Securities Act Registration No. 333-81907
Investment Company Act Reg. No. 811-9391
UNITED STATES
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. 1
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 4
(Check appropriate box or boxes.)
-----------------------------------
THE FORESTER FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
612 Paddock Lane
Libertyville, Illinois 60048
(Address of Principal Executive Offices) (Zip Code)
(847) 573-8399
(Registrant's Telephone Number, including Area Code)
Thomas H. Forester
Forester Capital Management, Ltd.
612 Paddock Lane
Libertyville, Illinois 60048
---------------------------------------- --------------------------
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as practicable after the
Registration Statement becomes effective.
It is proposed that this filing become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[X] on July 31, 2000 pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
LONG TERM
INVESTING
IN VALUE
Forester Funds
Forester Small Cap Value Fund
Forester Value Fund
PROSPECTUS JULY 31, 2000
FORESTER FUNDS
612 Paddock Lane, Libertyville, Illinois 60048
1-847-573-8399
Mutual funds:
are not FDIC-insured
have no bank guarantees
may lose money
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
This Prospectus sets forth concisely the information about the Funds that
prospective investors should know before investing. Investors are advised to
read this Prospectus and retain it for future reference. This Prospectus does
not set forth all of the information included in the Registration Statement
and Exhibits thereto which the Funds have filed with the Securities and
Exchange Commission.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND THE
STATEMENT OF ADDITIONAL INFORMATION DATED JULY 31, 2000 AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MAY NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE FORESTER FUNDS, INC. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL SECURITIES IN ANY STATE OR JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
<PAGE>
TABLE OF CONTENTS
Summary . . . . . . . . . . . . . . . . . . . . . . . . . 3
Fund Performance . . . . . . . . . . . . . . . . . . . . . 3
Fund Expenses . . . . . . . . . . . . . . . . . . . . . . 4
Investment Objectives, Principal Investment
Strategies and Risk Factors . . . . . . . . . . . . . . . 5
Management of the Funds . . . . . . . . . . . . . . . . . 6
Funds' Share Price . . . . . . . . . . . . . . . . . . . . 7
Purchase of Shares . . . . . . . . . . . . . . . . . . . . 7
Distribution Plan . . . . . . . . . . . . . . . . . . . . 8
Redeeming Shares . . . . . . . . . . . . . . . . . . . . . 9
Dividends, Distributions and Taxes . . . . . . . . . . . . 11
Financial Highlights . . . . . . . . . . . . . . . . . . . 11
<PAGE>
SUMMARY
Investment Objectives.
The Forester Funds, Inc. (the "Company") is an open-end management investment
company, commonly known as a mutual fund. Each Fund is a portfolio of the
Company. The two portfolios (each a "Fund" and collectively the "Funds")
covered in this prospectus are as follows:
THE FORESTER SMALL CAP VALUE FUND (the "SMALL CAP VALUE FUND") is a common
stock fund that seeks long-term growth of capital.
THE FORESTER VALUE FUND (the "VALUE FUND") is a common stock fund that seeks
long-term growth of capital.
Principal Investment Strategies
THE SMALL CAP VALUE FUND is diversified and invests primarily in common stocks
of undervalued small companies. Under normal market conditions, the fund
invests at least 65% of its total assets in common stock of companies that have
market capitalizations ranging from approximately $100 million to $1.5
billion. The Fund uses a value approach to investing - that is, it looks for
common stocks that the investment manager believes are undervalued. The
principal factor considered by a manager in identifying a value stock is its
price to earnings (P/E) ratio. The objective of value investing is to reduce
the risk of owning common stocks by investing in companies with sound finances
whose current market prices are low in relation to earnings. In determining
whether a company's finances are sound, the investment manager considers,
among other things, its cash position and current ratio of assets compared to
current liabilities. In response to adverse market, economic, political or
other conditions, the fund may take temporary defensive positions of up to
100%. This means the Fund will invest some or all of its assets in money
market instruments or bonds. The Fund sells securities of companies that have
grown in market capitalization above $1.5 billion as necessary to keep focused
on smaller companies. The Fund also sells securities that the investment
manager considers to be overvalued as necessary to keep focused on undervalued
companies.
THE VALUE FUND is diversified and under normal market conditions, the Fund
invests at least 65% of its total assets in common stock of companies that have
market capitalizations of $1.5 billion or more. The Fund uses a value
approach to investing - that is, it looks for common stocks that the
investment manager believes are undervalued. The principal factor considered
by a manager in identifying a value stock is its price to earnings (P/E)
ratio. The objective of value investing is to reduce the risk of owning
common stocks by investing in companies with sound finances whose current
market prices are low in relation to earnings. In determining whether a
company's finances are sound, the investment manager considers, among other
things, its cash position and current ratio of assets compared to current
liabilities. In response to adverse market, economic, political or other
conditions, the fund may take temporary defensive positions of up to 100%.
This means the Fund will invest some or all of its assets in money market
instruments or bonds. The Fund also sells securities that the investment
manager considers to be overvalued as necessary to keep focused on undervalued
companies.
Principal Risks
THE SMALL CAP VALUE FUND investors may lose money. There is no assurance that
the investment objective of the Fund will be achieved. The returns and net
asset value will fluctuate. The Fund invests primarily in smaller companies
which involve greater risk than investment in larger, more established
companies. The Fund invests principally in common stock that, in the judgment
of the investment manager, are undervalued. The fund is authorized to invest
in stock index futures and options to buy and sell such futures. In these
investments, the Fund assumes the risk that, if the investment manager's
judgment regarding the direction of the securities markets is incorrect, their
investment performance might have been better if they had not acquired futures
contracts. Because of these risks the Fund is a suitable investment only for
those investors who have long-term investment goals. Prospective investors
who are uncomfortable with an investment that will increase and decrease in
value should not invest in the Fund. See "Investment Objectives, Strategies
and Risk Factors."
THE VALUE FUND investors may lose money. There is no assurance that the
investment objective of the Fund will be achieved. The returns and net asset
value will fluctuate. The Fund invests principally in common stock that, in
judgment of the investment manager, are undervalued. The fund is authorized
to invest in stock index futures and options to buy and sell such futures. In
these investments, the Fund assumes the risk that, if the investment manager's
judgment regarding the direction of the securities markets is incorrect, their
investment performance might have been better if they had not acquired futures
contracts. Because of these risks the Fund is a suitable investment only for
those investors who have long-term investment goals. Prospective investors
who are uncomfortable with an investment that will increase and decrease in
value should not invest in the Fund. See "Investment Objectives, Strategies
and Risk Factors."
FUND PERFORMANCE
The tables that follow provide some indication of the risks of investing in
The Forester Funds by showing changes in each Fund's performance from year to
year and how its average annual returns over various periods compare to the
performance of relevant benchmarks. Please remember that each Fund's past
performance is not necessarily an indication of its future performance. It
may perform better or worse in the future.
THE FORESTER SMALL CAP VALUE FUND
TOTAL RETURNS
(for periods ending March 31, 2000)
SINCE INCEPTION
(SEPTEMBER 9, 1999)
The Forester Small Cap Value Fund 2.58%
The Russell 2000 Value Index <F1> 1.75%
THE FORESTER VALUE FUND
TOTAL RETURNS
(for periods ending March 31, 2000)
SINCE INCEPTION
(SEPTEMBER 9, 1999)
The Forester Small Cap Value Fund 2.58%
The Russell 1000 Value Index <F1> 0.98%
<F1> The Russell 2000 Value Index is an unmanaged, market-weighted index of the
lower price-to-book value stocks in the Russell 2000 Index of 2000 smaller
companies. The Russell 1000 Value Index is an unmanaged, market-weighted
index of the lower price-to-book value stocks in the Russell 1000 Index of
1000 larger companies.
FEES AND EXPENSES
The table below describes the fees and expenses that you may pay if you buy
and hold shares of the Forester Funds.
Small Cap
Value Fund Value Fund
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted
from Fund assets)
Management Fees.................... 1.00% 1.00%
Distribution and/or
Service (12b-1) Fees.............. 0.25% 0.25%
Other Expenses..................... 0.25% 0.25%
Total Annual Fund
Operating Expenses................. 1.50% 1.50%
Other expenses are estimated for the current fiscal year.
Forester Capital Management has voluntarily undertaken to waive the entire
management fee and to reimburse all other expenses. Forester Capital
Management expects to continue the waivers and reimbursement; however, it may
reinstate all or a portion of such fees or discontinue reimbursement at any
time.
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Forester Funds with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in a Fund for the time periods
indicated and then redeem all of your shares at the end of these periods. The
Example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. Although your actual costs may
be higher or lower, based on these assumptions, your costs would be:
1 Year 3 Years
The Small Cap Value Fund $153 $474
The Value Fund $153 $474
INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND RISK FACTORS
Investment Objectives
THE SMALL CAP VALUE FUND seeks long-term growth of capital. The Fund's
investment objective and policies may be changed without a vote of
shareholders. Please remember that an investment objective is not a
guarantee. An investment in the Forester Funds might not appreciate and
investors could lose money.
THE VALUE FUND seeks long-term growth of capital. The Fund's investment
objective and policies may be changed without a vote of shareholders. Please
remember that an investment objective is not a guarantee. An investment in the
Forester Funds might not appreciate and investors could lose money.
Principal Investment Strategies
THE SMALL CAP VALUE FUND is diversified and invests primarily in common stocks
of undervalued small companies, many of which have market capitalizations
between $100 million and $1.5 billion. The Fund mainly invests in common
stocks of United States companies, some, but not all of which, pay dividends.
The Fund uses a value approach to investing - that is, it looks for common
stocks that the investment manager believes are undervalued. The principal
factor considered by a manager in identifying a value stock is its price to
earnings (P/E) ratio. The objective of value investing is to reduce the risk
of owning stocks by investing in companies with sound finances whose current
market prices are low in relation to earnings. In determining whether a
company's finances are sound, the investment manager considers, among other
things, its cash position and current ratio of assets compared to current
liabilities.
In selecting among stocks with low P/E ratios, the investment manager also
considers factors such as the following about the issuer:
Financial strength
Book-to-market value
Price-to-cash flow ratio
Price-to-sales ratio
Earnings estimates for the next 12 months
Five-year return on equity
Size of institutional ownership
Securities may be undervalued as a result of overreaction by investors to
unfavorable news about a company, industry or the stock markets in general or
as a result of a market decline, poor economic conditions, or actual or
anticipated unfavorable developments affecting the company. Under normal
market conditions, the fund invests at least 65% of its total assets in
common stock of companies that have market capitalizations ranging from
approximately $100 million to $1.5 billion. Such securities are generally
traded on the New York Stock Exchange, the American Stock Exchange and in the
over-the-counter market. The Fund may also invest in preferred stocks,
convertible securities, warrants and foreign securities. The Fund may also
invest in stock index futures and options to buy and sell such futures. The
Fund sells securities of companies that have grown in market capitalization
above $1.5 billion as necessary to keep focused on smaller companies. The
Fund also sells securities that the investment manager considers to be
overvalued as necessary to keep focused on undervalued companies.
The Fund may, in response to adverse market, economic, political or other
conditions, take temporary defensive positions. During these defensive
periods, the Fund may invest some or all of its assets in money market
instruments (like U.S. Treasury Bills, commercial paper or repurchase
agreements) or high-grade debt securities (such as U.S. Treasury Notes and
Bonds, U.S. Government Agency bonds or corporate bonds). The Fund will not be
able to achieve its investment objective of capital appreciation to the extent
that it invests in money market instruments since these securities earn
interest but do not appreciate in value. When a Fund is not taking a
temporary defensive position, it still will hold some cash and money market
instruments so that it can pay its expenses, satisfy redemption requests or
take advantage of investment opportunities.
