principal place of business at
Two Portland Square, Portland, Maine 04101 and Norwest Investment Management,
Inc. (the "Adviser"), a corporation organized under the laws of the State of
Minnesota with its principal place of business at Sixth Street and Marquette,
Minneapolis, Minnesota 55479.
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended, (the "Act") as an open-end management investment company and
is authorized to issue interests (as defined in the Trust's Trust Instrument),
in separate series;
WHEREAS, the Trust desires that the Adviser perform investment advisory
services for each series of the Trust as listed in Appendix A hereto (each a
"Fund" and collectively the "Funds"), and the Adviser is willing to provide
those services on the terms and conditions set forth in this Agreement;
NOW THEREFORE, the Trust and the Adviser agree as follows:
SECTION 1. THE TRUST; DELIVERY OF DOCUMENTS
The Trust is engaged in the business of investing and reinvesting its
assets in securities of the type and in accordance with the limitations
specified in its Trust Instrument, By-Laws and Registration Statement filed with
the Securities and Exchange Commission (the "Commission") under the Act and the
Securities Act of 1933 (the "Securities Act"), including any representations
made in the prospectus and statement of additional information relating to the
Funds contained therein and as may be supplemented from time to time, all in
such manner and to such extent as may from time to time be authorized by the
Trust's Board of Trustees (the "Board"). The Trust is currently authorized to
issue thirty-nine series of shares, and the Board is authorized to issue any
unissued shares in any number of additional classes or series. The Trust has
delivered copies of the documents listed in this Section 1 and will from time to
time furnish Adviser with any amendments thereof.
SECTION 2. INVESTMENT ADVISER; APPOINTMENT
The Trust hereby employs Adviser, subject to the direction and control
of the Board, to manage the investment and reinvestment of the assets in the
Funds and, without limiting the generality of the foregoing, to provide other
services specified in Section 3 hereof.
SECTION 3. DUTIES OF THE ADVISER
(a) The Adviser shall make decisions with respect to all purchases and
sales of securities and other investment assets in the Funds. Among other
things, the Adviser shall make all decisions with respect to the allocation of
the Funds' investments in various securities or other assets, in investment
styles and, if applicable, in other investment companies or pooled vehicles in
which a Fund may invest. To carry out such decisions, the Adviser is hereby
authorized, as agent and attorney-in-fact for the Trust, for the account of, at
the risk of and in the name of the Trust, to place orders and issue instructions
with respect to those transactions of the Funds. In all purchases, sales and
other transactions in securities for the Funds, the Adviser is authorized to
exercise full discretion and act for the Trust in the same manner and with the
same force and effect as the Trust might or could do with respect to such
purchases, sales or other transactions, as well as with respect to all other
things necessary or incidental to the furtherance or conduct of such purchases,
sales or other transactions.
(b) The Adviser will report to the Board at each meeting thereof all
changes in the Funds since the prior report, and will also keep the Board
informed of important developments affecting the Trust, each Fund and the
Adviser, and on its own initiative, will furnish the Board from time to time
with such information as the Adviser may believe appropriate for this purpose,
whether concerning the individual companies whose securities are included in a
Fund's holdings, the industries in which they engage, or the economic, social or
political conditions prevailing in each country in which a Fund maintains
investments. The Adviser will also furnish the Board with such statistical and
analytical information with respect to securities in the Funds as the Adviser
may believe appropriate or as the Board reasonably may request. In making
purchases and sales of securities for the Funds, the Adviser will bear in mind
the policies set from time to time by the Board as well as the limitations
imposed by the Trust's Trust Instrument, By-Laws and Registration Statement
under the Act and the Securities Act, the limitations in the Act and in the
Internal Revenue Code of 1986, as amended, in respect of regulated investment
companies and the investment objectives, policies and restrictions of each Fund.
(c) The Adviser will from time to time employ or associate with such
persons as the Adviser believes to be particularly fitted to assist in the
execution of the Adviser's duties hereunder, the cost of performance of such
duties to be borne and paid by the Adviser. No obligation may be incurred on the
Trust's behalf in any such respect.
(d) The Adviser shall maintain records relating to portfolio
transactions and the placing and allocation of brokerage orders as are required
to be maintained by the Trust under the Act. The Adviser shall prepare and
maintain, or cause to be prepared and maintained, in such form, for such periods
and in such locations as may be required by applicable law, all documents and
records relating to the services provided by the Adviser pursuant to this
Agreement required to be prepared and maintained by the Trust pursuant to the
rules and regulations of any national, state, or local government entity with
jurisdiction over the Trust, including the Commission and the Internal Revenue
Service. The books and records pertaining to the Trust which are in possession
of the Adviser shall be the property of the Trust. The Trust, or the Trust's
authorized representatives, shall have access to such books and records at all
times during the Adviser's normal business hours. Upon the reasonable request of
the Trust, copies of any such books and records shall be provided promptly by
the Adviser to the Trust or the Trust's authorized representatives.
(e) With respect to a Fund, the Adviser shall have no duties or
obligations pursuant to this Agreement, including any obligation to reimburse
Fund expenses pursuant to Section 4 hereof, during any period during which the
Fund invests all (or substantially all) of its investment assets in a
registered, open-end management investment company, or separate series thereof,
in accordance with Section 12(d)(1)(E) under the Act.
SECTION 4. EXPENSES
(a) The Adviser shall be responsible for that portion of the net
expenses of the Fund (except interest, taxes, brokerage, fees and other expenses
paid by the fund in accordance with an effective plan pursuant to Rule 12b-1
under the Act and organization expenses, all to the extent such exceptions are
permitted by applicable state law and regulation) incurred by the Fund during
the Fund's fiscal year or portion thereof that this Agreement is in effect
which, as to the Funds, in any such year exceeds the limits applicable to the
Fund under the laws or regulations of any state in which shares of the Fund are
qualified for sale (reduced pro rata for any portion of less than a year) and
which is not assumed by Forum Financial Services, Inc., the Trust's manager and
distributor, or any other person.
(b) The Trust hereby confirms that, subject to the foregoing, the Trust
shall be responsible and shall assume the obligation for payment of all the
Trust's other expenses, including: interest charges, taxes, brokerage fees and
commissions; certain insurance premiums; fees, interest charges and expenses of
the Trust's custodian, transfer agent and dividend disbursing agent;
telecommunications expenses; auditing, legal and compliance expenses; costs of
the Trust's formation and maintaining its existence; 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; 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 in the Trust; costs of reproduction,
stationery and supplies; compensation of the Trust's trustees, officers,
employees and other personnel performing services for the Trust who are not the
Adviser's employees or employees of Forum Financial Services, Inc. or affiliated
persons of either; costs of corporate meetings; registration fees and related
expenses for registration with the Commission and the securities regulatory
authorities of other countries in which the Trust's shares are sold; state
securities law registration fees and related expenses; fees and out-of-pocket
expenses payable to Forum Financial Services, Inc. under any distribution,
management or similar agreement; 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.
SECTION 5. STANDARD OF CARE
The Trust shall expect of the Adviser, and the Adviser will give the
Trust the benefit of, the Adviser's best judgment and efforts in rendering its
services to the Trust, and as an inducement to the Adviser's undertaking these
services the Adviser shall not be liable hereunder for any mistake of judgment
or in any event whatsoever, except for lack of good faith, provided that nothing
herein shall be deemed to protect, or purport to protect, the Adviser against
any liability to the Trust or to the Trust's security holders to which the
Adviser would otherwise be subject by reason of willful misfeasance, bad faith
or gross negligence in the performance of the Adviser's duties hereunder, or by
reason of the Adviser's reckless disregard of its obligations and duties
hereunder.
SECTION 6. COMPENSATION
(a) In consideration of the foregoing, the Trust shall pay the Adviser, with
respect to each of the Funds, a fee at an annual rate as listed in Appendix A
hereto. Such fees shall be accrued by the Trust daily and shall be payable
monthly in arrears on the first day of each calendar month for services
performed hereunder during the prior calendar month. The Adviser's
reimbursement, if any, of a Fund's expenses as provided in Section 4 hereof,
shall be estimated and paid to the Trust monthly in arrears, at the same time as
the Trust's payment to the Adviser for such month. Payment of the advisory fee
will be reduced or postponed, if necessary, with any adjustments made after the
end of the year.
(b) No fee shall be payable hereunder with respect to a Fund during any period
in which the Fund invests all (or substantially all) of its investment assets in
a single registered, open-end management investment company, or separate series
thereof, in accordance with Section 12(d)(1)(E) under the 1940 Act;
(c) The adviser shall receive a fee of 0.25% (0.35% in the case of the
WealthBuilder Portfolios and 0.00% for Cash Investment Fund) for asset
allocation services if a Fund invests some or all (or substantially all) of its
investment assets in two or more registered, open-end management investment
companies, or separate series thereof, in each case, in accordance with Section
12(d)(1)(h) under the Act, the rules thereunder or an exemptive order issued by
the Commission exempting the Fund from the provisions of Section 12(d)(1)(A)
under the Act (a "Fund of Funds structure")
(d) To the extent the Board determines that a Fund should invest a portion of
its assets directly in portfolio securities, rather than in a portfolio of Core
Trust (Delaware) or other portfolio, with respect to those assets the Fund will
pay the Adviser the same fee that the portfolio was paying its adviser (the fees
of each portfolio will be disclosed in the proxy statement and prospectus).
SECTION 7. EFFECTIVENESS, DURATION AND TERMINATION
(a) This Agreement shall become effective with respect to a Fund
immediately upon approval by a majority of the outstanding voting securities of
that Fund.
(b) This Agreement shall remain in effect with respect to a Fund for a
period of one year from the date of its effectiveness and shall continue in
effect for successive twelve-month periods (computed from each anniversary date
of the approval) with respect to the Fund; provided that such continuance is
specifically approved at least annually (i) by the Board or by the vote of a
majority of the outstanding voting securities of the Fund, and, in either case,
(ii) by a majority of the Trust's trustees who are not parties to this Agreement
or interested persons of any such party (other than as trustees of the Trust);
provided further, however, that if this Agreement or the continuation of this
Agreement is not approved as to a Fund, the Adviser may continue to render to
that Fund the services described herein in the manner and to the extent
permitted by the Act and the rules and regulations thereunder.
(c) This Agreement may be terminated with respect to a Fund at any
time, without the payment of any penalty, (i) by the Board or by a vote of a
majority of the outstanding voting securities of the Fund on 60 days' written
notice to the Adviser or (ii) by the Adviser on 60 days' written notice to the
Trust. This Agreement shall terminate upon assignment.
SECTION 8. ACTIVITIES OF THE ADVISER
Except to the extent necessary to perform its obligations hereunder,
nothing herein shall be deemed to limit or restrict the Adviser's right, or the
right of any of the Adviser's officers, directors or employees who may also be a
trustee, officer or employee of the Trust, or persons otherwise affiliated
persons of the Trust to engage in any other business or to devote time and
attention to the management or other aspects of any other business, whether of a
similar or dissimilar nature, or to render services of any kind to any other
corporation, trust, firm, individual or association.
SECTION 9. SUBADVISERS
At its own expense, the Adviser may carry out any of its obligations
under this Agreement by employing, subject to your supervision, one or more
persons who are registered as investment advisers pursuant to the Investment
Advisers Act of 1940, as amended, or who are exempt from registration thereunder
("Subadvisers"). Each Subadviser's employment will be evidenced by a separate
written agreement approved by the Board and, if required, by the shareholders of
the Fund. The Adviser shall not be liable hereunder for any act or omission of
any Subadviser, except to exercise good faith in the employment of the
Subadviser and except with respect to matters as to which the Adviser assumes
responsibility in writing.
SECTION 10. LIMITATION OF SHAREHOLDER AND TRUSTEE LIABILITY
The Trustees of the Trust and the interest holders of the Fund shall
not be liable for any obligations of the Trust or of the Fund under this
Agreement, and the Adviser agrees that, in asserting any rights or claims under
this Agreement, it shall look only to the assets and property of the Trust or
the Fund to which the Adviser's rights or claims relate in settlement of such
rights or claims, and not to the Trustees of the Trust or the interest holders
of the Fund.
SECTION 11. "NORWEST" NAME
If the Adviser ceases to act as investment adviser to the Trust or any
Fund whose name includes the word "Norwest," or if the Adviser requests in
writing, the Trust shall take prompt action to change the name of the Trust any
such Fund to a name that does not include the word "Norwest." The Adviser may
from time to time make available without charge to the Trust for the Trust's use
any marks or symbols owned by the adviser, including marks or symbols containing
the word "Norwest" or any variation thereof, as the Adviser deems appropriate.
Upon the Adviser's request in writing, the Trust shall cease to use any such
mark or symbol at any time. The Trust acknowledges that any rights in or to the
word "Norwest" and any such marks or symbols which may exist on the date of this
Agreement or arise hereafter are, and under any and all circumstances shall
continue to be, the sole property of the Adviser. The Adviser 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 the Adviser.
SECTION 12. MISCELLANEOUS
(a) No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties hereto and, if required by the Act, by a vote of a majority of the
outstanding voting securities of any Fund thereby affected. No amendment to this
Agreement or the termination of this Agreement with respect to a Fund shall
effect this Agreement as it pertains to any other Fund, nor shall any such
amendment require the vote of any of the Fund's shareholders.
(b) Section headings in this Agreement are included for convenience
only and are not to be used to construe or interpret this Agreement.
(c) This Agreement shall be governed by and shall be construed in
accordance with the laws of the State of Delaware.
(d) The terms "vote of a majority of the outstanding voting
securities," "interested person," "affiliated person" and "assignment" shall
have the meanings ascribed thereto in the Act.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed effective as of the day and year first above written.
NORWEST ADVANTAGE FUNDS
By: John Y. Keffer
President
NORWEST INVESTMENT MANAGEMENT, INC.
By: P. Jay Kiedrowski
President
NORWEST ADVANTAGE FUNDS
INVESTMENT ADVISORY AGREEMENT
Appendix A
<TABLE>
<S> <C>
(a) Investment Advisory Fees
Fee as a % of the Annual
Funds of the Trust Average Daily Net Assets of the Fund
Cash Investment Fund,
Treasury Plus Fund,
Treasury Fund and
U.S. Government Fund 0.20% of the first $300 million of assets
0.16% for next $400 million of assets
0.12% of the remaining net assets
Ready Cash Investment Fund 0.40% of the first $300 million of assets
0.36% for next $400 million of assets
0.32% of the remaining net assets
Municipal Money Market Fund
0.35% of the first
$500 million of assets
0.325% for next $500
million of assets
0.30% of the remaining
net assets
Stable Income Fund 0.30%
Limited Term Government Income Fund 0.33%
Intermediate Government Income Fund 0.33%
Diversified Bond Fund 0.35%
Income Fund 0.50%
Total Return Bond Fund 0.50%
Limited Term Tax-Free Fund 0.50%
Minnesota Intermediate Tax-Free Fund 0.25%
Minnesota Tax-Free Fund and
Colorado Tax-Free Fund 0.50% of the first $300 million of assets
0.46% of next $400 million of assets
0.42% of the remaining net assets
Tax-Free Income 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%
<PAGE>
Fee as a % of the Annual
Funds of the Trust Average Daily Net Assets of the Fund
ValuGrowth Stock Fund 0.80% of the first $300 million of assets
0.76% of the next $400 million of assets
0.72% of the remaining net assets
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 Company Growth Fund 0.90%
Small Cap Opportunities Fund 0.60%
International Fund 0.85%
Performa Strategic Value Bond Fund 0.50%
Performa Disciplined Growth Fund 0.90%
Performa Small Cap Value Fund 0.95%
Performa Global Growth Fund 0.65%
</TABLE>
Exhibit (5)(b)
NORWEST ADVANTAGE FUNDS INVESTMENT SUBADVISORY AGREEMENT
AGREEMENT made as of the 1st day of June, 1997, as amended July 28,
1998, among Norwest Advantage Funds (the "Trust"), a business trust organized
under the laws of the State of Delaware with its principal place of business at
Two Portland Square, Portland, Maine 04101, Norwest Investment Management, Inc.
(the "Adviser"), a corporation organized under the laws of the State of
Minnesota with its principal place of business at Sixth Street and Marquette,
Minneapolis, Minnesota 55479, and Crestone Capital Management, Inc. (the
"Subadviser"), a corporation organized under the laws of the State of Colorado
with its principal place of business at 7720 East Belleview Avenue, Englewood,
Colorado 80111.
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended (the "Act") as an open-end management investment company and is
authorized to issue its shares of beneficial interest, no par value, in separate
series and classes; and
WHEREAS, the Trust and the Adviser desire that the Subadviser perform
investment advisory services for each series of the Trust as listed in Appendix
A hereto (each a "Fund" and collectively the "Funds"), and the Subadviser is
willing to provide those services on the terms and conditions set forth in this
Agreement;
NOW THEREFORE, the Trust, the Adviser and the Subadviser agree as
follows:
SECTION 1. THE TRUST; DELIVERY OF DOCUMENTS
The Trust is engaged in the business of investing and reinvesting its
assets in securities of the type and in accordance with the limitations
specified in its Trust Instrument, By-Laws and Registration Statement filed with
the Securities and Exchange Commission (the "Commission") under the Act and the
Securities Act of 1933 (the "Securities Act"), including any representations
made in the prospectus and statement of additional information relating to the
Fund contained therein and as may be supplemented from time to time, all in such
manner and to such extent as may from time to time be authorized by the Trust's
Board of Trustees (the "Board"). The Trust is currently authorized to issue
thirty-nine series of shares, and the Board is authorized to issue any unissued
shares in any number of additional classes or series. The Trust has delivered
copies of the documents listed in this Section 1 and will from time to time
furnish Subadviser with any amendments thereof.
SECTION 2. INVESTMENT ADVISER; APPOINTMENT
Subject to the direction and control of the Board, the Adviser manages
the investment and reinvestment of the assets of the Fund and provides for
certain management and services as specified in the Investment Advisory
Agreement between the Trust and the Adviser with respect to the Fund.
Subject to the direction and control of the Board, the Subadviser shall
manage the investment and reinvestment of the assets of the Fund and, without
limiting the generality of the foregoing, shall provide the management and other
services specified below, all in such manner and to such extent as may be
directed from time to time by the Adviser.
SECTION 3. DUTIES OF THE SUBADVISER
(a) The Subadviser shall make decisions with respect to all purchases
and sales of securities and other investment assets in the Fund. To carry out
such decisions, the Subadviser is hereby authorized, as agent and
attorney-in-fact for the Trust, for the account of, at the risk of and in the
name of the Trust, to place orders and issue instructions with respect to those
transactions of the Fund. In all purchases, sales and other transactions in
securities for the Fund, the Subadviser is authorized to exercise full
discretion and act for the Trust in the same manner and with the same force and
effect as the Trust might or could do with respect to such purchases, sales or
other transactions, as well as with respect to all other things necessary or
incidental to the furtherance or conduct of such purchases, sales or other
transactions.
(b) The Subadviser will report to the Board at each meeting thereof all
changes in the Fund since the prior report, and will also keep the Board
informed of important developments affecting the Trust, the Fund and the
Subadviser, and on its own initiative, will furnish the Board from time to time
with such information as the Subadviser may believe appropriate for this
purpose, whether concerning the individual companies whose securities are
included in the Fund's holdings, the industries in which they engage, or the
economic, social or political conditions prevailing in each country in which the
Fund maintains investments. The Subadviser will also furnish the Board with such
statistical and analytical information with respect to securities in the Fund as
the Subadviser may believe appropriate or as the Board reasonably may request.
In making purchases and sales of securities for the Fund, the Subadviser will
bear in mind the policies set from time to time by the Board as well as the
limitations imposed by the Trust's Trust Instrument, By-Laws, Registration
Statement under the Act and the Securities Act, the limitations in the Act and
in the Internal Revenue Code of 1986, as amended in respect of regulated
investment companies and the investment objective, policies and restrictions of
the Fund.
(c) The Subadviser may from time to time employ or associate with such
persons as the Subadviser believes to be particularly fitted to assist in the
execution of the Subadviser's duties hereunder, the cost of performance of such
duties to be borne and paid by the Subadviser. No obligation may be incurred on
the Trust's behalf in any such respect.
(d) The Subadviser shall maintain records relating to portfolio
transactions and the placing and allocation of brokerage orders as are required
to be maintained by the Trust under the Act. The Subadviser shall prepare and
maintain, or cause to be prepared and maintained, in such form, for such periods
and in such locations as may be required by applicable law, all documents and
records relating to the services provided by the Subadviser pursuant to this
Agreement required to be prepared and maintained by the Trust pursuant to the
rules and regulations of any national, state, or local government entity with
jurisdiction over the Trust, including the Securities and Exchange Commission
and the Internal Revenue Service. The books and records pertaining to the Trust
which are in possession of the Subadviser shall be the property of the Trust.
The Trust, or the Trust's authorized representatives, shall have access to such
books and records at all times during the Subadviser's normal business hours.
Upon the reasonable request of the Trust, copies of any such books and records
shall be provided promptly by the Subadviser to the Trust or the Trust's
authorized representatives.
SECTION 4. EXPENSES
Subject to any expenses reimbursement arrangements between the Adviser
or others and the Trust, the Trust shall be responsible and shall assume the
obligation for payment of all of the Trust's expenses.
SECTION 5. STANDARD OF CARE
The Trust shall expect of the Subadviser, and the Subadviser will give
the Trust the benefit of, the Subadviser's best judgment and efforts in
rendering its services to the Trust, and as an inducement to the Subadviser's
undertaking these services the Subadviser shall not be liable hereunder for any
mistake of judgment or in any event whatsoever, except for lack of good faith,
provided that nothing herein shall be deemed to protect, or purport to protect,
the Subadviser against any liability to the Trust or to the Trust's security
holders to which the Subadviser would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of the
Subadviser's duties hereunder, or by reason of the Subadviser's reckless
disregard of its obligations and duties hereunder.
SECTION 6. COMPENSATION
In consideration of the foregoing, the Adviser and not the Trust shall
pay the Subadviser a fee as shall be determined from time to time in writing
between the Adviser and the Subadviser.
SECTION 7. EFFECTIVENESS, DURATION AND TERMINATION
(a) This Agreement shall become effective on the date first above
written.
(b) This Agreement shall remain in effect for a period of one year from
the date of its effectiveness and shall continue in effect for successive
one-year periods; provided that such continuance is specifically approved at
least annually (i) by the Board or by the vote of a majority of the outstanding
voting securities of the Fund, and, in either case, (ii) by a majority of the
Trust's trustees who are not parties to this Agreement or interested persons of
any such party (other than as trustees of the Trust); provided further, however,
that if this Agreement or the continuation of this Agreement is not approved,
the Subadviser may continue to render the services described herein in the
manner and to the extent permitted by the Act and the rules and regulations
thereunder.
(c) This Agreement may be terminated at any time, without the payment
of any penalty, (i) by the Board or by a vote of a majority of the outstanding
voting securities of the Fund on 60 days' written notice to the Subadviser or
(ii) by the Subadviser on 60 days' written notice to the Trust. This Agreement
shall terminate upon assignment unless prior approval of the Board is obtained.
SECTION 8. ACTIVITIES OF THE SUBADVISER
Except to the extent necessary to perform its obligations hereunder,
nothing herein shall be deemed to limit or restrict the Subadviser's right, or
the right of any of the Subadviser's officers, directors or employees who may
also be a trustee, officer or employee of the Trust, or persons otherwise
affiliated persons of the Trust to engage in any other business or to devote
time and attention to the management or other aspects of any other business,
whether of a similar or dissimilar nature, or to render services of any kind to
any other corporation, trust, firm, individual or association.
SECTION 9. LIMITATION OF SHAREHOLDER AND TRUSTEE LIABILITY
The Trustees of the Trust and the shareholders of the Fund shall not be
liable for any obligations of the Trust or of the Fund under this Agreement, and
the Subadviser agrees that, in asserting any rights or claims under this
Agreement, it shall look only to the assets and property of the Trust or the
Fund to which the Subadviser's rights or claims relate in settlement of such
rights or claims, and not to the Trustees of the Trust or the shareholders of
the Fund.
SECTION 10. MISCELLANEOUS
(a) No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties hereto and, if required by the Act, by a vote of a majority of the
outstanding voting securities of the Fund thereby affected.
(b) Section headings in this Agreement are included for convenience
only and are not to be used to construe or interpret this Agreement.
(c) This Agreement shall be governed by and shall be construed in
accordance with the laws of the State of Delaware.
(d) The terms "vote of a majority of the outstanding voting
securities", "interested person", "affiliated person" and "assignment" shall
have the meanings ascribed thereto in the Act.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed effective as of the day and year first above written.
NORWEST ADVANTAGE FUNDS
------------------
By: John Y. Keffer
President
NORWEST INVESTMENT MANAGEMENT, INC.
------------------
By: P. Jay Kiedrowski
President
CRESTONE CAPITAL MANAGEMENT, INC.
By: Kirk McCown
President
NORWEST ADVANTAGE FUNDS
INVESTMENT SUBADVISORY AGREEMENT
Appendix A
July 28, 1998
Small Company Stock Fund
Strategic Income Fund
Moderate Balanced Fund
Growth Balanced Fund
Aggressive Balanced-Equity Fund
Diversified Equity Fund
Growth Equity Fund
Diversified Small Cap Fund
NORWEST ADVANTAGE FUNDS
INVESTMENT SUBADVISORY AGREEMENT
FEE AGREEMENT
July 28, 1998
This fee agreement is made as of July 28, 1998, by and between Norwest
Investment Management, Inc. (the "Adviser") and Crestone Capital Management,
Inc. (the "Subadviser") and
WHEREAS, the parties and Norwest Advantage Funds (the "Trust") have
entered into an Investment Subadvisory Agreement ("Subadvisory Agreement")
whereby the Subadviser provides investment management advice to the series of
the Trust as listed in Appendix A to the Subadvisory Agreement (the "Fund")
WHEREAS, the Subadvisory Agreement provides that the fees to be paid to
the Subadviser are to be as agreed upon in writing by the parties.
NOW THEREFORE, the parties agree that the fees to be paid to the
Subadviser under the Subadvisory Agreement shall be calculated as follows on a
monthly basis by applying the following annual rates per Fund:
a. 0.40% on the first $30,000,000.00;
b. 0.30% on the next $30,000,000.00;
c. 0.20% on the next $40,000,000.00; and
d. 0.15% on all sums in excess of $100,000,000.00;
provided, that no fee shall be payable hereunder with respect to the Fund during
any period in which the Fund invests all (or substantially all) of its
investment assets in a registered, open-end, management investment company, or
separate series thereof, in accordance with and reliance upon Section
12(d)(1)(E) under the Act.
The net assets under management against which the foregoing fees are to
be applied are the month-end net assets. If this fee agreement becomes effective
subsequent to the first day of a month or shall terminate before the last day of
a month, compensation for that part of the month this agreement is in effect
shall be subject to a pro rata adjustment based on the number of days elapsed in
the current month as a percentage of the total number of days in such month. At
any month-end period when the determination of net asset value is suspended, the
net asset value for the last day prior to such suspension shall for this purpose
be deemed to be the net asset value at month-end.
The foregoing fee schedule shall remain in effect until changed in
writing by the parties.
NORWEST INVESTMENT MANAGEMENT, INC.
--------------------------
By: P. Jay Kiedrowski
President
CRESTONE CAPITAL MANAGEMENT, INC.
--------------------------
By: Kirk McCown
President
Exhibit (5)(e)
NORWEST ADVANTAGE FUNDS(R) INVESTMENT SUBADVISORY AGREEMENT
October 1, 1997
AGREEMENT made as of this 1st day of October, 1997, among Norwest
Advantage Funds (the "Trust"), a business trust organized under the laws of the
State of Delaware with its principal place of business at Two Portland Square,
Portland, Maine 04101, Norwest Investment Management, Inc. (the "Adviser"), a
corporation organized under the laws of the State of Minnesota with its
principal place of business at Sixth Street and Marquette, Minneapolis,
Minnesota 55479, and Galliard Capital Management, Inc. (the "Subadviser"), a
corporation organized under the laws of the State of Minnesota, with its
principal place of business at 800 LaSalle Avenue, Suite 2060, Minneapolis,
Minnesota 55479.
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended (the "Act") as an open-end management investment company and is
authorized to issue its shares of beneficial interest, no par value, in separate
series and classes; and
WHEREAS, the Trust and the Adviser desire that the Subadviser perform
investment advisory services for each series of the Trust as listed in Appendix
A hereto (each a "Fund" and collectively the "Funds"), and the Subadviser is
willing to provide those services on the terms and conditions set forth in this
Agreement;
NOW THEREFORE, the Trust, the Adviser and the Subadviser agree as
follows:
SECTION 1. THE TRUST; DELIVERY OF DOCUMENTS
The Trust is engaged in the business of investing and reinvesting its
assets in securities of the type and in accordance with the limitations
specified in its Trust Instrument, By-Laws and Registration Statement filed with
the Securities and Exchange Commission (the "Commission") under the Act and the
Securities Act of 1933 (the "Securities Act"), including any representations
made in the prospectus and statement of additional information relating to the
Fund contained therein and as may be supplemented from time to time, all in such
manner and to such extent as may from time to time be authorized by the Trust's
Board of Trustees (the "Board"). The Trust is currently authorized to issue
twenty-eight series of shares, and the Board is authorized to issue any unissued
shares in any number of additional classes or series. The Trust has delivered
copies of the documents listed in this Section 1 and will from time to time
furnish Subadviser with any amendments thereof.
SECTION 2. INVESTMENT ADVISER; APPOINTMENT
Subject to the direction and control of the Board, the Adviser manages
the investment and reinvestment of the assets of the Fund and provides for
certain management and services as specified in the Investment Advisory
Agreement between the Trust and the Adviser with respect to the Fund.
Subject to the direction and control of the Board, the Subadviser shall
manage the investment and reinvestment of the assets of the Fund and, without
limiting the generality of the foregoing, shall provide the management and other
services specified below, all in such manner and to such extent as may be
directed from time to time by the Adviser.
