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Forward Funds, et al. – ‘485APOS’ on 10/12/07

On:  Friday, 10/12/07, at 1:01pm ET   ·   Accession #:  1193125-7-217552   ·   File #s:  33-48940, 811-06722

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

10/12/07  Forward Funds                     485APOS                4:1.0M                                   RR Donnelley/FAForward Asia Ex-Japan Equities Fund New Fund/Series! Class A New Class/Contract!Class C New Class/Contract!Institutional Class (FFASX) New Class/Contract!Investor Class (FFAEX) New Class/Contract!Forward Eastern Europe Equities Fund New Fund/Series! Class A New Class/Contract!Class C New Class/Contract!Institutional Class (FEEIX) New Class/Contract!Investor Class (FEEEX) New Class/Contract!

Post-Effective Amendment
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 485APOS     Post-Effective Amendment                            HTML    776K 
 3: EX-99.(D)(17)  Sub-Advisory Agreement Among the Registrant,     HTML     55K 
                          the Advisor and Pictect Asset Mgmnt                    
 2: EX-99.(D)(3)(A)  Amended and Restated Investment Management     HTML     43K 
                          Agreement                                              
 4: EX-99.(I)(1)  Revised Legal Opinion of Dechert LLP              HTML     11K 


485APOS   —   Post-Effective Amendment
Document Table of Contents

Page (sequential) | (alphabetic) Top
 
11st Page   -   Filing Submission
"Objective
"Principal Investment Strategy
"What are the Principal Risks of Investing in the Forward Asia Ex-Japan Equities Fund?
"Performance History
"Fund Fees and Expenses
"What are the Principal Risks of Investing in the Forward Eastern Europe Equities Fund?
"Additional Investment Strategies and Risks
"Management of the Funds
"Investment Advisor
"Sub-Advisor
"Hiring Sub-Advisors Without Shareholder Approval
"Valuation of Shares
"Purchasing Shares
"How to Buy Shares
"Share Classes
"Sales Charges
"Exchange Privilege
"Pricing of Fund Shares
"Customer Identification Program
"EDelivery
"Online Account Access
"Other Information
"Redeeming Shares
"How To Redeem Shares
"Payments of Redemption Proceeds
"Policies Concerning Frequent Purchases and Redemptions
"Distribution and Shareholder Services Plans
"Dividends and Taxes
"Federal Taxes
"Portfolio Holdings Disclosure
"General Information
"Financial Highlights
"Forward Funds Privacy Policy
"Table of Contents
"Organization of Forward Funds
"Investment Advisory and Other Services
"Investment Objectives and Policies
"Investment Restrictions
"Additional Investment Techniques and Risks
"Portfolio Transactions
"Additional Purchase and Redemption Information
"Determination of Share Price
"Shareholder Services and Privileges
"Dividends and Distributions
"Tax Considerations
"Financial Statements

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  Form 485APOS  
Table of Contents

As filed with the Securities and Exchange Commission on October 12, 2007

1933 Act Registration No. 033-48940

1940 Act Registration No. 811-06722


SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 


FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

PRE-EFFECTIVE AMENDMENT NO.

POST-EFFECTIVE AMENDMENT NO. 44

AND/OR

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

AMENDMENT NO. 44

FORWARD FUNDS

(Exact Name of Registrant as Specified in Charter)

433 California Street, 11th Floor

San Francisco, California 94104

(Address of Principal Executive Office) (Zip Code)

Registrant’s Telephone Number, including Area Code: 1-800-999-6809

 


J. ALAN REID, JR.

Forward Funds

433 California Street, 11th Floor

San Francisco, California 94104

(Name and address of agent for service of process)

COPIES TO:

DOUGLAS P. DICK

Dechert LLP

4675 MacArthur Court, Suite 1400

Newport Beach, California 92660-8842

(Name and address of agent for service of process)

 


It is proposed that this filing will become effective:

 

¨ Immediately upon filing pursuant to paragraph (b)

 

¨ On ___________ pursuant to paragraph (b)

 

¨ 60 days after filing pursuant to paragraph (a)(1)

 

x 75 days after filing pursuant to paragraph (a)(2)

 

¨ On (date) pursuant to paragraph (a)(1)

 

¨ 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

 



Table of Contents

LOGO

 

FORWARD ASIA EX-JAPAN EQUITIES FUND

FORWARD EASTERN EUROPE EQUITIES FUND

P R O S P E C T U S

 

CLASS A SHARES

 

CLASS C SHARES

 

INVESTOR CLASS SHARES

 

INSTITUTIONAL CLASS SHARES

 

[            ], 2007

 

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

 

Forward Funds, like other mutual funds, try to meet their stated investment goals but there is no guarantee that the goals will be met. Investments in the Funds are not bank deposits; they are not insured by the FDIC, the Federal government or any other agency.

 

Forward Funds also offers fourteen other portfolios by separate Prospectuses, which are available upon request.

 

The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED [            ], 2007


Table of Contents

TABLE of CONTENTS


    PAGE

FORWARD ASIA EX-JAPAN EQUITIES FUND

 

Objective

  1

Principal Investment Strategy

  1

What are the Principal Risks of Investing in the Forward Asia Ex-Japan Equities Fund?

  2

Performance History

  3

Fund Fees and Expenses

  4

FORWARD EASTERN EUROPE EQUITIES FUND

  6

Objective

  6

Principal Investment Strategy

  6

What are the Principal Risks of Investing in the Forward Eastern Europe Equities Fund?

  7

Performance History

  8

Fund Fees and Expenses

  9

ADDITIONAL INVESTMENT STRATEGIES AND RISKS

  11

MANAGEMENT OF THE FUNDS

  12

Investment Advisor

  12

Sub-Advisor

  13

Hiring Sub-Advisors Without Shareholder Approval

  15

VALUATION OF SHARES

  16

PURCHASING SHARES

  19

How to Buy Shares

  19

Share Classes

  19

Sales Charges

  21

Exchange Privilege

  24

Pricing of Fund Shares

  25

Customer Identification Program

  25

eDelivery

  26

Online Account Access

  26

Other Information

  26

REDEEMING SHARES

  28

How To Redeem Shares

  28

Payments of Redemption Proceeds

  29

POLICIES CONCERNING FREQUENT PURCHASES AND REDEMPTIONS

  31

DISTRIBUTION AND SHAREHOLDER SERVICES PLANS

  33

DIVIDENDS AND TAXES

  34

Federal Taxes

  34

PORTFOLIO HOLDINGS DISCLOSURE

  36

GENERAL INFORMATION

  36

FINANCIAL HIGHLIGHTS

  36

FORWARD FUNDS PRIVACY POLICY

  37


Table of Contents

FORWARD ASIA EX-JAPAN EQUITIES FUND


 

OBJECTIVE

 

The Forward Asia Ex-Japan Equities Fund seeks to achieve long-term growth of capital. There is no guarantee that the Fund will achieve its objective.

 

PRINCIPAL INVESTMENT STRATEGY - INVESTING PRIMARILY IN EQUITY SECURITIES OF COMPANIES IN ASIAN (EX-JAPAN) COUNTRIES

 

The Forward Asia Ex-Japan Equities Fund seeks to achieve its investment objective by investing at least 80% of its net assets plus borrowings for investment purposes, if any, in the equity securities of companies located in Asia, but not including companies located in Japan. This investment policy and the name of the Fund may not be changed without at least 60 days’ prior written notice to shareholders. Equity securities include common and preferred stocks, investment company shares, convertible debt securities, warrants, subscription rights and depositary receipts for foreign stocks. The Fund may invest in securities of any market capitalization.

 

The Fund normally invests in at least ten but not fewer than seven Asian countries. The Fund’s sub-advisor has broad discretion to invest in securities of companies that it considers to be located in Asia, including emerging market countries. The sub-advisor may invest in emerging market countries located in Asia without limitation. A company generally will be considered to be located in a particular country if it meets one or more of the following criteria: (i) the issuer of the security is organized under the laws of, or maintains its principal place of business in, the country; (ii) the currency of settlement of the security is a currency of the country; (iii) the securities are traded principally in the country; or (iv) during the company’s most recent fiscal year, it derived at least 50% of its revenues or profits from goods produced or sold, investments made, or services performed in the country or has at least 50% of its assets in that country.

 

In allocating the Fund’s assets among Asian countries, the sub-advisor uses a proprietary database to screen for countries that meet the following standards:

 

   

Suitable safe custody of assets and freedom of capital movement;

 

   

A higher than average number of undervalued stocks when comparing the companies against their benchmark values;

 

   

A favorable domestic liquidity environment;

 

   

A reasonably liquid and diverse stock market;

 

   

A good or improving fiscal balance; and

 

   

An undervalued or fairly valued exchange rate, combined with sustainable trade and current account balances.

 

In selecting individual Asian stocks, the sub-advisor looks for companies with one or more of the following:

 

   

Current or potential high and stable cash generation;

 

   

Strong, liquid balance sheets;

 

   

Asset valuations significantly below replacement cost, or below the average for its sector on a global basis. The sub-advisor will also consider the debt of a company;

 

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FORWARD ASIA EX-JAPAN EQUITIES FUND


 

   

A high free cash flow relative to the stock price; and

 

   

In the case of banks, a low stock price relative to the asset base, combined with a high return on equity.

 

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

 

For hedging purposes, to reduce the risks of fluctuating exchange rates and to generate returns uncorrelated to the other strategies employed, the Fund may enter into forward foreign currency exchange contracts, which obligate a party to buy or sell a specific currency on a future date at a fixed price. The Fund “locks in” an exchange rate. The Fund may also invest in options on foreign currencies, foreign currency futures and options and foreign currency exchange-related securities like foreign currency warrants and other instruments linked to foreign currency exchange rates. There can be no assurance that the Fund will enter into currency transactions for hedging or other purposes or that such transactions will be successful if utilized.

 

WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THE FORWARD ASIA EX-JAPAN EQUITIES FUND?

 

As with any mutual fund investment, an investment in the Forward Asia Ex-Japan Equities Fund may cause you to lose some or all of the money you invested. Because the securities in which the Fund invest may decrease in value, the net asset value of the Fund and the value of your investment may also decrease. You should consider your own investment goals, time horizon and risk tolerance before investing in the Fund.

 

 

Emerging Market Stocks and Foreign Securities

 

Emerging market stocks and foreign securities may offer greater investment value, but they may present greater investment risks than investing in the securities of U.S. companies. These risks include greater likelihood of economic, political or social instability, currency fluctuations, less liquid and more volatile stock markets, the contagious effect of market or economic setbacks in one country on another emerging market country, possible governmental restrictions on currency conversions or trading, difficulty in accurately valuing emerging market securities or selling them at their fair value, especially in down markets, a lack of government regulation and different legal systems, immature economic structures, less regulated trading environments and the availability of less information about emerging market companies because of less rigorous accounting and regulatory standards.

 

 

Geographic Concentration

 

The Fund concentrates its investments in companies located in Asia (with the exception of Japan). Many of the countries in this region have relatively less developed markets compared to the markets of North America and Western European countries. A majority of Asian countries can be characterized as either developing or newly industrialized economies and tend to experience more volatile economic cycles than developed countries. Economic risks presented by investment in this region include currency devaluations resulting from high interest rates, significant reductions in economic

 

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FORWARD ASIA EX-JAPAN EQUITIES FUND


 

activity, and significant drops in securities prices. Many countries in the region have historically faced political uncertainty, corruption, military intervention, and social unrest. The companies in the Fund’s portfolio may react similarly to political, social and economic developments affecting this geographic region, which may result in more volatile Fund performance than a geographically diversified fund.

 

 

Common Stocks

 

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

 

 

Currency Transactions

 

If a security is denominated in a foreign currency, the value of the security fluctuates if there is a change in currency exchange rates relative to the U.S. dollar or exchange control regulations. Adverse currency fluctuations will reduce the value of the Fund’s shares, which are denominated in U.S. dollars. Costs are incurred by the Fund in connection with conversions between currencies. Currency risks are greater in lesser developed markets and can be unpredictably affected by external events. The sub-advisor is authorized to hedge against currency risks but is not required to do so and may choose not to do so because of the cost or for other reasons. Further, there is no assurance that attempts to hedge currency risk will be successful if utilized.

 

PERFORMANCE HISTORY

 

The Fund had not commenced operations as of the date of this prospectus and the Fund does not have a full calendar year of investment returns. Once the Fund has performance for at least one calendar year, a bar chart and performance table will be included in the Prospectus.

 

3


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FORWARD ASIA EX-JAPAN EQUITIES FUND


 

FUND FEES AND EXPENSES

 

The following information describes the fees and expenses that you may pay if you buy and hold shares of the Forward Asia Ex-Japan Equities Fund.

 

Shareholder Fees

 

As an investor in Class A shares of the Fund, you will pay a maximum sales charge (load) on purchases equal to 5.75% of the offering price. As an investor in Class C shares of the Fund, you will not pay a sales charge on the purchase price. However, you will pay a deferred sales charge up to a maximum of 1% on shares held for less than two years after purchase.

 

Shareholder Fees:

Fees paid directly from your investment

  Class A   Class C   Institutional
Class
  Investor
Class

Maximum Sales Charge (Load) on purchases (as a percentage of offering price)

  5.75%   None   None   None

Maximum Deferred Sales Charge for shares held less than 2 years (as a percentage of the lesser of original purchase price or redemption proceeds)

  None   1.00%   None   None

 

Annual Fund Operating Expenses

 

Annual fund operating expenses are paid directly out of the Fund’s assets. These expenses are not charged directly to shareholder accounts. They are expressed as a ratio, which is a percentage of average daily net assets.

 

Annual Fund Operating Expenses:

Expenses that are deducted from Fund assets

  Class A   Class C  

Institutional

Class

 

Investor

Class

Management Fee

         %          %          %          %

Distribution (12b-1) Fees(1)

  0.35%   0.75%   N/A   0.25%

Shareholder Services Fees(2)

  0.10%   0.25%   0.10%   0.10%

Other Expenses

         %          %          %          %

Total Annual Fund Operating Expenses

         %          %          %          %

Fee Waiver(3)

         %          %          %          %

Net Expenses

         %          %          %          %
(1)   The Fund has adopted Distribution Plans pursuant to which up to 0.35%, 0.75% and 0.25% of the Fund’s average daily net assets attributable to the Class A shares, Class C shares and Investor Class Shares respectively, may be used to pay distribution expense.
(2)   The Fund has adopted a Shareholder Services Plan pursuant to which up to 0.10% of the Fund’s average daily net assets attributable to Class A, Institutional Class and Investor Class shares and up to 0.25% of the Fund’s average daily net assets attribute to the Class C shares, may be used to pay shareholder servicing fees.
(3)   The Fund’s investment advisor has contractually agreed to waive a portion of its fees until January 31, 2009 in amounts necessary to limit the Fund’s operating expenses (exclusive of brokerage costs, interest, taxes, dividends and extraordinary expenses) for Class A, Class C, Institutional Class and Investor Class shares to an annual rate (as a percentage of the Fund’s average daily net assets) of [    ]%,[    ]%, [    ]% and [    ]%, respectively. Pursuant to this agreement, the Fund will reimburse the investment advisor for any fee waivers made by the investment advisor, provided that any such reimbursements made by the Fund to the investment advisor will not cause the Fund’s expense limitation to exceed the expense limitation in existence at the time the expenses were incurred or at the time of the reimbursement, whichever is lower, and the reimbursement is made within three years after the expenses were incurred.

 

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FORWARD ASIA EX-JAPAN EQUITIES FUND


 

EXAMPLES

 

These Examples are intended to help you compare the costs of investing in the Forward Asia Ex-Japan Equities Fund with the costs of investing in other mutual funds.

 

The Examples assume that you invest $10,000 in the Class A, Class C, Institutional Class or Investor Class shares of the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The Examples also assume that your investment has a 5% return each year, that the Fund’s total annual operating expenses remain the same and that the contractual fee waiver is in place for the first year. Although actual costs may be higher or lower, based on these assumptions your costs would be:

 

      Class A      Class C(1)     

Institutional

Class

    

Investor

Class

1 Year

   $      $      $      $

3 Years

   $      $      $      $

 

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

 

      Class A      Class C     

Institutional

Class

    

Investor

Class

1 Year

   $      $      $      $

3 Years

   $      $      $      $
(1)   The example for the Class C shares reflects the contingent deferred sales charge (“CDSC”) that would apply for redemptions of Class C shares within two years. For more information regarding the CDSC, please see the “Purchasing Shares” section of this Prospectus.

 

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FORWARD EASTERN EUROPE EQUITIES FUND


 

OBJECTIVE

 

The Forward Eastern Europe Equities Fund seeks to achieve long-term growth of capital. There is no guarantee that the Fund will achieve its objective.

 

PRINCIPAL INVESTMENT STRATEGY - INVESTING PRIMARILY IN EQUITY SECURITIES OF COMPANIES IN EMERGING EUROPEAN COUNTRIES

 

The Forward Eastern Europe Equities Fund seeks to achieve its investment objective by investing at least 80% of its net assets plus borrowings for investment purposes, if any, in the equity securities of companies located in the emerging markets of Europe (“Eastern Europe” countries). This investment policy and the name of the Fund may not be changed without at least 60 days’ prior written notice to shareholders. The Fund normally invests in at least eight but not fewer than six Eastern Europe countries. Equity securities include common and preferred stocks, investment company shares, convertible debt securities, warrants, subscription rights and depositary receipts for foreign stocks. The Fund may invest in securities of any market capitalization.

 

Currently, Eastern Europe countries may include those located in Eastern and South-Eastern Europe, Turkey, Russia and the Commonwealth of Independent States (CIS). A company generally will be considered to be located in a particular country if it meets one or more of the following criteria: (i) the issuer of the security is organized under the laws of, or maintains its principal place of business in, the country; (ii) the currency of settlement of the security is a currency of the country; (iii) the securities are traded principally in the country; or (iv) during the company’s most recent fiscal year, it derived at least 50% of its revenues or profits from goods produced or sold, investments made, or services performed in the country or has at least 50% of its assets in that country.

 

In allocating the Fund’s assets among Eastern Europe countries, the sub-advisor uses a proprietary database to screen for countries that meet the following standards:

 

   

Suitable safe custody of assets and freedom of capital movement;

 

   

A higher than average number of undervalued stocks when comparing the companies against their benchmark values;

 

   

A favorable domestic liquidity environment;

 

   

A reasonably liquid and diverse stock market;

 

   

A good or improving fiscal balance; and

 

   

An undervalued or fairly valued exchange rate, combined with sustainable trade and current account balances.

 

In selecting individual Eastern Europe stocks, the sub-advisor looks for companies with one or more of the following:

 

   

Current or potential high and stable cash generation;

 

   

Strong, liquid balance sheets;

 

   

Asset valuations significantly below replacement cost, or below the average for its sector on a global basis. The sub-advisor will also consider the debt of a company;

 

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FORWARD EASTERN EUROPE EQUITIES FUND


 

   

A high free cash flow relative to the stock price; and

 

   

In the case of banks, a low stock price relative to the asset base, combined with a high return on equity.

 

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

 

For hedging purposes, to reduce the risks of fluctuating exchange rates and to generate returns uncorrelated to the other strategies employed, the Fund may enter into forward foreign currency exchange contracts, which obligate a party to buy or sell a specific currency on a future date at a fixed price. The Fund “locks in” an exchange rate. The Fund may also invest in options on foreign currencies, foreign currency futures and options and foreign currency exchange-related securities like foreign currency warrants and other instruments linked to foreign currency exchange rates. There can be no assurance that the Fund will enter into currency transactions for hedging or other purposes or that such transactions will be successful if utilized.

 

WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THE FORWARD EASTERN EUROPE EQUITIES FUND?

 

As with any mutual fund investment, an investment in the Forward Eastern Europe Equities Fund may cause you to lose some or all of the money you invested. Because the securities in which the Fund invest may decrease in value, the net asset value of the Fund and the value of your investment may also decrease. You should consider your own investment goals, time horizon and risk tolerance before investing in the Fund.

 

 

Emerging Market Stocks and Foreign Securities

 

Emerging market stocks and foreign securities may offer greater investment value, but they may present greater investment risks than investing in the securities of U.S. companies. These risks include greater likelihood of economic, political or social instability, currency fluctuations, less liquid and more volatile stock markets, the contagious effect of market or economic setbacks in one country on another emerging market country, possible governmental restrictions on currency conversions or trading, difficulty in accurately valuing emerging market securities or selling them at their fair value, especially in down markets, a lack of government regulation and different legal systems, immature economic structures, less regulated trading environments and the availability of less information about emerging market companies because of less rigorous accounting and regulatory standards.

 

 

Geographic Concentration

 

The Fund concentrates its investments in companies located in Eastern Europe, which is a relatively less developed market compared to Western European economies. In general, Eastern European countries are in the early stages of industrial, economic and capital market development. Eastern European countries may include those that were, until recently, governed by communist governments or countries that have not achieved levels of industrial production, market activity, or other measures of economic development typical of those achieved by the more developed Western European economies. The

 

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FORWARD EASTERN EUROPE EQUITIES FUND


 

companies in the Fund’s portfolio may react similarly to political, social and economic developments affecting this geographic region, which may result in more volatile Fund performance than a geographically diversified fund.

 

 

Common Stocks

 

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

 

 

Currency Transactions

 

If a security is denominated in a foreign currency, the value of the security fluctuates if there is a change in currency exchange rates relative to the U.S. dollar or exchange control regulations. Adverse currency fluctuations will reduce the value of the Fund’s shares, which are denominated in U.S. dollars. Costs are incurred by the Fund in connection with conversions between currencies. Currency risks are greater in lesser developed markets and can be unpredictably affected by external events. The sub-advisor is authorized to hedge against currency risks but is not required to do so and may choose not to do so because of the cost or for other reasons. Further, there is no assurance that attempts to hedge currency risk will be successful if utilized.

 

PERFORMANCE HISTORY

 

The Fund had not commenced operations as of the date of this prospectus and the Fund does not have a full calendar year of investment returns. Once the Fund has performance for at least one calendar year, a bar chart and performance table will be included in the Prospectus.

 

8


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FORWARD EASTERN EUROPE EQUITIES FUND


 

FUND FEES AND EXPENSES

 

The following information describes the fees and expenses that you may pay if you buy and hold shares of the Forward Eastern Europe Equities Fund.

 

Shareholder Fees

 

As an investor in Class A shares of the Fund, you will pay a maximum sales charge (load) on purchases equal to 5.75% of the offering price. As an investor in Class C shares of the Fund, you will not pay a sales charge on the purchase price. However, you will pay a deferred sales charge up to a maximum of 1% on shares held for less than two years after purchase.

 

Shareholder Fees:

Fees paid directly from your investment

  Class A   Class C   Institutional
Class
  Investor
Class

Maximum Sales Charge (Load) on purchases (as a percentage of offering price)

  5.75%   None   None   None

Maximum Deferred Sales Charge for shares held less than 2 years (as a percentage of the lesser of original purchase price or redemption proceeds)

  None   1.00%   None   None

 

Annual Fund Operating Expenses

 

Annual fund operating expenses are paid directly out of the Fund’s assets. These expenses are not charged directly to shareholder accounts. They are expressed as a ratio, which is a percentage of average daily net assets.

 

Annual Fund Operating Expenses:

Expenses that are deducted from Fund assets

  Class A   Class C  

Institutional

Class

 

Investor

Class

Management Fee

         %          %          %          %

Distribution (12b-1) Fees(1)

  0.35%   0.75%   N/A   0.25%

Shareholder Services Fees(2)

  0.10%   0.25%   0.10%   0.10%

Other Expenses

         %          %          %          %

Total Annual Fund Operating Expenses

         %          %          %          %

Fee Waiver(3)

         %          %          %          %

Net Expenses

         %          %          %          %
(1)   The Fund has adopted Distribution Plans pursuant to which up to 0.35%, 0.75% and 0.25% of the Fund’s average daily net assets attributable to the Class A shares, Class C shares and Investor Class Shares respectively, may be used to pay distribution expense.
(2)   The Fund has adopted a Shareholder Services Plan pursuant to which up to 0.10% of the Fund’s average daily net assets attributable to Class A, Institutional Class and Investor Class shares and up to 0.25% of the Fund’s average daily net assets attribute to the Class C shares, may be used to pay shareholder servicing fees.
(3)   The Fund’s investment advisor has contractually agreed to waive a portion of its fees until January 31, 2009 in amounts necessary to limit the Fund’s operating expenses (exclusive of brokerage costs, interest, taxes, dividends and extraordinary expenses) for Class A, Class C, Institutional Class and Investor Class shares to an annual rate (as a percentage of the Fund’s average daily net assets) of [    ]%,[    ]%, [    ]% and [    ]%, respectively. Pursuant to this agreement, the Fund will reimburse the investment advisor for any fee waivers made by the investment advisor, provided that any such reimbursements made by the Fund to the investment advisor will not cause the Fund’s expense limitation to exceed the expense limitation in existence at the time the expenses were incurred or at the time of the reimbursement, whichever is lower, and the reimbursement is made within three years after the expenses were incurred.

