FORWARD FUNDS INC, 497, 1999-05-07

FORWARD FUNDS INC
497, 1999-05-07

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FORWARD FUNDS, INC.

The Global Asset Allocation Fund
The Global Bond Fund
The International Equity Fund
The Real Estate Investment Fund
The Small Capitalization Equity Fund
The U.S. Equity Fund

Prospectus dated May 3, 1999

The U.S. Equity Fund, Global Asset Allocation Fund, International Equity Fund
and Small Capitalization Equity Fund are designed for investors desiring high
total return (generally capital appreciation and income). The Global Bond Fund
is designed for investors seeking maximum total return consistent with the
preservation of capital. The Real Estate Investment Fund is designed for
investors primarily seeking income.

Our Funds are mutual funds. Mutual funds employ professionals to manage the
investments made on behalf of the persons who invest in them, the shareholders
of the mutual fund. Our funds, like other mutual funds, try to meet their stated
investment goals but there is no guarantee that the goals will be met.
Investments in our Funds are not bank deposits; they are not insured by the FDIC
or the federal government or any other agency.

You should understand that an investment in the Funds involves certain risks,
including the loss of some or all of your investment.

The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. It is a criminal
offense to say otherwise.

<PAGE>

TABLE OF CONTENTS

Page

THE GLOBAL ASSET ALLOCATION FUND...............................................4

Objective.............................................................4
Principal Investment Strategies - Diversifying Investment Risk by
Investing in Various Asset Classes...................................4
What are the Principal Risks of Investing in the Global Asset
Allocation Fund?.....................................................4
Performance History...................................................5
Shareholder Fees and Expenses.........................................5

THE GLOBAL BOND FUND...........................................................8

Objective.............................................................8
Principal Investment Strategies - Investing in Global Debt
Securities...........................................................8
What are the Principal Risks of Investing in the Global Bond
Fund?................................................................9
Performance History..................................................10
Shareholder Fees and Expenses........................................10

THE INTERNATIONAL EQUITY FUND.................................................14

Objective............................................................14
Principal Investment Strategies - Investing in International
Equity Securities...................................................14
What are the Principal Risks of Investing in the International
Equity Fund?........................................................14
Performance History..................................................16
Shareholder Fees and Expenses........................................16

THE REAL ESTATE INVESTMENT FUND...............................................19

Objective............................................................19
Principal Investment Strategies - Investing in Equity Securities
of Real-Estate Focused Companies....................................19
What are the Principal Risks of Investing in the Real Estate
Investment Fund?....................................................20
Performance History..................................................21
Shareholder Fees and Expenses........................................21

THE SMALL CAPITALIZATION EQUITY FUND..........................................24

Objective............................................................24
Principal Investment Strategies - Investing in Equity Securities
of Companies with Small Market Capitalization.......................24
What are the Principal Risks of Investing in the Small
Capitalization Equity Fund?.........................................24
Performance History..................................................25
Shareholder Fees and Expenses........................................25

THE U.S. EQUITY FUND..........................................................29

Objective............................................................29
Principal Investment Strategies - Investing in Domestic Equity
Securities..........................................................29
What are the Principal Risks of Investing in the U.S. Equity
Fund................................................................29
Performance History..................................................30
Shareholder Fees and Expenses........................................30

ADDITIONAL INVESTMENT STRATEGIES AND RISKS....................................33

MANAGEMENT OF THE FUNDS.......................................................36

Investment Adviser and Sub-Advisers..................................36

VALUATION OF SHARES...........................................................41

PURCHASING SHARES.............................................................42

How to Buy Shares....................................................42

EXCHANGE PRIVILEGE............................................................43

REDEEMING SHARES..............................................................44

Signature Guarantee..................................................44
By Wire Transfer.....................................................45
By Telephone.........................................................45
By Mail..............................................................46
Payments to Shareholders.............................................46

INTERNET TRANSACTIONS.........................................................46

DISTRIBUTION AND SHAREHOLDER SERVICE PLANS....................................47

DIVIDENDS AND TAXES...........................................................47

Federal Taxes........................................................48

GENERAL INFORMATION...........................................................48

Shareholder Communications...........................................48

FINANCIAL HIGHLIGHTS..........................................................49

<PAGE>

THE GLOBAL ASSET ALLOCATION FUND

Objective

The Global Asset Allocation Fund seeks high total return (capital appreciation
and income).

Principal Investment Strategies - Diversifying Investment Risk by Investing in
Various Asset Classes

The Global Asset Allocation Fund is known as a fund of funds. The Global Asset
Allocation Fund attempts to achieve its investment objective by investing in the
other mutual funds offered by Forward Funds, Inc. which are discussed in this
Prospectus through strategic asset allocation. It may or may not be invested in
all of the Funds at any one time. The Fund's investment adviser anticipates
limiting the Fund's investments in each of the funds to a certain percentage
range of the Global Asset Allocation Fund's assets. Below are the anticipated
ranges:

- --------------------------------------------------------- ----------------------
Underlying Fund Range
- --------------------------------------------------------- ----------------------
- --------------------------------------------------------- ----------------------
The U.S. Equity Fund 25%-50%
- --------------------------------------------------------- ----------------------
- --------------------------------------------------------- ----------------------
The Global Bond Fund 10%-40%
- --------------------------------------------------------- ----------------------
- --------------------------------------------------------- ----------------------
The International Equity Fund 10%-30%
- --------------------------------------------------------- ----------------------
- --------------------------------------------------------- ----------------------
The Real Estate Investment Fund 1% - 20%
- --------------------------------------------------------- ----------------------
- --------------------------------------------------------- ----------------------
The Small Capitalization Equity Fund 5%-20%
- --------------------------------------------------------- ----------------------

What are the Principal Risks of Investing in the Global Asset Allocation Fund?

As with any investment, an investment in the Global Asset Allocation Fund may
cause you to lose some or all of the money you invested. Because the securities
in which the Global Asset Allocation Fund invests may decrease in value, the net
asset value of the Global Asset Allocation Fund may decrease and the value of
your investment may also decrease. You should consider your own investment
goals, time horizon and risk tolerance before investing in the Global Asset
Allocation Fund.

o Risks Associated with Investing in the Forward Funds

Because the Global Asset Allocation Fund invests in all of the other
mutual funds offered by Forward Funds, Inc., it is exposed to all of the
investment risks of those funds. The Fund anticipates that at least 40% of its
assets will be allocated to underlying funds which primarily invest in equity
securities (common, preferred and convertible securities) and will be exposed to
potential market volatility and loss that can occur with investments in equity
securities. In addition, the Fund will allocate at least 10% of its assets to
underlying funds which invest primarily in debt securities, including debt
securities of foreign issuers, and will be exposed to risks associated with
foreign issuers and to the risk that the valuation of debt securities in which
it indirectly invests will fluctuate because of factors such as interest rate or
credit quality changes. The Fund's investments in underlying funds which invest
primarily in equity securities will also involve investments in particular types
of equity securities namely, small capitalization stocks, securities of real
estate investment trusts and real estate companies and equity securities issued
by foreign companies. There are particular risks associated with these various
types of investments, such as greater volatility, less liquid trading markets
and foreign currency risks in the case of foreign securities. These risks and
others pertaining to the Fund's investments in the Funds offered by Forward
Funds, Inc. are provided in this Prospectus in the section that discusses each
particular Fund. In addition, although the Global Asset Allocation Fund can
modify the percentage of assets allocated to any particular Fund, it does not
control the investments made by the underlying Funds in which it invests.

o Risks Associated with Indirect Expenses

As a fund of funds, the Global Asset Allocation Fund pays the direct
expenses provided in the expense table above and will also pay the expenses
charged by the underlying funds in which it invests.

Performance History

Since the Fund commenced operations in April, 1998 there are no performance
figures reflecting the Fund's performance for a full calendar year.

Shareholder Fees and Expenses

This table describes the fees and expenses that you may pay if you buy shares of
the Global Asset Allocation Fund.

- --------------------------------------------------------- ----------------------
Shareholder Fees (fees paid directly from your
investment)
- --------------------------------------------------------- ----------------------
- --------------------------------------------------------- ----------------------
Maximum Sales Charge (Load) on Purchases (as a % of NONE
your purchase price)1
- --------------------------------------------------------- ----------------------
- --------------------------------------------------------- ----------------------
Maximum Deferred Sales Charge (Load) NONE
- --------------------------------------------------------- ----------------------
- --------------------------------------------------------- ----------------------
Maximum Sales Charge (Load) Imposed on Reinvested NONE
Dividends
- --------------------------------------------------------- ----------------------
- --------------------------------------------------------- ----------------------
Redemption Fee2 NONE
- --------------------------------------------------------- ----------------------
- --------------------------------------------------------- ----------------------
Transaction Fee3 0.25%
- --------------------------------------------------------- ----------------------
- --------------------------------------------------------- ----------------------
Exchange Fee NONE
- --------------------------------------------------------- ----------------------
- --------------------------------------------------------- ----------------------
Maximum Account Fee4 $10.00
- --------------------------------------------------------- ----------------------

- --------------------------------------------------------- ----------------------
Annual Fund Operating Expenses (expenses that are
deducted from Fund assets)5
- --------------------------------------------------------- ----------------------
- --------------------------------------------------------- ----------------------
Management Fee 0.05%
- --------------------------------------------------------- ----------------------
- --------------------------------------------------------- ----------------------
Distribution and Service (12b-1) Fees6 0.25%
- --------------------------------------------------------- ----------------------
- --------------------------------------------------------- ----------------------
Other Expenses 0.37%
- --------------------------------------------------------- ----------------------
- --------------------------------------------------------- ----------------------
Total Annual Fund Operating Expenses 0.67%
- --------------------------------------------------------- ----------------------
- --------------------------------------------------------- ----------------------
Fee Waiver7 0.17%
- --------------------------------------------------------- ----------------------
- --------------------------------------------------------- ----------------------
Net Expenses 0.50%
- --------------------------------------------------------- ----------------------

- ---------------

1 You will be charged $1.50 for checks and $8.00 for wire transfers. There is
no wire transfer fee for transfers involving an omnibus account of a
broker-dealer or other entity that has an agreement with Forward Funds,
Inc. or its distributor to service shareholders.

2 If you redeem your shares by mail there is a $1.00 charge. If you choose to
receive the proceeds from your redemption via wire transfer, there is a
$8.00 charge. There is no wire transfer fee for transfers involving an
omnibus account of a broker-dealer or other entity that has an agreement
with Forward Funds, Inc. or its distributor to service shareholders. There
is no charge for transactions effected via the Internet or ACH transfers by
phone or Internet.

3 There is a 0.25% transaction fee based on the amount purchased. If you
maintain your account with us through a broker-dealer or other financial
institution, the fee may be charged only when you redeem shares and would
be based on the amount redeemed; all other investors pay the fee at the
time they purchase shares. This fee is in turn paid to the underlying Funds
upon investment of the cash proceeds of the purchase and is then applied
directly against transaction costs incurred by the underlying Funds. It is
not applied to reinvested dividends or capital gains distributions.

4 Shareholders who elect to receive cash dividends will pay a $10.00 annual
account administration fee which is deducted out of dividends. If the cash
dividend is less than the account administration fee then shares are sold
from your account to make up the difference. This allows us to allocate
administrative costs in a fair manner among shareholders. You may avoid
this fee by electing to reinvest your dividends in Fund shares.

5 Expenses are factored into the share price or dividends and are not charged
directly to shareholder accounts. The Global Asset Allocation Fund will
also bear indirectly its proportional shares of expenses of each other Fund
in which it invests, so its return will be reduced by those expenses. The
level of indirect expenses borne by the Global Asset Allocation Fund will
be expected to range from 1.40% to 1.60% (or 1.40% to 1.80% without
waivers).

6 On May 3, 1999, the Fund's shareholders adopted a Distribution Plan
pursuant to which up to 0.25% of the Fund's average daily net assets may be
used to pay shareholder servicing and distribution fees. The Distribution
Plan in part replaces a Shareholder Servicing Plan pursuant to which up to
0.35% of the Fund's average net assets could be used to pay shareholder
servicing fees. The Shareholder Servicing Plan will continue at an annual
rate of up to 0.10% of the Fund's average net assets. The expenses of the
Shareholder Servicing Plan are reflected as part of "Other Expenses" of the
Fund.

7 The Fund's Investment Adviser has contractually agreed to waive a portion
of its fees for the Fund for its current fiscal year.

Example

This example is intended to help you compare the costs of investing in the
Global Asset Allocation Fund with the costs of investing in other mutual funds.

The Example assumes that you invest $10,000 in the Global Asset Allocation Fund
for the periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Fund's total annual Fund operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:

Global Asset Allocation
Fund+
------------
1 Year........................ $230
3 Years....................... $780
5 Years....................... $1,358
10 Years...................... $2,925

You would pay the following expenses if you did not redeem your shares:

Global Asset Allocation
Fund+
------------
1 Year........................ $205
3 Years....................... $755
5 Years....................... $1,333
10 Years...................... $2,900
- ----------

+These example calculations incorporate the contractual fee waiver in place for
the Fund for its current fiscal year. These calculations include imposition of
the transaction fee and any indirect expenses borne by shareholders of the Fund,
which are expressed as an average weighted expense ratio for each underlying
fund based on the mid-point of the Fund's investment range for such underlying
Fund.

<PAGE>

THE GLOBAL BOND FUND

Objective

The Global Bond Fund seeks to realize maximum total return consistent with the
preservation of capital.

Principal Investment Strategies - Investing in Global Debt Securities

The Global Bond Fund attempts to achieve its investment objective by primarily
investing in debt securities issued by companies and governments located
throughout the world. This means that at least 65% of its total assets will be
invested in the debt securities of issuers located in at least three different
countries, including the United States. The Fund will normally hedge at least
75% of its exposure to foreign (non-U.S.) currencies. The Fund invests primarily
in investment grade bonds which are debt securities rated at least Baa by
Moody's Investors Services, Inc. or BBB by Standard & Poor's Ratings Service
(nationally recognized statistical ratings organizations), or if unrated, are
determined to be of the same quality by the Fund's sub-adviser. The Fund may
invest up to 30% of its assets in high yield ("junk") bonds rated below
investment grade but rated at least B by Moody's Investor Services, Inc. or
Standard & Poor's, or, if unrated, determined by the Fund's sub-adviser to be of
comparable quality at the time of investment. The Fund is not required to sell a
security if it is downgraded to a lower rating. The Fund will not invest more
than 25% of its total assets in emerging markets. The Fund may purchase debt
securities on a when-issued basis or delayed-delivery basis. The Fund's
sub-adviser expects the average duration of its portfolio of investments to be
between three and seven years. There is no particular minimum or maximum
maturity requirement of the Fund's investments.

The Fund may invest in options, futures and other forms of derivative
instruments. The use of these instruments may be to hedge against risk of the
underlying securities in the Fund's portfolio or enhance the Fund's return.

The Global Bond Fund may invest a substantial amount of its assets in foreign
investments. Since many foreign investments are denominated in other currencies
besides the U.S. dollar, the Fund may be affected by fluctuations in exchange
rates. For hedging purposes and to reduce the risks of fluctuating exchange
rates, or to increase the Fund's returns, the Fund may enter into forward
foreign currency exchange contracts which obligate a party to buy or sell a
specific currency on a future date at a fixed price. The Fund "locks in" an
exchange rate. The Fund may also invest, either to reduce risk or enhance
returns, in options on foreign currencies, in foreign currency futures and
options and in foreign currency exchange-related securities like foreign
currency warrants and other instruments linked to foreign currency exchange
rates. The Fund's sub-adviser is not obligated to use these strategies, but may
do so when, in its judgment, it appears appropriate to do so.

In selecting investments for the Global Bond Fund, the Fund's sub-adviser
utilizes economic forecasting, interest rate anticipation, credit and call risk
analysis, foreign currency exchange rate forecasting, and other security
selection techniques. The proportion of the Fund's assets committed to
investment in securities with particular characteristics (such as maturity,
sector type, credit quality and coupon rate) will vary based on the
sub-adviser's outlook for the United States and foreign economies, the financial
markets, and other factors. The Fund's sub-adviser may sell securities at any
time it believes advisable, particularly when the Fund may be able to enhance
its overall return.

What are the Principal Risks of Investing in the Global Bond Fund?

As with any investment, an investment in the Global Bond Fund may cause you to
lose some or all of the money you invested. Because the securities in which the
Global Bond Fund invests may decrease in value, the net asset value of the
Global Bond Fund may decrease and the value of your investment may also
decrease. On the other hand, you could experience an increase in the value of
your investment as the Global Bond Fund's net asset value increases. You should
consider your own investment goals, time horizon and risk tolerance before
investing in the Global Bond Fund.

o Foreign Securities

Investments in foreign securities can present more risk than investing
in U.S. securities because of factors such as unstable international political
and economic conditions, currency fluctuations, foreign controls on investment
and currency exchange, withholding taxes, a lack of adequate company
information, less liquid and more volatile markets, and a lack of government
regulation. Investments in emerging markets involve even greater risks such as
immature economic structures and different legal systems.

o Currency Transactions

If a security is denominated in a foreign currency, the value of the
security fluctuates if there is a change in currency exchange rates or exchange
control regulations. Adverse currency fluctuations will reduce the value of the
Fund's shares. Costs are incurred by a Fund in connection with conversions
between currencies. Currency risks are greater in lesser developed markets and
can be unpredictably affected by external events. Fund managers are authorized
to hedge against currency risks but are not required to do so and may choose not
to do so because of the cost or for other reasons. The Fund's sub-adviser may
also establish an outright short or long position in any foreign currency,
whether or not the Fund owns securities denominated in that currency.

o Debt Securities

Debt securities in which the Fund invests are subject to several types
of investment risk. They may have market or interest rate risk which means their
value will be affected by fluctuations in the prevailing interest rates. There
may be credit risk which is the risk that the issuer may be unable to make
timely interest payments or repay the principal upon maturity. Call or income
risk exists with corporate bonds during periods of falling interest rates
because of the possibility that securities with high interest rates will be
prepaid or "called" by the issuer before they mature. The Fund would then have
to reinvest the proceeds at a possibly lower interest rate. The Fund may also
suffer from event risk which is the possibility that corporate debt securities
held by the Fund may suffer a substantial decline in credit quality and market
value if the issuer restructures.