SECTION 3. DUTIES OF THE SUBADVISER
(a) The Subadviser shall make decisions with respect to all purchases
and sales of securities and other investment assets in the Fund. To carry out
such decisions, the Subadviser is hereby authorized, as agent and
attorney-in-fact for the Trust, for the account of, at the risk of and in the
name of the Trust, to place orders and issue instructions with respect to those
transactions of the Fund. In all purchases, sales and other transactions in
securities for the Fund, the Subadviser is authorized to exercise full
discretion and act for the Trust in the same manner and with the same force and
effect as the Trust might or could do with respect to such purchases, sales or
other transactions, as well as with respect to all other things necessary or
incidental to the furtherance or conduct of such purchases, sales or other
transactions.
(b) The Subadviser will report to the Board at each meeting thereof all
changes in the Fund since the prior report, and will also keep the Board
informed of important developments affecting the Trust, the Fund and the
Subadviser, and on its own initiative, will furnish the Board from time to time
with such information as the Subadviser may believe appropriate for this
purpose, whether concerning the individual companies whose securities are
included in the Fund's holdings, the industries in which they engage, or the
economic, social or political conditions prevailing in each country in which the
Fund maintains investments. The Subadviser will also furnish the Board with such
statistical and analytical information with respect to securities in the Fund as
the Subadviser may believe appropriate or as the Board reasonably may request.
In making purchases and sales of securities for the Fund, the Subadviser will
bear in mind the policies set from time to time by the Board as well as the
limitations imposed by the Trust's Trust Instrument, By-Laws, Registration
Statement under the Act and the Securities Act, the limitations in the Act and
in the Internal Revenue Code of 1986, as amended in respect of regulated
investment companies and the investment objectives, policies and restrictions of
the Fund.
(c) The Subadviser may from time to time employ or associate with such
persons as the Subadviser believes to be particularly fitted to assist in the
execution of the Subadviser's duties hereunder, the cost of performance of such
duties to be borne and paid by the Subadviser. No obligation may be incurred on
the Trust's behalf in any such respect.
(d) The Subadviser shall maintain records relating to portfolio
transactions and the placing and allocation of brokerage orders as are required
to be maintained by the Trust under the Act. The Subadviser shall prepare and
maintain, or cause to be prepared and maintained, in such form, for such periods
and in such locations as may be required by applicable law, all documents and
records relating to the services provided by the Subadviser pursuant to this
Agreement required to be prepared and maintained by the Trust pursuant to the
rules and regulations of any national, state, or local government entity with
jurisdiction over the Trust, including the Securities and Exchange Commission
and the Internal Revenue Service. The books and records pertaining to the Trust
which are in possession of the Subadviser shall be the property of the Trust.
The Trust, or the Trust's authorized representatives, shall have access to such
books and records at all times during the Subadviser's normal business hours.
Upon the reasonable request of the Trust, copies of any such books and records
shall be provided promptly by the Subadviser to the Trust or the Trust's
authorized representatives.
SECTION 4. EXPENSES
Subject to any expenses reimbursement arrangements between the Adviser
or others and the Trust, the Trust shall be responsible and shall assume the
obligation for payment of all of the Trust's expenses.
SECTION 5. STANDARD OF CARE
The Trust shall expect of the Subadviser, and the Subadviser will give
the Trust the benefit of, the Subadviser's best judgment and efforts in
rendering its services to the Trust, and as an inducement to the Subadviser's
undertaking these services the Subadviser shall not be liable hereunder for any
mistake of judgment or in any event whatsoever, except for lack of good faith,
provided that nothing herein shall be deemed to protect, or purport to protect,
the Subadviser against any liability to the Trust or to the Trust's security
holders to which the Subadviser would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of the
Subadviser's duties hereunder, or by reason of the Subadviser's reckless
disregard of its obligations and duties hereunder.
SECTION 6. COMPENSATION
In consideration of the foregoing, the Adviser and not the Trust shall
pay the Subadviser a fee as shall be determined from time to time in writing
between the Adviser and the Subadviser.
SECTION 7. EFFECTIVENESS, DURATION AND TERMINATION
(a) This Agreement shall become effective on the date first above
written.
(b) This Agreement shall remain in effect for a period of one year from
the date of its effectiveness and shall continue in effect for successive
one-year; provided that such continuance is specifically approved at least
annually (i) by the Board or by the vote of a majority of the outstanding voting
securities of the Fund, and, in either case, (ii) by a majority of the Trust's
trustees who are not parties to this Agreement or interested persons of any such
party (other than as trustees of the Trust); provided further, however, that if
this Agreement or the continuation of this Agreement is not approved, the
Subadviser may continue to render the services described herein in the manner
and to the extent permitted by the Act and the rules and regulations thereunder.
(c) This Agreement may be terminated at any time, without the payment
of any penalty, (i) by the Board or by a vote of a majority of the outstanding
voting securities of the Fund on 60 days' written notice to the Subadviser or
(ii) by the Subadviser on 60 days' written notice to the Trust. This agreement
shall terminate upon assignment unless prior approval of the Board is obtained.
SECTION 8. ACTIVITIES OF THE SUBADVISER
Except to the extent necessary to perform its obligations hereunder,
nothing herein shall be deemed to limit or restrict the Subadviser's right, or
the right of any of the Subadviser's officers, directors or employees who may
also be a trustee, officer or employee of the Trust, or persons otherwise
affiliated persons of the Trust to engage in any other business or to devote
time and attention to the management or other aspects of any other business,
whether of a similar or dissimilar nature, or to render services of any kind to
any other corporation, trust, firm, individual or association.
SECTION 9. LIMITATION OF SHAREHOLDER AND TRUSTEE LIABILITY
The Trustees of the Trust and the shareholders of the Fund shall not be
liable for any obligations of the Trust or of the Fund under this Agreement, and
the Subadviser agrees that, in asserting any rights or claims under this
Agreement, it shall look only to the assets and property of the Trust or the
Fund to which the Subadviser's rights or claims relate in settlement of such
rights or claims, and not to the Trustees of the Trust or the shareholders of
the Fund.
SECTION 10. MISCELLANEOUS
(a) No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties hereto and, if required by the Act, by a vote of a majority of the
outstanding voting securities of the Fund thereby affected.
(b) Section headings in this Agreement are included for convenience
only and are not to be used to construe or interpret this Agreement.
(c) This Agreement shall be governed by and shall be construed in
accordance with the laws of the State of Delaware.
(d) The terms "vote of a majority of the outstanding voting
securities", "interested person", "affiliated person" and "assignment" shall
have the meanings ascribed thereto in the Act.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
NORWEST ADVANTAGE FUNDS
------------------
John Y. Keffer, President
NORWEST INVESTMENT MANAGEMENT, INC.
------------------
By: P. Jay Kiedrowski
President
GALLIARD CAPITAL MANAGEMENT, INC.
------------------
[Name]
[Title]
NORWEST ADVANTAGE FUNDS
INVESTMENT SUBADVISORY AGREEMENT
Appendix A
Performa Strategic Value Bond Fund
Diversified Bond Fund
Strategic Income Fund
Moderate Balanced Fund
Growth Balanced Fund
Aggressive Balanced-Equity FundStable Income Fund
Moderate Balanced Fund
Conservative Balanced Fund
Growth Balanced Fund
Diversified Bond Fund
NORWEST ADVANTAGE FUNDS(R)
INVESTMENT SUBADVISORY AGREEMENT
FEE AGREEMENT
OctoberJune 1, 1997
This fee agreement is made as of the 1st day of October June, 1997 by
and between Norwest Investment Management, Inc. (the
"Adviser") and Galliard Capital Management, Inc. (the "Subadviser") and
WHEREAS, the parties and Norwest Advantage Funds (the "Trust") have
entered into an Investment Subadvisory Agreement ("Subadvisory Agreement")
whereby the Subadviser provides investment management advice to each series of
the Trust as listed in Appendix A to the Subadvisory Agreement (each a "Fund"
and collectively the "Funds")
WHEREAS, the Subadvisory Agreement provides that the fees to be paid to
the Subadviser are to be as agreed upon in writing by the parties.
NOW THEREFORE, the parties agree that the fees to be paid to the
Subadviser under the Subadvisory Agreement shall be calculated as follows on a
monthly basis by applying the following annual percentage rates per Fund:
Performa Strategic Value BondStable Income Fund
a. 0.04 on the first $1,500,000,000;
b. 0.05 on the next $500,000,000;
c. 0.045 on the next $500,000,000;
d. 0.04 on the next $500,000,000; and
d. 0.03 on all sums in excess of $3,000,000,000;
Managed Fixed Income Fund
a. 0.130 on the first $100,000,000;
b. 0.0810 on the next $100,000,000;
c. 0.086 on all sums in excess of $200,000,000;
provided, that no fee shall be payable hereunder with respect to a Fund during
any period in which the Fund invests all (or substantially all) of its
investment assets in a registered, open-end, management investment company, or
separate series thereof, in accordance with and reliance upon Section
12(d)(1)(E) under the Act.
The net assets under management against which the foregoing fees are to
be applied is the month-end average of net assets, determined at the end of each
month by dividing the sum of the average net assets managed by the Subadviser at
the end of each week during the month by the number of weeks ended during the
calendar month. The assets for each weekly period are determined by averaging
the net assets under management at the close of each business day for each
business day in the week that this agreement is in effect. If this agreement
becomes effective subsequent to the first day of a month or shall terminate
before the last day of a month, compensation for that part of the month this
Agreement is in effect shall be subject to a pro rata adjustment based on the
number of days elapsed in the current month as a percentage of the total number
of days in such month. During any period when the determination of net asset
value is suspended, the average net asset value for the last day prior to such
suspension shall for this purpose be deemed to be the average net asset value at
the close of each succeeding week until it is again determined.
The foregoing fee schedule shall remain in effect until changed in
writing by the parties.
NORWEST INVESTMENT MANAGEMENT, INC.
--------------------------
By: Jay Kiedrowski
President
GALLIARD CAPITAL MANAGEMENT, INC.
--------------------------
By: [Name]
[Title]
Exhibit (5)(g)
NORWEST ADVANTAGE FUNDS INVESTMENT SUBADVISORY AGREEMENT
AGREEMENT made as of the 1st day of October, 1997, as amended July 28,
1998 among Norwest Advantage Funds (the "Trust"), a business trust organized
under the laws of the State of Delaware with its principal place of business at
Two Portland Square, Portland, Maine 04101, Norwest Investment Management, Inc.
(the "Adviser"), a corporation organized under the laws of the State of
Minnesota with its principal place of business at Sixth Street and Marquette,
Minneapolis, Minnesota 55479, and Smith Asset Management, LP (the "Subadviser"),
a limited partnership with its principal place of business at 500 Crescent
Court, Suite 250, Dallas, Texas 75201.
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended (the "Act") as an open-end management investment company and is
authorized to issue its shares of beneficial interest, no par value, in separate
series and classes; and
WHEREAS, the Trust and the Adviser desire that the Subadviser perform
investment advisory services for each series of the Trust as listed in Appendix
A hereto (each a "Fund" and collectively the "Funds"), and the Subadviser is
willing to provide those services on the terms and conditions set forth in this
Agreement;
NOW THEREFORE, the Trust, the Adviser and the Subadviser agree as
follows:
SECTION 1. THE TRUST; DELIVERY OF DOCUMENTS
The Trust is engaged in the business of investing and reinvesting its
assets in securities of the type and in accordance with the limitations
specified in its Trust Instrument, By-Laws and Registration Statement filed with
the Securities and Exchange Commission (the "Commission") under the Act and the
Securities Act of 1933 (the "Securities Act"), including any representations
made in the prospectus and statement of additional information relating to the
Funds contained therein and as may be supplemented from time to time, all in
such manner and to such extent as may from time to time be authorized by the
Trust's Board of Trustees (the "Board"). The Trust is currently authorized to
issue thirty-nine series of shares, and the Board is authorized to issue any
unissued shares in any number of additional classes or series. The Trust has
delivered copies of the documents listed in this Section 1 and will from time to
time furnish Subadviser with any amendments thereof.
SECTION 2. INVESTMENT ADVISER; APPOINTMENT
Subject to the direction and control of the Board, the Adviser manages
the investment and reinvestment of the assets of each Fund and provides for
certain management and services as specified in the Investment Advisory
Agreement between the Trust and the Adviser with respect to the Funds.
Subject to the direction and control of the Board, the Subadviser shall
manage the investment and reinvestment of the assets of each Fund and, without
limiting the generality of the foregoing, shall provide the management and other
services specified below, all in such manner and to such extent as may be
directed from time to time by the Adviser.
SECTION 3. DUTIES OF THE SUBADVISER
(a) The Subadviser shall make decisions with respect to all purchases
and sales of securities and other investment assets in each Fund. To carry out
such decisions, the Subadviser is hereby authorized, as agent and
attorney-in-fact for the Trust, for the account of, at the risk of and in the
name of the Trust, to place orders and issue instructions with respect to those
transactions of the Funds. In all purchases, sales and other transactions in
securities for the Funds, the Subadviser is authorized to exercise full
discretion and act for the Trust in the same manner and with the same force and
effect as the Trust might or could do with respect to such purchases, sales or
other transactions, as well as with respect to all other things necessary or
incidental to the furtherance or conduct of such purchases, sales or other
transactions.
(b) The Subadviser will report to the Board at each meeting thereof all
changes in each Fund since the prior report, and will also keep the Board
informed of important developments affecting the Trust, the Funds and the
Subadviser, and on its own initiative, will furnish the Board from time to time
with such information as the Subadviser may believe appropriate for this
purpose, whether concerning the individual companies whose securities are
included in each Fund's holdings, the industries in which they engage, or the
economic, social or political conditions prevailing in each country in which the
Funds maintains investments. The Subadviser will also furnish the Board with
such statistical and analytical information with respect to securities in the
Funds as the Subadviser may believe appropriate or as the Board reasonably may
request. In making purchases and sales of securities for the Funds, the
Subadviser will bear in mind the policies set from time to time by the Board as
well as the limitations imposed by the Trust's Trust Instrument, By-Laws,
Registration Statement under the Act and the Securities Act, the limitations in
the Act and in the Internal Revenue Code of 1986, as amended in respect of
regulated investment companies and the investment objectives, policies and
restrictions of the Funds.
(c) The Subadviser may from time to time employ or associate with such
persons as the Subadviser believes to be particularly fitted to assist in the
execution of the Subadviser's duties hereunder, the cost of performance of such
duties to be borne and paid by the Subadviser. No obligation may be incurred on
the Trust's behalf in any such respect.
(d) The Subadviser shall maintain records relating to portfolio
transactions and the placing and allocation of brokerage orders as are required
to be maintained by the Trust under the Act. The Subadviser shall prepare and
maintain, or cause to be prepared and maintained, in such form, for such periods
and in such locations as may be required by applicable law, all documents and
records relating to the services provided by the Subadviser pursuant to this
Agreement required to be prepared and maintained by the Trust pursuant to the
rules and regulations of any national, state, or local government entity with
jurisdiction over the Trust, including the Securities and Exchange Commission
and the Internal Revenue Service. The books and records pertaining to the Trust
which are in possession of the Subadviser shall be the property of the Trust.
The Trust, or the Trust's authorized representatives, shall have access to such
books and records at all times during the Subadviser's normal business hours.
Upon the reasonable request of the Trust, copies of any such books and records
shall be provided promptly by the Subadviser to the Trust or the Trust's
authorized representatives.
SECTION 4. EXPENSES
Subject to any expenses reimbursement arrangements between the Adviser
or others and the Trust, the Trust shall be responsible and shall assume the
obligation for payment of all of the Trust's expenses.
SECTION 5. STANDARD OF CARE
The Trust shall expect of the Subadviser, and the Subadviser will give
the Trust the benefit of, the Subadviser's best judgment and efforts in
rendering its services to the Trust, and as an inducement to the Subadviser's
undertaking these services the Subadviser shall not be liable hereunder for any
mistake of judgment or in any event whatsoever, except for lack of good faith,
provided that nothing herein shall be deemed to protect, or purport to protect,
the Subadviser against any liability to the Trust or to the Trust's security
holders to which the Subadviser would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of the
Subadviser's duties hereunder, or by reason of the Subadviser's reckless
disregard of its obligations and duties hereunder.
SECTION 6. COMPENSATION
In consideration of the foregoing, the Adviser and not the Trust shall
pay the Subadviser a fee as shall be determined from time to time in writing
between the Adviser and the Subadviser.
SECTION 7. EFFECTIVENESS, DURATION AND TERMINATION
(a) This Agreement shall become effective on the date first above
written.
(b) This Agreement shall remain in effect for a period of one year from
the date of its effectiveness and shall continue in effect for successive
one-year periods; provided that such continuance is specifically approved at
least annually (i) by the Board or by the vote of a majority of the outstanding
voting securities of each Fund, and, in either case, (ii) by a majority of the
Trust's trustees who are not parties to this Agreement or interested persons of
any such party (other than as trustees of the Trust); provided further, however,
that if this Agreement or the continuation of this Agreement is not approved,
the Subadviser may continue to render the services described herein in the
manner and to the extent permitted by the Act and the rules and regulations
thereunder.
(c) This Agreement may be terminated at any time, without the payment
of any penalty, (i) by the Board or by a vote of a majority of the outstanding
voting securities of each Fund on 60 days' written notice to the Subadviser or
(ii) by the Subadviser on 60 days' written notice to the Trust. This Agreement
shall terminate upon assignment unless prior approval of the Board is obtained.
SECTION 8. ACTIVITIES OF THE SUBADVISER
Except to the extent necessary to perform its obligations hereunder,
nothing herein shall be deemed to limit or restrict the Subadviser's right, or
the right of any of the Subadviser's officers, directors or employees who may
also be a trustee, officer or employee of the Trust, or persons otherwise
affiliated persons of the Trust to engage in any other business or to devote
time and attention to the management or other aspects of any other business,
whether of a similar or dissimilar nature, or to render services of any kind to
any other corporation, trust, firm, individual or association.
SECTION 9. LIMITATION OF SHAREHOLDER AND TRUSTEE LIABILITY
The Trustees of the Trust and the shareholders of the Funds shall not
be liable for any obligations of the Trust or of the Funds under this Agreement,
and the Subadviser agrees that, in asserting any rights or claims under this
Agreement, it shall look only to the assets and property of the Trust or the
Fund to which the Subadviser's rights or claims relate in settlement of such
rights or claims, and not to the Trustees of the Trust or the shareholders of
the Funds.
SECTION 10. MISCELLANEOUS
(a) No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties hereto and, if required by the Act, by a vote of a majority of the
outstanding voting securities of each Fund thereby affected.
(b) Section headings in this Agreement are included for convenience
only and are not to be used to construe or interpret this Agreement.
(c) This Agreement shall be governed by and shall be construed in
accordance with the laws of the State of Delaware.
(d) The terms "vote of a majority of the outstanding voting
securities", "interested person", "affiliated person" and "assignment" shall
have the meanings ascribed thereto in the Act.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed effective as of the day and year first above written.
NORWEST ADVANTAGE FUNDS
------------------
By: John Y. Keffer
President
NORWEST INVESTMENT MANAGEMENT, INC.
------------------
By: P. Jay Kiedrowski
President
SMITH ASSET MANAGEMENT, LP
------------------
By: Stephen S. Smith
Principal
NORWEST ADVANTAGE FUNDS
INVESTMENT SUBADVISORY AGREEMENT
Appendix A
Strategic Income Fund
Moderate Balanced Fund
Growth Balanced Fund
Aggressive Balanced-Equity Fund
Diversified Equity Fund
Growth Equity Fund
Diversified Small Cap Fund
Performa Disciplined Growth Fund
Performa Small Cap Value Fund
NORWEST ADVANTAGE FUNDS
INVESTMENT SUBADVISORY AGREEMENT
FEE AGREEMENT
October 1, 1997, as amended July 28, 1998
This fee agreement is made as of the 1st day of October, 1997, as
amended July 28, 1998, by and between Norwest Investment Management, Inc. (the
"Adviser") and Smith Asset Management, LP (the "Subadviser") and
WHEREAS, the parties and Norwest Advantage Funds (the "Trust") have
entered into an Investment Subadvisory Agreement ("Subadvisory Agreement")
whereby the Subadviser provides investment management advice to each series of
the Trust as listed in Appendix A to the Subadvisory Agreement (each a "Fund"
and collectively the "Funds")
WHEREAS, the Subadvisory Agreement provides that the fees to be paid to
the Subadviser are to be as agreed upon in writing by the parties.
NOW THEREFORE, the parties agree that the fees to be paid to the
Subadviser under the Subadvisory Agreement shall be calculated as follows on a
monthly basis by applying the following annual rates per Fund:
for assets formerly invested in Disciplined Growth Portfolio- 0.35%
for assets formerly invested in Small Cap Value Portfolio- 0.45%
provided, that no fee shall be payable hereunder with respect to a Fund during
any period in which the Fund invests all (or substantially all) of its
investment assets in a registered, open-end, management investment company, or
separate series thereof, in accordance with and reliance upon Section
12(d)(1)(E) under the Act.
The net assets under management against which the foregoing fees are to
be applied are the net assets as of the last business day of each month. If this
fee agreement becomes effective subsequent to the first day of a month or shall
terminate before the last day of a month, compensation for that part of the
month this agreement is in effect shall be subject to a pro rata adjustment
based on the number of days elapsed in the current month as a percentage of the
total number of days in such month. During any period when the determination of
net asset value is suspended, the net asset value for the last day prior to such
suspension shall for this purpose be deemed to be the month-end net assets.
The foregoing fee schedule shall remain in effect until changed in
writing by the parties.
NORWEST INVESTMENT MANAGEMENT, INC.
--------------------------
By: P. Jay Kiedrowski
President
SMITH ASSET MANAGEMENT, LP
--------------------------
By: Stephen S. Smith
Principal
Exhibit (6)
NORWEST ADVANTAGE FUNDS
DISTRIBUTION SERVICES AGREEMENT
October 1, 1995, as amended July 28, 1998
AGREEMENT made the 1st day of October, 1995 as amended July 28, 1998
between Norwest Advantage Funds (the "Trust"), a business trust organized under
the laws of the State of Delaware with its principal place of business at Two
Portland Square, Portland, Maine 04101 and Forum Financial Services, Inc.
("Forum"), a corporation organized under the laws of State of Delaware with its
principal place of business at Two Portland Square, Portland, Maine 04101.
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended (the "Act"), as an open-end management investment company and
offers for sale continuously shares of beneficial interest, no par value, in
separate series and classes;
WHEREAS, Forum is a registered broker-dealer engaged in the business of
selling shares of registered investment companies either directly to purchasers
or through other securities dealers;
WHEREAS, the Trust desires that Forum, as principal underwriter, offer
the shares of each series of the Trust (each a Fund) and of each class thereof
as listed in Appendix A hereto (referred to as the "Shares") and Forum is
willing to so act as principal underwriter on the terms and conditions set forth
in this Agreement in order to promote the growth of the Funds and facilitate the
distribution of their Shares;
NOW, THEREFORE, the parties agree as follows:
SECTION 1. DELIVERY OF DOCUMENTS AND APPOINTMENT
(a) The Trust is engaged in the business of investing and reinvesting
its assets in securities of the type and in accordance with the limitations
specified in the Trust's Trust Instrument, By-Laws and registration statement
filed with the Securities and Exchange Commission (the "SEC"), under the Act and
the Securities Act of 1933, as amended (the "Securities Act"), including any
representations made in a prospectus ("Prospectus") or statement of additional
information ("SAI") relating to a Fund contained therein and as may be
supplemented from time to time, all in such manner and to such extent as may
from time to time be authorized by the Trust's Board of Trustees (the "Board").
The Trust is currently authorized to issue the Shares and the Board is
authorized to issue any unissued shares in any number of additional series or
classes. The Trust has delivered to Forum copies of the documents listed in this
Section and will from time to time furnish Forum with any amendments thereof.
(b) The Trust hereby appoints Forum as the principal underwriter and
distributor of the Funds to sell the Shares of the Funds to the public and
hereby agrees during the term of this Agreement to sell Shares of the Funds to
Forum upon the terms and conditions herein set forth.
SECTION 2. EXCLUSIVE NATURE OF DUTIES
Forum shall be the exclusive representative of the Trust to act as
principal underwriter and distributor of the Funds except that the rights given
under this Agreement to Forum shall not apply to Shares issued in connection
with the merger or consolidation of any other investment company with a Fund; a
Fund's acquisition by purchase or otherwise of all or substantially all of the
assets or stock of any other investment company; or the reinvestment in Shares
by a Fund's shareholders of dividends or other distributions or any other
offering by the Trust of securities to its stockholders.
SECTION 3. PURCHASE OF SHARES FROM THE TRUST;
OFFERING OF SHARES
(a) Forum shall have the right to buy from the Trust the Shares needed
to fill unconditional orders for unsold Shares of the Funds as shall then be
effectively registered under the Securities Act placed with Forum by investors
or securities dealers or depository institutions or other financial
intermediaries acting as agent for their customers. Alternatively, Forum may act
as the Trust's agent, to offer, and to solicit offers to subscribe to, unsold
Shares of the Funds as shall then be effectively registered under the Securities
Act. Forum will promptly forward all orders and subscriptions to the Trust. The
price which Forum shall pay for Shares purchased from the Trust and the price
that Forum shall offer Shares shall be the net asset value, determined as set
forth in Section 3(c) hereof, used in determining the public offering price on
which such orders are based. Shares purchased by Forum are to be resold by Forum
to investors at the public offering price, as set forth in Section 3(b) hereof,
or to securities dealers, depository institutions or other financial
intermediaries acting as agent for their customers that have entered into
agreements with Forum pursuant to Section 9 hereof. The Trust reserves the right
to sell Shares of the Funds directly to investors through subscriptions received
by the Trust, but no such direct sales shall affect the sales charges due to
Forum hereunder.
(b) The public offering price of the Shares of a Fund, i.e., the price
per Share at which Forum or selected dealers or selected agents (each as defined
in Section 9 hereof) may sell Shares to the public (or, in the case of Exchange
Shares of Ready Cash Investment Fund ("RCIF"), to shareholders of B Shares or
such other classes of Shares of a Fund as may from time to time be permissible),
shall be the public offering price determined in accordance with the then
currently effective Prospectus and SAI of the Fund or class thereof under the
Securities Act, relating to such Shares, but not to exceed the net asset value
at which Forum, when acting as principal, is to purchase such Shares, plus, in
the case of Shares for which an initial sales charge is assessed, an initial
charge equal to a specified percentage or percentages of the public offering
price of the Shares as set forth in the current Prospectus relating to the
Shares. In the case of Shares for which an initial sales charge may be assessed,
Shares may be sold to certain classes of persons at reduced sales charges or
without any sales charge as from time to time set forth in the current
Prospectus and SAI relating to the Shares. The Trust will advise Forum of the
net asset value per Share on any date requested by Forum and at such other times
as it shall have been determined by the Trust.
(c) The net asset value of Shares of the Funds shall be determined by
the Trust, or any agent of the Trust, as of the close of the New York Stock
Exchange on each Fund business day in accordance with the method set forth in
the Prospectus and SAI and guidelines established by the Board.
(d) The Trust reserves the right to suspend the offering of Shares of a
Fund or of any class thereof at any time in the absolute discretion of the
Board, and upon notice of such suspension Forum shall cease to offer Shares of
the Funds specified in the notice.
(e) The Trust, or any agent of the Trust designated in writing to Forum
by the Trust, shall be promptly advised by Forum of all purchase orders for
Shares received by Forum and all subscriptions for Shares obtained by Forum as
agent shall be directed to the Trust for acceptance and shall not be binding
until accepted by the Trust. Any order or subscription may be rejected by the
Trust; provided, however, that the Trust will not arbitrarily or without
reasonable cause refuse to accept or confirm orders or subscriptions for the
purchase of Shares. The Trust (or its agent) will confirm orders and
subscriptions upon their receipt, will make appropriate book entries and, upon
receipt by the Trust (or its agent) of payment thereof, will issue such Shares
in certificated or uncertificated form pursuant to the instructions of Forum.
Forum agrees to cause such payment and such instructions to be delivered
promptly to the Trust (or its agent).
SECTION 4. REPURCHASE OR REDEMPTION OF SHARES BY THE TRUST
(a) Any of the outstanding Shares of a Fund or class thereof may be
tendered for redemption at any time, and the Trust agrees to redeem or
repurchase the Shares so tendered in accordance with its obligations as set
forth in the Trust's Trust Instrument and in accordance with the applicable
provisions set forth in the Prospectus and SAI relating to the Shares of the
Fund. The price to be paid to redeem or repurchase the Shares of a Fund shall be
equal to the net asset value calculated in accordance with the provisions of
Section 3(b) hereof less, in the case of Shares for which a deferred sales
charge is assessed, a deferred sales charge equal to a specified percentage or
percentages of the net asset value of those Shares as from time to time set
forth in the Prospectus relating to those Shares (or, in the case of Exchange
Shares of RCIF, relating to Exchange Shares and the original B Shares) or their
cost (or, in the case of Exchange Shares of RCIF, the cost of the B Shares of a
Fund that were first purchased by the shareholder and then exchanged, either
directly or indirectly through a series of exchanges, for the Exchange Shares
(the "Original B Shares")), whichever is less. Shares of a Fund or class thereof
for which a deferred sales charge may be assessed and that have been outstanding
for a specified period of time may be redeemed without payment of a deferred
sales charge as from time to time set forth in the Prospectus relating to those
Shares (or, in the case of Exchange Shares of RCIF, relating to the Original B
Shares). All payments by the Trust hereunder shall be made in the manner set
forth below.
