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As filed with the Securities and Exchange Commission on October 4, 1999
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. 61
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 62
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 Administrative Services, LLC
Two Portland Square
Portland, Maine 04101
Copies to:
Anthony C. J. Nuland, Esq.
Seward & Kissel, LLP
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.
Title of Securities Being Registered: 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, 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, International Fund, Performa
Strategic Value Bond Fund, Performa Disciplined Growth Fund, Performa Small Cap
Value Fund, Performa Global Growth Fund, Norwest WealthBuilder II Growth
Balanced Portfolio, Norwest WealthBuilder II Growth and Income Portfolio and
Norwest WealthBuilder II Growth Portfolio.
Ready Cash Investment Fund, Stable Income Fund, Total Return Bond Fund, Index
Fund, Income Equity Fund, Large Company Growth Fund, Small Company Growth Fund,
Performa Strategic Value Bond Fund, Performa Disciplined Growth Fund and
Performa Small Cap Value Fund of Registrant are structured as master-feeder
funds and this amendment is also executed by Core Trust (Delaware).
<PAGE>
NORWEST ADVANTAGE FUNDS
PROSPECTUS
October 1, 1999
<TABLE>
<S> <C>
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 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
</TABLE>
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.
The Board of Trustees and the shareholders of the Norwest Advantage Funds have
approved a reorganization of the Funds with the Stagecoach Funds advised by
Wells Fargo Bank, N.A. The Board of Directors and shareholders of Stagecoach
Funds also have approved the reorganization. This combination of mutual fund
families follows the merger of Wells Fargo & Company and Norwest Corporation.
Each of the Norwest Advantage Funds and the Stagecoach Funds will reorganize
into a new portfolio of Wells Fargo Funds Trust. The reorganization is pending
and will be completed as soon as reasonably practicable.
The U.S. Securities and Exchange Commission has not approved or disapproved
these securities or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
<PAGE>
Table Of Contents
<TABLE>
<S> <C>
RISK/RETURN SUMMARY...............................................................................................3
Money Market Funds.......................................................................................4
Fixed Income Funds.......................................................................................8
Tax-Free Fixed Income Funds.............................................................................16
Balanced Funds..........................................................................................21
Equity Funds............................................................................................26
FEES AND EXPENSES OF THE FUNDS...................................................................................39
GLOSSARY ........................................................................................................41
INVESTMENT OBJECTIVES, STRATEGIES AND RISK CONSIDERATIONS........................................................42
Descriptions Of Core Portfolios.........................................................................60
OTHER CONSIDERATIONS.............................................................................................63
HOW TO BUY AND SELL SHARES.......................................................................................73
DISTRIBUTIONS AND TAX MATTERS....................................................................................78
FINANCIAL HIGHLIGHTS.............................................................................................80
</TABLE>
2
<PAGE>
RISK/RETURN SUMMARY
The following is a summary of certain key information about the Funds.
You will find additional information about the Funds after this
summary.
Some of the Funds invest directly in a portfolio of securities. Other
Funds, as identified below, are "gateway" funds in a "core/gateway"
structure. In this structure, a "gateway" fund invests some or all of
its assets in one or more "core portfolios" that have a substantially
identical investment objective and substantially similar policies as
the gateway fund. Gateway funds investing in the same core portfolio,
or Portfolio, can enhance their investment opportunities and reduce
their expense ratios through sharing the costs of managing a large
pool of assets. Except when necessary to describe a Fund's investment
in a Portfolio, references to the gateway fund also include the
Portfolio, which is discussed after this section.
In this summary, we will identify certain kinds of risks that apply to
one or more of the Funds. These risks are:
o MARKET RISK. THIS IS THE RISK THAT THE VALUE OF A FUND'S
INVESTMENTS WILL FLUCTUATE AS THE STOCK OR BOND MARKETS FLUCTUATE
AND THAT PRICES OVERALL WILL DECLINE OVER SHORT OR LONGER-TERM
PERIODS. THIS RISK IS COMMON TO THE BALANCED FUNDS AND THE EQUITY
FUNDS.
o INTEREST RATE RISK. THIS IS THE RISK THAT CHANGES IN INTEREST
RATES WILL AFFECT THE VALUE OF A FUND'S INVESTMENTS, PARTICULARLY
THOSE INVESTMENTS IN DEBT OR
INCOME-PRODUCING SECURITIES. INCREASES IN INTEREST RATES MAY
CAUSE THE VALUE OF A FUND'S INVESTMENTS TO DECLINE. THIS RISK IS
COMMON TO THE MONEY MARKET FUNDS, FIXED INCOME FUND, TAX FREE
FUNDS, AND BALANCED FUNDS.
o CREDIT RISK. THIS IS THE RISK THAT THE ISSUER OF A SECURITY WILL
BE UNABLE TO MAKE TIMELY PAYMENTS OF INTEREST OR PRINCIPAL OR TO
OTHERWISE HONOR ITS OBLIGATIONS. THIS RISK IS COMMON TO THE MONEY
MARKET FUNDS, FIXED INCOME FUNDS, TAX FREE FUNDS, AND BALANCED
FUNDS.
o MANAGEMENT RISK. THIS IS THE RISK THAT A FUND'S MANAGER WILL MAKE
POOR CHOICES IN SELECTED SECURITIES. ALL ACTIVELY MANAGED FUNDS
HAVE MANAGEMENT RISK.
The Risk/Return Summary includes a bar chart for each Fund showing its
annual returns and a table showing its average annual returns. The bar
chart and table provide an indication of the historical risk of an
investment in each Fund by showing:
o changes in the fund's performance from year to year over 10 years
or, if less, the life of a fund; and
o how the Fund's average annual returns for one, five and 10 years,
or, if less, the life of the Fund, compare to those of a
broad-based securities market index.
A Fund's past performance does not necessarily indicate how it will
perform in the future.
Another important thing for you to note: You may lose money by
investing in a Fund.
3
<PAGE>
MONEY MARKET FUNDS
Cash Investment Fund Treasury Plus Fund
Ready Cash Investment Fund Treasury Fund
U.S. Government Fund Municipal Money Market Fund
OBJECTIVES. The investment objectives of the Money Market Funds are high current
income to the extent consistent with preservation of capital and liquidity. The
Municipal Money Market Fund seeks current income that is exempt from federal
income taxes.
PRINCIPAL INVESTMENT STRATEGIEs. The Funds are "money market funds" that seek to
maintain a stable net asset value of $1.00 per share. Each Fund pursues its
objectives by maintaining a portfolio of high-quality money market securities.
Each Fund primarily invests in:
o Cash Investment Fund and Ready Cash Investment Fund: Money market
instruments of U.S. and foreign issuers.
o U.S. Government Fund: Securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
o Treasury Plus Fund: Securities issued or guaranteed by the U.S.
Treasury and repurchase agreements on those obligations.
o Treasury Fund: Securities issued or guaranteed by the U.S. Treasury.
o Municipal Money Market Fund: Tax-exempt municipal securities.
PRINCIPAL RISKS. The principal risks of investing in the Money Market Funds are
interest rate risk and credit risk. 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 the Funds.
In addition, a principal risk of investing in the Municipal Money Market Fund is
municipal market risk which is the risk that special factors, such as political
and legislative changes and local business and economic developments, may
adversely affect the yield or value of the Funds' investments.
The Cash Investment and Ready Cash Investment Funds' foreign investments are
subject to foreign risk. This is the risk of investments located in foreign
countries, which may have greater volatility and less liquidity. Investments in
foreign securities also are subject to political, regulatory and diplomatic
risks. Foreign risk also includes currency risk, which may occur due to
fluctuations in the exchange rates between the U.S. dollar and foreign
currencies. This risk could negatively affect the value of a Fund's investments.
BAR CHARTS AND PERFORMANCE INFORMATION
The bar charts and performance tables provide an indication of the historical
risk of an investment in the Funds by showing changes in a Fund's performance
from year to year over 10 years, or the life of the Fund. Past performance does
not necessarily indicate future performance.
CASH INVESTMENT FUND
[EDGAR Representation of Bar Chart]
ANNUAL TOTAL RETURN
1989 9.20%
1990 8.18%
1991 6.06%
1992 3.79%
1993 3.18%
1994 3.84%
1995 5.75%
1996 5.21%
1997 5.36%
1998 5.32%
The calendar year-to-date total return as of June 30, 1999 was 2.32%.
During the periods shown in the chart, the highest quarterly return was 2.37%
(for the quarter ended June 30, 1989) and the lowest quarterly return was 0.74%
(for the quarter ended March 31, 1991).
4
<PAGE>
The following table lists the Fund's average annual total returns as of December
31, 1998.
CASH INVESTMENT
YEAR(S) FUND
1 Year 5.32%
5 Year 5.09%
10 Year 5.57%
Since Inception (10/14/87) 5.77%
READY CASH INVESTMENT FUND
[EDGAR Representation of Bar Chart]
ANNUAL TOTAL RETURN
1989 8.84%
1990 7.78%
1991 5.75%
1992 3.52%
1993 2.79%
1994 3.49%
1995 5.42%
1996 4.87%
1997 5.02%
1998 4.96%
The calendar year-to-date total return as of June 30, 1999 was 2.14%.
During the periods shown in the chart, the highest quarterly return was 2.29%
(for the quarter ended June 30, 1989) and the lowest quarterly return was 0.64%
(for the quarter ended March 31, 1994).
The following table lists the Fund's average annual total returns as of December
31, 1998.
READY CASH
YEAR(S) INVESTMENT FUND
1 Year 4.96%
5 Year 4.75%
10 Year 5.23%
Since Inception (12/20/88) 5.39%
5
<PAGE>
U.S. GOVERNMENT FUND
[EDGAR Representation of Bar Chart]
ANNUAL TOTAL RETURN
1989 8.86%
1990 7.87%
1991 5.78%
1992 3.49%
1993 2.98%
1994 3.80%
1995 5.51%
1996 5.01%
1997 5.16%
1998 5.07%
The calendar year-to-date total return as of June 30, 1999 was 2.22%.
During the periods shown in the chart, the highest quarterly return was 2.27%
(for the quarter ended June 30, 1989) and the lowest quarterly return was 0.72%
(for the quarter ended June 30, 1993).
The following table lists the Fund's average annual total returns as of December
31, 1998.
U.S. GOVERNMENT
YEAR(S) FUND
1 Year 5.07%
5 Year 4.91%
10 Year 5.34%
Since Inception (11/16/87) 5.53%
TREASURY PLUS FUND
Because the Fund has not yet completed a full calendar year of operations, there
is no bar chart or return information.
TREASURY FUND
[EDGAR Representation of Bar Chart]
ANNUAL TOTAL RETURN
1991 5.79%
1992 3.45%
1993 2.78%
1994 3.63%
1995 5.29%
1996 4.83%
1997 4.95%
1998 4.80%
The calendar year-to-date total return as of June 30, 1999 was 2.10%.
During the periods shown in the chart, the highest quarterly return was 1.60%
(for the quarter ended March 31, 1991) and the lowest quarterly return was 0.68%
(for the quarter ended March 31, 1994).
6
<PAGE>
The following table lists the Fund's average annual total returns as of December
31, 1998.
TREASURY
YEAR(S) FUND
1 Year 4.80%
5 Year 4.70%
Since Inception (12/3/90) 4.47%
MUNICIPAL MONEY MARKET FUND
[EDGAR Representation of Bar Chart]
ANNUAL TOTAL RETURN
1989 5.93%
1990 5.48%
1991 4.07%
1992 2.51%
1993 2.07%
1994 2.72%
1995 3.74%
1996 3.28%
1997 3.40%
1998 3.19%
The calendar year-to-date total return as of June 30, 1999 was 1.37%.
During the periods shown in the chart, the highest quarterly return was 1.58%
(for the quarter ended June 30, 1989) and the lowest quarterly return was 0.47%
(for the quarter ended March 31, 1993).
The following table lists the Fund's average annual total returns as of December
31, 1998.
MUNICIPAL MONEY
YEAR(S) MARKET FUND
1 Year 2.99%
5 Year 3.06%
10 Year 3.52%
Since Inception (1/7/88) 3.64%
7
<PAGE>
FIXED INCOME FUNDS
STABLE INCOME FUND
OBJECTIVE. The investment objective of the Fund is to maintain safety of
principal while providing low volatility total return.
PRINCIPAL INVESTMENT STRATEGIES. The Fund invests in a diversified portfolio of,
primarily, short-term investment grade securities (rated in the 2 highest
short-term ratings categories or of comparable quality). The Fund invests in
fixed and variable rate U.S dollar-denominated debt securities of a broad
spectrum of U.S. issuers, including U.S. Government securities. The Fund's
investments may include mortgage-related and asset-backed securities. The Fund
seeks to maintain average dollar-weighted portfolio maturity of between 2 and 5
years. Its duration (measure of the current value of cash flows), however, is
short-term and will be maintained at 80% to 120% of that of a 1-year U.S.
Treasury bill.
PRINCIPAL RISKS. The principal risks of investing in the Fund are interest rate
risk and credit risk. The Fund's investments in mortgage-related and
asset-backed securities have prepayment risk, which is the risk that mortgage
loans or other obligations will be prepaid when interest rates decline, forcing
the Fund to reinvest in securities with lower interest rates. For this and other
reasons, mortgage-related and asset-backed securities may have significantly
greater price and yield volatility than traditional debt securities. Loss of
money is a risk of investing in the Fund.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance table provide an indication of the historical risk
of an investment in the Fund by showing changes in the Fund's performance from
year to year over the life of the Fund and how the Fund's average annual returns
compare to those of a broad-based securities index. Past performance does not
necessarily indicate future performance.
[EDGAR Representation of Bar Chart]
ANNUAL TOTAL RETURN
1995 7.93%
1996 5.46%
1997 6.46%
1998 5.77%
The calendar year-to-date total return as of June 30, 1999 was 1.56%.
During the periods shown in the chart, the highest quarterly return was 2.24%
(for the quarter ended June 30, 1995) and the lowest quarterly return was 0.79%
(for the quarter ended December 31, 1998).
The following table compares the Fund's average annual total returns as of
December 31, 1998 to the Lehman 1-3 Year Government Index.
<TABLE>
<S> <C> <C>
STABLE LEHMAN
YEAR(S) INCOME FUND 1 TO 3 YEAR GOVERNMENT INDEX
1 Year 5.77% 6.96%
Since Inception (11/9/94) 6.35% 7.00%(1)
</TABLE>
(1) For the period 10/31/94 - 12/31/98.
8
<PAGE>
The Lehman 1 to 3 Year Government Index is an unmanaged market capitalization
weighted total rate of return index including U.S. Treasury and agency
securities. All bonds must be greater than or equal to one year and less than
three years from maturity.
LIMITED TERM GOVERNMENT INCOME FUND
OBJECTIVE. The investment objective of the Fund is to provide income and safety
of principal by investing primarily in U.S. Government securities.
PRINCIPAL INVESTMENT STRATEGIES. The Fund normally invests at least 65% of its
total assets in fixed and variable rate U.S. Government securities and may
invest up to 35% of its total assets in debt securities that are not U.S.
Government securities. The Fund's investments include mortgage-backed and
asset-backed securities. In selecting investments, the Fund emphasizes the use
of short maturity securities to lessen interest rate risk and uses
mortgage-backed securities to enhance yield. The Fund seeks to maintain average
dollar-weighted portfolio maturity of between 1 and 5 years.
PRINCIPAL RISKS. The principal risks of investing in the Fund are interest rate
risk and credit risk. The Fund's investments in mortgage-backed and asset-backed
securities have prepayment risk, which is the risk that mortgage loans or other
obligations will be prepaid when interest rates decline, forcing the Fund to
reinvest in securities with lower interest rates. For this and other reasons,
mortgage-related and asset-backed securities may have significantly greater
price and yield volatility than traditional debt securities. Loss of money is a
risk of investing in the Fund.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance table provide an indication of the historical risk
of an investment in the Fund by showing changes in the Fund's performance over
the life of the Fund and how the Fund's average annual returns compare to those
of a broad-based securities index. Past performance does not necessarily
indicate future performance.
[EDGAR Representation of Bar Chart]
ANNUAL TOTAL RETURN
1998 7.68%
The calendar year-to-date total return as of June 30, 1999 was -0.59%.
During the periods shown in the chart, the highest quarterly return was 4.37%
(for the quarter ended September 30, 1998) and the lowest quarterly return was
0.16% (for the quarter ended December 31, 1998).
The following table compares the Fund's average annual total returns as of
December 31, 1998 to the Merrill Lynch 1 to 3 Year Government Index.
<TABLE>
<S> <C> <C>
LIMITED TERM GOVERNMENT MERRILL LYNCH 1 TO 3 YEAR
YEAR(S) INCOME FUND GOVERNMENT INDEX
1 Year 7.68% 6.97%
Since Inception (10/1/97) 7.79% 6.94%(1)
</TABLE>
(1) For the period 9/30/97 - 12/31/98.
9
<PAGE>
The Merrill Lynch 1 to 3 Year Government Index is an unmanaged market
capitalization weighted total rate of return index including U.S. Treasury and
agency securities. All bonds must be greater than or equal to one year and less
than three years from maturity.
INTERMEDIATE GOVERNMENT INCOME FUND
OBJECTIVE. The investment objective of the Fund is to provide income and safety
of principal by investing primarily in U.S. Government securities.
PRINCIPAL INVESTMENT STRATEGIES. The Fund normally invests at least 65% of its
total assets in fixed and variable rate U.S. Government securities and may
invest up to 35% of its total assets in debt securities that are not U.S.
Government obligations. The Fund's investments include mortgage-backed and
asset-backed securities. In selecting investments, the Fund emphasizes the use
of intermediate maturity securities to lessen interest rate risk and uses
mortgage-backed securities to enhance yield. The Fund invests in securities that
are rated in the 2 highest rating categories or are of comparable quality. The
Fund seeks to maintain average dollar-weighted portfolio maturity of between 3
to 10 years.
PRINCIPAL RISKS. The principal risks of investing in the Fund are interest rate
risk and credit risk. The Fund's investments in mortgage-backed and asset-backed
securities have prepayment risk, which is the risk that mortgage loans or other
obligations will be prepaid when interest rates decline, forcing the Fund to
reinvest in securities with lower interest rates. For this and other reasons,
mortgage-related and asset-backed securities may have significantly greater
price and yield volatility than traditional debt securities. Loss of money is a
risk of investing in the Fund.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance table provide an indication of the historical risk
of an investment in the Fund by showing changes in the Fund's performance from
year to year over 10 years and how the Fund's average annual returns compare to
those of a broad-based securities index. Past performance does not necessarily
indicate future performance.
[EDGAR Representation of Bar Chart]
ANNUAL TOTAL RETURN
1989 9.72%
1990 8.78%
1991 14.00%
1992 6.00%
1993 8.96%
1994 -6.16%
1995 13.75%
1996 3.13%
1997 8.82%
1998 9.55%
The calendar year-to-date total return as of June 30, 1999 was -2.62%.
During the periods shown in the chart, the highest quarterly return was 6.00%
(for the quarter ended September 30, 1998) and the lowest quarterly return was
- -3.73% (for the quarter ended June 30, 1994).
The following table compares the Fund's average annual total returns as of
December 31, 1998 to the Lehman Intermediate Government Index.
10
<PAGE>
<TABLE>
<S> <C> <C>
INTERMEDIATE GOVERNMENT LEHMAN INTERMEDIATE GOVERNMENT INDEX
YEAR(S) INCOME FUND*
1 Year 9.55% 8.47%
5 Year 5.59% 7.15%
10 Year 7.51% 8.69%
Since Inception (12/31/82) 7.91% 9.13%
</TABLE>
* On November 11, 1994, a collective investment fund managed by the Adviser
reorganized into the Fund. The predecessor collective investment fund
maintained investment objectives and policies that were, in all material
respects, equivalent to the Fund. The Fund's performance for the periods
before November 11, 1994 is that of the collective investment fund and
includes its expenses. If the collective investment fund had been
readjusted to reflect the first year's expenses of the Fund, the Fund's
performance for all periods except "Since Inception" would have been lower.
The collective investment fund was not registered under the 1940 Act and
was not subject to certain investment limitations, diversification
requirements and other restrictions imposed by the 1940 Act and the
Internal Revenue Code, which, if applicable, may have adversely affected
its performance.
The Lehman Intermediate Government Index is an unmanaged index of fixed-rate
U.S. Treasury and agency securities with maturities between 1 and up to but not
including 10 years with a minimum outstanding balance of $150 billion.
11
<PAGE>
DIVERSIFIED BOND FUND
OBJECTIVE. The investment objective of the Fund is to provide total return by
diversifying its investments among different fixed-income styles.
PRINCIPAL INVESTMENT STRATEGIES. The Fund is a "gateway" fund that invests in
other "core" portfolios. In selecting investments, the Fund uses a "multi-style"
approach to reduce the price and return volatility of the Fund and to provide
returns that are more consistent. The Fund allocates its investments among 3
different fixed-income styles, including:
o INTERMEDIATE-TERM STYLE - emphasizes investments in investment grade
(rated in the 4 highest categories or of comparable quality)
intermediate-term securities;
o VALUE STYLE - emphasizes investments in debt securities (primarily
rated in the 3 highest rating categories or of comparable quality)
based on a value strategy or the analyses of fundamental financial
information rather than the direction of interest rates; and
o BALANCED TOTAL RETURN STYLE - emphasizes investments in short-term
bonds (maturities of 2 years or less) and long-term bonds (maturities
of 25 years or more) depending on the prices of bonds.
PRINCIPAL RISKS. The principal risks of investing in the Fund are interest rate
risk and credit risk. The Fund's investments in different investment styles have
allocation risk, which is the risk that the allocation of investments may have a
more significant effect on the Fund's net asset value when one of these styles
is performing more poorly than the others. Loss of money is a risk of investing
in the Fund.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance table provide an indication of the historical risk
of an investment in the Fund by showing changes in the Fund's performance from
year to year over 10 years and how the Fund's average annual returns compare to
those of a broad-based securities index. Past performance does not necessarily
indicate future performance.
[EDGAR Representation of Bar Chart]
ANNUAL TOTAL RETURN
1989 11.13%
1990 8.23%
1991 11.60%
1992 7.25%
1993 6.54%
1994 -2.04%
1995 12.69%
1996 3.44%
1997 10.23%
1998 9.10%
The calendar year-to-date total return as of June 30, 1999 was -1.88%.
During the periods shown in the chart, the highest quarterly return was 5.30%
(for the quarter ended September 30, 1998) and the lowest quarterly return was
- -1.94% (for the quarter ended March 31, 1994).
The following table compares the Fund's average annual total returns as of
December 31, 1998 to the Lehman Intermediate Government/Corporate Index.
<TABLE>
<S> <C> <C>
DIVERSIFIED LEHMAN INTERMEDIATE
YEAR(S) BOND FUND* GOVERNMENT/CORPORATE INDEX
1 Year 9.10% 8.42%
5 Year 6.55% 6.59%
10 Year 7.73% 8.51%
Since Inception (12/31/82) 8.60% 9.30%
</TABLE>
12
<PAGE>
The Lehman Intermediate Government/Corporate Index is an unmanaged index of
intermediate (one to ten year) government and corporate fixed-rate debt issues.
* On November 11, 1994, a collective investment fund managed by the Adviser
reorganized into the Fund. The predecessor collective investment fund
maintained investment objectives and policies that were, in all material
respects, equivalent to the Fund. The Fund's performance for the periods
before November 11, 1994 is that of the collective investment fund and
includes its expenses. If the collective investment fund had been
readjusted to reflect the first year's expenses of the Fund, the Fund's
performance for all periods except "Since Inception" would have been lower.
The collective investment fund was not registered under the 1940 Act and
was not subject to certain investment limitations, diversification
requirements and other restrictions imposed by the 1940 Act and the
Internal Revenue Code, which, if applicable, may have adversely affected
its performance.
INCOME FUND
OBJECTIVE. The investment objective of the Fund is to provide total return
consistent with current income.
PRINCIPAL INVESTMENT STRATEGIES. The Fund invests in a diversified portfolio of
fixed and variable rate debt securities issued by domestic and foreign issuers.
The Fund's investments include corporate, mortgage-backed, asset-backed, and
U.S. Government debt securities primarily of investment grade quality or better
(rated in the 4 highest rating categories or of comparable quality). In
selecting investments, the Fund applies fundamental economic, credit, and market
analysis to increase portfolio performance. The Fund seeks to maintain an
average dollar-weighted portfolio maturity between 3 and 15 years.
PRINCIPAL RISKS. The principal risks of investing in the Fund are interest rate
risk and credit risk. The Fund's investments in foreign securities have foreign
risk. This is the risk of investments located in foreign countries, which may
have greater price volatility and less liquidity. Investments in foreign
securities also are subject to political, regulatory, and diplomatic risks.
Foreign risk includes currency risk, which may occur due to fluctuations in the
exchange rates between the U.S. dollar and foreign currencies. This risk could
negatively affect the value of a Fund's investments. The Fund's investments in
mortgage-backed and asset-backed securities have prepayment risk, which is the
risk that mortgage loans or other obligations will be prepaid when interest
rates decline, forcing the Fund to reinvest in securities with lower interest
rates. For this and other reasons, mortgage-related and asset-backed securities
may have significantly greater price and yield volatility than traditional debt
securities. Loss of money is a risk of investing in the Fund.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance table provide an indication of the historical risk
of an investment in the Fund by showing changes in the Fund's performance from
year to year over 10 years and how the Fund's average annual returns compare to
those of a broad-based securities index. Past performance does not necessarily
indicate future performance.
[EDGAR Representation of Bar Chart]
ANNUAL TOTAL RETURN
1989 9.73%
1990 9.20%
1991 18.87%
1992 7.96%
1993 8.77%
1994 -7.02%
1995 17.35%
1996 1.91%
1997 10.26%
1998 8.98%
The calendar year-to-date total return as of June 30, 1999 was -3.53%.
13
<PAGE>
During the periods shown in the chart, the highest quarterly return was 6.21%
(for the quarter ended September 30, 1991) and the lowest quarterly return was
- -3.30% (for the quarter ended June 30, 1994).
The following table compares the Fund's average annual total returns as of
December 31, 1998 to the Lehman Intermediate Government/Corporate Index.
<TABLE>
<S> <C> <C>
LEHMAN INTERMEDIATE
YEAR(S) INCOME FUND GOVERNMENT/CORPORATE INDEX
1 Year 8.98% 8.42%
5 Year 5.97% 6.59%
10 Year 8.37% 8.51%
Since Inception (6/9/87) 8.19% 8.30%(1)
</TABLE>
(1) For the period 5/31/87 - 12/31/98.
The Lehman Intermediate Government/Corporate Index is an unmanaged index of
intermediate (one to ten year) government and corporate fixed-rate debt issues.
TOTAL RETURN BOND FUND
OBJECTIVE. The investment objective of the Fund is to seek total return.
PRINCIPAL INVESTMENT STRATEGIES. The Fund invests in a broad range of fixed
fixed-income securities to create a strategically diversified portfolio of
fixed-income investments. The Fund's investments include corporate,
mortgage-backed, asset-backed, and U.S. Government debt securities, preferred
stock, convertible bonds, and foreign bonds. In selecting investments, the Fund
focuses on relative value as opposed predicting the direction of interest rates.
The Fund uses fundamental economic, credit, and market analysis to identify
securities with the best relative economic value. The Fund invests 65% of its
total assets in fixed-income securities rated in the 3 highest rating categories
or of comparable quality. The Fund seeks to maintain an average dollar-weighted
portfolio maturity between 5 and 15 years.
PRINCIPAL RISKS. The principal risks of investing in the Fund are interest rate
risk and credit risk. The Fund's investments in foreign securities have foreign
risk. This is the risk of investments located in foreign countries, which may
have greater price volatility and less liquidity. Investments in foreign
securities also are subject to political, regulatory, and diplomatic risks.
Foreign risk includes currency risk, which may occur due to fluctuations in the
exchange rates between the U.S. dollar and foreign currencies. This risk could
negatively affect the value of a Fund's investments. The Fund's investments in
mortgage-backed and asset-backed securities have prepayment risk, which is the
risk that mortgage loans or other obligations will be prepaid when interest
rates decline, forcing the Fund to reinvest in securities with lower interest
rates. For this and other reasons, mortgage-related and asset-backed securities
may have significantly greater price and yield volatility than traditional debt
securities. Loss of money is a risk of investing in the Fund.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance table provide an indication of the historical risk
of an investment in the Fund by showing changes in the Fund's performance from
year to year over the life of the Fund and how the Fund's average annual returns
compare to those of a broad-based securities index. Past performance does not
necessarily indicate future performance.
14
<PAGE>
[EDGAR Representation of Bar Chart]
ANNUAL TOTAL RETURN
1994 -0.65%
1995 1380%
1996 2.90%
1997 8.91%
1998 7.11%
The calendar year-to-date total return as of June 30, 1999 was -1.62%.
During the periods shown in the chart, the highest quarterly return was 4.65%
(for the quarter ended June 30, 1995) and the lowest quarterly return was -1.40%
(for the quarter ended March 31, 1994).
The following table compares the Fund's average annual total returns as of
December 31, 1998 to the Lehman Intermediate Government/Corporate Index.
<TABLE>
<S> <C> <C>
TOTAL RETURN LEHMAN INTERMEDIATE
YEAR(S) BOND FUND GOVERNMENT/CORPORATE INDEX
1 Year 7.11% 8.42%
5 Year 6.30% 6.59%
Since Inception (12/31/93) 5.29% 6.59%
</TABLE>
The Lehman Intermediate Government/Corporate Index is an unmanaged index of
intermediate (one to ten year) government and corporate fixed-rate debt issues.
STRATEGIC INCOME FUND
OBJECTIVE. The investment objective of the Fund is to provide a combination of
current income and capital appreciation by diversified investments in stocks,
bonds, and other fixed-income investments.
PRINCIPAL INVESTMENT STRATEGIES. The Fund is a "gateway" fund that invests in
other "core" portfolios. The Fund seeks to invest in fixed-income securities
with limited exposure to equity securities. The Fund emphasizes safety of
principal and invests 70% to 90% of its assets in fixed-income investments and
10%-30% of its assets in equity investments. This approach 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. For the fixed-income portion of its
portfolio, the Fund uses multiple fixed-income investment styles intended to
reduce the price and return volatility of, and provide more consistent returns.
These styles include:
o INTERMEDIATE-TERM STYLE - emphasizes investments in investment grade
(rated in the 4 highest categories or of comparable quality)
intermediate-term securities;
o VALUE STYLE - emphasizes investments in debt securities (primarily
rated in the 3 highest rating categories or of comparable quality)
based on a value strategy or the analyses of fundamental financial
information rather than the direction of interest rates;
o BALANCED TOTAL RETURN STYLE - emphasizes investments in short-term
bonds (maturities of 2 years or less) and long-term bonds (maturities
of 25 years or more) depending on the prices of bonds; and
o SHORT-TERM STYLE - emphasizes investments in short-term investment
grade (rated in 2 highest ratings categories or of comparable quality)
securities.
The Fund uses a similar approach for the equity portion of the portfolio
blending multiple equity investment styles. These styles include:
15
<PAGE>
o INDEX STYLE - replicates securities in the S&P 500 Index;
o INCOME EQUITY STYLE - emphasizes investments in large, high-quality
domestic companies with above-average dividend income;
o LARGE COMPANY STYLE - emphasizes investments in large, high-quality
domestic companies with above-average growth potential;
o SMALL-CAP STYLE - emphasizes investments in small-cap companies with
the potential for growth; and
o INTERNATIONAL STYLE - emphasizes investments in high-quality companies
based outside the United States.
PRINCIPAL RISKS. The principal risks of investing in the Fund are market risk,
interest rate risk, and credit risk. The Fund's investments in different styles
and in both equity and fixed-income securities have allocation risk, which is
the risk that the allocation of investments may have a more significant effect
on the Fund's net asset value when one investment style or asset classes is
performing more poorly than others. To the extent that the Fund invests in
small-cap companies, it may have capitalization risk. These investments tend to
be more volatile than investments in large-cap companies. In addition, small-cap
companies may have more risk because they often have limited product lines,
markets, or financial resources. Also, the market for small-cap stocks may be
less liquid. To the extent the Fund invests in foreign securities, it has
foreign risk. This is the risk of investments in issuers located in foreign
countries, which may have greater price volatility and less liquidity.
Investments in foreign securities also are subject to political, regulatory, and
diplomatic risks. Foreign risk includes currency risk, which may occur due to
fluctuations in the exchange rates between the U.S. dollar and foreign
currencies. This risk could negatively affect the value of a Fund's investments.
Loss of money is a risk of investing in the Fund.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance table provide an indication of the historical risk
of an investment in the Fund by showing changes in the Fund's performance from
year to year over 10 years and how the Fund's average annual returns compare to
those of a broad-based securities index. Past performance does not necessarily
indicate future performance.
[EDGAR Representation of Bar Chart]
ANNUAL TOTAL RETURN
1990 5.70%
1991 16.90%
1992 6.05%
1993 7.77%
1994 0.49%
1995 15.11%
1996 7.99%
1997 13.23%
1998 12.44%
The calendar year-to-date total return as of June 30, 1999 was 2.18%.
During the periods shown in the chart, the highest quarterly return was 12.44%
(for the quarter ended June 30, 1997) and the lowest quarterly return was -3.01%
(for the quarter ended September 30, 1990).
The following table compares the Fund's average annual total returns as of
December 31, 1998 to the Standard & Poor's 500 Index ("S&P 500 Index").
<TABLE>
<S> <C> <C>
STRATEGIC S&P 500
YEAR(S) INCOME FUND* INDEX
1 Year 12.44% 28.58%
5 Year 9.72% 24.03%
Since Inception (4/30/89) 9.71% 18.42%
</TABLE>
16
<PAGE>
The S&P 500 Index is a widely recognized index of common stock. The Standard &
Poor's 500 Index figures assume reinvestment of all dividends paid by stocks
included in the index. Unlike the performance figures of the Fund, the S&P 500
Index's performance does not reflect the effect of expenses. The index is
unmanaged and is not available for investment.
* On November 11, 1994, a collective investment fund managed by the Adviser
reorganized into the Fund. The predecessor collective investment fund
maintained investment objectives and policies that were, in all material
respects, equivalent to the Fund. The Fund's performance for the periods
before November 11, 1994 is that of the collective investment fund and
includes its expenses. If the collective investment fund had been
readjusted to reflect the first year's expenses of the Fund, the Fund's
performance for all periods except "Since Inception" would have been lower.
The collective investment fund was not registered under the 1940 Act and
was not subject to certain investment limitations, diversification
requirements and other restrictions imposed by the 1940 Act and the
Internal Revenue Code, which, if applicable, may have adversely affected
its performance.
TAX-FREE FIXED INCOME FUNDS
LIMITED TERM TAX-FREE FUND
OBJECTIVE. The Fund's investment objective is to produce current income exempt
from federal income taxes.
PRINCIPAL INVESTMENT STRATEGIES. The Fund normally invests substantially all its
assets in investment grade municipal securities. The Fund invests at least 80%
of its total assets in securities paying interest exempt from federal income
taxes and the federal Alternative Minimum Tax or AMT. The Fund seeks to maintain
an average dollar-weighted portfolio maturity of between 1 and 5 years.
PRINCIPAL RISKS. The principal risks of investing in the Fund are interest rate
risk and credit risk. The Fund's investments in municipal securities have the
risk that special factors may adversely affect the value of municipal securities
and have a significant effect on the value of the Fund's investments. These
factors include political or legislative changes and uncertainties related to
the tax status of municipal securities or the rights of investors in these
securities. Loss of money is a risk of investing in the Fund.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance table provide an indication of the historical risk
of an investment in the Fund by showing changes in the Fund's performance from
year to year over the life of the Fund and how the Fund's average annual returns
compare to those of a broad-based securities index. Past performance does not
necessarily indicate future performance.
[EDGAR Representation of Bar Chart]
ANNUAL TOTAL RETURN
1997 6.58%
1998 5.28%
The calendar year-to-date total return as of June 30, 1999 was -0.51%.
During the periods shown in the chart, the highest quarterly return was 2.27%
(for the quarter ended September 30, 1998) and the lowest quarterly return was
0.49% (for the quarter ended March 31, 1997).
17
<PAGE>
The following table compares the Fund's average annual total returns as of
December 31, 1998 to the Lehman 3-Year Municipal Bond Index.
<TABLE>
<S> <C> <C>
LIMITED TERM LEHMAN 3-YEAR MUNICIPAL BOND INDEX
YEAR(S) TAX-FREE FUND
1 Year 5.28% 5.20%
Since Inception (10/1/96) 7.63% 5.51%(1)
(1) For the period 9/30/96 - 12/31/98.
</TABLE>
The Lehman 3-Year Municipal Bond Index is an unmanaged index of municipal bonds
with maturities of one to three years.
TAX-FREE INCOME FUND
OBJECTIVE. The Fund's investment objective is to produce current income exempt
from federal income taxes.
PRINCIPAL INVESTMENT STRATEGIES. The Fund invests primarily in investment grade
municipal securities. The Fund normally invests at least 80% of its total assets
in municipal securities paying interest exempt from federal income taxes,
including AMT. The Fund seeks to maintain an average dollar-weighted portfolio
maturity of between 10 and 20 years.
PRINCIPAL RISKS. The principal risks of investing in the Fund are interest rate
risk and credit risk. The Fund's investments in municipal securities have the
risk that special factors may adversely affect the value of municipal securities
and have a significant effect on the value of the Fund's investments. These
factors include political or legislative changes and uncertainties related to
the tax status of municipal securities or the rights of investors in these
securities. Loss of money is a risk of investing in the Fund.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance table provide an indication of the historical risk
of an investment in the Fund by showing changes in the Fund's performance from
year to year over 10 years and how the Fund's average annual returns compare to
those of a broad-based securities index. Past performance does not necessarily
indicate future performance.
[EDGAR Representation of Bar Chart]
ANNUAL TOTAL RETURN
1990 5.88%
1991 9.41%
1992 7.33%
1993 9.59%
1994 -4.85%
1995 16.74%
1996 4.74%
1997 10.26%
1998 6.54%
The calendar year-to-date total return as of June 30, 1999 was -1.88%.
During the periods shown in the chart, the highest quarterly return was 5.85%
(for the quarter ended March 31, 1995) and the lowest quarterly return was
- -5.59% (for the quarter ended March 31, 1994).
The following table compares the Fund's average annual total returns as of
December 31, 1998 to the Lehman Brothers 10-Year Municipal Index.
<TABLE>
<S> <C> <C>
TAX-FREE LEHMAN BROTHERS 10-YEAR
YEAR(S) INCOME FUND MUNICIPAL INDEX
1 Year 6.54% 6.76%
5 Year 6.45% 6.34%
Since Inception (8/1/89) 7.07% 8.00%(1)
</TABLE>
(1) For the period 7/31/89 - 12/31/98.
The Lehman Brothers 10-Year Municipal Index is an unmanaged index of municipal
bonds with maturities of one to ten years.
18
<PAGE>
COLORADO TAX-FREE FUND
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.
PRINCIPAL INVESTMENT STRATEGIES. 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. The Fund invests at
least 80% of its total assets in municipal securities paying interest exempt
from both federal (including the AMT) and Colorado state income taxes. Normally,
the Fund expects to have an average dollar-weighted portfolio maturity of
greater than 10 years.
PRINCIPAL RISKS. The principal risks of investing in the Fund are interest rate
risk and credit risk. The Fund's investments in municipal securities have the
risk that special factors may adversely affect the value of municipal securities
and have a significant effect on the value of the Fund's investments. These
factors include political or legislative changes and uncertainties related to
the tax status of municipal securities or the rights of investors in these
securities. Because the Fund invests a large portion of its assets in a
particular state's municipal securities, it is more vulnerable to events
adversely affecting that state, including economic, political, or regulatory
occurrences. Loss of money is a risk of investing in the Fund.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance table provide an indication of the historical risk
of an investment in the Fund by showing changes in the Fund's performance from
year to year over the life of the Fund and how the Fund's average annual returns
compare to those of a broad-based securities index. Past performance does not
necessarily indicate future performance.
[EDGAR Representation of Bar Chart]
ANNUAL TOTAL RETURN
1994 -5.93%
1995 16.99%
1996 4.88%
1997 10.29%
1998 6.14%
The calendar year-to-date total return as of June 30, 1999 was -2.17%.
During the periods shown in the chart, the highest quarterly return was 5.75%
(for the quarter ended March 31, 1995) and the lowest quarterly return was
- -5.39% (for the quarter ended March 31, 1994).
The following table compares the Fund's average annual total returns as of
December 31, 1998 to the Lehman Brothers 10-Year Municipal Index.
19
<PAGE>
<TABLE>
<S> <C> <C>
COLORADO LEHMAN BROTHERS 10-YEAR MUNICIPAL
YEAR(S) TAX-FREE FUND INDEX
1 Year 6.14% 6.76%
5 Year 6.21% 6.34%
Since Inception (6/1/93) 6.75% 6.97%(1)
</TABLE>
(1) For the period 5/31/93 - 12/31/98.
The Lehman Brothers 10-Year Municipal Index is an unmanaged index of municipal
bonds with maturities of one to ten years.
MINNESOTA INTERMEDIATE TAX-FREE FUND and MINNESOTA TAX-FREE FUND
OBJECTIVE. The investment objective of the Funds is to provide shareholders with
a high level of current income exempt from both federal (including the AMT) and
Minnesota state income taxes without assuming undue risk. The Funds offer shares
only to residents of Minnesota.
PRINCIPAL INVESTMENT STRATEGIES. 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. The Funds invest at least 80% of its total
assets in securities paying interest exempt from both federal and Minnesota
State income taxes (including the AMT). Normally, the Minnesota Intermediate
Tax-Free Fund seeks to maintain an average dollar-weighted portfolio maturity of
between 5 and 10 years and the Minnesota Tax-Free Fund expects to have an
average dollar-weighted portfolio maturity of greater than 10 years.
PRINCIPAL RISKS. The principal risks of investing in the Funds are interest rate
risk and credit risk. The Funds' investments in municipal securities have the
risk that special factors may adversely affect the value of municipal securities
and have a significant effect on the value of the Funds' investments. These
factors include political or legislative changes and uncertainties related to
the tax status of municipal securities or the rights of investors in these
securities. Because the Funds invest a large portion of their assets in a
particular state's municipal securities, it is more vulnerable to events
adversely affecting that state, including economic, political, or regulatory
occurrences. Loss of money is a risk of investing in the Funds.
BAR CHARTS AND PERFORMANCE INFORMATION
The bar charts and performance tables provide an indication of the historical
risk of an investment in the Funds by showing changes in the Funds' performance
from year to year over the life of the Funds and how the Funds' average annual
returns compare to those of a broad-based securities index. Past performance
does not necessarily indicate future performance.
MINNESOTA INTERMEDIATE TAX-FREE FUND
[EDGAR Representation of Bar Chart]
ANNUAL TOTAL RETURN
1989 -0.82%
1990 9.25%
1991 6.67%
1992 8.80%
1993 7.31%
1994 9.07%
1995 -3.09%
1996 13.34%
1997 3.80%
1998 7.60%
The calendar year-to-date total return as of June 30, 1999 was -0.82%.
During the periods shown in the chart, the highest quarterly return was 5.19%
(for the quarter ended March 31, 1995) and the lowest quarterly return was
- -3.15% (for the quarter ended March 31, 1994).
20
<PAGE>
The following table compares the Fund's average annual total returns as of
December 31, 1998 to the Lehman Brothers 10-Year Municipal Bond Index.
<TABLE>
<S> <C> <C>
MINNESOTA INTERMEDIATE LEHMAN BROTHERS 10-YEAR MUNICIPAL
YEAR(S) TAX-FREE FUND* BOND INDEX
1 Year 5.59% 6.76%
5 Year 5.31% 6.34%
10 Year 6.75% 8.32%
Since Inception (12/31/79) 7.37% 8.66%
</TABLE>
* On October 1, 1997, a common trust fund managed by the Adviser
reorganized into the Fund. The predecessor common trust fund maintained
investment objectives and policies that were, in all material respects,
equivalent to the Fund. The Fund's performance for the periods before
October 1, 1997 is that of the common trust fund and includes its
expenses. If the common trust fund had been readjusted to reflect the
first year's expenses of the Fund, the Fund's performance for all
periods except "Since Inception" would have been lower. The common
trust fund was not registered under the 1940 Act and was not subject to
certain investment limitations, diversification requirements and other
restrictions imposed by the 1940 Act and the Internal Revenue Code,
which, if applicable, may have adversely affected its performance.
The Lehman Brothers 10-Year Municipal Index is an unmanaged index of municipal
bonds with maturities of one to ten years.
MINNESOTA TAX-FREE FUND
[EDGAR Representation of Bar Chart]
ANNUAL TOTAL RETURN
1989 -1.45%
1990 9.73%
1991 6.35%
1992 8.53%
1993 7.55%
1994 11.23%
1995 -5.91%
1996 17.09%
1997 3.78%
1998 9.16%
The calendar year-to-date total return as of June 30, 1999 was -1.45%.
During the periods shown in the chart, the highest quarterly return was 6.73%
(for the quarter ended March 31, 1995) and the lowest quarterly return was
- -5.48% (for the quarter ended March 31, 1994).
The following table compares the Fund's average annual total returns as of
December 31, 1998 to the Lehman Brothers 10-Year Municipal Bond Index.
<TABLE>
<S> <C> <C>
MINNESOTA LEHMAN BROTHERS 10-YEAR MUNICIPAL
YEAR(S) TAX-FREE FUND BOND INDEX
1 Year 6.22% 6.76%
5 Year 5.80% 6.34%
10 Year 7.19% 8.32%
Since Inception (1/12/88) 7.01% 8.27%(1)
</TABLE>
(1) For the period 12/31/87 - 12/31/98.
The Lehman Brothers 10-Year Municipal Index is an unmanaged index of municipal
bonds with maturities of one to ten years.
21
<PAGE>
BALANCED FUNDS
MODERATE BALANCED FUND
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.
PRINCIPAL INVESTMENT STRATEGIES. The Fund is a "gateway" fund that invests in
other "core" portfolios. The Fund seeks 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 invests in several different fixed-income and equity
investment styles. The fixed-income styles include:
o INTERMEDIATE-TERM STYLE - emphasizes investments in investment grade
(rated in the 4 highest categories or of comparable quality)
intermediate-term securities;
o VALUE STYLE - emphasizes investments in debt securities (primarily
rated in the 3 highest rating categories or of comparable quality)
based on a value strategy or the analyses of fundamental financial
information rather than the direction of interest rates;
o BALANCED TOTAL RETURN STYLE - emphasizes investments in short-term
bonds (maturities of 2 years or less) and long-term bonds (maturities
of 25 years or more) depending on the prices of bonds; and
o SHORT-TERM STYLE - emphasizes investments in short-term investment
grade (rated in 2 highest ratings categories or of comparable quality)
securities.
The equity styles include:
o INDEX STYLE - replicates securities in the S&P 500 Index;
o INCOME EQUITY STYLE - emphasizes investments in large, high-quality
domestic companies with above average dividend income;
o LARGE COMPANY STYLE - emphasizes investments in large, high-quality
domestic companies with above-average growth potential;
o SMALL-CAP STYLE - emphasizes investments in small-cap companies with
the potential for growth; and
o INTERNATIONAL STYLE - emphasizes investments in high-quality companies
based outside the United States.
This allocation is intended to reduce the risk of relying on a single equity or
fixed-income investment style.
PRINCIPAL RISKS. The principal risks of investing in the Fund are market risk,
interest rate risk, and credit risk. The Fund's investments in different styles
and in both equity and fixed-income securities have allocation risk, which is
the risk that the allocation of investments may have a more significant effect
on the Fund's net asset value when one investment style or asset class is
performing more poorly than the others. To the extent that the Fund invests in
small-cap companies, it may have capitalization risk. These investments tend to
be more volatile than investments in large-cap companies. In addition, small-cap
companies may have more risk because they often have limited product lines,
markets, or financial resources. Also, the market for small-cap stocks may be
less liquid. To the extent the Fund invests in foreign securities, it has
foreign risk. This is the risk of investments in issuers located in foreign
countries, which may have greater price volatility and less liquidity.
Investments in foreign securities also are subject to political, regulatory, and
diplomatic risks. Foreign risk includes currency risk, which may occur due to
fluctuations in the exchange rates between the U.S. dollar and foreign
currencies. This risk could negatively affect the value of a Fund's investments.
Loss of money is a risk of investing in the Fund.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance table provide an indication of the historical risk
of an investment in the Fund by showing changes in the Fund's performance from
year to year over 10 years and how the Fund's average annual returns compare to
those of a broad-based securities index. Past performance does not necessarily
indicate future performance.
22
<PAGE>
[EDGAR Representation of Bar Chart]
ANNUAL TOTAL RETURN
1990 4.30%
1991 20.81%
1992 6.03%
1993 8.86%
1994 42.00%
1995 18.36%
1996 10.11%
1997 16.00%
1998 16.74%
The calendar year-to-date total return as of June 30, 1999 was 4.63%.
During the periods shown in the chart, the highest quarterly return was 10.19%
(for the quarter ended December 31, 1998) and the lowest quarterly return was
- -5.70% (for the quarter ended September 30, 1990).
The following table compares the Fund's average annual total returns as of
December 31, 1998 to the S&P 500 Index.
<TABLE>
<S> <C> <C>
MODERATE S&P 500
YEAR(S) BALANCED FUND* INDEX
1 Year 16.74% 28.58%
5 Year 12.13% 24.03%
Since Inception (4/30/89) 11.61% 18.42%
</TABLE>
The S&P 500 Index is a widely recognized index of common stocks. The S&P 500
Index figures assume reinvestment of all dividends paid by stocks included in
the index. Unlike the performance figures of the Fund, the S&P 500 Index's
performance does not reflect the effect of expenses. The index is unmanaged and
is not available for investment.
* On November 11, 1994, a collective investment fund managed by the Adviser
reorganized into the Fund. The predecessor collective investment fund
maintained investment objectives and policies that were, in all material
respects, equivalent to the Fund. The Fund's performance for the periods
before November 11, 1994 is that of the collective investment fund and
includes its expenses. If the collective investment fund had been
readjusted to reflect the first year's expenses of the Fund, the Fund's
performance for all periods except "Since Inception" would have been lower.
The collective investment fund was not registered under the 1940 Act and
was not subject to certain investment limitations, diversification
requirements and other restrictions imposed by the 1940 Act and the
Internal Revenue Code, which, if applicable, may have adversely affected
its performance.
GROWTH BALANCED FUND
OBJECTIVE. The Fund's investment objective is to provide a combination of
current income and capital appreciation by diversified investments in stocks and
bonds.
PRINCIPAL INVESTMENT STRATEGIES. The Fund is a "gateway" fund that invests in
other "core" portfolios. The Fund seeks long-term capital appreciation in the
equity securities market in a balanced fund. Normally, the Fund invests
approximately 65% of its portfolio in several different equity investment
styles. 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 equity styles include:
o INDEX STYLE - replicates securities in the S&P 500 Index;
o INCOME EQUITY STYLE - emphasizes investments in large, high-quality
domestic companies with above average dividend income;
23
<PAGE>
o LARGE COMPANY STYLE - emphasizes investments in large, high-quality
domestic companies with above-average growth potential;
o SMALL-CAP STYLE - emphasizes investments in small-cap companies with
the potential for growth; and
o INTERNATIONAL STYLE - emphasizes investments in high-quality companies
based outside the United States.
Normally, the Fund invests approximately 35% of its portfolio in several
different fixed-income investment styles. The blending of these 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. These styles include:
o INTERMEDIATE-TERM STYLE - emphasizes investments in investment grade
(rated in the 4 highest rating categories or of comparable quality)
intermediate-term securities;
o VALUE STYLE - emphasizes investments in debt securities (primarily
rated in the 3 highest rating categories or of comparable quality)
based on a value strategy or the analyses of fundamental financial
information rather than the direction of interest rates; and
o BALANCED TOTAL RETURN STYLE - emphasizes investments in short-term
bonds (maturities of 2 years or less) and long-term bonds (maturities
of 25 years or more) depending on the prices of bonds.
PRINCIPAL RISKS. The principal risks of investing in the Fund are market risk,
interest rate risk, and credit risk. The Fund's investments in different styles
and in both equity and fixed-income securities have allocation risk, which is
the risk that the allocation of investments may have a more significant effect
on the Fund's net asset value when one investment style or asset class is
performing more poorly than the others. To the extent that the Fund may invest
in small-capitalization companies, it may have capitalization risk. These
investments tend to be more volatile than investments in large-cap companies. In
addition, small-cap companies may have more risk because they often have limited
product lines, markets, or financial resources. The Fund's investments in
foreign securities have foreign risk. This is the risk of investments in issuers
located in foreign countries, which may have greater price volatility and less
liquidity. Investments in foreign securities also are subject to political,
regulatory, and diplomatic risks. Foreign risk includes currency risk, which may
occur due to fluctuations in the exchange rates between the U.S. dollar and
foreign currencies. This risk could negatively affect the value of a Fund's
investments. Loss of money is a risk of investing in the Fund.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance table provide an indication of the historical risk
of an investment in the Fund by showing changes in the Fund's performance from
year to year over 10 years and how the Fund's average annual returns compare to
those of a broad-based securities index. Past performance does not necessarily
indicate future performance.
[EDGAR Representation of Bar Chart]
ANNUAL TOTAL RETURN
1990 1.95%
1991 27.91%
1992 5.58%
1993 10.26%
1994 -0.14%
1995 23.25%
1996 14.25%
1997 20.77%
1998 22.45%
The calendar year-to-date total return as of June 30, 1999 was 7.37%.
During the periods shown in the chart, the highest quarterly return was 16.86%
(for the quarter ended December 31, 1998) and the lowest quarterly return was
- -10.02% (for the quarter ended September 30, 1990).
The following table compares the Fund's average annual total returns as of
December 31, 1998 to the S&P 500 Index.
24
<PAGE>
<TABLE>
<S> <C> <C>
GROWTH S&P 500
YEAR(S) BALANCED FUND* INDEX
1 Year 22.45% 28.58%
5 Year 15.77% 24.03%
Since Inception (4/30/89) 13.91% 18.42%
</TABLE>
The S&P 500 Index is a widely recognized index of common stocks. The S&P 500
Index figures assume reinvestment of all dividends paid by stocks included in
the index. Unlike the performance figures of the Fund, the S&P 500 Index's
performance does not reflect the effect of expenses. The index is unmanaged and
is not available for investment.
* On November 11, 1994, a collective investment fund managed by the Adviser
reorganized into the Fund. The predecessor collective investment fund
maintained investment objectives and policies that were, in all material
respects, equivalent to the Fund. The Fund's performance for the periods
before November 11, 1994 is that of the collective investment fund and
includes its expenses. If the collective investment fund had been
readjusted to reflect the first year's expenses of the Fund, the Fund's
performance for all periods except "Since Inception" would have been lower.
The collective investment fund was not registered under the 1940 Act and
was not subject to certain investment limitations, diversification
requirements and other restrictions imposed by the 1940 Act and the
Internal Revenue Code, which, if applicable, may have adversely affected
its performance.
AGGRESSIVE BALANCED-EQUITY FUND
OBJECTIVE. The Fund's investment objective is to provide a combination of
current income and capital appreciation by diversifying investments in stocks
and bonds.
PRINCIPAL INVESTMENT STRATEGIES. The Fund is a "gateway" fund that invests in
other "core" portfolios. The Fund is designed for investors seeking long-term
capital appreciation in the equity securities market in a balanced fund. In
relation to other balanced funds, the Fund emphasizes its positions in equity
securities. Normally, the Fund invests 80% of its portfolio in several different
equity investment styles. 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. These styles
include:
o INDEX STYLE - replicates securities in the S&P 500 Index;
o INCOME EQUITY STYLE - emphasizes investments in large, high-quality
domestic companies with above average dividend income;
o LARGE COMPANY STYLE - emphasizes investments in large, high-quality
domestic companies with above-average growth potential;
o SMALL-CAP STYLE - emphasizes investments in small-cap companies with
the potential for growth; and
o INTERNATIONAL STYLE - emphasizes investments in high-quality companies
based outside the United States.
Normally, the Fund invests 20% of its portfolio in several different
fixed-income investment styles. The blending of these 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. These styles include:
o INTERMEDIATE-TERM STYLE - emphasizes investments in investment grade
(rated in the 4 highest categories or of comparable quality)
intermediate-term securities;
o VALUE STYLE - emphasizes investments in debt securities (primarily
rated in the 3 highest rating categories or of comparable quality)
based on a value strategy or the analyses of fundamental financial
information rather than the direction of interest rates; and
o BALANCED TOTAL RETURN STYLE - emphasizes investments in short-term
bonds (maturities of 2 years or less) and long-term bonds (maturities
of 25 years or more) depending on the prices of bonds.
PRINCIPAL RISKS. The principal risks of investing in the Fund are market risk,
interest rate risk, and credit risk. The Fund's investments in different styles
and in both equity and fixed-income securities have allocation risk, which is
the risk that the allocation of investments may have a more significant effect
on the Fund's net asset value when one investment style or asset class is
performing more poorly than the others. To the extent that the Fund may invest
in small-capitalization companies, it may have capitalization risk. These
investments tend to be more volatile than investments in large-cap companies. In
addition, small-cap companies may have more risk because they often have limited
product lines, markets, or financial resources. The Fund's investments in
foreign securities have foreign risk. This is the risk of investments in issuers
located in foreign countries, which may have greater price volatility and less
25
<PAGE>
liquidity. Investments in foreign securities also are subject to political,
regulatory, and diplomatic risks. Foreign risk includes currency risk, which may
occur due to fluctuations in the exchange rates between the U.S. dollar and
foreign currencies. This risk could negatively affect the value of a Fund's
investments. To the extent the Fund invests in small capitalization companies,
its returns may be more volatile and differ, sometimes significantly, from the
overall U.S.
market. Loss of money is a risk of investing in the Fund.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance table provide an indication of the historical risk
of an investment in the Fund by showing changes in the Fund's performance from
year to year over the life of the Fund and how the Fund's average annual returns
compare to those of a broad-based securities index. Past performance does not
necessarily indicate future performance.
[EDGAR Representation of Bar Chart]
ANNUAL TOTAL RETURN
1998 24.21%
The calendar year-to-date total return as of June 30, 1999 was 9.41%.
During the periods shown in the chart, the highest quarterly return was 20.01%
(for the quarter ended December 31, 1998) and the lowest quarterly return was
- -8.89% (for the quarter ended September 30, 1998).
The following table compares the Fund's average annual total returns as of
December 31, 1998 to the S&P 500 Index.
<TABLE>
<S> <C> <C>
AGGRESSIVE BALANCED- S&P 500
YEAR(S) EQUITY FUND INDEX
1 Year 24.21% 28.58%
Since Inception (12/2/97) 22.39% 28.07%(1)
</TABLE>
(1) For the period 11/30/97 - 12/31/98.
The S&P 500 Index is a widely recognized index of common stocks. The S&P 500
Index figures assume reinvestment of all dividends paid by stocks included in
the index. Unlike the performance figures of the Fund, the S&P 500 Index's
performance does not reflect the effect of expenses. The index is unmanaged and
is not available for investment.
Equity Funds
INDEX FUND
OBJECTIVE. The Fund's investment objective is to replicate the return of the S&P
500 Index.
PRINCIPAL INVESTMENT STRATEGIES. 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.
26
<PAGE>
PRINCIPAL RISKS. The principal risk of investing in the Fund is market risk.
Loss of money is a risk of investing in the Fund.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance table provide an indication of the historical risk
of an investment in the Fund by showing changes in the Fund's performance from
year to year over 10 years and how the Fund's average annual returns compare to
those of a broad-based securities index. Past performance does not necessarily
indicate future performance.
[EDGAR Representation of Bar Chart]
ANNUAL TOTAL RETURN
1989 30.47%
1990 -3.70%
1991 30.00%
1992 7.77%
1993 8.95%
1994 1.11%
1995 36.00%
1996 22.26%
1997 33.18%
1998 28.33%
The calendar year-to-date total return as of June 30, 1999 was 12.04%.
During the periods shown in the chart, the highest quarterly return was 21.32%
(for the quarter ended December 31, 1998) and the lowest quarterly return was
- -13.86% (for the quarter ended September 30, 1990).
The following table compares the Fund's average annual total returns as of
December 31, 1998 to the S&P 500 Index.
<TABLE>
<S> <C> <C>
INDEX S&P 500
YEAR(S) FUND* INDEX
1 Year 28.33% 28.58%
5 Year 23.50% 24.03%
10 Year 18.61% 19.18%
Since Inception (1/30/87) 16.04% 16.62%(1)
</TABLE>
(1) For the period 1/31/87 - 12/31/98.
The S&P 500 Index is a widely recognized index of common stocks. The S&P 500
Index figures assume reinvestment of all dividends paid by stocks included in
the index. Unlike the performance figures of the Fund, the S&P 500 Index's
performance does not reflect the effect of expenses. The index is unmanaged and
is not available for investment.
* On November 11, 1994, a collective investment fund managed by the Adviser
reorganized into the Fund. The predecessor collective investment fund
maintained investment objectives and policies that were, in all material
respects, equivalent to the Fund. The Fund's performance for the periods
before November 11, 1994 is that of the collective investment fund and
includes its expenses. If the collective investment fund had been
readjusted to reflect the first year's expenses of the Fund, the Fund's
performance for all periods except "Since Inception" would have been lower.
The collective investment fund was not registered under the 1940 Act and
was not subject to certain investment limitations, diversification
requirements and other restrictions imposed by the 1940 Act and the
Internal Revenue Code, which, if applicable, may have adversely affected
its performance.
27
<PAGE>
INCOME EQUITY FUND
OBJECTIVE. The Fund's investment objective is to provide long-term capital
appreciation consistent with above-average dividend income.
PRINCIPAL INVESTMENT STRATEGIES. The Fund invests primarily in the common stocks
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. The
Fund also may invest in foreign securities.
PRINCIPAL RISKS. The principal risk of investing in the Fund is market risk. To
the extent the Fund invests in foreign securities, it has foreign risk. This is
the risk of investments in issuers located in foreign countries, which may have
greater price volatility and less liquidity. Investments in foreign securities
also are subject to political, regulatory, and diplomatic risks. Foreign risk
includes currency risk, which may occur due to fluctuations in the exchange
rates between the U.S. dollar and foreign currencies. This risk could negatively
affect the value of a Fund's investments. Loss of money is a risk of investing
in the Fund.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance table provide an indication of the historical risk
of an investment in the Fund by showing changes in the Fund's performance from
year to year over 10 years and how the Fund's average annual returns compare to
those of a broad-based securities index. Past performance does not necessarily
indicate future performance.
[EDGAR Representation of Bar Chart]
ANNUAL TOTAL RETURN
1990 1.30%
1991 28.76%
1992 5.51%
1993 7.63%
1994 4.64%
1995 38.43%
1996 20.25%
1997 28.04%
1998 17.85%
The calendar year-to-date total return as of June 30, 1999 was 13.40%.
During the periods shown in the chart, the highest quarterly return was 15.68%
(for the quarter ended December 31, 1998) and the lowest quarterly return was
- -10.74% (for the quarter ended September 30, 1990).
The following table compares the Fund's average annual total returns as of
December 31, 1998 to the S&P 500 Index
<TABLE>
<S> <C> <C>
INCOME S&P 500
YEAR(S) EQUITY FUND* INDEX
1 Year 17.85% 28.58%
5 Year 21.32% 24.03%
Since Inception (3/31/89) 17.21% 18.87%
</TABLE>
The S&P 500 Index is a widely recognized index of common stocks. The S&P 500
Index figures assume reinvestment of all dividends paid by stocks included in
the index. Unlike the performance figures of the Fund, the S&P 500 Index's
performance does not reflect the effect of expenses. The index is unmanaged and
is not available for investment.
* On November 11, 1994, a collective investment fund managed by the Adviser
reorganized into the Fund. The predecessor collective investment fund
maintained investment objectives and policies that were, in all material
respects, equivalent to the Fund. The Fund's performance for the periods
before November 11, 1994 is that of the collective investment fund and
includes its expenses. If the collective investment fund had been
readjusted to reflect the first year's expenses of the Fund, the Fund's
performance for all periods except "Since Inception" would have been lower.
The collective investment fund was not registered under the 1940 Act and
was not subject to certain investment limitations, diversification
requirements and other restrictions imposed by the 1940 Act and the
Internal Revenue Code, which, if applicable, may have adversely affected
its performance.
28
<PAGE>
VALUGROWTH STOCK FUND
OBJECTIVE. The Fund's investment objective is to provide long-term capital
appreciation.
PRINCIPAL INVESTMENT STRATEGIES. The Fund invests primarily in
large-capitalization companies that, in the view of the Adviser, possess above
average growth characteristics, and appear to be undervalued. The Adviser
considers large companies to be those with market capitalizations within those
of companies included in the Russell 1000 Index.
In selecting investments, 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 its Adviser, have 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.
PRINCIPAL RISKS. The principal risk of investing in the Fund is market risk. To
the extent that the Fund may invest in medium-capitalization companies, it may
have capitalization risk. These investments tend to be more volatile than
investments in large-cap companies. There also is a risk of using a value
strategy because the stocks in which the Fund invests may remain undervalued
during a given period or decline in price. This may occur because larger stocks
or investments based on large-stock indices are more appealing to investors or
because value stocks as a category lose favor with investors compared to growth
stocks.
Loss of money is a risk of investing in the Fund.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance table provide an indication of the historical risk
of an investment in the Fund by showing changes in the Fund's performance from
year to year over 10 years and how the Fund's average annual returns compare to
those of a broad-based securities index. Past performance does not necessarily
indicate future performance.
[EDGAR Representation of Bar Chart]
ANNUAL TOTAL RETURN
1989 26.86%
1990 -1.25%
1991 36.89%
1992 9.65%
1993 6.36%
1994 -4.13%
1995 23.75%
1996 20.52%
1997 22.59%
1998 9.46%
The calendar year-to-date total return as of June 30, 1999 was 8.02%.
During the periods shown in the chart, the highest quarterly return was 17.73%
(for the quarter ended December 31, 1998) and the lowest quarterly return was
- -17.70% (for the quarter ended September 30, 1998).
The following table compares the Fund's average annual total returns as of
December 31, 1998 to the S&P 500 Index.
<TABLE>
<S> <C> <C>
VALUGROWTH S&P 500
YEAR(S) STOCK FUND INDEX
1 Year 9.46% 28.58%
5 Year 13.92% 24.03%
10 Year 14.39% 19.18%
Since Inception (1/8/88) 13.43% 18.93%(1)
</TABLE>
(1) For the period 12/31/87 - 12/31/98.
29
<PAGE>
The S&P 500 Index is a widely recognized index of common stocks. The S&P 500
Index figures assume reinvestment of all dividends paid by stocks included in
the index. Unlike the performance figures of the Fund, the S&P 500 Index's
performance does not reflect the effect of expenses. The index is unmanaged and
is not available for investment.
DIVERSIFIED EQUITY FUND
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.
PRINCIPAL INVESTMENT STRATEGIES. The Fund is a "gateway" fund that invests in
other "core" portfolios. The Fund uses a "multi-style" approach designed to
minimize the volatility and risk of investing in a single investment style. The
Fund's investments combine 5 different equity investment styles, which include:
o INDEX STYLE - replicates securities in the S&P 500 Index;
o INCOME EQUITY STYLE - emphasizes investments in large, high-quality
domestic companies with above average dividend income;
o LARGE COMPANY STYLE - emphasizes investments in large, high-quality
domestic companies with above-average growth potential;
o SMALL-CAP STYLE - emphasizes investments in small-cap companies with
the potential for growth; and
o INTERNATIONAL STYLE - emphasizes investments in high-quality companies
based outside the United States.
PRINCIPAL RISKS. The principal risk of investing in the Fund is market risk. The
Fund has allocation risk, which is the risk that the allocation of investments
may have a more significant effect on the Fund's net asset value when one
investment style is performing more poorly than the others. To the extent that
the Fund invests in small-capitalization companies, it may have capitalization
risk. These investments tend to be more volatile than investments in large-cap
companies. In addition, small-cap companies may have more risk because they
often have limited product lines, markets, or financial resources. Also, the
market for small-cap stocks may be less liquid. The Fund's investments in
foreign securities have foreign risk. This is the risk of investments in issuers
located in foreign countries, which may have greater price volatility and less
liquidity. Investments in foreign securities also are subject to political,
regulatory, and diplomatic risks. Foreign risk includes currency risk, which may
occur due to fluctuations in the exchange rates between the U.S. dollar and
foreign currencies. This risk could negatively affect the value of a Fund's
investments. Loss of money is a risk of investing in the Fund.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance table provide an indication of the historical risk
of an investment in the Fund by showing changes in the Fund's performance from
year to year over 10 years and how the Fund's average annual returns compare to
those of a broad-based securities index. Past performance does not necessarily
indicate future performance.
30
<PAGE>
[EDGAR Representation of Bar Chart]
ANNUAL TOTAL RETURN
1989 28.35%
1990 -1.25%
1991 37.40%
1992 4.74%
1993 12.14%
1994 0.83%
1995 30.94%
1996 20.43%
1997 25.72%
1998 22.35%
The calendar year-to-date total return as of June 30, 1999 was 11.38%.
During the periods shown in the chart, the highest quarterly return was 19.88%
(for the quarter ended December 31, 1998) and the lowest quarterly return was
- -15.86% (for the quarter ended September 30, 1990).
The following table compares the Fund's average annual total returns as of
December 31, 1998 to the S&P 500 Index.
<TABLE>
<S> <C> <C>
DIVERSIFIED S&P 500
YEAR(S) EQUITY FUND* INDEX
1 Year 22.35% 28.58%
5 Year 19.59% 24.03%
10 Year 17.47% 19.18%
Since Inception (12/31/88) 17.47% 19.18%
</TABLE>
The S&P 500 Index is a widely recognized index of common stocks. The S&P 500
Index figures assume reinvestment of all dividends paid by stocks included in
the index. Unlike the performance figures of the Fund, the S&P 500 Index's
performance does not reflect the effect of expenses. The index is unmanaged and
is not available for investment.
* On November 11, 1994, a collective investment fund managed by the Adviser
reorganized into the Fund. The predecessor collective investment fund
maintained investment objectives and policies that were, in all material
respects, equivalent to the Fund. The Fund's performance for the periods
before November 11, 1994 is that of the collective investment fund and
includes its expenses. If the collective investment fund had been
readjusted to reflect the first year's expenses of the Fund, the Fund's
performance for all periods except "Since Inception" would have been lower.
The collective investment fund was not registered under the 1940 Act and
was not subject to certain investment limitations, diversification
requirements and other restrictions imposed by the 1940 Act and the
Internal Revenue Code, which, if applicable, may have adversely affected
its performance.
GROWTH EQUITY FUND
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.
PRINCIPAL INVESTMENT STRATEGIES. The Fund is a "gateway" fund that invests in
other "core" portfolios. The Fund uses a "multi-style" approach designed to
reduce the volatility and risk of investing in a single equity style. The Fund's
investments combine 3 different equity investment styles, which include:
o LARGE COMPANY STYLE - emphasizes investments in large, high-quality
domestic companies with above-average growth potential;
o SMALL-CAP STYLE - emphasizes investments in small-cap companies with
the potential for growth; and
o INTERNATIONAL STYLE - emphasizes investments in high-quality companies
based outside the United States.
31
<PAGE>
PRINCIPAL RISKS. The principal risk of investing in the Fund is market risk.
There also is the risk of using a growth strategy because the stocks in which
the Fund invests may not achieve the anticipated growth during a given period or
decline in price. This may occur if growth stocks as a category lose favor with
investors compared to value stocks. The Fund also has allocation risk, which is
the risk that the allocation of investments may have a more significant effect
on the Fund's net asset value when one investment style is performing more
poorly than the others. To the extent that the Fund may invest in
small-capitalization companies, it may have capitalization risk. These
investments tend to be more volatile than investments in large-cap companies. In
addition, small-cap companies may have more risk because they often have limited
product lines, markets, or financial resources. Also, the market for small-cap
stocks may be less liquid. The Fund's investments in foreign securities have
foreign risk. This is the risk of investments in issuers located in foreign
countries, which may have greater price volatility and less liquidity.
Investments in foreign securities also are subject to political, regulatory, and
diplomatic risks. Foreign risk includes currency risk, which may occur due to
fluctuations in the exchange rates between the U.S. dollar and foreign
currencies. This risk could negatively affect the value of a Fund's investments.
Loss of money is a risk of investing in the Fund.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance table provide an indication of the historical risk
of an investment in the Fund by showing changes in the Fund's performance from
year to year over 10 years and how the Fund's average annual returns compare to
those of a broad-based securities index. Past performance does not necessarily
indicate future performance.
[EDGAR Representation of Bar Chart]
ANNUAL TOTAL RETURN
1990 -1.36%
1991 46.72%
1992 5.06%
1993 19.75%
1994 -1.38%
1995 24.87%
1996 18.78%
1997 20.09%
1998 16.50%
The calendar year-to-date total return as of June 30, 1999 was 9.30%.
During the periods shown in the chart, the highest quarterly return was 20.28%
(for the quarter ended March 31, 1991) and the lowest quarterly return was
- -20.14% (for the quarter ended September 30, 1990).
The following table compares the Fund's average annual total returns as of
December 31, 1998 to the S&P 500 Index.
<TABLE>
<S> <C> <C>
GROWTH S&P 500
YEAR(S) EQUITY FUND* INDEX
1 Year 16.50% 28.58%
5 Year 15.40% 24.03%
Since Inception (4/30/89) 16.16% 18.42%
</TABLE>
The S&P 500 Index is a widely recognized index of common stocks. The S&P 500
Index figures assume reinvestment of all dividends paid by stocks included in
the index. Unlike the performance figures of the Fund, the S&P 500 Index's
performance does not reflect the effect of expenses. The index is unmanaged and
is not available for investment.
* On November 11, 1994, a collective investment fund managed by the Adviser
reorganized into the Fund. The predecessor collective investment fund
maintained investment objectives and policies that were, in all material
respects, equivalent to the Fund. The Fund's performance for the periods
before November 11, 1994 is that of the collective investment fund and
includes its expenses. If the collective investment fund had been
readjusted to reflect the first year's expenses of the Fund, the Fund's
performance for all periods except "Since Inception" would have been lower.
32
<PAGE>
The collective investment fund was not registered under the 1940 Act and
was not subject to certain investment limitations, diversification
requirements and other restrictions imposed by the 1940 Act and the
Internal Revenue Code, which, if applicable, may have adversely affected
its performance.
LARGE COMPANY GROWTH FUND
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.
PRINCIPAL INVESTMENT STRATEGIES. The Fund invests primarily in the common stock
of large, high-quality domestic companies that have superior growth potential.
For purposes of the Fund's investments, large companies are those with market
capitalizations within those companies included in the Russell 1000 Index. In
selecting securities, the Fund seeks companies whose stock is attractively
valued with fundamental characteristics that are significantly better than the
market average and support growth capabilities.
PRINCIPAL RISKS. The principal risk of investing in the Fund is market risk.
Loss of money is a risk of investing in the Fund.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance table provide an indication of the historical risk
of an investment in the Fund by showing changes in the Fund's performance from
year to year over 10 years and how the Fund's average annual returns compare to
those of a broad-based securities index. Past performance does not necessarily
indicate future performance.
[EDGAR Representation of Bar Chart]
ANNUAL TOTAL RETURN
1989 27.05%
1990 3.43%
1991 67.04%
1992 1.85%
1993 -0.36%
1994 -1.07%
1995 29.24%
1996 25.11%
1997 33.35%
1998 48.01%
The calendar year-to-date total return as of June 30, 1999 was 16.12%.
During the periods shown in the chart, the highest quarterly return was 31.64%
(for the quarter ended December 31, 1998) and the lowest quarterly return was
- -17.49% (for the quarter ended September 30, 1990).
The following table compares the Fund's average annual total returns as of
December 31, 1998 to the S&P 500 Index.
<TABLE>
<S> <C> <C>
LARGE COMPANY S&P 500
YEAR(S) GROWTH FUND* INDEX
1 Year 48.01% 28.58%
5 Year 25.85% 24.03%
10 Year 21.54% 19.18%
Since Inception (12/31/82) 17.49% 17.95%
</TABLE>
The S&P 500 Index is a widely recognized index of common stocks. The S&P 500
Index figures assume reinvestment of all dividends paid by stocks included in
the index. Unlike the performance figures of the Fund, the S&P 500 Index's
performance does not reflect the effect of expenses. The index is unmanaged and
is not available for investment.
* On November 11, 1994, a collective investment fund managed by the Adviser
reorganized into the Fund. The predecessor collective investment fund
33
<PAGE>
maintained investment objectives and policies that were, in all material
respects, equivalent to the Fund. The Fund's performance for the periods
before November 11, 1994 is that of the collective investment fund and
includes its expenses. If the collective investment fund had been
readjusted to reflect the first year's expenses of the Fund, the Fund's
performance for all periods except "Since Inception" would have been lower.
The collective investment fund was not registered under the 1940 Act and
was not subject to certain investment limitations, diversification
requirements and other restrictions imposed by the 1940 Act and the
Internal Revenue Code, which, if applicable, may have adversely affected
its performance.
DIVERSIFIED SMALL CAP FUND
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.
PRINCIPAL INVESTMENT STRATEGIES. The Fund is a "gateway" fund that invests in
other "core" portfolios. The Fund uses a "multi-style" approach and invests in
portfolios that invest in small-cap equity securities. The Fund invests in
different small-cap equity styles to reduce the risk of price and return
volatility associated with reliance on a single investment style.
PRINCIPAL RISKS. The principal risk of investing in the Fund is market risk.
Because the Fund invests in small-cap companies, it also has capitalization
risk. These investments tend to be more volatile than investments in large-cap
companies. In addition, small-cap companies may have more risk because they
often have limited product lines, markets, or financial resources. Also, the
market for small-cap stocks may be less liquid. The Fund also has allocation
risk, which is the risk that the allocation of investments may have a more
significant effect on the Fund's net asset value when one small-cap investment
style is performing more poorly than the others. Loss of money is a risk of
investing in the Fund.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance table provide an indication of the historical risk
of an investment in the Fund by showing changes in the Fund's performance from
year to year over the life of the Fund and how the Fund's average annual returns
compare to those of a broad-based securities index. Past performance does not
necessarily indicate future performance.
[EDGAR Representation of Bar Chart]
ANNUAL TOTAL RETURN
1998 -8.60%
The calendar year-to-date total return as of June 30, 1999 was 3.94%.
During the periods shown in the chart, the highest quarterly return was 14.68%
(for the quarter ended December 31, 1998) and the lowest quarterly return was
- --23.73% (for the quarter ended September 30, 1998).
The following table compares the Fund's average annual total returns as of
December 31, 1998 to the Russell 2000 Value Index.
<TABLE>
<S> <C> <C>
DIVERSIFIED SMALL RUSSELL 2000
YEAR(S) CAP FUND INDEX
1 Year -8.60% -2.24%
</TABLE>
34
<PAGE>
The Russell 2000 Index is a capitalization weighted price only index, which is
comprised of 2000 of the smallest stocks (on the basis of capitalization), in
the Russell 3000 Index. Representing approximately 10% of The Russell 3000 total
market cap, this is a small cap index.
SMALL COMPANY STOCK FUND
OBJECTIVE. The Fund's investment objective is long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES. The Fund invests at least 65% of its assets in
the common stock of small domestic companies. For the purposes of its
investments, small companies are those with market capitalizations of less than
that of the largest stock in the Russell 2000 Index. In selecting securities,
the Fund 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 also may invest up to 35% of its
assets in companies with market capitalizations below that of the average
company in the S&P 500 Index and in foreign securities.
PRINCIPAL RISKS. The principal risk of investing in the Fund is market risk. The
Fund's investments in small- and medium-capitalization companies have
capitalization risk. These investments tend to be more volatile than investments
in large-cap companies. In addition, small-cap companies may have more risk
because they often have limited product lines, markets, or financial resources.
Also, the market for small-cap stocks may be less liquid. To the extent the Fund
invests in foreign securities, it has foreign risk. This is the risk of
investments in issuers located in foreign countries, which may have greater
price volatility and less liquidity. Investments in foreign securities also are
subject to political, regulatory, and diplomatic risks. Foreign risk includes
currency risk, which may occur due to fluctuations in the exchange rates between
the U.S. dollar and foreign currencies. This risk could negatively affect the
value of a Fund's investments. Loss of money is a risk of investing in the Fund.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance table provide an indication of the historical risk
of an investment in the Fund by showing changes in the Fund's performance from
year to year over the life of the Fund and how the Fund's average annual returns
compare to those of a broad-based securities index. Past performance does not
necessarily indicate future performance.
[EDGAR Representation of Bar Chart]
ANNUAL TOTAL RETURN
1994 2.74%
1995 19.41%
1996 25.98%
1997 9.38%
1998 -17.07%
The calendar year-to-date total return as of June 30, 1999 was -5.07%.
During the periods shown in the chart, the highest quarterly return was 18.84%
(for the quarter ended June 30, 1997) and the lowest quarterly return was
- -30.09% (for the quarter ended September 30, 1998).
The following table compares the Fund's average annual total returns as of
December 31, 1998 to the Russell 2000 Index.
35
<PAGE>
<TABLE>
<S> <C> <C>
SMALL COMPANY RUSSELL 2000
YEAR(S) STOCK FUND INDEX
1 Year -17.07% -2.24%
5 Year 6.99% 11.46%
Since Inception (12/31/93) 6.99% 11.46%
</TABLE>
The Russell 2000 Index is a capitalization weighted price only index, which is
comprised of 2000 of the smallest stocks (on the basis of capitalization), in
the Russell 3000 Index. Representing approximately 10% of The Russell 3000 total
market cap, this is a small cap index.
SMALL CAP OPPORTUNITIES FUND
OBJECTIVE. The Fund's investment objective is to provide capital appreciation.
Current income will be incidental to the objective of capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES. The Fund invests at least 65% of its assets in
equity securities of U.S. companies that, at the time of purchase, have market
capitalizations of $1.5 billion or less. In selecting securities, the Fund seeks
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.
PRINCIPAL RISKS. The principal risk of investing in the Fund is market risk. The
Fund's investments in small-cap companies have capitalization risk. These
investments tend to be more volatile than investments in large-cap companies. In
addition, small-cap companies may have more risk because they often have limited
product lines, markets, or financial resources. Also, the market for small-cap
stocks may be less liquid. Loss of money is a risk of investing in the Fund.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance table provide an indication of the historical risk
of an investment in the Fund by showing changes in the Fund's performance from
year to year over the life of the Fund and how the Fund's average annual returns
compare to those of a broad-based securities index. Past performance does not
necessarily indicate future performance.
[EDGAR Representation of Bar Chart]
ANNUAL TOTAL RETURN
1994 4.45%
1995 49.08%
1996 22.63%
1997 27.42%
1998 -9.36%
The calendar year-to-date total return as of June 30, 1999 was 7.90%.
During the periods shown in the chart, the highest quarterly return was 18.65%
(for the quarter ended June 30, 1997) and the lowest quarterly return was
- -23.27% (for the quarter ended September 30, 1998).
The following table compares the Fund's average annual total returns as of
December 31, 1998 to the Russell 2000 Index.
<TABLE>
<S> <C> <C>
SMALL CAP RUSSELL 2000
YEAR(S) OPPORTUNITIES FUND INDEX
1 Year -9.36% -2.24%
5 Year 17.14% 11.46%
Since Inception (8/1/93) 18.17% 12.37%(1)
</TABLE>
(1) For the period 7/31/93 - 12/31/98.
36
<PAGE>
The Russell 2000 Index is a capitalization weighted price only index, which is
comprised of 2000 of the smallest stocks (on the basis of capitalization), in
the Russell 3000 Index. Representing approximately 10% of The Russell 3000 total
market cap, this is a small cap index.
SMALL COMPANY GROWTH FUND
OBJECTIVE. The Fund's investment objective is to provide long-term capital
appreciation by investing in smaller domestic companies.
PRINCIPAL INVESTMENT STRATEGIes. The Fund invests at least 65% of its assets in
the common stock of small domestic companies that are either growing rapidly or
completing a period of significant 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. Small companies are those
with market capitalizations of less than the largest stock in the Russell 2000
Index.
PRINCIPAL RISKS. The principal risk of investing in the Fund is market risk. The
Fund's investments in small-cap companies have capitalization risk. These
investments tend to be more volatile than investments in large-cap companies. In
addition, small-cap companies may have more risk because they often have limited
product lines, markets, or financial resources. Also, the market for small-cap
stocks may be less liquid. There also is a risk of using a growth strategy
because the stocks in which the Fund invests may not achieve the anticipated
during a given period or decline in price. This may occur growth stocks as a
category lose favor with investors compared to value stocks. Loss of money is a
risk of investing in the Fund.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance table provide an indication of the historical risk
of an investment in the Fund by showing changes in the Fund's performance from
year to year over 10 years and how the Fund's average annual returns compare to
those of a broad-based securities index. Past performance does not necessarily
indicate future performance.
[EDGAR Representation of Bar Chart]
ANNUAL TOTAL RETURN
1989 32.05%
1990 2.75%
1991 72.43%
1992 17.02%
1993 22.14%
1994 -3.44%
1995 39.48%
1996 19.82%
1997 22.16%
1998 -9.11%
The calendar year-to-date total return as of June 30, 1999 was
8.52%.
During the periods shown in the chart, the highest quarterly return was 30.61%
(for the quarter ended March 31, 1991) and the lowest quarterly return was
- -24.63% (for the quarter ended September 30, 1998).
The following table compares the Fund's average annual total returns as of
December 31, 1998 to the Russell 2000 Index.
<TABLE>
<S> <C> <C>
SMALL COMPANY RUSSELL 2000
YEAR(S) GROWTH FUND* INDEX
1 Year -9.11% -2.24%
5 Year 12.37% 11.46%
10 Year 19.61% 11.79%
Since Inception (12/31/82) 16.57% 12.27%
</TABLE>
37
<PAGE>
The Russell 2000 Index is a capitalization weighted price only index, which is
comprised of 2000 of the smallest stocks (on the basis of capitalization), in
the Russell 3000 Index. Representing approximately 10% of The Russell 3000 total
market cap, this is a small cap index.
* On November 11, 1994, a collective investment fund managed by the Adviser
reorganized into the Fund. The predecessor collective investment fund
maintained investment objectives and policies that were, in all material
respects, equivalent to the Fund. The Fund's performance for the periods
before November 11, 1994 is that of the collective investment fund and
includes its expenses. If the collective investment fund had been
readjusted to reflect the first year's expenses of the Fund, the Fund's
performance for all periods except "Since Inception" would have been lower.
The collective investment fund was not registered under the 1940 Act and
was not subject to certain investment limitations, diversification
requirements and other restrictions imposed by the 1940 Act and the
Internal Revenue Code, which, if applicable, may have adversely affected
its performance.
INTERNATIONAL FUND
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.
PRINCIPAL INVESTMENT STRATEGIES. The Fund is a "gateway" fund that invests in a
"core" portfolio. The Fund invests substantially all of its assets (at least
65%) in equity securities of high quality foreign companies. The Fund selects
investments on the basis of their potential for capital appreciation without
regard to current income.
PRINCIPAL RISKS. The principal risks of investing in the Fund are market risk
and foreign risk. Foreign risk is the risk of investments in issuers located in
foreign countries, which may have greater price volatility and less liquidity.
Investments in foreign securities also are subject to political, regulatory, and
diplomatic risks. Foreign risk includes currency risk, which may occur due to
fluctuations in the exchange rates between the U.S. dollar and foreign
currencies. This risk could negatively affect the value of a Fund's investments.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance table provide an indication of the historical risk
of an investment in the Fund by showing changes in the Fund's performance from
year to year over 10 years and how the Fund's average annual returns compare to
those of a broad-based securities index. Past performance does not necessarily
indicate future performance.
[EDGAR Representation of Bar Chart]
ANNUAL TOTAL RETURN
1989 22.575%
1990 -11.27%
1991 4.72%
1992 -4.05%
1993 45.24%
1994 0.74%
1995 11.79%
1996 9.63%
1997 3.06%
1998 12.60%
The calendar year-to-date total return as of June 30, 1999 was 6.12%.
During the periods shown in the chart, the highest quarterly return was 18.00%
(for the quarter ended September 30, 1989) and the lowest quarterly return was
- -19.69% (for the quarter ended September 30, 1990).
38
<PAGE>
The following table compares the Fund's average annual total returns as of
December 31, 1998 to the MSCI EAFE Index.
<TABLE>
<S> <C> <C>
INTERNATIONAL MSCI EAFE
YEAR(S) FUND* INDEX
1 Year 12.60% 20.00%
5 Year 7.46% 9.14%
10 Year 8.56% 5.51%
Since Inception (7/15/87) 7.87% 6.53%(1)
</TABLE>
(1) For the period 6/30/87 - 12/31/98.
The MSCI EAFE Index (Morgan Stanley Capital International Europe, Australia,
Asia, and the Far East Index) is a market-weighted index composed of companies
representative of the market structure of 20 developed market countries in
Europe, Australia, Asia and the Far East, and reflects dividends net of
non-recoverable withholding tax. Companies included in the index replicate the
industry composition of each local market and, in addition, represent a sampling
of large, medium and small capitalization companies from each local market,
taking into account the stocks' liquidity. The index is unmanaged and is not
available for investment.
* On November 11, 1994, a collective investment fund managed by the Adviser
reorganized into the Fund. The predecessor collective investment fund
maintained investment objectives and policies that were, in all material
respects, equivalent to the Fund. The Fund's performance for the periods
before November 11, 1994 is that of the collective investment fund and
includes its expenses. If the collective investment fund had been
readjusted to reflect the first year's expenses of the Fund, the Fund's
performance for all periods except "Since Inception" would have been lower.
The collective investment fund was not registered under the 1940 Act and
was not subject to certain investment limitations, diversification
requirements and other restrictions imposed by the 1940 Act and the
Internal Revenue Code, which, if applicable, may have adversely affected
its performance.
39
<PAGE>
FEES AND EXPENSES OF THE FUNDS
The following table describes the fees and expenses that you will pay if 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)
(expenses that are deducted from Fund assets)
<TABLE>
<S> <C> <C> <C>
INVESTMENT TOTAL ANNUAL
ADVISORY OTHER FUND OPERATING
FEES (2) EXPENSES(2) EXPENSES(3)
MONEY MARKET FUNDS
Cash Investment Fund 0.23% 0.33% 0.56%
Ready Cash Investment Fund (Investor Shares) 0.33% 0.49% 0.82%
U.S. Government Fund 0.13% 0.39% 0.52%
Treasury Plus Fund 0.20% 0.64% 0.84%
Treasury Fund 0.14% 0.39% 0.53%
Municipal Money Market Fund
Institutional Shares 0.33% 0.24% 0.57%
Investor Shares 0.33% 0.53% 0.86%
FIXED INCOME FUNDS (I SHARES)
Stable Income Fund 0.30% 0.46% 0.76%
Limited Term Government Income Fund 0.33% 0.48% 0.81%
Intermediate Government Income Fund 0.33% 0.39% 0.72%
Diversified Bond Fund 0.55% 0.52% 1.07%
Income Fund 0.50% 0.42% 0.92%
Total Return Bond Fund 0.50% 0.48% 0.98%
Strategic Income Fund 0.62% 0.42% 1.04%
TAX-FREE FIXED INCOME FUNDS (I SHARES)
Limited Term Tax-Free Fund 0.50% 0.54% 1.04%
Tax-Free Income Fund 0.50% 0.41% 0.91%
Colorado Tax-Free Fund 0.50% 0.49% 0.99%
Minnesota Intermediate Tax-Free Fund 0.25% 0.43% 0.68%
Minnesota Tax-Free Fund 0.50% 0.50% 1.00%
BALANCED FUNDS (I SHARES)
Moderate Balanced Fund 0.66% 0.43% 1.09%
Growth Balanced Fund 0.70% 0.43% 1.13%
Aggressive Balanced-Equity Fund 0.72% 0.64% 1.36%
EQUITY FUNDS (I SHARES)
Index Fund 0.15% 0.40% 0.55%
Income Equity Fund 0.50% 0.39% 0.89%
ValuGrowth Stock Fund 0.79% 0.40% 1.19%
Diversified Equity Fund 0.74% 0.43% 1.17%
Growth Equity Fund 0.90% 0.48% 1.38%
Large Company Growth Fund 0.65% 0.44% 1.09%
Diversified Small Cap Fund 0.99% 0.64% 1.63%
Small Company Stock Fund 0.90% 0.53% 1.43%
Small Cap Opportunities Fund 0.60% 0.75% 1.35%
Small Company Growth Fund 0.90% 0.40% 1.30%
International Fund 0.70% 0.91% 1.61%
</TABLE>
(1) Based on amounts incurred during each Fund's fiscal year ended May 31, 1999
stated as a percentage of net assets.
(2) For those funds investing in a core/gateway structure, the fees include
fees for the "core" portfolios in which the "gateway" funds invest.
(3) Many of the Funds are subject to voluntary fee waivers and expense
reimbursements that reduce the operating expenses of the Funds. See the
Financial Highlights Table for information about fund expenses net of fee
waivers and expense reimbursements.
40
<PAGE>
EXAMPLE OF EXPENSES
These examples are intended to help you compare the cost of investing in a Fund
with the cost of investing in other mutual funds. The examples assume that you
invest $10,000 in a Fund for the time periods indicated and then redeem all of
your shares at the end of these periods. The example also assumes that your
investment has a 5% annual return, that the fund's operating expenses remain the
same, and that distributions are reinvested. Your actual costs may be higher or
lower than those shown.
<TABLE>
<S> <C> <C> <C> <C>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
MONEY MARKET FUNDS
Cash Investment Fund $57 $179 $313 $701
Ready Cash Investment Fund (Investor Shares) 84 262 455 1,014
U.S. Government Fund 53 167 291 653
Treasury Plus Fund 86 268 466 1,037
Treasury Fund 54 170 296 665
Municipal Money Market Fund
Institutional Shares 58 183 318 714
Investor Shares 88 274 477 1,061
FIXED INCOME FUNDS (I SHARES)
Stable Income Fund 78 243 422 942
Limited Term Government Income Fund 83 259 450 1,002
Intermediate Government Income Fund 74 230 401 894
Diversified Bond Fund 109 340 590 1,306
Income Fund 94 293 509 1,131
Total Return Bond Fund 100 312 542 1,201
Strategic Income Fund 106 331 574 1,271
TAX-FREE FIXED INCOME FUNDS (I SHARES)
Limited Term Tax-Free Fund 106 331 574 1,271
Tax-Free Income Fund 93 290 504 1,120
Colorado Tax-Free Fund 101 315 547 1,213
Minnesota Intermediate Tax-Free Fund 69 218 379 847
Minnesota Tax-Free Fund 102 318 552 1,225
BALANCED FUNDS (I SHARES)
Moderate Balanced Fund $111 $347 $601 $1,329
Growth Balanced Fund 115 359 622 1,375
Aggressive Balanced-Equity Fund 138 431 745 1,635
EQUITY FUNDS (I SHARES)
Index Fund 56 176 307 689
Income Equity Fund 91 284 493 1,096
ValuGrowth Stock Fund 121 378 654 1,443
Diversified Equity Fund 119 372 644 1,420
Growth Equity Fund 140 437 755 1,657
Large Company Growth Fund 111 347 601 1,329
Diversified Small Cap Fund 166 514 887 1,933
Small Company Stock Fund 146 452 782 1,713
Small Cap Opportunities Fund 137 428 739 1,624
Small Company Growth Fund 132 412 713 1,568
International Fund 164 508 876 1,911
</TABLE>
41
<PAGE>
GLOSSARY
This Glossary of frequently used terms will help you understand the
discussion of the Funds' objectives, policies, and risks.
TERM DEFINITION
AMT Alternative minimum tax.
Board The Board of Trustees of Norwest Advantage
Funds.
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.
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.
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.
42
<PAGE>
INVESTMENT OBJECTIVES, STRATEGIES AND RISK CONSIDERATIONS
This section of the Prospectus provides a more complete description of each
Fund's investment objectives and principal strategies and risks. Except as
otherwise indicated, the Board may change the Funds' investment policies without
shareholder approval. The Funds' investment objectives are fundamental and
cannot be changed without a shareholder vote. There can, of course, be no
assurance that any Fund will achieve its investment objective.
Some of the Funds invest directly in a portfolio of securities. Other Funds, as
identified below, are "gateway" funds in a "core/gateway" structure. In this
structure, a "gateway" fund invests some or all of its assets in one or more
"core portfolios" that have a substantially identical investment objective and
substantially similar policies as the gateway fund. Gateway funds investing in
the same core portfolio, or Portfolio, can enhance their investment
opportunities and reduce their expense ratios through sharing the costs of
managing a large pool of assets. Except when necessary to describe a Fund's
investment in a Portfolio, references to the gateway fund also include the
Portfolio, which is discussed after this section.
This section describes risks that affect the Funds' portfolios as a whole.
Certain of these risks may apply to one or more of the Funds. These risks are:
o MARKET RISK. THIS IS THE RISK THAT THE VALUE OF A FUND'S INVESTMENTS
WILL FLUCTUATE AS THE STOCK OR BOND MARKETS FLUCTUATE AND THAT PRICES
OVERALL WILL DECLINE OVER SHORT OR LONGER-TERM PERIODS. THIS RISK IS
COMMON TO THE BALANCED FUNDS AND THE EQUITY FUNDS.
O INTEREST RATE RISK. THIS IS THE RISK THAT CHANGES IN INTEREST RATES
WILL AFFECT THE VALUE OF A FUND'S INVESTMENTS, PARTICULARLY THOSE
INVESTMENTS IN DEBT OR INCOME-PRODUCING SECURITIES. INCREASES IN
INTEREST RATES MAY CAUSE THE VALUE OF A FUND'S INVESTMENTS TO DECLINE.
THIS RISK IS COMMON TO THE MONEY MARKET FUNDS, FIXED INCOME FUNDS, TAX
FREE FUNDS, AND BALANCED FUNDS.
O CREDIT RISK. THIS IS THE RISK THAT THE ISSUER OF A SECURITY WILL BE
UNABLE TO MAKE TIMELY PAYMENTS OF INTEREST OR PRINCIPAL OR TO
OTHERWISE HONOR ITS OBLIGATIONS. THIS RISK IS COMMON TO THE MONEY
MARKET FUNDS, FIXED INCOME FUNDS, TAX FREE FUNDS, AND BALANCED FUNDS .
O MANAGEMENT RISK. THIS IS THE RISK THAT A FUND'S MANAGER WILL MAKE POOR
CHOICES IN SELECTED SECURITIES. ALL ACTIVELY MANAGED FUNDS HAVE
MANAGEMENT RISK.
MONEY MARKET FUNDS
INVESTMENT OBJECTIVES AND STRATEGIES
The investment objectives of the Funds are high current income to the
extent consistent with preservation of capital and liquidity. The
Municipal Money Market Fund seeks current income that is exempt from
federal income taxes.
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
CASH INVESTMENT FUND is a "gateway" fund and 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 objectives 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 is a "gateway" fund and invests in Prime
Money Market Portfolio. The Fund seeks to maintain a rating within the
two highest categories assigned by an NRSRO.
43
<PAGE>
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.
U.S. GOVERNMENT FUND
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.
TREASURY PLUS FUND
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.
TREASURY FUND
The Fund invests solely in U.S. Treasury Securities, including
zero-coupon securities.
MUNICIPAL MONEY MARKET FUND
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
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 CONSIDERATIONS
The Funds' principal risks are interest rate risk and credit risk.
Because the Funds invest in short-term securities, a decline in
interest rates will affect the Funds' yields as these securities mature
or are sold and the Funds purchase new short-term securities with lower
yields. Generally, an increase in interest rates causes the value of a
debt instrument to decrease. The change in value for short-term
securities is usually smaller than for securities with longer
maturities. Because the Funds invest in securities with short
maturities and seek to maintain a stable net asset value of $1.00 per
share, it is possible, though unlikely, that an increase in interest
rates would change the value of your investment.
Credit risk is the possibility that a security's credit rating will be
downgraded or that the issuer of a security will default (fail to make
scheduled interest and principal payments). The Funds invest in highly
rated securities to minimize credit risk.
The Cash Investment and Ready Cash Investment Funds' foreign
investments may be subject to foreign risk. Foreign securities issuers
usually are not subject to the same degree of regulation as U.S.
issuers. Reporting, accounting and auditing standards of foreign
44
<PAGE>
countries differ, in some cases, significantly from U.S. standards.
Foreign risk includes nationalization, expropriation, or confiscatory
taxation, political changes or diplomatic developments that could
adversely affect a Fund's investments.
The Municipal Money Market Fund faces municipal market risk and
geographic concentration risk. Municipal market risk is the risk that
special factors may adversely affect the value of municipal securities
and have a significant effect on the yield or value of the Fund's
investments. These factors include political or legislative changes,
uncertainties related to the tax status of municipal securities, or the
rights of investors in these securities. The Fund's investments in
certain municipal securities with principal and interest payments that
are made from the revenues of a specific project or facility, and not
general tax revenues, may have increased risks. Factors affecting the
project or facility, such as local business or economic conditions,
could have a significant effect on the project's ability to make
payments of principal and interest on those securities.
Geographic concentration risk is the risk that factors adversely
affecting the 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.
FIXED INCOME FUNDS
STABLE INCOME FUND
INVESTMENT OBJECTIVE AND STRATEGIES. The Fund's investment objective is
to maintain safety of principal while providing low volatility total
return. The Fund invests in a diversified portfolio of, primarily,
short-term investment grade securities (rated in the 2 highest
short-term ratings categories or of comparable quality). The Fund
invests in fixed and variable rate U.S. dollar-denominated fixed-income
securities of a broad spectrum of U.S. issuers, including U.S.
Government securities and the debt securities of financial
institutions, corporations, and others.
The Fund's investments include:
o up to 65% of its total assets in mortgage-backed securities;
o up to 25% of its total assets in other types of asset-backed
securities;
o up to 25% of its total assets in mortgage-backed securities that are
not U.S. Government securities; and
o up to 50% of its total assets in U.S. Government securities.
The Fund limits its investments in the securities issued or guaranteed
by any single agency or instrumentality of the U.S. Government, except
the U.S. Treasury, to 30% of its total assets and does not invest more
than 10% of its total assets in the securities of any other issuer.
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's duration
(measure of the current value of cash flows), however, is short-term
and will be maintained at 80% to 120% of that of a 1-year U.S. Treasury
bill.
RISK CONSIDERATIONS. The principal risks of investing in the Fund are
interest rate risk and credit risk. The Fund's investments in
mortgage-related and asset-backed securities have prepayment risk,
which is the risk that mortgage loans or other obligations will be
prepaid when interest rates decline, forcing the Fund to reinvest in
securities with lower interest rates. For this and other reasons,
mortgage-related and asset-backed securities may have significantly
greater price and yield volatility than traditional debt securities.
LIMITED TERM GOVERNMENT INCOME FUND
INVESTMENT OBJECTIVE AND STRATEGIES. The Fund's investment objective is
to provide income and safety of principal by investing primarily in
U.S. Government securities. The Fund normally invests at least 65% of
its total assets in fixed and variable rate U.S. Government securities
and may invest up to 35% of its total assets in other fixed-income
securities. In selecting investments, the Fund emphasizes the use of
short maturity securities to lessen interest rate risk and uses
mortgage-backed securities to enhance yield.
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<PAGE>
The Fund's investments include:
o up to 50% of its total assets in mortgage-backed securities ;
o up to 25% of its total assets in other types of asset-backed
securities ; and
o up to 10% of its total assets in zero-coupon securities.
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 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. Normally, the Fund expects to
maintain an average dollar-weighted portfolio maturity of between 1 and
5 years.
RISK CONSIDERATIONS. The principal risks of investing in the Fund are
interest rate risk and credit risk. The Fund's investments in
mortgage-backed and asset-backed securities have prepayment risk, which
is the risk that mortgage loans or other obligations will be prepaid
when interest rates decline, forcing the Fund to reinvest in securities
with lower interest rates. For this and other reasons, mortgage-related
and asset-backed securities may have significantly greater price and
yield volatility than traditional debt securities.
INTERMEDIATE GOVERNMENT INCOME FUND
INVESTMENT OBJECTIVE AND STRATEGIES. The Fund's investment objective
is to provide income and safety of principal by investing primarily in
U.S. Government securities.
The Fund normally invests at least 65% of its total assets in fixed and
variable rate U.S. Government securities and may invest up to 35% of
its assets in fixed-income securities that are not U.S. Government
securities. In selecting investments, the Fund emphasizes the use of
intermediate maturity securities to lessen interest rate risk and uses
mortgage-backed securities to enhance yield.
The Fund's investments include:
o up to 50% of its total assets in mortgage-backed securities;
o up to 25% of its total assets in other types of asset-backed
securities; and
o up to 10% of its total assets in zero-coupon securities.
As part of its mortgage-backed securities investments, the Fund may
enter into dollar rolls, which are transactions in which the Fund sells
a security and commits to purchase a similar, but not identical,
security at a later date. The Fund limits its investments in securities
issued or guaranteed by any single agency or instrumentality of the
U.S. Government to 25% of its total assets, except the U.S. Treasury.
The Fund also 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
portfolio maturity of between 3 and 10 years and a duration of between
70% and 130% of the duration of a 5-year Treasury Note. Duration is a
measure of a debt security's average life that reflects the present
value of the security's cash flow and is an indication of the
security's sensitivity to changes in interest rates.
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<PAGE>
RISK CONSIDERATIONS. The principal risks of investing in the Fund are
interest rate risk and credit risk. The Fund's investments in
mortgage-backed and asset-backed securities have prepayment risk, which
is the risk that mortgage loans or other obligations will be prepaid
when interest rates decline, forcing the Fund to reinvest in securities
with lower interest rates. For this and other reasons, mortgage-related
and asset-backed securities may have significantly greater price and
yield volatility than traditional debt securities.
DIVERSIFIED BOND FUND
INVESTMENT OBJECTIVE AND STRATEGIES. The Fund's investment objective is
to provide total return by diversifying its investments among different
fixed-income investment styles. The Fund is a "gateway" fund and uses a
"multi-style" approach designed to reduce the price and return
volatility of the Fund and to provide returns that are more consistent.
The Fund's portfolio combines the different fixed-income investment
styles of 3 Portfolios:
o INTERMEDIATE-TERM STYLE - emphasizes investments in investment
grade (rated in the 4 highest categories or of comparable
quality) intermediate-term securities;
o VALUE STYLE - emphasizes investments in debt securities
(primarily rated in the 3 highest rating categories or of
comparable quality) based on a value strategy or the analyses of
fundamental financial information rather than the direction of
interest rates; and
o BALANCED TOTAL RETURN STYLE - emphasizes investments in
short-term bonds (maturities of 2 years or less) and long-term
bonds (maturities of 25 years or more) depending on the prices of
bonds
ALLOCATION. The current allocations and ranges of investments by the
Fund in each Portfolio are:
Current Portfolio Range of
Allocation Investment
Managed Fixed Income Portfolio 50.0% 45% - 55%
Strategic Value Bond Portfolio 16.7% 11.7% - 21.7%
Positive Return Portfolio 33.3% 28.3% - 38.3%
-------------------------------------------------------------------------
TOTAL FUND ASSETS 100%
The percentage of Fund assets invested in each 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.
RISK CONSIDERATIONS. The principal risks of investing in the Fund are
interest rate risk and credit risk. The Fund's investments in different
investment styles have allocation risk, which is the risk that the
allocation of investments may have a more significant effect on the
Fund's net asset value when one of these styles is performing more
poorly than the others.
INCOME FUND
INVESTMENT OBJECTIVE AND STRATEGIES. The Fund's investment objective is
to provide total return consistent with current income. The Fund's
principal strategy is to invest 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. In selecting investments, the Fund attempts
to increase the Fund's performance by applying various fixed-income
management techniques. The Fund 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. Duration is a measure of a debt
security's average life that reflects the present value of the
security's cash flow and is an indication of the security's sensitivity
to changes in interest rates.
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.
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<PAGE>
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, which are transactions in which the Fund sells a security
and commits to purchase a similar, but not identical, security at a
later date.
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 (rated in the 4 highest rating categories
or of comparable quality). The Fund also may invest up to 20% of its
total assets in below investment grade securities (also known as "junk
bonds") 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. The Fund expects to maintain an average
dollar-weighted portfolio maturity of between 3 and 15 years. The
Fund's portfolio of securities will normally have a duration of between
70% and 130% of the duration of the Lipper Corporate A-Rated Debt
Average. Duration is a measure of a debt security's average life that
reflects the present value of the security's cash flow and is an
indication of the security's sensitivity to changes in interest rates.
RISK CONSIDERATIONS. The principal risks of investing in the Fund are
interest rate risk and credit risk. The Fund's investments in
lower-rated securities or junk bonds may involve greater credit risk
(or risk of default) than higher-rated securities and may be more
volatile than higher-rated securities. The Fund's investments in
mortgage-backed and asset-backed securities have prepayment risk, which
is the risk that mortgage loans or other obligations will be prepaid
when interest rates decline, forcing the Fund to reinvest in securities
with lower interest rates. For this and other reasons, mortgage-related
and asset-backed securities may have significantly greater price and
yield volatility than traditional debt securities. The Fund's
investments in foreign securities have foreign risk. This is the risk
of investments located in foreign countries, which may have greater
price volatility and less liquidity. Investments in foreign securities
also are subject to political, regulatory, and diplomatic risks.
Foreign risk includes currency risk, which may occur due to
fluctuations in the exchange rates between the U.S. dollar and foreign
currencies. This risk could negatively affect the value of a Fund's
investments.
TOTAL RETURN BOND FUND
INVESTMENT OBJECTIVE AND STRATEGIES. The Fund's investment objective is
to seek total return. The Fund's principal strategy is to invest 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.
In selecting investments, the Fund 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 Fund believes that this exposure enhances performance in varying
economic and interest rate cycles and avoids excessive risk
concentrations. The Fund'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 Fund uses this process to seek
to identify securities, which represent the best relative economic
value. The Fund 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's
investments include:
o up to 75% of its total assets in corporate bonds;
o up to 65% of its total assets in mortgage-backed securities; and
o Up to 50% of its total assets in asset-backed securities.
The Fund may invest in U.S. Government securities without restriction.
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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 Fund expects to maintain an average dollar-weighted portfolio
maturity of between 5 and 15 years. The Fund's duration normally will
vary between 3 and 8 years. Duration is a measure of a debt security's
average life that reflects the present value of the security's cash
flow and is an indication of the security's sensitivity to changes in
interest rates.
RISK CONSIDERATIONS. The principal risks of investing in the Fund are
interest rate risk and credit risk. The Fund's investments in
mortgage-backed and asset-backed securities have prepayment risk, which
is the risk that mortgage loans or other obligations will be prepaid
when interest rates decline, forcing the Fund to reinvest in securities
with lower interest rates. For this and other reasons, mortgage-related
and asset-backed securities may have significantly greater price and
yield volatility than traditional debt securities. The Fund's
investments in foreign securities have foreign risk. This is the risk
of investments located in foreign countries, which may have greater
price volatility and less liquidity. Investments in foreign securities
also are subject to political, regulatory, and diplomatic risks.
Foreign risk includes currency risk, which may occur due to
fluctuations in the exchange rates between the U.S. dollar and foreign
currencies. This risk could negatively affect the value of a Fund's
investments.
STRATEGIC INCOME FUND
INVESTMENT OBJECTIVE AND STRATEGIES. The Fund's investment objective
is to provide a combination of current income and capital appreciation
by diversifying investments in bonds, other fixed-income investments
and, stocks. The Fund is a "gateway" fund and seeks to invest in
fixed-income securities with limited exposure to equity securities.
The Fund emphasizes safety of principal and invests 70% to 90% of its
assets in fixed-income investments and 10%-30% of its assets in equity
investments. This approach 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. For the fixed-income portion of
its portfolio, the Fund uses multiple fixed-income investment styles
intended to reduce the price and return volatility of, and provide
more consistent returns. These styles include:
o INTERMEDIATE-TERM STYLE - emphasizes investments in investment
grade (rated in the 4 highest categories or of comparable
quality) intermediate-term securities;
o VALUE STYLE - emphasizes investments in debt securities
(primarily rated in the 3 highest rating categories or of
comparable quality) based on a value strategy or the analyses of
fundamental financial information rather than the direction of
interest rates;
o BALANCED TOTAL RETURN STYLE - emphasizes investments in
short-term bonds (maturities of 2 years or less) and long-term
bonds (maturities of 25 years or more) depending on the prices of
bonds; and
o SHORT-TERM STYLE - emphasizes investments in short-term
investment grade (rated in 2 highest ratings categories or of
comparable quality) securities.
The Fund uses a similar approach for the equity portion of the
portfolio blending multiple equity investment styles. These styles
include:
o INDEX STYLE - replicates securities in the S&P 500 Index;
o INCOME EQUITY STYLE - emphasizes investments in large,
high-quality domestic companies with above average dividend
income;
o LARGE COMPANY STYLE - emphasizes investments in large,
high-quality domestic companies with above-average growth
potential;
o SMALL-CAP STYLE - emphasizes investments in small-cap companies
with the potential for growth; and
o INTERNATIONAL STYLE - emphasizes investments in high-quality
companies based outside the United States.
Allocation. The current allocations and ranges of investments by the
Fund in each Portfolio are:
49
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<TABLE>
<S> <C> <C> <C>
TOTAL ALLOCATION CURRENT PORTFOLIO RANGE OF
INVESTMENT STYLE ALLOCATION INVESTMENT
---------------- ---------- ----------
DIVERSIFIED BOND FUND STYLE 55% 45% - 65%
POSITIVE RETURN BOND PORTFOLIO 18.3% 15% - 21.7%
STRATEGIC VALUE BOND PORTFOLIO 9.2% 7.5% - 10.8%
MANAGED FIXED INCOME PORTFOLIO 27.5% 22.5% - 32.5%
STABLE INCOME PORTFOLIO 25% 25%
DIVERSIFIED EQUITY FUND STYLE 20% 10% - 30%
INDEX PORTFOLIO 5% 2.5% - 7.5%
INCOME EQUITY PORTFOLIO 5% 2.5% - 7.5%
LARGE COMPANY STYLE 5% 2.5% - 7.5%
LARGE COMPANY GROWTH PORTFOLIO 4% 2% - 6%
DISCIPLINED GROWTH PORTFOLIO 1% 0.5% - 1.5%
DIVERSIFIED SMALL CAP STYLE 2.0% 1% - 3%
SMALL CAP INDEX PORTFOLIO 0.5% 0.3% - 0.8%
SMALL COMPANY GROWTH PORTFOLIO 0.5% 0.3% - 0.8%
SMALL COMPANY VALUE PORTFOLIO 0.5% 0.3% - 0.8%
SMALL CAP VALUE PORTFOLIO 0.5% 0.3% - 0.8%
INTERNATIONAL STYLE 3.0% 1.5% - 4.5%
INTERNATIONAL PORTFOLIO 2.3% 1.2% - 3.5%
INTERNATIONAL EQUITY PORTFOLIO 0.7% 0.3% - 1.0%
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 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.
RISK CONSIDERATIONS. The principal risks of investing in the Fund are
market risk, interest rate risk, and credit risk. The Fund's
investments in different styles and in both equity and fixed-income
securities have allocation risk, which is the risk that the allocation
of investments may have a more significant effect on the Fund's net
asset value when one investment style or asset classes is performing
more poorly than others. To the extent that the Fund invests in
small-cap companies, it may have capitalization risk. These investments
tend to be more volatile than investments in large-cap companies. In
addition, small-cap companies may have more risk because they often
have limited product lines, markets, or financial resources. Also, the
market for small-cap stocks may be less liquid. To the extent the Fund
invests in foreign securities, it has foreign risk. This is the risk of
investments in issuers located in foreign countries, which may have
greater price volatility and less liquidity. Investments in foreign
securities also are subject to political, regulatory, and diplomatic
risks. Foreign risk includes currency risk, which may occur due to
fluctuations in the exchange rates between the U.S. dollar and foreign
currencies. This risk could negatively affect the value of a Fund's
investments. Loss of money is a risk of investing in the Fund.
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 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 AND STRATEGIES. The Fund's investment objective is
to provide current income exempt from federal income taxes. The Fund
normally invests substantially all its assets in investment grade
municipal securities (rated in the 4 highest rating categories or of
comparable quality). The Fund invests at least 80% of its total assets
in securities paying interest exempt from federal income taxes,
including AMT. The Fund may invest up to 20% of its assets in
securities paying interest that is subject to AMT.
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The Fund expects to maintain an average dollar-weighted portfolio
maturity of between 1 and 5 years, but portfolio maturity may vary
depending on market conditions. The Fund emphasizes investments in
municipal securities with interest income rather than maintaining
stability of the Fund's net asset value.
RISK CONSIDERATIONS. The principal risks of investing in the Fund are
interest rate risk and credit risk. The Fund's investments in municipal
securities have the risk that special factors may adversely affect the
value of municipal securities and have a significant effect on the
value of the Fund's investments. These factors include political or
legislative changes and uncertainties related to the tax status of
municipal securities or the rights of investors in these securities.
TAX-FREE INCOME FUND
INVESTMENT OBJECTIVE AND STRATEGIES. The Fund's investment objective is
to produce current income exempt from federal income taxes. The Fund
invests primarily in a portfolio of investment grade municipal
securities. The Fund normally invests at least 80% of its total assets
in municipal securities paying interest exempt from federal income
taxes, including AMT.
The Fund expects to maintain an average dollar-weighted portfolio
maturity of between 10 and 20 years, but portfolio maturity may vary
depending on market conditions. The Fund emphasizes investments in
municipal securities with interest income rather than stability of the
Fund's net asset value.
RISK CONSIDERATIONS. The principal risks of investing in the Fund are
interest rate risk and credit risk. The Fund's investments in municipal
securities have the risk that special factors may adversely affect the
value of municipal securities and have a significant effect on the
value of the Fund's investments. These factors include political or
legislative changes and uncertainties related to the tax status of
municipal securities or the rights of investors in these securities.
COLORADO TAX-FREE FUND
INVESTMENT OBJECTIVE AND STRATEGIES. 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 AMT) consistent
with the preservation of capital. The Fund offers shares only to
residents of Colorado. The Fund normally invests substantially all of
its assets in investment grade municipal securities (rated in the 4
highest rating categories or of comparable quality) issued by (1) the
state of Colorado and its subdivisions, authorities, instrumentalities,
and corporations and (2) territories and possessions of the United
States. The Fund invests 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 expects that its average dollar-weighted portfolio maturity
normally will be greater than 10 years, but portfolio maturity may
reach or exceed 20 years. While 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 CONSIDERATIONS. The principal risks of investing in the Fund are
interest rate risk and credit risk. The Fund's investments in municipal
securities have the risk that special factors may adversely affect the
value of municipal securities and have a significant effect on the
value of the Fund's investments. These factors include political or
legislative changes and uncertainties related to the tax status of
municipal securities or the rights of investors in these securities.
Because the Fund invests a large portion of its assets in a smaller
number of issuers and in a particular state's municipal securities, it
is more vulnerable to events adversely affecting these issuers or that
state, including economic, political, or regulatory occurrences.
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MINNESOTA INTERMEDIATE TAX-FREE FUND and MINNESOTA TAX-FREE FUND
INVESTMENT OBJECTIVES AND STRATEGIES. 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 AMT)
without assuming undue risk. The Funds offer shares only to residents
of Minnesota. The Funds normally invest substantially all (and always
at least 75% of) their assets in investment grade municipal securities
(rated in the 4 highest rating categories or of comparable quality)
issued by (1) the state of Minnesota and its subdivisions, authorities,
instrumentalities, and corporations and (2) territories and possessions
of the United States. The Funds invest at least 80% of their total
assets in securities paying interest exempt from both federal
(including AMT) and Minnesota state income taxes. The Funds may invest
in securities of a comparatively small number of issuers.
The Minnesota Intermediate Tax-Free Fund expects to maintain an average
dollar-weighted portfolio maturity of between 5 and 10 years, but
portfolio maturity may vary depending on market conditions. Normally,
the Minnesota Tax-Free Fund to have an average dollar-weighted
portfolio maturity of greater than 10 years, but the portfolio maturity
may reach or exceed 20 years.
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.
RISK CONSIDERATIONS. The principal risks of investing in the Funds are
interest rate risk and credit risk. The Funds' investments in
lower-rated securities could involve more credit risk (or risk of
default) and be more volatile than higher-rated securities. The Funds'
investments in municipal securities have the risk that special factors
may adversely affect the value of municipal securities and have a
significant effect on the value of the Funds' investments. These
factors include political or legislative changes and uncertainties
related to the tax status of municipal securities or the rights of
investors in these securities. Because the Funds invest a large portion
of their assets in a smaller number of issuers and in a particular
state's municipal securities, they are more vulnerable to events
adversely affecting these issuers or that state, including economic,
political, or regulatory occurrences.
BALANCED FUNDS
Each Balanced Fund invests in a balanced portfolio of fixed-income and
equity securities. Moderate 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.
MODERATE BALANCED FUND
INVESTMENT OBJECTIVE AND STRATEGIES. 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. The Fund is a "gateway" fund that invests in other "core"
portfolios. The Fund seeks 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 invests in several different fixed-income and
equity investment styles. The fixed-income styles include:
52
<PAGE>
o INTERMEDIATE-TERM STYLE - emphasizes investments in investment
grade (rated in the 4 highest categories or of comparable
quality) intermediate-term securities;
o VALUE STYLE - emphasizes investments in debt securities
(primarily rated in the 3 highest rating categories or of
comparable quality) based on a value strategy or the analyses of
fundamental financial information rather than the direction of
interest rates;
o BALANCED TOTAL RETURN STYLE - emphasizes investments in
short-term bonds (maturities of 2 years or less) and long-term
bonds (maturities of 25 years or more) depending on the prices of
bonds; and o short-term style - emphasizes investments in
short-term investment grade (rated in 2 highest ratings
categories or of comparable quality) securities.
The equity style include:
o INDEX STYLE - replicates securities in the S&P 500 Index;
o INCOME EQUITY STYLE - emphasizes investments in large,
high-quality domestic companies with above average dividend
income;
o LARGE COMPANY STYLE - emphasizes investments in large,
high-quality domestic companies with above-average growth
potential;
o SMALL-CAP STYLE - emphasizes investments in small-cap companies
with the potential for growth; and
o INTERNATIONAL STYLE - emphasizes investments in high-quality
companies based outside the United States.
This allocation is intended to reduce the risk of relying on a single
equity or fixed-income investment style.
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> <C>
TOTAL ALLOCATION CURRENT PORTFOLIO RANGE OF
INVESTMENT STYLE ALLOCATION INVESTMENT
---------------- ---------- ----------
DIVERSIFIED BOND FUND STYLE 45% 30% - 60%
POSITIVE RETURN BOND PORTFOLIO 15% 10% - 20%
STRATEGIC VALUE BOND PORTFOLIO 7.5% 5% - 10%
MANAGED FIXED INCOME PORTFOLIO 22.5% 15% - 30%
STABLE INCOME PORTFOLIO 15% 15%
DIVERSIFIED EQUITY FUND STYLE 40% 25% - 55%
INDEX PORTFOLIO 10% 6.3% - 13.8%
INCOME EQUITY PORTFOLIO 10% 6.3% - 13.8%
LARGE COMPANY STYLE 10% 6.3% - 13.8%
LARGE COMPANY GROWTH PORTFOLIO 8% 5.0% - 11.0%
DISCIPLINED GROWTH PORTFOLIO 2% 1.3% - 2.8%
DIVERSIFIED SMALL CAP STYLE 4% 2.5% - 5.5%
SMALL CAP INDEX PORTFOLIO 1.0% 0.6% - 1.4%
SMALL COMPANY GROWTH PORTFOLIO 1.0% 0.6% - 1.4%
SMALL COMPANY VALUE PORTFOLIO 1.0% 0.6% - 1.4%
SMALL CAP VALUE PORTFOLIO 1.0% 0.6% - 1.4%
INTERNATIONAL STYLE 6% 3.8% - 8.3%
INTERNATIONAL PORTFOLIO 4.6% 2.9% - 6.4%
INTERNATIONAL EQUITY PORTFOLIO 1.4% 0.8% - 1.9%
TOTAL FUND ASSETS 100%
</TABLE>
RISK CONSIDERATIONS. The principal risks of investing in the Fund are
market risk, interest rate risk, and credit risk. The Fund's
investments in different styles and in both equity and fixed-income
securities have allocation risk, which is the risk that the allocation
of investments may have a more significant effect on the Fund's net
asset value when one investment style or asset class is performing more
poorly than the others. To the extent that the Fund invests in
small-cap companies, it may have capitalization risk. These investments
tend to be more volatile than investments in large-cap companies. In
53
<PAGE>
addition, small-cap companies may have more risk because they often
have limited product lines, markets, or financial resources. Also, the
market for small-cap stocks may be less liquid. To the extent the Fund
invests in foreign securities, it has foreign risk. This is the risk of
investments in issuers located in foreign countries, which may have
greater price volatility and less liquidity. Investments in foreign
securities also are subject to political, regulatory, and diplomatic
risks. Foreign risk includes currency risk, which may occur due to
fluctuations in the exchange rates between the U.S. dollar and foreign
currencies. This risk could negatively affect the value of a Fund's
investments. Loss of money is a risk of investing in the Fund.
GROWTH BALANCED FUND
INVESTMENT OBJECTIVE AND STRATEGIES. The Fund's investment objective is
to provide a combination of current income and capital appreciation by
diversified investments in stocks and bonds. The Fund is a "gateway"
fund that invests in other "core" portfolios. The Fund seeks long-term
capital appreciation in the equity securities market in a balanced
fund. Normally, the Fund invests approximately 65% of its portfolio in
several different equity investment styles. 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 equity styles include:
o INDEX STYLE - replicates securities in the S&P 500 Index;
o INCOME EQUITY STYLE - emphasizes investments in large,
high-quality domestic companies with above average dividend
income;
o LARGE COMPANY STYLE - emphasizes investments in large,
high-quality domestic companies with above-average growth
potential;
o SMALL-CAP STYLE - emphasizes investments in small-cap companies
with the potential for growth; and
o INTERNATIONAL STYLE - emphasizes investments in high-quality
companies based outside the United States.
Normally, the Fund invests approximately 35% of its portfolio in
several different fixed-income investment styles. The blending of these
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. These styles
include:
o INTERMEDIATE-TERM STYLE - emphasizes investments in investment
grade (rated in the 4 highest categories or of comparable
quality) intermediate-term securities;
o VALUE STYLE - emphasizes investments in debt securities
(primarily rated in the 3 highest rating categories or of
comparable quality) based on a value strategy or the analyses of
fundamental financial information rather than the direction of
interest rates; and
o BALANCED TOTAL RETURN STYLE - emphasizes investments in
short-term bonds (maturities of 2 years or less) and long-term
bonds (maturities of 25 years or more) depending on the prices of
bonds.
ALLOCATION. The current allocations and ranges of investments by the
Fund in each Portfolio are:
<TABLE>
<S> <C> <C> <C>
INVESTMENT STYLE TOTAL CURRENT PORTFOLIO RANGE OF
ALLOCATION 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 1.6% 1.1% - 2.1%
SMALL COMPANY GROWTH PORTFOLIO 1.6% 1.1% - 2.1%
SMALL COMPANY VALUE PORTFOLIO 1.6% 1.1% - 2.1%
SMALL CAP VALUE PORTFOLIO 1.6% 1.1% - 2.1%
INTERNATIONAL STYLE 9.8% 6.8% - 12.8%
INTERNATIONAL PORTFOLIO 7.6% 5.2% - 9.9%
INTERNATIONAL EQUITY PORTFOLIO 2.2% 1.5% - 2.9%
DIVERSIFIED BOND FUND STYLE 35% 15% - 55%
54
<PAGE>
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>
RISK CONSIDERATIONS. The Fund's investments in different styles and in
both equity and fixed-income securities have allocation risk, which is
the risk that the allocation of investments may have a more significant
effect on the Fund's net asset value when one investment style or asset
class is performing more poorly than the others. To the extent that the
Fund may invest in small-capitalization companies, it may have
capitalization risk. These investments tend to be more volatile than
investments in large-cap companies. In addition, small-cap companies
may have more risk because they often have limited product lines,
markets, or financial resources. The Fund's investments in foreign
securities have foreign risk. This is the risk of investments in
issuers located in foreign countries, which may have greater price
volatility and less liquidity. Investments in foreign securities also
are subject to political, regulatory, and diplomatic risks. Foreign
risk includes currency risk, which may occur due to fluctuations in the
exchange rates between the U.S. dollar and foreign currencies. This
risk could negatively affect the value of a Fund's investments.
AGGRESSIVE BALANCED-EQUITY FUND
INVESTMENT OBJECTIVE AND STRATEGIES. The Fund's investment objective is
to provide a combination of current income and capital appreciation by
diversifying investments in stocks and bonds. The Fund is a "gateway"
fund that invests in other "core" portfolios. The Fund is designed for
investors seeking long-term capital appreciation in the equity
securities market in a balanced fund. In relation to other balanced
funds, the Fund emphasizes its positions in equity securities.
Normally, the Fund invests 80% of its portfolio in several different
equity investment styles. 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. These styles include:
o INDEX STYLE - replicates securities in the S&P 500 Index;
o INCOME EQUITY STYLE - emphasizes investments in large,
high-quality domestic companies with above average dividend
income;
o LARGE COMPANY STYLE - emphasizes investments in large,
high-quality domestic companies with above-average growth
potential;
o SMALL-CAP STYLE - emphasizes investments in small-cap companies
with the potential for growth; and
o INTERNATIONAL STYLE - emphasizes investments in high-quality
companies based outside the United States.
Normally, the Fund invests 20% of its portfolio in several different
fixed-income investment styles. The blending of these 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. These styles include:
o INTERMEDIATE-TERM STYLE - emphasizes investments in investment
grade (rated in the 4 highest categories or of comparable
quality) intermediate-term securities;
o VALUE STYLE - emphasizes investments in debt securities
(primarily rated in the 3 highest rating categories or of
comparable quality) based on a value strategy or the analyses of
fundamental financial information rather than the direction of
interest rates; and
o BALANCED TOTAL RETURN STYLE - emphasizes investments in
short-term bonds (maturities of 2 years or less) and long-term
bonds (maturities of 25 years or more) depending on the prices of
bonds.
55
<PAGE>
ALLOCATION. The current allocations and ranges of investments by the
Fund in each Portfolio are:
<TABLE>
<S> <C> <C> <C>
INVESTMENT STYLE TOTAL ALLOCATION CURRENT PORTFOLIO RANGE OF
ALLOCATION INVESTMENT
DIVERSIFIED EQUITY FUND STYLE 80% 60% - 100%
INDEX PORTFOLIO 20% 15% - 25%
INCOME EQUITY PORTFOLIO 20% 15% - 25%
LARGE COMPANY STYLE 20% 15% - 25%
LARGE COMPANY GROWTH PORTFOLIO 16% 12% - 20%
DISCIPLINED GROWTH PORTFOLIO 4% 3% - 5%
DIVERSIFIED SMALL CAP STYLE 8% 6% - 10%
SMALL CAP INDEX PORTFOLIO 2.0% 1.5% - 2.5%
SMALL COMPANY GROWTH PORTFOLIO 2.0% 1.5% - 2.5%
SMALL COMPANY VALUE PORTFOLIO 2.0% 1.5% - 2.5%
SMALL CAP VALUE PORTFOLIO 2.0% 1.5% - 2.5%
INTERNATIONAL STYLE 12% 9% - 15%
INTERNATIONAL PORTFOLIO 9.3% 7.0% - 11.6%
INTERNATIONAL EQUITY PORTFOLIO 2.7% 2% - 3.4%
DIVERSIFIED BOND FUND STYLE 20.0% 0% - 40%
MANAGED FIXED INCOME PORTFOLIO 10.0% 0% - 20%
STRATEGIC VALUE BOND PORTFOLIO 3.3% 0% - 6.7%
POSITIVE RETURN BOND PORTFOLIO 6.7% 0% - 13.3%
TOTAL FUND ASSETS 100%
</TABLE>
RISK CONSIDERATIONS. The Fund's investments in different styles and in
both equity and fixed-income securities have allocation risk, which is
the risk that the allocation of investments may have a more significant
effect on the Fund's net asset value when one investment style or asset
class is performing more poorly than the others. To the extent that the
Fund may invest in small-cap companies, it may have capitalization
risk. These investments tend to be more volatile than investments in
large-cap companies. In addition, small-cap companies may have more
risk because they often have limited product lines, markets, or
financial resources. The Fund's investments in foreign securities have
foreign risk. This is the risk of investments in issuers located in
foreign countries, which may have greater price volatility and less
liquidity. Investments in foreign securities also are subject to
political, regulatory, and diplomatic risks. Foreign risk includes
currency risk, which may occur due to fluctuations in the exchange
rates between the U.S. dollar and foreign currencies. This risk could
negatively affect the value of a Fund's investments.
EQUITY FUNDS
INDEX FUND
INVESTMENT OBJECTIVE AND STRATEGIES. The Fund's investment objective is
to replicate the return of the S&P 500 Index. The Fund seeks 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.
RISK CONSIDERATIONS. The principal risk of investing in the Fund is
market risk
INCOME EQUITY FUND
INVESTMENT OBJECTIVE AND STRATEGIES. The Fund's investment objective is
to provide long-term capital appreciation consistent with above-average
dividend income. The Fund's primary strategy is to invest 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, the Fund uses various
valuation measures, including above-average dividend yields and below
industry average price-to-earnings, price-to-book, and price-to-sales
ratios. Large companies are those with market capitalizations greater
than the median of the Russell 1000 Index.
56
<PAGE>
The Fund also may invest in preferred stock, convertible securities,
and securities of foreign companies.
Risk Considerations. The principal risk of investing in the Fund is
market risk. To the extent the Fund invests in foreign securities, it
has foreign risk. This is the risk of investments in issuers located in
foreign countries, which may have greater price volatility and less
liquidity. Investments in foreign securities also are subject to
political, regulatory, and diplomatic risks. Foreign risk includes
currency risk, which may occur due to fluctuations in the exchange
rates between the U.S. dollar and foreign currencies. This risk could
negatively affect the value of a Fund's investments.
VALUGROWTH STOCK FUND
INVESTMENT OBJECTIVE AND STRATEGIES. The Fund's investment objective is
to provide long-term capital appreciation. The Fund's principal
strategy is to invest in large-capitalization companies that, in the
view of the Adviser, possess above average growth characteristics, and
appear to be undervalued. The Adviser considers large companies to be
those with market capitalizations within those of companies included in
the Russell 1000 Index.
In selecting investments, the Fund seeks to identify and invest in
those companies with earnings and dividends that will grow faster than
both inflation and the economy in general. The Fund invests in
companies with growth potential that has not yet been fully reflected
in the market price of the companies' shares. In seeking these
investments, the Fund relies primarily on a company-by-company analysis
(rather than on a broader analysis of industry or economic sector
trends. The Fund 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 Fund 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 are "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.
RISK CONSIDERATIONS. The principal risk of investing in the Fund is
market risk. To the extent that the Fund may invest in
medium-capitalization companies, it may have capitalization risk. These
investments tend to be more volatile than investments in large-cap
companies. There also is a risk of using a value strategy because the
stocks in which the Fund invests may remain undervalued during a given
period or decline in price. This may occur because larger stocks or
investments based on large-stock indices are more appealing to
investors or because value stocks as a category lose favor with
investors compared to growth stocks. To the extent that the Fund
invests in foreign securities, it has foreign risk. This is the risk of
investments in issuers located in foreign countries, which may have
greater price volatility and less liquidity. Investments in foreign
securities also are subject to political, regulatory, and diplomatic
risks. Foreign risk includes currency risk, which may occur due to
fluctuations in the exchange rates between the U.S. dollar and foreign
currencies. This risk could negatively affect the value of a Fund's
investments.
DIVERSIFIED EQUITY FUND
INVESTMENT OBJECTIVE AND STRATEGIES. 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. The Fund is a "gateway" fund that invests in other
"core" portfolios. The Fund uses a "multi-style" approach designed to
minimize the volatility and risk of investing in a single investment
style. The Fund's investments combine 5 different equity investment
styles, which include:
o INDEX STYLE - replicates securities in the S&P 500 Index;
o INCOME EQUITY STYLE - emphasizes investments in large,
high-quality domestic companies with above average dividend
income;
o LARGE COMPANY STYLE - emphasizes investments in large,
high-quality domestic companies with above-average growth
potential;
57
<PAGE>
o SMALL-CAP STYLE - emphasizes investments in small-cap companies
with the potential for growth; and
o INTERNATIONAL STYLE - emphasizes investments in high-quality
companies based outside the United States.
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> <C>
INVESTMENT STYLE TOTAL CURRENT PORTFOLIO RANGE OF
ALLOCATION 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 2.5% 1.0% - 4.0%
SMALL COMPANY GROWTH PORTFOLIO 2.5% 1.0% - 4.0%
SMALL COMPANY VALUE PORTFOLIO 2.5% 1.0% - 4.0%
SMALL CAP VALUE PORTFOLIO 2.5% 1.0% - 4.0%
INTERNATIONAL STYLE 15% 13.5% - 16.5%
INTERNATIONAL PORTFOLIO 11.6% 10.1% - 13.1%
INTERNATIONAL EQUITY PORTFOLIO 3.4% 1.9% - 4.9%
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.
RISK CONSIDERATIONS. The principal risk of investing in the Fund is
market risk. The Fund has allocation risk, which is the risk that the
allocation of investments may have a more significant effect on the
Fund's net asset value when one investment style is performing more
poorly than the others. To the extent that the Fund may invest in
small-capitalization companies, it may have capitalization risk. These
investments tend to be more volatile than investments in large-cap
companies. In addition, small-cap companies may have more risk because
they often have limited product lines, markets, or financial resources.
Also, the market for small-cap stocks may be less liquid. To the extent
that the Fund invests in foreign securities, it has foreign risk. This
is the risk of investments in issuers located in foreign countries,
which may have greater price volatility and less liquidity. Investments
in foreign securities also are subject to political, regulatory, and
diplomatic risks. Foreign risk includes currency risk, which may occur
due to fluctuations in the exchange rates between the U.S. dollar and
foreign currencies. This risk could negatively affect the value of a
Fund's investments.
GROWTH EQUITY FUND
INVESTMENT OBJECTIVE AND STRATEGIES. 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. The Fund is a "gateway" fund that
invests in other "core" portfolios. The Fund uses a "multi-style"
approach designed to reduce the volatility and risk of investing in a
single equity style. The Fund's investments combine 3 different equity
investment styles, which includes:
o LARGE COMPANY STYLE - emphasizes investments in large,
high-quality domestic companies with above-average growth
potential;
o SMALL-CAP STYLE - emphasizes investments in small-cap companies
with the potential for growth; and
o INTERNATIONAL STYLE - emphasizes investments in high-quality
companies based outside the United States.
58
<PAGE>
Because the Fund invests more of its assets in small companies and
foreign investments, 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> <C>
INVESTMENT STYLE TOTAL ALLOCATION CURRENT PORTFOLIO RANGE OF INVESTMENT
ALLOCATION
LARGE COMPANY GROWTH PORTFOLIO 35% 33% - 37%
DIVERSIFIED SMALL CAP STYLE 35% 33% - 37%
SMALL CAP INDEX PORTFOLIO 8.8% 6.8% - 10.8%
SMALL COMPANY GROWTH PORTFOLIO 8.8% 6.8% - 10.8%
SMALL COMPANY VALUE PORTFOLIO 8.8% 6.8% - 10.8%
SMALL CAP VALUE PORTFOLIO 8.8% 6.8% - 10.8%
INTERNATIONAL STYLE 30% 28% - 32%
INTERNATIONAL PORTFOLIO 23.3% 21.3% - 25.3%
INTERNATIONAL EQUITY PORTFOLIO 6.8% 4.8% - 8.8%
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.
RISK CONSIDERATIONS. The principal risk of investing in the Fund is
market risk. There also is a risk of using a growth strategy because
the stocks in which the Fund invests may not achieve the anticipated
growth during a given period or decline in price. This may occur growth
stocks as a category lose favor with investors compared to value
stocks. The Fund also has allocation risk, which is the risk that the
allocation of investments may have a more significant effect on the
Fund's net asset value when one investment style is performing more
poorly than the others. To the extent that the Fund may invest in
small-capitalization companies, it may have capitalization risk. These
investments tend to be more volatile than investments in large-cap
companies. In addition, small-cap companies may have more risk because
they often have limited product lines, markets, or financial resources.
Also, the market for small-cap stocks may be less liquid. The Fund's
investments in foreign securities have foreign risk. This is the risk
of investments in issuers located in foreign countries, which may have
greater price volatility and less liquidity. Investments in foreign
securities also are subject to political, regulatory, and diplomatic
risks. Foreign risk includes currency risk, which may occur due to
fluctuations in the exchange rates between the U.S. dollar and foreign
currencies. This risk could negatively affect the value of a Fund's
investments.
LARGE COMPANY GROWTH FUND
INVESTMENT OBJECTIVE AND STRATEGIES. The Fund's investment objective is
to provide long-term capital appreciation by investing primarily in
large, high-quality domestic companies that have superior growth
potential. For the purposes of its investments, large companies are
those with market capitalization greater than the median of the Russell
1000 Index. In selecting securities, the Fund 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 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.
RISK CONSIDERATIONS. The principal risk of investing in the Fund is
market risk. The Fund's investments in foreign securities have foreign
risk. This is the risk of investments in issuers located in foreign
countries, which may have greater price volatility and less liquidity.
Investments in foreign securities also are subject to political,
regulatory, and diplomatic risks. Foreign risk includes currency risk,
which may occur due to fluctuations in the exchange rates between the
U.S. dollar and foreign currencies. This risk could negatively affect
the value of a Fund's investments.
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DIVERSIFIED SMALL CAP FUND
INVESTMENT OBJECTIVE AND STRATEGIES. The Fund's investment objective is
to provide long-term capital appreciation with moderate annual return
volatility by diversifying its investments across different small- cap
equity investment styles. The Fund is a "gateway" fund that invests in
other "core" portfolios. The Fund uses a "multi-style" approach
designed to minimize the volatility and risk of investing in small-cap
equity securities. The Fund invests in several different small-cap
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 4 Portfolios.
ALLOCATION. The current allocations and ranges of investments by the
Fund in each Portfolio are:
<TABLE>
<S> <C> <C>
INVESTMENT STYLE CURRENT PORTFOLIO RANGE OF
ALLOCATION INVESTMENT
SMALL CAP INDEX PORTFOLIO 25% 23.5% - 26.5%
SMALL COMPANY GROWTH PORTFOLIO 25% 23.5% - 26.5%
SMALL COMPANY VALUE PORTFOLIO 25% 23.5% - 26.5%
SMALL CAP VALUE PORTFOLIO 25% 23.5% - 26.5%
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.
RISK CONSIDERATIONS. The principal risk of investing in the Fund is
market risk. Because the Fund invests in small-capitalization
companies, it also has capitalization risk. These investments tend to
be more volatile than investments in large-cap companies. In addition,
small-cap companies may have more risk because they often have limited
product lines, markets, or financial resources. Also, the market for
small-cap stocks may be less liquid. The Fund also has allocation risk,
which is the risk that the allocation of investments may have a more
significant effect on the Fund's net asset value when one investment
style is performing more poorly than the others.
SMALL COMPANY STOCK FUND
INVESTMENT OBJECTIVE AND STRATEGIES. The Fund's investment objective is
long-term capital appreciation. The Fund invests at least 65% of its
assets in the common stock of small domestic companies. For the
purposes of the Fund's investments, small companies are those with
market capitalizations of less than that of the largest stock in the
Russell 2000 Index. The Fund also may invest up to 35% of its assets in
companies with market capitalizations below that of the average company
in the S&P 500 Index and up to 20% of its assets in foreign securities.
In selecting securities, the Fund 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 may result in an
enhanced entrepreneurial spirit and greater focus. The Fund 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.
RISK CONSIDERATIONS. The principal risk of investing in the Fund is
market risk. The Fund investments in small- and medium-capitalization
companies have capitalization risk. These investments tend to be more
volatile than investments in large-cap companies. In addition,
small-cap companies may have more risk because they often have limited
product lines, markets, or financial resources. The market for
small-cap stocks may be less liquid. The Fund's investments in foreign
securities have foreign risk. This is the risk of investments in
issuers located in foreign countries, which may have greater price
volatility and less liquidity. Investments in foreign securities also
are subject to political, regulatory, and diplomatic risks. Foreign
risk includes currency risk, which may occur due to fluctuations in the
exchange rates between the U.S. dollar and foreign currencies. This
risk could negatively affect the value of a Fund's investments.
