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NORWEST
PASSAGE
- --------------------- NORWEST SELECT FUNDS
ANNUAL REPORT FOR;
VARIABLE ANNUITY * INTERMEDIATE BOND FUND
* INCOME EQUITY FUND
* VALUGROWTH (SM) STOCK FUND
* SMALL COMPANY STOCK FUND
NORWEST
[Logo] ------------------ DECEMBER 31, 1997
PASSAGE VARIABLE ANNUITY (R)
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Norwest Passage Variable Annuity
is distributed by Fortis Investors, Inc.
Norwest Select Funds are not insured by the FDIC, Federal Reserve System, U.S.
Government, or any other government agency; are not bank deposits; are not
obligations of, or guaranteed or endorsed by any bank and are subject to
investment risk, including the possible loss of principal. Please see inside
cover for additional disclosure information.
<PAGE>
Norwest Select Funds is a family of open-end investment companies commonly known
as mutual funds. FORUM FINANCIAL SERVICES, INC.(R) ("FFSI"), MEMBER NASD, is the
distributor of Norwest Select Funds. FFSI is not affiliated with Norwest
Corporation, Norwest Bank Minnesota, N.A. or Norwest Investment Services, Inc.
SHARES OF THE FUNDS ARE NOT INSURED OR GUARANTEED BY OR ARE NOT OBLIGATIONS OF
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE SYSTEM, THE U.S.
GOVERNMENT OR ANY GOVERNMENT AGENCY. EVEN THOUGH NORWEST INVESTMENT MANAGEMENT,
A PART OF NORWEST BANK MINNESOTA, N.A. (THE "BANK"), ACTS AS THE INVESTMENT
ADVISER, AND THE BANK ACTS AS THE TRANSFER AGENT AND CUSTODIAN OF NORWEST SELECT
FUNDS, AND EACH RECEIVES FEES FOR SUCH SERVICES AS DISCLOSED IN THE PROSPECTUS,
SHARES OF THE FUNDS ARE NOT BANK DEPOSITS, AND ARE NOT OBLIGATIONS OF,
GUARANTEED OR ENDORSED BY THE BANK, ANY OTHER BANK, OR ANY OF THE BANK'S
AFFILIATES, INCLUDING NORWEST CORPORATION AND NORWEST INVESTMENT SERVICES, INC.,
NOR ARE THEY GUARANTEED BY OR DO THEY CONSTITUTE OBLIGATIONS OF FFSI.
INVESTMENT IN SHARES OF MUTUAL FUNDS IS SUBJECT TO RISK, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL, THAT MAY CAUSE THE VALUE OF THE INVESTMENT AND THE INVESTMENT
RETURN TO FLUCTUATE. WHEN THE INVESTMENT IS SOLD, THE VALUE MAY BE HIGHER OR
LOWER THAN THE AMOUNT ORIGINALLY INVESTED.
Mutual funds are sold only by prospectus. Shares of the Norwest Select Funds are
currently sold only to separate accounts ("Separate Accounts") of certain
insurance companies (the "Insurance Companies"), as each Fund of the Trust
serves as an investment medium for variable life insurance policies and variable
annuity contracts (collectively the "Contracts") issued by the Insurance
Companies.
<PAGE>
TABLE OF CONTENTS DECEMBER 31, 1997
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Page
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A MESSAGE TO OUR CONTRACT HOLDERS....................................... 1
1997 PERFORMANCE REVIEW................................................. 2
Intermediate Bond Fund.................................. 2
Income Equity Fund............................................. 3
ValuGrowthSM Stock Fund........................................ 4
Small Company Stock Fund....................................... 5
INDEPENDENT AUDITORS' REPORT ........................................... 6
FINANCIAL STATEMENTS
Statements of Assets and Liabilities........................... 7
Statements of Operations....................................... 8
Statements of Changes in Net Assets............................ 9
Notes to Financial Statements.................................. 10
Financial Highlights........................................... 13
Schedule of Investments
Intermediate Bond Fund................................ 15
Income Equity Fund.................................... 17
ValuGrowthSM Stock Fund............................... 19
Small Company Stock Fund.............................. 21
<PAGE>
NORWEST SELECT FUNDS
MESSAGE TO CONTRACT HOLDERS
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February 23, 1998
Dear Shareholders:
We are pleased to present the Annual Report for the Norwest Select Funds. This
report includes the portfolios of Intermediate Bond Fund, Income Equity Fund,
ValuGrowthSM Stock Fund, and Small Company Stock Fund.
The big news during this period was, of course, the financial turmoil that
emerged from Asian markets. Eventually, the damage spread until markets around
the globe experienced significant declines. Despite the downturn, both the U.S.
economy and financial markets remained on relatively solid footing. Inflation
remained under control, interest rates fell substantially, and the federal
deficit continued to decline appreciably. We believe these trends are likely to
continue and overall, may bode well for the U.S. financial markets.
In the bond market, a healthy rally occurred. The Federal Reserve took no
action. Meanwhile, interest rates on the 30-year Treasury yield fell from almost
seven percent to six percent. As the impact of Asia hit America, a "decoupling"
of the stock and bond markets began to occur as the bond rally continued while
stocks corrected. We expect bond market conditions to remain favorable for some
time.
Despite the correction, the U.S. stock market produced solid returns, with the
S&P 500 gaining 33.36% since one year ago. Smaller stocks also performed well,
yet continued to trail large stocks. A rally that began last spring ended
abruptly in October, leaving the Russell 2000 with a 1-year gain of 22.36%.
Volatility increased greatly, due primarily to worries about Asia. We expect
volatility with occasional corrections to continue, even while our long-term
outlook for stocks remains positive.
We recognize that such volatility and increased uncertainty can be stressful for
investors. That is why your Norwest Passage Variable Annuity offers a variety of
investment options including Norwest Select Funds.
If you have any questions, or would like additional information about the
Norwest Select Funds, please call (800) 338-1348 or (612) 667-8833 (press 2).
For variable annuity information, please call Fortis Benefits Insurance Company
at (800) 780-7743. We appreciate your confidence in the Norwest Select Funds.
Sincerely,
/s/ John Y. Keffer
John Y. Keffer, Chairman
Norwest Select Funds
1
<PAGE>
NORWEST SELECT FUNDS
1997 PERFORMANCE REVIEW
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INTERMEDIATE BOND FUND
For the twelve months ended December 31, 1997, the Fund achieved a cumulative
return of 9.08% compared to a return of 7.86% for the Lehman Brothers
Intermediate Government/Corporate Index and 9.17% for the Lipper Corporate Debt
A Rated Funds average.
The Fund's performance is the result of two things. The first is the fact that
we are longer in duration than our peers. It was a contrarian position in that
our competition was not as bullish as we were. Secondly, we had some good sector
allocations. We reduced our mortgage-backed exposure in the last few months.
Thus, we were underweighted in mortgages as well as slightly underweighted in
corporates when both of these areas underperformed in the last couple months of
the year. We capitalized on the market rally by being overweighted in
Treasuries. Recently, we added some corporates and now believe that we are no
longer underweighted as compared to our peers. The Fund's performance is
beginning to reflect its new restructuring.
In the future, we think that commodity prices are still headed down so we intend
to remain longer in duration than our peers, although most of them appear to be
lengthening. We will remain underweighted in mortgages. We expect interest rates
to come down and yield curves to flatten. We look for low inflation and believe
that the bond market will do well in 1998.
