As filed with the U.S. Securities and Exchange Commission on June 18, 1998.
Securities Act File No. 333-37367
Investment Company Act File No. 811-8419
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
Registration Statement Under The Securities Act Of 1933 |x|
Pre-Effective Amendment No. |_|
Post-Effective Amendment No. 2 |x|
and/or
Registration Statement Under The Investment Company Act Of 1940 |x|
Amendment No. 4
(Check appropriate box or boxes)
Forward Funds, Inc.
(Exact Name of Registrant as Specified in Charter)
433 California Street
Suite 1010
San Francisco, California 94104
(Address of Principal Executive Offices)
Registrant's Telephone number, including Area Code: 1-800-999-6809
Ronald Pelosi
Forward Funds, Inc.
433 California Street
Suite 1010
San Francisco, California 94104
(Name and Address of Agent for Service)
With copies to:
Jeffrey L. Steele, Esq.
Dechert Price & Rhoads
1775 Eye Street, N.W.
Washington, D.C. 20006
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this registration statement.
It is proposed that this filing will become effective (check appropriate box)
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[ ] Immediately upon filing pursuant to [ ] on ( ) pursuant to paragraph
paragraph (b), or (b), or
[X] 60 days after filing pursuant to [ ] on ( ) pursuant to paragraph
paragraph (a)(1), or (a)(1), or
[ ] 75 days after filing pursuant to [ ] on ( ) pursuant to paragraph
paragraph (a)(2), or (a)(2), or Rule 485.
</TABLE>
<PAGE>
PROSPECTUS AND STATEMENT OF
ADDITIONAL INFORMATION RELATING TO
THE GLOBAL FUND
CROSS REFERENCE SHEET
The enclosed Prospectus relates only to The Global Fund, a series of Forward
Funds, Inc. (the "Company"), and contains information relating only to that
series. The statement of additional information enclosed relates to both series
of the Company, The Global Fund and The Small Capitalization Stock Fund. The
Prospectus for The Small Capitalization Stock Fund is not being amended or
otherwise affected by the information contained in this amendment. Information
relating to The Small Capitalization Stock Fund for which information is not
being filed in this post-effective amendment is incorporated by reference from
Post-Effective amendment No. 1, which was filed on May 28, 1998.
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<CAPTION>
N-1A Item Location in Prospectus
(Caption)
<S> <C> <C>
Part A
Item 1. Cover Page......................................... Cover Page
Item 2. Synopsis........................................... Prospectus Summary
Item 3. Condensed Financial Information.................... Fund Expenses, Fee Table
Item 4. General Description of Registrant.................. Investment Objective
................................................... and Policies;
................................................... Risk Factors; Investment
................................................... Techniques; Investment
Restrictions
Item 5. Management of the Registrant....................... Management of the Fund
Item 5A. Management's Discussion of Company Performance..... Not Applicable
Item 6. Capital Stock and Other Securities................. Valuation of Shares;
Redeeming Shares;
Dividends and Taxes;
Exchange Privilege;
Shareholder Service Plan;
General Information
Item 7. Purchase of Securities Being Offered............... Purchasing Shares
Item 8. Redemption or Repurchase........................... Redeeming Shares, Checking and Card
Transactions
Item 9. Pending Legal Proceedings.......................... Not Applicable
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<CAPTION>
Location in Statement of
Part B Additional Information
(Caption)
<S> <C> <C>
Item 10. Cover Page........................................ Cover Page
Item 11. Table of Contents................................. Table of Contents
Item 12. General Information and History................... Organization of
Forward Funds, Inc.
Item 13. Investment Objectives and Policies................ Supplemental Discussion of
Investment Techniques and
Risks Associated with the
Funds' Investment Policies
and Investment Techniques;
Portfolio Transactions;
Investment Objectives and
Policies
Item 14. Management of the Company......................... Management of the Funds
Item 15. Control Persons and Principal Holders of
Securities...................................... Management of the Funds
Item 16. Investment Advisory and Other Services............ Management of the Funds
Item 17. Brokerage Allocation and Other Practices.......... Portfolio Transactions
Item 18. Capital Stock and Other Securities................ Shareholder Services and
Privileges; Distributions;
Shareholder Information
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered........................ Determination of Share Price;
Additional Purchase and
Redemption Information
Item 20. Tax Status........................................ Tax Considerations
Item 21. Underwriters...................................... Not Applicable
Item 22. Calculation of Performance Data................... Calculation of Performance
Data
Item 23. Financial Statements.............................. Financial Statements
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<PAGE>
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 two diversified investment portfolios. This prospectus describes
one of those portfolios -- 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 _______, 1998, has been filed with the
Securities and Exchange Commission ("SEC") and is incorporated herein by
reference. The SAI is available free upon request by calling the Company at the
telephone number shown above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is _______, 1998.
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUMMARY.....................................................1
Shares Offered......................................................1
Offering Price......................................................1
Investment Objective................................................1
Investment Policies.................................................1
Risk Factors........................................................1
Investment Advisors.................................................1
Business Manager....................................................2
Dividends and Capital Gains.........................................2
Custodian, Administrator, Distributor, and Transfer Agent...........2
FUND EXPENSES..........................................................2
FEE TABLE..............................................................3
INVESTMENT OBJECTIVE AND POLICIES......................................6
General.............................................................6
Investment Policies.................................................6
RISK FACTORS...........................................................8
INVESTMENT TECHNIQUES.................................................10
Equity Securities..................................................10
Corporate Debt Securities..........................................10
Convertible Securities.............................................11
Foreign Investments and Foreign Currency Transactions..............11
Depositary Receipts................................................12
Loan Participations and Assignments................................13
Variable and Floating Rate Securities..............................13
Inflation-Indexed Bonds............................................14
Mortgage-Related and Other Asset-Backed Securities.................14
Repurchase Agreements..............................................16
Reverse Repurchase Agreements and Dollar Roll Agreements...........16
Certificates of Deposit and Time Deposits..........................16
Commercial Paper...................................................17
Derivative Instruments.............................................17
When-Issued and Delayed-Delivery Transactions......................20
Securities Issued by Other Investment Companies....................20
U.S. Government Obligations........................................21
Lending of Portfolio Securities....................................21
Illiquid Securities................................................21
INVESTMENT RESTRICTIONS...............................................22
<PAGE>
MANAGEMENT OF THE FUND................................................23
Directors..........................................................23
Investment Advisors................................................23
Advisors Performance Records.......................................25
The Business Manager...............................................27
Other Service Providers............................................27
Portfolio Transactions.............................................28
VALUATION OF SHARES...................................................28
PURCHASING SHARES.....................................................28
EXCHANGE PRIVILEGE....................................................29
REDEEMING SHARES......................................................30
Signature Guarantee................................................30
By Wire Transfer...................................................30
By Telephone.......................................................31
By Mail............................................................32
Payments to Shareholders...........................................32
CHECKING AND CARD TRANSACTIONS........................................33
SHAREHOLDER SERVICE PLAN..............................................33
DIVIDENDS AND TAXES...................................................33
Federal Taxes......................................................34
GENERAL INFORMATION...................................................35
Description of the Company and Its Shares..........................35
Performance Information............................................35
Account Services...................................................36
Miscellaneous......................................................36
<PAGE>
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.