THE VALUE FUND is diversified and invests primarily in common stocks of
undervalued large companies, many of which have market capitalizations over
$1.5 billion. The Fund mainly invests in common stocks of United States
companies, some, but not all of which, pay dividends.
The Fund uses a value approach to investing - that is, it looks for common
stocks that the investment manager believes are undervalued. The principal
factor considered by a manager in identifying a value stock is its price to
earnings (P/E) ratio. The objective of value investing is to reduce the risk
of owning stocks by investing in companies with sound finances whose current
market prices are low in relation to earnings. In determining whether a
company's finances are sound, the investment manager considers, among other
things, its cash position and current ratio of assets compared to current
liabilities.
In selecting among stocks with low P/E ratios, the investment manager also
considers factors such as the following about the issuer:
Financial strength
Book-to-market value
Price-to-cash flow ratio
Price-to-sales ratio
Earnings estimates for the next 12 months
Five-year return on equity
Size of institutional ownership
Securities may be undervalued as a result of overreaction by investors to
unfavorable news about a company, industry or the stock markets in general or
as a result of a market decline, poor economic conditions, or actual or
anticipated unfavorable developments affecting the company. Under normal
market conditions, the fund invests at least 65% of its total assets in
common stock of companies that have market capitalizations greater than $1.5
billion. Such securities are generally traded on the New York Stock Exchange,
the American Stock Exchange and in the over-the-counter market. The Fund may
also invest in preferred stocks, convertible securities, warrants and foreign
securities. The Fund may also invest in stock index futures and options to
buy and sell such futures. The Fund also sells securities that the
investment manager considers to be overvalued as necessary to keep focused on
undervalued companies.
The Fund may, in response to adverse market, economic, political or other
conditions, take temporary defensive positions. During these defensive
periods, the Fund may invest some or all of its assets in money market
instruments (like U.S. Treasury Bills, commercial paper or repurchase
agreements) or high-grade debt securities (such as U.S. Treasury Notes and
Bonds, U.S. Government Agency bonds or corporate bonds). The Fund will not be
able to achieve its investment objective of capital appreciation to the extent
that it invests in money market instruments since these securities earn
interest but do not appreciate in value. When the Fund is not taking a
temporary defensive position, it still will hold some cash and money market
instruments so that it can pay its expenses, satisfy redemption requests or
take advantage of investment opportunities.
Principal Risk Factors
THE SMALL CAP VALUE FUND investors may lose money. There are risks
associated with investments in the types of securities in which it invests.
These risks include:
Market Risk: The prices of the securities in which the Funds invest may
decline for a number of reasons. The price declines of common stocks, in
particular, may be steep, sudden and/or prolonged.
Smaller Capitalization Companies Risk: Smaller capitalization companies
typically have relatively lower revenues, limited product lines and lack of
management depth, and may have a smaller share of the market for their
products or services, than larger capitalization companies. The stocks of
smaller capitalization companies tend to have less trading volume than stocks
of larger capitalization companies. These securities are often subject to
wider and more abrupt fluctuations in market price. Less trading volume may
make it more difficult for our investment adviser to sell securities of
smaller capitalization companies at quoted market prices. Finally, there are
periods when investing in smaller capitalization stocks falls out of favor
with investors and the stocks of smaller capitalization companies
underperform. In addition, the fund's investment focus on smaller companies
involves greater risk than a fund that invests primarily in larger, more
established companies.
Among the reasons for the greater price volatility of these securities are the
less certain growth prospects of smaller firms, a lower degree of liquidity in
the markets for such stocks compared to larger capitalization stocks, and the
greater sensitivity of small companies to changing economic conditions. In
addition to exhibiting greater volatility, small company stocks may, to a
degree, fluctuate independently of larger company stocks. Small company
stocks may decline in price as large company stock prices rise, or rise in
price as large company stock prices decline. Investors should therefore
expect that the share value of the fund may be more volatile than the shares
of a fund that invests in larger capitalization stocks.
Value Investing Risk: From time to time "value" investing falls out of favor
with investors. When it does, there is the risk that the market will not
recognize a company's improving fundamentals as quickly as it normally would.
During these periods, the Funds' relative performance may suffer.
Because of these risks the Fund is a suitable investment only for those
investors who have long-term investment goals. Prospective investors who are
uncomfortable with an investment that will increase and decrease in value
should not invest in the Fund.
The Fund is addressing the "Year 2000" issue. The "Year 2000" issue stems from
the use of a two-digit format to define the year in certain date-sensitive
computer application systems rather than the use of a four digit format. As a
result, date-sensitive software programs could recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in major systems
or process failures or the generation of erroneous data, which would lead to
disruptions in the Fund's business operations.
The Fund has no application systems of their own and are entirely dependent on
its service providers' systems and software. The Funds are working with their
service providers (including the Adviser and their custodian) to identify and
remedy any Year 2000 issues. The Adviser has checked its systems and software
and has received assurances from its vendors that its systems and software are
Year 2000 ready. The Adviser's portfolio manager considers the effects of the
Year 2000 issue on the securities in which it invests. However, neither the
Fund, its Adviser nor the Adviser's portfolio manager can guarantee that all
Year 2000 issues will be identified and remedied, and the failure to
successfully identify and remedy all Year 2000 issues could result in an
adverse impact on the Fund.
THE VALUE FUND investors may lose money. There are risks associated with
investments in the types of securities in which it invests. These risks
include:
Market Risk: The prices of the securities in which the Funds invest may
decline for a number of reasons. The price declines of common stocks, in
particular, may be steep, sudden and/or prolonged.
Value Investing Risk: From time to time "value" investing falls out of favor
with investors. When it does, there is the risk that the market will not
recognize a company's improving fundamentals as quickly as it normally would.
During these periods, the Funds' relative performance may suffer.
Because of these risks the Fund is a suitable investment only for those
investors who have long-term investment goals. Prospective investors who are
uncomfortable with an investment that will increase and decrease in value
should not invest in the Fund.
MANAGEMENT OF THE FUNDS
Forester Capital Management, Ltd. manages the Funds' investments.
Forester Capital Management, Ltd. (the "Adviser") is the investment adviser to
each of the Forester Funds. The Adviser's address is:
612 Paddock Lane
Libertyville, Illinois 60048
As the investment adviser to the Funds, the Adviser manages the investment
portfolio of each Fund. It makes the decisions as to which securities to buy
and which securities to sell. Each Fund pays the Adviser an annual investment
advisory fee equal to the following percentages of average net assets:
The Small Cap Value Fund 1.00%
The Value Fund 1.00%
Thomas H. Forester is primarily responsible for the day-to-day management of
the portfolios of the Funds and has been so since their inception. He is the
portfolio manager. Mr. Forester has been President of the Adviser since its
organization in 1998 and incorporation in 1999. He was an officer and
portfolio manager from May 1997 through January, 1999 with Dreman Value
Advisors, Inc. and its successor firm, Scudder Kemper Investments Inc. where
he managed over $1.4 billion in small cap value assets (although he was on
family leave for much of the third and fourth quarters of 1998), and an
officer and portfolio manager from 1995 to 1997 with Peregrine Capital
Management Inc.; and an officer and portfolio manager from 1992 to 1995
with Thomas White Asset Management Inc.
THE FUNDS' SHARE PRICE
The price at which investors purchase shares of each Fund and at which
shareholders redeem shares of each Fund is called its net asset value. Each
Fund calculates its net asset value as of the close of regular trading on the
New York Stock Exchange (normally 4:00 p.m. Eastern Time) on each day the New
York Stock Exchange is open for trading. The New York Stock Exchange is
closed on holidays (New Year's Day, Martin Luther King, Jr. Day, President's
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day) and weekends. Each Fund's shares will not be priced when
the New York Stock Exchange is closed. Each Fund calculates its net asset
value based on the market prices of the securities (other than money market
instruments) it holds. Each Fund values most money market instruments it
holds at their amortized cost. Each Fund will process purchase orders that it
receives and accepts and redemption orders that it receives prior to the close
of regular trading on a day that the New York Stock Exchange is open at the
net asset value determined later that day. It will process purchase orders
that it receives and accepts and redemption orders that it receives after the
close of regular trading at the net asset value determined at the close of
regular trading on the next day the New York Stock Exchange is open.
PURCHASE OF SHARES
How to Purchase Shares from the Funds
1. Read this Prospectus carefully
2. Determine how much you want to invest keeping in mind the following
minimums:
o New accounts $2500
o Dividend reinvestment No Minimum
o Additions to existing accounts $ 100
3. Complete the Share Purchase Application accompanying this Prospectus,
carefully following the instructions. For additional investments, complete
the reorder form attached to your Fund's confirmation statements (The Fund has
additional Purchase Applications and reorder forms if you need them.) If you
have any questions, please call 1-847-573-8399.
4. Make your check payable to "The Forester Funds, Inc." All checks must
be drawn on U.S. banks. The Funds will not accept cash or third party checks.
A $25 fee against a shareholder's account for any payment check returned for
insufficient funds. The shareholder will also be responsible for any losses
suffered by a Fund as a result.
5. Send the application and check to:
BY FIRST CLASS MAIL, OVERNIGHT DELIVERY SERVICE OR REGISTERED MAIL
The Forester Funds, Inc.
612 Paddock Lane
Libertyville, Illinois 60048
Purchasing Shares from Broker-dealers, Financial Institutions and Others
Some broker-dealers may sell shares of the Forester Funds. These broker-
dealers may charge investors a fee either at the time of purchase or
redemption. The fee, if charged, is retained by the broker-dealer and not
remitted to the Funds or the Adviser.
The Funds may enter into agreements with broker-dealers, financial
institutions or other service providers ("Servicing Agents") that may include
the Funds as investment alternatives in the programs they offer or administer.
Servicing agents may:
1. Become shareholders of record of the Funds. This means all
requests to purchase additional shares and all redemption requests must
be sent through the Servicing Agent. This also means that purchases
made through Servicing Agents are not subject to the Funds' minimum
purchase requirements.
2. Use procedures and impose restrictions that may be in addition
to, or different from, those applicable to investors purchasing shares
directly from the Funds.
3. Charge fees to their customers for the services they provide
them. Also, the Funds (through 12b-1 fees) may pay fees to Servicing
Agents to compensate them for selling the Funds. The Adviser (from its
management fees) may pay fees to Servicing Agents to compensate them for
the services they provide their customers, including administrative
services.
4. Be allowed to purchase shares by telephone with payment to
follow the next day. If the telephone purchase is made prior to the
close of regular trading on the New York Stock Exchange, it will receive
same day pricing.
5. Be authorized to accept purchase orders on behalf of the Funds.
This means that a Fund will process the purchase order at the net asset
value which is determined following the Servicing Agent's acceptance of
the customer's order.
If you decide to purchase shares through Servicing Agents, please carefully
review the program materials provided to you by the Servicing Agent. When you
purchase shares of the Funds through a Servicing Agent, it is the
responsibility of the Servicing Agent to place your order with the Fund on a
timely basis. If the Servicing Agent does not, or if it does not pay the
purchase price to the Funds within the period specified in its agreement with
the Funds, it may be held liable for any resulting fees or losses.
Other Information about Purchasing Shares of the Funds
The Funds may reject any share purchase applications for any reason. The
Funds will not accept initial purchase orders made by telephone unless they
are from a Servicing Agent which has an agreement with the Fund.
The Funds will issue certificates evidencing shares purchased only upon
request. The Funds will send investors a written confirmation for all
purchases of shares.