(b) The Trust (or its agent) shall pay the total amount of the
redemption price consisting of the redemption price less any applicable deferred
sales charge to the redeeming shareholder or its agent, and, except as may be
otherwise required by the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. (the "NASD") and any interpretations thereof, the
deferred sales charges, if any, as defined in the above paragraph pursuant to
the instructions of Forum, in each case in New York Clearing House funds on or
before the seventh business day subsequent to the Trust or its agent having
received the notice of redemption in proper form. Notwithstanding the
termination of this Agreement, Forum shall be entitled to receive its Allocable
Portion (as defined in Appendix B hereto) of all contingent deferred sales
charges ("CDSCs") paid or payable with respect to the Shares in accordance with
Section 4(b) hereof.
(c) Redemption of Shares or payment may be suspended at times when the
New York Stock Exchange is closed for any reason other than its customary
weekend or holiday closings, when trading thereon is restricted, when an
emergency exists as a result of which disposal by the Trust of securities owned
by a Fund is not reasonably practicable or it is not reasonably practicable for
the Trust fairly to determine the value of a Fund's net assets, or during any
other period when the SEC, by order, so permits.
SECTION 5. COMPENSATION
(a) The Trust will pay Forum in consideration of its services in
connection with the distribution of Shares of each Fund its allocable portion
("Allocable Portion") (as determined in accordance with Appendix B to this
Agreement) of the distribution servicing fees allowable under the NASD Rules of
Fair Practice as in effect from time to time (the "NASD Rules") in respect of
such Shares of such Fund, which fee (the "Distribution Fee") shall accrue daily
and be paid monthly as promptly as possible after the last day of each calendar
month but in any event prior to the tenth (10th) day of the following calendar
month, at an annual rate set forth in the distribution plan dated August 1, 1995
as amended July 28, 1998 (the "Plan"), together with a separate interest fee
thereon, as determined in accordance with Section 3(c) of the Plan.
Forum will be deemed to have fully earned its Allocable Portion of the
Distribution Fee payable in respect of Shares of each Fund upon the sale of the
"Commission Shares" (as defined in Appendix B to this Agreement) of such Fund
taken into account in determining Forum's Allocable Portion of such Distribution
Fee.
(b) The Trust shall cause its transfer agent (the "Transfer Agent") to
withhold, from redemption proceeds payable to holders of Shares of the Funds,
all CDSCs properly payable by such holders in accordance with the terms of the
Prospectus relating to such Shares and shall cause the Transfer Agent to pay
such amounts over as promptly as possible after the settlement date for each
redemption of such Shares. Forum's Allocable Portion of CDSC shall be payable to
Forum (or to persons to whom Forum directs the Trust to make payments).
(c) Forum may direct the Trust to pay any part or all of the
Distribution Fee or CDSCs payable to Forum in respect of any Shares of any Fund
directly to persons providing funds to Forum to cover or otherwise enable the
incurring of expenses associated with distribution services, and the Trust
agrees to accept and to comply with such direction. Forum shall, at its own
expense and not the expense of the Trust or any Fund, provide the Trust with any
necessary calculations of Forum's Allocable Portion of any Distribution Fee or
CDSCs, and the Trust shall be entitled to rely conclusively on such
calculations, without prejudice to any claim it may have concerning the accuracy
of such calculations.
(d) Notwithstanding anything to the contrary contained in this
Agreement or in any relevant Plan, (a) the amount of asset-based sales charges
and CDSCs paid to Forum by any class of Shares of any Fund shall not exceed the
amount permitted by the NASD Rules, as in effect from time to time, and (b) the
aggregate amount of asset-based sales charges and CDSCs paid to Forum by any
class of Shares of any Fund shall not exceed six and one-quarter percent (6
1/4%) of the total issue price of such Shares plus interest thereon from the
date of issuance through the date of payment at the prime rate (determined in
accordance with the NASD Rules in effect from time to time) plus one percent
(1%) per annum.
(e) The Trust will pay to Forum each month a maintenance fee with
respect to each Fund or class thereof in the amounts, for the periods, and at
the annual rates set forth in the Prospectus relating to the Shares of the Fund.
(f) Except as provided in clauses (a), (b) and (e) of Section 5 hereof,
Forum shall be entitled to no compensation for its services hereunder.
SECTION 6. ASSIGNMENT
(a) Forum may, from time to time, assign, transfer or pledge
("Transfer") to one or more designees (each an "Assignee"), its rights to all or
a designated portion of (i) the Forum's Allocable Portion of the Distribution
Fees (but not Forum's duties and obligations pursuant hereto or pursuant to the
Plan), and (ii) Forum's Allocable Portion of CDSCs, free and clear of any
offsets or claims the Trust may have against Forum. Each such Assignee's
interest in a designated portion of a Forum's Allocable Portion of the
Distribution Fees and a Forum's Allocable Portion of CDSCs is hereinafter
referred to as an "Assignee's 12b-1 Portion" and an "Assignee's CDSC Portion,"
respectively. A Transfer pursuant to this Section 6(a) shall not reduce or
extinguish any claim of the Trust against Forum.
(b) Forum shall promptly notify the Trust in writing of each Transfer
pursuant to Section 6(a) hereof by providing the Trust with the name and address
of each such Assignee.
(c) In connection with a Transfer Forum may direct the Trust to pay all
of such Distributor's Allocable Portion of the Distribution Fees and the
Distributor's Allocable Portion of CDSCs from time to time to a depository or
collection agent designated by any Assignee, which depository or collection
agent may be delegated the duty of dividing the Distributor's Allocable Portion
of the Distribution Fees and the Distributor's Allocable Portion of CDSC between
the Assignee's 12b-1 Portion and Assignee's CDSC Portion and the balance of
Distributor's Allocable Portion (such balance, when distributed to Forum by the
depository or collection agent, "Distributor's 12b-1 Share") and of the
Distributor's Allocable Portion of CDSCs (such balance, when distributed to
Forum by the depository or collection agent, the "Distributor's Earned CDSC
Portion"), in which case only Distributor's 12b-1 Share and the Distributor's
Forum's Earned CDSC Portion may be subject to offsets or claims the Trust may
have against Forum.
(d) The Trust shall not amend the Plan to reduce the amount payable to
Forum or any Assignee under Section 5(a) hereof with respect to the B Shares for
any B Shares which have been issued prior to the date of such amendment.
SECTION 7. DUTIES AND REPRESENTATIONS OF THE TRUST
(a) The Trust shall furnish to Forum copies of all information,
financial statements and other papers which Forum may reasonably request for use
in connection with the distribution of Shares of the Funds, including, upon
request by Forum, one certified copy of all financial statements prepared for
the Funds by independent public accountants. The Trust shall make available to
Forum such number of copies of the Funds' Prospectuses and SAIs as Forum shall
reasonably request.
(b) The Trust shall take, from time to time, subject to the approval of
its Trustees and any required approval of its shareholders, all action necessary
to fix the number of authorized shares of the Funds (if such number is not
limited) and to register the Shares under the Securities Act, to the end that
there will be available for sale such number of Shares as Forum reasonably may
be expected to sell.
(c) The Trust and Forum will cooperate with each other in taking such
action as may be necessary to qualify Shares for sale under the securities laws
of such states and other jurisdictions as the Trust may designate; provided that
Forum shall not be required to register as a broker-dealer or file a consent to
service of process in such states. Any such qualification may be withheld,
terminated or withdrawn by the Trust at any time in its discretion. Forum shall
furnish such information and other material relating to its affairs and
activities as may be required by the Trust in connection with such
qualification. The Trust will pay all fees and expenses of registering Shares
under the Securities Act and of qualification and the maintenance of
qualification of Shares and its qualification under applicable state securities
laws.
Forum shall pay all expenses relating to Forum's broker-dealer qualification.
(d) The Trust will furnish, in reasonable quantities upon request by
Forum, copies of annual and interim reports of the Funds.
(e) The Trust represents that its Registration Statement under the
Securities Act and the Trust's Prospectuses included therein (as in effect from
time to time) have been or will be, as the case may be, carefully prepared in
conformity with the requirements of the Securities Act and the rules and
regulations of the SEC thereunder. The Trust represents and warrants that its
Registration Statement and Prospectuses contain or will contain all statements
required to be stated therein in accordance with the Securities Act and the
rules and regulations of the SEC, and that all statements of fact contained or
to be contained therein are or will be true and correct at the time indicated or
on the effective date as the case may be; that neither its Registration
Statement nor its Prospectuses, when they shall become effective or be
authorized for use, will include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading to a purchaser of Shares. The Trust will from
time to time file such amendment or amendments to its Registration Statement and
Prospectuses as, in the light of future developments, shall, in the opinion of
its counsel, be necessary in order to have its Registration Statement and
Prospectuses at all times contain all material facts required to be stated
therein or necessary to make any statements therein not misleading to a
purchaser of Shares, but, if the Trust shall not file such amendment or
amendments within fifteen days following receipt of a written request from Forum
to do so, Forum may, at its option, terminate this agreement immediately. The
Trust shall not file any amendment to its Registration Statement or Prospectuses
without giving Forum reasonable notice thereof in advance; provided, however,
that nothing contained in this agreement shall in any way limit the Trust's
right to file at any time such amendments to its Registration Statement or
Prospectuses, of whatever character, as the Trust may deem advisable, such right
being in all respects absolute and unconditional. The Trust represents and
warrants that any amendment to its Registration Statement or Prospectuses
hereafter filed will, when they becomes effective, contain all statements
required to be stated therein in accordance with the Act and the rules and
regulations of the SEC, that all statements of fact contained therein will, when
the same shall become effective, be true and correct and that no such amendment,
when it becomes effective, will include an untrue statement of a material fact
or will omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading to a purchaser of the Shares.
SECTION 8. DUTIES OF FORUM
(a) Forum shall use its best efforts to sell Shares of the Funds upon
the terms and conditions contained herein and in the then current Prospectus.
Forum shall devote reasonable time and effort to effect sales of Shares of the
Funds, but shall not be obligated to sell any specific number of Shares. The
services of Forum to the Trust hereunder are not to be deemed exclusive and
nothing herein contained shall prevent Forum from entering into like
arrangements with other investment companies so long as the performance of its
obligations hereunder is not impaired thereby.
(b) In selling Shares of the Funds, Forum shall use its best efforts in
all material respects duly to conform with the requirements of all federal and
state laws relating to the sale of such securities. None of Forum, any selected
dealer, any selected agent, or any other person is authorized by the Trust to
give any information or to make any representations other than as is contained
in a Fund's Prospectus and SAI, as from time to time in effect, or any sales
literature specifically approved in writing by the Trust.
(c) Forum shall adopt and follow procedures, as approved by the
officers of the Trust, for the confirmation of sales to investors and selected
dealers or selected agents, the collection of amounts payable by investors and
selected dealers or selected agents on such sales, and the cancellation of
unsettled transactions, as may be necessary to comply with the requirements of
the NASD as may from time to time exist.
SECTION 9. SELECTED DEALER AND SELECTED AGENT AGREEMENTS
Forum shall have the right to enter into selected dealer agreements
with securities dealers of its choice ("selected dealers") and selected agent
agreements with depository institutions and other financial intermediaries of
its choice ("selected agents") for the sale of Shares of the Funds and to fix
therein the portion of the sales charge that may be allocated to the selected
dealers or selected agents; provided, that the Trust shall approve the forms of
agreements with selected dealers or selected agents and the compensation set
forth therein. Shares of each Fund shall be resold by selected dealers or
selected agents only at the public offering price(s) set forth in the Prospectus
and SAI relating to the Shares of the Fund. Within the United States, Forum
shall offer and sell Shares of the Funds only to such selected dealers as are
members in good standing of the NASD.
SECTION 10. PAYMENT OF EXPENSES
(a) The Trust shall bear all costs and expenses of the Funds, including
fees and disbursements of its counsel and auditors, in connection with the
preparation and filing of its Registration Statement and Prospectuses and SAIs
and all amendments and supplements thereto and the preparing and mailing of
annual and interim reports and proxy materials to shareholders (including but
not limited to the expense of setting in type any registration statements,
prospectuses, annual or interim reports or proxy materials).
(b) The Trust shall bear the cost and expenses of the qualification of
Shares of the Funds for sale, and, if necessary or advisable in connection
therewith, of qualifying the Trust (but not Forum) as an issuer or as a broker
or dealer, in such states of the United States or other jurisdictions as shall
be selected by the Trust and Forum pursuant to Section 7(c) hereof and the costs
and expenses payable to each state or jurisdiction for continuing qualification
therein until the Trust decides to discontinue qualification pursuant to Section
7(c) hereof.
SECTION 11. INDEMNIFICATION OF FORUM
The Trust agrees to indemnify, defend and hold Forum, and any person
who controls Forum within the meaning of Section 15 of the Securities 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 Securities Act, or
under common law or otherwise, arising out of or based upon any alleged untrue
statement of a material fact contained in the Trust's Registration Statement or
the Prospectuses or SAIs in effect from time to time under the Securities 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; provided, however, that in no event shall
anything herein contained be so construed as to protect Forum against any
liability to the Trust or its security holders 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 this Agreement. The Trust's agreement to indemnify
Forum and any such controlling person as aforesaid is expressly conditioned upon
the Trust's being notified of the commencement of any action brought against
Forum or any such controlling person, such notification to be given by letter or
by telegram addressed to the Trust at its principal office in New York, New
York, and sent to the Trust by the person against whom such action is brought
within ten days after the summons or other first legal process shall have been
served. The Trust will be entitled to assume the defense of any suit brought to
enforce any such claim and to retain counsel of good standing chosen by the
Trust and approved by Forum. In the event the Trust elects to assume the defense
of any such suit and retain counsel of good standing approved by Forum, the
defendants in the suit shall bear the fees and expenses of any additional
counsel retained by any of them; but in case the Trust does not elect to assume
the defense of the suit or in case Forum does not approve of counsel chosen by
the Trust, the Trust will reimburse Forum or the controlling person or persons
named defendant or defendants in the suit for the fees and expenses of any
counsel retained by Forum or such persons. The indemnification agreement
contained in this Section shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of Forum or any controlling
person and shall survive the sale of any of a Fund's Shares made pursuant to
subscriptions obtained by Forum. This agreement of indemnity will inure
exclusively to the benefit of Forum, to the benefit of its successors and
assigns, and to the benefit of any controlling persons and their successors and
assigns. The Trust agrees promptly to notify Forum of the commencement of any
litigation or proceeding against the Trust in connection with the issue and sale
of any of the Shares of the Funds. The failure to notify the Trust of the
commencement of any such action shall not relieve the Trust from any liability
which it may have to the person against whom the action is brought by reason of
any alleged untrue statement or omission otherwise than on account of the
indemnity agreement contained in this Section.
SECTION 12. INDEMNIFICATION OF THE TRUST
Forum agrees to indemnify, defend and hold the Trust, its several
officers and trustees, and any person who controls the Trust within the meaning
of Section 15 of the Securities 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 the Trust, its officers or
trustees, or any such controlling person may incur under the Securities Act or
under common law or otherwise, but only to the extent that such liability or
expense incurred by the Trust, its officers and trustees or controlling person
resulting from such claims or demands shall arise out of or be based upon (i)
any alleged untrue statement of a material fact contained in information
furnished in writing by Forum to the Trust for use in its Registration Statement
insofar as it relates to a Fund or the Prospectuses or SAIs relating to a Fund
in effect from time to time under the Securities Act, (ii) any alleged omission
to state a material fact in connection with such information required to be
stated in the Registration Statement, a Prospectus or a SAI or necessary to make
the information not misleading or (iii) willful misfeasance, bad faith or gross
negligence in the performance by Forum of its duties, or by reason of Forum's
reckless disregard of its obligations and duties under this Agreement. Forum's
agreement to indemnify the Trust, its officers and trustees and any controlling
person as aforesaid is expressly conditioned upon Forum being notified of the
commencement of any action brought against the Trust, its officers or trustees
or any controlling person, such notification to be given by letter or telegram
addressed to Forum at its principal office in New York, New York, and sent to
Forum by the person against whom the action is brought, within ten days after
the summons or other first legal process shall have been served. Forum will be
entitled to assume the defense of the action, with counsel in good standing of
its own choosing approved by the Trust, if the action is based solely upon
alleged misstatement, omission or action described in clauses (i), (ii) or
(iii), above and in any other event Forum and the Trust, and their officers and
trustees or controlling persons, shall each have the right to participate in the
defense or preparation of the defense of any such action. In the event Forum
elects to assume the defense of any such suit and retain counsel of good
standing approved by the Trust, the defendants in the suit shall bear the fees
and expenses of any additional counsel retained by any of them; but in case
Forum does not elect to assume the defense of the suit or in case the Trust does
not approve of counsel chosen by Forum, Forum will reimburse the Trust or the
controlling person or persons named defendant or defendants in the suit for the
fees and expenses of any counsel retained by the Trust or such persons. The
indemnification agreement contained in this Section shall remain operative and
in full force and effect regardless of any investigation made by or on behalf of
the Trust or any controlling person and shall survive the sale of any of the
Shares made pursuant to orders or subscriptions obtained by Forum. This
agreement of indemnity will inure exclusively to the benefit of the Trust, to
the benefit of its successors and assigns, and to the benefit of any controlling
persons and their successors and assigns. Forum agrees promptly to notify the
Trust of the commencement of any litigation or proceeding against Forum in
connection with the issue and sale of any of the Shares. The failure to notify
Forum of the commencement of any action shall not relieve Forum from any
liability which it may have to the Trust, to its officers and trustees, or to
controlling persons by reason of any untrue statement or omission on the part of
or action by Forum otherwise than on account of the indemnity agreement
contained in this Section.
SECTION 13. NOTIFICATION BY THE TRUST
The Trust agrees to advise Forum immediately:
(a) of any request by the SEC for amendments to the Trust's
Registration Statement insofar as it relates to the Funds, a Fund's Prospectus
or SAI or for additional information,
(b) in the event of the issuance by the SEC of any stop order
suspending the effectiveness of the Trust's Registration Statement insofar as it
relates to the Funds, a Fund's Prospectus or SAI or the initiation of any
proceeding for that purpose,
(c) of the happening of any material event which makes untrue any
statement made in the Trust's Registration Statement insofar as it relates to
the Funds or any Fund's Prospectus or SAI or which requires the making of a
change in either thereof in order to make the statements therein not misleading,
and
(d) of all actions of the SEC with respect to any amendments to the
Trust's Registration Statement insofar as it relates to the Funds, a Fund's
Prospectus or SAI which may from time to time be filed with the SEC under the
Securities Act.
SECTION 14. EFFECTIVENESS, DURATION AND TERMINATION
(a) This Agreement shall become effective with respect to each Fund on
the date hereof. Upon effectiveness of this Agreement, it shall supersede all
previous agreements between the parties hereto covering the subject matter
hereof insofar as such Agreement may have been deemed to relate to the Funds.
(b) This Agreement shall continue in effect with respect to a Fund for
a period of one year from the date of its effectiveness and shall continue in
effect for successive one-year periods with respect to the Fund; provided,
however, that continuance is specifically approved at least annually (i) by the
Board or by a vote of a majority of the outstanding voting securities of the
Fund and (ii) by a vote of a majority of Trustees of the Trust (I) who are not
parties to this Agreement or interested persons of any such party (other than as
Trustees of the Trust) and (II) with respect to each class of a Fund for which
there is an effective plan of distribution adopted pursuant to Rule 12b-1 under
the Act, who do not have any direct or indirect financial interest in any such
plan applicable to the class or in any agreements related to the plan, cast in
person at a meeting called for the purpose of voting on such approval; provided
further, however, that if the continuation of this Agreement is not approved as
to a Fund, Forum may continue to render to the Fund the services described
herein in the manner and to the extent permitted by the Act and the rules and
regulations thereunder.
(c) This Agreement may be terminated at any time with respect to a
Fund, without the payment of any penalty, (i) by the Board or by a vote of a
majority of the outstanding voting securities of the Fund or, with respect to
each class of a Fund for which there is an effective plan of distribution
adopted pursuant to Rule 12b-1 under the Act, a majority of Trustees of the
Trust who do not have any direct or indirect financial interest in any such plan
or in any agreements related to the plan, on 60 days' written notice to Forum or
(ii) by Forum on 60 days' written notice to the Trust.
(d) This Agreement shall also automatically terminate in the event of
its assignment, the term "assignment" having the meaning set forth in Section
2(a)(4) of the Act; provided, that the Transfer of Forum's rights to the
Distributor's 12b-1 Portion or the Distributor's Earned CDSC shall not cause a
termination of this Agreement or be deemed to be an assignment for purposes of
this Section 14(d).
(e) Subject to the provisions of the following sentence, if this
Agreement is terminated for any reason other than a Complete Termination (as
defined in Section 10 of the Plan), the obligations of the Trust and Forum
pursuant to Sections 5(a)-(d) and 6(a)-(d) of this Agreement will continue and
survive any such termination. A termination of the Plan (including a Complete
Termination as defined in Section 10 of the Plan) with respect to any or all
Shares of any or all Funds shall not affect the obligations of the Trust with
respect to payments of the Distributor's Allocable Portion of CDSC or Assignee's
Allocable Portion of CDSC or of the obligations of Forum in respect of CDSC's
pursuant to Sections 5 and 6 of this Agreement.
SECTION 15. NOTICES
Any notice required or permitted to be given hereunder by either party
to the other shall be deemed sufficiently given if personally delivered or sent
by telegram or registered, certified or overnight mail, postage prepaid,
addressed by the party giving such notice to the other party at the last address
furnished by the other party to the party giving such notice, and unless and
until changed pursuant to the foregoing provisions hereof each such notice shall
be addressed to the Trust or Forum, as the case may be.
SECTION 16. ACTIVITIES OF FORUM
Except to the extent necessary to perform Forum's obligations
hereunder, nothing herein shall be deemed to limit or restrict Forum's right, or
the right of any of Forum's officers, directors or employees who may also be a
trustee, officer or employee of the Trust, or persons otherwise affiliated with
the Trust to engage in any other business or to devote time and attention to the
management or other aspects of any other business, whether of a similar or
dissimilar nature, or to render services of any kind to any other corporation,
trust, firm, individual or association.
SECTION 17. LIMITATION OF SHAREHOLDER AND TRUSTEE LIABILITY
The Trustees of the Trust and the shareholders of each Fund shall not
be liable for any obligations of the Trust or of the Funds under this Agreement,
and Forum agrees that, in asserting any rights or claims under this Agreement,
it shall look only to the assets and property of the Trust or the Fund to which
Forum's rights or claims relate in settlement of such rights or claims, and not
to the Trustees of the Trust or the shareholders of the Funds.
SECTION 18. MISCELLANEOUS
(a) No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties hereto.
(b) Section headings in this Agreement are included for convenience
only and are not to be used to construe or interpret this Agreement.
(c) The provisions of this Agreement shall be, to the extent
applicable, construed and interpreted in accordance with the laws of the State
of New York.
(d) The terms "vote of a majority of the outstanding voting
securities," "interested person," "affiliated person" and "assignment" shall
have the meanings ascribed thereto in the Act.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
NORWEST ADVANTAGE FUNDS
By:__________________________
Donald H. Burkhardt
Vice Chairman
FORUM FINANCIAL SERVICES, INC.
By:________________________
David I. Goldstein
Secretary
<PAGE>
NORWEST ADVANTAGE FUNDS
DISTRIBUTION SERVICES AGREEMENT
Appendix A
Funds and Classes of the Trust
as of July 28, 1998
<TABLE>
<S> <C>
Funds Classes
Cash Investment Fund Single existing class
Ready Cash Investment Fund Public Entities Shares, Investor Shares and Exchange Shares
U.S. Government Fund Single existing class
Treasury Plus Fund Single existing class
Treasury Fund Single existing class
Municipal Money Market Fund Institutional Shares and Investor Shares
Stable Income Fund A Shares, B Shares and I Shares
Limited Term Government Income Fund I Shares
Intermediate Government Income Fund A Shares, B Shares and I Shares
Diversified Bond Fund I Shares
Income Fund A Shares, B Shares and I Shares
Total Return Bond Fund A Shares, B Shares and I Shares
Limited Term Tax-Free Fund I Shares
Tax-Free Income Fund A Shares, B Shares and I Shares
Colorado Tax-Free Fund A Shares, B Shares and I Shares
Minnesota Intermediate Tax-Free Fund I Shares
Minnesota Tax-Free Fund A Shares, B Shares and I Shares
Strategic Income Fund I Shares
Moderate Balanced Fund I Shares
Growth Balanced Fund A Shares, B Shares, C Shares and I Shares
Aggressive Balanced-Equity Fund I Shares
Index Fund I Shares
Income Equity Fund A Shares, B Shares, C Shares and I Shares
ValuGrowth Stock Fund A Shares, B Shares and I Shares
Diversified Equity Fund A Shares, B Shares, C Shares and I Shares
Growth Equity Fund A Shares, B Shares, C Shares and I Shares
Large Company Growth Fund A Shares, B Shares and I Shares
Diversified Small Cap Fund A Shares, B Shares and I Shares
Small Company Stock Fund A Shares, B Shares and I Shares
Small Company Growth Fund I Shares
Small Cap Opportunities Fund A Shares, B Shares and I Shares
International Fund A Shares, B Shares and I Shares
Performa Strategic Value Bond Fund Single existing class
Performa Disciplined Growth Fund Single existing class
Performa Small Cap Value Fund Single existing class
Performa Global Growth Fund Single existing class
Norwest WealthBuilder II Growth Portfolio C Shares
Norwest WealthBuilder II Growth and Income Portfolio C Shares
Norwest WealthBuilder II Growth Balanced Portfolio C Shares
</TABLE>
<PAGE>
NORWEST ADVANTAGE FUNDS
DISTRIBUTION SERVICES AGREEMENT
Appendix B
July 28, 1998
Forum's "Allocable Portion" of the CDSCs and Distribution Fees in
respect of a Fund shall be 100 percent until such time as Forum shall cease to
serve as exclusive distributor of such Shares and thereafter shall be recomputed
first on the date of any termination of Forum's services as exclusive
distributor of Shares of any Fund and thereafter periodically (but not less than
monthly), in accordance with Parts B & C below based upon the number of
representing the Shares of such Fund outstanding on each such computation date
allocated to Forum in accordance with Part A below:
For Purposes of this Appendix B defined terms used herein shall have
the meaning assigned to such terms in the Distribution Agreement and the
following terms shall have the following meanings:
"Commission Share" shall mean, in respect of any Fund, each Share of
such Fund which is issued under circumstances which would normally give rise to
an obligation of the holder of such Share to pay a CDSC upon redemption of such
Share, including, without limitation, any Share of such Fund issued in
connection with a Permitted Free Exchange, and any such Share shall not cease to
be a Commission Share prior to the redemption (including a redemption in
connection with a Permitted Free Exchange) or conversion even though the
obligation to pay the CDSC shall have expired or conditions for waivers thereof
shall exist.
"Date of Original Issuance" means in respect of any Commission Share of
any Eligible Fund, the date with reference to which the amount of the CDSC
payable on redemption thereof is computed.
"Free Share" shall mean, in respect of any Fund, each Share of such
Fund other than a Commission Share, including, without limitation, each Share
issued in connection with the reinvestment of dividends.
"Other Distributor" shall mean in respect of the Shares of any Fund,
each entity appointed from time to time as the exclusive distributor for such
Shares of the Fund after Forum ceases to serve in that capacity.
"Permitted Free Exchange" with respect to any Shares of any Fund, shall
mean an exchange of such Share for a Share of another Fund which pursuant to the
terms of the related Prospectus for such Shares, relieves or defers the CDSCs in
respect of such Share.
"Transfer Agent" shall mean, in respect of any Fund, the entity serving
as the transfer agent and who maintains accounts for each record holder of
Shares of such Fund including record holders which are record owners of Omnibus
Accounts.
PART A: ATTRIBUTION OF SHARES
Each class of Shares of each Fund, which are outstanding from time to
time, shall be attributed to either Forum or an Other Distributor in accordance
with the following rules:
(1) Commission Shares: (a) Commission Shares of each class of Shares of
each Fund outstanding from time to time attributed to Forum or such Other
Distributor shall be those Commission Shares of such class of such Fund which
were sold while Forum or such Other Distributor was the exclusive Distributor
for such Shares, determined in accordance with the transfer records for such
Fund.
(b) The Commission Shares of each class of Shares of each Fund
outstanding from time to time attributed to Forum or such Other Distributor
shall be the Date of Original Issuance of which occurs during the period in
which Forum or such Other Distributor was the exclusive distributor for such
Fund in respect of such class of Shares of such Fund.
(c) A Commission Share of a Fund (the "First Fund") issued in
consideration of the investment of proceeds of the redemption of a Commission
Share of another Fund (the "Second Fund") in connection with a Permitted Free
Exchange, is deemed to have a Date of Original Issuance identical to the Date of
Original Issuance of the Commission Share of the Second Fund which was so
redeemed and any such Commission Share will be attributed to Forum or such Other
Distributor based upon such Date of Original Issuance in accordance with rules
(a) and (b) above.
(d) A Commission Share of a Fund which is redeemed other than in
connection with a Permitted Free Exchange or is converted to a class A share at
the end of the autoconversion period is deemed to come out of the Commission
Shares attributed to Forum or such Other Distributor based upon the Date of
Original Issuance of such Commission Share in accordance with rule (a) above.
(2) Free Shares.
(a) Free Shares outstanding on the date of termination of Forum's
services will be attributed to Forum or such Other Distributor in the same
proportion that Commission Shares were attributed to each on such date.
(b) Thereafter Free Shares which are issued during any period in
connection with the reinvestment of dividends or other distributions or in
connection with the reinvestment of proceeds of redemption of Free Shares of
another Fund which will be attributed to Forum and such Other Distributor based
upon the percentage of total Free Shares of such Fund which were outstanding at
the commencement of such period which was attributed to each at the commencement
of such period under these rules.
(c) Free Shares which are redeemed (whether in connection with the
reinvestment of the proceeds of such redemption in Shares of another Fund or
otherwise) or converted into class A shares of such Fund during any period after
the date of termination of Forum's services will be deemed to come out of the
Free Shares of such Fund attributed to Forum and such Other Distributor based
upon the percentage of total Free Shares of such Eligible Fund which were
outstanding at the commencement of such period which was attributed to each at
the commencement of such period under these rules.
