As Filed with the Securities and Exchange Commission on April 28, 2000
File No. 333-37367
File No. 811-8419
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
=============================
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. 14 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 16 /X/
THE FORWARD FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
433 California Street, Suite 1010
San Francisco, California 94104
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code: 1-800-999-6809
=============================
RONALD PELOSI
Forward Funds, Inc.
433 California Street, Suite 1010
San Francisco, California 94104
(Name and address of agent for service of process)
COPIES TO:
ROBERT W. HELM
Dechert Price & Rhoads
1775 Eye Street, N.W.
Washington, D.C. 20006
=============================
It is proposed that this filing will become effective on May 1, 2000 pursuant to
paragraph (b).
<PAGE>
FORWARD FUNDS, INC.
The Hansberger International Growth Fund
The Uniplan Real Estate Investment Fund
The Hoover Small Cap Equity Fund
The Garzarelli U.S. Equity Fund
Prospectus dated May 1, 2000
The Garzarelli U.S. Equity Fund, Hansberger International Growth Fund and
Hoover Small Cap Equity Fund are designed for investors desiring high total
return (capital appreciation and income). The Uniplan Real Estate Investment
Fund is designed for investors primarily seeking income with capital
appreciation as a secondary goal. The Hoover Small Cap Equity Fund offers two
classes of shares: Investor Class and Institutional Class. The other Funds offer
Investor class shares.
Our Funds are mutual funds. Mutual funds employ professionals to manage the
investments made on behalf of the persons who invest in them, the shareholders
of the mutual fund. Our funds, like other mutual funds, try to meet their stated
investment goals but there is no guarantee that the goals will be met.
Investments in our Funds are not bank deposits; they are not insured by the FDIC
or the federal government or any other agency.
You should understand that an investment in the Funds involves certain risks,
including the loss of some or all of your investment.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. It is a criminal
offense to say otherwise.
<PAGE>
TABLE OF CONTENTS
Page
THE HANSBERGER INTERNATIONAL GROWTH FUND.......................................4
Objective.............................................................4
Principal Investment Strategies - Investing in International Growth
Securities..........................................................4
What are the Principal Risks of Investing in the Hansberger
International Growth Fund?............................................5
Performance History...................................................5
Shareholder Fees and Expenses.........................................6
THE UNIPLAN REAL ESTATE INVESTMENT FUND........................................9
Objective.............................................................9
Principal Investment Strategies - Investing in Equity Securities of
Real Estate Focused Companies.......................................9
What are the Principal Risks of Investing in the Uniplan Real Estate
Investment Fund?.....................................................10
Performance History..................................................11
Shareholder Fees and Expenses........................................11
THE HOOVER SMALL CAP EQUITY FUND..............................................14
Objective............................................................14
Principal Investment Strategy - Investing in Equity Securities of
Companies with Small Market Capitalization.........................14
What are the Principal Risks of Investing in the Hoover Small Cap
Equity Fund..........................................................14
Performance History..................................................15
Shareholder Fees and Expenses........................................16
THE GARZARELLI U.S. EQUITY FUND...............................................19
Objective............................................................19
Principal Investment Strategy - Investing in Domestic Equity
Securities...........................................................19
What are the Principal Risks of Investing in the Garzarelli U.S. Equity
Fund?................................................................19
Performance History..................................................20
Shareholder Fees and Expenses........................................20
ADDITIONAL INVESTMENT STRATEGIES AND RISKS....................................24
MANAGEMENT OF THE FUNDS.......................................................26
Investment Adviser and Sub-Advisers..................................26
VALUATION OF SHARES...........................................................30
PURCHASING SHARES.............................................................32
How to Buy Shares....................................................32
EXCHANGE PRIVILEGE............................................................34
<PAGE>
REDEEMING SHARES..............................................................34
Signature Guarantee..................................................35
By Wire Transfer.....................................................35
By Telephone.........................................................36
By Mail..............................................................36
Payments to Shareholders.............................................36
INTERNET TRANSACTIONS.........................................................37
DISTRIBUTION AND SHAREHOLDER SERVICE PLANS....................................37
DIVIDENDS AND TAXES...........................................................38
Federal Taxes........................................................38
GENERAL INFORMATION...........................................................39
Shareholder Communications...........................................39
FINANCIAL HIGHLIGHTS..........................................................39
<PAGE>
THE HANSBERGER INTERNATIONAL GROWTH FUND
Objective
The Hansberger International Growth Fund seeks to achieve high total return
(capital appreciation and income).
Principal Investment Strategies - Investing in International Growth Securities
The Hansberger International Growth Fund seeks to achieve its investment
objective by investing primarily (at least 65% of total assets) in the equity
securities (common, preferred and convertible securities) of companies organized
or located outside of the United States. Even though these companies are based
outside of the United States, their securities may be traded on U.S. securities
markets and the Fund may purchase these securities. The Fund will invest in at
least three different countries and expects to be invested in more than three
countries, including countries considered to be emerging market countries. The
Fund will not invest more than 25% of its total assets in emerging markets. The
Fund will primarily invest in common stock.
The Hansberger International Growth Fund invests a substantial amount of its
assets in foreign investments which are denominated in other currencies besides
the U.S. dollar, and can be affected by fluctuations in exchange rates.
For hedging purposes and to reduce the risks of fluctuating exchange rates, the
Fund may enter into forward foreign currency exchange contracts which obligate a
party to buy or sell a specific currency on a future date at a fixed price. The
Fund "locks in" an exchange rate. For hedging purposes, the Fund may also invest
in options on foreign currencies, in foreign currency futures and options and in
foreign currency exchange-related securities like foreign currency warrants and
other instruments linked to foreign currency exchange rates. The Fund's
sub-adviser generally chooses not to hedge the Fund's currency exposure.
The Fund's sub-adviser anticipates following a flexible investment policy which
will allow it to select those investments best suited to achieve the Fund's
investment objective over the long term. The Fund's sub-adviser uses a
disciplined, long-term approach to international investing. It has an extensive
global network of investment research sources. The sub-adviser focuses primarily
on identifying successful companies that have favorable, anticipated long-term
growth prospects. Securities are selected for the Fund's portfolio on the basis
of fundamental company-by-company analysis. In choosing equity instruments, the
Fund's sub-adviser typically will focus on the market price of a company's
securities relative to its evaluation of the company's long-term earnings and
cash flow potential. In addition, a company's valuation measures, including but
not limited to price/earnings ratio and price/book ratio, will customarily be
considered. The sub-adviser generally sells a security if the sub-adviser's
price target is met, the company's fundamentals change, or if the portfolio is
fully invested and a better investment opportunity arises. There are no
limitations on the size of the companies in which the Fund may invest.
<PAGE>
What are the Principal Risks of Investing in the Hansberger International
Growth Fund?
As with any investment, an investment in the Hansberger International Growth
Fund may cause you to lose some or all of the money you invested. Because the
securities in which the Hansberger International Growth Fund invests may
decrease in value, the net asset value of the Fund may decrease and the value of
your investment may also decrease. You should consider your own investment
goals, time horizon and risk tolerance before investing in the Hansberger
International Growth Fund.
o Foreign Securities
Investments in foreign securities may present more risk than investing
in U.S. securities because of factors such as unstable international political
and economic conditions, currency fluctuations, foreign controls on investment
and currency exchange, withholding taxes, exit levies, a lack of adequate
company information, less liquid and more volatile markets, and a lack of
government regulation. Investments in emerging markets involve even greater
risks such as immature economic structures and different legal systems.
o Currency Transactions
If a security is denominated in a foreign currency, the value of the
security fluctuates if there is a change in currency exchange rates or exchange
control regulations, and adverse currency fluctuations will reduce the value of
the Fund's shares. Costs are incurred by a Fund in connection with conversions
between currencies. Currency risks are greater in lesser developed markets and
can be unpredictably affected by external events. Fund managers are authorized
to hedge against currency risks but are not required to do so and may choose not
to do so because of the cost or for other reasons. In accordance with its
investment philosophy, the Fund's sub-adviser generally chooses not to hedge the
Fund's currency exposure.
o Common Stocks
The Hansberger International Growth Fund invests in the equity securities of
companies, which exposes the Fund and its shareholders to the risks associated
with investing in common stock. These risks include the financial risk of
selecting individual companies that do not perform as anticipated, the risk that
the stock markets in which the Fund invests may experience periods of turbulence
and instability, and the general risk that domestic and global economies may go
through periods of decline and cyclical change. Many factors affect an
individual company's performance, such as the strength of its management or the
demand for its product or services. The Fund's sub-adviser follows a management
style focused on growth at a price believed reasonable based upon such factors
as various price to earnings valuations given varying growth rates or
anticipated growth rates. If the market does not come to share the sub-adviser's
assessment of an investment's long-term growth, the Fund may underperform other
mutual funds or international stock indices.
<PAGE>
Performance History
The chart below shows the Fund's annual total return for 1999, the first full
year in which the Fund was operational, together with the best and worst
quarters since inception. The accompanying table gives an indication of the
risks of investing in the Fund by comparing the Fund's performance to that of
the Morgan Stanley World (Ex. U.S.) Index, an unmanaged index of stock
performance. The presentations below assume reinvestment of dividends and
distributions. Past results are not an indication of future performance.
[Bar Chart]
25.15%
1999
Best Quarter (12/31/98) 13.23%
Worst Quarter (9/30/99) -1.02%
Annual Total Return as of 12/31/99 1 Year Since Inception
================================================================================
Hansberger International Growth Fund(1) 25.15% 32.10%
The Morgan Stanley World (Ex. U.S.) Index(2) 28.3% 36.9%
- ----------------
1 Hansberger Global Investors, Inc. has been the Fund's sub-adviser since
March 6, 2000; however, prior to this time the Fund was managed by a
different sub-adviser.
2 The Morgan Stanley World (Ex. U.S.) Index is an unmanaged regional index
comprised of 21 developed market countries. Investors cannot invest
directly in the index.
Shareholder Fees and Expenses
This table describes the fees and expenses that you may pay if you buy shares of
the Hansberger International Growth Fund.
<PAGE>
----------------------------------------------------------- -------------------
Shareholder Fees (fees paid directly from your
investment):
----------------------------------------------------------- -------------------
Maximum Sales Charge (Load) on Purchases (as a % of your NONE
purchase price)(1)
----------------------------------------------------------- -------------------
Maximum Deferred Sales Charge (Load) NONE
----------------------------------------------------------- -------------------
Maximum Sales Charge (Load) Imposed on Reinvested NONE
Dividends
----------------------------------------------------------- -------------------
Redemption Fee NONE(2)
----------------------------------------------------------- -------------------
Exchange Fees NONE
----------------------------------------------------------- -------------------
- ---------------
1 You may be charged $1.50 for checks and $8.00 for wire transfers. There is
no wire transfer fee for transfers involving an omnibus account of a
broker-dealer or other entity that has an agreement with Forward Funds,
Inc. or its distributor to service shareholders.
2 You may be charged $1.00 if you redeem your shares by mail. If you choose
to receive the proceeds from your redemption via wire transfer, you may be
charged $8.00. There is no wire transfer fee for transfers involving an
omnibus account of a broker-dealer or other entity that has an agreement
with Forward Funds, Inc. or its distributor to service shareholders. There
is no charge for redemptions effected via the Internet or ACH transfers by
phone or Internet.
<PAGE>
----------------------------------------------------------- -------------------
Annual Fund Operating Expenses (expenses that are
deducted from Fund assets)(3)
----------------------------------------------------------- -------------------
Management Fee 0.75%
----------------------------------------------------------- -------------------
Distribution and Service (12b-1) Fees (4) 0.13%
----------------------------------------------------------- -------------------
Other Expenses 1.17%
----------------------------------------------------------- -------------------
Total Annual Fund Operating Expenses 2.05%
----------------------------------------------------------- -------------------
Fee Waiver (5) (0.35%)
----------------------------------------------------------- -------------------
Net Expenses 1.70%
----------------------------------------------------------- -------------------
Example
This example is intended to help you compare the costs of investing in the
Hansberger International Growth Fund with the costs of investing in other mutual
funds.
- ---------------
3 These expenses are paid directly out of the Fund's assets. Expenses are
factored into the share price or dividends and are not charged directly to
shareholder accounts.
4 The Fund's shareholders have adopted a Distribution Plan pursuant to which
up to 0.25% of the Fund's average daily net assets may be used to pay
shareholder servicing and distribution fees. The Fund has also adopted a
Shareholder Servicing Plan pursuant to which up to 0.10% of the Fund's
average net assets could be used to pay shareholder servicing fees. The
expenses of the Shareholder Servicing Plan are reflected as part of "Other
Expenses" of the Fund.
5 The Fund's Investment Adviser has contractually agreed to waive a portion
of its fees until January 1, 2001 in amounts necessary to limit the Fund's
operating expenses to an annual rate of 1.65% (as a percentage of average
daily net assets and exclusive of 12b-1 and shareholder servicing fees).
For the two years following January, 2000, the Investment Adviser is
entitled to a reimbursement from the Fund of any fees waived under this
arrangement if such reimbursement does not cause the Fund to exceed
existing expense limitations.
<PAGE>
The Example assumes that you invest $10,000 in the Hansberger International
Growth Fund for the periods indicated and then redeem all of your shares at the
end of those periods. The Example also assumes that your investment has a 5%
return each year and that the Fund's total annual Fund operating expenses remain
the same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<PAGE>
Hansberger
International
Growth
Fund+
-------
1 Year........................ $173
3 Years....................... $609
5 Years....................... $1,071
10 Years...................... $2,351
You would pay the following expenses if you did not redeem your shares:
Hansberger
International
Growth
Fund+
-------
1 Year........................ $173
3 Years....................... $609
5 Years....................... $1,071
10 Years...................... $2,351
- ---------------
+ The examples above incorporate the contractual fee waiver in place for the
Fund for its current fiscal year.
<PAGE>
THE UNIPLAN REAL ESTATE INVESTMENT FUND
Objective
The Uniplan Real Estate Investment Fund seeks income with capital appreciation
as a secondary goal.
Principal Investment Strategies - Investing in Equity Securities of Real-Estate
Focused Companies
The Uniplan Real Estate Investment Fund invests in real estate securities,
including common stock and units of beneficial interest of real estate
investment trusts, preferred stock, rights to purchase common stock and
securities which may convert into common stock of real estate companies. The
Fund expects to normally invest at least 65% of total assets in these securities
and up to 35% of its assets in debt securities issued or guaranteed by real
estate companies. A real estate investment trust or "REIT" is a company which
primarily owns and operates income-producing real estate, such as apartments,
shopping centers, offices and warehouses. A REIT is legally required to pay
virtually all of its taxable income to its shareholders each year. REITs were
created as a means for average investors to access investments in large
commercial properties through pooling arrangements, much like mutual funds.
Income is produced through commercial real estate ownership and finance.
For the purpose of the Uniplan Real Estate Investment Fund, a real estate
company is one that derives at least 50% of its revenue from real estate related
activities or has at least 50% of its assets in real estate. Other than REITs,
most real estate companies do not pay dividends at a meaningful level. The
Fund's sub-adviser expects that the Fund's investments in real estate companies
will be directed toward REITs and other real estate operating companies that pay
higher dividends relative to the stock market as a whole. There are no size
limitations on the companies in which the Fund invests. The Fund primarily
invests in equity REITs which are REITs that own real estate and whose revenue
come principally from rent.
Prior to selecting specific investments for the Fund, the Fund's sub-adviser
generally tracks real estate supply and demand across the United States by
separating the country into eight geographic regions and then further into major
metropolitan markets within those regions. Within each region, the Fund's
sub-adviser compiles a profile of supply and demand factors including: (1)
vacancy rates by property type; (2) visible supply of new property based on
building permit activity; (3) regional population, job and economic growth; and
(4) local trends in rental and property capitalization rates. The Fund's
sub-adviser uses this data to determine which property types in which regions
appear to be most favorably poised to outperform similar properties in other
regions. The Fund's sub-adviser then proceeds to select investments that attempt
to take advantage of those factors. The Fund's sub-adviser generally sells a
security if the security becomes over-valued in the opinion of the sub-adviser,
the company's fundamentals change or if better investment opportunities arise.
<PAGE>
What are the Principal Risks of Investing in the Uniplan Real Estate
Investment Fund?
As with any investment, an investment in the Uniplan Real Estate Investment Fund
may cause you to lose some or all of the money you invested. Because the
securities in which the Uniplan Real Estate Investment Fund invests may decrease
in value, the net asset value of the Fund may decrease and the value of your
investment may also decrease. You should consider your own investment goals,
time horizon and risk tolerance before investing in the Uniplan Real Estate
Investment Fund.
o Real Estate Securities and Uniplan Real Estate Investment Fund Risks
Because the Uniplan Real Estate Investment Fund concentrates its
investments on opportunities in the real estate industry, the Uniplan Real
Estate Investment Fund has certain risks associated with investments in entities
focused on real estate activities.
The organizational documents of a REIT may give the trust's sponsors the
ability to control the operation of the real estate investment trust even though
another person or entity could own a majority of the interests of the trust.
These trusts may also contain provisions which would delay or make a change in
control of the real estate investment trust difficult. In addition, the
performance of these types of investments can be affected by changes in the tax
laws or failure to qualify for tax-free pass-through of income as well as events
affecting the value of real estate.
The Fund is also subject to the risks associated with direct ownership of
real estate. Real estate values can fluctuate as a result of general and local
economic conditions, overbuilding and increased competition, increases in
property taxes and operating expenses, changes in zoning laws, casualty or
condemnation losses, regulatory limitations on rents, changes in neighborhood
values, changes in the appeal of properties to tenants and increases in interest
rates. The value of equities which service the real estate business sector may
also be affected by such risks.
The Uniplan Real Estate Investment Fund is also a non-diversified fund
which means it is not subject to a limit on the percentage of its assets that
may be invested in the securities of a single issuer. This increases the risk
that the value of the Fund could go down because of the poor performance of a
single investments. The Fund must, however, comply with tax diversification laws
which require it to be diversified with respect to at least half of its assets.
o Common Stocks
The Uniplan Real Estate Investment Fund invests in the equity securities of
companies, which exposes the Fund and its shareholders to the risks associated
with investing in common stock. These risks include the financial risk of
selecting individual companies that do not perform as anticipated, the risk that
the stock markets in which the Fund invests may experience periods of turbulence
and instability, and the general risk that domestic and global economies may go
through periods of decline and cyclical change. Many factors affect an
individual company's performance, such as the strength of its management or the
demand for its product or services.
<PAGE>
Performance History
No historial performance information is shown for this Fund because it has not
yet completed a full calendar year of operations.
Shareholder Fees and Expenses
This table describes the fees and expenses that you may pay if you buy shares of
the Uniplan Real Estate Investment Fund.
----------------------------------------------------------- -------------------
Shareholder Fees (fees paid directly from your
investment):
----------------------------------------------------------- -------------------
Maximum Sales Charge (Load) on Purchases (as a % of your NONE
purchase price)(1)
----------------------------------------------------------- -------------------
Maximum Deferred Sales Charge (Load) NONE
----------------------------------------------------------- -------------------
Maximum Sales Charge (Load) Imposed on Reinvested NONE
Dividends
----------------------------------------------------------- -------------------
Redemption Fee NONE(2)
----------------------------------------------------------- -------------------
Exchange Fees NONE
----------------------------------------------------------- -------------------
- ---------------
1 You may be charged $1.50 for checks and $8.00 for wire transfers. There is
no wire transfer fee for transfers involving an omnibus account of a
broker-dealer or other entity that has an agreement with Forward Funds,
Inc. or its distributor to service shareholders.
2 You may be charged $1.00 if you redeem your shares by mail. If you choose
to receive the proceeds from your redemption via wire transfer, you may be
charged $8.00. There is no wire transfer fee for transfers involving an
omnibus account of a broker-dealer or other entity that has an agreement
with Forward Funds, Inc. or its distributor to service shareholders. There
is no charge for redemptions effected via the Internet or ACH transfers by
phone or Internet. There is no charge for transactions effected via the
Internet or ACH transfers by phone or Internet.
<PAGE>
----------------------------------------------------------- -------------------
Annual Fund Operating Expenses (expenses that are
deducted from Fund assets)(3)
----------------------------------------------------------- -------------------
Management Fee 0.85%
----------------------------------------------------------- -------------------
Distribution and Service (12b-1) Fees (4) 0.25%
----------------------------------------------------------- -------------------
Other Expenses 1.56%
----------------------------------------------------------- -------------------
Total Annual Fund Operating Expenses 2.66%
----------------------------------------------------------- -------------------
Fee Waiver (5) (0.86%)
----------------------------------------------------------- -------------------
Net Expenses 1.80%
----------------------------------------------------------- -------------------
Example
This example is intended to help you compare the costs of investing in the
Uniplan Real Estate Investment Fund with the costs of investing in other mutual
funds.
- ---------------
3 These expenses are paid directly out of the Fund's assets. Expenses are
factored into the share price or dividends and are not charged directly to
shareholder accounts.
4 The Fund's shareholders have adopted a Distribution Plan pursuant to which
up to 0.25% of the Fund's average daily net assets may be used to pay
shareholder servicing and distribution fees. The Fund has also adopted a
Shareholder Servicing Plan pursuant to which up to 0.10% of the Fund's
average net assets could be used to pay shareholder servicing fees. The
expenses of the Shareholder Servicing Plan are reflected as part of "Other
Expenses" of the Fund.
5 The Fund's Investment Adviser has contractually agreed to waive a portion
of its fees until January 1, 2001 in amounts necessary to limit the Fund's
operating expenses to an annual rate of 1.80% (as a percentage of average
daily net assets and exclusive of 12b-1 and shareholder servicing fees).
For the two years following January, 2000, the Investment Adviser is
entitled to a reimbursement from the Fund of any fees waived under this
arrangement if such reimbursement does not cause the Fund to exceed
existing expense limitations.
<PAGE>
The Example assumes that you invest $10,000 in the Uniplan Real Estate
Investment Fund for the periods indicated and then redeem all of your shares at
the end of those periods. The Example also assumes that your investment has a 5%
return each year and that the Fund's total annual Fund operating expenses remain
the same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
Uniplan
Real Estate
Investment
Fund+
-------
1 Year........................ $183
3 Years....................... $745
5 Years....................... $1,333
10 Years...................... $2,930
You would pay the following expenses if you did not redeem your shares:
Uniplan
Real Estate
Investment
Fund+
-------
1 Year........................ $183
3 Years....................... $745
5 Years....................... $1,333
10 Years...................... $2,930
- ---------------
+The examples above incorporate the contractual fee waiver in place for the Fund
for its current fiscal year.
<PAGE>
THE HOOVER SMALL CAP EQUITY FUND
Objective
The Hoover Small Cap Equity Fund seeks to achieve high total return. The Fund
anticipates that its investment returns are likely to be in the form of capital
appreciation rather than income, since small capitalization companies often do
not pay regular dividends.
Principal Investment Strategy - Investing in Equity Securities of Companies
with Small Market Capitalization
The Hoover Small Cap Equity Fund invests primarily in the equity securities
(common, preferred and convertible securities) of companies that have small
market capitalizations and offer future growth potential. At least 65% of the
Fund's total assets are invested in the common stock of companies whose market
capitalization is no larger than companies which are included in the Russell
2000(R) Index at the time of initial purchase. The Russell 2000(R) Index
comprises the 2,000 smallest companies in the Russell 3000(R) Index, which
represents approximately 8% of the total market capitalization of the Russell
3000(R) Index. The Fund expects that the median and weighted average market
capitalization of the companies in which it invests will remain less than $1
billion, although this market capitalization level may increase with growth in
the market capitalization of the Russell 2000(R) Index. The Hoover Small Cap
Equity Fund may invest up to 20% of its assets in foreign investments. The
Hoover Small Cap Equity Fund will not invest more than 5% of its net assets in
foreign investments denominated in a foreign currency and will limit its
investments in any single non-U.S. country to 5% of its total assets.
In making its investments, the Fund's sub-adviser seeks out companies with
characteristics such as significant potential for future growth in earnings,
ability to compete in its business, a clearly defined business focus, strong
financial health and management ownership. The Fund's sub-adviser attempts to
locate out of favor and undiscovered companies and industries that are selling
at low relative valuations. The sub-adviser's investment process focuses on
specific companies but also takes into account the overall economic environment
and specific industry sector developments. The sub-adviser is not required to
sell a stock for which the market capitalization grows beyond that of the
Russell 2000(R) Index although it may do so. The sub-adviser generally sells a
security if the sub-adviser's price target is met, the security becomes
over-valued in the opinion of the sub-adviser, the company's fundamentals change
or if better investment opportunities arise.
What are the Principal Risks of Investing in the Hoover Small Cap Equity Fund
As with any investment, an investment in the Hoover Small Cap Equity Fund may
cause you to lose some or all of the money you invested. Because the securities
in which the Hoover Small Cap Equity Fund invests may decrease in value, the net
asset value of the Hoover Small Cap Equity Fund may decrease and the value of
your investment may also decrease. You should consider your own investment
goals, time horizon and risk tolerance before investing in the Hoover Small Cap
Equity Fund.
<PAGE>
o Small Capitalization Stocks
Smaller companies may offer great investment value, but they may present greater
investment risks than investing in the securities of large companies. These
risks include greater price volatility, greater sensitivity to changing economic
conditions and less liquidity than the securities of larger, more mature
companies. Smaller companies can also have limited product lines, markets or
financial resources and may not have sufficient management strength.
o Common Stocks
The Fund invests in the equity securities of companies, which expose the Fund
and its shareholders to the risks associated with investing in common stock.
These risks include the financial risk of selecting individual companies that do
not perform as anticipated, the risk that the stock markets in which the Fund
invests may experience periods of turbulence and instability, and the general
risk that domestic and global economies may go through periods of decline and
cyclical change. Many factors affect an individual company's performance, such
as the strength of its management or the demand for its product or services.
Performance History
The chart below shows the annual total returnfor the Fund's Investor Class
Shares for 1999, the first full year in which the Fund was operational, together
with the best and worst quarters since inception. The accompanying table gives
an indication of the risks of investing in the Fund by comparing the Fund's
performance to that of the Russell 2000 (R) Index, an unmanaged index of stock
performance. The presentations below assume reinvestment of dividends and
distributions. Past performance for the Institutional Class Shares is not shown
because such class does not have a full calendar year of performance. Past
results are not an indication of future performance.
[Bar Chart]
7.03%
1999
Best Quarter 6/30/99 15.12%
Worst Quarter 9/30/99 -9.92%
Annual Total Return as of 12/31/99 1 year Since Inception (10/1/98)
==============================================================================
Hoover Small Cap Equity Fund
Investor Class 7.03% 17.21%
Russell 2000(R)Index(1) 21.26% 31.66%
- ---------------
1 The Russell 2000(R)Index measures the performance of the 2,000 smallest
companies in the Russell 3000 Index, which represents approximately 8% of
the total market capitalization of the Russell 3000 Index. Investors cannot
invest directly in the index.
<PAGE>
Shareholder Fees and Expenses
This table describes the fees and expenses that you may pay if you buy shares of
the Hoover Small Cap Equity Fund.
- ----------------------------------------- -------------- --------------------
Shareholder Fees (fees paid directly Investor Class Institutional Class
from your investment):
- ----------------------------------------- -------------- --------------------
Maximum Sales Charge (Load) on Purchases NONE NONE
(as a % of your purchase price)(1)
- ----------------------------------------- -------------- --------------------
Maximum Deferred Sales Charge (Load) NONE NONE
- ----------------------------------------- -------------- --------------------
Maximum Sales Charge (Load) Imposed on NONE NONE
Reinvested Dividends
- ----------------------------------------- -------------- --------------------
Redemption Fee NONE(2) NONE
- ----------------------------------------- -------------- --------------------
Exchange Fees NONE NONE
- ----------------------------------------- -------------- --------------------
- ---------------
1 You may be charged $1.50 for checks and $8.00 for wire transfers. There is
no wire transfer fee for transfers involving an omnibus account of a
broker-dealer or other entity that has an agreement with Forward Funds,
Inc. or its distributor to service shareholders.
2 You may be charged $1.00 if you redeem your shares by mail. If you choose
to receive the proceeds from your redemption via wire transfer, you may be
charged $8.00. There is no wire transfer fee for transfers involving an
omnibus account of a broker-dealer or other entity that has an agreement
with Forward Funds, Inc. or its distributor to service shareholders. There
is no charge for redemptions effected via the Internet or ACH transfers by
phone or Internet.
<PAGE>
- ----------------------------------------- -------------- --------------------
Annual Fund Operating Expenses (expenses Investor Class Institutional Class
that are deducted from Fund assets)(3)
- ----------------------------------------- -------------- --------------------
Management Fee 1.05% 1.05%
- ----------------------------------------- -------------- --------------------
Distribution and Service (12b-1) Fees (4) 0.25% NONE
- ----------------------------------------- -------------- --------------------
Other Expenses 0.59% 0.54%
- ----------------------------------------- -------------- --------------------
Total Annual Fund Operating Expenses 1.89% 1.59%
- ----------------------------------------- -------------- --------------------
Fee Waiver (5) (0.24%) (0.24%)
- ----------------------------------------- -------------- --------------------
Net Expenses 1.65 % 1.35%
- ----------------------------------------- -------------- --------------------
Example
This example is intended to help you compare the costs of investing in the
Hoover Small Cap Equity Fund with the costs of investing in other mutual funds.
The Example assumes that you invest $10,000 in either the Investor or
Institutional class of shares of the Hoover Small Cap Equity Fund for the
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Fund's total annual Fund operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
- ---------------
3 These expenses are paid directly out of the Fund's assets. Expenses are
factored into the share price or dividends and are not charged directly to
shareholder accounts.
4 The Fund's shareholders have adopted a Distribution Plan pursuant to which
up to 0.25% of the average daily net assets of the Investor Class may be
used to pay shareholder servicing and distribution fees. The Fund has also
adopted a Shareholder Servicing Plan pursuant to which up to 0.10% and up
to 0.35% of the average daily net assets of the Investor Class and
Institutional Class, respectively, can be used to pay shareholder servicing
fees. The expenses of the Shareholder Servicing Plan are reflected as part
of "Other Expenses" of the Fund.
5 The Fund's Investment Adviser has contractually agreed to waive a portion
of its fees, relating to the Investor Class Shares, until January 1, 2001
in in amounts necessary to limit the Fund's operating expenses to an annual
rate of 1.50% (as a percentage of average daily net assets and exclusive of
12b-1 and Shareholder servicing fees.) For the two years following January
1, 2000, the Investment Adviser is entitled to a reimbursement from the
Fund of any fees waived under this arrangement if such reimbursement does
not cause the Fund to exceed existing expense limitations.
<PAGE>
Hover Hoover
Small Cap Small Cap
Equity Equity
Fund Fund
Investor Class+ Institutional Class
-------- --------
1 Year.................$168 1 Year.................$137
3 Years................$571 3 Years................$478
5 Years................$999 5 Years................$843
10 Years...............$2,192 10 Years..............$1,869
You would pay the following expenses if you did not redeem your shares:
PAGE>
Hover Hoover
Small Cap Small Cap
Equity Equity
Fund Fund
Investor Class+ Institutional Class
-------- --------
1 Year.................$168 1 Year.................$136
3 Years................$571 3 Years................$478
5 Years................$999 5 Years................$843
10 Years...............$2,192 10 Years..............$1,869
- ---------------
+The examples above incorporate the contractual fee waiver in place for the Fund
for its current fiscal year.
<PAGE>
THE GARZARELLI U.S. EQUITY FUND
Objective
The Garzarelli U.S. Equity Fund seeks to maximize capital appreciation with
current income over the long-term by providing direct and effective exposure to
a diverse portfolio primarily composed of mid to large cap U.S. equities.
Principal Investment Strategy - Investing in Domestic Equity Securities
The Garzarelli U.S. Equity Fund attempts to achieve its investment objective by
investing primarily in the equity securities (common, preferred and convertible
securities) of mid to large capitalization companies located in the United
States. At least 65% of the Fund's total assets are invested in the common stock
of companies organized or primarily in the United States. The Fund may also
invest in the equity securities of companies that are based outside the United
States if their stock is traded on a U.S. stock exchange or through the National
Association of Securities Dealers Automated Quotation System ("NASDAQ"). The
Garzarelli U.S. Equity Fund may also invest in the equity securities of small
companies but does not expect to invest more than 10% of its total assets in
such securities.
In managing the Fund, the Fund's sub-adviser uses a proprietary model that
tracks economic factors such as inflation, interest rates and money supply,
among others, and seeks to identify industries and securities primarily in the
Russell 1000 and S&P 500 Indices that are trading at attractive prices relative
to underlying value. Along with the use of this model, the Fund's sub-adviser
also employs proprietary quantitative and qualitative fundamental measures to
identify such securities. The Fund's portfolio characteristics may differ
somewhat from the Russell 1000 and S&P 500 Indices. The investment process
involves identifying industries that are projected by the models to
out/underperform the overall performance of the indices. This is done by
analyzing each industry sector's earnings and valuations and comparing it to
both the Russell 1000 and the S&P 500 Indices. These techniques are combined
with a structured approach to identify undervalued stocks. Such stocks are
identified by reviewing analysts estimates and earnings momentum, among other
things. Should such stocks no longer exhibit characteristics identified by the
models, the sub-adviser may choose to sell such stocks.
What are the Principal Risks of Investing in the Garzarelli U.S. Equity Fund?
As with any investment, an investment in the Garzarelli U.S. Equity Fund may
cause you to lose some or all of the money you invested. Because the securities
in which the Garzarelli U.S. Equity Fund invests may decrease in value, the net
asset value of the Fund may decrease and the value of your investment may also
decrease. You should consider your own investment goals, time horizon and risk
tolerance before investing in the Garzarelli U.S. Equity Fund.
o Common Stocks
The Garzarelli U.S. Equity Fund invests in the equity securities of
companies, which exposes the Fund and its shareholders to the risks associated
with investing in common stock. These risks include the financial risk of
selecting individual companies that do not perform as anticipated, the risk that
the stock markets in which the Fund invests may experience periods of turbulence
and instability, and the general risk that domestic and global economies may go
through periods of decline and cyclical change. Many factors affect an
individual company's performance, such as the strength of its management or the
demand for its product or services.
<PAGE>
Performance History
The chart below shows the Fund's annual total return for 1999, the first full
year in which the Fund was operational, together with the best and worst
quarters since inception. The accompanying table gives an indication of the
risks of investing in the Fund by comparing the Fund's performance to that of
the Russell 3000 Index, an unmanaged index of stock performance. The Russell
3000 Index was selected by the Fund's previous sub-adviser as its benchmark. The
presentations below assume reinvestment of dividends and distributions. Past
results are not an indication of future performance.
[Bar chart]
19.50%
1999
Best Quarter (12/31/98) 20.93%%
Worst Quarter (9/30/99) -6.11%
Annual Total Return as of 12/31/99 1 Year Since Inception (10/1/98)
===============================================================================
Garzarelli U.S. Equity Fund (1) 19.50% 34.19%
Russell 3000 Index (2) 20.90% 35.96%
1 Garzarelli Investment Management, LLC has been the Fund's sub-adviser since
March 1, 2000; however, prior to this time the Fund was managed by a
different sub-adviser.
2 The Russell 3000 Index measures the performance of the 3,000 largest
companies based on total market capitalization, which represents
approximately 98% of the investible U.S. equity market. The Russell 3000
Index is unmanaged and investors cannot invest directly in the index.
Shareholder Fees and Expenses
This table describes the fees and expenses that you may pay if you buy shares of
the Garzarelli U.S. Equity Fund.
- ----------------------------------------------------------- ------------------
Shareholder Fees (fees paid directly from your investment)
- ----------------------------------------------------------- ------------------
Maximum Sales Charge (Load) on Purchases (as a % of your NONE
purchase price)(1)
- ----------------------------------------------------------- ------------------
- ---------------
1 You may be charged $1.50 for checks and $8.00 for wire transfers. There is
no wire transfer fee for transfers involving an omnibus account of a
broker-dealer or other entity that has an agreement with Forward Funds,
Inc. or its distributor to service shareholders.
<PAGE>
- ----------------------------------------------------------- ------------------
Maximum Deferred Sales Charge (Load) NONE
- ----------------------------------------------------------- ------------------
Redemption Fee NONE (2)
- ----------------------------------------------------------- ------------------
Exchange Fees NONE
- ----------------------------------------------------------- ------------------
Annual Fund Operating Expenses (expenses that are
deducted from Fund assets) (3)
- ----------------------------------------------------------- ------------------
Management Fee 0.80%
- ----------------------------------------------------------- ------------------
2 You may be charged $1.00 if you redeem your shares by mail. If you choose
to receive the proceeds from your redemption via wire transfer, you may be
charged $8.00. There is no wire transfer fee for transfers involving an
omnibus account of a broker-dealer or other entity that has an agreement
with Forward Funds, Inc. or its distributor to service shareholders. There
is no charge for transactions effected via the Internet or ACH transfers by
phone or Internet. There is no charge for redemptions effected via the
Internet or ACH transfers by phone or Internet.
3 These expenses are paid directly out of the Fund's assets. Expenses are
factored into the share price or dividends and are not charged directly to
shareholder accounts.
<PAGE>
- ----------------------------------------------------------- -------------------
Distribution and Service (12b-1) Fee (4) 0.09%
- ----------------------------------------------------------- -------------------
Other Expenses 0.91%
- ----------------------------------------------------------- -------------------
Total Annual Fund Operating Expenses 1.77%
- ----------------------------------------------------------- -------------------
Fee Waiver (5) (0.30%)
- ----------------------------------------------------------- -------------------
Net Expenses 1.50%
- ----------------------------------------------------------- -------------------
Example
This example is intended to help you compare the costs of investing in the
Garzarelli U.S. Equity Fund with the costs of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Garzarelli U.S. Equity Fund
for the periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Fund's total annual Fund operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
Garzarelli
U.S. Equity
Fund+
-------
1 Year........................ $153
3 Years....................... $537
5 Years....................... $947
10 Years...................... $2,091
You would pay the following expenses if you did not redeem your shares:
- ---------------
4 The Fund's shareholders have adopted a Distribution Plan pursuant to which
up to 0.25% of the Fund's average daily net assets may be used to pay
shareholder servicing and distribution fees. The Fund has also adopted a
Shareholder Servicing Plan pursuant to which up to 0.10% of the Fund's
average net assets could be used to pay shareholder servicing fees. The
expenses of the Shareholder Servicing Plan are reflected as part of "Other
Expenses" of the Fund.
5 The Fund's Investment Adviser has contractually agreed to waive a portion
of its fees until January 2001 in amounts necessary to limit the Fund's
operating expenses to an annual rate of 1.45% (as a percentage of average
daily net assets and exclusive of 12b-1 and shareholder servicing fees).
For the two years following January 1, 2000, the Investment Adviser is
entitled to a reimbursement from the Fund of any fees waived under this
arrangement if such reimbursement does not cause the Fund to exceed
existing expense limitations.
<PAGE>
Garzarelli
U.S. Equity
Fund+
-------
1 Year........................ $153
3 Years....................... $537
5 Years....................... $947
10 Years...................... $2,091
- ---------------
+The examples above incorporate the contractual fee waiver in place for the Fund
for its current fiscal year.
<PAGE>
ADDITIONAL INVESTMENT STRATEGIES AND RISKS
The following information applies to all of the Forward Funds:
o Defensive Positions; Cash Reserves
Under adverse market conditions or to meet anticipated redemption requests,
each Fund may deviate from its principal investment strategy and may invest
without limit in money market securities, U.S. government obligations and
short-term debt securities. This could have a negative effect on each Fund's
ability to achieve its investment objective.
o Portfolio Turnover
Although each Fund's sub-adviser seeks to minimize the frequency with which
portfolio securities are bought and sold (known as portfolio turnover) so as to
avoid possible income tax consequences, portfolio turnover will not be a
limiting factor when the sub-adviser believes portfolio changes are appropriate.
A higher turnover rate (100% or more) will involve correspondingly greater
transaction costs which will be borne directly by a Fund, and may increase the
potential for more taxable dividends and distributions being paid to
shareholders.
The Hoover Small Cap Equity Fund's portfolio turnover rate is expected to
be less than 200% under normal market conditions. The Garzarelli U.S. Equity and
Hansberger International Growth Funds' portfolio turnover rate is expected to be
less than 100% under normal market conditions. Portfolio turnover rates for the
Uniplan Real Estate Investment Funds should be less than 50%.
o Derivatives
Some of the instruments in which the Funds may invest may be referred to as
"derivatives," because their value "derives" from the value of an underlying
asset, reference rate or index. These instruments include options, futures
contracts, forward currency contracts, swap agreements and similar instruments.
There is limited consensus as to what constitutes a "derivative" security. For
our purposes, derivatives also include specially structured types of mortgage-
and asset-backed securities and dollar denominated securities whose value is
linked to foreign currencies. The market value of derivative instruments and
securities sometimes is more volatile than that of other instruments, and each
type of derivative instrument may have its own special risks. The investment
adviser and sub-advisers take these risks into account in their management of
the Funds.
Investing for hedging purposes may result in certain transaction costs
which may reduce a Fund's performance. In addition, no assurance can be given
that each derivative position will achieve a perfect correlation with the
security or currency that it is being hedged against.
<PAGE>
o Illiquid Securities
A Fund may invest up to 15% of its net assets in illiquid securities.
