Prospectus
FORWARD FUNDS, INC.
433 California Street, Suite 1010
San Francisco, California 94104
1-800-999-6809
Forward Funds, Inc. (the "Company") is an open-end management investment company
which offers one diversified investment portfolio, The Global Fund (referred to
herein as the "Fund" or "The Global Fund"). Barclays Global Fund Advisors
("Barclays"), Templeton Investment Counsel, Inc. ("Templeton"), and Pacific
Investment Management Company ("PIMCO") serve as investment advisors
(collectively referred to herein as the "Investment Advisors" or the "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. Sutton Place Management Co., Inc. (the "Business Manager") acts as
business manager to the Fund. The Fund currently offers one class of shares (the
"Shares").
The Shares of the Fund 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. An investment in the Fund involves investment risk, including the
possible loss of principal.
This Prospectus sets forth concisely the information about the Fund 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 Fund, dated March 2, 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 March 2, 1998.
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TABLE OF CONTENTS
PROSPECTUS SUMMARY.............................................................1
Shares Offered........................................................1
Offering Price........................................................1
Investment Objective..................................................1
Investment Policies...................................................1
Risk Factors..........................................................1
Investment Advisors...................................................1
Business Manager......................................................1
Dividends and Capital Gains...........................................2
Custodian, Administrator, Distributor, and Transfer Agent.............2
FUND EXPENSES..................................................................3
FEE TABLE......................................................................3
INVESTMENT OBJECTIVE AND POLICIES..............................................4
General...............................................................4
Investment Policies...................................................5
RISK FACTORS...................................................................6
INVESTMENT TECHNIQUES..........................................................9
Equity Securities.....................................................9
Corporate Debt Securities.............................................9
Convertible Securities................................................9
Foreign Investments and Foreign Currency Transactions.................9
Depositary Receipts..................................................11
Loan Participations and Assignments..................................11
Variable and Floating Rate Securities................................11
Inflation-Indexed Bonds..............................................12
Mortgage-Related and Other Asset-Backed Securities...................13
Repurchase Agreements................................................14
Reverse Repurchase Agreements and Dollar Roll Agreements.............14
Certificates of Deposit and Time Deposits............................15
Commercial Paper.....................................................15
Derivatives..........................................................15
When-Issued and Delayed-Delivery Transactions........................18
Securities Issued by Other Investment Companies......................19
U.S. Government Obligations..........................................19
Lending of Portfolio Securities......................................19
Illiquid Securities..................................................19
INVESTMENT RESTRICTIONS.......................................................20
MANAGEMENT OF THE FUND........................................................21
Directors............................................................21
Investment Advisors..................................................21
The Business Manager.................................................23
Other Service Providers..............................................24
Portfolio Transactions...............................................24
VALUATION OF SHARES...........................................................24
PURCHASING SHARES.............................................................24
EXCHANGE PRIVILEGE............................................................25
REDEEMING SHARES..............................................................26
Signature Guarantee..................................................26
By Wire Transfer.....................................................26
By Telephone.........................................................27
By Mail..............................................................27
Payments to Shareholders.............................................28
SHAREHOLDER SERVICE PLAN......................................................28
DIVIDENDS AND TAXES...........................................................29
Federal Taxes........................................................29
GENERAL INFORMATION...........................................................30
Description of the Company and Its Shares............................30
Performance Information..............................................31
Account Services.....................................................31
Miscellaneous........................................................31
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PROSPECTUS SUMMARY
Shares Offered
Shares of The Global Fund, a diversified investment portfolio of Forward Funds,
Inc., 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 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 Fund. No sales charges or redemption fees are charged with
respect to the Fund.
Investment Objective
The Fund seeks total return (capital appreciation and income) by investing
primarily in the global stock and bond markets.
Investment Policies
The 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.
Risk Factors
An investment in The Global Fund involves a certain amount of risk and may not
be suitable for all investors. See "RISK FACTORS." The Fund invests in foreign
securities, which may be subject to price volatility, currency fluctuations and
other risks. The Fund may also invest in various types of equity and debt
securities that may be considered volatile or speculative.
Investment Advisors
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 FUND - Investment
Advisors."
Business Manager
Sutton Place Management Co., Inc. serves as Business Manager to the Fund and
receives from the Fund a fee based on a percentage of net assets of the Fund.
See "MANAGEMENT OF THE FUND - Business Manager."
Dividends and Capital Gains
Dividends from net income, including short-term capital gains, are declared and
paid quarterly by The Global Fund. Distributions of net realized capital gains
are made at least annually by The Global Fund. Dividend and capital gains
distributions of the Fund are automatically invested in additional Shares unless
the Shareholder elects otherwise in writing to the Business Manager.
Custodian, Administrator, Distributor, and Transfer Agent
Brown Brothers Harriman & Co. is the Fund's custodian. As custodian, Brown
Brothers Harriman & Co. will be responsible for the custody of the Fund's assets
and as foreign custody manager will also oversee the custody of any Fund assets
held outside of the United States. First Data Investor Services Group, Inc.
("Investor Services Group," "Administrator," or "Transfer Agent"), whose
principal business address is 53 State Street, Boston, Massachusetts 02109,
serves as administrator, registrar and transfer agent to the Fund. First Data
Distributors, Inc., an affiliate of Investment Services Group, serves as the
Fund's distributor. Investor Services Group is a wholly-owned subsidiary of
First Data Corporation. The Administrator generally assists the Fund in an
administrative and operational capacity, including the maintenance of financial
records and fund accounting. Shareholder inquiries may be directed to Investor
Services Group at P.O. Box 5184, Westborough, Massachusetts 01581-5184.
FUND EXPENSES
The following expense table indicates costs and expenses that an investor should
anticipate incurring either directly or indirectly as a Shareholder of the Fund.
FEE TABLE
The Global
Fund
----------------
Shareholder Transaction Expenses
Maximum Sales Charge Imposed on Purchases and
Reinvested Dividends......................... 0
Deferred Sales Charge on Redemptions......... 0
Wire Transfer Fee1........................... $8.00
Account Closeout Fee1;....................... $3.00
Annual Fund Operating Expenses are paid out of the
Fund's assets. The Fund pays a management fee to
the Business Manager. Expenses are factored into
the 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)
Investor Advisory Fee4 ..................... .46%
Business Management Fee after Waiver2....... 0
Shareholder Service Fee..................... .35%
Other Expenses2............................. .59%
Total Fund Operating Expenses after Waiver3. 1.40%
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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 Fund for the current fiscal year. Waived
fees will not be recovered at a future date. Absent the management fee
waiver, "Management Fees" as a percentage of the average daily net
assets would be .30% for the Fund. See "MANAGEMENT OF THE FUND -
Business Manager."
3 Absent the waiver of the Business Manager fees, "Total Fund Operating
Expenses" as a percentage of average daily net assets would be 1.70%
for The Global Fund.
4 Assuming that each Advisor is managing one-third of the Fund's assets.
The purpose of this table is to assist the prospective investor in understanding
the various costs and expenses that a Shareholder in the Fund will bear directly
or indirectly. For a more complete description of the management fee, see
"MANAGEMENT OF THE FUND." 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 the Fund, assuming (1) 5% annual return, and (2) redemption
at the end of each time period:
The
Global Fund
1 Year........................ $14
2 Years....................... $44
3 Years....................... $77
10 Years...................... $168
* 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 OBJECTIVE 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 investment objective of the 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 the Fund. Other policies of the Fund may be changed by the Company's
Directors, without a vote of the holders of a majority of outstanding Shares of
the 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 the Fund will be
achieved.