THE DISTRIBUTION PLAN
Each Fund has adopted a Distribution Plan which, among other things, allows it
to contract with distributors, to distribute and sell the Fund and pay such
distributor a quarterly distribution fee of up to 0.25 of 1% of its average
daily net assets computed on an annual basis. Under each Plan, the Fund is
obligated to pay distribution fees only to the extent of expenses actually
incurred by the distributor for the current year, and thus there will be no
carry-over expenses from previous years. These expenses may include expenses
incurred for media advertising, the printing and mailing of prospectuses to
persons other than shareholders, the printing and mailing of sales literature,
answering routine questions relating to a Fund, and payments to selling
representatives, authorized securities dealers, financial institutions, or
other service providers for providing services in assisting investors with
their investments. No fee paid by a Fund under the Plan may be used to
reimburse the distributor for expenses incurred in connection with another
Fund. Each Distribution Plan will continue in effect, if not sooner
terminated in accordance with its terms, for successive one-year periods,
provided that each such continuance is specifically approved by the vote of
the Directors, including a majority of the Directors who are not interested
persons, of The Forester Funds, Inc. For further information regarding the
Distribution Plan, see the Statement of Additional Information.
REDEEMING SHARES
How to Redeem (Sell) Shares by Mail
1. Prepare a letter of instruction containing:
o the name of the Fund(s)
o account number(s)
o the amount of money or number of shares being redeemed
o the name(s) on the account
o daytime phone number
o additional information that the Funds may require for redemptions
by corporations, executors, administrators, trustees, guardians, or others who
hold shares in a fiduciary or representative capacity. Please contact the
Fund, in advance, at 1-847-573-8399 if you have any questions.
2. Sign the letter of instruction exactly as the shares are registered.
Joint ownership accounts must be signed by all owners.
3. If there are certificates representing your shares, endorse the
certificates or execute a stock power. Again you must endorse certificates
and sign stock powers exactly as your shares are registered.
4. Have the signatures guaranteed by a commercial bank or trust company in
the United States, a member firm of the New York Stock Exchange or other
eligible guarantor institution in the following situations:
o The redemption request exceeds $25,000
o The redemption proceeds are to be sent to a person other than the
person in whose name the shares are registered
o The redemption proceeds are to be sent to an address other than the
address of record
o The Funds receive the redemption request within 10 business days of an
address change.
A notarized signature is not an acceptable substitute for a signature
guarantee.
5. Send the letter of instruction and certificates, if any, to:
BY FIRST CLASS MAIL, OVERNIGHT DELIVERY SERVICE
OR REGISTERED MAIL
The Forester Funds, Inc.
612 Paddock Lane
Libertyville, Illinois 60048
How to Redeem (Sell) Shares through Servicing Agents
If your shares are held by a Servicing Agent, you must redeem your shares
through the Servicing Agent. Contact the Servicing Agent for instructions on
how to do so.
Payment of Redemption Proceeds
The redemption price per share you receive for redemption requests is the next
determined net asset value after:
1. The Fund receives your written request in proper form with all
required information, as defined above under "How to Redeem (Sell)
Shares by Mail" and "How to Redeem (Sell) Shares through Servicing Agents".
2. A Servicing Agent that has been authorized to accept redemption
requests on behalf of the Funds receives your request in accordance with its
procedures.
For those shareholders who redeem shares by mail the Fund will mail a check in
the amount of the redemption proceeds no later than the seventh day after it
receives the redemption request in proper form with all required information.
Those shareholders who redeem shares through Servicing Agents will receive
their redemption proceeds in accordance with the procedures established by the
Servicing Agent.
Other Redemption Considerations
When redeeming shares of the Funds, shareholders should consider the
following:
1. The redemption may result in a taxable gain.
2. If you purchased shares by check, the Funds may delay the payment
of redemption proceeds until they are reasonably satisfied the check has
cleared (which may take up to 15 days from the date of purchase).
3. If your account balance falls below $1,000 because you redeem
shares, you will be given 60 days to make additional investments
so that your account balance is $1,000 or more. If you do not, the
Funds may close your account and mail the redemption proceeds to
you.
4. The Funds may pay redemption requests "in kind." This means that
the Funds will pay redemption requests entirely or partially with
securities rather than with cash.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Fund distributes substantially all of its net investment income and its
capital gains annually. You have two distribution options:
o Automatic Reinvestment Option - Both dividend and capital gains
distributions will be reinvested in additional Fund Shares.
o All Cash Option - Both dividend and capital gains distributions
will be paid in cash.
You may make this election on the Share Purchase Application. You may change
your election by writing to the Fund or by calling 1-847-573-8399.
Each Fund's distributions, whether received in cash or additional shares of
the Fund, may be subject to federal and state income tax. These distributions
may be taxed as ordinary income and capital gains (which may be taxed at
different rates depending on the length of time the Fund holds the assets
generating the capital gains). The Funds expect that its distributions, as a
result of its investment objectives or strategies, will consist primarily of
ordinary income or capital gains. An exchange of the Funds' shares for shares
of another fund will be treated as a sale of the Fund's shares and any gain on
the transaction may be subject to federal and state income tax.
Each Fund annually will endeavor to qualify for and elect tax treatment
applicable to a regulated investment company under Subchapter M of the
Internal Revenue Code of 1986 (the "Code"). Each Fund has so qualified in each
of its fiscal years. If a Fund fails to qualify as a regulated investment
company under Subchapter M in any fiscal year, it will be treated as a
corporation for federal income tax purposes. As such the Fund would be
required to pay income taxes on its net investment income and net realized
capital gains, if any, at the rates generally applicable to corporations.
Stockholders of a Fund that did not qualify as a regulated investment company
under Subchapter M would not be liable for income tax on the Fund's net
investment income or net realized capital gains in their individual
capacities. Distributions to stockholders, whether from the Fund's net
investment income or net realized capital gains, would be treated as taxable
dividends to the extent of current or accumulated earnings and profits of the
Fund.
Each Fund intends to distribute all of its net investment income and net
capital gain each fiscal year. Dividends from net investment income (including
short-term capital gain) are taxable to investors as ordinary income, whereas
distributions of net realized long-term capital gains are taxable as long-term
capital gains regardless of the stockholder's holding period for the shares.
Such dividends and distributions are taxable to stockholders, whether received
in cash or in additional shares of the respective Funds. A portion of the
Funds' income distributions may be eligible for the 70% dividends-received
deduction for domestic corporate stockholders.
Any dividend or capital gain distribution paid shortly after a purchase of
shares of a Fund will have the effect of reducing the per share net asset
value of such shares by the amount of the dividend or distribution.
Furthermore, if the net asset value of the shares of a Fund immediately after
a dividend or distribution is less than the cost of such shares to the
investor, the dividend or distribution will be taxable to the investor.
Redemption of shares will generally result in a capital gain or loss for
income tax purposes. The tax treatment of such capital gain or loss will
depend upon the stockholder's holding period. However, if a loss is realized
on shares held for six months or less, and the stockholder received a capital
gain distribution during that period, then such loss is treated as along-term
capital loss to the extent of the capital gain distribution received.
This section is not intended to be a full discussion of present or proposed
federal income tax laws and the effect of such laws on an investor. Investors
are urged to consult with their respective tax advisers for a complete review
of the tax ramifications of an investment in a Fund.
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand the
financial performance for the past seven months of The Forester Small Cap
Value Fund's and the Forester Value Fund's operations. Certain information
reflects financial results for a single Fund share. The total returns in the
tables represent the rate that an investor would have earned on an investment
in a Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Tait, Weller & Baker, whose report, along with
the Funds' financial statements, are included in the Annual Report which is
available upon request.
Period ended March 31, 2000* (For a share outstanding throughout each
period)
Forester
Small Cap Forester
Value Fund Value Fund
NET ASSET VALUE
Beginning of period $10.00 $10.00
------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income .30 .30
Net losses on securities
(both realized and unrealized) (.04) (.04)
------ ------
Total from investment operations .26 .26
------ ------
LESS DISTRIBUTIONS
Dividends (from net investment income) (.12) (.12)
------ ------
Total distributions (.12) (.12)
------ ------
NET ASSET VALUE
End of period $10.14 $10.14
====== ======
TOTAL RETURN 2.58% 2.58%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period $51,291 $51,291
Ratio of expenses to average net assets
After waiver 0% 0%
Before waiver 1.00% 1.00%
Ratio of net investment income to
average net assets 5.26% 5.26%
Portfolio turnover rate 0% 0%
* Commencement of operations was September 10, 1999.
<PAGE>
To learn more about the Forester Funds you may want to read the Forester
Funds' Statement of Additional Information (or "SAI") which contains
additional information about the Funds. The Forester Funds have incorporated
by reference the SAI into the Prospectus. This means that you should consider
the contents of the SAI to be part of the Prospectus.
You may also learn more about the Forester Funds' investments by reading The
Forester Funds' Annual Report to shareholders. The Annual Report includes a
discussion of the market conditions and investment strategies that
significantly affected the performance of the Funds during their last fiscal
year.
The SAI are all available to shareholders and prospective investors without
charge, simply by calling (collect) 1-847-573-8399.
Prospective investors and shareholders who have questions about the Forester
Funds may also call the above number or write to the following address:
The Forester Funds, Inc.
612 Paddock Lane
Libertyville, Illinois 60048
The general public can review and copy information about the Forester Funds
(including the SAI) at the Securities and Exchange Commission's Public
Reference Room in Washington, D.C. (Please call 1-800-SEC-0330 for information
on the operations of the Public Reference Room.) Reports and other
information about the Forester Funds are also available at the Securities and
Exchange Commission's Internet site at http://www.sec.gov and copies of this
information may be obtained, upon payment of a duplicating fee, by writing to:
Public Reference Section
Securities and Exchange Commission
Washington, D.C. 20549-6009
A Statement of Additional Information, dated July 31, 1999, which is part
of such Registration Statement, is incorporated herein by reference. A copy of
the Statement of Additional Information may be obtained, without charge, by
writing to the address, or calling the telephone number, stated above. The
Securities and Exchange Commission maintains a web site (http://www.sec.gov)
that contains the Funds' Prospectus, Statement of Additional Information,
material incorporated by reference, and other information regarding
registrants that file electronically with the Securities and Exchange
Commission.
Investment Company Act File No. 811-9391
STATEMENT OF ADDITIONAL INFORMATION July 31, 1999
for THE FORESTER FUNDS
THE FORESTER SMALL CAP VALUE FUND
THE FORESTER VALUE FUND
THE FORESTER FUNDS, INC.
612 Paddock Lane
Libertyville, Illinois 60048
1-847-573-8399
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the prospectus of The Forester Funds, Inc. (the
"Company") dated July 31, 2000 (the "Prospectus"), for The Forester Small
Cap Value Fund and The Forester Value Fund (each referred to individually as a
"Fund" and collectively as the "Funds"). Requests for copies of the
Prospectus should be made by writing to The Forester Funds, Inc., 612 Paddock
Lane Libertyville, Illinois 60048, Attention: Corporate Secretary, or by
calling 1-847-573-8399.
THE FORESTER FUNDS, INC.
TABLE OF CONTENTS
FUND HISTORY AND CLASSIFICATION........................................ 2
INVESTMENT RESTRICTIONS AND CONSIDERATIONS............................. 2
INVESTMENT POLICIES AND TECHNIQUES..................................... 3
PORTFOLIO TRANSACTIONS ................................................ 7
DETERMINATION OF NET ASSET VALUE....................................... 8
DIRECTORS AND OFFICERS OF THE COMPANY.................................. 8
INVESTMENT ADVISER AND ADMINISTRATOR................................... 10
REDEMPTIONS ........................................................... 11
CUSTODIAN ............................................................. 11
INDEPENDENT ACCOUNTANTS................................................ 11
DISTRIBUTION PLAN ..................................................... 11
ALLOCATION OF PORTFOLIO BROKERAGE...................................... 11
TAXES ................................................................. 12
STOCKHOLDER MEETINGS................................................... 13
CAPITAL STRUCTURE ..................................................... 14
SHAREHOLDER REPORTS.................................................... 14
PERFORMANCE INFORMATION................................................ 15
LEGAL PROCEEDINGS...................................................... 15
FUND HISTORY AND CLASSIFICATION
The Forester Funds, Inc. (the "Company") is an open-end management investment
company consisting of two diversified portfolios, The Forester Small Cap Value
Fund (the "Small Cap Value Fund") and The Forester Value Fund (the "Value
Fund") (each a "Fund" and together, the "Funds"). The Forester Small Cap
Value Fund began operations as a private investment account, not registered
under the Investment Company Act of 1940 (the "1940 Act"), on March 31, 1998.