<PAGE>
FEE TABLE
The Global Fund
Shareholder Transaction Expenses:
Maximum Sales Charge Imposed on Purchases NONE
Maximum Sales Charge Imposed on Reinvested Dividends NONE
Deferred Sales Charge on Redemptions NONE
Exchange Fees NONE
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 Fee 0.46%
Business Management Fee after Waiver (1) 0.00%
Shareholder Service Fee 0.35%
Other Expenses 0.59%
Total Fund Operating Expenses after Waiver (2) 1.40%
_____________________
(1) 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."
(2) Absent the waiver of the Business Manager fees, "Total Fund Operating
Expenses" as a percentage of average daily net assets would be ___% for The
Global Fund.
<PAGE>
The Global Fund will assess a transaction fee on share purchases of 0.25% of the
dollar amount invested. The transaction fee will be paid into the Portfolio and
not to the Advisors, Business Manager or Distributor. It is not a sales charge.
The fee applies to an initial investment in the Fund and all subsequent
purchases, but not to reinvested dividends or capital gains distributions.
The purpose of the purchase fee is to allocate transaction costs associated with
new purchases to the investor causing the transaction, thus insulating existing
shareholders from those transaction costs. These costs include brokerage
transactions and "bid-ask" spreads particularly in the international markets.
The fee represents the Fund's estimate of actual costs. Without the fee, the
Portfolio would incur the costs directly, resulting in reduced investment
performance for all shareholders of the Portfolio. With the fee, the transaction
costs are borne not by all existing shareholders, but only by those investors
making transactions. As noted above, this fee will not apply to the reinvestment
of dividends and capital gains. The Directors reserve the right to add a similar
redemption fee at a later date.
The Fund will automatically deduct a $10 annual account maintenance fee from the
dividend income of the Fund on an annual basis. If the dividend to be paid is
less than the fee, sufficient shares will be sold from an account to make up the
difference. The Board of Directors reserves the right to change the annual
account maintenance fee. The Fund's objective is to give its investors maximum
flexibility, while allocating costs in a fair manner. Investors may choose from
among the various deposit and withdrawal options, noting that the corresponding
fees will be deducted from their account.
Deposit Transactions:
ACH Transfers $0.00
Checks $0.50
Debit Card Transactions $0.50
Electronic Checks $1.50
Wire Transfers (3) $8.00
______________________
(3) These fees do not apply to transactions effected through an omnibus account
of a broker-dealer or other financial institution that has entered into a
shareholder servicing agreement with the Company or its Distributor.
<PAGE>
Withdrawal Transactions:
ACH Transfers $0.00
Checks (sent via mail) $1.00
Checking transactions
(written on Forward Funds checks) $0.00
Debit Card transactions $0.00
Wire transfers (4) $8.00
__________________
(4) See footnote # 3.
The purpose of the table below 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.
<PAGE>
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 25% 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 100% of its total assets in shares of other mutual
funds that are part of the same group of investment companies, i.e., that hold
themselves out to investors as related companies for investment and investor
services. The Fund may also invest up to 10% of its assets in unaffiliated money
market 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.
Advisors Performance Records
Presented below are the performance results for the Fund's three Advisors,
Templeton, Barclays and PIMCO in managing accounts for private clients. The
results are not the performance record of the Fund which commenced operations on
March 31, 1998.
<PAGE>
<TABLE>
CALENDAR YEAR RETURNS
<CAPTION>
Salomon
Brothers
MSCI World Bond
World (w/o Russell 3000 Index Manager Index
Templeton U.S.) Barclays Index(2) PIMCO (hedged) (3) Blend(4) Blend(4)
Index(1)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997 11.9 2.6 31.8 31.8 9.1 10.2 19.5 17.1
1996 22.8 7.2 23.7 21.8 14.6 8.1 20.8 13.6
1995 15.3 11.8 41.0 36.8 23.6 14.1 28.4 22.9
1994 1.0 7.6 -0.1 0.2 N/A -2.1 N/A 1.5
1993 47.2 32.6 13.0 10.9 N/A 8.8 N/A 16.3
1992 -0.7 -11.9 9.3 9.7 N/A 12.4 N/A 4.6
1991 16.4 12.4 38.4 33.7 N/A 13.7 N/A 21.7
1990 -9.2 -22.8 N/A -5.1 N/A 3.8 N/A -7.2
Average
Annual
<FN>
_________________________________
(1) The MSCI World (w/o U.S.) Index is the Morgan Stanley Capital International
World Index without U.S. issuers. The index is an arithmetic, market value
weighted, average performance of over 1,470 securities listed on the stock
exchanges of countries in Europe, Australia, the Far East, Canada and the
United States. United States issuers have been excluded in this
presentation. In addition, the index performance results reflect
reinvestment of dividends but are not adjusted for foreign withholding
taxes.
(2) The Russell 3000 Index measures the performance of the 3,000 largest
publicly traded U.S. companies by market capitalization. The index is
market value weighted, and performance results reflect the reinvestment of
dividends.
(3) The Salomon Brothers World Bond Index (hedged) measures the performance of
high quality securities in major sectors of the international bond market.
The index includes approximately 600 bonds of ten currencies. The results
presented are currency hedged and reflect the reinvestment of earnings.
(4) Based on the allocation of the Fund's assets on April 1, 1998.
</FN>
</TABLE>
<PAGE>
<TABLE>
AVERAGE ANNUAL RETURNS AS OF DECEMBER 1997
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Barclays 31.8 32.0 21.0 N/A
PIMCO 9.1 15.6 N/A N/A
Templeton 11.9 16.6 18.7 N/A
Manager Blend(4) 19.5 22.8 N/A N/A
Russell 3000 Index(2) 31.8 30.0 19.5 17.9
SalBro WrldBd Index(3) 10.2 10.8 7.7 8.5
MSCI World Index(1) 2.6 7.1 11.9 6.7
Blended Index(4) 17.1 17.8 14.1 12.2
<FN>
________________________
(1) The MSCI World (w/o U.S.) Index is the Morgan Stanley Capital International
World Index without U.S. issuers. The index is an arithmetic, market value
weighted, average performance of over 1,470 securities listed on the stock
exchanges of countries in Europe, Australia, the Far East, Canada and the
United States. United States issuers have been excluded in this
presentation. In addition, the index performance results reflect
reinvestment of dividends but are not adjusted for foreign withholding
taxes.
(2) The Russell 3000 Index measures the performance of the 3,000 largest
publicly traded U.S. companies by market capitalization. The index is
market value weighted, and performance results reflect the reinvestment of
dividends.
(3) The Salomon Brothers World Bond Index (hedged) measures the performance of
high quality securities in major sectors of the international bond market.
The index includes approximately 600 bonds of ten currencies. The results
presented are currency hedged and reflect the reinvestment of earnings.
(4) Based on the allocation of the Fund's assets on April 1, 1998.
</FN>
</TABLE>
<PAGE>
These performance records have been prepared in compliance with the Performance
Presentation Standards of the Association for Investment Management and Research
("AIMR") and have been provided to the Fund by the Advisors. The Fund has not
independently audited or verified the results. The results are for private
accounts managed with substantially similar investment objectives and policies.
