As filed with the U.S. Securities and Exchange Commission on October 7, 1997.
Securities Act File No. 33-
Investment Company Act File No. ________
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM N-1A
Registration Statement Under The Securities Act Of 1933 X
Pre-Effective Amendment No. __
Post-Effective Amendment No. __
and/or
Registration Statement Under The Investment Company Act Of 1940 X
Amendment No. __
(Check appropriate box or boxes)
--------------------
Forward Funds, Inc.
(Exact Name of Registrant as Specified in Charter)
433 California Street
Suite 904
San Francisco, California 94104
(Address of Principal Executive Offices)
Registrant's Telephone number, including Area Code: 415-982-2525
--------------------
Ronald Pelosi
Forward Funds, Inc.
433 California Street
Suite 904
San Francisco, California 94104
(Name and Address of Agent for Service)
--------------------
With copies to:
Jeffrey L. Steele, Esq.
Dechert Price & Rhoads
1500 K Street, N.W.
Washington, D.C. 20005
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this registration statement.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that the Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
The Registrant hereby elects to register an indefinite number of shares of
common stock under the Securities Act of 1933 pursuant to Rule 24f-2 under the
Investment Company Act of 1940.
<PAGE>
FORWARD FUNDS, INC.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
N-1A Item Location in Prospectus
(Caption)
<S> <C> <C>
Part A
Item 1. Cover Page..............................................Cover Page
Item 2. Synopsis................................................Prospectus Summary
Item 3. Condensed Financial Information.........................Fund Expenses, Fee Tables
Item 4. General Description of Registrant.......................Investment Objectives
........................................................and Policies;
Risk Factors; Investment
Techniques; Investment
Restrictions
Item 5. Management of the Registrant............................Management of the Funds
Item 5A. Management's Discussion of Company Performance..........Not Applicable
Item 6. Capital Stock and Other Securities......................Valuation of Shares;
........................................................ Redeeming Shares;
........................................................ Dividends and Taxes;
........................................................ Exchange Privilege
........................................................ Shareholder Service Plan;
........................................................General Information
Item 7. Purchase of Securities Being Offered....................Purchasing Shares
Item 8. Redemption or Repurchase................................Redeeming Shares
Item 9. Pending Legal Proceedings...............................Not Applicable
Location in Statement of
Part B Additional Information
(Caption)
Item 10. Cover Page..............................................Cover Page
Item 11. Table of Contents.......................................Table of Contents
Item 12. General Information and History.........................Organization of
.......................................... ......... Forward Funds, Inc.
Item 13. Investment Objectives and Policies......................Supplemental Discussion of
....................................................... Investment Techniques and
....................................................... Risks Associated with the
....................................................... Funds' Investment Policies
....................................................... and Investment Techniques;
Portfolio Transactions;
Investment Objectives and Policies
Item 14. Management of the Company...............................Management of the Funds
Item 15. Control Persons and Principal Holders of Securities.....Management of the Funds
Item 16. Investment Advisory and Other Services..................Management of the Funds
Item 17. Brokerage Allocation and Other Practices................Portfolio Transactions
Item 18. Capital Stock and Other Securities......................Shareholder Services and
........................................................ Privileges; Distributions;
........................................................ Shareholder Information
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered..............................Determination of Share Price;
........................................................ Additional Purchase and
Redemption Information
Item 20. Tax Status..............................................Tax Considerations
Item 21. Underwriters............................................Not Applicable
Item 22. Calculation of Performance Data.........................Calculation of Performance
........................................................ Data
Item 23. Financial Statements....................................Financial Statements
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF SUCH STATE.
Prospectus
FORWARD FUNDS, INC.
433 California Street, Suite 904
San Francisco, California 94104
415-982-2525
Forward Funds, Inc. (the "Company") is an open-end management investment company
which offers two, separate, diversified investment portfolios ("Funds"), each
with different investment objectives and policies. This prospectus describes The
Global Fund and The Money Market Fund. BZW Barclays Global Fund Advisors, Inc.
("Barclays"), Templeton Investment Counsel, Inc. ("Templeton"), and Pacific
Investment Management Company ("PIMCO") serve as investment advisors to The
Global Fund. Barclays manages The Global Fund's U.S. equity investments.
Templeton manages The Global Fund's non-U.S. equity investments. PIMCO manages
those assets of The Global Fund that are invested in fixed income and other debt
securities. __________ serves as investment advisor to The Money Market Fund.
Sutton Place Management Co., Inc. (the "Business Manager") acts as business
manager to each of the Funds. Each of the Funds offers currently one class of
shares of common stock (the "Shares").
The Shares of the Funds are not insured or guaranteed by the United States
Government nor are they deposits or obligations of, or endorsed, insured or
guaranteed by, any bank, the Federal Deposit Insurance Corporation, or any other
agency. The Money Market Fund seeks to maintain a constant net asset value of
$1.00 per Share, but there can be no assurance that its net asset value will not
vary. An investment in the Funds involves investment risk, including the
possible loss of principal.
This Prospectus sets forth concisely the information about the Funds that a
prospective investor ought to know before investing. Investors should read this
Prospectus and retain it for future reference. A Statement of Additional
Information ("SAI") about the Funds, dated _________ __, 1997, has been filed
with the Securities and Exchange Commission and is incorporated herein by
reference. The SAI is available free upon request by calling the Company at the
telephone number shown above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is December __, 1997.
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUMMARY........................................................1
Shares Offered...................................................1
Offering Price...................................................1
Investment Objectives............................................1
Investment Policies..............................................1
Risk Factors.....................................................1
Investment Advisors..............................................1
Business Manager.................................................2
Dividends and Capital Gains......................................2
Other Information................................................2
FUND EXPENSES.............................................................3
FEE TABLES................................................................3
INVESTMENT OBJECTIVES AND POLICIES........................................4
General..........................................................4
Investment Policies..............................................5
RISK FACTORS..............................................................6
INVESTMENT TECHNIQUES.....................................................8
Equity Securities................................................8
Corporate Debt Securities........................................8
U.S. Government Obligations......................................8
Convertible Securities...........................................9
Foreign Investments and Foreign Currency Transactions............9
Depositary Receipts.............................................10
Loan Participations and Assignments.............................11
Variable and Floating Rate Securities...........................11
Inflation-Indexed Bonds.........................................12
Mortgage-Related and Other Asset-Backed Securities..............12
Repurchase Agreements...........................................14
Reverse Repurchase Agreements and Dollar Roll Agreements........14
Certificates of Deposit and Time Deposits.......................14
Commercial Paper................................................14
Derivative Instruments..........................................15
When-Issued and Delayed-Delivery Transactions...................17
Securities Issued by Other Investment Companies.................18
Lending of Portfolio Securities.................................18
Illiquid Securities.............................................18
INVESTMENT RESTRICTIONS..................................................19
VALUATION OF SHARES......................................................20
PURCHASING SHARES........................................................20
EXCHANGE PRIVILEGE.......................................................21
REDEEMING SHARES.........................................................21
By Wire Transfer................................................22
By Telephone....................................................22
By Mail.........................................................23
Payments to Shareholders........................................23
MANAGEMENT OF THE FUNDS..................................................24
Directors.......................................................24
Investment Advisors.............................................24
The Business Manager............................................25
Other Service Providers.........................................25
Portfolio Transactions..........................................26
SHAREHOLDER SERVICE PLAN.................................................26
DIVIDENDS AND TAXES......................................................26
Federal Taxes...................................................27
GENERAL INFORMATION......................................................28
Description of the Company and Its Shares.......................28
Performance Information.........................................28
Account Services................................................29
Miscellaneous...................................................29
<PAGE>
PROSPECTUS SUMMARY
Shares Offered
Shares of The Global Fund and The Money Market Fund (collectively, the "Funds"),
which are two separate diversified investment portfolios ("Funds") of Forward
Funds, Inc. (the "Company"), are being offered to the public. The Company is a
Maryland corporation and is registered with the Securities and Exchange
Commission as an open-end management investment company.
Offering Price
The public offering price of The Global Fund is equal to its net asset value per
Share. The share price of The Global Fund is expected to fluctuate and the price
paid may be higher or lower than the price at a time when an investor wishes to
redeem shares. The public offering price of The Money Market Fund is equal to
the net asset value per Share, which the Company will seek to maintain at $1.00.
No sales charges or redemption fees are charged with respect to either Fund.
Investment Objectives
The Global Fund seeks total return (capital appreciation and income) by
investing in the global stock and bond markets.
The Money Market Fund seeks current income consistent with liquidity and
stability of principal by investing in high quality money market instruments.
Investment Policies
The Global Fund. The Global Fund invests in a diversified portfolio of liquid,
publicly traded equity and debt securities issued by governments and companies
in the United States and in other industrialized nations and emerging markets.
The Money Market Fund. The Money Market Fund will invest exclusively in U.S.
Treasury and other U.S. Government and agency securities.
Risk Factors
An investment in the Funds, particularly The Global Fund, involves a certain
amount of risk and may not be suitable for all investors. See "RISK FACTORS."
Investment Advisors
With respect to The Global Fund, Barclays acts as investment advisor for The
Global Fund's U.S. equity investments, Templeton acts as investment advisor for
the Fund's non-U.S. equity investments, and PIMCO manages the Fund's investments
in fixed income and other debt securities. The Advisors to The Global Fund
receive a fee based on a percentage of net assets in The Global Fund which they
manage. Each of the Advisors has substantial amounts of assets under management
for their clients and substantial investment experience. See "MANAGEMENT OF THE
FUNDS - Investment Advisors."
____________ serves as investment advisor to The Money Market Fund and receives
a fee based on a percentage of net assets in The Money Market Fund.
Business Manager
Sutton Place Management Co., Inc. serves as Business Manager to each Fund and
receives from each Fund a fee based on a percentage of net assets of each Fund.
See "MANAGEMENT OF THE FUNDS - Business Manager."
Dividends and Capital Gains
Dividends from net income, including short-term capital gains, are declared
daily and paid monthly by The Money Market Fund and are declared and paid
semi-annually by The Global Fund. Distributions of net realized capital gains
are made at least annually by The Global Fund. The Money Market Fund does not
anticipate realizing long term capital gains, but if it does so, they too will
be distributed at least annually. Dividend and capital gain distributions of the
Funds are automatically invested in additional shares of the Funds unless the
Shareholder elects otherwise in writing to the Business Manager.
Other Information
_____________________ is the Funds' custodian. First Data Investor Services
Group, Inc. serves as the distributor, administrator, transfer agent and
dividend disbursing agent and provides certain accounting services for the
Funds.
<PAGE>
FUND EXPENSES
The following expense tables indicate costs and expenses that an investor should
anticipate incurring either directly or indirectly as a Shareholder of a Fund.
FEE TABLES
<TABLE>
<CAPTION>
The Money The Global
Market Fund Fund
--------------------- ---------------------
<S> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Charge Imposed on Purchases and
Reinvested Dividends........................ 0 0
Deferred Sales Charge on Redemptions........ 0 0
Exchange Fees1.............................. [ ] [ ]
Wire Transfer Fees1......................... [ ] [ ]
Check Writing Fee, per check written1....... [ ] [ ]
Account Closeout Fee1....................... [ ] [ ]
Debit and Credit Card Transaction Fees1..... [ ] [ ]
Redemption Fee1............................. [ ] [ ]
Annual Fund Operating Expenses are paid out of each Fund's assets.
Each Fund pays a management fee to the Business Manager. Expenses are
factored into each Fund's share price
or dividends and are not charged directly to Shareholder [ ] [ ]
accounts.
Annual Fund Operating Expenses (as a percentage of average
net assets annualized) [ ] [ ]
Management Fees After Waiver2............... [ ] [ ]
Shareholder Service Fees.................... [ ] [ ]
Other Expenses2............................. [ ] [ ]
Total Fund Operating Expenses After Waiver3.......... [ ] [ ]
</TABLE>
- -----------------------
1 These fees do not apply to transactions effected through an omnibus account
of a broker-dealer or other financial institution which has entered into a
shareholder servicing agreement with the Company or its Distributor.
2 Sutton Place Management Co., Inc. has agreed to temporarily waive a portion
of its fees for the Funds for the current fiscal year. Waived fees cannot
be recovered at a future date. Absent the advisory fee waiver, "Management
Fees" as a percentage of the average daily net assets would be __________
for each of the Funds. See "MANAGEMENT OF THE FUNDS - Investment Advisors."
3 Absent the waiver of the Business Manager fees, "Total Fund Operating
Expenses" as a percentage of average daily net assets would be ____% for
The Money Market Fund and ____% for The Global Fund.
The purpose of this table is to assist the prospective investor in understanding
the various costs and expenses that a Shareholder in the Funds will bear
directly or indirectly. For more complete descriptions of the management fees,
see "MANAGEMENT OF THE FUNDS." For shareholder service plan fees, see
"SHAREHOLDER SERVICE PLAN."
Example*
An investor would pay the following expenses on a $1,000 investment in
_______________ Shares, assuming (1) 5% annual return, and (2) redemption at the
end of each time period:
<TABLE>
<S> <C> <C>
The Money Market Fund The
Global Fund
1 Year........................ [ ] [ ]
2 Years....................... [ ] [ ]
3 Years....................... [ ] [ ]
10 Years...................... [ ] [ ]
</TABLE>
* This example should not be considered a representation of future expenses,
which may be more than those shown. The assumed 5% annual return is hypothetical
and should not be considered a representation of past or future annual return.
Actual return may be greater or less than the assumed amount.
INVESTMENT OBJECTIVES AND POLICIES
General
The Global Fund seeks total return (capital appreciation and income) by
investing in the global stock and bond markets. It may invest in equity and debt
securities issued by companies and governments throughout the world to achieve
this objective.
The Money Market Fund seeks current income consistent with liquidity and
stability of principal by investing in high quality money market instruments. It
invests exclusively in high quality short-term money market instruments to
achieve this objective.
* * * *
The investment objective of each Fund is a fundamental policy and as such may
not be changed without a vote of the holders of a majority of the outstanding
Shares of that Fund. Other policies of a Fund may be changed by the Company's
directors, without a vote of the holders of a majority of outstanding Shares of
that Fund unless (i) the policy is expressly deemed to be a fundamental policy
or (ii) the policy is expressly deemed to be changeable only by such majority
vote. There can be no assurance that the investment objective of any Fund will
be achieved.
Investment Policies
The Global Fund
The Global Fund may invest in all types of equity and debt securities,
including, but not limited to, common stock, preferred stock, convertible
securities, warrants, trust units or certificates, bonds, debentures, notes,
commercial paper and various types of depository receipts. There are no limits
on the various types of equity or debt securities that may be purchased.
Securities may be issued by companies located in the United States or in any
other country and may include securities issued by governments or their agencies
and instrumentalities. The Global Fund diversifies its holdings and does not
concentrate its investments in any industry sector.
As noted above, The Global Fund's investments may be in both equity and debt
securities. The Global Fund has engaged the services of three professional
investment management firms - each to manage a portion of The Global Fund's
assets. Barclays will manage the equity securities of U.S. issuers and Templeton
will manage the equity securities of foreign issuers. PIMCO will manage all debt
investments. A committee consisting of members of the Board of Directors will be
authorized based upon the recommendations of the Advisors or other consultants
to allocate The Global Fund's holdings among the Advisors. Subsequently,
allocations of additional cash investments and reallocations may be made at any
time.
Barclays anticipates making equity security selections generally from securities
included in the Russell 3000(R) Index, but Barclays is not restricted to
securities in this Index and may deviate from the Index's characteristics. The
Index consists of the 3000 largest U.S. companies and represents over 90% of the
investable U.S. equity market.
Templeton anticipates following a flexible investment policy in selecting
foreign equity securities, seeking out those investments which it believes will
achieve The Global Fund's long term objective of total return.
Similarly, PIMCO may invest in debt securities of all types issued by companies
as well as governments located throughout the world. As with foreign equity
securities, foreign debt securities may be denominated in foreign currencies.
Debt securities held by The Global Fund may include securities rated in any
rating category by a NRSRO or that are unrated. As a result, The Global Fund may
invest in high risk, lower quality debt securities, commonly referred to as
"junk bonds." The Global Fund will limit its investment in junk bonds (i.e.,
those rated lower than the four highest rating categories or if unrated of
comparable quality) to not more than 10% of The Global Fund's assets.
Securities purchased by The Global Fund may be listed or unlisted in the markets
where they trade and may be issued by companies in various industries, with
various levels of market capitalization. The Global Fund will not invest more
than 25% of its assets in securities issued by companies in any one industry.
The Global Fund expects to limit its investments in emerging markets to less
than 50% of its total assets.
The portfolio turnover rate for The Global Fund is expected to be approximately
100%.
The Money Market Fund
The Money Market Fund invests exclusively in U.S. Treasury and other U.S.
Government and agency securities. The Money Market Fund invests only in
instruments which the Fund's investment advisor, acting pursuant to guidelines
adopted by the Company's Board of Directors, determines present minimal credit
risks.
* * * *
Subject to the foregoing general limitations, the Funds expect to employ the
investment practices and invest in the types of securities discussed below under
"INVESTMENT TECHNIQUES." Moreover, all investments carry certain risks which are
discussed below under "RISK FACTORS" and "INVESTMENT TECHNIQUES."
RISK FACTORS
As with all investments, there is a risk that an investor will lose money when
investing in the Funds. This risk is minimized when investing in The Money
Market Fund which attempts to maintain a stable net asset value of $1.00. The
Global Fund's share price is, however, expected to fluctuate daily.
Nevertheless, even with The Money Market Fund, there is no guarantee that
efforts to maintain a constant share price of $1.00 per share will always
succeed.
The Global Fund invests in the world's stock and bond markets and so Share
prices are subject to a wide array of forces which may cause the value of The
Global Fund Shares to increase or decrease with movements in the broader equity
and bond markets. Factors affecting the value and income generated by The Global
Fund's holdings, general and regional economic conditions and market factors may
influence Share value. A decline in the stock market of any country in which The
Global Fund has invested may also be reflected in declines in the price of the
Shares of The Global Fund. Changes in currency valuations will also affect the
price of the Shares of The Global Fund. History reflects both decreases and
increases in worldwide stock markets and currency valuations, and these may
recur unpredictably in the future. The value of debt securities held by The
Global Fund generally will vary inversely with changes in prevailing interest
rates.
The Global Fund has the right to purchase securities in any foreign country,
developed or developing. Investors should therefore consider carefully the risks
involved in investing in securities issued by companies of foreign nations,
which are in addition to the usual risks inherent in domestic investments. There
is the possibility of expropriation, nationalization or confiscatory taxation,
taxation of income earned in foreign nations or other taxes imposed with respect
to investments in foreign nations, foreign investment controls on daily stock
market movements, political or social instability, or diplomatic developments
which could affect investments in securities of issuers in foreign nations. Some
countries may withhold portions of interest and dividends at the source. In
addition, in many countries there is less publicly available information about
issuers than is available in reports about companies in the United States.
Foreign companies are not generally subject to uniform accounting, auditing and
financial reporting standards, and auditing practices and requirements may not
be comparable to those applicable to United States companies. The Global Fund
may encounter difficulties or be unable to vote proxies, exercise shareholder
rights, pursue legal remedies, and obtain judgments in foreign courts.
Brokerage commissions, custodial services and other costs relating to investment
in foreign countries are generally more expensive than in the United States. In
addition, the foreign securities markets of many of the countries in which The
Global Fund may invest may also be smaller, less liquid, and subject to greater
price volatility than those in the United States. Foreign securities markets
also have different clearance and settlement procedures, and in certain markets
there have been times when settlements have been unable to keep pace with the
volume of securities transactions, making it difficult to conduct such
transactions. Delays in settlement could result in temporary periods when assets
of The Global Fund are uninvested and no return is earned thereon. The inability
of The Global Fund to make intended security purchases due to settlement
problems could cause The Global Fund to miss attractive investment
opportunities. Inability to dispose of portfolio securities due to settlement
problems could result either in losses to The Global Fund due to subsequent
declines in value of the portfolio security or, if The Global Fund has entered
into a contract to sell the security, could result in possible liability to the
purchaser.
In many foreign countries, there is less government supervision and regulation
of business and industry practices, stock exchanges, brokers and listed
companies than in the United States. There is an increased risk, therefore, of
uninsured loss due to lost, stolen, or counterfeit stock certificates.
Prior governmental approval of foreign investments may be required under certain
circumstances in some developing countries, and the extent of foreign investment
in domestic companies may be subject to limitation in other developing
countries. Foreign ownership limitations also may be imposed by the charters of
individual companies in developing countries to prevent, among other concerns,
violation of foreign investment limitations.
Repatriation of investment income, capital and proceeds of sales by foreign
investors may require governmental registration and/or approval in some
developing countries. The Global Fund could be adversely affected by delays in
or a refusal to grant any required governmental registration or approval for
such repatriation.
Further, the economies of developing countries generally are heavily dependent
upon international trade and, accordingly, have been and may continue to be
adversely affected by trade barriers, exchange controls, managed adjustments in
relative currency values and other protectionist measures imposed or negotiated
by the countries with which they trade. These economies also have been and may
continue to be adversely affected by economic conditions in the countries with
which they trade.
The Global Fund is also authorized to invest in medium quality or high-risk,
lower quality debt securities that are rated between BBB and as low as CCC by
Standard & Poor's Corporation ("S&P") and between Baa and as low as Caa by
Moody's Investors Service, Inc. ("Moody's") or, if unrated, are of equivalent
investment quality as determined by the Advisors. High-risk, lower quality debt
securities, commonly referred to as "junk bonds," are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation and may be in
default. Unrated debt securities are not necessarily of lower quality than rated
securities but they may not be attractive to as many buyers. Regardless of
rating levels, all debt securities considered for purchase (whether rated or
unrated) will be carefully analyzed by the Advisors to insure, to the extent
possible, that the planned investment is sound. The Global Fund may, from time
to time, purchase defaulted debt securities if, in the opinion of the Advisors,
the issuer may resume interest payments in the near future. As an operating
policy, which may be changed by the Board of Directors without shareholder
approval, The Global Fund will not invest more than 10% of its total assets in
debt securities rated lower than BBB by S&P or Baa by Moody's, or in defaulted
debt securities, which may be illiquid.
The Global Fund usually effects currency exchange transactions on a spot (i.e.,
cash) basis at the spot rate prevailing in the foreign exchange market. However,
some price spread on currency exchanges (to cover service charges) will be
incurred when the Fund converts assets from one currency to another. There are
further risk considerations, including possible losses through the holding of
securities in domestic and foreign custodial banks and depositories, described
in the SAI.
Successful use by The Global Fund of stock and bond index futures contracts and
options on securities indices is subject to certain special risk considerations.
A liquid option or futures market may not be available when The Global Fund
seeks to offset adverse market movements. In addition, there may be an imperfect
correlation between movements in the securities included in the index and
movements in the securities in The Global Fund's portfolio. Successful use of
index futures contracts and options on securities indices is further dependent
on the Advisors' ability to predict correctly movements in the direction of the
underlying securities markets and no assurance can be given that their judgment
in this respect will be correct. Risks in the purchase and sale of index futures
and options are further referred to in the SAI.
INVESTMENT TECHNIQUES
Equity Securities
The Global Fund may invest in all types of equity securities, including common
stocks, preferred stocks, warrants, options, convertible securities, restricted
securities and depositary receipts. Certain of these types of securities are
discussed below in greater detail.
Corporate Debt Securities
Corporate debt securities include corporate bonds, debentures, notes and other
similar corporate debt instruments, including convertible securities. Debt
securities may be acquired with warrants attached. Corporate income-producing
securities may also include forms of preferred or preference stock. The rate of
interest on a corporate debt security may be fixed, floating or variable, and
may vary inversely with respect to a reference rate. See "Variable and Floating
Rate Securities" below. The rate of return or return of principal on some debt
obligations may be linked or indexed to the level of exchange rates between the
U.S. dollar and a foreign currency or currencies. Investments in corporate debt
securities that are rated below investment grade (rated below Baa (Moody's) or
BBB (S&P)) are described as "speculative" both by Moody's and S&P. See "RISK
FACTORS" above.
U.S. Government Obligations
The Money Market Fund invests in U.S. Government obligations, including U.S.
Treasury notes, bills, bonds and any other securities directly issued by the
United States Government that are available for public investment, which differ
only in their interest rates, maturities, and times of issuance, as well as
"stripped" U.S. Treasury obligations, such as Treasury Receipts issued by the
U.S. Treasury and representing either future interest or principal payments, and
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities. Stripped securities are issued at a discount to their "face
value" and may exhibit greater price volatility than ordinary debt securities
because of the manner in which their principal and interest are returned to
investors. The stripped treasury obligations in which The Money Market Fund may
invest do not include certificates of accrual on treasury securities ("CATS") or
treasury income growth receipts ("TIGRs").
Obligations of certain agencies and instrumentalities of the U.S. Government,
such as the Government National Mortgage Association, are supported by the full
faith and credit of the U.S. Treasury; others, such as those of the Federal
National Mortgage Association, are supported by the right of the issuer to
borrow from the Treasury; others, such as those of the Student Loan Marketing
Association, are supported by the discretionary authority of the U.S. Government
to purchase the agency's obligations; still others, such as those of the Federal
Farm Credit Banks or the Federal Home Loan Mortgage Corporation, are supported
only by the credit of the instrumentality. No assurance can be given that the
U.S. Government would provide financial support to U.S. Government-sponsored
agencies or instrumentalities if it is not obligated to do so by law. The Money
Market Fund will invest in the obligations of such agencies or instrumentalities
only when the Advisor believes that the credit risk with respect thereto is
minimal.
The Global Fund may invest in U.S. Government securities for liquidity and
investment purposes but such investments are not normally the primary focus of
The Global Fund.
Convertible Securities
The Global Fund may invest in convertible securities, which may offer higher
income than the common stocks into which they are convertible. Each of The
Global Fund's Advisors may invest in convertible securities. Typically,
convertible securities are callable by the company, which may, in effect, force
conversion before the holder would otherwise choose.