Generally, debt securities increase in value during periods of falling
interest rates and decline in value if interest rates increase. Usually, the
longer the remaining maturity of a debt security, the greater the effect of
interest rate changes on its market value.

o When-Issued and Delayed-Delivery Transactions

The Fund may purchase securities on a when-issued and delayed-delivery
basis. When the Fund agrees to purchase securities, the Custodian will set aside
cash or liquid securities equal to the amount of the commitment to cover its
obligation. 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. The Fund may,
however, sell a when-issued security prior to the settlement date.

o Investment Grade Debt Securities and High Yield ("Junk") Bonds

Generally, investment grade debt securities should have adequate
capacity to pay interest and repay principal but their capacity is more likely
than higher grade debt securities (such as securities rated "BBB" or "Baa") to
be weakened if there is a change in economic conditions or other circumstances.
High yield ("junk") bonds are considered speculative with regard to the issuer's
capacity to pay interest and repay principal and may be in default.

o Derivatives

As with any investment, the Fund may lose money using derivatives.
These losses may, however, be magnified in relation to the amount of money
initially committed to the investment. Investing for hedging purposes may result
in certain transaction costs which may reduce the Fund's performance. In
addition, if used for hedging, no assurance can be given that each derivative
position will achieve a perfect correlation with the underlying security or
currency that it is being hedged against.

Performance History

Since the Fund commenced operations in September, 1998, there are no performance
figures reflecting the Fund's performance for a full calendar year.

Shareholder Fees and Expenses

This table describes the fees and expenses that you may pay if you buy shares of
the Global Bond Fund.

- --------------------------------------------------------- ----------------------
Shareholder Fees (fees paid directly from your investment):
- --------------------------------------------------------- ----------------------
- --------------------------------------------------------- ----------------------
Maximum Sales Charge (Load) on Purchases (as a % of NONE
your purchase price)1
- --------------------------------------------------------- ----------------------
- --------------------------------------------------------- ----------------------
Maximum Deferred Sales Charge (Load) NONE
- --------------------------------------------------------- ----------------------
- --------------------------------------------------------- ----------------------
Maximum Sales Charge (Load) Imposed on Reinvested NONE
Dividends
- --------------------------------------------------------- ----------------------
- --------------------------------------------------------- ----------------------
Redemption Fee2 NONE
- --------------------------------------------------------- ----------------------
- --------------------------------------------------------- ----------------------
Transaction Fee3 0.25%
- --------------------------------------------------------- ----------------------
- --------------------------------------------------------- ----------------------
Exchange Fees NONE
- --------------------------------------------------------- ----------------------
- --------------------------------------------------------- ----------------------
Maximum Account Fee4 $10.00
- --------------------------------------------------------- ----------------------

- --------------------------------------------------------- ----------------------
Annual Fund Operating Expenses (expenses that are
deducted from Fund assets)5
- --------------------------------------------------------- ----------------------
- --------------------------------------------------------- ----------------------
Management Fee 0.60%
- --------------------------------------------------------- ----------------------
- --------------------------------------------------------- ----------------------
Distribution and Service (12b-1) Fees6 0.25%
- --------------------------------------------------------- ----------------------
- --------------------------------------------------------- ----------------------
Other Expenses 1.03%
- --------------------------------------------------------- ----------------------
- --------------------------------------------------------- ----------------------
Total Annual Fund Operating Expenses 1.88%
- --------------------------------------------------------- ----------------------
- --------------------------------------------------------- ----------------------
Fee Waiver7 0.48%
- --------------------------------------------------------- ----------------------
- --------------------------------------------------------- ----------------------
Net Expenses 1.40%
- --------------------------------------------------------- ----------------------

- ---------------

3 There is a 0.25% transaction fee based on the amount purchased. If you
maintain your account with us through a broker-dealer or other financial
institution, the fee may be charged only when you redeem shares and would
be based on the amount redeemed; all other investors pay the fee at the
time they purchase shares. This fee is applied directly against transaction
costs incurred by the Fund. It is not applied to reinvested dividends or
capital gains distributions.

5 These expenses are paid directly out of the Fund's assets. Expenses are
factored into the share price or dividends and are not charged directly to
shareholder accounts.

7 The Fund's Investment Adviser has contractually agreed to waive a portion
of its fees for the Fund for its current fiscal year.

Example

This example is intended to help you compare the costs of investing in the
Global Bond Fund with the costs of investing in other mutual funds.

The Example assumes that you invest $10,000 in the Global Bond Fund for the
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Fund's total annual Fund operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:

Global Bond
Fund+
-------
1 Year........................ $168
3 Years....................... $569
5 Years....................... $997
10 Years...................... $2,187

You would pay the following expenses if you did not redeem your shares:

Global Bond
Fund+
-------
1 Year........................ $143
3 Years....................... $544
5 Years....................... $972
10 Years...................... $2,162

- ----------

+The examples above include imposition of the transaction fee and incorporate
the contractual fee waiver in place for the Fund for its current fiscal year.

<PAGE>

THE INTERNATIONAL EQUITY FUND

Objective

The International Equity Fund seeks to achieve high total return (capital
appreciation and income).

Principal Investment Strategies - Investing in International Equity Securities

The International Equity Fund seeks to achieve its investment objective by
investing primarily (at least 65% of total assets) in the equity securities
(common, preferred and convertible securities) of companies organized or located
outside of the United States. Even though these companies are based outside of
the United States, their securities may be traded on U.S. securities markets and
the Fund may purchase these securities. The Fund will invest in at least three
different countries and expects to be invested in more than three countries,
including countries considered to be emerging market countries. The Fund will
not invest more than 25% of its total assets in emerging markets. The Fund will
primarily invest in common stock.

The International Equity Fund invests a substantial amount of its assets in
foreign investments which are denominated in other currencies besides the U.S.
dollar, and can be affected by fluctuations in exchange rates.

For hedging purposes and to reduce the risks of fluctuating exchange rates, the
Fund may enter into forward foreign currency exchange contracts which obligate a
party to buy or sell a specific currency on a future date at a fixed price. The
Fund "locks in" an exchange rate. For hedging purposes, the Fund may also invest
in options on foreign currencies, in foreign currency futures and options and in
foreign currency exchange-related securities like foreign currency warrants and
other instruments linked to foreign currency exchange rates. The Fund's
sub-adviser generally chooses not to hedge the Fund's currency exposure.

The Fund's sub-adviser anticipates following a flexible investment policy which
will allow them to select those investments best suited to achieve the Fund's
investment objective over the long term. The Fund's sub-adviser 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 Fund's portfolio on the basis of fundamental
company-by-company analysis. In choosing equity instruments, the Fund's
sub-adviser will focus on the market price of a company's securities relative to
its evaluation of the company's long -term earnings, asset flow and cash flow
potential. A company's historical value measures, including price/earnings
ratio, profit margins and liquidation value, will also be considered. The
sub-adviser generally sells a security if the sub-adviser's price target is met,
the company's fundamentals change, or if the portfolio is fully invested and a
better investment opportunity arises. There are no limitations on the size of
the companies in which the Fund may invest.

What are the Principal Risks of Investing in the International Equity Fund?

As with any investment, an investment in the International Equity Fund may cause
you to lose some or all of the money you invested. Because the securities in
which the International Equity Fund invests may decrease in value, the net asset
value of the International Equity Fund may decrease and the value of your
investment may also decrease. On the other hand you could experience an increase
in the value of your investment as the International Equity Fund's net asset
value increases. You should consider your own investment goals, time horizon and
risk tolerance before investing in the International Equity Fund.

o Foreign Securities

Investments in foreign securities may present more risk than investing
in U.S. securities because of factors such as unstable international political
and economic conditions, currency fluctuations, foreign controls on investment
and currency exchange, withholding taxes, a lack of adequate company
information, less liquid and more volatile markets, and a lack of government
regulation. Investments in emerging markets involve even greater risks such as
immature economic structures and different legal systems.

o Currency Transactions

If a security is denominated in a foreign currency, the value of the
security fluctuates if there is a change in currency exchange rates or exchange
control regulations, and adverse currency fluctuations will reduce the value of
the Fund's shares. Costs are incurred by a Fund in connection with conversions
between currencies. Currency risks are greater in lesser developed markets and
can be unpredictably affected by external events. Fund managers are authorized
to hedge against currency risks but are not required to do so and may choose not
to do so because of the cost or for other reasons. In accordance with its
investment philosophy, the Fund's sub-adviser generally chooses not to hedge the
Fund's currency exposure.

o Common Stocks

The International Equity Fund invests in the equity securities of
companies, which exposes the Fund and its shareholders to the risks associated
with common stock investing. These risks include the financial risk of selecting
individual companies that do not perform as anticipated, the risk that the stock
markets in which the Fund invests may experience periods of turbulence and
instability, and the general risk that domestic and global economies may go
through periods of decline and cyclical change. Many factors affect an
individual company's performance, such as the strength of its management or the
demand for its product or services. The Fund's sub-adviser follows a value style
of management and if the market does not come to share the sub-adviser's
assessment of an investment's long-term value, the Fund may underperform other
mutual funds or international stock indices.

Performance History

Since the Fund commenced operations in October, 1998, there are no performance
figures reflecting the Fund's performance for a full calendar year.

Shareholder Fees and Expenses

This table describes the fees and expenses that you may pay if you buy shares of
the International Equity Fund.

- --------------------------------------------------------- ----------------------
Annual Fund Operating Expenses (expenses that are
deducted from Fund assets)5
- --------------------------------------------------------- ----------------------
- --------------------------------------------------------- ----------------------
Management Fee 0.95%
- --------------------------------------------------------- ----------------------
- --------------------------------------------------------- ----------------------
Distribution and Service (12b-1) Fees6 0.25%
- --------------------------------------------------------- ----------------------
- --------------------------------------------------------- ----------------------
Other Expenses 1.11%
- --------------------------------------------------------- ----------------------
- --------------------------------------------------------- ----------------------
Total Annual Fund Operating Expenses 2.31%
- --------------------------------------------------------- ----------------------
- --------------------------------------------------------- ----------------------
Fee Waiver7 0.71%
- --------------------------------------------------------- ----------------------
- --------------------------------------------------------- ----------------------
Net Expenses 1.60%
- --------------------------------------------------------- ----------------------

- ---------------

3 There is a 0.25% transaction fee based on the amount purchased. If you
maintain your account with us through a broker-dealer or other financial
institution, the fee will be charged only when you redeem shares and would
be based on the amount redeemed; all other investors pay the fee at the
time they purchase shares. This fee is applied directly against transaction
costs incurred by the Fund. It is not applied to reinvested dividends or
capital gains distributions.

5 These expenses are paid directly out of the Fund's assets. Expenses are
factored into the share price or dividends and are not charged directly to
shareholder accounts.

7 The Fund's Investment Adviser has contractually agreed to waive a portion
of its fees for the Fund for its current fiscal year.

Example

This example is intended to help you compare the costs of investing in the
International Equity Fund with the costs of investing in other mutual funds.

The Example assumes that you invest $10,000 in the International Equity Fund for
the periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Fund's total annual Fund operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:

International Equity
Fund+
-------
1 Year........................ $188
3 Years....................... $678
5 Years....................... $1,196
10 Years...................... $2,616

You would pay the following expenses if you did not redeem your shares:

International Equity
Fund+
-------
1 Year........................ $163
3 Years....................... $653
5 Years....................... $1,171
10 Years...................... $2,591

- ----------

+The examples above include imposition of the transaction fee and incorporate
the contractual fee waiver in place for the Fund for its current fiscal year.

<PAGE>

THE REAL ESTATE INVESTMENT FUND

Objective

The Real Estate Investment Fund seeks income with capital appreciation as a
secondary goal.

Principal Investment Strategies - Investing in Equity Securities of Real-Estate
Focused Companies

The Real Estate Investment Fund invests in real estate securities, including
common stock and units of beneficial interest of real estate investment trusts,
preferred stock, rights to purchase common stock and securities which may
convert into common stock of real estate companies. The Fund expects to normally
invest at least 65% of its assets in these securities and up to 35% of its
assets in debt securities issued or guaranteed by real estate companies. A real
estate investment trust or "REIT" is a company which primarily owns and operates
income-producing real estate, such as apartments, shopping centers, offices and
warehouses. A REIT is legally required to pay virtually all of its taxable
income to its shareholders each year. REITs were created as a means for average
investors to access investments in large commercial properties through pooling
arrangements, much like mutual funds. Income is produced through commercial real
estate ownership and finance.

For the purpose of the Real Estate Investment Fund, a real estate company is one
that derives at least 50% of its revenue from real estate related activities or
has at least 50% of its assets in real estate. Other than REITs, most real
estate companies do not pay dividends at a meaningful level. The Fund's
sub-adviser expects that the Fund's investments in real estate companies will be
directed toward REITs and other real estate operating companies that pay higher
dividends relative to the stock market as a whole. There are no size limitations
on the companies in which the Fund invests. The Fund primarily invests in equity
REITs which are REITs that own real estate and whose revenue comes principally
from rent.

Prior to selecting specific investments for the Fund, the Fund's sub-adviser
generally tracks real estate supply and demand across the United States by
separating the country into eight geographic regions and then further into major
metropolitan markets within those regions. Within each region, the Fund's
sub-adviser compiles a profile of supply and demand factors including: (1)
vacancy rates by property type; (2) visible supply of new property based on
building permit activity; (3) regional population, job and economic growth; and
(4) local trends in rental and property capitalization rates. The Fund's
sub-adviser uses this data to determine which property types in which regions
appear to be most favorably poised to outperform similar properties in other
regions. The Fund's sub-adviser then proceeds to select investments that attempt
to take advantage of those factors. The Fund's sub-adviser generally sells a
security if the security becomes over-valued in the opinion of the sub-adviser,
the company's fundamentals change or if better investment opportunities arise.

What are the Principal Risks of Investing in the Real Estate Investment Fund?

As with any investment, an investment in the Real Estate Investment Fund may
cause you to lose some or all of the money you invested. Because the securities
in which the Real Estate Investment Fund invests may decrease in value, the net
asset value of the Real Estate Investment Fund may decrease and the value of
your investment may also decrease. On the other hand you could experience an
increase in the value of your investment as the Real Estate Investment Fund's
net asset value increases. You should consider your own investment goals, time
horizon and risk tolerance before investing in the Real Estate Investment Fund.

o Real Estate Securities and Real Estate Investment Fund Risks

Because the Real Estate Investment Fund concentrates its investments on
opportunities in the real estate industry, the Real Estate Investment Fund has
certain risks associated with investments in entities focused on real estate
activities.

The organizational documents of a REIT may give the trust's sponsors
the ability to control the operation of the real estate investment trust even
though another person or entity could own a majority of the interests of the
trust. These trusts may also contain provisions which would delay or make a
change in control of the real estate investment trust difficult. In addition,
the performance of these types of investments can be affected by changes in the
tax laws or failure to qualify for tax-free pass-through of income as well as
events affecting the value of real estate.

The Fund is also subject to the risks associated with direct ownership
of real estate. Real estate values can fluctuate as a result of general and
local economic conditions, overbuilding and increased competition, increases in
property taxes and operating expenses, changes in zoning laws, casualty or
condemnation losses, regulatory limitations on rents, changes in neighborhood
values, changes in the appeal of properties to tenants and increases in interest
rates. The value of equities which service the real estate business sector may
also be affected by such risks.

The Real Estate Investment Fund is also a non-diversified fund which
means it is not subject to a limit on the percentage of its assets that may be
invested in the securities of a single issuer. Less diversification may make the
Real Estate Investment Fund more vulnerable to adverse economic, political or
regulatory developments affecting a single issuer than if the Fund were more
diversified. The Fund must, however, comply with tax diversification laws which
require it to be diversified with respect to at least half of its assets.

o Common Stocks

The Real Estate Investment Fund invests in the equity securities of
companies, which exposes the Fund and its shareholders to the risks associated
with common stock investing. These risks include the financial risk of selecting
individual companies that do not perform as anticipated, the risk that the stock
markets in which the Fund invests may experience periods of turbulence and
instability, and the general risk that domestic and global economies may go
through periods of decline and cyclical change. Many factors affect an
individual company's performance, such as the strength of its management or the
demand for its product or services.

Performance History

There is no performance history for the Real Estate Investment Fund since it has
not yet commenced operations.

Shareholder Fees and Expenses

This table describes the fees and expenses that you may pay if you buy shares of
the Real Estate Investment Fund.