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SMALL CAP OPPORTUNITIES FUND
INVESTMENT OBJECTIVE AND STRATEGIES. The Fund's investment objective is
to provide capital appreciation. Current income will be incidental to
the objective of capital appreciation. The Fund invests at least 65% of
its assets in equity securities of U.S. companies that, at the time of
purchase, have market capitalizations of $1.5 billion or less.
In selecting investments, the Fund attempts to identify securities of
companies that can generate above-average earnings growth and sell at
favorable prices in relation to book values and earnings. An 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.
RISK CONSIDERATIONS. The principal risk of investing in the Fund is
market risk. The Fund investments in small-capitalization companies
have capitalization risk. These investments tend to be more volatile
than investments in large-cap companies. In addition, small-cap
companies may have more risk because they often have limited product
lines, markets, or financial resources. The market for small-cap stocks
may be less liquid. To the extent that the Fund invests in foreign
securities, it has foreign risk. This is the risk of investments in
issuers located in foreign countries, which may have greater price
volatility and less liquidity. Investments in foreign securities also
are subject to political, regulatory, and diplomatic risks. Foreign
risk includes currency risk, which may occur due to fluctuations in the
exchange rates between the U.S. dollar and foreign currencies. This
risk could negatively affect the value of a Fund's investments.
SMALL COMPANY GROWTH FUND
INVESTMENT OBJECTIVE AND STRATEGIES. The Fund's investment objective is
to provide long-term capital appreciation by investing in smaller
domestic companies. The Fund invests at least 65% of its assets in the
common stock of small domestic companies that are either growing
rapidly or completing a period of significant change. Small companies
are those with capitalizations of less than the largest stock in the
Russell 2000 Index.
In selecting investments, the Fund 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.
While not a principal strategy, the Fund may invest up to 10% of its
total assets in securities of foreign companies.
RISK CONSIDERATIONS. The principal risk of investing in the Fund is
market risk. The Fund investments in small-capitalization companies
have capitalization risk. These investments tend to be more volatile
than investments in large-cap companies. In addition, small-cap
companies may have more risk because they often have limited product
lines, markets, or financial resources. Also, the market for small-cap
stocks may be less liquid. To the extent that the Fund invests in
foreign securities, it may have foreign risk. This is the risk of
investments in issuers located in foreign countries, which may have
greater price volatility and less liquidity. Investments in foreign
securities also are subject to political, regulatory, and diplomatic
risks. Foreign risk includes currency risk, which may occur due to
fluctuations in the exchange rates between the U.S. dollar and foreign
currencies. This risk could negatively affect the value of a Fund's
investments.
INTERNATIONAL FUND
INVESTMENT OBJECTIVE AND STRATEGIES. 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.
The Fund is a "gateway" fun that invests in a "core" portfolio. The
Fund invests substantially all of its assets (at least 65%) in equity
securities of high quality foreign companies. The Fund selects
investments on the basis of their potential for capital appreciation
without regard to current income. In general, the Fund invests only in
securities of companies and governments that the Adviser considers to
be both politically and economically stable.
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<PAGE>
RISK CONSIDERATIONS. The risks of investing in the Fund include market
risk and foreign risk. Foreign risk is the risk of investments in
issuers located in foreign countries, which may have greater price
volatility and less liquidity. Investments in foreign securities also
are subject to political, regulatory, and diplomatic risks. Foreign
risk includes currency risk, which may occur due to fluctuations in the
exchange rates between the U.S. dollar and foreign currencies.
This risk could negatively affect the value of a Fund's investments.
DESCRIPTIONS OF CORE PORTFOLIOS
The following is a discussion of the investment objectives and strategies of the
core portfolios, or Portfolios, in which some of the Funds that are gateway
funds invest. Risk considerations for the Portfolios are included, as relevant,
with the description of the gateway fund above.
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
portfolio maturity 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.
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.
Duration is a measure of a debt security's average life that reflects
the present value of the security's cash flow and is an indication of
the security's sensitivity to changes in interest rates. 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 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.
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<PAGE>
While not a principal strategy, 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 subdivisions, agencies,
or instrumentalities; loan or security participations; securities of
supranational organizations; and municipal securities.
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 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.
SMALL CAP INDEX PORTFOLIO
The Portfolio seeks to replicate the return of the S&P 600 Small Cap
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.
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.
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<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.
INTERNATIONAL PORTFOLIO
The International Fund section of this Prospectus describes this
Portfolio.
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.
INTERNATIONAL EQUITY PORTFOLIO
The Portfolio seeks long-term total return, with an emphasis on capital
appreciation, by investing primarily in equity securities of foreign
companies. The Portfolio invests at least 80% of its assets in a
diversified portfolio of common stock of companies located or operating
in developed and emerging markets. It is expected that the securities
held by the Portfolio will be traded on a stock exchange or other
market in the country in which the issuer is based, but they also may
be traded in other countries, including the United States. The
Portfolio must invest its assets in the securities of at least five
different countries other than the United States. The Portfolio may
also invest in American Depositary Receipts, European Depositary
Receipts, or other similar instruments convertible into securities of
foreign issuers.
The Adviser uses a fundamentals-driven, value-oriented analysis to
identify companies with above-average potential for long-term growth.
The Adviser considers a company's historical performance and its
projected future earnings. The Adviser also considers other key
criteria such as a company's local, regional or global franchise;
history of effective management demonstrated by expanding revenues and
earnings growth; prudent financial and accounting policies and ability
to take advantage of a changing business environment. In allocating
among countries, regions and industry sectors, the Adviser considers
economic growth prospects, monetary and fiscal policies, political
stability, currency trends, market liquidity and investor sentiment.
OTHER CONSIDERATIONS
DERIVATIVES
The Funds may use certain derivative instruments, such as options, swap
agreements, interest rate caps, collars, and floors, and futures
contracts to manage risk. Derivatives are financial contracts whose
value depends on, or is derived from, the value of an underlying
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assets, reference rate, or index. In addition to other risks,
derivatives involve the risk of difficulties in pricing and valuation
and the risk that changes in the value of a derivative may not
correlate perfectly with relevant assets, rates, or indices.
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 achieve 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 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 each Fund's
portfolio turnover rate.
YEAR 2000
Certain computer systems may not process date-related information
properly on and after January 1. 2000. The Funds' Advisers are
addressing this matter for their systems. The Funds' other service
providers have informed the Fund that they are taking similar measures.
Investments in foreign companies are particularly vulnerable to Year
2000 risk because these companies may not have the financial resources,
technology, or personnel needed to address Year 2000 readiness
concerns. This matter, if not corrected, could adversely affect the
services provided to the Fund or the issues in which the Fund invests
and could therefore lower the value of your Fund shares.
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MANAGEMENT OF THE FUNDS
INVESTMENT ADVISORY SERVICES
NORWEST INVESTMENT MANAGEMENT, INC. or NIM, which is now a wholly-owned
subsidiary of Wells Fargo & Company, Norwest Center, Sixth Street and
Marquette, Minneapolis, MN 55479, is the investment adviser for each
Fund and each Portfolio except the Portfolios advised by Schroder and
Wells Fargo Bank. In this capacity, NIM makes investment decisions for
and administers the Funds' and Portfolios' investment programs. As of
June 30, 1999, NIM provided advisory services for over $24 billion in
assets.
SCHRODER INVESTMENT MANAGEMENT NORTH AMERICA INC., 787 Seventh Avenue,
34th Floor, New York, NY 10019, is the investment adviser for
International Portfolio. In this capacity, Schroder makes investment
decisions for and administers the Portfolio's investment programs. As
of June 30, 1999, Schroder provided advisory services for over $36.5
billion in assets.
Schroder is also the investment sub-adviser for Small Cap Opportunities
Fund. In this capacity, Schroder makes investment decisions for and
administers the Fund's investment program
WELLS FARGO BANK, or WFB, 525 Market Street, San Francisco, CA 94105,
is the investment adviser for International Equity Portfolio. In this
capacity, WFB makes investment decisions for and administers the
Portfolio's investment program. As of June 30, 1999, WFB provided
advisory services for over $131 billion in assets.
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:
GALLIARD CAPITAL MANAGEMENT, Inc. or Galliard, 800 LaSalle Ave., Suite
2060, Minneapolis, MN 55479, is an investment advisory subsidiary of
Norwest Bank and provides investment advisory services to bank and
thrift institutions, pension and profit sharing plans, trusts and
charitable organizations, and corporate and other business entities. As
of June 30, 1999, Galliard provided advisory services for over $5.4
billion in assets.
PEREGRINE CAPITAL MANAGEMENT, Inc. or Peregrine, LaSalle Plaza, 800
LaSalle Avenue, Suite 1850, Minneapolis, MN 55402, is an investment
advisory subsidiary of Norwest Bank and provides investment advisory
services to corporate and public pension plans, profit sharing plans,
savings-investment plans, and 401(k) plans. As of June 30, 1999,
Peregrine provided advisory services for over $6.9 billion in assets.
SMITH ASSET MANAGEMENT GROUP, L.P. or Smith, 300 Crescent Court, Suite
750, Dallas, TX 75201, is an investment advisory affiliate of Norwest
Bank and provides investment management services to company retirement
plans, foundations, endowments, trust companies, and high net worth
individuals using a disciplined equity style. As of June 30, 1999,
Smith provided advisory services for over $895.46 million in assets.
WELLS CAPITAL MANAGEMENT INCORPORATED, or WCM, 525 Market Street, 10th
Floor, San Francisco, CA 94105, is a wholly-owned subsidiary of WFB and
is the investment Subadviser for International Equity Portfolio. WCM
provides investment advisory services to various bank and thrift
institutions, investment companies, pension and profit sharing plans,
trusts, estates, corporations and other business entities. As of June
30, 1999, WCM provided advisory services for over $42.6 billion in
assets.
How investment advisory fees are paid depends on whether or not a Fund
invests in Portfolios.
o If a Fund invests directly in a portfolio of securities, Norwest
receives an investment advisory fee directly from the Fund.
o If a Fund invests in a single Portfolio, Norwest or Schroder
receives an investment advisory fee from the Portfolio.
o If a Fund invests in more than one Portfolio, Norwest, Schroder,
or WFB 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"
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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 one 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.
For these advisory
services for the
fiscal year ending May
31, 1999, the Funds
paid:
FUND FEE AS A PERCENTAGE
OF AVERAGE
DAILY NET ASSETS
CASH INVESTMENT FUND 0.23%
READY CASH INVESTMENT FUND 0.33%
U.S. GOVERNMENT FUND 0.13%
TREASURY PLUS FUND 0.20%
TREASURY FUND 0.14%
MUNICIPAL MONEY MARKET FUND 0.33%
STABLE INCOME FUND 0.30%
LIMITED TERM GOVERNMENT INCOME FUND 0.33%
INTERMEDIATE GOVERNMENT INCOME FUND 0.33%
DIVERSIFIED BOND FUND 0.55%
INCOME FUND 0.50%
TOTAL RETURN BOND FUND 0.50%
STRATEGIC INCOME FUND 0.62%
LIMITED TERM TAX-FREE FUND 0.50%
TAX-FREE INCOME FUND 0.50%
COLORADO TAX-FREE FUND 0.50%
MINNESOTA INTERMEDIATE TAX-FREE FUND 0.25%
MINNESOTA TAX-FREE FUND 0.50%
MODERATE BALANCED FUND 0.66%
GROWTH BALANCED FUND 0.70%
AGGRESSIVE BALANCED-EQUITY FUND 0.72%
INDEX FUND 0.15%
INCOME EQUITY FUND 0.50%
VALUGROWTH STOCK FUND 0.79%
DIVERSIFIED EQUITY FUND 0.74%
GROWTH EQUITY FUND 0.90%
LARGE COMPANY GROWTH FUND 0.65%
DIVERSIFIED SMALL CAP FUND 0.99%
SMALL COMPANY STOCK FUND 0.90%
SMALL CAP OPPORTUNITIES FUND 0.60%
SMALL COMPANY GROWTH FUND 0.90%
INTERNATIONAL FUND 0.70%
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. Descriptions of the portfolio
managers' recent experience follow the list of portfolio managers.
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<TABLE>
<S> <C>
MONEY MARKET FUNDS
Cash Investment Fund
Portfolio: Prime Money Market Portfolio
Portfolio Managers: David D. Sylvester (1987), Laurie R. White (1991), and Robert G. Leuty
(1998)
Portfolio: Money Market Portfolio
Portfolio Managers: David D. Sylvester (1987), Laurie R. White (1991), and Robert G. Leuty
(1998)
Ready Cash Investment Fund
Portfolio: Prime Money Market Portfolio
Portfolio Managers: David D. Sylvester (1988), Laurie R. White (1991), and Robert G. Leuty
(1998)
U.S. Government Fund
Treasury Fund
Treasury Plus Fund
Portfolio Managers: David D. Sylvester (1987, 1990, 1998), Laurie R. White (1991, 1998), and
Robert G. Leuty (1998)
Municipal Money Market Fund
Portfolio Managers: David D. Sylvester (1995), Laurie R. White (1998), and Robert G. Leuty
(1998)
FIXED INCOME FUNDS
Stable Income Fund
Portfolio: Stable Income Portfolio
Subadviser: Galliard
Portfolio Managers: John Huber (1998)
Limited Term Government Income Fund
Intermediate Government Income Fund
Portfolio Manager: Marjorie H. Grace, CFA (1997, 1995)
Diversified Bond Fund
Portfolio: Positive Return Bond Portfolio
Subadviser: Peregrine
Portfolio Managers: William D. Giese, CFA (1994) and Patricia Burns, CFA (1998)
Portfolio: Strategic Value Bond Portfolio
Subadviser: Galliard
Portfolio Managers: Richard Merriam, CFA (1997), John Huber (1998), and David Yim (1998)
Portfolio: Managed Fixed Income Portfolio
Subadviser: Galliard
Portfolio Managers: Richard Merriam, CFA (1995) and Ajay Mirza (1998)
Income Fund
Portfolio Manager: Marjorie H. Grace, CFA (1996)
Total Return Bond Fund
Portfolio: Strategic Value Bond Portfolio
Subadviser: Galliard
Portfolio Managers: Richard Merriam, CFA (1998), John Huber (1998), and David Yim (1998)
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Strategic Income Fund
Portfolio: Positive Return Bond Portfolio
Subadviser: Peregrine
Portfolio Managers: William D. Giese (1994), CFA and Patricia Burns (1998)
Portfolio: Strategic Value Bond Portfolio
Subadviser: Galliard
Portfolio Managers: Richard Merriam, CFA (1997), John Huber (1998), and David Yim (1998)
Portfolio: Managed Fixed Income Portfolio
Subadviser: Galliard
Portfolio Managers: Richard Merriam, CFA (1995) and Ajay Mirza (1998)
Portfolio: Stable Income Portfolio
Subadviser: Galliard
Portfolio Manager: John Huber (1998)
Portfolio: Money Market Portfolio
Portfolio Managers: David D. Sylvester (1991), Laurie R. White (1991), and Robert G. Leuty
(1998)
Portfolio: Index Portfolio
Portfolio Managers: David D. Sylvester (1996) and Laurie R. White (1996)
Portfolio: Income Equity Portfolio
Portfolio Manager: David L. Roberts, CFA (1994) and Gary J. Dunn (1994)
Portfolio: Large Company Growth Portfolio
Subadviser: Peregrine
Portfolio Managers: John S. Dale, CFA (1994) and Gary E. Nussbaum, CFA (1998)
Portfolios: Disciplined Growth Portfolio and Small Cap Value Portfolio
Subadviser: Smith
Portfolio Manager: Stephen S. Smith, CFA (1997)
Portfolio: Small Cap Index Portfolio
Portfolio Managers: David D. Sylvester (1998) and Laurie R. White (1998)
Portfolio: Small Company Growth Portfolio
Subadviser: Peregrine
Portfolio Managers: Robert B. Mersky, CFA (1994), and Paul E. von Kuster, CFA (1998)
Portfolio: Small Company Value Portfolio
Subadviser: Peregrine
Portfolio Managers: Tasso H. Coin, Jr. (1995) and Douglas G. Pugh, CFA (1997)
Portfolio: International Portfolio
Adviser: Schroder
Portfolio Manager: Michael Perelstein (1997)
Portfolio: International Equity Portfolio
Subadviser: WCM
Portfolio Managers: Katherine Schapiro, CFA (1999) and Stacey Ho, CFA (1999)
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TAX-FREE FIXED INCOME FUNDS
Limited Term Tax-Free Fund
Tax-Free Income Fund
Portfolio Manager: William T. Jackson, CFA (1996, 1993)
Colorado Tax-Free Fund
Portfolio Manager: William T. Jackson, CFA (1993)
Minnesota Intermediate Tax-Free Fund
Minnesota Tax-Free Fund
Portfolio Manager: Patricia D. Hovanetz, CFA (1997, 1991)
BALANCED FUNDS
Moderate Balanced Fund
Growth Balanced Fund
Aggressive Balanced-Equity Fund
Portfolio: Positive Return Bond Portfolio
Subadviser: Peregrine
Portfolio Managers: William D. Giese, CFA (1994) and Patricia Burns (1998)
Portfolio: Strategic Value Bond Portfolio
Subadviser: Galliard
Portfolio Managers: Richard Merriam, CFA (1997), John Huber (1998), and David Yim (1998)
Portfolio: Managed Fixed Income Portfolio
Subadviser: Galliard
Portfolio Managers: Richard Merriam, CFA (1995) and Ajay Mirza (1998)
Portfolio: Stable Income Portfolio (Moderate Balanced Fund only)
Subadviser: Galliard.
Portfolio Manager: John Huber (1998)
Portfolio: Index Portfolio
Portfolio Managers: David D. Sylvester (1996) and Laurie R. White (1996)
Portfolio: Income Equity Portfolio
Portfolio Manager: David L. Roberts, CFA (1994) and Gary J. Dunn (1994)
Portfolio: Large Company Growth Portfolio
Subadviser: Peregrine
Portfolio Managers: John S. Dale, CFA (1994) and Gary E. Nussbaum, CFA (1998)
Portfolios: Disciplined Growth Portfolio and Small Cap Value Portfolio
Subadviser: Smith
Portfolio Manager: Stephen S. Smith, CFA (1997)
Portfolio: Small Cap Index Portfolio
Portfolio Managers: David D. Sylvester (1998) and Laurie R. White (1998)
Portfolio: Small Company Growth Portfolio
Subadviser: Peregrine
Portfolio Managers: Robert B. Mersky, CFA (1994) and Paul E. von Kuster, CFA (1998)
Portfolio: Small Company Value Portfolio
Subadviser: Peregrine
Portfolio Managers: Tasso H. Coin (1995), Jr. and Douglas G. Pugh (1997)
Portfolio: International Portfolio
Adviser: Schroder
Portfolio Manager: Michael Perelstein (1997)
Portfolio: International Equity Portfolio
Subadviser: WCM
Portfolio Managers: Katherine Schapiro, CFA (1999) and Stacey Ho, CFA (1999)
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EQUITY FUNDS
Index Fund
Portfolio: Index Portfolio
Portfolio Managers: David D. Sylvester (1996) and Laurie R. White (1996)
Income Equity Fund
Portfolio: Income Equity Portfolio
Portfolio Manager: David L. Roberts, CFA (1994) and Gary J. Dunn (1994)
ValuGrowth Stock Fund
Portfolio Manager: Kelli K. Hill (1999)
Diversified Equity Fund
Growth Equity Fund
Portfolio: Index Portfolio (Diversified Equity Fund only)
Portfolio Managers: David D. Sylvester (1996) and Laurie R. White (1996)
Portfolio: Income Equity Portfolio (Diversified Equity Fund only)
Portfolio Manager: David L. Roberts, CFA (1994) and Gary J. Dunn (1994)
Portfolio: Large Company Growth Portfolio
Subadviser: Peregrine
Portfolio Managers: John S. Dale, CFA (1994) and Gary E. Nussbaum, CFA (1998)
Portfolios: Disciplined Growth Portfolio (Diversified Equity Fund only) and Small
Cap Value Portfolio
Subadviser: Smith
Portfolio Manager: Stephen S. Smith (1997)
Portfolio: Small Cap Index Portfolio
Portfolio Managers: David D. Sylvester (1998) and Laurie R. White (1998)
Portfolio: Small Company Growth Portfolio
Subadviser: Peregrine
Portfolio Managers: Robert B. Mersky, CFA (1994) and Paul E. von Kuster, CFA (1998)
Portfolio: Small Company Value Portfolio
Subadviser: Peregrine
Portfolio Managers: Tasso H. Coin, Jr. (1995) and Douglas G. Pugh (1997)
Portfolio: International Portfolio
Adviser: Schroder
Portfolio Manager: Michael Perelstein (1997)
Portfolio: International Equity Portfolio
Subadviser: WCM
Portfolio Managers: Katherine Schapiro, CFA (1999) and Stacey Ho, CFA (1999)
Large Company Growth Fund
Portfolio: Large Company Growth Portfolio
Subadviser: Peregrine
Portfolio Managers: John S. Dale, CFA (1994) and Gary E. Nussbaum, CFA (1998)
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Diversified Small Cap Fund
Portfolio: Small Cap Index Portfolio
Portfolio Managers: David D. Sylvester (1998) and Laurie R. White (1998)
Portfolio: Small Company Growth Portfolio
Subadviser: Peregrine
Portfolio Managers: Robert B. Mersky, CFA (1994) and Paul von Kuster, CFA (1998)
Portfolio: Small Company Value Portfolio
Subadviser: Peregrine
Portfolio Managers: Tasso H. Coin, Jr. (1995) and Douglas G. Pugh (1997)
Portfolios: Small Cap Value Portfolio
Subadviser: Smith
Portfolio Manager: Stephen S. Smith, CFA (1997)
Small Company Stock Fund
Portfolio Manager: Thomas Zeifang (1999)
Small Cap Opportunities Fund
Portfolio Manager: Ira L. Unschuld (1998)
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)
International Fund
Portfolio: International Portfolio
Adviser: Schroder
Portfolio Manager: Michael Perelstein (1997)
</TABLE>
PORTFOLIO MANAGERS
Norwest Portfolio Managers:
PATRICIA BURNS, associated with Norwest or 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.
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.
MARJORIE H. GRACE, associated with Norwest or its affiliates since 1992. Ms.
Grace is a Director, Taxable Fixed Income of Norwest.
KELLI K. HILL, associated with Norwest since 1999. Ms. Hill is also a portfolio
manager at WCM, with whom she has been associated since 1989. Ms. Hill is also
the Treasurer for the San Francisco Ballet Association Encore!, and a board
member for Las Casa de les Madres, the largest women's shelter in the San
Francisco area.
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.
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 1991.
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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.
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 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 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.
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.
THOMAS ZEIFANG, associated with Norwest or its affiliates since 1999. Mr.
Zeifang also is a portfolio manager at WCM, with whom he has been associated
since 1995. Prior to 1995, he served as an analyst at Fleet Investment Advisors.
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.
Troiano has been Chief Executive Officer of Schroder since April 1, 1997 and a
Managing Director of Schroder since October 1995.
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<PAGE>
Wells Fargo Portfolio Managers:
STACEY HO, CFA, associated with WCM since 1997. Ms. Ho is co-manager for the
international equity portfolios and funds. Prior thereto, she was a senior
portfolio manager at Clemente Capital Management and prior thereto, managed
Japanese and U.S. equity portfolios at Edison International.
KATHERINE SCHAPIRO, CFA, associated with WFB since 1992. Prior to her
association with WFB, she was a vice president and fund manager for Newport
Pacific Management, an international investment advisory firm based in San
Francisco. Ms. Schapiro is President of the Security Analysts of San Francisco.
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.
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HOW TO BUY AND SELL SHARES
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.
o All Money Market Funds, except Ready Cash Investment Fund, offer
Institutional Shares. Institutional Shares are designed for
institutional investors.
o Ready Cash Investment Fund and Municipal Money Market Fund offer
Investor Shares. Investor Shares are designed for retail
investors.
o 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.
DETERMINATION OF NET ASSET VALUE
Each Fund determines its net asset value or NAV on each Fund business
day, which is any day that the New York Stock Exchange is open, 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
U.S. Government Fund 2:00 p.m. Eastern Time
Cash Investment Fund and 3:00 p.m., Eastern Time
Ready Cash Investment 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.
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.
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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.
You may purchase or redeem shares at a price equal to their NAV next
determined after receipt of your purchase order, or redemption request
in proper form on fund business day.
GENERAL PURCHASE INFORMATION
You may purchase shares directly or through a financial institution.
The Funds' transfer agent processes all transactions in Fund shares.
Not all Funds offered in this Prospectus are available for purchase in
all states. Please contact the Funds or your financial representative
for information about whether a Fund is available in your state.
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
Order must be Payment 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.
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PURCHASE PROCEDURES
DIRECT PURCHASES
You may obtain an account application by writing Norwest Advantage
Funds at the following address:
BY REGULAR MAIL: NORWEST ADVANTAGE FUNDS
[NAME OF FUND]
P.O. Box 8265
Boston, MA 02266-8265
BY OVERNIGHT MAIL ONLY TO: NORWEST ADVANTAGE FUNDS
[NAME OF FUND]
Attn: CCSU
Boston Financial
66 Brooks Drive
Braintree, MA 02184
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:
STATE STREET BANK & TRUST
BOSTON, MA
ABA 011000028
FNF: (NORWEST ADVANTAGE FUND NAME)
AC: 9905-434-8
FOR FURTHER CREDIT: ___________________
(NAME ON NORWEST FUND ACCOUNT AND FUND ACCOUNT NUMBER
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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 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 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
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<PAGE>
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
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 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.
79
<PAGE>
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.
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.
o 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.
o Under the Cash Option, you are paid all distributions in
cash.
o 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.
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. 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.
80
<PAGE>
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 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.
81
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand each Fund's
financial performance. Total return in the table represents the rate that an
investor would have earned (or lost) on an investment in a Fund (assuming
reinvestment of all distributions). The information has been audited by KPMG
LLP, independent auditors. Each Fund's financial statements and the auditor's
reports, are included in the Fund's Annual Report, which is available upon
request, at no charge. These financial statements are incorporated by reference
into the SAI.
THE MONEY MARKET FUNDS
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Net Realized
and Distributions Capital Ending
Beginning Net Net Unrealized from Net Contribution Net Asset
MONEY MARKET FUNDS - I SHARES Asset Value Investment Gain (Loss) Investment From Value Per
Per Share Income on Investments Income Adviser Share
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Investment Fund
Year Ended May 31, 1999 $1.00 $0.049 -- ($0.049) -- $1.00
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
Ready Cash Investment Fund- Investor Shares
Year Ended May 31, 1999 $1.00 $0.046 -- ($0.046) -- $1.00
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
U.S. Government Fund
Year Ended May 31, 1999 $1.00 $0.047 -- ($0.047) -- $1.00
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
Treasury Plus Fund
July 6, 1998(e) to May 31, 1999 $1.00 $0.033 -- ($0.033) -- $1.00
Ratio to Average
Net Assets
--------------------------------------
Net Net Assets at
MONEY MARKET FUNDS - I SHARES Investment Net Gross Total End of Period
Income Expenses Expenses(a) Return(b) (000's Omitted)
- --------------------------------------------- ------------------------------------------------------------------
Cash Investment Fund
Year Ended May 31, 1999 4.91%(d) 0.48%(d) 0.57%(d) 5.04% $5,481,802
Year Ended May 31, 1998 5.29%(d) 0.48%(d) 0.57% (d) 5.42% $4,685,818
Year Ended May 31, 1997 5.07% 0.48% 0.49% 5.21% $2,147,894
Year Ended May 31, 1996 5.36% 0.48% 0.49% 5.50% $1,739,549
Year Ended May 31, 1995 4.87% 0.48% 0.50% 4.96% $1,464,304
Ready Cash Investment Fund- Investor Shares
Year Ended May 31, 1999 4.56%(d) 0.82%(d) 0.82%(d) 4.68% $953,175
Year Ended May 31, 1998 4.95%(d) 0.82%(d) 0.82%(d) 5.07% $789,380
Year Ended May 31, 1997 4.75% 0.82% 0.83% 4.87% $576,011
Year Ended May 31, 1996 5.02% 0.82% 0.87% 5.17% $473,879
Year Ended May 31, 1995 4.64% 0.82% 0.91% 4.62% $268,603
U.S. Government Fund
Year Ended May 31, 1999 4.69% 0.50% 0.52% 4.81% $3,368,534
Year Ended May 31, 1998 5.08% 0.50% 0.51% 5.20% $2,260,208
Year Ended May 31, 1997 4.91% 0.49% 0.49% 5.04% $1,912,574
Year Ended May 31, 1996 5.13% 0.50% 0.51% 5.27% $1,649,721
Year Ended May 31, 1995 4.68% 0.50% 0.52% 4.81% $1,159,421
Treasury Plus Fund
July 6, 1998(e) to May 31, 1999 4.25%(c) 0.50%(c) 0.84%(c) 3.30% $92,139
</TABLE>
82
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Net Realized
and Distributions Capital Ending
Beginning Net Net Unrealized from Net Contribution Net Asset
MONEY MARKET FUNDS - I SHARES Asset Value Investment Gain (Loss) Investment From Value Per
Per Share Income on Investments Income Adviser Share
- ------------------------------------------------------------------------------------------------------------------------------------
Treasury Fund
Year Ended May 31, 1999 $1.00 $0.044 -- ($0.044) -- $1.00
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
Municipal Money Market Fund
Investor Shares
Year Ended May 31, 1999 $1.00 $0.027 -- ($0.027) -- $1.00
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
Municipal Money Market Fund
Institutional Shares
Year Ended May 31, 1998 $1.00 $0.029 -- ($0.029) -- $1.00
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
- ----------------------------------------------------------------------------------------------
Ratio to Average
Net Assets
--------------------------------------
Net Net Assets at
MONEY MARKET FUNDS - I SHARES Investment Net Gross Total End of Period
Income Expenses Expenses(a) Return(b) (000's Omitted)
- ----------------------------- ------------------------------------------------------------------
Treasury Fund
Year Ended May 31, 1999 4.34% 0.46% 0.53% 4.49% $1,548,549
Year Ended May 31, 1998 4.89% 0.46% 0.54% 5.00% $1,440,515
Year Ended May 31, 1997 4.74% 0.46% 0.53% 4.87% $1,003,697
Year Ended May 31, 1996 4.91% 0.46% 0.56% 5.04% $802,270
Year Ended May 31, 1995 4.62% 0.46% 0.57% 4.65% $661,098
Municipal Money Market Fund
Investor Shares
Year Ended May 31, 1999 2.72% 0.65% 0.86% 2.76% $41,174
Year Ended May 31, 1998 3.13% 0.65% 0.83% 3.18% $44,070
Year Ended May 31, 1997 3.01% 0.65% 0.87% 3.08% $54,616
Year Ended May 31, 1996 3.25% 0.65% 0.88% 3.31% $57,021
Year Ended May 31, 1995 3.10% 0.65% 0.93% 3.13%(f) $47,424
Municipal Money Market Fund
Institutional Shares
Year Ended May 31, 1998 2.91% 0.45% 0.57% 2.97% $1,019,589
Year Ended May 31, 1998 3.32% 0.45% 0.59% 3.39% $977,693
Year Ended May 31, 1997 3.21% 0.45% 0.70% 3.28% $635,655
Year Ended May 31, 1996 3.41% 0.45% 0.72% 3.52% $592,436
Year Ended May 31, 1995 3.37% 0.45% 0.74% 3.33%(f) $278,953
- -----------------------------
</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) Annualized.
(d) Includes expenses allocated from the Portfolio(s) in which the Fund
invests.
(e) Commencement of operations; Municipal Money Market Fund's initial class
became Investor Shares.
(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.
83
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Net Realized
and DistributionDistributions Ending
Beginning Net Unrealized from Net from Net Net Asset
Net
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, 1999 $10.30 $0.52 ($0.02) ($0.53) -- $10.27
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
Year Ended May 31, 1999 $9.88 $0.58 ($0.12) ($0.58) (0.05) $9.71
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, 1999 $11.22 $0.66 ($0.18) ($0.65) -- $11.05
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, 1999 $27.03 $1.34 ($0.17) ($1.43) ($0.66) $26.11
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, 1999 $9.78 $0.59 ($0.31) ($0.59) -- $9.47
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
Ratio to Average
Net Assets
---------------------------------------
Net Portfolio Net Assets at
FIXED INCOME FUNDS - I SHARES Investment Net Gross Total Turnover End of Period
Income (Loss) Expenses Expenses(a) Return(b) Rate (000's Omitted)
- ----------------------------------------------------------------------------------------------------------------------------------
Stable Income Fund
Year Ended May 31, 1999 5.10%(c) 0.65%(c) 0.76%(c) 4.95% 29.46%(d) $179,201
Year Ended May 31, 1998 5.69%(c) 0.65%(c) 0.76%(c) 6.28% 37.45%(d) $144,215
Year Ended May 31, 1997 5.73% 0.65% 0.79% 6.24% 41.30% $111,030
November 1, 1995 to May 31, 1996 5.74%(f) 0.65%(f) 0.92%(f) 2.97% 109.95% $83,404
November 11, 1994(e) to October 31, 1995 5.91%(f) 0.65%(f) 0.98%(f) 7.20% 115.85% $48,087
Limited Term Government Income Fund
Year Ended May 31, 1999 5.78% 0.42% 0.81% 4.63% 19.20% $80,518
October 1, 1997(e) to May 31, 1998 5.78%(f) 0.40%(f) 0.89%(f) 4.42% 99.49% $66,113
Intermediate Government Income Fund
Year Ended May 31, 1999 5.77% 0.68% 0.72% 4.30% 123.61% $420,305
Year Ended May 31, 1998 6.35% 0.68% 0.72% 10.19% 96.76% $400,346
Year Ended May 31, 1997 6.57% 0.68% 0.72% 6.36% 183.05% $371,278
November 1, 1995 to May 31, 1996 6.71%(f) 0.71%(f) 1.17%(f) 0.60% 74.64% $399,324
November 11, 1994(e) to October 31, 7.79%(f) 0.68%(f) 0.93%(f) 11.58% 240.90% $50,213
1995(g)
Diversified Bond Fund
Year Ended May 31, 1999 5.58%(c) 0.70%(c) 1.07%(c) 4.15% 77.11%(d) $179,133
Year Ended May 31, 1998 5.98%(c) 0.70%(c) 1.02%(c) 12.39% 90.94%(d) $134,831
Year Ended May 31, 1997 6.19% 0.70% 0.77% 6.23% 57.19% $162,310
November 1, 1995 to May 31, 1996 6.78%(f) 0.70%(f) 0.77%(f) 0.22% 118.92% $167,159
November 11, 1994(e) to October 31, 1995 5.87%(f) 0.67%(f) 0.82%(f) 11.32% 58.90% $171,453
Income Fund
Year Ended May 31, 1999 6.00% 0.75% 0.92% 2.81% 202.22% $348,472
Year Ended May 31, 1998 6.32% 0.75% 0.95% 12.35% 167.09% $290,566
Year Ended May 31, 1997 6.59% 0.75% 1.02% 6.90% 231.00% $258,207
Year Ended May 31, 1996 6.30% 0.75% 1.06% 2.58% 270.17% $271,157
Year Ended May 31, 1995 7.02% 0.75% 1.06% 8.49% 98.83% $109,994
</TABLE>
84
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Net Realized
And DistributionDistributions Ending
Beginning Net Unrealized from Net from Net Net Asset
Net
FIXED INCOME FUNDS - I SHARES Asset Value Investment Gain (Loss) Investment Realized Value Per
Per Share Income on Investments Income Gain Share
- -----------------------------------------------------------------------------------------------------------------------------
Total Return Bond Fund
Year Ended May 31, 1999 $9.64 $0.56 ($0.24) ($0.56) ($0.22) $9.18
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
Strategic Income Fund(i)
Year Ended May 31, 1999 $19.56 $0.82 $0.81 ($0.84) ($0.37) $19.98
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(e) to October 31, 1995 $16.19 $0.75 $1.27 -- -- $18.21
- --------------------------------------------------------------------------------------
Ratio to Average
Net Assets
Net Portfolio Net Assets at
FIXED INCOME FUNDS - I SHARES Investment Net Gross Total Turnover End of Period
Income(c) Expenses(c) Expenses(a)(c) Return(b) Rate (000's Omitted)
- -----------------------------------------------------------------------------------------------------------------------------
Total Return Bond Fund
Year Ended May 31, 1999 5.88%(c) 0.75%(c) 0.98%(c) 3.26% 48.43%(d) $85,857
Year Ended May 31, 1998 6.14%(c) 0.75%(c) 0.86%(c) 9.45% 134.56%(d) $109,084
Year Ended May 31, 1997 6.36% 0.75% 1.05% 6.95% 55.07% $125,437
Year Ended May 31, 1996 6.57% 0.75% 1.07% 3.41% 77.49% $120,767
Year Ended May 31, 1995 7.04% 0.71% 1.17% 9.43% 35.19% $96,199
Strategic Income Fund(i)
Year Ended May 31, 1999 4.22% 0.80% 1.04% 8.45% 53.82%(d) $263,328
Year Ended May 31, 1998 4.47% 0.80% 1.03% 14.13% 58.07%(d) $235,254
Year Ended May 31, 1997 4.38% 0.81% 0.98% 9.58% 72.03% $128,777
November 1, 1995 to May 31, 1996 4.65%(f) 0.82%(f) 0.97%(f) 5.14% 56.47% $146,950
November 11, 1994(e) to October 31, 1995 4.67%(f) 0.82%(f) 1.03%(f) 12.48% 65.53% $136,710
- -------------------------------------------
</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) The Fund does not hold investment securities directly. The Fund seeks to
achieve its investment objective by investing all of its investable assets
in several portfolios of Core Trust (Delaware). Portfolio turnover for a
Fund normally would be based on the turnover of a Fund's investments in the
Core Trust Portfolio rather than the underlying securites in that
Portfolio. Since a Fund has an indirect interest in the securities held in
the Core Trust Portfolio, the portfolio turnover rate disclosed is
calculated by aggregating the results of multiplying the Fund's ownership
percentage of the respective Portfolio by the corresponding Portfolio's
portfolio turnover rate.
(e) Commencement of operations.
(f) Annualized.
(g) Adjusted for a five to one stock split.
(h) Portfolio Turnover Rate is not applicable as the Fund invested in more than
one Portfolio.
(i) Prior to October 1, 1997, Strategic Income Fund was named Conservative
Balanced Fund.
85
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Net Realized
and DistributionDistributions Ending
TAX-FREE FIXED Beginning Net Unrealized from Net from Net Net Asset
Net
INCOME FUNDS - I SHARES Asset Value Investment Gain (Loss) Investment Realized Value Per
Per Share Income On Investments Income Gain Share
- --------------------------------------------------------------------------------------------------------------------------
Limited Term Tax-Free Fund
Year Ended May 31, 1999 $10.59 $0.46 ($0.04) ($0.47) -- $10.54
Year Ended May 31, 1998 $10.39 $0.47 $0.21 ($0.47) ($0.01) $10.59
October 1, 1996(c) to May 31, 1997 $10.00 $0.31 $0.39 ($0.31) -- $10.39
Tax-Free Income Fund
Year Ended May 31, 1999 $10.54 $0.52 ($0.10) ($0.51) ($0.01) $10.44
Year Ended May 31, 1998 $10.06 $0.53 $0.48 ($0.53) -- $10.54
Year Ended May 31, 1997 $9.78 $0.54 $0.28 ($0.54) -- $10.06
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
Colorado Tax-Free Fund
Year Ended May 31, 1999 $10.69 $0.51 ($0.10) ($0.51) ($0.04) $10.55
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
Minnesota Intermediate Tax-Free Fund
Year Ended May 31, 1999 $10.03 $0.49 ($0.09) ($0.49) ($0.03) $9.91
October 1, 1997(c) to May 31, 1998 $10.00 $0.33 $0.03 ($0.33) -- $10.03
Minnesota Tax-Free Fund
Year Ended May 31, 1999 $11.05 $0.52 ($0.09) ($0.51) ($0.01) $10.96
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 $10.16 $0.53 $0.29 ($0.53) -- $10.45
- -------------------------------------------------------------------------------------
Ratio to Average
Net Assets
-------------------------------------
TAX-FREE FIXED Net Portfolio Net Assets at
INCOME FUNDS - I SHARES Investment Net Gross Total Turnover End of Period
Income Expenses Expenses(a) Return(b) Rate (000's Omitted)
- -----------------------------------------------------------------------------------------------------------------------
Limited Term Tax-Free Fund
Year Ended May 31, 1999 4.26% 0.65% 1.04% 3.97% 40.56% $88,223
Year Ended May 31, 1998 4.47% 0.65% 1.03% 6.70% 46.06% $54,602
October 1, 1996(c) to May 31, 1997 4.45%(d) 0.65%(d) 1.27%(d) 6.99% 16.39% $40,990
Tax-Free Income Fund
Year Ended May 31, 1999 4.83% 0.60% 0.91% 4.04% 105.53% $311,757
Year Ended May 31, 1998 5.09% 0.60% 0.92% 10.22% 142.81% $286,734
Year Ended May 31, 1997 5.40% 0.50% 1.03% 8.54% 152.33% $259,861
Year Ended May 31, 1996 5.57% 0.32% 1.06% 5.29% 126.20% $276,159
Year Ended May 31, 1995 5.84% 0.60% 1.05% 8.42% 130.90% $94,454
Colorado Tax-Free Fund
Year Ended May 31, 1999 4.71% 0.60% 0.99% 3.79% 76.62% $48,926
Year Ended May 31, 1998 5.01% 0.60% 1.01% 9.97% 69.87% $32,342
Year Ended May 31, 1997 5.35% 0.45% 1.13% 9.00% 129.26% $25,917
Year Ended May 31, 1996 5.30% 0.30% 1.13% 5.35% 171.41% $24,074
Year Ended May 31, 1995 5.08% 0.30% 1.16% 7.47% 47.88% $24,539
Minnesota Intermediate Tax-Free Fund
Year Ended May 31, 1999 4.84% 0.60% 0.68% 3.95% 19.54% $222,953
October 1, 1997(c) to May 31, 1998 5.02%(d) 0.60%(d) 0.72%(d) 3.61% 15.13% $209,685
Minnesota Tax-Free Fund
Year Ended May 31, 1999 4.62% 0.60% 1.00% 3.96% 24.84% $27,261
Year Ended May 31, 1998 4.84% 0.60% 1.04% 9.71% 68.27% $20,736
Year Ended May 31, 1997 5.12% 0.60% 1.23% 7.98% 96.68% $11,135
Year Ended May 31, 1996 5.24% 0.51% 1.30% 3.97% 77.10% $3,988
Year Ended May 31, 1995 5.29% 0.48% 1.58% 8.44% 139.33% $1,799
- -----------------------------------------
</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) Commencement of operations.
(d) Annualized.
86
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Net Realized
And DistributionDistributions 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, 1999 $22.98 $0.85 $1.94 ($0.75) ($0.78) $24.14
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(e) to October 31, 1995 $17.25 $0.65 $1.94 -- -- $19.84
Growth Balanced Fund
Year Ended May 31, 1999 $28.06 $0.60 $3.88 ($0.58) ($1.03) $30.93
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(e) to October 31, 1995 $17.95 $0.47 $2.83 -- -- $21.25
Aggressive Balanced-Equity Fund
Year Ended May 31, 1999 $11.04 $0.15 $1.83 ($0.09) -- $12.93
December 2, 1997(e) to May 31, 1998 $10.00 $0.06 $0.99 ($0.01) -- $11.04
Ratio to Average
Net Assets
---------------------------------------
Net Portfolio Net Assets
at
BALANCED FUNDS - I SHARES Investment Net Gross Total Turnover End of
Period
Income(a) Expenses(a) Expenses(a)(b) Return(c) Rate (000's
Omitted)
- -------------------------------------------------------------------------------------------------------------------------
Moderate Balanced Fund
Year Ended May 31, 1999 3.26% 0.88% 1.09% 12.02% 53.17%(f) $527,693
Year Ended May 31, 1998 3.57% 0.88% 1.05% 17.04% 53.50%(f) $464,384
Year Ended May 31, 1997 3.70% 0.88% 1.04% 12.04% 45.33% $418,680
November 1, 1995 to May 31, 1996 3.95%(d) 0.90%(d) 1.04%(d) 7.03% 52.71% $398,005
November 11, 1994(e) to October 31, 1995 3.76%(d) 0.92%(d) 1.11%(d) 15.01% 62.08% $373,998
Growth Balanced Fund
Year Ended May 31, 1999 2.16% 0.93% 1.13% 16.38% 48.71%(f) $850,503
Year Ended May 31, 1998 2.38% 0.93% 1.09% 21.40% 45.55%(f) $665,758
Year Ended May 31, 1997 2.47% 0.94% 1.16% 15.81% 24.33% $503,382
November 1, 1995 to May 31, 1996 2.66%(d) 0.98%(d) 1.16%(d) 10.87% 38.78% $484,641
November 11, 1994(e) to October 31, 1995 2.63%(d) 0.99%(d) 1.23%(d) 18.38% 41.04% $374,892
Aggressive Balanced-Equity Fund
Year Ended May 31, 1999 1.34% 1.00% 1.36% 17.98% 43.17%(f) $31,975
December 2, 1997(e) to May 31, 1998 1.58%(d) 1.00%(d) 2.29%(d) 10.55% 36.05%(f) $8,872
</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 fee
waivers.
(d) Annualized.
(e) Commencement of operations.
(f) The Fund does not hold investment securities directly. The Fund seeks to
achieve its investment objective by investing all of its investable assets
in several portfolios of Core Trust (Delaware). Portfolio turnover for a
Fund normally would be based on the turnover of a Fund's investments in the
Core Trust Portfolio rather than the underlying securites in that
Portfolio. Since a Fund has an indirect interest in the securities held in
the Core Trust Portfolio, the portfolio turnover rate disclosed is
calculated by aggregating the results of multiplying the Fund's ownership
percentage of the respective Portfolio by the corresponding Portfolio's
portfolio turnover rate.
87
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Net Realized
and DistributionDistributions Ending
Beginning Net Net Unrealized from Net from Net Return Net Asset
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, 1999 $46.63 $0.57 $8.87 ($0.57) ($0.40) -- $54.83
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(f) to October 31, $21.80 $0.45 $5.42 -- -- -- $27.67
1995
Income Equity Fund
Year Ended May 31, 1999 $41.18 $0.51 $5.45 ($0.53) ($0.26) -- $46.35
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(f) to October 31, $18.90 $0.46 $4.66 -- -- -- $24.02
1995
ValuGrowth Stock Fund
Year Ended May 31, 1999 $26.15 $0.25 ($0.40) ($0.13) ($4.51) -- $21.36
Year Ended May 31, 1998 $25.03 $0.06 $4.75 ($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
Diversified Equity Fund
Year Ended May 31, 1999 $43.06 $0.22 $6.15 ($0.20) ($0.98) -- $48.25
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(f) to October 31, $22.21 $0.22 $5.10 -- -- -- $27.53
1995
Growth Equity Fund
Year Ended May 31, 1999 $35.72 ($0.03) $2.58 ($0.03) ($2.07) -- $36.17
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(f) to October 31, $22.28 ($0.02) $4.71 -- -- -- $26.97
1995
Ratio to Average
Net Assets
--------------------------------------
Net Portfolio Net Assets
at
EQUITY FUNDS - I SHARES Investment Net Gross Total Turnover End of
Period
Income Expenses Expenses(a) Return(b) Rate (000's
Omitted)
- -------------------------------------------------------------------------------------------------------------------
Index Fund
Year Ended May 31, 1999 1.28%(c) 0.25%(c) 0.55%(c) 20.57% 3.61%(d) $1,154,289
Year Ended May 31, 1998 1.53%(c) 0.25%(c) 0.58%(c) 30.32% 6.68%(d) $784,205
Year Ended May 31, 1997 2.10% 0.25% 0.56% 29.02% 24.17% $513,134
November 1, 1995 to May 31, 1996 2.25%(e) 0.31%(e) 0.57%(e) 16.27% 9.12% $249,644
November 11, 1994(f) to October 31, 2.12%(e) 0.50%(e) 0.64%(e) 26.93% 14.48% $186,197
1995
Income Equity Fund
Year Ended May 31, 1999 1.23%(c) 0.85%(c) 0.89%(c) 14.75% 3.21%(d) $1,519,541
Year Ended May 31, 1998 1.43%(c) 0.85%(c) 0.86%(c) 28.61% 3.49%(d) $1,214,385
Year Ended May 31, 1997 1.97% 0.85% 0.90% 22.40% 4.76% $425,197
November 1, 1995 to May 31, 1996 2.72%(e) 0.86%(e) 1.13%(e) 18.14% 0.69% $230,831
November 11, 1994(f) to October 31, 2.51%(e) 0.85%(e) 1.12%(e) 27.09% 7.03% $49,000
1995
ValuGrowth Stock Fund
Year Ended May 31, 1999 0.50% 1.00% 1.19% (0.16%) 68.72% $198,672
Year Ended May 31, 1998 0.53% 1.00% 1.20% 21.18% 74.25% $609,056
Year Ended May 31, 1997 0.67% 1.01% 1.33% 23.30% 75.50% $180,204
Year Ended May 31, 1996 0.62% 1.20% 1.32% 21.72% 105.43% $156,553
Year Ended May 31, 1995 1.02% 1.20% 1.33% 10.67% 63.82% $136,589
Diversified Equity Fund
Year Ended May 31, 1999 0.47%(c) 1.00%(c) 1.17%(c) 15.08% 34.60%(d) $1,629,191
Year Ended May 31, 1998 0.60%(c) 1.00%(c) 1.13%(c) 26.12% 23.17%(d) $1,520,343
Year Ended May 31, 1997 0.79%(c) 1.02%(c) 1.31%(c) 20.76% 48.08% $1,212,565
November 1, 1995 to May 31, 1996 1.00%(c)(e) 1.06%(c)(e) 1.30%(c)(e) 16.38% 5.76% $907,223
November 11, 1994(f) to October 31, 1.01%(c)(e) 1.09%(c)(e) 1.37%(c)(e) 23.95% 10.33% $711,111
1995
Growth Equity Fund
Year Ended May 31, 1999 (0.08%)(c) 1.25%(c) 1.38%(c) 7.60% 72.77%(d) $920,586
Year Ended May 31, 1998 (0.11%)(c) 1.25%(c) 1.35%(c) 22.52% 47.41%(d) $1,033,251
Year Ended May 31, 1997 (0.09%)(c) 1.30%(c) 1.84%(c) 14.11% 9.06% $895,420
November 1, 1995 to May 31, 1996 0.01%(c)(e) 1.35%(c)(e) 1.85%(c)(e) 15.83% 7.39% $735,728
November 11, 1994(f) to October 31, (0.11%)(c)(e) 1.38%(c)(e) 1.92%(c)(e) 21.10% 8.90% $564,004
1995
88
<PAGE>
Net Realized
and DistributionDistributions Ending
Beginning Net Net Unrealized from Net from Net Return Net Asset
EQUITY FUNDS - I SHARES Asset Value Investment Gain (Loss) Investment Realized of Value Per
Per Share Income (Loss) on Investments Income Gain Capital Share
- -------------------------------------------------------------------------------------------------------------------------------
Large Company Growth Fund
Year Ended May 31, 1999 $39.94 ($0.17) $15.95 -- ($1.05) -- $54.67
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(f) to October 31, $18.50 ($0.05) $5.14 -- -- -- $23.59
1995
Diversified Small Cap Fund
Year Ended May 31, 1999 $10.52 -- ($1.53) --(g) -- -- $8.99
December 31, 1997(f) to May 31, 1998 $10.00 -- $0.52 -- -- -- $10.52
Small Company Stock Fund
Year Ended May 31, 1999 $11.93 ($0.01) ($3.24) -- -- -- $8.68
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
Small Cap Opportunities Fund
Year Ended May 31, 1999 $23.61 ($0.11) ($2.97) -- ($0.02) -- $20.51
Year Ended May 31, 1998 $19.84 ($0.06) $4.36 -- ($0.53) -- $23.61
August 15, 1996(f) to May 31, 1997 $16.26 ($0.01) $3.60 -- ($0.01) -- $19.84
Small Company Growth Fund
Year Ended May 31, 1999 $33.69 ($0.15) ($3.67) -- ($2.43) -- $27.44
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(f) to October 31, $21.88 ($0.11) $8.22 -- -- -- $29.99
1995
International Fund
Year Ended May 31, 1999 $23.85 $0.10 ($0.48) ($0.21) ($0.46) -- $22.80
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(f) to October 31, $17.28 $0.09 $0.62 -- -- -- $17.99
1995
- ------------------------------------------------------------------------------------
Ratio to Average
Net Assets
--------------------------------------
Net Portfolio Net Assets
at
EQUITY FUNDS - I SHARES Investment Net Gross Total Turnover End of
Period
Income Expenses Expenses(a) Return(b) Rate (000's
Omitted)
- -------------------------------------------------------------------------------------------------------------------
Large Company Growth Fund
Year Ended May 31, 1999 (0.49%)(c) 1.00%(c) 1.09%(c) 39.96% 28.15%(d) $645,385
Year Ended May 31, 1998 (0.36%)(c) 1.00%(c) 1.03%(c) 32.29% 13.03%(d) $232,499
Year Ended May 31, 1997 (0.18%) 0.99% 1.09% 21.93% 24.37% $131,768
November 1, 1995 to May 31, 1996 (0.30%)(e) 1.00%(e) 1.13%(e) 15.40% 16.93% $82,114
November 11, 1994(f) to October 31, (0.23%)(e) 1.00%(e) 1.20%(e) 27.51% 31.60% $63,567
1995
Diversified Small Cap Fund
Year Ended May 31, 1999 (0.05%)(c) 1.20%(c) 1.65%(c) (14.54%) 112.09%(d) $60,261
December 31, 1997(f) to May 31, 1998 (0.25%)(c)(e) 1.21%(c)(e) 2.65%(c)(e) 5.20% 93.10%(d) $12,551
Small Company Stock Fund
Year Ended May 31, 1999 (0.11%)(c) 1.20%(c) 1.43%(c) (27.24%) 183.61%(d) $22,592
Year Ended May 31, 1998 (0.53%)(c) 1.20%(c) 1.32%(c) 8.12% 166.16%(d) $112,713
Year Ended May 31, 1997 (0.38%) 1.19% 1.56% 6.30% 210.19% $161,995
Year Ended May 31, 1996 0.05% 1.21% 1.60% 38.30% 134.53% $125,986
Year Ended May 31, 1995 1.14% 0.52% 1.82% 10.13% 68.09% $54,240
Small Cap Opportunities Fund
Year Ended May 31, 1999 (0.47%)(c) 1.25%(c) 1.35%(c) (13.02%) 119.00%(d) $201,816
Year Ended May 31, 1998 (0.40%)(c) 1.25%(c) 1.38%(c) 21.95% 54.98%(d) $284,828
August 15, 1996(f) to May 31, 1997 (0.16%)(c)(e) 1.25%(c)(e) 1.89%(c)(e) 11.42% 34.45% $77,174
Small Company Growth Fund
Year Ended May 31, 1999 (0.52%)(c) 1.25%(c) 1.30%(c) (10.72%) 153.90%(d) $557,516
Year Ended May 31, 1998 (0.73%)(c) 1.25%(c) 1.26%(c) 22.38% 123.36%(d) $748,269
Year Ended May 31, 1997 (0.71%) 1.24% 1.29% 5.65% 124.03% $447,580
November 1, 1995 to May 31, 1996 (0.41%)(e) 1.25%(e) 1.29%(e) 21.43% 62.06% $378,546
November 11, 1994(f) to October 31, (0.47%)(e) 1.25%(e) 1.35%(e) 37.07% 106.55% $278,058
1995
International Fund
Year Ended May 31, 1999 0.44%(c) 1.50%(c) 1.61%(c) (1.32%) 94.64%(d) $271,240
Year Ended May 31, 1998 0.45%(c) 1.47%(c) 1.50%(c) 11.19% 36.56%(d) $279,667
Year Ended May 31, 1997 0.40%(c) 1.43%(c) 1.44%(c) 10.27% 48.23% $228,552
November 1, 1995 to May 31, 1996 0.60%(c)(e) 1.50%(c)(e) 1.52%(c)(e) 12.31% 14.12% $143,643
November 11, 1994(f) to October 31, 0.54%(c)(e) 1.50%(c)(e) 1.66%(c)(e) 4.11% 29.41% $91,401
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) Includes expenses allocated from the Portfolio(s) in which the Fund
invests.
(d) The Fund does not hold investment securities directly. The Fund seeks to
achieve its investment objective by investing all of its investable assets
in several portfolios of Core Trust (Delaware). Portfolio turnover for a
Fund normally would be based on the turnover of a Fund's investments in the
Core Trust Portfolio rather than the underlying securites in that
Portfolio. Since a Fund has an indirect interest in the securities held in
the Core Trust Portfolio, the portfolio turnover rate disclosed is
calculated by aggregating the results of multiplying the Fund's ownership
percentage of the respective Portfolio by the corresponding Portfolio's
portfolio turnover rate.
(e) Annualized.
(f) Commencement of operations.
(g) Actual dividends per share were less than $0.01.
<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 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. The scheduled hours of operation of the Public
Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. Free copies
of the reports and SAIs are available from the SEC's Internet website at http://
www.sec.gov.
The SEC's Investment Company Act file number for the Funds is 811-4881.
<PAGE>
NORWEST ADVANTAGE FUNDS
PROSPECTUS
October 1, 1999
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.
THE BOARD OF TRUSTEES AND THE SHAREHOLDERS OF THE NORWEST ADVANTAGE FUNDS HAVE
APPROVED A REORGANIZATION OF THE FUNDS WITH THE STAGECOACH FUNDS ADVISED BY
WELLS FARGO BANK, N.A. THE BOARD OF DIRECTORS AND SHAREHOLDERS OF STAGECOACH
FUNDS ALSO HAVE APPROVED THE REORGANIZATION. THIS COMBINATION OF MUTUAL FUND
FAMILIES FOLLOWS THE MERGER OF WELLS FARGO & COMPANY AND NORWEST CORPORATION.
EACH OF THE NORWEST ADVANTAGE FUNDS AND THE STAGECOACH FUNDS WILL REORGANIZE
INTO A NEW PORTFOLIO OF WELLS FARGO FUNDS TRUST. THE REORGANIZATION IS PENDING
AND WILL BE COMPLETED AS SOON AS REASONABLY PRACTICABLE.
THE U.S. SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS PAGE
RISK/RETURN SUMMARY....................................................
FEES AND EXPENSES OF THE FUNDS.........................................
GLOSSARY...............................................................
INVESTMENT OBJECTIVES, STRATEGIES AND RISK CONSIDERATIONS..............
Investment Objectives and Strategies..............................
Cash Investment Fund and Ready Cash Investment Fund...............
U.S. Government Fund..............................................
Treasury Plus Fund................................................
Municipal Money Market Fund.......................................
Risk Considerations...............................................
OTHER CONSIDERATIONS...................................................
MANAGEMENT OF THE FUNDS ...............................................
HOW TO BUY AND SELL SHARES.............................................
DISTRIBUTIONS..........................................................
FINANCIAL HIGHLIGHTS...................................................
<PAGE>
26
RISK/RETURN SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN KEY INFORMATION ABOUT THE FUNDS. YOU WILL
FIND ADDITIONAL INFORMATION ABOUT THE FUNDS AFTER THIS SUMMARY.
OBJECTIVES. THE INVESTMENT OBJECTIVES OF THE FUNDS ARE HIGH CURRENT INCOME TO
THE EXTENT CONSISTENT WITH PRESERVATION OF CAPITAL AND LIQUIDITY. THE MUNICIPAL
MONEY MARKET FUND SEEKS CURRENT INCOME THAT IS EXEMPT FROM FEDERAL INCOME TAXES.
PRINCIPAL INVESTMENT STRATEGIES. THE FUNDS ARE "MONEY MARKET FUNDS" THAT SEEK TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE. EACH FUND PURSUES ITS
OBJECTIVES BY MAINTAINING A PORTFOLIO OF HIGH-QUALITY MONEY MARKET SECURITIES.
EACH FUND PRIMARILY INVESTS IN:
o CASH INVESTMENT FUND AND READY CASH INVESTMENT FUND: MONEY MARKET
INSTRUMENTS OF U.S. AND FOREIGN ISSUERS.
o U.S. GOVERNMENT FUND: SECURITIES ISSUED OR GUARANTEED BY THE U.S.
GOVERNMENT, ITS AGENCIES OR INSTRUMENTALITIES.
o TREASURY PLUS FUND: SECURITIES ISSUED OR GUARANTEED BY THE U.S.
TREASURY AND REPURCHASE AGREEMENTS ON THOSE OBLIGATIONS.
o TREASURY FUND: SECURITIES ISSUED OR GUARANTEED BY THE U.S. TREASURY.
o MUNICIPAL MONEY MARKET FUND: TAX-EXEMPT MUNICIPAL SECURITIES.
PRINCIPAL RISKS. THE PRINCIPAL RISKS OF INVESTING IN THE FUNDS ARE:
o INTEREST RATE RISK: THIS IS THE RISK THAT CHANGES IN INTEREST RATES
WILL AFFECT THE VALUE OF A FUND'S INVESTMENTS, PARTICULARLY THOSE
INVESTMENTS IN DEBT OR INCOME-PRODUCING SECURITIES. INCREASES IN
INTEREST RATES MAY CAUSE THE VALUE OF A FUND'S INVESTMENTS TO DECLINE.
o CREDIT RISK: THIS IS THE RISK THAT THE ISSUER OF A SECURITY WILL BE
UNABLE TO MAKE TIMELY PAYMENTS OF INTEREST OR PRINCIPAL OR TO
OTHERWISE HONOR ITS OBLIGATIONS.
IN ADDITION, A PRINCIPAL RISK OF INVESTING IN THE MUNICIPAL MONEY MARKET FUND
IS:
o MUNICIPAL MARKET RISK: THIS IS THE RISK THAT SPECIAL FACTORS, SUCH AS
POLITICAL AND LEGISLATIVE CHANGES AND LOCAL BUSINESS AND ECONOMIC
DEVELOPMENTS, MAY ADVERSELY AFFECT THE YIELD OR VALUE OF THE FUND'S
INVESTMENTS.
THE CASH INVESTMENT AND READY CASH INVESTMENT FUNDS' FOREIGN INVESTMENTS ARE
SUBJECT TO FOREIGN RISK.
o FOREIGN RISK: THIS IS THE RISK OF INVESTMENTS LOCATED IN FOREIGN
COUNTRIES, WHICH MAY HAVE GREATER VOLATILITY AND LESS LIQUIDITY.
INVESTMENTS IN FOREIGN SECURITIES ALSO ARE SUBJECT TO POLITICAL,
REGULATORY AND DIPLOMATIC RISKS. FOREIGN RISK ALSO INCLUDES CURRENCY
RISK, WHICH MAY OCCUR DUE TO FLUCTUATIONS IN THE EXCHANGE RATES
BETWEEN THE U.S. DOLLAR AND FOREIGN CURRENCIES. THIS RISK COULD
NEGATIVELY AFFECT THE VALUE OF A FUND'S INVESTMENTS.
ANOTHER IMPORTANT THING FOR YOU TO NOTE. 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 THE FUNDS.
BAR CHART AND PERFORMANCE INFORMATION
For each Fund, the bar chart shows the Fund's annual total returns and the
performance table shows the Fund's average annual total returns. The bar chart
and performance table provide an indication of the historical risk of an
investment in each Fund by showing:
o changes in the Fund's performance from year to year over 10 years or, if
less, the life of the Fund; and
o the Fund's average annual total returns for one, five and ten years, or, if
less, the life of the Fund.
A Fund's past performance does not necessarily indicate how it will perform in
the future.
CASH INVESTMENT FUND
EDGAR REPRESENTATION OF A BAR CHART
ANNUAL TOTAL RETURN
1989 - 9.20%
1990 - 8.18%
1991 - 6.06%
1992 - 3.79%
1993 - 3.18%
1994 - 3.84%
1995 - 5.75%
1996 - 5.21%
1997 - 5.36%
1998 - 5.32%
The calendar year-to-date total return as of June 30, 1999 was 2.32%.
During the periods shown in the chart, the highest quarterly return was 2.37%
(for the quarter ended June 30, 1989) and the lowest quarterly return was 0.74%
(for the quarter ended March 31, 1991).
The following table lists the Fund's average annual total returns as of December
31, 1998.
CASH INVESTMENT
YEAR(S) FUND
1 Year 5.32%
5 Year 5.09%
10 Year 5.57%
Since Inception (10/14/87) 5.77%
READY CASH INVESTMENT FUND
EDGAR REPRESENTATION OF A BAR CHART
ANNUAL TOTAL RETURN
1989 - 8.84%
1990 - 7.78%
1991 - 5.75%
1992 - 3.52%
1993 - 2.79%
1994 - 3.49%
1995 - 5.42%
1996 - 4.87%
1997 - 5.02%
1998 - 4.96%
The calendar year-to-date total return as of June 30, 1999 was 2.14%.
During the periods shown in the chart, the highest quarterly return was 2.29%
(for the quarter ended June 30, 1989) and the lowest quarterly return was 0.64%
(for the quarter ended March 31, 1994).
The following table lists the Fund's average annual total returns as of December
31, 1998.
READY CASH
YEAR(S) INVESTMENT FUND
1 Year 4.96%
5 Year 4.75%
10 Year 5.23%
Since Inception (12/20/88) 5.39%
U.S. GOVERNMENT FUND
EDGAR REPRESENTATION OF A BAR CHART
ANNUAL TOTAL RETURN
1989 - 8.86%
1990 - 7.87%
1991 - 5.78%
1992 - 3.49%
1993 - 2.98%
1994 - 3.80%
1995 - 5.51%
1996 - 5.01%
1997 - 5.16%
1998 - 5.07%
The calendar year-to-date total return as of June 30, 1999 was 2.22%.
During the periods shown in the chart, the highest quarterly return was 2.27%
(for the quarter ended June 30, 1989) and the lowest quarterly return was 0.72%
(for the quarter ended June 30, 1993).
The following table lists the Fund's average annual total returns as of December
31, 1998.
U.S. GOVERNMENT
YEAR(S) FUND
1 Year 5.07%
5 Year 4.91%
10 Year 5.34%
Since Inception (11/16/87) 5.53%
TREASURY PLUS FUND
Because the Fund has not yet completed a full calendar year of operations, there
is no bar chart or return information.
TREASURY FUND
EDGAR REPRESENTATION OF A BAR CHART
ANNUAL TOTAL RETURN
1991 - 5.79%
1992 - 3.45%
1993 - 2.78%
1994 - 3.63%
1995 - 5.29%
1996 - 4.83%
1997 - 4.95%
1998 - 4.80%
The calendar year-to-date total return as of June 30, 1999 was 2.10%.
During the periods shown in the chart, the highest quarterly return was 1.60%
(for the quarter ended March 31, 1991) and the lowest quarterly return was 0.68%
(for the quarter ended March 31, 1994).
The following table lists the Fund's average annual total returns as of December
31, 1998.
TREASURY
YEAR(S) FUND
1 Year 4.80%
5 Year 4.70%
Since Inception (12/3/90) 4.47%
MUNICIPAL MONEY MARKET FUND
The information in the bar chart and performance table is for the Fund's
Institutional shares, which have returns that are substantially similar to the
Fund's Investor shares because the classes invest in the same portfolio of
securities. The returns of the classes differ only to the extent that the
classes do not have the same expenses.
EDGAR REPRESENTATION OF A BAR CHART
ANNUAL TOTAL RETURN
1989 - 5.93%
1990 - 5.48%
1991 - 4.07%
1992 - 2.51%
1993 - 2.00%
1994 - 2.51%
1995 - 3.53%
1996 - 3.07%
1997 - 3.20%
1998 - 2.99%
The calendar year-to-date total return as of June 30, 1999 was 1.27%.
During the periods shown in the chart, the highest quarterly return was 1.58%
(for the quarter ended June 30, 1989) and the lowest quarterly return was 0.47%
(for the quarter ended March 31, 1993).
The following table lists the Fund's average annual total returns as of December
31, 1998.
MUNICIPAL MONEY
YEAR(S) MARKET FUND
1 Year 2.99%
5 Year 3.06%
10 Year 3.52%
Since Inception (1/7/88) 3.64%
<PAGE>
FEES AND EXPENSES OF THE FUNDS
The following tables describe the fees and expenses that you will pay if you
invest in the Funds.
SHAREHOLDER TRANSACTION EXPENSES
(fees paid directly from your investment)
None
ANNUAL FUND OPERATING EXPENSES (1)
(expenses that are deducted from Fund assets)
<TABLE>
CASH READY CASH U.S. TREASURY
INVESTMENT INVESTMENT GOVERNMENT PLUS
FUND FUND FUND FUND
Investor
Shares
------------- -- --------------- -- --------------- -- -------------
<S> <C> <C> <C> <C>
Investment Advisory Fees 0.23%(2) 0.33%(2) 0.13% 0.20%
Other Expenses 0.33%(2) 0.49%(2) 0.39% 0.64%
Total Annual Fund Operating Expenses(3) 0.56% 0.82% 0.52% 0.84%
TREASURY MUNICIPAL MONEY
FUND MARKET FUND
Institutional Investor Shares
Shares
------------- -- --------------- ------------------
<S> <C> <C> <C>
Investment Advisory Fees 0.14% 0.33% 0.33%
Other Expenses 0.39% 0.24% 0.53%
Total Annual Fund Operating Expenses(3) 0.53% 0.57% 0.86%
<FN>
(1) Based on amounts incurred during each Fund's fiscal year ended May 31, 1999
stated as a percentage of net assets.
(2) These fees include fees for the "core" portfolios in which the "gateway"
funds invest.
(3) The Funds are subject to voluntary fee waivers and expense reimbursements
that reduce the operating expenses of the Funds. See the Financial
Highlights table for information about fund expenses net of fee waivers and
expense reimbursements.
</FN>
</TABLE>
EXAMPLES OF EXPENSES
These examples are intended to help you compare the cost of investing in a Fund
with the cost of investing in other mutual funds. The examples assume that you
invest $10,000 in a Fund for the time periods indicated, that your investment
has a 5% annual return, that the Fund's operating expenses remain the same, that
distributions are reinvested, and that you redeem your shares at the end of each
period. Your actual costs may be higher or lower than those shown.
<TABLE>
- ----------------------- ----------------------- ------------------------ --------------------
Cash Investment Ready Cash Investment U.S. Government
Fund Fund Fund
- ----------------------- ----------------------- ------------------------ --------------------
- ----------------------- ----------------------- ------------------------ --------------------
INVESTOR SHARES
<S> <C> <C> <C>
- ----------------------- ----------------------- ------------------------ --------------------
1 YEAR 57 84 53
- ----------------------- ----------------------- ------------------------ --------------------
3 YEARS 179 262 167
- ----------------------- ----------------------- ------------------------ --------------------
5 YEARS 313 455 291
- ----------------------- ----------------------- ------------------------ --------------------
10 YEARS 701 1,014 653
- ----------------------- ----------------------- ------------------------ --------------------
- ----------------------- ----------------------- ------------------------ ----------------------------------
Treasury Plus Treasury Municipal Money
Fund Fund Market Fund
- ----------------------- ----------------------- ------------------------ ----------------------------------
- ----------------------- ----------------------- ------------------------ ---------------- -----------------
INSTITUTIONAL INVESTOR
SHARES SHARES
<S> <C> <C> <C> <C>
- ----------------------- ----------------------- ------------------------ ---------------- -----------------
1 YEAR 86 54 58 88
- ----------------------- ----------------------- ------------------------ ---------------- -----------------
3 YEARS 268 170 183 274
- ----------------------- ----------------------- ------------------------ ---------------- -----------------
5 YEARS 466 296 318 477
- ----------------------- ----------------------- ------------------------ ---------------- -----------------
10 YEARS 1,037 665 714 1,061
- ----------------------- ----------------------- ------------------------ ---------------- -----------------
</TABLE>
<PAGE>
GLOSSARY
This Glossary of frequently used terms will help you understand the discussion
of the Funds' objectives, strategies and risks.
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.
<PAGE>
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.
<PAGE>
INVESTMENT OBJECTIVES, STRATEGIES AND RISK CONSIDERATIONS
This section of the prospectus provides a more complete description of each
Fund's investment objective and principal strategies and risks. Except as
otherwise indicated, the Board may change the Funds' investment policies without
shareholder approval. The Funds' investment objectives are fundamental and
cannot be changed without a shareholder vote. There can, of course, be no
assurance that any Fund will achieve its investment objective.
INVESTMENT OBJECTIVES AND STRATEGIES
The investment objectives of the Funds are high current income to the
extent consistent with preservation of capital and liquidity. The Municipal
Money Market Fund seeks current income that is exempt from federal income
taxes.
The Funds' investments are made under the requirements of a 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 investment 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 investment 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
These Funds are "gateway" funds in a "core/gateway" structure. In this
structure a "gateway" fund invests some or all of it assets in one or more
"core" portfolios that have a substantially identical investment objective
and substantially similar policies as the gateway fund. Gateway funds
investing in the same core portfolio, or Portfolio, can enhance their
investment opportunities and reduce their expense ratios through sharing
the costs of managing a large pool of assets. Except when necessary to
describe a Fund's investment in a core portfolio, references to the gateway
Fund also include the Portfolio.
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 objectives 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 two highest
categories assigned by an NRSRO.
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.
U.S. GOVERNMENT FUND
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.
TREASURY PLUS FUND
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.
TREASURY FUND
The Fund invests solely in U.S. Treasury securities, including zero-coupon
securities.
MUNICIPAL MONEY MARKET FUND
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 CONSIDERATIONS
The Funds' principal risks are interest rate risk and credit risk. Because
the Funds invest in short-term securities, a decline in interest rates will
affect the Funds' yields as these securities mature or are sold and the
Funds purchase new short-term securities with lower yields. Generally, an
increase in interest rates causes the value of a debt instrument to
decrease. The change in value for short-term securities is usually smaller
than for securities with longer maturities. Because the Funds invest in
securities with short maturities and seek to maintain a stable net asset
value of $1.00 per share, it is possible, though unlikely, that an increase
in interest rates would change the value of your investment.
Credit risk is the possibility that a security's credit rating will be
downgraded or that the issuer of a security will default (fail to make
scheduled interest and principal payments). The Funds invest in
highly-rated securities to minimize credit risk.
The Cash Investment and Ready Cash Investment Funds' foreign investments
are subject to foreign risk. Foreign securities issuers usually are not
subject to the same degree of regulation as U.S. issuers. Reporting,
accounting and auditing standards of foreign countries differ, in some
cases, significantly from U.S. standards. Foreign risk includes
nationalization, expropriation or confiscatory taxation, political changes
or diplomatic developments that could adversely affect a Fund's
investments. Foreign risk also includes currency risk, which may occur due
to fluctuations in the exchange rates between the U.S. dollar and foreign
currencies. This risk could negatively affect the value of a Fund's
investments.
The Municipal Money Market Fund faces municipal market risk. Municipal
market risk is the risk that special factors may adversely affect the value
of municipal securities and have a significant effect on the yield or value
of the Fund's investments. These factors include political or legislative
changes, uncertainties related to the tax status of municipal securities,
or the rights of investors in these securities. The Fund's investments in
certain municipal securities with principal and interest payments that are
made from the revenues of a specific project or facility, and not general
tax revenues, may have increased risks. Factors affecting the project or
facility, such as local business or economic conditions, could have a
significant effect on the project's ability to make payments of principal
and interest on those securities.
Loss of money is a risk of investing in the Funds.
OTHER CONSIDERATIONS
YEAR 2000
Certain computer systems may not process date-related information properly
on and after January 1, 2000. The investment adviser is addressing this
matter for its systems. The Funds' other service providers have informed
the Funds that they are taking similar measures. Investments in foreign
companies are particularly vulnerable to Year 2000 risk because these
companies may not have the financial resources, technology, or personnel
needed to address Year 2000 readiness concerns. This matter, if not
corrected, could adversely affect the services provided to the Funds or the
issuers in which the Funds invest and could, therefore, lower the value of
your Fund shares.
MANAGEMENT OF THE FUNDS
INVESTMENT ADVISORY SERVICES
NORWEST INVESTMENT MANAGEMENT, INC. or NIM, which is now a wholly-owned
subsidiary of Wells Fargo & Company, Norwest Center, Sixth Street and
Marquette, Minneapolis, MN 55479, is the investment adviser for each Fund
and each Portfolio. In this capacity, NIM makes investment decisions for
and administers the Funds' and Portfolios' investment programs. As of June
30, 1999, NIM provided advisory services for over $24 billion in assets.
How investment advisory fees are paid depends on whether or not a Fund
invests in Portfolios.
o If a Fund invests directly in a portfolio of securities, Norwest
receives an investment advisory fee directly from the Fund.
o If a Fund invests in one or more Portfolios, Norwest receives an
investment advisory fee from the Portfolio or Portfolios.
For these services for the fiscal year ended May 31, 1999, the Funds paid:
Fee as a percentage of
FUND AVERAGE DAILY NET ASSETS
Cash Investment Fund 0.23%
Ready Cash Investment Fund
Investor Shares 0.33%
U.S. Government Fund 0.13%
Treasury Plus Fund 0.20%
Treasury Fund 0.14%
Municipal Market Fund
Institutional Shares 0.33%
Investor Shares 0.33%
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 Portfolio follows the
manager's name in parenthesis. Descriptions of the portfolio managers'
recent experience follow the list of portfolio managers.
<TABLE>
CASH INVESTMENT FUND
<S> <C>
PORTFOLIO: PRIME MONEY MARKET PORTFOLIO
PORTFOLIO MANAGERS: David D. Sylvester (1987), Laurie R. White (1991), and Robert G. Leuty
(1998)
PORTFOLIO: MONEY MARKET PORTFOLIO
PORTFOLIO MANAGERS: David D. Sylvester (1987), Laurie R. White (1991), and Robert G. Leuty
(1998)
READY CASH INVESTMENT FUND
<S> <C>
PORTFOLIO: PRIME MONEY MARKET PORTFOLIO
PORTFOLIO MANAGERS: David D. Sylvester (1987), Laurie R. White (1991), and Robert G. Leuty
(1998)
U.S. GOVERNMENT FUND
TREASURY FUND
TREASURY PLUS FUND
<S> <C>
PORTFOLIO MANAGERS: David D. Sylvester (1987, 1990, 1998), Laurie R. White (1991, 1991, 1998)
and Robert G. Leuty (1998)
MUNICIPAL MONEY MARKET FUND
<S> <C>
PORTFOLIO MANAGER: David D. Sylvester (1995), Laurie R. White (1998), and Robert G. Leuty
(1998).
</TABLE>
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.
<PAGE>
HOW TO BUY AND SELL SHARES
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.
o All of the Funds, except Ready Cash Investment Fund, offer
Institutional Shares. Institutional Shares are designed for
institutional investors.
o Ready Cash Investment Fund and Municipal Money Market Fund offer
Investor Shares. Investor Shares are designed for retail
investors.
DETERMINATION OF NET ASSET VALUE
Each Fund determines its net asset value or NAV on each Fund business day,
which is any day the New York Stock Exchange, or NYSE, is open, 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 NAVs at the
following times:
<TABLE>
<S> <C>
------------------------------------------------------ ----------------------------------------------------
Municipal Money Market Fund 12:00 p.m., Eastern Time
------------------------------------------------------ ----------------------------------------------------
------------------------------------------------------ ----------------------------------------------------
Treasury Fund 1:00 p.m., Eastern Time
------------------------------------------------------ ----------------------------------------------------
------------------------------------------------------ ----------------------------------------------------
U.S. Government Fund 2:00 p.m., Eastern Time
------------------------------------------------------ ----------------------------------------------------
------------------------------------------------------ ----------------------------------------------------
Cash Investment Fund and 3:00 p.m., Eastern Time
Ready Cash Investment Fund
------------------------------------------------------ ----------------------------------------------------
------------------------------------------------------ ----------------------------------------------------
Treasury Plus Fund 5:00 p.m., Eastern Time
------------------------------------------------------ ----------------------------------------------------
</TABLE>
In order to maintain NAVs 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.
You may purchase or sell (redeem) shares at a price equal to their NAV
next determined after receipt of your purchase order or redemption
request in proper form on Fund business days.
GENERAL PURCHASE INFORMATION
You may purchase shares directly or through a financial institution. The
Funds' transfer agent processes all transactions in Fund shares. Not all
Funds or share Classes offered in this prospectus are available for
purchase in all states. Please contact the Funds or your financial
representative for information about whether a Fund or share Class is
available in your state.
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>
Times indicated are Eastern Time.
FUND Order Must Be Payment Must Be
RECEIVED BY RECEIVED BY
<S> <C> <C>
Cash Investment Fund 3:00 p.m. 4:00 p.m.
Ready Cash Investment Fund 3:00 p.m. 4:00 p.m.
U.S. Government Fund 2:00 p.m. 4:00 p.m.
Treasury 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 NYSE 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:
BY REGULAR MAIL: Norwest Advantage Funds
P.O. Box 8265
Boston, MA 02266-8265
BY OVERNIGHT MAIL ONLY TO: Norwest Advantage Funds
Attn: CCSU
Boston Financial
66 Brooks Drive
Braintree, MA 02184
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.
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:
BY WIRE TO: State Street Bank & Trust
Boston, MA
ABA 011000028
FNF: (Norwest Advantage Fund name]
AC: 9905-434-8
For Further Credit: _____________
(Name on Norwest Advantage Fund Account
and Fund Account Number)
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 NAV 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 NAV
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 NYSE 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 NAV;
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 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 NAV 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.
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.
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.
o 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.
o Under the Cash Option, you are paid all distributions in cash.
o 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 NAV 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. 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 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.
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand each Fund's
financial performance. Total return in the table represents the rate that an
investor would have earned (or lost) on an investment in a Fund (assuming
reinvestment of all distributions). The information has been audited by KPMG
LLP, independent auditors. Each Fund's financial statements and the auditor's
reports, are included in the Fund's Annual Report, which is available upon
request, at no charge. These financial statements are incorporated by reference
into the SAI.
<TABLE>
Distributions Ending
Beginning Net from Net Net Asset
Net
Asset Value Investment Investment Value Per
Per Share Income Income Share
- ------------------------------------------------------------------------------------------
CASH INVESTMENT FUND
<S> <C> <C> <C> <C>
Year Ended May 31, 1999 $1.00 $0.049 ($0.049) $1.00
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
READY CASH INVESTMENT FUND
INVESTOR SHARES
Year Ended May 31, 1999 $1.00 $0.046 ($0.046) $1.00
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
Ratio to Average Net Assets
-------------------------------------------------------
Net Net Assets
at
Investment Net Gross Total End of
Period
Income Expenses Expenses(a) Return (000's
Omitted)
- -----------------------------------------------------------------------------------------------------
CASH INVESTMENT FUND
<S> <C> <C> <C> <C> <C>
Year Ended May 31, 1999 4.91%(b) 0.48%(b) 0.57%(b) 5.04% $5,481,802
Year Ended May 31, 1998 5.29%(b) 0.48%(b) 0.57%(b) 5.42% $4,685,818
Year Ended May 31, 1997 5.07% 0.48% 0.49% 5.21% $2,147,894
Year Ended May 31, 1996 5.36% 0.48% 0.49% 5.50% $1,739,549
Year Ended May 31, 1995 4.87% 0.48% 0.50% 4.96% $1,464,304
READY CASH INVESTMENT FUND
INVESTOR SHARES
Year Ended May 31, 1999 4.56%(b) 0.82%(b) 0.82%(B) 4.68% $953,175
Year Ended May 31, 1998 4.95%(b) 0.82%(b) 0.82%(b) 5.07% $789,380
Year Ended May 31, 1997 4.75% 0.82% 0.83% 4.87% $576,011
Year Ended May 31, 1996 5.02% 0.82% 0.87% 5.17% $473,879
Year Ended May 31, 1995 4.64% 0.82% 0.91% 4.62% $268,603
- ---------------------------------------------------------------------------------------
<FN>
(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.
</FN>
</TABLE>
<PAGE>
<TABLE>
Distributions Ending
Beginning Net Net from Net Net Asset
Asset Value Investment Investment Value Per
Per Share Income Income Share
- -------------------------------------------------------------------------------------------------
U.S. GOVERNMENT FUND
<S> <C> <C> <C> <C>
Year Ended May 31, 1999 $1.00 $0.047 ($0.047) $1.00
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
TREASURY PLUS FUND
July 6, 1998(b) to May 31, 1999 $1.00 $0.033 ($0.033) $1.00
TREASURY FUND
Year Ended May 31, 1999 $1.00 $0.044 ($0.044) $1.00
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
Ratio to Average Net Assets
----------------------------------------------
Net Net Assets at
Investment Net Gross Total End of Period
Income Expenses Expenses(a) Return (000's Omitted)
- -----------------------------------------------------------------------------------------------------
U.S. GOVERNMENT FUND
Year Ended May 31, 1999 4.69% 0.50% 0.52% 4.81% $3,368,534
Year Ended May 31, 1998 5.08% 0.50% 0.51% 5.20% $2,260,208
Year Ended May 31, 1997 4.91% 0.49% 0.49% 5.04% $1,912,574
Year Ended May 31, 1996 5.13% 0.50% 0.51% 5.27% $1,649,721
Year Ended May 31, 1995 4.68% 0.50% 0.52% 4.81% $1,159,421
TREASURY PLUS FUND
July 6, 1998(b) to May 31, 1999 4.25%(c) 0.50%(c) 0.84%(c) 3.30% $92,139
TREASURY FUND
Year Ended May 31, 1999 4.34% 0.46% 0.53% 4.49% $1,548,549
Year Ended May 31, 1998 4.89% 0.46% 0.54% 5.00% $1,440,515
Year Ended May 31, 1997 4.74% 0.46% 0.53% 4.87% $1,003,697
Year Ended May 31, 1996 4.91% 0.46% 0.56% 5.04% $802,270
Year Ended May 31, 1995 4.62% 0.46% 0.57% 4.65% $661,098
- ------------------------------------------------------------------------------------
<FN>
(a) The ratio of Gross Expenses to Average Net Assets does not reflect fee
waivers or expense reimbursements.
(b) Commencement of operations.
(c) Annualized.
</FN>
</TABLE>
<PAGE>
<TABLE>
Net Realized Distributions Ending
Beginning Net Net and Unrealized from Net Capital Net Asset
Asset Value Investment Gain (Loss) Investment Contribution Value Per
Per Share Income on Investments Income from Adviser Share
- --------------------------------------------------------------------------------------------------------------------------
MUNICIPAL MONEY MARKET FUND
INVESTOR SHARES
<S> <C> <C> <C> <C> <C> <C>
Year Ended May 31, 1999 $1.00 $0.027 -- ($0.027) -- $1.00
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
INSTITUTIONAL SHARES
Year Ended May 31, 1999 $1.00 $0.029 -- ($0.029) -- $1.00
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
Ratio to Average Net Assets
--------------------------------------------------
Net Net Assets at
Investment Net Gross Total End of Period
Income Expenses Expenses(a) Return (000's Omitted)
- --------------------------------------------------------------------------------------------------
MUNICIPAL MONEY MARKET FUND
INVESTOR SHARES
<S> <C> <C> <C> <C> <C>
Year Ended May 31, 1999 2.72% 0.65% 0.86% 2.76% $41,174
Year Ended May 31, 1998 3.13% 0.65% 0.83% 3.18% $44,070
Year Ended May 31, 1997 3.01% 0.65% 0.87% 3.08% $54,616
Year Ended May 31, 1996 3.25% 0.65% 0.88% 3.31% $57,021
Year Ended May 31, 1995 3.10% 0.65% 0.93% 3.13%(b) $47,424
INSTITUTIONAL SHARES
Year Ended May 31, 1999 2.91% 0.45% 0.57% 2.97% $1,019,589
Year Ended May 31, 1998 3.32% 0.45% 0.59% 3.39% $977,693
Year Ended May 31, 1997 3.21% 0.45% 0.70% 3.28% $635,655
Year Ended May 31, 1996 3.41% 0.45% 0.72% 3.52% $592,436
Year Ended May 31, 1995 3.37% 0.45% 0.74% 3.33%(b) $278,953
- -------------------------------------------------------------------------------------------------
<FN>
(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
the Adviser. Without the capital contribution, Total Return would have
been 2.59% for Investor Shares and 2.79% for Institutional
Shares.
</FN>
</TABLE>
<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, or
make inquiries concerning the Funds, 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. The scheduled hours of operation of the Public
Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. Free copies
of the reports and SAIs are available from the SEC's Internet website at
http://www.sec.gov.
The SEC's Investment Company Act file number for the Funds is 811-4881.
NORWEST ADVANTAGE FUNDS
PROSPECTUS
October 1, 1999
READY CASH INVESTMENT FUND
Exchange Shares
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.
THE BOARD OF TRUSTEES AND THE SHAREHOLDERS OF THE NORWEST ADVANTAGE FUNDS HAVE
APPROVED A REORGANIZATION OF THE FUNDS WITH THE STAGECOACH FUNDS ADVISED BY
WELLS FARGO BANK, N.A. THE BOARD OF DIRECTORS AND SHAREHOLDERS OF STAGECOACH
FUNDS ALSO HAVE APPROVED THE REORGANIZATION. THIS COMBINATION OF MUTUAL FUND
FAMILIES FOLLOWS THE MERGER OF WELLS FARGO & COMPANY AND NORWEST CORPORATION.
EACH OF THE NORWEST ADVANTAGE FUNDS AND THE STAGECOACH FUNDS WILL REORGANIZE
INTO A NEW PORTFOLIO OF WELLS FARGO FUNDS TRUST. THE REORGANIZATION IS PENDING
AND WILL BE COMPLETED AS SOON AS REASONABLY PRACTICABLE.
THE U.S. SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE
OF
CONTENTS
PAGE
RISK/RETURN SUMMARY.......................................
FEES AND EXPENSES OF THE FUNDS............................
GLOSSARY..................................................
INVESTMENT OBJECTIVES, STRATEGIES AND RISK CONSIDERATIONS.
Investment Objectives and Strategies.................
Risk Considerations..................................
OTHER CONSIDERATIONS......................................
MANAGEMENT OF THE FUNDS ..................................
HOW TO BUY AND SELL SHARES................................
DISTRIBUTIONS.............................................
FINANCIAL HIGHLIGHTS......................................
<PAGE>
13
RISK/RETURN SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN KEY INFORMATION ABOUT THE FUND. YOU WILL
FIND ADDITIONAL INFORMATION ABOUT THE FUND AFTER THIS SUMMARY.
THE FUND IS "GATEWAY" FUND IN A "CORE/GATEWAY" STRUCTURE. IN THIS STRUCTURE
"GATEWAY" FUNDS INVEST SOME OR ALL OF THEIR ASSETS IN ONE OR MORE "CORE"
PORTFOLIOS THAT HAVE A SUBSTANTIALLY IDENTICAL INVESTMENT OBJECTIVE AND
SUBSTANTIALLY SIMILAR POLICIES AS THE GATEWAY FUND. GATEWAY FUNDS INVESTING IN
THE SAME CORE PORTFOLIO, OR PORTFOLIO, CAN ENHANCE THEIR INVESTMENT
OPPORTUNITIES AND REDUCE THEIR EXPENSE RATIOS THROUGH SHARING THE COSTS OF
MANAGING A LARGE POOL OF ASSETS. EXCEPT WHEN NECESSARY TO DESCRIBE THE FUND'S
INVESTMENT IN THE PORTFOLIO, REFERENCES TO THE FUND ALSO INCLUDE THE PORTFOLIO.
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.
PRINCIPAL INVESTMENT STRATEGIES. THE FUND IS A "MONEY MARKET FUND" THAT SEEKS TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE. THE FUND PURSUES ITS
OBJECTIVES BY MAINTAINING A PORTFOLIO OF HIGH-QUALITY MONEY MARKET SECURITIES.
THE FUND PRIMARILY INVESTS IN MONEY MARKET INSTRUMENTS OF U.S. AND FOREIGN
ISSUERS.
PRINCIPAL RISKS. THE PRINCIPAL RISKS OF INVESTING IN THE FUND ARE:
O INTEREST RATE RISK: THIS IS THE RISK THAT CHANGES IN INTEREST RATES
WILL AFFECT THE VALUE OF THE FUND'S INVESTMENTS, PARTICULARLY THOSE
INVESTMENTS IN DEBT OR INCOME-PRODUCING SECURITIES. INCREASES IN
INTEREST RATES MAY CAUSE THE VALUE OF THE FUND'S INVESTMENTS TO
DECLINE.
O CREDIT RISK: THIS IS THE RISK THAT THE ISSUER OF A SECURITY WILL BE
UNABLE TO MAKE TIMELY PAYMENTS OF INTEREST OR PRINCIPAL OR TO
OTHERWISE HONOR ITS OBLIGATIONS.
THE FUND'S FOREIGN INVESTMENTS ARE SUBJECT TO FOREIGN RISK.
O FOREIGN RISK: THIS IS THE RISK OF INVESTMENTS LOCATED IN FOREIGN
COUNTRIES, WHICH MAY HAVE GREATER VOLATILITY AND LESS LIQUIDITY.
INVESTMENTS IN FOREIGN SECURITIES ALSO ARE SUBJECT TO POLITICAL,
REGULATORY AND DIPLOMATIC RISKS. FOREIGN RISK ALSO INCLUDES CURRENCY
RISK, WHICH MAY OCCUR DUE TO FLUCTUATIONS IN THE EXCHANGE RATES
BETWEEN THE U.S. DOLLAR AND FOREIGN CURRENCIES. THIS RISK COULD
NEGATIVELY AFFECT THE VALUE OF THE FUND'S INVESTMENTS.
ANOTHER IMPORTANT THING FOR YOU TO NOTE. 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.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart shows the Fund's annual total returns and the performance table
shows the Fund's average annual total returns. The bar chart and performance
table provide an indication of the historical risk of an investment in the Fund
by showing:
o changes in the Fund's performance from year to year over the life of
the Fund; and
o the Fund's average annual total returns for one year and the life of
the Fund.
The Fund's past performance does not necessarily indicate how it will perform in
the future.
[EDGAR Representation of Bar Chart]
Annual Total Return
1995 4.64%
1996 4.09%
1997 4.23%
1998 4.18%
The calendar year-to-date total return as of June 30, 1999 was 1.76%.
During the periods shown in the chart, the highest quarterly return was 1.17%
(for the quarter ended June 30, 1995) and the lowest quarterly return was 0.98%
(for the quarter ended June 30, 1996).
3
<PAGE>
The following table lists the Fund's average annual total returns as of December
31, 1998.
READY CASH
YEAR(S) INVESTMENT FUND
1 Year 4.18%
Since Inception (5/9/94) 4.13%
4
<PAGE>
FEES AND EXPENSES OF THE FUND
The following tables describe the fees and expenses that you will pay if you
invest in the Fund.
SHAREHOLDER TRANSACTION EXPENSES
(fees paid directly from your investment)
Exchange
Shares
- ------------------------------------------------------- --------------------
- ------------------------------------------------------- --------------------
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) Zero
Maximum Deferred Sales Charge (Load)
(as percentage of the lower of the Net Asset
Value ("NAV") at purchase or the NAV at 5.0%
redemption)
ANNUAL FUND OPERATING EXPENSES (1)
(expenses that are deducted from the fund's assets)
Investment Advisory Fees (2) 0.33%
Distribution (12b-1) Fees 1.00%
Other Expenses (2) 1.91%
Total Annual Fund Operating Expenses(3) 3.24%
(1) Based on amounts incurred during the Fund's fiscal year ended May 31, 1999
stated as a percentage of net assets.
(2) These fees include fees for the "core" portfolio in which the "gateway"
fund invests.
(3) The Fund is subject to voluntary fee waivers and expense reimbursements
that reduce the operating expenses of the Fund. See the Financial
Highlights table for information about Fund expenses net of fee waivers and
expense reimbursements
EXAMPLES OF EXPENSES
These examples are intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The examples assume that
you invest $10,000 in the Fund for the time periods indicated, that your
investment has a 5% annual return, that the Fund's operating expenses remain the
same, and that distributions are reinvested. Your actual costs may be higher or
lower than those shown.
You would pay the following expenses assuming that you redeem your shares at the
end of each period:
- ----------------------- -----------------------
Ready Cash
Investment Fund
- ----------------------- -----------------------
- ----------------------- -----------------------
Exchange Shares
- -----------------------
-----------------------
1 YEAR 727
- ----------------------- -----------------------
3 YEARS 1,298
- ----------------------- -----------------------
5 YEARS 1,893
- ----------------------- -----------------------
10 YEARS 3,540
- ----------------------- -----------------------
5
<PAGE>
YOU WOULD PAY THE FOLLOWING EXPENSES ASSUMING THAT YOU DO NOT REDEEM YOUR SHARES
AT THE END OF THE PERIODS SHOWN:
- ----------------------- -----------------------
Ready Cash
Investment Fund
- ----------------------- -----------------------
- ----------------------- -----------------------
Exchange Shares
- -----------------------
-----------------------
1 YEAR 327
- ----------------------- -----------------------
3 YEARS 998
- ----------------------- -----------------------
5 YEARS 1,693
- ----------------------- -----------------------
10 YEARS 3,540
- ----------------------- -----------------------
6
<PAGE>
INVESTMENT OBJECTIVE, STRATEGIES AND RISK CONSIDERATIONS
This section of the prospectus provides a more complete description of the
Fund's investment objective and principal strategies and risks. Except as
otherwise indicated, the Board of Trustees of Norwest Advantage Funds, or the
Board, may change the Fund's investment policies without shareholder approval.
The Fund's investment objective is fundamental and cannot be changed without a
shareholder vote. There can, of course, be no assurance that the Fund will
achieve its investment objective.
The Fund is "gateway" fund in a "core/gateway" structure. In this structure
"gateway" funds invest some or all of their assets in one or more "core"
portfolios that have a substantially identical investment objective and
substantially similar policies as the gateway fund. Gateway funds investing in
the same core portfolio, or Portfolio, can enhance their investment
opportunities and reduce their expense ratios through sharing the costs of
managing a large pool of assets. Except when necessary to describe the Fund's
investment in the Portfolio, references to the Fund also include the Portfolio.
INVESTMENT OBJECTIVE AND STRATEGIES
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.
The Fund's investments are made under the requirements of a SEC rule governing
money market funds. The Fund invests only in high-quality, U.S.
dollar-denominated short-term money market instruments that are determined by
the investment 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 nationally recognized statistical
rating organizations, or NRSROs, or, if only 1 NRSRO has issued a rating, by
that NRSRO; or (2) are otherwise unrated and determined by the investment
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 securities issued or guaranteed as to
principal and interest by the U.S. Government, its agencies or its
instrumentalities, 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.
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.
RISK CONSIDERATIONS
The Fund's principal risks are interest rate risk and credit risk. Because the
Fund invests in short-term securities, a decline in interest rates will affect
the Fund's yields as these securities mature or are sold and the Fund purchases
new short-term securities with lower yields. Generally, an increase in interest
rates causes the value of a debt instrument to decrease. The change in value for
short-term securities is usually smaller than for securities with longer
maturities. Because the Fund invests in securities with short maturities and
seeks to maintain a stable net asset value of $1.00 per share, it is possible,
though unlikely, that an increase in interest rates would change the value of
your investment.
Credit risk is the possibility that a security's credit rating will be
downgraded or that the issuer of a security will default (fail to make scheduled
interest and principal payments). The Fund invests in highly-rated securities to
minimize credit risk.
7
<PAGE>
The Fund's foreign investments are subject to foreign risk. Foreign securities
issuers usually are not subject to the same degree of regulation as U.S.
issuers. Reporting, accounting and auditing standards of foreign countries
differ, in some cases, significantly from U.S. standards. Foreign risk includes
nationalization, expropriation or confiscatory taxation, political changes or
diplomatic developments that could adversely affect the Fund's investments.
Foreign risk also includes currency risk, which may occur due to fluctuations in
the exchange rates between the U.S. dollar and foreign currencies. This risk
could negatively affect the value of the Fund's investments.
Loss of money is a risk of investing in the Fund.
OTHER CONSIDERATIONS
YEAR 2000
Certain computer systems may not process date-related information properly on
and after January 1, 2000. The investment adviser is addressing this matter for
its systems. The Fund's other service providers have informed the Fund that they
are taking similar measures. Investments in foreign companies are particularly
vulnerable to Year 2000 risk because these companies may not have the financial
resources, technology, or personnel needed to address Year 2000 readiness
concerns. This matter, if not corrected, could adversely affect the services
provided to the Fund or the issuers in which the Fund invests and could,
therefore, lower the value of your Fund shares.
MANAGEMENT OF THE FUND
INVESTMENT ADVISORY SERVICES
NORWEST INVESTMENT MANAGEMENT, INC. or NIM, which is now a wholly-owned
subsidiary of Wells Fargo & Company, Norwest Center, Sixth Street and Marquette,
Minneapolis, MN 55479, is the investment adviser for the Fund and Portfolio. In
this capacity, NIM makes investment decisions for and administers the Fund's and
Portfolio's investment programs. As of June 30, 1999, NIM provided advisory
services for over $24 billion in assets.
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: For the fiscal year ended May 31, 1999, the Fund paid Norwest
0.33% as a percentage of 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 Fund. NORWEST BANK acts as the Fund's transfer
agent, distribution disbursing agent and custodian.
8
<PAGE>
CHARACTERISTICS OF EXCHANGE 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.
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 Fund's 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 contingent deferred sales charge,
or 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 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.
HOW TO BUY AND SELL SHARES
DETERMINATION OF NET ASSET VALUE
The Fund determines its net asset value or NAV at 3:00 p.m., Eastern Time, on
each Fund business day, which is any day the New York Stock Exchange, or NYSE,
is open, 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 NAV 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.
You may exchange for or redeem shares at a price equal to their NAV 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.
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 offered in this prospectus may not be available for purchase in all
states. Please contact the Fund or your financial representative for information
about whether the Fund is available in your state.
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.
9
<PAGE>
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 NYSE 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:
BY REGULAR MAIL: Norwest Advantage Funds
P.O. Box 8265
Boston, MA 02266-8265
BY OVERNIGHT MAIL ONLY TO: Norwest Advantage Funds
Attn: CCSU
Boston Financial
66 Brooks Drive
Braintree, MA 02184
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.
10
<PAGE>
GENERAL REDEMPTION INFORMATION
You may redeem Exchange Shares on any Fund business day at their NAV subject to
a CDSC in the amount you would have had to pay if you had not exchanged your
original B Shares. There is no minimum period of investment and no restriction
on the frequency of redemptions.
Fund shares are redeemed as of the next determination of the Fund's NAV
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 NYSE 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 NAV 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 NAV 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
11
<PAGE>
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 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.
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.
o 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.
o Under the Cash Option, you are paid all distributions in cash.
o 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.
12
<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 NAV 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. The Fund's income from foreign
investments may be subject to foreign income or other taxes.
13
<PAGE>
Financial Highlights
The financial highlights table is intended to help you understand each Fund's
financial performance. Total return in the table represents the rate that an
investor would have earned (or lost) on an investment in a Fund (assuming
reinvestment of all distributions). The information has been audited by KPMG
LLP, independent auditors. Each Fund's financial statements and the auditor's
reports, are included in the Fund's Annual Report, which is available upon
request, at no charge. These financial statements are incorporated by reference
into the SAI.
<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
- -----------------------------------------------------------------------------------------------------------------------
Ready Cash Investment Fund
Exchange Shares
Year Ended May 31, 1999 $1.00 $0.038 -- ($0.038) $1.00
Year Ended May 31, 1998 $1.00 $0.050 ($0.008) ($0.042) $1.00
Year Ended May 31, 1997 $1.00 $0.040 -- ($0.040) $1.00
Year Ended May 31, 1996 $1.00 $0.043 -- ($0.043) $1.00
Year Ended May 31, 1995 $1.00 $0.038 -- ($0.038) $1.00
Ratio to Average Net Assets
------------------------------------
Net Net Assets at
Investment Net Gross Total End of Period
Income Expenses Expenses(a) Return (000's Omitted)
- --------------------------------------------------------------------------------------------------------
Ready Cash Investment Fund
Exchange Shares
Year Ended May 31, 1999 3.76%(b) 1.57%(b) 3.24%(b) 3.90% $1,205
Year Ended May 31, 1998 4.21%(b) 1.56%(b) 5.57%(b) 4.29% $337
Year Ended May 31, 1997 4.03% 1.57% 5.66% 4.09% $655
Year Ended May 31, 1996 4.32% 1.57% 8.24% 4.38% $129
Year Ended May 31, 1995 3.62% 1.57% 6.32% 3.69% $160
</TABLE>
(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.
14
<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, or
make inquiries concerning the Fund, by contacting your broker or trust officer,
by contacting Norwest Advantage Funds, 733 Marquette Avenue, Minneapolis,
Minnesota 55479 or by calling 1-800-338-1348 or 1-612-667-8833.
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. The scheduled hours of operation of the Public
Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. Free copies
of the reports and SAI are available from the SEC's Internet website at
http://www.sec.gov.
The SEC's Investment Company Act file number for the Fund is 811-4881.
<PAGE>
NORWEST ADVANTAGE FUNDS
PROSPECTUS
October 1, 1999
READY CASH INVESTMENT FUND
Public Entities Shares
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.
THE BOARD OF TRUSTEES AND THE SHAREHOLDERS OF THE NORWEST ADVANTAGE FUNDS HAVE
APPROVED A REORGANIZATION OF THE FUNDS WITH THE STAGECOACH FUNDS ADVISED BY
WELLS FARGO BANK, N.A. THE BOARD OF DIRECTORS AND SHAREHOLDERS OF STAGECOACH
FUNDS ALSO HAVE APPROVED THE REORGANIZATION. THIS COMBINATION OF MUTUAL FUND
FAMILIES FOLLOWS THE MERGER OF WELLS FARGO & COMPANY AND NORWEST CORPORATION.
EACH OF THE NORWEST ADVANTAGE FUNDS AND THE STAGECOACH FUNDS WILL REORGANIZE
INTO A NEW PORTFOLIO OF WELLS FARGO FUNDS TRUST. THE REORGANIZATION IS PENDING
AND WILL BE COMPLETED AS SOON AS REASONABLY PRACTICABLE.
THE U.S. SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
PAGE
RISK/RETURN SUMMARY........................................
FEES AND EXPENSES OF THE FUNDS.............................
GLOSSARY...................................................
INVESTMENT OBJECTIVES, STRATEGIES AND RISK CONSIDERATIONS..
Investment Objectives and Strategies..................
Risk Considerations...................................
OTHER CONSIDERATIONS.......................................
MANAGEMENT OF THE FUNDS ...................................
HOW TO BUY AND SELL SHARES.................................
DISTRIBUTIONS..............................................
FINANCIAL HIGHLIGHTS.......................................
<PAGE>
RISK/RETURN SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN KEY INFORMATION ABOUT THE FUND. YOU WILL
FIND ADDITIONAL INFORMATION ABOUT THE FUND AFTER THE SUMMARY.
THE FUND IS "GATEWAY" FUND IN A "CORE/GATEWAY" STRUCTURE. IN THIS STRUCTURE
"GATEWAY" FUNDS INVEST SOME OR ALL OF THEIR ASSETS IN ONE OR MORE "CORE"
PORTFOLIOS THAT HAVE A SUBSTANTIALLY IDENTICAL INVESTMENT OBJECTIVE AND
SUBSTANTIALLY SIMILAR POLICIES AS THE GATEWAY FUND. GATEWAY FUNDS INVESTING IN
THE SAME CORE PORTFOLIO, OR PORTFOLIO, CAN ENHANCE THEIR INVESTMENT
OPPORTUNITIES AND REDUCE THEIR EXPENSE RATIOS THROUGH SHARING THE COSTS OF
MANAGING A LARGE POOL OF ASSETS. EXCEPT WHEN NECESSARY TO DESCRIBE THE FUND'S
INVESTMENT IN THE PORTFOLIO, REFERENCES TO THE FUND ALSO INCLUDE THE PORTFOLIO.
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.
PRINCIPAL INVESTMENT STRATEGIES. THE FUND IS A "MONEY MARKET FUND" THAT SEEKS TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE. THE FUND PURSUES ITS
OBJECTIVES BY MAINTAINING A PORTFOLIO OF HIGH-QUALITY MONEY MARKET SECURITIES.
THE FUND PRIMARILY INVESTS IN MONEY MARKET INSTRUMENTS OF U.S. AND FOREIGN
ISSUERS.
PRINCIPAL RISKS. THE PRINCIPAL RISKS OF INVESTING IN THE FUND ARE:
O INTEREST RATE RISK: THIS IS THE RISK THAT CHANGES IN INTEREST RATES
WILL AFFECT THE VALUE OF THE FUND'S INVESTMENTS, PARTICULARLY THOSE
INVESTMENTS IN DEBT OR INCOME-PRODUCING SECURITIES. INCREASES IN
INTEREST RATES MAY CAUSE THE VALUE OF THE FUND'S INVESTMENTS TO
DECLINE.
O CREDIT RISK: THIS IS THE RISK THAT THE ISSUER OF A SECURITY WILL BE
UNABLE TO MAKE TIMELY PAYMENTS OF INTEREST OR PRINCIPAL OR TO
OTHERWISE HONOR ITS OBLIGATIONS.
THE FUND'S FOREIGN INVESTMENTS ARE SUBJECT TO FOREIGN RISK.
O FOREIGN RISK: THIS IS THE RISK OF INVESTMENTS LOCATED IN FOREIGN
COUNTRIES, WHICH MAY HAVE GREATER VOLATILITY AND LESS LIQUIDITY.
INVESTMENTS IN FOREIGN SECURITIES ALSO ARE SUBJECT TO POLITICAL,
REGULATORY AND DIPLOMATIC RISKS. FOREIGN RISK ALSO INCLUDES CURRENCY
RISK, WHICH MAY OCCUR DUE TO FLUCTUATIONS IN THE EXCHANGE RATES
BETWEEN THE U.S. DOLLAR AND FOREIGN CURRENCIES. THIS RISK COULD
NEGATIVELY AFFECT THE VALUE OF THE FUND'S INVESTMENTS.
ANOTHER IMPORTANT THING FOR YOU TO NOTE. 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.
BAR CHART AND PERFORMANCE INFORMATION
Because this class of the Fund has not yet completed a full year of operations,
there is no bar chart or performance information. 2
<PAGE>
FEES AND EXPENSES OF THE FUND
The following tables describe the fees and expenses that you will pay if you
invest in the Fund.
SHAREHOLDER TRANSACTION EXPENSES
(fees paid directly from your investment)
None
ANNUAL FUND OPERATING EXPENSES (1)
(expenses that are deducted from Fund assets)
Investment Advisory Fees (2) 0.33%
Other Expenses (2) 0.41%
Total Annual Fund Operating Expenses(3) 0.74%
(1) Based on amounts incurred during the Fund's fiscal year ended May 31, 1999
stated as a percentage of net assets.
(2) These fees include fees for the "core" portfolio in which the "gateway"
fund invests.
(3) The Fund is subject to voluntary fee waivers and expense reimbursements
that reduce the operating expenses of the Funds. See the Financial
Highlights table for information about fund expenses net of fee waivers and
expense reimbursements.
EXAMPLES OF EXPENSES
These examples are intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The examples assume that
you invest $10,000 in the Fund for the time periods indicated, that your
investment has a 5% annual return, that the Fund's operating expenses remain the
same, that distributions are reinvested, and that you redeem your shares at the
end of each period. Your actual costs may be higher or lower than those shown.
- ----------------------- -----------------------
Ready Cash
Investment Fund
- ----------------------- -----------------------
- ----------------------- -----------------------
Public Entities Shares
- -----------------------
-----------------------
1 YEAR 76
- ----------------------- -----------------------
3 YEARS 237
- ----------------------- -----------------------
5 YEARS 411
- ----------------------- -----------------------
10 YEARS 918
- ----------------------- -----------------------
3
<PAGE>
INVESTMENT OBJECTIVE, STRATEGIES AND RISK CONSIDERATIONS
This section of the prospectus provides a more complete description of the
Fund's investment objective and principal strategies and risks. Except as
otherwise indicated, the Board of Trustees of Norwest Advantage Funds, or the
Board, may change the Fund's investment policies without shareholder approval.
The Fund's investment objective is fundamental and cannot be changed without a
shareholder vote. There can, of course, be no assurance that the Fund will
achieve its investment objective.
The Fund is "gateway" fund in a "core/gateway" structure. In this structure
"gateway" funds invest some or all of their assets in one or more "core"
portfolios that have a substantially identical investment objective and
substantially similar policies as the gateway fund. Gateway funds investing in
the same core portfolio, or Portfolio, can enhance their investment
opportunities and reduce their expense ratios through sharing the costs of
managing a large pool of assets. Except when necessary to describe the Fund's
investment in the Portfolio, references to the Fund also include the Portfolio.
INVESTMENT OBJECTIVE AND STRATEGIES
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.
The Fund's investments are made under the requirements of a SEC rule governing
money market funds. The Fund invests only in high-quality, U.S.
dollar-denominated short-term money market instruments that are determined by
the investment 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 nationally recognized statistical
rating organizations, or NRSROs, or, if only 1 NRSRO has issued a rating, by
that NRSRO; or (2) are otherwise unrated and determined by the investment
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 securities issued or guaranteed as to
principal and interest by the U.S. Government, its agencies or its
instrumentalities, 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.
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.
RISK CONSIDERATIONS
The Fund's principal risks are interest rate risk and credit risk. Because the
Fund invests in short-term securities, a decline in interest rates will affect
the Fund's yields as these securities mature or are sold and the Fund purchases
new short-term securities with lower yields. Generally, an increase in interest
rates causes the value of a debt instrument to decrease. The change in value for
short-term securities is usually smaller than for securities with longer
maturities. Because the Fund invests in securities with short maturities and
seeks to maintain a stable net asset value of $1.00 per share, it is possible,
though unlikely, that an increase in interest rates would change the value of
your investment.
Credit risk is the possibility that a security's credit rating will be
downgraded or that the issuer of a security will default (fail to make scheduled
interest and principal payments). The Fund invests in highly-rated securities to
minimize credit risk.
4
<PAGE>
The Fund's foreign investments are subject to foreign risk. Foreign securities
issuers usually are not subject to the same degree of regulation as U.S.
issuers. Reporting, accounting and auditing standards of foreign countries
differ, in some cases, significantly from U.S. standards. Foreign risk includes
nationalization, expropriation or confiscatory taxation, political changes or
diplomatic developments that could adversely affect the Fund's investments.
Foreign risk also includes currency risk, which may occur due to fluctuations in
the exchange rates between the U.S. dollar and foreign currencies. This risk
could negatively affect the value of the Fund's investments.
Loss of money is a risk of investing in the Fund.
OTHER CONSIDERATIONS
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 investment adviser determines
that retaining the security is in the best interests of the Fund.
YEAR 2000
Certain computer systems may not process date-related information properly on
and after January 1, 2000. The investment adviser is addressing this matter for
its systems. The Fund's other service providers have informed the Fund that they
are taking similar measures. Investments in foreign companies are particularly
vulnerable to Year 2000 risk because these companies may not have the financial
resources, technology, or personnel needed to address Year 2000 readiness
concerns. This matter, if not corrected, could adversely affect the services
provided to the Fund or the issuers in which the Fund invests and could,
therefore, lower the value of your Fund shares.
5
<PAGE>
MANAGEMENT OF THE FUND
INVESTMENT ADVISORY SERVICES
NORWEST INVESTMENT MANAGEMENT, INC. or NIM, which is now a wholly-owned
subsidiary of Wells Fargo & Company, Norwest Center, Sixth Street and Marquette,
Minneapolis, MN 55479, is the investment adviser for the Fund and Portfolio. In
this capacity, NIM makes investment decisions for and administers the Fund's and
Portfolio's investment programs. As of June 30, 1999, NIM provided advisory
services for over $24 billion in assets.
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 1998. 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: For the fiscal year ended May 31, 1999, the Fund paid Norwest
0.33% as a percentage of 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 Fund. NORWEST BANK acts as the Fund's transfer
agent, distribution disbursing agent and custodian.
6
<PAGE>
HOW TO BUY AND SELL SHARES
DETERMINATION OF NET ASSET VALUE
The Fund determines its net asset value or NAV at 3:00p.m., Eastern Time, on
each Fund business day, which is any day the New York Stock Exchange, or NYSE,
is open, 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 NAV 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.
You may purchase or redeem shares at a price equal to their NAV next determined
after receipt of your purchase order or redemption request in proper form on
Fund business days.
GENERAL PURCHASE INFORMATION
You may purchase shares directly or through a financial institution. The Fund's
transfer agent processes all transactions in Fund shares. The Fund offered in
this prospectus may not be available for purchase in all states. Please contact
the Fund or your financial representative for information about whether the Fund
is available in your state.
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 NYSE 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.
PURCHASE PROCEDURES
PURCHASING SHARES DIRECTLY
You may obtain an account application by writing Norwest Advantage Funds at the
following address:
BY REGULAR MAIL: Norwest Advantage Funds
P.O. Box 8265
Boston, MA 02266-8265
BY OVERNIGHT MAIL ONLY TO: Norwest Advantage Funds
Attn: CCSU
Boston Financial
66 Brooks Drive
Braintree, MA 02184
7
<PAGE>
When you sign an application for a new Fund account, you are certifying that
your Social Security number or other taxpayer identification number is correct
and that you are not subject to backup withholding. If you violate certain
federal income tax provisions, the Internal Revenue Service can require the Fund
to withhold 31% of your distributions and redemptions.
You must pay for your shares in U.S. dollars by check or money order drawn on a
U.S. bank, by bank or federal funds wire transfer or by electronic bank
transfer. Cash cannot be accepted.
Call or write the transfer agent if you wish to participate in shareholder
services not offered on the account application or change information on your
account (such as addresses). Norwest Advantage Funds may in the future modify,
limit or terminate any shareholder privilege upon appropriate notice and may
charge a fee for certain shareholder services, although no such fees are
currently contemplated. You may terminate your participation in any shareholder
program by writing to Norwest Advantage Funds.
PURCHASES BY MAIL. You may send a check or money order 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:
BY WIRE TO: State Street Bank & Trust
Boston, MA
ABA 011000028
FNF: (Norwest Advantage Fund name]
AC: 9905-434-8
For Further Credit: _____________
(Name on Norwest Advantage Fund Account
and Fund Account Number)
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.
8
<PAGE>
GENERAL REDEMPTION INFORMATION
You may redeem Fund shares at their NAV 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 NAV
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 (1) your bank has not cleared the check to purchase the shares (which may
take up to 15 days), (2) the NYSE 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 NAV 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 NAV 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.
9
<PAGE>
REDEMPTION BY BANK WIRE. If you have elected wire redemption privileges, you may
request the Fund to transmit redemption proceeds of more than $5,000 by federal
funds wire to a bank account you have designated in writing. You must have
chosen the telephone redemption privilege to request bank redemptions by
telephone. Redemption proceeds are transmitted by wire on the Fund business day
the transfer agent receives a redemption request in proper form.
EXCHANGES
You may exchange Public Entities Shares for shares of other funds of Norwest
Advantage Funds. Call or write the transfer agent for more information.
The Fund does not charge for exchanges, and there is currently no limit on the
number of exchanges you may make. The Fund, however, may limit your ability to
exchange shares if you exchange too often. Exchanges are subject to the fees
charged by, and the limitations (including minimum investment restrictions) of
the fund into which you are exchanging.
You may only exchange shares into a pre-existing account if that account is
identically registered. You must submit a new account application if you wish to
exchange shares into an account registered differently or with different
shareholder privileges. You may exchange into a fund only if that fund's shares
may legally be sold in your state of residence.
The Fund and federal tax law treat an exchange as a redemption and a purchase of
shares. 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.
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.
o 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.
o Under the Cash Option, you are paid all distributions in cash.
o 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 NAV as of the payment date of
the distribution.
10
<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. The Fund's income from foreign
investments may be subject to foreign income or other taxes.
11
<PAGE>
Financial Highlights
The financial highlights table is intended to help you understand each Fund's
financial performance. Total return in the table represents the rate that an
investor would have earned (or lost) on an investment in a Fund (assuming
reinvestment of all distributions). The information has been audited by KPMG
LLP, independent auditors. Each Fund's financial statements and the auditor's
reports, are included in the Fund's Annual Report, which is available upon
request, at no charge. These financial statements are incorporated by reference
into the SAI.
PERIOD ENDED
READY CASH INVESTMENT FUND MAY 31, 1999(A)
PUBLIC ENTITIES SHARES
Beginning Net Asset Value Per Share $1.00
Investment Operations
Net Investment Income (Loss) 0.035
Net Realized and Unrealized Gain (Loss) on Investments -
Total from Investment Operations 0.035
Distributions From:
Net Investment Income (0.35)
----------------
Ending Net Asset Value Per Share $1.00
Total Return 3.59%
Supplementary Data:
Net Assets at End of Period (000's omitted) $68,771
Ratios to Average Net Assets(b)(c):
Net Investment Income (Loss) 4.69%
Net Expenses 0.54%
Gross Expenses 0.74%
- --------------------------------------------------------------- ----------------
(a) The class commenced operations on September 2, 1998.
(b) Includes expenses allocated from the Portfolio(s) in which the Fund
invests.
(c) Annualized.
12
<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, or
make inquiries concerning the Fund, by contacting your broker or trust officer,
by contacting Norwest Advantage Funds, 733 Marquette Avenue, Minneapolis,
Minnesota 55479 or by calling 1-800-338-1348 or 1-612-667-8833.
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. The scheduled hours of operation of the Public
Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. Free copies
of the reports and SAI are available from the SEC's Internet website at
http://www.sec.gov.
The SEC's Investment Company Act file number for the Fund is 811-4881.
NORWEST ADVANTAGE FUNDS
P R O S P E C T U S
October 1, 1999
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 FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
THE BOARD OF TRUSTEES AND THE SHAREHOLDERS OF THE NORWEST ADVANTAGE FUNDS HAVE
APPROVED A REORGANIZATION OF THE FUNDS WITH THE STAGECOACH FUNDS ADVISED BY
WELLS FARGO BANK, N.A. THE BOARD OF DIRECTORS AND SHAREHOLDERS OF STAGECOACH
FUNDS ALSO HAVE APPROVED THE REORGANIZATION. THIS COMBINATION OF MUTUAL FUND
FAMILIES FOLLOWS THE MERGER OF WELLS FARGO & COMPANY AND NORWEST CORPORATION.
EACH OF THE NORWEST ADVANTAGE FUNDS AND THE STAGECOACH FUNDS WILL REORGANIZE
INTO A NEW PORTFOLIO OF WELLS FARGO FUNDS TRUST. THE REORGANIZATION IS PENDING
AND WILL BE COMPLETED AS SOON AS REASONABLY PRACTICABLE.
THE U.S. SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
RISK/RETURN SUMMARY............................................................2
STABLE INCOME FUND....................................................3
INTERMEDIATE GOVERNMENT INCOME FUND...................................5
INCOME FUND...........................................................8
TOTAL RETURN BOND FUND...............................................11
FEES AND EXPENSES OF THE FUNDS................................................14
GLOSSARY 17
INVESTMENT OBJECTIVES, STRATEGIES AND RISK CONSIDERATIONS.....................18
OTHER CONSIDERATIONS..........................................................23
MANAGEMENT OF THE FUNDS.......................................................24
CHOOSING A SHARE CLASS........................................................26
HOW TO BUY AND SELL SHARES....................................................29
DISTRIBUTIONS AND TAX
MATTERS..............................................................34
FINANCIAL HIGHLIGHTS............................................................
<PAGE>
RISK/RETURN SUMMARY
The following is a summary of certain key information about the Funds. You will
find additional information about the Funds after this summary.
Some of the Funds invest directly in a portfolio of securities. Other Funds are
"gateway" funds in a "core/gateway" structure. In this structure a "gateway"
fund invests some or all of its assets in one or more "core portfolios" that
have a substantially identical investment objective and substantially similar
policies as the gateway fund. Gateway funds investing in the same core
portfolio, or Portfolio, can enhance their investment opportunities and reduce
their expense ratios through sharing the costs of managing a large pool of
assets. Except when necessary to describe a Fund's investment in a Portfolio,
references to the gateway fund also include the Portfolio, which is discussed
after this section.
In this summary, we will identify certain kind of risks that apply to one or
more of the Funds. These risks are:
o INTEREST RATE RISK. THIS IS THE RISK THAT CHANGES IN INTEREST RATES
WILL AFFECT THE VALUE OF A FUND'S INVESTMENTS, PARTICULARLY THOSE
INVESTMENTS IN DEBT OR INCOME-PRODUCING SECURITIES. INCREASES IN
INTEREST RATES MAY CAUSE THE VALUE OF A FUND'S INVESTMENTS TO DECLINE.
O CREDIT RISK. THIS IS THE RISK THAT THE ISSUER OF A SECURITY WILL BE
UNABLE TO MAKE TIMELY PAYMENTS OF INTEREST OR PRINCIPAL OR TO
OTHERWISE HONOR ITS OBLIGATIONS.
O MANAGEMENT RISK. THIS IS THE RISK THAT A FUND'S MANAGER WILL MAKE POOR
CHOICES IN SELECTED SECURITIES. ALL ACTIVELY MANAGED FUNDS HAVE
MANAGEMENT RISK.
The Risk/Return Summary includes a bar chart for each Fund showing its annual
returns and a table showing its average annual returns. The bar chart and table
provide an indication of the historical risk of an investment in each Fund by
showing:
o changes in the Fund's performance from year to year over 10 years or,
if less, the life of a Fund; and
o how the Fund's average annual returns for one, five and 10 years, or,
if less, the life of the Fund, compare to those of a broad-based
securities market index.
A Fund's past performance does not necessarily indicate how it will perform in
the future.
Another important thing for you to note: You may lose money by investing in a
Fund.
3
<PAGE>
STABLE INCOME FUND
OBJECTIVE. The investment objective of the Fund is to maintain safety of
principal while providing low volatility total return.
PRINCIPAL INVESTMENT STRATEGY. The Fund invests in a diversified portfolio of,
primarily, short-term investment grade securities (rated in the 2 highest
short-term ratings categories or of comparable quality). The Fund invests in
fixed and variable rate U.S. dollar-denominated debt securities of a broad
spectrum of U.S. issuers, including U.S. Government securities. The Fund's
investments may include mortgage-related and asset-backed securities. The Fund
seeks to maintain average dollar-weighted portfolio maturity of between 2 and 5
years. Its duration (measure of the current value of cash flows), however is
short-term and will be maintained at 80% to 120% of that of a 1-year U.S.
Treasury Bill.
PRINCIPAL RISKS. The principal risks of investing in the Fund are interest rate
risk and credit risk. The Fund's investments in mortgage-related and
asset-backed securities have prepayment risk, which is the risk that mortgage
loans or other obligations will be prepaid when interest rates decline, forcing
the Fund to reinvest in securities with lower interest rates. For this and other
reasons, mortgage-related and asset-backed securities may have significantly
greater price and yield volatility than traditional debt securities. Loss of
money is a risk of investing in the Fund.
BAR CHART AND PERFORMANCE
INFORMATION
The bar chart and performance table provide an indication of the historical risk
of an investment in the Fund by showing changes in the Fund's performance from
year to year over the life of the Fund and how the Fund's average annual returns
compare to those of a broad-based securities index. Past performance does not
necessarily indicate future performance.
The annual returns in the bar chart are for the Fund's Class A Shares and do not
reflect sales loads. If sales loads were reflected, the returns would be less
than those shown.
[EDGAR Representation of Bar Chart]
ANNUAL TOTAL RETURN
1995 7.93%
1996 5.46%
1997 6.46%
1998 5.87%
The calendar year-to-date total return as of June 30, 1999 was
1.46%.
During the periods shown in the chart, the highest quarterly return was 2.24%
(for the quarter ended June 30, 1995) and the lowest quarterly return was 0.89%
(for the quarter ended December 31, 1998).
The following table compares the Fund's average annual total returns as of
December 31, 1998 to the Lehman 1-3 Year Government Index.
4
<PAGE>
<TABLE>
<S> <C> <C> <C>
STABLE STABLE LEHMAN
INCOME FUND INCOME FUND 1-3 YEAR GOVERNMENT INDEX
YEAR(S) A SHARES* B SHARES*
1 Year 4.28% 3.48% 6.96%
Since Inception (11/9/94) 5.99%(1) 5.55%(1) 7.00%(1)
</TABLE>
(1) For the period 10/31/94 - 12/31/98.
* 5/2/96 was the inception date of Class A Shares of the Fund. Returns prior
to that date are for Class I Shares.
* 5/17/96 was the inception date of Class B Shares of the Fund. Returns prior
to that date are for Class I Shares, adjusted for Class B Share expenses.
The Lehman 1-3 Year Government Index is an unmanaged market capitalization
weighted total rate of return index including U.S. Treasury and agency
securities. All bonds must be greater than or equal to one year or less than
three years from maturity.
5
<PAGE>
INTERMEDIATE GOVERNMENT INCOME FUND
OBJECTIVE. The investment objective of the Fund is to provide income and safety
of principal by investing primarily in U.S. Government securities.
PRINCIPAL INVESTMENT STRATEGY. The Fund normally invests at least 65% of its
total assets in fixed and variable rate U.S. Government securities and may
invest up to 35% of its total assets in debt securities that are not U.S.
Government obligations. The Fund's investments include mortgage-backed and
asset-backed securities. In selecting investments, the Fund emphasizes the use
of intermediate maturity securities to lessen interest rate risk and uses
mortgage-backed securities to enhance yield. The Fund invests in securities that
are rated in the 2 highest rating categories, or are of comparable quality. The
Fund seeks to maintain average dollar-weighted portfolio maturity of between 3
to 10 years.
PRINCIPAL RISKS. The principal risks of investing in the Fund are interest rate
risk and credit risk. The Fund's investments in mortgage-backed and asset-backed
securities have prepayment risk, which is the risk that mortgage loans or other
obligations will be prepaid when interest rates decline, forcing the Fund to
reinvest in securities with lower interest rates. For this and other reasons,
mortgage-related and asset-backed securities may have significantly greater
price and yield volatility than traditional debt securities. Loss of money is a
risk of investing in the Fund.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance table provide an indication of the historical risk
of an investment in the Fund by showing changes in the Fund's performance from
year to year over 10 years and how the Fund's average annual returns compare to
those of a broad-based securities index. Past performance does not necessarily
indicate future performance.
The annual returns in the bar chart are for the Fund's Class A Shares and do not
reflect sales loads. If sales loads were reflected, the returns would be less
than those shown.
[EDGAR Representation of Bar Chart]
ANNUAL TOTAL RETURN
1989 9.72%
1990 8.78%
1991 14.00%
1992 6.00%
1993 8.96%
1994 -6.16%
1995 13.75%
1996 3.13%
1997 8.72%
1998 9.65%
The calendar year-to-date total return as of June 30, 1999 was
- -2.71%.
During the periods shown in the chart, the highest quarterly return was 5.91%
(for the quarter ended September 30, 1998) and the lowest quarterly return was
- -3.73% (for the quarter ended June 30, 1994).
6
<PAGE>
The following table compares the Fund's average annual total returns as of
December 31, 1998 to the Lehman Intermediate Government Index.
<TABLE>
<S> <C> <C> <C>
INTERMEDIATE GOVERNMENT INTERMEDIATE GOVERNMENT LEHMAN
INCOME FUND INCOME FUND INTERMEDIATE GOVERNMENT
A SHARES* B SHARES* INDEX
YEAR(S)
1 Year 4.72% 3.73% 8.47%
5 Year 4.62% 4.47% 7.15%
10 Year 7.01% 6.70% 8.69%
Since Inception (12/31/82) 7.61%(1) 5.55%(1) 9.13%
</TABLE>
* 5/2/96 was the inception date of Class A Shares of the Fund. Returns prior
to that date are for Class I Shares. Performance shown for Class A Shares
for the period prior to November 11, 1994 reflects performance of the
shares of the predecessor collective investment fund adjusted to reflect
the Fund's 1994 estimate of its expense ratio for the first year of
operations as a mutual fund, including any applicable sales load (without
giving effect to any fee waivers or expense reimbursements).
5/17/96 was the inception date of Class B Shares of the Fund. Returns prior
to that date are for Class I Shares, adjusted for Class B Share expenses.
Performance shown for Class B Shares for the period prior to November 11,
1994reflects performance of the shares of the predecessor collective
investment fund adjusted to reflect Class B Share expenses (before waivers
and reimbursements).
On November 11, 1994, a collective investment fund managed by the Adviser
reorganized into the Fund. The predecessor collective investment fund
maintained investment objectives and policies that were, in all material
respects, equivalent to the Fund. The Fund's performance for the periods
before November 11, 1994 is that of the collective investment fund and
includes its expenses. If the collective investment fund had been
readjusted to reflect the first year's expenses of the Fund, the Fund's
performance for all periods except "Since Inception" would have been lower.
The collective investment fund was not registered under the 1940 Act and
was not subject to certain investment limitations, diversification
requirements and other restrictions imposed by the 1940 Act and the
Internal Revenue Code, which, if applicable, may have adversely affected
its performance.
The Lehman Intermediate Government Index is an unmanaged index of fixed-rate
U.S. Treasury and agency securities with maturities between 1 and up to but not
including 10 years with a minimum outstanding balance of $150 billion.
7
<PAGE>
INCOME FUND
OBJECTIVE. The investment objective of the Fund is to provide total return
consistent with current income.
PRINCIPAL INVESTMENT STRATEGY. The Fund invests in a diversified portfolio of
fixed and variable rate debt securities issued by domestic and foreign issuers.
The Fund's investments include corporate, mortgage-backed, asset-backed, and
U.S. Government debt securities primarily of investment grade quality or better
(rated in the 4 highest rating categories or of comparable quality). In
selecting investments, the Fund applies fundamental economic, credit, and market
analysis to increase portfolio performance. The Fund seeks to maintain an
average dollar-weighted portfolio maturity between 3 and 15 years.
Principal Risks. The principal risks of investing in the Fund are interest rate
risk and credit risk. The Fund's investments in foreign securities have foreign
risk. This is the risk of investments located in foreign countries, which may
have greater price volatility and less liquidity. Investments in foreign
securities also are subject to political, regulatory, and diplomatic risks.
Foreign risk includes currency risk, which may occur due to fluctuations in the
exchange rates between the U.S. dollar and foreign currencies. This risk could
negatively affect the value of a Fund's investments. The Fund's investments in
mortgage-backed and asset-backed securities have prepayment risk, which is the
risk that mortgage loans or other obligations will be prepaid when interest
rates decline, forcing the Fund to reinvest in securities with lower interest
rates. For this and other reasons, mortgage-related and asset-backed securities
may have significantly greater price and yield volatility than traditional debt
securities. Loss of money is a risk of investing in the Fund.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance table provide an indication of the historical risk
of an investment in the Fund by showing changes in the Fund's performance from
year to year over 10 years and how the Fund's average annual returns compare to
those of a broad-based securities index. Past performance does not necessarily
indicate future performance.
The annual returns in the bar chart are for the Fund's Class A shares and do not
reflect sales loads. If sales loads were reflected, the returns would be less
than those shown.
[EDGAR Representation of Bar Chart]
ANNUAL TOTAL RETURN
1989 9.73%
1990 9.20%
1991 18.87%
1992 7.96%
1993 8.90%
1994 -7.00%
1995 17.34%
1996 1.91%
1997 10.26%
1998 8.98%
The calendar year-to-date total return as of June 30, 1999 was
- -3.52%.
8
<PAGE>
During the periods shown in the chart, the highest quarterly return was 6.21%
(for the quarter ended September 30, 1991) and the lowest quarterly return was
- -3.39% (for the quarter ended June 30, 1994).
The following table compares the Fund's average annual total returns as of
December 31, 1998 to the Lehman Intermediate Government/Corporate Index.
<TABLE>
<S> <C> <C> <C>
LEHMAN INTERMEDIATE
INCOME FUND INCOME FUND GOVERNMENT/CORPORATE INDEX
YEAR(S) A SHARES B SHARES*
1 Year 4.07% 3.28% 8.42%
5 Year 5.00% 4.88% 6.59%
10 Year 7.89% 7.57% 8.51%
Since Inception (6/9/87) 7.77%(1) 7.39%(1) 8.30%(1)
</TABLE>
(1) For the period 5/31/87 - 12/31/98.
* 8/5/93 was the inception date of Class B Shares of the Fund. Returns prior
to that date are for Class A Shares, adjusted for Class B Share expenses.
The Lehman Intermediate Government/Corporate Index is an unmanaged index of
intermediate (one to ten year) government and corporate fixed-rate debt issues.
9
<PAGE>
TOTAL RETURN BOND FUND
OBJECTIVE. The investment objective of the Fund is to seek total return.
PRINCIPAL INVESTMENT STRATEGY. The Fund invests in a broad range of fixed-income
securities to create a strategically diversified portfolio of fixed-income
investments. The Fund's investments include corporate, mortgage-backed,
asset-backed, and U.S. Government debt securities, preferred stock, convertible
bonds, and foreign bonds. In selecting investments, the Fund focuses on relative
value as opposed to predicting the direction of interest rates. The Fund uses
fundamental economic, credit, and market analysis to identify the best relative
economic value. The Fund invests 65% of its total assets in fixed-income
securities rated, at the time of purchase, within the 3 highest rating
categories of comparable quality.
The Fund seeks to maintain an average dollar-weighted portfolio maturity between
5 and 15 years.
PRINCIPAL RISKS. The principal risks of investing in the Fund are interest rate
risk and credit risk. The Fund's investments in foreign securities have foreign
risk. This is the risk of investments located in foreign countries, which may
have greater price volatility and less liquidity. Investments in foreign
securities also are subject to political, regulatory, and diplomatic risks.
Foreign risk includes currency risk, which may occur due to fluctuations in the
exchange rates between the U.S. dollar and foreign currencies. This risk could
negatively affect the value of a Fund's investments. The Fund's investments in
mortgage-backed and asset-backed securities have prepayment risk, which is the
risk that mortgage loans or other obligations will be prepaid when interest
rates decline, forcing the Fund to reinvest in securities with lower interest
rates. For this and other reasons, mortgage-related and asset-backed securities
may have significantly greater price and yield volatility than traditional debt
securities. Loss of money is a risk of investing in the Fund.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance table provide an indication of the historical risk
of an investment in the Fund by showing changes in the Fund's performance from
year to year over the life of the Fund and how the Fund's average annual returns
compare to those of a broad-based securities index. Past performance does not
necessarily indicate future performance.
The annual returns in the bar chart are for the Fund's Class A shares and do not
reflect sales loads. If sales loads were reflected, the returns would be less
than those shown.
[EDGAR Representation of Bar Chart]
ANNUAL TOTAL RETURN
1994 -0.67%
1995 13.78%
1996 2.78%
1997 8.91%
1998 7.12%
The calendar year-to-date total return as of June 30, 1999 was
- -1.73%.
10
<PAGE>
During the periods shown in the chart, the highest quarterly return was 4.65%
(for the quarter ended June 30, 1995) and the lowest quarterly return was -1.41%
(for the quarter ended March 31, 1994).
The following table compares the Fund's average annual total returns as of
December 31, 1998 to the Lehman Intermediate Government/Corporate Index.
<TABLE>
<S> <C> <C> <C>
TOTAL RETURN TOTAL RETURN LEHMAN INTERMEDIATE
BOND FUND BOND FUND GOVERNMENT/CORPORATE INDEX
YEAR(S) A SHARES B SHARES
1 Year 2.29% 1.27% 8.42%
5 Year 5.29% 5.20% 6.59%
Since Inception (12/31/93) 5.29%(1) 5.20%(1) 6.59%
</TABLE>
The Lehman Intermediate Government/Corporate Index is an unmanaged index of the
intermediate (one to ten year) government and corporate fixed-rate debt issues.
11
<PAGE>
FEES AND EXPENSES OF THE FUNDS
This table describes the fees and expenses that you pay if you buy and hold
shares of the Funds.
<TABLE>
<S> <C> <C> <C> <C>
Shareholder Fees
(fees paid directly from your investment)
INTERMEDIATE
GOVERNMENT INCOME FUND,
STABLE INCOME FUND AND
INCOME FUND TOTAL RETURN BOND FUND
A SHARES B SHARES A SHARES B SHARES
------------ -- ------------ ------------ -- ------------
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering price) 1.5% Zero 4.50% Zero
Maximum Deferred Sales Charge (Load)
(as percentage of the lower of the Net Asset Zero 1.5% Zero 5.0%
Value ("NAV") at purchase or the NAV at
redemption)
ANNUAL FUND OPERATING EXPENSES (1)
(expenses that are deducted from Fund assets)
Stable Intermediate
Income Fund Government Income Fund
A Shares B Shares A Shares B Shares
------------ -- ------------ ------------ -- ------------
Investment Advisory Fees 0.30% 0.30% 0.33% 0.33%
Distribution (12b-1) Fees 0.00% 1.00% 0.00% 1.00%
Other Expenses 0.65% 0.85% 0.54% 0.58%
Total Annual Fund Operating Expenses (3) 0.95% 2.15% 0.87% 1.91%
Income Fund Total Return Bond Fund
A Shares B Shares A Shares B Shares
------------ -- ------------ ------------ -- ------------
Investment Advisory Fees 0.50%(2) 0.50%(2) 0.50%(2) 0.50%(2)
Distribution (12b-1) Fees 0.00% 1.00% 0.00% 1.00%
Other Expenses 0.58%(2) 0.63%(2) 0.88%(2) 0.81%(2)
Total Annual Fund Operating Expenses (3) 1.08% 2.13% 1.38% 2.31%
</TABLE>
(1) Based on amounts incurred during each Fund's fiscal year ended May 31, 1999
stated as a percentage of net assets.
(2) These fees include fees for the "core" portfolios in which the "gateway"
funds invest.
(3) The Funds are subject to voluntary fee waivers and expense reimbursements
that reduce the operating expenses of the Funds. See the Financial
Highlights Table for information about fund expenses net of fee waivers and
expense reimbursements
12
<PAGE>
EXAMPLE OF EXPENSES
These examples are intended to help you compare the cost of investing in a Fund
with the cost of investing in other mutual funds. The examples assume that you
invest $10,000 in a Fund for the time periods indicated and then redeem all of
your shares at the end of those periods. The examples also assume that your
investment has a 5% annual return, that a Fund's operating expenses remain the
same, and that distributions are reinvested. Your actual costs may be higher or
lower than those shown.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------- ------------------------- ------------------------- -------------------------- -------------------------
Stable Income Intermediate Government Income Total Return Bond
Fund Income Fund Fund Fund
- --------------- ------------------------- ------------------------- -------------------------- -------------------------
------------ ------------ ------------ ------------ ------------- ------------ ------------ ------------
Class Class Class Class Class Class Class Class
A B A B A B A B
- ---------------
------------ ------------ ------------ ------------ ------------- ------------ ------------ ------------
1 YEAR 245 368 535 694 555 716 584 734
- --------------- ------------ ------------ ------------ ------------ ------------- ------------ ------------ ------------
3 YEARS 448 673 715 900 778 967 867 1,121
- --------------- ------------ ------------ ------------ ------------ ------------- ------------ ------------ ------------
5 YEARS 668 1,154 911 1,232 1,019 1,344 1,171 1,435
- --------------- ------------ ------------ ------------ ------------ ------------- ------------ ------------ ------------
10 YEARS 1,299 2,483 1,474 2,233 1,708 2,462 2,033 2,646
- --------------- ------------ ------------ ------------ ------------ ------------- ------------ ------------ ------------
You would pay the following expenses assuming that you do NOT redeem your shares
at the end of the periods shown:
- --------------- ------------------------- ------------------------- -------------------------- -------------------------
Stable Income Intermediate Government Income Total Return Bond
Fund Income Fund Fund Fund
- --------------- ------------------------- ------------------------- -------------------------- -------------------------
------------ ------------ ------------ ------------ ------------- ------------ ------------ ------------
Class Class Class Class Class Class Class Class
A B A B A B A B
- ---------------
------------ ------------ ------------ ------------ ------------- ------------ ------------ ------------
1 YEAR 245 218 535 194 555 216 584 234
- --------------- ------------ ------------ ------------ ------------ ------------- ------------ ------------ ------------
3 YEARS 448 673 715 600 778 667 867 721
- --------------- ------------ ------------ ------------ ------------ ------------- ------------ ------------ ------------
5 YEARS 668 1,154 911 1,032 1,019 1,144 1,171 1,235
- --------------- ------------ ------------ ------------ ------------ ------------- ------------ ------------ ------------
10 YEARS 1,299 2,483 1,474 2,233 1,708 2,462 2,033 2,646
- --------------- ------------ ------------ ------------ ------------ ------------- ------------ ------------ ------------
</TABLE>
13
<PAGE>
GLOSSARY
This Glossary of frequently used terms will help you understand the discussion
of the Funds' objectives, policies, and risks.
Term Definition
Board The Board of Trustees of Norwest Advantag
Funds.
CDSC Contingent deferred sales charge.
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.
U.S. Government Security A security issued or guaranteed as to
principal and interest by the U.S.
Government, its agencies or its
instrumentalities.