The convertible securities in which The Global Fund may invest consist of bonds,
notes, debentures and preferred stocks which may be converted or exchanged at a
stated or determinable exchange ratio into underlying shares of common stock.
The Global Fund may be required to permit the issuer of a convertible security
to redeem the security, convert it into the underlying common stock, or sell it
to a third party. Thus, The Global Fund may not be able to control whether the
issuer of a convertible security chooses to convert that security. If the issuer
chooses to do so, this action could have an adverse effect on a Fund's ability
to achieve its investment objectives.
Foreign Investments and Foreign Currency Transactions
The Global Fund invests a substantial amount of its assets in foreign
investments. Investment in foreign securities is subject to special investment
risks that differ in some respects from those related to investments in
securities of U.S. domestic issuers. See "RISK FACTORS" above.
In the case of The Global Fund, if a security is denominated in foreign
currency, the value of the security to The Global Fund will be affected by
changes in currency exchange rates and in exchange control regulations, and
costs will be incurred in connection with conversions between currencies.
Currency risks generally increase in lesser developed markets. Foreign currency
exchange rates may fluctuate significantly over short periods of time. They
generally are determined by the forces of supply and demand in the foreign
exchange markets and the relative merits of investments to different countries,
actual or perceived changes in interest rates and other complex factors, as seen
from an international perspective. Currency exchange rates also can be affected
unpredictably by intervention (or the failure to intervene) by U.S. or foreign
governments or central banks, by currency controls or political developments in
the U.S. or abroad. Currencies in which The Global Fund's assets are denominated
may be devalued against the U.S. dollar, resulting in a loss to The Global Fund.
The Global Fund may buy and sell foreign currencies on a spot and forward basis
to reduce the risks of adverse changes in foreign exchange rates. A forward
foreign currency exchange contract involves an obligation to purchase or sell a
specific currency at a future date, which may be a fixed number of days from the
date of the contract agreed upon by the parties, at a price set at the time of
the contract. By entering into a forward foreign currency exchange contract, The
Global Fund "locks in" the exchange rate between the currency it will deliver
and the currency it will receive for the duration of the contract. As a result,
The Global Fund reduces its exposure to changes in the value of the currency it
will deliver and increases its exposure to changes in the value of the currency
it will exchange into. The effect on the value of The Global Fund is similar to
selling securities denominated in one currency and purchasing securities
denominated in another. Contracts to sell foreign currency would limit any
potential gain which might be realized by The Global Fund if the value of the
hedged currency increases. The Global Fund may enter into these contracts for
the purpose of hedging against foreign exchange risk arising from The Global
Fund's investment or anticipated investment in securities denominated in foreign
currencies. The Global Fund also may enter into these contracts for purposes of
increasing exposure to a foreign currency to shift exposure to foreign currency
fluctuations from one country to another. The Global Fund may use one currency
(or a basket of currencies) to hedge against adverse changes in the value of
another currency (or a basket of currencies) when exchange rates between the two
currencies are positively correlated. The Global Fund will segregate assets
determined to be liquid by the Advisor in accordance with procedures established
by the Board of Directors, in a segregated account to cover its obligations
under forward foreign currency exchange contracts entered into for non-hedging
purposes. The Global Fund also may invest in options on foreign currencies and
foreign currency futures and options thereon. The Global Fund also may invest in
foreign currency exchange-related securities, such as foreign currency warrants
and other instruments whose return in linked to foreign currency exchange rates.
For many foreign securities, U.S. dollar denominated American Depositary
Receipts ("ADRs"), which are traded in the United States on exchanges or
over-the-counter, are issued by domestic banks. ADRs represent the right to
receive securities of foreign issuers deposited in a domestic bank or a
correspondent bank. ADRs do not eliminate all the risk inherent in investing in
the securities of foreign issuers. However, by investing in ADRs rather than
directly in foreign issuers' stock, The Global Fund can avoid currency risks
during the settlement period for either purchases or sales.
Depositary Receipts
The Global Fund may purchase sponsored or unsponsored American Depositary
Receipts ("ADR"), European Depositary Receipts ("EDR") and Global Depositary
Receipts ("GDR") (collectively, "Depositary Receipts"). ADRs are Depositary
Receipts typically used by a U.S. bank or trust company which evidence ownership
of underlying securities issued by a foreign corporation. EDRs and GDRs are
typically issued by foreign banks or trust companies, although they also may be
issued by U.S. banks or trust companies, and evidence ownership of underlying
securities issued by either a foreign or a United States corporation. Generally,
Depositary Receipts in registered form are designed for use in the U.S.
securities market and Depositary Receipts in bearer form are designed for use in
securities markets outside the United States. Depositary Receipts may not
necessarily be denominated in the same currency as the underlying securities
into which they may be converted. Depositary Receipts may be issued pursuant to
sponsored or unsponsored programs. In sponsored programs, an issuer has made
arrangements to have its securities traded in the form of Depositary Receipts.
In unsponsored programs, the issuer may not be directly involved in the creation
of the program. Although regulatory requirements with respect to sponsored and
unsponsored programs are generally similar, in some cases it may be easier to
obtain financial information from an issuer that has participated in the
creation of a sponsored program. Accordingly, there may be less information
available regarding issuers of securities underlying unsponsored programs and
there may not be a correlation between such information and the market value of
the Depositary Receipts. Depositary Receipts also involve the risks of other
investments in foreign securities, as discussed below. For purposes of The
Global Fund's investment policies, The Global Fund's investments in Depositary
Receipts will be deemed to be investments in the underlying securities.
Loan Participations and Assignments
The Global Fund may invest in fixed- and floating-rate loans arranged through
private negotiations between an issuer of debt instruments and one or more
financial institutions ("lenders"). Generally, The Global Fund's investments in
loans are expected to take the form of loan participations and assignments of
portions of loans from third parties.
Large loans to corporations or governments may be shared or syndicated among
several lenders, usually banks. The Global Fund may participate in such
syndicates, or can buy part of a loan, becoming a direct lender. Participations
and assignments involve special types of risk, including limited marketability
and the risks of being a lender. See "Illiquid Securities" for a discussion of
the limits on The Global Fund's investments in loan participations and
assignments with limited marketability. If The Global Fund purchases a
participation, it may only be able to enforce its rights through the lender, and
may assume the credit risk of the lender in addition to that of the borrower. In
assignments, The Global Fund's rights against the borrower may be more limited
than those held by the original lender.
Variable and Floating Rate Securities
Variable and floating rate securities provide for a periodic adjustment in the
interest rate paid on the obligations. The terms of such obligations must
provide that interest rates are adjusted periodically based upon an interest
rate adjustment index as provided in the respective obligations. The adjustment
intervals may be regular, and range from daily up to annually, or may be event
based, such as based on a change in the prime rate. The Money Market Fund may
invest in a variable rate security having a stated maturity in excess of 397
calendar days if the interest rate will be adjusted, and The Money Market Fund
may demand payment of principal from the issuer within that period.
The Global Fund may engage in credit spread trades and invest in floating rate
debt instruments ("floaters"). A credit spread trade is an investment position
relating to a difference in the prices or interest rates of two securities or
currencies, where the value of the investment position is determined by
movements in the difference between the prices or interest rates, as the case
may be, of the respective securities or currencies. The interest rate on a
floater is a variable rate which is tied to another interest rate, such as a
money-market index or Treasury bill rate. The interest rate on a floater resets
periodically, typically every six months. While because of the interest rate
reset feature, floaters provide the Fund with a certain degree of protection
against a rise in interest rates, the Fund will participate in any declines in
interest rates as well.
The Global Fund may also invest in inverse floating rate debt instruments
("inverse floaters"). The interest rate on an inverse floater resets in the
opposite direction from the market rate of interest to which the inverse floater
is indexed. An inverse floating rate security may exhibit greater price
volatility than a fixed rate obligation of similar credit quality. The Global
Fund will not invest more than 5% of its net assets in any combination of
inverse floater, interest only ("IO"), or principal only ("PO") securities. See
"Mortgage-Related and Other Asset-Backed Securities" for a discussion of IOs and
POs.
Inflation-Indexed Bonds
Inflation-indexed bonds are fixed income securities whose principal value is
periodically adjusted according to the rate of inflation. Such bonds generally
are issued at an interest rate lower than typical bonds, but are expected to
retain their principal value over time. The interest rate on these bonds is
fixed at issuance, but over the life of the bond this interest may be paid on an
increasing principal value, which has been adjusted for inflation.
If the periodic adjustment rate measuring inflation falls, the principal value
of inflation-indexed bonds will be adjusted downward, and consequently the
interest payable on these securities (calculated with respect to a smaller
principal amount) will be reduced. Repayment of the original bond principal upon
maturity (as adjusted for inflation) is guaranteed in the case of U.S. Treasury
inflation-indexed bonds, even during a period of deflation. However, the current
market value of the bonds is not guaranteed, and will fluctuate. The Funds may
also invest in other inflation related bonds which may or may not provide a
similar guarantee. If a guarantee of principal is not provided, the adjusted
principal value of the bond repaid at maturity may be less than the original
principal.
The value of inflation-indexed bonds is expected to change in response to
changes in real interest rates. Real interest rates in turn are tied to the
relationship between nominal interest rates and the rate of inflation.
Therefore, if inflation were to rise at a faster rate than the nominal interest
rates, real interest rates might decline, leading to an increase in value of
inflation-indexed bonds. In contrast, if nominal interest rates increased at a
faster rate than inflation, real interest rates might rise, leading to a
decrease in value of inflation-indexed bonds.
While these securities are expected to be protected from long-term inflationary
trends, short-term increases in inflation may lead to a decline in value. If
interest rates rise due to reasons other than inflation (for example, due to
changes in currency exchange rates), investors in these securities may not be
protected to the extent that the increase is not reflected in the bond's
inflation measure.
Mortgage-Related and Other Asset-Backed Securities
The Global Fund may invest all of its assets in mortgage-related or other
asset-backed securities. The value of some mortgage-related or asset-backed
securities in which The Global Fund invests may be particularly sensitive to
changes in prevailing interest rates, and, like the other investments of The
Global Fund, the ability of a fund to successfully utilize these instruments may
depend in part upon the ability of the Advisor to forecast interest rates and
other economic factors correctly.
Mortgage Pass-Through Securities are securities representing interests in
"pools" of mortgage loans secured by residential or commercial real property in
which payments of both interest and principal on the securities are generally
made monthly, in effect "passing through" monthly payments made by the
individual borrowers on the mortgage loan which underlie the securities (net of
fees paid to the issuer or guarantor of the securities). Early repayment of
principal on some mortgage-related securities (arising from prepayments of
principal due to sale of the underlying property, refinancing, or foreclosure,
net of fees and costs which may be incurred) may expose The Global Fund to a
lower rate of return upon reinvestment of principal. Also, if a security subject
to prepayment has been purchased at a premium, the value of the premium would be
lost in the event of prepayment. Like other fixed income securities, when
interest rates rise, the value of a mortgage-related security generally will
decline; however, when interest rates are declining, the value of
mortgage-related securities with prepayment features may not increase as much as
other fixed income securities. The rate of prepayments on underlying mortgages
will affect the price and volatility of a mortgage-related security, and may
have the effect of shortening or extending the effective maturity of the
security beyond what was anticipated at the time of purchase. To the extent that
unanticipated rates of prepayment on underlying mortgages increase the effective
maturity of a mortgage-related security, the volatility of such securities can
be expected to increase.
Collateralized Mortgage Obligations ("CMOs") are hybrid mortgage-related
instruments. Interest and pre-paid principal on a CMO are paid, in most cases,
on a monthly basis. CMOs may be collateralized by whole mortgage loans but are
more typically collateralized by portfolios of mortgage pass-through securities
guaranteed by GNMA, FHLMC, or FNMA. CMOs are structured into multiple classes,
with each class bearing a different stated maturity. Monthly payments of
principal, including prepayments, are first returned to investors holding the
shortest maturity class; investors holding the longer maturity classes receive
principal only after the first class has been retired. CMOs that are issued or
guaranteed by the U.S. Government or by any of its agencies or instrumentalities
will be considered U.S. Government securities by the Funds, while other CMOs,
even if collateralized by U.S. Government securities, will have the same status
as other privately issued securities for purposes of applying a Fund's
diversification tests.
Commercial Mortgage-Backed Securities include securities that reflect an
interest in, and are secured by, mortgage loans on commercial real property. The
market for commercial mortgage-backed securities developed more recently and in
terms of total outstanding principal amount of issues is relatively small
compared to the market for residential single-family mortgage-backed securities.
Many of the risks of investing in commercial mortgage-backed securities reflect
the risks of investing in the real estate securing the underlying mortgage
loans. These risks reflect the effects of local and other economic conditions on
real estate markets, the ability of tenants to make loan payments, and the
ability of a property to attract and retain tenants. Commercial mortgage-backed
securities may be less liquid and exhibit greater price volatility than other
types of mortgage-related or asset-backed securities.
Mortgage-Related Securities include securities other than those described above
that directly or indirectly represent a participation in, or are secured by and
payable from, mortgage loans on real property, such as mortgage dollar rolls
(see "Reverse Repurchase Agreements and Dollar Roll Arrangements"), CMO
residuals or stripped mortgage-backed securities ("SMBS"), and may be structured
in classes with rights to receive varying proportions of principal and interest.
A common type of SMBS will have one class receiving some of the interest and
most of the principal from the mortgage assets, while the other class will
receive most of the interest and the remainder of the principal. In the most
extreme case, one class will receive all of the interest (the interest-only, or
"IO" class), while the other class will receive all of the principal (the
principal-only, or "PO" class). The yield to maturity on an IO class is
extremely sensitive to the rate of principal payments (including prepayments) on
the related underlying mortgage assets, and a rapid rate of principal payments
may have a material adverse effect on The Global Fund's yield to maturity from
these securities. The Global Fund will not invest more than 5% of its net assets
in any combination of IO, PO, or inverse floater securities. The Global Fund may
invest in other asset-backed securities that have been offered to investors. For
a discussion of the characteristics of some of these instruments, see the
Statement of Additional Information.
Repurchase Agreements
Securities held by the Funds may be subject to repurchase agreements. Under the
terms of a repurchase agreement, a Fund would acquire securities from financial
institutions, subject to the seller's agreement to repurchase such securities at
a mutually agreed upon date and price, which includes interest negotiated on the
basis of current short-term rates. The seller under a repurchase agreement will
be required to maintain at all times the value of collateral held pursuant to
the agreement at not less than the repurchase price (including accrued
interest). If a seller defaults on its repurchase obligations, a Fund may suffer
a loss in disposing of the security subject to the repurchase agreement.
Reverse Repurchase Agreements and Dollar Roll Agreements
Each of the Funds may also borrow funds by entering into reverse repurchase
agreements and dollar roll agreements in accordance with applicable investment
restrictions. Pursuant to such agreements, a Fund would sell portfolio
securities to financial institutions such as banks and broker-dealers, and agree
to repurchase them, or substantially similar securities in the case of a dollar
roll agreement, at a mutually agreed-upon date and price. A dollar roll
agreement is identical to a reverse repurchase agreement except for the fact
that substantially similar securities may be repurchased. At the time a Fund
enters into a reverse repurchase agreement or dollar roll agreement, it will
place in a segregated custodial account assets such as U.S. Government
securities or other liquid high grade debt securities consistent with the Fund's
investment restrictions having a value equal to the repurchase price (including
accrued interest) , and will subsequently continually monitor the account to
ensure that such equivalent value is maintained at all times. Reverse repurchase
agreements and dollar roll agreements involve the risk that the market value of
the securities sold by a Fund may decline below the price at which the Fund is
obligated to repurchase the securities.
Certificates of Deposit and Time Deposits
The Global Fund may invest in certificates of deposit and time deposits of
domestic and foreign banks and savings and loan associations if (a) at the time
of investment the depository institution has capital, surplus, and undivided
profits in excess of $100,000,000 (as of the date of its most recently published
financial statements), or (b) the principal amount of the instrument is insured
in full by the Federal Deposit Insurance Corporation.
Commercial Paper
The Global Fund may invest in short-term promissory notes issued by corporations
(including variable amount master demand notes) rated at the time of purchase
within the two highest categories assigned by an NRSRO (e.g., A-2 or better by
S&P, Prime-2 or better by Moody's or F-2 or better by Fitch) or, if not rated,
found by the Company pursuant to guidelines adopted by the Board of Directors to
be of comparable quality to instruments that are so rated. Instruments may be
purchased in reliance upon a rating only when the rating organization is not
affiliated with the issuer or guarantor of the instrument.
Derivative Instruments
The Global Fund may purchase and write call and put options on securities,
securities indexed and foreign currencies, and enter into futures contracts and
use options on futures contracts as further described below. The Global Fund may
also enter into swap agreements with respect to foreign currencies, interest
rates, and securities indexes. The Global Fund may use these techniques to hedge
against changes in interest rates, foreign currency exchange rates or securities
prices or as part of their overall investment strategies. The Global Fund may
also purchase and sell options relating to foreign currencies for purposes of
increasing exposure to a foreign currency or to shift exposure to foreign
currency fluctuations from one country to another. The Global Fund will maintain
a segregated account consisting of assets determined to be liquid by the Advisor
in accordance with procedures established by the Board of Directors (or, as
permitted by applicable regulation, enter into certain offsetting positions) to
cover its obligations under options, futures, and swaps to avoid leveraging of
The Global Fund.
The Global Fund considers derivative instruments to consist of securities or
other instruments whose value is derived from or related to the value of some
other instrument or asset, and not to include those securities whose payment of
principal and/or interest depends upon cash flows from underlying assets, such
as mortgage-related or asset-backed securities. The value of some derivative
instruments in which The Global Fund invests may be particularly sensitive to
changes in prevailing interest rates, and, like the other investments of the
Fund, the ability of a fund to successfully utilize these instruments may depend
in part upon the ability of the Advisor to forecast interest rates and other
economic factors correctly. If the Advisor incorrectly forecasts such factors
and has taken positions in derivative instruments contrary to prevailing market
trends, The Global Fund could be exposed to the risk of loss. The Global Fund
might not employ any of the strategies described below, and no assurance can be
given that any strategy used will succeed.
Options on Securities, Securities Indexes, and Currencies. The Global Fund may
purchase put options on securities and indexes. One purpose of purchasing put
options is to protect holdings in an underlying or related security against a
substantial decline in market value. The Global Fund may also purchase call
options on securities and indexes. One purpose of purchasing call options is to
protect against substantial increases in prices of securities. The Global Fund
intends to purchase pending its ability to invest in such securities in an
orderly manner. An option on a security (or index) is a contract that gives the
holder of the option, in return for a premium, the right to buy from (in the
case of a call) or sell to (in the case of a put) the writer of the option the
security underlying the option (or the cash value of the index) at a specified
exercise price at any time during the term of the option. The writer of an
option on a security has the obligation upon exercise of the option to deliver
the underlying security upon payment of the exercise price or to pay the
exercise price upon delivery of the underlying security. Upon exercise, the
writer of an option on an index is obligated to pay the difference between the
cash value of the index and the exercise price multiplied by the specified
multiplier for the index option. An index is designed to reflect specified
facets of a particular financial or securities market, a specific group of
financial instruments or securities, or certain economic indicators.
The Global Fund may sell put or call options it has previously purchased, which
could result in a net gain or loss depending on whether the amount realized on
the sale is more or less than the premium and other transaction costs paid on
the put or call option which is sold. The Global Fund may write a call or put
option only if the option is "covered" by The Global Fund holding a position in
the underlying securities or by other means which would permit immediate
satisfaction of The Global Fund's obligation as writer of the option. Prior to
exercise or expiration, an option may be closed out by an offsetting purchase or
sale of an option of the same series.
The Global Fund may write covered straddles consisting of a combination of a
call and a put written on the same underlying security. A straddle will be
covered when sufficient assets are deposited to meet The Global Fund's immediate
obligations. The Global Fund may use the same liquid assets to cover both the
call and put options where the exercise price of the call and put are the same,
or the exercise price of the call is higher than that of the put. In such cases,
The Global Fund will also segregate liquid assets equivalent to the amount, if
any, by which the put is "in the money."
The purchase and writing of options involves certain risks. During the option
period, the covered call writer has, in return for the premium on the option,
given up the opportunity to profit from a price increase in the underlying
security above the exercise price, but, as long as its obligation as a writer
continues, has retained the risk of loss should the price of the underlying
security decline. The writer of an option has no control over the time when it
may be required to fulfill its obligation as a writer of the option. Once an
option writer has received an exercise notice, it cannot effect a closing
purchase transaction in order to terminate its obligation under the option and
must deliver the underlying security at the exercise price. If a put or call
option purchased by The Global Fund is not sold when it has remaining value, and
if the market price of the underlying security remains equal to or greater than
the exercise price (in the case of a put), or remains less than or equal to the
exercise price (in the case of a call), The Global Fund will lose its entire
investment in the option. Also, where a put or call option on a particular
security is purchased to hedge against price movements in a related security,
the price of the put or call option may move more or less than the price of the
related security. There can be no assurances that a liquid market will exist
when The Global Fund seeks to close out an option position. Furthermore, if
trading restrictions or suspensions are imposed on the options markets, The
Global Fund may be unable to close out a position.
Funds that invest in foreign currency-denominated securities may buy or sell put
and call options on foreign currencies. Currency options traded on U.S. or other
exchanges may be subject to position limits which may limit the ability of The
Global Fund to reduce foreign currency risk using such options. Over-the-counter
options differ from traded options in that they are two-party contracts, with
price and other terms negotiated between buyer and seller, and generally do not
have as much market liquidity as exchange-traded options. The Global Fund may be
required to treat as illiquid over-the-counter options purchased and securities
being used to cover certain written over-the-counter options.
Swap Agreements. The Global Fund may enter into interest rate, index, equity and
currency exchange rate swap agreements. These transactions would be entered into
in an attempt to obtain a particular return when it is considered desirable to
do so, possibly at a lower cost to The Global Fund than if The Global Fund had
invested directly in the asset that yielded the desired return. Swap agreements
are two-party contracts entered into primarily by institutional investors for
periods ranging from a few weeks to more than one year. In a standard swap
transaction, two parties agree to exchange the returns (or differentials in
rates of return) earned or realized on particular predetermined investments or
instruments, which may be adjusted for an interest factor. The gross returns to
be exchanged or "swapped" between the parties are generally calculated with
respect to a "normal amount," i.e., the return on or increase in value of a
particular dollar amount invested at a particular interest rate, in a particular
foreign currency, or in a "basket" of securities representing a particular
index. Forms of swap agreements include interest rate caps, under which, in
return for a premium, one party agrees to make payments to the other to the
extent that interest rates exceed a specified rate, or "cap;" interest rate
floors, under which, in return for a premium, one party agrees to make payments
to the other tot he extent that interest rates fall below a specified level, or
"floor;" and interest rate collars, under which a party sells a cap and
purchases a floor or vice versa in an attempt to protect itself against interest
rate movements exceeding given minimum or maximum levels.
Futures Contracts and Options on Futures Contracts. The Global Fund may invest
in foreign currency futures contracts and options thereon, interest rate, stock
index and foreign currency futures contracts and options thereon.
There are several risks associated with the use of futures and futures options
for hedging purposes. There can be no guarantee that there will be a correlation
between price movements in the hedging vehicle and in the portfolio securities
being hedged. An incorrect correlation could result in a loss on both the hedged
securities in The Global Fund and the hedging vehicle so that the portfolio
return might have been greater had hedging not been attempted. There can be no
assurance that a liquid market will exist at a time when The Global Fund seeks
to close out a futures contract or a futures option position. Most futures
exchanges and boards of trade limit the amount of fluctuation permitted in
futures contract prices during a single day; once the daily limit has been
reached on a particular contract, no trades may be made that day at a price
beyond that limit. In addition, certain of these instruments are relatively new
and without a significant trading history. As a result, there is no assurance
that an active secondary market will develop or continue to exist. Lack of a
liquid market for any reason may prevent The Global Fund from liquidating an
unfavorable position, and The Global Fund would remain obligated to meet margin
requirements until the position is closed.
The Global Fund may write covered straddles consisting of a call and a put
written on the same underlying futures contract. A straddle will be covered when
sufficient assets are deposited to meet The Global Fund's immediate obligations.
The Global Fund may use the same liquid assets to cover both the call and put
options where the exercise price of the call and put are the same, or the
exercise price of the call is higher than that of the put. In such cases, The
Global Fund will also segregate liquid asset equivalent to the amount, if any,
by which the put is "in the money."
The Global Fund will only enter into futures contracts or futures options which
are standardized and traded on a U.S. or foreign exchange or board of trade, or
similar entity, or quoted on an automated quotation system. The Global Fund will
use financial futures contracts and related options only for "bona fide hedging"
purposes, as such term is defined in applicable regulations of the Commodity
Futures Trading Commission ("CFTC"), or, with respect to positions in financial
futures and related options that do not qualify as "bona fide hedging" position,
will enter such positions only to the extent that aggregate initial margin
deposits plus premiums paid by it for open futures option positions, less the
amount by which any such positions are `in-the-money," would not exceed 5% of
The Global Fund's net assets.
When-Issued and Delayed-Delivery Transactions
Each Fund may each purchase securities on a when-issued or delayed-delivery
basis. A Fund will engage in when-issued and delayed-delivery transactions only
for the purpose of acquiring portfolio securities consistent with its investment
objective and policies, not for investment leverage. When-issued securities are
securities purchased for delivery beyond the normal settlement date at a stated
price and yield and thereby involve a risk that the yield obtained in the
transaction will be less than that available in the market when delivery takes
place. A Fund will not pay for such securities or start earning interest on them
until they are received. When a Fund agrees to purchase securities, its
Custodian will set aside cash or liquid securities equal to the amount of the
commitment in a segregated account. Securities purchased on a when-issued basis
are recorded as an asset and are subject to changes in value based upon changes
in the general level of interest rates. In when-issued and delayed-delivery
transactions, a Fund relies on the seller to complete the transaction; the
seller's failure to do so may cause such Fund to miss a price or yield
considered to be advantageous.