INTERMEDIATE BOND FUND VS. LEHMAN
BROTHERS INTERMEDIATE GOVERNMENT/CORPORATE INDEX
Inception* 30-Jun-94 31-Jul-94
Select Intermediate Bond Fund $ 10,000 $ 9,880 $ 10,010
Lehman Intermediate Govt/Corp Index $ 10,000 $10,001 $ 10,145
31-Aug-94 30-Sep-94 31-Oct-94 30-Nov-94 31-Dec-94
$ 10,030 $ 9,930 $ 9,910 $ 9,890 $ 9,950
$ 10,176 $ 10,083 $ 10,082 $ 10,037 $ 10,072
31-Jan-95 28-Feb-95 31-Mar-95 30-Apr-95 31-May-95 30-Jun-95
$ 10,090 $ 10,280 $ 10,350 $ 10,460 $ 10,880 $ 10,970
$ 10,242 $ 10,454 $ 10,513 $ 10,643 $ 10,964 $ 11,038
31-Jul-95 31-Aug-95 30-Sep-95 31-Oct-95 30-Nov-95 31-Dec-95
$ 10,930 $ 11,040 $ 11,149 $ 11,301 $ 11,484 $ 11,650
$ 11,039 $ 11,139 $ 11,219 $ 11,344 $ 11,493 $ 11,613
31-Jan-96 29-Feb-96 31-Mar-96 30-Apr-96 31-May-96 30-Jun-96
$ 11,682 $ 11,480 $ 11,395 $ 11,310 $ 11,289 $ 11,416
$ 11,713 $ 11,576 $ 11,517 $ 11,477 $ 11,468 $ 11,589
31-Jul-96 31-Aug-96 30-Sep-96 31-Oct-96 30-Nov-96 31-Dec-96
$ 11,427 $ 11,427 $ 11,614 $ 11,858 $ 12,070 $ 11,926
$ 11,624 $ 11,633 $ 11,795 $ 12,004 $ 12,162 $ 12,084
31-Jan-97 28-Feb-97 31-Mar-97 30-Apr-97 31-May-97 30-Jun-97
$ 11,949 $ 11,971 $ 11,837 $ 11,993 $ 12,093 $ 12,227
$ 12,131 $ 12,154 $ 12,071 $ 12,212 $ 12,313 $ 12,425
31-Jul-97 31-Aug-97 30-Sep-97 31-Oct-97 30-Nov-97 31-Dec-97
$ 12,594 $ 12,427 $ 12,627 $ 12,839 $ 12,883 $ 13,010
$ 12,677 $ 12,614 $ 12,760 $ 12,902 $ 12,930 $ 13,034
This chart reflects a comparison of the change in value of a $10,000 investment
in Intermediate Bond Fund compared to the performance of the Lehman Intermediate
Gov't/Corp Index from the period of the inception date of the Fund through
December 31, 1997. It is important to keep in mind that the Lehman Intermediate
Gov't/Corp Index excludes the effect of any fees. Total return for the Fund
includes reinvestment of dividends and distributions. It does not reflect
charges for the variable annuity and variable life contracts or certificates
thereunder whose proceeds are invested in the Fund. Total return would have been
lower had certain fees and expenses not been voluntarily waived and/or
reimbursed. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
2
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NORWEST SELECT FUNDS
1997 PERFORMANCE REVIEW
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INCOME EQUITY FUND
For the twelve months ended December 31, 1997, the Fund achieved a cumulative
return of 26.90%, compared to a return of 27.51% for the Lipper Equity Income
Funds Average and a return of 33.36% for the S&P 500 Index. The Fund's sectors
took turns during the year in providing solid returns.
Toward the end of the year much of the downward pressure on stocks was
attributable to the uncertainties in Asia. The concerns regarding the region's
economy were reflected in the local financial markets, as well as the companies
with exposure to the Asian markets. Sectors on which the impact was greatest
included technology and capital goods. Weakness in the Fund also centered around
the energy sector as oil prices threaten to decline more due to higher
production quotas from OPEC.
The market's volatility is due, in part, to reactions to both positive and
negative earnings surprises. We anticipate that the recent volatility may
continue. Our emphasis on high quality, large capitalization companies should
temper the Fund's volatility somewhat. Our fundamentals, especially the
higher-than-market dividend yield and strong earnings growth, proved to be
beneficial in a market with erratic downward trends.
Going forward, the Fund's sector weightings are expected to remain the same. We
currently have an emphasis on capital goods and consumer cyclicals such as
retail stocks. We also have an emphasis on utility securities as that group has
been greatly undervalued. We have benefited from the recent rise of electrical
utilities stock prices as the industry is currently undergoing deregulation. We
look for companies that will deliver long-term positive returns. We also look
for non-cyclical, stable names that can deliver consistent dividend growth.
The Fund ended 1997 with favorable fundamental comparisons to the market as
measured by the S&P 500 Index with regards to valuation (lower price-to-earnings
ratio), higher current yield and better long-term earnings growth expectations.
Companies in the Fund also have, on average, minimal direct exposure to the
Pacific Rim/Asia problems.
INCOME EQUITY FUND VS. S&P 500 INDEX
Inception* 31-May-96 30-Jun-96 31-Jul-96
Select Income Equity Fund $ 10,000 $ 10,000 $ 10,110 $ 9,710
S & P 500 Index $ 10,000 $ 10,257 $ 10,297 $ 9,842
31-Aug-96 30-Sep-96 31-Oct-96 30-Nov-96 31-Dec-96
$ 9,830 $ 10,250 $ 10,490 $ 11,170 $ 10,995
$ 10,050 $ 10,615 $ 10,908 $ 11,731 $ 11,499
31-Jan-97 28-Feb-97 31-Mar-97 30-Apr-97 31-May-97 30-Jun-97
$ 11,540 $ 11,691 $ 11,348 $ 11,680 $ 12,215 $ 12,719
$ 12,217 $ 12,313 $ 11,808 $ 12,512 $ 13,273 $ 13,868
31-Jul-97 31-Aug-97 30-Sep-97 31-Oct-97 30-Nov-97 31-Dec-97
$ 13,535 $ 12,910 $ 13,525 $ 13,132 $ 13,716 $ 13,953
$ 14,971 $ 14,133 $ 14,906 $ 14,409 $ 14,573 $ 14,991
This chart reflects a comparison of the change in value of a $10,000 investment
in Income Equity Fund compared to the performance of the S & P 500 Index from
the period of the inception date of the Fund through December 31, 1997. It is
important to keep in mind that the S & P 500 Index excludes the effect of any
fees. Total return for the Fund includes reinvestment of dividends and
distributions. It does not reflect charges for the variable annuity and variable
life contracts or certificates thereunder whose proceeds are invested in the
Fund. Total return would have been lower had certain fees and expenses not been
voluntarily waived and/or reimbursed. PAST PERFORMANCE IS NOT PREDICTIVE OF
FUTURE PERFORMANCE.
3
<PAGE>
NORWEST SELECT FUNDS
1997 PERFORMANCE REVIEW
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VALUGROWTHsm STOCK FUND
For the twelve months ended December 31, 1997, the Fund achieved a return of
23.56%, compared to a return of 25.30% for the Lipper Growth Funds Average and a
return of 33.36% for the S&P 500 Index. The underperformance of the Fund
relative to its peer group in the past twelve months is attributable largely to
the style of the Fund.
The Fund's emphasis on growth and large capitalization companies caused the Fund
to underperform in a period where value outperformed growth securities and small
to mid-cap securities outperformed large-cap securities. The Fund underperformed
the Lipper Growth Funds Average for the first time this year in May. The Fund's
performance lagged due to our underweight position in technology and overweight
position in interest sensitive stocks (finance and utilities) relative to our
peers. Additionally, the Fund held stock in several companies which announced
disappointing earnings in the time period, resulting in a decline in their stock
prices in a volatile market. On the last day of the year, the Fund gave up over
forty basis points relative to its peer group (all of which was recouped during
the first trading day of 1998), contributing to its underperformance for the
year.
The Fund has currently taken a relatively defensive position in its sector
weightings. We expect both earnings growth and the economy to slow. We are
therefore interested only in securities with which we have a high level of
comfort. We anticipate interest rates will come down from current levels and
that the financial sector will benefit from that. We would like to have more
portfolio exposure in the consumer staples sector but are currently having
trouble finding value in individual stocks within the sector.
In summary, we believe that the worldwide economy will slow and corporate
profits are likely to disappoint many investors. As a result, we believe
investors will gravitate toward high-quality, dependable, growth companies. We
believe that ValuGrowth is well-positioned to outperform in this environment.
VALUEGROWTHSM STOCK FUND VS. S&P 500 INDEX
Inception* 30-Jun-94 31-Jul-94 31-Aug-94
Select ValuGrowth Stock Fund $ 10,000 $ 9,550 $ 9,900 $ 10,340
S $ P 500 Index $ 10,000 $ 9,755 $ 10,075 $ 10,488
30-Sep-94 31-Oct-94 30-Nov-94 31-Dec-94
$ 10,070 $ 10,210 $ 9,780 $ 9,810
$ 10,232 $ 10,461 $ 10,080 $ 10,229
31-Jan-95 28-Feb-95 31-Mar-95 30-Apr-95 31-May-95 30-Jun-95
$ 9,950 $ 10,300 $ 10,520 $ 10,710 $ 10,910 $ 11,210
$ 10,494 $ 10,903 $ 11,224 $ 11,555 $ 12,015 $ 12,294
31-Jul-95 31-Aug-95 30-Sep-95 31-Oct-95 30-Nov-95 31-Dec-95
$ 11,510 $ 11,500 $ 11,742 $ 11,521 $ 12,234 $ 12,180
$ 12,702 $ 12,734 $ 13,271 $ 13,223 $ 13,803 $ 14,069
31-Jan-96 29-Feb-96 31-Mar-96 30-Apr-96 31-May-96 30-Jun-96
$ 12,311 $ 12,675 $ 12,867 $ 13,070 $ 13,313 $ 13,232
$ 14,547 $ 14,683 $ 14,824 $ 15,042 $ 15,430 $ 15,489
31-Jul-96 31-Aug-96 30-Sep-96 31-Oct-96 30-Nov-96 31-Dec-96
$ 12,675 $ 13,100 $ 13,920 $ 13,950 $ 14,860 $ 14,641
$ 14,805 $ 15,117 $ 15,967 $ 16,408 $ 17,647 $ 17,297
31-Jan-97 28-Feb-97 31-Mar-97 30-Apr-97 31-May-97 30-Jun-97
$ 15,498 $ 15,467 $ 14,794 $ 15,538 $ 16,734 $ 16,935
$ 18,377 $ 18,521 $ 17,762 $ 18,821 $ 19,966 $ 20,861
31-Jul-97 31-Aug-97 30-Sep-97 31-Oct-97 30-Nov-97 31-Dec-97
$ 18,413 $ 17,465 $ 18,210 $ 17,414 $ 17,904 $ 18,091
$ 22,520 $ 21,259 $ 22,423 $ 21,675 $ 21,921 $ 22,550
This chart reflects a comparison of the change in value of a $10,000 investment
in ValuGrowthSM Stock Fund compared to the performance of the S & P 500 Index
from the period of the inception date of the Fund through December 31, 1997. It
is important to keep in mind that the S & P 500 Index excludes the effect of any
fees. Total return for the Fund includes reinvestment of dividends and
distributions. It does not reflect charges for the variable annuity and variable
life contracts or certificates thereunder whose proceeds are invested in the
Fund. Total return would have been lower had certain fees and expenses not been
voluntarily waived and/or reimbursed. PAST PERFORMANCE IS NOT PREDICTIVE OF
FUTURE PERFORMANCE.
