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[LOGO OF FORWARD FUNDS(TM) APPEARS HERE]
San Francisco, CA
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A n n u a l R e p o r t
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December 31, 1998
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Investment Advisor Webster Investment Management Company LLC, San Francisco, CA
Legal Counsel Dechert, Price & Rhoads, Washington, D.C.
Auditors Arthur Andersen, LLP, San Francisco, CA
Custodian Brown Brothers Harriman & Co. Boston, MA
Distributor First Data Distributors, Inc., Westborough, MA
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Table of Contents
Fund Commentaries and Performance ..................... 2
Portfolios of Investments ............................. 14
Statement of Assets and Liabilities ................... 44
Statement of Operations ............................... 48
Statement of Changes in Net Assets .................... 50
Financial Highlights .................................. 52
Notes to Financial Statements ......................... 54
Forward Funds are distributed by First Data Distributors, Inc. For more complete
information about Forward Funds, including obtaining a prospectus, please visit
our Web site at www.forwardfunds.com or call 1-800-999-6809. Read it carefully
before investing or sending money.
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1 December 31, 1998
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Dear Shareholders,
We are pleased to present the first Forward Funds annual report for the fiscal
year ended December 31, 1998.
Forward Funds offers investment opportunities in U.S. and international
equities, global bonds, U.S. small-capitalization stocks and in a global asset
allocation fund. We have selected the following advisor and sub-advisors to
manage our Funds:
The Small Capitalization Stock Fund: Hoover Capital Management, LLC
The International Equity Fund: Templeton Investment Counsel, Inc.
The Equity Fund: Barclays Global Fund Advisors, Inc.
The Global Bond Fund: Pacific Investment Management Co. (PIMCO)
The Global Asset Allocation Fund: Webster Investment Management Co., LLC
The advisor and each of the sub-advisors have provided commentaries regarding
their investment advisory services on your behalf during the past year. We
believe that you will find this information to be of value.
Thank you for your interest in Forward Funds. Our primary objective is to
continue to serve our clients.
Sincerely,
Forward Funds, Inc.
Investment Advisor: Webster Investment Management Company, LLC, San Francisco,
CA
Note: The views expressed in this report reflect those of the Advisor and/or
Sub-Advisors only through the period of this report as stated on the cover.
Their views are subject to change at any time based on market and other
conditions.
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December 31, 1998 2
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The Small Capitalization Stock Fund
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Fund Commentary
The Fund commenced operations on October 1, 1998 and, as is common with new
funds, had a large cash position for some time after its inception.
Market volatility early in the fourth quarter worked to our advantage, enabling
us to put the Fund's cash to work in stocks that we believed were attractively
valued. Small-cap stocks subsequently rebounded in the latter half of October,
driven by interest rate cuts and heightened merger-and-acquisition activity.
Three of our holdings -- Calmat Co., The Learning Company, Inc. and Irvine
Apartment Communities -- received buyout offers during the fourth quarter, all
at prices substantially above our cost.
On a sector basis, the Fund also benefited from technology and consumer-
oriented stocks. A number of "special situation stocks," such as Osteotech, Inc.
and American Woodmark Corp., also contributed portfolio gains. Less beneficial
were our investments in the basic materials and energy sectors. Companies in
both sectors have continued to grapple with commodity prices that are, in many
cases, at 10- or even 20-year lows. With that in mind, we believe there continue
to be many compelling opportunities in basic materials and energy sectors.
Looking ahead, we believe that in 1999, stock selection will begin to matter
more than it has in recent years. We plan to continue to apply our value-
oriented strategy, which seeks companies that are not only undervalued but also
possess a growth catalyst that we believe will earn them a higher share price in
the future.
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Small company stocks may be subject to a higher degree of market risk than the
securities of more established companies because they tend to be more volatile
and less liquid.
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December 31, 1998 4
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The Small Capitalization Stock Fund
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Weightings by Industry as a Percentage of Net Assets on
12/31/98
[PIE CHART APPEARS HERE]
Other Industries 12.24%
Net Other Assets and Liabilities 14.13%
Technology 17.75%
Finance 6.15%
Capital Goods and Construction 11.16%
Consumer Cyclical 21.93%
Consumer Staples 9.88%
Energy 6.76%
Comparative Fund Performance Since Inception*
Small Capitalization Stock Fund Russell 2000 Index**
13.99% 16.31%
* Past performance is not indicative of future performance. Fund inception:
10/1/98.
** The Russell 2000 Index is unmanaged and investors cannot invest in the
index.
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5 December 31, 1998
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The International Equity Fund
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Fund Commentary
In 1998, cheap stocks and markets generally got cheaper, while pricey stocks and
markets became even more expensive. This was true not just in the United States,
but in several other countries around the world. In Europe, for example, growth
stocks continued to dominate. The emerging markets, which had already dropped
significantly in the last half of 1997, remained depressed for the most part.
This divergence worked against the Fund, which has more exposure to the emerging
markets than does our benchmark, the Morgan Stanley All Country World Index(1).
As the accompanying chart of the Fund's geographical weightings shows the Fund
had most (58.0%) of the portfolio invested in the United Kingdom and other
developed markets of Europe as of December 31. Latin America was the Fund's
next-largest regional weighting at 11.8% of the portfolio, followed by Asia at
11.2%. The remainder of the net assets were divided about equally between North
America and Australia/New Zealand, with a small weighting in the
Mid-East/Africa.
Growth also dominated value on a sector basis. As in the United States,
technology, pharmaceuticals and telecommunications stocks led a number of
overseas markets. The shares of commodity producers in the oil, paper and
metals/mining sectors continued to slump. With many commodities now at 10- or
even 20-year lows, we believe that these stocks hold significant potential and
we have maintained the Fund's overweighting in them relative to its benchmark.
As the accompanying chart of the Fund's industry weightings indicates, 12.5% of
the portfolio was invested in the materials sector and 12.4% in the energy
sector at the end of 1998. The Fund's largest sector weighting was finance, at
23.4% of the portfolio, followed by services at 18.0% and capital equipment at
14.8%.
As we look ahead to 1999, we believe that investors will refocus on valuations,
a trend that should benefit our portfolio of relatively inexpensive but
high-quality stocks.
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(1) The Morgan Stanley World (ex. U.S.) Index is unmanaged and investors cannot
invest in the index.
Investing in foreign securities may involve certain additional risks, including
exchange rate fluctuations, less liquidity, greater volatility and less
regulation. (See Note 7 to the Financial Statements)
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December 31, 1998 6
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The International Equity Fund
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[PIE CHART APPEARS HERE]
Weightings by Country as a Percentage of the Portfolio
on 12/31/98
Latin America 11.8%
Australia/New Zealand 7.8%
Asia 11.2%
Other Assets 1.0%
Mid-East/Africa 2.7%
North America 7.5%
Europe 58.0%
Weightings by Industry as a Percentage of the Portfolio
on 12/31/98
[PIE CHART APPEARS HERE]
Multi-Industry 9.0%
Finance 23.4%
Short Term & Other 1.1%
Services 18.0%
Energy 12.4%
Materials 12.5%
Capital Equipment 14.8%
Consumer Goods 8.8%
Comparative Fund Performance Since Inception*
International Equity Fund MSCI World (ex. U.S.) Index
13.23% 20.55%
* Past performance is not indicative of future performance. Fund inception:
10/1/98.
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7 December 31, 1998
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The Equity Fund
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Fund Commentary
The past year was difficult for active managers, as investors continued to favor
the market's largest and, in many cases, most expensively-valued stocks. That
trend was reflected in the Fund's performance since inception relative to its
benchmark, the Russell 3000 Index(1). The Fund's strategy of emphasizing
companies trading at attractive relative valuations confronted an unusually
hostile market environment, as stocks trading at high valuation multiples, such
as Pfizer, Inc. and Cisco Systems, Inc., significantly outpaced the rest of the
market. Investors "fled to quality" to cope with increased volatility during the
market slide and rebound in the second half of the year, which further boosted
growth relative to value. In addition, the narrowness of the market provided
fewer opportunities than usual for the Fund to outperform. In spite of these
challenges, the Fund's return was helped by our rigorous risk controls, which
enabled us to avoid large bets in any one industry or company, and our focus on
limiting turnover and trading costs.
We have adhered to our investment approach this year. Using quantitative
screening, we systematically collect and analyze data on more than 4,000 U.S.
companies. We evaluate stock valuations from a number of perspectives, as well
as monitor a variety of corporate management and market information. We believe
that this systematic approach, based on proven economic and financial principles
will enable us to select undervalued securities likely to outperform the market.
While the market's near-term direction is always uncertain, we believe this will
be a very effective strategy in 1999 and beyond.
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(1) The Russell 3000 Index is unmanaged and investors cannot invest in the
index.
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December 31, 1998 8
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The Equity Fund
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Weightings by Industry as a Percentage of Net Assets
on 12/31/98
[PIE CHART APPEARS HERE]
Net Other Assets and Liabilities 0.61%
Other Industries 28.23%
Utilities 6.65%
Telecommunications 7.37%
Technology 17.20%
Chemicals and Drugs 10.08%
Consumer Cyclicals 8.75%
Finance 15.95%
Retail 5.16%
Comparative Fund Performance Since Inception*
Equity Fund Russell 3000 Index
20.93% 21.43%
* Past performance is not indicative of future performance. Fund inception:
10/1/98.
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9 December 31, 1998
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The Global Bond Fund
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Fund Commentary
Global bond markets were split along East-West lines during the fourth quarter.
The U.S. and Europe advanced while Japan continued to tread water. Over the
period, the Fund maintained a diversified exposure in the U.S. and major
European bond markets. Although the U.S. bond market did gain some ground during
the fourth quarter, European issues were generally stronger. Over the long term,
we believe that U.S. interest rates will decline further to counter the effects
of a potential slowdown in European economies and continued economic turmoil in
Asia.
Although we generally keep the Fund's country and currency weightings within a
moderate range of the benchmark's, we have chosen to deviate significantly from
the index in Japan. The Fund had no direct exposure to that country's bond
market during the fourth quarter. When interest rates in Japan rose sharply in
December, the Fund's performance benefited relative to the benchmark. Japan's
economy continued to struggle during the third and fourth quarters of 1998,
despite interest rates of less than 1% for bonds with maturities as long as 20
years. For Japan's economy to revive, we believe it needs to kick-start its
export sector by devaluing its currency. As a result, we have taken an
underweight position on the Yen. This decision worked against the Fund during
the fourth quarter, when declining U.S. interest rates buoyed the Yen. Over the
long term, however, we believe this position will be rewarded. We recently
increased the Fund's weighting in Japanese bonds, but we expect to remain
underweighted there from both a bond and a currency standpoint.
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(1) Salomon Brothers World Government Bond Index (Dollar hedged) is unmanaged
and investors cannot invest in the index.
Investing in foreign securities may involve certain additional risks, including
exchange rate fluctuations, less liquidity, greater volatility and less
regulation. (See Note 7 to the Financial Statements)
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December 31, 1998 10
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The Global Bond Fund
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Weightings by Country as a Percentage of Total Assets
on 12/31/98
[PIE CHART APPEARS HERE]
Other Investments 12.47%
United Kingdom 10.39%
Italy 4.00%
United States 24.92%
Canada 4.88%
Greece 3.67%
Germany 3.79%
Cash & Cash Equivalents 35.88%
Weightings by Sector as a Percentage of Total Assets
on 12/31/98
[PIE CHART APPEARS HERE]
Corporate Bonds 3.93%
Government and Government Agency 56.94%
Supranationals 3.25%
Cash and Cash Equivalents 35.88%
Comparative Fund Performance Since Inception*
Salomon Brothers
Global Bond Fund World Government Bond Index (Dollar hedged)
-0.20% 0.33%
* Past performance is not indicative of future performance. Fund inception:
10/1/98.
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11 December 31, 1998
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The Global Asset Allocation Fund
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Fund Commentary
The Global Fund, whose operations commenced on April 1, 1998, initially invested
directly in securities, but effective October 1, 1998 commenced operating as a
fund-of-funds and was renamed The Global Asset Allocation Fund.
The Fund's performance from its inception on April 1, 1998 through December 31
reflected one of the more volatile periods in global markets over the past
decade. The U.S. market rallied, but its advance was rather narrow. The largest
and most expensive blue chips dominated, while small-cap shares and value stocks
continued to underperform. Although several international markets were also
strong during the latter half of 1998, the emerging markets generally remained
subdued.
Our investment approach remains strategic rather than tactical in nature. Unless
we expect market or macroeconomic fundamentals to shift dramatically, we intend
to maintain a classical institutional asset allocation of approximately 70% in
equity funds (composed of 35% core, 20% international equities and 10% small
cap) and roughly 30% in bonds and cash. In keeping the Fund's portfolio
weightings consistent, the actual percentages invested indirectly in each asset
class will naturally vary within a certain range of the target weighting.
The Fund's U.S. equity component (which made up about 42% of assets during 1998)
contributed gains to the Fund's performance. Our portfolio managers of the
underlying Funds follow a value-oriented strategy. Growth stocks in the U.S. and
European markets outperformed value stocks in 1998.
We added a U.S. small-cap component to the Fund at the start of the fourth
quarter. This enabled the Fund to participate in the sector's fall rally.
Although small-caps underperformed larger-cap stocks during much of 1998, our
small-cap portfolio managers believe that small-caps are poised for more
competitive performance in 1999.
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Investing in foreign securities may involve certain additional risks, including
exchange rate fluctuations, less liquidity, greater volatility and less
regulation.
Small company stocks may be subject to a higher degree of market risk than the
securities of more established companies because they tend to be more volatile
and less liquid.
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December 31, 1998 12
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The Global Asset Allocation Fund
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Investment Holdings on 12/31/98
[PIE CHART APPEARS HERE]
Global Bond 29.77%
International Equity 23.28%
Small Cap 10.45%
Equity 36.50%
Growth of $10,000 Since Inception
[LINE GRAPH APPEARS HERE]
Global Asset Allocation Fund MSCI All Country World Index
4/1/98 10,000 10,000
6/30/98 9,900 10,212
9/30/98 8,900 8,997
12/31/98 9,845 10,906
Comparative Fund Performance Since Inception*
Global Asset Allocation Fund MSCI All Country World Index
-1.55% 9.06%
* Past performance is not indicative of future performance. Fund inception:
4/1/98.