Illiquid securities are securities which cannot be disposed of in the ordinary
course of business at the normal value of the securities.
o Debt Securities
Debt securities in which the Funds invest are subject to several types of
investment risk. They may have market or interest rate risk which means their
value will be affected by fluctuations in the prevailing interest rates. There
may be credit risk, a risk that the issuer may be unable to make timely interest
payments and repay the principal upon maturity. Call or income risk exists with
corporate bonds during periods of falling interest rates because of the
possibility that securities with high interest rates will be prepaid or "called"
by the issuer before they mature. The Fund would have to reinvest the proceeds
at a possibly lower interest rate. A Fund may also suffer from event risk which
is the possibility that corporate debt securities held by a Fund may suffer a
substantial decline in credit quality and market value if the issuer
restructures.
Generally, debt securities increase in value during periods of falling
interest rates and decline in value if interest rates increase. Usually, the
longer the remaining maturity of a debt security, the greater the effect of
interest rate changes on its market value.
o Investment Grade Debt Securities and High Yield ("Junk") Bonds
Investment grade debt securities are securities rated at least Baa by
Moody's Investor Services, Inc. or BBB by Standard & Poor's Ratings Service
(nationally recognized statistical ratings organizations), or if unrated, are
determined to be of the same quality by the investment sub-adviser. Generally,
debt securities in these categories should have adequate capacity to pay
interest and repay principal but their capacity is more likely than higher grade
debt securities to be weakened if there is a change in economic conditions or
other circumstances.
High yield ("junk") bonds are considered speculative with regard to the
issuer's capacity to pay interest and repay principal and may be in default.
Except for the Hoover Small Cap Equity Fund which does not expect to invest more
than 10% of its total assets in these types of securities, the Funds do not
anticipate investing more than 5% of their total assets in these types of
securities.
o When-Issued and Delayed-Delivery Transactions
The Funds may purchase securities on a when-issued and delayed-delivery
basis. When a Fund agrees to purchase securities, the Custodian will set aside
cash or liquid securities equal to the amount of the commitment in a segregated
account to cover its obligation. Securities purchased on a when-issued basis are
recorded as an asset and are subject to changes in value based upon changes in
the general level of interest rates. In when-issued and delayed-delivery
transactions, a Fund relies on the seller to complete the transaction; the
seller's failure to do so may cause the Fund to miss an advantageous price or
yield. A Fund may, however, sell a when-issued security prior to the settlement
date.
<PAGE>
o Certain Other Strategies
All of the Funds may directly purchase particular types of debt and equity
securities, such as corporate debt securities, convertible securities,
depositary receipts, loan participations and assignments, mortgage and other
asset-backed securities, certificates of deposit and time deposits and
commercial paper. Each of the Funds may enter into repurchase and reverse
repurchase agreements and dollar roll agreements, when-issued and delayed
delivery transactions; and may purchase illiquid securities. The Funds may also
lend their portfolio securities. Please review the Statement of Additional
Information if you wish to know more about these types of securities and their
associated risks.
MANAGEMENT OF THE FUNDS
Investment Adviser and Sub-Advisers
Investment Adviser
Webster Investment Management Company, LLC ("Webster") serves as investment
adviser to each Fund. Webster is a registered investment adviser that supervises
the activities of each sub-adviser and has the authority to engage the services
of different sub-advisers with the approval of the Directors of each of the
respective Funds. Webster is located at 433 California Street, Suite 1010, San
Francisco, California, 94104.
Webster has the authority to manage the Funds and, in accordance with the
investment objective, policies and restrictions of the Funds subject to general
supervision of the Company's Board of Directors, but has delegated this
authority to sub-advisers for all of the Funds. It also provides the Funds with
ongoing management supervision and policy direction. Shareholders of the Funds
have approved a proposal which would permit Webster to hire and terminate
sub-advisers without shareholder approval and Webster is seeking authority to do
so from the Securities and Exchange Commission. Webster has managed the Funds
since September, 1998 and the Funds are its principal investment advisory
clients. Daily investment decisions are made by the sub-adviser to each Fund,
whose investment experience is described below.
For fiscal year ended December 31, 1999, each Fund paid an advisory fee to
Webster of 0.57% for the Garzarelli U.S. Equity Fund, 0.26% for the Hansberger
International Growth Fund, and 0.50% for the Hoover Small Cap Equity Fund. Each
Fund pays an investment advisory fee, which is computed daily and paid monthly,
at the following annual rates based on the average daily net asset value of the
respective funds: Garzarelli U.S. Equity Fund, 0.80% for the first $100 million
of assets under management, 0.725% for the next $400 million of assets under
management, 0.65% on assets over $500 million; Hansberger International Growth
Fund, 0.75% of average daily net assets; Hoover Small Cap Equity Fund, 1.05% of
average daily net assets; Uniplan Real Estate Investment Fund, 0.85% for the
first $100 million of assets under management, 0.80% for the next $400 million
of assets under management, and 0.70% on assets over $500 million. The Funds pay
these advisory fees to Webster, which in turn pays each sub-adviser a
sub-advisory fee.
<PAGE>
Sub-Advisers
The Sub-advisers manage the Funds and make decisions with respect to, and place
orders for, all purchases and sales of the Fund's securities, subject to the
general supervision of Forward Funds, Inc.'s Board of Directors and in
accordance with the investment objectives, policies and restrictions of the
Funds.
The Hansberger International Growth Fund -
Prior to March, 2000, the Hansberger International Growth Fund was known as the
International Growth Fund and its sub-adviser was Templeton Investment Counsel,
Inc. Under its sub-advisory agreement, Templeton received 0.70% of the first $25
million of average daily net assets, 0.55% on the next $25 million, 0.50% on the
next $50 million, 0.40% on the next $150 million, 0.35% on the next $250 million
and 0.30% on assets over $500 million. On March 6, 2000, Hansberger Global
Investors, Inc. ("HGI") became the sub-adviser to the Fund and its sub-advisory
fee is 0.50% of average daily net assets. HGI, a wholly-owned subsidiary of
Hansberger Group, Inc., with is principal offices at 515 East Las Olas Blvd.,
Fort Lauderdale, Florida, as well as offices in Burlington, Ontario, Hong Kong
and Moscow, conducts a worldwide portfolio management business that provides a
broad range of portfolio management services to customers in the United States
and abroad. As of December 31, 1999, HGI had approximately $2.9 billion assets
under management. The Hansberger International Growth Fund is team-managed. The
portfolio team includes Thomas R.H. Tibbles, CFA, Eric H. Melis, CFA and Barry
A. Lockhart, CFA.
The Uniplan Real Estate Investment Fund -
Prior to February, 2000, the Uniplan Real Estate Investment Fund was known as
the Real Estate Investment Fund. Uniplan, Inc. ("Uniplan") serves as sub-adviser
for the Uniplan Real Estate Investment Fund. Uniplan is located at 839 N.
Jefferson Street, Milwaukee, Wisconsin 53202. Uniplan also provides investment
advice to other mutual funds and individual and institutional clients with
substantial investment portfolios. As of March 31, 2000 Uniplan and its
affiliates managed approximately $192 million in assets. Uniplan has been in the
business of providing investment advisory services for over 15 years. Mr.
Richard Imperiale is the Portfolio Manager for the Uniplan Real Estate
Investment Fund. He has been President of Uniplan since its inception in 1984.
Mr. Imperiale holds a B.S. in finance from Marquette University Business School
and has completed a postgraduate lecture series in corporate finance from the
University of Chicago.
The Hoover Small Cap Equity Fund -
Prior to February, 2000, the Hoover Small Cap Equity Fund was known as the
Small Capitalization Equity Fund. Hoover Investment Management, LLC ("Hoover")
serves as sub-adviser for the Hoover Small Cap Equity Fund. Hoover is located at
650 California Street, 30th Floor, San Francisco, California 94108. As of
December 31, 1999, Hoover managed more than $226 million in the
small-capitalization sector for institutional and individual investors. Hoover
was founded in 1998 by Irene G. Hoover, the Fund's portfolio manager. Ms. Hoover
is the Managing Member of Hoover. Ms. Hoover has approximately 20 years of
investment management experience.
<PAGE>
Prior to forming Hoover, she was Director of Research and a member of the
three-person investment committee, with more than $5 billion under management,
at Jurika and Voyles, Inc., an investment management firm in Oakland,
California. She was employed at that firm from 1991-1997. Ms. Hoover is a
Chartered Financial Analyst; she holds a B.A. from Stanford University and an
M.A. from Northwestern University.
The Garzarelli U.S. Equity Fund -
Prior to March, 2000, the Garzarelli U.S. Equity Fund was known as the U.S.
Equity Fund and its sub-adviser was Barclays Global Fund Advisors ("Barclays").
On March 1, 2000 Garzarelli Investment Management, LLC ("Garzarelli") became the
sub-adviser for the Garzarelli U.S. Equity Fund and its sub-advisory fee is
0.55% on the first $100 million of average daily net assets, 0.475% on the next
$400 million and 0.40% on assets over $500 million. Garzarelli is located at 433
California Street, Suite 1010, San Francisco, California 94104. Garzarelli
serves as an investment adviser to ten private accounts with combined assets of
$3.4 million. Webster owns 47% of Garzarelli's authorized, issued shares and
Garzarelli Capital, Inc., at the same address as Garzarelli, owns 51% of such
shares. Elaine Garzarelli owns 100% of Garzarelli Capital, Inc. Ms. Garzarelli
and Mr. Gregory R. Lai, CFA manage the Fund. Ms. Garzarelli founded Garzarelli
in 1995, and has served as its Chairperson since its inception. Prior thereto,
she served as Managing Director and Chief Quantitative Strategist for Shearson
Lehman Bros. and its predecessors and its successors from 1984 to 1994. She has
over 20 years experience as a stock market strategist. Mr. Gregory R. Lai, CFA
is a principal of Garzarelli and has worked in consultation with Ms. Garzarelli
since 1995. From 1992 to the present Mr. Lai has been a portfolio manager with
Affinity Funds. Prior thereto, he was a portfolio manager and research analyst
at PIMCO from 1988 to 1992.
Uniplan, Inc. Performance History
Presented below are the performance results up to December 31, 1999 for Uniplan,
Inc., the sub-adviser to the Uniplan Real Estate Investment Fund, in managing
accounts for private clients and/or other mutual funds with substantially
similar investment objectives, policies and strategies. The results are not the
performance record of the Uniplan Real Estate Investment Fund which commenced
operations on May 10, 1999. The actual fees and expenses of these accounts are
lower than those of the Uniplan Real Estate Investment Fund. Use of the Fund's
expense structure would have lowered the performance results. Performance
results indicated below are not, and should not be interpreted as, indicative of
the Fund's future results.
UNIPLAN INC. - REIT PORTFOLIO
AVERAGE ANNUAL TOTAL RETURN
Uniplan REIT (net) NAREIT Equity Index*
----------------- -------------------
1 Year -1.99% -4.62%
3 Year -6.89% -11.30%
5 Year 10.54% 8.09%
7 year 12.00% 8.98%
10Year 12.30% 9.16%
Inception 1/89 - 12/99 12.86% 9.36%
ANNUAL RETURNS (1989 - 1999)
Uniplan REIT (net) NAREIT Equity Index*
----------------- -------------------
1989 12.75% 8.83%
1990 -9.88% -15.35%
1991 38.71% 35.70%
1992 15.48% 14.59%
1993 30.07% 19.96%
1994 2.96% 3.18%
1995 14.61% 15.26%
1996 36.17% 35.26%
1997 22.01% 20.27%
1998 -11.55% -17.51%
1999 -1.99% -4.62%
STANDARD DEVIATION** (as of December 31, 1999)
Uniplan REIT (net) NAREIT Equity Index*
----------------- -------------------
1 Year 16.07% 16.90%
3 Year 6.15% 6.44%
5 Year 3.31% 3.47%
7 year 2.94% 3.34%
10Year 0.67% 0.63%
- ---------------
* The NAREIT Equity Index is comprised of all the publicly-traded equity real
estate investment trusts listed on the New York Stock Exchange, the
American Stock Exchange, and the National Association of Securities
Dealers, Inc. and is prepared by the National Association of Real Estate
Investment Trusts.
** Standard deviation is a measure of volatility of returns. It is a
statistical measure of risk that represents the variability of returns
around the mean, or average, return. The lower the standard deviation, the
closer the returns are to the mean (average) value. The higher the standard
deviation, the more widely dispersed the returns are around the mean.
<PAGE>
Except as otherwise provided herein, the performance records regarding similar
private accounts presented above have been prepared in compliance with the
Performance Presentation Standards of the Association for Investment Management
and Research ("AIMR") and have been provided to Forward Funds, Inc. by Uniplan,
Inc. Forward Funds, Inc. has not independently audited or verified the results.
The results are for all private accounts and/or mutual funds managed with
substantially similar investment objectives, policies and strategies. These
accounts are not subject to the restrictions and limitations of the Investment
Company Act of 1940, as amended (the "1940 Act"), and the Internal Revenue Code
of 1986, as amended (the "Code"), which may adversely affect performance
results. The results reflect the deduction of advisory and other fees and the
reinvestment of dividends.
VALUATION OF SHARES
The price you pay for a share of a Fund, and the price you receive upon selling
or redeeming a share of a Fund, is called the Fund's net asset value or NAV. The
net asset value of each Fund is usually determined and its shares are priced as
of the close of regular trading on the New York Stock Exchange ("NYSE")
(generally 4:00 p.m., Eastern Time) on each Business Day. A "Business Day" is a
day on which the NYSE is open for trading and the Federal Reserve Bank of San
Francisco ("FRB") is open, except days on which there are insufficient changes
in the value of a Fund's portfolio securities to materially affect the Fund's
net asset value or days on which no shares are tendered for redemption and no
order to purchase any shares is received. Currently, the NYSE and/or the FRB are
closed on the following holidays: New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. To the extent that a Fund holds securities
listed primarily on a foreign exchange that trades on days when the Fund is not
open for business or the NYSE is not open for trading, the value of your shares
may change on days that you cannot buy or sell shares.
The net asset value per share of each Fund fluctuates as the market value of
that Fund's investments changes. Net asset value is calculated by taking the
total value of a Fund's assets, subtracting its liabilities, and then dividing
by the number of shares that have already been issued. A Fund's assets are
valued generally by using available market quotations or at fair value as
determined in good faith by the Board of Directors.
<PAGE>
PURCHASING SHARES
How to Buy Shares
Investor Shares
Purchase Choices:
Through your financial adviser
Through our Distributor, Provident Distributors, Inc.
By Internet, Mail, Telephone or Wire
Individual investors can choose from the following methods to purchase shares of
a Fund. Individual investors can purchase shares through a broker-dealer who has
established a dealer or other appropriate agreement with the Distributor or the
Funds, or through the Distributor directly. In addition, shares of the Funds can
be purchased at any time via the Internet, mail, telephone, or wire. There are
no initial sales loads for shares of the Funds. Forward Funds, Inc. reserves the
right, to add a purchase or redemption fee in
the future on all purchases and redemptions if we think it is necessary to
protect the Funds' long-term investors.
<PAGE>
Minimum Initial Investment Amount:
$2,500 for non-retirement accounts
$250 for retirement accounts
Subsequent investments for all Funds and classes require a minimum of $250.
Broker-dealers may charge their customers a transaction or service fee.
Institutional Shares: Offered to certain investors of the Hoover Small Cap
Equity Fund
Certain financial institutions, pension or 401(k) plans, or investment advisers
or individuals purchasing more than $250,000 worth of shares of the Hoover Small
Cap Equity Fund may elect to purchase Institutional Class Shares. Under a
shareholder services plan for Institutional Class shares, the Hoover Small Cap
Equity Fund may pay an authorized firm up to 0.35% of average daily net assets
attributable to its customers who are Institutional Class shareholders. For this
fee, the authorized firms provide various recordkeeping or administrative
services and/or shareholder service assistance. Holders of Institutional Class
shares pay all fees and expenses attributable to those shares. The authorized
firms may charge extra for services other than those provided under the
shareholder services plan and should furnish clients who own Institutional Class
shares with a schedule explaining the fees.
About Your Purchase:
When you purchase shares, you will pay the net asset value that is next
calculated after we receive your order. If you place an order for the purchase
of shares through a broker-dealer, the sale price will be the net asset value as
so determined, but only if the dealer receives the order and transmits it to
Forward Funds, Inc. The broker-dealer is responsible for transmitting such
orders promptly. If the broker-dealer fails to transmit your order before the
daily pricing time, your right to that day's closing price must be settled
between the broker-dealer and you. Purchases of shares of a Fund will be
effected only on a Business Day. An order received prior to the daily pricing
time on any Business Day is processed at that day's NAV. An order received after
the pricing time on any Business Day is processed at the net asset value
determined as of the pricing time on the next Business Day of the Funds.
Depending upon the terms of your account, you may pay account fees for services
provided in connection with your investment in a Fund. Forward Funds, Inc.,
Provident Distributors, Inc. or your dealer can provide you with information
about these services and charges. You should read this Prospectus in conjunction
with any such information you receive.
<PAGE>
To open an account you can mail a check or other negotiable bank draft in the
minimum amounts described above (payable to the particular Fund) with a
completed and signed Account Application Form to Forward Funds, Inc., c/o PFPC,
Inc., P.O. Box 5184, Westborough, Massachusetts 01581-5184. Call 1-800-999-6809
for an Account Application Form. A completed investment application must
indicate a valid taxpayer identification number and must be certified as your
taxpayer identification number. You may be subject to penalties if you falsify
information with respect to your taxpayer identification numbers.
The issuance of shares is recorded on the books of the Fund electronically. You
will receive a confirmation of, or account statement reflecting, each new
transaction in your account, which will also show the total number of shares of
the Fund you own. You can rely on these statements in lieu of certificates.
Certificates representing shares of the Funds will not be issued.
Forward Funds, Inc. reserves the right to refuse any request to purchase
shares of its Funds.
EXCHANGE PRIVILEGE
You can exchange your shares of any Fund for shares of any other Fund or with a
money market fund. Please check with Forward Funds to determine which money
market funds are available. The Institutional Class of shares are not
exchangeable. There are no fees for exchanges. However, transaction fees may be
applied to any exchanges made above the annual limit of four exchanges per
account (or two round trips). You may also pay a transaction fee if you
initially purchased shares of the money market fund and exchange them for shares
of a Fund. Before you decide to exchange shares, you should read the prospectus
information about the Fund or money market fund involved in your exchange. You
can send a written instruction specifying your exchange or, if you have
authorized telephone exchanges previously and we have a record of your
authorization, you can call the Transfer Agent at 1-800-999-6809 to execute your
exchange. Under certain circumstances, before an exchange can be made,
additional documents may be required to verify the authority or legal capacity
of the person seeking the exchange. Exchanges must be for amounts of at least
$1,000. In order to make an exchange into a new account, the exchange must
satisfy the applicable minimum initial investment requirement. Once your
exchange is received in proper form, it cannot be revoked. This exchange
privilege is available only in U.S. states where shares of the Funds being
acquired may legally be sold and may be modified, limited or terminated at any
time by a fund upon 60 days' written notice.
You should not view the exchange privilege as a means for market timing (taking
advantage of short-term swings in the market), and we limit the number of
exchanges you may make to four exchanges per account (or two round trips) per
calendar year without a transaction fee. Forward Funds, Inc. also reserves the
right to prohibit exchanges during the first 15 days following an investment in
a Fund. Forward Funds, Inc. may terminate or change the terms of the exchange
privilege at any time. In general, you will receive notice of any material
change to the exchange privilege at least 60 days prior to the change. For
federal income tax purposes, an exchange constitutes a sale of shares, which may
result in a capital gain or loss.
REDEEMING SHARES
You may redeem your shares on any business day. Redemptions are priced at the
net asset value per share next determined after receipt of a redemption request
by the Distributor or Forward Funds, Inc. or its agents. Redemptions may be made
by check, wire transfer, telephone, mail or through the Internet. Forward Funds,
Inc. intends to redeem shares of each Fund solely in cash up to the lesser of
$250,000 or 1% of the Fund's net assets during any 90 day period for any one
shareholder. In consideratin of the best interests of the remaining
shareholders, Forward Funds, Inc. reserves the right to pay any redemption
proceeds exceeding this amount in whole or in part by a distribution in kind of
securities held by a Fund in lieu of cash. It is highly unlikely that shares
would ever be redeemed in kind. When shares are redeemed in kind, the redeeming
shareholder should expect to incur transaction costs upon the disposition of the
securities received in the distribution. In such cases, you may incur brokerage
costs in converting the portfolio securities to cash. Broker-dealers may charge
their customers a transaction or service fee.
<PAGE>
Signature Guarantee
If the proceeds of the redemption are greater than $50,000, or are to be paid to
someone other than the registered holder, or to other than the shareholder's
address of record, or if the shares are to be transferred, your signature must
be guaranteed by a commercial bank, trust company, savings association or credit
union as defined by the Federal Deposit Insurance Act, or by a securities firm
having membership on a recognized national securities exchange. These signature
guarantees are not required for shares when an application is on file with the
Transfer Agent and payment is to be made to the shareholder of record at the
shareholder's address of record. The Transfer Agent reserves the right to reject
any signature guarantee if (1) it has reason to believe that the signature is
not genuine, (2) it has reason to believe that the transaction would otherwise
be improper, or (3) the guarantor institution is a broker or dealer that is
neither a member of a clearing corporation nor maintains net capital of at least
$100,000.
By Wire Transfer
You can arrange for the proceeds of redemption to be sent by federal wire
transfer to a single previously designated bank account if you have given
authorization for expedited wire redemption on your Account Application Form. If
a request for expedited wire redemption is received by Forward Funds, Inc. prior
to the close of the New York Stock Exchange the shares will be redeemed that day
at the next determined net asset value and the proceeds will generally be sent
to the designated bank account the next Business Day. The bank must be a member
of the Federal Reserve wire system. Delivery of the proceeds of a wire
redemption request may be delayed by Forward Funds, Inc. for up to seven (7)
days if the Distributor deems it appropriate under then current market
conditions. Redeeming shareholders will be notified if a delay in transmitting
proceeds is anticipated. Once authorization is on file, Forward Funds, Inc. will
honor requests by any person identifying himself or herself as the owner of an
account or the owner's broker by telephone at 1-800-999-6809 or by written
instructions. Forward Funds, Inc. cannot be responsible for the efficiency of
the Federal Reserve wire system or the shareholder's bank. You are responsible
for any charges imposed by your bank. The minimum amount that may be wired is
$2,500. Forward Funds, Inc. reserves the right to change this minimum or to
terminate the wire redemption privilege. Shares purchased by check may not be
redeemed by wire transfer until the shares have been owned (i.e., paid for) for
at least 15 days. Expedited wire transfer redemptions may be authorized by
completing a form available from the Distributor. To change the name of the
single bank account designated to receive wire redemption proceeds, it is
necessary to send a written request with signatures guaranteed to PFPC, Inc.,
P.O. Box 5184, Westborough, Massachusetts 01581-5184. This redemption option
does not apply to shares held in broker "street name" accounts. A wire transfer
fee will be charged by the Funds and the fee is specified for each Fund in the
Expense Table.
<PAGE>
By Telephone
You may redeem your shares by telephone if you choose that option on your
Account Application Form. If you did not originally select the telephone option,
you must provide written instructions to Forward Funds, Inc. to add it. You may
have the proceeds mailed to your address or mailed or wired to a commercial bank
account previously designated on the Account Application Form. Under most
circumstances, payments by wire will be transmitted on the next Business Day.
Forward Funds, Inc.'s Account Application Form provides that none of Webster,
the Transfer Agent, the Sub-Advisers, Forward Funds, Inc. or any of their
affiliates or agents will be liable for any loss, expense or cost when acting
upon any oral, wired or electronically transmitted instructions or inquiries
believed by them to be genuine. While precautions will be taken, as more fully
described below, you bear the risk of any loss as the result of unauthorized
telephone redemptions or exchanges believed by the Funds' administrator, PFPC,
Inc., to be genuine. Forward Funds, Inc. will employ reasonable procedures to
confirm that instructions communicated by telephone are genuine. These
procedures include recording all phone conversations, sending confirmations to
shareholders within 72 hours of the telephone transaction, verifying the account
name and sending redemption proceeds only to the address of record or to a
previously authorized bank account. If you are unable to contact the Funds by
telephone, you may also mail the redemption request to Forward Funds, Inc.
By Mail
To redeem by mail, you must send a written request for redemption to the
Transfer Agent. The Transfer Agent's address is: PFPC, Inc., P.O. Box 5184,
Westborough, Massachusetts 01581-5184. The Transfer Agent will require a
signature guarantee by an eligible guarantor institution. The signature
guarantee requirement will be waived if all of the following conditions apply:
(1) the redemption check is payable to the shareholder(s) of record, (2) the
redemption check is mailed to the shareholder(s) at the address of record and
(3) an application is on file with the Transfer Agent. Signature guarantees are
also waived if the proceeds of the redemption request will meet the above
conditions and be less than $50,000. You may also have the proceeds mailed to a
commercial bank account previously designated on the Account Application Form.
There is no charge for having redemption proceeds mailed to a designated bank
account. To change the address to which a redemption check is to be mailed, you
must send a written request to the Transfer Agent. In connection with that
request, the Transfer Agent will require a signature guarantee by an eligible
guarantor institution.
For purposes of this policy, the term "eligible guarantor institution" includes
banks, brokers, dealers, credit unions, securities exchanges and associations,
clearing agencies and savings associations as those terms are defined in the
Securities Exchange Act of 1934, as amended.
Payments to Shareholders
Redemption orders are valued at the net asset value per share next determined
after the shares are properly tendered for redemption, as described above.
Payment for shares redeemed generally will be made within seven (7) days after
receipt of a valid request for redemption.
<PAGE>
At various times, Forward Funds, Inc. may be requested to redeem shares for
which it has not yet received good payment. If this is the case, the forwarding
of proceeds may be delayed until payment has been collected for the purchase of
the shares. The delay may last ten (10) business days or more. The Funds intend
to forward the redemption proceeds as soon as good payment for purchase orders
has been received. This delay may be avoided if shares are purchased by wire
transfer of federal funds. Forward Funds, Inc. intends to pay cash for all
shares redeemed, but under abnormal conditions which make payment in cash
unwise, payment for certain large redemptions may be made wholly or partly in
portfolio securities which have a market value equal to the redemption price.
You may incur brokerage costs in converting the portfolio securities to cash.
INTERNET TRANSACTIONS
You may purchase and redeem shares of the Funds through the Internet. Please
note that to purchase Fund shares you must be an existing shareholder of a Fund.
You may not open an account with the Fund via the Internet. To effect
transactions in Fund shares via the Internet, you must first contact Forward
Funds, Inc. at 1-800-999-6809 to obtain a password and a Personal Identification
Number ("PIN"). Second, visit the Forward Funds, Inc. web site at
http://www.forwardfunds.com and follow the directions specified on the web site
for transactions in Fund shares. Note that general information about Forward
Funds, Inc. and specific information about your accounts is also available on
the web site.
DISTRIBUTION AND SHAREHOLDER SERVICE PLANS
Forward Funds, Inc. has adopted a distribution plan under Rule 12b-1 (the
"Plan") which allows each Fund to pay for the sale and distribution of its
shares at an annual rate of up to 0.25% of the Fund's average daily net assets.
Each Fund may make payments under the Plan for the purpose of financing any
activity primarily intended to result in the sale of its shares. In addition,
payments under the Plan may be made to banks and their affiliates and other
institutions, including broker-dealers, for the provision of administrative
and/or shareholder services. Because these fees are paid out of each Fund's
assets on an on-going basis, over time these fees will increase the cost of an
investment in a Fund and may cost more than other types of sales charges.
Shareholders owning Institutional Class shares of the Hoover Small Cap Equity
Fund will not be subject to the Plan or any 12b-1 fees.
Forward Funds, Inc. has adopted a Shareholder Service Plan with respect to the
shares of each Fund. Under the Shareholder Service Plan, each Fund is authorized
to pay third party service providers for certain expenses incurred in connection
with providing services to shareholders. Payments under the Plan are calculated
daily and paid monthly at an annual rate not to exceed 0.10% of the average
daily net assets of a Fund. Institutional Class shares of the Hoover Small Cap
Equity Fund are subject to a Shareholder Service Plan fee of up to 0.35% of
average daily net assets.
These Plans may be terminated by a vote of a majority of the Directors who are
not "interested persons" (as defined in the 1940 Act) of Forward Funds, Inc. and
who have no direct or indirect financial interest in the operation of the Plans
or in any agreements related to the Plans, or by a vote of a majority of the
shares subject to the Plans.
<PAGE>
DIVIDENDS AND TAXES
The Garzarelli U.S. Equity, Hoover Small Cap Equity, and Hansberger
International Growth Funds expect to pay dividends of net investment income and
to distribute capital gains annually. The Uniplan Real Estate Investment Fund
expects to declare and pay income dividends quarterly and to distribute capital
gains annually. A shareholder will automatically receive all income, dividends
and capital gains distributions in additional full and fractional shares at net
asset value as of the date of declaration, unless the shareholder elects to
receive dividends or distributions in cash. To elect to receive your dividends
in cash or to revoke your election, write to the Transfer Agent at PFPC, Inc.,
P.O. Box 5184, Westborough, Massachusetts 01581-5184.
Federal Taxes
The following information is meant as a general summary for U.S. shareholders.
Please see the Statement of Additional Information for additional information.
You should rely on your own tax advisor for advice about the particular federal,
state and local tax consequences to you of investing in a Fund.
Each Fund will distribute all or almost all of its net investment income and net
capital gains to its shareholders each year. Although the Funds will not be
taxed on amounts they distribute, most shareholders will be taxed on amounts
they receive.
A particular distribution generally will be taxable as either ordinary income or
long-term capital gains. The tax status of a particular distribution will be the
same for all of a Fund's shareholders. It does not matter how long you have held
your Fund shares or whether you elect to receive your distributions in cash or
reinvest them in additional Fund shares. For example, if a fund designates a
particular distribution as a long-term capital gains distribution, it will be
taxable to you at your long-term capital gain rate (currently, the maximum such
rate is 20%).
Dividends declared by a Fund in October, November or December and paid during
the following January may be treated as having been received by shareholders in
the year the distributions were declared.
If you invest through a tax-deferred account, such as a retirement plan, you
generally will not have to pay tax on dividends until they are distributed from
the account. These accounts are subject to complex tax rules, and you should
your tax adviser about investment through a tax-deferred account.
There may be tax consequences to you if you sell or redeem Fund shares. You will
generally have a capital gain or loss, which will be long-term or short-term,
generally depending on how long you hold those shares. If you exchange shares,
you may be treated as if you sold them.
Each year, the Funds will send shareholders tax reports detailing the tax status
of any distributions for that year.
<PAGE>
As with all mutual funds, a Fund may be required to withhold U.S. federal income
tax at the rate of 31% of all taxable distributions payable to you if you fail
to provide the Fund with your correct taxpayer identification number or to make
required certifications, or if you have been notified by the IRS that you are
subject to backup withholding. Backup withholding is not an additional tax;
rather, it is a way in which the IRS ensures it will collect taxes otherwise
due. Any amounts withheld may be credited against your U.S. federal income tax
liability.
GENERAL INFORMATION
Shareholder Communications
You may obtain current price, yield and other performance information on any of
the Funds between the hours of 9:00 a.m. to 5:00 p.m. Eastern Standard time by
calling 1-800-999-6809 from any touch-tone telephone. You can request
shareholder reports that contain performance information. These are available
free of charge.
Our shareholders receive unaudited semi-annual reports and annual reports
audited by independent public accountants. If you have any questions about
Forward Funds, Inc. write to PFPC, P.O. Box 5184, Westborough, Massachusetts
01581-5184, or call toll free at 1-800-999-6809.
You should rely only on the information provided in this Prospectus and the
Statement of Additional Information concerning the offering of the Funds'
shares. We have not authorized anyone to give any information that is not
already contained in this Prospectus. Shares of the Funds are offered only where
the sale is legal.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Funds'
financial performance and other financial information since inception. Certain
information reflects financial results for a single Fund share. "Total return"
shows how much an investment in each Fund increased assuming reinvestment of all
dividends and distributions. This information has been audited by Arthur
Andersen LLP, Forward Funds, Inc.'s independent public accountants. The Funds'
financial statements are incorporated by reference from the Funds' annual report
which was filed with the Securities and Exchange Commission on March 7, 2000.
<PAGE>
FINANCIAL HIGHLIGHTS
For a Fund Share Outstanding Throughout the Period.
<TABLE>
Uniplan
Garzarelli Hansberger Hoover Real Estate
U.S. Equity International Growth Small Cap Equity Fund(1) Investment
Fund(1) Fund (1) Fund(2)
Period Year Period Year Period Year Ended Period
Ended Ended Ended Ended Ended December Ended
December December December December December 31, 1999 December
31, 1998 31, 1999 31, 1998 31, 1999 31, 1998 31, 1999
- ----------------------------------- ----------- ----------- ----------- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $10.00 $12.08 $10.00 $11.29 $10.00 $11.40 $10.00
Income (loss) from Investment
Operations
Net Investment Income/(loss) 0.01 0.00+ 0.02 0.21 0.00+ (0.07) 0.41
Net realized and unrealized
gain/(loss) on investments 2.08 2.36 1.30 2.63 1.41 0.86 (1.24)
----------- ----------- ----------- ----------- ----------- ------------ -----------
Total from Investment Operations 2.09 2.36 1.32 2.84 1.41 0.79 (0.83)
----------- ----------- ----------- ----------- ----------- ------------ -----------
Less Dividends:
From net investment income (0.01) (0.00) (0.02) (0.20) (0.00)+ (0.00)+ (0.38)
In excess of net investment income (0.00)+ -- (0.01) -- (0.01) (0.00)+ --
From capital gains -- (0.06) -- -- -- -- --
Tax return of capital -- -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ------------ -----------
Total Dividends (0.01) (0.06) (0.03) (0.20) (0.01) (0.00) (0.38)
----------- ----------- ----------- ----------- ----------- ------------ -----------
Net increase/(decrease) in net asset
value 2.08 2.30 1.29 2.64 1.40 0.79 (1.21)
Net Asset Value, End of Period $12.08 $14.38 $11.29 $13.93 $11.40 $12.19 $8.79
=========== =========== =========== =========== =========== ============ ===========
Total Return(A) 20.93% 19.50% 13.23% 25.15% 13.99% 7.03% (9.10)%
Rates/Supplemental Data
Net Assets, End of Period (000s) $36,407 $40,432 $23,170 $25,887 $31,838 $46,748 $4,568
Ratios to average net assets:
Net investment income/(loss)
including reimbursement/waiver 0.24%* (0.02)% 0.87%* 1.65% 0.21%* (0.54)% 5.64%*
Operating expenses including
reimbursement/waiver: 1.40%* 1.40% 1.60%* 1.60% 1.45%* 1.45%* 1.80%*
Operating expenses excluding
reimbursement/waiver 1.60%* 1.46% 2.46%* 2.30% 3.19%* 2.00% 4.02%*
Portfolio turnover rate 26% 30% 8% 31% 23% 134% 0%
</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 May 10, 1999.
(A) 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.
<PAGE>
(Inside Prospectus back cover page)
Forward Funds, Inc.
The Hansberger International Growth Fund
The Uniplan Real Estate Investment Fund
The Hoover Small Cap Equity Fund
The Garzarelli U.S. Equity Fund
Investment Adviser
Webster Investment Management Company, LLC
Sub-Advisers
<TABLE>
<S> <C>
Garzarelli Investment Management, LLC (The Garzarelli U.S. Equity Fund)
Hoover Investment Management, LLC (The Hoover Small Cap Equity Fund)
Hansberger Global Investors Inc. (The Hansberger International Growth Fund)
Uniplan, Inc. (The Uniplan Real Estate Investment Fund)
</TABLE>
Administrator
PFPC, Inc.
Distributor
Provident Distributors, Inc.
Counsel
Dechert Price & Rhoads
Independent Public Accountants
Arthur Andersen, LLP
Custodian
Brown Brothers Harriman & Co.
Transfer Agent
PFPC, Inc.
<PAGE>
(Outside Prospectus back cover page)
(LOGO)
FORWARD FUNDS, INC.
The Hansberger International Growth Fund
The Uniplan Real Estate Investment Fund
The Hoover Small Cap Equity Fund
The Garzarelli U.S. Equity Fund
Want more information?
You can find out more about our funds by reviewing the following documents:
Annual and semi-annual reports
Our annual and semi-annual reports list the holdings of each Fund, describe each
Fund's performance, include the Funds' financial statements, and discuss the
market conditions and strategies that significantly affected the Funds'
performance.
Statement of Additional Information
The Statement of Additional Information ("SAI") contains additional and more
detailed information about each Fund, and is considered a part of this
Prospectus.
How do I obtain a copy of these documents?
By following one of the three procedures below:
1. Call or write, and copies will be sent to you free of charge:
Forward Funds, Inc.
433 California Street, Suite 1010
San Francisco, CA 94104
1-202-942-8090
2. Call or write to the Public Reference Section of the Securities and Exchange
Commission ("SEC") and ask them to mail you a copy. The SEC charges a fee for
this service. You can also drop by the Public Reference Section and copy the
documents while you are there. Information about the Public Reference Section
may be obtained by calling the number below.
Public Reference Section of the SEC
Washington, D.C. 20549-6009
1-202-942-8090
3. Go to the SEC's web site at www.sec.gov and download to your computer a
free text-only copy.
4. After paying a duplicating fee, you may also send an electronic request
to the SEC at [email protected]. [SEC File Number: 811-8419]
<PAGE>
FORWARD FUNDS, INC.
433 California Street
Suite 1010
San Francisco, California 94104
1-800-999-6809
Statement of Additional Information
dated May 1, 2000
Forward Funds, Inc. (the "Company") is an open-end management investment company
commonly known as a mutual fund. The Company offers three diversified investment
portfolios, The Hansberger International Growth Fund (formerly known as The
International Equity Fund), The Hoover Small Cap Equity Fund (formerly The Small
Capitalization Equity Fund), and The Garzarelli U.S. Equity Fund (formerly the
U.S. Equity Fund) and one non-diversified investment portfolio, The Uniplan Real
Estate Investment Fund (formerly known as The Real Estate Investment Fund)
(collectively, the "Funds"). There is no assurance that any of the Funds will
achieve its objective.
The financial statements of the Company, including the Statement of Assets and
Liabilities and the Portfolio of Investments for the Year Ended December 31,
1999, the Changes in Assets for the Year Ended December 31, 1999, the Notes to
the Financial Statements, and the Report of the Independent Accountants, all of
which are included in the Company's 1999 Annual Report to Shareholders, are
hereby incorporated by reference into this Statement of Additional Information.
This Statement of Additional Information ("SAI") is not a prospectus and it
should be read in conjunction with the Funds' Prospectus, dated May 1, 2000
("Prospectus"), which has been filed with the Securities and Exchange Commission
("SEC"). A copy of the Prospectus for the Funds may be obtained free of charge
by calling the Distributor at 1-800-999-6809.
TABLE OF CONTENTS
Page
ORGANIZATION OF FORWARD FUNDS, INC.............................................2
MANAGEMENT OF THE FUNDS........................................................2
INVESTMENT OBJECTIVES AND POLICIES............................................11
INVESTMENT RESTRICTIONS.......................................................13
SUPPLEMENTAL DISCUSSION OF INVESTMENT TECHNIQUES AND RISKS ASSOCIATED WITH
THE FUNDS' INVESTMENT POLICIES AND INVESTMENT TECHNIQUES ..................14
PORTFOLIO TRANSACTIONS........................................................28
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION................................29
DETERMINATION OF SHARE PRICE..................................................31
SHAREHOLDER SERVICES AND PRIVILEGES...........................................32
DISTRIBUTIONS.................................................................33
TAX CONSIDERATIONS............................................................33
<PAGE>
SHAREHOLDER INFORMATION.......................................................38
CALCULATION OF PERFORMANCE DATA...............................................39
GENERAL INFORMATION...........................................................40
FINANCIAL STATEMENTS..........................................................42
APPENDIX A....................................................................43
<PAGE>
ORGANIZATION OF FORWARD FUNDS, INC.
Forward Funds, Inc. is an open-end management investment company which offers
three diversified investment portfolios and one non-diversified investment
portfolio. The Company was incorporated in Maryland on October 3, 1997.
The authorized capital stock of the Company consists of one billion four hundred
million (1,400,000,000) shares of two classes of common stock having a par value
of $0.001 per share (fifty million shares are allocated as Institutional Class
shares of the Hoover Small Cap Equity Fund). The Board of Directors of the
Company has designated the stock into four series, the Hoover Small Cap Equity
Fund, the Garzarelli U.S. Equity Fund, the Hansberger International Growth Fund,
and the Uniplan Real Estate Investment Fund, and has authorized the series to
offer two classes. Each Fund other than the Hoover Small Cap Equity Fund
currently offers one class of shares. The Hoover Small Cap Fund offers a second
class of shares called the Institutional Shares to institutional investors and
investors meeting certain purchase qualifications. These shares and the other
shares offered by the Funds are described herein as Shares. Holders of Shares of
the Funds of the Company have one vote for each Share held, and a proportionate
fraction of a vote for each fractional Share. All Shares issued and outstanding
are fully paid and non-assessable, transferable, and redeemable at the option of
the shareholder. Shares have no preemptive rights.