4
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NORWEST SELECT FUNDS
1997 PERFORMANCE REVIEW
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SMALL COMPANY STOCK FUND
For the twelve month period ending December 31, 1997, the Fund achieved a total
return of 9.87%, compared to the return of 20.75% for the Lipper Small Cap
universe average and 22.36% for the Russell 2000 Index of small company stocks.
The Fund got off to a slow start during 1997. By May, however, the Fund had
virtually caught up to its Lipper Small Cap peer group average. Throughout the
remainder of the year the Fund matched or trailed its Lipper peers, enduring a
particularly difficult fourth quarter. The Fund's meager performance can be
traced to four factors: Under-weighting the utilities sector (utilities
performed well), under-weighting the finance sector (finance performed well),
over-weighting the energy sector (energy had disappointing first and fourth
quarter performance), and slightly over-weighting the technology sector
(technology performed very poorly in the fourth quarter).
1997 performance was obviously disappointing, especially after a rather strong
year in 1996. In our continuous efforts to improve the Fund's investment
process, the portfolio began to use a system of sector collars. We have
implemented a system where we set the maximum and minimum percentages of stocks
we will own for each of the S&P 600 Small Cap Index sectors. By eliminating
overweight and underweight positions by sector, we believe volatility and
turnover will be reduced. It will also allow us to focus on what we do best,
which is to pick stocks versus the index.
The Fund seeks to invest in high quality, undervalued growth companies that
possess reasonable liquidity. Issue selection is paramount, relying upon company
fundamentals to support internal earnings growth in conjunction with attractive
valuation. Holdings include companies whose growth potential are unrecognized or
misperceived. Stocks are held to optimize participation in long-term growth.
Sell disciplines are employed to realize profits, avoid large losses or adjust
the overall portfolio.
Our outlook is positive for the Fund and small caps in general. Issues of
concern for small caps are financial stability in Asia and unrest in the middle
east. Until these fears subside, we think small caps will be challenged to
outperform as money has flowed to more liquid, larger capitalized investments.
SMALL COMPNAY STOCK FUND VS. RUSSELL 2000 INDEX
Inception* 31-May-95 30-Jun-95
Select Small Company Stock Fund $ 10,000 $ 10,040 $ 10,670
Russell 2000 Index $ 10,000 $ 10,164 $ 10,681
31-Jul-95 31-Aug-95 30-Sep-95 31-Oct-95 30-Nov-95 31-Dec-95
$ 11,740 $ 11,970 $ 11,920 $ 11,280 $ 11,590 $ 11,595
$ 11,296 $ 11,522 $ 11,728 $ 11,205 $ 11,688 $ 11,986
31-Jan-96 29-Feb-96 31-Mar-96 30-Apr-96 31-May-96 30-Jun-96
$ 11,636 $ 11,957 $ 12,484 $ 13,891 $ 14,419 $ 13,404
$ 11,972 $ 12,351 $ 12,596 $ 13,273 $ 13,806 $ 13,243
31-Jul-96 31-Aug-96 30-Sep-96 31-Oct-96 30-Nov-96 31-Dec-96
$ 12,112 $ 13,177 $ 13,819 $ 14,088 $ 14,750 $ 15,243
$ 12,087 $ 12,789 $ 13,288 $ 13,082 $ 13,618 $ 13,968
31-Jan-97 28-Feb-97 31-Mar-97 30-Apr-97 31-May-97 30-Jun-97
$ 15,571 $ 14,690 $ 13,482 $ 13,087 $ 15,729 $ 16,011
$ 14,245 $ 13,900 $ 13,248 $ 13,281 $ 14,762 $ 15,389
31-Jul-97 31-Aug-97 30-Sep-97 31-Oct-97 30-Nov-97 31-Dec-97
$ 17,039 $ 17,468 $ 18,778 $ 17,569 $ 16,824 $ 16,734
$ 16,107 $ 16,470 $ 17,673 $ 16,887 $ 16,772 $ 17,073
This chart reflects a comparison of the change in value of a $10,000 investment
in Small Company Stock Fund compared to the performance of the Russell 2000
Index from the period of the inception date of the Fund through December 31,
1997. It is important to keep in mind that the Russell 2000 Index excludes the
effect of any fees. Total return for the Fund includes reinvestment of dividends
and distributions. It does not reflect charges for the variable annuity and
variable life contracts or certificates thereunder whose proceeds are invested
in the Fund. Total return would have been lower had certain fees and expenses
not been voluntarily waived and/or reimbursed. PAST PERFORMANCE IS NOT
PREDICTIVE OF FUTURE PERFORMANCE.
5
<PAGE>
NORWEST SELECT FUNDS
INDEPENDENT AUDITORS' REPORT
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THE BOARD OF TRUSTEES AND SHAREHOLDERS
NORWEST SELECT FUNDS
We have audited the accompanying statements of assets and liabilities of
Intermediate Bond Fund, Income Equity Fund, ValuGrowthSM Stock Fund and Small
Company Stock Fund, portfolios of Norwest Select Funds (the Funds), including
the schedules of investments, as of December 31, 1997, and the related
statements of operations for the year then ended, the statements of changes in
net assets for each of the years in the two-year period ended December 31, 1997
for Intermediate Bond Fund, ValuGrowthSM Stock Fund and Small Company Stock
Fund, the statements of changes in net assets and financial highlights for the
year ended December 31, 1997 and the period from May 6, 1996 (commencement of
operations) to December 31, 1996 for Income Equity Fund, the financial
highlights for each of the years in the three-year period ended December 31,
1997 and the period from June 1, 1994 to December 31, 1994 for Intermediate Bond
Fund and ValuGrowthSM Stock Fund and the financial highlights for each of the
years in the two-year period ended December 31, 1997 and the period from May 1,
1995 to December 31, 1995 for Small Company Stock Fund. These financial
statements and financial highlights are the responsibility of the Funds'
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1997 by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Intermediate Bond Fund, Income Equity Fund, ValuGrowthSM Stock Fund and Small
Company Stock Fund as of December 31, 1997, the results of their operations,
changes in their net assets and financial highlights for the periods referred to
above in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
February 6, 1998
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6
<PAGE>
NORWEST SELECT FUNDS
STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 1997
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<TABLE>
<S> <C> <C> <C> <C>
INTERMEDIATE INCOME VALUGROWTHSM SMALL COMPANY
BOND EQUITY STOCK STOCK
FUND FUND FUND FUND
------------------- ------------------- ------------------- ----------------------
ASSETS
Investments (Note 2)
Investments at cost $ 8,899,791 $ 35,037,310 $ 17,290,479 $ 11,148,077
Net unrealized appreciation (depreciation) 202,887 4,739,680 4,416,032 467,612
------------------- ------------------- ------------------- ----------------------
Total investments at value 9,102,678 39,776,990 21,706,511 11,615,689
Interest, dividends and other receivables 127,784 118,768 52,517 19,955
Receivable for Fund shares sold - 40,612 11,112 11,963
Receivable for investments sold - - - 199,329
Organization costs, net of amortization (Note 2) 14,035 - 14,035 -
------------------- ------------------- ------------------- ----------------------
TOTAL ASSETS 9,244,497 39,936,370 21,784,175 11,846,936
------------------- ------------------- ------------------- ----------------------
LIABILITIES
Payable for Fund shares sold 13,818 - - -
Payable for Fund investments purchased - - - 348,967
Payable to investment adviser - 33,479 6,743 4,218
Accrued expenses and other liabilities 1,681 14,643 13,908 11,919
------------------- ------------------- ------------------- ----------------------
TOTAL LIABILITIES 15,499 48,122 20,651 365,104
------------------- ------------------- ------------------- ----------------------
NET ASSETS $ 9,228,998 $ 39,888,248 $ 21,763,524 $ 11,481,832
=================== =================== =================== ======================
COMPONENTS OF NET ASSETS
Paid-in capital $ 9,026,111 $ 35,148,626 $ 17,414,278 $ 11,316,171
Unrealized appreciation (depreciation) on
investments 202,887 4,739,680 4,416,032 467,612
Accumulated net realized gain (loss) from
investments sold - (58) (66,786) (301,951)
------------------- ------------------- ------------------- ----------------------
NET ASSETS $ 9,228,998 $ 39,888,248 $ 21,763,524 $ 11,481,832
=================== =================== =================== ======================
SHARES OF BENEFICIAL INTEREST, NO PAR VALUE 834,244 2,914,891 1,261,109 899,262
NET ASSET VALUE PER SHARE,
(NET ASSETS DIVIDED BY SHARES OUTSTANDING) $ 11.06 $ 13.68 $ 17.26 $ 12.77
</TABLE>
See Notes to Financial Statements. 7
<PAGE>
NORWEST SELECT FUNDS
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997