- --------------------------------------------------------- --------------------
Shareholder Fees (fees paid directly from your investment):
- --------------------------------------------------------- --------------------
- --------------------------------------------------------- --------------------
Maximum Sales Charge (Load) on Purchases (as a % of NONE
your purchase price)1
- --------------------------------------------------------- --------------------
- --------------------------------------------------------- --------------------
Maximum Deferred Sales Charge (Load) NONE
- --------------------------------------------------------- --------------------
- --------------------------------------------------------- --------------------
Maximum Sales Charge (Load) Imposed on Reinvested NONE
Dividends
- --------------------------------------------------------- --------------------
- --------------------------------------------------------- --------------------
Redemption Fee2 NONE
- --------------------------------------------------------- --------------------
- --------------------------------------------------------- --------------------
Transaction Fee3 0.25%
- --------------------------------------------------------- --------------------
- --------------------------------------------------------- --------------------
Exchange Fees NONE
- --------------------------------------------------------- --------------------
- --------------------------------------------------------- --------------------
Maximum Account Fee4 $10.00
- --------------------------------------------------------- --------------------

- --------------------------------------------------------- --------------------
Annual Fund Operating Expenses (expenses that are
deducted from Fund assets)5
- --------------------------------------------------------- --------------------
- --------------------------------------------------------- --------------------
Management Fee 1.00%
- --------------------------------------------------------- --------------------
- --------------------------------------------------------- --------------------
Distribution and Service (12b-1) Fees6 0.25%
- --------------------------------------------------------- --------------------
- --------------------------------------------------------- --------------------
Other Expenses 1.59%
- --------------------------------------------------------- --------------------
- --------------------------------------------------------- --------------------
Total Annual Fund Operating Expenses 2.84%
- --------------------------------------------------------- --------------------
- --------------------------------------------------------- --------------------
Fee Waiver7 1.04%
- --------------------------------------------------------- --------------------
- --------------------------------------------------------- --------------------
Net Expenses 1.80%
- --------------------------------------------------------- --------------------

- ---------------

5 These expenses are paid directly out of the Fund's assets. Expenses are
factored into the share price or dividends and are not charged directly to
shareholder accounts.

6 The Fund's shareholders have adopted a Distribution Plan pursuant to which
up to 0.25% of the Fund's average daily net assets may be used to pay
shareholder servicing and distribution fees. The Distribution Plan in part
replaces a Shareholder Servicing Plan pursuant to which up to 0.35% of the
Fund's average net assets could be used to pay shareholder servicing fees.
The Shareholder Servicing Plan will continue at an annual rate of up to
0.10% of the Fund's average net assets. The expenses of the Shareholder
Servicing Plan are reflected as part of "Other Expenses" of the Fund.

7 The Fund's Investment Adviser has contractually agreed to waive a portion
of its fees for the Fund for the current fiscal year.

Example

This example is intended to help you compare the costs of investing in the Real
Estate Investment Fund with the costs of investing in other mutual funds. Since
the Fund is new, all numbers are estimates.

The Example assumes that you invest $10,000 in the Real Estate Investment Fund
for the periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Fund's total annual Fund operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:

Real Estate
Investment
Fund+
-------
1 Year........................ $208
3 Years....................... $807
5 Years....................... $1,432
10 Years...................... $3,117

You would pay the following expenses if you did not redeem your shares:

Real Estate
Investment
Fund+
-------
1 Year........................ $183
3 Years....................... $782
5 Years....................... $1,407
10 Years...................... $3,092

- ----------

+The examples above include imposition of the transaction fee and incorporate
the contractual fee waiver in place for the Fund for its current fiscal year.

<PAGE>

THE SMALL CAPITALIZATION EQUITY FUND

Objective

The Small Capitalization Equity Fund seeks to achieve high total return. The
Fund anticipates that its investment returns are likely to be in the form of
capital appreciation rather than income, since small capitalization companies
often do not pay regular dividends.

Principal Investment Strategy - Investing in Equity Securities of Companies with
Small Market Capitalization

The Small Capitalization Equity Fund invests primarily in the equity securities
(common, preferred and convertible securities) of companies that have small
market capitalizations and offer future growth potential. At least 65% of the
Fund's total assets are invested in the securities of companies whose market
capitalization is no larger than companies which are included in the Russell
2000(R) Index at the time of initial purchase. The Russell 2000(R) Index
comprises the 2,000 smallest companies in the Russell 3000(R) Index, which
represents approximately 11% of the total market capitalization of the Russell
3000(R) Index. The Fund expects that the median and weighted average market
capitalization of the companies in which it invests will remain less than $1
billion, although this market capitalization level may increase with growth in
the market capitalization of the Russell 2000(R) Index. The Small Capitalization
Equity Fund may invest up to 20% of its assets in foreign investments. The Small
Capitalization Equity Fund will not invest more than 5% of its net assets in
foreign investments denominated in a foreign currency and will limit its
investments in any single non-U.S. country to 5% of its total assets.

In making its investments, the Fund's investment advisers seek out companies
with characteristics such as significant potential for future growth in
earnings, ability to compete in its business, a clearly defined business focus,
strong financial health and management ownership. The Fund's sub-adviser
attempts to locate out of favor and undiscovered companies and industries that
are selling at low relative valuations. The sub-adviser's investment process
focuses on specific companies but also takes into account macroeconomic and
industry sector developments. The sub-adviser is not required to sell a stock
for which the market capitalization grows beyond that of the Russell 2000(R)
Index although the sub-adviser may do so. The sub-adviser generally sells a
security if the sub-adviser's price target is met, the security becomes
over-valued in the opinion of the sub-adviser, the company's fundamentals change
or if better investment opportunities arise.

What are the Principal Risks of Investing in the Small Capitalization Equity
Fund?

As with any investment, an investment in the Small Capitalization Equity Fund
may cause you to lose some or all of the money you invested. Because the
securities in which the Small Capitalization Equity Fund invests may decrease in
value, the net asset value of the Small Capitalization Equity Fund may decrease
and the value of your investment may also decrease. On the other hand you could
experience an increase in the value of your investment as the Small
Capitalization Equity Fund's net asset value increases. You should consider your
own investment goals, time horizon and risk tolerance before investing in the
Small Capitalization Equity Fund.

o Small Capitalization Stocks

Smaller companies may offer great investment value, but they may
present greater investment risks than investing in the securities of large
companies. These risks include greater price volatility, greater sensitivity to
changing economic conditions and less liquidity than the securities of larger,
more mature companies. Smaller companies can also have limited product lines,
markets or financial resources and may not have sufficient management strength.

o Common Stocks

The Fund invests in the equity securities of companies, which exposes
the Funds and their shareholders to the risks associated with common stock
investing. These risks include the financial risk of selecting individual
companies that do not perform as anticipated, the risk that the stock markets in
which the Funds invest may experience periods of turbulence and instability, and
the general risk that domestic and global economies may go through periods of
decline and cyclical change. Many factors affect an individual company's
performance, such as the strength of its management or the demand for its
product or services.

o Foreign Investments and Foreign Currency Transactions

Since many foreign investments are denominated in other currencies
besides the U.S. dollar, the Fund can be adversely affected by fluctuations in
exchange rates.

Performance History

Since the Fund commenced operations in October, 1998, there are no performance
figures reflecting the Fund's performance for a full calendar year.

Shareholder Fees and Expenses

This table describes the fees and expenses that you may pay if you buy shares of
the Small Capitalization Equity Fund.

- ---------------------------------------------------- ------------------------ ------------------------
Shareholder Fees (fees paid directly from your Investor Class
Institutional Class investment):
- ---------------------------------------------------- ------------------------ ------------------------
- ---------------------------------------------------- ------------------------ ------------------------
Maximum Sales Charge (Load) on Purchases (as a % NONE NONE
of your purchase price)1
- ---------------------------------------------------- ------------------------ ------------------------
- ---------------------------------------------------- ------------------------ ------------------------
Maximum Deferred Sales Charge (Load) NONE NONE
- ---------------------------------------------------- ------------------------ ------------------------
- ---------------------------------------------------- ------------------------ ------------------------
Maximum Sales Charge (Load) Imposed on Reinvested NONE NONE
Dividends
- ---------------------------------------------------- ------------------------ ------------------------
- ---------------------------------------------------- ------------------------ ------------------------
Redemption Fee2 NONE NONE
- ---------------------------------------------------- ------------------------ ------------------------
- ---------------------------------------------------- ------------------------ ------------------------
Transaction Fee3 0.25% NONE
- ---------------------------------------------------- ------------------------ ------------------------
- ---------------------------------------------------- ------------------------ ------------------------
Exchange Fees NONE NONE
- ---------------------------------------------------- ------------------------ ------------------------
- ---------------------------------------------------- ------------------------ ------------------------
Maximum Account Fee4 $10.00 $10.00
- ---------------------------------------------------- ------------------------ ------------------------

- ------------------------------------------------------- --------------------- ------------------------
Annual Fund Operating Expenses (expenses that are Investor Class Institutional Class
deducted from Fund assets)5
- ------------------------------------------------------- --------------------- ------------------------
- ------------------------------------------------------- --------------------- ------------------------
Management Fee 1.05% 1.05%
- ------------------------------------------------------- --------------------- ------------------------
- ------------------------------------------------------- --------------------- ------------------------
Distribution and Service (12b-1) Fees6 0.25% NONE
- ------------------------------------------------------- --------------------- ------------------------
- ------------------------------------------------------- --------------------- ------------------------
Other Expenses 0.68% 0.68%
- ------------------------------------------------------- --------------------- ------------------------
- ------------------------------------------------------- --------------------- ------------------------
Total Annual Fund Operating Expenses 1.98% 1.73%
- ------------------------------------------------------- --------------------- ------------------------
- ------------------------------------------------------- --------------------- ------------------------
Fee Waiver7 0.53% N/A
- ------------------------------------------------------- --------------------- ------------------------
- ------------------------------------------------------- --------------------- ------------------------
Net Expenses 1.45% N/A
- ------------------------------------------------------- --------------------- ------------------------
</TABLE>

- ---------------

3 For the Investor class of shares, there is a 0.25% transaction fee based on
the amount purchased. If you maintain your account with us through a
broker-dealer or other financial institution, the fee will be charged only
when you redeem shares and would be based on the amount redeemed; all other
investors pay the fee at the time they purchase shares. This fee is applied
directly against transaction costs incurred by the Fund. It is not applied
to reinvested dividends or capital gains distributions.

5 These expenses are paid directly out of the Fund's assets. Expenses are
factored into the share price or dividends and are not charged directly to
shareholder accounts.

6 The Fund's shareholders have adopted a Distribution Plan for the Investor
class shares pursuant to which up to 0.25% of the Fund's average daily net
assets may be used to pay shareholder servicing and distribution fees. The
Distribution Plan in part replaces a Shareholder Servicing Plan pursuant to
which up to 0.35% of the Fund's average net assets could be used to pay
shareholder servicing fees. The Shareholder Servicing Plan will continue at
an annual rate of up to 0.10% of the Fund's average net assets. The
expenses of the Shareholder Servicing Plan are reflected as part of "Other
Expenses" of the Fund.

7 The Fund's Investment Adviser has contractually agreed to reimburse the
Investor class shares of the Fund for certain expenses incurred during the
current fiscal year.

Example

This example is intended to help you compare the costs of investing in the Small
Capitalization Equity Fund with the costs of investing in other mutual funds.

The Example assumes that you invest $10,000 in either the Investor or
Institutional class of shares of the Small Capitalization Equity Fund for the
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Fund's total annual Fund operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:

Small Capitalization Small Capitalization
Equity Equity
Fund Fund
Investor Class+ Institutional Class
------- -------

1 Year...............$173 1 Year.................$201
3 Years..............$595 3 Years................$570
5 Years............$1,044 5 Years................$964
10 Years...........$2,289 10 Years.............$2,066

You would pay the following expenses if you did not redeem your shares:

Small Capitalization Small Capitalization
Equity Equity
Fund Fund
Investor Class+ Institutional Class
------- -------
1 Year................$148 1 Year.................$176
3 Years...............$570 3 Years................$545
5 Years.............$1,019 5 Years................$939
10 Years............$2,264 10 Years..............$2,041

- ----------

+The examples above include imposition of the transaction fee and incorporate
the contractual fee waiver in place for the Fund for its current fiscal year.

<PAGE>

THE U.S. EQUITY FUND

Objective

The U.S. Equity Fund seeks high total return (capital appreciation and income).

Principal Investment Strategy - Investing in Domestic Equity Securities

The U.S. Equity Fund attempts to achieve its investment objective by investing
primarily in the equity securities (common, preferred and convertible
securities) of companies located in the United States. At least 65% of the
Fund's total assets are invested in the equity securities of companies organized
or primarily located in the United States. The Fund may also invest in the
equity securities of companies which are based outside of the United States if
their stock is traded on a U.S. stock exchange or through the National
Association of Securities Dealers Automated Quotation System ("NASDAQ"). The
U.S. Equity Fund may also invest in the equity securities of small companies.

In managing the Fund, the Fund's sub-adviser uses a proprietary model which
seeks to identify securities in the Russell 3000(R) Index which are trading at
attractive prices relative to underlying value. The Fund's sub-adviser employs
proprietary valuation measures to identify such securities. The Fund's portfolio
characteristics may differ somewhat from the Russell 3000(R) Index. The Russell
3000(R) Index is made up of 3,000 of the largest U.S. companies and represents
over 90% of the public U.S. equity market.

What are the Principal Risks of Investing in the U.S. Equity Fund?

As with any investment, an investment in the U.S. Equity Fund may cause you to
lose some or all of the money you invested. Because the securities in which the
U.S. Equity Fund invests may decrease in value, the net asset value of the U.S.
Equity Fund may decrease and the value of your investment may also decrease. On
the other hand you could experience an increase in the value of your investment
as the U.S. Equity Fund's net asset value increases. You should consider your
own investment goals, time horizon and risk tolerance before investing in the
U.S. Equity Fund.

o Common Stocks

The U.S. Equity Fund invests in the equity securities of companies,
which exposes the Fund and its shareholders to the risks associated with common
stock investing. These risks include the financial risk of selecting individual
companies that do not perform as anticipated, the risk that the stock markets in
which the Funds invest may experience periods of turbulence and instability, and
the general risk that domestic and global economies may go through periods of
decline and cyclical change. Many factors affect an individual company's
performance, such as the strength of its management or the demand for its
product or services.

o Small Capitalization Stocks

Although smaller companies may offer great investment value, they
present greater investment risks than investing in the securities of large
companies. These risks include greater price volatility, greater sensitivity to
changing economic conditions and less liquidity than the securities of larger,
more mature companies. Smaller companies can also have limited product lines,
markets or financial resources and may not have sufficient management strength.

Performance History

Since the Fund commenced operations in October, 1998, there are no performance
figures reflecting the Fund's performance for a full calendar year.

Shareholder Fees and Expenses

This table describes the fees and expenses that you may pay if you buy shares of
the U.S. Equity Fund.

- --------------------------------------------------------- ----------------------
Shareholder Fees (fees paid directly from your
investment)
- --------------------------------------------------------- ----------------------
- --------------------------------------------------------- ----------------------
Maximum Sales Charge (Load) on Purchases (as a % of NONE
your purchase price)1
- --------------------------------------------------------- ----------------------
- --------------------------------------------------------- ----------------------
Maximum Deferred Sales Charge (Load) NONE
- --------------------------------------------------------- ----------------------
- --------------------------------------------------------- ----------------------
Redemption Fee2 NONE
- --------------------------------------------------------- ----------------------
- --------------------------------------------------------- ----------------------
Transaction Fee3 0.25%
- --------------------------------------------------------- ----------------------
- --------------------------------------------------------- ----------------------
Exchange Fees NONE
- --------------------------------------------------------- ----------------------
- --------------------------------------------------------- ----------------------
Maximum Account Fee4 $10.00
- --------------------------------------------------------- ----------------------

- --------------------------------------------------------- ----------------------
Annual Fund Operating Expenses (expenses that are
deducted from Fund assets)5
- --------------------------------------------------------- ----------------------
- --------------------------------------------------------- ----------------------
Management Fee 0.63%
- --------------------------------------------------------- ----------------------
- --------------------------------------------------------- ----------------------
Distribution and Service (12b-1) Fee6 0.25%
- --------------------------------------------------------- ----------------------
- --------------------------------------------------------- ----------------------
Other Expenses 0.72%
- --------------------------------------------------------- ----------------------
- --------------------------------------------------------- ----------------------
Total Annual Fund Operating Expenses 1.60%
- --------------------------------------------------------- ----------------------
- --------------------------------------------------------- ----------------------
Fee Waiver7 0.20%
- --------------------------------------------------------- ----------------------
- --------------------------------------------------------- ----------------------
Net Expenses 1.40%
- --------------------------------------------------------- ----------------------

- ---------------

3 There is a 0.25% transaction fee based on the amount purchased. If you
maintain your account with us through a broker-dealer or other financial
institution, the fee may be charged only when you redeem shares and would
be based on the amount redeemed; all other investors pay the fee at the
time they purchase shares. This fee is applied directly against transaction
costs incurred by the Fund. It is not applied to reinvested dividends or
capital gains distributions.

5 These expenses are paid directly out of the Fund's assets. Expenses are
factored into the share price or dividends and are not charged directly to
shareholder accounts.

7 The Fund's Investment Adviser has contractually agreed to waive a portion
of its fees for the Fund for its current fiscal year.

Example

This example is intended to help you compare the costs of investing in the U.S.
Equity Fund with the costs of investing in other mutual funds.

The Example assumes that you invest $10,000 in the U.S. Equity Fund for the
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Fund's total annual Fund operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:

U.S. Equity
Fund+
-------
1 Year........................ $168
3 Years....................... $510
5 Years....................... $877
10 Years...................... $1,908

You would pay the following expenses if you did not redeem your shares:

U.S. Equity
Fund+
-------
1 Year........................ $143
3 Years....................... $485
5 Years....................... $852
10 Years...................... $1,883

- ----------

+The examples above include imposition of the transaction fee and incorporate
the contractual fee waiver in place for the Fund for its current fiscal year.