14
<PAGE>
INVESTMENT OBJECTIVES, STRATEGIES AND RISK CONSIDERATIONS
This section of the Prospectus provides a more complete description of each
Fund's investment objectives and principal strategies and risks. Except as
otherwise indicated, the Board may change the Funds' investment policies without
shareholder approval. The Funds' investment objectives are fundamental and
cannot be changed without a shareholder vote. There can, of course, be no
assurance that any Fund will achieve its investment objective.
Some of the Funds invest directly in a portfolio of securities. Other Funds are
"gateway" funds in a "core/gateway" structure. In this structure a "gateway"
fund invests some or all of its assets in one or more "core portfolios" that
have a substantially identical investment objective and substantially similar
policies as the gateway fund. Gateway funds investing in the same core
portfolio, or Portfolio, can enhance their investment opportunities and reduce
their expense ratios through sharing the costs of managing a large pool of
assets. Except when necessary to describe a Fund's investment in a Portfolio,
references to the gateway fund also include the Portfolio, which is discussed
after this section.
This section describes risks that affect the Funds' portfolios as a whole.
Certain of these risks may apply to one or more of the Funds. These risks are:
o INTEREST RATE RISK. THIS IS THE RISK THAT CHANGES IN INTEREST RATES
WILL AFFECT THE VALUE OF A FUND'S INVESTMENTS, PARTICULARLY THOSE
INVESTMENTS IN DEBT OR INCOME-PRODUCING SECURITIES. INCREASES IN
INTEREST RATES MAY CAUSE THE VALUE OF A FUND'S INVESTMENTS TO DECLINE.
O CREDIT RISK. THIS IS THE RISK THAT THE ISSUER OF A SECURITY WILL BE
UNABLE TO MAKE TIMELY PAYMENTS OF INTEREST OR PRINCIPAL OR TO
OTHERWISE HONOR ITS OBLIGATIONS.
O MANAGEMENT RISK. THIS IS THE RISK THAT A FUND'S MANAGER WILL MAKE POOR
CHOICES IN SELECTED SECURITIES. ALL ACTIVELY MANAGED FUNDS HAVE
MANAGEMENT RISK.
STABLE INCOME FUND
INVESTMENT OBJECTIVE AND STRATEGIES. The Fund's investment objective is
to maintain safety of principal while providing low volatility total
return. The Fund invests in a diversified portfolio of, primarily,
short-term investment grade securities (rated in the 2 highest rating
categories or of comparable quality). The Fund invests in fixed and
variable rate U.S. dollar-denominated fixed-income securities of a
broad spectrum of U.S. issuers, including U.S. Government securities
and the debt securities of financial institutions, corporations, and
others.
THE FUND'S INVESTMENTS INCLUDE:
o up to 65% of its total assets in mortgage-backed securities;
o up to 25% of its total assets in other types of asset-backed
securities;
o up to 25% of its total assets in mortgage-backed securities that
are not U.S. Government securities; and
o up to 50% of its total assets in U.S. Government securities.
The Fund limits its investments in the securities issued or guaranteed
by any single agency or instrumentality of the U.S. Government, except
the U.S. Treasury, to 30% of its total assets and does not invest more
than 10% of its total assets in the securities of any other issuer.
15
<PAGE>
The Fund invests in debt obligations with maturities (or average life
in the case of mortgage-backed and similar securities) ranging from
overnight to 12 years and seeks to maintain an average dollar-weighted
portfolio maturity of between 2 and 5 years. The Fund's duration
(measure of the current value of cash flows), however, is short-term
and will be maintained at 80% to 120% of that of a 1-year U.S. Treasury
Bill.
RISK CONSIDERATIONS. The principal risks of investing in the Fund are
interest rate risk and credit risk. The Fund's investments in
mortgage-related and asset-backed securities have prepayment risk,
which is the risk that mortgage loans or other obligations will be
prepaid when interest rates decline, forcing the Fund to reinvest in
securities with lower interest rates. For this and other reasons,
mortgage-related and asset-backed securities may have significantly
greater price and yield volatility than traditional debt securities.
INTERMEDIATE GOVERNMENT INCOME FUND
INVESTMENT OBJECTIVE AND STRATEGIES. The Fund's investment objective
is to provide income and safety of principal by investing primarily in
U.S. Government securities.
The Fund normally invests at least 65% of its total assets in fixed and
variable rate U.S. Government securities and may invest up to 35% of
its assets in fixed-income securities that are not U.S. Government
securities. In selecting investments, the Fund emphasizes the use of
intermediate maturity securities to lessen interest rate risk and uses
mortgage-backed securities to enhance yield.
The Fund's investments include:
o up to 50% of its total assets in mortgage-backed securities;
o up to 25% of its total assets in other types of asset-backed
securities; and
o up to 10% of its total assets in zero-coupon securities.
As part of its mortgage-backed securities investments, the Fund may
enter into dollar rolls, which are transactions in which the Fund sells
a security and commits to purchase a similar, but not identical,
security at a later date. The Fund limits its investments in securities
issued or guaranteed by any single agency or instrumentality of the
U.S. Government to 25% of its total assets, except the U.S. Treasury.
The Fund may also enter into short sales.
The Fund will purchase only securities rated, at the time of purchase,
within the 2 highest rating categories assigned by an NRSRO, or 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
portfolio maturity of between 3 and 10 years and a duration of between
70% and 130% of the duration of a 5-year Treasury Note. Duration is a
measure of a debt security's average life that reflects the present
value of the security's cash flow and is an indication of the
security's sensitivity to changes in interest rates.
RISK CONSIDERATIONS. The principal risks of investing in the Fund are
interest rate risk and credit risk. The Fund's investments in
mortgage-backed and asset-backed securities have prepayment risk, which
is the risk that mortgage loans or other obligations will be prepaid
when interest rates decline, forcing the Fund to reinvest in securities
with lower interest rates. For this and other reasons, mortgage-related
and asset-backed securities may have significantly greater price and
yield volatility than traditional debt securities.
16
<PAGE>
INCOME FUND
INVESTMENT OBJECTIVE AND STRATEGIES. The Fund's investment objective is
to provide total return consistent with current income. The Fund's
principal strategy is to invest 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. In selecting investments, the Fund attempts
to increase the Fund's performance by applying various fixed-income
management techniques. The Fund 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. Duration is a measure of a debt
security's average life that reflects the present value of the
security's cash flow and is an indication of the security's sensitivity
to changes in interest rates.
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 which are transactions in which the Fund sells a security
and commits to purchase a similar, but not identical security at a
later date.
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 (rated in the 4 highest rating categories
or of comparable quality). The Fund also may invest up to 20% of its
total assets in below investment grade securities (also known as "junk
bonds") 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. The Fund expects to maintain an average
dollar-weighted portfolio 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 CONSIDERATIONS. The principal risks of investing in the Fund are
interest rate risk and credit risk. The Fund's investments in
lower-rated securities or bank bonds may involve greater credit risk
(or risk of default) than higher-rated securities and may be more
volatile than higher-rated securities. The Fund's investments in
mortgage-backed and asset-backed securities have prepayment risk, which
is the risk that mortgage loans or other obligations will be prepaid
when interest rates decline, forcing the Fund to reinvest in securities
with lower interest rates. For this and other reasons, mortgage-related
and asset-backed securities may have significantly greater price and
yield volatility than traditional debt securities. The Fund's
investments in foreign securities have foreign risk. This is the risk
of investments located in foreign countries, which may have greater
price volatility and less liquidity. Investments in foreign securities
also are subject to political, regulatory, and diplomatic risks.
Foreign risk includes currency risk, which may occur due to
fluctuations in the exchange rates between the U.S. dollar and foreign
currencies. This risk could negatively affect the value of a Fund's
investments.
17
<PAGE>
TOTAL RETURN BOND FUND
INVESTMENT OBJECTIVE AND STRATEGIES. The Fund's investment objective is
to seek total return. The Fund's principal strategy is to invest 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.
In selecting investments, the Fund 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 Fund believes that this exposure enhances performance in
varying economic and interest rate cycles and avoids excessive risk
concentrations. The Fund'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 Fund uses this process to seek
to identify securities, which represent the best relative economic
value. The Fund 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's
investments include:
o up to 75% of its total assets in corporate bonds;
o up to 65% of its total assets in mortgage-backed securities; and
o up to 50% of its total assets in asset-backed securities.
The Fund may invest in U.S. Government securities without restriction.
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 Fund expects to maintain an average dollar-weighted portfolio
maturity of between 5 and 15 years. The Fund's duration normally will
vary between 3 and 8 years. Duration is a measure of a debt security's
average life that reflects the present value of the security's cash
flow and is an indication of the security's sensitivity to changes in
interest rates.
RISK CONSIDERATIONS. The principal risks of investing in the Fund are
interest rate risk and credit risk. The Fund's investments in
mortgage-backed and asset-backed securities have prepayment risk, which
is the risk that mortgage loans or other obligations will be prepaid
when interest rates decline, forcing the Fund to reinvest in securities
with lower interest rates. For this and other reasons, mortgage-related
and asset-backed securities may have significantly greater price and
yield volatility than traditional debt securities. The Fund's
investments in foreign securities have foreign risk. This is the risk
of investments located in foreign countries, which may have greater
price volatility and less liquidity. Investments in foreign securities
also are subject to political, regulatory, and diplomatic risks.
Foreign risk includes currency risk, which may occur due to
fluctuations in the exchange rates between the U.S. dollar and foreign
currencies. This risk could negatively affect the value of a Fund's
investments.
OTHER CONSIDERATIONS
DERIVATIVES
The Funds may use certain derivative instruments, such as options, swap
18
<PAGE>
agreements, interest rate caps, collars, and floors, and futures contracts to
manage risk. Derivatives are financial contracts whose value depends on, or is
derived from, the value of an underlying assets, reference rate, or index. In
addition to other risks, derivatives involve the risk of difficulties in pricing
and valuation and the risk that changes in the value of a derivative may not
correlate perfectly with relevant assets, rates, or indices.
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 achieve 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 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
Certain computer systems may not process date-related information properly on
and after January 1. 2000. The Fund's Advisers are addressing this matter for
its systems. The Funds' other service providers have informed the Fund that they
are taking similar measures. Investments in foreign companies are particularly
vulnerable to Year 2000 risk because these companies may not have the financial
resources, technology, or personnel needed to address Year 2000 readiness
concerns. This matter, if not corrected, could adversely affect the services
provided to the Fund or the issues in which the Fund invests and could therefore
lower the value of your Fund shares.
19
<PAGE>
MANAGEMENT OF THE FUNDS
INVESTMENT ADVISORY SERVICES
NORWEST INVESTMENT MANAGEMENT, INC. or NIM, which is now a wholly-owned
subsidiary of Wells Fargo and Company, Norwest Center, Sixth and Marquette,
Minneapolis, MN 55479, is the investment adviser for each Fund and each
Portfolio. In this capacity, NIM makes investment decisions for and administers
the Funds' and Portfolios' investment programs. As of June 30, 1999, NIM
provided advisory services for over $24 billion in assets.
Norwest, Stable Income Portfolio and Strategic Value Bond Portfolio have
retained GALLIARD CAPITAL MANAGEMENT, INC. or GALLIARD, 800 LaSalle Ave., Suite
2060, Minneapolis, MN 55479, as an investment subadviser to make investment
decisions for and administer the investment programs of those Portfolios.
Galliard is an investment advisory subsidiary of Norwest Bank that provides
investment advisory services to bank and thrift institutions, pension and profit
sharing plans, trusts and charitable organizations, and corporate and other
business entities. As of June 30, 1999, Galliard provided advisory services for
over $5.4 billion in assets.
How investment advisory fees are paid depends on whether or not a Fund invests
in a Portfolio.
o If a Fund invests directly in a portfolio of securities, Norwest
receives an investment advisory fee directly from the Fund.
o 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.
For these advisory services for the fiscal year ending May 31, 1999,
the Funds paid:
FUND FEE AS A PERCENTAGE OF
AVERAGE DAILY NET ASSETS
STABLE INCOME FUND 0.30%
INTERMEDIATE GOVERNMENT INCOME FUND 0.33%
INCOME FUND 0.50%
TOTAL RETURN BOND FUND 0.50%
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. Descriptions of the portfolio managers' recent experience follow
the list of portfolio managers.
<TABLE>
<S> <C>
Stable Income Fund
Portfolio: Stable Income Portfolio
Subadviser: Galliard
Portfolio Manager: John Huber (1998).
Intermediate Government Income Fund
Portfolio Manager: Marjorie H. Grace, CFA (1995).
Income Fund
Portfolio Manager: Marjorie H. Grace, CFA (1996).
Total Return Bond Fund
Portfolio: Strategic Value Bond Portfolio
Subadviser: Galliard
Portfolio Managers: Richard Merriam, CFA (1997), John Huber (1998), and David
Yim (1998)
</TABLE>
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<PAGE>
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.
DAVID YIM, associated with Norwest or its affiliates since 1995. Mr.
Yim has been a portfolio manager and Credit Research Specialist of
Investment Research of Galliard since 1995 and previously worked for
American Express Financial Advisors as a Research Analyst.
DORMANT INVESTMENT ADVISORY ARRANGEMENTS
Norwest has been retained as a "dormant" or "back-up" investment
adviser to manage any assets redeemed and invested directly by a Fund
that invests in a 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.
CHOOSING A SHARE CLASS
CLASSES OF SHARES
This Prospectus offers 2 classes of shares of the Funds. The classes,
which have different fee structures, are:
o A Shares: offered at their net asset value plus an initial sales
charge. A Shares do not pay distribution or shareholder servicing
fees.
o B Shares: offered at their net asset value. B Shares pay
distribution and shareholder servicing fees and convert to A
Shares within 8 years after purchase. If you redeem your B Shares
within 6 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.
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.
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<PAGE>
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):
STABLE INCOME FUND
<TABLE>
<S> <C> <C>
SALES CHARGE
AS A PERCENTAGE OF
-------------------------------------------------
AMOUNT OF PURCHASE OFFERING PRICE+ NET AMOUNT INVESTED
- ----------------------------------------------------------------------------------------------------------------
Less than $50,000........................... 1.50% 1.52%
$50,000 to $99,999.......................... 1.00% 1.01%
$100,000 to $499,000........................ 0.75% 0.76%
$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........................... 4.50% 4.71%
$50,000 to $99,999.......................... 4.00% 4.17%
$100,000 to $249,000........................ 3.50% 3.63%
$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 without a sales charge within one year of the
date of purchase, the funds may impose a 1.00% charge. This charge is based on
the lower of the NAV of the shares redeemed on the date of purchase or the date
of redemption.
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 8 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.
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<PAGE>
YEAR SINCE PURCHASE CHARGE FOR STABLE INCOME FUND
First..................... 1.5%
Second.................... 0.75%
Third and subsequent...... None
CHARGE FOR INTERMEDIATE GOVERNMENT
INCOME FUND, INCOME FUND, AND TOTAL
RETURN BOND FUND
YEAR SINCE PURCHASE
First..................... 5.0%
Second.................... 4.0%
Third..................... 3.0%
Fourth.................... 3.0%
Fifth..................... 2.0%
Sixth..................... 1.0%
Seventh................... None
The Funds will redeem shares in the manner that results in the imposition of the
lowest CDSC. The Funds will automatically redeem shares first from any A Shares
of the Fund, second from B Shares of the Fund acquired pursuant to reinvestment
of distributions, third from B Shares of the Fund held for more than 6 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 6 years (2 years in
the case of the Stable Income Fund).
CONVERSION FEATURE. B Shares will automatically convert to A Shares 8 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.
SALES CHARGE REDUCTION PROGRAM ENHANCEMENTS:
A SHARES
If you purchase A Shares of a Norwest Advantage Fund, that purchase may count
towards reductions of sales charges for purchases of Class A shares of funds in
the Stagecoach fund family. Currently, through Rights of Accumulation, you may
reduce the sales charges you pay on A Shares of Norwest Advantage Funds by
accumulating purchases of different Norwest Advantage Funds to reach one of the
breakpoints available. You also may pay a lower sales charge by signing a
Statement of Intention to invest a specific amount over a certain period of
time. You may use your Norwest Advantage Funds Right of Accumulation or
Statement of Intention to accumulate purchases of different Norwest Advantage
Funds and Stagecoach funds to reach a breakpoint in the sales charges for A
Shares.
B SHARES
A fund will not charge any CDSC for your withdrawal of B Shares under an
Automatic Withdrawal Plan, provided that your aggregate withdrawal of the fund's
shares under the Plan does not exceed 10% (including dividend and capital gain
distributions) annually of your B Shares shareholdings of the fund, based on the
anniversary date of the Plan.
23
<PAGE>
HOW TO BUY AND SELL SHARES
DETERMINATION OF NET ASSET VALUE
Each Fund determines its net asset value or NAV on each Fund business day, which
is any day that the New York Stock Exchange is open, by dividing the value of
its net assets (i.e.,. the value of its securities and other assets less its
liabilities) by the number of shares outstanding at the time the determination
is made. The Funds determine their net asset values at 4:00 p.m., Eastern time.
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.
You may purchase or redeem shares at a price equal to their NAV next determined
after receipt of your purchase order, or redemption request in proper form on a
fund business day.
GENERAL PURCHASE INFORMATION
You may purchase shares directly or through a financial institution. The Funds'
transfer agent processes all transactions in Fund shares. Not all Funds or share
classes offered in this Prospectus are available for purchase in all states.
Please contact the Funds or your financial representative for information about
whether a Fund or share class is available in your state.
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.
PURCHASE PROCEDURES
DIRECT PURCHASES
You may obtain an account application by writing Norwest Advantage Funds at the
following address:
BY REGULAR MAIL: Norwest Advantage Funds
P.O. Box 8265
Boston, MA 02266-8265
BY OVERNIGHT MAIL ONLY TO: Norwest Advantage Funds
Attn: CCSU
Boston Financial
66 Brooks Drive
Braintree, MA 02184
24
<PAGE>
When you sign an application for a new Fund account, you are certifying that
your Social Security number or other taxpayer identification number is correct
and that you are not subject to backup withholding. If you violate certain
federal income tax provisions, the Internal Revenue Service can require the
Funds to withhold 31% of your distributions and redemptions.
You must pay for your shares in U.S. dollars by check or money order drawn on a
U.S. bank, by bank or federal funds wire transfer, or by electronic bank
transfer. Cash cannot be accepted.
Call or write the transfer agent if you wish to participate in shareholder
services not offered on the account application or change information on your
account (such as addresses). Norwest Advantage Funds may in the future modify,
limit or terminate any shareholder privilege upon appropriate notice and may
charge a fee for certain shareholder services, although no such fees are
currently contemplated. You may terminate your participation in any shareholder
program by writing to Norwest Advantage Funds.
PURCHASES BY MAIL. You may send a check or money order 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:
By Wire to: State Street Bank & Trust
Boston, MA
ABA 011000028
FNF: (Norwest Advantage Fund name]
AC: 9905-434-8
For Further Credit: _____________
(Name on Norwest Advantage Fund Account
and Fund Account Number)
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.
25
<PAGE>
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 8 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 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.
26
<PAGE>
REDEMPTION BY MAIL. You may redeem shares by sending a written request to the
transfer agent accompanied by any share certificate you have been issued. Sign
all requests and endorse all certificates with signature guaranteed.
REDEMPTION BY TELEPHONE. If you have elected telephone redemption privileges,
you may redeem shares by telephoning the transfer agent at 1-800-338-1348 or
1-612-667-8833 and providing your shareholder account number, the exact name in
which the shares are registered, and your Social Security number or other
taxpayer identification number. Norwest Advantage Funds will mail a check to
your record address or, if you have chosen wire redemption privileges, wire the
proceeds.
REDEMPTION BY BANK WIRE. If you have elected wire redemption privileges, you may
request a Fund to transmit redemption proceeds of more than $5,000 by federal
funds wire to a bank account you have designated in writing. You must have
chosen the telephone redemption privilege to request bank redemptions by
telephone. Redemption proceeds are wired on the Fund business day after the
transfer agent receives a redemption request in proper form.
EXCHANGES
You may exchange A Shares and B Shares for A Shares and B Shares, respectively,
of the Funds and of other funds of Norwest Advantage Funds that offer those
classes of shares. You may 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 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. If you exchange A Shares of a fund for A Shares of another fund
with a higher sales load, you will not be required to pay the difference in the
sales load.
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.
27
<PAGE>
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.
o 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.
o Under the Cash Option, you are paid all distributions in cash.
o 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.
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. 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.
28
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand each Fund's
financial performance. Total return in the table represents the rate that an
investor would have earned (or lost) on an investment in a Fund (assuming
reinvestment of all distributions). The information has been audited by KPMG
LLP, independent auditors. Each Fund's financial statements and the auditor's
reports, are included in the Fund's Annual Report, which is available upon
request, at no charge. These financial statements are incorporated by reference
into the SAI.
<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, 1999 $10.31 $0.54 ($0.06) ($0.53) $10.26
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, 1999 $10.30 $0.44 ($0.04) ($0.44) $10.26
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
- ---------------------------------------------------------------------------------------
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)
- ---------------------------------------------------------------------------------------------------------------------------
Stable Income Fund
A Shares
Year Ended May 31, 1999 5.11%(c) 0.65%(c) 0.95%(c) 4.74% 29.46%(d) $8,559
Year Ended May 31, 1998 5.74%(c) 0.65%(c) 0.91%(c) 6.38% 37.45%(d) $8,561
Year Ended May 31, 1997 5.69% 0.65% 0.87% 6.24% 41.30% $12,451
May 2, 1996(e) to May 31, 1996 5.77%(f) 0.70%(f) 2.22%(f) 0.23% 109.95% $16,256
B Shares
Year Ended May 31, 1999 4.34%(c) 1.40%(c) 2.15%(c) 4.07% 29.46%(d) $2,387
Year Ended May 31, 1998 4.94%(c) 1.40%(c) 2.31%(c) 5.50% 37.45%(d) $1,817
Year Ended May 31, 1997 4.96% 1.39% 2.89% 5.43% 41.30% $1,056
May 17, 1996(e) to May 31, 1996 5.02%(f) 1.42%(f) 3.07%(f) 0.12% 109.95% $867
- ------------------------------------------
</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/or fee waivers.
(c) Includes expenses allocated from the Portfolio(s) in which the Fund
invests.
(d) The Fund does not hold investment securities directly. The Fund seeks to
achieve its investment objective by investing all of its investable assets
in one or more Portfolios of Core Trust (Delaware). Portfolio turnover for
a Fund normally would be based on the turnover of a Fund's investments in
the Core Trust Portfolio rather than the underlying securites in that
Portfolio. Since a Fund has an indirect interest in the securities held in
the Core Trust Portfolio, the portfolio turnover rate disclosed is
calculated by aggregating the results of multiplying the Fund's ownership
percentage of the respective Portfolio by the corresponding Portfolio's
portfolio turnover rate.
(e) Commencement of operations.
(f) Annualized.
29
<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, 1999 $11.22 $0.64 ($0.17) ($0.65) $11.04
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, 1999 $11.21 $0.53 ($0.13) ($0.57) $11.04
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
- ----------------------------------------------------------------------------------------
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)
- ------------------------------------------------------------------------------------------------------------------------
Intermediate Government Income Fund
A Shares
Year Ended May 31, 1999 5.76% 0.68% 0.87% 4.21% 123.61% $18,594
Year Ended May 31, 1998 6.35% 0.68% 0.86% 10.19% 96.76% $14,325
Year Ended May 31, 1997 6.58% 0.68% 0.80% 6.36% 183.05% $13,038
May 2, 1996(c) to May 31, 1996 7.32%(d) 0.75%(d) 1.74%(d) 0.26% 74.64% $16,562
B Shares
Year Ended May 31, 1999 5.01% 1.43% 1.91% 3.53% 123.61% $8,540
Year Ended May 31, 1998 5.60% 1.43% 1.85% 9.38% 96.76% $8,277
Year Ended May 31, 1997 5.80% 1.42% 1.85% 5.51% 183.05% $8,970
May 17, 1996(c) to May 31, 1996 5.56%(d) 1.35%(d) 2.65%(d) (0.49%) 74.64% $10,682
- -----------------------------------------
</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/or fee waivers.
(c) Commencement of operations.
(d) Annualized.
30
<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
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, 1999 $9.79 $0.59 ($0.31) ($0.59) -- $9.48
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
B Shares
Year Ended May 31, 1999 $9.77 $0.52 ($0.31) ($0.52) -- $9.46
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
- ---------------------------------------------------------------------------------------
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)
- ---------------------------------------------------------------------------------------------------------------------------
Income Fund
A Shares
Year Ended May 31, 1999 5.98% 0.75% 1.08% 2.81% 202.22% $13,731
Year Ended May 31, 1998 6.29% 0.75% 1.14% 12.47% 167.09% $7,661
Year Ended May 31, 1997 6.59% 0.75% 1.17% 6.79% 231.00% $5,142
Year Ended May 31, 1996 6.33% 0.75% 1.16% 2.58% 270.17% $5,521
Year Ended May 31, 1995 7.02% 0.75% 1.24% 8.49% 98.83% $6,231
B Shares
Year Ended May 31, 1999 5.22% 1.50% 2.13% 2.03% 202.22% $7,726
Year Ended May 31, 1998 5.54% 1.50% 2.19% 11.52% 167.09% $4,855
Year Ended May 31, 1997 5.87% 1.50% 2.25% 6.03% 231.00% $3,349
Year Ended May 31, 1996 5.57% 1.50% 2.27% 1.92% 270.17% $3,292
Year Ended May 31, 1995 6.24% 1.50% 2.21% 7.57% 98.83% $3,296
- -----------------------------------------
</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/or fee waivers.
31
<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
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, 1999 $9.63 $0.56 ($0.24) ($0.56) ($0.22) $9.17
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
B Shares
Year Ended May 31, 1999 $9.65 $0.49 ($0.24) ($0.49) ($0.22) $9.19
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
- ---------------------------------------------------------------------------------------
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)
- -----------------------------------------------------------------------------------------------------------------------
Total Return Bond Fund
A Shares
Year Ended May 31, 1999 5.85%(c) 0.75%(c) 1.38%(c) 3.26% 48.43%(d) $1,304
Year Ended May 31, 1998 6.14%(c) 0.75%(c) 1.13%(c) 9.46% 134.56%(d) $3,030
Year Ended May 31, 1997 6.37% 0.75% 1.31% 6.84% 55.07% $3,086
Year Ended May 31, 1996 6.48% 0.76% 1.57% 3.41% 77.49% $2,010
Year Ended May 31, 1995 6.94% 0.64% 2.38% 9.42% 35.19% $599
B Shares
Year Ended May 31, 1999 5.13%(c) 1.50%(c) 2.31%(c) 2.49% 48.43%(d) $2,757
Year Ended May 31, 1998 5.37%(c) 1.50%(c) 2.22%(c) 8.64% 134.56%(d) $2,648
Year Ended May 31, 1997 5.61% 1.49% 2.37% 6.27% 55.07% $2,254
Year Ended May 31, 1996 5.75% 1.51% 2.48% 2.63% 77.49% $2,098
Year Ended May 31, 1995 6.17% 1.41% 3.09% 8.59% 35.19% $919
- ----------------------------------------
</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/or fee waivers.
(c) Includes expenses allocated from the Portfolio(s) in which the Fund
invests.
(d) The Portfolio Turnover Rate reflects the activity of the Portfolio in which
the Fund invests.
32
<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 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. The scheduled hours of
operation of the Public Reference Room may be obtained by calling the SEC at
1-800-SEC-0330. Free copies of the reports and SAIs are available from the SEC's
Internet website at http:// www.sec.gov.
The SEC's Investment Company Act file number for the Funds is 811-4881.
<PAGE>
NORWEST ADVANTAGE FUNDS
PROSPECTUS
October 1, 1999
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 FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
THE BOARD OF TRUSTEES AND THE SHAREHOLDERS OF THE NORWEST ADVANTAGE FUNDS HAVE
APPROVED A REORGANIZATION OF THE FUNDS WITH THE STAGECOACH FUNDS ADVISED BY
WELLS FARGO BANK, N.A. THE BOARD OF DIRECTORS AND SHAREHOLDERS OF STAGECOACH
FUNDS ALSO HAVE APPROVED THE REORGANIZATION. THIS COMBINATION OF MUTUAL FUND
FAMILIES FOLLOWS THE MERGER OF WELLS FARGO & COMPANY AND NORWEST CORPORATION.
EACH OF THE NORWEST ADVANTAGE FUNDS AND THE STAGECOACH FUNDS WILL REORGANIZE
INTO A NEW PORTFOLIO OF WELLS FARGO FUNDS TRUST. THE REORGANIZATION IS PENDING
AND WILL BE COMPLETED AS SOON AS REASONABLY PRACTICABLE.
THE U.S. SECURITIES AND EXCHANGE COMMISSION, HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR DETERMINED WHETHER OR NOT THIS PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
<TABLE>
<S> <C>
TABLE OF CONTENTS
RISK/RETURN SUMMARY...............................................................................................3
TAX-FREE INCOME FUND.....................................................................................4
COLORADO TAX-FREE FUND...................................................................................5
MINNESOTA TAX-FREE FUND..................................................................................6
FEES AND EXPENSES OF THE FUNDS....................................................................................8
GLOSSARY 10
INVESTMENT OBJECTIVES, STRATEGIES AND RISK CONSIDERATIONS........................................................11
OTHER CONSIDERATIONS.............................................................................................12
MANAGEMENT OF THE FUNDS..........................................................................................13
CHOOSING A SHARE CLASS...........................................................................................14
HOW TO BUY AND SELL SHARES.......................................................................................15
DISTRIBUTIONS AND TAX MATTERS....................................................................................18
FINANCIAL HIGHLIGHTS.............................................................................................21
</TABLE>
<PAGE>
RISK/RETURN
SUMMARY
The following is a summary of certain key information about the Funds. You will
find additional information about the Funds after this summary.
In this summary, we will identify certain kinds of risks that apply to one or
more of the Funds. These risks are:
O INTEREST RATE RISK. THIS IS THE RISK THAT CHANGES IN INTEREST RATES
WILL AFFECT THE VALUE OF A FUND'S INVESTMENTS, PARTICULARLY THOSE
INVESTMENTS IN DEBT OR
O INCOME-PRODUCING SECURITIES. INCREASES IN INTEREST RATES MAY CAUSE THE
VALUE OF A FUND'S INVESTMENTS TO DECLINE;
O CREDIT RISK. THIS IS THE RISK THAT THE ISSUER OF A SECURITY WILL BE
UNABLE TO MAKE TIMELY PAYMENTS OF INTEREST OR PRINCIPAL OR TO
OTHERWISE HONOR ITS
OBLIGATIONS;
O MUNICIPAL MARKET RISK. THIS IS THE RISK THAT SPECIAL FACTORS MAY
ADVERSELY AFFECT THE VALUE OF MUNICIPAL SECURITIES AND HAVE A
SIGNIFICANT EFFECT ON THE VALUE OF A FUND'S INVESTMENTS. THESE FACTORS
INCLUDE POLITICAL OR LEGISLATIVE CHANGES AND UNCERTAINTIES RELATED TO
THE TAX STATUS OF MUNICIPAL SECURITIES OR THE RIGHTS OF INVESTORS IN
THESE SECURITIES; AND
O MANAGEMENT RISK. THIS IS THE RISK THAT A FUND'S MANAGER WILL MAKE POOR
CHOICES IN SELECTED SECURITIES. ALL ACTIVELY MANAGED FUNDS HAVE
MANAGEMENT RISK.
The Risk/Return Summary includes a bar chart for each Fund showing its annual
returns and a table showing its average annual returns. The bar chart and table
provide an indication of the historical risk of an investment in each Fund by
showing:
o changes in the Fund's performance from year to year over 10 years or,
if less, the life of a Fund; and
o how the Fund's average annual returns for one, five and 10 years, or,
if less, the life of the Fund, compare to those of a broad-based
securities market index.
A Fund's past performance does not necessarily indicate how it will perform in
the future.
Another important thing for you to note: You may lose money by investing in a
Fund.
2
<PAGE>
TAX-FREE
INCOME
FUND
OBJECTIVE. The Fund's investment objective is to produce current income exempt
from federal income taxes.
PRINCIPAL INVESTMENT STRATEGIES. The Fund invests primarily in investment grade
municipal securities. The Fund normally invests at least 80% of its total assets
in municipal securities paying interest exempt from federal income taxes,
including AMT. The Fund seeks to maintain an average dollar-weighted portfolio
maturity of between 10 and 20 years.
PRINCIPAL RISKS. The principal risks of investing in the Fund are interest rate
risk, credit risk, and municipal market risk.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and
performance table provide an indication of the historical risk of an investment
in the Fund by showing changes in a Fund's performance from year to year over 10
years and how the Fund's average annual returns compare to those of a
broad-based securities index. Past performance does not necessarily indicate
future performance.
The annual returns in the bar chart are for the Fund's Class A Shares and do not
reflect sales loads. If sales loads were reflected, returns would be less than
shown.
[EDGAR Representation of Bar Chart]
ANNUAL TOTAL RETURN
1990 5.88%
1991 9.41%
1992 7.33%
1993 9.48%
1994 -4.86%
1995 16.87%
1996 4.74%
1997 10.26%
1998 6.44%
The calendar year-to-date total return as of June 30, 1999 was -1.79%.
During the periods shown in the chart, the highest quarterly return was 5.85%
(for the quarter ended March 31, 1995) and the lowest quarterly return was
- --5.50% (for the quarter ended March 31, 1994).
The following table compares the Fund's average annual total returns as of
December 31, 1998 to the Lehman Brothers 10-Year Municipal Index.
<TABLE>
<S> <C> <C> <C>
TAX-FREE TAX-FREE LEHMAN BROTHERS
INCOME FUND INCOME FUND 10-YEAR MUNICIPAL
YEAR(S) A SHARES B SHARES* INDEX
1 Year 1.65% 0.64% 6.76%
5 Year 5.47% 5.33% 6.63%
Since Inception (8/1/89) 6.53% 6.28% 8.00%(1)
</TABLE>
(1) For the period 7/31/89 - 12/31/98.
* 8/6/93 was the inception date of Class B Shares of the Fund. Returns prior
to that date are for Class A Shares, adjusted for Class B Share expenses.
The Lehman Brothers 10-Year Municipal Index is an unmanaged index of bonds with
maturities of one to ten years.
COLORADO TAX-FREE FUND
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.
PRINCIPAL INVESTMENT STRATEGIES. The Fund normally invests substantially all its
assets in investment grade municipal securities (rated in the 4 highest rating
categories or of comparable quality) issued by (1) the state of Colorado and its
subdivisions, authorities, instrumentalities, and corporations, and (2)
territories and possessions of the United States. The Fund invests at least 80%
of its total assets in municipal securities paying interest exempt from both
federal (including AMT) and Colorado state income taxes. Normally, the Fund
expects to have an average dollar-weighted portfolio maturity of greater than 10
years.
PRINCIPAL RISKS. The principal risks of investing in the Fund are interest rate
risk, credit risk, and municipal market risk. Because the Fund invests a large
portion of its assets in a particular state's municipal securities, it is more
vulnerable to events adversely affecting that state, including economic,
political, or regulatory occurrences. Loss of money is a risk of investing in
the Fund.
3
<PAGE>
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance table provide an indication of the historical risk
of an investment in the Fund. By showing changes in the Fund's performance from
year to year over the life of the Fund and how the Fund's average annual returns
compare to those of a broad-based securities index. Past performance does not
necessarily indicate future performance.
The annual returns in the bar chart are for the Fund's Class A Shares and do not
reflect sales loads. If sales loads were reflected, returns would be less than
shown.
[EDGAR Representation of Bar Chart]
ANNUAL TOTAL RETURN
1994 -5.93%
1995 17.00%
1996 4.88%
1997 10.29%
1998 6.14%
The calendar year-to-date total return as of June 30, 1999 was -2.17%.
During the periods shown in the chart, the highest quarterly return was 5.64%
(for the quarter ended March 31, 1995) and the lowest quarterly return was
- --5.49% (for the quarter ended March 31, 1994).
The following table compares the Fund's average annual total returns as of
December 31, 1998 to the Lehman Brothers 10-Year Municipal Index.
<TABLE>
<S> <C> <C> <C>
COLORADO COLORADO LEHMAN BROTHERS
TAX-FREE FUND TAX-FREE FUND 10-YEAR MUNICIPAL
YEAR(S) A SHARES B SHARES* INDEX
1 Year 1.36% 0.25% 6.76%
5 Year 5.23% 5.08% 6.34%
Since Inception (6/1/93) 5.87% 5.83% 6.97%(1)
</TABLE>
(1) For the period 5/31/93 - 12/31/98.
* 8/2/93 was the inception date of Class B Shares of the Fund. Returns prior
to that date are for Class A Shares, adjusted for Class B Share expenses.
The Lehman Brothers 10-Year Municipal Index is an unmanaged index of municipal
bonds with maturities of one to ten years.
MINNESOTA TAX-FREE FUND
OBJECTIVE. The Fund's investment objective is to provide shareholders with a
high level of current income exempt from both federal (including AMT) and
Minnesota state income taxes without assuming undue risk. The Fund offers shares
only to residents of Minnesota.
PRINCIPAL INVESTMENT STRATEGIES. The Fund normally invests substantially all
(and always at least 75% of) its assets in investment grade municipal securities
(rated in the 4 highest rating categories or of comparable quality) issued by
(1) the state of Minnesota and its subdivisions, authorities, instrumentalities,
and corporations and (2) territories and possessions of the United States. The
Fund invests at least 80% of its total assets in securities paying interest
exempt from both federal and Minnesota state income taxes (including AMT).
Normally, the Fund expects to have an average dollar-weighted portfolio maturity
of greater than 10 years.
PRINCIPAL RISKS. The principal risks of investing in the Fund are interest rate
risk, credit risk, and municipal market risk. Because the Fund invests a large
portion of its assets in a particular state's municipal securities, it is more
vulnerable to events adversely affecting that state, including economic,
political, or regulatory occurrences. Loss of money is a risk of investing in
the Fund.
4
<PAGE>
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance table provide an indication of the historical risk
of an investment in the Fund by showing changes in a Fund's performance from
year to year over 10 years and how the Fund's average annual returns compare to
those of a broad-based securities index. Past performance does not necessarily
indicate future performance.
The annual returns in the bar chart are for the Fund's Class A Shares and do not
reflect sales loads. If sales loads were reflected, returns would be less than
shown.
[EDGAR Representation of Bar Chart]
ANNUAL TOTAL RETURN
1989 -1.45%
1990 9.37%
1991 6.35%
1992 8.53%
1993 7.55%
1994 11.24%
1995 -6.00%
1996 17.21%
1997 3.78%
1998 9.16%
The calendar year-to-date total return as of June 30, 1999 was -1.45%.
During the periods shown in the chart, the highest quarterly return was 6.84%
(for the quarter ended March 31, 1995) and the lowest quarterly return was
- --5.57% (for the quarter ended March 31, 1994).
The following table compares the Fund's average annual total returns as of
December 31, 1998 to the Lehman Brothers 10-Year Municipal Index.
<TABLE>
<S> <C> <C> <C>
MINNESOTA MINNESOTA LEHMAN BROTHERS
TAX-FREE FUND TAX-FREE FUND 10-YEAR MUNICIPAL
YEAR(S) A SHARES B SHARES* INDEX
1 Year 1.44% 0.33% 6.76%
5 Year 4.83% 4.68% 6.34%
10 Year 6.70% 6.36% 8.32%
Since Inception (1/12/88) 6.56% 6.18% 8.27%(1)
</TABLE>
(1) For the period 12/31/87 - 12/31/98.
* 8/6/93 was the inception date of Class B Shares of the Fund. Returns prior
to that date are for Class A Shares, adjusted for Class B share expenses.
The Lehman Brothers 10-Year Municipal Index is an unmanaged index of municipal
bonds with maturities of one to ten years.
5
<PAGE>
FEES AND EXPENSES OF THE FUNDS
This table describes the fees and expenses that you pay if you buy and hold
shares of the Funds.
<TABLE>
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses
(fees paid directly from your investment)
A B
Shares Shares
- ------------------------------------------------------- ---------------- -------------
- ------------------------------------------------------- ---------------- -------------
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) 4.5% Zero
Maximum Deferred Sales Charge (Load)
(as percentage of the lower of the Net Asset Zero 5.0%
Value ("NAV") at purchase or the NAV at
redemption)
Annual Fund Operating Expenses (1)
(expenses that are deducted from Fund assets)
Tax-Free Income Fund
A B
Shares Shares
------------ -- ------------
Investment Advisory Fees 0.50% 0.50%
Distribution (12b-1) Fees 0.00% 1.00%
Other Expenses 0.48% 0.51%
Total Annual Fund Operating Expenses(2) 0.98% 2.01%
Colorado Tax-Free Fund Minnesota Tax-Free Fund
A B A B
Shares Shares Shares Shares
------------ -- ------------ ------------ -- ---------------
Investment Advisory Fees 0.50% 0.50% 0.50% 0.50%
Distribution (12b-1) Fees 0.00% 1.00% 0.00% 1.00%
Other Expenses 0.52% 0.53% 0.53% 0.54%
Total Annual Fund Operating Expenses(2) 1.02% 2.03% 1.03% 2.04%
</TABLE>
(1) Based on amounts incurred during each Fund's fiscal year ended May 31, 1999
stated as a percentage of net assets.
(2) The Funds are subject to voluntary fee waivers and expense reimbursements
that reduce the operating expenses of the Funds. See the Financial
Highlights Table for information about Fund expenses, net of fee waivers
and expense reimbursements.
6
<PAGE>
EXAMPLE OF EXPENSES
These examples are intended to help you compare the cost of investing in a Fund
with the cost of investing in other mutual funds. The examples assume that you
invest $10,000 in a Fund for the time periods indicated and then redeem all of
your shares at the end of these periods. The example also assumes that your
investment has a 5% annual return, that the fund's operating expenses remain the
same, and that distributions are reinvested.
Your actual costs may be higher or lower than those shown.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- ---------------- ------------------------- ------------------------- --------------------------
Tax-Free Income Colorado Tax-Free Fund Minnesota Tax-Free Fund
Fund
- ---------------- ------------------------- ------------------------- --------------------------
------------ ------------ ------------ ------------ ------------- ------------
Class A Class B Class A Class B Class A Class B
- ----------------
------------ ------------ ------------ ------------ ------------- ------------
1 YEAR $545 $704 $549 $706 $550 $707
- ---------------- ------------ ------------ ------------ ------------ ------------- ------------
3 YEARS 748 930 760 937 763 940
- ---------------- ------------ ------------ ------------ ------------ ------------- ------------
5 YEARS 967 1,283 988 1,293 993 1,298
- ---------------- ------------ ------------ ------------ ------------ ------------- ------------
10 YEARS 1,597 2,338 1,642 2,358 1,653 2,369
- ---------------- ------------ ------------ ------------ ------------ ------------- ------------
You would pay the following expenses if you do NOT redeem your shares at the end
of the periods shown:
- ---------------- ------------------------- ------------------------- --------------------------
Tax-Free Income Colorado Tax-Free Fund Minnesota Tax-Free Fund
Fund
- ---------------- ------------------------- ------------------------- --------------------------
------------ ------------ ------------ ------------ ------------- ------------
Class A Class B Class A Class B Class A Class B
- ----------------
------------ ------------ ------------ ------------ ------------- ------------
1 YEAR $545 $204 $549 $206 $550 $207
- ---------------- ------------ ------------ ------------ ------------ ------------- ------------
3 YEARS 748 630 760 637 763 640
- ---------------- ------------ ------------ ------------ ------------ ------------- ------------
5 YEARS 967 1,083 988 1,093 993 1,098
- ---------------- ------------ ------------ ------------ ------------ ------------- ------------
10 YEARS 1,597 2,338 1,642 2,358 1,653 2,369
- ---------------- ------------ ------------ ------------ ------------ ------------- ------------
</TABLE>
7
<PAGE>
GLOSSARY
This Glossary of frequently used terms will help you understand the discussion
of the Funds' objectives, policies, and risks.
TERM DEFINITION
AMT Alternative minimum tax.
BOARD The Board of Trustees of Norwest Advantage
Funds.
CDSC Contingent deferred sales charge.
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.
8
<PAGE>
INVESTMENT OBJECTIVES, STRATEGIES
AND RISK CONSIDERATIONS
This section of the Prospectus provides a more complete description of each
Fund's investment objectives and principal strategies and risks. Except as
otherwise indicated, the Board may change the Fund's investment policies without
shareholder approval. The Fund's investment objectives are fundamental and
cannot be changed without a shareholder vote. There can, of course, be no
assurance that any Fund will achieve its investment objective.
This section describes risks that affect the Funds' portfolios as a whole.
Certain of these risks may apply to one or more of the Funds.
These risks are:
o INTEREST RATE RISK. THIS IS THE RISK THAT CHANGES IN INTEREST RATES
WILL AFFECT THE VALUE OF A FUND'S INVESTMENTS, PARTICULARLY THOSE
INVESTMENTS IN DEBT OR INCOME-PRODUCING SECURITIES. INCREASES IN
INTEREST RATES MAY CAUSE THE VALUE OF A FUND'S INVESTMENTS TO DECLINE;
O CREDIT RISK. THIS IS THE RISK THAT THE ISSUER OF A SECURITY WILL BE
UNABLE TO MAKE TIMELY PAYMENTS OF INTEREST OR PRINCIPAL OR TO
OTHERWISE HONOR ITS OBLIGATIONS; AND
O MUNICIPAL MARKET RISK. THIS IS THE RISK THAT SPECIAL FACTORS MAY
ADVERSELY AFFECT THE VALUE OF MUNICIPAL SECURITIES AND HAVE A
SIGNIFICANT EFFECT ON THE VALUE OF A FUND'S INVESTMENTS. THESE FACTORS
INCLUDE POLITICAL OR LEGISLATIVE CHANGES AND UNCERTAINTIES RELATED TO
THE TAX STATUS OF MUNICIPAL SECURITIES OR THE RIGHTS OF INVESTORS IN
THESE SECURITIES.
TAX-FREE INCOME FUND
INVESTMENT OBJECTIVE AND STRATEGIES. The Fund's investment objective is
to produce current income exempt from federal income taxes. The Fund
invests primarily in a portfolio of investment grade municipal
securities. The Fund normally invests at least 80% of its total assets
in municipal securities paying interest exempt from federal income
taxes, including AMT.
The Fund expects to maintain an average dollar-weighted portfolio
maturity of between 10 and 20 years, but portfolio maturity may vary
depending on market conditions. The Fund emphasizes investments in
municipal securities with interest income rather than stability of the
Fund's net asset value.
RISK CONSIDERATIONS. The principal risks of investing in the Fund are
interest rate risk, credit risk, and municipal market risk.
COLORADO TAX-FREE FUND
INVESTMENT OBJECTIVE AND STRATEGIES. 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 AMT) consistent
with the preservation of capital. The Fund offers shares only to
residents of Colorado. The Fund normally invests substantially all of
its assets in investment grade municipal securities (rated in the 4
highest rating categories or of comparable quality) issued by (1) the
state of Colorado and its subdivisions, authorities, instrumentalities,
and corporations and (2) territories and possessions of the United
States. The Fund invests at least 80% of its total assets in municipal
securities paying interest exempt from both federal (including AMT) and
Colorado state income taxes. The Fund invests in securities of a
comparatively small number of issuers.
The Fund expects that its average dollar-weighted portfolio maturity
normally will be greater than 10 years, but portfolio maturity may
reach or exceed 20 years. While 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 CONSIDERATIONS. The principal risks of investing in the Fund are
interest rate risk, credit risk, and municipal market risk. Because the
Fund invests a large portion of its assets in a smaller number of
issuers and in a particular state's municipal securities, it is more
vulnerable to events adversely affecting these issuers or that state,
including economic, political, or regulatory occurrences.
9
<PAGE>
MINNESOTA TAX-FREE FUND
INVESTMENT OBJECTIVES AND STRATEGIES. 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 AMT)
without assuming undue risk. The Fund offers shares only to residents
of Minnesota. The Fund normally invests substantially all (and always
at least 75% of) its assets in investment grade municipal securities
(rated in the 4 highest rating categories or of comparable quality)
issued by (1) the state of Minnesota and its subdivisions, authorities,
instrumentalities, and corporations and (2) territories and possessions
of the United States. The Fund invests at least 80% of its total assets
in securities paying interest exempt from both federal (including AMT)
and Minnesota state income taxes. The Fund may invest in securities of
a comparatively small number of issuers.
Normally, the Fund maintains an average dollar-weighted portfolio
maturity of greater than 10 years, but the portfolio maturity may reach
or exceed 20 years. The Fund may invest up to 25% of its 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.
RISK CONSIDERATIONS. The principal risks of investing in the Fund are
interest rate risk, credit risk, and municipal market risk. Because the
Fund invests a large portion of its assets in a smaller number of
issuers and in a particular state's municipal securities, it is more
vulnerable to events adversely affecting these issuers or that state,
including economic, political, or regulatory occurrences.
OTHER CONSIDERATIONS
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 achieve 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.
When a 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 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 each Fund's portfolio turnover rate.
YEAR 2000
Certain computer systems may not process date-related information properly on
and after January 1, 2000. The Funds' Adviser is addressing this matter for its
systems. The Funds' other service providers have informed the Fund that they are
taking similar measures. Investments in foreign companies are particularly
vulnerable to Year 2000 risk because these companies may not have the financial
resources, technology, or personnel needed to address Year 2000 readiness
concerns. This matter, if not corrected, could adversely affect the services
provided to the Fund or the issues in which the Fund invests and could
therefore, lower the value of your Fund shares.
10
<PAGE>
MANAGEMENT OF THE FUNDS
INVESTMENT ADVISORY SERVICES
Norwest Investment Management, Inc. or NIM, which is now a wholly-owned
subsidiary of Wells Fargo and Company, Norwest Center, Sixth Street and
Marquette, Minneapolis, MN 55479, is the investment adviser for each Fund. In
this capacity, NIM makes investment decisions for and administers the Funds'
investment programs. As of June 30, 1999, NIM provided advisory services for
over $24 billion in assets.
For these advisory services for the fiscal year ending May 31, 1999, the Funds
paid:
FUND FEE AS A PERCENTAGE OF
AVERAGE DAILY NET ASSETS
TAX-FREE INCOME FUND 0.50%
COLORADO TAX-FREE FUND 0.50%
MINNESOTA TAX-FREE FUND 0.50%
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. Descriptions of the portfolio managers' recent experience follow
the list of portfolio managers.
TAX-FREE FIXED INCOME FUNDS
TAX-FREE INCOME FUND
PORTFOLIO MANAGER: William T. Jackson, CFA (1993).
COLORADO TAX-FREE FUND
PORTFOLIO MANAGER: William T. Jackson, CFA (1993).
MINNESOTA TAX-FREE FUND
PORTFOLIO MANAGER: Patricia D. Hovanetz, CFA (1991).
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 of Norwest.
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.
11
<PAGE>
CHOOSING A SHARE CLASS
CLASSES OF SHARES
This Prospectus offers 2 classes of shares of the Funds. The classes, which have
different fee structures, are:
o A Shares: offered at their net asset value plus an initial sales
charge. A Shares do not pay distribution or shareholder servicing
fees.
o 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.
Sales charges and fees vary considerably between a Fund's A Shares and B Shares.
After 7 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):
*
Sales Charge
As a Percentage of*
Amount of Purchase Offering Price+ Net Amount Invested
Less than $50,000........ 4.50% 4.71%
$50,000 to $99,999....... 4.00% 4.17%
$100,000 to $249,000..... 3.50% 3.63%
$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.
If you redeem A Shares purchased without a sales charge within one year of the
date of purchase, the funds may impose a 1.00% charge. This charge is based on
the lower of the NAV of the shares redeemed on the date of purchase or the date
of redemption.
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 8 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.
12
<PAGE>
YEAR SINCE PURCHASE CHARGE FOR EACH FUND
First................................................ 5.0%
Second............................................... 4.0%
Third................................................ 3.0%
Fourth............................................... 3.0%
Fifth................................................ 2.0%
Sixth................................................ 1.0%
Seventh.............................................. None
The Funds will redeem shares in the manner that results in the imposition of the
lowest CDSC. The Funds will automatically redeem shares first from any A Shares
of the Fund, second from B Shares of the Fund acquired pursuant to reinvestment
of distributions, third from B Shares of the Fund held for more than 6 years,
and fourth from the longest outstanding B Shares of the Fund held for less than
6 years.
CONVERSION FEATURE. B Shares will not convert into A Shares until the beginning
of the eighth year after your purchase.
HOW TO BUY AND SELL SHARES
DETERMINATION OF NET ASSET VALUE
Each Fund determines its net asset value or NAV on each Fund business day, which
is any day that the New York Stock Exchange is open, by dividing the value of
its net assets (i.e.,. the value of its securities and other assets less its
liabilities) by the number of shares outstanding at the time the determination
is made. The Funds determine their net asset values at 4:00 p.m., Eastern time.
You may purchase or redeem shares at a price equal to their NAV next determined
after receipt of your purchase order, or redemption request in proper form plus
in the case of A Shares, any applicable sales charge, on a fund business day.
GENERAL PURCHASE INFORMATION
You may purchase shares directly or through a financial institution. The Funds'
transfer agent processes all transactions in Fund shares. Not all Funds or Share
Classes offered in this Prospectus are available for purchase in all states.
Please contact the Funds or your financial representative for information about
whether a Fund or Share Class is available in your state.
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
PURCHASING SHARES DIRECTLY
You may obtain an account application by writing Norwest Advantage Funds at the
following address:
BY REGULAR MAIL: Norwest Advantage Funds
P.O. Box 8265
Boston, MA 02266-8265
BY OVERNIGHT MAIL ONLY TO: Norwest Advantage Funds
Attn: CCSU
Boston Financial
66 Brooks Drive
Braintree, MA 02184
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<PAGE>
When you sign an application for a new Fund account, you are certifying that
your Social Security number or other taxpayer identification number is correct
and that you are not subject to backup withholding. If you violate certain
federal income tax provisions, the Internal Revenue Service can require the
Funds to withhold 31% of your distributions and redemptions.
You must pay for your shares in U.S. dollars by check or money order drawn on an
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:
BY WIRE TO: State Street Bank & Trust
Boston, MA
ABA 011000028
FNF: (Norwest Advantage Fund name]
AC: 9905-434-8
For Further Credit: _____________
(Name on Norwest Advantage Fund Account
and Fund Account Number)
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. 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
14
<PAGE>
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
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.
If you exchange A Shares of a Fund for A Shares of another fund with a higher
sales load, you will not be required to pay the difference in the sales load.
15
<PAGE>
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. 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.
SALES CHARGE REDUCTION PROGRAM ENHANCEMENTS:
A SHARES
If you purchase A Shares of a Norwest Advantage Fund, that purchase may count
towards reductions of sales charges for purchases of Class A shares of funds in
the Stagecoach fund family. Currently, through Rights of Accumulation, you may
reduce the sales charges you pay on A Shares of Norwest Advantage Funds by
accumulating purchases of different Norwest Advantage Funds to reach one of the
breakpoints available. You also may pay a lower sales charge by signing a
Statement of Intention to invest a specific amount over a certain period of
time. You may use your Norwest Advantage Funds Right of Accumulation or
Statement of Intention to accumulate purchases of different Norwest Advantage
Funds and Stagecoach funds to reach a breakpoint in the sales charges for A
Shares.
B SHARES
A fund will not charge any CDSC for your withdrawal of B Shares under an
Automatic Withdrawal Plan, provided that your aggregate withdrawal of the fund's
shares under the Plan does not exceed 10% (including dividend and capital gain
distributions) annually of your B Shares shareholdings of the fund, based on the
anniversary date of the Plan.
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.
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.
o 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.
o Under the Cash Option, you are paid all distributions in cash.
16
<PAGE>
o 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.
17
<PAGE>
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 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 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.
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Financial Highlights
The financial highlights table is intended to help you understand each Fund's
financial performance. Total return in the table represents the rate that an
investor would have earned (or lost) on an investment in a Fund (assuming
reinvestment of all distributions). The information has been audited by KPMG
LLP, independent auditors. Each Fund's financial statements and the auditor's
reports, are included in the Fund's Annual Report, which is available upon
request, at no charge. These financial statements are incorporated by reference
into the SAI.
<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, 1999 $10.54 $0.52 ($0.10) ($0.51) ($0.01) $10.44
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
B Shares
Year Ended May 31, 1999 $10.54 $0.44 ($0.10) ($0.43) ($0.01) $10.44
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
- -----------------------------------------------------------------------------------------
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)
- --------------------------------------------------------------------------------------------------------------------------
Tax-Free Income Fund
A Shares
Year Ended May 31, 1999 4.81% 0.60% 0.98% 4.04% 105.53% $43,388
Year Ended May 31, 1998 5.09% 0.60% 0.99% 10.33% 142.81% $35,121
Year Ended May 31, 1997 5.41% 0.50% 1.06% 8.43% 152.33% $29,217
Year Ended May 31, 1996 5.54% 0.40% 1.06% 5.29% 126.20% $33,914
Year Ended May 31, 1995 5.87% 0.60% 1.12% 8.42% 130.90% $30,786
B Shares
Year Ended May 31, 1999 4.05% 1.35% 2.01% 3.26% 105.53% $17,973
Year Ended May 31, 1998 4.31% 1.35% 2.05% 9.52% 142.81% $11,070
Year Ended May 31, 1997 4.64% 1.26% 2.15% 7.63% 152.33% $7,329
Year Ended May 31, 1996 4.77% 1.14% 2.21% 4.50% 126.20% $5,897
Year Ended May 31, 1995 5.05% 1.35% 2.21% 7.61% 130.90% $3,729
- -----------------------------------------
</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 sand fee waivers.
19
<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, 1999 $10.69 $0.51 ($0.10) ($0.51) ($0.04) $10.55
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
B Shares
Year Ended May 31, 1999 $10.71 $0.43 ($0.11) ($0.43) ($0.04) $10.56
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
- -----------------------------------------------------------------------------------------
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)
- ------------------------------------------------------------------------------------------------------------------------
Colorado Tax-Free Fund
A Shares
Year Ended May 31, 1999 4.71% 0.60% 1.02% 3.79% 76.62% $39,958
Year Ended May 31, 1998 5.00% 0.60% 1.04% 9.96% 69.87% $34,254
Year Ended May 31, 1997 5.36% 0.45% 1.14% 9.00% 129.26% $27,806
Year Ended May 31, 1996 5.30% 0.30% 1.13% 5.35% 171.41% $26,991
Year Ended May 31, 1995 5.10% 0.30% 1.15% 7.47% 47.88% $25,997
B Shares
Year Ended May 31, 1999 3.96% 1.35% 2.03% 2.92% 76.62% $10,909
Year Ended May 31, 1998 4.24% 1.35% 2.04% 9.25% 69.87% $9,156
Year Ended May 31, 1997 4.60% 1.20% 2.15% 8.19% 129.26% $7,218
Year Ended May 31, 1996 4.64% 1.05% 2.16% 4.56% 171.41% $6,400
Year Ended May 31, 1995 4.32% 1.05% 2.16% 6.67% 47.88% $5,198
- ----------------------------------------
</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/or fee waivers.
20
<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, 1999 $11.05 $0.51 ($0.08) ($0.51) ($0.01) $10.96
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
B Shares
Year Ended May 31, 1999 $11.05 $0.43 ($0.08) ($0.43) ($0.01) $10.96
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
- --------------------------------------------------------------------------------------------
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)
- --------------------------------------------------------------------------------------------------------------------------------
Minnesota Tax-Free Fund
A Shares
Year Ended May 31, 1999 4.61% 0.60% 1.03% 3.96% 24.84% $38,255
Year Ended May 31, 1998 4.83% 0.60% 1.07% 9.71% 68.27% $33,597
Year Ended May 31, 1997 5.11% 0.60% 1.21% 7.98% 96.68% $25,739
Year Ended May 31, 1996 5.26% 0.48% 1.26% 3.97% 77.10% $26,610
Year Ended May 31, 1995 5.25% 0.49% 1.61% 8.55% 139.33% $15,559
B Shares
Year Ended May 31, 1999 3.85% 1.35% 2.04% 3.18% 24.84% $21,493
Year Ended May 31, 1998 4.07% 1.35% 2.08% 8.89% 68.27% $16,549
Year Ended May 31, 1997 4.35% 1.34% 2.21% 7.18% 96.68% $11,128
Year Ended May 31, 1996 4.51% 1.23% 2.29% 3.28% 77.10% $8,825
Year Ended May 31, 1995 4.52% 1.21% 2.62% 7.63% 139.33% $5,090
- --------------------------------------------
</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.
21
<PAGE>
If you would like more information about the Funds and their investments, you
may want to read the following documents:
STATEMENT OF ADDITIONAL INFORMATION. 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, or
make inquiries concerning the Funds, 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. The scheduled hours of operation of the Public
Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. Free copies
of the reports and SAIs are available from the SEC's Internet website at http://
www.sec.gov.
The SEC's Investment Company Act file number for the Funds is 811-4881.
NORWEST ADVANTAGE FUNDS
PROSPECTUS
October 1, 1999
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 FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
THE BOARD OF TRUSTEES AND THE SHAREHOLDERS OF THE NORWEST ADVANTAGE FUNDS HAVE
APPROVED A REORGANIZATION OF THE FUNDS WITH THE STAGECOACH FUNDS ADVISED BY
WELLS FARGO BANK, N.A. THE BOARD OF DIRECTORS AND SHAREHOLDERS OF STAGECOACH
FUNDS ALSO HAVE APPROVED THE REORGANIZATION. THIS COMBINATION OF MUTUAL FUND
FAMILIES FOLLOWS THE MERGER OF WELLS FARGO & COMPANY AND NORWEST CORPORATION.
EACH OF THE NORWEST ADVANTAGE FUNDS AND THE STAGECOACH FUNDS WILL REORGANIZE
INTO A NEW PORTFOLIO OF WELLS FARGO FUNDS TRUST. THE REORGANIZATION IS PENDING
AND WILL BE COMPLETED AS SOON AS REASONABLY PRACTICABLE.
THE SECURITIES AND EXCHANGE COMMISSION, HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED WHETHER OR NOT THIS PROSPECTUS IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE
OF
CONTENTS
Risk/Return Summary............................................................3
GROWTH BALANCED FUND..................................................4
INCOME EQUITY FUND....................................................5
VALUGROWTH STOCK FUND.................................................7
DIVERSIFIED EQUITY FUND...............................................8
GROWTH EQUITY FUND...................................................10
LARGE COMPANY GROWTH FUND............................................11
DIVERSIFIED SMALL CAP FUND...........................................12
SMALL COMPANY STOCK FUND.............................................14
SMALL CAP OPPORTUNITIES FUND.........................................15
INTERNATIONAL FUND...................................................16
FEES AND EXPENSES OF THE FUNDS................................................18
GLOSSARY 9
INVESTMENT OBJECTIVES, STRATEGIES AND RISK CONSIDERATIONS.....................10
DESCRIPTIONS OF CORE PORTFOLIOS......................................16
OTHER CONSIDERATIONS..........................................................19
MANAGEMENT OF THE FUNDS.......................................................20
CHOOSING A SHARE CLASS........................................................25
HOW TO BUY AND SELL SHARES....................................................27
DISTRIBUTIONS AND TAX MATTERS.................................................31
FINANCIAL HIGHLIGHTS..........................................................32
<PAGE>
RISK/RETURN
SUMMARY
The following is a summary of certain key information about the Funds. You will
find additional information about the Funds after this summary.
Some of the Funds invest directly in a portfolio of securities. Other Funds, as
identified below, are "gateway" funds in a "core/gateway" structure. In this
structure a "gateway" fund invests some or all of its assets in one or more
"core portfolios" that have a substantially identical investment objective and
substantially similar policies as the gateway fund. Gateway funds investing in
the same core portfolio, or Portfolio, can enhance their investment
opportunities and reduce their expense ratios through sharing the costs of
managing a large pool of assets. Except when necessary to describe a Fund's
investment in a Portfolio, references to the gateway fund also include the
Portfolio, which is discussed after this section.
In this summary, we will identify certain kinds of risks that apply to one or
more of the Funds. These risks are:
o MARKET RISK. THIS IS THE RISK THAT THE VALUE OF A FUND'S INVESTMENTS
WILL FLUCTUATE AS THE STOCK OR BOND MARKETS FLUCTUATE AND THAT PRICES
OVERALL WILL DECLINE OR SHORT OR LONGER-TERM PERIOD;
o INTEREST RATE RISK. THIS IS THE RISK THAT CHANGES IN INTEREST RATES
WILL AFFECT THE VALUE OF A FUND'S INVESTMENTS, PARTICULARLY THOSE
INVESTMENTS IN DEBT OR
INCOME-PRODUCING SECURITIES. INCREASES IN INTEREST RATES MAY CAUSE THE
VALUE OF A FUND'S INVESTMENTS TO DECLINE;
o CREDIT RISK. THIS IS THE RISK THAT THE ISSUER OF A SECURITY WILL BE
UNABLE TO MAKE TIMELY PAYMENTS OF INTEREST OR PRINCIPAL OR TO
OTHERWISE HONOR ITS OBLIGATION; AND
o MANAGEMENT RISK. THIS IS THE RISK THAT A FUND'S MANAGER WILL MAKE POOR
CHOICES IN SELECTED SECURITIES. ALL ACTIVELY MANAGED FUNDS HAVE
MANAGEMENT RISK.
The Risk/Return Summary includes a bar chart for each Fund showing its annual
returns and a table showing its average annual returns. The bar chart and table
provide an indication of the historical risk of an investment in each Fund by
showing:
o changes in the Fund's performance from year to year over 10 years or,
if less, the life of a Fund; and
o how the Fund's average annual returns for one, five and 10 years, or,
if less, the life of the Fund, compare to those of a broad-based
securities market index.
A Fund's past performance does not necessarily indicate how it will perform in
the future.
Another important thing for you to note: You may lose money by investing in a
Fund.
<PAGE>
GROWTH BALANCED FUND
OBJECTIVE. The Fund's investment objective is to provide a combination of
current income and capital appreciation by diversified investments in stocks and
bonds.
PRINCIPAL INVESTMENT STRATEGIES. The Fund is a "gateway" fund that invests in
other "core" portfolios. The Fund seeks long-term capital appreciation in the
equity securities market in a balanced fund. Normally, the Fund invests
approximately 65% of its portfolio in several different equity investment
styles. 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 equity styles include:
o INDEX STYLE - replicates securities in the S&P 500 Index;
o INCOME EQUITY STYLE - emphasizes investments in large, high-quality
domestic companies with above average dividend income;
o LARGE COMPANY STYLE - emphasizes investments in large, high-quality
domestic companies with above-average growth potential;
o SMALL-CAP STYLE - emphasizes investments in small-cap companies with
the potential for growth; and
o INTERNATIONAL STYLE - emphasizes investments in high-quality companies
based outside the United States.
Normally, the Fund invests approximately 35% of its portfolio in several
different fixed-income investment
styles. The blending of these 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. These styles include:
o INTERMEDIATE-TERM STYLE - emphasized investments in investment grade
(rated in the 4 highest rating categories or of comparable quality)
intermediate-term securities;
o VALUE STYLE - emphasizes investments in debt securities (primarily
rated in the 3 highest rating categories or of comparable quality)
based on a value strategy or the analyses of fundamental financial
information rather than the direction of interest rates; and
o BALANCED TOTAL RETURN STYLE - emphasizes in short-term bonds
(maturities of 2 years or less) and long-term bonds (maturities of 25
years or more) depending on the prices of bonds.
PRINCIPAL RISKS. The principal risks of investing in the Fund are market risk,
interest rate risk, and credit risk. The Fund's
investments in different styles and in both equity and fixed-income securities
have allocation risk, which is the risk that the allocation of investments may
have a more significant effect on the Fund's net asset value when one investment
style or asset class is performing more poorly than the others. To the extent
that the Fund invests in small-capitalization companies, it has capitalization
risk. These investments tend to be more volatile than investments in large-cap
companies. In addition, small-cap companies may have more risk because they
often have limited product lines, markets, or financial resources. The Fund's
investments in foreign securities have foreign risk. This is the risk of
investments in issuers located in foreign countries, which may have greater
price volatility and less liquidity. Investments in foreign securities also are
subject to political, regulatory, and diplomatic risks. Foreign risk includes
currency risk, which may occur due to fluctuations in the exchange rates between
the U.S. dollar and foreign currencies. This risk could negatively affect the
value of a Fund's investments. Loss of money is a risk of investing in the Fund.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and
performance table provide an indication of the historical risk of an investment
in the Fund by showing changes in the Fund's performance from year to year over
10 years and how the Fund's average annual returns compare to those of a
broad-based securities index. Past performance does not necessarily indicate
future performance.
The annual returns in the bar chart are for the Fund's Class A Shares and do not
reflect sales loads. If sales loads were reflected, returns would be less than
shown.
EDGAR REPRESENTATION OF BAR CHART
ANNUAL TOTAL RETURN
1990 - 1.95%
1991 - 27.92%
1992 - 5.58%
1993 - 10.26%
1994 - -0.16%
1995 - 23.29%
1996 - 14.21%
1997 - 20.78%
1998 - 20.18%
The calendar year-to-date total return as of June 30, 1999 was 7.26%.
During the periods shown in the chart, the highest quarterly return was 16.81%
(for the quarter ended December 31, 1998) and the lowest quarterly return was
- -10.02% (for the quarter ended September 30, 1990).
The following table compares the Fund's average annual total returns as of
December 31, 1998 to the S&P 500 Index.
<TABLE>
<S> <C> <C> <C>
GROWTH GROWTH GROWTH
BALANCED FUND BALANCED FUND BALANCED FUND S&P 500
YEAR(S) A SHARES* B SHARES* C SHARES* INDEX
1 Year 15.35% 16.42% 20.51% 28.58%
5 Year 14.39% 14.66% 14.91% 24.03%
Since Inception (4/30/89) 13.21% 13.06% 13.07% 18.42%
<FN>
* 10/14/98 was the inception date of Class A Shares of the Fund. Returns
prior to that date are for Class I Shares, and have not been adjusted for
Class A Share expenses. If such returns had been adjusted for Class A Share
expenses, returns would have been lower. Performance shown for Class A
Shares for the period prior to November 11, 1994 reflects performance of
the shares of the predecessor collective investment fund adjusted to
reflect the Fund's 1994 estimate of its expense ratio for the first year of
operations as a mutual fund, including any applicable sales load (without
giving effect to any fee waivers or expense reimbursements).
10/1/98 was the inception date of Class B and C Shares of the Fund.
Returns prior to that date are for Class I Shares, adjusted for Class B and
Class C Share expenses, respectively. Performance shown for Class B and
Class C Shares for the period prior to November 11, 1994 reflects
performance of the shares of the predecessor collective investment fund
adjusted to reflect Class B and Class C Share expenses (before waivers and
reimbursements), respectively.
On November 11, 1994, a collective investment fund managed by the
Adviser reorganized into the Fund. The predecessor collective investment
fund maintained investment objectives and policies that were, in all
material respects, equivalent to the Fund. The Fund's performance for the
periods before November 11, 1994 is that of the collective investment fund
and includes its expenses. If the collective investment fund had been
readjusted to reflect the first year's expenses of the Fund, the Fund's
performance for all periods except "Since Inception" would have been lower.
The collective investment fund was not registered under the 1940 Act and
was not subject to certain investment limitations, diversification
requirements and other restrictions imposed by the 1940 Act and the
Internal Revenue Code, which, if applicable, may have adversely affected
its performance.
</FN>
</TABLE>
The S&P 500 Index is a widely recognized unmanaged index of common stocks. The
S&P 500 Index figures assume reinvestment of all dividends paid by stocks
included in the index. Unlike the performance figures of the Fund, the S&P 500
Index's performance does not reflect the effect of expenses. The index is
unmanaged and is not available for investment.
INCOME EQUITY FUND
OBJECTIVE. The Fund's investment objective is to provide long-term capital
appreciation consistent with above-average dividend income.
PRINCIPAL INVESTMENT STRATEGIES. The Fund invests primarily in the common stocks
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. The
Fund also may invest in foreign securities.
PRINCIPAL RISKS. The principal risk of investing in the Fund is market risk. To
the extent the Fund invests in foreign securities, it has foreign risk. This is
the risk of investments in issuers located in foreign countries, which may have
greater price volatility and less liquidity. Investments in foreign securities
also are subject to political, regulatory, and diplomatic risks. Foreign risk
includes currency risk, which may occur due to fluctuations in the exchange
rates between the U.S. dollar and foreign currencies. This risk could negatively
affect the value of a Fund's investments. Loss of money is a risk of investing
in the Fund.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance table provide an indication of the historical risk
of an investment in the Fund by showing changes in the Fund's performance from
year to year over 10 years and how the Fund's average annual returns compare to
those of a broad-based securities index. Past performance does not necessarily
indicate future performance.
The annual returns in the bar chart are for the Fund's Class A Shares and do not
reflect sales loads. If sales loads were reflected, returns would be less than
shown.
EDGAR REPRESENTATION OF BAR CHART
ANNUAL TOTAL RETURN
1990 - 1.30%
1991 - 28.76%
1992 - 5.51%
1993 - 7.63%
1994 - 4.64%
1995 - 38.43%
1996 - 20.25%
1997 - 28.07%
1998 - 17.82%
The calendar year-to-date total return as of June 30, 1999 was 13.40%.
During the periods shown in the chart, the highest quarterly return was 15.68%
(for the quarter ended December 31, 1998) and the lowest quarterly return was
- -10.74% (for the quarter ended September 30, 1990).
The following table compares the Fund's average annual total returns as of
December 31, 1998 to the S&P 500 Index.
<TABLE>
<S> <C> <C> <C>
INCOME INCOME INCOME
EQUITY FUND EQUITY FUND EQUITY FUND S&P 500
YEAR(S) A SHARES* B SHARES* C SHARES* INDEX
1 Year 11.04% 11.96% 15.85% 28.58%
5 Year 19.89% 20.23% 20.41% 24.03%
Since Inception (3/31/89) 16.50% 16.34% 16.34% 18.87% (1)
<FN>
(1) For the period 2/28/89 - 12/31/98.
* 5/2/96 was the inception date of Class A Shares of the Fund. Returns prior
to that date are for Class I Shares. Performance shown for Class A Shares
for the period prior to November 11, 1994 reflects performance of the
shares of the predecessor collective investment fund adjusted to reflect
the Fund's 1994 estimate of its expense ratio for the first year of
operations as a mutual fund, including any applicable sales load (without
giving effect to any fee waivers or expense reimbursements).
5/2/96 and 10/1/98 were the inception dates of Class B and C Shares,
respectively, of the Fund. Returns prior to May 2, 1996 for Class B Shares
and prior to October 1, 1998 for Class C Shares are for Class I Shares,
adjusted for Class B and Class C Share expenses, respectively. Performance
shown for Class Band Class C Shares for the period prior to November 11,
1994 reflects performance of the Shares of the predecessor collective
investment fund adjusted to reflect Class B and Class C Share expenses
(before waivers and reimbursements), respectively.
On November 11, 1994, a collective investment fund managed by the
Adviser reorganized into the Fund. The predecessor collective investment
fund maintained investment objectives and policies that were, in all
material respects, equivalent to the Fund. The Fund's performance for the
periods before November 11, 1994 is that of the collective investment fund
and includes its expenses. If the collective investment fund had been
readjusted to reflect the first year's expenses of the Fund, the Fund's
performance for all periods except "Since Inception" would have been lower.
The collective investment fund was not registered under the 1940 Act and
was not subject to certain investment limitations, diversification
requirements and other restrictions imposed by the 1940 Act and the
Internal Revenue Code, which, if applicable, may have adversely affected
its performance.
</FN>
</TABLE>
The S&P 500 Index is a widely recognized unmanaged index of common stocks. The
S&P 500 Index figures assume reinvestment of all dividends paid by stocks
included in the index. Unlike the performance figures of the Fund, the S&P 500
Index's performance does not reflect the effect of expenses. The index is
unmanaged and is not available for investment.
VALUGROWTH STOCK FUND
OBJECTIVE. The Fund's investment objective is to provide long-term capital
appreciation.
PRINCIPAL INVESTMENT STRATEGIES. The Fund invests primarily in
large-capitalization companies that, in the view of the Adviser, possess above
average growth characteristics, and appear to be undervalued. The Adviser
considers large companies to be those with market capitalizations within these
companies included in the Russell 1000 Index.
In selecting investments, 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 its Adviser, have 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.
PRINCIPAL RISKS. The principal risk of investing in the Fund is market risk. To
the extent that the Fund may invest in medium-capitalization companies, it may
have capitalization risk. These investments tend to be more volatile than
investments in large-cap companies. There also is a risk of using a value
strategy because the stocks in which the Fund invests may remain undervalued
during a given period or decline in price. This may occur because larger stocks
or investments based on large-stock indices are more appealing to investors or
because value stocks as a category lose favor with investors compared to growth
stocks. Loss of money is a risk of investing in the Fund.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance table provide an indication of the historical risk
of an investment in the Fund by showing changes in the Fund's performance from
year to year over 10 years and how the Fund's average annual returns compare to
those of a broad-based securities index. Past performance does not necessarily
indicate future performance.
The annual returns in the bar chart are for the Fund's Class A Shares and do not
reflect sales loads. If sales loads were reflected, returns would be less than
shown.
EDGAR REPRESENTATION OF BAR CHART
ANNUAL TOTAL RETURN
1989 - 26.86%
1990 - -1.25%
1991 - 36.89%
1992 - 9.65%
1993 - 6.65%
1994 - -4.23%
1995 - 23.73%
1996 - 20.56%
1997 - 22.61%
1998 - 9.45%
The calendar year-to-date total return as of June 30, 1999 was 8.01%.
During the periods shown in the chart, the highest quarterly return was 17.70%
(for the quarter ended December 31, 1998) and the lowest quarterly return was
- -17.71% (for the quarter ended September 30, 1998).
The following table compares the Fund's average annual total returns as of
December 31, 1998 to the S&P 500 Index.
<TABLE>
<S> <C> <C> <C>
VALUGROWTH VALUGROWTH
STOCK FUND STOCK FUND S&P 500
YEAR(S) A SHARES B SHARES* INDEX
1 Year 3.15% 4.19% 28.58%
5 Year 12.56% 12.83% 24.03%
10 Year 13.74% 13.55% 19.18%
Since Inception (1/8/88) 12.84% 12.59% 18.93%(1)
<FN>
(1) For the period 12/31/87 - 12/31/98.
* 8/5/93 was the inception date of Class B Shares of the Fund. Returns prior
to that date are for Class A Shares, adjusted for Class B Share expenses.
</FN>
</TABLE>
The S&P 500 Index is a widely recognized unmanaged index of common stocks. The
S&P 500 Index figures assume reinvestment of all dividends paid by stocks
included in the index. Unlike the performance figures of the Fund, the S&P 500
Index's performance does not reflect the effect of expenses. The index is
unmanaged and is not available for investment.
DIVERSIFIED EQUITY FUND
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.
PRINCIPAL INVESTMENT STRATEGIES. The Fund is a "gateway" fund that invests in
other "core" portfolios. The Fund uses a "multi-style" approach designed to
minimize the volatility and risk of investing in a single investment style. The
Fund's investments combine 5 different equity investment styles, which include:
o INDEX STYLE - replicates securities in the S&P 500 Index;
o INCOME EQUITY STYLE - emphasizes investments in large, high quality
domestic companies with above average dividend income; o LARGE COMPANY
STYLE - emphasizes investments in large, high-quality domestic companies
with above-average growth potential;
o SMALL-CAP STYLE - emphasizes investments in small-cap companies with the
potential for growth; and
o INTERNATIONAL STYLE - emphasizes investments in high-quality companies
based outside the United States.
PRINCIPAL RISKS. The principal risk of investing in the Fund is market risk. The
Fund has allocation risk, which is the risk that the allocation of investments
may have a more significant effect on the Fund's net asset value when one
investment style is performing more poorly than the others. To the extent that
the Fund invests in small-capitalization companies, it may have capitalization
risk. These investments tend to be more volatile than investments in large-cap
companies. In addition, small-cap companies may have more risk because they
often have limited product lines, markets, or financial resources. Also, the
market for small-cap stocks may be less liquid. The Fund's investments in
foreign securities have foreign risk. This is the risk of investments in issuers
located in foreign countries, which may have greater price volatility and less
liquidity. Investments in foreign securities also are subject to political,
regulatory, and diplomatic risks. Foreign risk includes currency risk, which may
occur due to fluctuations in the exchange rates between the U.S. dollar and
foreign currencies. This risk could negatively affect the value of a Fund's
investments. Loss of money is a risk of investing in the Fund.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance table provide an indication of the historical risk
of an investment in the Fund by showing changes in the Fund's performance from
year to year over 10 years and how the Fund's average annual returns compare to
those of a broad-based securities index. Past performance does not necessarily
indicate future performance.
The annual returns in the bar chart are for the Fund's Class A Shares and do not
reflect sales loads. If sales loads were reflected, returns would be less than
shown.
EDGAR REPRESENTATION OF BAR CHART
ANNUAL TOTAL RETURN
1989 - 28.35%
1990 - -1.38%
1991 - 37.58%
1992 - 4.74%
1993 - 12.14%
1994 - 0.83%
1995 - 30.94%
1996 - 20.47%
1997 - 25.68%
1998 - 24.30%
The calendar year-to-date total return as of June 30, 1999 was 11.38%.
During the periods shown in the chart, the highest quarterly return was 19.88%
(for the quarter ended December 31, 1998) and the lowest quarterly return was
- -15.86% (for the quarter ended September 30, 1990).
The following table compares the Fund's average annual total returns as of
December 31, 1998 to the S&P 500 Index.
<TABLE>
<S> <C> <C> <C>
DIVERSIFIED DIVERSIFIED DIVERSIFIED
EQUITY FUND EQUITY FUND EQUITY FUND S&P 500
YEAR(S) A SHARES* B SHARES* C SHARES* INDEX
1 Year 15.32% 16.46% 20.73% 28.58%
5 Year 18.18% 18.50% 18.76% 24.03%
10 Year 16.77% 16.58% 16.63% 19.18%
Since Inception (12/31/88) 16.77% 16.58% 16.63% 19.18%
<FN>
* 5/2/96 was the inception date of Class A Shares of the Fund. Returns prior
to that date are for Class I Shares. Performance shown for Class A Shares
for the period prior to November 11, 1994 reflects performance of the
shares of the predecessor collective investment fund adjusted to reflect
the Fund's 1994 estimate of its expense ratio for the first year of
operations as a mutual fund, including any applicable sales load (without
giving effect to any fee waivers or expense reimbursements).
5/6/96 and 10/1/98 were the inception dates of Class B and C Shares,
respectively, of the Fund. Returns prior to May 6, 1996 for Class B Shares
and prior to October 1, 1998 for Class C Shares are for Class I Shares,
adjusted for Class B and Class C Share expenses, respectively. Performance
shown for Class Band Class C Shares for the period prior to November 11,
1994 reflects performance of the shares of the predecessor collective
investment fund adjusted to reflect Class B and Class C Share expenses
(before waivers and reimbursements), respectively.
On November 11, 1994, a collective investment fund managed by the
Adviser reorganized into the Fund. The predecessor collective investment
fund maintained investment objectives and policies that were, in all
material respects, equivalent to the Fund. The Fund's performance for the
periods before November 11, 1994 is that of the collective investment fund
and includes its expenses. If the collective investment fund had been
readjusted to reflect the first year's expenses of the Fund, the Fund's
performance for all periods except "Since Inception" would have been lower.
The collective investment fund was not registered under the 1940 Act and
was not subject to certain investment limitations, diversification
requirements and other restrictions imposed by the 1940 Act and the
Internal Revenue Code, which, if applicable, may have adversely affected
its performance.
</FN>
</TABLE>
The S&P 500 Index is a widely recognized unmanaged index of common stocks. The
S&P 500 Index figures assume reinvestment of all dividends paid by stocks
included in the index. Unlike the performance figures of the Fund, the S&P 500
Index's performance does not reflect the effect of expenses. The index is
unmanaged and is not available for investment.
GROWTH EQUITY FUND
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.
PRINCIPAL INVESTMENT STRATEGIES. The Fund is a "gateway" fund that invests in
other "core" portfolios. The Fund invests in a "multi-style" approach designed
to reduce the volatility and risk of investing in a single equity style. The
Fund's investments combine 3 different equity styles, which include:
o LARGE COMPANY STYLE - emphasizes investments in large, high-quality
domestic companies with above-average growth potential;
o SMALL-CAP STYLE - emphasizes investments in small-cap companies with
the potential for growth; and
o INTERNATIONAL STYLE - emphasizes investments in high-quality companies
based outside the United States.
PRINCIPAL RISKS. The principal risk of investing in the Fund is market risk.
There also is a risk of using the growth strategy because the stocks in which
the Fund invests may not achieve the anticipated growth during a given period or
decline in price. This may occur if growth stocks as a category lose favor with
investors compared to value stocks. The Fund also has allocation risk, which is
the risk that the allocation of investments may have a more significant effect
on the Fund's net asset value when one investment style is performing more
poorly than the others. To the extent that the Fund may invest in
small-capitalization companies, it may have capitalization risk. These
investments tend to be more volatile than investments in large-cap companies. In
addition, small-cap companies may have more risk because they often have limited
product lines, markets, or financial resources. Also, the market for small-cap
stocks may be less liquid. The Fund's investments in foreign securities have
foreign risk. This is the risk of investments in issuers located in foreign
countries, which may have greater price volatility and less liquidity.
Investments in foreign securities also are subject to political, regulatory, and
diplomatic risks. Foreign risk includes currency risk, which may occur due to
fluctuations in the exchange rates between the U.S. dollar and foreign
currencies. This risk could negatively affect the value of a Fund's investments.
Loss of money is a risk of investing in the Fund.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance table provide an indication of the historical risk
of an investment in the Fund by showing changes in the Fund's performance from
year to year over 10 years and how the Fund's average annual returns compare to
those of a broad-based securities index. Past performance does not necessarily
indicate future performance.
The annual returns in the bar chart are for the Fund's Class A Shares and do not
reflect sales loads. If sales loads were reflected, returns would be less than
shown.
EDGAR REPRESENTATION OF BAR CHART
ANNUAL TOTAL RETURN
1990 - -1.36%
1991 - 42.72%
1992 - 5.06%
1993 - 19.75%
1994 - -1.34%
1995 - 24.87%
1996 - 18.78%
1997 - 20.09%
1998 - 16.50%
The calendar year-to-date total return as of June 30, 1999 was 9.33%.
During the periods shown in the chart, the highest quarterly return was 20.28%
(for the quarter ended March 31, 1991) and the lowest quarterly return was
- -20.14% (for the quarter ended September 30, 1990).
The following table compares the Fund's average annual total returns as of
December 31, 1998 to the S&P 500 Index.
<TABLE>
<S> <C> <C> <C>
GROWTH GROWTH GROWTH
EQUITY FUND EQUITY FUND EQUITY FUND S&P 500
YEAR(S) A SHARES* B SHARES* C SHARES* INDEX
1 Year 9.80% 10.64% 15.56% 28.58%
5 Year 14.05% 14.32% 14.72% 24.03%
Since Inception (4/30/89) 15.45% 15.31% 15.40% 18.42%
<FN>
* 5/2/96 was the inception date of Class A Shares of the Fund. Returns prior
to that date are for Class I Shares. Performance shown for Class A Shares
for the period prior to November 11, 1994 reflects performance of the
shares of the predecessor collective investment fund adjusted to reflect
the Fund's 1994 estimate of its expense ratio for the first year of
operations as a mutual fund, including any applicable sales load (without
giving effect to any fee waivers or expense reimbursements).
5/6/96 and 10/1/98 were the inception dates of Class B and C Shares,
respectively, of the Fund. Returns prior to May 6, 1996 for Class B Shares
and prior to October 1, 1998 for Class C Shares are for Class I Shares,
adjusted for Class B and Class C Share expenses, respectively. Performance
shown for Class Band Class C Shares for the period prior to November 11,
1994 reflects performance of the shares of the predecessor collective
investment fund adjusted to reflect Class B and Class C Share expenses
(before waivers and reimbursements), respectively.
On November 11, 1994, a collective investment fund managed by the
Adviser reorganized into the Fund. The predecessor collective investment
fund maintained investment objectives and policies that were, in all
material respects, equivalent to the Fund. The Fund's performance for the
periods before November 11, 1994 is that of the collective investment fund
and includes its expenses. If the collective investment fund had been
readjusted to reflect the first year's expenses of the Fund, the Fund's
performance for all periods except "Since Inception" would have been lower.
The collective investment fund was not registered under the 1940 Act and
was not subject to certain investment limitations, diversification
requirements and other restrictions imposed by the 1940 Act and the
Internal Revenue Code, which, if applicable, may have adversely affected
its performance.
</FN>
</TABLE>
The S&P 500 Index is a widely recognized unmanaged index of common stocks. The
S&P 500 Index figures assume reinvestment of all dividends paid by stocks
included in the index. Unlike the performance figures of the Fund, the S&P 500
Index's performance does not reflect the effect of expenses. The index is
unmanaged and is not available for investment.
LARGE COMPANY GROWTH FUND
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.
PRINCIPAL INVESTMENT STRATEGIES. The Fund invests primarily in the common stock
of large, high-quality domestic companies that have superior growth potential.
For purposes of the Fund's investments, large companies are those with market
capitalizations within those companies included in the Russell 1000 Index. In
selecting securities, the Fund seeks companies whose stock is attractively
valued with fundamental characteristics that are significantly better than the
market average and support internal earnings growth capabilities.
PRINCIPAL RISKS. The principal risk of investing in the Fund is market risk.
Loss of money is a risk of investing in the Fund.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance table provide an indication of the historical risk
of an investment in the Fund by showing changes in the Fund's performance from
year to year over 10 years and how the Fund's average annual returns compare to
those of a broad-based securities index. Past performance does not necessarily
indicate future performance.
The annual returns in the bar chart are for the Fund's Class A Shares and do not
reflect sales loads. If sales loads were reflected, returns would be less than
shown.
EDGAR REPRESENTATION OF BAR CHART
ANNUAL TOTAL RETURN
1989 - 24.15%
1990 - 3.43%
1991 - 67.03%
1992 - 1.85%
1993 - -0.36%
1994 - -1.07%
1995 - 29.24%
1996 - 25.11%
1997 - 33.35%
1998 - 37.11%
The calendar year-to-date total return as of June 30, 1999 was 16.01%.
During the periods shown in the chart, the highest quarterly return was 31.61%
(for the quarter ended December 31, 1998) and the lowest quarterly return was
- -17.49% (for the quarter ended September 30, 1990).
The following table compares the Fund's average annual total returns as of
December 31, 1998 to the S&P 500 Index.
<TABLE>
<S> <C> <C> <C>
LARGE COMPANY LARGE COMPANY
GROWTH FUND GROWTH FUND S&P 500
YEAR(S) A SHARES* B SHARES* INDEX
1 Year 39.46% 42.00% 28.58%
5 Year 24.36% 24.78% 24.03%
10 Year 20.54% 20.65% 19.18%
Since Inception (12/31/82) 17.06% 16.62% 17.95% (1)
<FN>
(1) For the period 4/30/86 - 12/31/98.
* 10/6/98 was the inception date of Class A Shares of the Fund. Returns prior
to that date are for Class I Shares, and have not been adjusted for Class A
Share expenses. If such returns had been adjusted for Class A Share
expenses, returns would have been lower. Performance shown for Class A
Shares for the period prior to November 11, 1994 reflects performance of
the shares of the predecessor collective investment fund adjusted to
reflect the Fund's 1994 estimate of its expense ratio for the first year of
operations as a mutual fund, including any applicable sales load (without
giving effect to any fee waivers or expense reimbursements).
10/1/98 was the inception date of Class B Shares of the Fund. Returns
prior to that date are for Class I Shares, adjusted for Class B Share
expenses. Performance shown for Class B Shares for the period prior to
November 11, 1994 reflects performance of the shares of the predecessor
collective investment fund adjusted to reflect Class B Share expenses
(before waivers and reimbursements).
On November 11, 1994, a collective investment fund managed by the
Adviser reorganized into the Fund. The predecessor collective investment
fund maintained investment objectives and policies that were, in all
material respects, equivalent to the Fund. The Fund's performance for the
periods before November 11, 1994 is that of the collective investment fund
and includes its expenses. If the collective investment fund had been
readjusted to reflect the first year's expenses of the Fund, the Fund's
performance for all periods except "Since Inception" would have been lower.
The collective investment fund was not registered under the 1940 Act and
was not subject to certain investment limitations, diversification
requirements and other restrictions imposed by the 1940 Act and the
Internal Revenue Code, which, if applicable, may have adversely affected
its performance.
</FN>
</TABLE>
The S&P 500 Index is a widely recognized unmanaged index of common stocks. The
S&P 500 Index figures assume reinvestment of all dividends paid by stocks
included in the index. Unlike the performance figures of the Fund, the S&P 500
Index's performance does not reflect the effect of expenses. The index is
unmanaged and is not available for investment.
DIVERSIFIED SMALL CAP FUND
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.
PRINCIPAL INVESTMENT STRATEGIES. The Fund is a "gateway" fund that invests in
other "core" portfolios. The Fund uses a "multi-style" approach and invests in
portfolios that invest in other small-cap equity securities. The Fund invests in
several different small-cap equity styles to reduce the risk of price and return
volatility associated with reliance on a single investment style.
PRINCIPAL RISKS. The principal risk of investing in the Fund is market risk.
Because the Fund invests in small-cap companies, it also has capitalization
risk. These investments tend to be more volatile than investments in large-cap
companies. In addition, small-cap companies may have more risk because they
often have limited product lines, markets, or financial resources. Also, the
market for small-cap stocks may be less liquid. The Fund also has allocation
risk, which is the risk that the allocation of investments may have a more
significant effect on the Fund's net asset value when one investment style is
performing more poorly than the others. Loss of money is a risk of investing in
the Fund.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance table provide an indication of the historical risk
of an investment in the Fund by showing changes in the Fund's performance from
year to year over 10 years and how the Fund's average annual returns compare to
those of a broad-based securities index. Past performance does not necessarily
indicate future performance.
The annual returns in the bar chart are for the Fund's Class A Shares and do not
reflect sales loads. If sales loads were reflected, returns would be less than
shown.
EDGAR REPRESENTATION OF BAR CHART
ANNUAL TOTAL RETURN
1998 - -8.60%
The calendar year-to-date total return as of June 30, 1999 was 3.94%.
During the periods shown in the chart, the highest quarterly return was 14.68%
(for the quarter ended December 31, 1998) and the lowest quarterly return was
- --23.73% (for the quarter ended September 30, 1998).
The following table compares the Fund's average annual total returns as of
December 31, 1998 to the Russell 2000 Value Index.
<TABLE>
<S> <C> <C>
DIVERSIFIED SMALL RUSSELL 2000
YEAR(S) CAP FUND* INDEX
1 Year -8.60% -2.24%
<FN>
(1) For the period 11/30/97 - 12/31/98.
* 10/6/98 was the inception date of Class A Shares of the Fund. Returns prior
to that date are for Class I Shares, and have not been adjusted for Class A
Share expenses. If such returns had been adjusted for Class A Share
expenses, returns would have been lower.
10/1/98 was the inception date of Class B Shares of the Fund. Returns
prior to that date are for Class I Shares, adjusted for Class B Share
expenses.
The Russell 2000 Index is a capitalization weighted index that is comprised of
2000 of the smallest stocks (on the basis of capitalization) in the Russell 3000
Index. Representing approximately 10% of the Russell 3000 total market cap, this
is a small cap index. The index is unmanaged and is not available for
investment.
</FN>
</TABLE>
SMALL COMPANY STOCK FUND
OBJECTIVE. The Fund's investment objective is long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES. The Fund invests at least 65% of its assets in
the common stock of small domestic companies. For the purposes of its
investments, small companies are those with market capitalizations of less than
that of the largest stock in the Russell 2000 Index. In selecting securities,
the Fund 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 also many invest up to 35% of its
assets in companies with market capitalizations below that of the average
company in the S&P 500 Index and in foreign securities.
PRINCIPAL RISKS. The principal risk of investing in the Fund is market risk. The
Fund's investments in small- and medium-capitalization companies, have
capitalization risk. These investments tend to be more volatile than investments
in large-cap companies. In addition, small-cap companies may have more risk
because they often have limited product lines, markets, or financial resources.
Also, the market for small-cap stocks may be less liquid. To the extent the Fund
invests in foreign securities, it has foreign risk. This is the risk of
investments in issuers located in foreign countries, which may have greater
price volatility and less liquidity. Investments in foreign securities also are
subject to political, regulatory, and diplomatic risks. Foreign risk includes
currency risk, which may occur due to fluctuations in the exchange rates between
the U.S. dollar and foreign currencies. This risk could negatively affect the
value of a Fund's investments. Loss of money is a risk of investing in the Fund.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance table provide an indication of the historical risk
of an investment in the Fund by showing changes in the Fund's performance from
year to year over 10 years and how the Fund's average annual returns compare to
those of a broad-based securities index. Past performance does not necessarily
indicate future performance.
The annual returns in the bar chart are for the Fund's Class A Shares and do not
reflect sales loads. If sales loads were reflected, returns would be less than
shown.
EDGAR REPRESENTATION OF BAR CHART
ANNUAL TOTAL RETURN
1994 - 3.24%
1995 - 19.42%
1996 - 25.94%
1997 - 9.32%
1998 - -17.05%
The calendar year-to-date total return as of June 30, 1999 was -5.14%.
During the periods shown in the chart, the highest quarterly return was 18.83%
(for the quarter ended June 30, 1997) and the lowest quarterly return was
- -30.08% (for the quarter ended September 30, 1998).
The following table compares the Fund's average annual total returns as of
December 31, 1998 to the Russell 2000 Index.
<TABLE>
<S> <C> <C> <C>
SMALL COMPANY SMALL COMPANY RUSSELL
STOCK FUND STOCK FUND 2000
YEAR(S) A SHARES B SHARES INDEX
1 Year -21.82% -21.84% -2.24%
5 Year 5.82% 5.97% 11.46%
Since Inception (12/31/93) 5.82% 5.97% 11.46%(1)
</TABLE>
(1) For the period 11/30/93 - 12/31/98.
The Russell 2000 Index is a capitalization weighted index that is comprised of
2000 of the smallest stocks (on the basis of capitalization) in the Russell 3000
Index. Representing approximately 10% of the Russell 3000 total market cap, this
is a small cap index. The index is unmanaged and is not available for
investment.
SMALL CAP OPPORTUNITIES FUND
OBJECTIVE. The Fund's investment objective is to provide capital appreciation.
Current income will be incidental to the objective of capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES. The Fund invests at least 65% of its assets in
equity securities of U.S. companies that, at the time of purchase, have market
capitalizations of $1.5 billion or less. In selecting securities, the Fund seeks
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.
PRINCIPAL RISKS. The principal risk of investing in the Fund is market risk. The
Fund's investments in small-cap companies, have capitalization risk. These
investments tend to be more volatile than investments in large-cap companies. In
addition, small-cap companies may have more risk because they often have limited
product lines, markets, or financial resources. Also, the market for small-cap
stocks may be less liquid. Loss of money is a risk of investing in the Fund.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance table provide an indication of the historical risk
of an investment in the Fund by showing changes in the Fund's performance from
year to year over 10 years and how the Fund's average annual returns compare to
those of a broad-based securities index. Past performance does not necessarily
indicate future performance.
The annual returns in the bar chart are for the Fund's Class A Shares and do not
reflect sales loads. If sales loads were reflected, returns would be less than
shown.
EDGAR REPRESENTATION OF BAR CHART
ANNUAL TOTAL RETURN
1994 - 4.45%
1995 - 49.08%
1996 - 22.56%
1997 - 27.43%
1998 - -9.32%
The calendar year-to-date total return as of June 30, 1999 was 7.90%.
During the periods shown in the chart, the highest quarterly return was 18.72%
(for the quarter ended June 30, 1997) and the lowest quarterly return was
- -23.23% (for the quarter ended September 30, 1998).
The following table compares the Fund's average annual total returns as of
December 31, 1998 to the Russell 2000 Index.
<TABLE>
<S> <C> <C> <C>
SMALL CAP SMALL CAP RUSSELL
OPPORTUNITIES FUND OPPORTUNITIES FUND 2000
YEAR(S) A SHARES* B SHARES* INDEX
1 Year -14.54% -14.53% -2.24%
5 Year 15.76% 16.05% 11.46%
Since Inception (8/1/93) 16.89% 17.21% 12.37% (1)
</TABLE>
(1) For the period 7/31/93 - 12/31/98.
* 10/9/96 was the inception date of Class A Shares of the Fund. Returns prior
to that date are for Class I Shares, and have not been adjusted for Class A
Share expenses. If such returns had been adjusted for Class A Share
expenses, returns would have been lower.
11/8/96 was the inception date of Class B Shares of the Fund. Returns
prior to that date are for Class I Shares, adjusted for Class B Share
expenses.
The Russell 2000 Index is a capitalization weighted index that is comprised of
2000 of the smallest stocks (on the basis of capitalization) in the Russell 3000
Index. Representing approximately 10% of the Russell 3000 total market cap, this
is a small cap index. The index is unmanaged and is not available for
investment.
INTERNATIONAL FUND
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.
PRINCIPAL INVESTMENT STRATEGIES. The Fund is a "gateway" fund that invests in
other "core" portfolios. The Fund invests substantially all of its assets (at
least 65%) in equity securities of high-quality foreign companies. The Fund
selects investments on the basis of their potential for capital appreciation
without regard to current income.
PRINCIPAL RISKS. The principal risks of investing in the Fund are market risk
and foreign risk. Foreign risk is the risk of investments in issuers located in
foreign countries, which may have greater price volatility and less liquidity.
Investments in foreign securities also are subject to political, regulatory, and
diplomatic risks. Foreign risk includes currency risk, which may occur due to
fluctuations in the exchange rates between the U.S. dollar and foreign
currencies. This risk could negatively affect the value of a Fund's investments.
Loss of money is a risk of investing in the Fund.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance table provide an indication of the historical risk
of an investment in the Fund by showing changes in the Fund's performance from
year to year over 10 years and how the Fund's average annual returns compare to
those of a broad-based securities index. Past performance does not necessarily
indicate future performance.
The annual returns in the bar chart are for the Fund's Class A Shares and do not
reflect sales loads. If sales loads were reflected, returns would be less than
shown.
EDGAR REPRESENTATION OF BAR CHART
ANNUAL TOTAL RETURN
1989 - 22.52%
1990 - -11.29%
1991 - 4.74%
1992 - -4.02%
1993 - 45.24%
1994 - 0.72%
1995 - 11.76%
1996 - 9.69%
1997 - 3.06%
1998 - 12.61%
The calendar year-to-date total return as of June 30, 1999 was 6.08%.
During the periods shown in the chart, the highest quarterly return was 17.97%
(for the quarter ended September 30, 1989) and the lowest quarterly return was
- -19.67% (for the quarter ended September 30, 1990).
The following table compares the Fund's average annual total returns as of
December 31, 1998 to the MSCI EAFE Index.
<TABLE>
<S> <C> <C> <C>
INTERNATIONAL INTERNATIONAL MSCI
FUND FUND EAFE
YEAR(S) A SHARES* B SHARES* INDEX
1 Year 6.13% 6.75% 20.00%
5 Year 6.36% 6.34% 9.14%
10 Year 8.00% 7.75% 5.51%
Since Inception (7/15/87) 7.39% 7.06% 6.53% (1)
</TABLE>
(1) For the period 5/31/87 - 12/31/98.
* 4/12/95 was the inception date of Class A Shares of the Fund. Returns prior
to that date are for Class I Shares. Performance shown for Class A Shares
for the period prior to November 11, 1994 reflects performance of the
shares of the predecessor collective investment fund adjusted to reflect
the Fund's 1994 estimate of its expense ratio for the first year of
operations as a mutual fund, including any applicable sales load (without
giving effect to any fee waivers or expense reimbursements).
5/12/95 was the inception date of Class B Shares of the Fund. Returns prior
to that date are for Class I Shares, adjusted for Class B Share expenses.
Performance shown for Class B Shares for the period prior to November 11,
1994reflects performance of the shares of the predecessor collective
investment fund adjusted to reflect Class B Share expenses (before waivers
and reimbursements).
On November 11, 1994, a collective investment fund managed by the Adviser
reorganized into the Fund. The predecessor collective investment fund
maintained investment objectives and policies that were, in all material
respects, equivalent to the Fund. The Fund's performance for the periods
before November 11, 1994 is that of the collective investment fund and
includes its expenses. If the collective investment fund had been
readjusted to reflect the first year's expenses of the Fund, the Fund's
performance for all periods except "Since Inception" would have been lower.
The collective investment fund was not registered under the 1940 Act and
was not subject to certain investment limitations, diversification
requirements and other restrictions imposed by the 1940 Act and the
Internal Revenue Code, which, if applicable, may have adversely affected
its performance.
The MSCI EAFE Index (Morgan Stanley Capital International Europe, Australia,
Asia and the Far East Index) is a market-weighted index composed of companies
representative of the market structure of 20 developed market countries in
Europe, Australia, Asia and the Far East, and reflects dividends net of
non-recoverable withholding tax. Companies included in the index replicate the
industry composition of each local market and, in addition, represent a sampling
of large, medium and small capitalization companies from each local market,
taking into account the stocks' liquidity. The index is unmanaged and is not
available for investment.
<PAGE>
FEES AND EXPENSES OF THE FUNDS
This table describes the fees and expenses that you pay if you buy and hold
shares of the Funds.
<TABLE>
<S> <C> <C> <C>
Shareholder Transaction Expenses
(fees paid directly from your investment)
A B C
Shares Shares Shares
- ------------------------------------------------------- ------------------- --------------------- --------------------------
- ------------------------------------------------------- ------------------- --------------------- --------------------------
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) 5.75% Zero Zero
Maximum Deferred Sales Charge (Load)
(as percentage of the lower of the Net Asset Zero 5.0% 1.0%
Value ("NAV") at purchase or the NAV at
redemption)
ANNUAL FUND OPERATING EXPENSES (1)
(expenses that are deducted from Fund assets)
GROWTH INCOME
BALANCED FUND EQUITY FUND
A B C A B C
Shares Shares Shares Shares Shares Shares
--------- --------- ---------- -------- ---------- ----------
Investment Advisory Fees (2) 0.70% 0.70% 0.70% 0.50% 0.50% 0.50%
Distribution (12b-1) Fees 0.10% 1.00% 0.75% 0.00% 1.00% 0.75%
Other Expenses (2) 1.08% 0.73% 1.05% 0.43% 0.44% 0.97%
Total Annual Fund Operating Expenses (3) 1.88% 2.43% 2.50% 0.93% 1.94% 2.22%
VALUGROWTH DIVERSIFIED
STOCK FUND EQUITY FUND
A B A B C
Shares Shares Shares Shares Shares
--------------- -------------- --------- ---------- ----------
Investment Advisory Fees 0.79% 0.79% 0.74%(2) 0.74%(2) 0.74%(2)
Distribution (12b-1) Fees 0.00% 1.00% 0.00% 1.00% 0.75%
Other Expenses 0.47% 0.51% 0.48%(2) 0.48%(2) 1.58%(2)
Total Annual Fund Operating Expenses (3) 1.26% 2.30% 1.22% 2.22% 3.07%
GROWTH LARGE COMPANY
EQUITY FUND GROWTH FUND
A B C A B
Shares Shares Shares Shares Shares
--------- --------- ---------- ---------------- --------------
Investment Advisory Fees (2) 0.90% 0.90% 0.90% 0.65% 0.65%
Distribution (12b-1) Fees 0.00% 1.00% 0.75% 0.10% 1.00%
Other Expenses (2) 0.54% 0.55% 6.27% 0.60% 0.50%
Total Annual Fund Operating Expenses (3) 1.44% 2.45% 7.92% 1.35% 2.15%
</TABLE>
<PAGE>
<TABLE>
DIVERSIFIED SMALL SMALL COMPANY
CAP FUND STOCK FUND
A B A B
Shares Shares Shares Shares
--------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Investment Advisory Fees 0.99%(2) 0.99%(2) 0.90% 0.90%
Distribution (12b-1) Fees 0.10% 1.00% 0.00% 1.00%
Other Expenses 1.19%(2) 3.62%(2) 0.65% 0.73%
Total Annual Fund Operating Expenses (3) 2.28% 5.61% 1.55% 2.63%
SMALL CAP INTERNATIONAL
OPPORTUNITIES FUND FUND
A B A B
Shares Shares Shares Shares
--------------- -------------- --------------- --------------
Investment Advisory Fees 0.60% 0.60% 0.70%(2) 0.70%(2)
Distribution (12b-1) Fees 0.00% 1.00% 0.00% 1.00%
Other Expenses 0.89% 0.91% 1.10%(2) 1.19%(2)
Total Annual Fund Operating Expenses(3) 1.49% 2.51% 1.80% 2.89%
</TABLE>
(1) Based on amounts incurred during each Fund's fiscal year ended May 31,
1999 stated as a percentage of net assets.
(2) These fees include fees for the "core" portfolios in which the "gateway"
funds invest.
(3) Many of the Funds are subject to voluntary fee waivers and expense
reimbursements that reduce the operating expenses of the Funds. See the
Financial Highlights Table for information about fund expenses net of
fee waivers and expense reimbursements.
EXAMPLE OF EXPENSES
These examples are intended to help you compare the cost of investing in a Fund
with the cost of investing in other mutual funds. The examples assume that you
invest $10,000 in a Fund for the time periods indicated and then redeem all of
your shares at the end of these periods. The example also assumes that your
investment has a 5% annual return, that a Fund's operating expenses remain the
same, and that distributions are reinvested. Your actual costs may be higher or
lower than those shown.
<TABLE>
- --------------- -------------------------------------- --------------------------------------- -------------------------
Growth Balanced Fund Income Equity Fund ValuGrowth Stock Fund
- --------------- -------------------------------------- --------------------------------------- -------------------------
- --------------- ------------ ------------ ------------ ------------ ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class Class Class Class Class Class Class Class
A B C A B C A B
- ---------------
------------ ------------ ------------ ------------ ------------- ------------ ------------ ------------
1 YEAR $755 $746 $353 $664 $697 $325 $696 $733
- --------------- ------------ ------------ ------------ ------------ ------------- ------------ ------------ ------------
3 YEARS 1,132 1,058 779 854 909 694 952 1,018
- --------------- ------------ ------------ ------------ ------------ ------------- ------------ ------------ ------------
5 YEARS 1,533 1,496 1,331 1,060 1,247 1,190 1,227 1,430
- --------------- ------------ ------------ ------------ ------------ ------------- ------------ ------------ ------------
10 YEARS 2,649 2,766 2,836 1,652 2,264 2,554 2,010 ,2636
- --------------- ------------ ------------ ------------ ------------ ------------- ------------ ------------ ------------
- --------------- -------------------------------------- --------------------------------------- -------------------------
Small Company
Diversified Equity Fund Growth Equity Fund Stock Fund
- --------------- -------------------------------------- --------------------------------------- -------------------------
------------ ------------ ------------ ------------ ------------- ------------ ------------ ------------
Class Class Class Class Class Class Class Class
A B C A B C A B
- --------------- ------------ ------------ ------------ ------------ ------------- ------------ ------------ ------------
1 YEAR $692 $725 $410 $713 $748 $880 $724 $766
- --------------- ------------ ------------ ------------ ------------ ------------- ------------ ------------ ------------
3 YEARS 940 994 948 1,004 1,064 2,274 1,036 1,117
- --------------- ------------ ------------ ------------ ------------ ------------- ------------ ------------ ------------
5 YEARS 1,207 1,390 1,611 1,317 1,506 3,681 1,371 1,595
- --------------- ------------ ------------ ------------ ------------ ------------- ------------ ------------ ------------
10 YEARS 1,967 2,554 3,383 2,200 2,786 6,855 2,314 2,964
- --------------- ------------ ------------ ------------ ------------ ------------- ------------ ------------ ------------
- --------------- ------------------------- ------------------------- -------------------------- -------------------------
Small Cap Opportunities Large Company Growth Diversified Small Cap International
Fund Fund Fund Fund
- --------------- ------------------------- ------------------------- -------------------------- -------------------------
------------ ------------ ------------ ------------ ------------- ------------ ------------ ------------
Class Class Class Class Class Class Class Class
A B A B A B A B
- --------------- ------------ ------------ ------------ ------------ ------------- ------------ ------------ ------------
1 YEAR $718 $754 $705 $718 $793 $1,059 $747 $792
- --------------- ------------ ------------ ------------ ------------ ------------- ------------ ------------ ------------
3 YEARS 1,019 1,082 978 973 1,246 1,968 1,109 1,195
- --------------- ------------ ------------ ------------ ------------ ------------- ------------ ------------ ------------
5 YEARS 1,341 1,535 1,272 1,354 1,725 2,963 1,494 1,723
- --------------- ------------ ------------ ------------ ------------ ------------- ------------ ------------ ------------
10 YEARS 2,252 2,846 2,105 2,483 3,040 5,442 2,569 3,214
- --------------- ------------ ------------ ------------ ------------ ------------- ------------ ------------ ------------
</TABLE>
You would pay the following expenses assuming that you do NOT redeem your shares
at the end of the periods shown:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------- -------------------------------------- --------------------------------------- -------------------------
Growth Balanced Fund Income Equity Fund ValuGrowth Stock Fund
- --------------- -------------------------------------- --------------------------------------- -------------------------
- --------------- ------------ ------------ ------------ ------------ ------------- ------------ ------------ ------------
Class Class Class Class Class Class Class Class
A B C A B C A B
- --------------- ------------ ------------ ------------ ------------ ------------- ------------ ------------ ------------
1 YEAR $755 $246 $253 $664 $197 $225 $696 $233
- --------------- ------------ ------------ ------------ ------------ ------------- ------------ ------------ ------------
3 YEARS 1,132 758 779 854 609 694 952 718
- --------------- ------------ ------------ ------------ ------------ ------------- ------------ ------------ ------------
5 YEARS 1,533 1,296 1,331 1,060 1,047 1,190 1,227 1,230
- --------------- ------------ ------------ ------------ ------------ ------------- ------------ ------------ ------------
10 YEARS 2,649 2,766 2,836 1,652 2,264 2,554 2,010 2,636
- --------------- ------------ ------------ ------------ ------------ ------------- ------------ ------------ ------------
- --------------- -------------------------------------- --------------------------------------- -------------------------
Small Company
Diversified Equity Fund Growth Equity Fund Stock Fund
- --------------- -------------------------------------- --------------------------------------- -------------------------
------------ ------------ ------------ ------------ ------------- ------------ ------------ ------------
Class Class Class Class Class Class Class Class
A B C A B C A B
- --------------- ------------ ------------ ------------ ------------ ------------- ------------ ------------ ------------
1 YEAR $692 $225 $310 $713 $248 $780 $724 $266
- --------------- ------------ ------------ ------------ ------------ ------------- ------------ ------------ ------------
3 YEARS 940 694 948 1,004 764 2,274 1,036 817
- --------------- ------------ ------------ ------------ ------------ ------------- ------------ ------------ ------------
5 YEARS 1,207 1,190 1,611 1,317 1,306 3,681 1,371 1,395
- --------------- ------------ ------------ ------------ ------------ ------------- ------------ ------------ ------------
10 YEARS 1,967 2,554 3,383 2,200 2,786 6,855 2,314 2,964
- --------------- ------------ ------------ ------------ ------------ ------------- ------------ ------------ ------------
- --------------- ------------------------- ------------------------- -------------------------- -------------------------
Small Cap Opportunities Large Company Growth Diversified Small Cap International
Fund Fund Fund Fund
- --------------- ------------------------- ------------------------- -------------------------- -------------------------
------------ ------------ ------------ ------------ ------------- ------------ ------------ ------------
Class Class Class Class Class Class Class Class
A B A B A B A B
- --------------- ------------ ------------ ------------ ------------ ------------- ------------ ------------ ------------
1 YEAR $718 $254 $705 $218 $793 $559 $747 $292
- --------------- ------------ ------------ ------------ ------------ ------------- ------------ ------------ ------------
3 YEARS 1,019 782 978 673 1,246 1,668 1,109 895
- --------------- ------------ ------------ ------------ ------------ ------------- ------------ ------------ ------------
5 YEARS 1,341 1,335 1,272 1,154 1,725 2,763 1,494 1,523
- --------------- ------------ ------------ ------------ ------------ ------------- ------------ ------------ ------------
10 YEARS 2,252 2,846 2,105 2,483 3,040 5,442 2,569 3,214
- --------------- ------------ ------------ ------------ ------------ ------------- ------------ ------------ ------------
</TABLE>
<PAGE>
GLOSSARY
This Glossary of frequently used terms will help you understand the discussion
of the Funds' objectives, policies, and risks.
TERM DEFINITION
Board The Board of Trustees of Norwest Advantage Funds.
CDSC Contingent deferred sales charge.
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 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.
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(C), an index of small capitalization
companies.
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>
INVESTMENT OBJECTIVES, STRATEGIES AND RISK CONSIDERATIONS
This section of the Prospectus provides a more complete description of each
Fund's investment objectives and principal strategies and risks. Except as
otherwise indicated, the Board may change the Funds' investment policies without
shareholder approval. The Funds' investment objectives are fundamental and
cannot be changed without a shareholder vote. There can, of course, be no
assurance that any Fund will achieve its investment objective.
Some of the Funds invest directly in a portfolio of securities. Other Funds, as
identified below, are "gateway" funds in a "core/gateway" structure. In this
structure a "gateway" fund invests some or all of its assets in one or more
"core portfolios" that have a substantially identical investment objective and
substantially similar policies as the gateway fund. Gateway funds investing in
the same core portfolio, or Portfolio, can enhance their investment
opportunities and reduce their expense ratios through sharing the costs of
managing a large pool of assets. Except when necessary to describe a Fund's
investment in a Portfolio, references to the gateway fund also include the
Portfolio, which is discussed after this section.
This section describes risks that affect the Funds' portfolios as a whole.
Certain of these risks may apply to one or more of the Funds. These risks are:
o MARKET RISK. THIS IS THE RISK THAT THE VALUE OF A FUND'S INVESTMENTS
WILL FLUCTUATE AS THE STOCK OR BOND MARKETS FLUCTUATE AND THAT PRICES
OVERALL WILL DECLINE OR SHORT OR LONGER-TERM PERIOD;
o INTEREST RATE RISK. THIS IS THE RISK THAT CHANGES IN INTEREST RATES
WILL AFFECT THE VALUE OF A FUND'S INVESTMENTS, PARTICULARLY THOSE
INVESTMENTS IN DEBT OR INCOME-PRODUCING SECURITIES. INCREASES IN
INTEREST RATES MAY CAUSE THE VALUE OF A FUND'S INVESTMENTS TO DECLINE;
o CREDIT RISK. THIS IS THE RISK THAT THE ISSUER OF A SECURITY WILL BE
UNABLE TO MAKE TIMELY PAYMENTS OF INTEREST OR PRINCIPAL OR TO
OTHERWISE HONOR ITS OBLIGATION; AND
o MANAGEMENT RISK. THIS IS THE RISK THAT A FUND'S MANAGER WILL MAKE POOR
CHOICES IN SELECTED SECURITIES. ALL ACTIVELY MANAGED FUNDS HAVE
MANAGEMENT RISK.
GROWTH BALANCED FUND
INVESTMENT OBJECTIVE AND STRATEGIES. The Fund's investment objective is to
provide a combination of current income and capital appreciation by
diversified investments in stocks and bonds. The Fund us a "gateway" fund
that invests in other "core" portfolios. The Fund seeks long-term capital
appreciation in the equity securities market in a balanced fund. Normally,
the Fund invests approximately 65% of its portfolio in several different
equity investment styles. 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
equity styles include:
o INDEX STYLE - replicates securities in the S&P 500 Index;
o INCOME EQUITY STYLE - emphasizes investments in large, high-quality
domestic companies with above average dividend income;
o LARGE COMPANY STYLE - emphasizes investments in large high-quality
domestic companies with above-average growth potential;
o SMALL-CAP STYLE - emphasizes investments in small-cap companies with
the potential for growth; and
o INTERNATIONAL STYLE - emphasizes investments in high-quality companies
based outside the United States.
Normally, the Fund invests approximately 35% of its portfolio in several
different fixed-income investment styles. The blending of these 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. These styles include:
o INTERMEDIATE-TERM STYLE - emphasizes investments in investment grade
(rated in the 4 highest categories or of comparable quality)
intermediate-term securities;
o VALUE STYLE - emphasizes investments in debt securities (primarily
rated in the 3 highest rating categories or of comparable quality)
based on a value strategy or the analyses of fundamental information
rather than the direction of interest rates; and
o BALANCED TOTAL RETURN STYLE - emphasizes investments in short-term
bonds (maturities of 2 years or less) and long term bonds (maturities
of 25 years or more) depending on the prices of bonds.
ALLOCATION. The current allocations and ranges of investments by the Fund
in each Portfolio are:
<TABLE>
<S> <C> <C> <C>
TOTAL CURRENT PORTFOLIO RANGE OF INVESTMENT
INVESTMENT STYLE ALLOCATION ALLOCATION
---------------- ---------- ----------
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 1.6% 1.1% - 2.1%
SMALL COMPANY GROWTH PORTFOLIO 1.6% 1.1% - 2.1%
SMALL COMPANY VALUE PORTFOLIO 1.6% 1.1% - 2.1%
SMALL CAP VALUE PORTFOLIO 1.6% 1.1% - 2.1%
INTERNATIONAL STYLE 9.8% 6.8% - 12.8%
INTERNATIONAL PORTFOLIO 7.6% 5.2% - 9.9%
INTERNATIONAL EQUITY PORTFOLIO 2.2% 1.5% - 2.9%
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.
RISK CONSIDERATIONS. The Fund's investments in different styles and in both
equity and fixed-income securities have allocation risk, which is the risk
that the allocation of investments may have a more significant effect on
the Fund's net asset value when one investment style or asset class is
performing more poorly than the others. To the extent that the Fund may
invest in small-capitalization companies, it may have capitalization risk.
These investments tend to be more volatile than investments in large-cap
companies. In addition, small-cap companies may have more risk because they
often have limited product lines, markets, or financial resources. The
Fund's investments in foreign securities have foreign risk. This is the
risk of investments in issuers located in foreign countries, which may have
greater price volatility and less liquidity. Investments in foreign
securities also are subject to political, regulatory, and diplomatic risks.
Foreign risk includes currency risk, which may occur due to fluctuations in
the exchange rates between the U.S. dollar and foreign currencies. This
risk could negatively affect the value of a Fund's investments.
INCOME EQUITY FUND
INVESTMENT OBJECTIVE AND STRATEGIES. The Fund's investment objective is to
provide long-term capital appreciation consistent with above-average
dividend income. The Fund`s primary strategy is to invest 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, the Fund uses various valuation
measures, including above-average dividend yields and below industry
average price-to-earnings, price-to-book, and price-to-sales ratios. Large
companies are those with market capitalizations greater than the median of
the Russell 1000 Index.
The Fund also may invest in preferred stock, convertible securities, and
securities of foreign companies.
RISK CONSIDERATIONS. The principal risk of investing in the Fund is market
risk. To the extent the Fund invests in foreign securities, it has foreign
risk. This is the risk of investments in issuers located in foreign
countries, which may have greater price volatility and less liquidity.
Investments in foreign securities also are subject to political,
regulatory, and diplomatic risks. Foreign risk includes currency risk,
which may occur due to fluctuations in the exchange rates between the U.S.
dollar and foreign currencies. This risk could negatively affect the value
of a Fund's investments.
VALUGROWTH STOCK FUND
INVESTMENT OBJECTIVE AND STRATEGIES. The Fund's investment objective is to
provide long-term capital appreciation. The Fund`s principal strategy is to
invest in large-capitalization companies that, in the view of the Adviser,
possess above average growth characteristics, and appear to be undervalued.
The Adviser considers large companies to be those with market
capitalizations within those companies included in the Russell 1000 Index.
In selecting investments, the Fund seeks to identify and invest in those
companies with earnings and dividends that will grow faster than both
inflation and the economy in general. The Fund invests in companies with
growth potential that has not yet been fully reflected in the market price
of the companies' shares. In seeking these investments, the Fund relies
primarily on a company-by-company analysis, rather than on a broader
analysis of industry or economic sector trends. The Fund 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 Fund
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 are "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.
RISK CONSIDERATIONS. The principal risk of investing in the Fund is market
risk. To the extent that the Fund may invest in medium-capitalization
companies, it may have capitalization risk. These investments tend to be
more volatile than investments in large-cap companies. There also is a risk
of using a value strategy because the stocks in which the Fund invests may
remain undervalued during a given period or decline in price. This may
occur because larger stocks or investments based on large-stock indices are
more appealing to investors or because value stocks as a category lose
favor with investors compared to growth stocks. To the extent that the Fund
invests in foreign securities, it has foreign risk. This is the risk of
investments in issuers located in foreign countries, which may have greater
price volatility and less liquidity. Investments in foreign securities also
are subject to political, regulatory, and diplomatic risks. Foreign risk
includes currency risk, which may occur due to fluctuations in the exchange
rates between the U.S. dollar and foreign currencies. This risk could
negatively affect the value of a Fund's investments.
DIVERSIFIED EQUITY FUND
INVESTMENT OBJECTIVE AND STRATEGIES. 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. The Fund is a "gateway" fund that invests in other
"core" portfolios. The Fund uses a "multi-style" approach designed to
minimize the volatility and risk of investing in a single investment style.
The Fund's investments combine 5 different equity investment styles, which
include:
o INDEX STYLE - replicates securities in the S&P 500 Index;
o INCOME EQUITY STYLE - emphasizes investments in large, high-quality
domestic companies with above average dividend income; o LARGE COMPANY
STYLE - emphasizes investments in large high-quality domestic
companies with above-average growth potential; o SMALL-CAP STYLE -
emphasizes investments in small-cap companies with the potential for
growth; and
o INTERNATIONAL STYLE - emphasizes investments in high-quality companies
based outside the United States.
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> <C>
INVESTMENT STYLE TOTAL CURRENT PORTFOLIO RANGE OF
ALLOCATION 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 2.5% 1.0% - 4.0%
SMALL COMPANY GROWTH PORTFOLIO 2.5% 1.0% - 4.0%
SMALL COMPANY VALUE PORTFOLIO 2.5% 1.0% - 4.0%
SMALL CAP VALUE PORTFOLIO 2.5% 1.0% - 4.0%
INTERNATIONAL STYLE 15% 13.5% - 16.5%
INTERNATIONAL PORTFOLIO 11.6% 10.1% - 13.1%
INTERNATIONAL EQUITY PORTFOLIO 3.4% 1.9% - 4.9%
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.
RISK CONSIDERATIONS. The principal risk of investing in the Fund is market
risk. The Fund has allocation risk, which is the risk that the allocation
of investments may have a more significant effect on the Fund's net asset
value when one investment style is performing more poorly than the others.
To the extent that the Fund may invest in small-capitalization companies,
it may have capitalization risk. These investments tend to be more volatile
than investments in large-cap companies. In addition, small-cap companies
may have more risk because they often have limited product lines, markets,
or financial resources. Also, the market for small-cap stocks may be less
liquid. To the extent that the Fund invests in foreign securities, it has
foreign risk. This is the risk of investments in issuers located in foreign
countries, which may have greater price volatility and less liquidity.
Investments in foreign securities also are subject to political,
regulatory, and diplomatic risks. Foreign risk includes currency risk,
which may occur due to fluctuations in the exchange rates between the U.S.
dollar and foreign currencies. This risk could negatively affect the value
of a Fund's investments.
GROWTH EQUITY FUND
INVESTMENT OBJECTIVE AND STRATEGIES. 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. The Fund is a "gateway" fund that invests in other
"core" portfolios. The Fund uses a "multi-style" approach designed to
reduce the volatility and risk of investing in a single equity style. The
Fund's investments combine 3 different equity investment styles, which
includes:
o LARGE COMPANY STYLE - emphasizes investments in large, high-quality
domestic companies with above-average growth potential;
o SMALL-CAP STYLE - emphasizes investments in small-cap companies with
the potential for growth; and o INTERNATIONAL STYLE - emphasizes
investments in high-quality companies based outside the United States.
Because the Fund invests more of its assets in small companies and foreign
investments, 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> <C>
TOTAL CURRENT PORTFOLIO RANGE OF INVESTMENT
INVESTMENT STYLE ALLOCATION ALLOCATION
LARGE COMPANY GROWTH PORTFOLIO 35% 33% - 37%
DIVERSIFIED SMALL CAP STYLE 35% 33% - 37%
SMALL CAP INDEX PORTFOLIO 8.8% 6.8% - 10.8%
SMALL COMPANY GROWTH PORTFOLIO 8.8% 6.8% - 10.8%
SMALL COMPANY VALUE PORTFOLIO 8.8% 6.8% - 10.8%
SMALL CAP VALUE PORTFOLIO 8.8% 6.8% - 10.8%
INTERNATIONAL STYLE 30% 28% - 32%
INTERNATIONAL PORTFOLIO 23.3% 21.3% - 25.3%
INTERNATIONAL EQUITY PORTFOLIO 6.8% 4.8% - 8.8%
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.
RISK CONSIDERATIONS. The risks of investing in the Fund include market
risk. There also is a risk of using a growth strategy because the stocks in
which the Fund invests may not achieve the anticipated growth during a
given period or decline in price. This may occur if growth stocks as a
category lose favor with investors compared to value stocks. The Fund also
has allocation risk, which is the risk that the allocation of investments
may have a more significant effect on the Fund's net asset value when one
investment style is performing more poorly than the others. To the extent
that the Fund may invest in small-capitalization companies, it may have
capitalization risk. These investments tend to be more volatile than
investments in large-cap companies. In addition, small-cap companies may
have more risk because they often have limited product lines, markets, or
financial resources. Also, the market for small-cap stocks may be less
liquid. The Fund's investments in foreign securities have foreign risk.
This is the risk of investments in issuers located in foreign countries,
which may have greater price volatility and less liquidity. Investments in
foreign securities also are subject to political, regulatory, and
diplomatic risks. Foreign risk includes currency risk, which may occur due
to fluctuations in the exchange rates between the U.S. dollar and foreign
currencies. This risk could negatively affect the value of a Fund's
investments.
LARGE COMPANY GROWTH FUND
INVESTMENT OBJECTIVE AND STRATEGIES. The Fund's investment objective is to
provide long-term capital appreciation by investing primarily in large,
high-quality domestic companies that have superior growth potential. The
Fund invests primarily in the common stock of large, high-quality domestic
companies that have superior growth potential. For the purposes of its
investments, large companies are those with market capitalizations greater
than the median of the Russell 1000 Index. In selecting securities, the
Fund 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 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.
RISK CONSIDERATIONS. The principal risk of investing in the Fund is market
risk. The Fund's investments in foreign securities have foreign risk. This
is the risk of investments in issuers located in foreign countries, which
may have greater price volatility and less liquidity. Investments in
foreign securities also are subject to political, regulatory, and
diplomatic risks. Foreign risk includes currency risk, which may occur due
to fluctuations in the exchange rates between the U.S. dollar and foreign
currencies. This risk could negatively affect the value of a Fund's
investments.
DIVERSIFIED SMALL CAP FUND
INVESTMENT OBJECTIVE AND STRATEGIES. The Fund's investment objective is to
provide long-term capital appreciation with moderate annual return
volatility by diversifying its investments across different small-cap
equity investment styles. The Fund is a "gateway" fund that invests in
other "core" portfolios. The Fund invests in a "multi-style" approach
designed to minimize the volatility and risk of investing in small-cap
equity securities. The Fund invests in several different small-cap 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 4 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 PORTFOLIO INVESTMENT
ALLOCATION
SMALL CAP INDEX PORTFOLIO 25% 23.5% - 26.5%
SMALL COMPANY GROWTH PORTFOLIO 25% 23.5% - 26.5%
SMALL COMPANY VALUE PORTFOLIO 25% 23.5% - 26.5%
SMALL CAP VALUE PORTFOLIO 25% 23.5% - 26.5%
-------------------------------------------------------------------------------------------------------------
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.
RISK CONSIDERATIONS. The principal risk of investing in the Fund is market
risk. Because the Fund invests in small-capitalization companies, it also
has capitalization risk. These investments tend to be more volatile than
investments in large-cap companies. In addition, small-cap companies may
have more risk because they often have limited product lines, markets, or
financial resources. Also, the market for small-cap stocks may be less
liquid. The Fund also has allocation risk, which is the risk that the
allocation of investments may have a more significant effect on the Fund's
net asset value when one investment style is performing more poorly than
the others.
SMALL COMPANY STOCK FUND
INVESTMENT OBJECTIVE AND STRATEGIES. The Fund's investment objective is
long-term capital appreciation. The Fund invests at least 65% of its assets
in the common stock of small domestic companies. For the purposes of the
Fund's investments, small companies are those with market capitalizations
of less than the largest stock in the Russell 2000 Index. The Fund also may
invest up to 35% of its assets in companies with market capitalizations
below that of the average company in the S&P 500 Index and up to 20% of its
assets in Foreign Securities.
In selecting securities, the Fund 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 may result in an enhanced entrepreneurial spirit and
greater focus. The Fund 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.
RISK CONSIDERATIONS. The principal risk of investing in the Fund is market
risk. The Fund's investments in small- and medium-capitalization companies
have capitalization risk. These investments tend to be more volatile than
investments in large-cap companies. In addition, small-cap companies may
have more risk because they often have limited product lines, markets, or
financial resources. Also, the market for small-cap stocks may be less
liquid. The Fund's investments in foreign securities have foreign risk.
This is the risk of investments in issuers located in foreign countries,
which may have greater price volatility and less liquidity. Investments in
foreign securities also are subject to political, regulatory, and
diplomatic risks. Foreign risk includes currency risk, which may occur due
to fluctuations in the exchange rates between the U.S. dollar and foreign
currencies. This risk could negatively affect the value of a Fund's
investments.
SMALL CAP OPPORTUNITIES FUND
INVESTMENT OBJECTIVE AND STRATEGIES. The Fund's investment objective is to
provide capital appreciation. Current income will be incidental to the
objective of capital appreciation. The Fund invests at least 65% of its
assets in equity securities of U.S. companies that, at the time of
purchase, have market capitalizations of $1.5 billion or less.
In selecting investments, the Fund attempts to identify securities of
companies that can generate above-average earnings growth and sell at
favorable prices in relation to book values and earnings. An 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.
RISK CONSIDERATIONS. The principal risk of investing in the Fund is market
risk. The Fund's investments in small-capitalization companies have
capitalization risk. These investments tend to be more volatile than
investments in large-cap companies. In addition, small-cap companies may
have more risk because they often have limited product lines, markets, or
financial resources. Also, the market for small-cap stocks may be less
liquid. To the extent that the Fund invests in foreign securities, it has
foreign risk. This is the risk of investments in issuers located in foreign
countries, which may have greater price volatility and less liquidity.
Investments in foreign securities also are subject to political,
regulatory, and diplomatic risks. Foreign risk includes currency risk,
which may occur due to fluctuations in the exchange rates between the U.S.
dollar and foreign currencies. This risk could negatively affect the value
of a Fund's investments.
INTERNATIONAL FUND
INVESTMENT OBJECTIVE AND STRATEGIES. 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. The Fund is a
"gateway" fund that invests in other "core" portfolios. The Fund invests
substantially all of its assets (at least 65%) in equity securities of high
quality foreign companies. The Fund selects investments on the basis of
their potential for capital appreciation without regard to current income.
The Fund also may invest in more or fewer Portfolios or invest directly in
portfolio securities.
RISK CONSIDERATIONS. The risks of investing in the Fund include market risk
and foreign risk. Foreign risk is the risk of investments in issuers
located in foreign countries, which may have greater price volatility and
less liquidity. Investments in foreign securities also are subject to
political, regulatory, and diplomatic risks. Foreign risk includes currency
risk, which may occur due to fluctuations in the exchange rates between the
U.S. dollar and foreign currencies. This risk could negatively affect the
value of a Fund's investments.
DESCRIPTIONS OF CORE PORTFOLIOS
The following is a discussion of the investment objectives and strategies of the
core portfolios, or Portfolios, in which some of the Funds that are gateway
funds invest. Risk considerations for the Portfolios are included, as relevant,
with the description of the gateway Fund above.
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 portfolio 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.
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. Duration is a measure of a debt security's average
life that reflects the present value of the security's cash flow and is an
indication of the security's sensitivity to changes in interest rates. 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 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.
While not a principal strategy, 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 subdivisions, agencies, or
instrumentalities; loan or security participations; securities of
supranational organizations; and Municipal securities.
STRATEGIC VALUE BOND PORTFOLIO
The Total Return Bond Fund seeks total return by investing primarily in
income producing securities. The Portfolio's principal strategy is to
invest 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.
In selecting investments, the Portfolio 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 Portfolio believes that this exposure enhances performance in varying
economic and interest rate cycles and avoids excessive risk concentrations.
The Portfolio'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
Portfolio uses this process to seek to identify securities, which represent
the best relative economic value. The Portfolio than 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's particularly seeks strategic diversification. The Portfolio
investments include:
o up to 75% of its total assets in corporate bonds;
o up to 65% of its total assets in mortgage-backed securities; and
o up to 50% of its total assets in asset-backed securities.
The Portfolio may invest in U.S. Government securities without restriction
and the Fund generally limits its investments in the corporate bonds of any
single issuer to no more than 5% of its total assets.
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.
INDEX PORTFOLIO
The Portfolio seeks 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 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.
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.
SMALL CAP INDEX PORTFOLIO
The Portfolio seeks to replicate the return of the S&P 600 Small Cap 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.
SMALL COMPANY GROWTH PORTFOLIO
The Portfolio sees to provide long-term capital appreciation by investing
in smaller domestic companies. The Portfolio invests at least 65% of its
assets in the common stock of small domestic companies that are either
growing rapidly or completing a period of significant change. Small
companies are those with capitalizations of less than the largest stock in
the Russell 2000 Index.
In selecting securities, the Portfolio 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.
While not a principle strategy, the Portfolio may invest up to 10% of its
total assets in securities of foreign companies.
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 investors and its stock price rises.
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, which range from approximately $221.9 million to approximately $1.4
billion. 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.
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 primarily invests in equity securities of foreign
companies and 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.
INTERNATIONAL EQUITY PORTFOLIO
The Portfolio seeks long-term total return, with an emphasis on capital
appreciation, by investing primarily in equity securities of foreign
companies. The Portfolio invests at least 80% of its assets in a
diversified portfolio of common stock of companies located or operating in
developed and emerging markets. It is expected that the securities held by
the Portfolio will be traded on a stock exchange or other market in the
country in which the issuer is based, but they also may be traded in other
countries, including the United States. The Portfolio must invest its
assets in the securities of at least five different countries other than
the United States. The Portfolio may also invest in American Depositary
Receipts, European Depositary Receipts, or other similar instruments
convertible into securities of foreign issuers.
The Adviser uses a fundamentals-driven, value-oriented analysis to identify
companies with above-average potential for long-term growth. The Adviser
considers a company's historical performance and its projected future
earnings. The Adviser also considers other key criteria such as a company's
local, regional or global franchise; history of effective management
demonstrated by expanding revenues and earnings growth; prudent financial
and accounting policies and ability to take advantage of a changing
business environment. In allocating among countries, regions and industry
sectors, the Adviser considers economic growth prospects, monetary and
fiscal policies, political stability, currency trends, market liquidity and
investor sentiment.
OTHER CONSIDERATIONS
Except as otherwise indicated, the Board may change the Fund's investment
policies without shareholder approval. The Funds' investment objectives are
Fundamental.
DERIVATIVES
The Funds may use certain derivative instruments, such as options or futures
contracts. The term "derivatives" covers a wide number of investments, but in
general it refers to any financial instrument whose value is derived, at least
in part, from the price of another security or a specified index, asset or rate.
Some derivatives may be more sensitive to interest rate changes or market moves,
and some may be susceptible to changes in yields or value due to their structure
or contract terms.
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 achieve its investment objective.
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 each Fund's portfolio turnover rate.
YEAR 2000
Certain computer systems may not process date-related information properly on
and after January 1, 2000. The Funds' Advisers are addressing this matter for
its systems. The Fund's other service providers have informed the Fund that they
are taking similar measures. Investments in foreign companies are particularly
vulnerable to Year 2000 risk because these companies may not have the financial
resources, technology, or personnel needed to address Year 2000 readiness
concerns. This matter, if not corrected, could adversely affect the services
provided to the Fund or the issuers in which the Fund invests and could,
therefore lower the value of your Fund shares.
MANAGEMENT OF THE FUNDS
INVESTMENT ADVISORY SERVICES
NORWEST INVESTMENT MANAGEMENT, INC. OR NIM, which is now a wholly-owned
subsidiary of Wells Fargo & Company, Norwest Center, Sixth Street and Marquette,
Minneapolis, MN 55479, is the investment adviser for each Fund and each
Portfolio except the Portfolios advised by Schroder and Wells Fargo Bank. In
this capacity, NIM makes investment decisions for and administers the Funds' and
Portfolios' investment programs. As of June 30, 1999, NIM provided advisory
services for over $24 billion in assets.
SCHRODER INVESTMENT MANAGEMENT NORTH AMERICA INC., 787 Seventh Avenue, 34th
Floor, New York, NY 10019, is the investment adviser for International
Portfolio. In this capacity, Schroder makes investment decisions for and
administers the Portfolio's investment programs. As of June 30, 1999, Schroder
provided advisory services for over $36.5 billion in assets.
Schroder is also the investment sub-adviser for Small Cap Opportunities Fund. In
this capacity, Schroder makes investment decisions for and administers the
Fund's investment program.
WELLS FARGO BANK, or WFB, 525 Market Street, San Francisco, CA 94105, is the
investment adviser for International Equity Portfolio. In this capacity, WFB
makes investment decisions for and administers the Portfolio's investment
program. As of June 30, 1999, WFB provided advisory services for over $131
billion in assets.
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 and Wells Fargo Bank decide
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:
GALLIARD CAPITAL MANAGEMENT, INC. or GALLIARD, 800 LaSalle Ave., Suite 2060,
Minneapolis, MN 55479, is an investment advisory subsidiary of Norwest Bank and
provides investment advisory services to bank and thrift institutions, pension
and profit sharing plans, trusts and charitable organizations, and corporate and
other business entities. As of June 30, 1999, Galliard provided advisory
services for over $5.4 billion in assets.
PEREGRINE CAPITAL MANAGEMENT, INC. or PEREGRINE, LaSalle Plaza, 800 LaSalle
Avenue, Suite 1850, Minneapolis, MN 55402, is an investment advisory subsidiary
of Norwest Bank and provides investment advisory services to corporate and
public pension plans, profit sharing plans, savings-investment plans, and 401
(k) plans. As of June 30, 1999, Peregrine provided advisory services for over
$6.9 billion in assets.
SMITH ASSET MANAGEMENT GROUP, L.P. or SMITH, 300 Crescent Court, Suite 750,
Dallas, TX 75201, is an investment advisory affiliate of Norwest Bank and
provides investment management services to company retirement plans,
foundations, endowments, trust companies, and high net worth individuals using a
disciplined equity style. As of June 30, 1999, Smith provided advisory services
for over $895.46 million in assets.
WELLS CAPITAL MANAGEMENT INCORPORATED or WCM, 525 Market Street, 10th Floor, San
Francisco, CA 94105, is a wholly-owned subsidiary of WFB and is the investment
Subadviser for International Equity Portfolio. WCM provides investment advisory
services to various bank and thrift institutions, investment companies, pension
and profit sharing plans, trusts, estates, corporations and other business
entities. As of June 30, 1999, WCM provided advisory services for over $42.6
billion in assets.
How investment advisory fees are paid depends on whether or not a Fund
invests in a Portfolio.
o If a Fund invests directly in a portfolio of securities, Norwest
receives an investment advisory fee directly from the Fund.
o If a Fund invests in a single Portfolio, Norwest, Schroder or Wells
Fargo Bank receives an investment advisory fee from the Portfolio.
o If a Fund invests in more than 1 Portfolio, Norwest, Schroder or Wells
Fargo Bank 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 one Portfolio, the total amount of the
investment advisory fee paid to Norwest, Schroder or Wells Fargo Bank 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 Wells Fargo Bank (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
or Wells Fargo Bank by the Funds or Portfolios.
For these advisory services for the fiscal year ending May 31, 1999, the
Funds paid:
FUND FEE AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS
GROWTH BALANCED FUND 0.70%
INCOME EQUITY FUND 0.50%
VALUGROWTH STOCK FUND 0.79%
DIVERSIFIED EQUITY FUND 0.74%
GROWTH EQUITY FUND 0.90%
LARGE COMPANY GROWTH FUND 0.65%
DIVERSIFIED SMALL CAP FUND 0.99%
SMALL COMPANY STOCK FUND 0.90%
SMALL CAP OPPORTUNITIES FUND 0.60%
INTERNATIONAL FUND 0.70%
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. Descriptions of the portfolio managers'
recent experience follow the list of portfolio managers.