Securities Issued by Other Investment Companies
Each Fund may invest up to 10% of its total assets in shares of money market
mutual funds for cash management purposes. A Fund will incur additional expenses
due to the duplication of expenses as a result of investing in other investment
companies.
Lending of Portfolio Securities
In order to generate additional income, the Funds from time to time may lend
portfolio securities to broker-dealers, banks or institutional borrowers of
securities. The Funds must receive 102% collateral in the form of cash or U.S.
Government securities. This collateral must be valued daily and, should the
market value of the loaned securities increase, the borrower must furnish
additional collateral to the Funds. During the time portfolio securities are on
loan, the borrower pays the Funds any dividends or interest paid on such
securities. Loans are subject to termination by the Funds or the borrower at any
time. While the Funds do not have the right to vote securities on loan, they
intend to terminate the loan and regain the right to vote if that is considered
important with respect to the investment. In the event the borrower defaults on
its obligation to a Fund, the Fund could experience delays in recovering its
securities and possible capital losses. The Funds will only enter into loan
arrangements with broker-dealers, banks or other institutions which the Advisor
has determined to be creditworthy under guidelines established by the Board of
Directors that permit each Fund to loan up to 33-1/3% of the value of its total
assets.
Illiquid Securities
The Global Fund may invest up to 15% of its net assets in illiquid securities
(10% in the case of The Money Market Fund). Certain illiquid securities may
require pricing at fair value as determined in good faith under the supervision
of the Board of Directors. The Advisors may be subject to significant delays in
disposing of illiquid securities, and transactions in illiquid securities may
entail registration expenses and other transaction costs that are higher than
transactions in liquid securities. The term "illiquid securities" for this
purpose means securities that cannot be disposed of within seven days in the
ordinary course of business at approximately the amount at which a Fund has
valued the securities. Illiquid securities are considered to include, among
other things, written over-the-counter options, securities or other liquid
assets being used as cover for such options, repurchase agreements with
maturities in excess of seven days, certain loan participation interests, fixed
time deposits which are not subject to prepayment or provide for withdrawal
penalties upon prepayment (other than overnight deposits), securities that are
subject to legal or contractual restrictions on resale and other securities
whose disposition is restricted under the federal securities laws (other than
securities issued pursuant to Rule 144A under the Securities Act of 1933, as
amended, and certain commercial paper that an Advisor has determined to be
liquid under procedures approved by the Board of Directors).
Illiquid securities may include privately placed securities, which are sold
directly to a small number of investors, usually institutions. Unlike public
offerings, such securities are not registered under the federal securities laws.
Although certain of these securities may be readily sold, for example, under
Rule 144A, others may be illiquid, and their sale may involve substantial delays
and additional costs.
* * * * *
INVESTMENT RESTRICTIONS
The following restrictions are fundamental policies of each Fund that may not be
changed without the approval of the holders of a majority of a Fund's
outstanding voting securities. A majority of a Fund's outstanding voting
securities means the lesser of (a) 67% or more of the voting securities present
at a meeting if the holders of more than 50% of the outstanding voting
securities are present or represented by proxy or (b) more than 50% of the
outstanding voting securities. If a percentage restriction on investment or use
of assets set forth below is adhered to at the time a transaction is effected,
later changes will not be considered a violation of the restriction. Also, if a
Fund receives from an issuer of securities held by a Fund subscription rights to
purchase securities of that issuer, and if a Fund exercises such subscription
rights at a time when the Fund's portfolio holdings of securities of that issuer
would otherwise exceed the limits set forth in paragraph 1 below, it will not
constitute a violation if, prior to receipt of securities upon exercise of such
rights, and after announcement of such rights, a Fund has sold at least as many
securities of the same class and value as it would receive on exercise of such
rights. As a matter of fundamental policy, the Funds may not:
(1) invest 25% or more of the total value of their assets in a particular
industry;
(2) issue senior securities or borrow money, except to the extent
permitted by the Investment Company Act of 1940; short-term credits
necessary for settlement of securities transactions are not considered
borrowings or senior securities;
(3) purchase or sell commodities or commodity contracts, except that a
Fund may engage in futures transactions as described in this
Prospectus;
(4) make loans, except that a Fund may (a) purchase and hold debt
instruments (including bonds, debentures or other obligations and
certificates of deposit, bankers' acceptances and fixed time deposits)
in accordance with its investment objectives and policies, (b) invest
in loans through Participations and Assignments, (c) enter into
repurchase agreements with respect to portfolio securities, and (d)
make loans of portfolio securities, as described in this Prospectus;
(5) underwrite the securities of other issuers, except to the extent that,
in connection with the disposition of portfolio securities, the Fund
may be deemed to be an underwriter;
(6) purchase real estate, real estate mortgage loans or real estate
limited partnership interests (other than securities secured by real
estate or interests therein or securities issued by companies that
invest in real estate or interests therein); or
(7) purchase securities on margin (except for delayed delivery or
when-issued transactions or such short-term credits as are necessary
for the clearance of transactions).
VALUATION OF SHARES
The net asset value of each Fund is determined and its Shares are priced as of
the close of regular trading on the New York Stock Exchange ("NYSE") (generally
4:00 p.m. Eastern Time) on each Business Day ("Valuation Time"). As used herein
a "Business Day" is a day on which the NYSE is open for trading, the Federal
Reserve Bank of San Francisco is open, and any other day except days on which
there are insufficient changes in the value of a Fund's portfolio securities to
materially affect the Fund's net asset value or days on which no Shares are
tendered for redemption and no order to purchase any Shares is received.
Currently, the NYSE or the Federal Reserve Bank of San Francisco is closed on
the following holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas.
The net asset value per Share of The Global Fund will fluctuate as the value of
the Fund's investments change. Net asset value per Share for The Global Fund for
purposes of pricing sales and redemptions is calculated by dividing the value of
all securities and other assets belonging to the Fund, less the liabilities
charged to that Fund by the number of such Fund's outstanding Shares. The assets
in The Money Market Fund are valued based upon the amortized cost method.
Pursuant to the rules and regulations of the Securities and Exchange Commission
regarding the use of the amortized cost method, The Money Market Fund will
maintain a dollar-weighted average portfolio maturity of 90 days or less.
Although The Money Market Fund seeks to maintain its net asset value per Share
at $1.00, there can be no assurance that the net asset value per Share will not
vary.
PURCHASING SHARES
Shares of the Funds may be purchased through various procedures established by
the Distributor. Shares may be purchased through a broker-dealer who has
established a dealer agreement with the Distributor. In addition, Shares of each
Fund are continuously offered and may be purchased either by mail, by telephone,
or by wire. There are no initial purchase fees for shares of either Fund.
Purchases of Shares of the Funds will be executed at the next calculated net
asset value per Share ("public offering price") following the receipt by the
Company or its agents of an order to purchase Shares in good form. In the case
of orders for the purchase of Shares placed through a broker-dealer, the
applicable public offering price will be the net asset value as so determined,
but only if the dealer receives the order prior to the next Valuation Time for
that day and transmits it to the Company by that Valuation Time. The
broker-dealer is responsible for transmitting such orders promptly. If the
broker-dealer fails to do so, the investor's right to that day's closing price
must be settled between the investor and the broker-dealer. Purchases of Shares
in any of the Funds will be effected only on a Business Day of the Funds. An
order received prior to a Valuation Time on any Business Day will be executed at
the net asset value determined as of the next Valuation Time on the date of
receipt. An order received after the final Valuation Time on any Business Day
will be executed at the net asset value determined as of the next Valuation Time
on the next Business Day of that Fund.
Depending upon the terms of a particular Shareholder account, a Shareholder may
be charged account fees for services provided in connection with investment in a
Fund. Information concerning these services and any charges may be obtained from
the Company, Distributor or dealer assessing the charges. This Prospectus should
be read in conjunction with any such information so received.
The Company reserves the right to reject any order for the purchase of its
Shares in whole or in part, including purchases made through the use of third
party checks and drafts drawn on foreign financial institutions.
Every Shareholder will receive a confirmation of, or account statement
reflecting, each new transaction in the Shareholder's account, which will also
show the total number of Shares of the respective Fund owned by the Shareholder.
Shareholders may rely on these statements in lieu of certificates. Certificates
representing Shares of the Funds will not be issued.
EXCHANGE PRIVILEGE
Shares of either of the Funds may be exchanged for Shares in The Money Market or
The Global Fund.
All exchanges will be subject to a fee of _________. An exchange may be made by
written instruction or, if a written authorization for telephone exchanges is on
file with the Business Manger by calling ___________________. Under certain
circumstances, before an exchange can be made, additional documents may be
required to verify the authority or legal capacity of the person seeking the
exchange. Exchanges must be for amounts of at least $1,000. In order to make an
exchange into a new account, the exchange must satisfy the applicable minimum
initial investment requirement. Exchange requests cannot be revoked once they
have been received in good order. This exchange privilege is available only in
states where Shares of the Funds being acquired may legally be sold and may be
modified, limited or terminated at any time by the Funds upon 60 days' written
notice.
Investors should not view the exchange privilege as a means for taking advantage
of short-term swings in the market, and the Funds limit the number of exchanges
each shareholder may make to four exchanges per account (or two rounds trips)
per calendar year. The Company also reserves the right to prohibit exchanges
during the first 15 days following an investment in a Fund. The Company may
terminate or change the terms of the exchange privilege. In general,
shareholders will receive notice of any material change to the exchange
privilege at least 60 days prior to the change. For federal income tax purposes,
an exchange constitutes a sale of shares, which may result in a capital gain or
loss.
REDEEMING SHARES
Shareholders may redeem their Shares on any day that net asset value is
calculated (see "VALUATION OF SHARES"). Redemptions will be effected at the net
asset value per Share next determined after receipt of a redemption request by
the Distributor or the Company or its agents. Redemptions may be made check,
wire transfer, credit or debit card, by telephone or by mail.
By Wire Transfer
If a Shareholder has given authorization for expedited wire redemption, shares
can be redeemed and the proceeds sent by federal wire transfer to a single
previously designated bank account. Requests received by the Company prior to
the close of the Exchange will result in shares being redeemed that day at the
next determined net asset value and normally the proceeds being sent to the
designated bank account the following business day. The bank must be a member of
the Federal Reserve wire system. Delivery of the proceeds of a wire redemption
request may be delayed by the Company for up to 7 days if the Distributor deems
it appropriate under then current market conditions. Once authorization is on
file, the Company will honor requests by any person identifying him or herself
as the owner of an account or the owner's broker by telephone at ______________
or by written instructions. The Company cannot be responsible for the efficiency
of the Federal Reserve wire system or the Shareholder's bank. The Shareholder is
responsible for any charges imposed by the Shareholder's bank. The minimum
amount that may be wired is $2,500. The Company reserves the right to change
this minimum or to terminate the wire redemption privilege. Shares purchased by
check may not be redeemed by wire transfer until such shares have been owned
(i.e., paid for) for at least 15 days. Expedited wire transfer redemptions may
be authorized by completing a form available from the Distributor. Wire
redemptions may not be used to redeem shares in certificated form. To change the
name of the single bank account designated to receive wire redemption proceeds,
it is necessary to send a written request with signatures guaranteed to
___________________________________________________________. This redemption
option does not apply to shares held in broker "street name" accounts. A wire
transfer fee will be charged by the Fund. See "FEE TABLES."
By Telephone
Shares may be redeemed by telephone if the Account Application Form reflects
that the Shareholder has elected that privilege. If the telephone feature was
not originally selected, the Shareholder must provide written instructions to
the Company to add it. The Shareholder may have the proceeds mailed to his or
her address or mailed or wired to a commercial bank account previously
designated on the Account Application Form. Under most circumstances, payments
will be transmitted on the next Business Day. Wire redemption requests may be
made by the Shareholder by telephone to the Company at _______________. A
redemption fee will be charged to Shareholders who place redemption orders
directly with the Fund or its Transfer Agent. See "FEE TABLES."
The Company's Account Application Form provides that none of the Business
Manager, the Transfer Agent, the Advisors, the Company or any of their
affiliates or agents will be liable for any loss, expense or cost when acting
upon any oral, wired or electronically transmitted instructions or inquiries
believed by them to be genuine. While precautions will be taken, as more fully
described below, Shareholders bear the risk of any loss as the result of
unauthorized telephone redemptions or exchanges believed by the Transfer Agent
to be genuine. The Company will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. These procedures include
recording all phone conversations, sending confirmations to Shareholders within
72 hours of the telephone transaction, verifying the account name and sending
redemption proceeds only to the address of record or to a previously authorized
bank account. If a Shareholder is unable to contact the Funds by telephone, a
Shareholder may also mail the redemption request to the Distributor at the
address above.
By Mail
A written request for redemption must be received by the Transfer Agent in order
to honor the request. A redemption fee will be charged. See "FEE TABLES." The
Transfer Agent's address is: First Data Investor Services Group, Inc., 53 State
Street, Boston, Massachusetts 02109. The Transfer Agent will require a signature
guarantee by an eligible guarantor institution. The signature guarantee
requirement will be waived if all of the following conditions apply: (1) the
redemption check is payable to the Shareholder(s) of record, and (2) the
redemption check is mailed to the Shareholder(s) at the address of record. The
Shareholder may also have the proceeds mailed to a commercial bank account
previously designated on the Account Application Form. There is no charge for
having redemption proceeds mailed to a designated bank account. To change the
address to which a redemption check is to be mailed, a written request therefor
must be received by the Transfer Agent. In connection with such request, the
Transfer Agent will require a signature guarantee by an eligible guarantor
institution.
For purposes of this policy, the term "eligible guarantor institution" shall
include banks, brokers, dealers, credit unions, securities exchanges and
associations, clearing agencies and savings associations as those terms are
defined in the Securities Exchange Act of 1934. The Transfer Agent reserves the
right to reject any signature guarantee if (1) it has reason to believe that the
signature is not genuine, (2) it has reason to believe that the transaction
would otherwise be improper, or (3) the guarantor institution is a broker or
dealer that is neither a member of a clearing corporation nor maintains net
capital of at least $100,000.
Payments to Shareholders
Redemption orders are effected at the net asset value per Share next determined
after the Shares are properly tendered for redemption, as described above.
Payment to Shareholders for Shares redeemed will be made within the settlement
requirements defined in the Securities Exchange Act of 1934 after receipt of the
request for redemption. However, to the greatest extent possible, requests from
Shareholders of Shares for next Business Day payments upon redemption of Shares
will be honored if received in good form by the Transfer Agent before _____ a.m.
Eastern Time on a Business Day or, if received after the _____ a.m. Eastern
Time, within two Business Days, unless it would be disadvantageous to that Fund
or its Shareholders to sell or liquidate portfolio securities in an amount
sufficient to satisfy requests for payments in that manner.
At various times, the Company may be requested to redeem Shares for which it has
not yet received good payment. In such circumstances, the forwarding of proceeds
may be delayed until payment has been collected for the purchase of such Shares,
which delay may be for 15 days or more. Such delay may be avoided if Shares are
purchased by wire transfer of federal funds. The Company intends to pay cash for
all Shares redeemed, but under abnormal conditions which make payment in cash
unwise, payment may be made wholly or partly in portfolio securities at their
then market value equal to the redemption price. In such cases, an investor may
incur brokerage costs in converting such securities to cash.
See "ADDITIONAL PURCHASE AND REDEMPTION INFORMATION -- Matters Affecting
Redemption" and "ADDITIONAL PURCHASE AND REDEMPTION INFORMATION - Net Asset
Value" in the SAI for examples of when the Company may suspend the right of
redemption or redeem Shares involuntarily.
MANAGEMENT OF THE FUNDS
Directors
Overall responsibility for management of the Funds rests with the Directors of
the Company, who are elected by the Shareholders of the Company. The Company
will be managed by the Directors in accordance with the laws of the State of
Maryland governing corporations. There are currently ______ directors, three of
whom are not "interested persons" of the Company within the meaning of that term
under the 1940 Act. The Directors, in turn, elect the officers of the Company to
supervise its day-to-day operations.
Investment Advisors
The Global Fund has three investment advisors.
BZW Barclays Global Fund Advisors, Inc. ("Barclays") serves as investment
advisor for The Global Fund's investments in U.S. equity instruments. Barclays,
a registered investment advisor under the Investment Advisers Act of 1940, is an
operating subsidiary of Barclays Global Investors N.A. ("BGI"), a limited
purpose national banking association. BGI is a wholly owned indirect subsidiary
of Barclays Bank PLC. BGFA is located at 45 Fremont Street, San Francisco,
California 94105. As of July 1997, BGFA and its affiliates provided investment
advisory services for over $465 billion of assets. BGFA uses a team management
approach to manage investment portfolios.
Templeton Investment Counsel, Inc. (Templeton") acts as investment advisor for
The Global Fund's non-U.S. equity investments. Templeton is an indirect wholly
owned subsidiary of Franklin Resources, Inc. ("Franklin"), a publicly owned
company. Through its subsidiaries, Franklin is engaged in various aspects of the
financial services industry. Templeton and its affiliates serve as advisors for
a wide variety of public investment mutual funds and private clients in many
nations and manage over $172 billion in assets. The Templeton organization has
been investing globally since 1940. Templeton and its affiliates have offices in
Argentina, Australia, Bahamas, Canada, France, Germany, Hong Kong, India, Italy,
Luxembourg, Poland, Russia, Scotland, Singapore, South Africa, the United
States, and Vietnam. Its principal business address is 500 East Broward
Boulevard, Suite 2100, Fort Lauderdale, Florida 33394.
Templeton uses a disciplined, long-term approach to value-oriented global and
international investing. It has an extensive global network of investment
research sources. Securities are selected for The Global Fund's portfolio on the
basis of fundamental company-by-company analysis. Many different selection
methods are used for different funds and clients and these methods are changed
and improved by Templeton's research on superior selection methods.
Pacific Investment Management Company ("PIMCO") serves as investment advisor
pursuant to an investment advisory contract for The Global Fund's investments in
fixed income and other debt securities. PIMCO is an investment counseling firm
founded in 1971, and had approximately $105 billion in assets under management
as of August 31, 1997. PIMCO is a subsidiary partnership of IMCO Advisors L.P.
("PIMCO Advisors"). A majority interest in PIMCO Advisors is held by PIMCO
Partners, G.P., a general partnership between Pacific Investment Management
Company, a California corporation and indirect wholly owned subsidiary of
Pacific Life Insurance Company ("Pacific Life"), and PIMCO Partners, LLC, a
limited liability company controlled by the PIMCO Managing Directors. PIMCO's
address is 840 Newport Center Drive, Suite 360, Newport Beach, California 92660.
PIMCO is registered as an investment adviser with the Securities and Exchange
Commission ("SEC") and as a commodity trading advisor with the CFTC.
The Portfolio Manager for PIMCO's duties on behalf of The Global Fund is Lee R.
Thomas, III, Managing Director and Senior International Portfolio Manager,
PIMCO. A Fixed Income Portfolio Manager, Mr. Thomas has managed the PIMCO
Foreign Bond, Global Bond and International Bond Funds since July 13, 1995, and
the PIMCO Global Bond Fund II since October 1, 1995. Prior to joining PIMCO in
1995, Mr. Thomas was associated with Investcorp as a member of the management
committee responsible for global securities and foreign exchange trading. Prior
to Investcorp, he was associated with Goldman Sachs as an Executive Director in
foreign fixed income.
The Money Market Fund has one investment advisor, _____________ (Templeton,
PIMCO, Barclays, and ___________ are referred to collectively herein as the
"Investment Advisors" or the "Advisors"). Subject to the general supervision of
the Company's Board of Directors and in accordance with the investment
objective, policies and restrictions of each Fund, the Advisors manage the
Funds, make decisions with respect to and place orders for all purchases and
sales of their portfolio securities.
For the services provided pursuant to their Investment Advisory or Management
Agreements with the Company, the Advisors receive a fee from the Funds which
they advise. The fee is computed daily and paid quarterly and is computed as a
percentage of the Fund's average daily net assets for which the Advisor has
investment management responsibility. The Global Fund pays Barclays at a rate of
0.37 1/2% on the first $100 million under management, 0.30% on the next $400
million under management and 0.25% on amounts over $500 million. The Global Fund
pays Templeton at a rate of 0.70% on amounts up to $25 million, 0.55% on the
next $25 million, 0.50% on the next $50 million, 0.40% on the next $150 million,
0.35% on the next $250 million and 0.30% on amounts over $500 million. The
Global Fund pays PIMCO at a rate of 0.35% on amounts up to $200 million and
0.30% on amounts over $200 million.
The Business Manager
Pursuant to an agreement with the Funds (the "Business Manager"), Sutton Place
Management Co., Inc. (the "Business Manager") provides the facilities and
services required to carry on the Funds' general administrative and corporate
affairs. The Business Manager maintains its principal business at 433 California
Street, Suite 904, San Francisco, California 94104.
The Business Management Agreement provides that the Funds will pay the Business
Manager a fee of 0.30% per annum of each Fund's average daily net assets. The
fee is computed daily and paid monthly.
Other Service Providers
First Data Investor Services Group, Inc. serves as the Funds' distributor,
administrator, transfer agent and dividend disbursing agent and also provides
certain accounting services for each of the Funds. The Distributor acts as agent
for the Funds in the distribution of each of their Shares and, in such capacity,
solicits orders for the sale of Shares, advertises, and pays the cost of
advertising, office space and its personnel involved in such activities. Under
its Distribution Agreement with the Company, the Distributor may retain some of
all of any sales charge imposed upon the Shares.
Arthur Andersen LLP serves as independent auditors for the Company.
______________________ is the Funds' custodian. See "MANAGEMENT OF THE FUNDS" in
the SAI for further information.
The Funds pay all expenses not assumed by the Advisors or Business Manager.
Expenses paid by each Fund include custodian, stock transfer and dividend
disbursing fees and accounting and recordkeeping expenses; shareholder service
expenses pursuant to a Shareholder Service Plan; costs of designing, printing
and mailing reports, prospectuses, proxy statement and notices to its
shareholders; taxes and insurance; expenses of the issuance, sale or repurchase
of shares of the Funds (including federal and state registration and
qualification expenses); legal and auditing fees and expenses; compensation,
fees and expenses paid to Directors who are not interested persons of the Fund;
association dues; and costs of stationary and forms prepared exclusively for the
Funds.
Portfolio Transactions
Pursuant to the Investment Advisory Agreements, each Advisor places orders for
the purchase and sale of portfolio investments with brokers or dealers selected
by the Advisor in its discretion. Broker-dealers selected to execute portfolio
transactions for the Funds may include affiliates of the Company, or the
Advisor, provided the brokerage commission for any such transaction does not
exceed usual and customary levels.
SHAREHOLDER SERVICE PLAN
The Company has adopted a Shareholder Service Plan (the "Plan") with respect to
the Shares of each Fund. Pursuant to the Plan, each Fund is authorized to pay
third party service providers for certain expenses that are incurred in
connection with providing services to shareholders. Payments under the Plan will
be calculated daily and paid monthly at an annual rate not to exceed 0.35% of
the average daily net assets of the Fund.
Payments under the Plan may be used to pay banks and their affiliates and other
institutions, including broker-dealers (each a "Participating Organization"),
for administrative and/or shareholder service assistance. Such Participating
Organizations will be compensated at an annual rate of up to 0.35% of the
average daily net assets of the Shares held of record or beneficially by such
customers. Payments pursuant to the Plan will be used to compensate
Participating Organizations for providing Shareholder services with respect to
their Customers who are, from time to time, beneficial or record holders of
Shares.
Fees paid pursuant to the Plan are accrued daily and paid monthly, and are
charged as expenses of Shares of a Fund as accrued.
The Plan may be terminated by a vote of a majority of the Directors who are not
"interested persons" (as defined in the 1940 Act) of the Company and who have no
direct or indirect financial interest in the operation of the Plan or in any
agreements related to the Plan ("Independent Directors"), or by a vote of a
majority of the holders of the outstanding voting securities of the class of
Shares subject thereto.
DIVIDENDS AND TAXES
The net investment income, including short-term capital gains, of The Money
Market Fund is declared daily as a dividend to Shareholders of that Fund and
paid monthly. The Global Fund expects to pay dividends of net investment income
at least semi-annually and to distribute capital gains annually. A Shareholder
will automatically receive all income, dividends and capital gains distributions
in additional full and fractional Shares at net asset value as of the date of
declaration, unless the Shareholder elects to receive dividends or distributions
in cash. Such election, or any revocation thereof, must be made in writing to
the Transfer Agent at First Data Investor Services Group, Inc., 53 State Street,
Boston, Massachusetts 02109, and will become effective with respect to dividends
and distributions having record dates after its receipt by the Transfer Agent.
Federal Taxes
Each Fund intends to qualify annually and elect to be treated as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
"Code"), so that it generally will not be subject to federal income tax on its
taxable income and gains that are distributed to Shareholders. In order to avoid
a 4% federal excise tax, each Fund intends to distribute each calendar year
substantially all of its taxable income and gains.
Distributions from a Fund's investment company taxable income (which includes,
among other items, dividends, taxable interest and the excess, if any, of net
short-term capital gains over net long-term capital losses) are taxable to
Shareholders as ordinary income. Distributions of net capital gains (the excess
of net long-term capital gains over net short-term capital losses), if any,
designated by a Fund as capital gain dividends, are taxable as long-term capital
gains, regardless of how long the Shareholder has held the Fund's Shares, and
capital gain distributions are not eligible for the dividends-received
deduction. Distributions are taxable to Shareholders regardless of whether
amounts distributed are received in cash or reinvested.
Certain dividends declared by a Fund in October, November or December and paid
during the following January will be treated as having been received by
Shareholders on December 31 in the year the distributions were declared.
Any dividend or other distribution paid by a Fund has the effect of reducing the
net asset value per share on the record date by the amount thereof. Therefore,
in the case of The Global Fund which does not declare dividends daily, a
dividend or other distribution paid shortly after a purchase of shares would
represent, in substance, a return of capital to the shareholder (to the extent
it is paid on the shares so purchased), even though subject to income taxes.