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<TABLE>
<S> <C> <C> <C> <C>
INTERMEDIATE INCOME VALUGROWTHSM SMALL COMPANY
BOND EQUITY STOCK STOCK
FUND FUND FUND FUND
------------------- ------------------- ------------------- -------------------
INVESTMENT INCOME
Interest income $ 488,768 $ 71,748 $ 46,918 $ 40,523
Dividend income - 500,677 217,988 32,495
------------------- ------------------- ------------------- -------------------
TOTAL INVESTMENT INCOME 488,768 572,425 264,906 73,018
------------------- ------------------- ------------------- -------------------
EXPENSES
Investment advisory (Note 3) 44,422 172,660 126,680 66,869
Management (Note 3) 7,109 17,119 14,201 7,475
Administration (Note 3) 4,190 13,235 9,364 4,876
Transfer agency (Note 3) 5,923 17,266 12,668 6,687
Custody (Note 3) 1,481 4,317 3,167 1,672
Accounting (Note 3) 52,800 37,800 37,800 48,800
Legal (Note 3) 2,856 6,045 5,417 2,700
Audit 10,975 10,900 9,950 10,975
Trustees fees and expenses 100 263 208 110
Amortization of organization costs (Note 2) 9,907 - 9,907 -
Miscellaneous 6,343 9,913 8,580 6,562
------------------- ------------------- ------------------- -------------------
TOTAL EXPENSES 146,106 289,518 237,942 156,726
Expenses reimbursed and fees waived (Note 5) (101,689) (116,939) (111,306) (89,861)
------------------- ------------------- ------------------- -------------------
NET EXPENSES 44,417 172,579 126,636 66,865
------------------- ------------------- ------------------- -------------------
NET INVESTMENT INCOME 444,351 399,846 138,270 6,153
------------------- ------------------- ------------------- -------------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain (loss) on investments sold 54,845 60,742 368,121 917,143
Net change in unrealized appreciation
(depreciation) on investments 184,401 4,240,072 2,481,842 (237,269)
------------------- ------------------- ------------------- -------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS 239,246 4,300,814 2,849,963 679,874
------------------- ------------------- ------------------- -------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS $ 683,597 $ 4,700,660 $ 2,988,233 $ 686,027
=================== =================== =================== ===================
</TABLE>
See Notes to Financial Statements. 8
<PAGE>
NORWEST SELECT FUNDS
STATEMENTS OF CHANGES FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
INTERMEDIATE INCOME VALUGROWTH(SM) SMALL COMPANY
BOND EQUITY STOCK STOCK
FUND FUND (c) FUND FUND
------------ ------------ ------------ ------------
NET ASSETS - DECEMBER 31, 1995 $ 3,089,913 $ -- $ 4,793,012 $ 2,027,498
- ------------------------------ ------------ ------------ ------------ ------------
OPERATIONS
Net investment income 261,968 67,055 82,753 6,447
Net realized gain (loss) on investments sold 9,221 5,479 47,040 507,685
Net change in unrealized appreciation on investments (118,049) 499,608 1,317,836 592,999
------------ ------------ ------------ ------------
153,140 572,142 1,447,629 1,107,131
------------ ------------ ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income (262,553) (66,965) (82,597) (6,415)
Net realized gain on investments (11,766) (5,538) -- (505,292)
------------ ------------ ------------ ------------
(274,319) (72,503) (82,597) (511,707)
------------ ------------ ------------ ------------
CAPITAL SHARE TRANSACTIONS (A)
Sales of shares 3,418,591 8,938,723 4,742,341 3,076,390
Reinvestment of dividends 275,308 73,059 82,886 511,483
Cost of repurchasing shares (703,845) (96,185) (399,886) (120,128)
------------ ------------ ------------ ------------
2,990,054 8,915,597 4,425,341 3,467,745
------------ ------------ ------------ ------------
NET ASSETS - DECEMBER 31, 1996 (I) 5,958,788 9,415,236 10,583,385 6,090,667
- ---------------------------------- ------------ ------------ ------------ ------------
OPERATIONS
Net investment income 444,351 399,846 138,270 6,153
Net realized gain (loss) on investments sold 54,845 60,742 368,121 917,143
Net change in unrealized appreciation (depreciation)
on investments 184,401 4,240,072 2,481,842 (237,269)
------------ ------------ ------------ ------------
683,597 4,700,660 2,988,233 686,027
------------ ------------ ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income (442,578) (402,934) (138,437) (6,441)
Net realized gain on investments (55,635) (60,744) (388,987) (1,219,084)
Return of capital -- -- (50,858) (291,400)
------------ ------------ ------------ ------------
(498,213) (463,678) (578,282) (1,516,925)
------------ ------------ ------------ ------------
CAPITAL SHARE TRANSACTIONS (B)
Sales of shares 3,364,950 26,014,466 8,661,580 4,984,738
Reinvestment of distributions 499,587 464,753 579,726 1,522,252
Cost of repurchasing shares (779,711) (243,189) (471,118) (284,927)
------------ ------------ ------------ ------------
3,084,826 26,236,030 8,770,188 6,222,063
------------ ------------ ------------ ------------
NET ASSETS - DECEMBER 31, 1997 $ 9,228,998 $ 39,888,248 $ 21,763,524 $ 11,481,832
- ------------------------------ ============ ============ ============ ============
(I) Including undistributed net investment income
(loss) of $ (422) $ 90 $ 156 $ 32
============ ============ ============ ============
(a) Shares Issued (Redeemed) -
For the Year Ended December 31, 1996
Sale of shares 313,226 865,655 363,105 241,806
Reinvestment of distributions 25,680 6,697 5,772 37,887
Redemption of shares (64,627) (9,655) (30,064) (9,316)
------------ ------------ ------------ ------------
Net increase in shares outstanding 274,279 862,697 338,813 270,377
============ ============ ============ ============
(b) Shares Issued (Redeemed) -
For the Year Ended December 31, 1997
Sale of shares 304,026 2,037,173 518,411 343,812
Reinvestment of distributions 45,212 34,503 34,243 124,571
Redemption of shares (70,814) (19,482) (28,590) (20,356)
------------ ------------ ------------ ------------
Net increase in shares outstanding 278,424 2,052,194 524,064 448,027
============ ============ ============ ============
</TABLE>
(c) See Note 1 of Notes to Financial Statements for date of commencement of
operations.
See Notes to Financial Statements. 9
<PAGE>
NORWEST SELECT FUNDS
NOTES TO FINANCIAL STATEMENTS (concluded) DECEMBER 31, 1997
- --------------------------------------------------------------------------------
NOTE 1. ORGANIZATION
Norwest Select Funds (the "Trust") was organized as a Delaware business trust on
December 7, 1993 and is registered as an open-end management investment company
under the Investment Company Act of 1940. The Trust currently has four
diversified investment portfolios (each, a "Fund" and collectively, the
"Funds"). Intermediate Bond Fund and ValuGrowthSM Stock Fund commenced
operations on June 1, 1994. Small Company Stock Fund commenced operations on May
1, 1995. Income Equity Fund commenced operations on May 6, 1996.
Shares of the Trust's Funds may be sold only to separate accounts of insurance
companies to serve as an investment medium for variable life insurance policies
and variable annuity contracts issued by the insurance companies.
The Trust Instrument authorizes the issuance of an unlimited number of shares of
beneficial interest without par value.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These financial statements are prepared in accordance with generally accepted
accounting principles, which require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of increase and decrease in net assets from
operations during the fiscal period. Actual results could differ from those
estimates but are expected to be immaterial to the net assets of the Funds.
The following represents significant accounting policies of the Funds:
SECURITY VALUATION - Securities purchased that mature in 60 days or less are
valued at amortized cost. Securities for which market quotations are readily
available are valued using the last reported sales price provided by independent
pricing services. If no sales are reported, the mean of the last bid and asked
price is used. Fixed-income securities and other securities traded on an
exchange for which market quotations are readily available are valued at the
mean of the last bid and asked price provided by independent pricing services.
If no mean price is available, the last bid price is used. In the absence of
readily available market quotations, securities are valued at fair value
determined in accordance with procedures adopted by the Board of Trustees.
INVESTMENT INCOME - Dividend income is recorded on the ex-dividend date.
Interest income is recorded on an accrual basis.