Investment Policies
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. Generally, issuers are characterized as U.S. or foreign depending
on the country where the business was organized or is primarily located.
However, there will be issuers who will be deemed foreign issuers whose
securities may be traded on U.S. exchanges. Securities which are traded directly
or through depository receipts in the United States may be purchased by Barclays
and securities which are traded outside the United States or through depository
receipts in the United States may be purchased by Templeton. Because some
securities are traded both inside and outside the United States, these
securities are eligible to be purchased by both Barclays and Templeton.
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. This
committee does not anticipate meeting more frequently than quarterly and is not
obligated to reallocate assets among the Advisors for any particular reason. The
Committee is, however, authorized to do so if for any reason its members believe
it would be in the best interests of shareholders to do so. It is anticipated
that initially The Global Fund will allocate its assets among the three Advisors
based upon the Committee's assessment of current market conditions so that each
Advisor will manage a given proportion of the Fund's assets. The proceeds of
shareholder purchases will be allocated to the Advisors using a methodology
which approximates the most recent Committee allocation decision. Changes in
allocation and reallocations of assets may, however, be made at any time.
Barclays anticipates making equity security selections generally from securities
included in the Russell 3000(R) Index. 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. Barclays may also invest the Fund's assets in
futures contracts and other instruments described herein.
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
recognized 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 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 at least
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 Advisors manage the Fund with the intent of avoiding the costs typically
associated with a high portfolio turnover rate. Templeton and Barclays
anticipate that the portfolio turnover rate for the Fund's equity investments
will be less than 50%. PIMCO expects a far higher turnover rate for the debt
securities managed by it, estimated at 700%, but the turnover rate for this
portion of the Fund's holdings does not typically involve brokerage commissions
although it can involve indirect costs of dealer spreads. PIMCO generally
intends to increase the Fund's total return through its trading strategies in
debt securities. Accordingly, The Global Fund does not anticipate incurring the
higher costs generally associated with a high portfolio turnover rate.
* * * *
Subject to the foregoing general limitations, the Fund expects 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 Fund.
The Global Fund invests in the world's stock and bond markets and so the price
of its shares 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 indexes 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 indexes 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 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.
Convertible Securities
The Fund may invest in convertible securities, which may offer higher income
than the common stocks into which they are convertible. Each of the 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 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 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 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 objective.
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.
If a security is denominated in foreign currency, the value of the security to
the 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 Fund's
assets are denominated may be devalued against the U.S. dollar, resulting in a
loss to The Global Fund.
The 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
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 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 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 or 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 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 Fund also may
invest in options on foreign currencies and foreign currency futures and options
thereon. The 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 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 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 Fund's investment policies, the 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 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 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
Fund's investments in loan participations and assignments with limited
marketability. If the 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 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 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. Because of the interest rate reset
feature, floaters provide the 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 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 Fund 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
fluctuations 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 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 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 the Government National Mortgage Association ("GNMA"), the Federal
Home Loan Mortgage Corporation ("FHLMC") or the Federal National Mortgage
Association ("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 Fund, 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 the 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 Fund's yield to maturity from these
securities. The Fund will not invest more than 5% of its net assets in any
combination of IO, PO, or inverse floater securities. The 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 Fund may be subject to repurchase agreements. Under the
terms of a repurchase agreement, the 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, the Fund may suffer a loss in disposing of the security subject to
the repurchase agreement.
Reverse Repurchase Agreements and Dollar Roll Agreements
The Fund may also borrow funds by entering into reverse repurchase agreements
and dollar roll agreements in accordance with applicable investment
restrictions. Pursuant to such agreements, the 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 the 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 the 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 one hundred million dollars ($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 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 Investors Service,
L.P.) 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 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 Fund may also enter into
swap agreements with respect to foreign currencies, interest rates, and
securities indexes. The 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 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 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 Fund invests may be particularly sensitive to changes
in prevailing interest rates, and, like the other investments of the Fund, the
ability of a fund to successfully utilize these instruments may depend in part
upon the ability of the Advisor to correctly forecast interest rates and other
economic factors. If the Advisor incorrectly forecasts such factors and has
taken positions in derivative instruments contrary to prevailing market trends,
the 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 Fund holding a position in the
underlying securities or by other means which would permit immediate
satisfaction of the 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 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 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 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 Fund from liquidating an unfavorable position, and
the 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 Fund's immediate obligations. The
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 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 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 Fund's net assets.
When-Issued and Delayed-Delivery Transactions
The Fund may purchase securities on a when-issued or delayed-delivery basis. The
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. The Fund will not pay for such securities or start earning interest on
them until they are received. When the 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, the Fund relies on the seller to complete the transaction; the
seller's failure to do so may cause the Fund to miss an advantageous price or
yield.
Securities Issued by Other Investment Companies
The Fund may invest up to 10% of its total assets in shares of money market
mutual funds for cash management purposes. The Fund will incur additional
expenses due to the duplication of expenses as a result of investing in other
investment companies.
U.S. Government Obligations
Although the primary focus of The Global Fund is on other types of financial
instruments The Global Fund may invest in U.S. Government securities for
liquidity and investment purposes.
Obligations of certain agencies and instrumentalities of the U.S. Government,
such as the GNMA, are supported by the full faith and credit of the U.S.
Treasury; others, such as those of the 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 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.
Lending of Portfolio Securities
In order to generate additional income, the Fund from time to time may lend
portfolio securities to broker-dealers, banks or institutional borrowers of
securities. The Fund 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 Fund. During the time portfolio securities are on
loan, the borrower pays the Fund any dividends or interest paid on such
securities. Loans are subject to termination by the Fund or the borrower at any
time. While the Fund does 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 the Fund, the Fund could experience delays in recovering its
securities and possible capital losses. The Fund 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 the 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.
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 the 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 the Fund that may not be
changed without the approval of the holders of a majority of the Fund's
outstanding voting securities. A majority of the 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
the Fund will take reasonably practicable steps to attempt to continuously
monitor and comply with its liquidity standards. Also, if the Fund receives
subscription rights to purchase securities of an issuer whose securities the
Fund holds, and if the 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 Fund may not:
(1) invest 25% or more of the total value of its 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 the
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
the Fund may engage in futures transactions as described in this
Prospectus;
(4) make loans, except that the 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 objective 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 FUND
Directors
Overall responsibility for management of the Fund rests with the Directors of
the Company, who are elected by the Shareholders of the Company. There are
currently three directors, two 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 "Advisers Act"). The Directors, in turn, elect the
officers of the Company to supervise its day-to-day operations.
Investment Advisors
The 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 December
31, 1997, BGI provided investment advisory services for approximately $500
billion in assets. An investment committee of Barclay's investment professionals
makes investment decisions for the portion of the Fund's portfolio they manage.
No single individual acts in the capacity of a portfolio manager.
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 as of December 31, 1997, provided investment advisory services for
over $223.7 billion in assets. The Templeton organization has been investing
globally since 1940. Templeton and its affiliates have global equity research
offices in Australia, Bahamas, Canada, France, Germany, Italy, Luxembourg,
Scotland and the United States. 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.