<PAGE>

ADDITIONAL INVESTMENT STRATEGIES AND RISKS

The following information applies to all of the Forward Funds:

o Defensive Positions; Cash Reserves

Under adverse market conditions or to meet anticipated redemption
requests, each Fund may deviate from its principal investment strategy and may
invest without limit in money market securities, U.S. government obligations and
short-term debt securities. This could have a negative effect on each Fund's
ability to achieve its investment objective.

o Portfolio Turnover

Although each of the Fund's investment advisers seeks to minimize the
frequency with which portfolio securities are bought and sold (known as
portfolio turnover) so as to avoid possible income tax consequences, portfolio
turnover will not be a limiting factor when the investment adviser believes
portfolio changes are appropriate. A higher turnover rate (100% or more) will
involve correspondingly greater transaction costs which will be borne directly
by a Fund, and may increase the potential for more taxable dividends and
distributions being paid to shareholders.

The Small Capitalization Equity Fund's portfolio turnover rate is
expected to be less than 200% under normal market conditions. Portfolio turnover
rates for the U.S. Equity, International Equity and Real Estate Investment Funds
should be less than 50%. Because the investment adviser for the Global Bond Fund
intends to increase its total return by its trading strategies in debt
securities its portfolio turnover rate may be as high as 700%. However, this
rate will not involve the brokerage commissions typically incurred by funds with
high portfolio turnover but will involve indirect costs of dealer spreads.
Portfolio turnover for the Global Asset Allocation Fund will be directly
affected by the portfolio turnover of the Funds it invests in. Portfolio
turnover for the Global Asset Allocation Fund was 154% as of December 31, 1998.

o Derivatives

Some of the instruments in which the Funds may invest may be referred
to as "derivatives," because their value "derives" from the value of an
underlying asset, reference rate or index. These instruments include options,
futures contracts, forward currency contracts, swap agreements and similar
instruments. There is limited consensus as to what constitutes a "derivative"
security. For our purposes, derivatives also include specially structured types
of mortgage- and asset-backed securities and dollar denominated securities whose
value is linked to foreign currencies. The market value of derivative
instruments and securities sometimes is more volatile than that of other
instruments, and each type of derivative instrument may have its own special
risks. The investment adviser and sub-advisers take these risks into account in
their management of the Funds.

Investing for hedging purposes may result in certain transaction costs
which may reduce a Fund's performance. In addition, no assurance can be given
that each derivative position will achieve a perfect correlation with the
security or currency that it is being hedged against.

o Illiquid Securities

A Fund may invest up to 15% of its net assets in illiquid securities.
Illiquid securities are securities which cannot be disposed of in the ordinary
course of business at the normal value of the securities.

o Debt Securities

Debt securities in which the Funds invest are subject to several types
of investment risk. They may have market or interest rate risk which means their
value will be affected by fluctuations in the prevailing interest rates. There
may be credit risk, a risk that the issuer may be unable to make timely interest
payments and repay the principal upon maturity. Call or income risk exists with
corporate bonds during periods of falling interest rates because of the
possibility that securities with high interest rates will be prepaid or "called"
by the issuer before they mature. The Fund would have to reinvest the proceeds
at a possibly lower interest rate. A Fund may also suffer from event risk which
is the possibility that corporate debt securities held by a Fund may suffer a
substantial decline in credit quality and market value if the issuer
restructures.

o Investment Grade Debt Securities and High Yield ("Junk") Bonds

Investment grade debt securities are securities rated at least Baa by
Moody's Investor Services, Inc. or BBB by Standard & Poor's Ratings Service
(nationally recognized statistical ratings organizations), or if unrated, are
determined to be of the same quality by the investment adviser. Generally, debt
securities in these categories should have adequate capacity to pay interest and
repay principal but their capacity is more likely than higher grade debt
securities to be weakened if there is a change in economic conditions or other
circumstances.

High yield ("junk") bonds are considered speculative with regard to the
issuer's capacity to pay interest and repay principal and may be in default.
Except for the Small Capitalization Equity Fund which does not expect to invest
more than 10% of its total assets in these types of securities and the Global
Bond Fund, which was discussed previously, the other Funds do not anticipate
investing more than 5% of their total assets in these types of securities.

o When-Issued and Delayed-Delivery Transactions

The Funds may purchase securities on a when-issued and delayed-delivery
basis. When a Fund agrees to purchase securities, the Custodian will set aside
cash or liquid securities equal to the amount of the commitment in a segregated
account to cover its obligation. Securities purchased on a when-issued basis are
recorded as an asset and are subject to changes in value based upon changes in
the general level of interest rates. In when-issued and delayed-delivery
transactions, a Fund relies on the seller to complete the transaction; the
seller's failure to do so may cause the Fund to miss an advantageous price or
yield. A Fund may, however, sell a when-issued security prior to the settlement
date.

o Year 2000 Issues

The Funds' business operations depend on a worldwide network of
computer systems that contain date fields, including securities trading systems,
securities transfer agent operations and stock market links. Many of the systems
currently use a two digit date field to represent the date, and unless these
systems are changed or modified, they may not be able to distinguish the Year
1900 from the Year 2000 (commonly referred to as the Year 2000 problem). In
addition, the fact that the Year 2000 is a non-standard leap year may create
difficulties for some systems.

While Year 2000 related computer problems could have a negative effect
on the Funds, the Funds' investment adviser is working to avoid any problems
associated with Year 2000 issues and to obtain assurances from service providers
that they are taking similar steps. However, the Funds could be adversely
affected if the computer systems used by the Funds' investment adviser and
sub-advisers and other service providers do not properly process and calculate
date-related information from and after January 1, 2000.

Similarly, the companies in which the Funds invest and trading systems
used by the Funds could be adversely affected by this issue. The ability of a
company or trading system to respond successfully to the issue requires both
technological sophistication and diligence, and there can be no assurance that
any steps taken will be sufficient to avoid an adverse impact on the Funds.

o Euro-Conversion Risk

On January 1, 1999, eleven European countries began conversion to a
common currency. Investments traded in the markets in these countries are now
denominated in the new currency, referred to as the "Euro." Conversion to the
Euro may present certain risks to investments of the International Equity and
Global Bond Funds in particular, as well as the Small Capitalization Equity
Fund.

o Certain Other Strategies

All of the Funds may directly or, in the case of the Global Asset
Allocation Fund, indirectly, purchase particular types of debt and equity
securities, such as corporate debt securities, convertible securities,
depositary receipts, loan participations and assignments, mortgage and other
asset-backed securities, certificates of deposit and time deposits and
commercial paper. Each of the Funds may enter into repurchase and reverse
repurchase agreements and dollar roll agreements, when-issued and delayed
delivery transactions; and may purchase illiquid securities. These Funds may
also lend their portfolio securities. From time to time, particular funds may
purchase these securities or enter into these strategies to an extent that is
more than incidental. Please review the Statement of Additional Information if
you wish to know more about these types of securities and their associated
risks.

MANAGEMENT OF THE FUNDS

Investment Adviser and Sub-Advisers

Investment Adviser

Webster Investment Management Company LLC ("Webster") serves as investment
adviser to each Fund. Webster is a registered investment adviser that supervises
the activities of each sub-adviser and has the authority to engage the services
of different sub-advisers with the approval of the Directors of each of the
respective Funds. Webster is located at 433 California Street, Suite 1010, San
Francisco, California, 94104.

Webster has the authority to manage the Funds and, in accordance with the
investment objective, policies and restrictions of the Funds subject to general
supervision of the Company's Board of Directors, but has delegated this
authority to sub-advisers for all of the Funds, other than the Global Asset
Allocation Fund. It also provides the Funds with ongoing management supervision
and policy direction. Shareholders of the Funds have approved a proposal which
would permit Webster to hire and terminate sub-advisers without shareholder
approval and Webster is seeking authority to do so from the Securities and
Exchange Commission. Webster has managed the Funds since September, 1998 and the
Funds are its principal investment advisory clients. Daily investment decisions
are made by the Sub-Adviser to each Fund, whose investment experience is
described below.

Each Fund pays an investment advisory fee, which is computed daily and paid
monthly, at the following annual rates based on the average daily net asset
value of the respective funds: Equity Fund, 0.625% for the first $100 million of
assets under management; 0.55% for the next $400 million of assets under
management; 0.50% on assets over $500 million; International Equity Fund, 0.95%
for the first $25 million of assets under management; 0.80% for the next $25
million of assets under management; 0.75% for the next $50 million of assets
under management; 0.65% for the next $150 million of assets under management;
0.60% for the next $250 million of assets under management; and 0.55% on assets
over $500 million; Global Bond Fund, 0.60% for the first $200 million of assets
under management and 0.55% on assets over $200 million; Small Cap Fund, 1.05% of
average daily net assets; Real Estate Investment Fund, 1.00% for the first $100
million of assets under management; 0.85% for the next $400 million of assets
under management; and 0.70% on assets over $500 million; Global Asset Allocation
Fund, 0.05% of average daily net assets. The Global Asset Allocation Fund will,
additionally, indirectly bear a share of the investment advisory fees and other
expenses paid by each fund in which it invests proportionate to its investment
in that fund. The Funds pay these advisory fees to Webster which in turn pays
each Sub-Adviser their sub-advisory fee.

Previous to September, 1998 the Global Asset Allocation Fund was known as the
Global Fund. Investment advisory services were provided by Barclays Global Fund
Advisors, Templeton Investment Counsel, Inc. and Pacific Investment Management
Company. The Global Asset Allocation Fund and its predecessor, the Global Fund,
paid advisory fees to Webster and its previous investment advisers totaling
$379,146 from April 1, 1998 though December 31, 1998. Since none of the Funds
have operated for a full fiscal year, there are no aggregate advisory fee totals
at this time. A committee of principal executives of Webster who are investment
professionals makes investment decisions for Webster but Webster may obtain
advice from outside consultants.

Sub-Advisers

A sub-adviser manages the investments of each Fund other than the Global Asset
Allocation Fund. The sub-advisers manage the Funds and make decisions with
respect to, and place orders for, all purchases and sales of the Funds'
securities, subject to the general supervision of Forward Funds, Inc.'s Board of
Directors and in accordance with the investment objective, policies and
restrictions of the Funds.

The Global Bond Fund -

Pacific Investment Management Company ("PIMCO") serves as sub-adviser for the
Global Bond Fund. PIMCO is an investment counseling firm founded in 1971 to
offer separate account management services primarily for employee benefit plans,
endowments and foundations, and had approximately $165 billion in assets under
management as of March 31, 1999. PIMCO's principal business address is 840
Newport Center Driver, Newport Beach, California 92660.

Lee R. Thomas, III, Managing Director and Senior International Portfolio
Manager, is the Global Bond Fund's portfolio manager on behalf of PIMCO. 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 (from April 1989
to March 1995). Prior to Investcorp, he was associated with Goldman Sachs as an
Executive Director in foreign fixed income.

The International Equity Fund -

Templeton Investment Counsel, Inc. ("Templeton") acts as sub-adviser for the
International Equity Fund. Templeton and its affiliates serve as advisers for a
wide variety of public investment mutual funds and private clients in many
nations and as of March 31, 1999, provided investment advisory services for over
$216 billion in assets. The Templeton organization has been investing globally
since 1940. Templeton's principal business address is 500 East Broward
Boulevard, Suite 2100, Fort Lauderdale, Florida 33394.

Peter A. Nori, CFA, manages the International Equity Fund's investments in
non-U.S. equity securities on behalf of Templeton. He has acted as portfolio
manager for this fund since it commenced operations. Mr. Nori is Senior Vice
President and a Portfolio Manager and analyst for Templeton. His current
responsibilities include covering 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). Mr. Nori joined Franklin Advisers, Inc. and
Franklin/Templeton Distributors, Inc. as a shareholder services representative
in 1987 and joined the Franklin Management Trainee program in 1988. Franklin
Advisers, Inc. and Franklin\Templeton Distributors, Inc. are affiliates of
Templeton.

The Real Estate Investment Fund -

Uniplan, Inc. ("Uniplan") serves as sub-adviser for the Real Estate Investment
Fund. Uniplan is located at 839 N. Jefferson Street, Milwaukee, Wisconsin 53202.
Uniplan also provides investment advice to other mutual funds and individual and
institutional clients with substantial investment portfolios. As of March 31,
1999 Uniplan and its affiliates managed approximately $246 million in assets.
Uniplan has been in the business of providing investment advisory services for
over 15 years. Mr. Richard Imperiale is the Portfolio Manager for the Real
Estate Investment Fund. He has been President of Uniplan since its inception.
Mr. Imperiale holds a B.S. in finance from Marquette University Business School
and has completed a postgraduate lecture series in corporate finance from the
University of Chicago.

The Small Capitalization Equity Fund -

Hoover Capital Management, LLC ("Hoover") serves as sub-adviser for the Small
Capitalization Equity Fund. Hoover is located at 655 Montgomery Street, Suite
800, San Francisco, California 94111. As of March 31, 1999, Hoover managed more
than $120 million in the small-capitalization sector for institutional and
individual investors. Hoover was founded in 1998 by Irene G. Hoover, the Fund's
portfolio manager. Ms. Hoover is the Managing Partner of Hoover. Ms. Hoover has
approximately 20 years of investment management experience.

Prior to forming Hoover, she was Director of Research and a member of the
three-person investment committee, with more than $5 billion under management,
at Jurika and Voyles, Inc., an investment management firm in Oakland,
California. She was employed at that firm from 1991-1997. Ms. Hoover is a
Chartered Financial Analyst; she holds a B.A. from Stanford University and an
M.A. from Northwestern University.

The U.S. Equity Fund -

Barclays Global Fund Advisors ("BGI") serves as sub-adviser for the U.S. Equity
Fund. BGI is located at 45 Fremont Street, San Francisco, California 94105. As
of December 31, 1998, BGI provided investment advisory services for
approximately $615 billion in assets. An investment committee of BGI's
investment professionals makes investment decisions for the U.S. Equity Fund. No
single individual serves as portfolio manager.

Uniplan, Inc. Performance History

Presented below are the performance results up to March 31, 1999 for Uniplan,
Inc., the sub-adviser to the Real Estate Investment Fund, in managing accounts
for private clients and/or other mutual funds with substantially similar
investment objectives, policies and strategies. The results are not the
performance record of the Real Estate Investment Fund which only recently
commenced operations. Performance results indicated below are not, and should
not be interpreted as, indicative of future results.

UNIPLAN INC. - REIT PORTFOLIO
Return since Uniplan Inception (1/89): 14.52% (annualized) 10 Year Return
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>

- ---- --------------------------------------------------------------------------------------------------------------------------
Rolling Compounded Annualized Returns
Quarter 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year
- ----
- ---- ----------- ----------- ----------- ----------- ----------- ------------ ----------- ----------- ------------- -----------
1989
1 3.03%
2 6.44%
3 4.39%
4 -1.51% 12.75%

- ---- ----------- ----------- ----------- ----------- ----------- ------------ ----------- ----------- ------------- -----------
- ---- ----------- ----------- ----------- ----------- ----------- ------------ ----------- ----------- ------------- -----------
1993
1 26.38% 44.44% 27.92% 23.10% 18.87%
2 -1.55% 38.10% 26.25% 22.89% 16.57%
3 10.02% 42.49% 29.32% 31.17% 18.11%
4 -4.21% 31.13% 23.05% 28.07% 17.29% 16.37%

- ---- ----------- ----------- ----------- ----------- ----------- ------------ ----------- ----------- ------------- -----------
- ---- ----------- ----------- ----------- ----------- ----------- ------------ ----------- ----------- ------------- -----------
1994
1 3.26% 7.14% 24.40% 20.58% 18.90% 16.42%
2 2.02% 11.02% 23.82% 20.96% 19.81% 15.44%
3 -1.38% -0.48% 19.08% 18.51% 22.42% 14.13%
4 -0.06% 3.83% 16.68% 16.26% 21.52% 14.47% 14.18%

- ---- ----------- ----------- ----------- ----------- ----------- ------------ ----------- ----------- ------------- -----------
- ---- ----------- ----------- ----------- ----------- ----------- ------------ ----------- ----------- ------------- -----------
1995
1 -0.45% 0.10% 3.56% 15.70% 15.10% 14.88% 13.53%
2 6.21% 4.21% 7.56% 16.91% 16.53% 16.51% 13.49%
3 5.13% 11.09% 5.14% 16.35% 16.61% 20.06% 13.62%
4 3.98% 15.58% 9.55% 16.31% 16.10% 20.31% 14.65% 14.38%

- ---- ----------- ----------- ----------- ----------- ----------- ------------ ----------- ----------- ------------- -----------
- ---- ----------- ----------- ----------- ----------- ----------- ------------ ----------- ----------- ------------- -----------
1996
1 3.21% 19.83% 9.52% 8.72% 16.72% 16.03% 15.69% 14.41%
2 5.08% 18.55% 11.15% 11.11% 17.32% 16.93% 16.85% 14.20%
3 10.10% 24.16% 17.44% 11.14% 18.26% 18.08% 20.74% 15.07%
4 15.10% 37.44% 26.04% 18.15% 21.27% 20.09% 23.01% 17.66% 17.04%

- ---- ----------- ----------- ----------- ----------- ----------- ------------ ----------- ----------- ------------- -----------
- ---- ----------- ----------- ----------- ----------- ----------- ------------ ----------- ----------- ------------- -----------
1997
1 0.80% 34.23% 26.82% 17.20% 14.60% 20.03% 18.88% 18.17% 16.72%
2 5.10% 34.25% 26.16% 18.37% 16.49% 20.52% 19.66% 19.19% 16.53%
3 12.40% 37.06% 30.45% 23.65% 17.12% 21.80% 21.05% 22.94% 17.61%
4 3.50% 23.25% 30.15% 25.10% 19.40% 21.66% 20.61% 23.04% 18.34% 17.71%