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13 December 31, 1998
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The Small Capitalization Stock Fund
Portfolio of Investments
Value
Shares (Note 2)
-------- ----------
COMMON STOCKS - 85.87%
Basic Materials - 2.29%
6,800 Calmat Co. ....................................... $ 209,950
43,600 Oregon Steel Mills, Inc. ......................... 517,750
-----------
727,700
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Capital Goods and Construction - 11.16%
12,500 Dura Automotive Systems, Inc.* ................... 426,562
18,600 Granite Construction, Inc. ....................... 624,262
10,300 Knoll, Inc.* ..................................... 305,137
43,900 Mobile Mini, Inc.* ............................... 471,925
18,600 NCI Building Systems, Inc.* ...................... 523,125
11,500 Quanex Corp. ..................................... 258,750
10,100 Republic Services, Inc. , Class A* ............... 186,219
21,400 Wallace Computer Services, Inc. .................. 564,425
12,600 White Cap Industries, Inc.* ...................... 192,150
-----------
3,552,555
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Consumer Cyclical - 21.93%
11,000 American Woodmark Corp. .......................... 376,750
10,400 Anchor Gaming* ................................... 586,300
24,800 Building Materials Holding Corp.* ................ 300,700
4,300 Burlington Coat Factory Warehouse* ............... 223,481
4,000 Coachmen Industries, Inc. ........................ 105,000
12,000 Cost Plus, Inc. * ................................ 702,800
15,600 Cunningham Graphics International, Inc.* ......... 237,900
5,000 Ethan Allen Interiors, Inc.* ..................... 205,000
7,900 Fred's, Inc. ..................................... 118,500
24,000 Hollywood Entertainment Corp.* ................... 654,000
13,000 Jones Apparel Group, Inc.* ....................... 286,812
10,700 McClatchy Co. .................................... 378,512
14,700 Michaels Stores, Inc.* ........................... 265,978
16,200 Micro Warehouse, Inc.* ........................... 547,762
10,800 Midas, Inc. ...................................... 336,150
9,600 National Presto Industries, Inc.* ................ 409,200
18,200 Nautica Enterprises, Inc. ........................ 273,000
1,530 North Face, Inc. ................................. 198,900
26,200 Pier 1 Imports, Inc.* ............................ 253,812
9,500 St. John Knits, Inc.* ............................ 247,000
8,600 Steinway Musical Instruments* .................... 275,600
-----------
6,983,157
-----------
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December 31, 1998 14 See Notes to Financial Statements
<PAGE>
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The Small Capitalization Stock Fund
Portfolio of Investments
Value
Shares (Note 2)
-------- -----------
Consumer Staples - 9.88%
23,700 Central Garden & Pet Co.* ........................ $ 340,688
17,700 Foodmaker, Inc.* ................................. 389,400
22,900 Helen of Troy Ltd.* .............................. 336,344
13,000 Provant, Inc.* ................................... 282,750
20,300 Romac International, Inc. * ...................... 451,675
15,200 Sonic Corp. * .................................... 378,100
12,800 Steiner Leisure Ltd.* ............................ 409,600
34,600 Taco Cabana, Class A* ............................ 268,150
9,500 Travel Services International, Inc.* ............. 289,750
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3,146,457
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Energy - 6.76%
25,500 Brown (Tom), Inc.* ............................... 255,797
21,100 Forest Oil Corp.* ................................ 179,350
17,100 Smith International, Inc. ........................ 430,706
8,800 Stone Energy Corp.* .............................. 253,000
38,900 Tuboscope, Inc.* ................................. 316,063
37,900 Varco International, Inc.* ....................... 293,725
21,900 Weatherford International, Inc.* ................. 424,313
-----------
2,152,954
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Finance - 6.15%
17,600 Bank of Commerce, San Diego ...................... 294,800
22,800 CNA Surety Corp. ................................. 359,100
8,200 Chicago Title Corp. .............................. 384,888
13,400 Legg Mason, Inc. ................................. 422,938
13,500 Westamerica Bancorporation ....................... 496,125
-----------
1,957,851
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Healthcare - 4.66%
14,500 Ballard Medical Products ......................... 352,531
18,700 Dura Pharmaceuticals, Inc.* ...................... 284,006
6,300 Osteotech, Inc.* ................................. 292,950
9,500 Renal Care Group, Inc.* .......................... 273,719
11,600 Safeskin Corp.* .................................. 279,850
-----------
1,483,056
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Real Estate - 0.64%
14,200 Catellus Development Corp.* ...................... 203,238
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See Notes to Financial Statements 15 December 31, 1998
<PAGE>
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The Small Capitalization Stock Fund
Portfolio of Investments
Value
Shares (Note 2)
-------- -----------
Technology - 17.75%
15,100 Autodesk, Inc.* .................................. $ 644,581
19,200 Barra, Inc.* ..................................... 453,600
18,200 CBT Group PLC, ADR* .............................. 270,725
12,200 CCC Information Services Group* .................. 210,450
14,100 CTS Corp. ........................................ 648,150
8,500 General Cable Corp.* ............................. 174,250
15,800 Hutchinson Technology* ........................... 562,875
4,700 Kronos, Inc.* .................................... 208,269
20,400 Learning Company, Inc. (The)* .................... 529,125
22,000 Platinum Software Corp.* ......................... 281,875
4,800 Powerhouse Technologies, Inc.* ................... 69,600
28,500 Remec, Inc.* ..................................... 513,000
14,400 Saville Systems Ireland, ADR* .................... 273,600
19,100 Security Dynamics Technology, Inc.* .............. 439,300
12,400 Tektronix, Inc.* ................................. 372,775
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5,652,175
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Transportation - 4.65%
11,300 Carey International, Inc. * ...................... 197,750
15,000 Consolidated Freightways Corp.* .................. 238,125
17,500 Convergys Corp.* ................................. 391,563
7,200 Skywest, Inc. .................................... 268,038
16,500 United Road Services, Inc.* ...................... 384,038
------------
1,479,514
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Total Common Stocks ............................................ 27,338,657
(Cost $24,711,910) ------------
Total Investments - 85.87% ..................................... 27,338,657
(Cost $24,711,910) ------------
Net Other Assets and Liabilities - 14.13% ...................... 4,498,849
------------
Net Assets - 100.00% ........................................... $31,837,506
============
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* Non-income producing security.
ADR American Depository Receipt.
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December 31, 1998 16 See Notes to Financial Statements
<PAGE>
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The International Equity Fund
Portfolio of Investments
Value
Shares (Note 2)
-------- ------------
COMMON STOCKS - 97.25%
Argentina - 3.12%
48,500 Perez Companc SA, Class B ........................ $ 205,347
8,710 Telefonica de Argentina SA ....................... 243,336
9,825 YPF Sociedad Anonima ............................. 274,486
------------
723,169
------------
Australia - 6.97%
30,150 Broken Hill Proprietary Co. Ltd. ................. 222,062
73,600 Cable & Wireless Optus Ltd. * .................... 154,700
174,928 HIH Insurance Ltd. ....................... 231,543
52,000 Mayne Nickless Ltd. .............................. 192,787
28,930 National Australia Bank Ltd. ..................... 436,116
103,425 Pacific Dunlop Ltd. ...................... 167,320
98,810 Pioneer International Ltd., ADR .................. 209,092
------------
1,613,620
------------
Austria - 1.24%
3,310 VA Technologie AG ................................ 286,856
Belgium - 2.53%
1,000 Electrabel SA .................................... 436,795
3,960 Union Miniere SA ................................. 149,831
------------
586,626
------------
Brazil - 1.94%
26,715 Banco Bradesco SA, ADR ........................... 148,145
15,075 Centrais Electricas Brasileiras SA
(Electrobras), ADR ............................... 145,097
1,508 Centrais Geradoras do Sul do
Brasil SA (Gerasul), ADR * ....................... 9,422
11,500 Companhia Vale do Rio Doce, ADR .................. 147,315
------------
449,979
------------
Canada - 4.92%
25,505 Agrium, Inc. ..................................... 221,575
38,925 Methanex Corp. * ................................. 203,290
15,040 Newbridge Networks Corp. * ....................... 456,840
13,800 Renaissance Energy Ltd. * ........................ 157,207
9,090 Sobeys Canada, Inc. * ............................ 101,329
------------
1,140,241
------------
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See Notes to Financial Statements 17 December 31, 1998
<PAGE>
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The International Equity Fund
Portfolio of Investments
Value
Shares (Note 2)
-------- ------------
Chile - 1.46%
6,800 Cia de Telecomunicaciones de Chile SA, ADR ....... $ 140,675
12,310 Gener SA, ADR .................................... 196,960
------------
337,635
------------
Denmark - 2.01%
5,155 Unidanmark A/S, Class A .......................... 465,746
------------
Egypt - 0.90%
14,664 Commercial International Bank, GDR ............... 112,180
6,520 Suez Cement Co., GDR (B) ......................... 97,191
------------
209,371
------------
Finland - 4.53%
26,470 Kemira Oyj ....................................... 189,481
58,690 Merita Plc, A Shares ............................. 370,629
29,900 Stora Enso Oyj, R Shares ......................... 267,396
15,255 The Rauma Group .................................. 221,393
------------
1,048,899
------------
France - 6.51%
11,440 Alcatel .......................................... 279,565
2,730 Compagnie Financiere de Paribas .................. 237,160
6,040 Eramet SLN ....................................... 181,384
5,180 Rhone-Poulenc SA ................................. 266,458
5,790 Scor ............................................. 382,652
2,930 Sylea SA ......................................... 161,933
------------
1,509,152
------------
Germany - 3.76%
3,680 Deutsche Bank AG ................................. 216,535
1,090 Muenchener Rueckversicherungs-
Gesellschaft AG .................................. 358,460
43 Muenchener Rueckversicherungs-
Gesellschaft AG (A) .............................. 20,825
17,220 Volkswagen AG, ADR ............................... 275,021
------------
870,841
------------
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December 31, 1998 18 See Notes to Financial Statements
<PAGE>
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The International Equity Fund
Portfolio of Investments
Value
Shares (Note 2)
-------- ------------
Hong Kong - 6.60%
30,000 Cheung Kong (Holdings) Ltd. ...................... $ 215,873
210,831 Hong Kong Telecommunications Ltd. ................ 368,728
123,500 Hong Kong Electric Holdings Ltd. ................. 374,600
334,000 National Mutual Asia Ltd. ........................ 250,039
105,000 SmarTone Telecommunications Holdings Ltd. ........ 291,381
44,000 Swire Pacific Ltd., Class B ...................... 29,248
------------
1,529,869
------------
Israel - 1.34%
7,650 Teva Pharmaceutical Industries Ltd., ADR ......... 311,259
------------
Japan - 3.99%
17,000 Kurita Water Industries Ltd. ..................... 249,422
92,000 Mitsubishi Paper Mills ........................... 282,094
4,835 Sony Corp., ADR .................................. 346,911
8,000 Yamato Kogyo Co. Ltd. ............................ 46,299
------------
924,726
------------
Mexico - 3.00%
60,000 Alfa SA de CV .................................... 164,462
201,725 Desc SA de CV .................................... 171,074
7,400 Telefonos de Mexico SA, ADR ...................... 360,288
------------
695,824
------------
Netherlands - 4.49%
4,800 ING Groep NV ..................................... 292,543
7,160 Koninklijke (Royal) Philips Electronics NV ....... 480,204
18,530 Otra NV .......................................... 241,648
445 Wereldhave NV .................................... 25,226
------------
1,039,621
------------
New Zealand - 0.81%
98,840 Fletcher Challenge Energy ........................ 187,235
------------
Norway - 2.11%
18,840 Elkem ASA ........................................ 225,630
15,719 Fokus Bank ASA ................................... 156,188
6,500 Kvaerner, Plc, B Shares .......................... 106,930
------------
488,748
------------
- --------------------------------------------------------------------------------
See Notes to Financial Statements 19 December 31, 1998
<PAGE>
- --------------------------------------------------------------------------------
The International Equity Fund
Portfolio of Investments
Value
Shares (Note 2)
-------- ------------
Peru - 0.50%
12,750 Credicorp Ltd. ................................... $ 114,750
------------
South Africa - 0.42%
90,880 Illovo Sugar Ltd. ................................ 96,431
------------
Spain - 1.48%
6,450 Repsol SA ........................................ 343,558
------------
Sweden - 5.58%
12,500 Autoliv, Inc., Swedish Depository Receipt ........ 447,706
10,890 Mo och Domsjo AB (MoDo), B Shares ................ 236,571
29,900 Saab AB, B Shares * .............................. 312,810
9,800 Volvo AB, A Shares ............................... 218,924
3,400 Volvo AB, B Shares ............................... 77,836
------------
1,293,847
------------
Switzerland - 4.83%
1,395 Danzas Holding AG ................................ 589,079
715 Zurich Allied AG ................................. 529,418
------------
1,118,497
------------
Thailand - 0.52%
58,500 Bangkok Bank Public Co. Ltd. ..................... 120,702
------------
United Kingdom - 21.05%
8,755 Ace Ltd. ......................................... 301,500
20,800 British Steel, Plc ............................... 30,779
86,507 BTR, Plc ......................................... 178,350
86,250 Caradon, Plc ..................................... 146,272
194,000 Christian Salvesen, Plc .......................... 291,912
3,980 EXEL Ltd., Class A ............................... 298,500
41,666 General Electric Co., Plc ........................ 375,822
60,000 Hogg Robinson, Plc ............................... 206,002
76,500 Inchcape, Plc .................................... 163,443
77,500 Laird Group, Plc ................................. 211,967
34,350 McKechnie, Plc ................................... 205,889
7,600 National Power, Plc, ADR ......................... 279,300
16,050 National Westminster Bank, Plc ................... 309,286
34,020 Next, Plc ........................................ 279,423
143,100 Pilkington, Plc .................................. 141,566
- --------------------------------------------------------------------------------
December 31, 1998 20 See Notes to Financial Statements
<PAGE>
- --------------------------------------------------------------------------------
The International Equity Fund
Portfolio of Investments
Value
Shares (Note 2)
------ --------
United Kingdom (continued)
53,329 Safeway, Plc ..................................... $ 267,776
6,890 Shell Transport & Trading Co., ADR ............... 256,222
78,498 Storehouse, Plc .................................. 178,805
44,490 Tate & Lyle, Plc ................................. 247,804
19,011 The Peninsular & Oriental
Stream Navigation Co. .......................... 224,580
84,775 The Weir Group, Plc .............................. 281,902
-----------
4,877,100
-----------
Venezuela - 0.64%
8,333 Cia Anonima Nacional Telefonos
de Venezuela (CANTV), ADR ...................... 148,432
-----------
Total Common Stocks .............................. 22,532,734
(Cost $26,793,051) -----------
PREFERRED STOCK - 1.07%
Brazil - 1.07%
3,425 Telecomunicacoes Brasileiras SA
(Telebras), ADR * .............................. 248,955
-----------
Total Preferred Stock ............................ 248,955
(Cost $438,669) -----------
WARRANT - 0.01%
Germany - 0.01%
43 Muenchener Rueckversicherungs-
Gesellschaft AG ................................ 2,000
-----------
Total Warrant .................................... 2,000
(Cost $724) -----------
- --------------------------------------------------------------------------------
See Notes to Financial Statements 21 December 31, 1998
<PAGE>
- --------------------------------------------------------------------------------
The International Equity Fund
Portfolio of Investments
Value
Par Value (Note 2)
--------- --------
TIME DEPOSIT - 3.26%
Cayman Islands - 3.26%
USD 755,000 Den Danske Bank Time Deposit
4.50%, 01/04/99 ............................... $ 755,000
---------------
Total Time Deposit.............................. 755,000
(Cost $755,000) ---------------
Total Investments - 101.59% ............................ 23,538,689
(Cost $27,987,444) ---------------
Net Other Assets and Liabilities - (1.59)% ............. (369,071)
---------------
Net Assets - 100.00% ................................... $ 23,169,618
===============
- -------------------------------------
* Non-income producing security.