Peter A. Nori, CFA, will manage the Fund's investments in non-U.S. equity
securities on behalf of Templeton. Mr. Nori is Vice President and a Portfolio
Manager and analyst for Templeton. His current responsibilities include covering
data processing software and hardware industries, the steel stocks industries,
and country coverage of Austria. In addition to his portfolio management duties
involving institutional and mutual fund accounts, Mr. Nori is lead manager for
the Templeton Global Smaller Companies Fund and backup for Templeton Foreign
Smaller Companies Fund. Mr. Nori received a bachelor of science degree in
finance and a master of business administration degree with an emphasis in
finance from the University of San Francisco. Mr. Nori is a Chartered Financial
Analyst (CFA) and a member of the Association for Investment Management and
Research (AIMR).
Simon Rudolph and Edward Ramos have secondary portfolio management
responsibilities for the Fund. Mr. Rudolph is a vice president of Templeton. He
joined Templeton in 1997 as a portfolio manager and research analyst and
currently has research responsibility for the worldwide transport and shipping
industry, as well as country coverage of India. Mr. Rudolph also researches
small-cap companies throughout Asia and presently manages small-cap mutual
funds. He holds a Bachelor of Arts degree in economic history from Durham
University in England, and is a Chartered Accountant and a member of the
Institute of Chartered Accountants of England and Wales. Mr. Ramos is also a
Vice President of Templeton. His responsibilities include analysis of the
merchandising, financial services and brokerage industries, as well as country
coverage of Taiwan, Egypt and Israel. Mr. Ramos received a Master of Business
Administration degree with emphasis in finance, accounting and international
business from The Columbia Graduate School of Business and a Bachelor of Science
degree in finance from Lehigh University. He is a Chartered Financial Analyst
(CFA).
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 as of December 31, 1997 provided investment advisory
services for over $118 billion in assets. 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
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. As 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.
Subject to the general supervision of the Company's Board of Directors and in
accordance with the investment objective, policies and restrictions of the Fund,
the Advisors manage the Fund, make decisions with respect to, and place orders
for, all purchases and sales of the Fund's securities.
For the services provided pursuant to their Investment Management Agreements
with the Company, the Advisors receive a fee from the Fund. The fee is computed
daily and paid monthly and is computed as a percentage of the Fund's average
daily net assets for which the respective Advisor has investment management
responsibility. The Global Fund pays Barclays at a rate of 0.37 1/2% on the
first $100 million of assets under management, 0.30% on the next $400 million of
assets under management, and 0.25% on assets over $500 million. The Global Fund
pays Templeton at a rate of 0.70% on the first $25 million of assets under
management, 0.55% on the next $25 million of assets under management, 0.50% on
the next $50 million of assets under management, 0.40% on the next $150 million
of assets under management, 0.35% on the next $250 million of assets under
management, and 0.30% on amounts over $500 million. The Global Fund pays PIMCO
at a rate of 0.35% of assets under management less than $200 million and 0.30%
on amounts over $200 million.
The Business Manager
Pursuant to an agreement with the Fund, Sutton Place Management Co., Inc.
provides the facilities and services required to carry on the Fund's general
administrative and corporate affairs. The Business Manager maintains its
principal business at 433 California Street, Suite 1010, San Francisco,
California 94104.
The Business Management Agreement provides that the Fund will pay the Business
Manager a fee of 0.30% per annum of the 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 Fund's administrator,
transfer agent, and registrar and also provides certain accounting services for
the Fund ("Investor Services Group," "Administrator," or "Transfer Agent"). An
affiliate of Investor Services Group, First Data Distributors, Inc., serves as
the Fund's Distributor (the "Distributor"). The Distributor acts as agent for
the Fund in the distribution of its Shares and, in such capacity, solicits
orders for the sale of Shares. The Distributor and Investor Services Group's
principal business address is 53 State Street, Boston, Massachusetts 02109.
Investor Services Group is a wholly-owned subsidiary of First Data Corporation.
The Administrator generally assists the Fund in the administration of its
affairs, 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 5184, Westborough, Massachusetts 01581-5184.
Arthur Andersen LLP serves as independent public auditors for the Company. Brown
Brothers Harriman & Co. is the Fund's custodian. See "MANAGEMENT OF THE FUND" in
the SAI for further information.
The Fund pays all expenses not assumed by the Advisors, Administrator or
Business Manager. Expenses paid by the 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 Fund (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 stationery and forms prepared exclusively for the
Fund.
Portfolio Transactions
Pursuant to the Investment Management Agreements, each Advisor places orders for
the purchase and sale of portfolio investments with brokers or dealers selected
by the Advisor in its discretion.
VALUATION OF SHARES
The net asset value of the 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) (the "Valuation Time") on each Business Day. As used
herein a "Business Day" is a day on which the NYSE is open for trading and the
Federal Reserve Bank of San Francisco ("FRB") is open, except days on which
there are insufficient changes in the value of the 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 Fund will fluctuate as the value of the
Fund's investments change. Net asset value per Share for the 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 the Fund by the number of the Fund's outstanding Shares.
PURCHASING SHARES
This Prospectus offers individual investors three methods of purchasing Shares.
Shares may be purchased through a broker-dealer who has established a dealer
agreement with the Distributor or the Distributor. In addition, Shares of the
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 the 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.
Purchases of Shares of the Fund 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 Valuation
Time for that day and transmits it to the Company by the 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 the Fund will be effected only on a Business Day. An order received prior to
the Valuation Time on any Business Day will be executed at the net asset value
determined as of the Valuation Time on the date of receipt. An order received
after the Valuation Time on any Business Day will be executed at the net asset
value determined as of the Valuation Time on the next Business Day of the 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 the 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.
An account may be opened by mailing a check or other negotiable bank draft in
the minimum amounts described above (payable to Forward Funds, Inc.) with a
completed and signed Account Application Form to Forward Funds, Inc., c/o First
Data Investor Services Group, Inc., P.O. Box 5184, Westborough, Massachusetts
01581-5184. An Account Application Form may be obtained by calling
1-800-999-6809. The completed investment application must indicate a valid
taxpayer identification number and must be certified as such. Additionally,
investors may be subject to penalties if they falsify information with respect
to their taxpayer identification numbers.
The issuance of Shares is recorded on the books of the Fund. 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 Fund owned by the Shareholder. Shareholders may rely on these
statements in lieu of certificates. Certificates representing Shares of the Fund
will not be issued.
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.
EXCHANGE PRIVILEGE
Shares of the Fund may be exchanged with a money market fund, the U.S.
Government Money Market Fund (Vista class), a portfolio of Mutual Fund Trust.
There will be no fees for exchanges. 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 1-800-999-6809. 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 Fund being acquired may legally be sold and may be modified,
limited or terminated at any time by the Fund 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 Fund limits 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 the 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 by check,
wire transfer, telephone or mail. The Company intends to pay cash for all Shares
redeemed, but in unusual circumstances may make payment wholly or partly in
portfolio securities at their then market value equal to the redemption price.
In such cases, a Shareholder may incur brokerage costs in converting such
securities to cash.
Signature Guarantee
If the proceeds of the redemption are greater than $50,000, or are to be paid to
someone other than the registered holder, or to other than the Shareholder's
address of record, or if the Shares are to be transferred, the owner's signature
must be guaranteed by a commercial bank, trust company, savings association or
credit union as defined by the Federal Deposit Insurance Act, or by a securities
firm having membership on a recognized national securities exchange. No
signature guarantees are required for Shares when an application is on file with
the Transfer Agent and payment is to be made to the Shareholder of record at the
Shareholder's address of record. 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.
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 NYSE will result in Shares being redeemed that day at the next
determined net asset value and normally the proceeds will be 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 seven (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 1-800-999-6809 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. 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 Investor Services Group, P.O. Box
5184, Westborough, Massachusetts 01581-5184. 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 TABLE."
