As filed with the U.S. Securities and Exchange Commission on December 10, 1997.
Securities Act File No. 333-37367
Investment Company Act File No. 811-8419
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. 1 [X]
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 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>
<S> <C> <C>
N-1A Item Location in Prospectus
(Caption)
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. Barclays Global Fund Advisors
("Barclays"), Templeton Investment Counsel, Inc. ("Templeton"), and Pacific
Investment Management Company ("PIMCO") serve as investment advisors
("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 currently offers one
class of shares (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 _________ __, 1998, has been filed
with the Securities and Exchange Commission ("SEC") 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 _________ __, 1998.
<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
Custodian, Administrator, Distributor, Transfer Agent and
Dividend Disbursing Agent........................................... 2
FUND EXPENSES................................................................ 3
FEE TABLES................................................................... 3
INVESTMENT OBJECTIVES AND POLICIES........................................... 4
General............................................................. 4
Investment Policies................................................. 5
RISK FACTORS................................................................. 6
INVESTMENT TECHNIQUES........................................................ 9
Equity Securities................................................... 9
Corporate Debt Securities........................................... 9
U.S. Government Obligations......................................... 9
Convertible Securities.............................................. 10
Foreign Investments and Foreign Currency Transactions............... 10
Depositary Receipts................................................. 11
Loan Participations and Assignments................................. 12
Variable and Floating Rate Securities............................... 12
Inflation-Indexed Bonds............................................. 13
Mortgage-Related and Other Asset-Backed Securities.................. 14
Repurchase Agreements............................................... 15
Reverse Repurchase Agreements and Dollar Roll Agreements............ 15
Certificates of Deposit and Time Deposits........................... 16
Commercial Paper.................................................... 16
Derivative Instruments.............................................. 16
When-Issued and Delayed-Delivery Transactions....................... 19
Securities Issued by Other Investment Companies..................... 20
Lending of Portfolio Securities..................................... 20
Illiquid Securities................................................. 20
INVESTMENT RESTRICTIONS...................................................... 21
MANAGEMENT OF THE FUNDS...................................................... 22
Directors........................................................... 22
Investment Advisors................................................. 22
The Business Manager................................................ 24
Other Service Providers............................................. 24
Portfolio Transactions.............................................. 25
VALUATION OF SHARES.......................................................... 25
PURCHASING SHARES............................................................ 25
EXCHANGE PRIVILEGE........................................................... 26
REDEEMING SHARES............................................................. 27
By Wire Transfer.................................................... 27
By Telephone........................................................ 27
By Mail............................................................. 28
Payments to Shareholders............................................ 29
SHAREHOLDER SERVICE PLAN..................................................... 29
DIVIDENDS AND TAXES.......................................................... 30
Federal Taxes....................................................... 30
GENERAL INFORMATION.......................................................... 31
Description of the Company and Its Shares........................... 31
Performance Information............................................. 32
Account Services.................................................... 32
Miscellaneous....................................................... 32
<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 SEC 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 of the Global Fund. The public offering price of shares of The
Money Market Fund is equal to the net asset value per share, which the Company
will seek to maintain at $1.00 per Share. 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 primarily in 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 invests exclusively in short-term
U.S. Treasury and other short-term 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."
The Global Fund invests in foreign securities, which may be subject to price
volatility, currency fluctuations and other risks. The Global Fund may also
invest in various types of equity and debt securities that may be considered
volatile or speculative.
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 gains distributions of
the Funds are automatically invested in additional Shares unless the Shareholder
elects otherwise in writing to the Business Manager.
Custodian, Administrator, Distributor, Transfer Agent and Dividend Disbursing
Agent
_____________________ is the Funds' custodian. First Data Investor Services
Group, Inc. ("Investor Services Group," "Administrator," "Distributor,"
"Transfer Agent," or "Dividend Disbursing Agent"), whose principal business
address is 53 State Street, Boston, Massachusetts 02109, serves as
administrator, distributor, transfer agent and dividend disbursing agent to the
Funds. Investor Services Group is a wholly-owned subsidiary of First Data
Corporation. The Administrator generally assists the Funds in all aspects of
administration and operations, including the maintenance of financial records
and fund accounting. Shareholder inquiries may be directed to Investor Services
Group at P.O. Box 5130, Westborough, Massachusetts 01581-5130.
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>
<S> <C> <C>
The Money The Global
Market Fund Fund
--------------------- ---------------------
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.......... [ ] [ ]
<FN>
- -----------------------
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.