PART B: ALLOCATION OF DISTRIBUTION FEES.
The portion of the Distribution Fees accruing in respect of Shares of a
Fund during a particular calendar month are allocated to Forum and Other
Distributor determined by multiplying the total of such Distribution Fees
accruing during a particular calendar month by the following fraction:
((BTS x BNAV) + (ETS x ENAV))/2
-------------------------------
((BPS x BNAV) + (EPS x ENAV))/2
where:
BTS = Total Number of Shares of such Fund attributed to Forum or
such Other Distributor and outstanding at the beginning of
such calendar month
BNAV = Per Share Net Asset Value of Shares of such Fund at the beginning of such
calendar month
ETS = Total Number of Shares of such Fund attributed to Forum or
such Other Distributor and outstanding at the end of such
calendar month
ENAV = Per Share Net Asset Value of Shares of such Fund at the end of such
calendar month
BPS = Total Number of Shares of such Fund outstanding at the beginning of such
calendar month
EPS = Total Number of Shares of such Eligible Fund outstanding at the end of
such calendar month
PART C: ALLOCATION OF CDSCs
CDSCs will be allocated to either Forum or a Other Distributor based
upon whether the Commission Share giving rise to such CDSC was attributed to
Forum or such Other Distributor in accordance with Part A above.
PART D: ALLOCATION PROCEDURES FOR SHARES HELD THROUGH AN
ACCOUNT MAINTAINED IN THE NAME OF AN INTERMEDIARY
In the case of Shares of a Fund held through an account maintained in
the name of a broker-dealer or other intermediary, the allocation procedures
contained in this Appendix B shall be amplified as Forum and the Trust shall
agree to ensure the appropriate attribution of, and allocation of distribution
services fees attributable to those shares.
Exhibit (8)(a)
NORWEST ADVANTAGE FUNDS(R) CUSTODIAN AGREEMENT
August 1, 1993,
Amended July 28, 1998
AGREEMENT, dated as of August 1, 1993 asnd amended onand restated as of
July 28[date], 1998, between Norwest Advantage Funds (the ""Trust""), a business
trust organized under the laws of the State of Delaware with its principal place
of business at Two Portland Square, Portland, Maine 04101 and Norwest Bank
Minnesota, N.A. (the ""Custodian"" or "Norwest Bank"), a banking association
organized under the laws of the United States of America with its principal
place of business at Sixth Street and Marquette, Minneapolis, Minnesota 55479.
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended (the ""Act""), as an open-end management investment company and
is authorized to issue its shares of beneficial interest, no par value, in
separate series and classes;
WHEREAS, the Trust desires to appoint Norwest Bank Minnesota, N.A.,
custodian of its securities and cash and Norwest Bank Minnesota, N.A. is willing
to act in such capacity upon the terms and conditions set forth below; and
WHEREAS, pursuant to a separate agreement between the Trust and
Norwest Bank Minnesota, N.A. (the ""Transfer Agency Agreement""), Norwest
Bank Minnesota, N.A. will perform the duties of transfer agent of the Trust
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, the parties do hereby agree as follows:
SECTION 1. DEFINITIONS
. Whenever used in this Agreement, the following terms shall have the
meanings specified, insofar as the context will allow.
(a) Act: The term Act shall mean the Investment Company Act of 1940, as
amended from time to time.
(b) Board: The term Board shall mean the Board of Trustees of the
Trust.
(c) Book-Entry Account: The term Book-Entry Account shall mean an
account maintained by a Federal Reserve Bank in which Book-Entry Securities are
held.
(d) Book-Entry Securities: The term Book-Entry Securities shall mean
securities issued by the United States Treasury and United States Federal
agencies and instrumentalities that are maintained in the book-entry system
maintained by a Federal Reserve Bank.
(e) Custodian: The term Custodian shall mean Norwest Bank, Minnesota,
N.A., in its capacity as custodian under this Agreement.
(f) Foreign Securities: The term Foreign Securities shall mean
""Foreign Securities"" as that term is defined in Rule 17f-5 under the Act.
(g) Foreign Sub-Custodian: The term Foreign Sub-Custodian shall mean
""Eligible Foreign Sub-Custodian"" as that term is defined in Rule 17f-5 under
the Act.
(h) Fund Business Day: The term Fund Business Day shall mean a day that
is a business day for a Series as defined in the Series" prospectus.
(i) Oral Instructions: The term Oral Instructions shall mean an
authorization, instruction, approval, item or set of data, or information of any
kind transmitted to the Custodian in person or by telephone, vocal telegram or
other electronic means, by a person or persons reasonably believed in good faith
by the Custodian to be a person or persons authorized by a resolution of the
Board to give Oral Instructions on behalf of the Trust. Each Oral Instruction
shall specify whether it is applicable to the entire Trust or a specific Series
of the Trust.
(j) Securities: The term Securities shall mean bonds, debentures,
notes, stocks, shares, evidences of indebtedness, and other securities and
investments from time to time owned by the Trust.
(k) Securities Depository: The term Securities Depository shall mean a
system, domestic or foreign, for the central handling of securities in which all
securities of any particular class or series of any issuer deposited within the
system are treated as fungible and may be transferred or pledged by bookkeeping
entry without physical delivery of the securities and shall include any system
for the issuance of Book-Entry Securities.
(l) Series: The term Series shall mean the Series listed in Appendix A
or any series that the Trust shall subsequently establish provided, that the
Custodian may decline to act as custodian for any series subsequently
established
(m) Share Certificates: The term Share Certificates shall mean the
certificates for the Shares.
(n) Shareholders: The term Shareholders shall mean the registered
owners from time to time of the Shares, as reflected on the share registry
records of the Trust.
(o) Shares: The term Shares shall mean the issued and outstanding
shares of beneficial interest, no par value, of the Trust, including any
fractions thereof.
(p) Sub-Custodian: The term Sub-Custodian shall mean any person
selected by the Custodian under Section 20 hereof and in accordance with the
requirements of the Act to custody any or all of the Securities and cash of the
Trust, and shall include Foreign Sub-Custodians.
(q) Trust: The term Trust shall mean Norwest Advantage Funds.
(r) Written Instructions: The term Written Instructions shall mean an
authorization, instruction, approval, item or set of data, or information of any
kind transmitted to the Custodian in original writing containing original
signatures, or a copy of such document transmitted by telecopy, including
transmission of such signature, or other mechanical or documentary means, at the
request of a person or persons reasonably believed in good faith by the
Custodian to be a person or persons authorized by a resolution of the Board to
give Written Instructions on behalf of the Trust. Each Written Instruction shall
specify whether it is applicable to the entire Trust or a specific Series of the
Trust.
(s) 1934 Act: The term 1934 Act shall mean the Securities Exchange Act of
1934, as amended from time to time. --------
SECTION 2. APPOINTMENT
. The Trust hereby appoints the Custodian as custodian of the
Securities and cash of each Series from time to time on deposit hereunder. The
Securities and cash of the Trust shall be and remain the sole property of the
Trust and the Custodian shall have only custody thereof. The Custodian shall
hold, earmark and physically segregate for the appropriate Series account of the
Trust all non-cash property, including all Securities that are not maintained
pursuant to Section 6 in a Securities Depository or Book-Entry Account. The
Custodian will collect from time to time the dividends and interest of the
Securities held by the Custodian.
The Custodian shall open and maintain a separate bank or trust account
or accounts in the name of the Trust, subject only to draft or order by the
Custodian acting pursuant to the terms of this Agreement, and shall hold in such
account or accounts, subject to the provisions hereof, all cash received by it
from or for the account of the Trust. Notwithstanding the foregoing, a separate
bank account may be established by the Trust to be used as a petty cash account
in accordance with Rule 17f-3 under the Act and the Custodian shall have not
duty or liability with regard to such account.
Upon receipt of Written Instructions, funds held by the Custodian for
the Trust may be deposited by the Custodian to its credit in the banking
department of the Custodian or in such other banks or trust companies as it may
in its discretion deem necessary or desirable. Such funds shall be deposited by
the Custodian in its capacity as Custodian and shall be withdrawable by the
Custodian only in that capacity.
SECTION 3. DELIVERY OF BOARD RESOLUTIONS
. The Trust shall, as necessary, file with the Custodian a certified
copy of the operative resolution of the Board authorizing execution of Written
Instructions and the number of signatories required and setting forth authentic
signatures of all signatories authorized to sign on behalf of the Trust or any
Series thereof. Such resolution shall constitute conclusive evidence of the
authority of all signatories designated therein to act and shall be considered
in full force and effect, with the Custodian fully protected in acting in
reliance thereon, until the Custodian receives a certified copy of a replacement
resolution adding or deleting a person or persons authorized to give written
Instructions.
The Trust shall, as necessary, file with the Custodian a certified copy
of the operative resolution of the Board authorizing the transmittal of Oral
Instructions and specifying the person or persons authorized to give Oral
Instructions on behalf of the Trust or any Series. Such resolution shall
constitute conclusive evidence of the authority of the person or persons
designated therein to act and shall be considered in full force and effect, with
the Custodian fully protected in acting in reliance therein, until the Custodian
actually receives a certified copy of a replacement resolution adding or
deleting a person or persons authorized to give Oral Instructions. If the
officer certifying the resolution is authorized to give Oral Instructions, the
certification shall also be signed by a second officer of the Trust.
SECTION 4. INSTRUCTIONS
. For all purposes under this Agreement, the Custodian is authorized to
act upon receipt of the first of any Written or Oral Instruction it receives. If
the first Instruction is an Oral Instruction, the Trust shall deliver or have
delivered to the Custodian a confirmatory Written Instruction; and if the
Custodian receives an Instruction, whether Written or Oral, with respect to a
Securities transaction, the Trust shall cause the broker or dealer to send a
written confirmation of the transaction to the Custodian. The Custodian shall be
entitled to rely on the first Instruction received and, for any act or omission
undertaken in compliance therewith, shall be free of liability and fully
indemnified and held harmless by the Trust. The sole obligation of the Custodian
with respect to any confirmatory Written Instruction or broker or dealer written
confirmation shall be to make reasonable efforts to detect any discrepancy
between the original Instruction and such confirmation and to report such
discrepancy to the Trust. The Trust shall be responsible, at the Trust"s
expense, for taking any action, including any reprocessing, necessary to correct
any discrepancy or error, and to the extent such action requires the Custodian
to act, the Trust shall give the Custodian specific Written Instructions as to
the action required.
SECTION 5. DEPOSIT OF TRUST ASSETS
. The Trust will initially transfer and deposit or cause to be
transferred and deposited with the Custodian all of the Securities, other
property and cash owned by the Trust at the time this Agreement becomes
effective, provided that the Custodian shall have the right, in its sole
discretion, to refuse to accept any securities or other property that are not in
proper form for deposit or any reason. Such transfer and deposit shall be
evidenced by appropriate schedules duly executed by the Trust. The Trust may
deposit with the Custodian additional Securities of the Trust and dividends or
interest collected on such Securities as the same are acquired from time to
time.
The Trust will cause to be deposited with the Custodian from time to
time (i) the net proceeds of Securities sold, (ii) the applicable net asset
value of Shares sold, whether representing initial issue or any other securities
and (iii) cash as may be acquired. Deposits with respect to sales of Shares
shall be accompanied by Written or Oral Instructions stating the amount to be
deposited with the Custodian and registration instructions.
SECTION 6. DEPOSIT OF TRUST ASSETS WITH THIRD PARTIES
. The Trust hereby authorizes the Custodian to deposit assets of the
Trust as follows:
(a) With the Custodian or any other bank licensed and regularly
examined by the United States or any state thereof assets held in the Option
Account created pursuant to Section 13(b).
(b) In the Custodian"s or Sub-Custodian"s account(s) with any
Securities Depository as the Trust shall permit by Written or Oral Instruction.
(c) Book-Entry Securities belonging to the Trust in a Book-Entry
Account maintained for the Custodian.
So long as any deposit referred to in (b) or (c) above is maintained
for the Trust, the Custodian shall: (i) deposit the Securities in an account
that includes only assets held by the Custodian for customers; (ii) send the
Trust a confirmation (i.e., an advice of notice of transaction) of any transfers
of the Trust to or from the account; (iii) with respect to Securities of the
Trust transferred to the account, identify as belonging to the Trust a quantity
of securities in a fungible bulk of securities that are registered in the name
of the Custodian or its nominee, or credited to the Custodian"s account on the
books of a Securities Depository or the Custodian"s agent; (iv) promptly send to
the Trust all reports it receives from the appropriate Federal Reserve Bank or
Securities Depository on its respective system of internal accounting control;
and (v) send to the Trust such reports of the systems of internal accounting
control of the Custodian and its agents through which Securities are deposited
as are available and as the Trust may reasonably request from time to time.
The Custodian shall be liable to the Trust for any loss or damage to
the Trust resulting from the negligence (including failure to act), fault or
willful misconduct of the Custodian, its agents or employees in selecting a
Securities Depository or Book-Entry Account. The Custodian shall not waive any
rights it may have against a Securities Depository or Federal Reserve Bank. The
Trust may elect to be subrogated to the rights of the Custodian against the
Securities Depository or Federal Reserve Bank or any other person with respect
to any claim that the Custodian may have as a consequence of any such loss or
damage, if and to the extent that the Trust has not been made whole for any such
loss or damage.
SECTION 7. REGISTRATION OF SECURITIES
. The Securities held by the Custodian, unless payable to bearer or
maintained in a Securities Depository or Book-Entry Account pursuant to Section
6, shall be registered in the name of the Custodian or in the name of its
nominee, or if directed by Written Instructions, in the name of the Trust or its
nominee. In the event that any Securities are registered in the name of the
Trust or its nominee, the Trust will endorse, or cause to be endorsed, to the
Custodian dividend and interest checks, or will issue appropriate orders to the
issuers of the Securities to pay dividends and interest to the Custodian.
Securities, excepting bearer securities, delivered from time to time to the
Custodian shall, in all cases, be in due form for transfer, or registered as
above provided.
SECTION 8. DISBURSEMENTS OF CASH
. The Custodian is hereby authorized and directed to disburse cash to
or from the Trust from time to time as follows:
(a) For the purchase of Securities by the Trust, upon receipt by the
Custodian of (i) Written or Oral Instructions specifying the Securities and
stating the purchase price and the name of the broker, investment banker or
other party to or upon whose order the purchase price is to be paid and (ii)
either the Securities so purchased, in due form for transfer or already
registered as provided in Section 7, or notification by a Securities Depository
or a Federal Reserve Bank that the Securities have been credited to the
Custodian"s account with the Securities Depository or Federal Reserve Bank.
(b) For transferring funds, including mark-to-the-market payments, in
connection with a repurchase agreement covering Securities that have been
received by the Custodian as provided in subsection (a) above, upon receipt by
the Custodian of (i) Written or Oral Instruction specifying the Securities, the
purchase price and the party to whom the purchase price is to be paid and (ii)
written agreement to repurchase the Securities from the Trust.
(c) For transferring funds to a duly-designated redemption paying agent
to redeem or repurchase Shares, upon receipt of (i) either Share Certificates in
due form for transfer, or proper processing of Shares for which no Share
Certificates are outstanding and (ii) Written or Oral Instructions stating the
applicable redemption price.
(d) For exercising warrants and rights received upon the Securities,
upon timely receipt of Written or Oral Instructions authorizing the exercise of
such warrants and rights and stating the consideration to be paid.
(e) For repaying, in whole or in part, any loan of the Trust, or
returning cash collateral for Securities loaned by the Trust, upon receipt of
Written or Oral Instructions directing payment and stating the Securities, if
any, to be received against payment.
(f) For paying over to a duly-designated dividend disbursing agent such
amounts as may be stated in Written or Oral Instructions as the Trust deems
appropriate to include in dividends or distributions declared on the Shares.
(g) For paying or reimbursing the Trust for other corporate
expenditures, upon receipt of Written or Oral Instructions stating that such
expenditures are or were authorized by resolution of the Board and specifying
the amount of payment, the purposes for which such payment is to be made, and
the person or persons to whom payment is to be made.
(h) For transferring funds to any Sub-Custodian, upon receipt of
Written or Oral Instructions and upon agreement by the Custodian.
(i) To advance or pay out accrued interest on bonds purchased,
dividends on stocks sold and similar items.
(j) To pay proper compensation and expenses of the Custodian.
(k) To pay, or provide the Trust with money to pay, taxes, upon receipt
of appropriate Written or Oral Instructions.
(l) To transfer funds to a separate checking account maintained by the
Trust.
(m) To pay interest, management or supervisory fees, administration,
dividend and transfer agency fees and costs, compensation of personnel and
operating expenses, including but not limited to fees for legal, accounting and
auditing services.
Before making any payments or disbursements, however, the Custodian
shall receive, and may conclusively rely upon, Written or Oral Instructions
requesting such payment or disbursement and stating that it is for one or more
or the purposes enumerated above. Notwithstanding the foregoing, the Custodian
may disburse cash for other corporate purposes; provided, however, that such
disbursement maybe made only upon receipt of Written or Oral Instructions
stating that such disbursement was authorized by resolution of the Board.
SECTION 9. DELIVERY OF SECURITIES
. The Custodian is hereby authorized and directed to deliver Securities
of the Trust from time to time as follows:
(a) For completing sales of Securities sold by the Trust, upon receipt
of (i) Written or Oral Instructions specifying the Securities sold, the amount
to be received and the broker, investment banker or other party to or upon whose
order the Securities are to be delivered and (ii) the net proceeds of sale;
provided, however, that the Custodian may accept payment in connection with the
sale of Book-Entry Securities and Securities on deposit with a Securities
Depository by means of a credit in the appropriate amount to the account
described in Section 6(b) or (c) above.
(b) For exchanging Securities for other Securities (and cash, if
applicable), upon timely receipt of (i) Written or Oral Instructions stating the
Securities to be exchanged, cash to be received and the manner in which the
exchange is to be made and (ii) the other Securities (and cash, if applicable)
as specified in the Written or Oral Instructions.
(c) For exchanging or converting Securities pursuant to their terms or
pursuant to any plan of conversion, consolidation, recapitalization,
reorganization, re-adjustment or otherwise, upon timely receipt of (i) Written
or Oral Instructions authorizing such exchange or conversion and stating the
manner in which such exchange or conversion is to be made and (ii) the
Securities, certificates of deposit, interim receipts, and/or cash to be
received as specified in the Written or Oral Instructions.
(d) For presenting for payment Securities that have matured or have
been called for redemption;
(e) For delivering Securities upon redemption of Shares in kind, upon
receipt of (i) Share Certificates in due form for transfer, or proper processing
of Shares for which no Share Certificates are outstanding and (ii) appropriate
Written or Oral Instructions.
(f) For depositing with the lender Securities to be held as collateral
for a loan to the Trust or depositing with a borrower Securities to be loaned by
the Trust, (i) upon receipt of Written or Oral Instructions directing delivery
to the lender or borrower and suitable collateral, if Securities are loaned or
(ii) pursuant to the terms of a separate securities lending agreement.
(g) For complying with a repurchase agreement, upon receipt of Written
or Oral Instructions stating (i) the securities to be delivered and the payment
to be received and (ii) payment.
(h) For depositing with a depository agent in connection with a tender
or other similar offer to purchase Securities of the Trust, upon receipt of
Written or Oral Instructions.
(i) For depositing Securities with the issuer thereof, or its agents,
for the purpose of transferring such Securities into the name of the Trust, the
Custodian or any nominee of either in accordance with Section 7.
(j) For other proper corporate purposes; provided, that the Custodian
shall receive Written or Oral Instructions requesting such delivery.
(k) Notwithstanding the foregoing, the Custodian may, without Written
or Oral Instructions, surrender and exchange Securities for other Securities in
connection with any reorganization, recapitalization, or similar transaction in
which the owner of the Securities is not given an option; provided, however,
that the Custodian has no responsibility to effect any such exchange unless it
has received actual notice of the event permitting or requiring such exchange.
To facilitate any such exchange, the Custodian is authorized to surrender
against payment maturing obligations and obligations called for redemption and
to effectuate the exchange in accordance with customary practices and procedures
established in the market for exchanges.
SECTION 10. BORROWINGS
. The Trust will cause any person (including the Custodian) from which
it borrows money using Securities as collateral to deliver to the Custodian a
notice of undertaking in the form currently employed by the lender setting forth
the amount that the lender will loan to the Trust against delivery of a stated
amount of collateral. The Trust shall promptly deliver to the Custodian Written
or Oral Instructions for each loan, stating (i) the name of the lender, (ii) the
amount and terms of the loan, which terms may be specified by incorporating by
reference an attached promissory note or loan agreement duly endorsed by the
Trust, (iii) the time and date, if known, on which the loan will be consummated
(the ""borrowing date""), (iv) the date on which the loan becomes due and
payable, (v) the total amount payable to the Trust on the borrowing date, (vi)
the market value of Securities to be delivered as collateral for such loan and
(vii) the name of the issuer, the title and the number of shares or principal
amount of the Securities to be delivered as collateral. The Custodian shall
deliver on the borrowing date such specified collateral and the executed
promissory note, if any, and receive from the lender the total amount of the
loan proceeds; provided, however, that no delivery of Securities shall occur if
the amount of loan proceeds does not conform to the amount set forth in the
Written or Oral Instructions, or if such Instruction do not contain the
requirements of (vii) above. The Custodian may, at the option of the lender,
keep such collateral in its possession; provided such collateral is subject to
all rights given the lender by any promissory note or loan agreement executed by
the Trust.
The Custodian shall deliver, from time to time, any Securities required
as additional collateral for any transaction described in this Section, upon
receipt of Written or Oral Instructions. The Trust shall cause all Securities
released from collateral status to be returned directly to the Custodian.
SECTION 11. INDEBTEDNESS TO CUSTODIAN
. If, in its sole discretion, the Custodian advances funds to the Trust
to pay for the purchase of Securities, to cover an overdraft of the Trust"s
account with the Custodian, or to pay any other indebtedness to the Custodian,
the Trust"s indebtedness shall be deemed to be a loan by the Custodian to the
Trust, payable on demand and bearing interest at the rate then charged by the
Custodian for such loans; provided, however, that the Custodian shall give the
Trust notice of any such advance that exceeds five percent of the value of the
Securities and cash held by the Custodian at the time of the advance. The Trust
hereby agrees that the Custodian shall have a continuing lien and security
interest, to the extent of any such overdraft or indebtedness, in any property
then held by the Custodian or its agents for the benefit of the Trust, or in
which the Trust may have an interest. The Trust authorizes the Custodian, in its
sole discretion at any time, to charge any such overdraft or indebtedness,
together with interest due thereon, against any balance then credited to the
Trust on the Custodian"s books.
SECTION 12. SECURITIES LOANS
. The Custodian may from time to time lend securities of the Trust in
accordance with and pursuant to a separate securities lending agreement.
SECTION 13. OPTIONS, FUTURES CONTRACTS AND SEGREGATED ACCOUNTS
. The Custodian"s responsibilities regarding option contracts will be
governed by the following sub-paragraphs:
(a) Options.
(i) Upon receipt of Written or Oral Instructions relating to the
purchase of an option or sale of a covered call option, the Custodian shall: (A)
receive and retain confirmations or other documents, if any, evidencing the
purchase or writing of the option; (B) if the transaction involves the sale of a
covered call option, deposit and maintain in a segregated account the Securities
(either physically or by book-entry in a Securities Depository) subject to the
covered call option written on behalf of the Series; and (C) pay, release and/or
transfer such securities, cash or other assets in accordance with any notices or
other communications evidencing the expiration, termination or exercise of such
options which are furnished to the Custodian by the Options Clearing Corporation
(the "OCC"), the Securities or Options Exchanges on which such options were
traded, or such other organization as may be responsible for handling such
option transactions.
(ii) Upon receipt of instructions relating to the sale of a naked
option (including stock index and commodity options), the Custodian, the Trust
and the broker-dealer shall enter into an agreement to comply with the rules of
the OCC or of any registered national securities exchange or similar
organizations(s). Pursuant to that agreement and any Written or Oral
Instructions, the Custodian shall: (A) receive and retain confirmations or other
documents, if any, evidencing the writing of the option; (B) deposit and
maintain in a segregated account Securities (either physically or by book-entry
in a Securities Depository cash and/or other assets; and (C) pay, release and/or
transfer such Securities, cash or other assets in accordance with any such
agreement and with any notices or other communications evidencing the
expiration, termination or exercise of such option which are furnished to the
Custodian by the OCC, the Securities or Options Exchanges on which such options
were traded, or such other organization as may be responsible for handling such
option transactions. The Custodian shall not be responsible for determining the
quality and quantity of assets held in any segregated account established in
compliance with applicable margin maintenance requirements and the performance
of other terms of any option contract.
(b) Futures Contracts. Upon receipt of Written or Oral Instructions,
the custodian shall enter into a futures margin procedural agreement among the
Fund, the Custodian and the designated futures commission merchant (a
"Procedural Agreement"). Under the Procedural Agreement the Custodian shall: (A)
receive and retain confirmations, if any, evidencing the purchase or sale of a
futures contract or an option on a futures contract by a Series; (B) deposit and
maintain in a segregated account cash, Securities and/or other assets designated
as initial, maintenance or variation "margin" deposits intended to secure the
Series' performance of its obligations under any futures contracts purchased or
sold, or any options on futures contracts written by the Series, in accordance
with the provisions of any Procedural Agreement designed to comply with the
provisions of the Commodity Futures Trading Commission and/or any commodity
exchange or contract market (such as the Chicago Board of Trade), or any similar
organization(s), regarding such margin deposits; and (C) release assets from
and/or transfer assets into such margin accounts only in accordance with any
such Procedural Agreements. The Custodian shall not be responsible for
determining the type and amount of assets held in the segregated account or paid
to the broker-dealer in compliance with applicable margin maintenance
requirements and the performance of any futures contract or option on a futures
contract in accordance with its terms.
(c) Segregated Accounts. Upon receipt of Written or Oral Instructions,
the Custodian shall establish and maintain on its books a segregated account or
accounts for and on behalf of the Series, into which account or accounts may be
transferred assets of each Series, including Securities maintained by the
Custodian in a Securities Depository, said account or accounts to be maintained
(i) for the purpose of compliance by the Series with the procedures required by
SEC Investment Company Act Release Number 10666 or any subsequent release or
releases relating to the maintenance of segregated accounts by registered
investment companies or (ii) for such other purposes as may be set forth, from
time to time in Written or Oral Instructions. The Custodian shall not be
responsible for the determination of the type or amount of assets to be held in
any segregated account referred to in this paragraph.
SECTION 14. EXERCISE OF POWERS WITH RESPECT TO SECURITIES
. The Custodian assumes no duty, obligation or responsibility
whatsoever to exercise any voting or consent powers with respect to the
Securities held by it from time to time hereunder. The Trust or such persons as
it may designate shall have the right to vote, consent or otherwise act with
respect to Securities. The Custodian will exercise its best efforts (as defined
in Section 16) to furnish to the Trust in a timely manner all proxies or other
appropriate authorizations with respect to Securities registered in the name of
the Custodian or its nominee, so that the Trust or its designee may vote,
consent or otherwise act.
SECTION 15. COMPENSATION.
(a) The Trust agrees to pay to the Custodian compensation for its
services as set forth in Appendix ABB hereto, or as shall be set forth in
written amendments to Appendix ABB approved by the Trust and the Custodian from
time to time.
(b) The Trust shall pay all fees and expenses of any Sub-Custodian
approved by the Trust.
SECTION 16. CORPORATE ACTIVITY
. The Custodian will exercise its best efforts to forward to the Trust
in a timely manner all notices of shareholder meetings, proxy statements, annual
reports, conversion notices, call notices, or other notices or written materials
of any kind (excluding share certificates and dividend, principal and interest
payments) sent to the Custodian as registered owner of Securities. Best efforts
as used in this Agreement shall mean the efforts reasonably believed in good
faith by the Custodian to be adequate in the circumstances.
Upon receipt of warrants or rights issued in connection with the assets
of the Trust, the Custodian shall enter into its ledgers appropriate notations
indicating such receipt and shall notify the Trust of such receipt. However, the
Custodian shall have no obligation to take any other action with respect to such
warrants or rights, except as directed in Written or Oral Instructions.
Custodian shall take all reasonable actions, as agreed to by the Trust
and the Custodian, to assist the Trust in obtaining from year to year favorable
opinions from the Trust"s independent auditors with respect to the Custodian"s
activities hereunder.
SECTION 17. RECORDS
. The Custodian acknowledges and agrees that all books and records
maintained for the Trust in any capacity under this Agreement are the property
of the Trust and may be inspected by the Trust or any authorized regulatory
agency at any reasonable time. Upon request all such books and records will be
surrendered promptly to the Trust. The Custodian agrees to make available upon
request and to preserve for the periods prescribed in Rule 31a-2 of the Act any
records related to services provided under this Agreement and required to be
maintained by Rule 31a-1 under the Act.
SECTION 18. LIABILITY
. The Custodian assumes only the usual duties and obligations normally
performed by custodians of open-end investment companies. The Custodian
specifically assumes no responsibility for the management, investment or
reinvestment of the Securities from time to time owned by the Trust, whether or
not on deposit hereunder. The Custodian assumes no duty, obligation or
responsibility whatsoever with respect to Securities not deposited with the
Custodian.
The Custodian may rely upon the advice of counsel, who may be counsel
for the Trust or for the Custodian, and upon statements of accountants, brokers
or other persons believed by the Custodian in good faith to be expert in the
matters upon which they are consulted. The Custodian shall not be liable for any
action taken in good faith reliance upon such advice or statements. The
Custodian shall not be liable for action taken in good faith in accordance with
any Written or Oral Instructions, request or advice of the Trust or its
officers, or information furnished by the Trust or its officers. The Custodian
shall not be liable for any non-negligent action taken in good faith and
reasonably believed by it to be within the powers conferred upon it by this
Agreement.