GROWTH BALANCED FUND
<TABLE>
<S> <C>
PORTFOLIO: POSITIVE RETURN BOND PORTFOLIO
SUBADVISER: PEREGRINE
PORTFOLIO MANAGERS: William D. Giese, CFA (1994) and Patricia Burns (1998).
PORTFOLIO: STRATEGIC VALUE BOND PORTFOLIO
SUBADVISER: GALLIARD
PORTFOLIO MANAGERS: Richard Merriam, CFA (1997), John Huber (1998), and David Yim (1998)
PORTFOLIO: MANAGED FIXED INCOME PORTFOLIO
SUBADVISER: GALLIARD
PORTFOLIO MANAGERS: Richard Merriam, CFA (1995) and Ajay Mirza (1998).
PORTFOLIO: INDEX PORTFOLIO
PORTFOLIO MANAGERS: David D. Sylvester (1996) and Laurie R. White (1996) .
PORTFOLIO: INCOME EQUITY PORTFOLIO
PORTFOLIO MANAGER: David L. Roberts, CFA (1994) and Gary J. Dunn (1994).
PORTFOLIO: LARGE COMPANY GROWTH PORTFOLIO
SUBADVISER: PEREGRINE
PORTFOLIO MANAGERS: John S. Dale, CFA (1994) and Gary E. Nussbaum, CFA (1998).
PORTFOLIOS: DISCIPLINED GROWTH PORTFOLIO AND SMALL CAP VALUE PORTFOLIO
SUBADVISER: SMITH
PORTFOLIO MANAGER: Stephen S. Smith, CFA (1997)
PORTFOLIO: SMALL CAP INDEX PORTFOLIO
PORTFOLIO MANAGERS: David D. Sylvester (1998) and Laurie R. White (1998).
PORTFOLIO: SMALL COMPANY GROWTH PORTFOLIO
SUBADVISER: PEREGRINE
PORTFOLIO MANAGERS: Robert B. Mersky, CFA (1994) and Paul E. von Kuster, CFA (1998).
PORTFOLIO: SMALL COMPANY VALUE PORTFOLIO
SUBADVISER: PEREGRINE
PORTFOLIO MANAGERS: Tasso H. Coin, Jr. (1995) and Douglas G. Pugh (1997).
PORTFOLIO: INTERNATIONAL PORTFOLIO
ADVISER: SCHRODER
PORTFOLIO MANAGER: Michael Perelstein (1997)
PORTFOLIO: INTERNATIONAL EQUITY PORTFOLIO
SUBADVISER: WCM
PORTFOLIO MANAGER: Katherine Schaprio, CFA (1999) and Stacey Ho, CFA (1999)
INCOME EQUITY FUND
PORTFOLIO: INCOME EQUITY PORTFOLIO
PORTFOLIO MANAGER: David L. Roberts, CFA (1994) and Gary J. Dunn (1994).
VALUGROWTH STOCK FUND
PORTFOLIO MANAGER: Kelli K. Hill (1999)
DIVERSIFIED EQUITY FUND
GROWTH EQUITY FUND
PORTFOLIO: INDEX PORTFOLIO (DIVERSIFIED EQUITY FUND ONLY)
PORTFOLIO MANAGERS: David D. Sylvester (1996) and Laurie R. White (1996).
PORTFOLIO: INCOME EQUITY PORTFOLIO (DIVERSIFIED EQUITY FUND ONLY)
PORTFOLIO MANAGER: David L. Roberts, CFA (1994) and Gary J. Dunn (1994) .
PORTFOLIO: LARGE COMPANY GROWTH PORTFOLIO
SUBADVISER: PEREGRINE
PORTFOLIO MANAGERS: John S. Dale, CFA (1994) and Gary E. Nussbaum, CFA (1998) .
PORTFOLIOS: DISCIPLINED GROWTH PORTFOLIO (DIVERSIFIED EQUITY FUND ONLY) AND SMALL CAP
VALUE PORTFOLIO
SUBADVISER: SMITH
PORTFOLIO MANAGER: Stephen S. Smith (1997).
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).
PORTFOLIO: SMALL COMPANY VALUE PORTFOLIO
SUBADVISER: PEREGRINE
PORTFOLIO MANAGERS: Tasso H. Coin, Jr. (1995) and Douglas G. Pugh (1997).
PORTFOLIO: INTERNATIONAL PORTFOLIO
ADVISER: SCHRODER
PORTFOLIO MANAGER: Michael Perelstein (1997).
PORTFOLIO: INTERNATIONAL EQUITY PORTFOLIO
SUBADVISER: WCM
PORTFOLIO MANAGER: KATHERINE SCHAPIRO, CFA (1999) AND STACEY HO, CFA (1999)
LARGE COMPANY GROWTH FUND
PORTFOLIO: LARGE COMPANY GROWTH PORTFOLIO
SUBADVISER: PEREGRINE
PORTFOLIO MANAGER: John S. Dale, CFA (1994) and Gary E. Nussbaum, CFA (1998) .
DIVERSIFIED SMALL CAP FUND
PORTFOLIO: SMALL CAP INDEX PORTFOLIO
PORTFOLIO MANAGERS: David D. Sylvester (1998) and Laurie R. White (1998).
PORTFOLIO: SMALL COMPANY GROWTH PORTFOLIO
SUBADVISER: PEREGRINE
PORTFOLIO MANAGERS: Robert B. Mersky, CFA (1994) and Paul E. von Kuster, CFA (1998).
PORTFOLIO: SMALL COMPANY VALUE PORTFOLIO
SUBADVISER: PEREGRINE
PORTFOLIO MANAGERS: Tasso H. Coin, Jr. (1995) and Douglas G. Pugh (1998).
PORTFOLIOS: SMALL CAP VALUE PORTFOLIO
SUBADVISER: SMITH
PORTFOLIO MANAGER: Stephen S. Smith, CFA (1997).
SMALL COMPANY STOCK FUND
PORTFOLIO MANAGER: Thomas Zeifang (1999)
SMALL CAP OPPORTUNITIES FUND
PORTFOLIO MANAGER: Ira Unschuld (1998).
INTERNATIONAL FUND
PORTFOLIO: INTERNATIONAL PORTFOLIO
ADVISER: SCHRODER
PORTFOLIO MANAGER: Michael Perelstein (1997) .
</TABLE>
PORTFOLIO MANAGERS
Norwest Portfolio Managers:
PATRICIA BURNS, associated with Norwest or 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 and has been a portfolio manager
at Peregrine for more than ten years and has more than 20 years' experience in
fixed income securities management.
KELLI K. HILL, associated with Norwest or its affiliates since 1999. Ms. Hill is
also a portfolio manager at WCM, with whom she has been associated since 1989.
Ms. Hill is also the Treasurer for the San Francisco Ballet Association Encore!,
and a board member for Las Casa de les Madres, the largest women's shelter in
the San Francisco area.
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.
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 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 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.
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 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:
THOMAS ZEIFANG, associated with Norwest or its affiliates since 1999. Mr.
Zeifang is also a portfolio manager at WCM (1995) .Prior to 1995 he served as an
analyst at Fleet Investment Advisors.
SCHRODERS 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.
Troiano has been Chief Executive Officer of Schroder since April 1, 1997, a
Managing Director of Schroder since October 1995.
IRA L. UNSCHULD, ,associated with Schroders or its affiliates since 1990. Mr.
Unschuld is a Group Vice President.
WCM PORTFOLIO MANAGERS:
STACEY HO, CFA, associated with Wells Fargo Bank since 1997. Prior thereto, she
was associated with Clemente Capital Management (1995-1996) and Edison
International (1990-1995).
KATHERINE SCHAPIRO, CFA, associated with Wells Fargo Bank since 1992. Ms.
Schapiro is President of the Security Analysts of San Francisco. Prior to her
association with Wells Fargo Bank, she was a vice president and fund manager for
Newport Pacific Management, an international investment advisory firm based in
San Francisco.
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.
CHOOSING A SHARE CLASS
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.
o A Shares are generally offered at their net asset value plus an initial
sales charge.
o 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.
o 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.
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):
SALES CHARGE AS A PERCENTAGE OF*
AMOUNT OF PURCHASE OFFERING PRICE+ NET AMOUNT INVESTED
Less than $50,000............... 5.75% 6.10%
$50,000 to $99,999.............. 4.75% 4.99%
$100,000 to $249,000............ 3.75% 3.90%
$250,000 to $499,000............ 2.75% 2.83%
$500,000 to $999,000............ 2.00% 2.04%
Over $1,000,000................. 0.00% 0.00%
*Rounded to the nearest one-hundredth percent.
+The amount of the initial sales charge is included in the offering price.
If you redeem A Shares purchased with a reduced sales charge within one year of
purchase, the Funds may impose a 1.00% charge. This charge is based on the lower
of the NAV of the shares redeemed on the date of purchase or the date of
redemption.
A Shares for Growth Balanced Fund, Large Company Growth Fund, and Diversified
Small Cap Fund have distribution fees of 0.10% under a Rule 12b-1 distribution
plan. Because distribution fees are paid out of the Fund's assets on an ongoing
basis, over time these fees will increase the cost of your investment.
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 8 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. 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 8
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.
SALES CHARGE REDUCTION PROGRAM ENHANCEMENTS
A Shares. If you purchase A Shares of a Norwest Advantage Fund, that purchase
may count towards reductions of sales charges for purchases of Class A shares of
funds in the Stagecoach fund family. Currently, through Rights of Accumulation,
you may reduce the sales charges you pay on A Shares of Norwest Advantage Funds
by accumulating purchases of different Norwest Advantage Funds to reach one of
the breakpoints listed in this prospectus. You also may pay a lower sales charge
by signing a LETTER OF INTENT ("LOI") to invest a specific amount over a certain
period of time. You may use your Norwest Advantage Funds RIGHT OF ACCUMULATION
("ROA") or LOI to accumulate purchases of different Norwest Advantage Funds AND
STAGECOACH FUNDS to reach a breakpoint in the sales charges for A Shares.
By signing a LOI, you pay a lower sales charge now in exchange for promising to
invest an amount over a specified breakpoint within the next 13 months. We will
hold in escrow shares equal to approximately 5% of the amount you intend to buy.
If you do not invest the amount specified in the LOI before the expiration date,
we will redeem enough escrowed shares to pay the difference between the reduced
sales load you paid and the sales load you should have paid. Otherwise, we will
release the escrowed shares when you have invested the agreed amount.
ROA allows you to combine the amount you invest with the total NAV of shares you
own in other Norwest and Stagecoach front-end load funds in order to reach
breakpoint levels for a reduced load. We give you a discount on the entire
amount of the investment that puts you over the breakpoint level.
B Shares. For Class B shares purchased after May 17, 1999, a fund will not
charge any CDSC for your withdrawal of B Shares under an Automatic Withdrawal
Plan, provided that your aggregate withdrawal of the fund's shares under the
Plan does not exceed 10% (including dividend and capital gain distributions)
annually of your B Shares shareholdings of the fund, based on the anniversary
date of the Plan.
CONVERSION FEATURE. B Shares will automatically convert to A Shares 8 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 offers 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.
HOW TO BUY AND SELL SHARES
DETERMINATION OF NET ASSET VALUE
Each Fund determines its net asset value or NAV 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.
You may purchase Fund shares on any business day, the exchange is open at their
NAV 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.
GENERAL PURCHASE INFORMATION
You may purchase shares directly or through a financial institution. The Fund's
transfer agent processes all transactions in Fund shares. Not all Funds or Share
Classes offered in this Prospectus are available for purchase in all states.
Please contact the Funds or your financial representative for information about
whether a Fund or share Class is available in your state.
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:
BY REGULAR MAIL: NORWEST ADVANTAGE FUNDS
[NAME OF FUND]
P.O. Box 8265
Boston, MA 02266-8265
BY OVERNIGHT MAIL ONLY TO: NORWEST ADVANTAGE FUNDS
[NAME OF FUND]
Attn: CCSU
Boston Financial
66 Brooks Drive
Braintree, MA 02184
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 Funds' distributor.
To purchase shares for individual or Uniform Gift to Minors Act accounts, you
must write a check or purchase a money order payable to Norwest Advantage Funds
or endorse a check made out to you to Norwest Advantage Funds. For corporation,
partnership, trust, 401(k) plan or other non-individual type accounts, make the
check used to purchase shares payable to Norwest Advantage Funds. No other
methods of payment by check will be accepted for these types of accounts.
PURCHASES BY BANK WIRE You must first telephone the Funds' transfer agent at
1-612-667-8833 or 1-800-338-1348, option 3, 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:
STATE STREET BANK & TRUST
BOSTON, MA
ABA 011000028
FNF: (NORWEST ADVANTAGE FUND NAME)
AC: 9905-434-8
FOR FURTHER CREDIT: ___________________
(NAME ON NORWEST FUND ACCOUNT AND FUND ACCOUNT NUMBER
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 NAV
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 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
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. If you exchange A Shares of a fund for A Shares of another fund
with a higher sales load, you will not be required to pay the difference in the
sales load.
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.
<PAGE>
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.
o 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.
o Under the Cash Option, you are paid all distributions in cash.
o 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.
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.
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand each Fund's
financial performance. Total return in the table represents the rate that an
investor would have earned (or lost) on an investment in a Fund (assuming
reinvestment of all distributions). The information has been audited by KPMG
LLP, independent auditors. Each Fund's financial statements and the auditor's
reports, are included in the Fund's Annual Report, which is available upon
request, at no charge. These financial statements are incorporated by reference
into the SAI.
<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
- ------------------------------------------------------------------------------------------------------------------------------
GROWTH BALANCED FUND
A SHARES
October 14, 1998(c) to May 31, 1999 $28.09 $0.63 $5.67 ($0.58) ($1.03) $32.78
B SHARES
October 14, 1998(c) to May 31, 1999 $26.96 $0.56 $4.82 ($0.55) ($1.03) $30.76
C SHARES
October 14, 1998(c) to May 31, 1999 $26.96 $0.65 $4.79 ($0.58) ($1.03) $30.79
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)
- ---------------------------------------------------------------------------------------------------------------------------
GROWTH BALANCED FUND
A SHARES
October 14, 1998(c) to May 31, 1999 1.92%(d)(e) 1.15%(d)(e) 1.88%(d)(e) 22.83% 48.71(f)% $3,667
B SHARES
October 14, 1998(c) to May 31, 1999 1.34%(d)(e) 1.75%(d)(e) 2.43%(d)(e) 20.36% 48.71(f)% $8,978
C SHARES
October 14, 1998(c) to May 31, 1999 1.45%(d)(e) 1.68%(d)(e) 4.43%(d)(e) 20.59% 48.71(f)% $1,236
- -----------------------------------------------------------------------------------------
<FN>
(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/or fee waivers.
(c) Commencement of operations
(d) Annualized
(e) Includes expenses allocated from the Portfolio(s) in which the Fund
invests.
(f) The Fund does not hold investment securities directly. The Fund seeks to
achieve its investment objective by investing all of its investable assets
in one or more Portfolios of Core Trust (Delaware). Portfolio turnover for
a Fund normally would be based on the turnover of a Fund's investments in
the Core Trust Portfolio rather than the underlying securites in that
Portfolio. Since a Fund has an indirect interest in the securities held in
the Core Trust Portfolio, the portfolio turnover rate disclosed is
calculated by aggregating the results of multiplying the Fund's ownership
percentage of the respective Portfolio by the corresponding Portfolio's
portfolio turnover rate.
</FN>
<PAGE>
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, 1999 $41.19 $0.51 $5.45 ($0.53) ($0.26) $46.36
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 (e) to May 31, 1996 $26.94 $0.07 $0.55 -- -- $27.56
B SHARES
Year Ended May 31, 1999 $41.12 $0.19 $5.45 ($0.23) ($0.26) $46.27
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 (e) to May 31, 1996 $26.94 $0.02 $0.58 -- -- $27.54
C SHARES
October 1, 1998 (e) to May 31, 1999 $37.26 $0.47 $10.39 ($0.48) ($.0.15) $47.49
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)
- --------------------------------------------------------------------------------------------------------------------------
INCOME EQUITY FUND
A SHARES
Year Ended May 31, 1999 1.23%(c) 0.85%(c) 0.93%(c) 14.74% 3.21%(d) $105,162
Year Ended May 31, 1998 1.44%(c) 0.85%(c) 0.91%(c) 28.64% 3.49%(d) $75,144
Year Ended May 31, 1997 1.95% 0.85% 0.93% 22.40% 4.76% $43,708
May 2, 1996 (e) to May 31, 1996 3.69%(f) 0.91%(f) 1.91%(f) 2.30% 0.69% $31,448
B SHARES
Year Ended May 31, 1999 0.48%(c) 1.60%(c) 1.94%(c) 13.90% 3.21%(d) $106,688
Year Ended May 31, 1998 0.69%(c) 1.60%(c) 1.91%(c) 27.67% 3.49%(d) $67,385
Year Ended May 31, 1997 1.24% 1.59% 1.96% 21.48% 4.76% $33,626
May 2, 1996 (e) to May 31, 1996 2.92%(f) 1.72%(f) 2.63%(f) 2.23% 0.69% $17,318
C SHARES
October 1, 1998 (e) to May 31, 1999 0.48%(c) 1.60%(c) 4..37%(c) 28.55% 3.21%(d) $1,106
- -----------------------------------------------------------------------------------------
<FN>
(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/or fee waivers.
(c) Includes expenses allocated from the Portfolio(s) in which the Fund
invests.
(d) The Fund does not hold investment securities directly. The Fund seeks to
achieve its investment objective by investing all of its investable assets
in one or more Portfolios of Core Trust (Delaware). Portfolio turnover for
a Fund normally would be based on the turnover of a Fund's investments in
the Core Trust Portfolio rather than the underlying securites in that
Portfolio. Since a Fund has an indirect interest in the securities held in
the Core Trust Portfolio, the portfolio turnover rate disclosed is
calculated by aggregating the results of multiplying the Fund's ownership
percentage of the respective Portfolio by the corresponding Portfolio's
portfolio turnover rate.
(e) Commencement of operations.
(f) Annualized.
</FN>
<PAGE>
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, 1999 $26.18 $0.24 ($0.39) ($0.13) ($4.51) $21.39
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(d) $10.00 $0.15 $0.03 ($0.15) -- $10.03
B SHARES
Year Ended May 31, 1999 $25.52 ($0.04) ($0.28) -- ($4.51) $20.69
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 (d) to May 31, 1994 $17.12 $0.07 $0.23 ($0.10) ($0.22) $17.10
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)
- ------------------------------------------------------------------------------------------------------------------------
VALUGROWTH STOCK FUND
A SHARES
Year Ended May 31, 1999 0.51% 1.00% 1.26% (0.16%) 68.72% $18,902
Year Ended May 31, 1998 0.56% 1.00% 1.26% 21.15% 74.25% $27,771
Year Ended May 31, 1997 0.70% 1.01% 1.39% 23.32% 75.50% $18,830
Year Ended May 31, 1996 0.63% 1.20% 1.42% 21.69% 105.43% $15,232
Year Ended May 31, 1995 1.01% 1.20% 1.43% 10.72% 63.82% $12,138
Year Ended May 31, 1994 1.06% 1.20% 1.43% 1.68% 86.07% $12,922
Year Ended May 31, 1993 1.02% 1.20% 1.42% 9.32% 57.34% $109,669
December 1, 1991 to May 31, 1992 1.34%(c) 1.19%(c) 1.64%(c) 26.46%(c) 29.50% $68,659
Year Ended November 30, 1991 1.57% 1.19% 4.33% 25.84% 31.17% $4,853
Year Ended November 30, 1990 1.88% 1.20% 11.73% (2.91%) 38.67% $750
Year Ended November 30, 1989 1.58% 1.20% 8.38% 28.00% 65.89% $411
January 8, 1988 to November 30, 1988(d) 1.84%(c) 1.19%(c) 2.50%(c) 2.04%(c) 30.90% $281
B SHARES
Year Ended May 31, 1999 (0.24%) 1.75% 2.30% (0.90%) 68.72% $7,784
Year Ended May 31, 1998 (0.19%) 1.75% 2.31% 20.30% 74.25% $8,943
Year Ended May 31, 1997 (0.07%) 1.76% 2.48% 22.33% 75.50% $6,591
Year Ended May 31, 1996 (0.12%) 1.96% 2.54% 20.79% 105.43% $5,130
Year Ended May 31, 1995 0.28% 1.95% 2.51% 9.88% 63.82% $3,569
August 5, 1993 (d) to May 31, 1994 0.25%(c) 1.95%(c) 2.55%(c) 2.36%(c) 86.07% $2,218
- ------------------------------------------------------------------------------------
<FN>
(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/or fee waivers.
(c) Annualized.
(d) Commencement of operations.; the original class of shares became A Shares.
</FN>
<PAGE>
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
- --------------------------------------------------------------------------------------------------------------------
DIVERSIFIED EQUITY FUND
A SHARES
Year Ended May 31, 1999 $43.06 $0.08 $6.29 ($0.20) ($0.98) $48.25
Year Ended May 31, 1998 $36.51 $0.16 $8.99 ($0.27) ($2.33) $43.06
Year Ended May 31, 1997 $30.56 $0.20 $6.10 ($0.16) ($0.19) $36.51
May 2, 1996 (d) to May 31, 1996 $29.89 $0.02 $0.65 -- -- $30.56
B SHARES
Year Ended May 31, 1999 $42.69 ($0.11) $6.09 -- ($0.98) $47.69
Year Ended May 31, 1998 $36.31 $0.06 $8.85 ($0.08) ($2.33) $42.69
Year Ended May 31, 1997 $30.54 $0.03 $6.00 ($0.07) ($0.19) $36.31
May 6, 1996 (d) to May 31, 1996 $29.41 $0.02 $1.11 -- -- $30.54
C SHARES
October 1, 1998 (d) to May 31, 1999 $38.71 $0.08 $10.65 ($0.20) ($0.98) $48.26
Ratio to Average Net Assets
---------------------------------------
Net Portfolio Net Assets at
Investment Net Gross Total Turnover End of Period
Income(a) Expenses(a) Expenses(a)(b) Return(c) Rate (000's Omitted)
- --------------------------------------------------------------------------------------------------------------------
DIVERSIFIED EQUITY FUND
A SHARES
Year Ended May 31, 1999 0.47% 1.00% 1.22% 15.08% 34.60(f) $69,768
Year Ended May 31, 1998 0.60% 1.00% 1.20% 26.08% 23.17(f) $56,350
Year Ended May 31, 1997 0.81% 1.02% 1.40% 20.75% 48.08% $25,271
May 2, 1996 (d) to May 31, 1996 1.88%(e) 1.52%(e) 4.06%(e) 2.24% 5.76% $2,699
B SHARES
Year Ended May 31, 1999 (0.28%) 1.75% 2.22% 14.24% 34.60(f) $111,106
Year Ended May 31, 1998 (0.15%) 1.75% 2.19% 25.13% 23.17(f) $81,548
Year Ended May 31, 1997 0.09% 1.76% 2.41% 19.86% 48.08% $33,870
May 6, 1996 (d) to May 31, 1996 1.24%(e) 2.37%(e) 4.95%(e) 3.84% 5.76% $2,447
C SHARES
October 1, 1998 (d) to May 31, 1999 (0.28%)(e) 1.75%(e) 5.15%(e) 28.02% 34.60(f) $542
- --------------------------------------------------------------------------------
<FN>
(a) Includes expenses allocated from the Portfolio(s) 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/or fee waivers.
(d) Commencement of operations.
(e) Annualized.
(f) The Fund does not hold investment securities directly. The Fund seeks to
achieve its investment objective by investing all of its investable assets
in one or more Portfolios of Core Trust (Delaware). Portfolio turnover for
a Fund normally would be based on the turnover of a Fund's investments in
the Core Trust Portfolio rather than the underlying securites in that
Portfolio. Since a Fund has an indirect interest in the securities held in
the Core Trust Portfolio, the portfolio turnover rate disclosed is
calculated by aggregating the results of multiplying the Fund's ownership
percentage of the respective Portfolio by the corresponding Portfolio's
portfolio turnover rate.
</FN>
<PAGE>
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
- --------------------------------------------------------------------------------------------------------------------
GROWTH EQUITY FUND
A SHARES
Year Ended May 31, 1999 $35.73 ($0.02) $2.56 ($0.03) ($2.07) $36.17
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 (d) to May 31, 1996 $28.50 -- $0.58 -- -- $29.08
B SHARES
Year Ended May 31, 1999 $35.23 ($0.25) $2.48 -- ($2.07) $35.39
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 (d) to May 31, 1996 $28.18 -- $0.89 -- -- $29.07
C SHARES
October 1, 1998 (d) to May 31, 1999 $30.66 ($0.13) $7.86 ($0.03) ($2.07) $36.29
Ratio to Average Net Assets
-------------------------------------------
Net Portfolio Net Assets at
Investment Net Gross Total Turnover End of Period
Income (Loss)(a) Expenses(a) Expenses(a)(b) Return(c) Rate (000's Omitted)
- -------------------------------------------------------------------------------------------------------------------------
GROWTH EQUITY FUND
A SHARES
Year Ended May 31, 1999 (0.08%) 1.25% 1.44% 7.57% 72.77(f) $17,335
Year Ended May 31, 1998 (0.11%) 1.25% 1.42% 22.55% 47.41(f) $21,567
Year Ended May 31, 1997 (0.12%) 1.30% 1.95% 14.11% 9.06% $14,146
May 2, 1996 (d) to May 31, 1996 0.34%(e) 2.08%(e) 6.40%(e) 2.04% 7.39% $3,338
B SHARES
Year Ended May 31, 1999 (0.83%) 2.00% 2.45% 6.78% 72.77(f) $18,976
Year Ended May 31, 1998 (0.85%) 2.00% 2.45% 21.63% 47.41(f) $16,615
Year Ended May 31, 1997 (0.82%) 2.04% 3.02% 13.28% 9.06% $8,713
May 6, 1996 (d) to May 31, 1996 (0.40%)(e) 2.92%(e) 7.44%(e) 3.16% 7.39% $703
C SHARES
October 1, 1998 (d) to May 31, 1999 (0.87%)(e) 2.01%(e) 21.40%(e) 25.73% 72.77(f) $60
- -------------------------------------------------------------------------------
<FN>
(a) Includes expenses allocated from the Portfolio(s) 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/or fee waivers.
(d) Commencement of operations.
(e) Annualized.
(f) The Fund does not hold investment securities directly. The Fund seeks to
achieve its investment objective by investing all of its investable assets
in one or more Portfolios of Core Trust (Delaware). Portfolio turnover for
a Fund normally would be based on the turnover of a Fund's investments in
the Core Trust Portfolio rather than the underlying securites in that
Portfolio. Since a Fund has an indirect interest in the securities held in
the Core Trust Portfolio, the portfolio turnover rate disclosed is
calculated by aggregating the results of multiplying the Fund's ownership
percentage of the respective Portfolio by the corresponding Portfolio's
portfolio turnover rate.
</FN>
<PAGE>
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
- -------------------------------------------------------------------------------------------------------------------------------
LARGE COMPANY GROWTH FUND
A SHARES
October 6, 1998(c) to May 31, 1999 $38.48 ($0.16) $20.82 -- ($1.05) $58.09
B SHARES
October 1, 1998(c) to May 31, 1999 $39.80 ($0.17) $15.92 -- ($1.05) $54.50
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)
- --------------------------------------------------------------------------------------------------------------------------
LARGE COMPANY GROWTH FUND
A SHARES
October 6, 1998(c) to May 31, 1999 (0.68)%(d)(e) 1.20%(d)(e) 1.35%(d)(e) 54.16% 28.15(f) $191,233
B SHARES
October 1, 1998(c) to May 31, 1999 (1.22)%(d)(e) 1.76%(d)(e) 2.15%(d)(e) 40.01% 28.15(f) $156,870
- -----------------------------------------------------------------------------------------
<FN>
(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/or fee waivers.
(c) Commencement of operations.
(d) Annualized.
(e) Includes expenses allocated from the Portfolio(s) in which the Fund
invests.
(f) Portfolio turnover rate represents the activity from the Fund's investment
in a single Portfolio.
</FN>
<PAGE>
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
- -------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED SMALL CAP FUND
A SHARES
October 6, 1998(c) to May 31, 1999 $7.77 ($0.02) $1.77 --(d) -- $9.52
B SHARES
October 1, 1998(c) to May 31, 1999 $7.97 ($0.03) $1.02 --(d) -- $8.96
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)
- --------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED SMALL CAP FUND
A SHARES
October 6, 1998(c) to May 31, 1999 (0.22)%(e)(f) 1.40%(e)(f) 2.30%(e)(f) 22.52% 112.09(g) $1,504
B SHARES
October 1, 1998(c) to May 31, 1999 (0.84)%(e)(f) 1.99%(e)(f) 5.63%(e)(f) 12.42% 112.09(g) $476
- -----------------------------------------------------------------------------------------
<FN>
(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/or fee waivers.
(c) Commencement of operations
(d) Actual dividends per share were less than $0.01.
(e) Annualized.
(f) Includes expenses allocated from the Portfolio(s) in which the Fund
invests.
(g) The Fund does not hold investment securities directly. The Fund seeks to
achieve its investment objective by investing all of its investable assets
in one or more Portfolios of Core Trust (Delaware). Portfolio turnover for
a Fund normally would be based on the turnover of a Fund's investments in
the Core Trust Portfolio rather than the underlying securites in that
Portfolio. Since a Fund has an indirect interest in the securities held in
the Core Trust Portfolio, the portfolio turnover rate disclosed is
calculated by aggregating the results of multiplying the Fund's ownership
percentage of the respective Portfolio by the corresponding Portfolio's
portfolio turnover rate.
</FN>
<PAGE>
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
- ---------------------------------------------------------------------------------------------------------------------
SMALL COMPANY STOCK FUND
A SHARES
Year Ended May 31, 1999 $12.00 ($0.01) ($3.26) -- -- $8.73
Year Ended May 31, 1998 $13.95 ($0.07) $1.02 -- ($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
B SHARES
Year Ended May 31, 1999 $11.56 ($0.16) ($3.06) -- -- $8.34
Year Ended May 31, 1998 $13.63 ($0.11) $0.94 -- ($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
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)
- ------------------------------------------------------------------------------------------------------------------
SMALL COMPANY STOCK FUND
A SHARES
Year Ended May 31, 1999 (0.12%)(c) 1.20%(c) 1.55%(c) (27.25%) 183.61%(d) $5,563
Year Ended May 31, 1998 (0.50%)(c) 1.20%(c) 1.42%(c) 8.07% 166.16%(d) $8,426
Year Ended May 31, 1997 (0.38%) 1.19% 1.67% 6.34% 210.19% $7,355
Year Ended May 31, 1996 0.03% 1.21% 1.87% 38.22% 134.53% $5,426
Year Ended May 31, 1995 1.14% 0.53% 2.32% 10.19% 68.09% $1,540
B SHARES
Year Ended May 31, 1999 (0.86%)(c) 1.95%(c) 2.63%(c) (27.85%) 183.61%(d) $2,904
Year Ended May 31, 1998 (1.26%)(c) 1.95%(c) 2.47%(c) 7.29% 166.16%(d) $5,799
Year Ended May 31, 1997 (1.13%) 1.94% 2.73% 5.46% 210.19% $5,125
Year Ended May 31, 1996 (0.74%) 1.96% 2.96% 37.32% 134.53% $4,125
Year Ended May 31, 1995 0.38% 1.27% 3.56% 9.31% 68.09% $963
- -----------------------------------------------------------------------------------------
<FN>
(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/or fee waivers.
(c) Includes expenses allocated from the Portfolio(s) in which the Fund invests.
(d) Reflects the activity of the Portfolio in which the Fund invests.
</FN>
<PAGE>
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, 1999 $23.60 ($0.11) ($2.97) ($0.02) $20.50
Year Ended May 31, 1998 $19.83 ($0.07) $4.37 ($0.53) $23.60
October 9, 1996 to May 31, 1997(e) $17.39 ($0.01) $2.46 ($0.01) $19.83
B SHARES
Year Ended May 31, 1999 $23.32 ($0.31) ($2.90) ($0.02) $20.09
Year Ended May 31, 1998 $19.75 ($0.05) $4.15 ($0.53) $23.32
November 8, 1996 to May 31, 1997(e) $17.41 ($0.05) $2.40 ($0.01) $19.75
Ratio to Average Net Assets
------------------------------------------
Net Portfolio Net Assets at
Investment Net Gross Total Turnover End of Period
Income (Loss)(a) Expenses(a) Expenses(a)(b)Return(c) Rate(d) (000's Omitted)
- ------------------------------------------------------------------------------------------------------------------------
SMALL CAP OPPORTUNITIES FUND
A SHARES
Year Ended May 31, 1999 (0.47%) 1.25% 1.49% (13.03%) 119.00% $4,698
Year Ended May 31, 1998 (0.43%) 1.27% 1.86% 21.97% 54.98% $6,870
October 9, 1996 to May 31, 1997(e) (0.18%)(f) 1.25%(f) 10.51%(f) 11.37% 34.45% $522
B SHARES
Year Ended May 31, 1999 (1.28%) 2.06% 2.51% (13.74%) 119.00% $4,187
Year Ended May 31, 1998 (1.21%) 2.01% 3.05% 21.03% 54.98% $6,140
November 8, 1996 to May 31, 1997(e) (0.99%)(f) 2.06%(f) 27.27%(f) 13.53% 34.45% $158
- ---------------------------------------------------------------------------------
<FN>
(a) Includes expenses from the Portfolio(s) 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/or fee waivers.
(d) Reflects the activity of the Portfolio in which the Fund invests.
(e) Commencement of operations.
(f) Annualized.
</FN>
<PAGE>
Net
Realized
and Dividends Distributions Ending
Beginning Net Unrealized from Net From Net Net
Net Asset
Asset Value Investment Gain Investment Realized Value
(Loss) Per
Per Share Income on Income Gain Share
Investments
- -----------------------------------------------------------------------------------------------------------------
INTERNATIONAL FUND
A SHARES
Year Ended May 31, 1999 $23.84 $0.04 ($0.43) ($0.21) ($0.46) $22.78
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 (f) to October 31, $16.50 $0.01 $1.46 -- -- $17.97
1995
B SHARES
Year Ended May 31, 1999 $23.70 ($0.06) ($0.49) ($0.03) ($0.46) $22.66
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 (f) to October 31, 1995 $17.20 $0.01 $0.70 -- -- $17.91
Ratio to Average Net Assets
---------------------------------------
Net Portfolio Net Assets at
Investment Net Gross Total Turnover End of Period
Income(a) Expenses(a) Expenses(a)(b) Return(c) Rate (000's Omitted)
- ----------------------------------------------------------------------------------------------------------------------
INTERNATIONAL FUND
A SHARES
Year Ended May 31, 1999 0.37% 1.50% 1.80% (1.36%) 94.64(g) $2,866
Year Ended May 31, 1998 0.44% 1.47% 1.72% 11.20% 36.56(g) $3,342
Year Ended May 31, 1997 0.42% 1.43% 1.72% 10.33% 48.23%(d) $2,240
November 1, 1995 to May 31, 1996 0.92%(e) 1.50%(e) 2.51%(e) 12.31% 14.12%(d) $1,080
April 1, 1995 (f) to October 31, 0.26%(e) 1.32%(e) 20.95%(e) 8.91% 29.41%(d) $216
1995
B SHARES
Year Ended May 31, 1999 (0.30%) 2.25% 2.89% (2.08%) 94.64(g) $1,973
Year Ended May 31, 1998 (0.29%) 2.22% 2.81% 10.39% 36.56(g) $2,245
Year Ended May 31, 1997 (0.34%) 2.18% 2.76% 9.44% 48.23%(d) $1,667
November 1, 1995 to May 31, 1996 (0.02%)(e) 2.25%(e) 3.11%(e) 11.79% 14.12%(d) $995
May 12, 1995 (f) to October 31, 1995 0.17%(e) 1.27%(e) 14.57%(e) 4.30% 29.41%(d) $395
- ----------------------------------------------------------------------------
<FN>
(a) Includes expenses allocated from the Portfolio(s) 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/or fee waivers.
(d) Reflects the activity of the Portfolio in which the Fund invests.
(e) Annualized.
(f) Commencement of operations.
(f) The Fund does not hold investment securities directly. The Fund seeks to
achieve its investment objective by investing all of its investable assets
in one or more Portfolios of Core Trust (Delaware). Portfolio turnover for
a Fund normally would be based on the turnover of a Fund's investments in
the Core Trust Portfolio rather than the underlying securites in that
Portfolio. Since a Fund has an indirect interest in the securities held in
the Core Trust Portfolio, the portfolio turnover rate disclosed is
calculated by aggregating the results of multiplying the Fund's ownership
percentage of the respective Portfolio by the corresponding Portfolio's
portfolio turnover rate.
</FN>
</TABLE>
<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, 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. The scheduled hours of
operation of the Public Reference Room may be obtained by calling the SEC at
1-800-SEC-0330. Free copies of the reports and SAIs are available from the SEC's
Internet website at http:// www.sec.gov.
The SEC's Investment Company Act file number for the Funds is 811-4881.
NORWEST ADVANTAGE FUNDS
PROSPECTUS
October 1, 1999
PERFORMA STRATEGIC VALUE BOND FUND
PERFORMA DISCIPLINED GROWTH FUND
PERFORMA SMALL CAP VALUE 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.
THE BOARD OF TRUSTEES AND THE SHAREHOLDERS OF THE NORWEST ADVANTAGE FUNDS HAVE
APPROVED A REORGANIZATION OF THE FUNDS WITH THE STAGECOACH FUNDS ADVISED BY
WELLS FARGO BANK, N.A. THE BOARD OF DIRECTORS AND SHAREHOLDERS OF STAGECOACH
FUNDS ALSO HAVE APPROVED THE REORGANIZATION. THIS COMBINATION OF MUTUAL FUND
FAMILIES FOLLOWS THE MERGER OF WELLS FARGO & COMPANY AND NORWEST CORPORATION.
EACH OF THE NORWEST ADVANTAGE FUNDS AND THE STAGECOACH FUNDS WILL REORGANIZE
INTO A NEW PORTFOLIO OF WELLS FARGO FUNDS TRUST. THE REORGANIZATION IS PENDING
AND WILL BE COMPLETED AS SOON AS REASONABLY PRACTICABLE.
THE U.S. SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
PAGE
RISK/RETURN SUMMARY...................................................
FEES AND EXPENSES OF THE FUNDS........................................
GLOSSARY..............................................................
INVESTMENT OBJECTIVES, STRATEGIES AND RISK CONSIDERATIONS.............
Performa Strategic Value Bond Fund................................
Performa Disciplined Growth Fund..................................
Performa Small Cap Value Fund.....................................
OTHER CONSIDERATIONS...................................................
MANAGEMENT OF THE FUNDS ...............................................
HOW TO BUY AND SELL SHARES.............................................
DISTRIBUTIONS..........................................................
FINANCIAL HIGHLIGHTS...................................................
8
<PAGE>
RISK/RETURN SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN KEY INFORMATION ABOUT THE FUNDS. YOU WILL
FIND ADDITIONAL INFORMATION ABOUT THE FUNDS AFTER THIS SUMMARY.
THE FUNDS ARE "GATEWAY" FUNDS IN A "CORE/GATEWAY" STRUCTURE. IN THIS STRUCTURE A
"GATEWAY" FUND INVESTS ALL OF ITS ASSETS IN A "CORE" PORTFOLIO THAT HAS A
SUBSTANTIALLY IDENTICAL INVESTMENT OBJECTIVE AND SUBSTANTIALLY SIMILAR POLICIES
AS THE GATEWAY FUND. GATEWAY FUNDS INVESTING IN THE SAME CORE PORTFOLIO, OR
PORTFOLIO, CAN ENHANCE THEIR INVESTMENT OPPORTUNITIES AND REDUCE THEIR EXPENSE
RATIOS THROUGH SHARING THE COSTS OF MANAGING A LARGE POOL OF ASSETS. EXCEPT WHEN
NECESSARY TO DESCRIBE A FUND'S INVESTMENT IN A PORTFOLIO, REFERENCES TO THE
GATEWAY FUND ALSO INCLUDE THE PORTFOLIO.
IN THIS
SUMMARY, WE WILL IDENTIFY CERTAIN KINDS OF RISKS THAT APPLY TO ONE OR MORE OF
THE FUNDS. THE FOLLOWING RISKS ARE COMMON TO ALL OF THE FUNDS.
o MARKET RISK. THIS IS THE RISK THAT THE VALUE OF A FUND'S INVESTMENTS
WILL FLUCTUATE AS THE STOCK OR BOND MARKETS FLUCTUATE AND THAT PRICES
OVERALL WILL DECLINE OVER SHORT OR LONGER-TERM PERIODS.
o MANAGEMENT RISK. THIS IS THE RISK THAT A FUND'S MANAGER WILL MAKE POOR
CHOICES IN SELECTED SECURITIES. ALL ACTIVELY MANAGED FUNDS HAVE
MANAGEMENT RISK.
PERFORMA STRATEGIC VALUE BOND FUND
OBJECTIVE. The Fund's investment objective is to seek total return by investing
primarily in income producing securities.
PRINCIPAL INVESTMENT STRATEGIES. The Fund invests in a broad range of
fixed-income instruments 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. In selecting investments, the Fund 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 Fund invests 65% of its total assets in fixed-income securities
rated in the 3 highest categories or of comparable quality. The Fund expects to
maintain an average dollar-weighted portfolio maturity of between 5 and 15
years.
PRINCIPAL RISKS. The principal risks of investing in the Fund are market risk,
interest rate risk, and credit
risk. Interest rate risk is the risk that changes in interest rates will affect
the value of a Fund's investments, particularly those investments in debt or
income-producing securities. Increases in interest rates may cause the value of
a Fund's investments to decline. Credit risk is the risk that the issuer of a
security will be unable to make timely payments of interest or principal or to
otherwise honor its obligations. The Fund's investments in mortgage-related and
asset-backed securities have prepayment risk, which is the risk that mortgage
loans or other obligations will be prepaid when interest rates decline, forcing
the Fund to reinvest in securities with lower interest rates. For this and other
reasons, mortgage-related and asset-backed securities may have significantly
greater price and yield volatility than traditional debt securities. The Fund's
investments in foreign securities have foreign risk. This is the risk of
investments in issuers located in foreign countries, which may have greater
price volatility and less liquidity. Investments in foreign securities also are
subject to political, regulatory, and diplomatic risks. Foreign risk includes
currency risk, which may occur due to fluctuations in the exchange rates between
the U.S. dollar and foreign currencies. This risk could negatively affect the
value of a Fund's investments. Loss of money is a risk of investing in the Fund.
BAR CHART AND PERFORMANCE INFORMATION
The following bar chart and performance table provide an indication of the
historical risk of an investment in the Fund by showing changes in the Fund's
performance over the life of the Fund and how the Fund's average annual returns
compare to those of a broad-based securities index. Past performance does not
necessarily indicate future performance..
EDGAR REPRESENTATION OF A BAR CHART
ANNUAL TOTAL RETURN
1998 - 8.00%
The calendar year-to-date total return as of June 30, 1999 was -1.79%.
During the periods shown in the chart, the highest quarterly return was 3.70%
(for the quarter ended September 30, 1998) and the lowest quarterly return was
- -0.24% (for the quarter ended December 31, 1998).
The following table compares the Fund's average annual total returns as of
December 31, 1998 to the Lehman Brothers Agency Index.
<TABLE>
PERFORMA STRATEGIC LEHMAN INTERMEDIATE
YEAR(S) VALUE BOND FUND GOVERNMENT/CORPORATE INDEX
<S> <C> <C>
1 Year 8.00% 8.42%
Since Inception (10/15/97) 8.93% 8.50%(1)
<FN>
(1) For the period 9/30/97 - 12/31/98.
</FN>
</TABLE>
The Lehman Intermediate Government/Corporate Index is an unmanaged index that
tracks the performance of intermediate (1 to 10 year) government and corporate
fixed-rate issues.
PERFORMA DISCIPLINED GROWTH FUND
OBJECTIVE. The Fund's investment objective is to seek capital appreciation by
investing primarily in common stocks of larger companies.
PRINCIPAL INVESTMENT STRATEGIES. The Fund seeks higher long-term returns by
investing primarily in the common stock of companies that possess above-average
potential for growth. The Fund invests in companies that have average market
capitalizations of 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.
PRINCIPAL RISKS. The principal risk of investing in the Fund is market risk.
Loss of money is a risk of investing in the Fund.
BAR CHART AND PERFORMANCE INFORMATION
The following bar chart and performance table provide an indication of the
historical risk of an investment in the Fund by showing changes in the Fund's
performance over the life of the Fund and how the Fund's average annual returns
compare to those of a broad-based securities index. Past performance does not
necessarily indicate future performance..
EDGAR REPRESENTATION OF A BAR CHART
ANNUAL TOTAL RETURN
1998 - 16.79%
The calendar year-to-date total return as of June 30, 1999 was 5.93%.
During the periods shown in the chart, the highest quarterly return was 19.17%
(for the quarter ended December 31, 1998) and the lowest quarterly return was
- -13.04% (for the quarter ended September 30, 1998).
The following table compares the Fund's average annual total returns as of
December 31, 1998 to the Standard & Poor's 500 Index, or S&P 500 Index.
<TABLE>
PERFORMA DISCIPLINED S&P 500
YEAR(S) GROWTH FUND INDEX
<S> <C> <C>
1 Year 16.79% 28.58%
Since Inception (10/15/97) 9.33% 25.03%
<FN>
(1) For the period 9/30/97 - 12/31/98.
</FN>
</TABLE>
The S&P 500 Index is a widely recognized unmanaged index of common stocks. The
S&P 500 Index figures assume reinvestment of all dividends paid by stocks
included in the index. Unlike the performance figures of the Fund, the S&P 500
Index's performance does not reflect the effect of expenses. The index is
unmanaged and is not available for investment.
PERFORMA SMALL CAP VALUE FUND
OBJECTIVE. The Fund's investment objective is to seek capital appreciation by
investing primarily in common stocks of smaller companies.
PRINCIPAL INVESTMENT STRATEGIES. 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 less than the largest stock in the Russell 2000 Index. The Fund
seeks higher growth rates and greater long-term returns by investing primarily
in the common stock of smaller companies that are undervalued and likely to
report a level of corporate earnings exceeding the level expected by investors.
PRINCIPAL RISKS. The principal risk of investing in the Fund is market risk. The
Fund's investments in small-capitalization companies have capitalization risk.
These investments tend to be more volatile than investments in large-cap
companies. In addition, small-cap companies may have more risk because they
often have limited product lines, markets, or financial resources. Also, the
market for small-cap stocks may be less liquid. Loss of money is a risk of
investing in the Fund.
BAR CHART AND PERFORMANCE INFORMATION
The following bar chart and performance table provide an indication of the
historical risk of an investment in the Fund by showing changes in the Fund's
performance over the life of the Fund and how the Fund's average annual returns
compare to those of a broad-based securities index. Past performance does not
necessarily indicate future performance..
EDGAR REPRESENTATION OF A BAR CHART
ANNUAL TOTAL RETURN
1998 - -5.53%
The calendar year-to-date total return as of June 30, 1999 was 0.92%.
During the periods shown in the chart, the highest quarterly return was 16.78%
(for the quarter ended December 31, 1998) and the lowest quarterly return was
- -25.94% (for the quarter ended September 30, 1998).
The following table compares the Fund's average annual total returns as of
December 31, 1998 to the Russell 2000 Index.
<TABLE>
PERFORMA SMALL CAP RUSSELL 2000
YEAR(S) VALUE FUND INDEX
<S> <C> <C>
1 Year -5.53% -2.24%
Since Inception (10/15/97) -10.86% -4.46%(1)
<FN>
(1) For the period 9/30/97 - 12/31/98.
</FN>
</TABLE>
The Russell 2000 Index is a capitalization weighted index that is comprised of
2000 of the smallest stocks (on the basis of capitalization) in the Russell 3000
Index. Representing approximately 10% of the Russell 3000 total market cap, this
is a small cap index. The index is unmanaged and is not available for
investment.
<PAGE>
FEES AND EXPENSES OF THE FUNDS
The following tables describe the fees and expenses that you will pay if you
invest in the Funds.
SHAREHOLDER TRANSACTION EXPENSES
(fees paid directly from your investment)
None
ANNUAL FUND OPERATING EXPENSES (1)
(expenses that are deducted from Fund assets)
<TABLE>
PERFORMA STRATEGIC PERFORMA PERFORMA
VALUE BOND FUND DISCIPLINED SMALL CAP VALUE FUND
GROWTH FUND
<S> <C> <C> <C>
Investment Advisory Fees (2) 0.50% 0.90% 0.95%
Other Expenses (2) 0.78% 0.55% 0.77%
Total Annual Fund Operating Expenses(3) 1.28% 1.45% 1.72%
<FN>
(1) Based on amounts incurred during each Fund's fiscal year ended May 31, 1999
stated as a percentage of net assets.
(2) These fees include fees for the "core" portfolios in which the "gateway"
funds invest.
(3) The Funds are subject to voluntary fee waivers and expense reimbursements
that reduce the operating expenses of the Funds. See the Financial
Highlights table for information about fund expenses net of fee waivers and
expense reimbursements
</FN>
</TABLE>
EXAMPLES OF EXPENSES
These examples are intended to help you compare the cost of investing in a Fund
with the cost of investing in other mutual funds. The examples assume that you
invest $10,000 in a Fund for the time periods indicated, that your investment
has a 5% annual return, that the Fund's operating expenses remain the same, that
distributions are reinvested, and that you redeem your shares at the end of each
period. Your actual costs may be higher or lower than those shown.
<TABLE>
- ---------------------------- ------------------------- -------------------------- -------------------------
Performa Strategic Performa Disciplined Performa Small Cap
Value Bond Fund Growth Fund Value Fund
- ---------------------------- ------------------------- -------------------------- -------------------------
------------------------- -------------------------- -------------------------
- ---------------------------- ------------------------- -------------------------- -------------------------
<S> <C> <C> <C>
1 YEAR 130 148 175
- ---------------------------- ------------------------- -------------------------- -------------------------
3 YEARS 406 459 542
- ---------------------------- ------------------------- -------------------------- -------------------------
5 YEARS 702 792 933
- ---------------------------- ------------------------- -------------------------- -------------------------
10 YEARS 1,545 1,735 2,030
- ---------------------------- ------------------------- -------------------------- -------------------------
</TABLE>
<PAGE>
GLOSSARY
This Glossary of frequently used terms will help you understand the discussion
of the Funds' objectives, strategies and risks.
TERM DEFINITION
Board The Board of Trustees of Norwest Advantage Funds.
Market Capitalization The total market value of a company's outstanding
common stock.
NRSRO A nationally recognized s tatistical rating
organization, such as S&P, that rates fixed
income-securities and preferred stock by relative
credit risk.
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.
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>
INVESTMENT OBJECTIVES, STRATEGIES AND RISK CONSIDERATIONS
This section of the prospectus provides a more complete description of each
Fund's investment objective and principal strategies and risks. Except as
otherwise indicated, the Board may change the Funds' investment policies
without shareholder approval. The Funds' investment objectives are
fundamental and cannot be changed without a shareholder vote. There can, of
course, be no assurance that any Fund will achieve its investment
objective.
The Funds are "gateway" funds in a "core/gateway" structure. In this
structure a "gateway" fund invests all of its assets in a "core" portfolio
that has a substantially identical investment objective and substantially
similar policies as the gateway fund. Gateway funds investing in the same
core portfolio, or Portfolio, can enhance their investment opportunities
and reduce their expense ratios through sharing the costs of managing a
large pool of assets. Except when necessary to describe a Fund's investment
in a Portfolio, references to the gateway fund also include the Portfolio.
This section describes risks that affect the Funds' portfolios as a whole.
Certain of these risks may apply to one or more of the Funds. The following
risks are common to all of the Funds:
o Market Risk. This is the risk that the value of a Fund's investments
will fluctuate as the stock or bond markets fluctuate and that prices
overall will decline over short or longer-term periods.
o Management Risk. This is the risk that a Fund's manager will make poor
choices in selected securities. All actively managed Funds have
management risk.
PERFORMA STRATEGIC VALUE BOND FUND
INVESTMENT OBJECTIVE AND STRATEGIES. The Fund's investment objective is to
seek total return by investing primarily in income producing securities.
The Fund's principal investment strategy is to invest 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.
In selecting investments, the Fund 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 Fund
believes that this exposure enhances performance in varying economic and
interest rate cycles and avoids excessive risk concentrations. The Fund'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 Fund uses this process
to seek to identify securities that represent the best relative economic
value. The Fund then evaluates the results of the investment process
against its objective and purchases those securities that are consistent
with its investment objective.
The Fund particularly seeks strategic diversification. The Fund's
investments include:
o up to 75% of its total assets in corporate bonds;
o up to 65% of its total assets in mortgage-backed securities; and
o up to 50% of its total assets in asset-backed securities.
The Fund may invest in U.S. Government securities without restriction.
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 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 Fund expects to maintain an average dollar-weighted portfolio maturity
of between 5 and 15 years. The Fund's duration normally will vary between 3
and 8 years. Duration is a measure of a debt security's average life that
reflects the present value of the security's cash flow and is an indication
of the security's sensitivity to changes in interest rates.
RISK CONSIDERATIONS. The principal risks of investing in the Fund are
interest rate risk and credit risk. Interest rate risk is the risk that
changes in interest rates will affect the value of a Fund's investments,
particularly those investments in debt or income-producing securities.
Increases in interest rates may cause the value of a Fund's investments to
decline. Credit risk is the risk that the issuer of a security will be
unable to make timely payments of interest or principal or to otherwise
honor its obligations. The Fund's investments in mortgage-related and
asset-backed securities have prepayment risk, which is the risk that
mortgage loans or other obligations will be prepaid when interest rates
decline, forcing the Fund to reinvest in securities with lower interest
rates. For this and other reasons, mortgage-related and asset-backed
securities may have significantly greater price and yield volatility than
traditional debt securities. The Fund's investments in foreign securities
have foreign risk. This is the risk of investments in issuers located in
foreign countries, which may have greater price volatility and less
liquidity. Investments in foreign securities also are subject to political,
regulatory, and diplomatic risks. Foreign risk includes currency risk,
which may occur due to fluctuations in the exchange rates between the U.S.
dollar and foreign currencies. This risk could negatively affect the value
of a Fund's investments. Loss of money is a risk of investing in the Fund.
PERFORMA DISCIPLINED GROWTH FUND
INVESTMENT OBJECTIVE AND STRATEGIES. The Fund's investment objective is to
seek capital appreciation by investing primarily in common stocks of larger
companies. The Fund seeks higher long-term returns by investing primarily
in the common stock of companies that possess above-average potential for
growth. The Fund invests in companies that have average market
capitalizations of greater than $5 billion.
In selecting investments, 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 Fund uses both quantitative and
fundamental analysis. The Fund 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 Fund uses a variety of valuation measures to determine
whether or not the share price already reflects any positive fundamentals
identified by the Fund. In addition to approximately equal weighting of
portfolio securities, the Fund attempts to constrain the variability of the
investment returns by employing risk control screens for price volatility,
financial quality, and valuation.
RISK CONSIDERATIONS. The principal risk of investing in the Fund is market
risk. There also is a risk of using a growth strategy because the stocks in
which the Fund invests may not achieve the anticipated growth during a
given period or may decline in price. This may occur if growth stocks as a
category lose favor with investors compared to value stocks. Loss of money
is a risk of investing in the Fund.
PERFORMA SMALL CAP VALUE FUND
INVESTMENT OBJECTIVE AND STRATEGIES. The Fund's investment objective is to
seek capital appreciation by investing primarily in common stocks of
smaller companies. The Fund normally invests substantially all of its
assets (at least 65%) in securities of companies with market
capitalizations that reflect the market capitalizations of companies
included in the Russell 2000 Index.
In selecting investments, the Fund seeks higher growth rates and greater
long-term returns by investing primarily in the common stock of smaller
companies that are undervalued and likely to report a level of corporate
earnings exceeding the level expected by investors. The Fund 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
Fund uses both quantitative and fundamental analysis. Among other factors,
the Fund considers changes of earnings estimates by investment analysts,
the recent trend of company earnings reports, and the fundamental business
outlook for the company.
RISK CONSIDERATIONS. The principal risk of investing in the Fund is market
risk. The Fund's investments in small-capitalization companies have
capitalization risk. These investments tend to be more volatile than
investments in large-cap companies. In addition, small-cap companies may
have more risk because they often have limited product lines, markets, or
financial resources. Also, the market for small-cap stocks may be less
liquid. Loss of money is a risk of investing in the Fund.
OTHER CONSIDERATIONS
DERIVATIVES
The Funds may use certain derivative instruments, such as options, swap
agreements, interest rate caps, collars, and floors, and futures contracts
to manage risk. Derivatives are financial contracts whose value depends on,
or is derived from, the value of an underlying asset, reference rate, or
index. In addition to other risks, derivatives involve the risk of
difficulties in pricing and valuation and the risk that changes in the
value of a derivative may not correlate perfectly with relevant assets,
rates, or indices.
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 achieve its investment objective.
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
Certain computer systems may not process date-related information properly
on and after January 1, 2000. The Adviser is addressing this matter for its
systems. The Funds' other service providers have informed the Funds that
they are taking similar measures. Investments in foreign companies are
particularly vulnerable to Year 2000 risk because these companies may not
have the financial resources, technology, or personnel needed to address
Year 2000 readiness concerns. This matter, if not corrected, could
adversely affect the services provided to the Funds or the issuers in which
the Funds invest and could, therefore, lower the value of your Fund shares.
MANAGEMENT OF THE FUNDS
INVESTMENT ADVISORY SERVICES
NORWEST INVESTMENT MANAGEMENT, INC. or NIM, which is now a wholly-owned
subsidiary of Wells Fargo & Company, Norwest Center, Sixth Street and
Marquette, Minneapolis, MN 55479, is the investment adviser for each Fund
and each Portfolio. In this capacity, NIM makes investment decisions for
and administers the Funds' and Portfolios' investment programs. As of June
30, 1999, NIM provided advisory services for over $24 billion in assets.
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, 800 LaSalle Ave., Suite
2060, Minneapolis, MN 55479, is an investment advisory subsidiary of
Norwest Bank and provides investment advisory services to bank and thrift
institutions, pension and profit sharing plans, trusts and charitable
organizations, and corporate and other business entities. As of June 30,
1999, Galliard provided advisory services for over $5.4 billion in assets.
SMITH ASSET MANAGEMENT GROUP, L.P. or SMITH, 300 Crescent Court, Suite 750,
Dallas, TX 75201, is an investment advisory affiliate of Norwest Bank and
provides investment management services to company retirement plans,
foundations, endowments, trust companies, and high net worth individuals
using a disciplined equity style. As of June 30, 1999, Smith provided
advisory services for over $895 million in assets.
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.
For these services for the fiscal year ended May 31, 1999, the Funds paid:
Fee as a percentage of
FUND AVERAGE DAILY NET ASSETS
Performa Strategic Value Bond Fund 0.50%
Performa Disciplined Growth Fund 0.90%
Performa Small Cap Value Fund 0.95%
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. Descriptions of the portfolio managers'
recent experience follow the list of portfolio managers.
PERFORMA STRATEGIC VALUE BOND FUND
<TABLE>
<S> <C>
PORTFOLIO: STRATEGIC VALUE BOND PORTFOLIO
SUBADVISER: GALLIARD
PORTFOLIO MANAGERS: Richard Merriam, CFA (1997), John Huber (1998), and David Yim (1998).
</TABLE>
PERFORMA DISCIPLINED GROWTH FUND
<TABLE>
<S> <C>
PORTFOLIO: DISCIPLINED GROWTH PORTFOLIO
SUBADVISER: SMITH
PORTFOLIO MANAGER: Stephen S. Smith, CFA (1997).
</TABLE>
PERFORMA SMALL CAP VALUE FUND
<TABLE>
<S> <C>
PORTFOLIO: SMALL CAP VALUE PORTFOLIO
SUBADVISER: SMITH
PORTFOLIO MANAGER: Stephen S. Smith, CFA (1997).
</TABLE>
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.
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.
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.
PERFORMANCE OF HISTORICAL ACCOUNTS
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 for Norwest or another firm that have substantially the same
investment objectives, policies and strategies. 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.
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>
MR. SMITH'S COMPOSITE FOR THE S&P 500 INDEX(3)
DISCIPLINED GROWTH STYLE(2) ----------------
-----------------------------
<S> <C> <C>
1995 38.05% 37.54%
1996 31.26% 22.99%
1997 39.20% 33.34%
1998 19.70% 28.57%
1999 to Date(1) 5.15% 8.28%
1 Year(1) 33.04% 39.77%
3 Years(1) 26.43% 28.55%
Since Inception 28.90% 27.79%
1/1/95(1)
MR. SMITH'S COMPOSITE FOR THE RUSSELL 2000(4)
SMALL CAP VALUE STYLE ---------------
-----------------------------
<S> <C> <C>
1997 22.38% 22.36%
1998 (1.96%) (2.55%)
1999 to Date(1) (3.61%) 2.35%
1 Year 15.66% 28.56%
Since Inception 9.75% 9.82%
11/1/96(1)
<FN>
(1) Average annual return through August 31, 1999. 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, 1999 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. Mr. Smith was
primarily responsible for the performance of the accounts, and no
other person played a significant part in achieving the prior
performance of these accounts during Mr. Smith's tenure. The data for
January 1, 1995 - October 31, 1995 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.
</FN>
</TABLE>
HOW TO BUY AND SELL SHARES
DETERMINATION OF NET ASSET VALUE
Each Fund determines its net asset value or NAV at 4:00 p.m., Eastern Time,
on each Fund business day, which is any day the New York Stock Exchange, or
NYSE, is open, 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 NAV.]
For purposes of determining NAV, 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.
You may purchase Fund shares on Fund business days at a price equal to
their NAV next determined after receipt of your purchase order.
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. Not all Funds offered in this prospectus are available for
purchase in all states. Please contact the Funds or your financial
representative for information about whether a Fund is available in your
state.
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 NAV 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 NAV
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 NYSE 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 NAV;
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 NAV
of less than $1,000.
<PAGE>
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.
o 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.
o Under the Cash Option, you are paid all distributions in cash.
o 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 NAV 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. 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 NAV 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.]
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand each Fund's
financial performance. Total return in the table represents the rate that an
investor would have earned (or lost) on an investment in a Fund (assuming
reinvestment of all distributions). The information has been audited by KPMG
LLP, independent auditors. Each Fund's financial statements and the auditor's
reports, are included in the Fund's Annual Report, which is available upon
request, at no charge. These financial statements are incorporated by reference
into the SAI.
<TABLE>
Net Realized Distributions From
---------------------------
Net Asset and Total Ending
Value, Net Unrealized From Net Net Realized Net Asset
Beginning Investment Gain (Loss) Investment Investment Gain From Value Per
of
Period (a) Income(Loss) on Operations Income Investments Share
Investments
- ----------------------------------------------------------------------------------------------------------------------------------
PERFORMA STRATEGIC VALUE BOND FUND
<S> <C> <C> <C> <C> <C> <C> <C>
Year Ended May 31, 1999 $10.28 $0.59 ($0.26) $0.33 ($0.60) -- $10.01
Year Ended May 31, 1998 $10.00 $0.34 $0.27 $0.61 ($0.33) -- $10.28
PERFORMA DISCIPLINED GROWTH FUND
Year Ended May 31, 1999 $10.44 ($0.01) $0.98 $0.97 -- -- $11.41
Year Ended May 31, 1998 $10.00 $0.01 $0.44 $0.45 ($0.01) -- $10.44
PERFORMA SMALL CAP VALUE FUND
Year Ended May 31, 1999 $10.16 ($0.03) ($2.08) ($2.11) -- (0.01) $8.04
Year Ended May 31, 1998 $10.00 ($0.01) $0.17 $0.16 -- -- $10.16
Ratio to Average Net Assets (b)(c)
----------------------------------------------------
Net Portfolio Net Assets
at
Investment Net Gross Total Turnover End of
Period
Income Expenses Expenses(d) Return(e) Rate(f) (000's
(Loss) Omitted)
- ----------------------------------------------------------------------------------------------------------------------
PERFORMA STRATEGIC VALUE BOND FUND
<S> <C> <C> <C> <C> <C> <C>
Year Ended May 31, 1999 5.77% 0.85% 1.28% 3.21% 48.43% $9,722
Year Ended May 31, 1998 5.82% 0.85% 1.95% 6.20% 134.56% $9,168
PERFORMA DISCIPLINED GROWTH FUND
Year Ended May 31, 1999 (0.14%) 1.25% 1.45% 9.29% 90.39% $54,307
Year Ended May 31, 1998 0.14% 1.25% 2.44% 4.50% 68.08% $12,325
PERFORMA SMALL CAP VALUE FUND
Year Ended May 31, 1999 (0.46%) 1.30% 1.72% (20.77%) 107.50% $16,791
Year Ended May 31, 1998 (0.56%) 1.30% 3.54% 1.60% 79.43% $6,422
- ----------------------------------------------------------------------------
<FN>
(a) Each Fund commenced operations on October 15, 1997.
(b) Annualized.
(c) Includes expenses allocated from the Portfolio(s) in which the Fund invests.
(d) The ratio of Gross Expenses to Average Net Assets does not reflect fee
waivers or expense reimbursements. (e) Total return would have been lower absent
expense reimbursements and/or fee waivers.
(f) Represents the activity of the Portfolio in which the Fund invests.
</FN>
</TABLE>
<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, or
make inquiries concerning the Funds, 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. The scheduled hours of
operation of the Public Reference Room may be obtained by calling the SEC at
1-800-SEC-0330. Free copies of the reports and SAIs are available from the SEC's
Internet website at http://www.sec.gov.
The SEC's Investment Company Act file number for the Funds is 811-4881.
NORWEST ADVANTAGE FUNDS
PROSPECTUS
October 1, 1999
NORWEST WEALTHBUILDER II GROWTH BALANCED PORTFOLIO
NORWEST WEALTHBUILDER II GROWTH AND INCOME PORTFOLIO
NORWEST WEALTHBUILDER II GROWTH PORTFOLIO
AN INVESTMENT IN A PORTFOLIO 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.
THE BOARD OF TRUSTEES AND THE SHAREHOLDERS OF THE NORWEST ADVANTAGE FUNDS HAVE
APPROVED A REORGANIZATION OF THE FUNDS WITH THE STAGECOACH FUNDS ADVISED BY
WELLS FARGO BANK, N.A. THE BOARD OF DIRECTORS AND SHAREHOLDERS OF STAGECOACH
FUNDS ALSO HAVE APPROVED THE REORGANIZATION. THIS COMBINATION OF MUTUAL FUND
FAMILIES FOLLOWS THE MERGER OF WELLS FARGO & COMPANY AND NORWEST CORPORATION.
EACH OF THE NORWEST ADVANTAGE FUNDS AND THE STAGECOACH FUNDS WILL REORGANIZE
INTO A NEW PORTFOLIO OF WELLS FARGO FUNDS TRUST. THE REORGANIZATION IS PENDING
AND WILL BE COMPLETED AS SOON AS REASONABLY PRACTICABLE.
THE U.S. SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
RISK/RETURN SUMMARY......................................................
FEES AND EXPENSES OF THE PORTFOLIOS......................................
INVESTMENT OBJECTIVES STRATEGIES AND RISK CONSIDERATIONS.................
Investment Objectives and Strategies................................
Risk Considerations.................................................
MANAGEMENT OF THE PORTFOLIOS.............................................
HOW TO BUY AND SELL SHARES...............................................
How the Portfolios Value Their Shares...............................
How to Buy Shares...................................................
How to Sell Shares..................................................
Other Shareholder Services..........................................
DIVIDENDS AND TAX MATTERS................................................
FINANCIAL HIGHLIGHTS.....................................................
ii
<PAGE>
RISK/RETURN SUMMARY
The following is a summary of certain key information about the Portfolios. You
will find additional information about the Portfolios after this summary.
OBJECTIVES AND PRINCIPAL STRATEGIES
Growth Balanced Portfolio seeks a balance of capital appreciation and income.
The Portfolio invests in other mutual funds or Underlying Funds, which include a
mixture of stock, bond, and money market funds. For growth potential, the
Portfolio invests from 50% to 85% of its assets in stock funds, which may invest
in domestic or foreign stocks and in companies with a range of capitalizations.
For income production, decreased volatility, and increased price stability, the
Portfolio invests 20% to 50% of its assets in bond funds with a range of credit
quality. The Portfolio also invests 0% to 3% of its assets in money market
funds. The Portfolio allocates investments among the Underlying Funds based on
market conditions and fundamental analyses of asset classes.
Growth and Income Portfolio seeks long-term capital appreciation with a
secondary emphasis on income. The Portfolio primarily invests in a mixture of
stock funds emphasizing funds that invest in large companies, with smaller
investments in small company and international funds.
Growth Portfolio seeks long-term capital appreciation. The Portfolio invests in
a mixture of stock funds devoting more of its assets to funds that invest in
large companies. Depending on market conditions, the Portfolio also expects to
invest a significant portion of its assets in each of stock funds that invest in
small companies and international funds.
PRINCIPAL RISKS
All of the Portfolios have allocation risk. This is the risk that the allocation
of investments may have a more significant effect on a Portfolio's net asset
value when one Underlying Fund is performing more poorly than the others. All of
the Portfolios invest in Underlying Funds that invest in equity securities.
These investments are subject to market risk, which is the risk that stock
prices will fluctuate and can decline and reduce the value of an Underlying
Fund's investment portfolio. The Growth and Income Portfolio and the Growth
Portfolio invest more of their assets in Underlying Funds that invest in small
and foreign companies. These investments have:
o Small-Cap Risk. This is the risk of investments in small-capitalization, or
small-cap, companies. These investments tend to be more volatile than
investments in large-cap companies. In addition, small-cap companies may
have more risk because they often have limited product lines, markets, or
financial resources. Also, the market for small-cap stocks may be less
liquid.
o Foreign Risk. This is the risk of investments in issuers located in foreign
countries, which may have greater price volatility and less liquidity.
Investments in foreign securities also are subject to political,
regulatory, and diplomatic risks. Foreign risk includes currency risk,
which may occur due to fluctuations in the exchange rates between the U.S.
dollar and foreign currencies. This risk could negatively affect the value
of an Underlying Fund's investments.
Because the Growth Balanced Fund invests a significant amount of its assets in
debt securities, its principal risks include:
o Credit Risk: This is the risk that an issuer of an instrument will be
unable to make interest payments or repay principal. Changes in the
financial strength of an issuer or changes in the credit rating of a
security may affect its value.
o Interest Rate Risk: This is the risk that changes in interest rates will
affect the value of an Underlying Fund's investments. Increases in interest
rates may cause the value of an Underlying Fund's investments to decline.
ANOTHER IMPORTANT THING FOR YOU TO NOTE. You may lose money by investing in the
Portfolios.
3
<PAGE>
BAR CHART AND PERFORMANCE INFORMATION
For each Portfolio, the bar chart shows the Portfolio's annual total returns and
the performance table shows the Portfolio's average annual total returns. The
bar chart and performance table provide an indication of the historical risk of
an investment in each Portfolio by showing:
o changes in the Portfolio's performance over the life of the Portfolio; and
o how the Portfolio's average annual total returns for one year and the life
of the Portfolio, compare to those of a broad-based index.
A Portfolio's past performance does not necessarily indicate how it will perform
in the future.
GROWTH BALANCED PORTFOLIO
[EDGAR Representation of Bar Chart]
Annual Total Return
1998 15.21%
The calendar year-to-date total return as of June 30, 1999 was
6.62%.
During the periods shown in the chart, the highest quarterly return was 17.55%
(for the quarter ended December 31, 1998) and the lowest quarterly return was
- -9.73% (for the quarter ended September 30, 1998).
The following table compares the Portfolio's average annual total returns as of
December 31, 1998 to the Standard & Poor's 500 Index, or the S&P 500 Index.
<TABLE>
<S> <C> <C>
NORWEST WEALTHBUILDER II GROWTH S&P 500
YEAR(S) BALANCED PORTFOLIO INDEX
1 Year 13.48% 28.58%
Since Inception (10/1/97) 11.21% 25.03%(1)
</TABLE>
(1) For the period 9/30/97 - 12/31/98.
The S&P 500 Index is a widely recognized index of common stock. The S&P 500
Index figures assume reinvestment of all dividends paid by stocks included in
the index. Unlike the performance figures of the Portfolio, the S&P 500 Index's
performance does not reflect the effect of expenses. The index is unmanaged and
is not available for investment.
4
<PAGE>
GROWTH AND INCOME PORTFOLIO
[EDGAR Representation of Bar Chart]
Annual Total Return
1998 14.68%
The calendar year-to-date total return as of June 30, 1999 was
11.67%.
During the periods shown in the chart, the highest quarterly return was 20.03%
(for the quarter ended December 31, 1998) and the lowest quarterly return was
- -15.12% (for the quarter ended September 30, 1998).
The following table compares the Portfolio's average annual total returns as of
December 31, 1998 to the S&P 500 Index.
<TABLE>
<S> <C> <C>
NORWEST WEALTHBUILDER II GROWTH S&P 500
YEAR(S) AND INCOME PORTFOLIO INDEX
1 Year 12.96% 28.58%
Since Inception (10/1/97) 9.14% 25.03%(1)
</TABLE>
(1) For the period 9/30/97 - 12/31/98.
The S&P 500 Index is a widely recognized index of common stock. The S&P 500
Index figures assume reinvestment of all dividends paid by stocks included in
the index. Unlike the performance figures of the Portfolio, the S&P 500 Index's
performance does not reflect the effect of expenses. The index is unmanaged and
is not available for investment.
5
<PAGE>
GROWTH PORTFOLIO
[EDGAR Representation of Bar Chart]
Annual Total Return
1998 21.00%
The calendar year-to-date total return as of June 30, 1999 was
11.71%.
During the periods shown in the chart, the highest quarterly return was 23.73%
(for the quarter ended December 31, 1998) and the lowest quarterly return was
- -13.49% (for the quarter ended September 30, 1998).
The following table compares the Portfolio's average annual total returns as of
December 31, 1998 to the S&P 500 Index.
<TABLE>
<S> <C> <C>
NORWEST WEALTHBUILDER II GROWTH S&P 500
YEAR(S) PORTFOLIO INDEX
1 Year 19.19% 28.58%
Since Inception (10/1/97) 14.86% 25.03%(1)
</TABLE>
(1) For the period 9/30/97 - 12/31/98.
The S&P 500 Index is a widely recognized index of common stock. The S&P 500
Index figures assume reinvestment of all dividends paid by stocks included in
the index. Unlike the performance figures of the Portfolio, the S&P 500 Index's
performance does not reflect the effect of expenses. The index is unmanaged and
is not available for investment.
6
<PAGE>
FEES AND EXPENSES OF THE PORTFOLIOS
The following tables describe the fees and expenses that you will pay if you
invest in a Portfolio. The tables do not reflect the operating expenses and
investment advisory fees of the Underlying Funds.
SHAREHOLDER FEES
(fees paid directly from your investment)
<TABLE>
<S> <C> <C> <C>
NORWEST NORWEST NORWEST
WEALTHBUILDER II WEALTHBUILDER WEALTHBUILDER
GROWTH BALANCED II GROWTH AND II
PORTFOLIO INCOME PORTFOLIO GROWTH
PORTFOLIO
Maximum Sales Charge (Load) Imposed on Purchases (as 1.50% 1.50% 1.50%
a percentage of offering price)
Maximum Deferred Sales Charge (Load)
(as percentage of the lower of the Net Asset Value None None None
("NAV") at purchase or the NAV at redemption)
ANNUAL PORTFOLIO OPERATING EXPENSES (1)
(expenses that are deducted from Portfolio assets)
NORWEST NORWEST NORWEST
WEALTHBUILDER II WEALTHBUILDER II WEALTHBUILDER II
GROWTH BALANCED GROWTH AND GROWTH
PORTFOLIO INCOME PORTFOLIO PORTFOLIO
Investment Advisory Fees 0.35% 0.35% 0.35%
Distribution (12b-1) Fees 0.75% 0.75% 0.75%
Other Expenses 0.75% 0.85% 0.90%
Total Annual Portfolio Operating Expenses (2) 1.85% 1.95% 2.00%
</TABLE>
(1) Based on amounts incurred during each Portfolio's fiscal year ended May 31,
1999 stated as a percentage of net assets.
(2) The Portfolios are subject to voluntary fee waivers and expense
reimbursements that reduce the operating expenses of the Portfolios. See
the Financial Highlights table for information about portfolio expenses net
of fee waivers and expense reimbursements.
EXAMPLES OF EXPENSES
These examples are intended to help you compare the cost of investing in a
Portfolio with the cost of investing in other mutual funds. The examples assume
that you invest $10,000 in a Portfolio for the time periods indicated, that your
investment has a 5% annual return, that the Portfolio's operating expenses
remain the same, that distributions are reinvested, and that you redeem your
shares at the end of each period. Your actual costs may be higher or lower than
those shown.
- ------------------- ----------------- ---------------- -----------------
Growth Balanced Growth and
Portfolio Income Growth
Portfolio Portfolio
- ------------------- ----------------- ---------------- -----------------
----------------- ---------------- -----------------
- -------------------
----------------- ---------------- -----------------
1 YEAR $335 $345 $350
- ------------------- ----------------- ---------------- -----------------
3 YEARS 723 753 768
- ------------------- ----------------- ---------------- -----------------
5 YEARS 1,136 1,186 1,212
- ------------------- ----------------- ---------------- -----------------
10 YEARS 2,287 2,391 2,442
- ------------------- ----------------- ---------------- -----------------
7
<PAGE>
INVESTMENT OBJECTIVES, STRATEGIES AND RISK CONSIDERATIONS
This section of the prospectus provides a more complete description of the
investment objectives and principal strategies and risks of investing in the
Portfolios. There can be no assurance that any Portfolio or Underlying Fund will
achieve its investment objective.
OBJECTIVES
Growth Balanced Portfolio seeks a balance of capital appreciation and income.
Growth and Income Portfolio seeks long-term capital appreciation with a
secondary emphasis on income.
Growth Portfolio seeks capital appreciation.
INVESTMENT STRATEGIES
GENERAL
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, or Underlying Funds. The Underlying Funds
typically have different investment objectives and different investment styles.
The Portfolios may hold an investment portfolio of stock funds, for growth
potential, and bond and money market funds, for income production, 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.
In selecting investments, 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, and money market
instruments. 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.
GROWTH BALANCED PORTFOLIO
PRINCIPAL STRATEGIES. The Portfolio's primary strategy is to allocate your
investment among different asset classes and fund managers and reduce the risks
of your investment. The Portfolio invests in stock funds for growth potential
and in bond and money market funds for income production, decreased volatility
and increased price stability. The Portfolio invests 50% to 85% of its assets in
Underlying Funds that are stock funds. These stock funds may invest in domestic
or foreign stocks and in companies with a range of capitalizations. The Fund
also may invest from 20% to 50% of its assets in bond funds with a range of
credit quality and 0%-3% of its assets in money market funds. The Portfolio
invests at least 25% of its total assets in bonds, money market funds, and debt
securities.
The following chart indicates the Portfolio's market-neutral position and range
of investment in different types of Underlying Funds. The amount the 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 Portfolio's investment adviser rebalances the
Portfolio when its asset allocation deviates by five percent from the target
allocation.
8
<PAGE>
NEUTRAL POSITION INVESTMENT RANGE
- -------------------- ------------------------- --------------------------
Stock Funds 65.00% 50%-80%
Bond Funds 33.50% 20%-50%
Money Market Funds 1.50% 0%-3%
PRINCIPAL RISKS. The Portfolio's principal risks include:
o Market Risk. This is the risk that the value of an Underlying Fund's
investments will fluctuate as the stock or bond markets fluctuate and that
prices overall will decline over short or longer-term periods.
o Interest Rate Risk. This is the risk that changes in interest rates will
affect the value of a Portfolio's investments, particularly those
investments in Underlying Funds that invest in debt or income-producing
securities. Increases in interest rates may cause the value of an
Underlying Fund's investments to decline.
o Credit Risk. This is the risk that the issuer of a security will be unable
to make timely payments of interest or principal or to otherwise honor its
obligations.
o Allocation Risk. This is the risk that the allocation of investments may
have a more significant effect on a Portfolio's net asset value when one
Underlying Fund is performing more poorly than the others.
To the extent the Underlying Funds invest in small companies or international
companies, the Portfolio's risks include:
o Small-Cap Risk. This is the risk of investments in small-cap companies.
These investments tend to be more volatile than investments in large-cap
companies. In addition, small-cap companies may have more risk because they
often have limited product lines, markets, or financial resources. Also,
the market for small-cap stocks may be less liquid.
o Foreign Risk. This is the risk of investments in issuers located in foreign
countries, which may have greater price volatility and less liquidity.
Investments in foreign securities also are subject to political,
regulatory, and diplomatic risks. Foreign risk includes currency risk,
which may occur due to fluctuations in the exchange rates between the U.S.
dollar and foreign currencies.
GROWTH AND INCOME PORTFOLIO
PRINCIPAL STRATEGIES. The Portfolio's primary strategy is to allocate your
investment among different stock funds for growth potential and to reduce the
risk of your investment. The Portfolio invests 97%-100% of its assets in stock
funds. The Portfolio emphasizes investments in funds that invest in domestic
large companies and invests 50%-90% of its assets in these funds. These
companies have a market capitalization in excess of $1.5 billion. Many of these
companies stocks are included in the S&P Index.
The Portfolio also may invest 5%-30% of its assets in each of stock funds that
invest in domestic small companies and international companies. Small company
stock funds invest in companies with market capitalizations of less than $1.5
billion. The Portfolio also invests 0%-3% of its assets in money market funds.
The following chart indicates the Portfolio's market-neutral position and range
of investment in different types of Underlying Funds. The amount the Portfolio
has invested in stock 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 Portfolio's investment adviser rebalances the Portfolio when
its asset allocation deviates by five percent from the target allocation.
9
<PAGE>
NEUTRAL POSITION INVESTMENT RANGE
- ------------------------------ --------------------- -----------------------
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%
PRINCIPAL RISKS. The Portfolio's principal risks include:
o Market Risk. This is the risk that the value of an Underlying Fund's
investments will fluctuate as the stock or bond markets fluctuate and that
prices overall will decline over short or longer-term periods.
o Allocation Risk. This is the risk that the allocation of investments may
have a more significant effect on a Portfolio's net asset value when one
Underlying Fund is performing more poorly than the others.
For its investments in Underlying Funds that invest in small companies or
international companies, the Portfolio's risks include:
o Small-Cap Risk. This is the risk of investments in small-cap companies.
These investments tend to be more volatile than investments in large-cap
companies. In addition, small-cap companies may have more risk because they
often have limited product lines, markets, or financial resources. Also,
the market for small-cap stocks may be less liquid.
o Foreign Risk. This is the risk of investments in issuers located in foreign
countries, which may have greater price volatility and less liquidity.
Investments in foreign securities also are subject to political,
regulatory, and diplomatic risks. Foreign risk includes currency risk,
which may occur due to fluctuations in the exchange rates between the U.S.
dollar and foreign currencies. These risks are greater for international
funds that invest in emerging market countries.
GROWTH PORTFOLIO
Principal Strategies. THE PORTFOLIO'S PRIMARY STRATEGY IS TO ALLOCATE YOUR
investment among different stock funds for growth potential and reduce the risk
of your investment. The Portfolio invests 97%-100% of its assets in stock funds.
The Portfolio may invest 25%-81% of its assets in funds that invest in domestic
large companies. These companies have a market capitalization in excess of $1.5
billion. Many of these companies stocks are included in the S&P Index.
Depending on market factors, the Portfolio expects to have significant
investments in stock funds that invest in domestic small companies (5%-45%) and
international companies (10%-50%). Small company stock funds invest in companies
with market capitalizations of less than $1.5 billion. The Portfolio also
invests 0%-3% of its assets in money market funds.
The following chart indicates the Portfolio's market-neutral position and range
of investment in different types of Underlying Funds. The amount the Portfolio
has invested in stock 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 Portfolio's investment adviser rebalances the Portfolio when
its asset allocation deviates by five percent from the target allocation.
NEUTRAL POSITION INVESTMENT RANGE
- ------------------------------ --------------------- -----------------------
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%
10
<PAGE>
PRINCIPAL Risks. The Portfolio's principal risks include:
o Market Risk. This is the risk that the value of an Underlying Fund's
investments will fluctuate as the stock or bond markets fluctuate and that
prices overall will decline over short or longer-term periods.
o Allocation Risk. This is the risk that the allocation of investments may
have a more significant effect on a Portfolio's net asset value when one
Underlying Fund is performing more poorly than the others.
For its investments in Underlying Funds that invest in small companies or
international companies, the Portfolio has:
o Small-Cap Risk. This is the risk of investments in small-cap companies.
These investments tend to be more volatile than investments in large-cap
companies. In addition, small-cap companies may have more risk because they
often have limited product lines, markets, or financial resources. Also,
the market for small-cap stocks may be less liquid.
o Foreign Risk. This is the risk of investments in issuers located in foreign
countries, which may have greater price volatility and less liquidity.
Investments in foreign securities also are subject to political,
regulatory, and diplomatic risks. Foreign risk includes currency risk,
which may occur due to fluctuations in the exchange rates between the U.S.
dollar and foreign currencies.
OTHER CONSIDERATIONS
PORTFOLIO TURNOVER. From time to time, a Portfolio may engage in active
short-term trading to take advantage of price movements affecting individual
issues, groups of issues, markets, or Underlying Funds. 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
Portfolio's portfolio turnover rate.
YEAR 2000. Certain computer systems may not process date-related information
properly on and after January 1. 2000. The investment adviser is addressing this
matter for its systems. The Portfolios' other service providers have informed
the Portfolios that they are taking similar measures. Investments in foreign
companies are particularly vulnerable to Year 2000 risk because these companies
may not have the financial resources, technology, or personnel needed to address
Year 2000 readiness concerns. This matter, if not corrected, could adversely
affect the services provided to the Portfolios or the issues in which the
Portfolios invest and could therefore, lower the value of your Portfolio shares.
MANAGEMENT OF THE PORTFOLIOS
INVESTMENT ADVISORY SERVICES. Norwest Investment Management, Inc. or NIM, which
is now a wholly-owned subsidiary of Wells Fargo & Company, Norwest Center, Sixth
Street and Marquette, Minneapolis, MN 55479, is the investment adviser for each
Portfolio. In this capacity, NIM makes investment decisions for the Portfolios
and continuously reviews and determines the allocation of the assets of the
Portfolios among the Underlying Funds. As of June 30, 1999, NIM provided
advisory services for over $24 billion in assets. For its services, the
Portfolios paid NIM investment advisory and allocation fees of 0.35% as a
percentage of 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 is primarily responsible for day-to-day
management and allocation services and has been since the inception of each
Portfolio. Mr. Blomster has been employed by Norwest since 1977.
OTHER FUND SERVICES. The Forum Financial Group of companies provide managerial,
administrative, and underwriting services to the Portfolios. Norwest Bank acts
as the Portfolios' transfer agent, dividend disbursing agent, and custodian.
11
<PAGE>
HOW TO BUY AND SELL SHARES
HOW THE PORTFOLIOS VALUE THEIR SHARES
The Portfolios determine the net asset value or NAV of their shares as of 4:00
p.m., Eastern time, on each Portfolio business day, which is any day the New
York Stock Exchange, or the NYSE, is open, 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 NAV on Portfolio business
days.
The Underlying Funds are valued at their respective NAVs 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 affects 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 NAV.
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.
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 an U.S. bank), by bank or federal funds wire
transfer, or by Automatic Clearing House (ACH) electronic bank transfer; cash
cannot be accepted. Not all Portfolios offered in this prospectus are available
for purchase in all states. Please contact the Portfolios or your financial
representative for information about whether a Portfolio is available in your
state.
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 1.50%.
Purchase orders received by the transfer agent prior to the close of regular
trading on the NYSE on any Portfolio business day are priced at the NAV
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 NAV 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.
DISTRIBUTION PLAN. The Trust has adopted a plan under SEC Rule 12b-1 that allows
the Portfolios to pay asset-based sales charges or distribution fees in
connection with the distribution of their shares. The Portfolios pay these fees
as monthly payments in the amount of up to 0.75% as a percent of aggregate
average daily net assets. Because these fees are paid out of a Portfolio's
assets on an on-going basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales fees.
12
<PAGE>
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 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:
SALES CHARGE
AS A PERCENTAGE OF
-------------------------------------------
AMOUNT OF PURCHASE OFFERING PRICE NET ASSET VALUE
$25,000 up to $250,00 1.5% 1.52%
$250,000 up to $500,000 1.25% 1.27%
$500,000 up to 1,000,000 1.00% 1.01%
Over $1,000,000 0.75% 0.76%
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.
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.
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.
13
<PAGE>
2. BY BANK WIRE. You may make an initial investment in a Portfolio using
the wire system for transmittal of money among banks. You should first
telephone the transfer agent at (612) 667-8833 or (800) 338-1348 to
obtain an account number.
You then should instruct your bank to wire the money immediately to:
By Wire to: State Street Bank & Trust
Boston, MA
ABA 011000028
FNF: (Norwest Advantage Fund name]
AC: 9905-434-8
For Further Credit: _____________
(Name on Norwest Advantage Fund Account
and Fund Account Number)
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.
ACCOUNT APPLICATION
You may obtain an account application to open an account by writing the Trust at
the following address:
BY REGULAR MAIL: Norwest Advantage Funds
P.O. Box 8265
Boston, MA 02266-8265
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<PAGE>
BY OVERNIGHT MAIL ONLY TO: Norwest Advantage Funds
Attn: CCSU
Boston Financial
66 Brooks Drive
Braintree, MA 02184
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 NAV 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 NAV 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 NAV 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 NYSE is closed (or when trading thereon is restricted) for any reason other
than its customary weekend or holiday closings, for any period during which an
emergency exists as a result of which disposal by the Portfolio of its portfolio
securities or determination by the Portfolio of the value of its net assets is
not reasonably practicable and for such other periods as the SEC may permit.
REDEMPTION PROCEDURES
If you have invested through a Processing Organization, you may redeem your
shares through the Processing Organization as described above. If you have
invested directly in a Portfolio, you may redeem your shares as described below.
If you wish to redeem shares by telephone or receive redemption proceeds by bank
wire, you must elect these options by properly completing the appropriate
sections of your account application form. These privileges may not be available
until several weeks after your application is received.
1. BY MAIL. You may redeem shares by sending a written request to the
transfer agent. You must sign all written requests for redemption with
signature guaranteed.
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
15
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telephone redemption instruction, the Trust will mail a check to your
record address or, if you have elected wire redemption privileges, wire
the proceeds.
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 NAV is less than $1,000 immediately
following any redemption.
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 Portfolios reserve 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.
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.
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<PAGE>
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.
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. A Portfolio may modify or terminate your automatic investment
plan in the event that the Portfolio is unable to settle any transaction with
your bank. If the Automatic Investment Plan is terminated before your account
totals the Portfolios' minimum investment amount or $25,000, the Portfolios
reserve the right to close your account.
RETIREMENT ACCOUNTS
The Portfolios may be a suitable investment vehicle for part or all of the
assets you hold in Traditional or Roth individual retirement accounts
(collectively, "IRAs"). An IRA account application may be obtained by contacting
the Portfolios 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. 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.
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. A Portfolio 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 your account is closed, provided that the information
on the account application form on file with the Portfolios is still current.
DIVIDEND 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 or to receive dividends and distributions in cash or to
direct dividends and distributions to be reinvested in shares of other
Portfolios. All dividends and distributions are treated in the same manner for
federal income tax purposes whether received in cash or reinvested in shares of
the Portfolios.
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 NAV 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
17
<PAGE>
all dividends and distributions reinvested in shares of another series of the
Portfolio, provided that those shares are eligible for sale in your state of
residence.
TAX MATTERS
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. 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 NAV of the Portfolio paying
the dividend or distribution by the amount of the dividend or distribution. 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.
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 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.
The Portfolios will send you a report about the federal income tax status of
dividends and distributions paid during the year shortly after the close of each
calendar year.
18
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand each Fund's
financial performance. Total return in the table represents the rate that an
investor would have earned (or lost) on an investment in a Fund (assuming
reinvestment of all distributions). The information has been audited by KPMG
LLP, independent auditors. Each Fund's financial statements and the auditor's
reports, are included in the Fund's Annual Report, which is available upon
request, at no charge. These financial statements are incorporated by reference
into the SAI.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Norwest Norwest
WealthBuilder II WealthBuilder II Norwest
Growth Balanced Growth & Income WealthBuilder II
Portfolio Portfolio Growth Portfolio
---------------------- --------------------- ---------------------
For the For the For For the For For the
Year Period the Period the Period
Ended May Ended Year Ended May Year Ended May
31, 1999 May 31, Ended 31, 1998 Ended 31, 1998
1998 May 31, May 31,
1999 1999
Net Asset Value, Beginning of $10.80 $10.00 $10.97 $10.00 $11.01 $10.00
Period(a)
----------- ---------- --------- ----------- --------- -----------
Investment Operations
Net Investment Income (Loss) 0.10 0.07 (0.04) -- (0.07) (0.01)
Net Realized and Unrealized Gain
(Loss) on Investments 1.01 0.76 1.04 0.97 1.71 1.03
--------- -----------
----------- ---------- --------- -----------
Total from Investment Operations 1.11 0.83 1.00 0.97 1.64 1.02
----------- ---------- --------- ----------- --------- -----------
Distributions from
Net Investment Income (0.07) (0.03) (0.01) -- (0.02) (0.01)
Net Realized Gain (0.01) -- -- -- (0.02) --
----------- ---------- --------- ----------- --------- -----------
Total Distributions (0.08) (0.03) (0.01) -- (0.02) (0.01)
----------- ---------- --------- ----------- --------- -----------
Net Asset Value, End of Period $11.83 $10.80 $11.96 $10.97 $12.63 $11.01
=========== ========== ========= =========== ========= ===========
Total Return(b)(c) 10.26% 8.35% 9.11% 9.75% 14.94% 10.17%
Ratio/Supplementary Data
Ratios to Average Net Assets:
Net investment income (d) 1.28% 0.02%(c) (0.38)%(0.41)%(c) (0.84)% (0.50)%(c)
Net Expenses (d) 1.25% 1.25%(c) 1.25% 1.25%(c) 1.25% 1.25%(c)
Gross Expenses (d) 1.85% 2.64%(c) 1.95% 2.90%(c) 2.00% 3.32%(c)
Portfolio Turnover Rate(e) 59.17% 20.20% 31.60% 7.19% 31.21% 15.60%
Net Assets at End of Period (in $23,336 $9,300 $10,657 $8,623 $12,942 $5,695
thousands)
- --------------------------------------- --
</TABLE>
(a) Each of the Portfolios commenced offering C Shares on October 1, 1997.
(b) Total return does not include the effects of sales charges. Total return
would have been lower absent expense reimbursements and/or fee waivers.
(c) Annualized.
(d) These ratios do not include expenses from non-affiliated funds.
(e) Portfolio turnover represents the rate of portfolio activity.
19
<PAGE>
If you would like more information about the Portfolios and their investments,
you may want to read the following documents:
STATEMENT OF ADDITIONAL INFORMATION. A Portfolio's statement of additional
information, or SAI, contains detailed information about the Portfolios, such as
its investments, management, and organization. It is incorporated into this
prospectus by reference.
ANNUAL AND SEMI-ANNUAL REPORTS. Additional Information about each Portfolio's
investments is available in its annual and semi-annual reports to shareholders.
In the annual report, each Portfolio's portfolio manager discusses the market
conditions and investment strategies that significantly affected the Portfolio's
performance during its last fiscal year.
You may obtain free copies of the SAI, annual report, and semi-annual report, or
make inquiries concerning the Portfolios, 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 Portfolios' 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. The scheduled hours of operation of the Public
Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. Free copies
of the reports and SAIs are available from the SEC's Internet website at
http://www.sec.gov.
The SEC's Investment Company Act file number for the Portfolios is 811-4881.
STATEMENT OF ADDITIONAL INFORMATION
October 1, 1999
- --------------------------------------------------------------------------------
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 ValuGrowthSM Stock Fund
Intermediate Government Income Fund Diversified Equity Fund
Diversified Bond Fund Growth Equity Fund
Income Fund Large Company Growth Fund
Total Return Bond Fund 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, 1999
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, 1999, as may be amended from time to time, offering the following
classes of shares of the series of Norwest Advantage Funds: Cash Investment
Fund, Ready Cash Investment Fund (Public Entities Shares, Investor Shares and
Exchange Shares), U.S. Government Fund, Treasury Plus Fund, Treasury Fund,
Municipal Money Market Fund (Institutional Shares and Investor Shares), A
Shares, B Shares and I Shares of Stable Income Fund, I Shares of Limited Term
Government Income Fund, A Shares, B Shares, and I Shares of Intermediate
Government Income Fund, I Shares of Diversified Bond Fund, A Shares, B Shares
and I Shares of Income Fund and Total Return Bond Fund, I Shares of Strategic
Income Fund and Limited Term Tax-Free Fund, A Shares, B Shares and I Shares of
Tax-Free Income Fund and Colorado Tax-Free Fund, I Shares of Minnesota
Intermediate Tax-Free Fund, A Shares, B Shares and I Shares of Minnesota
Tax-Free Fund, I Shares of Moderate Balanced Fund, A Shares B Shares, C Shares
and I Shares of Growth Balanced Fund, I Shares of Aggressive Balanced Equity
Fund and Index Fund, A Shares, B Shares, C Shares and I Shares of Income Equity
Fund, A Shares, B Shares and I Shares of ValuGrowthSM Stock Fund, A Shares, B
Shares, C Shares and I Shares of Diversified Equity Fund and Growth Equity Fund,
A Shares, B Shares and I Shares of Large Company Growth Fund, Diversified Small
Cap Fund, 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.
The financial statements of each Fund for the fiscal year ended May 31, 1999
which are included in the Funds' Annual Report to Shareholders dated May 31,
1999 are incorporated herein by reference. The financial statements of Money
Market Portfolio, Prime Money Market Portfolio, Stable Income Portfolio, Managed
Fixed Income Portfolio, Strategic Value Bond Portfolio, Index Portfolio, Income
Equity Portfolio, Small Company Stock Portfolio, Large Company Growth Portfolio,
Small Company Growth Portfolio and International Portfolio for the fiscal year
ended May 31, 1999 are also incorporated herein by reference. Copies of the
Annual Report may be obtained, without charge, upon request by contacting
Norwest Bank Minnesota, N.A. at the address or telephone number listed above.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE PROSPECTUS.
THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE READ ONLY IN CONJUNCTION WITH
A CORRESPONDING PROSPECTUS, COPIES OF WHICH MAY BE OBTAINED BY AN INVESTOR
WITHOUT CHARGE BY CONTACTING THE DISTRIBUTOR AT THE ADDRESS LISTED ABOVE.
<PAGE>
TABLE OF CONTENTS
1. Introduction 1
Glossary 1
Background Information 3
2. Additional Information Regarding Investments And Strategies 3
General Information 3
Equity Securities 4
Fixed Income Securities 6
General Money Market Fund Guidelines 12
Borrowing 12
Dollar Roll Transactions 13
Repurchase Agreements 13
Reverse Repurchase Agreements 13
Lending Fund Securities 13
When-Issued And Delayed Delivery Securities And Forward Commitme 14
Illiquid Investments 14
Purchases On Margin And Short Sales 15
Options And Futures Contracts 15
Small Cap Opportunities Fund Options And Futures Contracts 17
Foreign Currency Transactions 19
Swaps, Caps, Floors And Collars 20
Temporary Defensive Position 20
3. Risk Considerations 21
Counterparty Risk 21
Emerging Market Securities 21
Fixed Income Securities 21
Foreign Securities 23
Leverage 24
Options And Futures Contracts 25
Small Capitalization Stocks 25
Geographic Concentration 26
Diversification 26
4. Information Concerning Colorado And Minnesota 26
Colorado 27
Minnesota 28
5. Investment Limitations 30
Fundamental Limitations 30
Nonfundamental Limitations 34
6. Performance And Advertising Data 38
General 38
SEC Yield Calculations 39
Total Return Calculations 40
Multiclass, Collective Investment Fund, Common Trust Fund And Core And
Gateway Performance 41
Multiclass Performance 41
Other Advertisement Matters 42
7. Management 43
Trustees And Officers 44
i
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Investment Advisory Services 48
Management And Administrative Services 54
Distribution 57
Transfer Agent 61
Shareholder Servicing Agent 61
Custodian 61
Portfolio Accounting 62
Expenses 63
8. Portfolio Transactions 64
Portfolio Turnover 66
9. Additional Purchase, Redemption And Exchange Information 66
General 66
Money Market Funds 67
Purchases Through Financial Institutions 67
Shareholder Services 67
Purchases Of A Shares 68
Exchanges 70
Redemptions 71
Redemption Charge (A Shares) 72
Redemption Charge And Contingent Deferred Sales Charge (A Shares, B Shares
And C Shares) 73
Conversion Of B Shares And Exchange Shares 73
10. Taxation 73
11. Additional Information About The Trust And The Shareholders Of The Funds75
Determination Of Net Asset Value - Money Market Funds 75
Counsel And Auditors 75
General Information 75
Core And Gateway Structure 77
Banking Law Matters 77
Shareholdings 78
Financial Statements 78
Registration Statement 78
Appendix A - Description Of Securities Ratings A-1
Appendix B - Miscellaneous Tables B-1
Table 1 - Investment Advisory Fees B-1
Table 2 - Management Fees B-5
Table 3 - Distribution Fees B-13
Table 4 - Sales Charges B-15
Table 5 - Accounting Fees B-19
Table 6 - Commissions B-23
Table 7 - 5% Shareholders B-25
Appendix C - Performance Data C-1
Table 1 - Money Market Fund Yields C-1
Table 2 - Yields C-1
Table 3 - Total Returns C-4
Appendix D - Other Advertisement Matters D-1
ii
<PAGE>
1. INTRODUCTION
GLOSSARY
"Adviser" means Norwest, Schroder, Wells Fargo Bank or a Subadviser.
"Board" means the Board of Trustees of the Trust.
"Balanced Fund" means Moderate Balanced Fund, Growth Balanced Fund or
Aggressive Balanced-Equity Fund.
"CFTC" means the U.S. Commodities Futures Trading Commission.
"Code" means the Internal Revenue Code of 1986, as amended.
"Core and Gateway Structure" means a structure in which a Fund invests in
one or more Portfolios.
"Core Trust" means Core Trust (Delaware), an open-end, management
investment company registered under the 1940 Act.
"Core Trust Board" means the Board of Trustees of Core Trust.
"Custodian" means Norwest Bank acting in its capacity as custodian of a
Fund.
"Equity Fund" means Income Equity Fund, Index Fund, ValuGrowth Stock Fund,
Diversified Equity Fund, Growth Equity Fund, Large Company Growth Fund,
Diversified Small Cap Fund, Small Company Stock Fund, Small Cap
Opportunities Fund, Small Company Growth Fund or International Fund.
"FAdS" means Forum Administrative Services, Limited Liability Company, the
Trust's administrator.
"Fitch" means Fitch IBCA, Inc.
"Fixed Income Funds" means Stable Income Fund, Limited Term Government
Income Fund, Intermediate Government Income Fund, Diversified Bond Fund,
Income Fund, Total Return Bond Fund and Strategic Income Fund.
"Forum" means Forum Financial Services, Inc., a registered broker-dealer
that is the Trust's manager and the distributor of the Trust's shares.
"FAcS" means Forum Accounting Services, Limited Liability Company, the
Trust's fund accountant.
"Fund" means each of the thirty-two separate series of the Trust to which
this SAI relates as identified on the cover page.
"Galliard" means Galliard Capital Management, Inc., the investment
subadviser to Stable Income Portfolio, Strategic Value Bond Portfolio,
Managed Fixed Income Portfolio, Stable Income Fund, Diversified Bond Fund,
Strategic Income Fund, Moderate Balanced Fund, Growth Balanced Fund and
Aggressive Balanced-Equity Fund.
"Money Market Fund" means Cash Investment Fund, Ready Cash Investment Fund,
U.S. Government Fund, Treasury Plus Fund, Treasury Fund or Municipal Money
Market Fund.
1
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"Moody's" means Moody's Investors Service.
"Norwest" means Norwest Investment Management, Inc., the investment adviser
to each Fund and each Portfolio except those for which Schroder or Wells
Fargo Bank serves as investment adviser.
"Norwest Bank" means Norwest Bank Minnesota, N.A.
"NRSRO" means a nationally recognized statistical rating organization.
"Peregrine" means Peregrine Capital Management, Inc., the investment
subadviser to Positive Return Bond Portfolio, Small Company Value
Portfolio, Large Company Growth Portfolio, Small Company Growth Portfolio,
Diversified Bond Fund, Strategic Income Fund, Moderate Balanced Fund,
Growth Balanced Fund, Aggressive Balanced-Equity Fund, Diversified Equity
Fund, Growth Equity Fund, Large Company Growth Fund, Diversified Small Cap
Fund and Small Company Growth Fund.
"Portfolio" means Prime Money Market Portfolio, Money Market Portfolio,
Positive Return Bond Portfolio, Stable Income Portfolio, Managed Fixed
Income Portfolio, Strategic Value Bond Portfolio, Index Portfolio, Income
Equity Portfolio, Large Company Growth Portfolio, Disciplined Growth
Portfolio, Small Company Growth Portfolio, Small Company Stock Portfolio,
Small Company Value Portfolio, Small Cap Value Portfolio, Small Cap Index
Portfolio, International Portfolio and International Equity Portfolio,
series of Core Trust, and Schroder U.S. Smaller Companies Portfolio and
Schroder EM Core Portfolio, series of Schroder Core.
"Schroder" means Schroder Investment Management North America Inc., the
investment Adviser to International Portfolio.
"SEC" means the U.S. Securities and Exchange Commission.
"S&P" means Standard & Poor's Ratings Group.
"Smith" means Smith Asset Management Group, L.P., the investment adviser to
Disciplined Growth Portfolio, Small Cap Value Portfolio, Strategic Income
Fund, Moderate Balanced Fund, Growth Balanced Fund, Aggressive
Balanced-Equity Fund, Diversified Equity Fund, Growth Equity Fund and
Diversified Small Cap Fund.
"Stock Index Futures" means futures contracts that relate to broadly based
stock indices.
"Subadviser" means Galliard, Peregrine, Smith and WCM.
"Tax-Free Income Fund" means Limited Term Tax-Free Fund, Tax-Free Income
Fund, Colorado Tax-Free Fund, Minnesota Intermediate Tax-Free Fund or
Minnesota Tax-Free Fund.
"Transfer Agent" means Norwest Bank acting in its capacity as transfer and
dividend disbursing agent of a Fund.
"Trust" means Norwest Advantage Funds.
"U.S. Government Securities" means obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities.
2
<PAGE>
"WCM" means Wells Capital Management Incorporated, a wholly owned
subsidiary of Wells Fargo Bank, N.A. and the investment Subadviser to
International Equity Portfolio.
"Wells Fargo Bank" means Wells Fargo Bank, N.A., a wholly owned subsidiary
of Wells Fargo & Company, a national bank holding company, and the
investment Adviser to International Equity Portfolio..
"1933 Act" means the Securities Act of 1933, as amended.
"1940 Act" means the Investment Company Act of 1940, as amended.
BACKGROUND INFORMATION
The Trust was originally organized under the name "Prime Value Funds, Inc." as a
Maryland corporation on August 29, 1986. On July 30, 1993, Prime Value Funds,
Inc. was reorganized as a Delaware business trust under the name "Norwest
Funds." The Trust is currently named "Norwest Advantage Funds." Norwest, a
subsidiary of Norwest Bank, is each Fund's investment adviser.
Norwest also is the investment adviser of each Portfolio except those for which
Schroder or Wells Fargo Bank serves as investment adviser.
Norwest and Wells Fargo Bank employ the Subadvisers to subadvise certain of the
Funds and Portfolios. Norwest Bank, a subsidiary of Wells Fargo & Company, is
the Trust's transfer agent, dividend disbursing agent and custodian. Forum
serves as the Trust's manager and as distributor of the Trust's shares. FAdS
serves as the Trust's administrator.
Each of the following Funds invests all its investable assets in a Portfolio
with substantially similar investment objectives and policies: Ready Cash
Investment Fund, Stable Income Fund, Total Return Bond Fund, Index Fund, Income
Equity Fund, Large Company Growth Fund and Small Company Growth Fund.
Each of the following Funds invests all of its investable assets in multiple
Portfolios with different investment policies: Cash Investment Fund, Diversified
Bond Fund, Strategic Income Fund, Moderate Balanced Fund, Growth Balanced Fund,
Aggressive Balanced-Equity Fund, Diversified Equity Fund, Growth Equity Fund,
Diversified Small Cap Fund and International Fund. The percentage of each of
these Fund's (except Cash Investment Fund's) assets invested in each Portfolio
may be changed at any time in response to market or other conditions.
Allocations are made within specified ranges as described in each Fund's
prospectus under "Investment Objectives and Policies."
The other Funds invest directly in portfolio securities.
Each Fund that invest in one or more Portfolios bears its pro rata share of the
expenses of the Portfolio(s) in which it invests.
2. ADDITIONAL INFORMATION REGARDING INVESTMENTS AND STRATEGIES
GENERAL INFORMATION
This section discusses in greater detail than the prospectus certain of the
investments the Funds may make. A Fund will make only those investments
described below that are in accordance with its investment objectives and
policies. If a Fund that invests in one or more Portfolios is described below as
being able to make a certain type of investment, the Fund makes that type of
investment through the Portfolio or Portfolios.
Each Fund's investment objective and all its investment policies that are
designated as fundamental may not be changed without approval by the lesser of:
(1) more than 50% of the outstanding shares of the Fund; or (2) 67% or more of
3
<PAGE>
the shares present or represented at an investors' meeting, if more than 50% of
the outstanding shares of the Fund are present or represented at the meeting in
person or by proxy. A Fund may change any other investment policy upon
appropriate notice to investors.
EQUITY SECURITIES
Equity securities include common stock, preferred stock, convertible securities,
warrants, depository receipts, shares of closed-end investment companies and
equity-related securities. The market value of all securities, particularly
equity securities, is based upon the market's perception of value and not
necessarily the book value of an issuer or other objective measure of a
company's worth. Overall economic and market conditions also impact an equity
security's price. The market value of an equity security also may fluctuate
based on changes in a company's financial condition. It is possible that a Fund
may experience a substantial or complete loss on an individual equity
investment.
Equity securities owned by a Fund may be traded on a securities exchange or in
the over-the-counter market and may not be traded every day or in the volume
typical of securities traded on a major national securities exchange. As a
result, disposition by a Fund of equity securities to meet redemptions by
investors or otherwise may require the Fund to sell these securities at a
discount from market prices, to sell during periods when disposition is not
desirable, or to make many small sales over an extended period of time.
COMMON STOCK. Common stock represents an equity (ownership) interest in a
company, and usually possesses voting rights and earns dividends. Common
stockholders are not creditors of the company, but rather, upon liquidation of
the company are entitled to their pro rata share of the company's assets after
creditors and, if applicable, preferred stockholders are paid. Dividends on
common stock are not fixed but are declared at the discretion of the issuer.
Common stock generally represents the riskiest investment in a company. In
addition, common stock generally has the greatest appreciation and depreciation
potential because increases and decreases in earnings are usually reflected in a
company's stock price.
PREFERRED STOCK. Preferred stock is a class of stock having a preference over
common stock as to the payment of dividends and the recovery of investment
should a company be liquidated. Preferred stock, however, is usually junior to
the debt securities of the issuer. Preferred stock typically does not possess
voting rights and its market value may change based on changes in interest
rates.
CONVERTIBLE SECURITIES. Convertible securities are fixed income securities,
preferred stock or other securities that may be converted into or exchanged for
a given amount of common stock of the same or a different issuer during a
specified period of time at a specified price or formula. A convertible security
entitles the holder to receive interest on debt or the dividend on preferred
stock until the convertible security matures or is redeemed, converted or
exchanged. Before conversion, convertible securities ordinarily provide a stream
of income with generally higher yields than those of common stock of the same or
similar issuers, but lower than the yield of nonconvertible debt. Convertible
securities rank senior to common stock in a company's capital structure but are
usually subordinated to comparable nonconvertible securities. By investing in
convertible securities, a Fund obtains the right to benefit from the capital
appreciation potential in the underlying common stock upon the exercise of the
conversion right, while earning higher current income than could be available if
the stock was purchased directly.
In general, the value of a convertible security is the higher of its investment
value (its value as a fixed income security) and its conversion value (the value
of the underlying shares of common stock if the security is converted). As a
fixed income security, the value of a convertible security generally increases
when interest rates decline and generally decreases when interest rates rise.
The credit standing of the issuer and other factors also may have an effect on
the convertible security's investment value. The conversion value of a
convertible security is determined by the market price of the underlying common
stock. If the conversion value is low relative to the investment value, the
price of the convertible security is governed principally by its investment
value. Generally, a convertible security's conversion value decreases as the
convertible security approaches maturity. To the extent the market price of the
underlying common stock approaches or exceeds the conversion price, the price of
the convertible security will be increasingly influenced by its conversion
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value. In addition, a convertible security generally will sell at a premium over
its conversion value determined by the extent to which investors place value on
the right to acquire the underlying common stock while holding a fixed income
security.
Because convertible securities are typically issued by smaller capitalized
companies whose stock price may be volatile, the price of a convertible security
may reflect variations in the price of the underlying common stock in a way that
nonconvertible debt does not. Also, while convertible securities generally have
higher yields than common stock, they have lower yields than comparable
nonconvertible securities and are subject to less fluctuations in value than
underlying stock since they have fixed income characteristics. A convertible
security may be subject to redemption at the option of the issuer at a price
established in the convertible security's governing instrument. If a convertible
security is called for redemption, the Fund will be required to permit the
issuer to redeem the security, convert it into the underlying common stock or
sell it to a third party.
WARRANTS. Warrants are securities, typically issued with preferred stock or
bonds, that give the holder the right to purchase a given number of shares of
common stock at a specified price, usually during a specified period of time.
The price usually represents a premium over the applicable market value of the
common stock at the time of the warrant's issuance. Warrants have no voting
rights with respect to the common stock, receive no dividends and have no rights
with respect to the assets of the issuer. Warrants do not pay a fixed dividend.
Investments in warrants involve certain risks, including the possible lack of a
liquid market for the resale of the warrants, potential price fluctuations as a
result of speculation or other factors and failure of the price of the common
stock to rise. A warrant becomes worthless if it is not exercised within the
specified time period.
EQUITY-RELATED SECURITIES. Equity-related securities are securities whose
interest and/or principal payment obligations are linked to a specified index of
equity securities, or determined pursuant to specific formulas. A Fund may
invest in these instruments when the securities provide a higher amount of
dividend income than is available from a company's common stock. The amount
received by an investor at maturity of these securities is not fixed but is
based on the price of the underlying common stock, which may rise or fall.
Adverse changes in the securities markets may reduce interest payments made
under, and/or the principal of, equity-linked securities held by a Fund. In
addition, it is not possible to predict how equity-related securities will trade
in the secondary market or whether the market for the securities will be liquid.
DEPOSITARY RECEIPTS. A depositary receipt is a receipt for shares of a
foreign-based company that entitles the holder to distributions on the
underlying security. Depositary receipts include sponsored and unsponsored
American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs") and
other similar global instruments. ADRs typically are issued by a U.S. bank or
trust company, evidence ownership of underlying securities issued by a foreign
company, and are designed for use in U.S. securities markets. EDRs (sometimes
called Continental Depositary Receipts) are receipts issued by a European
financial institution evidencing an arrangement similar to that of ADRs, and are
designed for use in European securities markets. The Funds invest in depositary
receipts in order to obtain exposure to foreign securities markets.
Unsponsored depositary receipts may be created without the participation of the
foreign issuer. Holders of these receipts generally bear all the costs of the
depositary receipt facility, whereas foreign issuers typically bear certain
costs in a sponsored depositary receipt. The bank or trust company depository of
an unsponsored depositary receipt may be under no obligation to distribute
shareholder communications received from the foreign issuer or to pass through
voting rights. Accordingly, available information concerning the issuer may not
be current and the prices of unsponsored depositary receipts may be more
volatile than the prices of sponsored depositary receipts.
CLOSED-END INVESTMENT COMPANIES. International Fund may invest in the securities
of closed-end investment companies that invest primarily in foreign securities.
Because of restrictions on direct investment by U.S. entities in certain
countries, other investment companies may provide the most practical or only way
for the Fund to invest in certain markets. The Fund will invest in such
companies when, in the Adviser's judgment, the potential benefits of the
investment justify the payment of any applicable premium or sales charge. Other
investment companies incur their own fees and expenses.
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FIXED INCOME SECURITIES
Fixed income securities include corporate debt obligations, U.S. Government
Securities, municipal securities, mortgage-related securities, asset-backed
securities, guaranteed investment contracts, zero coupon securities, variable
and floating rate securities, financial institution obligations, commercial
paper and participation interests.
CORPORATE DEBT OBLIGATIONS. The Funds may invest in corporate bonds, debentures,
notes, commercial paper and other similar corporate debt instruments. Companies
use these instruments to borrow money from investors. The issuer pays the
investor a fixed or variable rate of interest and must repay the amount borrowed
at maturity. Companies issue commercial paper (short-term unsecured promissory
notes) to finance their current obligations. Commercial paper normally has a
maturity of less than 9 months.
U.S. GOVERNMENT SECURITIES. U.S. Government Securities include securities issued
by the U.S. Treasury and by U.S. Government agencies and instrumentalities. U.S.
Government Securities may be supported by the full faith and credit of the
United States (e.g., mortgage-related securities and certificates of the
Government National Mortgage Association and securities of the Small Business
Administration); by the right of the issuer to borrow from the U.S. Treasury
(e.g., Federal Home Loan Bank securities); by the discretionary authority of the
U.S. Treasury to lend to the issuer (e.g., Fannie Mae (formerly the Federal
National Mortgage Association) securities); or solely by the creditworthiness of
the issuer (e.g., Federal Home Loan Mortgage Corporation securities).
Holders of U.S. Government Securities not backed by the full faith and credit of
the United States must look principally to the agency or instrumentality issuing
the obligation for repayment and may not be able to assert a claim against the
United States in the event that the agency or instrumentality does not meet its
commitment. There is no assurance that the U.S. Government will support
securities not backed by its full faith and credit. Neither the U.S. Government
nor any of its agencies or instrumentalities guarantees the market value of the
securities they issue.
MUNICIPAL SECURITIES. The states, territories and possessions of the United
States, their political subdivisions (such as cities, counties and towns) and
various authorities (such as public housing or redevelopment authorities),
instrumentalities, public corporations and special districts (such as water,
sewer or sanitation districts) issue municipal securities. In addition,
municipal securities include securities issued by or on behalf of public
authorities to finance various privately operated facilities, such as industrial
development bonds, that are backed only by the assets and revenues of the
non-governmental user (such as hospitals and airports).
Municipal securities are issued to obtain funds for a variety of public
purposes, including general financing for state and local governments, or
financing for specific projects or public facilities. Municipal securities
generally are classified as bonds, notes and leases. Municipal securities may be
zero-coupon securities.
General obligation securities are secured by the issuer's pledge of its full
faith, credit and taxing power for the payment of principal and interest.
Revenue securities are payable from revenue derived from a particular facility,
class of facilities or the proceeds of a special excise tax or other specific
revenue source but not from the issuer's general taxing power. Many of these
bonds are additionally secured by a debt service reserve fund which can be used
to make a limited number of principal and interest payments should the pledged
revenues be insufficient. Various forms of credit enhancement, such as a bank
letter of credit or municipal bond insurance, may also be employed in revenue
bond issues. Private activity bonds and industrial revenue bonds do not carry
the pledge of the credit of the issuing municipality, but generally are
guaranteed by the corporate entity on whose behalf they are issued. Municipal
bonds may also be moral obligation bonds, which are normally issued by special
purpose public authorities. If the issuer is unable to meet its obligations
under the bonds from current revenues, it may draw on a reserve fund that is
backed by the moral commitment (but not the legal obligation) of the state or
municipality that created the issuer.
Municipal bonds meet longer term capital needs of a municipal issuer and
generally have maturities of more than one year when issued. Municipal notes are
intended to fulfill the short-term capital needs of the issuer and generally
have maturities not exceeding one year. They include tax anticipation notes,
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revenue anticipation notes, bond anticipation notes, construction loan notes and
tax-exempt commercial paper. Municipal notes also include longer term issues
that are remarketed to investors periodically, usually at one year intervals or
less. Municipal leases generally take the form of a lease or an installment
purchase or conditional sale contract. Municipal leases are entered into by
state and local governments and authorities to acquire equipment and facilities
such as fire and sanitation vehicles, telecommunications equipment and other
capital assets. Leases and installment purchase or conditional sale contracts
(which normally provide for title to the leased asset to pass eventually to the
government issuer) have evolved as a means for governmental issuers to acquire
property and equipment without being required to meet the constitutional and
statutory requirements for the issuance of debt. The debt-issuance limitations
of many state constitutions and statutes are deemed to be inapplicable because
of the inclusion in many leases or contracts of "non-appropriation" clauses that
provide that the governmental issuer has no obligation to make future payments
under the lease or contract unless money is appropriated for such purpose by the
appropriate legislative body on a yearly or other periodic basis. Generally, the
Funds will invest in municipal lease obligations through certificates of
participation.
STAND-BY COMMITMENTS. The Funds may purchase municipal securities together with
the right to resell them to the seller or a third party at an agreed-upon price
or yield within specified periods prior to their maturity dates. Such a right to
resell is commonly known as a stand-by commitment, and the aggregate price which
a Fund pays for securities with a stand-by commitment may be higher than the
price which otherwise would be paid. The primary purpose of this practice is to
permit a Fund to be as fully invested as practicable in municipal securities
while preserving the necessary flexibility and liquidity to meet unanticipated
redemptions. In this regard, a Fund acquires stand-by commitments solely to
facilitate portfolio liquidity and does not exercise its rights thereunder for
trading purposes. Stand-by commitments involve certain expenses and risks,
including the inability of the issuer of the commitment to pay for the
securities at the time the commitment is exercised, non-marketability of the
commitment, and differences between the maturity of the underlying security and
the maturity of the commitment.
The acquisition of a stand-by commitment does not affect the valuation or
maturity of the underlying municipal securities. A Fund values stand-by
commitments at zero in determining net asset value. When a Fund pays directly or
indirectly for a stand-by commitment, its cost is reflected as unrealized
depreciation for the period during which the commitment is held. Stand-by
commitments do not affect the average weighted maturity of the Fund's portfolio
of securities.
PUTS. The Funds may acquire "puts" with respect to municipal securities. A put
gives the Fund the right to sell the municipal security at a specified price at
any time on or before a specified date. The Funds may sell, transfer or assign
puts only in conjunction with the sale, transfer or assignment of the underlying
securities. The amount payable to a Fund upon its exercise of a "put" is
normally: (1) the Fund's acquisition cost of the municipal securities (excluding
any accrued interest which the Fund paid on their acquisition), less any
amortized market premium or plus any amortized market or original issue discount
during the period the Fund owned the securities, plus; (2) all interest accrued
on the securities since the last interest payment date during that period.
The Funds may acquire puts to facilitate the liquidity of portfolio assets. The
Funds may use puts to facilitate the reinvestment of assets at a rate of return
more favorable than that of the underlying security. The Funds expect that they
will generally acquire puts only where the puts are available without the
payment of any direct or indirect consideration. However, if necessary or
advisable, the Funds may pay for a put either separately in cash or by paying a
higher price for portfolio securities, which are acquired subject to the puts
(thus reducing the yield to maturity otherwise available for the same
securities).
MORTGAGE-RELATED SECURITIES. Mortgage-related securities represent interests in
a pool of mortgage loans originated by lenders such as commercial banks, savings
associations and mortgage bankers and brokers. Mortgage-related securities may
be issued by governmental or government-related entities or by non-governmental
entities such as special purpose trusts created by commercial lenders.
Pools of mortgages consist of whole mortgage loans or participations in mortgage
loans. The majority of these loans are made to purchasers of 1-4 family homes.
The terms and characteristics of the mortgage instruments are generally uniform
within a pool but may vary among pools. For example, in addition to fixed-rate,
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fixed-term mortgages, the Funds may purchase pools of adjustable-rate mortgages,
growing equity mortgages, graduated payment mortgages and other types. Mortgage
poolers apply qualification standards to lending institutions which originate
mortgages for the pools as well as credit standards and underwriting criteria
for individual mortgages included in the pools. In addition, many mortgages
included in pools are insured through private mortgage insurance companies.
Mortgage-related securities differ from other forms of debt securities, which
normally provide for periodic payment of interest in fixed amounts with
principal payments at maturity or on specified call dates. Most mortgage-related
securities, however, are pass-through securities, which means that investors
receive payments consisting of a pro-rata share of both principal and interest
(less servicing and other fees), as well as unscheduled prepayments, as loans in
the underlying mortgage pool are paid off by the borrowers. Additional
prepayments to holders of these securities are caused by prepayments resulting
from the sale or foreclosure of the underlying property or refinancing of the
underlying loans. As prepayment rates of individual pools of mortgage loans vary
widely, it is not possible to predict accurately the average life of a
particular mortgage-related security. Although mortgage-related securities are
issued with stated maturities of up to forty years, unscheduled or early
payments of principal and interest on the mortgages may shorten considerably the
securities' effective maturities. See "Risk Considerations."
GOVERNMENT AND AGENCY MORTGAGE-RELATED SECURITIES. The principal issuers or
guarantors of mortgage-related securities are the Government National Mortgage
Association ("GNMA"), Fannie Mae ("FNMA") and the Federal Home Loan Mortgage
Corporation ("FHLMC"). GNMA, a wholly-owned U.S. Government corporation within
the Department of Housing and Urban Development ("HUD"), creates pass-through
securities from pools of government guaranteed (Federal Housing Authority or
Veterans Administration) mortgages. The principal and interest on GNMA
pass-through securities are backed by the full faith and credit of the U.S.
Government.
FNMA, which is a U.S. Government-sponsored corporation owned entirely by private
stockholders that is subject to regulation by the Secretary of HUD, and FHLMC, a
corporate instrumentality of the U.S. Government, issue pass-through securities
from pools of conventional and federally insured and/or guaranteed residential
mortgages. FNMA guarantees full and timely payment of all interest and
principal, and FHMLC guarantees timely payment of interest and ultimate
collection of principal of its pass-through securities. Mortgage-related
securities from FNMA and FHLMC are not backed by the full faith and credit of
the U.S. Government.
PRIVATELY ISSUED MORTGAGE-RELATED SECURITIES. Mortgage-related securities
offered by private issuers include pass-through securities comprised of pools of
conventional residential mortgage loans; mortgage-backed bonds, which are
considered to be debt obligations of the institution issuing the bonds and are
collateralized by mortgage loans; and bonds and collateralized mortgage
obligations that are collateralized by mortgage-related securities issued by
GNMA, FNMA or FHLMC or by pools of conventional mortgages of multi-family or of
commercial mortgage loans.
Privately-issued mortgage-related securities generally offer a higher rate of
interest (but greater credit and interest rate risk) than securities issued by
U.S. Government issuers because there are no direct or indirect governmental
guarantees of payment. Many non-governmental issuers or servicers of
mortgage-related securities guarantee or provide insurance for timely payment of
interest and principal on the securities. The market for privately-issued
mortgage-related securities is smaller and less liquid than the market for
mortgage-related securities issued by U.S. government issuers.
STRIPPED MORTGAGE-RELATED SECURITIES. Stripped mortgage-related securities are
multi-class mortgage-related securities that are created by separating the
securities into their principal and interest components and selling each piece
separately. Stripped mortgage-related securities are usually structured with two
classes that receive different proportions of the interest and principal
distributions in a pool of mortgage assets. The market values of these
securities are extremely sensitive to prepayment rates.
ADJUSTABLE RATE MORTGAGE SECURITIES. Adjustable rate mortgage securities
("ARMs") are pass-through securities representing interests in pools of mortgage
loans with adjustable interest rates that are reset at periodic intervals,
usually by reference to some interest rate index or market interest rate, and
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that may be subject to certain limits. Although the rate adjustment feature may
reduce sharp changes in the value of adjustable rate securities, these
securities can change in value based on changes in market interest rates or
changes in the issuer's creditworthiness. Changes in the interest rates on ARMs
may lag behind changes in prevailing market interest rates. Because of the
resetting of interest rates, adjustable rate securities are less likely than
non-adjustable rate securities of comparable quality and maturity to increase
significantly in value when market interest rates fall. A Fund could suffer some
principal loss if the Fund sold the securities before the interest rates on the
underlying mortgages were adjusted to reflect current market rates. Some
adjustable rate securities (or the underlying mortgages) are subject to caps or
floors, that limit the maximum change in interest rates during a specified
period or over the life of the security.
COLLATERALIZED MORTGAGE OBLIGATIONS. Collateralized mortgage obligations
("CMOs") are multiple-class debt obligations that are fully collateralized by
mortgage-related pass-through securities or by pools of mortgages ("Mortgage
Assets"). Payments of principal and interest on the Mortgage Assets are passed
through to the holders of the CMOs as they are received, although certain
classes (often referred to as "tranches") of CMOs have priority over other
classes with respect to the receipt of mortgage prepayments.
Multi-class mortgage pass-through securities are interests in trusts that hold
Mortgage Assets and that have multiple classes similar to those of CMOs.
Payments of principal of and interest on the underlying Mortgage Assets (and in
the case of CMOs, any reinvestment income thereon) provide funds to pay debt
service on the CMOs or to make scheduled distributions on the multi-class
mortgage pass-through securities. Parallel pay CMOs are structured to provide
payments of principal on each payment date to more than one class. These
simultaneous payments are taken into account in calculating the stated maturity
date or final distribution date of each class, which, as with other CMO
structures, must be retired by its stated maturity date or final distribution
date but may be retired earlier. Planned amortization class mortgage-related
securities ("PAC Bonds") are a form of parallel pay CMO. PAC Bonds are designed
to provide relatively predictable payments of principal provided that, among
other things, the actual prepayment experience on the underlying mortgage loans
falls within a contemplated range. CMOs may have complicated structures and
generally involve more risks than simpler forms of mortgage-related securities.
Delinquency or loss in excess of that covered by credit enhancement protection
could adversely affect the return on an investment in such a security.
The final tranche of a CMO may be structured as an accrual bond (sometimes
referred to as a "Z-tranche"). Holders of accrual bonds receive no cash payments
for an extended period of time. During the time that earlier tranches are
outstanding, accrual bonds receive accrued interest which is a credit for
periodic interest payments that increases the face amount of the security at a
compounded rate, but is not paid to the bond holder. After all previous tranches
are retired, accrual bond holders start receiving cash payments that include
both principal and continuing interest. The market value of accrual bonds can
fluctuate widely and their average life depends on the other aspects of the CMO
offering. Interest on accrual bonds is taxable when accrued even though the
holders receive no accrual payment. The Funds distribute all of their net
investment income, and may have to sell portfolio securities to distribute
imputed income, which may occur at a time when an Adviser would not have chosen
to sell such securities and which may result in a taxable gain or loss.
CREDIT ENHANCEMENTS. To lessen the effect of the failures by obligors on
Mortgage Assets to make payments, CMOs and other mortgage-related securities may
contain elements of credit enhancement, consisting of either: (1) liquidity
protection; or (2) protection against losses resulting after default by an
obligor on the underlying assets and allocation of all amounts recoverable
directly from the obligor and through liquidation of the collateral. This
protection may be provided through guarantees, insurance policies or letters of
credit obtained by the issuer or sponsor from third parties, through various
means of structuring the transaction or through a combination of these methods.
The Funds will not pay any additional fees for credit enhancements for
mortgage-related securities, although the credit enhancement may increase the
costs of the mortgage-related securities. Delinquency or loss in excess of that
covered by credit enhancement protection could adversely affect the return on an
investment in such a security.
ASSET-BACKED SECURITIES. Asset-backed securities have structural characteristics
similar to mortgage-related securities but have underlying assets that are not
mortgage loans or interests in mortgage loans. Asset-backed securities represent
fractional interests in, or are secured by and payable from, pools of assets
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such as motor vehicle installment sales contracts, installment loan contracts,
leases of various types of real and personal property and receivables from
revolving credit (e.g., credit card) agreements. Assets are securitized through
the use of trusts and special purpose corporations that issue securities that
are often backed by a pool of assets representing the obligations of a number of
different parties. Asset-backed securities have structures and characteristics
similar to those of mortgage-related securities and, accordingly, are subject to
many of the same risks, although often to a greater extent. See "Risk
Considerations." No Fund may invest more than 10% of its net assets in
asset-backed securities that are backed by a particular type of credit, (e.g.,
credit card receivables).
FOREIGN GOVERNMENT AND SUPRANATIONAL ORGANIZATIONS DEBT SECURITIES. A Fund may
invest in fixed income securities issued by the governments of foreign countries
or by those countries' political subdivisions, agencies or instrumentalities as
well as by supranational organizations such as the International Bank for
Reconstruction and Development and the Inter-American Development Bank if the
Adviser believes that the securities do not present risks inconsistent with the
Fund's investment objective.
GUARANTEED INVESTMENT CONTRACTS. Guaranteed investment contracts ("GICs") are
issued by insurance companies. In purchasing a GIC, a Fund contributes cash to
the insurance company's general account and the insurance company then credits
to the Fund's deposit fund on a monthly basis guaranteed interest at a specified
rate. The GIC provides that this guaranteed interest will not be less than a
certain minimum rate. The insurance company may assess periodic charges against
a GIC for expense and service costs allocable to it. There is no secondary
market for GICs and, accordingly, GICs are generally treated as illiquid
investments. GICs are typically unrated.
ZERO-COUPON SECURITIES. Zero-coupon securities are debt obligations that are
issued or sold at a significant discount from their face value and do not pay
current interest to holders prior to maturity, a specified redemption date or
cash payment date. The discount approximates the total interest the securities
will accrue and compound over the period to maturity or the first interest
payment date at a rate of interest reflecting the market rate of interest at the
time of issuance. The original issue discount on the zero-coupon securities must
be included ratably in the income of a Fund (and thus an investor's) as the
income accrues, even though payment has not been received. The Funds distribute
all of their net investment income, and may have to sell portfolio securities to
distribute imputed income, which may occur at a time when an Adviser would not
have chosen to sell such securities and which may result in a taxable gain or
loss. Because interest on zero-coupon securities is not paid on a current basis
but is in effect compounded, the value of these securities is subject to greater
fluctuations in response to changing interest rates, and may involve greater
credit risks, than the value of debt obligations which distribute income
regularly.
Zero-coupon securities may be securities that have been stripped of their
unmatured interest stream. Zero-coupon securities may be custodial receipts or
certificates, underwritten by securities dealers or banks, that evidence
ownership of future interest payments, principal payments or both on certain
U.S. Government securities. The underwriters of these certificates or receipts
generally purchase a U.S. Government security and deposit the security in an
irrevocable trust or custodial account with a custodian bank, which then issues
receipts or certificates that evidence ownership of the purchased unmatured
coupon payments and the final principal payment of the U.S. Government Security.
These certificates or receipts have the same general attributes as zero-coupon
stripped U.S. Treasury securities but are not supported by the issuer of the
U.S. Government Security. The risks associated with stripped securities are
similar to those of other zero-coupon securities, although stripped securities
may be more volatile, and the value of certain types of stripped securities may
move in the same direction as interest rates.
VARIABLE AND FLOATING RATE SECURITIES. Certain debt securities have variable or
floating rates of interest and, under certain limited circumstances, may have
varying principal amounts. These securities pay interest at rates that are
adjusted periodically according to a specified formula, usually with reference
to one or more interest rate indices or market interest rates (the "underlying
index"). The interest paid on these securities is a function primarily of the
underlying index upon which the interest rate adjustments are based. These
adjustments minimize changes in the market value of the obligation. Similar to
fixed rate debt instruments, variable and floating rate instruments are subject
to changes in value based on changes in market interest rates or changes in the
issuer's creditworthiness. The rate of interest on securities purchased by a
Fund may be tied to U.S. Government Securities or indices on those securities as
well as any other rate of interest or index. Certain variable rate securities
pay interest at a rate that varies inversely to prevailing short-term interest
rates (sometimes referred to as "inverse floaters"). Certain inverse floaters
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may have an interest rate reset mechanism that multiplies the effects of changes
in the underlying index. This mechanism may increase the volatility of the
security's market value while increasing the security's yield. The Money Market
Funds may not invest in inverse floaters.
Many variable rate instruments include the right of the holder to demand
prepayment of the principal amount of the obligation prior to its stated
maturity and the right of the issuer to prepay the principal amount prior to
maturity.
Variable and floating rate demand notes of corporations include master demand
notes that permit investment of fluctuating amounts at varying interest rates
under direct arrangements with the issuer of the instrument. The issuer of these
obligations often has the right, after a given period, to prepay the outstanding
principal amount of the obligations upon a specified number of days' notice.
Because master demand notes are direct lending arrangements between a Fund and
the issuer, they are not normally traded. Although there is no secondary market
in the notes, the Fund may demand payment of principal and accrued interest at
any time upon a specified period of notice.
Certain securities may have an initial principal amount that varies over time
based on an interest rate index, and, accordingly, a Fund might be entitled to
less than the initial principal amount of the security upon the security's
maturity. A Fund will purchase these securities only when its Adviser believes
the interest income from the instrument justifies any principal risks associated
with the instrument. The Advisers may attempt to limit any potential loss of
principal by purchasing similar instruments that are intended to provide an
offsetting increase in principal. There can be no assurance that the Advisers
will be able to limit the effects of principal fluctuations and, accordingly, a
Fund may incur losses on those securities even if held to maturity without
issuer default.
There may not be an active secondary market for any particular floating or
variable rate instruments, which could make it difficult for a Fund to dispose
of the instrument during periods that the Fund is not entitled to exercise any
demand rights it may have. A Fund could, for this or other reasons, suffer a
loss with respect to those instruments. The Advisers monitor the liquidity of
each Fund's investment in variable and floating rate instruments, but there can
be no guarantee that an active secondary market will exist.
FINANCIAL INSTITUTION OBLIGATIONS. A Fund may invest in obligations of financial
institutions, including certificates of deposit, bankers' acceptances, time
deposits and other short-term debt obligations. Certificates of deposit
represent an institution's obligation to repay funds deposited with it that earn
a specified interest rate over a given period. Bankers' acceptances are
negotiable obligations of a bank to pay a draft, which has been drawn by a
customer, and are usually backed by goods in international trade. Time deposits
are non-negotiable deposits with a banking institution that earn a specified
interest rate over a given period. Certificates of deposit and fixed time
deposits, which are payable at the stated maturity date and bear a fixed rate of
interest, generally may be withdrawn on demand by a Fund but may be subject to
early withdrawal penalties which could reduce a Fund's performance. Although
fixed time deposits do not in all cases have a secondary market, there are no
contractual restrictions on a Fund's right to transfer a beneficial interest in
the deposits to third parties.
Funds that invest in foreign securities may invest in Eurodollar certificates of
deposit, which are issued by offices of foreign and domestic banks located
outside the United States; Yankee certificates of deposit, which are issued by a
U.S. branch of a foreign bank and held in the United States; Eurodollar time
deposits, which are deposits in a foreign branch of a U.S. bank or a foreign
bank; and Canadian time deposits, which are issued by Canadian offices of major
Canadian banks. Each of these instruments is U.S. dollar denominated.
Small Cap Opportunities Fund may invest in obligations (including certificates
of deposit and bankers' acceptances) of U.S. banks that have total assets at the
time of purchase in excess of $1 billion and are members of the Federal Deposit
Insurance Corporation.
PARTICIPATION INTERESTS. A Fund may purchase participation interests in loans or
instruments in which the Fund may invest directly that are owned by banks or
other institutions. A participation interest gives a Fund an undivided
proportionate interest in a loan or instrument. Participation interests may
carry a demand feature permitting the holder to tender the interests back to the
bank or other institution. Participation interests, however, do not provide the
Fund with any right to enforce compliance by the borrower, nor any rights of
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set-off against the borrower and the Fund may not directly benefit from any
collateral supporting the loan in which it purchased a participation interest.
As a result, the Fund will assume the credit risk of both the borrower and the
lender that is selling the participation interest. A Fund will not invest more
than 10% of its total assets in participation interests in which the Fund does
not have demand rights. Each Tax-Free Income Fund will obtain appropriate
assurances that the interest earned by the Fund from the municipal securities in
which it holds participation interests is exempt from federal and, in the case
of Colorado Tax-Free Fund, Minnesota Tax-Free Fund and Minnesota Intermediate
Tax-Free Fund, applicable state income tax.
GENERAL MONEY MARKET FUND GUIDELINES
Each Money Market Fund will invest only in high-quality, U.S. dollar-denominated
instruments. As used herein, high-quality instruments include those that: (1)
are rated (or, if unrated, are issued by an issuer with comparable outstanding
short-term debt that is rated) in one of the two highest rating categories by
two NRSROs or, if only one NRSRO has issued a rating, by that NRSRO; or (2) are
otherwise unrated and determined by the Adviser, pursuant to procedures adopted
by the Board, to be of comparable quality. A Money Market Fund (except for
Municipal Money Market Fund) will not invest in a security that has received, or
is deemed comparable in quality to a security that has received, the second
highest rating by an NRSRO (a "second tier security") if, immediately after the
acquisition, the Fund would have invested more than: (1) the greater of 1% of
its total assets in any single second tier security; or (2) 5% of its total
assets in second tier securities. Municipal Money Market Fund is subject to
certain issuer diversification rules described below under "Investment
Limitations, Non-fundamental Limitations." Appendix A to this SAI contains a
description of the rating categories of Standard & Poor's, Moody's and certain
other NRSROs.
In addition, each Money Market Fund: (1) will invest only in instruments that
have a remaining maturity of 397 days or less (as calculated in accordance with
Rule 2a-7 under the 1940 Act); (2) will maintain a dollar-weighted average
maturity of 90 days or less; (3) will not invest more than 5% of its total
assets in the securities of any one issuer (except U.S. Government Securities
and to the extent permitted by Rule 2a-7); and (4) will not purchase a security
if the value of all securities held by the Fund and issued or guaranteed by the
same issuer (including letters of credit in support of a security) would exceed
10% of the Fund's total assets. These limitations apply with respect to only 75%
of the total assets of Municipal Money Market Fund.
INVESTMENT BY FEDERAL CREDIT UNIONS. U.S. Government Fund and Treasury Fund seek
to limit their investments to investments that are legally permissible for
Federally chartered credit unions under applicable provisions of the Federal
Credit Union Act (including 12 U.S.C. Section 1757(7), (8) and (15)) and the
applicable rules and regulations of the National Credit Union Administration
(including 12 C.F.R. Part 703, Investment and Deposit Activities), as these
statutes and rules and regulations may be amended.
BORROWING
Each Fund may borrow money in accordance with its investment policies set forth
under "Investment Limitations." Interest costs on borrowings may offset or
exceed the return earned on borrowed funds (or on the assets that were retained
rather than sold to meet the needs for which funds were borrowed). Under adverse
market conditions, a Fund might have to sell portfolio securities to meet
interest or principal payments at a time when investment considerations would
not favor such sales. A Fund's use of borrowed proceeds to make investments
would subject the Fund to the risks of leveraging. Reverse repurchase
agreements, short sales not against the box, dollar roll transactions and other
similar investments that involve a form of leverage have characteristics similar
to borrowings but are not considered borrowings if the Fund maintains a
segregated account.
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DOLLAR ROLL TRANSACTIONS
Dollar roll transactions are transactions in which a Fund sells securities to a
bank or securities dealer, and makes a commitment to purchase similar, but not
identical, securities at a later date from the same party. During the period
between the commitment and settlement, no payment is made for the securities
purchased and no interest or principal payments on the securities accrue to the
purchaser, but the Fund assumes the risk of ownership. A Fund is compensated for
entering into dollar roll transactions by the difference between the current
sales price and the forward price for the future purchase, as well as by the
interest earned on the cash proceeds of the initial sale. The Funds will engage
in dollar roll transactions for the purpose of acquiring securities for their
investment portfolios. Each Fund will limit its obligations on dollar roll
transactions to 35% of the Fund's net assets.