The Board of Directors may classify or reclassify any unissued Shares of the
Company into Shares of another class or series by setting or changing in any one
or more respects, from time to time, prior to the issuance of such Shares, the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or qualifications of such Shares.
MANAGEMENT OF THE FUNDS
Board of Directors. The Company's Board of Directors oversees the management and
business of the Funds. The Directors are elected by Shareholders of the Company.
There are currently three directors, two of whom are not "interested persons" as
that term is defined in the Investment Company Act of 1940, as amended (the
"1940 Act"), by virtue of that person's affiliation with the Company, its
distributor, its investment advisers or otherwise. The Directors and Officers of
the Company are listed below. Their affiliations over the last five years are
set forth below. An asterisk (*) has been placed next to the name of each
Director who is an "interested person."
<PAGE>
<TABLE>
<S> <C> <C>
PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE POSITIONS HELD WITH THE FUND DURING THE PAST FIVE YEARS
Haig G. Mardikian Director Owner of Haig G. Mardikian
Hearst Building, Suite 1000 Enterprises, a real estate
San Francisco, CA 94118 investment business; a general
Date of Birth: 7/3/47 partner of M & B Development;
general partner of George M.
Mardikian Enterprises; and
president and director of
Adiuvana-Invest, Inc. Mr.
Mardikian has served as Managing
Director of the United
Broadcasting Company and Chairman
and Director of SIFE Trust Fund.
Leo T. McCarthy Director President, The Daniel Group, an
One Market, Steuart Tower international trade consulting
Suite 1604 partnership (January 1995 -
San Francisco, CA 94105 present); Director, Parnassus
Age: 69 Funds (1998 - present); Director,
Linear Technology Corporation
(July 1994 - present);
Lieutenant Governorof
the State of California (January 1983-
December 1994).
Ronald Pelosi* President, Director. Owner, Grayville & Co., LLC
433 California Street, Suite 1010 (December 1998 - present);
San Francisco, CA 94104 President and Managing Director,
Date of Birth: 11/2/34 Webster Investment Management
Company LLC (August 1998 - presents);
President, Sutton Place Management
Co., Inc. (June 1997 - August 1998);
Principal, Grayville Associates, a
business consulting firm (June 1996 -
present); Mr. Pelosi was formerly
a vice President of Korn Ferry International,
an executive search consulting
(June 1994 - June 1996)and President
of Ironstong Partners, business consultants
January 1993 - June 1994).
<PAGE>
PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE POSITIONS HELD WITH THE FUND DURING THE PAST FIVE YEARS
Carl Katerndahl Executive Vice President and Owner, Grayville & Co., LLC
433 California Street, Suite 1010 Secretary (December 1998 - present);
San Francisco, CA 94104 Executive Vice President and
Date of Birth: 12/31/62 Managing Director, Webster
Investment Management Company LLC
August 1998 - presents);
Managing Director and Secretary,
Sutton Place Management Co.,
Inc.(April 1998 - August);
Client Service/Sales Representative,
NWQ Investment Management Group
(April 1997 - March 1998); Consultant,
Morgan Stanley Dean Witter (April 1993 -
March 1997); Senior Portfolio Manager,
Prudential Securities (April 1998 -
March 1990).
John P. McGowan Treasurer Senior Vice President, Webster
433 California Street, Suite 1010 Investment Management LLC June
San Francisco, CA 94104 1999 - present; Vice President,
Date of Birth: 8/7/64 Client Services, First Data
Investor Services Group, June 1998 -
May 1999; Assistant Vice President,
Trust and Investment Services
Division, M & T Bank, November 1992 -
May 1998.
Therese M. Hogan Assistant Secretary Manager (State Regulations), PFPC,
433 California Street, Suite 1010 Inc. (June 1994 - present); Senior
San Francisco, CA 94104 Legal Assistant, Palmer & Dodge
Age: 36 (October 1993 - 1994).
Brian O'Neill Assistant Treasurer Director, Accounting Services Unit
433 California Street, Suite 1010 of PFPC, Inc. (January 1994 -
San Francisco, CA 94104 present); Supervisor, Accounting
Date of Birth: 1/19/68 Services Unit, PFPC, Inc. (1992 -
1994).
</TABLE>
COMPENSATION RECEIVED FROM FUNDS
AS OF DECEMBER 31, 1999
<TABLE>
<S> <C> <C> <C> <C>
Pension or
Aggregate Retirement Benefits Estimated Annual Total Compensation
Compensation From Accrued As Part of Benefits Upon From Fund and Fund
the Funds Funds' Expenses Retirement Complex
- ------------------------- --------------------- --------------------- --------------------- ---------------------
Haig G. Mardikian $7,500 $0 $0 $7,500
Leo T. McCarthy $7,500 $0 $0 $7,500
Ronald Pelosi $0 $0 $0 $0
</TABLE>
Effective January 1, 2000, the Funds pay each Director who is not an interested
person (as defined under the 1940 Act) an annual fee of $12,000 (Directors
receive $3,000 per regular meeting and $1,500 for each special meeting attended
in person, and receive half that amount if they participate by telephone).
Officers of the Funds and Directors who are interested persons of the Funds do
not receive any compensation from the Funds or any other funds managed by the
Investment Adviser or Sub-Advisers. As of April 1, 2000, the Officers and
Directors owned less than 1% of the outstanding shares of the Funds.
Investment Advisers. Webster Investment Management Company LLC ("Webster" or the
"Investment Adviser"), serves as the Investment Adviser to each Fund. Webster is
a registered investment adviser under the Investment Advisers Act of 1940
("Advisers Act") that supervises the activities of each Sub-Adviser and has the
authority to engage the services of different sub-advisers with the approval of
the Directors of each of the respective Funds. Webster is located at 433
California Street, Suite 1010, San Francisco, California, 94104.
Webster has the authority to manage the Funds in accordance with the investment
objective, policies and restrictions of the Funds and subject to general
supervision of the Company's Board of Directors, but has delegated this
authority to sub-advisers for all of the Funds. It also provides the Funds with
ongoing management supervision and policy direction. Shareholders of the Funds
have approved a proposal which would permit Webster to hire and terminate
sub-advisers without shareholder approval and Webster is seeking authority to do
so from the Securities and Exchange Commission. Webster has managed the Funds
since September, 1998 and the Funds are its principal investment advisory
clients. Daily investment decisions are made by the Sub-Adviser to each Fund,
whose investment experience is described below. (Webster and the Sub-Advisers
are collectively referred to herein as "Investment Advisers", "Advisers" or
"Sub-Advisers").
The Garzarelli U.S. Equity Fund. Prior to March, 2000, the Garzarelli U.S.
Equity Fund was known as the U.S. Equity Fund and its sub-adviser was Barclays
Global Fund Advisors. Webster has engaged the services of Garzarelli Investment
Management, LLC ("Garzarelli") to act as Sub-Adviser for the Garzarelli U.S.
Equity Fund. Garzarelli is a registered investment adviser under the Advisers
Act. Webster owns 47% of Garzarelli's authorized, issued shares and Garzarelli
Capital, Inc., at the same address as Garzarelli, owns 51% of such shares.
Elaine Garzarelli owns 100% of Garzarelli Capital, Inc. Garzarelli is located
at 433 California Street, Suite 1010, San Francisco, California 94104. As of
December 31, 1999, Garzarelli served as investment adviser to ten private
accounts with combined assets of $3.4 million.
<PAGE>
The Hansberger International Growth Fund. Prior to March, 2000, the Hansberger
International Growth Fund was known as the International Equity Fund and its
sub-adviser was Templeton Investment Counsel, Inc. Webster has engaged the
services of Hansberger Global Investors, Inc. ("HGI") to act as Sub-Adviser for
The Hansberger International Growth Fund. HGI, a registered investment adviser
under the Advisers Act, is located at 515 East Las Olas Blvd., Suite 1300, Fort
Lauderdale, Florida 33301. As of December 31, 1999, HGI served as investment
adviser or investment sub-adviser to 15 U.S. and foreign investment companies
and 30 private accounts with combined assets of approximately $2.9 billion. HGI
is a wholly-owned subsidiary of Hansberger Group, Inc. Mr. Thomas L. Hansberger
owns in excess of 25% of the authorized, issued shares of Hansberger Group. None
of the Officers or Directors of the Fund are affiliated with HGI.
The Uniplan Real Estate Investment Fund. Prior to February, 2000, the Uniplan
Real Estate Investment Fund was known as the Real Estate Investment Fund.
Webster has engaged the services of Uniplan, Inc. ("Uniplan") to act as
Sub-Adviser for the Uniplan Real Estate Investment Fund. Uniplan, Inc. is an
investment management and counseling firm founded in 1984 and is registered
under the Advisers Act. Uniplan and its affiliates had approximately $192
million in assets under management as of March 31, 2000. Uniplan uses a
value-oriented quantitative approach to investing in equity, fixed income, and
REIT securities. Uniplan provides investment advice to other mutual funds,
institutional clients and individual clients with substantial investment
portfolios. Mr. Richard Imperiale is the portfolio manager for the Uniplan Real
Estate Investment Fund. He is the President and founder of Uniplan. None of the
Officers or Directors of the Fund are affiliated with Uniplan.
The Hoover Small Cap Equity Fund. Webster serves as Investment Adviser for the
Hoover Small Cap Equity Fund. Webster has engaged the services of Hoover
Investment Management, LLC ("HIM") to manage the Hoover Small Cap Equity Fund's
assets on a day to day basis. HIM is a San Francisco-based registered investment
advisor under the Adviser Act, formed in 1997 to provide asset management
services to pension plans, endowments, foundations and high net worth
individuals. As of December 31, 1999, HIM served as an investment adviser or
investment subadviser to 10 separate accounts with assets of $226 million under
management. The company focuses in the small capitalization sector using a
combination of macro/top down as well as company specific/bottom up investment
research. HIM invests in profitable, cash flow generating businesses that are
undervalued and prefers companies with little Wall Street sponsorship and low
institutional ownership. The goal is to find companies that are not in favor
with Wall Street and identify a catalyst for growth, which will propel both the
earnings and market recognition. This allows our investors to benefit from
investments in companies entering periods of increased internal growth as well
as from the expanding price-earnings multiples that ensuing market recognition
can bring. Irene Hoover, CFA, is the portfolio manager for the Hoover Small Cap
Equity Fund. She is the Managing member and Founder of HIM and owns 51% of the
firm. Webster Investment Management, who provides sales, marketing and client
service support to the firm owns the remaining 49% of HIM.
Investment Management and Subadvisory Agreements. Each Fund pays an investment
advisory fee, which is computed daily and paid monthly, at the following annual
rates based on the average daily net asset value of the respective funds:
Hansberger International Growth Fund, 0.75% of average daily net assets; Uniplan
Real Estate Investment Fund, 0.85% for the first $100 million of assets under
management, 0.80% for the next $400 million of assets under management, and
0.70% on assets over $500 million; Hoover Small Cap Equity Fund, 1.05% of
average daily net assets; and the Garzarelli U.S. Equity Fund, 0.80% for the
first $100 million of assets under management, 0.725% for the next $400 million,
and 0.65% on assets over $500 million.
Neither the Investment Adviser nor the Sub-Advisers are required to furnish any
personnel, overhead items, or facilities for the Company. All fees paid to the
Investment Adviser by the Funds are computed and accrued daily and paid monthly
based on the net asset value of shares of the Funds.
<PAGE>
For the services provided pursuant to their Sub-Advisory Agreements with
Webster, each Sub-Adviser receives a fee from Webster. For its services to the
Hansberger International Growth Fund, Webster pays Hansberger at a rate of 0.50%
of average daily net assets. For its services to the Uniplan Real Estate
Investment Fund, Webster pays Uniplan 0.60% on the first $100 million of assets,
0.55% on assets over $100 million and up to $500 million and 0.45% on assets
over $500 million. For its services to the Hoover Small Cap Equity Fund, Webster
pays Hoover at a rate of 0.80% of average daily net assets. For its services to
the Garzarelli U.S. Equity Fund, Webster pays Garzarelli at a rate of 0.55% on
the first $100 million of that Fund's assets, 0.475% on the next $400 million,
and 0.40% on assets over $500 million.
For the period ended December 31, 1998, the Funds paid investment advisory fees
in the amounts of: $53,157 for the Hansberger International Growth Fund, $37,190
for the Hoover Small Cap Equity Fund and $54,438 for the Garzarelli U.S. Equity
Fund. For the year ended December 31, 1999, the Funds paid investment advisory
fees in the amounts of: $224,592 for the Hansberger International Growth Fund,
$30,008 for the Uniplan Real Estate Investment Fund, $480,061 for the Hoover
Small Cap Equity Fund and $232,611 for the Garzarelli U.S. Equity Fund.
For the period ended December 31, 1998, Webster paid fees under the Subadvisory
Agreements in the amount of: $39,060, for the Hansberger International Growth
Fund, $27,954 for the Hoover Small Cap Equity Fund and $32,562 for the
Garzarelli U.S. Equity Fund. For the year ended December 31, 1999, Webster paid
fees under the Subadvisory Agreements in the amount of: $165,516, for the
Hansberger International Growth Fund, $22,567 for the Uniplan Real Estate
Investment Fund, $365,684 for the Hoover Small Cap Equity Fund and $139,663 for
the Garzarelli U.S. Equity Fund. Prior to March, 2000, Barclays Global Fund
Advisors served as Sub-Adviser to the U.S. Equity Fund (currently the Garzarelli
U.S. Equity Fund) and Templeton Investment Counsel, Inc. served as Sub-Adviser
to International Equity Fund (currently the Hansberger International Growth
Fund) and received payments under the Subadvisory Agreements.
Each Investment Management or Subadvisory Agreement will remain in effect for
two years following its date of execution, and thereafter will automatically
continue for successive annual periods as long as such continuance is
specifically approved at least annually by (a) the Board of Directors or (b) the
vote of a "majority" (as defined in the 1940 Act) of the respective Fund's
outstanding Shares, as applicable, voting as a single class; provided, that in
either event the continuance is also approved by at least a majority of the
Board of Directors who are not "interested persons" (as defined in the 1940 Act)
of the Investment Adviser by vote cast in person at a meeting called for the
purpose of voting on such approval.
Each such Agreement is terminable without penalty with not less than 60 days'
notice by the Board of Directors or by a vote of the holders of a majority of
the Fund's outstanding Shares voting as a single class, or upon not less than 60
days' notice by such Adviser. Each Agreement will terminate automatically in the
event of its "assignment" (as defined in the 1940 Act).
As described in the Prospectus, the Adviser has agreed to limit the total
expenses of each Fund (exclusive of brokerage costs, interest, taxes, dividend
and extraordinary expenses, 12b-1 fees and shareholder servicing fees) to an
annual rate of 1.65% for the Hansberger International Growth Fund, 1.80% for the
Uniplan Real Estate Investment Fund, 1.50% for the Hoover Small Cap Equity Fund
and 1.45% for the Garzarelli U.S. Equity Fund. Pursuant to this agreement, each
Fund will reimburse the Adviser for any fee waivers or expense reimbursements
made by the Adviser, provided that any such reimbursements made by a Fund to the
Adviser will not cause the Fund's expense limitation to exceed the amounts set
forth above and the reimbursement is made within two years after the year in
with he Adviser incurred the expense. Under the expense limitation agreement,
Webster has waived advisory fees for the years ended December 31, 1998 and 1999
in the amounts of $48,389 and $163,751 respectively for the Hansberger
International Growth Fund; $0 and $66,901 for the Uniplan Real Estate Investment
Fund; $61,755 and $249,280 for the Hoover Small Cap Equity Fund; and $17,420 and
$21,615 for the Garzarelli U.S. Equity Fund.
<PAGE>
Distributor. Shares of the Funds are distributed pursuant to an Agreement
between the Company and Provident Distributors, Inc. (the "Distributor"),
located at 3200 Horizon Drive, King of Prussia, Pennsylvania, 19406. The
Distribution Agreement requires the Distributor to solicit orders for the sale
of Shares and to undertake such advertising and promotion as the Distributor
believes reasonable in connection with such solicitation. The Funds and the
Distributor have agreed to indemnify each other against certain liabilities. The
Distribution Agreement will remain in effect for one year and from year to year
thereafter only if its continuance is approved annually by a majority of the
Board of Directors who are not parties to such agreement or "interested persons"
of any such party and must be approved either by votes of a majority of the
Directors or a majority of the outstanding voting securities of the Funds. The
Distribution Agreement may be terminated by either party on at least 60 days'
written notice and will terminate automatically in the event of its assignment
(as defined in the 1940 Act).
The Shares of the Funds are sold without a sales charge. The Distributor may use
its own financial resources to pay expenses associated with activities primarily
intended to result in the promotion and distribution of the Funds' shares to pay
expenses associated with providing other services to Shareholders. In some
instances, additional compensation or promotional incentives may be offered to
dealers that have sold or may sell significant amounts of Shares during
specified periods of time. Such compensation and incentives may include, but are
not limited to, cash, merchandise, trips and financial assistance to dealers in
connection with pre-approved conferences or seminars, sales or training programs
for invited sales personnel, payment for travel expenses (including meals and
lodging) incurred by sales personnel and members of their families, or other
invited guests, to various locations for such seminars or training programs,
seminars for the public, advertising and sales campaigns regarding the Company
and/or other events sponsored by dealers. See the Prospectus of the Funds for
information on how to purchase and sell Shares of the Funds, and the charges and
expenses associated with an investment.
Codes of Ethics. The Company, Webster, the Sub-Advisers and the Distributor have
adopted Codes of Ethics governing personal trading activities of all of their
directors and officers and persons who, in connection with their regulation
functions, play a role in the recommendation of any purchase or sale of a
security by the Funds or obtain information pertaining to such purchase or sale.
The Codes of Ethics permit personnel subject to the Code to invest in
securities, including securities that may be purchased or held by the Fund.
Administrative Services and Transfer Agent. PFPC, Inc. (formerly First Data
Investors Services Group, Inc.) (hereinafter "PFPC", "Administrator" and
"Transfer Agent"), whose principal business address is 4400 Computer Drive,
Westborough, Massachusetts 01581, acts as the Company's administrator and
transfer agent. As Administrator, PFPC will perform corporate secretarial,
treasury and blue sky services and act as fund accounting agent for the Funds.
For its services as Administrator, the Funds will pay PFPC a monthly fee based
on the average amount of assets invested in the Funds. PFPC will receive an
annual fee of 0.20% up to and including the first $500 million in assets; 0.17%
for assets between $500 million and $1 billion and 0.125% for all assets over $1
billion. In addition, the Funds will pay PFPC certain accounting fees and other
expenses. The Administration Agreement between the Funds and PFPC has an initial
term of five years and will renew automatically for successive two year terms.
Pursuant to a Transfer Agency and Services Agreement, PFPC also acts as transfer
agent and dividend disbursing agent for the Funds. The Transfer Agency and
Services Agreement has a term of five years and automatically renews for
successive two year terms. PFPC is a majority-owned subsidiary of PNC Bank
Corporation. Shareholder inquiries may be directed to PFPC at P.O. Box 5184,
Westborough, Massachusetts 01581-5184. For its services as Transfer Agent, PFPC
received, for the year ended December 31, 1999, $20,151 from the Hansberger
International Growth Fund, $9,017 from the Uniplan Real Estate Investment Fund
(which commenced operations on May 10, 1999), $27,376 from the Hoover Small Cap
Equity Fund and $26,110 from the Garzarelli U.S. Equity Fund. For its services
as Administrator, PFPC received, for the year ended December 31, 1999, $47,246
from the Hansberger International Growth Fund, $4,512 from the Uniplan Real
Estate Investment Fund (which commenced operations May 10, 1999), $91,440 from
the Hoover Small Cap Equity Fund and $74,436 from the Garzarelli U.S. Equity
Fund.
<PAGE>
Garzarelli Investment Management, LLC, sub-adviser to the Garzarelli U.S. Equity
Fund, has hired Webster to perform certain administrative services that
Garzarelli would otherwise be required to perform under its subadvisory
agreement with Webster. These services include assistance with certain
recordkeeping and reporting requirements, as well as assistance with certain
other regulatory and administrative matters. As compensation for these services,
Garzarelli pays Webster a fee at an annual rate of 0.15% of the average daily
net assets of the Fund.
Other Service Providers
Each Fund pays all expenses not assumed by Webster, the Sub-Advisers or the
Administrator. Expenses paid by the Funds include: custodian, stock transfer and
dividend disbursing fees and accounting and recordkeeping expenses; Rule 12b-1
fees and shareholder service expenses pursuant to a Shareholder Service Plan and
Distribution Plan; costs of designing, printing and mailing reports,
prospectuses, proxy statements and notices to its shareholders; taxes and
insurance; expenses of the issuance, sale or repurchase of Shares of the Fund
(including federal and state registration and qualification expenses); legal and
auditing fees and expenses; compensation, fees and expenses paid to Directors
who are not interested persons of the Company; association dues; and costs of
stationery and forms prepared exclusively for the Funds.
Shareholder Service and Distribution Plans
Each Fund has a Shareholder Service Plan and Distribution Plan applicable to
Shares of the Funds (collectively, "Shareholder Service Plans"). The Company
intends to operate the Shareholder Service Plans in accordance with their terms.
Under the Shareholder Service Plans, third party service providers may be
entitled to payment each month in connection with the offering, sale, and
Shareholder servicing of Shares in amounts not to exceed 0.10% under the
Shareholder Service Plan (except for Institutional Shares of the Hoover Small
Cap Equity Fund which shall not exceed 0.35%) and 0.25% under the Distribution
Plan (except for Institutional Shares of the Hoover Small Cap Equity Fund which
are not subject to the Distribution Plan) of the average daily net assets of the
shares of each Fund.
Under the Shareholder Service Plans, ongoing payments may be made on a quarterly
basis to Participating Organizations for both distribution and shareholder
servicing of Shares that are registered in the name of that Participating
Organization as nominee or held in a Shareholder account that designates that
Participating Organization as the dealer of record. These fees may also be used
to cover the expenses of the Distributor primarily intended to result in the
sale of shares of the Funds, including payments to Participating Organizations
for selling shares of the Funds and for servicing shareholders. Activities for
which these fees may be used include: overhead of the Distributor; printing of
prospectuses and SAIs (and supplements thereto) and reports for other than
existing shareholders; payments to dealers and others that provide Shareholder
services; and costs of administering the Shareholder Service Plan.
In the event a Shareholder Service Plan is terminated in accordance with its
terms, the obligations of a Fund to make payments to the Distributor pursuant to
the Shareholder Service Plan will cease and the Fund will not be required to
make any payments for expenses incurred after the date the Plan terminates. The
Funds will receive payment under the Shareholder Service Plans without regard to
actual distribution expenses incurred.
The Shareholder Service Plans have been approved by the Company's Board of
Directors, including all of the Directors who are not interested persons of the
Company, as defined in the 1940 Act. The Shareholder Service Plans must be
renewed annually by the Board of Directors, including a majority of the
Directors who are not interested persons of the Company and who have no direct
or indirect financial interest in the operation of the Shareholder Service
Plans, cast in person at a meeting called for that purpose. The Shareholder
Service Plans may be terminated as to the Company at any time, without any
penalty, by such Directors or by a vote of a majority of the Company's
outstanding Shares on 60 days' written notice.
<PAGE>
Any change in the Shareholder Service Plans of the Funds that would materially
increase the expenses paid by the Funds requires Shareholder approval;
otherwise, the Shareholder Service Plans may be amended by the Board of
Directors of the Funds, including a majority of those Directors who are not
"interested persons" and who have no direct or indirect financial interest in
the operation of the Shareholder Service Plans or in any agreements related to
it (the "Independent Directors"), by a vote cast in person.
Third party service providers are required to report in writing to the Board of
Directors at least quarterly on the monies reimbursed to them under the
Shareholder Service Plans, as well as to furnish the Board with such other
information as may reasonably be requested in connection with the payments made
under the Shareholder Service Plans in order to enable the Board to make an
informed determination of whether the Shareholder Service Plans should be
continued.
For the fiscal year ended December 31, 1999, the following amounts were paid
under the Distribution Plan:
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
- ----------------------------------- ------------------ --------------- --------------- ------------------ ----------------
Hansberger Uniplan Real Hoover Garzarelli U.S. Total
International Estate Small Cap Equity Fund
Growth Fund Investment Equity Fund
Fund
- ----------------------------------- ------------------ --------------- --------------- ------------------ ----------------
Advertising $84.36 $15.58 $1,301.19 $128.55 $1,529.68
- ----------------------------------- ------------------ --------------- --------------- ------------------ ----------------
Printing and Mailing of $1,812.13 $256.22 $5,298.48 $2,728.35 $10,095.18
Prospectuses to other than
current shareholders
- ----------------------------------- ------------------ --------------- --------------- ------------------ ----------------
Compensation to Underwriters $0 $0 $0 $0 $0
- ----------------------------------- ------------------ --------------- --------------- ------------------ ----------------
Compensation to Broker-Dealers $16,000.00 $6,000.00 $90,048.17 $8,000.00 $120,048.17
- ----------------------------------- ------------------ --------------- --------------- ------------------ ----------------
Other* $0 $0 $0 $0 $0
- ----------------------------------- ------------------ --------------- --------------- ------------------ ----------------
Total $17,896.49 $6,271.80 $96,647.84 $10,856.90 $131,673.03
- ----------------------------------- ------------------ --------------- --------------- ------------------ ----------------
</TABLE>
Administration of the Distribution Plan is regulated by Rule 12b-1 under the
1940 Act, which includes requirements that the Board of Directors receive and
review, at least quarterly, reports concerning the nature and qualification of
expenses which are made, that the Board of Directors approve all agreements
implementing the Distribution Plan and that the Distribution Plan may be
continued from year-to-year only if the Board of Directors concludes at least
annually that continuation of the Distribution Plan is likely to benefit
shareholders.
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of each of the Funds is a fundamental policy and as
such may not be changed without a vote of the holders of a majority of the
outstanding Shares of the relevant Fund. Non-fundamental policies of each of the
Funds may be changed by the Company's Directors, without a vote of the holders
of a majority of outstanding Shares of a Fund unless (i) the policy is expressly
deemed to be a fundamental policy or (ii) the policy is expressly deemed to be
changeable only by such majority vote. There can be no assurance that the
investment objective of the Funds will be achieved.
<PAGE>
Investment Policies
The Garzarelli U.S. Equity Fund. The Equity Fund will seek its investment
objective by investing primarily in equity securities of companies located in
the United States.
The Hansberger International Growth Fund. The Hansberger International Growth
Fund will seek its investment objective by investing primarily in equity
securities of companies located outside the United States.
The Uniplan Real Estate Investment Fund. For the purpose of the Uniplan Real
Estate Investment Fund, a real estate company is one that derives at least 50%
of its revenue from real estate related activities or has at least 50% of its
assets in real estate. Other than real estate investment trusts ("REITs"), most
real estate companies do not pay dividends at a meaningful level. The Fund's
sub-adviser expects that the Fund's investment in real estate companies will be
directed toward REITs and other real estate operating companies that pay higher
dividends relative to the stock market as a whole.
Prior to selecting specific investments for the Fund, the Fund's Sub-Adviser
generally tracks real estate supply and demand across the United States by
separating the country into eight geographic regions and then further into major
metropolitan markets within those regions. Within each region, the Fund's
Sub-Adviser compiles a profile of supply and demand factors including: (1)
vacancy rates by property type; (2) visible supply of new property based on
building permit activity; (3) regional population, job and economic growth; and
(4) local trends in rental and property capitalization rates. The Fund's
sub-adviser uses this data to determine which property types in which regions
appear to be most favorably poised to outperform similar properties in other
regions. The Fund's Sub-Adviser then proceeds to select investments that attempt
to take advantage of those factors.
The Hoover Small Cap Equity Fund. The Hoover Small Cap Equity Fund will invest
at least 65% of its total assets in the equity securities of companies with
market capitalizations at the time of purchase no larger than the largest market
capitalization of the companies included in the Russell 2000 Index as most
recently reported. The Hoover Small Cap Equity Fund expects to invest
predominantly in common stocks, but may also invest in all types of equity and
debt securities including preferred stocks, convertible securities, warrants and
foreign securities. There are no limits on types of equity or debt securities
that may be purchased so long as they are publicly traded. Securities may be
issued by companies located in the United States or in any other country and may
include securities issued by governments or their agencies and
instrumentalities. The Fund may continue to hold an investment even if its
market capitalization exceeds the range of the Fund's other investments.
The Hoover Small Cap Equity Fund may invest up to 5% of its assets in securities
of emerging markets. The Sub-Adviser has broad discretion to identify and invest
in countries it considers to qualify as emerging markets' securities. However,
an emerging market will generally be considered as one located in any country
that is defined as an emerging or developing economy by any of the following:
the International Bank for Reconstruction and Development (e.g., the World
Bank), including its various offshoots, such as the International Finance
Corporation, or the United Nations or its authorities.
<PAGE>
Debt securities held by the Hoover Small Cap Equity Fund may include securities
rated in any rating category by a Nationally Recognized Securities Rating
Organization ("NRSRO") or that are unrated. As a result, the Hoover Small Cap
Equity Fund may invest in high risk, lower quality debt securities, commonly
referred to as "junk bonds." Investment grade debt securities are securities
rated at least Baa by Moody's Investors Services, Inc. or BBB by Standard &
Poor's Ratings Service (nationally recognized statistical ratings
organizations), or if unrated, are determined to be of the same quality by the
Sub-Adviser. Generally, debt securities in these categories should have adequate
capacity to pay interest and repay principal but their capacity is more likely
than higher grade debt securities to be weakened if there is a change in
economic conditions or other circumstances. High yield ("junk") bonds are
considered speculative with regard to the issuer's capacity to pay interest and
repay principal and may be in default. The Hoover Small Cap Equity Fund will
invest in debt securities rated at least Ba or B by Moody's or BB or B by
Standard & Poor's or, if unrated, determined by the Sub-Adviser to be of the
same quality. The Hoover Small Cap Equity Fund will limit its investment in junk
bonds (i.e. those rated lower than the four highest rating categories or if
unrated determined to be of comparable quality) to not more than 10% of the
Fund's total assets.
Securities purchased by the Hoover Small Cap Equity Fund may be listed or
unlisted in the markets where they trade and may be issued by companies in
various industries, with various levels of market capitalization. The Hoover
Small Cap Equity Fund will not invest more than 25% of its total assets in
securities issued by companies in any one industry.
INVESTMENT RESTRICTIONS
The following restrictions are fundamental policies of each Fund that may not be
changed without the approval of the holders of a majority of that Fund's
outstanding voting securities. A majority of a Fund's outstanding voting
securities means the lesser of (a) 67% or more of the voting securities present
at a meeting if the holders of more than 50% of the outstanding voting
securities are present or represented by proxy or (b) more than 50% of the
outstanding voting securities. If a percentage restriction on investment or use
of assets set forth below is adhered to at the time a transaction is effected,
later changes will not be considered a violation of the restriction, except that
a Fund will take reasonably practicable steps to attempt to continuously monitor
and comply with its liquidity standards. Also, if a Fund receives subscription
rights to purchase securities of an issuer whose securities the Fund holds, and
if the Fund exercises such subscription rights at a time when the Fund's
portfolio holdings of securities of that issuer would otherwise exceed the
limits set forth in paragraph 1 below, it will not constitute a violation if,
prior to the receipt of securities from the exercise of such rights, and after
announcement of such rights, the Fund sells at least as many securities of the
same class and value as it would receive on exercise of such rights. As a matter
of fundamental policy, each Fund may not:
(1) invest 25% or more of the total value of its assets
in a particular industry, except that the Uniplan Real Estate
Investment Fund will invest over 25% of its assets in the real
estate industry;
(2) issue senior securities, except to the extent
permitted by the Investment Company Act of 1940, as amended
(the "1940 Act"), or borrow money, except that a Fund may
borrow up to 15% of its total assets from banks for temporary
or emergency purposes;
(3) purchase or sell commodities or commodity contracts,
except that each Fund may engage in futures transactions as
described in the Prospectus;
(4) make loans, except that each Fund may (a) purchase
and hold debt instruments (including bonds, debentures or
other obligations and certificates of deposit, bankers'
acceptances and fixed-time deposits) in accordance with its
investment objective and policies, (b) invest in loans through
participations and assignments, (c) enter into repurchase
agreements with respect to portfolio securities, and (d) make
loans of portfolio securities, as described in this
Prospectus;
<PAGE>
(5) underwrite the securities of other issuers, except to
the extent that, in connection with the disposition of
portfolio securities, a Fund may be deemed to be an
underwriter;
(6) purchase real estate (other than securities secured
by real estate or interests therein or securities issued by
companies that invest in real estate or interests therein); or
(7) purchase securities on margin (except for delayed
delivery or when-issued transactions or such short-term
credits as are necessary for the clearance of transactions).
* * * * * * *
SUPPLEMENTAL DISCUSSION OF INVESTMENT TECHNIQUES AND RISKS ASSOCIATED WITH
THE FUNDS' INVESTMENT POLICIES AND INVESTMENT TECHNIQUES
Additional information concerning investment techniques and risks associated
with certain of the Funds' investments is set forth below. From time to time,
particular Funds may purchase these securities or enter into these strategies to
an extent that is more than incidental. Unless otherwise indicated, the
discussion below pertains to all of the Funds.
Variable and Floating Rate Securities
Variable and floating rate securities provide for a periodic adjustment in the
interest rate paid on the obligations. The terms of such obligations must
provide that interest rates are adjusted periodically based upon an interest
rate adjustment index as provided in the respective obligations. The adjustment
intervals may be regular, and range from daily to annually, or may be
event-based, such as based on a change in the prime rate.
The Funds may engage in credit spread trades and invest in floating rate debt
instruments ("floaters"). A credit spread trade is an investment position
relating to a difference in the prices or interest rates of two securities or
currencies, where the value of the investment position is determined by
movements in the difference between the prices or interest rates, as the case
may be, of the respective securities or currencies. The interest rate on a
floater is a variable rate which is tied to another interest rate, such as a
money-market index or Treasury bill rate. The interest rate on a floater resets
periodically, typically every six months. Because of the interest rate reset
feature, floaters provide a Fund with a certain degree of protection against a
rise in interest rates, although a Fund will participate in any declines in
interest rates as well.
The Funds may also invest in inverse floating rate debt instruments ("inverse
floaters"). The interest rate on an inverse floater resets in the opposite
direction from the market rate of interest to which the inverse floater is
indexed. An inverse floating rate security may exhibit greater price volatility
than a fixed rate obligation of similar credit quality, and a Fund may
accordingly be forced to hold such an instrument for long periods of time and/or
may experience losses of principal in such investment. Each Fund will not invest
more than 5% of its net assets in any combination of inverse floater, interest
only ("IO"), or principal only ("PO") securities. See "Mortgage-Related and
Other Asset-Backed Securities" for a discussion of IOs and POs.
<PAGE>
Mortgage-Related and Other Asset-Backed Securities
Payment of principal and interest on some mortgage pass-through securities (but
not the market value of the securities themselves) may be guaranteed by the full
faith and credit of the U.S. Government (in the case of securities guaranteed by
the Government National Mortgage Association or "GNMA"); or guaranteed by
agencies or instrumentalities of the U.S. Government (in the case of securities
guaranteed by the Federal National Mortgage Association or "FNMA" or the Federal
Home Loan Mortgage Corporation or "FHLMC"), which are supported only by the
discretionary authority of the U.S. Government to purchase the agency's
obligations). Mortgage-related securities created by non-governmental issuers
(such as commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other secondary market issuers) may be
supported by various forms of insurance or guarantees, including individual
loan, title, pool and hazard insurance and letters of credit, which may be
issued by governmental entities, private insurers or the mortgage poolers.
The Funds may invest in mortgage-related or other asset-backed securities. The
value of some mortgage-related or asset-backed securities in which the Funds
invest may be particularly sensitive to changes in prevailing interest rates,
and, like the other investments of a Fund, the ability of a Fund to successfully
utilize these instruments may depend in part upon the ability of its Sub-Adviser
to correctly forecast interest rates and other economic factors.
Mortgage Pass-Through Securities are securities representing interests in
"pools" of mortgage loans secured by residential or commercial real property in
which payments of both interest and principal on the securities are generally
made monthly, in effect "passing through" monthly payments made by the
individual borrowers on the mortgage loan which underlie the securities (net of
fees paid to the issuer or guarantor of the securities). Early repayment of
principal on some mortgage-related securities (arising from prepayments of
principal due to sale of the underlying property, refinancing, or foreclosure,
net of fees and costs which may be incurred) may expose a Fund to a lower rate
of return upon reinvestment of principal. Also, if a security subject to
prepayment has been purchased at a premium, the value of the premium would be
lost in the event of prepayment. Like other fixed income securities, when
interest rates rise, the value of a mortgage-related security generally will
decline; however, when interest rates are declining, the value of
mortgage-related securities with prepayment features may not increase as much as
other fixed income securities. The rate of prepayments on underlying mortgages
will affect the price and volatility of a mortgage-related security, and may
have the effect of shortening or extending the effective maturity of the
security beyond what was anticipated at the time of purchase. To the extent that
unanticipated rates of prepayment on underlying mortgages increase the effective
maturity of a mortgage-related security, the volatility of such securities can
be expected to increase.
Collateralized Mortgage Obligations ("CMOs") are hybrid mortgage-related
instruments. Interest and pre-paid principal on a CMO are paid, in most cases,
on a monthly basis. CMOs may be collateralized by whole mortgage loans but are
more typically collateralized by portfolios of mortgage pass-through securities
guaranteed by the GNMA, the FHLMC or the FNMA. CMOs are structured into multiple
classes, with each class bearing a different stated maturity. Monthly payments
of principal, including prepayments, are first returned to investors holding the
shortest maturity class; investors holding the longer maturity classes receive
principal only after the first class has been retired. CMOs that are issued or
guaranteed by the U.S. Government or by any of its agencies or instrumentalities
will be considered U.S. Government securities by each Fund, while other CMOs,
even if collateralized by U.S. Government securities, will have the same status
as other privately issued securities for purposes of applying a Fund's
diversification tests.
Commercial Mortgage-Backed Securities include securities that reflect an
interest in, and are secured by, mortgage loans on commercial real property. The
market for commercial mortgage-backed securities developed more recently and in
terms of total outstanding principal amount of issues is relatively small
compared to the market for residential single-family mortgage-backed securities.
Many of the risks of investing in commercial mortgage-backed securities reflect
the risks of investing in the real estate securing the underlying mortgage
loans. These risks reflect the effects of local and other economic conditions on
real estate markets, the ability of tenants to make loan payments, and the
ability of a property to attract and retain tenants. Commercial mortgage-backed
securities may be less liquid and exhibit greater price volatility than other
types of mortgage-related or asset-backed securities.
<PAGE>
Mortgage-Related Securities include securities other than those described above
that directly or indirectly represent a participation in, or are secured by and
payable from, mortgage loans on real property, such as mortgage dollar rolls
(see "Reverse Repurchase Agreements and Dollar Roll Arrangements" below), CMO
residuals or stripped mortgage-backed securities ("SMBS"), and may be structured
in classes with rights to receive varying proportions of principal and interest.
A common type of SMBS will have one class receiving some of the interest and
most of the principal from the mortgage assets, while the other class will
receive most of the interest and the remainder of the principal. In the most
extreme case, one class will receive all of the interest (the interest-only, or
"IO" class), while the other class will receive all of the principal (the
principal-only, or "PO" class). The yield to maturity on an IO class is
extremely sensitive to the rate of principal payments (including prepayments) on
the related underlying mortgage assets, and a rapid rate of principal payments
may have a material adverse effect on a Fund's yield to maturity from these
securities. A Fund will not invest more than 5% of its net assets in any
combination of IO, PO, or inverse floater securities. The Funds may invest in
other asset-backed securities that have been offered to investors. For a
discussion of the characteristics of some of these instruments, see the
Supplemental Discussion of Investment Techniques and Risks section of the SAI.
U.S. Government Obligations
Obligations of certain agencies and instrumentalities of the U.S. Government,
such as the GNMA, are supported by the full faith and credit of the U.S.
Treasury; others, such as those of the FNMA, are supported by the right of the
issuer to borrow from the Treasury; others, such as those of the Student Loan
Marketing Association, are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; still others, such as those of
the Federal Farm Credit Banks or the FHLMC, are supported only by the credit of
the instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored agencies or
instrumentalities if it is not obligated to do so by law.
Convertible Securities
Each Fund may invest in convertible securities, which may offer higher income
than the common stocks into which they are convertible. Typically, convertible
securities are callable by the company, which may, in effect, force conversion
before the holder would otherwise choose.
The convertible securities in which a Fund may invest consist of bonds, notes,
debentures and preferred stocks which may be converted or exchanged at a stated
or determinable exchange ratio into underlying shares of common stock. A Fund
may be required to permit the issuer of a convertible security to redeem the
security, convert it into the underlying common stock, or sell it to a third
party. Thus, the Fund may not be able to control whether the issuer of a
convertible security chooses to force conversion of that security. If the issuer
chooses to do so, this action could have an adverse effect on a Fund's ability
to achieve its investment objective.
Securities Issued by Other Investment Companies
Each Fund may invest up to 10% of its total assets in shares of other investment
companies. A Fund will incur additional expenses due to the duplication of
expenses as a result of investing in other investment companies.
