As filed with the Securities and Exchange Commission on April 30, 1999
File Nos. 33-74176 and 811-8202
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
Post-Effective Amendment No. 9
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 10
NORWEST SELECT FUNDS
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
1200 G Street NW
Washington, DC 20005
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It is proposed that this filing will become effective:
_X_ immediately upon filing pursuant to Rule 485, paragraph (b)
___ on May 1, 1999 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: Income Fund, Income Equity Fund,
ValuGrowth (SM) Stock Fund and Small Company Stock Fund.
<PAGE>
NORWEST SELECT FUNDS
PROSPECTUS
MAY 1, 1999
-INCOME FUND
-INCOME EQUITY FUND
-VALUGROWTHSM STOCK FUND
-SMALL COMPANY STOCK FUND
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
<PAGE>
TABLE OF CONTENTS
RISK/RETURN SUMMARY....................................................3
DESCRIPTION OF THE FUNDS...............................................7
MANAGEMENT OF THE FUNDS...............................................10
PURCHASE AND SALE OF SHARES...........................................11
DIVIDENDS AND DISTRIBUTIONS...........................................12
OTHER INFORMATION.....................................................12
FINANCIAL HIGHLIGHTS..................................................13
<PAGE>
RISK/RETURN SUMMARY
The following is a summary of certain key information about the Funds. You will
find additional information about the Funds, including a detailed description of
the risks of an investment in a Fund, after this summary.
In this summary, we will describe 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 market value of a Fund's
investments will fluctuate as the stock or bond markets fluctuate and
that prices overall will decline over longer or shorter periods.
o INTEREST RATE RISK This is the risk that changes in interest rates may
affect the value of a Fund's investments in income-producing
securities or fixed-income debt securities. Increases in interest
rates may cause the value of a Fund's investments in these securities
to fall.
o CREDIT RISK This is the risk that the issuer of a security, or the
counterparty to a contract, will default or otherwise be unable to
honor a financial obligation.
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 the
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 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.
If the Funds' returns reflected fees charged by your variable life insurance
contract/annuity certificate or contract, the returns shown in the bar chart and
table for each Fund would be lower.
A Fund's past performance, of course, does not necessarily indicate how it will
perform in the future.
Other important things for you to note:
o You may lose money by investing in the Funds.
o An investment in the Fund is not a deposit in a bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation
or any other government agency.
INCOME FUND
o Objective: The Fund's investment objective is stable current income
and competitive total return over an interest-rate cycle.
o Principal Investment Strategies: The Fund primarily invests in a
portfolio of investment-grade, intermediate-maturity debt securities.
o Principal Risks: The principal risks of investing in the Fund are
market risk, interest rate risk and credit risk.
<PAGE>
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and table provide an indication of the historical risk of an
investment in the Fund.
[EDGAR Representation of Graph]
1995 1996 1997 1998
- ---- ---- ---- -----
17.08% 2.37% 9.08% 9.12%
During the period shown in the bar chart, the Fund's:
BEST QUARTER was 5.99%, second quarter, 1995; and
WORST QUARTER was -2.19%, first quarter, 1996.
<PAGE>
<TABLE>
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PERFORMANCE TABLE
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SINCE INCEPTION
YEAR(S) 1 YEAR 5 YEARS 10 YEARS (6/1/94)
- -----------------------------------------------------------------------------------------------------------
INCOME FUND 9.12% N/A N/A 7.94%
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LEHMAN INTERMEDIATE 8.42% N/A N/A 7.83%
GOVERNMENT/CORPORATE INDEX
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</TABLE>
INCOME EQUITY FUND
o Objective: The Fund's investment objective is long-term capital
appreciation, consistent with that of the overall equity securities
markets, and above-average dividend income.
o Principal Investment Strategies: The Fund primarily invests in the
common stock of large, income-producing domestic companies.
o Principal Risks: The principal risks of investing in the Fund are
market risk, interest rate risk and credit risk.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and table provide an indication of the historical risk of an
investment in the Fund.
[EDGAR Representation of graph]
1997 1998
- ---- -----
26.90% 18.42%
During the period shown in the bar chart, the Fund's:
BEST QUARTER was 15.63%, fourth quarter, 1998; and
WORST QUARTER was -9.73%, third quarter, 1998.
<PAGE>
<TABLE>
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PERFORMANCE TABLE
- -----------------------------------------------------------------------------------------------------------
SINCE INCEPTION
YEAR(S) 1 YEAR 5 YEARS 10 YEARS (5/6/96)
- -----------------------------------------------------------------------------------------------------------
INCOME EQUITY FUND 18.42% N/A N/A 20.71%
- -----------------------------------------------------------------------------------------------------------
S&P 500 INDEX 28.58% N/A N/A 28.94%
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</TABLE>
VALUGROWTH STOCK FUND
o Objective: The Fund's investment objective is long-term capital
appreciation.
o Principal Investment Strategies: The Fund primarily invests in a
diversified portfolio of common stock and convertible securities.
o Principal Risks: The principal risk of investing in the Fund is market
risk.
<PAGE>
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and table provide an indication of the historical risk of an
investment in the Fund.
[EDGAR representation of bar graph]
1995 1996 1997 1998
- ---- ---- ---- ----
24.15% 20.21% 23.56% 16.18%
During the period shown in the bar chart, the Fund's:
BEST QUARTER was 19.08%, fourth quarter, 1998; and
WORST QUARTER was -14.04%, third quarter, 1998.
<PAGE>
<TABLE>
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PERFORMANCE TABLE
- ----------------------------------------------------------------------------------------------------------
SINCE INCEPTION
YEAR(S) 1 YEAR 5 YEARS 10 YEARS (6/1/94)
- -----------------------------------------------------------------------------------------------------------
VALUGROWTH STOCK FUND 16.18% N/A N/A 17.57%
- -----------------------------------------------------------------------------------------------------------
S&P 500 INDEX 28.58% N/A N/A 26.73%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
SMALL COMPANY STOCK FUND
o Objective: The Fund's investment objective is capital appreciation.
o Principal Investment Strategies: The Fund primarily invests in the
common stock of small and medium-size domestic companies that have a
market capitalization well below that of the average company in the S
& P 500 Index.
o Principal Risks: The principal risk of investing in the Fund is market
risk. The Fund's investments in small or medium size companies may be
more volatile, and differ, sometimes significantly, from the overall
U.S. market. The Fund's investments in smaller capitalization stocks
may have additional risks because these companies often have limited
product lines, markets, or financial resources.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and table provide an indication of the historical risk of an
investment in the Fund.
[EDGAR Representation of bar graph]
1996 1997 1998
- ---- ---- ----
31.47% 9.87% -14.47%
During the period shown in the bar chart, the Fund's:
BEST QUARTER was 18.76%, second quarter, 1997; and
WORST QUARTER was -27.93%, third quarter, 1998.
<PAGE>
<TABLE>
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PERFORMANCE TABLE
- -----------------------------------------------------------------------------------------------------------
SINCE INCEPTION
YEAR(S) 1 YEAR 5 YEARS 10 YEARS (5/17/95)
- -----------------------------------------------------------------------------------------------------------
SMALL COMPANY STOCK FUND -14.47% N/A N/A 10.26%
- -----------------------------------------------------------------------------------------------------------
RUSSELL 2000 INDEX -2.24% N/A N/A 14.96%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
DESCRIPTION OF THE FUNDS
This section of the Prospectus provides a more complete description of the
Funds' investment objectives and principal strategies and risks. There can be,
of course, no assurance that any Fund will achieve its investment objective.
INCOME FUND
The Fund's investment objective is to provide stable current income and
competitive total return over an interest rate cycle. The Fund invests in a
diversified portfolio of fixed and variable rate U.S. Dollar denominated debt
securities. These securities cover a broad spectrum of U.S. issuers, including
U.S. Government securities, mortgage- and asset-backed securities and the debt
securities of financial institutions, corporations, and others.
The Adviser attempts to increase the Fund's performance by applying various
fixed income management techniques combined with fundamental economic, credit
and market analysis while at the same time controlling total return volatility
by targeting the Fund's duration within a narrow band around the Lipper
Corporate A-Rated Debt Average. Duration is a measure of a debt security's
average life that reflects the present value of the security's cash flow and
generally is less than the security's maturity date. The Fund expects to
maintain an average dollar-weighted maturity (or average life in the case of
mortgage-backed and similar securities) of between 3 and 15 years. Normally, the
Fund's investments will have a duration of between 70% and 130% of the duration
of the Lipper Corporate A-Rated Debt Average.
The Fund normally invests:
o at least 80% of its assets in investment-grade debt securities, which
are those securities rated within four highest rating categories, or,
if unrated, of comparable quality;
o up to 50% of its total assets in corporate securities, bonds, notes,
and convertible securities; and
o at least 30% of its total assets in U.S. Government securities.
The Fund limits its investments in mortgage-backed securities to 50% of its
total assets and in other asset-backed securities to 25% of its total assets.
RISK CONSIDERATIONS
The principal risks of the Fund are:
o Market Risk - the risk that the value of the Fund's investments will
change, and possibly decrease, in response to fluctuations in the
stock markets generally;
o Interest Rate Risk - the risk that changes in interest rates will
affect the value of the Fund's investments, in particular, that an
increase in interest rates could cause the Fund's net asset value to
decline;
o Credit Risk - the risk that the issuer of a security will be unable to
pay principal or interest; and
o Management Risk - the risk that the Fund's manager may make poor
choices in selecting securities and that the Fund will not perform as
well as other ond funds.
The Income Fund invests a significant portion of its assets in mortgage-related
securities, which tend to be more volatile than other types of debt securities.
The value of these securities is affected more by changes in interest rates
because when interest rates rise, the maturities of these types of securities
tend to lengthen and the value of the securities decreases more significantly.
<PAGE>
In addition, these types of securities are subject to prepayment when interest
rates fall, which generally results in lower returns because the Fund must
reinvest its assets in debt securities with lower interest rates.
The Fund may invest up to 20% of its assets in debt securities rated in the
fifth highest rating category, which are considered below investment grade
securities (commonly known as "junk bonds"). The Fund's investments in
lower-rated debt securities have more interest rate risk and credit risk than
investments in higher-rated debt securities.
INCOME EQUITY FUND
The Fund's investment objective is long-term capital appreciation consistent
with above-average dividend income. The Fund primarily invests in the common
stock of large, high-quality domestic companies that have above-average return
potential based on current market valuations. In selecting securities for the
Fund, the Adviser uses various valuation measures, including above-average
dividend yields and below industry average price to earnings, price to book and
price to sales ratios. The Adviser considers large companies to be those whose
market capitalization is greater than the median of the Russell 1000 Index or
approximately $3.7 billion. The Fund normally limits its investments in a single
company to less than 10% of its total assets.
RISK CONSIDERATIONS
The principal risks of the Fund are:
o Market Risk - the risk that the value of the Fund's investments will
change, and possibly decrease, in response to fluctuations in the
stock markets generally;
o Credit Risk - the risk that the issue of a security will be unable to
pay dividends;
o Interest Rate Risk - the risk that changes in interest rates will
affect the value of the Fund's investments, in particular, that an
increase in interest rates could cause the Fund's net asset value to
decline; and
o Management Risk - the risk that the Fund's manager may make poor
choices in selecting securities and that the Fund will not perform as
well as other equity funds.
VALUGROWTH STOCK FUND
The Fund's investment objective is long-term capital appreciation. The Fund
primarily invests in medium- and large-capitalization companies (companies with
a market capitalization of greater than $500 million) that, in the view of the
Adviser, possess above average growth characteristics and appear to be
undervalued.
The Fund identifies and invests in companies with earnings and dividends growth
that is faster than inflation and faster than the economy in general. The Fund
invests in companies with growth potential that, in the opinion of the Adviser,
has not yet been fully reflected in the market price of the companies' shares.
In seeking these investments, the Adviser primarily relies on a company by
company analysis (rather than on a broader analysis of industry or economic
sector trends). The Adviser considers such matters as the quality of a company's
management, the existence of a leading or dominant position in a major product
line or market, the soundness of the company's financial position, and the
maintenance of a relatively high rate of return on invested capital and
shareholder's equity. Once the Adviser identifies companies as possible
investments, it applies a number of valuation measures to determine the relative
attractiveness of each company and selects those companies whose shares are most
attractively priced.
The Fund may invest in companies that the Adviser considers to be "special
situations." Special situation companies often have the potential for
significant future earnings growth but have not performed well in the recent
past. These situations may include management turnarounds, corporate or asset
restructurings, or significantly undervalued assets. These investments form a
comparatively small portion of the Fund's portfolio.
<PAGE>
RISK CONSIDERATIONS
The principal risks of the Fund are:
o Market Risk - the risk that the value of the Fund's investments will
change, and possibly decrease, in response as to fluctuations in the
stock or bond markets generally;
o Capitalization Risk - the risk of investments in mid-capitalization
companies, which tend to be more volatile than investments in
large-cap companies; and
o Management Risk - the risk that the Fund's manager may make poor
choices in selecting securities and that the Fund will not perform as
well as other equity funds.
SMALL COMPANY STOCK FUND
The Fund's investment objective is capital appreciation. The Fund primarily
invests in the common stock of small- and medium-size domestic companies that
have a market capitalization well below that of the average company in the S&P
500 Index. The Adviser considers small- and medium-size companies to have a
market capitalization of less than $8 billion.
In selecting securities for the Fund, the Adviser seeks securities with
significant price appreciation potential and attempts to identify companies that
show above-average growth, as compared to long-term overall market growth. The
Fund invests in companies that may be in a relatively early stage of development
or may produce goods and services that have favorable prospects for growth due
to increasing demand or developing markets. Frequently, these companies have a
small management group and single product or product-line expertise that the
Adviser believes may result in an enhanced entrepreneurial spirit and greater
focus. The Adviser believes that these 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 risks of the Fund are:
o Market Risk - the risk that the value of the Fund's investments will
change, and possibly decrease, in response as to fluctuations in the
stock or bond markets generally;
o Capitalization Risk - the risk of investments in small- to
mid-capitalization companies, which tend to be more volatile than
investments in large-cap companies, and also the additional risks of
small-cap companies, which often have limited product lines, markets,
or financial resources; and
o Management Risk - the risk that the Fund's manager may make poor
choices in selecting securities and that the Fund will not perform as
well as other equity funds.
Other Investment Information
TEMPORARY DEFENSIVE POSITION
When business or financial conditions warrant, each Fund may assume a temporary
defensive position and invest all or any portion of its assets in cash or in
cash equivalents. When a Fund has assumed a temporary defensive position, it may
not achieve its investment objective.
PORTFOLIO TURNOVER
The portfolio turnover rate for each Fund is included in the "Financial
Highlights" section of this prospectus. The Funds are actively managed and in
some cases, in response to market conditions, a Fund's portfolio turnover rate
may exceed 100%. A higher rate of portfolio turnover increases brokerage and
other expenses, which must be borne by the Fund and its shareholders. High
portfolio turnover also may result in the realization of substantial net
short-term capital gains, which, when distributed, are taxable to shareholders.
<PAGE>
YEAR 2000
Certain computer systems may not process date-related information properly on
and after January 1, 2000. The Funds' Adviser and manager are addressing this
matter for their systems. The Funds' other service providers have informed the
Funds that they are taking similar measures. This matter, if not corrected,
could adversely affect the services provided to the Funds or the companies in
which the Funds invest and, therefore, could lower the value of your shares.
MANAGEMENT OF THE FUNDS
INVESTMENT ADVISER
The Funds' investment adviser is Norwest Investment Management, Inc.
("Norwest"), a subsidiary of Norwest Bank Minnesota, N.A., located at Norwest
Center, Sixth Street and Marquette, Minneapolis, Minnesota 55479. As of March
31, 1999, Norwest managed over $25.6 billion in assets.
Norwest provides investment advisory services and order placement facilities for
the Funds. For its services under the investment advisory agreement, for the
fiscal year ended December 31, 1998, the Funds paid Norwest the following fees:
FEE AS A PERCENTAGE
OF AVERAGE
FUND DAILY NET ASSETS
- -------------------------------------------------------------------------------
INCOME FUND 0.60%
INCOME EQUITY FUND 0.80%
VALUGROWTH STOCK FUND 0.80%
SMALL COMPANY STOCK FUND 0.80%
PORTFOLIO MANAGERS
The following individuals serve as portfolio managers for the Funds and are
primarily responsible for the day-to-day management of the Funds' portfolios:
o INCOME FUND - Ms. Marjorie H. Grace, CFA. Ms. Grace has been a Vice
President of Norwest since 1997 and a Vice President of Norwest Bank
since 1992. She has served as a portfolio manager for the Fund since
January 1996 and has been a portfolio manager for other funds at
Norwest Bank since 1992.
o INCOME EQUITY FUNd - Mr. David L. Roberts, CFA. Mr. Roberts has been a
Senior Vice President of Norwest Bank since 1991 and has served as the
portfolio manager for the Fund since its inception. He has been
associated with Norwest and its affiliates for more than 20 years in
various investment-related capacities.
o VALUGROWTH STOCK FUNd - Charles J. Meyer, CFA. Mr. Meyer has been
associated with Norwest or its affiliates since 1998. Mr. Meyer is a
Director - Institutional Portfolio Management. From 1992 to 1998, Mr.
Meyer was a portfolio manager for Montana Board of Investments.
o SMALL COMPANY STOCK FUNd - Mr. Kenneth Lee and Mr. Thomas Zeifang. Mr.
Lee has been associated with Norwest or its affiliates since 1999. Mr.
Lee also provides fundamental security analysis and portfolio
management at Wells Capital Management Incorporated. Mr. Zeifang has
been associated with Norwest or its affiliates since 1999. Mr. Zeifang
is also a portfolio manager at Wells Capital Management Incorporated
<PAGE>
with whom he has been associated since 1995. Prior to 1995, he served
as an analyst at Fleet Investment Advisors.
OTHER SERVICE PROVIDERS
The Forum Financial Group of companies provides various services to the Funds.
As of December 31, 1998, Forum provided administrative and distribution services
to investment companies and collective investment funds with assets of
approximately $66.2 billion.
PURCHASE AND SALE OF SHARES
HOW THE FUNDS VALUE THEIR SHARES
The Funds' net asset value or NAV is calculated at 4:00 p.m. Eastern time each
day the New York Stock Exchange is open for business. To calculate the NAV, a
Fund's assets are valued and totaled, liabilities are subtracted, and the
balance, called net assets, is divided by the number of shares outstanding. The
Funds' value their securities at their current market value determined on the
basis of market quotations or, if quotations are not readily available, such
other methods as the Fund's Trustees believe accurately reflect fair market
value.
Your order for purchase or sale of shares is priced at the next NAV calculated
after your order is received by the Fund.
HOW TO PURCHASE AND SELL SHARES
The Funds offer their shares through the separate accounts of life insurance
companies. You may only purchase and sell shares through these separate
accounts. See the Prospectus of the separate account of the participating
insurance company for information on the purchase and sale of the Funds' shares.
DIVIDENDS AND DISTRIBUTIONS
The Funds distribute net investment income annually. Each Fund distributes its
net capital gain, if any, at least annually. Distributions are automatically
reinvested in additional Fund shares at the net asset value next determined
unless you elect to have all distributions paid in cash.
OTHER INFORMATION
FUND REORGANIZATIONS
On March 25, 1999, the Board of Trustees of Norwest Select Funds approved the
reorganization of each Norwest Select Fund into a new portfolio of Wells Fargo
Variable Trust. The reorganizations are part of a plan to consolidate the
Stagecoach and Norwest fund families following last November's merger of Wells
Fargo & Company and Norwest Corporation. Norwest Select Funds will present each
proposed fund reorganization to the fund's shareholders for their approval at a
special meeting that is planned for August 1999.
If shareholders approve the reorganizations, each Norwest Select Fund will
reorganize into a corresponding Wells Fargo Variable Trust portfolio that has
substantially similar investment objectives. The Wells Fargo Variable Trust
portfolios, with the exception of the portfolio combining with Income Equity
Fund, may have somewhat different investment policies and may combine with other
Stagecoach or Norwest Select funds.
You may not purchase contracts with respect to the Wells Fargo Variable Trust
portfolios until after the reorganizations occur, which is anticipated to be in
September 1999.
You need not act with respect to the reorganizations at this time. Norwest
Select Funds and Wells Fargo Variable Trust will mail proxy materials to you in
June if you are a shareholder as of May 6, 1999. These materials will describe
the reorganizations in detail, including any effect on expense ratios. If you
become a shareholder with respect to fund shares after that date, you will not
be entitled to vote those shares on the fund's reorganization, but you may
request a copy of the proxy materials.
You should be aware that, for certain Funds, expense ratio increases of up to
0.40% are contemplated. THE REORGANIZATIONS ARE EXPECTED TO BE TAX-FREE
TRANSACTIONS. THE REORGANIZATIONS WILL NOT TRIGGER ANY SALES CHARGES.
If you have any questions or, after early June, if you want to request a copy of
the proxy materials, you should call 1-800-394-0736.
FINANCIAL HIGHLIGHTS
The Financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represents the rate that an investor would have earned on an investment in the
Fund (assuming reinvestment of dividends and distributions). This information
has been audited by KPMG Peat Marwick LLP, whose report, along with the Fund's
financial statements, is included in the annual report, which is available upon
request.
<TABLE>
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NET REALIZED DISTRIBUTIONS
NET AND DISTRIBUTIONS FROM NET
NORWEST SELECT FUNDS BEGINNING INVESTMENT UNREALIZED FROM NET REALIZED ENDING
NET INCOME GAIN (LOSS) INVESTMENT GAIN NET ASSET RETURN OF
ASSET VALUE (LOSS) ON INCOME ON VALUE CAPITAL
INVESTMENTS INVESTMENTS
INCOME FUND
January 1, 1998 to December 31, 1998 $11.06 $0.48 $0.53 ($0.47) ($0.13) $11.47 --
January 1, 1997 to December 31, 1997 $10.72 $0.56 $0.41 ($0.56) ($0.07) $11.06 --
January 1, 1996 to December 31, 1996 $10.98 $0.50 ($0.24) ($0.50) ($0.02) $10.72 --
January 1, 1995 to December 31, 1995 $9.95 $0.33 $1.36 ($0.66) -- $10.98 --
June 1, 1994 to December 31, 1994 $10.00 $0.33 ($0.38) -- -- $9.95 --
INCOME EQUITY FUND
January 1, 1998 to December 31, 1998 $13.68 $0.18 $2.34 ($0.18) ($0.02) $16.00 --
January 1, 1997 to December 31, 1997 $10.91 $0.14 $2.79 ($0.14) ($0.02) $13.68 --
May 6, 1996 to December 31, 1996 $10.00 $0.08 $0.92 ($0.08) ($0.01) $10.91 --
VALUGROWTH STOCK FUND
January 1, 1998 to December 31, 1998 $17.26 $0.13 $2.66 ($0.13) -- $19.92 --
January 1, 1997 to December 31, 1997 $14.36 $0.11 $3.26 ($0.11) ($0.32) $17.26 ($0.04)
January 1, 1996 to December 31, 1996 $12.04 $0.11 $2.32 ($0.11) -- $14.36 --
January 1, 1995 to December 31, 1995 $9.81 $0.07 $2.30 ($0.14) -- $12.04 --
June 1, 1994 to December 31, 1994 $10.00 $0.07 ($0.26) -- -- $9.81 --
SMALL COMPANY STOCK FUND
January 1, 1998 to December 31, 1998 $12.77 $0.03 ($1.89) ($0.03) -- $10.88 --
January 1, 1997 to December 31, 1997 $13.50 $0.01 $1.24 ($0.01) ($1.59) $12.77 ($0.38)
January 1, 1996 to December 31, 1996 $11.21 $0.02 $3.51 ($0.02) ($1.22) $13.50 --
May 1, 1995 to December 31, 1995 $10.00 $0.06 $1.54 ($0.06) ($0.33) $11.21 --
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</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 any separate account charges under variable
annuity contracts or life policies.
(c) Annualized.
RATIO TO AVERAGE NET ASSETS
------------------------------------
NET Portfolio Net Assets at
INVESTMENT NET GROSS TOTAL Turnover End of Period
INCOME EXPENSES EXPENSES(A) RETURN(B) Rate (000's
Omitted)
5.83% 0.60% 1.33% 9.12% 122.86% $22,199
6.00% 0.60% 1.97% 9.08% 179.37% $9,229
6.05% 0.60% 2.52% 2.37% 125.23% $5,959
6.33% 0.60% 4.67% 17.08% 54.04% $3,090
6.45%(c) 0.60%(c) 9.31%(c) (0.50%) 52.61% $1,255
1.47% 0.80% 1.10% 18.42% 1.58% $86,069
1.85% 0.80% 1.34% 26.90% 2.85% $39,888
2.31%(c) 0.80%(c) 2.51%(c) 9.95% 4.20% $9,415
0.81% 0.80% 1.25% 16.18% 16.94% $35,816
0.87% 0.80% 1.50% 23.56% 34.58% $21,764
1.08% 0.80% 2.02% 20.21% 37.57% $10,583
1.24% 0.80% 3.81% 24.15% 25.44% $4,793
1.67%(c) 0.80%(c) 8.00%(c) (1.09%) 16.77% $1,910
0.31% 0.80% 1.51% (14.47%) 135.30% $13,295
0.07% 0.80% 1.88% 9.87% 208.95% $11,482
0.16% 0.80% 2.82% 31.47% 194.87% $6,091
1.02%(c) 0.80%(c) 5.38%(c) 15.95% 51.16% $2,027
- ------------------------------------------------------------------------------
<PAGE>
You may request the following documents for more information about the Funds:
ANNUAL/SEMI-ANNUAL REPORTS TO SHAREHOLDERS
The Funds' annual and semi-annual reports to shareholders contain additional
information on the Funds' investments. In the annual report, you will find a
discussion of the market conditions and investment strategies that significantly
affected a Fund's performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Each Fund has an SAI, which contains more detailed information about the Fund,
including its operations and investment policies. The Funds' SAIs are
incorporated by reference into (and is legally part of) this prospectus.
You may request a free copy of the current annual/semi-annual report or the SAI,
by contacting your broker or other financial intermediary, or by contacting
1-207-879-1900.
BY PHONE: For Information: 1-800-338-1348
For Literature: 1-800-338-1348
Or you may view or obtain these documents from the SEC:
IN PERSON: at the SEC's Public Reference Room in Washington, D.C.