PREMIUM AMORTIZATION AND DISCOUNT ACCRETION - Fixed-income investments with a
maturity greater than sixty days and purchased at a premium or discount (other
than original issue discount) are amortized or accreted over the life of the
respective securities.
DISTRIBUTIONS TO SHAREHOLDERS - Dividends from net investment income and capital
gain distributions, if any, are distributed to shareholders at least annually.
Distributions are based on amounts calculated in accordance with applicable
federal income tax regulations, which may differ from generally accepted
accounting principles. These differences are due primarily to differing
treatments of income and gain on various investment securities held by a Fund,
timing differences and differing characterizations of distributions made by a
Fund.
FEDERAL TAXES - Each Fund intends to qualify and continue to qualify each year
as a regulated investment company and distribute all of its taxable income. In
addition, by distributing in each calendar year substantially all of its net
investment income, capital gain and certain other amounts, if any, the Fund will
not be subject to a federal excise tax. Therefore, no federal income or excise
tax provision is required.
EXPENSE ALLOCATION - The Trust accounts separately for the assets and
liabilities and operations of each Fund. Expenses that are directly attributable
to more than one Fund are allocated among the respective Funds.
REALIZED GAIN AND LOSS - Security transactions are recorded on a trade date
basis. Realized gain and loss on investments sold are recorded on the basis of
identified cost.
REPURCHASE AGREEMENTS - Each Fund along with certain other Norwest Advantage
Funds may transfer uninvested cash balances into a joint trading account. These
balances are invested in one or more repurchase agreements. The Funds, through
their custodian, receive delivery of the collateral, whose market value must
always equal or exceed the repurchase price. The investment adviser (Norwest) is
responsible for determining the value of the collateral at all times. In the
event of default, a Fund may have difficulties with the disposition of such
collateral.
ORGANIZATIONAL COSTS - The costs incurred by certain Funds in connection with
their organization and registration of shares have been capitalized and are
being amortized using the straight line method over a five-year period beginning
with the commencement of the respective Fund's operations.
3. ADVISORY, SERVICING FEES AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISER - The investment adviser of each Fund is Norwest Investment
Management, Inc. ("Adviser"), a wholly owned subsidiary of Norwest Bank
Minnesota, N.A. ("the Bank"), which is a subsidiary of Norwest Corporation. The
Adviser receives an annual advisory fee from each Fund based on a percentage of
average daily net assets of the respective Fund at the following annual rates:
Intermediate Bond Fund - 0.60%; Income Equity Fund, ValuGrowthSM Stock Fund, and
Small Company Stock fund - 0.80%.
10
<PAGE>
NORWEST SELECT FUNDS
NOTES TO FINANCIAL STATEMENTS (concluded) DECEMBER 31, 1997
- --------------------------------------------------------------------------------
3. ADVISORY, SERVICING FEES AND OTHER TRANSACTIONS WITH AFFILIATES (CONTINUED)
ADMINISTRATOR, MANAGER AND OTHER SERVICES - Effective August 1, 1997, the Trust
entered into an administrative agreement with Forum Administrative Services, LLC
("FAS"), a registered broker-dealer, which is entitled to receive a fee of 0.05%
of the average daily net assets of each Fund. Effective August 1, 1997, the
Trust entered into a management agreement with Forum Financial Services, Inc.(R)
("FFSI"), which is entitled to receive a fee of 0.05% of the average daily net
assets of each Fund. Prior to August 1, 1997, as manager, FAS was entitled to
receive a fee of 0.20% of the average daily net assets of each Fund. In
addition, for the year ended December 31, 1997, FAS charged the Trust legal
expenses aggregating $4,958.
Forum Accounting Services, LLC ("FAcS"), an affiliate of FAS, provides fund
accounting services to the Funds. For these services, FAcS is entitled to
receive a fee of $36,000 per year per Fund plus certain amounts based upon the
number and types of portfolio transactions within each Fund.
The Bank serves as the Trust's transfer agent, dividend disbursing agent and
custodian. For these services the Bank is entitled to receive a fee at an annual
rate of 0.10% of the average daily net assets attributable to each Fund.
NOTE 4. SECURITIES TRANSACTIONS
The cost of securities purchased and the proceeds from sales of securities
(excluding short term securities) for the year ended December 31, 1997 were as
follows:
<TABLE>
<S> <C> <C>
FUND COST OF PURCHASES PROCEEDS FROM SALES
---- ----------------- -------------------
Intermediate Bond Fund $16,104,901 $12,872,298
Income Equity Fund 26,163,462 588,181
ValuGrowthSM Stock Fund 12,247,336 5,140,044
Small Company Stock Fund 20,567,974 16,224,260
</TABLE>
For federal income tax purposes, the tax cost of investment securities owned and
the aggregate gross unrealized appreciation and the aggregate gross unrealized
depreciation as of December 31, 1997, were as follows:
<TABLE>
<S> <C> <C> <C> <C>
UNREALIZED UNREALIZED NET
FUND APPRECIATION DEPRECIATION APPRECIATION TAX COST
---- ------------ ------------ ------------ --------
Intermediate Bond Fund $ 205,207 $ 2,320 $ 202,887 $ 8,899,791
Income Equity Fund 5,375,245 635,623 4,739,622 35,037,368
ValuGrowthSM Stock Fund 4,798,668 390,948 4,407,720 17,298,791
Small Company Stock Fund 1,264,678 800,248 464,430 11,151,259
</TABLE>
NOTE 5. VOLUNTARY WAIVERS AND EXPENSE REIMBURSEMENTS
For the year ended December 31, 1997, the Trust's service providers voluntarily
waived and/or reimbursed certain fees or expenses incurred by the Funds.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
EXPENSES TOTAL FEES WAIVED AND
FEES WAIVED REIMBURSED EXPENSES REIMBURSED
---------------------------------------------------- ---------- ----------------------
CUSTODIAN AND
FUND TRANSFER AGENT ADVISER FAS FACS FFSI FORUM
---- -------------- ------- --- ---- ---- -----
Intermediate Bond Fund $ 7,404 $44,422 $4,190 $10,500 $ 7,108 $28,065 $101,689
Income Equity Fund 21,583 62,502 13,235 2,500 17,119 - 116,939
ValuGrowthSM Stock Fund 15,835 69,406 9,364 2,500 14,201 - 111,306
Small Company Stock Fund 8,359 62,651 4,876 6,500 7,475 - 89,861
</TABLE>
11
<PAGE>
NORWEST SELECT FUNDS
NOTES TO FINANCIAL STATEMENTS (concluded) DECEMBER 31, 1997
- --------------------------------------------------------------------------------
SUPPLEMENTAL INFORMATION (UNAUDITED)
FEDERAL TAX STATUS OF DIVIDENDS DECLARED PER SHARE DURING THE FISCAL YEAR
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
NET INVESTMENT SHORT TERM MID TERM LONG TERM RETURN OF QUALIFYING
FUND INCOME CAPITAL GAIN CAPITAL GAIN CAPITAL GAIN CAPITAL DIVIDENDS
---- -------------- ------------ ------------ ------------ --------- ----------
Intermediate Bond Fund $ 0.562425 $ 0.053252 $ 0.017448 $ - $ - -
Income Equity Fund 0.141222 0.019834 0.001000 0.000456 - 100.0%
ValuGrowthSM Stock Fund 0.113560 0.064155 0.116339 0.138592 0.041719 100.0%
Small Company Stock Fund 0.008380 1.464407 0.101945 0.019722 0.379122 2.9%
</TABLE>
For Federal income purposes, dividends from short term capital gain are
classified as ordinary income. The Funds have designated the above percentage of
the distributions from net investment income and short term capital gains as
qualifying for the dividends received deduction for corporations.
12
<PAGE>
NORWEST SSELECT FUNDS
FINANCIAL HIGHLIGHTS SELECTED DATA FOR A SHARE OUTSTANDING DURING EACH PERIOD
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
INTERMEDIATE INCOME
BOND EQUITY
FUND FUND
-------------------------------------------------- ------------------------
Year Ended
Year Ended December 31, December 31,
-------------------------------------------------- ------------------------
1997 1996 1995 1994 (a) 1997 1996 (a)
-------------------------------------------------- ------------------------
Net Asset Value, Beginning of Period $ 10.72 $ 10.98 $ 9.95 $ 10.00 $ 10.91 $ 10.00
------------ ---------- ---------- ---------- ------------ ---------
Investment Operations
Net Investment Income (Loss) 0.56 0.50 0.33 0.33 0.14 0.08
Net Realized and Unrealized Gain
(Loss) on Investments 0.41 (0.24) 1.36 (0.38) 2.79 0.92
------------ ---------- ---------- ---------- ------------ ---------
Total from Investment Operations 0.97 0.26 1.69 (0.05) 2.93 1.00
------------ ---------- ---------- ---------- ------------ ---------
Distributions From
Net Investment Income (0.56) (0.50) (0.66) - (0.14) (0.08)
Net Realized Gain on Investments (0.07) (0.02) - - (0.02) (0.01)
------------ ---------- ---------- ---------- ------------ ---------
Total Distributions (0.63) (0.52) (0.66) - (0.16) (0.09)
------------ ---------- ---------- ---------- ------------ ---------
Net Asset Value, End of Period $ 11.06 $ 10.72 $ 10.98 $ 9.95 $ 13.68 $ 10.91
============ ========== ========== ========== ============ =========
Total Return (b) 9.08% 2.37% 17.08% (0.50)% 26.90% 9.95%
Ratio/Supplementary Data
Net Assets at End of Period (in 000's) $ 9,229 $ 5,959 $ 3,090 $ 1,255 $ 39,888 $ 9,415
Ratios to Average Net Assets:
Expenses including reimbursement/
waiver of fees 0.60% 0.60% 0.60% 0.60%(c) 0.80% 0.80%(c)
Expenses excluding reimbursement/
waiver of fees 1.97% 2.52% 4.67% 9.31%(c) 1.34% 2.51%(c)
Net investment income 6.00% 6.05% 6.33% 6.45%(c) 1.85% 2.31%(c)
Portfolio turnover rate 179.37% 125.23% 54.04% 52.61% 2.85% 4.20%
Average commission rate (d) N/A N/A N/A N/A $ 0.0884 $ 0.0971
</TABLE>
- ----------------------------------
(a) See Note 1 of Notes to Financial Statements for date of commencement of
operations.