(A) Ownership may only be transferred at the permission of the issuer.
(B) Security exempt from registration under 144A of the Securities Act of 1933.
This security may be resold, in transactions exempt from registration, to
qualified institutional buyers. On December 31, 1998 these securities
amounted to $97,191 or 0.42% of net assets.
ADR American Depository Receipt
GDR Global Depository Receipt
USD United States Dollar
At December 31, 1998 sector diversification was as follows:
% of the
Sector Diversification Portfolio Value
Finance ....................................... 23.4% $ 5,508,053
Services ...................................... 18.0 4,236,964
Capital Equipment ............................. 14.8 3,483,726
Materials ..................................... 12.5 2,942,336
Energy ........................................ 12.4 2,918,797
Multi-Industry ................................ 9.0 2,118,482
Consumer Goods ................................ 8.8 2,071,405
Short-Term & Other Investments ................ 1.1 258,926
---------- ------------
TOTAL INVESTMENTS 100.0% $23,538,689
========== ============
- --------------------------------------------------------------------------------
December 31, 1998 22 See Notes to Financial Statements
<PAGE>
- --------------------------------------------------------------------------------
The Equity Fund
Portfolio of Investments
Value
Shares (Note 2)
------ --------
COMMON STOCKS - 99.39%
Aerospace / Airlines - 1.16%
200 AMR Corp. * ...................................... $ 11,875
4,200 Boeing Co. ....................................... 137,025
2,800 Delta Air Lines, Inc. ............................ 145,600
1,000 Gulfstream Aerospace Corp. * ..................... 53,250
1,200 Kaman Corp., Class A ............................. 19,275
200 Lockheed Martin Corp. ............................ 16,950
700 Nichols Research Corp. * ......................... 14,613
100 Northwest Airlines Corp. * ....................... 2,556
400 Raytheon Co., Class B ............................ 21,300
-----------
422,444
-----------
Agriculture - 0.26%
500 IMC Global, Inc. ................................. 10,688
2,200 Scotts Co. (The), Class A * ...................... 84,563
-----------
95,251
-----------
Auto Repair / Auto Parts - 0.72%
300 Arvin Industries, Inc. ........................... 12,506
2,500 Eaton Corp. ...................................... 176,719
1,400 Standard Products Co. ............................ 28,525
800 TRW, Inc. ........................................ 44,950
-----------
262,700
-----------
Basic Materials - 1.95%
1,100 ACX Technologies, Inc. * ......................... 14,575
300 Aluminum Company of America, Inc. ................ 22,369
800 Caraustar Industries, Inc. ....................... 22,850
2,300 Carbide/Graphite Group, Inc. * ................... 33,925
700 Century Aluminum Co. ............................. 6,606
2,400 Minnesota Mining and Manufacturing Co. ........... 175,200
300 Newmont Mining Corp. ............................. 5,419
750 Shorewood Packaging Corp. ........................ 15,375
5,900 Timken Co. ....................................... 111,363
1,600 Vulcan Materials Co. ............................. 210,500
2,800 Willamette Industries, Inc. ...................... 93,800
-----------
711,982
-----------
- --------------------------------------------------------------------------------
See Notes to Financial Statements 23 December 31, 1998
<PAGE>
- --------------------------------------------------------------------------------
The Equity Fund
Portfolio of Investments
Value
Shares (Note 2)
------ ----------
Business Services - 2.51%
2,700 America Online, Inc. * ........................... $ 432,000
2,000 Caribiner International, Inc. * .................. 18,250
3,700 Cendant Corp. * .................................. 70,531
4,900 Dames & Moore Group .............................. 63,087
2,000 Donnelley (R.R.) & Sons Co. ...................... 87,625
2,000 Electronic Data Systems Corp. .................... 100,500
2,200 FirstMerit Corp. ................................. 59,125
4,400 Newpark Resources, Inc. * ........................ 29,975
900 Pride International, Inc. * ...................... 6,356
2,890 R&B Falcon Corp. * ............................... 22,036
900 Sterling Software, Inc. * ........................ 24,356
100 Superior Services, Inc. * ........................ 2,006
----------
915,847
----------
Capital Goods - 0.21%
2,500 Aeroquip-Vickers, Inc. ........................... 74,844
----------
Chemicals and Drugs - 10.08%
4,000 Abbott Laboratories .............................. 196,000
2,000 Albemarle Corp. .................................. 47,500
7,400 American Home Products Corp. ..................... 416,712
500 Bausch & Lomb, Inc. .............................. 30,000
1,800 Becton, Dickinson and Co. ........................ 76,837
4,100 Bristol-Myers Squibb Co. ......................... 548,631
500 Cambrex Corp. .................................... 12,000
3,600 duPont (E.I.) deNemours & Co. .................... 202,725
2,400 Engelhard Corp. .................................. 46,800
5,500 Ferro Corp. ...................................... 143,000
100 FMC Corp. * ...................................... 5,600
300 General Chemical Group, Inc. ..................... 4,162
10,700 IVAX Corp. * ..................................... 133,081
3,300 Lyondell Chemical Co. ............................ 59,400
5,600 Mallinckrodt, Inc. ............................... 172,550
4,400 Merck & Co., Inc. ................................ 649,825
400 Owens & Minor, Inc. .............................. 6,300
1,000 Pharmacia & Upjohn, Inc. ......................... 56,625
8,300 Philip Morris Cos., Inc. ......................... 444,050
7,400 Schering-Plough Corp. ............................ 408,850
400 Solutia, Inc. .................................... 8,950
----------
3,669,598
----------
- --------------------------------------------------------------------------------
December 31, 1998 24 See Notes to Financial Statements
<PAGE>
- --------------------------------------------------------------------------------
The Equity Fund
Portfolio of Investments
Value
Shares (Note 2)
-------- --------
Construction - 0.27%
900 Centex Construction Products, Inc. ............... $ 36,562
200 Giant Cement Holding, Inc. * ..................... 4,950
500 Lennar Corp. ..................................... 12,625
300 Martin Marietta Materials, Inc. .................. 18,656
500 USG Corp. ........................................ 25,469
----------
98,262
----------
Consumer Cyclical - 8.75%
2,300 ADVO, Inc. * ..................................... 60,662
210 Archer-Daniels-Midland Co. ....................... 3,609
3,200 Best Buy Co., Inc. * ............................. 196,400
200 Bestfoods ........................................ 10,650
400 Brunswick Corp. .................................. 9,900
300 Catalina Marketing Corp. * ....................... 20,512
7,600 Coca-Cola Co. .................................... 508,250
1,500 Coca-Cola Enterprises, Inc. ...................... 53,625
1,600 Darden Restaurants, Inc. ......................... 28,800
1,200 Dole Food Co., Inc. .............................. 36,000
2,500 Earthgrains Co. .................................. 77,344
3,500 Ford Motor Co. ................................... 205,406
4,600 General Motors Corp. ............................. 329,475
900 Hannaford Brothers Co. ........................... 47,700
800 Herbalife International, Inc., Class A ........... 11,400
1,400 Hormel Foods Corp. ............................... 45,850
2,000 Interstate Bakeries Corp. ........................ 52,875
1,000 McDonald's Corp. ................................. 76,625
4,800 NPC International, Inc. * ........................ 57,900
6,900 PepsiCo, Inc. .................................... 282,469
6,100 Procter & Gamble Co. ............................. 557,006
1,100 Ralcorp Holdings, Inc. * ......................... 20,075
1,400 RJR Nabisco Holdings Corp. ....................... 41,563
4,200 Ryan Family Steak Houses, Inc. * ................. 51,975
7,000 Sara Lee Corp. ................................... 197,313
4,200 SUPERVALU, INC ................................... 117,600
1,700 Tricon Global Restaurants, Inc. * ................ 85,213
----------
3,186,197
----------
Consumer Products - 2.07%
2,500 Anheuser-Busch Cos., Inc. ........................ 164,062
2,800 CDI Corp. * ...................................... 56,525
300 Chiquita Brands International, Inc. .............. 2,869
500 Colgate-Palmolive Co. ............................ 46,437
2,500 Dal-Tile International, Inc. * ................... 25,937
- --------------------------------------------------------------------------------
See Notes to Financial Statements 25 December 31, 1998
<PAGE>
- --------------------------------------------------------------------------------
The Equity Fund
Portfolio of Investments
Value
Shares (Note 2)
-------- ------------
Consumer Products (continued)
1,100 Fruit of the Loom, Inc. * ........................ $ 15,194
400 Galey & Lord, Inc. * ............................. 3,450
5,300 Gillette Co. ..................................... 256,056
2,100 Kimberly-Clark Corp. ............................. 114,450
100 Mattel, Inc. ..................................... 2,281
2,700 Polaroid Corp. ................................... 50,456
300 Trans World Entertainment Corp. * ................ 5,719
500 Unifi, Inc. ...................................... 9,781
-----------
753,217
-----------
Durable Goods - 1.17%
1,100 Caterpillar, Inc. ................................ 50,600
2,300 Corning, Inc. .................................... 103,500
1,400 EarthShell Corp. * ............................... 16,712
400 Grainger (W.W.), Inc. ............................ 16,650
3,400 Maytag Corp. ..................................... 211,650
1,200 Oakwood Homes Corp. .............................. 18,225
350 Sonoco Products Co. .............................. 10,369
-----------
427,706
-----------
Electronics - 1.31%
600 Avnet, Inc. ...................................... 35,925
2,300 Coltec Industries, Inc. * ........................ 44,850
1,300 Dallas Semiconductor Corp. ....................... 52,975
3,300 MagneTek, Inc. * ................................. 38,156
100 Oak Industries, Inc. * ........................... 3,500
500 Parker-Hannifin Corp. ............................ 16,375
900 Pioneer-Standard Electronics, Inc. ............... 8,438
1,700 Technitrol, Inc. ................................. 54,188
3,900 Tektronix, Inc. .................................. 117,244
4,100 UCAR International, Inc. * ....................... 73,031
2,200 Vishay Intertechnology, Inc. * ................... 31,900
-----------
476,582
-----------
Energy - 4.99%
1,200 Chevron Corp. .................................... 99,525
900 Enron Oil & Gas Co. .............................. 15,525
3,000 ENSCO International, Inc. ........................ 32,062
8,800 Exxon Corp. ...................................... 643,500
300 Global Marine, Inc. * ............................ 2,756
300 Kerr-McGee Corp. ................................. 11,475
4,400 Mobil Corp. ...................................... 383,350
2,500 Nabors Industries, Inc. * ........................ 33,906
- --------------------------------------------------------------------------------
December 31, 1998 26 See Notes to Financial Statements
<PAGE>
- --------------------------------------------------------------------------------
The Equity Fund
Portfolio of Investments
Value
Shares (Note 2)
-------- ------------
Energy (continued)
1,200 Noble Affiliates, Inc. ........................... $ 29,550
5,000 Sunoco, Inc. ..................................... 180,313
1,300 Texaco, Inc. ..................................... 68,738
1,100 Tidewater, Inc. .................................. 25,506
2,700 Tosco Corp. ...................................... 69,863
1,600 Ultramar Diamond Shamrock Corp. .................. 38,800
1,000 Unocal Corp. ..................................... 29,188
3,500 Vastar Resources, Inc. ........................... 151,156
------------
1,815,213
------------
Finance - 15.95%
200 Alfa Corp. ....................................... 4,850
800 Allstate Corp. ................................... 30,900
200 Ambac Financial Group, Inc. ...................... 12,037
1,200 American Express Co. ............................. 122,700
800 American Financial Group, Inc. ................... 35,100
3,100 American General Corp. ........................... 241,800
5,200 American International Group, Inc. ............... 502,450
2,000 AMRESCO, INC. * .................................. 17,500
200 Arthur J. Gallagher & Co. ........................ 8,825
2,434 Associates First Capital Corp. ................... 103,141
6,096 Bank One Corp. ................................... 311,277
8,560 BankAmerica Corp. ................................ 514,670
1,200 Bankers Trust Corp. .............................. 102,525
500 BankWest Corp. ................................... 24,000
600 Capital One Financial Corp. ...................... 69,000
630 Charter One Financial, Inc. ...................... 17,482
5,400 Chase Manhattan Corp. ............................ 367,537
1,500 CIGNA Corp. ...................................... 115,969
7,950 Citigroup, Inc. .................................. 393,525
3,441 Conseco, Inc. .................................... 105,166
800 ContiFinancial Corp. * ........................... 5,700
300 CORUS Bankshares, Inc. ........................... 9,675
600 Equifax, Inc. .................................... 20,512
2,900 Fannie Mae ....................................... 214,600
5,700 First Union Corp. ................................ 346,631
2,400 Fleet Financial Group, Inc. ...................... 107,250
400 Franchise Mortgage Acceptance Co. * .............. 3,100
100 Franklin Resources, Inc. ......................... 3,200
600 Hartford Financial Services Group, Inc. .......... 32,925
3,800 Long Beach Financial Corp. * ..................... 28,500
1,500 Marsh & McLennan Cos., Inc. ...................... 87,656
1,200 Merrill Lynch & Co., Inc. ........................ 80,100
3,700 Morgan Stanley Dean Witter & Co. ................. 262,700
- --------------------------------------------------------------------------------
See Notes to Financial Statements 27 December 31, 1998
<PAGE>