BY PHONE: 1-800-SEC-0330
BY MAIL: Public Reference Section
Securities and Exchange Commission
Washington, DC 20549-6009
(duplicating fee required)
ON THE INTERNET: www.sec.gov
<PAGE>
NORWEST SELECT FUNDS
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1999
<TABLE>
<S> <C> <C>
ACCOUNT INFORMATION AND SHAREHOLDER SERVICING: DISTRIBUTION:
Norwest Bank Minnesota, N.A.
Transfer Agent Forum Financial Services, Inc.
733 Marquette Avenue Manager and Distributor
Minneapolis, MN 55479-0040 Two Portland Square
(612) 667-8833/(800) 338-1348 Portland, Maine 04101
(207) 879-1900
</TABLE>
Norwest Select 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 May
1, 1999 as may be amended from time to time, offering the shares of Income Fund,
Income Equity Fund, ValuGrowthsm Stock Fund, and Small Company Stock Fund.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE PROSPECTUS.
THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE READ ONLY IN CONJUNCTION WITH
A CORRESPONDING PROSPECTUS, COPIES OF WHICH MAY BE OBTAINED BY AN INVESTOR
WITHOUT CHARGE BY CONTACTING THE DISTRIBUTOR AT THE ADDRESS LISTED ABOVE.
Each Fund is a series portfolio of Norwest Select Funds, a registered open-end,
management investment company (the "Trust").
<PAGE>
TABLE OF CONTENTS
INTRODUCTION.......................................................3
GLOSSARY...........................................................4
INVESTMENT POLICIES................................................5
RISK CONSIDERATIONS...............................................19
INVESTMENT LIMITATIONS............................................24
PERFORMANCE AND ADVERTISING DATA..................................26
MANAGEMENT........................................................28
OTHER INFORMATION.................................................35
APPENDIX A - DESCRIPTION OF SECURITIES RATINGS...................A-1
<PAGE>
INTRODUCTION
BACKGROUND INFORMATION
The Trust was organized as a Delaware business trust on December 7, 1993. The
Trust currently consists of four separate series.
Shares of the Trust currently are sold only to separate accounts ("Separate
Accounts") of insurance companies ("Insurance Companies") to serve as the
investment medium for variable life insurance policies and variable annuity
contracts issued by the insurance companies (collectively the "Contracts"). The
Funds serve as underlying investment vehicles for amounts invested in the
Contracts.
The Separate Accounts, which are owners of the shares, invest in the shares in
accordance with instructions received from the owners of the Contracts. Contract
owners should consider that the investment experience of the Fund or Funds they
select affects the value of and the benefits provided under their Contract. The
Prospectus for the Contracts (which is not issued by the Trust) describes the
relationship between increases or decreases in the net asset value of shares
(and any distributions on the shares) and the benefits provided under a
Contract.
The Fund'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 distributor of the Trust's shares.
<PAGE>
GLOSSARY
ADVISER means Norwest Investment Management, Inc., a subsidiary of Norwest Bank
Minnesota, N.A., and the investment adviser to each Fund.
BOARD means the Board of Trustees of the Trust.
FADS means Forum Administrative Services, LLC the Trust's administrator.
FITCH means Fitch IBCA, Inc.
FORUM means Forum Financial Services, Inc., a registered broker-dealer that is
the Trust's manager and the distributor of the Trust's shares.
MOODY`S means Moody`s Investors Service.
NORWEST means Norwest Investment Management, Inc., the investment adviser to
each Fund.
NORWEST BANK means Norwest Bank Minnesota, N.A.
NRSRO means a nationally recognized statistical rating organization.
SEC means the U.S. Securities and Exchange Commission.
S&P means Standard & Poor's Ratings Group.
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.
<PAGE>
INVESTMENT POLICIES
The following discussion supplements the disclosure in the Prospectus concerning
the Funds' investments, principal investment strategies and risks. Unless
specifically stated otherwise, no Fund may make any investment or employ any
investment technique or strategy not referenced in the Prospectus as relating to
that Fund. For example, while the SAI describes "swap" transactions below, only
those Funds whose investment policies, as described in the Prospectus, allow the
Fund to invest in swap transactions may do so.
RATINGS AS INVESTMENT CRITERIA
Moody's, S&P and other NRSROs are private services that provide ratings of the
credit quality of debt obligations, including convertible securities. A
description of the range of ratings assigned to various types of bonds and other
securities by several NRSROs is included in Appendix A to this SAI. The Funds
may use these ratings when determining whether to purchase, sell or hold a
security. However, 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 Fund, the Adviser
will determine whether the Fund should continue to hold the obligation. Credit
ratings attempt to evaluate the safety of principal and interest payments but do
not evaluate the risks of fluctuations in market value. Also, NRSROs may fail to
make timely changes in credit ratings. An issuer's current financial condition
may be better or worse than a rating indicates.
EQUITY SECURITIES
Equity securities include common stock, preferred stock, convertible securities,
warrants, depositary receipts, shares of closed-end investment companies and
equity-related securities. The market value of all securities, particularly
equity securities, is based upon the market's perception of value and not
necessarily the book value of an issuer or other objective measure of a
company's worth. Overall economic and market conditions also impact an equity
security's price. The market value of an equity security also may fluctuate
based on changes in a company's financial condition. It is possible that a Fund
may experience a substantial or complete loss on an individual equity
investment.
Equity securities owned by a Fund may be traded on a securities exchange or in
the over-the-counter market and may not be traded every day or in the volume
typical of securities traded on a major national securities exchange. As a
result, disposition by a Fund of equity securities to meet redemptions by
investors or otherwise may require the Fund to sell these securities at a
discount from market prices, to sell during periods when disposition is not
desirable, or to make many small sales over an extended period of time.
o 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.
o 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.
o 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.
<PAGE>
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.
o 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.
o 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.
o 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
<PAGE>
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 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.
o 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.
o 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.
o 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
<PAGE>
securities generally are classified as bonds, notes and leases.
Municipal securities may be zero-coupon securities.
General obligation securities are secured by the issuer's pledge of
its full faith, credit and taxing power for the payment of principal
and interest. Revenue securities are payable from revenue derived from
a particular facility, class of facilities or the proceeds of a
special excise tax or other specific revenue source but not from the
issuer's general taxing power. Many of these bonds are additionally
secured by a debt service reserve fund which can be used to make a
limited number of principal and interest payments should the pledged
revenues be insufficient. Various forms of credit enhancement, such as
a bank letter of credit or municipal bond insurance, may also be
employed in revenue bond issues. Private activity bonds and industrial
revenue bonds do not carry the pledge of the credit of the issuing
municipality, but generally are guaranteed by the corporate entity on
whose behalf they are issued. Municipal bonds may also be moral
obligation bonds, which are normally issued by special purpose public
authorities. If the issuer is unable to meet its obligations under the
bonds from current revenues, it may draw on a reserve fund that is
backed by the moral commitment (but not the legal obligation) of the
state or municipality that created the issuer.
Municipal bonds meet longer term capital needs of a municipal issuer
and generally have maturities of more than one year when issued.
Municipal notes are intended to fulfill the short-term capital needs
of the issuer and generally have maturities not exceeding one year.
They include tax anticipation notes, revenue anticipation notes, bond
anticipation notes, construction loan notes and tax-exempt commercial
paper. Municipal notes also include longer-term issues that are
remarketed to investors periodically, usually at one year intervals or
less. Municipal leases generally take the form of a lease or an
installment purchase or conditional sale contract. Municipal leases
are entered into by state and local governments and authorities to
acquire equipment and facilities such as fire and sanitation vehicles,
telecommunications equipment and other capital assets. Leases and
installment purchase or conditional sale contracts (which normally
provide for title to the leased asset to pass eventually to the
government issuer) have evolved as a means for governmental issuers to
acquire property and equipment without being required to meet the
constitutional and statutory requirements for the issuance of debt.
The debt-issuance limitations of many state constitutions and statutes
are deemed to be inapplicable because of the inclusion in many leases
or contracts of "non-appropriation" clauses that provide that the
governmental issuer has no obligation to make future payments under
the lease or contract unless money is appropriated for such purpose by
the appropriate legislative body on a yearly or other periodic basis.
Generally, the Funds will invest in municipal lease obligations
through certificates of participation.
o 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.
<PAGE>
o 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).
o 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."
o 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
<PAGE>
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.
o 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.
o 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.
o 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.
o 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,
<PAGE>
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 the Adviser would not have chosen to sell such securities
and which may result in a taxable gain or loss.
o 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.
o 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).
o 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.
o 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
<PAGE>
no secondary market for GICs and, accordingly, GICs are generally
treated as illiquid investments. GICs are typically unrated.
o 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.
o 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.
<PAGE>
Certain securities may have an initial principal amount that varies
over time based on an interest rate index, and, accordingly, a Fund
might be entitled to less than the initial principal amount of the
security upon the security's maturity. A Fund will purchase these
securities only when the Adviser believes the interest income from the
instrument justifies any principal risks associated with the
instrument. The Adviser 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 Adviser will be able to limit the effects of principal
fluctuations and, accordingly, a Fund may incur losses on those
securities even if held to maturity without issuer default.
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 Adviser monitors the liquidity of each Fund's
investment in variable and floating rate instruments, but there can be
no guarantee that an active secondary market will exist.
o 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.
Each Fund may invest in securities of foreign issuers. 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.
o PARTICIPATION INTERESTS. A Fund may purchase participation interests
in loans or instruments in which the Fund may invest directly that are
owned by banks or other institutions. A participation interest gives a
Fund an undivided proportionate interest in a loan or instrument.
Participation interests may carry a demand feature permitting the
holder to tender the interests back to the bank or other institution.
Participation interests, however, do not provide the Fund with any
right to enforce compliance by the borrower, nor any rights of set-off
against the borrower and the Fund may not directly benefit from any
collateral supporting the loan in which it purchased a participation
interest. As a result, the Fund will assume the credit risk of both
the borrower and the lender that is selling the participation
interest. A Fund will not invest more than 10% of its total assets in
participation interests in which the Fund does not have demand rights.
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
<PAGE>
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. A 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
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
<PAGE>
will not purchase securities on a when-issued, delayed delivery or forward
commitment basis if, as a result, more than 15% of its 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 the 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 its 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, the
Adviser may determine that the securities are liquid. Under these guidelines,
the Adviser must 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 "AGAINST THE BOX"
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.
<PAGE>
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. No assurance can be given that
any hedging or option income strategy will achieve its intended result. 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 its total
assets.
o 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.
No Fund may purchase any call or related put option if the premiums
associated with all the options held by the Fund would exceed 5% of
the Fund's total assets as of the date the option is purchased. Income
Fund may not 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 held
by the Fund. In addition, the current market value of all open futures
positions held by a Fund will not exceed 50% of its total assets.
o 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.
o 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.
o 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
<PAGE>
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.
o 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
Each Fund may invest in foreign securities. 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.
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.
<PAGE>
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. A Fund would intend to use these
transactions as a hedge and not as a speculative investment, and would enter
into the transactions in order to shift the Fund's investment exposure from one
type of investment to another.
A Fund may enter into interest rate protection transactions on an asset-based
basis, depending on whether it is hedging its assets or its liabilities, and
will usually enter into interest rate swaps on a net basis, i.e., the two
payment streams are netted out, with the Fund receiving or paying, as the case
may be, only the net amount of the two payments.
The use of interest rate protection transactions is a highly specialized
activity which involves investment techniques and risks different from those
associated with ordinary portfolio securities transactions. If the Adviser
incorrectly forecasts market values, interest rates and other applicable
factors, there may be considerable impact on a Fund's performance. Even if the
Adviser is correct in its 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 the 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 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.
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.
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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 Adviser, subject to the Board's
supervision, monitors and evaluates 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.
The use of repurchase agreements, securities lending, reverse repurchase
agreements, interest rate protection transactions (such as swaps, caps, collars
and floors), forward commitments (including dollar roll transactions) and
forward contracts involving currencies present particular counterparty risk. In
the event that bankruptcy, insolvency or similar proceedings were commenced
against a counterparty while these transactions remained open or a counterparty
defaulted on its obligations, a Fund may have difficulties in exercising its
rights to the underlying securities or currencies, as applicable, it may incur
costs and expensive time delays in disposing of the underlying securities and it
may suffer a loss. Failure by the other party to deliver a security or currency
purchased by a Fund may result in a missed opportunity to make an alternative
investment. Counterparty insolvency risk with respect to repurchase agreements
is reduced by favorable insolvency laws that allow a Fund, among other things,
to liquidate the collateral held in the event of the bankruptcy of the
counterparty. Those laws do not apply to securities lending, reverse repurchase
agreements and dollar roll transactions, and therefore, those transactions
involve more risk than repurchase agreements. For example, in the event the
purchaser of securities in a dollar roll transaction files for bankruptcy or
becomes insolvent, a Fund's use of the proceeds of the transaction may be
restricted pending a determination by the other party, or its trustee or
receiver, whether to enforce the Fund's obligation to repurchase the securities.
As a result of entering into forward commitments and reverse repurchase
agreements, as well as lending its securities, a Fund may be exposed to greater
potential fluctuations in the value of its assets and net asset value per share.
FIXED INCOME SECURITIES
o GENERAL. The market value of the interest-bearing fixed income
securities held by the Funds will be affected by changes in interest
rates. There is normally an inverse relationship between the market
value of securities sensitive to prevailing interest rates and actual
changes in interest rates. The longer the remaining maturity (and
duration) of a security, the more sensitive the security is to changes
in interest rates. All fixed income securities, including U.S.
Government securities, can change in value when there is a change in
interest rates. Changes in the ability of an issuer to make payments
of interest and principal and in the markets' perception of an
issuer's creditworthiness will also affect the market value of that
issuer's debt securities. As a result, an investment in a Fund is
subject to risk even if all fixed income securities in the Fund's
investment portfolio are paid in full at maturity. In addition,
certain fixed income securities may be subject to extension risk,
which refers to the change in total return on a security resulting
from an extension or abbreviation of the security's maturity.
Yields on fixed income securities, including municipal securities, are
dependent on a variety of factors, including the general conditions of
the fixed income securities markets, the size of a particular
offering, the maturity of the obligation and the rating of the issue.
Fixed income securities with longer maturities tend to produce higher
yields and are generally subject to greater price movements than
obligations with shorter maturities. A portion of the municipal
securities held by the Funds may be supported by credit and liquidity
enhancements, such as letters of credit (which are not covered by
federal deposit insurance) or puts or demand features of third party
financial institutions, generally domestic and foreign banks.
The issuers of fixed income securities are subject to the provisions
of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors that may restrict the ability of the issuer to
pay, when due, the principal of and interest on its debt securities.
The possibility exists therefore, that, as a result of bankruptcy,
<PAGE>
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.
o 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,
Income Fund will invest at least 80% of its total assets in 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. 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 Adviser 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 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.
o 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 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, 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 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 its 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.
o 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
<PAGE>
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.
o 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
Beyond the investments discussed in the Funds' Prospectus, each Fund may invest
in foreign securities. All investments, domestic and foreign, involve certain
risks. Investments in the securities of foreign issuers may involve risks in
addition to those normally associated with investments in the securities of U.S.
issuers. All foreign investments are subject to risks of foreign political and
economic instability, adverse movements in foreign exchange rates, the
imposition or tightening of exchange controls or other limitations on
repatriation of foreign capital, and changes in foreign governmental attitudes
towards private investment, possibly leading to nationalization, increased
taxation or confiscation of foreign investors' assets.
Moreover, dividends payable on foreign securities may be subject to foreign
withholding taxes, thereby reducing the income available for distribution to a
Fund's shareholders; commission rates payable on foreign transactions are
generally higher than in the United States; foreign accounting, auditing and
financial reporting standards differ from those in the United States and,
accordingly, less information may be available about foreign companies than is
<PAGE>
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.
A Fund 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. The Funds also may purchase securities on margin or enter into short
sales, although they have no current intention to do so. The Funds use these
investment techniques only when the Adviser believes 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.
<PAGE>
o SEGREGATED ACCOUNTDS. 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 the 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).
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.
<PAGE>
INVESTMENT LIMITATIONS
All investment policies of a Fund that are designated as fundamental may not be
changed without the approval of the holders of a majority of that Fund's
outstanding voting securities. A majority of a Fund's outstanding voting
securities means the lesser of 67% of the shares of the Fund present or
represented at a shareholders meeting at which the holders of more than 50% of
the shares are present or represented, or more than 50% of the outstanding
shares of a Fund. Except as otherwise indicated, investment policies of the
Funds are not fundamental and may be changed by the Trust's Board without
shareholder approval.
As part of its regular banking operations, Norwest Bank may make loans to public
companies. Thus, it may be possible, from time to time, for a Fund to hold or
acquire the securities of issuers which are also lending clients of Norwest
Bank. A lending relationship will not be a factor in the selection of portfolio
securities for a Fund.
Except as required by the 1940 Act, 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 and cannot be changed without the affirmative vote of a
majority of the Fund's outstanding voting securities (as defined in the
Prospectus).
(1) DIVERSIFICATION: With respect to 75% of its assets, the Fund may
not purchase a security (other than a U.S. Government security or
shares of investment companies) if, as a result, more than 5% of the
Fund's total assets would be invested in the securities of a single
issuer or the Fund would own more than 10% of the outstanding voting
securities of any single issuer; provided, however, 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.
(2) CONCENTRATION: The Fund may not purchase securities if,
immediately after the purchase, more than 25% of the value of the
Fund's total assets would be invested in the 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-backed 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); that
utility companies are classified according to their services (for
example, gas, gas transmission, electric and gas, electric and
telephone); and that each Fund may invest all of 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.
(3) BORROWING: Each 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).
(4) ILLIQUID SECURITIES. The Fund may not invest more than 15% of its
net assets in illiquid securities or more than 10% of the Fund's total
assets in restricted securities.
(5) ISSUANCE OF SENIOR SECURITIES: The Fund may not issue senior
securities except to the extent permitted by the 1940 Act.
<PAGE>
(6) 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.
(7) 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. No Fund
will lend portfolio securities in excess of 33 1/3% of its total
assets.
(8) 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 are
not deemed to be physical commodities.
(9) PURCHASES AND SALES OF REAL ESTATE: The Fund may not purchase or
sell real estate or any interest therein, 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
Each Fund has adopted the following investment limitations, which are not
fundamental policies of the Fund and may be changed by the Board without
shareholder approval.
(1) BORROWING: Borrowings for other than temporary or emergency
purposes or meeting redemption requests may not exceed an amount equal
to 5% of the Fund's net assets.
(2) DIVERSIFICATION: Purchases of securities for the Fund also will be
limited in accordance with the diversification requirements for
insurance products established by section 817(h) of the Internal
Revenue Code of 1986, as amended.
(3) ILLIQUID SECURITIES: Each Fund may not acquire securities or
invest in repurchase agreements with respect to any securities if, as
a result, more than: (1) 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
Securities Act of 1933 ("Restricted Securities"); or (2) 10% of the
Fund's total assets would be invested in Restricted Securities.
(4) OTHER INVESTMENT COMPANIES: No Fund may invest in securities of
another investment company, except to the extent permitted by the 1940
Act.
(5) UNSEASONED ISSUERS: The Fund may not invest in securities (other
than fully collateralized debt obligations and eligible
mortgage-backed and asset-backed securities) 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 the Fund may invest all of
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.
(6) PLEDGING: The Fund may not pledge, mortgage, hypothecate or
encumber any of its assets except to secure permitted borrowings.
(7) INVESTMENTS BY OFFICERS AND TRUSTEES: The Fund may not invest in
or hold securities of any issuer if, to the Trust's knowledge,
officers and trustees of the Trust or the Adviser, individually owning
<PAGE>
beneficially more than one-half of 1% of the securities of the issuer,
in the aggregate own more than 5% of the issuer's securities.
(8) OIL, GAS, AND MINERAL INVESTMENTS AND REAL ESTATE: The Fund may
not invest in interests in oil, gas, or other mineral leases of
interests in other mineral exploration or development programs, and
the Fund may not invest in real estate limited partnerships.
(9) SECURITIES WITH VOTING RIGHTS: Income Fund may not purchase
securities having voting rights at the time of purchase, except
securities of other investment companies.
PERFORMANCE AND ADVERTISING DATA
The Funds may quote performance in various ways. These quotations may from time
to time be used in advertisements and shareholder/contractholder reports or
other communications. All performance information supplied by the Funds in
advertising is historical and is not intended to indicate future returns. Each
Fund's net asset value fluctuates 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. Each Fund's yield
and total return (as well as any other performance measurement) fluctuates in
response to market conditions and other factors.
In performance advertising, each Fund may compare any of its performance
information with data published by independent evaluators such as Morningstar,
Inc., Lipper Analytical Services, Inc., IBC/Donoghue, Inc. or other companies
that track the investment performance of investment companies ("Fund Tracking
Companies"). Each Fund may also compare any of its performance information with
the performance of recognized stock, bond and other indices, including but not
limited to, Standard & Poor's 500 Composite Stock Index, Russell 2000 Index,
Morgan Stanley - Europe, Australian and Far East Index, Lehman Brothers
Intermediate Government Index, Lehman Brothers Intermediate Government/Corporate
Index, Salomon Brothers Bond Index, Shearson Lehman Bond Index, the Dow Jones
Industrial Average, U.S. Treasury bonds, bills or notes, on changes in the
Consumer Price Index as published by the U.S. Department of Commerce. The Funds
may refer to general market performances over past time periods such as those
published by Ibbotson Associates (for instance, its "Stocks, Bonds, Bills and
Inflation Yearbook"). In addition, the Funds may 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.
Performance figures for a Fund do not include fees and charges of the Separate
Accounts or Contracts, including mortality and expense risk charges. A Fund will
not advertise its performance unless such advertisement is accompanied by
information reflecting the performance of the applicable Separate Account.
SEC YIELD CALCULATIONS
Although published yield information is useful to investors in reviewing a
Fund's performance, investors should be aware that each Fund's yield fluctuates
from day to day and that the Fund's yield for any given period is not an
indication or representation by the Fund of future yields or rates of return on
the Fund's shares. 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 dividend 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
<PAGE>
specific standardized rules) in order to arrive at an annual percentage rate. In
general, interest income is reduced with respect to municipal securities
purchased at a premium over their par value by subtracting a portion of the
premium from income on a daily basis . In general, interest income is increased
with respect to municipal securities purchased at original issue at a discount
by adding a portion of the discount to daily income. Capital gains and losses
generally are excluded from these calculations.
Income calculated for the purpose of determining each Fund's standardized yield
differs from income as determined for other accounting purposes. Because of the
different accounting methods used, and because of the compounding assumed in
yield calculations, the yield quoted for a Fund may differ from the rate of
distribution the Fund paid over the same period or the rate of income reported
in the Fund's financial statements.
TOTAL RETURN CALCULATIONS
Each of the Funds may advertise total return. Total returns quoted in
advertising reflect all aspects of a Fund's return, including the effect of
reinvesting dividends and capital gain distributions and any change in the
Fund's net asset value per share over the period. Average annual total returns
are calculated 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. While
average annual total 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 a given period
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; and
ERV = ending redeemable value.
ERV is the value, at the end of the applicable period, of a hypothetical $1,000
payment made at the beginning of the applicable period.
In addition to average annual returns, each Fund may quote cumulative total
returns reflecting the simple change in value of an investment over a stated
period. Cumulative total returns may be broken down into their components of
income and capital (including capital gain 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.
<PAGE>
The average annual total return of each class of each Fund for the periods ended
December 31, 1998 was as follows. The actual dates of the commencement of each
Fund's operations is listed in the Fund's financial statements.
<TABLE>
<S> <C> <C> <C> <C>
ONE YEAR FIVE YEARS TEN YEARS SINCE INCEPTION
INCOME FUND 9.12% N/A N/A 7.94%
INCOME EQUITY FUND 18.42% N/A N/A 20.71%
VALUGROWTH STOCK FUND 16.18% N/A N/A 17.57%
SMALL COMPANY STOCK FUND -14.47% N/A N/A 10.26%
</TABLE>
MANAGEMENT
The Trustees and officers of the Trust and their principal occupations during
the past five years and age as of the date of this SAI are set forth below. Each
Trustee who is an "interested person" (as defined by the 1940 Act) of the Trust
is indicated by an asterisk.
JOHN Y. KEFFER, Chairman and President,* Age 56.
President and Owner, Forum Financial Services, Inc. (a registered
broker-dealer), Forum Administrative Services, Limited Liability Company (a
mutual fund administrator), Forum Financial Corp. (a registered transfer agent),
and other companies within the Forum Financial Group of companies. Mr. Keffer is
a Director, Trustee and/or officer of various registered investment companies
for which Forum Financial Services, Inc. or its affiliates serves as manager,
administrator or distributor. His address is Two Portland Square, Portland,
Maine 04101.
ROBERT C. BROWN, Trustee,* Age 67.
Director, Federal Farm Credit Banks Funding Corporation and Farm Credit
System Financial Assistance Corporation since February 1993. Prior thereto, he
was Manager of Capital Markets Group, Norwest Corporation (the former parent of
Norwest), until 1991. His address is 1431 Landings Place, Sarasota, Florida
34231.
DONALD H. BURKHARDT, Trustee, Age 72.
Principal of The Burkhardt Law Firm. His address is 777 South Steele Street,
Denver, Colorado 80209.
JAMES C. HARRIS, Trustee, Age 78.
President and sole Director of James C. Harris & Co., Inc. (a financial
consulting firm). Mr. Harris is also a liquidating trustee and former Director
of First Midwest Corporation (a small business investment company). His address
is 6950 France Avenue South, Minneapolis, Minnesota 55435.
RICHARD M. LEACH, Trustee, Age 65.
President of Richard M. Leach Associates (a financial consulting firm) since
1992. Prior thereto, Mr. Leach was Senior Adviser of Taylor Investments (a
registered investment adviser), a Director of Mountainview Broadcasting (a radio
station) and Managing Director of Digital Techniques, Inc. (an interactive video
design and manufacturing company). His address is P.O. Box 1888, New London, New
Hampshire 03257.
<PAGE>
JOHN S. MCCUNE,* Trustee, Age 53.
President, Norwest Investment Services, Inc. (a broker-dealer subsidiary of
Norwest Bank). His address is 608 2nd Avenue South, Minneapolis, Minnesota
55479.
TIMOTHY J. PENNY, Trustee, Age 46.