 

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FORWARD EASTERN EUROPE EQUITIES FUND


 

EXAMPLES

 

These Examples are intended to help you compare the costs of investing in the Forward Eastern Europe Equities Fund with the costs of investing in other mutual funds.

 

The Examples assume that you invest $10,000 in the Class A, Class C, Institutional Class or Investor Class shares of the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The Examples also assume that your investment has a 5% return each year, that the Fund’s total annual operating expenses remain the same and that the contractual fee waiver is in place for the first year. Although actual costs may be higher or lower, based on these assumptions your costs would be:

 

      Class A      Class C(1)     

Institutional

Class

    

Investor

Class

1 Year

   $      $      $      $

3 Years

   $      $      $      $

 

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

 

      Class A      Class C     

Institutional

Class

    

Investor

Class

1 Year

   $      $      $      $

3 Years

   $      $      $      $
(1)   The example for the Class C shares reflects the contingent deferred sales charge (“CDSC”) that would apply for redemptions of Class C shares within two years. For more information regarding the CDSC, please see the “Purchasing Shares” section of this Prospectus.

 

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ADDITIONAL INVESTMENT STRATEGIES AND RISKS


 

In addition to the principal strategies and risks identified above, the following non-principal strategies and risks apply to the Funds.

 

 

Lending of Portfolio Securities

 

In order to generate additional income, the Funds from time to time may lend portfolio securities to broker-dealers, banks or institutional borrowers of securities. During the time portfolio securities are on loan, the borrower pays the lending Fund any dividends or interest paid on such securities. In the event the borrower defaults on its obligation to the lending Fund, the lending Fund could experience delays in recovering its securities and possible capital losses.

 

 

Illiquid Securities

 

The Funds may invest up to 15% of their net assets in illiquid securities (i.e., securities that do not have a readily available market or that are subject to resale restrictions). Generally, a security is considered illiquid if it cannot be disposed of in the ordinary course of business within seven days at approximately the price at which the Fund has valued the investment.

 

 

Defensive Positions; Cash Reserves

 

Under adverse market conditions or to meet anticipated redemption requests, a Fund may not follow its principal investment strategy. Under such conditions, a Fund may invest without limit in money market securities, U.S. government obligations and short-term debt securities of U.S. issuers. This could have a negative effect on a Fund’s ability to achieve its investment objective. Regarding certain federal agency securities or government-sponsored entity securities (such as debt securities or mortgage-backed securities issued by Freddie Mac, Fannie Mae, Federal Home Loan Banks, and other government-sponsored entities), you should be aware that although the issuer may be chartered or sponsored by Acts of Congress, the issuer is not funded by Congressional appropriations, and its securities are neither guaranteed nor issued by the United States Treasury.

 

 

Certain Other Strategies

 

A Fund may directly purchase particular types of debt and equity securities, such as corporate debt securities, convertible securities, depositary receipts, loan participations and assignments, mortgage and other asset-backed securities, certificates of deposit and time deposits and commercial paper. The Fund may enter into repurchase and reverse repurchase agreements and dollar roll agreements.

 

Please review the SAI if you wish to know more about these types of securities and their associated risks.

 

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MANAGEMENT OF THE FUNDS


 

INVESTMENT ADVISOR

 

Forward Management, LLC (“Forward Management”) serves as investment advisor to each of the Forward Funds (each a “Fund” and collectively, the “Funds”). Forward Management is a registered investment advisor that supervises the activities of each sub-advisor and has the authority to engage the services of different sub-advisors with the approval of the Trustees of the Funds and each Fund’s shareholders. Forward Management is located at 433 California Street, 11th Floor, San Francisco, California 94104.

 

Forward Management has the authority to manage the Funds in accordance with the investment objectives, policies and restrictions of the Funds subject to general supervision of the Trust’s Board of Trustees. The Funds operate as “manager-of-managers” funds, and, accordingly, Forward Management has delegated investment management authority to sub-advisors. Forward Management also provides the Funds with ongoing management supervision and policy direction. Forward Management has managed the Funds since September 1998 and the Funds are its principal investment advisory clients.

 

Forward Management uses rigorous criteria to select sub-advisors to manage the Funds’ assets. In choosing the sub-advisors, Forward Management considers a number of factors, including market trends, the sub-advisor’s investment style, its own outlook for a given market capitalization or investment style category, the sub-advisor’s performance in various market conditions, as well as the characteristics of the sub-advisor’s typical portfolio investments. These characteristics include capitalization size, growth and profitability measures, valuation ratios, economic sector weightings and earnings and price volatility statistics.

 

In addition to selecting the sub-advisors, Forward Management is responsible for monitoring and coordinating the overall management of the Funds. Forward Management reviews each Fund’s portfolio holdings and evaluates the on-going performance of the sub-advisors.

 

Each Fund pays an advisory fee to Forward Management for its services as investment advisor. The fees are computed daily and paid monthly at the following annual rates based on the average daily net assets of each Fund:

 

Fund   Advisory Fee Paid to Advisor by Fund

Forward Asia Ex-Japan Equities Fund

   

Forward Eastern Europe Equities Fund

   

 

The Funds pay these advisory fee to Forward Management, which in turn pays the sub-advisor a sub-advisory fee. Daily investment decisions for the Funds are made by the sub-advisor. The investment experience of the sub-advisor is described below under the heading “Sub-Advisors.”

 

A discussion regarding the basis for the Board of Trustees approving the investment advisory and investment sub-advisory contracts of the Funds will be available in the Funds’ annual report to shareholders for the fiscal year ending December 31, 2007.

 

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SUB-ADVISOR

 

The sub-advisor for a Fund manages the assets of the Fund and makes decisions with respect to, and places orders for, all purchases and sales of the Fund’s securities, subject to the general supervision of the Board of Trustees of Forward Funds and Forward Management and in accordance with the investment objectives, policies and restrictions of the Fund.

 

The SAI contains additional information about portfolio manager compensation, other accounts managed by each portfolio manager, and their ownership of securities in the Funds.

 

Forward Management has engaged the services of Pictet Asset Management Limited (“PAM Ltd”) to act as sub-advisor for the Forward Asia Ex-Japan Equities Fund and Forward Eastern Europe Equities Fund. PAM Ltd manages a range of products including a variety of equity portfolios for U.S. and international clients. Its address is Moor House, 12 London Wall, London EC2Y 5ET, United Kingdom. PAM Ltd is both registered as a U.S. investment advisor and authorized and regulated by the Financial Services Authority in the United Kingdom. PAM Ltd is an affiliate of Pictet & Cie, a Swiss private bank that was founded in 1805.

 

As of December 31, 2006, PAM Ltd had approximately $100 billion of assets under management, and Pictet & Cie had approximately $192 billion of assets under management and administration for institutional and private clients. Pictet & Cie is owned by eight partners.

 

The Forward Asia Ex-Japan Equities Fund is team managed. All investment management decisions are made jointly by the team. The team members are:

 

Nidhi Mahurkar is Co-Head of the Global Emerging Markets Equities team in charge of investment in Asia across Global Emerging Markets and regional Asian mandates. Ms. Mahurkar joined PAM Ltd in 2001 with almost five years of previous experience managing Asian equities at Lazard Asset Management. She was the industry leader for technology within Lazard’s global emerging markets product. Prior to joining Lazard, she worked with American Express in London. Ms. Mahurkar holds a BA in economics and an MBA from the Indian Institute of Management in Bangalore. Ms. Mahurkar has managed the Forward Asia Ex-Japan Equities Fund since its inception.

 

David Chatterjee, CFA, is a Senior Investment Manager in the Global Emerging Markets Equities team, specializing in Asia. Mr. Chatterjee joined PAM Ltd in 1998, initially concentrating on South Asia, Africa and the Middle East. Mr. Chatterjee graduated from Trinity College, Cambridge with a degree in mathematics in 1992 before completing his Cambridge studies in 1998 with a PhD in pure mathematics. He holds the Investment Management Certificate and is a Chartered Financial Analyst (CFA) charterholder. Mr. Chatterjee has managed the Forward Asia Ex-Japan Equities Fund since its inception.

 

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Lan Wang Simond, CFA, is a Senior Investment Manager in the Global Emerging Markets Equities team. Ms. Simond has held this position since November 2005. Ms. Simond initially joined Pictet & Cie’s Financial Research Department in 1997 as a Fund Manager and a Senior Analyst specialising in the Asia ex Japan region. Before joining Pictet, she worked as a fund manager with Gérifonds, the fund management company of the Banque Cantonale Vaudoise, where she managed one Asia ex Japan fund and one China fund (1994-1997). Ms. Simond holds a BA from the Beijing Normal Institute of Foreign Languages and a Business Administration degree from HEC University of Lausanne, Switzerland. She is a Chartered Financial Analyst (CFA) charterholder. Ms. Simond has managed the Forward Asia Ex-Japan Equities Fund since its inception.

 

Jonathan Bell is an Investment Manager in the Global Emerging Markets Equities team, specializing in Asian markets. Mr. Bell joined PAM Ltd in 2002. Before joining PAM Ltd, Mr. Bell worked as a TMT industry analyst for Pyramid Research, a global consultancy with an emerging markets focus (2000-2002). Mr. Bell holds a MBA from the Goizueta Business School at Emory University and an MA in International Relations from the Fletcher School of Law & Diplomacy (Harvard). Mr. Bell has managed the Forward Asia Ex-Japan Equities Fund since its inception.

 

The Forward Eastern Europe Equities Fund is team managed. All investment management decisions are made jointly by the team. The team members are:

 

Agne Zitkute, CFA, is a Senior Investment Manager in the Global Emerging Markets Equities team. Ms. Zitkute joined PAM Ltd in 2004. Before joining PAM Ltd, Ms. Zitkute was a Senior Research Analyst at Cathay Financial, a specialist investment brokerage, where she covered European merger arbitrage and special situations for hedge funds (2003-2004). From 2001-2002, she was a Senior EMEA and later Western European Telecoms analyst with SG Securities. Ms. Zitkute began her investment career with Invesco Asset Management as an investment analyst in 1997. From 1999-2001, she co-managed Invesco’s Central and Eastern European portfolios. Mr. Zitkute holds an MBA from Georgetown University in Washington, DC and a Bachelors Degree in Business from the Kaunas University of Technology in Lithuania. Ms. Zitkute is also a Chartered Financial Analyst (CFA) charterholder and holds the Investment Management Certificate. Ms. Zitkute has managed the Forward Eastern Europe Equities Fund since its inception.

 

Peter Jarvis, CFA, is a Senior Investment Manager in the Global Emerging Markets Equities team, specializing in the EMEA markets. Mr. Jarvis joined PAM Ltd in 2006. From 1993-2006, Mr. Jarvis was employed by INVESCO Asset Management where he managed Global Emerging Markets, Latin American and Eastern European portfolios. Mr. Jarvis holds a BA (Hons) in Mathematics from Oxford University. Mr. Jarvis holds the Investment Management Certificate and is a Chartered Financial Analyst (CFA) charterholder. Mr. Jarvis has managed the Forward Eastern Europe Equities Fund since its inception.

 

Robert James is an Investment Analyst in the Global Emerging Markets Equities team, focusing on the Energy and Materials sectors. Mr. James joined PAM Ltd in 2005. Before joining PAM Ltd, he worked as an economist in the Ministry of Finance in Mozambique (2003-2004). Mr. James holds a PhD in development economics from the University of East Anglia and a first class MA Honours degree in Experimental Psychology from Oxford University. Mr. James has managed the Forward Eastern Europe Equities Fund since its inception.

 

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MANAGEMENT OF THE FUNDS


 

HIRING SUB-ADVISORS WITHOUT SHAREHOLDER APPROVAL

 

Forward Management and Forward Funds have received an exemptive order from the Securities and Exchange Commission (“SEC”) that permits Forward Management, subject to the approval of the Board of Trustees of Forward Funds, to hire and terminate non-affiliated sub-advisors or to materially amend existing sub-advisory agreements with non-affiliated sub-advisors for the Funds without shareholder approval. Pursuant to such exemptive relief, shareholders of the affected Fund will be notified of sub-advisor changes within 90 days after the effective date of such change.

 

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VALUATION OF SHARES


 

The price you pay for a share of a Fund, and the price you receive upon selling or redeeming a share of a Fund, is based on the Fund’s net asset value (“NAV”). The NAV per share for each Fund for purposes of pricing sales and redemptions is calculated by dividing the value of all securities and other assets belonging to the Fund, less the liabilities charged to the Fund, by the number of shares of the Fund that have already been issued.

 

The NAV of a Fund (and each Class of shares) is usually determined and its shares are priced as of the close of regular trading on the New York Stock Exchange (“NYSE”) (generally 4:00 p.m., Eastern time) on each Business Day. A “Business Day” is a day on which the NYSE is open for trading. Currently, the NYSE is typically closed on the following holidays: New Year’s Day, Martin Luther King, Jr. Day, Presidents’ Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.

 

When you buy shares, you pay the NAV per share plus any applicable sales charge. When you sell shares, you receive the NAV per share minus any applicable contingent deferred sales charge (“CDSC”). The price at which a purchase or redemption is effected is based on the next calculation of NAV after the order is placed. Orders received by financial intermediaries prior to the close of trading on the NYSE will be confirmed at the offering price computed as of the close of trading on the NYSE (normally 4:00 p.m., Eastern time). It is the responsibility of the financial intermediary to insure that all orders are transmitted in a timely manner to a Fund. Orders received by financial intermediaries after the close of trading on the NYSE will be confirmed at the next computed offering price.

 

The NAV per share of a Fund will fluctuate as the market value of the Fund’s investments changes. The NAV of different Classes of shares of the same Fund will differ due to differing Class expenses. A Fund’s assets are valued generally by using available market quotations or at fair value, as described below, as determined in good faith in accordance with procedures established by, and under direction of, the Board of Trustees.

 

Portfolio securities or contracts that are listed or traded on a national securities exchange, contract market, included in the NASDAQ National Market System or comparable over-the-counter market and that are freely transferable will be valued at the last reported sale price or a market’s official closing price on the valuation day, or, if there has been no sale that day, at the average of the last reported bid and ask price on the valuation day for long positions or ask prices for short positions. If no bid or ask prices are quoted before closing, such securities or contracts will be valued at either the last available sale price, or at fair value, as discussed below.

 

In cases in which securities are traded on more than one exchange, the securities are valued on the exchange designated by or under the authority of the Board of Trustees as the primary market.

 

Debt securities (including convertible debt) that have more than 60 days remaining until maturity or that are credit impaired for which market data is readily available will be valued on the basis of the average of the latest bid and ask price. Debt securities that mature in less than 60 days and that are not credit impaired are valued at amortized cost

 

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if their original maturity was 60 days or less, or by amortizing the value as of the 61st day prior to maturity if their original term to maturity exceeded 60 days (unless the Board of Trustees determines that this method does not represent fair value). For most debt securities, Forward Funds receives pricing information from independent pricing vendors (approved by the Board of Trustees) which also use information provided by market makers or estimates of value obtained from yield data relating to securities with similar characteristics. As appropriate, quotations for high yield bonds may also take additional factors into consideration such as the activity of the underlying equity or sector movements. In the event valuation information is not available from third party pricing vendors for a debt security held by the Fund, such security may be valued by quotations obtained from dealers that make markets in such securities or otherwise determined based on the fair value of such securities, as discussed below. Because long-term bonds and lower-rated bonds tend to be less liquid, their values may be determined based on fair value more frequently than portfolio holdings that are more frequently traded or that have relatively higher credit ratings.

 

Futures, options on futures and swap contracts that are listed or traded on a national securities exchange, commodities exchange, contract market, included in the NASDAQ National Market System or comparable over-the-counter market and that are freely transferable will be valued at their closing settlement price on the exchange on which they are primarily traded or based upon the current settlement price for a like instrument acquired on the day on which the option is being valued. A settlement price may not be used if the market makes a limit move with respect to a particular commodity. Over-the-counter futures, options on futures and swap contracts for which market quotations are readily available will be valued based on quotes received from third party pricing services or one or more dealers that make markets in such securities. If quotes are not available from a third party pricing service or one or more dealers, quotes shall be determined based on the fair value of such securities, as discussed below.

 

Options on securities and options on indexes will be valued using the last quoted sale price as of the close of the securities or commodities exchange on which they are traded. Certain investments including options may trade in the over-the-counter market and generally will be valued based on quotes received from a third party pricing service or one or more dealers that make markets in such securities, or at fair value, as discussed below.

 

To the extent that a Fund holds securities listed primarily on a foreign exchange that trades on days when the Fund is not open for business or the NYSE is not open for trading, the value of the portfolio securities may change on days that you cannot buy or sell shares. To the extent that a Fund invests in foreign securities that are principally traded in a foreign market, the calculation of the Fund’s NAV may not take place contemporaneously with the determination of the prices of portfolio securities of foreign issuers used in such calculation. Therefore, the NAV of s Fund’s shares may change on days when shareholders will not be able to purchase or redeem the Fund’s shares. Portfolio securities that are primarily traded on foreign securities exchanges are generally valued at the preceding closing values of such securities on their respective exchanges, except when an occurrence subsequent to the time a value was so established is likely to have changed such value. In such an event, the fair value of those securities will be determined in good faith through the consideration of other factors in accordance with procedures established by, and under the general supervision of, the Board of Trustees.

 

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VALUATION OF SHARES


 

Assets and liabilities denominated in foreign currencies will have a market value converted into U.S. dollars at the prevailing foreign currency exchange daily rates as provided by a pricing service. Forward currency exchange contracts will have a market value determined by the prevailing foreign currency exchange daily rates and current foreign currency exchange forward rates. The foreign currency exchange forward rates are calculated using an automated system that estimates rates on the basis of the current day foreign currency exchange rates and forward foreign currency exchange rates supplied by a pricing service.Prevailing foreign exchange rates and forward foreign currency exchange rates may generally be obtained at the close of the NYSE, normally 4:00 p.m. Eastern Time. As available and as provided by an appropriate pricing service, translation of foreign security and currency market values may also occur with the use of foreign exchange rates obtained at approximately 11:00 a.m. Eastern Time, which approximates the close of the London Exchange.

 

Redeemable securities issued by open-end investment companies are valued at the investment company’s applicable NAV, with the exception of exchange-traded open-end investment companies, which are priced as equity securities in accordance with procedures established by, and under direction of, the Board of Trustees.

 

Forward Funds has a policy that contemplates the use of fair value pricing to determine the NAV per share of a Fund when market prices are unavailable, as well as under other circumstances, such as (i) if the primary market for a portfolio security suspends or limits trading or price movements of the security or (ii) when events occur after the close of the exchange on which a portfolio security is principally traded that are likely to have changed the value of the security. When a Fund uses fair value pricing to determine the NAV per share of the Fund, securities will not be priced on the basis of quotations from the primary market in which they are traded, but rather may be priced by another method that the Board of Trustees believes accurately reflects fair value. The fair value of certain of a Fund’s securities may be determined through the use of a statistical research service or other calculation methodology. Forward Funds’ policy is intended to result in a calculation of a Fund’s NAV that fairly reflects security values as of the time of pricing. While fair values determined pursuant to Forward Funds’ procedures are intended to represent the amount a Fund would expect to receive if the fair valued security were sold at the time of fair valuation, the fair value may not equal what the Fund would receive if it actually were to sell the security as of the time of pricing.

 

Because a Fund may invest in below investment grade securities and securities of small capitalization companies, which may be infrequently traded and therefore relatively illiquid, and foreign securities, the valuation of which may not take place contemporaneously with the calculation of the Fund’s NAV, the Fund may be subject to relatively greater risks of market timing, and in particular, a strategy that seeks to take advantage of inefficiencies in market valuation of these securities because of infrequent trading. For this reason, the Fund may, at times, fair value some or all of its portfolio securities in order to deter such market timing.

 

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PURCHASING SHARES


 

HOW TO BUY SHARES

 

You can open an account and make an initial purchase of shares of the Funds directly from the Funds. To open an account and make an initial purchase directly with the Funds, you can mail a check or other negotiable bank draft (payable to Forward Funds) in the minimum amounts described below, along with a completed and signed Account Application, to Forward Funds, P.O. Box 1345, Denver, CO 80201. To obtain an Account Application, call (800) 999-6809 or download one from www.forwardfunds.com. A completed Account Application must include your valid taxpayer identification number. You may be subject to penalties if you falsify information with respect to your tax identification number.

 

After you have opened an account, you can make subsequent purchases of shares of Forward Funds directly from the Funds. To purchase shares directly by mail, send your instruction and a check to the Funds at P.O. Box 1345, Denver, CO 80201.

 

You also can open an account and make an initial purchase and subsequent purchases of shares through a financial intermediary that has established an agreement with the Funds’ Distributor.

 

Depending upon the terms of your account, you may pay account fees for services provided in connection with your investment in a Fund. Financial intermediaries may charge their customers a transaction or service fee. Forward Funds or your financial intermediary can provide you with information about these services and charges. You should read this Prospectus in conjunction with any such information you receive.

 

SHARE CLASSES

 

In this Prospectus, the Funds offer Class A, Class C, Investor Class and Institutional Class shares. Each share class of a Fund represents an investment in the same portfolio of securities, but each share class has its own sales charge and expense structure, allowing you to choose the class that best meets your situation. When you purchase shares of a Fund, you must choose a share class.

 

Factors you should consider in choosing a class of shares include:

 

   

How long you expect to own the shares;

   

How much you intend to invest;

   

Total expenses associated with owning shares of each class; and

   

Whether you qualify for any reduction or waiver of sales charges (for example, Class A shares may be a less expensive option over time if you qualify for a sales charge reduction or waiver).

 

Each investor’s financial considerations are different. You should speak with your financial advisor to help you decide which share class is best for you.

 

Institutional Class Shares

 

Certain financial institutions, pension or 401(k) plans, or investment advisors or individuals purchasing $100,000 or more of shares of the Funds may elect to purchase

 

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Institutional Class shares. Authorized firms may charge for certain shareholder services and should furnish clients who purchase Institutional Class shares with a schedule explaining the fees.

 

The Funds may waive or reduce the minimum investment requirement for Institutional Class shares under certain circumstances and conditions including, without limitation, shares purchased by officers, directors, trustees and employees of Forward Funds, Forward Management and their affiliates, and shares purchased by retirement plans that have $250,000 or more in plan assets.

 

Class A, Class C and Investor Class Shares

 

Minimum Initial Investment Amount for Class A, Class C and Investor Class Shares:

 

   

$2,000 for accounts enrolled in eDelivery

   

$2,000 for Coverdell Education Savings accounts

   

$500 for Automatic Investment Plan accounts

   

$4,000 for all other accounts

 

Subsequent investments for each Fund must be $100 or more. Financial intermediaries may charge their customers a transaction or service fee.

 

Forward Funds has the discretion to waive or reduce any of the above minimum investment requirements.

 

Automatic Investment Plan for Class A, Class C and Investor Class Shares:

 

Forward Funds offers an Automatic Investment Plan for current and prospective investors in which you may make monthly investments in one or more of the Forward Funds. The minimum initial investment amount is $500 and minimum subsequent investments are $50 per Fund. Sums for investment will be automatically withdrawn from your checking or savings account on the day you specify. If you do not specify a day, the transaction will occur on the 20th of each month or the next Business Day if the 20th is not a Business Day. Please call (800) 999-6809 if you would like more information.

 

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SALES CHARGES

 

 

Class A Shares

 

The maximum sales charge on the purchase of Class A shares is 5.75% of the offering price. The offering price is the NAV per share plus the applicable front-end sales charge. The current sales charges are:

 

     Sales Charge as a Percentage of:    Dealer’s
Concession
(as a % of
Offering Price)
Dollar Amount Invested    Offering Price    NAV   

Less than $25,000

   5.75%    6.10%    5.00%

$25,000 to $49,999.99

   5.00%    5.26%    4.25%

$50,000 to $99,999.99

   4.50%    4.71%    3.75%

$100,000 to $249,999.99

   3.50%    3.63%    2.75%

$250,000 to $499,999.99

   2.50%    2.56%    2.00%

$500,000 to $749,999.99

   2.00%    2.04%    1.60%

$750,000 to $999,999.99

   1.50%    1.52%    1.20%

$1,000,000 & Above

   0.00%    0.00%    up to 0.50%

 

If your account value, including the amount of your current investment, totals $1 million or more, you will not pay a front-end sales charge on the current investment amount. The Distributor may pay the selling financial intermediary up to 0.50% of the offering price. However, if you sell these shares (for which you did not pay a front-end sales charge) within eighteen months of purchase, you will pay a contingent deferred sales charge (“CDSC”) of 0.50%. The amount of the CDSC is determined as a percentage of the lesser of the current market value or the cost of the shares being redeemed. The Funds will use the first-in, first-out (“FIFO”) method to determine the eighteen-month holding period for the CDSC. The date of the redemption will be compared to the earliest purchase date of Class A shares not subject to a sales charge held in the redeeming shareholder’s account. The CDSC will be charged if the holding period is less than eighteen months, using the anniversary date of a transaction to determine the “eighteen-month” mark. As an example, shares purchased on December 1, 2007 would be subject to the CDSC if they were redeemed on or prior to June 1, 2009. On or after June 2, 2009, they would not be subject to the CDSC. The CDSC primarily goes to the Distributor as reimbursement for the portion of the dealer concession paid to financial intermediaries.