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
by wire will be transmitted on the next Business Day. Wire redemption requests
may be made by the Shareholder by telephone to the Company at 1-800-999-6809.
Although there are no redemption fees, a Shareholder may be charged wire
transfer and account closeout fees, as applicable. See "FEE TABLE."
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 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 Investor
Services Group.
By Mail
A written request for redemption must be received by the Transfer Agent in order
to honor the request. See "FEE TABLE." The Transfer Agent's address is: First
Data Investor Services Group, Inc., P.O. Box 5184, Westborough, Massachusetts
01581-5184. 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, (2) the redemption check is mailed to the
Shareholder(s) at the address of record and (3) an application is on file with
the Transfer Agent. Signature guarantees are also waived if the proceeds of the
redemption request will meet the above conditions and be less than $50,000. 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").
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 generally will be made within seven
days after receipt of a valid request for redemption.
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 Fund intends 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 the Fund. Pursuant to the Plan, the 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 the 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 Fund expects to pay dividends of net investment income quarterly 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 5184, Westborough,
Massachusetts 01581-5184, and will become effective with respect to dividends
and distributions having record dates after its receipt by the Transfer Agent.
Federal Taxes
The 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, the Fund intends to distribute each calendar year
substantially all of its taxable income and gains.
Distributions from the 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), whether received in
cash or reinvested in Fund shares, are taxable to Shareholders as ordinary
income. Distributions of net capital gains (other than short-term capital gain),
whether received in cash or reinvested in Fund shares, will be taxable to
Shareholders at the applicable capital gains rate (generally, a maximum rate of
20% or 28%, depending upon the Fund's holding period in the assets sold),
regardless of how long the Shareholder has held the Fund's Shares.
Dividends declared by the 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 the Fund has the effect of reducing
the Fund's net asset value per Share. Since the Fund 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 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 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.
The 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 the 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 the Fund.
The preceding discussion is only a summary of some of the federal income tax
considerations generally affecting the Fund and its 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 the 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
Fund described in this Prospectus. The Shares of the Company are currently
offered as a single class. Each Share represents an equal proportionate interest
in the Fund with other Shares of the Fund, and is entitled to such dividends and
distributions out of the income earned on the assets belonging to the Fund as
are declared at the discretion of the Directors. Shareholders are entitled to
one vote for each Share owned.
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 Fund showing its 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 the 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 indexes such as
those prepared by various services, which indexes 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 Fund 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 Fund will not
be included in performance calculations; such fees, if charged, will reduce the
actual performance from that quoted.
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 1-800-999-6809 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 Investor Services Group, P.O. Box 5184, Westborough,
Massachusetts 01581-5184, or by calling toll free 1-800-999-6809.
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 Fund or
its Distributor. This Prospectus does not constitute an offering by the Fund or
by the Distributor in any jurisdiction in which such offering may not lawfully
be made.
<PAGE>
FORWARD FUNDS, INC.
433 California Street
Suite 1010
San Francisco, California 94104
1-800-999-6809
Statement of Additional Information
dated March 2, 1998
Forward Funds, Inc. (the "Company") is an open-end management investment company
commonly known as a mutual fund. The Company offers one diversified investment
portfolio, The Global Fund (referred to herein as "The Global Fund" or the
"Fund"). There is no assurance that the Fund will achieve its objective.
This Statement of Additional Information ("SAI") is not a prospectus and it
should be read in conjunction with the Funds' Prospectus, dated March 2, 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 FUND.........................................................2
INVESTMENT OBJECTIVE AND POLICIES..............................................7
SUPPLEMENTAL DISCUSSION OF INVESTMENT TECHNIQUES AND RISKS ASSOCIATED
WITH THE FUND'S INVESTMENT POLICIES AND INVESTMENT TECHNIQUES.............8
PORTFOLIO TRANSACTIONS........................................................15
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION................................16
DETERMINATION OF SHARE PRICE..................................................17
SHAREHOLDER SERVICES AND PRIVILEGES...........................................18
DISTRIBUTIONS.................................................................19
SHAREHOLDER INFORMATION.......................................................24
CALCULATION OF PERFORMANCE DATA...............................................24
GENERAL INFORMATION...........................................................26
FINANCIAL STATEMENTS..........................................................27
APPENDIX......................................................................28
<PAGE>
ORGANIZATION OF FORWARD FUNDS, INC.
Forward Funds, Inc. is an open-end management investment company which offers
one diversified investment portfolio, The Global Fund. The Company was
incorporated in Maryland on October 3, 1997.
The authorized capital stock of the Company consists of six hundred (600)
million shares of one class of common stock having a par value of $0.001 per
share. The Board of Directors of the Company has designated the stock into one
series, The Global Fund, and has authorized the series to offer two classes. The
Fund currently offers one class of shares (the "Shares"). Holders of Shares of
the 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 FUND
Board of Directors. The Fund is managed by the Company's Board of Directors. The
Directors and Officers of the Company are listed below. Their affiliations over
the last five years are set forth 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.
Haig G. Mardikian, Hearst Building, Suite 1000, San Francisco, California 94118.
(Age 50). Director. Mr. Mardikian is primarily involved in real estate
investments and development projects. Owner of Haig G. Mardikian Enterprises, a
real estate investment business; general partner of M&B Development; general
partner of George M. Mardikian Enterprises; and president and director of
Adiuvana-Invest, Inc. In addition to his involvement with the above-mentioned
investment businesses, Mr. Mardikian has served as Managing Director of United
Broadcasting Company and Chairman and Director of SIFE Trust Fund.
Leo T. McCarthy, One Market, Steuart Tower, Suite 1604, San Francisco,
California 94105. (Age 67). Director. President, The Daniel Group, an
international trade consulting partnership (January 1995 -present); Director,
Linear Technology Corporation (July 1994 - present); Lieutenant Governor of the
State of California (January 1983 - December 1994).
Ronald Pelosi,* 433 California Street, Suite 1010, San Francisco, California
94104. (Age 63). Director. President, Sutton Place Management Co., Inc. (June
1997 - Present); Principal, Grayville Associates, a business consulting firm
(June 1996 - Present). Mr. Pelosi was formerly a Vice President of Korn Ferry
International, an executive search consulting firm (June 1994 - June 1996) and
President of Ironstone Partners, business consultants (January 1993 - June
1994).
The Fund pays each Director who is not an interested person (as defined under
the 1940 Act) an annual fee of $6,000. Officers of the Fund and Directors who
are interested persons of the Fund do not receive any compensation from the Fund
or any other funds managed by the Business Manager or Investment Advisors. None
of the officers or Directors of the Fund are affiliated with the Investment
Advisors.
Officers.
Ronald Pelosi, President. 433 California Street, Suite 1010, San Francisco,
California 94104. (Age 63). See "Board of Directors."
Steven Levy, Treasurer. 433 California Street, Suite 1010, San Francisco,
California 94104. (Age 33). Vice President of Fund Accounting and Administration
Operations for First Data Investor Services Group, Inc. (January 1997 -
present); Vice President of Investment Operations at Franklin Templeton Group,
San Mateo, California (January 1996 - December 1996); Assistant Vice President
in Fund Accounting at Scudder, Stevens & Clark, Inc. (December 1994 - January
1996); Fund Accounting Division, Putnam Investments, Inc. (1986 - November
1994).
Julie A. Tedesco, Secretary. 433 California Street, Suite 1010, San Francisco,
California 94104. (Age 40). Counsel to First Data Investor Services Group, Inc.