Senior Counselor to the public relations firm of Himle-Horner since January 1995
and Senior Fellow at the Humphrey Institute, Minneapolis, Minnesota (a public
policy organization) since January 1995. Prior thereto Mr. Penny was the
Representative to the United States Congress from Minnesota's First
Congressional District. His address is 500 North State Street, Waseca, Minnesota
56095.
DONALD C. WILLEKE, Trustee, Age 58.
Principal of the law firm of Willeke & Daniels. His address is 201 Ridgewood
Avenue, Minneapolis, Minnesota 55403.
SARA M. MORRIS, Vice President and Treasurer, Age 35.
Managing Director, Forum Financial Services, Inc., with which she has been
associated since 1994. Prior thereto, from 1991 to 1994 Ms. Morris was
Controller of Wright Express Corporation (a national credit card company) and
for six years prior thereto was employed at Deloitte & Touche LLP as an
accountant. Ms. Morris is also an officer of various registered investment
companies for which Forum Administrative Services, LLC or Forum Financial
Services, Inc. serves as manager, administrator and/or distributor. Her address
is Two Portland Square, Portland, Maine 04101.
DAVID I. GOLDSTEIN, Vice President and Secretary, Age 37.
Managing Director and General Counsel, Forum Financial Services, Inc., with
which he has been associated since 1991. Mr. Goldstein is also an officer of
various registered investment companies for which Forum Administrative Services,
LLC or Forum Financial Services, Inc. serves as manager, administrator and/or
distributor. His address is Two Portland Square, Portland, Maine 04101.
THOMAS G. SHEEHAN, Vice President and Assistant Secretary, Age 44.
Managing Director and Counsel, Forum Financial Services, Inc., with which he has
been associated since 1993. Prior thereto, Mr. Sheehan was Special Counsel to
the Division of Investment Management of the SEC. Mr. Sheehan is also an officer
of various registered investment companies for which Forum Administrative
Services, LLC or Forum Financial Services, Inc. serves as manager, administrator
and/or distributor. His address is Two Portland Square, Portland, Maine 04101.
PAMELA J. WHEATON, Assistant Treasurer, Age 39.
Manager - 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 50.
Assistant Counsel, Forum Financial Services, Inc., with which he has been
associated since 1995. Prior thereto, Mr. Evans was associated with the law firm
of Bisk & Lutz and prior thereto was associated with the law firm of Weiner &
Strother. Mr. Evans is also an officer of various registered investment
companies for which Forum Administrative Services, LLC or Forum Financial
<PAGE>
Services, Inc. serves as manager, administrator and/or distributor. His address
is Two Portland Square, Portland, Maine.
EDWARD C. LAWRENCE, Assistant Secretary, Age 30.
Fund Administrator, Forum Financial Services, Inc., with which he has been
associated since 1997. Prior thereto, Mr. Lawrence was a self-employed
contractor on antitrust cases with the law firm of White & Case. After
graduating from law school, from 1994-1996, Mr. Lawrence worked as an assistant
public defender for the Missouri State Public Defender's Office. His address is
Two Portland Square, Portland, Maine 04101.
TRUSTEE COMPENSATION
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 Advantage 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 Advantage Funds' audit
committees, receives additional compensation of $8,000 from the Trust and
Norwest Advantage Funds allocated pro rata between the Trust and Norwest
Advantage 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 Advantage Funds combined. Information is
presented for the year ended December 31, 1998, the fiscal year end of
portfolios of the Trust.
<TABLE>
<S> <C> <C>
TOTAL COMPENSATION TOTAL COMPENSATION FROM THE TRUST
FROM THE TRUST AND NORWEST ADVANTAGE FUNDS
Mr. Brown $190.45 $35,000
Mr. Burkhardt $223.23 $41,000
Mr. Harris $158.62 $29,000
Mr. Leach $190.45 $35,000
Mr. Penny $190.45 $35,000
Mr. Willeke $190.45 $35,000
</TABLE>
Neither the Trust nor Norwest Advantage Funds has adopted any form of retirement
plan covering Trustees or officers.
INVESTMENT ADVISORY SERVICES
NORWEST INVESTMENT MANAGEMENT, INC.
The Adviser is required to furnish 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 its advisory agreements,
<PAGE>
the Adviser may delegate its responsibilities to any investment subadviser
approved by the Board and the shareholders of the respective Fund with respect
to all or a portion of the assets of the Fund.
The investment advisory agreement between each Fund and the Adviser continues in
effect only if such continuance is specifically approved at least annually by
the Board or by vote of the shareholders of the Fund, and in either case by a
majority of the trustees who are not parties to the investment advisory
agreement or interested persons of any such party, 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 Fund on 60-days' written notice when authorized either by vote of the Fund's
shareholders or by a vote of a majority of the Board, or by the Adviser on not
more than 60-days' written notice, and will automatically terminate in the event
of its assignment. The investment advisory agreements also provide that, with
respect to each Fund, neither the Adviser 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 the Adviser's or their
duties or by reason of reckless disregard of its or their obligations and duties
under the agreement. The investment advisory agreements provide that the Adviser
may render service to others.
The advisory fees are accrued daily and paid monthly. The Adviser, in its sole
discretion, may waive all or any portion of its advisory fee with respect to
each Fund. The following table shows the dollar amount of fees payable under the
investment advisory agreements between the Adviser and the Trust with respect to
each Fund, the amount of each fee that was waived by Norwest, if any, and the
actual fee received by the Adviser. The data is for the past three fiscal years.
<TABLE>
<S> <C> <C> <C>
ADVISORY FEE PAYABLE ADVISORY FEE ADVISORY FEE RETAINED
WAIVED
INCOME FUND
Year Ended December 31, 1998 $89,772 $79,229 $10,543
Year Ended December 31, 1997 $44,422 $44,422 $0
Year Ended December 31, 1996 $25,920 $25,920 $0
INCOME EQUITY FUND
Year Ended December 31, 1998 $507,440 $66,982 $440,459
Year Ended December 31, 1997 $172,660 $62,502 $110,158
Period Ended December 31, 1996 $23,198 $23,198 $0
VALUGROWTH STOCK FUND
Year Ended December 31, 1998 $234,312 $72,118 $162,194
Year Ended December 31, 1997 $61,011 $61,011 $0
Year Ended December 31, 1996 $24,138 $23,138 $0
SMALL COMPANY STOCK FUND
Year Ended December 31, 1998 $101,914 $65,543 $36,371
Year Ended December 31, 1997 $66,869 $62,651 $4,218
Year Ended December 31, 1996 $31,252 $31,252 $0
</TABLE>
ADMINISTRATION AND MANAGEMENT
Forum Administrative Services, LLC ("FAdS") and Forum supervise the overall
management of the Trust (which includes, among other responsibilities,
negotiation of contracts and fees with, and monitoring of performance and
billing of, the Trust's transfer agent and custodian and arranging for
maintenance of books and records of the Trust) and provides the Trust with
general office facilities pursuant to separate administration and management
agreements.
<PAGE>
Each of the administration and management agreements will continue in effect
only if such continuance is specifically approved at least annually by the Board
or by the shareholders and, in either case, by a majority of the Trustees who
are not parties to the management agreement or interested persons of any such
party.
Each of the administration and management agreements terminate automatically if
it is 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'
written notice. The administration and management agreements also provide that,
with respect to each Fund, neither FAdS nor Forum, respectively, 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 management agreement.
Forum is also the Trust's distributor and acts as the agent of the Trust in
connection with the offering of Shares of each Fund on a "best efforts" basis
pursuant to a distribution agreement.
For their services under each of the administration and management agreements,
each of FAdS and Forum is compensated at an annual rate of 0.05% of each Fund's
average daily net assets. Administration and management fees are accrued daily
and paid monthly. FAdS and Forum, in their sole discretion, may waive all or any
portion of their administration and management fee, respectively with respect to
each Fund. The following tables show the dollar amount of fees payable under the
administration and management agreements between each of FAdS and Forum and the
Trust with respect to each Fund, the amount of fee that was waived by FAdS and
Forum, if any, and the actual fee received by FAdS and Forum. The data are for
the past three fiscal years.
<PAGE>
<TABLE>
<S> <C> <C> <C>
ADMINISTRATION FEE ADMINISTRATION FEE ADMINISTRATION FEE
PAYABLE WAIVED RETAINED
INCOME FUND
Year Ended December 31, 1998 $14,962 $14,962 $0
Year Ended December 31, 1997 $11,299 $4,190 $7,109
Year Ended December 31, 1996 $8,640 $8,640 $0
INCOME EQUITY FUND
Year Ended December 31, 1998 $63,430 $63,430 $0
Year Ended December 31, 1997 $30,354 $13,235 $17,119
Period Ended December 31, 1996 $5,799 $5,799 $0
VALUGROWTH STOCK FUND
Year Ended December 31, 1998 $29,290 $29,288 $0
Year Ended December 31, 1997 $23,565 $9,364 $14,201
Year Ended December 31, 1996 $15,253 $15,253 $0
SMALL COMPANY STOCK FUND
Year Ended December 31, 1998 $12,740 $12,739 $0
Year Ended December 31, 1997 $12,351 $4,876 $7,475
Year Ended December 31, 1996 $1,916 $1,916 $0
MANAGEMENT FEE MANAGEMENT FEE WAIVED MANAGEMENT FEE
PAYABLE RETAINED
INCOME FUND
Year Ended December 31, 1998 $14,962 $14,962 $0
Year Ended December 31, 1997 $11,299 $4,190 $7,109
Year Ended December 31, 1996 $8,640 $8,640 $0
INCOME EQUITY FUND
Year Ended December 31, 1998 $63,430 $63,430 $0
Year Ended December 31, 1997 $30,354 $13,235 $17,119
Period Ended December 31, 1996 $5,799 $5,799 $0
VALUGROWTH STOCK FUND
Year Ended December 31, 1998 $29,290 $29,290 $0
Year Ended December 31, 1997 $23,565 $9,364 $14,201
Year Ended December 31, 1996 $15,253 $15,253 $0
SMALL COMPANY STOCK FUND
Year Ended December 31, 1998 $12,740 $12,740 $0
Year Ended December 31, 1997 $12,351 $4,876 $7,475
Year Ended December 31, 1996 $1,916 $1,916 $0
</TABLE>
TRANSFER AGENT AND CUSTODIAN
Norwest Bank serves as transfer agent and dividend disbursing agent for the
Trust (in this capacity, the "Transfer Agent"). The Transfer Agent maintains an
account for each shareholder of the Trust performs other transfer agency and
shareholder service functions, and acts as dividend disbursing agent for the
Trust. Norwest Bank also serves as the Trust's custodian (in this capacity
"Custodian") and may appoint certain subcustodians to act as custodian for the
foreign securities and other assets held in foreign countries of those Funds
that invest in foreign securities. The Custodian's responsibilities include
safeguarding and controlling the Trust's cash and securities, determining income
and collecting interest on Fund investments.
<PAGE>
Pursuant to rules adopted under the 1940 Act, each Fund may maintain its foreign
securities and cash in the custody of certain eligible foreign banks and
securities depositories. The custodian employs qualified foreign subcustodians
to provide custody of the Funds' foreign assets in accordance with applicable
regulations.
For its services as Transfer Agent, Norwest Bank is compensated at an annual
rate of 0.05% of each Fund's average daily net assets. For its services as
Custodian, Norwest Bank is paid an account administration fee plus securities
holding and transaction fees which, collectively, may not exceed an annual rate
of 0.05% of each Fund's average daily net assets. The transfer agency agreement
and custodian agreement between the Trust and Norwest Bank each 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 respective agreements or
interested persons of any such party, at a meeting called for the purpose of
voting on the respective agreements.
Transfer agent fees are accrued daily and paid monthly. Norwest Bank, in its
sole discretion, may waive all or any portion of its transfer agent fee with
respect to each Fund. The following table shows the dollar amount of transfer
agent fees payable to Norwest Bank, the amount of the fee that was waived by
Norwest Bank, if any, and the actual fee received by Norwest Bank. The data is
for the past three fiscal years.
<TABLE>
<S> <C> <C> <C>
TRANSFER FEE PAYABLE TRANSFER FEE TRANSFER FEE RETAINED
WAIVED
INCOME FUND
Year Ended December 31, 1998 $11,970 $11,970 $0
Year Ended December 31, 1997 $7,404 $7,404 $0
Year Ended December 31, 1996 $3,456 $3,456 $0
INCOME EQUITY FUND
Year Ended December 31, 1998 $50,744 $50,744 $0
Year Ended December 31, 1997 $21,583 $21,583 $0
Period Ended December 31, 1996 $2,320 $2,320 $0
VALUGROWTH STOCK FUND
Year Ended December 31, 1998 $23,431 $23,431 $0
Year Ended December 31, 1997 $15,835 $15,835 $0
Year Ended December 31, 1996 $6,101 $6,101 $0
SMALL COMPANY STOCK FUND
Year Ended December 31, 1998 $10,191 $10,191 $0
Year Ended December 31, 1997 $8,359 $8,359 $0
Year Ended December 31, 1996 $3,125 $3,125 $0
</TABLE>
DISTRIBUTION Forum is also the Trust's distributor and acts as the agent of the
Trust in connection with the offering of Shares of each Fund on a "best efforts"
basis pursuant to a distribution agreement.
FUND ACCOUNTING
Forum Accounting Services, LLC ("FAcS"), an affiliate of Forum, performs fund
accounting services for each Fund pursuant to a fund accounting agreement with
the Trust. The fund accounting agreement continues 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 its 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 dividends and capital
<PAGE>
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 $36,000 per year. In addition, FAcS is paid an additional $12,000 per year
with respect to Funds with more than 25% of their total assets invested in
asset-backed securities, that have more than 100 security positions or that have
a monthly portfolio turnover rate of 10% or greater.
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 a duly authorized officer of the Trust. This indemnification does not
apply to FAcS's actions or failures to act in cases of FAcS's own bad faith,
willful misconduct or gross negligence.
The following table shows the dollar amount of fund accounting fees payable with
respect to each Fund, the amount of fee that was waived, if any, and the actual
fee received. The data is for the past three fiscal years.
<TABLE>
<S> <C> <C> <C>
ACCOUNTING FEE ACCOUNTING FEE WAIVED ACCOUNTING FEE
PAYABLE RETAINED
INCOME FUND
Year Ended December 31, 1998 $44,000 $0 $44,000
Year Ended December 31, 1997 $52,800 $10,500 $42,300
Year Ended December 31, 1996 $38,000 $8,000 $30,000
INCOME EQUITY FUND
Year Ended December 31, 1998 $38,000 $0 $38,000
Year Ended December 31, 1997 $37,800 $2,500 $35,300
Period Ended December 31, 1996 $23,516 $3,919 $19,597
VALUGROWTH STOCK FUND
Year Ended December 31, 1998 $39,000 $0 $39,000
Year Ended December 31, 1997 $37,800 $2,500 $35,300
Year Ended December 31, 1996 $38,000 $8,000 $30,000
SMALL COMPANY STOCK FUND
Year Ended December 31, 1998 $44,000 $0 $44,000
Year Ended December 31, 1997 $48,800 $6,500 $42,300
Year Ended December 31, 1996 $46,000 $16,000 $30,000
</TABLE>
OTHER INFORMATION
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION Shares of each Fund are sold on a
continuous basis.
The Trust may redeem shares involuntarily, from time to time, 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 the shares as provided in the Prospectus.
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 and its
shareholders. If payment for Shares redeemed is made wholly or partially in
portfolio securities, brokerage costs may be incurred by the shareholder in
converting securities to cash.
<PAGE>
DETERMINATION OF NET ASSET VALUE
Securities owned by a Fund for which market quotations are readily available are
valued at current market value. The Funds value their securities as follows. A
security listed or traded on an exchange is valued at its last sale price (prior
to the time as of which assets are valued) on the exchange where it is
principally traded. Lacking any such sales on the day of valuation, the security
is valued at the mean of the last bid and asked prices. All other securities for
which OTC market quotations are readily available generally are valued at the
mean of the current bid and asked prices. When market quotations are not readily
available, securities are valued at fair value as determined in good faith by
the Board. Debt securities may be valued on the basis of valuations furnished by
pricing services which utilize electronic data processing techniques to
determine valuations for normal institutional-size trading units of debt
securities, without regard to sale or bid prices, when such valuations are
believed to more accurately reflect the fair market value of such securities.
All assets and liabilities of a Fund 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.
Under procedures adopted by the Board, a net asset value for a Fund later
determined to have been inaccurate for any reason will be recalculated.
Purchases and redemptions made at a net asset value determined to have been
inaccurate will be adjusted, although in certain circumstances, such as where
the difference between the original net asset value and the recalculated net
asset value divided by the recalculated net asset value is 0.005 (1/2 of 1%) or
less or shareholder transactions are otherwise insubstantially affected, further
action is not required.
PORTFOLIO TRANSACTIONS
Investment decisions for the Funds will be made independently from those for any
other client 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 portfolio
securities for one or more clients will have an adverse effect on other clients.
In addition, when purchases or sales of the same security for a Fund and other
client accounts managed by an 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.
Purchases and sales of fixed income portfolio securities are generally effected
as principal transactions. These securities 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 from
underwriters of portfolio securities include a 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 ask prices. In the case of
securities traded in the foreign and domestic OTC markets, there is generally no
stated commission, but the price usually includes an undisclosed commission or
markup. In underwritten offerings, the price includes a disclosed fixed
commission or discount.
Purchases and sales of equity securities on exchanges are generally effected
through brokers who charge commissions except in the OTC markets. 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 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 a Fund. In transactions on stock exchanges in
the United States, these commissions are negotiated, whereas on foreign stock
exchanges these commissions are generally fixed. Where transactions are executed
in the OTC market, a Fund will seek to deal with the primary market makers; but
when necessary in order to obtain best execution, it will utilize the services
of others. In all cases the Funds will attempt to negotiate best execution.
<PAGE>
A Fund may not always pay the lowest commission or spread available. Rather, in
determining the amount of commission, including certain dealer spreads, paid in
connection with securities transactions, the Adviser takes into account such
factors 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 Adviser may also take into account
payments made by brokers effecting transactions for a Fund: (1) to the Fund; or
(2) to other persons on behalf of the Fund for services provided to it for which
it would be obligated to pay.
In addition, the Adviser may give consideration to research services furnished
by brokers to the Adviser for its use and may cause a Fund to pay these brokers
a higher amount of commission than may be charged by other brokers. Such
research and analysis may be used by the Adviser in connection with services to
clients other than the Funds, and Adviser's fees are not reduced by reason of
the Adviser's receipt of the research services.
Consistent with the Conduct Rules 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
Adviser may consider sales of shares of the Funds as a factor in the selection
of broker-dealers to execute portfolio transactions for the Funds.
Subject to the general policies regarding allocation of portfolio brokerage as
set forth above, the Board has authorized the Adviser to employ affiliates to
effect securities transactions of the Funds, provided certain other conditions
are satisfied. Payment of brokerage commissions to an affiliate of the 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 Funds' policy that commissions paid
to Norwest and other affiliates of the Adviser will, in the judgment of the
Advisers, 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 non-interested Trustees, has
adopted procedures to ensure that commissions paid to affiliates of the Adviser
by the Funds satisfy the foregoing standards.
<PAGE>
The following table shows the dollar amount of brokerage commissions paid by
each Fund. The data is for the past three fiscal years.
For the fiscal year ended December 31, 1998, ValuGrowth Stock Fund paid to its
affiliate Norwest Investment Services, Inc. aggregate brokerage commissions of
less than 1% of the Trust's aggregate brokerage commissions.
<TABLE>
<S> <C>
AGGREGATE COMMISSIONS PAID
INCOME FUND
Year Ended December 31, 1998 $0
Year Ended December 31, 1997 $0
Year Ended December 31, 1996 $0
INCOME EQUITY FUND
Year Ended December 31, 1998 $51,165
Year Ended December 31, 1997 $45,755
Period Ended December 31, 1996 $15,664
VALUGROWTH STOCK FUND
Year Ended December 31, 1998 $22,615
Year Ended December 31, 1997 $27,568
Year Ended December 31, 1996 $21,307
SMALL COMPANY STOCK FUND
Year Ended December 31, 1998 $35,757
Year Ended December 31, 1997 $34,734
Year Ended December 31, 1996 $12,579
</TABLE>
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 December 31, 1998.
<TABLE>
<S> <C> <C>
REGULAR BROKER VALUE OF
OR DEALER SECURITIES HELD
INCOME FUND Morgan Stanley & Co. $339,000
Lehman Brothers, Inc. $126,000
Norwest Cash Investment Fund $368,000
INCOME EQUITY FUND J.P. Morgan & Co., Inc. $1,705,000
American Express/IDS Securities Corp.
$1,701,000
Nationsbanc Montgomery Securities,
Inc. $3,033,000
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
VALUGROWTH STOCK FUND Chase Manhattan Corp. $408,000
SunAmerica Capital Services, Inc. $554,000
State Street Corp. $529,000
Dreyfus Cash Management $1,470,000
Institutional Funds Group $1,593,000
First Union Corp. $456,000
Bank America Corp. $421,000
Banc One Capital Corp. $276,000
SMALL COMPANY STOCK FUND Fidelity Money Market Fund $386,000
Provident Money Market Fund $235,000
</TABLE>
TAXATION
Each Fund intends to qualify annually and to elect to be treated as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
"Code").
To qualify as a regulated investment company, each Fund generally must, among
other things: (1) derive in each taxable year at least 90% of its gross income
from dividends, interest, payments with respect to securities loans, and gains
from the sale or other disposition of stock, securities or foreign currencies,
or other income derived with respect to its business of investing in such stock,
securities or currencies; (2) diversify its holdings so that, at the end of each
quarter of the taxable year, (a) at least 50% of the market value of the Fund's
assets is represented by cash, U.S. Government Securities, the securities of
other regulated investment companies and other securities, with such other
securities of any one issuer limited for the purpose of this calculation to an
amount not greater than 5% of the value of the Fund's total assets and 10% of
the outstanding voting securities of such issuer, and (b) not more than 25% of
the value of its total assets is invested in the securities of any one issuer
(other than U.S. Government Securities or the securities of other regulated
investment companies); and (3) distribute at least 90% of its investment company
taxable income (which includes, among other items, dividends, interest, and net
short-term capital gains in excess of any net long-term capital losses) each
taxable year. In addition, each Fund must satisfy another tax diversification
test at the end of each calendar quarter pursuant to Code section 817(h).
As a regulated investment company, a Fund generally will not be subject to
federal income tax on its investment company taxable income and net capital gain
(any net long-term capital gains in excess of the sum of net short-term capital
losses and capital loss carryovers from prior years), if any, that it
distributes to shareholders. Each Fund intends to distribute to its
shareholders, at least annually, substantially all of its investment company
taxable income and any net capital gain. In addition, amounts not distributed by
a Fund on a timely basis in accordance with a calendar-year distribution
requirement may be subject to a nondeductible 4% excise tax. To avoid the tax, a
Fund must distribute (or be deemed to have distributed) during each calendar
year: (1) at least 98% of its ordinary income (not taking into account any
capital gains or losses) for the calendar year; (2) at least 98% of its capital
gains in excess of its capital losses for the twelve month period ending on
October 31 for the calendar year (adjusted for certain ordinary losses); and (3)
all ordinary income and capital gains for previous years that were not
distributed during such years. Each Fund intends to make its distributions in
accordance with the calendar year distribution requirement. A distribution will
be treated as paid on December 31 of the calendar year if it is declared by a
Fund during October, November, or December of that year to shareholders of
record on a date in such a month and paid by the Fund during January of the
following calendar year. Such distributions will be taxable to shareholders for
the calendar year in which the distributions are declared, rather than the
calendar year in which the distributions are received.
Distributions of any investment company taxable income (which includes among
other items, dividends, interest, and any net realized short-term capital gain
in excess of net realized long-term capital losses) are treated as ordinary
income for tax purposes in the hands of a shareholder. Distributions of net
capital gain will be treated as long term capital gain in the hands of a
shareholder regardless of the length of time a shareholder may have held the
shares. Any distribution received by a shareholder on shares of a Fund will have
the effect of reducing the net asset value of such shares by the amount of such
<PAGE>
distribution. Furthermore, a distribution made shortly after the purchase of
such shares by a shareholder, although in effect a return of capital to that
particular shareholder, would be taxable as described above. If a shareholder
has held shares in a Fund for six months or less and during that period has
received a distribution of net capital gain, any loss recognized by the
shareholder on the sale of those shares during the six-month period will be
treated as a long-term capital loss to the extent of the distribution.
If a Fund invests in shares of a "passive foreign investment company", the Fund
may be subject to U.S. Federal income tax on a portion of an "excess
distribution" from, or the gain from the sale of part or all of the shares in
such company. In addition, an interest charge may be imposed with respect to
deferred taxes arising from such distribution or gain.
Certain investments by a Fund, including investments in zero coupon debt
instruments, may cause the Fund to recognize income in a period in which no
corresponding cash or other payment is received. Such amounts will nonetheless
generally be required to be distributed in the period in which recognized.
Under the Code, gains or 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 that Fund actually collects such receivables or pays such liabilities
generally are treated as ordinary income or ordinary loss. Similarly, on
disposition of debt securities denominated in a foreign currency and on
disposition of certain futures contracts, forward contracts, and options, gains
or losses attributable to fluctuations in the value of foreign currency between
the date of acquisition of the security or contract and the date of disposition
also are treated as ordinary gain or loss. These gains or losses, referred to
under the Code as "Section 988" gains or losses, may increase or decrease the
amount of a Fund's investment company taxable income to be distributed to its
shareholders as ordinary income.
Certain listed options and regulated futures contracts are considered "section
1256 contracts" for Federal income tax purposes. Section 1256 contracts held by
a Fund 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 on section
1256 contracts generally will be considered 60% long-term and 40% short-term
capital gain or loss. Each Fund 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 OTC put and call options, gain or loss realized by a Fund upon
the lapse or sale of such options held by such Fund will be either long-term or
short-term capital gain or loss depending upon the Fund'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 will be treated as short-term
capital gain or loss. In general, if a Fund exercises an option, or an option
that a Fund 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 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 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 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 which may mitigate the effects of the straddle rules,
<PAGE>
particularly with respect to mixed straddles. In general, the straddle rules
described above do not apply to any straddles held by a Fund all of the
offsetting positions of which consist of section 1256 contracts.
The diversification requirements applicable to a Fund's assets may limit the
extent to which a Fund will be able to engage in transactions in options,
futures contracts, forward contracts and swap contracts.