The Company filed for registration under the 1940 Act on May 12, 1999 and
began offering their shares to the public on September 10, 1999. The Company
was incorporated as a Maryland corporation on April 7, 1999.
INVESTMENT RESTRICTIONS AND CONSIDERATIONS
Each Fund has adopted certain fundamental investment restrictions which cannot
be changed without approval of a majority of its outstanding voting shares. As
defined in the Investment Company Act of 1940, this means the lesser of the
vote of (a) 67% of the shares of the Fund present at a meeting where more than
50% of the outstanding shares are present in person or by proxy or (b) more
than 50% of the outstanding shares of the Fund.
Each Fund has elected to be classified as a diversified series of an open-end
investment company.
A Fund may not, as a fundamental policy:
1. Borrow money, except for temporary or emergency purposes, and then only
from banks, in an amount not exceeding 10% of the value of a Fund's total
assets.
2. Issue senior securities, except as permitted under the Investment Company
Act of 1940, as amended, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time.
3. Concentrate 25% or more of its total assets in securities of any one
industry. This restriction does not apply to obligations issued or
guaranteed by the U. S. Government, its agencies or instrumentalities.
4. Make loans, except it may acquire debt securities from the issuer or
others
which are publicly distributed or are of a type normally acquired by
institutional investors and except that it may make loans of portfolio
securities if any such loans are secured continuously by collateral at
least equal to the market value of the securities loaned in the form of
cash and/or securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities and provided that no such loan will be made
if upon the making of that loan more than 30% of the value of the Fund's
total assets would be the subject of such loans.
5. Purchase or sell real estate, which term does not include securities of
companies which deal in real estate or mortgages or investment secured by
real estate or interests therein, except that the Fund reserves freedom of
action to hold and to sell real estate as acquired as a result of the
Fund's ownership of securities.
6. Purchase physical commodities or contracts relating to physical
commodities.
7. Engage in the business of underwriting securities issued by others, except
to the extent that a Fund may be deemed to be an underwriter in connection
with the disposition of portfolio securities.
The Funds may not, as a non-fundamental policy:
1. Invest for the purpose of exercising control over management of any
company.
2. Invest its assets in securities of any investment company, except by open
market purchases, including an ordinary broker's commission, or in
connection with a merger, acquisition of assets, consolidation or
reorganization, and any investments in the securities of other investment
companies will be in compliance with the Investment Company Act of 1940.
3. Purchase securities on margin or make short sales of securities, provided
that the Funds may enter into futures contracts and related options and
make initial and variation margin deposits in connection therewith.
4. Mortgage, pledge, or hypothecate any assets except in connection with
borrowings in amounts not in excess of the lesser of the amount borrowed or
10% of the value of its total assets at the time of such borrowing;
provided that the Funds may enter into futures contracts and related
options. Optioned securities are not considered to be pledged for purposes
of this limitation.
5. Invest more than 10% of the value of its net assets in illiquid
securities,
including restricted securities and repurchase agreements with remaining
maturities in excess of seven days, and other securities for which market
quotations are not readily available.
6. Invest in oil, gas or mineral exploration or development programs
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage beyond the specified limit resulting from a
change in values or net assets will not be considered a violation.
INVESTMENT POLICIES AND TECHNIQUES
General. Each Fund may engage in options and financial futures and other
derivatives transactions in accordance with its respective investment
objectives and policies. Each such Fund intends to engage in such
transactions if it appears to the investment manager to be advantageous to do
so in order to pursue its investment objective and also to hedge against the
effects of market risks but not for speculative purposes. The use of futures
and options, and possible benefits and attendant risks, are discussed below
along with information concerning other investment policies and techniques.
While it is anticipated that under normal circumstances all Funds will be
fully invested, in order to conserve assets during temporary defensive periods
when the investment manager deems it appropriate, each Fund may invest up to
100% of its assets in cash or defensive-type securities, such as high-grade
debt securities, securities of the U.S. Government or its agencies and high
quality money market instruments, including repurchase agreements.
Investments in such interest-bearing securities will be for temporary
defensive purposes only.
Common stocks. Each Fund may invest in common stocks as a principal strategy.
Common stocks is issued by companies to raise cash for business purposes and
represents a proportionate interest in the issuing companies. Therefore, a
Fund participates in the success or failure of any company in which it holds
stock. The market values of common stocks can fluctuate significantly,
reflecting the business performance of the issuing company, investor
perception and general economic or financial market movements. Smaller
companies are especially sensitive to these factors. An investment in common
stocks entails greater risk of becoming valueless than does an investment in
fixed-income securities. Despite the risk of price volatility, however,
common stocks also offers the greatest potential for long-term gain on
investment, compared to other classes of financial assets such as bonds or
cash equivalents.
Convertible Securities. Each Fund may invest in convertible securities which
may offer higher income than the common stocks into which they are
convertible. The convertible securities in which a Fund may invest include
bonds, notes, debentures and preferred stocks which may be converted or
exchanged at a stated or determinable exchange ratio into underlying shares of
common stocks. Prior to their conversion, convertible securities may have
characteristics similar to both nonconvertible debt securities and common
stocks. While convertible securities generally offer lower yields than
nonconvertible debt securities of similar quality, their prices may reflect
changes in the value of the underlying common stocks. Convertible securities
generally entail less credit risk than the issuer's common stocks.
Repurchase Agreements. Each Fund may invest in repurchase agreements, under
which it acquires ownership of a security and the broker-dealer or bank agrees
to repurchase the security at a mutually agreed upon time and price, thereby
determining the yield during the Fund's holding period. In the event of a
bankruptcy or other default of a seller of a repurchase agreement, a Fund
might have expenses in enforcing its rights, and could experience losses,
including a decline in the value of the underlying securities and loss of
income. The securities underlying a repurchase agreement will be
marked-to-market every business day so that the value of such securities is at
least equal to the investment value of the repurchase agreement, including any
accrued interest thereon. In addition, the Fund must take physical possession
of the security or receive written confirmation of the purchase and a
custodial or safekeeping receipt from a third party or be recorded as the
owner of the security through the Federal Reserve Book-Entry System.
Repurchase agreements will be limited to transactions with financial
institutions believed by the investment manager to present minimal credit
risk. The investment manager will monitor on an on-going basis the
creditworthiness of the broker-dealers and banks with which the Funds may
engage in repurchase agreements. Repurchase agreements maturing in more than
seven days will be considered as illiquid for purposes of each Fund's
limitation on illiquid securities. The Funds will not invest more than 10% of
the value of their net assets in illiquid securities.
Depository Receipts. Each Fund may invest up to 20% of its assets in
securities of foreign companies through the acquisition of American Depository
Receipts ("ADRs") as well as through the purchase of securities of foreign
companies that are publicly traded in the United States. ADRs are bought and
sold in the United States and are issued by domestic banks. ADRs represent
the right to receive securities of foreign issuers deposited in the domestic
bank or a correspondent bank. ADRs do not eliminate all the risk inherent in
investing in the securities of foreign issuers, such as changes in foreign
currency exchange rates. However, by investing in ADRs rather than directly in
foreign issuers' stock, the Fund avoids currency risks during the settlement
period. In general, there is a large, liquid market in the United States for
most ADRs.
Borrowing. Each Fund is authorized to borrow from banks in amounts not in
excess of 10% of their respective total assets, although they do not presently
intend to do so. If, in the future, they do borrow from banks, they would not
purchase additional securities at any time when such borrowings exceed 5% of
their respective net assets.
Small Cap Securities. The Small Cap Value Fund will invest in small cap
securities as a principal strategy. Since the securities of such companies
are not as broadly traded as those of companies with larger market
capitalizations, these securities are often subject to wider and more abrupt
fluctuations in market price.
Among the reasons for the greater price volatility of these securities are the
less certain growth prospects of smaller firms, a lower degree of liquidity in
the markets for such stocks compared to larger capitalization stocks, and the
greater sensitivity of small companies to changing economic conditions. In
addition to exhibiting greater volatility, small company stocks may, to a
degree, fluctuate independently of larger company stocks. Small company
stocks may decline in price as large company stock prices rise, or rise in
price as large company stock prices decline. Investors should therefore
expect that the share value of the Small Cap Value Fund may be more volatile
than the shares of a fund that invests in larger capitalization stocks.
Derivatives. In addition to options and financial futures transactions,
consistent with its objective, each Fund may invest in a broad array of
financial instruments and securities in which the value of the instrument or
security is "derived" from the performance of an underlying asset or a
"benchmark" such as a security index or an interest rate ("derivatives").
Derivatives are most often used in an effort to manage investment risk, to
increase or decrease exposure to an asset class or benchmark (as a hedge or to
enhance return), or to create an investment position indirectly (often because
it is more efficient or less costly than direct investment). There is no
guarantee that these results can be achieved through the use of derivatives.
The types of derivatives used by each Fund and the techniques employed by the
investment manager may change over time as new derivatives and strategies are
developed or regulatory changes occur.
Options on Securities. A Fund may write (sell) "covered" call options on
securities as long as it owns the underlying securities subject to the option
or an option to purchase the same underlying securities, having an exercise
price equal to or less than the exercise price of the "covered" option, or
will establish and maintain for the term of the option a segregated account
consisting of cash or other liquid securities ("eligible securities") to the
extent required by applicable regulation in connection with the optioned
securities. A Fund may write "covered" put options provided that, as long as
the Fund is obligated as a writer of a put option, the Fund will own an option
to sell the underlying securities subject to the option, having an exercise
price equal to or greater than the exercise price of the "covered" option, or
it will deposit and maintain in a segregated account eligible securities
having a value equal to or greater than the exercise price of the option. A
call option gives the purchaser the right to buy, and the writer the
obligation to sell, the underlying security at the exercise price during or at
the end of the option period. A put option gives the purchaser the right to
sell, and the writer the obligation to buy, the underlying security at the
exercise price during or at the end of the option period. The premium
received for writing an option will reflect, among other things, the current
market price of the underlying security, the relationship of the exercise
price to such market price, the price volatility of the underlying security,
the option period, supply and demand and interest rates. The Funds may write,
and also purchase, spread options, which are options for which the exercise
price may be a fixed dollar spread or yield spread between the security
underlying the option and another security that is used as a bench mark. The
exercise price of an option may be below, equal to or above the current market
value of the underlying security at the time the option is written. The buyer
of a put who also owns the related security is protected by ownership of a put
option against any decline in that security's price below the exercise price
less the amount paid for the option. The ability to purchase put options
allow the Funds to protect capital gains in an appreciated security it owns,
without being required to actually sell that security. At times a Fund would
like to establish a position in a security upon which call options are
available. By purchasing a call option, a Fund is able to fix the cost of
acquiring the security, this being the cost of the downturn in the market,
because the Fund is only at risk for the amount of the premium paid for the
call option which it can, if it chooses, permit to expire.