No liability of any kind, other than to the Trust, shall attach to the
Custodian by reason of its custody of the Securities and cash held by the
Custodian hereunder or otherwise as a result of its custodianship. In the event
that any claim shall be made against the Custodian, it shall have the right to
pay the claim and reimburse itself from the assets of the Trust; provided,
however, that no such reimbursement shall occur unless the Trust is notified of
the claim and is afforded an opportunity to contest or defend the claim, if it
so elects. The Trust agrees to indemnify and hold the Custodian harmless for any
loss, claim, damage or expense arising out of the custodian relationship under
this Agreement; provided such loss, claim, damage or expense is not the direct
result of the Custodian"s negligence or willful misconduct.
SECTION 19. TAXES
. The Custodian shall not be liable for any taxes, assessments or
governmental charges that may be levied or assessed upon the Securities held by
it hereunder, or upon the income therefrom. Upon Written or Oral Instruction,
the Custodian may pay any such tax, assessment or charge and reimburse itself
out of the monies of the Trust or the Securities held hereunder.
SECTION 20. SUB-CUSTODIANS.
(a) The Custodian may from time to time request appointment of one or
more Sub-Custodians. Upon receipt of Written or Oral Instructions authorizing
the use of a Sub-Custodian, the Custodian shall appoint one or more
Sub-Custodians or Foreign Sub-Custodians of Securities and cash owned by the
Trust from time to time.
(b) Custodian shall cause Foreign Securities and amounts of cash
reasonably required to effect Trust"s Foreign Securities transactions in the
Custodian Account to be held in such countries or other jurisdictions as Trust
shall direct in Written or Oral Instructions.
Custodian may hold Foreign Securities and cash in sub-custody accounts,
which shall be deemed part of the Custodian Account and which have been
established by Custodian or by a Sub-Custodian with those Foreign Sub-Custodians
as Trust shall approve in Written or Oral Instructions.
Each Foreign Sub-Custodian is authorized to hold Foreign Securities in
an account with any foreign Securities Depository as Trust shall approve in
Written or Oral Instructions.
The contractual agreement between the Custodian and any Foreign
Sub-Custodian must provide at a minimum that the Foreign Sub-Custodian shall
provide, obtain or use its best efforts to assist the Trust in obtaining
information responsive to the ""notes"" to Rule 17f-5 under the Act with respect
to (i) each country or jurisdiction where the Trust"s assets are proposed to be
maintained, are maintained or in the future may be maintained and (ii) each
Foreign Sub-Custodian which is proposed to hold, holds or in the future may hold
Foreign Securities or cash of the Trust. Notwithstanding any other provisions of
this Agreement, each Foreign Sub-Custodian"s undertaking to assist Trust in
obtaining such information shall neither increase the Foreign Sub-Custodian"s
duty of care nor reduce Trust"s responsibility to determine for itself the
prudence of entrusting its assets to any particular Foreign Sub-Custodian or
foreign Securities Depository.
The Custodian shall deposit Foreign Securities and cash of the Trust
with a Foreign Sub-Custodian only in an account of the Foreign Sub-Custodian
which holds only assets held by Custodian as custodian for its customers. In the
event that a Foreign Sub-Custodian is authorized to hold any of the Foreign
Securities placed in its care in a foreign Securities Depository, Custodian will
direct the Foreign Sub-Custodian to identify the Foreign Securities on the books
of the foreign Securities Depository as being held for the account of Custodian
as custodian for its customers.
(c) The Custodian shall have no liability to the Trust by reason of any
act or omission of any Sub-Custodian approved by the Trust, and the Trust shall
indemnify the Custodian and hold it harmless from and against any and all
actions, suits, claims, losses, damages, costs, charges, counsel fees, payments,
expenses and liabilities arising directly or indirectly out of or in connection
with the performance of any Sub-Custodian approved by the Trust. The Custodian
assigns to the Trust any and all claims for any losses, costs, expenses, or
damages that may be incurred by the Trust by reason of the negligence, gross
negligence or misconduct of any Sub-Custodian approved by the Trust, or by
reason of the failure of a Sub-Custodian approved by the Trust to perform in
accordance with any applicable agreement, including instructions of the
Custodian. The Custodian shall be under no obligation to prosecute or to defend
any action, suit or claim arising out of, or in connection with, the performance
of any Sub-Custodian approved by the Trust, if, in the opinion of the
Custodian"s counsel, such action will involve expense or liability to the
Custodian. The Trust shall, upon request, furnish the Custodian with
satisfactory indemnity against such expense or liability, and upon request of
the Custodian, the Trust shall assume the entire defense of any action, suit, or
claim subject to the foregoing indemnity.
With respect to each Sub-Custodian not approved by the Trust, which may
not be a Foreign Sub-Custodian, the Custodian shall be liable to the Trust for
any loss which shall occur as a result of the failure of the Sub-Custodian to
exercise reasonable care with respect to the safekeeping of assets to the same
extent that the Custodian would be liable to the Trust if the Custodian were
holding such assets in its own premises. The Custodian shall be liable to the
Trust under this paragraph only to the extent of the Trust"s direct damages, to
be determined based on the market value of the assets which are subject to loss
and without reference to any special conditions or circumstances.
SECTION 21. EFFECTIVENESS, DURATION AND TERMINATION.
(a) This Agreement may be executed in more than one counterpart, each
of which shall be deemed to be an original, and shall become effective on the
date hereof. This Agreement shall remain in effect for a period of one year from
the date of its effectiveness and shall continue in effect for successive
twelve-month periods; provided that such continuance is specifically approved at
least annually by the Board and by a majority of the Trustees who are not
parties to this Agreement or interested persons of any such party.
(b) This Agreement may be terminated by either party upon notice to the
other. The termination shall become effective at the time specified in the
notice but no earlier than sixty (60) days after the date of the notice. Upon
notice of termination, the Trust shall use its best efforts to obtain a
successor custodian. If a successor custodian is not appointed within ninety
(90) days after the date of the notice of termination, the Board shall, by
resolution, designate the Trust as its own custodian. Each successor custodian
shall be a person qualified to serve under the Act. Promptly following receipt
of written notice from the Trust of the appointment of a successor custodian and
receipt of Written or Oral Instructions, the Custodian shall deliver all
Securities and cash it then holds directly to the successor custodian and shall,
upon request of the Trust and the successor custodian and upon payment of the
Custodian"s reasonable charges and disbursements, (i) execute and deliver to the
successor custodian an instrument approved by the successor custodian"s counsel
transferring to the successor custodian all the rights, duties and obligations
of the Custodian, (ii) transfer to the successor custodian the originals or
copies of all books and records maintained by the Custodian hereunder and (iii)
cooperate with, and provide reasonable assistance to, the successor custodian in
the establishment of the books and records necessary to carry out the successor
custodian"s responsibilities hereunder. Upon delivery of the Securities and
other assets of the Trust and compliance with the other requirements of this
Section 21, the Custodian shall have no further duty or liability hereunder.
Every successor custodian appointed hereunder shall execute and deliver an
appropriate written acceptance of its appointment and shall thereupon become
vested with the rights, duties and obligations of the predecessor custodian.
SECTION 22. REQUIRED PERFORMANCE ON FUND BUSINESS DAYS
. Nothing contained in this Agreement is intended to or shall require
the Custodian, in any capacity hereunder, to perform any functions or duties on
any day other than a Fund Business Day. Functions or duties normally scheduled
to be performed on any day which is not a Fund Business Day shall be performed
on, and as of, the next Fund Business Day unless otherwise required by law.
SECTION 23. MISCELLANEOUS.
(a) This Agreement shall extend to and bind the parties hereto and
their respective successors and assigns; provided, however, that this Agreement
shall not be assignable by the Trust without the written consent of the
Custodian, or by the Custodian without the written consent of the Trust.
Notwithstanding the foregoing, either party may assign this Agreement without
the consent of the other party so long as the assignee is an affiliate, parent
or subsidiary of the assigning party and the assignee of the Custodian is
qualified to serve as custodian under the Act.
(b) This Agreement shall be governed by and construed in accordance
with the laws of the State of Minnesota.
(c) The captions inserted herein are for convenience of reference and
shall not affect, in any way, the meaning or interpretation of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
NORWEST ADVANTAGE FUNDS
By:__________________________
John Y. Keffer
President
NORWEST BANK MINNESOTA, N.A.
By:________________________
P. Jay Kiedrowski
President
NORWEST ADVANTAGE FUNDS
CUSTODIAN AGREEMENT
July 28, 1998[date]
Appendix A
Series of the Trust
Funds of the Trust
Cash Investment Fund
Ready Cash Investment Fund
U.S. Government Fund
Treasury Fund
Treasury Plus Fund
Municipal Money Market Fund, Institutional Shares Municipal Money Market Fund,
Investor Shares Ready Cash Investment Fund Intermediate Government Income Fund
Diversified Bond Fund Stable Income Fund Income Fund Total Return Bond Fund
Limited Term Tax-Free Fund Limited Term Government Income Fund Tax-Free Income
Fund Colorado Tax-Free Fund Minnesota Intermediate Tax-Free Fund Minnesota
Tax-Free Fund Strategic Income Fund Moderate Balanced Fund Growth Balanced Fund
Aggressive Balanced-Equity Fund
Income Equity Fund
Index Fund
ValuGrowth Stock Fund
Diversified Equity Fund
Growth Equity Fund
Large Company Growth Fund
Diversified Small Cap Fund
Small Company Stock Fund
Small Company Growth Fund
Small Company Stock Fund
Small Cap Opportunities Fund
Contrarian Stock Fund
International Fund
Performa Strategic Value Bond Fund
Performa Disciplined Growth Fund
Performa Small Cap Value Fund
Performa Global Growth Fund
Norwest WealthBuilder II Growth Portfolio
Norwest WealthBuilder II Growth and Income Portfolio
Norwest WealthBuilder II Growth Balanced Portfolio
NORWEST ADVANTAGE FUNDS
CUSTODIAN AGREEMENT
July 28, 1998[date]
Appendix B
Fee Schedule
For its custodial services, Norwest Bank shall receive a fee with
respect to each series listed in Appendix A at the following annual rates [:
0.02% of the first $100 million of the Fund's average daily net assets, 0.015%
of the next $100 million of the Fund's average daily net assets and 0.01% of the
Fund's remaining average daily net assets.
Fees are ]
Provided that, no fee shall be payable hereunder with respect to a Fund
during any period in which the Fund invests all (or substantially all) of its
investment assets in a single registered, open-end management investment
company, or separate series thereof, in accordance with Section 12(d)(1)(E)
under the 1940 Act.
Exhibit (8)(b)
NORWEST ADVANTAGE ADVANTAGE FUNDS(R)
FUND ACCOUNTING AGREEMENT
June 1, 1997, as amended July 28, 1998
AGREEMENT made as of the 1st day of June, 1997, as amended on July 28,
1998, by and between Norwest Advantage Advantage Funds[Customer], a business
trust organized under the laws of the State of Delaware[Type of Entity and Place
of Organization], with its principal office and place of business at Two
Portland Square, Portland, Maine 04101[Address] (the "[Trust]"), and Forum
Accounting Services, Limited Liability Company ("Forum") a Delaware limited
liability company with its principal office and place of business at Two
Portland Square, Portland, Maine 04101 ("Forum")..
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end management investment company
and may issue its [shares of beneficial interest, no par value] (the "Shares"),
in separate series and classes; and
WHEREAS, the Trust intends initially to offers shares in [Number of
Initial Series] various series as listed in Appendix A hereto (each such series,
together with all other series subsequently established by the Trust and made
subject to this Agreement in accordance with Section 6, being herein referred to
as a "Fund," and collectively as the "Funds") and the Trust intends initially to
offers shares of various classes of each Fund as listed in Appendix A hereto
(each such class together with all other classes subsequently established by the
Trust in a Fund being herein referred to as a "Class," and collectively as the
"Classes");
WHEREAS, the Trust desires that Forum perform certain fund accounting
services for each Fund and Class thereof and Forum is willing to provide those
services on the terms and conditions set forth in this Agreement;
NOW THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, the Trust and Forum hereby agree as follows:
SECTION 1. APPOINTMENT
The Trust hereby appoints Forum, and Forum hereby agrees, to act as
fund accountant of the Trust for the period and on the terms set forth in this
Agreement. In connection therewith, the Trust has delivered to Forum copies of
(i) the Trust's its [Articles of Incorporation][Trust Instrument][Declaration of
Trust] and Bylaws (collectively, as amended from time to time, "Organic
Documents"), (ii) the Trust's Registration Statement and all amendments thereto
filed with the U.S. Securities and Exchange Commission ("SEC") pursuant to the
Securities Act of 1933, as amended (the "Securities Act"), or the 1940 Act (the
"Registration Statement"), (iii) the Trust's and the current Prospectus and
Statement of Additional Information of each Fund (collectively, as currently in
effect and as amended or supplemented, the "Prospectus") and (iv) all procedures
adopted by the Trust with respect to the Funds (i.e., repurchase agreement
procedures), and shall promptly furnish Forum with all amendments of or
supplements to the foregoing. shall promptly furnish Forum with all
amendments of or supplements to the foregoing.
SECTION 2. DUTIES OF FORUM
(a) Forum and its affiliatesthe Trust's manageradministrator, [Forum
Financial Administrative Services, Inc.] and Forum Administrative Services, LLC
(the "Administrator"), may from time to time adopt such procedures as they agree
upon to implement the terms of this Section. With respect to each Fund, Forum
shall perform the following services: :
(i) calculate the net asset value per share with the frequency
prescribed in each Fund's then-current Prospectus;
(ii) calculate each item of income, expense, deduction, credit, gain
and loss, if any, as required by the Trust and in conformance with
generally accepted accounting practice ("GAAP"), the SEC's Regulation
S-X (or any successor regulation) and the Internal Revenue Code of
1986, as amended (or any successor laws)(the "Code");
(iii) Maintain each Fund's general ledger and record all income,
expenses, capital share activity and security transactions of each
Fund;
(iv) calculate the yield, effective yield, tax equivalent yield and
total return for each Fund, and each Class thereof, as applicable, and
such other measure of performance as may be agreed upon between the
parties hereto;
(v) provide the Trust and such other persons as the Administrator may
direct with the following reports (A) a current security position
report, (B) a summary report of transactions and pending maturities
(including the principal, cost, and accrued interest on each portfolio
security in maturity date order), and (C) a current cash position and
projection report;
(vi) prepare and record, as of each time when the net asset value of a
Fund is calculated or as otherwise directed by the Trust, either (A) a
valuation of the assets of the Fund (based upon the use of outside
services normally used and contracted for this purpose by Forum in the
case of securities for which information and market price or yield
quotations are readily available and based upon evaluations conducted
in accordance with the Trust's instructions in the case of all other
assets) or (B) a calculation confirming that the market value of the
Fund's assets does not deviate from the amortized cost value of those
assets by more than a specified percentage;
(vii) make such adjustments over such periods as Forum deems necessary
to reflect over-accruals or under-accruals of estimated expenses or
income;
(viii) request any necessary information from the Administrator and the
Trust's transfer agent and distributor in order to prepare, and
prepare, the Trust's Form N-SAR;
(ix) provide appropriate records to assist the Trust's independent
accountants and, upon approval of the Trust or the Administrator, any
regulatory body in any requested review of the Trust's books and
records maintained by Forum;
(x) prepare semi-annual financial statements and oversee the production
of the semi-annual financial statements and any related report to the
Trust's shareholders prepared by the Trust or its investment advisers;
(xi) file the Funds' semi-annual financial statements with the SEC or
ensure that the Funds' semi-annual financial statements are filed with
the SEC;
(xii) provide information typically supplied in the investment company
industry to companies that track or report price, performance or other
information with respect to investment companies;
(xiii) provide the Trust or Administrator with the data requested by
the Administrator that is required to update the Trust's registration
statement;
(xiv) provide the Trust or independent accountants with all information
requested with respect to the preparation of the Trust's income, excise
and other tax returns;
(xv) prepare or prepare, execute and file all Federal income and excise
tax returns and state income and other tax returns, including any
extensions or amendments, each as agreed between the Trust and Forum;
(xvi) produce quarterly compliance reports for investment advisers to
the Trust and the Trust's Board of Trustees (the Board") and provide
information to the Administrator, investment advisers to the Trust and
other appropriate persons with respect to questions of Fund compliance;
(xvii) determine the amount of distributions to shareholders as
necessary to, among other things, maintain the qualification of each
Fund as a regulated investment company under the Code, and prepare and
distribute to appropriate parties notices announcing the declaration of
dividends and other distributions to shareholders;
(xviii) transmit to and receive from each Fund's transfer agent
appropriate data to on a daily basis and daily reconcile Shares
outstanding and other data with the transfer agent;
(xiv) periodically reconcile all appropriate data with each Fund's
custodian; and
(xv) verify investment trade tickets when received from an investment
adviser and maintain individual ledgers and historical tax lots for
each security ;
(xvi) perform such other recordkeeping, reporting and other tasks as
may be specified from time to time in the procedures adopted by the
Board; provided, that Forum need not begin performing any such task
except upon 65 days' notice and pursuant to mutually acceptable
compensation agreements.
(b) Forum shall prepare and maintain on behalf of the Trust the
following books and records of each Fund, and each Class thereof, pursuant to
Rule 31a-1 under the 1940 Act (the "Rule"):
(i) Journals containing an itemized daily record in detail of all
purchases and sales of securities, all receipts and disbursements of
cash and all other debits and credits, as required by subsection (b)(1)
of the Rule;
(ii) Journals and auxiliary ledgers reflecting all asset, liability,
reserve, capital, income and expense accounts, as required by
subsection (b)(2) of the Rule (but not including the ledgers required
by subsection (b)(2)(iv);
(iii) A record of each brokerage order given by or on behalf of the
Trust for, or in connection with, the purchase or sale of securities,
and all other portfolio purchases or sales, as required by subsections
(b)(5) and (b)(6) of the Rule;
(iv) A record of all options, if any, in which the Trust has any direct
or indirect interest or which the Trust has granted or guaranteed and a
record of any contractual commitments to purchase, sell, receive or
deliver any property as required by subsection (b)(7) of the Rule;
(v) A monthly trial balance of all ledger accounts (except shareholder
accounts) as required by subsection (b)(8) of the Rule; and
(vi) ADD RULE 2a-7 RECORDS HERE
(vii) Other records required by the Rule or any successor rule or
pursuant to interpretations thereof to be kept by open-end management
investment companies, but limited to those provisions of the Rule
applicable to portfolio transactions and as agreed upon between the
parties hereto.
(c) The books and records maintained pursuant to Section 2(b) shall be
prepared and maintained in such form, for such periods and in such locations as
may be required by the 1940 Act. The books and records pertaining to the Trust
that are in possession of Forum shall be the property of the Trust. The Trust,
or the Trust's authorized representatives, shall have access to such books and
records at all times during Forum's normal business hours. Upon the reasonable
request of the Trust or the Administrator, copies of any such books and records
shall be provided promptly by Forum to the Trust or the Trust's authorized
representatives at the Trust's expense. In the event the Trust designates a
successor that shall assume any of Forum's obligations hereunder, Forum shall,
at the expense and direction of the Trust, transfer to such successor all
relevant books, records and other data established or maintained by Forum under
this Agreement.
(d) Nothing contained herein shall be construed to require Forum to
perform any service that could cause Forum to be deemed an investment adviser
for purposes of the 1940 Act or the Investment Advisers Act of 1940, as amended,
or that could cause a Fund to act in contravention of the Fund's Prospectus or
any provision of the 1940 Act. Except as otherwise specifically provided herein,
the Trust assumes all responsibility for ensuring that the Trust complies with
all applicable requirements of the Securities Act, the 1940 Act and any laws,
rules and regulations of governmental authorities with jurisdiction over the
Trust. All references to any law in this Agreement shall be deemed to include
reference to the applicable rules and regulations promulgated under authority of
the law and all official interpretations of such law or rules or regulations.
SECTION 3. STANDARD OF CARE; RELIANCE
(a) Forum shall be under no duty to take any action except as
specifically set forth herein or as may be specifically agreed to by Forum in
writing. Forum shall use its best judgment and efforts in rendering the services
described in this Agreement. Forum shall not be liable to the Trust or any of
the Trust's shareholders for any action or inaction of Forum relating to any
event whatsoever in the absence of bad faith, willful misfeasance or [gross]
negligence in the performance of Forum's duties or obligations under this
Agreement or by reason of Forum's reckless disregard of its duties and
obligations under this Agreement.
(b) The Trust agrees to indemnify and hold harmless Forum, its
employees, agents, directors, officers and managers and any person who controls
Forum within the meaning of section 15 of the Securities Act or section 20 of
the Securities Exchange Act of 1934, as amended, ("Forum Indemnitees") against
and from any and all claims, demands, actions, suits, judgments, liabilities,
losses, damages, costs, charges, reasonable counsel fees and other expenses of
every nature and character arising out of or in any way related to Forum's
actions taken or failures to act with respect to a Fund that are consistent with
the standard of care set forth in Section 3(a) or based, if applicable, on good
faith reliance upon an item described in Section 3(c)(a "Claim"). The Trust
shall not be required to indemnify any Forum Indemnitee if, prior to confessing
any Claim against the Forum Indemnitee, Forum or the Forum Indemnitee does not
give the Trust written notice of and reasonable opportunity to defend against
the claim in its own name or in the name of the Forum Indemnitee.
(c) A Forum Indemnitee shall not be liable for any action taken or
failure to act in good faith reliance upon:
(i) the advice of the Trust or of counsel, who may be counsel to the
Trust or counsel to Forum, and upon statements of accountants, brokers
and other persons reasonably believed in good faith by Forum to be
expert in the matters upon which they are consulted;
(ii) any oral instruction which it receives and which it reasonably
believes in good faith was transmitted by the person or persons
authorized by the Board to give such oral instruction (Forum shall have
no duty or obligation to make any inquiry or effort of certification of
such oral instruction.);
(iii) any written instruction or certified copy of any resolution of
the Board, and Forum may rely upon the genuineness of any such document
or copy thereof reasonably believed in good faith by Forum to have been
validly executed; or
(iv) any signature, instruction, request, letter of transmittal,
certificate, opinion of counsel, statement, instrument, report, notice,
consent, order, or other document reasonably believed in good faith by
Forum to be genuine and to have been signed or presented by the Trust
or other proper party or parties;
and no Forum Indemnitee shall be under any duty or obligation to inquire into
the validity or invalidity or authority or lack thereof of any statement, oral
or written instruction, resolution, signature, request, letter of transmittal,
certificate, opinion of counsel, instrument, report, notice, consent, order, or
any other document or instrument which Forum reasonably believes in good faith
to be genuine.
(d) Notwithstanding anything to the contrary in this Agreement, Forum
shall not be liable for the errors of other service providers to the Trust,
including the errors of pricing services (other than to pursue all reasonable
claims against the pricing service based on the pricing services' standard
contracts entered into by Forum) and errors in information provided by an
investment adviser (including prices and pricing formulas and the untimely
transmission of trade information), custodian or transfer agent to the Trust.
(e) With respect to Funds which do not value their assets in accordance
with Rule 2a-7 under the 1940 Act, notwithstanding anything to the contrary in
this Agreement, Forum shall not be liable to the Trust or any shareholder of the
Trust for (i) any loss to the Trust if an NAV Difference for which Forum would
otherwise be liable under this Agreement is less than or equal to 0.001 (1/10 of
1%) or (ii) any loss to a shareholder of the Trust if the NAV Difference for
which Forum would otherwise be liable under this Agreement is less than or equal
to 0.005 (1/2 of 1%) or if the loss in the shareholder's account with the Trust
is less than or equal to $10. Any loss for which Forum is determined to be
liable hereunder shall be reduced by the amount of gain which inures to
shareholders, whether to be collected by the Trust or not.
(f) For purposes of this Agreement, (i) the NAV Difference shall mean
the difference between the NAV at which a shareholder purchase or redemption
should have been effected ("Recalculated NAV") and the NAV at which the purchase
or redemption is effected, divided by the Recalculated NAV, (ii) NAV Differences
and any Forum liability therefrom are to be calculated each time a Fund's (or
class's) NAV is calculated, (iii) in calculating any NAV Difference for which
Forum would otherwise be liable under this Agreement for a particular NAV error,
Fund losses and gains shall be netted and (iv) in calculating any NAV Difference
for which Forum would otherwise be liable under this Agreement for a particular
NAV error that continues for a period covering more than one NAV determination,
Fund losses and gains for the period shall be netted.
SECTION 4. COMPENSATION AND EXPENSES
(a) In consideration of the services provided by Forum pursuant to this
Agreement, the Trust shall pay Forum, with respect to each Fund, the fees set
forth in Clause (i) of Appendix B hereto. In consideration of the services
provided by Forum to begin the operations of a new Fund, the Trust shall pay
Forum, with respect to each Fund, the fees set forth in clause (ii) of Appendix
B hereto. In consideration of additional services provided by Forum to perform
certain functions, the Trust shall pay Forum, with respect to each Fund the fees
set forth in clause (iii) of Appendix B hereto. Nothing in this Agreement shall
require Forum to perform any of the services listed in Section 2(a)(xiv) and
clause (iii) of Appendix B hereto, as such services may be performed by the
Fund's independent accountant if appropriate in the judgment of Forum.
All fees payable hereunder shall be accrued daily by the Trust. The
fees payable for the services listed in clauses (i) and (iii) of Appendix B
hereto shall be payable monthly in advance on the first day of each calendar
month for services to be performed during the following calendar month. The fees
payable for the services listed in clause (ii) and for all reimbursements as
described in Section 4(b) shall be payable monthly in arrears on the first day
of each calendar month (the first day of the calendar month after the Fund
commences operations in the case of the fees listed in clause (ii) of Appendix B
hereto) for services performed during the prior calendar month. If fees payable
for the services listed in clause (i) begin to accrue in the middle of a month
or if this Agreement terminates before the end of any month, all fees for the
period from that date to the end of that month or from the beginning of that
month to the date of termination, as the case may be, shall be prorated
according to the proportion that the period bears to the full month in which the
effectiveness or termination occurs. Upon the termination of this Agreement with
respect to a Fund, the Trust shall pay to Forum such compensation as shall be
payable prior to the effective date of termination.
(b) In connection with the services provided by Forum pursuant to this
Agreement, the Trust, on behalf of each Fund, agrees to reimburse Forum for the
expenses set forth in Clause (iv) of Appendix B hereto. In addition, the Trust,
on behalf of the applicable Fund, shall reimburse Forum for all expenses and
employee time (at 150% of salary) attributable to any review of the Trust's
accounts and records by the Trust's independent accountants or any regulatory
body outside of routine and normal periodic reviews. Should the Trust exercise
its right to terminate this Agreement, the Trust, on behalf of the applicable
Fund, shall reimburse Forum for all out-of-pocket expenses and employee time (at
150% of salary) associated with the copying and movement of records and material
to any successor person and providing assistance to any successor person in the
establishment of the accounts and records necessary to carry out the successor's
responsibilities.
(d) Forum may, with respect to questions of law relating to its
services hereunder, apply to and obtain the advice and opinion of counsel to the
Trust or counsel to Forum. The costs of any such advice or opinion shall be
borne by the Trust.
SECTION 5. EFFECTIVENESS, DURATION, TERMINATION AND ASSIGNMENT
(a) This Agreement shall become effective with respect to each Fund or
Class on the later of the date on which the Trust's Registration Statement
relating to the Shares of the Fund or Class becomes effective or the date of the
commencement of operations of the Fund or Class. Upon effectiveness of this
Agreement, it shall supersede all previous agreements between the parties hereto
covering the subject matter hereof insofar as such Agreement may have been
deemed to relate to the Funds.
(b) This Agreement shall continue in effect with respect to a Fund for
a period of one year from its effectiveness and shall continue in effect for
successive one year periods; provided, that continuance is specifically approved
at least annually (i) by the Board or by a vote of a majority of the outstanding
voting securities of the Fund and (ii) by a vote of a majority of Trustees of
the Trust who are not parties to this Agreement or interested persons of any
such party (other than as Trustees of the Trust).
(c) This Agreement may be terminated with respect to a Fund at any
time, without the payment of any penalty (i) by the Board on 60 days' written
notice to Forum or (ii) by Forum on 60 days' written notice to the Trust. The
obligations of Sections 3 and 4 shall survive any termination of this Agreement.
(d) This Agreement and the rights and duties under this Agreement
otherwise shall not be assignable by either Forum or the Trust except by the
specific written consent of the other party. All terms and provisions of this
Agreement shall be binding upon, inure to the benefit of and be enforceable by
the respective successors and assigns of the parties hereto.
SECTION 6. ADDITIONAL FUNDS AND CLASSES
In the event that the Trust establishes one or more series of Shares or
one or more classes of Shares after the effectiveness of this Agreement, such
series of Shares or classes of Shares, as the case may be, shall become Funds
and Classes under this Agreement. Forum or the Trust may elect not to make and
such series or classes subject to this Agreement.
SECTION 7. CONFIDENTIALITY. Forum agrees to treat all records and other
information related to the Trust as proprietary information of the
Trust and, on behalf of itself and its employees, to keep confidential
all such information, except that Forum may
(a) prepare or assist in the preparation of periodic reports
to shareholders and regulatory bodies such as the SEC;
(b) provide information typically supplied in the investment company
industry to companies that track or report price, performance or other
information regarding investment companies; and
(c) release such other information as approved in writing by the Trust,
which approval shall not be unreasonably withheld and may not be withheld where
Forum may be exposed to civil or criminal contempt proceedings for failure to
release the information, when requested to divulge such information by duly
constituted authorities or when so requested by the Trust.