- --------------------------------------------------------------------------------
The Equity Fund
Portfolio of Investments
Value
Shares (Note 2)
-------- ------------
Finance (continued)
3,400 National City Corp. .............................. $ 244,800
675 Old Kent Financial Corp. ......................... 31,388
3,150 Old Republic International Corp. ................. 70,875
200 One Valley Bancorp, Inc. ......................... 6,538
1,500 Pioneer Group, Inc. .............................. 29,625
4,000 PNC Bank Corp. ................................... 216,500
1,300 SEI Investments Co. .............................. 129,188
1,500 SLM Holding Corp. ................................ 72,000
600 SouthTrust Corp. ................................. 22,163
6,200 Sovereign Bancorp, Inc. .......................... 88,350
4,200 St. Paul Cos., Inc. .............................. 145,950
300 Tele-Communications TCI Ventures Group ........... 7,069
1,100 The PMI Group, Inc. .............................. 54,313
800 Trustmark Corp. .................................. 18,100
800 United Bankshares, Inc. .......................... 21,200
4,000 U.S. Bancorp ..................................... 142,000
3,450 Washington Mutual, Inc. .......................... 131,747
1,800 Wells Fargo Co. .................................. 71,888
------------
5,806,697
------------
Health Care - 4.66%
2,200 Amgen, Inc. * .................................... 230,037
3,100 Genesis Health Ventures, Inc. * .................. 27,125
1,700 HCR Manor Care, Inc. * ........................... 49,938
1,000 Humana, Inc. * ................................... 17,813
1,700 Integrated Health Services, Inc. ................. 24,013
5,600 Invacare Corp. ................................... 134,400
3,900 Johnson & Johnson ................................ 327,113
1,200 Lilly (Eli) and Co. .............................. 106,650
500 Magellan Health Services, Inc. * ................. 4,188
3,400 Pfizer, Inc. ..................................... 426,488
1,600 Quest Diagnostics, Inc. * ........................ 28,500
2,100 Sun HealthCare Group, Inc. * ..................... 13,781
300 Tenet Healthcare Corp. * ......................... 7,875
1,000 United Healthcare Corp. .......................... 43,063
500 UNUM Corp. ....................................... 29,188
1,500 Warner-Lambert Co. ............................... 112,781
1,300 Wellpoint Health Networks, Inc. * ................ 113,100
------------
1,696,053
------------
- --------------------------------------------------------------------------------
December 31, 1998 28 See Notes to Financial Statements
<PAGE>
- --------------------------------------------------------------------------------
The Equity Fund
Portfolio of Investments
Value
Shares (Note 2)
-------- ------------
Leisure and Entertainment - 2.44%
200 Anchor Gaming * .................................. $ 11,275
12,500 Arctic Cat, Inc. ................................. 127,344
1,000 Ascent Entertainment Group, Inc. * ............... 7,375
12,372 Disney (Walt) Co. ................................ 371,160
3,800 Grand Casinos, Inc. * ............................ 30,637
3,300 GTECH Holdings Corp. * ........................... 84,562
2,100 MediaOne Group, Inc. * ........................... 98,700
1,800 Spelling Entertainment Group, Inc. ............... 13,500
800 TCA Cable TV, Inc. ............................... 28,550
1,700 Tele-Communications, Inc., Class A * ............. 94,031
1,600 Trendwest Resorts, Inc. * ........................ 20,000
------------
887,134
------------
Manufacturing - 0.56%
800 Gerber Scientific, Inc. .......................... 19,050
4,200 Harsco Corp. ..................................... 127,838
500 Honeywell, Inc. .................................. 37,656
500 Pentair, Inc. .................................... 19,906
------------
204,450
------------
Media - 0.58%
300 Gannet, Inc. ..................................... 19,350
700 Liberty Media Group .............................. 32,244
200 Tribune Co. ...................................... 13,200
2,500 True North Communications, Inc. .................. 67,188
2,200 Univision Communications, Inc. * ................. 79,613
------------
211,595
------------
Medical Products - 0.11%
600 Haemonetics Corp. * .............................. 13,650
2,400 Scios, Inc. * .................................... 24,900
------------
38,550
------------
Printing and Publishing - 0.94%
3,300 Deluxe Corp. ..................................... 120,656
100 Dow Jones & Co., Inc. ............................ 4,812
1,075 Dun & Bradstreet Corp. ........................... 33,930
2,800 Time Warner, Inc. ................................ 173,775
200 Value Line, Inc. ................................. 7,875
------------
341,048
------------
- --------------------------------------------------------------------------------
See Notes to Financial Statements 29 December 31, 1998
<PAGE>
- --------------------------------------------------------------------------------
The Equity Fund
Portfolio of Investments
Value
Shares (Note 2)
-------- ------------
Real Estate - 0.13%
2,500 Fairfield Communities, Inc. * .................... $ 27,656
1,500 Taubman Centers, Inc. ............................ 20,625
------------
48,281
------------
Real Estate Investment Trust - 1.19%
400 Apartment Investment & Management Co. ............ 14,875
200 Avalonbay Communities, Inc. ...................... 6,850
200 CarrAmerica Realty Corp. ......................... 4,800
290 Crestline Capital Corp. * ........................ 4,241
3,233 Equity Residential Properties Trust .............. 130,734
2,900 Host Marriott Corp. .............................. 40,056
1,500 LTC Properties, Inc. ............................. 24,938
800 Mack-Cali Realty Corp. ........................... 24,700
3,900 Public Storage, Inc. ............................. 105,544
3,350 Starwood Hotels & Resorts Worldwide, Inc. ........ 76,003
------------
432,741
------------
Retail - 5.16%
600 American Stores Co. .............................. 22,162
1,700 Burlington Coat Factory Warehouse Corp. * ........ 27,731
1,100 Federated Department Stores, Inc. * .............. 47,919
4,200 Footstar, Inc. * ................................. 105,000
2,400 Gap, Inc. (The) .................................. 135,000
900 General Nutrition Cos., Inc. * ................... 14,625
7,100 Heilig-Meyers Co. ................................ 47,481
4,200 Hollywood Entertainment Corp. * .................. 114,450
2,200 Home Depot, Inc. ................................. 134,613
1,800 Kroger Co. ....................................... 108,900
1,200 Lowe's Companies, Inc. ........................... 61,425
3,000 May Department Stores Co. ........................ 181,125
2,200 Musicland Stores Corp. * ......................... 32,863
1,600 Penney (J.C.) Co., Inc. .......................... 75,000
1,900 PETCO Animal Supplies, Inc. * .................... 19,119
2,100 Rite Aid Corp. ................................... 104,081
600 Ross Stores, Inc. ................................ 23,625
6,100 Sunglass Hut International, Inc. * ............... 42,700
1,500 Tandy Corp. ...................................... 61,781
600 TJX Cos., Inc. ................................... 17,400
2,300 Toys `R' Us, Inc. * .............................. 38,813
5,700 Wal-Mart Stores, Inc. ............................ 464,194
------------
1,880,007
------------
- --------------------------------------------------------------------------------
December 31, 1998 30 See Notes to Financial Statements
<PAGE>
- --------------------------------------------------------------------------------
The Equity Fund
Portfolio of Investments
Value
Shares (Note 2)
-------- ------------
Technology - 17.20%
100 Amazon.com, Inc.* ................................ $ 32,125
1,000 American Management Systems, Inc.* ............... 40,000
700 AMP, Inc. ........................................ 36,444
1,400 Andrew Corp.* .................................... 23,100
2,400 Apple Computer, Inc. ............................. 98,250
1,800 Autodesk, Inc. ................................... 76,837
300 Automatic Data Processing, Inc. .................. 24,056
2,500 BancTec, Inc.* ................................... 31,406
900 BMC Software, Inc.* .............................. 40,106
6,606 Compaq Computer Corp. ............................ 277,039
4,800 Computer Associates International, Inc. .......... 204,600
100 Computer Task Group, Inc. ........................ 2,712
300 Compuware Corp.* ................................. 23,437
1,500 Data Transmission Network Corp.* ................. 43,312
5,500 Dell Computer Corp. * ............................ 402,531
300 FileNET Corp. * .................................. 3,441
1,000 Gateway 2000, Inc. * ............................. 51,187
12,200 General Electric Corp. ........................... 1,245,162
900 Harris Corp. ..................................... 32,963
2,800 Hewlett-Packard Co. .............................. 191,275
1,000 HMT Technology Corp. * ........................... 12,812
6,100 Intel Corp. ...................................... 723,231
3,400 International Business Machines Corp. ............ 628,150
1,100 Iomega Corp. * ................................... 8,044
800 Lexmark International Group, Inc., Class A * ..... 80,400
5,700 Mentor Graphics Corp. * .......................... 48,450
200 Metromedia Fiber Network, Inc. * ................. 6,700
400 Micron Technology, Inc. .......................... 20,225
5,300 Microsoft Corp. * ................................ 735,044
1,200 MindSpring Enterprises, Inc. * ................... 73,275
1,850 NCR Corp. * ...................................... 77,238
3,200 Oracle Corp. * ................................... 138,000
400 Parametric Technology Corp. * .................... 6,550
900 PeopleSoft, Inc. * ............................... 17,044
1,200 Rational Software Corp. * ........................ 31,800
2,000 Structural Dynamics Research Corp. * ............. 39,750
2,200 Sun Microsystems, Inc. * ......................... 188,375
2,100 Symantec Corp. * ................................. 45,675
100 Tellabs, Inc. * .................................. 6,856
3,400 Texas Instruments, Inc. .......................... 290,913
2,700 Unisys Corp. * ................................... 92,981
1,000 United Technologies Corp. ........................ 108,750
------------
6,260,246
------------
- --------------------------------------------------------------------------------
See Notes to Financial Statements 31 December 31, 1998
<PAGE>
- --------------------------------------------------------------------------------
The Equity Fund
Portfolio of Investments
Value
Shares (Note 2)
---------- -------------
Telecommunications - 7.37%
3,000 AirTouch Communications, Inc. * .................. $ 216,375
2,000 Aliant Communications, Inc. ...................... 81,750
4,400 Allen Telecom, Inc. .............................. 29,425
500 ALLTEL Corp. ..................................... 29,906
275 Ascend Communications, Inc. * .................... 18,081
5,800 AT&T Corp. ....................................... 436,450
5,800 BellSouth Corp. .................................. 289,275
700 California Microwave, Inc. * ..................... 6,562
1,300 Century Communications Corp. * ................... 41,234
3,800 Cisco Systems, Inc. * ............................ 352,687
4,100 GTE Corp. ........................................ 266,500
4,200 Lucent Technologies, Inc. ........................ 462,000
600 NTL, Inc. * ...................................... 33,863
282 Qwest Communications International, Inc. * ....... 14,100
3,027 SBC Communications, Inc. ......................... 162,323
600 Scientific-Atlanta, Inc. ......................... 13,688
400 SkyTel Communications, Inc. * .................... 8,850
300 Transaction Network Services, Inc. * ............. 6,019
3,300 US WEST, Inc. .................................... 213,263
-------------
2,682,351
-------------
Transportation - 1.00%
400 Airborne Freight Corp. ........................... 14,425
3,900 Burlington Northern Santa Fe Corp. ............... 131,625
600 CSX Corp. ........................................ 24,900
4,100 Ryder System, Inc. ............................... 106,600
1,000 Swift Transportation Co., Inc. * ................. 28,031
1,600 US Freightways Corp. ............................. 46,600
700 Yellow Corp. * ................................... 13,388
-------------
365,569
-------------
Utilities - 6.65%
1,400 Allegheny Energy, Inc. ........................... 48,300
2,200 Allied Waste Industries, Inc. * .................. 51,975
5,900 Ameritech Corp. .................................. 373,912
7,900 Bell Atlantic Corp. .............................. 418,700
400 CalEnergy Co., Inc. * ............................ 13,850
300 Duke Energy Corp. ................................ 19,219
7,200 Edison International ............................. 200,700
2,300 Florida Progress Corp. ........................... 103,069
1,700 FPL Group, Inc. .................................. 104,762
300 Houston Industries, Inc. ......................... 9,637
3,700 MCI WorldCom, Inc. ............................... 265,475
- --------------------------------------------------------------------------------
December 31, 1998 32 See Notes to Financial Statements
<PAGE>
- --------------------------------------------------------------------------------
The Equity Fund
Portfolio of Investments
Value
Shares (Note 2)
---------- -----------
Utilities (continued)
3,200 NICOR, Inc. ...................................... $ 135,200
2,100 PG&E Corp. ....................................... 66,150
3,200 Pinnacle West Capital Corp. ...................... 135,600
4,400 Public Service Entreprise Group, Inc. ............ 176,000
5,100 Puget Sound Energy, Inc. ......................... 142,163
4,800 Rochester Gas and Electric Corp. ................. 150,000
100 United Illuminating Co. .......................... 5,150
-----------
2,419,862
-----------
Total Common Stocks .............................. 36,184,427
(Cost $33,479,447) -----------
Total Investments - 99.39% ..................................... 36,184,427
(Cost $33,479,447) -----------
Net Other Assets and Liabilities - 0.61% ....................... 222,339
-----------
Net Assets - 100.00% ........................................... $36,406,766
============
- -------------------------------------
* Non-income producing security.