During the option period the covered call writer gives up the potential for
capital appreciation above the exercise price should the underlying security
rise in value, and the secured put writer retains the risk of loss should the
underlying security decline in value. For the covered call writer,
substantial appreciation in the value of the underlying security would result
in the security being "called away." For the secured put writer, substantial
depreciation in the value of the underlying security would result in the
security being "put to" the writer. If a covered call option expires
unexercised, the writer realizes a gain in the amount of the premium received.
If the covered call option writer has to sell the underlying security because
of the exercise of a call option, it realizes a gain or loss from the sale of
the underlying security, with the proceeds being increased by the amount of
the premium.
If a secured put option expires unexercised, the writer realizes a gain from
the amount of the premium. If the secured put writer has to buy the
underlying security because of the exercise of the put option, the secured put
writer incurs an unrealized loss to the extent that the current market value
of the underlying security is less than the exercise price of the put option.
However, this would be offset in whole or in part by gain from the premium
received.
Over-the-Counter Options. The Funds may deal in over-the-counter traded
options ("OTC options"). OTC options are purchased from or sold to securities
dealers, financial institutions or other parties ("Counterparties") through
direct bilateral agreement with the Counterparty. In contrast to exchange
listed options, which generally have standardized terms and performance
mechanics, all the terms of an OTC option, including such terms as method of
settlement, term, exercise price, premium, guarantees and security, are set by
negotiation of the parties. The Funds will only sell OTC options that are
subject to a buy-back provision permitting the Funds to require the
Counterparty to sell the option back to the Fund at a formula price within
seven days. The Funds expect generally to enter into OTC options that have
cash settlement provisions, although it is not required to do so.
Unless the parties provide for it, there is no central clearing or guaranty
function in an OTC option. As a result, if the Counterparty fails to make or
take delivery of the security, or other instrument underlying an OTC option it
has entered into with the Fund or fails to make a cash settlement payment due
in accordance with the terms of that option, the Fund will lose any premium it
paid for the option as well as any anticipated benefit of the transaction.
Accordingly, the investment manager must assess the creditworthiness of each
such Counterparty or any guarantor or credit enhancement of the Counterparty's
credit to determine the likelihood that the terms of the OTC option will be
satisfied. The Fund will engage in OTC option transactions only with U.S.
government securities dealers recognized by the Federal Reserve Bank of New
York as "primary dealers" or broker/dealers, domestic or foreign banks or
other financial institutions which have received (or the guarantors of the
obligation of which have received) a short-term credit rating of A-1 from S&P
or P-1 from Moody's or an equivalent rating from any nationally recognized
statistical rating organization ("NRSRO"). The staff of the Securities and
Exchange Commission (the "SEC") currently takes the position that OTC options
purchased by the Fund, and portfolio securities "covering" the amount of the
Fund's obligation pursuant to an OTC option sold by it (the cost of the
sell-back plus the in-the-money amount, if any) are illiquid, and are subject
to the Fund's limitation on investing in illiquid securities.
Options on Securities Indices. Each Fund may write call options on securities
indices, and each Fund may write put options on securities indices, and each
Fund may purchase call and put options on securities indices, in an attempt to
hedge against market conditions affecting the value of securities that the
Fund owns or intends to purchase, and not for speculation. Through the writing
or purchase of index options, a Fund can achieve many of the same objectives
as through the use of options on individual securities. Options on securities
indices are similar to options on a security except that, rather than the
right to take or make delivery of a security at a specified price, an option
on a securities index gives the holder the right to receive, upon exercise of
the option, an amount of cash if the closing level of the securities index
upon which the option is based is greater than, in the case of a call, or less
than, in the case of a put, the exercise price of the option. This amount of
cash is equal to such difference between the closing price of the index and
the exercise price of the option. The writer of the option is obligated, in
return for the premium received, to make delivery of this amount. Unlike
security options, all settlements are in cash and gain or loss depends upon
price movements in the market generally (or in a particular industry or
segment of the market), rather than upon price movements in individual
securities. Price movements in securities that the Fund owns or intends to
purchase will probably not correlate perfectly with movements in the level of
an index since the prices of such securities may be affected by somewhat
different factors and, therefore, the Fund bears the risk that a loss on an
index option would not be completely offset by movements in the price of such
securities.
When a Fund writes an option on a securities index, it will segregate, and
mark-to-market, eligible securities to the extent required by applicable
regulation. In addition, where the Fund writes a call option on a securities
index at a time when the contract value exceeds the exercise price, the Fund
will segregate and mark-to-market, until the option expires or is closed out,
cash or cash equivalents equal in value to such excess.
A Fund may also deal in options on other appropriate indices as available.
Options on a securities index involve risks similar to those risks relating to
transactions in financial futures contracts described below. Also, an option
purchased by a Fund may expire worthless, in which case the Fund would lose
the premium paid therefor.
Financial Futures Contracts. The Funds may enter into financial futures
contracts for the future delivery of a financial instrument, such as a
security or the cash value of a securities index. This investment technique
is designed primarily to hedge (i.e., protect) against anticipated future
changes in market conditions which otherwise might affect adversely the value
of securities or other assets which the Fund holds or intends to purchase. A
"sale" of a futures contract means the undertaking of a contractual obligation
to deliver the securities or the cash value of an index called for by the
contract at a specified price during a specified delivery period. A
"purchase" of a futures contract means the undertaking of a contractual
obligation to acquire the securities or cash value of an index at a specified
price during a specified delivery period. In some cases, securities called for
by a futures contract may not have been issued at the time the contract was
written.
Although some futures contracts by their terms call for the actual delivery or
acquisition of securities or other assets, in most cases a party will close
out the contractual commitment before delivery of the underlying assets by
purchasing (or selling, as the case may be) on a commodities exchange an
identical futures contract calling for delivery in the same month. Such a
transaction, if effected through a member of an exchange, cancels the
obligation to make or take delivery of the underlying securities or other
assets. All transactions in the futures market are made, offset or fulfilled
through a clearing house associated with the exchange on which the contracts
are traded. A Fund will incur brokerage fees when it purchases or sells
contracts, and will be required to maintain margin deposits. At the time a
Fund enters into a futures contract, it is required to deposit with its
custodian, on behalf of the broker, a specified amount of cash or eligible
securities, called "initial margin." The initial margin required for a
futures contract is set by the exchange on which the contract is traded.
Subsequent payments, called "variation margin," to and from the broker are
made on a daily basis as the market price of the futures contract fluctuates.
The costs incurred in connection with futures transactions could reduce a
Fund's return. Futures contracts entail risks. If the investment manager's
judgment about the general direction of markets is wrong, the overall
performance may be poorer than if no such contracts had been entered into.
There may be an imperfect correlation between movements in prices of futures
contracts and portfolio assets being hedged. In addition, the market prices
of futures contracts may be affected by certain factors. If participants in
the futures market elect to close out their contracts through offsetting
transactions rather than meet margin requirements, distortions in the normal
relationship between the assets and futures markets could result. Price
distortions could also result if investors in futures contracts decide to make
or take delivery of underlying securities or other assets rather than engage
in closing transactions because of the resultant reduction in the liquidity of
the futures market. In addition, because, from the point of view of
speculators, the margin requirements in the futures markets are less onerous
than margin requirements in the cash market, increased participation by
speculators in the futures market could cause temporary price distortions.
Due to the possibility of price distortions in the futures market and because
of the imperfect correlation between movements in the prices of securities or
other assets and movements in the prices of futures contracts, a correct
forecast of market trends by the investment manager may still not result in a
successful hedging transaction. If any of these events should occur, the Fund
could lose money on the financial futures contracts and also on the value of
its portfolio assets.
To the extent required to comply with applicable regulation, when purchasing a
futures contract, a Fund will maintain eligible securities in a segregated
account. A Fund will use cover in connection with selling a futures contract.
A Fund will not engage in transactions in financial futures contracts thereon
for speculation, but only in an attempt to hedge against changes in interest
rates or market conditions affecting the value of securities that the Fund
holds or intends to purchase.
Options on Financial Futures Contracts. Each Fund may write call options on
financial futures contracts; each Fund may write put options on financial
futures contracts; and may purchase call and put options on financial futures
contracts. An option on a futures contract gives the purchaser the right, in
return for the premium paid, to assume a position in a futures contract at a
specified exercise price at any time during the period of the option. Upon
exercise, the writer of the option delivers the futures contract to the holder
at the exercise price. A Fund would be required to deposit with its custodian
initial margin and maintenance margin with respect to put and call options on
futures contracts written by it. A Fund will establish segregated accounts or
will provide cover with respect to written options on financial futures
contracts in a manner similar to that described under "Options on Securities."
Options on futures contracts involve risks similar to those risks relating to
transactions in financial futures contracts described above. Also, an option
purchased by a Fund may expire worthless, in which case the Fund would lose
the premium paid therefor.
To the extent required to comply with applicable regulation, when purchasing a
futures contract or writing a put option, a Fund will maintain eligible
securities in a segregated account. A Fund will use cover in connection with
selling a futures contract.
A Fund will not engage in transactions in financial futures contracts or
options thereon for speculation, but only in an attempt to hedge against
changes in interest rates or market conditions affecting the value of
securities that the Fund holds or intends to purchase.
Lending Portfolio Securities. A Fund may lend its portfolio securities to
brokers, dealers and institutional investors who need to borrow securities in
order to complete certain transactions, such as covering short sales, avoiding
failures to deliver securities or completing arbitrage operations. By lending
its securities, a portfolio can increase its income by the receipt of interest
on the loan. Any gain or loss in the market value of the securities loaned
that might occur during the term of the loan would accrue to the Fund.
Securities' loans will be made on terms which require that (a) the borrower
pledge and maintain (on a daily basis) with the Fund collateral consisting of
cash, a letter of credit or United States Government securities having a value
at all times not less than 100% of the value of the securities loaned, (b) the
loan can be terminated by the Fund at any time, (c) the Fund receives
reasonable interest on the loan which may include the Fund's investing any
cash collateral in interest bearing short-term investments), and (d) any
distributions on the loaned securities must be paid to the Fund. The Fund
will not lend its securities if, as a result, the aggregate of such loans
exceeds 33% of the value of the Fund's total assets. Loan arrangements made by
a Fund will comply with all other applicable regulatory requirements,
including the rules of the New York Stock Exchange, which require the
borrower, after notice, to redeliver the securities within the normal
settlement time of five business days. All relevant facts and circumstances,
including the credit worthiness of the broker, dealer or institution, will be
considered in making decisions with respect to the lending of securities,
subject to review by the Fund's Board of Directors. While voting rights may
pass with the loaned securities, if a material event occurs affecting an
investment on loan, the loan must be called and the securities voted. Each
Fund does not intend to lend any of its securities if as a result more than 5%
of the net assets of the Fund would be on loan.
Warrants. Each Fund may invest in warrants up to 5% of the value of its
respective net assets. The holder of a warrant has the right, until the
warrant expires, to purchase a given number of shares of a particular issuer
at a specified price. Such investments can provide a greater potential for
profit or loss than an equivalent investment in the underlying security.
Prices of warrants do not necessarily move, however, in tandem with the prices
of the underlying securities and are, therefore, considered speculative
investments. Warrants pay no dividends and confer no rights other than a
purchase option. Thus, if a warrant held by a Fund were not exercised by the
date of its expiration, the Fund would lose the entire purchase price of the
warrant.
PORTFOLIO TRANSACTIONS
Allocation of brokerage is supervised by Forester Capital Management, Ltd.
("FCM").
The primary objective of FCM in placing orders for the purchase and sale of
securities for a Fund's portfolio is to obtain the most favorable net results
taking into account such factors as price, commission where applicable, size
of order, difficulty of execution and skill required of the executing
broker/dealer. FCM seeks to evaluate the overall reasonableness of brokerage
commissions paid (to the extent applicable) through its familiarity with
commissions charged on comparable transactions, as well as by comparing
commissions paid by a Fund to reported commissions paid by others. FCM reviews
on a routine basis commission rates, execution and settlement services
performed, making internal and external comparisons.