REPURCHASE AGREEMENTS
Repurchase agreements are transactions in which a Fund purchases securities from
a bank or securities dealer and simultaneously commits to resell the securities
to the bank or dealer at an agreed-upon date and at a price reflecting a market
rate of interest unrelated to the purchased security. During the term of a
repurchase agreement, the Funds' custodian maintains possession of the purchased
securities and any underlying collateral, which is maintained at not less than
100% of the repurchase price. Repurchase agreements allow a Fund to earn income
on its uninvested cash for periods as short as overnight, while retaining the
flexibility to pursue longer-term investments. A Money Market Fund will only
enter into a repurchase agreement with a primary dealer that reports to the
Federal Reserve Bank of New York ("primary dealers") or one of the largest 100
commercial banks in the United States. International Fund may enter into
repurchase agreements with foreign entities. Small Cap Opportunities Fund may
invest only in repurchase agreements maturing in seven days or less.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements are transactions in which a Fund sells a security
and simultaneously commits to repurchase that security from the buyer at an
agreed upon price on an agreed upon future date. The resale price in a reverse
repurchase agreement reflects a market rate of interest that is not related to
the coupon rate or maturity of the sold security. For certain demand agreements,
there is no agreed upon repurchase date and interest payments are calculated
daily, often based upon the prevailing overnight repurchase rate.
LENDING FUND SECURITIES
Each Fund may lend Fund securities in an amount up to 33-1/3% (25% in the case
of Small Cap Opportunities Fund) of its total assets to brokers, dealers and
other financial institutions. Securities loans must be continuously
collateralized and the collateral must have market value at least equal to value
of the Fund's loaned securities, plus accrued interest. In a portfolio
securities lending transaction, the Fund receives from the borrower an amount
equal to the interest paid or the dividends declared on the loaned securities
during the term of the loan as well as the interest on the collateral
securities, less any fees (such as finders or administrative fees) the Fund pays
in arranging the loan. The Fund may share the interest it receives on the
collateral securities with the borrower. The terms of a Fund's loans permit the
Fund to reacquire loaned securities on five business days' notice or in time to
vote on any important matter. Loans are subject to termination at the option of
a Fund or the borrower at any time, and the borrowed securities must be returned
when the loan is terminated. The Funds will not lend portfolio securities to any
officer, director, employee or affiliate of the Funds or an Adviser.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS
Each Fund may purchase or sell portfolio securities on a "when-issued," "delayed
delivery" or "forward commitment" basis. When-issued securities may be purchased
on a "when, as and if issued" basis under which the issuance of the securities
depends upon the occurrence of a subsequent event. When these transactions are
negotiated, the price is fixed at the time the commitment is made, but delivery
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and payment for the securities take place at a later date. When-issued
securities and forward commitments may be sold prior to the settlement date, but
the Funds enter into these transactions only with the intention of actually
receiving securities or delivering them, as appropriate. The Funds may dispose
of the right to acquire these securities before the settlement date if deemed
advisable. During the period between the time of commitment and settlement, no
payment is made for the securities purchased and no interest or dividends on the
securities accrue to the purchaser. At the time a Fund makes a commitment to
purchase securities in this manner, the Fund immediately assumes the risk of
ownership, including price fluctuation. The use of when-issued transactions and
forward commitments enables a Fund to protect against anticipated changes in
interest rates and prices, but also tends to increase the volatility of the
Fund's net asset value per share. Except for dollar-roll transactions, a Fund
will not purchase securities on a when-issued, delayed delivery or forward
commitment basis if, as a result, more than 15% (35% in the case of Total Return
Bond Fund) of the value of the Fund's total assets would be committed to such
transactions.
The use of when-issued transactions and forward commitments enables the Funds to
hedge against anticipated changes in interest rates and prices. If an Adviser
were to forecast incorrectly the direction of interest rate movements, however,
a Fund might be required to complete when-issued or forward transactions at
prices inferior to the current market values.
At the time a Fund makes the commitment to purchase securities on a when-issued
or delayed delivery basis, the Fund will record the transaction as a purchase
and thereafter reflect the value each day of such securities in determining its
net asset value.
ILLIQUID INVESTMENTS
No Fund may knowingly invest more than 15% (10% in the case of the Money Market
Funds) of the Fund's net assets in illiquid investments. Illiquid investments
are investments that cannot be disposed of within seven days in the ordinary
course of business at approximately the amount at which the Fund has valued the
investment and include, among other instruments, repurchase agreements not
entitling the Fund to payment of principal within seven days.
An institutional market has developed for certain securities that are not
registered under the 1933 Act. Institutional investors usually will not seek to
sell these instruments to the general public, but instead will often depend on
either an efficient institutional market in which the unregistered security can
be readily resold or on an issuer's ability to honor a demand for repayment of
the unregistered security. A security's contractual or legal restrictions on
resale to the general public or to certain institutions therefore may not be
determinative of the liquidity of such investments.
If unregistered securities are eligible for purchase by institutional buyers in
accordance with applicable exemptions under guidelines adopted by the Board, an
Adviser may determine that the securities are liquid. Under these guidelines,
the Advisers are required to take into account: (1) the frequency of trades and
quotations for the investment; (2) the number of dealers willing to purchase or
sell the investment; (3) the number of dealers that have undertaken to make a
market in the investment; (4) the number of other potential purchasers; and (5)
the nature of the marketplace trades, including the time needed to dispose of
the investment, the method of soliciting offers and the mechanics of the
transfer.
Illiquid investments may be more difficult to value than liquid investments and
the sale of illiquid investments generally may require more time and result in
higher selling expenses than the sale of liquid investments. A Fund might not be
able to dispose of restricted or other securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemptions.
Restrictions on resale may have an adverse effect on the marketability of
illiquid investments and a Fund might also have to register certain investments
in order to dispose of them, resulting in expense and delay.
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PURCHASES ON MARGIN AND SHORT SALES
Limited Term Government Income Fund and Intermediate Government Income Fund may
purchase securities on margin and make short sales that are not "against the
box." When a Fund purchases securities on margin, it only pays part of the
purchase price and borrows the remainder. As a borrowing, a Fund's purchase of
securities on margin is subject to the limitations and risks of borrowing. In
addition, if the value of the securities purchased on margin decreases such that
the Fund's borrowing with respect to the security exceeds the maximum
permissible borrowing amount, the Fund will be required to make margin payments.
A Fund's obligation to satisfy margin calls may require the Fund to sell
securities at an inappropriate time.
Each of these Funds also may make short sales of securities which it does not
own or have the right to acquire in anticipation of a decline in the market
price for the security. When a Fund makes a short sale, the proceeds it receives
are retained by the broker until the Fund replaces the borrowed security. In
order to deliver the security to the buyer, a Fund must arrange through a broker
to borrow the security and, in so doing, the Fund becomes obligated to replace
the security borrowed at its market price at the time of replacement, whatever
that price may be. Short sales create opportunities to increase a Fund's return
but, at the same time, involve special risk considerations and may be considered
a speculative technique. Since a Fund in effect profits from a decline in the
price of the securities sold short without the need to invest the full purchase
price of the securities on the date of the short sale, the Fund's net asset
value per share, will tend to increase more when the securities it has sold
short decrease in value, and to decrease more when the securities it has sold
short increase in value, than would otherwise be the case if it had not engaged
in such short sales. Short sales theoretically involve unlimited loss potential,
as the market price of securities sold short may continuously increase, although
a Fund may mitigate such losses by replacing the securities sold short before
the market price has increased significantly. Under adverse market conditions, a
Fund might have difficulty purchasing securities to meet its short sale delivery
obligations and might have to sell portfolio securities to raise the capital
necessary to meet its short sale obligations at a time when fundamental
investment considerations would not favor those sales.
All Funds may engage in short sales "against the box." A short sale is "against
the box" to the extent that while the short position is open, the Fund must own
an equal amount of the securities sold short, or by virtue of ownership of
securities have the right, without payment of further consideration, to obtain
an equal amount of the securities sold short. Short sales against-the-box may in
certain cases be made to defer, for Federal income tax purposes, recognition of
gain or loss on the sale of securities "in the box" until the short position is
closed out. If a Portfolio has unrealized gain with respect to a long position
and enters into a short sale against-the-box, the Portfolio generally will be
deemed to have sold the long position for tax purposes and thus will recognize
gain. Prohibitions on entering short sales other than against the box does not
restrict a Fund's ability to use short-term credits necessary for the clearance
of portfolio transactions and to make margin deposits in connection with
permitted transactions in options and futures contracts. No Fund except Treasury
Plus Fund, Diversified Small Cap Fund and Small Cap Opportunities Fund may make
short sales if, as a result, more than 25% of the Fund's total assets would be
so invested or such a position would represent more than 2% of the outstanding
voting securities of any single issuer or class of an issuer.
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OPTIONS AND FUTURES CONTRACTS
Each Fund (except for Small Cap Opportunities Fund, whose use of options and
futures contracts is described separately below) may: (1) purchase or sell
(write) put and call options on securities to enhance the Fund's performance;
and (2) seek to hedge against a decline in the value of securities owned by the
Fund or an increase in the price of securities that the Fund plans to purchase
through the writing and purchase of exchange-traded and over-the-counter options
on individual securities or securities or financial indices and through the
purchase and sale of interest-rate futures contracts and options on those
futures contracts. A Fund may only write options that are covered. To the extent
a Fund invests in foreign securities, it may in the future invest in options on
foreign currencies, foreign currency futures contracts and options on those
futures contracts. These instruments are considered to be derivatives. Use of
these instruments is subject to regulation by the SEC, the several options and
futures exchanges on which futures and options are traded or the CFTC. No
assurance can be given that any hedging or option income strategy will achieve
its intended result. Certain futures strategies employed by Strategic Income
Fund and the Balanced Funds in allocating assets temporarily may not be deemed
to be for bona fide hedging purposes, as defined by the CFTC. A Fund may enter
into futures contracts only if the aggregate of initial margin deposits for open
futures contract positions does not exceed 5% of the Fund's total assets.
COVER FOR OPTIONS AND FUTURES CONTRACTS. A Fund will hold securities,
currencies, or other options or futures positions whose values are expected to
offset ("cover") its obligations under the transactions. A Fund will enter into
a hedging strategy that exposes it to an obligation to another party only if the
Fund owns either: (1) an offsetting ("covered") position in the underlying
security, currency or options or futures contract; or (2) cash, receivables and
liquid debt securities with a value sufficient at all times to cover its
potential obligations. Each Fund will comply with SEC guidelines with respect to
coverage of these strategies and, if the guidelines require, will set aside
cash, liquid debt securities and other permissible assets ("Segregated Assets")
in a segregated account with the Custodian in the prescribed amount. Segregated
Assets cannot be sold or closed out while the hedging or option income strategy
is outstanding, unless the Segregated Assets are replaced with similar assets.
As a result, there is a possibility that the use of cover or segregation
involving a large percentage of a Fund's assets could impede portfolio
management or a Fund's ability to meet redemption requests or other current
obligations.
The Funds have no current intention of investing in futures contracts and
options thereon for purposes other than hedging. No Fund may purchase any call
or put option on a futures contract if the premiums associated with all such
options held by the Fund would exceed 5% of the Fund's total assets as of the
date the option is purchased. No Fund may sell a put option if the exercise
value of all put options written by the Fund would exceed 50% of the Fund's
total assets or sell a call option if the exercise value of all call options
written by the Fund would exceed the value of the Fund's assets. In addition,
the current market value of all open futures positions held by a Fund will not
exceed 50% of its total assets.
OPTIONS ON SECURITIES. A call option is a contract under which the purchaser of
the call option, in return for a premium paid, has the right to buy the security
underlying the option at a specified exercise price at any time during the term
of the option. The writer of the call option, who receives the premium, has the
obligation upon exercise of the option to deliver the underlying security
against payment of the exercise price during the option period. A put option
gives its purchaser, in return for a premium, the right to sell the underlying
security at a specified price during the term of the option. The writer of the
put, who receives the premium, has the obligation to buy the underlying security
upon exercise at the exercise price during the option period. The amount of
premium received or paid is based upon certain factors, including the market
price of the underlying assets, the relationship of the exercise price to the
market price, the historical price volatility of the underlying assets, the
option period, supply and demand and interest rates.
OPTIONS ON STOCK INDICES. A stock index assigns relative values to the stock
included in the index, and the index fluctuates with changes in the market
values of the stocks included in the index. Stock index options operate in the
same way as the more traditional options on securities except that exercises of
stock index options are effected with cash payments and do not involve delivery
of securities (i.e., stock index options are settled exclusively in cash). Thus,
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upon exercise of stock index options, the purchaser will realize and the writer
will pay an amount based on the differences between the exercise price and the
closing price of the stock index.
OPTIONS ON FUTURES CONTRACTS. Options on futures contracts are similar to
options on securities except that an option on a futures contract gives the
purchaser the right, in return for the premium paid, to assume a position in a
futures contract rather than to purchase or sell stock, at a specified exercise
price at any time during the period of the option. Upon exercise of the option,
the delivery of the futures position to the holder of the option will be
accompanied by transfer to the holder of an accumulated balance representing the
amount by which the market price of the futures contract exceeds, in the case of
a call, or is less than, in the case of a put, the exercise price of the option
on the future.
FUTURES CONTRACTS AND INDEX FUTURES CONTRACTS. A futures contract is a bilateral
agreement where one party agrees to accept, and the other party agrees to make,
delivery of cash, an underlying debt security or a currency, as called for in
the contract, at a specified date and at an agreed-upon price. A bond or stock
index futures contract involves the delivery of an amount of cash equal to a
specified dollar amount times the difference between the bond or stock index
value at the close of trading of the contract and the price at which the futures
contract is originally struck. No physical delivery of the securities comprising
the index is made. Generally, these futures contracts are closed out prior to
the expiration date of the contracts.
SMALL CAP OPPORTUNITIES FUND OPTIONS AND FUTURES CONTRACTS
Small Cap Opportunities Fund may write covered calls on up to 100% of its total
assets or employ one or more types of instruments to hedge ("Hedging
Instruments"). When hedging to attempt to protect against declines in the market
value of the Fund's securities, to permit the Fund to retain unrealized gains in
the value of Fund securities which have appreciated, or to facilitate selling
securities for investment reasons, the Fund would: (1) sell Stock Index Futures;
(2) purchase puts on such futures or securities; or (3) write covered calls on
securities or on Stock Index Futures. When hedging to establish a position in
the equities markets as a temporary substitute for purchasing particular equity
securities (which the Fund will normally purchase and then terminate the hedging
position), the Fund would: (1) purchase Stock Index Futures, or (2) purchase
calls on such Futures or on securities. The Fund's strategy of hedging with
Stock Index Futures and options on such Futures will be incidental to the Fund's
activities in the underlying cash market.
The Fund may write (i.e., sell) call options ("calls") if: (1) the calls are
listed on a domestic securities or commodities exchange; and (2) the calls are
"covered" (i.e., the Fund owns the securities subject to the call or other
securities acceptable for applicable escrow arrangements) while the call is
outstanding. A call written on a Stock Index Future must be covered by
deliverable securities or segregated liquid assets. If a call written by the
Fund is exercised, the Fund forgoes any profit from any increase in the market
price above the call price of the underlying investment on which the call was
written.
When the Fund writes a call on a security, it receives a premium and agrees to
sell the underlying securities to a purchaser of a corresponding call on the
same security during the call period (usually not more than 9 months) at a fixed
exercise price (which may differ from the market price of the underlying
security), regardless of market price changes during the call period. The risk
of loss will have been retained by the Fund if the price of the underlying
security should decline during the call period, which may be offset to some
extent by the premium.
To terminate its obligation on a call it has written, the Fund may be purchase a
corresponding call in a "closing purchase transaction." A profit or loss will be
realized, depending upon whether the net of the amount of option transaction
costs and the premium previously received on the call written was more or less
than the price of the call subsequently purchased. A profit may also be realized
if the call lapses unexercised, because the Fund retains the underlying security
and the premium received. Any such profits are considered short-term capital
gains for Federal income tax purposes, and when distributed by the Fund are
taxable as ordinary income. If the Fund could not effect a closing purchase
transaction due to the lack of a market, it would have to hold the callable
securities until the call lapsed or was exercised.
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The Fund may also write calls on Stock Index Futures without owning a futures
contract or a deliverable bond, provided that at the time the call is written,
the Fund covers the call by segregating in escrow an equivalent dollar amount of
liquid assets. The Fund will segregate additional liquid assets if the value of
the escrowed assets drops below 100% of the current value of the Stock Index
Future. In no circumstances would an exercise notice require the Fund to deliver
a futures contract; it would simply put the Fund in a short futures position,
which is permitted by the Fund's hedging policies.
PURCHASING CALLS AND PUTS. The Fund may purchase put options ("puts") which
relate to: (1) securities held by it; (2) Stock Index Futures (whether or not it
holds such Stock Index Futures in its Fund); or (3) broadly-based stock indices.
The Fund may not sell puts other than those it previously purchased, nor
purchase puts on securities it does not hold. The Fund may purchase calls: (1)
as to securities, broadly-based stock indices or Stock Index Futures; or (2) to
effect a "closing purchase transaction" to terminate its obligation on a call it
has previously written. A call or put may be purchased only if, after such
purchase, the value of all put and call options held by the Fund would not
exceed 5% of the Fund's total assets.
When the Fund purchases a call (other than in a closing purchase transaction),
it pays a premium and, except as to calls on stock indices, has the right to buy
the underlying investment from a seller of a corresponding call on the same
investment during the call period at a fixed exercise price. The Fund benefits
only if the call is sold at a profit or if, during the call period, the market
price of the underlying investment is above the sum of the call price plus the
transaction costs and the premium paid for the call and the call is exercised.
If the call is not exercised or sold (whether or not at a profit), it will
become worthless at its expiration date and the Fund will lose its premium
payments and the right to purchase the underlying investment. When the Fund
purchases a call on a stock index, it pays a premium, but settlement is in cash
rather than by delivery of an underlying investment.
When the Fund purchases a put, it pays a premium and, except as to puts on stock
indices, has the right to sell the underlying investment to a seller of a
corresponding put on the same investment during the put period at a fixed
exercise price. Buying a put on a security or Stock Index Future the Fund owns
enables the Fund to attempt to protect itself during the put period against a
decline in the value of the underlying investment below the exercise price by
selling the underlying investment at the exercise price to a seller of a
corresponding put. If the market price of the underlying investment is equal to
or above the exercise price and, as a result, the put is not exercised or
resold, the put will become worthless at its expiration date and the Fund will
lose its premium payment and the right to sell the underlying investment; the
put may, however, be sold prior to expiration (whether or not at a profit).
Purchasing a put on either a stock index or on a Stock Index Future not held by
the Fund permits the Fund either to resell the put or to buy the underlying
investment and sell it at the exercise price. The resale price of the put will
vary inversely with the price of the underlying investment. If the market price
of the underlying investment is above the exercise price and, as a result, the
put is not exercised, the put will become worthless on its expiration date. In
the event of a decline in price of the underlying investment, the Fund could
exercise or sell the put at a profit to attempt to offset some or all of its
loss on its Fund securities. When the Fund purchases a put on a stock index, or
on a Stock Index Future not held by it, the put protects the Fund to the extent
that the index moves in a similar pattern to the securities held. In the case of
a put on a stock index or Stock Index Future, settlement is in cash rather than
by the Fund's delivery of the underlying investment.
STOCK INDEX FUTURES. The Fund may buy and sell futures contracts only if they
are Stock Index Futures. A stock index is "broadly-based" if it includes stocks
that are not limited to issuers in any particular industry or group of
industries. Stock Index Futures obligate the seller to deliver (and the
purchaser to take) cash to settle the futures transaction, or to enter into an
offsetting contract. No physical delivery of the underlying stocks in the index
is made.
No price is paid or received upon the purchase or sale of a Stock Index Future.
Upon entering into a futures transaction, the Fund will be required to deposit
an initial margin payment in cash or U.S. Treasury bills with a futures
commission merchant (the "futures broker"). The initial margin will be deposited
with the Fund's custodian in an account registered in the futures broker's name;
however the futures broker can gain access to that account only under specified
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conditions. As the future is marked to market to reflect changes in its market
value, subsequent margin payments, called variation margin, will be paid to or
by the futures broker on a daily basis. Prior to expiration of the future, if
the Fund elects to close out its position by taking an opposite position, a
final determination of variation margin is made, additional cash is required to
be paid by or released to the Fund, and any loss or gain is realized for tax
purposes. Although Stock Index Futures by their terms call for settlement by the
delivery of cash, in most cases the obligation is fulfilled without such
delivery, by entering into an offsetting transaction. All futures transactions
are effected through a clearinghouse associated with the exchange on which the
contracts are traded.
Puts and calls on broadly-based stock indices or Stock Index Futures are similar
to puts and calls on securities or futures contracts except that all settlements
are in cash and gain or loss depends on changes in the index in question (and
thus on price movements in the stock market generally) rather than on price
movements in individual securities or futures contracts. When the Fund buys a
call on a stock index or Stock Index Future, it pays a premium. During the call
period, upon exercise of a call by the Fund, a seller of a corresponding call on
the same index will pay the Fund an amount of cash to settle the call if the
closing level of the stock index or Stock Index Future upon which the call is
based is greater than the exercise price of the call; that cash payment is equal
to the difference between the closing price of the index and the exercise price
of the call times a specified multiple (the "multiplier") which determines the
total dollar value for each point of difference. When the Fund buys a put on a
stock index or Stock Index Future, it pays a premium and has the right during
the put period to require a seller of a corresponding put, upon the Fund's
exercise of its put, to deliver to the Fund an amount of cash to settle the put
if the closing level of the stock index or Stock Index Future upon which the put
is based is less than the exercise price of the put; that cash payment is
determined by the multiplier, in the same manner as described above as to calls.
FOREIGN CURRENCY TRANSACTIONS
Funds that make foreign investments may conduct foreign currency exchange
transactions either on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign exchange market or by entering into a forward foreign currency
contract. A forward foreign currency contract ("forward contract") involves an
obligation to purchase or sell a specific amount of a specific currency at a
future date, which may be any fixed number of days (usually less than one year)
from the date of the contract agreed upon by the parties, at a price set at the
time of the contract. Forward contracts are considered to be derivatives. A Fund
enters into forward contracts in order to "lock in" the exchange rate between
the currency it will deliver and the currency it will receive for the duration
of the contract. In addition, a Fund may enter into forward contracts to hedge
against risks arising from securities a Fund owns or anticipates purchasing, or
the U.S. dollar value of interest and dividends paid on those securities. A Fund
will not enter into forward contracts for speculative purposes. A Fund will not
have more than 25% of its total assets committed to forward contracts, or
maintain a net exposure to forward contracts that would obligate the Fund to
deliver an amount of foreign currency in excess of the value of the Fund's
investment securities or other assets denominated in that currency.
If a Fund makes delivery of the foreign currency at or before the settlement of
a forward contract, it may be required to obtain the currency through the
conversion of assets of the Fund into the currency. The Fund may close out a
forward contract obligating it to purchase a foreign currency by selling an
offsetting contract, in which case it will realize a gain or a loss.
Foreign currency transactions involve certain costs and risks. The Fund incurs
foreign exchange expenses in converting assets from one currency to another.
Forward contracts involve a risk of loss if the Adviser is inaccurate in its
prediction of currency movements. The projection of short-term currency market
movements is extremely difficult, and the successful execution of a short-term
hedging strategy is highly uncertain. The precise matching of forward contract
amounts and the value of the securities involved is generally not possible.
Accordingly, it may be necessary for the Fund to purchase additional foreign
currency if the market value of the security is less than the amount of the
foreign currency the Fund is obligated to deliver under the forward contract and
the decision is made to sell the security and make delivery of the foreign
currency. The use of forward contracts as a hedging technique does not eliminate
fluctuations in the prices of the underlying securities the Fund owns or intends
to acquire, but it does fix a rate of exchange in advance. Although forward
contracts can reduce the risk of loss due to a decline in the value of the
hedged currencies, they also limit any potential gain that might result from an
increase in the value of the currencies.
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In addition, there is no systematic reporting of last sale information for
foreign currencies, and there is no regulatory requirement that quotations
available through dealers or other market sources be firm or revised on a timely
basis. Quotation information available is generally representative of very large
transactions in the interbank market. The interbank market in foreign currencies
is a global around-the-clock market. Because foreign currency transactions
occurring in the interbank market involve substantially larger amounts than
those that may be involved in the use of foreign currency options, a Fund may be
disadvantaged by having to deal in an odd lot market (generally consisting of
transactions of less than $1 million) for the underlying foreign currencies at
prices that are less favorable than for round lots.
The Funds have no present intention to enter into currency futures or options
contracts, but may do so in the future. A Fund might take positions in options
on foreign currencies in order to hedge against the risk of foreign exchange
fluctuation on foreign securities the Fund holds in its portfolio or which it
intends to purchase.
SWAPS, CAPS, FLOORS AND COLLARS
A Fund may enter into interest rate, currency and mortgage (or other asset)
swaps, and may purchase and sell interest rate "caps," "floors" and "collars."
Interest rate swaps involve the exchange by a Fund and a counterparty of their
respective commitments to pay or receive interest (e.g., an exchange of floating
rate payments for fixed rate payments). Mortgage swaps are similar to interest
rate swap agreements, except that the contractually-based principal amount (the
"notional principal amount") is tied to a reference pool of mortgages. Currency
swaps' notional principal amount is tied to one or more currencies, and the
exchange commitments can involve payments in the same or different currencies.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on the notional principal amount from the party selling the cap. The
purchase of an interest rate floor entitles the purchaser, to the extent that a
specified index falls below a predetermined value, to receive payments on a
notional principal amount from the party selling the floor. A collar entitles
the purchaser to receive payments to the extent a specified interest rate falls
outside an agreed range.
A Fund will enter into these transactions primarily to preserve a return or a
spread on a particular investment or portion of its portfolio or to protect
against any interest rate fluctuations or increase in the price of securities it
anticipates purchasing at a later date. The Funds intend to use these
transactions as a hedge and not as a speculative investment, and will enter into
the transactions in order to shift a Fund's investment exposure from one type of
investment to another.
A Fund may enter into interest rate protection transactions on an asset-based
basis, depending on whether it is hedging its assets or its liabilities, and
will usually enter into interest rate swaps on a net basis, i.e., the two
payment streams are netted out, with the Fund receiving or paying, as the case
may be, only the net amount of the two payments.
The use of interest rate protection transactions is a highly specialized
activity that involves investment techniques and risks different from those
associated with ordinary portfolio securities transactions. If an Adviser
incorrectly forecasts market values, interest rates and other applicable
factors, there may be considerable impact on a Fund's performance. Even if the
Advisers are correct in their forecasts, there is a risk that the transaction
may correlate imperfectly with the price of the asset or liability being hedged.
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TEMPORARY DEFENSIVE POSITION
When, in the judgment of an Adviser, market or economic conditions warrant, each
Fund, other than a Money Market Fund, may assume a defensive position and
temporarily hold cash or invest without limit in cash equivalents to retain
flexibility in meeting redemptions, paying expenses and timing of new
investments. These investments will be rated in one of the two highest
short-term rating categories by an NRSRO or, if not rated, determined by the
Adviser to be of comparable quality, including: (1) short-term U.S. Government
Securities; (2) certificates of deposit, bankers' acceptances and
interest-bearing savings deposits of commercial banks doing business in the
United States that have, at the time of investment, except in the case of
International Fund, total assets in excess of one billion dollars and that are
insured by the Federal Deposit Insurance Corporation; (3) commercial paper; (4)
repurchase agreements covering any of the securities in which the Fund may
invest directly; and (5) shares of money market funds registered under the 1940
Act within the limits specified therein. To the extent that a Fund assumes a
temporary defensive position, it may not be invested to pursue its investment
objective. International Fund may hold cash and invest in bank instruments
denominated in any major foreign currency.
Apart from temporary defensive purposes, a Fund may at any time invest a portion
of its assets in cash and cash equivalents as described above. When a Tax-Exempt
Fixed Income Fund assumes a temporary defensive position, it is likely that its
shareholders will be subject to federal and applicable state income taxes on a
greater portion of their income distributions received from the Fund.
3. RISK CONSIDERATIONS
COUNTERPARTY RISK
The Funds may be exposed to the risks of financial failure or insolvency of
another party. To help reduce those risks, the Advisers, subject to the Board's
supervision, monitor and evaluate the creditworthiness of counterparties to the
Funds' transactions and intend to enter into a transaction only when they
believe that the counterparty presents minimal credit risks and the benefits
from the transaction justify the attendant risks.
The use of repurchase agreements, securities lending, reverse repurchase
agreements, interest rate protection transactions (such as swaps, caps, collars
and floors), forward commitments (including dollar roll transactions) and
forward contracts involving currencies present particular counterparty risk. In
the event that bankruptcy, insolvency or similar proceedings were commenced
against a counterparty while these transactions remained open or a counterparty
defaulted on its obligations, a Fund may have difficulties in exercising its
rights to the underlying securities or currencies, as applicable, it may incur
costs and expensive time delays in disposing of the underlying securities and it
may suffer a loss. Failure by the other party to deliver a security or currency
purchased by a Fund may result in a missed opportunity to make an alternative
investment. Counterparty insolvency risk with respect to repurchase agreements
is reduced by favorable insolvency laws that allow a Fund, among other things,
to liquidate the collateral held in the event of the bankruptcy of the
counterparty. Those laws do not apply to securities lending, reverse repurchase
agreements and dollar roll transactions, and therefore, those transactions
involve more risk than repurchase agreements. For example, in the event the
purchaser of securities in a dollar roll transaction files for bankruptcy or
becomes insolvent, a Fund's use of the proceeds of the transaction may be
restricted pending a determination by the other party, or its trustee or
receiver, whether to enforce the Fund's obligation to repurchase the securities.
As a result of entering into forward commitments and reverse repurchase
agreements, as well as lending its securities, a Fund may be exposed to greater
potential fluctuations in the value of its assets and net asset value per share.
EMERGING MARKETS SECURITIES
International Fund may invest up to 20% of it total assets in emerging markets
equity and debt securities, including convertible securities and stock rights.
The Adviser considers "emerging market" countries to generally 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.
FIXED INCOME SECURITIES
GENERAL. The market value of the interest-bearing fixed income securities held
by the Funds will be affected by changes in interest rates. There is normally an
inverse relationship between the market value of securities sensitive to
prevailing interest rates and actual changes in interest rates. The longer the
remaining maturity (and duration) of a security, the more sensitive the security
is to changes in interest rates. All fixed income securities, including U.S.
Government Securities, can change in value when there is a change in interest
rates. Changes in the ability of an issuer to make payments of interest and
principal and in the markets' perception of an issuer's creditworthiness will
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also affect the market value of that issuer's debt securities. As a result, an
investment in a Fund is subject to risk even if all fixed income securities in
the Fund's investment portfolio are paid in full at maturity. In addition,
certain fixed income securities may be subject to extension risk, which refers
to the change in total return on a security resulting from an extension or
abbreviation of the security's maturity.
Yields on fixed income securities, including municipal securities, are dependent
on a variety of factors, including the general conditions of the fixed income
securities markets, the size of a particular offering, the maturity of the
obligation and the rating of the issue. Fixed income securities with longer
maturities tend to produce higher yields and are generally subject to greater
price movements than obligations with shorter maturities. A portion of the
municipal securities held by the Funds may be supported by credit and liquidity
enhancements, such as letters of credit (which are not covered by federal
deposit insurance) or puts or demand features of third party financial
institutions, generally domestic and foreign banks.
The issuers of fixed income securities are subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors that may restrict the ability of the issuer to pay, when due, the
principal of and interest on its debt securities. The possibility exists
therefore, that, as a result of bankruptcy, litigation or other conditions, the
ability of an issuer to pay, when due, the principal of and interest on its debt
securities may become impaired.
CREDIT RISK. The Funds' investments in fixed income securities are subject to
credit risk relating to the financial condition of the issuers of the securities
that each Fund holds. To limit credit risk, each Fixed Income Fund, Tax-Free
Fixed Income Fund and Balanced Fund will generally buy debt securities that are
rated in the top four long-term rating categories by an NRSRO or in the top two
short-term rating categories by an NRSRO (although certain Funds have greater
restrictions). Moody's, Standard & Poor's and other NRSROs are private services
that provide ratings of the credit quality of debt obligations, including
convertible securities. A description of the range of ratings assigned to
various types of securities by several NRSROs is included in Appendix A. The
Advisers may use these ratings to determine whether to purchase, sell or hold a
security. Ratings are not, however, absolute standards of quality. Credit
ratings attempt to evaluate the safety of principal and interest payments and do
not evaluate the risks of fluctuations in market value. Consequently, similar
securities with the same rating may have different market prices. In addition,
rating agencies may fail to make timely changes in credit ratings and the
issuer's current financial condition may be better or worse than a rating
indicates.
Each Fund may retain a security that ceases to be rated or whose rating has been
lowered below the Fund's lowest permissible rating category (except in certain
cases with respect to the Money Market Funds) if the Adviser determines that
retaining the security is in the best interests of the Fund. Because a downgrade
often results in a reduction in the market price of the security, sale of a
downgraded security may result in a loss.
Each Fund may purchase unrated securities if the Adviser determines that the
security is of comparable quality to a rated security that the Fund may
purchase. Unrated securities may not be as actively traded as rated securities.
MORTGAGE-RELATED SECURITIES. The value of mortgage-related securities may be
significantly affected by changes in interest rates, the markets' perception of
issuers, the structure of the securities and the creditworthiness of the parties
involved. The ability of the Funds to successfully utilize mortgage-related
securities depends in part upon the ability of the Advisers to forecast interest
rates and other economic factors correctly. Some mortgage-related securities
have structures that make their reaction to interest rate changes and other
factors difficult to predict.
Prepayments of principal of mortgage-related securities by mortgagors or
mortgage foreclosures affect the average life of the mortgage-related
securities. The occurrence of mortgage prepayments is affected by various
factors, including the level of interest rates, general economic conditions, the
location and age of the mortgages and other social and demographic conditions.
In periods of rising interest rates, the prepayment rate tends to decrease,
lengthening the average life of a pool of mortgage-related securities. In
periods of falling interest rates, the prepayment rate tends to increase,
shortening the average life of a pool. The volume of prepayments of principal on
the mortgages underlying a particular mortgage-related security will influence
the yield of that security, affecting the Fund's yield. Because prepayments of
principal generally occur when interest rates are declining, it is likely that
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the Funds, to the extent they retain the same percentage of debt securities, may
have to reinvest the proceeds of prepayments at lower interest rates then those
of their previous investments. If this occurs, a Fund's yield will
correspondingly decline. Thus, mortgage-related securities may have less
potential for capital appreciation in periods of falling interest rates (when
prepayment of principal is more likely) than other fixed income securities of
comparable duration, although they may have a comparable risk of decline in
market value in periods of rising interest rates. A decrease in the rate of
prepayments may extend the effective maturities of mortgage-related securities,
increasing their sensitivity to changes in market interest rates. To the extent
that the Funds purchase mortgage-related securities at a premium, unscheduled
prepayments, which are made at par, result in a loss equal to any unamortized
premium.
ASSET-BACKED SECURITIES. Like mortgages underlying mortgage-related securities,
the collateral underlying assets are subject to prepayment, which may reduce the
overall return to holders of asset-backed securities. Asset-backed securities
present certain additional and unique risks. Primarily, these securities do not
always have the benefit of a security interest in collateral comparable to the
security interests associated with mortgage-related securities. Credit card
receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of which
give such debtors the right to set-off certain amounts owed on the credit cards,
thereby reducing the balance due. Automobile receivables generally are secured
by automobiles. Most issuers of automobile receivables permit the loan servicers
to retain possession of the underlying obligations. If the servicer were to sell
these obligations to another party, there is a risk that the purchaser would
acquire an interest superior to that of the holders of the asset-backed
securities. In addition, because of the large number of vehicles involved in a
typical issuance and the technical requirements under state laws, the trustee
for the holders of the automobile receivables may not have a proper security
interest in the underlying automobiles. As a result, the risk that recovery on
repossessed collateral might be unavailable or inadequate to support payments on
asset-backed securities is greater for asset-backed securities than for
mortgage-related securities. In addition, because asset-backed securities are
relatively new, the market experience in these securities is limited and the
market's ability to sustain liquidity through all phases of an interest rate or
economic cycle has not been tested.
NON-INVESTMENT GRADE SECURITIES. Non-investment grade securities are securities
rated below the fourth highest rating category by an NRSRO or which are unrated
and judged by the Adviser to be of comparable quality. Such high risk securities
(commonly referred to as "junk bonds") are not considered to be investment grade
and have speculative or predominantly speculative characteristics.
Non-investment grade, high risk securities provide poor protection for payment
of principal and interest but may have greater potential for capital
appreciation than do higher quality securities. These lower rated securities
involve greater risk of default or price changes due to changes in the issuers'
creditworthiness than do higher quality securities. The market for these
securities may be thinner and less active than that for higher quality
securities, which may affect the price at which the lower rated securities can
be sold. In addition, the market prices of lower rated securities may fluctuate
more than the market prices of higher quality securities and may decline
significantly in periods of general economic difficulty or rising interest
rates. Under such conditions, the Funds may have to use subjective rather than
objective criteria to value its high yield/high risk securities investments
accurately and rely more heavily on the judgment of the Fund's Adviser.
Lower rated or unrated debt obligations also present risks based on payment
expectations. If an issuer calls the obligation for redemption, the Fund's
Adviser may have to replace the security with a lower yielding security,
resulting in a decreased return for investors. If a Fund experiences unexpected
net redemptions, the Fund's Adviser may be forced to sell the Fund's higher
rated securities, resulting in a decline in the overall credit quality of the
Fund's portfolio and increasing the exposure of the Fund to the risks of high
yield/high risk securities.
FOREIGN SECURITIES
All investments, domestic and foreign, involve certain risks. Investments in the
securities of foreign issuers may involve risks in addition to those normally
associated with investments in the securities of U.S. issuers. All foreign
investments are subject to risks of foreign political and economic instability,
adverse movements in foreign exchange rates, the imposition or tightening of
exchange controls or other limitations on repatriation of foreign capital, and
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changes in foreign governmental attitudes towards private investment, possibly
leading to nationalization, increased taxation or confiscation of foreign
investors' assets.
Moreover, dividends payable on foreign securities may be subject to foreign
withholding taxes, thereby reducing the income available for distribution to a
Fund's shareholders; commission rates payable on foreign transactions are
generally higher than in the United States; foreign accounting, auditing and
financial reporting standards differ from those in the United States and,
accordingly, less information may be available about foreign companies than is
available about issuers of comparable securities in the United States; and
foreign securities may trade less frequently and with lower volume and may
exhibit greater price volatility than United States securities.
Changes in foreign exchange rates will also affect the value in U.S. dollars of
all foreign currency-denominated securities held by a Fund. Exchange rates are
influenced generally by the forces of supply and demand in the foreign currency
markets and by numerous other political and economic events occurring outside
the United States, many of which may be difficult, if not impossible, to
predict.
Income from foreign securities will be received and realized in foreign
currencies, and a Fund is required to compute and distribute income in U.S.
dollars. Accordingly, a decline in the value of a particular foreign currency
against the U.S. dollar occurring after the Fund's income has been earned and
computed in U.S. dollars may require the Fund to liquidate portfolio securities
to acquire sufficient U.S. dollars to make a distribution. Similarly, if the
exchange rate declines between the time a Fund incurs expenses in U.S. dollars
and the time such expenses are paid, the Fund may be required to liquidate
additional foreign securities to purchase the U.S. dollars required to meet such
expenses.
Certain Funds may purchase foreign bank obligations. In addition to the risks
described above that are generally applicable to foreign investments, the
investments that the Funds make in obligations of foreign banks, branches or
subsidiaries may involve further risks, including differences between foreign
banks and U.S. banks in applicable accounting, auditing and financial reporting
standards, and the possible establishment of exchange controls or other foreign
government laws or restrictions applicable to the payment of certificates of
deposit or time deposits that may affect adversely the payment of principal and
interest on the securities held by the Funds.
LEVERAGE
The Funds may use leverage in an effort to increase their returns. Leverage
involves special risks and may involve speculative investment techniques.
Leverage exists when cash made available to a Fund through an investment
technique is used to make additional Fund investments. Borrowing for other than
temporary or emergency purposes, lending portfolio securities, entering into
reverse repurchase agreements, purchasing securities on a when-issued, delayed
delivery or forward commitment basis (including dollar roll transactions) and
the use of swaps and related agreements are transactions that result in
leverage. Certain Funds also may purchase securities on margin or enter into
short sales. The Funds use these investment techniques only when the Advisers
believe that the leveraging and the returns available to the Funds from
investing the cash will provide investors a potentially higher return.
Leverage creates the risk of magnified capital losses that occur when losses
affect an asset base, enlarged by borrowings or the creation of liabilities,
that exceeds the equity base of the Fund. Leverage may involve the creation of a
liability that requires a Fund to pay interest (for instance, reverse repurchase
agreements) or the creation of a liability that does not entail any interest
costs (for instance, forward commitment costs). The risks of leverage include a
higher volatility of the net asset value of the Fund's interests and the
relatively greater effect on the net asset value of the interests caused by
favorable or adverse market movements or changes in the cost of cash obtained by
leveraging and the yield from invested cash. So long as a Fund is able to
realize a net return on its investment portfolio that is higher than interest
expense incurred, if any, leverage will result in higher current net investment
income for the Fund than if a Fund were not leveraged. Changes in interest rates
and related economic factors could cause the relationship between the cost of
leveraging and the yield to change so that rates involved in the leveraging
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arrangement may substantially increase relative to the yield on the obligations
in which the proceeds of the leveraging have been invested. To the extent that
the interest expense involved in leveraging approaches the net return on the
Fund's investment portfolio, the benefit of leveraging will be reduced, and, if
the interest expense on borrowings were to exceed the net return to investors,
the Fund's use of leverage would result in a lower rate of return than if the
Fund were not leveraged. In an extreme case, if the Fund's current investment
income were not sufficient to meet the interest expense of leveraging, it could
be necessary for the Fund to liquidate certain of its investments at an
inappropriate time.
SEGREGATED ACCOUNTS. In order to attempt to reduce the risks involved in various
transactions involving leverage, a Fund's custodian will set aside and maintain,
in a segregated account, cash and liquid securities. The account's value, which
is marked to market daily, will be at least equal to the Fund's commitments
under these transactions. The use of a segregated account in connection with
leveraged transactions may result in a Fund's investment portfolio being 100%
leveraged.
OPTIONS AND FUTURES CONTRACTS
A Fund's use of options and futures contracts subjects the Fund to certain
unique investment risks. These risks include: (1) dependence on an Adviser's
ability to correctly predict movements in the prices of individual securities
and fluctuations in interest rates, the general securities markets and other
economic factors; (2) imperfect correlations between movements in the prices of
options or futures contracts and movements in the price of the securities hedged
or used for cover which may cause a given hedge not to achieve its objective;
(3) the fact that the skills and techniques needed to trade these instruments
are different from those needed to select the other securities in which a Fund
invests; (4) lack of assurance that a liquid secondary market will exist for any
particular instrument at any particular time, which, among other things, may
hinder a Fund's ability to limit exposures by closing its positions; (5) the
possible need to defer closing out certain options, futures contracts and
related options to avoid adverse tax consequences; and (6) the potential for
unlimited losses when investing in futures contracts or writing options for
which an offsetting position is not held.
Other risks include the inability of a Fund, as the writer of covered call
options, to benefit from any appreciation of the underlying securities above the
exercise price and the possible loss of the entire premium paid for options
purchased by the Fund. In addition, the futures exchanges may limit the amount
of fluctuation permitted in certain futures contract prices on related options
during a single trading day. A Fund may be forced, therefore, to liquidate or
close out a futures contract position at a disadvantageous price. There is no
assurance that a counterparty in an over-the-counter option transaction will be
able to perform its obligations. There are a limited number of options on
interest rate futures contracts and exchange-traded options contracts on fixed
income securities. The Funds may use various futures contracts that are
relatively new instruments without a significant trading history. As a result,
there can be no assurance that an active secondary market in those contracts
will develop or continue to exist. A Fund's activities in the futures and
options markets may result in higher portfolio turnover rates and additional
brokerage costs, which could reduce a Fund's yield.
SMALL CAPITALIZATION STOCKS
Investments in smaller capitalization companies carry greater risk than
investments in larger capitalization companies. Smaller capitalization companies
generally experience higher growth rates and higher failure rates than do larger
capitalization companies; and the trading volume of smaller capitalization
companies' securities is normally lower than that of larger capitalization
companies and, consequently, generally has a disproportionate effect on market
price (tending to make prices rises more in response to buying demand and fall
more in response to selling pressure).
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Securities owned by a Fund that are traded in the over-the-counter market or on
a regional securities exchange may not be traded every day or in the volume
typical of securities trading on a national securities exchange. As a result,
disposition by a Fund of a portfolio security, to meet redemption requests by
investors or otherwise, may require the Fund to sell these securities at a
discount from market prices, to sell during periods when disposition is not
desirable, or to make many small sales over a lengthy period of time.
Investments in small, unseasoned issuers generally carry greater risk than is
customarily associated with larger, more seasoned companies. Such issuers often
have products and management personnel that have not been tested by time or the
marketplace and their financial resources may not be as substantial as those of
more established companies. Their securities (which a Fund may purchase when
they are offered to the public for the first time) may have a limited trading
market that can adversely affect their sale by the Fund and can result in such
securities being priced lower than otherwise might be the case. If other
institutional investors engage in trading this type of security, a Fund may be
forced to dispose of its holdings at prices lower than might otherwise be
obtained.
GEOGRAPHIC CONCENTRATION
To the extent a Fund's investments are primarily concentrated in issuers located
in a particular state, region or country, the value of the Fund's shares may be
especially affected by factors pertaining to that state, region or country's
economy and other factors specifically affecting the ability of issuers of that
state, region or country to meet their obligations. As a result, the value of
the Fund's assets may fluctuate more widely than the value of shares of a more
geographically diverse portfolio.
Colorado Tax-Free Fund, Minnesota Intermediate Tax-Free Fund and Minnesota
Tax-Free Fund invest principally in municipal securities issued by issuers
within a particular state and the state's political subdivisions. Those Funds
are more susceptible to factors adversely affecting issuers of those municipal
securities than would be a more geographically diverse municipal securities
portfolio. In addition, to the extent they may concentrate their investments in
a particular jurisdiction, Municipal Money Market Fund, Limited Term Tax-Free
Fund and Tax-Free Income Fund will be subject to similar risks. These risks
arise from the financial condition of the state and its political subdivisions.
To the extent state or local governmental entities are unable to meet their
financial obligations, the income derived by a Fund, its ability to preserve or
realize appreciation of its portfolio assets or its liquidity could be impaired.
DIVERSIFICATION
Colorado Tax-Free Fund, Minnesota Intermediate Tax-Free Fund and Minnesota
Tax-Free Fund are non-diversified, which means that they have greater latitude
than a diversified fund with respect to the investment of their assets in the
securities of a relatively small number of issuers. As non-diversified
portfolios, these Funds may present greater risks than a diversified fund
because each Fund's performance will generally be more heavily influenced by an
adverse movement in a single security's price. Each Fund intends to comply with
applicable diversification requirements of the Internal Revenue Code. These
requirements provide that, as of the last day of each fiscal quarter: (1) with
respect to 50% of its assets, a Fund may not: (a) own the securities of a single
issuer, other than a U.S. Government security, with a value of more than 5% of
the Fund's total assets; or (b) own more than 10% of the outstanding voting
securities of a single issuer; and (2) a Fund may not own the securities of a
single issuer, other than a U.S. Government security, with a value of more than
25% of the Fund's total assets.
4. INFORMATION CONCERNING COLORADO AND MINNESOTA
Following is a brief summary of some of the factors that may affect the
financial condition of the State of Colorado and the State of Minnesota and
their respective political subdivisions. It is not a complete or comprehensive
description of these factors or an analysis of financial conditions and may not
be indicative of the financial condition of issuers of obligations held by
Colorado Tax Free Fund, Minnesota Intermediate Tax-Free Fund and Minnesota
Tax-Free Fund or any particular projects financed with the proceeds of such
obligations. Many factors not included in the summary, such as the national
economy, social and environmental policies and conditions, and the national and
international markets for products produced in each state could have an adverse
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impact on the financial condition of a State and its political subdivisions,
including the issuers of obligations held by a Fund. It is not possible to
predict whether and to what extent those factors may affect the financial
condition of a State and its political subdivisions, including the issuers of
obligations held by a Fund.
The following summary is based on publicly available information that has not
been independently verified by the Trust or its legal counsel.
COLORADO
THE COLORADO STATE ECONOMY. Among the most significant sectors of the State's
economy are services, trade, manufacture of durable and non-durable goods and
tourism. During the mid-1980's, the State's economy was adversely affected by
numerous factors, including the contraction of the energy sector, layoffs by
advanced technology firms and an excess supply of both residential and
nonresidential buildings causing employment in the construction sector to
decline. As a result of these conditions, certain areas of the State experienced
particularly high unemployment. Furthermore, in 1986, for the first time in 32
years, job generation in the State was negative and, in 1986, for the first time
in 21 years, the State experienced negative migration, with more people leaving
the State than moving in.
From 1994 through 1998, there has been steady improvement in the Colorado
economy: per-capita income increased approximately 59.1% (6.7% in 1998) and
retail trade sales revenues increased approximately 84.1% (6.6% in 1998). 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 1998 the
State's unemployment rate was 3.8% and the United State's unemployment rate was
4.5%).
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 1998 refers to the fiscal year ended June 30, 1998.
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 32.2% and 63.4%, respectively, of total
net General Fund revenues during fiscal year 1997 and approximately 31.0% and
63.8%, respectively, of total net General Fund revenues during fiscal year 1998.
The ending General Fund balance for fiscal year 1997 was $712.2 million and for
fiscal year 1998 was approximately $718.0 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 certain 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, 1999, was given the highest rating
available for short-term obligations by S&P (SP-1+) and Fitch (F-1+) (A rating
on such notes was not requested from, and consequently no rating was given by,
Moody's). Because of the short-term nature of such notes, their ratings should
not be considered necessarily indicative of the State's general financial
condition.
TAX AND SPENDING LIMITATION AMENDMENT. On November 3, 1992, the Colorado voters
approved a State constitutional amendment (the "Amendment") that restricts the
ability of the State and local governments to increase taxes, revenues, debt and
spending. The Amendment provides that its provisions supersede conflicting State
constitutional, State statutory, charter or other State or local provisions.
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The provisions of the Amendment apply to "districts," which are defined in the
Amendment as the State or any local government, with certain exclusions. Under
the terms of the Amendment, districts must have prior voter approval to impose
any new tax, tax rate increase, mill levy increase, valuation for assessment
ratio increase and extension of an expiring tax. Such prior voter approval is
also required, except in certain limited circumstances, for the creation of "any
multiple-fiscal year direct or indirect district debt or other financial
obligation." The Amendment prescribes the timing and procedures for any
elections required by the Amendment.
Because the Amendment's voter approval requirements apply to any "multiple
fiscal year" debt or financial obligation, certain 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
Supreme Court has determined that certain 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 (including the requirements for vote approval discussed
above, the Amendment requires the establishment of emergency reserves, limits
increases in district revenues and 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 1999, revenues in excess of the applicable limits were
refunded to certain taxpayers in the State in accordance with the Amendment. In
addition, the Amendment prohibits new or increased real property transfer taxes,
new State real property taxes and new local district income taxes. The Amendment
also provides that a local district may reduce or end its subsidy to any program
(other than public education through grade 12 or as required by federal law)
delegated to it by the State General Assembly for administration.
This description is not intended to constitute a complete description of all of
the provisions of the Amendment. Furthermore, many provisions of the Amendment
and their application are unclear. Several statutes have been enacted since the
passage of the Amendment attempting to clarify the application of the Amendment
with respect to certain governmental entities and activities and numerous court
decisions have been rendered interpreting certain of the Amendment's provisions,
including a recent State Supreme Court decision holding that certain proposed
transportation revenue anticipation notes would be subject to the amendment's
requirements for prior vote approval. 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.
MINNESOTA
The following highlights some of the more significant financial trends and
issues affecting Minnesota and its economy and is based on information drawn
from official statements, government web sites and other resources publicly
available as of the date of this Statement of Additional Information. Neither
the Trust nor its independent legal counsel has independently verified any of
the information contained in such resources.
CONSTITUTIONAL STATE REVENUE LIMITATIONS. Minnesota's constitutionally
prescribed fiscal period is a biennium. No agency or other entity may spend more
than its "allotment." The State's Commissioner of Finance, with the approval of
the Governor, is required to reduce excess allotments to the extent necessary to
balance expenditures and forecasted available resources for the then current
biennium. The Governor may seek legislative action when a large reduction in
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expenditures appears necessary, and if the State's legislature is not in
session, the Governor is empowered to convene a special legislative session.
EFFECT OF LIMITATIONS ON ABILITY TO PAY BONDS. There are no constitutional or
statutory provisions which would impair the ability of Minnesota municipalities,
agencies or instrumentalities to meet their bond obligations if the bonds have
been properly issued.
MINNESOTA'S ECONOMY. Diversity and a significant natural resource base are two
important characteristics of Minnesota's economy. When viewed in 1996 on an
aggregate level, the structure of the State's economy parallels the structure of
the United States economy as a whole. State employment in 10 major sectors was
distributed in approximately the same proportions as national employment. In all
sectors, the share of total State employment was within 2.5 percentage points of
national employment share.
In 1996, Minnesota's per capita gross state product (GSP) of $30,395 was more
than 5 percent higher than the U.S's per capita gross domestic product (GDP) of
$28,766. In addition, between 1988 and 1996, Minnesota's GSP increased by 26.5
percent compared to an 18.3 percent increase of U.S. GDP.
Minnesota's employment in the finance, insurance and real estate (FIRE) sector
grew at a rate of 20.1 percent, increasing from 117,738 employees in 1988 to
141,413 in 1996. This rate of increase was nearly seven times that of the
nation's FIRE sector. Employment in Minnesota's business services industry grew
by more than 68 percent between 1988 and 1996. This increase was driven in part
by the outstanding growth in the computer programming, data processing, and
other computer related services industry, which grew by more than 120 percent
during the same period.
Minnesota has one of the fastest growing populations in the Midwest. Migration
from other states, a low death rate, a moderate birth rate and increasing
minority populations have all contributed to Minnesota's population increase.
The eight fastest growing counties in Minnesota between 1990 and 1996 are
counties on the suburban fringe of the Minneapolis-St. Paul metropolitan area.
More than 71 percent of Minnesota's population lives in the state's ten largest
metropolitan statistical areas and cities.
Minnesota's real per capita personal income grew by 3.6 percent between 1995 and
1996 - more than double the rate of the national average. Minnesota had the
highest per capita personal income among the Plains states and the second
highest among all Midwest states in 1996. Nationally, Minnesota ranked 11th in
per capita personal income in 1996, up from 19th place in 1995 and 17th place in
1990.
For 1998, Minnesota's annual average unemployment rate, at 2.5 percent, is the
lowest in the nation. The national annual average unemployment rate in 1998 was
4.5 percent. Minnesota's labor force participation rate, at 74.5 percent, was
the second highest in the nation in 1997. The national labor force participation
rate was 67.1 percent in 1997.
Minnesota had the 12th lowest poverty rate nationally, at 9.7 percent in
1996/97. The national poverty rate was 13.5 percent in 1996/97. Minnesota had
the seventh highest median income for a four-person family, at $60,577 in 1997.
The national median income for a four-person family was $53,350 in 1997.
Minnesota had the 11th highest per capita personal income, at $27,510 in 1998.
The national per capita personal income was $26,412 in 1998.
The State of Minnesota has recently enjoyed a budget surplus. The 1999
Legislature allocated $28.3 billion in general fund resources for the three year
period of fiscal years 1999, 2000 and 2001. Of the $28.3 billion, $2.9 billion
resulted from revenue surpluses available in FY 1999 and $25 billion is from
resources projected to be available in FY 2000 and 2001. An additional $400
million was made available by converting $400 million of capital projects funded
with general fund appropriations to projects funded with the sale of general
obligation bonds.
For 1999, the Legislature enacted a sales tax rebate of $1.25 billion which was
funded out of FY 1999 resources. Tobacco settlement funds received in FY 1999 of
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$460.8 million were transferred to the tobacco settlement fund in FY 1999.
Supplemental appropriations of about $77 million were also made in FY 1999.
Allocations in FY 2000-01 include state tax reductions of $1.4 billion, another
$507 million to the tobacco settlement fund and $23.44 billion for programs. The
general fund is the largest single portion of the state budget. Appropriations
from other funds will bring all appropriations in the state budget for FY
2000-01 to approximately $37 billion. Other funds are usually dedicated for
specific purposes such as health care access and highways and bridges.
The State of Minnesota has no obligation to pay any bonds of its political or
governmental subdivisions, municipalities, governmental agencies, or
instrumentalities. The creditworthiness of local general obligation bonds is
dependent upon the financial condition of the local government issuer, and the
creditworthiness of revenue bonds is dependent upon the availability of
particular designated revenue sources or the financial conditions of the
underlying obligors. Although most of the bonds owned by the Minnesota
Intermediate Tax-Free Fund and the Minnesota Tax-Free Fund are expected to be
obligations other than general obligations of the State of Minnesota itself,
there can be no assurance that the same factors that adversely affect the
economy of the State generally will not also affect adversely the market value
or marketability of such other obligations, or the ability of the obligors to
pay the principal of or interest on such obligations.
5. INVESTMENT LIMITATIONS
For purposes of all fundamental and nonfundamental investment policies of the
Fund: (1) the term 1940 Act includes the rules thereunder, SEC interpretations
and any exemptive order upon which the Fund may rely; and (2) the term Code
includes the rules thereunder, IRS interpretations and any private letter ruling
or similar authority upon which the Fund may rely.
Except as required by the 1940 Act or the Code, if any percentage restriction on
investment or utilization of assets is adhered to at the time an investment is
made, a later change in percentage resulting from a change in the market values
of a Fund's assets or purchases and redemptions of shares will not be considered
a violation of the limitation.
FUNDAMENTAL LIMITATIONS
Each Fund has adopted the following fundamental investment policies.
(1) DIVERSIFICATION
EACH FUND (other than Colorado Tax-Free Fund, Minnesota
Intermediate Tax-Free Fund and Minnesota Tax-Free Fund) may not,
with respect to 75% of its assets, purchase a security (other
than a U.S. Government Security or a security of an investment
company) if, as a result: (1) more than 5% of the Fund's total
assets would be invested in the securities of a single issuer; or
(2) the Fund would own more than 10% of the outstanding voting
securities of any single issuer.
(2) CONCENTRATION
(a) CASH INVESTMENT FUND and READY CASH INVESTMENT Fund may not
purchase a security if, as a result, more than 25% of the Fund's
total assets would be invested in securities of issuers
conducting their principal business activities in the same
industry; provided: (1) there is no limit on investments in U.S.
Government Securities, in repurchase agreements covering U.S.
Government Securities or in foreign government securities; (2)
municipal securities are not treated as involving a single
industry; (3) there is no limit on investment in issuers
domiciled in a single country; (4) financial service companies
are classified according to the end users of their services (for
example, automobile finance, bank finance and diversified
finance); and (5) utility companies are classified according to
their services (for example, gas, gas transmission, electric and
gas, electric and telephone); and provided the Fund will invest
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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: (1) 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 (2) 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: (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).
(d) INCOME FUND, LIMITED TERM TAX-FREE FUND, TAX-FREE INCOME FUND,
COLORADO TAX-FREE FUND, MINNESOTA INTERMEDIATE TAX-FREE FUND,
MINNESOTA TAX-FREE FUND and VALUGROWTH STOCK FUND may not
purchase a security if, as a result, more than 25% of the Fund's
total assets would be invested in securities of issuers
conducting their principal business activities in the same
industry; provided: (1) there is no limit on investments in
repurchase agreements covering U.S. Government Securities; (2)
municipal securities are not treated as involving a single
industry; (3) financial service companies are classified
according to the end users of their services (for example,
automobile finance, bank finance and diversified finance); and
(4) utility companies are classified according to their services
(for example, gas, gas transmission, electric and gas, electric
and telephone). Notwithstanding anything to the contrary, to the
extent permitted by the 1940 Act, the Fund may invest in one or
more investment companies; provided that, except to the extent
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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; (2)
municipal securities are not treated as involving a single
industry; (3) financial service companies are classified
according to the end users of their services (for example,
automobile finance, bank finance and diversified finance); and
(4) utility companies are classified according to their services
(for example, gas, gas transmission, electric and gas, electric
and telephone). Notwithstanding anything to the contrary, to the
extent permitted by the 1940 Act, the Fund may invest in one or
more investment companies; provided that, except to the extent
the Fund invests in other investment companies pursuant to
Section 12(d)(1)(A) of the 1940 Act, the Fund treats the assets
of the investment companies in which it invests as its own for
purposes of this policy.
(g) DIVERSIFIED SMALL CAP FUND and SMALL CAP OPPORTUNITIES FUND may
not purchase a security if, as a result, more than 25% of the
Fund's total assets would be invested in securities of issuers
conducting their principal business activities in the same
industry; provided, however, that there is no limit on
investments in U.S. Government Securities. Notwithstanding
anything to the contrary, to the extent permitted by the 1940
Act, the Fund may invest in one or more investment companies;
provided that, except to the extent the Fund invests in other
investment companies pursuant to Section 12(d)(1)(A) of the 1940
Act, the Fund treats the assets of the investment companies in
which it invests as its own for purposes of this policy.
(h) STABLE INCOME FUND, LIMITED TERM GOVERNMENT INCOME FUND,
INTERMEDIATE GOVERNMENT INCOME FUND, DIVERSIFIED BOND FUND,
STRATEGIC INCOME FUND, MODERATE BALANCED FUND, GROWTH BALANCED
FUND, AGGRESSIVE BALANCED FUND, INCOME EQUITY FUND, INDEX FUND,
DIVERSIFIED EQUITY FUND, GROWTH EQUITY FUND, LARGE COMPANY GROWTH
FUND, and SMALL COMPANY GROWTH FUND may not purchase a security
if, as a result, more than 25% of the Fund's total assets would
be invested in securities of issuers conducting their principal
business activities in the same industry; provided, however, that
there is no limit on investments in U.S. Government Securities,
repurchase agreements covering U.S. Government Securities,
foreign government securities, mortgage-related or
housing-related securities, municipal securities and issuers
domiciled in a single country; that financial service companies
are classified according to the end users of their services (for
example, automobile finance, bank finance and diversified
finance); and that utility companies are classified according to
their services (for example, gas, gas transmission, electric and
gas, electric and telephone. Notwithstanding anything to the
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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.
(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.
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(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 nonfundamental investment policies. The
Board may change any nonfundamental policy.
(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.
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Government Security, if as a result, more than 5% of the Fund' s
total assets would be invested in a single issuer or the Fund
would own more than 10% of the outstanding rated securities of
any single issuer.
(b) COLORADO TAX-FREE FUND, MINNESOTA INTERMEDIATE TAX-FREE FUND and
MINNESOTA TAX-FREE FUND are "non-diversified" as that term is
defined in the 1940 Act.
(c) With respect to each of COLORADO TAX-FREE FUND, MINNESOTA
INTERMEDIATE TAX-FREE FUND and MINNESOTA TAX-FREE FUND, to the
extent required to qualify as a regulated investment company
under the Code, as amended, the Fund may not purchase a security
(other than a U.S. Government security or a security of an
investment company) if, as a result: (1) with respect to 50% of
its assets, more than 5% of the Fund's total assets would be
invested in the securities of any single issuer; (2) with respect
to 50% of its assets, the Fund would own more than 10% of the
outstanding securities of any single issuer; or (3) more than 25%
of the Fund's total assets would be invested in the securities of
any single issuer.
(2) BORROWING
(a) EACH FUND'S (other than TREASURY PLUS FUND'S, INTERMEDIATE
GOVERNMENT INCOME FUND'S and DIVERSIFIED BOND FUND'S) borrowings
for other than temporary or emergency purposes or meeting
redemption requests may not exceed an amount equal to 5% of the
value of the Fund's net assets. When STABLE INCOME FUND, LIMITED
TERM GOVERNMENT INCOME FUND, INTERMEDIATE GOVERNMENT INCOME FUND,
DIVERSIFIED BOND FUND, STRATEGIC INCOME FUND, MODERATE BALANCED
FUND, GROWTH BALANCED FUND, AGGRESSIVE BALANCED-EQUITY FUND,
INCOME EQUITY FUND, INDEX FUND, DIVERSIFIED EQUITY FUND, GROWTH
EQUITY FUND, LARGE COMPANY GROWTH FUND, SMALL COMPANY GROWTH FUND
and INTERNATIONAL FUND establish a segregated account to limit
the amount of leveraging with respect to certain investment
techniques, they do not treat those techniques as involving
borrowings for purposes of this or other borrowing limitations.
(b) TREASURY PLUS FUND may not purchase or sell physical commodities
unless acquired as a result of the ownership of securities or
other instruments (but this shall not prevent the Fund from
purchasing or selling options and futures contracts or from
investing in securities or other instruments backed by physical
commodities).
(3) ILLIQUID SECURITIES
(a) No MONEY MARKET FUND other than TREASURY PLUS FUND may acquire
securities or invest in repurchase agreements with respect to any
securities if, as a result, more than 10% of the Fund's net
assets (taken at current value) would be invested in repurchase
agreements not entitling the holder to payment of principal
within seven days and in securities which are not readily
marketable, including securities that are not readily marketable
by virtue of restrictions on the sale of such securities to the
public without registration under the 1933 Act, as amended
("Restricted Securities").
(b) EACH FIXED INCOME FUND, EQUITY FUND and BALANCED FUND may not
acquire securities or invest in repurchase agreements with
respect to any securities if, as result, more than 15% of the
Fund's net assets (taken at current value) would be invested in
repurchase agreements not entitling the holder to payment of
principal within seven days and in securities which are not
readily marketable, including securities that are not readily
marketable by virtue of restrictions on the sale of such
securities to the public without registration under the 1933 Act,
as amended ("Restricted Securities").
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<PAGE>
(c) TREASURY PLUS FUND may not invest more than 10% 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. 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
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.
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<PAGE>
(9) LENDING OF PORTFOLIO SECURITIES
NO FUND (other than SMALL CAP OPPORTUNITIES FUND) may lend portfolio
securities if the total value of all loaned securities would exceed 33
1/3% of the Fund's total assets, as determined by SEC guidelines.
SMALL CAP OPPORTUNITIES FUND may not lend portfolio securities if the
total value of all loaned securities would exceed 25% of its total
assets.
(10) REAL ESTATE LIMITED PARTNERSHIPS
NO FUND other than TREASURY PLUS FUND may invest in real estate
limited partnerships.
(11) OPTIONS AND FUTURES CONTRACTS
(a) NO MONEY MARKET Fund may invest in options, futures contracts or
options on futures contracts.
(b) NO FIXED INCOME FUND, EQUITY FUND (other than SMALL CAP
OPPORTUNITIES FUND) or BALANCED FUND may purchase an option if,
as a result, more that 5% of the value of the Fund's total assets
would be so invested.
(12) WARRANTS
NO FUND may invest in warrants if: (1) more than 5% of the value of the
Fund's net assets would will be invested in warrants (valued at the
lower of cost or market); or (2) more than 2% of the value of the
Fund's net assets would be invested in warrants which are not listed on
the New York Stock Exchange or the American Stock Exchange; provided,
that warrants acquired by a Fund attached to securities are deemed to
have no value.
(13) TREASURY FUND INVESTMENT LIMITATIONS
TREASURY FUND may not enter into repurchase agreements or purchase any
security other than those that are issued or guaranteed by the U.S.
Treasury, including separately traded principal and interest components
of securities issued or guaranteed by the U.S. Treasury.
(14) PURCHASES AND SALES OF COMMODITIES
NO MONEY MARKET FUND except TREASURY PLUS FUND may purchase or sell
physical commodities or contracts, options or options on contracts to
purchase or sell physical commodities, provided that currencies and
currency-related contracts and contracts on indices are not be deemed
to be physical commodities.
TREASURY PLUS FUND may not purchase or sell physical commodities or
contracts, options or options on contracts to purchase or sell physical
commodities.
(15) VALUGROWTH STOCK FUND INVESTMENT LIMITATIONS
VALUGROWTH STOCK FUND may not enter into commitments under when-issued
and forward commitment obligations in an amount greater than 15% of the
value of the Fund's total assets.
(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.
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<PAGE>
6. PERFORMANCE AND ADVERTISING DATA
GENERAL
Quotations of performance may from time to time be used in advertisements, sales
literature, shareholder reports or other communications to shareholders or
prospective investors. All performance information supplied by the Funds is
historical and is not intended to indicate future returns. All performance
information for a Fund is calculated on a class basis. Each Fund's yield and
total return fluctuate in response to market conditions and other factors.
Investment return and principal value will fluctuate, and shares, when redeemed,
may be worth more or less than their original cost.
A Fund's performance may be quoted in terms of yield or total return. A Fund's
yield is a way of showing the rate of income the Fund earns on its investments
as a percentage of the Fund's share price. Municipal Money Market Fund and the
Tax-Exempt Fixed Income Funds may also quote tax-equivalent yields, which show
the taxable yields a shareholder would have to earn to equal the Fund's tax-free
yield, after taxes.
A Fund's total return shows its overall change in value, including changes in
share price and assuming all the Fund's dividends and distributions are
reinvested. A cumulative total return reflects a Fund's performance over a
stated period of time. An average annual total return reflects the hypothetical
annually compounded return that would have produced the same cumulative total
return if the Fund's performance had been constant over the entire period.
Because average annual returns tend to smooth out variations in the Fund's
returns, they are not the same as actual year-by-year results. Published yield
quotations are, and total return figures may be, based on amounts invested in a
Fund net of sales charges that may be paid by an investor. A computation of
yield or total return that does not take into account sales charges will be
higher than a similar computation that takes into account payment of sales
charges.
For a listing of certain performance data as of May 31, 1999 (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, Inc., or other companies which track the investment performance of
investment companies ("Fund Tracking Companies"). The Funds may also compare any
of their performance information with the performance of recognized stock, bond
and other indexes, including but not limited to the Municipal Bond Buyers
Indices, the Salomon Brothers Bond Index, Shearson Lehman Bond Index, the
Standard & Poor's 500 Composite Stock Price Index, Russell 2000 Index, Morgan
Stanley - Europe, Australian and Far East Index, Lehman Brothers Intermediate
Government Index, Lehman Brothers Intermediate Government/Corporate Index, the
Dow Jones Industrial Average, U.S. Treasury bonds, bills or notes and changes in
the Consumer Price Index as published by the U.S. Department of Commerce. These
indices may be comprised of a composite of various recognized securities indices
to reflect the investment policies of a Fund that invests its assets using
different investment styles. Indexes are not used in the management of a Fund
but rather are standards by which an Adviser and shareholders may compare the
performance of a Fund to an unmanaged composite of securities with similar, but
not identical, characteristics as the Fund. This material is not to be
considered representative or indicative of future performance. The Funds may
refer to general market performances over past time periods such as those
published by Ibbotson Associates (for instance, its "Stocks, Bonds, Bills and
Inflation Yearbook"). In addition, the Funds may also refer in such materials to
mutual fund performance rankings and other data published by Fund Tracking
Companies. Performance advertising may also refer to discussions of the Funds
and comparative mutual fund data and ratings reported in independent
periodicals, such as newspapers and financial magazines.
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<PAGE>
SEC YIELD CALCULATIONS
Although published yield information is useful in reviewing a Fund's
performance, the Fund's yield fluctuates from day to day and the Fund's yield
for any given period is not an indication or representation by the Fund of
future yields or rates of return on the Fund's shares. Norwest, financial
institutions that sell Fund shares and others may charge their customers,
various retirement plans or other shareholders that invest in a Fund fees in
connection with an investment in a Fund, which will have the effect of reducing
the Fund's net yield to those shareholders. The yields of a Fund are not fixed
or guaranteed, and an investment in a Fund is not insured or guaranteed.
Accordingly, yield information may not necessarily be used to compare shares of
a Fund with investment alternatives that, 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 that are insured or guaranteed.
MONEY MARKET FUNDS. Yield quotations for the Money Market Funds will include an
annualized historical yield, carried at least to the nearest hundredth of one
percent, based on a specific seven-calendar-day period and are calculated by
dividing the net change during the seven-day period in the value of an account
having a balance of one share at the beginning of the period by the value of the
account at the beginning of the period, and multiplying the quotient by 365/7.
For this purpose, the net change in account value reflects the value of
additional shares purchased with dividends declared on the original share and
dividends declared on both the original share and any such additional shares,
but would not reflect any realized gains or losses from the sale of securities
or any unrealized appreciation or depreciation on portfolio securities. In
addition, any effective annualized yield quotation used by a Money Market Fund
is calculated by compounding the current yield quotation for such period by
adding 1 to the product, raising the sum to a power equal to 365/7, and
subtracting 1 from the result. The standardized tax equivalent yield is the rate
an investor would have to earn from a fully taxable investment in order to equal
a Fund's yield after taxes. Tax equivalent yields are calculated by dividing the
Fund's yield by one minus the stated Federal or combined Federal and state tax
rate. If a portion of a Fund's yield is tax-exempt, only that portion is
adjusted in the calculation.
FIXED INCOME FUNDS, TAX-FREE FIXED INCOME FUNDS, BALANCED FUNDS AND EQUITY
FUNDS. Standardized yields for the Funds used in advertising are computed by
dividing a Fund's interest income (in accordance with specific standardized
rules) for a given 30 days or one month period, net of expenses, by the average
number of shares entitled to receive distributions during the period, dividing
this figure by the Fund's net asset value per share at the end of the period and
annualizing the result (assuming compounding of income in accordance with
specific standardized rules) in order to arrive at an annual percentage rate. In
general, interest income is reduced with respect to municipal securities
purchased at a premium over their par value by subtracting a portion of the
premium from income on a daily basis. In general, interest income is increased
with respect to municipal securities purchased at original issue at a discount
by adding a portion of the discount to daily income. Capital gains and losses
generally are excluded from these calculations.
The standardized tax equivalent yield is the rate an investor would have to earn
from a fully taxable investment in order to equal a Fund's yield after taxes.
Tax equivalent yields are calculated by dividing the Fund's yield by one minus
the stated Federal or combined Federal and state tax rate. If a portion of a
Fund's yield is tax-exempt, only that portion is adjusted in the calculation.
Income calculated for the purpose of determining each Fund's standardized yield
differs from income as determined for other accounting purposes. Because of the
different accounting methods used, and because of the compounding assumed in
yield calculations, the yield quoted for a Fund may differ from the rate of
distribution the Fund paid over the same period or the rate of income reported
in the Fund's financial statements.
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<PAGE>
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, performance is not constant over time but changes from
year to year, and average annual returns represent averaged figures as opposed
to the actual year-to-year performance of the Funds.
Average annual total return is calculated by finding the average annual
compounded rates of return of a hypothetical investment, over such periods
according to the following formula:
P(1+T)n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value: ERV is the value, at the end of
the applicable period, of a hypothetical $1,000 payment made at
the beginning of the applicable period
Standardized total return quotes may be accompanied by non-standardized total
return figures calculated by alternative methods. For example, average annual
total return may be calculated without assuming payment of the sales load
according to the following formula:
P(1+U)n = ERV
Where:
P = a hypothetical initial payment of $1,000.
U = average annual total return assuming non payment of the
maximum sales load at the beginning of the stated period.
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment at
the end of the stated period
In addition to average annual returns, each Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Total returns may be broken down into their components of
income and capital (including capital gains and changes in share price) in order
to illustrate the relationship of these factors and their contributions to total
return. Total returns, yields, and other performance information may be quoted
numerically or in a table, graph, or similar illustration. Period total return
is calculated according to the following formula:
PT = (ERV/P-1)
Where:
PT = period total return
The other definitions are the same as in average annual total
return above
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MULTICLASS, COLLECTIVE INVESTMENT FUND, COMMON TRUST FUND AND CORE AND GATEWAY
PERFORMANCE MULTICLASS PERFORMANCE
When a Fund has more than one class of shares, performance calculations for the
classes of shares that are created after the initial class may be stated so as
to include the performance of the initial class or classes of the Fund.
Generally, performance of the initial class is not restated to reflect the
expenses or expense ratio of the subsequent class. For instance, if A Shares of
a Fund are created after I Shares have been in existence, the inception of
performance for the A Shares will be deemed to be the inception date of the I
Shares and the performance of the I Shares (based on the I Shares actual
expenses) from the inception of I Shares to the inception of A Shares will be
deemed to be the performance of A Shares for that period. For standardized total
return calculations, the current maximum initial sales load and applicable 12b-1
fees on A Shares would be used in determining the total return of A Shares as if
assessed at the inception of I Shares. Generally, the performance of B Shares
and C Shares will be calculated only from the inception date of B Shares,
regardless of the existence of prior share classes in the same Fund.
Prior to November 11, 1994, Norwest Bank Minnesota, N.A. managed a collective
investment fund with an investment objective and policies that were, in all
material respects, equivalent to the Fund. The performance for the Fund includes
the performance of the predecessor collective investment fund for periods before
it became a mutual fund on November 11, 1994. The collective investment fund was
not registered under the 1940 Act nor subject to restrictions imposed by the
Act, which, if applicable, may have adversely affected the performance.
Class B shares for Growth Balanced Fund, Large Company Growth Fund and
Diversified Small Cap Fund commenced operations on October 1, 1998. Returns
prior to October 1, 1998 are for Class I shares, adjusted for Class B share
expenses. Performance shown or advertised for the Class B Shares for each of
these funds for periods prior to November 11, 1994 reflects performance of the
shares of predecessor collective investment funds adjusted to reflect Class B
expenses (before waivers and reimbursements).
Class C shares for Growth Balanced Fund, Income Equity Fund, Diversified Equity
Fund and Growth Equity Fund commenced operations on October 1, 1998. Returns
prior to October 1, 1998 are for Class I shares, adjusted for Class C share
expenses. Performance shown or advertised for the Class C Shares for each of
these funds for periods prior to November 11, 1994 reflects performance of the
shares of predecessor collective investment funds adjusted to reflect Class C
expenses (before waivers and reimbursements).
Class B shares for Income Equity Fund, Diversified Equity Fund, Growth Equity
Fund, Small Company Stock Fund and International Fund commenced operations on
May 2, 1996, May 6, 1996, May 6, 1996, December 31, 1993 and May 12, 1995,
respectively. Returns prior to those dates are for Class I shares, adjusted for
Class B share expenses. Performance shown or advertised for the Class B Shares
for each of these funds for periods prior to November 11, 1994 reflects
performance of the shares of predecessor collective investment funds adjusted to
reflect Class B expenses (before waivers and reimbursements).
Small Cap Opportunities Fund's Class B shares commenced operations on November
8, 1996. Returns prior to November 8, 1996 are for Class I shares, adjusted for
Class B share expenses.
Class B shares for Income Fund, Tax-Free Income Fund, Colorado Tax-Free Fund,
Minnesota Tax-Free Fund and ValuGrowth (SM) Stock Fund commenced operations on
August 5, 1993, August 5, 1993, August 6, 1993, August 2, 1993 and August 6,
1993, respectively. Returns prior to these dates are for Class A shares,
adjusted for Class B share expenses.
COLLECTIVE INVESTMENT AND COMMON TRUST FUND PERFORMANCE. Prior to November 11,
1994, Norwest Bank managed several collective investment funds each of which had
an investment objective and investment policies that were in all material
respects equivalent to a particular Fund which became the successor to the
collective investment fund. Therefore, the performance for these Funds includes
the performance of their predecessor collective investment funds for periods
before those Funds became mutual funds on November 11, 1994. The collective
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investment fund performance was adjusted to reflect those Funds' 1994 estimate
of their expense ratios for the first year of operations as a mutual fund
(without giving effect to any fee waivers or expense reimbursements). Prior to
October 1, 1997, Norwest Bank managed a common trust fund which had an
investment objective and investment policies that were in all material respects
equivalent to one of the Funds which became the successor to the common trust
fund. Therefore, the performance for the Fund includes the performance of the
predecessor common trust fund for the period before the Fund became a mutual
fund on October 1, 1997. The common trust fund performance was adjusted to
reflect the Fund's 1997 estimate of its expense ratio for the first year of
operation as a mutual fund (without giving effect to any fee waivers or expense
reimbursements). The collective investment funds and common trust fund were not
registered under the 1940 Act nor subject to certain investment limitations,
diversification requirements, and other restrictions imposed by the 1940 Act and
the Code, which, if applicable, may have adversely affected the performance
result. The performance of International Fund reflects the historical
performance of Schroder International Equity Fund (managed by Schroder Capital
Management International Inc.) in which International Fund's predecessor
collective investment fund invested.
CORE AND GATEWAY PERFORMANCE. When a Fund invests all of its investable assets
in a Portfolio that has a performance history prior to the investment by the
Fund, the Fund will assume the performance history of the Portfolio. That
history may be restated to reflect the estimated expenses of the Fund.
OTHER ADVERTISEMENT MATTERS
The Funds may advertise other forms of performance. For example, the Funds may
quote unaveraged or cumulative total returns reflecting the change in the value
of an investment over a stated period. Average annual and cumulative total
returns may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments and/or a series of
redemptions over any time period. Total returns may be broken down into their
components of income and capital (including capital gains and changes in share
price) in order to illustrate the relationship of these factors and their
contributions to total return. Total returns may be quoted with or without
taking into consideration a Fund's front-end sales charge or contingent deferred
sales charge; excluding sales charges from a total return calculation produces a
higher return figure. Any performance information may be presented numerically
or in a table, graph or similar illustration.
The Funds may also include various information in their advertisements
including, but not limited to: (1) portfolio holdings and portfolio allocation
as of certain dates, such as portfolio diversification by instrument type, by
instrument, by location of issuer or by maturity; (2) statements or
illustrations relating to the appropriateness of types of securities and/or
mutual funds that may be employed by an investor to meet specific financial
goals, such as funding retirement, paying for children's education and
financially supporting aging parents; (3) information (including charts and
illustrations) showing the effects of compounding interest (compounding is the
process of earning interest on principal plus interest that was earned earlier;
interest can be compounded at different intervals, such as annually, quarterly
or daily); (4) information relating to inflation and its effects on the dollar;
for example, after ten years the purchasing power of $25,000 would shrink to
$16,621, $14,968, $13,465 and $12,100, respectively, if the annual rates of
inflation were 4%, 5%, 6% and 7%, respectively; (5) information regarding the
effects of automatic investment and systematic withdrawal plans, including the
principal of dollar cost averaging; (6) biographical descriptions of the Funds'
portfolio managers and the portfolio management staff of the Advisers or
summaries of the views of the portfolio managers with respect to the financial
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
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end of ten years and $3,870 and $9,646, respectively, at the end of twenty
years. These examples are for illustrative purposes only and are not indicative
of any Fund's performance.
The Funds may advertise information regarding the effects of automatic
investment and systematic withdrawal plans, including the principal of dollar
cost averaging. In a dollar cost averaging program, an investor invests a fixed
dollar amount in a Fund at period intervals, thereby purchasing fewer shares
when prices are high and more shares when prices are low. While such a strategy
does not insure a profit or guard against a loss in a declining market, the
investor's average cost per share can be lower than if fixed numbers of shares
had been purchased at those intervals. In evaluating such a plan, investors
should consider their ability to continue purchasing shares through periods of
low price levels. For example, if an investor invests $100 a month for a period
of six months in a Fund the following will be the relationship between average
cost per share ($14.35 in the example given) and average price per share:
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
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.
7. MANAGEMENT
Those officers, as well as certain other officers and Trustees of the Trust, may
be directors, officers or employees of (and persons providing services to the
Trust may include) Forum, its affiliates or certain non-banking affiliates of
Norwest.
43
<PAGE>
TRUSTEES AND OFFICERS
TRUSTEES AND OFFICERS OF THE TRUST. The Trustees and officers of the Trust and
their principal occupations during the past five years and age as of 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.
Former Director Federal Farm Credit Banks Funding Corporation and Farm
Credit System Financial Assistance Corporation (1993-March 1999). His
address is 5038 Kestral Parkway South, 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.
44
<PAGE>
DONALD C. WILLEKE, Trustee, Age 58.
Principal of the law firm of Willeke & Daniels. His address is 201
Ridgewood Avenue, Minneapolis, Minnesota 55403.
SARA M. MORRIS, Vice President and Treasurer, Age 35.
Managing Director, Forum Financial Services, Inc., with which she has been
associated since 1994. Prior thereto, from 1991 to 1994 Ms. Morris was
Controller of Wright Express Corporation (a national credit card company)
and for six years prior thereto was employed at Deloitte & Touche LLP as an
accountant. Ms. Morris is also an officer of various registered investment
companies for which Forum Administrative Services, LLC or Forum Financial
Services, Inc. serves as manager, administrator and/or distributor. Her
address is Two Portland Square, Portland, Maine 04101.
DAVID I. GOLDSTEIN, Vice President and Secretary, Age 37.
Managing Director and General Counsel, Forum Financial Services, Inc., with
which he has been associated since 1991. Mr. Goldstein is also an officer
of various registered investment companies for which Forum Administrative
Services, LLC or Forum Financial Services, Inc. serves as manager,
administrator and/or distributor. His address is Two Portland Square,
Portland, Maine 04101.
THOMAS G. SHEEHAN, Vice President and Assistant Secretary, Age 44.
Managing Director and Counsel, Forum Financial Services, Inc., with which
he has been associated since 1993. Prior thereto, Mr. Sheehan was Special
Counsel to the Division of Investment Management of the SEC. Mr. Sheehan is
also an officer of various registered investment companies for which Forum
Administrative Services, LLC or Forum Financial Services, Inc. serves as
manager, administrator and/or distributor. His address is Two Portland
Square, Portland, Maine 04101.
PAMELA J. WHEATON, Assistant Treasurer, Age 39.
Manager - Fund Accounting, 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 51.
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.
COMPENSATION OF TRUSTEES AND OFFICERS OF THE TRUST. Each Trustee of the Trust is
paid a quarterly retainer fee of $6,000, 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 except the annual
meeting, for which each Trustee is paid $5,000 (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. Messrs.
Keffer and McCune received no compensation for their services as Trustees for
the past year or reimbursement for their associated expenses. In addition, no
officer of the Trust is compensated by the Trust.
45
<PAGE>
Mr. Burkhardt, Chairman of the Trust's and Norwest Select Funds' audit
committees, receives additional compensation of $8,000 from the Trust and
Norwest Select Funds allocated pro rata between the Trust and Norwest Select
Funds based upon relative net assets, for his services as Chairman. Each Trustee
was elected by shareholders on April 30, 1997.
The following table provides the aggregate compensation paid to the Trustees of
the Trust by the Trust and Norwest Select Funds, combined. Norwest Select Funds
have a December 31 fiscal year end. Information is presented for the twelve
month period ended May 31, 1999, 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 $37,770 $38,000
Mr. Burkhardt $45,722 $46,000
Mr. Harris $31,802 $32,000
Mr. Leach $37,770 $38,000
Mr. Penny $37,770 $38,000
Mr. Willeke $37,770 $38,000
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,
1999 total expenses of the Trustees (other than Messrs. Keffer and McCune) was
$38,958 and total expenses of the trustees of Norwest Select Funds was $444 .
As of October 1, 1999, the Trustees and officers of the Trust in the aggregate
owned less than 1% of the outstanding shares of the Funds.
TRUSTEES AND OFFICERS OF CORE TRUST. The Trustees and officers of the Trust and
their principal occupations during the past five years are set forth below. Each
Trustee who is an "interested person" (as defined by the 1940 Act) of the Trust
is indicated by an asterisk.
John Y. Keffer*, Chairman and President, Age 56.
President , Forum Financial Group, LLC (mutual fund services company
holding company). Mr. Keffer is a Trustee/Director and/or officer of
various registered investment companies for which Forum Financial Services,
Inc. serves as manager, administrator and/or distributor. His address is
Two Portland Square, Portland, Maine 04101.
COSTAS AZARIADIS, Trustee, Age 55.
Professor of Economics, University of California, Los Angeles, since July
1992. Prior thereto, Dr. Azariadis was Professor of Economics at the
University of Pennsylvania. His address is Department of Economics,
University of California, Los Angeles, 405 Hilgard Avenue, Los Angeles,
California 90024.
JAMES C. CHENG, Trustee, Age 56.
President, Technology Marketing Associates (a marketing company for small
and medium size businesses in New England) since 1991. Prior thereto, Mr.
Cheng was President of Network Dynamics, Inc. (a software development
company). His address is 27 Temple Street, Belmont, MA 02718.
46
<PAGE>
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, 44)
Managing Director, Forum Financial Group, LLC, with which he has been
associated since October 1993. Prior thereto, Mr. Sheehan was Special
Counsel to the Division of Investment Management of the SEC. Mr. Sheehan
also serves as an officer of other registered investment companies for
which the various Forum Financial Group of Companies provides services. His
address is Two Portland Square, Portland, Maine 04101.
DAVID I. GOLDSTEIN, Secretary, Age 37.
General Counsel, Forum Financial Group , LLC, with which he has been
associated since 1991. Prior thereto, Mr. Goldstein was associated with the
law firm of Kirkpatrick & Lockhart, LLP. Mr. Goldstein is also an officer
of various registered investment companies for which Forum Financial
Services, Inc. serves as manager, administrator and/or distributor. His
address is Two Portland Square, Portland, Maine 04101.
LESLIE K. KLENK, Secretary, Age 34.
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.
DON L. EVANS, Assistant Secretary, Age 51.
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.
PAMELA STUTCH, Assistant Secretary, Age 31.
Senior Fund Specialist, 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.
HEIDI HOEFLER, Assistant Secretary, Age 36.
Staff Attorney, Forum Financial Group, LLC with which she has been
associated since 1998. Prior thereto, Ms. Hoefler was a legal intern with
UNUM (1996-1997), and prior thereto a law student at University of Maine.
47
<PAGE>
INVESTMENT ADVISORY SERVICES
GENERAL. Table 1 in Appendix B shows, with respect to each Fund that invests
directly in portfolio securities, the dollar amount of fees payable by the Fund
to Norwest under its Investment Advisory Agreement. The table shows, with
respect to each Fund that invests in a Core and Gateway Structure, the aggregate
dollar amount of: (1) the Fund's share of the aggregate investment advisory fees
payable by the Portfolio(s) in which the Fund invests to Norwest, Wells Fargo
Bank and/or Schroder, as the case may be, under the Investment Advisory
Agreement(s) of the Portfolio(s); and (2) the asset allocation fees payable by
the Fund to Norwest, if any, if the Fund invests in multiple Portfolios. The
table also shows the amount of the fee that was waived by Norwest, Wells Fargo
Bank and/or Schroder, if any, and the actual fee received by Norwest, Wells
Fargo Bank and/or Schroder. The data is for the past three fiscal years or for a
shorter period if the Fund has been in operation for a shorter period.
The advisory fee for each Fund investing directly in portfolio securities is
disclosed in the Fund's prospectuses. If a Fund invests in a Core and Gateway
Structure, the asset allocation fee payable to Norwest, if any, and the
aggregate of the advisory fees payable with respect to the Fund's assets by the
Portfolio or Portfolios in which the Fund invests are also disclosed in the
Fund's prospectuses. All investment advisory fees are accrued daily and paid
monthly. Each Adviser, in its sole discretion, may waive or continue to waive
all or any portion of its investment advisory fees.
In addition to receiving its advisory fee from the Funds, each Adviser or its
affiliates may act and be compensated as investment manager for its clients with
respect to assets which are invested in a Fund. In some instances Norwest or its
affiliates may elect to credit against any investment management, custodial or
other fee received from, or rebate to, a client who is also a shareholder in a
Fund an amount equal to all or a portion of the fees received by Norwest or any
of its affiliates from a Fund with respect to the client's assets invested in
the Fund.
NORWEST INVESTMENT MANAGEMENT. For each Fund investing directly in portfolio
securities, Norwest makes investment decisions for the Fund and continuously
reviews, supervises and administers the Fund's investment program or oversees
the investment decisions of the Fund's Subadviser, as applicable. For Funds that
invest in a Core and Gateway Structure, Norwest provides investment advisory
services to the Funds indirectly through its investment advisory services to the
Portfolios other than those for which Schroder or Wells Fargo Bank serves as
investment adviser. In this capacity, Norwest makes investment decisions for
those Portfolios and continuously reviews, supervises and administers those
Portfolios' investment programs or oversees the investment decisions of the
Subadvisers, as applicable. For each Fund investing in a Core and Gateway
Structure pursuant which the Fund invests in multiple Portfolios and Norwest
allocates the Fund's assets among the Portfolios, Norwest makes investment
decisions regarding the asset allocations of the Fund and continuously reviews,
supervises and administers the Fund's asset allocations. Norwest provides these
investment advisory services to the Funds and the Portfolios subject to the
supervision of the Board or the Core Board, as appropriate.
Norwest provides investment advisory services to the Funds under the Investment
Advisory Agreement between the Trust and Norwest. Norwest provides investment
advisory services to the Portfolios under an Investment Advisory Agreement
between Core Trust and Norwest. The Investment Advisory Agreement between
Norwest and Core Trust is identical to the Investment Advisory Agreement between
Norwest and the Trust, except for the fees payable thereunder and certain
immaterial matters. Accordingly, the description of the Investment Advisory
Agreement set forth below applies equally to the Investment Advisory Agreement
between Norwest and Core Trust.
Norwest furnishes at its expense all services, facilities and personnel
necessary in connection with managing each Fund's investments and effecting
portfolio transactions for each Fund. Under the Investment Advisory Agreement,
Norwest may delegate its responsibilities to any Subadviser approved by the
Board and, as applicable, shareholders, with respect to all or a portion of the
assets of the Fund. With respect to each Fund, the Investment Advisory Agreement
will continue in effect only if such continuance is specifically approved at
least annually by the Board or by vote of the shareholders, and in either case,
by a majority of the Trustees who are not interested persons of any party to the
Investment Advisory Agreement, at a meeting called for the purpose of voting on
the Investment Advisory Agreement.
48
<PAGE>
The Investment Advisory Agreement is terminable without penalty with respect to
a Fund on 60 days' written notice: (1) by the Trust to Norwest, if the Board
determines to terminate the Investment Advisory Agreement with respect to the
Fund or a majority of the outstanding voting securities of the Fund vote to
terminate the Investment Advisory Agreement with respect to the Fund or (2) by
the Adviser to the Trust. The Investment Advisory Agreement terminates if
assigned. The Investment Advisory Agreement also provides that, with respect to
the Funds, neither Norwest nor its personnel shall be liable for any mistake of
judgment or in any event whatsoever, except for lack of good faith, provided
that nothing in the Investment Advisory Agreement shall be deemed to protect, or
purport to protect, the Adviser against liability by reason of willful
misfeasance, bad faith or gross negligence in the performance of Norwest's
duties or by reason of reckless disregard of its obligations and duties under
the Investment Advisory Agreement. The Investment Advisory Agreement provides
that Norwest may render services to others.
Norwest, which is located at Norwest Center, Sixth Street and Marquette,
Minneapolis, Minnesota 55479, is a subsidiary of Norwest Bank Minnesota, N.A.
Norwest and its affiliates currently manage assets with a value of approximately
$131 billion.
"DORMANT" INVESTMENT ADVISORY ARRANGEMENTS. Under its Investment Advisory
Agreement with the Trust, Norwest has been retained as a "dormant" or "back-up"
investment adviser for the Funds currently investing in a Core and Gateway
Structure. In this capacity, Norwest does not receive any compensation from the
Funds as long as the Funds invest entirely in Portfolios. If a Fund were to
redeem assets from a Portfolio and invest them directly, Norwest would receive
an investment advisory fee from the Fund for the management of those assets at
the following rates:
<TABLE>
<S> <C>
FEE AS A
FUND % OF THE FUND'S AVERAGE DAILY NET ASSETS
Cash Investment Fund 0.20% for the first $300 million;
0.16% for the next $400 million;
0.12% for the remaining assets.
Ready Cash Investment Fund 0.40% for the first $300 million;
0.36% for the next $400 million;
0.32% for the remaining assets
Stable Income Fund 0.30%
Diversified Bond Fund 0.35%
Total Return Bond Fund 0.50%
Strategic Income Fund 0.45%
Moderate Balanced Fund 0.53%
Growth Balanced Fund 0.58%
Aggressive Balanced-Equity Fund 0.63%
Index Fund 0.15%
Income Equity Fund 0.50%
Diversified Equity Fund 0.65%
Growth Equity Fund 0.90%
Large Company Growth Fund 0.65%
Diversified Small Cap Fund 0.90%
Small Company Stock Fund 0.90%
Small Cap Opportunities Fund 0.60%
Small Company Growth Fund 0.90%
International Fund 0.85%
</TABLE>
49
<PAGE>
SCHRODER INVESTMENT MANAGEMENT NORTH AMERICA INC. Subject to the general
supervision of the Core Boards, Schroder Investment Management North America
Inc. makes investment decisions for International Portfolio and continuously
reviews, supervises and administers the Portfolio's investment program.
International Fund invests all of its assets in International Portfolio.
Pursuant to a separate Advisory Agreement between Core Trust and Schroder,
Schroder acts as investment adviser to International Portfolio, and is required
to furnish at its expense all services, facilities and personnel necessary in
connection with managing that Portfolio's investments and effecting portfolio
transactions for that Portfolio. This Advisory Agreement will continue in effect
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 interests of
the Portfolio; and (2) by a majority of the trustees of Core Trust who are not
parties to the Advisory Agreement or interested persons of any such party (other
than as trustees of Core 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 Advisory Agreement is not approved as to
the Portfolio, Schroder 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.
The Advisory Agreement between Schroder and Core Trust is substantially
identical to the Investment Advisory Agreement, except for the parties, the fees
payable thereunder and certain immaterial matters.
WELLS FARGO BANK. Subject to the general supervision of the Core Trust Board,
Wells Fargo Bank makes investment decisions for International Equity Portfolio
and continuously reviews, supervises and administers that Portfolio's investment
program.
Pursuant to a separate Advisory Agreement between Core Trust and Wells Fargo
Bank, Wells Fargo Bank acts as investment adviser to International Equity
Portfolio, and is required to furnish at its expense all services, facilities
and personnel necessary in connection with managing that Portfolio's investments
and effecting portfolio transactions for that Portfolio. This Advisory Agreement
will continue in effect with respect to the Portfolio only if such continuance
is specifically approved at least annually: (1) by the Core Trust Board, or by
vote of a majority of the outstanding voting interests of the Portfolio and, in
either case; (2) by a majority of the trustees of Core Trust, who are not
parties to the Advisory Agreement or interested persons of any such party (other
than as trustees of Core 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 Advisory Agreement is not approved as to a
Portfolio, Wells Fargo Bank may continue to render to that Portfolio the
services described herein in the manner and to the extent permitted by the 1940
Act and the rules and regulations thereunder.
The Advisory Agreement between Wells Fargo Bank and Core Trust is substantially
identical to the Investment Advisory Agreement, except for the parties, the fees
payable thereunder and certain immaterial matters.
"DORMANT" INVESTMENT SUBADVISORY ARRANGEMENTS. Norwest and the Trust have
entered into an Investment Subadvisory Agreement with Schroder on behalf of
International Fund. 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 international
securities by investing in another registered investment company. In that event,
pursuant to the Investment Subadvisory Agreement, Schroder would make investment
decisions directly for the Fund and would continuously review, supervise and
administer the Fund's investment program with respect to that portion, if any,
of the Fund's portfolio that Norwest had so delegated. Schroder would furnish at
its own expense all services, facilities and personnel necessary in connection
with managing of the Fund's investments and effecting portfolio transactions for
the Fund, to the extent of Norwest's delegation.
50
<PAGE>
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 (2) by
a majority of the Trust's trustees who are not parties to the Investment
Subadvisory Agreement or interested persons of any such party (other than as
trustees of the Trust), at a meeting called for the purpose of voting on the
Investment Subadvisory Agreement; provided further, however, that if the
Investment Subadvisory Agreement or the continuation of the Investment
Subadvisory Agreement is not approved as to the Fund, Schroder 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 provide 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 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 Agreement. The Investment Subadvisory
Agreement provides that Schroder may render services to others.
The Fund does not currently pay any fees to Schroder under the Investment
Subadvisory Agreement because the Fund currently invests all of its assets in
Portfolio.
SUBADVISERS. As set forth in the Prospectuses, Norwest, Wells Fargo Bank and
Core Trust have retained the services of Galliard, Peregrine, Smith and WCM
pursuant to Investment Subadvisory Agreements to assist Norwest and Wells Fargo
Bank in carrying out their obligations with respect to certain Portfolios.
Norwest and Wells Fargo Bank each pay a fee to each such Subadviser for the
investment subadvisory services provided to each Portfolio by that Subadviser.
These fees do not increase the fees paid by the interestholders of the
Portfolios. The amount of the fees paid by Norwest or Wells Fargo Bank to each
Subadviser may vary from time to time as a result of periodic negotiations with
the Subadviser regarding matters such as the nature and extent of the services
(other than investment selection and order placement activities) provided by the
Subadviser, the cost and complexity of providing services, the investment record
of the Subadviser in managing the Portfolio and the nature and magnitude of the
expenses incurred by the Subadviser in managing the Portfolio's assets and by
Norwest or Wells Fargo Bank in overseeing the Portfolio.
Generally, Norwest has entered into a dormant Investment Subadvisory Agreement
with each Subadviser on behalf of each Fund that invests all or a portion of its
assets in a Portfolio subadvised by that Subadviser. This is not the case only
with respect to Galliard and Total Return Bond Fund and Smith and Strategic
Income Fund, Moderate Balanced Fund, Growth Balanced Fund, Diversified Equity
Fund and Growth Equity Fund. With respect to each Subadviser, the terms of the
Investment Subadvisory Agreement between Core Trust, Norwest and the Subadviser
and the dormant Investment Subadvisory Agreement between the Trust, Norwest and
the Subadviser are identical, except with respect to the fees payable (no fee is
payable under the investment subadvisory agreements with respect to a Fund to
the extent that the Fund is invested in an investment company) and certain
immaterial matters.
Norwest and Wells Fargo Bank perform internal due diligence on each Subadviser
and monitor each Subadviser's performance using their proprietary investment
adviser selection and monitoring process. Norwest and Wells Fargo Bank will be
responsible for communicating performance targets and evaluations to
Subadvisers, supervising each Subadviser's compliance with fundamental
investment objectives and policies, authorizing Subadvisers to engage in certain
investment techniques, and recommending to the Core Board whether investment
subadvisory agreements should be renewed, modified or terminated. Norwest and
Wells Fargo Bank also may from time to time recommend that the Core Board
replace one or more Subadvisers or appoint additional Subadvisers, depending on
Norwest's and Wells Fargo Bank's assessment of what combination of Subadvisers
it believes will optimize each Portfolio's chances of achieving its investment
objectives.
51
<PAGE>
GALLIARD CAPITAL MANAGEMENT, INC. To assist Norwest in carrying out its
obligations with respect to Stable Income Portfolio, Strategic Value Bond
Portfolio and Managed Fixed Income Portfolio, Norwest has entered into an
Investment Subadvisory Agreement with Galliard, located at 800 LaSalle Avenue,
Suite 2060, Minneapolis, Minnesota 55479. Stable Income Fund, Diversified Bond
Fund, Total Return Bond Fund, Strategic Income Fund, Moderate Balanced Fund,
Growth Balanced Fund and Aggressive Balanced-Equity Fund each invest all or a
portion of their assets in at least one of those Portfolios. Galliard is
registered with the SEC as an investment adviser and is an investment advisory
subsidiary of Norwest Bank. Galliard is required to furnish at its own expense
all services, facilities and personnel necessary in connection with managing
each Portfolio's investments and effecting portfolio transactions for each
Portfolio (to the extent of Norwest's delegation). Pursuant to the Investment
Subadvisory Agreement, Galliard makes investment decisions for each of the
Portfolios and continuously reviews, supervises and administers each Portfolio's
investment program with respect to that portion, if any, of the Portfolio's
investment portfolio that Norwest believes should be invested using Galliard as
a subadviser. Currently, Galliard manages all the assets of each Portfolio and
has done so since each Portfolio's inception. Norwest supervises the performance
of Galliard including its adherence to the Portfolios' investment objectives and
policies and pays Galliard a fee for its investment management services. The fee
Norwest pays Galliard does not affect the total fees paid by the Portfolios to
Norwest.
The Investment Subadvisory Agreement will continue in effect with respect to a
Portfolio only if such continuance is specifically approved at least annually:
(1) by the Core Trust Board or by vote of a majority of the outstanding voting
securities of the Portfolios, and, in either case; (2) by a majority of the Core
Trust's trustees who are not parties to the Investment Subadvisory Agreement or
interested persons of any such party (other than as trustees of the Core Trust),
at a meeting called for the purpose of voting on the Investment Subadvisory
Agreement; provided further, however, that if the Investment Subadvisory
Agreement or the continuation of the Agreement is not approved, the Subadviser
may continue to render to each Portfolio the services described in the
Investment Subadvisory Agreement in the manner and to the extent permitted by
the 1940 Act and the rules and regulations thereunder.
The Investment Subadvisory Agreement is terminable without penalty with respect
to a Portfolio on 60 days' written notice when authorized either by majority
vote of the Portfolio's shareholders or by the Core Trust Board, or by Galliard
on 60 days written notice to the Core Trust, and will automatically terminate in
the event of its assignment. The Investment Subadvisory Agreement also provides
that, with respect to each Portfolio, neither Galliard nor its personnel shall
be liable for any mistake of judgment or in any event whatsoever, except for
lack of good faith, provided that nothing shall be deemed to protect Galliard
against liability by reason of willful misfeasance, bad faith or gross
negligence in the performance of Galliard's duties or by reason of reckless
disregard of its obligations and duties under the Investment Subadvisory
Agreement. The Investment Subadvisory Agreement provides that Galliard may
render services to others.
PEREGRINE CAPITAL MANAGEMENT, INC. To assist Norwest in carrying out its
obligations with respect to Positive Bond Portfolio, Large Company Growth
Portfolio, Small Company Growth Portfolio and Small Company Value Portfolio,
Norwest has entered into an Investment Subadvisory Agreement with Peregrine,
located at 800 LaSalle Avenue, Suite 1850, Minneapolis, Minnesota 55479.
Diversified Bond Fund, Strategic Income Fund, Moderate Balanced Fund, Growth
Balanced Fund, Aggressive Balanced-Equity Fund, Diversified Equity Fund, Growth
Equity Fund, Large Company Growth Fund, Diversified Small Cap Fund and Small
Company Growth Fund each invest all or a portion of their assets in at least one
of those Portfolios. Peregrine is registered with the SEC as an investment
adviser and is an investment advisory subsidiary of Norwest Bank. Peregrine is
required to furnish at its own expense all services, facilities and personnel
necessary in connection with managing each Portfolio's investments and effecting
portfolio transactions for each Portfolio (to the extent of Norwest's
delegation). Pursuant to the Investment Subadvisory Agreement, Peregrine makes
investment decisions for each of the Portfolios and continuously reviews,
supervises and administers each Portfolio's investment program with respect to
that portion, if any, of the Portfolio's investment portfolio that Norwest
believes should be invested using Peregrine as a subadviser. Currently,
Peregrine manages all the assets of each Portfolio and has done so since each
Portfolio's inception. Norwest supervises the performance of Peregrine including
its adherence to the Portfolios' investment objectives and policies and pays
Peregrine a fee for its investment management services. The fee Norwest pays
Peregrine does not affect the total fees paid by the Portfolios to Norwest.
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The Investment Subadvisory Agreement will continue in effect with respect to a
Portfolio only if such continuance is specifically approved at least annually:
(1) by the Core Trust Board or by vote of a majority of the outstanding voting
securities of the Portfolio, and, in either case; (2) by a majority of the Core
Trust's trustees who are not parties to the Investment Subadvisory Agreement or
interested persons of any such party (other than as trustees of the Core Trust),
at a meeting called for the purpose of voting on the Investment Subadvisory
Agreement; provided further, however, that if the Investment Subadvisory
Agreement or the continuation of the Agreement is not approved, the Subadviser
may continue to render to each Portfolio the services described in the
Investment Subadvisory Agreement in the manner and to the extent permitted by
the 1940 Act and the rules and regulations thereunder.
The Investment Subadvisory Agreement is terminable without penalty with respect
to a Portfolio on 60 days' written notice when authorized either by majority
vote of the Portfolio's shareholders or by the Core Trust Board, or by Peregrine
on 60 days written notice to the Core Trust, and will automatically terminate in
the event of its assignment. The Investment Subadvisory Agreement also provides
that, with respect to each Portfolio, neither Peregrine nor its personnel shall
be liable for any mistake of judgment or in any event whatsoever, except for
lack of good faith, provided that nothing shall be deemed to protect Peregrine
against liability by reason of willful misfeasance, bad faith or gross
negligence in the performance of Peregrine's duties or by reason of reckless
disregard of its obligations and duties under the Investment Subadvisory
Agreement. The Investment Subadvisory Agreement provides that Peregrine may
render services to others.
SMITH ASSET MANAGEMENT GROUP, L.P. To assist Norwest in carrying out its
obligations with respect to Disciplined Growth Portfolio and Small Cap Value
Portfolio, Norwest has entered into an Investment Subadvisory Agreement with
Smith, located at 500 Crescent Court, Suite 250, Dallas, Texas. Strategic Income
Fund, Moderate Balanced Fund, Growth Balanced Fund, Aggressive Balanced-Equity
Fund, Diversified Equity Fund, Growth Equity Fund and Diversified Small Cap Fund
each invest all or a portion of their assets in at least one of those
Portfolios. Smith is registered with the SEC as an investment adviser. Smith is
required to furnish at its own expense all services, facilities and personnel
necessary in connection with managing each Portfolio's investments and effecting
portfolio transactions for each Portfolio (to the extent of Norwest's
delegation). Pursuant to the Investment Subadvisory Agreement, Smith makes
investment decisions for each of the Portfolios and continuously reviews,
supervises and administers each Portfolio's investment program with respect to
that portion, if any, of the Portfolio's investment portfolio that Norwest
believes should be invested using Smith as a subadviser. Currently, Smith
manages all the assets of each Portfolio and has done so since each Portfolio's
inception. Norwest supervises the performance of Smith including its adherence
to the Portfolios' investment objectives and policies and pays Smith a fee for
its investment management services. The fee Norwest pays Smith does not affect
the total fees paid by the Portfolios to Norwest.
The Investment Subadvisory Agreement will continue in effect with respect to a
Portfolio only if such continuance is specifically approved at least annually:
(1) by the Core Trust Board or by vote of a majority of the outstanding voting
securities of the Portfolio, and, in either case; (2) by a majority of the Core
Trust's trustees who are not parties to the Investment Subadvisory Agreement or
interested persons of any such party (other than as trustees of the Core Trust),
at a meeting called for the purpose of voting on the Investment Subadvisory
Agreement; provided further, however, that if the Investment Subadvisory
Agreement or the continuation of the Agreement is not approved, the Subadviser
may continue to render to each Portfolio the services described in the
Investment Subadvisory Agreement in the manner and to the extent permitted by
the 1940 Act and the rules and regulations thereunder.
The Investment Subadvisory Agreement is terminable without penalty with respect
to a Portfolio on 60 days' written notice when authorized either by majority
vote of the Portfolio's shareholders or by the Core Trust Board, or by Smith on
60 days written notice to the Core Trust, and will automatically terminate in
the event of its assignment. The Investment Subadvisory Agreement also provides
that, with respect to each Portfolio, neither Smith nor its personnel shall be
liable for any mistake of judgment or in any event whatsoever, except for lack
of good faith, provided that nothing shall be deemed to protect Smith against
liability by reason of willful misfeasance, bad faith or gross negligence in the
performance of Smith's duties or by reason of reckless disregard of its
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obligations and duties under the Investment Subadvisory Agreement. The
Investment Subadvisory Agreement provides that Smith may render services to
others.
WELLS CAPITAL MANAGEMENT INCORPORATED. To assist Wells Fargo Bank in carrying
out its obligations with respect to International Equity Portfolio, Wells Fargo
Bank has entered into an Investment Subadvisory Agreement with WCM, located at
525 Market Street, 10th Floor, San Francisco, California 94105. Strategic Income
Fund, Moderate Balanced Fund, Growth Balanced Fund, Aggressive Balanced-Equity
Fund, Diversified Equity Fund and Growth Equity Fund each invest a portion of
their assets in International Equity Portfolio. WCM is registered with the SEC
as an investment adviser. WCM is required to furnish at its own expense all
services, facilities and personnel necessary in connection with managing the
Portfolio's investments and effecting portfolio transactions for the Portfolio
(to the extent of Wells Fargo Bank's delegation). Pursuant to the Investment
Subadvisory Agreement, WCM makes investment decisions for International Equity
Portfolio and continuously reviews, supervises and administers the Portfolio's
investment program with respect to that portion, if any, of the Portfolio's
investment portfolio that Wells Fargo Bank believes should be invested using WCM
as a subadviser. Currently, WCM manages all the assets of the Portfolio and has
done so since the Portfolio's inception. Wells Fargo Bank supervises the
performance of WCM including its adherence to the Portfolios' investment
objectives and policies and pays WCM a fee for its investment management
services. The fee Wells Fargo Bank pays WCM does not affect the total fees paid
by the Portfolio to Wells Fargo Bank.
MANAGEMENT AND ADMINISTRATIVE SERVICES
FORUM AND FAdS. Forum manages all aspects of the Trust's operations with respect
to each Fund except those which are the responsibility of FAdS, Norwest, Wells
Fargo Bank, 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
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supervises the declaration of dividends and other distributions to shareholders
as necessary to, among other things, maintain the qualification of each Fund as
a regulated investment company under the Code, as amended, and oversees the
preparation and distribution to appropriate parties of notices announcing the
declaration of dividends and other distributions to shareholders; (12) reviews
and negotiates on behalf of the Trust normal course of business contracts and
agreements; (13) maintains and reviews periodically the Trust's fidelity bond
and errors and omission insurance coverage; and (14) advises the Trust and the
Board on matters concerning the Trust and its affairs.
The Management Agreement terminates automatically if assigned and may be
terminated without penalty with respect to any Fund by vote of that Fund's
shareholders or by either party on not more than 60 days' nor less than 30 days'
written notice. The Management Agreement also provides that neither Forum nor
its personnel shall be liable for any error of judgment or mistake of law or for
any act or omission in the administration or management of the Trust, except for
willful misfeasance, bad faith or gross negligence in the performance of Forum's
or their duties or by reason of reckless disregard of their obligations and
duties under the Management Agreement.
FAdS 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, FAdS: (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 FAdS 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 FAdS's
or their duties or by reason of reckless disregard of their obligations and
duties under the Administrative Agreement.
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Pursuant to their agreements with the Trust, Forum and FAdS 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 FAdS's Administration
Agreement, respectively. Forum and FAdS may compensate those agents for their
services; however, no such compensation may increase the aggregate amount of
payments by the Trust to Forum or FAdS pursuant to their Management and
Administration Agreements with the Trust.
For their services, Forum and FAdS each receives a fee with respect to U.S.
Government Fund, Treasury Fund, Institutional Shares of Municipal Money Market
Fund, Limited Term Government Income Fund, Intermediate Government Income Fund,
Income Fund, each Tax-Free Fixed Income Fund, ValuGrowth Stock Fund Small
Company Stock Fund, Small Cap Opportunities 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 Public Entities
Shares and Investor Shares of Ready Cash Investment Fund at an annual rate of
0.075% of the class' average daily net asset, and with respect to each other
Fund at an annual rate of 0.025% of the Fund's average daily net assets.
As of June 30, 1999, Forum and FAdS provided management and administrative
services to registered investment companies and collective investment funds with
assets of approximately $38 billion.
Table 2 in Appendix B shows the dollar amount of fees payable to Forum and FAdS
for management and administrative services with respect to each Fund (or class
thereof for those periods when multiple classes were outstanding), the amount of
fees that were waived by Forum and FAdS, if any, and the actual fees received by
Forum and FAdS. The data is for the past three fiscal years or shorter period if
the Fund has been in operation for a shorter period.
PORTFOLIOS OF CORE TRUST. FAdS 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, FAdS has entered into an
Administration Agreement that will continue in effect only if such continuance
is specifically approved at least annually by the Core Trust Board or by the
shareholders and, in either case, by a majority of the Trustees who are not
interested persons of any party to the Administration Agreement. Under the
Administration Agreement, FAdS performs similar services for each Portfolio as
it and Forum perform for the Funds under the Management Agreement and
Administration Agreement, to the extent the services are applicable to the
Portfolios and their structure.
The Administration Agreement provides that FAdS shall not be liable to Core
Trust or any of Core Trust's interestholders for any action or inaction of FAdS
relating to any event whatsoever in the absence of bad faith, willful
misfeasance or gross negligence in the performance of FAdS' duties or
obligations under the Agreement or by reason of FAdS' reckless disregard of its
duties and obligations under this Agreement.
The Administration Agreement may be terminated with respect to a Portfolio at
anytime, without the payment of any penalty: (1) by the Core Board on 60 days'
written notice to FadS; or (2) by FAdS on 60 days' written notice to Core Trust.
For its services FAdS receives a fee with respect to each Portfolio of Core
Trust at an annual rate of 0.05% of the Portfolio's average daily net assets
(0.15% in the case of International Portfolio).
NORWEST ADMINISTRATIVE SERVICES. Under an Administrative Services Agreement
between the Trust and Norwest Bank with respect to International Fund, Norwest
performs ministerial, administrative and oversight functions for the Fund and
undertakes to reimburse certain excess expenses of the Fund. Among other things,
Norwest Bank gathers performance and other data from Schroder as the adviser of
International Portfolio and from other sources, formats the data and prepares
reports to the Fund's shareholders and the Trustees. Norwest Bank also ensures
that Schroder is aware of pending net purchases or redemptions of the Fund's
shares and other matters that may affect Schroder's performance of its duties.
Lastly, Norwest Bank has agreed to reimburse the Fund for any amounts by which
its operating expenses (exclusive of interest, taxes and brokerage fees,
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organization expenses and, if applicable, distribution expenses, all to the
extent permitted by applicable state law or regulation) exceed the limits
prescribed by any state in which the Funds' shares are qualified for sale. No
fees will be paid to Norwest Bank under the Administrative Services Agreement
unless the Fund's assets are invested solely in International Portfolio or in a
portfolio of another registered investment company. This agreement will continue
in effect only if such continuance is specifically approved at least annually by
the Board or by the shareholders and, in either case, by a majority of the
Trustees who are not parties to the Administrative Services Agreement or
interested persons of any such party.
The Administrative Services Agreement provides that neither Norwest Bank nor its
personnel shall be liable for any error of judgment or mistake of law or for any
act or omission in the performance of its or their duties to the Fund, except
for willful misfeasance, bad faith or gross negligence in the performance of
Forum's or their duties or by reason of reckless disregard of its or their
obligations and duties under the agreement.
Under the agreement, Norwest Bank receives a fee with respect to International
Fund at an annual rate of 0.25% of the Funds' average daily net assets.
International Fund incurs total management and administrative fees at a higher
rate than many other mutual funds, including other funds of the Trust.
Table 2 in Appendix B shows the dollar amount of fees payable under the
Administrative Services Agreement, the amount of the fee that was waived, if
any, and the amount received by Norwest Bank for the past three fiscal years of
the Funds.
DISTRIBUTION
Forum also acts as distributor of the shares of the Fund. Forum acts as the
agent of the Trust in connection with the offering of shares of the Funds on a
"best efforts" basis pursuant to a Distribution Services Agreement.
Under the Distribution Services Agreement, the Trust has agreed to indemnify,
defend and hold Forum, and any person who controls Forum within the meaning of
Section 15 of the 1933 Act, free and harmless from and against any and all
claims, demands, liabilities and expenses (including the cost of investigating
or defending such claims, demands or liabilities and any counsel fees incurred
in connection therewith) which Forum or any such controlling person may incur,
under the 1933 Act, or under common law or otherwise, arising out of or based
upon any alleged untrue statement of a material fact contained in the Trust's
Registration Statement or a Fund's Prospectus or Statement of Additional
Information in effect from time to time under the 1933 Act or arising out of or
based upon any alleged omission to state a material fact required to be stated
in any one thereof or necessary to make the statements in any one thereof not
misleading. Forum is not, however, protected against any liability to the Trust
or its shareholders to which Forum would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of its
duties, or by reason of Forum's reckless disregard of its obligations and duties
under the Distribution Services Agreement.
With respect to each Fund, the Distribution Services Agreement will continue in
effect only if such continuance is specifically approved at least annually by
the Board or by the shareholders and, in either case, by a majority of the
Trustees who are not parties to the Distribution Services Agreement or
interested persons of any such party and, with respect to each class of a Fund
for which there is an effective plan of distribution adopted pursuant to Rule
12b-1, who do not have any direct or indirect financial interest in any
distribution plan of the Fund or in any agreement related to the distribution
plan cast in person at a meeting called for the purpose of voting on such
approval ("12b-1 Trustees").
The Distribution Services Agreement terminates automatically if assigned. With
respect to each Fund, the Distribution Services Agreement may be terminated at
any time without the payment of any penalty: (1) by the Board or by a vote of
the Fund's shareholders or, with respect to each class of a Fund for which there
is an effective plan of distribution adopted pursuant to Rule 12b-1, a majority
of 12b-1 Trustees, on 60 days' written notice to Forum or (2) by Forum on 60
days' written notice to the Trust.
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Under the Distribution Services Agreement related to the Funds that offer A
Shares, Forum receives, and may reallow to certain financial institutions, the
initial sales charges assessed on purchases of A Shares of the Funds. The Funds
have also adopted the distribution plans described below.
A SHARES DISTRIBUTION PLAN. The Trust, on behalf of Growth Balanced Fund, Large
Company Growth Fund and Diversified Small Cap Fund, has adopted a distribution
plan pursuant to Rule 12b-1 under the 1940 Act (the "A Shares Plan") providing
for distribution payments with respect to A Shares. Each of the Funds
compensates Forum for its distribution activities with respect to A Shares by
making distribution payments on A Shares to Forum at an annual rate of up to
0.10% per annum of the average daily net assets of the Fund attributable to A
Shares (the "distribution services fee"). In consideration of the payment of the
distribution services fee, Forum provides the Funds with distribution-related
services that are primarily intended to result in the sale of A Shares,
including, but not limited to, compensation of employees of Forum, compensation
and expenses, including overhead and telephone and other communication expenses,
of Forum and other broker-dealers, banks and other financial intermediaries that
engage in or support the distribution of A Shares, the preparation, printing and
distribution of prospectuses, statements of additional information, sales
literature and advertising materials relating to the A Shares, and such other
promotional activities in such amounts Forum deems necessary or appropriate. The
amount of distribution services fees is not related directly to the amount of
expenses incurred by Forum in connection with providing distribution services,
which expenses may be greater or less than those fees and charges. The Fund will
not be obligated to reimburse Forum for those expenses.
B SHARES AND C SHARES DISTRIBUTION PLANS. The Trust, on behalf of Funds offering
B Shares and C Shares, has adopted distribution plans pursuant to Rule 12b-1
under the 1940 Act (each, a "Plan") providing for distribution payments with
respect to B Shares and C Shares. Each of the Funds compensates Forum for its
distribution activities with respect to B Shares by paying a distribution
services fee on B Shares to Forum at an annual rate of up to 0.75% of the
average daily net assets of the Fund attributable to the B Shares. Each Fund
offering C Shares compensates Forum for its distribution activities with respect
to C Shares by paying a distribution services fee to Forum of up to 0.75% of the
average daily net assets of the Fund attributable to the C Shares. The
distribution payments due to Forum from each Fund comprise: (1) sales
commissions at levels set from time to time by the Board ("sales commissions");
and (2) an interest fee calculated by applying the rate of 1% over the prime
rate to the outstanding balance of uncovered distribution charges.
Under the distribution services agreement between Forum and the Trust, Forum
will receive, in addition to the distribution services fee, all contingent
deferred sales charges due upon redemptions of B Shares and C Shares. The
combined contingent deferred sales charge and distribution services fee on B
Shares and C Shares is intended to finance the distribution of those shares by
permitting an investor to purchase shares through broker-dealers without the
assessment of an initial sales charge and, at the same time, permitting Forum to
compensate broker-dealers in connection with the sales of the shares. Proceeds
from the contingent deferred sales charge with respect to a Fund are paid to
Forum to defray the expenses related to providing distribution-related services
in connection with the sales of B Shares or C Shares, such as the payment of
compensation to broker-dealers selling B Shares or C Shares. Forum may spend the
distribution services fees it receives with respect to B Shares or C Shares as
it deems appropriate on any activities primarily intended to result in the sale
of B Shares or C Shares, respectively.
Under the Plans, a Fund will make distribution services fee payments to Forum
only for periods during which there are outstanding uncovered distribution
charges attributable to the appropriate class of that Fund. Uncovered
distribution charges for a class are equivalent to all sales commissions
previously due (plus interest), less amounts received pursuant to the Plan and
all contingent deferred sales charges previously paid to Forum. At May 31, 1999,
Ready Cash Investment Fund (Exchange Shares), Stable Income Fund, Intermediate
Government Income Fund, Income Fund, Total Return Bond Fund, Tax-Free Income
Fund, Colorado Tax-Free Fund, Minnesota Tax-Free Fund, Income Equity Fund,
ValuGrowth Stock Fund, Diversified Equity Fund, Growth Equity Fund, Small
Company Stock Fund, Small Cap Opportunities Fund and International Fund had
uncovered distribution expenses of $18,785; $112,707; $90,244; $38,700;
$152,328; $99,195; $273,966; $1,561,075; $115,392; $2,350,252; $465,310;
$111,593; $229,014 and $57,510, respectively, or approximately 1.04%, 1.36%,
1.88%, 1.47%, 1.38%, 1.09%, 1.66%, 2.32%, 1.28%, 2.89%, 2.80%, 1.93%, 3.73%, and
2.56% of each respective Fund's net assets attributable to B Shares as of the
same date.
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The amount of distribution services fees and contingent deferred sales charge
payments received by Forum with respect to B Shares or C Shares of a Fund are
not related directly to the amount of expenses incurred by Forum in connection
with providing distribution services to the B Shares or C Shares and may be
higher or lower than those expenses. Forum may be considered to have realized a
profit under a Plan if, at any time, the aggregate amounts of all distribution
services fees and contingent deferred sales charge payments previously made to
Forum with respect to B Shares or C Shares exceed the total expenses incurred by
Forum in distributing B Shares or C Shares.
A Fund does not accrue future distribution services fees as a liability of the
Fund with respect to the B Shares or C Shares or reduce the Fund's current net
assets in respect of distribution services fees which may become payable under a
Plan in the future.
In the event that a Plan is terminated or not continued with respect to B Shares
or C Shares of a Fund, the Fund may, under certain circumstances, continue to
pay distribution services fees to Forum (but only with respect to sales of the
class that occurred prior to the termination or discontinuance of the Plan). In
deciding whether to purchase B Shares and C Shares of a Fund, investors should
consider that payments of distribution services fees could continue until such
time as there are no uncovered distribution charges under the Plans attributable
to that Fund. In approving the Plans, the Board determined that there was a
reasonable likelihood that the Plans would benefit each Fund and its B Shares
shareholders and its C Shares shareholders.
Periods with a high level of sales of B Shares or C Shares of a Fund accompanied
by a low level of redemptions of those shares that are subject to contingent
deferred sales charges will tend to increase uncovered distribution charges with
respect to B Shares or C Shares. Conversely, periods with a low level of sales
of B Shares or C Shares of a Fund accompanied by a high level of redemptions of
those shares that are subject to contingent deferred sales charges will tend to
reduce uncovered distribution charges with respect to B Shares or C Shares. A
high level of sales of B Shares or C Shares during the first few years of
operations, coupled with the limitation on the amount of distribution services
fees payable by a Fund with respect to B Shares or C Shares during any fiscal
year, would cause a large portion of the distribution services fees attributable
to a sale of the B Shares or C Shares to be accrued and paid by the Fund to
Forum with respect to those shares in fiscal years subsequent to the years in
which those shares were sold. The payment delay would in turn result in the
incurrence and payment of increased interest fees under the applicable Plan.
Each Plan provides that all written agreements relating to the Plan must be in a
form satisfactory to the Board. In addition, the Plans require the Trust and
Forum to prepare, at least quarterly, written reports setting forth all amounts
expended for distribution purposes by the Funds and Forum pursuant to the Plans
and identifying the distribution activities for which those expenditures were
made.
Each Plan provides that, with respect to each class of each Fund to which it
applies, it will remain in effect for one year from the date of its adoption and
thereafter may continue in effect for successive annual periods provided it is
approved by the shareholders of the respective class or by the Board, including
a majority of the 12b-1 Trustees. Each Plan further provides that it may not be
amended to increase materially the costs which may be borne by the Trust for
distribution pursuant to the Plan without shareholder approval and that other
material amendments to the Plan must be approved by the trustees in the manner
described in the preceding sentence. The Plans may be terminated at any time by
a vote of the Board or by the shareholders of the respective classes.
The Plans are "semi-enhanced" in that under the circumstances described below,
payments to Forum under a Plan continue while there are uncovered distribution
charges even though the Plan has been terminated. With respect to each Plan,
uncovered distribution charges include all sales commissions previously due,
plus interest, less amounts previously received by Forum (or other distributor)
pursuant to the Plan and contingent deferred sales charges previously paid to
Forum. Each Plan provides that in the event of a Complete Termination (as
defined below) of the Plan with respect to a Fund, payments by a Fund in
consideration of sales of B Shares that occurred prior to termination of the
Plan will cease. A Complete Termination in respect of any Fund means: (1) the
12b-1 Trustees acting in good faith have determined that termination is in the
best interest of the Trust and the shareholders of the Fund; (2) the Trust does
not alter the terms of the CDSC applicable to the B Shares or C Shares of the
Fund outstanding at the time of the termination; (3) the Trust does not pay any
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portion of the asset based sales charge or service fees to an entity other than
the distributor or its assignee (unless the distributor at the time of the
termination was in material breach under the Distribution Agreement in respect
of the Fund); and (4) the Fund does not adopt a distribution plan relating to a
class of shares of the Fund that has a sales load structure substantially
similar (as defined in the Plan) to that of the B shares or C Shares.
In the event of a termination of the B Shares Plan that does not satisfy clauses
(2), (3) and (4) of the definition of a Complete Termination above, Ready Cash
Investment Fund, ValuGrowth Stock Fund, Small Company Stock Fund, Income Fund,
Tax-Free Income Fund, Total Return Bond Fund and Minnesota Tax-Free Fund would
continue to pay distribution services fees for no more than four years. In
contrast, payments by Stable Income Fund, Intermediate Government Income Fund,
Growth Equity Fund and Diversified Equity Fund would continue until such time as
there exist no outstanding uncovered distribution charges attributable to the
Fund and, therefore, could continue for periods of time beyond four years after
the date of termination. In the event of a termination of the C Shares Plan that
does not satisfy clauses (2), (3) and (4) of the definition of a Complete
Termination above, the Funds would continue to pay distribution fees for no more
than four years.
In addition, pursuant to the B Shares Plan, each of Stable Income Fund, Income
Equity Fund and Intermediate Government Income Fund and, pursuant to the C
Shares Plan, each Fund offering C Shares may, subject to approval by the Rule
12b-1 Trustees, assume and pay: (1) any uncovered distribution charges of the
distributor of a fund whose assets are being acquired by the Fund; and (2) any
other amounts expended for distribution on behalf of such fund that are not
reimbursed or paid by the fund upon the merger or combination with or
acquisition of substantially all of the assets of that fund.
Pursuant to the B Shares Plan, each Fund has agreed also to pay Forum a
maintenance fee for B Shares in an amount equal to 0.25% of the average daily
net assets of the Fund attributable to B Shares for providing personal services
to shareholder accounts. The maintenance fee may be paid by Forum to
broker-dealers in an amount not to exceed 0.25% of the value of the B Shares
held by the customers of the broker-dealers.
The fees assessed under the Plans are accrued daily and paid monthly and will
cause a Fund's B Shares or C Shares to have a higher expense ratio and to pay
lower dividends than A Shares of that Fund. Notwithstanding the discontinuation
of distribution services fees with respect to B Shares of a Fund, the Fund's B
Shares may continue to pay maintenance fees.
Table 3 in Appendix B shows the dollar amount of fees payable to Forum for its
distribution services with respect to each Fund (or class thereof), the amount
of fee that was waived by Forum, if any, and the actual fee received by Forum.
All maintenance fees were waived by Forum during the fiscal years ended May 31,
1997, 1998 and 1999. 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.
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TRANSFER AGENT
Norwest Bank, Sixth Street and Marquette, Minneapolis, Minnesota 55479, serves
as transfer agent and dividend disbursing agent for the Trust pursuant to a
Transfer Agency Agreement. The Transfer Agent maintains an account for each
shareholder of the Trust (unless such accounts are maintained by sub-transfer
agents or processing agents), performs other transfer agency functions and acts
as dividend disbursing agent for the Trust. The Transfer Agent is permitted to
subcontract any or all of its functions with respect to all or any portion of
the Trust's shareholders to one or more qualified sub-transfer agents or
processing agents, which may be affiliates of the Transfer Agent. Sub-transfer
agents and processing agents may sell Fund shares. The Transfer Agent is
permitted to compensate those agents for their services; however, that
compensation may not increase the aggregate amount of payments by the Trust to
the Transfer Agent.
The Transfer Agency Agreement will continue in effect only if such continuance
is specifically approved at least annually by the Board or by a vote of the
shareholders of the Trust and in either case by a majority of the Trustees who
are not parties to the Transfer Agency Agreement or interested persons of any
such party, at a meeting called for the purpose of voting on the Transfer Agency
Agreement.
The responsibilities of the Transfer Agent include: (1) answering customer
inquiries regarding account status and history, the manner in which purchases
and redemptions of shares of the Fund may be effected and certain other matters
pertaining to the Fund; (2) assisting shareholders in initiating and changing
account designations and addresses; (3) providing necessary personnel and
facilities to establish and maintain shareholder accounts and records; (4)
assisting in processing purchase and redemption transactions and receiving wired
funds; (5) transmitting and receiving funds in connection with customer orders
to purchase or redeem shares; (6) verifying shareholder signatures in connection
with changes in the registration of shareholder accounts; (7) furnishing
periodic statements and confirmations of purchases and redemptions; (8)
transmitting proxy statements, annual reports, prospectuses and other
communications from the Trust to its shareholders; (9) receiving, tabulating and
transmitting to the Trust proxies executed by shareholders with respect to
meetings of shareholders of the Trust; and (10) providing such other related
services as the Trust or a shareholder may request.
For its services, the Transfer Agent receives a fee computed daily and paid
monthly from the Trust, with respect to each Fund, at an annual rate of 0.25% of
the Fund's average daily net assets attributable to each class of the Fund
(0.10% in the case of Municipal Money Market Fund - Institutional Shares and
Ready Cash Investment Fund - Public Entities Shares and 0.14% in the case of A
Shares for Large Company Growth Fund, Growth Balanced Fund and Diversified Small
Cap Fund).
SHAREHOLDER SERVICING AGENT
Norwest Bank, Sixth Street and Marquette, Minneapolis, Minnesota 55479, serves
as the Shareholder Servicing Agent for the A Share classes of Large Company
Growth Fund, Growth Balanced Fund and Diversified Small Cap Fund. For its
services, the Shareholder Servicing Agent is entitled to receive a fee in the
amount of 0.25% of the Fund's average daily net assets attributable to the
class.
CUSTODIAN
Norwest Bank, Sixth Street and Marquette, Minneapolis, Minnesota 55479, serves
as each Fund's and each Portfolio's custodian and may appoint subcustodians for
the foreign securities and other assets held in foreign countries. For its
custodial services, Norwest Bank receives a fee with respect to each Fund and
each Portfolio at an annual rate of 0.02% of the first $100 million of the
Fund's or Portfolio's average daily net assets, 0.015% of the next $100 million
of the Fund's or Portfolio's average daily net assets and 0.01% of the Fund's or
Portfolio's remaining average daily net assets. Norwest Bank assesses certain
administration, holding and transaction fees in connection with its custodial
services. No fee is directly payable by a Fund to the extent the Fund is
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invested in a Portfolio in accordance with Section 12(d)(1)(E) of the 1940 Act.
With respect to International Portfolio, Norwest Bank receives a fee at an
annual rate of 0.07% of the Portfolio's average daily net assets.
Pursuant to rules adopted under the 1940 Act, a Fund may maintain its foreign
securities and cash in the custody of certain eligible foreign banks and
securities depositories. Selection of these foreign custodial institutions is
made by the Board upon consideration of a number of factors, including (but not
limited to) the reliability and financial stability of the institution; the
ability of the institution to perform capably custodial services for the Fund;
the reputation of the institution in its national market; the political and
economic stability of the country in which the institution is located; and
possible risks of potential nationalization or expropriation of Fund assets. The
Custodian employs qualified foreign subcustodians to provide custody of the
Funds foreign assets in accordance with applicable regulations.
Each Fund invested in one or more Portfolios incurs its proportionate share of
the custodial fees of the Portfolio(s) in which it invests.
PORTFOLIO ACCOUNTING
FAcS, 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, FAcS 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, FAcS receives
from the Trust with respect to each Fund (other than a Fund investing in a Core
and Gateway Structure) a fee of $3,000 per month plus for each additional class
of the Fund above one $1,000 per month. In addition, FAcS 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.
FAcS receives from the Trust with respect to each Fund investing in a Core and
Gateway Structure a standard gateway fee of $1,000 per month plus for each
additional class of the Fund above one - $1,000 per month. FAcS also receives a
fee of $2,000 per month for each Fund investing in a Core and Gateway Structure
pursuant to Section 12(d)(1)(E) of the 1940 Act that invests in more than one
security. In addition to the standard gateway fees, FAcS is entitled to receive
from the Trust with respect to each Fund investing in a Core and Gateway
Structure pursuant to Section 12(d)(1)(H) of the 1940 Act additional surcharges
as described above if the Fund invests in securities other than investment
companies (calculated as if the securities were the Fund's only assets).
Surcharges are determined based upon the total assets, security positions or
other factors as of the end of the prior month and on the portfolio turnover
rate for the prior month. The rates set forth above shall remain fixed through
December 31, 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
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FAcS 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. FAcS 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 FAcS, 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 FAcS'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 FAcS by an officer of the Trust duly authorized. This indemnification does
not apply to FAcS's actions taken or failures to act in cases of FAcS's own bad
faith, willful misconduct or gross negligence.
FAcS performs similar services for the Portfolios and, in addition, acts as the
Portfolios' transfer agent.
Forum, FAdS, and FAcS 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, 1999, Forum, FAdS and FAcS 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 FAcS for its
accounting services with respect to each Fund, the amount of fee that was waived
by FAcS, if any, and the actual fee received by FAcS. The data is for the past
three fiscal years or shorter period if the Fund has been in operation for a
shorter period.
EXPENSES
Each Fund bears all costs of its operations. The costs borne by the Funds
include a pro rata portion of the following: legal and accounting expenses;
Trustees' fees and expenses; insurance premiums, custodian and transfer agent
fees and expenses; brokerage fees and expenses; expenses of registering and
qualifying the Fund's shares for sale with the SEC and with various state
securities commissions; expenses of obtaining quotations on fund securities and
pricing of the Fund's shares; a portion of the expenses of maintaining the
Fund's legal existence and of shareholders' meetings; and expenses of
preparation and distribution to existing shareholders of reports, proxies and
prospectuses. Trust expenses directly attributed to the Fund are charged to the
Fund; other expenses are allocated proportionately among all the series of the
Trust in relation to the net assets of each series.
Each service provider to the Trust or their agents and affiliates also may act
in various capacities for, and receive compensation from, their customers who
are shareholders of a Fund. Under agreements with those customers, these
entities may elect to credit against the fees payable to them by their customers
or to rebate to customers all or a portion of any fee received from the Trust
with respect to assets of those customers invested in a Fund.
The expenses of each Fund that invest in one or more Portfolios include the
Fund's pro rata share of the expenses of the Portfolio or Portfolios in which
the Fund invests.
Subject to the obligations of Norwest to reimburse the Trust for its excess
expenses as described above, the Trust has, under its Investment Advisory
Agreements, confirmed its obligation to pay all its other expenses, including:
(1) interest charges, taxes, brokerage fees and commissions; (2) certain
insurance premiums; (3) fees, interest charges and expenses of the Trust's
custodian, transfer agent and dividend disbursing agent; (4) telecommunications
expenses; (5) auditing, legal and compliance expenses; (6) costs of the Trust's
formation and maintaining its existence; (7) costs of preparing and printing the
Trust's prospectuses, statements of additional information, account application
forms and shareholder reports and delivering them to existing and prospective
shareholders; (8) costs of maintaining books of original entry for portfolio and
fund accounting and other required books and accounts and of calculating the net
asset value of shares of the Trust; (9) costs of reproduction, stationery and
supplies; (10) compensation of the Trust's trustees, officers and employees and
costs of other personnel performing services for the Trust who are not officers
of Norwest, Forum or affiliated persons of Norwest or Forum; (11) costs of
corporate meetings; (12) registration fees and related expenses for registration
with the SEC and the securities regulatory authorities of other countries in
which the Trust's shares are sold; (13) state securities law registration fees
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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.
8. PORTFOLIO TRANSACTIONS
The following discussion of portfolio transactions, while referring to the
Funds, relates equally to the Portfolios.
The Advisers place orders for the purchase and sale of assets they manage with
brokers and dealers selected by and in the discretion of the respective Adviser.
The Funds have no obligation to deal with any specific broker or dealer in the
execution of portfolio transactions. The Advisers seek "best execution" for all
portfolio transactions, but a Fund may pay higher than the lowest available
commission rates when its Adviser believes it is reasonable to do so in light of
the value of the brokerage and research services provided by the broker
effecting the transaction.
Commission rates for brokerage transactions are fixed on many foreign securities
exchanges, and this may cause higher brokerage expenses to accrue to a Fund that
invests in foreign securities than would be the case for comparable transactions
effected on U.S.
securities exchanges.
Purchases and sales of portfolio securities for the Money Market Funds and Fixed
Income Funds usually are principal transactions. Debt instruments are normally
purchased directly from the issuer or from an underwriter or market maker for
the securities. There usually are no brokerage commissions paid for such
purchases. The Equity Funds and the Balanced Funds generally will effect
purchases and sales of equity securities through brokers who charge commissions
except in the over-the-counter markets. Purchases of debt and equity securities
from underwriters of the securities include a disclosed fixed commission or
concession paid by the issuer to the underwriter, and purchases from dealers
serving as market makers include the spread between the bid and asked price. In
the case of debt securities and equity securities traded in the foreign and
domestic over-the-counter markets, there is generally no stated commission, but
the price usually includes an undisclosed commission or markup. Allocations of
transactions to brokers and dealers and the frequency of transactions are
determined by the Advisers in their best judgment and in a manner deemed to be
in the best interest of shareholders of each Fund rather than by any formula.
The primary consideration is prompt execution of orders in an effective manner
and at the most favorable price available to the Fund. In transactions on stock
exchanges in the United States, commissions are negotiated, whereas on foreign
stock exchanges commissions are generally fixed. Where transactions are executed
in the over-the-counter market, each Fund will seek to deal with the primary
market makers; but when necessary in order to obtain best execution, they will
utilize the services of others. In all cases the Funds will attempt to negotiate
best execution.
The Money Market Funds and Fixed Income Funds may effect purchases and sales
through brokers who charge commissions, although the Trust does not anticipate
that the Money Market Funds will do so. Table 6 in Appendix B shows the
aggregate brokerage commissions with respect to each Fund. The data presented is
for the past three fiscal years or a shorter period if the Fund has been in
operation for a shorter period, except as otherwise noted. Any material change
in the last two years in the amount of brokerage commissions paid by a fund was
due to an increase or decrease in the Fund's assets.
Subject to the general policies regarding allocation of portfolio brokerage as
set forth above, the Board and Core Trust Board have authorized the Advisers to
employ their respective affiliates to effect securities transactions of the
Funds or the Portfolios, provided certain other conditions are satisfied. No
Fund has an understanding or arrangement to direct any specific portion of its
brokerage to an affiliate of an Adviser, and will not direct brokerage to an
affiliate of an Adviser in recognition of research services. Payment of
brokerage commissions to an affiliate of an Adviser for effecting such
transactions is subject to Section 17(e) of the 1940 Act, which requires, among
other things, that commissions for transactions on securities exchanges paid by
a registered investment company to a broker which is an affiliated person of
such investment company, or an affiliated person of another person so
affiliated, not exceed the usual and customary brokers' commissions for such
transactions. It is the Fund's policy that commissions paid to Norwest
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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 Board has adopted similar policies with respect to the Portfolio.
During the last three fiscal years certain Funds paid brokerage commissions to
NISI, a wholly-owned broker-dealer subsidiary of the parent of Norwest, Wells
Fargo & Company. 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
VALUGROWTH STOCK FUND PAID TO NISI PAID TO NISI THROUGH NISI
Year Ended May 31, 1999 N/A N/A N/A
Year Ended May 31, 1998 N/A N/A N/A
Year Ended May 31, 1997 $41,474 8.25% 8.05%
</TABLE>
The practice of placing orders with NISI is consistent with each Fund's
objective of obtaining best execution and is not dependent on the fact that NISI
is an affiliate of Norwest.