<PAGE>
Repurchase Agreements
Securities held by a Fund may be subject to repurchase agreements. In a
repurchase agreement, a Fund purchases a security and simultaneously commits to
sell that security back to the original seller at an agreed-upon price. The
resale price reflects the purchase price plus an agreed-upon incremental amount
which is unrelated to the coupon rate or maturity of the purchased security. To
protect a Fund from risk that the original seller will not fulfill its
obligations, the securities are held in accounts of the Fund at a bank,
marked-to-market daily, and maintained at a value at least equal to the sale
price plus the accrued incremental amount. If a seller defaults on its
repurchase obligations, a Fund may suffer a loss in disposing of the security
subject to the repurchase agreement. While it does not presently appear possible
to eliminate all risks from these transactions (particularly the possibility
that the value of the underlying security will be less than the resale price, as
well as costs and delays to the Funds in connection with bankruptcy
proceedings), it is the current policy of the Funds to engage in repurchase
agreement transactions with parties whose creditworthiness has been reviewed and
found satisfactory by the Sub-Advisers.
Reverse Repurchase Agreements and Dollar Roll Agreements
The Funds may borrow funds by entering into reverse repurchase agreements and
dollar roll agreements in accordance with applicable investment restrictions. In
a reverse repurchase agreement, a Fund sells a portfolio instrument to another
party, such as a bank or broker-dealer, in return for cash and agrees to
repurchase the instrument at a particular price and time. A dollar roll
agreement is identical to a reverse repurchase agreement except for the fact
that substantially similar securities may be repurchased. While a reverse
repurchase agreement is outstanding, the Funds will maintain appropriate liquid
assets in a segregated custodial account to cover its obligation under the
agreement. The Funds will enter into reverse repurchase agreements only with
parties whose creditworthiness has been found satisfactory by the Sub-Advisers.
Such transactions may increase fluctuations in the market value of a Fund's
assets and may be viewed as a form of leverage. Reverse repurchase agreements
and dollar roll agreements involve the risk that the market value of the
securities sold by a Fund may decline below the price at which the Fund is
obligated to repurchase the securities.
Derivative Instruments
The Funds may purchase and write call and put options on securities, securities
indexes and foreign currencies, and enter into futures contracts and use options
on futures contracts as further described below. The Funds may also enter into
swap agreements with respect to foreign currencies, interest rates, and
securities indexes. A Fund may use these techniques to hedge against changes in
interest rates, foreign currency exchange rates or securities prices or as part
of their overall investment strategies. The Funds may also purchase and sell
options relating to foreign currencies for purposes of increasing exposure to a
foreign currency or to shift exposure to foreign currency fluctuations from one
country to another. A Fund will maintain a segregated account consisting of
assets determined to be liquid by its Sub-Adviser in accordance with procedures
established by the Board of Directors (or, as permitted by applicable
regulation, enter into certain offsetting positions) to cover its obligations
under options, futures, and swaps to avoid leveraging the portfolio of the Fund.
<PAGE>
The Funds consider derivative instruments to consist of securities or other
instruments whose value is derived from or related to the value of some other
instrument or asset, and not to include those securities whose payment of
principal and/or interest depends upon cash flows from underlying assets, such
as mortgage-related or asset-backed securities. The value of some derivative
instruments in which a Fund invests may be particularly sensitive to changes in
prevailing interest rates, and, like the other investments of a Fund, the
ability of a Fund to successfully utilize these instruments may depend in part
upon the ability of its Sub-Adviser to correctly forecast interest rates and
other economic factors. If a Sub-Adviser incorrectly forecasts such factors and
has taken positions in derivative instruments contrary to prevailing market
trends, a Fund could be exposed to the risk of loss. The Funds might not employ
any of the strategies described below, and no assurance can be given that any
strategy used will succeed.
Swap Agreements
The Funds may enter into interest rate, index, equity and currency exchange rate
swap agreements. These transactions would be entered into in an attempt to
obtain a particular return when it is considered desirable to do so, possibly at
a lower cost to a Fund than if the Fund had invested directly in the asset that
yielded the desired return. Swap agreements are two-party contracts entered into
primarily by institutional investors for periods ranging from a few weeks to
more than one year. In a standard swap transaction, two parties agree to
exchange the returns (or differentials in rates of return) earned or realized on
particular predetermined investments or instruments, which may be adjusted for
an interest factor. The gross returns to be exchanged or "swapped" between the
parties are generally calculated with respect to a "normal amount", i.e., the
return on or increase in value of a particular dollar amount invested at a
particular interest rate, in a particular foreign currency, or in a "basket" of
securities representing a particular index. Forms of swap agreements include
interest rate caps, under which, in return for a premium, one party agrees to
make payments to the other to the extent that interest rates exceed a specified
rate, or "cap"; interest rate floors, under which, in return for a premium, one
party agrees to make payments to the other to the extent that interest rates
fall below a specified level, or "floor"; and interest rate collars, under which
a party sells a cap and purchases a floor or vice versa, in an attempt to
protect itself against interest rate movements exceeding given minimum or
maximum levels.
Most swap agreements entered into by a Fund calculate the obligations of the
parties to the agreement on a "net basis". Consequently, the Fund's current
obligations (or rights) under a swap agreement will generally be equal only to
the net amount to be paid or received under the agreement based on the relative
values of the positions held by each party to the agreement (the "net amount").
The Fund's current obligations under a swap agreement will be accrued daily
(offset against amounts owed to the Fund), and any accrued but unpaid net
amounts owed to a swap counterparty will be covered by the maintenance of a
segregated account consisting of assets determined to be liquid by the
Sub-Advisers in accordance with procedures established by the Board of
Directors, to limit any potential leveraging of the Fund's portfolio.
Obligations under swap agreements so covered will not be construed to be "senior
securities" for purposes of the Funds' investment restriction concerning senior
securities. A Fund will not enter into a swap agreement with any single party if
the net amount owed or to be received under existing contracts with that party
would exceed 5% of the Fund's assets.
Whether a Fund's use of swap agreements will be successful in furthering its
investment objective will depend on the Investment Adviser or Sub-Adviser's
ability to correctly predict whether certain types of investments are likely to
produce greater returns than other investments. Because they are two-party
contracts and because they may have terms of greater than seven days, swap
agreements may be considered to be illiquid investments. Moreover, a Fund bears
the risk of loss of the amount expected to be received under a swap agreement in
the event of the default or bankruptcy of a swap agreement counterparty. A Fund
will enter into swap agreements only with counterparties that meet certain
standards for creditworthiness (generally, such counterparties would have to be
eligible counterparties under the terms of the Fund's repurchase agreement
guidelines). Certain restrictions imposed on the Funds by the Internal Revenue
Code of 1986, as amended (the "Code"), may limit a Fund's ability to use swap
agreements. The swap market is a relatively new market and is largely
unregulated. It is possible that developments in the swap market, including
potential government regulation, could adversely affect the Fund's ability to
terminate existing swap agreements or to realize amounts to be received under
such agreements.
<PAGE>
Options on Securities, Securities Indexes and Futures
The Funds may write covered put and call options and purchase put and call
options on securities, securities indexes and futures contracts that are traded
on U.S. and foreign exchanges and over-the-counter. An option on a security or a
futures contract is a contract that gives the purchaser of the option, in return
for the premium paid, the right to buy a specified security or futures contract
(in the case of a call option) or to sell a specified security or futures
contract (in the case of a put option) from or to the writer of the option at a
designated price during the term of the option. The writer of an option on a
security has the obligation upon exercise of the option to deliver the
underlying security upon payment of the exercise price or to pay the exercise
price upon delivery of the underlying security. Upon exercise, the writer of an
option on an index is obligated to pay the difference between the cash value of
the index and the exercise price multiplied by the specified multiplier for the
index option. An index is designed to reflect specified facets of a particular
financial or securities market, a specific group of financial instruments or
securities, or certain economic indicators. An option on a securities index
gives the purchaser of the option, in return for the premium paid, the right to
receive from the seller cash equal to the difference between the closing price
of the index and the exercise price of the option. One purpose of purchasing put
options is to protect holdings in an underlying or related security against a
substantial decline in market value.
One purpose of purchasing call options is to protect against substantial
increases in prices of securities. The Funds may write a call or put option only
if the option is "covered". A call option on a security or futures contract
written by a fund is "covered" if the fund owns the underlying security or
futures contract covered by the call or has an absolute and immediate right to
acquire that security without additional cash consideration (or for additional
cash consideration held in a segregated account by its custodian) upon
conversion or exchange of other securities held in its portfolio. A call option
on a security or futures contract is also covered if a Fund holds a call on the
same security or futures contract and in the same principal amount as the call
written where the exercise price of the call held (a) is equal to or less than
the exercise price of the call written or (b) is greater than the exercise price
of the call written if the difference is maintained by the Fund in cash or
high-grade U.S. government securities in a segregated account with its
custodian. A put option on a security or futures contract written by a Fund is
"covered" if the Fund maintains cash or fixed-income securities with a value
equal to the exercise price in a segregated account with its custodian, or else
holds a put on the same security or futures contract and in the same principal
amount as the put written where the exercise price of the put held is equal to
or greater than the exercise price of the put written.
The Funds may write covered straddles consisting of a combination of a call and
a put written on the same underlying security. A straddle will be covered when
sufficient assets are deposited to meet a Fund's immediate obligations. The
Funds may use the same liquid assets to cover both the call and put options
where the exercise price of the call and put are the same, or the exercise price
of the call is higher than that of the put. In such cases, a Fund will also
segregate liquid assets equivalent to the amount, if any, by which the put is
"in the money."
<PAGE>
The Funds will cover call options on securities indexes that they write by
owning securities whose price changes, in the opinion of the Investment Adviser
or Sub-Adviser, are expected to be similar to those of the index, or in such
other manner as may be in accordance with the rules of the exchange on which the
option is traded and applicable laws and regulations. Nevertheless, where a Fund
covers a call option on a securities index through ownership of securities, such
securities may not match the composition of the index. In that event, the Fund
will not be fully covered and could be subject to risk of loss in the event of
adverse changes in the value of the index. A Fund will cover put options on
securities indices that it writes by segregating assets equal to the option's
exercise price, or in such other manner as may be in accordance with the rules
of the exchange on which the option is traded and applicable laws and
regulations.
The Funds will receive a premium from writing a put or call option, which
increases their gross income in the event the option expires unexercised or is
closed out at a profit. If the value of a security, index or futures contract on
which a Fund has written a call option falls or remains the same, the Fund will
realize a profit in the form of the premium received (less transaction costs)
that could offset all or a portion of any decline in the value of the portfolio
securities being hedged. If the value of the underlying security, index or
futures contract rises, however, the Fund will realize a loss in its call option
position, which will reduce the benefit of any unrealized appreciation in its
investments. By writing a put option, a Fund assumes the risk of a decline in
the underlying security, index or futures contract. To the extent that the price
changes of the portfolio securities being hedged correlate with changes in the
value of the underlying security, index or futures contract, writing covered put
options will increase the Fund's losses in the event of a market decline,
although such losses will be offset in part by the premium received for writing
the option.
A Fund may also purchase put options to hedge its investments against a decline
in value. By purchasing a put option, the Fund will seek to offset a decline in
value of the portfolio securities being hedged through appreciation of the put
option. If the value of the Fund's investments does not decline as anticipated,
or if the value of the option does not increase, the Fund's loss will be limited
to the premium paid for the option plus related transaction costs. The success
of this strategy will depend, in part, on the accuracy of the correlation
between the changes in value of the underlying security, index or futures
contract and the changes in value of the Fund's security holdings being hedged.
A Fund may purchase call options on individual securities or futures contracts
to hedge against an increase in the price of securities or futures contracts
that it anticipates purchasing in the future. Similarly, a Fund may purchase
call options on a securities index to attempt to reduce the risk of missing a
broad market advance, or an advance in an industry or market segment, at a time
when the Fund holds uninvested cash or short-term debt securities awaiting
reinvestment. When purchasing call options, a Fund will bear the risk of losing
all or a portion of the premium paid if the value of the underlying security,
index or futures contract does not rise.
The purchase and writing of options involves certain risks. During the option
period, the covered call writer has, in return for the premium on the option,
given up the opportunity to profit from a price increase in the underlying
security above the exercise price, but, as long as its obligation as a writer
continues, has retained the risk of loss should the price of the underlying
security decline. The writer of an option has no control over the time when it
may be required to fulfill its obligation as a writer of the option. Once an
option writer has received an exercise notice, it cannot effect a closing
purchase transaction in order to terminate its obligation under the option and
must deliver the underlying security at the exercise price. If a put or call
option purchased by a Fund is not sold when it has remaining value, and if the
market price of the underlying security remains equal to or greater than the
exercise price (in the case of a put), or remains less than or equal to the
exercise price (in the case of a call), the Fund will lose its entire investment
in the option. Also, where a put or call option on a particular security is
purchased to hedge against price movements in a related security, the price of
the put or call option may move more or less than the price of the related
security.
<PAGE>
There can be no assurance that a liquid market will exist when a Fund seeks to
close out an option position. Trading could be interrupted, for example, because
of supply and demand imbalances arising from a lack of either buyers or sellers,
or the options exchange could suspend trading after the price has risen or
fallen more than the maximum specified by the exchange. Although a Fund may be
able to offset to some extent any adverse effects of being unable to liquidate
an option position, it may experience losses in some cases as a result of such
inability. The value of over-the-counter options purchased by a Fund, as well as
the cover for options written by a Fund, are considered not readily marketable
and are subject to the Company's limitation on investments in securities that
are not readily marketable.
A Fund's ability to reduce or eliminate its futures and related options
positions will depend upon the liquidity of the secondary markets for such
futures and options. Each Fund intends to purchase or sell futures and related
options only on exchanges or boards of trade where there appears to be an active
secondary market, but there is no assurance that a liquid secondary market will
exist for any particular contract or at any particular time. Use of futures and
options for hedging may involve risks because of imperfect correlations between
movements in the prices of the futures or options and movements in the prices of
the securities being hedged. Successful use of futures and related options by a
Fund for hedging purposes also depends upon the Investment Adviser's or
Sub-Advisers' ability to predict correctly movements in the direction of the
market, as to which no assurance can be given.
There are several risks associated with transactions in options on securities
indexes. For example, there are significant differences between the securities
and options markets that could result in an imperfect correlation between these
markets, causing a given transaction not to achieve its objectives. A decision
as to whether, when and how to use options involves the exercise of skill and
judgment, and even a well-conceived transaction may be unsuccessful to some
degree because of market behavior or unexpected events. There can be no
assurance that a liquid market will exist when a Fund seeks to close out an
option position. If a Fund were unable to close out an option that it had
purchased on a securities index, it would have to exercise the option in order
to realize any profit or the option may expire worthless. If trading were
suspended in an option purchased by a Fund, it would not be able to close out
the option. If restrictions on exercise were imposed, a Fund might be unable to
exercise an option it had purchased. Except to the extent that a call option on
an index written by a Fund is covered by an option on the same index purchased
by the Fund, movements in the index may result in a loss to the Fund; however,
such losses may be mitigated by changes in the value of the Fund's securities
during the period the option was outstanding.
Futures Contracts and Options on Futures Contracts. The Funds may invest in
interest rate, stock index and foreign currency futures contracts and options
thereon. There are several risks associated with the use of futures and futures
options for hedging purposes. There can be no guarantee that there will be a
correlation between price movements in the hedging vehicle and in the portfolio
securities being hedged. An incorrect correlation could result in a loss on both
the hedged securities in a Fund and the hedging vehicle so that the portfolio
return might have been greater had hedging not been attempted. There can be no
assurance that a liquid market will exist at a time when a Fund seeks to close
out a futures contract or a futures option position. Most futures exchanges and
boards of trade limit the amount of fluctuation permitted in futures contract
prices during a single day; once the daily limit has been reached on a
particular contract, no trades may be made that day at a price beyond that
limit. In addition, certain of these instruments are relatively new and without
a significant trading history. As a result, there is no assurance that an active
secondary market will develop or continue to exist. Lack of a liquid market for
any reason may prevent a Fund from liquidating an unfavorable position, and the
Fund would remain obligated to meet margin requirements until the position is
closed.
<PAGE>
The Funds may write covered straddles consisting of a call and a put written on
the same underlying futures contract. A straddle will be covered when sufficient
assets are deposited to meet the Fund's immediate obligations. A Fund may use
the same liquid assets to cover both the call and put options where the exercise
price of the call and put are the same, or the exercise price of the call is
higher than that of the put. In such cases, a Fund will also segregate liquid
assets equivalent to the amount, if any, by which the put is "in the money" .
The Funds will only enter into futures contracts or futures options which are
standardized and traded on a U.S. or foreign exchange or board of trade, or
similar entity, or quoted on an automated quotation system. The Funds will use
financial futures contracts and related options for "bona fide hedging"
purposes, as such term is defined in applicable regulations of the Commodity
Futures Trading Commission ("CFTC"). With respect to positions in financial
futures and related options that do not qualify as "bona fide hedging," a Fund
will enter such positions only to the extent that aggregate initial margin
deposits plus premiums paid by it for open futures option positions, less the
amount by which any such positions are "in-the-money", would not exceed 5% of
the Fund's net assets.
A Fund may buy and sell foreign currencies on a spot and forward basis to reduce
the risks of adverse changes in foreign exchange rates. A forward foreign
currency exchange contract involves an obligation to purchase or sell a specific
currency at a future date, which may be a fixed number of days from the date of
the contract agreed upon by the parties, at a price set at the time of the
contract. By entering into a forward foreign currency exchange contract, a Fund
"locks in" the exchange rate between the currency it will deliver and the
currency it will receive for the duration of the contract. As a result, the Fund
reduces its exposure to changes in the value of the currency it will deliver and
increases its exposure to changes in the value of the currency it will exchange
into. The effect on the Fund is similar to selling securities denominated in one
currency and purchasing securities denominated in another. Contracts to sell
foreign currency would limit any potential gain which might be realized by a
Fund if the value of the hedged currency increases. The Funds may enter into
these contracts for the purpose of hedging against foreign exchange risk arising
from a Fund's investment or anticipated investment in securities denominated in
foreign currencies. The Funds also may enter into these contracts for purposes
of increasing exposure to a foreign currency or to shift exposure to foreign
currency fluctuations from one country to another. The Funds may use one
currency (or a basket of currencies) to hedge against adverse changes in the
value of another currency (or a basket of currencies) when exchange rates
between the two currencies are positively correlated. A Fund will segregate
assets determined to be liquid by its Sub-Adviser, in accordance with procedures
established by the Board of Directors, in a segregated account to cover its
obligations under forward foreign currency exchange contracts entered into for
non-hedging purposes. The Funds also may invest in options on foreign
currencies, in foreign currency futures and options thereon, and in foreign
currency exchange-related securities, such as foreign currency warrants and
other instruments whose return is linked to foreign currency exchange rates.
Illiquid Securities
The Funds may invest in an illiquid or restricted security if the Investment
Adviser or Sub-Adviser believes that it presents an attractive investment
opportunity. Each of the Funds may not invest more than 15% of its assets in
illiquid securities, measured at the time of investment. Generally, a security
is considered illiquid if it cannot be disposed of within seven days. Its
illiquidity might prevent the sale of such a security at a time when the
Sub-Adviser might wish to sell, and these securities could have the effect of
decreasing the overall level of the Funds' liquidity. Further, the lack of an
established secondary market may make it more difficult to value illiquid
securities, requiring the Funds to rely on judgments that may be somewhat
subjective in determining value, which could vary from the amount that the Funds
could realize upon disposition.
<PAGE>
Illiquid securities are considered to include, among other things, written
over-the-counter options, securities or other liquid assets being used as cover
for such options, repurchase agreements with maturities in excess of seven days,
certain loan participation interests, fixed-time deposits which are not subject
to prepayment or provide for withdrawal penalties upon prepayment (other than
overnight deposits), securities that are subject to legal or contractual
restrictions on resale and other securities whose disposition is restricted
under the federal securities laws (other than securities issued pursuant to Rule
144A under the Securities Act of 1933, as amended (the "1933 Act") and certain
commercial paper that a Sub-Adviser has determined to be liquid under procedures
approved by the Board of Directors).
A Fund's investments may include privately placed securities, which are sold
directly to a small number of investors, usually institutions. Unlike public
offerings, such securities are not registered under the federal securities laws.
Although certain of these securities may be readily sold, for example, under
Rule 144A, others may be illiquid, and their sale may involve substantial delays
and additional costs.
Restricted securities, including placements, are subject to legal or contractual
restrictions on resale. They can be eligible for purchase without SEC
registration by certain institutional investors known as "qualified
institutional buyers," and under the Funds' procedures, restricted securities
could be treated as liquid. However, some restricted securities may be illiquid
and restricted securities that are treated as liquid could be less liquid than
registered securities traded on established secondary markets.
Lending of Portfolio Securities
In order to generate additional income, the Funds from time to time may lend
portfolio securities to broker-dealers, banks or institutional borrowers of
securities. The lending Fund must receive 102% collateral in the form of cash or
U.S. Government securities. This collateral must be valued daily and, should the
market value of the loaned securities increase, the borrower must furnish
additional collateral to the lending Fund. During the time portfolio securities
are on loan, the borrower pays the lending Fund any dividends or interest paid
on such securities. Loans are subject to termination by the lending Fund or the
borrower at any time. While the lending Fund does not have the right to vote
securities on loan, it intends to terminate the loan and regain the right to
vote if that is considered important with respect to the investment. In the
event the borrower defaults on its obligation to the lending Fund, the lending
Fund could experience delays in recovering its securities and possible capital
losses.
Borrowing
Each of the Funds may borrow up to 15% of the value of its total assets from
banks for temporary or emergency purposes. Under the 1940 Act, each of the Funds
is required to maintain continuous asset coverage of 300% with respect to such
borrowings and to sell (within three days) sufficient portfolio holdings to
restore such coverage if it should decline to less than 300% due to market
fluctuations or otherwise, even if such liquidations of a Fund's holdings may be
disadvantageous from an investment standpoint. The Funds may not engage in
leveraging by means of borrowing which may exaggerate the effect of any increase
or decrease in the value of portfolio securities or the Funds' net asset values.
Money borrowed will be subject to interest and other costs (which may include
commitment fees and/or the cost of maintaining minimum average balances) which
may or may not exceed the income received from the securities purchased with
borrowed funds.
Corporate Debt Securities
Corporate debt securities include corporate bonds, debentures, notes and other
similar corporate debt instruments, including convertible securities. Debt
securities may be acquired with warrants attached. Corporate income-producing
securities may also include forms of preferred or preference stock. The rate of
interest on a corporate debt security may be fixed, floating or variable, and
may vary inversely with respect to a reference rate. See "Variable and Floating
Rate Securities" below. The rate of return or return of principal on some debt
obligations may be linked or indexed to the level of exchange rates between the
U.S. dollar and a foreign currency or currencies. Investments in corporate debt
securities that are rated below investment grade (rated below Baa by Moody's
Investors Service, Inc. ("Moody's") or BBB by Standard & Poor's Rating Service
("S&P")) are described as "speculative" both by Moody's and S&P. Rating agencies
may periodically change the rating assigned to a particular security. While the
Sub-Advisers will take into account such changes in deciding whether to hold or
sell a security, a Sub-Adviser is not required to sell a security that is
downgraded to any particular rating.
<PAGE>
Debt Securities
The Funds may invest in debt securities that are rated between BBB and as low as
CCC by S&P and between Baa and as low as Caa by Moody's or, if unrated, are of
equivalent investment quality as determined by the Investment Adviser or
Sub-Advisers. The market value of debt securities generally varies in response
to changes in interest rates and the financial condition of each issuer. During
periods of declining interest rates, the value of debt securities generally
increases. Conversely, during periods of rising interest rates, the value of
such securities generally declines. These changes in market value will be
reflected in the Funds' net asset values.
Bonds which are rated Baa by Moody's are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well. Bonds which are rated C by
Moody's are the lowest rated class of bonds, and can be regarded as having
extremely poor prospects of attaining any real investment standing.
Bonds rated BBB by S&P are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than in higher rated categories. Bonds rated D by S&P are
the lowest rated class of bonds, and generally are in payment default. The D
rating also will be used upon the filing of a bankruptcy petition if debt
service payments are jeopardized.
Although they may offer higher yields than higher rated securities, high-risk,
low rated debt securities (commonly referred to as "junk bonds") and unrated
debt securities generally involve greater volatility of price and risk of
principal and income, including the possibility of default by, or bankruptcy of,
the issuers of the securities. In addition, the markets in which low rated and
unrated debt securities are traded are more limited than those in which higher
rated securities are traded. The existence of limited markets for particular
securities may diminish the Funds' ability to sell the securities at fair value
either to meet redemption requests or to respond to a specific economic event
such as a deterioration in the creditworthiness of the issuer. Reduced secondary
market liquidity for certain low rated or unrated debt securities may also make
it more difficult for the Funds to obtain accurate market quotations for the
purposes of valuing their portfolios. Market quotations are generally available
on many low rated or unrated securities only from a limited number of dealers
and may not necessarily represent firm bids of such dealers or prices for actual
sales.
<PAGE>
Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the values and liquidity of low rated debt securities,
especially in a thinly traded market. Analysis of the creditworthiness of
issuers of low rated debt securities may be more complex than for issuers of
higher rated securities, and the ability of the Funds to achieve their
investment objectives may, to the extent of investment in low rated debt
securities, be more dependent upon such creditworthiness analysis than would be
the case if the Funds were investing in higher rated securities.
Low rated debt securities may be more susceptible to real or perceived adverse
economic and competitive industry conditions than investment grade securities.
The prices of low rated debt securities have been found to be less sensitive to
interest rate changes than higher rated investments, but more sensitive to
adverse economic downturns or individual corporate developments. A projection of
an economic downturn or of a period of rising interests rates, for example,
could cause a decline in low rated debt securities prices because the advent of
a recession could lessen the ability of a highly leveraged company to make
principal and interest payments on its debt securities. If the issuer of low
rated debt securities defaults, the Funds may incur additional expenses seeking
recovery.
Depositary Receipts
The Funds may purchase sponsored or unsponsored American Depositary Receipts
("ADRs"), European Depositary Receipts ("EDRs") and Global Depositary Receipts
("GDRs") (collectively, "Depositary Receipts"). ADRs are Depositary Receipts
typically issued by a U.S. bank or trust company which evidence ownership of
underlying securities issued by a foreign corporation. EDRs and GDRs are
typically issued by foreign banks or foreign trust companies, although they also
may be issued by U.S. banks or trust companies, and evidence ownership of
underlying securities issued by either a foreign or a U.S. corporation.
Generally, Depositary Receipts in registered form are designed for use in the
U.S. securities market and Depositary Receipts in bearer form are designed for
use in securities markets outside the United States. Depositary Receipts may not
necessarily be denominated in the same currency as the underlying securities
into which they may be converted. Depositary Receipts may be issued pursuant to
sponsored or unsponsored programs. In sponsored programs, the underlying issuer
has made arrangements to have its securities traded in the form of Depositary
Receipts. In unsponsored programs, the underlying issuer may not be directly
involved in the creation of the program. Although regulatory requirements with
respect to sponsored and unsponsored programs are generally similar, in some
cases it may be easier to obtain financial information from an underlying issuer
that has participated in the creation of a sponsored program. Accordingly, there
may be less information available regarding underlying issuers of securities in
unsponsored programs and there may not be a correlation between such information
and the market value of the Depositary Receipts. Depositary Receipts also
involve the risks of other investments in foreign securities, as further
discussed below in this section. For purposes of each Fund's investment
policies, a Fund's investments in Depositary Receipts will be deemed to be
investments in the underlying securities.
Loan Participations and Assignments
The Funds may invest in fixed- and floating-rate loans arranged through private
negotiations between an issuer of debt instruments and one or more financial
institutions ("lenders"). Generally, a Fund's investments in loans are expected
to take the form of loan participations and assignments of loans from third
parties. Large loans to corporations or governments may be shared or syndicated
among several lenders, usually banks. A Fund may participate in such syndicates,
or can buy part of a loan, becoming a direct lender. Participations and
assignments involve special types of risk, including limited marketability and
the risks of being a lender. See "Illiquid Securities" for a discussion of the
limits on the Funds' investments in loan participations and assignments with
limited marketability. If a Fund purchases a participation, it may only be able
to enforce its rights through the lender, and may assume the credit risk of the
lender in addition to that of the borrower. In assignments, a Fund's rights
against the borrower may be more limited than those held by the original lender.
<PAGE>
Investment in Foreign and Developing Markets
The Hansberger International Growth Fund may purchase securities in any foreign
country, developed or developing. Potential investors in The Hansberger
International Growth Fund should consider carefully the substantial risks
involved in securities of companies and governments of foreign nations, which
are in addition to the usual risks inherent in domestic investments.
There may be less publicly available information about foreign companies
comparable to the reports and ratings published about U.S. companies. Most
foreign companies are not generally subject to uniform accounting and financial
reporting standards, and auditing practices and requirements may not be
comparable to those applicable to U.S. companies. The Fund, therefore, may
encounter difficulty in obtaining market quotations for purposes of valuing its
portfolio and calculating its net asset value. Foreign markets have
substantially less volume than the New York Stock Exchange ("NYSE") and
securities of some foreign companies are less liquid and more volatile than
securities of comparable U.S. companies. Commission rates in foreign countries,
which are generally fixed rather than subject to negotiation as in the United
States, are likely to be higher. Transaction costs and custodian expenses are
likely to be higher in foreign markets. In many foreign countries there is less
government supervision and regulation of stock exchanges, brokers and listed
companies than in the United States.
Investments in businesses domiciled in developing countries may be subject to
potentially higher risks than investments in developed countries. These risks
include: (i) less social, political and economic stability; (ii) the small
current size of the markets for such securities and the currently low or
nonexistent volume of trading, which result in a lack of liquidity and in
greater price volatility; (iii) certain national policies which may restrict the
Fund's investment opportunities, including restrictions on investments in
issuers or industries deemed sensitive to national interests; (iv) foreign
taxation; (v) the absence of developed structures governing private or foreign
investment or allowing for judicial redress for injury to private property; (vi)
the absence, until recently in certain Eastern European countries, of a capital
market structure or market-oriented economy; and (vii) the possibility that
recent favorable economic developments in Eastern Europe may be slowed or
reversed by unanticipated political or social events in such countries.
The Fund attempts to buy and sell foreign currencies on as favorable a basis as
practicable. Some price spread on currency exchanges (to cover service charges)
may be incurred, particularly when the Fund changes investments from one country
to another or when proceeds of the sale of shares in U.S. dollars are used for
the purchase of securities in foreign countries. Also, some countries may adopt
policies which would prevent the Fund from transferring cash out of the country
or withholding portions of interest and dividends at the source. There is the
possibility of cessation of trading on national exchanges, expropriation,
nationalization or confiscatory taxation, exit levies, withholding and other
foreign taxes on income or other amounts, foreign exchange controls (which may
include suspension of the ability to transfer currency from a given country),
default in foreign government securities, political or social instability, or
diplomatic developments which could affect investments in securities of issuers
in foreign nations.
<PAGE>
The Fund may buy and sell foreign currencies on a spot and forward basis to
reduce the risks of adverse changes in foreign exchange rates. A forward foreign
currency exchange contract involves an obligation to purchase or sell a specific
currency at a future date, which may be a fixed number of days from the date of
the contract agreed upon by the parties, at a price set at the time of the
contract. By entering into a forward foreign currency exchange contract, the
Fund "locks in" the exchange rate between the currency it will deliver and the
currency it will receive for the duration of the contract. As a result, the Fund
reduces its exposure to changes in the value of the currency it will deliver and
increases its exposure to changes in the value of the currency it will exchange
into. The effect on the Fund is similar to selling securities denominated in one
currency and purchasing securities denominated in another. Contracts to sell
foreign currency would limit any potential gain which might be realized by the
Fund if the value of the hedged currency increases. The Fund may enter into
these contracts for the purpose of hedging against foreign exchange risk arising
from its investment or anticipated investment in securities denominated in
foreign currencies. The Fund may enter into these contracts for purposes of
increasing exposure to a foreign currency or to shift exposure to foreign
currency fluctuations from one country to another. The Fund may use one currency
(or a basket of currencies) to hedge against adverse changes in the value of
another currency (or a basket of currencies) when exchange rates between the two
currencies are positively correlated. The Fund will segregate assets determined
to be liquid by its Sub-Adviser, in accordance with procedures established by
the Board of Directors, in a segregated account to cover its obligations under
forward foreign currency exchange contracts entered into for non-hedging
purposes. The Fund may invest in options on foreign currencies, in foreign
currency futures and options thereon, and in foreign currency exchange-related
securities, such as foreign currency warrants and other instruments whose return
is linked to foreign currency exchange rates.
The Fund may be affected either unfavorably or favorably by fluctuations in the
relative rates of exchange between the currencies of different nations, by
exchange control regulations and by indigenous economic and political
developments. Some countries in which the Fund may invest may also have fixed or
managed currencies that are not free-floating against the U.S. dollar. Further,
certain currencies may not be internationally traded. Certain of these
currencies have experienced a steady devaluation relative to the U.S. dollar.
Any devaluation in the currencies in which the Fund's portfolio securities are
denominated may have a detrimental impact on the Fund.
Certificates of Deposit and Time Deposits
Each Fund may invest in certificates of deposit and time deposits of domestic
and foreign banks and savings and loan associations if (a) at the time of
investment the depository institution has capital, surplus, and undivided
profits in excess of one hundred million dollars ($100,000,000) (as of the date
of its most recently published financial statements), or (b) the principal
amount of the instrument is insured in full by the Federal Deposit Insurance
Corporation.
PORTFOLIO TRANSACTIONS
The Investment Adviser and Sub-Advisers (the "Adviser" or "Advisers") are
authorized to select the brokers or dealers that will execute transactions to
purchase or sell investment securities for the Funds. In all purchases and sales
of securities for the Funds, the primary consideration is to obtain the most
favorable price and execution available. Pursuant to the Investment Management
Agreement and/or Sub-Advisory Agreements, each Adviser determines which brokers
are to be eligible to execute portfolio transactions of the Funds. Purchases and
sales of securities in the over-the-counter market will generally be executed
directly with a "market-maker", unless in the opinion of the Adviser, a better
price and execution can otherwise be obtained by using a broker for the
transaction.
<PAGE>
In placing portfolio transactions, each Adviser will use its best efforts to
choose a broker capable of providing the brokerage services necessary to obtain
the most favorable price and execution available. The full range and quality of
brokerage services available will be considered in making these determinations,
such as the size of the order, the difficulty of execution, the operational
facilities of the firm involved, the firm's risk in positioning a block of
securities, and other factors such as the firm's ability to engage in
transactions in shares of banks and thrifts that are not listed on an organized
stock exchange. Consideration may also be given to those brokers that supply
research and statistical information to the Funds and/or the Advisers, and
provide other services in addition to execution services. The placement of
portfolio brokerage with broker-dealers who have sold Shares of the Funds is
subject to rules adopted by the National Association of Securities Dealers, Inc.
("NASD"). The Advisers may also consider the sale of their shares as a factor in
the selection of broker-dealers to execute its portfolio transactions.
While it will be the Company's general policy to seek to obtain the most
favorable price and execution available, in selecting a broker to execute
portfolio transactions for the Funds, an Adviser may also give weight to the
ability of a broker to furnish brokerage and research services to the Funds or
the Adviser. In negotiating commissions with a broker, the Adviser may therefore
pay a higher commission than would otherwise be the case if no weight were given
to the furnishing of these supplemental services, provided that the amount of
such commission has been determined in good faith by the Adviser to be
reasonable in relation to the value of the brokerage and research services
provided by such broker, which services either produce a direct benefit to the
Funds or assists the Adviser in carrying out its responsibilities to the Funds
or its other clients.
Purchases of the Funds' Shares also may be made directly from issuers or from
underwriters. Where possible, purchase and sale transactions will be effected
through dealers which specialize in the types of securities which the Funds will
be holding, unless better executions are available elsewhere. Dealers and
underwriters usually act as principals for their own account. Purchases from
underwriters will include a concession paid by the issuer to the underwriter and
purchases from dealers will include the spread between the bid and the asked
price. If the execution and price offered by more than one dealer or underwriter
are comparable, the order may be allocated to a dealer or underwriter which has
provided such research or other services as mentioned above.
Some securities considered for investment by the Funds may also be appropriate
for other clients served by the Funds' Advisers. If the purchase or sale of
securities consistent with the investment policies of the applicable Fund and
one or more of these other clients serviced by the Adviser is considered at or
about the same time, transactions in such securities will be allocated among the
Funds and the Advisers' other clients in a manner deemed fair and reasonable by
the Adviser. There is no specified formula for allocating such transactions.
For the year ended December 31, 1999, the Hansberger International Growth Fund
paid $31,254, the Uniplan Real Estate Investment Fund paid $9,554, the Hoover
Small Cap Equity Fund paid $37,751 and the Garzarelli U.S. Equity Fund paid
$21,756, in commissions to brokers. The Funds did not pay any commissions to
brokers who were affiliated with the Fund, the Adviser, or the Distributor, and
any affiliated person of the foregoing.
During the fiscal year ended December 31, 1999, the Funds directed brokerage
transactions to brokers because of research services provided. The amount of
such transactions and related commissions were as follows: for the Hansberger
International Growth Equity Fund, $0 in transactions and $0 in related
commissions; for the Uniplan Real Estate Investment Fund, $0 in transactions and
$0 in related commissions; for the Hoover Small Cap Equity Fund $10,763,932 in
transactions and $30,378 in related commissions; and for the Garzarelli U.S.
Equity Fund, $0 in transactions and $0 in related commissions.
<PAGE>
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Funds are offered at the net asset value next computed following
receipt of the order by the dealer and/or by the Company's Distributor or
Transfer Agent. The Funds may authorize one or more brokers to receive, on their
behalf, purchase and redemption orders and such brokers are authorized to
designate other intermediaries as approved by the Funds to receive purchase and
redemption orders on the Funds' behalf. The Funds will be deemed to have
received a purchase or redemption order when an authorized broker or, if
approved by the Funds, a broker's authorized designee, receives the order. The
Distributor, at its expense, may provide additional promotional incentives to
dealers in connection with the sales of Shares and other funds managed by the
Advisers. In some instances, such incentives may be made available only to
dealers whose representatives have sold or are expected to sell significant
amounts of such Shares. The incentives may include payment for travel expenses,
including lodging, incurred in connection with trips taken by qualifying
registered representatives and members of their families to locations within or
outside of the United States, merchandise or other items. Dealers may not use
sales of the Shares to qualify for the incentives to the extent such may be
prohibited by the laws of any state in the United States.
Telephone Redemption and Exchange Privileges. As discussed in the Funds'
Prospectus, the telephone redemption and exchange privileges are available for
all Shareholder accounts except retirement accounts. The privileges may be
modified or terminated at any time. The privileges are subject to the conditions
and provisions set forth below and in the Prospectus.
1. Telephone redemption and/or exchange instructions received in good
order before the pricing of the Funds on any day on which the NYSE is
open for business (a "Business Day"), but not later than 4:00 p.m.,
Eastern time, will be processed at that day's closing net asset value.
There is no fee for an exchange. If you redeem your shares by mail
there is a $1.00 charge. If you choose to receive the proceeds from
your redemption via wire transfer, there is an $8.00 charge.
2. Telephone redemptions and/or exchange instructions should be made by
dialing 1-800-999-6809.
3. The Transfer Agent will not permit exchanges in violation of any of
the terms and conditions set forth in the Prospectus or herein.
4. Telephone redemption requests must meet the following conditions to be
accepted by the Transfer Agent:
(a) Proceeds of the redemption may be directly deposited into a
predetermined bank account, or mailed to the current address on
the application. This address cannot reflect any change within
the previous sixty (60) days.
(b) Certain account information will need to be provided for
verification purposes before the redemption will be executed.
(c) Only one telephone redemption (where proceeds are being mailed to
the address of record) can be processed within a 30 day period.
(d) The maximum amount which can be liquidated and sent to the
address of record at any one time is $50,000.
(e) The minimum amount which can be liquidated and sent to a
predetermined bank account is $5,000.
<PAGE>
Matters Affecting Redemptions. Payments to shareholders for Shares redeemed will
be made within seven days after receipt by the Transfer Agent of the request in
proper form (payments by wire will generally be transmitted on the next Business
Day), except that the Company may suspend the right of redemption or postpone
the date of payment as to the Funds during any period when (a) trading on the
NYSE is restricted as determined by the SEC or such exchange is closed for other
than weekends and holidays; (b) an emergency exists as determined by the SEC
making disposal of portfolio securities or valuation of net assets of the Funds
not reasonably practicable; or (c) for such other period as the SEC may permit
for the protection of the Funds' shareholders. At various times, a Fund may be
requested to redeem Shares for which it has not yet received good payment.
Accordingly, a Fund may delay the mailing of a redemption check until such time
as the Fund has assured itself that good payment has been collected for the
purchase of such Shares, which may take up to 10 business days.
Forward Funds, Inc. intends to redeem shares of each Fund solely in cash up to
the lesser of $250,000 or 1% of the Fund's net assets during any 90 day period
for any one shareholder. In consideration of the best interests of the remaining
shareholders, Forward Funds, Inc. reserves the right to pay any redemption
proceeds exceeding this amount in whole or in part by a distribution in kind of
securities held by a Fund in lieu of cash. It is highly unlikely that shares
would ever be redeemed in kind. When shares are redeemed in kind, the redeeming
shareholders should expect to incur transaction costs upon the disposition of
the securities received in the distribution. In such cases, you may incur
brokerage costs in converting the portfolio securities to cash. Broker-dealers
may charge their customers a transaction or service fee.