</FN>
</TABLE>
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*
In the following 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:
The Money The
Market Fund Global Fund
1 Year........................ [ ] [ ]
2 Years....................... [ ] [ ]
3 Years....................... [ ] [ ]
10 Years...................... [ ] [ ]
*........This example should not be considered a representation of future
expenses, which may be more or less 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 short-term U.S. Treasury and 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 stocks, preferred stocks, convertible
securities, warrants, options, restricted securities, trust units or
certificates, bonds, debentures, notes, commercial paper and various types of
depositary 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. Securities issued by foreign companies and governments are
likely to be denominated in a foreign currency.
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 3,000 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. Debt securities held by The
Global Fund may include securities rated in any rating category by a nationally
registered securities rating organization ("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
total 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. As a global investment, The Global Fund will
invest not more than 65% of its total assets in a minimum of three different
countries, although the Fund expects to invest in a larger number of countries
than three. As a temporary defensive measure the Fund may invest a substantial
portion of its assets in securities issued by U.S. issuers.
The portfolio turnover rate for The Global Fund is not expected to exceed 100%.
The Money Market Fund
The Money Market Fund invests exclusively in short-term U.S. Treasury and other
short-term 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 per
Share. The Global Fund's share price is, however, expected to fluctuate daily.
Nevertheless, even with The Money Market Fund, there is no guarantee that the
Fund will maintain a constant share price of $1.00 per share.
The Global Fund invests in the world's stock and bond markets and so its 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 appropriate Advisor 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
appropriate Advisor, 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 depositaries, 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 options 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. Rating agencies may periodically change the rating assigned to a
particular security. While the Advisors will take into account such changes in
deciding whether to hold or sell a security, the Fund does not require an
Advisor to sell a security that is downgraded to any particular rating.
U.S. Government Obligations
The Money Market Fund invests in U.S. Government obligations, including
short-term 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 ("GNMA"), are supported by
the full faith and credit of the U.S. Treasury; others, such as those of the
Federal National Mortgage Association ("FNMA"), 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 ("FHLMC"), 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 also 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 the 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 is 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 ("ADRs"), European Depositary Receipts ("EDRs") and Global Depositary
Receipts ("GDRs") (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 foreign trust companies, although they also
may be issued by U.S. banks or U.S. trust companies, and evidence ownership of
underlying securities issued by either a foreign or a U.S. 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 further discussed below in this section.
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
also 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 Global Fund with a certain degree of
protection against a rise in interest rates, The Global 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
The Global Fund may invest in 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 inflation-indexed bonds 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 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 correctly forecast interest rates and other economic
factors.
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" below), 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
Supplemental Discussion of Investment Techniques and Risks section of the SAI.
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 subsequently will 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,
judged 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 indexes 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 the
portfolio 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 Investment Advisor to correctly forecast
interest rates and other economic factors. If the Investment 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 such options depending on 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 to the 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 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 assets 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"). With respect to positions in financial
futures and related options that do not qualify as "bona fide hedging," The
Global Fund 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 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 a Fund to miss an advantageous price or
yield.
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, that 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). Illiquid securities for which market
quotations are not readily available 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 (the "1933 Act"), 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, except that
each Fund will take reasonably practicable steps to attempt to continuously
monitor and comply with its liquidity standards. Also, if a Fund receives
subscription rights to purchase securities of an issuer whose securities the
Fund holds, 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 the receipt of securities from the exercise of such rights, and
after announcement of such rights, the Fund sells 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, except to the extent permitted by the
Investment Company Act of 1940; or borrow money, except that each Fund
may borrow up to 15% of its total assets from banks for temporary or
emergency purposes;
(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).
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 Investment Advisers Act of 1940, as amended (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.
Barclays Global Fund Advisors ("Barclays") serves as investment advisor for The
Global Fund's investments in U.S. equity instruments. Barclays, a registered
investment advisor under the 1940 Act, 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. 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 ("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 the Funds' securities.
For the services provided pursuant to their Investment Advisory or Management
Agreements with the Company, the Advisors receive a fee from each of 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, 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 each Fund 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 ("Investor Services Group,"
"Administrator," "Distributor," "Transfer Agent," or "Dividend Disbursing
Agent"). 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. Investor Services Group's principal business
address is 53 State Street, Boston, Massachusetts 02109, serves as administrator
to the Funds. Investor Services Group is a wholly-owned subsidiary of First Data
Corporation. The Administrator generally assists the Funds in all aspects of
administration and operations, including the maintenance of financial records
and fund accounting. Investor Services Group also serves as the Funds' transfer
agent and dividend disbursing agent. Shareholder inquiries may be directed to
Investor Services Group at P.O. Box 5130, Westborough, Massachusetts 01581-5130.