SECTION 8. FORCE MAJEURE
Forum shall not be responsible or liable for any failure or delay in
performance of its obligations under this Agreement arising out of or caused,
directly or indirectly, by circumstances beyond its reasonable control
including, without limitation, acts of civil or military authority, national
emergencies, labor difficulties, fire, mechanical breakdowns, flood or
catastrophe, acts of God, insurrection, war, riots or failure of the mails,
transportation, communication or power supply. In addition, to the extent
Forum's obligations hereunder are to oversee or monitor the activities of third
parties, Forum shall not be liable for any failure or delay in the performance
of Forum's duties caused, directly or indirectly, by the failure or delay of
such third parties in performing their respective duties or cooperating
reasonably and in a timely manner with Forum.
SECTION 9. ACTIVITIES OF FORUM
(a) Except to the extent necessary to perform Forum's obligations under
this Agreement, nothing herein shall be deemed to limit or restrict Forum's
right, or the right of any of Forum's managers, officers or employees who also
may be a trustee, officer or employee of the Trust, or persons who are otherwise
affiliated persons of the Trust to engage in any other business or to devote
time and attention to the management or other aspects of any other business,
whether of a similar or dissimilar nature, or to render services of any kind to
any other corporation, trust, firm, individual or association.
(b) Forum may subcontract any or all of its functions or
responsibilities pursuant to this Agreement to one or more corporations, trusts,
firms, individuals or associations, which may be affiliated persons of Forum,
who agree to comply with the terms of this Agreement; provided, that any such
subcontracting shall not relieve Forum of its responsibilities hereunder. Forum
may pay those persons for their services, but no such payment will increase
Forum's compensation from the Trust.
SECTION 10. COOPERATION WITH INDEPENDENT ACCOUNTANTS
Forum shall cooperate, if applicable, with each Fund's independent
public accountants and shall take reasonable action to make all necessary
information available to the accountants for the performance of the accountants'
duties.
SECTION 11. SERVICE DAYS
Nothing contained in this Agreement is intended to or shall require
Forum, in any capacity under this Agreement, to perform any functions or duties
on any day other than a business day of the Trust or of a Fund. Functions or
duties normally scheduled to be performed on any day which is not a business day
of the Trust or of a Fund shall be performed on, and as of, the next business
day, unless otherwise required by law.
SECTION 12. LIMITATION OF SHAREHOLDER AND TRUSTEE LIABILITY
The trustees of the Trust and the shareholders of each Fund shall not
be liable for any obligations of the Trust or of the Funds under this Agreement,
and Forum agrees that, in asserting any rights or claims under this Agreement,
it shall look only to the assets and property of the Trust or the Fund to which
Forum's rights or claims relate in settlement of such rights or claims, and not
to the trustees of the Trust or the shareholders of the Funds.
SECTION 13. MISCELLANEOUS
(a) Neither party to this Agreement shall be liable to the other party
for consequential damages under any provision of this Agreement.
(b) Except for Appendix A to add new Funds and Classes in accordance
with Section 6, no provisions of this Agreement may be amended or modified in
any manner except by a written agreement properly authorized and executed by
both parties hereto.
(c) This Agreement shall be governed by, and the provisions of this
Agreement shall be construed and interpreted under and in accordance with, the
laws of the State of Delaware.
(d) This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject matter
hereof, whether oral or written.
(e) This Agreement may be executed by the parties hereto on any number
of counterparts, and all of the counterparts taken together shall be deemed to
constitute one and the same instrument.
(f) If any part, term or provision of this Agreement is held to be
illegal, in conflict with any law or otherwise invalid, the remaining portion or
portions shall be considered severable and not be affected, and the rights and
obligations of the parties shall be construed and enforced as if the Agreement
did not contain the particular part, term or provision held to be illegal or
invalid.
(g) Section headings in this Agreement are included for convenience
only and are not to be used to construe or interpret this Agreement.
(h) Notices, requests, instructions and communications received by the
parties at their respective principal places of business, or at such other
address as a party may have designated in writing, shall be deemed to have been
properly given.
(i) Notwithstanding any other provision of this Agreement, the parties
agree that the assets and liabilities of each Fund of the Trust are separate and
distinct from the assets and liabilities of each other Fund and that no Fund
shall be liable or shall be charged for any debt, obligation or liability of any
other Fund, whether arising under this Agreement or otherwise.
(j) No affiliated person, employee, agent, director, officer or manager
of Forum shall be liable at law or in equity for Forum's obligations under this
Agreement.
(k) Each of the undersigned warrants and represents that they have full
power and authority to sign this Agreement on behalf of the party indicated and
that their signature will bind the party indicated to the terms hereof and each
party hereto warrants and represents that this Agreement, when executed and
delivered, will constitute a legal, valid and binding obligation of the party,
enforceable against the party in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting the rights and remedies of creditors and secured parties.
(l) The terms "vote of a majority of the outstanding voting
securities," "interested person" and "affiliated person" shall have the meanings
ascribed thereto in the 1940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf by and through their duly authorized
officers, as of the day and year first above written.
NORWEST ADVANTAGE ADVANTAGE FUNDS
By:
Donald H. Burkhardt
Trustee Chairman of the Board
FORUM ACCOUNTING SERVICES,
LIMITED LIABILITY COMPANY
By: Forum Advisors[ ], Inc., as Manager
By:
Stacey E. Hong
John Y. Keffer
Director President
NORWEST ADVANTAGE ADVANTAGE FUNDS
FUND ACCOUNTING AGREEMENT
Appendix A
Funds and Classes of the Trust
as of July 28, 1998
<TABLE>
<S> <C>
Funds Classes
Cash Investment Fund Single existing class
Ready Cash Investment Fund Public Entities Shares, Investor Shares and Exchange Shares
U.S. Government Fund Single existing class
Treasury Plus Fund Single existing class
Treasury Fund Single existing class
U.S. Government Fund
Ready Cash Investment Fund Institutional Shares,
Investor Shares and
Exchange Shares
Municipal Money Market Fund Institutional Shares and
Investor Shares
Stable Income Fund A Shares, B Shares and I Shares
Limited Term Government Income Fund I Shares
Intermediate Government Income Fund A Shares, B Shares and I Shares
Diversified Bond Fund A Shares, B Shares and I Shares
Income Fund A Shares, B Shares and I Shares
Total Return Bond Fund A Shares, B Shares and I Shares
Limited Term Tax-Free Fund A Shares, B Shares and I Shares
Tax-Free Income Fund A Shares, B Shares and I Shares
Colorado Tax-Free Fund A Shares, B Shares and I Shares
Minnesota Intermediate Tax-Free Fund I Shares
Minnesota Tax-Free Fund A Shares, B Shares and I Shares
Colorado Tax-Free Fund A Shares, B Shares and I Shares
Tax-Free Income Fund A Shares, B Shares and I Shares
Strategic IncomeConservative Balanced Fund A Shares, B Shares and I Shares
Moderate Balanced Fund A Shares, B Shares and I Shares
Growth Balanced Fund A Shares, B Shares, C Shares and I Shares
Aggressive Balanced-Equity Fund I Shares
Aggressive Balanced Equity Fund I Shares
Index Fund A Shares, B Shares and I Shares
Income Equity Fund A Shares, B Shares, C Shares and I Shares
ValuGrowth Stock Fund A Shares, B Shares and I Shares
Diversified Equity Fund A Shares, B Shares, C Shares and I Shares
Growth Equity Fund A Shares, B Shares, C Shares and I Shares
Diversified Small Cap Fund I Shares
Large Company Growth Fund A Shares, B Shares and I Shares
Diversified Small Cap Fund A Shares, B Shares and I Shares
Small Company Stock Fund A Shares, B Shares and I Shares
Small Company Growth Fund A Shares, B Shares and I Shares
Small Cap Opportunities FundFunde A Shares, B Shares and I Shares
Contrarian Stock Fund A Shares, B Shares and I Shares
International Fund A Shares, B Shares and I Shares
Performa Strategic Value Bond Fund Single existing class
Performa Disciplined Growth Fund Single existing class
Performa Small Cap Value Fund Single existing class
Performa Global Growth Fund Single existing class
Norwest WealthBuilder II Growth Portfolio C Shares
Norwest WealthBuilder II Growth and Income Portfolio C Shares
Norwest WealthBuilder II Growth Balanced Portfolio C Shares
Performa Strategic Value Bond Fund
Performa Disciplined Growth Fund
Performa Small Cap Value Fund
Performa Global Growth Fund
Norwest WealthBuilder II Growth Portfolio
Norwest WealthBuilder II Growth and Income Portfolio
Norwest WealthBuilder II Growth Balanced Portfolio
</TABLE>
<PAGE>
[Fund and Class Names]
NORWEST ADVANTAGE ADVANTAGE FUNDS
FUND ACCOUNTING AGREEMENT
Appendix B
Fees and Expenses
as of July 28, 1998
<TABLE>
<S> <C>
(i) Base Fee
A. Standard Fee
Fee per Fund ................................................ $3,000/month
Fee for each additional Class of the Fund above one............... $1,000/month
B. Plus additional surcharges for each of:
(i) 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
(ii) Funds requiring international custody.................... $1,000/month
(iii) Funds with more than 30 international positions.......... $1,000/month
(iv) Tax free money market Funds.............................. $1,000/month
(v) 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
(vii) Funds with more than 100 security positions.............. $1,000/month
(viii) Funds with a monthly portfolio turnover rate of 10%
or greater............................................... $1,000/month
C. Standard Fee per Gateway Fund (a Fund operating pursuant to Section
12(d)(1)(E) of the 1940 Act)
Standard Fee per Fund............................................. $1,000/month
Standard Fee per Fund that invests in one or more instruments
in addition to the fund in which it invests....................... $2,000/month
Fee for each additional Class of a Fund above one................. $1,000/month
Additional surcharges listed above do not apply
D. Standard Fee per Gateway Fund (a Fund operating pursuant to Section
12(d)(1)(G) of the 1940 Act or in a similar structure)
Standard Fee per Fund............................................. $1,000/month
Fee for each additional Class of a Fund above one................. $1,000/month
Plus additional surcharges listed above if the Fund invests
in securities other than investment companies (calculated as if the
securities were the Fund's only assets)
Note 1: 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. Portfolio turnover rate shall have the
meaning ascribed thereto in SEC Form N-1A.
Note 2: The rates set forth above shall remain fixed through December
31, 1999. On January 1, 2000, 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.
(ii) Start-Up Fee
Fund Start-Up Fee.......................................................... $2,000
(iii) Other Services (payable in equal installments monthly)
Tax Services. Preparation of Federal income and excise tax
returns and preparation, execution and filing of state income
tax returns, including any extensions or amendments.
Standard Fee
Money Funds.......................................... $1,750/fiscal period
Other Funds.......................................... $2,250/fiscal period
Fee per Gateway Fund (a Fund described
in (i)(C) or (D) above)
Money Funds.......................................... $1,000/fiscal period
Other Funds.......................................... $1,500/fiscal period
Fee per Gateway Fund (a Fund described in (i)(C) or (D) above)
that invests in more than one instrument in addition to the
fund(s) in which it invests
Money Funds.......................................... $1,750/fiscal period
Other Funds.......................................... $2,250/fiscal period
(iv) Out-Of-Pocket and Related Expenses
The Trust, on behalf of the applicable Fund, shall reimburse Forum for
all out-of-pocket and ancillary expenses in providing the services described in
the Fund Accounting Agreement, including but not limited to the cost of (or
appropriate share of the cost of): (i) pricing, paydown, corporate action,
credit and other reporting services, (ii) taxes, (iii) postage and delivery
services, (iv) communications services, (v) electronic or facsimile transmission
services, (vi) reproduction, (vii) printing and distributing financial
statements, (xiii) microfilm and microfiche and (ix) Trust record storage and
retention fees. In addition, any other expenses incurred by Forum at the request
or with the consent of the Trust, will be reimbursed by the Trust on behalf of
the applicable Fund. (i) Base Fee
A. Standard Fee
Fee per Fund................................................................... $3,000/month
Fee for each additional Class of the Fund above one............................ $1,000/month
B. Plus additional surcharges for each of:
(i) FundsPortfolios with asset levels exceeding $100 million.............. $500/month
FundsPortfolios with asset levels exceeding $250 million.............. $1000/month
FundsPortfolios with asset levels exceeding $500 million.............. $1,500/month
FundsPortfolios with asset levels exceeding $1,000 million............ $2,000/month
(ii) FundsPortfolios requiring international custody....................... $1,000/month
(iii) FundsPortfolios with more than 30 international positions ............ $11,000/month
(iv) Tax free money market Funds........................................... $1,000/month
(v) FundsPortfolios with more than 25% of net assets invested in
asset backed securities............................................... $1,000/month
FundsPortfolios with more than 50% of net assets invested in
asset backed securities............................................... $2,000/month
(vii) FundsPortfolios with more than 100 security positions................. $1,000/month
(viii) FundsPortfolios with a monthly portfolio turnover rate of 10%
or greater............................................................ $1,000/month
C.Standard Fee per Gateway Fund (a feeder Fund operating in a master
feeder structure pursuant to under
pursuant to
Section 12(d)(1)(E) of the 1940 Act)
Standard Fee per Fund.......................................................... $1,000/month
Standard Fee per Fund that invests [directly] in [one or ]more than
one or more instrumentssecurity
[ in addition to the fund in which it investsa Core]........................... $2,000/month
Fee for each additional Class of a Fund above one.............................. $1,000/month
Additional surcharges listed above do not apply
D. Standard Fee per Gateway Fund (a Fund operating pursuant to
underpursuant to
Section 12(d)(1)(GH)
of the 1940 Act or in a similar fund-of-funds structure)
Standard Fee per Fund.......................................................... $12,000/month
Fee for each additional Class of a Fund above one.............................. $1,000/month
Plus additional surcharges listed above if the Fund invests in
securities other than investment companies (calculated as if
the securities were the Fund's only assets)
Note 1: 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. Portfolio turnover rate
shall have the meaning ascribed thereto in SEC Form N-1A.
Note 2: The rates set forth above shall remain fixed through December
31, 1997. On January 1, 1998, and on each successive January 1, the
rates may be adjusted automatically by Forum without action of the
Trust to reflect changes in the Consumer Price Index for the preceding
calendar year, as published by the U.S. Department of Labor, Bureau of
Labor Statistics.
Forum shall notify the Trust each year of the new rates, if applicable.
(ii) Start-Up Fee
Fund Start-Up Fee ......................................................................$2,000
(iii) Other Services (payable in equal installments monthly)
Tax Services. Preparation of Federal income and excise tax
returns and preparation, execution and filing of state income
tax returns, including any extensions or amendments.
Standard Fee.................................................. $3,000/fiscal period
Fee per Gateway Fund (a Fund described
in (i)(C) or (D) above)....................................... $1,500/fiscal period
Fee per Gateway Fund (a Fund described in (i)(C) or (D) above)
that invests in more than one instrument in addition to the
fund(s) in which
it invests.................................................... $3,000/fiscal period
Preparation of Federal income tax returns,
including any extensions or amendments $1800/fiscal period/Fund
Preparation, execution and filing of Federal income tax
returns, including any extensions or amendments $[____]/fiscal period/Fund
Preparation, execution and filing of Federal excise tax
returns, including any extensions or amendments $1,000/fiscal period/Fund
Preparation of state income and other tax returns,
including any extensions or amendments $1800/fiscal period/Fund
Preparation, execution and filing of state income and
other tax returns, including any extensions or amendments $3,000/fiscal period/ Fund
</TABLE>
(iv) Out-Of-Pocket and Related Expenses
The Trust, on behalf of the applicable Fund, shall reimburse Forum for
all out-of-pocket and ancillary expenses in providing the services
described in this Agreement, including but not limited to the cost of
(or appropriate share of the cost of): (i) pricing, paydown, corporate
action, credit and other reporting services, (ii) taxes, (iii) postage
and delivery services, (iv) communicationstelephone services, (v)
electronic or facsimile transmission services, (vi) reproduction, (vii)
printing and distributing financial statements, (xiii) microfilm and
microfiche and (ix) Trust record storage and retention fees. In
addition, any other expenses incurred by Forum at the request or with
the consent of the Trust, will be reimbursed by the Trust on behalf of
the applicable Fund.
Exhibit (8)(c)
NORWEST ADVANTAGE FUNDS ADMINISTRATION SERVICES AGREEMENT
November 11, 1994 as amended July 28, 1998
AGREEMENT made this 11th day of November, 1994, as amended July 28,
1998 between Norwest Advantage Funds (the "Trust"), a business trust organized
under the laws of the State of Delaware with its principal place of business at
Two Portland Square, Portland, Maine 04101 and Norwest Bank Minnesota, N.A. (the
"Administrator"), a banking association organized under the laws of the United
States of America with its principal place of business at Sixth Street and
Marquette, Minneapolis, Minnesota 55479.
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended, (the "Act") as an open-end management investment company and
is authorized to issue its shares of beneficial interest, no par value, in
separate series and classes;
WHEREAS, each series of the Trust listed in Appendix A hereto (each a
"Fund" and collectively the "Funds"), may invest some or all of its investment
assets in a portfolio of a registered open-end management investment company
(each a "Portfolio" and collectively the "Portfolios"; and
WHEREAS, the Trust desires that the Administrator perform certain
administrative services for the Fund not otherwise provided by Forum
Administrative Services, LLC and its affiliates ("Forum") pursuant to Forum's
management and administration agreements relating to each Fund and each
Portfolio or by Schroder Capital Management International, Inc. pursuant to its
investment advisory agreement Relating to each Portfolio and the Administrator
is willing to provide those services on the terms and conditions set forth in
this Agreement;
NOW THEREFORE, the Trust and the Administrator agree as follows:
SECTION 1. THE TRUST; DELIVERY OF DOCUMENTS
The Trust is engaged in the business of investing and reinvesting its
assets in securities of the type and in accordance with the limitations
specified in our Trust Instrument, By-Laws and registration statement filed with
the Securities and Exchange Commission (the "SEC"), under the Act and the
Securities Act of 1933 (the "Securities Act"), including any representations
made in a prospectus ("Prospectus") or statement of additional information
("Statement of Additional Information") relating to the Fund contained therein
and as may be supplemented from time to time, all in such manner and to such
extent as may from time to time be authorized by the Trust's Board of Trustees
(the "Board"). The Trust is currently authorized to issue forty series of shares
and the Board is authorized to issue any unissued shares in any number of
additional classes or series. The Trust has delivered copies of the documents
listed in this Section and will from time to time furnish Administrator with any
amendments thereof.
SECTION 2. APPOINTMENT
The Trust hereby employs the Administrator, subject to the direction
and control of the Board, to oversee the ministerial, administrative and
oversight functions described herein.
SECTION 3. ADMINISTRATIVE DUTIES
The Administrator shall be responsible for:
(a) obtaining, compiling, verifying, formatting and transmitting to the
investment adviser to each Portfolio on or before such times during each
business day as are determined by the Administrator and the Advisor to each
Portfolio all information concerning the amounts of purchases and redemptions of
shares of each Portfolio;
(b) obtaining, compiling, verifying, formatting and transmitting to
each Fund's shareholders and the Trustees such information concerning the
performance of the Portfolio and the fees paid and other expenses incurred by
each Portfolio and such information about the performance of comparable
portfolios and relevant financial and economic indices as is required to be
provided under applicable laws and regulations, is useful to each Fund's
shareholders and the Trustees in evaluating each Portfolio's performance and
operation and may be requested by the Trustees in order to carry out their
obligations to each Fund and its shareholders;
(c) making available personnel to meet with and report to the Trustees
periodically at their request on all matters relating to the performance of each
Portfolio and the appropriateness of the fees paid and expenses incurred by each
Portfolio;
(d) furnishing the investment adviser to each Portfolio and other
providers of services to each Fund such assistance in the operation of each
Portfolio as any of them or the Trustees may request or as the Administrator
shall believe to be appropriate; and
(e) maintaining records relating to its services as are required to be
maintained by the Trust under the Act. The books and records pertaining to the
Trust which are in possession of Administrator shall be the property of the
Trust. The Trust, or the Trust's authorized representatives, shall have access
to such books and records at all times during Administrator's normal business
hours. Upon the reasonable request of the Trust, copies of any such books and
records shall be provided promptly by Administrator to the Trust or the Trust's
authorized representatives.
SECTION 4. EXPENSES
The Administrator shall be responsible for that portion of the net
expenses of each Fund (except interest, taxes, brokerage, fees and other
expenses paid by the Fund in accordance with an effective plan pursuant to Rule
12b-1 under the Act and organization expenses, all to the extent such exceptions
are permitted by applicable state law and regulation) incurred by each Fund
during each of the Fund's fiscal years or portion thereof that this Agreement is
in effect which, as to each Fund, in any such year exceeds the limits applicable
to each Fund under the laws or regulations of any state in which shares of each
Fund are qualified for sale (reduced pro rata for any portion of less than a
year) and which is not assumed by Forum Financial Services, Inc., the Trust's
manager and distributor, or any other person.
The Trust hereby confirms that, subject to the foregoing, the Trust
shall be responsible and shall assume the obligation for payment of all the
Trust's other expenses, including: interest charges, taxes, brokerage fees and
commissions; certain insurance premiums; fees, interest charges and expenses of
the Trust's custodian, transfer agent and dividend disbursing agent;
telecommunications expenses; auditing, legal and compliance expenses; costs of
the Trust's formation and maintaining its existence; 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; 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; costs of reproduction,
stationery and supplies; compensation of the Trust's trustees, officers,
employees and other personnel performing services for the Trust who are not the
Administrator's employees or employees of Forum Financial Services, Inc. or
affiliated persons of either; costs of corporate meetings; 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; state
securities law registration fees and related expenses; fees and out-of-pocket
expenses payable to Forum Financial Services, Inc. under any distribution,
management or similar agreement; 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.
SECTION 5. STANDARD OF CARE
The Trust shall expect of Administrator, and Administrator will give
the Trust the benefit of, Administrator's best judgment and efforts in rendering
these services to the Trust, and the Trust agrees as an inducement to
Administrator's undertaking these services that Administrator shall not be
liable hereunder for any mistake of judgment or in any event whatsoever, except
for lack of good faith, provided that nothing herein shall be deemed to protect,
or purport to protect, Administrator against any liability to the Trust or to
its security holders to which Administrator would otherwise be subject by reason
of willful misfeasance, bad faith or gross negligence in the performance of
Administrator's duties hereunder, or by reason of Administrator's reckless
disregard of its obligations and duties hereunder.
SECTION 6. COMPENSATION
In consideration of the services performed by Administrator as
described herein, the Trust will pay Administrator, with respect to each Fund, a
fee at the annual rate of 0.25% of the average daily net assets of the Fund.
Such fee shall be accrued by the Trust daily and shall be payable monthly in
arrears on the first day of each calendar month for services performed hereunder
during the prior calendar month.
SECTION 7. EFFECTIVENESS, DURATION AND TERMINATION
(a) This Agreement shall become effective on the date hereof. Upon
effectiveness of this Agreement, it shall supersede all previous agreements
between the parties hereto covering the subject matter hereof insofar as such
Agreement may have been deemed to relate to each Fund.
(b) This Agreement shall continue in effect for a period of one year
from its effectiveness and shall continue in effect for successive twelve-month
periods; provided, however, that continuance is specifically approved at least
annually (i) by the Board or by a vote of a majority of the outstanding voting
securities of each Fund and (ii) by a vote of a majority of Trustees of the
Trust who are not parties to this agreement or interested persons of any such
party (other than as Trustees of the Trust); provided further, however, that if
the continuation of this agreement is not approved, Administrator may continue
to render to each Fund the services described herein in the manner and to the
extent permitted by the Act and the rules and regulations thereunder.
(c) This Agreement may be terminated at any time, without the payment
of any penalty, (i) by the Board on 60 days' written notice to Administrator or
(ii) by Administrator on 60 days' written notice to the Trust.
SECTION 8. ACTIVITIES OF ADMINISTRATOR
Except to the extent necessary to perform Administrator's obligations
hereunder, nothing herein shall be deemed to limit or restrict Administrator's
right, or the right of any of Administrator's officers, directors or employees
who may also be a trustee, officer or employee of the Trust, or persons
otherwise affiliated persons of the Trust to engage in any other business or to
devote time and attention to the management or other aspects of any other
business, whether of a similar or dissimilar nature, or to render services of
any kind to any other corporation, trust, firm, individual or association.
SECTION 9. LIMITATION OF SHAREHOLDER AND TRUSTEE LIABILITY
The Trustees of the Trust and the shareholders of each Fund shall not
be liable for any obligations of the Trust or of the Funds under this Agreement,
and Administrator agrees that, in asserting any rights or claims under this
Agreement, it shall look only to the assets and property of the Trust or the
Funds to which Administrator's rights or claims relate in settlement of such
rights or claims, and not to the Trustees of the Trust or the shareholders of
the Funds.
SECTION 10. MISCELLANEOUS
(a) No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties hereto.
(b) Section headings in this Agreement are included for convenience
only and are not to be used to construe or interpret this Agreement.
(c) This Agreement shall be governed by and shall be construed in
accordance with the laws of the State of Delaware.
(d) The terms "vote of a majority of the outstanding voting
securities", "interested person", "affiliated person" and "assignment" shall
have the meanings ascribed thereto in the Act.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
NORWEST ADVANTAGE FUNDS
By: __________________________
John Y. Keffer
President
NORWEST BANK MINNESOTA, N.A.
By:________________________
P. Jay Kiedrowski
President
NORWEST ADVANTAGE FUNDS
ADMINISTRATION SERVICES AGREEMENT
November 11, 1994 as amended July 28, 1998
Appendix A
Funds of the Trust
Small Cap Opportunities Fund
International Fund
Performa Global Growth Fund
Exhibit (8)(d)
NORWEST ADVANTAGE FUNDS ADMINISTRATION AGREEMENT
October 1, 1996
Amended July 28, 1998
AGREEMENT made this 1st day of October 1, 1997, as amended on July 28,
1998, between Norwest Advantage Funds (the "Trust"), a business trust organized
under the laws of the State of Delaware with its principal place of business at
Two Portland Square, Portland, Maine 04101, and Forum Administrative Services,
LLC ("Forum"), a Delaware limited liability company with its principal office
and place of business at Two Portland Square, Portland, Maine 04101.
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end management investment company
and may issue its shares of beneficial interest, no par value (the "Shares"), in
separate series and classes; and
WHEREAS, the Trust offers shares in various series as listed in
Appendix A hereto (each such series, together with all other series subsequently
established by the Trust and made subject to this Agreement in accordance with
Section 6, being herein referred to as a "Fund," and collectively as the
"Funds") and the Trust offers shares of various classes of each Fund as listed
in Appendix A hereto (each such class together with all other classes
subsequently established by the Trust in a Fund being herein referred to as a
"Class," and collectively as the "Classes"); and
WHEREAS, the Trust desires that Forum perform certain administrative
services for each Fund and Class thereof and Forum is willing to provide those
services on the terms and conditions set forth in this Agreement;
NOW THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, the Trust and Forum hereby agree as follows:
SECTION 1. APPOINTMENT; DELIVERY OF DOCUMENTS
(a) The Trust hereby appoints Forum, and Forum hereby agrees, to act as
administrator of the Trust for the period and on the terms set forth in this
Agreement.
(b) In connection therewith, the Trust has delivered to Forum copies of
(i) the Trust's Trust Instrument and Bylaws (collectively, as amended from time
to time, "Organic Documents"), (ii) the Trust's Registration Statement and all
amendments thereto filed with the U.S. Securities and Exchange Commission
("SEC") pursuant to the Securities Act of 1933, as amended (the "Securities
Act"), or the 1940 Act (the "Registration Statement"), (iii) the Trust's current
Prospectus and Statement of Additional Information of each Fund (collectively,
as currently in effect and as amended or supplemented, the "Prospectus"), (iv)
each current plan of distribution or similar document adopted by the Trust under
Rule 12b-1 under the 1940 Act ("Plan") and each current shareholder service plan
or similar document adopted by the Trust ("Service Plan"), and (iv) all
procedures adopted by the Trust with respect to the Funds (i.e., repurchase
agreement procedures), and shall promptly furnish Forum with all amendments of
or supplements to the foregoing. The Trust shall deliver to Forum a certified
copy of the resolution of the Board of Trustees of the Trust (the "Board")
appointing Forum and authorizing the execution and delivery of this Agreement.
SECTION 2. DUTIES OF FORUM AND THE TRUST
(a) Subject to the direction and control of the Board, Forum shall
manage all aspects of the Trust's operations with respect to the Funds except
those that are the responsibility of any other service provider hired by the
Trust, all in such manner and to such extent as may be authorized by the Board.