(May 1994 - present); Assistant Vice President and Counsel, The Boston Company
Advisors, Inc. (July 1992 - May 1994).
Kristin Kowal, Assistant Treasurer. 433 California Street, Suite 1010, San
Francisco, California 94104. (Age 30). Director of Client Services, First Data
Investor Services Group, Inc. (August 1997 - present); Fund Accountant, Mutual
Fund Accounting Division, First Data Investor Services Group, Inc. (December
1991 - July 1997).
Therese M. Hogan, Assistant Secretary. 433 California Street, Suite 1010, San
Francisco, California 94104. (Age 35). Manager (State Regulations), First Data
Investor Services Group, Inc. (June 1994 - present); Senior Legal Assistant,
Palmer & Dodge (October 1993 - May 1994).
Investment Advisors. The Investment Advisors serve as investment advisors for
the Fund and have certain responsibilities for the investment management of the
assets of the Company (collectively referred to herein as "Investment Advisors"
or "Advisors"). The Investment 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 Fund with
respect to the assets allocated to them. There are three Investment Advisors for
the Fund. 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 Company ("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, 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. 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 Australia,
Bahamas, Canada, France, Germany, Italy, Luxembourg, Scotland and the United
States. 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.
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
$118 billion in assets under management as of December 31, 1997. PIMCO is a
subsidiary partnership of PIMCO Advisors L.P. ("PIMCO Advisors"). PIMCO Advisors
has two general partners, PIMCO Advisors Holdings L.P., a Delaware limited
partnership (formerly Oppenheimer Capital, L.P.) 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 Delaware limited liability company
controlled by the PIMCO Managing Directors. PIMCO Partners, G.P. is also the
general partner of PIMCO Advisors Holdings 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.
The Fund pays Templeton annual fees equal to 0.70% of the first $25 million of
Fund assets invested by Templeton, 0.55% of 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% of all assets above $500 million managed by the Investment Manager.
The Fund pays Barclays annual fees equal to 0.375% of the first $100 million of
Fund assets managed by Barclays, 0.30% on the next $400 million under
management, and 0.25% on all assets above $500 million managed by Barclays.
PIMCO is paid annual fees equal to 0.35% of the first $200 million of Fund
assets it manages and 0.30% of all assets above $200 million that it manages.
All fees paid to the Investment Advisors by the Fund are computed and accrued
daily and paid monthly based on the net asset value of shares of the Fund.
Each Investment 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 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 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 Fund,
including:
o providing office space, telephone, office equipment and supplies
for the Fund;
o paying compensation of the Fund's 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 Fund;
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 Fund;
o monitoring relationships with organizations serving the Fund;
o and providing executive, clerical and secretarial help needed to
carry out these responsibilities.
For its services the Business Manager receives a fee from the Fund of 0.30% per
annum of the Fund's average daily net assets. The fee is computed daily and paid
monthly. The Business Management Agreement between the Business Manager and the
Fund shall continue in effect for two years from the date of its execution and
year to year thereafter, provided that each such continuance is approved at
least annually by (a) the vote of a majority of the entire Board of Directors of
the Company, or by the vote of the outstanding securities of the Company, and
(b) the vote of a majority of those directors who are not parties to the
Business Management Agreement or interested persons (as that term is defined in
the 1940 Act). The Business Management Agreement may be terminated at any time
by either party upon 60 days' prior written notice and terminates automatically
in the event of its assignment (as defined in the 1940 Act).
Distributor. Shares of the Fund are distributed pursuant to an Agreement between
the Company and First Data Distributors, Inc. (the "Distributor"). The
Distribution Agreement requires the Distributor to solicit orders for the sale
of Fund shares and to undertake such advertising and promotion as the
Distributor believes reasonable in connection with such solicitation. The Fund
and the Distributor have agreed to indemnify each other against certain
liabilities. The Distribution Agreement will remain in effect for two years and
from year to year thereafter only if its continuance is approved annually by a
majority of the Board of Directors who are not parties to such agreement or
"interested persons" of any such party and must be approved either by votes of a
majority of the Directors or a majority of the outstanding voting securities of
the Fund. The Distribution Agreement may be terminated by either party on at
least 60 days' written notice and will terminate automatically in the event of
its assignment (as defined in the 1940 Act).
Administrator and Transfer Agent. First Data Investor Services Group, Inc.
(hereinafter "Investor Services Group," "Administrator" and "Transfer Agent"),
whose principal business address is 53 State Street, Boston, Massachusetts
02109, acts as the Company's administrator and transfer agent. As Administrator,
Investor Services Group will perform corporate secretarial, treasury and blue
sky services and act as fund accounting agent for the Fund. For its services as
Administrator, the Fund will pay Investor Services Group a monthly fee based on
the average amount of assets invested in the Fund. Investor Services Group will
receive an annual fee of 0.20% up to and including the first $500 million Fund
assets; 0.17% for assets between $500 million and $1 billion and 0.125% for all
assets over $1 billion. In addition, the Fund will pay Investor Services Group
certain accounting fees, and other expenses. The Administration Agreement
between the Fund and Investor Services Group has an initial term of five years
and will renew automatically for successive two year terms. Pursuant to a
Transfer Agency and Services Agreement, Investor Services Group also acts as
transfer agent and dividend disbursing agent for the Fund. The Transfer Agency
and Services Agreement has a term of five years and automatically renews for
successive two year terms. Investor Services Group and First Data Distributors,
Inc. are wholly-owned subsidiaries of First Data Corporation. Shareholder
inquiries may be directed to Investor Services Group or First Data Distributors,
Inc. at P.O. Box 5184, Westborough, Massachusetts 01581-5184. See the Prospectus
for information on how to purchase, sell and exchange Shares of the Fund, and
the charges and expenses associated with an investment.
The Shares of the Fund 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 Fund's 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. See the Prospectus for information on how to
purchase and sell Shares of the Fund, and the charges and expenses associated
with an investment.
Shareholder Service Plan. The Fund has a Shareholder service plan applicable to
Shares of the Fund ("Shareholder Service Plan"). The Company intends to operate
the Shareholder Service Plan in accordance with its terms. Under the Shareholder
Service Plan, 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 Fund.
Under the Shareholder Service Plan, 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 the 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 SAIs
(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 Plan.
In the event a Shareholder Service Plan is terminated in accordance with its
terms, the obligations of the 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
Fund will receive payment under the Shareholder Service Plan without regard to
actual distribution expenses incurred.
The Shareholder Service Plan has 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 Plan 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
Plan 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 the Fund that would increase
materially the expenses paid by a Fund requires Shareholder approval; otherwise,
the Shareholder Service 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 Plan, 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 Plan in order to enable the Board to make an
informed determination of whether the Shareholder Service Plan should be
continued.
INVESTMENT OBJECTIVE AND POLICIES
General
The Global Fund seeks total return (capital appreciation and income) by
investing primarily in the global stock and bond markets.
The investment objective of the 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 the Fund. Non-fundamental policies of the Fund may be changed by the
Company's Directors, without a vote of the holders of a majority of outstanding
Shares of the 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 the
Fund will be achieved.
Investment Policies
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 securities of
emerging markets. The Investment Advisors making non-U.S. investments for the
Fund (as described in the Prospectus) 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 (e.g., 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 recognized 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.