When it can be done consistently with the policy of obtaining the most
favorable net results, it is FCM's practice to place such orders with
broker/dealers who supply research, market and statistical information to a
Fund. The term "research, market and statistical information" includes advice
as to the value of securities; the advisability of investing in, purchasing or
selling securities; the availability of securities or purchasers or sellers of
securities; and analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy and the
performance of accounts. FCM is authorized when placing portfolio transactions
for a Fund to pay a brokerage commission in excess of that which another
broker might charge for executing the same transaction on account of the
receipt of research, market or statistical information. In effecting
transactions in over-the-counter securities, orders are placed with the
principal market makers for the security being traded unless, after exercising
care, it appears that more favorable results are available elsewhere.
In selecting among firms believed to meet the criteria for handling a
particular transaction, FCM may give consideration to those firms that have
sold or are selling shares of a Fund managed by FCM.
Although certain research, market and statistical information from
broker/dealers may be useful to a Fund and to FCM, it is the opinion of FCM
that such information only supplements its own research effort since the
information must still be analyzed, weighed and reviewed by FCM's staff. Such
information may be useful to FCM in providing services to clients other than
the Funds and not all such information is used by FCM in connection with the
Funds. Conversely, such information provided to FCM by broker/dealers through
whom other clients of FCM effect securities transactions may be useful to FCM
in providing services to a Fund.
The Board members for a Fund review from time to time whether the recapture
for the benefit of a Fund of some portion of the brokerage commissions or
similar fees paid by a Fund on portfolio transactions is legally permissible
and advisable.
Each Fund's average portfolio turnover rate is the ratio of the lesser of
sales or purchases to the monthly average value of the portfolio securities
owned during the year, excluding all securities with maturities or expiration
dates at the time of acquisition of one year or less. A higher rate involves
greater brokerage transaction expenses to a Fund and may result in the
realization of net capital gains, which would be taxable to shareholders when
distributed. Purchases and sales are made for a Fund's portfolio whenever
necessary, in management's opinion, to meet a Fund's objective.
DETERMINATION OF NET ASSET VALUE
The net asset value of the Funds will be determined as of the close of regular
trading (normally 4:00 p.m. Eastern time) on each day the New York Stock
Exchange is open for trading. The New York Stock Exchange is open for trading
Monday through Friday except New Year's Day, Martin Luther King, Jr. Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. Additionally, if any of the
aforementioned holidays falls on a Saturday, the New York Stock Exchange will
not be open for trading on the succeeding Monday, unless unusual business
conditions exist, such as the ending of a monthly or the yearly accounting
period.
Securities which are traded on a recognized stock exchange are valued at the
last sale price on the securities exchange on which such securities are
primarily traded or at last sale price on the national securities market.
Exchange-traded securities for which there were no transactions are valued at
the current bid prices. Securities traded on only over-the-counter markets
are valued on the basis of closing over-the-counter bid prices. Put options
are valued at the last sales price on the valuation date if the last sales
price is between the closing bid and asked prices. Otherwise, put options are
valued at the mean of the closing bid and asked prices. Debt securities
(other than short-term instruments) are valued at prices furnished by a
national pricing service, subject to review by the Adviser and determination
of the appropriate price whenever a furnished price is significantly different
from the previous day's furnished price. Debt instruments maturing within 60
days are valued by the amortized cost method. Any securities for which market
quotations are not readily available are valued at their fair value as
determined in good faith by the Board of Directors.
DIRECTORS AND OFFICERS OF THE COMPANY
As a Maryland corporation, the business and affairs of the Company are managed
by its officers under the direction of its Board of Directors. The name, age,
address, principal occupations during the past five years, and other
information with respect to each of the directors and officers of the Company
are as follows:
*Thomas H. Forester - Director , President and Treasurer. Mr. Forester, 41,
has been President of Forester Capital Management, Ltd. (the "Adviser") since
February, 1999. Prior to that time, he was an officer and portfolio manager
from May 1997 through January 1999 with Dreman Value Advisors, Inc. and its
successor firm Scudder Kemper Investments Inc.; and an officer and portfolio
manager from 1995 to 1997 with Peregrine Capital Management Inc.; and an
officer and portfolio manager from 1992 to 1995 with Thomas White Asset
Management Inc.
*Kaye E. Forester - Director. Mrs. Forester, 40, is an investor. Her address
is c/o Forester Capital Management, Ltd., 612 Paddock Lane, Libertyville,
Illinois 60048.
Wayne A. Grudem - Director. Mr. Grudem, 52, has been a Professor at Trinity
International University for more than five years. His address is c/o
Forester Capital Management, Ltd., 612 Paddock Lane, Libertyville, Illinois
60048.
Michael B. Kelley - Director. Mr. Kelley, 38, has been a Territory Executive
at WW Grainger, a national distribution firm to commercial and industrial
industries since 1995. His address is c/o Forester Capital Management, Ltd.,
612 Paddock Lane, Libertyville, Illinois 60048.
*Mr. and Mrs. Forester are directors who are "interested persons" of the Funds
(as defined in the Act.) They are married to each other.
The Funds' standard method of compensating directors is to pay each
disinterested director an annual fee of $100 for services rendered, including
attending meetings of the Board of Directors. The Funds also may reimburse
their directors for travel expenses incurred in order to attend meetings of
the Board of Directors. No compensation has been paid to date.
As of March 31, 2000, all officers and directors of the Company as a group
beneficially owned 5,058 shares of The Small Cap Value Fund or 100.00% of the
then outstanding shares. Other than the foregoing, The Small Cap Value Fund
was not aware of any person who, as of March 31, 2000, owned of record or
beneficially 5% or more of the shares of The Small Cap Value Fund.
As of March 31, 2000, all officers and directors of the Company as a group
beneficially owned 5,058 shares of The Value Fund or 100.00% of the then
outstanding shares. Other than the foregoing, The Value Fund was not aware
of any person who, as of March 31, 2000, owned of record or beneficially 5%
or more of the shares of The Value Fund.
INVESTMENT ADVISER AND ADMINISTRATOR
As a Maryland corporation, the business and affairs of the Company are managed
by its Board of Directors. The Company, on behalf of each of the Funds, has
entered into Investment Advisory Agreements (the "Advisory Agreements") with
Forester Capital Management, Ltd., 612 Paddock Lane, Libertyville, Illinois
60048. Pursuant to such Advisory Agreements, the Adviser furnishes continuous
investment advisory services to each of the Funds. The Adviser does not
advise any other mutual funds, but may act as the investment adviser to
individuals and institutional clients. The Adviser was organized in February
1999. Mr. Thomas H. Forester, the president and sole stockholder of the
Adviser, is the portfolio manager for each of the Funds and, as such, is
responsible for the day-to-day management of the portfolios. Mr. Forester has
managed each of the Funds' portfolios since inception and was an officer and
portfolio manager from May 1997 through February 1999 with Dreman Value
Advisors, Inc. and its successor firm Scudder Kemper Investments Inc. where he
ran over $1.4 billion in small cap value assets; and an officer and portfolio
manager from 1995 to 1997 with Peregrine Capital Management Inc.; and an
officer and portfolio manager from 1992 to 1995 with Thomas White Asset
Management Inc.
The Adviser supervises and manages the investment portfolios of the Funds and,
subject to such policies as the Board of Directors of the Company may
determine, directs the purchase or sale of investment securities in the day-
to-day management of the Funds' investment portfolios. Under the Advisory
Agreements, the Adviser, at its own expense and without reimbursement from the
Funds, furnishes office space and all necessary office facilities, equipment
and executive personnel for managing the investments of the Funds and pays the
salaries and fees of all officers and directors of the Funds (except the fees
paid to directors who are not interested persons of the Adviser). For the
foregoing, the Adviser receives a monthly fee from each Fund based on that
Fund's average daily net assets at the annual rate of 1% of average daily net
assets.
The Company acts as administrator and fund accountant, providing clerical,
compliance, regulatory and other administrative services, as well as
calculating each Fund's net asset value. Company personnel will execute these
duties for no additional fees. In any claims against the Company and its
personnel for acts in its capacity as administrator and fund accountant, a mere
negligence standard shall apply to such acts.
The Funds pay all of their own expenses, including, without limitation, the
cost of preparing and printing the registration statement required under the
Securities Act of 1933 and any amendments thereto, the expense of registering
shares with the Securities and Exchange Commission and in the various states,
the printing and distribution costs of prospectuses mailed to existing
investors, reports to investors, reports to government authorities and proxy
statements, fees paid to directors who are not interested persons of the
Adviser, interest charges, taxes, legal expenses, association membership dues,
auditing services, insurance premiums, brokerage commissions and expenses in
connection with portfolio transactions, fees and expenses of the custodian of
the Funds' assets, printing and mailing expenses and charges and expenses of
dividend disbursing agents, accounting services agents, registrars and stock
transfer agents.
The Adviser has voluntarily undertaken to waive the entire management fee and
to reimburse each Fund for all operating expenses, however, it may reinstate
all or a portion of such fees or discontinue reimbursement at any time.
Each Advisory Agreement will remain in effect as long as its continuance is
specifically approved at least annually (i) by the Board of Directors of the
Company or by the vote of a majority (as defined in the Act) of the
outstanding shares of the applicable Fund, and (ii) by the vote of a majority
of the directors of the Company who are not parties to the Advisory Agreement
or interested persons of the Adviser, cast in person at a meeting called for
the purpose of voting on such approval.
Each Advisory Agreement provides that it may be terminated at any time without
the payment of any penalty, by the Board of Directors of the Company or by
vote of the majority of the applicable Fund's stockholders on sixty (60) days'
written notice to the Adviser, and by the Adviser on the same notice to the
applicable Fund, and that it shall be automatically terminated if it is
assigned.
The Advisory Agreements provide that the Adviser shall not be liable to the
Funds or its stockholders for anything other than willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations or duties.
The Advisory Agreements also provide that the Adviser and their officers,
directors and employees may engage in other businesses, devote time and
attention to any other business whether of a similar or dissimilar nature, and
render services to others.
REDEMPTIONS
The Funds reserve the right to suspend redemptions during any period when the
New York Stock Exchange is closed because of financial conditions or any other
extraordinary reason and to postpone redemptions for any period during which
(a) trading on the New York Stock Exchange is restricted pursuant to rules and
regulations of the Securities and Exchange Commission, (b)the Securities and
Exchange Commission has by order permitted such suspension or(c) an emergency,
as defined by rules and regulations of the Securities and Exchange Commission,
exists as a result of which it is not reasonably practicable for a Fund to
dispose of its securities or fairly to determine the value of its net assets.
Each of the Funds has reserved the right to pay the redemption price of its
shares in assets other than cash.
CUSTODIAN
Charles Schwab & Co., Inc. 101 Montgomery Street, San Francisco, CA 94104-
4122, acts as custodian for the Funds. As such, Charles Schwab & Co., Inc.
holds all securities and cash of the Funds, delivers and receives payment for
securities sold, receives and pays for securities purchased, collects income
from investments and performs other duties, all as directed by officers of the
Company. Charles Schwab & Co., Inc. does not exercise any supervisory
function over the management of the Funds, the purchase and sale of
securities or the payment of distributions to stockholders.
INDEPENDENT ACCOUNTANTS
Tait, Weller & Baker, 8 Penn Center Plaza, Suite 800, Philadelphia, PA 19103-
2108, serves as the independent accountants for the Funds.