These accounts are not subject to the restrictions and limitations of the
Investment Company Act of 1940, as amended (the "1940 Act"), and the Internal
Revenue Code of 1986, as amended (the "Code") which may adversely affect
performance results. The results reflect the deduction of advisory and other
fees and the reinvestment of dividends.
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) on each Business Day. Each such determination and
pricing is a "Valuation Time"). 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.
CHECKING AND CARD TRANSACTIONS
The Global Fund offers shareholders the ability to use the Fund as a source of
funds for check writing and debit or credit card transactions. Check and card
withdrawals are redemptions subject to the fees shown in the Fee Table. Subject
to these fees, no maximum limit is imposed on the number of checks or other
redemptions, and no minimum limit is imposed on redemption size.
Since checks and other means of payment are measured in dollars and not shares,
however, and since the value of shares in The Global Fund is expected to
fluctuate, the Company imposes safeguards against the chance that dollar
payments drawn from an account will exceed the value of that account as of the
next Valuation Time. In particular, shareholders may not write checks or incur
credit charges such that the total of unpaid redemptions is in excess of fifty
percent of the Net Asset Value of their account.
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 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 and a second fund, The Small Capitalization
Fund. 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 _____, 1998
Forward Funds, Inc. (the "Company") is an open-end management investment company
commonly known as a mutual fund. The Company offers two diversified investment
portfolios, The Global Fund (the "Global Fund") and The Small Capitalization
Stock Fund (the "Small Cap Fund") (collectively, the "Funds"). There is no
assurance that either of the Funds will achieve its objective.
This Statement of Additional Information ("SAI") is not a prospectus and it
should be read in conjunction with each Fund's Prospectus, dated _____, 1998
("Prospectus"), which have been filed with the Securities and Exchange
Commission ("SEC"). Copies of the Prospectus for either or both of the Funds may
be obtained free of charge by calling the Distributor at _____________.
TABLE OF CONTENTS
Page
ORGANIZATION OF FORWARD FUNDS, INC................................2
MANAGEMENT OF THE FUNDS...........................................2
INVESTMENT OBJECTIVES AND POLICIES................................7
SUPPLEMENTAL DISCUSSION OF INVESTMENT TECHNIQUES AND
RISKS ASSOCIATED WITH THE FUNDS' INVESTMENT
POLICIES AND INVESTMENT TECHNIQUES................................9
PORTFOLIO TRANSACTIONS...........................................16
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION...................17
DETERMINATION OF SHARE PRICE.....................................19
SHAREHOLDER SERVICES AND PRIVILEGES..............................20
DISTRIBUTIONS....................................................20
TAX CONSIDERATIONS...............................................21
SHAREHOLDER INFORMATION..........................................25
CALCULATION OF PERFORMANCE DATA..................................25
GENERAL INFORMATION..............................................27
FINANCIAL STATEMENTS.............................................27
APPENDIX A.......................................................29
<PAGE>
ORGANIZATION OF FORWARD FUNDS, INC.
Forward Funds, Inc. is an open-end management investment company which offers
two diversified investment portfolios, the Global Fund and the Small Cap 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 two
series, the Global Fund and the Small Cap Fund, and has authorized the series to
offer two classes. Each Fund currently offers one class of shares (the
"Shares"). Holders of Shares of the Funds of the Company have one vote for each
Share held, and a proportionate fraction of a vote for each fractional Share.
All Shares issued and outstanding are fully paid and non-assessable,
transferable, and redeemable at the option of the shareholder. Shares have no
preemptive rights.
The Board of Directors may classify or reclassify any unissued Shares of the
Company into Shares of another class or series by setting or changing in any one
or more respects, from time to time, prior to the issuance of such Shares, the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or qualifications of such Shares.
MANAGEMENT OF THE FUNDS
Board of Directors. Each 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 advisers 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 Funds pay each Director who is not an interested person (as defined under
the 1940 Act) an annual fee of $6,000. Officers of the Funds and Directors who
are interested persons of the Funds do not receive any compensation from the
Funds or any other funds managed by the Business Manager or Investment Advisers.
None of the officers or Directors of the Funds are affiliated with the
Investment Advisers.
Officers.
Ronald Pelosi, President. 433 California Street, Suite 1010, San Francisco,
California 94104. (Age 63). See
"Board of Directors."
Carl Katerndahl, Executive Vice President and Secretary. 433 California Street,
Suite 1010, San Francisco, California 94104. (Age 35). Managing Director and
Secretary, Sutton Place Management Co., Inc. (April 1998-present); Client
Service/Sales Representative, NWQ (April 1997-March 1998); Consultant, Morgan
Stanley Dean Witter (April 1993-March 1997); Senior Portfolio Manager,
Prudential Securities (April 1988-March 1990).
J. Alan Reid, Jr., Executive Vice President and Treasurer. 433 California
Street, Suite 1010, San Francisco, California 94104. (Age 36). Managing Director
and Treasurer, Sutton Place Management Co., Inc. (March 1998-present); Vice
President, Regional Director, Investment Consulting Services, Morgan Stanley,
Dean Witter, Discover & Co. (September 1997 - February 1998); Vice President,
Regional Director, Investment Consulting Services, Dean Witter (May 1994 -
September 1997); Assistant Vice President, Dean Witter (March 1993 - May 1994).
Steven Levy, Assistant 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, Assistant 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 Advisers, 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).
Committees. The Global Fund has an Asset Allocation Committee which has the
responsibility of determining the allocation of the assets of the Global Fund
among its investment advisers according to the investment objectives and
policies of the Global Fund. The members of this committee are Haig Mardikian,
Leo McCarthy and Ronald Pelosi.
Investment Advisers. The Investment Advisers serve as investment advisers for
the Funds and have certain responsibilities for the investment management of the
assets of the Company (collectively referred to herein as "Investment Advisers"
or "Advisers"). The Investment Management Agreements between the Company and the
Investment Advisers require the Investment Advisers to oversee the provision of
all investment advisory and portfolio management services for the Funds with
respect to the assets allocated to them.
The Global Fund. There are three Investment Advisers for the Global Fund.
Barclays Global Fund Advisers ("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.
Barclays serves as investment adviser for the Global Fund's investments in U.S.
equity instruments. Barclays, a registered investment adviser 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 adviser 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 advisers 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 adviser 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 Advisers L.P. ("PIMCO Advisers"). PIMCO Advisers
has two general partners, PIMCO Advisers 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 Advisers Holdings L.P. PIMCO's address is 840 Newport
Center Drive, Suite 360, Newport Beach, California 92660. PIMCO is registered as
an investment adviser with the Securities and Exchange Commission and as a
commodity trading adviser 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 Global Fund pays Templeton annual fees equal to 0.70% of the first $25
million of Global 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 Adviser. The Global Fund pays Barclays annual fees equal to 0.375% of
the first $100 million of Global 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 Global Fund assets it manages and 0.30% of all assets above $200
million that it manages.
The Small Cap Fund. Webster Investment Management Company LLC serves as
investment adviser for the Small Cap Fund ("Webster"). Webster is a limited
liability corporation recently organized under the laws of the State of
Delaware. Webster has engaged the services of ______ Capital Management to
manage the Small Cap Fund's assets on a day to day basis (the "Sub-Adviser").