The Funds and the Portfolios may not always pay the lowest commission or spread
available. Rather, in determining the amount of commissions, including certain
dealer spreads, paid in connection with securities transactions, an Adviser
takes into account factors such as size of the order, difficulty of execution,
efficiency of the executing broker's facilities (including the services
described below) and any risk assumed by the executing broker. The Advisers may
also take into account payments made by brokers effecting transactions for a
Fund or Portfolio: (1) to the Fund or Portfolio; or (2) to other persons on
behalf of the Fund or Portfolio for services provided to the Fund or Portfolio
for which it would be obligated to pay.
In addition, the Advisers may give consideration to research services furnished
by brokers to the Advisers for their use and may cause the Funds and Portfolios
to pay these brokers a higher amount of commission than may be charged by other
brokers. Such research and analysis is of the types described in Section
28(e)(3) of the Securities Exchange Act of 1934, as amended, and is designed to
augment the Adviser's own internal research and investment strategy
capabilities. Such research and analysis may be used by the Advisers in
connection with services to clients other than the Funds and Portfolios, and not
all such services may be used by the Adviser in connection with the Funds. An
Adviser's fees are not reduced by reason of the Adviser's receipt of the
research services.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. and subject to the obligation to seek the most
favorable price and execution available and such other policies as the Boards
may determine, an Adviser may consider sales of shares of the Fund as a factor
in the selection of broker-dealers to execute portfolio transactions for the
Fund.
Investment decisions for the Funds (and for the Portfolios) will be made
independently from those for any other account or investment company that is or
may in the future become managed by the Advisers or their affiliates. Investment
decisions are the product of many factors, including basic suitability for the
particular client involved. Thus, a particular security may be bought or sold
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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. 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, 1999.
REGULAR BROKER OR DEALER VALUE OF SECURITIES HELD
- --------------------------------------- -----------------------------
- --------------------------------------- -----------------------------
Goldman Sachs $2,963,430
- ---------------------------------------- ----------------------------
- ---------------------------------------- ----------------------------
Merrill Lynch & Co., Inc. $5,327,050
- ---------------------------------------- ----------------------------
- ---------------------------------------- ----------------------------
Lehman Brothers Holding, Inc. $3,864,840
PORTFOLIO TURNOVER
The frequency of portfolio transactions of a Fund (the portfolio turnover rate)
will vary from year to year depending on many factors. From time to time a Fund
may engage in active short-term trading to take advantage of price movements
affecting individual issues, groups of issues or markets. An annual portfolio
turnover rate of 100% would occur if all of the securities in a Fund were
replaced once in a period of one year. Higher portfolio turnover rates may
result in increased brokerage costs to a Fund or a Portfolio and a possible
increase in short-term capital gains or losses. In order to qualify as a
regulated investment company for Federal tax purposes for taxable years
beginning on or before August 5, 1997, less than 30% of the gross income of the
Fund in that year must be derived from the sale of securities held by the Fund
for less than three months. See "Taxation" below. The change in portfolio
turnover rate for Income Fund and Intermediate Government Income Fund from 1995
to 1996 was due in part to the change in portfolio managers. Other significant
changes in portfolio turnover rates was due to changing market conditions and
the effect of those conditions on the Funds' investment policies.
9. ADDITIONAL PURCHASE, REDEMPTION AND EXCHANGE INFORMATION
GENERAL
Shares of all Funds are sold on a continuous basis by the distributor.
The per share net asset values of each class of shares of a Fund are expected to
be substantially the same. Under certain circumstances, however, the per share
net asset value of each class may vary. Due to the higher expenses of B Shares,
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the net asset value of B Shares will generally be lower than the net asset value
of the other classes. The per share net asset value of each class of a Fund
eventually will tend to converge immediately after the payment of dividends,
which will differ by approximately the amount of the expense accrual
differential among the classes.
MONEY MARKET FUNDS
As described in the Prospectuses, under certain circumstances a Money Market
Fund may close early and advance time by which the Fund must receive a purchase
or redemption order and payments. In that case, if an investor placed an order
after the cut-off time the order would be processed on the next business day and
the investor's access to the fund would be temporarily limited.
PURCHASES THROUGH FINANCIAL INSTITUTIONS
You may purchase and redeem shares through certain broker-dealers, banks and
other financial institutions. These financial institutions may charge their
customers a fee for their services and are responsible for promptly transmitting
purchase, redemption and other requests to the Funds.
If you purchase shares through a financial institution, you will be subject to
the financial institution's procedures, which may include charges, limitations,
investment minimums, cutoff times and restrictions in addition to, or different
from, those applicable when you invest in a Fund directly. When you purchase a
Fund's shares through a financial institution, you may or may not be the
shareholder of record and, subject to your institution's procedures, you may
have Fund shares transferred into your name. There is typically a three-day
settlement period for purchases and redemptions through broker-dealers. Certain
financial institutions may also enter purchase orders with payment to follow.
You may not be eligible for certain shareholder services when you purchase
shares through a financial institution. Contact your financial institution for
further information. If you hold shares through a financial institution, the
Funds may confirm purchases and redemptions to the financial institution, which
will provide you with confirmations and periodic statements. The Funds are not
responsible for the failure of any financial institution to carry out its
obligations.
SHAREHOLDER SERVICES
AUTOMATIC INVESTMENT PLAN. You may elect the Automatic Investment Plan if you
purchase A Shares, B Shares, C Shares, I Shares or Investor Shares. Under the
Automatic Investment Plan, you may authorize monthly amounts of $50 or more to
be withdrawn automatically from a designated bank account (other than a passbook
savings account) and sent to the Transfer Agent for investment in a Fund. Call
or write the Transfer Agent for an application. The Trust may modify or
terminate the Automatic Investment Plan if it is unable to settle any
transaction with your bank. If the Automatic Investment Plan is terminated
before your account totals $1,000, the Funds may redeem your account.
RETIREMENT ACCOUNTS. The Funds (except Municipal Money Market Fund and the
Tax-Free Fixed Income Funds) may be a suitable investment vehicle for part or
all of the assets held in Traditional or Roth individual retirement accounts
(collectively, "IRAs"). Call the Funds at 1-800-338-1348 or 1-612-667-8833 to
obtain an IRA account application. Generally, all contributions and investment
earnings in an IRA will be tax-deferred until withdrawn. If certain requirements
are met, investment earnings held in a Roth IRA will not be taxed even when
withdrawn. You may contribute up to $2,000 annually to an IRA. Only
contributions to Traditional IRAs are tax-deductible. However, that deduction
may be reduced if you or your spouse is an active participant in an
employer-sponsored retirement plan and you have adjusted gross income above
certain levels. Your ability to contribute to a Roth IRA also may be restricted
if you or, if you are married, you and your spouse has adjusted gross income
above certain levels.
Your employer may also contribute to your IRA as part of a Savings Incentive
Match Plan for Employees, or "SIMPLE plan," established after December 31, 1996.
Under a SIMPLE plan, you may contribute up to $6,000 annually to your IRA, and
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your employer must generally match such contributions up to 3% of your annual
salary. Alternatively, your employer may elect to contribute to your IRA 2% of
the lesser of your earned income or $160,000.
This information on IRAs is based on regulations in effect as of January 1, 1999
and summarizes only some of the important federal tax considerations affecting
IRA contributions. These comments are not meant to be a substitute for tax
planning. Consult your tax advisors about your specific tax situation.
AUTOMATIC WITHDRAWAL PLAN. If you hold more than $1,000 of a Fund's A Shares, B
Shares, C Shares, I Shares or Investor Shares or $10,000 of a Fund's
Institutional Shares in an account, you may establish an "Automatic Withdrawal
Plan" to provide for the preauthorized payment from your account of $250 or more
on a monthly, quarterly, semi-annual or annual basis. The Transfer Agent will
redeem the number of shares necessary to provide the amount of the payment. Any
taxable gain or loss is recognized upon redemption of the shares. Call or write
the Transfer Agent for an application. The Funds may suspend a withdrawal plan
without notice if the account contains insufficient funds to effect a withdrawal
or if the account balance is less than the required minimum amounts at any time.
CHECKWRITING. You may elect checkwriting privileges if you own shares of a Money
Market Fund. Call or write the Transfer Agent for an application. If you elect
checkwriting privileges, you will receive checks that may be made payable to any
person in any amount of $500.00 or more. When a check is presented for payment,
the Transfer Agent will redeem the number of shares necessary to cover the
amount of the check. You cannot write checks against shares for which
certificates have been issued. The Funds will not honor a check for an amount
greater than the value of the uncertificated shares held in your account. In
addition, you may not liquidate your entire account by means of a check. Normal
restrictions on your ability to redeem shares will apply to redemptions by
check. The Transfer Agent may also restrict your ability to use checks.
Checkwriting procedures may be changed, modified or terminated at any time upon
written notification.
REOPENING ACCOUNTS. You may reopen an account without filing a new account
application at any time within one year after your account is closed, provided
that the information on the account application on file with the Funds is still
applicable.
PURCHASES OF A SHARES
WAIVERS OF SALES CHARGES. The Trust does not assess sales charges on the
following types of purchases:
o 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);
o purchases by any financial intermediary acting on behalf of its asset based
fee account customers;
o purchases by trustees and officers of the Trust; directors, officers and
full-time employees of the Trust's manager, of Norwest Corporation,
Stagecoach Funds, Inc., Wells Fargo Bank, Stephens, Inc. and Broker Dealers
acting as selling agents, or of any of their affiliates; the spouse of any
of the above, as well as the grandparents, parents, siblings, children,
grandchildren, aunts, uncles, nieces, nephews, fathers-in-law,
mothers-in-law, brothers-in-law and sisters-in-law of either the spouse or
the current or retired employee, director or officer, ; 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;
o 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;
o purchases of A Shares made pursuant to the Directed Dividend Option from
the proceeds of dividends and distributions of another fund of the Trust
that assesses a sales charge; or
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o purchases of at least $50,000 through an individual retirement account in A
Shares of Diversified Equity Fund or Growth Equity Fund, when the
shareholder makes a non-binding commitment to subsequently enroll the
assets in the Norwest WealthBuilder IRA program, an asset allocation
program offered by Norwest Investment Services, Inc. ("NISI"). In
connection with purchases of A Shares of Diversified Equity Fund or Growth
Equity Fund with no sales charge, Forum makes payments to NISI of up to
1.00% of the value of the shares purchased.
If you purchase A Shares without paying a sales charge, you many only resell the
shares to the Fund and you must make the purchase with the intent of investing
in the Fund.
If you qualify for a reduced sales charge, you or your financial institution
must both notify the Transfer Agent when you purchase the shares that you intend
to qualify for the reduced sales charge and verify that you qualify. The Trust
may modify or terminate reduced sales charge privileges at any time.
REINSTATEMENT PRIVILEGE. If you redeem a Fund's A Shares, you will not have to
pay a sales charge if you repurchase some or all of the shares you redeemed
within 60 days of the redemption.
INVESTORS IN STAGECOACH FUNDS. You will not have to pay a sales charge on a
purchase of A Shares if you have redeemed A Shares of a Stagecoach Fund (series
of Stagecoach Funds, Inc. or Stagecoach Trust), on which you paid a sales load,
and you use those redemption proceeds to purchase the Fund's shares.
SELF-DIRECTED 401(K) PROGRAMS. If you purchase less than $100,000 of a Fund's A
Shares through a self-directed 401(k) program or other qualified retirement plan
offered by Norwest, the Trust's manager or their affiliates, your purchase will
eligible for the reduced sales charge applicable to a single purchase of
$100,000.
RIGHT OF ACCUMULATION. If you purchase A Shares, you may qualify for a
cumulative quantity discount or right of accumulation ("ROA"). If you elect a
ROA, the applicable sales charge will be based on the total of your current
purchase and the net asset value (at the end of the previous Fund Business Day,
as defined in the Prospectus) of some or all of the A Shares you hold. For
example, if you own A Shares of Income Fund with a net asset value of $500,000
and purchase an additional $50,000 of the Fund's A Shares, the additional
purchase would be subject to a sales charge at the 2.0% rate applicable to a
$550,000 purchase rather than at the 3.5% rate applicable to a $50,000 purchase.
In addition, if you have previously purchased A Shares of a Fund other than the
Fund you wish to purchase that is sold with a sales charge equal to or greater
than the sales charge imposed on the Fund's A Shares, you also may qualify for a
ROA and may aggregate existing investments in A Shares of all those funds with
your current purchase of the Fund's A Shares to determine the applicable sales
charge. In addition, if your spouse, direct ancestor or direct descendant holds
A Shares, those shareholdings also may be combined for purposes of the ROA.
With respect to purchases of A Shares of Large Company Growth Fund, until
February 28, 1999, a ROA will be calculated based on your total investment in
both the Norwest Advantage Funds and Stagecoach Funds, Inc. fund families.
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STATEMENT OF INTENTION. You also may obtain a reduced sales charge by making
cumulative purchases under a Statement of Intention (an "SOI"). A SOI is a
written statement expressing your intent to invest $50,000 or more in a Fund's A
Shares within a period of 13 months. Under an SOI, you may make a series of
purchases of shares where each purchase will be at net asset value plus the
sales charge applicable at the time of the purchase to a single purchase of the
total dollar amount of shares you promised to purchase.
Complete the appropriate portion of the account application to select the SOI.
The SOI is not a binding obligation upon you to purchase the full amount
indicated. A Shares purchased with the first 5% of such amount will be held
subject to a registered pledge (while remaining registered in the name of the
investor) to secure payment of the higher sales charge applicable to the shares
actually purchased if the full amount indicated is not purchased, and such
pledged shares will be involuntarily redeemed to pay the additional sales
charge, if necessary. When the full amount indicated has been purchased, the
shares will be released from pledge.
CALCULATION OF OFFERING PRICE. Set forth below is an example of the method of
computing the offering price of the A Shares of the Funds that offer A Shares.
Other shares of the Trust are offered at their next determined net asset value.
The example assumes a purchase of A Shares of each Fund in an amount such that
the purchase would be subject to each Fund's maximum sales charges set forth in
the Prospectus at a price based on the net asset value per share of A Shares of
each Fund at May 31, 1999. As of October 1, 1999, the maximum sales charges were
5.75% for each Equity Fund and Growth Balanced Fund and 4.5% 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 5.75% would equal
0.0575).
<TABLE>
<S> <C> <C>
NET ASSET OFFERING
VALUE PER SHARE PRICE
STABLE INCOME FUND $10.31 $10.72
INTERMEDIATE GOVERNMENT INCOME FUND $11.22 $11.67
INCOME FUND $ 9.79 $10.18
TOTAL RETURN BOND FUND $ 9.63 $10.02
TAX-FREE INCOME FUND $10.54 $10.96
COLORADO TAX-FREE FUND $10.69 $11.12
MINNESOTA TAX-FREE FUND $11.05 $11.49
INCOME EQUITY FUND $41.19 $43.46
VALUGROWTH STOCK FUND $26.18 $27.62
DIVERSIFIED EQUITY FUND $43.06 $45.43
GROWTH EQUITY FUND $35.73 $37.70
SMALL COMPANY STOCK FUND $12.00 $12.66
SMALL CAP OPPORTUNITIES FUND $23.60 $24.90
INTERNATIONAL FUND $23.84 $25.15
</TABLE>
EXCHANGES
By making an exchange by telephone, the investor authorizes the Transfer Agent
to act on telephonic instructions believed by the Transfer Agent to be genuine
instructions from any person representing himself or herself to be the investor.
The records of the Transfer Agent of such instructions are binding. The exchange
procedures may be modified or terminated at any time upon appropriate notice to
shareholders. For Federal income tax purposes, exchanges are treated as sales on
which a purchaser will realize a capital gain or loss depending on whether the
value of the shares redeemed is more or less than the shareholder's basis in
such shares at the time of such transaction.
Shareholders of A Shares may purchase, with the proceeds from a redemption of
all or part of their shares, A Shares of the other Funds that offer A Shares or
Investor Shares of Ready Cash Investment Fund or Municipal Money Market Fund.
Shareholders of B Shares may purchase, with the proceeds from a redemption of
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all or part of their shares, B Shares of the other Funds that offer B Shares or
Exchange Shares of Ready Cash Investment Fund. Shareholders of C Shares may
purchase, with the proceeds from a redemption of all or part of their shares, C
Shares of the other Funds. Shareholders of I Shares may purchase, with the
proceeds from a redemption of all or part of their shares, I Shares of the other
Funds, Public Entities Shares of Ready Cash Investment Fund, Institutional
Shares of 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
Institutional Shares of Municipal Money Market Fund and others who are eligible
to purchase I Shares may purchase, with the proceeds from a redemption of all or
part of their shares, Institutional Shares of these Funds, or I Shares of the
other Funds of the Trust.
Shareholders of Institutional Shares of Municipal Money Market Fund who are not
eligible to purchase I Shares may purchase, with the proceeds from a redemption
of all or part of their shares, shares of Cash Investment Fund, U.S. Government
Fund and Treasury Fund. Similarly, shareholders of Cash Investment Fund, U.S.
Government Fund and Treasury Fund who are not eligible to purchase I Shares may
purchase, with the proceeds from a redemption of all or part of their shares,
shares of the other two Funds or Institutional Shares of Municipal Money Market
Fund.
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.
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Proceeds of redemptions normally are paid in cash. However, payments may be made
wholly or partially in portfolio securities if the Board determines that payment
in cash would be detrimental to the best interests of the Fund. If payment for
shares redeemed is made wholly or partially in portfolio securities, brokerage
costs may be incurred by the shareholder in converting the securities to cash.
The Trust has filed a formal election with the SEC pursuant to which a Fund will
only effect a redemption in portfolio securities if the particular shareholder
is redeeming more than $250,000 or 1% of the Fund's total net assets, whichever
is less, during any 90-day period.
REDEMPTION CHARGE (A SHARES)
A Shares of a Fund on which no initial sales charge was assessed due to the
amount purchased in a single transaction or pursuant to the Cumulative Quantity
Discount or an SOI and that are redeemed (including certain redemptions in
connection with an exchange) within specified periods after the purchase date of
the shares will be subject to charges equal to the percentages set forth below
of the dollar amount subject to the charge. The charge will be assessed on an
amount equal to the lesser of the cost of the shares being redeemed and their
net asset value at the time of redemption. Accordingly, no charge will be
imposed on increases in net asset value above the initial purchase price. In
addition, no charge will be assessed on shares derived from the reinvestment of
dividends and distributions.
<TABLE>
<S> <C> <C>
STABLE INCOME FUND
AMOUNT OF PURCHASE PERIOD SHARES HELD CHARGE
$1,000,000 to $4,999,999 Less than one year 0.50%
One to two years 0.25%
Over $5,000,000 Less than one year 0.25%
INTERMEDIATE GOVERNMENT INCOME FUND,
INCOME FUND, TOTAL RETURN BOND FUND AND THE
TAX-FREE FIXED INCOME FUNDS
AMOUNT OF PURCHASE PERIOD SHARES HELD CHARGE
$1,000,000 to $2,499,999 Less than one year 0.75%
One to two years 0.50%
$2,500,000 to $4,999,999 Less than one year 0.50%
Over $5,000,000 Less than one year 0.25%
EQUITY FUNDS
AMOUNT OF PURCHASE PERIOD SHARES HELD CHARGE
$1,000,000 to $2,499,999 Less than one year 1.00%
One to two years 0.75%
$2,500,000 to $4,999,999 Less than one year 0.50%
Over $5,000,000 Less than one year 0.25%
</TABLE>
The charge on shares purchased through an exchange from another Fund is based
upon the original purchase date and price of the other Fund's shares. As
discussed below, there may be charges in connection with the SOI and the ROA in
certain cases.
STATEMENT OF INTENTION. There may be charges on redemptions of A Shares
purchased without an initial sales charge pursuant to an SOI that are redeemed
within the first two years after purchase. If a shareholder purchases $1,000,000
or more within a 13 month period under an SOI, no initial sales charge will
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apply with respect to the entire amount purchased. However, a charge will apply
with respect to the entire amount purchased if the shareholder fails to purchase
$1,000,000 or more of A Shares under the SOI. The holding period for each A
Share shall be determined from the date the share was purchased. If the
shareholder redeems A Shares during the period that the SOI is in effect, a
charge will be assessed at the time the shareholder has purchased $1,000,000 or
more worth of A Shares pursuant to the SOI at the rate applicable in the case of
a single purchase of the minimum amount specified in the SOI. If the shareholder
purchases less than the amount specified under the SOI, an additional contingent
deferred sales charge may be assessed in respect of A Shares previously redeemed
based on the amount actually purchased pursuant to the SOI.
RIGHT OF ACCUMULATION. The charge will be a charge assessed on A Shares
purchased without an initial sales charge pursuant to the ROA that are redeemed
within the first two years after purchase. No initial sales charge will apply to
A Shares purchased if the value of those shares on the date of purchase plus the
net asset value of all A Shares held by the shareholder (as of the close of
business on the previous Fund Business Day) exceed $1,000,000. In that case, the
charge will apply to redemptions of shares within the first two years after
purchase. For example, if a shareholder has made prior purchases of A Shares
which now have a value of $900,000, the purchase of $150,000 of A Shares will
not be subject to an initial sales charge but will be subject to the charge upon
redemption described above. The $900,000 of A Shares would not be subject to the
charge.
REINSTATEMENT PRIVILEGE. A Shares purchased by a shareholder within 60 days
following the redemption by the shareholder of A Shares in the same Fund with a
value at least equal to the A Shares being purchased will not be subject to a
contingent deferred sales charge; provided, however, that this exemption is not
applicable to more than two purchases within a 12-month period.
REDEMPTION CHARGE AND CONTINGENT DEFERRED SALES CHARGE (A SHARES, B SHARES AND C
SHARES)
With respect to A Shares, B Shares and C Shares of the Funds, certain
redemptions are not subject to any redemption or contingent deferred sales
charge. No such charge is imposed on: (1) redemptions of shares acquired through
the reinvestment of dividends and distributions; (2) involuntary redemptions by
a Fund of shareholder accounts with low account balances; (3) redemptions of
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 (for shareholders who purchased prior to October 1, 1999); and
(5) redemptions by any registered investment adviser with whom Forum has entered
into a share purchase agreement and which is acting on behalf of its fiduciary
customer accounts. For these purposes, the term disability shall have the
meaning ascribed thereto in Section 72(m)(7) of the Code. Under that provision,
a person is considered disabled if the person is unable to engage in any
substantial activity by reason of any medically determinable physical or mental
impairment which can be expected to result in death or to be of long-continued
and indefinite duration. Appropriate documentation satisfactory to the Fund is
required to substantiate any shareholder death or disability.
CONVERSION OF B SHARES AND EXCHANGE SHARES
The conversion of Exchange Shares to Investor Shares and B Shares to A Shares is
subject to the continuing availability of an opinion of counsel to the effect
that: (1) the assessment of the distribution services fee with respect to the
Exchange Shares and B Shares does not result in the Funds dividends or
distributions constituting "preferential dividends" under the Code; and (2) the
conversion of Exchange Shares and B Shares does not constitute a taxable event
under Federal income tax law. The conversion of Exchange Shares to Investor
Shares and B Shares to A Shares may be suspended if such an opinion is no longer
available at the time the conversion is to occur. In that event, no further
conversions would occur, and shares might continue to be subject to a
distribution services fee for an indefinite period, which may extend beyond the
specified number of years for conversion of the original B Shares.
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10. TAXATION
Each Fund intends for each taxable year to qualify for tax treatment as a
"regulated investment company" under the Code. Such qualification does not, of
course, involve governmental supervision of management or investment practices
or policies. Investors should consult their own counsel for a complete
understanding of the requirements each Fund must meet to qualify for such
treatment, and of the application of state and local tax laws to his or her
particular situation.
Since each Money Market Fund and Fixed Income Fund expects to derive
substantially all of its gross income (exclusive of capital gains) from sources
other than dividends, it is expected that none of such Funds' dividends or
distributions will qualify for the dividends-received deduction for
corporations.
Certain listed options, regulated futures contracts and forward currency
contracts are considered "section 1256 contracts" for Federal income tax
purposes. Section 1256 contracts held by a Fund or Portfolio at the end of each
taxable year will be "marked to market" and treated for Federal income tax
purposes as though sold for fair market value on the last business day of such
taxable year. Gain or loss realized by a Fund or Portfolio on section 1256
contracts generally will be considered 60% long-term and 40% short-term capital
gain or loss. Each Fund or Portfolio can elect to exempt its section 1256
contracts which are part of a "mixed straddle" (as described below) from the
application of section 1256.
With respect to over-the-counter put and call options, gain or loss realized by
a Fund or Portfolio upon the lapse or sale of such options held by such Fund or
Portfolio will be either long-term or short-term capital gain or loss depending
upon the Fund's (or Portfolio's) holding period with respect to such option.
However, gain or loss realized upon the lapse or closing out of such options
that are written by a Fund or Portfolio will be treated as short-term capital
gain or loss. In general, if a Fund or Portfolio exercises an option, or an
option that a Fund or Portfolio has written is exercised, gain or loss on the
option will not be separately recognized but the premium received or paid will
be included in the calculation of gain or loss upon disposition of the property
underlying the option.
Any option, futures contract, or other position entered into or held by a Fund
in conjunction with any other position held by such Fund or Portfolio may
constitute a "straddle" for Federal income tax purposes. A straddle of which at
least one, but not all, the positions are section 1256 contracts may constitute
a "mixed straddle". In general, straddles are subject to certain rules that may
affect the character and timing of a Fund's (or Portfolio's) gains and losses
with respect to straddle positions by requiring, among other things, that: (1)
loss realized on disposition of one position of a straddle not be recognized to
the extent that a Fund has unrealized gains with respect to the other position
in such straddle; (2) a Fund's (or Portfolio's) holding period in straddle
positions be suspended while the straddle exists (possibly resulting in gain
being treated as short-term capital gain rather than long-term capital gain);
(3) losses recognized with respect to certain straddle positions which are part
of a mixed straddle and which are non-section 1256 positions be treated as 60%
long-term and 40% short-term capital loss; (4) losses recognized with respect to
certain straddle positions which would otherwise constitute short-term capital
losses be treated as long-term capital losses; and (5) the deduction of interest
and carrying charges attributable to certain straddle positions may be deferred.
Various elections are available to a Fund or Portfolio which may mitigate the
effects of the straddle rules, particularly with respect to mixed straddles. In
general, the straddle rules described above do not apply to any straddles held
by a Fund or Portfolio all of the offsetting positions of which consist of
section 1256 contracts.
For federal income tax purposes, gains and losses attributable to fluctuations
in exchange rates which occur between the time a Fund accrues interest or other
receivables or accrues expenses or other liabilities denominated in a foreign
currency and the time the Fund actually collects such receivables or pays such
liabilities are treated as ordinary income or ordinary loss. Similarly, gains or
losses from the disposition of foreign currencies, from the disposition of debt
securities denominated in a foreign currency, or from the disposition of a
forward contract denominated in a foreign currency which are attributable to
fluctuations in the value of the foreign currency between the date of
acquisition of the asset and the date of disposition also are treated as
ordinary gain or loss.
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A Fund's (or Portfolio's) investments in zero coupon securities will be subject
to special provisions of the Code which may cause the Fund to recognize income
without receiving cash necessary to pay dividends or make distributions in
amounts necessary to satisfy the distribution requirements for avoiding federal
income and excise taxes. In order to satisfy those distribution requirements the
Fund or Portfolio may be forced to sell other portfolio securities.
If International Fund is eligible to do so, the Fund intends to file an election
with the Internal Revenue Service to pass through to its shareholders its share
of the foreign taxes paid by the Fund. Pursuant to this election, a shareholder
will be required to: (1) include in gross income rata share of foreign taxes
paid by the Fund; (2) treat his pro rata share of such foreign taxes as having
been paid by him; and (3) either deduct such pro rata share of foreign taxes in
computing his taxable income or treat such foreign taxes as a credit against
federal income taxes. No deduction for foreign taxes may be claimed by an
individual shareholder who does not itemize deductions. In addition, certain
shareholders may be subject to rules which limit or reduce their ability to
fully deduct, or claim a credit for, their pro rata share of the foreign taxes
paid by the Fund. Under recently enacted legislation, a shareholder's foreign
tax credit with respect to a dividend received from the Fund will be disallowed
unless the shareholder holds shares in the Fund at least 16 days during the
30-day period beginning 15 days before the date on which the shareholder becomes
entitled to receive the dividend.
11. ADDITIONAL INFORMATION ABOUT THE TRUST AND THE SHAREHOLDERS OF THE FUNDS
DETERMINATION OF NET ASSET VALUE - MONEY MARKET FUNDS
Pursuant to the rules of the SEC, the Board has established procedures to
stabilize each Money Market Funds' net asset value at $1.00 per share. These
procedures include a review of the extent of any deviation of net asset value
per share as a result of fluctuating interest rates, based on available market
rates, from the Fund's $1.00 amortized cost price per share. Should that
deviation exceed 1/2 of 1%, the Board will consider whether any action should be
initiated to eliminate or reduce material dilution or other unfair results to
shareholders. Such action may include redemption of shares in kind, selling
portfolio securities prior to maturity, reducing or withholding dividends and
utilizing a net asset value per share as determined by using available market
quotations.
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 LLP,1200 G
Street, NW, Washington DC 20005.
KPMG, 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.
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The Board has determined that currently no conflict of interest exists between
or among each Fund's classes of shares. On an ongoing basis, the Board, pursuant
to its fiduciary duties under the 1940 Act and state law, will seek to ensure
that no such conflict arises.
The Trust's shareholders are not personally liable for the obligations of the
Trust under Delaware law. The Delaware Business Trust Act (the "Delaware Act")
provides that a shareholder of a Delaware business trust shall be entitled to
the same limitation of liability extended to shareholders of private
corporations for profit. However, no similar statutory or other authority
limiting business trust shareholder liability exists in many other states. As a
result, to the extent that the Trust or a shareholder is subject to the
jurisdiction of courts in those states, the courts may not apply Delaware law,
and may thereby subject the Trust shareholders to liability. To guard against
this risk, the Trust Instrument of the Trust disclaims shareholder liability for
acts or obligations of the Trust and requires that notice of such disclaimer be
given in each agreement, obligation and instrument entered into by the Trust or
its Trustees, and provides for indemnification out of Trust property of any
shareholder held personally liable for the obligations of the Trust. Thus, the
risk of a shareholder incurring financial loss beyond his investment because of
shareholder liability is limited to circumstances in which: (1) a court refuses
to apply Delaware law; (2) no contractual limitation of liability is in effect;
and (3) the Trust itself is unable to meet its obligations. In light of Delaware
law, the nature of the Trust's business, and the nature of its assets, the Board
believes that the risk of personal liability to a Trust shareholder is extremely
remote.
In order to adopt the name Norwest Funds, the Trust agreed in the investment
advisory agreement with Norwest that if Norwest ceases to act as Adviser to the
Trust or any Fund whose name includes the word "Norwest," or if Norwest requests
in writing, the Trust shall take prompt action to change the name of the Trust
and any such Fund to a name that does not include the word "Norwest." Norwest
may from time to time make available without charge to the Trust for the Trust's
use any marks or symbols owned by Norwest, including marks or symbols containing
the word "Norwest" or any variation thereof, as Norwest deems appropriate. Upon
Norwest's request in writing, the Trust shall cease to use any such mark or
symbol at any time. The Trust has acknowledged that any rights in or to the word
"Norwest" and any such marks or symbols which exist or may exist, and under any
and all circumstances, shall continue to be, the sole property of Norwest.
Norwest may permit other parties, including other investment companies, to use
the word "Norwest" in their names without the consent of the Trust. The Trust
shall not use the word "Norwest" in conducting any business other than that of
an investment company registered under the Act without the permission of
Norwest.
The Trust has an unlimited number of authorized shares of beneficial interest.
The Board may, without shareholder approval, divide the authorized shares into
an unlimited number of separate portfolios or series (such as the Funds) and may
divide portfolios or series into classes of shares (such as Exchange Shares);
the costs of doing so will be borne by the Trust.
Each share of each series of the Trust and each class of shares has equal
dividend, distribution, liquidation and voting rights, and fractional shares
have those rights proportionately, except that expenses related to the
distribution of the shares of each class (and certain other expenses such as
transfer agency and administration expenses) are borne solely by those shares
and each class votes separately with respect to the provisions of any Rule 12b-1
plan which pertains to the class and other matters for which separate class
voting is appropriate under applicable law. Generally, shares will be voted in
the aggregate without reference to a particular series or class, except if the
matter affects only one series or class or voting by series or class is required
by law, in which case shares will be voted separately by series or class, as
appropriate. Delaware law does not require the Trust to hold annual meetings of
shareholders, and it is anticipated that shareholder meetings will be held only
when specifically required by federal or state law. Shareholders (and Trustees)
have available certain procedures for the removal of Trustees. There are no
conversion or preemptive rights in connection with shares of the Trust. All
shares, when issued in accordance with the terms of the offering, will be fully
paid and nonassessable. Shares are redeemable at net asset value, at the option
of the shareholders, subject to any contingent deferred sales charge that may
apply. A shareholder in a series is entitled to the shareholder's pro rata share
of all dividends and distributions arising from that series' assets and, upon
redeeming shares, will receive the portion of the series' net assets represented
by the redeemed shares.
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A Portfolio normally will not hold meetings of investors except as required by
the 1940 Act. Each investor in a Portfolio will be entitled to vote in
proportion to its relative beneficial interest in the Portfolio. When required
by the 1940 Act and other applicable law, a Fund investing in a Portfolio will
solicit proxies from its shareholders and will vote its interest in the
Portfolio in proportion to the votes cast by its shareholders.
From time to time, certain shareholders may own a large percentage of the shares
of the Fund and, accordingly, may be able to greatly affect (if not determine)
the outcome of a shareholder vote.
CORE AND GATEWAY STRUCTURE
Certain Funds seek to achieve their investment objectives by investing all of
their investable assets in Portfolios. Accordingly, the Portfolios directly
acquires portfolio securities and the Funds acquire an indirect interest in
those securities. The Portfolios are separate series of Core Trust and Schroder
Core, business trusts organized under the laws of the State of Delaware in 1994.
The assets of each Portfolio belong only to, and the liabilities of each
Portfolio are borne solely by, that Portfolio and no other series of Core Trust
or Schroder Core.
THE PORTFOLIOS. The Funds' investments in the Portfolios are in the form of
non-transferable beneficial interests. All investors in a Portfolio will invest
on the same terms and conditions and will pay a proportionate share of the
Portfolio's expenses.
Portfolios do not sell its shares directly to members of the general public.
Other investors in Portfolios, such as other investment companies, that might
sell their shares to the public are not be required to sell their shares at the
same public offering price as the Funds, and could have different advisory and
other fees and expenses than the Funds. Therefore, Fund shareholders may have
different returns than shareholders in other investment companies that invest in
the Portfolios. Information regarding any such funds is available by calling
Forum at (207) 879-0001.
CERTAIN RISKS OF INVESTING IN PORTFOLIOS. The Funds' investment in the
Portfolios may be affected by the actions of other large investors in the
Portfolios. For example, if a Portfolio had a large investor other than a Fund
that redeemed its interest, the Portfolio's remaining investors (including the
Fund) might, as a result, experience higher pro rata operating expenses, thereby
producing lower returns. As there may be other investors in a Portfolio, there
can be no assurance that any issue that receives a majority of the votes cast by
a Fund's shareholders will receive a majority of votes cast by all investors in
the Portfolio; indeed, other investors holding a majority interest in a
Portfolio could have voting control of the Portfolio.
A Fund may withdraw its entire investment from a Portfolio at any time, if the
Board determines that it is in the best interests of the Fund and its
shareholders to do so. A Fund might withdraw, for example, if there were other
investors in the Portfolio with power to, and who did by a vote of all investors
(including the Fund), change the investment objective or policies of the
Portfolio in a manner not acceptable to the Board. A withdrawal could result in
a distribution in kind of portfolio securities (as opposed to a cash
distribution) by the Portfolio. That distribution could result in a less
diversified portfolio of investments for the Fund and could affect adversely the
liquidity of the Fund's portfolio. If the Fund decided to convert those
securities to cash, it would incur brokerage fees or other transaction costs. If
the Fund withdrew its investment from the Portfolio, the Board would consider
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
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payment. Forum believes that Norwest and any bank or other bank affiliate that
may also perform transfer agency or similar services for the Trust and its
shareholders without violating applicable federal banking rules. If a bank or
bank affiliate were prohibited in the future from so acting, changes in the
operation of the Trust could occur and a shareholder serviced by the bank or
bank affiliate may no longer be able to avail itself of those services. It is
not expected that shareholders would suffer any adverse financial consequences
as a result of any of these occurrences.
SHAREHOLDINGS
Table 7 to Appendix B lists the persons who owned of record 5% or more of the
outstanding shares of a class of shares of a Fund as of September 1, 1999.
FINANCIAL STATEMENTS
The financial statements of each Fund for the fiscal year ended May 31, 1999
(which include statements of assets and liabilities, statements of operations,
statements of changes in net assets, notes to financial statements, financial
highlights and portfolios of investments) are included in the Annual Report to
Shareholders of the Trust delivered along with this SAI and are incorporated
herein by reference.
REGISTRATION STATEMENT
This SAI and the Prospectus do not contain all the information included in the
Trust's registration statement filed with the SEC under the 1933 Act with
respect to the securities offered hereby, certain portions of which have been
omitted pursuant to the rules and regulations of the SEC. The registration
statement, including the exhibits filed therewith, may be examined at the
offices of the SEC in Washington, D.C.
Statements contained herein and in the Prospectus as to the contents of any
contract or other documents are not necessarily complete, and, in each instance,
reference is made to the copy of such contract or other documents filed as
exhibits to the registration statement.
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APPENDIX A - DESCRIPTION OF SECURITIES RATINGS
MUNICIPAL AND CORPORATE BONDS (INCLUDING CONVERTIBLE BONDS)
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
Moody's rates municipal and corporate bond issues, including convertible issues,
as follows:
Bonds which are rated Aaa are judged by Moody's to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risk appear somewhat larger than in Aaa securities.
Bonds which are rated A possess many favorable investment attributes and are to
be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment some time in the future.
Bonds which are rated Baa are considered as medium-grade obligations, (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Bonds which are rated Ba are judged to have speculative elements; their future
cannot be considered as well-assured. Often the protection of interest and
principal payments may be very moderate, and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Bonds which are rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Bonds which are rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
Bonds which are rated C are the lowest rated class of bonds, and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
Note: Those bonds in the Aa, A, Baa, Ba or B groups which Moody's ranks in the
higher end of its generic rating category are designated by the symbols Aa1, A1,
Baa1, Ba1 and B1.
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STANDARD & POOR'S ("S&P")
S&P rates corporate bond issues, including convertible debt issues, as follows:
Bonds rated AAA have the highest rating assigned by S&P. The capacity to meet
the financial commitment on the obligation is extremely strong.
Bonds rated AA have a very strong capacity to meet the financial commitment on
the obligation and differ from the highest-rated issues only in small degree.
Bonds rated A have a strong capacity to meet the financial commitment on the
obligation, although they are somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than obligations rated in
higher-rated categories.
Bonds rated BBB exhibit adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to meet the financial commitment on the obligation than in
higher-rated categories.
Bonds rated BB, B, CCC, CC and C are regarded, as having significant speculative
characteristics. BB indicates the least degree of speculation and C the highest
degree of speculation. While such bonds will likely have some quality and
protective characteristics, these may be outweighed by large uncertainties or
major exposures to adverse conditions. Bonds rated BB have less vulnerability to
nonpayment than other speculative issues. However, they face major ongoing
uncertainties or exposure to adverse business, financial, or economic conditions
which could lead to inadequate capacity to meet the financial commitment on the
obligation.
Bonds rated B are more vulnerable to nonpayment then bonds rated BB, but
currently have the capacity to meet the financial commitment on the obligation.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to meet the financial commitment on the obligation.
Bonds rated CCC are currently vulnerable to nonpayment, and are dependent upon
favorable business, financial, and economic conditions to meet the financial
commitment on the obligation. In the event of adverse business, financial, or
economic conditions, they are not likely to have the capacity to meet the
financial commitment on the obligation.
Bonds rated CC are currently highly vulnerable to nonpayment.
The C rating may be used to cover a situation where a bankruptcy petition has
been filed or similar action taken, but payments are being continued.
Bonds are rated D when the issue is in payment default. The D rating category is
used when payments on an obligation are not made on the date due, even if the
applicable grace period has not expired, unless S&P believes that such payments
will made during such grace period. The D rating will also be used upon the
filing of the bankruptcy petition or the taking of a similar action if payments
on the obligation are jeopardized.
Note: The ratings from AA to CCC may be modified by the addition of a plus (+)
or minus (-) sign to show the relative standing within the major rating
categories.
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FITCH INVESTORS SERVICE, INC. ("FITCH")
Fitch rates corporate bond issues, including convertible debt issues, as
follows:
AAA Bonds are considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and/or
dividends and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA Bonds are considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and/or dividends and repay principal is
very strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rate F-1+.
A Bonds are considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and/or dividends and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
BBB Bonds are considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest or dividends and repay principal
is considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds
and, therefore, impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
BB Bonds are considered speculative. The obligor's ability to pay interest or
dividends and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified which
could assist the obligor in satisfying its debt service requirements.
B Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements or paying dividends, the probability
of continued timely payment of principal and interest reflects the obligor's
limited margin of safety and the need for reasonable business and economic
activity throughout the life of the issue.
CCC Bonds have certain identifiable characteristics that if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C Bonds are in imminent default in payment of interest or principal.
DDD, DD, and D Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. DDD
represents the highest potential for recovery on these bonds, and D represents
the lowest potential for recovery.
Plus (+) and minus (-) signs are used with a rating symbol to indicate the
relative position of a credit within the rating category. Plus and minus signs,
however, are not used in the AAA, DDD, DD or D categories.
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PREFERRED STOCK
MOODY'S
Moody's rates preferred stock as follows:
An issue rated aaa is considered to be a top-quality preferred stock. This
rating indicates good asset protection and the least risk of dividend impairment
within the universe of preferred stock.
An issue rated aa is considered a high-grade preferred stock. This rating
indicates that there is a reasonable assurance the earnings and asset protection
will remain relatively well-maintained in the foreseeable future.
An issue rated a is considered to be an upper-medium grade preferred stock.
While risks are judged to be somewhat greater than in the aaa and aa
classification, earnings and asset protection are, nevertheless, expected to be
maintained at adequate levels.
An issue rated baa is considered to be a medium-grade preferred stock, neither
highly protected nor poorly secured. Earnings and asset protection appear
adequate at present but may be questionable over any great length of time.
An issue rated ba is considered to have speculative elements and its future
cannot be considered well assured. Earnings and asset protection may be very
moderate and not well safeguarded during adverse periods. Uncertainty of
position characterizes preferred stocks in this class.
An issue which is rated b generally lacks the characteristics of a desirable
investment. Assurance of dividend payments and maintenance of other terms of the
issue over any long period of time may be small.
An issue which is rated caa is likely to be in arrears on dividend payments.
This rating designation does not purport to indicate the future status of
payments.
An issue which is rated ca is speculative in a high degree and is likely to be
in arrears on dividends with little likelihood of eventual payment.
An issue which is rated c can be regarded as having extremely poor prospects of
ever attaining any real investment standing. This is the lowest rated class of
preferred or preference stock.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each rating
classification. The modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range ranking
and the modifier 3 indicates that the issuer ranks in the lower end of its
generic rating category.
S&P
S&P rates preferred stock as follows:
AAA is the highest rating that is assigned by S&P to a preferred stock issue and
indicates an extremely strong capacity to pay the preferred stock obligations.
A preferred stock issue rated AA also qualifies as a high-quality, fixed income
security. The capacity to pay preferred stock obligations is very strong,
although not as overwhelming as for issues rated AAA.
An issue rated A is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
An issue rated BBB is regarded as backed by an adequate capacity to pay the
preferred stock obligations. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
A-4
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likely to lead to a weakened capacity to make payments for a preferred stock in
this category than for issues in the A category.
Preferred stock rated BB, B, and CCC are regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay preferred stock
obligations. BB indicates the lowest degree of speculation and CCC the highest
degree of speculation. While such issues will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
The rating CC is reserved for a preferred stock issue in arrears on dividends or
sinking fund payments but that is currently paying.
A preferred stock rated C is a non-paying issue.
A preferred stock rated D is a non-paying issue with the issuer in default on
debt instruments.
To provide more detailed indications of preferred stock quality, the ratings
from AA to CCC may be modified by the addition of a plus (+) or minus (-) sign
to show relative standing within the major rating categories.
FITCH
Fitch utilizes the same ratings criteria in rating preferred stock as it does in
rating corporate bond issues, as described earlier in this Appendix.
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SHORT TERM MUNICIPAL LOANS
Moody's. Moody's highest rating for short-term municipal loans is MIG 1/VMIG 1.
A rating of MIG 1/VMIG 1 denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broadbased access to the market for refinancing. Loans bearing the MIG 2/VMIG 2
designation are of high quality. Margins of protection are ample although not so
large as in the MIG 1/VMIG 1 group. A rating of MIG 3/VMIG 3 denotes favorable
quality. All security elements are accounted for but there is lacking the
undeniable strength of the preceding grades. Liquidity and cash flow protection
may be narrow and market access for refinancing is likely to be less well
established. A rating of MIG 4/VMIG 4 denotes adequate quality. Protection
commonly regarded as required of an investment security is present and although
not distinctly or predominantly speculative, there is specific risk.
S&P. S&P's highest rating for short-term municipal loans is SP-1. S&P states
that short-term municipal securities bearing the SP-1 designation have very
strong or strong capacity to pay principal and interest. Those issues rated SP-1
which are determined to possess overwhelming safety characteristics will be
given a plus (+) designation. Issues rated SP-2 have satisfactory capacity to
pay principal and interest. Issues rated SP-3 have speculative capacity to pay
principal and interest.
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
The short-term rating places greater emphasis than a long-term rating on the
existence of liquidity necessary to meet the issuer's obligations in a timely
manner.
Short-term issues rated F-1+ are regarded as having the strongest degree of
assurance for timely payment. Issues assigned a rating of F-1 reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
Issues assigned a rating of F-2 have a satisfactory degree of assurance for
timely payment, but the margin of safety is not as great as for issues assigned
F-1+ or F-1.
SHORT TERM DEBT (INCLUDING COMMERCIAL PAPER)
MOODY'S
Moody's two highest ratings for short-term debt, including commercial paper, are
Prime-1 and Prime-2. Both are judged investment grade, to indicate the relative
repayment capacity of rated issuers.
Issuers rated Prime-1 have a superior capacity for repayment of short-term
promissory obligations. Prime-1 repayment capacity will normally be evidenced by
the following characteristics: Leading market positions in well-established
industries; high rates of return on funds employed; conservative capitalization
structures with moderate reliance on debt and ample asset protection; broad
margins in earnings coverage of fixed financial charges and high internal cash
generation; well-established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated Prime-2 have a strong capacity for repayment of short-term
promissory obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1 but to a lesser degree. Earnings trends
and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions.
Ample alternate liquidity is maintained.
S&P
A S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market. An A-1
designation indicates the highest category and that the degree of safety
regarding timely payment is strong. Those issues determined to possess extremely
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strong safety characteristics are denoted with a plus (+) sign designation. The
capacity for timely payment on issues with an A-2 designation is satisfactory.
However, the relative degree of safety is not as high as for issues designated
A-1. Issues carrying an A-3 designation have an adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
FITCH
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
The short-term rating places greater emphasis than a long-term rating on the
existence of liquidity necessary to meet the issuer's obligations in a timely
manner.
F-1+. Exceptionally strong credit quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1. Very strong credit quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
F-2. Good credit quality. Issues assigned this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as for
issues assigned F-1+ or F-1 rating.
F-3. Fair credit quality. Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate; however,
near-term adverse changes could cause these securities to be rated below
investment grade.
F-5. Weak credit quality. Issues assigned this rating have characteristics
suggesting a minimal degree of assurance for timely payment and are vulnerable
to near-term adverse changes in financial and economic conditions.
D. Default. Issues assigned this rating are in actual or imminent payment
default.
LOC. The symbol LOC indicates that the rating is based on a letter of credit
issued by a commercial bank.
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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, 1999 0 0 0
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
READY CASH INVESTMENT FUND
Year Ended May 31, 1999 0 0 0
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
U.S. GOVERNMENT FUND
Year Ended May 31, 1999 3,827,097 0 3,827,097
Year Ended May 31, 1998 3,114,327 0 3,114,327
Year Ended May 31, 1997 2,538,240 0 2,538,240
TREASURY FUND
Year Ended May 31, 1999 2,328,016 0 2,328,016
Year Ended May 31, 1998 1,836,567 0 1,836,567
Year Ended May 31, 1997 1,548,275 0 1,548,275
MUNICIPAL MONEY MARKET FUND
Year Ended May 31, 1999 3,911,866 0 3,911,866
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
STABLE INCOME FUND
Year Ended May 31, 1999 0 0 0
Year Ended May 31, 1998 406,937 0 406,937
Year Ended May 31, 1997 334,768 0 334,768
B-1
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ADVISORY FEE ADVISORY FEE ADVISORY FEE
PAYABLE WAIVED RETAINED
LIMITED TERM GOVERNMENT INCOME FUND
Year Ended May 31, 1999 242,027 45,680 196,347
Year Ended May 31, 1998 141,185 119,793 21,392
INTERMEDIATE GOVERNMENT INCOME FUND
Year Ended May 31, 1999 1,470,878 0 1,470,878
Year Ended May 31, 1998 1,315,676 0 1,315,676
Year Ended May 31, 1997 1,355,907 0 1,355,907
DIVERSIFIED BOND FUND
Year Ended May 31, 1999 393,692 392,977 715
Year Ended May 31, 1998 928,687 376,973 551,714
Year Ended May 31, 1997 598,019 0 598,019
INCOME FUND
Year Ended May 31, 1999 1,735,605 0 1,735,605
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
TOTAL RETURN BOND FUND
Year Ended May 31, 1999 0 0 0
Year Ended May 31, 1998 524,944 0 524,944
Year Ended May 31, 1997 651,181 357,998 293,183
LIMITED TERM TAX-FREE FUND
Year Ended May 31, 1999 344,741 29,395 315,346
Year Ended May 31, 1998 242,621 89,967 152,654
Year Ended May 31, 1997 88,741 63,145 25,596
TAX-FREE INCOME FUND
Year Ended May 31, 1999 1,808,783 19,399 1,789,384
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
COLORADO TAX-FREE FUND
Year Ended May 31, 1999 442,396 70,194 372,202
Year Ended May 31, 1998 332,299 137,295 195,005
Year Ended May 31, 1997 299,582 238,690 60,892
MINNESOTA INTERMEDIATE TAX-FREE FUND
Year Ended May 31, 1999 540,960 0 540,960
Year Ended May 31, 1998 348,564 0 348,564
B-2
<PAGE>
Advisory Fee Advisory Fee Advisory Fee
Payable Waived Retained
MINNESOTA TAX-FREE FUND
Year Ended May 31, 1999 394,355 81,990 312,365
Year Ended May 31, 1998 298,301 163,748 134,553
Year Ended May 31, 1997 212,616 190,702 21,914
STRATEGIC INCOME FUND
Year Ended May 31, 1999 631,949 357,651 274,298
Year Ended May 31, 1998 1,096,749 289,099 807,650
Year Ended May 31, 1997 589,365 0 589,365
MODERATE BALANCED FUND
Year Ended May 31, 1999 1,226,997 538,523 688,474
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
GROWTH BALANCED FUND
Year Ended May 31, 1999 1,854,353 823,243 1,031,110
Year Ended May 31, 1998 4,082,857 713,392 3,369,465
Year Ended May 31, 1997 2,688,223 0 2,688,223
AGGRESSIVE BALANCED-EQUITY FUND
Year Ended May 31, 1999 0 0 0
Year Ended May 31, 1998 17,317 6,163 11,154
INCOME EQUITY FUND
Year Ended May 31, 1999 41,549 14,549 0
Year Ended May 31, 1998 5,115,544 0 5,115,544
Year Ended May 31, 1997 1,906,693 0 1,906,693
INDEX FUND
Year Ended May 31, 1999 0 0 0
Year Ended May 31, 1998 915,590 0 915,590
Year Ended May 31, 1997 563,081 212,327 350,754
VALUGROWTH STOCK FUND
Year Ended May 31, 1999 3,347,114 203 3,346,911
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
B-3
<PAGE>
ADVISORY FEE ADVISORY FEE ADVISORY FEE
PAYABLE WAIVED RETAINED
DIVERSIFIED EQUITY FUND
Year Ended May 31, 1999 4,237,011 1,122,346 3,114,665
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
GROWTH EQUITY FUND
Year Ended May 31, 1999 2,425,572 0 2,425,572
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
LARGE COMPANY GROWTH FUND
Year Ended May 31, 1999 0 0 0
Year Ended May 31, 1998 1,153,835 0 1,153,835
Year Ended May 31, 1997 651,110 0 651,110
SMALL COMPANY STOCK FUND
Year Ended May 31, 1999 0 0 0
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
SMALL COMPANY GROWTH FUND
Year Ended May 31, 1999 0 0 0
Year Ended May 31, 1998 6,198,447 0 6,198,447
Year Ended May 31, 1997 3,513,581 0 3,513,581
DIVERSIFIED SMALL CAP FUND
Year Ended May 31, 1999 87,077 87,077 0
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, 1999 0 0 0
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, 1999 680,154 0 680,154
Year Ended May 31, 1998 1,550,535 75,568 1,474,967
Year Ended May 31, 1997 812,485 0 812,485
* Represents investment advisory fees paid to Schroder Capital Management Inc. by International Portfolio of Core Trust.
</TABLE>
B-4
<PAGE>
TABLE 2 - MANAGEMENT FEES
The following table shows the dollar amount of fees payable to: (1) Forum for
its management services with respect to each Fund (or class thereof for those
periods when multiple classes were outstanding); (2) Norwest for its
administrative services with respect to Small Cap Opportunities Fund and
International Fund; and (3) Forum with respect to its administrative securities
with respect to each applicable Portfolio. Also shown are the amount of fees
that were waived by Forum and Norwest, if any, and the actual fees received by
Forum and Norwest. The data is for the past three fiscal years or shorter period
if the Fund has been in operation for a shorter period.
<TABLE>
<S> <C> <C> <C>
(i) MANAGEMENT FEES TO FORUM
MANAGEMENT MANAGEMENT MANAGEMENT
FEE FEE FEE
PAYABLE WAIVED RETAINED
CASH INVESTMENT FUND
Year Ended May 31, 1999 1,385,002 986,018 398,984
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
U.S. GOVERNMENT FUND
Year Ended May 31, 1999 1,427,957 0 1,427,957
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
TREASURY FUND
Year Ended May 31, 1999 803,340 247,242 556,098
Year Ended May 31, 1998 1,154,681 854,503 300,178
Year Ended May 31, 1997 728,447 595,668 132,779
READY CASH INVESTMENT FUND
Investor Shares
Year Ended May 31, 1999 640,686 0 640,686
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
Exchange Shares
Year Ended May 31, 1999 818 818 0
Year Ended May 31, 1998 643 511 132
Year Ended May 31, 1997 850 850 0
B-5
<PAGE>
MANAGEMENT MANAGEMENT MANAGEMENT
FEE FEE FEE
PAYABLE WAIVED RETAINED
MUNICIPAL MONEY MARKET FUND
Investor Shares
Year Ended May 31, 1999 42,530 31,903 10,627
Year Ended May 31, 1998 90,303 54,201 36,102
Year Ended May 31, 1997 121,330 78,834 42,496
Institutional Shares
Year Ended May 31, 1999 568,213 482,532 85,681
Year Ended May 31, 1998 806,431 581,515 224,916
Year Ended May 31, 1997 1,275,270 1,017,363 257,907
STABLE INCOME FUND
A Shares
Year Ended May 31, 1999 2,191 2,191 0
Year Ended May 31, 1998 10,850 10,698 152
Year Ended May 31, 1997 12,730 12,730 0
B Shares
Year Ended May 31, 1999 518 518 0
Year Ended May 31, 1998 1,632 1,608 24
Year Ended May 31, 1997 799 799 0
I Shares
Year Ended May 31, 1999 41,464 0 41,464
Year Ended May 31, 1998 143,795 135,804 7,991
Year Ended May 31, 1997 98,060 98,060 0
LIMITED TERM GOVERNMENT INCOME FUND
I Shares
Year Ended May 31, 1999 36,671 32,298 4,373
Year Ended May 31, 1998 42,783 35,705 7,078
INTERMEDIATE GOVERNMENT INCOME FUND
A Shares
Year Ended May 31, 1999 8,600 8,600 0
Year Ended May 31, 1998 12,708 12,708 0
Year Ended May 31, 1997 14,471 14,471 0
B Shares
Year Ended May 31, 1999 4,378 4,378 0
Year Ended May 31, 1998 8,527 8,527 0
Year Ended May 31, 1997 9,953 9,953 0
I Shares
Year Ended May 31, 1999 209,982 0 209,982
Year Ended May 31, 1998 373,544 169,833 203,711
Year Ended May 31, 1997 386,457 151,928 234,529
B-6
<PAGE>
MANAGEMENT MANAGEMENT MANAGEMENT
FEE FEE FEE
PAYABLE WAIVED RETAINED
DIVERSIFIED BOND FUND
I Shares
Year Ended May 31, 1999 39,369 36,238 3,131
Year Ended May 31, 1998 175,669 143,270 32,399
Year Ended May 31, 1997 170,862 110,901 59,961
INCOME FUND
A Shares
Year Ended May 31, 1999 5,384 5,384 0
Year Ended May 31, 1998 5,783 5,783 0
Year Ended May 31, 1997 10,585 10,585 0
B Shares
Year Ended May 31, 1999 3,236 3,236 0
Year Ended May 31, 1998 3,966 3,966 0
Year Ended May 31, 1997 6,826 6,826 0
I Shares
Year Ended May 31, 1999 164,941 0 164,941
Year Ended May 31, 1998 271,193 155,655 115,539
Year Ended May 31, 1997 536,985 436,300 100,685
TOTAL RETURN BOND FUND
A Shares
Year Ended May 31, 1999 496 496 0
Year Ended May 31, 1998 3,833 3,557 275
Year Ended May 31, 1997 5,187 5,187 0
B Shares
Year Ended May 31, 1999 745 745 0
Year Ended May 31, 1998 2,996 2,890 107
Year Ended May 31, 1997 4,508 4,508 0
I Shares
Year Ended May 31, 1999 25,270 0 25,270
Year Ended May 31, 1998 149,374 108,471 40,903
Year Ended May 31, 1997 250,777 24,127 226,650
LIMITED TERM TAX-FREE FUND
I Shares
Year Ended May 31, 1999 34,474 32,568 1,906
Year Ended May 31, 1998 48,524 2,408 46,116
Year Ended May 31, 1997 17,748 17,748 0
B-7
<PAGE>
MANAGEMENT MANAGEMENT MANAGEMENT
FEE FEE FEE
PAYABLE WAIVED RETAINED
TAX-FREE INCOME FUND
A Shares
Year Ended May 31, 1999 21,483 20,406 1,077
Year Ended May 31, 1998 30,973 21,230 9,743
Year Ended May 31, 1997 58,862 42,638 16,224
B Shares
Year Ended May 31, 1999 6,812 6,812 0
Year Ended May 31, 1998 9,109 9,109 0
Year Ended May 31, 1997 13,295 13,295 0
I Shares
Year Ended May 31, 1999 152,583 39,056 113,527
Year Ended May 31, 1998 273,202 13,953 259,249
Year Ended May 31, 1997 543,029 288,245 254,784
COLORADO TAX-FREE FUND
A Shares
Year Ended May 31, 1999 19,380 15,723 3,657
Year Ended May 31, 1998 30,680 13,964 16,716
Year Ended May 31, 1997 54,902 49,840 5,062
B Shares
Year Ended May 31, 1999 4,886 4,296 590
Year Ended May 31, 1998 7,903 3,625 4,278
Year Ended May 31, 1997 13,532 13,115 417
I Shares
Year Ended May 31, 1999 19,973 6,616 13,357
Year Ended May 31, 1998 27,877 2,466 25,411
Year Ended May 31, 1997 51,399 44,432 6,967
MINNESOTA INTERMEDIATE TAX-FREE FUND
I Shares
Year Ended May 31, 1999 108,192 68,549 39,643
Year Ended May 31, 1998 139,426 97,043 42,383
MINNESOTA TAX-FREE FUND
A Shares
Year Ended May 31, 1999 18,116 11,044 7,072
Year Ended May 31, 1998 30,180 13,327 16,853
Year Ended May 31, 1997 51,795 33,434 18,361
B Shares
Year Ended May 31, 1999 9,838 7,060 2,778
Year Ended May 31, 1998 13,523 6,377 7,146
Year Ended May 31, 1997 20,364 14,581 5,783
I Shares
Year Ended May 31, 1999 11,481 1,109 10,372
Year Ended May 31, 1998 15,957 2,320 13,637
Year Ended May 31, 1997 12,888 10,362 2,526
B-8
<PAGE>
MANAGEMENT MANAGEMENT MANAGEMENT
FEE FEE FEE
PAYABLE WAIVED RETAINED
STRATEGIC INCOME FUND
Year Ended May 31, 1999 63,195 54,653 8,542
Year Ended May 31, 1998 205,059 175,249 29,810
Year Ended May 31, 1997 130,970 115,223 15,747
MODERATE BALANCED FUND
Year Ended May 31, 1999 122,700 104,728 17,972
Year Ended May 31, 1998 515,913 362,625 153,288
Year Ended May 31, 1997 412,357 278,998 133,359
GROWTH BALANCED FUND
Year Ended May 31, 1999 185,436 127,099 58,337
Year Ended May 31, 1998 706,519 467,784 238,735
Year Ended May 31, 1997 463,486 303,389 160,097
AGGRESSIVE BALANCED-EQUITY FUND
I Shares
Year Ended May 31, 1999 4,155 1,874 2,281
Year Ended May 31, 1998 2,799 2,363 436
INCOME EQUITY FUND
A Shares
Year Ended May 31, 1999 21,865 15,865 6,000
Year Ended May 31, 1998 63,767 57,043 6,724
Year Ended May 31, 1997 37,101 30,944 6,157
B Shares
Year Ended May 31, 1999 20,922 17,546 3,376
Year Ended May 31, 1998 53,134 49,294 3,840
Year Ended May 31, 1997 23,583 23,583 0
C Shares
Year Ended May 31, 1999 50 50 0
I Shares
Year Ended May 31, 1999 330,695 0 330,695
Year Ended May 31, 1998 998,134 508,066 490,068
Year Ended May 31, 1997 320,654 168,477 152,177
INDEX FUND
Year Ended May 31, 1999 234,899 181,337 53,562
Year Ended May 31, 1998 688,118 460,858 227,260
Year Ended May 31, 1997 375,387 213,759 161,628
B-9
<PAGE>
MANAGEMENT MANAGEMENT MANAGEMENT
FEE FEE FEE
PAYABLE WAIVED RETAINED
VALUGROWTH STOCK FUND
A Shares
Year Ended May 31, 1999 11,065 9,909 1,156
Year Ended May 31, 1998 22,896 13,687 9,209
Year Ended May 31, 1997 33,232 29,323 3,909
B Shares
Year Ended May 31, 1999 4,149 4,116 33
Year Ended May 31, 1998 7,763 7,763 0
Year Ended May 31, 1997 11,318 11,318 0
I Shares
Year Ended May 31, 1999 197,355 112,588 84,767
Year Ended May 31, 1998 499,641 22,453 477,188
Year Ended May 31, 1997 324,366 194,534 129,832
DIVERSIFIED EQUITY FUND
A Shares
Year Ended May 31, 1999 15,455 15,455 0
Year Ended May 31, 1998 48,577 39,759 8,818
Year Ended May 31, 1997 14,322 14,322 0
B Shares
Year Ended May 31, 1999 23,851 23,720 131
Year Ended May 31, 1998 68,828 55,455 13,373
Year Ended May 31, 1997 15,913 15,913 0
C Shares
Year Ended May 31, 1999 42 42 0
I Shares
Year Ended May 31, 1999 384,354 160,439 223,915
Year Ended May 31, 1998 1,699,994 938,395 761,599
Year Ended May 31, 1997 1,027,423 723,040 304,383
GROWTH EQUITY FUND
A Shares
Year Ended May 31, 1999 4,637 4,637 0
Year Ended May 31, 1998 25,645 17,603 8,042
Year Ended May 31, 1997 10,336 10,336 0
B Shares
Year Ended May 31, 1999 4,386 4,386 0
Year Ended May 31, 1998 16,845 11,552 5,293
Year Ended May 31, 1997 4,347 4,347 0
C Shares
Year Ended May 31, 1999 7 7 0
I Shares
Year Ended May 31, 1999 233,527 121,908 111,619
Year Ended May 31, 1998 1,342,900 788,748 554,152
Year Ended May 31, 1997 785,917 545,815 240,102
LARGE COMPANY GROWTH FUND
Year Ended May 31, 1999 133,226 60,044 73,182
Year Ended May 31, 1998 204,037 127,981 76,056
Year Ended May 31, 1997 100,171 87,896 12,275
B-10
<PAGE>
MANAGEMENT MANAGEMENT MANAGEMENT
FEE FEE FEE
PAYABLE WAIVED RETAINED
DIVERSIFIED SMALL CAP FUND
A Shares
Year Ended May 31, 1999 306 306 0
B Shares
Year Ended May 31, 1999 45 45 0
I Shares
Year Ended May 31, 1999 8,357 3,723 4,634
Year Ended May 31, 1998 2,430 2,294 136
SMALL COMPANY STOCK FUND
A Shares
Year Ended May 31, 1999 1,564 1,564 0
Year Ended May 31, 1998 10,418 10,094 324
Year Ended May 31, 1997 11,966 10,318 1,648
B Shares
Year Ended May 31, 1999 1,002 1,002 0
Year Ended May 31, 1998 6,721 6,646 75
Year Ended May 31, 1997 8,329 8,329 0
I Shares
Year Ended May 31, 1999 14,191 14,191 0
Year Ended May 31, 1998 200,997 124,654 76,343
Year Ended May 31, 1997 276,089 90,214 185,875
SMALL COMPANY GROWTH FUND
Year Ended May 31, 1999 146,508 95,340 51,168
Year Ended May 31, 1998 766,560 383,589 382,971
Year Ended May 31, 1997 390,398 185,644 204,754
SMALL CAP OPPORTUNITIES FUND
A Shares
Year Ended May 31, 1999 1,413 1,413 0
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, 1999 1,220 1,220 0
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, 1999 57,875 32,948 24,927
Year Ended May 31, 1998 243,348 39,205 204,143
Year Ended May 31, 1997 26,560 26,560 0
B-11
<PAGE>
MANAGEMENT MANAGEMENT MANAGEMENT
FEE FEE FEE
PAYABLE WAIVED RETAINED
INTERNATIONAL FUND
A Shares
Year Ended May 31, 1999 1,643 1,643 0
Year Ended May 31, 1998 6,976 1,907 5,069
Year Ended May 31, 1997 1,494 1,494 0
B Shares
Year Ended May 31, 1999 1,011 1,011 0
Year Ended May 31, 1998 4,704 1,709 2,995
Year Ended May 31, 1997 1,247 1,247 0
I Shares
Year Ended May 31, 1999 133,377 0 133,377
Year Ended May 31, 1998 601,498 850 600,648
Year Ended May 31, 1997 177,707 4,264 173,443
(ii) ADMINISTRATIVE FEES TO NORWEST
ADMINISTRATIVE ADMINISTRATIVE ADMINISTRATIVE
FEE FEE FEE
PAYABLE WAIVED RETAINED
SMALL CAP OPPORTUNITIES FUND
A Shares
Year Ended May 31, 1999 14,131 0 14,131
Year Ended May 31, 1998 7,924 0 7,924
B Shares
Year Ended May 31, 1999 12,198 0 12,198
Year Ended May 31, 1998 5,640 0 5,640
I Shares
Year Ended May 31, 1999 578,754 0 578,754
Year Ended May 31, 1998 471,297 0 471,297
INTERNATIONAL FUND
A Shares
Year Ended May 31, 1999 8,216 0 8,216
Year Ended May 31, 1998 7,230 0 7,230
B Shares
Year Ended May 31, 1999 5,053 0 5,053
Year Ended May 31, 1998 4,875 0 4,875
I Shares
Year Ended May 31, 1999 666,885 0 666,885
Year Ended May 31, 1998 623,325 0 623,325
Year Ended May 31, 1997 451,118 0 451,118
</TABLE>
B-12
<PAGE>
TABLE 3 - DISTRIBUTION FEES
The following table shows the dollar amount of fees payable to Forum for its
distribution services with respect to each Fund (or class thereof), the amount
of fee that was waived by Forum, if any, and the actual fee received by Forum.
All maintenance fees were waived by Forum during the fiscal year ended May 31,
1999. 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, 1999 10,904 0 10,904
Year Ended May 31, 1998 3,759 940 2,819
Year Ended May 31, 1997 4,249 1,062 3,187
STABLE INCOME FUND
B Shares
Year Ended May 31, 1999 20,728 0 20,728
Year Ended May 31, 1998 14,253 3,563 10,690
Year Ended May 31, 1997 7,992 1,998 5,994
INTERMEDIATE GOVERNMENT INCOME FUND
B Shares
Year Ended May 31, 1999 87,552 0 87,552
Year Ended May 31, 1998 86,167 21,542 64,625
Year Ended May 31, 1997 99,968 24,882 75,086
INCOME FUND
B Shares
Year Ended May 31, 1999 64,717 0 64,717
Year Ended May 31, 1998 39,664 9,916 29,748
Year Ended May 31, 1997 34,127 8,532 25,595
TOTAL RETURN BOND FUND
B Shares
Year Ended May 31, 1999 29,816 0 29,816
Year Ended May 31, 1998 24,563 6,141 18,422
Year Ended May 31, 1997 22,540 5,635 16,905
TAX-FREE INCOME FUND
B Shares
Year Ended May 31, 1999 136,247 0 136,247
Year Ended May 31, 1998 91,107 22,777 68,330
Year Ended May 31, 1997 66,476 16,619 49,857
COLORADO TAX-FREE FUND
B Shares
Year Ended May 31, 1999 97,729 0 97,729
Year Ended May 31, 1998 79,031 19,758 59,273
Year Ended May 31, 1997 67,660 16,915 50,745
B-13
<PAGE>
DISTRIBUTION DISTRIBUTION DISTRIBUTION
FEE FEE FEE
PAYABLE WAIVED RETAINED
MINNESOTA TAX-FREE FUND
B Shares
Year Ended May 31, 1999 196,769 0 196,769
Year Ended May 31, 1998 135,230 33,808 101,423
Year Ended May 31, 1997 101,817 25,454 76,363
INCOME EQUITY FUND
B Shares
Year Ended May 31, 1999 836,884 0 836,884
Year Ended May 31, 1998 481,065 120,266 360,799
Year Ended May 31, 1997 235,827 58,957 176,872
VALUGROWTH STOCK FUND
B Shares
Year Ended May 31, 1999 82,971 0 82,971
Year Ended May 31, 1998 77,628 19,407 58,221
Year Ended May 31, 1997 56,592 14,148 42,444
DIVERSIFIED EQUITY FUND
B Shares
Year Ended May 31, 1999 954,051 0 954,051
Year Ended May 31, 1998 567,355 141,839 425,516
Year Ended May 31, 1997 159,132 39,783 119,349
GROWTH EQUITY FUND
B Shares
Year Ended May 31, 1999 175,451 0 175,451
Year Ended May 31, 1998 124,429 31,107 93,322
Year Ended May 31, 1997 43,471 10,868 32,603
SMALL COMPANY STOCK FUND
B Shares
Year Ended May 31, 1999 40,099 0 40,099
Year Ended May 31, 1998 57,698 14,424 43,273
Year Ended May 31, 1997 41,641 10,410 31,231
SMALL CAP OPPORTUNITIES FUND
B Shares
Year Ended May 31, 1999 48,792 0 48,792
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, 1999 20,211 0 20,211
Year Ended May 31, 1998 19,501 4,875 14,626
Year Ended May 31, 1997 12,465 3,116 9,349
</TABLE>
B-14
<PAGE>
TABLE 4 - SALES CHARGES
The following table shows: (1) the dollar amount of sales charges payable to
Forum with respect to sales of A Shares (or of the respective Funds prior to the
offering of multiple classes of shares); (2) the amount of sales charge retained
by Forum and not reallowed to other persons; and (3) the amount of contingent
deferred sales charge ("CDSL") paid to Forum. The data is for the past three
fiscal years or shorter period if the Fund has been in operation for a shorter
period.
<TABLE>
<S> <C> <C> <C>
SALES RETAINED CDSL
CHARGES AMOUNT PAID
STABLE INCOME FUND
A Shares
Year Ended May 31, 1999 9,000 0 --
Year Ended May 31, 1998 1,000 1,000 --
Year Ended May 31, 1997 3,200 320 --
B Shares
Year Ended May 31, 1999 -- -- 1,000
Year Ended May 31, 1998 -- -- 1,000
Year Ended May 31, 1997 -- -- 6,526
INTERMEDIATE GOVERNMENT INCOME FUND
A Shares
Year Ended May 31, 1999 44,000 0 --
Year Ended May 31, 1998 26,000 0 --
Year Ended May 31, 1997 13,182 1,187 --
B Shares
Year Ended May 31, 1999 -- -- 7,000
Year Ended May 31, 1998 -- -- 14,000
Year Ended May 31, 1997 -- -- 31,694
INCOME FUND
A Shares
Year Ended May 31, 1999 115,000 16,000 --
Year Ended May 31, 1998 68,000 8,000 --
Year Ended May 31, 1997 11,979 1,121 --
B Shares
Year Ended May 31, 1999 -- -- 6,000
Year Ended May 31, 1998 -- -- 6,000
Year Ended May 31, 1997 -- -- 11,887
TOTAL RETURN BOND FUND
A Shares
Year Ended May 31, 1999 8,000 1,000 --
Year Ended May 31, 1998 8,000 1,000 --
Year Ended May 31, 1997 3,908 363 --
B Shares
Year Ended May 31, 1999 -- -- 7,000
Year Ended May 31, 1998 -- -- 4,000
Year Ended May 31, 1997 -- -- 7,505
B-15
<PAGE>
SALES RETAINED CDSL
CHARGES AMOUNT PAID
TAX-FREE INCOME FUND
A Shares
Year Ended May 31, 1999 204,000 0 --
Year Ended May 31, 1998 132,000 2,000 --
Year Ended May 31, 1997 74,101 6,646 --
B Shares
Year Ended May 31, 1999 -- -- 6,000
Year Ended May 31, 1998 -- -- 9,000
Year Ended May 31, 1997 -- -- 15,724
COLORADO TAX-FREE FUND
A Shares
Year Ended May 31, 1999 128,000 2,000 --
Year Ended May 31, 1998 127,000 4,000 --
Year Ended May 31, 1997 38,085 3,321 --
B Shares
Year Ended May 31, 1999 -- -- 11,000
Year Ended May 31, 1998 -- -- 12,000
Year Ended May 31, 1997 -- -- 11,889
MINNESOTA TAX-FREE FUND
A Shares
Year Ended May 31, 1999 141,000 3,000 --
Year Ended May 31, 1998 139,000 6,000 --
Year Ended May 31, 1997 53,290 4,744 --
B Shares
Year Ended May 31, 1999 -- -- 30,000
Year Ended May 31, 1998 -- -- 9,000
Year Ended May 31, 1997 -- -- 13,097
GROWTH BALANCED FUND
A Shares
Year Ended May 31, 1999 101,000 11,000 --
Year Ended May 31, 1998 N/A N/A --
Year Ended May 31, 1997 N/A N/A --
B Shares
Year Ended May 31, 1999 -- -- 0
Year Ended May 31, 1998 -- -- N/A
Year Ended May 31, 1997 -- -- N/A
INCOME EQUITY FUND
A Shares
Year Ended May 31, 1999 720,000 44,000 --
Year Ended May 31, 1998 692,000 69,000 --
Year Ended May 31, 1997 320,385 1,121 --
B Shares
Year Ended May 31, 1999 -- -- 129,000
Year Ended May 31, 1998 -- -- 62,000
Year Ended May 31, 1997 -- -- 38,812
16
<PAGE>
SALES RETAINED CDSL
CHARGES AMOUNT PAID
VALUGROWTH STOCK FUND
A Shares
Year Ended May 31, 1999 39,000 2,000 --
Year Ended May 31, 1998 92,000 9,000 --
Year Ended May 31, 1997 38,540 3,759 --
B Shares
Year Ended May 31, 1999 -- -- 14,000
Year Ended May 31, 1998 -- -- 9,000
Year Ended May 31, 1997 -- -- 10,770
DIVERSIFIED EQUITY FUND
A Shares
Year Ended May 31, 1999 611,000 0 --
Year Ended May 31, 1998 853,000 70,000 --
Year Ended May 31, 1997 485,324 8,286 --
B Shares
Year Ended May 31, 1999 -- -- 174,000
Year Ended May 31, 1998 -- -- 87,000
Year Ended May 31, 1997 -- -- 23,510
LARGE COMPANY GROWTH FUND
A Shares
Year Ended May 31, 1999 2,227,000 142,000 --
Year Ended May 31, 1998 -- -- --
Year Ended May 31, 1997 -- -- --
B Shares
Year Ended May 31, 1999 -- -- 70,000
Year Ended May 31, 1998 -- -- --
Year Ended May 31, 1997 -- -- --
DIVERSIFIED SMALL CAP FUND
A Shares
Year Ended May 31, 1999 10,000 0 --
Year Ended May 31, 1998 -- -- --
Year Ended May 31, 1997 -- -- --
B Shares
Year Ended May 31, 1999 -- -- 0
Year Ended May 31, 1998 -- -- --
Year Ended May 31, 1997 -- -- --
GROWTH EQUITY FUND
A Shares
Year Ended May 31, 1999 66,000 4,000 --
Year Ended May 31, 1998 173,000 17,000 --
Year Ended May 31, 1997 175,495 5,347 --
B Shares
Year Ended May 31, 1999 -- -- 32,000
Year Ended May 31, 1998 -- -- 25,000
Year Ended May 31, 1997 -- -- 6,972
B-17
<PAGE>
SALES RETAINED CDSL
CHARGES AMOUNT PAID
SMALL COMPANY STOCK FUND
A Shares
Year Ended May 31, 1999 23,000 2,000 --
Year Ended May 31, 1998 28,000 3,000 --
Year Ended May 31, 1997 23,419 2,335 --
B Shares
Year Ended May 31, 1999 -- -- 14,000
Year Ended May 31, 1998 -- -- 7,000
Year Ended May 31, 1997 -- -- 6,411
SMALL CAP OPPORTUNITIES FUND
A Shares
Year Ended May 31, 1999 21,000 0 --
Year Ended May 31, 1998 148,000 12,000 --
Year Ended May 31, 1997 11,604 1,178 --
B Shares
Year Ended May 31, 1999 -- -- 19,000
Year Ended May 31, 1998 -- -- 5,000
Year Ended May 31, 1997 -- -- --
INTERNATIONAL FUND
A Shares
Year Ended May 31, 1999 15,000 1,000 --
Year Ended May 31, 1998 12,000 1,000 --
Year Ended May 31, 1997 8,728 874
B Shares
Year Ended May 31, 1999 -- -- 4,000
Year Ended May 31, 1998 -- -- 3,000
Year Ended May 31, 1997 -- -- 2,086
</TABLE>
B-18
<PAGE>
TABLE 5 - ACCOUNTING FEES
The following table shows the dollar amount of fees payable to FAcS for its
accounting services with respect to each Fund, the amount of fee that was waived
by FAcS, if any, and the actual fee received by FAcS. 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, 1999 13,000 0 13,000
Year Ended May 31, 1998 151,975 0 151,975
Year Ended May 31, 1997 65,000 0 65,000
U.S. GOVERNMENT FUND
Year Ended May 31, 1999 64,750 0 64,750
Year Ended May 31, 1998 65,500 0 65,500
Year Ended May 31, 1997 60,000 0 60,000
TREASURY FUND
Year Ended May 31, 1999 61,750 0 61,750
Year Ended May 31, 1998 63,000 0 63,000
Year Ended May 31, 1997 54,500 0 54,500
READY CASH INVESTMENT FUND
Year Ended May 31, 1999 34,000 0 34,000
Year Ended May 31, 1998 61,678 0 61,678
Year Ended May 31, 1997 86,000 0 86,000
MUNICIPAL MONEY MARKET FUND
Year Ended May 31, 1999 97,750 0 97,750
Year Ended May 31, 1998 95,000 0 95,000
Year Ended May 31, 1997 90,000 0 90,000
STABLE INCOME FUND
Year Ended May 31, 1999 37,500 0 37,500
Year Ended May 31, 1998 93,585 0 93,585
Year Ended May 31, 1997 92,500 26,041 66,459
LIMITED TERM GOVERNMENT INCOME FUND
I Shares
Year Ended May 31, 1999 39,250 0 39,250
Year Ended May 31, 1998 33,000 0 33,000
INTERMEDIATE GOVERNMENT INCOME FUND
Year Ended May 31, 1999 87,250 0 87,250
Year Ended May 31, 1998 84,000 0 84,000
Year Ended May 31, 1997 85,500 24,146 61,354
DIVERSIFIED BOND FUND
Year Ended May 31, 1999 13,500 0 13,500
Year Ended May 31, 1998 60,241 0 60,241
Year Ended May 31, 1997 54,000 15,223 38,777
B-19
<PAGE>
FEE FEE FEE
PAYABLE WAIVED RETAINED
INCOME FUND
Year Ended May 31, 1999 85,250 0 85,250
Year Ended May 31, 1998 89,000 0 89,000
Year Ended May 31, 1997 93,000 0 93,000
TOTAL RETURN BOND FUND
Year Ended May 31, 1999 37,500 0 37,500
Year Ended May 31, 1998 77,536 0 77,536
Year Ended May 31, 1997 66,000 0 66,000
LIMITED TERM TAX-FREE FUND
Year Ended May 31, 1999 42,250 0 42,250
Year Ended May 31, 1998 38,000 0 38,000
Year Ended May 31, 1997 24,000 0 24,000
TAX-FREE INCOME FUND
Year Ended May 31, 1999 58,250 0 85,250
Year Ended May 31, 1998 91,000 0 91,000
Year Ended May 31, 1997 91,000 0 91,000
COLORADO TAX-FREE FUND
Year Ended May 31, 1999 63,250 0 63,250
Year Ended May 31, 1998 62,000 0 62,000
Year Ended May 31, 1997 66,000 0 66,000
MINNESOTA INTERMEDIATE TAX-FREE FUND
I Shares
Year Ended May 31, 1999 56,250 0 56,250
Year Ended May 31, 1998 39,000 0 39,000
MINNESOTA TAX-FREE FUND
Year Ended May 31, 1999 62,250 0 62,250
Year Ended May 31, 1998 64,000 0 64,000
Year Ended May 31, 1997 64,000 0 64,000
STRATEGIC INCOME FUND
Year Ended May 31, 1999 13,500 0 13,500
Year Ended May 31, 1998 61,046 0 61,046
Year Ended May 31, 1997 60,000 17,019 42,981
MODERATE BALANCED FUND
Year Ended May 31, 1999 13,500 0 13,500
Year Ended May 31, 1998 123,798 0 123,798
Year Ended May 31, 1997 62,000 17,546 44,454
B-20
<PAGE>
Fee Fee Fee
Payable Waived Retained
GROWTH BALANCED FUND
Year Ended May 31, 1999 37,501 0 37,501
Year Ended May 31, 1998 131,371 0 131,371
Year Ended May 31, 1997 61,000 17,237 43,763
AGGRESSIVE BALANCED-EQUITY FUND
I Shares
Year Ended May 31, 1999 13,500 0 13,500
Year Ended May 31, 1998 9,943 9,468 475
INCOME EQUITY FUND
Year Ended May 31, 1999 45,500 0 45,500
Year Ended May 31, 1998 88,615 0 88,615
Year Ended May 31, 1997 71,500 20,160 51,340
VALUGROWTH STOCK FUND
Year Ended May 31, 1999 78,249 0 78,249
Year Ended May 31, 1998 77,500 0 77,500
Year Ended May 31, 1997 66,000 0 66,000
INDEX FUND
Year Ended May 31, 1999 13,500 0 13,500
Year Ended May 31, 1998 89,560 0 89,560
Year Ended May 31, 1997 60,000 8,393 51,607
DIVERSIFIED EQUITY FUND
Year Ended May 31, 1999 45,500 0 45,500
Year Ended May 31, 1998 253,735 0 253,735
Year Ended May 31, 1997 81,500 22,995 58,505
GROWTH EQUITY FUND
Year Ended May 31, 1999 45,500 0 45,500
Year Ended May 31, 1998 242,383 0 242,383
Year Ended May 31, 1997 79,000 22,311 56,689
LARGE COMPANY GROWTH FUND
Year Ended May 31, 1999 29,499 0 29,499
Year Ended May 31, 1998 27,725 0 27,725
Year Ended May 31, 1997 38,000 10,750 27,250
DIVERSIFIED SMALL CAP FUND
I Shares
Year Ended May 31, 1999 29,500 0 29,500
Year Ended May 31, 1998 8,779 7,694 1,085
SMALL COMPANY STOCK FUND
Year Ended May 31, 1999 37,500 0 37,500
Year Ended May 31, 1998 79,136 0 79,136
Year Ended May 31, 1997 76,000 0 76,000
B-21
<PAGE>
FEE FEE FEE
PAYABLE WAIVED RETAINED
SMALL COMPANY GROWTH FUND
Year Ended May 31, 1999 13,500 0 13,500
Year Ended May 31, 1998 75,865 0 75,865
Year Ended May 31, 1997 55,000 5,536 49,464
SMALL CAP OPPORTUNITIES FUND
Year Ended May 31, 1999 37,501 0 37,501
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, 1999 37,500 0 37,500
Year Ended May 31, 1998 84,830 0 84,830
Year Ended May 31, 1997 36,000 10,148 25,852
</TABLE>
B-22
<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, 1999 N/A
Year Ended May 31, 1998 N/A
Year Ended May 31, 1997 N/A
STRATEGIC INCOME FUND*
Year Ended May 31, 1999 N/A
Year Ended May 31, 1998 N/A
Year Ended May 31, 1997 14,867
MODERATE BALANCED FUND*
Year Ended May 31, 1999 N/A
Year Ended May 31, 1998 N/A
Year Ended May 31, 1997 50,414
GROWTH BALANCED FUND*
Year Ended May 31, 1999 N/A
Year Ended May 31, 1998 N/A
Year Ended May 31, 1997 83,720
INCOME EQUITY FUND*
Year Ended May 31, 1999 N/A
Year Ended May 31, 1998 N/A
Year Ended May 31, 1997 301,308
INDEX FUND*
Year Ended May 31, 1999 N/A
Year Ended May 31, 1998 N/A
Year Ended May 31, 1997 157,319
VALUGROWTH STOCK FUND
Year Ended May 31, 1999 1,034,773
Year Ended May 31, 1998 1,011,840
Year Ended May 31, 1997 502,785
B-23
<PAGE>
Aggregate
Commissions Paid
DIVERSIFIED EQUITY FUND*
Year Ended May 31, 1999 N/A
Year Ended May 31, 1998 N/A
Year Ended May 31, 1997 226,652
GROWTH EQUITY FUND*
Year Ended May 31, 1999 N/A
Year Ended May 31, 1998 N/A
Year Ended May 31, 1997 130,483
LARGE COMPANY GROWTH FUND*
Year Ended May 31, 1999 N/A
Year Ended May 31, 1998 N/A
Year Ended May 31, 1997 59,924
SMALL COMPANY STOCK FUND*
Year Ended May 31, 1999 N/A
Year Ended May 31, 1998 N/A
Year Ended May 31, 1997 458,447
SMALL COMPANY GROWTH FUND
Year Ended May 31, 1999 N/A
Year Ended May 31, 1998 N/A
Year Ended May 31, 1997 1,365,750
SMALL CAP OPPORTUNITIES FUND*
Year Ended May 31, 1998 N/A
Year Ended May 31, 1997 N/A
INTERNATIONAL FUND*
Year Ended May 31, 1999 N/A
Year Ended May 31, 1998 N/A
Year Ended May 31, 1997 N/A
* Reflects commission paid by the Portfolio(s) in which the Fund invests, the
Funds paid no commissions directly during either year.
B-24
<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, 1999, as
well as their percentage holding of all shares of the Fund. Certain persons own
shares of the Funds of record only, including Alpine & Co., BHC Securities,
Inc., EMSEG & Co., First Stock Co., Norwest Bank Minnesota, N.A. and Stout & Co.
<TABLE>
<S> <C> <C> <C> <C>
SHARE BALANCE % OF % OF FUND
NAME AND ADDRESS CLASS
CASH INVESTMENT FUND
Norwest Investment Services 2,972,478,804.100 46.33 46.33
c/o Alex OConnor
608 2nd Ave S 8th Floor MS 0130
Minneapolis, MN 55402-1916
EMSEG & Co 775,584,729.750 12.09 12.09
Attn Cash Sweep Processing
510 Marquette Ave 4th Floor
Minneapolis, MN 55402-1110
EMSEG & Co 1,789,090,406.750 27.88 27.88
VP4530003
Attn Cash Sweep Processing
510 Marquette Ave 4th Floor
Minneapolis, MN 55402-1110
READY CASH INVESTMENT FUND
Investor Shares Norwest Investment Services 981,152,329.540 99.68 94.07
c/o Alex OConnor
608 2nd Ave S 8th Floor MS 0130
Minneapolis, MN 55402-1916
Exchange Shares Norwest Investment Services 60,282,535.340 99.90 5.78
c/o Alex Connor
608 2nd Ave S 8th Floor MS 0130
Minneapolis, MN 55402-1916
Public Entities Shares Randy E Brehmer 95,008.930 6.07 0.01
And Elizabeth J Brehmer
6740 Country Oaks Rd
Excelsior, MN 55331-7731
Norwest Bank Cust IRA Acct of 153,401.980 9.79 0.01
Mark Vukelich
3728 Evergreen Circle
White Bear, MN 55110-5768
B-25
<PAGE>
SHARE BALANCE % OF % OF FUND
NAME AND ADDRESS CLASS
READY CASH INVESTMENT FUND
Public Entities Shares Norwest Bank Cust IRA Acct of 132,705.150 8.47 0.01
(cont) Norwest Bank MN NA IRA C/F
Cust Mary G Koerber
611 S Mississippi
Mason City, IA 50401-5414
Dean Witter Reynolds Cust for 85,594.920 5.46 0.01
Stephen Jude Johnson
P.O. Box 250 Church Street Station
New York, NY 10008-0250
Norwest Investment Services Inc. 82,596.580 5.27 0.01
FBO 731314271
Northstar Building East - 8th Floor
608 Second Avenue South
Minneapolis, MN 55479-0162
Norwest Investment Services Inc. 100,044.110 6.39 0.01
FBO 800075451
Northstar Building East - 9th Floor
608 Second Avenue South
Minneapolis, MN 55479-0162
U.S. GOVERNMENT FUND
Alpine & Co 192,898,586.600 5.85 5.85
Non Discretionary
1740 Broadway MS 8751
Denver, CO 80274
EMSEG & Co. 2,617,541,894.960 79.34 79.34
Attn Cash Sweep Processing
510 Marquette Ave 4th Fl
Minneapolis, MN 55402-1110
Norwest Investment Services 388,837,246.070 11.79 11.79
c/o Alex OConnor
608 2nd Ave S 8th Fl MS 0130
Minneapolis, MN 55402-1916
Treasury Plus Fund
Alpine & Co 12,604,041.000 10.23 10.23
Non Discretionary
1740 Broadway MS 8751
Denver, CO 80274
B-26
<PAGE>
SHARE BALANCE % OF % OF FUND
NAME AND ADDRESS CLASS
TREASURY PLUS FUND (CONT)
EMSEG & Co 107,031,066.820 86.85 86.85
VP4530003
Attn Cash Sweep Processing
510 Marquette Ave 4th Floor
Minneapolis, MN 55402-1110
TREASURY FUND
EMSEG & Co. 1,052,286,353.980 63.42 63.42
Attn Cash Sweep Processing
510 Marquette Ave 4th Fl
Minneapolis, MN 55402-1110
Norwest Bank Investment Services 324,856,656.120 19.58 19.58
c/o Alex OConnor
608 2nd Ave S 8th Fl MS 0130
Minneapolis, MN 55402-1916
Alpine & Co 135,878,157.500 8.19 8.19
Discretionary
1740 Broadway MS 8751
Denver, CO 80274
MUNICIPAL MONEY MARKET FUND
Investor Shares Norwest Bank Investment Services 42,792,539.020 98.28 4.08
c/o Alex OConnor
608 2nd Ave S 8th Fl MS 0130
Minneapolis, MN 55402-1916
Institutional Shares Wells Fargo Bank 54,067,621.770 5.38 5.16
Fund Operations ACM
MAC #A0103-174
525 Market St 17th Floor
San Francisco, CA 94105-2708
Norwest Bank Investment Services 130,398,214.380 12.99 12.45
c/o Alex OConnor
608 2nd Ave S 8th Fl MS 0130
Minneapolis, MN 55402-1916
EMSEG & Co. 448,123,720.630 44.63 42.77
Attn Cash Sweep Processing
510 Marquette Ave 4th Fl
Minneapolis, MN 55402-1110
EMSEG & Co. 335,218,380.050 33.39 32.00
Attn Cash Sweep Processing
510 Marquette Ave 4th Fl
Minneapolis, MN 55402-1110
B-27
<PAGE>
SHARE BALANCE % OF % OF FUND
NAME AND ADDRESS CLASS
STABLE INCOME FUND
A Shares Norwest Investment Services Inc. 90,810.627 10.15 0.47
FBO 021219031
Northstar Building East - 8th Floor
608 Second Avenue South
Minneapolis, MN 55402-1916
Norwest Investment Services Inc. 45,360.579 5.07 0.24
FBO 021263911
Northstar Building East - 8th Floor
608 Second Avenue South
Minneapolis, MN 55479-0162
Norwest Investment Services Inc. 199,328.978 22.29 1.04
FBO 021453811
Northstar Building East - 8th Floor
608 Second Avenue South
Minneapolis, MN 55479-0162
Norwest Investment Services Inc. 79,995.417 8.94 0.42
FBO 705734561
Northstar Building East - 9th Floor
608 Second Avenue South
Minneapolis, MN 55402-1916
B Shares Norwest Investment Services Inc. 18,054.993 7.23 0.09
FBO 101114091
Northstar Building East - 9th Floor
608 Second Avenue South
Minneapolis, MN 55402-1916
Norwest Investment Services Inc. 20,446.946 8.16 0.11
FBO 102953761
Northstar Building East - 8th Floor
608 Second Avenue South
Minneapolis, MN 55402-1916
Norwest Investment Services Inc. 29,594.520 11.85 0.15
FBO 731186551
Northstar Building East - 9th Floor
608 Second Avenue South
Minneapolis, MN 55402-1916
Norwest Investment Services Inc. 20,072.151 8.04 0.10
FBO 708238851
Norwest Building East - 9th Floor
608 Second Avenue South
Minneapolis, MN 55479-0162
B-28
<PAGE>
SHARE BALANCE % OF % OF FUND
NAME AND ADDRESS CLASS
STABLE INCOME FUND (CONT)
I Shares EMSEG & Co 1,731,122.903 9.62 9.04
Stable Income Fund I
c/o Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
EMSEG & Co 12,440,240.034 69.30 64.97
Stable Income Fund I
c/o Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
LIMITED TERM GOVERNMENT
INCOME FUND
EMSEG & Co 542,198.611 6.45 6.45
Limited Term Government Income Fund
C/O Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
EMSEG & Co 1,737,535.871 20.67 20.67
Limited Term Government Income Fund
C/O Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
EMSEG & Co 5,202,246.404 61.88 61.88
Limited Term Government Income Fund
C/O Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
INTERMEDIATE GOVERNMENT
INCOME FUND
A Shares WealthBuilder II Growth Balanced 290,056.474 16.78 0.72
Intermediate US Govt Fund
c/o Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
Norwest Investment Services, Inc. 96,447.804 5.58 0.24
FBO 106727721
Northstar Building East - 8th Floor
608 Second Avenue South
Minneapolis, MN 55402-1916
B-29
<PAGE>
SHARE BALANCE % OF % OF FUND
NAME AND ADDRESS CLASS
INTERMEDIATE GOVERNMENT
INCOME FUND (CONT)
I Shares Dentru & Co 4,936,222.038 13.02 12.23
1740 Broadway Mail 8676
Denver, Co 80274-0001
EMSEG & Co 17,977,534.223 47.44 44.55
Intermediate U.S. Government Fund I
c/o Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
EMSEG & Co 8,499,905.506 22.43 21.06
Intermediate U.S. Government Fund I
c/o Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55480-8477
EMSEG & Co 4,561,513.897 12.04 11.30
Intermediate U.S. Government Fund I
c/o Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55480-8477
DIVERSIFIED BOND FUND
Seret & Co 627,273.064 8.98 8.98
Attn Jill Siekmeier
C/O Norwest Bank Colorado NA 1740 Broadway MS 8676
Denver, CO 80274-0001
Kiwils & Co 380,882.679 5.45 5.45
1740 Broadway MS 8676
Denver, CO 80274-0001
EMSEG & Co 4,776,175.135 68.35 68.35
Diversified Bond Fund I
C/O Mutual Fund Processing
PO Box 8477
Minneapolis, MN 55485-1450
B-30
<PAGE>
SHARE BALANCE % OF % OF FUND
NAME AND ADDRESS CLASS
INCOME FUND
A Shares WealthBuilder II Growth Balanced Income 314,236.968 20.89 0.79
Bond Fund Class A
C/O Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
I Shares Dentru & Co 6,534,444.975 17.51 16.45
Non-Discretionary Cash
1740 Broadway Mail 8676
Denver, CO 80274-0001
Virg & Co. 2,866,740.776 7.22
P.O. Box 9800
Calabasas, CA 91372-0800
EMSEG & Co 12,055,165.588 32.30 30.35
Income Fund I
C/O Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
EMSEG & Co 11,876,143.616 31.83 29.90
Income Fund I
C/O Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
EMSEG & Co 2,849,899.808 7.64 7.18
Income Fund I
C/O Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
TOTAL RETURN BOND FUND
A Shares Norwest Investment Services Inc 12,078.673 8.82 0.12
FBO 701867211
Northstar Building East - 9th Floor
608 Second Avenue South
Minneapolis, MN 55402-1916
Norwest Investment Services Inc 12,611.912 9.21 0.13
FBO 700019041
Northstar Building East - 8th Floor
608 Second Avenue South
Minneapolis, MN 55402-1916
B-31
<PAGE>
SHARE BALANCE % OF % OF FUND
NAME AND ADDRESS CLASS
TOTAL RETURN BOND FUND
(CONT)
A Shares (cont) Dean Witter Reynolds Cust For 9,882.592 7.22 0.10
Darald D Landsiedel
PO Box 250 Church Street Station
New York, NY 10008-0250
B Shares Norwest Investment Services Inc 22,853.665 7.66 0.23
FBO 102391501
Northstar Building East - 9th Floor
608 Second Avenue South
Minneapolis, MN 55402-1916
I Shares Dentru & Co 2,193,836.551 23.54 22.48
Non-Discretionary Cash
1740 Broadway Mail 8676
Denver, CO 80274
Kiwils & Co 647,162.242 6.94 6.63
Discretionary Reinvest
1700 Broadway MS 0076
Denver, CO 80274
Seret & Co 3,720,828.134 39.92 38.14
Discretionary Reinvest
1740 Broadway MS 8751
Denver, CO 80274
EMSEG & Co 766,630.822 8.23 7.86
Total Return Bond Fund I
c/o Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55480-0477
EMSEG & Co 858,257.726 9.21 8.80
Total Return Bond Fund I
c/o Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55480-8477
STRATEGIC INCOME FUND
EMSEG & Co 11,990,398.619 90.15 90.15
Strategic Income Fund I
C/O Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
B-32
<PAGE>
SHARE BALANCE % OF % OF FUND
NAME AND ADDRESS CLASS
LIMITED TERM TAX-FREE FUND
I Shares Virg & Co. 859,818.908 110.7 11.07
Mutual Funds MAC 2141-028
P.O. Box 9800
Calabasas, CA 91372-0800
EMSEG & Co 1,851,119.830 23.84 23.84
Limited Term Tax Free Fund I
c/o Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
EMSEG & Co 2,454,794.327 31.62 31.62
Limited Term Tax Free Fund I
c/o Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55480-8477
EMSEG & Co 2,423,735.105 31.22 31.22
Limited Term Tax Free Fund I
c/o Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55480-8477
TAX-FREE INCOME FUND
I Shares Dentru & Co 7,770,036.209 26.24 24.76
Non-Discretionary Cash
1740 Broadway Mail 8676
Denver, CO 80274
EMSEG & Co 2,158,063.313 7.29 6.88
Tax Free Income I
c/o Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
EMSEG & Co 5,856,756.640 19.78 18.66
Tax Free Income Fund I
c/o Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
B-33
<PAGE>
SHARE BALANCE % OF % OF FUND
NAME AND ADDRESS CLASS
TAX-FREE INCOME FUND (CONT)
I Shares (cont) EMSEG & Co 12,254,877.059 41.39 39.05
Tax Free Income Fund I
c/o Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
COLORADO TAX-FREE FUND
A Shares Norwest Investment Services, Inc. 606,309.704 16.36 6.27
FBO 017357991
Northstar Building East - 8th Floor
608 Second Avenue South
Minneapolis, MN 55402-1916
I Shares Dentru & Co 4,168,471.153 85.09 43.09
Non-Discretionary Cash
1740 Broadway Mail 8676
Denver, CO 80274
EMSEG & Co 320,182.068 6.55 3.31
Colorado Tax Free Fund I
C/O Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
EMSEG & Co 305,793.570 6.24 3.16
Colorado Tax Free Fund I
C/O Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
MINNESOTA INTERMEDIATE
TAX-FREE FUND
EMSEG & Co 17,824,902.205 80.30 80.30
Minnesota Intermediate Tax-Free Fund I
C/O Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
EMSEG & Co 1,188,894.585 5.36 5.36
Minnesota Intermediate Tax-Free Fund I
C/O Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
B-34
<PAGE>
SHARE BALANCE % OF % OF FUND
NAME AND ADDRESS CLASS
MINNESOTA INTERMEDIATE
TAX-FREE FUND (CONT)
EMSEG & Co 2,940,456.970 13.25 13.25
Minnesota Intermediate Tax-Free Fund I
C/O Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
MINNESOTA TAX-FREE FUND
I Shares EMSEG & Co 533,426.226 20.97 6.72
Minnesota Tax Free I
c/o Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
EMSEG & Co 521,763.605 20.52 6.58
Minnesota Tax Free I
c/o Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
EMSEG & Co 1,364,832.004 53.66 17.21
Minnesota Tax Free I
c/o Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
MODERATE BALANCED FUND
EMSEG & Co 20,047,072.874 88.66 88.66
Moderate Balanced Fund I
C/O Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
GROWTH BALANCED FUND
A Shares Colorado State Bank & Trust 40,155.0370 20.76 0.13
Custodian for the IRA of
Harley G Higie Jr
1600 Broadway
Denver, CO 80202-4927
C Shares EMJAYCO 3,666.509 5.68 0.01
Omnibus Account
17909 PO Box
Milwaukee, WI 53217-0909
B-35
<PAGE>
SHARE BALANCE % OF % OF FUND
NAME AND ADDRESS CLASS
GROWTH BALANCED FUND (CONT)
C Shares (cont) Norwest Investment Services Inc 6,903.175 13.74 0.02
FBO 705690741
Northstar Building East - 9th Floor
608 Second Avenue South
Minneapolis, MN 55402-1916
Norwest Investment Services Inc 3,436.989 6.84 0.01
FBO 709008811
Northstar Building East - 9th Floor
608 Second Avenue South
Minneapolis, MN 55402-1916
Norwest Investment Services Inc 12,880.113 19.94 0.04
FBO 710886111
Northstar Building East - 9th Floor
608 Second Avenue South
Minneapolis, MN 55402-1916
I Shares EMSEG & Co 25,188,918.509 88.83 86.89
Growth Balanced Fund I
C/O Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
AGGRESSIVE BALANCED EQUITY
FUND
EMSEG & Co 4,956,226.446 98.46 98.46
Aggressive Balanced Equity Fund I
C/O Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
INDEX FUND
EMSEG & Co 1,166,683.839 7.73 7.73
Index Fund I
C/O Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
EMSEG & Co 10,713,209.116 70.99 70.99
Index Fund I
C/O Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
INCOME EQUITY FUND
C Shares EMJAYCO 3,620.739 9.08 0.01
Omnibus Account
17909 PO Box
Milwaukee, WI 53217-0909
B-36
<PAGE>
SHARE BALANCE % OF % OF FUND
NAME AND ADDRESS CLASS
INCOME EQUITY FUND (CONT)
C Shares (cont) Norwest Investment Services Inc 2,245.292 5.63 0.01
FBO 100835581
Northstar Building East - 9th Floor
608 Second Avenue South
Minneapolis, MN 55402-1916
Norwest Investment Services Inc 2,302.759 5.77 0.01
FBO 108877681
Northstar Building East - 9th Floor
608 Second Avenue South
Minneapolis, MN 55402-1916
Norwest Investment Services Inc 2,087.247 5.23 0.01
FBO 800113721
Northstar Building East - 9th Floor
608 Second Avenue South
Minneapolis, MN 55402-1916
I Shares Dentru & Co 3,029,733.464 9.15 7.94
1740 Broadway
Denver, CO 80274-0001
EMSEG & Co 12,123,808.881 36.63 31.77
Income Equity Fund I
C/O Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
EMSEG & Co 6,834,345.305 20.65 17.91
Income Equity Fund I
C/O Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
EMSEG & Co 8,024,200.686 24.24 21.03
Income Equity Fund I
C/O Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
VALUGROWTHSM STOCK FUND
I Shares Dentru & Co 1,649,117.520 21.24 18.39
Non-Discretionary Cash
1740 Broadway Mail 8676
Denver, CO 80274
B-37
<PAGE>
SHARE BALANCE % OF % OF FUND
NAME AND ADDRESS CLASS
VALUGROWTHSM STOCK FUND
(CONT)
I Shares (cont) EMSEG & Co 1,491,564.554 19.21 16.63
ValuGrowth Stock Fund I
c/o Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
EMSEG & Co 3,782,687.593 48.73 42.19
ValuGrowth Stock Fund I
c/o Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
DIVERSIFIED EQUITY FUND
C Shares Norwest Investment Services Inc 2,138.123 5.20 0.01
FBO 100835581
Northstar Building East - 9th Floor
608 Second Avenue South
Minneapolis, MN 55402-1916
Norwest Investment Services Inc 2,289.078 5.57 0.01
FBO 707318151
Northstar Building East - 9th Floor
608 Second Avenue South
Minneapolis, MN 55402-1916
Norwest Investment Services Inc 3,512.092 8.54 0.01
FBO 703505091
Northstar Building East - 9th Floor
608 Second Avenue South
Minneapolis, MN 55402-1916
Norwest Investment Services Inc 20,588.841 50.07 0.05
FBO 112609161
Northstar Building East - 9th Floor
608 Second Avenue South
Minneapolis, MN 55402-1916
I Shares Kiwils & Co 2,331,587.598 5.80 5.29
1740 Broadway MS 8676
Denver, CO 80274-0001
EMSEG & Co 33,885,811.675 84.27 76.82
Diversified Equity Fund I
c/o Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
B-38
<PAGE>
SHARE BALANCE % OF % OF FUND
NAME AND ADDRESS CLASS
GROWTH EQUITY FUND
A Shares Norwest WealthBuilder 82,403.781 12.65 0.44
Reinvest Account
733 Marquette Ave
Minneapolis, MN 55402-2903
Koch Industries Inc 191,326.260 29.37 1.02
C/O Wilshire Asset Management
1299 Ocean Avenue Suite 700
Santa Monica, CA 90401-1036
C Shares EMJAYCO 6,440.858 77.18 0.03
Omnibus Account
17909 PO Box
Milwaukee, WI 53217-0909
Norwest Investment Services Inc 1,159.418 13.89 0.00
FBO 707211391
Northstar Building East - 9th Floor
608 Second Avenue South
Minneapolis, MN 55402-1916
Dean Witter for the benefit of 470.697 5.64 0.00
Timber Harvesting Inc
PO Box 250 Church Street Station
New York, NY 10008-0250
I Shares EMSEG & Co 15,345,190.146 87.61 82.02
Growth Equity Fund I
C/O Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
LARGE COMPANY GROWTH FUND
A Shares Merrill Lynch Trust Co TTEE 1,655,940.732 50.88 7.77
FBO Qualified Retirement Plans
Attn Philb Kolb
265 Davidson Ave 4th Floor
Santa Monica, CA 90401-1036
I Shares Virg & Co. 891,582.199 6.14 4.18
P.O. Box 9800
Calabasas, CA 91372-0800
EMSEG & Co 754,653.163 5.19 3.53
Large Company Growth Fund I
C/O Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
B-39
<PAGE>
SHARE BALANCE % OF % OF FUND
NAME AND ADDRESS CLASS
LARGE COMPANY GROWTH FUND
(CONT)
I Shares (cont) EMSEG & Co 1,230,331.656 8.46 5.77
Large Company Growth Fund I
C/O Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
EMSEG & Co 9,463,862.080 65.11 44.39
Large Company Growth Fund I
C/O Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
DIVERSIFIED SMALL CAP FUND
A Shares Norwest WealthBuilder 101,982.797 71.68 1.34
Reinvest Account
733 Marquette Ave
Minneapolis, MN 55402-2309
B Shares Norwest Investment Services Inc 3,644.456 5.85 0.00
FBO 710307871
Northstar Building East - 9th Floor
608 Second Avenue South
Minneapolis, MN 55402-1916
I Shares Kiwils & Co 395,703.785 5.35 5.21
Discretionary Reinvest
1740 Broadway MS 8751
Denver CO 80274-0001
Dentru & Co 595,114.340 8.05 7.83
1740 Broadway Mail 8676
Denver, CO 80274-0001
EMSEG & Co 552,059.810 7.47 7.26
Diversified Small Cap Fund I
C/O Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
EMSEG & Co 4,575,196.421 61.87 60.20
Large Company Growth Fund I
C/O Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
B-40
<PAGE>
SHARE BALANCE % OF % OF FUND
NAME AND ADDRESS CLASS
DIVERSIFIED SMALL CAP FUND
(CONT)
I Shares (cont) EMSEG & Co 600,113.321 8.12 7.90
Large Company Growth Fund I
C/O Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
SMALL COMPANY STOCK FUND
A Shares Norwest WealthBuilder 93,343.454 21.25 3.20
Reinvest Account
733 Marquette Ave
Minneapolis, MN 55402-2309
I Shares Dentru & Co 187,615.967 8.75 6.43
Non-Discretionary Cash
1740 Broadway Mail 8676
Denver, CO 80274-0001
EMSEG & Co 897,441.984 41.87 30.75
Small Company Stock Fund I
c/o Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
EMSEG & Co 268,094.697 12.51 9.19
Small Company Stock Fund I
c/o Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
EMSEG & Co 554,647.705 25.88 19.01
Small Company Stock Fund I
c/o Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
SMALL CAP OPPORTUNITIES
FUND
A Shares WealthBuilder II Growth Balanced Fund 85,233.859 22.61 0.84
Class A #13357300
C/O Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
WealthBuilder II Growth Balanced Fund 51,260.116 13.60 0.50
Class A #13357200
C/O Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
B-41
<PAGE>
SHARE BALANCE % OF % OF FUND
NAME AND ADDRESS CLASS
SMALL CAP OPPORTUNITIES
FUND (CONT)
A Shares (cont) WealthBuilder II Growth Balanced Fund 20,413.299 5.42 0.20
Class A #13357100
C/O Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
I Shares Dentru & Co 652,187.645 6.79 6.40
1740 Broadway Mail 8676
Denver, CO 80274-0001
Seret & Co 737,495.916 7.68 7.24
Attn Jill Siekmeier
C/O Norwest Bank Colorado NA 1740 Broadway MS 8676
Denver, CO 80274-0001
EMSEG & Co 826,143.026 8.60 8.11
Small Cap Opportunities Fund I
c/o Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
EMSEG & Co 5,966,981.566 62.14 58.58
Small Cap Opportunities Fund I
c/o Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
SMALL COMPANY GROWTH FUND
Vanguard Fiduciary Trust Co 1,158,474.701 6.02 6.02
FBO Burlington Northern
VM 613 Attn Specialized Services
PO Box 2900
Valley Forge, PA 19482-2900
EMSEG & Co 2,262,409.982 11.76 11.76
Small Company Growth Fund I
c/o Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
EMSEG & Co 14,534,559.415 75.56 75.56
Small Company Growth Fund I
c/o Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
B-42
<PAGE>
SHARE BALANCE % OF % OF FUND
NAME AND ADDRESS CLASS
INTERNATIONAL FUND
A Shares Norwest WealthBuilder 32,487.954 28.39 0.28
Reinvest Account
733 Marquette Ave
Minneapolis, MN 55479-0040
B Shares Norwest Investment Services, Inc. 4,895.554 6.08 0.04
FBO 012957081
Northstar Building East - 8th Floor
608 Second Avenue South
Minneapolis, MN 55402-1916
I Shares Dentru & Co 1,027,026.139 8.86 8.71
1740 Broadway Mail 8676
Denver, CO 80274-0001
EMSEG & Co 8,094,636.410 69.82 68.67
International Fund I
C/O Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
EMSEG & Co 1,185,717.433 10.23 10.06
International Fund I
C/O Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
</TABLE>
B-43
<PAGE>
APPENDIX C - PERFORMANCE DATA
TABLE 1 - MONEY MARKET FUND YIELDS
As of May 31, 1999, the seven day yield, seven day effective yield and, for
Municipal Money Market Fund, the seven day tax equivalent yield, of each class
of the Money Market Funds was as follows. For the tax-equivalent yield
quotations, the assumed federal income tax rate is 39.6%.
<TABLE>
<S> <C> <C> <C> <C>
7 DAY 7 DAY EFFECTIVE 7 DAY TAX-EQUIV 7 DAYTAX-EQUIV
YIELD YIELD YIELD EFFECTIVE YIELD
CASH INVESTMENT FUND 5.24% 5.37% N/A N/A
READY CASH INVESTMENT FUND
Investor Shares 4.86% 4.97% N/A N/A
Exchange Shares 4.11% 4.19% N/A N/A
U.S. GOVERNMENT FUND 5.05% 5.18% N/A N/A
TREASURY PLUS FUND N/A N/A N/A N/A
TREASURY FUND 4.77% 4.89% N/A N/A
MUNICIPAL MONEY MARKET FUND
Investor Shares 3.21% 3.26% 5.31% 5.40%
Institutional Shares 3.41% 3.47% 5.65% 5.75%
</TABLE>
TABLE 2 - YIELDS
For the 30-day period ended May 31, 1999 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
C-1
<PAGE>
TAX EQUIVALENT
YIELD YIELD
INCOME FUND
A Shares 5.40% N/A
B Shares 4.89% N/A
I Shares 5.64% N/A
TOTAL RETURN BOND FUND
A Shares 5.42% N/A
B Shares 4.88% N/A
I Shares 5.64% N/A
LIMITED TERM TAX-FREE FUND
I Shares 4.11% N/A
TAX-FREE INCOME FUND
A Shares 4.98% 8.25%
B Shares 4.44% 7.35%
I Shares 5.19% 8.60%
COLORADO TAX-FREE FUND
A Shares 4.63% 8.07%
B Shares 4.07% 7.10%
I Shares 4.83% 8.42%
MINNESOTA INTERMEDIATE TAX-FREE FUND
I Shares 4.14% 7.49%
MINNESOTA TAX-FREE FUND
A Shares 4.47% 8.09%
B Shares 3.91% 7.08%
I Shares 4.66% 8.43%
STRATEGIC INCOME FUND
I Shares N/A N/A
MODERATE BALANCED FUND
I Shares N/A N/A
GROWTH BALANCED FUND
I Shares N/A N/A
AGGRESSIVE BALANCED-EQUITY FUND
I Shares 0.19% N/A
DIVERSIFIED EQUITY FUND
A Shares N/A N/A
B Shares N/A N/A
I Shares N/A N/A
GROWTH EQUITY FUND
A Shares N/A N/A
B Shares N/A N/A
I Shares N/A N/A
C-2
<PAGE>
TAX EQUIVALENT
YIELD YIELD
INDEX FUND
I Shares 1.61% N/A
VALUGROWTH STOCK FUND
A Shares 0.66% N/A
B Shares -0.04% N/A
I Shares 0.68% N/A
INCOME EQUITY FUND
A Shares 1.53% N/A
B Shares 0.87% N/A
I Shares 1.63% N/A
LARGE COMPANY GROWTH FUND
I Shares -0.33% N/A
DIVERSIFIED SMALL CAP FUND
I Shares -0.42% N/A
SMALL COMPANY STOCK FUND
A Shares -0.49% N/A
B Shares -1.27% N/A
I Shares -0.51% N/A
SMALL COMPANY GROWTH FUND
I Shares -0.96% N/A
SMALL CAP OPPORTUNITIES FUND
A Shares N/A N/A
B Shares N/A N/A
I Shares N/A N/A
INTERNATIONAL FUND
A Shares N/A N/A
B Shares N/A N/A
I Shares N/A N/A
</TABLE>
C-3
<PAGE>
TABLE 3 - TOTAL RETURNS
The average annual total return of each class of each Fund for the periods ended
May 31, 1999 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
SINCE
ONE YEAR FIVE YEARS TEN YEARS INCEPTION
CASH INVESTMENT FUND 5.04% 5.23% 5.38% 5.73%
READY CASH INVESTMENT FUND
Investor Shares 4.68% 4.88% 5.03% 5.36%
Exchange Shares 3.90% 4.10% N/A 4.09%
U.S. GOVERNMENT FUND 4.81% 5.03% 5.15% 5.49%
TREASURY FUND 4.49% 4.81% N/A 4.46%
MUNICIPAL MONEY MARKET FUND
Investor Shares 2.76% 3.09% 3.37% 3.60%
Institutional Shares 2.97% 3.30% 3.49% 3.71%
STABLE INCOME FUND
A Shares 3.17% N/A N/A 5.69%
B Shares 3.32% N/A N/A 5.25%
I Shares 4.95% N/A N/A 6.07%
LIMITED TERM GOVERNMENT INCOME
FUND
I Shares 4.63% N/A N/A 5.46%
INTERMEDIATE GOVERNMENT INCOME
FUND*
A Shares (0.48)% 5.51% 6.35% 7.25%
B Shares (0.41)% 5.67% 6.06% 6.76%
I Shares 4.30% 6.50% 6.85% 7.56%
DIVERSIFIED BOND FUND*
I Shares 4.15% 6.75% 7.07% 8.26%
INCOME FUND
A Shares (1.82)% 5.59% 7.17% 7.24%
B Shares (1.84)% 5.59% 6.83% 6.84%
I Shares 2.81% 6.57% 7.65% 7.64%
TOTAL RETURN BOND FUND
A Shares (1.39)% 5.47% N/A 4.66%
B Shares (1.32)% 5.53% N/A 4.67%
I Shares 3.26% 6.47% N/A 5.58%
LIMITED TERM TAX-FREE FUND
I Shares 3.97% N/A N/A 6.64%
TAX-FREE INCOME FUND
A Shares (0.64)% 6.30% N/A 6.24%
B Shares (0.70)% 6.32% N/A 5.96%
I Shares 4.04% 7.28% N/A 6.74%
COLORADO TAX-FREE FUND
A Shares (0.88)% 6.11% N/A 5.42%
B Shares (1.02)% 6.13% N/A 5.33%
I Shares 3.79% 7.09% N/A 6.23%
C-4
<PAGE>
SEC STANDARDIZED RETURNS (CONTINUED)
SINCE
ONE YEAR FIVE YEARS TEN YEARS INCEPTION
MINNESOTA INTERMEDIATE TAX-FREE
FUND*
I Shares 3.95% 5.91% 6.40% 6.20%
MINNESOTA TAX-FREE FUND
A Shares (0.72)% 5.83% 6.19% 6.33%
B Shares (0.79)% 5.85% 5.86% 5.95%
I Shares 3.96% 6.79% 6.68% 6.76%
STRATEGIC INCOME FUND*
I Shares 8.45% 10.21% 9.30% 9.42%
MODERATE BALANCED FUND*
I Shares 12.02% 12.98% 11.23% 11.38%
GROWTH BALANCED FUND*
A Shares 9.50% 15.61% 12.97% 13.02%
B Shares 11.39% 16.03% 12.81% 12.86%
C Shares 15.48% 16.16% 12.82% 12.86%
I Shares 16.38% 17.03% 13.66% 13.71%
AGGRESSIVE BALANCED
EQUITY FUND
I Shares 17.98% N/A N/A 19.47%
INCOME EQUITY FUND*
A Shares 8.15% 22.13% 15.98% 16.76%
B Shares 9.90% 22.59% 15.80% 16.57%
C Shares 13.79% 22.65% 15.80% 16.56%
I Shares 14.75% 23.58% 16.67% 17.44%
INDEX FUND*
I Shares 20.57% 25.24% 17.45% 16.02%
VALUGROWTH STOCK FUND
A Shares (5.90)% 13.63% 12.18% 12.42%
B Shares (4.15)% 14.00% 12.00% 12.16%
I Shares (0.16)% 14.98% 12.83% 12.99%
DIVERSIFIED EQUITY FUND*
A Shares 8.46% 19.81% 15.75% 16.67%
B Shares 10.24% 20.25% 15.58% 16.45%
I Shares 15.08% 21.24% 16.44% 17.33%
GROWTH EQUITY FUND*
A Shares 1.39% 15.35% 14.88% 15.09%
B Shares 2.78% 15.75% 14.70% 14.93%
C Shares 7.63% 16.04% 14.79% 15.01%
I Shares 7.60% 16.72% 15.55% 15.77%
LARGE COMPANY GROWTH FUND*
A Shares 31.80% 26.36% 19.73% 17.05%
B Shares 35.02% 26.89% 19.57% 16.61%
I Shares 39.96% 27.89% 20.45% 17.48%
DIVERSIFIED SMALL CAP FUND
A Shares (19.42)% N/A N/A (11.04)%
B Shares (18.35)% N/A N/A (10.39)%
I Shares (14.54)% N/A N/A (7.25)%
SMALL COMPANY STOCK FUND
A Shares (31.43)% 3.72% N/A 3.28%
B Shares (30.74)% 4.01% N/A 3.47%
I Shares (27.24)% 4.96% N/A 4.34%
SMALL COMPANY GROWTH FUND*
I Shares (10.72)% 14.67% 16.97% 16.26%
SMALL CAP OPPORTUNITIES FUND
A Shares (18.03)% 15.74% N/A 15.83%
B Shares (17.19)% 16.14% N/A 16.06%
I Shares (13.02)% 17.13% N/A 17.03%
INTERNATIONAL FUND*
A Shares (7.03)% 6.57% 8.27% 7.35%
B Shares (5.90)% 6.71% 8.02% 7.01%
I Shares (1.32)% 7.67% 8.83% 7.81%
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<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NON STANDARDIZED RETURNS (WITHOUT A SALES LOAD)
CALENDAR
ONE MONTH THREE YEAR TO ONE YEAR THREE FIVE TEN YEARS SINCE
MONTHS DATE YEARS YEARS INCEPTION
CASH INVESTMENT FUND 0.38% 1.15% 1.93% 5.04% 5.22% 5.23% 5.38% 5.73%
READY CASH INVESTMENT FUND
Investor Shares 0.35% 1.06% 2.19% 4.68% 4.88% 4.88% 5.03% 5.36%
Exchange Shares 0.29% 0.87% 1.47% 3.90% 4.09% 4.10% N/A 4.09%
Public Entities Shares 0.38% 1.13% 1.90% N/A N/A N/A N/A 4.83%
U.S. GOVERNMENT FUND 0.37% 1.12% 1.86% 4.81% 5.02% 5.03% 5.15% 5.49%
TREASURY FUND 0.36% 1.06% 1.74% 4.49% 4.78% 4.81% N/A 4.46%
MUNICIPAL MONEY MARKET FUND
Investor Shares 0.24% 0.66% 1.04% 2.76% 3.01% 3.09% 3.37% 3.60%
Institutional Shares 0.25% 0.71% 1.13% 2.97% 321% 3.30% 3.49% 3.71%
STABLE INCOME FUND
A Shares (0.01)% 0.95% 1.14% 4.74% 5.78% N/A N/A 6.05%
B Shares (0.07)% 0.76% 0.95% 4.07% 5.00% N/A N/A 5.25%
I Shares 0.09% 1.05% 1.34% 4.95% 5.82% N/A N/A 6.07%
LIMITED TERM GOVERNMENT
INCOME FUND
I Shares (0.66)% 0.25% 0.52% 4.63% N/A N/A N/A 5.46%
INTERMEDIATE GOVERNMENT
INCOME FUND*
A Shares (1.33)% (0.44)% (2.32)% 4.21% 6.89% 6.48% 6.84% 7.55%
B Shares (1.30)% (0.62)% (2.52)% 3.53% 6.11% 5.70% 6.06% 6.76%
I Shares (1.24)% (0.44)% (2.23)% 4.30% 6.92% 6.50% 6.85% 7.56%
DIVERSIFIED BOND FUND*
I Shares (0.65)% 0.15% (1.62)% 4.15% 7.53% 6.75% 7.07% 8.26%
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 (1.33)% (0.52)% (2.79)% 2.81% 7.28% 6.56% 7.66% 7.65%
B Shares (1.50)% (0.82)% (3.20)% 2.03% 6.46% 5.75% 6.83% 6.84%
I Shares (1.43)% (0.52)% (2.80)% 2.81% 7.28% 6.57% 7.65% 7.64%
LIMITED TERM TAX-FREE FUND
I Shares (0.31)% (0.10)% 0.58% 3.97% N/A N/A N/A 6.64%
TAX-FREE INCOME FUND
A Shares (0.82)% (0.49)% (0.10)% 4.04% 7.57% 7.28% N/A 6.74%
B Shares (0.97)% (0.68)% (0.41)% 3.26% 6.77% 6.48% N/A 5.96%
I Shares (0.91)% (0.48)% (0.19)% 4.04% 7.57% 7.28% N/A 6.74%
COLORADO TAX-FREE FUND
A Shares (0.63)% (0.39)% (0.20)% 3.79% 7.55% 7.09% N/A 6.23%
B Shares (0.79)% (0.67)% (0.51)% 2.92% 6.75% 6.29% N/A 5.46%
I Shares (0.72)% (0.39)% (0.20)% 3.79% 7.55% 7.09% N/A 6.23%
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NON STANDARDIZED RETURNS (WITHOUT A SALES LOAD) (CONTINUED)
CALENDAR
ONE MONTH THREE YEAR TO ONE YEAR THREE FIVE TEN YEARS SINCE
MONTHS DATE YEARS YEARS INCEPTION
MINNESOTA INTERMEDIATE
TAX-FREE FUND*
I Shares (0.49)% (0.18)% 0.40% 3.95% 6.05% 5.91% 6.40% 6.20%
MINNESOTA TAX-FREE FUND
A Shares (0.60)% (0.29)% 0.18% 3.96% 7.19% 6.81% 6.68% 6.76%
B Shares (0.67)% (0.47)% (0.04)% 3.18% 6.39% 6.01% 5.86% 5.95%
I Shares (0.60)% (0.29)% 0.18% 3.96% 7.19% 6.81% 6.68% 6.76%
STRATEGIC INCOME FUND*
I Shares (0.60)% 1.83% 1.16% 8.45% 10.70% 10.21% 9.30% 9.42%
MODERATE BALANCED FUND*
I Shares (0.94)% 2.85% 2.46% 12.02% 13.68% 12.98% 11.23% 11.38%
GROWTH BALANCED FUND*
A Shares (1.29)% 3.77% 3.54% 16.18% 17.77% 16.99% 13.64% 13.69%
B Shares (1.35)% 3.60% 3.33% 15.39% 16.92% 16.14% 12.81% 12.86%
C Shares (1.35)% 3.64% 3.32% 15.48% 16.95% 16.16% 12.82% 12.86%
I Shares (1.25)% 3.83% 3.65% 16.38% 17.84% 17.03% 13.66% 13.71%
AGGRESSIVE BALANCED EQUITY
FUND*
I Shares (1.45)% 4.87% 4.87% 17.98% N/A N/A N/A 19.47%
INCOME EQUITY FUND*
A Shares (0.26)% 8.98% 8.93% 14.74% 21.79% 23.58% 16.67% 17.44%
B Shares (0.32)% 8.77% 8.59% 13.90% 20.89% 22.68% 15.80% 16.57%
C Shares (0.31)% 8.79% 8.60% 13.79% 20.84% 22.65% 15.80% 16.56%
I Shares (0.28)% 8.98% 8.91% 14.75% 21.79% 23.58% 16.67% 17.44%
INDEX FUND*
I Shares (2.40)% 5.36% 6.16% 20.57% 26.56% 25.24% 17.45% 16.02%
VALUGROWTH STOCK FUND
A Shares (3.21)% 2.96% 0.83% (0.16)% 14.26% 14.98% 12.85% 13.01%
B Shares (3.27)% 2.78% 0.53% (0.90)% 13.40% 14.12% 12.00% 12.16%
I Shares (3.22)% 3.01% 0.83% (0.16)% 14.26% 14.98% 12.83% 12.99%
DIVERSIFIED EQUITY FUND*
A Shares (1.59)% 5.70% 5.60% 15.08% 20.55% 21.24% 16.44% 17.33%
B Shares (1.65)% 5.51% 5.28% 14.24% 19.66% 20.34% 15.58% 16.45%
C Shares (1.65)% 5.49% 5.28% 14.49% 19.77% 20.41% 15.61% 16.49%
I Shares (1.59)% 5.70% 5.60% 15.08% 20.57% 21.24% 16.44% 17.33%
GROWTH EQUITY FUND*
A Shares (1.12)% 5.05% 2.84% 7.57% 14.58% 16.72% 15.56% 15.77%
B Shares (1.17)% 4.86% 2.52% 6.78% 13.73% 15.86% 14.70% 14.93%
C Shares (1.17)% 4.85% 2.51% 7.63% 14.03% 16.04% 14.79% 15.01%
I Shares (1.12)% 5.05% 2.84% 7.60% 14.58% 16.72% 15.55% 15.77%
LARGE COMPANY GROWTH FUND*
A Shares (3.49)% 2.92% 6.63% 39.84% 31.14% 27.86% 20.44% 17.48%
B Shares (3.56)% 2.77% 6.38% 39.02% 30.25% 26.97% 19.57% 16.61%
I Shares (3.50)% 2.96% 6.69% 39.96% 31.18% 27.89% 20.45% 17.48%
DIVERSIFIED SMALL CAP FUND*
A Shares 3.14% 8.92% (1.65)% (14.51)% N/A N/A N/A (7.23)%
B Shares 3.11% 8.74% (1.86)% (14.95)% N/A N/A N/A (7.77)%
I Shares 3.10% 8.84% (1.64)% (14.54)% N/A N/A N/A (7.25)%
SMALL COMPANY STOCK FUND
A Shares (0.34)% 2.22% (10.28)% (27.52)% (5.79)% 4.96% N/A 4.41%
B Shares (0.36)% 1.83% (10.61)% (27.85)% (6.54)% 4.15% N/A 3.60%
I Shares (0.23)% 2.12)% (10.24)% (27.24)% (5.79)% 4.96% N/A 4.34%
SMALL COMPANY GROWTH FUND*
I Shares 4.18% 11.00% 2.05% (10.72)% 4.90% 14.67% 16.97% 16.26%
SMALL CAP OPPORTUNITIES FUND
A Shares 3.43% 10.33% 1.18% (13.03)% 5.71% 17.12% N/A 17.02%
B Shares 3.40% 10.08% 0.85% (13.74)% 4.92% 16.25% N/A 16.15%
I Shares 3.43% 10.39% 1.23% (13.02)% 5.73% 17.13% N/A 17.03%
INTERNATIONAL FUND*
A Shares (3.43)% 2.20% 2.57% (1.36)% 6.57% 7.84% 8.91% 7.88%
B Shares (3.49)% 2.03% 2.30% (2.08)% 5.76% 6.86% 8.02% 7.01%
I Shares (3.43)% 2.20% 2.61% (1.32)% 6.56% 7.67% 8.83% 7.81%
</TABLE>
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APPENDIX D - Other Advertisement Matters
From time to time, the sales material for the Funds may include a discussion of,
and commentary by senior management of the Adviser on, the following.
The Trust may compare the Fund family against other bank-managed mutual funds or
other investment companies based on asset size. The Adviser believes the Funds'
growth may be attributed to three things: disciplined investment process,
utilizing talented people and focusing on customer needs.
The Funds utilize a disciplined process which relies heavily upon its investment
managers and an experienced investment research team. This approach maximizes
consistency by ensuring that no individual manager's style unduly influences a
fund's style.
The Large Company Growth Fund's investment policy of seeking to invest in
companies whose long term earnings are expected to grow 50% faster than the
market, as a measure by the earnings of S&P 500 Index stocks.
NORWEST CORPORATION
1929 Northwestern National Bank and several upper midwest banks form a holding
company called Northwestern National Bancorporation. "Banco" acquires 90
banks in its first year.
1932 At its 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.
D-1
<PAGE>
NORWEST ADVANTAGE FUNDS
STATEMENT OF ADDITIONAL INFORMATION
October 1, 1999
READY CASH INVESTMENT FUND
PUBLIC ENTITIES SHARES
<PAGE>
READY CASH INVESTMENT FUND
PUBLIC ENTITIES SHARES
STATEMENT OF ADDITIONAL INFORMATION
October 1, 1999
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
Ready Cash Investment Fund (the "Fund") is a separate series of Norwest
Advantage Funds, an open-end management investment company registered under the
Investment Company Act of 1940, as amended.
This Statement of Additional Information supplements the Prospectus dated
October 1, 1999, as may be amended from time to time, offering Public Entities
Shares of Ready Cash Investment 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.
ii
<PAGE>
TABLE OF CONTENTS
Page
Introduction 1
1. Investment Policies 2
Security Ratings Information 2
General Information Concerning Fixed Income Securities 2
Money Market Fund Matters 3
U.S. Government Securities 3
Bank Obligations 4
Short Term Debt Securities/Commercial Paper 4
Zero Coupon Securities 5
Variable And Floating Rate Securities 5
Mortgage-Backed And Asset-Backed Securities 6
Types Of Credit Enhancement 6
Asset-Backed Securities 7
Interest-Only And Principal-Only Securities 7
Municipal Securities 8
Illiquid And Restricted Securities 10
Loans Of Portfolio Securities 11
Borrowing And Transactions Involving Leverage 11
Other Techniques Involving Leverage 11
Segregated Account 12
Short Sales 12
Reverse Repurchase Agreements 12
When-Issued And Delayed Delivery Transactions 13
Repurchase Agreements 13
2. Investment Limitations 14
Fundamental Limitations 14
Nonfundamental Limitations 15
3. Performance And Advertising Data 17
Sec Yield Calculations 17
Total Return Calculations 18
Other Advertisement Matters 18
iii
<PAGE>
4. Management 19
Trustees And Officers 19
Compensation Of Trustees And Officers Of The Trust 21
Trustees And Officers Of Core Trust 22
Investment Advisory Services 23
Management And Administrative Services 24
The Portfolio 26
Distribution 26
Transfer Agent 27
Custodian 27
Portfolio Accounting 28
Expenses 29
5. Portfolio Transactions 29
6. Additional Purchase, Redemption And Exchange Information 31
General 31
Exchanges 31
Redemptions 31
7. Taxation 32
8. Additional Information About The Trust And The Shareholders Of The Fund 32
Determination Of Net Asset Value 32
Counsel And Auditors 33
General Information 33
Financial Statements 33
Registration Statement 34
Appendix A - Description Of Securities Ratings A-1
iv
<PAGE>
INTRODUCTION
The Trust was originally organized under the name "Prime Value Funds, Inc." as a
Maryland corporation on August 29, 1986, and on July 30, 1993, was reorganized
as a Delaware business trust under the name "Norwest Funds." On October 1, 1995,
the Trust changed its name to "Norwest Advantage Funds" and on June 1, 1997,
changed its name back to "Norwest Funds." On August 4, 1997, the Trust changed
its name back to "Norwest Advantage Funds."
The Fund invests all its investable assets in Prime Money Market Portfolio (the
"Portfolio"), a series of Core Trust (Delaware), a registered, open-end
management investment company. The expenses of the Fund include the Fund's pro
rata share of the expenses of the Portfolio.
The Fund's and the 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 Wells Fargo & Company,
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, LLC ("FAdS") serves as the Trust'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.
"Core Trust" shall mean Core Trust (Delaware) an open-end, management
investment company registered under the 1940 Act.
"Core Trust Board" shall mean the Board of Trustees of Core Trust.
"Custodian" shall mean Norwest acting in its capacity as custodian of the
Fund.
"FAdS" 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.
"FAcS" shall mean Forum Accounting Services, LLC, the Trust's fund
accountant.
"Moody's" shall mean Moody's Investors Service.
"Norwest" shall mean Norwest Investment Management, Inc., a subsidiary of
Norwest Bank Minnesota, N.A.
"Norwest Bank" shall mean Norwest Bank Minnesota, N.A., a subsidiary of
Wells Fargo & Company.
"NRSRO" shall mean a nationally recognized statistical rating organization.
"Portfolio" shall mean Prime Money Market Portfolio, a series of Core
Trust.
1
<PAGE>
"SEC" shall mean the U.S. Securities and Exchange Commission.
"S&P" shall mean Standard & Poor's.
"Transfer Agent" shall mean Norwest Bank acting in its capacity as transfer
and dividend disbursing agent of the Fund.
"Trust" shall mean Norwest Advantage Funds, an open-end, management
investment company registered under the 1940 Act.
"U.S. Government Securities" shall mean obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities.
"1933 Act" shall mean the Securities Act of 1933, as amended.
"1940 Act" shall mean the Investment Company Act of 1940, as amended.
1. INVESTMENT POLICIES
The following discussion is intended to supplement the disclosure in the
Prospectus concerning the Fund's and the Portfolio's investments, investment
techniques and strategies and the risks associated therewith. Although the
following is discussed with respect the Fund, the Trust and the Board, it
applies equally to the Portfolio, the Core Trust and the Core Trust Board. The
Fund may not make any investment or employ any investment technique or strategy
not referenced in the Prospectus.
SECURITY RATINGS INFORMATION
Moody's, S&P and other NRSROs are private services that provide ratings of the
credit quality of debt obligations. A description of the ratings categories of
certain NRSROs is included in Appendix A to this SAI. The Fund may use these
ratings, together with other factors, to determine whether to purchase, sell or
hold a security. It should be emphasized, however, that ratings are general and
are not absolute standards of quality. Consequently, securities with the same
maturity, interest rate and rating may have different market prices. If an issue
of securities ceases to be rated or if its rating is reduced after it is
purchased by the Fund, Norwest will determine whether the Fund should continue
to hold the obligation. To the extent that the ratings given by a NRSRO may
change as a result of changes in such organizations or their rating systems,
Norwest will attempt to substitute comparable ratings. Credit ratings attempt to
evaluate the safety of principal and interest payments and do not evaluate the
risks of fluctuations in market value. Also, rating agencies may fail to make
timely changes in credit ratings. An issuer's current financial condition may be
better or worse than a rating indicates.
The Fund may purchase certain unrated securities. Unrated securities may not be
as actively traded as rated securities. The Fund may retain securities whose
rating has been lowered below the lowest permissible rating category (or that
are unrated and determined by its Norwest to be of comparable quality to
securities whose rating has been lowered below the lowest permissible rating
category) if Norwest determines that retaining such security is in the best
interests of the Fund.
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
2
<PAGE>
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.
MONEY MARKET FUND MATTERS
Pursuant to Rule 2a-7 adopted under the 1940 Act, the Fund may invest only in
"eligible securities" as defined in that Rule. Generally, an eligible security
is a security that: (1) is denominated in U.S. Dollars and has a remaining
maturity of 397 days or less; (2) is rated, or is issued by an issuer with
short-term debt outstanding that is rated, in one of the two highest rating
categories by two NRSROs or, if only one NRSRO has issued a rating, by that
NRSRO (the "requisite NRSROs"); and (3) has been determined by Norwest to
present minimal credit risks pursuant to procedures approved by the Board. In
addition, the Fund will maintain a dollar-weighted average maturity of 90 days
or less. Unrated securities may also be eligible securities if Norwest
determines that they are of comparable quality to a rated eligible security
pursuant to guidelines approved by the Board.
Under Rule 2a-7, the Fund may not invest more than five percent of its total
assets in the securities of any one issuer other than the U.S. Government,
provided that in certain cases the Fund may invest twenty-five percent of its
assets in the first tier securities of a single issuer for a period of up to
three business days. First tier securities are securities that have received a
short-term rating in the highest category from the requisite NRSROs. The Fund
may not invest in a security that has received, or is deemed comparable in
quality to a security that has received, the second highest rating by the
requisite number of NRSROs (a "second tier security") if immediately after the
acquisition thereof the Fund would have invested 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 demand feature or guarantee, The Fund,
with respect to seventy-five percent of its assets may not invest more than ten
percent of its assets in securities subject to demand features or guarantees
from the same institution, except that the Fund may invest up to twenty five
percent of its assets in demand features or guarantees in first-tier demand
features or guarantees issued by a non-controlled person. The Fund may not
invest more than five percent of its assets in securities subject to second tier
demand features in guarantees issued by the same institution.
U.S. GOVERNMENT SECURITIES
In addition to obligations of the U.S. Treasury, the Fund 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. Other agencies are supported by the right of the
issuer to borrow from the Treasury; others are supported by the discretionary
authority of the U.S. government to purchase the agency's obligations; and still
others are supported primarily or solely by the creditworthiness of the issuer.
No assurance can be given that the U.S. Government would provide financial
support to U.S. government-sponsored agencies or instrumentalities if it is not
obligated to do so by law. Accordingly, although these securities have
historically involved little risk of loss of principal if held to maturity, they
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may involve more risk than securities backed by the U.S. Government's full faith
and credit. The Fund will invest in the obligations of such agencies or
instrumentalities only when Norwest believes that the credit risk with respect
thereto is consistent with the Fund's investment policies.
BANK OBLIGATIONS
The Fund may, in accordance with the policies described in its Prospectus,
invest in obligations of financial institutions, including negotiable
certificates of deposit, bankers' acceptances and time deposits of U.S. banks
(including savings banks and savings associations), foreign branches of U.S.
banks, foreign banks and their non-U.S. branches (Eurodollars), U.S. branches
and agencies of foreign banks (Yankee dollars), and wholly-owned banking-related
subsidiaries of foreign banks. The 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
that Norwest believes do not present undue risk.
A certificate of deposit is an interest-bearing negotiable certificate issued by
a bank against funds deposited in the bank. A bankers' acceptance is a
short-term draft drawn on a commercial bank by a borrower, usually in connection
with an international commercial transaction. Although the borrower is liable
for payment of the draft, the bank unconditionally guarantees to pay the draft
at its face value on the maturity date. Time deposits are non-negotiable
deposits with a banking institution that earn a specified interest rate over a
given period. Certificates of deposit and fixed time deposits, which are payable
at the stated maturity date and bear a fixed rate of interest, generally may be
withdrawn on demand by the Fund but may be subject to early withdrawal penalties
which vary depending upon market conditions and the remaining maturity of the
obligation and could reduce the Fund's yield. Although fixed-time deposits do
not in all cases have a secondary market, there are no contractual restrictions
on the Fund's right to transfer a beneficial interest in the deposits to third
parties. Deposits subject to early withdrawal penalties or that mature in more
than seven days are treated as illiquid securities if there is no readily
available market for the securities.
The Fund may invest in Eurodollar certificates of deposit, which are U.S. dollar
denominated certificates of deposit issued by offices of foreign and domestic
banks located outside the United States; Yankee certificates of deposit, which
are certificates of deposit issued by a U.S. branch of a foreign bank
denominated in U.S. dollars and held in the United States; Eurodollar time
deposits ("ETDs"), which are U.S. dollar denominated deposits in a foreign
branch of a U.S. bank or a foreign bank; and Canadian time deposits, which are
essentially the same as ETDs, except that they are issued by Canadian offices of
major Canadian banks.
Investments that the 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
The 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. 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 the 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.
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ZERO COUPON SECURITIES
Zero coupon securities are sold at original issue discount and pay no interest
to holders prior to maturity. Accordingly, these securities usually trade at a
deep discount from their face or par value and will be subject to greater
fluctuations of market value in response to changing interest rates than debt
obligations of comparable maturities which make current distributions of
interest. Federal tax law requires that the Fund accrue a portion of the
discount at which a zero-coupon security was purchased as income each year even
though the Fund receives no interest payment in cash on the security during the
year. Interest on these securities, however, is reported as income by the Fund
and must be distributed to its shareholders. The Fund distributes all of its net
investment income, and may have to sell portfolio securities to distribute
imputed income, which may occur at a time when Norwest would not have chosen to
sell such securities and which may result in a taxable gain or loss.