INDEPENDENT AUDITORS
KPMG LLP, 99 High Street, Boston, MA 02110, independent auditors, acts as
auditors for the Trust and has since the Trust commenced operations.
OWNERSHIP OF FUND SHARES
As of May 1, 1998, the Trustees and officers of the Trust in the aggregate owned
less than 1% of the outstanding Shares of each Fund. The Trust has been advised
that no Account Owner owns beneficially in excess of 5% of any Fund.
As of April 20, 1998, Fortis Benefits Insurance Co., P.O. Box 64271, St. Paul,
MN 55164 ("Fortis") owned of record Shares of the Funds in the amounts and
percentages listed:
<TABLE>
<S> <C> <C>
FUND SHARE BALANCE % OF FUND
INCOME FUND 2,144,915.153 99.81%
INCOME EQUITY FUND 5,896,931.232 100.00%
VALUGROWTH STOCK FUND 1,789,508.091 99.80%
SMALL COMPANY STOCK FUND 1,168,158.996 100.00%
</TABLE>
As of April 20, 1998, Fortis owned in excess of 99% of the outstanding shares of
each Fund.
ADDITIONAL INFORMATION ABOUT THE TRUST
Currently, the Trust is divided into four separate series. The Trust has
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,
but to date, no Fund has issued separate classes of shares.
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,
including Texas. 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's 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.
<PAGE>
VARIABLE CONTRACT CHARGES. Performance figures of the Funds are calculated in
accordance with SEC requirements and do not include charges by Separate Accounts
that invest in the Funds' shares such as recurring fees charged to all contract
holders accounts. Fund performance information must be presented in conjunction
with performance information relating to the Contracts. Purchasers of Contracts
issued by Insurance Companies should therefore recognize that the yield and
total return on the Separate Account assets relating to their Contract which is
invested in Shares of any of the Funds would be lower than the yield and total
return of the Fund for the same period.
BANKING LAW MATTERS
Federal banking laws and regulations generally permit a bank or bank affiliate
to act as investment adviser, transfer agent, or custodian to an investment
company. Forum believes that the Adviser and any other bank or bank affiliate
may perform the services described in the Prospectus or similar services without
violating applicable federal banking laws or regulations.
Federal or state statutes or regulations and judicial or administrative
decisions or interpretations relating to the activities of banks and their
affiliates, however, could prevent a bank or bank affiliate from continuing to
perform all or a part of the activities contemplated by the Prospectus. In this
event, changes in the operation of the Trust might occur. It is not expected
that shareholders would suffer any material adverse financial consequences as a
result of any of these occurrences.
SHAREHOLDER VOTING AND OTHER RIGHTS
Each Fund Share has equal dividend, distribution, liquidation and voting rights,
and fractional Shares have those rights proportionately. Delaware law does not
require a registered investment company to hold annual meetings of shareholders,
and it is anticipated that shareholder meetings will be held only when
specifically required by federal or Delaware law. Shareholders and Trustees have
available certain procedures for the removal of trustees.
Shareholders of the Trust are given certain voting rights. Each Fund Share is
given one vote, unless a different allocation of voting rights is required under
applicable law for an open-end investment company that is an investment medium
for variable insurance products. Fund shareholders will vote shares in the
Separate Accounts as required by law and interpretations thereof, as may be
amended or changed from time to time. Under current law and interpretations
thereof, an Insurance Company is generally required to request voting
instructions from Contract owners and to vote shares in the Separate Account in
proportion with the voting instructions received. Under certain circumstances,
however, an Insurance Company may disregard voting instructions received from
Contract owners. Contract owner voting rights are described in the Prospectus
for the Contracts.
There are no conversion or preemptive rights in connection with Shares of the
Trust. All shares when issued in accordance with the terms of their offering
will be fully paid and nonassessable by the Trust. Shares are redeemable at net
asset value. Upon redeeming shares of the Fund, a record shareholder will
receive the portion of the Fund's net assets represented by the redeemed Shares.
As of May 1, 1998, Fund shares were sold only to Separate Accounts of Fortis. As
of that date, Fortis owned substantially all of the outstanding shares of each
Fund.
FINANCIAL STATEMENTS
The financial statements of each Fund as of and for the year ended December 31,
1998 (which include statements of assets and liabilities, statements of
operations, statements of changes in net assets, notes to financial statements,
financial highlights, schedules of investments and the independent auditors'
report thereon) are included in the Annual Report to Shareholders of the Trust
and are incorporated herein by reference.
<PAGE>
REGISTRATION STATEMENT
This SAI and the Prospectus do not contain all the information included in the
Trust's registration statement filed with the SEC under the Securities Act of
1933 and the 1940 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 of other documents referred to are not necessarily complete, and, in
each instance, reference is made to the copy of such contract or other documents
filed as an exhibit to the registration statement, each such statement being
qualified in all respects by such reference.
<PAGE>
APPENDIX A - DESCRIPTION OF SECURITIES RATINGS
MUNICIPAL AND CORPORATE BONDS (INCLUDING CONVERTIBLE BONDS)
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
Moody's rates municipal and corporate bond issues, including convertible issues,
as follows:
Bonds which are rated AAA are judged by Moody's to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Bonds which are rated AA are judged to be of high quality by all standards.
Together with the AAA group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in AAA securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risk appear somewhat larger than in AAA securities.
Bonds which are rated A possess many favorable investment attributes and are to
be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment some time in the future.
Bonds which are rated BAA are considered as medium-grade obligations, (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Bonds which are rated BA are judged to have speculative elements; their future
cannot be considered as well-assured. Often the protection of interest and
principal payments may be very moderate, and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Bonds which are rated CAA are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Bonds which are rated CA represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
Bonds which are rated C are the lowest rated class of bonds, and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
Note: Those bonds in the AA, A, BAA, BA or B groups which Moody's ranks in the
higher end of its generic rating category are designated by the symbols AA1, A1,
BAA1, BA1 and B1.
<PAGE>
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.
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.
<PAGE>
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.
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.
<PAGE>
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
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.
<PAGE>
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.
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. 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
<PAGE>
generation; well-established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated PRIME-2 have a strong capacity for repayment of short-term
promissory obligations. This will normally be evidenced by many of the
characteristics of issuers rated PRIME-1 but to a lesser degree. Earnings trends
and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
S&P
A S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market. An A-1
designation indicates the highest category and that the degree of safety
regarding timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus (+) sign designation. The
capacity for timely payment on issues with an A-2 designation is satisfactory.
However, the relative degree of safety is not as high as for issues designated
A-1. Issues carrying an A-3 designation have an adequate capacity for timely
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.
<PAGE>
Part C
Other Information
Item 23. Exhibits
(a) Trust Instrument of Registrantdated December 8, 1993 (see Note 1).
(b) By-Laws of Registrant dated December 7, 1993 (see Note 1).
(c) Certificate for shares of beneficial interest of the Registrant (see Note
1).
(d) Investment Advisory Agreement between Registrant and Norwest Bank
Minnesota, N.A. relating to Income Fund, Income Equity Fund,
ValuGrowthSM Stock Fund and Small Company Stock Fund dated April 27,
1996, as amended May 1, 1998 (see Note 2).
(e) Distribution Agreement between Registrant and Forum Financial Services,
Inc. relating to Income Fund, Income Equity Fund, ValuGrowthSM Stock
Fund and Small Company Stock Fund dated as of June 1, 1994 as amended
April 27, 1996 (see Note 1).
(f) Not Applicable.
(g) Custodian Agreement between Registrant and Norwest Bank Minnesota, N.A.
relating to Income Fund, Income Equity Fund, ValuGrowthSM Stock Fund
and Small Company Stock Fund dated as of June 1, 1994, as amended May
1, 1998 (filed herewith).
(h)(1) Management Agreement between Registrant and Forum Financial Services,
Inc. relating to Income Fund, Income Equity Fund, ValuGrowthSM Stock
Fund and Small Company Stock Fund dated as of August 1, 1997 (filed
herewith).
(2) Transfer Agency Agreement between Registrant and Norwest Bank
Minnesota, N.A. relating to Income Fund, Income Equity Fund,
ValuGrowthSM Stock Fund and Small Company Stock Fund dated as of June
1, 1994, as amended May 1, 1998 (filed herewith).
(3) Fund Accounting Agreement between Registrant and Forum Accounting
Services, LLC. relating to Income Fund, Income Equity Fund,
ValuGrowthSM Stock Fund and Small Company Stock Fund dated as of June
1, 1997 as amended on July 28, 1998 (filed herewith).
(4) Administration Agreement between Registrant and Forum Administrative
Services, LLC relating to Income Fund, Income Equity Fund, ValuGrowthSM
Stock Fund and Small Company Stock Fund dated as of August 1, 1997, as
amended January 26, 1998 (filed herewith).
(i) (1) Opinion of Seward & Kissel (see Note 1).
(2) Consent of Seward & Kissel (filed herewith).
(j) Consent of Independent Auditors (filed herewith).
(k) None.
(l) Investment representation letter of initial purchaser of shares
of beneficial interest of the Registrant (see Note 1).
(m) Financial Data Schedules (see Note 3)
(m) Not Applicable.
(n) Financial Data Schedules (filed herewith).
(o) Not Applicable.
Other Exhibits:
Power of Attorney, Donald H. Burkhardt, Trustee of the Trust (see Note
1).
Power of Attorney, James C. Harris, Trustee of the Trust (see Note 1).
Power of Attorney, Richard M. Leach, Trustee of the Trust (see Note 1).
Power of Attorney, Robert C. Brown, Trustee of the Trust (see Note 1).
Power of Attorney, Donald C. Willeke, Trustee of the Trust (see Note
1).
Power of Attorney, Timothy J. Penny, Trustee of the Trust (see Note 1).
Power of Attorney, John Y. Keffer, Trustee of the Trust (see Note 1).
Power of Attorney, John C. McCune, Trustee of the Trust (see Note 2).
- ---------------
Note:
1 Exhibit incorporated by reference as filed in Post-Effective Amendment
No.4 via EDGAR on May 1, 1996, accession number 0000912057-96-007759.
2 Exhibit incorporated by reference as filed in Post-Effective Amendment
No.7 via EDGAR on April 30, 1998, accession number 0001004402-98-000271.
3. Exhibit incorporated by reference as filed in Post-Effective Amendment
via EDGAR on March 1, 1999, accession number 0001004402-99-000159.
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
the Registrant or its shareholders by reason of willful malfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in the conduct of
his office. To the extent that the description above is in any way inconsistent
with the provisions of Section 10.02 of Registrant's Trust Instrument, contained
in this registration statement as Exhibit (a), the provisions of Section 10.2
shall govern.
The Registrant's Investment Advisory Agreement and Distribution Agreement
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, Transfer Agency Agreement and Fund Accounting Agreement.
Registrant's principal underwriter is also provided with indemnification against
various liabilities and expenses under Section 2(f) of the Distribution
Agreement between the 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 malfeasance, bad faith, or gross negligence in the
performance of its duties, or by reason of its reckless disregard of its
obligations and duties under Section 2 of the Distribution Agreement.
Registrant's Transfer Agent and certain related individuals are also provided
with indemnification against various liabilities and expenses under Section 21
of the Transfer Agency Agreement between the Registrant and the Transfer Agent;
provided, however, that in no event shall the transfer agent or such persons be
indemnified against any liability or expense that is a direct result of willful
malfeasance, bad faith, or gross negligence by the Transfer Agent or such
persons. Registrant's Custodian and certain related individuals are also
provided with indemnification against various liabilities and expenses under
Section 18 of the Custodian Agreement between the Registrant and the Custodian;
provided, however, that in no event shall the transfer agent or such persons be
indemnified against any liability or expense that is a direct result of willful
malfeasance, bad faith, or gross negligence by the transfer agent or such
persons. Registrant's Fund Accountant and certain related individuals are also
provided with indemnification against various liabilities and expenses under
Section 4 of the Fund Accounting Agreement between the Registrant and the Fund
Accountant; provided, however, that in no event shall the transfer agent or such
persons be indemnified against any liability or expense that is a direct result
of willful malfeasance, bad faith, or gross negligence by the Fund Accountant or
such persons.
To the extent that the description above is inconsistent with the provisions of
Section 9 of the Investment Advisory Agreement, Section 2, of the Distribution
Agreement, Section 8 of the Management Agreement, Section 21 of the Transfer
Agency Agreement, Section 18 of the Custodian Agreement, and Section 4 of the
Fund Accounting Agreement, the contractual provisions shall govern.
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, the
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 of 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-Investment
Management" in the Prospectus and under the caption
"Management-Adviser" or "Management -Investment Advisory
Services-Norwest Investment Management" in the Statement of Additional
Information constituting Parts A and B, respectively, of this
Registration Statement is incorporated by reference herein.
The following are the directors and principal executive officers of
NIM, including their business connections, which are of a substantial
nature. The address of Norwest Corporation, the parent of Norwest Bank
Minnesota, N.A. ("Norwest Bank"), which is the parent of NIM, is
Norwest Center, Sixth Street and Marquette Avenue, Minneapolis, MN
55479. Unless otherwise indicated below, the principal business address
of any company with which the directors and principal executive
officers are connected is also Sixth Street and Marquette Avenue,
Minneapolis, MN 55479.
<TABLE>
<S> <C> <C>
------------------------------------ ------------------------------------ ----------------------------------
Name Title Business Connection
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
P. Jay Kiedrowski Chairman, Chief Executive Officer, Norwest Investment Management,
President Inc.
------------------------------------ ----------------------------------
Executive Vice President, Employee Norwest Bank Minnesota, N.A.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
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.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
David S. Lunt Vice President, Senior Portfolio Norwest Investment Management,
Manager Inc.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Richard C. Villars Vice President, Senior Portfolio Norwest Investment Management,
Manager Inc.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Lee K. Chase Senior Vice President Norwest Investment Management,
Inc.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Andrew Owen Vice President Norwest Investment Management,
Inc.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Eileen A. Kuhry Investment Compliance Specialist Norwest Investment Management,
Inc.
------------------------------------ ------------------------------------ ----------------------------------
</TABLE>
(b) 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.
<TABLE>
<S> <C> <C>
------------------------------------ ------------------------------------ ----------------------------------
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
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
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)
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Kenneth Lee Investment Portfolio Manager WCM
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Associate Portfolio Manager Wells Fargo Bank, N.A. (until
2/97)
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Melvin Lindsey Managing Director WCM
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Investment Portfolio Manager Wells Fargo Bank, N.A. (until
4/97)
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
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
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
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 Financial Services, Inc., Registrant's underwriter, or its
affiliate, Forum Fund Services, LLC, serve as underwriter for the
following investment companies registered under the Investment Company
Act of 1940, as amended:
The CRM Funds Monarch Funds
The Cutler Trust Sound Shore Fund, Inc.
Forum Funds
Memorial Funds
(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> <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 Investment
Management, Inc., 733 Marquette Avenue, Minneapolis, MN 55479-0040, Registrant's
investment adviser and Norwest Bank Minnesota, N.A., 733 Marquette Avenue,
Minneapolis, MN 55479-0040, Registrant's custodian and transfer agent.
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.
<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 pre-effective amendment number 9 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 April 30, 1999.
Norwest Select 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 April
30, 1999.
(a) Principal Executive Officer
/s/ John Y. Keffer
John Y. Keffer
Chairman and President
(b) Principal Financial Officer
/s/ Sara M. Morris
Sara M. Morris
Treasurer
(c) A majority of the Trustees
/s/ John Y. Keffer
John Y. Keffer, Chairman
Robert C. Brown, Trustee
Donald H. Burkhardt, Trustee
James C. Harris, Trustee
Richard M. Leach, Trustee
Donald C. Willeke, Trustee
Timothy J. Penny, Trustee
John C. McCune, Trustee
By: /s/ John Y. Keffer
John Y. Keffer, Attorney in fact*
* Pursuant to powers of attorney filed as Other Exhibits to this
Registration Statement.
<PAGE>
INDEX TO EXHIBITS
Exhibit:
(g) Custodian Agreement between Registrant and Norwest Bank Minnesota, N.A.
relating to Income Fund, Income Equity Fund, ValuGrowthSM Stock Fund
and Small Company Stock Fund dated as of June 1, 1994, as amended May
1, 1998.
(h)(1) Management Agreement between Registrant and Forum Financial Services,
Inc. dated as of August 1, 1997.
(h)(2) Transfer Agency Agreement between Registrant and Norwest Bank
Minnesota, N.A. relating to Income Fund, Income Equity Fund,
ValuGrowthSM Stock Fund and Small Company Stock Fund dated as of June
1, 1994, as amended May 1, 1998.
(h)(3) Fund Accounting Agreement between Registrant and Forum Accounting
Services, LLC. relating to Income Fund, Income Equity Fund,
ValuGrowthSM Stock Fund and Small Company Stock Fund dated as of June
1, 1997 as amended on July 28, 1998.
(h)(4) Administration Agreement between Registrant and Forum Administrative
Services, LLC dated as of August 1, 1997, as amended January 26, 1998.
(i)(2) Consent of Seward & Kissel.
(j) Consent of Independent Auditors.
<PAGE>
Exhibit (g)
NORWEST SELECT FUNDS
CUSTODIAN AGREEMENT
June 1, 1994, as amended May 1, 1998
AGREEMENT, made as of the 1st day of June, 1994, as amended on the 1st
day of May, 1998, between Norwest Select Funds (the "Trust"), a business trust
organized under the laws of the State of Delaware with its principal place of
business at Two Portland Square, Portland, Maine 04101 and Norwest Bank
Minnesota, N.A. (the "Custodian"), a banking association organized under the
laws of the United States of America with its principal place of business at
Sixth Street and Marquette, Minneapolis, Minnesota 55479.
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended (the "Act"), as an open-end management investment company and
is authorized to issue its shares of beneficial interest, no par value, in
separate series and classes;
WHEREAS, the Trust desires to appoint Norwest Bank Minnesota, N.A.,
custodian of its securities and cash and Norwest Bank Minnesota, N.A. is willing
to act in such capacity upon the terms and conditions set forth below; and
WHEREAS, pursuant to a separate agreement between the Trust and Norwest
Bank Minnesota, N.A. (the "Transfer Agency Agreement"), Norwest Bank Minnesota,
N.A. will perform the duties of transfer agent of the Trust
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, the parties do hereby agree as follows:
SECTION 1. DEFINITIONS
Whenever used in this Agreement, the following terms shall have the
meanings specified, insofar as the context will allow.
(a) Act: The term Act shall mean the Investment Company Act of 1940, as
amended from time to time.
(b) Board: The term Board shall mean the Board of Trustees of the
Trust.
(c) Book-Entry Account: The term Book-Entry Account shall mean an
account maintained by a Federal Reserve Bank in which Book-Entry Securities are
held.
(d) Book-Entry Securities: The term Book-Entry Securities shall mean
securities issued by the United States Treasury and United States Federal
agencies and instrumentalities that are maintained in the book-entry system
maintained by a Federal Reserve Bank.
(e) Custodian: The term Custodian shall mean Norwest Bank, Minnesota,
N.A., in its capacity as custodian under this Agreement.
(f) Foreign Securities: The term Foreign Securities shall mean "Foreign
Securities" as that term is defined in Rule 17f-5 under the Act.
(g) Foreign Sub-Custodian: The term Foreign Sub-Custodian shall mean
"Eligible Foreign Sub-Custodian" as that term is defined in Rule 17f-5 under the
Act.
(h) Fund Business Day: The term Fund Business Day shall mean a day that
is a business day for a Series as defined in the Series' prospectus.
(i) Oral Instructions: The term Oral Instructions shall mean an
authorization, instruction, approval, item or set of data, or information of any
kind transmitted to the Custodian in person or by telephone, vocal telegram or
other electronic means, by a person or persons reasonably believed in good faith
by the Custodian to be a person or persons authorized by a resolution of the
Board to give Oral Instructions on behalf of the Trust. Each Oral Instruction
shall specify whether it is applicable to the entire Trust or a specific Series
of the Trust.
(j) Securities: The term Securities shall mean bonds, debentures,
notes, stocks, shares, evidences of indebtedness, and other securities and
investments from time to time owned by the Trust.
(k) Securities Depository: The term Securities Depository shall mean a
system, domestic or foreign, for the central handling of securities in which all
securities of any particular class or series of any issuer deposited within the
system are treated as fungible and may be transferred or pledged by bookkeeping
entry without physical delivery of the securities and shall include any system
for the issuance of Book-Entry Securities.
(l) Series: The term Series shall mean the Series listed in Appendix A
or any series that the Trust shall subsequently establish provided, that the
Custodian may decline to act as custodian for any series subsequently
established
(m) Share Certificates: The term Share Certificates shall mean the
certificates for the Shares.
(n) Shareholders: The term Shareholders shall mean the registered
owners from time to time of the Shares, as reflected on the share registry
records of the Trust.
(o) Shares: The term Shares shall mean the issued and outstanding
shares of beneficial interest, no par value, of the Trust, including any
fractions thereof.
(p) Sub-Custodian: The term Sub-Custodian shall mean any person
selected by the Custodian under Section 20 hereof and in accordance with the
requirements of the Act to custody any or all of the Securities and cash of the
Trust, and shall include Foreign Sub-Custodians.
(q) Trust: The term Trust shall mean Norwest Select Funds.
(r) Written Instructions: The term Written Instructions shall mean an
authorization, instruction, approval, item or set of data, or information of any
kind transmitted to the Custodian in original writing containing original
signatures, or a copy of such document transmitted by telecopy, including
transmission of such signature, or other mechanical or documentary means, at the
request of a person or persons reasonably believed in good faith by the
Custodian to be a person or persons authorized by a resolution of the Board to
give Written Instructions on behalf of the Trust. Each Written Instruction shall
specify whether it is applicable to the entire Trust or a specific Series of the
Trust.
(s) 1934 Act: The term 1934 Act shall mean the Securities Exchange
Act of 1934, as amended from time to time.
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SECTION 2. APPOINTMENT
The Trust hereby appoints the Custodian as custodian of the Securities
and cash of each Series from time to time on deposit hereunder. The Securities
and cash of the Trust shall be and remain the sole property of the Trust and the
Custodian shall have only custody thereof. The Custodian shall hold, earmark and
physically segregate for the appropriate Series account of the Trust all
non-cash property, including all Securities that are not maintained pursuant to
Section 6 in a Securities Depository or Book-Entry Account. The Custodian will
collect from time to time the dividends and interest of the Securities held by
the Custodian.
The Custodian shall open and maintain a separate bank or trust account
or accounts in the name of the Trust, subject only to draft or order by the
Custodian acting pursuant to the terms of this Agreement, and shall hold in such
account or accounts, subject to the provisions hereof, all cash received by it
from or for the account of the Trust. Notwithstanding the foregoing, a separate
bank account may be established by the Trust to be used as a petty cash account
in accordance with Rule 17f-3 under the Act and the Custodian shall have not
duty or liability with regard to such account.
Upon receipt of Written Instructions, funds held by the Custodian for
the Trust may be deposited by the Custodian to its credit in the banking
department of the Custodian or in such other banks or trust companies as it may
in its discretion deem necessary or desirable. Such funds shall be deposited by
the Custodian in its capacity as Custodian and shall be withdrawable by the
Custodian only in that capacity.
SECTION 3. DELIVERY OF BOARD RESOLUTIONS
The Trust shall, as necessary, file with the Custodian a certified copy
of the operative resolution of the Board authorizing execution of Written
Instructions and the number of signatories required and setting forth authentic
signatures of all signatories authorized to sign on behalf of the Trust or any
Series thereof. Such resolution shall constitute conclusive evidence of the
authority of all signatories designated therein to act and shall be considered
in full force and effect, with the Custodian fully protected in acting in
reliance thereon, until the Custodian receives a certified copy of a replacement
resolution adding or deleting a person or persons authorized to give written
Instructions.
The Trust shall, as necessary, file with the Custodian a certified copy
of the operative resolution of the Board authorizing the transmittal of Oral
Instructions and specifying the person or persons authorized to give Oral
Instructions on behalf of the Trust or any Series. Such resolution shall
constitute conclusive evidence of the authority of the person or persons
designated therein to act and shall be considered in full force and effect, with
the Custodian fully protected in acting in reliance therein, until the Custodian
actually receives a certified copy of a replacement resolution adding or
deleting a person or persons authorized to give Oral Instructions. If the
officer certifying the resolution is authorized to give Oral Instructions, the
certification shall also be signed by a second officer of the Trust.
SECTION 4. INSTRUCTIONS
For all purposes under this Agreement, the Custodian is authorized to
act upon receipt of the first of any Written or Oral Instruction it receives. If
the first Instruction is an Oral Instruction, the Trust shall deliver or have
delivered to the Custodian a confirmatory Written Instruction; and if the
Custodian receives an Instruction, whether Written or Oral, with respect to a
Securities transaction, the Trust shall cause the broker or dealer to send a
written confirmation of the transaction to the Custodian. The Custodian shall be
entitled to rely on the first Instruction received and, for any act or omission
undertaken in compliance therewith, shall be free of liability and fully
indemnified and held harmless by the Trust. The sole obligation of the Custodian
with respect to any confirmatory Written Instruction or broker or dealer written
confirmation shall be to make reasonable efforts to detect any discrepancy
between the original Instruction and such confirmation and to report such
discrepancy to the Trust. The Trust shall be responsible, at the Trust's
expense, for taking any action, including any reprocessing, necessary to correct
any discrepancy or error, and to the extent such action requires the Custodian
to act, the Trust shall give the Custodian specific Written Instructions as to
the action required.
SECTION 5. DEPOSIT OF TRUST ASSETS
The Trust will initially transfer and deposit or cause to be
transferred and deposited with the Custodian all of the Securities, other
property and cash owned by the Trust at the time this Agreement becomes
effective, provided that the Custodian shall have the right, in its sole
discretion, to refuse to accept any securities or other property that are not in
proper form for deposit or any reason. Such transfer and deposit shall be
evidenced by appropriate schedules duly executed by the Trust. The Trust may
deposit with the Custodian additional Securities of the Trust and dividends or
interest collected on such Securities as the same are acquired from time to
time.
The Trust will cause to be deposited with the Custodian from time to
time (i) the net proceeds of Securities sold, (ii) the applicable net asset
value of Shares sold, whether representing initial issue or any other securities
and (iii) cash as may be acquired. Deposits with respect to sales of Shares
shall be accompanied by Written or Oral Instructions stating the amount to be
deposited with the Custodian and registration instructions.