(b) With respect to the Trust or each Fund, as applicable, Forum shall:
(i) at the Trust's expense, provide the Trust with, or arrange for the
provision of, the services of persons competent to perform such legal,
administrative and clerical functions not otherwise described in this
Section 2(b) as are necessary to provide effective operation of the
Trust;
(ii) oversee (A) the preparation and maintenance by the Trust's
custodian, transfer agent, dividend disbursing agent and fund
accountant in such form, for such periods and in such locations as may
be required by applicable United States 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
Trust's custodian, transfer agent, dividend disbursing agent and fund
accountant; (C) the transmission of purchase and redemption orders for
Shares; and (D) the performance of fund accounting, including the
calculation of the net asset value of the Shares;
(iii) oversee the performance of administrative and professional
services rendered to the Trust by others, including its custodian,
transfer agent and dividend disbursing agent as well as legal,
auditing, shareholder servicing and other services performed for the
Funds;
(iv) file or oversee the filing of each document required to be filed
by the Trust in either written or, if required, electronic format
(e.g., electronic data gathering analysis and retrieval system or
"EDGAR") with the SEC;
(v) assist in and oversee the preparation, filing and printing
and the periodic updating of the Registration Statement
and Prospectuses;
(vi) oversee the preparation and filing of the Trust's tax returns;
(vii) oversee the preparation of financial statements and related
reports to the Trust's shareholders, the SEC and state and other
securities administrators;
(viii) assist in and oversee the preparation and printing of proxy and
information statements and any other communications to shareholders;
(ix) provide the Trust with adequate general office space and
facilities and provide persons suitable to the Board to serve as
officers of the Trust;
(x) assist the investment advisers in monitoring Fund holdings for
compliance with Prospectus investment restrictions and assist in
preparation of periodic compliance reports, as applicable;
(xi) prepare, file and maintain the Trust's Organic Documents and
minutes of meetings of Trustees, Board committees and shareholders;
(xii) with the cooperation of the Trust's counsel, investment advisers,
the officers of the Trust and other relevant parties, prepare and
disseminate materials for meetings of the Board, as applicable;
(xiii) maintain the Trust's existence and good standing under
applicable state law;
(xiv) monitor sales of Shares, ensure that the Shares are properly and
duly registered with the SEC and register, or prepare applicable
filings with respect to, the Shares with the various state and other
securities commissions;
(xv) oversee the calculation of performance data for dissemination to
information services covering the investment company industry, for
sales literature of the Trust and other appropriate purposes;
(xvi) oversee the determination of the amount of and supervise the
declaration of dividends and other distributions to shareholders as
necessary to, among other things, maintain the qualification of each
Fund as a regulated investment company under the Internal Revenue Code
of 1986, as amended (the "Code"), and prepare and distribute to
appropriate parties notices announcing the declaration of dividends and
other distributions to shareholders;
(xvii) advise the Trust and the Board on matters concerning the Trust
and its affairs;
(xviii) calculate, review and account for Fund expenses and report on
Fund expenses on a periodic basis;
(xix) authorize the payment of Trust expenses and pay, from Trust
assets, all bills of the Trust;
(xx) prepare Fund budgets, pro-forma financial statements, expense and
profit/loss projections and fee waiver/expense reimbursement
projections on a periodic basis;
(xxi) prepare financial statement expense information;
(xxii) assist the Trust in the selection of other service providers,
such as independent accountants, law firms and proxy solicitors; and
(xxiii) perform such other recordkeeping, reporting and other tasks as
may be specified from time to time in the procedures adopted by the
Board; provided, that Forum need not begin performing any such task
except upon 65 days' notice and pursuant to mutually acceptable
compensation agreements.
(c) Forum shall provide such other services and assistance relating to
the affairs of the Trust as the Trust may, from time to time, reasonably request
pursuant to mutually acceptable compensation agreements.
(d) Forum shall maintain records relating to its services, such as
journals, ledger accounts and other records, as are required to be maintained
under the 1940 Act and Rule 31a-1 thereunder. The books and records pertaining
to the Trust that are in possession of Forum shall be the property of the Trust.
The Trust, or the Trust's authorized representatives, shall have access to such
books and records at all times during Forum's normal business hours. Upon the
reasonable request of the Trust, copies of any such books and records shall be
provided promptly by Forum to the Trust or the Trust's authorized
representatives. In the event the Trust designates a successor that assumes any
of Forum's obligations hereunder, Forum shall, at the expense and direction of
the Trust, transfer to such successor all relevant books, records and other data
established or maintained by Forum under this Agreement.
(e) Nothing contained herein shall be construed to require Forum to
perform any service that could cause Forum to be deemed an investment adviser
for purposes of the 1940 Act or the Investment Advisers Act of 1940, as amended,
or that could cause a Fund to act in contravention of the Fund's Prospectus or
any provision of the 1940 Act. Except with respect to Forum's duties as set
forth in this Section 2 and except as otherwise specifically provided herein,
the Trust assumes all responsibility for ensuring that the Trust complies with
all applicable requirements of the Securities Act, the 1940 Act and any laws,
rules and regulations of governmental authorities with jurisdiction over the
Trust. All references to any law in this Agreement shall be deemed to include
reference to the applicable rules and regulations promulgated under authority of
the law and all official interpretations of such law or rules or regulations.
(f) In order for Forum to perform the services required by this Section
2, the Trust (i) shall cause all service providers to the Trust to furnish any
and all information to Forum, and assist Forum as may be required and (ii) shall
ensure that Forum has access to all records and documents maintained by the
Trust or any service provider to the Trust.
SECTION 3. STANDARD OF CARE AND RELIANCE
(a) Forum shall be under no duty to take any action except as
specifically set forth herein or as may be specifically agreed to by Forum in
writing. Forum shall use its best judgment and efforts in rendering the services
described in this Agreement. Forum shall not be liable to the Trust or any of
the Trust's shareholders for any action or inaction of Forum relating to any
event whatsoever in the absence of bad faith, willful misfeasance or gross
negligence in the performance of Forum's duties or obligations under this
Agreement or by reason of Forum's reckless disregard of its duties and
obligations under this Agreement.
(b) The Trust agrees to indemnify and hold harmless Forum, its
employees, agents, directors, officers and managers and any person who controls
Forum within the meaning of section 15 of the Securities Act or section 20 of
the Securities Exchange Act of 1934, as amended, ("Forum Indemnitees") against
and from any and all claims, demands, actions, suits, judgments, liabilities,
losses, damages, costs, charges, reasonable counsel fees and other expenses of
every nature and character arising out of or in any way related to Forum's
actions taken or failures to act with respect to a Fund that are consistent with
the standard of care set forth in Section 3(a) or based, if applicable, on good
faith reliance upon an item described in Section 3(d) (a "Claim"). The Trust
shall not be required to indemnify any Forum Indemnitee if, prior to confessing
any Claim against the Forum Indemnitee, Forum or the Forum Indemnitee does not
give the Trust written notice of and reasonable opportunity to defend against
the claim in its own name or in the name of the Forum Indemnitee.
(c) Forum agrees to indemnify and hold harmless the Trust, its
employees, agents, trustees and officers against and from any and all claims,
demands, actions, suits, judgments, liabilities, losses, damages, costs,
charges, reasonable counsel fees and other expenses of every nature and
character arising out of Forum's actions taken or failures to act with respect
to a Fund that are not consistent with the standard of care set forth in Section
3(a). Forum shall not be required to indemnify the Trust if, prior to confessing
any Claim against the Trust, the Trust does not give Forum written notice of and
reasonable opportunity to defend against the claim in its own name or in the
name of the Trust.
(d) A Forum Indemnitee shall not be liable for any action taken or
failure to act in good faith reliance upon:
(i) the advice of the Trust or of counsel, who may be counsel to the
Trust or counsel to Forum, and upon statements of accountants, brokers
and other persons reasonably believed in good faith by Forum to be
experts in the matter upon which they are consulted;
(ii) any oral instruction which it receives and which it reasonably
believes in good faith was transmitted by the person or persons
authorized by the Board to give such oral instruction. Forum shall have
no duty or obligation to make any inquiry or effort of certification of
such oral instruction;
(iii) any written instruction or certified copy of any resolution of
the Board, and Forum may rely upon the genuineness of any such document
or copy thereof reasonably believed in good faith by Forum to have been
validly executed; or
(iv) any signature, instruction, request, letter of transmittal,
certificate, opinion of counsel, statement, instrument, report, notice,
consent, order, or other document reasonably believed in good faith by
Forum to be genuine and to have been signed or presented by the Trust
or other proper party or parties;
and no Forum Indemnitee shall be under any duty or obligation to inquire into
the validity or invalidity or authority or lack thereof of any statement, oral
or written instruction, resolution, signature, request, letter of transmittal,
certificate, opinion of counsel, instrument, report, notice, consent, order, or
any other document or instrument which Forum reasonably believes in good faith
to be genuine.
(e) Forum shall not be liable for the errors of other service providers
to the Trust including the errors of printing services (other than to pursue all
reasonable claims against the pricing service based on the pricing services'
standard contracts entered into by Forum) and errors in information provided by
an investment adviser (including prices and pricing formulas and the untimely
transmission of trade information), custodian or transfer agent to the Trust.
SECTION 4. COMPENSATION AND EXPENSES
(a) In consideration of the administrative services provided by Forum
pursuant to this Agreement, the Trust shall pay Forum, with respect to each
Class of each of the Funds, the fees set forth in Appendix A hereto. These fees
shall be accrued by the Trust daily and shall be payable monthly in arrears on
the first day of each calendar month for services performed under this Agreement
during the prior calendar month. In the event that any of the legal services
identified in Appendix B hereto are provided to the Trust by personnel of the
legal department of Forum, they will be provided at no additional charge to the
Trust except those matters designated as Special Legal Services, as to which
Forum may charge, and the Trust shall pay an additional amount as reimbursement
of the cost of Forum providing such services. Reimbursement shall be payable
monthly in arrears on the first day of each calendar month for services
performed under this Agreement during the prior calendar month. Nothing in this
Agreement shall require Forum to provide any of the services listed in Appendix
B hereto, as such services may be performed by an outside vendor if appropriate
in the judgment of Forum.
If fees begin to accrue in the middle of a month or if this Agreement
terminates before the end of any month, all fees for the period from that date
to the end of that month or from the beginning of that month to the date of
termination, as the case may be, shall be prorated according to the proportion
that the period bears to the full month in which the effectiveness or
termination occurs. Upon the termination of this Agreement with respect to a
Fund, the Trust shall pay to Forum such compensation as shall be payable prior
to the effective date of termination.
(b) Notwithstanding anything in this Agreement to the contrary, Forum
and its affiliated persons may receive compensation or reimbursement from the
Trust with respect to (i) the provision of services on behalf of the Funds in
accordance with any Plan or Service Plan, (ii) the provision of shareholder
support or other services, (iii) service as a trustee or officer of the Trust
and (iv) services to the Trust, which may include the types of services
described in this Agreement, with respect to the creation of any Fund and the
start-up of the Fund's operations.
(c) The Trust shall be responsible for and assumes the obligation for
payment of all of its expenses, including: (a) the fee payable under this
Agreement; (b) the fees payable to each investment adviser under an agreement
between the investment adviser and the Trust; (c) expenses of issue, repurchase
and redemption of Shares; (d) interest charges, taxes and brokerage fees and
commissions; (e) premiums of insurance for the Trust, its trustees and officers
and fidelity bond premiums; (f) fees, interest charges and expenses of third
parties, including the Trust's independent accountant, custodian, transfer
agent, dividend disbursing agent and fund accountant; (g) fees of pricing,
interest, dividend, credit and other reporting services; (h) costs of membership
in trade associations; (i) telecommunications expenses; (j) funds transmission
expenses; (k) auditing, legal and compliance expenses; (l) costs of forming the
Trust and maintaining its existence; (m) costs of preparing, filing and printing
the Trust's Prospectuses, subscription application forms and shareholder reports
and other communications and delivering them to existing shareholders, whether
of record or beneficial; (n) expenses of meetings of shareholders and proxy
solicitations therefor; (o) costs of maintaining books of original entry for
portfolio and fund accounting and other required books and accounts, of
calculating the net asset value of Shares and of preparing tax returns; (p)
costs of reproduction, stationery, supplies and postage; (q) fees and expenses
of the Trust's trustees; (r) compensation of the Trust's officers and employees
and costs of other personnel (who may be employees of the investment adviser,
Forum or their respective affiliated persons) performing services for the Trust;
(s) costs of Board, Board committee, shareholder and other corporate meetings;
(t) SEC registration fees and related expenses; (u) state, territory or foreign
securities laws registration fees and related expenses; and (v) all fees and
expenses paid by the Trust in accordance with any Plan or Service Plan or
agreement related to similar manners.
(d) Should the Trust exercise its right to terminate this Agreement,
the Trust, on behalf of the applicable Fund, shall reimburse Forum for all
out-of-pocket expenses and employee time (at 150% of salary) associated with the
copying and movement of records and material to any successor person and
providing assistance to any successor person in the establishment of the
accounts and records necessary to carry out the successor's responsibilities.
SECTION 5. EFFECTIVENESS, DURATION, TERMINATION AND ASSIGNMENT
(a) This Agreement shall become effective with respect to each Fund on
July 28, 1998. Upon effectiveness of this Agreement, it shall supersede all
previous agreements between the parties hereto covering the subject matter
hereof insofar as such Agreement may have been deemed to relate to the Funds.
(b) This Agreement shall continue in effect with respect to a Fund
until terminated; provided, that continuance is specifically approved at least
annually (i) by the Board or by a vote of a majority of the outstanding voting
securities of the Fund and (ii) by a vote of a majority of Trustees of the Trust
who are not parties to this Agreement or interested persons of any such party
(other than as Trustees of the Trust).
(c) This Agreement may be terminated with respect to a Fund at any
time, without the payment of any penalty (i) by the Board on 60 days' written
notice to Forum or (ii) by Forum on 60 days' written notice to the Trust. The
obligations of Sections 3 and 4 shall survive any termination of this Agreement.
(d) This Agreement and the rights and duties under this Agreement
otherwise shall not be assignable by either Forum or the Trust except by the
specific written consent of the other party. All terms and provisions of this
Agreement shall be binding upon, inure to the benefit of and be enforceable by
the respective successors and assigns of the parties hereto.
SECTION 6. ADDITIONAL FUNDS AND CLASSES
In the event that the Trust establishes one or more series of Shares or
one or more classes of Shares after the effectiveness of this Agreement, such
series of Shares or classes of Shares, as the case may be, shall become Funds
and Classes under this Agreement. Forum or the Trust may elect not to make any
such series or classes subject to this Agreement.
SECTION 7. CONFIDENTIALITY
Forum agrees to treat all records and other information related to the
Trust as proprietary information of the Trust and, on behalf of itself and its
employees, to keep confidential all such information, except that Forum may
(a) prepare or assist in the preparation of periodic reports to
shareholders and regulatory bodies such as the SEC;
(b) provide information typically supplied in the investment company
industry to companies that track or report price, performance or other
information regarding investment companies; and
(c) release such other information as approved in writing by the Trust,
which approval shall not be unreasonably withheld and may not be withheld where
Forum may be exposed to civil or criminal contempt proceedings for failure to
release the information, when requested to divulge such information by duly
constituted authorities or when so requested by the Trust.
SECTION 8. FORCE MAJEURE
Forum shall not be responsible or liable for any failure or delay in
performance of its obligations under this Agreement arising out of or caused,
directly or indirectly, by circumstances beyond its reasonable control
including, without limitation, acts of civil or military authority, national
emergencies, labor difficulties, fire, mechanical breakdowns, flood or
catastrophe, acts of God, insurrection, war, riots or failure of the mails,
transportation, communication or power supply.
SECTION 9. ACTIVITIES OF FORUM
(a) Except to the extent necessary to perform Forum's obligations under
this Agreement, nothing herein shall be deemed to limit or restrict Forum's
right, or the right of any of Forum's managers, officers or employees who also
may be a trustee, officer or employee of the Trust, or persons who are otherwise
affiliated persons of the Trust to engage in any other business or to devote
time and attention to the management or other aspects of any other business,
whether of a similar or dissimilar nature, or to render services of any kind to
any other corporation, trust, firm, individual or association.
(b) Forum may subcontract any or all of its responsibilities pursuant
to this Agreement to one or more corporations, trusts, firms, individuals or
associations, which may be affiliated persons of Forum, who agree to comply with
the terms of this Agreement; provided, that any such subcontracting shall not
relieve Forum of its responsibilities hereunder. Forum may pay those persons for
their services, but no such payment will increase Forum's compensation from the
Trust.
(c) Without limiting the generality of the Sections 9(a) and (b), the
Trust acknowledges that certain legal services may be rendered to it by lawyers
who are employed by Forum or its affiliates and who render services to Forum and
its affiliates. A lawyer who renders such services to the Trust, and any lawyer
who supervises such lawyer, although employed generally by Forum or its
affiliates, will have a direct professional attorney/client relationship with
the Trust. Those services for which such a direct relationship will exist are
listed in Appendix C hereto. Each of Forum and the Trust hereby consents to the
simultaneous representation by such lawyers of both Forum and the Trust, and
waives any conflict of interest existing in such simultaneous representation.
Furthermore, the Trust agrees that, in the event such lawyer ceases to represent
the Trust, whether at the request of the Trust or otherwise, the lawyer may
continue thereafter to represent Forum, and the Trust expressly consents to such
continued representation.
SECTION 10. COOPERATION WITH INDEPENDENT ACCOUNTANTS
Forum shall cooperate, if applicable, with each Fund's independent
public accountants and shall take reasonable action to make all necessary
information available to the accountants for the performance of the accountants'
duties.
SECTION 11. SERVICE DAYS
Nothing contained in this Agreement is intended to or shall require
Forum, in any capacity under this Agreement, to perform any functions or duties
on any day other than a business day of the Trust or of a Fund. Functions or
duties normally scheduled to be performed on any day which is not a business day
of the Trust or of a Fund shall be performed on, and as of, the next business
day, unless otherwise required by law.
SECTION 12. LIMITATION OF SHAREHOLDER AND TRUSTEE LIABILITY
The trustees of the Trust and the shareholders of each Fund shall not
be liable for any obligations of the Trust or of the Funds under this Agreement,
and Forum agrees that, in asserting any rights or claims under this Agreement,
it shall look only to the assets and property of the Trust or the Fund to which
Forum's rights or claims relate in settlement of such rights or claims, and not
to the trustees of the Trust or the shareholders of the Funds.
SECTION 13. MISCELLANEOUS
(a) Neither party to this Agreement shall be liable to the other party
for consequential damages under any provision of this Agreement.
(b) Except for Appendix A to add new Funds and Classes in accordance
with Section 6, no provisions of this Agreement may be amended or modified in
any manner except by a written agreement properly authorized and executed by
both parties hereto.
(c) This Agreement shall be governed by, and the provisions of this
Agreement shall be construed and interpreted under and in accordance with, the
laws of the State of Delaware.
(d) This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject matter
hereof, whether oral or written.
(e) This Agreement may be executed by the parties hereto on any number
of counterparts, and all of the counterparts taken together shall be deemed to
constitute one and the same instrument.
(f) If any part, term or provision of this Agreement is held to be
illegal, in conflict with any law or otherwise invalid, the remaining portion or
portions shall be considered severable and not be affected, and the rights and
obligations of the parties shall be construed and enforced as if the Agreement
did not contain the particular part, term or provision held to be illegal or
invalid.
(g) Section headings in this Agreement are included for convenience
only and are not to be used to construe or interpret this Agreement.
(h) Notices, requests, instructions and communications received by the
parties at their respective principal places of business, or at such other
address as a party may have designated in writing, shall be deemed to have been
properly given.
(i) Notwithstanding any other provision of this Agreement, the parties
agree that the assets and liabilities of each Fund of the Trust are separate and
distinct from the assets and liabilities of each other Fund and that no Fund
shall be liable or shall be charged for any debt, obligation or liability of any
other Fund, whether arising under this Agreement or otherwise.
(j) No affiliated person, employee, agent, director, officer or manager
of Forum shall be liable at law or in equity for Forum's obligations under this
Agreement.
(k) Each of the undersigned warrants and represents that they have full
power and authority to sign this Agreement on behalf of the party indicated and
that their signature will bind the party indicated to the terms hereof and each
party hereto warrants and represents that this Agreement, when executed and
delivered, will constitute a legal, valid and binding obligation of the party,
enforceable against the party in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting the rights and remedies of creditors and secured parties.
(l) The terms "vote of a majority of the outstanding voting
securities," "interested person," and "affiliated person" shall have the
meanings ascribed thereto in the 1940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf by and through their duly authorized
persons, as of the day and year first above written.
NORWEST ADVANTAGE FUNDS
--------------------------
By: Donald H. Burkhardt
Trustee
FORUM ADMINISTRATIVE SERVICES, LLC
------------------------
By: David I. Goldstein
Managing Director
NORWEST ADVANTAGE FUNDS
ADMINISTRATION AGREEMENT
July 28, 1998
Appendix A
Fee as a % of
<TABLE>
<S> <C>
the Annual Average Daily
Funds of the Trust Net Assets of each Class of the Fund
- ------------------ ------------------------------------
Cash Investment Fund 0.025%
Ready Cash Investment Fund 0.075%
U.S. Government Fund 0.05%
Treasury Fund 0.05%
Treasury Plus Fund 0.05%
Municipal Money Market Fund, Institutional Shares 0.05%
Municipal Money Market Fund, Investor Shares 0.10%
Intermediate Government Income Fund 0.05%
Diversified Bond Fund 0.025%
Stable Income Fund 0.025%
Income Fund 0.05%
Total Return Bond Fund 0.025%
Limited Term Tax-Free Fund 0.05%
Limited Term Government Income Fund 0.05%
Tax-Free Income Fund 0.05%
Colorado Tax-Free Fund 0.05%
Minnesota Intermediate Tax-Free Fund 0.05%
Minnesota Tax-Free Fund 0.05%
Strategic Income Fund 0.025%
Moderate Balanced Fund 0.025%
Growth Balanced Fund 0.025%
Aggressive Balanced-Equity Fund 0.025%
Income Equity Fund 0.025%
Index Fund 0.025%
ValuGrowth Stock Fund 0.05%
Diversified Equity Fund 0.025%
Growth Equity Fund 0.025%
Large Company Growth Fund 0.025%
Diversified Small Cap Fund 0.025%
Small Company Stock Fund 0.025%
Small Company Growth Fund 0.025%
Small Cap Opportunities Fund 0.025%
International Fund 0.05%
Performa Strategic Value Bond Fund 0.025%
Performa Disciplined Growth Fund 0.025%
Performa Small Cap Value Fund 0.025%
Performa Global Growth Fund 0.025%
Norwest WealthBuilder II Growth Portfolio 0.05%
Norwest WealthBuilder II Growth and Income Portfolio 0.05%
Norwest WealthBuilder II Growth Balanced Portfolio 0.05%
</TABLE>
NORWEST ADVANTAGE FUNDS
ADMINISTRATION AGREEMENT
Appendix B
Legal Services
1. Advise the Trust on compliance with applicable U.S. laws and regulations
with respect to matters that are within the ordinary course of the Trust's
business.
2. Advise the Trust on compliance with applicable U.S. laws and regulations
with respect to matters that are outside the ordinary course of the Trust's
business(*).
3. Liaison with the SEC.
4. Draft correspondences to SEC and respond to SEC comments.
5. Liaison with the Trust's outside counsel.
6. Provide attorney letters to the Trust's auditors.
7. Assist Trust's outside counsel in the preparation of exemptive
applications, no-action letters, prospectuses, registration statements and
proxy statements and related material.
8. Prepare exemptive applications, no-action letters, prospectuses,
registration statements and proxy statements and related material, and
draft correspondences to SEC and respond to SEC comments with respect
thereto(*).
9. Prepare prospectus supplements.
10. Review and authorize Section 24 filings.
11. Prepare and/or review agendas and minutes for and respond to inquiries at
board and shareholder meetings regarding applicable U.S. laws and
regulations.
12. Prepare and/or review agreements between the Trust and any third parties.
Note: Items designated with an (*) are Special Legal Services.
Exhibit (11)
INDEPENDENT AUDITORS' CONSENT
The Board of Trustees and Shareholders
Norwest Advantage Funds:
We consent to the use of our reports dated July 21, 1998 for Norwest Advantage
Funds and Prime Money Market Portfolio, Money Market Portfolio, Stable Income
Portfolio, Managed Fixed Income Portfolio, Positive Return Bond Portfolio,
Strategic Value Bond Portfolio, Income Equity Portfolio, Disciplined Growth
Portfolio, Large Company Growth Portfolio, Small Cap Index Portfolio and Small
Cap Value Portfolio of Core Trust (Delaware) incorporated by reference herein
and to the references to our firm under the headings "Financial Highlights" in
the Prospectuses and "Counsel and Auditors" in the Statements of Additional
Information.
KPMG Peat Marwick LLP
Boston, Massachusetts
September 30, 1998
Exhibit (15)(a)
NORWEST ADVANTAGE FUNDS DISTRIBUTION PLAN
August 1, 1993
As Amended July 28, 1998
This Distribution Plan (the "Plan") is adopted by Norwest Advantage
Funds (the "Trust") with respect to the shares of each class (the "Shares") of
each of the Funds identified in Appendix A attached hereto (individually a
"Fund" and collectively the "Funds") in accordance with the provisions of Rule
12b-1 under the Investment Company Act of 1940, as amended (the "Act").
SECTION 1. DISTRIBUTION RELATED SERVICES
Each entity selected from time to time to act as principal agent for
the Trust for the distribution of Shares of a Fund (each, a "Distributor" and
collectively, the "Distributors") will provide the Funds with
distribution-related services that are primarily intended to result in the sale
of Shares, including, but not limited to, compensation of employees of each such
Distributor, compensation and expenses, including overhead and telephone and
other communication expenses, of each such Distributor and other broker-dealers,
banks and other financial intermediaries that engage in or support the
distribution of Shares, the preparation, printing and distribution of
prospectuses, statements of additional information, sales literature and
advertising materials relating to the Shares, and such other promotional
activities in such amounts as each such Distributor deems necessary or
appropriate.
SECTION 2. COMPENSATION
Each Fund will pay to or on the order of, each entity, that has served
from time to time as Distributor, a distribution services fee composed of (i) a
sales commission equal to such percentage as may be determined from time to time
by the Trustees (such determination to be evidenced by the distribution
servicing agreement between such Distributor and the Trust (each a "Distribution
Agreement")) not in excess of the percentage permitted by law of the amount
received by the Fund for each Share sold (excluding reinvestment of dividends
and distributions) prior to the termination of the Distribution Agreement and
(ii) a separate interest fee (calculated in accordance with Section 3(c) hereof)
to be paid in the manner set forth in, and subject to the terms of, this Plan.
The amount of the sales commission with respect to a Fund shall be established
from time to time by vote or other action of a majority of (i) the Trustees and
(ii) those Trustees of the Trust who are not interested persons of the Trust and
have no direct or indirect financial interest in the operation of this Plan or
any agreements related to it (the "Rule 12b-1 Trustees"). All sales commissions
paid hereunder with respect to a Fund shall, unless otherwise expressly required
by an applicable rule or regulation of the Securities and Exchange Commission
("Commission"), be charged to the capital of the Fund attributable to the
Shares. The separate interest fee paid hereunder with respect to a Fund shall,
unless otherwise expressly required by an applicable rule or regulation of the
Commission, be charged to the operating expenses of the Fund attributable to the
Shares. All distribution services fees are being paid to each Distributor in
consideration for the distribution services furnished by each such Distributor
in connection with the distribution of shares of a Fund, including the payment
of compensation to broker-dealers, banks and other financial intermediaries
selling Shares of such Fund.
SECTION 3. PAYMENT TO THE DISTRIBUTOR
(a) Subject to the provisions of Sections 9 and 11 hereof, the amount
of the distribution services fee payable pursuant to Section 2 in respect of
Shares of each Fund shall be paid by the Trust in respect of such Fund to the
Distributor in respect of such Shares or, if more than one institution has acted
or is acting as Distributor in respect of such Shares, then the amount of the
distribution services fee payable pursuant to Section 2 in respect of such
Shares shall be paid to each such Distributor in proportion to the number of
such Shares sold by or attributable to such Distributor's distribution efforts
in respect of such Shares in accordance with allocation provisions (the
"Allocation Procedures") set forth in such Distributor's Distribution Agreement
(the "Allocable Portion") notwithstanding that such Distributor's Distribution
Agreement with the Trust may have been terminated. A Distributor shall be deemed
to have fully earned its Allocable Portion of distribution services fees upon
the sale of each Commission Shares (as defined in the Allocation Procedures)
taken into account in computing its Allocable Portion.
(b) Payment of the distribution services fee by the Trust in respect of
each Fund shall be spread over a period of time, and the aggregate amount of all
such payments during any fiscal year of the Trust shall not exceed 0.75% of the
average daily net assets of the Fund attributable to the Shares for such year,
computed in accordance with the governing documents of the Trust and applicable
votes and determinations of the Trustees of the Trust. Accordingly, each Fund
shall accrue distribution services fees on a daily basis at the rate of 0.75%
per annum of the daily net assets of the Fund attributable to the Shares. The
amount of such distribution services fees in respect of a Fund shall be
determined daily with respect to such Fund, but Distributors for such Fund shall
not be entitled to any amount with respect to any day on which there exist no
outstanding Uncovered Distribution Charges, as defined below, attributable to
such Fund. The amount of such Uncovered Distribution Charges shall be calculated
daily. Subject to such limitations, the Trust shall pay each Distributor its
Allocable Portion of the accrued and unpaid distribution services fee at least
monthly and no later than the 10th day following the end of the calendar month
of accrual.
(c) For purposes of calculating Uncovered Distribution Charges in
respect of any Fund, Distribution Charges attributable to such Fund shall be the
aggregate of (i) all sales commissions attributable to the Fund that each
Distributor is entitled to be paid pursuant to Section 2 hereof since inception
of this Plan through and including the day next preceding the date of
calculation and (ii) an amount equal to the aggregate of all separate interest
fees referred to below that are attributable to such Fund that each Distributor
is entitled to be paid pursuant to Section 2 hereof since inception of this Plan
through and including the day next preceding the date of calculation. From
Distribution Charges attributable to such Fund as so computed there shall be
subtracted with respect to each Fund (i) an amount equal to the aggregate amount
of distribution services fees paid pursuant to this Section 3 in respect of such
Fund since inception of this Plan through and including the day next preceding
the date of calculation and (ii) an amount equal to the aggregate amount of all
contingent deferred sales charges paid by such Fund to each Distributor since
inception of this Plan through and including the day next preceding the date of
calculation. If the result of such subtraction is a positive amount, a separate
interest fee (computed at the rate of 1% per annum above the prime rate (being
the base rate on corporate loans at large U.S. money center commercial banks)
then being reported in the Eastern Edition of the Wall Street Journal or if such
prime rate is not so reported such other rate as may be designated from time to
time by vote or other action of a majority of (i) the Trustees and (ii) the Rule
12b-1 Trustees shall be computed on such amount and added to such amount, with
the resulting sum constituting the amount of outstanding Uncovered Distribution
Charges attributable to such Fund with respect to such day for all purposes of
this Plan. The amount of distribution services fee to be accrued or paid in
respect of a Fund to the Distributors with respect to any day shall be the
lesser of the Uncovered Distribution Charges attributable to such Fund with
respect to that day and the maximum distribution services fee payable to the
Distributors by such Fund with respect to that day. The amount of such
distribution services fees, as so determined, shall first be applied and charged
to all unpaid sales commissions attributable to such Fund, and the balance, if
any, shall then be applied and charged to all unpaid interest fees attributable
to such Fund.