The Funds intend to pay in cash for all Shares redeemed, but under abnormal
conditions that make payment in cash unwise, the Funds may make payment wholly
or partly in securities at their then current market value equal to the
redemption price. In such case, an investor may incur brokerage costs in
converting such securities to cash. In the event the Funds liquidate portfolio
securities to meet redemptions, the Funds reserve the right to reduce the
redemption price by an amount equivalent to the pro-rated cost of such
liquidation not to exceed one percent of the net asset value of such Shares.
The Company has adopted procedures under which it may make redemptions-in-kind
to shareholders who are affiliated persons of a Fund (as defened in Section
2(a)(3) of the 1940 Act). Under these procedures, the Company generally may
satisfy a redemption request from an affiliated person in-kind, provided that:
(1) the redemption-in-kind is effected at approximately the affiliated
shareholder's proportionate share of the distributing Fund's current net assets,
and thus does not result in the dilution of the interests of the remaining
shareholders; (2) the distributed securities are valued in the same manner as
they are valued for purposes of computing the distributing Fund's net asset
value; (3) the redemption-in-kind is consistent with the Fund's prospectus and
statement of additional information; and (4) neither the affiliated shareholder
nor any other party with the ability adn the pecuniary incentive to influence
the redemption-in-kind selects, or influences the selection of, the distributed
securities.
Due to the relatively high cost of handling small investments, the Funds reserve
the right, upon 30 days' written notice, to redeem, at net asset value, the
Shares of any Shareholder whose account has a value of less than $1,000 in a
Fund, other than as a result of a decline in the net asset value per Share.
Before a Fund redeems such Shares and sends the proceeds to the shareholder, it
will notify the Shareholder that the value of the shares in the account is less
than the minimum amount and will allow the Shareholder 60 days to make an
additional investment in an amount that will increase the value of the account
to at least $1,000 before the redemption is processed. This policy will not be
implemented where the Company has previously waived the minimum investment
requirements and involuntary redemptions will not result from fluctuations in
the value of the shareholder's Shares.
The value of Shares on redemption or repurchase may be more or less than the
investor's investment, depending upon the market value of the portfolio
securities at the time of redemption or repurchase.
DETERMINATION OF SHARE PRICE
The net asset value and offering price of each of the Funds' Shares will be
determined once daily as of the close of trading on the NYSE (4:00 p.m., Eastern
time) during each day on which the NYSE is open for trading, the Federal Reserve
Bank of San Francisco is open, and any other day except days on which there are
insufficient changes in the value of a Fund's portfolio securities to affect
that Fund's net asset value or days on which no Shares are tendered for
redemption and no order to purchase any Shares is received. As of the date of
this SAI, the NYSE and/or the Federal Reserve Bank of San Francisco are closed
on the following holidays: New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
Portfolio securities listed or traded on a national securities exchange or
included in the NASDAQ National Market System will be valued at the last
reported sale price on the valuation day. Securities traded on an exchange or
NASDAQ for which there has been no sale that day and other securities traded in
the over-the-counter market will be valued at the average of the last reported
bid and ask price on the valuation day. In cases in which securities are traded
on more than one exchange, the securities are valued on the exchange designated
by or under the authority of the Board of Directors as the primary market.
Portfolio securities which are primarily traded on foreign securities exchanges,
other than the London Stock Exchange, are generally valued at the preceding
closing values of such securities on their respective exchanges, except when an
occurrence subsequent to the time a value was so established is likely to have
changed such value. In such an event, the fair value of those securities will be
determined through the consideration of other factors by or under the direction
of the Board of Directors. Securities for which quotations are not readily
<PAGE>
available and all other assets will be valued at their respective fair values as
determined in good faith by or under the direction of the Board of Directors of
the Company. Puts, calls and futures contracts purchased and held by the Funds
are valued at the close of the securities or commodities exchanges on which they
are traded. Options on securities and indices purchased by the Funds generally
are valued at their last bid price in the case of exchange-traded options or, in
the case of options traded on the over the counter market, the average of the
last bid price as obtained from two or more dealers unless there is only one
dealer, in which case that dealer's price is used. Futures contracts will be
valued with reference to established futures exchanges. The value of options on
futures contracts is determined based upon the current settlement price for a
like option acquired on the day on which the option is being valued. A
settlement price may not be used for the foregoing purposes if the market makes
a limit move with respect to a particular commodity. The value of all assets and
liabilities expressed in foreign currencies will be converted into U.S. dollar
values at the mean between the buying and selling rates of such currencies
against U.S. dollars last quoted by any major bank or broker-dealer. The Funds
generally value their holdings through the use of independent pricing agents,
except for securities which are valued under the direction of the Board of
Directors or which are valued by the Investment Adviser and/or Sub-Advisers
using methodologies approved by the Board of Directors.
The net asset value per Share of each of the Funds will fluctuate as the value
of the Funds' investments change. Net asset value per Share for each of the
Funds for purposes of pricing sales and redemptions is calculated by dividing
the value of all securities and other assets belonging to a Fund, less the
liabilities charged to that Fund by the number of such Fund's outstanding
Shares.
Orders received by dealers prior to the close of trading on the NYSE will be
confirmed at the offering price computed as of the close of trading on the NYSE
provided the order is received by the Transfer Agent prior to its close of
business that same day (normally 4:00 p.m., Eastern time). It is the
responsibility of the dealer to insure that all orders are transmitted in a
timely manner to a Fund. Orders received by dealers after the close of trading
on the NYSE will be confirmed at the next computed offering price as described
in the Funds' Prospectus.
SHAREHOLDER SERVICES AND PRIVILEGES
For investors purchasing Shares under a tax-qualified individual retirement or
pension plan or under a group plan through a person designated for the
collection and remittance of monies to be invested in Shares on a periodic
basis, the Funds may, in lieu of furnishing confirmations following each
purchase of Fund shares, send statements no less frequently than quarterly,
pursuant to the provisions of the Securities Exchange Act of 1934, as amended
("1934 Act"), and the rules thereunder. Such quarterly statements, which would
be sent to the investor or to the person designated by the group for
distribution to its members, will be made within five business days after the
end of each quarterly period and shall reflect all transactions in the
investor's account during the preceding quarter.
All Shareholders will receive a confirmation of each new transaction in their
accounts. CERTIFICATES REPRESENTING SHARES OF THE COMPANY WILL NOT BE ISSUED
UNLESS THE SHAREHOLDER REQUESTS THEM IN WRITING.
<PAGE>
Self-Employed and Corporate Retirement Plans. For self-employed individuals and
corporate investors that wish to purchase Shares, there is available through the
Company a Prototype Plan and Custody Agreement. For further details, including
the right to appoint a successor Custodian, see the Plan and Custody Agreements
as provided by the Company. Employers who wish to use Shares of the Company
under a custodianship with another bank or trust company must make individual
arrangements with such institution.
Individual Retirement Accounts. Investors having earned income are eligible to
purchase Shares of the Funds under an individual retirement account ("IRA")
pursuant to Section 408(a) of the Code. An individual who creates an IRA may
contribute annually certain dollar amounts of earned income, and an additional
amount if there is a non-working spouse. Simplified Employee Pension Plans
("Simple IRAs") which employers may establish on behalf of their employees are
also available. Full details on the IRA and Simple IRA are contained in Internal
Revenue Service required disclosure statements, and the Custodian will not open
an IRA until seven days after the investor has received such statement from the
Company. An IRA funded by Shares of the Funds may also be used by employers who
have adopted a Simplified Employee Pension Plan.
Purchases of Shares by Section 403(b) retirement plans and other retirement
plans are also available. It is advisable for an investor considering the
funding of any retirement plan to consult with an attorney or to obtain advice
from a competent retirement plan consultant.
DISTRIBUTIONS
Shareholders have the privilege of reinvesting both income dividends and capital
gains distributions, if any, in additional Shares of the Funds at the then
current net asset value, with no sales charge. Alternatively, a Shareholder can
elect at any time to receive dividends and/or capital gains distributions in
cash. Shareholders who elect to receive cash dividends will pay a $10.00 annual
account administration fee which is deducted out of dividends.
In the absence of such an election, each purchase of Shares of the Funds is made
upon the condition and understanding that the Transfer Agent is automatically
appointed the shareholder's agent to receive the investor's dividends and
distributions upon all Shares registered in the investor's name and to reinvest
them in full and fractional Shares of the Funds at the applicable net asset
value in effect at the close of business on the reinvestment date. A Shareholder
may still at any time after a purchase of Shares of the Funds request that
dividends and/or capital gains distributions be paid to the investor in cash.
TAX CONSIDERATIONS
The following discussion summarizes certain U.S. federal tax considerations
generally affecting the Funds and their Shareholders. This discussion is based
upon present provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), the regulations promulgated thereunder, and judicial and administrative
ruling authorities, all of which are subject to change, which change may be
retroactive. This discussion does not provide a detailed explanation of all tax
consequences, and Shareholders are advised to consult their own tax advisers
with respect to the particular consequences to them of an investment in the
Funds, as well as the tax consequences arising under the laws of any state,
foreign country, or other taxing juridiction.
Qualification as a Regulated Investment Company. Each of the Funds intends to
qualify as a regulated investment company under the Code. To so qualify, a Fund
must, among other things, in each taxable year: (a) derive at least 90% of its
gross income from dividends, interest, payments with respect to securities
loans, gains from the sale or other disposition of stock or securities and gains
from the sale or other disposition of foreign currencies, or other income
(including gains from options, futures contracts and forward contracts) derived
with respect to the Fund's business of investing in stocks, securities or
currencies; (b) diversify its holdings so that, at the end of each quarter, (i)
<PAGE>
at least 50% of the value of the Fund's total assets is represented by cash and
cash items, U.S. Government securities, securities of other regulated investment
companies, and other securities, with such other securities limited in respect
of any one issuer to an amount not greater in value than 5% of the Fund's total
assets and to not more than 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of the Fund's total assets is
invested in the securities (other than U.S. Government securities or securities
of other regulated investment companies) of any one issuer or of any two or more
issuers that the Fund controls and that are determined to be engaged in the same
business or similar or related businesses; and (c) distribute at least 90% of
its investment company taxable income (which includes, among other items,
dividends, interest and net short-term capital gains in excess of net long-term
capital losses).
The status of the Funds as regulated investment companies does not involve
government supervision of management or of their investment practices or
policies. As a regulated investment company, each Fund generally is not subject
to U.S. federal income tax on income and gains it distributes to shareholders,
if at least 90% of the Fund's investment company taxable income for the taxable
year is distributed. Amounts not distributed on a timely basis in accordance
with a calendar year distribution requirement also are subject to a
nondeductible 4% excise tax. To prevent application of the excise tax, the Funds
intend to make distributions in accordance with the calendar year distribution
requirement.
Distributions. Dividends of investment company taxable income (including net
short-term capital gains) are taxable to Shareholders as ordinary income,
whether received in cash or reinvested in Fund Shares. The Funds' distributions
of investment company taxable income may be eligible for the corporate
dividends-received deduction to the extent attributable to the Funds' dividend
income from U.S. corporations, and if other applicable requirements are met.
However, the alternative minimum tax applicable to corporations may reduce the
benefit of the dividends-received deduction. Distributions of net capital gains
(the excess of net long-term capital gains over net short-term capital losses)
designated by the Funds as capital gains dividends are taxable to Shareholders,
whether received in cash or reinvested in Fund Shares, as long-term capital
gain, regardless of the length of time the Funds' Shares have been held by a
Shareholder, and are not eligible for the dividends-received deduction. Any
distributions that are not from the Funds' investment company taxable income or
net capital gains may be characterized as a return of capital to Shareholders
or, in some cases, as capital gains. Shareholders will be notified annually as
to the federal tax status of dividends and distributions they receive and any
tax withheld thereon.
Dividends, including capital gain dividends, declared in October, November, or
December with a record date in such month and paid during the following January
will be treated as having been paid by the Funds and received by Shareholders on
December 31 of the calendar year in which declared, rather than the calendar
year in which the dividends are actually received.
Distributions by a Fund reduce the Net Asset Value of that Fund's Shares. Should
a distribution reduce the net asset value below a Shareholder's cost basis, the
distribution nevertheless may be taxable to the Shareholder as ordinary income
or capital gain as described above, even though, from an investment standpoint,
it may constitute a partial return of capital. In particular, investors should
be careful to consider the tax implication of buying Shares just prior to a
distribution by a Fund. The price of Shares purchased at that time includes the
amount of the forthcoming distribution, but the distribution will generally be
taxable to the Shareholder.
Sale or Other Disposition of Shares. Upon the sale or exchange of his Shares, a
Shareholder will realize a taxable gain or loss depending upon his basis in the
Shares. Such gain or loss will be treated as capital gain or loss if the Shares
are capital assets in the Shareholder's hands; gain will generally be taxed as
long-term capital gain if the Shareholder's holding period is more than one
year. Gain from disposition of Shares held not more than one year will be
treated as short-term capital gain. Any loss realized on a sale or exchange will
be disallowed to the extent that the Shares disposed of are replaced (including
replacement through the reinvesting of dividends and capital gain distributions)
within a period of 61 days beginning 30 days before and ending 30 days after the
disposition of the Shares. In such a case, the basis of the Shares acquired will
be adjusted to reflect the disallowed loss. Any loss realized by a Shareholder
on the sale of Fund Shares held by the Shareholder for six months or less will
be treated for federal income tax purposes as a long-term capital loss to the
extent of any distributions of capital gain dividends received by the
Shareholder with respect to such Shares.
In some cases, shareholders will not be permitted to take sales charges into
account for purposes of determining the amount of gain or loss realized on the
disposition of their Shares. This prohibition generally applies where (1) the
Shareholder incurs a sales charge in acquiring Fund Shares, (2) the Shares are
disposed of before the 91st day after the date on which they were acquired, and
(3) the Shareholder subsequently acquires Shares of the same or another Fund and
the otherwise applicable sales charge is reduced or eliminated under a
"reinvestment right" received upon the initial purchase of Shares. In that case,
the gain or loss recognized will be determined by excluding from the tax basis
of the Shares exchanged all or a portion of the sales charge incurred in
acquiring those Shares. This exclusion applies to the extent that the otherwise
applicable sales charge with respect to the newly acquired Shares is reduced as
a result of having incurred a sales charge initially. Sales charges affected by
this rule are treated as if they were incurred with respect to the Shares
acquired under the reinvestment right. This provision may be applied to
successive acquisitions of Shares.
Backup Withholding. The Funds generally will be required to withhold federal
income tax at a rate of 31% ("backup withholding") from dividends paid, capital
gain distributions, and redemption proceeds to a Shareholder if (1) the
Shareholder fails to furnish the Funds with the Shareholder's correct taxpayer
identification number or social security number and to make such certifications
as the Funds may require, (2) the IRS notifies the Shareholder or the Funds that
the Shareholder has failed to report properly certain interest and dividend
income to the IRS and to respond to notices to that effect, or (3) when required
to do so, the Shareholder fails to certify that he is not subject to backup
withholding. Any amounts withheld may be credited against the Shareholder's
federal income tax liability.
Foreign Shareholders. Taxation of a Shareholder who, as to the United States, is
a nonresident alien individual, foreign trust or estate, foreign corporation, or
foreign partnership ("foreign shareholder"), depends on whether the income from
the applicable Fund is "effectively connected" with a U.S. trade or business
carried on by such Shareholder.
<PAGE>
If the income from the applicable Fund is not effectively connected with a U.S.
trade or business carried on by a foreign Shareholder, ordinary income dividends
will be subject to U.S. withholding tax at the rate of 30% (or lower treaty
rate) upon the gross amount of the dividend. The foreign Shareholder would
generally be exempt from U.S. federal income tax on gains realized on the sale
of Shares of the applicable Fund, capital gain dividends and amounts retained by
the applicable Fund that are designated as undistributed capital gains.
If the income from the applicable Fund is effectively connected with a U.S.
trade or business carried on by a foreign Shareholder, then ordinary income
dividends, capital gain dividends and any gains realized upon the sale of Shares
of the applicable Fund will be subject to U.S. federal income tax at the rates
applicable to U.S. citizens or domestic corporations.
Foreign noncorporate Shareholders may be subject to backup withholding on
distributions that are otherwise exempt from withholding tax (or taxable at a
reduced treaty rate) unless such Shareholders furnish the Funds with proper
certification of their foreign status.
The tax consequences to a foreign Shareholder entitled to claim the benefits of
an applicable tax treaty may be different from those described herein. Foreign
Shareholders are urged to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in the Funds, including the
applicability of foreign taxes.
Original Issue Discount. Certain debt securities acquired by a Fund may be
treated as debt securities that were originally issued at a discount. Original
issue discount can generally be defined as the difference between the price at
which a security was issued and its stated redemption price at maturity.
Although no cash income is actually received by a Fund, original issue discount
that accrues on a debt security in a given year generally is treated for federal
income tax purposes as interest and, therefore, such income would be subject to
the distribution requirements of the Code.
<PAGE>
Market Discount. Some debt securities may be purchased by a Fund at a discount
which exceeds the original issue discount on such debt securities, if any. This
additional discount represents market discount for federal income tax purposes.
The gain realized on the disposition of any taxable debt security having market
discount generally will be treated as ordinary income to the extent it does not
exceed the accrued market discount on such debt security. Generally, market
discount accrues on a daily basis for each day the debt security is held by a
Fund at a constant rate over the time remaining to the debt security's maturity
or, at the election of the Fund, at a constant yield to maturity which takes
into account the semi-annual compounding of interest.
Options, Futures and Foreign Currency Forward Contracts; Straddle Rules. A
Fund's transactions in foreign currencies, forward contracts, options, and
futures contracts (including options and futures contracts on foreign
currencies) will be subject to special provisions of the Code that, among other
things, may affect the character of gains and losses realized by the Fund (that
is, may affect whether gains or losses are ordinary or capital), accelerate
recognition of income to the Fund, defer Fund losses, and affect the
determination of whether capital gains and losses are treated as long-term or
short-term capital gains or losses. These rules could therefore, in turn, affect
the character, amount, and timing of distributions to shareholders. These
provisions also may require the Fund to mark-to-market certain positions in its
portfolio (that is, treat them as if they were sold), which may cause the Fund
to recognize income without receiving cash to use to make distributions in
amounts necessary to avoid income and excise taxes. A Fund will monitor its
transactions and may make such tax elections as management deems appropriate
with respect to foreign currency, options, futures contracts, forward contracts,
or hedged investments. A Fund's status as a regulated investment company may
limit its ability to engage in transactions involving foreign currency, futures,
options, and forward contracts.
Certain transactions undertaken by the Funds may result in "straddles" for
federal income tax purposes. The straddle rules may affect the character of
gains (or losses) realized by the Funds, and losses realized by the Funds on
positions that are part of a straddle may be deferred under the straddle rules,
rather than being taken into account in calculating the taxable income for the
taxable year in which the losses are realized. In addition, certain carrying
charges (including interest expense) associated with positions in a straddle may
be required to be capitalized rather than deducted currently. Certain elections
that the Funds may make with respect to its straddle positions may also affect
the amount, character and timing of the recognition of gains or losses from the
affected positions.
Constructive Sales. Under certain circumstances, a Fund may recognize a gain
from a constructive sale of an "appreciated financial position" it holds if it
enters into a short sale, forward contract or other transaction that
substantially reduces the risk of loss with respect to the appreciated position.
In that event, the Fund would be treated as if it had sold and immediately
repurchased the property and would be taxed on any gain (but not loss) from the
constructive sale. The character of gain from a constructive sale would depend
upon the Fund's holding period in the property. Loss from a constructive sale
would be recognized when the property was substantially disposed of, and its
character would depend on the Fund's holding period and the application of
various loss deferral provisions of the Code. Constructive sale treatment does
not apply to transactions closed in the 90-day period ending with the 30th day
after the close of the taxable year, if certain conditions are met.
Currency Fluctuation - Section 988 Gains and Losses. Gains or losses
attributable to fluctuations in foreign currency exchange rates that occur
between the time the Funds accrue receivables or expenses denominated in a
foreign currency and the time the Funds actually collect such receivables or pay
such liabilities generally are treated as ordinary income or loss. Similarly, on
disposition of certain investments (including debt securities denominated in a
foreign currency and certain futures contracts, forward contracts, and options),
gains or losses attributable to fluctuations in the value of foreign currency
between the date of acquisition of the security or other instrument and the date
of disposition also are treated as ordinary income or loss. These gains or
losses, referred to under the Code as "section 988" gains or losses, may
increase or decrease the amount of a Fund's investment company taxable income
available to be distributed to its Shareholders as ordinary income.
<PAGE>
Passive Foreign Investment Companies. Some of the Funds may invest in the stock
of foreign companies that may be classified under the Code as passive foreign
investment companies ("PFICs"). In general, a foreign corporation is classified
as a PFIC if at least one-half of its assets constitute passive assets (such as
stocks or securities) or if 75% or more of its gross income is passive income
(such as, but not limited to, interest, dividends, and gain from the sale of
securities). If a Fund receives an "excess distribution" with respect to PFIC
stock, the Fund will generally be subject to tax on the distribution as if it
were realized ratably over the period during which the Fund held the PFIC stock.
The Fund will be subject to tax on the portion of an excess distribution that is
allocated to prior Fund taxable years, and an interest factor will be added to
the tax, as if it were payable in such prior taxable years. Certain
distributions from a PFIC and gain from the sale of PFIC shares are treated as
excess distributions. Excess distributions are characterized as ordinary income
even though, absent application of the PFIC rules, certain excess distributions
might have been classified as capital gain.
The Funds may be eligible to elect alternative tax treatment with respect to
PFIC stock. Under an election that is available in some circumstances, a Fund
generally would be required to include in its gross income its share of the
earnings of a PFIC on a current basis, regardless of whether distributions were
received from the PFIC in a given year. If this election were made, the rules
relating to the taxation of excess distributions would not apply. In addition,
another election would involve marking-to-market the Fund's PFIC shares at the
end of each taxable year, with the result that unrealized gains would be treated
as though they were realized and reported as ordinary income. Any mark-to-market
losses and any loss from an actual disposition of PFIC shares would be
deductible as ordinary losses to the extent of any net mark-to-market gains
included in income in prior years.
Other Investment Companies. It is possible that by investing in other investment
companies, the Funds may not be able to meet the calendar year distribution
requirement and may be subject to federal income and excise tax. The
diversification and distribution requirements applicable to the Funds may limit
the extent to which the Funds will be able to invest in other investment
companies.
Real Estate Investment Fund Investments. A Fund may invest in real estate
investment trusts ("REITs") that hold residual interests in real estate mortgage
investment conduits ("REMICs"). Although the Adviser does not intend to invest
Fund assets in REITs that hold primarily residual interests in REMICS, under
applicable Treasury regulations, a portion of the Fund's income from a REIT that
is attributable to the REIT's residual interest in a REMIC (referred to in the
Code as an "excess inclusion") may be subject to federal income tax. Excess
inclusion income of the Fund may be allocated to shareholders of the Fund in
proportion to the dividends received by the shareholders, with the same tax
consequences as if the shareholder held the REMIC residual interest directly. In
general, excess inclusion income allocated to shareholders (i) cannot be offset
by net operating losses (subject to a limited exception for certain thrift
institutions), (ii) will constitute unrelated business taxable income to
entities (including qualified pension plans, individual retirement accounts or
other tax-exempt entities) subject to tax on unrelated business income, thereby
potentially requiring such an entity to file a tax return and pay tax on such
income, and (iii) in the case of a foreign shareholder, will not qualify for any
reduction in U.S. federal withholding tax. In addition, if at any time during
any taxable year a "disqualified organization" (as defined in the Code) is a
record holder of Fund shares, then the Fund will be subject to a tax equal to
that portion of its excess inclusion income for the taxable year that is
allocable to the disqualified organization, multiplied by the highest federal
income tax rate imposed on corporations. The Adviser has not historically
invested in Mortgage REITs or vehicles that primarily hold residual interest in
REMICs and does not intend to do so in the future.
<PAGE>
Liquidation of Funds. The Board of Directors of the Company may determine to
close and liquidate a Fund at any time, which may have adverse tax consequences
to shareholders. In the event of a liquidation, shareholders will receive a
liquidating distribution in cash or in-kind equal to their proportionate
interest in the Fund. A liquidating distribution may be a taxable event to
shareholders, resulting in a gain or loss for tax purposes, depending upon a
shareholders basis in his or her shares of the Fund.
SHAREHOLDER INFORMATION
Certificates representing Shares of the Funds will not normally be issued to
shareholders. The Transfer Agent will maintain an account for each Shareholder
upon which the registration and transfer of Shares are recorded, and any
transfers shall be reflected by bookkeeping entry, without physical delivery.
The Transfer Agent will require that a Shareholder provide requests in writing,
accompanied by a valid signature guarantee form, when changing certain
information in an account (i.e., wiring instructions, telephone privileges,
etc.).
The Company reserves the right, if conditions exist that make cash payments
undesirable, to honor any request for redemption or repurchase order with
respect to Shares of the Funds by making payment in whole or in part in readily
marketable securities chosen by the Company and valued as they are for purposes
of computing the Funds' net asset values (redemption-in-kind). If payment is
made in securities, a Shareholder may incur transaction expenses in converting
theses securities to cash. The Company has elected, however, to be governed by
Rule 18f-1 under the 1940 Act as a result of which the Funds are obligated to
redeem Shares with respect to any one Shareholder during any 90-day period
solely in cash up to the lesser of $250,000 or 1% of the net asset value of the
relevant Fund at the beginning of the period.
<PAGE>
A Fund may effect a redemption in-kind to an "affiliated person" of a Fund, as
defined under the 1940 Act, under procedures adopted by the Board of Directors
designed to ensure that: (i) the redemption in-kind is effected at approximately
the affiliated person's proportionate share of the distributing Fund's current
net assets, and thus does not result in the dilution of the interests of the
remaining shareholders; (ii) the distributed securities are valued in the same
manner as they are valued for purposes of computing the distributing Fund's net
asset value; (iii) the redemption in-kind is consistent with the Fund's
Prospectus and SAI; and (iv) neither the affiliated person nor any other party
with the ability and the pecuniary incentive to influence the redemption in kind
selects, or influences the selection of, the distributed securities.
CALCULATION OF PERFORMANCE DATA
The Funds may, from time to time, include "total return" in advertisements or
reports to shareholders or prospective investors. Quotations of average annual
total return will be expressed in terms of the average annual compounded rate of
return of a hypothetical investment in the Funds over periods of 1, 5 and 10
years (up to the life of the Funds), calculated pursuant to the following
formula which is prescribed by the SEC:
P(1 + T)n = ERV
Where:
P = a hypothetical initial payment of $1,000,
T = the average annual total return,
n = the number of years, and
ERV = the ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the period.
All total return figures assume that all dividends are reinvested when paid.
From time to time, the Funds may advertise their average annual total return
over various periods of time. These total return figures show the average
percentage change in the value of an investment in the Funds from the beginning
date of the measuring period. These figures reflect changes in the price of the
Fund's Shares and assume that any income dividends and/or capital gains
distributions made by the Funds during the period were reinvested in Shares of
the Funds. Figures will be given for 1, 5 and 10 year periods (if applicable)
and may be given for other periods as well (such as from commencement of the
applicable Fund's operations, or on a year-by-year basis).
Quotations of yield for the Funds will be based on all investment income per
Share earned during a particular 30-day period (including dividends and
interest), less expenses accrued during the period ("net investment income") and
are computed by dividing net investment income by the maximum offering price per
Share on the last day of the period, according to the following formula:
2[(a-b+1)(6) - 1]
----
cd
Where:
a = dividends and interest earned during the period,
b = expenses accrued for the period (net of reimbursements),
c = the average daily number of Shares outstanding during the period that
were entitled to receive dividends, and
d = the maximum offering price per Share on the last day of the period.
<PAGE>
Additional Performance Quotations. Advertisements of total return will always
show a calculation that includes the effect of the maximum sales charge but may
also show total return without giving effect to that charge. Because these
additional quotations will not reflect the maximum sales charge payable, these
performance quotations will be higher than the performance quotations that
reflect the maximum sales charge.
Total returns are based on past results and do not predict future performance.
Performance Comparisons. In reports or other communications to shareholders or
in advertising material, each Fund may compare the performance of its Shares
with that of other mutual funds as listed in the rankings prepared by Lipper
Analytical Services, Inc., Morningstar, Inc., CDA Technologies, Inc., or similar
independent services that monitor the performance of mutual funds or with other
appropriate indexes of investment securities. In addition, certain indexes may
be used to illustrate historic performance of select asset classes. The
performance information may also include evaluations of the Funds published by
nationally recognized ranking services and by financial publications that are
nationally recognized, such as Business Week, Forbes, Fortune, Institutional
Investor, Money and The Wall Street Journal. If the Funds compare their
performance to other funds or to relevant indexes, the Funds' performance will
be stated in the same terms in which such comparative data and indexes are
stated, which is normally total return rather than yield. For these purposes the
performance of the Funds, as well as the performance of such investment
companies or indexes, may not reflect sales charges, which, if reflected, would
reduce performance results.
Reports and promotional literature may also contain the following information:
(i) a description of the gross national or domestic product and populations,
including age characteristics, of various countries and regions in which the
Funds may invest, as compiled by various organizations, and projections of such
information; (ii) the performance of U.S. equity and debt markets; (iii) the
geographic distribution of the Company's portfolios; and (iv) the number of
shareholders in the Funds and the dollar amount of the assets under management.
In addition, reports and promotional literature may contain information
concerning the Sub-Advisers, or affiliates of the Company, including (i)
performance rankings of other funds managed by the Sub-Advisers, or the
individuals employed by the Sub-Advisers who exercise responsibility for the
day-to-day management of the Company, including rankings of mutual funds
published by Lipper Analytical Services, Inc., Morningstar, Inc., CDA
Technologies, Inc., or other rating services, companies, publications or other
persons who rank mutual funds or other investment products on overall
performance or other criteria; and (ii) lists of clients, the number of clients,
or assets under management.
GENERAL INFORMATION
Description of the Company and Its Shares
The Company was organized as a Maryland corporation in 1997 and consists of the
four Funds described in the Prospectus and this SAI. Each Fund has one class of
shares, except the Hoover Small Cap Equity Fund which has two classes of shares.
Each Share represents an equal proportionate interest in a Fund with other
Shares of that Fund, and is entitled to such dividends and distributions out of
the income earned on the assets belonging to that Fund as are declared at the
discretion of the Directors. Shareholders are entitled to one vote for each
Share owned.
<PAGE>
An annual or special meeting of Shareholders to conduct necessary business is
not required by the Articles of Incorporation, the 1940 Act or other authority
except, under certain circumstances, to elect Directors, amend the Certificate
of Incorporation, approve an investment advisory agreement and satisfy certain
other requirements. To the extent that such a meeting is not required, the
Company may elect not to have an annual or special meeting.
The Company will call a special meeting of Shareholders for purposes of
considering the removal of one or more Directors upon written request therefor
from Shareholders holding not less than 10% of the outstanding votes of the
Company. At such a meeting, a quorum of Shareholders (constituting a majority of
votes attributable to all outstanding Shares of the Company), by majority vote,
has the power to remove one or more Directors.
HOOVER SMALL CAP EQUITY FUND:
- ----------------------------
The following individuals owned more than 25% of voting securities of
the Fund as of March 31, 2000.
Name and Address Percentage
- ---------------- ----------
Charles Schwab & Company Inc. 47.500
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 9410004-4122
Sutton Place Associates LLC 40.647
One Embarcedero Center, Suite 1050
San Francisco, CA 94111
In addition, the following persons owned of record or beneficially, as of March
31, 2000, 5% or greater of any class of the Fund's outstanding equity
securities:
MUIR & Co. 6.485
C/O Frost National Bank
P.O. Box 2479
San Antonio, TX 78298-2479
HANSBERGER INTERNATIONAL GROWTH FUND
- ------------------------------------
The following individuals owned more than 25% of voting securities of
the Fund as of March 31, 2000.
Name and Address Percentage
- ---------------- ----------
Sutton Place Associates LLC 99.493
One Embarcedero Center, Suite 1050
San Francisco, CA 94111
GARZARELLI U.S. EQUITY FUND:
- ---------------------------
The following individuals owned more than 25% of voting securities of
the Fund as of March 31, 2000.
Name and Address Percentage
- ---------------- ----------
Sutton Place Associates lLC 99.481
One Embarcedero Center, Suite 1050
San Francisco, CA 94111
UNIPLAN REAL ESTATE INVESTMENT FUND:
- -----------------------------------
The following individuals owned more than 25% of the voting securities
of the Fund as of March 31, 2000.
Name and Address Percentage
- ---------------- ----------
Sutton Place Associates LLC 99.501
One Embarcedero Center, Suite 1050
San Francisco, CA 94111
Other Information. The Company is registered with the SEC as an open-end
management investment company. Such registration does not involve supervision of
the management or policies of the Company by any governmental agency. The Funds'
Prospectus and this SAI omit certain of the information contained in the
Registration Statement filed with the SEC and copies of this information may be
obtained from the SEC upon payment of the prescribed fee or examined at the SEC
in Washington, D.C. without charge.
Investors in the Funds will be kept informed of their investments in the Funds
through annual and semi-annual reports showing portfolio composition,
statistical data and any other significant data, including financial statements
audited by the independent certified public accountants.
<PAGE>
Performance Information
From time to time performance information for a Fund showing its average annual
total return, aggregate total return and/or yield may be presented in
advertisements, sales literature and Shareholder reports. Such performance
figures are based on historical earnings and are not intended to indicate future
performance.
Investors may also judge the performance of a Fund by comparing or referencing
it to the performance of other mutual funds with comparable investment
objectives and policies through various mutual fund or market indexes such as
those prepared by various services, which indexes may be published by such
services or by other services or publications, including, but not limited to,
ratings published by Morningstar, Inc. In addition to performance information,
general information about a Fund that appears in such publications may be
included in advertisements, in sales literature and in reports to Shareholders.
For further information regarding such services and publications, see
"CALCULATION OF PERFORMANCE DATA."
Total return and yield are functions of the type and quality of instruments held
in the portfolio, operating expenses, and market conditions. Any fees charged
with respect to customer accounts for investing in Shares of a Fund will not be
included in performance calculations; such fees, if charged, will reduce the
actual performance from that quoted.
Custodian. Brown Brothers Harriman & Co. is each Fund's custodian. Its principal
business address is 40 Water Street, Boston, Massachusetts 02109. Brown Brothers
is responsible for the custody of each Fund's assets and, as foreign custody
manager, will oversee the custody of any Fund assets held outside the United
States. Brown Brothers Harriman & Co. takes no part in the decisions relating to
the purchase or sale of the Company's portfolio securities.
<PAGE>
Legal Counsel. Legal matters for the Company are handled by Dechert Price &
Rhoads, 1775 Eye Street, N.W., Washington, D.C. 20006.
Independent Public Accountants. Arthur Andersen, LLP, Spear Street Tower, 1
Market, Suite 1100, San Francisco, California 94105-3601, acts as independent
auditors for the Company.
FINANCIAL STATEMENTS
Unaudited financial statements relating to the Funds will be prepared
semi-annually and distributed to shareholders. The financial statements of the
Funds appearing in the Annual Report to Shareholders for those funds for the
year ended December 31, 1999 have been audited by Arthur Andersen LLP,
independent public accountants. Such financial statements are incorporated
herein by reference.
<PAGE>
APPENDIX A
Rated Investments
Corporate Bonds
Excerpts from Moody's Investors Services, Inc. ("Moody's") description
of its bond ratings:
"Aaa": Bonds that are rated "Aaa" are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
"Aa": Bonds that are rated "Aa" are judged to be of high-quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as "high-grade" bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in "Aaa" securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.
"A": Bonds that are rated "A" possess many favorable investment
attributes and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
"Baa": Bonds that are rated "Baa" are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appears adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
"Ba": Bonds that are rated "Ba" are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and thereby
not well safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class.
"B": Bonds that are rated "B" generally lack characteristics of
desirable investments. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
"Caa": Bonds that are rated "Caa" are of poor standing. These issues
may be in default or present elements of danger may exist with respect to
principal or interest.
Moody's applies numerical modifiers (1, 2 and 3) with respect to bonds
rated "Aa" through "B." The modifier 1 indicates that the bond being rated ranks
in the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category.
<PAGE>
Excerpts from Standard & Poor's Corporation ("S&P") description of its
bond ratings:
"AAA": Debt rated "AAA" has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely strong.
"AA": Debt rated "AA" has a very strong capacity to pay interest and
repay principal and differs from "AAA" issues by a small degree.
"A": Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
"BBB": Bonds rated "BBB" are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for bonds in this category than for bonds in higher rated categories.
"BB," "B" and "CCC": Bonds rated "BB" and "B" are regarded, on balance,
as predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligations. "BB" represents a
lower degree of speculation than "B" and "CCC" the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
To provide more detailed indications of credit quality, the "AA" or "A"
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
Commercial Paper
The rating "Prime-1" is the highest commercial paper rating assigned by
Moody's. These issues (or related supporting institutions) are considered to
have a superior capacity for repayment of short-term promissory obligations.
Issues rated "Prime-2" (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics of "Prime-1" rated issues, but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.
Commercial paper ratings of S&P are current assessments of the
likelihood of timely payment of debt having original maturities of no more than
365 days. Commercial paper rated "A-1" by S&P indicates that the degree of
safety regarding timely payment is either overwhelming or very strong. Those
issues determined to possess overwhelming safety characteristics are denoted
"A-1+." Commercial paper rated "A-2" by S&P indicates that capacity for timely
payment is strong. However, the relative degree of safety is not as high as for
issues designated "A-1."
Commercial Paper
<PAGE>
Rated commercial paper purchased by a Fund must have (at the time of
purchase) the highest quality rating assigned to short-term debt securities or,
if not rated, or rated by only one agency, are determined to be of comparative
quality pursuant to guidelines approved by a Fund's Boards of Trustees and
Directors. Highest quality ratings for commercial paper for Moody's and S&P are
as follows:
Moody's: The rating "Prime-1" is the highest commercial paper rating
category assigned by Moody's. These issues (or related supporting institutions)
are considered to have a superior capacity for repayment of short-term
promissory obligations.
S&P: Commercial paper ratings of S&P are current assessments of the
likelihood of timely payment of debts having original maturities of no more than
365 days. Commercial paper rated in the "A-1" category by S&P indicates that the
degree of safety regarding timely payment is either overwhelming or very strong.
Those issuers determined to possess overwhelming safety characteristics are
denoted "A-1+."
<PAGE>
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS
(a)(1) Articles of Incorporation(1)
(2) Articles Supplementary dated August 14, 1998(4)
(3) Articles Supplementary dated April 30, 1999(5)
(b) By-Laws(1)
(c) Not Applicable
(d)(1) Form of Amended Investment Management Agreement between
the Company and Webster Investment Management LLC (5)
(2) Form of Investment Sub-Advisory Agreement between Hansberger
Global Investors, Inc., the Company, and Webster Investment
Management Company LLC on behalf of the Hansberger
International Growth Fund (6)
(3) Form of Investment Sub-Advisory Agreement between Garzarelli
Investment Management LLC, the Company and Webster
Investment Management LLC on behalf of the Garzarelli U.S.
Equity Fund (6)
(4) Form of Investment Sub-Advisory Agreement between Hoover
Investment Management, LLC, the Company and Webster
Investment Management Company, LLC on behalf of the Hoover
Small Cap Equity Fund (3)
(5) Form of Investment Sub-Advisory Agreement between Uniplan,
Inc., the Company and Webster Investment Management Company,
LLC on behalf of the Uniplan Real Estate Investment Fund.
(5)
(e) Form of Distribution Agreement
(f) Not Applicable
(g)(1) Form of Custodian Agreement (2)
(2) Amendment to Custodian Agreement dated March 2, 1998 (2)
(3) Amendment to Custodian Agreement dated August, 1998 (3)
(4) Form of Amendment to Custodian Agreement dated April 30,
1999 (5)
(5) Form of Foreign Custody Manager Delegation Agreement (2)
(h)(1) Form of Transfer Agency Services Agreement (2)
(2) Amendment to Form of Transfer Agency and Service Agreement
dated August, 1998 (3)
(3) Amendment to Transfer Agency and Services Agreement dated
August, 1998 (3)
(4) Form of Administration Agreement (2)
(5) Amendment to Form of Administration Agreement dated August,
1998 (3)
(6) Form of Amendment to Administration Agreement dated April
30, 1999 (5)
(7) Form of Administrative Agreement Between Webster Investment
Management and Garzarelli Asset Management (6)
(8)
(a) Expense Waiver Agreements (5)
(b) Amended and Restated Expense Limitation Agreement for
the U.S. Equity Fund (6)
(c) Amended and Restated Expense Limitation Agreement For
the International Equity Fund (6)
(d) Amended and Restated Expense Limitation Agreement for
Hoover Small Cap Equity Fund (6)
(e) Amended and Restated Expense Limitation Agreement for
Uniplan Real Estate Investment Fund (6)
(9)
(a) Shareholder Services Plan for Hoover Small Cap Equity
Fund Investor Class, Hansberger International Growth
Fund, Garzarelli U.S. Equity Fund and Uniplan Real
Estate Investment Fund. (6)
(b) Shareholder Services Plan for Hoover Small Cap Equity
Fund Institutional Class. (6)
(c) Amended and Restated Shareholder Services Plan. (6)
(i) Legal Opinion of Dechert Price & Rhoads (6)
(j) Consent of Independent Accountants
(k) Not Applicable
(l) Initial Subscription Documents (5)
(m) Rule 12b-1 Plan (5)
(n) Rule 18f-3 Plan (6)
(p) Codes of Ethics
(1) Form of Code of Ethics of Forward Funds, Inc.