 

Class A shares acquired by reinvestment of dividends are not subject to the CDSC. CDSC waivers are available in certain circumstances. For information regarding waivers, please see “Waiver of CDSC” below.

 

 

Class C Shares

 

There is no sales charge on the purchase of Class C shares. The offering price is the net asset value per share. The maximum purchase amount for the Class C shares is $999,999.99. Purchases of $1 million or more are invested in Class A shares because there is no deferred sales charge for shares held more than eighteen months and Class A shares’ annual expenses are lower. Class C shares may have a higher expense ratio and

 

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pay lower dividends than Class A shares offered by the Funds because the distribution and service fee for the Class C shares is higher than the distribution fee for the Class A shares.

 

The Funds’ Distributor pays 1.00% of the amount invested to financial intermediaries who sell Class C shares of the Funds. Investors purchasing Class C shares pay a CDSC of 1% if such shares are held for less than two years. The amount of the CDSC is determined as a percentage of the lesser of the current market value or the cost of the shares being redeemed. The CDSC primarily goes to the Funds’ Distributor as reimbursement for the portion of the dealer concession paid to financial intermediaries.

 

The Funds will use the FIFO method to determine the two-year holding period for the CDSC. The date of the redemption will be compared to the earliest purchase date of shares held in the redeeming shareholder’s account. The CDSC will be charged if the holding period is less than two years, using the anniversary date of a transaction to determine the “two year” mark. As an example, shares purchased on December 1, 2007 would be subject to the CDSC if they were redeemed on or prior to December 1, 2009. On or after December 2, 2009, they would not be subject to the CDSC.

 

Class C shares acquired by reinvestment of dividends are not subject to the CDSC. CDSC waivers are available in certain circumstances. For information regarding waivers, please see “Waiver of CDSC” below.

 

 

Reduced Sales Charge for Class A Shareholders

 

As noted in the table above, discounts (“breakpoints”) are available for larger purchases. There are several ways for shareholders to reach a higher discount level and qualify to pay a lower sales charge. Shareholders may qualify by combining current and past purchases in any of the Class A shares of the Forward Funds. To determine whether or not a reduced initial sales charge applies to a proposed purchase, we take into account not only the money that is invested upon such proposed purchase, but also the value of all Class A shares of the Forward Funds that we currently have associated with you, calculated at their historical cost and/or offering price.

 

You can minimize sales charges in any of the following ways:

 

1.   Increase your initial Class A investment amount to reach a higher discount level.

 

2.   Right of Accumulation. Add to an existing Class A shareholder account so that the current offering price value of the total combined holdings reach a higher discount level.

 

3.   Letter of Intent. Inform the Funds that you wish to sign a non-binding Letter of Intent to purchase an additional value of Class A shares over a 13-month period at a level that would entitle you to a higher discount level.

 

4.   Combined Purchase Privilege. Combine the following investor accounts into one “purchase” or “holding” to qualify for a reduced sales charge:

 

  (a)   An individual or “company,” as defined in Section 2(a)(8) of the 1940 Act (which includes corporations which are corporate affiliates of each other, but does not include those companies in existence less than six months or which have no purpose other than the purchase of shares of the Fund or other registered investment companies at a discount);

 

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  (b)   An individual, his or her spouse and children under age 21, purchasing for his, her or their own account;

 

  (c)   A single purchase by a trustee or other fiduciary purchasing shares for a single trust, estate or single fiduciary account although more than one beneficiary is involved; or

 

  (d)   A single purchase for the employee benefit plans of a single employer.

 

To qualify for the Combined Purchase Privilege or to obtain the Right of Accumulation, when each such purchase is made, the investor or financial intermediary must provide us with sufficient information to verify that the purchase qualifies for the privilege or discount. Because breakpoint eligibility may be determined based on historical cost, you should retain any records necessary to substantiate those costs in cases where the Funds, their transfer agent and financial intermediaries do not maintain this information.

 

It may be necessary for an investor to provide the following information or records to a Fund or his or her financial intermediary in order to verify his or her eligibility for a breakpoint discount: (a) information or records regarding shares of the Fund or other Funds held in all accounts (e.g., retirement accounts) of the investor at the financial intermediary; (b) information or records regarding shares of the Fund or other Funds held in any account of the shareholder at another financial intermediary; and (c) information or records regarding shares of the Fund or other Funds held at any financial intermediary by related parties of the investor, such as members of the same family or household. If an investor fails to identify necessary breakpoint information, the investor may not receive the breakpoints that would otherwise be available.

 

 

Reinstatement Privilege for Class A Shares

 

An investor who has sold Class A shares of a Fund may reinvest the proceeds of such sale in Class A shares of any of the Forward Funds, except the Forward Long/Short Credit Analysis Fund or any future Fund that restricts purchase to “qualified investors,” within 120 days of the sale, and any such reinvestment will be made at the Fund’s then-current net asset value, so that no sales charge will be levied. Investors should call the Forward Funds for additional information prior to exercising this privilege.

 

By exercising this reinstatement privilege, the investor does not alter the federal income tax treatment of any capital gains realized on the previous sale of shares of the Fund, but to the extent that any shares are sold at a loss and proceeds are reinvested in shares of the Fund, some or all of the loss may be disallowed as a deduction. Please contact your tax advisor for more information concerning tax treatment of such transactions.

 

 

Waiver of Initial Sales Charges for Class A Shares

 

A Fund may waive the imposition of sales charges on investor purchases of Class A shares of the Fund under certain circumstances and conditions, including shares purchased by:

 

   

Officers, directors, trustees, and employees of Forward Funds, Forward Management, sub-advisors, and their respective affiliates.

   

ReFlow, which is a program designed to provide a liquidity source for mutual funds experiencing redemptions of their shares.

 

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Registered representatives and employees of financial intermediaries with a current selling agreement with the Distributor or Forward Management and their affiliates.

   

Clients of financial intermediaries using Forward Funds in fee-based investment products under a signed agreement with the Distributor or Forward Management.

   

Advisory accounts managed by registered investment advisers or bank trust departments.

   

Employees of designated asset management firms, other service providers, and their affiliates.

   

Immediate family members of all such persons as described above.

   

Certain qualified plans, including pension funds, endowments, and other institutional funds.

   

Financial intermediary supermarkets and fee-based platforms.

 

 

Waiver of CDSC for Class A and Class C Shares

 

A Fund may waive the imposition of a CDSC on redemptions of Class A or Class C shares of the Fund under certain circumstances and conditions, including without limitation the following:

 

   

Redemptions following the death or permanent disability (as defined by Section 72(m)(7) of the Internal Revenue Code) of a shareholder if made within one year of death or the initial determination of permanent disability. The waiver is available only for shares held at the time of death or initial determination of permanent disability.

   

Redemptions made through a Systematic Withdrawal Plan, limited to 10% per year of the account value at the time the plan is established and annually thereafter, provided all dividends and distributions are reinvested.

   

Required minimum distributions from a tax-deferred retirement plan or an individual retirement account (IRA) as required under the Internal Revenue Code. The waiver of the CDSC for required distributions will be as a percentage of assets held in the Funds.

   

Forced redemptions made by the Funds of shares held by shareholders whose account has a value of less than $100.

   

Redemptions made by ReFlow.

   

Redemptions in cases of natural disaster affecting shareholders.

 

If you think you may be eligible for a CDSC waiver, contact your financial intermediary. You must notify Forward Funds prior to the redemption request to ensure your receipt of the waiver. Please call (800) 999–6809 for additional information.

 

EXCHANGE PRIVILEGE

 

You can exchange your shares of a Fund with a money market fund or for shares of the same class of any of the other Forward Funds. Please check with Forward Funds to determine which money market funds are available.

 

There are no fees for exchanges. Forward Funds may suspend a shareholder’s exchange privilege if, in the judgement of Forward Management, the shareholder’s exchange activity indicates frequent trading or market timing that may be harmful to a Fund or its shareholders. See “Policies Concerning Frequent Purchases and Redemptions” in this Prospectus.

 

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Before you decide to exchange shares, you should read the Prospectus information about the Fund or money market fund involved in your exchange. Exchanges are taxable events and may result in a taxable gain (both short and long term) or loss for Federal and state income tax purposes.

 

You can send a written instruction specifying your exchange or, if you have authorized telephone exchanges previously and we have a record of your authorization, you can call (800) 999-6809 to execute your exchange. Under certain circumstances, before an exchange can be made, additional documents may be required to verify the authority or legal capacity of the person seeking the exchange. Exchanges must be for amounts of at least $100. In order to make an exchange into a new account for Institutional Class shares, the exchange must satisfy the $100,000 minimum initial investment requirement. Once your exchange is received in proper form, it cannot be revoked. This exchange privilege is available only in U.S. states where shares of the Funds being acquired may legally be sold.

 

Forward Funds also reserves the right to prohibit exchanges during the first 15 days following an investment in a Fund. Forward Funds may terminate or change the terms of the exchange privilege at any time. In general, you will receive notice of any material change to the exchange privilege at least 60 days prior to the change, although this notice period may be reduced or eliminated if determined by the Board of Trustees or Forward Management to be in the best interests of shareholders, and otherwise consistent with applicable regulations.

 

PRICING OF FUND SHARES

 

When you purchase shares, you will pay the NAV that is next calculated after we receive your order. If you place an order for the purchase of shares through a financial intermediary, the purchase price will be based on the NAV next determined, but only if the financial intermediary receives the order by the close of the Business Day. Your financial intermediary is responsible for transmitting such orders promptly. If the financial intermediary fails to transmit your order properly, your right to that day’s closing price must be settled between the financial intermediary and you.

 

Purchases of shares of a Fund will be effected only on a Business Day. An order received prior to the daily cut-off time on any Business Day is processed based on that day’s NAV. An order received after the cut-off time on any Business Day is processed based on the NAV determined as of the next Business Day of the Funds.

 

CUSTOMER IDENTIFICATION PROGRAM

 

To help the government fight the funding of terrorism and money laundering activities, federal law requires all financial institutions to obtain, verify and record information that identifies each person that opens a new account, and to determine whether such person’s name appears on government lists of known or suspected terrorists and terrorist organizations.

 

As a result, the Funds must obtain the following information for each person that opens a new account:

 

 

Name;

 

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Date of birth (for individuals);

 

Residential or business street address (although post office boxes are still permitted for mailing); and

 

Social Security number, taxpayer identification number, or other identifying number.

 

You may also be asked for a copy of your driver’s license, passport or other identifying document in order to verify your identity. In addition, it may be necessary to verify your identity by cross-referencing your identification information with a consumer report or other electronic database. Additional information may be required to open accounts for corporations and other entities.

 

Federal law prohibits the Funds and other financial institutions from opening a new account unless they receive the minimum identifying information listed above. After an account is opened, the Funds may restrict your ability to purchase additional shares until your identity is verified. The Funds may close your account or take other appropriate action if they are unable to verify your identity within a reasonable time. If your account is closed for this reason, your shares will be redeemed at the NAV next calculated after the account is closed.

 

Forward Funds and its agents will not be responsible for any loss in an investor’s account resulting from the investor’s delay in providing all required identifying information or from closing an account or redeeming an investor’s shares when an investor’s identity is not verified.

 

eDELIVERY

 

eDelivery allows you to receive your quarterly account statements, transaction confirmations and other important information concerning your investment in Forward Funds online. Select this option on your account application to receive email notifications when quarterly statements and confirmations are available for you to view via secure online access. You will also receive emails whenever a new prospectus, semi-annual or annual fund report is available. To establish eDelivery, call (800) 999-6809 or visit www.forwardfunds.com. The minimum initial investment for accounts enrolled in eDelivery is $2,000.

 

ONLINE ACCOUNT ACCESS

 

Shareholders can opt to access their account information online. You must select this option on your account application or call (800) 999-6809 to register. To set up online access, go to www.forwardfunds.com, select Account Login and obtain a user id and password. If you have questions, or problems accessing your account, contact Forward Funds at (800) 999-6809.

 

OTHER INFORMATION

 

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

 

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Forward Funds may be required to “freeze” your account if there appears to be suspicious activity or if account information matches information on a government list of known terrorists or other suspicious persons.

 

Due to the relatively high cost of handling small investments, Forward Funds reserve the right, upon 60 days’ written notice, to redeem, at NAV, the shares of any shareholder whose account has a value of less than $100 in a Fund, other than as a result of a decline in the NAV per share. This policy will not be implemented where the Fund has previously waived the minimum investment requirement for that shareholder. Before a Fund redeems such shares and sends the proceeds to the shareholder, it will notify the shareholder that the value of the shares in the account is less than the minimum amount and will allow the shareholder 60 days to make an additional investment in an amount that will increase the value of the account to at least $100 before the redemption is processed. As a sale of your Fund shares, this redemption may have tax consequences.

 

Forward Funds reserves the right to refuse any request to purchase shares.

 

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REDEEMING SHARES


 

You may normally redeem your shares on any Business Day. Redemptions are priced at the NAV per share next determined after receipt of a redemption request in proper form by the Funds’ Distributor, Forward Funds or their agents and subject to any applicable CDSC. A financial intermediary may charge its customers a transaction or service fee in connection with redemptions. Forward Funds intends to redeem shares of each Fund solely in cash up to the lesser of $250,000 or 1.00% of the Fund’s net assets during any 90-day period for any one shareholder. In consideration of the best interests of the remaining shareholders, Forward Funds reserves the right to pay any redemption proceeds exceeding this amount in whole or in part by a distribution in-kind of securities held by a Fund in lieu of cash. It is highly unlikely that shares would ever be redeemed in-kind. If shares are redeemed in-kind, the redeeming shareholders should expect to incur transaction costs upon the disposition of the securities received in the distribution including, but not limited to, brokerage costs of converting the portfolio securities to cash.

 

HOW TO REDEEM SHARES

 

Neither the investment advisor, the Distributor, the Transfer Agent, the sub-advisor, Forward Funds nor any of their affiliates or agents will be liable for any loss, expense or cost when acting upon any oral, wired or electronically transmitted instructions or inquiries believed by them to be genuine. While precautions will be taken, as more fully described below, you bear the risk of any loss as the result of unauthorized telephone redemptions or exchanges believed to be genuine. Forward Funds will employ reasonable procedures to confirm that instructions communicated by telephone are genuine. These procedures include recording phone conversations, sending confirmations to shareholders within 72 hours of the telephone transaction, verifying the account name and sending redemption proceeds only to the address of record or to a previously authorized bank account.

 

 

By Telephone

 

You may redeem your shares by telephone if you choose that option on your Account Application. If you did not originally select the telephone option, you must provide written instructions to Forward Funds in order to add this option. The maximum amount that may be redeemed by telephone at any one time is $50,000. You may have the proceeds mailed to your address of record or wired to a bank account previously designated on the Account Application. If you elect to have the payment wired to your bank, a wire transfer fee of $30.00 will be charged by Forward Funds.

 

 

By Mail

 

To redeem by mail, you must send a written request for redemption to Forward Funds, P.O. Box 1345, Denver, CO 80201. The Funds’ Transfer Agent will require a Medallion Signature Guarantee. A Medallion Signature Guarantee may be obtained from a domestic bank or trust company, broker, dealer, clearing agency, savings association, or other financial institution that is participating in a medallion program recognized by the Securities Transfer Association. Signature guarantees from financial institutions that are not participating in one of these programs are not accepted as Medallion Signature Guarantees. The Medallion Signature Guarantee requirement will be waived if all of the following conditions apply (1) the redemption check is payable to the shareholder(s) of record, (2) the redemption check is mailed to the shareholder(s) at the address of record,

 

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(3) an application is on file with the Transfer Agent, and (4) the proceeds of the redemption are $50,000 or less. The Transfer Agent cannot send an overnight package to a post office box.

 

 

By Systematic Withdrawal

 

You may elect to have monthly electronic transfers ($100 minimum) made to your bank account from your Forward Funds account. Your Forward Funds account must have a minimum balance of $10,000 and automatically have all dividends and capital gains reinvested. The transfer will be made on the day you specify (or the next Business Day) to your designated account or a check will be mailed to your address of record. If you do not specify a day, the transfer will be made on the 20th day of each month or the next Business Day if the 20th is not a Business Day.

 

 

Retirement Accounts

 

To redeem shares from an IRA, Roth IRA, SIMPLE IRA, SEP IRA, 403(b) or other retirement account, you must mail a completed and signed Distribution Form to the Forward Funds. You may not redeem shares of an IRA, Roth IRA, SIMPLE IRA, SEP IRA, 403(b) or other retirement account by telephone.

 

PAYMENTS OF REDEMPTION PROCEEDS

 

Redemption orders are valued at the NAV per share next determined after the shares are properly tendered for redemption, as described above. Payment for shares redeemed generally will be made within seven days after receipt of a valid request for redemption. The Forward Funds may temporarily stop redeeming shares or delay payment of redemption proceeds when the NYSE is closed or trading on the NYSE is restricted, when an emergency exists and the Forward Funds cannot sell shares or accurately determine the value of assets, or if the SEC orders the Forward Funds to suspend redemptions or delay payment of redemption proceeds.

 

At various times, Forward Funds may be requested to redeem shares for which it has not yet received good payment. If this is the case, the forwarding of proceeds may be delayed until payment has been collected for the purchase of the shares. The delay may last 15 days or more. The Forward Funds intend to forward the redemption proceeds as soon as good payment for purchase orders has been received. This delay may be avoided if shares are purchased by wire transfer. Forward Funds intends to pay cash for all shares redeemed, except in cases noted above under the heading “Redeeming Shares,” in which case payment for certain large redemptions may be made wholly or partly in portfolio securities that have a market value equal to the redemption price. You may incur brokerage costs in converting the portfolio securities to cash.

 

 

By Check

 

You may have a check for the redemption proceeds mailed to your address of record. To change the address to which a redemption check is to be mailed, you must send a written request with a Medallion Signature Guarantee to Forward Funds, P.O. Box 1345, Denver, CO 80201.

 

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By ACH Transfer

 

If your account is bank ACH active, you may have your redemption proceeds sent to your bank account via ACH transfer.

 

 

By Wire Transfer

 

You can arrange for the proceeds of a redemption to be sent by wire transfer to a single previously designated bank account if you have given authorization for expedited wire redemption on your Forward Funds Account Application. This redemption option does not apply to shares held in broker “street name” accounts. If a request for a wire redemption is received by Forward Funds prior to the close of the NYSE, the shares will be redeemed that day at the next determined NAV, and the proceeds will generally be sent to the designated bank account the next Business Day. The bank must be a member of the Federal Reserve wire system. Delivery of the proceeds of a wire redemption request may be delayed by Forward Funds for up to seven days if the Distributor deems it appropriate under then current market conditions. Redeeming shareholders will be notified if a delay in transmitting proceeds is anticipated. Forward Funds cannot be responsible for the efficiency of the Federal Reserve wire system or the shareholder’s bank. You are responsible for any charges imposed by your bank. The minimum amount that may be wired is $2,500. Forward Funds reserves the right to change this minimum or to terminate the wire redemption privilege. Shares purchased by check may not be redeemed by wire transfer until the shares have been owned (i.e., paid for) for at least 15 days. To change the name of the single bank account designated to receive wire redemption proceeds, you must send a written request with a Medallion Signature Guarantee to Forward Funds, P.O. Box 1345, Denver, CO 80201. If you elect to have the payment wired to your bank, a wire transfer fee of $30.00 will be charged by the Forward Funds.

 

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POLICIES CONCERNING FREQUENT PURCHASES AND REDEMPTIONS


 

The Funds do not accommodate frequent purchases and redemptions of Fund shares. Short-term or excessive trading may interfere with the efficient management of a Fund, increase transaction costs and taxes and may harm a Fund’s performance. The Board of Trustees has adopted policies and procedures with respect to frequent purchases and redemptions of fund shares.

 

The Funds attempt to discover and discourage frequent trading in several ways. These methods include trade activity monitoring and fair value pricing. Although these methods are designed to discourage frequent trading, there can be no guarantee that the Funds will be able to identify and restrict investors that engage in such activities. These methods are inherently subjective and involve judgment in their application. The Funds and their service providers seek to make these judgments and apply these methods uniformly and in a manner that they believe is consistent with the interests of the Funds’ long-term shareholders. The Funds may amend these policies and procedures in the future to enhance the effectiveness of the program or in response to changes in regulatory requirements.

 

The Funds monitor trading activity with respect to the purchase, sale and exchange of Fund shares. The monitoring process involves reviewing transactions that exceed certain monetary thresholds within specified time intervals. Trading activity is evaluated to determine whether such activity is indicative of market timing activity or is otherwise detrimental to a Fund. If a Fund believes that a shareholder has engaged in short-term or excessive trading activity to the detriment of the Fund and its long-term shareholders, the Fund may, in its sole discretion, request the shareholder to stop such trading activities or refuse to process purchases or exchanges in the shareholder’s account. The Funds specifically reserve the right to reject any purchase or exchange order by any investor or group of investors indefinitely for any reason.

 

The Funds currrently are unable to directly monitor the trading activity of beneficial owners of the Funds’ shares who hold those shares through third-party 401(k) and other group retirement plans and other omnibus arrangements maintained by other intermediaries. Omnibus accounts allow intermediaries to aggregate their customers’ investments in one account and to purchase, redeem and exchange Fund shares without the identity of a particular customer being known to a Fund. A number of these financial intermediaries may not have the capability or may not be willing to apply the Funds’ short term trading policies. In the fourth quarter of 2007, the Funds expect to begin to receive sufficient transactional detail to enforce these policies with respect to all shareholders, including shares held in omnibus accounts. However, until the Funds actually begin receiving such information, the Funds cannot assure that these policies will be enforced with regard to Fund shares held through such omnibus arrangements.

 

The Board of Trustees has adopted procedures to fair value each Fund’s securities in certain circumstances when market prices are not readily available, including when trading in a security is halted or suspended; when a security’s primary pricing source is unable or unwilling to provide a price; when a security’s primary trading market is closed during regular market hours; or when a security’s value is materially affected by events occurring after the close of the security’s primary trading market. By fair valuing securities, the Funds seek to establish prices that investors might expect to realize upon the current sales of these securities. For non-U.S. securities, fair valuation is intended to deter market timers who may take advantage of time zone differences between the close of the

 

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foreign markets on which a Fund’s portfolio securities trade and the U.S. markets that determine the time as of which the Fund’s NAV is calculated.

 

The Funds make fair value determinations in good faith in accordance with the Funds’ valuation procedures. Because of the subjective and variable nature of fair value pricing, there can be no assurance that a Fund could obtain the fair value assigned to the security upon the sale of such security.

 

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DISTRIBUTION AND SHAREHOLDER SERVICES PLANS


 

Forward Funds has adopted distribution plans under Rule 12b-1 (each a “Plan” and collectively the “Plans”) for the Class A, Class C and Investor Class shares of the Forward Asia Ex-Japan Equities Fund and the Forward Eastern Europe Equities Fund that allow the Funds to pay for the sale and distribution of their shares. The Funds may make payments under each Plan for the purpose of financing any activity primarily intended to result in the sale of shares. In addition, payments under each Plan may be made to banks and their affiliates and other institutions, including broker-dealers, for the provision of administrative and/or shareholder services for Fund shareholders.

 

Under the Plans the Funds may pay one or more persons or entities a fee at the annual rate of up to 0.25%, 0.35% and 0.75% of the Fund’s average daily net assets attributable to Investor Class shares, Class A shares and Class C shares, respectively, for services rendered and expenses borne in connection with the provision of distribution services with respect to the Investor Class, Class A shares or Class C shares of the Funds.