- ---- ----------- ----------- ----------- ----------- ----------- ------------ ----------- ----------- ------------- -----------
- ---- ----------- ----------- ----------- ----------- ----------- ------------ ----------- ----------- ------------- -----------
1998
1 -0.27% 21.94% 27.93% 25.17% 18.37% 16.03% 20.35% 19.31% 18.64% 17.28%
2 -4.30% 11.03% 22.09% 20.90% 16.49% 15.38% 18.89% 18.39% 18.14% 15.91%
3 -5.80% -6.95% 12.93% 16.56% 15.17% 11.85% 16.46% 16.59% 18.74% 14.59%
4 -0.56% -10.60% 4.97% 14.84% 15.02% 12.69% 15.57% 15.56% 18.23% 14.71%

- ---- ----------- ----------- ----------- ----------- ----------- ------------ ----------- ----------- ------------- -----------
- ---- ----------- ----------- ----------- ----------- ----------- ------------ ----------- ----------- ------------- -----------
1999
1 -4.24% -14.16% 2.31% 12.00% 13.91% 11.00% 10.35% 14.68% 14.50% 14.45%
- ---- ----------- ----------- ----------- ----------- ----------- ------------ ----------- ----------- ------------- -----------
- ---- ----------- ----------- ----------- ----------- ----------- ------------ ----------- ----------- ------------- -----------

1 Year 3 Year 5 Year 7 Year 9 Year
Standard Deviation 16.13% 5.59% 3.05% 2.88% 1.31%

NAREIT EQUITY INDEX*
Return Since (1/89): 10.61% (annualized) 10 Year Return

- ---- --------------------------------------------------------------------------------------------------------------------------
Rolling Compounded Annualized Returns
Quarter 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year
- ---- --------------------------------------------------------------------------------------------------------------------------
- ---- ----------- ----------- ----------- ----------- ----------- ------------ ----------- ----------- ------------- -----------
1989
1 2.38%
2 5.80%
3 3.67%
4 -3.08% 8.83%

- ---- ----------- ----------- ----------- ----------- ----------- ------------ ----------- ----------- ------------- -----------
- ---- ----------- ----------- ----------- ----------- ----------- ------------ ----------- ----------- ------------- -----------
1993
1 21.94% 38.82% 24.29% 18.63% 14.29%
2 -2.87% 31.36% 22.02% 17.53% 11.87%
3 9.35% 34.47% 25.06% 27.60% 13.37%
4 -7.38% 19.96% 17.24% 23.10% 12.09% 11.44%

- ---- ----------- ----------- ----------- ----------- ----------- ------------ ----------- ----------- ------------- -----------
- ---- ----------- ----------- ----------- ----------- ----------- ------------ ----------- ----------- ------------- -----------
1994
1 3.40% 1.72% 18.83% 16.26% 14.16% 11.66%
2 1.84% 6.65% 18.36% 16.66% 14.71% 10.81%
3 -2.04% -4.46% 13.35% 14.33% 18.70% 9.56%
4 0.02% 3.18% 11.25% 12.35% 17.78% 10.25% 10.01%

- ---- ----------- ----------- ----------- ----------- ----------- ------------ ----------- ----------- ------------- -----------
- ---- ----------- ----------- ----------- ----------- ----------- ------------ ----------- ----------- ------------- -----------
1995
1 -0.17% -0.39% 0.66% 12.04% 11.85% 11.09% 9.55%
2 5.88% 3.56% 5.10% 13.21% 13.24% 12.39% 9.57%
3 4.71% 10.70% 2.84% 12.46% 13.41% 17.05% 9.75%
4 4.14% 15.26% 9.05% 12.57% 13.07% 17.27% 11.07% 10.75%

- ---- ----------- ----------- ----------- ----------- ----------- ------------ ----------- ----------- ------------- -----------
- ---- ----------- ----------- ----------- ----------- ----------- ------------ ----------- ----------- ------------- -----------
1996
1 2.27% 18.08% 8.45% 6.16% 13.52% 13.07% 12.22% 10.73%
2 4.45% 16.48% 9.83% 8.76% 14.02% 13.88% 13.06% 10.53%
3 6.54% 18.52% 14.54% 7.82% 13.94% 14.41% 17.30% 10.96%
4 18.85% 35.26% 24.86% 17.17% 17.86% 17.20% 20.10% 14.24% 13.55%

- ---- ----------- ----------- ----------- ----------- ----------- ------------ ----------- ----------- ------------- -----------
- ---- ----------- ----------- ----------- ----------- ----------- ------------ ----------- ----------- ------------- -----------
1997
1 0.70% 33.18% 25.40% 16.14% 12.35% 17.21% 16.20% 15.00% 13.32%
2 4.97% 33.85% 24.86% 17.32% 14.55% 17.73% 16.99% 15.82% 13.21%
3 11.82% 40.48% 29.03% 22.61% 15.20% 18.82% 18.40% 20.36% 14.28%
4 1.75% 20.27% 27.54% 23.31% 17.94% 18.34% 17.70% 20.12% 14.98% 14.28%

- ---- ----------- ----------- ----------- ----------- ----------- ------------ ----------- ----------- ------------- -----------
- ---- ----------- ----------- ----------- ----------- ----------- ------------ ----------- ----------- ------------- -----------
1998
1 -0.47% 18.87% 25.82% 23.19% 16.82% 13.63% 17.48% 16.58% 15.48% 13.92%
2 -4.59% 8.04% 20.26% 18.98% 14.93% 13.22% 16.06% 15.67% 14.82% 12.62%
3 -10.52% -13.54% 10.21% 12.91% 12.35% 8.77% 12.68% 13.20% 15.48% 10.79%
4 -2.92% -17.51% -0.40% 10.30% 11.52% 9.80% 11.43% 11.88% 14.61% 10.81%

- ---- ----------- ----------- ----------- ----------- ----------- ------------ ----------- ----------- ------------- -----------
- ---- ----------- ----------- ----------- ----------- ----------- ------------ ----------- ----------- ------------- -----------
1999
1 -5.59% -21.75% -3.56% 7.40% 9.97% 7.82% 6.78% 10.86% 10.91% 10.59%
- ---- ----------- ----------- ----------- ----------- ----------- ------------ ----------- ----------- ------------- -----------
- ---- ----------- ----------- ----------- ----------- ----------- ------------ ----------- ----------- ------------- -----------

1 Year 3 Year 5 Year 7 Year 9 Year
Standard Deviation 16.82% 5.84% 3.31% 3.27% 1.52%
<FN>

- ------------------

* The NAREIT Equity Index is comprised of all the publicly-traded equity
real estate investment trusts listed on the New York Stock Exchange,
the American Stock Exchange, and the National Association of Securities
Dealers, Inc. and is prepared by the National Association of Real
Estate Investment Trusts.
</FN>
</TABLE>

Except as otherwise provided herein, the performance records regarding similar
private accounts presented above have been prepared in compliance with the
Performance Presentation Standards of the Association for Investment Management
and Research ("AIMR") and have been provided to Forward Funds, Inc. by Uniplan,
Inc. Forward Funds, Inc. has not independently audited or verified the results.
The results are for all private accounts and/or mutual funds managed with
substantially similar investment objectives, policies and strategies. 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.

VALUATION OF SHARES

The price you pay for a share of a Fund, and the price you receive upon selling
or redeeming a share of a Fund, is called the Fund's net asset value or NAV. The
net asset value of each Fund is usually 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. 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 a Fund's portfolio securities to materially affect the Fund's
net asset value or days on which no shares are tendered for redemption and no
order to purchase any shares is received. Currently, the NYSE and/or the FRB are
closed on the following holidays: New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. To the extent that a Fund holds securities
listed primarily on a foreign exchange that trades on days when the Fund is not
open for business or the NYSE is not open for trading, the value of your shares
may change on days that you cannot buy or sell shares.

The net asset value per share of each Fund fluctuates as the market value of
that Fund's investments changes. Net asset value is calculated by taking the
total value of a Fund's assets, subtracting its liabilities, and then dividing
by the number of shares that have already been issued. A Fund's assets are
valued generally by using available market quotations or at fair value as
determined in good faith by the Board of Directors.

PURCHASING SHARES

How to Buy Shares

Investor Shares
Purchase Choices:

Through your financial adviser
Through our Distributor, First Data Distributors, Inc.
By Internet, Mail, Telephone or Wire

Individual investors can choose from the following methods to purchase shares of
a Fund. Individual investors can purchase shares through a broker-dealer who has
established a dealer or other appropriate agreement with the Distributor or the
Funds, or through the Distributor directly. In addition, shares of the Funds can
be purchased at any time via the Internet, mail, telephone, or wire. There are
no initial sales loads for shares of the Funds. There is a 0.25% transaction fee
based on the amount purchased. All investors except those whose accounts are
held through a broker or financial institution pay the fee at the time of
purchase. These other investors may be charged when they redeem their shares.
The Fund charges the 0.25% transaction fee to shareholders so that other
shareholders do not indirectly pay for purchases or redemptions that do not
relate to their shares. Forward Funds, Inc. reserves the right to add a similar
purchase or redemption fee in the future on all transactions if we think it is
necessary to protect the Funds' long-term investors.

Minimum Initial Investment Amount:

$2,500 for non-retirement accounts
$250 for retirement accounts

Subsequent investments for all Funds and classes require a minimum of $250.
Broker-dealers may charge their customers a transaction or service fee.

Institutional Shares: Offered to certain investors of the Small
Capitalization Equity Fund

Certain financial institutions, pension or 401(k) plans, or investment advisers
or individuals purchasing more than $250,000 worth of shares of the Small
Capitalization Equity Fund may elect to purchase Institutional Class Shares.
Under a shareholder services plan for Institutional Class shares, the Small
Capitalization Equity Fund may pay an authorized firm up to 0.35% of average
daily net assets attributable to its customers who are Institutional Class
shareholders. For this fee, the authorized firms provide various recordkeeping
or administrative services and/or shareholder service assistance. Holders of
Institutional Class shares pay all fees and expenses attributable to those
shares. The authorized firms may charge extra for services other than those
provided under the shareholder services plan and should furnish clients who own
Institutional Class shares with a schedule explaining the fees.

About Your Purchase:

When you purchase shares, you will pay the net asset value that is next
calculated after we receive your order. If you place an order for the purchase
of shares through a broker-dealer, the sale price will be the net asset value as
so determined, but only if the dealer receives the order and transmits it to
Forward Funds, Inc. The broker-dealer is responsible for transmitting such
orders promptly. If the broker-dealer fails to transmit your order before the
daily pricing time, your right to that day's closing price must be settled
between the broker-dealer and you. Purchases of shares of a Fund will be
effected only on a Business Day. An order received prior to the daily pricing
time on any Business Day is processed at that day's NAV. An order received after
the pricing time on any Business Day is processed at the net asset value
determined as of the pricing time on the next Business Day of the Funds.

Depending upon the terms of your account, you may pay account fees for services
provided in connection with your investment in a Fund. Forward Funds, Inc.,
First Data Distributors, Inc. or your dealer can provide you with information
about these services and charges. You should read this Prospectus in conjunction
with any such information you receive.

To open an account you can mail a check or other negotiable bank draft in the
minimum amounts described above (payable to the particular Fund) 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. Call 1-800-999-6809 for an Account Application Form. A completed
investment application must indicate a valid taxpayer identification number and
must be certified as your taxpayer identification number. You may be subject to
penalties if you falsify information with respect to your taxpayer
identification numbers.

The issuance of shares is recorded on the books of the Fund electronically. You
will receive a confirmation of, or account statement reflecting, each new
transaction in your account, which will also show the total number of shares of
the Fund you own. You can rely on these statements in lieu of certificates.
Certificates representing shares of the Funds will not be issued.

Forward Funds, Inc. reserves the right to refuse any request to purchase shares
of its Funds.

EXCHANGE PRIVILEGE

You can exchange your shares of any Fund for shares of any other Fund or with a
money market fund, the Vista U.S. Government Money Market Fund, a portfolio of
Mutual Fund Trust, for which The Chase Manhattan Bank acts as investment
adviser. The Institutional Class of shares are not exchangeable. There are no
fees for exchanges. However, transaction fees will be applied to any exchanges
made above the annual limit of two round trips. You may also pay a transaction
fee if you initially purchased shares of the money market fund and exchange them
for shares of a Fund. Before you decide to exchange shares, you should read
prospectus information about the Fund or money market fund involved in your
exchange. You can send a written instruction specifying your exchange or, if you
have authorized telephone exchanges previously and we have a record of your
authorization, you can call the Transfer Agent at 1-800-999-6809 to execute your
exchange. 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. Once your
exchange is received in proper form, it cannot be revoked. This exchange
privilege is available only in U.S. states where shares of the Funds being
acquired may legally be sold and may be modified, limited or terminated at any
time by a fund upon 60 days' written notice.

You should not view the exchange privilege as a means for market timing (taking
advantage of short-term swings in the market), and we limit the number of
exchanges you may make to four exchanges per account (or two rounds trips) per
calendar year without a transaction fee. Forward Funds, Inc. also reserves the
right to prohibit exchanges during the first 15 days following an investment in
a Fund. Forward Funds, Inc. may terminate or change the terms of the exchange
privilege at any time. In general, you 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

You may redeem your shares on any business day. Redemptions are priced at the
net asset value per share next determined after receipt of a redemption request
by the Distributor or Forward Funds, Inc. or its agents. Redemptions may be made
by check, wire transfer, telephone, mail or through the Internet. Forward Funds,
Inc. intends to pay cash for all shares redeemed, but in unusual circumstances
may make payment wholly or partly in portfolio securities at a market value
equal to the redemption price. In such cases, you may incur brokerage costs in
converting the portfolio securities to cash. Broker-dealers may charge their
customers a transaction or service fee.

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, your 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. These signature
guarantees are not 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

You can arrange for the proceeds of redemption to be sent by federal wire
transfer to a single previously designated bank account if you have given
authorization for expedited wire redemption on your Account Application Form. If
a request for expedited wire redemption is received by Forward Funds, Inc. prior
to the close of the New York Stock Exchange the shares will be redeemed that day
at the next determined net asset value and the proceeds will generally be sent
to the designated bank account the next 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 Forward Funds, Inc. 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, Forward Funds, Inc. will
honor requests by any person identifying himself or herself as the owner of an
account or the owner's broker by telephone at 1-800-999-6809 or by written
instructions. Forward Funds, Inc. cannot be responsible for the efficiency of
the Federal Reserve wire system or the shareholder's bank. You are responsible
for any charges imposed by your bank. The minimum amount that may be wired is
$2,500. Forward Funds, Inc. 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 the 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 First Data
Investor Services Group, Inc., 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 Funds and the
fee is specified for each Fund in the Expense Table.

By Telephone

You may redeem your shares by telephone if you choose that option on your
Account Application Form. If you did not originally select the telephone option,
you must provide written instructions to Forward Funds, Inc. to add it. You may
have the proceeds mailed to your 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.

Forward Funds, Inc.'s Account Application Form provides that none of Webster,
the Transfer Agent, the Sub-Advisers, Forward Funds, Inc. 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, you bear the risk of any loss as the result of unauthorized
telephone redemptions or exchanges believed by the Funds' administrator, First
Data Investor Services Group, Inc., to be genuine. Forward Funds, Inc. 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 you are unable to contact the Funds by telephone, you may also mail
the redemption request to Forward Funds, Inc.

By Mail

To redeem by mail, you must send a written request for redemption to the
Transfer Agent. 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. You 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, you must send a written request to the Transfer Agent. In connection
with that request, the Transfer Agent will require a signature guarantee by an
eligible guarantor institution.

For purposes of this policy, the term "eligible guarantor institution" includes
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.

Payments to Shareholders

Redemption orders are valued at the net asset value per share next determined
after the shares are properly tendered for redemption, as described above.
Payment for shares redeemed generally will be made within seven days after
receipt of a valid request for redemption.

At various times, Forward Funds, Inc. may be requested to redeem shares for
which it has not yet received good payment. If this is the case, the forwarding
of proceeds may be delayed until payment has been collected for the purchase of
the shares. The delay may last 10 business days or more. The Funds intend to
forward the redemption proceeds as soon as good payment for purchase orders has
been received. This delay may be avoided if shares are purchased by wire
transfer of federal funds. Forward Funds, Inc. intends to pay cash for all
shares redeemed, but under abnormal conditions which make payment in cash
unwise, payment for certain large redemptions may be made wholly or partly in
portfolio securities which have a market value equal to the redemption price.
You may incur brokerage costs in converting the portfolio securities to cash.

INTERNET TRANSACTIONS

You may purchase and redeem shares of the Funds through the Internet. Please
note that to purchase Fund shares you must be an existing shareholder of a Fund.
You may not open an account with the Fund via the Internet. To effect
transactions in Fund shares via the Internet, you must first contact Forward
Funds, Inc. at 1-800-999-6809 to obtain a password and a Personal Identification
Number ("PIN"). Second, visit the Forward Funds, Inc. web site
(http://www.forwardfunds.com) and follow the directions specified on the web
site for transactions in Fund shares. Note that general information about
Forward Funds, Inc. and specific information about your accounts is also
available on the web site.