* * * * * * *
SUPPLEMENTAL DISCUSSION OF INVESTMENT TECHNIQUES
AND RISKS ASSOCIATED WITH THE FUND'S INVESTMENT
POLICIES AND INVESTMENT TECHNIQUES
Additional information concerning investment techniques and risks associated
with certain of the Fund's 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 the 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 the 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 Fund purchases a security and simultaneously
commits 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 Fund from risk that the original seller will
not fulfill its obligations, the securities are held in accounts of the Fund 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 Fund in connection with
bankruptcy proceedings), it is the Fund's 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 Fund will maintain appropriate liquid
assets in a segregated custodial account to cover its obligation under the
agreement. The Fund 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
Fund's 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 Fund's 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 of 1986, as amended (the "Code"),
may limit The Global Fund's ability to use swap agreements. The swap market is a
relatively new market and is largely unregulated. It is possible that
developments in the swap 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 Fund 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 Fund's liquidity. Further, the
lack of an established secondary market may make it more difficult to value
illiquid securities, requiring the Fund to rely on judgments that may be
somewhat subjective in determining value, which could vary from the amount that
the Fund 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 Fund's 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% of its total assets in illiquid securities,
measured at the time of investment.
Borrowing
The Fund may borrow up to 15% of the value of its total assets from banks for
temporary or emergency purposes. Under the 1940 Act, the 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 the Fund's holdings may be
disadvantageous from an investment standpoint. The Fund does 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 the 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 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 Investment 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 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 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 Fund to obtain accurate market quotations for the
purposes of valuing the 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 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 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 Fund may incur additional expenses seeking
recovery.
Options on Securities, Indexes and Futures
The 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 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 Fund will cover call options on securities indexes that it writes by owning
securities whose price changes, in the opinion of the Investment 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 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 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 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 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 Fund has written a call option falls or remains the same, the 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 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 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 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 Fund may also purchase put options to hedge its investments against a
decline in value. By purchasing a put option, the 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 Fund's investments does not decline as
anticipated, or if the value of the option do not increase, the 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 Fund's security holdings being
hedged.
The 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 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 Fund holds uninvested cash or short-term debt securities awaiting
reinvestment. When purchasing call options, the 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 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 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 Fund, as well
as the cover for options written by the Fund, are considered not readily
marketable and are subject to the Company's limitation on investments in
securities that are not readily marketable.
The 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 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 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 Fund seeks to close out an
option position. If the 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 Fund, it would not be able to close out
the option. If restrictions on exercise were imposed, the 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 Fund is covered by an option on the same index
purchased by the Fund, movements in the index may result in a loss to the Fund;
however, such losses may be mitigated by changes in the value of the Fund's
securities during the period the option was outstanding.
Investment in Foreign and Developing Markets
The Fund may purchase securities in any foreign country, developed or
developing. Potential investors in the 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 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 ("NYSE") 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
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 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 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 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 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 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 Fund's portfolio securities are
denominated may have a detrimental impact on the Fund.
Year 2000 Concerns
The services provided to the Fund by the Advisors, Business Manager, Investor
Services Group and the Distributor are dependent upon the operation of these
service providers' computer systems. Many computer software systems in use today
cannot distinguish between the year 2000 and the year 1900 because of the way
dates are encoded and calculated (the "Year 2000 Problem"). The failure to make
this distinction could have a negative implication on handling securities
trades, pricing and account services. Each of the Advisors, Business Manager,
Investor Services Group and the Distributor are taking steps that each believes
are reasonably designed to address the Year 2000 Problem with respect to the
computer systems that they use. Although there can be no assurances, the Fund
believes these steps will be sufficient to avoid any adverse impact on the 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
Fund. In all purchases and sales of securities for the Fund, the primary
consideration is to obtain the most favorable price and execution available.
Pursuant to the Investment Management Agreements, each Investment Advisor
determines which brokers are to be eligible to execute portfolio transactions of
the Fund. 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 Fund and/or the Investment Advisor,
and provide other services in addition to execution services. Consistent with
this policy, neither the Investment Advisors nor any parent, subsidiary, or
related firm shall act as a securities broker with respect to any purchases or
sales of securities which may be made on behalf of the Fund. The placement of
portfolio brokerage with broker-dealers who have sold Shares of the Fund 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 Fund, the Company may also give weight to the
ability of a broker to furnish brokerage and research services to the Fund 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 Fund or assist the Investment Advisor in carrying out its
responsibilities to the Fund or its other clients.
Purchases of the Fund's 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 Fund 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 Fund may also be appropriate
for other clients served by the Fund's 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.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Fund 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. The Distributor, at its expense, may provide additional
promotional incentives to dealers in connection with the sales of Shares of the
Fund and other funds managed by the Investment Advisors. 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.
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 the Fund on any day on which the
NYSE 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. There is no fee for redemptions.
2. Telephone redemptions and/or exchange instructions should be
made by dialing 1-800-999-6809.
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 application. 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.
Matters Affecting Redemptions. Payments to Shareholders for Shares redeemed will
be made within seven days after receipt by the Fund's Transfer Agent of the
request in proper form (payments by wire will generally be transmitted on the
next Business Day), except that the Company may suspend the right of redemption
or postpone the date of payment as to the Fund during any period when (a)
trading on the NYSE 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 securities or valuation of
net assets of the Fund not reasonably practicable; or (c) for such other period
as the SEC may permit for the protection of the Fund's Shareholders. At various
times, the Fund may be requested to redeem Shares for which it has not yet
received good payment. Accordingly, the Fund may delay the mailing of a
redemption check until such time as the Fund has assured itself that good
payment has been collected for the purchase of such Shares, which may take up to
15 days.
Net Asset Value. The Fund intends to pay in cash for all Shares redeemed, but
under abnormal conditions that make payment in cash unwise, the Fund 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 Fund liquidates portfolio
securities to meet redemptions, the Fund reserves 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 Fund reserves
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 the
Fund, other than as a result of a decline in the net asset value per Share.
Before the 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 60 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 and involuntary redemptions will not result from fluctuations in
the value of the Shareholder's Shares.
The value of Shares on redemption or repurchase may be more or less than the
investor's investment, depending upon the market value of the portfolio
securities at the time of redemption or repurchase.
DETERMINATION OF SHARE PRICE
The net asset value and offering price of the Fund's Shares will be determined
once daily as of the close of trading on the NYSE (4:00 p.m., Eastern time)
during each day on which the NYSE is open for trading, the Federal Reserve Bank
of San Francisco is open, and any other day except days on which there are
insufficient changes in the value of the 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 NYSE 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. Puts, calls and futures contracts purchased and held by the Fund
are valued at the close of the securities or commodities exchanges on which they
are traded. Options on securities and indices purchased by the Fund generally
are valued at their last bid price in the case of exchange-traded options or, in
the case of options traded on the over the counter market, the average of the
last bid price as obtained from two or more dealers unless there is only one
dealer, in which case that dealer's price is used. Futures contracts will be
valued with reference to established futures exchanges. The value of options on
futures contracts is determined based upon the current settlement price for a
like option acquired on the day on which the option is being valued. A
settlement price may not be used for the foregoing purposes if the market makes
a limit move with respect to a particular commodity. The value of all assets and
liabilities expressed in foreign currencies will be converted into U.S. dollar
values at the mean between the buying and selling rates of such currencies
against U.S. dollars last quoted by any major bank or broker-dealer. 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.
Orders received by dealers prior to the close of trading on the NYSE will be
confirmed at the offering price computed as of the close of trading on the NYSE
provided the order is received by the Transfer Agent prior to its close of
business that same day (normally 4:00 p.m., Eastern 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 NYSE will be confirmed at the next computed offering price as described
in the Fund's Prospectus.