 

In addition, Forward Funds has adopted a Shareholder Services Plan with respect to the Class A, Class C, Investor Class and Institutional Class shares of the Funds. Under the Shareholder Services Plan, the Funds are authorized to pay third party service providers for certain expenses incurred in connection with providing services to shareholders of each respective class. Payments under the Shareholder Services Plan for Class A, Investor Class and Institutional Class shares are calculated daily and paid monthly at an annual rate not to exceed 0.10% of the average daily net assets attributable to the Class A, Investor Class or Institutional Class shares of the Fund. Payments under the Shareholder Services Plan for the Class C shares are calculated daily and paid monthly at an annual rate not to exceed 0.25% of the average daily net assets attributable to the Class C shares of the Fund.

 

Because these fees are paid out of assets attributable to the Fund’s Class A, Class C, Investor and Institutional Class shares on an on-going basis, over time these fees will increase the cost of an investment in such shares and may cost more than other types of sales charges.

 

Forward Management may enter into revenue sharing arrangements with selected financial intermediaries. Revenue sharing arrangements occur when Forward Management agrees to pay out of its own resources (that may include legitimate profits from providing advisory services to the Funds) to financial intermediaries cash compensation in addition to any sales charges, distribution fees, service fees or other expenses paid by the Funds or their shareholders as disclosed in the Fund Fees and Expenses tables in this Prospectus. Revenue sharing arrangements may include payments for shelf space and marketing support to distribute the Funds’ shares, as well as compensation for shareholder recordkeeping, processing, accounting and/or other administrative or distribution services in connection with the sale or servicing of shares of the Funds. This compensation may be more or less than the overall compensation received by financial intermediaries with respect to other investment products and may influence financial intermediaries to present the Funds or make them available to their customers. You may ask your financial intermediary for more information about these payments.

 

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DIVIDENDS AND TAXES


 

The Funds expects to declare and pay dividends of net investment income and capital gain distributions annually, if available. A shareholder will automatically receive all income, dividends and capital gain distributions in additional full and fractional shares, unless the shareholder elects to receive dividends or distributions in cash. To elect to receive your dividends in cash or to revoke your election, call (800) 999-6809, or write to us at Forward Funds, P.O. Box 1345, Denver, CO 80201.

 

FEDERAL TAXES

 

The following information is meant only as a general summary for U.S. shareholders. Please see the SAI for additional information. You should rely on your own tax advisor for advice about the particular Federal, state and local or foreign tax consequences to you of investing in the Fund.

 

The Funds will distribute all or substantially all of their net investment income and net capital gains to its shareholders each year.

 

Although the Funds will not be taxed on amounts it distributes, most shareholders will be taxed on amounts they receive. A particular distribution generally will be taxable as either ordinary income or long-term capital gains. The tax status of a particular distribution generally will be the same for all of the Fund’s shareholders. Except as described below, it does not matter how long you have held your Fund shares or whether you elect to receive your distributions in cash or reinvest them in additional Fund shares. For example, if the Fund designates a particular distribution as a long-term capital gain distribution, it will be taxable to you at your long-term capital gain rate.

 

Dividends attributable to interest are not eligible for the reductions in rates described below. Current tax law generally provides for a maximum tax rate for individual taxpayers of 15% on long-term gains and on certain qualifying dividends on corporate stock. These rate reductions do not apply to corporate taxpayers. The following are guidelines for how certain distributions by the Fund are generally taxed to individual taxpayers:

 

   

Distributions of earnings from qualifying dividends and qualifying long-term capital gains will be taxed at a maximum rate of 15%.

 

   

Distributions of earnings from dividends paid by certain “qualified foreign corporations” can also qualify for the lower tax rates on qualifying dividends.

 

   

A shareholder will also have to satisfy a more than 60-day holding period with respect to any distributions of qualifying dividends in order to obtain the benefit of the lower tax rate.

 

   

Distributions of earnings from non-qualifying dividends, interest income (including interest income from fixed-income securities), other types of ordinary income and short-term capital gains will be taxed at the ordinary income tax rate applicable to the taxpayer.

 

Dividends declared by the Funds in October, November or December and paid during the following January may be treated as having been received by shareholders in the year the distributions were declared. Each year, the Funds will send shareholders tax reports detailing the tax status of any distributions for that year.

 

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Shareholders who are not subject to tax on their income, such as qualified retirement accounts and other tax-exempt investors, generally will not be required to pay tax on distributions.

 

There may be tax consequences to you if you sell or redeem Fund shares. You will generally have a capital gain or loss, which will be long-term or short-term, generally depending on how long you hold those shares. If you exchange a Fund’s shares for shares of another Fund, you may be treated as if you sold them and any gain on the transaction may be subject to Federal income tax. Any loss recognized on shares held for six months or less will be treated as long-term capital loss to the extent of any long-term capital gain distributions that were received with respect to the shares. Additionally, any loss realized on a sale or exchange of shares of the Fund may be disallowed under “wash sale” rules to the extent the shares disposed of are replaced with other shares of the Fund within a period of 61 days beginning 30 days before and ending 30 days after the shares are disposed of, such as pursuant to a dividend reinvestment in shares of the Fund. If disallowed, the loss will be reflected in an adjustment to the tax basis of the shares acquired.

 

As with all mutual funds, the Funds may be required to withhold U.S. Federal income tax at the current rate of 28% of all taxable distributions payable to you if you fail to provide the Fund with your correct taxpayer identification number or to make required certifications, or if you have been notified by the IRS that you are subject to backup withholding. Backup withholding is not an additional tax; rather, it is a way in which the IRS ensures it will collect taxes otherwise due. Any amounts withheld may be credited against your U.S. Federal income tax liability.

 

Please see the SAI for additional tax information.

 

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PORTFOLIO HOLDINGS DISCLOSURE


 

Forward Funds discloses all portfolio holdings of the Funds as of the end of each month on its web site at www.forwardfunds.com. Portfolio holdings as of month-end are posted on the 21st day of the next succeeding month (or, if the 21st day is not a Business Day, then on the next Business Day). The portfolio holdings for each month remain available on the web site for a minimum of six months following the date posted.

 

A description of Forward Funds’ policies and procedures with respect to the disclosure of the Funds’ portfolio holdings is available in the SAI.

 

GENERAL INFORMATION


 

You can obtain current price, yield and other performance information on any of the Forward Funds between the hours of 9:00 a.m. and 8:00 p.m. Eastern time Monday through Friday by calling (800) 999-6809. You can request shareholder reports that contain performance information. These are available free of charge.

 

Our shareholders receive unaudited semi-annual reports and annual reports that have been audited by independent accountants. In addition to information available in annual and semi-annual reports, quarterly portfolio holdings information for the first and third fiscal quarters is available on the SEC’s website at www.sec.gov. If you have any questions about Forward Funds, write to Forward Funds, P.O. Box 1345, Denver, CO 80201 or call (800) 999-6809.

 

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

 

FINANCIAL HIGHLIGHTS


 

The Forward Asia Ex-Japan Equities Fund and the Forward Eastern Europe Equities Fund are newly organized and, therefore, the Funds do not have any financial history. Additional information about the Funds’ investments will be available in the Funds’ annual and semi-annual reports to shareholders when they are prepared.

 

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FORWARD FUNDS PRIVACY POLICY


 

Forward Funds appreciates the privacy concerns and expectations of our customers. We are committed to maintaining a high level of privacy and confidentiality when it comes to your personal information and we use that information only where permitted by law. We recognize that, as our customer, you not only entrust us with your money but with your personal information. Your trust is important to us and you can be sure we will continue our tradition of protecting your personal information. We provide this privacy notice to you so that you may understand our policy with regard to the collection and disclosure of nonpublic personal information (“Information”) pertaining to you.

 

We collect the following categories of information about you:

 

 

Information we receive from you on applications or other forms; and

 

 

Information about your transactions with us, our affiliates, or others.

 

We do not disclose any Information about you or any current or former customer to anyone, except as permitted by law. We may disclose Information about you and any former customer to our affiliates and to nonaffiliated third parties, as permitted by law. We do not disclose personal information that we collect about you to non-affiliated companies except to enable them to provide marketing services on our behalf, to perform joint marketing agreements with other financial institutions, or in other limited circumstances permitted by law. For example, some instances where we may disclose Information about you to third parties include: for servicing and processing transactions, to protect against fraud, for institutional risk control, to respond to judicial process or to perform services on our behalf. When we share personal information about you with these companies, we require them to limit their use of the personal information to the particular purpose for which it was shared and we do not allow them to share your personal information with others except to fulfill that limited purpose. In addition, these companies are required to adhere to our privacy standards with respect to any personal information that we provide them.

 

Protecting the Security and Confidentiality of Your Information

 

We restrict access to Information about you to those employees who need to know that Information to provide products or services to you. We maintain physical, electronic, and procedural safeguards to ensure the confidentiality of your Information. Our privacy policies apply only to those individual investors who have a direct customer relationship with us. If you are an individual shareholder of record of any of the Funds, we consider you to be a customer of Forward Funds. Shareholders purchasing or owning shares of any of the Funds through their bank, broker, or other financial institution should consult that financial institution’s privacy policies. If you own shares or receive investment services through a relationship with a third-party broker, bank, investment adviser or other financial service provider, that third-party’s privacy policies will apply to you and ours will not.

 

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FORWARD FUNDS

Forward Asia Ex-Japan Equities Fund

Forward Eastern Europe Equities Fund

 

INVESTMENT ADVISOR

Forward Management, LLC

 

SUB-ADVISOR

Pictet Asset Management Limited

 

ADMINISTRATOR

ALPS Fund Services, Inc.

 

DISTRIBUTOR

ALPS Distributors, Inc.

 

COUNSEL

Dechert LLP

 

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

[                                         ]

 

CUSTODIAN

Brown Brothers Harriman & Co.

 

TRANSFER AGENT

ALPS Fund Services, Inc.


Table of Contents

LOGO

 

Ø  

Forward Asia Ex-Japan Equities Fund

 

Ø  

Forward Eastern Europe Equities Fund

 

WANT MORE INFORMATION?

You can find out more about the Funds by reviewing the following documents:

 

ANNUAL AND SEMI-ANNUAL REPORTS

Our annual and semi-annual reports, when available, will list the holdings of the Funds, describe the Funds’ performance, include the Funds’ financial statements, and discuss the market conditions and strategies that significantly affected the Funds’ performance during its last fiscal year.

 

LOGO

 

STATEMENT OF ADDITIONAL INFORMATION

The Statement of Additional Information (“SAI”) contains additional and more detailed information about the Funds and is considered a part of this Prospectus. The SAI also contains a description of the Funds’ policies and procedures for disclosing its portfolio holdings.

 

HOW DO I OBTAIN A COPY OF THESE DOCUMENTS?

By following one of the four procedures below:

1.   Call or write, and copies will be sent to you free of charge: Forward Funds, P.O. Box 1345, Denver, CO 80201, (800) 999-6809.

Or go to www.forwardfunds.com and download a free copy.

2.   Write to the Public Reference Section of the Securities and Exchange Commission (“SEC”) and ask them to mail you a copy. Public Reference Section of the SEC Washington, D.C. 20549-0102. The SEC charges a fee for this service. You can also drop by the Public Reference Section and copy the documents while you are there. Information about the Public Reference Section may be obtained by calling: (202) 551-8090.
3.   Go to the EDGAR database on the SEC’s web site at www.sec.gov and download a free text-only copy.
4.   After paying a duplicating fee, you may also send an electronic request to the SEC at publicinfo@sec.gov.

 

Investment Company Act File No. 811-6722


Table of Contents

FORWARD FUNDS

433 California Street, 11th Floor

San Francisco, California 94104

(800) 999-6809

Forward Asia Ex-Japan Equities Fund

Forward Eastern Europe Equities Fund

Statement of Additional Information

dated [    ], 2007

Forward Funds (“Forward Funds” or the “Trust”) is an open-end management investment company commonly known as a mutual fund. The Trust offers sixteen investment portfolios (each, a “Fund” and collectively, the “Funds”). Only the Forward Asia Ex-Japan Equities Fund and the Forward Eastern Europe Equities Fund (each a “Fund” and collectively the “Funds”) are discussed in this Statement of Additional Information (“SAI”). There is no assurance that the Funds will achieve their objectives.

This SAI is not a Prospectus and should be read in conjunction with the Prospectus for the Funds, dated [    ], 2007, which has been filed with the Securities and Exchange Commission (“SEC”). A copy of the Prospectus for the Funds may be obtained free of charge by calling the Fund’s distributor at (800) 999-6809.


Table of Contents

TABLE OF CONTENTS

 

     Page

ORGANIZATION OF FORWARD FUNDS

   1

MANAGEMENT OF THE FUNDS

   2

PORTFOLIO HOLDINGS DISCLOSURE

   7

INVESTMENT ADVISORY AND OTHER SERVICES

   9

INVESTMENT OBJECTIVES AND POLICIES

   19

INVESTMENT RESTRICTIONS

   19

ADDITIONAL INVESTMENT TECHNIQUES AND RISKS

   20

PORTFOLIO TRANSACTIONS

   36

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

   37

DETERMINATION OF SHARE PRICE

   41

SHAREHOLDER SERVICES AND PRIVILEGES

   41

DIVIDENDS AND DISTRIBUTIONS

   42

TAX CONSIDERATIONS

   43

GENERAL INFORMATION

   50

FINANCIAL STATEMENTS

   51


Table of Contents

ORGANIZATION OF FORWARD FUNDS

Forward Funds is an open-end management investment company that offers sixteen investment portfolios. The Trust was organized as a Pennsylvania common law trust on August 26, 1992 under the name HomeState Group and was reorganized effective April 7, 2005 as a Delaware statutory trust created on February 1, 2005. The Board of Trustees may establish additional Funds and classes of shares at any time in the future without shareholder approval.

This SAI pertains to Investor Class, Institutional Class, Class A and Class C shares of the Forward Asia Ex-Japan Equities Fund and the Forward Eastern Europe Equities Fund. The Funds are diversified.

The capitalization of the Trust consists of an unlimited number of shares of beneficial interest with no par value per share. Holders of shares of the Funds have one vote for each share held, and a proportionate fraction of a vote for each fractional share. All shares issued and outstanding are fully paid and are non-assessable, transferable and redeemable at the option of the shareholder. Shares have no pre-emptive rights.

Forward Funds offer the following funds and classes of shares:

 

Fund

   Investor Class    Institutional Class    Class A    Class C

Forward Asia Ex-Japan Equities Fund

   X    X    X    X

Forward Eastern Europe Equities Fund

   X    X    X    X

Forward Emerald Banking and Finance Fund

         X    X

Forward Emerald Growth Fund

         X    X

Forward Emerald Opportunities Fund

      X    X    X

Forward Global Emerging Markets Fund

   X    X      

Forward Hoover Mini-Cap Fund

   X    X      

Forward Hoover Small Cap Equity Fund

   X    X    X   

Forward International Equity Fund

   X    X      

Forward International Fixed Income Fund

   X    X    X    X

Forward International Small Companies Fund

   X    X    X   

Forward Large Cap Equity Fund

   X    X    X   

Forward Long/Short Credit Analysis Fund

         X    X

Forward Legato Fund

      X    X   

Forward Progressive Real Estate Fund

   X         

Sierra Club Stock Fund

   X    X    X   

 

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Table of Contents

MANAGEMENT OF THE FUNDS

Board of Trustees

The Trust’s Board of Trustees oversees the management and business of the Funds. The Trustees are elected by shareholders of the Trust, or, in certain circumstances, may be appointed by the other Trustees. There are currently five Trustees, four of whom are not “interested persons” of the Trust as that term is defined in the Investment Company Act of 1940, as amended (the “1940 Act”). The Trustees and Officers of the Trust, along with their affiliations over the last five years, are set forth below.

NON-INTERESTED TRUSTEES:

 

Name, Address,
and Age* ++

  Position(s)
Held with
the Trust
   Term of
Office and
Length
of Time
Served**
  

Principal Occupation(s)
During Past Five Years

   Number
of Funds
in Fund
Complex
Overseen
by Trustee ++
  

Other
Directorships
Held by
Trustee***

Haig G. Mardikian

Age: 60

  Chairman    Since 1998+    Owner of Haig G. Mardikian Enterprises, a real estate investment business (1971 to present); General Partner of M&B Development, a real estate investment business (1982 to present); General Partner of George M. Mardikian Enterprises, a real estate investment business (1983 to 2002); President and Director of Adiuvana-Invest, Inc., a real estate investment business (1983 to present); Vice Chairman and Trustee of the William Saroyan Foundation (1992 to present). Mr. Mardikian served as Managing Director of the United Broadcasting Company, radio broadcasting (1983 to 2001) and Chairman and Director of SIFE Trust Fund (1978 to 2002). Trustee of the International House of UC Berkeley (term: 2001 to 2007); Director of the Downtown Association of San Francisco (1982 to 2006); Director of the Market Street Association (1982 to 2006); Trustee of Trinity College (1998 to 2006); Trustee of the Herbert Hoover Presidential Library (1997 to present); Trustee of the Herbert Hoover Foundation (2002 to present); Trustee of the Advisor California Civil Liberties Public Education Fund (1997 to 2006).    16    None

 

2


Table of Contents

Name, Address,
and Age* ++

  Position(s)
Held with
the Trust
   Term of
Office and
Length
of Time
Served**
 

Principal Occupation(s)
During Past Five Years

   Number
of Funds
in Fund
Complex
Overseen
by Trustee ++
  

Other
Directorships
Held by
Trustee***

Donald O’Connor

Age: 71

  Trustee    Since 2000+   Financial Consultant (1997 to present); Retired Vice President of Operations, Investment Company Institute (“ICI”), a mutual fund trade association (1969 to 1993); Executive Vice President and Chief Operating Officer, ICI Mutual Insurance Company, an insurance company (1987 to 1997); Chief, Branch of Market Surveillance, Securities and Exchange Commission (1964 to 1969).    16    Trustee of the Advisors Series Trust (15) (1997 to present).
DeWitt F. Bowman Age: 76   Trustee,
Audit
Committee
Chairman
   Since 2006
(Director of
Forward
Funds, Inc.
since
2000)+
  Principal, Pension Investment Consulting, a consulting company (1994 to present); Interim Treasurer and Vice President for Investments, Regents of the University of California (2000 to 2001); Treasurer of Pacific Pension Institute, a non-profit education organization (1994 to 2002); Treasurer of Edgewood Center for Children and Families, a non-profit care center (1994 to 2004); Director, Episcopal Diocese of California, a non-profit religious organization (1964 to present); Director RREEF America Fund, a real estate investment trust (1994 to 2006); Trustee of the Pacific Gas and Electric Nuclear Decommissioning Trust Fund, a nuclear decommissioning trust (1994 to present); Trustee, PCG Private Equity Fund, a private equity fund of funds (1998 to present).    16    Trustee, Brandes Institutional International Fund (May 1995 to present); Director, RREEF America III REIT (May 1994 to 2002); Trustee, Sycuan Funds (September 2003 to present); Trustee, Wilshire Mutual Funds (March 1996 to present); Trustee, Wilshire VIT Funds (September 2005 to present).

Rosalind M. Hewsenian

Age: 53

  Trustee    Since 2007+   Managing Director and Principal, Wilshire Associates, Inc, an investment consulting and management business (2001 to 2006); Director, WilshireAssociates, Inc. (1996 to 2006).    16    None

 

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Table of Contents

INTERESTED TRUSTEE:

 

Name, Address,
and Age* ++

  Position(s)
Held with
the Trust
   Term of
Office and
Length
of Time
Served**
  

Principal Occupation(s)
During Past Five Years

   Number
of Funds
in Fund
Complex
Overseen
by Trustee ++
  

Other
Directorships
Held by
Trustee***

J. Alan Reid, Jr. **** Age:45   President,
Trustee
   Since 2001+    President of Forward Management, LLC, an investment advisor (2001 to present); President and Director, ReFlow Management Co., LLC, an investment services company (2001 to present); President and Director, ReFlow Fund, an investment services company (2002 to present); Senior Vice President, Director of Business Delivery, Morgan Stanley Online, a financial services company (1999 to 2001); Executive Vice President and Treasurer, Webster Investment Management Co., LLC (1998 to 1999); Vice President, Regional Director, Investment Consulting Services, Morgan Stanley, Dean Witter, Discover & Co., a financial services company (1992 to 1998); Vice President of the Board of Trustees of Centerpoint, a public health and welfare organization (1997 to present); Advisory Board Member, Finaplex, a software company (2002 to present); Advisory Board of SunGard Expert Solutions (1998 to present).    16    Director, FOLIOfn, Inc. (2002 to present).

* Each Trustee may be contacted by writing to the Trustee, c/o Forward Management, LLC, 433 California Street, 11th Floor, San Francisco, CA 94104.
** Each Trustee will hold office for an indefinite term until the earliest of (i) the next meeting of shareholders, if any, called for the purpose of considering the election or re-election of such Trustee and until the election and qualification of his successor, if any, elected at such meeting; or (ii) the date a Trustee resigns or retires, or a Trustee is removed by the Board of Trustees or shareholders, in accordance with the Trust’s Declaration of Trust.
*** This column includes only directorships of companies required to report to the SEC under the Securities Exchange Act of 1934 (i.e., public companies) or other investment companies registered under the 1940 Act. The parenthetical number represents the number of portfolios within a fund or fund complex.
**** Mr. Reid is considered an interested Trustee because he acts as President of Forward Management, LLC, the Funds’ investment advisor, and holds other positions with an affiliate of the Trust.
+ Each Trustee, other than Mr. Bowman and Ms. Hewsenian, has served as Trustee to the Trust since May 1, 2005. However, beginning on the date indicated in the chart, each Trustee other than Ms. Hewsenian served as a director for the nine series of Forward Funds, Inc., which were reorganized as series of the Trust effective July 1, 2005. Mr. Bowman was appointed as Trustee effective January 1, 2006, and served as a director for the nine series of Forward Funds, Inc. since 2000. Ms. Hewsenian was appointed as Trustee effective January 11, 2007.
++ The information for the individuals listed is as of September 28, 2007.

 

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Table of Contents

OFFICERS:

 

Name,

Address, and Age* ++

 

Position(s)
Held with

the Trust

   Term of Office
and Length of
Time Served**
   

Principal Occupation(s)
During Past Five Years

   Number of
Funds in Fund
Complex
Overseen by
Trustee

Barbara H. Tolle

433 California Street

Suite 1100

San Francisco, CA 94104

Age: 58

  Treasurer    Since 2006     Vice President and Director, Fund Accounting and Administration, PFPC Inc. (1999-2006).    N/A

Mary Curran

433 California Street

Suite 1100

San Francisco, CA 94104 Age: 60

  Secretary    Since 2004 **   Chief Legal Officer, Forward Management (since 2002); Chief Legal Officer, ReFlow Management Co., LLC (since 2002); General Counsel, Morgan Stanley Online (1997-2002).    N/A

Judith M. Rosenberg

433 California Street

Suite 1100

San Francisco, CA 94104

Age: 59

  Chief
Compliance
Officer and
Chief Legal
Officer
   Since 2006     Chief Compliance Officer, Forward Management (since 2005); Chief Compliance Officer, ReFlow Management Co., LLC (since 2005); First Vice President and Senior Attorney, Morgan Stanley (1984-2005).    N/A

* Each officer shall hold office at the pleasure of the Board of Trustees until the next annual meeting of the Trust or until his or her successor is duly elected and qualified, or until he or she dies, resigns, is removed or becomes disqualified.
** Ms. Curran has served as an officer of the Trust since May 1, 2005. However, beginning on the date indicated in the chart, Ms. Curran served as an officer for the nine series of Forward Funds, Inc., which were reorganized as series of the Trust effective July 1, 2005.
++ The information for the persons listed is as of September 28, 2007.

The Board of Trustees has established three standing committees in connection with its governance of the Funds: Audit, Nominating and Pricing Committees. The Audit Committee consists of four members: Messrs. Bowman, Mardikian, and O’Connor and Ms. Hewsenian. The functions performed by the Audit Committee include, among other things, considering the matters pertaining to the Trust’s financial records and internal accounting controls and acting as the principal liaison between the Board and the Trust’s independent registered public accounting firm. During the fiscal year ended December 31, 2006 the Audit Committee convened four times.

The Nominating Committee consists of four members: Messrs. Bowman, Mardikian, and O’Connor and Ms. Hewsenian. The function performed by the Nominating Committee is to select and nominate candidates to serve as non-interested Trustees (including considering written nominations from shareholders delivered to the Trust at its address on the cover of this SAI), and approve officers and committee members. During the fiscal year ended December 31, 2006, the Nominating Committee convened three times.

The Pricing Committee consists of six members: Messrs. O’Connor, Bowman, Mark Guadagnini, and Mses. Hewsenian, Curran and Tolle. The Pricing Committee, in conjunction with the Investment Advisor (as defined herein) and Sub-Advisors (as defined herein), is responsible for determining the fair value and market value of the Funds’ securities when such determinations involve the exercise of judgment. During the fiscal year ended December 31, 2006, the Pricing Committee convened eleven times.