SECTION 4. ASSIGNMENT
(a) Any Distributor may assign, transfer or pledge ("Transfer") to one
or more designees (each an "Assignee"), its rights to all or a designated
portion of its Allocable Portion of the distribution services fee relating to
any Fund from time to time (but not such Distributor's duties and obligations
pursuant hereto or pursuant to any Distribution Agreement), free and clear of
any offsets or claims the Trust may have against such Distributor. Each such
Assignee's interest in a specific designated portion of a Distributor's
Allocable Portion of the distribution services fee relating to any Fund
transferred in a Transfer is hereafter referred to as an "Assignee's Portion." A
Transfer pursuant to this Section 4(a) shall not reduce or extinguish any claims
of the Trust against the Distributor.
(b) Each Distributor shall promptly notify the Trust in writing of each
such Transfer by providing the Trust with the name and address of each such
Assignee and request the Trust to pay such Assignee's Portion to such Assignee.
In accordance with such request, the Trust shall pay to such Assignee such
Assignee's portion.
(c) Alternatively, in connection with a Transfer, a Distributor may
direct the Trust to pay all of such Distributor's Allocable Portion of the
distribution services fee relating to any Fund from time to time to a depository
or collection agent designated by any Assignee, which depository or collection
agent may be delegated the duty of dividing such Distributor's Allocable Portion
of the distribution services fee relating to any Fund between the Assignee's
Portion and the balance of such Distributor's Allocable Portion (such balance,
when distributed to such Distributor by the depository or collection agent, the
"Distributor's Share"), in which case no portion of the Distributor's Share may
be subject to offsets or claims the Trust may have against such Distributor,
until and unless such Distributor's Share has been paid to such Distributor by
such depository.
SECTION 5. CONTINGENT DEFERRED SALES CHARGES
Each Distributor shall be entitled to receive all contingent deferred
sales charges imposed with respect to any early redemption of the Shares of any
Fund that are sold while this Plan or the Distribution Agreement between such
Distributor and the Trust is in effect. If there exist no Uncovered Distribution
Charges attributable to a Fund on the day on which any such contingent deferred
sales charge is imposed on Shares of that Fund and either this Plan or the
Distribution Agreement is in effect, the amount of such contingent deferred
sales charge shall be used to reduce any distribution services fees which may
otherwise be payable by the Fund to Distributors in the future pursuant to the
Plan.
SECTION 6. MAINTENANCE FEES
In addition to the payments of distribution services fees to the
Distributor as provided for in Section 3 hereof, each Fund will pay to the
Distributor each month for providing services to shareholder accounts a
maintenance fee with respect to the Shares of the Fund in an amount equal to, on
an annualized basis, 0.25% of the average daily net assets attributable to the
Shares of the Fund.
SECTION 7. ASSUMPTION OF UNCOVERED DISTRIBUTION CHARGES
With respect to the Shares of each Fund identified in Appendix B
attached hereto, upon approval of the Rule 12b-1 Trustees, a Fund may assume and
pay to the Distributors or their Assignees, as appropriate, the Uncovered
Distribution Charges of any other registered investment company or series
thereof, or any other amounts expended for distribution on behalf of such
registered investment company or series and not reimbursed or paid by such
registered investment company or series, upon the merger or combination with or
acquisition of substantially all of the assets of that registered investment
company or series by the Fund. Payments by a Fund pursuant to this Section 7 are
subject to all of the terms and conditions of this Plan.
SECTION 8. NO OTHER PAYMENTS
No Fund is obligated to pay any expense of distribution or maintenance
of shareholder accounts in excess of the distribution services fee and
maintenance fee described in Sections 3 and Section 6, respectively, hereof. The
amount of distribution services fees, maintenance fees and contingent deferred
sales charges payable to any Distributor with respect to Shares of a Fund is not
related directly to the amount of expenses incurred by such Distributor in
connection with providing distribution services and personal services to the
Shares of the Fund, which expenses may be greater or less than those fees and
charges. The Fund will not be obligated to reimburse any Distributor for those
expenses.
SECTION 9. AGREEMENTS BY THE DISTRIBUTOR
Payments to broker-dealers, depository institutions and other financial
intermediaries for the purposes set forth in Section 1 hereof are subject to the
terms and conditions of the written agreements between the Distributor and each
broker-dealer, depository institution or other financial intermediary. These
agreements will be in a form satisfactory to the Trust's Board of Trustees (the
"Board").
SECTION 10. REVIEW AND RECORDS
(a) The Trust and the Distributor will prepare and furnish to the
Board, and the Board will review, at least quarterly, written reports complying
with the requirements of Rule 12b-1 setting forth all amounts expended hereunder
and identifying the amounts paid to agents upon issuance of the Shares.
(b) The Trust shall preserve copies of the Plan, each agreement related
to the Plan and each report prepared and furnished pursuant to this Section in
accordance with Rule 12b-1 under the Act.
SECTION 11. EFFECTIVENESS, DURATION AND TERMINATION
(a) This Plan will become effective on the date hereof and, with
respect to any Fund created subsequent to the date hereof, on the date the Board
adopts this Plan with respect to that Fund.
(b) This Plan will remain in effect with respect to each Fund for a
period of one year from the date of its effectiveness, unless earlier terminated
in accordance with its terms and shall continue in effect thereafter, provided
that such continuance is specifically approved at least annually by a majority
of the Board, including a majority of the Rule 12b-1 Trustees, pursuant to a
vote cast in person at a meeting called for the purpose of voting on the
approval of the Plan.
(c) The Plan may be terminated without penalty at any time with respect
to a Fund by (i) a vote of a majority of the Rule 12b-1 Trustees or (ii) by a
vote of a majority of the outstanding voting securities of the Fund. This Plan
may remain in effect for the Shares of any particular Fund even if the Plan has
been terminated for Shares of one or more other Funds. A termination of this
Plan with respect to any or all Shares of any or all Funds shall not affect the
obligation of the Trust to withhold and pay to any Distributor contingent
deferred sales charges to which such Distributor is entitled pursuant to any
Distribution Agreement.
(d) Notwithstanding anything to the contrary contained herein, the
Trust may agree with any Distributor that, so long as no Complete Termination
(as defined in Section 11(e) hereof) of this Plan has occurred and is
continuing, payments of such Distributor's Allocable Portion of the distribution
services fees will continue to be made to or at the direction of such
Distributor notwithstanding either the termination of the Distribution Agreement
with such Distributor, the termination of the role of such Distributor as
Distributor hereunder or the termination of this Plan.
(e) For purposes of this Section 11 a "Complete Termination" of this
Plan in respect of any Fund shall mean a termination of this Plan in respect to
such Fund so long as: (i) the 12b-1 Trustees of the Trust shall have acted in
good faith and shall have determined that such termination is in the best
interest of the Trust and the shareholders of such Fund; (ii) the Trust does not
alter the terms of the contingent deferred sales charges applicable to Shares
outstanding at the time of such termination; (iii) unless the applicable
Distributor at the time of such termination was in material breach under the
Distribution Agreement in respect of such Fund, the Trust shall not, in respect
of such Fund, pay to any person or entity, other than such Distributor or its
Assignee, either the asset based sales charge or the service fee (or any similar
fee) in respect of Shares taken into account in computing such Distributor's
Allocable Portion; and (iv) this Plan is terminated for such Shares and such
Fund has not adopted a distribution plan relating to any "Similar Class" of
shares of such Fund. For purposes of determining whether any termination of this
Plan for the Shares of a Fund is a Complete Termination, a "Similar Class" is
any class of shares of such Fund that has a sales load structure substantially
similar to that of the class for which this Plan was terminated taking into
account the total sales load borne directly or indirectly by holders of such
class of shares including commissions paid directly by such holders to brokers
on issuance of shares of such class, asset based sales charges paid by the Fund
and allocated to shares of such class, contingent deferred sales charges payable
by holders of shares of such class, installment or deferred sales charges
payable by holders of shares of such class, and similar charges borne directly
or indirectly by holders of shares of such class. A class of shares would not be
considered substantially similar to the Shares if (i) a front end sales charge
is paid by the purchaser; or (ii)(A) the shares are purchased at net asset
value, (B) any commission to any selling agent(s) on issuance of the shares does
not exceed 1.0% of the purchase amount, (C) the period during which any
contingent deferred sales charge applies does not exceed 12 months from the
purchase date, and (D) there is no other sales load feature borne directly or
indirectly by holders of such class of shares.
(f) In the event of a termination of this Plan with respect to any Fund
(other than a Fund listed on Appendix B) that does not constitute a Complete
Termination because the termination does not satisfy clause (ii), (iii) or (iv)
of the definition of Complete Termination set forth in paragraph (e) above, the
Fund shall continue to pay distribution services fees as provided herein until
the earlier of (i) four years after the date of such termination or
discontinuance or (ii) such time as there exist no outstanding Uncovered
Distribution Charges attributable to the Fund.
SECTION 12. AMENDMENTS
The Plan may be amended with respect to a Fund at any time with the
approval of the Board, provided that (i) any material amendments to the terms of
the Plan will become effective only upon approval by a majority of the Board,
including a majority of the Rule 12b-1 Trustees, pursuant to a vote cast in
person at a meeting called for the purpose of voting on the approval of the
Plan, and (ii) any amendment to increase materially the amount expended with
respect to a Fund for sales commissions or distribution services fees pursuant
to the Plan will be effective as to the Fund only upon the additional approval
by a vote of a majority of the outstanding voting securities of such Fund. For
purposes of this Section 11, an amendment to any Distribution Agreement
providing for an increase in the distribution services fees or aggregate fees
with respect to a Fund from an annual rate of 0.75% of the average daily net
assets of the Fund attributable to the Shares will be deemed an amendment to the
Plan which increases materially the amount which may be spent by that Fund
pursuant to the Plan.
SECTION 13. SELECTION OF RULE 12b-1 TRUSTEES
While the Plan is in effect, the selection and nomination of the Rule
12b-1 Trustees will be committed to the discretion of the Rule 12b-1 Trustees.
SECTION 14. LIMITATION OF SHAREHOLDER AND TRUSTEE LIABILITY
The Trustees of the Trust and the shareholders of each Fund shall not
be liable for any obligations of the Trust or of the Funds under the Plan.
SECTION 15. MISCELLANEOUS
(a) The terms "majority of the outstanding voting securities" and
"interested person" shall have the meanings ascribed thereto in the Act.
(b) If any provision of the Plan shall be held invalid by a court
decision, statute, rule or otherwise, the remainder of the Plan shall not be
affected thereby.
(c) Section headings in this Plan are included for convenience
only and are not to be used to construe or interpret the Plan.
<PAGE>
NORWEST ADVANTAGE FUNDS
DISTRIBUTION PLAN
August 1, 1993
As Amended July 28, 1998
APPENDIX A
Shares of Funds Covered Under the Plan
Fund Class
Ready Cash Investment Fund Exchange Shares
Stable Income Fund B Shares
Intermediate Government Income Fund B Shares
Income Fund B Shares
Total Return Bond Fund B Shares
Tax-Free Income Fund B Shares
Colorado Tax-Free Fund B Shares
Minnesota Tax-Free Fund B Shares
Growth Balanced Fund B Shares
Income Equity Fund B Shares
ValuGrowth Stock Fund B Shares
Diversified Equity Fund B Shares
Growth Equity Fund B Shares
Large Company Growth Fund B Shares
Diversified Small Cap Fund B Shares
Small Company Stock Fund B Shares
Small Company Growth Fund B Shares
Small Cap Opportunities Fund B Shares
Contrarian Stock Fund B Shares
International Fund B Shares
<PAGE>
NORWEST ADVANTAGE FUNDS
DISTRIBUTION PLAN
August 1, 1993
As Amended July 28, 1998
APPENDIX B
Fund Class
Stable Income Fund B Shares
Intermediate Government Income Fund B Shares
Income Equity Fund B Shares
Exhibit (15)(b)
NORWEST ADVANTAGE FUNDS DISTRIBUTION PLAN C Shares
July 28, 1998
This Distribution Plan (the "Plan") is adopted by Norwest Advantage
Funds (the "Trust") with respect to the shares of each class (the "Shares") of
each of the Funds identified in Appendix A attached hereto (individually a
"Fund" and collectively the "Funds") in accordance with the provisions of Rule
12b-1 under the Investment Company Act of 1940, as amended (the "Act").
SECTION 1. DISTRIBUTION RELATED SERVICES
Each entity selected from time to time to act as principal agent for
the Trust for the distribution of Shares of a Fund (each, a "Distributor" and
collectively, the "Distributors") will provide the Funds with
distribution-related services that are primarily intended to result in the sale
of Shares, including, but not limited to, compensation of employees of each such
Distributor, compensation and expenses, including overhead and telephone and
other communication expenses, of each such Distributor and other broker-dealers,
banks and other financial intermediaries that engage in or support the
distribution of Shares, the preparation, printing and distribution of
prospectuses, statements of additional information, sales literature and
advertising materials relating to the Shares, and such other promotional
activities in such amounts as each such Distributor deems necessary or
appropriate.
SECTION 2. COMPENSATION
Each Fund will pay to or on the order of, each entity, that has served
from time to time as Distributor, a distribution services fee composed of (i) a
sales commission equal to such percentage as may be determined from time to time
by the Trustees (such determination to be evidenced by the distribution
servicing agreement between such Distributor and the Trust (each a "Distribution
Agreement")) not in excess of the percentage permitted by law of the amount
received by the Fund for each Share sold (excluding reinvestment of dividends
and distributions) prior to the termination of the Distribution Agreement and
(ii) a separate interest fee (calculated in accordance with Section 3(c) hereof)
to be paid in the manner set forth in, and subject to the terms of, this Plan.
The amount of the sales commission with respect to a Fund shall be established
from time to time by vote or other action of a majority of (i) the Trustees and
(ii) those Trustees of the Trust who are not interested persons of the Trust and
have no direct or indirect financial interest in the operation of this Plan or
any agreements related to it (the "Rule 12b-1 Trustees"). All sales commissions
paid hereunder with respect to a Fund shall, unless otherwise expressly required
by an applicable rule or regulation of the Securities and Exchange Commission
("Commission"), be charged to the capital of the Fund attributable to the
Shares. The separate interest fee paid hereunder with respect to a Fund shall,
unless otherwise expressly required by an applicable rule or regulation of the
Commission, be charged to the operating expenses of the Fund attributable to the
Shares. All distribution services fees are being paid to each Distributor in
consideration for the distribution services furnished by each such Distributor
in connection with the distribution of shares of a Fund, including the payment
of compensation to broker-dealers, banks and other financial intermediaries
selling Shares of such Fund.
SECTION 3. PAYMENT TO THE DISTRIBUTOR
(a) Subject to the provisions of Sections 9 and 11 hereof, the amount
of the distribution services fee payable pursuant to Section 2 in respect of
Shares of each Fund shall be paid by the Trust in respect of such Fund to the
Distributor in respect of such Shares or, if more than one institution has acted
or is acting as Distributor in respect of such Shares, then the amount of the
distribution services fee payable pursuant to Section 2 in respect of such
Shares shall be paid to each such Distributor in proportion to the number of
such Shares sold by or attributable to such Distributor's distribution efforts
in respect of such Shares in accordance with allocation provisions (the
"Allocation Procedures") set forth in such Distributor's Distribution Agreement
(the "Allocable Portion") notwithstanding that such Distributor's Distribution
Agreement with the Trust may have been terminated. A Distributor shall be deemed
to have fully earned its Allocable Portion of distribution services fees upon
the sale of each Commission Shares (as defined in the Allocation Procedures)
taken into account in computing its Allocable Portion.
(b) Payment of the distribution services fee by the Trust in respect of
each Fund shall be spread over a period of time, and the aggregate amount of all
such payments during any fiscal year of the Trust shall not exceed 0.75% of the
average daily net assets of the Fund attributable to the Shares for such year,
computed in accordance with the governing documents of the Trust and applicable
votes and determinations of the Trustees of the Trust. Accordingly, each Fund
shall accrue distribution services fees on a daily basis at the rate of 0.75%
per annum of the daily net assets of the Fund attributable to the Shares. The
amount of such distribution services fees in respect of a Fund shall be
determined daily with respect to such Fund, but Distributors for such Fund shall
not be entitled to any amount with respect to any day on which there exist no
outstanding Uncovered Distribution Charges, as defined below, attributable to
such Fund. The amount of such Uncovered Distribution Charges shall be calculated
daily. Subject to such limitations, the Trust shall pay each Distributor its
Allocable Portion of the accrued and unpaid distribution services fee at least
monthly and no later than the 10th day following the end of the calendar month
of accrual.
(c) For purposes of calculating Uncovered Distribution Charges in
respect of any Fund, Distribution Charges attributable to such Fund shall be the
aggregate of (i) all sales commissions attributable to the Fund that each
Distributor is entitled to be paid pursuant to Section 2 hereof since inception
of this Plan through and including the day next preceding the date of
calculation and (ii) an amount equal to the aggregate of all separate interest
fees referred to below that are attributable to such Fund that each Distributor
is entitled to be paid pursuant to Section 2 hereof since inception of this Plan
through and including the day next preceding the date of calculation. From
Distribution Charges attributable to such Fund as so computed there shall be
subtracted with respect to each Fund (i) an amount equal to the aggregate amount
of distribution services fees paid pursuant to this Section 3 in respect of such
Fund since inception of this Plan through and including the day next preceding
the date of calculation and (ii) an amount equal to the aggregate amount of all
contingent deferred sales charges paid by such Fund to each Distributor since
inception of this Plan through and including the day next preceding the date of
calculation. If the result of such subtraction is a positive amount, a separate
interest fee (computed at the rate of 1% per annum above the prime rate (being
the base rate on corporate loans at large U.S. money center commercial banks)
then being reported in the Eastern Edition of the Wall Street Journal or if such
prime rate is not so reported such other rate as may be designated from time to
time by vote or other action of a majority of (i) the Trustees and (ii) the Rule
12b-1 Trustees shall be computed on such amount and added to such amount, with
the resulting sum constituting the amount of outstanding Uncovered Distribution
Charges attributable to such Fund with respect to such day for all purposes of
this Plan. The amount of distribution services fee to be accrued or paid in
respect of a Fund to the Distributors with respect to any day shall be the
lesser of the Uncovered Distribution Charges attributable to such Fund with
respect to that day and the maximum distribution services fee payable to the
Distributors by such Fund with respect to that day. The amount of such
distribution services fees, as so determined, shall first be applied and charged
to all unpaid sales commissions attributable to such Fund, and the balance, if
any, shall then be applied and charged to all unpaid interest fees attributable
to such Fund.
SECTION 4. ASSIGNMENT
(a) Any Distributor may assign, transfer or pledge ("Transfer") to one
or more designees (each an "Assignee"), its rights to all or a designated
portion of its Allocable Portion of the distribution services fee relating to
any Fund from time to time (but not such Distributor's duties and obligations
pursuant hereto or pursuant to any Distribution Agreement), free and clear of
any offsets or claims the Trust may have against such Distributor. Each such
Assignee's interest in a specific designated portion of a Distributor's
Allocable Portion of the distribution services fee relating to any Fund
transferred in a Transfer is hereafter referred to as an "Assignee's Portion." A
Transfer pursuant to this Section 4(a) shall not reduce or extinguish any claims
of the Trust against the Distributor.
(b) Each Distributor shall promptly notify the Trust in writing of each
such Transfer by providing the Trust with the name and address of each such
Assignee and request the Trust to pay such Assignee's Portion to such Assignee.
In accordance with such request, the Trust shall pay to such Assignee such
Assignee's portion.
(c) Alternatively, in connection with a Transfer, a Distributor may
direct the Trust to pay all of such Distributor's Allocable Portion of the
distribution services fee relating to any Fund from time to time to a depository
or collection agent designated by any Assignee, which depository or collection
agent may be delegated the duty of dividing such Distributor's Allocable Portion
of the distribution services fee relating to any Fund between the Assignee's
Portion and the balance of such Distributor's Allocable Portion (such balance,
when distributed to such Distributor by the depository or collection agent, the
"Distributor's Share"), in which case no portion of the Distributor's Share may
be subject to offsets or claims the Trust may have against such Distributor,
until and unless such Distributor's Share has been paid to such Distributor by
such depository.
SECTION 5. CONTINGENT DEFERRED SALES CHARGES
Each Distributor shall be entitled to receive all contingent deferred
sales charges imposed with respect to any early redemption of the Shares of any
Fund that are sold while this Plan or the Distribution Agreement between such
Distributor and the Trust is in effect. If there exist no Uncovered Distribution
Charges attributable to a Fund on the day on which any such contingent deferred
sales charge is imposed on Shares of that Fund and either this Plan or the
Distribution Agreement is in effect, the amount of such contingent deferred
sales charge shall be used to reduce any distribution services fees which may
otherwise be payable by the Fund to Distributors in the future pursuant to the
Plan.
SECTION 6. MAINTENANCE FEES
In addition to the payments of distribution services fees to the
Distributor as provided for in Section 3 hereof, each Fund will pay to the
Distributor each month for providing services to shareholder accounts a
maintenance fee with respect to the Shares of the Fund in an amount equal to, on
an annualized basis, 0.25% of the average daily net assets attributable to the
Shares of the Fund.
SECTION 7. ASSUMPTION OF UNCOVERED DISTRIBUTION CHARGES
With respect to the Shares of each Fund identified in Appendix B
attached hereto, upon approval of the Rule 12b-1 Trustees, a Fund may assume and
pay to the Distributors or their Assignees, as appropriate, the Uncovered
Distribution Charges of any other registered investment company or series
thereof, or any other amounts expended for distribution on behalf of such
registered investment company or series and not reimbursed or paid by such
registered investment company or series, upon the merger or combination with or
acquisition of substantially all of the assets of that registered investment
company or series by the Fund. Payments by a Fund pursuant to this Section 7 are
subject to all of the terms and conditions of this Plan.
SECTION 8. NO OTHER PAYMENTS
No Fund is obligated to pay any expense of distribution or maintenance
of shareholder accounts in excess of the distribution services fee and
maintenance fee described in Sections 3 and Section 6, respectively, hereof. The
amount of distribution services fees, maintenance fees and contingent deferred
sales charges payable to any Distributor with respect to Shares of a Fund is not
related directly to the amount of expenses incurred by such Distributor in
connection with providing distribution services and personal services to the
Shares of the Fund, which expenses may be greater or less than those fees and
charges. The Fund will not be obligated to reimburse any Distributor for those
expenses.
SECTION 9. AGREEMENTS BY THE DISTRIBUTOR
Payments to broker-dealers, depository institutions and other financial
intermediaries for the purposes set forth in Section 1 hereof are subject to the
terms and conditions of the written agreements between the Distributor and each
broker-dealer, depository institution or other financial intermediary. These
agreements will be in a form satisfactory to the Trust's Board of Trustees (the
"Board").
SECTION 10. REVIEW AND RECORDS
(a) The Trust and the Distributor will prepare and furnish to the
Board, and the Board will review, at least quarterly, written reports complying
with the requirements of Rule 12b-1 setting forth all amounts expended hereunder
and identifying the amounts paid to agents upon issuance of the Shares.
(b) The Trust shall preserve copies of the Plan, each agreement related
to the Plan and each report prepared and furnished pursuant to this Section in
accordance with Rule 12b-1 under the Act.
SECTION 11. EFFECTIVENESS, DURATION AND TERMINATION
(a) This Plan will become effective on the date hereof and, with
respect to any Fund created subsequent to the date hereof, on the date the Board
adopts this Plan with respect to that Fund.
(b) This Plan will remain in effect with respect to each Fund for a
period of one year from the date of its effectiveness, unless earlier terminated
in accordance with its terms and shall continue in effect thereafter, provided
that such continuance is specifically approved at least annually by a majority
of the Board, including a majority of the Rule 12b-1 Trustees, pursuant to a
vote cast in person at a meeting called for the purpose of voting on the
approval of the Plan.
(c) The Plan may be terminated without penalty at any time with respect
to a Fund by (i) a vote of a majority of the Rule 12b-1 Trustees or (ii) by a
vote of a majority of the outstanding voting securities of the Fund. This Plan
may remain in effect for the Shares of any particular Fund even if the Plan has
been terminated for Shares of one or more other Funds. A termination of this
Plan with respect to any or all Shares of any or all Funds shall not affect the
obligation of the Trust to withhold and pay to any Distributor contingent
deferred sales charges to which such Distributor is entitled pursuant to any
Distribution Agreement.
(d) Notwithstanding anything to the contrary contained herein, the
Trust may agree with any Distributor that, so long as no Complete Termination
(as defined in Section 11(e) hereof) of this Plan has occurred and is
continuing, payments of such Distributor's Allocable Portion of the distribution
services fees will continue to be made to or at the direction of such
Distributor notwithstanding either the termination of the Distribution Agreement
with such Distributor, the termination of the role of such Distributor as
Distributor hereunder or the termination of this Plan.
(e) For purposes of this Section 11 a "Complete Termination" of this
Plan in respect of any Fund shall mean a termination of this Plan in respect to
such Fund so long as: (i) the 12b-1 Trustees of the Trust shall have acted in
good faith and shall have determined that such termination is in the best
interest of the Trust and the shareholders of such Fund; (ii) the Trust does not
alter the terms of the contingent deferred sales charges applicable to Shares
outstanding at the time of such termination; (iii) unless the applicable
Distributor at the time of such termination was in material breach under the
Distribution Agreement in respect of such Fund, the Trust shall not, in respect
of such Fund, pay to any person or entity, other than such Distributor or its
Assignee, either the asset based sales charge or the service fee (or any similar
fee) in respect of Shares taken into account in computing such Distributor's
Allocable Portion; and (iv) this Plan is terminated for such Shares and such
Fund has not adopted a distribution plan relating to any "Similar Class" of
shares of such Fund. For purposes of determining whether any termination of this
Plan for the Shares of a Fund is a Complete Termination, a "Similar Class" is
any class of shares of such Fund that has a sales load structure substantially
similar to that of the class for which this Plan was terminated taking into
account the total sales load borne directly or indirectly by holders of such
class of shares including commissions paid directly by such holders to brokers
on issuance of shares of such class, asset based sales charges paid by the Fund
and allocated to shares of such class, contingent deferred sales charges payable
by holders of shares of such class, installment or deferred sales charges
payable by holders of shares of such class, and similar charges borne directly
or indirectly by holders of shares of such class. A class of shares would not be
considered substantially similar to the Shares if (i) a front end sales charge
is paid by the purchaser; or (ii)(A) the shares are purchased at net asset
value, (B) any commission to any selling agent(s) on issuance of the shares does
not exceed 1.0% of the purchase amount, (C) the period during which any
contingent deferred sales charge applies does not exceed 12 months from the
purchase date, and (D) there is no other sales load feature borne directly or
indirectly by holders of such class of shares.
(f) In the event of a termination of this Plan with respect to any Fund
(other than a Fund listed on Appendix B) that does not constitute a Complete
Termination because the termination does not satisfy clause (ii), (iii) or (iv)
of the definition of Complete Termination set forth in paragraph (e) above, the
Fund shall continue to pay distribution services fees as provided herein until
the earlier of (i) four years after the date of such termination or
discontinuance or (ii) such time as there exist no outstanding Uncovered
Distribution Charges attributable to the Fund.
SECTION 12. AMENDMENTS
The Plan may be amended with respect to a Fund at any time with the
approval of the Board, provided that (i) any material amendments to the terms of
the Plan will become effective only upon approval by a majority of the Board,
including a majority of the Rule 12b-1 Trustees, pursuant to a vote cast in
person at a meeting called for the purpose of voting on the approval of the
Plan, and (ii) any amendment to increase materially the amount expended with
respect to a Fund for sales commissions or distribution services fees pursuant
to the Plan will be effective as to the Fund only upon the additional approval
by a vote of a majority of the outstanding voting securities of such Fund. For
purposes of this Section 11, an amendment to any Distribution Agreement
providing for an increase in the distribution services fees or aggregate fees
with respect to a Fund from an annual rate of 0.75% of the average daily net
assets of the Fund attributable to the Shares will be deemed an amendment to the
Plan which increases materially the amount which may be spent by that Fund
pursuant to the Plan.
SECTION 13. SELECTION OF RULE 12b-1 TRUSTEES
While the Plan is in effect, the selection and nomination of the Rule
12b-1 Trustees will be committed to the discretion of the Rule 12b-1 Trustees.
SECTION 14. LIMITATION OF SHAREHOLDER AND TRUSTEE LIABILITY
The Trustees of the Trust and the shareholders of each Fund shall not
be liable for any obligations of the Trust or of the Funds under the Plan.
SECTION 15. MISCELLANEOUS
(a) The terms "majority of the outstanding voting securities" and
"interested person" shall have the meanings ascribed thereto in the Act.
(b) If any provision of the Plan shall be held invalid by a court
decision, statute, rule or otherwise, the remainder of the Plan shall not be
affected thereby.
(c) Section headings in this Plan are included for convenience
only and are not to be used to construe or interpret the Plan.
<PAGE>
NORWEST ADVANTAGE FUNDS
DISTRIBUTION PLAN
July 28, 1998
APPENDIX A
Shares of Funds Covered Under the Plan
Fund
Growth Balanced Fund C Shares
Income Equity Fund C Shares
Diversified Equity Fund C Shares
Growth Equity Fund C Shares
<PAGE>
NORWEST ADVANTAGE FUNDS
DISTRIBUTION PLAN
July 28, 1998
APPENDIX B
Fund
Growth Balanced Fund C Shares
Income Equity Fund C Shares
Diversified Equity Fund C Shares
Growth Equity Fund C Shares