(2) Form of Code of Ethics of Webster Investment Management
Company LLC
(3) Form of Code of Ethics of Hansberger Global Investors, Inc.
(4) Form of Code of Ethics of Hoover Investment Management LLC
(5) Form of Code of Ethics of Uniplan, Inc.
(6) Form of Code of Ethics of Garzarelli Investment Management
LLC
- -----------------
(1) Filed in Registrant's initial Registration Statement on October 7, 1997 and
incorporated by reference herein.
(2) Filed in Registrant's Pre-Effective Amendment No. 2 on February 24, 1998
and incorporated by reference herein.
(3) Filed in the Registrant's Post-Effective Amendment No. 6 on August 10, 1998
and incorporated by reference herein.
(4) Filed in Registrant's Post-Effective Amendment No. 8 on September 18, 1998
and incorporated by reference herein.
(5) Filed in Registrant's Post-Effective Amendment No. 12 on April 23, 1999 and
incorporated by reference herein.
(6) Filed in Registrant's Post-Effective Amendment No. 13 on February 29, 2000
and incorporated by reference herein.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
[UPDATE]
- -------------------------------------- --------------------------- -----------
Hansberger International Growth Fund Sutton Place Associates LLC 99.49%
One Embarcedero Center
Suite 1060
San Fransisco, CA 94111
- -------------------------------------- --------------------------- -----------
Hoover Small Cap Equity Fund Charles Schwab & Co. 47.5%
101 Montgomery St.
San Fransisco, CA 94104
Sutton Place Associates LLC 40.65%
One Embarcedero Center
Suite 1060
San Fransisco, CA 94111
Muir & Co. 6.49%
c/o Frost National Bank
P.O. Box 2479
San Antonio, TX 78289
- -------------------------------------- --------------------------- -----------
Garzarelli U.S. Equity Fund Sutton Place Associates LLC 99.48%
One Embarcedero Center
Suite 1060
San Fransisco, CA 94111
- -------------------------------------- --------------------------- -----------
Uniplan Real Estate Investment Fund Soutton Place Associates LLC 99.5%
One Embarcedero Center
Suite 1060
San Fransisco, CA 94111
- -------------------------------------- --------------------------- -----------
ITEM 25. INDEMNIFICATION
Section 2-418 of the General Corporation Law of the State of Maryland,
Article VII of the Company's Articles of Incorporation, and Article VI of the
Company's Bylaws provide for indemnification.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the Registrant, pursuant to the foregoing provisions or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Company in the successful defense of any action, suit or
proceeding) is asserted by such a director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Information as to the directors and officers of the investment adviser
and the sub-advisers, together with information as to any other business,
professions, vocation or employment of a substantial nature engaged in by the
directors and officers of the investment adviser and sub-advisers in the last
two years, is included in their applications for registration as investment
advisers on Form ADV filed under the Investment Advisers Act of 1940 and is
incorporated herein by reference thereto.
ITEM 27. PRINCIPAL UNDERWRITER
(a) Provident Distributors, Inc. (the "Distributor") acts as principal
underwriter for the following investment companies as of March 20,
2000: International Dollar Reserve Fund I, Ltd., Provident
Institutional Funds Trust, Columbia Common Stock Fund, Inc., Columbia
Growth Fund, Inc., Columbia International Stock Fund, Inc., Columbia
Special Fund, Inc., Columbia Small Cap Fund, Inc., Columbia Real
Estate Equity Fund, Inc., Columbia Balanced Fund, Inc., Columbia Daily
Income Company, Columbia U.S. Government Securities Fund, Inc.,
Columbia Fixed Income Securities Fund, Inc., Columbia Municipal Bond
Fund, Inc., Columbia High Yield Fund, Inc., Columbia National
Municipal Bond Fund, Inc., GAMNA Series Funds, Inc., WT Investment
Trust, Kalmar Pooled Investment Trust, The RBB Fund, Inc., Robertson
Stephens Investment Trust, HT Insight Funds, Inc., Harris Insight
Funds Trust, Hilliard-Lyons Government Fund, Inc., Hilliard-Lyons
Growth Fund, Inc., Hilliard-Lyons Research Trust, Senbanc Fund,
Warburg Pincus Trust, ABN AMRO Funds, BT Insurance Funds Trust,
Alleghany Funds, First Choice Funds Trust, LKCM Funds, The Galaxy
Fund, The Galaxy VIP Fund, Galaxy Fund II, IBJ Funds Trust, Panorama
Trust, Undiscovered Managers Funds, Wilshire Target Funds, Inc., New
Covenant Funds, Inc., Forward Funds, Inc., Northern Institutional
Funds, Light Index Funds, Inc., Weiss, Peck & Greer Funds Trust,
Weiss, Peck & Greer International Fund, WPG Growth Fund, WPG Growth
and Income Fund, WPG Tudor Fund, RWB/WPG U.S. Large Stock Fund,
Tomorrow Funds Retirement Trust, The Govett Funds, Inc., IAA Trust
Growth Fund, Inc., IAA Trust Asset Allocation Fund, Inc., IAA Trust
Tax Exempt Bond Fund, Inc., IAA Trust Taxable Fixed Income Series
Fund, Inc., Matthews International Funds, MCM Funds, Metropolitan West
Funds, Smith Breeden Series Funds, Smith Breeden Trust, Stratton
Growth Fund, Inc., Stratton Monthly Dividend REIT Shares, Inc., The
Stratton Funds, Inc., Trainer, Wortham First Mutual Funds and The
BlackRock Funds, Inc. (Distributed by BlackRock Distributors, Inc., a
wholly owned subsidiary of Provident Distributors, Inc.), Northern
Funds Trust and Northern Institutional Funds Trust (Distributed by
Northern Funds Distributors, LLC., a wholly owned subsidiary of
Provident Distributors, Inc.) and The Offit Investment Fund, Inc. and
The Offit Variable Insurance Fund, Inc. (Distributed by Offit Funds
Distributor, Inc., a wholly owned subsidiary of Provident
Distributors, Inc.)
Provident Distributors, Inc. is registered with the Securities and
Exchange Commission as a broker-dealer and is a member of the National
Association of Securities Dealers. Provident Distributors, Inc. is
located at 3200 Horizon Drive, King of Prussia, Pennsylvania 19406.
(b) The following is a list of the executive officers, directors and
partners of Provident Distributors, Inc.:
President and Treasurer Philip H. Rinnander
Secretary and Sole Director Jane Haegele
Vice President Jason A. Greim
Vice President Barbara A. Rice
Vice President Jennifer K. Rinnander
Vice President and Compliance Officer Lisa M. Buono
(c) Not Applicable
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the rules promulgated
thereunder are maintained at the offices of PFPC, Inc. whose principal business
address is 53 State Street, Boston, Massachusetts 02109.
ITEM 29. MANAGEMENT SERVICES
Not Applicable.
ITEM 30. UNDERTAKINGS
Registrant undertakes to call a meeting of Shareholders for the purpose
of voting upon the question of removal of a Director or Directors when requested
to do so by the holders of at least 10% of the Registrant's outstanding Shares
of beneficial interest and in connection with such meeting to comply with the
Shareholders communications provisions of Section 16(c) of the Investment
Company Act of 1940, as amended.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 as amended, Registrant certifies that it meets
all of the requirements for effectiveness of this registration statement under
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of San Francisco and the State of California, on
this 19th day of April, 2000.
FORWARD FUNDS, INC.
By: /s/ RONALD PELOSI
--------------------------
Ronald Pelosi,
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated:
SIGNATURE TITLE DATE
/s/ Haig G. Mardikian Director April 19, 2000
- --------------------------
Haig G. Mardikian
/s/ Leo T. McCarthy Director April 19, 2000
- --------------------------
Leo T. McCarthy
/s/ Ronald Pelosi Director, President, Treasurer April 19, 2000
- -------------------------- (Principal Executive Officer)
Ronald Pelosi
<PAGE>
FORWARD FUNDS, INC.
Exhibit Index
-------------
Exhibit No. Exhibit Page
- ----------- ------- ----
Ex-99.B6 Form of Distribution Agreement
Ex-99.J Consent of Independent Accountants
Ex-99.P1 Form of Code of Ethics of Forward Funds, Inc.
Ex-99.P2 Form of Code of Ethics of Webster Investment Management
Company LLC
Ex-99.P3 Form of Code of Ethics of Hansberger Global Investors, Inc.
Ex-99.P4 Form of Code of Ethics of Hoover Investment Management LLC
Ex-99.P5 Form of Code of Ethics of Uniplan, Inc.
Ex-99.P6 Form of Code of Ethics of Garzarelli Investment Management LLC
DISTRIBUTION AGREEMENT
THIS AGREEMENT is made as of this 25th day of October, 1999 (the "Agreement") by
and between the Forward Funds, Inc., a Maryland corporation (the "Company") and
Provident Distributors, Inc. (the "Distributor"), a Delaware corporation.
WHEREAS, the Company is registered as a diversified, open-end management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"); and is currently offering units of beneficial interest (such units
of all series are hereinafter called the "Shares"), representing interests in
investment portfolios of the Company identified on Schedule A hereto (the
"Funds") which are registered with the Securities and Exchange Commission (the
"SEC") pursuant to the Company's Registration Statement on Form N-1A (the
"Registration Statement"); and
WHEREAS, the Company desires to retain the Distributor as distributor for the
Funds to provide for the sale and distribution of the Shares of the Funds
identified on Schedule A and for such additional classes or series as the
Company may issue, and the Distributor is prepared to provide such services
commencing on the date first written above.
NOW THEREFORE, in consideration of the premises and mutual covenants set forth
herein and intending to be legally bound hereby the parties hereto agree as
follows:
1. Service as Distributor
1.1 The Distributor will act on behalf of the Company for the distribution of
the Shares covered by the Registration Statement under the Securities Act
of 1933, as amended (the "1933 Act").
1.2 The Distributor agrees to use efforts deemed appropriate by the Distributor
to solicit orders for the sale of the Shares and will undertake such
advertising and promotion as it believes reasonable in connection with such
solicitation. To the extent that the Distributor receives shareholder
services fees under any shareholder services plan adopted by the Company,
the Distributor agrees to furnish, and/or enter into arrangements with
others for the furnishing of, personal and/or account maintenance services
with respect to the relevant shareholders of the Company as may be required
pursuant to such plan. It is contemplated that the Distributor will enter
into sales or servicing agreements with securities dealers, financial
institutions and other industry professionals, such as investment advisers,
accountants and estate planning firms to the extent permitted by SEC and
NASD regulations or other governing law.
1.3 The Company understands that the Distributor is now, and may in the future
be, the distributor of the shares of several investment companies or series
(collectively, the "Investment Entities"), including Investment Entities
having investment objectives similar to those of the Company. The Company
further understands that investors and potential investors in the Company
may invest in shares of such other Investment Entities. The Company agrees
that the Distributor's duties to such Investment Entities shall not be
deemed in conflict with its duties to the Company under this Section 1.3.
1.4 All activities by the Distributor and its employees, as distributor of the
Shares, shall comply with all applicable laws, rules and regulations,
including, without limitation, all rules and regulations made or adopted by
the SEC or the National Association of Securities Dealers.
1.5 The Distributor will transmit any orders received by it for purchase or
redemption of the Shares to the transfer agent for the Company.
1.6 Whenever in its judgment such action is warranted by unusual market,
economic or political conditions or abnormal circumstances of any kind, the
Company may decline to accept any orders for, or make any sales of, the
Shares until such time as the Company deems it advisable to accept such
orders and to make such sales, and the Company advises the Distributor
promptly of such determination.
1.7 The Company agrees to pay all costs and expenses in connection with the
registration of Shares under the Securities Act of 1933, as amended, and
all expenses in connection with maintaining facilities for the issue and
transfer of Shares and for supplying information, prices and other data to
be furnished by the Fund hereunder, and all expenses in connection with the
preparation and printing of the Fund's prospectuses and statements of
additional information for regulatory purposes and for distribution to
shareholders.
1.8 The Company agrees at its own expense to execute any and all documents and
to furnish any and all information and otherwise to take all actions that
may be reasonably necessary in connection with the qualification of the
Shares for sale in such states as the Distributor may designate. The
Company shall notify the Distributor in writing of the states in which the
Shares may be sold and shall notify the Distributor in writing of any
changes to the information contained in the previous notification.
1.9 The Company shall furnish from time to time, for use in connection with the
sale of the Shares, such information with respect to the Company and the
Shares as the Distributor may reasonably request; and the Company warrants
that the statements contained in any such information shall fairly show or
represent what they purport to show or represent. The Company shall also
furnish the Distributor upon request with: (a) audited annual statements
and unaudited semi-annual statements of a Fund's books and accounts
prepared by the Company, (b) quarterly earnings statements prepared by the
Company, (c) a monthly itemized list of the securities in the Funds, (d)
monthly balance sheets as soon as practicable after the end of each month,
and (e) from time to time such additional information regarding the
financial condition of the Company as the Distributor may reasonably
request.
1.10 The Company represents to the Distributor that all Registration Statements
and prospectuses filed by the Company with the SEC under the 1933 Act with
respect to the Shares have been prepared in conformity with the
requirements of the 1933 Act and the rules and regulations of the SEC
thereunder. As used in this Agreement, the term "Registration Statement"
shall mean any Registration Statement and any prospectus and any statement
of additional information relating to the Company filed with the SEC and
any amendments or supplements thereto at any time filed with the SEC.
Except as to information included in the Registration Statement in reliance
upon information provided to the Company by the Distributor or any
affiliate of the Distributor expressly for use in the Registration
Statement, the Company represents and warrants to the Distributor that any
Registration Statement, when such Registration Statement becomes effective,
will contain statements required to be stated therein in conformity with
the 1933 Act and the rules and regulations of the SEC; that all statements
of fact contained in any such Registration Statement will be true and
correct when such Registration Statement becomes effective; and that no
Registration Statement when such Registration Statement becomes effective
will include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading to a purchaser of the Shares. The
Distributor may but shall not be obligated to propose from time to time
such amendment or amendments to any Registration Statement and such
supplement or supplements to any prospectus as, in the light of future
developments, may, in the opinion of the Distributor's counsel, be
necessary or advisable. The Company shall not file any amendment to any
Registration Statement or supplement to any prospectus without giving the
Distributor reasonable notice thereof in advance; provided, however, that
nothing contained in this Agreement shall in any way limit the Company's
right to file at any time such amendments to any Registration Statements
and/or supplements to any prospectus, of whatever character, as the Company
may deem advisable, such right being in all respects absolute and
unconditional.
1.11 The Company authorizes the Distributor to use any prospectus or statement
of additional information in the form furnished from time to time in
connection with the sale of the Shares. The Company agrees to indemnify and
hold harmless the Distributor, its officers, directors, and employees, and
any person who controls the Distributor within the meaning of Section 15 of
the 1933 Act, free and harmless from and against any and all claims, costs,
expenses (including reasonable attorneys' fees) losses, damages, charges,
payments and liabilities of any sort or kind which the Distributor, its
officers, directors, employees or any such controlling person may incur
under the 1933 Act, under any other statute, at common law or otherwise,
arising out of or based upon: (i) any untrue statement, or alleged untrue
statement, of a material fact contained in the Company's Registration
Statement, prospectus, statement of additional information, or sales
literature (including amendments and supplements thereto), or (ii) any
omission, or alleged omission, to state a material fact required to be
stated in the Company's Registration Statement, prospectus, statement of
additional information or sales literature (including amendments or
supplements thereto), necessary to make the statements therein not
misleading, provided, however, that insofar as losses, claims, damages,
liabilities or expenses arise out of or are based upon any such untrue
statement or omission or alleged untrue statement or omission made in
reliance on and in conformity with information furnished to the Company by
the Distributor or its affiliated persons for use in the Company's
Registration Statement, prospectus, or statement of additional information
or sales literature (including amendments or supplements thereto), such
indemnification is not applicable. The Company acknowledges and agrees that
in the event that the Distributor, at the request of the Company, is
required to give indemnification comparable to that set forth in this
Section 1.11 to any broker-dealer selling Shares of the Company and such
broker-dealer shall make a claim for indemnification against the
Distributor, the Distributor shall make a similar claim for indemnification
against the Company.
1.12 The Distributor agrees to indemnify and hold harmless the Company, its
several officers and Directors and each person, if any, who controls a Fund
within the meaning of Section 15 of the 1933 Act against any and all
claims, costs, expenses (including reasonable attorneys' fees), losses,
damages, charges, payments and liabilities of any sort or kind which the
Company, its officers, Directors or any such controlling person may incur
under the 1933 Act, under any other statute, at common law or otherwise,
but only to the extent that such liability or expense incurred by the
Company, its officers or Directors, or any controlling person resulting
from such claims or demands arose out of the acquisition of any Shares by
any person which may be based upon any untrue statement, or alleged untrue
statement, of a material fact contained in the Company's Registration
Statement, prospectus or statement of additional information (including
amendments and supplements thereto), or any omission, or alleged omission,
to state a material fact required to be stated therein or necessary to make
the statements therein not misleading, if such statement or omission was
made in reliance upon information furnished or confirmed in writing to the
Company by the Distributor or its affiliated persons (as defined in the
1940 Act).
1.13 In any case in which one party hereto (the "Indemnifying Party") may be
asked to indemnify or hold the other party hereto (the "Indemnified Party")
harmless, the Indemnified Party will notify the Indemnifying Party promptly
after identifying any situation which it believes presents or appears
likely to present a claim for indemnification (an "Indemnification Claim")
against the Indemnifying Party, although the failure to do so shall not
prevent recovery by the Indemnified Party, and shall keep the Indemnifying
Party advised with respect to all developments concerning such situation.
The Indemnifying Party shall have the option to defend the Indemnified
Party against any Indemnification Claim which may be the subject of this
indemnification, and, in the event that the Indemnifying Party so elects,
such defense shall be conducted by counsel chosen by the Indemnifying Party
and satisfactory to the Indemnified Party, and thereupon the Indemnifying
Party shall take over complete defense of the Indemnification Claim and the
Indemnified Party shall sustain no further legal or other expenses in
respect of such Indemnification Claim. The Indemnified Party will not
confess any Indemnification Claim or make any compromise in any case in
which the Indemnifying Party will be asked to provide indemnification,
except with the Indemnifying Party's prior written consent. The obligations
of the parties hereto under this Section 1.13 and Section 3.1 shall survive
the termination of this Agreement.
In the event that the Company is the Indemnifying Party and the
Indemnifying Party does not elect to assume the defense of any such suit,
or in case the Distributor reasonably does not approve of counsel chosen by
the Company, or in case there is a conflict of interest between the Company
or the Distributor, the Company will reimburse the Distributor, its
officers, directors and employees, or the controlling person or persons
named as defendant or defendants in such suit, for the fees and expenses of
any counsel retained by the Distributor or them. The Company's
indemnification agreement contained in this Section 1.14 and Section 3.1
and the Company's representations and warranties in this Agreement shall
remain operative and in full force and effect regardless of any
investigation made by or on behalf of the Distributor, its officers,
directors and employees, or any controlling person, and shall survive the
delivery of any Shares. This agreement of indemnity will inure exclusively
to the Distributor's benefit, to the benefit of its several officers,
directors and employees, and their respective estates and to the benefit of
the controlling persons and their successors. The Company agrees promptly
to notify the Distributor of the commencement of any litigation or
proceedings against the Company or any of its officers or directors in
connection with the issue and sale of any Shares.
1.14 No Shares shall be offered by either the Distributor or the Company under
any of the provisions of this Agreement and no orders for the purchase or
sale of Shares hereunder shall be accepted by the Company if and so long as
effectiveness of the Registration Statement then in effect or any necessary
amendments thereto shall be suspended under any of the provisions of the
1933 Act, or if and so long as a current prospectus as required by Section
5(b)(2) of the 1933 Act is not on file with the SEC; provided, however,
that nothing contained in this Section 1.14 shall in any way restrict or
have any application to or bearing upon the Company's obligation to redeem
Shares tendered for redemption by any shareholder in accordance with the
provisions of the Company's Registration Statement, Declaration of Company,
or bylaws.
1.15 The Company agrees to advise the Distributor as soon as reasonably
practical by a notice in writing delivered to the
Distributor:
(a) of any request by the SEC for amendments to the Registration
Statement, prospectus or statement of additional information then in
effect or for additional information;
(b) in the event of the issuance by the SEC of any stop order suspending
the effectiveness of the Registration Statement, prospectus or
statement of additional information then in effect or the initiation
by service of process on the Company of any proceeding for that
purpose;
(c) of the happening of any event that makes untrue any statement of a
material fact made in the Registration Statement, prospectus or
statement of additional information then in effect or that requires
the making of a change in such Registration Statement, prospectus or
statement of additional information in order to make the statements
therein not misleading; and
(d) of all actions of the SEC with respect to any amendments to any
Registration Statement, prospectus or statement of additional
information which may from time to time be filed with the SEC.
For purposes of this section, informal requests by or acts of the Staff of
the SEC shall not be deemed actions of or requests by the SEC.
2. Term
2.1 This Agreement shall become effective immediately upon the consummation of
the acquistion of First Data Investor Services Group, Inc. by a subsidiary
of PNC Bank Corp., which the parties anticipate to occur on or about
December 1, 1999, and, unless sooner terminated as provided herein, shall
continue for an initial one-year term and thereafter shall be renewed for
successive one-year terms, provided such continuance is specifically
approved at least annually by (i) the Company's Board of Directors or (ii)
by a vote of a majority (as defined in the 1940 Act and Rule 18f-2
thereunder) of the outstanding voting securities of the Company, provided
that in either event the continuance is also approved by a majority of the
Directors who are not parties to this Agreement and who are not interested
persons (as defined in the 1940 Act) of any party to this Agreement, by
vote cast in person at a meeting called for the purpose of voting on such
approval. This Agreement is terminable without penalty, on at least sixty
days' written notice, by the Company's Board of Directors, by vote of a
majority (as defined in the 1940 Act and Rule 18f-2 thereunder) of the
outstanding voting securities of the Company, or by the Distributor. This
Agreement will also terminate automatically in the event of its assignment
(as defined in the 1940 Act and the rules thereunder).
2.2 In the event a termination notice is given by the Company, all expenses
associated with movement of records and materials and conversion thereof
will be borne by the Company.
3. Limitation of Liability
3.1 The Distributor shall not be liable to the Company for any error of
judgment or mistake of law or for any loss suffered by the Company in
connection with the performance of its obligations and duties under this
Agreement, except a loss resulting from the Distributor's willful
misfeasance, bad faith or negligence in the performance of such obligations
and duties, or by reason of its reckless disregard thereof. The Company
will indemnify the Distributor against and hold it harmless from any and
all claims, costs, expenses (including reasonable attorneys' fees), losses,
damages, charges, payments and liabilities of any sort or kind which may be
asserted against the Distributor for which the Distributor may be held to
be liable in connection with this Agreement or the Distributor's
performance hereunder (a "Section 3.1 Claim"), unless such Section 3.1
Claim resulted from a negligent act or omission to act or bad faith by the
Distributor in the performance of its duties hereunder. The provisions of
Section 1.12 shall apply to any indemnification provided by the Company
pursuant to this Section 3.1. The obligations of the parties hereto under
this Section 3.1 shall survive termination of this Agreement.
3.2 Each party shall have the duty to mitigate damages for which the other
party may become responsible.
3.3 notwithstanding anything in this agreement to the contrary, in no event
shall the distributor, its affiliates or any of its or their directors,
officers, employees, agents or subcontractors be liable under any theory of
tort, contract, strict liability of other legal or equitable theory for
lost profits, exemplary, punitive, special, incidental, indirect or
consequential damages, each of which is hereby excluded by agreement of the
parties regardless of whether such damages were foreseeable or whether
either party or any entity has been advised of the possibility of such
damages.
4. Exclusion of Warranties
This is a service agreement. Except as expressly provided in this
agreement, the Distributor disclaims all other representations or
warranties, express or implied, made to the COMPANY, A Fund or any other
person, including, without limitation, any warranties regarding quality,
suitability, merchantability, fitness for a particular purpose or otherwise
(irrespective of any course of dealing, custom or usage of trade) of any
services or any goods provided incidental to services provided under this
agreement. The Distributor disclaims any warranty of title or
non-infringement except as otherwise set forth in this agreement. this
agreement.
5. Modifications and Waivers
No change, termination, modification, or waiver of any term or condition of
the Agreement shall be valid unless in writing signed by each party. No
such writing shall be effective as against the Distributor unless said
writing is executed by a Senior Vice President, Executive Vice President or
President of the Distributor. A party's waiver of a breach of any term or
condition in the Agreement shall not be deemed a waiver of any subsequent
breach of the same or another term or condition.
6. No Presumption Against Drafter
The Distributor and the Company have jointly participated in the
negotiation and drafting of this Agreement. The Agreement shall be
construed as if drafted jointly by the Company and the Distributor, and no
presumptions arise favoring any party by virtue of the authorship of any
provision of this Agreement.
7. Publicity
Neither the Distributor nor the Company shall release or publish news
releases, public announcements, advertising or other publicity relating to
this Agreement or to the transactions contemplated by it without prior
review and written approval of the other party; provided, however, that
either party may make such disclosures as are required by legal, accounting
or regulatory requirements after making reasonable efforts in the
circumstances to consult in advance with the other party.
8. Severability
The parties intend every provision of this Agreement to be severable. If a
court of competent jurisdiction determines that any term or provision is
illegal or invalid for any reason, the illegality or invalidity shall not
affect the validity of the remainder of this Agreement. In such case, the
parties shall in good faith modify or substitute such provision consistent
with the original intent of the parties. Without limiting the generality of
this paragraph, if a court determines that any remedy stated in this
Agreement has failed of its essential purpose, then all other provisions of
this Agreement, including the limitations on liability and exclusion of
damages, shall remain fully effective.
9. Force Majeure
No party shall be liable for any default or delay in the performance of its
obligations under this Agreement if and to the extent such default or delay
is caused, directly or indirectly, by (i) fire, flood, elements of nature
or other acts of God; (ii) any outbreak or escalation of hostilities, war,
riots or civil disorders in any country, (iii) any act or omission of the
other party or any governmental authority; (iv) any labor disputes (whether
or not the employees' demands are reasonable or within the party's power to
satisfy); or (v) nonperformance by a third party or any similar cause
beyond the reasonable control of such party, including without limitation,
failures or fluctuations in telecommunications or other equipment. In any
such event, the non-performing party shall be excused from any further
performance and observance of the obligations so affected only for so long
as such circumstances prevail and such party continues to use commercially
reasonable efforts to recommence performance or observance as soon as
practicable.
10. Miscellaneous
10.1 Any notice or other instrument authorized or required by this Agreement to
be given in writing to the Company or the Distributor shall be sufficiently
given if addressed to the party and received by it at its office set forth
below or at such other place as it may from time to time designate in
writing.
To the Company:
Forward Funds, Inc.
433 California Street
Suite 904
San Francisco, California 94104
To the Distributor:
Provident Distributors, Inc.
Four Falls Corporate Center, 6th Floor
West Conshohocken, Pennsylvania 19428-2961
Attention: Philip Rinnander
10.2 The laws of the State of Delaware, excluding the laws on conflicts of laws,
and the applicable provisions of the 1940 Act shallgovern the
interpretation, validity, and enforcement of this Agreement. To the extent
the provisions of Delaware law or the provisions hereof conflict with the
1940 Act, the 1940 Act shall control. All actions arising from or related
to this Agreement shall be brought in the state and federal courts sitting
in the City of Wilmington, Delaware, and the Distributor and the Company
hereby submit themselves to the exclusive jurisdiction of those courts
10.3 This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original and which collectively shall be deemed to
constitute only one instrument.
10.4 The captions of this Agreement are included for convenience of reference
only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
10.5 This Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and is not intended to
confer upon any other person any rights or remedies hereunder.
11. Confidentiality
11.1 The parties agree that the Proprietary Information (defined below) and the
contents of this Agreement (collectively "Confidential Information") are
confidential information of the parties and their respective licensers. The
Company and the Distributor shall exercise reasonable care to safeguard the
confidentiality of the Confidential Information of the other. The Company
and the Distributor may each use the Confidential Information only to
exercise its rights or perform its duties under this Agreement. The Company
and the Distributor shall not duplicate, sell or disclose to others the
Confidential Information of the other, in whole or in part, without the
prior written permission of the other party. The Company and the
Distributor may, however, disclose Confidential Information to its
employees who have a need to know the Confidential Information to perform
work for the other, provided that each shall use reasonable efforts to
ensure that the Confidential Information is not duplicated or disclosed by
its employees in breach of this Agreement. The Company and the Distributor
may also disclose the Confidential Information to independent contractors,
auditors and professional advisors, provided they first agree in writing to
be bound by the confidentiality obligations substantially similar to this
Section 11. Notwithstanding the previous sentence, in no event shall either
the Company or the Distributor disclose the Confidential Information to any
competitor of the other without specific, prior written consent.
11.2 Proprietary Information means:
(a) any data or information that is completely sensitive material, and not
generally known to the public, including, but not limited to,
information about product plans, marketing strategies, finance,
operations, customer relationships, customer profiles, sales
estimates, business plans, and internal performance results relating
to the past, present or future business activities of the Company or
the Distributor, their respective subsidiaries and affiliated
companies and the customers, clients and suppliers of any of them;
(b) any scientific or technical information, design, process, procedure,
formula, or improvement that is commercially valuable and secret in
the sense that its confidentiality affords the Company or the
Distributor a competitive advantage over its competitors: and
(c) all confidential or proprietary concepts, documentation, reports,
data, specifications, computer software, source code, object code,
flow charts, databases, inventions, know-how, show-how and trade
secrets, whether or not patentable or copyrightable.
11.3 Confidential Information includes, without limitation, all documents,
inventions, substances, engineering and laboratory notebooks, drawings,
diagrams, specifications, bills of material, equipment, prototypes and
models, and any other tangible manifestation of the foregoing of either
party which now exist or come into the control or possession of the other.
11.4 The Company acknowledges that breach of the restrictions on use,
dissemination or disclosure of any Confidential Information would result in
immediate and irreparable harm, and money damages would be inadequate to
compensate the Distributor for that harm. The Distributor shall be entitled
to equitable relief, in addition to all other available remedies, to
redress any such breach.
11.5 The obligations of confidentiality and restriction on use herein shall not
apply to any Confidential Information that a party proves:
(a) Was in the public domain prior to the date of this Agreement or
subsequently came into the public domain through no fault of such
party; or
(b) Was lawfully received by the party from a third party free of any
obligation of confidence to such third party; or
(c) Was already in the possession of the party prior to receipt thereof,
directly or indirectly, from the other party; or
(d) Is required to be disclosed in a judicial or administrative proceeding
after all reasonable legal remedies for maintaining such information
in confidence have been exhausted including, but not limited to,
giving the other party as much advance notice of the possibility of
such disclosure as practical so the other party may attempt to stop
such disclosure or obtain a protective order concerning such
disclosure; or
(e) Is subsequently and independently developed by employees, consultants
or agents of the party without reference to the Confidential
Information disclosed under this Agreement.
12. Director/Trustee Liability
The Company and the Distributor agree that the obligations of the Company
under the Agreement shall not be binding upon any of the Directors,
shareholders, nominees, officers, employees or agents, whether past,
present or future, of the Company individually, but are binding only upon
the assets and property of the Company, as provided in the Articles of
Incorporation. The execution and delivery of this Agreement have been
authorized by the Directors of the Company, and signed by an authorized
officer of the Company, acting as such, and neither such authorization by
such Directors nor such execution and delivery by such officer shall be
deemed to have been made by any of them or any shareholder of the Company
individually or to impose any liability on any of them or any shareholder
of the Company personally, but shall bind only the assets and property of
the Company as provided in the Articles of Incorporation.
13. Entire Agreement
This Agreement, including all Schedules hereto, constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior and contemporaneous proposals, agreements, contracts,
representations, and understandings, whether written or oral, between the
parties with respect to the subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed all as of the day and year first above written.
FORWARD FUNDS, INC.
By:_________________________
Name:_______________________
Title:________________________
PROVIDENT DISTRIBUTORS, INC.
By:_________________________
Name:_______________________
Title:________________________
<PAGE>
A-1
SCHEDULE A
to the Distribution Agreement
between the Forward Funds, Inc. and
Provident Distributors, Inc.
Name of Funds
The Global Fund
The Money Market Fund
The International Equity Fund
The Equity Fund
The Global Bond Fund
The Small Capitalization Stock Fund
The Global Asset Allocation Fund
The U.S. Equity Fund
The Global Bond Fund
The International Equity Fund
The Real Estate Investment Fund
The Small Capitalization Equity Fund
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent public accountants, we hereby consent to incorporation by
reference of our report dated February 18, 2000 and to all references to our
Firm, in post-effective Amendment No. 14 and Amendment and No. 16 to the
Registration Statement File Numbers 333-37367 under the Securities Act of 1933
and 811-8419 under the Investment Company Act of 1940, respectively.
/s/ Arthur Andersen
-------------------
Arthur Andersen
April 27, 2000
San Francisco, California
FORWARD FUNDS, INC.
(the "Company")
CODE OF ETHICS
As Amended April 28, 1998
I. Legal Requirement.
Rule 17j-l(a) under the Investment Company Act of 1940 (the "Act") makes it
unlawful for any officer or director of the Company (as well as other persons),
in connection with the purchase or sale by such person of a security "held or to
be acquired" by the Company:
(1) To employ any device, scheme or artifice to defraud the Company;
(2) To make to the Company any untrue statement of a material fact or omit
to state to the Company a material fact necessary in order to make the
statements made, in light of the circumstances under which they are
made, not misleading;
(3) To engage in any act, practice, or course of business which operates
or would operate as a fraud or deceit upon the Company; or
(4) To engage in any manipulative practice with respect to the Company.
A security is "held or to be acquired" if within the most recent 15 days it
(i) is or has been held by a series of the Company (a "Fund"), or (ii) is being
or has been considered by a Fund or its investment adviser for purchase by a
Fund. A purchase or sale includes the writing of an option to purchase or sell.
II. Policy of the Company
It is the policy of the Company that no "access person"(1) shall engage in
any act, practice or course of conduct that would violate the provisions of Rule
17j- I (a) set forth above.
- ----------------
1 An "access person" is each director or officer of the Company, and each
employee (if any) of the Company who in connection with his regular duties
obtains information about the purchase or sale of a security by the Company
or whose functions relate to the making of such recommendations, and any
person in a control relationship to the Company who obtains information
concerning recommendations made to the Company with regard to the purchase
or sale of a security; provided, however, that access persons who are
affiliated persons of the Company's investment manager, administrator,
transfer agent or the Company's principal underwriter (if any) shall not be
subject to this Code of Ethics if such persons are subject to another
organization's Code of Ethics which Code of Ethics acceptable to the Board
of Directors of the Company.
<PAGE>
III. Restrictions on Activities.
1. No access person shall purchase or sell, directly or indirectly, any
security in which he or she has, or by reasons of such transaction will
have, any direct or indirect beneficial ownership on any day when such
person knew or should have known that a Fund was contemplating
purchasing or selling, or purchased or sold, such security.
2. No access person shall purchase or sell, directly or indirectly, any
security in which he or she has, or by reason of such action acquires,
any direct or indirect beneficial ownership within 2 calendar days
after any day when such person knew or should have known that a Fund
purchased or sold such security.
These provisions do not apply to:
(i) purchases or sales by directors who are not "interested persons"
(as defined in the Act); (ii) purchases or sales effected in any
account over which the access person has no direct or indirect
influence or control;
(iii) purchase of sales which are non-volitional on the part of the
access person;
(iv) purchases that are part of an automatic dividend reinvestment
plan;
(v) purchases effected upon the exercise of rights issued by an
issuer pro rata to all holders of a class of its securities, to
the extent such rights were acquired from the issuer, and sales
of such right so acquired;
(vi) purchases or sales within the 2-day period of 100 shares or less
of a particular issuer; and
(vii) purchases and sales of securities issued or guaranteed as to
principal or interest by the U.S. government or its agencies or
instrumentalities, bankers' acceptances, bank certificates of
deposit, commercial paper and shares of registered open-end
investment companies (excluding shares of the Company).
IV. Pre-Clearance Procedures.
1. An access person may, directly or indirectly, acquire or dispose of
beneficial ownership of a security, other than shares of the Company
without pre-clearance approval (as described below) if such security
transaction amount is less than $10,000.
2. With respect to security transactions of $10,000 or greater, an access
person may, directly or indirectly, acquire or dispose of beneficial
ownership of a security, other than shares of the Company, only if (a) such
purchase or sale has been approved in advance by a supervisory person
designated by the Company (the "Designated Supervisory Person"), (b) the
approved transaction is completed on the same day approval is received, and
(c) the Designated Supervisory Person has not rescinded such approval prior
to execution of the transaction.
3. A written authorization for a security transaction will be prepared and
retained by the Designated Supervisory Person to memorialize the oral
authorization that was granted.
4. Pre-clearance approval under paragraph (1) above will expire at the
close of business on the trading day after the date on which oral
authorization is received, and the access person is required to renew
clearance for the transaction if the trade is not completed before the
authority expires.
These provisions do not apply to trustees who are not "interested persons"
of the Company (as defined in the Act).
V. Procedures.
A. In order to Provide the Company with information to enable it to
determine with reasonable assurance whether the Provisions of Rule
17j-l (a) are being observed by its access persons:
1. Each access Person of the Company other than a director who is
not an "interested person" (as defined in the Act), shall submit
reports in the form attached hereto as Exhibit A to the Company's
President showing all transactions in "reportable securities" in
which the Person has, or by reason Of such transaction acquires,
any direct or indirect beneficial ownership. 2Such reports shall
be filed not later than 10 days after the end of each calendar
quarter but need not show transactions over which such person had
no direct or indirect influence or control
- --------------
2 You will be treated as the "beneficial Owner" of a security under this
Policy only if two tests are met with respect to a transaction in the
security:
(1) You have or you share voting Power and/or investment Power with respect
to the security. (This -is the same test for reporting beneficial ownership
of securities for the proxy statements of public companies, and includes
among other things, and securities which you have the right to acquire
within 60 days.)
AND
(2) You have a direct or indirect pecuniary interest in the security.
(a) A direct pecuniary interest Is the opportunity,
directly or indirectly, to profit, or to share the
profit, from the transaction.
(b) An indirect pecuniary interest is any nondirect
financial interest but is specifically defined in the
rules to include securities held by members of your
immediate family sharing the same household; securities
held by members of partnership of which you are a
general partner, securities held by a trust of which
you are the settlor if you can revoke the trust, or a
beneficiary if you have. or share investment control
with the trustee, and equity securities which may be
acquired upon exercise of an option or other right, or
through conversation.
Unless both tests are satisfied, you are not the beneficial owner.
For interpretive guidance on either of the two tests, You should
consult counsel.
2. Each director who is not an "interested person" of the Company
shall submit the same quarterly report as required under
paragraph (a), but only for a transaction , in a reportable
security where he knew at the time of the transaction or, in the
ordinary course Of fulfilling his Official duties as a director,
should have known that during the 15 day period immediately
preceding or after the date of the transaction, such security is
or was purchased or sold, or considered for purchase or sale, by
a Fund. No report is required if the director had no direct or
indirect influence or control over the transaction.
For purposes of subparagraphs (a) and (b) above, a "reportable security"
includes all securities, except securities issued or guaranteed by the United
States Government and short-term debt securities issued by its agencies or
instrumentalities (but including issues with a maturity of more than one year
issued by an agency or instrumentality of the United States Government),
banker's acceptances, bank certificates of deposit, commercial paper and shares
of registered open-end investment companies.
B. The Company's President shall notify each "access person" of the
Company who may be required to make reports pursuant to this Code that such
person is subject to this reporting requirement and shall deliver a copy of this
Code to each such person.
C. The Company's President shall report to the Board of Directors:
1. at the next meeting following the receipt of any report on
Exhibit A with respect to each reported transaction in a security
which was within 15 days before or after the date of the reported
transaction (i) held or acquired by a Fund, or (ii) considered by
a Fund for purchase or sale, unless (in either case) (a) the
transaction was a reinvestment of dividends pursuant to a plan,
or (b) the amount involved in the transaction was less than
$10,000 and upon review was determined by the President to have
not had any ascertainable impact on transactions by the Company;
2. with respect to any transaction (whether or not required to be
reported to the Board by the operation of subparagraph (a) above)
that the President believes may evidence a violation of this
Code; and
3. (apparent violations of the reporting requirements stated herein.
D. The Board shall consider reports made to it hereunder and shall
determine whether the policies established in paragraphs B, C and D have been
violated, and what sanctions, if any, should be imposed.
E. This Code, a copy of each report by an access person, any written
report hereunder by the Company's President, and lists of all persons required
to make reports shall be preserved with the Company's records for the period
required by Rule 17j-1.
Dated:______________________
THE BOARD OF DIRECTORS
Forward Funds, Inc.
<PAGE>
EXHIBIT A
Forward Funds, Inc.