SECTION 6. DEPOSIT OF TRUST ASSETS WITH THIRD PARTIES
The Trust hereby authorizes the Custodian to deposit assets of the
Trust as follows:
(a) With the Custodian or any other bank licensed and regularly
examined by the United States or any state thereof assets held in the Option
Account created pursuant to Section 13(b).
(b) In the Custodian's or Sub-Custodian's account(s) with any
Securities Depository as the Trust shall permit by Written or Oral Instruction.
(c) Book-Entry Securities belonging to the Trust in a Book-Entry
Account maintained for the Custodian.
So long as any deposit referred to in (b) or (c) above is maintained
for the Trust, the Custodian shall: (i) deposit the Securities in an account
that includes only assets held by the Custodian for customers; (ii) send the
Trust a confirmation (i.e., an advice of notice of transaction) of any transfers
of the Trust to or from the account; (iii) with respect to Securities of the
Trust transferred to the account, identify as belonging to the Trust a quantity
of securities in a fungible bulk of securities that are registered in the name
of the Custodian or its nominee, or credited to the Custodian's account on the
books of a Securities Depository or the Custodian's agent; (iv) promptly send to
the Trust all reports it receives from the appropriate Federal Reserve Bank or
Securities Depository on its respective system of internal accounting control;
and (v) send to the Trust such reports of the systems of internal accounting
control of the Custodian and its agents through which Securities are deposited
as are available and as the Trust may reasonably request from time to time.
The Custodian shall be liable to the Trust for any loss or damage to
the Trust resulting from the negligence (including failure to act), fault or
willful misconduct of the Custodian, its agents or employees in selecting a
Securities Depository or Book-Entry Account. The Custodian shall not waive any
rights it may have against a Securities Depository or Federal Reserve Bank. The
Trust may elect to be subrogated to the rights of the Custodian against the
Securities Depository or Federal Reserve Bank or any other person with respect
to any claim that the Custodian may have as a consequence of any such loss or
damage, if and to the extent that the Trust has not been made whole for any such
loss or damage.
SECTION 7. REGISTRATION OF SECURITIES
The Securities held by the Custodian, unless payable to bearer or
maintained in a Securities Depository or Book-Entry Account pursuant to Section
6, shall be registered in the name of the Custodian or in the name of its
nominee, or if directed by Written Instructions, in the name of the Trust or its
nominee. In the event that any Securities are registered in the name of the
Trust or its nominee, the Trust will endorse, or cause to be endorsed, to the
Custodian dividend and interest checks, or will issue appropriate orders to the
issuers of the Securities to pay dividends and interest to the Custodian.
Securities, excepting bearer securities, delivered from time to time to the
Custodian shall, in all cases, be in due form for transfer, or registered as
above provided.
SECTION 8. DISBURSEMENTS OF CASH
The Custodian is hereby authorized and directed to disburse cash to or
from the Trust from time to time as follows:
(a) For the purchase of Securities by the Trust, upon receipt by the
Custodian of (i) Written or Oral Instructions specifying the Securities and
stating the purchase price and the name of the broker, investment banker or
other party to or upon whose order the purchase price is to be paid and (ii)
either the Securities so purchased, in due form for transfer or already
registered as provided in Section 7, or notification by a Securities Depository
or a Federal Reserve Bank that the Securities have been credited to the
Custodian's account with the Securities Depository or Federal Reserve Bank.
(b) For transferring funds, including mark-to-the-market payments, in
connection with a repurchase agreement covering Securities that have been
received by the Custodian as provided in subsection (a) above, upon receipt by
the Custodian of (i) Written or Oral Instruction specifying the Securities, the
purchase price and the party to whom the purchase price is to be paid and (ii)
written agreement to repurchase the Securities from the Trust.
(c) For transferring funds to a duly-designated redemption paying agent
to redeem or repurchase Shares, upon receipt of (i) either Share Certificates in
due form for transfer, or proper processing of Shares for which no Share
Certificates are outstanding and (ii) Written or Oral Instructions stating the
applicable redemption price.
(d) For exercising warrants and rights received upon the Securities,
upon timely receipt of Written or Oral Instructions authorizing the exercise of
such warrants and rights and stating the consideration to be paid.
(e) For repaying, in whole or in part, any loan of the Trust, or
returning cash collateral for Securities loaned by the Trust, upon receipt of
Written or Oral Instructions directing payment and stating the Securities, if
any, to be received against payment.
(f) For paying over to a duly-designated dividend disbursing agent such
amounts as may be stated in Written or Oral Instructions as the Trust deems
appropriate to include in dividends or distributions declared on the Shares.
(g) For paying or reimbursing the Trust for other corporate
expenditures, upon receipt of Written or Oral Instructions stating that such
expenditures are or were authorized by resolution of the Board and specifying
the amount of payment, the purposes for which such payment is to be made, and
the person or persons to whom payment is to be made.
(h) For transferring funds to any Sub-Custodian, upon receipt of
Written or Oral Instructions and upon agreement by the Custodian.
(i) To advance or pay out accrued interest on bonds purchased,
dividends on stocks sold and similar items.
(j) To pay proper compensation and expenses of the Custodian.
(k) To pay, or provide the Trust with money to pay, taxes, upon receipt
of appropriate Written or Oral Instructions.
(l) To transfer funds to a separate checking account maintained by the
Trust.
(m) To pay interest, management or supervisory fees, administration,
dividend and transfer agency fees and costs, compensation of personnel and
operating expenses, including but not limited to fees for legal, accounting and
auditing services.
Before making any payments or disbursements, however, the Custodian
shall receive, and may conclusively rely upon, Written or Oral Instructions
requesting such payment or disbursement and stating that it is for one or more
or the purposes enumerated above. Notwithstanding the foregoing, the Custodian
may disburse cash for other corporate purposes; provided, however, that such
disbursement maybe made only upon receipt of Written or Oral Instructions
stating that such disbursement was authorized by resolution of the Board.
SECTION 9. DELIVERY OF SECURITIES
The Custodian is hereby authorized and directed to deliver Securities
of the Trust from time to time as follows:
(a) For completing sales of Securities sold by the Trust, upon receipt
of (i) Written or Oral Instructions specifying the Securities sold, the amount
to be received and the broker, investment banker or other party to or upon whose
order the Securities are to be delivered and (ii) the net proceeds of sale;
provided, however, that the Custodian may accept payment in connection with the
sale of Book-Entry Securities and Securities on deposit with a Securities
Depository by means of a credit in the appropriate amount to the account
described in Section 6(b) or (c) above.
(b) For exchanging Securities for other Securities (and cash, if
applicable), upon timely receipt of (i) Written or Oral Instructions stating the
Securities to be exchanged, cash to be received and the manner in which the
exchange is to be made and (ii) the other Securities (and cash, if applicable)
as specified in the Written or Oral Instructions.
(c) For exchanging or converting Securities pursuant to their terms or
pursuant to any plan of conversion, consolidation, recapitalization,
reorganization, re-adjustment or otherwise, upon timely receipt of (i) Written
or Oral Instructions authorizing such exchange or conversion and stating the
manner in which such exchange or conversion is to be made and (ii) the
Securities, certificates of deposit, interim receipts, and/or cash to be
received as specified in the Written or Oral Instructions.
(d) For presenting for payment Securities that have matured or have
been called for redemption;
(e) For delivering Securities upon redemption of Shares in kind, upon
receipt of (i) Share Certificates in due form for transfer, or proper processing
of Shares for which no Share Certificates are outstanding and (ii) appropriate
Written or Oral Instructions.
(f) For depositing with the lender Securities to be held as collateral
for a loan to the Trust or depositing with a borrower Securities to be loaned by
the Trust, (i) upon receipt of Written or Oral Instructions directing delivery
to the lender or borrower and suitable collateral, if Securities are loaned or
(ii) pursuant to the terms of a separate securities lending agreement.
(g) For complying with a repurchase agreement, upon receipt of Written
or Oral Instructions stating (i) the securities to be delivered and the payment
to be received and (ii) payment.
(h) For depositing with a depository agent in connection with a tender
or other similar offer to purchase Securities of the Trust, upon receipt of
Written or Oral Instructions.
(i) For depositing Securities with the issuer thereof, or its agents,
for the purpose of transferring such Securities into the name of the Trust, the
Custodian or any nominee of either in accordance with Section 7.
(j) For other proper corporate purposes; provided, that the Custodian
shall receive Written or Oral Instructions requesting such delivery.
(k) Notwithstanding the foregoing, the Custodian may, without Written
or Oral Instructions, surrender and exchange Securities for other Securities in
connection with any reorganization, recapitalization, or similar transaction in
which the owner of the Securities is not given an option; provided, however,
that the Custodian has no responsibility to effect any such exchange unless it
has received actual notice of the event permitting or requiring such exchange.
To facilitate any such exchange, the Custodian is authorized to surrender
against payment maturing obligations and obligations called for redemption and
to effectuate the exchange in accordance with customary practices and procedures
established in the market for exchanges.
SECTION 10. BORROWINGS
The Trust will cause any person (including the Custodian) from which it
borrows money using Securities as collateral to deliver to the Custodian a
notice of undertaking in the form currently employed by the lender setting forth
the amount that the lender will loan to the Trust against delivery of a stated
amount of collateral. The Trust shall promptly deliver to the Custodian Written
or Oral Instructions for each loan, stating (i) the name of the lender, (ii) the
amount and terms of the loan, which terms may be specified by incorporating by
reference an attached promissory note or loan agreement duly endorsed by the
Trust, (iii) the time and date, if known, on which the loan will be consummated
(the "borrowing date"), (iv) the date on which the loan becomes due and payable,
(v) the total amount payable to the Trust on the borrowing date, (vi) the market
value of Securities to be delivered as collateral for such loan and (vii) the
name of the issuer, the title and the number of shares or principal amount of
the Securities to be delivered as collateral. The Custodian shall deliver on the
borrowing date such specified collateral and the executed promissory note, if
any, and receive from the lender the total amount of the loan proceeds;
provided, however, that no delivery of Securities shall occur if the amount of
loan proceeds does not conform to the amount set forth in the Written or Oral
Instructions, or if such Instruction do not contain the requirements of (vii)
above. The Custodian may, at the option of the lender, keep such collateral in
its possession; provided such collateral is subject to all rights given the
lender by any promissory note or loan agreement executed by the Trust.
The Custodian shall deliver, from time to time, any Securities required
as additional collateral for any transaction described in this Section, upon
receipt of Written or Oral Instructions. The Trust shall cause all Securities
released from collateral status to be returned directly to the Custodian.
SECTION 11. INDEBTEDNESS TO CUSTODIAN
If, in its sole discretion, the Custodian advances funds to the Trust
to pay for the purchase of Securities, to cover an overdraft of the Trust's
account with the Custodian, or to pay any other indebtedness to the Custodian,
the Trust's indebtedness shall be deemed to be a loan by the Custodian to the
Trust, payable on demand and bearing interest at the rate then charged by the
Custodian for such loans; provided, however, that the Custodian shall give the
Trust notice of any such advance that exceeds five percent of the value of the
Securities and cash held by the Custodian at the time of the advance. The Trust
hereby agrees that the Custodian shall have a continuing lien and security
interest, to the extent of any such overdraft or indebtedness, in any property
then held by the Custodian or its agents for the benefit of the Trust, or in
which the Trust may have an interest. The Trust authorizes the Custodian, in its
sole discretion at any time, to charge any such overdraft or indebtedness,
together with interest due thereon, against any balance then credited to the
Trust on the Custodian's books.
SECTION 12. SECURITIES LOANS
The Custodian may from time to time lend securities of the Trust in
accordance with and pursuant to a separate securities lending agreement.
SECTION 13. OPTIONS, FUTURES CONTRACTS AND SEGREGATED ACCOUNTS
The Custodian's responsibilities regarding option contracts will be
governed by the following sub-paragraphs:
(a) Options.
(i) Upon receipt of Written or Oral Instructions relating to the
purchase of an option or sale of a covered call option, the Custodian shall: (A)
receive and retain confirmations or other documents, if any, evidencing the
purchase or writing of the option; (B) if the transaction involves the sale of a
covered call option, deposit and maintain in a segregated account the Securities
(either physically or by book-entry in a Securities Depository) subject to the
covered call option written on behalf of the Series; and (C) pay, release and/or
transfer such securities, cash or other assets in accordance with any notices or
other communications evidencing the expiration, termination or exercise of such
options which are furnished to the Custodian by the Options Clearing Corporation
(the "OCC"), the Securities or Options Exchanges on which such options were
traded, or such other organization as may be responsible for handling such
option transactions.
(ii) Upon receipt of instructions relating to the sale of a naked
option (including stock index and commodity options), the Custodian, the Trust
and the broker-dealer shall enter into an agreement to comply with the rules of
the OCC or of any registered national securities exchange or similar
organizations(s). Pursuant to that agreement and any Written or Oral
Instructions, the Custodian shall: (A) receive and retain confirmations or other
documents, if any, evidencing the writing of the option; (B) deposit and
maintain in a segregated account Securities (either physically or by book-entry
in a Securities Depository cash and/or other assets; and (C) pay, release and/or
transfer such Securities, cash or other assets in accordance with any such
agreement and with any notices or other communications evidencing the
expiration, termination or exercise of such option which are furnished to the
Custodian by the OCC, the Securities or Options Exchanges on which such options
were traded, or such other organization as may be responsible for handling such
option transactions. The Custodian shall not be responsible for determining the
quality and quantity of assets held in any segregated account established in
compliance with applicable margin maintenance requirements and the performance
of other terms of any option contract.
(b) Futures Contracts. Upon receipt of Written or Oral Instructions,
the custodian shall enter into a futures margin procedural agreement among the
Fund, the Custodian and the designated futures commission merchant (a
"Procedural Agreement"). Under the Procedural Agreement the Custodian shall: (A)
receive and retain confirmations, if any, evidencing the purchase or sale of a
futures contract or an option on a futures contract by a Series; (B) deposit and
maintain in a segregated account cash, Securities and/or other assets designated
as initial, maintenance or variation "margin" deposits intended to secure the
Series' performance of its obligations under any futures contracts purchased or
sold, or any options on futures contracts written by the Series, in accordance
with the provisions of any Procedural Agreement designed to comply with the
provisions of the Commodity Futures Trading Commission and/or any commodity
exchange or contract market (such as the Chicago Board of Trade), or any similar
organization(s), regarding such margin deposits; and (C) release assets from
and/or transfer assets into such margin accounts only in accordance with any
such Procedural Agreements. The Custodian shall not be responsible for
determining the type and amount of assets held in the segregated account or paid
to the broker-dealer in compliance with applicable margin maintenance
requirements and the performance of any futures contract or option on a futures
contract in accordance with its terms.
(c) Segregated Accounts. Upon receipt of Written or Oral Instructions,
the Custodian shall establish and maintain on its books a segregated account or
accounts for and on behalf of the Series, into which account or accounts may be
transferred assets of each Series, including Securities maintained by the
Custodian in a Securities Depository, said account or accounts to be maintained
(i) for the purpose of compliance by the Series with the procedures required by
SEC Investment Company Act Release Number 10666 or any subsequent release or
releases relating to the maintenance of segregated accounts by registered
investment companies or (ii) for such other purposes as may be set forth, from
time to time in Written or Oral Instructions. The Custodian shall not be
responsible for the determination of the type or amount of assets to be held in
any segregated account referred to in this paragraph.
SECTION 14. EXERCISE OF POWERS WITH RESPECT TO SECURITIES
The Custodian assumes no duty, obligation or responsibility whatsoever
to exercise any voting or consent powers with respect to the Securities held by
it from time to time hereunder. The Trust or such persons as it may designate
shall have the right to vote, consent or otherwise act with respect to
Securities. The Custodian will exercise its best efforts (as defined in Section
16) to furnish to the Trust in a timely manner all proxies or other appropriate
authorizations with respect to Securities registered in the name of the
Custodian or its nominee, so that the Trust or its designee may vote, consent or
otherwise act.
SECTION 15. COMPENSATION
(a) The Trust agrees to pay to the Custodian compensation for its
services as set forth in Appendix B hereto, or as shall be set forth in written
amendments to Appendix B approved by the Trust and the Custodian from time to
time.
(b) The Trust shall pay all fees and expenses of any Sub-Custodian
approved by the Trust.
SECTION 16. CORPORATE ACTIVITY
The Custodian will exercise its best efforts to forward to the Trust in
a timely manner all notices of shareholder meetings, proxy statements, annual
reports, conversion notices, call notices, or other notices or written materials
of any kind (excluding share certificates and dividend, principal and interest
payments) sent to the Custodian as registered owner of Securities. Best efforts
as used in this Agreement shall mean the efforts reasonably believed in good
faith by the Custodian to be adequate in the circumstances.
Upon receipt of warrants or rights issued in connection with the assets
of the Trust, the Custodian shall enter into its ledgers appropriate notations
indicating such receipt and shall notify the Trust of such receipt. However, the
Custodian shall have no obligation to take any other action with respect to such
warrants or rights, except as directed in Written or Oral Instructions.
Custodian shall take all reasonable actions, as agreed to by the Trust
and the Custodian, to assist the Trust in obtaining from year to year favorable
opinions from the Trust's independent auditors with respect to the Custodian's
activities hereunder.
SECTION 17. RECORDS
The Custodian acknowledges and agrees that all books and records
maintained for the Trust in any capacity under this Agreement are the property
of the Trust and may be inspected by the Trust or any authorized regulatory
agency at any reasonable time. Upon request all such books and records will be
surrendered promptly to the Trust. The Custodian agrees to make available upon
request and to preserve for the periods prescribed in Rule 31a-2 of the Act any
records related to services provided under this Agreement and required to be
maintained by Rule 31a-1 under the Act.
SECTION 18. LIABILITY
The Custodian assumes only the usual duties and obligations normally
performed by custodians of open-end investment companies. The Custodian
specifically assumes no responsibility for the management, investment or
reinvestment of the Securities from time to time owned by the Trust, whether or
not on deposit hereunder. The Custodian assumes no duty, obligation or
responsibility whatsoever with respect to Securities not deposited with the
Custodian.
The Custodian may rely upon the advice of counsel, who may be counsel
for the Trust or for the Custodian, and upon statements of accountants, brokers
or other persons believed by the Custodian in good faith to be expert in the
matters upon which they are consulted. The Custodian shall not be liable for any
action taken in good faith reliance upon such advice or statements. The
Custodian shall not be liable for action taken in good faith in accordance with
any Written or Oral Instructions, request or advice of the Trust or its
officers, or information furnished by the Trust or its officers. The Custodian
shall not be liable for any non-negligent action taken in good faith and
reasonably believed by it to be within the powers conferred upon it by this
Agreement.
No liability of any kind, other than to the Trust, shall attach to the
Custodian by reason of its custody of the Securities and cash held by the
Custodian hereunder or otherwise as a result of its custodianship. In the event
that any claim shall be made against the Custodian, it shall have the right to
pay the claim and reimburse itself from the assets of the Trust; provided,
however, that no such reimbursement shall occur unless the Trust is notified of
the claim and is afforded an opportunity to contest or defend the claim, if it
so elects. The Trust agrees to indemnify and hold the Custodian harmless for any
loss, claim, damage or expense arising out of the custodian relationship under
this Agreement; provided such loss, claim, damage or expense is not the direct
result of the Custodian's negligence or willful misconduct.
SECTION 19. TAXES
The Custodian shall not be liable for any taxes, assessments or
governmental charges that may be levied or assessed upon the Securities held by
it hereunder, or upon the income therefrom. Upon Written or Oral Instruction,
the Custodian may pay any such tax, assessment or charge and reimburse itself
out of the monies of the Trust or the Securities held hereunder.
SECTION 20. SUB-CUSTODIANS
(a) The Custodian may from time to time request appointment of one or
more Sub-Custodians. Upon receipt of Written or Oral Instructions authorizing
the use of a Sub-Custodian, the Custodian shall appoint one or more
Sub-Custodians or Foreign Sub-Custodians of Securities and cash owned by the
Trust from time to time.
(b) Custodian shall cause Foreign Securities and amounts of cash
reasonably required to effect Trust's Foreign Securities transactions in the
Custodian Account to be held in such countries or other jurisdictions as Trust
shall direct in Written or Oral Instructions.
Custodian may hold Foreign Securities and cash in sub-custody accounts,
which shall be deemed part of the Custodian Account and which have been
established by Custodian or by a Sub-Custodian with those Foreign Sub-Custodians
as Trust shall approve in Written or Oral Instructions.
Each Foreign Sub-Custodian is authorized to hold Foreign Securities in
an account with any foreign Securities Depository as Trust shall approve in
Written or Oral Instructions.
The contractual agreement between the Custodian and any Foreign
Sub-Custodian must provide at a minimum that the Foreign Sub-Custodian shall
provide, obtain or use its best efforts to assist the Trust in obtaining
information responsive to the "notes" to Rule 17f-5 under the Act with respect
to (i) each country or jurisdiction where the Trust's assets are proposed to be
maintained, are maintained or in the future may be maintained and (ii) each
Foreign Sub-Custodian which is proposed to hold, holds or in the future may hold
Foreign Securities or cash of the Trust. Notwithstanding any other provisions of
this Agreement, each Foreign Sub-Custodian's undertaking to assist Trust in
obtaining such information shall neither increase the Foreign Sub-Custodian's
duty of care nor reduce Trust's responsibility to determine for itself the
prudence of entrusting its assets to any particular Foreign Sub-Custodian or
foreign Securities Depository.
The Custodian shall deposit Foreign Securities and cash of the Trust
with a Foreign Sub-Custodian only in an account of the Foreign Sub-Custodian
which holds only assets held by Custodian as custodian for its customers. In the
event that a Foreign Sub-Custodian is authorized to hold any of the Foreign
Securities placed in its care in a foreign Securities Depository, Custodian will
direct the Foreign Sub-Custodian to identify the Foreign Securities on the books
of the foreign Securities Depository as being held for the account of Custodian
as custodian for its customers.
(c) The Custodian shall have no liability to the Trust by reason of any
act or omission of any Sub-Custodian approved by the Trust, and the Trust shall
indemnify the Custodian and hold it harmless from and against any and all
actions, suits, claims, losses, damages, costs, charges, counsel fees, payments,
expenses and liabilities arising directly or indirectly out of or in connection
with the performance of any Sub-Custodian approved by the Trust. The Custodian
assigns to the Trust any and all claims for any losses, costs, expenses, or
damages that may be incurred by the Trust by reason of the negligence, gross
negligence or misconduct of any Sub-Custodian approved by the Trust, or by
reason of the failure of a Sub-Custodian approved by the Trust to perform in
accordance with any applicable agreement, including instructions of the
Custodian. The Custodian shall be under no obligation to prosecute or to defend
any action, suit or claim arising out of, or in connection with, the performance
of any Sub-Custodian approved by the Trust, if, in the opinion of the
Custodian's counsel, such action will involve expense or liability to the
Custodian. The Trust shall, upon request, furnish the Custodian with
satisfactory indemnity against such expense or liability, and upon request of
the Custodian, the Trust shall assume the entire defense of any action, suit, or
claim subject to the foregoing indemnity.
With respect to each Sub-Custodian not approved by the Trust, which may
not be a Foreign Sub-Custodian, the Custodian shall be liable to the Trust for
any loss which shall occur as a result of the failure of the Sub-Custodian to
exercise reasonable care with respect to the safekeeping of assets to the same
extent that the Custodian would be liable to the Trust if the Custodian were
holding such assets in its own premises. The Custodian shall be liable to the
Trust under this paragraph only to the extent of the Trust's direct damages, to
be determined based on the market value of the assets which are subject to loss
and without reference to any special conditions or circumstances.
SECTION 21. EFFECTIVENESS, DURATION AND TERMINATION
(a) This Agreement may be executed in more than one counterpart, each
of which shall be deemed to be an original, and shall become effective on the
date hereof. This Agreement shall remain in effect for a period of one year from
the date of its effectiveness and shall continue in effect for successive
twelve-month periods; provided that such continuance is specifically approved at
least annually by the Board and by a majority of the Trustees who are not
parties to this Agreement or interested persons of any such party.
(b) This Agreement may be terminated by either party upon notice to the
other. The termination shall become effective at the time specified in the
notice but no earlier than sixty (60) days after the date of the notice. Upon
notice of termination, the Trust shall use its best efforts to obtain a
successor custodian. If a successor custodian is not appointed within ninety
(90) days after the date of the notice of termination, the Board shall, by
resolution, designate the Trust as its own custodian. Each successor custodian
shall be a person qualified to serve under the Act. Promptly following receipt
of written notice from the Trust of the appointment of a successor custodian and
receipt of Written or Oral Instructions, the Custodian shall deliver all
Securities and cash it then holds directly to the successor custodian and shall,
upon request of the Trust and the successor custodian and upon payment of the
Custodian's reasonable charges and disbursements, (i) execute and deliver to the
successor custodian an instrument approved by the successor custodian's counsel
transferring to the successor custodian all the rights, duties and obligations
of the Custodian, (ii) transfer to the successor custodian the originals or
copies of all books and records maintained by the Custodian hereunder and (iii)
cooperate with, and provide reasonable assistance to, the successor custodian in
the establishment of the books and records necessary to carry out the successor
custodian's responsibilities hereunder. Upon delivery of the Securities and
other assets of the Trust and compliance with the other requirements of this
Section 21, the Custodian shall have no further duty or liability hereunder.
Every successor custodian appointed hereunder shall execute and deliver an
appropriate written acceptance of its appointment and shall thereupon become
vested with the rights, duties and obligations of the predecessor custodian.
SECTION 22. REQUIRED PERFORMANCE ON FUND BUSINESS DAYS
Nothing contained in this Agreement is intended to or shall require the
Custodian, in any capacity hereunder, to perform any functions or duties on any
day other than a Fund Business Day. Functions or duties normally scheduled to be
performed on any day which is not a Fund Business Day shall be performed on, and
as of, the next Fund Business Day unless otherwise required by law.
SECTION 23. MISCELLANEOUS
(a) This Agreement shall extend to and bind the parties hereto and
their respective successors and assigns; provided, however, that this Agreement
shall not be assignable by the Trust without the written consent of the
Custodian, or by the Custodian without the written consent of the Trust.
Notwithstanding the foregoing, either party may assign this Agreement without
the consent of the other party so long as the assignee is an affiliate, parent
or subsidiary of the assigning party and the assignee of the Custodian is
qualified to serve as custodian under the Act.