- --------------------------------------------------------------------------------
See Notes to Financial Statements 33 December 31, 1998
<PAGE>
- --------------------------------------------------------------------------------
The Global Bond Fund
Portfolio of Investments
Value
Par Value (Note 2)
- ------------- -------------
U.S. GOVERNMENT AND AGENCY
OBLIGATIONS - 60.28% (35.68%1)
Federal Home Loan Mortgage
Corporation - 3.51% (2.08%/1/)
USD 380,000 6.00%, 01/01/29 ........................ $ 342,712
USD 710,000 6.00%, 01/14/29 (TBA) .................. 701,721
------------
1,044,433
------------
Federal National Mortgage
Association - 6.51% (3.85%/1/)
GBP 800,000 6.88%, 06/07/02, EMTN .................. 1,399,225
NZD 980,000 7.25%, 06/20/02 ........................ 535,751
------------
1,934,976
------------
Government National Mortgage
Association - 5.28% (3.12%/1/)
USD 414,969 6.63%, 08/20/23, Pool # 008269 ......... 421,042
USD 35,186 7.00%, 12/20/25, Pool # 008770 ......... 35,579
USD 44,497 7.00%, 09/20/26, Pool # 008971 ......... 45,146
USD 63,693 6.50%, 11/20/26, Pool # 080010 ......... 64,473
USD 109,415 7.00%, 12/20/26, Pool # 080022 ......... 110,677
USD 900,000 6.00%, 01/21/29 (TBA) .................. 892,695
------------
1,569,612
------------
U.S. Treasury Bond - 4.68% (2.77%/1/)
USD 1,000,000 8.75%, 05/15/17 ........................ 1,392,656
------------
U.S. Treasury Notes - 40.30% (23.86%/1/)
USD 6,104,281 3.63%, 07/15/02 (A) .................... 6,063,269
USD 3,800,000 7.25%, 05/15/04 ........................ 4,258,970
USD 1,033,987 3.63%, 01/15/08 (A) .................... 1,013,792
USD 610,000 5.63%, 05/15/08 ........................ 650,889
------------
11,986,920
------------
Total U.S. Government and
Agency Obligations ..................... 17,928,597
------------
(Cost $17,911,128)
- --------------------------------------------------------------------------------
December 31, 1998 34 See Notes to Financial Statements
<PAGE>
- --------------------------------------------------------------------------------
The Global Bond Fund
Portfolio of Investments
Value
Par Value (Note 2)
- ------------- -----------------
FOREIGN GOVERNMENT BONDS - 49.90% (29.53%1)
Canada - 7.50% (4.44%1)
Canadian Government Bond
CAD 900,000 7.00%, 09/01/01, Series VX99.......... $ 621,974
CAD 650,000 5.25%, 09/01/03....................... 433,270
NZD 1,010,000 6.63%, 10/03/07....................... 540,098
CAD 900,000 6.00%, 06/01/08, Series WH31.......... 636,310
-----------------
2,231,652
-----------------
Denmark - 1.95% (1.15%1)
Kingdom of Denmark
DKK 2,200,000 6.00%, 11/15/02....................... 371,365
DKK 1,100,000 7.00%, 11/15/07....................... 207,728
-----------------
579,093
-----------------
France - 0.82% (0.48%1)
FRF 1,368,817 Government of France, OAT
7.00%, 07/25/09....................... 243,160
-----------------
Germany - 5.82% (3.45%1)
Bundesrepublik Deutschland
DEM 700,000 6.50%, 07/04/27, Series 97............ 527,872
DEM 1,778,000 5.63%, 01/04/28, Series 98............ 1,203,259
-----------------
1,731,131
-----------------
Greece - 5.63% (3.34%1)
GRD 420,500,000 Hellenic Republic
8.80%, 06/19/07....................... 1,675,960
-----------------
Italy - 6.15% (3.64%1)
Buoni Poliennali del Tesoro
ITL 1,810,000,000 4.75%, 05/01/03....................... 1,155,983
ITL 1,030,000,000 5.00%, 05/01/08....................... 672,090
-----------------
1,828,073
-----------------
New Zealand - 2.03% (1.20%1)
New Zealand Government Bond
NZD 890,000 8.00%, 11/15/06, Series 1106.......... 543,949
NZD 100,000 7.00%, 07/15/09, Series 709........... 59,026
-----------------
602,975
-----------------
- --------------------------------------------------------------------------------
See Notes to Financial Statements 35 December 31, 1998
<PAGE>
- --------------------------------------------------------------------------------
The Global Bond Fund
Portfolio of Investments
Value
Par Value (Note 2)
- ---------------- ------------------
Spain - 4.95% (2.93%1)
ESP 177,800 Bonos y Obligaciones del Estado
6.00%, 01/31/29.......................... $ 1,473,743
------------------
Sweden - 1.17% (0.69%1)
SEK 2,400,000 Swedish Government Bond, Series 1040
6.50%, 05/05/08.......................... 348,569
------------------
United Kingdom - 13.88% (8.21%1)
United Kingdom Treasury Bond
GBP 961,000 7.00%, 06/07/02.......................... 1,718,602
GBP 1,270,000 8.00%, 06/10/03.......................... 2,408,665
------------------
4,127,267
------------------
Total Foreign Bonds...................... 14,841,623
------------------
(Cost $14,654,946)
ASSET-BACKED AND MORTGAGE-BACKED
SECURITIES - 11.23% (6.65%1)
Germany - 0.54% (0.32%1)
USD 160,000 Daimler-Benz Vehicle Trust, ABS
Series 1998-A, Class A2
5.23%, 12/20/01.......................... 159,775
------------------
Japan - 0.43% (0.26%1)
USD 130,000 Nissan Auto Receivables Grantor Trust, ABS
Series 1998-A, Class A
5.45%, 04/15/04.......................... 129,791
------------------
United States - 10.26% (6.07%1)
USD 51,357 Banc One Auto Grantor Trust, ABS
Series 1997-A, Class A
6.27%, 11/20/03.......................... 51,968
USD 35,571 Chase Manhattan Grantor Trust, ABS
Series 1996-B, Class A
6.61%, 09/15/02.......................... 36,032
USD 75,000 Comed Transistional Funding Trust, ABS
Series 1998-1, Class A1
5.38%, 03/25/02.......................... 75,354
- --------------------------------------------------------------------------------
December 31, 1998 36 See Notes to Financial Statements
<PAGE>
- --------------------------------------------------------------------------------
The Global Bond Fund
Portfolio of Investments
Value
Par Value (Note 2)
- ------------- -----------------
United States (continued)
USD 183,896 Emergent Home Equity Loan Trust, ABS
Series 1997-2, Class A2
6.75%, 05/15/12.............................. $ 184,640
USD 47,747 FNMA, CMO
Series 1994-100, Class A
5.50%, 02/25/05.............................. 47,554
USD 650,825 FMNA, Whole Loan, CMO
Series 1998-W2, Class A1
6.50%, 06/25/09.............................. 649,605
USD 65,000 Illinois Power Special Purpose Trust,
ABS Series 1998-1, Class A1
5.39%, 06/25/02.............................. 64,938
SLMA, Student Loan Trust, ABS
USD 433,682 Series 1997-4, Class A1
5.39%, 01/25/03.............................. 429,824
USD 1,326,207 Series 1998-2, Class A1
5.32%, 04/25/07.............................. 1,312,408
USD 200,000 TMA Mortgage Funding Trust, CMO (B) (C)
Series 1998-1, Class A
6.25%, 01/25/29.............................. 199,906
---------------
3,052,229
---------------
Total Asset-Backed and
Mortgage-Backed Securities................... 3,341,795
---------------
(Cost $3,360,211)
FOREIGN CORPORATE BONDS - 9.50% (5.62%1)
Greece - 4.15% (2.46%1)
USD 1,250,000 CSFP Credit Linked - Greece
6.20%, 11/19/04.............................. 1,235,000
---------------
South Korea - 3.25% (1.92%1)
USD 1,070,000 Export-Import Bank of Korea
7.13%, 09/20/01.............................. 966,344
---------------
- --------------------------------------------------------------------------------
See Notes to Financial Statements 37 December 31, 1998
<PAGE>
- --------------------------------------------------------------------------------
The Global Bond Fund
Portfolio of Investments
Value
Par Value (Note 2)
- --------------- ---------------
United Kingdom - 2.10% (1.24%1)
GBP 160,000 Orange, Plc
8.63%, 08/01/08............................. $ 271,345
GBP 280,000 Polestar Corp., Plc (B)
10.50%, 05/30/08............................ 352,322
623,667
---------------
Total Foreign Corporate Bonds............... 2,825,011
(Cost $2,937,177) ---------------
COMMERCIAL PAPER (D) - 9.05% (5.36%1)
Australia - 3.36% (1.99%1)
USD 1,000,000 Australian Wheat Board Ltd., EMTN
5.45%, 01/11/99............................. 998,486
---------------
United States - 5.69% (3.37%1)
USD 700,000 General Electric Capital Corp., EMTN
5.14%, 01/12/99............................. 698,901
USD 1,000,000 Procter & Gamble Co., Series J
5.12%, 02/04/99............................. 995,089
---------------
1,693,990
---------------
Total Commercial Paper...................... 2,692,476
(Cost $2,692,476) ---------------
DOMESTIC CORPORATE BONDS AND NOTES - 5.58% (3.30%1)
USD 300,000 Associates Corp. NA (E)
5.35%, 08/27/11............................. 298,459
USD 150,000 Delta Air Lines, Inc. (C)
6.03%, 06/29/99............................. 150,000
USD 100,000 Ford Motor Credit Co.
6.13%, 04/28/03............................. 101,714
USD 100,000 General Motors Acceptance Corp.
6.75%, 02/07/02............................. 103,364
USD 370,000 Merrill Lynch & Co., Series B, MTN (E)
5.30%, 11/01/01............................. 367,910
USD 670,505 Salomon Smith Barney Holdings
3.65%, 02/14/02............................. 638,187
---------------
Total Domestic Corporate Bonds and Notes.... 1,659,634
(Cost $1,670,187) ---------------
- --------------------------------------------------------------------------------
December 31, 1998 38 See Notes to Financial Statements
<PAGE>
- --------------------------------------------------------------------------------
The Global Bond Fund
Portfolio of Investments
Value
Par Value (Note 2)
- -------------------- ---------------
SUPRANATIONAL AGENCIES - 5.00% (2.96%1)
International Bank of Reconstruction
& Development
GBP 100,000 6.88%, 07/14/00, EMTN.................... $ 169,627
NZD 300,000 7.00%, 09/18/00, EMTN.................... 160,907
NZD 1,101,000 7.25%, 04/09/01.......................... 596,089
GBP 100,000 7.00%, 06/07/02.......................... 175,202
NZD 700,000 7.25%, 05/27/03, EMTN.................... 386,057
---------------
1,487,882
---------------
Total Supranational Agencies............. 1,487,882
(Cost $1,429,857) ---------------
CERTIFICATES OF DEPOSIT - 3.16% (1.87%1)
Japan - 3.16%
Bank of Tokyo - Mitsubishi
USD 600,000 5.94%, 01/19/99.......................... 600,000
USD 350,000 5.94%, 07/30/99.......................... 339,479
---------------
939,479
---------------
Total Certificates of Deposit............ 939,479
(Cost $950,000) ---------------
Total Investments - 153.70% (90.97%1).................... 45,716,497
(Cost $45,605,982) ---------------
Net Other Assets and Liabilities - (53.70)%.............. (15,972,271)
---------------
Net Assets - 100.00% .................................... $ 29,744,226
===============
- --------------------------------------------------------------------------------
See Notes to Financial Statements 39 December 31, 1998
<PAGE>
- --------------------------------------------------------------------------------
The Global Bond Fund
Portfolio of Investments
(1) Amount represents a percentage of Total Assets, which can be found in
the Statement of Assets and Liabilities.
(A) Inflation Index Treasury Notes
(B) Security exempt from registration under 144A of the Securities Act of
1933. This security may be resold, in transactions exempt from
registration, to qualified institutional buyers. On December 31, 1998
these securities amounted to $552,228 or 1.86% of net assets.
(C) Private Placement
(D) Effective yield at time of purchase
(E) Variable rate security. Rate shown reflects rate currently in effect.
ABS Asset-backed security
CAD Canadian Dollar
CMO Collateralized Mortgage Obligation
DEM German Deutschemark
DKK Danish Kroner
EMTN Euro Medium-term Note
ESP Spanish Peseta
FNMA Federal National Mortgage Association
FRF French Franc
GBP British Pound
GRD Greek Drachma
ITL Italian Lire
MTN Medium-term Note
NZD New Zealand Dollar
OAT Obligations Assimilables du Tresor
SEK Swedish Kroner
SLMA Student Loan Marketing Association
TBA To be announced. Security purchased on a when-issued or delayed delivery
basis and may settle one month or more after date of purchase (Note 2).