The Global Fund may be subject to certain taxes imposed by the countries in
which it invests with respect to dividends, capital gains and interest income.
The Global Fund may, under certain circumstances, elect to treat certain of
these taxes as if paid by its shareholders. Shareholders would then be required
to include such taxes as income but may be entitled, subject to certain
limitations, to a tax credit or deduction.
Each Fund may be required to withhold federal income tax at the rate of 31% of
all taxable distributions paid to Shareholders who fail to provide a Fund with
their correct taxpayer identification number or to make required certifications
or who have been notified by the Internal Revenue Service ("IRS") that they are
subject to backup withholding. Corporate Shareholders and certain other
Shareholders specified in the Code are exempt from backup withholding. Backup
withholding is not an additional tax and any amounts withheld may be credited
against the Shareholder's federal income tax liability.
Shareholders will be furnished annually with information relating to the nature
and amounts of distributions made by a Fund.
The preceding discussion is only a summary of some of the federal income tax
considerations generally affecting the Funds and their Shareholders and does not
address every possible situation. Distributions may be subject to state, local
and foreign taxes, and non-U.S. Shareholders may be subject to U.S. tax rules
that differ significantly from those summarized herein. Prospective Shareholders
should consult their tax advisors with respect to the effect of investing in a
Fund. For additional information relating to taxes, see "TAX CONSIDERATIONS" in
the SAI.
GENERAL INFORMATION
Description of the Company and Its Shares
The Company was organized as a Maryland corporation in 1997 and consists of the
two Funds described in this prospectus. The Shares of the Funds of the Company
are currently offered in a single class. Each Share represents an equal
proportionate interest in a Fund with other Shares of the same Fund, and is
entitled to such dividends and distributions out of the income earned on the
assets belonging to that Fund as are declared at the discretion of the
Directors. Shareholders are entitled to one vote for each Share owned and will
vote in the aggregate and not by Fund except as otherwise expressly required by
law.
An annual or special meeting of Shareholders to conduct necessary business is
not required by the Articles of Incorporation, the 1940 Act or other authority
except, under certain circumstances, to elect Directors, amend the Certificate,
approve an investment advisory agreement and satisfy certain other requirements.
To the extent that such a meeting is not required, the Company may elect not to
have an annual or special meeting.
The Company will call a special meeting of Shareholders for purposes of
considering the removal of one or more Directors upon written request therefor
from Shareholders holding not less than 10% of the outstanding votes of the
Company. At such a meeting, a quorum of Shareholders (constituting a majority of
votes attributable to all outstanding Shares of the Company), by majority vote,
has the power to remove one or more Directors.
Performance Information
From time to time performance information for the Funds showing their average
annual total return, aggregate total return and/or yield may be presented in
advertisements, sales literature and Shareholder reports. Such performance
figures are based on historical earnings and are not intended to indicate future
performance.
Investors may also judge the performance of each Fund by comparing or
referencing it to the performance of other mutual funds with comparable
investment objectives and policies through various mutual fund or market indices
such as those prepared by various services, which indices may be published by
such services or by other services or publications, including, but not limited
to, ratings published by Morningstar, Inc. In addition to performance
information, general information about the Funds that appears in such
publications may be included in advertisements, in sales literature and in
reports to Shareholders. For further information regarding such services and
publications, see "CALCULATION OF PERFORMANCE DATA" in the SAI.
Total return and yield are functions of the type and quality of instruments held
in the portfolio, operating expenses, and market conditions. Any fees charged
with respect to customer accounts for investing in Shares of the Funds will not
be included in performance calculations; such fees, if charged, will reduce the
actual performance from that quoted. In addition, if _________ and _____________
voluntarily reduce all or part of their respective fees, the total return of
such Fund will be higher than it would otherwise be in the absence of such
voluntary fee reductions.
Account Services
Shareholders of the Company may obtain current price, yield and other
performance information on any of the Funds or any of the Company's funds 24
hours a day by calling ________________ from any touch-tone telephone.
Miscellaneous
Shareholders will receive unaudited semi-annual reports and annual reports
audited by independent public accountants. Inquiries regarding the Company may
be directed in writing to _______________ at
________________________________________, or by calling toll free
__________________.
No person has been authorized to give any information or to make any
representations not contained in this Prospectus in connection with the offering
made by this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the Funds
or their Distributor. This Prospectus does not constitute an offering by the
Funds or by the Distributor in any jurisdiction in which such offering may not
lawfully be made.
<PAGE>
FORWARD FUNDS, INC.
433 California Street
Suite 904
San Francisco, California 94104
415-982-2525
Statement of Additional Information
dated __, 1997
Forward Funds, Inc. (the "Company") is an open-end management investment company
commonly known as a mutual fund. The Company offers two separate diversified
investment portfolios ("Funds"), each with different investment objectives and
policies. The two Funds are The Global Fund and The Money Market Fund. There is
no assurance that the Funds will achieve their objectives.
This Statement of Additional Information is not a prospectus and it should be
read in conjunction with the Company Prospectus, dated ___, 1997 ("Prospectus"),
which has been filed with the Securities and Exchange Commission ("SEC"). Copies
of the Prospectus may be obtained at no charge by calling 415-982-2525.
TABLE OF CONTENTS
Page
ORGANIZATION OF FORWARD FUNDS, INC.....................................2
MANAGEMENT OF THE FUNDS................................................2
INVESTMENT OBJECTIVES AND POLICIES.....................................5
SUPPLEMENTAL DISCUSSION OF INVESTMENT TECHNIQUES
AND RISKS ASSOCIATED WITH THE FUNDS' INVESTMENT POLICIES AND
INVESTMENT TECHNIQUES..................................................6
PORTFOLIO TRANSACTIONS................................................12
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION........................13
DETERMINATION OF SHARE PRICE..........................................13
SHAREHOLDER SERVICES AND PRIVILEGES...................................14
DISTRIBUTIONS.........................................................15
TAX CONSIDERATIONS....................................................16
SHAREHOLDER INFORMATION...............................................19
CALCULATION OF PERFORMANCE DATA.......................................20
GENERAL INFORMATION...................................................22
FINANCIAL STATEMENTS..................................................22
<PAGE>
ORGANIZATION OF FORWARD FUNDS, INC.
Forward Funds, Inc. is an open-end management investment company which offers
two separate diversified investment portfolios, The Global Fund and The Money
Market Fund ("Funds"). The Company was incorporated in Maryland on October 3,
1997.
The authorized capital stock of the Company consists of six hundred million
shares of one class of common stock having a par value of $.001 per share. The
Board of Directors of the Company has designated the stock into two series, The
Money Market Fund and The Global Fund, and has authorized each series to have
two classes of stock. Each Fund offers currently one class of shares of stock.
Holders of shares of each Fund of the Company have one vote for each share held,
and a proportionate fraction of a vote for each fraction of a share held. All
shares issued and outstanding are fully paid and non-assessable, transferable,
and redeemable at the option of the shareholder. Shares have no preemptive
rights.
The Board of Directors may classify or reclassify any unissued shares of the
Company into shares of another class or series by setting or changing in any one
or more respects, from time to time, prior to the issuance of such shares, the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or qualifications of such shares.
MANAGEMENT OF THE FUNDS
Board of Directors. The Funds are managed by the Company's Board of Directors.
The Directors and Officers of the Company are listed below. An asterisk (*) has
been placed next to the name of each Director who is an "interested person," as
that term is defined in the 1940 Act, by virtue of that person's affiliation
with the Company, its distributor, its investment advisors or otherwise.
Ronald Pelosi*
John Mallen*
Investment Advisors. The Investment Advisors serve as investment advisors for
the Funds and have overall responsibility for the management of the Company. The
Investment Advisory or Management Agreements between the Company and the
Investment Advisors require the Investment Advisors to oversee the provision of
all investment advisory and portfolio management services for the Funds. There
are four Investment Advisors for the Funds. _________ acts as Investment Advisor
for The Money Market Fund. The Global Fund has three Investment Advisors which
manage different types of The Global Fund's investments. BZW Barclays Global
Fund Advisors, Inc. manages The Global Fund's U.S. equity investments. Templeton
Investment Counsel, Inc. ("Templeton") manages The Global Fund's non-U.S. equity
investments. Pacific Investment Management ("PIMCO") manages those assets of The
Global Fund that are invested in fixed income and other debt securities.
The Investment Advisors are not required to furnish any personnel, overhead
items, or facilities for the Company.
BZW Barclays Global Fund Advisors, Inc. ("Barclays") serves as investment
advisor for The Global Fund's investments in U.S. equity instruments. Barclays,
an investment advisor registered under the Investment Advisers Act of 1940, is
an operating subsidiary of Barclays Global Investors N.A. ("BGI"), a limited
purpose national banking association. Barclays is located at 45 Fremont Street,
San Francisco, California 94105. As of July 1997, Barclays and its affiliates
provided investment advisory services for over $465 billion of assets. Barclays
uses a team management approach to manage investment portfolios.
Templeton Investment Counsel, Inc. ("Templeton") acts as investment advisor for
The Global Fund's non-U.S. equity investments. Templeton is an indirect wholly
owned subsidiary of Franklin Resources, Inc. ("Franklin"), a publicly owned
company. Through its subsidiaries, Franklin is engaged in various aspects of the
financial services industry. Templeton and its affiliates serve as advisors for
a wide variety of public investment mutual funds and private clients in many
nations and manage over $172 billion in assets. The Templeton organization has
been investing globally since 1940. Templeton and its affiliates have offices in
Argentina, Australia, Bahamas, Canada, France, Germany, Hong Kong, India, Italy,
Luxembourg, Poland, Russia, Scotland, Singapore, South Africa, the United
States, and Vietnam. Templeton's principal business address is 500 East Broward
Boulevard, Suite 2100, Fort Lauderdale, Florida 33394.
Templeton uses a disciplined, long-term approach to value-oriented global and
international investing. It has an extensive global network of investment
research sources. Securities are selected for The Global Fund's portfolio on the
basis of fundamental company-by-company analysis. Many different selection
methods are used for different funds and clients and these methods are changed
and improved by Templeton's research on superior selection methods.
Pacific Investment Management Company ("PIMCO") serves as investment advisor
pursuant to an investment advisory contract for The Global Fund's investments in
fixed income and other debt securities. PIMCO is an investment counseling firm
founded in 1971, and had approximately $105 billion in assets under management
as of August 31, 1997. PIMCO is a subsidiary partnership of PIMCO Advisors L.P.
("PIMCO Advisors"). A majority interest in PIMCO Advisors is held by PIMCO
Partners, G.P., a general partnership between Pacific Investment Management
Company, a California corporation and indirect wholly owned subsidiary of
Pacific Life Insurance Company, and PIMCO Partners, LLC, a limited liability
company controlled by the PIMCO Managing Directors. PIMCO's address is 840
Newport Center Drive, Suite 360, Newport Beach, California 92660. PIMCO is
registered as an investment advisor with the Securities and Exchange Commission
and as a commodity trading advisor with the CFTC. The portfolio manager who will
handle The Global Fund's investments on PIMCO's behalf is Lee R. Thomas, III,
Managing Director and Senior International Portfolio Manager for PIMCO. A Fixed
Income Portfolio Manager, Mr. Thomas has managed the PIMCO Foreign Bond, Global
Bond and International Bond Funds since July 13, 1995, and the PIMCO Global Bond
Fund II since October 1, 1995. Prior to joining PIMCO in 1995, Mr. Thomas was
associated with Investcorp as a member of the management committee responsible
for global securities and foreign exchange trading. Prior to Investcorp, he was
associated with Goldman Sachs as an Executive Director in foreign fixed income.
For the services provided pursuant to their Investment Advisory or Management
Agreements with the Company, the Advisors receive a fee from the Funds which
they advise. The fee is computed daily and paid quarterly and is computed as a
percentage of the Fund's average daily net assets for which the Advisor has
investment management responsibility. The Global Fund pays Barclays at a rate of
0.375% on the first $100 million under management, 0.30% on the next $400
million under management and 0.25% on amounts over $500 million. The Global Fund
pays Templeton at a rate of 0.70% on amounts up to $25 million, 0.55% on the
next $25 million, 0.50% on the next $50 million, 0.40% on the next $150 million,
0.35% on the next $250 million and 0.30% on amounts over $500 million. The
Global Fund pays PIMCO at a rate of 0.35% on amounts up to $200 million and
0.30% on amounts over $200 million.
Each Investment Advisory or Management Agreement will remain in effect for two
years following its date of execution, and thereafter will automatically
continue for successive annual periods as long as such continuance is
specifically approved at least annually by (a) the Board of Directors or (b) the
vote of a "majority" (as defined in the 1940 Act) of the Company's outstanding
shares voting as a single class; provided, that in either event the continuance
is also approved by at least a majority of the Board of Directors who are not
"interested persons" (as defined in the 1940 Act) of the Investment Advisor by
vote cast in person at a meeting called for the purpose of voting on such
approval.
Each Investment Advisory or Management Agreement is terminable without penalty
with not less than 60 days' notice by the Board of Directors or by a vote of the
holders of a majority of a Fund's outstanding shares voting as a single class,
or upon not less than 60 days' notice by the Investment Advisor. Each Investment
Advisory or Management Agreement will terminate automatically in the event of
its "assignment" (as defined in the 1940 Act).
Business Manager. Sutton Place Management Co., Inc. (the "Business Manager")
performs certain administrative functions as Business Manager for the Funds,
including:
providing office space, telephone, office equipment and supplies for the
Funds;
paying compensation of the Funds' officer for services rendered as such;
authorizing expenditures and approving bills for payment on behalf of the
Funds;
supervising preparation of annual and semiannual reports to shareholders,
notices of dividends, capital gain distributions and tax credits, and
attending to correspondence and other special communications with
shareholders and service providers to the Funds;
monitoring relationships with organizations serving the Funds,
and providing executive, clerical and secretarial help needed to carry out
these responsibilities.
For its services the Business Manager receives a fee from each Fund of 0.30% per
annum of each Fund's average daily net assets. The fee is computed daily and
paid monthly.
Transfer Agent, Distributor, Administrator and Dividend Disbursing Agent. Shares
of the Funds are distributed pursuant to an Agreement between the Company and
the Distributor. First Data Investor Services Group, Inc., whose principal
business address is 53 State Street, Boston, Massachusetts 02109 ("First Data"
or the "Distributor"), acts as the Company's distributor, its administrator,
transfer agent and dividend disbursing agent. First Data is a wholly-owned
subsidiary of First Data Corporation. Shareholder inquiries may be directed to
First Data at P.O. Box 5130, Westborough, Massachusetts 01581-1530. See the
Prospectus for information on how to purchase and sell shares of the Funds, and
the charges and expenses associated with an investment.
The shares of the Funds are sold without a sales charge. The Business Manager
and/or the Distributor may use their own financial resources to pay expenses
associated with activities primarily intended to result in the promotion and
distribution of the Funds' shares to pay expenses associated with providing
other services to shareholders. In some instances, additional compensation or
promotional incentives may be offered to dealers that have sold or may sell
significant amounts of shares during specified periods of time. Such
compensation and incentives may include, but are not limited to, cash,
merchandise, trips and financial assistance to dealers in connection with
pre-approved conferences or seminars, sales or training programs for invited
sales personnel, payment for travel expenses (including meals and lodging)
incurred by sales personnel and members of their families, or other invited
guests, to various locations for such seminars or training programs, seminars
for the public, advertising and sales campaigns regarding the Company and/or
other events sponsored by dealers.
Shareholder Service Plans. Each Fund has a shareholder service plan applicable
to shares of the Funds ("Shareholder Service Plans"). The Company intends to
operate the Shareholder Service Plans in accordance with their terms and the
National Association of Securities Dealers, Inc.'s rules concerning sales
charges. Under the Shareholder Service Plans, third party service providers may
be entitled to payment each month in connection with the offering, sale, and
shareholder servicing of shares in amounts not to exceed 0.35% of the average
daily net assets of the shares of the Funds. The Board of Directors has approved
under the Shareholder Service Plans payments of the amount to the Distributor
each month in connection with the offering, sale, and shareholder servicing of
the Funds. Of these amounts, fees equal to an annual rate of 0.35% of the
average daily net assets of the Funds are for shareholder servicing.
Under the Shareholder Service Plans, ongoing payments may be made on a quarterly
basis to Participating Organizations for both distribution and shareholder
servicing at the annual rate of 0.35% of a Fund's average daily net assets of
shares that are registered in the name of that Participating Organization as
nominee or held in a shareholder account that designates that Participating
Organization as the dealer of record. These fees may also be used to cover the
expenses of the Distributor primarily intended to result in the sale of Fund
Shares, including payments to Participating Organizations for selling shares of
the Fund and for servicing shareholders. Activities for which these fees may be
used include: preparation and distribution of advertising materials and sales
literature; expenses of organizing and conducting sales seminars; overhead of
the Distributor; printing of prospectuses and statements of additional
information (and supplements thereto) and reports for other than existing
shareholders; payments to dealers and others that provide shareholder services;
and costs of administering the Shareholder Service Plans.
In the event a Shareholder Service Plan is terminated in accordance with its
terms, the obligations of a Fund to make payments to the Distributor pursuant to
the Shareholder Service Plan will cease and the Fund will not be required to
make any payments for expenses incurred after the date the Plan terminates. The
Funds will receive payment under the Shareholder Service Plans without regard to
actual distribution expenses incurred.
The Shareholder Service Plans have been approved by the Company's Board of
Directors, including all of the Directors who are not interested persons of the
Company as defined in the 1940 Act. The Shareholder Service Plans must be
renewed annually by the Board of Directors, including a majority of the
Directors who are not interested persons of the Company and who have no direct
or indirect financial interest in the operation of the Shareholder Service Plan,
cast in person at a meeting called for that purpose. The Shareholder Service
Plans may be terminated as to the Company at any time, without any penalty, by
such Directors or by a vote of a majority of the Company's outstanding shares on
60 days' written notice.
Any change in the Shareholder Service Plan of a Fund that would increase
materially the expenses paid by a Fund requires Shareholder approval; otherwise,
the Plan may be amended by the Board of Directors of the Fund, including a
majority of those Directors who are not "interested persons' and who have no
direct or indirect financial interest in the operation of the Shareholder
Service Plan or in any agreements related to it (the "Independent Directors"),
by a vote cast in person.
Third party service providers are required to report in writing to the Board of
Directors at least quarterly on the monies reimbursed to them under the
Shareholder Service Plans, as well as to furnish the Board with such other
information as may reasonably be requested in connection with the payments made
under the Shareholder Service Plans in order to enable the Board to make an
informed determination of whether the Shareholder Service Plans should be
continued.
INVESTMENT OBJECTIVES AND POLICIES
General
The Global Fund seeks total return (capital appreciation and income) by
investing in the global stock and bond markets.
The Money Market Fund seeks current income consistent with liquidity and
stability of principal. It invests exclusively in U.S. Treasury and other U.S.
Government and agency securities to achieve this objective.
* * * * * * *
The investment objective of each Fund is a fundamental policy and as such may
not be changed without a vote of the holders of a majority of the outstanding
Shares of that Fund. Other policies of a Fund may be changed by the Company's
directors, without a vote of the holders of a majority of outstanding Shares of
that Fund unless (i) the policy is expressly deemed to be a fundamental policy
or (ii) the policy is expressly deemed to be changeable only by such majority
vote. There can be no assurance that the investment objective of any Fund will
be achieved.
Investment Policies
The Global Fund
The Global Fund may invest in all types of equity and debt securities,
including, but not limited to, common stock, preferred stock, convertible
securities, warrants, trust units or certificates, bonds, debentures, notes,
commercial paper and various types of depositary receipts. There are no limits
on the types of securities that may be purchased so long as they are publicly
traded. Securities may be issued by companies located in the United States or in
any other country and may include securities issued by governments or their
agencies and instrumentalities.
The Global Fund will not invest more than 50% of its assets in emerging markets.
The Advisers have broad discretion to identify and invest in countries they
consider to qualify as emerging securities markets. However, an emerging
securities market will generally be considered as one located in any country
that is defined as an emerging or developing economy by any of the following:
the International Bank for Reconstruction and Development (i.e., the World
Bank), including its various offshoots, such as the International Finance
Corporation, or the United Nations or its authorities. Debt securities held by
The Global Fund may include securities rated in any rating category by a NRSRO
or that are unrated. As a result, The Global Fund may invest in high risk, lower
quality debt securities, commonly referred to as "junk bonds." The Global Fund
will limit its investment in junk bonds (i.e. those rated lower than the four
highest rating categories or if unrated of comparable quality) to not more than
10% of The Global Fund's assets.
Securities purchased by The Global Fund may be listed or unlisted in the markets
where they trade and may be issued by companies in various industries, with
various levels of market capitalization. The Global Fund will not invest more
than 25% of its assets in securities issued by companies in any one industry.
The portfolio turnover rate for The Global Fund is expected to be one hundred
percent (100%).
The Money Market Fund
The Money Market Fund invests exclusively in U.S. Treasury and other U.S.
Government and agency securities.
The Money Market Fund invests only in instruments which the Fund's Investment
Advisor, acting pursuant to guidelines adopted by the Company's Board of
Directors, determines present minimal credit risks.
* * * * * * *
SUPPLEMENTAL DISCUSSION OF INVESTMENT TECHNIQUES
AND RISKS ASSOCIATED WITH THE FUNDS' INVESTMENT
POLICIES AND INVESTMENT TECHNIQUES
Additional information concerning investment techniques and risks associated
with certain of the Funds' investments is set forth below.
Inflation-Indexed Bonds
Inflation-indexed securities issued by the U.S. Treasury will initially have
maturities of ten years, although it is anticipated that securities with other
maturities will be issued in the future. The securities will pay interest on a
semi-annual basis, equal to a fixed percentage of the inflation-adjusted
principal amount. For example, if a Fund purchased an inflation-indexed bond
with a par value of $1,000 and a 3% real rate of return coupon (payable 1.5%
semi-annually), and inflation over the first six months were 1%, the mid-year
par value of the bond would be $1,010 and the first semi-annual payment would be
$15.15 ($1,010 times 1.5%). If inflation during the second half of the year
reached 3%, the end-of-year par value of the bond would be $1,030 and the second
semi-annual interest payment would be $15.45 ($1,030 times 1.5%).
The U.S. Treasury has only recently begun issuing inflation-indexed bonds. As
such, there is no trading history of these securities, and there can be no
assurance that a liquid market in these instruments will develop, although one
is expected. Lack of a liquid market may impose the risk of higher transaction
costs and the possibility that a Fund may be forced to liquidate its position
when it would not be advantageous to do so. There also can be no assurance that
the U.S. Treasury will issue any particular amount of inflation-indexed bonds.
Certain foreign governments, such as the United Kingdom, Canada and Australia,
have a longer history of issuing inflation-indexed bonds, and there may be a
more liquid market in certain of these countries for these securities.
The periodic adjustment of U.S. inflation-indexed bonds is tied to the Consumer
Price Index for Urban Consumers ("CPI-U"), which is calculated monthly by the
U.S. Bureau of Labor Statistics. The CPI-U is a measurement of changes in the
cost of living, made up of components such as housing, food, transportation and
energy. Inflation-indexed bonds issued by a foreign government are generally
adjusted to reflect a comparable inflation index, calculated by that government.
There can be no assurance that the CPI-U or any foreign inflation index will
accurately measure the real rate of inflation in the prices of goods and
services. Moreover, there can be no assurance that the rate of inflation in a
foreign country will be correlated to the rate of inflation in the United
States.
Any increase in the principal amount of an inflation-indexed bond will be
considered taxable ordinary income, even though investors do not receive their
principal until maturity.
Mortgage-Related and Other Asset-Backed Securities
Payment of principal and interest on some mortgage pass-through securities (but
not the market value of the securities themselves) may be guaranteed by the full
faith and credit of the U.S. Government (in the case of securities guaranteed by
GNMA); or guaranteed by agencies or instrumentalities of the U.S. Government (in
the case of securities guaranteed by FNMA or the Federal Home Loan Mortgage
Corporation ("FHLMC"), which are supported only by the discretionary authority
of the U.S. Government to purchase the agency's obligations). Mortgage-related
securities created by non-governmental issuers (such as commercial banks,
savings and loan institutions, private mortgage insurance companies, mortgage
bankers and other secondary market issuers) may be supported by various forms of
insurance or guarantees, including individual loan, title, pool and hazard
insurance and letters of credit, which may be issued by governmental entities,
private insurers or the mortgage poolers.
Repurchase Agreements
In a repurchase agreement, the Funds purchase a security and simultaneously
commit to sell that security back to the original seller at an agreed-upon
price. The resale price reflects the purchase price plus an agreed-upon
incremental amount which is unrelated to the coupon rate or maturity of the
purchased security. To protect the Funds from risk that the original seller will
not fulfill its obligations, the securities are held in accounts of the Funds at
a bank, marked-to-market daily, and maintained at a value at least equal to the
sale price plus the accrued incremental amount. While it does not presently
appear possible to eliminate all risks from these transactions (particularly the
possibility that the value of the underlying security will be less than the
resale price, as well as costs and delays to the Funds in connection with
bankruptcy proceedings), it is the Funds' current policy to engage in repurchase
agreement transactions with parties whose creditworthiness has been reviewed and
found satisfactory by the Advisors.
Reverse Repurchase Agreements
In a reverse repurchase agreement, the Fund sells a portfolio instrument to
another party, such as a bank or broker-dealer, in return for cash and agrees to
repurchase the instrument at a particular price and time. While a reverse
repurchase agreement is outstanding, the Funds will maintain appropriate liquid
assets in a segregated custodial account to cover its obligation under the
agreement. The Funds will enter into reverse repurchase agreements only with
parties whose creditworthiness has been found satisfactory by the Advisors. Such
transactions may increase fluctuations in the market value of the Funds' assets
and may be viewed as a form of leverage.