DISTRIBUTION PLAN
Each Fund has adopted a Distribution Plan which, among other things, allows it
to contract with distributors, to distribute and sell the Fund and pay such
distributor a quarterly distribution fee of up to 0.25 of 1% of its average
daily net assets computed on an annual basis. Under each Plan, the Fund is
obligated to pay distribution fees only to the extent of expenses actually
incurred by the distributor for the current year, and thus there will be no
carry-over expenses from previous years. These expenses may include expenses
incurred for media advertising, the printing and mailing of prospectuses to
persons other than shareholders, the printing and mailing of sales literature,
answering routine questions relating to a Fund, and payments to selling
representatives, authorized securities dealers, financial institutions, or
other service providers for providing services in assisting investors with
their investments. No fee paid by a Fund under the Plan may be used to
reimburse the distributor for expenses incurred in connection with another
Fund. Each Distribution Plan will continue in effect, if not sooner
terminated in accordance with its terms, for successive one-year periods,
provided that each such continuance is specifically approved by the vote of
the Directors, including a majority of the Directors who are not interested
persons, of The Forester Funds, Inc.
Forester Capital Management, Ltd. provides the Directors after the end of each
quarter a written report setting forth all amounts expended under the Plan,
including all amounts paid to dealers as distribution or service fees. In
approving the Plan in accordance with the requirements of Rule 12b-1, the
Directors considered various factors, including the amount of the distribution
fee. The Directors determined that there is a reasonable likelihood that the
Plan will benefit each Fund and its shareholders. The Plan may be terminated
with respect to either Fund by vote of a majority of the Directors who are not
interested persons, or by vote of a majority of the outstanding voting
securities of the Fund. Any change in the Plan that would materially increase
the distribution cost to a Fund requires shareholder approval; otherwise, may
be amended by the Directors, including a majority of the Directors who are not
interested persons, by vote cast in person at a meeting called for the purpose
of voting upon such amendment.
So long as a Distribution Plan is in effect, the selection or nomination of
the Directors who are not interested persons is committed to the discretion of
such Directors. The Distribution Plan of a Fund may be terminated with
respect to either Fund by the Directors at any time on 60 days written notice
without payment of any penalty, by vote of a majority of the outstanding
voting securities of the Fund, or by vote of a majority of the Directors who
are not interested persons. No interested person of the Fund, any director of
the Fund who is not an interested person of the Fund, nor Forester Capital
Management, Ltd. has a direct or indirect financial interest in the operation
of the plan or related agreements. The Distribution Plan will continue in
effect for successive one-year periods with respect to a Fund, if not sooner
terminated in accordance with its terms, provided that each such continuance
is specifically approved by the vote of the Directors, including a majority of
the Directors who are not interested persons.
ALLOCATION OF PORTFOLIO BROKERAGE
The Funds' securities trading and brokerage policies and procedures are
reviewed by and subject to the supervision of the Board of Directors of the
Company. Decisions to buy and sell securities for each Fund are made by the
Adviser subject to review by the Company's Board of Directors. In placing
purchase and sale orders for portfolio securities for the Funds, it is the
policy of the Adviser to seek the best execution of orders at the most
favorable price in light of the overall quality of brokerage and research
services provided, as described in this and the following paragraph. Many of
these transactions involve payment of a brokerage commission by the Funds. In
some cases, transactions are with firms who act as principals of their own
accounts. In selecting brokers to effect portfolio transactions, the
determination of what is expected to result in best execution at the most
favorable price involves a number of largely judgmental considerations. Among
these are the Adviser's evaluation of the broker's efficiency in executing and
clearing transactions, block trading capability (including the broker's
willingness to position securities) and the broker's reputation, financial
strength and stability. The most favorable price to a Fund means the best net
price without regard to the mix between purchase or sale price and commission,
if any. Over-the-counter securities are generally purchased and sold directly
with principal market makers who retain the difference in their cost in the
security and its selling price (i.e. "markups" when the market maker sells a
security and "markdowns" when the market maker buys a security). In some
instances, the Adviser feels that better prices are available from non-
principal market makers who are paid commissions directly. The Funds may
place portfolio orders with broker-dealers who place orders for, or recommend
the purchase of, shares of the Funds to clients (if the Adviser believes the
commissions and transaction quality are comparable to that available from
other brokers) and may allocate portfolio brokerage on that basis.
In allocating brokerage business for the Funds, the Adviser also takes into
consideration the research, analytical, statistical and other information and
services provided by the broker, such as general economic reports and
information, computer hardware and software, market quotations, reports or
analyses of particular companies or industry groups, market timing and
technical information, and the availability of the brokerage firm's analysts
for consultation. While the Adviser believes these services have substantial
value, they are considered supplemental to the Adviser's own efforts in the
performance of its duties under the Advisory Agreements. Other clients of the
Adviser may indirectly benefit from the availability of these services to the
Adviser, and the Funds may indirectly benefit from services available to the
Adviser as a result of transactions for other clients. The Advisory
Agreements provide that the Adviser may cause the Fund to pay a broker which
provides brokerage and research services to the Adviser a commission for
effecting a securities transaction in excess of the amount another broker
would have charged for effecting the transaction, if the Adviser determines in
good faith that such amount of commission is reasonable in relation to the
value of brokerage and research services provided by the executing broker
viewed in terms of either the particular transaction or the Adviser's overall
responsibilities with respect to the Fund and the other accounts as to which
he exercises investment discretion.
TAXES
Each Fund annually will endeavor to qualify for and elect tax treatment
applicable to a regulated investment company under Subchapter M of the
Internal Revenue Code of 1986 (the "Code"). Each Fund has so qualified in each
of its fiscal years. If a Fund fails to qualify as a regulated investment
company under Subchapter M in any fiscal year, it will be treated as a
corporation for federal income tax purposes. As such the Fund would be
required to pay income taxes on its net investment income and net realized
capital gains, if any, at the rates generally applicable to corporations.
Stockholders of a Fund that did not qualify as a regulated investment company
under Subchapter M would not be liable for income tax on the Fund's net
investment income or net realized capital gains in their individual
capacities. Distributions to stockholders, whether from the Fund's net
investment income or net realized capital gains, would be treated as taxable
dividends to the extent of current or accumulated earnings and profits of the
Fund.
Each Fund intends to distribute all of its net investment income and net
capital gain each fiscal year. Dividends from net investment income (including
short-term capital gain) are taxable to investors as ordinary income, whereas
distributions of net realized long-term capital gains are taxable as long-term
capital gains regardless of the stockholder's holding period for the shares.
Such dividends and distributions are taxable to stockholders, whether received
in cash or in additional shares of the respective Funds. A portion of the
Funds' income distributions may be eligible for the 70% dividends-received
deduction for domestic corporate stockholders.
Any dividend or capital gain distribution paid shortly after a purchase of
shares of a Fund will have the effect of reducing the per share net asset
value of such shares by the amount of the dividend or distribution.
Furthermore, if the net asset value of the shares of a Fund immediately after
a dividend or distribution is less than the cost of such shares to the
investor, the dividend or distribution will be taxable to the investor.
Redemption of shares will generally result in a capital gain or loss for
income tax purposes. The tax treatment of such capital gain or loss will
depend upon the stockholder's holding period. However, if a loss is realized
on shares held for six months or less, and the stockholder received a capital
gain distribution during that period, then such loss is treated as along-term
capital loss to the extent of the capital gain distribution received.
Investors may also be subject to state and local taxes.
Each Fund will be required to withhold federal income tax at a rate of 31%
("backup withholding") from dividend payments and redemption and exchange
proceeds if an investor fails to furnish such Fund with his social security
number or other tax identification number or fails to certify under penalty of
perjury that such number is correct or that he is not subject to backup
withholding due to the underreporting of income. The certification form is
included as part of the share purchase application and should be completed
when the account is opened.
This section is not intended to be a full discussion of present or proposed
federal income tax laws and the effect of such laws on an investor. Investors
are urged to consult with their respective tax advisers for a complete review
of the tax ramifications of an investment in a Fund.
STOCKHOLDER MEETINGS
The Maryland General Corporation Law permits registered investment companies,
such as the Funds, to operate without an annual meeting of stockholders under
specified circumstances if an annual meeting is not required by the Act. The
Company has adopted the appropriate provisions in its Bylaws and may, at its
discretion, not hold an annual meeting in any year in which the election of
directors is not required to be acted on by stockholders under the Act.
The Company's Bylaws also contain procedures for the removal of directors by
its stockholders. At any meeting of stockholders, duly called and at which a
quorum is present, the stockholders may, by the affirmative vote of the
holders of a majority of the votes entitled to be cast thereon, remove any
director or directors from office and may elect a successor or successors to
fill any resulting vacancies for the unexpired terms of removed directors.
Upon the written request of the holders of shares entitled to not less than
ten percent (10%) of all the votes entitled to be cast at such meeting, the
Secretary of the Company shall promptly call a special meeting of stockholders
for the purpose of voting upon the question of removal of any director.
Whenever ten or more stockholders of record who have been such for at least
six months preceding the date of application, and who hold in the aggregate
either shares having a net asset value of at least $25,000 or at least one
percent (1%) of the total outstanding shares, whichever is less, shall apply
to the Company's Secretary in writing, stating that they wish to communicate
with other stockholders with a view to obtaining signatures to a request for a
meeting as described above and accompanied by a form of communication and
request which they wish to transmit, the Secretary shall within five business
days after such application either: (1) afford to such applicants access to a
list of the names and addresses of all stockholders as recorded on the books
of the Funds; or (2) inform such applicants as to the approximate number of
stockholders of record and the approximate cost of mailing to them the
proposed communication and form of request.
If the Secretary elects to follow the course specified in clause(2) of the
last sentence of the preceding paragraph, the Secretary, upon the written
request of such applicants, accompanied by a tender of the material to be
mailed and of the reasonable expenses of mailing, shall, with reasonable
promptness, mail such material to all stockholders of record at their
addresses as recorded on the books unless within five business days after such
tender the Secretary shall mail to such applicants and file with the
Securities and Exchange Commission, together with a copy of the material to be
mailed, a written statement signed by at least a majority of the Board of
Directors to the effect that in their opinion either such material contains
untrue statements of fact or omits to state facts necessary to make the
statements contained therein not misleading, or would be in violation of
applicable law, and specifying the basis of such opinion.
After opportunity for hearing upon the objections specified in the written
statement so filed, the Securities and Exchange Commission may, and if
demanded by the Board of Directors or by such applicants shall, enter an order
either sustaining one or more of such objections or refusing to sustain any of
them. If the Securities and Exchange Commission shall enter an order refusing
to sustain any of such objections, or if, after the entry of an order
sustaining one or more of such objections, the Securities and Exchange
Commission shall find, after notice and opportunity for hearing, that all
objections so sustained have been met, and shall enter an order so declaring,
the Secretary shall mail copies of such material to all stockholders with
reasonable promptness after the entry of such order and the renewal of such
tender.
CAPITAL STRUCTURE
The Company's authorized capital consists of 1,000,000,000 shares of Common
Stock, $0.0001 par value. The Common Stock is divisible into an unlimited
number of "series," each of which is a separate Fund. Stockholders are
entitled: (i) to one vote per full share of Common Stock; (ii) to such
distributions as may be declared by the Company's Board of Directors out of
funds legally available; and (iii) upon liquidation, to participate ratably in
the assets available for distribution. There are no conversion or sinking
fund provisions applicable to the shares, and the holders have no preemptive
rights and may not cumulate their votes in the election of directors.
Consequently the holders of more than 50% of the shares of Common Stock voting
for the election of directors can elect the entire Board of Directors and, in
such event, the holders of the remaining shares voting for the election of
directors will not be able to elect any person or persons to the Board of
Directors.
Shares of Common Stock are redeemable and are transferable. All shares issued
and sold by the Funds will be fully paid and nonassessable. Fractional shares
of Common Stock entitle the holder to the same rights as whole shares of
Common Stock.