USD United States Dollar
- --------------------------------------------------------------------------------
December 31, 1998 40 See Notes to Financial Statements
<PAGE>
- --------------------------------------------------------------------------------
The Global Bond Fund
Portfolio of Investments
LONG FORWARD FOREIGN CURRENCY CONTRACTS OUTSTANDING:
Contracts to Receive Unrealized
-------------------------------------------- Appreciation/
Expiration Value in In Exchange (Depreciation)
Date Local Currency U.S. $ for U.S. $ of Contracts
- ---------- ---------------- ---------- ----------- ------------
01/28/99 AUD 167,000 102,368 103,034 $ (666)
01/19/99 DEM 477,400 286,754 287,208 (454)
01/19/99 DEM 476,840 286,418 287,424 (1,006)
02/08/99 DEM 396,000 238,106 240,437 (2,331)
02/19/99 GRD 2,264,000 8,022 8,018 4
01/07/99 NOR 8,926,000 1,174,101 1,192,997 (18,896)
01/14/99 NOR 1,054,000 138,539 142,227 (3,688)
01/14/99 NOR 1,488,000 195,584 199,418 (3,834)
01/14/99 NOR 150,000 19,716 19,897 (181)
02/22/99 NZD 17,000 8,951 8,879 72
01/21/99 SEK 3,336,000 410,794 428,170 (17,376)
01/29/99 SEK 3,670,000 452,291 455,154 (2,863)
01/29/99 SEK 1,268,000 156,269 158,231 (1,962)
02/08/99 SEK 3,000,000 369,420 374,214 (4,794)
02/18/99 SGD 511,000 310,910 312,590 (1,680)
02/18/99 SGD 429,000 261,019 262,450 (1,431)
------------
(61,086)
------------
- --------------------------------------------------------------------------------
See Notes to Financial Statements 41 December 31, 1998
<PAGE>
- --------------------------------------------------------------------------------
The Global Bond Fund
Portfolio of Investments
SHORT FORWARD FOREIGN CURRENCY CONTRACTS OUTSTANDING:
Contracts to Deliver Unrealized
---------------------------------------------------- Appreciation/
Expiration Value in In Exchange (Depreciation)
Date Local Currency U.S. $ for U.S. $ of Contracts
- ---------- ------------------- ---------- ----------- ------------
01/14/99 AUD (167,000) (102,352) (105,053) $ 2,701
01/19/99 CHF (400,000) (291,815) (298,692) 6,877
01/19/99 CHF (400,000) (291,815) (298,470) 6,655
01/20/99 CHF (2,019,000) (1,473,112) (1,520,331) 47,219
02/08/99 DEM (695,000) (417,889) (417,187) (702)
01/25/99 DKK (3,766,000) (592,148) (584,669) (7,479)
01/25/99 DKK (140,000) (22,013) (21,615) (398)
02/18/99 ESP (9,430,000) (66,520) (67,264) 744
02/18/99 ESP (3,795,000) (26,770) (26,856) 86
02/18/99 ESP (379,792) (2,679) (2,687) 8
01/27/99 FRF (683,000) (122,323) (123,175) 852
01/20/99 GBP (384,000) (638,044) (647,040) 8,996
01/20/99 GBP (213,000) (353,915) (353,793) (122)
01/20/99 GBP (23,000) (38,217) (38,663) 446
02/08/99 ITL (49,064,000) (29,731) (29,849) 118
02/24/99 JPY (169,190,000) (1,508,394) (1,463,613) (44,781)
02/24/99 JPY (657,000) (5,858) (5,602) (256)
01/14/99 NOR (115,000) (15,116) (15,433) 317
01/05/99 NZD (35,622) (18,746) (18,720) (26)
01/08/99 NZD (798,000) (419,954) (408,225) (11,729)
01/08/99 NZD (363,000) (191,032) (185,696) (5,336)
01/08/99 NZD (307,000) (161,561) (151,672) (9,889)
01/14/99 NZD (931,000) (490,000) (484,818) (5,182)
01/15/99 NZD (317,000) (166,845) (165,664) (1,181)
02/22/99 NZD (1,038,000) (546,548) (543,076) (3,472)
02/22/99 NZD (380,000) (200,084) (198,649) (1,435)
03/22/99 NZD (329,000) (173,259) (173,503) 244
01/22/99 SEK (2,753,000) (339,166) (354,243) 15,077
02/18/99 SGD (940,000) (571,929) (579,067) 7,138
-----------
5,490
-----------
Net Unrealized Depreciation of Forward Foreign Currency Contracts... $ (55,596)
===========
AUD Australian Dollar GRD Greek Drachma
CHF Swiss Franc ITL Italian Lire
DEM German Deutschemark JPY Japanese Yen
DKK Danish Kroner NOR Norwegian Kroner
ESP Spanish Peseta NZD New Zealand
FRF French Franc SEK Swedish Kroner
GBP British Pound SGD Singapore Dollar
- --------------------------------------------------------------------------------
December 31, 1998 42 See Notes to Financial Statements
<PAGE>
- --------------------------------------------------------------------------------
The Global Asset Allocation Fund
Portfolio of Investments
<TABLE>
<CAPTION>
Value
Shares (Note 2)
- ------------ --------------
<S> <C> <C>
Investment Companies - 100.16%
3,006,988 Forward Funds - The Equity Fund.................................. $ 36,324,410
2,969,333 Forward Funds - The Global Bond Fund............................. 29,633,947
2,052,269 Forward Funds - The International Equity Fund.................... 23,169,618
913,462 Forward Funds - The Small Capitalization Stock Fund.............. 10,404,327
---------------
Total Investment Companies....................................... 99,532,302
(Cost $101,266,549) ---------------
Total Investments - 101.16%.................................................... 99,532,302
(Cost $101,266,549) ---------------
Net Other Assets and Liabilities - (1.16)%..................................... (1,144,452)
---------------
Net Assets - 100.00%........................................................... $ 98,387,850
===============
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements 43 December 31, 1998
<PAGE>
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
Small
Capitalization International
Stock Equity
Fund Fund
-------------- --------------
<S> <C> <C>
ASSETS:
Investments
Investments at cost (Note 2) ............................................ $ 24,711,910 $ 27,987,444
Net unrealized appreciation/(depreciation) on investments ............... 2,626,747 (4,448,755)
-------------- --------------
Total investments at value ...................................... 27,338,657 23,538,689
Cash ............................................................................ 6,783,970 166,221
Receivable for investments sold ................................................. 305,761 --
Receivable for shares sold ...................................................... 2,163,232 --
Interest and dividend receivable ................................................ 4,673 194,193
Prepaid expenses ................................................................ 13,479 11,896
Unamortized organization cost ................................................... -- --
Receivable from investment advisor .............................................. 36,674 20,773
Other assets .................................................................... -- 9,139
-------------- --------------
Total assets ............................................................ 36,646,446 23,940,911
-------------- --------------
LIABILITIES:
Payable for investments purchased ............................................... 4,728,377 645,308
Payable for dividends ........................................................... 22,853 67,525
Payable to custodian ............................................................ -- --
Net unrealized depreciation on forward foreign
currency contracts ...................................................... -- --
Advisory fee payable ............................................................ -- --
Payable to administrator ........................................................ 4,057 3,894
Directors' fees and expenses payable ............................................ 434 769
Accrued expenses and other payables ............................................. 53,219 53,797
-------------- --------------
Total liabilities ....................................................... 4,808,940 771,293
-------------- --------------
NET ASSETS .............................................................................. $ 31,837,506 $ 23,169,618
============== ==============
</TABLE>
- --------------------------------------------------------------------------------
December 31, 1998 44 See Notes to Financial Statements
<PAGE>
<TABLE>
<CAPTION>
Global
Global Asset
Equity Bond Allocation
Fund Fund Fund
--------------- --------------- ---------------
<S> <C> <C> <C>
ASSETS:
Investments
Investments at cost (Note 2) ..................................... $ 33,479,447 $ 45,605,982 $ 101,266,549
Net unrealized appreciation/(depreciation) on investments ........ 2,704,980 110,515 (1,734,247)
--------------- --------------- ---------------
Total investments at value ............................... 36,184,427 45,716,497 99,532,302
Cash ................................................................... 494,973 -- --
Receivable for investments sold ........................................ 99,429 3,762,414 --
Receivable for shares sold ............................................. -- -- --
Interest and dividend receivable ....................................... 39,608 670,503 114,950
Prepaid expenses ....................................................... 12,264 12,151 8,644
Unamortized organization cost .......................................... -- -- 72,199
Receivable from investment advisor ..................................... -- 9,700 --
Other assets ........................................................... -- 83,603 --
--------------- --------------- ---------------
Total assets ............................................. 36,830,701 50,254,868 99,728,095
--------------- --------------- ---------------
LIABILITIES:
Payable for investments purchased ...................................... 312,419 19,110,478 --
Payable for dividends .................................................. 39,468 -- 776,012
Payable to custodian ................................................... -- 1,276,528 362,442
Net unrealized depreciation on forward foreign
currency contracts ....................................... -- 55,596 --
Advisory fee payable ................................................... 15,534 -- 3,548
Payable to administrator ............................................... 5,962 5,028 16,538
Directors' fees and expenses payable ................................... 787 685 1,447
Accrued expenses and other payables .................................... 49,765 62,327 180,258
--------------- --------------- ---------------
Total liabilities ........................................ 423,935 20,510,642 1,340,245
--------------- --------------- ---------------
NET ASSETS ............................................................... $ 36,406,766 $ 29,744,226 $ 98,387,850
=============== =============== ===============
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements 45 December 31, 1998
<PAGE>
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities (continued)
<TABLE>
<CAPTION>
Small
Capitalization International
Stock Equity
Fund Fund
------------- -------------
<S> <C> <C>
NET ASSETS consist of:
Paid-in capital .................................................. $ 29,830,975 $ 28,236,094
Undistributed/(distributions in excess of) net investment income . 2,175 2,176
Accumulated net realized (loss) on investments sold .............. (622,391) (619,069)
Net unrealized appreciation/(depreciation) of investments
and assets and liabilities denominated in foreign currency 2,626,747 (4,449,583)
------------- -------------
TOTAL NET ASSETS ......................................................... $ 31,837,506 $ 23,169,618
============= =============
Shares of beneficial interest outstanding ................................ 2,792,359 2,052,445
============= =============
NET ASSET VALUE,
offering and redemption price per share
(Net Assets / Shares Outstanding) ................................ $ 11.40 $ 11.29
============= =============
</TABLE>
- --------------------------------------------------------------------------------
December 31, 1998 46 See Notes to Financial Statements
<PAGE>
<TABLE>
<CAPTION>
Global
Global Asset
Equity Bond Allocation
Fund Fund Fund
------------- ------------- -------------
<S> <C> <C> <C>
NET ASSETS consist of:
Paid-in capital .................................................. $ 34,688,095 $ 29,677,564 $ 100,122,097
Undistributed/(distributions in excess of) net investment income . 2,278 (72,293) --
Accumulated net realized (loss) on investments sold .............. (988,587) (150,755) --
Net unrealized appreciation/(depreciation) of investments
and assets and liabilities denominated in foreign currency 2,704,980 289,710 (1,734,247)
------------- ------------- --------------
TOTAL NET ASSETS ......................................................... $ 36,406,766 $ 29,744,226 $ 98,387,850
============= ============= ==============
Shares of beneficial interest outstanding ................................ 3,012,835 2,981,028 10,013,359
============= ============= ==============
NET ASSET VALUE,
offering and redemption price per share
(Net Assets / Shares Outstanding) ................................ $ 12.08 $ 9.98 $ 9.83
============= ============= ==============
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements 47 December 31, 1998
<PAGE>
- --------------------------------------------------------------------------------
Statement of Operations
<TABLE>
<CAPTION>
Small
Capitalization International
Stock Equity
Fund(1) Fund(1)
-------------- --------------
<S> <C> <C>
INVESTMENT INCOME:
Interest ............................................................. $ 45,539 $ 10,383
Dividends ............................................................ 13,317 138,637
Less net foreign taxes witheld ....................................... -- (10,926)
-------------- --------------
Total investment income ........................................ 58,856 138,094
-------------- --------------
EXPENSES:
Business manager fee ................................................. -- --
Investment advisory fees ............................................. 37,190 53,157
Administration fee ................................................... 7,084 11,191
Custodian fee ........................................................ 18,500 14,100
Fund accounting fee .................................................. 9,060 16,436
Legal and audit fees ................................................. 21,156 21,826
Transfer agent fee ................................................... 3,558 4,216
Directors' fees and expenses ......................................... 578 1,121
Registration/filing fees ............................................. 13,147 12,380
Amortization of organization costs ................................... -- --
Miscellaneous ........................................................ 2,754 3,499
-------------- --------------
Total expenses before waiver ................................... 113,027 137,926
Less fees waived/reimbursed by investment advisor and/or
business manager ............................................ (61,755) (48,389)
-------------- --------------
Total expenses net of waiver ................................... 51,272 89,537
-------------- --------------
NET INVESTMENT INCOME .................................................. 7,584 48,557
-------------- --------------
Net realized gain/(loss) on investments sold ........................... (622,391) (558,084)
Net realized gain/(loss) on forward foreign currency transactions
and foreign currency ................................................. -- 1,072
Net change in unrealized appreciation/(depreciation) of assets
and liabilities denominated in foreign currencies (Note 8) ........... -- 3,781
Net change in unrealized appreciation/(depreciation)
of investments (Note 8) .............................................. 2,626,747 3,206,938
-------------- --------------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON
INVESTMENTS, FOREIGN CURRENCY AND
NET OTHER ASSETS ..................................................... 2,004,356 2,653,707
-------------- --------------
NET INCREASE/(DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ............................................ $ 2,011,940 $ 2,702,264
============== ==============
</TABLE>
- ----------------------------------
(1) The Fund commenced operations on October 1, 1998
(2) The Fund commenced operations on April 1, 1998.
- --------------------------------------------------------------------------------
For the Period Ended December 31, 1998 48 See Notes to Financial Statements
<PAGE>
<TABLE>
<CAPTION>
Global
Global Asset
Equity Bond Allocation
Fund(1) Fund(1) Fund(2)
----------- ------------- ------------
<S>
INVESTMENT INCOME: <C> <C> <C>
Interest ............................................................. $ 1,646 $ 460,876 $ 1,137,589
Dividends ............................................................ 141,301 -- 914,627
Less net foreign taxes witheld ....................................... -- (18,003) (57,914)
------------ ------------- ------------
Total investment income ........................................ 142,947 442,873 1,994,302
------------ ------------- ------------
EXPENSES:
Business manager fee ................................................. -- -- 146,953
Investment advisory fees ............................................. 54,438 45,225 232,193
Administration fee ................................................... 17,420 15,075 145,273
Custodian fee ........................................................ 7,238 23,239 122,650
Fund accounting fee .................................................. 10,948 14,694 46,759
Legal and audit fees ................................................. 24,704 22,094 79,917
Transfer agent fee ................................................... 4,745 4,603 17,566
Directors' fees and expenses ......................................... 1,327 1,169 11,727
Registration/filing fees ............................................. 14,429 12,519 49,683
Amortization of organization costs ................................... -- -- 12,801
Miscellaneous ........................................................ 3,972 3,920 31,342
------------ ------------- ------------
Total expenses before waiver ................................... 139,221 142,538 896,864
Less fees waived/reimbursed by investment advisor and/or
business manager ............................................ (17,420) (37,344) (155,231)
------------ ------------- ------------
Total expenses net of waiver ................................... 121,801 105,194 741,633
------------ ------------- ------------
NET INVESTMENT INCOME .................................................. 21,146 337,679 1,252,669
------------ ------------- ------------
Net realized gain/(loss) on investments sold ........................... (988,587) 940,421 80,493
Net realized gain/(loss) on forward foreign currency transactions
and foreign currency ................................................. -- (1,607,126) (594,857)
Net change in unrealized appreciation/(depreciation) of assets
and liabilities denominated in foreign currencies (Note 8) ........... -- 276,349 --
Net change in unrealized appreciation/(depreciation)
of investments (Note 8) .............................................. 7,526,957 (114,514) (1,734,247)
------------ ------------- ------------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON
INVESTMENTS, FOREIGN CURRENCY AND
NET OTHER ASSETS ..................................................... 6,538,370 (504,870) (2,248,611)
------------ ------------- ------------
NET INCREASE/(DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ............................................ $ 6,559,516 $ (167,191) $ (995,942)
============ ============= ============
</TABLE>
- --------------------------------------------------------------------------------
Notes to Financial Statements 49 For the Period Ended December 31, 1998
<PAGE>
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Small
Capitalization International
Stock Equity
Fund(1) Fund(1)
--------------- --------------
<S> <C> <C>
NET ASSETS at beginning of period .................................... $ -- $ --
Increase in Net Assets resulting from operations:
Net investment income ........................................ 7,584 48,557
Net realized gain/(loss) on investments sold ................. (622,391) (558,084)
Net realized gain/(loss) on forward foreign currency
contracts and foreign currency ....................... -- 1,072
Net change in unrealized appreciation/(depreciation) of
investments and assets and liabilities in denominated
foreign currency (Note 8) ............................ 2,626,747 3,210,719
--------------- --------------
Net increase/(decrease) in net assets resulting
from operations ...................................... 2,011,940 2,702,264
--------------- --------------
Dividends to shareholders:
From net investment income ................................... (7,584) (48,557)
In excess of net investment income ........................... (15,269) (18,968)
In excess of net realized gain on investments, forward foreign
currency contracts and foreign currency .............. -- --
Tax return of capital ........................................ -- --
Share Transactions:
Net proceeds from sales of shares ............................ 30,557,799 12,276
Issued in exchange for certain net assets of The Global Asset
Allocation Fund (Note 8) ............................. -- 20,522,689
Cost of shares repurchased ................................... (709,380) (86)
--------------- --------------
Net increase from share transactions ................. 29,848,419 20,534,879
--------------- --------------
Net increase in net assets ................... 31,837,506 23,169,618
--------------- --------------
NET ASSETS at end of period .......................................... $ 31,837,506 $ 23,169,618
=============== ==============
Undistributed/(distributions in excess of) net investment income ..... $ 2,175 $ 2,176
=============== ==============
OTHER INFORMATION:
Share Transactions:
Sold ......................................................... 2,856,891 184
Issued in exchange for certain net assets of The Global Asset
Allocation Fund (Note 8) ............................. -- 2,052,269
Repurchased .................................................. (64,532) (8)
--------------- --------------
Net increase in shares outstanding ................... 2,792,359 2,052,445
=============== ==============
</TABLE>
- ----------------------------------
(1) The Fund commenced operations on October 1, 1998.