The Investment Advisers are not required to furnish any personnel, overhead
items, or facilities for the Company. All fees paid to the Investment Advisers
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 either the Global or Small Cap Fund's
outstanding Shares, as applicable, 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 Adviser 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 the Global or Small Cap Fund's outstanding Shares voting as a single
class, or upon not less than 60 days' notice by the Investment Adviser. 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 Global
Fund only, including:
o providing office space, telephone, office equipment and supplies for the
Global Fund;
o paying compensation of the Global 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
Global 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 Global Fund;
o monitoring relationships with organizations serving the Global Fund; and
o 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 Global Fund's average daily net assets. The fee is computed daily
and paid monthly. The Business Management Agreement between the Business Manager
and the Global 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
Global Fund, 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 Funds 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 Shares and to undertake such advertising and promotion as the Distributor
believes reasonable in connection with such solicitation. The Funds 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 Funds. 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 Funds. For its services as
Administrator, the Funds will pay Investor Services Group a monthly fee based on
the average amount of assets invested in the Funds. Investor Services Group will
receive an annual fee of 0.20% up to and including the first $500 million in
assets; 0.17% for assets between $500 million and $1 billion and 0.125% for all
assets over $1 billion. In addition, the Funds will pay Investor Services Group
certain accounting fees, and other expenses. The Administration Agreement
between the Funds 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 Funds. 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.
The Shares of the Funds are sold without a sales charge. The Business Manager
and/or the Distributor may use their own financial resources to pay expenses
associated with activities primarily intended to result in the promotion and
distribution of the Funds' shares to pay expenses associated with providing
other services to Shareholders. In some instances, additional compensation or
promotional incentives may be offered to dealers that have sold or may sell
significant amounts of Shares during specified periods of time. Such
compensation and incentives may include, but are not limited to, cash,
merchandise, trips and financial assistance to dealers in connection with
pre-approved conferences or seminars, sales or training programs for invited
sales personnel, payment for travel expenses (including meals and lodging)
incurred by sales personnel and members of their families, or other invited
guests, to various locations for such seminars or training programs, seminars
for the public, advertising and sales campaigns regarding the Company and/or
other events sponsored by dealers. See the Prospectus of each Fund for
information on how to purchase and sell Shares of the Funds, and the charges and
expenses associated with an investment.
Shareholder Service Plan. The Funds have a shareholder service plan applicable
to Shares of the Funds ("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 each 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 Funds' 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 shares
of the Funds, including payments to Participating Organizations for selling
shares of the Funds 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 Funds to make payments to the Distributor pursuant
to the Shareholder Service Plan will cease and the Funds will not be required to
make any payments for expenses incurred after the date the Plan terminates. The
Funds will receive payment under the Shareholder Service 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 Funds that would increase
materially the expenses paid by the Funds requires Shareholder approval;
otherwise, the Shareholder Service Plan may be amended by the Board of Directors
of the Funds, 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 OBJECTIVES AND POLICIES
The Global Fund
The Global Fund seeks total return (capital appreciation and income) by
investing primarily in the global stock and bond markets.
The Small Cap Fund
The Small Cap Fund seeks total return (long term capital appreciation and
income) by investing primarily in the equity securities of companies having
small market capitalizations that offer future growth potential.
The investment objective of each of the Funds 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 relevant Fund. Non-fundamental policies of each of the
Funds may be changed by the Company's Directors, without a vote of the holders
of a majority of outstanding Shares of a 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 either or both of the Funds will be achieved.
Investment Policies
The Global Fund. The Global Fund may invest in all types of equity and debt
securities, including, but not limited to, common stocks, preferred stocks,
convertible securities, warrants, trust units or certificates, bonds,
debentures, notes, commercial paper and various types of depository receipts.
There are no limits on the types of equity or debt securities that may be
purchased so long as they are publicly traded. Securities may be issued by
companies located in the United States or in any other country and may include
securities issued by governments or their agencies and instrumentalities.
The Global Fund will not invest more than 50% of its assets in securities of
emerging markets. The Investment Advisers making non-U.S. investments for the
Global 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.
The Small Cap Fund. The Small Cap Fund will invest at least 65% of its total
assets in the equity securities of companies with market caitalizations at the
time of purchase no larger than the largest market capitalization of the
companies included in the Russell 2000 Index as most recently reported. The
Small Cap Fund expects to invest predominantly in common stocks, but may also
invest in all types of equity and debt securities including preferred stocks,
convertible securities, warrants and foreign securities. There are no limits on
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 Small Cap Fund may invest up to 5% of its assets in securities of emerging
markets. Please see the previous section pertaining to The Global Fund for a
discussion concerning investment in emerging markets.
Like the Global Fund, debt securities held by the Small Cap Fund may include
securities rated in any rating category by a NRSRO or that are unrated. The
Small Cap 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 25% of the Small Cap Fund's total assets.
Securities purchased by the Small Cap 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 Small Cap 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 FUNDS' INVESTMENT POLICIES AND INVESTMENT TECHNIQUES
Additional information concerning investment techniques and risks associated
with certain of the Funds' investments is set forth below. Unless otherwise
indicated, the discussion below pertains to both Funds.
Inflation-Indexed Bonds
Only the Global Fund may invest in 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 Global 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 Global 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, a 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 a 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 Funds in connection with
bankruptcy proceedings), it is the current policy of both of the Funds to engage
in repurchase agreement transactions with parties whose creditworthiness has
been reviewed and found satisfactory by the Investment Advisers.
Reverse Repurchase Agreements
In a reverse repurchase agreement, the Funds sell a portfolio instrument to
another party, such as a bank or broker-dealer, in return for cash and agrees to
repurchase the instrument at a particular price and time. While a reverse
repurchase agreement is outstanding, the Funds will maintain appropriate liquid
assets in a segregated custodial account to cover its obligation under the
agreement. The Funds will enter into reverse repurchase agreements only with
parties whose creditworthiness has been found satisfactory by the Investment
Advisers. Such transactions may increase fluctuations in the market value of a
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 Adviser 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 Global 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 Adviser'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 Funds may invest in an illiquid or restricted security if the Investment
Adviser 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 Adviser might wish to sell, and these securities could have
the effect of decreasing the overall level of the Funds' liquidity. Further, the
lack of an established secondary market may make it more difficult to value
illiquid securities, requiring the Funds to rely on judgments that may be
somewhat subjective in determining value, which could vary from the amount that
the Funds could realize upon disposition.
Restricted securities, including placements, are subject to legal or contractual
restrictions on resale. They can be eligible for purchase without SEC
registration by certain institutional investors known as "qualified
institutional buyers," and under the Funds' procedures, restricted securities
could be treated as liquid. However, some restricted securities may be illiquid
and restricted securities that are treated as liquid could be less liquid than
registered securities traded on established secondary markets. Each of the Funds
may not invest more than 15% of its total assets in illiquid securities,
measured at the time of investment.