(the "Company')
Securities Transaction Report
For the Calendar Quarter Ended___________________
To the President:
During the quarter referred to above, the following transactions were
effected in securities of which I had, or by reason of such transaction
acquired, direct or indirect beneficial ownership, and which are required to be
reported pursuant to the Company's Code of Ethics:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Broker/
No. of Nature of Dealer or
Shares or Dollar Transaction Bank Through
Date of Principal Amount of (Purchase, Whom
Security Transaction Amount Transaction Sale, Other) Price Effected
- -------- ----------- ------ ----------- ----------- ----- --------
</TABLE>
This report (i) excludes transactions with respect to which I had no direct
or indirect influence or control, (ii) other transactions not required to be
reported, and (iii) is not an admission that I have or had any direct or
indirect beneficial ownership in the securities listed above.
Date: __________________________ Signature:___________________________
WEBSTER INVESTMENT MANAGEMENT COMPANY LLC
REVISED PERSONAL TRADING CODE OF ETHICS
I. INTRODUCTION AND OVERVIEW
In our efforts to ensure that Webster Investment Management Company LLC
("Webster") develops and maintains a reputation for integrity and high ethical
standards, it is essential not only that Webster and its employees comply with
relevant federal and state securities laws, but also that we maintain high
standards of personal and professional conduct. Webster's Personal Trading Code
of Ethics (the "Code") is designed to help ensure that we conduct our business
consistent with these high standards.
As a registered investment adviser, Webster and its employees owe a
fiduciary duty to our clients that requires each of us to place the interests of
our clients ahead of our own interests. A critical component of our fiduciary
duty is to avoid potential conflicts of interest. Accordingly, you must avoid
activities, interests, and relationships that might interfere or appear to
interfere with making decisions in the best interests of Fund shareholders and
other Advisory clients of Webster. Please bear in mind that a conflict of
interest can arise even if there is no financial loss to our clients and
regardless of the employee's motivation. Many potential conflicts of interest
can arise in connection with employee personal trading and related activities.
The Code is designed to address and avoid potential conflicts of interest
relating to personal trading and related activities and is based on three
underlying principles:
(1) We must at all times place the interests of our shareholders (including
both the Funds and private accounts) first. In other words, as a fiduciary
you must scrupulously avoid serving your own personal interests ahead of
the interests of Webster clients.
(2) We must make sure that all personal securities transactions are conducted
consistent with the Code and in such a manner as to avoid any actual or
potential conflicts of interest or any abuse of an individual's position of
trust and responsibility.
(3) Investment company personnel should not take inappropriate advantage of
their positions. The receipt of investment opportunities, perquisites, or
gifts from persons seeking business with the Funds or Webster could call
into question the exercise of your independent judgment.
The Code contains a number of "rules" and procedures relating to personal
trading by Webster officers, directors, employees and their families. It is your
responsibility to become familiar with the Code and abide by the Code.
Violations of the Code will be taken seriously and could result in sanctions
against the violator, which sanctions can include termination of employment.
As with all policies and procedures, the Code was designed to cover a
myriad of circumstances and conduct; however, no policy can anticipate every
potential conflict of interest that can arise in connection with personal
trading. Consequently, you are expected to abide not only by the letter of the
Code, but also by the spirit of the Code. Whether or not a specific provision of
the Code addresses a particular situation, you must conduct your personal
trading activities in accordance with the general principles contained in the
Code and in a manner that is designed to avoid any actual or potential conflicts
of interest. Webster reserves the right, when it deems necessary in light of
particular circumstances, either to impose more stringent requirements on
employees or to grant exceptions to the Code.
Because governmental regulations and industry standards relating to
personal trading and potential conflicts of interest can change over time,
Webster reserves the right to modify any or all of the policies and procedures
set forth in the Code. Should Webster revise the Code, you will receive written
notification from the Compliance Officer. It is your responsibility to
familiarize yourself with any modifications to the Code. If you have any
questions about any aspect of the Code, or if you have questions regarding
application of the Code to a particular situation, contact the Compliance
Officer.
II. PERSONS COVERED BY THE CODE
The policies and procedures set forth in the Code apply to all officers and
employees (collectively, "Employees") of Webster. Certain provisions of the Code
apply to Employees who make, participate in making, or obtain current
information about investment decisions made by Webster or any sub-adviser. When
an Employee makes, participates in making or obtains current information about
an investment decision for a mutual fund or other client, that Employee is
considered an "Access Person" with respect to the security being purchased or
sold for purposes of this Code. Information with respect to a securities
transaction is "current" if the transaction occurred within the preceding 24
business hours. The Code presumes that Employees will not usually be involved in
decisions or situations where such persons would be considered Access Persons
under this Code.
The policies and procedures set forth in the Code also apply to all members
of an Employee's immediate family, which for purposes of the Code refers to any
person living in the Employee's household (whether or not related to you), any
partnership of which you are the General Partner, any limited liability company
of which you are a managing member other than Webster or Grayville Co. LLC, any
trust that you control, and/or any person to whose financial support the
Employee makes a significant contribution (together with Employees, "Covered
Persons").
III. PROHIBITION ON PERSONAL TRADING
A Covered Person may purchase or sell a security for a personal account as
long as the Covered Person would not also be deemed an Access Person with
respect to the security being purchased or sold. As explained above, if a
Covered Person makes, participates in making, or obtains current information
about investment decisions made by Webster or any sub-adviser with respect to a
particular security such Covered Person shall be deemed an Access Person. Access
Persons may not purchase or sell any such securities until having received
written authorization from Webster or until two business days following the date
of any transaction effected for a client account. Transactions effected by a
Covered Person for a personal account prior to obtaining any information about a
pending or executed client transaction are not prohibited by this section of the
Code.
This policy does not apply to transactions which qualify as Exempted
Transactions (as defined below). If you have any question as to the application
of this policy, contact the Compliance Officer.
IV. EXEMPTED TRANSACTIONS
The policies and procedures set forth in the Code regarding personal
investing apply to all personal securities transactions by Covered Persons,
unless such transaction is an Exempted Transaction, as defined below. If you
have any doubt as to the applicability of the Code to a particular transaction,
contact the Compliance Officer.
The Code (including the specific prohibitions on personal trading, the
Preclearance procedures and the reporting requirements) does not apply to the
following types of transactions, which are referred to as "Exempted
Transactions." As a result, Covered Persons may engage in Exempted Transactions
without following the procedures set forth in the Code. Exempted Transactions
are personal securities transactions by Covered Persons in the following:
(1) Shares of registered open-end mutual funds and money market funds (please
note that shares of closed-end investment companies are not included in
the definition of Exempted Transactions);
(2) Treasury bonds, Treasury notes, Treasury bills, U.S. Savings Bonds, and
other instruments issued by the U.S. Government;
(3) Debt instruments issued by a banking institution, such as bankers'
acceptances and bank certificates of deposit;
(4) Commercial paper;
(5) Foreign currency;
(6) Transactions in derivatives based on any of the above-listed securities;
(7) Non-volitional transactions in which the Covered Person does not exercise
investment discretion at the time of the transaction (e.g., calling of a
security by the issuer, automatic exercise or liquidation of an
in-the-money derivative instrument upon expiration pursuant to exchange
rules, non-volitional receipt of gifts out of the control of the Covered
Person);
(8) Acquisitions of securities through dividend reinvestment plans (note that
additional shares offered at no commission charges are not permitted to
be purchased by Covered Persons) and acquisitions of securities through
the exercise of rights that are offered pro rata to all shareholders;
(9) Exercise of options received pursuant to an employment arrangement,
provided that the sale of the securities received upon exercise of the
options are subject to the Code;
(10) Receipt of securities or options pursuant to an employment arrangement;
and
(11) Acquisition of securities by a Covered Person of the securities of the
Covered Person's employer or an affiliate thereof.
Additionally, transactions in accounts ("Special Accounts") over which the
Covered Person exercises no direct or indirect influence or control may be
excluded from the Code (and treated as Exempted Transactions) provided that
prior approval for exclusion from the Code is obtained by Webster by notifying,
and discussing these Accounts with the Compliance Officer. An account will be
deemed a Special Account provided all of the following conditions are met:
o The Covered Person disclosed to the Compliance Officer the
existence of the Special Account and allows the Compliance Officer
to review, upon his or her discretion, the governing documents of
such Special Account;
o The Covered Person establishes to the satisfaction of the
Compliance Officer that he or she has no direct or indirect
influence or control over the Special Account or over investment
decisions made for the Special Account;
o The Covered Person completes the attached Special Account
Certification on an annual basis, or such other certification that
the Compliance Officer may deem acceptable;
o The Covered Person establishes to the satisfaction of the
Compliance Officer that he or she provides no investment advice to
the person(s) who directly or indirectly influence or control the
investment decisions for the Special Account ("Control Persons");
o The Covered Person does not disclose to the Control Persons any
action that Webster may take, or has or has not taken, or any
Webster consideration of any action with respect to that security;
and
o The Control Persons do not disclose to the Covered Person any
action such Control Persons may or may not take or any action under
consideration with respect to any transaction for the Special
Account until after such decisions have been made and fully
executed.
If you have a Special Account and you feel that an exception from
compliance with the Code is warranted, please see a Compliance Officer.
Determinations as to whether exception from the Code will be granted will be
made on a case-by-case basis. Depending on all of the facts and circumstances,
Webster reserves the right to require additional procedures to be followed, as
Webster deems necessary or appropriate. Further, Webster reserves the right at
any time, in the discretion of the legal counsel to Webster, to require
compliance with all or parts of the Code or to revoke the exception at any time.
If you have any questions about whether a particular transaction qualifies
as an Exempted Transaction, contact the Compliance Officer.
V. REPORTS AND CERTIFICATIONS REGARDING PERSONAL SECURITIES TRANSACTIONS
Personal Holdings Reports: In order to address potential conflicts of
interest that can arise when a Covered Person disposes of a security acquired
prior to his or her association with Webster and to help ensure compliance with
the Code, all Covered Persons must provide Webster with a list of all securities
holdings (the "Personal Holdings List") (other than interests in Exempted
Transactions) and a list of all brokers, dealers and/or banks where they
maintain a securities account. This Personal Holdings List must be provided upon
commencement of employment and updated annually thereafter.
Webster is sensitive to Covered Persons' privacy concerns and will endeavor
not to disclose the contents of a Covered Person's Personal Holdings List to
anyone unnecessarily. To further protect the privacy of Covered Persons, the
Personal Holdings List provides for Covered Persons to indicate a range of
dollar values for each holding, rather than the exact dollar value of the
holding.
Quarterly Transaction Reports: Pursuant to the federal securities laws for
registered investment advisers and registered investment companies, Covered
Persons must file a Quarterly Securities Transaction Report with Webster within
10 days after the end of each quarter listing securities transactions except
Exempted Transactions and any new securities accounts established at a bank,
broker or dealer during the quarter unless they are able to provide duplicate
brokerage confirmations as described below. If no securities transactions
occurred and no new securities accounts were opened during the relevant quarter,
a Report indicating that fact still must be filed with Webster.
Duplicate Brokerage Confirmations: In lieu of quarterly transaction
reports, Webster will accept a duplicate copy of all securities transaction
confirmations generated by any broker-dealer(s) or bank(s) for all accounts
belonging to a Covered Person. A form of brokerage letter is attached to the
Code. In order to help ensure that duplicate brokerage confirmations are
received for all accounts pertaining to a Covered Person, such Covered Person is
required to complete a Brokerage Account Form quarterly.
Certification of Compliance: Each Employee will be required to certify that
he or she has read, understands and has complied with (or in the case of a newly
hired Employee, will comply with) the Code. This Certification of Compliance is
required upon commencement of employment and annually thereafter.
VI. MISCELLANEOUS
Certain activities, while not directly involving personal trading issues,
nonetheless raise similar potential conflict of interest issues and are
appropriate for inclusion in the Code.
Service on Boards: Employees are prohibited from serving on the board of
directors of any for-profit company or organization without the prior, written
approval of the Compliance Officer. Such approval will only be granted when
Webster believes that such board service will be consistent with the interests
of Webster's clients. If board service is authorized, appropriate procedures
will be developed to ensure that confidential information is not obtained or
used by the Employee or by Webster.
Gifts: On occasion you may be offered, or may receive, gifts from clients,
brokers, vendors or other persons not affiliated with Webster. The receipt of
extraordinary or extravagant gifts from such persons is not permitted. Gifts of
a nominal value (i.e., gifts the reasonable value of which is no more than $100
annually from one person), and customary business meals and entertainment (e.g.,
sporting events) at which both you and the giver are present and promotional
items (e.g., pens, mugs) may be received. You may not, however, solicit any
gifts.
You may not give any gift with a fair market value in excess of $100 per
year to persons associated with securities or financial organizations including
exchanges, other member organizations, commodity firms, news media, or clients
of the fin-n. You may provide reasonable entertainment to such persons, provided
that both you and the recipient are present.
You must never give or receive gifts or entertainment that would be
embarrassing to either you or Webster if made public.
Annual Board Review: The management of Webster annually will prepare a
report to the Funds' board that summarizes existing procedures concerning
personal trading (including any changes in the Code), highlights violations of
the Code requiring significant remedial action and identifies any recommended
changes to the Code.
VII. FORMS
Attached to the Code are the following forms of documents:
o Initial Certification of Compliance with Personal Trading Code of
Ethics; o Annual Certification of Compliance with Personal Trading
Code of Ethics; o Initial Certification of Compliance with Insider
Trading Policy; o Annual Certification of Compliance with Insider
Trading Policy; o Initial Personal Holdings and Brokerage Account
List; o Annual Certification of Personal Holdings and Brokerage
Account List; o Quarterly Transaction Report; o Brokerage Account
Form; o Special Account Certification; and o Form of Brokerage Letter.
If you have any questions about any of these documents, or their
application, contact the Compliance Officer.
VIII. VIOLATIONS OF THE CODE
Webster views violations of the Code to be a serious breach of the firm's
rules. Consequently, any Employee who violates any policy or procedure contained
in the Code is subject to sanctions, including termination of employment.
Further, violations of the Code may constitute violations of federal and/or
state laws and may be refer-red to the proper authorities upon discovery. If you
have any questions about any aspect of the Code, contact the Compliance Office.
IX. EFFECTIVE DATE
This Revised Code is effective as of February 15, 2000.
HANSBERGER GLOBAL INVESTORS, INC.
AMENDED CODE OF ETHICS
The success of Hansberger Global Investors, Inc. ("HGII") depends on public
confidence in our integrity and professionalism. To reinforce that confidence,
employees must always avoid activities, interests and relationships that might
interfere with making decisions in the best interest of the client and the firm.
The following are some of the areas in which conflicts of interest may arise.
l. Definitions
A. "Access Person" means any director of the Company or Employee who, in
connection with regular functions or duties, makes, participates in,
or has the ability to obtain information regarding the purchase or
sale of a security by a Company client, or whose functions relate to
the making of any recommendations with respect to such purchases or
sales. In the event that any individual or company should be in a
control relationship to a client or the Company, the term "Access
Person" would include such an individual or company to the same extent
as an Employee of the client or the Company.
B. "Adviser's Act" means the U.S. Investment Advisers Act of 1940, as
amended.
C "Employee" means any officer or employee of the Company, but does not
mean any Outside Director.
D. "Employee Account" means all accounts in the name of or for the
benefit of an Employee, his or her spouse, dependent children or any
person living with an Employee or to whom an Employee contributes
economic support, as well as any other account with respect to which
an Employee exercises investment discretion or provides investment
advice.
E. "Company" means HGII and its subsidiaries.
F. "Compliance Department" means the Company's compliance department
located in Fort Lauderdale, Florida.
G. "Director of Compliance" means Kimberley A. Scott.
H. "1940 Act" means the U.S. Investment Company Act of 1940, as amended.
I. "Investment Personnel" means portfolio managers, security analysts,
traders and other Employee who provide information and advice to a
portfolio manager or who assist in the execution of a portfolio
manager's decision.
J. "Legal Department" means the Company's legal department located in
Fort Lauderdale, Florida.
K. "Outside Director" means a director of the Company who is not an
"interested person" of the Company within the meaning of Section
2(a)(19)(B) of the 1940 Act.
L. "Portfolio Manager" means any person who exercises investment
discretion on behalf of the Company or any Company client.
M. "Security" refers not only to the instruments set forth in Section
2(a)(36) of the 1940 Act, or the instruments set forth in Section
202(a)(18) of the Adviser's Act, but to any instrument into which such
instrument may be converted, any warrant of any issuer that has issued
the instrument, and any option, such as a put, call, straddle or
spread (whether or not such option is "covered") relating to an
instrument. In addition, security means any future or option Commodity
transaction. It does not include (a) any instrument representing a
direct obligation of the United States Government, (b) any instrument
issued by an open-end investment company, or (c) any instrument issued
by an unit investment trust.
II. Standards of Conduct for personal Securities Transactions
The following rules are intended to provide guidance to Employees with
respect to personal securities transactions.
A. Employees
The following prohibitions are applicable to Employees.
1. Employees are prohibited from the following activities unless
they have obtained prior written approval from the Director of
Compliance or the Legal Department:
a. Employees may not join an investment club or enter into an
investment partnership;
b. Employees may not purchase for their own account a security
in a private placement;
c. Employees may not purchase shares in closed-end investment
companies distributed by the Company; and
d. Employees may not serve on the boards of directors of either
publicly traded or privately held companies nor may they
serve as members of any creditor committees.
2. Employees shall not open or maintain a brokerage account for
their own account or for any Beneficial Account unless the
Employee directs the broker to provide duplicate confirmations
and account statements to the Compliance Department.
3. For the purpose of purchasing Company sponsored mutual funds at
net asset value, Employees may have joint accounts only with
spouses, their children under age 21, parents, step-parents,
parents-in-law, brothers, sisters, grandchildren or grandparents
and a trustee or custodian of any qualified pension or profit
sharing plan or IRA established for the benefit of such persons.
4. Employees shall not purchase securities during an initial public
offering.
5. No Employee shall execute a Securities transaction on a day
during which a client advised by the Company has a pending "buy"
or "sell" order in such Security.
6. No Employee shall purchase or sell any Security for their account
or for any Beneficial Account unless the proposed purchase or
sale has been reported to and pre-cleared by the Director of
Compliance or in his or her absence the Legal Department.
a. This pre-clearance requirement shall not apply to:
1) Securities issued by the U.S. Government or by any
open-end investment company;
2) Money market instruments;
3) The acquisition of securities through automatic
dividend reinvestment plans;
4) The exercise of pro rata rights; and
5) Purchases or sales through any profit sharing, pension
or other benefit plan of the Company.
b. All proposed personal securities transactions shall be
documented either on a Personal Security Trade Authorization
Form (a copy of which is attached as Exhibit A) or on an
electronic form provided on the Employee's personal computer
and forwarded to the Director of Compliance.
c. Subject to the further provisions set forth herein, the
Director of Compliance or in his or her absence, the General
Counsel, as the case may be, shall pre-clear the purchase or
sale of a Security if the transaction does not violate the
Company's Code of Ethics. Such determination shall be by:
1) Reviewing the portfolios managed by the Company; and
2) Determining if the security is currently on the
Company's then current research database or is then
currently under consideration for adding to the
Company's database pending review by the Company's
research committee.
d. In the event the proposed trade does not appear to violate
the Company's Code of Ethics, or any other Code of Ethics
applicable to HGI and its employees, the Director of
Compliance, or in his or her absence, the General Counsel,
will authorize the Employee to execute the trade.
1) The Director of Compliance shall execute the Trade
Authorization Form.
2) The Director of Compliance shall communicate
authorization of the trade to the Employee.
3) The time at which the trade authorization is
communicated to the Employee shall be documented on the
Authorization Form.
e. The trade authorization is effective for the remainder of
the trading day unless otherwise indicated by the Director
of Compliance.
f. The Director of Compliance shall maintain the originally
executed Authorization Form. A copy of the executed
Authorization Form will be available to the Employee upon
request.
7. All Employees and Outside Directors shall report all security
transactions to the Compliance Department within ten (10)
calendar days after the end of each calendar quarter. The report
shall contain the date of the transaction; the title, number of
shares, and nature of the transaction; the price at which the
transaction was effected; and the name of the broker, dealer or
bank which or through whom the transaction was effected. Reports
shall be made on forms sent to the Employees and Outside
Directors every quarter.
8. Employees shall not profit from the purchase and sale, or sale
and purchase, of the same or equivalent Securities within 60
calendar days. Any profits realized on such trades shall be
disgorged to a charitable organization.
9. All Employees shall disclose all personal and beneficial
Securities holdings upon the commencement of employment and
thereafter on an annual basis to the Compliance Department.
10. Employees may not speak in or to the media, on or off the record,
regarding any security without the prior authorization of the
Chief Compliance Officer or the General Counsel.
11. Access Persons shall not purchase or sell a Security (or a
related Security) within seven (7) calendar days before or after
any advisory client, over which the Company exercises investment
discretion, trades in such Security. Any profits realized on a
trade in such a Security, within the prescribed period, shall be
disgorged.
B. Notwithstanding the foregoing, the Chief Compliance Officer may
approve an Employee's purchase or sale of a Security that would
otherwise violate the provisions set forth above if he or she
determines after appropriate inquiry that the transaction is
consistent with the fiduciary duty owed to the Company's clients and
is not potentially harmful to a client because: (a) it does not
conflict with any Security being considered for purchase or sale by
any current advisory client and (b) the decision to purchase or sell
the Security is not the result of information obtained in the course
of an Employee's relationship with an advisory client or an adviser.
III. INSIDER TRADING
The following rules are intended to apply to all Employees and Director with
respect to insider trading.
A. Identifying Inside Information
Before trading for yourself or others, including investment companies or
private accounts managed by the Company in the securities of a company
about which you may have potential inside information, ask yourself the
following questions:
Is the information material? Is this information that an investor would
consider important in making his or her investment decisions? Is this
information that would substantially affect the market price of the
securities if generally disclosed?
Is the information non-public? To whom has this information been provided?
Has the information been effectively communicated to the marketplace? (For
example, published in Reuters, The Wall Street Journal or other
publications of general circulation?)
If, after consideration of the above, you believe that the information may be
material and non-public, you should take the following steps:
1. Report the matter immediately to the Compliance Officer.
2. Do not purchase or sell the securities on behalf of yourself or
others, including investment companies or private accounts
managed by the Company.
3. Do not communicate the information inside or outside the Company,
other than to the Compliance Officer.
4. After the Compliance Officer has reviewed the issue, you will be
instructed either to continue the prohibitions against trading
and communication noted in 2. and 3. above, or you will be
allowed to trade and communicate the information.
B. Restricting Access to Material Non-public Information
Information in your possession that is identified as material and non-public may
not be communicated to anyone, including persons within the Company, except as
provided in subparagraph 1 above. In addition, care should be taken so that such
information is secure. For example, files containing material non-public
information should be sealed; access to computer files containing material
non-public information should be restricted.
To implement the proper restriction of access to material non-public
information, various Company employees and/or departments are responsible for
the following:
1. General Access Control Procedures
The Company has established a process by which access to sensitive company files
that may contain non-public information is carefully limited. Since most of the
Company's files, which have insider-trading implications are stored in
computers, personal identification numbers, passwords and/or code access numbers
are distributed to specified individuals only. This activity is monitored on an
ongoing basis. In addition, access to certain areas of the Company likely to
contain sensitive information, are restricted by access codes.
Employees are made aware of their duties with respect to information being
stored in non-accessible file cabinets. Employees are reminded that they should
log off of their computers once having completed a task so as to limit
information availability; places within the Company where any non-public
information would be accessible are limited; specific fax machines are used to
relay sensitive, potentially non-public information; access to all areas of the
Company are limited through one main reception area so that outsiders are
immediately identified and escorted to their proper destinations; and draft
memoranda that may contain insider information are destroyed immediately after
their use.
2. Personnel Department Procedures
Prior to an individual's formal offer of employment, the Personnel Department
provides the individual with the Company's Policies and Procedures with respect
to insider trading and clarifies that the Company views that the person's
willingness to adhere to these policies and procedures to be a condition
precedent to accepting employment with the Company.
The Compliance Officer assists the Personnel Department by responding to insider
policy questions from prospective employees so that it is clear what they can or
cannot do with respect to insider trading as an employee of the Company.
New hires are provided with an acknowledgment form to execute before formally
commencing employment in which the individual represents that he or she has
received the Company's Procedures on Insider Trading, has read and understood
them, and that continued employment with the Company is dependent upon
compliance with those procedures.
Annually, the Personnel Department elicits a written statement from all Company
employees that they have not violated any of the Company's Insider Trading
Policies and Procedures.
C. Supervisory Procedures for Effectuating Compliance
The roles of the Compliance Department and the Legal Department are critical to
the implementation and maintenance of HGII's Policies and Procedures against
Insider Trading. Supervisory procedures can be divided into three categories -
Prevention of Insider Trading, Detection of Insider Trading and Control of
Inside Information.
1. Prevention of Insider Trading
To prevent insider trading, the Compliance and/or Legal Departments:
a. provide, on a regular basis, an educational program to
familiarize officers, directors and employees with, and meet on a
selective basis with newly hired personnel to inform them of the
Company's Policies and Procedures;
b. answer questions regarding the Company's Policies and Procedures;
c. resolve issues of whether information received by an officer,
director or employee of the Company is
material and non-public;
d. review on a regular basis and update as necessary the Company's
Policies and Procedures;
2. Detection of Insider Trading
To detect insider trading, the Compliance Department is responsible for:
a. reviewing the trading activity reports filed by each officer,
director and employee, with particular emphasis on employees that
have access to non-public information and sample testing of all
employees;
b. reviewing the trading activity of investment companies and
private accounts managed by the Company;
c. reviewing the trading activity of the Company's own account;
d. coordinating the review of such reports with other appropriate
officers, directors or employees of the Company; and
e. periodically generating reports for management on those tests.
3. Control of Inside Information
When it has been determined that an officer, director or employee of the Company
has material non-public information, measures will be implemented to prevent
dissemination of such information. For example:
a. All employees of the Company will be notified that they are
prohibited from disclosing to other persons ("tippees") inside
information about the issuer in question and from trading in the
securities in question in "personal securities transactions" or
for the accounts of clients (notwithstanding the inclusion of
such securities on any "recommended to buy" or "recommended to
sell" lists compiled by the Company), until further notice.
b. Following receipt of notice prohibiting certain trades and until
receipt of further notice, every employee with material
non-public information shall file with the Compliance Officer, a
weekly written report of all personal securities transactions as
defined in the Company's Code of Ethics, during the prior week.
(This report is in addition to the standard Form filed with the
Compliance Officer.)
c. The Compliance Department will review such reports weekly as well
as the Company's records of trades for client's accounts in order
to determine if these procedures or the Company's Code of Ethics
have been violated.
d. The Compliance Department will maintain and regularly update a
list of every employee who has indicated or about whom it has
been indicated that he or she has come into contact with material
non-public information so that it can emphasize these particular
Insiders in its monitoring program.
e. The Compliance Department will place any written materials
containing the inside information in a confidential file.
4. Special Reports to Management
Promptly upon learning of a violation of the Company's Compliance Procedures for
Insider Trading, the Compliance Department should determine whether a written
report to senior management, the Company Executive Committee, and/or the
appropriate Board of Directors is warranted taking into consideration the nature
of the violation in light of all relevant facts and circumstances.
5. Annual Reports to Management
On an annual basis, the Compliance Department should prepare a written report to
the Management of the Company setting forth a summary of existing procedures to
detect and prevent insider trading and recommendations for improvement, if any,
and a description of HGII's continuing educational program regarding Insider
Trading, including the dates and attendees of such programs since the last
report to management.
<PAGE>
Exhibit A
HANSBERGER GLOBAL INVESTORS
X.PERSONAL SECURITIES TRANSACTION REQUEST FORM
================================================================================
================================================================================
A. Employee Name:_________________________________________________________
Legal Name of Account:___________________________________________________
Transaction Date:____________________ Time Requested:____________
BUY__________ SELL____________ Security:______________________
# of Shares/Face Value:_______________ Approx. Price:_____________
1. Broker:____________________________ Account #:_________________
Contact in Compliance Department: Kimberley Scott
To the best of my knowledge this proposed transaction does not violate the
provisions of the HGI Code of Ethics.
B. Employee Signature:________________ Date:_____________
================================================================================
XI. FOR COMPLIANCE USE ONLY
1. Contact in Trading:____________________________________________________
Contact in Research:_____________________________________________________
Comments: This security has no pending trade tickets, nor is it listed on the
database, value or source of funds lists.
2. Compliance Completed/Checked
By:________________________________________
<PAGE>
Compliance Officer:______________________________________________________
================================================================================
XII. NOTIFICATION OF APPROVAL OR DENIAL
1. Date:______________________________ Time
Responded:______________
B. Approved:_______ Denied:_______
Comments:_____________________________________________________________
Form Completed By:_____________________________________________________
================================================================================
ACKNOWLEDGMENT
I have received and reviewed the Hansberger Global Investors, Inc., Amended Code
of Ethics. I understand its provisions and their applicability to me.
Name: __________________________________________________________________
(Please Print)
Position: __________________________________________________________________
Date: __________________________________________________________________
Company: __________________________________________________________________
Signature: __________________________________________________________________
Detach and return this acknowledgment to the Office of Compliance, Attention Kim
Scott, Fort Lauderdale, FL.
CODE OF ETHICS AND CONDUCT
HOOVER CAPITAL MANAGEMENT, LLC
(Revised January 1999)
As an investment adviser, Hoover Capital Management, LLC ("HCM") is a fiduciary.
HCM and all our employees ("Employees") owe our clients the highest duty of
loyalty. It is crucial to HCM that the firm and each Employee avoid conduct that
is or may be inconsistent with that duty. It is also important for Employees to
avoid actions that, while they may not actually involve a conflict of interest
or an abuse of a client's trust, may have the appearance of impropriety.
Because HCM's clients include a registered investment company (a "Fund Client"),
HCM is required to adopt a code of ethics setting forth policies and procedures,
including restrictions on firm and Employee trading, to the extent reasonably
necessary to prevent certain violations of rules under the Investment Company
Act of 1940. This Code of Ethics and Conduct (the "Code") is intended to set
forth those policies and procedures and, beyond that, to state HCM's broader
policies regarding HCM's and its Employees' discharge of their duty of loyalty
to clients.
I. GENERAL
Basic Principles. This Code is based on a few basic principles: (i) the
interests of our clients come before the firm's or Employees' interests; (ii)
each Employee's professional activities and personal investment activities must
be consistent with this Code and must avoid any actual or potential conflict
between the interests of clients and those of HCM or the Employee; (iii)
Employees must avoid any abuse of their positions of trust with and
responsibility to HCM and its clients, including taking inappropriate advantage
of those positions.
Categories of Employees. This Code recognizes that different Employees have
different responsibilities, different levels of control over investment decision
making for client accounts, and different levels of access to information about
investment decisionmaking and implementation. In general, the greater an
Employee's control and access, the greater the potentials for conflicts of
interest in his or her personal investment activities. Recognizing that,
Employees are divided into three groups:
Portfolio Managers All Employees with direct responsibility and
authority to make investment decisions for client accounts,
or who regularly participate in making investment decisions.
Investment All Portfolio Managers plus all other Employees who provide
Employees information and advice to one or more Portfolio Managers
(e.g., analysts) plus all Employees who execute a Portfolio
Manager's decisions (i.e., traders).
Access Persons All Portfolio Managers, plus all other Investment Employees,
plus all Employees who, in the course of their normal
duties, obtain information about clients' purchases or sales
of securities. Because of HCM's small size and the range of
duties that Employees may have, all Employees are considered
"Access Persons."
<PAGE>
Compliance Officer. Many of the specific procedures, standards, and restrictions
described in this Code involve consultation with the "Compliance Officer." Irene
Hoover is the Compliance Officer.
"Security." For purposes of this Code (and HCM's Insider Trading Policy,
attached) the term "security" includes options, rights, warrants, futures
contracts, convertible securities or other securities that are related to a
security in which HCM's clients may effect transactions or as to which HCM may
make recommendations. However, none of the reporting, preclearance, or specific
trading limitations in this Code (other than the general prohibition on insider
trading) apply to the following securities: (i) money market fund shares; (ii)
shares of any mutual fund other than one for which HCM serves as an investment
adviser (including as subadviser); and (iii) direct obligations of the U.S.
Government. For purposes of this Code, you need not consider those instruments
"securities."
"Excluded Securities." The following types of securities ("Excluded Securities")
are not subject to the preclearance, "blackout period," and other specific
trading limitations imposed by this Code: (i) bonds or other debt instruments
that are not convertible into any equity security; and (ii) securities issued by
companies that have a public market capitalization in excess of $10 billion.
Note: The quarterly reporting obligations described in this Code are imposed by
law and apply even to Excluded Securities. Thus, even though you need not comply
with the substantive limitations of this Code in effecting transactions in
Excluded Securities, you still must report your transactions to the Compliance
Officer. It is each Employee's responsibility to determine whether he or she
must report a transaction or investment and whether or not the substantive
limitations apply to a transaction. If you are in doubt as to whether a security
is an Excluded Security, contact the Compliance Officer.
"Covered Accounts." Many of the procedures, standards and restrictions in this
Code govern activities in "Covered Accounts." This term refers to the following
accounts(1):
o Securities accounts of which HCM is a beneficial owner (except for certain
investment limited partnerships of which HCM is the General Partner)(2);
o Any securities accounts registered in an Employee's name; and
o Any account or security in which an Employee has any direct or indirect
"beneficial ownership interest."
"Beneficial Interest." The concept of "beneficial ownership" of securities is
used throughout this Code. It is a broad concept and includes many diverse
situations. An Employee has a "beneficial ownership" interest in not only
securities he or she owns directly, and not only securities owned by others
specifically for his or her benefit, but also (i) securities held by the
Employee's spouse, minor children and relatives who live full time in the
Employee's home, and (ii) securities held by another person if by reason of any
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1/ Covered Accounts do not include accounts over which an Employee does not
have "any direct or indirect influence or control." The most common example of
this is where securities are held in a trust of which an Employee is a
beneficiary but is not the trustee and has no control or influence over the
trustee. The "no influence or control" exception is very limited and will be
construed narrowly. Questions about "influence or control" or otherwise about
beneficial ownership or reporting responsibilities should be directed to the
Compliance Officer.
2/ Investment partnerships of which HCM is a general partner or from which
HCM receives an interest based on capital gains (e.g., Hoover Equity Partners,
L.P.) are generally not Covered Accounts despite the fact that HCM or Employees
may have a beneficial ownership interest in them. However, if HCM's percentage
interest in such a partnership were to become large, the Compliance Officer, in
her discretion, could designate that partnership as a Covered Account.
<PAGE>
contract, understanding, relationship, agreement or other arrangement the
Employee obtains benefits substantially equivalent to ownership. Examples of
some of the most common of those arrangements are set forth in Appendix 1. It is
very important to review Appendix 1 in determining compliance with reporting
requirements and trading restrictions.(3)
Specific Rules are not Exclusive. This Code's procedures, standards, and
restrictions do not and cannot address each potential conflict of interest.
Rather, they attempt to prevent some of the more common types of problems.
Ethics and faithful discharge of our fiduciary duties require adherence to the
spirit of this Code and an awareness that activities other than personal
securities transactions could involve conflicts of interest. (For example,
accepting favors from broker-dealers could involve an abuse of an Employee's
position.) If there is any doubt about a transaction for a reportable account or
for an Employee's personal account, the Compliance Officer should be consulted.
II. RULES APPLICABLE TO ALL EMPLOYEES
All Employees must comply with the following policies.
Illegal Activities. As a matter of policy and the terms of each Employee's
employment with HCM, the following types of activities are strictly prohibited:
(1) The use or employment of any device, scheme or artifice to defraud any
client or prospective client or any party to any securities
transaction in which HCM or any of its clients is a participant;
(2) Making to any person, particularly a client or prospective client, any
untrue statement of a material fact or omitting to state to any person
a material fact necessary in order to make the statements HCM has made
to such person, in light of the circumstances under which they are
made, not misleading;
(3) Engaging in any act, practice, or course of conduct that operates or
would operate as a fraud or deceit upon any client or prospective
client or upon any person in connection with any transaction in
securities;
(4) Engaging in any act, practice, or course of business that is
fraudulent, deceptive, or manipulative, particularly with respect to a
client or prospective client; and
(5) Causing HCM, acting as principal for its own account or for any
account beneficially owned by HCM or any person associated with HCM
(within the meaning of the Investment Advisers Act) to sell any
security to or purchase any security from a client in violation of any
applicable law, rule or regulation of a governmental agency.
--------------
3/ This broad definition of "beneficial ownership" is for purposes of this
Code only; it does not necessarily apply for purposes of other securities laws
or for purposes of estate or income tax reporting or liability. To accommodate
potential differences in concepts of ownership for other purposes, an Employee
may include in his/her Monthly Report a statement declaring that the reporting
or recording of any securities transaction shall not be construed as an
admission that the reporting person has any direct or indirect beneficial
ownership in the security. For example, if a parent or custodian sold securities
owned by a minor child under a Uniform Gifts to Minors Act, the other parent
would report such transaction, but could disclaim beneficial ownership by
checking the appropriate box on the Monthly Report. Whether or not an Employee's
Monthly Report carries such a disclaimer is a personal decision on which HCM
will make no recommendation. Accordingly, an Employee may wish to consult
his/her own attorney on this issue.
<PAGE>
"Insider Trading." No Employee may engage in what is commonly known as "insider
trading" or "tipping" of "inside" information. HCM has adopted an "Insider
Trading Policy" that describes more fully what constitutes "insider trading" and
the legal penalties for engaging in it. Each Employee must review the Insider
Trading Policy annually and sign an acknowledgment that he or she has done so.
Employees should refer to the Insider Trading Policy (as well as this Code)
whenever any question arises regarding what to do if an Employee believes he or
she may have material nonpublic information.
Frontrunning and Scalping. No Employee may engage in what is commonly known as
"frontrunning" or "scalping" -- buying or selling securities in a Covered
Account prior to clients in order to benefit from price movement that may be
caused by client transactions.(4) To prevent frontrunning or scalping, it is
HCM's policy that no Employee may buy or sell a security (other than an Excluded
Security) when he or she knows HCM is actively considering the security for
purchase or sale (as applicable) in client accounts.(5) In determining whether
to clear or prohibit a proposed transaction, as described below, the Compliance
Officer will consider, among other things, whether any research, analysis, or
investment decisionmaking is in process that could reasonably be expected to
lead to a buy or sell decision for clients. Information about such research,
analysis, and pending decisionmaking is referred to in this Code as "Client
Investment Information."
Preclearance. No Employee may buy, sell, or pledge any security (other than an
Excluded Security) for any Covered Account without obtaining oral clearance from
the Compliance Officer before the transaction. In addition, the Employee must
obtain written clearance, specifying the securities involved, dated, and signed
by the Compliance Officer within two business days after the date of oral
clearance. It is each Employee's responsibility to bring proposed transactions
to the Compliance Officer's attention and to obtain from the Compliance Officer
followup written documentation of any oral clearance. Transactions effected
without preclearance are subject, in the Compliance Officer's discretion (after
consultation with other members of management, if appropriate), to being
reversed or, if the Employee made profits on the transaction, to disgorgement of
such profits. A form of request and approval is attached to this Code as
Appendix 2-A.
The Compliance Officer need not specify the reasons for any decision to clear or
deny clearance for any proposed transaction. As a general matter, due to the
difficulty of showing that an Employee did not know of client trading activity
or Client Investment Information, the Compliance Officer should not be expected
to clear transactions in securities in which clients are currently invested or
as to which HCM has Client Investment Information, although the Compliance
Officer may determine that a particular transaction in such a security does not,
under the circumstances, create the appearance of impropriety and permit it. In
addition, as a general matter, the Compliance Officer will not approve a
proposed Employee purchase if accounts managed by HCM own in the aggregate 5% or
more of any class of the issuer's equity securities.
Transaction orders must be filled within three trading days after the day
approval is granted. If precleared transactions are not completed in that time
frame, a new clearance must be obtained.
"Blackout" Periods. No Employee may buy a security (other than an Excluded
Security) within seven calendar days before a client account buys the same
- ---------------
4/ These practices may also constitute illegal "insider trading."
5/ Some of the other, more specific trading rules described below are also
intended, in part, to prevent frontrunning and scalping.
<PAGE>
security or sell such a security (other than an Excluded Security) within seven
days before a client account sells that security. Nor may an Employee sell a
security (other than an Excluded Security) within seven days after a client
account buys that security or buy the security within seven days after a client
account sells that security. In addition, no employee may execute any
transaction for a Covered Account on any day during which there is pending for
any client a "buy" or "sell" order in that same security until the client's
order is executed or withdrawn. This rule applies whether or not the Compliance
Officer has cleared the transaction (e.g. earlier in the day than the time at
which an order was first placed for a client). It also applies to transactions
in convertible, derivative, or otherwise related securities, such as options,
that have the same effect as the transactions described in the first sentence of
this paragraph. Thus, for example, an Employee may not buy a call option or
write a put option on a stock (other than an Excluded Security) within seven
calendar days before a client account buys the underlying stock or buy a put
option or write a call option on a stock (other than an Excluded Security)
within seven calendar days before a client account sells the underlying stock.
If an Employee completes a transaction in a Covered Account during a "blackout"
period or otherwise in violation of this policy, he or she may be required to
turn over any profits realized on the transaction to HCM, in most cases for
crediting to appropriate client accounts.