Pursuant to the Company's Articles of Incorporation, the Board of Directors
may classify or reclassify any unissued shares of the Funds and may designate
or redesignate the name of any outstanding class of shares of the Funds. As a
general matter, shares are voted in the aggregate and not by class, except
where class voting is required by Maryland law or the Act (e.g., a change in
investment policy or approval of an investment advisory agreement). All
consideration received from the sale of shares of any class of the Funds'
shares, together with all income, earnings, profits and proceeds thereof,
belong to that class and are charged with the liabilities in respect of that
class and of that class' share of the general liabilities of the Funds in the
proportion that the total net assets of the class bear to the total net assets
of all classes of the Funds' shares. The net asset value of a share of any
class is based on the assets belonging to that class less the liabilities
charged to that class, and dividends may be paid on shares of any class of
Common Stock only out of lawfully available assets belonging to that class.
In the event of liquidation or dissolution of the Funds, the holders of each
class would be entitled, out of the assets of the Funds available for
distribution, to the assets belonging to that class.
SHAREHOLDER REPORTS
Investors will be provided at least semi-annually with a report showing each
Fund's portfolio and other information and annually after the close of the
Funds' fiscal year, which ends March 31, with an annual report containing
audited financial statements. An individual account statement will be sent to
the investor by the Transfer Agent after each purchase, including reinvestment
of dividends, or redemption of shares of the Funds. Each investor will also
receive an annual statement after the end of the calendar year listing all
transactions in shares of the Funds during such year.
Investors who have questions about their respective accounts should call the
Transfer Agent at 1-847-573-8399. In addition, investors who wish to make a
change in their address of record or a change in the manner in which dividends
are received may also do so by calling the Transfer Agent at 1-847-573-8399.
Investors who have questions regarding the investment strategy and historical
performance of the Funds should call Forester Capital Management, Ltd. at 1-
847-573-8399 and ask to speak to a member of the portfolio management group.
Alternatively, investors may also write to The Forester Funds, Inc., 612
Paddock Lane, Libertyville, Illinois 60048.
PERFORMANCE INFORMATION
Each of the Funds may provide from time to time in advertisements, reports to
stockholders and other communications with investors its average annual total
return and its total return. Average annual total return measures both the net
investment income generated by, and the effect of any realized or unrealized
appreciation or depreciation of, the underlying investments in a Fund's
investment portfolio. A Fund's average annual total return figures are
computed in accordance with the standardized method prescribed by the
Securities and Exchange Commission by determining the average annual
compounded rates of return over the periods indicated, that would equate the
initial amount invested to the ending redeemable value, according to the
following formula:
P(1 + T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end
of the period of a hypothetical $1,000
payment made at the beginning of such period
This calculation (i) assumes all dividends and distributions are reinvested at
net asset value on the applicable reinvestment dates , and (ii) deducts all
recurring fees, such as advisory fees, charged as expenses to all investor
accounts.
Total return is the cumulative rate of investment growth which assumes that
income dividends and capital gains are reinvested. It is determined by
assuming a hypothetical investment at the net asset value at the beginning of
the period, adding in the reinvestment of all income dividends and capital
gains, calculating the ending value of the investment at the net asset value
as of the end of the specified time period, subtracting the amount of the
original investment, and dividing this amount by the amount of the original
investment. This calculated amount is then expressed as a percentage by
multiplying by 100.
In reports or other communications to investors and in advertising material, a
Fund may compare its performance to the Consumer Price Index, the Dow Jones
Industrial Average, the Standard & Poor's 500 Stock Index, the Standard &
Poor's 600 Stock Index, the Russell 2000 Stock Index, the Russell 2000 Value
Stock Index, the Russell 1000 Stock Index, the Russell 1000 Value Stock Index
and to the performance of mutual fund indexes as reported by Lipper Analytical
Services, Inc.("Lipper"), CDA Investment Technologies, Inc. ("CDA") or
Morningstar, Inc. ("Morningstar"), three widely recognized independent mutual
fund reporting services. Lipper, CDA and Morningstar performance calculations
include reinvestment of all capital gain and income dividends for the periods
covered by the calculations. The Consumer Price Index is generally considered
to be a measure of inflation. The Dow Jones Industrial Average, the Standard &
Poor's 500 Stock Index, the Russell 1000 Stock Index, and the Russell 1000
Value Stock Index are unmanaged indices of common stocks which are considered
to be generally representative of the United States stock market. The
Standard & Poor's 600 Stock Index, the Russell 2000 Stock Index, and the
Russell 2000 Value Stock Index are unmanaged indices of common stocks which
are considered to be generally representative of the United States small stock
market. The market prices and yields of these stocks will fluctuate. A Fund
also may quote performance information from publications such as The Wall
Street Journal, Kiplinger's Personal Finance Magazine, Money Magazine, Forbes,
Smart Money, Barron's, Worth Magazine, USA Today, and local newspapers.
LEGAL PROCEEDINGS
The Company is not aware of any litigation to which it is a party.
PART C
OTHER INFORMATION
Item 23. Exhibits
(a) Registrant's Articles of Incorporation, as amended.(1)
(b) Registrant's Bylaws.(1)
(c) None.
(d)(i) Investment Advisory Agreement with Forester Capital Management,
Ltd. on behalf of The Forester Small Cap Value Fund. (1)
(d)(ii) Investment Advisory Agreement with Forester Capital Management,
Ltd. on behalf of The Forester Value Fund. (1)
(e) None.
(f) None.
(g) Custodian Agreement with Charles Schwab. (2)
(h) None
(i) Opinion of Forester & Associates, counsel for Registrant.
(j) Consent of independent accountants.
(k) None.
(l) Subscription Agreement. (2)
(m) Distribution Plan. (2)
(n) None
(o) None.
(1) Previously filed as an exhibit to the initial Registration Statement and
incorporated by reference thereto. The initial Registration Statement was
filed on June 17, 1999.
(2) Previously filed as an exhibit to Pre-Effective Amendment No. 2 to the
Registration Statement and incorporated by reference thereto. Pre-Effective
Amendment No. 2 was filed on September 7, 1999.
Item 24. Persons Controlled by or under Common Control with
Registrant
Registrant is not controlled by any person. Registrant neither controls
any person nor is under common control with any other person.
Item 25. Indemnification
Pursuant to the authority of the Maryland General Corporation Law,
particularly Section 2-418 thereof, Registrant's Board of Directors has
adopted the following bylaw which is in full force and effect and has not been
modified or canceled:
Article VII
GENERAL PROVISIONS
Section 7. Indemnification.
The corporation shall indemnify directors, officers, employees and
agents of the corporation against judgments, fines, settlements and expenses
to the fullest extent authorized, and in the manner permitted by applicable
federal and state law.
The corporation shall advance the expenses of its directors, officers,
employees and agents who are parties to any Proceeding to the fullest extent
authorized, and in the manner permitted, by applicable federal and state law.
For purposes of this paragraph, "Proceeding" means any threatened, pending or
contemplated action, suit or proceeding, whether civil, criminal,
administrative, or investigative.
This Section 7 of Article VII constitutes vested rights in favor of all
directors, officers, employees and agents of the corporation. Neither the
amendment nor repeal of this Article, nor the adoption or amendment of any
other provision of the Bylaws or charter of the corporation inconsistent with
this Article, shall apply to or affect in any respect the applicability of
this Article with respect to any act or failure to act which occurred prior to
such amendment, repeal or adoption. For purposes of this Section 7, the terms
"director" and "officer" have the same meaning ascribed to such terms in
Section 2-418 of the Maryland General Corporation Law.
Insofar as indemnification for and with respect to liabilities arising
under the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of Registrant pursuant to the foregoing provisions or
otherwise, 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
Registrant of expenses incurred or paid by a director, officer or controlling
person or Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, 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 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
Incorporated by reference to pages 10 through 14 of the Statement of
Additional Information pursuant to Rule 411 under the Securities Act of 1933.
Item 27. Principal Underwriters
Not Applicable.
Item 28. Location of Accounts and Records
The accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act of 1940 and
the rules promulgated thereunder are in the physical possession of Registrant.
Item 29. Management Services
All management-related services are performed by the Adviser.
Item 30. Undertakings
Registrant undertakes to provide its Annual Report to Shareholders upon
request without charge to each person to whom a prospectus is delivered.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amended
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Libertyville and State of Illinois
on the 27th day of July, 2000.
THE FORESTER FUNDS, INC.
(Registrant)
/s/ Thomas H. Forester
Thomas H. Forester,
President
Pursuant to the requirements of the Securities Act of 1933, this Amended
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
Name Title Date
/s/ Thomas H. Forester President and Treasurer July 27, 2000
- ---------------------- (Principal Executive,
Thomas H. Forester Financial and Accounting
Officer) and a Director
/s/ Kaye E. Forester Director and Secretary July 27, 2000
- ----------------------
Kaye E. Forester
/s/ Wayne A. Grudem Director July 27, 2000
- ----------------------
Wayne A. Grudem
/s/ Michael B. Kelley Director July 27, 2000
- ----------------------
Michael B. Kelley
EXHIBIT INDEX
Exhibit No. Exhibit Page No.
(a) Registrant's Articles of Incorporation, as amended*
(b) Registrant's Bylaws*
(c) None.
(d)(i) Investment Advisory Agreement with Forester Capital Management, Ltd.
on behalf of The Forester Small Cap Value Fund*
(d)(ii) Investment Advisory Agreement with Forester Capital Management, Ltd.
on behalf of The Forester Value Fund*
(e) None.
(f) None.
(g) Custodian Agreement with Charles Schwab*
(h) None
(i) Opinion of Forester & Associates, counsel for Registrant.
(j) Consent of independent accountants.
(k) None.
(l) Subscription Agreement*
(m) Distribution Plan*
(n) None
(o) None.
*Incorporated by reference
OPINION OF COUNSEL
FORESTER & ASSOCIATES
ATTORNEYS AT LAW
612 Paddock Lane
Libertyville, Illinois 60048
847-573-8399
July 27, 2000
The Forester Funds, Inc.
612 Paddock Lane
Libertyville, Illinois 60048
Gentlemen:
We have acted as counsel for you in connection with the preparation of
an Amended Registration Statement on Form N-1A relating to the sale by you of an
indefinite amount of The Forester Funds, Inc. Common Stock, $0.0001 par
value (such Common Stock being hereinafter referred to as the "Stock") in the
manner set forth in the Amended Registration Statement to which reference is
made. In this connection we have examined: (a) the Amended Registration
Statement on Form N-1A; (b) your Articles of Incorporation and Bylaws;
(c) corporate proceedings relative to the authorization for issuance of the
Stock; and (d) such other proceedings, documents and records as we have deemed
necessary to enable us to render this opinion.
Based upon the foregoing, we are of the opinion that the shares of Stock when
sold as contemplated in the Registration Statement will be legally issued,
fully paid and nonassessable.
We hereby consent to the use of this opinion as an exhibit to the Form N-1A
Registration Statement. In giving this consent, we do not admit that we are
experts within the meaning of Section 11 of the Securities Act of 1933, as
amended, or within the category of persons whose consent is required by
Section 7 of said Act.
Very truly yours,
/s/ Forester & Associates
FORESTER & ASSOCIATES
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm in the Post-Effective Amendment to
the Registration Statement on Form N-1A of the The Forester Funds, Inc. and
to the use of our report dated May 10, 2000 on the financial statements and
financial highlights of The Forester Small Cap Value Fund and The Forester
Value Fund. Such financial statements and financial highlights appears in
the Funds' Annual Report to shareholders which accompanies the Statement of
Additional Information.
Tait, Weller & Baker
Philadelphia, Pennsylvania
July 31, 2000