Borrowing
Each of the Funds may borrow up to 15% of the value of its total assets from
banks for temporary or emergency purposes. Under the 1940 Act, each of the Funds
is required to maintain continuous asset coverage of 300% with respect to such
borrowings and to sell (within three days) sufficient portfolio holdings to
restore such coverage if it should decline to less than 300% due to market
fluctuations or otherwise, even if such liquidations of a Fund's holdings may be
disadvantageous from an investment standpoint. The Funds do not engage in
leveraging by means of borrowing which may exaggerate the effect of any increase
or decrease in the value of portfolio securities or the Funds' net asset values.
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 Funds may invest in debt securities that are rated between BBB and as low as
CCC by Standard & Poor's Ratings Services ("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 Advisers. 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 Funds' net asset values.
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 Funds' 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 Funds to obtain accurate market quotations for the
purposes of valuing their portfolios. 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 Funds to achieve their
investment objectives 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 Funds 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 Funds may incur additional expenses seeking
recovery.
Options on Securities, Indexes and Futures
The Global Fund may write covered put and call options and purchase put and call
options on securities, securities indexes and futures contracts that are traded
on U.S. and foreign exchanges and over-the-counter. An option on a security or a
futures contract is a contract that gives the purchaser of the option, in return
for the premium paid, the right to buy a specified security or futures contract
(in the case of a call option) or to sell a specified security or futures
contract (in the case of a put option) from or to the writer of the option at a
designated price during the term of the option. An option on a securities index
gives the purchaser of the option, in return for the premium paid, the right to
receive from the seller cash equal to the difference between the closing price
of the index and the exercise price of the option.
The Global Fund may write a call or put option only if the option is "covered."
A call option on a security or futures contract written by a fund is "covered"
if the fund owns the underlying security or futures contract covered by the call
or has an absolute and immediate right to acquire that security without
additional cash consideration (or for additional cash consideration held in a
segregated account by its custodian) upon conversion or exchange of other
securities held in its portfolio. A call option on a security or futures
contract is also covered if a fund holds a call on the same security or futures
contract and in the same principal amount as the call written where the exercise
price of the call held (a) is equal to or less than the exercise price of the
call written or (b) is greater than the exercise price of the call written if
the difference is maintained by the fund in cash or high-grade U.S. government
securities in a segregated account with its custodian. A put option on a
security or futures contract written by a fund is "covered" if the fund
maintains cash or fixed-income securities with a value equal to the exercise
price in a segregated account with its custodian, or else holds a put on the
same security or futures contract and in the same principal amount as the put
written where the exercise price of the put held is equal to or greater than the
exercise price of the put written.
The Global Fund will cover call options on securities indexes that it writes by
owning securities whose price changes, in the opinion of the Investment Adviser,
are expected to be similar to those of the index, or in such other manner as may
be in accordance with the rules of the exchange on which the option is traded
and applicable laws and regulations. Nevertheless, where the Global Fund covers
a call option on a securities index through ownership of securities, such
securities may not match the composition of the index. In that event, the Global
Fund will not be fully covered and could be subject to risk of loss in the event
of adverse changes in the value of the index. The Global Fund will cover put
options on securities indices that it writes by segregating assets equal to the
option's exercise price, or in such other manner as may be in accordance with
the rules of the exchange on which the option is traded and applicable laws and
regulations.
The Global Fund will receive a premium from writing a put or call option, which
increases its gross income in the event the option expires unexercised or is
closed out at a profit. If the value of a security, index or futures contract on
which the Global Fund has written a call option falls or remains the same, the
Global Fund will realize a profit in the form of the premium received (less
transaction costs) that could offset all or a portion of any decline in the
value of the portfolio securities being hedged. If the value of the underlying
security, index or futures contract rises, however, the Global Fund will realize
a loss in its call option position, which will reduce the benefit of any
unrealized appreciation in its investments. By writing a put option, the Global
Fund assumes the risk of a decline in the underlying security, index or futures
contract. To the extent that the price changes of the portfolio securities being
hedged correlate with changes in the value of the underlying security, index or
futures contract, writing covered put options will increase the Global Fund's
losses in the event of a market decline, although such losses will be offset in
part by the premium received for writing the option.
The Global Fund may also purchase put options to hedge its investments against a
decline in value. By purchasing a put option, the Global Fund will seek to
offset a decline in value of the portfolio securities being hedged through
appreciation of the put option. If the value of the Global Fund's investments
does not decline as anticipated, or if the value of the option do not increase,
the Global Fund's loss will be limited to the premium paid for the option plus
related transaction costs. The success of this strategy will depend, in part, on
the accuracy of the correlation between the changes in value of the underlying
security, index or futures contract and the changes in value of the Global
Fund's security holdings being hedged.
The Global Fund may purchase call options on individual securities or futures
contracts to hedge against an increase in the price of securities or futures
contracts that it anticipates purchasing in the future. Similarly, the Global
Fund may purchase call options on a securities index to attempt to reduce the
risk of missing a broad market advance, or an advance in an industry or market
segment, at a time when the Global Fund holds uninvested cash or short-term debt
securities awaiting reinvestment. When purchasing call options, the Global Fund
will bear the risk of losing all or a portion of the premium paid if the value
of the underlying security, index or futures contract does not rise.
There can be no assurance that a liquid market will exist when the Global Fund
seeks to close out an option position. Trading could be interrupted, for
example, because of supply and demand imbalances arising from a lack of either
buyers or sellers, or the options exchange could suspend trading after the price
has risen or fallen more than the maximum specified by the exchange. Although
the Global Fund may be able to offset to some extent any adverse effects of
being unable to liquidate an option position, it may experience losses in some
cases as a result of such inability. The value of over-the-counter options
purchased by the Global Fund, as well as the cover for options written by the
Global Fund, are considered not readily marketable and are subject to the
Company's limitation on investments in securities that are not readily
marketable.
The Global Fund's ability to reduce or eliminate its futures and related options
positions will depend upon the liquidity of the secondary markets for such
futures and options. The Global Fund intends to purchase or sell futures and
related options only on exchanges or boards of trade where there appears to be
an active secondary market, but there is no assurance that a liquid secondary
market will exist for any particular contract or at any particular time. Use of
futures and options for hedging may involve risks because of imperfect
correlations between movements in the prices of the futures or options and
movements in the prices of the securities being hedged. Successful use of
futures and related options by the Global Fund for hedging purposes also depends
upon the Investment Advisers' ability to predict correctly movements in the
direction of the market, as to which no assurance can be given.
There are several risks associated with transactions in options on securities
indexes. For example, there are significant differences between the securities
and options markets that could result in an imperfect correlation between these
markets, causing a given transaction not to achieve its objectives. A decision
as to whether, when and how to use options involves the exercise of skill and
judgment, and even a well-conceived transaction may be unsuccessful to some
degree because of market behavior or unexpected events. There can be no
assurance that a liquid market will exist when the Global Fund seeks to close
out an option position. If the Global Fund were unable to close out an option
that it had purchased on a securities index, it would have to exercise the
option in order to realize any profit or the option may expire worthless. If
trading were suspended in an option purchased by the Global Fund, it would not
be able to close out the option. If restrictions on exercise were imposed, the
Global Fund might be unable to exercise an option it had purchased. Except to
the extent that a call option on an index written by the Global Fund is covered
by an option on the same index purchased by the Global Fund, movements in the
index may result in a loss to the Global Fund; however, such losses may be
mitigated by changes in the value of the Global Fund's securities during the
period the option was outstanding.