(b) This Agreement shall be governed by and construed in accordance
with the laws of the State of Minnesota.
(c) The captions inserted herein are for convenience of reference and
shall not affect, in any way, the meaning or interpretation of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed effective as of the day and year first above written.
NORWEST SELECT FUNDS
By: /s/John Y. Keffer
John Y. Keffer
President
NORWEST BANK MINNESOTA, N.A.
By:/s/ P. Jay Kiedrowski
P. Jay Kiedrowski
Executive Vice President
<PAGE>
NORWEST SELECT FUNDS
CUSTODIAN AGREEMENT
June 1, 1994, as amended May 1, 1998
Appendix A
Series of the Trust
Income Fund
Income Equity Fund
ValuGrowth Stock Fund
Small Company Stock Fund
<PAGE>
NORWEST SELECT FUNDS
CUSTODIAN AGREEMENT
June 1, 1994, as amended May 1, 1998
Appendix B
Compensation
Fee as a % of
the Annual Average Daily
Funds (Classes) of the Trust Net Assets of the Class
Income Fund 0.02%
Income Equity Fund 0.02%
ValuGrowth Stock Fund 0.02%
Small Company Stock Fund 0.02%
<PAGE>
Exhibit (h)(1)
NORWEST SELECT FUNDS
MANAGEMENT AGREEMENT
August 1, 1997
AGREEMENT made as of the 1st day of August, 1997, between Norwest
Select Funds (the "Trust"), a business trust organized under the laws of the
State of Delaware with its principal place of business at Two Portland Square,
Portland, Maine 0410161, and Forum Financial Services, Inc. ("Forum"), a
corporation organized under the laws of State of Delaware with its principal
place of business at Two Portland Square, Portland, Maine 04101.
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended (the "Act") as an open-end management investment company and
may issue its shares of beneficial interest, no par value, in separate series
and classes; and
WHEREAS, the Trust desires that Forum perform administrative services
for each of the series of the Trust as listed in Appendix A hereto (each a
"Fund" and collectively the "Funds") and Forum is willing to provide those
services on the terms and conditions set forth in this Agreement;
NOW THEREFORE, the Trust and Forum agree as follows:
SECTION 1. THE TRUST; DELIVERY OF DOCUMENTS
The Trust is engaged in the business of investing and reinvesting its
assets in securities of the type and in accordance with the limitations
specified in its Trust Instrument, By-Laws and registration statement filed with
the Securities and Exchange Commission (the "SEC"), under the Act and the
Securities Act of 1933 (the "Securities Act"), including any representations
made in a prospectus ("Prospectus") or statement of additional information
("Statement of Additional Information") relating to a Fund contained therein and
as may be supplemented from time to time, all in such manner and to such extent
as may from time to time be authorized by the Trust's Board of Trustees (the
"Board"). The Trust is currently authorized to issue four classes of shares and
the Board is authorized to issue any unissued shares in any number of additional
classes or series. The Trust has delivered copies of the documents listed in
this Section and will from time to time furnish Forum with any amendments
thereof.
SECTION 2. APPOINTMENT
The Trust hereby employs Forum, subject to the direction and control of
the Board, to manage all aspects of the Trust's operations with respect to each
Fund except those which are the responsibility of Norwest Investment Management,
Inc. ("Adviser"), the Trust's investment adviser.
SECTION 3. ADMINISTRATIVE DUTIES
With respect to the Funds, Forum will arrange to:
(a) provide the Trust, at the Trust's expense, with the maintenance of
certain books and records, such as journals, ledger accounts and other records
described in Rule 31a-1 under the Act, the transmission of purchase and
redemption orders for shares of the Funds, the notification to the Trust's
investment adviser of available funds for investment, the reconciliation of
account information and balances among its custodian, transfer agent and
dividend disbursing agent and its investment adviser, and the calculation of the
net asset value of shares of the Funds;
(b) provide the Trust, at the Trust's expense, with the services of
persons competent to perform such supervisory, administrative and clerical
functions as are necessary to provide effective operation of the Trust,
including the services described in subparagraph (a) above of this Section 3;
(c) oversee the performance of administrative and professional services
rendered to the Trust by others, including its custodian, transfer agent and
dividend disbursing agent, as well as accounting, auditing and other services
performed for the Trust;
(d)provide the Trust with adequate general office space and facilities;
(e) oversee the preparation and the printing of the periodic updating
of the Trust's registration statement, Prospectuses and Statement of Additional
Information, the Trust's tax returns, and reports to its stockholders, the SEC
and state securities administrators; and
(f) maintain records relating to its services as are required to be
maintained by the Trust under the Act. The books and records pertaining to the
Trust which are in possession of Forum shall be the property of the Trust. The
Trust, or the Trust's authorized representatives, shall have access to such
books and records at all times during Forum's normal business hours. Upon the
reasonable request of the Trust, copies of any such books and records shall be
provided promptly by Forum to the Trust or the Trust's authorized
representatives.
SECTION 4. STANDARD OF CARE
The Trust shall expect of Forum, and Forum will give the Trust the
benefit of, Forum's best judgment and efforts in rendering these services to the
Trust, and the Trust agrees as an inducement to Forum's undertaking these
services that Forum shall not be liable hereunder for any mistake of judgment or
in any event whatsoever, except for lack of good faith, provided that nothing
herein shall be deemed to protect, or purport to protect, Forum against any
liability to the Trust or to its security holders to which Forum would otherwise
be subject by reason of willful misfeasance, bad faith or gross negligence in
the performance of Forum's duties hereunder, or by reason of Forum's reckless
disregard of its obligations and duties hereunder.
SECTION 5. COMPENSATION; EXPENSES
(a) In consideration of the administrative services performed by Forum
as described herein, the Trust will pay Forum, with respect to each Fund a fee
at the annual rate as listed in Appendix A hereto. Such fee shall be accrued by
the Trust daily and shall be payable monthly in arrears on the first day of each
calendar month for services performed hereunder during the prior calendar month.
(b) Subject to section 4 of the investment advisory agreements between
the Trust and the Adviser, the Trust shall be responsible and hereby assumes the
obligation for payment of all the Trust's other expenses, including payment of
the fee payable to Forum under this Section 5 and the fee payable to the Adviser
pursuant to the Investment Advisory Agreement between the Adviser and the Trust;
interest charges, taxes, brokerage fees and commissions; certain insurance
premiums; fees, interest charges and expenses of the Trust's custodian, transfer
agent and dividend disbursing agent; telecommunications expenses; auditing,
legal and compliance expenses; costs of the Trust's formation and maintaining
its existence; costs of preparing and printing the Trust's Prospectuses,
Statements of Additional Information, subscription application forms and
stockholder reports and delivering them to existing and prospective
shareholders; costs of maintaining books of original entry for portfolio and
fund accounting and other required books and accounts and of calculating the net
asset value of the Trust's shares; costs of reproduction, stationery and
supplies; compensation of the Trust's trustees, officers and employees and costs
of other personnel performing services for the Trust who are not Forum's
officers or officers of the Adviser, or their respective affiliates; costs of
corporate meetings; SEC registration fees and related expenses for registration
with the SEC and the securities regulatory authorities of other countries in
which the Trust's shares are sold; state securities laws registration fees and
related expenses; and all other fees and expenses paid by the Trust pursuant to
any distribution plan or shareholder service adopted by the Trust pursuant to
Rule 12b-1 under the Act.
SECTION 6. EFFECTIVENESS, DURATION AND TERMINATION
(a) This Agreement shall become effective with respect to each Fund on
the date hereof. Upon effectiveness of this Agreement, it shall supersede all
previous agreements between the parties hereto covering the subject matter
hereof insofar as such Agreement may have been deemed to relate to the Funds.
(b) This Agreement shall continue in effect with respect to a Fund for
a period of one year from its effectiveness and shall continue in effect for
successive twelve-month periods; provided, however, that continuance is
specifically approved at least annually (i) by the Board or by a vote of a
majority of the outstanding voting securities of the Fund and (ii) by a vote of
a majority of Trustees of the Trust who are not parties to this agreement or
interested persons of any such party (other than as Trustees of the Trust);
provided further, however, that if the continuation of this agreement is not
approved as to a Fund, Forum may continue to render to the Fund the services
described herein in the manner and to the extent permitted by the Act and the
rules and regulations thereunder.
(c) This Agreement may be terminated with respect to a Fund at any
time, without the payment of any penalty, (i) by the Board on 60 days' written
notice to Forum or (ii) by Forum on 60 days' written notice to the Trust.
SECTION 7. ACTIVITIES OF FORUM
Except to the extent necessary to perform Forum's obligations
hereunder, nothing herein shall be deemed to limit or restrict Forum's right, or
the right of any of Forum's officers, directors or employees who may also be a
trustee, officer or employee of the Trust, or persons otherwise affiliated
persons of the Trust to engage in any other business or to devote time and
attention to the management or other aspects of any other business, whether of a
similar or dissimilar nature, or to render services of any kind to any other
corporation, trust, firm, individual or association.
SECTION 8. LIMITATION OF SHAREHOLDER AND TRUSTEE LIABILITY
The Trustees of the Trust and the shareholders of each Fund shall not
be liable for any obligations of the Trust or of the Funds under this Agreement,
and Forum agrees that, in asserting any rights or claims under this Agreement,
it shall look only to the assets and property of the Trust or the Fund to which
Forum's rights or claims relate in settlement of such rights or claims, and not
to the Trustees of the Trust or the shareholders of the Funds.
SECTION 9. MISCELLANEOUS
(a) No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties hereto.
(b) Section headings in this Agreement are included for convenience
only and are not to be used to construe or interpret this Agreement.
(c) This Agreement shall be governed by and shall be construed in
accordance with the laws of the State of New York.
(d) The terms "vote of a majority of the outstanding voting
securities," "interested person," "affiliated person" and "assignment" shall
have the meanings ascribed thereto in the Act.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed effective as of the day and year first above written.
NORWEST SELECT FUNDS
By:/s/ Donald H. Burkhardt
Donald H. Burkhardt
Trustee
FORUM FINANCIAL SERVICES, INC.
By:/s/David I. Goldstein
David I. Goldstein
Secretary
<PAGE>
NORWEST SELECT FUNDS
MANAGEMENT AGREEMENT
August 1, 1997
Appendix A
Fee as a % of
the Annual Average Daily
Funds of the Trust Net Assets of the Fund
ValuGrowth Stock Fund 0.05%
Income Fund 0.05%
Small Company Stock Fund 0.05%
Income Equity Fund 0.05%
<PAGE>
Exhibit (h)(2)
NORWEST SELECT FUNDS
TRANSFER AGENCY AGREEMENT
June 1, 1994, as amended May 1, 1998
AGREEMENT made as of the 1st day of June, 1994, as amended on the 1st
day of May, 1998, between Norwest Select Funds (the "Trust"), a business trust
organized under the laws of the State of Delaware with its principal place of
business at Two Portland Square, Portland, Maine 04101 and Norwest Bank
Minnesota, N.A. ("Norwest"), a banking association organized under the laws of
the United States of America with its principal place of business at 733
Marquette Avenue, Minneapolis, Minnesota 55479.
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended (the "Act"), as an open-end management investment company and
is authorized to issue its shares of beneficial interest, no par value, in
separate series and classes;
WHEREAS, the Trust desires that Norwest perform certain transfer agency
and related services for each class of each series of the Trust and Norwest is
willing to provide those services on the terms and conditions set forth in this
Agreement; and
WHEREAS, pursuant to a separate agreement between the Trust and
Norwest, Norwest will perform the duties of custodian of the securities and cash
of the Trust;
NOW THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, the parties do hereby agree as follows:
SECTION 1. APPOINTMENT
The Trust hereby appoints Norwest as its Transfer Agent and Norwest
agrees to act in such capacity upon the terms set forth in this Agreement.
SECTION 2. DEFINITIONS
Whenever used in this Agreement, the following terms shall have the
meanings specified, insofar as the context will allow:
(a) Act: The term Act shall mean the Investment Company Act of 1940, as
amended from time to time.
(b) Board: The term Board shall mean the Board of Trustees of the
Trust.
(c) Class: The term Class shall mean the classes of each Series listed
in Appendix A or any class that the Trust shall subsequently establish;
provided, that Norwest may decline to accept any class subsequently established.
(d) Custodian; Custodian Agreement: The term Custodian shall mean
Norwest Bank Minnesota, N.A. or any successor or other custodian acting as such
for any Series of the Trust. The term Custodian Agreement shall mean the
agreement or agreements between the Trust and the Custodian or Custodians
providing for custodial services to the Trust.
(e) Manager: The term Manager shall mean Forum Financial Services, Inc.
or any successor thereto who acts as the manager of the Trust.
(f) Oral Instruction: The term Oral Instruction shall mean an
authorization, instruction, approval, item or set of data, or information of any
kind transmitted to Norwest in person or by telephone, vocal telegram or other
electronic means, by a person or persons reasonably believed in good faith by
Norwest to be a person or persons authorized by a resolution of the Board of
Trustees of the Trust to give Oral Instructions on behalf of the Trust. Each
Oral Instruction shall specify whether it is applicable to all of the Trust or
to a specific Series or Class.
(g) Prospectus: The term Prospectus shall mean the then-current
prospectus forming a part of an effective Registration Statement of the Trust
under the Securities Act of 1933, as amended, and the Act covering the Shares of
a Series or Class as the case may be, as the same may be amended or supplemented
from time to time.
(h) Series: The term Series shall mean each series listed in Appendix A
or any series that the Trust shall subsequently establish; provided, that
Norwest may decline to accept any series subsequently established.
(i) Share Certificates: The term Share Certificates shall mean the
certificates for the Shares.
(j) Shareholders: The term Shareholders shall mean the registered
owners from time to time of the Shares, as reflected on the share registry
records of the Trust.
(k) Shares: The term Shares shall mean the issued and outstanding
shares of beneficial interest, no par value, of the Trust, including any
fractions thereof.
(l) Trust: The term Trust shall mean Norwest Select Funds.
(m) Valuation Time: The term Valuation Time shall mean, with respect to
each Series, the time at which the Series' net asset value is calculated, as
disclosed in the Series' Prospectus.
(n) Written Instructions: The term Written Instructions shall mean an
authorization, instruction, approval, item or set of data, or information of any
kind transmitted to Norwest in original writing containing original signatures,
or a copy of such document transmitted by facsimile, including transmission of
such signature, or other mechanical or documentary means at the request of a
person or persons reasonably believed in good faith by Norwest to be a person or
persons authorized by a resolution of the Board to give Written Instructions on
behalf of the Trust. Each Written Instruction shall specify whether it is
applicable to all of the Trust or a specific Series or Class.
SECTION 3. SHARE CERTIFICATES
The Trust may furnish to Norwest a supply of blank Share Certificates
of each Class of each Series and, from time to time, will renew such supply upon
Norwest's request. Blank Share Certificates shall be signed manually or by
facsimile signatures of officers of the Trust authorized to sign by the by-laws
of the Trust and, if required by Norwest, and shall bear the Trust's seal or a
facsimile thereof.
SECTION 4. ISSUANCE OF SHARES
Norwest shall make original issues of Shares of each Class of each
Series in accordance with Section 11 below and the Trust's then current
Prospectus, upon receipt of (i) Written Instructions requesting the issuance,
(ii) a certified copy of a resolution of the Board authorizing the issuance,
(iii) necessary funds for the payment of any original issue tax applicable to
such Shares, and (iv) an opinion of the Trust's counsel as to the legality and
validity of the issuance, which opinion may provide that it is contingent upon
the filing by the Trust of an appropriate notice with the Securities and
Exchange Commission, as required by Rule 24f-2 under the Act. If the opinion
described in (iv) above is contingent upon a filing under Rule 24f-2, the Trust
shall fully indemnify Norwest for any liability arising from the failure of the
Trust to comply with that rule.
SECTION 5. TRANSFER OF SHARES
Transfers of Shares of each Class of each Series shall be registered on
the Shareholder records maintained by Norwest. In registering transfers of
Shares, Norwest may rely upon the Uniform Commercial Code as in effect in the
State of Delaware or any other statutes that, in the opinion of Norwest's
counsel, protect Norwest and the Trust from liability arising from (i) not
requiring complete documentation, (ii) registering a transfer without an adverse
claim inquiry, (iii) delaying registration for purposes of such inquiry or (iv)
refusing registration whenever an adverse claim requires such refusal. As
Transfer Agent, Norwest will be responsible for delivery to the transferor and
transferee of such documentation as is required by the Uniform Commercial Code.
SECTION 6. ISSUANCE AND TRANSFER OF SHARE CERTIFICATES
Subject to the provisions of Section 8, new Share Certificates shall be
issued by Norwest upon surrender of outstanding Share Certificates in the form
deemed by Norwest to be properly endorsed for transfer and satisfactory evidence
of compliance with all applicable laws relating to the payment or collection of
taxes. Norwest shall forward Share Certificates in "non-negotiable" form by
first-class or registered mail, or by whatever means Norwest deems equally
reliable and expeditious. While in transit to the addressee, all deliveries of
Share Certificates shall be insured by Norwest as it deems appropriate. Norwest
shall not mail Share Certificates in "negotiable" form unless requested in
writing by the Trust and fully indemnified by the Trust to Norwest's
satisfaction. Norwest may issue new Share Certificates in place of those lost,
destroyed or stolen, upon receiving indemnity satisfactory to Norwest, and may
issue new Share Certificates in exchange for, and upon surrender of, mutilated
Share Certificates as Norwest deems appropriate. Unless otherwise directed by
the Trust, Norwest may issue or register Share Certificates reflecting the
signature, or facsimile thereof, of an officer who has died, resigned or been
removed by the Trust. The Trust shall file promptly with Norwest approval,
adoption or ratification of such action as may be required by law or Norwest.
All share certificates submitted for transfer or replacement shall be marked
"canceled" or destroyed by Norwest following the issuance in lieu of the Share
Certificate of a new or replacement Share Certificate or shares not evidenced by
a Share Certificate.
SECTION 7. MAINTENANCE OF STOCK RECORDS
Norwest shall maintain customary stock registry records for each Class
of each Series, noting the issuance, transfer or redemption of Shares and the
issuance and transfer of Share Certificates. Norwest will also maintain for each
Class of each Series an account entitled "Unissued Certificate Account" (or
similar name) in which it will record the Shares issued and outstanding from
time to time for which issuance of Share Certificates has not been requested.
Norwest is authorized to keep records for each Class of each Series, containing
the names and addresses of record of Shareholders, and the number of Shares from
time to time owned by them for which no Share Certificates are outstanding. Each
Shareholder account will be assigned a single account number for each Class of
each Series, even though Shares for which Certificates have been issued will be
accounted for separately.
SECTION 8. RECORDS REFLECTING ISSUANCES AND REDEMPTIONS
Norwest shall issue Share Certificates for Shares only upon receipt of
a written request from a Shareholder. If Shares are purchased without such
request, Norwest shall merely note on its stock registry records the issuance of
the Shares and credit the Unissued Certificate Account and the respective
Shareholders' accounts with the Shares. Whenever Shares owned by Shareholders
are surrendered for redemption, Norwest shall make appropriate entries in the
stock transfer records and debit the Unissued Certificate Account, if
appropriate, and the record of issued Shares outstanding; and shall cancel any
Share Certificate surrendered for redemption.
SECTION 9. RELIANCE BY NORWEST
In performing its duties hereunder, Norwest may rely conclusively and
act without further investigation upon any list, instruction, certification,
authorization, Share Certificate or other instrument or paper reasonably
believed by it in good faith to be genuine and unaltered, and to have been
signed, countersigned or executed or authorized by a duly-authorized person or
persons, or by the Trust, or upon the advice of counsel for the Trust or for
Norwest. Norwest may record any transfer of Share Certificates which it
reasonably believes in good faith to have been duly-authorized, or may refuse to
record any transfer of Share Certificates if, in good faith, it deems such
refusal necessary in order to avoid any liability on the part of either the
Trust or Norwest. The Trust agrees to indemnify and hold harmless Norwest from
and against any and all losses, claims, damages, liabilities or expenses that it
may suffer or incur by reason of such good faith reliance, action or failure to
act.
SECTION 10. INSPECTION OF RECORDS
Norwest shall notify the Trust of any request or demand for the
inspection of the Trust's share records. Norwest shall abide by the Trust's
instructions for granting or denying the inspection; provided, however, Norwest
may grant the inspection without such instructions if it is advised by counsel
to Norwest that failure to do so will result in liability to Norwest.
SECTION 11. SHARE PURCHASES; COMPUTATION OF NET ASSET VALUE
(a) Instructions from insurance company separate accounts, directing
investment of a specific dollar amount in a Class of a Series shall be deemed to
be a completed purchase order at the time the instruction is received by
Norwest, provided that Federal Funds in respect of the instruction in that
amount are received by Norwest prior to 4:00 p.m., Eastern time, that day, or
such other cut-off time prescribed by the Trust in Oral or Written Instructions,
and provided further that if the cut-off time is on a day other than the day the
instruction is received, the purchase order shall be deemed to be completed at
the time the instruction is received by Norwest, subject to cancellation.
(b) Other instructions directing investment in a Class of a Series
shall be deemed to be a completed purchase order upon receipt by Norwest of
Federal Funds in respect of the instruction in that amount, provided that in the
case of a purchase order accompanied by a check drawn on any member bank of the
Federal Reserve System, Federal Funds shall be deemed to have been received upon
the lesser of two business days after receipt of the check or upon the actual
time of receipt by Norwest of Federal Funds in respect of the check.
(c) On each Fund Business Day, as soon as possible after each Valuation
Time for a Series, Norwest shall obtain from the Manager a quotation (on which
it may conclusively rely) of the net asset value for each Class of the Series as
of that Valuation Time. Norwest shall use the net asset values determined as of
the Valuation Time to compute the number of Shares of each Class of a Series to
be purchased and the aggregate purchase proceeds to be deposited with the
Custodian based on the completed purchase orders received by Norwest on that day
prior to the Valuation Time for the Series, and Norwest shall thereupon pay the
Custodian the aggregate net asset value of shares of each Class of the Series
purchased for which payment has been received by Norwest. As necessary but no
more frequently than once daily (unless a more frequent basis is agreed to by
Norwest), Norwest shall issue the proper number of Shares to be purchased
pursuant to the preceding sentence and promptly thereafter shall send written
confirmation of such purchase to the Custodian and the Trust or Manager. Norwest
shall also credit each Shareholder's separate account with the number of Shares
purchased by such Shareholder. Norwest shall promptly thereafter mail written
confirmation of the purchase to each Shareholder and to the Trust if requested.
Each confirmation shall indicate the prior Share balance, the new Share balance,
the Shares for which Share Certificates are outstanding (if any), the amount
invested and the price paid for the newly-purchased Shares.
SECTION 12. SHARE REDEMPTIONS
Prior to each Valuation Time for a Series on each Fund Business Day, as
specified in accordance with Section 11 above, Norwest shall process all
requests to redeem Shares of each Class of the Series in accordance with Section
8. Upon confirmation of the net asset value by the Manager, Norwest shall notify
the Trust and the Custodian of the redemption amount, apply the redemption
proceeds in accordance with Section 13 and the Prospectus, record the redemption
in the stock registry books, and debit the redeemed Shares from the Unissued
Certificates Account, if appropriate, and the account of the Shareholder and
mark "canceled" or destroy any Share Certificates evidencing the redeemed
shares.
In lieu of carrying out the redemption procedures described in the
preceding paragraph, Norwest may, at the request of the Trust, sell Shares of
each class of each Series to the Trust as repurchases from Shareholders,
provided that the sale price is not less than the applicable redemption price.
The redemption procedures shall then be appropriately modified. The Trust may
authorize Norwest by Written Instruction to effect any redemptions upon
provision of an indemnity satisfactory in form to Norwest.
SECTION 13. REDEMPTION PROCEEDS
The proceeds of redemption shall be remitted by Norwest in accordance
with the Prospectus and by procedures commonly followed by mutual funds and in a
Written Instruction from the Trust and mutually agreed upon by the Trust and
Norwest. For purposes of redemption of shares of any Class of any Series that
have been purchased by check within fifteen (15) days prior to receipt of the
redemption request, the Trust shall provide Norwest with Written Instructions
concerning the time within which such requests may be honored. The authority of
Norwest to perform its responsibilities under Sections 12 and 13 shall be
suspended if Norwest receives notice of the suspension of the determination of a
Class' or Series' net asset value.
SECTION 14. DIVIDENDS
Upon the declaration with respect to a Class of each dividend and
capital gain distribution by the Board, the Trust shall notify Norwest of the
date of such declaration, the amount payable per Share, the record date for
determining the Shareholders entitled to payment, and the payment and
reinvestment date. On or before each payment date the Trust will transfer, or
cause the Custodian to transfer, to Norwest the total amount of the dividend or
distribution currently payable. Norwest will, on the designated payment date,
reinvest all dividends and distributions in additional Shares of the same Class
and promptly mail to each Shareholder at his address of record, a statement
showing the number of Shares (rounded to three decimal places) of that Class
then owned by the Shareholder and the net asset value of such Shares, or
transmit such information in accordance with any arrangement between the
Shareholder and Norwest; provided, however, that if a Shareholder elects to
receive dividends and distributions in cash, Norwest shall prepare a check in
the appropriate amount and mail it to the Shareholder at the Shareholder's
address of record within five (5) Fund Business Days after the designated
payment date or transmit the appropriate amount in Federal funds in accordance
with any arrangement between the Shareholder and Norwest.
SECTION 15. RECORDS
(a) The Trust shall deliver or cause to be delivered over to Norwest
(i) an accurate list of Shareholders of the Trust, showing each Shareholder's
address of record, number of Shares owned and whether such Shares are
represented by outstanding Share Certificates or by non-certificated Share
accounts and (ii) all Shareholder records, files, and other materials necessary
or appropriate for proper performance of the functions assumed by Norwest under
this Agreement (collectively referred to as the "Materials"). The Trust shall
indemnify and hold harmless Norwest from and against any and all losses, claims,
damages, liabilities or expenses arising out of or in connection with any error,
omission, inaccuracy or other deficiency of the Materials, or out of the failure
of the Trust to provide any portion of the Materials or to provide any
information in the Trust's possession needed by Norwest to knowledgeably perform
its functions.