(2) The Fund commenced operations on April 1, 1998.
(A) Amount represents initial seed money. Initial seed shares issued were
10,000.
- --------------------------------------------------------------------------------
For the Period Ended December 31, 1998 50 See Notes to Financial Statements
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Global
Global Asset
Equity Bond Allocation
Fund(1) Fund(1) Fund(2)
-------------- --------------- ----------------
<S> <C> <C> <C>
NET ASSETS at beginning of period .................................... $ -- $ -- $ 100,000(A)
Increase in Net Assets resulting from operations:
Net investment income ........................................ 21,146 337,679 1,252,669
Net realized gain/(loss) on investments sold ................. (988,587) 940,421 80,493
Net realized gain/(loss) on forward foreign currency
contracts and foreign currency ....................... -- (1,607,126) (594,857)
Net change in unrealized appreciation/(depreciation) of
investments and assets and liabilities in denominated
foreign currency (Note 8) ............................ 7,526,957 161,835 (1,734,247)
-------------- --------------- ----------------
Net increase/(decrease) in net assets resulting
from operations ...................................... 6,559,516 (167,191) (895,942)
-------------- --------------- ----------------
Dividends to shareholders:
From net investment income ................................... (21,146) -- (692,930)
In excess of net investment income ........................... (18,322) -- --
In excess of net realized gain on investments, forward foreign
currency contracts and foreign currency .............. -- -- (80,493)
Tax return of capital ........................................ -- -- (2,589)
Share Transactions:
Net proceeds from sales of shares ............................ 71,683 159,528 100,257,316
Issued in exchange for certain net assets of The Global Asset
Allocation Fund (Note 8) ............................. 36,820,117 32,251,889 --
Cost of shares repurchased ................................... (7,005,082) (2,500,000) (197,512)
-------------- --------------- ----------------
Net increase from share transactions ................. 29,886,718 29,911,417 100,059,804
-------------- --------------- ----------------
Net increase in net assets ................... 36,406,766 29,744,226 98,287,850
-------------- --------------- ----------------
NET ASSETS at end of period .......................................... $ 36,406,766 $ 29,744,226 $ 98,387,850
============== =============== ================
Undistributed/(distributions in excess of) net investment income ..... $ 2,278 $ (72,293) $ --
============== =============== ================
OTHER INFORMATION:
Share Transactions:
Sold ......................................................... 6,288 11,724 10,026,011
Issued in exchange for certain net assets of The Global Asset
Allocation Fund (Note 8) ............................. 3,682,012 3,225,189 --
Repurchased .................................................. (675,465) (255,885) (22,652)
-------------- --------------- ----------------
Net increase in shares outstanding ................... 3,012,835 2,981,028 10,003,359
============== =============== ================
</TABLE>
(1) The Fund commenced operations on October 1, 1998.
(2) The Fund commenced operations on April 1, 1998.
(A) Amount represents initial seed money. Initial seed shares issued were
10,000.
- --------------------------------------------------------------------------------
See Notes to Financial Statements 51 For the Period Ended December 31, 1998
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
For a Share outstanding throughout the period ended December 31, 1998
<TABLE>
<CAPTION>
Small
Capitalization International
Stock Equity
Fund(1) Fund(1)
-------------- -------------
<S> <C> <C>
Net Asset Value, Beginning of Period ............................. $ 10.00 $ 10.00
Income/(loss) from Investment Operations:
Net investment income(A) ................................. 0.00+ 0.02
Net realized and unrealized gain/(loss) on investments.... 1.41 1.30
-------------- -------------
Total from Investment Operations: ................ 1.41 1.32
-------------- -------------
Less Dividends:
From net investment income (A) ........................... (0.00)+ (0.02)
In excess of net investment income ....................... (0.01) (0.01)
In excess of net realized capital gains .................. -- --
Tax return of capital .................................... -- --
-------------- -------------
Total Dividends: ................................. (0.01) (0.03)
-------------- -------------
Net increase /(decrease) in net asset value ...................... 1.40 1.29
-------------- -------------
Net Asset Value, End of Period ................................... $ 11.40 $ 11.29
============== =============
Total Return (B) ................................................. 13.99% 13.23%
Ratios/Supplemental Data:
Net Assets, End of Period (000's) ................................ $ 31,838 $ 23,170
Ratios to average net assets:
Net investment income including
reimbursement/waiver ............................. 0.21%* 0.87%*
Operating expenses including reimbursement/waiver ........ 1.45%* 1.60%*
Operating expenses excluding reimbursement/waiver ........ 3.19%* 2.46%*
Portfolio turnover rate .......................................... 23% 8%
</TABLE>
- --------------------------------------
* 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 Stock Fund, less than $0.01 for The International Equity
Fund, less than $0.01 for The 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. (See note 4)
(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.
- --------------------------------------------------------------------------------
52 See Notes to Financial Statements
<PAGE>
<TABLE>
<CAPTION>
Global
Global Asset
Equity Bond Allocation
Fund(1) Fund(1) Fund(2)
------------- ------------- -------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period ............................. $ 10.00 $ 10.00 $ 10.00
Income/(loss) from Investment Operations:
Net investment income(A) ................................. 0.01 0.11 0.13
Net realized and unrealized gain/(loss) on investments.... 2.08 (0.13) (0.22)
------------- ------------- -------------
Total from Investment Operations: ................ 2.09 (0.02) (0.09)
------------- ------------- -------------
Less Dividends:
From net investment income (A) ........................... (0.01) -- (0.07)
In excess of net investment income ....................... (0.00)+ -- --
In excess of net realized capital gains .................. -- -- (0.01)
Tax return of capital .................................... -- -- (0.00)+
------------- ------------- -------------
Total Dividends: ................................. (0.01) -- (0.08)
------------- ------------- -------------
Net increase /(decrease) in net asset value ...................... 2.08 (0.02) (0.17)
------------- ------------- -------------
Net Asset Value, End of Period ................................... $ 12.08 $ 9.98 $ 9.83
============= ============= =============
Total Return (B) ................................................. 20.93% (0.20)% (1.55)%
Ratios/Supplemental Data:
Net Assets, End of Period (000's) ................................ $ 36,407 $ 29,744 $ 98,388
Ratios to average net assets:
Net investment income including
reimbursement/waiver ............................. 0.24%* 4.48%* 1.73%*
Operating expenses including reimbursement/waiver ........ 1.40%* 1.40%* 1.02%*
Operating expenses excluding reimbursement/waiver ........ 1.60%* 1.89%* 1.24%*
Portfolio turnover rate .......................................... 26% 209% 154%
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements 53
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements
1. Organization
Forward Funds, Inc. (the "Company"), a Maryland Corporation, is registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), as an
open-end management investment company. At December 31, 1998, the Company
offered five managed investment portfolios. The accompanying financial
statements and financial highlight are those of The Small Capitalization Stock
Fund ("Small Cap"), The International Equity Fund ("International Equity"), The
Equity Fund ("Equity"), The Global Bond Fund ("Global Bond") and The Global
Asset Allocation Fund ("Asset Allocation") (formerly The Global
Fund)(collectively the "Funds").
The Small Cap, International Equity, Equity, and Asset Allocation Funds seek
high total return (capital appreciation and income). Global Bond Fund seeks
income, with capital appreciation as a secondary objective. Small Cap Fund seeks
its objective by investing primarily in equity securities of companies having
small market capitalizations that offer future growth. Equity Fund seeks its
objective by investing primarily in equity securities of companies located in
the United States. International Equity Fund seeks its objective by investing
primarily in equity securities of companies located outside the United States.
Global Bond Fund seeks its objective by investing primarily in debt securities
of companies and governments located throughout the world. Asset Allocation Fund
seeks its objective by investing primarily in a diversified portfolio of Shares
of the other Funds.
2. Significant Accounting Policies
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies in conformity with generally accepted accounting
principles consistently followed by the Funds in the preparation of their
financial statements.
Portfolio Valuation: Portfolio securities which are traded on a national
securities exchange or on NASDAQ are valued at the last sale price on the
securities exchange on which such securities are primarily traded, or in the
event that no sale
- --------------------------------------------------------------------------------
December 31, 1998 54
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements
(continued)
has occurred, at the average of the bid and ask price. Securities traded on
over-the-counter markets are valued at the average of the last bid and ask
price. Portfolio securities which are primarily traded on foreign securities
exchanges, other than the London Stock Exchange, are generally valued at the
preceeding business day's closing values of such securities on their respective
exchanges. Short-term obligations that mature in 60 days or less are valued at
amortized cost, which approximates fair value. All other securities and other
assets are appraised at their fair value as determined in good faith by or under
the direction of the Board of Directors. The Fund generally values its holdings
through the use of independent pricing agents, except for securities for which a
ready market does not exist, which are valued under the direction of the Board
of Directors or which are valued by the Sub-Advisors using methodologies
approved by the Board of Directors.
Securities Transactions and Investment Income: Securities transactions are
accounted for on a trade date basis. Net realized gains or losses on sales of
securities are determined by the identified cost method. Interest income,
adjusted for accretion of discounts and amortization of premiums, is recorded on
the accrual basis. Dividend income is recorded on the ex-dividend date, except
that certain dividends from foreign securities are recorded as soon as the Funds
are informed of the ex-dividend date, if the ex-dividend date has passed.
Forward Foreign Currency Exchange Contracts: The Funds may enter into forward
foreign currency exchange contracts whereby the Fund agrees to buy or sell a
specific currency at a specified price at a future date in an attempt to hedge
against fluctuations in the value of the underlying currency of certain
portfolio instruments. Forward foreign currency exchange contracts are valued at
the daily exchange rate of the underlying currency. Purchases and sales of
forward foreign currency exchange contracts having the same settlement date and
broker are offset and presented on a net basis in the "Statements of Assets and
Liabilities" herein. Gains or losses on the purchase or sale of forward foreign
currency exchange contracts having the same settlement date and broker are
recognized on the date of offset, otherwise gains or losses are recognized on
the settlement date. The use of forward contracts involves the risk that
anticipated currency movements will not be accurately predicted. A forward
contract would limit the risk of loss due to a decline in the value of a
particular currency, however, it also would limit any potential gain that might
result should the value of the currency increase instead of decrease. These
contracts may involve market risk in excess of the unrealized gain or loss
reflected in the Statement of Assets and Liabilities. In addition, the
- --------------------------------------------------------------------------------
55 December 31, 1998
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements
(continued)
Funds could be exposed to risks if counterparties of the contracts are unable to
meet the terms of their contracts. The counterparty risk exposure is, therefore,
closely monitored and contracts are only executed with high credit quality
financial institutions.
Foreign Currency Translation: The books and records of the Funds are
maintained in U.S. dollars. Investment valuations and other assets and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases and
sales of foreign investments and income and expenses are converted into U.S.
dollars based upon exchange rates prevailing on the respective dates of such
transactions. That portion of unrealized gains or losses on investments due to
fluctuations in foreign currency exchange rates is not separately disclosed.
Dividends to Shareholders: Dividends from net investment income are declared
and paid annually for Small Cap, International Equity, Equity, and Asset
Allocation, and quarterly for Global Bond Fund. Net realized capital gains, if
any, are distributed at least annually.
Income dividends and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles. Therefore, the source of the Funds' distributions may be shown in
the accompanying financial statements as either from or in excess of net
investment income or net realized gain, or from paid-in-capital, depending upon
the type of book/tax differences that may exist. The primary book to tax
differences at December 31, 1998 are due to amortization of certain capitalized
costs and wash sales.
Federal Income Taxes: The company treats each Fund as a separate entity for
federal income tax purposes. Each Fund intends to qualify each year as a
"regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended. By so qualifying, each Fund will not be subject to federal
income taxes to the extent that it distributes substantially all of its taxable
or tax-exempt income, if any, for its tax year ending December 31. In addition,
by distributing in each calendar year substantially all of its net investment
income, capital gains and certain other amounts, if any, each Fund will not be
subject to a federal excise tax. Therefore, no provision is made for federal
income or excise taxes. Withholding taxes on foreign dividends have been paid or
provided for in accordance with the applicable country's tax rules and rates.