SHAREHOLDER SERVICES AND PRIVILEGES
For investors purchasing Shares 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 on a periodic
basis, the Fund may, in lieu of furnishing confirmations following each purchase
of Fund shares, send statements no less frequently than quarterly, pursuant to
the provisions of the Securities Exchange Act of 1934, as amended ("1934 Act"),
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, there is available through the
Company a Prototype Plan and Custody Agreement. 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 individual retirement account ("IRA")
pursuant to Section 408(a) of the 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. Simplified Employee Pension Plans
("Simple IRAs") which employers may establish on behalf of their employees are
also available. Full details on the IRA and Simple IRA are contained in Internal
Revenue Service required disclosure statements, and the Custodian will not open
an IRA until seven 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 by Section 403(b) retirement plans 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.
DISTRIBUTIONS
Shareholders have the privilege of reinvesting both income dividends and capital
gains distributions, if any, in additional Shares of the Fund 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 the Fund is
made upon the condition and understanding that the Transfer Agent is
automatically appointed the Shareholder's agent to receive the investor's
dividends and distributions upon all Shares registered in the investor's name
and to reinvest them in full and fractional Shares of the 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 the Fund request
that dividends and/or capital gains distributions be paid to the investor in
cash.
TAX CONSIDERATIONS
The following discussion summarizes certain U.S. federal tax considerations
generally affecting the Fund and its 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 the Fund.
Qualification as a Regulated Investment Company. The Fund intends to qualify as
a regulated investment company under the Code. To so qualify, the Fund must,
among other things, in each taxable year: (a) derive at least 90% of its gross
income from dividends, interest, payments with respect to securities loans,
gains from the sale or other disposition of stock or securities and gains from
the sale or other disposition of foreign currencies, or other income (including
gains from options, futures contracts and forward contracts) derived with
respect to the Fund's business of investing in stocks, securities or currencies;
(b) diversify its holdings so that, at the end of each quarter, (i) at least 50%
of the value of the Fund's total assets is represented by cash and cash items,
U.S. Government securities, securities of other regulated investment companies,
and other securities, with such other securities limited in respect of any one
issuer to an amount not greater in value than 5% of the Fund's total assets and
to not more than 10% of the outstanding voting securities of such issuer, and
(ii) not more than 25% of the value of the Fund's total assets is invested in
the securities (other than U.S. Government securities or securities of other
regulated investment companies) of any one issuer or of any two or more issuers
that the Fund controls and that are determined to be engaged in the same
business or similar or related businesses; and (c) distribute at least 90% of
its investment company taxable income (which includes, among other items,
dividends, interest and net short-term capital gains in excess of net long-term
capital losses).
The status of the Fund as a regulated investment company does not involve
government supervision of management or of its investment practices or policies.
As a regulated investment company, the Fund generally will be relieved of
liability for U.S. federal income tax on that portion of its investment company
taxable income and net realized capital gains which it distributes to its
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, the 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,
whether received in cash or reinvested in Fund Shares. The 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 the Fund as capital gains dividends are taxable to Shareholders,
whether received in cash or reinvested in Fund Shares, as either "20% Rate Gain"
or "28% Rate Gain," depending upon the Fund's holding period for the assets
sold. "20% Rate Gains" arise from sales of assets held by the Fund for more than
18 months and are subject to a maximum tax rate of 20%; "28% Rate Gains" arise
for sales of assets held by the Fund for more than one year but not more than 18
months and are subject to a maximum tax rate of 28%. Distributions are subject
to these tax rates 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. Any distributions that are not from the Fund's investment company
taxable income or net capital gains may be characterized as a return of capital
to Shareholders or, in some cases, as capital gains. Shareholders will be
notified annually as to the federal tax status of dividends and distributions
they receive and any tax withheld thereon.
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 the 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 the Fund reduce 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 the 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 Fund 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 the 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 Fund 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 the Fund at a
constant rate over the time remaining to the debt security's maturity or, at the
election of the 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
Fund's transactions in foreign currencies, forward contracts, options, and
futures contracts (including options and futures contracts on foreign
currencies) will be subject to special provisions of the Code that, among other
things, may affect the character of gains and losses realized by the Fund (that
is, may affect whether gains or losses are ordinary or capital), accelerate
recognition of income to the Fund, defer Fund losses, and affect the
determination of whether capital gains and losses are 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 Fund to mark-to-market certain positions in its
portfolio (that is, treat them as if they were sold), which may cause the Fund
to recognize income without receiving cash to use to make distributions in
amounts necessary to avoid income and excise taxes. The 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 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 Fund may result in "straddles" for
federal income tax purposes. The straddle rules may affect the character of
gains (or losses) realized by the Fund, and losses realized by the Fund on
positions that are part of a straddle may be deferred under the straddle rules,
rather than being taken into account in calculating the taxable income for the
taxable year in which the losses are realized. In addition, certain carrying
charges (including interest expense) associated with positions in a straddle may
be required to be capitalized rather than deducted currently. Certain elections
that the 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 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 the 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 Fund accrues receivables or expenses denominated in a
foreign currency and the time the 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 Fund's investment
company taxable income available to be distributed to its Shareholders as
ordinary income.
Passive Foreign Investment Companies. The 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 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 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 shares at the
end of each taxable year, with the result that unrealized gains would be treated
as though they were realized and reported as ordinary income. Any mark-to-market
losses and any loss from an actual disposition of PFIC Shares would be
deductible as ordinary losses to the extent of any net mark-to-market gains
included in income in prior years.
Other Investment Companies. It is possible that by investing in other investment
companies, the Fund 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 Fund may limit
the extent to which the Fund 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; gain will generally be subject to
a maximum tax rate of 20% if the Shareholder's holding period for the Shares is
more than 18 months, and a maximum tax rate of 28% if the Shareholder's holding
period is more than one year but not more than 18 months. Gain from disposition
of Shares held not more than one year will be treated as short-term capital
gain. 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. The 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 the 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 the 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 Fund, 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 Fund.
SHAREHOLDER INFORMATION
Certificates representing Shares of the Fund 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 Fund 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 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 Fund is 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 Fund at
the beginning of the period.
CALCULATION OF PERFORMANCE DATA
The 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 Fund over periods of 1, 5 and 10
years (up to the life of the 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 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 Fund from the beginning date of the
measuring period. These figures reflect changes in the price of the Fund's
Shares and assume that any income dividends and/or capital gains distributions
made by the Fund during the period were reinvested in Shares of the Fund.
Figures will be given for 1, 5 and 10 year periods (if applicable) and may be
given for other periods as well (such as from commencement of the Fund's
operations, or on a year-by-year basis).
Quotations of yield for the 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.
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 do not predict future performance.
Performance Comparisons. In reports or other communications to Shareholders or
in advertising material, the Fund may compare the performance of its 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 Fund 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 Fund compares its
performance to other funds or to relevant indexes, the Fund's 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 Fund, 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
Fund 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 Fund 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, 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. The Fund's cash and securities owned by the Company are held by Brown
Brothers Harriman & Co., as Custodian, which takes no part in the decisions
relating to the purchase or sale of the Company's portfolio securities. As
Custodian, Brown Brothers Harriman & Co. also acts as Foreign Custody Manager
for the foreign securities of the Fund.
Legal Counsel. Legal matters for the Company are handled by Dechert Price &
Rhoads, 1775 Eye Street, N.W., Washington, D.C. 20006.