 

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Table of Contents

The following table sets forth information regarding the ownership of the Funds by each of the Trustees, and information regarding the aggregate ownership by each Trustee of the Forward Funds.

Information As Of December 31, 2006

NON-INTERESTED TRUSTEES

 

Name of Trustee

   Dollar Range
of Equity
Securities in
the Funds’*
   Aggregate Dollar Range of
Equity Securities in All
Registered Investment
Companies Overseen by
Trustee in Family of
Investment Companies*

Haig G. Mardikian

   A    D

Donald O’Connor

   A    E

DeWitt F. Bowman

   A    A

Rosalind M. Hewsenian

   A    A

INTERESTED TRUSTEE:

 

Name of Trustee

   Dollar Range
of Equity
Securities in
the Funds’*
   Aggregate Dollar Range of
Equity Securities in All Registered
Investment Companies Overseen by
Trustee in Family of Investment
Companies*

J. Alan Reid, Jr.  

   A    E

* Key to Dollar Ranges
A None
B $1-$10,000
C $10,001—$50,000
D $50,001—$100,000
E Over $100,000

As of December 31, 2006, no Trustee who is not an interested person of the Trust owned any securities of the Funds’ Investment Advisor, any of the Funds’ Sub-Advisors, ALPS Distributors, Inc. (the “Distributor”) or their affiliates.

Trustee Compensation

The Trust pays each non-interested Trustee a retainer fee in the amount of $14,000 per year, $6,500 each for attendance in person at a regular meeting ($4,000 for attendance via telephone at a regular meeting). The Funds also pay each non-interested Trustee $1,000 for attendance in person at each special meeting or committee meeting that is not held in conjunction with a regular meeting, and $750 for attendance at a special telephonic meeting. The Chairman of the Board of Trustees and the Chairman of the Audit Committee each receive a special retainer fee in the amount of $6,000 per year. The Vice-Chairman of the Audit Committee (if such a Vice-Chairman is appointed) receives a special retainer fee in the amount of $3,000 per year. The interested Trustee does not receive any compensation by the Funds. Officers of the Trust and Trustees who are affiliated persons of the Funds, their investment advisor or sub-advisors do not receive any compensation from the Trust or any other funds managed by the Funds’ investment advisor or sub-advisors. As of December 31, 2006, the Officers and Trustees owned less than 1% of the outstanding shares of the Funds. As discussed below in “Investment Advisory and Other Services—Other Service Providers,” the Trust has agreed to compensate the Investment Advisor for, among other expenses, providing an officer or employee of the Investment Advisor to serve as Chief Compliance Officer for the Funds, and may compensate the Investment Advisor for the time of other officers or employees of the Investment Advisor who serve in other compliance capacities for the Funds.

 

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Table of Contents

Compensation Received From Funds (as of December 31, 2006)

 

Name and Position

   Aggregate
Compensation
From Trust
   Pension or
Retirement
Benefits
Accrued As
Part of Funds’
Expenses
   Estimated
Annual
Benefits Upon
Retirement
   Total
Compensation
From Trust
and Fund
Complex(1)

J. Alan Reid, Jr. Trustee*

   $ None    $               0    $               0    $ None

Haig G. Mardikian, Trustee

   $     38,375    $ 0    $ 0    $     38,375

Donald O’Connor, Trustee

   $ 32,375    $ 0    $ 0    $ 32,375

DeWitt F. Bowman, Trustee

   $ 33,875    $ 0    $ 0    $ 33,875

Rosalind M. Hewsenian, Trustee(2)

   $ 0    $ 0    $ 0    $ 0

* Interested
(1) The Fund Complex consists of the Trust, which currently consists of fourteen series.
(2) Rosalind M. Hewsenian was appointed as Trustee of the Trust effective January 11, 2007.

Trustee and Officer Indemnification

The Declaration of Trust provides that the Trust will indemnify the Trustees and may indemnify its officers against liabilities and expenses incurred in connection with litigation in which they may be involved because of their offices with the Trust, except if it is determined in the manner specified in the Trust that they have acted in bad faith, with reckless disregard of their duties, willful misconduct or gross negligence. The Trust, at its expense, may provide liability insurance for the benefit of its Trustees and its officers.

PORTFOLIO HOLDINGS DISCLOSURE

Forward Funds has adopted policies and procedures related to the selective disclosure of portfolio holdings (“Disclosure Policies”). The Disclosure Policies provide that it is the policy of Forward Funds and their service providers to protect the confidentiality of their holdings and prevent the selective disclosure of non-public information about the Funds’ portfolio holdings. The Disclosure Policies are designed to address conflicts of interest between the Funds’ shareholders and its Investment Advisor, Sub-Advisors, principal underwriter or any affiliated person of such entities by limiting and delineating the circumstances under which non-public information about the Funds’ portfolio holdings may be disseminated. No information concerning the portfolio holdings of the Funds may be disclosed to any unaffiliated third party except in limited circumstances, as described below.

Violations of the Disclosure Policies must be reported to the Trust’s Chief Compliance Officer. If the Chief Compliance Officer, in the exercise of his or her duties, deems that such violation constitutes a “Material Compliance Matter” within the meaning of Rule 38a-1 under the 1940 Act, he/she shall report it to the Trust’s Board of Trustees, as required by Rule 38a-1.

Disclosures Required by Law

Nothing contained in the Disclosure Policies is intended to prevent the disclosure of portfolio holdings information as may be required by applicable laws and regulations. For example, the Funds or any of their affiliates or service providers may file any report required by applicable law, such as periodic portfolio disclosure in filings with the SEC, respond to requests from regulators, and comply with valid subpoenas.

Public Disclosures on Web Site

Forward Funds discloses the portfolio holdings of each Fund as of the end of each month on its web site at www.forwardfunds.com and will additionally disclose the portfolio holdings of the Sierra Club Stock Fund at

 

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Table of Contents

www.sierraclubfunds.com. Portfolio holdings as of month-end will be posted on the 21st day of the next succeeding month (or, if the 21st day is not a business day, then on the next business day). The portfolio holdings for each month will remain available on the web site for a minimum of six months following the date posted.

Confidential Dissemination of Portfolio Holdings

The Funds may disclose portfolio holdings, under Conditions of Confidentiality, as defined herein, before their public disclosure is required or authorized by policy as above, to service providers, to data aggregators, and to mutual fund evaluation and due diligence departments of broker-dealers and wirehouses that regularly analyze the portfolio holdings of mutual funds in order to monitor and report on various attributes including style, capitalization, maturity, yield, beta, etc. These services and departments then distribute the results of their analysis to the public, paid subscribers and/or in-house brokers. Holdings authorized to be disclosed may be disclosed by officers of the Funds, the Investment Advisor, or service providers in possession of such information. Such holdings are released under conditions of confidentiality. “Conditions of Confidentiality” means that:

 

(a) the recipient may not distribute the portfolio holdings or results of the analysis to third parties, other departments or persons who are likely to use the information for purposes of purchasing or selling the Funds before the portfolio holdings or results of the analysis become public information; and

 

(b) the recipient must sign a written Confidentiality Agreement in form and substance acceptable to the Funds’ Chief Compliance Officer which, among other things, provides that the recipient of the portfolio holdings information agrees to limit access to the information to those persons who are subject to confidentiality obligations, and includes an obligation not to trade on non-public information.

The Trust’s Board of Trustees or Chief Compliance Officer may, on a case-by-case basis, impose additional restrictions on the dissemination of portfolio information beyond those imposed by the Disclosure Policies, or may approve exceptions or revisions to the Disclosure Policies. For example, the Funds may determine to not provide purchase and sale information with respect to Funds that invest in smaller capitalization companies or less liquid securities. The Disclosure Policies may not be waived, or exceptions made, without the consent of the Trust’s Board of Trustees or Chief Compliance Officer.

The Board of Trustees will review at least annually a list of the entities that have received such information, the frequency of such disclosures and the business purpose therefore. Any material changes to the policies and procedures for the disclosure of portfolio holdings will be reported to the Board on at least an annual basis.

The identity of the entities with which Forward Funds has ongoing arrangements to provide portfolio holdings information under Conditions of Confidentiality, the frequency with which they receive such information and the length of the lag between the date of the information and the date it is disclosed is provided below:

 

1. Legato Capital Management, LLC—Daily for the Forward Legato Fund with no delay.

 

2. Vestek—Daily for the Forward Legato Fund with no delay.

 

3. FactSet Research Systems Inc.—Daily for all Funds with no delay.

 

4. Electra Information Systems Inc.—Daily for all Funds with no delay.

The policy also permits the daily or less frequent disclosure of any and all portfolio information to the Funds’ service providers and others who generally need access to such information in the performance of their contractual duties and responsibilities, such as the Funds, the Funds’ custodian, fund accountants, investment advisor and sub-advisors, administrator, independent public accountants, attorneys, officers and directors and each of their respective affiliates and advisors, who are subject to duties of confidentiality imposed by law and/or contract, including a duty not to trade on non-public information.

 

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Analytical Information

The Funds or their duly authorized service providers may distribute the following information concerning each Fund’s portfolio before disclosure of all portfolio holdings is made as discussed above, provided that the information has been publicly disclosed (via the Funds’ website or otherwise):

 

   

Top Twenty-five Holdings. Top twenty-five holdings and the total percentage of the Fund such aggregate holdings represent.

 

   

Sector Holdings. Sector information and the total percentage of the Fund held in each sector.

 

   

Other Portfolio Characteristic Data. Any other analytical data that does not identify any specific portfolio holding.

Press Interviews, Broker Discussions, etc.

Portfolio managers and other senior officers or spokespersons of the Funds may disclose or confirm the ownership of any individual portfolio holding position to reporters, brokers, shareholders, consultants or other interested persons only if such information has been previously publicly disclosed in accordance with these Disclosure Policies. For example, a portfolio manager discussing a particular Fund may indicate that he or she likes and/or owns for the Fund a security only if the Fund’s ownership of such security has previously been publicly disclosed (and the statement is otherwise accurate and not misleading).

Trading Desk Reports

The trading desks of the Funds’ Investment Advisor or Sub-Advisors may periodically distribute lists of applicable investments held by their clients (including the Funds) for the purpose of facilitating efficient trading of such investments and receipt of relevant research.

Research Coverage

The Funds’ Investment Advisor or Sub-Advisors may periodically distribute a list of the issuers and securities that are covered by their research department as of a particular date. The list of issuers and securities may represent securities currently held by the Funds and securities which may be purchased for the Funds. In no case will a list specifically identify an issuer’s securities as either currently held or anticipated to be held by the Funds or identify Fund position sizes.

Conflicts of Interest

Whenever portfolio holdings disclosure made pursuant to the Disclosure Policies involves a conflict of interest between the Funds’ shareholders and the Funds’ Investment Advisor, Sub-Advisors, Distributor or any affiliated person of the Funds, the disclosure may not be made unless a majority of the independent Trustees or a majority of a Board committee consisting solely of independent Trustees approves such disclosure after considering the best interests of shareholders and potential conflicts in making such disclosures. The Funds, the Funds’ Investment Advisor and Sub-Advisors will not enter into any arrangement providing for the disclosure of non-public portfolio holding information for the receipt of compensation or benefit of any kind.

INVESTMENT ADVISORY AND OTHER SERVICES

Investment Advisor

Forward Management, LLC (“Forward Management” or the “Investment Advisor”) serves as the investment advisor to each of the Forward Funds. Forward Management has the authority to manage the Funds in accordance with the investment objective, policies and restrictions of the Funds and subject to general

 

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supervision of the Trust’s Board of Trustees. Forward Management also has the authority to engage the services of different sub-advisors with the approval of the Trustees of each of the Funds and each Fund’s shareholders. Forward Management also provides the Funds with ongoing management supervision and policy direction.

Forward Management is a registered investment adviser under the Investment Advisers Act of 1940 (“Advisers Act”). Forward Management supervises the activities of each Sub-Advisor and manages the assets of certain of portfolios of the Trust directly, without the use of a sub-advisor. Forward Management is located at 433 California Street, 11th Floor, San Francisco, California 94104. The ReFlow Forward Family Holding Company, LLC (“ReFlow Forward Family Holding Company”) holds approximately 94% of Forward Management’s ownership interest, with the balance held by employees. Gordon P. Getty is the Manager of the ReFlow Forward Family Holding Company, which was organized as a Delaware limited liability company on December 20, 2006.

Forward Management has delegated the authority to manage the Asia Ex-Japan Equities Fund and Forward Eastern Europe Equities Fund to the Sub-Advisor (as defined herein). Forward Management has managed the Fund since their inception. The sixteen portfolios of the Trust are Forward Management’s principal investment advisory clients. Daily investment decisions are made by the Sub-Advisor for the Funds. Certain information regarding the Sub-Advisor is described below.

Sub-Advisor

Forward Management has engaged the services of Pictet Asset Management Limited (“PAM Ltd” or the “Sub-Advisor”) to act as sub-advisor for the Forward Asia Ex-Japan Equities Fund and the Forward Eastern Europe Equities Fund. PAM Ltd was established in 1980 and as of December 31, 2006 had approximately $100 billion of assets under management. PAM Ltd manages a range of products including a variety of equity portfolios for U.S. and international institutional clients. Its address is Moor House, 120 London Wall, London, EC2Y 5ET, United Kingdom. PAM Ltd is both registered as a U.S. investment advisor and authorized and regulated by the Financial Services Authority in the United Kingdom. PAM Ltd is an affiliate of Pictet & Cie, a Swiss private bank that was founded in 1805. As of December 31, 2006, Pictet & Cie had approximately $192 billion of assets under management and administration for institutional and private clients. Pictet & Cie is owned by eight partners.

Investment Management and Sub-Advisory Agreements

Each Fund pays an investment advisory fee, which is computed daily and paid monthly, at the following annual rates based on the average daily net assets of the respective funds:

 

Fund

   Advisory Fee

Forward Asia Ex-Japan Equities Fund

  

Forward Eastern Europe Equities Fund

  

From time to time, the Investment Advisor may waive receipt of its fees and/or voluntarily assume certain Fund expenses, which would have the effect of reducing a Fund’s expense ratio and increasing returns to shareholders at the time such amounts are waived or assumed, as the case may be. Each class of shares of the Fund pays its respective pro rata portion of the advisory fees payable by the Fund.

Under the terms of the investment advisory contract between the Trust and the Investment Advisor (the “Investment Management Agreement”), the Investment Advisor provides a program of continuous investment management for the Funds with regard to the Funds’ investment of its assets in accordance with the Funds’ investment objectives, policies and limitations. In providing investment management services to each Fund, the Investment Advisor will: (a) make investment decisions for the Funds, including, but not limited to, the selection and management of investment sub-advisors for the Funds, in which case any of the duties of the Investment

 

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Advisor under the Investment Management Agreement may be delegated to such investment sub-advisors subject to approval by the Board of Trustees; (b) if investment sub-advisors are appointed with respect to the Funds, monitor and evaluate the performance of the investment sub-advisors under their respective sub-advisory agreements in light of the investment objectives and policies of the respective Fund, and render to the Trustees such periodic and special reports related to such performance monitoring as the Trustees may reasonably request, and analyze and recommend changes in investment sub-advisors as the Investment Advisor may deem appropriate; (c) place orders to purchase and sell investments in the Funds; (d) furnish to the Funds the services of its employees and agents in the management and conduct of the corporate business and affairs of the Funds; (e) if requested, and subject to certain reimbursement provisions of the Investment Management Agreement with respect to the Chief Compliance Officer of the Trust, provide the services of its officers as officers or administrative executives of the Trust and the services of any Trustees of the Trust who are “interested persons” of the Trust or its affiliates, as that term is defined in the 1940 Act, subject in each case to their individual consent to serve and to applicable legal limitations; and (f) provide office space, secretarial and clerical services and wire and telephone services (not including toll charges, which will be reimbursed by the Funds), and monitor and review Fund contracted services and expenditures pursuant to the distribution and service plans of the Funds. Under the Investment Management Agreement, the Investment Advisor is also authorized to enter into brokerage transactions, including with brokers affiliated with the Investment Advisor, with respect to each Fund’s portfolio securities, always subject to best execution. The Investment Management Agreement authorizes each Fund to use soft dollars to obtain research reports and services and to use directed brokerage on behalf of the Fund, however the Investment Advisor reviews such transactions on a quarterly basis. The Investment Advisor may also aggregate sales and purchase orders of securities held in a Fund with similar orders being made simultaneously for other accounts managed by the Investment Advisor or with accounts of the Investment Advisor’s affiliates, if in the Investment Advisor’s reasonable judgment such aggregation shall result in an overall economic benefit to the respective Fund.

The Investment Advisor compensates the Sub-Advisor out of the Investment Advisor’s revenues. All fees paid to the Investment Advisor by the Funds are computed and accrued daily and paid monthly based on the net asset value of shares of the Funds.

For the services provided pursuant to the Sub-Advisory Agreement with Forward Management, PAM Ltd receives an annual fee from Forward Management at the following annual rates based on the average daily net assets of the Funds:

 

Fund

   Sub-Advisory Fee

Forward Asia Ex-Japan Equities Fund

  

Forward Eastern Europe Equities Fund

  

A discussion regarding the basis for the Board of Trustees’ approval of the Investment Management Agreement and Investment Sub-Advisory Agreements will be available in Forward Funds’ annual report for the fiscal year ended December 31, 2007.

 

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As described in the Prospectus, the Investment Advisor has agreed to limit the total expenses of the Institutional Class, Investor Class, Class A and Class C shares of the Funds to the annual rates stated below. The expense limitations are exclusive of brokerage costs, interest, taxes, dividends and extraordinary expenses. The Funds will reimburse the Investment Advisor for any fee waivers made by the Investment Advisor, provided that any such reimbursements made by a Fund to the Investment Advisor will not cause the Fund’s expense limitation to exceed the expense limitation in existence at the time the expenses were incurred or at the time of the reimbursement, whichever is lower, and the reimbursement is made within three years after the expenses were incurred. There is no assurance that these expense limitations will be continued beyond the dates indicated.

 

Fund

  

End Date

   Expense Limit  

Forward Asia Ex-Japan Equities Fund—Investor

   January 31, 2009                 %

Forward Asia Ex-Japan Equities Fund—Institutional

   January 31, 2009                 %

Forward Asia Ex-Japan Equities Fund—Class A

   January 31, 2009                 %

Forward Asia Ex-Japan Equities Fund—Class C

   January 31, 2009                 %

Forward Eastern Europe Equities Fund—Investor

   January 31, 2009                 %

Forward Eastern Europe Equities Fund—Institutional

   January 31, 2009                 %

Forward Eastern Europe Equities Fund—Class A

   January 31, 2009                 %

Forward Eastern Europe Equities Fund—Class C

   January 31, 2009                 %

[PAM Ltd has contractually agreed to waive its fees in the same proportion as the Investment Advisor in amounts necessary to limit the Funds’ operating expenses to the annual rate stated in the Prospectus provided that the net minimum fee payable to PAM Ltd by the Investment Advisor will be [    ]%.]

Portfolio Managers

Forward Asia Ex-Japan Equities Fund

PAM Ltd, the Sub-Advisor to the Forward Asia Ex-Japan Equities Fund, constructs the portfolio of the Fund using a team approach. The portfolio managers with the most significant responsibility for the day-to-day management of the Fund are Nidhi Mahurkar, Co-Head of the Global Emerging Markets Equities team, David Chatterjee, CFA, Senior Investment Manager, Lan Wang Simond, CFA, Senior Investment Manager and Jonathan Bell, Investment Manager. The table below includes details about the type, number, and assets under management for the various types of accounts, and total assets in the accounts with respect to which the advisory fee is based on the performance of the accounts that the team managed as of [    ], 2007:

 

Type of Account

   Number of
Accounts
Managed
   Total Assets
Managed in
Millions
   Number of Accounts
Managed for which
Advisory Fee is
Performance-Based
   Assets Managed for
which Advisory Fee
is Performance-
Based in Millions

Registered Investment Companies

      $                            $                     

Other Pooled Investment Vehicles

      $         $  

Other Accounts

      $         $  

Forward Eastern Europe Equities Fund

PAM Ltd, the Sub-Advisor to the Forward Eastern Europe Equities Fund, constructs the portfolio of the Fund using a team approach. The portfolio managers with the most significant responsibility for the day-to-day management of the Fund are Agne Zitkute, CFA, Senior Investment Manager, Peter Jarvis, CFA, Senior Investment Manager and Robert James, Investment Analyst. The table below includes details about the type, number, and assets under management for the various types of accounts, and total assets in the accounts with respect to which the advisory fee is based on the performance of the accounts that the team managed as of [    ], 2007:

 

Type of Account

   Number of
Accounts
Managed
   Total Assets
Managed in
Millions
   Number of Accounts
Managed for which
Advisory Fee is
Performance-Based
   Assets Managed for
which Advisory Fee
is Performance-
Based in Millions

Registered Investment Companies

      $                            $                     

Other Pooled Investment Vehicles

      $         $  

Other Accounts

      $         $  

 

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Potential conflicts of interests or duties may arise because PAM Ltd engages in regulated activities for other clients. PAM Ltd may act as agent for the Funds in relation to transactions in which it is also acting as agent for the account of other customers and/or employees.

If any conflict or potential conflict arises, PAM Ltd seeks to ensure that all transactions are effected on terms that are not materially less favorable to the Fund than if the conflict or potential conflict had not existed, and PAM Ltd uses its best efforts to obtain fair treatment of the Funds. In addition, PAM Ltd’s employees are required to adhere to PAM’s code of practice concerning personal dealings.

For the investment staff and senior management team, base pay (which is determined by the rank and tenure of the employee) comprises 50-60% of the total compensation package—the remaining percentage is structured to reflect individual performance and the long-term value of the individual to the group. To increase the objectivity of the assessment, PAM uses Balanced Scorecards, which incorporate a range of quantitative and qualitative objectives, each of which is linked to the overall objectives of PAM’s business plan and weighted according to its relative significance, to enable a direct link to be made between the calculation of the discretionary element of the package to over or under performance in certain key areas, including investment performance, clients, financials, process and innovation and people and skills. The investment performance component of the Balanced Scorecards is based on pre-tax performance relative to peer group performance (where available) and relative to the HSBC World Excluding U.S. Smaller Companies Index. The performance period measured is 50% of the current year being measured and 50% of the rolling 3 years, annualized.

The table below sets forth information regarding the ownership of the Funds by the portfolio managers responsible for the day-to-day management of the Funds’ portfolios, and information regarding the aggregate ownership by each such portfolio manager of the Forward Funds.

Information as of                     , 2007

 

Name of Portfolio Manager

  

Fund

   Dollar Range of
Equity Securities
in the Fund*
   Aggregate Dollar Range of
Equity Securities in All
Registered Investment
Companies Overseen by
Portfolio Manager in
Family of Investment
Companies*

Nidhi Mahurkar

   Forward Asia Ex-Japan Equities Fund      

David Chatterjee

   Forward Asia Ex-Japan Equities Fund      

Lan Wang Simond

   Forward Asia Ex-Japan Equities Fund      

Jonathan Bell

   Forward Asia Ex-Japan Equities Fund      

Agne Zitkute

   Forward Eastern Europe Equities Fund      

Peter Jarvis

   Forward Eastern Europe Equities Fund      

Robert James

   Forward Eastern Europe Equities Fund      

* Key to Dollar Ranges
A None
B $1—$10,000
C $10,001—$50,000
D $50,001—$100,000
E $100,001—$500,000
F $500,001—$1,000,000
G Over $1,000,000

 

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Distributor

The Funds offer their shares to the public on a continuous basis. Shares of the Funds are distributed pursuant to a Distribution Agreement, dated as of September 30, 2005 (the “Distribution Agreement”), between the Trust and the Distributor, ALPS Distributors, Inc., 1290 Broadway, Suite 1100, Denver, CO 80203. The Distribution Agreement requires the Distributor to solicit orders for the sale of shares and to undertake such advertising and promotion as the Distributor believes reasonable in connection with such solicitation. The Trust and the Distributor have agreed to indemnify each other against certain liabilities. The Trust pays no fee to the Distributor under the Distribution Agreement. The Distribution Agreement will remain in effect for two years and from year to year thereafter only if its continuance is approved annually by a majority of the Board of Trustees who are not parties to such agreement or “interested persons” of any such party and must be approved either by votes of a majority of the Trustees or a majority of the outstanding voting securities of the Funds. The Distribution Agreement may be terminated by either party on at least 60 days’ written notice and will terminate automatically in the event of its assignment (as defined in the 1940 Act).

Codes of Ethics

The Trust, the Investment Advisor, the Sub-Advisor and the Distributor have adopted Codes of Ethics governing personal trading activities of all of their trustees, directors and officers and persons who, in connection with their regular functions, play a role in the recommendation of any purchase or sale of a security by the Funds or obtain information pertaining to such purchase or sale. The Codes of Ethics permit personnel subject to the Code of Ethics to invest in securities, including securities that may be purchased or held by the Funds.