(b) Norwest shall prepare and maintain or cause to be prepared and
maintained records in such form for such periods and in such locations as may be
required by applicable regulations, all documents and records relating to the
services provided to the Trust pursuant to this Agreement required to be
maintained pursuant to the Act, rules and regulations of the Securities and
Exchange Commission, the Internal Revenue Service and any other national, state
or local government entity with jurisdiction over the Trust.
SECTION 16. COOPERATION WITH INDEPENDENT ACCOUNTANTS
Norwest shall cooperate with the Trust's independent public accountants
and shall take reasonable action to make all necessary information available to
such accountants for the performance of their duties.
SECTION 17. OTHER SERVICES
In addition to the services described above, Norwest will perform other
services for the Trust as mutually agreed upon in writing from time to time,
including but not limited to preparing and filing federal tax forms with the
Internal Revenue Service, mailing federal tax information to Shareholders,
mailing Shareholder reports, mailing notices of Shareholders' meetings, proxies
and proxy statements and tabulating proxies. Norwest shall answer certain
Shareholder inquiries related to their share accounts and other correspondence
requiring an answer from the Trust. Norwest shall maintain dated copies of
written communications from Shareholders, and replies thereto.
SECTION 18. REQUIRED PERFORMANCE ON FUND BUSINESS DAY
Nothing contained in this Agreement is intended to or shall require
Norwest, in any capacity hereunder, to perform any functions or duties on any
day other than a Fund Business Day. Functions or duties normally scheduled to be
performed on any day which is not a Fund Business Day shall be performed on, and
as of, the next Fund Business Day, unless otherwise required by law.
SECTION 19. COMPENSATION
The Trust agrees to pay to Norwest compensation for its services as set
forth in Appendix A attached hereto, or as shall be set forth in written
amendments to Appendix A approved by the Trust and Norwest from time to time.
Such amounts will be computed and paid monthly in arrears by the Trust. Except
as permitted by this Agreement with regard to indemnity, the foregoing fee shall
be full and complete compensation and reimbursement for all Norwest's expenses
incurred in connection with the services contemplated by this Agreement, and
Norwest shall be entitled to no additional expense reimbursement or other
payments of any nature.
SECTION 20. TAXES
Norwest shall not be liable for any taxes, assessments or governmental
charges that may be levied or assessed on any basis whatsoever in connection
with the Trust or any Shareholder, excluding taxes assessed against Norwest for
compensation received by it hereunder.
SECTION 21. STANDARD OF CARE; LIABILITY
Norwest shall, at all times, act in good faith and shall use whatever
methods it deems appropriate to ensure the accuracy of all services performed
under this Agreement. Norwest shall not be liable for any non-negligent action
taken in good faith and reasonably believed by Norwest to be within the powers
conferred upon it by this Agreement. The Trust shall indemnify Norwest and hold
it harmless from and against any and all losses, claims, damages, liabilities or
expenses (including reasonable expenses for legal counsel) arising directly or
indirectly out of or in connection with this Agreement; provided such loss,
claim, damage, liability or expense is not the direct result of Norwest's
negligence or willful misconduct, and provided further that Norwest shall give
the Trust notice and reasonable opportunity to defend against any such loss,
claim, damage, liability or expense in the name of the Trust or Norwest, or
both. The Trust will be entitled to assume the defense of any suit brought to
enforce any such claim or demand, and to retain counsel of good standing chosen
by the Trust and approved by Norwest, such approval not to be unreasonably
withheld. In the event the Trust does elect to assume the defense of any such
suit and retain counsel of good standing approved by Norwest, the defendant or
defendants in such suit shall bear the fees and expenses of any additional
counsel retained by any of them; but in case the Trust does not elect to assume
the defense of any such suit, or in case Norwest does not approve of counsel
chosen by the Trust or Norwest has been advised that it may have available
defenses or claims which are not available or conflict with those available to
the Trust, the Trust will reimburse Norwest, its officers or directors or the
controlling person or persons named as defendant or defendants in such suit, for
the fees and expenses of any counsel retained by Norwest or them. Norwest may,
at any time, waive its right to indemnification hereunder and assume its own
defense. Without limiting the foregoing:
(a) Norwest may rely upon the advice of the Trust or counsel to the
Trust or Norwest, and upon statements of accountants, brokers and other persons
believed by Norwest in good faith to be expert in the matters upon which are
consulted. Norwest shall not be liable for any action taken in good faith
reliance upon such advice or statements;
(b) Norwest shall not be liable for any action reasonably taken in good
faith reliance upon any Written Instructions or certified copy of any resolution
of the Board; provided, however, that upon receipt of a Written Instruction
countermanding a prior Instruction that has not been fully executed by Norwest,
Norwest shall verify the content of the second Instruction and honor it, to the
extent possible. Norwest may rely upon the genuineness of any such document, or
copy thereof, reasonably believed by Norwest in good faith to have been validly
executed;
(c) Norwest may rely, and shall be protected by the Trust in acting,
upon any signature, instruction, request, letter of transmittal, certificate,
opinion of counsel, statement, instrument, report, notice, consent, order, or
other paper or document reasonably believed by it in good faith to be genuine
and to have been signed or presented by the proper party or parties; and
SECTION 22. SIGNATURE GUARANTEES
Upon receipt of Written Instructions, Norwest is authorized to make
payment upon redemption of Shares or otherwise effect any transaction or class
of transaction without a signature guarantee, and the Trust hereby agrees to
indemnify and hold Norwest harmless from any and all expenses, damages, claims,
suits, liabilities, actions, demands or losses whatsoever arising out of or in
connection with such payment or transactions if made in accordance with such
Written Instructions. Signature guarantees may be provided by any eligible
institution, as defined in Rule 17Ad-15 under the Securities Exchange Act of
1934, that is authorized to guarantee signatures, and is acceptable to Norwest.
SECTION 23. ADOPTION OF PROCEDURES
The parties hereto may adopt procedures as may be appropriate or
practical under the circumstances, and Norwest may conclusively rely on the
determination of the Trust that any procedure that has been approved by the
Trust does not conflict with or violate any requirement of its Trust Instrument,
By-Laws or Registration Statement, or any rule, regulation or requirement of any
regulatory body.
SECTION 24. TRUST BOARD RESOLUTIONS
The Trust shall file with Norwest a certified copy of the operative
resolution of the Board authorizing the execution of Written Instructions or the
transmittal of Oral instructions.
SECTION 25. RETURNED CHECKS
In the event that any check or other order for the payment of money is
returned unpaid for any reason, Norwest shall promptly notify the Trust of the
non-payment.
SECTION 26. NOTICES
Any notice or other communication required by or permitted to be given
in connection with this Agreement shall be in writing and shall be delivered in
person, or by first-class mail, postage prepaid, or by overnight or two-day
private mail service to the respective party. Notice to the Trust shall be given
as follows until further notice:
Norwest Select Funds
Two Portland Square
Portland, Maine 04101
c/o Forum Financial Services, Inc.
Notice to Norwest shall be given as follows until further notice:
Institutional Custody Services
Norwest Bank Minnesota, N.A.
Eighth Street and Marquette Avenue
Minneapolis, MN 55479
SECTION 27. REPRESENTATIONS AND WARRANTIES
The Trust represents and warrants to Norwest that the execution and
delivery of this Agreement by the undersigned officer of the Trust has been duly
and validly authorized by resolution of the Board. Norwest represents and
warrants to the Trust that the execution and delivery of this Agreement by the
undersigned officer of Norwest has also been duly and validly authorized.
SECTION 28. EFFECTIVENESS, DURATION AND TERMINATION
This Agreement may be executed in more than one counterpart, each of
which shall be deemed to be an original, and shall become effective on the date
hereof. This Agreement shall remain in effect for a period of one year from the
date of its effectiveness and shall continue in effect for successive
twelve-month periods; provided that such continuance is specifically approved at
least annually by the Board and by a majority of the Trustees who are not
parties to this Agreement or interested persons of any such party.
Either party may terminate this Agreement upon sixty (60) days written
notice to the other, such termination to take effect at the time specified in
the notice. Upon receiving notice of termination by Norwest, the Trust shall use
its best efforts to obtain a successor transfer agent. If a successor transfer
agent is not appointed prior to the date of termination, the Board shall
designate the Trust as its transfer agent. Upon receipt of written notice from
the Trust of the appointment of the successor transfer agent and upon receipt of
Oral or Written Instructions Norwest shall, upon request of the Trust and the
successor transfer agent and upon payment of Norwest's reasonable charges and
disbursements, promptly transfer to the successor transfer agent the original or
copies of all books and records maintained by Norwest hereunder including, in
the case of records maintained on computer systems, copies of such records in
machine-readable form, and shall cooperate with, and provide reasonable
assistance to, the successor transfer agent in the establishment of the books
and records necessary to carry out the successor transfer agent's
responsibilities hereunder.
SECTION 29. MISCELLANEOUS
(a) This Agreement shall extend to and shall bind the parties hereto
and their respective successors and assigns; provided, however, that this
Agreement shall not be assignable by the Trust without the written consent of
Norwest or by Norwest without the written consent of the Trust. Notwithstanding
the foregoing, either party may assign this Agreement without the consent of the
other party so long as the assignee is an affiliate of or successor to the
parent or subsidiary of the assigning party and is qualified to act under the
Act.
(b) This Agreement shall be governed and construed in accordance with
the laws of the State of Minnesota.
(c) The captions inserted herein are for convenience of reference and
shall not affect, in any way, the meaning or interpretation of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed effective as of the day and year first above written.
NORWEST SELECT FUNDS
By:/s/ John Y. Keffer
John Y. Keffer
President
NORWEST BANK MINNESOTA, N.A.
By: /s/ P. Jay Kiedrowski
P. Jay Kiedrowski
Executive Vice President
<PAGE>
NORWEST SELECT FUNDS
TRANSFER AGENCY AGREEMENT
June 1, 1994, as amended May 1, 1998
Appendix A
Fee as a % of
the Annual Average Daily
Funds (Classes) of the Trust Net Assets of the Class
Income Fund 0.08%
Income Equity Fund 0.08%
ValuGrowth Stock Fund 0.08%
Small Company Stock Fund 0.08%
<PAGE>
Exhibit (h)(3)
NORWEST SELECT FUNDS
FUND ACCOUNTING AGREEMENT
June 1, 1997
Amended July 28, 1998
AGREEMENT made as of the 1st day of June, 1997, as amended the 28th day
of July, 1998, by and between Norwest Select Funds, a business trust organized
under the laws of the State of Delaware, with its principal office and place of
business at Two Portland Square, Portland, Maine 04101 (the "Trust"), and Forum
Accounting Services, LLC, a Delaware limited liability company with its
principal office and place of business at Two Portland Square, Portland, Maine
04101 ("Forum").
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end management investment company
and may issue its shares of beneficial interest, no par value (the "Shares"), in
separate series and classes; and
WHEREAS, the Trust offers shares in various series as listed in
Appendix A hereto (each such series, together with all other series subsequently
established by the Trust and made subject to this Agreement in accordance with
Section 6, being herein referred to as a "Fund," and collectively as the
"Funds") and the Trust may offer shares of various classes of each Fund as
listed in Appendix A hereto (each such class together with all other classes
subsequently established by the Trust in a Fund being herein referred to as a
"Class," and collectively as the "Classes");
WHEREAS, the Trust desires that Forum perform certain fund accounting
services for each Fund and Class thereof and Forum is willing to provide those
services on the terms and conditions set forth in this Agreement;
NOW THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, the Trust and Forum hereby agree as follows:
SECTION 1. APPOINTMENT
The Trust hereby appoints Forum, and Forum hereby agrees, to act as
fund accountant of the Trust for the period and on the terms set forth in this
Agreement. In connection therewith, the Trust has delivered to Forum copies of
(i) the Trust's Trust Instrument and Bylaws (collectively, as amended from time
to time, "Organic Documents"), (ii) the Trust's Registration Statement and all
amendments thereto filed with the U.S. Securities and Exchange Commission
("SEC") pursuant to the Securities Act of 1933, as amended (the "Securities
Act"), or the 1940 Act (the "Registration Statement"), (iii) the Trust's current
Prospectus and Statement of Additional Information of each Fund (collectively,
as currently in effect and as amended or supplemented, the "Prospectus") and
(iv) all procedures adopted by the Trust with respect to the Funds (i.e.,
repurchase agreement procedures), and shall promptly furnish Forum with all
amendments of or supplements to the foregoing.
SECTION 2. DUTIES OF FORUM
(a) Forum and the Trust's manager, Forum Financial Services, Inc. (the
"Administrator"), may from time to time adopt such procedures as they agree upon
to implement the terms of this Section. With respect to each Fund, Forum shall
perform the following services:
(i) calculate the net asset value per share with the frequency
prescribed in each Fund's then-current Prospectus;
(ii) calculate each item of income, expense, deduction, credit, gain
and loss, if any, as required by the Trust and in conformance with
generally accepted accounting practice ("GAAP"), the SEC's Regulation
S-X (or any successor regulation) and the Internal Revenue Code of
1986, as amended (or any successor laws)(the "Code");
(iii) Maintain each Fund's general ledger and record all income,
expenses, capital share activity and security transactions of each
Fund;
(iv) calculate the yield, effective yield, tax equivalent yield and
total return for each Fund, and each Class thereof, as applicable, and
such other measure of performance as may be agreed upon between the
parties hereto;
(v) provide the Trust and such other persons as the Administrator may
direct with the following reports (A) a current security position
report, (B) a summary report of transactions and pending maturities
(including the principal, cost, and accrued interest on each portfolio
security in maturity date order), and (C) a current cash position and
projection report;
(vi) prepare and record, as of each time when the net asset value of a
Fund is calculated or as otherwise directed by the Trust, either (A) a
valuation of the assets of the Fund (based upon the use of outside
services normally used and contracted for this purpose by Forum in the
case of securities for which information and market price or yield
quotations are readily available and based upon evaluations conducted
in accordance with the Trust's instructions in the case of all other
assets) or (B) a calculation confirming that the market value of the
Fund's assets does not deviate from the amortized cost value of those
assets by more than a specified percentage;
(vii) make such adjustments over such periods as Forum deems necessary
to reflect over-accruals or under-accruals of estimated expenses or
income;
(viii) request any necessary information from the Administrator and the
Trust's transfer agent and distributor in order to prepare, and
prepare, the Trust's Form N-SAR;
(ix) provide appropriate records to assist the Trust's independent
accountants and, upon approval of the Trust or the Administrator, any
regulatory body in any requested review of the Trust's books and
records maintained by Forum;
(x) prepare semi-annual financial statements and oversee the production
of the semi-annual financial statements and any related report to the
Trust's shareholders prepared by the Trust or its investment advisers;
(xi) file the Funds' semi-annual financial statements with the SEC or
ensure that the Funds' semi-annual financial statements are filed with
the SEC;
(xii) provide information typically supplied in the investment company
industry to companies that track or report price, performance or other
information with respect to investment companies;
(xiii) provide the Trust or Administrator with the data requested by
the Administrator that is required to update the Trust's registration
statement;
(xiv) provide the Trust or independent accountants with all information
requested with respect to the preparation of the Trust's income, excise
and other tax returns;
(xv) prepare or prepare, execute and file all Federal income and excise
tax returns and state income and other tax returns, including any
extensions or amendments, each as agreed between the Trust and Forum;
(xvi) produce quarterly compliance reports for investment advisers to
the Trust and the Trust's Board of Trustees (the Board") and provide
information to the Administrator, investment advisers to the Trust and
other appropriate persons with respect to questions of Fund compliance;
(xvii) determine the amount of distributions to shareholders as
necessary to, among other things, maintain the qualification of each
Fund as a regulated investment company under the Code, and prepare and
distribute to appropriate parties notices announcing the declaration of
dividends and other distributions to shareholders;
(xviii) transmit to and receive from each Fund's transfer agent
appropriate data to on a daily basis and daily reconcile Shares
outstanding and other data with the transfer agent;
(xiv) periodically reconcile all appropriate data with each Fund's
custodian; and
(xv) verify investment trade tickets when received from an investment
adviser and maintain individual ledgers and historical tax lots for
each security ;
(xvi) perform such other recordkeeping, reporting and other tasks as
may be specified from time to time in the procedures adopted by the
Board; provided, that Forum need not begin performing any such task
except upon 65 days' notice and pursuant to mutually acceptable
compensation agreements.
(b) Forum shall prepare and maintain on behalf of the Trust the
following books and records of each Fund, and each Class thereof,
pursuant to Rule 31a-1 under the 1940 Act (the "Rule"):
(i) Journals containing an itemized daily record in detail of all
purchases and sales of securities, all receipts and disbursements of
cash and all other debits and credits, as required by subsection (b)(1)
of the Rule;
(ii) Journals and auxiliary ledgers reflecting all asset, liability,
reserve, capital, income and expense accounts, as required by
subsection (b)(2) of the Rule (but not including the ledgers required
by subsection (b)(2)(iv);
(iii) A record of each brokerage order given by or on behalf of the
Trust for, or in connection with, the purchase or sale of securities,
and all other portfolio purchases or sales, as required by subsections
(b)(5) and (b)(6) of the Rule;
(iv) A record of all options, if any, in which the Trust has any direct
or indirect interest or which the Trust has granted or guaranteed and a
record of any contractual commitments to purchase, sell, receive or
deliver any property as required by subsection (b)(7) of the Rule;
(v) A monthly trial balance of all ledger accounts (except shareholder
accounts) as required by subsection (b)(8) of the Rule; and
(vi) Other records required by the Rule or any successor rule or
pursuant to interpretations thereof to be kept by open-end management
investment companies, but limited to those provisions of the Rule
applicable to portfolio transactions and as agreed upon between the
parties hereto.
(c) The books and records maintained pursuant to Section 2(b) shall be
prepared and maintained in such form, for such periods and in such locations as
may be required by the 1940 Act. The books and records pertaining to the Trust
that are in possession of Forum shall be the property of the Trust. The Trust,
or the Trust's authorized representatives, shall have access to such books and
records at all times during Forum's normal business hours. Upon the reasonable
request of the Trust or the Administrator, copies of any such books and records
shall be provided promptly by Forum to the Trust or the Trust's authorized
representatives at the Trust's expense. In the event the Trust designates a
successor that shall assume any of Forum's obligations hereunder, Forum shall,
at the expense and direction of the Trust, transfer to such successor all
relevant books, records and other data established or maintained by Forum under
this Agreement.
(d) Nothing contained herein shall be construed to require Forum to
perform any service that could cause Forum to be deemed an investment adviser
for purposes of the 1940 Act or the Investment Advisers Act of 1940, as amended,
or that could cause a Fund to act in contravention of the Fund's Prospectus or
any provision of the 1940 Act. Except as otherwise specifically provided herein,
the Trust assumes all responsibility for ensuring that the Trust complies with
all applicable requirements of the Securities Act, the 1940 Act and any laws,
rules and regulations of governmental authorities with jurisdiction over the
Trust. All references to any law in this Agreement shall be deemed to include
reference to the applicable rules and regulations promulgated under authority of
the law and all official interpretations of such law or rules or regulations.
SECTION 3. STANDARD OF CARE; RELIANCE
(a) Forum shall be under no duty to take any action except as
specifically set forth herein or as may be specifically agreed to by Forum in
writing. Forum shall use its best judgment and efforts in rendering the services
described in this Agreement. Forum shall not be liable to the Trust or any of
the Trust's shareholders for any action or inaction of Forum relating to any
event whatsoever in the absence of bad faith, willful misfeasance or gross
negligence in the performance of Forum's duties or obligations under this
Agreement or by reason of Forum's reckless disregard of its duties and
obligations under this Agreement.
(b) The Trust agrees to indemnify and hold harmless Forum, its
employees, agents, directors, officers and managers and any person who controls
Forum within the meaning of section 15 of the Securities Act or section 20 of
the Securities Exchange Act of 1934, as amended, ("Forum Indemnitees") against
and from any and all claims, demands, actions, suits, judgments, liabilities,
losses, damages, costs, charges, reasonable counsel fees and other expenses of
every nature and character arising out of or in any way related to Forum's
actions taken or failures to act with respect to a Fund that are consistent with
the standard of care set forth in Section 3(a) or based, if applicable, on good
faith reliance upon an item described in Section 3(c)(a "Claim"). The Trust
shall not be required to indemnify any Forum Indemnitee if, prior to confessing
any Claim against the Forum Indemnitee, Forum or the Forum Indemnitee does not
give the Trust written notice of and reasonable opportunity to defend against
the claim in its own name or in the name of the Forum Indemnitee.
(c) A Forum Indemnitee shall not be liable for any action taken or
failure to act in good faith reliance upon:
(i) the advice of the Trust or of counsel, who may be counsel to
the Trust or counsel to Forum;
(ii) any oral instruction which it receives and which it reasonably
believes in good faith was transmitted by the person or persons
authorized by the Board to give such oral instruction (Forum shall have
no duty or obligation to make any inquiry or effort of certification of
such oral instruction.);
(iii) any written instruction or certified copy of any resolution of
the Board, and Forum may rely upon the genuineness of any such document
or copy thereof reasonably believed in good faith by Forum to have been
validly executed; or
(iv) any signature, instruction, request, letter of transmittal,
certificate, opinion of counsel, statement, instrument, report, notice,
consent, order, or other document reasonably believed in good faith by
Forum to be genuine and to have been signed or presented by the Trust
or other proper party or parties;
and no Forum Indemnitee shall be under any duty or obligation to inquire into
the validity or invalidity or authority or lack thereof of any statement, oral
or written instruction, resolution, signature, request, letter of transmittal,
certificate, opinion of counsel, instrument, report, notice, consent, order, or
any other document or instrument which Forum reasonably believes in good faith
to be genuine.
(d) Forum shall not be liable for the errors of other service providers
to the Trust, including the errors of pricing services (other than to pursue all
reasonable claims against the pricing service based on the pricing services'
standard contracts entered into by Forum) and errors in information provided by
an investment adviser (including prices and pricing formulas and the untimely
transmission of trade information), custodian or transfer agent to the Trust.
(e) With respect to Funds which do not value their assets in accordance
with Rule 2a-7 under the 1940 Act, notwithstanding anything to the contrary in
this Agreement, Forum shall not be liable to the Trust or any shareholder of the
Trust for (i) any loss to the Trust if an NAV Difference for which Forum would
otherwise be liable under this Agreement is less than or equal to 0.001 (1/10 of
1%) or (ii) any loss to a shareholder of the Trust if the NAV Difference for
which Forum would otherwise be liable under this Agreement is less than or equal
to 0.005 (1/2 of 1%) or if the loss in the shareholder's account with the Trust
is less than or equal to $10. Any loss for which Forum is determined to be
liable hereunder shall be reduced by the amount of gain which inures to
shareholders, whether to be collected by the Trust or not.
(f) For purposes of this Agreement, (i) the NAV Difference shall mean
the difference between the NAV at which a shareholder purchase or redemption
should have been effected ("Recalculated NAV") and the NAV at which the purchase
or redemption is effected, divided by the Recalculated NAV, (ii) NAV Differences
and any Forum liability therefrom are to be calculated each time a Fund's (or
class's) NAV is calculated, (iii) in calculating any NAV Difference for which
Forum would otherwise be liable under this Agreement for a particular NAV error,
Fund losses and gains shall be netted and (iv) in calculating any NAV Difference
for which Forum would otherwise be liable under this Agreement for a particular
NAV error that continues for a period covering more than one NAV determination,
Fund losses and gains for the period shall be netted.
SECTION 4. COMPENSATION AND EXPENSES
(a) In consideration of the services provided by Forum pursuant to this
Agreement, the Trust shall pay Forum, with respect to each Fund, the fees set
forth in Clause (i) of Appendix B hereto. In consideration of the services
provided by Forum to begin the operations of a new Fund, the Trust shall pay
Forum, with respect to each Fund, the fees set forth in clause (ii) of Appendix
B hereto. In consideration of additional services provided by Forum to perform
certain functions, the Trust shall pay Forum, with respect to each Fund the fees
set forth in clause (iii) of Appendix B hereto. Nothing in this Agreement shall
require Forum to perform any of the services listed in Section 2(a)(iv) and
clause (iii) of Appendix B hereto, as such services may be performed by the
Fund's independent accountant if appropriate in the judgment of Forum.
All fees payable hereunder shall be accrued daily by the Trust. The
fees payable for the services listed in clauses (i) and (iii) of Appendix B
hereto shall be payable monthly in advance on the first day of each calendar
month for services to be performed during the following calendar month. The fees
payable for the services listed in clause (ii) and for all reimbursements as
described in Section 4(b) shall be payable monthly in arrears on the first day
of each calendar month (the first day of the calendar month after the Fund
commences operations in the case of the fees listed in clause (ii) of Appendix B
hereto) for services performed during the prior calendar month. If fees payable
for the services listed in clause (i) begin to accrue in the middle of a month
or if this Agreement terminates before the end of any month, all fees for the
period from that date to the end of that month or from the beginning of that
month to the date of termination, as the case may be, shall be prorated
according to the proportion that the period bears to the full month in which the
effectiveness or termination occurs. Upon the termination of this Agreement with
respect to a Fund, the Trust shall pay to Forum such compensation as shall be
payable prior to the effective date of termination.
(b) In connection with the services provided by Forum pursuant to this
Agreement, the Trust, on behalf of each Fund, agrees to reimburse Forum for the
expenses set forth in Clause (iv) of Appendix B hereto. In addition, the Trust,
on behalf of the applicable Fund, shall reimburse Forum for all expenses and
employee time (at 150% of salary) attributable to any review of the Trust's
accounts and records by the Trust's independent accountants or any regulatory
body outside of routine and normal periodic reviews. Should the Trust exercise
its right to terminate this Agreement, the Trust, on behalf of the applicable
Fund, shall reimburse Forum for all out-of-pocket expenses and employee time (at
150% of salary) associated with the copying and movement of records and material
to any successor person and providing assistance to any successor person in the
establishment of the accounts and records necessary to carry out the successor's
responsibilities.
(d) Forum may, with respect to questions of law relating to its
services hereunder, apply to and obtain the advice and opinion of counsel to the
Trust or counsel to Forum. The costs of any such advice or opinion shall be
borne by the Trust.
SECTION 5. EFFECTIVENESS, DURATION, TERMINATION AND ASSIGNMENT
(a) This Agreement shall become effective with respect to each Fund or
Class on the later of the date on which the Trust's Registration Statement
relating to the Shares of the Fund or Class becomes effective or the date of the
commencement of operations of the Fund or Class. Upon effectiveness of this
Agreement, it shall supersede all previous agreements between the parties hereto
covering the subject matter hereof insofar as such Agreement may have been
deemed to relate to the Funds.