Derivative Instruments
Most swap agreements entered into by The Global Fund calculate the obligations
of the parties to the agreement on a "net basis." Consequently, The Global
Fund's current obligations (or rights) under a swap agreement will generally be
equal only to the net amount to be paid or received under the agreement based on
the relative values of the positions held by each party to the agreement (the
"net amount"). The Global Fund's current obligations under a swap agreement will
be accrued daily (offset against amounts owed to The Global Fund), and any
accrued but unpaid net amounts owed to a swap counterparty will be covered by
the maintenance of a segregated account consisting of assets determined to be
liquid by the Advisor in accordance with procedures established by the Board of
Directors, to limit any potential leveraging of The Global Fund's portfolio.
Obligations under swap agreements so covered will not be construed to be "senior
securities" for purposes of the Funds' investment restriction concerning senior
securities. The Global Fund will not enter into a swap agreement with any single
party if the net amount owed or to be received under existing contracts with
that party would exceed 5% of The Global Fund's assets.
Whether The Global Fund's use of swap agreements will be successful in
furthering its investment objective will depend on the Advisor's ability to
predict correctly whether certain types of investments are likely to produce
greater returns than other investments. Because they are two-party contracts and
because they may have terms of greater than seven days, swap agreements may be
considered to be illiquid investments. Moreover, The Global Fund bears the risk
of loss of the amount expected to be received under a swap agreement in the
event of the default or bankruptcy of a swap agreement counterparty. The Global
Fund will enter into swap agreements only with counterparties that meet certain
standards for creditworthiness (generally, such counterparties would have to be
eligible counterparties under the terms of The Global Fund's repurchase
agreement guidelines). Certain restrictions imposed on The Global Fund by the
Internal Revenue Code may limit The Global Fund's ability to use swap
agreements. The swaps market is a relatively new market and is largely
unregulated. It is possible that developments in the swaps market, including
potential government regulation, could adversely affect The Global Fund's
ability to terminate existing swap agreements or to realize amounts to be
received under such agreements.
Illiquid Securities
The Funds may invest in an illiquid or restricted security if the Investment
Advisor believes that it presents an attractive investment opportunity.
Generally, a security is considered illiquid if it cannot be disposed of within
seven days. Its illiquidity might prevent the sale of such a security at a time
when the Investment Advisor might wish to sell, and these securities could have
the effect of decreasing the overall level of the Funds' liquidity. Further, the
lack of an established secondary market may make it more difficult to value
illiquid securities, requiring the Funds to rely on judgments that may be
somewhat subjective in determining value, which could vary from the amount that
the Funds could realize upon disposition.
Restricted securities, including placements, are subject to legal or contractual
restrictions on resale. They can be eligible for purchase without SEC
registration by certain institutional investors known as "qualified
institutional buyers," and under the Funds' procedures, restricted securities
could be treated as liquid. However, some restricted securities may be illiquid
and restricted securities that are treated as liquid could be less liquid than
registered securities traded on established secondary markets. The Global Fund
may not invest more than 15% (10% limit with respect to The Money Market Fund)
of its total assets in illiquid securities, measured at the time of investment.
Borrowing
Each Fund may borrow up to 15% of the value of its total assets to obtain
short-term credits as are necessary for the clearance of securities
transactions. Under the 1940 Act, each Fund is required to maintain continuous
asset coverage of 300% with respect to such borrowings and to sell (within three
days) sufficient portfolio holdings to restore such coverage if it should
decline to less than 300% due to market fluctuations or otherwise, even if such
liquidations of a Fund's holdings may be disadvantageous from an investment
standpoint. Leveraging by means of borrowing may exaggerate the effect of any
increase or decrease in the value of portfolio securities or a Fund's net asset
value, and money borrowed will be subject to interest and other costs (which may
include commitment fees and/or the cost of maintaining minimum average balances)
which may or may not exceed the income received from the securities purchased
with borrowed funds.
Debt Securities
The Global Fund may invest in debt securities that are rated between BBB and as
low as CCC by Standard & Poor's Corporation ("S&P") and between Baa and as low
as Caa by Moody's Investors Service, Inc. ("Moody's") or, if unrated, are of
equivalent investment quality as determined by the Advisors. The market value of
debt securities generally varies in response to changes in interest rates and
the financial condition of each issuer. During periods of declining interest
rates, the value of debt securities generally increases. Conversely, during
periods of rising interest rates, the value of such securities generally
declines. These changes in market value will be reflected in The Global Fund's
net asset value.
Bonds which are rated Baa by Moody's 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 C by
Moody's 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.
Bonds rated BBB by S&P are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than in higher rated categories. Bonds rated D by S&P are
the lowest rated class of bonds, and generally are in payment default. The D
rating also will be used upon the filing of a bankruptcy petition if debt
service payments are jeopardized.
Although they may offer higher yields than higher rated securities, high-risk,
low rated debt securities (commonly referred to as "junk bonds") and unrated
debt securities generally involve greater volatility of price and risk of
principal and income, including the possibility of default by, or bankruptcy of,
the issuers of the securities. In addition, the markets in which low rated and
unrated debt securities are traded are more limited than those in which higher
rated securities are traded. The existence of limited markets for particular
securities may diminish The Global Fund's ability to sell the securities at fair
value either to meet redemption requests or to respond to a specific economic
event such as a deterioration in the creditworthiness of the issuer. Reduced
secondary market liquidity for certain low rated or unrated debt securities may
also make it more difficult for The Global Fund to obtain accurate market
quotations for the purposes of valuing The Global Fund's portfolio. Market
quotations are generally available on many low rated or unrated securities only
from a limited number of dealers and may not necessarily represent firm bids of
such dealers or prices for actual sales.
Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the values and liquidity of low rated debt securities,
especially in a thinly traded market. Analysis of the creditworthiness of
issuers of low rated debt securities may be more complex than for issuers of
higher rated securities, and the ability of The Global Fund to achieve its
investment objective may, to the extent of investment in low rated debt
securities, be more dependent upon such creditworthiness analysis than would be
the case if The Global Fund were investing in higher rated securities.
Low rated debt securities may be more susceptible to real or perceived adverse
economic and competitive industry conditions than investment grade securities.
The prices of low rated debt securities have been found to be less sensitive to
interest rate changes than higher rated investments, but more sensitive to
adverse economic downturns or individual corporate developments. A projection of
an economic downturn or of a period of rising interests rates, for example,
could cause a decline in low rated debt securities prices because the advent of
a recession could lessen the ability of a highly leveraged company to make
principal and interest payments on its debt securities. If the issuer of low
rated debt securities defaults, The Global Fund may incur additional expenses
seeking recovery.
Options on Securities, Indices and Futures
The Global Fund may write covered put and call options and purchase put and call
options on securities, securities indices and futures contracts that are traded
on U.S. and foreign exchanges and over-the-counter. An option on a security or a
futures contract is a contract that gives the purchaser of the option, in return
for the premium paid, the right to buy a specified security or futures contract
(in the case of a call option) or to sell a specified security or futures
contract (in the case of a put option) from or to the writer of the option at a
designated price during the term of the option. An option on a securities index
gives the purchaser of the option, in return for the premium paid, the right to
receive from the seller cash equal to the difference between the closing price
of the index and the exercise price of the option.
The Global Fund may write a call or put option only if the option is "covered."
A call option on a security or futures contract written by a fund is "covered"
if the fund owns the underlying security or futures contract covered by the call
or has an absolute and immediate right to acquire that security without
additional cash consideration (or for additional cash consideration held in a
segregated account by its custodian) upon conversion or exchange of other
securities held in its portfolio. A call option on a security or futures
contract is also covered if a fund holds a call on the same security or futures
contract and in the same principal amount as the call written where the exercise
price of the call held (a) is equal to or less than the exercise price of the
call written or (b) is greater than the exercise price of the call written if
the difference is maintained by the fund in cash or high grade U.S. government
securities in a segregated account with its custodian. A put option on a
security or futures contract written by a fund is "covered" if the fund
maintains cash or fixed-income securities with a value equal to the exercise
price in a segregated account with its custodian, or else holds a put on the
same security or futures contract and in the same principal amount as the put
written where the exercise price of the put held is equal to or greater than the
exercise price of the put written.
The Global Fund will cover call options on securities indices that it writes by
owning securities whose price changes, in the opinion of the Advisor, are
expected to be similar to those of the index, or in such other manner as may be
in accordance with the rules of the exchange on which the option is traded and
applicable laws and regulations. Nevertheless, where The Global Fund covers a
call option on a securities index through ownership of securities, such
securities may not match the composition of the index. In that event, The Global
Fund will not be fully covered and could be subject to risk of loss in the event
of adverse changes in the value of the index. The Global Fund will cover put
options on securities indices that it writes by segregating assets equal to the
option's exercise price, or in such other manner as may be in accordance with
the rules of the exchange on which the option is traded and applicable laws and
regulations.
The Global Fund will receive a premium from writing a put or call option, which
increases its gross income in the event the option expires unexercised or is
closed out at a profit. If the value of a security, index or futures contract on
which The Global Fund has written a call option falls or remains the same, The
Global Fund will realize a profit in the form of the premium received (less
transaction costs) that could offset all or a portion of any decline in the
value of the portfolio securities being hedged. If the value of the underlying
security, index or futures contract rises, however, The Global Fund will realize
a loss in its call option position, which will reduce the benefit of any
unrealized appreciation in its investments. By writing a put option, The Global
Fund assumes the risk of a decline in the underlying security, index or futures
contract. To the extent that the price changes of the portfolio securities being
hedged correlate with changes in the value of the underlying security, index or
futures contract, writing covered put options will increase The Global Fund's
losses in the event of a market decline, although such losses will be offset in
part by the premium received for writing the option.
The Global Fund may also purchase put options to hedge its investments against a
decline in value. By purchasing a put option, The Global Fund will seek to
offset a decline in value of the portfolio securities being hedged through
appreciation of the put option. If the value of The Global Fund's investments
does not decline as anticipated, or if the value of the option does not
increase, The Global Fund's loss will be limited to the premium paid for the
option plus related transaction costs. The success of this strategy will depend,
in part, on the accuracy of the correlation between the changes in value of the
underlying security, index or futures contract and the changes in value of The
Global Fund's security holdings being hedged.
The Global Fund may purchase call options on individual securities or futures
contracts to hedge against an increase in the price of securities or futures
contracts that it anticipates purchasing in the future. Similarly, The Global
Fund may purchase call options on a securities index to attempt to reduce the
risk of missing a broad market advance, or an advance in an industry or market
segment, at a time when The Global Fund holds uninvested cash or short-term debt
securities awaiting reinvestment. When purchasing call options, The Global Fund
will bear the risk of losing all or a portion of the premium paid if the value
of the underlying security, index or futures contract does not rise.
There can be no assurance that a liquid market will exist when The Global Fund
seeks to close out an option position. Trading could be interrupted, for
example, because of supply and demand imbalances arising from a lack of either
buyers or sellers, or the options exchange could suspend trading after the price
has risen or fallen more than the maximum specified by the exchange. Although
The Global Fund may be able to offset to some extent any adverse effects of
being unable to liquidate an option position, it may experience losses in some
cases as a result of such inability. The value of over-the-counter options
purchased by The Global Fund, as well as the cover for options written by The
Global Fund, are considered not readily marketable and are subject to the
Company's limitation on investments in securities that are not readily
marketable.
The Global Fund's ability to reduce or eliminate its futures and related options
positions will depend upon the liquidity of the secondary markets for such
futures and options. The Global Fund intends to purchase or sell futures and
related options only on exchanges or boards of trade where there appears to be
an active secondary market, but there is no assurance that a liquid secondary
market will exist for any particular contract or at any particular time. Use of
futures and options for hedging may involve risks because of imperfect
correlations between movements in the prices of the futures or options and
movements in the prices of the securities being hedged. Successful use of
futures and related options by The Global Fund for hedging purposes also depends
upon the Advisors' ability to predict correctly movements in the direction of
the market, as to which no assurance can be given.
There are several risks associated with transactions in options on securities
indices. For example, there are significant differences between the securities
and options markets that could result in an imperfect correlation between these
markets, causing a given transaction not to achieve its objectives. A decision
as to whether, when and how to use options involves the exercise of skill and
judgment, and even a well-conceived transaction may be unsuccessful to some
degree because of market behavior or unexpected events. There can be no
assurance that a liquid market will exist when The Global Fund seeks to close
out an option position. If The Global Fund were unable to close out an option
that it had purchased on a securities index, it would have to exercise the
option in order to realize any profit or the option may expire worthless. If
trading were suspended in an option purchased by The Global Fund, it would not
be able to close out the option. If restrictions on exercise were imposed, The
Global Fund might be unable to exercise an option it had purchased. Except to
the extent that a call option on an index written by The Global Fund is covered
by an option on the same index purchased by The Global Fund, movements in the
index may result in a loss to The Global Fund; however, such losses may be
mitigated by changes in the value of The Global Fund's securities during the
period the option was outstanding.
Investment in Foreign and Developing Markets
The Global Fund may purchase securities in any foreign country, developed or
developing. Potential investors in The Global Fund should consider carefully the
substantial risks involved in securities of companies and governments of foreign
nations, which are in addition to the usual risks inherent in domestic
investments.
There may be less publicly available information about foreign companies
comparable to the reports and ratings published about companies in the United
States. Most foreign companies are not generally subject to uniform accounting
and financial reporting standards, and auditing practices and requirements may
not be comparable to those applicable to U.S. companies. The Global Fund,
therefore, may encounter difficulty in obtaining market quotations for purposes
of valuing its portfolio and calculating its net asset value. Foreign markets
have substantially less volume than the New York Stock Exchange and securities
of some foreign companies are less liquid and more volatile than securities of
comparable U.S. companies. Commission rates in foreign countries, which are
generally fixed rather than subject to negotiation as in the U.S., are likely to
be higher. In many foreign countries there is less government supervision and
regulation of stock exchanges, brokers and listed companies than in the United
States.
Investments in businesses domiciled in developing countries may be subject to
potentially higher risks than investments in developed countries. These risks
include: (i) less social, political and economic stability; (ii) the small
current size of the markets for such securities and the currently low or
nonexistent volume of trading, which result in a lack of liquidity and in
greater price volatility; (iii) certain national policies which may restrict The
Global Fund's investment opportunities, including restrictions on investment in
issuers or industries deemed sensitive to national interests; (iv) foreign
taxation; (v) the absence of developed structures governing private or foreign
investment or allowing for judicial redress for injury to private property; (vi)
the absence, until recently in certain Eastern European countries, of a capital
market structure or market-oriented economy; and (vii) the possibility that
recent favorable economic developments in Eastern Europe may be slowed or
reversed by unanticipated political or social events in such countries.
The Global Fund attempts to buy and sell foreign currencies on as favorable a
basis as practicable. Some price spread on currency exchanges (to cover service
charges) may be incurred, particularly when The Global Fund changes investments
from one country to another or when proceeds of the sale of shares in U.S.
dollars are used for the purchase of securities in foreign countries. Also, some
countries may adopt policies which would prevent The Global Fund from
transferring cash out of the country or withhold portions of interest and
dividends at the source. There is the possibility of cessation of trading on
national exchanges, expropriation, nationalization or confiscatory taxation,
withholding and other foreign taxes on income or other amounts, foreign exchange
controls (which may include suspension of the ability to transfer currency from
a given country), default in foreign government securities, political or social
instability, or diplomatic developments which could affect investments in
securities of issuers in foreign nations.
The Global Fund may be affected either unfavorably or favorably by fluctuations
in the relative rates of exchange between the currencies of different nations,
by exchange control regulations and by indigenous economic and political
developments. Some countries in which The Global Fund may invest may also have
fixed or managed currencies that are not free-floating against the U.S. dollar.
Further, certain currencies may not be internationally traded. Certain of these
currencies have experienced a steady devaluation relative to the U.S. dollar.
Any devaluation in the currencies in which The Global Fund's portfolio
securities are denominated may have a detrimental impact on The Global Fund.
PORTFOLIO TRANSACTIONS
The Investment Advisors are authorized to select the brokers or dealers that
will execute transactions to purchase or sell investment securities for the
Funds. In all purchases and sales of securities for the Funds, the primary
consideration is to obtain the most favorable price and execution available.
Pursuant to the Investment Advisory or Management Agreements, each Investment
Advisor determines which brokers are to be eligible to execute portfolio
transactions of the Funds. Purchases and sales of securities in the
over-the-counter market will generally be executed directly with a
"market-maker," unless in the opinion of the Investment Advisor, a better price
and execution can otherwise be obtained by using a broker for the transaction.
In placing portfolio transactions, each Investment Advisor will use its best
efforts to choose a broker capable of providing the brokerage services necessary
to obtain the most favorable price and execution available. The full range and
quality of brokerage services available will be considered in making these
determinations, such as the size of the order, the difficulty of execution, the
operational facilities of the firm involved, the firm's risk in positioning a
block of securities, and other factors such as the firm's ability to engage in
transactions in shares of banks and thrifts that are not listed on an organized
stock exchange. Consideration may also be given to those brokers that supply
research and statistical information to the Funds and/or the Investment Advisor,
and provide other services in addition to execution services. Consistent with
this policy, portfolio transactions may be executed by brokers affiliated with
an Investment Advisor, so long as the commission paid to the affiliated broker
is reasonable and fair compared to the commission that would be charged by an
unaffiliated broker in a comparable transaction. The placement of portfolio
brokerage with broker-dealers who have sold shares of the Funds is subject to
rules adopted by the National Association of Securities Dealers, Inc. ("NASD").
The Investment Advisors may also consider the sale of their shares as a factor
in the selection of broker-dealers to execute its portfolio transactions.
While it will be the Company's general policy to seek to obtain the most
favorable price and execution available, in selecting a broker to execute
portfolio transactions for the Funds, the Company may also give weight to the
ability of a broker to furnish brokerage and research services to the Funds or
the Investment Advisor. In negotiating commissions with a broker, the Company
may therefore pay a higher commission than would otherwise be the case if no
weight were given to the furnishing of these supplemental services, provided
that the amount of such commission has been determined in good faith by the
Investment Advisor to be reasonable in relation to the value of the brokerage
and research services provided by such broker, which services either produce a
direct benefit to the Funds or assist the Investment Advisor in carrying out its
responsibilities to the Funds or its other clients.
Purchases of the Funds' Shares also may be made directly from issuers or from
underwriters. Where possible, purchase and sale transactions will be effected
through dealers which specialize in the types of securities which the Funds will
be holding, unless better executions are available elsewhere. Dealers and
underwriters usually act as principals for their own account. Purchases from
underwriters will include a concession paid by the issuer to the underwriter and
purchases from dealers will include the spread between the bid and the asked
price. If the execution and price offered by more than one dealer or underwriter
are comparable, the order may be allocated to a dealer or underwriter which has
provided such research or other services as mentioned above.
Some securities considered for investment by the Funds may also be appropriate
for other clients served by the Company's Investment Advisor. If the purchase or
sale of securities consistent with the investment policies of the applicable
Fund and one or more of these other clients serviced by the Investment Advisor
is considered at or about the same time, transactions in such securities will be
allocated among the Fund and the Investment Advisor's other clients in a manner
deemed fair and reasonable by the Investment Advisor. There is no specified
formula for allocating such transactions.
The Company places no restrictions on portfolio turnover.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Funds are offered at the net asset value next computed following
receipt of the order by the dealer and/or by the Company's Distributor or
Transfer Agent, First Data Investor Services Group, Inc. (the "Distributor" or
"Transfer Agent"). The Distributor may, from time to time, at its discretion,
allow the selling dealer to retain 100% of such sales charge, and such dealer
may therefore be deemed an "underwriter" under the Securities Act of 1933, as
amended. The Distributor, at its expense, may also provide additional
promotional incentives to dealers in connection with sales of shares of the
Funds and other funds managed by the Investment Advisor. In some instances, such
incentives may be made available only to dealers whose representatives have sold
or are expected to sell significant amounts of such shares. The incentives may
include payment for travel expenses, including lodging, incurred in connection
with trips taken by qualifying registered representatives and members of their
families to locations within or outside of the United States, merchandise or
other items. Dealers may not use sales of the Fund shares to qualify for the
incentives to the extent such may be prohibited by the laws of any state.
Matters Affecting Redemptions. Payments to Shareholders for shares redeemed will
be made within three days after receipt by the Fund's Transfer Agent of the
request in proper form, except that the Company may suspend the right of
redemption or postpone the date of payment as to the Funds during any period
when (a) trading on the New York Stock Exchange is restricted as determined by
the SEC or such exchange is closed for other than weekends and holidays; (b) an
emergency exists as determined by the SEC making disposal of portfolio series or
valuation of net assets of the Funds not reasonably practicable; or (c) for such
other period as the SEC may permit for the protection of the Funds'
shareholders. At various times, the Funds may be requested to redeem shares for
which they have not yet received good payment. Accordingly, the Funds may delay
the mailing of a redemption check until such time as a fund has assured itself
that good payment has been collected for the purchase of such shares, which may
take up to 15 days or longer.
Net Asset Value. The Funds intend to pay in cash for all shares redeemed, but
under abnormal conditions that make payment in cash unwise, the Funds may make
payment wholly or partly in securities at their then current market value equal
to the redemption price. In such case, an investor may incur brokerage costs in
converting such securities to cash. In the event the Funds liquidate portfolio
securities to meet redemptions, the Funds reserve the right to reduce the
redemption price by an amount equivalent to the pro-rated cost of such
liquidation not to exceed one percent of the net asset value of such shares.
Due to the relatively high cost of handling small investments, the Funds reserve
the right, upon 30 days' written notice, to redeem, at net asset value, the
shares of any Shareholder whose account has a value of less than $1,000 in a
Fund, other than as a result of a decline in the net asset value per share.
Before a Fund redeems such shares and sends the proceeds to the Shareholder, it
will notify the Shareholder that the value of the shares in the account is less
than the minimum amount and will allow the shareholder 30 days to make an
additional investment in an amount that will increase the value of the account
to at least $1,000 before the redemption is processed. This policy will not be
implemented where the Company has previously waived the minimum investment
requirements.
The value of shares on redemption or repurchase may be more or less than the
investor's cost, depending upon the market value of the portfolio securities at
the time of redemption or repurchase.
DETERMINATION OF SHARE PRICE
As noted in the Prospectus, the net asset value and offering price of each
Fund's shares will be determined once daily as of the close of trading on the
New York Stock Exchange (4:00 p.m. Eastern time) during each day on which that
Exchange is open for trading. As of the date of this Statement of Additional
Information, the New York Stock Exchange is closed on the following holidays:
New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
Portfolio securities listed or traded on a national securities exchange or
included in the NASDAQ National Market System will be valued at the last
reported sale price on the valuation day. Securities traded on an exchange or
NASDAQ for which there has been no sale that day and other securities traded in
the over-the-counter market will be valued at the average of the last reported
bid and ask price on the valuation day. In cases in which securities are traded
on more than one exchange, the securities are valued on the exchange designated
by or under the authority of the Board of Directors as the primary market.
Portfolio securities which are primarily traded on foreign securities exchanges,
other than the London Stock Exchange, are generally valued at the preceding
closing values of such securities on their respective exchanges, except when an
occurrence subsequent to the time a value was so established is likely to have
changed such value. In such an event, the fair value of those securities will be
determined through the consideration of other factors by or under the direction
of the Board of Directors. Securities for which quotations are not readily
available and all other assets will be valued at their respective fair values as
determined in good faith by or under the direction of the Board of Directors of
the Company.
The net asset value per Share of The Global Fund will fluctuate as the value of
the Fund's investments change. Net asset value per Share for The Global Fund for
purposes of pricing sales and redemptions is calculated by dividing the value of
all securities and other assets belonging to the Fund, less the liabilities
charged to that Fund by the number of such Fund's outstanding Shares. The assets
in The Money Market Fund are valued based upon the amortized cost method.
Pursuant to the rules and regulations of the Securities and Exchange Commission
regarding the use of the amortized cost method, The Money Market Fund will
maintain a dollar-weighted average portfolio maturity of 90 days or less.
Although The Money Market Fund seeks to maintain its net asset value per Share
at $1.00, there can be assurance that the net asset value per Share will not
vary.
Orders received by dealers prior to the close of trading on the New York Stock
Exchange will be confirmed at the offering price computed as of the close of
trading on that Exchange provided the order is received by the Distributor prior
to its close of business that same day (normally 4:00 P.M. Pacific time). It is
the responsibility of the dealer to insure that all orders are transmitted
timely to the Fund. Orders received by dealers after the close of trading on the
New York Stock Exchange will be confirmed at the next computed offering price as
described in the Prospectus.
SHAREHOLDER SERVICES AND PRIVILEGES
For investors purchasing shares of a Fund under a tax-qualified individual
retirement or pension plan or under a group plan through a person designated for
the collection and remittance of monies to be invested in shares of the Fund on
a periodic basis, a Fund may, in lieu of furnishing confirmations following each
purchase of Fund shares, send statements no less frequently than quarterly
pursuant to the provisions of the Securities Exchange Act of 1934, as amended,
and the rules thereunder. Such quarterly statements, which would be sent to the
investor or to the person designated by the group for distribution to its
members, will be made within five business days after the end of each quarterly
period and shall reflect all transactions in the investor's account during the
preceding quarter.
All shareholders will receive a confirmation of each new transaction in their
accounts. CERTIFICATES REPRESENTING SHARES OF THE COMPANY WILL NOT BE ISSUED
UNLESS THE SHAREHOLDER REQUESTS THEM IN WRITING.
Self-Employed and Corporate Retirement Plans. For self-employed individuals and
corporate investors that wish to purchase shares of a Fund, there is available
through the Company a Prototype Plan and Custody Agreement. The Custody
Agreement provides that ____________________, will act as Custodian under the
Plan, and will furnish custodial services for an annual maintenance fee of
$______ for each participant, with no other charges. (This fee is in addition to
the normal Custodian charges paid by the Company.) The annual contract
maintenance fee may be waived from time to time. For further details, including
the right to appoint a successor Custodian, see the Plan and Custody Agreements
as provided by the Company. Employers who wish to use shares of the Company
under a custodianship with another bank or trust company must make individual
arrangements with such institution.