Arthur Andersen LLP serves as independent public accountants 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 statements 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.
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 ("FRB") 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 and/or the FRB are 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.
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 SEC 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 sales loads for shares of either Fund. The
minimum initial purchase amount for shares of The Global Fund is $2,500 for
non-retirement accounts, and $250 for retirement accounts and for subsequent
investments. The minimum initial purchase amount for shares of The Money Market
Fund is $1,000 for non-retirement accounts, and $250 for retirement accounts and
subsequent investments.
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 authorized 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 an 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 Transfer Agent 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
U.S. 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 market timing
(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 at any
time. 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. Redeeming Shareholders will
be notified if a delay in transmitting proceeds is anticipated. Once
authorization is on file, the Company will honor requests by any person
identifying themselves 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 Investor
Services Group 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
Investor Services Group 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., P.O. Box
5130, Westborough, Massachusetts 01581-5130. 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, as amended (the "1934 Act"). 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 1934 Act 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. The Funds intend to forward such
redemption proceeds upon determining that good payment for purchase orders has
been received. 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.
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., P.O. Box 5130,
Westborough, Massachusetts 01581-5130, 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.
Distributions are taxable to Shareholders regardless of whether amounts
distributed are received in cash or additional Shares.
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
Fund's net asset value per Share. 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 income 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 discussed. 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 each of the Funds of the
Company are currently offered as 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
of Incorporation, 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 _______________, 1998
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, each with different investment objectives and policies.
The two funds are The Global Fund and The Money Market Fund (the "Funds"). There
is no assurance that the Funds will achieve their objectives.
This Statement of Additional Information ("SAI") is not a prospectus and it
should be read in conjunction with the Funds' Prospectus, dated _________, 1998
("Prospectus"), which has been filed with the Securities and Exchange Commission
("SEC"). Copies of the Prospectus may be obtained free of charge by calling the
Business Manager at 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...................................................... 11
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION.............................. 12
DETERMINATION OF SHARE PRICE................................................ 13
SHAREHOLDER SERVICES AND PRIVILEGES......................................... 14
DISTRIBUTIONS............................................................... 15
TAX CONSIDERATIONS.......................................................... 15
SHAREHOLDER INFORMATION..................................................... 19
CALCULATION OF PERFORMANCE DATA............................................. 20
GENERAL INFORMATION......................................................... 21
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. 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. Each Fund offers currently one class of shares (the "Shares").
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 fractional Share. 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 Investment Company Act of 1940, as amended (the
"1940 Act"), by virtue of that person's affiliation with the Company, its
distributor, its investment advisors or otherwise.
Ronald Pelosi*
Investment Advisors. The Investment Advisors serve as investment advisors for
the Funds and have certain responsibilities for the investment management of the
assets 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 with respect to the assets allocated to them. 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. Barclays Global Fund
Advisors ("Barclays") 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.
Barclays serves as investment advisor for The Global Fund's investments in U.S.
equity instruments. Barclays, an investment advisor registered under the 1940
Act, 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 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 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"). PIMCO Advisors has two general partners, Oppenheimer
Capital, L.P., a Delaware general partner (to be renamed PIMCO Advisors Holdings
L.P. on or about January 1, 1998) and 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 Partners, G.P. is also the general partner of
Oppenheimer Capital, L.P. 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 management team which will handle The
Global Fund's investments on PIMCO's behalf is currently led by 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.
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:
o providing office space, telephone, office equipment and supplies for the
Funds;
o paying compensation of the Funds' officers who are affiliated with the
Business Manager for services rendered as such;
o authorizing expenditures and approving bills for payment on behalf of the
Funds;
o 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;
o monitoring relationships with organizations serving the Funds; and
o 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
First Data Investor Services Group, Inc. ("Investor Services Group"). Investor
Services Group (hereinafter "Administrator," "Distributor," "Dividend Disbursing
Agent," and "Transfer Agent"), whose principal business address is 53 State
Street, Boston, Massachusetts 02109, acts as the Company's distributor, its
administrator, transfer agent and dividend disbursing agent. Investor Services
Group is a wholly-owned subsidiary of First Data Corporation. Shareholder
inquiries may be directed to Investor Services Group at P.O. Box 5130,
Westborough, Massachusetts 01581-1530. See the Prospectus for information on how
to purchase, sell and exchange 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. 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.