Investment in Foreign and Developing Markets
The Funds may purchase securities in any foreign country, developed or
developing. Potential investors in the Funds 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 Funds, 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
Funds' 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 Funds attempt 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 Funds change 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 Funds 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 Funds 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 Funds 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 Funds' portfolio securities are
denominated may have a detrimental impact on the Funds.
Year 2000 Concerns
The services provided to the Funds by the Investment Advisers, Sub-Adviser,
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 Investment Advisers, Sub-Adviser, 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 Funds believe these steps will be
sufficient to avoid any adverse impact on the Funds.
PORTFOLIO TRANSACTIONS
The Investment Advisers and Sub-Adviser are authorized to select the brokers or
dealers that will execute transactions to purchase or sell investment securities
for the Funds. In all purchases and sales of securities for the Funds, the
primary consideration is to obtain the most favorable price and execution
available. Pursuant to the Investment Management Agreements, each Investment
Adviser and Sub-Adviser determines which brokers are to be eligible to execute
portfolio transactions of the Funds. Purchases and sales of securities in the
over-the-counter market will generally be executed directly with a
"market-maker," unless in the opinion of the Investment Adviser or Sub-Adviser,
a better price and execution can otherwise be obtained by using a broker for the
transaction.
In placing portfolio transactions, each Investment Adviser or Sub-Adviser will
use its best efforts to choose a broker capable of providing the brokerage
services necessary to obtain the most favorable price and execution available.
The full range and quality of brokerage services available will be considered in
making these determinations, such as the size of the order, the difficulty of
execution, the operational facilities of the firm involved, the firm's risk in
positioning a block of securities, and other factors such as the firm's ability
to engage in transactions in shares of banks and thrifts that are not listed on
an organized stock exchange. Consideration may also be given to those brokers
that supply research and statistical information to the Funds and/or the
Investment Advisers or Sub-Adviser, and provide other services in addition to
execution services. Consistent with this policy, neither the Investment Advisers
or Sub-Adviser 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 Funds. The placement of portfolio brokerage with
broker-dealers who have sold Shares of the Funds is subject to rules adopted by
the National Association of Securities Dealers, Inc. ("NASD"). The Investment
Advisers and/or Sub-Adviser may also consider the sale of their shares as a
factor in the selection of broker-dealers to execute its portfolio transactions.
While it will be the Company's general policy to seek to obtain the most
favorable price and execution available, in selecting a broker to execute
portfolio transactions for the Funds, the Company may also give weight to the
ability of a broker to furnish brokerage and research services to the Funds or
the Investment Adviser and/or the Sub-Adviser. 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 Adviser and/or Sub-Adviser to be reasonable in
relation to the value of the brokerage and research services provided by such
broker, which services either produce a direct benefit to the Funds or assist
the Investment Adviser and/or Sub-Adviser in carrying out its responsibilities
to the Funds or its other clients.
Purchases of the Funds' Shares also may be made directly from issuers or from
underwriters. Where possible, purchase and sale transactions will be effected
through dealers which specialize in the types of securities which the Funds will
be holding, unless better executions are available elsewhere. Dealers and
underwriters usually act as principals for their own account. Purchases from
underwriters will include a concession paid by the issuer to the underwriter and
purchases from dealers will include the spread between the bid and the asked
price. If the execution and price offered by more than one dealer or underwriter
are comparable, the order may be allocated to a dealer or underwriter which has
provided such research or other services as mentioned above.
Some securities considered for investment by the Funds may also be appropriate
for other clients served by the Fund's Investment Advisers and/or Sub-Adviser.
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 Adviser and/or Sub-Adviser is considered at or about the same time,
transactions in such securities will be allocated among the Funds and the
Investment Advisers' and/or Sub-Adviser's other clients in a manner deemed fair
and reasonable by the Investment Adviser and/or the Sub-Adviser. There is no
specified formula for allocating such transactions.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Funds are offered at the net asset value next computed following
receipt of the order by the dealer and/or by the Company's Distributor or
Transfer Agent. The Distributor, at its expense, may provide additional
promotional incentives to dealers in connection with the sales of Shares and
other funds managed by the Investment Advisers and/or Sub-Adviser. 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
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 each Fund's
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 Funds 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 relevant Fund'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 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 Funds 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 Funds
not reasonably practicable; or (c) for such other period as the SEC may permit
for the protection of the Funds' shareholders. At various times, a Fund may be
requested to redeem Shares for which it has not yet received good payment.
Accordingly, a 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 Funds intend to pay in cash for all Shares redeemed, but
under abnormal conditions that make payment in cash unwise, the Funds may make
payment wholly or partly in securities at their then current market value equal
to the redemption price. In such case, an investor may incur brokerage costs in
converting such securities to cash. In the event the Funds liquidate portfolio
securities to meet redemptions, the Funds reserve the right to reduce the
redemption price by an amount equivalent to the pro-rated cost of such
liquidation not to exceed one percent of the net asset value of such Shares.
Due to the relatively high cost of handling small investments, the Funds reserve
the right, upon 30 days' written notice, to redeem, at net asset value, the
Shares of any shareholder whose account has a value of less than $1,000 in a
Fund, other than as a result of a decline in the net asset value per Share.
Before a Fund redeems such Shares and sends the proceeds to the shareholder, it
will notify the shareholder that the value of the shares in the account is less
than the minimum amount and will allow the shareholder 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 each of the Funds' 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 a Fund's portfolio securities to affect
that 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 Global
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 Global 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 Funds generally value their 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 Investment Advisers and/or Sub-Adviser
using methodologies approved by the Board of Directors.
The net asset value per Share of each of the Funds will fluctuate as the value
of the Funds' investments change. Net asset value per Share for each of the
Funds for purposes of pricing sales and redemptions is calculated by dividing
the value of all securities and other assets belonging to a 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 a 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 relevant 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 Funds 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 Funds at the then
current net asset value, with no sales charge. Alternatively, a shareholder can
elect at any time to receive dividends and/or capital gains distributions in
cash. In the absence of such an election, each purchase of Shares of the Funds
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 Funds 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 Funds 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 Funds and their Shareholders. This discussion does not
provide a detailed explanation of all tax consequences, and Shareholders are
advised to consult their own tax advisers with respect to the particular
consequences to them of an investment in the Funds.
Qualification as a Regulated Investment Company. Each of the Funds intends to
qualify as a regulated investment company under the Code. To so qualify, a Fund
must, among other things, in each taxable year: (a) derive at least 90% of its
gross income from dividends, interest, payments with respect to securities
loans, gains from the sale or other disposition of stock or securities and gains
from the sale or other disposition of foreign currencies, or other income
(including gains from options, futures contracts and forward contracts) derived
with respect to the Fund's business of investing in stocks, securities or
currencies; (b) diversify its holdings so that, at the end of each quarter, (i)
at least 50% of the value of the Fund's total assets is represented by cash and
cash items, U.S. Government securities, securities of other regulated investment
companies, and other securities, with such other securities limited in respect
of any one issuer to an amount not greater in value than 5% of the Fund's total
assets and to not more than 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of the Fund's total assets is
invested in the securities (other than U.S. Government securities or securities
of other regulated investment companies) of any one issuer or of any two or more
issuers that the Fund controls and that are determined to be engaged in the same
business or similar or related businesses; and (c) distribute at least 90% of
its investment company taxable income (which includes, among other items,
dividends, interest and net short-term capital gains in excess of net long-term
capital losses).