Individual Retirement Accounts. Investors having earned income are eligible to
purchase shares of the Funds under an IRA pursuant to Section 408(a) of the
Internal Revenue Code. An individual who creates an IRA may contribute annually
certain dollar amounts of earned income, and an additional amount if there is a
non-working spouse. Simple IRA plans which employers may establish on behalf of
their employees are also available. Copies of model Custodial Account Agreements
are available from the Distributor. ______________, will act as the Custodian
under these model Agreements, for which it will charge the investor an annual
fee of $_____ for maintaining the Account (such fee is in addition to the normal
custodial charges paid by the Company). Full details on the IRA and Simple IRA
are contained in IRS required disclosure statements, and the Custodian will not
open an IRA until seven (7) days after the investor has received such statement
from the Company. An IRA using shares of the Funds may also be used by employers
who have adopted a Simplified Employee Pension Plan.
Purchases of shares of the Funds by Section 403(b) and other retirement plans
are also available. It is advisable for an investor considering the funding of
any retirement plan to consult with an attorney or to obtain advice from a
competent retirement plan consultant.
Telephone Redemption and Exchange Privileges. As discussed in the Prospectus,
the telephone redemption and exchange privileges are available for all
shareholder accounts; however, retirement accounts may not utilize the telephone
redemption privilege. The telephone privileges may be modified or terminated at
any time. The privileges are subject to the conditions and provisions set forth
below and in the Prospectus.
1. Telephone redemption and/or exchange instructions received in
good order before the pricing of a Fund on any day on which the
New York Stock Exchange is open for business (a "Business Day"),
but not later than 4:00 p.m. eastern time, will be processed at
that day's closing net asset value. For each exchange, the
shareholder's account may be charged an exchange fee. There is no
fee for telephone redemption.
2. Telephone redemption and/or exchange instructions should be made
by dialing __________.
3. The Transfer Agent will not permit exchanges in violation of any
of the terms and conditions set forth in the Company's Prospectus
or herein.
4. Telephone redemption requests must meet the following conditions
to be accepted by the Transfer Agent:
(a) Proceeds of the redemption may be directly deposited into a
predetermined bank account, or mailed to the current address
on the registration. This address cannot reflect any change
within the previous sixty (60) days.
(b) Certain account information will need to be provided for
verification purposes before the redemption will be
executed.
(c) Only one telephone redemption (where proceeds are being
mailed to the address of record) can be processed within a
30 day period.
(d) The maximum amount which can be liquidated and sent to the
address of record at any one time is $50,000.
(e) The minimum amount which can be liquidated and sent to a
predetermined bank account is $5,000.
DISTRIBUTIONS
As noted in the Prospectus, Shareholders have the privilege of reinvesting both
income dividends and capital gains distributions, if any, in additional shares
of the Funds at the then current net asset value, with no sales charge.
Alternatively, a Shareholder can elect at any time to receive dividends and/or
capital gains distributions in cash. In the absence of such an election, each
purchase of shares of a Fund is made upon the condition and understanding that
the Transfer Agent is automatically appointed the Shareholder's agent to receive
his dividends and distributions upon all shares registered in his name and to
reinvest them in full and fractional shares of the shares of the respective Fund
at the applicable net asset value in effect at the close of business on the
reinvestment date. A Shareholder may still at any time after a purchase of
shares of a Fund request that dividends and/or capital gains distributions be
paid to him in cash.
TAX CONSIDERATIONS
The following discussion summarizes certain U.S. federal tax considerations
generally affecting the Funds and their shareholders. This discussion does not
provide a detailed explanation of all tax consequences, and shareholders are
advised to consult their own tax advisers with respect to the particular
consequences to them of an investment in a Fund.
Qualification as a Regulated Investment Company. Each Fund intends to qualify as
a regulated investment company under the Internal Revenue Code of 1986, as
amended (the "Code"). To so qualify, each fund must, among other things, in each
taxable year: (a) derive at least 90% of its gross income from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock or securities and gains from the sale or other
disposition of foreign currencies, or other income (including gains from
options, futures contracts and forward contracts) derived with respect to the
Fund's business of investing in stocks, securities or currencies; (b) diversify
its holdings so that, at the end of each quarter, (i) at least 50% of the value
of the Fund's total assets is represented by cash and cash items, U.S.
government securities, securities of other regulated investment companies, and
other securities, with such other securities limited in respect of any one
issuer to an amount not greater in value than 5% of the Fund's total assets and
to not more than 10% of the outstanding voting securities of such issuer, and
(ii) not more than 25% of the value of the Fund's total assets is invested in
the securities (other than U.S. government securities or securities of other
regulated investment companies) of any one issuer or of any two or more issuers
that the Fund controls and that are determined to be engaged in the same
business or similar or related businesses; and (c) 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 net long-term
capital losses).
The status of the Funds as regulated investment companies does not involve
government supervision of management or of their investment practices or
policies. As regulated investment companies, the Funds generally will be
relieved of liability for U.S. federal income tax on that portion of their
investment company taxable income and net realized capital gains which they
distribute to their shareholders. Amounts not distributed on a timely basis in
accordance with a calendar year distribution requirement also are subject to a
nondeductible 4% excise tax. To prevent application of the excise tax, each Fund
intends to make distributions in accordance with the calendar year distribution
requirement.
Distributions. Dividends of investment company taxable income (including net
short-term capital gains) are taxable to shareholders as ordinary income. A
Fund's distributions of investment company taxable income may be eligible for
the corporate dividends-received deduction to the extent attributable to the
Fund's dividend income from U.S. corporations, and if other applicable
requirements are met. However, the alternative minimum tax applicable to
corporations may reduce the benefit of the dividends-received deduction.
Distributions of net capital gains (the excess of net long-term capital gains
over net short-term capital losses) designated by a Fund as capital gain
dividends are taxable to shareholders as long-term capital gains, regardless of
the length of time the Fund's shares have been held by a shareholder, and are
not eligible for the dividends-received deduction. Generally, dividends and
distributions are taxable to shareholders, whether received in cash or
reinvested in shares of the Funds. Any distributions that are not from the
Funds' investment company taxable income or net capital gain may be
characterized as a return of capital to shareholders or, in some cases, as
capital gain. Shareholders will be notified annually as to the federal tax
status of dividends and distributions they receive and any tax withheld thereon.
Recent tax legislation creates an additional category of capital gain called
"mid-term capital gain." The Company will monitor developments regarding
mid-term capital gain and the appropriate application of the recently revised
capital gain tax rates to the Funds and their shareholders.
Dividends, including capital gain dividends, declared in October, November, or
December with a record date in such month and paid during the following January
will be treated as having been paid by a Fund and received by shareholders on
December 31 of the calendar year in which declared, rather than the calendar
year in which the dividends are actually received.
Distributions by a Fund reduces the Net Asset Value of the Fund's shares. Should
a distribution reduce the net asset value below a shareholder's cost basis, the
distribution nevertheless may be taxable to the shareholder as ordinary income
or capital gain as described above, even though, from an investment standpoint,
it may constitute a partial return of capital. In particular, investors should
be careful to consider the tax implication of buying shares just prior to a
distribution by a Fund. The price of shares purchased at that time includes the
amount of the forthcoming distribution, but the distribution will generally be
taxable to the Shareholder.
Original Issue Discount. Certain debt securities acquired by the Funds may be
treated as debt securities that were originally issued at a discount. Original
issue discount can generally be defined as the difference between the price at
which a security was issued and its stated redemption price at maturity.
Although no cash income is actually received by a Fund, original issue discount
that accrues on a debt security in a given year generally is treated for federal
income tax purposes as interest and, therefore, such income would be subject to
the distribution requirements of the Code.
Some debt securities may be purchased by the Funds at a discount which exceeds
the original issue discount on such debt securities, if any. This additional
discount represents market discount for federal income tax purposes. The gain
realized on the disposition of any taxable debt security having market discount
generally will be treated as ordinary income to the extent it does not exceed
the accrued market discount on such debt security. Generally, market discount
accrues on a daily basis for each day the debt security is held by a Fund at a
constant rate over the time remaining to the debt security's maturity or, at the
election of a Fund, at a constant yield to maturity which takes into account the
semi-annual compounding of interest.
Options, Futures and Foreign Currency Forward Contracts; Straddle Rules
A Fund's transactions in foreign currencies, forward contracts, options, and
futures contracts (including options and futures contracts on foreign
currencies) will be subject to special provisions of the Code that, among other
things, may affect the character of gains and losses realized by the Fund (that
is, may affect whether gains or losses are ordinary or capital), accelerate
recognition of income to the Fund, defer Fund losses, and affect the
determination of whether capital gains and losses are characterized as long-term
or short-term capital gains or losses. These rules could therefore, in turn,
affect the character, amount, and timing of distributions to shareholders. These
provisions also may require the Fund to mark-to-market certain positions in its
portfolio (that is, treat them as if they were closed out), which may cause the
Fund to recognize income without receiving cash with which to make distributions
in amounts necessary to satisfy its distribution requirements for relief from
income and excise taxes. Each Fund will monitor its transactions and may make
such tax elections as Fund management deems appropriate with respect to foreign
currency, options, futures contracts, forward contracts, or hedged investments.
The Funds' status as regulated investment companies may limit their transactions
involving foreign currency, futures, options, and forward contracts.
Certain transactions undertaken by a Fund may result in "straddles" for federal
income tax purposes. The straddle rules may affect the character of gains (or
losses) realized by a Fund, and losses realized by the Fund on positions that
are part of a straddle may be deferred under the straddle rules, rather than
being taken into account in calculating the taxable income for the taxable year
in which the losses are realized. In addition, certain carrying charges
(including interest expense) associated with positions in a straddle may be
required to be capitalized rather than deducted currently. Certain elections
that a Fund may make with respect to its straddle positions may also affect the
amount, character and timing of the recognition of gains or losses from the
affected positions.
Constructive Sales
Recently enacted rules will affect the timing and character of gain from certain
transactions in which a Fund engages to reduce or eliminate the risk of loss
with respect to appreciated financial positions. For example, if a Fund enters
into a short sale of property while holding property substantially identical to
that sold short, the entry into the contract will generally constitute a
constructive sale and the Fund will recognize gain (but not loss) as if the
property it held had been sold. The character of gain from a constructive sale
will depend upon the Fund's holding period in the property. If a short sale
results in loss, the loss will be recognized at the time of the closing of the
short sale, and its character will depend on the Fund's holding period in the
property.
Currency Fluctuation - Section 988 Gains and Losses
Gains or losses attributable to fluctuations in foreign currency exchange rates
that occur between the time a Fund accrues receivables or expenses denominated
in a foreign currency and the time the Trust actually collects such receivables
or pays such liabilities generally are treated as ordinary income or loss.
Similarly, on disposition of certain investments (including debt securities
denominated in a foreign currency and 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
other instrument and the date of disposition also are treated as ordinary income
or loss. These gains or losses, referred to under the Code as "Section 988"
gains or losses, may increase or decrease the amount of the Funds' investment
company taxable income available to be distributed to its shareholders as
ordinary income.
Passive Foreign Investment Companies
The Funds may invest in the stock of foreign companies that may be classified
under the Code as passive foreign investment companies ("PFICs"). In general, a
foreign corporation is classified as a PFIC if at least one-half of its assets
constitute passive assets (such as stocks or securities) or if 75% or more of
its gross income is passive income (such as, but not limited to, interest,
dividends, and capital gain from the sale of securities). If a Fund receives an
"excess distribution" with respect to PFIC stock, the Fund will generally be
subject to tax on the distribution as if it were realized ratably over the
period during which the shareholder held the PFIC stock. The Fund will be
subject to tax on the portion of an excess distribution that is allocated to
prior Fund taxable years, and an interest factor will be added to the tax, as if
it were payable in such prior taxable years. Certain distributions from a PFIC
and gain from the sale of PFIC shares are treated as excess distributions.
Excess distributions are characterized as ordinary income even though, absent
application of the PFIC rules, certain excess distributions might have been
classified as capital gain.
The Funds may be eligible to elect alternative tax treatment with respect to
PFIC stock. Under an election that is available in some circumstances, a Fund
generally would be required to include in its gross income its share of the
earnings of a PFIC on a current basis, regardless of whether distributions were
received from the PFIC in a given year. If this election were made, the rules
relating to the taxation of excess distributions would not apply. In addition,
another election would involve marking to market the Fund's PFIC shares at the
end of each taxable year, with the result that unrealized gains would be treated
as though they were realized and reported as ordinary income. Any mark-to-market
losses and any loss from an actual disposition of PFIC shares would be
deductible as ordinary losses to the extent of any net mark-to-market gains
included in income in prior years.
Other Investment Companies. It is possible that by investing in other investment
companies, the Funds may not be able to meet the calendar year distribution
requirement and may be subject to federal income and excise tax. The
diversification and distribution requirements applicable to the Funds may limit
the extent to which the Funds will be able to invest in other investment
companies.
Sale or Other Disposition of Shares. Upon the sale or exchange of his shares, a
shareholder will realize a taxable gain or loss depending upon his basis in the
shares. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands, and generally will be long-term
if the shareholder's holding period for the shares is more than eighteen months,
mid-term if the shareholder's holding period is more than one year but not more
than eighteen months, and generally otherwise will be short-term. Any loss
realized on a sale or exchange will be disallowed to the extent that the shares
disposed of are replaced (including replacement through the reinvesting of
dividends and capital gain distributions) within a period of 61 days beginning
30 days before and ending 30 days after the disposition of the shares. In such a
case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss. Any loss realized by a shareholder on the sale of Fund shares
held by the shareholder for six months or less will be treated for federal
income tax purposes as a long-term capital loss to the extent of any
distributions of capital gain dividends received by the shareholder with respect
to such shares.
In some cases, shareholders will not be permitted to take sales charges into
account for purposes of determining the amount of gain or loss realized on the
disposition of their shares. This prohibition generally applies where (1) the
shareholder incurs a sales charge in acquiring Fund shares, (2) the shares are
disposed of before the 91st day after the date on which they were acquired, and
(3) the shareholder subsequently acquires shares of the same or another Fund and
the otherwise applicable sales charge is reduced or eliminated under a
"reinvestment right" received upon the initial purchase of shares. In that case,
the gain or loss recognized will be determined by excluding from the tax basis
of the shares exchanged all or a portion of the sales charge incurred in
acquiring those shares. This exclusion applies to the extent that the otherwise
applicable sales charge with respect to the newly acquired shares is reduced as
a result of having incurred a sales charge initially. Sales charges affected by
this rule are treated as if they were incurred with respect to the stock
acquired under the reinvestment right. This provision may be applied to
successive acquisitions of stock.
Backup Withholding. Each Fund generally will be required to withhold federal
income tax at a rate of 31% ("backup withholding") from dividends paid, capital
gain distributions, and redemption proceeds to shareholders if (1) the
shareholder fails to furnish the Fund with the shareholder's correct taxpayer
identification number or social security number and to make such certifications
as the Fund may require, (2) the IRS notifies the shareholder or the Fund that
the shareholder has failed to report properly certain interest and dividend
income to the IRS and to respond to notices to that effect, or (3) when required
to do so, the shareholder fails to certify that he is not subject to backup
withholding. Any amounts withheld may be credited against the shareholder's
federal income tax liability.
Foreign Shareholders. Taxation of a Fund shareholder who, as to the United
States, is a nonresident alien individual, foreign trust or estate, foreign
corporation, or foreign partnership ("foreign shareholder"), depends on whether
the income from the Fund is "effectively connected" with a U.S. trade or
business carried on by such shareholder.
If the income from the Fund is not effectively connected with a U.S. trade or
business carried on by a foreign shareholder, ordinary income dividends will be
subject to U.S. withholding tax at the rate of 30% (or lower treaty rate) upon
the gross amount of the dividend. The foreign shareholder would generally be
exempt from U.S. federal income tax on gains realized on the sale of shares of
the Fund, capital gain dividends and amounts retained by the Fund that are
designated as undistributed capital gains.
If the income from a Fund is effectively connected with a U.S. trade or business
carried on by a foreign shareholder, then ordinary income dividends, capital
gain dividends and any gains realized upon the sale of shares of the Funds will
be subject to U.S. federal income tax at the rates applicable to U.S. citizens
or domestic corporations.
Foreign noncorporate shareholders may be subject to backup withholding on
distributions that are otherwise exempt from withholding tax (or taxable at a
reduced treaty rate) unless such shareholders furnish the Fund with proper
certification of their foreign status.
The tax consequences to a foreign shareholder entitled to claim the benefits of
an applicable tax treaty may be different from those described herein. Foreign
shareholders are urged to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in the Funds, including the
applicability of foreign taxes. Future Changes in Law; Other Taxes
The foregoing general discussion of U.S. federal income tax consequences is
based on the Code and the Treasury Regulations issued thereunder as in effect on
the date of this Prospectus. Future legislative or administrative changes or
court decisions may significantly change the conclusions expressed herein, and
any such changes or decisions may have a retroactive effect with respect to the
transaction contemplated herein.
Rules of state and local taxation of ordinary income dividends and capital gains
dividends from regulated investment companies often differ from the rules for
U.S. federal income taxation described above. Shareholders are urged to consult
their tax advisers as to the consequences of these and other state and local tax
rules affecting investment in the Funds.
SHAREHOLDER INFORMATION
Certificates representing shares of the Funds will not normally be issued to
shareholders. The Transfer Agent will maintain an account for each shareholder
upon which the registration and transfer of shares are recorded, and any
transfers shall be reflected by bookkeeping entry, without physical delivery.
The Transfer Agent will require that a Shareholder provide requests in writing,
accompanied by a valid signature guarantee form, when changing certain
information in an account (i.e., wiring instructions, telephone privileges,
etc.).
The Company reserves the right, if conditions exist that make cash payments
undesirable, to honor any request for redemption or repurchase order with
respect to shares of the Funds by making payment in whole or in part in readily
marketable securities chosen by the Company and valued as they are for purposes
of computing the particular Fund's net asset value (redemption-in-kind). If
payment is made in securities, a shareholder may incur transaction expenses in
converting theses securities to cash. The Company has elected, however, to be
governed by Rule 18f-1 under the 1940 Act as a result of which the Funds are
obligated to redeem shares with respect to any one shareholder during any 90-day
period solely in cash up to the lesser of $250,000 or 1% of the net asset value
of the particular Fund at the beginning of the period.
CALCULATION OF PERFORMANCE DATA
The Global Fund may, from time to time, include "total return" in advertisements
or reports to shareholders or prospective investors. Quotations of average
annual total return will be expressed in terms of the average annual compounded
rate of return of a hypothetical investment in The Global Fund over periods of
1, 5 and 10 years (up to the life of The Global Fund), calculated pursuant to
the following formula which is prescribed by the SEC:
P(1 + T)n = ERV
Where:
P= a hypothetical initial payment of $1,000,
T= the average annual total return,
n = the number of years, and
ERV = the ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the period.
All total return figures assume that all dividends are reinvested when paid.
From time to time, The Global Fund may advertise its average annual total return
over various periods of time. These total return figures show the average
percentage change in the value of an investment in The Global Fund from the
beginning date of the measuring period. These figures reflect changes in the
price of The Global Fund's shares and assume that any income dividends and/or
capital gains distributions made by The Global Fund during the period were
reinvested in shares of The Global Fund. Figures will be given for one, five and
ten year periods (if applicable) and may be given for other periods as well
(such as from commencement of The Global Fund's operations, or on a year-by-year
basis).
Quotations of yield for The Global Fund will be based on all investment income
per share earned during a particular 30-day period (including dividends and
interest), less expenses accrued during the period ("net investment income") and
are computed by dividing net investment income by the maximum offering price per
share on the last day of the period, according to the following formula:
[formula omitted]
Where:
a = dividends and interest earned during the period,
b = expenses accrued for the period (net of reimbursements),
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends, and
d = the maximum offering price per share on the last day of the
period.
The Money Market Fund may advertise its yield or effective yield in
advertisements and reports to shareholders or prospective investors. Yield is
based on a seven-day period and is computed by determining the next change
(excluding capital changes) in the value of a hypothetical account having a
balance of one share at the beginning of the period, subtracting a hypothetical
charge reflecting deductions from shareholder accounts, and dividing the
difference by the value of the account at the beginning of the base period. The
result is a "base period return," which is then annualized - that is, the amount
of income generated during the seven-day period is assumed to be generated each
week over a 52-week period - and shown as an annual percentage of the
investment.
The effective yield of The Money Market Fund is calculated similarly, but the
base period return is assumed to be reinvested. The assumed reinvestment is
calculated by adding 1 to the base period return, raising the sum to a power
equal to 365 divided by seven, and subtracting one from the result, according to
the following formula:
Effective Yield = [(Base Period Return + 1)]365/7 - 1
Calculations of effective yield will always include the value of additional
shares purchased with dividends from the original share and dividends declared
on both the original share and any such additional shares and all fees, other
than nonrecurring account or sales charges which may be charged to all
shareholder accounts in proportion to the length of the base period. However,
all yield and effective yield calculations exclude realized gains and losses and
unrealized appreciation and depreciation.
Additional Performance Quotations. Advertisements of total return will always
show a calculation that includes the effect of the maximum sales charge but may
also show total return without giving effect to that charge. Because these
additional quotations will not reflect the maximum sales charge payable, these
performance quotations will be higher than the performance quotations that
reflect the maximum sales charge.
Total returns are based on past results and are not necessarily a prediction of
future performance.
Performance Comparisons. In reports or other communications to shareholders or
in advertising material, the Funds may compare the performance of their shares
with that of other mutual funds as listed in the rankings prepared by Lipper
Analytical Services, Inc., Morningstar, Inc., CDA Technologies, Inc. or similar
independent services that monitor the performance of mutual funds or with other
appropriate indexes of investment securities. In addition, certain indexes may
be used to illustrate historic performance of select asset classes. The
performance information may also include evaluations of the Funds published by
nationally recognized ranking services and by financial publications that are
nationally recognized, such as Business Week, Forbes, Fortune, Institutional
Investor, Money and The Wall Street Journal. If the Funds compare their
performance to other funds or to relevant indexes, the Funds' performance will
be stated in the same terms in which such comparative data and indexes are
stated, which is normally total return rather than yield. For these purposes the
performance of the Funds, as well as the performance of such investment
companies or indexes, may not reflect sales charges, which, if reflected, would
reduce performance results.
Reports and promotional literature may also contain the following information:
(i) a description of the gross national or domestic product and populations,
including age characteristics, of various countries and regions in which the
Funds may invest, as compiled by various organizations, and projections of such
information; (ii) the performance of U. S. equity and debt markets; (iii) the
geographic distribution of the Company's portfolios; and (iv) the number of
shareholders in the Funds and the dollar amount of the assets under management.
In addition, reports and promotional literature may contain information
concerning the Investment Advisor or affiliates of the Company or the Investment
Advisor, including (i) performance rankings of other funds managed by the
Investment Advisor, or the individuals employed by the Investment Advisor who
exercise responsibility for the day-to-day management of the Company, including
rankings of mutual funds published by Lipper Analytical Services, Inc.,
Morningstar, Inc., CDA Technologies, Inc., or other rating services, companies,
publications or other persons who rank mutual funds or other investment products
on overall performance or other criteria; and (ii) lists of clients, the number
of clients, or assets under management.
GENERAL INFORMATION
Custodian. The cash and securities owned by the Company are held by
______________________, as Custodian, which takes no part in the decisions
relating to the purchase or sale of the Company's portfolio securities.
Legal Counsel. Legal matters for the Company are passed upon by Dechert Price &
Rhoads, 1500 K Street, N.W., Washington, D.C. 20005.
Independent Auditors. Arthur Andersen, LLP, _________, California _______, acts
as independent auditors for the Company.
Other Information. The Company is registered with the SEC as an open-end
management investment company. Such registration does not involve supervision of
the management or policies of the Company by any governmental agency. The
Prospectus and this Statement of Additional Information omit certain of the
information contained in the Registration Statement filed with the SEC and
copies of this information may be obtained from the SEC upon payment of the
prescribed fee or examined at the SEC in Washington, D.C. without charge.
Investors in the Funds will be kept informed of their progress through
semi-annual reports showing portfolio composition, statistical data and any
other significant data, including financial statements audited by the
independent certified public accountants.
FINANCIAL STATEMENTS
Since the Company was only recently organized and this is the first offering of
the Funds' shares, there are no financial statements at this time.
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. Financial Statements and Exhibits
(a) Financial Statements
An audited Statement of Assets and Liabilities will be filed
by Pre-Effective Amendment.
(b) Exhibits
(1) -- Articles of Incorporation
(2) -- Bylaws
(3) -- Not Applicable
(4) -- Not Applicable
(5) -- Form of Investment Advisory Agreement+
(6) -- Form of Distribution Agreement+
(7) -- Not Applicable
(8) -- Form of Custodian Agreement+
(9) --- Form of Business Management Agreement+, Form of
Transfer Agency Agreement+, Form of Shareholder
Services Agreement+
(10) -- Opinion and Consent of Dechert Price & Rhoads+
(11) -- Consent of Independent Accountants+
(12) -- Not Applicable
(13) -- Initial Capital Agreement+
(14) -- Not Applicable
(15) -- Not Applicable
(16) -- Schedule of Computation of Performance
Quotations+
(17) -- Financial Data Schedule+
(18) -- Not Applicable
+ - To be filed by amendment.
<PAGE>
ITEM 25. Persons Controlled by or under Common Control with Registrant
Not Applicable.
ITEM 26. Number of Holders of Securities
As of the date of this Registration Statement, there were no
shareholders of record holding shares of the Company.