Currently U.S. Treasury securities issued without coupons include Treasury bills
and separately traded principal and interest components of securities issued or
guaranteed by the U.S. Treasury. These stripped components are traded
independently under the Treasury's Separate Trading of Registered Interest and
Principal of Securities ("STRIPS") program or as Coupons Under Book Entry
Safekeeping ("CUBES"). A number of banks and brokerage firms separate the
principal and interest portions of U.S. Treasury securities and sell them
separately in the form of receipts or certificates representing undivided
interests in these instruments. These instruments are generally held by a bank
in a custodial or trust account on behalf of the owners of the securities and
are known by various names, including Treasury Receipts ("TRs"), Treasury
Investment Growth Receipts ("TIGRs") and Certificates of Accrual on Treasury
Securities ("CATS"). In addition, corporate debt securities may be zero coupon
securities.
VARIABLE AND FLOATING RATE SECURITIES
The securities in which the Fund invests invest (including municipal securities
or mortgage- and asset-backed securities, as applicable) may have variable or
floating rates of interest and, under certain limited circumstances, may have
varying principal amounts. These securities pay interest at rates that are
adjusted periodically accordingly to a specified formula, usually with reference
to one or more interest rate indices or market interest rates (the "underlying
index"). The interest paid on these securities is a function primarily of the
underlying index upon which the interest rate adjustments are based. Such
adjustments minimize changes in the market value of the obligation and,
accordingly, enhance the ability of the Fund to maintain a stable net asset
value. Similar to fixed rate debt instruments, variable and floating rate
instruments are subject to changes in value based on changes in market interest
rates or changes in the issuer's creditworthiness. The rate of interest on
securities purchased by the Fund may be tied to Treasury or other government
securities or indices on those securities as well as any other rate of interest
or index. The Fund may not invest in securities which pay interest at a rate
that varies inversely to prevailing short-term interest rates ("inverse
floaters") and certain other variable and floating rates securities that do not
comply with Rule 2a-7.
There may not be an active secondary market for any particular floating or
variable rate instruments which could make it difficult for the Fund to dispose
of such an instrument if the issuer defaulted on its repayment obligation during
periods that the Fund is not entitled to exercise any demand rights it may have.
The Fund could, for this or other reasons, suffer a loss with respect to an
instrument. Norwest monitors the liquidity of the Fund's investments in variable
and floating rate instruments, but there can be no guarantee that an active
secondary market will exist.
Many variable rate instruments include the right of the holder to demand
prepayment of the principal amount of the obligation prior to its stated
maturity and the right of the issuer to prepay the principal amount prior to
maturity. The payment of principal and interest by issuers of certain securities
purchased by the Fund may be guaranteed by letters of credit or other credit
facilities offered by banks or other financial institutions.
Variable rate obligations purchased by the Fund may include participation
interests in variable rate obligations purchased by the Fund from banks,
insurance companies or other financial institutions that are backed by
irrevocable letters of credit or guarantees of banks. The Fund 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
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for all or any part of the principal amount of the Fund's participation interest
in the instrument, plus accrued interest, but will do so only: (1) as required
to provide liquidity to the 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 repurchases commitments.
The 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 Fund 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. Norwest 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 Norwest
may subscribe.
Certain securities may have an initial principal amount that varies over time
based on an interest rate index, and, accordingly, the Fund might be entitled to
less than the initial principal amount of the security upon the security's
maturity. The Fund intends to purchase such securities only when Norwest
believes the interest income from the instrument justifies any principal risks
associated with the instrument. The 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 the Fund will
be able to limit principal fluctuations and, accordingly, the Fund may incur
losses on those securities even if held to maturity without issuer default.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES
TYPES OF CREDIT ENHANCEMENT
To lessen the effect of failures by obligors on the underlying mortgages or
mortgage-backed securities 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 Fund 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.
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ASSET-BACKED SECURITIES
The 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 the Fund may
invest. Primarily, these securities do not always have the benefit of a security
interest in comparable collateral. Credit card receivables are generally
unsecured and the debtors are entitled to the protection of a number of state
and Federal consumer credit laws, many of which give such debtors the right to
set off certain amounts owed on the credit cards, thereby reducing the balance
due. Automobile receivables generally are secured by automobiles. Most issuers
of automobile receivables permit the loan servicers to retain possession of the
underlying obligations. If the servicer were to sell these obligations to
another party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the asset-backed securities. In addition,
because of the large number of vehicles involved in a typical issuance and the
technical requirements under state laws, the trustee for the holders of the
automobile receivables may not have a proper security interest in the underlying
automobiles. Therefore, there is the possibility that recoveries on repossessed
collateral may not, in some cases, be available to support payments on these
securities. Because asset-backed securities are relatively new, the market
experience in these securities is limited and the market's ability to sustain
liquidity through all phases of the market cycle has not been tested.
INTEREST-ONLY AND PRINCIPAL-ONLY SECURITIES
Some tranches of mortgage-backed securities, including CMOs, are structured so
that investors receive only principal payments generated by the underlying
collateral. Principal only securities ("POs") usually sell at a deep discount
from face value on the assumption that the purchaser will ultimately receive the
entire face value through scheduled payments and prepayments; however, the
market values of POs are extremely sensitive to prepayment rates, which, in
turn, vary with interest rate changes. If interest rates are falling and
prepayments accelerate, the value of the PO will increase. On the other hand, if
rates rise and prepayments slow, the value of the PO will drop.
Interest only securities ("IOs") result from the creation of POs; thus, CMOs
with PO tranches also have IO tranches. IO securities sell at a deep discount to
their "notional" principal amount, namely the principal balance used to
calculate the amount of interest due. They have no face or par value and, as the
notional principal amortizes and prepays, the IO cash flow declines.
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.
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MUNICIPAL SECURITIES
Municipal securities are issued by the states, territories and possessions of
the United States, their political subdivisions (such as cities, counties and
towns) and various authorities (such as public housing or redevelopment
authorities), instrumentalities, public corporations and special districts (such
as water, sewer or sanitary districts) of the states, territories and
possessions of the United States or their political subdivisions. In addition,
municipal securities include securities issued by or on behalf of public
authorities to finance various privately operated facilities, such as industrial
development bonds or other private activity bonds that are backed only by the
assets and revenues of the non-governmental user (such as manufacturing
enterprises, hospitals, colleges or other entities).
Municipal securities historically have not been subject to registration with the
SEC, although there have been proposals which would require registration in the
future.
MUNICIPAL NOTES. Municipal notes, which may be either "general obligation" or
"revenue" securities are intended to fulfill the short-term capital needs of the
issuer and generally have maturities not exceeding one year. They include the
following: tax anticipation notes, revenue anticipation notes, bond anticipation
notes, construction loan notes and tax-exempt commercial paper. Tax anticipation
notes are issued to finance working capital needs of municipalities, and are
payable from various anticipated future seasonal tax revenues, such as income,
sales, use and business taxes. Revenue anticipation notes are issued in
expectation of receipt of other types of revenues, such as federal revenues
available under various federal revenue sharing programs. Bond anticipation
notes are issued to provide interim financing until long-term financing can be
arranged and are typically payable from proceeds of the long-term bonds.
Construction loan notes are sold to provide construction financing. After
successful completion and acceptance, many such projects receive permanent
financing through the Federal Housing Administration under the Federal National
Mortgage Association or the Government National Mortgage Association. Tax-exempt
commercial paper is a short-term obligation with a stated maturity of 365 days
or less. It is issued by agencies of state and local governments to finance
seasonal working capital needs or as short-term financing in anticipation of
longer term financing. Municipal notes also include longer-term issues that are
remarketed to investors periodically, usually at one-year intervals or less.
MUNICIPAL BONDS. Municipal bonds meet longer term capital needs of a municipal
issuer and generally have maturities of more than one year when issued. General
obligation bonds are used to fund a wide range of public projects, including
construction or improvement of schools, highways and roads, and water and sewer
systems. General obligation bonds are secured by the issuer's pledge of its full
faith and credit and taxing power for the payment of principal and interest. The
taxes that can be levied for the payment of debt service may be limited or
unlimited as to rate or amount. Revenue bonds in recent years have come to
include an increasingly wide variety of types of municipal obligations. As with
other kinds of municipal obligations, the issuers of revenue bonds may consist
of virtually any form of state or local governmental entity. Generally, revenue
bonds are secured by the revenues or net revenues derived from a particular
facility, class of facilities, or, in some cases, from the proceeds of a special
excise or other specific revenue source, but not from general tax revenues.
Revenue bonds are issued to finance a wide variety of capital projects including
electric, gas, water and sewer systems; highways, bridges, and tunnels; port and
airport facilities; colleges and universities; and hospitals. Many of these
bonds are additionally secured by a debt service reserve fund which can be used
to make a limited number of principal and interest payments should the pledged
revenues be insufficient. Various forms of credit enhancement, such as a bank
letter of credit or municipal bond insurance, may also be employed in revenue
bond issues. Revenue bonds issued by 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
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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 Fund 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 Fund 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 the 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 Fund 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
Fund expects that it 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 Fund 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 Fund intends to enter into puts only with dealers, banks
and broker-dealers, which, in Norwest's opinion, present minimal, credit risks.
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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 the Fund's assets.
The Fund may purchase municipal securities together with the right to resell
them to the seller or a third party at an agreed-upon price or yield within
specified periods prior to their maturity dates. Such a right to resell is
commonly known as a "stand-by commitment," and the aggregate price which the
Fund pays for securities with a stand-by commitment may be higher than the price
which otherwise would be paid. The primary purpose of this practice is to permit
the Fund to be as fully invested as practicable in municipal securities while
preserving the necessary flexibility and liquidity to meet unanticipated
redemptions. In this regard, the Fund acquires stand-by commitments solely to
facilitate portfolio liquidity and does not exercise its rights thereunder for
trading purposes. Stand-by commitments involve certain expenses and risks,
including the inability of the issuer of the commitment to pay for the
securities at the time the commitment is exercised, non-marketability of the
commitment, and differences between the maturity of the underlying security and
the maturity of the commitment. The Fund's policy is to enter into stand-by
commitment transactions only with municipal securities dealers which are
determined to present minimal credit risks.
The acquisition of a stand-by commitment does not affect the valuation or
maturity of the underlying municipal securities which continue to be valued in
accordance with the amortized cost method. Stand-by commitments acquired by the
Fund are valued at zero in determining net asset value. When the 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.
ILLIQUID AND RESTRICTED SECURITIES
The Fund may invest up to 10 percent of its net assets in securities that at the
time of purchase are illiquid. 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") and
securities that cannot be disposed of within seven days in the ordinary course
of business at approximately the amount at which the Fund has valued the
securities and which are otherwise not readily marketable. Illiquid securities
include, among other things, repurchase agreements not entitling the holder to
repayment within seven days. The Board has the ultimate responsibility for
determining whether specific securities are liquid or illiquid and has delegated
the function of making day-to-day determinations of liquidity to Norwest,
pursuant to guidelines approved by the Board. Norwest takes into account a
number of factors in reaching liquidity decisions, including but not limited to:
(1) the frequency of trades and quotations for the security; (2) the number of
dealers willing to purchase or sell the security and the number of other
potential buyers; (3) the willingness of dealers to undertake to make a market
in the security; and (4) the nature of the marketplace trades, including the
time needed to dispose of the security, the method of soliciting offers and the
mechanics of the transfer. Norwest monitors the liquidity of the securities held
by the Fund and reports periodically on such decisions to the Board.
In connection with the Fund's original purchase of restricted securities, it may
negotiate rights with the issuer to have such securities registered for sale at
a later time. Further, the expenses of registration of restricted securities
that are illiquid may also be negotiated by the Fund with the issuer at the time
such securities are purchased by the Fund. When registration is required,
however, a considerable period may elapse between a decision to sell the
securities and the time the Fund would be permitted to sell such securities. A
similar delay might be experienced in attempting to sell such securities
pursuant to an exemption from registration. Thus, the Fund may not be able to
obtain as favorable a price as that prevailing at the time of the decision to
sell.
Limitations on resale may have an adverse effect on the marketability of
portfolio securities and the Fund might also have to register restricted
securities in order to dispose of them, resulting in expense and delay. The Fund
might not be able to dispose of restricted or other securities promptly or at
reasonable prices and might thereby experience difficulty satisfying
redemptions. There can be no assurance that a liquid market will exist for any
security at any particular time.
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An 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, Norwest may determine that such securities are
not illiquid securities. These guidelines take into account trading activity in
the securities and the availability of reliable pricing information, among other
factors. If there is a lack of trading interest in a particular Rule 144A
security, the Fund's holdings of that security may be illiquid.
LOANS OF PORTFOLIO SECURITIES
The Fund may lend its portfolio securities subject to the restrictions stated in
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 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
Board. The Fund will not lend its portfolio securities to any officer, director,
employee or affiliate of the Fund or Norwest.
BORROWING AND TRANSACTIONS INVOLVING LEVERAGE
The Fund may borrow money for temporary or emergency purposes, including the
meeting of redemption requests, in amounts up to 33 1/3 percent of the Fund's
total assets. Borrowing involves special risk considerations. Interest costs on
borrowings may fluctuate with changing market rates of interest and may
partially offset or exceed the return earned on borrowed funds (or on the assets
that were retained rather than sold to meet the needs for which funds were
borrowed). Under adverse market conditions, the Fund might have to sell
portfolio securities to meet interest or principal payments at a time when
investment considerations would not favor such sales. The Fund may not purchase
securities for investment while any borrowing equaling five percent or more of
the Fund's total assets is outstanding or borrow for purposes other than meeting
redemptions in an amount exceeding five percent of the value of the Fund's total
assets. The Fund's use of borrowed proceeds to make investments would subject
the Fund to the risks of leveraging. Reverse repurchase agreements, short sales
not against the box, dollar roll transactions and other similar investments that
involve a form of leverage have characteristics similar to borrowings but are
not considered borrowings if the Fund maintains a segregated account.
OTHER TECHNIQUES INVOLVING LEVERAGE
Utilization of leveraging involves special risks and may involve speculative
investment techniques. The Fund may borrow for other than temporary or emergency
purposes, lend its securities, enter reverse repurchase agreements, and purchase
securities on a when issued or forward commitment basis. Each of these
transactions involve the use of "leverage" when cash made available to the Fund
through the investment technique is used to make additional portfolio
investments. The Fund uses these investment techniques only when Norwest
believes that the leveraging and the returns available to the Fund from
investing the cash will provide shareholders a potentially higher return.
Leverage exists when the Fund achieves the right to a return on a capital base
that exceeds the amount of the Fund's investment. Leverage creates the risk of
magnified capital losses, which occur when losses affect an asset base, enlarged
by borrowings or the creation of liabilities, that exceeds the equity base of
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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 the Fund is able to realize a net return on its investment portfolio
that is higher than interest expense incurred, if any, leverage will result in
higher current net investment income being realized by the Fund than if the Fund
were not leveraged. On the other hand, interest rates change from time to time
as does their relationship to each other depending upon such factors as supply
and demand, monetary and tax policies and investor expectations. Changes in such
factors could cause the relationship between the cost of leveraging and the
yield to change so that rates involved in the leveraging arrangement may
substantially increase relative to the yield on the obligations in which the
proceeds of the leveraging have been invested. To the extent that the interest
expense involved in leveraging approaches the net return on the Fund's
investment portfolio, the benefit of leveraging will be reduced, and, if the
interest expense on borrowings were to exceed the net return to shareholders,
the Fund's use of leverage would result in a lower rate of return than if the
Fund were not leveraged. Similarly, the effect of leverage in a declining market
could be a greater decrease in net asset value per share than if the Fund were
not leveraged. In an extreme case, if the Fund's current investment income were
not sufficient to meet the interest expense of leveraging, it could be necessary
for the Fund to liquidate certain of its investments at an inappropriate time.
The use of leverage may be considered speculative.
SEGREGATED ACCOUNT
In order to limit the risks involved in various transactions involving leverage,
the Trust's custodian will set aside and maintain in a segregated account cash
and other liquid securities in accordance with SEC guidelines. The account
value, which is marked to market daily, will be at least equal to the Fund's
commitments under these transactions. The Fund's commitments may include: (1)
the Fund's obligations to repurchase securities under a reverse repurchase
agreement and to settle when-issued and forward commitment transactions; and (2)
the greater of the market value of securities sold short or the value of the
securities at the time of the short sale (reduced by any margin deposit).
SHORT SALES
The Fund may make short sales of securities against the box. A short sale is
"against the box" to the extent that while the short position is open, the Fund
must own an equal amount of the securities sold short, or by virtue of ownership
of securities have the right, without payment of further consideration, to
obtain an equal amount of the securities sold short. Short sales against-the-box
may in certain cases are made to defer, for Federal income tax purposes,
recognition of gain or loss on the sale of securities "in the box" until the
short position is closed out. Under recently enacted legislation, if the Fund
has unrealized gain with respect to a long position and enters into a short sale
against-the-box, the Fund generally will be deemed to have sold the long
position for tax purposes and thus will recognize gain. Prohibitions on entering
short sales other than against the box does not restrict the Fund's ability to
use short-term credits necessary for the clearance of portfolio transactions.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements are transactions in which the Fund sells a
security and simultaneously commits to repurchase that security from the buyer
at an agreed upon price on an agreed upon future date. The resale price in a
reverse repurchase agreement reflects a market rate of interest that is not
related to the coupon rate or maturity of the sold security. For certain demand
agreements, there is no agreed upon repurchase date and interest payments are
calculated daily, often based upon the prevailing overnight repurchase rate.
Counterparties to the Fund's reverse repurchase agreements must be primary
dealers that report to the Federal Reserve Bank of New York ("primary dealers")
or one of the largest 100 commercial banks in the United States.
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
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cost to the Fund of the reverse repurchase transaction is less than the cost of
obtaining the cash otherwise. In addition, interest costs on the money received
in a reverse repurchase agreement may exceed the return received on the
investments made by the Fund with those monies. The use of reverse repurchase
agreement proceeds to make investments may be considered to be a speculative
technique.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase or sell portfolio securities on a when-issued or delayed
delivery basis. When-issued or delayed delivery transactions arise when
securities are purchased by the Fund with payment and delivery to take place in
the future in order to secure what is considered to be an advantageous price and
yield to the Fund at the time it enters into the transaction. In those cases,
the purchase price and the interest rate payable on the securities are fixed on
the transaction date and delivery and payment may take place a month or more
after the date of the transaction. When the Fund enters into a delayed delivery
transaction, it becomes obligated to purchase securities and it has all of the
rights and risks attendant to ownership of the security, although delivery and
payment occur at a later date. To facilitate such acquisitions, the Fund will
maintain with its custodian a separate account with portfolio securities in an
amount at least equal to such commitments.
At the time the Fund makes the commitment to purchase securities on a
when-issued or delayed delivery basis, the Fund will record the transaction as a
purchase and thereafter reflect the value each day of such securities in
determining its net asset value. The value of the fixed income securities to be
delivered in the future will fluctuate as interest rates and the credit of the
underlying issuer vary. On delivery dates for such transactions, the Fund will
meet its obligations from maturities, sales of the securities held in the
separate account or from other available sources of cash. The Fund generally has
the ability to close out a purchase obligation on or before the settlement date,
rather than purchase the security. If the Fund chooses to dispose of the right
to acquire a when-issued security prior to its acquisition, it could, as with
the disposition of any other portfolio obligation, realize a gain or loss due to
market fluctuation.
To the extent the Fund engages in when-issued or delayed delivery transactions,
it will do so for the purpose of acquiring securities consistent with the Fund's
investment objectives and policies and not for the purpose of investment
leverage or to speculate in interest rate changes. The Fund will only make
commitments to purchase securities on a when-issued or delayed delivery basis
with the intention of actually acquiring the securities, but the Fund reserves
the right to dispose of the right to acquire these securities before the
settlement date if deemed advisable.
The use of when-issued transactions and forward commitments enables the Fund to
hedge against anticipated changes in interest rates and prices. If Norwest were
to forecast incorrectly the direction of interest rate movements, however, the
Fund might be required to complete when-issued or forward transactions at prices
inferior to the current market values. When-issued securities and forward
commitments may be sold prior to the settlement date, but the Fund enters into
when-issued and forward commitments only with the intention of actually
receiving or delivering the securities, as the case may be. In some instances,
the third-party seller of when-issued or forward commitment securities may
determine prior to the settlement date that it will be unable to meet its
existing transaction commitments without borrowing securities. If advantageous
from a yield perspective, the Fund may, in that event, agree to resell its
purchase commitment to the third-party seller at the current market price on the
date of sale and concurrently enter into another purchase commitment for such
securities at a later date. As an inducement for the Fund to "roll over" its
purchase commitment, the Fund may receive a negotiated fee. When-issued
securities may include bonds purchased on a "when, as and if issued" basis under
which the issuance of the securities depends upon the occurrence of a subsequent
event. Any significant commitment of the Fund's assets to the purchase of
securities on a "when, as and if issued" basis may increase the volatility of
the Fund's net asset value. For purposes of the Fund's investment policies, the
purchase of securities with a settlement date occurring on a Public Securities
Association approved settlement date is considered a normal delivery and not a
when-issued or forward commitment purchase.
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REPURCHASE AGREEMENTS
The Fund may invest in securities subject to repurchase agreements with U.S.
banks or broker-dealers. In a typical repurchase agreement, the seller of a
security commits itself at the time of the sale to repurchase that security from
the buyer at a mutually agreed-upon time and price. The repurchase price exceeds
the sale price, reflecting an agreed-upon interest rate effective for the period
the buyer owns the security subject to repurchase. The agreed-upon rate is
unrelated to the interest rate on that security. Norwest will monitor the value
of the underlying security at the time the transaction is entered into and at
all times during the term of the repurchase agreement to ensure that the value
of the security always equals or exceeds the repurchase price (including accrued
interest). In the event of default by the seller under the repurchase agreement,
the Fund may have difficulties in exercising its rights to the underlying
securities and may incur costs and experience time delays in connection with the
disposition of such securities. To evaluate potential risks, Norwest reviews the
credit-worthiness of those banks and dealers with which the Fund enters into
repurchase agreements.
Counterparties to the Fund's repurchase agreements must be primary dealers or
one of the largest 100 commercial banks in the United States.
Securities subject to repurchase agreements will be held by the Fund's custodian
or another qualified custodian or in the Federal Reserve book-entry system.
Repurchase agreements are considered to be loans by the Fund for certain
purposes under the 1940 Act.
2. INVESTMENT LIMITATIONS
For purposes of all fundamental and nonfundamental investment policies of the
Fund: the term 1940 Act includes the rules thereunder, SEC interpretations and
any exemptive order upon which the Fund may rely; and (2) the term Code includes
the rules thereunder, IRS interpretations and any private letter ruling or
similar authority upon which the Fund may rely.
The Fund has adopted the investment policies listed in this section which are
nonfundamental policies unless otherwise noted. Except for its investment
objective, which is fundamental, the Fund has not adopted any fundamental
policies except as required by the 1940 Act. The investment policies of the
Portfolio are substantially the same as those of the Fund.
Except as required by the 1940 Act or the Code, if any percentage restriction on
investment or utilization of assets is adhered to at the time an investment is
made, a later change in percentage resulting from a change in the market values
of the Fund's assets or purchases and redemptions of shares will not be
considered a violation of the limitation.
A fundamental policy cannot be changed without the affirmative vote of the
lesser of: (1) more than 50% of the outstanding shares of the Fund; or (2) 67%
of the shares of the Fund present or represented at a shareholders meeting at
which the holders of more than 50% of the outstanding shares of the Fund are
present or represented.
FUNDAMENTAL LIMITATIONS
The Fund has adopted the following investment limitations which are fundamental
policies:
(1) DIVERSIFICATION
The Fund may not, with respect to 75% of its assets, purchase
a security (other than a U.S. Government Security or a
security of an investment company) if, as a result: (1) more
than 5% of the Fund's total assets would be invested in the
securities of a single issuer; or (2) the Fund would own more
than 10% of the outstanding voting securities of any single
issuer
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(2) CONCENTRATION
The Fund may not purchase a security if, as a result, more
than 25% of the Fund's total assets would be invested in
securities of issuers conducting their principal business
activities in the same industry; 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.
(3) BORROWING
The 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).
(4) ISSUANCE OF SENIOR SECURITIES
The Fund may not issue senior securities except to the extent
permitted by the 1940 Act.
(5) UNDERWRITING ACTIVITIES
The Fund may not 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
The Fund may not make loans, except the 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
The 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.
NONFUNDAMENTAL LIMITATIONS
The Fund has adopted the following investment limitations which are not
fundamental policies. The policies of the Fund may be changed by the Board.
(1) BORROWING
The Fund'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.
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(2) ILLIQUID SECURITIES
The Fund may not acquire securities or invest in repurchase
agreements with respect to any securities if, as a result,
more than 10% of the Fund's net assets (taken at current
value) would be invested in repurchase agreements not
entitling the holder to payment of principal within seven days
and in securities which are not readily marketable, including
securities that are not readily marketable by virtue of
restrictions on the sale of such securities to the public
without registration under the 1933 Act, as amended
("Restricted Securities").
(3) OTHER INVESTMENT COMPANIES
The Fund may not invest in securities of another investment
company, except to the extent permitted by the 1940 Act.
(4) MARGIN AND SHORT SALES
The Fund may not 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. The
Fund may make margin deposits in connection with permitted
transactions in options, futures contracts and options on
futures contracts. The Fund may not enter into 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.
(5) PLEDGING
The Fund may not pledge, mortgage, hypothecate or encumber any
of its assets except to secure permitted borrowings or to
secure other permitted transactions.
(6) SECURITIES WITH VOTING RIGHTS
The Fund may not purchase securities having voting rights
except securities of other investment companies; provided that
the Fund may hold securities with voting rights obtained
through a 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.
(7) LENDING OF PORTFOLIO SECURITIES
The Fund may not 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.
(8) REAL ESTATE LIMITED PARTNERSHIPS
The Fund may not invest in real estate limited partnerships.
(9) OPTIONS AND FUTURES CONTRACTS
The Fund may not invest in options, futures contracts or
options on futures contracts.
(10) PURCHASES AND SALES OF COMMODITIES
The Fund may not purchase or sell physical commodities or
contracts, options or options on contracts to purchase or sell
physical commodities; provided that currencies and
currency-related contracts and contracts on indices will not
be deemed to be physical commodities.
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3. PERFORMANCE AND ADVERTISING DATA
Quotations of performance may from time to time be used in advertisements, sales
literature, shareholder reports or other communications to shareholders or
prospective investors. All performance information supplied by the Fund is
historical and is not intended to indicate future returns. The Fund's yield and
total return fluctuate in response to market conditions and other factors.
Investment return and principal value will fluctuate, and shares, when redeemed,
may be worth more or less than their original cost. There can be no assurance
that the Fund will be able to maintain a stable net asset value of $1.00.
In performance advertising, the Fund may compare any of its performance
information with data published by independent evaluators such as Morningstar,
Inc., Lipper, Inc., or other companies which track the investment performance of
investment companies ("Fund Tracking Companies"). The Fund may also compare any
of its performance information with the performance of recognized stock, bond
and other indices, including but not limited to the Municipal Bond Buyers
Indices, the Salomon Brothers Bond Index, Shearson Lehman Bond Index, the
Standard & Poor's 500 Composite Stock Price Index, Russell 2000 Index, Morgan
Stanley - Europe, Australian and Far East Index, Lehman Brothers Intermediate
Government Index, Lehman Brothers Intermediate Government/Corporate Index, the
Dow Jones Industrial Average, U.S. Treasury bonds, bills or notes and changes in
the Consumer Price Index as published by the U.S. Department of Commerce. The
Fund may refer to general market performances over past time periods such as
those published by Ibbotson Associates (for instance, its "Stocks, Bonds, Bills
and Inflation Yearbook"). In addition, the Fund may also refer in such materials
to mutual fund performance rankings and other data published by Fund Tracking
Companies. Performance advertising may also refer to discussions of the Fund and
comparative mutual fund data and ratings reported in independent periodicals,
such as newspapers and financial magazines.
SEC YIELD CALCULATIONS
Although published yield information is useful to investors in reviewing the
Fund's performance, investors should be aware that the Fund's yield fluctuates
from day to day and that the Fund's yield for any given period is not an
indication or representation by the Fund of future yields or rates of return on
the Fund's shares. Norwest, Processing Organizations and others may charge their
customers, various retirement plans or other shareholders that invest in the
Fund fees in connection with an investment in the Fund, which will have the
effect of reducing the Fund's net yield to those shareholders. The yields of the
Fund are not fixed or guaranteed, and an investment in the Fund is not insured
or guaranteed. Accordingly, yield information may not necessarily be used to
compare shares of the Fund with investment alternatives, which, like money
market instruments or bank accounts, may provide a fixed rate of interest. Also,
it may not be appropriate to compare the Fund's yield information directly to
similar information regarding investment alternatives, which are insured or
guaranteed.
Yield quotations for the Fund will include an annualized historical yield,
carried at least to the nearest hundredth of one percent, based on a specific
seven-calendar-day period and are calculated by dividing the net change during
the seven-day period in the value of an account having a balance of one share at
the beginning of the period by the value of the account at the beginning of the
period, and multiplying the quotient by 365/7. For this purpose, the net change
in account value reflects the value of additional shares purchased with
dividends declared on the original share and dividends declared on both the
original share and any such additional shares, but would not reflect any
realized gains or losses from the sale of securities or any unrealized
appreciation or depreciation on portfolio securities. In addition, any effective
annualized yield quotation used by the Fund is calculated by compounding the
current yield quotation for such period by adding 1 to the product, raising the
sum to a power equal to 365/7, and subtracting 1 from the result.
Income calculated for the purpose of determining the Fund's standardized yield
differs from income as determined for other accounting purposes. Because of the
different accounting methods used, and because of the compounding assumed in
yield calculations, the yield quoted for the Fund may differ from the rate of
distribution the Fund paid over the same period or the rate of income reported
in the Fund's financial statements.
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TOTAL RETURN CALCULATIONS
Standardized total returns quoted in advertising and sales literature reflect
all aspects of the Fund's return, including the effect of reinvesting dividends
and capital gain distributions, if any, and any change in the Fund's net asset
value per share over the period. 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 the 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
the 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 Fund.
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.
In addition to average annual returns, the 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, if any (including capital gains, if applicable, 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 Fund may also include various information in its advertisements including,
but not limited to: (1) portfolio holdings and portfolio allocation as of
certain dates, such as portfolio diversification by instrument type, by
instrument, by location of issuer or by maturity; (2) statements or
illustrations relating to the appropriateness of types of securities and/or
mutual funds that may be employed by an investor to meet specific financial
goals, such as funding retirement, paying for children's education and
financially supporting aging parents; (3) information (including charts and
illustrations) showing the effects of compounding interest (compounding is the
process of earning interest on principal plus interest that was earned earlier;
interest can be compounded at different intervals, such as annually, quarterly
or daily); (4) information relating to inflation and its effects on the dollar;
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for example, after ten years the purchasing power of $25,000 would shrink to
$16,621, $14,968, $13,465 and $12,100, respectively, if the annual rates of
inflation were 4%, 5%, 6% and 7%, respectively; (5) information regarding the
effects of automatic investment and systematic withdrawal plans, including the
principal of dollar cost averaging; (6) biographical descriptions of the Fund's
portfolio managers and the portfolio management staff of Norwest or summaries of
the views of the portfolio managers with respect to the financial markets; (7)
the results of a hypothetical investment in the Fund over a given number of
years, including the amount that the investment would be at the end of the
period; (8) the effects of earning Federal and, if applicable, state tax-exempt
income from the Fund or investing in a tax-deferred account, such as an
individual retirement account or Section 401(k) pension plan; and (9) the net
asset value, net assets or number of shareholders of the Fund as of one or more
dates.
As an example of compounding, $1,000 compounded annually at 9.00% will grow to
$1,090 at the end of the first year (an increase in $90) and $1,118 at the end
of the second year (an increase in $98). The extra $8 that was earned on the $90
interest from the first year is the compound interest. One thousand dollars
compounded annually at 9.00% will grow to $2,367 at the end of ten years and
$5,604 at the end of 20 years. Other examples of compounding are as follows: at
7% and 12% annually, $1,000 will grow to $1,967 and $3,106, respectively, at the
end of ten years and $3,870 and $9,646, respectively, at the end of twenty
years. These examples are for illustrative purposes only and are not indicative
of the Fund's performance.
In connection with its advertisements the Fund may provide "shareholders'
letters" which serve to provide shareholders or investors an introduction into
the Fund's, the Trust's or any of the Trust's service provider's policies or
business practices. For instance, advertisements may provide for a message from
Norwest or its parent corporation that Norwest has for more than 60 years been
committed to quality products and outstanding service to assist its customers in
meeting their financial goals and setting forth the reasons that Norwest
believes that it has been successful as a national financial service firm.
4. MANAGEMENT
TRUSTEES AND OFFICERS
TRUSTEES AND OFFICERS OF THE TRUST
The Trustees and officers of the Trust age 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. The officers set forth below, as well as certain other officers and
Trustees of the Trust, may be directors, officers or employees of (and persons
providing services to the Trust may include) Forum, its affiliates or certain
non-banking affiliates of Norwest.
JOHN Y. KEFFER, Chairman and President,* Age 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 66.
Former Director Federal Farm Credit Banks Funding Corporation and Farm
Credit System Financial Assistance Corporation (1993-March 1999). His
address is 5038 Kestral Parkway South, 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 47.
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 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 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.
20
<PAGE>
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 51.
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 04101.
COMPENSATION OF TRUSTEES AND OFFICERS OF THE TRUST
Each Trustee of the Trust is paid a retainer fee in the total amount of $6,000,
payable quarterly, for the Trustee's service to the Trust and to Norwest Select
Funds, a separate registered open-end management investment company for which
each Trustee serves as trustee. In addition, each Trustee is paid $3,000 for
each regular Board meeting attended (whether in person or by electronic
communication), is paid an additional $2,000 for the Board meeting held in July
(at which the Trust's contracts with service providers are reviewed) and is paid
$1,000 for each Committee meeting attended on a date when a Board meeting is not
held. Trustees are also reimbursed for travel and related expenses incurred in
attending meetings of the Board. Mr. Keffer received no compensation for his
services as Trustee for the past year or compensation or reimbursement for his
associated expenses. In addition, no officer of the Trust is compensated by the
Trust.
Mr. Burkhardt, Chairman of the Trust's and Norwest Select Funds' audit
committees, receives additional compensation of $8,000 from the Trust and
Norwest Select Funds allocated pro rata between the Trust and Norwest Select
Funds based upon relative net assets, for his services as Chairman. Each Trustee
was elected by shareholders on April 30, 1997.
The following table provides the aggregate compensation paid to the Trustees of
the Trust by the Trust and Norwest Select Funds, combined. Norwest Select Funds
has a December 31 fiscal year end. Information is presented for the twelve month
period ended May 31, 1999, 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 $37,770 $38,000
Mr. Burkhardt $45,722 $46,000
Mr. Harris $31,802 $32,000
Mr. Leach $37,770 $38,000
Mr. Penny $37,770 $38,000
Mr. Willeke $37,770 $38,000
21
<PAGE>
Neither the Trust nor Norwest Select Funds has adopted any form of retirement
plan covering Trustees or officers. For the twelve month period ended May 31,
1999 total expenses of the Trustees (other than Messrs. Keffer and McCune) was
$38,958 and total expenses of the trustees of Norwest Select Funds was $444 .
As of October 1, 1999, the Trustees and officers of the Trust in the aggregate
owned less than 1% of the outstanding shares of the Fund.
TRUSTEES AND OFFICERS OF CORE TRUST
The Trustees and officers of Core Trust age and their principal occupations
during the past five years 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, Evans, Hong and Messes. Klenk, Stutch and
Hoefler, officers of Core Trust, all currently serve as officers of the Trust.
Accordingly, for background information pertaining to these officers, see
"Management -- Trustees and Officers -- Trustees and Officers of the Trust."
JOHN Y. KEFFER,* Chairman and President.
COSTAS AZARIADIS, Trustee, Age 56.
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 57.
Managing Director, Forum Financial Services, Inc. since September 1991.
President of Technology Marketing Associates (a marketing consulting
company) since September 1991. Prior thereto, Mr. Cheng was President and
Chief Executive Officer of Network Dynamics, Incorporated (a software
development company). His address is Two Portland Square, Portland, Maine
04101.
J. MICHAEL PARISH, Trustee, Age 56.
Partner at the law firm of Reid & Priest. Prior thereto he was a partner at
the law firm of Winthrop Stimson Putnam & Roberts since 1989. His address
is 40 Wall Street, New York, New York 10005.
STACEY HONG, Treasurer, Age 33.
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 45.
Managing Director, Forum Financial Group, LLC, with which he has been
associated since October 1993. Prior thereto, Mr. Sheehan was Special
Counsel to the Division of Investment Management of the SEC. Mr. Sheehan
also serves as an officer of other registered investment companies for
which the various Forum Financial Group of Companies provides services. His
address is Two Portland Square, Portland, Maine 04101.
22
<PAGE>
DAVID I. GOLDSTEIN, Secretary, Age 38.
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.
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.
DON L. EVANS, Assistant Secretary, Age 51.
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.
PAMELA STUTCH, Assistant Secretary, Age 31.
Senior Fund Specialist, 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.
HEIDI HOEFLER, Assistant Secretary, Age 36.
Staff Attorney, Forum Financial Group, LLC with which she has been
associated since 1998. Prior thereto, Ms. Hoefler was a legal intern with
UNUM (1996-1997), and prior thereto a law student at University of Maine.
INVESTMENT ADVISORY SERVICES
GENERAL
The advisory fee for the Fund is based on the average daily net assets of the
Fund at the annual rate disclosed in the Fund's prospectus. The investment
advisory fee is accrued daily and paid monthly. The Adviser, in its sole
discretion, may waive or continue to waive all or any portion of the investment
advisory fee.
In addition to receiving its advisory fee, Norwest and its affiliates may act
and be compensated as investment manager for their clients with respect to
assets which are invested in the Fund. In some instances Norwest or its
affiliates may elect to credit against any investment management, custodial or
other fee received from, or rebate to, a client who is also a shareholder in the
Fund an amount equal to all or a portion of the fees received by Norwest or any
of its affiliates from the Fund with respect to the client's assets invested in
the Fund.
NORWEST INVESTMENT MANAGEMENT, INC.
Norwest furnishes at its expense all services, facilities and personnel
necessary in connection with managing the Fund's investments and effecting
portfolio transactions for the Fund. With respect to the Fund, the Investment
Advisory Agreement between the Trust and Norwest will continue in effect only if
23
<PAGE>
such continuance is specifically approved at least annually by the Board or by
vote of the shareholders, and in either case, by a majority of the Trustees who
are not interested persons of any party to the Investment Advisory Agreement, at
a meeting called for the purpose of voting on the Investment Advisory Agreement.
The Investment Advisory Agreement provides that Norwest may delegate its
responsibilities to any investment subadviser approved by the Board and, as
applicable, shareholders, with respect to all or any portion of the assets of
the Fund. The Investment Advisory Agreement also provides that no fee shall be
payable 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.
The Investment Advisory Agreement is terminable without penalty with respect to
the Fund on 60 days' written notice: (1) by the Board or by a vote of a majority
of the outstanding voting securities of the Fund to the Adviser; or (2) by the
Adviser to the Trust. The Investment Advisory Agreement shall terminate upon
assignment. The Investment Advisory Agreement also provides that, with respect
to the Fund, neither Norwest nor its personnel shall be liable for any mistake
of judgment or in any event whatsoever, except for lack of good faith, provided
that nothing in the Investment Advisory Agreement shall be deemed to protect, or
purport to protect, the Adviser against liability by reason of willful
misfeasance, bad faith or gross negligence in the performance of Norwest's
duties or by reason of reckless disregard of its obligations and duties under
the Investment Advisory Agreement. The Investment Advisory Agreement provides
that Norwest may render services to others.
The investment advisory agreement between Norwest and Core Trust on behalf of
the Portfolio is, except for certain immaterial matters, identical to the
Investment Advisory Agreement between Norwest and the Trust.
Norwest Investment Management, Inc. is a subsidiary of Norwest Bank Minnesota,
N.A., which as of August 31, 1999, had assets in excess of $24 billion.
The following table shows the dollar amount of fees payable under the Investment
Advisory Agreement between Norwest and the Trust with respect to the 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.
<TABLE>
<S> <C> <C> <C>
ADVISORY FEE ADVISORY FEE ADVISORY FEE
PAYABLE WAIVED RETAINED
READY CASH INVESTMENT FUND
Year Ended May 31, 1999 0 0 0
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
</TABLE>
MANAGEMENT AND ADMINISTRATIVE SERVICES
MANAGER AND ADMINISTRATOR
Forum manages all aspects of the Trust's operations with respect to the Fund
except those which are the responsibility of FAdS or Norwest. With respect to
the Fund, Forum has entered into a Management Agreement that will continue in
effect only if such continuance is specifically approved at least annually by
the Board or by the shareholders and, in either case, by a majority of the
Trustees who are not interested persons of any party to the Management
Agreement.
24
<PAGE>
On behalf of the Trust and with respect to the Fund, Forum: oversees: (a) the
preparation and maintenance by the Adviser and the Trust's administrator,
custodian, transfer agent, dividend disbursing agent and fund accountant (or if
appropriate, prepares and maintains) in such form, for such periods and in such
locations as may be required by applicable law, of all documents and records
relating to the operation of the Trust required to be prepared or maintained by
the Trust or its agents pursuant to applicable law; (b) the reconciliation of
account information and balances among the Adviser and the Trust's custodian,
transfer agent, dividend disbursing agent and fund accountant; (c) the
transmission of purchase and redemption orders for Shares; (d) the notification
of the Adviser of available funds for investment; and (e) the performance of
fund accounting, including the calculation of the net asset value per Share; (2)
oversees the Trust's receipt of the services of persons competent to perform
such supervisory, administrative and clerical functions as are necessary to
provide effective operation of the Trust; (3) oversees the performance of
administrative and professional services rendered to the Trust by others,
including its administrator, custodian, transfer agent, dividend disbursing
agent and fund accountant, as well as accounting, auditing, legal and other
services performed for the Trust; (4) provides the Trust with adequate general
office space and facilities and provides, at the Trust's request and expense,
persons suitable to the Board to serve as officers of the Trust; (5) oversees
the preparation and the printing of the periodic updating of the Trust's
registration statement, Prospectuses and SAIs, the Trust's tax returns, and
reports to its shareholders, the SEC and state and other securities
administrators; (6) oversees the preparation of proxy and information statements
and any other communications to shareholders; (7) with the cooperation of the
Trust's counsel, investment advisers and other relevant parties, oversees the
preparation and dissemination of materials for meetings of the Board; (8)
oversees the preparation, filing and maintenance of the Trust's governing
documents, including the Trust Instrument, Bylaws and minutes of meetings of
Trustees, Board committees and shareholders; (9) oversees registration and sale
of Fund shares, to ensure that such shares are properly and duly registered with
the SEC and applicable state and other securities commissions; (10) oversees the
calculation of performance data for dissemination to information services
covering the investment company industry, sales literature of the Trust and
other appropriate purposes; (11) oversees the determination of the amount of and
supervises the declaration of dividends and other distributions to shareholders
as necessary to, among other things, maintain the qualification of the Fund as a
regulated investment company under the Code, as amended, and oversees the
preparation and distribution to appropriate parties of notices announcing the
declaration of dividends and other distributions to shareholders; (12) reviews
and negotiates on behalf of the Trust normal course of business contracts and
agreements; (13) maintains and reviews periodically the Trust's fidelity bond
and errors and omission insurance coverage; and (14) advises the Trust and the
Board on matters concerning the Trust and its affairs.
The Management Agreement terminates automatically if assigned and may be
terminated without penalty with respect to the Fund by vote of the Fund's
shareholders or by either party on not more than 60 days' nor less than 30 days'
written notice. The Management Agreement also provides that neither Forum nor
its personnel shall be liable for any error of judgment or mistake of law or for
any act or omission in the administration or management of the Trust, except for
willful misfeasance, bad faith or gross negligence in the performance of Forum's
or their duties or by reason of reckless disregard of their obligations and
duties under the Management Agreement.
FAdS manages all aspects of the Trust's operations with respect to the Fund
except those which are the responsibility of Forum or Norwest. With respect to
the Fund, FAdS 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 Administration
Agreement.
On behalf of the Trust and with respect to the Fund, FAdS: (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 Fund holdings for compliance with Prospectus and SAI investment
restrictions and assist in preparation of periodic compliance reports; (5) with
the cooperation of the Trust's counsel, Norwest, the officers of the Trust and
other relevant parties, is responsible for the preparation and dissemination of
materials for meetings of the Board; (6) is responsible for preparing, filing
25
<PAGE>
and maintaining the Trust's governing documents, including the Trust Instrument,
Bylaws and minutes of meetings of Trustees, Board committees and shareholders;
(7) is responsible for maintaining the Trust's existence and good standing under
state law; (8) monitors sales of shares and ensures that such shares are
properly and duly registered with the SEC and applicable state and other
securities commissions; (9) is responsible for the calculation of performance
data for dissemination to information services covering the investment company
industry, sales literature of the Trust and other appropriate purposes; and (10)
is responsible for the determination of the amount of and supervises the
declaration of dividends and other distributions to shareholders as necessary
to, among other things, maintain the qualification of the Fund as a regulated
investment company under the Code, as amended, and prepares and distributes to
appropriate parties notices announcing the declaration of dividends and other
distributions to shareholders.
The Administrative Agreement terminates automatically if assigned and may be
terminated without penalty with respect to the Fund by vote of that Fund's
shareholders or by either party on not more than 60 days' nor less than 30 days'
written notice. The Administrative Agreement also provides that neither FAdS 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 FAdS'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 FAdS 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 FAdS's Administration
Agreement, respectively. Forum and FAdS may compensate those agents for their
services; however, no such compensation may increase the aggregate amount of
payments by the Trust to Forum or FAdS pursuant to their Management and
Administration Agreements with the Trust.
The following table shows the dollar amount of fees payable to Forum for its
management services with respect to the classes of the Fund. Also shown are the
amount of fees that were waived by Forum, if any, and the actual fees received
by Forum. The data is for the past three fiscal years or shorter period if the
class has been in operation for a shorter period.
<TABLE>
<S> <C> <C> <C>
MANAGEMENT MANAGEMENT MANAGEMENT
FEE FEE FEE
PAYABLE WAIVED RETAINED
READY CASH INVESTMENT FUND
Investor Shares
Year Ended May 31, 1999 640,686 0 640,686
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
Public Entities Shares
Year Ended May 31, 1999 24,555 24,555 0
Exchange Shares
Year Ended May 31, 1999 818 818 0
Year Ended May 31, 1998 643 511 132
Year Ended May 31, 1997 850 850 0
</TABLE>
26
<PAGE>
THE PORTFOLIO
Forum manages all aspects of Core Trust's operations with respect to the
Portfolio except those which are the responsibility of Norwest. Forum has
entered into a management agreement with respect to the Portfolio (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 of Core Trust, 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 the Portfolio as it and FAdS perform under the Management
and Administration Agreements, to the extent the services are applicable to the
Portfolio. Forum and FAdS waive their fees payable by the Fund under the
Management and Administration Agreements to the extent the Fund incurs
indirectly management fees charged by Forum to the Portfolio.
DISTRIBUTION
Forum also acts as distributor of the shares of the Fund. Forum acts as the
agent of the Trust in connection with the offering of Institutional Shares of
the Fund on a "best efforts" basis pursuant to a Distribution Services
Agreement.
Under the Distribution Services Agreement, the Trust has agreed to indemnify,
defend and hold Forum, and any person who controls Forum within the meaning of
Section 15 of the 1933 Act, free and harmless from and against any and all
claims, demands, liabilities and expenses (including the cost of investigating
or defending such claims, demands or liabilities and any counsel fees incurred
in connection therewith) which Forum or any such controlling person may incur,
under the 1933 Act, or under common law or otherwise, arising out of or based
upon any alleged untrue statement of a material fact contained in the Trust's
Registration Statement or the Fund's Prospectus or Statement of Additional
Information in effect from time to time under the 1933 Act or arising out of or
based upon any alleged omission to state a material fact required to be stated
in any one thereof or necessary to make the statements in any one thereof not
misleading. Forum is not, however, protected against any liability to the Trust
or its shareholders to which Forum would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of its
duties, or by reason of Forum's reckless disregard of its obligations and duties
under the Distribution Services Agreement.
With respect to the Fund, the Distribution Services Agreement will continue in
effect only if such continuance is specifically approved at least annually by
the Board or by the shareholders and, in either case, by a majority of the
Trustees who are not parties to the Distribution Services Agreement or
interested persons of any such party.
The Distribution Services Agreement terminates automatically if assigned. With
respect to the Fund, the Distribution Services Agreement may be terminated at
any time without the payment of any penalty: (1) by the Board or by a vote of
the Fund's shareholders, on 60 days' written notice to Forum; or (2) by Forum on
60 days' written notice to the Trust.
TRANSFER AGENT
Norwest Bank, Sixth Street and Marquette, Minneapolis, Minnesota 55479 acts as
Transfer Agent of the Trust pursuant to a Transfer Agency Agreement. The
Transfer Agency Agreement will continue in effect only if such continuance is
specifically approved at least annually by the Board or by a vote of the
shareholders of the Trust and in either case by a majority of the Trustees who
are not parties to the Transfer Agency Agreement or interested persons of any
such party, at a meeting called for the purpose of voting on the Transfer Agency
Agreement.
The responsibilities of the Transfer Agent include: (1) answering customer
inquiries regarding account status and history, the manner in which purchases
and redemptions of shares of the Fund may be effected and certain other matters
pertaining to the Fund; (2) assisting shareholders in initiating and changing
account designations and addresses; (3) providing necessary personnel and
facilities to establish and maintain shareholder accounts and records; (4)
assisting in processing purchase and redemption transactions and receiving wired
funds; (5) transmitting and receiving funds in connection with customer orders
to purchase or redeem shares; (6) verifying shareholder signatures in connection
with changes in the registration of shareholder accounts; (7) furnishing
periodic statements and confirmations of purchases and redemptions; (8)
transmitting proxy statements, annual reports, prospectuses and other
communications from the Trust to its shareholders; (9) receiving, tabulating and
27
<PAGE>
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, at an annual rate of 0.10% of the Fund's average daily
net assets, attributable to Public Entities Shares.
CUSTODIAN
Pursuant to a Custodian Agreement, Norwest Bank, Sixth Street and Marquette,
Minneapolis, Minnesota 55479 serves as the Fund's custodian (in this capacity
the "Custodian"). Norwest Bank also serves as custodian to the Portfolio under a
separate agreement with Core Trust. The Custodian's responsibilities include
safeguarding and controlling the Trust's cash and securities, determining income
and collecting interest on Fund investments. The fee is computed and paid
monthly, based on the average daily net assets of the Fund, the number of
portfolio transactions of the Fund and the number of securities in the Fund's
portfolio.
Pursuant to rules adopted under the 1940 Act, a Fund may maintain its foreign
securities and cash in the custody of certain eligible foreign banks and
securities depositories. Selection of these foreign custodial institutions is
made by the Board upon consideration of a number of factors, including (but not
limited to) the reliability and financial stability of the institution; the
ability of the institution to perform capably custodial services for the Fund;
the reputation of the institution in its national market; the political and
economic stability of the country in which the institution is located; and
possible risks of potential nationalization or expropriation of Fund assets. The
Custodian employs qualified foreign subcustodians to provide custody of the
Fund's foreign assets in accordance with applicable regulations.
The Fund will not pay custodian fees to the extent the Fund invests in the
Portfolio or in another registered investment company. The Fund, however, incurs
its proportionate share of the custodial fees of the Portfolio.
PORTFOLIO ACCOUNTING
FAcS, an affiliate of Forum, performs portfolio accounting services for the Fund
pursuant to a Fund Accounting Agreement with the Trust. The Fund Accounting
Agreement will continue in effect only if such continuance is specifically
approved at least annually by the Board or by a vote of the shareholders of the
Trust and in either case by a majority of the Trustees who are not parties to
the Fund Accounting Agreement or interested persons of any such party, at a
meeting called for the purpose of voting on the Fund Accounting Agreement.
Under the Fund Accounting Agreement, FAcS prepares and maintains books and
records of the Fund on behalf of the Trust that are required to be maintained
under the 1940 Act, calculates the net asset value per share of the Fund (and
each class thereof) and dividends and capital gain distributions and prepares
periodic reports to shareholders and the SEC. For its services, FAcS receives
from the Trust standard fee of $1,000 per month plus $1,000/month for each
additional class of the Fund above one. FAcS also receives a fee of $2,000 per
month for the Fund if the Fund invests in a master-feeder structure pursuant to
Section 12(d)(1)(E) of the 1940 Act and invests in more than one security. In
addition to these fees, FAcS is entitled to receive from the Trust with respect
to the Fund, to the extent that it invests in a fund-of-funds structure pursuant
to Section 12(d)(1)(H) of the 1940 Act additional surcharges as described below
if the Fund invests in securities other than investment companies (calculated as
if the securities were the Fund's only assets).
To the extent that the Fund is not invested in a master-feeder or fund-of-funds
structure, FAcS receives from the Trust with respect to the Fund, a fee of
$3,000 per month. In addition, FAcS is paid additional surcharges for each of
the following: (1) if the Fund has asset levels exceeding $100 million -
$500/month, if the Fund has asset levels exceeding $250 million - $1,000/month,
if the Fund has asset levels exceeding $500 million - $1,500/month, if the Fund
has asset levels exceeding $1,000 million - $2,000/month; (2) if the Fund
requires international custody - $1,000/month; (3) if the Fund has more than 30
international positions - $1,000/month; (4) if the Fund has more than 25% of its
assets invested in asset-backed securities - $1,000/month, if the Fund has more
28
<PAGE>
than 50% of its assets invested in asset-backed securities - $2,000/month; (6)
if the Fund has more than 100 security positions - $1,000/month; and (7) if the
Fund has a monthly portfolio turnover rate of 10% or greater - $1,000/month.
Surcharges are determined based upon the total assets, security positions or
other factors as of the end of the prior month and on the portfolio turnover
rate for the prior month. The rates set forth above shall remain fixed through
December 31, 1998. On January 1, 1999, and on each successive January 1, the
rates may be adjusted automatically by Forum without action of the Trust to
reflect changes in the Consumer Price Index for the preceding calendar year, as
published by the U.S. Department of Labor, Bureau of Labor Statistics. Forum
shall notify the Trust each year of the new rates, if applicable
FAcS 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. FAcS 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 FAcS, 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 FAcS'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 FAcS by an officer of the Trust duly authorized. This indemnification does
not apply to FAcS's actions taken or failures to act in cases of FAcS's own bad
faith, willful misconduct or gross negligence.
FAcS performs similar services for the Portfolios and, in addition, acts as the
Portfolios' transfer agent.
The following table shows the dollar amount of fees payable to FAcS (formerly
Forum Accounting) for its accounting services with respect to the Fund, the
amount of fee that was waived by FAcS, if any, and the actual fee received by
FAcS. The data is for the past three fiscal years.
<TABLE>
<S> <C> <C> <C>
FEE FEE FEE
PAYABLE WAIVED RETAINED
READY CASH INVESTMENT FUND
Year Ended May 31, 1999 34,000 0 34,000
Year Ended May 31, 1998 61,678 0 61,678
Year Ended May 31, 1997 86,000 0 86,000
</TABLE>
EXPENSES
Subject to the obligation of Norwest to reimburse the Trust for certain excess
expenses, the Trust has, under its Investment Advisory Agreement, 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.
29
<PAGE>
5. PORTFOLIO TRANSACTIONS
The following discussion of portfolio transactions, while referring to the Fund,
also applies to the Portfolio.
Purchases and sales of portfolio securities for the Fund usually are principal
transactions. Debt instruments are normally purchased directly from the issuer
or from an underwriter or market maker for the securities. There usually are no
brokerage commissions paid for such purchases. Purchases of 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 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. In transactions on exchanges in the United
States, commissions are negotiated, whereas on foreign exchanges commissions are
generally fixed. Allocations of transactions to brokers and dealers and the
frequency of transactions are determined by the Adviser in its best judgment and
in a manner deemed to be in the best interest of shareholders of the Fund rather
than by any formula. The primary consideration is prompt execution of orders in
an effective manner and at the most favorable price available to the Fund.
The Fund may effect purchases and sales through brokers who charge commissions,
although the Trust does not anticipate that the Fund will do so.
Subject to the general policies regarding allocation of portfolio brokerage as
set forth above, the Board has authorized Norwest to employ its respective
affiliates to effect securities transactions of the Fund, provided certain other
conditions are satisfied. Payment of brokerage commissions to an affiliate of
Norwest for effecting such transactions is subject to Section 17(e) of the 1940
Act, which requires, among other things, that commissions for transactions on
securities exchanges paid by a registered investment company to a broker which
is an affiliated person of such investment company, or an affiliated person of
another person so affiliated, not exceed the usual and customary brokers'
commissions for such transactions. It is the Fund's policy that commissions paid
to Norwest Investment Services, Inc. ("NISI") and other affiliates of Norwest
will, in the judgment of Norwest, be: (1) at least as favorable as commissions
contemporaneously charged by the affiliate on comparable transactions for its
most favored unaffiliated customers and (2) at least as favorable as those which
would be charged on comparable transactions by other qualified brokers having
comparable execution capability. The Board, including a majority of the
disinterested Trustees, has adopted procedures to ensure that commissions paid
to affiliates of Norwest by the Fund satisfy the foregoing standards.
The Fund does not have an understanding or arrangement to direct any specific
portion of its brokerage to an affiliate of Norwest, and will not direct
brokerage to an affiliate of Norwest in recognition of research services.
From time to time, the Fund may purchase securities of a broker or dealer
through which it regularly engages in securities transactions.
The Fund may not always pay the lowest commission or spread available. Rather,
in determining the amount of commissions, including certain dealer spreads, paid
in connection with securities transactions, Norwest takes into account factors
such as size of the order, difficulty of execution, efficiency of the executing
broker's facilities (including the services described below) and any risk
assumed by the executing broker. Norwest may also take into account payments
made by brokers effecting transactions for the Fund: (1) to the Fund; or (2) to
other persons on behalf of the Fund for services provided to the Fund for which
it would be obligated to pay.
In addition, Norwest may give consideration to research services furnished by
brokers to Norwest for its use and may cause the Fund to pay these brokers a
higher amount of commission than may be charged by other brokers. Such research
and analysis is of the types described in Section 28(e)(3) of the Securities
Exchange Act of 1934, as amended, and is designed to augment Norwest's own
internal research and investment strategy capabilities. Such research and
analysis may be used by Norwest in connection with services to clients other
30
<PAGE>
than the Fund, and not all such services may be used by Norwest in connection
with the Fund. The Fund's fees are not reduced by reason of Norwest's receipt of
the research services.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. and subject to the obligation to seek the most
favorable price and execution available and such other policies as the Board may
determine, Norwest may consider sales of shares of the Fund as a factor in the
selection of broker-dealers to execute portfolio transactions for the Fund.
Investment decisions for the Fund will be made independently from those for any
other account or investment company that is or may in the future become managed
by Norwest or its affiliates. Investment decisions are the 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 Norwest's
opinion, is equitable to each and in accordance with the amount being purchased
or sold by each. There may be circumstances when purchases or sales of a
portfolio security for one client could have an adverse effect on another client
that has a position in that security. In addition, when purchases or sales of
the same security for the Fund and other client accounts managed by Norwest
occur contemporaneously, the purchase or sale orders may be aggregated in order
to obtain any price advantages available to large denomination purchases or
sales.
During their last fiscal year, the Fund acquired no securities issued by its
"regular brokers and dealers" or the parents of those brokers and dealers.
Regular brokers and dealers are 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.
6. ADDITIONAL PURCHASE, REDEMPTION AND EXCHANGE INFORMATION
GENERAL
Shares of the Fund are sold on a continuous basis by the distributor.
The per share net asset values of each class of shares of the Fund are expected
to be substantially the same. Under certain circumstances, however, the per
share net asset value of each class may vary. The per share net asset value of
each class of the 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.
As described in the Prospectus, under certain circumstances the Fund may close
early and advance time by which the Fund must receive a purchase or redemption
order and payments. In that case, if an investor placed an order after the
cut-off time the order would be processed on the follow-up business day and the
investor's access to the fund would be temporarily limited.
EXCHANGES
By making an exchange by telephone, the investor authorizes the Trust's transfer
agent to act on telephonic instructions believed by the Trust's transfer agent
to be genuine instructions from any person representing himself or herself to be
the investor. The records of the Trust's transfer agent of such instructions are
binding. The exchange procedures may be modified or terminated at any time upon
appropriate notice to shareholders. For Federal income tax purposes, exchanges
are treated as sales on which a purchaser will realize a capital gain or loss
depending on whether the value of the shares redeemed is more or less than the
shareholder's basis in such shares at the time of such transaction.
31
<PAGE>
Shareholders of Public Entities Shares of Ready Cash Investment Fund may
purchase, with the proceeds from a redemption of all or part of their shares,
shares of the following funds of the Trust: Shares of Cash Investment Fund, U.S.
Government Fund and Treasury Fund, Institutional Shares of Municipal Money
Market Fund and I Shares of Stable Income Fund, Limited Term Government Income
Fund, Intermediate Government Income Fund, Diversified Bond Fund, Income Fund,
Total Return Bond Fund, Limited Term Tax-Free Fund, Tax-Free Income Fund,
Colorado Tax-Free Fund, Minnesota Intermediate Tax-Free Fund, Minnesota Tax-Free
Fund, Strategic Income Fund, Moderate Balanced Fund, Growth Balanced Fund,
Aggressive Balanced-Equity Fund, Index Fund, Income Equity Fund, ValuGrowth
Stock Fund, Diversified Equity Fund, Growth Equity Fund, Large Company Growth
Fund, Diversified Small Cap Fund, Small Company Stock Fund, Small Company Growth
Fund, Small Cap Opportunities Fund, Contrarian Stock Fund and International
Fund.
REDEMPTIONS
In addition to the situations described in the Prospectus with respect to the
redemptions of shares, the Trust may redeem shares involuntarily to reimburse
the Fund for any loss sustained by reason of the failure of a shareholder to
make full payment for shares purchased by the shareholder or to collect any
charge relating to transactions effected for the benefit of a shareholder which
is applicable to the Fund's shares as provided in the Prospectus from time to
time.
Proceeds of redemptions normally are paid in cash. However, payments may be made
wholly or partially in portfolio securities if the Board determines that payment
in cash would be detrimental to the best interests of the Fund. If payment for
shares redeemed is made wholly or partially in portfolio securities, brokerage
costs may be incurred by the shareholder in converting the securities to cash.
The Trust has filed a formal election with the SEC pursuant to which the Fund
will only effect a redemption in portfolio securities if the particular
shareholder is redeeming more than $250,000 or 1% of the Fund's total net
assets, whichever is less, during any 90-day period.
7. TAXATION
The Fund intends for each taxable year to qualify for tax treatment as a
"regulated investment company" under the Code. Such qualification does not, of
course, involve governmental supervision of management or investment practices
or policies. Investors should consult their own counsel for a complete
understanding of the requirements the Fund must meet to qualify for such
treatment, and of the application of state and local tax laws to his or her
particular situation.
Since the Fund expects to derive substantially all of its gross income
(exclusive of capital gains) from sources other than dividends, it is expected
that none of the Fund's dividends or distributions will qualify for the
dividends-received deduction for corporations.
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.
The Fund's (or Portfolio's) investments in zero coupon securities will be
subject to special provisions of the Code which may cause the Fund (or
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 Fund (or Portfolio) may be forced to sell
other portfolio securities.
32
<PAGE>
8. ADDITIONAL INFORMATION ABOUT THE TRUST AND THE SHAREHOLDERS OF THE FUND
DETERMINATION OF NET ASSET VALUE
Pursuant to the rules of the SEC, the Board has established procedures to
stabilize the Fund's net asset value at $1.00 per share. These procedures
include a review of the extent of any deviation of net asset value per share as
a result of fluctuating interest rates, based on available market rates, from
the Fund's $1.00 amortized cost price per share. Should that deviation exceed
1/2 of 1%, the Board will consider whether any action should be initiated to
eliminate or reduce material dilution or other unfair results to shareholders.
Such action may include redemption of shares in kind, selling portfolio
securities prior to maturity, reducing or withholding dividends and utilizing a
net asset value per share as determined by using available market quotations.
The Fund will maintain a dollar-weighted average portfolio maturity of 90 days
or less, will not purchase any instrument with a remaining maturity greater than
397 days or subject to a repurchase agreement having a duration of greater than
397 days, will limit portfolio investments, including repurchase agreements, to
those U.S. dollar-denominated instruments that the Board has determined present
minimal credit risks and will comply with certain reporting and recordkeeping
procedures. The Trust has also established procedures to ensure that portfolio
securities meet the Fund's high quality criteria.
COUNSEL AND AUDITORS
Legal matters in connection with the issuance of shares of beneficial interest
of the Trust are passed upon by the law firm of Seward & Kissel, One Battery
Park Plaza, New York, NY 10004.
KPMG, LLP, 99 High Street, Boston, MA 02110, independent auditors, served as the
independent auditors for the Trust for the fiscal years ended May 31, 1994 and
thereafter. For the prior fiscal periods another audit firm acted as independent
auditors of the Trust's predecessor corporation.
GENERAL INFORMATION
The Trust's shares are divided into forty separate series. The Trust 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 Fund's separate classes of shares
under the provisions of 1940 Act.
The Board has determined that currently no conflict of interest exists between
or among the Fund's Institutional, Investor, Public Entities and Exchange
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.
33
<PAGE>
In order to adopt the name Norwest Advantage Funds, the Trust agreed in the
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.
FINANCIAL STATEMENTS
The financial statements of the Fund for the semi-annual period ended November
30, 1997 (which include a statement of assets and liabilities, a statement of
operations, a statement of changes in net assets, notes to financial statements,
financial highlights and a portfolio of investments) are included in the
Semi-Annual Report to Shareholders of the Trust delivered along with this SAI
and are incorporated herein by reference. The financial statements of the Fund
for the year ended May 31, 1997 (which include a statement of assets and
liabilities, a statement of operations, a statement of changes in net assets,
notes to financial statements, financial highlights, a portfolio 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 to the copy of such contract or other documents filed
as exhibits to the registration statement.
34
<PAGE>
APPENDIX A - DESCRIPTION OF SECURITIES RATINGS
SHORT-TERM DEBT
MOODY'S INVESTORS SERVICE
Moody's two highest ratings for short-term debt are "Prime-1" and "Prime-2".
Both are judged investment grade, to indicate the relative repayment ability of
rated issuers.
Issuers rated Prime-1 have a superior ability for repayment of senior short-term
debt obligations. "Prime-1" repayment ability will often be evidenced by many of
the following characteristics: Leading market positions in well-established
industries; high rates of return on funds employed; conservative capitalization
structure with moderate reliance on debt and ample asset protection; broad
margins in earnings coverage of fixed financial charges and high internal cash
generation; well-established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated "Prime-2" by Moody's have a strong ability for repayment of senior
short-term debt obligations. This will normally be evidenced by many of the
characteristics of issuers rated "Prime-1" but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
STANDARD AND POOR'S
S&P's two highest commercial paper ratings are "A-1" and "A-2". Issues assigned
an "A" rating are regarded as having the greatest capacity for timely payment.
Issues in this category are delineated with the numbers 1, 2 and 3 to indicate
the relative degree of safety. An "A-1" designation indicates that the degree of
safety regarding timely payment is either overwhelming or very strong. Those
issues determined to possess overwhelming safety characteristics are denoted
with a plus (+) sign designation. The capacity for timely payment on issues with
an "A-2" designation is strong. However, the relative degree of safety is not as
high as for issues designated "A-1". "A-3" issues have a satisfactory capacity
for timely payment. They are, however, somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations. Issues rated "A-2" are regarded as having only an adequate
capacity for timely payment. However, such capacity may be damaged by changing
conditions or short-term adversities.
FITCH IBCA, INC.
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
"F-1+". Issues assigned this rating are regarded as having the strongest degree
of assurance for timely payment.
"F-1". Issues assigned this rating reflect an assurance of timely payment only
slightly less in degree than issues rated "F-1+".
A-1
<PAGE>
PERFORMA FUNDS
STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 1, 1999
PERFORMA DISCIPLINED GROWTH FUND
PERFORMA SMALL CAP VALUE FUND
PERFORMA STRATEGIC VALUE BOND FUND
<PAGE>
PERFORMA FUNDS
STATEMENT OF ADDITIONAL INFORMATION
October 1, 1999
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, 1999, as may be amended from time to time, offering shares of
Performa Disciplined Growth Fund, Performa Small Cap Value Fund and Performa
Strategic Value Bond 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
1. Introduction 1
Glossary 1
Background Information 2
2. Investment Policies 2
General Information 2
Equity Securities 2
Fixed Income Securities 4
Borrowing 9
Dollar Roll Transactions 9
Repurchase Agreements 9
Reverse Repurchase Agreements 9
Lending Fund Securities 10
When-Issued AndDelayed Delivery Securities And Forward Commitments 10
Illiquid Investments
Short Sales 11
Options And Futures Contracts 11
Foreign Currency Transactions 12
Swaps, Caps, Floors And Collars 13
Temporary Defensive Position 14
3. Risk Considerations 14
Counterparty Risk 14
Fixed Income Securities 15
Risks Of International Investing 16
Leverage 18
Options And Futures Contracts 18
Small Capitalization Stocks 19
Geographic Concentration 19
4. Investment Limitations 19
Fundamental Limitations 19
Non-Fundamental Limitations 21
5. Performance And Advertising Data 22
General 22
Sec Yield Calculations 23
Total Return Calculations 23
Core And Gateway Performance 24
i
<PAGE>
Other Advertisement Matters 24
6. Management 25
Trustees And Officers 25
Investment Advisory Services 29
Management And Administrative Services 32
Distribution 35
Transfer Agent 35
Custodian 36
Portfolio Accounting 36
Expenses 37
7. Portfolio Transactions 38
8. Additional Purchase And Redemption Information 40
General 40
Redemptions 40
9. Taxation 40
10. Additional Information About The Trust And The Shareholders Of The Funds42
Counsel And Auditors 42
Ownership Of Fund Shares 42
General Information 42
Voting And Other Rights 42
Core And Gateway Structure 44
Banking Law Matters 44
Financial Statements 44
Registration Statement 44
Appendix A - Description Of Securities Ratings A-1
Appendix B - Miscellaneous Tables B-1
Appendix C - Performance Data C-1
Appendix D - Other Advertisement Matters D-1
ii
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1. INTRODUCTION
GLOSSARY
"Adviser" means Norwest 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 and Gateway Structure" means a structure in which a Fund invests in
one or more Portfolios.
"Core Trust" means Core Trust (Delaware), an open-end, management
investment company registered under the 1940 Act.
"Core Trust Board" means the Board of Trustees of Core Trust.
"Custodian" means Norwest acting in its capacity as custodian of a Fund.
"FAdS" 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.
"FAcS" means Forum Accounting Services, Limited Liability Company, the
Trust's fund accountant.
"Fund" means each of the four separate series 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 Strategic Value Bond Portfolio and Performa Strategic Value
Bond Fund.
"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 Wells
Fargo & Company
"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
and Strategic Value Bond Portfolio, each a separate portfolio of Core
Trust.
"SEC" means the U.S. Securities and Exchange Commission.
"S&P" means Standard & Poor's.
1
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"Smith" means Smith Asset Management Group, L.P.
"Stock Index Futures" means futures contracts that relate to broadly based
stock indices.
"Subadviser" means Galliard or Smith.
"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.
BACKGROUND INFORMATION
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 and each Portfolio's investment adviser. Norwest Bank
serves as the Trust's transfer agent, dividend disbursing agent and custodian.
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.
Forum serves as the Trust's manager and as distributor of the Trust's shares.
FAdS serves as each Fund's administrator.
2. INVESTMENT POLICIES
GENERAL INFORMATION
This section discusses in greater detail than the prospectus certain of the
investments the Funds may make. A Fund will make only those investments
described below that are in accordance with its investment objectives and
policies. The Funds make the investments described below through the Portfolios.
Each Fund's investment objective and all its investment policies that are
designated as fundamental may not be changed without approval by the lesser of:
(i) more than 50% of the outstanding shares of the Fund, or (ii) 67% or more of
the shares present or represented at an investors' meeting, if more than 50% of
the outstanding shares of the Fund are present or represented at the meeting in
person or by proxy. A Fund may change any other investment policy upon
appropriate notice to investors.
EQUITY SECURITIES
Equity securities include common stock, preferred stock, convertible securities,
warrants, depository receipts, shares of closed-end investment companies and
equity-related securities. The market value of all securities, particularly
equity securities, is based upon the market's perception of value and not
necessarily the book value of an issuer or other objective measure of a
2
<PAGE>
company's worth. Overall economic and market conditions also impact an equity
security's price. The market value of an equity security also may fluctuate
based on changes in a company's financial condition. It is possible that a Fund
may experience a substantial or complete loss on an individual equity
investment.
Equity securities owned by a Fund may be traded on a securities exchange or in
the over-the-counter market and may not be traded every day or in the volume
typical of securities traded on a major national securities exchange. As a
result, disposition by a Fund of equity securities to meet redemptions by
investors or otherwise may require the Fund to sell these securities at a
discount from market prices, to sell during periods when disposition is not
desirable, or to make many small sales over an extended period of time.
COMMON STOCK. Common stock represents an equity (ownership) interest in a
company, and usually possesses voting rights and earns dividends. Common
stockholders are not creditors of the company, but rather, upon liquidation of
the company are entitled to their pro rata share of the company's assets after
creditors and, if applicable, preferred stockholders are paid. Dividends on
common stock are not fixed but are declared at the discretion of the issuer.
Common stock generally represents the riskiest investment in a company. In
addition, common stock generally has the greatest appreciation and depreciation
potential because increases and decreases in earnings are usually reflected in a
company's stock price.
PREFERRED STOCK. Preferred stock is a class of stock having a preference over
common stock as to the payment of dividends and the recovery of investment
should a company be liquidated. Preferred stock, however, is usually junior to
the debt securities of the issuer. Preferred stock typically does not possess
voting rights and its market value may change based on changes in interest
rates.
CONVERTIBLE SECURITIES. Convertible securities are fixed income securities,
preferred stock or other securities that may be converted into or exchanged for
a given amount of common stock of the same or a different issuer during a
specified period of time at a specified price or formula. A convertible security
entitles the holder to receive interest on debt or the dividend on preferred
stock until the convertible security matures or is redeemed, converted or
exchanged. Before conversion, convertible securities ordinarily provide a stream
of income with generally higher yields than those of common stock of the same or
similar issuers, but lower than the yield of nonconvertible debt. Convertible
securities rank senior to common stock in a company's capital structure but are
usually subordinated to comparable nonconvertible securities. By investing in
convertible securities, a Fund obtains the right to benefit from the capital
appreciation potential in the underlying common stock upon the exercise of the
conversion right, while earning higher current income than could be available if
the stock was purchased directly.
In general, the value of a convertible security is the higher of its investment
value (its value as a fixed income security) and its conversion value (the value
of the underlying shares of common stock if the security is converted). As a
fixed income security, the value of a convertible security generally increases
when interest rates decline and generally decreases when interest rates rise.
The credit standing of the issuer and other factors also may have an effect on
the convertible security's investment value. The conversion value of a
convertible security is determined by the market price of the underlying common
stock. If the conversion value is low relative to the investment value, the
price of the convertible security is governed principally by its investment
value. Generally, a convertible security's conversion value decreases as the
convertible security approaches maturity. To the extent the market price of the
underlying common stock approaches or exceeds the conversion price, the price of
the convertible security will be increasingly influenced by its conversion
value. In addition, a convertible security generally will sell at a premium over
its conversion value determined by the extent to which investors place value on
the right to acquire the underlying common stock while holding a fixed income
security.
Because convertible securities are typically issued by smaller capitalized
companies whose stock price may be volatile, the price of a convertible security
may reflect variations in the price of the underlying common stock in a way that
nonconvertible debt does not. Also, while convertible securities generally have
higher yields than common stock, they have lower yields than comparable
nonconvertible securities and are subject to less fluctuations in value than
underlying stock since they have fixed income characteristics. A convertible
security may be subject to redemption at the option of the issuer at a price
established in the convertible security's governing instrument. If a convertible
security is called for redemption, the Fund will be required to permit the
issuer to redeem the security, convert it into the underlying common stock or
sell it to a third party.
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WARRANTS. Warrants are securities, typically issued with preferred stock or
bonds, that give the holder the right to purchase a given number of shares of
common stock at a specified price, usually during a specified period of time.
The price usually represents a premium over the applicable market value of the
common stock at the time of the warrant's issuance. Warrants have no voting
rights with respect to the common stock, receive no dividends and have no rights
with respect to the assets of the issuer. Warrants do not pay a fixed dividend.
Investments in warrants involve certain risks, including the possible lack of a
liquid market for the resale of the warrants, potential price fluctuations as a
result of speculation or other factors and failure of the price of the common
stock to rise. A warrant becomes worthless if it is not exercised within the
specified time period.
EQUITY-RELATED SECURITIES. Equity-related securities are securities whose
interest and/or principal payment obligations are linked to a specified index of
equity securities, or determined pursuant to specific formulas. A Fund may
invest in these instruments when the securities provide a higher amount of
dividend income than is available from a company's common stock. The amount
received by an investor at maturity of these securities is not fixed but is
based on the price of the underlying common stock, which may rise or fall.
Adverse changes in the securities markets may reduce interest payments made
under, and/or the principal of, equity-linked securities held by a Fund. In
addition, it is not possible to predict how equity-related securities will trade
in the secondary market or whether the market for the securities will be liquid.
DEPOSITARY RECEIPTS. A depositary receipt is a receipt for shares of a
foreign-based company that entitles the holder to distributions on the
underlying security. Depositary receipts include sponsored and unsponsored
American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs") and
other similar global instruments. ADRs typically are issued by a U.S. bank or
trust company, evidence ownership of underlying securities issued by a foreign
company, and are designed for use in U.S. securities markets. EDRs (sometimes
called Continental Depositary Receipts) are receipts issued by a European
financial institution evidencing an arrangement similar to that of ADRs, and are
designed for use in European securities markets. Depositary receipts provide
exposure to foreign securities markets.
Unsponsored depositary receipts may be created without the participation of the
foreign issuer. Holders of these receipts generally bear all the costs of the
depositary receipt facility, whereas foreign issuers typically bear certain
costs in a sponsored depositary receipt. The bank or trust company depositary of
an unsponsored depositary receipt may be under no obligation to distribute
shareholder communications received from the foreign issuer or to pass through
voting rights. Accordingly, available information concerning the issuer may not
be current and the prices of unsponsored depositary receipts may be more
volatile than the prices of sponsored depositary receipts.
FIXED INCOME SECURITIES
Fixed income securities include corporate debt obligations, U.S. Government
Securities, municipal securities, mortgage-related securities, asset-backed
securities, guaranteed investment contracts, zero coupon securities, variable
and floating rate securities, financial institution obligations, commercial
paper and participation interests.
CORPORATE DEBT OBLIGATIONS. The Funds may invest in corporate bonds, debentures,
notes, commercial paper and other similar corporate debt instruments. Companies
use these instruments to borrow money from investors. The issuer pays the
investor a fixed or variable rate of interest and must repay the amount borrowed
at maturity. Companies issue commercial paper (short-term unsecured promissory
notes) to finance their current obligations.
Commercial paper normally has a maturity of less than 9 months.
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U.S. GOVERNMENT SECURITIES. U.S. Government Securities include securities issued
by the U.S. Treasury and by U.S. Government agencies and instrumentalities. U.S.
Government Securities may be supported by the full faith and credit of the
United States (e.g., mortgage-related securities and certificates of the
Government National Mortgage Association and securities of the Small Business
Administration); by the right of the issuer to borrow from the U.S. Treasury
(e.g., Federal Home Loan Bank securities); by the discretionary authority of the
U.S. Treasury to lend to the issuer (e.g., Fannie Mae (formerly the Federal
National Mortgage Association) securities); or solely by the creditworthiness of
the issuer (e.g., Federal Home Loan Mortgage Corporation securities).
Holders of U.S. Government Securities not backed by the full faith and credit of
the United States must look principally to the agency or instrumentality issuing
the obligation for repayment and may not be able to assert a claim against the
United States in the event that the agency or instrumentality does not meet its
commitment. There is no assurance that the U.S. Government will support
securities not backed by its full faith and credit. Neither the U.S. Government
nor any of its agencies or instrumentalities guarantees the market value of the
securities they issue.
MORTGAGE-RELATED SECURITIES. Mortgage-related securities represent interests in
a pool of mortgage loans originated by lenders such as commercial banks, savings
associations and mortgage bankers and brokers. Mortgage-related securities may
be issued by governmental or government-related entities or by non-governmental
entities such as special purpose trusts created by commercial lenders.
Pools of mortgages consist of whole mortgage loans or participations in mortgage
loans. The majority of these loans are made to purchasers of 1-4 family homes.
The terms and characteristics of the mortgage instruments are generally uniform
within a pool but may vary among pools. For example, in addition to fixed-rate,
fixed-term mortgages, the Funds may purchase pools of adjustable-rate mortgages,
growing equity mortgages, graduated payment mortgages and other types. Mortgage
poolers apply qualification standards to lending institutions which originate
mortgages for the pools as well as credit standards and underwriting criteria
for individual mortgages included in the pools. In addition, many mortgages
included in pools are insured through private mortgage insurance companies.
Mortgage-related securities differ from other forms of debt securities, which
normally provide for periodic payment of interest in fixed amounts with
principal payments at maturity or on specified call dates. Most mortgage-related
securities, however, are pass-through securities, which means that investors
receive payments consisting of a pro-rata share of both principal and interest
(less servicing and other fees), as well as unscheduled prepayments, as loans in
the underlying mortgage pool are paid off by the borrowers. Additional
prepayments to holders of these securities are caused by prepayments resulting
from the sale or foreclosure of the underlying property or refinancing of the
underlying loans. As prepayment rates of individual pools of mortgage loans vary
widely, it is not possible to predict accurately the average life of a
particular mortgage-related security. Although mortgage-related securities are
issued with stated maturities of up to forty years, unscheduled or early
payments of principal and interest on the mortgages may shorten considerably the
securities' effective maturities. See "Risk Considerations."
GOVERNMENT AND AGENCY MORTGAGE-RELATED SECURITIES. The principal issuers or
guarantors of mortgage-related securities are the Government National Mortgage
Association ("GNMA"), Fannie Mae ("FNMA") and the Federal Home Loan Mortgage
Corporation ("FHLMC"). GNMA, a wholly-owned U.S. Government corporation within
the Department of Housing and Urban Development ("HUD"), creates pass-through
securities from pools of government guaranteed (Federal Housing Authority or
Veterans Administration) mortgages. The principal and interest on GNMA
pass-through securities are backed by the full faith and credit of the U.S.
Government.
FNMA, which is a U.S. Government-sponsored corporation owned entirely by private
stockholders that is subject to regulation by the Secretary of HUD, and FHLMC, a
corporate instrumentality of the U.S. Government, issue pass-through securities
from pools of conventional and federally insured and/or guaranteed residential
mortgages. FNMA guarantees full and timely payment of all interest and
principal, and FHMLC guarantees timely payment of interest and ultimate
collection of principal of its pass-through securities. Mortgage-related
securities from FNMA and FHLMC are not backed by the full faith and credit of
the U.S. Government.
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PRIVATELY ISSUED MORTGAGE-RELATED SECURITIES. Mortgage-related securities
offered by private issuers include pass-through securities comprised of pools of
conventional residential mortgage loans; mortgage-backed bonds, which are
considered to be debt obligations of the institution issuing the bonds and are
collateralized by mortgage loans; and bonds and collateralized mortgage
obligations that are collateralized by mortgage-related securities issued by
GNMA, FNMA or FHLMC or by pools of conventional mortgages of multi-family or of
commercial mortgage loans.
Privately-issued mortgage-related securities generally offer a higher rate of
interest (but greater credit and interest rate risk) than securities issued by
U.S. Government issuers because there are no direct or indirect governmental
guarantees of payment. Many non-governmental issuers or servicers of
mortgage-related securities guarantee or provide insurance for timely payment of
interest and principal on the securities. The market for privately issued
mortgage-related securities is smaller and less liquid than the market for
mortgage-related securities issued by U.S. government issuers.
STRIPPED MORTGAGE-RELATED SECURITIES. Stripped mortgage-related securities are
multi-class mortgage-related securities that are created by separating the
securities into their principal and interest components and selling each piece
separately. Stripped mortgage-related securities are usually structured with two
classes that receive different proportions of the interest and principal
distributions in a pool of mortgage assets. The market values of these
securities are extremely sensitive to prepayment rates.
ADJUSTABLE RATE MORTGAGE SECURITIES. Adjustable rate mortgage securities
("ARMs") are pass-through securities representing interests in pools of mortgage
loans with adjustable interest rates that are reset at periodic intervals,
usually by reference to some interest rate index or market interest rate, and
that may be subject to certain limits. Although the rate adjustment feature may
reduce sharp changes in the value of adjustable rate securities, these
securities can change in value based on changes in market interest rates or
changes in the issuer's creditworthiness. Changes in the interest rates on ARMs
may lag behind changes in prevailing market interest rates. Because of the
resetting of interest rates, adjustable rate securities are less likely than
non-adjustable rate securities of comparable quality and maturity to increase
significantly in value when market interest rates fall. A Fund could suffer some
principal loss if the Fund sold the securities before the interest rates on the
underlying mortgages were adjusted to reflect current market rates. Some
adjustable rate securities (or the underlying mortgages) are subject to caps or
floors, that limit the maximum change in interest rates during a specified
period or over the life of the security.
COLLATERALIZED MORTGAGE OBLIGATIONS. Collateralized mortgage obligations
("CMOs") are multiple-class debt obligations that are fully collateralized by
mortgage-related pass-through securities or by pools of mortgages ("Mortgage
Assets"). Payments of principal and interest on the Mortgage Assets are passed
through to the holders of the CMOs as they are received, although certain
classes (often referred to as "tranches") of CMOs have priority over other
classes with respect to the receipt of mortgage prepayments.
Multi-class mortgage pass-through securities are interests in trusts that hold
Mortgage Assets and that have multiple classes similar to those of CMOs.
Payments of principal of and interest on the underlying Mortgage Assets (and in
the case of CMOs, any reinvestment income thereon) provide funds to pay debt
service on the CMOs or to make scheduled distributions on the multi-class
mortgage pass-through securities. Parallel pay CMOs are structured to provide
payments of principal on each payment date to more than one class. These
simultaneous payments are taken into account in calculating the stated maturity
date or final distribution date of each class, which, as with other CMO
structures, must be retired by its stated maturity date or final distribution
date but may be retired earlier. Planned amortization class mortgage-related
securities ("PAC Bonds") are a form of parallel pay CMO. PAC Bonds are designed
to provide relatively predictable payments of principal provided that, among
other things, the actual prepayment experience on the underlying mortgage loans
falls within a contemplated range. CMOs may have complicated structures and
generally involve more risks than simpler forms of mortgage-related securities.
Delinquency or loss in excess of that covered by credit enhancement protection
could adversely affect the return on an investment in such a security.
The final tranche of a CMO may be structured as an accrual bond (sometimes
referred to as a "Z-tranche"). Holders of accrual bonds receive no cash payments
for an extended period of time. During the time that earlier tranches are
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outstanding, accrual bonds receive accrued interest which is a credit for
periodic interest payments that increases the face amount of the security at a
compounded rate, but is not paid to the bond holder. After all previous tranches
are retired, accrual bondholders start receiving cash payments that include both
principal and continuing interest. The market value of accrual bonds can
fluctuate widely and their average life depends on the other aspects of the CMO
offering. Interest on accrual bonds is taxable when accrued even though the
holders receive no accrual payment. The Funds distribute all of their net
investment income, and may have to sell portfolio securities to distribute
imputed income, which may occur at a time when an Adviser would not have chosen
to sell such securities and which may result in a taxable gain or loss.
CREDIT ENHANCEMENTS. To lessen the effect of the failures by obligors on
Mortgage Assets to make payments, CMOs and other mortgage-related securities may
contain elements of credit enhancement, consisting of either (1) liquidity
protection or (2) protection against losses resulting after default by an
obligor on the underlying assets and allocation of all amounts recoverable
directly from the obligor and through liquidation of the collateral. This
protection may be provided through guarantees, insurance policies or letters of
credit obtained by the issuer or sponsor from third parties, through various
means of structuring the transaction or through a combination of these methods.
The Funds will not pay any additional fees for credit enhancements for
mortgage-related securities, although the credit enhancement may increase the
costs of the mortgage-related securities. Delinquency or loss in excess of that
covered by credit enhancement protection could adversely affect the return on an
investment in such a security.
ASSET-BACKED SECURITIES. Asset-backed securities have structural characteristics
similar to mortgage-related securities but have underlying assets that are not
mortgage loans or interests in mortgage loans. Asset-backed securities represent
fractional interests in, or are secured by and payable from, pools of assets
such as motor vehicle installment sales contracts, installment loan contracts,
leases of various types of real and personal property and receivables from
revolving credit (e.g., credit card) agreements. Assets are securitized through
the use of trusts and special purpose corporations that issue securities that
are often backed by a pool of assets representing the obligations of a number of
different parties. Asset-backed securities have structures and characteristics
similar to those of mortgage-related securities and, accordingly, are subject to
many of the same risks, although often to a greater extent. See "Risk
Considerations." No Fund may invest more than 10% of its net assets in
asset-backed securities that are backed by a particular type of credit, (e.g.,
credit card receivables).
FOREIGN GOVERNMENT AND SUPRANATIONAL ORGANIZATIONS DEBT SECURITIES. A Fund may
invest in fixed income securities issued by the governments of foreign countries
or by those countries' political subdivisions, agencies or instrumentalities as
well as by supranational organizations such as the International Bank for
Reconstruction and Development and the Inter-American Development Bank if the
Adviser believes that the securities do not present risks inconsistent with the
Fund's investment objective.
GUARANTEED INVESTMENT CONTRACTS. Guaranteed investment contracts ("GICs") are
issued by insurance companies. In purchasing a GIC, a Fund contributes cash to
the insurance company's general account and the insurance company then credits
to the Fund's deposit fund on a monthly basis guaranteed interest at a specified
rate. The GIC provides that this guaranteed interest will not be less than a
certain minimum rate. The insurance company may assess periodic charges against
a GIC for expense and service costs allocable to it. There is no secondary
market for GICs and, accordingly, GICs are generally treated as illiquid
investments. GICs are typically unrated.
ZERO-COUPON SECURITIES. Zero-coupon securities are debt obligations that are
issued or sold at a significant discount from their face value and do not pay
current interest to holders prior to maturity, a specified redemption date or
cash payment date. The discount approximates the total interest the securities
will accrue and compound over the period to maturity or the first interest
payment date at a rate of interest reflecting the market rate of interest at the
time of issuance. The original issue discount on the zero-coupon securities must
be included ratably in the income of a Fund (and thus an investor's) as the
income accrues, even though payment has not been received. The Funds distribute
all of their net investment income, and may have to sell portfolio securities to
distribute imputed income, which may occur at a time when an Adviser would not
have chosen to sell such securities and which may result in a taxable gain or
loss. Because interest on zero-coupon securities is not paid on a current basis
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but is in effect compounded, the value of these securities is subject to greater
fluctuations in response to changing interest rates, and may involve greater
credit risks, than the value of debt obligations which distribute income
regularly.
Zero-coupon securities may be securities that have been stripped of their
unmatured interest stream. Zero-coupon securities may be custodial receipts or
certificates, underwritten by securities dealers or banks, that evidence
ownership of future interest payments, principal payments or both on certain
U.S. Government securities. The underwriters of these certificates or receipts
generally purchase a U.S. Government security and deposit the security in an
irrevocable trust or custodial account with a custodian bank, which then issues
receipts or certificates that evidence ownership of the purchased unmatured
coupon payments and the final principal payment of the U.S. Government Security.
These certificates or receipts have the same general attributes as zero-coupon
stripped U.S. Treasury securities but are not supported by the issuer of the
U.S. Government Security. The risks associated with stripped securities are
similar to those of other zero-coupon securities, although stripped securities
may be more volatile, and the value of certain types of stripped securities may
move in the same direction as interest rates.
VARIABLE AND FLOATING RATE SECURITIES. Certain debt securities have variable or
floating rates of interest and, under certain limited circumstances, may have
varying principal amounts. These securities pay interest at rates that are
adjusted periodically according to a specified formula, usually with reference
to one or more interest rate indices or market interest rates (the "underlying
index"). The interest paid on these securities is a function primarily of the
underlying index upon which the interest rate adjustments are based. These
adjustments minimize changes in the market value of the obligation. Similar to
fixed rate debt instruments, variable and floating rate instruments are subject
to changes in value based on changes in market interest rates or changes in the
issuer's creditworthiness. The rate of interest on securities purchased by a
Fund may be tied to U.S. Government Securities or indices on those securities as
well as any other rate of interest or index. Certain variable rate securities
pay interest at a rate that varies inversely to prevailing short-term interest
rates (sometimes referred to as "inverse floaters"). Certain inverse floaters
may have an interest rate reset mechanism that multiplies the effects of changes
in the underlying index. This mechanism may increase the volatility of the
security's market value while increasing the security's yield.
Many variable rate instruments include the right of the holder to demand
prepayment of the principal amount of the obligation prior to its stated
maturity and the right of the issuer to prepay the principal amount prior to
maturity.
Variable and floating rate demand notes of corporations include master demand
notes that permit investment of fluctuating amounts at varying interest rates
under direct arrangements with the issuer of the instrument. The issuer of these
obligations often has the right, after a given period, to prepay the outstanding
principal amount of the obligations upon a specified number of days' notice.
Because master demand notes are direct lending arrangements between a Fund and
the issuer, they are not normally traded. Although there is no secondary market
in the notes, the Fund may demand payment of principal and accrued interest at
any time upon a specified period of notice.
Certain securities may have an initial principal amount that varies over time
based on an interest rate index, and, accordingly, a Fund might be entitled to
less than the initial principal amount of the security upon the security's
maturity. A Fund will purchase these securities only when its Adviser believes
the interest income from the instrument justifies any principal risks associated
with the instrument. The Advisers may attempt to limit any potential loss of
principal by purchasing similar instruments that are intended to provide an
offsetting increase in principal. There can be no assurance that the Advisers
will be able to limit the effects of principal fluctuations and, accordingly, a
Fund may incur losses on those securities even if held to maturity without
issuer default.
There may not be an active secondary market for any particular floating or
variable rate instruments, which could make it difficult for a Fund to dispose
of the instrument during periods that the Fund is not entitled to exercise any
demand rights it may have. A Fund could, for this or other reasons, suffer a
loss with respect to those instruments. The Advisers monitor the liquidity of
each Fund's investment in variable and floating rate instruments, but there can
be no guarantee that an active secondary market will exist.
FINANCIAL INSTITUTION OBLIGATIONS. A Fund may invest in obligations of financial
institutions, including certificates of deposit, bankers' acceptances, time
deposits and other short-term debt obligations. Certificates of deposit
represent an institution's obligation to repay funds deposited with it that earn
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a specified interest rate over a given period. Bankers' acceptances are
negotiable obligations of a bank to pay a draft which has been drawn by a
customer and are usually backed by goods in international trade. Time deposits
are non-negotiable deposits with a banking institution that earn a specified
interest rate over a given period. Certificates of deposit and fixed time
deposits, which are payable at the stated maturity date and bear a fixed rate of
interest, generally may be withdrawn on demand by a Fund but may be subject to
early withdrawal penalties which could reduce a Fund's performance. Although
fixed time deposits do not in all cases have a secondary market, there are no
contractual restrictions on a Fund's right to transfer a beneficial interest in
the deposits to third parties.
Funds that invest in foreign securities may invest in Eurodollar certificates of
deposit, which are issued by offices of foreign and domestic banks located
outside the United States; Yankee certificates of deposit, which are issued by a
U.S. branch of a foreign bank and held in the United States; Eurodollar time
deposits, which are deposits in a foreign branch of a U.S. bank or a foreign
bank; and Canadian time deposits, which are issued by Canadian offices of major
Canadian banks. Each of these instruments is U.S. dollar denominated.
PARTICIPATION INTERESTS. A Fund may purchase participation interests in loans or
instruments in which the Fund may invest directly that are owned by banks or
other institutions. A participation interest gives a Fund an undivided
proportionate interest in a loan or instrument. Participation interests may
carry a demand feature permitting the holder to tender the interests back to the
bank or other institution. Participation interests, however, do not provide the
Fund with any right to enforce compliance by the borrower, nor any rights of
set-off against the borrower and the Fund may not directly benefit from any
collateral supporting the loan in which it purchased a participation interest.
As a result, the Fund will assume the credit risk of both the borrower and the
lender that is selling the participation interest.
BORROWING
Each Fund may borrow money in accordance with its investment policies set forth
under "Investment Limitations." Interest costs on borrowings may offset or
exceed the return earned on borrowed funds (or on the assets that were retained
rather than sold to meet the needs for which funds were borrowed). Under adverse
market conditions, a Fund might have to sell portfolio securities to meet
interest or principal payments at a time when investment considerations would
not favor such sales. A Fund's use of borrowed proceeds to make investments
would subject the Fund to the risks of leveraging. Reverse repurchase
agreements, short sales not against the box, dollar roll transactions and other
similar investments that involve a form of leverage have characteristics similar
to borrowings but are not considered borrowings if the Fund maintains a
segregated account.
DOLLAR ROLL TRANSACTIONS
Dollar roll transactions are transactions in which a Fund sells securities to a
bank or securities dealer, and makes a commitment to purchase similar, but not
identical, securities at a later date from the same party. During the period
between the commitment and settlement, no payment is made for the securities
purchased and no interest or principal payments on the securities accrue to the
purchaser, but the Fund assumes the risk of ownership. A Fund is compensated for
entering into dollar roll transactions by the difference between the current
sales price and the forward price for the future purchase, as well as by the
interest earned on the cash proceeds of the initial sale. The Funds will engage
in dollar roll transactions for the purpose of acquiring securities for their
investment portfolios. Each Fund will limit its obligations on dollar roll
transactions to 35% of the Fund's net assets.
REPURCHASE AGREEMENTS
Repurchase agreements are transactions in which a Fund purchases securities from
a bank or securities dealer and simultaneously commits to resell the securities
to the bank or dealer at an agreed-upon date and at a price reflecting a market
rate of interest unrelated to the purchased security. During the term of a
repurchase agreement, the Funds' custodian maintains possession of the purchased
securities and any underlying collateral, which is maintained at not less than
100% of the repurchase price. Repurchase agreements allow a Fund to earn income
on its uninvested cash for periods as short as overnight, while retaining the
flexibility to pursue longer-term investments.
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
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repurchase agreement reflects a market rate of interest that is not related to
the coupon rate or maturity of the sold security. For certain demand agreements,
there is no agreed upon repurchase date and interest payments are calculated
daily, often based upon the prevailing overnight repurchase rate.
LENDING FUND SECURITIES
Each Fund may lend Fund securities in an amount up to 33-1/3% of its total
assets to brokers, dealers and other financial institutions. Securities loans
must be continuously collateralized and the collateral must have market value at
least equal to value of the Fund's loaned securities, plus accrued interest. In
a portfolio securities lending transaction, the Fund receives from the borrower
an amount equal to the interest paid or the dividends declared on the loaned
securities during the term of the loan as well as the interest on the collateral
securities, less any fees (such as finders or administrative fees) the Fund pays
in arranging the loan. The Fund may share the interest it receives on the
collateral securities with the borrower. The terms of a Fund's loans permit the
Fund to reacquire loaned securities on five business days' notice or in time to
vote on any important matter. Loans are subject to termination at the option of
a Fund or the borrower at any time, and the borrowed securities must be returned
when the loan is terminated. The Funds will not lend portfolio securities to any
officer, director, employee or affiliate of the Funds or an Adviser.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS
Each Fund may purchase or sell portfolio securities on a "when-issued," "delayed
delivery" or "forward commitment" basis. When-issued securities may be purchased
on a "when, as and if issued" basis under which the issuance of the securities
depends upon the occurrence of a subsequent event. When these transactions are
negotiated, the price is fixed at the time the commitment is made, but delivery
and payment for the securities take place at a later date. When-issued
securities and forward commitments may be sold prior to the settlement date, but
the Funds enter into these transactions only with the intention of actually
receiving securities or delivering them, as appropriate. The Funds may dispose
of the right to acquire these securities before the settlement date if deemed
advisable. During the period between the time of commitment and settlement, no
payment is made for the securities purchased and no interest or dividends on the
securities accrue to the purchaser. At the time a Fund makes a commitment to
purchase securities in this manner, the Fund immediately assumes the risk of
ownership, including price fluctuation. The use of when-issued transactions and
forward commitments enables a Fund to protect against anticipated changes in
interest rates and prices, but also tends to increase the volatility of the
Fund's net asset value per share. Except for dollar-roll transactions, a Fund
will not purchase securities on a when-issued, delayed delivery or forward
commitment basis if, as a result, more than 15% (35% in the case of Total Return
Bond Fund) of the value of the Fund's total assets would be committed to such
transactions.
The use of when-issued transactions and forward commitments enables the Funds to
hedge against anticipated changes in interest rates and prices. If an Adviser
were to forecast incorrectly the direction of interest rate movements, however,
a Fund might be required to complete when-issued or forward transactions at
prices inferior to the current market values.
At the time a Fund makes the commitment to purchase securities on a when-issued
or delayed delivery basis, the Fund will record the transaction as a purchase
and thereafter reflect the value each day of such securities in determining its
net asset value.
ILLIQUID INVESTMENTS
No Fund may knowingly invest more than 15% of the Fund's net assets in illiquid
investments. Illiquid investments are investments that cannot be disposed of
within seven days in the ordinary course of business at approximately the amount
at which the Fund has valued the investment and include, among other
instruments, repurchase agreements not entitling the Fund to payment of
principal within seven days.
An institutional market has developed for certain securities that are not
registered under the 1933 Act. Institutional investors usually will not seek to
sell these instruments to the general public, but instead will often depend on
either an efficient institutional market in which the unregistered security can
be readily resold or on an issuer's ability to honor a demand for repayment of
the unregistered security. A security's contractual or legal restrictions on
resale to the general public or to certain institutions therefore may not be
determinative of the liquidity of such investments.
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If unregistered securities are eligible for purchase by institutional buyers in
accordance with applicable exemptions under guidelines adopted by the Board, an
Adviser may determine that the securities are liquid. Under these guidelines,
the Advisers are required to take into account: (1) the frequency of trades and
quotations for the investment; (2) the number of dealers willing to purchase or
sell the investment; (3) the number of dealers that have undertaken to make a
market in the investment; (4) the number of other potential purchasers; and (5)
the nature of the marketplace trades, including the time needed to dispose of
the investment, the method of soliciting offers and the mechanics of the
transfer.
Illiquid investments may be more difficult to value than liquid investments and
the sale of illiquid investments generally may require more time and result in
higher selling expenses than the sale of liquid investments. A Fund might not be
able to dispose of restricted or other securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemptions.
Restrictions on resale may have an adverse effect on the marketability of
illiquid investments and a Fund might also have to register certain investments
in order to dispose of them, resulting in expense and delay.
SHORT SALES
All Funds may engage in short sales "against the box." A short sale is "against
the box" to the extent that while the short position is open, the Fund must own
an equal amount of the securities sold short, or by virtue of ownership of
securities have the right, without payment of further consideration, to obtain
an equal amount of the securities sold short. Short sales against-the-box may in
certain cases be made to defer, for Federal income tax purposes, recognition of
gain or loss on the sale of securities "in the box" until the short position is
closed out. If a Fund has unrealized gain with respect to a long position and
enters into a short sale against-the-box, the Fund generally will be deemed to
have sold the long position for tax purposes and thus will recognize gain.
Prohibitions on entering short sales other than against the box does not
restrict 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.
OPTIONS AND FUTURES CONTRACTS
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 the Fund or an increase in the price of securities
that the Fund plans to purchase through the writing and purchase of
exchange-traded and over-the-counter options on individual securities or
securities or financial indices and through the purchase and sale of
interest-rate futures contracts and options on those futures contracts. A Fund
may only write options that are covered. To the extent a Fund invests in foreign
securities, it may in the future invest in options on foreign currencies,
foreign currency futures contracts and options on those futures contracts. These
instruments are considered to be derivatives. Use of these instruments is
subject to regulation by the SEC, the several options and futures exchanges on
which futures and options are traded or the CFTC. A Fund may enter into futures
contracts only if the aggregate of initial margin deposits for open futures
contract positions does not exceed 5% of the Fund's total assets.
COVER FOR OPTIONS AND FUTURES CONTRACTS. A Fund will hold securities,
currencies, or other options or futures positions whose values are expected to
offset ("cover") its obligations under the transactions. A Fund will enter into
a hedging strategy that exposes it to an obligation to another party only if the
Fund owns either (1) an offsetting ("covered") position in the underlying
security, currency or options or futures contract, or (2) cash, receivables and
liquid debt securities with a value sufficient at all times to cover its
potential obligations. Each Fund will comply with SEC guidelines with respect to
coverage of these strategies and, if the guidelines require, will set aside
cash, liquid debt securities and other permissible assets ("Segregated Assets")
in a segregated account with the Custodian in the prescribed amount. Segregated
Assets cannot be sold or closed out while the hedging or option income strategy
is outstanding, unless the Segregated Assets are replaced with similar assets.
As a result, there is a possibility that the use of cover or segregation
involving a large percentage of a Fund's assets could impede portfolio
management or a Fund's ability to meet redemption requests or other current
obligations.
The Funds have no current intention of investing in futures contracts and
options thereon for purposes other than hedging. No Fund may purchase any call
or put option on a futures contract if the premiums associated with all such
options held by the Fund would exceed 5% of the Fund's total assets as of the
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date the option is purchased. No Fund may sell a put option if the exercise
value of all put options written by the Fund would exceed 50% of the Fund's
total assets or sell a call option if the exercise value of all call options
written by the Fund would exceed the value of the Fund's assets. In addition,
the current market value of all open futures positions held by a Fund will not
exceed 50% of its total assets.
OPTIONS ON SECURITIES. A call option is a contract under which the purchaser of
the call option, in return for a premium paid, has the right to buy the security
underlying the option at a specified exercise price at any time during the term
of the option. The writer of the call option, who receives the premium, has the
obligation upon exercise of the option to deliver the underlying security
against payment of the exercise price during the option period. A put option
gives its purchaser, in return for a premium, the right to sell the underlying
security at a specified price during the term of the option. The writer of the
put, who receives the premium, has the obligation to buy the underlying security
upon exercise at the exercise price during the option period. The amount of
premium received or paid is based upon certain factors, including the market
price of the underlying assets, the relationship of the exercise price to the
market price, the historical price volatility of the underlying assets, the
option period, supply and demand and interest rates.
OPTIONS ON STOCK INDICES. A stock index assigns relative values to the stock
included in the index, and the index fluctuates with changes in the market
values of the stocks included in the index. Stock index options operate in the
same way as the more traditional options on securities except that exercises of
stock index options are effected with cash payments and do not involve delivery
of securities (i.e., stock index options are settled exclusively in cash). Thus,
upon exercise of stock index options, the purchaser will realize and the writer
will pay an amount based on the differences between the exercise price and the
closing price of the stock index.
OPTIONS ON FUTURES CONTRACTS. Options on futures contracts are similar to
options on securities except that an option on a futures contract gives the
purchaser the right, in return for the premium paid, to assume a position in a
futures contract rather than to purchase or sell stock, at a specified exercise
price at any time during the period of the option. Upon exercise of the option,
the delivery of the futures position to the holder of the option will be
accompanied by transfer to the holder of an accumulated balance representing the
amount by which the market price of the futures contract exceeds, in the case of
a call, or is less than, in the case of a put, the exercise price of the option
on the future.
FUTURES CONTRACTS AND INDEX FUTURES CONTRACTS. A futures contract is a bilateral
agreement where one party agrees to accept, and the other party agrees to make,
delivery of cash, an underlying debt security or a currency, as called for in
the contract, at a specified date and at an agreed-upon price. A bond or stock
index futures contract involves the delivery of an amount of cash equal to a
specified dollar amount times the difference between the bond or stock index
value at the close of trading of the contract and the price at which the futures
contract is originally struck. No physical delivery of the securities comprising
the index is made. Generally, these futures contracts are closed out prior to
the expiration date of the contracts.
FOREIGN CURRENCY TRANSACTIONS
Funds that make foreign investments may conduct foreign currency exchange
transactions either on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign exchange market or by entering into a forward foreign currency
contract. A forward foreign currency contract ("forward contract") involves an
obligation to purchase or sell a specific amount of a specific currency at a
future date, which may be any fixed number of days (usually less than one year)
from the date of the contract agreed upon by the parties, at a price set at the
time of the contract. Forward contracts are considered to be derivatives. A Fund
enters into forward contracts in order to "lock in" the exchange rate between
the currency it will deliver and the currency it will receive for the duration
of the contract. In addition, a Fund may enter into forward contracts to hedge
against risks arising from securities a Fund owns or anticipates purchasing, or
the U.S. dollar value of interest and dividends paid on those securities.
Performa Global Value Fund may also enter into forward transactions in
anticipation of placing a trade. A Fund will not enter into forward contracts
for speculative purposes, although Schroder may seek to enhance the Performa
Global Growth Fund's investment return through active currency management. A
Fund will not have more than 25% of its total assets committed to forward
contracts, or maintain a net exposure to forward contracts that would obligate
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the Fund to deliver an amount of foreign currency in excess of the value of the
Fund's investment securities or other assets denominated in that currency.
If a Fund makes delivery of the foreign currency at or before the settlement of
a forward contract, it may be required to obtain the currency through the
conversion of assets of the Fund into the currency. The Fund may close out a
forward contract obligating it to purchase a foreign currency by selling an
offsetting contract, in which case it will realize a gain or a loss.
Foreign currency transactions involve certain costs and risks. The Fund incurs
foreign exchange expenses in converting assets from one currency to another.
Forward contracts involve a risk of loss if the Adviser is inaccurate in its
prediction of currency movements. The projection of short-term currency market
movements is extremely difficult, and the successful execution of a short-term
hedging strategy is highly uncertain. The precise matching of forward contract
amounts and the value of the securities involved is generally not possible.
Accordingly, it may be necessary for the Fund to purchase additional foreign
currency if the market value of the security is less than the amount of the
foreign currency the Fund is obligated to deliver under the forward contract and
the decision is made to sell the security and make delivery of the foreign
currency. The use of forward contracts as a hedging technique does not eliminate
fluctuations in the prices of the underlying securities the Fund owns or intends
to acquire, but it does fix a rate of exchange in advance. Although forward
contracts can reduce the risk of loss due to a decline in the value of the
hedged currencies, they also limit any potential gain that might result from an
increase in the value of the currencies.
In addition, there is no systematic reporting of last sale information for
foreign currencies, and there is no regulatory requirement that quotations
available through dealers or other market sources be firm or revised on a timely
basis. Quotation information available is generally representative of very large
transactions in the interbank market. The interbank market in foreign currencies
is a global around-the-clock market. Because foreign currency transactions
occurring in the interbank market involve substantially larger amounts than
those that may be involved in the use of foreign currency options, a Fund may be
disadvantaged by having to deal in an odd lot market (generally consisting of
transactions of less than $1 million) for the underlying foreign currencies at
prices that are less favorable than for round lots.
The Funds have no present intention to enter into currency futures or options
contracts, but may do so in the future. A Fund might take positions in options
on foreign currencies in order to hedge against the risk of foreign exchange
fluctuation on foreign securities the Fund holds in its portfolio or which it
intends to purchase.
SWAPS, CAPS, FLOORS AND COLLARS
A Fund may enter into interest rate, currency and mortgage (or other asset)
swaps, and may purchase and sell interest rate "caps," "floors" and "collars."
Interest rate swaps involve the exchange by a Fund and a counterparty of their
respective commitments to pay or receive interest (e.g., an exchange of floating
rate payments for fixed rate payments). Mortgage swaps are similar to interest
rate swap agreements, except that the contractually based principal amount (the
"notional principal amount") is tied to a reference pool of mortgages. Currency
swaps' notional principal amount is tied to one or more currencies, and the
exchange commitments can involve payments in the same or different currencies.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on the notional principal amount from the party selling the cap. The
purchase of an interest rate floor entitles the purchaser, to the extent that a
specified index falls below a predetermined value, to receive payments on a
notional principal amount from the party selling the floor. A collar entitles
the purchaser to receive payments to the extent a specified interest rate falls
outside an agreed range.
A Fund will enter into these transactions primarily to preserve a return or a
spread on a particular investment or portion of its portfolio or to protect
against any interest rate fluctuations or increase in the price of securities it
anticipates purchasing at a later date. The Funds intend to use these
transactions as a hedge and not as a speculative investment, and will enter into
the transactions in order to shift a Fund's investment exposure from one type of
investment to another.
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A Fund may enter into interest rate protection transactions on an asset-based
basis, depending on whether it is hedging its assets or its liabilities, and
will usually enter into interest rate swaps on a net basis, i.e., the two
payment streams are netted out, with the Fund receiving or paying, as the case
may be, only the net amount of the two payments.
The use of interest rate protection transactions is a highly specialized
activity which involves investment techniques and risks different from those
associated with ordinary portfolio securities transactions. If an Adviser
incorrectly forecasts market values, interest rates and other applicable
factors, there may be considerable impact on a Fund's performance. Even if the
Advisers are correct in their forecasts, there is a risk that the transaction
may correlate imperfectly with the price of the asset or liability being hedged.
TEMPORARY DEFENSIVE POSITION
When, in the judgment of an Adviser, market or economic conditions warrant, each
Fund may assume a defensive position and temporarily hold cash or invest without
limit in cash equivalents to retain flexibility in meeting redemptions, paying
expenses and timing of new investments. These investments will be rated in one
of the two highest short-term rating categories by an NRSRO or, if not rated,
determined by the Adviser to be of comparable quality, including: (1) short-term
U.S. Government Securities; (2) certificates of deposit, bankers' acceptances
and interest-bearing savings deposits of commercial banks doing business in the
United States that have, at the time of investment, except in the case of
International Fund, total assets in excess of one billion dollars and that are
insured by the Federal Deposit Insurance Corporation; (3) commercial paper; (4)
repurchase agreements covering any of the securities in which the Fund may
invest directly; and (5) shares of money market funds registered under the 1940
Act within the limits specified therein. To the extent that a Fund assumes a
temporary defensive position, it may not be invested to pursue its investment
objective. Performa Global Growth Fund may hold cash and invest in bank
instruments denominated in any major foreign currency.
Apart from temporary defensive purposes, a Fund may at any time invest a portion
of its assets in cash and cash equivalents as described above.
RISK CONSIDERATIONS
COUNTERPARTY RISK
The Funds may be exposed to the risks of financial failure or insolvency of
another party. To help reduce those risks, the Advisers, subject to the Board's
supervision, monitor and evaluate the creditworthiness of counterparties to the
Funds' transactions and intend to enter into a transaction only when they
believe that the counterparty presents minimal credit risks and the benefits
from the transaction justify the attendant risks.
The use of repurchase agreements, securities lending, reverse repurchase
agreements, interest rate protection transactions (such as swaps, caps, collars
and floors), forward commitments (including dollar roll transactions) and
forward contracts involving currencies present particular counterparty risk. In
the event that bankruptcy, insolvency or similar proceedings were commenced
against a counterparty while these transactions remained open or a counterparty
defaulted on its obligations, a Fund may have difficulties in exercising its
rights to the underlying securities or currencies, as applicable, it may incur
costs and expensive time delays in disposing of the underlying securities and it
may suffer a loss. Failure by the other party to deliver a security or currency
purchased by a Fund may result in a missed opportunity to make an alternative
investment. Counterparty insolvency risk with respect to repurchase agreements
is reduced by favorable insolvency laws that allow a Fund, among other things,
to liquidate the collateral held in the event of the bankruptcy of the
counterparty. Those laws do not apply to securities lending, reverse repurchase
agreements and dollar roll transactions, and therefore, those transactions
involve more risk than repurchase agreements. For example, in the event the
purchaser of securities in a dollar roll transaction files for bankruptcy or
becomes insolvent, a Fund's use of the proceeds of the transaction may be
restricted pending a determination by the other party, or its trustee or
receiver, whether to enforce the Fund's obligation to repurchase the securities.
As a result of entering into forward commitments and reverse repurchase
agreements, as well as lending its securities, a Fund may be exposed to greater
potential fluctuations in the value of its assets and net asset value per share.
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FIXED INCOME SECURITIES
GENERAL. The market value of the interest-bearing fixed income securities held
by the Funds will be affected by changes in interest rates. There is normally an
inverse relationship between the market value of securities sensitive to
prevailing interest rates and actual changes in interest rates. The longer the
remaining maturity (and duration) of a security, the more sensitive the security
is to changes in interest rates. All fixed income securities, including U.S.
Government Securities, can change in value when there is a change in interest
rates. Changes in the ability of an issuer to make payments of interest and
principal and in the markets' perception of an issuer's creditworthiness will
also affect the market value of that issuer's debt securities. As a result, an
investment in a Fund is subject to risk even if all fixed income securities in
the Fund's investment portfolio are paid in full at maturity. In addition,
certain fixed income securities may be subject to extension risk, which refers
to the change in total return on a security resulting from an extension or
abbreviation of the security's maturity.
Yields on fixed income securities are dependent on a variety of factors,
including the general conditions of the fixed income securities markets, the
size of a particular offering, the maturity of the obligation and the rating of
the issue. Fixed income securities with longer maturities tend to produce higher
yields and are generally subject to greater price movements than obligations
with shorter maturities.
The issuers of fixed income securities are subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors that may restrict the ability of the issuer to pay, when due, the
principal of and interest on its debt securities. The possibility exists
therefore, that, as a result of bankruptcy, litigation or other conditions, the
ability of an issuer to pay, when due, the principal of and interest on its debt
securities may become impaired.
CREDIT RISK. The Funds' investments in fixed income securities are subject to
credit risk relating to the financial condition of the issuers of the securities
that each Fund holds. To limit credit risk, Performa Strategic Value Bond Fund
will generally buy debt securities that are rated in the top four long-term
rating categories by an NRSRO or in the top two short-term rating categories by
an NRSRO (although certain Funds have greater restrictions). Moody's, Standard &
Poor's and other NRSROs are private services that provide ratings of the credit
quality of debt obligations, including convertible securities. A description of
the range of ratings assigned to various types of securities by several NRSROs
is included in Appendix A. The Advisers may use these ratings to determine
whether to purchase, sell or hold a security. Ratings are not, however, absolute
standards of quality. Credit ratings attempt to evaluate the safety of principal
and interest payments and do not evaluate the risks of fluctuations in market
value. Consequently, similar securities with the same rating may have different
market prices. In addition, rating agencies may fail to make timely changes in
credit ratings and the issuer's current financial condition may be better or
worse than a rating indicates.
A Fund may retain a security that ceases to be rated or whose rating has been
lowered below the Fund's lowest permissible rating category if the Adviser
determines that retaining the security is in the best interests of the Fund.
Because a downgrade often results in a reduction in the market price of the
security, sale of a downgraded security may result in a loss.
A Fund may purchase unrated securities if the Fund's Adviser determines that the
security is of comparable quality to a rated security that the Fund may
purchase. Unrated securities may not be as actively traded as rated securities.
MORTGAGE-RELATED SECURITIES. The value of mortgage-related securities may be
significantly affected by changes in interest rates, the markets' perception of
issuers, the structure of the securities and the creditworthiness of the parties
involved. The ability of a Fund to successfully utilize mortgage-related
securities depends in part upon the ability of its Adviser to forecast interest
rates and other economic factors correctly. Some mortgage-related securities
have structures that make their reaction to interest rate changes and other
factors difficult to predict.
Prepayments of principal of mortgage-related securities by mortgagors or
mortgage foreclosures affect the average life of the mortgage-related
securities. The occurrence of mortgage prepayments is affected by various
factors, including the level of interest rates, general economic conditions, the
location and age of the mortgages and other social and demographic conditions.
In periods of rising interest rates, the prepayment rate tends to decrease,
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lengthening the average life of a pool of mortgage-related securities. In
periods of falling interest rates, the prepayment rate tends to increase,
shortening the average life of a pool. The volume of prepayments of principal on
the mortgages underlying a particular mortgage-related security will influence
the yield of that security, affecting a Fund's yield. Because prepayments of
principal generally occur when interest rates are declining, it is likely that a
Fund, to the extent it retains the same percentage of debt securities, may have
to reinvest the proceeds of prepayments at lower interest rates then those of
their previous investments. If this occurs, a Fund's yield will correspondingly
decline. Thus, mortgage-related securities may have less potential for capital
appreciation in periods of falling interest rates (when prepayment of principal
is more likely) than other fixed income securities of comparable duration,
although they may have a comparable risk of decline in market value in periods
of rising interest rates. A decrease in the rate of prepayments may extend the
effective maturities of mortgage-related securities, increasing their
sensitivity to changes in market interest rates. To the extent that a Fund
purchases mortgage-related securities at a premium, unscheduled prepayments,
which are made at par, result in a loss equal to any unamortized premium.
ASSET-BACKED SECURITIES. Like mortgages underlying mortgage-related securities,
the collateral underlying assets are subject to prepayment, which may reduce the
overall return to holders of asset-backed securities. Asset-backed securities
present certain additional and unique risks. Primarily, these securities do not
always have the benefit of a security interest in collateral comparable to the
security interests associated with mortgage-related securities. Credit card
receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of which
give such debtors the right to set-off certain amounts owed on the credit cards,
thereby reducing the balance due. Automobile receivables generally are secured
by automobiles. Most issuers of automobile receivables permit the loan servicers
to retain possession of the underlying obligations. If the servicer were to sell
these obligations to another party, there is a risk that the purchaser would
acquire an interest superior to that of the holders of the asset-backed
securities. In addition, because of the large number of vehicles involved in a
typical issuance and the technical requirements under state laws, the trustee
for the holders of the automobile receivables may not have a proper security
interest in the underlying automobiles. As a result, the risk that recovery on
repossessed collateral might be unavailable or inadequate to support payments on
asset-backed securities is greater for asset-backed securities than for
mortgage-related securities. In addition, because asset-backed securities are
relatively new, the market experience in these securities is limited and the
market's ability to sustain liquidity through all phases of an interest rate or
economic cycle has not been tested.
NON-INVESTMENT GRADE SECURITIES. Non-investment grade securities are securities
rated below the fourth highest rating category by an NRSRO or which are unrated
and judged by the Adviser to be of comparable quality. Such high-risk securities
(commonly referred to as "junk bonds") are not considered to be investment grade
and have speculative or predominantly speculative characteristics.
Non-investment grade, high-risk securities provide poor protection for payment
of principal and interest but may have greater potential for capital
appreciation than do higher quality securities. These lower rated securities
involve greater risk of default or price changes due to changes in the issuers'
creditworthiness than do higher quality securities. The market for these
securities may be thinner and less active than that for higher quality
securities, which may affect the price at which the lower rated securities can
be sold. In addition, the market prices of lower rated securities may fluctuate
more than the market prices of higher quality securities and may decline
significantly in periods of general economic difficulty or rising interest
rates. Under such conditions, a 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.
Lower rated or unrated debt obligations also present risks based on payment
expectations. If an issuer calls the obligation for redemption, the Fund's
Adviser may have to replace the security with a lower yielding security,
resulting in a decreased return for investors. If a Fund experiences unexpected
net redemptions, the Fund's Adviser may be forced to sell the Fund's higher
rated securities, resulting in a decline in the overall credit quality of the
Fund's portfolio and increasing the exposure of the Fund to the risks of high
yield/high risk securities.
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 a Fund will
generally invest only in securities of companies and governments in countries
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that its 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.
A Fund that makes foreign investments may purchase foreign bank obligations. In
addition to the risks described above that are generally applicable to foreign
investments, the investments that a Fund makes in obligations of foreign banks,
branches or subsidiaries may involve further risks, including differences
between foreign banks and U.S. banks in applicable accounting, auditing and
financial reporting standards, and the possible establishment of exchange
controls or other foreign government laws or restrictions applicable to the
payment of certificates of deposit or time deposits that may affect adversely
the payment of principal and interest on the securities held by the Funds.
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.
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.
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<PAGE>
LEVERAGE
The Funds may use leverage in an effort to increase their returns. Leverage
involves special risks and may involve speculative investment techniques.
Leverage exists when cash made available to a Fund through an investment
technique is used to make additional Fund investments. Borrowing for other than
temporary or emergency purposes, lending portfolio securities, entering into
reverse repurchase agreements, purchasing securities on a when-issued, delayed
delivery or forward commitment basis (including dollar roll transactions) and
the use of swaps and related agreements are transactions that result in
leverage. Certain Funds also may purchase securities on margin or enter into
short sales. The Funds use these investment techniques only when the Advisers
believe that the leveraging and the returns available to the Funds from
investing the cash will provide investors a potentially higher return.
Leverage creates the risk of magnified capital losses which occur when losses
affect an asset base, enlarged by borrowings or the creation of liabilities,
that exceeds the equity base of the Fund. Leverage may involve the creation of a
liability that requires a Fund to pay interest (for instance, reverse repurchase
agreements) or the creation of a liability that does not entail any interest
costs (for instance, forward commitment costs). The risks of leverage include a
higher volatility of the net asset value of the Fund's interests and the
relatively greater effect on the net asset value of the interests caused by
favorable or adverse market movements or changes in the cost of cash obtained by
leveraging and the yield from invested cash. So long as a Fund is able to
realize a net return on its investment portfolio that is higher than interest
expense incurred, if any, leverage will result in higher current net investment
income for the Fund than if a Fund were not leveraged. Changes in interest rates
and related economic factors could cause the relationship between the cost of
leveraging and the yield to change so that rates involved in the leveraging
arrangement may substantially increase relative to the yield on the obligations
in which the proceeds of the leveraging have been invested. To the extent that
the interest expense involved in leveraging approaches the net return on the
Fund's investment portfolio, the benefit of leveraging will be reduced, and, if
the interest expense on borrowings were to exceed the net return to investors,
the Fund's use of leverage would result in a lower rate of return than if the
Fund were not leveraged. In an extreme case, if the Fund's current investment
income were not sufficient to meet the interest expense of leveraging, it could
be necessary for the Fund to liquidate certain of its investments at an
inappropriate time.
SEGREGATED ACCOUNTS. In order to attempt to reduce the risks involved in various
transactions involving leverage, a Fund's custodian will set aside and maintain,
in a segregated account, cash and liquid securities. The account's value, which
is marked to market daily, will be at least equal to the Fund's commitments
under these transactions. The use of a segregated account in connection with
leveraged transactions may result in a Fund's investment portfolio being 100%
leveraged.
OPTIONS AND FUTURES CONTRACTS
A Fund's use of options and futures contracts subjects the Fund to certain
unique investment risks. These risks include: (1) dependence on an Adviser's
ability to correctly predict movements in the prices of individual securities
and fluctuations in interest rates, the general securities markets and other
economic factors; (2) imperfect correlations between movements in the prices of
options or futures contracts and movements in the price of the securities hedged
or used for cover which may cause a given hedge not to achieve its objective;
(3) the fact that the skills and techniques needed to trade these instruments
are different from those needed to select the other securities in which a Fund
invests; (4) lack of assurance that a liquid secondary market will exist for any
particular instrument at any particular time, which, among other things, may
hinder a Fund's ability to limit exposures by closing its positions; (5) the
possible need to defer closing out certain options, futures contracts and
related options to avoid adverse tax consequences; and (6) the potential for
unlimited losses when investing in futures contracts or writing options for
which an offsetting position is not held.
Other risks include the inability of a Fund, as the writer of covered call
options, to benefit from any appreciation of the underlying securities above the
exercise price and the possible loss of the entire premium paid for options
purchased by the Fund. In addition, the futures exchanges may limit the amount
of fluctuation permitted in certain futures contract prices on related options
during a single trading day. A Fund may be forced, therefore, to liquidate or
close out a futures contract position at a disadvantageous price. There is no
assurance that a counterparty in an over-the-counter option transaction will be
able to perform its obligations. There are a limited number of options on
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<PAGE>
interest rate futures contracts and exchange-traded options contracts on fixed
income securities. The Funds may use various futures contracts that are
relatively new instruments without a significant trading history. As a result,
there can be no assurance that an active secondary market in those contracts
will develop or continue to exist. A Fund's activities in the futures and
options markets may result in higher portfolio turnover rates and additional
brokerage costs, which could reduce a Fund's yield.
SMALL CAPITALIZATION STOCKS
Investments in smaller capitalization companies carry greater risk than
investments in larger capitalization companies. Smaller capitalization companies
generally experience higher growth rates and higher failure rates than do larger
capitalization companies; and the trading volume of smaller capitalization
companies' securities is normally lower than that of larger capitalization
companies and, consequently, generally has a disproportionate effect on market
price (tending to make prices rises more in response to buying demand and fall
more in response to selling pressure).
Securities owned by a Fund that are traded in the over-the-counter market or on
a regional securities exchange may not be traded every day or in the volume
typical of securities trading on a national securities exchange. As a result,
disposition by a Fund of a portfolio security, to meet redemption requests by
investors or otherwise, may require the Fund to sell these securities at a
discount from market prices, to sell during periods when disposition is not
desirable, or to make many small sales over a lengthy period of time.
Investments in small, unseasoned issuers generally carry greater risk than is
customarily associated with larger, more seasoned companies. Such issuers often
have products and management personnel that have not been tested by time or the
marketplace and their financial resources may not be as substantial as those of
more established companies. Their securities (which a Fund may purchase when
they are offered to the public for the first time) may have a limited trading
market which can adversely affect their sale by the Fund and can result in such
securities being priced lower than otherwise might be the case. If other
institutional investors engage in trading this type of security, a Fund may be
forced to dispose of its holdings at prices lower than might otherwise be
obtained.
GEOGRAPHIC CONCENTRATION
To the extent a Fund's investments are primarily concentrated in issuers located
in a particular state, region or country, the value of the Fund's shares may be
especially affected by factors pertaining to that state, region or country's
economy and other factors specifically affecting the ability of issuers of that
state, region or country to meet their obligations. As a result, the value of
the Fund's assets may fluctuate more widely than the value of shares of a more
geographically diverse portfolio.
4. INVESTMENT LIMITATIONS
For purposes of all fundamental and nonfundamental investment policies of each
Fund: (1) the term 1940 Act includes the rules thereunder, SEC interpretations
and any exemptive order upon which the Fund may rely; and (2) the term Code
includes the rules thereunder, IRS interpretations and any private letter ruling
or similar authority upon which the Fund may rely.
Each Fund has adopted the investment policies listed in this section which are
nonfundamental policies unless otherwise noted. Except for its investment
objective, which is fundamental, the Fund has not adopted any fundamental
policies except as required by the 1940 Act or other applicable law.
Except as required by the 1940 Act or the Code, if any percentage restriction on
investment or utilization of assets is adhered to at the time an investment is
made, a later change in percentage resulting from a change in the market values
of a Fund's assets or purchases and redemptions of shares will not be considered
a violation of the limitation.
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.
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<PAGE>
1. DIVERSIFICATION
No Fund may, with respect to 75% of its assets, purchase a
security (other than a U.S. Government Security or a security
of an investment company) if, as a result: (1) more than 5% of
the Fund's total assets would be invested in the securities of
a single issuer; or (2) the Fund would own more than 10% of
the outstanding voting securities of any single issuer.
2. INDUSTRY CONCENTRATION
No Fund may purchase a security if, as a result, more than 25%
of the Fund's total assets would be invested in securities of
issuers conducting their principal business activities in the
same industry. For purposes of this limitation, there is no
limit on: (1) investments in U.S. Government securities, in
repurchase agreements covering U.S. Government Securities, in
securities issued by the states, territories or possessions of
the United States ("municipal securities") or in foreign
government securities; or (2) investment in issuers domiciled
in a single jurisdiction. Notwithstanding anything to the
contrary, to the extent permitted by the 1940 Act, each Fund
may invest in one or more investment companies; provided that,
except to the extent the Fund invests in other investment
companies pursuant to Section 12(d)(1)(A) of the 1940 Act, the
Fund treats the assets of the investment companies in which it
invests as its own for purposes of this policy.
For purposes of this policy: (1) "mortgage related
securities," as that term is defined in the 1934 Act, are
treated as securities of an issuer in the industry of the
primary type of asset backing the security; (2) financial
service companies are classified according to the end users of
their services (for example, automobile finance, bank finance
and diversified finance); and (3) utility companies are
classified according to their services (for example, gas, gas
transmission, electric and gas, electric and telephone).
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).
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<PAGE>
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.
NON-FUNDAMENTAL 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 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 (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
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<PAGE>
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 except Performa Global Growth Fund may invest in
futures or options contracts regulated by the CFTC except 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.
5. 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 net
asset value. 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 invested 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, 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
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<PAGE>
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 in reviewing a Fund's
performance, each Fund's yield fluctuates from day to day and the Fund's yield
for any given period is not an indication or representation by the Fund of
future yields or rates of return on the Fund's shares. Norwest, financial
institutions and others that sell fund shares 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.
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.
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
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<PAGE>
In addition to average annual returns, each Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Total returns may be broken down into their components of
income and capital (including capital gains and changes in share price) in order
to illustrate the relationship of these factors and their contributions to total
return. Total returns, yields, and other performance information may be quoted
numerically or in a table, graph, or similar illustration. Period total return
is calculated according to the following formula:
PT = (ERV/P-1)
Where:
PT = period total return
The other definitions are the same as in average annual
total return above
CORE AND GATEWAY PERFORMANCE
When a Fund invests all of its investable assets in a Portfolio that has a
performance history prior to the investment by the Fund, the Fund will assume
the performance history of the Portfolio. That history may be restated to
reflect the estimated expenses of the Fund.
OTHER ADVERTISEMENT MATTERS
The Funds may advertise other forms of performance. For example, the Funds may
quote unaveraged or cumulative total returns reflecting the change in the value
of an investment over a stated period. Average annual and cumulative total
returns may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments and/or a series of
redemptions over any time period. Total returns may be broken down into their
components of income and capital (including capital gains and changes in share
price) in order to illustrate the relationship of these factors and their
contributions to total return. 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.
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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> <C>
SYSTEMATIC SHARE SHARES
PERIOD INVESTMENT PRICE PURCHASED
------ ---------- ----- ---------
1 $100 $10 10.00
2 $100 $12 8.33
3 $100 $15 6.67
4 $100 $20 5.00
5 $100 $18 5.56
6 $100 $16 6.25
Total Invested $600 Average Price $15.17 Total Shares 41.81
</TABLE>
In connection with its advertisements each Fund may provide "shareholders
letters" which serve to provide shareholders or investors an introduction into
the Fund's, the Trust's or any of the Trust's service provider's policies or
business practices. For instance, advertisements may provide for a message from
Norwest or its parent corporation that Norwest has for more than 60 years been
committed to quality products and outstanding service to assist its customers in
meeting their financial goals and setting forth the reasons that Norwest
believes that it has been successful as a national financial services firm.
6. 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 age
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 57.
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 68.
Former Director Federal Farm Credit Banks Funding Corporation and Farm
Credit System Financial Assistance Corporation (1993-March 1999). His
address is 5038 Kestral Parkway South, Sarasota, Florida 34231.
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<PAGE>
DONALD H. BURKHARDT, Trustee, Age 73.
Principal of The Burkhardt Law Firm. His address is 777 South Steele
Street, Denver, Colorado 80209.
JAMES C. HARRIS, Trustee, Age 79.
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 66.
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 54.
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 47.
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 59.
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 36.
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 38.
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 45.
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 40.
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 51.
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.
COMPENSATION OF TRUSTEES AND OFFICERS OF THE TRUST. Each Trustee of the Trust is
paid a quarterly retainer fee of $6,000, 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 except the annual
meeting, for which each Trustee is paid $5,000 (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. Messrs.
Keffer and McCune received no compensation for their services as Trustees for
the past year or reimbursement for their associated expenses. In addition, no
officer of the Trust is compensated by the Trust.
Mr. Burkhardt, Chairman of the Trust's and Norwest Select Funds' audit
committees, receives additional compensation of $8,000 from the Trust and
Norwest Select Funds allocated pro rata between the Trust and Norwest Select
Funds based upon relative net assets, for his services as Chairman. Each Trustee
was elected by shareholders on April 30, 1997.
The following table provides the aggregate compensation paid to the Trustees of
the Trust by the Trust and Norwest Select Funds, combined. Norwest Select Funds
have a December 31 fiscal year end. Information is presented for the twelve
month period ended May 31, 1999, 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 $37,770 $38,000
Mr. Burkhardt $45,722 $46,000
Mr. Harris $31,802 $32,000
Mr. Leach $37,770 $38,000
Mr. Penny $37,770 $38,000
Mr. Willeke $37,770 $38,000
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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,
1999 total expenses of the Trustees (other than Messrs. Keffer and McCune) was
$38,958and total expenses of the trustees of Norwest Select Funds was $444.
As of October 1, 1999, 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 57.
President, Forum Financial Group, LLC (mutual fund services company holding
company). Mr. Keffer is a Trustee/Director and/or officer of various
registered investment companies for which Forum Financial Services, Inc.
serves as manager, administrator and/or distributor. His address is Two
Portland Square, Portland, Maine 04101.
COSTAS AZARIADIS, Trustee, Age 56.
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 57.
President, Technology Marketing Associates (a marketing company for small
and medium size businesses in New England) since 1991. Prior thereto, Mr.
Cheng was President of Network Dynamics, Inc. (a software development
company). His address is 27 Temple Street, Belmont, MA 02718.
J. MICHAEL PARISH, Trustee, Age 56.
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 33
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 45.
Managing Director, Forum Financial Group, LLC with which he has been
associated since October 1993. Prior thereto, Mr. Sheehan was Special
Counsel to the Division of Investment Management of the SEC. Mr. Sheehan
also serves as an officer of other registered investment companies for
which the various Forum Financial Group of Companies provides services. His
address is Two Portland Square, Portland, Maine 04101.
DAVID I. GOLDSTEIN, Secretary, Age 38.
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
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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.
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.
DON L. EVANS, Assistant Secretary, Age 51.
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.
PAMELA STUTCH, Assistant Secretary, Age 31.
Senior Fund Specialist, 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.
HEIDI HOEFLER, Assistant Secretary, Age 36.
Staff Attorney, Forum Financial Group, LLC with which she has been
associated since 1998. Prior thereto, Ms. Hoefler was a legal intern with
UNUM (1996-1997), and prior thereto a law student at University of Maine.
* 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 Fund's pro
rata share of the dollar amount of the investment advisory fees payable to
Norwest by the Portfolio in which the Fund invests under the Portfolio's
Investment Advisory Agreement. The table also shows the amount of the fee that
was waived by Norwest, if any, and the actual fee received by Norwest.
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. The advisory fee for each Portfolio is based on the
average daily net assets of the Portfolio at the annual rate disclosed in the
Fund's prospectus. To the extent that a Fund invests in a Portfolio, the
advisory fee paid by the Fund will be with respect to the Portfolio for advisory
services rendered at the Portfolio level.
In addition to receiving its advisory fee from the Portfolios, 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 Portfolio with respect to the
client's assets invested in the Portfolio.
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NORWEST INVESTMENT MANAGEMENT. Subject to the general supervision of the Core
Board, Norwest makes investment decisions for Disciplined Growth Portfolio,
Small Cap Value Portfolio and Strategic Value Bond Portfolio and continuously
oversees the investment decisions of the Subadvisers of those Portfolios.
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. Under an Investment Advisory
Agreement between Norwest and Core Trust on behalf of the Portfolios, Norwest
may delegate its responsibilities to any investment subadviser approved by the
Board and, as applicable, interestholders, with respect to all or a portion of
the assets of the Portfolios. 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 interestholders, 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
a 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 Core 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 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
Agreement. The Investment Advisory Agreement provides that Norwest may render
services to others.
Norwest, which is located at Norwest Center, Sixth Street and Marquette,
Minneapolis, Minnesota 55479, is an indirect subsidiary of Norwest Corporation,
a multi-bank holding company that was incorporated under the laws of Delaware in
1929. Norwest Corporation currently has assets in excess of $83 billion. Norwest
and its affiliates currently manage assets with a value of approximately $52.9
billion. Norwest Corporation and Wells Fargo & Company, the parent company of
Wells Fargo Bank, have signed a definitive agreement to merge. The merger is
subject to certain regulatory approvals and must be approved by shareholders of
both holding companies. The merger is expected to close in the fourth quarter of
1998.
DORMANT INVESTMENT ADVISORY ARRANGEMENTS. Norwest also has been retained as a
"dormant" or "backup" investment adviser to each Fund. The Investment Advisory
Agreement between Norwest and the Trust on behalf of the Funds is identical to
the Investment Advisory Agreement between Core Trust and Norwest on behalf of
the Portfolios of Core Trust, except for the fees payable thereunder (no fee is
payable to the extent that a Fund is invested in a Portfolio or another
investment company) and certain immaterial matters.
SUBADVISERS. As set forth in the Prospectus, Norwest and Core Trust have
retained the services of Galliard and Peregrine pursuant to Investment
Subadvisory Agreements to assist Norwest in carrying out its obligations with
respect to Strategic Value Bond Portfolio, Disciplined Growth Portfolio and
Small Cap Value Portfolio. Norwest pays a fee to each such Subadviser for the
investment subadvisory services provided to each Portfolio by that Subadviser.
These fees do not increase the fees paid by the interestholders of the
Portfolios. The amount of the fees paid by Norwest to each Subadviser may vary
from time to time as a result of periodic negotiations with the Subadviser
regarding matters such as the nature and extent of the services (other than
investment selection and order placement activities) provided by the Subadviser,
the cost and complexity of providing services, the investment record of the
Subadviser in managing the Portfolio and the nature and magnitude of the
expenses incurred by the Subadviser in managing the Portfolio's assets and by
Norwest in overseeing the Portfolio.
Norwest has entered into a dormant Investment Subadvisory Agreement with each
Subadviser on behalf of each Fund that invests its assets in a Portfolio
subadvised by that Subadviser. With respect to each Subadviser, the terms of the
Investment Subadvisory Agreement between Core Trust, Norwest and the Subadviser
and the dormant Investment Subadvisory Agreement between the Trust, Norwest and
the Subadviser are identical, except with respect to the fees payable (no fee is
payable under the Investment Subadvisory Agreements with respect to a Fund to
the extent that the Fund is invested in an investment company) and certain
immaterial matters.
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Norwest performs internal due diligence on each Subadviser and monitors each
Subadviser's performance using its proprietary investment adviser selection and
monitoring process. Norwest will be responsible for communicating performance
targets and evaluations to Subadvisers, supervising each Subadviser's compliance
with fundamental investment objectives and policies, authorizing Subadvisers to
engage in certain investment techniques, and recommending to the Core Board
whether investment subadvisory agreements should be renewed, modified or
terminated. Norwest also may from time to time recommend that the Core Board
replace one or more Subadvisers or appoint additional Subadvisers, depending on
Norwest's assessment of what combination of Subadvisers it believes will
optimize each Portfolio's chances of achieving its investment objectives.
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. Galliard is registered
with the SEC as an investment adviser and is an investment advisory subsidiary
of Norwest Bank. 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.
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 Investment Subadvisory Agreement, Norwest pays Galliard a fee based on each
Portfolio'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 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
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 Agreement provides that Galliard may render services to
others.
SMITH ASSET MANAGEMENT GROUP, L.P. To assist Norwest in carrying out its
obligations under the Investment Advisory Agreement with Disciplined Growth
Portfolio and Small Cap Value Portfolio, Norwest has entered into an Investment
Subadvisory Agreement with Smith, located at 500 Crescent Court, Suite 250,
Dallas, Texas. Smith is registered with the SEC as an investment adviser and is
an investment advisory affiliate of Norwest Bank. Smith 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.
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Pursuant to the Investment Subadvisory Agreement, Smith makes investment
decisions for each of the Portfolios and continuously reviews, supervises and
administers each Portfolio's investment program with respect to that portion, if
any, of the Portfolio's portfolio that Norwest believes should be invested using
Smith as a subadviser. 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). Currently, Smith manages the entire
investment portfolio of each Portfolio and has done so since the Portfolio's
inception. Norwest supervises the performance of Smith including its adherence
to the Portfolio's investment objectives and policies and pays Smith a fee for
its investment management services. As of October 1, 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.
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 1940 Act and the rules and regulations thereunder.