The status of the Funds as regulated investment companies does not involve
government supervision of management or of its investment practices or policies.
As regulated investment companies, the Funds generally will be relieved of
liability for U.S. federal income tax on that portion of their investment
company taxable income and net realized capital gains which they distribute to
their shareholders. Amounts not distributed on a timely basis in accordance with
a calendar year distribution requirement also are subject to a nondeductible 4%
excise tax. To prevent application of the excise tax, the Funds intend 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 Funds' distributions
of investment company taxable income may be eligible for the corporate
dividends-received deduction to the extent attributable to the Funds' 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 Funds 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 particular Fund's holding period for the
assets sold. "20% Rate Gains" arise from sales of assets held by a 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 Funds' Shares
have been held by a shareholder, and are not eligible for the dividends-received
deduction. Any distributions that are not from the Funds' 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 Funds 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 Funds reduce the Net Asset Value of Fund's Shares. Should a
distribution reduce the net asset value below a shareholder's cost basis, the
distribution nevertheless may be taxable to the shareholder as ordinary income
or capital gain as described above, even though, from an investment standpoint,
it may constitute a partial return of capital. In particular, investors should
be careful to consider the tax implication of buying Shares just prior to a
distribution by a Fund. The price of Shares purchased at that time includes the
amount of the forthcoming distribution, but the distribution will generally be
taxable to the shareholder.
Original Issue Discount. Certain debt securities acquired by a 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 a Fund, original issue discount
that accrues on a debt security in a given year generally is treated for federal
income tax purposes as interest and, therefore, such income would be subject to
the distribution requirements of the Code.
Some debt securities may be purchased by a 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 a 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
Global Fund's transactions in foreign currencies, forward contracts, options,
and futures contracts (including options and futures contracts on foreign
currencies) will be subject to special provisions of the Code that, among other
things, may affect the character of gains and losses realized by the Global Fund
(that is, may affect whether gains or losses are ordinary or capital),
accelerate recognition of income to the Global Fund, defer Global Fund losses,
and affect the determination of whether capital gains and losses are treated as
long-term or short-term capital gains or losses. These rules could therefore, in
turn, affect the character, amount, and timing of distributions to Shareholders.
These provisions also may require the Global Fund to mark-to-market certain
positions in its portfolio (that is, treat them as if they were sold), which may
cause the Global Fund to recognize income without receiving cash to use to make
distributions in amounts necessary to avoid income and excise taxes. The Global
Fund will monitor its transactions and may make such tax elections as management
deems appropriate with respect to foreign currency, options, futures contracts,
forward contracts, or hedged investments. The Global Fund's status as a
regulated investment company may limit its ability to engage in transactions
involving foreign currency, futures, options, and forward contracts.
Certain transactions undertaken by the Funds may result in "straddles" for
federal income tax purposes. The straddle rules may affect the character of
gains (or losses) realized by the Funds, and losses realized by the Funds 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 Funds 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 Funds engage 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 Funds enter 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
Funds 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 a 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 Funds accrue receivables or expenses denominated in a
foreign currency and the time the Funds actually collect such receivables or pay
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 a Fund's investment company taxable income
available to be distributed to its Shareholders as ordinary income.
Passive Foreign Investment Companies. The Funds may invest in the stock of
foreign companies that may be classified under the Code as passive foreign
investment companies ("PFICs"). In general, a foreign corporation is classified
as a PFIC if at least one-half of its assets constitute passive assets (such as
stocks or securities) or if 75% or more of its gross income is passive income
(such as, but not limited to, interest, dividends, and gain from the sale of
securities). If the Funds receive an "excess distribution" with respect to PFIC
stock, the Funds 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 Funds will be subject to tax on the portion of an excess distribution
that is allocated to prior Fund taxable years, and an interest factor will be
added to the tax, as if it were payable in such prior taxable years. Certain
distributions from a PFIC and gain from the sale of PFIC Shares are treated as
excess distributions. Excess distributions are characterized as ordinary income
even though, absent application of the PFIC rules, certain excess distributions
might have been classified as capital gain.
The Funds may be eligible to elect alternative tax treatment with respect to
PFIC stock. Under an election that is available in some circumstances, the Funds
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 Funds' PFIC shares at the
end of each taxable year, with the result that unrealized gains would be treated
as though they were realized and reported as ordinary income. Any mark-to-market
losses and any loss from an actual disposition of PFIC Shares would be
deductible as ordinary losses to the extent of any net mark-to-market gains
included in income in prior years.
Other Investment Companies. It is possible that by investing in other investment
companies, the Funds may not be able to meet the calendar year distribution
requirement and may be subject to federal income and excise tax. The
diversification and distribution requirements applicable to the Funds may limit
the extent to which the Funds will be able to invest in other investment
companies.
Sale or Other Disposition of Shares. Upon the sale or exchange of his Shares, a
shareholder will realize a taxable gain or loss depending upon his basis in the
Shares. Such gain or loss will be treated as capital gain or loss if the Shares
are capital assets in the shareholder's hands; 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 Funds 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 Funds with the shareholder's correct taxpayer
identification number or social security number and to make such certifications
as the Funds may require, (2) the IRS notifies the shareholder or the Funds that
the shareholder has failed to report properly certain interest and dividend
income to the IRS and to respond to notices to that effect, or (3) when required
to do so, the shareholder fails to certify that he is not subject to backup
withholding. Any amounts withheld may be credited against the shareholder's
federal income tax liability.
Foreign Shareholders. Taxation of a 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 applicable Fund is "effectively connected" with a U.S. trade or business
carried on by such shareholder.
If the income from the applicable 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 applicable Fund, capital gain dividends and amounts retained by
the applicable Fund that are designated as undistributed capital gains.
If the income from the applicable 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 applicable Fund 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 Funds with proper
certification of their foreign status.
The tax consequences to a foreign shareholder entitled to claim the benefits of
an applicable tax treaty may be different from those described herein. Foreign
shareholders are urged to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in the Funds, including the
applicability of foreign taxes.
Future Changes in Law; Other Taxes. The foregoing general discussion of U.S.
federal income tax consequences is based on the Code and the Treasury
Regulations issued thereunder as in effect on the date of this SAI. Future
legislative or administrative changes or court decisions may significantly
change the preceding conclusions, and any changes or decisions may have a
retroactive effect.
Rules of state and local taxation of ordinary income dividends and capital gains
dividends from regulated investment companies often differ from the rules for
U.S. federal income taxation described above. Shareholders are urged to consult
their tax advisers as to the consequences of these and other state and local tax
rules affecting investment in the Funds.
SHAREHOLDER INFORMATION
Certificates representing Shares of the Funds will not normally be issued to
shareholders. The Transfer Agent will maintain an account for each shareholder
upon which the registration and transfer of Shares are recorded, and any
transfers shall be reflected by bookkeeping entry, without physical delivery.