DISTRIBUTION AND SHAREHOLDER SERVICE PLANS

Forward Funds, Inc. has adopted a distribution plan under Rule 12b-1 (the
"Plan") which allows each Fund to pay for the sale and distribution of its
shares at an annual rate of up to 0.25% of the Fund's average daily net assets.
Each Fund may make payments under the Plan for the purpose of financing any
activity primarily intended to result in the sale of its shares. In addition,
payments under the Plan may be made to banks and their affiliates and other
institutions, including broker-dealers, for the provision of administrative
and/or shareholder services. Because these fees are paid out of each Fund's
assets on an on-going basis, over time these fees will increase the cost of an
investment in a Fund and may cost more than other types of sales charges.
Shareholders owning Institutional Class shares of the Small Capitalization
Equity Fund will not be subject to the Plan or any 12b-1 fees.

Forward Funds, Inc. has adopted a Shareholder Service Plan with respect to the
shares of each Fund. Under the Shareholder Service Plan, each Fund is authorized
to pay third party service providers for certain expenses incurred in connection
with providing services to shareholders. Payments under the Plan are calculated
daily and paid monthly at an annual rate not to exceed 0.10% of the average
daily net assets of a Fund. Institutional Class shares of the Small
Capitalization Equity Fund are subject to a shareholder service plan fee of up
to 0.35% of average daily net assets.

These Plans may be terminated by a vote of a majority of the Directors who are
not "interested persons" (as defined in the 1940 Act) of Forward Funds, Inc. and
who have no direct or indirect financial interest in the operation of the Plans
or in any agreements related to the Plans, or by a vote of a majority of the
shares subject to the Plans.

DIVIDENDS AND TAXES

The U.S. Equity, Small Capitalization Equity, International Equity and Global
Asset Allocation Funds expect to pay dividends of net investment income and to
distribute capital gains annually. The Real Estate Investment Fund expects to
declare and pay income dividends quarterly and to distribute capital gains
annually. The Global Bond Fund expects to declare and pay dividends
semi-annually and to distribute capital gains annually. A shareholder will
automatically receive all income, dividends and capital gains distributions in
additional full and fractional shares at net asset value as of the date of
declaration, unless the shareholder elects to receive dividends or distributions
in cash. To elect to receive your dividends in cash or to revoke your election,
write to the Transfer Agent at First Data Investor Services Group, Inc., P.O.
Box 5184, Westborough, Massachusetts 01581-5184.

Federal Taxes

The following information is meant as a generally summary for U.S. shareholders.
Please see the Statement of Additional Information for additional information.
You should rely on your own tax adviser for advice about the particular federal,
state and local tax consequences to you of investing in a Fund.

Each Fund will distribute most of its net investment income and net capital
gains to its shareholders each year. Although the Funds will not be taxed on
amounts they distribute, most shareholders will be taxed on amounts they
receive.

A particular distribution generally will be taxable as either ordinary income or
long-term capital gains. The tax status of a particular distribution will be the
same for all of a Fund's shareholders. It does not matter how long you have held
your Fund shares or whether you elect to receive your distributions in cash or
reinvest them in additional Fund shares. For example, if a fund designates a
particular distribution as a long-term capital gains distribution, it will be
taxable to you at your long-term capital gains rate.

Dividends declared by a Fund in October, November or December and paid during
the following January may be treated as having been received by shareholders in
the year the distributions were declared.

If you invest through a tax-deferred account, such as a retirement plan, you
generally will not have to pay tax on dividends until they are distributed from
the account. These accounts are subject to complex tax rules, and you should
your tax adviser about investment through a tax-deferred account.

There may be tax consequences to you if you sell or redeem Fund shares. You will
generally have a capital gain or loss, which will be long-term or short-term,
generally depending on how long you hold those shares. If you exchange shares,
you may be treated as if you sold them.

Each year, the Funds will send shareholders tax reports detailing the tax status
of any distributions for that year.

As with all mutual funds, a Fund may be required to withhold U.S. federal income
tax at the rate of 31% of all taxable distributions payable to you if you fail
to provide the Fund with your correct taxpayer identification number or to make
required certifications, or if you have been notified by the IRS that you are
subject to backup withholding. Backup withholding is not an additional tax;
rather, it is a way in which the IRS ensures it will collect taxes otherwise
due. Any amounts withheld may be credited against your U.S. federal income tax
liability.

GENERAL INFORMATION

Shareholder Communications

You may obtain current price, yield and other performance information on any of
the Funds 9:00 a.m. to 5:00 p.m. Eastern Standard time by calling 1-800-999-6809
from any touch-tone telephone. You can request shareholder reports that contain
performance information. These are available free of charge.

Our shareholders receive unaudited semi-annual reports and annual reports
audited by independent public accountants. If you have any questions about
Forward Funds, Inc. write to Investor Services Group, P.O. Box 5184,
Westborough, Massachusetts 01581-5184, or call toll free at 1-800-999-6809.

You should rely only on the information provided in this Prospectus and the
Statement of Additional Information concerning the offering of the Funds'
shares. We have not authorized anyone to give any information that is not
already contained in this Prospectus. Shares of the Funds are offered only where
the sale is legal.

FINANCIAL HIGHLIGHTS

The financial highlights table is intended to help you understand the Funds'
financial performance and other financial information since inception. Certain
information reflects financial results for a single Fund share. "Total return"
shows how much an investment in each Fund increased from the date of inception
for the Funds, through December 31, 1998, assuming reinvestment of all dividends
and distributions. This information has been audited by Arthur Andersen LLP,
Forward Funds, Inc.'s independent auditors. The Funds' financial statements are
incorporated by reference from the Funds' annual report which was filed with the
Securities and Exchange Commission on March 10, 1999.

<PAGE>

Period Ended December 31, 1998

FINANCIAL HIGHLIGHTS
For a Fund Share Outstanding Throughout the Period.
<S> <C> <C> <C> <C> <C>

Small
U.S. Global Asset International Capitalization
Equity Allocation Global Bond Equity Equity
Fund(1) Fund(2) Fund (1) Fund (1) Fund (1)
- ------------------------------------------ -------------- --------------- -------------- ---------------- ---------------

Net Asset Value, Beginning of Period $10.00 $10.00 $10.00 $10.00 $10.00

Income from Investment Operations
Net Investment Income(A) 0.01 0.13 0.11 0.02 0.00+
Net Gains or Losses on Securities (both
realized and unrealized) 2.08 (0.22) (0.13) 1.30 1.41
-------------- --------------- -------------- ---------------- ---------------
Total from Investment Operations 2.09 (0.09) (0.02) 1.32 1.41
-------------- --------------- -------------- ---------------- ---------------

Less Distributions
Dividends (from net investment
income)(A) (0.01) (0.07) -- (0.02) (0.00)+
Dividends (in excess of net investment
income) (0.00)+ -- -- (0.01) (0.01)
Distributions (in excess of net realized
capital gains) -- (0.01) -- -- --
Returns of Capital -- (0.00)+ -- -- --
-------------- --------------- -------------- ---------------- ---------------
Total Distributions (0.01) (0.08) -- (0.03) (0.01)
============== =============== ============== ================ ===============
Net increase/(decrease) in net asset 2.08 (0.17) (0.02) 1.29 1.40
value $12.08 $9.83 $9.98 $11.29 $11.40
Net Asset Value, End of Period
============== =============== ============== ================ ===============

Total Return(B) 20.93% (1.55)% (0.20)% 13.23% 13.99%

Supplemental Data and Ratios
Net assets, end of period (000s) $36,407 $98,388 $29,744 $23,170 $31,838
Ratio of net investment income to
average net assets 0.24%* 1.73%* 4.48%* 0.87%* 0.21%*
Ratio of expenses to average net assets
including reimbursements/waiver 1.40%* 1.02%* 1.40%* 1.60%* 1.45%*
Ratios of expenses to average net
assets 1.60%* 1.24%* 1.89%* 2.46%* 3.19%*
excluding reimbursements/waiver 26% 154% 209% 8% 23%
Portfolio turnover rate
<FN>

- -------------------

* Annualized
+ Amount represents less than $0.01 per share.
(1) The Fund commenced operations on October 1, 1998.
(2) The Fund commenced operations on April 1, 1998.
(A) Net investment income (loss) per share before fees waived/reimbursed by
investment advisor and/or business manager was $(0.02) for The Small
Capitalization Equity Fund, less than $0.01 for The International
Equity Fund, less than $0.01 for The U.S. Equity Fund, $0.10 for The
Global Bond Fund, and $0.11 for The Global Asset Allocation Fund, for
the period ended December 31, 1998.
(B) Assumes investment at the net asset value at the beginning of the
period, reinvestment of all distributions, a complete redemption of the
investment at the net asset value at the end of the period.

</FN>
</TABLE>

<PAGE>

(Inside Prospectus back cover page)

Forward Funds, Inc.

The Global Asset Allocation Fund
The Global Bond Fund
The International Equity Fund
The Real Estate Investment Fund
The Small Capitalization Equity Fund
The U.S. Equity Fund

Investment Adviser
Webster Investment Management Company LLC

Sub-Advisers
Barclays Global Fund Advisors (U.S. Equity Fund)
Hoover Capital Management, LLC (Small Capitalization Equity Fund)
Pacific Investment Management Company (Global Bond Fund)
Templeton Investment Counsel, Inc. (International Equity Fund)
Uniplan, Inc. (Real Estate Investment Fund)

Administrator
First Data Investor Services Group, Inc.

Distributor
First Data Distributors, Inc.

Counsel
Dechert Price & Rhoads

Independent Auditors
Arthur Andersen LLP

Custodian
Brown Brothers Harriman & Co.

Transfer Agent
First Data Investor Services Group, Inc.

<PAGE>

(Outside Prospectus back cover page)

(LOGO)
FORWARD FUNDS, INC.

The Global Asset Allocation Fund The Real Estate Investment Fund
The Global Bond Fund The Small Capitalization Equity Fund
The International Equity Fund The U.S. Equity Fund

Want more information?

You can find out more about our funds by viewing the following documents:

Annual and semi-annual reports

Our annual and semi-annual reports list the holdings of each Fund, describe each
Fund's performance, include the Funds' financial statements, and discuss the
market conditions and strategies that significantly affected the Funds'
performance.

Statement of Additional Information

The Statement of Additional Information or the SAI contains additional and more
detailed information about each Fund, and is considered a part of this
Prospectus.

How do I obtain a copy of these documents?

By following one of the three procedures below:

1. Call or write, and copies will be sent to you free of charge:

Forward Funds, Inc.
433 California Street, Suite 1010
San Francisco, CA 94104
1-800-999-6809

2. Call or write to the Public Reference Section of the Securities and Exchange
Commission ("SEC") and ask them to mail you a copy. The SEC charges a fee for
this service. You can also drop by the Public Reference Section and copy the
documents while you are there. Information about the Public Reference Section
may be obtained by calling the number below.

Public Reference Section of the SEC
Washington, D.C. 20549-6009
1-800-SEC-0330

3. Go to the SEC's web site (www.sec.gov) and download to your computer a free
text-only copy.

[SEC File Number: 811-8419]
<PAGE>

FORWARD FUNDS, INC.

433 California Street
Suite 1010
San Francisco, California 94104
1-800-999-6809

Statement of Additional Information
dated May 3, 1999

Forward Funds, Inc. (the "Company") is an open-end management investment company
commonly known as a mutual fund. The Company offers five diversified investment
portfolios, The Global Asset Allocation Fund (formerly known as The Global Fund)
(the "Global Fund"), The Small Capitalization Equity Fund (the "Small Cap
Fund"), The U.S. Equity Fund (the "Equity Fund"), The International Equity Fund
(the "International Equity Fund"), and The Global Bond Fund (the "Global Bond
Fund") and one non-diversified investment portfolio, The Real Estate Investment
Fund (the "Real Estate Fund") (collectively, the "Funds"). There is no assurance
that any 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 the Funds' Prospectus, dated May 3, 1999
("Prospectus"), which has been filed with the Securities and Exchange Commission
("SEC"). A copy of the Prospectus for the Funds may be obtained free of charge
by calling the Distributor at 1-800-999-6809.

TABLE OF CONTENTS
Page

ORGANIZATION OF FORWARD FUNDS, INC.................................2
MANAGEMENT OF THE FUNDS............................................2
INVESTMENT OBJECTIVES AND POLICIES.................................8
INVESTMENT RESTRICTIONS...........................................10
SUPPLEMENTAL DISCUSSION OF INVESTMENT TECHNIQUES AND RISKS
ASSOCIATED WITH THE FUNDS' INVESTMENT POLICIES AND
INVESTMENT TECHNIQUES....................................11
PORTFOLIO TRANSACTIONS............................................26
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION....................27
DETERMINATION OF SHARE PRICE......................................29
SHAREHOLDER SERVICES AND PRIVILEGES...............................30
DISTRIBUTIONS.....................................................31
TAX CONSIDERATIONS................................................31
SHAREHOLDER INFORMATION...........................................36
CALCULATION OF PERFORMANCE DATA...................................36
GENERAL INFORMATION...............................................38
FINANCIAL STATEMENTS..............................................39
APPENDIX A........................................................40

<PAGE>

ORGANIZATION OF FORWARD FUNDS, INC.

Forward Funds, Inc. is an open-end management investment company which offers
five diversified investment portfolios and one non-diversified investment
portfolio. The Company was incorporated in Maryland on October 3, 1997.

The authorized capital stock of the Company consists of one billion four hundred
million (1,400,000,000) shares of two classes of common stock having a par value
of $0.001 per share (fifty million shares are allocated as Institutional Class
shares of the Small Cap Fund). The Board of Directors of the Company has
designated the stock into six series, the Global Fund, the Small Cap Fund, the
Equity Fund, the International Equity Fund, the Real Estate Fund and the Global
Bond Fund, and has authorized the series to offer two classes. Each Fund other
than the Small Cap Fund currently offers one class of shares. The Small Cap Fund
offers a second class of shares called the Institutional Shares to institutional
investors and investors meeting certain purchase qualifications. These shares
and the other shares offered by the Funds are described herein as 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. The Company's Board of Directors oversees the management and
business of the Funds. The Directors are elected by Shareholders of the Company.
There are currently three directors, two of whom are not "interested persons" 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. 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."

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. He is the owner of Haig G. Mardikian
Enterprises, a real estate investment business; a 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,
Parnassus Funds (1998 - 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. Owner, Grayville & Co., LLC (December 1998 -
present); President and Managing Director, Webster Investment Management Company
LLC (August 1998 - present); President, Sutton Place Management Co., Inc. (June
1997 - August 1998); 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 $8,000. 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 Investment Adviser or Sub-Advisers. None
of the officers or Directors of the Funds are affiliated with the Sub-Advisers.

Officers

Ronald Pelosi, President. 433 California Street, Suite 1010, San Francisco,
California 94104. (Age 64). See "Board of Directors."

Carl Katerndahl, Executive Vice President and Secretary. 433 California Street,
Suite 1010, San Francisco, California 94104. (Age 36). Owner, Grayville & Co.,
LLC (December 1998 - present); Executive Vice President and Managing Director,
Webster Investment Management Company LLC (August 1998 - present); Managing
Director and Secretary, Sutton Place Management Co., Inc. (April 1998 - August
1998); Client Service/Sales Representative, NWQ Investment Management Company
(April 1997 - March 1998); Consultant, Morgan Stanley Dean Witter (April 1993
March 1997); Senior Portfolio Manager, Prudential Securities (April 1988 - March
1990).

Julie A. Tedesco, Assistant Secretary. 433 California Street, Suite 1010, San
Francisco, California 94104. (Age 41). 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).

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).

Susan T. Naughton, Assistant Treasurer. 433 California Street, Suite 1010, San
Francisco, California 94104. (Age 39). Section Manager, Treasury/Financial
Reporting Department, First Data Investor Services Group, Inc. (January 1995 -
present); Supervisor, International Funds, Mutual Funds Accounting Department,
PFPC, Inc. (1993 - 1995)

Brian O'Neill, Assistant Treasurer. 433 California Street, Suite 1010, San
Francisco, California 94104. (Age 31). Director, Accounting Services Unit of
First Data Investor Services Group, Inc. (January 1994 - present); Supervisor,
Accounting Services Unit, First Data Investor Services Group, Inc. (1992 -1994).

Investment Advisers. The Investment Advisers or Sub-Advisers, as the case may
be, 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," "Advisers" or "Sub-Advisers").

The Global Fund. Webster Investment Management Company LLC ("Webster") serves as
Investment Adviser for the Global Fund. Webster is a limited liability
corporation recently organized under the laws of the State of Delaware.

The Equity Fund. Webster serves as Investment Adviser for the Equity Fund.
Webster has engaged the services of Barclays Global Fund Advisers ("Barclays")
to act as Sub-Adviser for the Equity Fund. 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 December
31, 1998, Barclays and its affiliates provided investment advisory services for
over $615 billion of assets. Barclays uses a team management approach to manage
investment portfolios.

The International Equity Fund. Webster serves as Investment Adviser for the
International Equity Fund. Webster has engaged the services of Templeton
Investment Counsel, Inc. ("Templeton") to act as Sub-Adviser for the
International Equity Fund. 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 $216 billion in assets as of March 31, 1999. 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 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.