The Investment Advisor’s and Sub-Advisor’s Codes of Ethics are designed to address and avoid potential conflicts of interest relating to personal trading and related activities. The Codes of Ethics instruct the Investment Advisor and Sub-Advisor to always place the interests of shareholders first, ensure that all personal securities transactions are conducted consistent with the Code of Ethics and in such a manner to avoid any actual or potential conflicts of interest or abuse, and prohibits investment company personnel from taking inappropriate advantage of their positions.

The Investment Advisor’s and Sub-Advisor’s Codes of Ethics each prohibit personal trading in certain securities by access persons unless they have received written authorization from the respective Advisor or Sub-Advisor. Each Code of Ethics lists situations in which transactions are exempt and thus covered persons may engage in exempted transactions without following the procedures set forth in the Code of Ethics. Access persons are required to make initial and annual reports of their securities holdings and to file quarterly securities transaction reports with the Investment Advisor or Sub-Advisor even if no securities transactions occurred and no new securities accounts were opened during the relevant quarter. Each employee is required to certify that he or she has read, understands and has complied with the Code of Ethics.

The Distributor’s Code of Ethics is designed to clearly state, and inform its access persons about, prohibited activities in which employees may not engage. The Distributor’s Code of Ethics prohibits its access persons from purchasing or selling securities based upon any material nonpublic information to which they have access solely as a result of their employment with the Distributor, and prohibits informing others, who may act on such information, about material nonpublic information about the Distributor or one of its clients.

The Codes of Ethics of the Trust, the Investment Advisor, the Sub-Advisor and the Distributor are on public file with and available from the SEC.

Proxy Voting Policies and Procedures

It is the Funds’ policy that proxies received by the Funds are voted in the best interest of the Funds’ shareholders. The Board of Trustees of the Funds has adopted Proxy Voting Policies and Procedures for the

 

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Funds that delegate all responsibility for voting proxies received relating to the Funds’ securities to the Investment Advisor. The Investment Advisor has, in turn, delegated proxy voting authority to the Sub-Advisor for the Forward International Fixed Income Fund. The Board of Trustees will periodically review and approve the Investment Advisor’s and Sub-Advisor’s proxy voting policies and procedures and any amendments.

PAM Ltd Proxy Voting Guidelines

PAM (which includes PAM Ltd) has adopted proxy voting policies and procedures whereby it seeks to avoid material conflicts of interest by voting in accordance with its pre-determined written proxy voting guidelines (the “Voting Guidelines”) in an objective and consistent manner across client accounts, based on internal and external research and recommendations provided by a third party vendor, and without consideration of any client relationship factors. Further, PAM may engage a third party as an independent fiduciary, as necessary, to vote all proxies, and may engage an independent fiduciary to vote proxies of other issuers at its discretion.

All proxies received by PAM are reviewed, categorized, analyzed and voted in accordance with the Voting Guidelines. The guidelines are reviewed periodically and updated as necessary to reflect new issues and any changes in PAM’s policies on specific issues. Items that can be categorized under the Voting Guidelines are voted in accordance with any applicable guidelines. Proposals that cannot be categorized under the Voting Guidelines and raise a material conflict of interest between PAM and a client are referred to PAM’s proxy voting committee for resolution.

With regard to voting proxies of foreign companies, PAM weighs the cost of voting and potential inability to sell the securities (which may occur during the voting process) against the benefit of voting the proxies to determine whether or not to vote. With respect to securities lending transactions, PAM seeks to balance the economic benefits of continuing to participate in an open securities lending transaction against the inability to vote proxies.

When evaluating proposals, PAM recognizes that the management of a publicly-held company may need protection from the market’s frequent focus on short-term considerations, so as to be able to concentrate on such long-term goals as productivity and development of competitive products and services. In addition, PAM generally supports proposals designed to provide management with short-term insulation from outside influences so as to enable them to bargain effectively with potential suitors to the extent such proposals are discrete and not bundled with other proposals. PAM believes that a shareholder’s role in the governance of a publicly-held company is generally limited to monitoring the performance of the company and its management and voting on matters which properly come to a shareholder vote. However, PAM generally opposes proposals designed to insulate an issuer’s management unnecessarily from the wishes of a majority of shareholders. Accordingly, PAM generally votes in accordance with management on issues that PAM believes neither unduly limit the rights and privileges of shareholders nor adversely affect the value of the investment.

Although each proxy issue will be considered individually, PAM generally takes the following positions pursuant to the Voting Guidelines. PAM generally opposes anti-takeover provisions and proposals that would result in Board entrenchment. PAM generally approves: (1) routine matters, including the ratification of auditors and the time and place of meetings; (2) the election of Trustees recommended by management; (3) limitations on charitable contributions or fees paid to lawyers; (4) confidential voting; (5) limiting Trustees’ liability; (6) employee stock purchase plans; and (7) establishing pension plans. PAM will consider the following issues on a case-by-case basis: stock compensation to Trustees; elimination of Trustees’ mandatory retirement policy; option and stock grants to management and Trustees; and permitting indemnification of Trustees and/or officers.

Funds’ Proxy Voting Records

Information on how the Funds voted proxies relating to portfolio securities from inception through the period ended June 30, 2008 will be available: (1) without charge, upon request, by calling (800) 999-6809; and (2) filed on Form N-PX on the SEC’s website at www.sec.gov.

 

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Administrative Services and Transfer Agent

ALPS Fund Services, Inc. (hereinafter “AFS,” “Administrator” and “Transfer Agent”), whose principal business address is 1290 Broadway, Suite 1100, Denver, CO 80203, acts as the Funds’ administrator and transfer agent. As Administrator, AFS performs corporate secretarial, treasury and blue sky services and acts as fund accounting agent for the Funds. For its services as Administrator, the Funds pay AFS fees based on the average daily net assets of each Fund, accrued daily and payable monthly by the Funds at the following annual rate:

 

Average Net Assets

   Annual Fee  

Up to and including $1 billion

   0.065 %

In excess of $1 billion up to and including $3 billion

   0.035 %

In excess of $3 billion

   0.030 %

The Administration Agreement between the Funds and AFS was effective September 12, 2005. The Administration Agreement has an initial term of three years and will renew automatically for successive one-year terms. Pursuant to a Transfer Agency and Services Agreement effective as of September 12, 2005, AFS also acts as transfer agent and dividend disbursing agent for the Funds. The Transfer Agency and Services Agreement has an initial term of three years and automatically renews for successive one-year terms. Shareholder inquiries may be directed to AFS at P.O. Box 1345, Denver, CO 80201.

Other Service Providers

Each Fund pays all expenses not assumed by the Investment Advisor, the Sub-Advisors or the Administrator. Expenses paid by the Funds include, but are not limited to: custodian, stock transfer and dividend disbursing fees and accounting and recordkeeping expenses; Rule 12b-1 fees and shareholder service fees pursuant to distribution or service plans; costs of designing, printing and mailing reports, Prospectuses, proxy statements and notices to its shareholders; taxes and insurance; expenses of the issuance, sale or repurchase of shares of the Fund (including federal and state registration and qualification expenses); legal and auditing fees and expenses; compensation, fees and expenses paid to Trustees who are not interested persons of the Trust; association dues; costs of stationery and forms prepared exclusively for the Funds; and trade organization dues and fees. The Trust has agreed to pay the Investment Advisor a fee in the amount of $125,000 per annum as compensation for providing an officer or employee of the Investment Advisor to serve as Chief Compliance Officer for the Funds, plus the cost of reasonable expenses related to the performance of the Chief Compliance Officer’s duties, including travel expenses, and may compensate the Investment Advisor for the time of other officers or employees of the Investment Advisor who serve in other compliance capacities for the Funds.

Shareholder Distribution and Shareholder Service Plans

Distribution Plans

The Funds have adopted service and distribution plans pursuant to Rule 12b-1 under the 1940 Act with respect to the Funds’ Investor Class, Class A and Class C shares (each a “Distribution Plan” and collectively, the “Distribution Plans”). The purpose of the Distribution Plans is to permit the Funds to compensate the Distributor, banks, brokers, dealers, administrators and other financial intermediaries for services provided and expenses incurred by them in promoting the sale of shares of the Funds or maintaining or improving services provided to the Funds’ Investor Class, Class A and Class C shareholders. By promoting the sale of shares and maintaining or improving services to shareholders, the Distribution Plans should help provide a continuous cash flow, affording the Investment Advisor and Sub-Advisor the ability to purchase and redeem securities without forcing the Investment Advisor and Sub-Advisor to make unwanted sales of existing portfolio securities.

The Funds pay the fees to the Distributor under the Distribution Plans on a monthly basis at an annual rate not to exceed 0.25% , 0.35% and 0.75% of the Fund’s average daily net assets attributable to Investor Class, Class A and Class C shares, respectively. Expenses acceptable for payment under the Distribution Plans include

 

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but are not limited to compensation of broker-dealers or other persons for providing assistance in distribution and for promotion of the sale of the Investor Class, Class A and Class C shares of the Funds, as applicable, the printing of Prospectuses and reports used for sales purposes, expenses of preparing and distributing sales literature and related expenses, advertisements, and other distribution-related expenses, including a pro-rated portion of the Distributor’s expenses attributable to the Investor Class, Class A and Class C shares, as applicable, related to implementing and operating the Distribution Plans, providing information periodically to existing shareholders, forwarding communications from the Trust to shareholders, responding to inquiries from shareholders regarding their investment in the Funds, other services qualifying under applicable rules of the National Association of Securities Dealers, Inc., administrative services such as transfer agent and sub-transfer agent services for shareholders, aggregating and processing purchase and redemption orders for Fund shares, preparing statements for shareholders, processing dividend payments, providing sub-accounting services, receiving, tabulating and transmitting proxies executed by shareholders, and other personal services in connection with shareholder accounts. The Funds’ Investment Advisor is responsible for paying the Distributor for any unreimbursed distribution expenses. Payments may be made under the Distribution Plans without regard to actual distribution expenses incurred by a recipient.

Broker-dealers or others may not be eligible to receive payments under the Distribution Plan for Class C shares until after the twelfth month following a shareholder purchase in the Class C shares of the Fund.

Because the fees under the Distribution Plans are paid out of a Fund’s assets attributable to the Investor Class, Class A and Class C shares on an ongoing basis, over time these fees will increase the cost of your investment in Investor Class, Class A or Class C shares and may cost you more than paying other types of sales charges.

Administration of the Distribution Plans is governed by Rule 12b-1 under the 1940 Act, which includes requirements that the Board of Trustees receives and reviews, at least quarterly, reports concerning the nature and qualification of services and expenses that are paid for or reimbursed. Continuance of each Distribution Plan is subject to annual approval by a vote of the Board of Trustees, including a majority of the Trustees who are not interested persons of the Funds and who have no direct or indirect interest in the Distribution Plan or related arrangements (these Trustees are known as “Non-Interested Trustees”), cast in person at a meeting called for that purpose. All material amendments to the Distribution Plan must be likewise approved by separate votes of the Trustees and the Non-Interested Trustees. A Distribution Plan may not be amended in order to increase materially the costs which the Fund bears for distribution pursuant to the Distribution Plan without also being approved by a majority of the outstanding voting securities of a Fund. Any agreement pursuant to a Distribution Plan terminates automatically in the event of its assignment, and a Distribution Plan and any agreement pursuant to a Distribution Plan may be terminated without penalty, at any time, by a vote of the majority of (i) the outstanding voting securities of the relevant Class, or (ii) the Non-Interested Trustees.

For purposes of paying for record-keeping and administrative services under the Distribution Plans, the Distributor and financial intermediaries normally calculate payment on the basis of an average running balance over a quarter. For administrative reasons, the Distributor may enter into agreements with certain financial intermediaries providing for a different method of calculating “average net asset value” during the quarter.

The Distribution Plans may be terminated as to a particular class of shares at any time, without penalty, by the Board of Trustees or by a vote of a majority of the outstanding shares of the relevant Class, on 60 days’ written notice. Payments are subject to the continuation of the Distribution Plans described above and the terms of service agreements between dealers and the Distributor.

The Funds participate from time to time in joint distribution activities. Fees paid under a Distribution Plan may be used to finance the distribution of one or more of the Forward Funds, and the expenses will be allocated on the relative net asset size of the Funds.

 

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Shareholder Services Plan

The Funds also have a Shareholder Services Plan, which is separate from the Distribution Plans described above, currently in effect with respect to the Funds’ Institutional Class, Investor Class, Class A and Class C Shares (“Shareholder Services Plan”). The Trust intends to operate the Shareholder Services Plan in accordance with its terms. Under the Shareholder Services Plan, each Fund is authorized to pay to banks, brokers, dealers, administrators and other financial intermediaries or third party service providers a payment each month in connection with services provided to the Fund’s Institutional Class, Investor Class, Class A and Class C shareholders of the Fund in amounts not to exceed 0.10%, 0.10%, 0.10% and 0.25% of the average daily net assets attributable to Institutional Class, Investor Class, Class A and Class C shares respectively.

Under the Shareholder Services Plan, ongoing payments may be made to participating organizations for services including, but not limited to, providing information periodically to existing shareholders, forwarding communications from the Trust to shareholders, responding to inquiries from shareholders regarding their investment in the Fund, other services qualifying under applicable rules of the National Association of Securities Dealers, Inc., administrative services such as transfer agent and sub-transfer agent services for shareholders, aggregating and processing purchase and redemption orders for Fund shares, preparing statements for shareholders, processing dividend payments, providing sub-accounting services, receiving, tabulating and transmitting proxies executed by shareholders, and other personal services provided in connection with shareholder accounts. Because fees under the Shareholder Services Plan are paid out of a Fund’s assets on an ongoing basis, over time these fees will increase the cost of your investment and may cost you more than paying other types of sales charges.

In the event the Shareholder Services Plan is terminated with respect to a Fund or Class of shares thereof in accordance with its terms, the obligations of the Fund to make payments pursuant to the Shareholder Services Plan with respect to the applicable Class of shares will cease and the Fund will not be required to make any payments for expenses incurred after the date the Shareholder Services Plan terminates. Payments may be made under the Shareholder Services Plans without regard to actual shareholder servicing expenses incurred by a recipient.

The Shareholder Services Plan has been approved by the Trust’s Board of Trustees, including by the Non-Interested Trustees. The Shareholder Services Plan must be renewed annually by the Board of Trustees, including a majority of the Non-Interested Trustees, by a vote cast in person at a meeting called for that purpose. The Shareholder Services Plan may be terminated as to a particular Class of shares at any time, without any penalty, by such Trustees or by a vote of a majority of the outstanding shares of the relevant Class on 60 days’ written notice.

Any change in the Shareholder Services Plan of a Fund that would amend the Shareholder Services Plan or materially increase the expenses paid by the Fund requires approval by the Board of Trustees of the Trust, including a majority of the Non-Interested Trustees who have no direct or indirect financial interest in the operation of the Shareholder Services Plan or in any agreements related to them, by a vote cast in-person.

Amounts paid under the Shareholder Services Plan are reported to the Board of Trustees at least quarterly, and the Board is furnished with such other information as may reasonably be requested in connection with the payments made under the Shareholder Services Plan in order to enable the Board to make an informed determination of whether the Shareholder Services Plan should be continued.

For purposes of paying for record-keeping and administrative services under the Shareholder Services Plan, the Distributor and financial intermediaries normally calculate payment on the basis of an average running balance of the net assets attributable to each class over a quarter. For administrative reasons, the Distributor may enter into agreements with certain financial intermediaries providing for a different method of calculating “average net asset value” during the quarter.

 

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Custody Fee Offset Agreement

The Investment Advisor has entered into a Custody Fee Offset Agreement (“Agreement”) with Brown Brothers Harriman & Co. (BBH), the Funds’ custodian, for the benefit of the Funds. Pursuant to the Agreement, the Sub-Advisors may allocate brokerage transactions to BBH, and BBH will offset the commissions paid by a Fund for electronic orders against the custody-related fees for that Fund in a predetermined ratio. A Fund may benefit from the commission offset because credits generated will be used to offset the Fund’s custody expenses.

As discussed above, in placing orders for portfolio transactions for a Fund, the Sub-Advisors are generally required to give primary consideration to obtaining the most favorable price and execution available. Accordingly, the Sub-Advisor will execute transactions through BBH under the Agreement only if the Sub-Advisor believes the Fund can obtain best execution. If the Sub-Advisor does not believe the Fund can obtain best execution from BBH, there is no obligation to execute transactions through BBH. The Agreement is not intended to promote the distribution of Fund shares.

INVESTMENT OBJECTIVES AND POLICIES

The investment objective of each of the Funds is a fundamental policy and may not be changed without a vote of the holders of a majority of the outstanding shares of the Fund. Non-fundamental policies of a Fund may be changed by the Trust’s Board of Trustees without a vote of the holders of a majority of the outstanding shares of the Fund. Any policy not specifically identified as “fundamental” is a non-fundamental policy of a Fund. There can be no assurance that the investment objective of a Fund will be achieved.

The investment policies of the Forward Asia Ex-Japan Equities Fund and the Forward Eastern Europe Equities Fund relating to the type of investments in which 80% of the Fund’s net assets, plus borrowings, if any, must be invested in the particular type of investment suggested by its name, may be changed by the Board of Trustees without shareholder approval. However, to the extent required by the SEC regulations, shareholders will be provided with sixty days’ notice in the manner prescribed by the SEC.

INVESTMENT RESTRICTIONS

Fundamental Policies

The following restrictions are fundamental policies of the Funds that may not be changed without the approval of the holders of a majority of the Fund’s outstanding voting securities. A majority of the Fund’s outstanding voting securities means the lesser of (a) 67% or more of the voting securities present at a meeting if the holders of more than 50% of the outstanding voting securities are present or represented by proxy or (b) more than 50% of the outstanding voting securities. If a percentage restriction on investment or use of assets set forth below is adhered to at the time a transaction is effected, later changes will not be considered a violation of the restriction, except that the Fund will take reasonably practicable steps to attempt to continuously monitor and comply with its liquidity standards. Also, if the Fund receives subscription rights to purchase securities of an issuer whose securities the Fund holds, and if the Fund exercises such subscription rights at a time when the Fund’s portfolio holdings of securities of that issuer would otherwise exceed a limit, it will not constitute a violation if, prior to the receipt of the securities from the exercise of such rights, and after announcement of such rights, the Fund sells at least as many securities of the same class and value as it would receive on exercise of such rights.

As a matter of fundamental policy, a Fund:

 

  1. May not invest 25% or more of the total value of its assets in a particular industry.

 

  2. May borrow money or issue any senior security, only as permitted or to the extent not prohibited under the 1940 Act, as amended, and as interpreted, modified, or otherwise permitted by regulatory authority having jurisdiction, from time to time.

 

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  3. May not purchase or sell physical commodities unless acquired as a result of ownership of securities or other instruments. This restriction shall not prohibit the Fund, subject to restrictions described in the Prospectus and elsewhere in this SAI, each as may be amended from time to time, from purchasing, selling or entering into financial derivative or commodity contracts (including, but not limited to, futures contracts, options on futures contracts, foreign currency forward contracts, foreign currency options, hybrid instruments, swap agreements, any interest rate, currency or securities-related hedging or derivative instrument, or any other derivative instruments), subject to compliance with any applicable provisions of the federal securities or commodities laws.

 

  4. May make loans, only as permitted or to the extent not prohibited under the 1940 Act, as amended, and as interpreted, modified, or otherwise permitted by regulatory authority having jurisdiction, from time to time.

 

  5. May not underwrite the securities of other issuers, except to the extent that, in connection with the disposition of portfolio securities, a fund may be deemed to be an underwriter.

 

  6. May not purchase real estate (other than securities secured by real estate or interests therein or securities issued by companies that invest in real estate or interests therein).

 

  7. May not purchase securities on margin, except for short-term credit necessary for clearance of purchases and sales of portfolio securities, but it may make margin deposits in connection with covered transactions in options, futures, options on futures and short positions.

ADDITIONAL INVESTMENT TECHNIQUES AND RISKS

Additional information concerning investment techniques and risks associated with certain of the Funds’ investments is set forth below. From time to time, a Fund may purchase these securities or enter into these strategies to an extent that is more than incidental.

Equity Securities

A Fund may invest in equity securities. Equity securities consist of exchange-traded, over-the-counter (“OTC”) and unlisted common and preferred stocks, warrants, rights, convertible debt securities, trust certificates, limited partnership interests and equity participations. The value of a Fund’s equity investments may change in response to stock market movements, information or financial results regarding the issuer, general market conditions, general economic and/or political conditions, and other factors.

Variable and Floating Rate Securities

Variable and floating rate securities are instruments that have a coupon or interest rate that is adjusted periodically due to changes in a base or benchmark rate. Variable and floating rate securities provide for a periodic adjustment in the interest rate paid on the obligations. The terms of such obligations must provide that interest rates are adjusted periodically based upon an interest rate adjustment index as provided in the respective obligations. The adjustment intervals may be regular, and range from daily to annually, or may be event-based, such as based on a change in the prime rate.

A Fund may engage in credit spread trades and invest in floating rate debt instruments (“floaters”). A credit spread trade is an investment position relating to a difference in the prices or interest rates of two securities or currencies, where the value of the investment position is determined by movements in the difference between the prices or interest rates, as the case may be, of the respective securities or currencies. The interest rate on a floater is a variable rate that is tied to another interest rate, such as a money-market index or Treasury bill rate. The interest rate on a floater resets periodically, typically every six months. Because of the interest rate reset feature, floaters provide the Fund with a certain degree of protection against a rise in interest rates, although a Fund will participate in any declines in interest rates as well.

 

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A Fund also may invest in inverse floating rate debt instruments (“inverse floaters”). The interest rate on an inverse floater resets in the opposite direction from the market rate of interest to which the inverse floater is indexed. An inverse floating rate security may exhibit greater price volatility than a fixed rate obligation of similar credit quality, and the Fund accordingly may be forced to hold such an instrument for long periods of time and/or may experience losses of principal in such investment. The Fund will not invest more than 5% of its assets in any combination of inverse floater, interest only (“IO”), or principal only (“PO”) securities. See “Mortgage-Related and Other Asset-Backed Securities” for a discussion of IOs and POs.

Mortgage-Related and Other Asset-Backed Securities

A Fund may invest in mortgage-related or other asset-backed securities. The value of some mortgage-related or asset-backed securities in which a Fund invests may be particularly sensitive to changes in prevailing interest rates, and, like the other investments of a Fund, the ability of a Fund to successfully utilize these instruments may depend in part upon the ability of its Sub-Advisor to correctly forecast interest rates and other economic factors.

Mortgage Pass-Through Securities are securities representing interests in “pools” of mortgage loans secured by residential or commercial real property in which payments of both interest and principal on the securities are generally made monthly, in effect “passing through” monthly payments made by the individual borrowers on the mortgage loan that underlie the securities (net of fees paid to the issuer or guarantor of the securities). Early repayment of principal on some mortgage-related securities (arising from prepayments of principal due to sale of the underlying property, refinancing, or foreclosure, net of fees and costs that may be incurred) may expose a Fund to a lower rate of return upon reinvestment of principal. Also, if a security subject to prepayment has been purchased at a premium, the value of the premium would be lost in the event of prepayment. Like other fixed income securities, when interest rates rise, the value of a mortgage-related security generally will decline; however, when interest rates are declining, the value of mortgage-related securities with prepayment features may not increase as much as other fixed income securities. The rate of prepayments on underlying mortgages will affect the price and volatility of a mortgage-related security, and may have the effect of shortening or extending the effective maturity of the security beyond what was anticipated at the time of purchase. To the extent that unanticipated rates of prepayment on underlying mortgages increase the effective maturity of a mortgage-related security, the volatility of such securities can be expected to increase.

Payment of principal and interest on some Mortgage Pass-Through Securities (but not the market value of the securities themselves) may be guaranteed by the full faith and credit of the U.S. government (in the case of securities guaranteed by the Government National Mortgage Association or “GNMA”); or guaranteed by agencies or instrumentalities of the U.S. government (in the case of securities guaranteed by the Federal National Mortgage Association or “FNMA” or the Federal Home Loan Mortgage Corporation or “FHLMC”), which are supported only by the discretionary authority of the U.S. government to purchase the agency’s obligations. Mortgage-related securities created by non-governmental issuers (such as commercial banks, savings and loan institutions, private mortgage insurance companies, mortgage bankers and other secondary market issuers) may be supported by various forms of insurance or guarantees, including individual loan, title, pool and hazard insurance and letters of credit, which may be issued by governmental entities, private insurers or the mortgage poolers.