ITEM 27. Indemnification
Section 2-418 of the General Corporation Law of the State of Maryland,
Article VII of the Company's Articles of Incorporation, Article VI of the
Company's Bylaws, and the Business Management Agreement filed as Exhibit 5
provide for indemnification.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the Registrant, pursuant to the foregoing provisions or
otherwise, the 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 the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Company in the successful defense of any action, suit or
proceeding) is asserted by such a director, 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 28. Business and Other Connections of the Investment Adviser
Information as to the directors and officers of the Investment
Advisers, together with information as to any other business, profession,
vocation or employment of a substantial nature engaged in by the directors and
officers of the Investment Advisers in the last two years, is included in their
applications for registration as investment advisers on Form ADV filed under the
Investment Advisers Act of 1940 and is incorporated herein by reference thereto.
ITEM 29. Principal Underwriters
(a) Not Applicable
(b) Not Applicable
(c) Not Applicable
<PAGE>
ITEM 30. Location of Accounts and Records
<PAGE>
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the rules promulgated
thereunder are maintained at the offices of the First Data Investor Services
Group, Inc. whose principal business address is 53 State Street, Boston,
Massachusetts 02109 and at the offices of the Registrant at 433 California
Street, Suite 904, San Francisco, California 94104.
ITEM 31. Management Services
Not Applicable
ITEM 32. Undertakings
(a) Not Applicable
(b) Registrant undertakes to file a post-effective amendment, using
financial statements, which need not be certified, within four to six months
from the effective date of this registration statement under the Securities Act
of 1933, as amended, or on the date on which Registrant becomes operational.
(c) Not Applicable
(d) Registrant undertakes to call a meeting of Shareholders for the
purpose of voting upon the question of removal of a Director or Directors when
requested to do so by the holders of at least 10% of the Registrant's
outstanding shares of beneficial interest and in connection with such meeting to
comply with the shareholders communications provisions of Section 16(c) of the
Investment Company Act of 1940.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, Registrant has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of San Francisco and State of California
on the ___ day of ______, 1997.
FORWARD FUNDS, INC.
By: /s/
President
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Robert Helm, Jeffrey S. Puretz,
Jack W. Murphy and Jeffrey L. Steele or any one of them, his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place, and stead, in any and all
capacities, to sign any and all pre- and post-effective amendments to this
Registration Statement, and to file the same with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in connection therewith, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the date indicated.
Signature Title Date
/s/ Director and President ______ _, 1997
- ----------------------
Ronald Pelosi (Principal Executive Officer)
/s/ Director, Treasurer and Secretary ______ _, 1997
- ----------------------
John Mallen (Principal Financial and
Accounting Officer)
ARTICLES OF INCORPORATION OF
FORWARD FUNDS, INC.
ARTICLE I
INCORPORATOR
THE UNDERSIGNED, Dilia M. Caballero, whose address is 200 Yoakum Parkway #613,
Alexandria, Virginia 22304, being at least eighteen (18) years of age, does
hereby act as incorporator to form a corporation under and by virtue of the
Maryland General Corporation Law.
ARTICLE II
NAME
The name of the corporation is Forward Funds, Inc. (the "Corporation").
ARTICLE III
CORPORATE PURPOSES AND POWERS
The purpose or purposes for which the Corporation is formed is to act as an
investment company under the federal Investment Company Act of 1940, and to
exercise and enjoy all the powers, rights and privileges granted to, or
conferred upon, corporations by the General Laws of the State of Maryland. The
Corporation shall exercise and enjoy all such powers, rights and privileges to
the extent not inconsistent with these Articles of Incorporation.
ARTICLE IV
PRINCIPAL OFFICE AND RESIDENT AGENT
The post office address of the principal office of the Corporation in the State
of Maryland is c/o The Corporation Trust Incorporated, 32 South Street,
Baltimore, Maryland 21202. The name of the Corporation's resident agent in the
State of Maryland is The Corporation Trust Incorporated, a corporation of the
State of Maryland, and the post office address of the resident agent is 32 South
Street, Baltimore, Maryland 21202.
<PAGE>
ARTICLE V
CAPITAL STOCK
5.1 Authorized Shares. The total number of shares of capital stock which the
Corporation shall have authority to issue is six hundred million (600,000,000)
shares of the par value of one tenth of one cent ($0.001) per share and an
aggregate par value of six hundred thousand dollars ($600,000), all of which
shares are designated Common Stock.
5.2 Authorization of Stock Issuance. The Board of Directors may authorize the
issuance and sale of capital stock of the Corporation, including stock of any
class or series, from time to time in such amounts and on such terms and
conditions, for such purposes and for such amount or kind of consideration as
the Board of Directors shall determine, subject to any limits required by then
applicable law. All shares shall be issued on a fully paid and non-assessable
basis.
5.3 Fractional Shares. The Corporation may issue fractional shares. Any
fractional shares shall carry proportionately the rights of a whole share,
excepting the right to receive a certificate evidencing such fractional share,
but including, without limitation, the right to vote and to receive dividends.
5.4 Power to Classify. The Board of Directors of the Corporation may classify
and reclassify any unissued shares of capital stock into one or more additional
or other classes or series as may be established from time to time by setting or
changing in any one or more respects the designations, preferences, conversion
or other rights, voting powers, restrictions, limitations as to dividends,
qualifications or terms of such shares of stock and pursuant to such
classification or reclassification to increase or decrease the number of
authorized shares of stock, or shares of any existing class or series of stock.
Except as otherwise provided herein, all references herein to capital stock
shall apply without discrimination to the shares of each class or series of
stock. Pursuant to such power, the Board of Directors has initially designated
600,000,000 shares of its capital stock into two series of shares of capital
stock of the Corporation, each such series to have two classes of shares to be
designated Class A and Class B. The names of each series and the number of
shares allocated to each, and to each class therein, are as follows:
Name of Series Number of Shares Initially
Allocated
Class A Class B
The Money Market Fund 400,000,000 -0-
The Global Fund 200,000,000 -0-
5.5 Classes and Series - General. The relative preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption of each class or series
of stock of the Corporation shall be as follows, unless otherwise provided in
Articles Supplementary hereto:
(a) Assets Belonging to Class or Series. All consideration received by the
Corporation for the issue or sale of stock of a particular series
(including all classes of such series), together with all assets in
which such consideration is invested or reinvested, all income,
earnings, profits and proceeds thereof, including any proceeds derived
from the sale, exchange or liquidation of such assets, and any funds
or payments derived from any reinvestment of such proceeds in whatever
form the same may be, shall irrevocably belong to that series for all
purposes, subject only to the rights of creditors and to the terms and
conditions of each class (if any) of that series, and shall be so
recorded on the books of account of the Corporation. Any assets,
income, earnings, profits or proceeds thereof, funds or payments which
are not readily attributable to a particular series shall be allocated
to and among any one or more series in such manner and on such basis
as the Board of Directors, in its sole discretion, shall deem fair and
equitable, and items so allocated to a particular series shall belong
to that series. Each such allocation shall be conclusive and binding
upon the stockholders of all series for all purposes.
(b) Liabilities Belonging to Class or Series. The assets belonging to each
series shall be charged with the liabilities of the Corporation in
respect of that series and with all expenses, costs, charges and
reserves attributable to that series and shall be so recorded on the
books of account of the Corporation; provided, however, that
identified costs, expenses, charges, reserves and liabilities properly
allocable to a particular class of a series shall be charged to and
borne solely by such class. Any general liabilities, expenses, costs,
charges or reserves of the Corporation which are not readily
identifiable as belonging to any particular class or series shall be
allocated and charged to and among any one or more of the classes or
series in such manner and on such basis as the Board of Directors in
its sole discretion deems fair and equitable, and any items so
allocated to a particular class or series shall be charged to, and
shall be a liability belonging to, that class or series. Each such
allocation shall be conclusive and binding upon the stockholders of
all classes and series for all purposes.
(c) Income. The Board of Directors shall have full discretion, to the
extent not inconsistent with the General Laws of the State of Maryland
and the Investment Company Act of 1940, to determine which items shall
be treated as income and which items shall be treated as capital. Each
such determination shall be conclusive and binding.
(d) Dividends and Distributions. The holders of each class or series of
capital stock of record as of a date determined by the Board of
Directors from time to time shall be entitled, from funds or other
assets legally available therefor, to dividends and distributions,
including distributions of capital gains, in such amounts and at such
times as may be determined by the Board of Directors. The Board of
Directors may determine that no dividend or distributions shall be
payable on shares as to which the purchase order, payment or both have
not been received by a specific date. Any such dividends or
distributions may be declared payable in cash, property or shares of
the class or series, as determined by the Board of Directors or
pursuant to a standing resolution or program adopted or approved by
the Board of Directors. Dividends and distributions may be declared
with such frequency, including daily, as the Board of Directors may
determine and in any reasonable manner, including by standing
resolution, by resolutions adopted only once or with such frequency as
the Board of Directors may determine, or by formula or other similar
method of determination, whether or not the amount of the dividend or
distribution so declared can be calculated at the time of such
declaration. The Board of Directors may establish payment dates for
such dividends and distributions on any basis, including payment that
is less frequent than the effectiveness of such declarations. The
Board of Directors shall have the discretion to designate for such
dividends and distributions amounts sufficient to enable the
Corporation or any class or series thereof to qualify as a "regulated
investment company" under the Internal Revenue Code of 1986 or any
successor or comparable statute, and regulations promulgated
thereunder (collectively, the "IRC"), and to avoid liability of the
Corporation or any class or series for Federal income tax in respect
of a given year and to make other appropriate adjustments in
connection therewith. Nothing in the foregoing sentence shall limit
the authority of the Board of Directors to designate greater or lesser
amounts for such dividends or distributions. The amounts of dividends
and distributions declared and paid with respect to the various
classes or series of capital stock and the timing of declaration and
payment of such dividends and distributions may vary among such
classes and series.
(e) Tax Elections. The Board of Directors shall have the power, in its
discretion, to make such elections as to the tax status of the
Corporation or any series or class of the Corporation as may be
permitted or required by the IRC without the vote of stockholders of
the Corporation or any series or class.
(f) Liquidation. At any time there are no shares outstanding for a
particular class or series, the Board of Directors may liquidate such
class or series in accordance with applicable law. In the event of the
liquidation or dissolution of the Corporation, or of a class or series
thereof when there are shares outstanding of the Corporation or of
such class or series, as applicable, the stockholders of such, or of
each, class or series, as applicable, shall be entitled to receive,
when and as declared by the Board of Directors, the excess of the
assets attributable to that class or series over the liabilities of
that class or series, determined as provided herein and including
assets and liabilities allocated pursuant to sections (a) and (b) of
this Article 5.5. Any such excess amounts will be distributed to each
stockholder of the applicable class or series in proportion to the
number of outstanding shares of that class or series held by that
stockholder and recorded on the books of the Corporation. Subject to
the requirements of applicable law, dissolution of a class or series
may be accomplished by distribution of assets to stockholders of that
class or series as provided herein, by the transfer of assets
attributable to that class or series to another class or series of the
Corporation, by the exchange of shares of that class or series for
shares of another class or series of the Corporation, or in any other
legal manner.
(g) Voting Rights. On each matter submitted to a vote of stockholders,
each holder of a share of capital stock of the Corporation shall be
entitled to one vote for each full share, and a fractional vote for
each fractional share of stock standing in such holder's name on the
books of the Corporation, irrespective of the class or series thereof,
and all shares of all classes and series shall vote together as a
single class, provided that (a) when the Maryland General Corporation
Law or the Investment Company Act of 1940 requires that a class or
series vote separately with respect to a given matter, the separate
voting requirements of the applicable law shall govern with respect to
the affected class(es) and/or series and other classes and series
shall vote as a single class and (b) unless otherwise required by
those laws, no class or series shall vote on any matter which does not
affect the interest of that class or series.
(h) Quorum. The presence in person or by proxy of the holders of one-third
of the shares of stock of the Corporation entitled to vote thereat,
without regard to class or series, shall constitute a quorum at any
meeting of the stockholders, except with respect to any matter which,
under applicable statutes or regulatory requirements, requires
approval by a separate vote of one or more classes or series of stock,
in which case the presence in person or by proxy of the holders of
one-third of the shares of stock of each class or series required to
vote as a class on the matter shall constitute a quorum. If at any
meeting of the stockholders there shall be less than a quorum present,
the stockholders present at such meeting may, without further notice,
adjourn the same from time to time until a quorum shall be present.
5.6 Equality. Each share of each series or class shall be equal to each other
share of that class or series and shall represent an equal proportionate
interest in the assets belonging to that series or class, subject to the
liabilities belonging to that series or class. The Board of Directors may from
time to time divide or combine the shares of any particular series or class into
a greater or lesser number of shares of that series or class without thereby
changing the proportionate beneficial interest in the assets belonging to that
series or class or in any way affecting the rights of shares of any other series
or class.
5.7 Conversion or Exchange Rights. Subject to compliance with the requirements
of the Investment Company Act of 1940, the Board of Directors shall have the
authority to provide that holders of shares of any series or class shall have
the right to convert or exchange such shares into shares of one or more other
series or classes in accordance with such requirements and procedures as may be
established by the Board of Directors.
5.8 Authorizing Vote. Notwithstanding any provision of the General Laws of the
State of Maryland requiring for any purpose a proportion greater than a majority
of all votes entitled to be cast, the affirmative vote of the holders of a
majority of the total number of shares of the Corporation, or of a class or
series of the Corporation, as applicable, outstanding and entitled to vote under
such circumstances pursuant to these Articles of Incorporation and the By-Laws
of the Corporation shall be effective for such purpose, except to the extent
otherwise required by the Investment Company Act of 1940 and rules thereunder;
provided that, to the extent consistent with the General Laws of the State of
Maryland and other applicable law, the By-Laws may provide for authorization to
be by the vote of a proportion less than a majority of the votes of the
Corporation, or of a class or series.
5.9 Preemptive Rights. No stockholder of the Corporation shall be entitled as of
right to subscribe for, purchase, or otherwise acquire any shares of any classes
or series, or any other securities of the Corporation which the Corporation
proposes to issue or sell; and any or all of such shares or securities of the
Corporation, whether now or hereafter authorized or created, may be issued, or
may be reissued or transferred if the same have been reacquired, and sold to
such persons, firms, corporations and associations, and for such lawful
consideration, and on such terms as the Board of Directors in its discretion may
determine, without first offering the same, or any thereof, to any said
stockholder.
5.10 Redemption.
(a) The Board of Directors shall authorize the Corporation, to the extent
it has funds or other property legally available therefor and subject
to such reasonable conditions as the directors may determine, to
permit each holder of shares of capital stock of the Corporation, or
of any class or series, to require the Corporation to redeem all or
any part of the shares standing in the name of such holder on the
books of the Corporation, at the applicable redemption price of such
shares (which may reflect the deduction of such fees and charges as
the Board of Directors may establish from time to time) determined in
accordance with procedures established by the Board of Directors of
the Corporation from time to time in accordance with applicable law.
(b) Without limiting the generality of the foregoing, the Board of
Directors may authorize the Corporation, at its option and to the
extent permitted by and in accordance with the conditions of
applicable law, to redeem stock of the Corporation, or of any class or
series, owned by any stockholder under circumstances deemed
appropriate by the Board of Directors in its sole discretion from time
to time, such circumstances including but not limited to (1) failure
to provide the Corporation with a tax identification number and (2)
failure to maintain ownership of a specified minimum number or value
of shares of any class or series of stock of the Corporation, such
redemption to be effected at such price, at such time and subject to
such conditions as may be required or permitted by applicable law.
(c) Payment for redeemed stock shall be made in cash unless, in the
opinion of the Board of Directors, which shall be conclusive,
conditions exist which make it advisable for the Corporation to make
payment wholly or partially in securities or other property or assets
of the class or series of the shares being redeemed. Payment made
wholly or partially in securities or other property or assets may be
delayed to such reasonable extent, not inconsistent with applicable
law, as is reasonably necessary under the circumstances. No
stockholder shall have the right, except as determined by the Board of
Directors, to have his shares redeemed in such securities, property or
other assets.
(d) All rights of a stockholder with respect to a share redeemed,
including the right to receive dividends and distributions with
respect to such share, shall cease and determine as of the time as of
which the redemption price to be paid for such shares shall be fixed,
in accordance with applicable law, except the right of such
stockholder to receive payment for such shares as provided herein.
(e) Notwithstanding any other provision of this Article 5.10, the Board of
Directors may suspend the right of stockholders of any or all classes
or series of shares to require the Corporation to redeem shares held
by them for such periods and to the extent permitted by, or in
accordance with, the Investment Company Act of 1940. The Board of
Directors may, in the absence of a ruling by a responsible regulatory
official, terminate such suspension at such time as the Board of
Directors, in its discretion, shall deem reasonable, such
determination to be conclusive.
(f) Shares of any class or series which have been redeemed shall
constitute authorized but unissued shares subject to classification
and reclassification as provided in these Articles of Incorporation.
5.11 Repurchase of Shares. The Board of Directors may by resolution from time to
time authorize the Corporation to purchase or otherwise acquire, directly or
through an agent, shares of any class or series of its outstanding stock upon
such terms and conditions and for such consideration as permitted by applicable
law and determined to be reasonable by the Board of Directors and to take all
other steps deemed necessary in connection therewith. Shares so purchased or
acquired shall have the status of authorized but unissued shares.
5.12 Valuation. Subject to the requirements of applicable law, the Board of
Directors may, in its absolute discretion, establish the basis or method, timing
and frequency for determining the value of assets belonging to each class or
series and for determining the net asset value of each share of each class or
series for purposes of sales, redemptions, repurchases or otherwise. Without
limiting the foregoing, the Board of Directors may determine that the net asset
value per share of any class or series should be maintained at a designated
constant value and may establish procedures, not inconsistent with applicable
law, to accomplish that result. Such procedures may include a requirement, in
the event of a net loss with respect to the particular class or series from time
to time, for automatic pro rata capital contributions from each stockholder of
that class or series in amounts sufficient to maintain the designated constant
share value.
5.13 Certificates. Subject to the requirements of the Maryland General
Corporation Law, the Board of Directors may authorize the issuance of some or
all of the shares of any or all classes or series without certificates and may
establish such conditions as it may determine in connection with the issuance of
certificates.
5.14 Shares Subject to Articles and Bylaws and Amendments. All persons who shall
acquire shares of capital stock in the Corporation shall acquire the same
subject to the provisions of these Articles of Incorporation and the By-Laws of
the Corporation, as each may be amended, supplemented and/or restated from time
to time.
5.15 Owner of Shares. The Corporation shall be entitled to treat the person in
whose name any share of the capital stock of the Corporation is registered as
the owner thereof for purposes of dividends and other distributions in the
course of business or in the course of recapitalization, consolidation, merger,
reorganization, liquidation, sale of the property and assets of the Corporation,
or otherwise, and for the purpose of votes, approvals and consents by
stockholders, and for the purpose of notices to stockholders, and for all other
purposes whatever; and the Corporation shall not be bound to recognize any
equitable or other claim to or interest in such share, on the part of any other
person, whether or not the Corporation shall have notice thereof, save as
expressly required by law.
ARTICLE VI
BOARD OF DIRECTORS
6.1 Number of Directors. Prior to the issuance of stock, the number of directors
of the Corporation shall be at least one and after the issuance of stock shall
be as provided in the By-Laws, provided that the By-Laws may, subject to the
limitations of the Maryland General Corporation Law, fix a different number of
directors and may authorize a majority of the directors to increase or decrease
the number of directors set by these Articles or the By-Laws within limits set
by the By-Laws and to fill vacancies created by an increase in the number of
directors. Unless otherwise provided by the By-Laws, the directors of the
Corporation need not be stockholders of the Corporation. The names of the
directors who will serve until the first annual meeting and until their
successors are elected and qualify are:
Ronald Pelosi
John Mallen
6.2 Removal of Directors. Subject to the limits of the Investment Company Act of
1940 and unless otherwise provided by the By-laws, a director may be removed,
with or without cause, by the affirmative vote of a majority of (a) the Board of
Directors, (b) a committee of the Board of Directors appointed for such purpose,
or (c) the stockholders by vote of a majority of the outstanding shares of the
Corporation.
6.3 Liability of Directors and Officers.
(a) To the fullest extent permitted by the Maryland General Corporation
Law and the Investment Company Act of 1940, no director or officer of
the Corporation shall be liable to the Corporation or to its
stockholders for money damages. No amendment to these Articles of
Incorporation or repeal of any of its provisions shall limit or
eliminate the benefits provided to directors and officers under this
provision with respect to any act or omission which occurred prior to
such amendment or repeal.
(b) In performance of his duties, a director or officer is entitled to
rely on any information, opinion, report, or statement, including any
financial statement or other financial data, prepared by others, to
the extent not inconsistent with the General Laws of the State of
Maryland. A person who performs his duties in accordance with the
standards of Article 2-405.1 of the Maryland General Corporation Law
or otherwise in accordance with applicable law shall have no liability
by reason of being or having been a director of the Corporation.
6.4 Powers of Directors. In addition to any powers conferred herein or in the
By-Laws, the Board of Directors may, subject to any express limitations
contained in these Articles of Incorporation or in the By-Laws, exercise the
full extent of powers conferred by the General Laws of the State of Maryland or
other applicable law upon corporations or directors thereof and the enumeration
and definition of particular powers herein or in the By-Laws shall in no way be
deemed to restrict or otherwise limit those lawfully conferred powers. In
furtherance and without limitation of the foregoing, the Board of Directors
shall have power:
(a) to make, alter, amend or repeal from time to time the By-Laws of the
Corporation except as otherwise provided by the By-Laws;
(b) subject to requirements of the Investment Company Act of 1940 and the
General Laws of the State of Maryland, to authorize the Corporation to
enter into contracts with any person, including any firm, corporation,
trust or association in which a director, officer, employee or
stockholder of the Corporation may be interested. Such contracts may
be for any lawful purpose, whether or not such purpose involves
delegating functions normally performed by the board of directors or
officers of a corporation, including, but not limited to, the
provision of investment management for the Corporation's investment
portfolio, the distribution of securities issued by the Corporation,
the administration of the Corporation's affairs, the provision of
transfer agent services with respect to the Corporation's shares of
capital stock, and the custody of the Corporation's assets. Any person
(including its affiliates) may be retained in multiple capacities
pursuant to one or more contracts and may also perform services,
including similar or identical services, for others, including other
investment companies. Subject to the requirements of applicable law,
such contracts may provide for compensation to be paid by the
Corporation in such amounts, including payments of multiple amounts
for persons (including their affiliates) acting in multiple
capacities, as the Board of Directors shall determine in its
discretion to be proper and reasonable.
(c) to authorize from time to time the payment of compensation to the
Directors for services to the Corporation, including fees for
attendance at meetings of the Board of Directors and committees
thereof.
6.5 Determinations by Board of Directors. Any determination made by or pursuant
to the direction of the Board of Directors and in accordance with the standards
set by the General Laws of the State of Maryland shall be final and conclusive
and shall be binding upon the Corporation and upon all stockholders, past,
present and future, of each class and series.
ARTICLE VII
PROVISIONS FOR DEFINING, LIMITING AND REGULATING
THE POWERS OF THE CORPORATION AND THE DIRECTORS
AND STOCKHOLDERS
7.1 Location of Meetings, Offices and Books. Both directors and stockholders may
hold meetings within or without the State of Maryland and abroad, and the
Corporation may have one or more offices and may keep its books within or
without the State of Maryland and abroad at such places as the directors shall
determine.
7.2 Meetings of Stockholders. Except as otherwise provided in the By-Laws, in
accordance with applicable law, the Corporation shall not be required to hold an
annual meeting of stockholders in any year unless required by applicable law.
Election of directors, whether by the directors or by stockholders, need not be
by ballot unless the By-Laws so provide.
7.3 Inspection of Records. Stockholders of the Corporation shall have only such
rights to inspect and copy the records, documents, accounts and books of the
Corporation and to request statements regarding its affairs as are provided by
the Maryland General Corporation Law, subject to such reasonable regulations,
not contrary to the General Laws of the State of Maryland, as the Board of
Directors may from time to time adopt regarding the conditions and limits of
such rights.
7.4 Indemnification. The Corporation, including its successors and assigns,
shall indemnify its directors and officers and make advance payment of related
expenses to the fullest extent permitted, and in accordance with the procedures
required, by the General Laws of the State of Maryland and the Investment
Company Act of 1940. The By-Laws may provide that the Corporation shall
indemnify its employees and/or agents in any manner and within such limits as
permitted by applicable law. Such indemnification shall be in addition to any
other right or claim to which any director, officer, employee or agent may
otherwise be entitled. The Corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Corporation or is or was serving at the request of the Corporation as a
director, officer, partner, trustee, employee or agent of another foreign or
domestic corporation, partnership, joint venture, trust or other enterprise or
employee benefit plan, against any liability asserted against and incurred by
such person in any such capacity or arising out of such person's position,
whether or not the Corporation would have had the power to indemnify against
such liability. The rights provided to any person by this Article 7.4 shall be
enforceable against the Corporation by such person who shall be presumed to have
relied upon such rights in serving or continuing to serve in the capacities
indicated herein. No amendment of these Articles of Incorporation shall impair
the rights of any person arising at any time with respect to events occurring
prior to such amendment.
7.5 Wholly-Owned Subsidiaries. The Corporation may own all or any portion of the
securities of, make loans to, or contribute to the costs or other financial
requirements of any company which is wholly owned by the Corporation or by the
Corporation and by one or more other investment companies and is primarily
engaged in the business of providing, at cost, management, administrative or
related services to the Corporation or to the Corporation and other investment
companies.
7.5 Amendments. The Corporation reserves the right to amend, alter, change or
repeal any provision of these Articles of Incorporation, including any amendment
that alters the contract rights, as expressly set forth in the charter, of any
outstanding shares of stock. All rights conferred upon stockholders herein are
granted subject to this reservation.
7.6 References to Statutes, Articles and By-Laws. All references herein to
statutes, to these Articles of Incorporation or to the By-Laws shall be deemed
to refer to those statutes, Articles or By-Laws as they are amended and in
effect from time to time.
<PAGE>
IN WITNESS WHEREOF, the undersigned incorporator of Forward Funds, Inc. hereby
executes the foregoing Articles of Incorporation and acknowledges the same to be
her act.
Dated this 3rd day of October, 1997.