- --------------------------------------------------------------------------------
December 31, 1998 56
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements
(continued)
Organization Costs: The Funds bear all costs in connection with their
organization, including the fees and expenses of registering and qualifying
their initial shares for distribution under federal and state securities laws.
Such costs for Asset Allocation are being amortized using the straight-line
method over a period of five years beginning with the commencement of its
operations. The costs for Small Cap, International Equity, Equity and Global
Bond have been expensed as incurred in the current year.
When-Issued and Delayed-Delivery Transactions: The Funds may purchase
securities on a when-issued or delayed-delivery basis. A Fund will engage in
when-issued and delayed-delivery transactions only for the purpose of acquiring
portfolio securities consistent with its investment objective and policies, not
for investment leverage. When-issued securities are securities purchased for
delivery beyond the normal settlement date at a stated price and yield and
thereby involve a risk that the yield obtained in the transaction will be less
than that available in the market when delivery takes place. A Fund will not pay
for such securities or start earning interest on them until they are received.
When a Fund agrees to purchase securities on a when-issued basis, the custodian
will set aside cash or liquid securities equal to the amount of the commitment
in a segregated account. Securities purchased on a when-issued basis are
recorded as an asset and are subject to changes in value based upon changes in
the general level of interest rates. In when-issued and delayed-delivery
transactions, a Fund relies on the seller to complete the transaction; the
seller's failure to do so may cause the Fund to miss an advantageous price or
yield.
3. Investment Advisory, Administration and Other Fees
The Company has entered into an investment advisory agreement with Webster
Investment Management Company, LLC ("Webster", or the "Advisor") pursuant to
which Webster provides investment advisory services to the Funds and is entitled
to receive a fee calculated daily and payable monthly at the following annual
rates based on each Fund's average daily net assets: Asset Allocation, 0.05%;
Small Cap, 1.05%; International Equity, 0.95% for the first $25 million, 0.80%
for the next $25 million, 0.75% for the next $50 million, 0.65% for the next
$150 million, 0.60% for the next $250 million, and 0.55% on net assets over $500
million; Equity, 0.625% for the first $100 million, 0.55% for the next $400
million, and 0.50% on net assets over $500 million; Global Bond, 0.60% for the
first $200 million and 0.55% on net assets over $200 million.
- --------------------------------------------------------------------------------
57 December 31, 1998
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements
(continued)
Webster has entered into sub-advisory agreements with Barclays Global Fund
Advisors ("Barclays") for The Equity Fund, Templeton Investment Counsel, Inc.
("Templeton") for The International Equity Fund, Hoover Capital Management, LLC
("Hoover") for The Small Cap Fund, and Pacific Investment Management Company
("PIMCO") for The Global Bond Fund (each, a "Sub-Advisor"). Pursuant to these
agreements, the Sub-Advisors provide sub-investment advisory services to the
Funds and are entitled to receive a fee from Webster calculated daily and
payable monthly at the following annual rates based on each Fund's average daily
net assets as follows: Small Cap, 0.80%; International Equity, 0.70% for the
first $25 million, 0.55% for the next $25 million, 0.50% for the next $50
million, 0.40% for the next $150 million, 0.35% for the next $250 million, and
0.30% on net assets over $500 million; Equity, 0.375% for the first $100
million, 0.30% for the next $400 million, and 0.25% on net assets over $500
million; Global Bond, 0.35% for the first $200 million and 0.30% on net assets
over $200 million. There is no sub-advisor for Asset Allocation.
Prior to October 1, 1998, Barclays, Templeton and PIMCO each served as
investment advisors to Asset Allocation (then known as "The Global Fund").
Barclays advised the Fund's investments in U.S equities, Templeton advised the
Fund's investments in foreign equities and PIMCO advised the Fund's investments
in fixed income and other debt securities. Each sub-advisor received fees
calculated daily and payable monthly based on The Global Fund's net assets over
which they had investment management responsibility, at the same rates as they
currently receive in their capacity as sub-advisors of International Equity,
Equity and Global Bond, respectively.
Also prior to October 1, 1998, Sutton Place Management Co., Inc. ("Sutton")
served as Business Manager to the The Global Fund and provided certain general
administrative functions now performed by Webster. Pursuant to agreement with
the Company, Sutton received business management fees, calculated daily and
payable monthly, at the annual rate of 0.30% of the Fund's daily net assets.
First Data Investor Services Group, Inc. ("Investor Services Group"), a
wholly-owned subsidiary of First Data Corporation, serves as the Funds'
administrator and receives fees for its services. Investor Services Group also
provides certain
- --------------------------------------------------------------------------------
December 31, 1998 58
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements
(continued)
fund accounting, transfer agency and dividend dispersing services to the Funds
pursuant to certain fee arrangements.
First Data Distributors, Inc. (the "Distributor") serves as the Funds
distributor. The Distributor acts as an agent for the Funds and the distributor
of their Shares.
Overall responsibility for oversight of the Funds rests with the Directors of
the Company, who are elected by the Shareholders of the company. There are
currently three Directors, two of whom are not "interested persons" of the
Company within the meaning of that term under the 1940 Act. Both disinterested
Directors receive an annual retainer fee of $6,000 for their services.
Certain legal fees have been paid during the period by Sutton on the Funds'
behalf. At December 31, 1998, these fees totaling approximately $182,747 are
payable by the Funds to Sutton and are included in "Accrued expenses and other
payables" on the Statement of Assets and Liabilities.
4. Waiver of Fees
The Advisor (and prior to October 1, 1998 the Business Manager) has agreed to
voluntarily waive a portion of its fees and/or reimburse certain expenses. These
voluntary waivers and/or reimbursements may be revised or discontinued at any
time. For the period ended December 31, 1998, the fee waivers and/or
reimbursements were as follows:
Fees
Fees Waived by Fees
Waived by Business Reimbursed
Fund Advisor Manager by Advisor Total
- ---------- --------- ---------- ------------ -------
Small Cap $ 8,855 $ -- $ 52,900 $ 61,755
International Equity 13,989 -- 34,400 48,389
Equity 17,420 -- -- 17,420
Global Bond 18,844 -- 18,500 37,344
Asset Allocation 8,278 146,953 -- 155,231
- --------------------------------------------------------------------------------
59 December 31, 1998
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements
(continued)
5. Shares of Beneficial Interest
The Company's Articles of Incorporation authorize the Directors to issue an
unlimited number of Shares of beneficial interest. The Funds currently offer a
single class of Shares. Each Share represents an equal proportionate interest in
the Fund with other Shares of the Fund, and each is entitled to such dividends
and distributions out of the income earned on the assets belonging to the Fund
as are declared at the discretion of the Directors.
6. Purchases and Sales of Securities
The cost of purchases and proceeds from sales of securities, excluding U.S.
Government and short-term investments, for the period ended December 31, 1998
were as follows:
Fund Purchases Sales
- -------------------- ------------ ------------
Small Cap $ 27,942,133 $ 2,607,837
International Equity 29,555,873 1,765,343
Equity 43,268,474 8,800,440
Global Bond 70,904,551 52,077,690
Asset Allocation 216,903,665 98,957,530
The cost of purchases and proceeds from sales of long-term U.S. Government
securities for the period ended December 31, 1998 were as follows:
Fund Purchases Sales
- -------------------- ------------- -----------
Small Cap $ -- $ --
International Equity -- --
Equity -- --
Global Bond 56,436,120 35,126,902
Asset Allocation 64,804,802 45,410,580
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December 31, 1998 60
<PAGE>
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Notes to Financial Statements
(continued)
At December 31, 1998 the aggregate cost of investments, gross unrealized
appreciation and depreciation and net unrealized appreciation/(depreciation) for
federal tax purposes was as follows:
Net
Gross Gross Unrealized
Unrealized Unrealized Appreciation/
Fund Cost Appreciation Depreciation (Depreciation)
- ------------- ------------ ------------ ------------- --------------
Small Cap $ 24,855,553 $ 3,034,398 $ (551,294) $ 2,483,104
International
Equity 27,987,444 1,321,825 (5,770,580) (4,448,755)
Equity 33,488,975 5,598,104 (2,902,652) 2,695,452
Global Bond 45,620,509 557,606 (461,618) 95,988
Asset
Allocation 101,266,549 3,231,461 (4,965,708) (1,734,247)
At December 31, 1998 the following Funds had capital loss carryforwards:
Fund Amount Expiration
- -------------------- ------------ -------------
Small Cap $402,268 2006
International Equity 619,069 2006
Equity 854,754 2006
7. Foreign Securities
Each Fund (except The Asset Allocation Fund) may directly purchase securities
of foreign issuers. Investing in securities of foreign issuers involves special
risks not typically associated with investing in securities of U.S. issuers. The
risks include possible revaluation of currencies, less complete financial
information about companies and possible future adverse political and economic
developments. Moreover, securities of many foreign issuers and their markets may
be less liquid and their prices more volatile than those of securities of
comparable U.S. issuers.
On January 1, 1999, the European Monetary Union ("EMU") introduced a new single
currency, the Euro, which will replace the national currencies of the
participating members countries. Until 2002, the national currencies will
continue to exist, but exchange rates will be tied to the Euro. The introduction
of the Euro is likely to affect all stages of the investment process, including
trading, foreign exchange and accounting. Because this change to a single
currency is new, the introduction of the Euro may result in market volatility
and may affect the busi-
- --------------------------------------------------------------------------------
61 December 31, 1998
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements
(continued)
ness or financial conditions of European issuers or of a Portfolio investing in
European issuers. In addition, while the conversion will eliminate currency risk
among the participating nations, currency risk between the Euro and the U.S.
dollar remains a factor.
8. Reorganization
Effective October 1, 1998, Asset Allocation (formerly known as The Global Fund)
reorganized as a fund-of-funds, and three new funds, International Equity,
Equity and Global Bond (the "New Funds"), were established by the Company with
the assets of The Global Fund.
This tax free reorganization was accomplished with each New Fund acquiring the
net assets of Asset Allocation which corresponded to its investment strategy in
exchange for shares of the New Funds. The number and value of shares issued by
the New Funds are presented in the "Statement of Changes in Net Assets" herein.
Net assets and unrealized appreciation/(depreciation) as of the date of
recognization were as follows:
New Fund
Net Assets Net Assets Acquired
of Fund of Fund Unrealized
Prior to After Appreciation/
Fund Conversion Conversion (Depreciation)
- -------------------- ------------- ------------- ---------------
International Equity $ -- $20,522,689 $(7,660,302)
Equity -- 36,820,117 (4,821,977)
Global Bond -- 32,251,889 127,875
Asset Allocation 89,198,478 89,198,478 --
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December 31, 1998 62
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements
(continued)
9. Risk Factors of The Asset Allocation Fund
Investing in the Small Cap, International Equity, Equity and Global Bond Funds
(the "Underlying Funds") through Asset Allocation involves certain additional
expenses that would not be present in a direct investment in the Underlying
Funds.
The officers and directors of the Company also serve as officers and directors
of both the Underlying Funds and Asset Allocation. Conflicts may arise as the
officers and directors seek to fulfill their fiduciary responsibilities to both
Asset Allocation and the Underlying Funds.
From time to time, one or more of the Underlying Funds used for investment by
Asset Allocation may experience relatively large investments or redemptions due
to reallocations or rebalancings by Asset Allocation as recommended by Webster.
These transactions will affect the Underlying Funds, since the Underlying Funds
that experience redemptions as a result of the reallocations or rebalancings may
have to sell portfolio securities and the Underlying Funds that receive
additional cash will have to invest such cash. While it is impossible to predict
the overall impact of these transactions over time, there could be adverse
effects on portfolio management to the extent that the Underlying Funds may be
required to sell securities or invest cash at times when they would not
otherwise do so. These transactions could also have tax consequences if sales of
securities resulted in gains and could also increase transactions costs.
Webster, representing the interests of the Underlying Funds, is committed to
minimizing the impact of Asset Allocation transactions on the Underlying Funds
to the extent it is consistent with pursuing the investment objectives of Asset
Allocation. Webster may, nevertheless, face conflicts in fulfilling its
responsibilities to both Asset Allocation and the Underlying Funds.
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63 December 31, 1998
<PAGE>
- --------------------------------------------------------------------------------
Report of Independent Auditors
To the Shareholders and Board of Directors of Forward Funds, Inc.:
We have audited the accompanying statements of assets and liabilities, including
the portfolio of investments of The Small Capitalization Stock Fund, The
International Equity Fund, The Global Bond Fund, The Equity Fund and The Global
Asset Allocation Fund (the `Funds'), as of December 31, 1998, and the related
statements of operations, statements of changes in net assets and financial
highlights for the period presented. These financial statements and financial
highlights are the responsibility of the Funds' management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
December 31, 1998 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Funds as of December 31, 1998, and the results of their operations and changes
in their net assets and the financial highlights for the period presented, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California
February 12, 1999
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December 31, 1998 64
<PAGE>
The Forward Funds
- --------------------------------------------------------------------------------
All no-load; no 12b-1 fees
Forward Funds-Small Capitalization Stock Fund primarily seeks long-term capital
appreciation by investing in U.S. small-cap stocks. The Fund's subadviser is
Hoover Capital Management.
Forward Funds-Equity Fund seeks long-term capital appreciation by purchasing
U.S. stocks. The Fund's sub-advisor is Barclays Global Fund Advisors.
Forward Funds-International Equity Fund seeks long-term capital appreciation by
investing in international (non-U.S.) stocks. The Fund's subadvisor is Templeton
Investment Counsel.
Forward Funds-Global Bond Fund seeks to generate income by investing in
corporate and government fixed-income securities across global markets,
including U.S. bonds. The Fund's sub-advisor is Pacific Investment Management
Company.
Forward Fund-Global Asset Allocation Fund seeks high total return, capital
appreciation and income by investing primarily in a diversified portfolio of the
other Funds offered by the company: Equity, International Equity, Global Bond
and Small Capitalization Stock.
Shares of each Fund may be exchanged for shares of any other Forward Fund or
with a money market fund, the Vista U.S. Government Money Market Fund, a
portfolio of Mutual Fund Trust. The Chase Manhattan Bank acts as investment
advisor to the money market fund. There will be no fees for exchanges.
- --------------------------------------------------------------------------------
All Forward Funds are 100% no load (through Forward Funds sold through
intermediaries may require a transaction fee.