(b) Total return does not reflect any seperate account charges under variable
annuity contracts or life policies.
(c) Annualized.
(d) For the fiscal years beginning on or after September 1, 1995, the Fund is
required to disclose average commission per share paid to brokers on the
purchase or sale of equity securities on which commissions were charged.
See Notes to Financial Statements. 13
<PAGE>
NORWEST SELECT FUNDS
FINANCIAL HIGHLIGHTS (concluded)
SELECTED DATA FOR A SHARE OUTSTANDING DURING EACH PERIOD
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
VALUGROWTHSM SMALL COMPANY
STOCK STOCK
FUND FUND
------------------------------------------------ -------------------------------------
Year Ended December 31, Year Ended December 31,
------------------------------------------------ ---------------------------------------
1997 1996 1995 1994 (a) 1997 1996 1995 (a)
------------------------------------------------ -------------------------------------
Net Asset Value, Beginning of Period $ 14.36 $ 12.04 $ 9.81 $ 10.00 $ 13.50 $ 11.21 $ 10.00
---------- ---------- --------- ---------- ------------ ---------- ----------
Investment Operations
Net Investment Income (Loss) 0.11 0.11 0.07 0.07 0.01 0.02 0.06
Net Realized and Unrealized Gain
(Loss) on Investments 3.26 2.32 2.30 (0.26) 1.24 3.51 1.54
---------- ---------- --------- ---------- ------------ ---------- ----------
Total from Investment Operations 3.37 2.43 2.37 (0.19) 1.25 3.53 1.60
---------- ---------- --------- ---------- ------------ ---------- ----------
Distributions From
Net Investment Income (0.11) (0.11) (0.14) - (0.01) (0.02) (0.06)
Net Realized Gain on Investments (0.32) - - - (1.59) (1.22) (0.33)
Return of Capital (0.04) - - - (0.38) - -
---------- ---------- --------- ---------- ------------ ---------- ----------
Total Distributions (0.47) (0.11) (0.14) - (1.98) (1.24) (0.39)
---------- ---------- --------- ---------- ------------ ---------- ----------
Net Asset Value, End of Period $ 17.26 $ 14.36 $ 12.04 $ 9.81 $ 12.77 $ 13.50 $ 11.21
========== ========== ========= ========== ============ ========== ==========
Total Return (b) 23.56% 20.21% 24.15% (1.09)% 9.87% 31.47% 15.95%
Ratio/Supplementary Data
Net Assets at End of Period (in 000's) $21,764 $ 10,583 $ 4,793 $ 1,910 $ 11,482 $ 6,091 $ 2,027
Ratio to Average Net Assets:
Expenses including reimbursement/
waiver of fees 0.80% 0.80% 0.80% 0.80%(c) 0.80% 0.80% 0.80%(c)
Expenses excluding reimbursement/
waiver of fees 1.50% 2.02% 3.81% 8.00%(c) 1.88% 2.82% 5.38%(c)
Net investment income 0.87% 1.08% 1.24% 1.67%(c) 0.07% 0.16% 1.02%(c)
Portfolio turnover rate 34.58% 37.57% 25.44% 16.77% 208.95% 194.87% 51.16%
Average commission rate (d) $ 0.0735 $ 0.0847 N/A N/A $ 0.0633 $ 0.0590 N/A
</TABLE>
- ----------------------------------
(a) See Note 1 of Notes to Financial Statements for date of commencement of
operations.
(b) Total return does not reflect any seperate account charges under variable
annuity contracts or life policies.
(c) Annualized.
(d) For the fiscal years beginning on or after September 1, 1995, the Fund is
required to disclose average commission per share paid to brokers on the
purchase or sale of equity securities on which commissions were charged.
See Notes to Financial Statements. 14
<PAGE>
NORWEST SELECT FUNDS
SCHEDULES OF INVESTMENTS DECEMBER 31, 1997
- --------------------------------------------------------------------------------
INTERMEDIATE BOND FUND
<TABLE>
<S> <C> <C>
Face/Share
Amount Value
- ---------------- ------------------
ASSET BACKED SECURITIES (9.8%)
200,000 California Infrastructure, Pacific Gas & Electric, Series 1997-1,
Class A3, 6.15%, 6/25/02 $ 200,500
200,000 California Infrastructure, Southern California Edison Co.,
Series 1997-1, Class A2, 6.14%, 3/25/02 200,474
193,331 Mid-State Trust VI, Series 1, Class A1, 7.34%, 7/1/35 198,436
290,000 PSB Lending, Series 1997-2, Class A5, 7.63%, 11/20/23 (a) 292,900
------------------
TOTAL ASSET BACKED SECURITIES (COST $883,205) 892,310
------------------
CORPORATE BONDS & NOTES (33.7%)
200,000 AMBAC, Inc., 9.38%, 8/1/11 251,516
200,000 American Home Products Corp., 7.25%, 3/1/23 212,250
200,000 Atlantic Richfield Co., 9.00%, 4/1/21 252,934
300,000 Bear Stearns Cos., Inc., 7.00%, 3/1/07 309,771
200,000 Consolidated Natural Gas Co., 6.63%, 12/1/08 204,896
200,000 Dillard Department Stores, Inc., 9.13%, 8/1/11 246,850
300,000 Ford Motor Co., 9.50%, 9/15/11 377,589
185,000 General Electric Capital Corp., 7.88%, 12/1/06 205,940
200,000 Gruma SA de CV, 7.63%, 10/15/07 (a) 199,352
125,000 Lehman Brothers Holdings, 6.63%, 12/27/02 125,715
350,000 Oracle Corp., 6.72%, 2/15/04 356,792
100,000 Philip Morris Cos., Inc., 9.00%, 5/15/98 100,960
200,000 Tosco Corp., 7.80%, 1/1/27 221,620
------------------
TOTAL CORPORATE BONDS & NOTES (COST $2,970,842) 3,066,185
------------------
MORTGAGE BACKED SECURITIES (6.2%)
Federal Home Loan Mortgage Corporation (2.9%)
266,525 FHLMC Gold Pool FGD70924, 6.50%, 5/1/26 (COST $256,657) 264,193
------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (3.3%)
294,190 GNMA Pool 445071, 7.50%, 1/15/27 (COST $294,278) 302,003
------------------
TOTAL MORTGAGE BACKED SECURITIES (COST $550,935) 566,196
------------------
MUNICIPAL NOTES (2.2%)
200,000 Denver, CO, City and County SD #1, Educational Facilities
Revenue Bonds, Taxable Pension, School Facilites Lease,
AMBAC insured, 6.49%, 12/15/02 (COST $200,000) 203,700
------------------
</TABLE>
See Notes to Financial Statements. 15
<PAGE>
NORWEST SELECT FUNDS
SCHEDULES OF INVESTMENTS (continued) DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
INTERMEDIATE BOND FUND (CONCLUDED)
Face/Share
Amount Value
- ---------------- ------------------
U.S. TREASURY OBLIGATIONS (45.8%)
U.S. TREASURY NOTES (38.3%)
<S> <C> <C> <C>
50,000 5.88%, 8/15/98 $ 50,085
300,000 8.88%, 11/15/98 308,163
400,000 6.25%, 3/31/99 402,996
250,000 5.88%, 7/31/99 250,788
500,000 7.75%, 11/30/99 518,730
250,000 7.13%, 2/29/00 257,315
300,000 5.50%, 4/15/00 299,019
500,000 6.38%, 3/31/01 509,525
400,000 7.50%, 11/15/01 424,220
200,000 6.25%, 1/31/02 203,652
100,000 6.25%, 6/30/02 102,034
150,000 6.50%, 10/15/06 157,131
TOTAL U.S. TREASURY NOTES (COST $3,455,123) ------------
3,483,658
------------
U.S. TREASURY BONDS (7.5%)
150,000 7.13%, 2/15/23 171,312
425,000 7.50%, 11/15/24 508,853
------------
TOTAL U.S. TREASURY BONDS (COST $629,222) 680,165
------------
TOTAL U.S. TREASURY OBLIGATIONS (COST $4,084,345) 4,163,823
------------
SHORT TERM HOLDINGS (2.3%)
210,464 DrEyfus Cash Management Fund (cost $210,464) 210,464
------------
TOTAL INVESTMENTS (100.0%) (COST $8,899,791) $ 9,102,678
==============
</TABLE>
- -------------------------------
(a) Securities that may be resold to "qualified institutional buyers" under
rule 144A or securities offered pursuant to 4(2) of the Securities Act of
1933, as amended.