/s/ Dilia M. Caballero
BY-LAWS
FOR
FORWARD FUNDS, INC.
ARTICLE I
Offices
Section 1. Principal Office. The principal office of the Corporation
in the State of Maryland shall be in the City of Baltimore.
Section 2. Other Offices. The Corporation may have such other offices
in such places as the Board of Directors may from time to time determine.
ARTICLE II
Meetings of Stockholders
Section 1. Annual Meeting. Subject to this Article II, an annual
meeting of stockholders for the election of Directors and the transaction of
such other business as may properly come before the meeting shall be held at
such time and place as the Board of Directors shall select. The Corporation
shall not be required to hold an annual meeting of its stockholders in any year
in which the election of directors is not required to be acted upon under the
Investment Company Act of 1940.
Section 2. Special Meetings. Special meetings of stockholders may be
called at any time by the President, the Secretary or by a majority of the Board
of Directors and shall be held at such time and place as may be stated in the
notice of the meeting.
Special meetings of the stockholders shall be called by the Secretary
upon receipt of written request of the holders of shares entitled to cast not
less than 10% of the votes entitled to be cast at such meeting, provided that
(1) such request shall state the purposes of such meeting and the matters
proposed to be acted on, and (2) the stockholders requesting such meeting shall
have paid to the Corporation the reasonably estimated cost of preparing and
mailing the notice thereof, which the Secretary shall determine and specify to
such shareholders. No special meeting shall be called upon the request of
stockholders to consider any matter which is substantially the same as a matter
voted upon at any special meeting of the stockholders held during the preceding
12 months, unless requested by the holders of a majority of all shares entitled
to be voted at such meeting.
Section 3. Place of Meetings. Meetings of stockholders shall be held
at such place within the United States as the Board of Directors may from time
to time determine.
Section 4. Notice of Meetings; Waiver of Notice. Notice of the place,
date and time of the holding of each stockholders' meeting and, if the meeting
is a special meeting, the purpose or purposes of the meeting, shall be given
personally or by mail, not less than ten nor more than ninety days before the
date of such meeting, to each stockholder entitled to vote at such meeting and
to each other stockholder entitled to notice of the meeting. Notice by mail
shall be deemed to be duly given when deposited in the United States mail
addressed to the stockholder at his or her address as it appears on the records
of the Corporation, with postage thereon prepaid.
Notice of any meeting of stockholders shall be deemed waived by any
stockholder who shall attend such meeting in person or by proxy, or who shall,
either before or after the meeting, submit a signed waiver of notice which is
filed with the records of the meeting.
Section 5. Quorum, Adjournment of Meetings. The presence at any
stockholders' meeting, in person or by proxy, of stockholders of one third of
the shares of the stock of the Corporation thereat shall be necessary and
sufficient to constitute a quorum for the transaction of business, except for
any matter which, under applicable statutes or regulatory requirements, requires
approval by a separate vote of one or more classes of stock, in which case the
presence in person or by proxy of stockholders of one third of the shares of
stock of each class required to vote as a class on the matter shall constitute a
quorum. The holders of a majority of shares entitled to vote at the meeting and
present in person or by proxy, whether or not sufficient to constitute a quorum,
or, any officer present entitled to preside or act as Secretary of such meeting
may adjourn the meeting without determining the date of the new meeting or from
time to time without further notice to a date not more than 120 days after the
original record date. Any business that might have been transacted at the
meeting originally called may be transacted at any such adjourned meeting at
which a quorum is present.
Section 6. Organization. At each meeting of the stockholders, the
Chairman of the Board (if one has been designated by the Board), or in his or
her absence or inability to act, the President, or in the absence or inability
to act of the Chairman of the Board and the President, a Senior Vice President
or a Vice President, shall act as chairman of the meeting; provided, however,
that if no such officer is present or able to act, a chairman of the meeting
shall be elected at the meeting. The Secretary, or in his or her absence or
inability to act, any person appointed by the chairman of the meeting, shall act
as secretary of the meeting and keep the minutes thereof.
Section 7. Order of Business. The order of business at all meetings of
the stockholders shall be as determined by the chairman of the meeting.
Section 8. Voting. Except as otherwise provided by statute or the
Articles of Incorporation, each holder of record of shares of stock of the
Corporation having voting power shall be entitled at each meeting of the
stockholders to one vote for every full share of such stock, with a fractional
vote for any fractional shares, standing in his or her name on the record of
stockholders of the Corporation as of the record date determined pursuant to
Section 9 of this Article or if such record date shall not have been so fixed,
then at the later of (i) the close of business on the day on which notice of the
meeting is mailed or (ii) the thirtieth day before the meeting.
Each stockholder entitled to vote at any meeting of stockholders may
authorize another person or persons to act for him or her by a proxy signed by
such stockholder or his or her attorney-in-fact. No proxy shall be valid after
the expiration of eleven months from the date thereof, unless otherwise provided
in the proxy. Every proxy shall be revocable at the pleasure of the stockholder
executing it, except in those cases where such proxy states that it is
irrevocable and where an irrevocable proxy is permitted by law. Except as
otherwise provided by statute, the Articles of Incorporation or these By-Laws,
any corporate action to be taken by vote of the stockholders shall be authorized
by a majority of the total votes validly cast at a meeting of stockholders at
which a quorum is present.
If a vote shall be taken on any question other than the election of
directors, which shall be by written ballot, then unless required by statute or
these By-Laws, or determined by the chairman of the meeting to be advisable, any
such vote need not be by ballot. On a vote by ballot, each ballot shall be
signed by the stockholder voting, or by his or her proxy, if there be such
proxy, and shall state the number of shares voted.
Section 9. Fixing of Record Date. The Board of Directors may fix a time
not less than 10 nor more than 90 days prior to the date of any meeting of
stockholders or prior to the last day on which the consent or dissent of
stockholders may be effectively expressed for any purpose without a meeting, as
the time as of which stockholders entitled to notice of and to vote at such a
meeting or whose consent or dissent is required or may be expressed for any
purpose, as the case may be, shall be determined; and all persons who were
holders of record of voting stock at such time and no other shall be entitled to
notice of and to vote at such meeting or to express their consent or dissent, as
the case may be. If no record date has been fixed, the record date for the
determination of stockholders entitled to notice of or to vote at a meeting of
stockholders shall be the later of the close of business on the day on which
notice of the meeting is mailed or the thirtieth day before the meeting, or, if
notice is waived by all stockholders, at the close of business on the tenth day
next preceding the day on which the meeting is held. The Board of Directors may
fix a record date for determining stockholders entitled to receive payment of a
dividend or distribution, but such date shall be not more than 90 days before
the date on which such payment is made. If no record date has been fixed, the
record date for determinating stockholders entitled to receive dividends or
distributions shall be the close of business on the day on which the resolution
of the Board of Directors declaring the dividend or distribution is adopted, but
the payment shall not be made more than 60 days after the date on which the
resolution is adopted.
Section 10. Consent of Stockholders in Lieu of Meeting. Except as
otherwise provided by statute or the Articles of Incorporation, any action
required to be taken at any meeting of stockholders, or any action which may be
taken at any meeting of such stockholders, may be taken without a meeting,
without prior notice and without a vote, if the following are filed with the
records of stockholders meetings: (i) a unanimous written consent which sets
forth the action and is signed by each stockholder entitled to vote on the
matter and (ii) a written waiver of any right to dissent signed by each
stockholder entitled to notice of the meeting but not entitled to vote thereat.
ARTICLE III
Board of Directors
Section 1. General Powers. The business and affairs of the Corporation
shall be managed under the direction of the Board of Directors and all powers of
the Corporation may be exercised by or under authority of the Board of
Directors.
Section 2. Number of Directors. The number of directors shall be fixed
from time to time by resolution of the Board of Directors adopted by a majority
of the Directors then in office; provided, however, that the number of Directors
shall in no event be less than three (3) nor more than fifteen (15) except that
the Corporation may have less than three (3) but no less than one (1) Director
if there is no stock outstanding, and may have a number of Directors no fewer
than the number of stockholders so long as there are fewer than three (3)
stockholders. Any vacancy created by an increase in Directors may be filled in
accordance with Section 6 of this Article III. No reduction in the number of
Directors shall have the effect of removing any Director from office prior to
the expiration of his or her term unless such Director is specifically removed
pursuant to Section 5 of this Article III at the time of such decrease.
Directors need not be stockholders.
Section 3. Election and Term of Directors. Directors shall be elected
annually, by written ballot at the annual meeting of stockholders or a special
meeting held for that purpose; provided, however, that if no annual meeting of
the stockholders of the Corporation is required to be held in a particular year
pursuant to Section 1 of Article II of these By-Laws, Directors shall be elected
at the next annual meeting held. The term of office of each Director shall be
from the time of his or her election and qualification until the election of
Directors next succeeding his or her election and until his or her successor
shall have been elected and shall have qualified.
Section 4. Resignation. A Director of the Corporation may resign at any
time by giving written notice of his or her resignation to the Board or the
Chairman of the Board or the President or the Secretary. Any such resignation
shall take effect at the time specified therein or, if the time when it shall
become effective shall not be specified therein, immediately upon its receipt;
and, unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
Section 5. Removal of Directors. Any Director of the Corporation may
be removed by the stockholders by a vote of a majority of the votes entitled to
be cast for the election of Directors.
Section 6. Vacancies. If any vacancies shall occur in the Board of
Directors (i) by reason of death, resignation, removal or otherwise, the
remaining Directors shall continue to act, and, subject to the provisions of the
Investment Company Act of 1940, such vacancies (if not previously filled by the
stockholders) may be filled by a majority of the remaining Directors, although
less than a quorum, and (ii) by reason of an increase in the authorized number
of Directors, such vacancies (if not previously filled by the stockholders) may
be filled only by a majority vote of the entire Board of Directors.
Section 7. Place of Meeting. The Directors may hold their meetings,
have one or more offices, and keep the books of the Corporation, outside the
State of Maryland, and within or without the United States of America, at any
office or offices of the Corporation or at any other place as they may from time
to time by resolution determine, or in the case of meetings, as they may from
time to time by resolution determine or as shall be specified or fixed in the
respective notices or waivers of notice thereof.
Section 8. Regular Meetings. The Board of Directors from time to time
may provide by resolution for the holding of regular meetings and fix their time
and place as the Board of Directors may determine. Notice of such regular
meetings need not be in writing, provided that notice of any change in the time
or place or such fixed regular meetings shall be communicated promptly to each
Director not present at the meeting at which such change was made in the manner
provided in Section 9 of this Article III for notice of special meetings.
Members of the Board of Directors or any committee designated thereby may
participate in a meeting of such Board or committee by means of a conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other at the same time, and
participation by such means shall constitute presence in person at a meeting.
Section 9. Special Meetings. Special meetings of the Board of Directors
may be held at any time or place and for any purpose when called by the
President, the Secretary or two or more of the Directors. Notice of special
meetings, stating the time and place, shall be communicated to each Director
personally by telephone or transmitted to him or her by telegraph, telefax,
telex, cable or wireless at least one day before the meeting.
Section 10. Waiver of Notice. No notice of any meeting of the Board of
Directors or a committee of the Board need be given to any Director who is
present at the meeting or who waives notice of such meeting in writing (which
waiver shall be filed with the records of such meeting), either before or after
the time of the meeting.
Section 11. Quorum and Voting. At all meetings of the Board of
Directors, the presence of one third of the entire Board of Directors shall
constitute a quorum unless there are only two or three Directors, in which case
two Directors shall constitute a quorum. If there is only one Director, the sole
Director shall constitute a quorum. At any adjourned meeting at which a quorum
is present, any business may be transacted which might have been transacted at
the meeting as originally called.
Section 12. Organization. The Board may, by resolution adopted by a
majority of the entire Board, designate a Chairman of the Board, who shall
preside at each meeting of the Board. In the absence or inability of the
Chairman of the Board to preside at a meeting, the President, or, in his or her
absence or inability to act, another Director chosen by a majority of the
Directors present, shall act as chairman of the meeting and preside thereat. The
Secretary (or, in his or her absence or inability to act, any person appointed
by the Chairman) shall act as secretary of the meeting and keep the minutes
thereof.
Section 13. Written Consent of Directors in Lieu of a Meeting. Subject
to the provisions of the Investment Company Act of 1940, as amended, any action
required or permitted to be taken at any meeting of the Board of Directors or of
any committee thereof may be taken without a meeting if all members of the Board
or committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of the proceedings of the Board or
committee.
Section 14. Compensation. Directors may receive compensation for
services to the Corporation in their capacities as directors or otherwise in
such manner and in such amounts as may be fixed from time to time by the Board.
ARTICLE IV
Committees
Section 1. Organization. By resolution adopted by the Board of
Directors, the Board may designate one or more committees, including an
Executive Committee, composed of two or more Directors. The Chairmen of such
committees shall be elected by the Board of Directors. The Board of Directors
shall have the power at any time to change the members of such committees and to
fill vacancies in the committees. The Board may delegate to these committees any
of its powers, except the power to authorize the issuance of stock, declare a
dividend or distribution on stock, recommend to stockholders any action
requiring stockholder approval, amend these By-Laws, or approve any merger or
share exchange which does not require stockholder approval. If the Board of
Directors has given general authorization for the issuance of stock, a committee
of the Board, in accordance with a general formula or method specified by the
Board by resolution or by adoption of a stock option or other plan, may fix the
terms of stock subject to classification or reclassification and the terms on
which any stock may be issued, including all terms and conditions required or
permitted to be established or authorized by the Board of Directors.
Section 2. Proceedings and Quorum. In the absence of an appropriate
resolution of the Board of Directors, each committee may adopt such rules and
regulations governing its proceedings, quorum and manner of acting as it shall
deem proper and desirable. In the event any member of any committee is absent
from any meeting, the members thereof present at the meeting, whether or not
they constitute a quorum, may appoint a member of the Board of Directors to act
in the place of such absent member.
ARTICLE V
Officers, Agents and Employees
Section 1. General. The officers of the Corporation shall be a
President, a Secretary and a Treasurer, and may include one or more Senior Vice
Presidents, Vice Presidents, Assistant Secretaries or Assistant Treasurers, and
such other officers as may be appointed in accordance with the provisions of
Section 8 of this Article.
Section 2. Election, Tenure and Qualifications. The officers of the
Corporation, except those appointed as provided in Section 8 of this Article V,
shall be elected by the Board of Directors at its first meeting and thereafter
annually at an annual meeting. If any officers are not chosen at any annual
meeting, such officers may be chosen at any subsequent regular or special
meeting of the Board. Except as otherwise provided in this Article V, each
officer chosen by the Board of Directors shall hold office until the next annual
meeting of the Board of Directors and until his or her successor shall have been
elected and qualified. Any person may hold one or more offices of the
Corporation except the offices of President and Vice President.
Section 3. Removal and Resignation. Whenever in the judgment of the
Board of Directors the best interest of the Corporation will be served thereby,
any officer may be removed from office by the vote of a majority of the members
of the Board of Directors at any regular meeting or at a special meeting called
for such purpose. Any officer may resign his office at any time by delivering a
written resignation to the Board of Directors, the President, the Secretary, or
any Assistant Secretary. Unless otherwise specified therein, such resignation
shall take effect upon delivery.
Section 4. President. The President shall be the chief executive
officer of the Corporation. Subject to the supervision of the Board of
Directors, he or she shall have general charge of the business, affairs and
property of the Corporation and general supervision over its officers, employees
and agents. Except as the Board of Directors may otherwise order, he or she may
sign in the name and on behalf of the Corporation all deeds, bonds, contracts,
or agreements. He or she shall exercise such other powers and perform such other
duties as from time to time may be assigned to him or her by the Board of
Directors.
Section 5. Senior Vice President. The Board of Directors may from time
to time elect one or more Senior Vice Presidents who shall have such powers and
perform such duties as from time to time may be assigned to them by the Board of
Directors or the President. At the request or in the absence or disability of
the President, the Senior Vice President (or, if there are two or more Senior
Vice Presidents, then the more senior of such officers present and able to act)
may perform all the duties of the President and, when so acting, shall have all
the powers of and be subject to all the restrictions upon the President. Any
Vice President may perform such duties as the Board of Directors may assign.
Section 6. Treasurer and Assistant Treasurer. The Treasurer shall be
the principal financial and accounting officer of the Corporation and shall have
general charge of the finances and books of account of the Corporation. Except
as otherwise provided by the Board of Directors, he or she shall have general
supervision of the funds and property of the Corporation and of the performance
by the Custodian of its duties with respect thereto. He or she shall render to
the Board of Directors, whenever directed by the Board, an account of the
financial condition of the Corporation and of all his or her transactions as
Treasurer; and as soon as possible after the close of each fiscal year he or she
shall make and submit to the Board of Directors a like report for such fiscal
year. He or she shall perform all acts incidental to the Office of Treasurer,
subject to the control of the Board of Directors.
Any Assistant Treasurer may perform such duties of the Treasurer as the
Treasurer or the Board of Directors may assign, and, in the absence of the
Treasurer, the Assistant Treasurer (or if there are two or more Assistant
Treasurers, then the more senior of such officers present and able to act) may
perform all of the duties of the Treasurer.
Section 7. Secretary and Assistant Secretaries. The Secretary shall
attend to the giving and serving of all notices of the Corporation and shall
record all proceedings of the meetings of the stockholders and Directors in
books to be kept for that purpose. He or she shall keep in safe custody the seal
of the Corporation, and shall have charge of the records of the Corporation,
including the stock books and such other books and papers as the Board of
Directors may direct and such books, reports, certificates and other documents
required by law to be kept, all of which shall at all reasonable times be open
to inspection by any Director. He or she shall perform such other duties as
appertain to his or her office or as may be required by the Board of Directors.
Any Assistant Secretary may perform such duties of the Secretary as the
Secretary of the Board of Directors may assign, and, in the absence of the
Secretary, he or she may perform all the duties of the Secretary.
Section 8. Subordinate Officers. The Board of Directors from time to
time may appoint such other officers or agents as it may deem advisable, each of
whom shall have such title, hold office for such period, have such authority and
perform such duties as the Board of Directors may determine. The Board of
Directors from time to time may delegate to one or more officers or agents the
power to appoint any such subordinate officers or agents and to prescribe their
rights, terms of office, authorities and duties.
Section 9. Remuneration. The salaries or other compensation of the
officers of the Corporation shall be fixed from time to time by resolution of
the Board of Directors, except that the Board of Directors may be resolution
delegate to any person or group of persons the power to fix the salaries or
other compensation of any subordinate officers or agents appointed in accordance
with the provisions of Section 8 of this Article V.
Section 10. Surety Bonds. The Board of Directors may require any
officer or agent of the Corporation to execute a bond (including, without
limitation, any bond required by the Investment Company Act of 1940, as amended,
and the rules and regulations of the Securities and Exchange Commission) to the
Corporation in such sum and with such surety or sureties as the Board of
Directors may determine, conditioned upon the faithful performance of his or her
duties to the Corporation, including responsibility for negligence and for the
accounting of any of the Corporation's property, funds or securities that may
come into his or her hands.
ARTICLE VI
Indemnification
The Corporation shall indemnify (a) its Directors and officers, whether
serving the Corporation or at its request any other entity, to the full extent
required or permitted by (i) Maryland law now or hereafter in force, including
the advance of expenses under the procedures and to the full extent permitted by
law, and (ii) the Investment Company Act of 1940, as amended, and (b) other
employees and agents to such extent as shall be authorized by the Board of
Directors and be permitted by law. The foregoing rights of indemnification shall
not be exclusive of any other rights to which those seeking indemnification may
be entitled. The Board of Directors may take such action as is necessary to
carry out these indemnification provisions and is expressly empowered to adopt,
approve and amend from time to time such resolutions or contracts implementing
such provisions or such further indemnification arrangements as may be permitted
by law.
ARTICLE VII
Capital Stock
Section 1. Stock Certificates. The interest of each stockholder of the
Corporation may be evidenced by certificates for shares of stock in such form as
the Board of Directors may from time to time prescribe. The certificates
representing shares of stock shall be signed by or in the name of the
Corporation by the President, a Senior Vice President or a Vice President and
countersigned by the Secretary or an Assistant Secretary or the Treasurer or an
Assistant Treasurer. Certificates may be sealed with the actual corporate seal
or a facsimile of it or in any other form. Any or all of the signatures or the
seal on the certificate may be manual or a facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has been
placed upon a certificate shall have ceased to be such officer, transfer agent
or registrar before such certificate shall be issued, it may be issued by the
Corporation with the same effect as if such officer, transfer agent or registrar
were still in office at the date of issue unless written instructions of the
Corporation to the contrary are delivered to such officer, transfer agent or
registrar.
Section 2. Stock Ledgers. The stock ledgers of the Corporation,
containing the names and addresses of the stockholders and the number of shares
held by them respectively, shall be kept at the principal offices of the
Corporation or, if the Corporation employs a transfer agent, at the offices of
the transfer agent of the Corporation.
Section 3. Transfers of Shares. Transfers of shares of stock of the
Corporation shall be made on the stock records of the Corporation only by the
registered holder thereof, or by his or her attorney thereunto authorized by
power of attorney duly executed and filed with the Secretary or with a transfer
agent or transfer clerk, and on surrender of the certificate or certificates, if
issued, for such shares properly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, with such proof of the
authenticity of the signature as the Corporation or its agents may reasonably
require and the payment of all taxes thereon. Except as otherwise provided by
law, the Corporation shall be entitled to recognize the exclusive right of a
person in whose name any share or shares stand on the record of stockholders as
the owner of such share or shares for all purposes, including, without
limitation, the rights to receive dividends or other distributions, and to vote
as such owner, and the Corporation shall not be bound to recognize any equitable
or legal claim to or interest in any such share or shares on the part of any
other person. The Board may make such additional rules and regulations, not
inconsistent with these By-Laws, as it may deem expedient concerning the issue,
transfer and registration of certificates for shares of stock of the
Corporation.
Section 4. Transfer Agents and Registrars. The Board of Directors may
from time to time appoint or remove transfer agents and/or registrars of
transfers of shares of stock of the Corporation, and it may appoint the same
person as both transfer agent and registrar. Upon any such appointment being
made all certificates representing shares of capital stock thereafter issued
shall be countersigned by one of such transfer agents or by one of such
registrars of transfers or by both and shall not be valid unless so
countersigned. If the same person shall be both transfer agent and registrar,
only one countersignature by such person shall be required.
Section 5. Lost, Destroyed or Mutilated Certificates. The holder of any
certificates representing shares of stock of the Corporation shall immediately
notify the Corporation of any loss, destruction or mutilation of such
certificate, and the Corporation may issue a new certificate of stock in the
place of any certificate theretofore issued by it which the owner thereof shall
allege to have been lost or destroyed or which shall have been mutilated, and
the Board may, in its discretion, require such owner or his or her legal
representatives to give to the Corporation a bond in such sum, limited or
unlimited, and in such form and with such surety or sureties, as the Board in
its absolute discretion shall determine, to indemnify the Corporation against
any claim that may be made against it on account of the alleged loss or
destruction of any such certificate, or issuance of a new certificate. Anything
herein to the contrary notwithstanding, the Board, in its absolute discretion,
may refuse to issue any such new certificate, except pursuant to legal
proceedings under the laws of the State of Maryland.
ARTICLE VIII
Seal
The seal of the Corporation shall be circular in form and shall bear,
in addition to any other emblem or device approved by the Board of Directors,
the name of the Corporation, the year of its incorporation and the words
"Corporate Seal" and "Maryland." The form of the seal may be altered by the
Board of Directors. Said seal may be used by causing it or a facsimile thereof
to be impressed or affixed or in any other manner reproduced. Any Officer or
Director of the Corporation shall have the authority to affix the corporate seal
of the Corporation to any document requiring the same.
ARTICLE IX
Fiscal Year
The fiscal year of the Company shall be determined by resolution of the
Board of Directors.
ARTICLE X
Depositories and Custodians
Section 1. Depositories. The funds of the Corporation shall be
deposited with such banks or other depositories as the Board of Directors of the
Corporation may from time to time determine.
Section 2. Custodians. All securities and other investments shall be
deposited in the safe keeping of such banks or other companies as the Board of
Directors of the Corporation may from time to time determine. Every arrangement
entered into with any bank or other company for the safe keeping of the
securities and investments of the Corporation shall contain provisions complying
with the Investment Company Act of 1940, as amended, and the general rules and
regulations thereunder.
ARTICLE XI
Execution of Instruments
Section 1. Checks, Notes, Drafts, etc. Checks, notes, drafts,
acceptances, bills of exchange and other orders obligations for the payment of
money shall be signed by such officer or officers or person or persons as the
Board of Directors by resolution shall from time to time designate or as these
By-Laws provide.
Section 2. Sale or Transfer of Securities. Stock certificates, bonds or
other securities at any time owned by the Corporation may be held on behalf of
the Corporation or so, transferred or otherwise disposed of subject to any
limits imposed by these By-Laws and pursuant to authorization by the Board and,
when so authorized to be held on behalf of the Corporation or sold, transferred
or otherwise disposed of, may be transferred from the name of the Corporation by
the signature of the President, any Senior Vice President, any Vice President or
the Treasurer or pursuant to any procedure approved by the Board of Directors,
subject to applicable law.
ARTICLE XII
Independent Public Accountants
The Corporation shall employ an independent public accountant or a firm
of independent public accountants as its accountants to examine the accounts of
the Corporation and to sign and certify financial statements filed by the
Corporation.
ARTICLE XIII
Amendments
These By-Laws or any of them may be amended, altered or repealed at any
regular meeting of the stockholders or at any special meeting of the
stockholders at which a quorum is present or represented, provided that notice
of the proposed amendment, alteration or repeal be contained in the notice of
such special meeting. These By-Laws may also be amended, altered or repealed by
the affirmative vote of a majority of the Board of Directors at any regular or
special meeting of the Board of Directors, except any particular By-Law which is
specified as not subject to alteration or repeal by the Board of Directors,
subject to the requirements of the Investment Company Act of 1940, as amended.