(b) This Agreement shall continue in effect with respect to a Fund for
a period of one year and shall continue in effect for successive one year
periods; provided, that continuance is specifically approved at least annually
(i) by the Board or by a vote of a majority of the outstanding voting securities
of the Fund and (ii) by a vote of a majority of Trustees of the Trust who are
not parties to this Agreement or interested persons of any such party (other
than as Trustees of the Trust).
(c) This Agreement may be terminated with respect to a Fund at any
time, without the payment of any penalty (i) by the Board on 60 days' written
notice to Forum or (ii) by Forum on 60 days' written notice to the Trust. The
obligations of Sections 3 and 4 shall survive any termination of this Agreement.
(d) This Agreement and the rights and duties under this Agreement
otherwise shall not be assignable by either Forum or the Trust except by the
specific written consent of the other party. All terms and provisions of this
Agreement shall be binding upon, inure to the benefit of and be enforceable by
the respective successors and assigns of the parties hereto.
SECTION 6. ADDITIONAL FUNDS AND CLASSES
In the event that the Trust establishes one or more series of Shares or
one or more classes of Shares after the effectiveness of this Agreement, such
series of Shares or classes of Shares, as the case may be, shall become Funds
and Classes under this Agreement. Forum or the Trust may elect not to make and
such series or classes subject to this Agreement.
SECTION 7. CONFIDENTIALITY. Forum agrees to treat all records and
other information related to the Trust as proprietary information of the Trust
and, on behalf of itself and its employees, to keep confidential all such
information, except that Forum may
(a) prepare or assist in the preparation of periodic reports to
shareholders and regulatory bodies such as the SEC;
(b) provide information typically supplied in the investment company
industry to companies that track or report price, performance or other
information regarding investment companies; and
(c) release such other information as approved in writing by the Trust,
which approval shall not be unreasonably withheld and may not be withheld where
Forum may be exposed to civil or criminal contempt proceedings for failure to
release the information, when requested to divulge such information by duly
constituted authorities or when so requested by the Trust.
SECTION 8. FORCE MAJEURE
Forum shall not be responsible or liable for any failure or delay in
performance of its obligations under this Agreement arising out of or caused,
directly or indirectly, by circumstances beyond its reasonable control
including, without limitation, acts of civil or military authority, national
emergencies, labor difficulties, fire, mechanical breakdowns, flood or
catastrophe, acts of God, insurrection, war, riots or failure of the mails,
transportation, communication or power supply. In addition, to the extent
Forum's obligations hereunder are to oversee or monitor the activities of third
parties, Forum shall not be liable for any failure or delay in the performance
of Forum's duties caused, directly or indirectly, by the failure or delay of
such third parties in performing their respective duties or cooperating
reasonably and in a timely manner with Forum.
SECTION 9. ACTIVITIES OF FORUM
(a) Except to the extent necessary to perform Forum's obligations under
this Agreement, nothing herein shall be deemed to limit or restrict Forum's
right, or the right of any of Forum's managers, officers or employees who also
may be a trustee, officer or employee of the Trust, or persons who are otherwise
affiliated persons of the Trust to engage in any other business or to devote
time and attention to the management or other aspects of any other business,
whether of a similar or dissimilar nature, or to render services of any kind to
any other corporation, trust, firm, individual or association.
(b) Forum may subcontract any or all of its functions or
responsibilities pursuant to this Agreement to one or more corporations, trusts,
firms, individuals or associations, which may be affiliated persons of Forum,
who agree to comply with the terms of this Agreement; provided, that any such
subcontracting shall not relieve Forum of its responsibilities hereunder. Forum
may pay those persons for their services, but no such payment will increase
Forum's compensation from the Trust.
SECTION 10. COOPERATION WITH INDEPENDENT ACCOUNTANTS
Forum shall cooperate, if applicable, with each Fund's independent
public accountants and shall take reasonable action to make all necessary
information available to the accountants for the performance of the accountants'
duties.
SECTION 11. SERVICE DAYS
Nothing contained in this Agreement is intended to or shall require
Forum, in any capacity under this Agreement, to perform any functions or duties
on any day other than a business day of the Trust or of a Fund. Functions or
duties normally scheduled to be performed on any day which is not a business day
of the Trust or of a Fund shall be performed on, and as of, the next business
day, unless otherwise required by law.
SECTION 12. LIMITATION OF SHAREHOLDER AND TRUSTEE LIABILITY
The trustees of the Trust and the shareholders of each Fund shall not
be liable for any obligations of the Trust or of the Funds under this Agreement,
and Forum agrees that, in asserting any rights or claims under this Agreement,
it shall look only to the assets and property of the Trust or the Fund to which
Forum's rights or claims relate in settlement of such rights or claims, and not
to the trustees of the Trust or the shareholders of the Funds.
SECTION 13. MISCELLANEOUS
(a) Neither party to this Agreement shall be liable to the other party
for consequential damages under any provision of this Agreement.
(b) Except for Appendix A to add new Funds and Classes in accordance
with Section 6, no provisions of this Agreement may be amended or modified in
any manner except by a written agreement properly authorized and executed by
both parties hereto.
(c) This Agreement shall be governed by, and the provisions of this
Agreement shall be construed and interpreted under and in accordance with, the
laws of the State of Delaware.
(d) This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject matter
hereof, whether oral or written.
(e) This Agreement may be executed by the parties hereto on any number
of counterparts, and all of the counterparts taken together shall be deemed to
constitute one and the same instrument.
(f) If any part, term or provision of this Agreement is held to be
illegal, in conflict with any law or otherwise invalid, the remaining portion or
portions shall be considered severable and not be affected, and the rights and
obligations of the parties shall be construed and enforced as if the Agreement
did not contain the particular part, term or provision held to be illegal or
invalid.
(g) Section headings in this Agreement are included for convenience
only and are not to be used to construe or interpret this Agreement.
(h) Notices, requests, instructions and communications received by the
parties at their respective principal places of business, or at such other
address as a party may have designated in writing, shall be deemed to have been
properly given.
(i) Notwithstanding any other provision of this Agreement, the parties
agree that the assets and liabilities of each Fund of the Trust are separate and
distinct from the assets and liabilities of each other Fund and that no Fund
shall be liable or shall be charged for any debt, obligation or liability of any
other Fund, whether arising under this Agreement or otherwise.
(j) No affiliated person, employee, agent, director, officer or manager
of Forum shall be liable at law or in equity for Forum's obligations under this
Agreement.
(k) Each of the undersigned warrants and represents that they have full
power and authority to sign this Agreement on behalf of the party indicated and
that their signature will bind the party indicated to the terms hereof and each
party hereto warrants and represents that this Agreement, when executed and
delivered, will constitute a legal, valid and binding obligation of the party,
enforceable against the party in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting the rights and remedies of creditors and secured parties.
(l) The terms "vote of a majority of the outstanding voting
securities," "interested person" and "affiliated person" shall have the meanings
ascribed thereto in the 1940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf by and through their duly authorized
officers, as of the day and year first above written.
NORWEST SELECT FUNDS
By:/s/ Donald H. Burkhardt
Donald H. Burkhardt
Trustee
FORUM ACCOUNTING SERVICES, LLC
By:/s/ Stacey E. Hong
Stacey E. Hong
Director
<PAGE>
NORWEST SELECT FUNDS
FUND ACCOUNTING AGREEMENT
Appendix A
July 28, 1998
Funds of the Trust
Income Fund
Income Equity Fund
ValuGrowth Stock Fund
Small Company Stock Fund
<PAGE>
NORWEST SELECT FUNDS
FUND ACCOUNTING AGREEMENT
Appendix B
Fees and Expenses
(i) Base Fee
<TABLE>
<S> <C>
Standard Fee
Fee per Fund.................................................. $3,000/month
Fee for each additional Class of the Fund above one........... $1,000/month
Plus additional surcharges for each of:
(i) Funds with asset levels exceeding $100 million....... $500/month
Funds with asset levels exceeding $250 million....... $1,000/month
Funds with asset levels exceeding $500 million....... $1,500/month
Funds with asset levels exceeding $1,000 million..... $2,000/month
(ii) Funds requiring international custody................ $1,000/month
(iii) Funds with more than 30 international positions ..... $1,000/month
(iv) Tax free money market Funds.......................... $1,000/month
(v) Funds with more than 25% of net assets invested in
asset backed securities.............................. $1,000/month
Funds with more than 50% of net assets invested in
asset backed securities.............................. $2,000/month
(vii) Funds with more than 100 security positions.......... $1,000/month
(viii) Funds with a monthly portfolio turnover rate of 10%
or greater........................................... $1,000/month
</TABLE>
Note 1: Surcharges are determined based upon the total assets, security
positions or other factors as of the end of the prior month and on the
portfolio turnover rate for the prior month. Portfolio turnover rate
shall have the meaning ascribed thereto in SEC Form N-1A.
Note 2: The rates set forth above shall remain fixed through December
31, 1999. On January 1, 2000, and on each successive January 1, the
rates may be adjusted automatically by Forum without action of the
Trust to reflect changes in the Consumer Price Index for the preceding
calendar year, as published by the U.S. Department of Labor, Bureau of
Labor Statistics.
Forum shall notify the Trust each year of the new rates, if applicable.
(ii) Start-Up Fee
Fund Start-Up Fee ...............................................$2,000
(iii) Other Services (payable in equal installments monthly)
Preparation of state and Federal income tax returns,
including any extensions or amendments $1,800/fiscal period/Fund
Preparation, execution and filing of state and
Federal income tax returns, including any
extensions or amendments $3,000/fiscal period/Fund
Preparation, execution and filing of Federal excise tax
returns, including any extensions or amendments
$1,000/fiscal period/Fund
(iv) Out-Of-Pocket and Related Expenses
The Trust, on behalf of the applicable Fund, shall reimburse Forum for
all out-of-pocket and ancillary expenses in providing the services
described in this Agreement, including but not limited to the cost of
(or appropriate share of the cost of): (i) pricing, paydown, corporate
action, credit and other reporting services, (ii) taxes, (iii) postage
and delivery services, (iv) telephone services, (v) electronic or
facsimile transmission services, (vi) reproduction, (vii) printing and
distributing financial statements, (xiii) microfilm and microfiche and
(ix) Trust record storage and retention fees. In addition, any other
expenses incurred by Forum at the request or with the consent of the
Trust, will be reimbursed by the Trust on behalf of the applicable
Fund.
<PAGE>
Exhibit (h)(4)
NORWEST SELECT FUNDS
ADMINISTRATION AGREEMENT
August 1, 1997, as amended January 26, 1998
AGREEMENT made as of the August 1, 1997, as amended January 26, 1998
between Norwest Select Funds (the "Trust"), a business trust organized under the
laws of the State of Delaware with its principal place of business at Two
Portland Square, Portland, Maine 04101, and Forum Administrative Services, LLC
("FAdS"), a limited liability corporation organized under the laws of State of
Delaware with its principal place of business at Two Portland Square, Portland,
Maine 04101.
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended (the "Act") as an open-end management investment company and
may issue its shares of beneficial interest, no par value, in separate series
and classes; and
WHEREAS, the Fund has entered into a Management Agreement with Forum
Financial Services, Inc. (the "Manager"), pursuant to which Manager provides
certain management services for the Trust; and
WHEREAS, the Trust desires that FAdS perform administrative services
for each of the series of the Trust as listed in Appendix A hereto (each a
"Fund" and collectively the "Funds") other than any administrative services
performed by the Manager incidental to the aforesaid Management Agreement, and
FAdS is willing to provide those services on the terms and conditions set forth
in this Agreement;
NOW THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, the Trust and FAdS agree as follows:
SECTION 1. THE TRUST; DELIVERY OF DOCUMENTS
The Trust is engaged in the business of investing and reinvesting its
assets in securities of the type and in accordance with the limitations
specified in the Trust's Trust Instrument, By-Laws and registration statement
filed with the Securities and Exchange Commission (the "SEC") under the Act and
the Securities Act of 1933 (the "Securities Act"), including any representations
made in a prospectus ("Prospectus") or statement of additional information
("SAI") relating to a Fund contained therein and as may be supplemented from
time to time, all in such manner and to such extent as may from time to time be
authorized by the Trust's Board of Trustees (the "Board"). The Trust has
delivered copies of the documents listed in this Section to FAdS and will from
time to time furnish FAdS with any amendments thereof.
SECTION 2. APPOINTMENT
The Trust hereby employs FAdS, subject to the direction and control of
the Board and the Manager, to provide certain administrative services necessary
for the Trust's operations with respect to each Fund except those that are the
responsibility of the Manager, Norwest Bank Minnesota, N.A. ("Norwest"), each
Fund's investment adviser, or any other investment adviser or investment
subadviser to a Fund (each an "Adviser"), or Norwest in its capacity as
administrator pursuant to an investment administration or similar agreement.
SECTION 3. ADMINISTRATIVE DUTIES
(a) On behalf of the Trust and with respect to each Fund, FAdS will
(i) at the Trust's expense, provide the Trust with, or arrange for the
provision of, the services of persons competent to perform such legal,
administrative and clerical functions not otherwise described in this
Section 3(a) as are necessary to provide effective operation of the
Trust;
(ii) assist in the preparation and the printing and the periodic
updating of the Trust's registration statement, Prospectuses and SAIs,
the Trust's tax returns, and reports to its shareholders, the SEC and
state and other securities administrators;
(iii) assist in the preparation of proxy and information statements and
any other communications to shareholders;
(iv) assist the Advisers in monitoring Fund holdings for compliance
with Prospectus and SAI investment restrictions and assist in
preparation of periodic compliance reports;
(v) with the cooperation of counsel to the Trust, Advisers, the
officers of the Trust and other relevant parties, be responsible for
preparation and dissemination of materials for meetings of the Board;
(vi) be responsible for preparing, filing and maintaining the Trust's
governing documents, including the Trust Instrument, Bylaws and minutes
of meetings of Trustees, Board committees and shareholders;
(vii) be responsible for maintaining the Trust's existence and good
standing under state law;
(viii) monitor sales of shares and ensure that such shares are properly
and duly registered with the SEC and applicable state and other
securities commissions;
(ix) be responsible for the calculation of performance data for
dissemination to information services covering the investment company
industry, for sales literature of the Trust and other appropriate
purposes; and
(x) be responsible for the determination of the amount of and supervise
the declaration of dividends and other distributions to shareholders as
necessary to, among other things, maintain the qualification of each
Fund as a regulated investment company under the Internal Revenue Code
of 1986, as amended, and prepare and distribute to appropriate parties
notices announcing the declaration of dividends and other distributions
to shareholders.
(b) Any of the legal services identified in Appendix B hereto may be
provided to the Trust by personnel of the Legal Department of FAdS or its
affiliates, subject to satisfaction of the conditions contained in Section 7(c)
and to the consents and waivers by the Trust and FAdS of any general conflict of
interest existing as a result of the provision of those services. FAdS shall not
charge the Trust for providing the legal services identified in Appendix B,
except for those matters designated as Special Legal Services, as to which FAdS
may charge and, subject to review and approval by the Chairman of the Audit
Committee or counsel to the Trust, the Trust shall pay, an additional amount as
reimbursement of the cost to FAdS of providing the Special Legal Services.
Nothing in this Agreement shall require FAdS to provide any of the services
listed in Appendix B, and each of those services may be performed by an outside
vendor if appropriate in the judgment of FAdS or the Trust; and be it further
(c) FAdS shall maintain records relating to its services, such as
journals, ledger accounts and other records, as are required to be maintained
under the Act and Rule 31a-1 under the Act. The books and records pertaining to
the Trust which are in possession of FAdS shall be the property of the Trust.
The Trust, or the Trust's authorized representatives, shall have access to such
books and records at all times during FAdS's normal business hours. Upon the
reasonable request of the Trust, copies of any such books and records shall be
provided promptly by FAdS to the Trust or the Trust's authorized
representatives.
SECTION 4. STANDARD OF CARE
The Trust shall expect of FAdS, and FAdS will give the Trust the
benefit of, FAdS's best judgment and efforts in rendering these services to the
Trust, and the Trust agrees as an inducement to FAdS's undertaking these
services that FAdS shall not be liable under this Agreement for any mistake of
judgment or in any event whatsoever, except for lack of good faith, provided
that nothing herein shall be deemed to protect, or purport to protect, FAdS
against any liability to the Trust or to its security holders to which FAdS
would otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of FAdS's duties under this Agreement, or by
reason of FAdS's reckless disregard of its obligations and duties under this
Agreement.
SECTION 5. COMPENSATION; EXPENSES
(a) In consideration of the administrative services performed by FAdS
as described herein, the Trust will pay FAdS, with respect to each class of
Shares of each Fund a fee at the annual rate as listed in Appendix A hereto plus
such additional payments as contemplated hereby. FAdS's fees shall be accrued by
the Trust daily and shall be payable monthly in arrears on the first day of each
calendar month for services performed under the Agreement during the prior
calendar month.
(b) Notwithstanding that other persons may, in investment advisory
agreements or otherwise, agree to assume certain expenses of the Trust or of any
Fund or class of Shares thereof, the Trust shall be responsible and hereby
assumes the obligation for payment of all the Trust's expenses, including (i)
payment of the fee payable to FAdS under this Section 5 hereof, the fee payable
to the Manager pursuant to the Management Agreement, and the fee payable to the
Advisers of each Fund pursuant to any investment advisory or similar agreement
between the Adviser and the Trust; (ii) interest charges, taxes, brokerage fees
and commissions; (iii) insurance and fidelity bond premiums; (iv) fees, interest
charges and expenses of the Trust's manager, custodian, transfer agent, dividend
disbursing agent and fund accountant and providers of pricing, credit analysis
and dividend services; (v) telecommunications expenses; (vi) auditing, legal and
compliance expenses; (vii) costs of forming the Trust and maintaining its
existence; (viii) costs of preparing and printing the Trust's Prospectuses,
SAIs, subscription application forms and stockholder reports and their delivery
to existing and prospective stockholders; (ix) costs of maintaining books of
original entry for portfolio and fund accounting and other required books and
accounts and of calculating the net asset value of the Trust's shares; (x) costs
of reproduction, stationery and supplies; (xi) compensation of the Trust's
trustees, officers and employees and costs of other personnel performing
services for the Trust, whether or not any such persons are affiliated persons
of FAdS or any Adviser of the Trust; (xii) costs of Board, Board committee,
shareholder and other corporate meetings; (xiii) SEC registration fees and
related expenses; (xiv) state and other jurisdiction securities laws
registration fees and related expenses, including costs of personnel to perform
such securities registration; and (xv) all costs borne by the Trust pursuant to
any distribution plan adopted by the Trust pursuant to Rule 12b-1 under the Act,
shareholder service or similar plan.
SECTION 6. EFFECTIVENESS, DURATION; TERMINATION AND
ASSIGNMENT
(a) This Agreement shall become effective with respect to each Fund on
the date hereof or, with respect to additional series of the Trust to which this
agreement shall apply by amendment of Appendix A, upon the date of such
amendment. Upon effectiveness of this Agreement, it shall supersede all previous
agreements between the parties hereto covering the subject matter hereof insofar
as such Agreement may have been deemed to relate to the Funds.
(b) This Agreement shall continue in effect with respect to a Fund for
a period of one year from its effectiveness and shall continue in effect for
successive one year periods; provided, however, that continuance is specifically
approved at least annually (i) by the Board or by a vote of a majority of the
outstanding voting securities of the Fund and (ii) by a vote of a majority of
Trustees of the Trust who are not parties to this agreement or interested
persons of any such party (other than as Trustees of the Trust); provided
further, however, that if the continuation of this agreement is not approved as
to a Fund, FAdS may continue to render to the Fund the services described herein
in the manner and to the extent permitted by the Act and the rules and
regulations thereunder.
(c) This Agreement may be terminated with respect to a Fund at any
time, without the payment of any penalty, (i) by the Board on 60 days' written
notice to FAdS or (ii) by FAdS on 60 days' written notice to the Trust.
(d) This Agreement and the rights and duties under this Agreement
otherwise shall not be assignable by either FAdS or the Trust except by the
specific written consent of the other party. All terms and provisions of this
Agreement shall be binding upon, inure to the benefit of and be enforceable by
the respective successors and assigns of the parties hereto.
SECTION 7. ACTIVITIES OF FAdS
(a) Except to the extent necessary to perform FAdS's obligations under
this Agreement, nothing herein shall be deemed to limit or restrict FAdS's
right, or the right of any of FAdS's officers, directors or employees who also
may be a trustee, officer or employee of the Trust, or persons otherwise
affiliated persons of the Trust to engage in any other business or to devote
time and attention to the management or other aspects of any other business,
whether of a similar or dissimilar nature, or to render services of any kind to
any other corporation, trust, firm, individual or association.
(b) FAdS may subcontract any or all of its functions or
responsibilities pursuant to this Agreement to one or more corporations, trusts,
firms, individuals or associations, which may be affiliates of FAdS, who agree
to comply with the terms of this Agreement. FAdS may pay those persons for their
services, but no such payment will increase FAdS's compensation from the Trust.
(c) Without limiting the generality of the Sections 7(a) and (b), the
Trust acknowledges that certain legal services may be provided to it by lawyers
who are employed by FAdS or its affiliates and who render services to FAdS and
its affiliates. A lawyer who provides such services to the Trust, and any lawyer
who supervises such lawyer, although employed generally by FAdS or its
affiliates, will have a direct professional attorney-client relationship with
the Trust. Those services for which such a direct relationship will exist are
listed in Appendix B hereto. Provided (i) FAdS agrees with any attorney
performing legal services for the Trust not to direct the professional judgment
of the attorney in performing those legal services and (ii) the attorney agrees
to disclose to the Chairman of the Audit Committee or to counsel to the Trust
any circumstance in which a legal service the attorney proposes to provide
relates to a matter in which the Trust and FAdS, or the Trust and any other
investment company to which the attorney is providing legal services, may
reasonably be expected to have divergent legal or economic interests, each of
FAdS and the Trust hereby consents to the simultaneous representation by the
attorney of both FAdS and the Trust and waives any general conflict of interest
existing in such simultaneous representation, and the Trust agrees that, in the
event the attorney ceases to represent the Trust, whether at the request of the
Trust or otherwise, the attorney may continue thereafter to represent FAdS, and
the Trust expressly consents to such continued representation.
SECTION 8. LIMITATION OF SHAREHOLDER AND TRUSTEE LIABILITY
The Trustees of the Trust and the shareholders of each Fund shall not
be liable for any obligations of the Trust or of the Funds under this Agreement,
and FAdS agrees that, in asserting any rights or claims under this Agreement, it
shall look only to the assets and property of the Trust or the Fund to which
FAdS's rights or claims relate in settlement of such rights or claims, and not
to the Trustees of the Trust or the shareholders of the Funds.
SECTION 9. MISCELLANEOUS
(a) No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties hereto.
(b) If any part, term or provision of this Agreement is held to be
illegal, in conflict with any law or otherwise invalid, the remaining portion or
portions shall be considered severable and not be affected, and the rights and
obligations of the parties shall be construed and enforced as if the Agreement
did not contain the particular part, term or provision held to be illegal or
invalid.
(c) Section headings in this Agreement are included for convenience
only and are not to be used to construe or interpret this Agreement.
(d) Notices, requests, instructions and communications received by the
parties at their respective principal addresses, or at such other address as a
party may have designated in writing, shall be deemed to have been properly
given.
(e) This Agreement shall be governed by and shall be construed in
accordance with the laws of the State of New York.
(f) The terms "vote of a majority of the outstanding voting
securities," "interested person," and "assignment" shall have the meanings
ascribed thereto in the Act.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed effective as of the day and year first above written.
NORWEST SELECT FUNDS
/s/ Donald H. Burkhardt
By: Donald H. Burkhardt
Trustee
FORUM ADMINISTRATIVE SERVICES, LLC
/s/ John Y. Keffer
By: John Y. Keffer
President
<PAGE>
NORWEST SELECT FUNDS
ADMINISTRATION AGREEMENT
January 26, 1998, as amended [Date]
Appendix A
Fee as a % of
the Annual Average Daily
Funds of the Trust Net Assets of each Class of the Fund
Income Fund 0.05%
Inocme Equity Fund 0.05%
ValuGrowth Stock Fund 0.05%
Small Company Stock Fund 0.05%
<PAGE>
NORWEST SELECT FUNDS
ADMINISTRATION AGREEMENT
Appendix B
Legal Services
1. Advise the Trust on compliance with applicable U.S. laws and regulations
with respect to matters that are within the ordinary course of the Trust's
business.
2. Advise the Trust on compliance with applicable U.S. laws and regulations
with respect to matters that are outside the ordinary course of the Trust's
business(*).
3. Liaison with the SEC.
4. Draft correspondences to SEC and respond to SEC comments.
5. Liaison with the Trust's outside counsel.
6. Provide attorney letters to the Trust's auditors.
7. Assist Trust's outside counsel in the preparation of exemptive
applications, no-action letters, prospectuses, registration statements and
proxy statements and related material.
8. Prepare exemptive applications, no-action letters, prospectuses,
registration statements and proxy statements and related material, and
draft correspondences to SEC and respond to SEC comments with respect
thereto(*).
9. Prepare prospectus supplements.
10. Review and authorize Section 24 filings.
11. Prepare and/or review agendas and minutes for and respond to inquiries at
board and shareholder meetings regarding applicable U.S. laws and
regulations.
12. Prepare and/or review agreements between the Trust and any third parties.
Note: Items designated with an (*) are Special Legal Services.
<PAGE>
Exhibit (I)(2)
SEWARD & KISSEL LLP
1200 G Street, NW
Suite 350
Washington, DC 20005
April 15, 1999
Norwest Select Funds
Two Portland Square
Portland, ME 04101
Ladies and Gentlemen:
We consent to the continued inclusion as an exhibit to the Registration
Statement of Norwest Select Funds of our opinion dated May 23, 1994 as to the
legality of the securities registered by Norwest Select Funds as of that date.
Very truly yours,
/s/ Seward & Kissel LLP
Consent of Independent Auditors
-------------------------------
The Board of Trustees and Shareholders
Norwest Select Funds:
We consent to the use of our report dated February 5, 1999 included herein and
the references to our firm under captions "Financial Highlights" in the
prospectus and "Independent Auditors" in the statement of additional
information.
/s/ KPMG Peat Marwisk LLP
Boston, Massachusetts
April 21, 19999