The Investment Subadvisory Agreement is terminable without penalty with respect
to a Portfolio on 60 days' written notice when authorized either by majority
vote of the Portfolio's shareholders or by the Core Trust Board, or by Smith on
60 days' written notice to the Core Trust, and will automatically terminate in
the event of its assignment. The Investment Subadvisory Agreement also provides
that, with respect to each Portfolio, neither Smith nor its personnel shall be
liable for any mistake of judgment or in any event whatsoever, except for lack
of good faith, provided that nothing shall be deemed to protect Smith against
liability by reason of willful misfeasance, bad faith or gross negligence in the
performance of Smith's duties or by reason of reckless disregard of its
obligations and duties under the Investment Subadvisory Agreement. The
Investment Subadvisory Agreements provides that Smith may render services to
others.
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.
MANAGEMENT AND ADMINISTRATIVE SERVICES
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
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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 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.
Pursuant to its agreement with the Trust, Forum may subcontract any or all of
its duties to one or more qualified submanagers who agree to comply with the
terms of Forum's Management Agreement. Forum may compensate those agents for
their services; however, no such compensation may increase the aggregate amount
of payments by the Trust to Forum pursuant to its Management Agreement with the
Trust.
For its services, Forum receives a fee equal to 0.025% annually of the average
daily net assets of each Fund.
ADMINISTRATIVE SERVICES. FAdS 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, FAdS has entered into an Administration
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, FAdS: (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
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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.
The Administration 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 Administration Agreement also provides that neither FAdS 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 FAdS's
or their duties or by reason of reckless disregard of their obligations and
duties under the Administration Agreement.
Pursuant to its agreement with the Trust, FAdS may subcontract any or all of its
duties to one or more qualified subadministrators who agree to comply with the
terms of FAdS' Administration Agreement. FAdS may compensate those agents for
their services; however, no such compensation may increase the aggregate amount
of payments by the Trust to FAdS pursuant to its Administration Agreement with
the Trust.
For its services, FAdS receives a fee equal to 0.025% annually of the average
daily net assets of each Fund.
Table 2 in Appendix B shows the dollar amount of fees payable to Forum and FAdS
for management and administrative services with respect to each Fund (or class
thereof for those periods when multiple classes were outstanding), the amount of
fees that were waived by Forum and FAdS, if any, and the actual fees received by
Forum and FAdS.
PORTFOLIOS OF CORE TRUST. FAdS manages all aspects of Core Trust's operations
with respect to the Portfolios of Core Trust except those which are the
responsibility of Norwest. With respect to each Portfolio, FAdS has entered into
an Administration Agreement that will continue in effect only if such
continuance is specifically approved at least annually by the Core Trust Board
or by the shareholders and, in either case, by a majority of the Trustees who
are not interested persons of any party to the Administration Agreement. Under
the Administration Agreement, FAdS performs similar services for each Portfolio
as it and Forum perform for the Funds under the Management Agreement and
Administration Agreement, to the extent the services are applicable to the
Portfolios and their structure.
The Administration Agreement provides that FAdS shall not be liable to Core
Trust or any of Core Trust's interestholders for any action or inaction of FAdS
relating to any event whatsoever in the absence of bad faith, willful
misfeasance or gross negligence in the performance of FAdS' duties or
obligations under the Agreement or by reason of FAdS' reckless disregard of its
duties and obligations under this Agreement.
The Administration Agreement may be terminated with respect to a Portfolio at
anytime, without the payment of any penalty (i) by the Core Board on 60 days'
written notice to FAdS or (ii) by FAdS on 60 days' written notice to Core Trust.
For its services with respect to each Portfolio, FAdS receives a fee at an
annual rate of 0.05% of the Portfolio's average daily net assets.
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DISTRIBUTION
Forum, a registered broker dealer and member of the National Association of
Securities Dealers, Inc., also acts as distributor of the shares of the Fund.
Forum acts as the agent of the Trust in connection with the offering of shares
of the Funds on a "best efforts" basis pursuant to a Distribution Services
Agreement.
Under the Distribution Services Agreement, the Trust has agreed to indemnify,
defend and hold Forum, and any person who controls Forum within the meaning of
Section 15 of the 1933 Act, free and harmless from and against any and all
claims, demands, liabilities and expenses (including the cost of investigating
or defending such claims, demands or liabilities and any counsel fees incurred
in connection therewith) which Forum or any such controlling person may incur,
under the 1933 Act, or under common law or otherwise, arising out of or based
upon any alleged untrue statement of a material fact contained in the Trust's
Registration Statement or a Fund's Prospectus or Statement of Additional
Information in effect from time to time under the 1933 Act or arising out of or
based upon any alleged omission to state a material fact required to be stated
in any one thereof or necessary to make the statements in any one thereof not
misleading. Forum is not, however, protected against any liability to the Trust
or its shareholders to which Forum would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of its
duties, or by reason of Forum's reckless disregard of its obligations and duties
under the Distribution Services Agreement.
With respect to each Fund, the Distribution Services Agreement will continue in
effect only if such continuance is specifically approved at least annually by
the Board or by the shareholders and, in either case, by a majority of the
Trustees who are not parties to the Distribution Services Agreement or
interested persons of any such party.
The Distribution Services Agreement terminates automatically if assigned. With
respect to each Fund, the Distribution Services Agreement may be terminated at
any time without the payment of any penalty by the Board or by a vote of the
Fund's shareholders on 60 days' written notice to Forum; or by Forum on 60 days'
written notice to the Trust.
Forum also acts as placement agent for the Portfolios.
TRANSFER AGENT
Norwest Bank, Sixth Street and Marquette, Minneapolis, Minnesota 55479, serves
as transfer agent and dividend disbursing agent for the Funds. 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.
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
custodian and may appoint subcustodians for the foreign securities and other
assets held in foreign countries. For its custodial service, Norwest Bank
receives an asset-based 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 number of portfolio transactions of the Fund and
the number of securities in the Fund's portfolio in addition to the average
daily net assets of the Fund. No fee is directly payable by a Fund to the extent
the Fund is invested in a Portfolio.
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 in accordance with Section 12(d)(1)(E) of
the 1940 Act. Each Fund so invested incurs, however, its proportionate share of
the custodial fees of the Portfolio in which it invests.
PORTFOLIO ACCOUNTING
FAcS, 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, FAcS 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, FAcS 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, FAcS 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) 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; (5)
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.
FAcS receives from the Trust with respect to each Fund that invests in a Core
and Gateway Structure a standard gateway fee of $1,000 per month plus for each
additional class of the Fund above one - $1,000 per month. FAcS also receives a
fee of $2,000 per month for each Fund investing in a Core and Gateway Structure
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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, FAcS is entitled to receive
from the Trust with respect to each Fund that invests in a Core and Gateway
Structure pursuant to Section 12(d)(1)(H) of the 1940 Act additional surcharges
as described above if the Fund invests in securities other than investment
companies (calculated as if the securities were the Fund's only assets)
Surcharges are determined based upon the total assets, security positions or
other factors as of the end of the prior month and on the portfolio turnover
rate for the prior month. The rates set forth above shall remain fixed through
December 31, 1998. On January 1, 1999, and on each successive January 1, the
rates may be adjusted automatically by FAcS 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. FAcS
shall notify the Trust each year of the new rates, if applicable.
FAcS 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. FAcS 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 FAcS, 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 FAcS'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 FAcS by an officer of the Trust duly authorized. This indemnification does
not apply to FAcS's actions taken or failures to act in cases of FAcS's own bad
faith, willful misconduct or gross negligence.
FAcS performs similar services for the Portfolios and, in addition, acts as the
Portfolios' transfer agent.
Forum, FAdS and FAcS 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, 1999, they were controlled by John Y. Keffer, President and Chairman
of the Trust.
EXPENSES
Each Fund bears all costs of its operations. The costs borne by the Funds
include a pro rata portion of the following: legal and accounting expenses;
Trustees' fees and expenses; insurance premiums, custodian and transfer agent
fees and expenses; brokerage fees and expenses; expenses of registering and
qualifying the Fund's shares for sale with the SEC and with various state
securities commissions; expenses of obtaining quotations on fund securities and
pricing of the Fund's shares; a portion of the expenses of maintaining the
Fund's legal existence and of shareholders' meetings; and expenses of
preparation and distribution to existing shareholders of reports, proxies and
prospectuses. Trust expenses directly attributed to the Fund are charged to the
Fund; other expenses are allocated proportionately among all the series of the
Trust in relation to the net assets of each series.
Each service provider to the Trust or their agents and affiliates also may act
in various capacities for, and receive compensation from, their customers who
are shareholders of a Fund. Under agreements with those customers, these
entities may elect to credit against the fees payable to them by their customers
or to rebate to customers all or a portion of any fee received from the Trust
with respect to assets of those customers invested in a Fund.
The expenses of each Fund includes the Fund's pro rata share of the expenses of
the Portfolio in which the Fund invests.
Subject to the obligations of Norwest to reimburse the Trust for its excess
expenses as described above, the Trust has, under its Investment Advisory
Agreements, confirmed its obligation to pay all its other expenses, including:
(1) interest charges, taxes, brokerage fees and commissions; (2) certain
insurance premiums; (3) fees, interest charges and expenses of the Trust's
custodian, transfer agent and dividend disbursing agent; (4) telecommunications
expenses; (5) auditing, legal and compliance expenses; (6) costs of the Trust's
formation and 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
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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.
7. PORTFOLIO TRANSACTIONS
The following discussion of portfolio transactions, while referring generally to
the Funds, relates equally to the Portfolios.
The Advisers place orders for the purchase and sale of assets they manage with
brokers and dealers selected by and in the discretion of the respective Adviser.
The Funds have no obligation to deal with any specific broker or dealer in the
execution of portfolio transactions. The Advisers seek "best execution" for all
portfolio transactions, but a Fund may pay higher than the lowest available
commission rates when its Adviser believes it is reasonable to do so in light of
the value of the brokerage and research services provided by the broker
effecting the transaction.
Commission rates for brokerage transactions are fixed on many foreign securities
exchanges, and this may cause higher brokerage expenses to accrue to a Fund that
invests in foreign securities than would be the case for comparable transactions
effected on U.S. securities exchanges.
Purchases and sales of portfolio securities for the Performa Strategic Value
Fund usually are principal transactions. Debt instruments are normally purchased
directly from the issuer or from an underwriter or market maker for the
securities. There usually are no brokerage commissions paid for such purchases.
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.
Performa Strategic Value Bond Fund may effect purchases and sales through
brokers who charge commissions. Table 4 in Appendix B shows the aggregate
brokerage commissions with respect to each Fund. Any material change 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, 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. 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
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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 Board has adopted similar policies with respect to the
Portfolios.
The Funds and the Portfolios may not always pay the lowest commission or spread
available. Rather, in determining the amount of commissions, including certain
dealer spreads, paid in connection with securities transactions, an Adviser
takes into account factors such as size of the order, difficulty of execution,
efficiency of the executing broker's facilities (including the services
described below) and any risk assumed by the executing broker. The Advisers may
also take into account payments made by brokers effecting transactions for a
Fund or Portfolio: (1) to the Fund or Portfolio or (2) to other persons on
behalf of the Fund or Portfolio for services provided to the Fund or Portfolio
for which it would be obligated to pay.
In addition, the Advisers may give consideration to research services furnished
by brokers to the Advisers for their use and may cause the Funds and Portfolios
to pay these brokers a higher amount of commission than may be charged by other
brokers. Such research and analysis is of the types described in Section
28(e)(3) of the Securities Exchange Act of 1934, as amended, and is designed to
augment the Adviser's own internal research and investment strategy
capabilities. Such research and analysis may be used by the Advisers in
connection with services to clients other than the Funds and Portfolios, and not
all such services may be used by the Adviser in connection with the Funds. An
Adviser's fees are not reduced by reason of the Adviser's receipt of the
research services.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. and subject to the obligation to seek the most
favorable price and execution available and such other policies as the Boards
may determine, an Adviser may consider sales of shares of the Fund as a factor
in the selection of broker-dealers to execute portfolio transactions for the
Fund.
Investment decisions for the Funds (and for the Portfolios) will be made
independently from those for any other account or investment company that is or
may in the future become managed by the Advisers or their affiliates. Investment
decisions are the product of many factors, including basic suitability for the
particular client involved. Thus, a particular security may be bought or sold
for certain clients even though it could have been bought or sold for other
clients at the same time. Likewise, a particular security may be bought for one
or more clients when one or more clients are selling the security. In some
instances, one client may sell a particular security to another client. It also
sometimes happens that two or more clients simultaneously purchase or sell the
same security, in which event each day's transactions in such security are,
insofar as is possible, averaged as to price and allocated between such clients
in a manner which, in the respective Adviser's opinion, is equitable to each and
in accordance with the amount being purchased or sold by each. There may be
circumstances when purchases or sales of a portfolio security for one client
could have an adverse effect on another client that has a position in that
security. In addition, when purchases or sales of the same security for a Fund
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.
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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, 1999.
REGULAR BROKER OR DEALER VALUE OF SECURITIES HELD
Goldman Sachs $2,963,430
Merrill Lynch & Co., Inc. $5,327,050
Lehman Brothers Holding, Inc. $3,864,840
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.
The frequency of portfolio transactions (the portfolio turnover rate) will vary
from year to year depending on many factors. From time to time a Portfolio may
engage in active short-term trading to take advantage of price movements
affecting individual issues, groups of issues or markets. The Advisers
anticipate that the annual portfolio turnover rate of each Portfolio will be
less than 100% in their first year of operations. An annual portfolio turnover
rate of 100% would occur if all of the securities in a Fund were replaced once
in a period of one year. Higher portfolio turnover rates may result in increased
brokerage costs and an increase in short term capital gains or losses to the
Portfolio.
8. 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.
9. TAXATION
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
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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.
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.
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
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while the straddle exists (possibly resulting in gain being treated as
short-term capital gain rather than long-term capital gain); (3) losses
recognized with respect to certain straddle positions which are part of a mixed
straddle and which are non-section 1256 positions be treated as 60% long-term
and 40% short-term capital loss; (4) losses recognized with respect to certain
straddle positions which would otherwise constitute short-term capital losses be
treated as long-term capital losses; and (5) the deduction of interest and
carrying charges attributable to certain straddle positions may be deferred.
Various elections are available to a Portfolio which may mitigate the effects of
the straddle rules, particularly with respect to mixed straddles. In general,
the straddle rules described above do not apply to any straddles held by a
Portfolio all of the offsetting positions of which consist of section 1256
contracts.
For federal income tax purposes, gains and losses attributable to fluctuations
in exchange rates which occur between the time a Portfolio accrues interest or
other receivables or accrues expenses or other liabilities denominated in a
foreign currency and the time the Portfolio actually collects such receivables
or pays such liabilities are treated as ordinary income or ordinary loss.
Similarly, gains or losses from the disposition of foreign currencies, from the
disposition of debt securities denominated in a foreign currency, or from the
disposition of a forward contract denominated in a foreign currency which are
attributable to fluctuations in the value of the foreign currency between the
date of acquisition of the asset and the date of disposition also are treated as
ordinary gain or loss.
A Portfolio's investments in zero coupon securities will be subject to special
provisions of the Code which may cause the Portfolio to recognize income without
receiving cash necessary to pay dividends or make distributions in amounts
necessary to satisfy the distribution requirements for avoiding federal income
and excise taxes. In order to satisfy those distribution requirements the
Portfolio may be forced to sell other portfolio securities.
10. 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, 1200 G Street,
NW, Washington, DC 20005.
KPMG LLP, 99 High Street, Boston, MA 02110, independent auditors, serve as the
independent auditors for the Trust.
OWNERSHIP OF FUND SHARES
Table 4 to Appendix B lists the persons who owned of record 5% or more of the
outstanding shares of a class of shares of a Fund as of September 1, 1999.
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. The Core Board performs similar functions with
respect to the Portfolios and 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
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.
42
<PAGE>
The Trust's shareholders are not personally liable for the obligations of the
Trust under Delaware law. The Delaware Business Trust Act (the "Delaware Act")
provides that a shareholder of a Delaware business trust shall be entitled to
the same limitation of liability extended to shareholders of private
corporations for profit. However, no similar statutory or other authority
limiting business trust shareholder liability exists in many other states. As a
result, to the extent that the Trust or a shareholder is subject to the
jurisdiction of courts in those states, the courts may not apply Delaware law,
and may thereby subject the Trust shareholders to liability. To guard against
this risk, the Trust Instrument of the Trust disclaims shareholder liability for
acts or obligations of the Trust and requires that notice of such disclaimer be
given in each agreement, obligation and instrument entered into by the Trust or
its Trustees, and provides for indemnification out of Trust property of any
shareholder held personally liable for the obligations of the Trust. Thus, the
risk of a shareholder incurring financial loss beyond his investment because of
shareholder liability is limited to circumstances in which: (1) a court refuses
to apply Delaware law; (2) no contractual limitation of liability is in effect;
and (3) the Trust itself is unable to meet its obligations. In light of Delaware
law, the nature of the Trust's business, and the nature of its assets, the Board
believes that the risk of personal liability to a Trust shareholder is extremely
remote.
In order to adopt the name Norwest Funds, the Trust agreed in each Investment
Advisory Agreement with Norwest that if Norwest ceases to act as investment
adviser to the Trust or any Fund whose name includes the word "Norwest," or if
Norwest requests in writing, the Trust shall take prompt action to change the
name of the Trust and any such Fund to a name that does not include the word
"Norwest." Norwest may from time to time make available without charge to the
Trust for the Trust's use any marks or symbols owned by Norwest, including marks
or 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.
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 (and Trustees)
have available certain procedures for the removal of Trustees. There are no
conversion or preemptive rights in connection with shares of the Trust. All
shares, when issued in accordance with the terms of the offering, will be fully
paid and nonassessable. Shares are redeemable at net asset value, at the option
of the shareholders, subject to any contingent deferred sales charge that may
apply. A shareholder in a series is entitled to the shareholder's pro rata share
of all dividends and distributions arising from that series' assets and, upon
redeeming shares, will receive the portion of the series' net assets represented
by the redeemed shares.
A Portfolio normally will not hold meetings of investors except as required by
the 1940 Act. Each investor in a Portfolio will be entitled to vote in
proportion to its relative beneficial interest in the Portfolio. When required
by the 1940 Act and other applicable law, a Fund investing in a Portfolio will
solicit proxies from its shareholders and will vote its interest in the
Portfolio in proportion to the votes cast by its shareholders.
From time to time, certain shareholders may own a large percentage of the shares
of the Fund and, accordingly, may be able to greatly affect (if not determine)
the outcome of a shareholder vote.
43
<PAGE>
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 substantially similar
investment policies as the Fund. Accordingly, each Portfolio directly acquires
portfolio securities and a Fund acquires an indirect interest in those
securities. Each Portfolio is a separate series of Core Trust, a business trust
organized under the laws of the State of Delaware in 1994. Core Trust is
registered under the 1940 Act as open-end, management investment company. 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.
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.
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 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.
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.
FINANCIAL STATEMENTS
The fiscal year end of the Funds is May 31. Financial statements for each Fund's
semi-annual period and fiscal year will be distributed to shareholders of
record. The Board in the future may change the fiscal year end of the Fund.
REGISTRATION STATEMENT
This SAI and the Prospectus do not contain all the information included in the
Trust's registration statement filed with the SEC under the 1933 Act with
respect to the securities offered hereby, certain portions of which have been
44
<PAGE>
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.
45
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APPENDIX A - DESCRIPTION OF SECURITIES RATINGS
MUNICIPAL AND CORPORATE BONDS (INCLUDING CONVERTIBLE BONDS)
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
Moody's rates municipal and corporate bond issues, including convertible issues,
as follows:
Bonds which are rated Aaa are judged by Moody's to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risk appear somewhat larger than in Aaa securities.
Bonds which are rated A possess many favorable investment attributes and are to
be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment some time in the future.
Bonds which are rated Baa are considered as medium-grade obligations, (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Bonds which are rated Ba are judged to have speculative elements; their future
cannot be considered as well-assured. Often the protection of interest and
principal payments may be very moderate, and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Bonds which are rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Bonds which are rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
Bonds which are rated C are the lowest rated class of bonds, and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
Note: Those bonds in the Aa, A, Baa, Ba or B groups which Moody's ranks in the
higher end of its generic rating category are designated by the symbols Aa1, A1,
Baa1, Ba1 and B1.
STANDARD & POOR'S ("S&P")
S&P rates corporate bond issues, including convertible debt issues, as follows:
Bonds rated AAA have the highest rating assigned by S&P. The capacity to meet
the financial commitment on the obligation is extremely strong.
A-1
<PAGE>
Bonds rated AA have a very strong capacity to meet the financial commitment on
the obligation and differ from the highest-rated issues only in small degree.
Bonds rated A have a strong capacity to meet the financial commitment on the
obligation, although they are somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than obligations rated in
higher-rated categories.
Bonds rated BBB exhibit adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to meet the financial commitment on the obligation than in
higher-rated categories.
Bonds rated BB, B, CCC, CC and C are regarded, as having significant speculative
characteristics. BB indicates the least degree of speculation and C the highest
degree of speculation. While such bonds will likely have some quality and
protective characteristics, these may be outweighed by large uncertainties or
major exposures to adverse conditions. Bonds rated BB have less vulnerability to
nonpayment than other speculative issues. However, they face major ongoing
uncertainties or exposure to adverse business, financial, or economic conditions
which could lead to inadequate capacity to meet the financial commitment on the
obligation.
Bonds rated B are more vulnerable to nonpayment then bonds rated BB, but
currently have the capacity to meet the financial commitment on the obligation.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to meet the financial commitment on the obligation.
Bonds rated CCC are currently vulnerable to nonpayment, and are dependent upon
favorable business, financial, and economic conditions to meet the financial
commitment on the obligation. In the event of adverse business, financial, or
economic conditions, they are not likely to have the capacity to meet the
financial commitment on the obligation.
Bonds rated CC are currently highly vulnerable to nonpayment.
The C rating may be used to cover a situation where a bankruptcy petition has
been filed or similar action taken, but payments are being continued.
Bonds are rated D when the issue is in payment default. The D rating category is
used when payments on an obligation are not made on the date due, even if the
applicable grace period has not expired, unless S&P believes that such payments
will made during such grace period. The D rating will also be used upon the
filing of the bankruptcy petition or the taking of a similar action if payments
on the obligation are jeopardized.
Note: The ratings from AA to CCC may be modified by the addition of a plus (+)
or minus (-) sign to show the relative standing within the major rating
categories.
FITCH INVESTORS SERVICE, INC. ("FITCH")
Fitch rates corporate bond issues, including convertible debt issues, as
follows:
AAA Bonds are considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and/or
dividends and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA Bonds are considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and/or dividends and repay principal is
very strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rate F-1+.
A-2
<PAGE>
A Bonds are considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and/or dividends and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
BBB Bonds are considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest or dividends and repay principal
is considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds
and, therefore, impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
BB Bonds are considered speculative. The obligor's ability to pay interest or
dividends and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified which
could assist the obligor in satisfying its debt service requirements.
B Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements or paying dividends, the probability
of continued timely payment of principal and interest reflects the obligor's
limited margin of safety and the need for reasonable business and economic
activity throughout the life of the issue.
CCC Bonds have certain identifiable characteristics that if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C Bonds are in imminent default in payment of interest or principal.
DDD, DD, and D Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. DDD
represents the highest potential for recovery on these bonds, and D represents
the lowest potential for recovery.
Plus (+) and minus (-) signs are used with a rating symbol to indicate the
relative position of a credit within the rating category. Plus and minus signs,
however, are not used in the AAA, DDD, DD or D categories.
PREFERRED STOCK
MOODY'S
Moody's rates preferred stock as follows:
An issue rated aaa is considered to be a top-quality preferred stock. This
rating indicates good asset protection and the least risk of dividend impairment
within the universe of preferred stock.
An issue rated aa is considered a high-grade preferred stock. This rating
indicates that there is a reasonable assurance the earnings and asset protection
will remain relatively well-maintained in the foreseeable future.
An issue rated a is considered to be an upper-medium grade preferred stock.
While risks are judged to be somewhat greater than in the aaa and aa
classification, earnings and asset protection are, nevertheless, expected to be
maintained at adequate levels.
An issue rated baa is considered to be a medium-grade preferred stock, neither
highly protected nor poorly secured. Earnings and asset protection appear
adequate at present but may be questionable over any great length of time.
An issue rated ba is considered to have speculative elements and its future
cannot be considered well assured. Earnings and asset protection may be very
moderate and not well safeguarded during adverse periods. Uncertainty of
position characterizes preferred stocks in this class.
A-3
<PAGE>
An issue which is rated b generally lacks the characteristics of a desirable
investment. Assurance of dividend payments and maintenance of other terms of the
issue over any long period of time may be small.
An issue which is rated caa is likely to be in arrears on dividend payments.
This rating designation does not purport to indicate the future status of
payments.
An issue which is rated ca is speculative in a high degree and is likely to be
in arrears on dividends with little likelihood of eventual payment.
An issue which is rated c can be regarded as having extremely poor prospects of
ever attaining any real investment standing. This is the lowest rated class of
preferred or preference stock.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each rating
classification. The modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range ranking
and the modifier 3 indicates that the issuer ranks in the lower end of its
generic rating category.
S&P
S&P rates preferred stock as follows:
AAA is the highest rating that is assigned by S&P to a preferred stock issue and
indicates an extremely strong capacity to pay the preferred stock obligations.
A preferred stock issue rated AA also qualifies as a high-quality, fixed income
security. The capacity to pay preferred stock obligations is very strong,
although not as overwhelming as for issues rated AAA.
An issue rated A is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
An issue rated BBB is regarded as backed by an adequate capacity to pay the
preferred stock obligations. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to make payments for a preferred stock in
this category than for issues in the A category.
Preferred stock rated BB, B, and CCC are regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay preferred stock
obligations. BB indicates the lowest degree of speculation and CCC the highest
degree of speculation. While such issues will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
The rating CC is reserved for a preferred stock issue in arrears on dividends or
sinking fund payments but that is currently paying.
A preferred stock rated C is a non-paying issue.
A preferred stock rated D is a non-paying issue with the issuer in default on
debt instruments.
To provide more detailed indications of preferred stock quality, the ratings
from AA to CCC may be modified by the addition of a plus (+) or minus (-) sign
to show relative standing within the major rating categories.
FITCH
Fitch utilizes the same ratings criteria in rating preferred stock as it does in
rating corporate bond issues, as described earlier in this Appendix.
A-4
<PAGE>
SHORT TERM MUNICIPAL LOANS
MOODY'S. Moody's highest rating for short-term municipal loans is MIG 1/VMIG 1.
A rating of MIG 1/VMIG 1 denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broadbased access to the market for refinancing. Loans bearing the MIG 2/VMIG 2
designation are of high quality. Margins of protection are ample although not so
large as in the MIG 1/VMIG 1 group. A rating of MIG 3/VMIG 3 denotes favorable
quality. All security elements are accounted for but there is lacking the
undeniable strength of the preceding grades. Liquidity and cash flow protection
may be narrow and market access for refinancing is likely to be less well
established. A rating of MIG 4/VMIG 4 denotes adequate quality. Protection
commonly regarded as required of an investment security is present and although
not distinctly or predominantly speculative, there is specific risk.
S&P. S&P's highest rating for short-term municipal loans is SP-1. S&P states
that short-term municipal securities bearing the SP-1 designation have very
strong or strong capacity to pay principal and interest. Those issues rated SP-1
which are determined to possess overwhelming safety characteristics will be
given a plus (+) designation. Issues rated SP-2 have satisfactory capacity to
pay principal and interest. Issues rated SP-3 have speculative capacity to pay
principal and interest.
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
The short-term rating places greater emphasis than a long-term rating on the
existence of liquidity necessary to meet the issuer's obligations in a timely
manner.
Short-term issues rated F-1+ are regarded as having the strongest degree of
assurance for timely payment. Issues assigned a rating of F-1 reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
Issues assigned a rating of F-2 have a satisfactory degree of assurance for
timely payment, but the margin of safety is not as great as for issues assigned
F-1+ or F-1.
SHORT TERM DEBT (INCLUDING COMMERCIAL PAPER)
MOODY'S
Moody's two highest ratings for short-term debt, including commercial paper, are
Prime-1 and Prime-2. Both are judged investment grade, to indicate the relative
repayment capacity of rated issuers.
Issuers rated Prime-1 have a superior capacity for repayment of short-term
promissory obligations. Prime-1 repayment capacity will normally be evidenced by
the following characteristics: Leading market positions in well-established
industries; high rates of return on funds employed; conservative capitalization
structures with moderate reliance on debt and ample asset protection; broad
margins in earnings coverage of fixed financial charges and high internal cash
generation; well-established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated Prime-2 have a strong capacity for repayment of short-term
promissory obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1 but to a lesser degree. Earnings trends
and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
S&P
A S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market. An A-1
designation indicates the highest category and that the degree of safety
regarding timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus (+) sign designation. The
capacity for timely payment on issues with an A-2 designation is satisfactory.
A-5
<PAGE>
However, the relative degree of safety is not as high as for issues designated
A-1. Issues carrying an A-3 designation have an adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
FITCH
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
The short-term rating places greater emphasis than a long-term rating on the
existence of liquidity necessary to meet the issuer's obligations in a timely
manner.
F-1+. Exceptionally strong credit quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1. Very strong credit quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
F-2. Good credit quality. Issues assigned this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as for
issues assigned F-1+ or F-1 rating.
F-3. Fair credit quality. Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate; however,
near-term adverse changes could cause these securities to be rated below
investment grade.
F-5. Weak credit quality. Issues assigned this rating have characteristics
suggesting a minimal degree of assurance for timely payment and are vulnerable
to near-term adverse changes in financial and economic conditions.
D. Default. Issues assigned this rating are in actual or imminent payment
default.
LOC. The symbol LOC indicates that the rating is based on a letter of credit
issued by a commercial bank.
A-6
<PAGE>
APPENDIX B - MISCELLANEOUS TABLES
TABLE 1 - INVESTMENT ADVISORY FEES
The following Table shows the dollar amount of fees payable under the Investment
Advisory Agreements between Norwest and the Trust with respect to each Fund, the
amount of fee that was waived by Norwest, if any, and the actual fee received by
Norwest. 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
PERFORMA STRATEGIC VALUE BOND FUND
Year Ended May 31, 1999 0 0 0
Year Ended May 31, 1998 16,556 0 16,556
PERFORMA DISCIPLINED GROWTH FUND
Year Ended May 31, 1999 0 0 0
Year Ended May 31, 1998 29,904 0 29,904
PERFORMA SMALL CAP VALUE FUND
Year Ended May 31, 1999 0 0 0
Year Ended May 31, 1998 15,710 0 15,710
</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 (or class thereof for those
periods when multiple classes were outstanding) Also shown are the amount of
fees that were waived by Forum and FAdS, if any, and the actual fees 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.
<TABLE>
<S> <C> <C> <C>
(i) MANAGEMENT FEES TO FORUM
MANAGEMENT MANAGEMENT MANAGEMENT
FEE FEE FEE
PAYABLE WAIVED RETAINED
PERFORMA STRATEGIC VALUE BOND FUND
Year Ended May 31, 1999 2,397 2,397 0
Year Ended May 31, 1998 3,317 3,205 112
PERFORMA DISCIPLINED GROWTH FUND
Year Ended May 31, 1999 10,387 7,883 2,504
Year Ended May 31, 1998 3,307 3,151 156
PERFORMA SMALL CAP VALUE FUND
Year Ended May 31, 1999 3,029 3,029 0
Year Ended May 31, 1998 1,644 1,563 81
</TABLE>
B-2
<PAGE>
TABLE 3 - ACCOUNTING FEES
The following table shows the dollar amount of fees payable to FAcS for its
accounting services with respect to each Fund, the amount of fee that was waived
by FAcS, if any, and the actual fee received by FAcS. 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
PERFORMA STRATEGIC VALUE BOND FUND
Year Ended May 31, 1999 13,500 0 13,500
Year Ended May 31, 1998 12,411 10,500 1,911
PERFORMA DISCIPLINED GROWTH FUND
Year Ended May 31, 1999 13,500 0 13,500
Year Ended May 31, 1998 13,225 10,500 2,725
PERFORMA SMALL CAP VALUE FUND
Year Ended May 31, 1999 13,500 0 13,500
Year Ended May 31, 1998 12,320 10,500 1,820
</TABLE>
B-3
<PAGE>
TABLE 4 - 5% SHAREHOLDERS
The following table lists the persons who owned of record 5% or more of the
outstanding shares of a Fund as of September 1, 1999, as well as their
percentage holding of all shares of the Fund.
<TABLE>
<S> <C> <C> <C>
SHARE BALANCE % OF FUND
NAME AND ADDRESS
PERFORMA STRATEGIC VALUE
BOND FUND
EMSEG & Co 726,219.243 81.33
Performa Strategic Value Bond Fund
C/O Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
EMSEG & Co 56,448.227 6.32
Performa Strategic Value Bond Fund
C/O Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
PERFORMA DISCIPLINED
GROWTH FUND
Dentru & Co 925,998.835 20.43
Non-Discretionary Cash
1740 Broadway MS 8751
Denver, CO 80274-0001
Seret & Co 373,907.893 8.17
Discretionary Reinvest
1740 Broadway MS 8751
Denver, CO 80274-0001
Virg & Co 2,662,098.211 58.72
PO Box 9800
Clabasa, CA 91372-0800
PERFORMA SMALL CAP VALUE
FUND
Dentru & Co 221,547.198 10.83
Non-Discretionary Cash
1740 Broadway MS 8751
Denver, CO 80274-0001
B-4
<PAGE>
SHARE BALANCE % OF FUND
NAME AND ADDRESS
PERFORMA SMALL CAP VALUE
FUND (CONT)
HEP & Co 143,498.628 7.01
FBO Wells Fargo Bank
Mutual Funds MAC 2141 028
9800 PO Box
Clabasas, CA 91372-0800
EMSEG & Co 207,408.604 10.14
Performa Small Cap Value Fund
C/O Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
EMSEG & Co 1,205,155.686 58.90
Performa Small Cap Value Fund
C/O Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
</TABLE>
B-5
<PAGE>
APPENDIX C - PERFORMANCE DATA
TABLE 1 - TOTAL RETURNS
The average annual total return of each Fund for the periods ended May 31, 1999
follows. The actual dates of the commencement of each Fund's operations is
listed in the Fund's financial statements. Calendar quarter performance is
available from the Adviser.
SEC STANDARDIZED RETURNS
<TABLE>
<S> <C> <C> <C> <C>
SINCE
ONE YEAR FIVE YEARS TEN YEARS INCEPTION
PERFORMA STRATEGIC VALUE BOND FUND 3.21% N/A N/A 5.81%
PERFORMA DISCIPLINED GROWTH FUND 9.29% N/A N/A 8.52%
PERFORMA SMALL CAP VALUE FUND (20.77)% N/A N/A (12.50)%
</TABLE>
C-1
<PAGE>
APPENDIX D - OTHER ADVERTISEMENT MATTERS
From time to time, the sales material for the Funds may include a discussion of,
and commentary by senior management of the Adviser on, the following.
The Trust may compare the Fund family against other bank-managed mutual funds or
other investment companies based on asset size. The Adviser believes the Funds'
growth may be attributed to three things: disciplined investment process,
utilizing talented people and focusing on customer needs.
The Funds utilize a disciplined process which relies heavily upon its investment
managers and an experienced investment research team. This approach maximizes
consistency by ensuring that no individual manager's style unduly influences a
fund's style.
NORWEST CORPORATION
1929 Northwestern National Bank and several upper midwest banks form a holding
company called Northwestern National Bancorporation. "Banco" acquires 90
banks in its first year.
1932 At is peak, Banco owns a total of 139 affiliate banks.
1982 Banco enters the consumer finance business by acquiring Dial Finance
Company.
1983 The 87 affiliates of Banco are reborn as "Norwest Corporation."
1989 Norwest consolidates its operations in the new 57-story Norwest Center in
downtown Minneapolis.
1997 Norwest reaches $50 billion in assets under management, including $19
billion in mutual funds.
NORWEST ADVANTAGE FUNDS
1946 Inception of the Common Trust Funds, the company's first pooled investment
vehicles.
1987 Norwest introduces two new open-ended registered investment company funds
(commonly known as mutual funds), called the Prime Value Funds. In less
than one year, assets under management reach $500 million.
1992 The Norwest mutual fund family expands to 11 mutual funds. Assets under
management grow to $3.2 billion.
1994 Conversion to Norwest Collective Funds (bank collective investment funds)
into Norwest Advantage Funds (mutual funds).
1998 Norwest Advantage Funds family includes 41 mutual funds with over $20
billion in assets under management.
NORWEST CENTER
MINNEAPOLIS, MINNESOTA
Designed by world-renowned architect Cesar Pelli, the Norwest Center was
constructed in 1988. Since then, it has received several prestigious
architectural awards, including the Large Scale Office Award of Excellence, from
the Urban Land Institute (1989); the NAIOP (Minnesota) Award for Excellence --
Downtown Building of the Year (1989); the BOMA (Minneapolis) Office Building of
the Year, over 500,000 sq. ft. (1993); and the BOMA (Midwest Northern Region)
Office Building of the Year, over 500,000 sq. ft. (1994). The Norwest Center is
located in the financial district of Minneapolis at 90 South Seventh Street.
D-1
<PAGE>
47180.160 #119462
<PAGE>
NORWEST WEALTHBUILDER II PORTFOLIOS
STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 1, 1999
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, 1999
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, 1999, 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
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 21
Illiquid And Restricted Securities 23
Loans Of Portfolio Securities 24
Borrowin And Transactions Involving Leverage 24
Repurchase Agreements 27
Temporary Defensive Position 27
2. Investment Limitations 27
Fundamental Limitations 28
Nonfundamental Limitations 29
3. Performance And Advertising Data 30
Sec Yield Calculations 31
Total Return Calculations 31
Other Advertisement Matters 32
4. Management 34
Trustees And Officers 34
Investment Advisory Services 36
Management And Administrative Services 37
Distribution 39
Transfer Agent 40
Custodian 40
Portfolio Accounting 41
Expenses 41
i
<PAGE>
5. Portfolio Transactions 42
6. Additional Purchase, Redemption And Exchange Information 43
General 43
Exchanges 43
Redemptions 44
7. Taxation 44
8. Additional Information About The Trust And The Shareholders Of The
Portfolios 45
Counsel And Auditors 45
Ownership Of Portfolio Shares 45
General Information 46
Financial Statements 46
Registration Statement 46
Appendix A - Investments, Strategies And Risk Considerations A-1
Appendix B - Description Of Securities Ratings B-1
Appendix C - Miscellaneous Tables C-1
Appendix D - Performance Data D-1
Appendix E - Other Advertisement Matters E-1
ii
<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 Wells Fargo & Company, 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, LLC ("FAdS") 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.
"FAdS" 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.
"FAcS" 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
Wells Fargo & Company.
"NRSRO" shall mean a nationally recognized statistical rating organization.
"SEC" shall mean the U.S. Securities and Exchange Commission.
"S&P" shall mean Standard & Poor's.
1
<PAGE>
"Stock Index Futures" shall mean futures contracts that relate to
broadly-based stock indices.
"Transfer Agent" shall mean Norwest Bank acting in its capacity as transfer
and dividend disbursing agent of a Portfolio.
"Trust" shall mean Norwest Advantage Funds, an open-end, management
investment company registered under the 1940 Act.
"Underlying Funds" means the affiliated and non-affiliated open-end,
management investment companies or series in which the Portfolios invest.
"U.S. Government Securities" shall mean obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities.
"1933 Act" shall mean the Securities Act of 1933, as amended.
"1940 Act" shall mean the Investment Company Act of 1940, as amended.
2
<PAGE>
1. INVESTMENT POLICIES
The following discussion is intended to supplement the disclosure in each
Prospectus concerning each Portfolio's investments, investment techniques and
strategies and the risks associated therewith. No Portfolio may make any
investment or employ any investment technique or strategy not referenced in the
Prospectus which relates to that Portfolio. Each Portfolio seeks to achieve its
investment objective by investing substantially all of its investable assets in
the Underlying Funds. Accordingly, the investment experience of each of these
Portfolios will correspond directly with the investment experience of its
respective Underlying Funds. Therefore, although the following discusses the
investment policies of the Portfolios, it applies equally to the Underlying
Funds.
SECURITY RATINGS INFORMATION
Moody's, S&P and other NRSROs are private services that provide ratings of the
credit quality of debt obligations, including convertible securities. A
description of the range of ratings assigned to various types of bonds and other
securities by several NRSROs is included in Appendix A to this SAI. The
Portfolios may use these ratings to determine whether to purchase, sell or hold
a security. It should be emphasized, however, that ratings are general and are
not absolute standards of quality. Consequently, securities with the same
maturity, interest rate and rating may have different market prices. If an issue
of securities ceases to be rated or if its rating is reduced after it is
purchased by a Portfolio (neither event requiring sale of such security by a
Portfolio), Norwest will determine whether the Portfolio should continue to hold
the obligation. To the extent that the ratings given by a NRSRO may change as a
result of changes in such organizations or their rating systems, the Investment
Adviser will attempt to substitute comparable ratings. Credit ratings attempt to
evaluate the safety of principal and interest payments and do not evaluate the
risks of fluctuations in market value. Also, rating agencies may fail to make
timely changes in credit ratings. An issuer's current financial condition may be
better or worse than a rating indicates.
A Portfolio may purchase unrated securities if the Adviser determines the
security to be of comparable quality to a rated security that the Portfolio may
purchase. Unrated securities may not be as actively traded as rated securities.
A Portfolio may retain securities whose rating has been lowered below the lowest
permissible rating category (or that are unrated and determined by the Adviser
to be of comparable quality to securities whose rating has been lowered below
the lowest permissible rating category) if the Adviser determines that retaining
such security is in the best interests of the Portfolio.
To limit credit risks, certain Portfolios may only invest in securities that are
investment grade (rated in the top four long-term investment grades by an NRSRO
or in the top two short-term investment grades by an NRSRO.) Accordingly, the
lowest permissible long-term investment grades for corporate bonds, including
convertible bonds, are Baa in the case of Moody's and BBB in the case of S&P and
Fitch; the lowest permissible long-term investment grades for preferred stock
are Baa in the case of Moody's and BBB in the case of S&P and Fitch; and the
lowest permissible short-term investment grades for short-term debt, including
commercial paper, are Prime-2 (P-2) in the case of Moody's, A-2 in the case of
S&P and F-2 in the case of Fitch. All these ratings are generally considered to
be investment grade ratings, although Moody's indicates that securities with
long-term ratings of Baa have speculative characteristics.
FIXED INCOME INVESTMENTS
GENERAL INFORMATION CONCERNING FIXED INCOME SECURITIES
Yields on fixed income securities, including municipal securities, are dependent
on a variety of factors, including the general conditions of the money market
and other fixed income securities markets, the size of a particular offering,
the maturity of the obligation and the rating of the issue. Fixed income
securities with longer maturities tend to produce higher yields and are
generally subject to greater price movements than obligations with shorter
maturities. There is normally an inverse relationship between the market value
of securities sensitive to prevailing interest rates and actual changes in
interest rates. In other words, an increase in interest rates will generally
3
<PAGE>
reduce the market value of portfolio investments, and a decline in interest
rates will generally increase the value of portfolio investments.
Obligations of issuers of fixed income securities (including municipal
securities) are subject to the provisions of bankruptcy, insolvency, and other
laws affecting the rights and remedies of creditors, such as the Federal
Bankruptcy Reform Act of 1978. In addition, the obligations of municipal issuers
may become subject to laws enacted in the future by Congress, state
legislatures, or referenda extending the time for payment of principal and/or
interest, or imposing other constraints upon enforcement of such obligations or
upon the ability of municipalities to levy taxes. Changes in the ability of an
issuer to make payments of interest and principal and in the market's perception
of an issuer's creditworthiness will also affect the market value of the debt
securities of that issuer. The possibility exists, therefore, that, the ability
of any issuer to pay, when due, the principal of and interest on its debt
securities may become impaired.
U.S. GOVERNMENT SECURITIES
In addition to obligations of the U.S. Treasury, each of the 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
4
<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
5
<PAGE>
distribute imputed income, which may occur at a time when the Investment Adviser
would not have chosen to sell such securities and which may result in a taxable
gain or loss.
Currently, U.S. Treasury securities issued without coupons include Treasury
bills and separately traded principal and interest components of securities
issued or guaranteed by the U.S. Treasury. These stripped components are traded
independently under the Treasury's Separate Trading of Registered Interest and
Principal of Securities ("STRIPS") program or as Coupons Under Book Entry
Safekeeping ("CUBES"). A number of banks and brokerage firms 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 tunnels; port and
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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
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(excluding any accrued 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 that, 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
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that the Portfolio is not entitled to exercise any demand rights it may have. A
Portfolio could, for this or other reasons, suffer a loss with respect to an
instrument. The Portfolios' Investment Adviser monitors the liquidity of the
Portfolios' investment in variable and floating rate instruments, but there can
be no guarantee that an active secondary market will exist.
Many variable rate instruments include the right of the holder to demand
prepayment of the principal amount of the obligation prior to its stated
maturity and the right of the issuer to prepay the principal amount prior to
maturity. The payment of principal and interest by issuers of certain securities
purchased by the Portfolios may be guaranteed by letters of credit or other
credit facilities offered by banks or other financial institutions. Such
guarantees will be considered in determining whether a municipal security meets
the Portfolios' investment quality requirements.
Variable rate obligations purchased by the Portfolios may include participation
interests in variable rate obligations purchased by the Portfolios from banks,
insurance companies or other financial institutions that are backed by
irrevocable letters of credit or guarantees of banks. The Portfolios can
exercise the right, on not more than thirty days' notice, to sell such an
instrument back to the bank from which it purchased the instrument and draw on
the letter of credit for all or any part of the principal amount of a
Portfolio's participation interest in the instrument, plus accrued interest, but
will do so only: (1) as required to provide liquidity to a Portfolio; (2) to
maintain a high quality investment portfolio; or (3) upon a default under the
terms of the demand instrument. Banks and other financial institutions retain
portions of the interest paid on such variable rate obligations as their fees
for servicing such instruments and the issuance of related letters of credit,
guarantees and repurchase commitments.
The Portfolios will not purchase participation interests in variable rate
obligations unless it is advised by counsel or receives a ruling of the Internal
Revenue Service that interest earned by the Portfolios from the obligations in
which it holds participation interests is exempt from Federal income tax. The
Internal Revenue Service has announced that it ordinarily will not issue advance
rulings on certain of the Federal income tax consequences applicable to
securities, or participation interests therein, subject to a put. Each
Portfolio's investment adviser monitors the pricing, quality and liquidity of
variable rate demand obligations and participation interests therein held by the
Portfolio on the basis of published financial information, rating agency reports
and other research services to which the Investment Adviser may subscribe.
Certain securities may have an initial principal amount that varies over time
based on an interest rate index, and, accordingly, a Portfolio might be entitled
to less than the initial principal amount of the security upon the security's
maturity. The Portfolios intend to purchase such securities only when the
Investment Adviser believes the interest income from the instrument justifies
any principal risks associated with the instrument. A Portfolio may attempt to
limit any potential loss of principal by purchasing similar instruments that are
intended to provide an offsetting increase in principal. There can be no
assurance that a Portfolio will be able to limit principal fluctuations and,
accordingly, a Portfolio may incur losses on those securities even if held to
maturity without issuer default.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES
TYPES OF CREDIT ENHANCEMENT
To lessen the effect of failures by obligors on Mortgage Assets to make
payments, mortgage-backed securities may contain elements of credit enhancement.
Credit enhancement falls into two categories: (1) liquidity protection; and (2)
protection against losses resulting after default by an obligor on the
underlying assets and collection of all amounts recoverable directly from the
obligor and through liquidation of the collateral. Liquidity protection refers
to the provisions of advances, generally by the entity administering the pool of
assets (usually the bank, savings association or mortgage banker that
transferred the underlying loans to the issuer of the security), to ensure that
the receipt of payments on the underlying pool occurs in a timely fashion.
Protection against losses resulting after default and liquidation ensures
ultimate payment of the obligations on at least a portion of the assets in the
pool. Such protection may be provided through guarantees, insurance policies or
letters of credit obtained by the issuer or sponsor from third parties, through
various means of structuring the transaction or through a combination of such
approaches. The Portfolios will not pay any additional fees for such credit
enhancement, although the existence of credit enhancement may increase the price
of security.
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Examples of credit enhancement arising out of the structure of the transaction
include: (1) "senior-subordinated securities" (multiple class securities with
one or more classes subordinate to other classes as to the payment of principal
thereof and interest thereon, with the result that defaults on the underlying
assets are borne first by the holders of the subordinated class); (2) creation
of "spread accounts" or "reserve Portfolios" (where cash or investments,
sometimes funded from a portion of the payments on the underlying assets are
held in reserve against future losses); and (3) "over-collateralization" (where
the scheduled payments on, or the principal amount of, the underlying assets
exceeds that required to make payment of the securities and pay any servicing or
other fees). The degree of credit enhancement provided for each issue generally
is based on historical information regarding the level of credit risk associated
with the underlying assets. Delinquency or loss in excess of that covered by
credit enhancement protection could adversely affect the return on an investment
in such a security.
ASSET-BACKED SECURITIES
A Portfolio may invest in asset-backed securities, which have structural
characteristics similar to mortgage-backed securities but have underlying assets
that are not mortgage loans or interests in mortgage loans. Asset-backed
securities are securities that represent direct or indirect participations in,
or are secured by and payable from, assets such as motor vehicle installment
sales contracts, installment loan contracts, leases of various types of real and
personal property and receivables from revolving credit (credit card)
agreements. Such assets are securitized through the use of trusts and special
purpose corporations.
Asset-backed securities are often backed by a pool of assets representing the
obligations of a number of different parties. Payments of principal and interest
may be guaranteed up to certain amounts and for a certain time period by a
letter of credit issued by a financial institution.
Asset-backed securities present certain risks that are not presented by
mortgage-backed debt securities or other securities in which a Portfolio may
invest. Primarily, these securities do not always have the benefit of a security
interest in comparable collateral. Credit card receivables are generally
unsecured and the debtors are entitled to the protection of a number of state
and Federal consumer credit laws, many of which give such debtors the right to
set off certain amounts owed on the credit cards, thereby reducing the balance
due. Automobile receivables generally are secured by automobiles. Most issuers
of automobile receivables permit the loan servicers to retain possession of the
underlying obligations. If the servicer were to sell these obligations to
another party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the asset-backed securities. In addition,
because of the large number of vehicles involved in a typical issuance and the
technical requirements under state laws, the trustee for the holders of the
automobile receivables may not have a proper security interest in the underlying
automobiles. Therefore, there is the possibility that recoveries on repossessed
collateral may not, in some cases, be available to support payments on these
securities. Because asset-backed securities are relatively new, the market
experience in these securities is limited and the market's ability to sustain
liquidity through all phases of the market cycle has not been tested.
INTEREST-ONLY AND PRINCIPAL-ONLY SECURITIES
Some tranches of mortgage-backed securities, including CMOs, are structured so
that investors receive only principal payments generated by the underlying
collateral. Principal only securities ("POs") usually sell at a deep discount
from face value on the assumption that the purchaser will ultimately receive the
entire face value through scheduled payments and prepayments; however, the
market values of POs are extremely sensitive to prepayment rates, which, in
turn, vary with interest rate changes. If interest rates are falling and
prepayments accelerate, the value of the PO will increase. On the other hand, if
rates rise and prepayments slow, the value of the PO will drop.
Interest only securities ("IOs") result from the creation of POs; thus, CMOs
with PO tranches also have IO tranches. IO securities sell at a deep discount to
their "notional" principal amount, namely the principal balance used to
calculate the amount of interest due. They have no face or par value and, as the
notional principal amortizes and prepays, the IO cash-flow declines.
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Unlike POs, IOs increase in value when interest rates rise and prepayment rates
slow; consequently they are often used to "hedge" portfolios against interest
rate risk. If prepayment rates are high, a Portfolio may receive less cash back
than it initially invested.
INTEREST RATE PROTECTION TRANSACTIONS
Certain Portfolios may enter into interest rate protection transactions,
including interest rate swaps, caps, collars and floors. Interest rate swap
transactions involve an agreement between two parties to exchange interest
payment streams that are based, for example, on variable and fixed rates that
are calculated on the basis of a specified amount of principal (the "notional
principal amount") for a specified period of time. Interest rate cap and floor
transactions involve an agreement between two parties in which the first party
agrees to make payments to the counterparty when a designated market interest
rate goes above (in the case of a cap) or below (in the case of a floor) a
designated level on predetermined dates or during a specified time period.
Interest rate collar transactions involve an agreement between two parties in
which the payments are made when a designated market interest rate either goes
above a designated ceiling or goes below a designated floor on predetermined
dates or during a specified time period.
A Portfolio expects to enter into interest rate protection transactions to
preserve a return or spread on a particular investment or portion of its
portfolio or to protect against any increase in the price of securities it
anticipates purchasing at a later date. The Portfolios intend to use these
transactions as a hedge and not as a speculative investment.
A Portfolio may enter into interest rate protection transactions on an
asset-based basis, depending on whether it is hedging its assets or its
liabilities, and will usually enter into interest rate swaps on a net basis,
i.e., the two payment streams are netted out, with the Portfolio receiving or
paying, as the case may be, only the net amount of the two payments. Inasmuch as
these interest rate protection transactions are entered into for good faith
hedging purposes, and inasmuch as segregated accounts will be established with
respect to such transactions, the Portfolios believe such obligations do not
constitute senior securities. The net amount of the excess, if any, of a
Portfolio's obligations over its entitlements with respect to each interest rate
swap will be accrued on a daily basis and an amount of cash, U.S. Government
Securities or other liquid high grade debt obligations having an aggregate net
asset value at least equal to the accrued excess will be maintained in a
segregated account by a custodian that satisfies the requirements of the 1940
Act. Each Portfolio also will establish and maintain such segregated accounts
with respect to its total obligations under any interest rate swaps that are not
entered into on a net basis and with respect to any interest rate caps, collars
and floors that are written by the Portfolio.
A Portfolio will enter into interest rate protection transactions only with
banks and other institutions believed by the Investment Adviser to present
minimal credit risks. If there is a default by the other party to such a
transaction, the Portfolio will have to rely on its contractual remedies (which
may be limited by bankruptcy, insolvency or similar laws) pursuant to the
agreements related to the transaction.
The swap market has grown substantially in recent years with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. Caps, collars and floors are more
recent innovations for which documentation is less standardized. Accordingly,
those instruments are less liquid than swaps.
HEDGING AND OPTION INCOME STRATEGIES
COVERED CALLS AND HEDGING
The Portfolios may write covered calls on up to 100% of their total assets or
may employ one or more types of instruments to hedge ("Hedging Instruments").
When hedging to attempt to protect against declines in the market value of its
securities, to permit the it to retain unrealized gains in the value of
portfolio securities which have appreciated, or to facilitate selling securities
for investment reasons, a Portfolio would: (1) sell Stock Index Futures; (2)
purchase puts on such futures or securities; or (3) write covered calls on
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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 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
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options, or as to other 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
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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 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
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custodian in the prescribed amount. Any assets used for cover or held in a
segregated account cannot be sold or closed out while the hedging or option
income strategy is outstanding, unless they are replaced with similar assets. As
a result, there is a possibility that the use of cover or segregation involving
a large percentage of a Portfolio's assets could impede portfolio management or
the Portfolio's ability to meet redemption requests or other current
obligations.
OPTIONS STRATEGIES
A Portfolio may purchase put and call options written by others and sell put and
call options covering specified individual securities, securities or financial
indices or currencies. A put option (sometimes called a "standby commitment")
gives the buyer of the option, upon payment of a premium, the right to deliver a
specified amount of currency to the writer of the option on or before a fixed
date at a predetermined price. A call option (sometimes called a "reverse
standby commitment") gives the purchaser of the option, upon payment of a
premium, the right to call upon the writer to deliver a specified amount of
currency on or before a fixed date, at a predetermined price. The predetermined
prices may be higher or lower than the market value of the underlying currency.
A Portfolio may buy or sell both exchange-traded and over-the-counter ("OTC")
options. A Portfolio will purchase or write an option only if that option is
traded on a recognized U.S. options exchange or if the Investment Adviser
believes that a liquid secondary market for the option exists. When a Portfolio
purchases an OTC option, it relies on the dealer from which it has purchased the
OTC option to make or take delivery of the currency underlying the option.
Failure by the dealer to do so would result in the loss of the premium paid by
the Portfolio as well as the loss of the expected benefit of the transaction.
OTC options and the securities underlying these options currently are treated as
illiquid securities by the Portfolios.
Upon selling an option, a Portfolio receives a premium from the purchaser of the
option. Upon purchasing an option the Portfolio pays a premium to the seller of
the option. The amount of premium received or paid by the Portfolio is based
upon certain factors, including the market price of the underlying securities,
index or currency, the relationship of the exercise price to the market price,
the historical price volatility of the underlying assets, the option period,
supply and demand and interest rates.
Certain Portfolios may purchase call options on debt securities that Norwest
intends to include in the Portfolio's investment portfolio in order to fix the
cost of a future purchase. Call options may also be purchased as a means of
participating in an anticipated price increase of a security on a more limited
risk basis than would be possible if the security itself were purchased. In the
event of a decline in the price of the underlying security, use of this strategy
would serve to limit the potential loss to the Portfolio to the option premium
paid; conversely, if the market price of the underlying security increases above
the exercise price and the Portfolio either sells or exercises the option, any
profit eventually realized will be reduced by the premium paid. A Portfolio may
similarly purchase put options in order to hedge against a decline in market
value of securities held in its portfolio. The put enables the Portfolio to sell
the underlying security at the predetermined exercise price; thus the potential
for loss to the Portfolio is limited to the option premium paid. If the market
price of the underlying security is lower than the exercise price of the put,
any profit the Portfolio realizes on the sale of the security would be reduced
by the premium paid for the put option less any amount for which the put may be
sold.
The Investment Adviser may write call options when it believes that the market
value of the underlying security will not rise to a value greater than the
exercise price plus the premium received. Call options may also be written to
provide limited protection against a decrease in the market price of a security,
in an amount equal to the call premium received less any transaction costs.
Certain Portfolios may purchase and write put and call options on fixed income
or equity security indices in much the same manner as the options discussed
above, except that index options may serve as a hedge against overall
fluctuations in the fixed income or equity securities markets (or market
sectors) or as a means of participating in an anticipated price increase in
those markets. The effectiveness of hedging techniques using index options will
depend on the extent to which price movements in the index selected correlate
with price movements of the securities which are being hedged. Index options are
settled exclusively in cash.
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FOREIGN CURRENCY OPTIONS AND RELATED RISKS
A Portfolio may take positions in options on foreign currencies in order to
hedge against the risk of foreign exchange fluctuation on foreign securities the
Portfolio holds in its portfolio or which it intends to purchase. Options on
foreign currencies are affected by the factors discussed in "Hedging and Option
Income Strategies -- Options Strategies" and "Foreign Currency Transactions"
which influence foreign exchange sales and investments generally.
The value of foreign currency options is dependent upon the value of the foreign
currency relative to the U.S. dollar and has no relationship to the investment
merits of a foreign security. Because foreign currency transactions occurring in
the interbank market involve substantially larger amounts than those that may be
involved in the use of foreign currency options, a Portfolio may be
disadvantaged by having to deal in an odd lot market (generally consisting of
transactions of less than $1 million) for the underlying foreign currencies at
prices that are less favorable than for round lots.
To the extent that the U.S. options markets are closed while the market for the
underlying currencies remains open, significant price and rate movements may
take place in the underlying markets that cannot be reflected in the options
markets.
SPECIAL CHARACTERISTICS AND RISKS OF OPTIONS TRADING
A Portfolio may effectively terminate its right or obligation under an option
contract by entering into a closing transaction. For instance, if the Portfolio
wished to terminate its potential obligation to sell securities or currencies
under a call option it had written, a call option of the same type would be
purchased by the Portfolio. Closing transactions essentially permit the
Portfolio to realize profits or limit losses on its options positions prior to
the exercise or expiration of the option. In addition:
(1) The successful use of options depends upon the Investment Adviser's
ability to forecast the direction of price fluctuations in the underlying
securities or currency markets, or in the case of an index option, fluctuations
in the market sector represented by the index.
(2) Options normally have expiration dates of up to nine months.
Options that expire unexercised have no value. Unless an option purchased by a
Portfolio is exercised or unless a closing transaction is effected with respect
to that position, a loss will be realized in the amount of the premium paid.
(3) A position in an exchange-listed option may be closed out only on
an exchange which provides a market for identical options. Most exchange-listed
options relate to equity securities. Exchange markets for options on foreign
currencies are relatively new, and the ability to establish and close out
positions on the exchanges is subject to the maintenance of a liquid secondary
market. Closing transactions may be effected with respect to options traded in
the over-the-counter markets (currently the primary markets for options on
foreign currencies) only by negotiating directly with the other party to the
option contract or in a secondary market for the option if such market exists.
There is no assurance that a liquid secondary market will exist for any
particular option at any specific time. If it is not possible to effect a
closing transaction, a Portfolio would have to exercise the option which it
purchased in order to realize any profit. The inability to effect a closing
transaction on an option written by a Portfolio may result in material losses to
the Portfolio.
(4) A Portfolio's activities in the options markets may result in a
higher portfolio turnover rate and additional brokerage costs.
(5) When a Portfolio enters into an over-the-counter contract with a
counterparty, the Portfolio will assume the risk that the counterparty will fail
to perform its obligations, in which case the Portfolio could be worse off than
if the contract had not been entered into.
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FUTURES STRATEGIES
A futures contract is a bilateral agreement wherein one party agrees to accept,
and the other party agrees to make, delivery of cash, an underlying debt
security or the currency as called for in the contract at a specified future
date and at a specified price. For futures contracts with respect to an index,
delivery is of an amount of cash equal to a specified dollar amount times the
difference between the index value at the time of the contract and the close of
trading of the contract.
A Portfolio may sell interest rate futures contracts in order to continue to
receive the income from a fixed income security, while endeavoring to avoid part
of or all of a decline in the market value of that security which would
accompany an increase in interest rates.
A Portfolio may purchase index futures contracts for several reasons: to
simulate full investment in the underlying index while retaining a cash balance
for Portfolio management purposes, to facilitate trading, to reduce transactions
costs, or to seek higher investment returns when a futures contract is priced
more attractively than securities in the index.
A Portfolio may purchase call options on a futures contract as a means of
obtaining temporary exposure to market appreciation at limited risk. This
strategy is analogous to the purchase of a call option on an individual
security, in that it can be used as a temporary substitute for a position in the
security itself.
A Portfolio may sell foreign currency futures contracts to hedge against
possible variations in the exchange rate of the foreign currency in relation to
the U.S. dollar. In addition, a Portfolio may sell foreign currency futures
contracts when its Investment Adviser anticipates a general weakening of foreign
currency exchange rates that could adversely affect the market values of the
Portfolio's foreign securities holdings. A Portfolio may purchase a foreign
currency futures contract to hedge against an anticipated foreign exchange rate
increase pending completion of anticipated transactions. Such a purchase would
serve as a temporary measure to protect the Portfolio against such increase. A
Portfolio may also purchase call or put options on foreign currency futures
contracts to obtain a fixed foreign exchange rate at limited risk. A Portfolio
may write call options on foreign currency futures contracts as a partial hedge
against the effects of declining foreign exchange rates on the value of foreign
securities.
SPECIAL CHARACTERISTICS AND RISKS OF FUTURES AND RELATED OPTIONS TRADING
No price is paid upon entering into futures contracts; rather, a Portfolio is
required to deposit (typically with its custodian in a segregated account in the
name of the futures broker) an amount of cash or U.S. Government Securities
generally equal to 5% or less of the contract value. This amount is known as
initial margin. Subsequent payments, called variation margin, to and from the
broker, would be made on a daily basis as the value of the futures position
varies. When writing a call on a futures contract, variation margin must be
deposited in accordance with applicable exchange rules. The initial margin in
futures transactions is in the nature of a performance bond or good-faith
deposit on the contract that is returned to the Portfolio upon termination of
the contract, assuming all contractual obligations have been satisfied.
Holders and writers of futures and options on futures contracts can enter into
offsetting closing transactions, similar to closing transactions on options, by
selling or purchasing, respectively, a futures contract or related option with
the same terms as the position held or written. Positions in futures contracts
may be closed only on an exchange or board of trade providing a secondary market
for such futures contracts.
Under certain circumstances, futures exchanges may establish daily limits in the
amount that the price of a futures contract or related option may vary either up
or down from the previous day's settlement price. Once the daily limit has been
reached in a particular contract, no trades may be made that day at a price
beyond that limit. Prices could move to the daily limit for several consecutive
trading days with little or no trading and thereby prevent prompt liquidation of
positions. In that event, it may not be possible for a Portfolio to close a
position, and in the event of adverse price movements, it would have to make
daily cash payments of variation margin. In addition:
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(1) Successful use by a Portfolio of futures contracts and related
options will depend upon the Investment Adviser's ability to predict movements
in the direction of the overall securities and currency markets, which requires
different skills and techniques than predicting changes in the prices of
individual securities. Moreover, futures contracts relate not to the current
level of the underlying instrument but to the anticipated levels at some point
in the future; thus, for example, trading of stock index futures may not reflect
the trading of the securities which are used to formulate an index or even
actual fluctuations in the relevant index itself.
(2) The price of futures contracts may not correlate perfectly with
movement in the price of the hedged currencies due to price distortions in the
futures market or otherwise. There may be several reasons unrelated to the value
of the underlying currencies which causes this situation to occur. As a result,
a correct forecast of general market trends may still not result in successful
hedging through the use of futures contracts over the short term.
(3) There is no assurance that a liquid secondary market will exist for
any particular contract at any particular time. In such event, it may not be
possible to close a position, and in the event of adverse price movements, the
Portfolio would continue to be required to make daily cash payments of variation
margin.
(4) Like other options, options on futures contracts have a limited
life. A Portfolio will not trade options on futures contracts on any exchange or
board of trade unless and until, in Norwest's opinion, the market for such
options has developed sufficiently that the risks in connection with options on
futures transactions are not greater than the risks in connection with futures
transactions.
(5) Purchasers of options on futures contracts pay a premium in cash at
the time of purchase. This amount and the transaction costs is all that is at
risk. Sellers of options on futures contracts, however, must post an initial
margin and are subject to additional margin calls which could be substantial in
the event of adverse price movements.
(6) A Portfolio's activities in the futures markets may result in a
higher portfolio turnover rate and additional transaction costs in the form of
added brokerage commissions.
(7) Buyers and sellers of foreign currency futures contracts are
subject to the same risks that apply to the buying and selling of futures
generally. In addition, there are risks associated with foreign currency futures
contracts and their use as a hedging device similar to those associated with
options on foreign currencies described above. In addition, settlement of
foreign currency futures contracts must occur within the country issuing that
currency. Thus, a
Portfolio must accept or make delivery of the underlying foreign currency in
accordance with any U.S. or foreign restrictions or regulations regarding the
maintenance of foreign banking arrangements by U.S. residents, and the Portfolio
may be required to pay any fees, taxes or charges associated with such delivery
which are assessed in the issuing country.
COMMODITY FUTURES CONTRACTS AND COMMODITY OPTIONS
A Portfolio may invest in certain financial futures contracts and options
contracts in accordance with the policies described in the Prospectus and above.
A Portfolio will only invest in futures contracts, options on futures contracts
and other options contracts that are subject to the jurisdiction of the CFTC
after filing a notice of eligibility and otherwise complying with the
requirements of Section 4.5 of the rules of the CFTC. Under that section a
Portfolio will not enter into any futures contract or option on a futures
contract if, as a result, the aggregate initial margin and premiums required to
establish such positions would exceed 5% of the Portfolio's net assets.
FOREIGN CURRENCY TRANSACTIONS
Investments in foreign companies will usually involve the currencies of foreign
countries. In addition, a Portfolio may temporarily hold funds in bank deposits
in foreign currencies pending the completion of certain investment programs.
Accordingly, the value of the assets of a Portfolio, as measured in U.S.
dollars, may be affected by changes in foreign currency exchange rates and
exchange control regulations. In addition, the Portfolio may incur costs in
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connection with conversions between various currencies. A Portfolio may conduct
foreign currency exchange transactions either on a spot (i.e., cash) basis at
the spot rate prevailing in the foreign currency exchange market or by entering
into foreign currency forward contracts ("forward contracts") to purchase or
sell foreign currencies. A forward contract involves an obligation to purchase
or sell a specific currency at a future date, which may be any fixed number of
days (usually less than one year) from the date of the contract agreed upon by
the parties, at a price set at the time of the contract. These contracts are
traded in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers and involve the risk that
the other party to the contract may fail to deliver currency when due, which
could result in losses to the Portfolio. A forward contract generally has no
deposit requirement, and no 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, the Portfolio
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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 mandatory convertible
into common stock after a period of time, usually three years, during which the
investors' capital gains are capped, usually at 30%. Commonly, PERCS may be
redeemed by the issuer either at any time or when the issuer's common stock is
trading at a specified price level or better. The redemption price starts at the
beginning of the PERCS' duration period at a price that is above the cap by the
amount of the extra dividends the PERCS holder is entitled to receive relative
to the common stock over the duration of the PERCS and declines to the cap price
shortly before maturity of the PERCS. In exchange for having the cap on capital
gains and giving the issuer the option to redeem the PERCS at any time or at the
specified common stock price level, a 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
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warrants, potential price fluctuations as a result of speculation or other
factors and failure of the price of the underlying security to reach a level at
which the warrant can be prudently exercised. To the extent that the market
value of the security that may be purchased upon exercise of the warrant rises
above the exercise price, the value of the warrant will tend to rise. To the
extent that the exercise price equals or exceeds the market value of such
security, the warrants will have little or no market value. If a warrant is not
exercised within the specified time period, it will become worthless and the
Portfolio will lose the purchase price paid for the warrant and the right to
purchase the underlying security.
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 the function of making
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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.
An 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 involves special risk
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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
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under these transactions. The Portfolio's commitments include the Portfolio's
obligations to repurchase securities under a reverse repurchase agreement and
settle when-issued and forward commitment transactions.
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.
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Each Portfolio has adopted the investment policies listed in this section which
are nonfundamental policies unless otherwise noted. Except for its investment
objective, which is Fundamental, the Portfolio has not adopted any Fundamental
policies except as required by the 1940 Act.
Except as required by the 1940 Act or the Code, if any percentage restriction on
investment or utilization of assets is adhered to at the time an investment is
made, a later change in percentage resulting from a change in the market values
of a Portfolio's assets or purchases and redemptions of shares will not be
considered a violation of the limitation.
A Fundamental policy of a Portfolio cannot be changed without the affirmative
vote of the lesser of: (1) more than 50% of the outstanding shares of the
Portfolio or (2) 67% of the shares of the Portfolio present or represented at a
shareholders meeting at which the holders of more than 50% of the outstanding
shares of the Portfolio are present or represented.
FUNDAMENTAL LIMITATIONS
Each Portfolio has adopted the following investment limitations that are
fundamental policies.
(1) DIVERSIFICATION
No Portfolio may, with respect to 75% of its assets, purchase
a security (other than a U.S. Government Security or a
security of an investment company) if, as a result: (1) more
than 5% of the Portfolio's total assets would be invested in
the securities of a single issuer or (2) the Portfolio would
own more than 10% of the outstanding voting securities of any
single issuer.
2. INDUSTRY CONCENTRATION
No Portfolio may purchase a security if, as a result, more
than 25% of the Portfolio's total assets would be invested in
securities of issuers conducting their principal business
activities in the same industry. For purposes of this
limitation, there is no limit on: (1) investments in U.S.
Government securities, in repurchase agreements covering U.S.
Government Securities, in securities issued by the states,
territories or possessions of the United States ("municipal
securities") or in foreign government securities or (2)
investment in issuers domiciled in a single jurisdiction.
Notwithstanding anything to the contrary, to the extent
permitted by the 1940 Act, each Portfolio may invest in one or
more investment companies; provided that, except to the extent
the Portfolio invests in other investment companies pursuant
to Section 12(d)(1)(A) of the 1940 Act, the Portfolio treats
the assets of the investment companies in which it invests as
its own for purposes of this policy.
For purposes of this policy: (1) "mortgage related
securities," as that term is defined in the 1934 Act, are
treated as securities of an issuer in the industry of the
primary type of asset backing the security; (2) financial
service companies are classified according to the end users of
their services (for example, automobile finance, bank finance
and diversified finance); and (3) utility companies are
classified according to their services (for example, gas, gas
transmission, electric and gas, electric and telephone).
3. BORROWING
No Portfolio may borrow money if, as a result, outstanding
borrowings would exceed an amount equal to 33 1/3% of the
Portfolio's total assets.
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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.
NON-FUNDAMENTAL LIMITATIONS
Each Portfolio has adopted the following investment limitations which are not
fundamental policies of the Portfolio. A nonfundamental policy will not be used
to defeat a fundamental limitation of a Portfolio. These nonfundamental policies
may be changed by the Board.
1. BORROWING
For purposes of the limitation on borrowing, the following are
not treated as borrowings to the extent they are fully
collateralized: (1) the delayed delivery of purchased
securities (such as the purchase of when-issued securities);
(2) reverse repurchase agreements; (3) dollar-roll
transactions; and (4) the lending of securities ("leverage
transactions").
2. LIQUIDITY
No Portfolio may invest more than 15% of its net assets in
illiquid assets such as: (1) securities that cannot be
disposed of within seven days at their then-current value; (2)
repurchase agreements not entitling the holder to payment of
principal within seven days; and (3) securities subject to
restrictions on the sale of the securities to the public
without registration under the 1933 Act ("restricted
securities") that are not readily marketable. Each Portfolio
may treat certain restricted securities as liquid pursuant to
guidelines adopted by the Board of Trustees.
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3. EXERCISING CONTROL OF ISSUERS
No Portfolio may make investments for the purpose of
exercising control of an issuer. Investments by a Portfolio in
entities created under the laws of foreign countries solely to
facilitate investment in securities in that country will not
be deemed the making of investments for the purpose of
exercising control.
4. OTHER INVESTMENT COMPANIES
No Fund may invest in securities of another investment
company, except to the extent permitted by the 1940 Act.
5. SHORT SALES AND PURCHASING ON MARGIN
Under normal circumstances, no Portfolio may sell securities
short, provided that transactions in futures contracts and
options are not deemed to constitute selling securities short.
No Portfolio may purchase securities on margin, except that a
Portfolio may use short-term credit for the clearance of the
Portfolio's transactions, and provided that initial and
variation margin payments in connection with futures contracts
and options on futures contracts shall not constitute
purchasing securities on margin.
6. OPTIONS, WARRANTS AND FUTURES CONTRACTS
No Portfolio may invest in futures or options contracts
regulated by the CFTC for: (1) bona fide hedging purposes
within the meaning of the rules of the CFTC and (2) for other
purposes if, as a result, no more than 5% of the Portfolio's
net assets would be invested in initial margin and premiums
(excluding amounts "in-the-money") required to establish the
contracts.
No Portfolio: (1) will hedge more than 50% of its total assets
by selling futures contracts, buying put options, and writing
call options (so called "short positions"); (2) will buy
futures contracts or write put options whose underlying value
exceeds 25% of the Portfolio's total assets; and (3) will buy
call options with a value exceeding 5% of the Portfolio's
total assets.
3. PERFORMANCE AND ADVERTISING DATA
Quotations of performance may from time to time be used in advertisements, sales
literature, shareholder reports or other communications to shareholders or
prospective investors. All performance information supplied by the Portfolios is
historical and is not intended to indicate future returns. Each Portfolio's
yield and total return fluctuate in response to market conditions and other
factors. The value of a Portfolio's shares when redeemed may be more or less
than their original cost.
In performance advertising, the Portfolios may compare any of their performance
information with data published by independent evaluators such as Morningstar,
Inc., Lipper, 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 Companies. Performance advertising may also refer to
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discussions of the Portfolios' and comparative mutual fund data and ratings
reported in independent periodicals, such as newspapers and financial magazines.
SEC YIELD CALCULATIONS
Although published yield information is useful to investors in reviewing a
Portfolio's performance, investors should be aware that each Portfolio's yield
fluctuates from day to day and that the Portfolio's yield for any given period
is not an indication or representation by the Portfolio of future yields or
rates of return on the Portfolio's shares. Norwest, Processing Organizations and
others may charge their customers, various retirement plans or other
shareholders that invest in a Portfolio fees in connection with an investment in
a Portfolio, which will have the effect of reducing the Portfolio's net yield to
those shareholders. The yields of a Portfolio are not fixed or guaranteed, and
an investment in a Portfolio is not insured or guaranteed. Accordingly, yield
information may not necessarily be used to compare shares of a Portfolio with
investment alternatives which, like money market instruments or bank accounts,
may provide a fixed rate of interest. Also, it may not be appropriate to compare
a Portfolio's yield information directly to similar information regarding
investment alternatives which are insured or guaranteed.
FIXED INCOME AND EQUITY PORTFOLIOS
Standardized yields for the Portfolios used in advertising are computed by
dividing a Portfolio's dividends and interest earned (in accordance with
specific standardized rules) for a given 30 days or one month period, net of
expenses, by the average number of shares entitled to receive distributions
during the period, dividing this figure by the Portfolio's net asset value per
share at the end of the period and annualizing the result (assuming compounding
of income in accordance with specific standardized rules) in order to arrive at
an annual percentage rate. In general, interest income is reduced with respect
to municipal securities purchased at a premium over their par value by
subtracting a portion of the premium from income on a daily basis. In general,
interest income is increased with respect to municipal securities purchased at
original issue at a discount by adding a portion of the discount to daily
income. Capital gains and losses generally are excluded from these calculations.
Income calculated for the purpose of determining each Portfolio's standardized
yield differs from income as determined for other accounting purposes. Because
of the different accounting methods used, and because of the compounding assumed
in yield calculations, the yield quoted for a Portfolio may differ from the rate
of distribution the Portfolio paid over the same period or the rate of income
reported in the Portfolio's financial statements.
TOTAL RETURN CALCULATIONS
Standardized total returns quoted in advertising and sales literature reflect
all aspects of a Portfolio's return, including the effect of reinvesting
dividends and capital gain distributions, any change in the Portfolio's net
asset value per share over the period and maximum sales charge, if any,
applicable to purchases of the Portfolio's shares. Average annual total returns
are calculated, through the use of a formula prescribed by the SEC, by
determining the growth or decline in value of a hypothetical historical
investment in a Portfolio over a stated period, and then calculating the
annually compounded percentage rate that would have produced the same result if
the rate of growth or decline in value had been constant over the period. For
example, a cumulative return of 100% over ten years would produce an average
annual return of 7.18%, which is the steady annual rate that would equal 100%
growth on a compounded basis in ten years. The average annual total return is
computed separately for each class of shares of a Portfolio. While average
annual returns are a convenient means of comparing investment alternatives,
investors should realize that the performance is not constant over time but
changes from year to year, and that average annual returns represent averaged
figures as opposed to the actual year-to-year performance of the Portfolios.
Average annual total return is calculated by finding the average annual
compounded rates of return of a hypothetical investment, over such periods
according to the following formula:
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P(1+T)n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value: ERV is the value, at the end of
the applicable period, of a hypothetical $1,000 payment made
at the beginning of the applicable period
Standardized total return quotes may be accompanied by non-standardized total
return figures calculated by alternative methods. For example, average annual
total return may be calculated without assuming payment of the sales load
according to the following formula:
P(1+U)n = ERV
Where:
P = a hypothetical initial payment of $1,000.
U = average annual total return assuming non payment of the
maximum sales load at the beginning of the stated period.
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment
at the end of the stated period
In addition to average annual returns, each Portfolio may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Total returns may be broken down into their components of
income and capital (including capital gains and changes in share price) in order
to illustrate the relationship of these factors and their contributions to total
return. Total returns, yields, and other performance information may be quoted
numerically or in a table, graph, or similar illustration. Period total return
is calculated according to the following formula:
PT = (ERV/P-1)
Where:
PT = period total return
The other definitions are the same as in average annual
total return above
OTHER ADVERTISEMENT MATTERS
The Portfolios may advertise other forms of performance. Average annual and
cumulative total returns may be quoted as a percentage or as a dollar amount,
and may be calculated for a single investment, a series of investments and/or a
series of redemptions over any time period. Total returns may be broken down
into their components of income and capital (including capital gains and changes
in share price) in order to illustrate the relationship of these factors and
their contributions to total return. Total returns may be quoted with or without
taking into consideration a Portfolio's front-end sales charge or contingent
deferred sales charge; excluding sales charges from a total return calculation
produces a higher return figure. Any performance information may be presented
numerically or in a table, graph or similar illustration.
The Portfolios may also include various information in their advertisements
including, but not limited to: (1) portfolio holdings and portfolio allocation
as of certain dates, such as portfolio diversification by instrument type, by
instrument, by location of issuer or by maturity; (2) statements or
illustrations relating to the appropriateness of types of securities and/or
mutual Portfolios that may be employed by an investor to meet specific financial
goals, such as fund retirement, paying for children's education and financially
supporting aging parents; (3) information (including charts and illustrations)
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showing the effects of compounding interest (compounding is the process of
earning interest on principal plus interest that was earned earlier; interest
can be compounded at different intervals, such as annually, quartile or daily);
(4) information relating to inflation and its effects on the dollar; for
example, after ten years the purchasing power of $25,000 would shrink to
$16,621, $14,968, $13,465 and $12,100, respectively, if the annual rates of
inflation were 4%, 5%, 6% and 7%, respectively; (5) information regarding the
effects of automatic investment and systematic withdrawal plans, including the
principal of dollar cost averaging; (6) descriptions of the Portfolios'
portfolio managers and the portfolio management staff of the Investment Adviser
or summaries of the views of the portfolio managers with respect to the
financial markets; (7) the results of a hypothetical investment in a Portfolio
over a given number of years, including the amount that the investment would be
at the end of the period; (8) the effects of earning Federally and, if
applicable, state tax-exempt income from a Portfolio or investing in a
tax-deferred account, such as an individual retirement account or Section 401(k)
pension plan; and (9) the net asset value, net assets or number of shareholders
of a Portfolio as of one or more dates.
As an example of compounding, $1,000 compounded annually at 9.00% will grow to
$1,090 at the end of the first year (an increase in $90) and $1,118 at the end
of the second year (an increase in $98). The extra $8 that was earned on the $90
interest from the first year is the compound interest. One thousand dollars
compounded annually at 9.00% will grow to $2,367 at the end of ten years and
$5,604 at the end of 20 years. Other examples of compounding are as follows: at
7% and 12% annually, $1,000 will grow to $1,967 and $3,106, respectively, at the
end of ten years and $3,870 and $9,646, respectively, at the end of twenty
years. These examples are for illustrative purposes only and are not indicative
of any Portfolio's performance.
The Portfolios may advertise information regarding the effects of automatic
investment and systematic withdrawal plans, including the principal of dollar
cost averaging. In a dollar cost averaging program, an investor invests a fixed
dollar amount in a Portfolio at period intervals, thereby purchasing fewer
shares when prices are high and more shares when prices are low. While such a
strategy does not insure a profit or guard against a loss in a declining market,
the investor's average cost per share can be lower than if fixed numbers of
shares had been purchased at those intervals. In evaluating such a plan,
investors should consider their ability to continue purchasing shares through
periods of low price levels. For example, if an investor invests $100 a month
for a period of six months in a Portfolio the following will be the relationship
between average cost per share ($14.35 in the example given) and average price
per share:
<TABLE>
<S> <C> <C> <C>
Systematic Share Shares
Period Investment Price Purchased
------ ---------- ----- ---------
1 $100 $10 10.00
2 $100 $12 8.33
3 $100 $15 6.67
4 $100 $20 5.00
5 $100 $18 5.56
6 $100 $16 6.25
---- --- ----
Total Invested $600 Average Price $15.17 Total Shares 41.81
</TABLE>
In connection with its advertisements each Portfolio may provide "shareholders
letters" which serve to provide shareholders or investors an introduction into
the Portfolio's, the Trust's or any of the Trust's service provider's policies
or business practices. For instance, advertisements may provide for a message
from Norwest or its parent corporation that Norwest has for more than 60 years
been committed to quality products and outstanding service to assist its
customers in meeting their financial goals and setting forth the reasons that
Norwest believes that it has been successful as a national financial service
firm.
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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's age 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 57.
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 68.
Former Director Federal Farm Credit Banks Funding Corporation and Farm
Credit System Financial Assistance Corporation (1993-March 1999). His
address is 5038 Kestral Parkway South, Sarasota, Florida 34231.
DONALD H. BURKHARDT, Trustee, Age 73.
Principal of The Burkhardt Law Firm. His address is 777 South Steele
Street, Denver, Colorado 80209.
JAMES C. HARRIS, Trustee, Age 79.
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 66.
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 54.
President, Norwest Investment Services, Inc. (a broker-dealer subsidiary of
Norwest bank) His address is 608 2nd Avenue South, Minneapolis, Minnesota
55479.
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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 59.
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 36.
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 38.
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 45.
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 40.
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 51.
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.
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COMPENSATION OF TRUSTEES AND OFFICERS OF THE TRUST
Each Trustee of the Trust is paid a quarterly retainer fee of $6,000, 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 except the annual meeting, for which each Trustee is paid
$5,000 (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. Messrs. Keffer and McCune received no
compensation for their services as Trustees for the past year or reimbursement
for their associated expenses. In addition, no officer of the Trust is
compensated by the Trust.
Mr. Burkhardt, Chairman of the Trust's and Norwest Select Funds' audit
committees, receives additional compensation of $8,000 from the Trust and
Norwest Select Funds allocated pro rata between the Trust and Norwest Select
Funds based upon relative net assets, for his services as Chairman. Each Trustee
was elected by shareholders on April 30, 1997.
The following table provides the aggregate compensation paid to the Trustees of
the Trust by the Trust and Norwest Select Funds, combined. Norwest Select Funds
have a December 31 fiscal year end. Information is presented for the twelve
month period ended May 31, 1999, 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 $37,770 $38,000
Mr. Burkhardt $45,722 $46,000
Mr. Harris $31,802 $32,000
Mr. Leach $37,770 $38,000
Mr. Penny $37,770 $38,000
Mr. Willeke $37,770 $38,000
</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,
1999 total expenses of the Trustees (other than Messrs. Keffer and McCune) was
$38,958 and total expenses of the trustees of Norwest Select Funds was $444.
As of October 1, 1999, the Trustees and officers of the Trust in the aggregate
owned less than 1% of the outstanding shares of the Portfolios.
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
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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 FAdS, 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 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
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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.
FAdS 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, FAdS: (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 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 FAdS 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 FAdS's or their duties or by reason of reckless disregard of
their obligations and duties under the Administrative Agreement.
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Pursuant to their agreements with the Trust, Forum and FAdS 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 FAdS's Administration
Agreement, respectively. Forum and FAdS may compensate those agents for their
services; however, no such compensation may increase the aggregate amount of
payments by the Trust to Forum or FAdS 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, 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
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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 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.
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PORTFOLIO ACCOUNTING
FAcS, 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, FAcS 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, FAcS
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, FAcS 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, 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.
FAcS 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. FAcS 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 FAcS, 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 FAcS'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 FAcS by an officer of the Trust duly authorized. This
indemnification does not apply to FAcS's actions taken or failures to act in
cases of FAcS's own bad faith, willful misconduct or gross negligence.
EXPENSES
Subject to the obligations of Norwest to reimburse the Trust for its excess
expenses as described above, the Trust has, under its Investment Advisory
Agreements, confirmed its obligation to pay all its other expenses, including:
(1) interest charges, taxes, brokerage fees and commissions; (2) certain
insurance premiums; (3) fees, interest charges and expenses of the Trust's
custodian, transfer agent and dividend disbursing agent; (4) telecommunications
expenses; (5) auditing, legal and compliance expenses; (6) costs of the Trust's
formation and maintaining its existence; (7) costs of preparing and printing the
Trust's prospectuses, statements of additional information, account application
forms and shareholder reports and delivering them to existing and prospective
shareholders; (8) costs of maintaining books of original entry for portfolio and
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)
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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.
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
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Advisers may also take into account payments made by brokers effecting
transactions for a Portfolio: (1) to the Portfolio or (2) to other persons on
behalf of the Portfolio for services provided to the Portfolio for which it
would be obligated to pay.
In addition, the Investment Advisers may give consideration to research services
furnished by brokers to the Advisers for their use and may cause the Portfolios
to pay these brokers a higher amount of commission than may be charged by other
brokers. Such research and analysis is of the types described in Section
28(e)(3) of the Securities Exchange Act of 1934, as amended, and is designed to
augment the Investment Adviser's own internal research and investment strategy
capabilities. Such research and analysis may be used by the Investment Adviser
in connection with services to clients other than the Portfolios, and not all
such services may be used by the Investment Adviser in connection with the
Portfolios. An Investment Adviser's fees are not reduced by reason of the
Investment Adviser's receipt of the research services.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. and subject to the obligation to seek the most
favorable price and execution available and such other policies as the Board may
determine, the Investment Adviser may consider sales of shares of the Portfolio
as a factor in the selection of broker-dealers to execute portfolio transactions
for the Portfolio.
Investment decisions for the Portfolios will be made independently from those
for any other account or investment company that is or may in the future become
managed by the Investment Adviser or its affiliates. Investment decisions are
the product of many factors, including basic suitability for the particular
client involved. Thus, a particular security may be bought or sold for certain
clients even though it could have been bought or sold for other clients at the
same time. Likewise, a particular security may be bought for one or more clients
when one or more clients are selling the security. In some instances, one client
may sell a particular security to another client. It also sometimes happens that
two or more clients simultaneously purchase or sell the same security, in which
event each day's transactions in such security are, insofar as is possible,
averaged as to price and allocated between such clients in a manner which, in
the Investment Adviser's opinion, is equitable to each and in accordance with
the amount being purchased or sold by each. There may be circumstances when
purchases or sales of a portfolio security for one client could have an adverse
effect on another client that has a position in that security. In addition, when
purchases or sales of the same security for a Portfolio and other client
accounts managed by the Investment Adviser occur contemporaneously, the purchase
or sale orders may be aggregated in order to obtain any price advantages
available to large denomination purchases or sales.
PORTFOLIO TURNOVER. A high rate of portfolio turnover involves corresponding
greater expenses than a lower rate, which expenses must be borne by a Portfolio
and its shareholders. High portfolio turnover also may result in the realization
of substantial net short-term capital gains. In order to continue for Federal
tax purposes, less than 30% of the annual gross income of the Portfolio must be
desired from the sale of securities held by the Portfolio for less than three
months. (See "Taxation.") Portfolio turnover rates are set forth under
"Financial Highlight's" in the Portfolios Prospectus.
6. ADDITIONAL PURCHASE, REDEMPTION AND EXCHANGE INFORMATION
GENERAL
Shares of all Portfolios are sold on a continuous basis by the distributor.
EXCHANGES
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
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depending on whether the value of the shares redeemed is more or less than the
shareholder's basis in such shares at the time of such transaction.
Shareholders of Shares making an exchange will be subject to the applicable
sales charge of any Shares acquired in the exchange; provided, that the sales
charge charged with respect to the acquired shares will be assessed at a rate
that is equal to the excess (if any) of the rate of the sales charge that would
be applicable to the acquired shares in the absence of an exchange over the rate
of the sales charge previously paid on the exchanged shares. For purposes of the
preceding sentence, Shares acquired through the reinvestment of dividends or
distributions are deemed to have been acquired with a sales charge rate equal to
that paid on the shares on which the dividend or distribution was paid.
In addition, shares acquired by a previous exchange transaction involving shares
on which a sales charge has directly or indirectly been paid (e.g., shares
purchased with a sales charge or issued in connection with an exchange
transaction involving shares that had been purchased with a sales charge), as
well as additional shares acquired through reinvestment of dividends or
distributions on such shares will be treated as if they had been acquired
subject to that sales charge.
REDEMPTIONS
In addition to the situations described in the Prospectus with respect to the
redemptions of shares, the Trust may redeem shares involuntarily to reimburse a
Portfolio for any loss sustained by reason of the failure of a shareholder to
make full payment for shares purchased by the shareholder or to collect any
charge relating to transactions effected for the benefit of a shareholder which
is applicable to a Portfolio's shares as provided in the Prospectus from time to
time.
Proceeds of redemptions normally are paid in cash. However, payments may be made
wholly or partially in portfolio securities if the Board determines that payment
in cash would be detrimental to the best interests of the Portfolio. The
Portfolios have chosen not to make an election with the SEC to pay in cash all
redemptions requested by any shareholder of record limited in amount during any
90-day period to the lesser of $250,000 or 1% of its net assets at the beginning
of such period. Redemption requests in excess of applicable limits may be paid,
in whole or in part, in investment securities or in cash, as the Trust's Board
of Trustees may deem advisable; however, payment will be made wholly in cash
unless the Board of Trustees believes that economic or market conditions exist
that would make such a practice detrimental to the best interests of the
Portfolio. If redemption proceeds are paid in investment securities, such
securities will be valued as set forth in the Prospectus under "Other
Information - Determination of Net Asset Value" and a redeeming shareholder
would normally incur brokerage expenses if he or she were to convert the
securities to cash.
7. TAXATION
Each Portfolio intends for each taxable year to qualify for tax treatment as a
"regulated investment company" under the Code. Such qualification does not, of
course, involve governmental supervision of management or investment practices
or policies. Investors should consult their own counsel for a complete
understanding of the requirements each Portfolio must meet to qualify for such
treatment, and of the application of state and local tax laws to his or her
particular situation.
Certain listed options, regulated futures contracts and forward currency
contracts are considered "section 1256 contracts" for Federal income tax
purposes. Section 1256 contracts held by a Portfolio at the end of each taxable
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.
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With respect to over-the-counter put and call options, gain or loss realized by
a Portfolio upon the lapse or sale of such options held by such Portfolio will
be either long-term or short-term capital gain or loss depending upon the
Portfolio's holding period with respect to such option. However, gain or loss
realized upon the lapse or closing out of such options that are written by a
Portfolio will be treated as short-term capital gain or loss. In general, if a
Portfolio exercises an option, or an option that a Portfolio has written is
exercised, gain or loss on the option will not be separately recognized but the
premium received or paid will be included in the calculation of gain or loss
upon disposition of the property underlying the option.
Any option, futures contract, or other position entered into or held by a
Portfolio in conjunction with any other position held by such Portfolio may
constitute a "straddle" for Federal income tax purposes. A straddle of which at
least one, but not all, the positions are section 1256 contracts may constitute
a "mixed straddle". In general, straddles are subject to certain rules that may
affect the character and timing of a Portfolio's gains and losses with respect
to straddle positions by requiring, among other things, that: (1) loss realized
on disposition of one position of a straddle not be recognized to the extent
that a Portfolio has unrealized gains with respect to the other position in such
straddle; (2) a Portfolio's holding period in straddle positions be suspended
while the straddle exists (possibly resulting in gain being treated as
short-term capital gain rather than long-term capital gain); (3) losses
recognized with respect to certain straddle positions which are part of a mixed
straddle and which are non-section 1256 positions be treated as 60% long-term
and 40% short-term capital loss; (4) losses recognized with respect to certain
straddle positions which would otherwise constitute short-term capital losses be
treated as long-term capital losses; and (5) the deduction of interest and
carrying charges attributable to certain straddle positions may be deferred.
Various elections are available to a Portfolio which may mitigate the effects of
the straddle rules, particularly with respect to mixed straddles. In general,
the straddle rules described above do not apply to any straddles held by a
Portfolio all of the offsetting positions of which consist of section 1256
contracts.
For federal income tax purposes, gains or losses attributable to fluctuations in
exchange rates which occur between the time a Portfolio accrues interest or
other receivables or accrues expenses or other liabilities denominated in a
foreign currency and the time the Portfolio actually collects such receivables
or pays such liabilities are treated as ordinary income and ordinary loss.
Similarly, gains or losses from the disposition of foreign currencies, from the
disposition of debt securities denominated in a foreign currency, or from the
disposition of a forward contract denominated in a foreign currency which are
attributable to fluctuations in the value of the foreign currency between the
date of acquisition of the asset and the date of disposition also are treated as
ordinary gain or loss.
A Portfolio's investments in zero coupon securities will be subject to special
provisions of the Code which may cause the Portfolio to recognize income without
receiving cash necessary to pay dividends or make distributions in amounts
necessary to satisfy the distribution requirements for avoiding federal income
and excise taxes. In order to satisfy those distribution requirements the
Portfolio may be forced to sell other portfolio securities.
8. ADDITIONAL INFORMATION ABOUT THE TRUST AND THE SHAREHOLDERS OF THE PORTFOLIOS
COUNSEL AND AUDITORS
Legal matters in connection with the issuance of shares of beneficial interest
of the Trust are passed upon by the law firm of Seward & Kissel, One Battery
Park Plaza, New York, NY 10004.
KPMG LLP, 99 High Street, Boston, MA 02110, independent auditors, serve as the
independent auditors for the Trust.
OWNERSHIP OF PORTFOLIO SHARES
Table 6 to Appendix B lists the persons who owned of record 5% or more of the
outstanding shares of a class of shares of a Fund as of September 1, 1999. As of
September 1, 1999, no persons owned of record 5% or more of the outstanding
shares of WealthBuilder II Growth Balanced 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 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, 1999 (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 - 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.
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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 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.
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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
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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 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
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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 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
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upon the prevailing overnight repurchase rate. Because certain of the incidents
of ownership of the security are retained by the Portfolio, reverse repurchase
agreements may be viewed as a form of borrowing by the Fund from the buyer,
collateralized by the security sold by the Portfolio. A Portfolio will use the
proceeds of reverse repurchase agreements to Fund redemptions or to make
investments. In most cases these investments either mature or have a demand
feature to resell to the issuer on a date not later than the expiration of the
agreement. Interest costs on the money received in a reverse repurchase
agreement may exceed the return received on the investments made by the
Portfolio with those monies. Any significant commitment of a Fund's assets to
the reverse repurchase agreements will tend to increase the volatility of the
Fund's net asset value per share.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS. A Fund may purchase fixed income
securities on a "when-issued" or "forward commitment" basis. When these
transactions are negotiated, the price, which is generally expressed in yield
terms, is fixed at the time the commitment is made, but delivery and payment for
the securities take place at a later date. Normally, the settlement date occurs
within 3 months after the transaction. During the period between a commitment
and settlement, no payment is made for the securities purchased and no interest
on the security accrues to the purchaser. At the time a Portfolio makes a
commitment to purchase securities in this manner, the Fund immediately assumes
the risk of ownership, including price fluctuation. Failure by the other party
to deliver a security purchased by a Portfolio may result in a loss or a missed
opportunity to make an alternative investment. The use of when-issued
transactions and forward commitments enables a Fund to hedge against anticipated
changes in interest rates and prices. If the Underlying Funds were to forecast
incorrectly the direction of interest rate movements, however, a Fund might be
required to complete these transactions when the value of the security is lower
than the price paid by the Fund.
When-issued securities and forward commitments may be sold prior to the
settlement date. When-issued securities may include bonds purchased on a "when,
and if issued" basis under which the issuance of the securities depends upon the
occurrence of a subsequent event. Commitment of a Fund's assets to the purchase
of securities on a when-issued or forward commitment basis will tend to increase
the volatility of the Portfolios net asset value per share.
DOLLAR ROLL TRANSACTIONS. A Fund may enter into "dollar roll" transactions
wherein the Fund sells fixed income securities, typically mortgage-backed
securities, and makes a commitment to purchase similar, but not identical,
securities at a later date from the same party. Like a forward commitment,
during the roll period no payment is made for the securities purchased and no
interest or principal payments on the security accrue to the purchaser, but the
Fund assumes the risk of ownership. A Fund is compensated for entering into
dollar roll transactions by the difference between the current sales price and
the forward price for the future purchase, as well as by the interest earned on
the cash proceeds of the initial sale. Like other when-issued securities or firm
commitment agreements, dollar roll transactions involve the risk that the market
value of the securities sold by the Portfolio may decline below the price at
which a Portfolio is committed to purchase similar securities. In the event the
buyer of securities under a dollar roll transaction becomes insolvent, the Funds
use of the proceeds of the transaction may be restricted pending a determination
by the other party, or its trustee or receiver, whether to enforce the Funds
obligation to repurchase the securities.
SWAP AGREEMENTS
To manage its exposure to different types of investments, a Fund may enter into
interest rate, currency and mortgage (or other asset) swap agreements and may
purchase and sell interest rate "caps," "floors" and "collars." In a typical
interest rate swap agreement, one party agrees to make regular payments equal to
a floating interest rate on a specified amount (the "notional principal amount")
in return for payments equal to a fixed interest rate on the same amount for a
specified period. If a swap agreement provides for payment in different
currencies, the parties may also agree to exchange the notional principal
amount. Mortgage swap agreements are similar to interest rate swap agreements,
except that the notional principal amount is tied to a reference pool of
mortgages. In a cap or floor, one party agrees, usually in return for a fee, to
make payments under particular circumstances. For example, the purchaser of an
interest rate cap has the right to receive payments to the extent a specified
interest rate exceeds an agreed upon level; the purchaser of an interest rate
floor has the right to receive payments to the extent a specified interest rate
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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.
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PARTICIPATION INTERESTS. The Portfolios may purchase participation interests in
municipal securities that are owned by banks or other financial institutions.
Participation interests usually carry a demand feature backed by a letter of
credit or guarantee of the bank or institution permitting the holder to tender
them back to the bank or other institution. Prior to purchasing any
participation interest, the Funds will obtain appropriate assurances that the
interest earned by the Funds from the obligations in which it holds
participation interests is exempt from federal and, in the case of state
tax-free Funds, applicable state income tax.
STAND-BY COMMITMENTS. The Funds may purchase municipal securities together with
the right to resell them to the seller or a third party at an agreed-upon price
or yield within specified periods prior to their maturity dates. Such a right to
resell is commonly known as a stand-by commitment, and the aggregate price which
a Portfolio pays for securities with a stand-by commitment may be higher than
the price which otherwise would be paid. The primary purpose of this practice is
to permit a Portfolio to be as fully invested as practicable in municipal
securities while preserving the necessary flexibility and liquidity to meet
unanticipated redemptions. In this regard, a Portfolio acquires stand-by
commitments solely to facilitate portfolio liquidity and does not exercise its
rights thereunder for trading purposes. Stand-by commitments involve certain
expenses and risks, including the inability of the issuer of the commitment to
pay for the securities at the time the commitment is exercised,
non-marketability of the commitment, and differences between the maturity of the
underlying security and the maturity of the commitment.
PUTS ON MUNICIPAL SECURITIES. The Funds may acquire "puts" on municipal
securities they purchase. A put gives the Portfolio the right to sell the
municipal security at a specified price at any time on or before a specified
date. The Fund will acquire puts only to enhance liquidity, shorten the maturity
of the related municipal security or permit the Fund to invest its Funds at more
favorable rates. The Portfolios may pay an extra amount to acquire a put, either
in connection with the purchase of the related municipal security or separately
from the purchase of the security. Puts involve the same risks discussed above
with respect to stand-by commitments.
SHORT SALES
Certain Funds may make short sales of securities they own or have the right to
acquire at no added cost through conversion or exchange of other securities they
own (referred to as short sales "against the box") and to make short sales of
securities which they does not own or have the right to acquire. A short sale
that is not made "against the box" is a transaction in which a Fund sells a
security it does not own in anticipation of a decline in the market price for
the security. When the Fund makes a short sale, the proceeds it receives are
retained by the broker until the Fund replaces the borrowed security. In order
to deliver the security to the buyer, the Portfolio must arrange through a
broker to borrow the security and, in so doing, the Fund becomes obligated to
replace the security borrowed at its market price at the time of replacement,
whatever that price may be. Short sales that are not made "against the box"
create opportunities to increase the Fund's return but, at the same time,
involve special risk considerations and may be considered a speculative
technique. Since the Fund in effect profits from a decline in the price of the
securities sold short without the need to invest the full purchase price of the
securities on the date of the short sale, the Fund's net asset value per share,
will tend to increase more when the securities it has sold short decrease in
value, and to decrease more when the securities it has sold short increase in
value, than would otherwise be the case if it had not engaged in such short
sales. Short sales theoretically involve unlimited loss potential, as the market
price of securities sold short may continuously increase, although a Fund may
mitigate such losses by replacing the securities sold short before the market
price has increased significantly. Under adverse market conditions a Fund might
have difficulty purchasing securities to meet its short sale delivery
obligations and might have to sell portfolio securities to raise the capital
necessary to meet its short sale obligations at a time when fundamental
investment considerations would not favor those sales.
If the Fund makes a short sale "against the box," the Fund would not immediately
deliver the securities sold and would not receive the proceeds from the sale.
The seller is said to have a short position in the securities sold until it
delivers the securities sold, at which time it receives the proceeds of the
sale. The Portfolio's decision to make a short sale "against the box" may be a
technique to hedge against market risks when Investment Adviser believes that
the price of a security may decline, causing a decline in the value of a
security owned by the Portfolio or a security convertible into or exchangeable
for such security. In such case, any future losses in the Fund's long position
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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
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of a pool of mortgages. Conversely, in periods of rising rates, the rate of
prepayment tends to decrease, thereby lengthening the actual average life of the
pool. Actual prepayment experience may cause the yield to differ from the
assumed average life yield. Reinvestment of prepayments may occur at higher or
lower interest rates than the original investment, thus affecting the yield of a
Fund.
GOVERNMENT AND GOVERNMENT-RELATED GUARANTORS. The principal government guarantor
of mortgage-backed securities is the Government National Mortgage Association
("GNMA"), a wholly owned United States Government corporation within the
Department of Housing and Urban Development. GNMA is authorized to guarantee,
with the full faith and credit of the United States Government, the timely
payment of principal and interest on securities issued by institutions approved
by GNMA and backed by pools of FHA-insured or VA-guaranteed mortgages.
The Federal National Mortgage Association ("FNMA") is a government-sponsored
corporation owned entirely by private stockholders that is subject to general
regulation by the Secretary of Housing and Urban Development. FNMA purchases
residential mortgages from a list of approved seller-servicers. The Federal Home
Loan Mortgage Corporation ("FHLMC") is a corporate instrumentality of the United
States Government that was created by Congress in 1970 for the purpose of
increasing the availability of mortgage credit for residential housing. Its
stock is owned by the twelve Federal Home Loan Banks. FHLMC issues Participation
Certificates ("PCs") which represent interests in mortgages from FHLMCs national
portfolio. FNMA and FHLMC each guarantee the payment of principal and interest
on the securities they issue. These securities, however, are not backed by the
full faith and credit of the United States Government.
PRIVATELY ISSUED MORTGAGE-BACKED SECURITIES. Mortgage-backed securities offered
by private issuers include pass-through securities comprised of pools of
conventional mortgage loans; mortgage-backed bonds which are considered to be
debt obligations of the institution issuing the bonds and which are
collateralized by mortgage loans; and collateralized mortgage obligations.
Mortgage-backed securities issued by non-governmental issuers may offer a higher
rate of interest than securities issued by government issuers because of the
absence of direct or indirect government guarantees of payment. Many
non-governmental issuers or servicers of mortgage-backed securities, however,
guarantee timely payment of interest and principal on such securities. Timely
payment of interest and principal may also be supported by various forms of
insurance, including individual loan, title, pool and hazard policies. There can
be no assurance that the private issuers or insurers will be able to meet their
obligations under the relevant guarantees and insurance policies.
ADJUSTABLE RATE MORTGAGE-BACKED SECURITIES. Adjustable rate mortgage-backed
securities ("ARMs") are securities that have interest rates that are reset at
periodic intervals, usually by reference to some interest rate index or market
interest rate. Although the rate adjustment feature may act as a buffer to
reduce sharp changes in the value of adjustable rate securities, these
securities are still subject to changes in value based on changes in market
interest rates or changes in the issuer's creditworthiness. Because of the
resetting of interest rates, adjustable rate securities are less likely than
non-adjustable rate securities of comparable quality and maturity to increase
significantly in value when market interest rates fall. Also, most adjustable
rate securities (or the underlying mortgages) are subject to caps or floors.
"Caps" limit the maximum amount by which the interest rate paid by the borrower
may change at each reset date or over the life of the loan and, accordingly,
fluctuation in interest rates above these levels could cause such mortgage
securities to "cap out" and to behave more like long-term, fixed-rate debt
securities.
ARMs may have less risk of a decline in value during periods of rapidly rising
rates, but they may also have less potential for capital appreciation than other
debt securities of comparable maturities due to the periodic adjustment of the
interest rate on the underlying mortgages and due to the likelihood of increased
prepayments of mortgages as interest rates decline. Furthermore, during periods
of declining interest rates, income to a Portfolio will decrease as the coupon
rate resets to reflect the decline in interest rates. During periods of rising
interest rates, changes in the coupon rates of the mortgages underlying a
Portfolio's ARMs may lag behind changes in market interest rates. This may
result in a slightly lower net value until the interest rate resets to market
rates. Thus, investors could suffer some principal loss if Fund shares were sold
before the interest rates on the underlying mortgages were adjusted to reflect
current market rates.
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COLLATERALIZED MORTGAGE OBLIGATIONS. Collateralized Mortgage Obligations
("CMOs") are debt obligations that are collateralized by mortgages or mortgage
pass-through securities issued by GNMA, FHLMC or FNMA or by pools of
conventional mortgages ("Mortgage Assets"). CMOs may be privately issued or U.S.
Government Securities. Payments of principal and interest on the Mortgage Assets
are passed through to the holders of the CMOs on the same schedule as they are
received, although, certain classes (often referred to as tranches) of CMOs have
priority over other classes with respect to the receipt of payments. Multi-class
mortgage pass-through securities are interests in trusts that hold Mortgage
Assets and that have multiple classes similar to those of CMOs. Unless the
context indicates otherwise, references to CMOs include multi-class mortgage
pass-through securities. Payments of principal of and interest on the underlying
Mortgage Assets (and in the case of CMOs, any reinvestment income thereon)
provide Portfolios to pay debt service on the CMOs or to make scheduled
distributions on the multi-class mortgage pass-through securities. Parallel pay
CMOs are structured to provide payments of principal on each payment date to
more than one class. These simultaneous payments are taken into account in
calculating the stated maturity date or final distribution date of each class,
which, as with other CMO structures, must be retired by its stated maturity date
or final distribution date but may be retired earlier. Planned amortization
class mortgage-based securities ("PAC Bonds") are a form of parallel pay CMO.
PAC Bonds are designed to provide relatively predictable payments of principal
provided that, among other things, the actual prepayment experience on the
underlying mortgage loans falls within a contemplated range. If the actual
prepayment experience on the underlying mortgage loans is at a rate faster or
slower than the contemplated range, or if deviations from other assumptions
occur, principal payments on a PAC Bond may be greater or smaller than
predicted. The magnitude of the contemplated range varies from one PAC Bond to
another; a narrower range increases the risk that prepayments will be greater or
smaller than contemplated. CMOs may have complicated structures and generally
involve more risks than simpler forms of mortgage-backed securities.
The final tranche of a CMO may be structured as an accrual bond (sometimes
referred to as a "Z-tranche"). Holders of accrual bonds receive no cash payments
for an extended period of time. During the time that earlier tranches are
outstanding, accrual bonds receive accrued interest which is a credit for
periodic interest payments that increases the face amount of the security at a
compounded rate, but is not paid to the bond holder. After all previous tranches
are retired, accrual bondholders 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
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for a certain time period by a letter of credit issued by a financial
institution. Asset-backed securities do not always have the benefit of a
security interest in collateral comparable to the security interests associated
with mortgage-backed securities. As a result, the risk that recovery on
repossessed collateral might be unavailable or inadequate to support payments on
asset-backed securities is greater for asset-backed securities than for
mortgage-backed securities. In addition, because asset-backed securities are
relatively new, the market experience in these securities is limited and the
market's ability to sustain liquidity through all phases of an interest rate or
economic cycle has not been tested.
FOREIGN EXCHANGE CONTRACTS AND FOREIGN CURRENCY FORWARD CONTRACTS. 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
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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 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
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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.
OPTIONS ON FUTURES CONTRACTS. Options on futures contracts are similar to stock
options except that an option on a futures contract gives the purchaser the
right, in return for the premium paid, to assume a position in a futures
contract rather than to purchase or sell stock, at a specified exercise price at
any time during the period of the option. Upon exercise of the option, the
delivery of the futures position to the holder of the option will be accompanied
by transfer to the holder of an accumulated balance representing the amount by
which the market price of the futures contract exceeds, in the case of a call,
or is less than, in the case of a put, the exercise price of the option on the
future.
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APPENDIX B - DESCRIPTION OF SECURITIES RATINGS
MUNICIPAL AND CORPORATE BONDS (INCLUDING CONVERTIBLE BONDS)
MOODY'S INVESTORS SERVICE ("MOODY'S")
Moody's rates corporate bond issues, including convertible debt issues, as
follows:
Bonds which are rated Aaa are judged by Moody's to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
Bonds which are rated A possess many favorable investment attributes and are to
be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment some time in the future.
Bonds which are rated Baa are considered as medium grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payment and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Bonds which are rated Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Bonds which are rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Bonds which are rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
Bonds which are rated C are the lowest rated class of bonds and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
Note: Those bonds in the Aa, A, Baa, Ba or B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa1,
A1, Baa1, Ba1, and B1.
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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.
B-2
<PAGE>
FITCH IBCA, INC. ("FITCH")
Fitch rates corporate bond issues, including convertible debt issues, as
follows:
AAA Bonds are considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA Bonds are considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated AAA. Because bonds rated in the AAA
and AA categories are not significantly vulnerable to foreseeable future
developments, shorter-term debt of these issuers is generally rated F-1+.
A Bonds are considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB Bonds are considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds, and therefore
impair timely payment. The likelihood that the ratings of these bonds will fall
below investment grade is higher than for bonds with higher ratings.
BB Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C Bonds are in imminent default in payment of interest or principal.
DDD, DD, and D Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. DDD
represents the highest potential for recovery on these bonds, and D represents
the lowest potential for recovery.
Plus (+) and minus (-) signs are used with a rating symbol to indicate the
relative position of a credit within the rating category. Plus and minus signs,
however, are not used in the AAA, DDD, DD, or D categories.
B-3
<PAGE>
PREFERRED STOCK
MOODY'S INVESTORS SERVICE
Moody's rates preferred stock as follows:
An issue rated aaa is considered to be a top-quality preferred stock. This
rating indicates good asset protection and the least risk of dividend impairment
among preferred stock issues.
An issue rated aa is considered a high-grade preferred stock. This rating
indicates that there is a reasonable assurance that earnings and asset
protection will remain relatively well maintained in the foreseeable future.
An issue rated a is considered to be an upper-medium grade preferred stock.
While risks are judged to be somewhat greater than in the aaa and aa
classification, earnings and asset protection are, nevertheless, expected to be
maintained at adequate levels.
An issue rated baa is considered to be a medium-grade, neither highly protected
nor poorly secured. Earnings and asset protection appear adequate at present but
may be questionable over any great length of time.
An issue rated ba is considered to have speculative elements and its future
cannot be considered well assured. Earnings and asset protection may be very
moderate and not well safeguarded during adverse periods. Uncertainty of
position characterizes preferred stocks in this class.
An issue which is rated b generally lacks the characteristics of a desirable
investment. Assurance of dividend payments and maintenance of other terms of the
issue over any long period of time may be small.
An issue which is rated caa is likely to be in arrears on dividend payments.
This rating designation does not purport to indicate the future status of
payments.
An issue which is rated ca is speculative in a high degree and is likely to be
in arrears on dividends with little likelihood of eventual payment.
An issue which is rated c can be regarded as having extremely poor prospects of
ever attaining any real investment standing. This is the lowest rated class of
preferred or preference stock.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each rating
classification from aa through b in its preferred stock rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issuer ranks in the lower end of its generic rating
category.
STANDARD & POOR'S
S&P rates preferred stock as follows:
AAA is the highest rating that is assigned by S&P to a preferred stock issue and
indicates an extremely strong capacity to pay the preferred stock obligations.
A preferred stock issue rated AA also qualifies as a high-quality fixed income
security. The capacity to pay preferred stock obligations is very strong,
although not as overwhelming as for issues rated AAA.
An issue rated A is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
B-4
<PAGE>
An issue rated BBB is regarded as backed by an adequate capacity to pay the
preferred stock obligations. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to make payments for a preferred stock in
this category than for issues in the A category.
Preferred stock rated BB, B, and CCC are regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay preferred stock
obligations. BB indicates the lowest degree of speculation and CCC the highest
degree of speculation. While such issues will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
The rating CC is reserved for a preferred stock issue in arrears on dividends or
sinking 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.
B-5
<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 Portfolios employed; conservative
capitalization structure with moderate reliance on debt and ample asset
protection; broad margins in earnings coverage of fixed financial charges and
high internal cash generation; well-established access to a range of financial
markets and assured sources of alternate liquidity.
Issuers rated Prime-2 by Moody's have a strong ability for repayment of senior
short-term debt obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1 but to a lesser degree. Earnings trends
and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
STANDARD AND POOR'S CORPORATION
S&P's two highest commercial paper ratings are A-1 and A-2. Issues assigned an A
rating are regarded as having the greatest capacity for timely payment. Issues
in this category are delineated with the numbers 1, 2 and 3 to indicate the
relative degree of safety. An A-1 designation indicates that the degree of
safety regarding timely payment is either overwhelming or very strong. Those
issues determined to possess overwhelming safety characteristics are denoted
with a plus (+) sign designation. The capacity for timely payment on issues with
an A-2 designation is strong. However, the relative degree of safety is not as
high as for issues designated A-1. A-3 issues have a satisfactory capacity for
timely payment. They are, however, somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations. Issues rated A-2 are regarded as having only an adequate capacity
for timely payment. However, such capacity may be damaged by changing conditions
or short-term adversities.
FITCH IBCA, INC.
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
F-1+. Issues assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F-1. Issues assigned this rating reflect an assurance of timely payment only
slightly less in degree than issues rated F-1+.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE STATEMENT OF
ADDITIONAL INFORMATION AND THE PORTFOLIOS' OFFICIAL SALES LITERATURE IN
CONNECTION WITH THE OFFERING OF THE PORTFOLIOS' SHARES, AND IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE TRUST. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY
STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER MAY NOT LAWFULLY BE MADE.
B-6
<PAGE>
APPENDIX C - 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, 1999 57,033 48,437 8,596
Year Ended May 31, 1998 9,786 9,786 0
WEALTHBUILDER II GROWTH AND INCOME PORTFOLIO
C Shares
Year Ended May 31, 1999 36,303 32,146 4,157
Year Ended May 31, 1998 7,907 7,907 0
WEALTHBUILDER II GROWTH PORTFOLIO
C Shares
Year Ended May 31, 1999 31,672 31,609 63
Year Ended May 31, 1998 5,939 5,939 0
</TABLE>
C-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 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, 1999 8,148 1,043 7,105
Year Ended May 31, 1998 2,796 2,796 0
WEALTHBUILDER II GROWTH AND INCOME PORTFOLIO
C Shares
Year Ended May 31, 1999 5,186 4,792 394
Year Ended May 31, 1998 2,259 2,259 0
WEALTHBUILDER II GROWTH PORTFOLIO
C Shares
Year Ended May 31, 1999 4,525 4,523 2
Year Ended May 31, 1998 1,697 1,697 0
</TABLE>
C-2
<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, 1999 122,213 0 122,213
Year Ended May 31, 1998 20,971 0 20,971
WEALTHBUILDER II GROWTH AND INCOME PORTFOLIO
C Shares
Year Ended May 31, 1999 77,793 0 77,793
Year Ended May 31, 1998 16,944 0 16,944
WEALTHBUILDER II GROWTH PORTFOLIO
C Shares
Year Ended May 31, 1999 67,869 0 67,869
Year Ended May 31, 1998 12,726 0 12,726
</TABLE>
C-3
<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
Year Ended May 31, 1999 $232,000 $0
Year Ended May 31, 1998 $116,000 $0
WEALTHBUILDER II GROWTH AND INCOME PORTFOLIO
Year Ended May 31, 1999 $52,000 $0
Year Ended May 31, 1998 $94,000 $0
WEALTHBUILDER II GROWTH PORTFOLIO
Year Ended May 31, 1999 $74,000 $0
Year Ended May 31, 1998 $55,000 $0
C-4
<PAGE>
TABLE 5 - ACCOUNTING FEES
The following table shows the dollar amount of fees payable to FAcS for its
accounting services with respect to each Portfolio, the amount of fee that was
waived by FAcS, if any, and the actual fee received by FAcS. 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, 1999 13,500 0 13,500
Year Ended May 31, 1998 11,500 11,500 0
WEALTHBUILDER II GROWTH AND INCOME PORTFOLIO
C Shares
Year Ended May 31, 1999 13,500 0 13,500
Year Ended May 31, 1998 11,500 11,500 0
WEALTHBUILDER II GROWTH PORTFOLIO
C Shares
Year Ended May 31, 1999 13,500 0 13,500
Year Ended May 31, 1998 11,500 11,500 0
</TABLE>
C-5
<PAGE>
TABLE 6 - 5% SHAREHOLDERS
The following table lists the persons who owned of record 5% or more of the
outstanding shares of a Fund as of September 1, 1999, as well as their
percentage holding of all shares of the Fund.
<TABLE>
<S> <C> <C> <C>
SHARE BALANCE % OF FUND
NAME AND ADDRESS
WEALTHBUILDER II GROWTH
AND INCOME PORTFOLIO
Norwest Investment Services Inc 75,579.450 8.67
FBO 011836151
Northstar Building East - 8th Floor
608 Second Avenue South
Minneapolis, MN 55402-1916
WEALTHBUILDER II GROWTH
PORTFOLIO
Norwest Investment Services Inc 103,287.084 9.07
FBO 013879761
Northstar Building East - 8th Floor
608 Second Avenue South
Minneapolis, MN 55402-1916
</TABLE>
C-6
<PAGE>
APPENDIX D - PERFORMANCE DATA
TABLE 1 - TOTAL RETURNS
The average annual total return of each class of each Portfolio for the period
ended May 31, 1999 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
<TABLE>
<S> <C> <C> <C> <C>
ONE YEAR FIVE TEN SINCE
YEARS YEARS INCEPTION
NORWEST WEALTHBUILDER II GROWTH BALANCED PORTFOLIO 8.60% N/A N/A 10.28%
NORWEST WEALTHBUILDER II GROWTH & INCOME PORTFOLIO 7.47% N/A N/A 10.44%
NORWEST WEALTHBUILDER II GROWTH PORTFOLIO 13.22% N/A N/A 14.21%
</TABLE>
D-1
<PAGE>
NON STANDARDIZED RETURNS (WITHOUT A SALES LOAD)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CALENDAR
ONE MONTH THREE YEAR TO ONE THREE FIVE TEN SINCE
MONTHS DATE YEAR YEARS YEARS YEARS INCEPTION
WEALTHBUILDER II GROWTH (1.58)% 4.05% 3.05% 10.26% N/A N/A N/A 11.29%
BALANCED PORTFOLIO
WEALTHBUILDER II GROWTH AND (1.73)% 6.41% 5.75% 9.11% N/A N/A N/A 11.45%
INCOME PORTFOLIO
WEALTHBUILDER II GROWTH (2.62)% 4.21% 4.90% 14.94% N/A N/A N/A 15.25%
PORTFOLIO
</TABLE>
D-2
<PAGE>
APPENDIX E - OTHER ADVERTISEMENT MATTERS
From time to time, the sales material for the Portfolio 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 Portfolio' 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.
E-1
<PAGE>
47180.160 #119453
<PAGE>
Part C
Other Information
Item 23. Exhibits
(a) Trust Instrument of Registrant as amended and restated August 4, 1997 (see
Note 1).
(b) By-Laws of Registrant as now in effect (see Note 2).
(c) 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).
(d) (1) 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
December 1, 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
(see Note 3)
(2) Form of Investment Subadvisory Agreement between Registrant and
Schroder Capital Management International Inc. relating to Small Cap
Opportunities Fund, Strategic Income Fund, Moderate Balanced Fund,
Growth Balanced Fund, Aggressive Balanced Equity Fund, Diversified
Equity Fund, Growth Equity Fund and International Fund dated as of
April 28, 1996 as amended July 29, 1997 (see Note 4).
(3) Form of Investment Subadvisory Agreement among Registrant, Norwest
Investment Management, Inc. and Galliard Capital Management Inc.
relating to Stable Income Funds, Total Return Bond Fund, Performa
Strategic Value Bond Fund, Diversified Bond Fund, Strategic Income
Fund, Moderate Balanced Fund, Growth Balanced Fund and Aggressive
Balanced-Equity Fund dated as of October 1, 1997 as amended July 28,
1998 (see Note 5).
(4) 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 (see
Note 5).
(5) Form of Investment Subadvisory Agreement between Registrant and Smith
Asset Management, 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 March 25, 1999 (see Note
3).
(e) 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 April 26, 1999 (see Note 3).
(f) Not Applicable.
(g) (1) 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 (see Note 5).
(2) 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 (see Note 5).
C-1
<PAGE>
(h) (1) Form of Management Agreement between Registrant and Forum
Financial Services, Inc. relating to each series of Registrant dated
as August 1, 1997, as amended June 1, 1999 (see Note 3).
(2) 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 (see Note 5).
(3) 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 (see Note 5).
(4) 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 June 1, 1999 (see
Note 3).
(5) Shareholder Servicing Agreement dated as of September 25, 1998 (see
Note 3)
(6) Shareholder Servicing Plan (see Note 3).
(i) (1) Opinion of Seward & Kissel (see Note 3).
(2) Opinion of Seward & Kissel (see Note 2).
(3) Opinion of Seward & Kissel (see Note 6).
(j) Consent of Independent Auditors (filed herewith).
(k) Not Applicable.
(l) Investment Representation letter of John Y. Keffer as original purchaser of
shares of stock of Registrant (see Note 3).
(m) (1) Rule 12b-1 Plan adopted by Registrant relating to Exchange Shares of
Ready Cash Investment Fund, Investor B Shares of Stable Income Fund,
Intermediate Government Income Fund, Income Fund, Total Return Bond
Fund, Tax-Free Income Fund, Colorado Tax-Free Fund, Minnesota Tax-Free
Fund, 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 and Investor C Shares of Norwest WealthBuilder II
Growth Balanced Fund, Norwest WealthBuilder II Growth and Income Fund
and Norwest WealthBuilder II Growth Fund dated as of August 1, 1993,
as amended April 26, 1999 (see Note 3).
(2) 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 (see Note 5).
(3) Rule 12b-1 Plan adopted by Registrant relating to A Shares of Large
Company Growth Fund, Growth Balanced Fund and Diversified Small Cap
Fund dated as of October 5, 1998 (see Note 3).
(n) Not required.
(o) 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).
C-2
<PAGE>
(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 Post-Effective Amendment No.
46 via EDGAR on September 30, 1997, accession number 0000912057-97-032214.
(2) Exhibit incorporated by reference as filed in Post-Effective Amendment No.
35 via EDGAR on March 8, 1996, accession number 0000912057-96-004243.
(3) Exhibit incorporated by reference as filed in Post-Effective Amendment No.
58 via EDAGR on September 14, 1999, accession number 0001004402-99-000379.
(4) Exhibit incorporated by reference as filed in Post-Effective Amendment No.
54 via EDGAR on May 6, 1998, accession number 0001004402-98-000281.
(5) Exhibit incorporated by reference as filed in Post-Effective Amendment No.
57 via EDGAR on September 30, 1998, accession number 0001004402-98-000533.
(6) Exhibit incorporated by reference as filed in Post-Effective Amendment No.
60 via EDGAR on October 1, 1999, accesion number 0001004402-99-000397.
(7) Exhibit incorporated by reference as filed in Post-Effective Amendment No.
55 via EDGAR on July 31, 1998, accession number 0001004402-98-000418.
Item 24. Persons Controlled by Or Under Common Control with Registrant
None.
Item 25. 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 (d)(1), (d)(2), (d)(3), (d)(4), (d)(5), (e), (g)(2)
and (h)(1) to Registrant's Registration Statement and incorporated
herein by reference.
C-3
<PAGE>
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 26. 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 Wells Fargo & Company, the parent of Norwest
Bank Minnesota, N.A. ("Norwest Bank"), which is the parent of NIM, is
--. Unless otherwise indicated below, the principal business address of
any company with which the directors and principal executive officers
are connected is 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.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Robert Bissell President Norwest Investment Management,
Inc.
------------------------------------ ----------------------------------
Chief Executive Officer Wells Capital Management
Incorporated.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
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.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Richard C. Villars Vice President, Senior Portfolio Norwest Investment Management,
Manager Inc.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Eileen A. Kuhry Investment Compliance Specialist Norwest Investment Management,
Inc.
------------------------------------ ------------------------------------ ----------------------------------
(b) Schroder Investment Management North America Inc.
The description of Schroder Investment Management North America Inc.
("SIMNA") under the caption "Management of the Funds-Investment
Advisory Services-Schroder Investment Management North America Inc." in
the Prospectus and "Management-Investment Advisory Services" in the
Statement of Additional Information relating to International Fund
constituting certain of Parts A and B, respectively, of the
Registration Statement, is incorporated by reference herein.
4
<PAGE>
The following are the directors and principal officers of SIMNA,
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 SIMNA which provides investment management services to international
clients located principally in the United States.
------------------------------------ ------------------------------------ ----------------------------------
Name Title Business Connection
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
David M. Salisbury Chairman, Director SIMNA
------------------------------------ ----------------------------------
Chief Executive, Director Schroder Ltd.*
------------------------------------ ----------------------------------
Director Schroders plc.*
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Trustee and Officer Schroder Series Trust II
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Richard R. Foulkes Deputy Chairman, Director SIMNA
------------------------------------ ----------------------------------
Deputy Chairman Schroder Ltd.*
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Officer Certain open end management
investment companies for which
SIMNA and/or its affiliates
provide investment services
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
John A. Troiano Chief Executive, Director SIMNA
------------------------------------
----------------------------------
Chief Executive, Director Schroder Ltd.*
------------------------------------ ----------------------------------
----------------------------------
Officer Certain open end management
investment companies for which
SIMNA and/or its affiliates
provide investment services
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Sharon L. Haugh Executive Vice President, Director SIMNA
----------------------------------
------------------------------------ ----------------------------------
Director, Chairman Schroder Fund Advisors Inc.
------------------------------------ ----------------------------------
Director Schroder Ltd.*
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Chairman, Director Schroder Capital Management Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Trustee Certain open end management
investment companies for which
SIMNA and/or its affiliates
provide investment services
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Gavin D. L. Ralston Senior Vice President, Managing SIMNA
Director
------------------------------------ ----------------------------------
Director Schroder Ltd.*
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Mark J. Smith Senior Vice President, Director SIMNA
------------------------------------ ----------------------------------
Senior Vice President, Director Schroder Ltd.*
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Schroder Fund Advisors Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Trustee and Officer Certain open end management
investment companies for which
SIMNA and/or its affiliates
provide investment services
------------------------------------ ------------------------------------ ----------------------------------
C-5
<PAGE>
------------------------------------ ------------------------------------ ----------------------------------
Robert G. Davy Senior Vice President, Director SIMNA
------------------------------------ ----------------------------------
Director Schroder Ltd.*
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Officer Certain open end management
investment companies for which
SIMNA and/or its affiliates
provide investment services
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Jane P. Lucas Senior Vice President, Director SIMNA
------------------------------------ ----------------------------------
Director Schroder Fund Advisors Inc.
------------------------------------ ----------------------------------
Director Schroder Capital Management Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Officer Certain open end management
investment companies for which
SIMNA and/or its affiliates
provide investment services
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
David R. Robertson Group Vice President SIMNA
------------------------------------ ----------------------------------
Senior Vice President Schroder Fund Advisors Inc.
----------------------------------
------------------------------------
Director of Institutional Business Oppenheimer Funds, Inc.
resigned 2/98
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Michael M. Perelstein Senior Vice President, Director SIMNA
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Senior Vice President, Director Schroder Ltd.*
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Louise Croset First Vice President, Director SIMNA
------------------------------------ ----------------------------------
First Vice President Schroder Ltd.*
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Trustee and Officer Schroder Series Trust II
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Ellen B. Sullivan Group Vice President, Director SIMNA
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Schroder Capital Management Inc.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Catherine A. Mazza Group Vice President SIMNA
------------------------------------ ----------------------------------
President, Director Schroder Fund Advisors Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Schroder Capital Management Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Trustee and Officer Certain open-end management
investment companies for which
SIMNA and/or its affiliates
provide investment services.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Heather Crighton First Vice President, Director SIMNA
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
First Vice President, Director Schroder Ltd.*
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Fariba Talebi Group Vice President SIMNA
------------------------------------ ----------------------------------
Director Schroder Capital Management Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Officer Certain open-end management
investment companies for which
SIMNA and/or its affiliates
provide investment services.
------------------------------------ ------------------------------------ ----------------------------------
C-6
<PAGE>
------------------------------------ ------------------------------------ ----------------------------------
Ira Unschuld Group Vice President SIMNA
------------------------------------ ----------------------------------
Officer Certain open-end management
investment companies for which
SIMNA and/or its affiliates
provide investment services.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Paul M. Morris Senior Vice President SIMNA
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Schroder Capital Management Inc.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Susan B. Kenneally First Vice President, Director SIMNA
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
First Vice President, Director Schroder Ltd.*
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Jennifer A. Bonathan First Vice President, Director SIMNA
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
First Vice President, Director Schroder Ltd.*
------------------------------------ ------------------------------------ ----------------------------------
*Schroder Ltd and Schroders plc. are located at 31 Gresham St., London EC2V 7QA, United Kingdom.
(c) 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.
------------------------------------ ------------------------------------ ----------------------------------
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.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
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.
------------------------------------ ------------------------------------ ----------------------------------
C-7
<PAGE>
------------------------------------ ------------------------------------ ----------------------------------
Daniel J. Hagen Senior 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.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Jonathan L. Scharlau Assistant Vice President Peregrine Capital Management,
Inc.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Jay H. Strohmaier Senior Vice President Peregrine Capital Management,
Inc.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
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.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
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.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Douglas G. Pugh Senior Vice President Peregrine Capital Management,
Inc.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Colin Sharp Vice President Peregrine Capital Management,
Inc.
------------------------------------ ------------------------------------ ----------------------------------
(d) 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
C-8
<PAGE>
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.
------------------------------------ ------------------------------------ ----------------------------------
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.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
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.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
John Huber Vice President and Portfolio Galliard Capital Management, Inc.
Manager
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Leela Scattum Vice President of Operations Galliard Capital Management, Inc.
------------------------------------ ------------------------------------ ----------------------------------
(e) Smith Asset Management, L.P.
The description of Smith Asset Management, 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.
------------------------------------ ------------------------------------ ----------------------------------
Name Title Business Connection
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Stephen S. Smith President, Chief Executive Officer Smith
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Partner Discovery Management
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Stephen J. Summers Chief Operating Officer Smith
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Partner Discovery Management
------------------------------------ ------------------------------------ ----------------------------------
C-9
<PAGE>
(f) Wells Fargo Bank, N.A.
The description of Wells Fargo Bank, N.A. ("Wells Fargo Bank") in
Parts A and B of this Registration Statement is incorporated by
reference herein.
The following are the directors and principal executive officers of
Wells Fargo Bank, including their business connections, which are of a
substantial nature. The address of Wells Fargo Bank is 420 Montgomery
Street, San Francisco, California 94105 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.
------------------------------------ ------------------------------------ ----------------------------------
Name Title Business Connection
------------------------------------ ------------------------------------ ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
H. Jesse Arnelle Director Wells Fargo Bank
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
455 Market Street Senior Partner Arnelle, Hastie, McGee, Willis &
San Francisco, CA 94105 Greene
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Director Armstrong World Industries, Inc.
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Director Eastman Chemical Corporation
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Director FPL Group, Inc.
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Michael R. Bowlin Director Wells Fargo Bank
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Highway 150 Chairman of the Board of Directors, Atlantic Richfield Co. (ARCO)
Santa Paula, CA 93060 Chief Executive Officer, Chief
Operating Officer and President
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Edward Carson Director Wells Fargo Bank
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
633 West Fifth Street Chairman of the Board and Chief First Interstate Bancorp
Los Angeles, CA 90071 Executive Officer
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Director Aztar Corporation
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Director Castle & Cook, Inc.
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Director Terra Industries, Inc.
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
William S. Davilla Director Wells Fargo Bank
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
618 Michillinda Ave. President (Emeritus) and Director The Vons Companies, Inc.
Arcadia, CA 91007
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Director Pacific Gas & Electric Company
----------------------------------- ------------------------------------- ----------------------------------
C-10
<PAGE>
----------------------------------- ------------------------------------- ----------------------------------
Rayburn S. Dezember Director Wells Fargo Bank
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
3200 San Fernando Road Director CalMat Co.
Los Angeles, CA 90065
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Director Tejon Ranch Company
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Director The Bakersfield Californian
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Trustee Whittier College
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Paul Hazen Chairman of the Board of Directors Wells Fargo Bank
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Chairman of the Board of Directors Wells Fargo & Company
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Director Phelps Dodge Corporation
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Director Safeway, Inc.
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Robert K. Jaedicke Director Wells Fargo Bank
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Graduate School of Business Professor (Emeritus) Graduate School of Business
Stanford University Stanford University
Stanford, CA 94305
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Director Bailard Biehl & Kaiser Real
Estate Investment Trust, Inc.
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Director Boise Cascade Corporation
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Director California Water Service Company
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Director Enron Corporation
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Director GenCorp, Inc.
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Director Homestake Mining Company
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Thomas L. Lee Director Wells Fargo Bank
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
10302 Avenue 7 1/2 Chairman and Chief Executive Officer The Newhall Land and Farming
Firebaugh, CA 93622 Company
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Director CalMat Co.
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Director First Interstate Bancorp
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Ellen Newman Director Wells Fargo Bank
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
323 Geary Street President Ellen Newman Associates
Suite 507
San Francisco, CA 94102
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Chair (Emeritus) of the Board of University of California at San
Trustees Francisco Foundation
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Director California Chamber of Commerce
----------------------------------- ------------------------------------- ----------------------------------
C-11
<PAGE>
----------------------------------- ------------------------------------- ----------------------------------
Philip J. Quigley Director Wells Fargo Bank
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
130 Kearney Street Rm. 3700 San Chairman, President and Chief Pacific Telesis Group
Francisco, CA 94108 Executive Officer
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Carl E. Reichardt Director Wells Fargo Bank
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Director Columbia/HCA Healthcare
Corporation
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Director Ford Motor Company
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Director Newhall Management Corporation
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Director Pacific Gas and Electric Company
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Retired Chairman of the Board of Wells Fargo & Company
Directors and Chief Executive
Officer
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Donald B. Rice Director Wells Fargo Bank
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
2049 Century Park East President and Chief Executive Teledyne, Inc.
Los Angeles, CA 90067 Officer
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Retired Secretary The United States Air Force
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Director Vulcan Materials Company
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Richard J. Stegemeier Director Wells Fargo Bank
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Chairman (Emeritus) Unocal Corporation
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Director Foundation Health Corporation
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Director Halliburton Company
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Director Northrop Grumman Corporation
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Director Outboard Marine Corporation
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Director Pacific Enterprises
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Director First Interstate Bancorp
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Susan G. Swenson Director Wells Fargo Bank
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
651 Gateway Blvd. President and Chief Executive Cellular One
San Francisco, CA 94080 Officer
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
David M. Tellep Director Wells Fargo Bank
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Retired Chairman of the Board and Martin Lockheed Corporation
Chief Executive Officer
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Director Edison International and
Southern California Edison
Company
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Director First Interstate Bancorp
----------------------------------- ------------------------------------- ----------------------------------
C-12
<PAGE>
----------------------------------- ------------------------------------- ----------------------------------
Chang-Lin Tien Director Wells Fargo Bank
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Chancellor University of California at
Berkeley
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Director Raychem Corporation
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
John A. Young Director Wells Fargo Bank
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
3000 Hanover Street President, Chief Executive Officer Hewlett-Packard Company
Palo Alto, CA 9434 and Director
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Director Chevron Corporation
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Director Lucent Technologies
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Director Novell, Inc.
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Director Shaman Pharmaceuticals Inc.
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
William F. Zuendt Director Wells Fargo Bank
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
President Wells Fargo & Company
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Director 3Com Corporation
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Director California Chamber of Commerce
----------------------------------- ------------------------------------- ----------------------------------
(g) Wells Capital Management
The description of Wells Capital Management ("WCM") in Parts A and B of
this Registration Statement is incorporated by reference herein.
The following are the directors and principal executive officers of
WCM, including their business connections, which are of a substantial
nature. The address of WCM is 525 Market Street, San Francisco,
California 94105 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.
------------------------------------ ------------------------------------ ----------------------------------
Name Title Business Connection
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Allen J. Ayvazian Chief Equity Officer WCM
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Robert Willis President and Chief Investment WCM
Officer
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Brigid Breen Chief Compliance Officer WCM
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
John Burgess Investment Portfolio Manager WCM
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Financial Investment Adviser Independent Financial Adviser
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Jose Casas Chief Operating Officer WCM
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Larry Fernandes Principal WCM
------------------------------------ ------------------------------------ ----------------------------------
C-13
<PAGE>
------------------------------------ ------------------------------------ ----------------------------------
Jacqueline Anne Flippin Principal WCM
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Vice President and Investment McMorgan & Company (until 1/98)
Portfolio Manager
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Stephen Galiani Senior Principal WCM
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Qualivest Capital Management,
Inc. (until 5/97)
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Madeleine Gish Senior Principal WCM
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Frank Greene Investment Portfolio Manager WCM
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Daniel Kokoska Investment Portfolio Manager WCM
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Assistant Portfolio Manager Bradford & Marzac, Inc. (until
2/98)
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
David Klug Investment Portfolio Manager WCM
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Kelli Ann Lee Managing Director WCM
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Group Human Resource Manager Wells Fargo Bank, N.A. (until
11/97)
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Clark Messman Chief Legal Officer WCM
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Laura Milner Investment Portfolio Manager WCM
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Brian Mulligan Managing Director WCM
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Michael Neitzke Investment Portfolio Manager WCM
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Thomas O'Malley Managing Director WCM
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Clyde Ostler Director WCM
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Guy Rounsaville Director WCM
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Katherine Schapiro Senior Principal WCM
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Gary Schlossberg Economist WCM
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Paul Single Investment Portfolio Manager WCM
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Scott Smith Investment Portfolio Manager WCM
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Cynthia Tusan Performance Analyst/Investment WCM
Portfolio Manager
------------------------------------ ------------------------------------ ----------------------------------
C-14
<PAGE>
------------------------------------ ------------------------------------ ----------------------------------
Mary Walton Investment Portfolio Manager WCM
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Rex Wardlaw Senior Principal WCM
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Jeffrey Weaver Investment Portfolio Manager WCM
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Allen Wisniewski Investment Portfolio Manager WCM
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Thomas Zeifang Investment Portfolio Manager WCM
------------------------------------ ------------------------------------ ----------------------------------
</TABLE>
Item 27. Principal Underwriters
(a) Forum Fund Services, LLC, Registrant's underwriter, or its affiliate,
Forum Financial Services, Inc., serve as underwriter for the following
investment companies registered under the Investment Company Act of
1940, as amended:
The Cutler Trust Monarch Funds
Forum Funds Norwest Advantage Funds
Memorial 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 28. 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 29. Management Services
Not Applicable.
Item 30. 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.
C-15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, the Registrant certifies that it
meets all of the requirements for effectiveness of this registration statement
under rule 485(b) under the Securities Act of 1933, as amended, and has duly
caused this post-effective amendment number 61 to Registrant's registration
statement to be signed on its behalf by the undersigned, duly authorized in the
City of Portland, State of Maine on October 4, 1999.
Norwest Advantage Funds
By: /s/John Y. Keffer
John Y. Keffer
President
Pursuant to the requirements of the Securities Act of 1933, as amended, this
registration statement has been signed below by the following persons on
October 4, 1999.
(a) Principal Executive Officer
/s/ John Y. Keffer
John Y. Keffer
Chairman and President
(b) Principal Financial Officer
/s/ Pamela J. Wheaton
Pamela J. Wheaton
Assistant 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*
* Pursuant to powers of attorney filed as Other Exhibits A, B, C, D, E,
and F to this Registration Statement.
C-16
<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 October 4, 1999.
Core Trust (Delaware)
By: /s/ John Y. Keffer
John Y. Keffer
President
C-17
<PAGE>
Index To Exhibits
Exhibit
(j) Consent of Independent Auditors.
C-18
<PAGE>
EXHIBIT (j)
INDEPENDENT AUDITORS' REPORT
The Board of Trustees of Norwest Advantage Funds
We consent to the use of our reports for the Norwest Advantage Funds, dated July
16, 1999, incorporated herein by reference, and to the references to our firm
under the headings "Financial Highlights" in the prospectuses and "Independent
Auditors" and "Financial Statements" in the statements of additional
information.
We also consent to the use of our reports for Core Trust (Delaware), dated July
16, 1999, incorporated herein by reference.
KPMG LLP
Boston, Massachusetts
September 16, 1999