AMBAC American Municipal Bond Assurance Corporation
FHLMC Federal Home Loan Mortgage Corporation
GNMA Government National Mortgage Association
See Notes to Financial Statements. 16
<PAGE>
NORWEST SELECT FUNDS
SCHEDULES OF INVESTMENTS (continued) DECEMBER 31, 1997
- --------------------------------------------------------------------------------
INCOME EQUITY FUND
<TABLE>
<S> <C> <C>
Face/Share
Amount Value
- ---------------- ------------------
COMMON STOCK (96.8%)
BASIC MATERIALS (4.4%)
19,760 Du Pont (E.I.) De Nemours $ 1,186,840
16,180 Morton International, Inc. 556,190
------------------
1,743,030
------------------
CAPITAL GOODS (7.8%)
12,560 Emerson Electric Co. 708,850
12,830 General Electric Co. 941,396
13,670 Honeywell, Inc. 936,395
7,740 United Technologies Corp. 563,570
------------------
------------------
3,150,211
------------------
CONSUMER CYCLICAL (12.9%)
9,965 Dayton Hudson Corp. 672,630
12,250 Deluxe Corp. 422,620
37,730 Dun & Bradstreet Corp. 1,167,270
11,355 Eastman Kodak Co. 690,530
13,095 J.C. Penney Co., Inc. 789,800
17,315 May Department Stores Co. 912,280
10,590 Sears, Roebuck and Co. 479,200
------------------
5,134,330
------------------
CONSUMER STAPLES (22.6%)
11,340 American Home Products Corp. 867,500
30,580 Fortune Brands, Inc. 1,133,370
12,410 Johnson & Johnson 817,510
13,440 McDonald's Corp. 641,760
7,160 Merck & Co., Inc. 760,755
21,840 PepsiCo, Inc. 795,795
11,860 Pfizer, Inc. 884,315
19,440 Philip Morris Cos., Inc. 880,875
12,880 Procter & Gamble Co. 1,027,990
20,925 Sara Lee Corp. 1,178,345
1,727 Tricon Global Restaurants, Inc. (a) 50,195
------------------
9,038,410
------------------
ENERGY (10.8%)
11,480 Atlantic Richfield Co. 919,825
10,475 Chevron Corp. 806,565
12,000 Exxon Corp. 734,255
6,700 Mobil Corp. 483,655
9,760 Royal Dutch Petroleum Co., ADR 528,875
10,070 Schlumberger, Ltd. 810,635
------------------
4,283,810
------------------
FINANCIAL (11.8%)
9,580 American Express Co. 855,020
15,070 American General Corp. 814,725
</TABLE>
See Notes to Financial Statements. 17
<PAGE>
NORWEST SELECT FUNDS
SCHEDULES OF INVESTMENTS (continued) DECEMBER 31, 1997
- --------------------------------------------------------------------------------
INCOME EQUITY FUND (CONCLUDED)
<TABLE>
<S> <C> <C>
Face/Share
Amount Value
- ---------------- ------------------
FINANCIAL (CONCLUDED)
8,325 J.P. Morgan & Co., Inc. $ 939,690
10,970 Transamerica Corp. 1,168,295
8,230 U.S. Bancorp 921,240
------------------
4,698,970
------------------
MISCELLANEOUS (3.9%)
14,670 Cognizant Corp. 653,735
10,730 Minnesota Mining & Manufacturing Co. 880,530
------------------
1,534,265
------------------
TECHNOLOGY (10.5%)
28,090 AMP, Inc. 1,179,780
26,565 AT&T Corp. 1,627,105
21,750 Hewlett-Packard Co. 1,359,375
------------------
4,166,260
------------------
UTILITIES AND TELECOMMUNICATIONS (12.1%)
11,800 Consolidated Natural Gas Co. 713,900
6,320 FPL Group, Inc. 374,065
18,210 GTE Corp. 951,475
8,810 Lucent Technologies, Inc. 703,695
20,390 Pacific Gas & Electric Co. 620,620
12,510 Public Service Enterprise Group, Inc. 396,410
11,660 Texas Utilities Co. 484,625
20,180 Waste Management, Inc. 554,950
------------------
4,799,740
------------------
TOTAL COMMON STOCK (COST $33,809,346) 38,549,026
------------------
REPURCHASE AGREEMENTS (3.2%)
1,227,964 BancAmerica Robertson Stephens, 6.50%, 1/2/98, to be repurchased at
$1,228,408 (Collateralized by multiple Farm Credit Discount Notes, 5.45%
to 5.47%, 11/19/98 to 12/16/98, Par $134,440,000)
(cost $1,227,964) 1,227,964
------------------
TOTAL INVESTMENTS (100.0%) (cost $35,037,310) $ 39,776,990
==================
- -------------------------------
</TABLE>
(a) Non income producing security
ADR - American Depositary Receipts
See Notes to Financial Statements. 18
<PAGE>
NORWEST SELECT FUNDS
SCHEDULES OF INVESTMENTS (continued) DECEMBER 31, 1997
- --------------------------------------------------------------------------------
VALUGROWTHSM STOCK FUND
<TABLE>
<S> <C> <C>
Face/Share
Amount Value
- ---------------- ------------------
COMMON STOCK (92.8%)
Basic Materials (5.7%)
6,000 Du Pont (E.I.) De Nemours $ 360,375
7,100 Ecolab, Inc. 393,605
6,800 Millipore Corp. 230,775
6,100 Monsanto Co. 256,200
------------------
1,240,955
------------------
CAPITAL GOODS (8.4%)
6,600 Emerson Electric Co. 372,495
4,600 General Electric Co. 337,525
6,600 Honeywell, Inc. 452,100
7,300 Parker-Hannifin Corp. 334,885
8,100 USA Waste Services, Inc. (a) 317,925
------------------
1,814,930
------------------
CONSUMER CYCLICAL (10.7%)
6,000 Black & Decker Corp. 234,375
7,700 Gentex Corp. (a) 206,935
10,500 Mattel, Inc. 391,125
5,800 May Department Stores Co. 305,585
10,600 Newell Co. 450,505
6,100 Sears, Roebuck and Co. 276,025
4,600 Walt Disney Co. 455,685
------------------
2,320,235
------------------
CONSUMER STAPLES (19.1%)
3,200 American Home Products Corp. 244,800
6,800 Baxter International, Inc. 342,975
6,700 Becton, Dickinson & Co. 335,000
3,400 Coca-Cola Co. 226,525
9,300 Culligan Water Technologies, Inc. (a) 467,325
4,284 Gillette Co. 430,275
5,200 Johnson & Johnson 342,555
5,700 Kimberly-Clark Corp. 281,080
7,200 Medtronic, Inc. 376,650
3,700 Merck & Co., Inc. 393,120
10,100 PepsiCo, Inc. 368,020
4,200 Procter & Gamble Co. 335,215
------------------
4,143,540
------------------
ENERGY (8.1%)
4,000 Chevron Corp. 308,000
10,100 Dresser Industries, Inc. 423,560
5,000 Mobil Corp. 360,940
5,400 Royal Dutch Petroleum Co., ADR 292,610
4,600 Schlumberger, Ltd. 370,300
------------------
1,755,410
------------------
</TABLE>
See Notes to Financial Statements. 19
<PAGE>
NORWEST SELECT FUNDS
SCHEDULES OF INVESTMENTS (continued) DECEMBER 31, 1997
- --------------------------------------------------------------------------------
VALUGROWTHSM STOCK FUND (CONTINUED)
<TABLE>
<S> <C> <C>
Face/Share
Amount Value
- ---------------- ------------------
FINANCIAL (20.0%)
3,350 American International Group, Inc. $ 364,315
6,200 BankAmerica Corp. 452,605
5,000 Chubb Corp. 378,120
2,300 Citicorp 290,805
6,610 Equity Office Properties Trust 208,615
7,500 First Union Corp. 384,375
8,600 Federal National Mortgage Association 490,735
3,750 Franklin Resources, Inc. 326,015
9,300 H & R Block, Inc. 416,755
13,400 Patriot American Hospitality, Inc. 386,085
6,100 State Street Corp. 354,945
6,825 SunAmerica, Inc. 291,770
------------------
4,345,140
------------------
MISCELLANEOUS (3.5%)
5,100 Philips Electronics N.V. 308,553
10,350 Thermo Electron Corp. (a) 460,570
------------------
769,123
------------------
TECHNOLOGY (14.3%)
13,100 American Power Conversion Corp.(a) 309,489
5,900 Cabletron Systems, Inc.(a) 88,500
7,725 Cisco Systems, Inc.(a) 430,671
7,950 Computer Associates International, Inc. 420,356
7,000 Electronics for Imaging, Inc. (a) 116,375