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 Fund's
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 Fund will be kept informed of their investments in the Fund
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
Unaudited financial statements relating to the Fund will be prepared
semi-annually and distributed to Shareholders. Audited financial statements will
be prepared annually and distributed to Shareholders. Since the Company was only
recently organized and this is the first offering of the Fund's Shares, there
are no financial statements at this time, other than an initial balance sheet
for the Fund.
<PAGE>
Report of Independent Public Accountants
To the Shareholder and Board of Directors of Forward Funds, Inc.:
We have audited the accompanying balance sheet of Forward Funds, Inc. (a
Maryland corporation) as of February 17, 1998. This balance sheet is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this balance sheet based on our audit.
We conducted our audit in accordance with generally accepted accounting
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
materials respects, the financial position of Forward Funds, Inc. as of February
17, 1998, in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
San Francisco, California
February 17, 1998
<PAGE>
FORWARD FUNDS, INC.
STATEMENT OF ASSETS AND LIABILITIES
February 17, 1998
Forward
Global
Fund
-------
ASSETS:
Cash $100,000
Deferred organizational expenses (Note 1) 61,393
------
Total Assets 161,393
LIABILITIES:
Accrued organizational expenses (Note 1) 61,393
------
Total Liabilities 61,393
NET ASSETS: $100,000
========
SHARES OF BENEFICIAL INTEREST
OUTSTANDING: 10,000
========
SHARES:
Net asset value, offering and redemption
price per share of beneficial interest
outstanding $10.00
========
<PAGE>
Forward Funds, Inc.
Notes to Balance Sheet
February 17, 1998
1. Organization
Forward Funds, Inc. (the "Company"), organized as a Maryland corporation in
1997, is being registered with the Securities and Exchange Commission under the
Investment Company Act of 1940 (the 1940 Act) as a open-end management
investment company which offers one diversified portfolio, The Global Fund (the
"Fund"). Since inception, the Company's activities have been limited to
organizational matters with no operating activities. The Company intends to
qualify under Subchapter M of the Internal Revenue Code of 1986, as amended. All
of the initial Fund shares outstanding at February 17, 1998 are owned by Sutton
Place Management Co., Inc. (Sutton). The investment objective of the Fund is to
seek total return (capital appreciation and income) by investing in the global
stock and bond markets.
The Board of Directors has authorized the issuance of one class of shares of the
Fund. No sales or redemption fees are charged with respect to the Fund.
2. Organizational Costs
As of February 17, 1998, the Company deferred organization-related costs of
$61,393, which will be amortized on a straight-line basis over a period of up to
five years. Included in organizational costs are $58,393 of such costs payable
to Sutton, as reimbursement for costs paid for the benefit of the Fund by
Sutton.
If any of the original shares are redeemed by any holder thereof prior to the
end of the amortization period, the redemption proceeds will be decreased by the
pro rata share of the unamortized expenses as of the date of redemption. The pro
rata share will be derived by dividing the number of original shares redeemed by
the total number of original shares outstanding at the time of redemption.
3. Investment Advisor Agreements
The Company has entered into investment advisory agreements with three advisors,
Barclays Global Fund Advisors ("Barclays"), Templeton Investment Counsel, Inc.
("Templeton"), and Pacific Investment Management Company ("PIMCO") for
management of the Fund. Barclays will manage The Global Fund's U.S. equity
investments. Templeton will manage The Global Fund's non-U.S. equity
investments. PIMCO will manage those assets of The Global Fund that are invested
in fixed income and other debt securities.
Investment advisory fees will be calculated daily as a percentage of the Fund's
average daily net assets for which each adviser has investment responsibility,
based on the contracted rates for each adviser. Each advisory agreement provides
for declining advisory rates based on specified levels of assets under
management. The highest potential rates under the agreements are 0.375% for
Barclays, 0.70% for Templeton and 0.35% for PIMCO.
4. Management Agreement
Sutton will act as the business manager, under which Sutton will provide
facilities and services required to carry on the Fund's general administrative
and corporate affairs. Management fees will be calculated daily at the annual
rate of 0.30% of the Fund's average daily net assets.
Sutton has agreed to temporarily waive a portion of its fees for the Fund for
the current fiscal year.
5. Distribution and Other Agreements
Certain affiliates of First Data Corporation will serve as the Fund's
distributor and transfer agent and will provide certain administrative services
to the Fund, such as the maintenance of financial records and fund accounting.
The Company has adopted a Shareholder Service Plan (the "Plan") with respect to
the shares of the Fund. Pursuant to the Plan, the 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.
Certain usual and customary expenses, including accounting and recordkeeping,
custodian, stock transfer and dividend disbursing fees, shareholder service
expenses, legal, printing and mailing will be paid by the Fund.
<PAGE>
APPENDIX A
Rated Investments
Corporate Bonds
Excerpts from Moody's Investors Services, Inc. ("Moody's") description of
its bond ratings:
"Aaa": Bonds that are rated "Aaa" are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
"Aa": Bonds that are rated "Aa" are judged to be of high-quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as "high-grade" bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in "Aaa" securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.
"A": Bonds that are rated "A" possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
"Baa": Bonds that are rated "Baa" are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appears 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.
"Ba": Bonds that are rated "Ba" are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
"B": Bonds that are rated "B" generally lack characteristics of
desirable investments. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
"Caa": Bonds that are rated "Caa" are of poor standing. These issues may be
in default or present elements of danger may exist with respect to principal or
interest.
Moody's applies numerical modifiers (1, 2 and 3) with respect to bonds
rated "Aa" through "B." The modifier 1 indicates that the bond being rated ranks
in the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category.
Excerpts from Standard & Poor's Corporation ("S&P") description of its bond
ratings:
"AAA": Debt rated "AAA" has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
"AA": Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from "AAA" issues by a small degree.
"A": Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
"BBB": Bonds rated "BBB" are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.
"BB," "B" and "CCC": Bonds rated "BB" and "B" are regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligations. "BB" represents a
lower degree of speculation than "B" and "CCC" the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
To provide more detailed indications of credit quality, the "AA" or "A"
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
Commercial Paper
The rating "Prime-1" is the highest commercial paper rating assigned by
Moody's. These issues (or related supporting institutions) are considered to
have a superior capacity for repayment of short-term promissory obligations.
Issues rated "Prime-2" (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics of "Prime-1" rated issues, but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.
Commercial paper ratings of S&P are current assessments of the likelihood
of timely payment of debt having original maturities of no more than 365 days.
Commercial paper rated "A-1" by S&P indicates that the degree of safety
regarding timely payment is either overwhelming or very strong. Those issues
determined to possess overwhelming safety characteristics are denoted "A-1+."
Commercial paper rated "A-2" by S&P indicates that capacity for timely payment
is strong. However, the relative degree of safety is not as high as for issues
designated "A-1."
Commercial Paper
Rated commercial paper purchased by a Fund must have (at the time of
purchase) the highest quality rating assigned to short-term debt securities or,
if not rated, or rated by only one agency, are determined to be of comparative
quality pursuant to guidelines approved by a Fund's Boards of Trustees and
Directors. Highest quality ratings for commercial paper for Moody's and S&P are
as follows:
Moody's: The rating "Prime-1" is the highest commercial paper rating
category assigned by Moody's. These issues (or related supporting institutions)
are considered to have a superior capacity for repayment of short-term
promissory obligations.
S&P: Commercial paper ratings of S&P are current assessments of the
likelihood of timely payment of debts having original maturities of no more than
365 days. Commercial paper rated in the "A-1" category by S&P indicates that the
degree of safety regarding timely payment is either overwhelming or very strong.
Those issuers determined to possess overwhelming safety characteristics are
denoted "A-1+."