Commissions. Employees may negotiate with broker-dealers regarding the
commissions charged for their personal transactions, but may not enter into any
arrangement for a Covered Account to pay commissions at a rate that is better
than the rate available to clients through similar negotiations.
Gifts. No Employee may receive any gift or other thing of more than nominal
value from any person or entity that does business with or on behalf of any
client.
Duties of Confidentiality. All Client Investment Information and all information
relating to clients' portfolios and activities is strictly confidential.
Consideration of a particular purchase or sale for a client account may not be
disclosed except to authorized persons.
III. RULES APPLICABLE TO INVESTMENT EMPLOYEES
In addition to the policies described in Section II, all Investment Employees
(which include all Portfolio Managers) must comply with the following policies.
New Issue Securities. No Investment Employee may purchase new publicly offered
issues of any securities (other than Excluded Securities; "New Issue
Securities") for any Covered Account in the public offering of those securities.
Generally, Investment Employees may not purchase New Issue Securities for
Covered Accounts until at least one day after the public offering has been
completed.
Private Placements. As with all transactions in Covered Accounts, purchases of
securities in private placements must be cleared in advance by the Compliance
Officer. Private Placements present special issues for preclearance decisions.
In determining whether to approve any such transaction for an Investment
Employee, the Compliance Officer will consider, among other factors, whether the
investment opportunity should be reserved for client accounts and whether the
investment opportunity is being offered to the Investment Employee by virtue of
his or her position with HCM.(6) An Investment Employee who has acquired
securities in a private placement must notify the Compliance Officer if he or
she is to participate in subsequent consideration of an investment by client
accounts in securities of the same issuer. In such circumstances, a decision to
acquire securities of that issuer for client accounts must be reviewed
independently by an Investment Employee with no personal interest in that issuer
prior to placing an order. If no such Investment Employee exists, the
transaction should not be effected for client accounts without specific client
approval.
- ---------------
6/ In making this determination, the Compliance Officer will often be
expected to consult with the Portfolio Managers.
<PAGE>
Limitation on Short-Term Trading. No Investment Employee may buy and then sell,
or sell and then buy, any security (other than an Excluded Security) for a
Covered Account within any period of 60 days if, at any time while the
Investment Employee holds the security, (i) any client also owns the security or
a related security or instrument or (ii) HCM has any Client Investment
Information relating to that security or a related security or instrument. This
rule also applies to transactions in convertible, derivative, or otherwise
related securities, such as options, that have the same effect as the
transactions described in the first sentence of this paragraph. Thus, for
example, an Investment Employee may not buy a stock (other than an Excluded
Security) and, within 60days, buy a put option on that stock if, at any time he
or she owns the stock, any client also owns either the underlying stock or any
option on the stock or the firm has Client Investment Information about the
stock. As a practical matter, if an Investment Employee has bought or sold a
security (other than an Excluded Security) and the firm subsequently buys or
sells the security for client accounts or develops Client Investment Information
about the security, the Employee must refrain from effecting any contrary
transaction for the balance of the 60-day period.
If an Employee completes a transaction in violation of this policy, he or she
may be required to turn over any profits realized on the transaction either as a
penalty or for the benefit of clients.
Service as a Director. No Investment Employee may serve as a director of a
publicly-held company without prior approval by the Compliance Officer (or
another Investment Employee, if the Compliance Officer is the proposed board
member) based upon a determination that service as a director would be in the
best interests of any Fund Client and its shareholders. In the limited instances
in which such service is authorized, Investment Employees serving as directors
will be isolated from other Investment Employees who are involved in making
decisions as to the securities of that company through procedures determined by
the Compliance Officer to be appropriate in the circumstances.
IV. EMPLOYEE REPORTING
Report of Holdings. Each Employee must, upon commencement of employment (or
implementation of this Code, if later), disclose to the Compliance Officer the
identities, amounts, and locations of all securities owned in all Covered
Accounts. In addition, each Employee must disclose similar information within
thirty (30) days after the end of each calendar year while employed by HCM.
These reports may be made on the form attached as Appendix 2-B.
Quarterly Reports. Each Employee must report to the Compliance Officer by the
tenth day of each quarter all securities transactions in all of the Employee's
Covered Accounts during the preceding quarter. In addition, each Employee must
report all transactions for the account of each person or entity (i) that is not
a client of HCM and (ii) for whom the Employee manages provides investment
management services or to whom the Employee gives investment or voting advice.
Those transactions may be reported on the form attached as Appendix 2-C.7
Reporting may also be effected by directing brokerage firms, banks, or other
institutions that maintain Covered Accounts to provide duplicate confirmation
and account statements to HCM.
- ----------------
7/ If possible, all reportable transactions should be listed on a single
form. If necessary, because of the number of transactions, attach a second form
and mark it "continuation." All information called for in each column must be
completed for every security listed on the report.
<PAGE>
In filing Quarterly Reports, Employees must note that:
o Each Employee must file a report every quarter whether or not there were any
reportable transactions.
o Reports must show all sales, purchases, or other acquisitions or
dispositions, including gifts, the rounding out of fractional shares,
exercises of conversion rights, exercises or sales of subscription rights
and receipts of stock dividends or stock splits.
o Quarterly reports as to family and other Covered Accounts that are
fee-paying clients of HCM, need merely list the account number;
transactions need not be itemized.
o Employees need not report transactions in direct obligations of the U.S.
Government, money market fund shares, or shares of registered open-end
investment companies (other than Fund Clients). However, Employees must
report transactions in Excluded Securities (including bonds and other debt
securities, and all stocks, even those issued by companies with market
capitalizations in excess of $10 billion), even though the substantive
restrictions imposed by this Code do not apply.
Confidentiality. All statements of holdings, duplicate trade confirmations,
duplicate account statements, and monthly reports will generally be held in
confidence by the Compliance Officer. However, the Compliance Officer may
provide access to any of those materials to other members of HCM's management or
compliance personnel of a Fund Client in order to resolve questions regarding
compliance with this Code and regarding potential purchases or sales for client
accounts. HCM may also provide regulatory authorities with access to those
materials where required to do so under applicable laws, regulations, or orders
of such authorities.
V. PROCEDURES; SANCTIONS
Transaction Monitoring. To determine whether Employees have complied with the
rules described above (and to detect possible insider trading), the Compliance
Officer will review duplicate trade confirmations provided pursuant to those
rules within 10 days after their receipt. The Compliance Officer will compare
Quarterly Reports and records of preclearance activities to determine whether
Employees are complying with the preclearance and reporting requirements. The
Compliance Officer will also compare transactions in Covered Accounts with
transactions in client accounts for transactions or trading patterns that
suggest potential frontrunning, scalping, or other practices that constitute or
could appear to involve abuses of Employees' positions.
Certification of Compliance. By January 30 of each year, each Employee must
certify that he or she has read and understands this Code, that he or she
recognizes that this Code applies to him or her, and that he or she has complied
with all of the rules and requirements of this Code, including reporting all
securities transactions required to be reported. A form of such certification is
attached to this Code as Appendix 2-D.
Retention or Reports and Other Records. The Compliance Officer will maintain at
HCM's principal office for at least five years a confidential (subject to
inspection by regulatory authorities) record of each reported violation of this
Code and of any action taken as a result of such violation. The Compliance
Officer will also cause to be maintained in appropriate places all other records
relating to this Code that are required to be maintained by Rule 17j-1 under the
Investment Company Act of 1940 and Rule 204-2 under the Investment Advisers Act
of 1940, as well as under applicable state laws.
<PAGE>
Reports of Violations. Any Employee who learns of any violation, apparent
violation, or potential violation of this Code is required to advise the
Compliance Officer as soon as practicable. The Compliance Officer will then take
such action as may be appropriate under the circumstances.
Sanctions. Each Employee acknowledges that, as a term of his or her employment
with HCM, upon discovering that any Employee has failed to comply with the
requirements of this Code, HCM may impose on that Employee whatever sanctions
management considers appropriate under the circumstances, including censure,
suspension, disgorgement of trading profits, limitations on permitted
activities, or termination of employment.
VI. ACKNOWLEDGMENT OF RECEIPT AND CERTIFICATION
I have read, understand, acknowledge that I am subject to and agree to
abide by the guidelines set forth in this Code of Ethics and Conduct. I further
certify that I have disclosed or reported all personal securities holdings and
transactions required to be disclosed or reported pursuant to the requirements
of the Code. I understand that any violation of the Code may lead to sanctions,
including my dismissal for cause.
Name__________________________ Date__________________________
<PAGE>
APPENDIX 1
EXAMPLES OF BENEFICIAL OWNERSHIP
1. By an Employee for his/her own benefit, whether bearer, registered in
his/her own name, or otherwise;
2. By others for the Employee's benefit (regardless of whether or how
registered), such as securities held for the Employee by custodians,
brokers, relatives, executors or administrators;
3. For an Employee's account by a pledgee;
4. By a trust in which an Employee has an income or remainder interest
unless the Employee's only interest is to receive principal if (a) some
other remainderman dies before distribution or (b) if some other person
can direct by will a distribution of trust property or income to the
Employee;
5. By an Employee as trustee or co-trustee, where either the Employee or any
member of his/her immediate family (i.e., spouse, children and their
descendants, stepchildren, parents and their ancestors, and stepparents,
in each case treating a legal adoption as blood relationship) has an
income or remainder interest in the trust.
6. By a trust of which the Employee is the settlor, if the Employee has the
power to revoke the trust without obtaining the consent of all the
beneficiaries;
7. By any non-public partnership in which the Employee is a partner;
8. By a personal holding company controlled by the Employee alone or jointly
with others;
9. In the name of the Employee's spouse unless legally separated;
10. In the name of minor children of the Employee or in the name of any
relative of the Employee or of his/her spouse (including an adult child)
who is presently sharing the Employee's home. This applies even if the
securities were not received from the Employee and the dividends are not
actually used for the maintenance of the Employee's home;
11. In the name of any person other than the Employee and those listed in (9)
and (10) above, if by reason of any contract, understanding,
relationship, agreement, or other arrangement the Employee obtains
benefits substantially equivalent to those of ownership;
12. In the name of any person other than the Employee, even though the
Employee does not obtain benefits substantially equivalent to those of
ownership (as described in (11) above), if the Employee can vest or
revest title in himself/herself.
<PAGE>
APPENDIX 2-A
PERSONAL SECURITY TRANSACTION
AUTHORIZATION (valid only for proposed trade
date and two trading days thereafter)
Employee Name: ____________________________________________________________
Account Title: ____________________________________________________________
Proposed Trade Date: __________________
Security: ____________________________________________________________
Number of Shares: ____________________
Buy: __________ or Sell: __________
AUTHORIZATION
1. Has the security been approved for purchase or sale for client accounts
within the last five business days, or is currently being considered for
trading in client accounts?
Yes __________ No __________
2. Are there currently any open orders for client accounts, or have their
been any purchases or sales for client accounts within the last five
business days?
Yes __________ No __________
Request Approved __________ Request Denied __________
This form must be initialed by Irene Hoover PRIOR to entering into
personal securities transactions.
Comments:
<PAGE>
APPENDIX 2-B
LIST OF ACCOUNTS AND HOLDINGS
I hereby certify that the following is a complete list of all accounts with any
brokerage firm or other financial institution through which any securities
covered by this Code of Ethics may be purchased or sold in accordance with the
Code of Ethics of Hoover Capital Management, LLC, together with a list of all
securities held in those accounts as of the date indicated below.
I understand that you require this list to monitor my compliance with Hoover
Capital Management, LLC's Code of Ethics. I agree to notify Hoover Capital and
obtain its consent before opening any new account that falls within the Code of
Ethics. I further agree to furnish Hoover Capital with copies of confirmations
of trades, periodic statements and any other information concerning activity in
any of the listed accounts.
Broker Name Account Number Account Name Relationship
- ----------- -------------- ------------ ------------
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Signed: ______________________________
Name (printed): ______________________________
Date: ______________________________
Date as of which Information Presented: ______________________________
<PAGE>
APPENDIX 2-C
QUARTERLY REPORT OF PERSONAL SECURITIES TRANSACTIONS
Name: ____________________________________
For the quarter __________ through __________
Buy/ No. of
Date Sell Name of Security Shares Price Broker
- ---- ---- ---------------- ------ ----- ------
_______ _______ _____________________ _______ _______ _____________
_______ _______ _____________________ _______ _______ _____________
_______ _______ _____________________ _______ _______ _____________
_______ _______ _____________________ _______ _______ _____________
_______ _______ _____________________ _______ _______ _____________
_______ _______ _____________________ _______ _______ _____________
_______ _______ _____________________ _______ _______ _____________
_______ _______ _____________________ _______ _______ _____________
_______ _______ _____________________ _______ _______ _____________
_______ _______ _____________________ _______ _______ _____________
_______ _______ _____________________ _______ _______ _____________
<PAGE>
APPENDIX 2-D
ANNUAL CERTIFICATE OF COMPLIANCE
I have read, understand, acknowledge that I am subject to and agree to abide by
the guidelines set forth in the Code of Ethics and Conduct of Hoover Capital
Management, LLC ("HCM"). I further certify that I have complied with that Code
and with the Policy to Detect and Prevent Insider Trading attached to that Code
since the last date of my certification, and that I have disclosed or reported
all personal securities holdings and transactions required to be disclosed or
reported pursuant to the requirements of the Code. I understand that any
violation of the Code may lead to sanctions, including my dismissal for cause.
Signed: ______________________________
Name (printed): ______________________________
Date: ______________________________
<PAGE>
POLICY TO DETECT AND PREVENT INSIDER TRADING
HOOVER CAPITAL MANAGEMENT, LLC
(Revised January 1999)
Hoover Capital Management, LLC forbids you to trade, either personally or on
behalf of others, including accounts managed by Hoover Capital, on material
nonpublic information, or communicating material nonpublic information to others
in violation of the law. This conduct is frequently referred to as "insider
trading." Hoover Capital's policy extends to activities within and outside your
duties at Hoover Capital.
The term "insider trading" in not defined in the federal securities laws, but
generally is used to refer to the use of material nonpublic information to trade
in securities (whether or not one is an "insider") or to the communication of
material nonpublic information to others.
While the law concerning insider trading is not static, it is generally
understood that the law prohibits:
1. trading by an insider while in possession of material nonpublic
information,
2. trading by a non-insider, while in possession of material nonpublic
information, where the information either was disclosed to the
non-insider in violation of an insider's duty to keep it confidential or
was misappropriated, or
3. communicating material nonpublic information to others.
The elements of insider trading and the penalties for such unlawful conduct are
discussed below. If, after reviewing this policy statement, you have any
questions you should consult Irene Hoover.
Who is an Insider?
The concept of "insider" is broad. It includes officers, directors and employees
of a company. In addition, a person can be a "temporary insider" if he or she
enters into a special confidential relationship in the conduct of a company's
affairs and as a result is given access to information solely for the company's
purposes. A temporary insider can include, among others, a company's attorneys,
accountants, consultants, bank lending officers, and the employees of such
organizations. According to the Supreme Court, the company must expect the
outsider to keep the disclosed nonpublic information confidential and the
relationship must at least imply such a duty before the outsider will be
considered an insider.
What is Material Information?
Trading on inside information is not a basis for liability unless the
information is material. "Material information" is generally defined as
information that there is a substantial likelihood a reasonable investor would
consider important to make his or her investment decisions, or information that
is reasonably certain to have a substantial effect on the price of a company's
securities. Information you should consider material includes, but is not
limited to:
- dividend changes,
- earnings estimates,
<PAGE>
- changes in previously released earnings estimates,
- significant merger or acquisition proposals or agreements,
- major litigation,
- liquidation problems, and
- extraordinary management developments.
Material information does not have to relate to a company's business. For
example, in Carpenter v. U.S., 108 U.S. 316 (1987), the Supreme Court considered
as material certain information about the contents of a forthcoming newspaper
column that was expected to affect the market price of a security. In that case,
a Wall Street Journal reporter was found criminally liable for disclosing to
others the dates that reports on various companies would appear in the Journal
and whether those reports would be favorable or not.
What is Nonpublic Information?
Information is nonpublic until it has been effectively communicated to the
market place. One must be able to point to some fact to show that the
information is generally public. For example, information found in a report
filed with the SEC, or appearing in Dow Jones, Reuters Economic Services, the
Wall Street Journal or other publications of general circulation would be
considered public.
Penalties for Insider Trading
Penalties for trading on, or communicating, material nonpublic information are
severe, for both the individuals involved in the unlawful conduct and their
employers. Persons can be subject to some or all of the penalties below, even if
they do not personally benefit from the violation.
- civil injunctions,
- treble damages,
- disgorgement of profits,
- jail sentences,
- fines for the person who committed the violation of up to three
times the profit gained or loss avoided, whether or not the person
actually benefitted, and
- fines for the employer or other controlling person of up to the
greater of $1,000,000 or three times the amount of the profit
gained or loss avoided.
In addition, any violation of this Code of Ethics can be expected to result in
serious sanctions by Hoover Capital, including dismissal of the persons
involved.
<PAGE>
Procedures To Implement Insider Trading Policy
Before trading for yourself or others, including accounts managed by Hoover
Capital, in the securities of a company about which you may have potential
inside information, ask yourself the following questions:
1. Is the information material? Would an investor consider it important in
making their investment decisions? Would it substantially effect the market
price of the securities if generally disclosed?
2. Is the information nonpublic? To whom has this information been provided? Has
the information been effectively communicated to the marketplace by being
published in Reuters, the Wall Street Journal, or other publications of general
circulation?
If, after considering the above, you believe the information may be material and
nonpublic:
1. Report the matter immediately to Irene Hoover.
2. Do not purchase or sell the securities on behalf of yourself or others,
including accounts managed by Hoover Capital.
3. Do not communicate the information inside or outside Hoover Capital, other
than to Irene Hoover. In addition, you should take care that the information is
secure. For example, you should seal files and restrict access to computer files
containing material nonpublic information.
4. Irene Hoover will instruct you to continue the prohibitions against trading
and communication, or will allow you to trade and communicate the information.
Any questions about whether information is material or nonpublic, the
applicability or interpretation of these procedures, or the propriety of any
action, must be discussed with Irene Hoover before you trade or communicate the
information to anyone.
These procedures have been established to help you avoid insider trading, and to
help Hoover Capital prevent, detect and impose sanctions against insider
trading. You must follow these procedures or risk serious sanctions, including
dismissal, substantial personal liability and criminal penalties. If you have
any questions about these procedures consult Irene Hoover.
<PAGE>
CODE OF ETHICS And
INSIDER TRADING POLICY
HOOVER CAPITAL MANAGEMENT, LLC
January 1999
Uniplan, Inc.
THE JEFFERSON FUND GROUP TRUST
Jefferson Growth and Income Fund
Jefferson REIT Fund
Jefferson Regional Bank Fund
Revised Code of Ethics
Effective as of August 1, 1998
I. DEFINITIONS
A. "Access person" means any trustee, officer or advisory person of the
Trust or any of the Funds.
B. "Act" means the Investment Company Act of 1940, as amended.
C. "Advisory person" means: (i) any employee of the Trust or any of the
Funds or of any company in a control relationship to the Trust or any of the
Funds, who, in connection with his or her regular functions or duties, makes,
participates in, or obtains information regarding the purchase or sale of a
security by any Fund, or whose functions relate to the making of any
recommendations with respect to such purchases or sales; and (ii) any natural
person in a control relationship to any of the Funds who obtains information
concerning recommendations made to any of the Funds with regard to the purchase
or sale of a security. Advisory persons include investment personnel.
D. A security is "being considered for purchase or sale" when a
recommendation to purchase or sell a security has been made and communicated
and, with respect to the person making the recommendation, when such person
seriously considers making such a recommendation.
E. "Beneficial ownership" shall be interpreted in the same manner as it
wouldbe in determining whether a person is subject to the provisions of Section
16 of the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder, by virtue of having a pecuniary interest,
except that the determination of direct or indirect beneficial ownership shall
apply to all securities which an access person has or acquires.
F. "Control" has the same meaning as that set forth in Section 2(a)(9) of
the Act.
G. "Disinterested trustee" means a trustee of the Trust who is not an
"interested person" of the Trust within the meaning of Section 2(a)(19) of the
Act.
<PAGE>
H. "Funds" mean the Jefferson Growth and Income Fund, the Jefferson REIT
Fund and the Jefferson Regional Bank Fund.
I. "Investment personnel" means portfolio managers as well as any employee
of any of the Funds or of a company in a control relationship to any of the
Funds who provides information or advice to a portfolio manager or who helps
execute the portfolio manager's decisions.
J. "Portfolio manager" means any employee of any of the Funds or of any
company in a control relationship to any of the Funds, who is entrusted with the
direct responsibility and authority to make investment decisions on behalf of
any of the Funds.
K. "Purchase or sale of a security" includes the writing of an option to
purchase or sell a security.
L. "Security" has the meaning set forth in Section 2(a)(36) of the Act,
except that it shall not include shares of registered open-end investment
companies, securities issued by the Government of the United States, short-term
debt securities which are "government securities" within the meaning of Section
2(a)(16) of the Act, bankers' acceptances, bank certificates of deposit,
commercial paper, and such other money market instruments as designated by the
Board of Trustees.
II. STATEMENT OF GENERAL PRINCIPLES
It is the policy of each Fund that:
(a) With respect to their personal investment activities, it is the duty of
access persons at all times to place the interests of the beneficial owners
first.
(b) All personal securities transactions of access persons be conducted
consistent with this Code of Ethics and in such a manner as to avoid any actual
or potential conflict of interest or any abuse of an access person's position of
trust and responsibility.
(c) Access persons should not take inappropriate advantage of their
positions with respect to their personal investment activities.
III. EXEMPTED TRANSACTIONS
The prohibitions of Section IV of this Code of Ethics shall not apply to:
(a) Purchases or sales of securities effected in any account over which the
access person has no direct or indirect influence or control.
(b) Purchases or sales of securities which are not eligible for purchase or
sale by any of the Funds with which the access person or investment personnel is
connected.
(c) Purchases or sales of securities which are non-volitional on the part
of either the access person or any of the Funds with which such person is
connected.
(d) Purchases of securities which are part of an automatic dividend
reinvestment plan.
(e) Purchases of securities effected upon the exercise of rights issued by
an issuer pro rata to all holders of a class of its securities, to the extent
such rights were acquired from such issuer, and sales of such rights so
acquired.
(f) Purchases or sales of securities which receive the prior approval of
the Board of Trustees of the Trust with regard to a particular Fund because they
are only remotely potentially harmful to such Fund because they would be very
unlikely to affect a highly institutional market, or because they clearly are
not related economically to the securities to be purchased, sold or held by such
Fund.
IV. PROHIBITED PURCHASES AND SALES
A. Except in a transaction exempted by Section III of this Code of Ethics,
no access person of any of the Funds shall purchase or sell, directly or
indirectly, any security in which he has, or by reason of such transaction
acquires, any direct or indirect beneficial ownership unless such purchase or
sale has been "precleared" by the Trust's President or Chairman and, in no
event, if he or she knows or should have known at the time of such purchase or
sale, such security is being considered for purchase or sale by a Fund or is
being purchased or sold by a Fund. Notwithstanding the foregoing, disinterested
trustees are not required to "preclear" transactions.
B. Investment personnel may not acquire any securities in an initial public
offering.
C. Investment personnel may not invest in a private placement of securities
unless the individual receives prior approval of the President or Chairman of
the Trust. Prior approval shall not be given if the President or Chairman of the
Trust believes that the investment opportunity should be reserved for a Fund or
is being offered to the individual by reason of his or her position with a Fund.
Any such investments by the President or Chairman of the Trust in any of the
Funds must receive the prior approval of a disinterested trustee of the Trust.
Investment personnel who invest in a private placement must disclose that
investment to all portfolio managers of such Fund considering an investment in
the issuer thereof on behalf of such Fund, and all such investments must be
independently reviewed by investment personnel having no personal interest in
such issuer.
D. Except in a transaction exempted by Section III of this Code of Ethics,
no access person shall purchase or sell, directly or indirectly, any security in
which he has, or by reason of such transaction acquires, any direct or indirect
beneficial ownership on a day during which any Fund with which such person is
connected has a pending "buy" or "sell" order in the same security until that
order is executed or withdrawn. Notwithstanding the foregoing, disinterested
trustees are not subject to this prohibition unless he or she knows or should
have known at the time of such purchase or sale that the Fund has such a pending
"buy" or "sell" order in the same security.
E. Except in a transaction exempted by Section III of this Code of Ethics,
no portfolio manager shall purchase or sell, directly or indirectly, any
security in which he has, or by reason of such transaction acquires, any direct
or indirect beneficial ownership within seven calendar days before and after the
Fund with which such manager is connected trades in that security.
F. Except in transactions exempted by Section III of this Code of Ethics,
investment personnel shall not profit from the purchase and sale, or sale and
purchase, of the same (or equivalent) securities within 60 calendar days.
G. Investment personnel shall not receive any gift or other thing of value
that is worth more than $100 from any person or entity that does business with
or on behalf of the Fund with which such personnel is connected.
H. Investment personnel shall not serve on the board of directors of
publicly traded companies absent prior authorization of the Board of Trustees of
the Trust. The Board of Trustees of the Trust may so authorize such board
service only if it determines that such board service is consistent with the
interests of any of the Funds and their beneficial owners.
V. REPORTING AND COMPLIANCE PROCEDURES
A. Except as provided in Section V(B) of this Code of Ethics, every access
person shall report to the Trust, on the form attached hereto as Exhibit A, the
information described in Section V(C) of this Code of Ethics with respect to
transactions in any security in which such access person has, or by reason of
such transaction acquires, any direct or indirect beneficial ownership in the
security; provided, however, that an access person shall not be required to make
a report with respect to transactions effected for any account over which such
person does not have any direct or indirect influence. Except as provided in
Section V(B) of this Code of Ethics, prior to effecting a transaction in any
security subject to the preclearance requirement of Section IV(A) of this Code
of Ethics, any access person shall report to the Trust the name of the security
involved, the nature of the transaction (i.e. purchase or sale or any other type
of acquisition or disposition) and the name of the broker, dealer or bank with
or through which the transaction will be effected.
B. A disinterested trustee of the Trust need only report a transaction in a
security if such trustee, at the time of such transaction, knew or, in the
ordinary course of fulfilling his official duties as a director of the Trust,
should have known that, during the 15-day period immediately preceding the date
of the transaction by the director, such security was purchased or sold by any
of the Funds or was being considered by any of the Funds or their investment
adviser for purchase or sale by any of the Funds.
C. Every report required to be made by Section V(A) of this Code of Ethics
shall be made on Exhibit A no later than ten (10) days after the end of the
calendar quarter in which the transaction to which the report relates was
effected, and shall contain the following information:
(1) The date of the transaction, the title and the number of shares,
and the principal amount of each security involved;
(2) The nature of the transaction (i.e., purchase, sale or any other
type of acquisition or disposition);
(3) The price at which the transaction was effected; and
(4) The name of the broker, dealer or bank with or through whom the
transaction was effected.
D. Any report filed pursuant to Section V(A) of this Code of Ethics may
contain a statement that the report shall not be construed as an admission by
the person making such report that he has any direct or indirect beneficial
ownership in the security to which the report relates.
E. Each access person, except disinterested trustees, shall direct his or
her brokers to supply to the Trust, on a timely basis, duplicate copies of
confirmations of all personal securities transactions and copies of all periodic
statements for all securities accounts.
F. The Trust's President, Chairman, or designee shall review all reports
filed pursuant to Section V(C) of this Code of Ethics and information received
pursuant to Section V(E) of this Code of Ethics.
G. All investment personnel shall report to the Trust all personal
securities holdings not later than ten (10) days after commencement of
employment in such capacity and thereafter, if the individual continued to serve
in such capacity on December 31 of any year, by January 10 of the following
year.
H. Each year access persons shall certify to the Trust that (i) they have
read and understand this Code of Ethics and recognize that they are subject
thereto, and (ii) they have complied with the requirements of this Code of
Ethics and that they have disclosed or reported all personal securities
transactions required to be disclosed or reported pursuant to the requirements
of this Code of Ethics.
I. Each year the President of the Trust shall prepare an annual report to the
Trust's Board of Trustees that --
o summarizes existing procedures concerning personal investing and any
changes in the procedures made during the past year;
o identifies any violations requiring significant remedial action during
the past year; and
o identifies any recommended changes in existing restrictions or
procedures based upon the Trust's experience under this Code of
Ethics, evolving industry practices or developments in applicable laws
or regulations.
J. The Fund shall include in its registration statement on Form N-1A a
summary of this Code of Ethics if required to do so by the instructions to Form
N-1A.
VI. SANCTIONS
Upon discovering a violation of this Code of Ethics, the Board of Trustees
of the Trust may impose such sanctions as it deems appropriate, including, inter
alia, a letter of censure or suspension or termination of the employment of the
violator. Notwithstanding the foregoing, the Board of Trustees shall require
that any individual violating Sections IV(D), IV(E) or IV(F) of this Code of
Ethics contribute any profits realized on trades within the prescribed period to
the Fund with which such individual is connected, if the Board of Trustees
determines that the violation resulted in a loss to such Fund, or to a
charitable organization of the individual's choice, if the Board of Trustees
determines that the violation did not result in a loss to such Fund, unless, in
either case, the Board of Trustees determines that circumstances exist which
make such a sanction unduly harsh.
<PAGE>
EXHIBIT A
CONFIDENTIAL
QUARTERLY SECURITY HOLDINGS REPORT
FOR THE CALENDAR QUARTER ENDING __________________
FUND: ___________________
Name: ______________________________
Position: ____________________________
Employer: ___________________________
<TABLE>
<S> <C> <C> <C> <C> <C>
=============== ====================== ====================== =============================== ============ ===================
Date of Name of Principal Amount Nature of Transaction Price of Name of Broker/
Transaction Security Involved of the Security (i.e. purchase, sale, etc.) Security Dealer Used
- --------------- ---------------------- ---------------------- ------------------------------- ------------ -------------------
- --------------- ---------------------- ---------------------- ------------------------------- ------------ -------------------
- --------------- ---------------------- ---------------------- ------------------------------- ------------ -------------------
- --------------- ---------------------- ---------------------- ------------------------------- ------------ -------------------
- --------------- ---------------------- ---------------------- ------------------------------- ------------ -------------------
- --------------- ---------------------- ---------------------- ------------------------------- ------------ -------------------
- --------------- ---------------------- ---------------------- ------------------------------- ------------ -------------------
- --------------- ---------------------- ---------------------- ------------------------------- ------------ -------------------
=============== ====================== ====================== =============================== ============ ===================
</TABLE>
In connection with this report, I have read, understand and agree to comply
with the Jefferson Fund Group Trust -- Code of Ethics. The statements made in
this report are true and complete to the best of my knowledge and belief and
reflect all personal securities transactions required to be disclosed or
reported pursuant to the Code of Ethics.
- ------------------ ---------------------------------------
DATE SIGNATURE
Instructions: This report is to be submitted to the Jefferson Fund Group Trust
on or before April 10th, July 10th, October 10th and January 10th of each year
and shall reflect all transactions occurring during the reporting period (i.e.
the last calendar quarter). This report shall include all transactions in
securities in which the person making this report has a direct or indirect
beneficial interest.
<PAGE>
DATE
Name of Brokerage Firm
Address
Re: Account No. _____________________
Name: __________________________
Address: _______________________
Dear Sir or Madam:
I am subject to the Code of Ethics of The Jefferson Fund Group Trust, a
registered investment company. This Code requires me to arrange to have copies
of confirmations, periodic statements and other debit or credit notices issued
by a broker/dealer where I maintain an account to be sent to the Trust. For the
above-referenced account, these copies should be stamped "Personal" or
"Confidential" and sent to:
The Jefferson Fund Group Trust
c/o Firstar Trust Company
Fund Administration and Compliance
615 East Michigan Street, LC-2
Milwaukee, Wisconsin 53202
Sincerely,
[Signature]
<PAGE>
REQUEST FOR
PRECLEARANCE OF
PERSONAL SECURITIES TRANSACTIONS
================ ==================== =============== ==============
Date of Nature of Number of Price of
Request Transaction Shares Security
- ---------------- -------------------- --------------- --------------
- ---------------- -------------------- --------------- --------------
- ---------------- -------------------- --------------- --------------
- ---------------- -------------------- --------------- --------------
- ---------------- -------------------- --------------- --------------
================ ==================== =============== ===============
Name of Person Making Request: ______________________________
FOR OFFICE USE ONLY
Request is: ________ Approved
________ Denied
Date of Decision: ______________________
Authorized Signature: __________________
<PAGE>
GARZARELLI INVESTMENT MANAGEMENT LLC
(the "Company")
CODE OF ETHICS
As Amended April 28, 1998
I. Legal Requirement.
Rule 17j-l(a) under the Investment Company Act of 1940 (the "Act") makes it
unlawful for any officer or director of the Company (as well as other persons),
in connection with the purchase or sale by such person of a security "held or to
be acquired" by the Company:
(1) To employ any device, scheme or artifice to defraud the Company;
(2) To make to the Company any untrue statement of a material fact or omit
to state to the Company a material fact necessary in order to make the
statements made, in light of the circumstances under which they are
made, not misleading;
(3) To engage in any act, practice, or course of business which operates
or would operate as a fraud or deceit upon the Company; or
(4) To engage in any manipulative practice with respect to the Company.
A security is "held or to be acquired" if within the most recent 15 days it
(i) is or has been held by a series of the Company (a "Fund"), or (ii) is being
or has been considered by a Fund or its investment adviser for purchase by a
Fund. A purchase or sale includes the writing of an option to purchase or sell.
II. Policy of the Company
It is the policy of the Company that no "access person"(1) shall engage in
any act, practice or course of conduct that would violate the provisions of Rule
17j- I (a) set forth above.
- ----------------
1 An "access person" is each director or officer of the Company, and each
employee (if any) of the Company who in connection with his regular duties
obtains information about the purchase or sale of a security by the Company
or whose functions relate to the making of such recommendations, and any
person in a control relationship to the Company who obtains information
concerning recommendations made to the Company with regard to the purchase
or sale of a security; provided, however, that access persons who are
affiliated persons of the Company's investment manager, administrator,
transfer agent or the Company's principal underwriter (if any) shall not be
subject to this Code of Ethics if such persons are subject to another
organization's Code of Ethics which Code of Ethics acceptable to the Board
of Directors of the Company.
<PAGE>
III. Restrictions on Activities.
1. No access person shall purchase or sell, directly or indirectly, any
security in which he or she has, or by reasons of such transaction will
have, any direct or indirect beneficial ownership on any day when such
person knew or should have known that a Fund was contemplating
purchasing or selling, or purchased or sold, such security.
2. No access person shall purchase or sell, directly or indirectly, any
security in which he or she has, or by reason of such action acquires,
any direct or indirect beneficial ownership within 2 calendar days
after any day when such person knew or should have known that a Fund
purchased or sold such security.
These provisions do not apply to:
(i) purchases or sales by directors who are not "interested persons"
(as defined in the Act); (ii) purchases or sales effected in any
account over which the access person has no direct or indirect
influence or control;
(iii) purchase of sales which are non-volitional on the part of the
access person;
(iv) purchases that are part of an automatic dividend reinvestment
plan;
(v) purchases effected upon the exercise of rights issued by an
issuer pro rata to all holders of a class of its securities, to
the extent such rights were acquired from the issuer, and sales
of such right so acquired;
(vi) purchases or sales within the 2-day period of 100 shares or less
of a particular issuer; and
(vii) purchases and sales of securities issued or guaranteed as to
principal or interest by the U.S. government or its agencies or
instrumentalities, bankers' acceptances, bank certificates of
deposit, commercial paper and shares of registered open-end
investment companies (excluding shares of the Company).
IV. Pre-Clearance Procedures.
1. An access person may, directly or indirectly, acquire or dispose of
beneficial ownership of a security, other than shares of the Company
without pre-clearance approval (as described below) if such security
transaction amount is less than $10,000.
2. With respect to security transactions of $10,000 or greater, an access
person may, directly or indirectly, acquire or dispose of beneficial
ownership of a security, other than shares of the Company, only if (a) such
purchase or sale has been approved in advance by a supervisory person
designated by the Company (the "Designated Supervisory Person"), (b) the
approved transaction is completed on the same day approval is received, and
(c) the Designated Supervisory Person has not rescinded such approval prior
to execution of the transaction.
3. A written authorization for a security transaction will be prepared and
retained by the Designated Supervisory Person to memorialize the oral
authorization that was granted.
4. Pre-clearance approval under paragraph (1) above will expire at the
close of business on the trading day after the date on which oral
authorization is received, and the access person is required to renew
clearance for the transaction if the trade is not completed before the
authority expires.
These provisions do not apply to trustees who are not "interested persons"
of the Company (as defined in the Act).
V. Procedures.
A. In order to Provide the Company with information to enable it to
determine with reasonable assurance whether the Provisions of Rule
17j-l (a) are being observed by its access persons:
1. Each access Person of the Company other than a director who is
not an "interested person" (as defined in the Act), shall submit
reports in the form attached hereto as Exhibit A to the Company's
President showing all transactions in "reportable securities" in
which the Person has, or by reason Of such transaction acquires,
any direct or indirect beneficial ownership. 2Such reports shall
be filed not later than 10 days after the end of each calendar
quarter but need not show transactions over which such person had
no direct or indirect influence or control
- --------------
2 You will be treated as the "beneficial Owner" of a security under this
Policy only if two tests are met with respect to a transaction in the
security:
(1) You have or you share voting Power and/or investment Power with respect
to the security. (This -is the same test for reporting beneficial ownership
of securities for the proxy statements of public companies, and includes
among other things, and securities which you have the right to acquire
within 60 days.)
AND
(2) You have a direct or indirect pecuniary interest in the security.
(a) A direct pecuniary interest Is the opportunity,
directly or indirectly, to profit, or to share the
profit, from the transaction.
(b) An indirect pecuniary interest is any nondirect
financial interest but is specifically defined in the
rules to include securities held by members of your
immediate family sharing the same household; securities
held by members of partnership of which you are a
general partner, securities held by a trust of which
you are the settlor if you can revoke the trust, or a
beneficiary if you have. or share investment control
with the trustee, and equity securities which may be
acquired upon exercise of an option or other right, or
through conversation.
Unless both tests are satisfied, you are not the beneficial owner.
For interpretive guidance on either of the two tests, You should
consult counsel.
2. Each director who is not an "interested person" of the Company
shall submit the same quarterly report as required under
paragraph (a), but only for a transaction , in a reportable
security where he knew at the time of the transaction or, in the
ordinary course Of fulfilling his Official duties as a director,
should have known that during the 15 day period immediately
preceding or after the date of the transaction, such security is
or was purchased or sold, or considered for purchase or sale, by
a Fund. No report is required if the director had no direct or
indirect influence or control over the transaction.
For purposes of subparagraphs (a) and (b) above, a "reportable security"
includes all securities, except securities issued or guaranteed by the United
States Government and short-term debt securities issued by its agencies or
instrumentalities (but including issues with a maturity of more than one year
issued by an agency or instrumentality of the United States Government),
banker's acceptances, bank certificates of deposit, commercial paper and shares
of registered open-end investment companies.
B. The Company's President shall notify each "access person" of the
Company who may be required to make reports pursuant to this Code that such
person is subject to this reporting requirement and shall deliver a copy of this
Code to each such person.
C. The Company's President shall report to the Board of Directors:
1. at the next meeting following the receipt of any report on
Exhibit A with respect to each reported transaction in a security
which was within 15 days before or after the date of the reported
transaction (i) held or acquired by a Fund, or (ii) considered by
a Fund for purchase or sale, unless (in either case) (a) the
transaction was a reinvestment of dividends pursuant to a plan,
or (b) the amount involved in the transaction was less than
$10,000 and upon review was determined by the President to have
not had any ascertainable impact on transactions by the Company;
2. with respect to any transaction (whether or not required to be
reported to the Board by the operation of subparagraph (a) above)
that the President believes may evidence a violation of this
Code; and
3. (apparent violations of the reporting requirements stated herein.
D. The Board shall consider reports made to it hereunder and shall
determine whether the policies established in paragraphs B, C and D have been
violated, and what sanctions, if any, should be imposed.
E. This Code, a copy of each report by an access person, any written
report hereunder by the Company's President, and lists of all persons required
to make reports shall be preserved with the Company's records for the period
required by Rule 17j-1.
Dated:______________________
THE BOARD OF DIRECTORS
Garzarelli Investment
Management LLC
<PAGE>
EXHIBIT A
Garzarelli Investment Management LLC
(the "Company")
Securities Transaction Report
For the Calendar Quarter Ended___________________
To the President:
During the quarter referred to above, the following transactions were
effected in securities of which I had, or by reason of such transaction
acquired, direct or indirect beneficial ownership, and which are required to be
reported pursuant to the Company's Code of Ethics:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Broker/
No. of Nature of Dealer or
Shares or Dollar Transaction Bank Through
Date of Principal Amount of (Purchase, Whom
Security Transaction Amount Transaction Sale, Other) Price Effected
- -------- ----------- ------ ----------- ----------- ----- --------
</TABLE>
This report (i) excludes transactions with respect to which I had no direct
or indirect influence or control, (ii) other transactions not required to be
reported, and (iii) is not an admission that I have or had any direct or
indirect beneficial ownership in the securities listed above.
Date: __________________________ Signature:___________________________