16,500 EMC Corp.(a) 452,720
4,300 Intel Corp. 302,075
2,200 Microsoft Corp.(a) 284,351
3,100 Motorola Corp. 176,894
4,700 L.M. Ericsson Telephone Co., ADR 175,369
4,700 Xerox Corp. 346,922
------------------
3,103,722
------------------
UTILITIES AND TELECOMMUNICATIONS (3.0%)
6,000 Consolidated Natural Gas Co. 363,000
7,100 Texas Utilities Co. 295,095
------------------
658,095
------------------
TOTAL COMMON STOCK (COST $15,735,118) 20,151,150
------------------
SHORT-TERM HOLDINGS (7.2%)
773,280 Dreyfus Cash Management Fund $ 773,280
782,081 Institutional Funds Group, TempFund Fund 782,081
------------------
TOTAL SHORT-TERM HOLDINGS (COST $1,555,361) 1,555,361
------------------
TOTAL INVESTMENTS (100.0%) (COST $17,290,479) $ 21,706,511
==================
</TABLE>
- -------------------------------
(a) Non income producing security
ADR - American Depositary Receipts
See Notes to Financial Statements. 20
<PAGE>
NORWEST SELECT FUNDS
SCHEDULES OF INVESTMENTS (continued) DECEMBER 31, 1997
- --------------------------------------------------------------------------------
SMALL COMPANY STOCK FUND
<TABLE>
<S> <C> <C>
Face/Share
Amount Value
- ---------------- ------------------
COMMON STOCK (92.4%)
Basic Materials (1.9%)
7,550 Titanium Metals Corp. (a) $ 218,010
------------------
CAPITAL GOODS (4.2%)
7,100 Keystone Automotive Industries, Inc. (a) 168,626
7,375 NS Group, Inc. (a) 126,290
7,830 Power-One, Inc. (a) 107,663
10,700 Middleby Corp. (a) 83,595
------------------
486,174
------------------
COMMUNICATIONS (3.5%)
6,401 CellStar Corp. (a) 127,202
5,920 Inter-Tel, Inc. 114,700
5,530 Orbital Sciences Corp. (a) 164,518
------------------
406,420
------------------
CONSUMER CYCLICAL (13.1%)
3,765 Billing Information Concepts (a) 180,720
10,442 CHS Electronics, Inc. (a) 178,821
4,415 Dress Barn, Inc. (a) 125,275
7,365 Funco, Inc. (a) 109,558
6,751 Schlotzsky's, Inc. (a) 98,735
6,655 SCP Pool Corp. (a) 128,105
7,515 Showbiz Pizza Time, Inc. (a) 172,845
4,035 Stage Stores, Inc. (a) 150,810
6,612 Tetra Technology, Inc. (a) 132,240
6,800 Valassis Communication, Inc. (a) 251,600
------------------
1,528,709
------------------
CONSUMER STAPLES (9.0%)
6,250 ACNielson Corp. (a) 152,345
8,100 Foodmaker, Inc. (a) 122,005
6,700 Ivex Packaging Corp. (a) 160,800
4,475 Mail-well, Inc. (a) 181,238
4,550 Oshkosh b'Gosh, Inc. 150,150
4,910 QuadraMed Corp. (a) 135,025
7,200 Rayovac Corp. (a) 138,600
------------------
1,040,163
------------------
ENERGY (9.8%)
21,767 Abacan Resource Corp.(a) 34,010
3,220 Atwood Oceanics, Inc.(a) 152,545
7,385 Basin Exploration, Inc. (a) 131,080
7,310 Callon Petroleum Co. (a) 119,015
8,360 IRI International Corp. (a) 117,040
5,320 KCS Energy, Inc. 110,390
5,705 Marine Drilling Co., Inc.(a) 118,375
</TABLE>
See Notes to Financial Statements. 21
<PAGE>
NORWEST SELECT FUNDS
SCHEDULES OF INVESTMENTS (continued) DECEMBER 31, 1997
- --------------------------------------------------------------------------------
SMALL COMPANY STOCK FUND (CONTINUED)
<TABLE>
<S> <C> <C>
Face/Share
Amount Value
- ---------------- ------------------
ENERGY (CONCLUDED)
26,500 National Energy Group (a) 107,657
6,155 Snyder Oil Corp. $ 112,329
2,750 Stolt Comex Seaway, S.A. (a) 137,500
------------------
1,139,941
------------------
FINANCIAL (17.1%)
7,150 American Capital Strategies, Ltd. 129,595
6,500 Consolidated Capital Corp. (a) 132,030
4,070 Downey Financial Corp. 115,740
7,000 Franchise Mortgage Acceptance Co. LLC (a) 128,625
5,350 Friedman, Billings, Ramsey Group, Inc. (a) 95,965
9,800 Haven Bancorp, Inc. 220,500
8,345 Imperial Credit Commercial Mortgage Investment Corp. 122,045
10,615 Imperial Credit Industries, Inc. (a) 217,605
6,710 INSpire Insurance Solutions, Inc. (a) 140,074
4,900 Leasing Solutions, Inc. (a) 116,989
10,250 Medallion Financial Corp. 225,500
6,065 Peoples Bank, Bridgeport 230,470
1,760 Webster Financial Corp. 117,040
------------------
1,992,178
------------------
HEALTH CARE (9.2%)
7,100 Cerner Corp. (a) 149,989
7,645 FPA Medical Management, Inc. (a) 142,390
10,015 Graham-Field Health Products, Inc. (a) 167,120
12,150 Lifecore Biomedical, Inc. (a) 265,780
9,450 Specialty Care Network, Inc. (a) 128,755
8,050 Trigon Healthcare, Inc. (a) 210,305
------------------
1,064,339
------------------
MISCELLANEOUS (1.5%)
7,840 Dycom Industries, Inc. (a) 169,052
------------------
TECHNOLOGY (18.5%)
15,400 Accelr8 Technology Corp.(a) 415,800
3,080 Ciber, Inc.(a) 178,640
5,201 Computer Horizons Corp.(a) 234,045
5,650 Computer Products, Inc. (a) 127,830
3,625 Computer Task Group, Inc. 128,914
5,175 Exar Corp. (a) 85,388
6,145 Integrated Circuit Systems, Inc. (a) 175,133
4,190 Metro Information Services, Inc.(a) 116,274
9,365 SEEC, Inc.(a) 151,595
7,695 SPR, Inc. (a) 130,815
9,440 STB Systems, Inc. (a) 207,680
</TABLE>
See Notes to Financial Statements. 22
<PAGE>
NORWEST SELECT FUNDS
SCHEDULES OF INVESTMENTS (concluded) DECEMBER 31, 1997
- --------------------------------------------------------------------------------
SMALL COMPANY STOCK FUND (CONCLUDED)
<TABLE>
<S> <C> <C>
Face/Share
Amount Value
- ---------------- ------------------
TECHNOLOGY (CONCLUDED)
11,100 Zygo Corp.(a) 208,125
------------------
2,160,239
------------------
TRANSPORTATION (2.7%)
5,550 Covenant Transportation, Inc.(a) $ 84,639
7,950 Jevic Transportation, Inc. (a) 128,196
4,050 Simon Transportation Services (a) 97,200
------------------
310,035
------------------
UTILITIES (1.9%)
12,205 General Communications, Inc. (a) 80,860
6,220 Western Gas Resources, Inc. 137,620
------------------
218,480
------------------
TOTAL COMMON STOCK (COST $10,266,128) 10,733,740
------------------
SHORT-TERM HOLDINGS (7.6%)
541,134 Fidelity Money Market Fund 541,134
340,815 Provident Federal Trust 340,815
------------------
TOTAL SHORT-TERM HOLDINGS (COST $881,949) 881,949
------------------
TOTAL INVESTMENTS (100.0%) (COST $11,148,077) $ 11,615,689
==================
</TABLE>
- -------------------------------
(a) Non income producing security
See Notes to Financial Statements. 23
<PAGE>
[Logo] NORWEST
------------------
PASSAGE VARIABLE ANNUITY(R)
Norwest Select Funds
Shareholders Services
Minneapolis/St. Paul 667-8833
Elsewhere 800-338-1348
Norwest Investment Management, Inc.
Investment Adviser
Norwest Bank Minnesota, N.A.
Transfer Agent
Custodian
Forum Financial Services, Inc.
Distributor
(C)1998 Norwest Select Funds
PVBAA 085 2/98
This report is authorized for distribution only to shareholders and to holders
of variable annuity contracts of Norwest Passage Variable Annuity. If it is
delivered to other than a current shareholder or contract holder, then it must
be accompanied by prospectuses for the Norwest Select Funds and the Norwest
Passage Variable Annuity.