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: 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 primarily 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 short-term U.S. Treasury and
other short-term 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 stocks, preferred stocks, convertible
securities, warrants, trust units or certificates, bonds, debentures, notes,
commercial paper and various types of depository receipts. There are no limits
on the types of equity or debt 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 Investment Advisors have broad discretion to identify and invest in
countries they consider to qualify as emerging markets' securities. However, an
emerging 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 nationally
registered securities rating organization ("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 determined to be of comparable quality) to not more than 10% of
The Global Fund's total 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 total assets in securities issued by companies in any one
industry.
The portfolio turnover rate for The Global Fund is not expected to exceed 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 commenced 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
the Government National Mortgage Association or "GNMA"); or guaranteed by
agencies or instrumentalities of the U.S. Government (in the case of securities
guaranteed by the Federal National Mortgage Association or "FNMA" or the Federal
Home Loan Mortgage Corporation or "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 Investment 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 Investment
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 Investment 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 Investment Advisor's
ability to correctly predict 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 from banks for
temporary or emergency purposes. 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. The Funds do not engage in leveraging by means of
borrowing which may exaggerate the effect of any increase or decrease in the
value of portfolio securities or a Fund's net asset value. 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, Indexes and Futures
The Global Fund may write covered put and call options and purchase put and call
options on securities, securities indexes 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 indexes 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 Investment 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
indexes. 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 United States, 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 Funds' Investment Advisors. 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 Advisors' 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 although portfolio
turnover is not expected to exceed 100%.
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, Investor Services Group. 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 in the United States.
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, 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 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. As of the date of this SAI, the New York Stock Exchange
and/or the Federal Reserve Bank of San Francisco are 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 Global Fund generally values its holdings through the use of
independent pricing agents, except for securities which are valued under the
direction of the Board of Directors or which are valued by the Advisors using
methodologies approved by the Board of Directors.
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 SEC 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 in a
timely manner 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 Funds' 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 Funds 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 ("1934 Act"),
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 prototype 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 funded by 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 each 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 each 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 each 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 each 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. The
Global 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 Global Fund
(that is, may affect whether gains or losses are ordinary or capital),
accelerate recognition of income to The Global Fund, defer Fund losses, and
affect the determination of whether capital gains and losses are treated 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 Global Fund to mark-to-market certain
positions in its portfolio (that is, treat them as if they were sold), which may
cause The Global Fund to recognize income without receiving cash to use to make
distributions in amounts necessary to avoid income and excise taxes. The Global
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 Global Fund's status as
a regulated investment company may limit its ability to engage in transactions
involving foreign currency, futures, options, and forward contracts.
Certain transactions undertaken by The Global Fund may result in "straddles" for
federal income tax purposes. The straddle rules may affect the character of
gains (or losses) realized by The Global Fund, and losses realized by The Global
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 The Global 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 if The Global Fund engages in certain transactions which reduce or
eliminate the risk of loss with respect to appreciated financial positions,
including stock and securities. 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
may be affected by the straddle rules described above.
Currency Fluctuation - Section 988 Gains and Losses. Gains or losses
attributable to fluctuations in foreign currency exchange rates that occur
between the time The Global Fund accrues receivables or expenses denominated in
a foreign currency and the time The Global Fund 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 Global Fund's
investment company taxable income available to be distributed to its
Shareholders as ordinary income.
Passive Foreign Investment Companies. The Global Fund 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 gain from the sale of
securities). If the Global 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 Global Fund may be eligible to elect alternative tax treatment with respect
to PFIC stock. Under an election that is available in some circumstances, The
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 hares 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 Shares
acquired under the reinvestment right. This provision may be applied to
successive acquisitions of Shares.
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 preceding conclusions, and any changes or decisions may
have a retroactive effect.
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 Advisors or affiliates of the Company or the
Investment Advisors, including (i) performance rankings of other funds managed
by the Investment Advisors, or the individuals employed by the Investment
Advisors 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. Each Fund's 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, Spear Street Tower, 1 Market, Suite
3500, San Francisco, California 94105-9019, 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 Funds'
Prospectus and this SAI 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 annual
and 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
each 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.
* - Previously filed in Registrant's initial Registration Statement on Form
N-1A, as filed with the Securities and Exchange Commission on October 7,
1997.
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
ITEM 30. Location of Accounts and Records
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 9th day of December, 1997.
FORWARD FUNDS, INC.
By: /s/ Ronald Pelosi
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/ Ronald Pelosi Director, President, Treasurer December 9, 1997
- ------------------ & Secretary
Ronald Pelosi (Principal Executive, Financial
and Accounting Officer)