The Global Bond Fund. Webster serves as Investment Adviser for the Global Bond
Fund and has engaged the services of Pacific Investment Management Company
("PIMCO") to act as Sub-Adviser for the Global Bond Fund. PIMCO is an investment
counseling firm founded in 1971, and had approximately $165 billion in assets
under management as of March 31, 1999. PIMCO is a subsidiary of PIMCO Advisors
L.P. ("PIMCO Advisors"). The general partners of PIMCO Advisors are PIMCO
Partners, G.P. and PIMCO Advisors Holdings L.P. ("PAH"). PIMCO Partners, G.P. is
a general partnership between PIMCO Holdings LLC, a Delaware limited liability
company and indirect wholly-owned subsidiary of Pacific Life Insurance Company,
and PIMCO Partners, LLC, a California limited liability company controlled by
the Managing Directors and two former Managing Directors of PIMCO. PIMCO
Partners, G.P. is the sole general partner of PAH. PIMCO's address is 840
Newport Center Drive, Suite 300, 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
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 Real Estate Fund. Webster serves as Investment Adviser for the Real Estate
Fund and has engaged the services of Uniplan, Inc. to act as Sub-Adviser.
Uniplan, Inc. is an investment management and counseling firm founded in 1984.
Uniplan, Inc. and its affiliates had approximately $246 million in assets under
management as of March 31, 1999. Uniplan uses a value-oriented quantitative
approach to investing in equity, fixed income, and REIT securities. Uniplan,
Inc. provides investment advice to other mutual funds, institutional clients and
individual clients with substantial investment portfolios. Mr. Richard Imperiale
is the portfolio manager for the Real Estate Fund. He is the President and
founder of Uniplan, Inc.

The Small Cap Fund. Webster serves as Investment Adviser for the Small Cap Fund.
Webster has engaged the services of Hoover Capital Management, LLC to manage the
Small Cap Fund's assets on a day to day basis.

None of the Investment Adviser or the Sub-Advisers are required to furnish any
personnel, overhead items, or facilities for the Company. All fees paid to the
Investment Adviser by the Funds are computed and accrued daily and paid monthly
based on the net asset value of shares of the Funds.

For the services provided pursuant to their Sub-Advisory Agreements with
Webster, each Sub-Adviser receives a fee from Webster. For its services to the
Small Cap Fund, Webster pays Hoover at a rate of 0.80% of that Fund's assets
less than $500 million and 0.70% on amounts over $500 million. For its services
to Equity Fund, Webster pays Barclays at a rate of 0.37 1/2% on the first $100
million of that Fund's assets, 0.30% on the next $400 million, and 0.25% on
assets over $500 million. For its services to International Equity Fund, Webster
pays Templeton at a rate of 0.70% on the first $25 million of that Fund's
assets, 0.55% on the next $25 million, 0.50% on the next $50 million, 0.40% on
the next $150 million, 0.35% on the next $250 million, and 0.30% on amounts over
$500 million. For its services to Global Bond Fund, Webster pays PIMCO at a rate
of 0.35% of that Fund's assets less than $200 million and 0.30% on amounts over
$200 million. For its services to the Real Estate Fund, Webtser pays Uniplan
0.60% on the first $100 million of assets, 0.55% on assets over $100 million and
up to $500 million and 0.45% on assets over $500 million.

Each Investment Management or Subadvisory Agreement will remain in effect for
two years following its date of execution, and thereafter will automatically
continue for successive annual periods as long as such continuance is
specifically approved at least annually by (a) the Board of Directors or (b) the
vote of a "majority" (as defined in the 1940 Act) of the respective 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 such 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 Fund's outstanding Shares voting as a single class, or upon not less than 60
days' notice by such Adviser. Each such Agreement will terminate automatically
in the event of its "assignment" (as defined in the 1940 Act). Shareholders of
the Funds have approved a proposal which would permit Webster to hire and
terminate sub-advisers without shareholder approval and Webster is seeking
authority to do so from the Securities and Exchange Commission.

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).

Auditors. Arthur Andersen LLP serves as independent public auditors for Forward
Funds, Inc.

Administrator and Transfer Agent. First Data Investor Services Group, Inc.
(hereinafter "Investor Services Group," "Administrator" and "Transfer Agent"),
whose principal business address is 4400 Computer Drive, Westborough,
Massachusetts 01581, 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. First Data Distributors,
Inc. is a wholly-owned subsidiary of Investor Services Group. Investor Services
Group is a wholly-owned subsidiary 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.

Other Service Providers

Each Fund pays all expenses not assumed by Webster, the Sub-Advisers or the
Administrator. Expenses paid by the Funds include: custodian, stock transfer and
dividend disbursing fees and accounting and recordkeeping expenses; Rule 12b-1
fees and shareholder service expenses pursuant to a Shareholder Service Plan and
Distribution 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 Company; association dues; and costs of
stationery and forms prepared exclusively for the Funds.

Portfolio Transactions

Pursuant to the Sub-Advisory Agreements, each Sub-Adviser places orders for the
purchase and sale of portfolio investments with brokers or dealers selected by
the Sub-Adviser in its discretion.

Custodian. Brown Brothers Harriman & Co. is each Fund's custodian. Its principal
business address is 40 Water Street, Boston, Massachusetts 02109. Brown Brothers
will be responsible for the custody of each Fund's assets and as foreign custody
manager will also oversee the custody of any Fund assets held outside the United
States.

The Shares of the Funds are sold without a sales charge. The Distributor may use
its 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 the Funds for
information on how to purchase and sell Shares of the Funds, and the charges and
expenses associated with an investment.

Shareholder Service and Distribution Plans. Each Fund has a Shareholder Service
Plan and Distribution Plan applicable to Shares of the Funds (collectively,
"Shareholder Service Plans"). The Company intends to operate the Shareholder
Service Plans in accordance with their terms. Under the Shareholder Service
Plans, third party service providers may be entitled to payment each month in
connection with the offering, sale, and Shareholder servicing of Shares in
amounts not to exceed 0.10% under the Shareholder Service Plan (except for
Institutional Shares which shall not exceed 0.35%) and 0.25% under the
Distribution Plan (except for Institutional Shares which are not subject to the
Distribution Plan) of the average daily net assets of the shares of each Fund.

Under the Shareholder Service Plans, ongoing payments may be made on a quarterly
basis to Participating Organizations for both distribution and Shareholder
servicing at the annual rate of 0.35% of a Fund's average daily net assets of
Shares that are registered in the name of that Participating Organization as
nominee or held in a Shareholder account that designates that Participating
Organization as the dealer of record. These fees may also be used to cover the
expenses of the Distributor primarily intended to result in the sale of 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 a Fund to make payments to the Distributor pursuant to
the Shareholder Service Plan will cease and the Fund will not be required to
make any payments for expenses incurred after the date the Plan terminates. The
Funds will receive payment under the Shareholder Service Plans without regard to
actual distribution expenses incurred.

The Shareholder Service Plans have been approved by the Company's Board of
Directors, including all of the Directors who are not interested persons of the
Company, as defined in the 1940 Act. The Shareholder Service Plans must be
renewed annually by the Board of Directors, including a majority of the
Directors who are not interested persons of the Company and who have no direct
or indirect financial interest in the operation of the Shareholder Service
Plans, cast in person at a meeting called for that purpose. The Shareholder
Service Plans may be terminated as to the Company at any time, without any
penalty, by such Directors or by a vote of a majority of the Company's
outstanding Shares on 60 days' written notice.

Any change in the Shareholder Service Plans of the Funds that would increase
materially the expenses paid by the Funds requires Shareholder approval;
otherwise, the Shareholder Service Plans 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 Plans or in any agreements related to
it (the "Independent Directors"), by a vote cast in person.

Third party service providers are required to report in writing to the Board of
Directors at least quarterly on the monies reimbursed to them under the
Shareholder Service Plans, as well as to furnish the Board with such other
information as may reasonably be requested in connection with the payments made
under the Shareholder Service Plans in order to enable the Board to make an
informed determination of whether the Shareholder Service Plans should be
continued.

INVESTMENT OBJECTIVES AND POLICIES

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 the Funds will be achieved.

Investment Policies

The Equity Fund. The Equity Fund will seek its investment objective by investing
primarily in equity securities of companies located in the United States.

The Global Bond Fund. The Global Bond Fund will seek to achieve its investment
objective by investing primarily in debt securities of companies and governments
located throughout the world.

The International Equity Fund. The International Equity Fund will seek its
investment objective by investing primarily in equity securities of companies
located outside the United States.

The Global Fund. The Global Fund seeks its investment objective by investing in
a diversified portfolio of the Underlying Funds. Accordingly, the investment
performance of The Global Fund is directly related to the performance of the
Underlying Funds, which may engage in the investment techniques described below.
In addition to shares of the Underlying Funds, for temporary cash management
purposes, The Global Fund may invest in short-term obligations (with maturities
of 12 months or less) consisting of commercial paper, bankers' acceptances,
certificates of deposit, repurchase agreements, reverse repurchase agreements
and dollar roll agreements, obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, asset-backed and
mortgage-related securities, and demand and time deposits of domestic and
foreign banks and savings and loan associations. The Global Fund may also hold
depositary or custodial receipts representing beneficial interests in any of the
foregoing securities.

The Real Estate Fund. For the purpose of the Real Estate Fund, a real estate
company is one that derives at least 50% of its revenue from real estate related
activities or has at least 50% of its assets in real estate. Other than real
estate investment trusts ("REITs"), most real estate companies do not pay
dividends at a meaningful level. The Fund's sub-adviser expects that the Fund's
investment in real estate companies will be directed toward REITs and other real
estate operating companies that pay higher dividends relative to the stock
market as a whole.

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 capitalizations 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 Fund may continue to hold an
investment even if its market capitalization exceeds the range of the Fund's
other investments.

The Small Cap Fund may invest up to 5% of its assets in securities of emerging
markets. Hoover has broad discretion to identify and invest in countries it
considers 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 Small Cap 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 Small Cap Fund may invest in
high risk, lower quality debt securities, commonly referred to as "junk bonds."
Investment grade debt securities are securities rated at least Baa by Moody's
Investors Services, Inc. or BBB by Standard & Poor's Ratings Service (nationally
recognized statistical ratings organizations), or if unrated, are determined to
be of the same quality by the investment adviser. Generally, debt securities in
these categories should have adequate capacity to pay interest and repay
principal but their capacity is more likely than higher grade debt securities to
be weakened if there is a change in economic conditions or other circumstances.
High yield ("junk") bonds are considered speculative with regard to the issuer's
capacity to pay interest and repay principal and may be in default. The Small
Capitalization Equity Fund will invest in debt securities rated at least Ba or B
by Moody's or BB or B by Standard & Poor's or, if unrated, determined by its
investment advisers to be of the same quality. 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 10% 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.

INVESTMENT RESTRICTIONS

The following restrictions are fundamental policies of each Fund that may not be
changed without the approval of the holders of a majority of that Fund's
outstanding voting securities. A majority of a Fund's outstanding voting
securities means the lesser of (a) 67% or more of the voting securities present
at a meeting if the holders of more than 50% of the outstanding voting
securities are present or represented by proxy or (b) more than 50% of the
outstanding voting securities. If a percentage restriction on investment or use
of assets set forth below is adhered to at the time a transaction is effected,
later changes will not be considered a violation of the restriction, except that
a Fund will take reasonably practicable steps to attempt to continuously monitor
and comply with its liquidity standards. Also, if a Fund receives subscription
rights to purchase securities of an issuer whose securities the Fund holds, and
if 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, each Fund may not:

(1) invest 25% or more of the total value of its assets in a
particular industry, except that Asset Allocation Fund will
invest over 25% of its assets in securities issued by
investment companies and the Real Estate Fund will invest over
25% of its assets in the real estate industry;

(2) issue senior securities, except to the extent permitted by
the Investment Company Act of 1940, as amended (the "1940
Act"), or borrow money, except that a 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 each Fund may engage in futures transactions as
described in this Prospectus;

(4) make loans, except that each 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, a Fund may be deemed to be an underwriter;

(6) purchase real estate (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).

* * * * * * *

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 all of the Funds.

Inflation-Indexed Bonds

The Global Fund (through its investments in the Global Bond Fund) and the Global
Bond 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. 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 Bond 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%).

If the periodic adjustment rate measuring inflation falls, the principal value
of inflation-indexed bonds will be adjusted downward, and consequently the
interest payable on these securities (calculated with respect to a smaller
principal amount) will be reduced. Repayment of the original bond principal upon
maturity (as adjusted for inflation) is guaranteed in the case of U.S. Treasury
inflation-indexed bonds, even during a period of deflation. However, the current
market value of the bonds is not guaranteed, and will fluctuate. The Funds may
also invest in other inflation related bonds which may or may not provide a
similar guarantee. If a guarantee of principal is not provided, the adjusted
principal value of the bond repaid at maturity may be less than the original
principal.

The 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 Bond 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 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.

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.

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.

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.

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 Funds 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 a Fund with a certain degree of protection against a
rise in interest rates, although a Fund will participate in any declines in
interest rates as well.

The Funds 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, and a Fund may
accordingly be forced to hold such an instrument for long periods of time and/or
may experience losses of principal in such investment. Each 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.

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.

The Funds may invest in mortgage-related or other asset-backed securities. The
value of some mortgage-related or asset-backed securities in which the Funds
invest may be particularly sensitive to changes in prevailing interest rates,
and, like the other investments of a Fund, the ability of a Fund to successfully
utilize these instruments may depend in part upon the ability of its Sub-Adviser
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 a 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 each 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 a Fund's diversification
tests.

Commercial Mortgage-Backed Securities include securities that reflect an
interest in, and are secured by, mortgage loans on commercial real property. The
market for commercial mortgage-backed securities developed more recently and in
terms of total outstanding principal amount of issues is relatively small
compared to the market for residential single-family mortgage-backed securities.
Many of the risks of investing in commercial mortgage-backed securities reflect
the risks of investing in the real estate securing the underlying mortgage
loans. These risks reflect the effects of local and other economic conditions on
real estate markets, the ability of tenants to make loan payments, and the
ability of a property to attract and retain tenants. Commercial mortgage-backed
securities may be less liquid and exhibit greater price volatility than other
types of mortgage-related or asset-backed securities.

Mortgage-Related Securities include securities other than those described above
that directly or indirectly represent a participation in, or are secured by and
payable from, mortgage loans on real property, such as mortgage dollar rolls
(see "Reverse Repurchase Agreements and Dollar Roll Arrangements" below), CMO
residuals or stripped mortgage-backed securities ("SMBS"), and may be structured
in classes with rights to receive varying proportions of principal and interest.

A common type of SMBS will have one class receiving some of the interest and
most of the principal from the mortgage assets, while the other class will
receive most of the interest and the remainder of the principal. In the most
extreme case, one class will receive all of the interest (the interest-only, or
"IO" class), while the other class will receive all of the principal (the
principal-only, or "PO" class). The yield to maturity on an IO class is
extremely sensitive to the rate of principal payments (including prepayments) on
the related underlying mortgage assets, and a rapid rate of principal payments
may have a material adverse effect on a Fund's yield to maturity from these
securities. A Fund will not invest more than 5% of its net assets in any
combination of IO, PO, or inverse floater securities. The Funds 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.

U.S. Government Obligations

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.

Convertible Securities

Each Fund may invest in convertible securities, which may offer higher income
than the common stocks into which they are convertible. 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 a 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. A 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 force conversion of that security. If the issuer
chooses to do so, this action could have an adverse effect on a Fund's ability
to achieve its investment objective.

Securities Issued by Other Investment Companies

The Global Fund may invest without limit in shares of investment companies. Each
other Fund may invest up to 10% of its total assets in shares of other
investment companies. A Fund will incur additional expenses due to the
duplication of expenses as a result of investing in other investment companies.

Repurchase Agreements

Securities held by a Fund may be subject to 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. If a seller defaults on its
repurchase obligations, a Fund may suffer a loss in disposing of the security
subject to the repurchase agreement. 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 Sub-Advisers.

Reverse Repurchase Agreements and Dollar Roll Agreements

The Funds may also borrow funds by entering into reverse repurchase agreements
and dollar roll agreements in accordance with applicable investment
restrictions. In a reverse repurchase agreement, a Fund sells a portfolio
instrument to another party, such as a bank or broker-dealer, in return for cash
and agrees to repurchase the instrument at a particular price and time. A dollar
roll agreement is identical to a reverse repurchase agreement except for the
fact that substantially similar securities may be repurchased. 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 or Sub-Advisers. Such transactions may increase fluctuations in the
market value of a Fund's assets and may be viewed as a form of leverage. Reverse
repurchase agreements and dollar roll agreements involve the risk that the
market value of the securities sold by a Fund may decline below the price at
which the Fund is obligated to repurchase the securities.

Derivative Instruments

The Funds 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 Funds may also enter into
swap agreements with respect to foreign currencies, interest rates, and
securities indexes. A 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 Funds 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. A Fund will maintain a segregated account consisting of
assets determined to be liquid by its Sub-Adviser 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 Funds consider 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 a Fund invests may be particularly sensitive to changes in
prevailing interest rates, and, like the other investments of a Fund, the
ability of a Fund to successfully utilize these instruments may depend in part
upon the ability of its Sub-Adviser to correctly forecast interest rates and
other economic factors. If a Sub-Adviser incorrectly forecasts such factors and
has taken positions in derivative instruments contrary to prevailing market
trends, a Fund could be exposed to the risk of loss. The Funds might not employ
any of the strategies described below, and no assurance can be given that any
strategy used will succeed.

Swap Agreements. The Funds 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 a Fund than if the 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.

Most swap agreements entered into by a Fund calculate the obligations of the
parties to the agreement on a "net basis." Consequently, the 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 Fund's current obligations under a swap agreement will be accrued daily
(offset against amounts owed to the 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 or Sub-Adviser in accordance with procedures established by
the Board of Directors, to limit any potential leveraging of the Fund's
portfolio.

Obligations under swap agreements so covered will not be construed to be "senior
securities" for purposes of the Funds' investment restriction concerning senior
securities. A 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 Fund's assets.

Whether a Fund's use of swap agreements will be successful in furthering its
investment objective will depend on the Investment Adviser or Sub-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, a 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. A 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 Fund's repurchase agreement
guidelines). Certain restrictions imposed on the Funds by the Internal Revenue
Code of 1986, as amended (the "Code"), may limit a 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 Fund's ability to
terminate existing swap agreements or to realize amounts to be received under
such agreements.