Collateralized Mortgage Obligations (“CMOs”) are hybrid mortgage-related instruments. Interest and pre-paid principal on a CMO are paid, in most cases, on a monthly basis. CMOs may be collateralized by whole mortgage loans but are more typically collateralized by portfolios of mortgage pass-through securities guaranteed by the GNMA, the FHLMC or the FNMA. CMOs are structured into multiple classes, with each class bearing a different stated maturity. Monthly payments of principal, including prepayments, are first returned to investors holding the shortest maturity class; investors holding the longer maturity classes receive principal only after the first class has been retired. CMOs that are issued or guaranteed by the U.S. government or by any of its agencies or instrumentalities will be considered U.S. government securities by each Fund, while other CMOs, even if collateralized by U.S. government securities, will have the same status as other privately issued securities for purposes of applying a Fund’s diversification tests.

 

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

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

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

U.S. Government Obligations

Obligations of certain agencies and instrumentalities of the U.S. government, such as the GNMA, are supported by the full faith and credit of the U.S. Treasury; others, such as those of the FNMA, are supported by the right of the issuer to borrow from the Treasury; others, such as those of the Student Loan Marketing Association, are supported by the discretionary authority of the U.S. government to purchase the agency’s obligations; still others, such as those of the Federal Farm Credit Banks or the FHLMC, are supported only by the credit of the instrumentality. No assurance can be given that the U.S. government would provide financial support to U.S. government-sponsored agencies or instrumentalities if it is not obligated to do so by law.

Regarding certain federal agency securities or government-sponsored entity securities (such as debt securities or mortgage-backed securities issued by Freddie Mac, Fannie Mae, Federal Home Loan Banks, and other government-sponsored entities), you should be aware that although the issuer may be chartered or sponsored by Acts of Congress, the issuer is not funded by Congressional appropriations, and its securities are neither guaranteed nor issued by the United States Treasury.

Convertible Securities

A Fund may invest in convertible securities, which may offer higher income than the common stocks into which they are convertible. Typically, convertible securities are callable by the company, which may, in effect, force conversion before the holder would otherwise choose.

The convertible securities in which a Fund may invest consist of bonds, notes, debentures and preferred stocks that may be converted or exchanged at a stated or determinable exchange ratio into underlying shares of common stock. The Fund may be required to permit the issuer of a convertible security to redeem the security, convert it into the underlying common stock or sell it to a third party. Thus, the Fund may not be able to control

 

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whether the issuer of a convertible security chooses to force conversion of that security. If the issuer chooses to do so, this action could have an adverse effect on the Fund’s ability to achieve its investment objective.

In carrying out this policy, a Fund may purchase convertible bonds and convertible preferred stock which may be exchanged for a stated number of shares of the issuer’s common stock at a price known as the conversion price. The conversion price is usually greater than the price of the common stock at the time of purchase of the convertible security. The interest rate of convertible bonds and the yield of convertible preferred stock will generally be lower than that of the non-convertible securities. While the value of the convertible securities will usually vary with the value of the underlying common stock and will normally fluctuate inversely with interest rates, it may show less volatility in value than the non-convertible securities. A risk associated with the purchase of convertible bonds and convertible preferred stock is that the conversion price of the common stock will not be attained. The Fund will purchase only those convertible securities which have underlying common stock with potential for long-term growth in the Investment Sub-Advisor’s opinion. The Fund will only invest in investment-grade convertible securities (those rated in the top four categories by either S & P or Moody’s).

Securities Issued by Other Investment Companies

A Fund may invest up to 10% of its total assets (including borrowings for investment purposes, if any) in shares of other investment companies including exchange traded funds. The Fund indirectly will incur additional costs due to the duplication of expenses as a result of investing in other investment companies.

Repurchase Agreements

Securities held by a Fund may be subject to repurchase agreements. A repurchase agreement is a contract under which the Fund acquires a security for a relatively short time period (usually not more than one week) subject to the obligation of the seller to repurchase and the Fund to resell such security at a fixed time and price which represents the Fund’s cost plus interest. The arrangement results in a fixed rate of return that is not subject to market fluctuations during the period that the underlying security is held by the Fund. Repurchase agreements involve certain risks, including seller’s default on its obligation to repurchase or seller’s bankruptcy. The Fund will enter into such agreements only with commercial banks and registered broker-dealers. In these transactions, the securities issued by the Fund will have a total value in excess of the value of the repurchase agreement during the term of the agreement. If the seller defaults, the Fund could realize a loss on the sale of the underlying security to the extent that the proceeds of the sale, including accrued interest, are less than the resale price provided in the agreement including interest, and it may incur expenses in selling the security. In addition, if the other party to the agreement becomes insolvent and subject to liquidation or reorganization under the United States Bankruptcy Code of 1983 or other laws, a court may determine that the underlying security is collateral for a loan by the Fund not within the control of the Fund and therefore the Fund may not be able to substantiate its interest in the underlying security and may be deemed an unsecured creditor of the other party to the agreement. While the Funds’ management acknowledges these risks, it is expected that they can be controlled through careful monitoring procedures.

In a repurchase agreement, a Fund purchases a security and simultaneously commits to sell that security back to the original seller at an agreed- upon price. The resale price reflects the purchase price plus an agreed-upon incremental amount that is unrelated to the coupon rate or maturity of the purchased security. To protect a Fund from risk that the original seller will not fulfill its obligations, the securities are held in accounts of the Fund at a bank, marked-to-market daily, and maintained at a value at least equal to the sale price plus the accrued incremental amount. If a seller defaults on its repurchase obligations, a Fund may suffer a loss in disposing of the security subject to the repurchase agreement. While it does not presently appear possible to eliminate all risks from these transactions (particularly the possibility that the value of the underlying security will be less than the resale price, as well as costs and delays to a Fund in connection with bankruptcy proceedings), it is the current policy of the Funds to engage in repurchase agreement transactions with parties whose creditworthiness has been reviewed and found satisfactory by the Fund’s Sub-Advisor.

 

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Reverse Repurchase Agreements and Dollar Roll Agreements

A Fund may borrow funds by entering into reverse repurchase agreements and dollar roll agreements in accordance with applicable investment restrictions. In a reverse repurchase agreement, a Fund sells a portfolio instrument to another party, such as a bank or broker-dealer, in return for cash and agrees to repurchase the instrument at a particular price and time. A dollar roll agreement is identical to a reverse repurchase agreement except for the fact that substantially similar securities may be repurchased. While a reverse repurchase agreement is outstanding, a Fund will maintain appropriate liquid assets in a segregated custodial account to cover its obligation under the agreement. The Fund will enter into reverse repurchase agreements only with parties whose creditworthiness has been found satisfactory by the Fund’s Sub-Advisor. Such transactions may increase fluctuations in the market value of the Fund’s assets and may be viewed as a form of leverage. Reverse repurchase agreements and dollar roll agreements involve the risk that the market value of the securities sold by the Fund may decline below the price at which the Fund is obligated to repurchase the securities.

Dividend Rolls

A Fund may perform “dividend rolls.” A dividend roll is an arrangement in which a Fund purchases stock in a U.S. corporation that is about to pay a dividend. The Fund then collects the dividend. If applicable requirements are met, the dividend will qualify for the corporate “dividends-received deduction.”

Derivative Instruments

A Fund may purchase and write call and put options on securities, securities indexes and foreign currencies, and enter into futures contracts and use options on futures contracts as further described below. A Fund may also enter into swap agreements with respect to foreign currencies, interest rates and securities indexes. A Fund may use these techniques to hedge against changes in interest rates, foreign currency exchange rates or securities prices or to take short positions or attempt to achieve investment returns as part of its overall investment strategies. A Fund may also purchase and sell options relating to foreign currencies for purposes of increasing exposure to a foreign currency or to shift exposure to foreign currency fluctuations from one country to another. A Fund will maintain a segregated account consisting of assets determined to be liquid by the Sub-Advisor in accordance with liquidity procedures established by the Board of Trustees (or, as permitted by applicable regulation, enter into certain offsetting positions) to cover its obligations under options, futures and swaps to avoid leveraging the portfolio of the Fund as described below.

The Funds consider derivative instruments to consist of securities or other instruments whose value is derived from or related to the value of some other instrument or asset, and not to include those securities whose payment of principal and/or interest depends upon cash flows from underlying assets, such as mortgage-related or asset-backed securities. The value of some derivative instruments in which the Fund invests may be particularly sensitive to changes in prevailing interest rates, and, like the other investments of the Fund, the ability of the Fund to successfully utilize these instruments may depend in part upon the ability of its Sub-Advisor to correctly forecast interest rates and other economic factors. If the Sub-Advisor incorrectly forecasts such factors and has taken positions in derivative instruments contrary to prevailing market trends, the Fund could be exposed to the risk of loss. The Funds might not employ any of the strategies described above, and no assurance can be given that any strategy used will succeed. A decision as to whether, when and how to utilize derivative instruments involves the exercise of skill and judgment, and even a well-conceived derivatives strategy may be unsuccessful. The use of derivative instruments involves brokerage fees and/or other transaction costs, which will be borne by the Fund.

Swap Agreements

A Fund may enter into interest rate, index, equity, currency exchange rate, total return and credit default swap agreements as well as purchase and sell options to enter into such swap agreements, for hedging and non-hedging purposes. These transactions would be entered into in an attempt to obtain a particular return when

 

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it is considered desirable to do so, possibly at a lower cost to a Fund than if the Fund had invested directly in the asset that yielded the desired return. Swap agreements are two-party contracts entered into primarily by institutional investors for periods ranging from a few weeks to more than one year. In a standard swap transaction, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on particular predetermined investments or instruments, which may be adjusted for an interest factor. The gross returns to be exchanged or “swapped” between the parties are generally calculated with respect to a “notional amount,” i.e., the return on or increase in value of a particular dollar amount invested at a particular interest rate, in a particular foreign currency, or in a “basket” of securities representing a particular index.

Forms of swap agreements include interest rate caps, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates exceed a specified rate, or “cap”; interest rate floors, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates fall below a specified level, or “floor”; and interest rate collars, under which a party sells a cap and purchases a floor or vice versa, in an attempt to protect itself against interest rate movements exceeding given minimum or maximum levels. Credit default swaps are a type of swap agreement in which the protection “buyer” is generally obligated to pay the protection “seller” an upfront and/or a periodic stream of payments over the term of the contract provided that no credit event, such as a default, on a reference obligation has occurred. The credit default swap agreement may have as reference obligations one or more securities that are not currently held by a Fund. If a credit event occurs, the seller generally must pay the buyer the “par value” (full notional value) of the swap in exchange for an equal face amount of deliverable obligations of the reference entity described in the swap, or the seller may be required to deliver the related net cash amount, if the swap is cash settled. The Fund may be either the buyer or seller in the transaction. If the Fund is a buyer and no credit event occurs, the Fund may recover nothing if the swap is held through its termination date. However, if a credit event occurs, the buyer generally may elect to receive the full notional value of the swap in exchange for an equal face amount of deliverable obligations of the reference entity whose value may have significantly decreased. As a seller, the Fund generally receives an upfront payment and/or a fixed rate of income throughout the term of the swap provided that there is no credit event. As the seller, the Fund would effectively add leverage to its portfolio because, in addition to its total net assets, the Fund would be subject to investment exposure on the notional amount of the swap. Credit default swap agreements involve greater risks than if a Fund had invested in the reference obligation directly since, in addition to general market risks, credit default swaps are subject to illiquidity risk, counterparty risk and credit risk. The Fund will enter into credit default swap agreements only with counterparties that meet certain standards of creditworthiness.

A Fund may enter into total return swap agreements. Total return swap agreements are contracts in which one party agrees to make periodic payments based on the change in market value of underlying assets, which may include a specified security, basket of securities, defined portfolios of bonds, loans and mortgages, or securities indexes during the specified period, in return for periodic payments based on a fixed or variable interest rate or the total return from other underlying assets. Total return swap agreements may be used to obtain exposure to a security or market without owning or taking physical custody of such security or market. Total return swap agreements may effectively add leverage to a Fund’s portfolio because, in addition to its total net assets, the Fund would be subject to investment exposure on the notional amount of the swap. Total return swaps are a mechanism for the user to accept the economic benefits of asset ownership without utilizing the balance sheet. The other leg of the swap, usually LIBOR, is spread to reflect the non-balance sheet nature of the product. Total return swaps can be designed with any underlying asset agreed between two parties. Typically no notional amounts are exchanged with total return swaps. Total return swap agreements entail the risk that a party will default on its payment obligations to a Fund thereunder. Swap agreements also entail the risk that the Fund will not be able to meet its obligation to the counterparty. Generally, a Fund will enter into total return swaps on a net basis (i.e., the two payment streams are netted out with the Fund receiving or paying, as the case may be, only the net amount of the two payments).

Most swap agreements entered into by a Fund calculate the obligations of the parties to the agreement on a “net basis.” Consequently, the Fund’s current obligations (or rights) under a swap agreement will generally be

 

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equal only to the net present value of amounts to be paid or received under the agreement based on the relative values of the positions held by each party to the agreement (the “net amount”). The Fund’s current obligations under a swap agreement will be accrued daily (offset against amounts owed to the Fund), and any accrued but unpaid net amounts owed to a swap counterparty will be covered by the maintenance of a segregated account consisting of assets determined to be liquid by the Investment Advisor or Sub-Advisors in accordance with liquidity procedures established by the Board of Trustees, to limit any potential leveraging of the Fund’s portfolio. By setting aside assets equal only to its net obligation under a swap agreement, a Fund will have the ability to employ leverage to a greater extent than if the Fund were required to segregate assets equal to the full notional value of such agreement.

Obligations under swap agreements so covered will not be construed to be “senior securities” for purposes of the Funds’ investment restriction concerning senior securities. The Fund will not enter into a swap agreement with any single party if the net amount owed or to be received under existing contracts with that party would exceed 5% of the Fund’s assets.

Whether a Fund’s use of swap agreements will be successful in furthering its investment objective will depend on the Investment Advisor or Sub-Advisor’s ability to correctly predict whether certain types of investments are likely to produce greater returns than other investments. Because they are two-party contracts and because they may have terms of greater than seven days, swap agreements may be considered to be illiquid investments. Moreover, the Fund bears the risk of loss of the amount expected to be received under a swap agreement in the event of the default or bankruptcy of a swap agreement counterparty. The Fund will enter into swap agreements only with counterparties that meet certain standards for creditworthiness (generally, such counterparties would have to be eligible counterparties under the terms of the Fund’s repurchase agreement guidelines). Certain restrictions imposed on the Funds by the Internal Revenue Code of 1986, as amended (the “Code”), may limit the Fund’s ability to use swap agreements. The swap market is a relatively new market and is largely unregulated. It is possible that developments in the swap market, including potential government regulation, could adversely affect the Fund’s ability to terminate existing swap agreements or to realize amounts to be received under such agreements.

Options on Securities, Securities Indexes, Futures Contracts, Swap Contracts and Swap Indexes

A Fund may write covered put and call options and purchase put and call options on securities, securities indexes and futures contracts that are traded on U.S. and foreign exchanges and over-the-counter, as well as options on swaps as defined above (see Swap Agreements) and swap indexes for hedging and non-hedging purposes. An option on a security, futures contract or swap contract is a contract that gives the purchaser of the option, in return for the premium paid, the right to buy a specified security, futures contract or swap contract (in the case of a call option) or to sell a specified security, futures contract or swap contract (in the case of a put option) from or to the writer of the option at a designated price during the term of the option. The writer of an option on a security has the obligation upon exercise of the option to deliver the underlying security upon payment of the exercise price or to pay the exercise price upon delivery of the underlying security. Upon exercise, the writer of an option on an index is obligated to pay the difference between the cash value of the index and the exercise price multiplied by the specified multiplier for the index option. An index is designed to reflect specified facets of a particular financial or securities market, a specific group of financial instruments or securities, or certain economic indicators. An option on an index gives the purchaser of the option, in return for the premium paid, the right to receive from the seller cash equal to the difference between the closing price of the index and the exercise price of the option. One purpose of purchasing put options is to protect holdings in an underlying or related security or swap contract against a substantial decline in market value. One purpose of purchasing call options is to protect against substantial increases in prices of securities or swap contracts.

A Fund may write a call or put option only if the option is “covered.” A call option on a security, index, futures contract, swap contract or swap index written by a fund is “covered” if the fund owns the underlying security, index, futures contract, swap contract or swap index covered by the call or has an absolute and

 

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immediate right to acquire that security without additional cash consideration (or for additional cash consideration held in a segregated account by its custodian) upon conversion or exchange of other securities held in its portfolio, or otherwise segregates liquid assets in an amount equal to the value of the underlying instrument on a daily, marked-to-market basis. A call option on a security, index, futures contract, swap contract or swap index is also covered if a Fund holds a call on the same security, index, futures contract, swap contract or swap index and in the same principal amount as the call written where the exercise price of the call held (a) is equal to or less than the exercise price of the call written or (b) is greater than the exercise price of the call written if the difference is maintained by the Fund in cash or high-grade U.S. government securities in a segregated account with its custodian. A put option on a security, index, futures contract, swap contract or swap index written by a Fund is “covered” if the Fund maintains liquid assets with a value equal to the exercise price in a segregated account with its custodian, or else holds a put on the same security, index, futures contract, swap contract or swap index and in the same principal amount as the put written where the exercise price of the put held is equal to or greater than the exercise price of the put written.

A Fund may write covered straddles consisting of a combination of a call and a put written on the same underlying security, index, futures contract, swap contract or swap index. A straddle will be covered when sufficient assets are deposited to meet a Fund’s immediate obligations. A Fund may use the same liquid assets to cover both the call and put options where the exercise price of the call and put are the same, or the exercise price of the call is higher than that of the put. In such cases, the Fund will also segregate liquid assets equivalent to the amount, if any, by which the put is “in the money.”

A Fund will receive a premium from writing a put or call option, which increases gross income in the event the option expires unexercised or is closed out at a profit. If the value of a security, index, futures contract, swap contract or swap index on which the Fund has written a call option falls or remains the same, the Fund will realize a profit in the form of the premium received (less transaction costs) that could offset all or a portion of any decline in the value of the portfolio securities being hedged. If the value of the underlying security, index, futures contract, swap contract or swap index rises, however, the Fund will realize a loss in its call option position, which will reduce the benefit of any unrealized appreciation in its investments. By writing a put option, the Fund assumes the risk of a decline in the underlying security, index, futures contract, swap contract or swap index. To the extent that the price changes of the portfolio securities being hedged correlate with changes in the value of the underlying security, index, futures contract, swap contract or swap index, writing covered put options will increase the Fund’s losses in the event of a market decline, although such losses will be offset in part by the premium received for writing the option.

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

A Fund may purchase call options on individual securities or futures or swap contracts to hedge against an increase in the price of securities or futures or swap contracts that it anticipates purchasing in the future. Similarly, the Fund may purchase call options on a securities or swap index to attempt to reduce the risk of missing a broad market advance, or an advance in an industry or market segment, at a time when the Fund holds uninvested cash or short-term debt securities awaiting reinvestment. When purchasing call options, the Fund will bear the risk of losing all or a portion of the premium paid if the value of the underlying security, index, futures contract, swap contract or swap index does not rise.

The purchase and writing of options involves certain risks. During the option period, the covered call writer has, in return for the premium on the option, given up the opportunity to profit from a price increase in the

 

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underlying security above the exercise price, but, as long as its obligation as a writer continues, has retained the risk of loss should the price of the underlying security decline. The writer of an option has no control over the time when it may be required to fulfill its obligation as a writer of the option. Once an option writer has received an exercise notice, it cannot effect a closing purchase transaction in order to terminate its obligation under the option and must deliver the underlying security at the exercise price. If a put or call option purchased by the Fund is not sold when it has remaining value, and if the market price of the underlying security remains equal to or greater than the exercise price (in the case of a put), or remains less than or equal to the exercise price (in the case of a call), the Fund will lose its entire investment in the option. Also, where a put or call option on a particular security is purchased to hedge against price movements in a related security, the price of the put or call option may move more or less than the price of the related security.

There can be no assurance that a liquid market will exist when the Fund seeks to close out an option position. Trading could be interrupted, for example, because of supply and demand imbalances arising from a lack of either buyers or sellers, or the options exchange could suspend trading after the price has risen or fallen more than the maximum specified by the exchange. Although a Fund may be able to offset to some extent any adverse effects of being unable to liquidate an option position, it may experience losses in some cases as a result of such inability. The value of over-the-counter options purchased by the Fund, as well as the cover for options written by the Fund, are considered not readily marketable and are subject to the Trust’s limitation on investments in securities that are not readily marketable.

There are several risks associated with transactions in options on securities, futures or swaps index. For example, there are significant differences between the securities, futures or swaps markets and the options markets that could result in an imperfect correlation between these markets, causing a given transaction not to achieve its objectives. A decision as to whether, when and how to use options involves the exercise of skill and judgment, and even a well-conceived transaction may be unsuccessful to some degree because of market behavior or unexpected events. There can be no assurance that a liquid market will exist when a Fund seeks to close out an option position. If a Fund were unable to close out an option that it had purchased on a securities, futures or swaps index, it would have to exercise the option in order to realize any profit or the option may expire worthless. If trading were suspended in an option purchased by a Fund, it would not be able to close out the option. If restrictions on exercise were imposed, a Fund might be unable to exercise an option it had purchased. Except to the extent that a call option on an index written by a Fund is covered by an option on the same index purchased by the Fund, movements in the index may result in a loss to the Fund; however, such losses may be mitigated by changes in the value of the Fund’s securities during the period the option was outstanding.

Additional information on options on futures contracts is discussed below.

Futures Contracts and Options on Futures Contracts

A Fund may invest in interest rate, credit linked, debt obligation, stock index and foreign currency futures contracts and options thereon for hedging or non-hedging purposes. A futures contract provides for the future sale by one party and purchase by another party of a specified quantity of the security or other financial instrument at a specified price and time. A futures contract on an index is an agreement pursuant to which two parties agree to take or make delivery of an amount of cash equal to the difference between the value of the index at the close of the last trading day of the contract and the price at which the index contract was originally written. Although the value of an index might be a function of the value of certain specified securities, physical delivery of these securities is not always made. A public market exists in futures contracts covering a number of indexes as well as financial instruments, including without limitation: U.S. Treasury bonds; U.S. Treasury notes; GNMA Certificates,; three-month U.S. Treasury bills; 90-day commercial paper; bank certificates of deposit; Eurodollar certificates of deposit; the Australian dollar; the Canadian dollar; the British pound; the Japanese yen; the Swiss franc; the Mexican peso; and certain multinational currencies, such as the euro. It is expected that other futures contracts will be developed and traded in the future.

 

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A Fund may purchase and write call and put futures options. Futures options possess many of the same characteristics as options on securities and indexes (discussed above). A futures option gives the holder the right, in return for the premium paid, to assume a long position (call) or a short position (put) in a futures contract at a specified exercise price at any time during the period of the option. Upon exercise of a call option, the holder acquires a long position in the futures contract and the writer is assigned the opposite short position. In the case of a put option, the opposite is true.

A Fund may enter into futures contracts and futures options that are standardized and traded on a U.S. or other exchange, board of trade, or similar entity, or quoted on an automated quotation system, and the Fund may also enter into OTC options on futures contracts.

Futures transactions may result in losses in excess of the amount invested in the futures contract. There can be no guarantee that there will be a correlation between price movements in the hedging vehicle and in the portfolio securities being hedged. An incorrect correlation could result in a loss on both the hedged securities in the Fund and the hedging vehicle so that the portfolio return might have been greater had hedging not been attempted. There can be no assurance that a liquid market will exist at a time when a Fund seeks to close out a futures contract or a futures option position. Most futures exchanges and boards of trade limit the amount of fluctuation permitted in futures contract prices during a single day; once the daily limit has been reached on a particular contract, no trades may be made that day at a price beyond that limit. In addition, certain of these instruments are relatively new and without a significant trading history. As a result, there is no assurance that an active secondary market will develop or continue to exist. Lack of a liquid market for any reason may prevent a Fund from liquidating an unfavorable position, and the Fund would remain obligated to meet margin requirements until the position is closed.

A Fund may write covered straddles consisting of a call and a put written on the same underlying futures contract. A straddle will be covered when sufficient assets are deposited to meet the Fund’s immediate obligations. The Fund may use the same liquid assets to cover both the call and put options where the exercise price of the call and put are the same, or the exercise price of the call is higher than that of the put. In such cases, the Fund will also segregate liquid assets equivalent to the amount, if any, by which the put is “in the money.”