The Transfer Agent will require that a shareholder provide requests in writing,
accompanied by a valid signature guarantee form, when changing certain
information in an account (i.e., wiring instructions, telephone privileges,
etc.).
The Company reserves the right, if conditions exist that make cash payments
undesirable, to honor any request for redemption or repurchase order with
respect to Shares of the Funds by making payment in whole or in part in readily
marketable securities chosen by the Company and valued as they are for purposes
of computing the Funds' net asset values (redemption-in-kind). If payment is
made in securities, a shareholder may incur transaction expenses in converting
theses securities to cash. The Company has elected, however, to be governed by
Rule 18f-1 under the 1940 Act as a result of which the Funds are obligated to
redeem Shares with respect to any one Shareholder during any 90-day period
solely in cash up to the lesser of $250,000 or 1% of the net asset value of the
relevant Fund at the beginning of the period.
CALCULATION OF PERFORMANCE DATA
The Funds 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 Funds over periods of 1, 5 and 10
years (up to the life of the Funds), 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 Funds may advertise their 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 Funds 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 Funds during the period were reinvested in Shares of
the Funds. 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
applicable Fund's operations, or on a year-by-year basis).
Quotations of yield for the Funds 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:
2[(a-b + 1)6 - 1]
---
cd
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 Funds published by
nationally recognized ranking services and by financial publications that are
nationally recognized, such as Business Week, Forbes, Fortune, Institutional
Investor, Money and The Wall Street Journal. If the Funds compare their
performance to other funds or to relevant indexes, the Funds' performance will
be stated in the same terms in which such comparative data and indexes are
stated, which is normally total return rather than yield. For these purposes the
performance of the Funds, as well as the performance of such investment
companies or indexes, may not reflect sales charges, which, if reflected, would
reduce performance results.
Reports and promotional literature may also contain the following information:
(i) a description of the gross national or domestic product and populations,
including age characteristics, of various countries and regions in which the
Funds may invest, as compiled by various organizations, and projections of such
information; (ii) the performance of U.S. equity and debt markets; (iii) the
geographic distribution of the Company's portfolios; and (iv) the number of
shareholders in the Funds and the dollar amount of the assets under management.
In addition, reports and promotional literature may contain information
concerning the Investment Advisers, Sub-Adviser or affiliates of the Company,
including (i) performance rankings of other funds managed by the Investment
Advisers, or the individuals employed by the Investment Advisers 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 Funds' 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 Funds.
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 Funds'
Prospectuses and this SAI omit certain of the information contained in the
Registration Statement filed with the SEC and copies of this information may be
obtained from the SEC upon payment of the prescribed fee or examined at the SEC
in Washington, D.C. without charge.
Investors in the Funds will be kept informed of their investments in the Funds
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 Funds 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 Funds' Shares, there
are no financial statements at this time, other than an initial balance sheet
for the Funds which is on file.
<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+."
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. Financial Statements and Exhibits
(a) Financial Statements***
(b) Exhibits
(1) -- Articles of Incorporation*
(2) -- Bylaws*
(3) -- Not Applicable
(4) -- Not Applicable
(5) -- (a) Form of Investment Management Agreement between the
Company and Templeton Investment Counsel, Inc.**
(b) Form of Investment Management Agreement between the
Company and Pacific Investment Management Company **
(c) Form of Investment Management Agreement between the
Company and Barclays Global Fund Advisors**
(6) -- Form of Distribution Agreement**
(7) -- Not Applicable
(8) -- (a) Form of Custodian Agreement**
(b) Amendment to Custodian Agreement**
(c) Form of Foreign Custody Manager Agreement**
(9) -- (a) Form of Business Management Agreement**
(b) Form of Transfer Agency and Services Agreement**
(c) Form of Administration Agreement**
(10) -- Opinion and Consent of Dechert Price & Rhoads**
(11) -- Consent of Independent Accountants***
(12) -- Not Applicable
(13) -- Initial Subscription Documents**
(14) -- Not Applicable
(15) -- Not Applicable
(16) - Schedule of Computation of Performance Quotations**
(17) - Financial Data Schedule***
* Previously filed in Registrant's initial Registration Statement on Form
N-1A, as filed with the Securities and Exchange Commission on October 7,
1997.
** Previously filed in Registrant's Pre-Effective Amendment No. 2 on Form
N-1A, as filed with the Securities and Exchange Commission on February 24,
1998.
*** To be filed by amendment.
ITEM 25. Persons Controlled by or under Common Control with Registrant
Not Applicable.
ITEM 26. Number of Holders of Securities
As of the date of this Registration Statement, there is one Shareholder
of record holding Shares of the Company.
ITEM 27. Indemnification
Section 2-418 of the General Corporation Law of the State of Maryland,
Article VII of the Company's Articles of Incorporation, and Article VI of the
Company's Bylaws provide for indemnification.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the Registrant, pursuant to the foregoing provisions or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Company in the successful defense of any action, suit or
proceeding) is asserted by such a director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
ITEM 28. Business and Other Connections of the Investment Adviser
Information as to the directors and officers of the Investment
Advisers, together with information as to any other business, profession,
vocation or employment of a substantial nature engaged in by the directors and
officers of the Investment Advisers in the last two years, is included in their
applications for registration as investment advisers on Form ADV filed under the
Investment Advisers Act of 1940 and is incorporated herein by reference thereto.
ITEM 29. Principal Underwriters
(a) Not Applicable
(b) Not Applicable
(c) Not Applicable
ITEM 30. Location of Accounts and Records
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the rules promulgated
thereunder are maintained at the offices of the First Data Investor Services
Group, Inc. whose principal business address is 53 State Street, Boston,
Massachusetts 02109.
ITEM 31. Management Services
Not Applicable
ITEM 32. Undertakings
(a) Not Applicable
(b) Registrant undertakes to file a post-effective amendment, using
financial statements, which need not be certified, within four to six months
from the effective date of this registration statement under the Securities Act
of 1933, as amended, or on the date on which Registrant becomes operational.
(c) Not Applicable
(d) Registrant undertakes to call a meeting of Shareholders for the
purpose of voting upon the question of removal of a Director or Directors when
requested to do so by the holders of at least 10% of the Registrant's
outstanding Shares of beneficial interest and in connection with such meeting to
comply with the Shareholders communications provisions of Section 16(c) of the
Investment Company Act of 1940, as amended.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, Registrant has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of San Francisco and State of California
on the 18th day of June, 1998.
FORWARD FUNDS, INC.
By: /s/ Ronald Pelosi
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Robert Helm, Jeffrey S. Puretz,
Jack W. Murphy and Jeffrey L. Steele or any one of them, his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place, and stead, in any and all
capacities, to sign any and all pre- and post-effective amendments to this
Registration Statement, and to file the same with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in connection therewith, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the date indicated.
Signature Title Date
/s/ Ronald Pelosi Director, President June 18, 1998
- ------------------ (Principal Executive Officer)
/s/ Haig G. Mardikian Director June 18, 1998
- ---------------------
/s/ Leo T. McCarthy Director June 18, 1998
- ---------------------
/s/ Steven Levy Treasurer June 18, 1998
- --------------------- (Principal Financial Officer)