Options on Securities, Securities Indexes and Futures

The Funds 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. 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. 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. One purpose of purchasing put
options is to protect holdings in an underlying or related security against a
substantial decline in market value.

One purpose of purchasing call options is to protect against substantial
increases in prices of securities. The Funds 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 Funds 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 a Fund's immediate obligations. The
Funds 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, a Fund will also
segregate liquid assets equivalent to the amount, if any, by which the put is
"in the money."

The Funds will cover call options on securities indexes that they write by
owning securities whose price changes, in the opinion of the Investment Adviser
or Sub-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 a Fund
covers a call option on a securities index through ownership of securities, such
securities may not match the composition of the index. In that event, the Fund
will not be fully covered and could be subject to risk of loss in the event of
adverse changes in the value of the index. A 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 Funds will receive a premium from writing a put or call option, which
increases their 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 a Fund has written a call option falls or remains the same, the Fund will
realize a profit in the form of the premium received (less transaction costs)
that could offset all or a portion of any decline in the value of the portfolio
securities being hedged. If the value of the underlying security, index or
futures contract rises, however, the Fund will realize a loss in its call option
position, which will reduce the benefit of any unrealized appreciation in its
investments. By writing a put option, a Fund assumes the risk of a decline in
the underlying security, index or futures contract. To the extent that the price
changes of the portfolio securities being hedged correlate with changes in the
value of the underlying security, index or futures contract, writing covered put
options will increase the Fund's losses in the event of a market decline,
although such losses will be offset in part by the premium received for writing
the option.

A Fund may also purchase put options to hedge its investments against a decline
in value. By purchasing a put option, the Fund will seek to offset a decline in
value of the portfolio securities being hedged through appreciation of the put
option. If the value of the Fund's investments does not decline as anticipated,
or if the value of the option do not increase, the Fund's loss will be limited
to the premium paid for the option plus related transaction costs. The success
of this strategy will depend, in part, on the accuracy of the correlation
between the changes in value of the underlying security, index or futures
contract and the changes in value of the Fund's security holdings being hedged.

A 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, a Fund may purchase
call options on a securities index to attempt to reduce the risk of missing a
broad market advance, or an advance in an industry or market segment, at a time
when the Fund holds uninvested cash or short-term debt securities awaiting
reinvestment. When purchasing call options, a 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.

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 a 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 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 assurance that a liquid market will exist when a 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 a 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 a Fund, as well as
the cover for options written by a Fund, are considered not readily marketable
and are subject to the Company's limitation on investments in securities that
are not readily marketable.

A 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. Each 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 a
Fund for hedging purposes also depends upon the Investment Adviser's or
Sub-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 a Fund seeks to close out an
option position. If a 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 a Fund, it would not be able to close out
the option. If restrictions on exercise were imposed, a Fund might be unable to
exercise an option it had purchased. Except to the extent that a call option on
an index written by a Fund is covered by an option on the same index purchased
by the Fund, movements in the index may result in a loss to the Fund; however,
such losses may be mitigated by changes in the value of the Fund's securities
during the period the option was outstanding.

Futures Contracts and Options on Futures Contracts. The Funds 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 a 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 a 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 a Fund from liquidating an unfavorable position, and the
Fund would remain obligated to meet margin requirements until the position is
closed.

The Funds 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. A 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, a Fund will also segregate liquid
assets equivalent to the amount, if any, by which the put is "in the money."

The Funds 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 Funds will use
financial futures contracts and related options 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," a 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.

A 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, a 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 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 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 a
Fund if the value of the hedged currency increases. The Funds may enter into
these contracts for the purpose of hedging against foreign exchange risk arising
from a Fund's investment or anticipated investment in securities denominated in
foreign currencies. The Funds 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 Funds 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. A Fund will segregate
assets determined to be liquid by its Sub-Adviser, 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 Funds also may invest in options on foreign
currencies, in foreign currency futures and options thereon, and in foreign
currency exchange-related securities, such as foreign currency warrants and
other instruments whose return is linked to foreign currency exchange rates.

Illiquid Securities

The Funds may invest in an illiquid or restricted security if the Investment
Adviser or Sub-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 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.

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 a Sub-Adviser has determined to be liquid under procedures
approved by the Board of Directors).

A Fund's investments 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.

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.

Lending of Portfolio Securities

In order to generate additional income, the Funds from time to time may lend
portfolio securities to broker-dealers, banks or institutional borrowers of
securities. The lending 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 lending Fund. During the time portfolio securities
are on loan, the borrower pays the lending Fund any dividends or interest paid
on such securities. Loans are subject to termination by the lending Fund or the
borrower at any time. While the lending Fund does not have the right to vote
securities on loan, it intends 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 lending Fund, the lending
Fund could experience delays in recovering its securities and possible capital
losses.

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.

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. Rating
agencies may periodically change the rating assigned to a particular security.
While the Sub-Advisers will take into account such changes in deciding whether
to hold or sell a security, the Funds do not require a Sub-Adviser to sell a
security that is downgraded to any particular rating.

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 or
Sub-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.

Depositary Receipts

The Funds may purchase sponsored or unsponsored 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 each
Fund's investment policies, a Fund's investments in Depositary Receipts will be
deemed to be investments in the underlying securities.

Loan Participations and Assignments

The Funds 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, a Fund's investments in loans are expected
to take the form of loan participations and assignments of loans from third
parties. Large loans to corporations or governments may be shared or syndicated
among several lenders, usually banks. The Funds 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 Funds' investments in loan participations and assignments with
limited marketability. If a 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, a Fund's rights
against the borrower may be more limited than those held by the original lender.

Investment in Foreign and Developing Markets

The Global (through its investments in Underlying Funds), International Equity
and Global Bond Funds may purchase securities in any foreign country, developed
or developing. Potential investors in these 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.

Certificates of Deposit and Time Deposits

The Funds 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.

Year 2000 Concerns

The services provided to the Funds by the Investment Adviser, Sub-Adviser, the
Custodian, Investor Services Group, the Distributor and other entities such as
brokers, 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 Adviser, Sub-Advisers, 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. The Year 2000 Problem may
also adversely affect the companies whose shares the Funds have purchased. If
the business of an issuer in which the Fund has invested experiences
difficulties due to the Year 2000 Problem the market value of its securities may
decrease. The Funds are unable to predict what impact, if any, the Year 2000
Problem will have on the issuers of securities in which it invests.

PORTFOLIO TRANSACTIONS

The Investment Adviser and Sub-Advisers (the "Adviser" or "Advisers") 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
Agreement and/or Sub-Advisory Agreements, each 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 Adviser, a better
price and execution can otherwise be obtained by using a broker for the
transaction.

In placing portfolio transactions, each 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 Advisers, and
provide other services in addition to execution services. 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 Advisers 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 Adviser may also give weight to the
ability of a broker to furnish brokerage and research services to the Funds or
the Adviser. In negotiating commissions with a broker, the Adviser 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 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 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 Funds' Advisers. 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 Adviser is considered at or
about the same time, transactions in such securities will be allocated among the
Funds and the Advisers' other clients in a manner deemed fair and reasonable by
the 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 Funds may authorize one or more brokers to receive on their
behalf purchase and redemption orders and such brokers are authorized to
designate other intermediaries as approved by the Funds to receive purchase and
redemption orders on the Funds' behalf. The Funds will be deemed to have a
received a purchase or redemption order when an authorized broker or, if
approved by the Funds, a broker's authorized designee, receives the order. 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
Advisers. 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 the Funds'
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 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 10 business 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 Funds
are valued at the close of the securities or commodities exchanges on which they
are traded. Options on securities and indices purchased by the Funds 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 Adviser and/or Sub-Advisers
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 Funds' 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 their investment practices or
policies. As a regulated investment company, each Fund generally will be
relieved of liability for U.S. federal income tax on that portion of its
investment company taxable income and net realized capital gains which it
distributes to its Shareholders. Amounts not distributed on a timely basis in
accordance with a calendar year distribution requirement also are subject to a
nondeductible 4% excise tax. To prevent application of the excise tax, the 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 long-term capital
gains, 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 a Fund reduce the Net Asset Value of that 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. A
Fund's transactions in foreign currencies, forward contracts, options, and
futures contracts (including options and futures contracts on foreign
currencies) will be subject to special provisions of the Code that, among other
things, may affect the character of gains and losses realized by the Fund (that
is, may affect whether gains or losses are ordinary or capital), accelerate
recognition of income to the Fund, defer Fund losses, and affect the
determination of whether capital gains and losses are treated as long-term or
short-term capital gains or losses. These rules could therefore, in turn, affect
the character, amount, and timing of distributions to shareholders. These
provisions also may require the Fund to mark-to-market certain positions in its
portfolio (that is, treat them as if they were sold), which may cause the Fund
to recognize income without receiving cash to use to make distributions in
amounts necessary to avoid income and excise taxes. A 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. A 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. Under certain circumstances, a Fund may recognize a gain
from a constructive sale of an "appreciated financial position" it holds if it
enters into a short sale, forward contract or other transaction that
substantially reduces the risk of loss with respect to the appreciated position.
In that event, the Fund would be treated as if it had sold and immediately
repurchased the property and would be taxed on any gain (but not loss) from the
constructive sale. The character of gain from a constructive sale would depend
upon the Fund's holding period in the property. Loss from a constructive sale
would be recognized when the property was substantially disposed of, and its
character would depend on the Fund's holding period and the application of
various loss deferral provisions of the Code. Constructive sale treatment does
not apply to transactions closed in the 90-day period ending with the 30th day
after the close of the taxable year, if certain conditions are met.

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. Some of 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 a Fund receives an "excess distribution" with respect to PFIC
stock, the Fund will generally be subject to tax on the distribution as if it
were realized ratably over the period during which the Fund held the PFIC stock.
The Fund will be subject to tax on the portion of an excess distribution that is
allocated to prior Fund taxable years, and an interest factor will be added to
the tax, as if it were payable in such prior taxable years. Certain
distributions from a PFIC and gain from the sale of PFIC shares are treated as
excess distributions. Excess distributions are characterized as ordinary income
even though, absent application of the PFIC rules, certain excess distributions
might have been classified as capital gain.

The Funds may be eligible to elect alternative tax treatment with respect to
PFIC stock. Under an election that is available in some circumstances, a Fund
generally would be required to include in its gross income its share of the
earnings of a PFIC on a current basis, regardless of whether distributions were
received from the PFIC in a given year. If this election were made, the rules
relating to the taxation of excess distributions would not apply. In addition,
another election would involve marking-to-market the Fund's PFIC shares at the
end of each taxable year, with the result that unrealized gains would be treated
as though they were realized and reported as ordinary income. Any mark-to-market
losses and any loss from an actual disposition of PFIC shares would be
deductible as ordinary losses to the extent of any net mark-to-market gains
included in income in prior years.

Other Investment Companies. It is possible that by investing in other investment
companies, the Funds may not be able to meet the calendar year distribution
requirement and may be subject to federal income and excise tax. The
diversification and distribution requirements applicable to the Funds may limit
the extent to which the Funds will be able to invest in other investment
companies.

Real Estate Investment Fund Investments. The Fund may invest in real estate
investment trusts ("REITs") that hold residual interests in real estate mortgage
investment conduits ("REMICs"). Under applicable Treasury regulations, a portion
of the Fund's income from a REIT that is attributable to the REIT's residual
interest in a REMIC (referred to in the Code as an "excess inclusion") may be
subject to federal income tax. Excess inclusion income of the Fund may be
allocated to shareholders of the Fund in proportion to the dividends received by
the shareholders, with the same tax consequences as if the shareholder held the
REMIC residual interest directly. In general, excess inclusion income allocated
to shareholders (i) cannot be offset by net operating losses (subject to a
limited exception for certain thrift institutions), (ii) will constitute
unrelated business taxable income to entities (including qualified pension
plans, individual retirement accounts or other tax-exempt entities) subject to
tax on unrelated business income, thereby potentially requiring such an entity
to file a tax return and pay tax on such income, and (iii) in the case of a
foreign shareholder, will not qualify for any reduction in U.S. federal
withholding tax. In addition, if at any time during any taxable year a
"disqualified organization" (as defined in the Code) is a record holder of Fund
shares, then the Fund will be subject to a tax equal to that portion of its
excess inclusion income for the taxable year that is allocable to the
disqualified organization, multiplied by the highest federal income tax rate
imposed on corporations. The Adviser does not intend to invest Fund assets in
REITs that hold primarily residual interests in REMICs.

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 taxed as
long-term capital gain if the Shareholder's holding period is more than one
year. 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 a Shareholder 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:

[FORMULA OMITTED]

Where:

a = dividends and interest earned during the period,
b = expenses accrued for the period (net of reimbursements),
c = the average daily number of Shares outstanding during the period
that were entitled to receive dividends, and
d = the maximum offering price per Share on the last day of the
period.

Additional Performance Quotations. Advertisements of total return will always
show a calculation that includes the effect of the maximum sales charge but may
also show total return without giving effect to that charge. Because these
additional quotations will not reflect the maximum sales charge payable, these
performance quotations will be higher than the performance quotations that
reflect the maximum sales charge.

Total returns are based on past results and do not predict future performance.

Performance Comparisons. In reports or other communications to shareholders or
in advertising material, each 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 Advisers, or affiliates of the Company, including (i) performance
rankings of other funds managed by the Advisers, or the individuals employed by
the 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

Description of the Company and Its Shares

The Company was organized as a Maryland corporation in 1997 and consists of the
six Funds described in this Prospectus. There is only one class of shares for
each Fund, other than the Small Cap Fund which has two classes of shares. Each
Share represents an equal proportionate interest in a Fund with other Shares of
that Fund, and is entitled to such dividends and distributions out of the income
earned on the assets belonging to that Fund as are declared at the discretion of
the Directors. Shareholders are entitled to one vote for each Share owned.

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 a 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 a 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 a 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."

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 a Fund will not be
included in performance calculations; such fees, if charged, will reduce the
actual performance from that quoted.

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'
Prospectus and this SAI omit certain of the information contained in the
Registration Statement filed with the SEC and copies of this information may be
obtained from the SEC upon payment of the prescribed fee or examined at the SEC
in Washington, D.C. without charge.

Investors in the Funds will be kept informed of their 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 this is the first
offering of the Shares of the Real Estate Fund, there are no financial
statements at this time for that Fund.
<PAGE>

APPENDIX A

Rated Investments

Corporate Bonds

Excerpts from Moody's Investors Services, Inc. ("Moody's") description
of its bond ratings:

"Aaa": Bonds that are rated "Aaa" are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.

"Aa": Bonds that are rated "Aa" are judged to be of high-quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as "high-grade" bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in "Aaa" securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.

"A": Bonds that are rated "A" possess many favorable investment
attributes and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.

"Baa": Bonds that are rated "Baa" are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appears adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.

"Ba": Bonds that are rated "Ba" are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and thereby
not well safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class.

"B": Bonds that are rated "B" generally lack characteristics of
desirable investments. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.

"Caa": Bonds that are rated "Caa" are of poor standing. These issues
may be in default or present elements of danger may exist with respect to
principal or interest.

Moody's applies numerical modifiers (1, 2 and 3) with respect to bonds
rated "Aa" through "B." The modifier 1 indicates that the bond being rated ranks
in the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category.

Excerpts from Standard & Poor's Corporation ("S&P") description of its
bond ratings:

"AAA": Debt rated "AAA" has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely strong.

"AA": Debt rated "AA" has a very strong capacity to pay interest and
repay principal and differs from "AAA" issues by a small degree.

"A": Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.

"BBB": Bonds rated "BBB" are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for bonds in this category than for bonds in higher rated categories.

"BB," "B" and "CCC": Bonds rated "BB" and "B" are regarded, on balance,
as predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligations. "BB" represents a
lower degree of speculation than "B" and "CCC" the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.

To provide more detailed indications of credit quality, the "AA" or "A"
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.

Commercial Paper

The rating "Prime-1" is the highest commercial paper rating assigned by
Moody's. These issues (or related supporting institutions) are considered to
have a superior capacity for repayment of short-term promissory obligations.
Issues rated "Prime-2" (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics of "Prime-1" rated issues, but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.

Commercial paper ratings of S&P are current assessments of the
likelihood of timely payment of debt having original maturities of no more than
365 days. Commercial paper rated "A-1" by S&P indicates that the degree of
safety regarding timely payment is either overwhelming or very strong. Those
issues determined to possess overwhelming safety characteristics are denoted
"A-1+." Commercial paper rated "A-2" by S&P indicates that capacity for timely
payment is strong. However, the relative degree of safety is not as high as for
issues designated "A-1."

Commercial Paper

Rated commercial paper purchased by a Fund must have (at the time of
purchase) the highest quality rating assigned to short-term debt securities or,
if not rated, or rated by only one agency, are determined to be of comparative
quality pursuant to guidelines approved by a Fund's Boards of Trustees and
Directors. Highest quality ratings for commercial paper for Moody's and S&P are
as follows:

Moody's: The rating "Prime-1" is the highest commercial paper rating
category assigned by Moody's. These issues (or related supporting institutions)
are considered to have a superior capacity for repayment of short-term
promissory obligations.

S&P: Commercial paper ratings of S&P are current assessments of the
likelihood of timely payment of debts having original maturities of no more than
365 days. Commercial paper rated in the "A-1" category by S&P indicates that the
degree of safety regarding timely payment is either overwhelming or very strong.
Those issuers determined to possess overwhelming safety characteristics are
denoted "A-1+."