A Fund will only enter into futures contracts or futures options which are standardized and traded on a U.S. or foreign exchange or board of trade, or similar entity, or quoted on an automated quotation system, or where quoted prices are generally available in the over-the-counter market. Pursuant to applicable regulatory exemptions, a Fund and the Investment Advisor are not deemed to be a “commodity pool” or “commodity pool operator” under the Commodity Exchange Act and are not subject to registration or regulation as such under the Commodity Exchange Act.

When a purchase or sale of a futures contract is made by a Fund, the Fund is required to deposit with its custodian (or broker, if legally permitted) a specified amount of liquid assets (“initial margin”). The margin required for a futures contract is set by the exchange on which the contract is traded and may be modified during the term of the contract. The initial margin is in the nature of a performance bond or good faith deposit on the futures contract that is returned to a Fund upon termination of the contract, assuming all contractual obligations have been satisfied. The Funds expect to earn taxable interest income on it initial margin deposits. A futures contract held by a Fund is valued daily at the official settlement price of the exchange on which it is traded. Each day a Fund pays or receives cash, called “variation margin,” equal to the daily change in value of the futures contract. This process is known as “marking to market.” Variation margin does not represent a borrowing or loan by a Fund but is instead a settlement between a Fund and the broker of the amount one would owe the other if the futures contract expired.

A Fund is also required to deposit and maintain margin with respect to put and call options on futures contracts written by it. Such margin deposits will vary depending on the nature of the underlying futures contract (and the related initial margin requirements), the current market value of the option, and other futures positions held by the Fund.

 

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Although some futures contracts call for making or taking delivery of the underlying securities, generally these obligations are closed out prior to delivery by offsetting purchases or sales of matching futures contracts (involving the same exchange, underlying security or index, and delivery month). If an offsetting purchase price is less than the original sale price, a Fund realizes a capital gain, or if it is more, the Fund realizes a capital loss. Conversely, if an offsetting sale price is more than the original purchase price, a Fund realizes a capital gain, or if it is less, the Fund realizes a capital loss. The transactions costs must also be included in these calculations.

With respect to forwards and futures contracts that are not contractually required to “cash-settle,” the Fund must cover its open positions by segregating liquid assets equal to the contracts’ full, notional value. With respect to forwards and futures that are contractually required to “cash-settle,” however, the Fund is permitted to segregate liquid assets in an amount equal to the Fund’s daily marked-to-market (net) obligation (i.e., the Fund’s daily net liability, if any) rather than the notional value. By setting aside assets equal to only its net obligation under cash-settled forward or futures, the Fund will have the ability to employ leverage to a greater extent than if the Fund were required to segregate assets equal to the full notional value of such contracts. Options on futures and forward contracts will be covered in the manner set forth above under “Options on Securities, Securities Indexes and Futures.”

A Fund’s ability to reduce or eliminate its futures and related options positions will depend upon the liquidity of the secondary markets for such futures and options. The Funds intend to purchase or sell futures and related options only where there appears to be an active secondary market, but there is no assurance that a liquid secondary market will exist for any particular contract or at any particular time. Use of futures and options on futures for hedging may involve risks because of imperfect correlations between movements in the prices of the futures or options on futures and movements in the prices of the securities being hedged. Successful use of futures and related options by the Fund for hedging purposes also depends upon the Investment Advisor’s or Sub-Advisor’s ability to predict correctly movements in the direction of the market, as to which no assurance can be given.

Illiquid Securities

A Fund may invest in illiquid or restricted securities if the Sub-Advisor believes that they present an attractive investment opportunity. The Fund may not invest more than 15% of its assets in illiquid securities. Generally, a security is considered illiquid if it cannot be disposed of in the ordinary course of business within seven days at approximately the price at which the Fund has valued the investment. Its illiquidity might prevent the sale of such a security at a time when the Sub-Advisor might wish to sell, and these securities could have the effect of decreasing the overall level of a Fund’s liquidity. Further, the lack of an established secondary market may make it more difficult to value illiquid securities, requiring the Fund to rely on judgments that may be somewhat subjective in determining value, which could vary from the amount that the Fund could realize upon disposition.

Illiquid securities generally include, among other things, written over-the-counter options, securities or other liquid assets being used as cover for such options, repurchase agreements with maturities in excess of seven days, certain loan participation interests, fixed-time deposits which are not subject to prepayment or provide for withdrawal penalties upon prepayment (other than overnight deposits), securities that are subject to legal or contractual restrictions on resale and other securities whose disposition is restricted under the federal securities laws (other than securities issued pursuant to Rule 144A or Regulation S under the Securities Act of 1933, as amended (the “1933 Act”) and certain commercial paper that a Sub-Advisor has determined to be liquid under procedures approved by the Board of Trustees).

A Fund’s investments may include privately placed securities, which are sold directly to a small number of investors, usually institutions. Unlike public offerings, such securities are not registered under the federal securities laws. Although certain of these securities may be readily sold, for example, under Rule 144A, others may be illiquid, and their sale may involve substantial delays and additional costs.

 

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Restricted securities, including private placements, are subject to legal or contractual restrictions on resale. They can be eligible for purchase without SEC registration by certain institutional investors known as “qualified institutional buyers,” and under the Funds’ procedures, restricted securities may be treated as liquid. Certain securities exempt from registration or issued in transactions exempt from registration (“restricted securities”) under the 1933 Act that may be resold pursuant to Rule 144A or Regulation S under the Securities Act, also may be treated as liquid. However, some restricted securities may be illiquid and restricted securities that are treated as liquid could be less liquid than registered securities traded on established secondary markets.

Short Sales

A Fund may make short sales of securities as part of its overall portfolio management strategies and to offset potential declines in long positions in similar securities. A short sale is a transaction in which a Fund sells a security it does not own in anticipation that the market price of that security will decline.

When a Fund makes a short sale (other than a short sale “against the box”), it must borrow the security sold short and deliver it to the broker-dealer through which it made the short sale as collateral for its obligation to deliver the security upon conclusion of the sale. The Fund may have to pay a fee to borrow particular securities and is often obligated to pay over any accrued interest and dividends on such borrowed securities.

If the price of the security sold short increases between the time of the short sale and the time the Fund replaces the borrowed security, the Fund will incur a loss; conversely, if the price declines, the Fund will realize a capital gain. Any gain will be decreased, and any loss increased, by the transaction costs described above. The successful use of short selling may be adversely affected by imperfect correlation between movements in the price of the security sold short and the securities being hedged.

To the extent that a Fund engages in short sales, it will provide collateral to the broker-dealer and (except in the case of short sales “against the box”) will maintain additional asset coverage in the form of segregated assets determined to be liquid by the Fund’s Investment Advisor or Sub-Advisor in accordance with procedures established by the Board of Trustees.

A short sale is “against the box” to the extent that the Fund contemporaneously owns, or has the right to obtain at no added cost, securities identical to those sold short. The Fund may engage in short selling to the extent permitted by the 1940 Act and rules and interpretations thereunder.

Lending of Portfolio Securities

In order to generate additional income, the Funds from time to time may lend portfolio securities to broker-dealers, banks or institutional borrowers of securities. The lending Fund must receive 102% collateral in the form of cash or U.S. government securities to cover any loans. This collateral must be valued daily and, should the market value of the loaned securities increase, the borrower must furnish additional collateral to the lending Fund. During the time portfolio securities are on loan, the borrower pays the lending Fund any dividends or interest paid on such securities. Loans are subject to termination by the lending Fund or the borrower at any time. While the lending Fund does not have the right to vote securities on loan, it intends to terminate the loan and regain the right to vote if that is considered important with respect to the investment. In the event the borrower defaults on its obligation to the lending Fund, the lending Fund could experience delays in recovering its securities and possible capital losses.

Borrowing

A Fund may borrow up to 15% of the value of its total assets from banks for temporary or emergency purposes. Under the 1940 Act, the Fund is required to maintain continuous asset coverage of 300% with respect to such borrowings and to sell (within three days) sufficient portfolio holdings to restore such coverage if it should decline to less than 300% due to market fluctuations or otherwise, even if such liquidations of the Fund’s holdings may be disadvantageous from an investment standpoint. The Fund may not engage in leveraging by

 

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means of borrowing which may exaggerate the effect of any increase or decrease in the value of portfolio securities or the Funds’ net asset values. Money borrowed will be subject to interest and other costs (which may include commitment fees and/or the cost of maintaining minimum average balances), which may or may not exceed the income received from the securities purchased with borrowed funds.

Debt Securities

A Fund may invest in debt securities that are rated between “BBB” and as low as “CCC” by S&P and between “Baa” and as low as “Caa” by Moody’s or, if unrated, are of equivalent investment quality as determined by the Sub-Advisor. Such debt securities may include preferred stocks, investment-grade corporate bonds, debentures and notes and other similar corporate debt instruments, convertible securities, municipal bonds, and high-quality short-term debt securities such as commercial paper, bankers’ acceptances, certificates of deposit, repurchase agreements, obligations insured or guaranteed by the United States Government or its agencies, and demand and time deposits of domestic banks, United States branches and subsidiaries of foreign banks and foreign branches of United States banks. Debt securities may be acquired with warrants attached. Corporate income-producing securities may also include forms of preferred or preference stock.

Investments in corporate debt securities that are rated below investment grade (rated below “Baa” by Moody’s Investors Service, Inc. (“Moody’s”) or “BBB” by Standard & Poor’s Rating Service (“S&P”)) are considered speculative with respect to the issuer’s ability to pay interest and repay principal. Rating agencies may periodically change the rating assigned to a particular security. While the Sub-Advisor will take into account such changes in deciding whether to hold or sell a security, the Sub-Advisors is not required to sell a security that is downgraded to any particular rating.

The market value of debt securities generally varies in response to changes in interest rates and the financial condition of each issuer. During periods of declining interest rates, the value of debt securities generally increases. Conversely, during periods of rising interest rates, the value of such securities generally declines. These changes in market value will be reflected in a Fund’s net asset value. The rate of interest on a corporate debt security may be fixed, floating or variable, and may vary inversely with respect to a reference rate. See “Variable and Floating Rate Securities.” The rate of return or return of principal on some debt obligations may be linked or indexed to the level of exchange rates between the U.S. dollar and a foreign currency or currencies.

Bonds that are rated “Baa” by Moody’s are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Bonds that are rated C by Moody’s are the lowest rated class of bonds and can be regarded as having extremely poor prospects of attaining any real investment standing.

Bonds rated “BBB” by S&P are regarded as having an adequate capacity to pay interest and repay principal. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for bonds in this category than in higher rated categories. Bonds rated “D” by S&P are the lowest rated class of bonds and generally are in payment default. The “D” rating also will be used upon the filing of a bankruptcy petition if debt service payments are jeopardized.

Although they may offer higher yields than higher rated securities, high-risk, low rated debt securities (commonly referred to as “junk bonds”) and unrated debt securities generally involve greater volatility of price and risk of principal and income, including the possibility of default by, or bankruptcy of, the issuers of the securities. In addition, the markets in which low rated and unrated debt securities are traded are more limited than those in which higher rated securities are traded. The existence of limited markets for particular securities may diminish the Fund’s ability to sell the securities at fair value either to meet redemption requests or to respond to a

 

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specific economic event such as a deterioration in the creditworthiness of the issuer. Reduced secondary market liquidity for certain low rated or unrated debt securities may also make it more difficult for the Fund to obtain accurate market quotations for the purposes of valuing their portfolios. Market quotations are generally available on many low rated or unrated securities only from a limited number of dealers and may not necessarily represent firm bids of such dealers or prices for actual sales.

Adverse publicity and investor perceptions, whether or not based on fundamental analysis, may decrease the values and liquidity of low rated debt securities, especially in a thinly traded market. Analysis of the creditworthiness of issuers of low rated debt securities may be more complex than for issuers of higher rated securities, and the ability of a Fund to achieve its investment objective may, to the extent of investment in low rated debt securities, be more dependent upon such creditworthiness analysis than would be the case if the Fund were investing in higher rated securities.

Low rated debt securities may be more susceptible to real or perceived adverse economic and competitive industry conditions than investment grade securities. The prices of low rated debt securities have been found to be less sensitive to interest rate changes than higher rated investments, but more sensitive to adverse economic downturns or individual corporate developments. A projection of an economic downturn or of a period of rising interest rates, for example, could cause a decline in low rated debt securities prices because the advent of a recession could lessen the ability of a highly leveraged company to make principal and interest payments on its debt securities. If the issuer of low rated debt securities defaults, the Fund may incur additional expenses seeking recovery.

Privatizations

A Fund may invest in privatizations. The Funds believe that foreign government programs of selling interests in government-owned or controlled enterprises (“privatizations”) may represent opportunities for significant capital appreciation. The ability of U.S. entities, such as a Fund, to participate in privatizations may be limited by local law, or the terms for participation may be less advantageous than for local investors. There can be no assurance that privatization programs will be available or successful.

Depositary Receipts

A Fund may purchase sponsored or unsponsored American Depositary Receipts (“ADRs”), European Depositary Receipts (“EDRs”) and Global Depositary Receipts (“GDRs”) (collectively, “Depositary Receipts”). ADRs are Depositary Receipts typically issued by a U.S. bank or trust company which evidence ownership of underlying securities issued by a foreign corporation. EDRs and GDRs are typically issued by foreign banks or foreign trust companies, although they also may be issued by U.S. banks or trust companies, and evidence ownership of underlying securities issued by either a foreign or a U.S. corporation. Generally, Depositary Receipts in registered form are designed for use in the U.S. securities market and Depositary Receipts in bearer form are designed for use in securities markets outside the United States. Depositary Receipts may not necessarily be denominated in the same currency as the underlying securities into which they may be converted. Depositary Receipts may be issued pursuant to sponsored or unsponsored programs. In sponsored programs, the underlying issuer has made arrangements to have its securities traded in the form of Depositary Receipts. In unsponsored programs, the underlying issuer may not be directly involved in the creation of the program. Although regulatory requirements with respect to sponsored and unsponsored programs are generally similar, in some cases it may be easier to obtain financial information from an underlying issuer that has participated in the creation of a sponsored program. Accordingly, there may be less information available regarding underlying issuers of securities in unsponsored programs and there may not be a correlation between such information and the market value of the Depositary Receipts. Depositary Receipts also involve the risks of other investments in foreign securities, as further discussed below in this section. For purposes of the Fund’s investment policies, the Fund’s investments in Depositary Receipts will be deemed to be investments in the underlying securities.

 

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Loan Participations and Assignments

A Fund may invest in fixed- and floating-rate loans arranged through private negotiations between an issuer of debt instruments and one or more financial institutions (“lenders”). Generally, a Fund’s investments in loans are expected to take the form of loan participations and assignments of loans from third parties. Large loans to corporations or governments may be shared or syndicated among several lenders, usually banks. A Fund may participate in such syndicates, or can buy part of a loan. Participations and assignments involve special types of risk, including limited marketability and the risks of being a lender. See “Illiquid Securities” for a discussion of the limits on the Fund’s investments in loan participations and assignments with limited marketability. If the Fund purchases a participation, it may only be able to enforce its rights through the lender, and may assume the credit risk of the lender in addition to that of the borrower. In assignments, a Fund’s rights against the borrower may be more limited than those held by the original lender.

Investment in Foreign and Developing Markets

A Fund may purchase securities of companies domiciled in any foreign country, developed or developing. Potential investors in a Fund should consider carefully the substantial risks involved in securities of companies and governments of foreign social instability, or diplomatic developments which could affect investments in securities of issuers in foreign nations, which are in addition to the usual risks inherent in domestic investments.

There may be less publicly available information about foreign companies comparable to the reports and ratings published about U.S. companies. Most foreign companies are not generally subject to uniform accounting and financial reporting standards, and auditing practices and requirements may not be comparable to those applicable to U.S. companies. A Fund, therefore, may encounter difficulty in obtaining market quotations for purposes of valuing its portfolio and calculating its net asset value. Foreign markets have substantially less volume than the New York Stock Exchange (“NYSE”) and securities of some foreign companies are less liquid and more volatile than securities of comparable U.S. companies. Commission rates in foreign countries are generally subject to negotiation, as in the United States, but they are likely to be higher. Transaction costs and custodian expenses are likely to be higher in foreign markets. In many foreign countries there may be less government supervision and regulation of stock exchanges, brokers and listed companies than in the United States.

Throughout the last decade many emerging markets have experienced, and continue to experience, high rates of inflation. In certain countries, inflation has accelerated rapidly at times to hyper inflationary levels, creating a negative interest rate environment and sharply eroding the value of outstanding financial assets in those countries.

Investments in businesses domiciled in developing countries may be subject to potentially higher risks than investments in developed countries. These risks include: (i) less social, political and economic stability; (ii) the small current size of the markets for such securities and the currently low or nonexistent volume of trading, which result in a lack of liquidity and in greater price volatility; (iii) certain national policies which may restrict a Fund’s investment opportunities, including restrictions on investments in issuers or industries deemed sensitive to national interests; (iv) foreign taxation; (v) the absence of developed structures governing private or foreign investment or allowing for judicial redress for injury to private property; (vi) the absence, until recently in certain Eastern European countries, of a capital market structure or market-oriented economy; and (vii) the possibility that recent favorable economic developments in Eastern Europe may be slowed or reversed by unanticipated political or social events in such countries.

The Funds will attempt to buy and sell foreign currencies on as favorable a basis as practicable. Some price spread on currency exchanges (to cover service charges) may be incurred, particularly when a Fund changes investments from one country to another or when proceeds of the sale of shares in U.S. dollars are used for the purchase of securities in foreign countries. Also, some countries may adopt policies which would prevent a Fund from transferring cash out of the country or withholding portions of interest and dividends at the source. There is

 

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the possibility of cessation of trading on national exchanges, expropriation, nationalization or confiscatory taxation, exit levies, withholding and other foreign taxes on income or other amounts, foreign exchange controls (which may include suspension of the ability to transfer currency from a given country), default in foreign government securities, political or social instability, or diplomatic developments which could affect investments in securities of issuers in foreign nations.

A Fund may buy and sell foreign currencies on a spot and forward basis to reduce the risks of adverse changes in foreign exchange rates. A forward foreign currency exchange contract involves an obligation to purchase or sell a specific currency at a future date, which may be a fixed number of days from the date of the contract agreed upon by the parties, at a price set at the time of the contract. By entering into a forward foreign currency exchange contract, the Fund “locks in” the exchange rate between the currency it will deliver and the currency it will receive for the duration of the contract. As a result, the Fund reduces its exposure to changes in the value of the currency it will deliver and increases its exposure to changes in the value of the currency it will exchange into. The effect on a Fund is similar to selling securities denominated in one currency and purchasing securities denominated in another. Contracts to sell foreign currency would limit any potential gain which might be realized by a Fund if the value of the hedged currency increases. A Fund may enter into these contracts for the purpose of hedging against foreign exchange risk arising from the Fund’s investment or anticipated investment in securities denominated in foreign currencies. A Fund also may enter into these contracts for purposes of increasing exposure to a foreign currency or to shift exposure to foreign currency fluctuations from one country to another. The Fund may use one currency (or a basket of currencies) to hedge against adverse changes in the value of another currency (or a basket of currencies) when exchange rates between the two currencies are positively correlated. The Fund will segregate assets determined to be liquid by its Sub-Advisor, in accordance with procedures established by the Board of Trustees, in a segregated account to cover its obligations under forward foreign currency exchange contracts entered into for non-hedging purposes. The Fund may invest in options on foreign currencies, in foreign currency futures and options thereon, and in foreign currency exchange-related securities, such as foreign currency warrants and other instruments whose return is linked to foreign currency exchange rates.

A Fund may be affected either unfavorably or favorably by fluctuations in the relative rates of exchange between the currencies of different nations, by exchange control regulations and by indigenous economic and political developments. Some countries in which a Fund may invest may also have fixed or managed currencies that are not free-floating against the U.S. dollar. Further, certain currencies may not be internationally traded. Certain of these currencies have experienced a steady devaluation relative to the U.S. dollar. Any devaluation in the currencies in which the Fund’s portfolio securities are denominated may have a detrimental impact on the Fund.

Investments in foreign securities and deposits with foreign banks or foreign branches of United States banks may be subject to nationalization, expropriation, confiscatory taxation, adverse changes in investment or exchange control regulations (which may include suspension of the ability to transfer currency from a country), delays in settlement of transactions, changes in governmental economic or monetary policy in the U.S. or abroad, or other political, diplomatic and economic developments could adversely affect a Fund’s investments. In the event of nationalization, expropriation, or other confiscation, the Fund could lose its entire investment in a foreign security.

Certificates of Deposit and Time Deposits

A Fund may invest in certificates of deposit and time deposits of domestic and foreign banks and savings and loan associations if (a) at the time of investment the depository institution has capital, surplus and undivided profits in excess of one hundred million dollars ($100,000,000) (as of the date of its most recently published financial statements), or (b) the principal amount of the instrument is insured in full by the Federal Deposit Insurance Corporation. Deposits in foreign banks may be subject to sovereign actions in the jurisdiction of the deposit institution including, but not limited to, freeze, seizure or diminution. The Fund bears the risk associated with repayment of principal and payment of interest on such investments by the institution with whom the deposit is placed.

 

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ReFlow

A Fund may participate in ReFlow, a program designed to provide an alternative liquidity source for mutual funds experiencing redemptions of their shares. In order to pay cash to shareholders who redeem their shares on a given day, a mutual fund typically must hold cash in its portfolio, liquidate portfolio securities, or borrow money, all of which impose certain costs on the fund. ReFlow provides participating mutual funds with another source of cash by standing ready to purchase shares from a fund equal to the amount of the fund’s net redemptions on a given day. ReFlow then generally redeems those shares when the fund experiences net sales. In return for this service, the Fund will pay a fee to ReFlow at a rate determined by a daily auction with other participating mutual funds. The costs to a Fund for participating in ReFlow are expected to be influenced by and comparable to the cost of other sources of liquidity, such as the Fund’s short-term lending arrangements or the costs of selling portfolio securities to meet redemptions. ReFlow will be prohibited from acquiring more than 3% of the outstanding voting securities of any Fund. The Funds will waive their redemption fee with respect to redemptions by ReFlow.

ReFlow Management Co., LLC, the entity which facilitates the day-to-day operations of ReFlow, is under common control with Forward Management, the investment advisor to the Funds. In light of this, the Board of Trustees has adopted certain procedures to govern the Funds’ participation in ReFlow. Among other things, the procedures require that all decisions with respect to whether to participate in a particular auction or the terms bid in an auction will be made solely by the relevant portfolio management personnel of the Sub-Advisor or Forward Management. In addition, ReFlow Management may not provide any information to Forward Management or the Sub-Advisor with respect to the ReFlow auctions that differs in kind from that provided to any other participating funds in ReFlow. The Board will receive quarterly reports regarding the Funds’ usage of the program, and shall determine annually whether continued participation in the program is in the best interests of the Funds and their shareholders.

Small Capitalization Securities

A Fund may invest in securities of smaller companies. While small companies may present greater opportunities for capital appreciation, they may also involve greater risks than larger, more mature issuers. The securities of small market capitalization companies may be more sensitive to market changes than the securities of large companies. In addition, smaller companies may have limited product lines, markets or financial resources and they may be dependent on one-person management. Further, their securities may trade less frequently and in more limited volume than those of larger, more mature companies. As a result, the prices of the securities of such smaller companies may fluctuate to a greater degree than the prices of the securities of other issuers.

PORTFOLIO TRANSACTIONS

The Sub-Advisor is authorized to select the brokers or dealers that will execute transactions to purchase or sell investment securities for the Funds. In all purchases and sales of securities for the Funds, the primary consideration is to obtain the most favorable price and execution available. Pursuant to the Sub-Advisory Agreements, the Sub-Advisor determines which brokers are eligible to execute portfolio transactions for the Funds. Purchases and sales of securities in the over-the-counter market will generally be executed directly with a “market-maker,” unless in the opinion of the Sub-Advisor, a better price and execution can otherwise be obtained by using a broker for the transaction.

In placing portfolio transactions, the Sub-Advisor will use its best efforts to choose a broker capable of providing the brokerage services necessary to obtain the most favorable combination of price and execution available. The full range and quality of brokerage services available will be considered in making these determinations, such as the size of the order, the difficulty of execution, the operational facilities of the firm

 

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involved, the firm’s risk in positioning a block of securities and other factors such as the firm’s ability to engage in transactions in shares of banks and thrifts that are not listed on an organized stock exchange. Consideration may also be given to those brokers that supply research and statistical information to the Sub-Advisor, and provide other services in addition to execution services. The Sub-Advisor is prohibited from considering a broker’s or dealer’s promotion or sale of Fund shares, or shares of any other registered investment company, when selecting brokers and dealers to effect the Fund’s portfolio securities transactions. The placement of portfolio brokerage with broker-dealers who have sold shares of the Funds is subject to rules adopted by the Financial Industry Regulatory Authority (“FINRA”) and the Forward Funds’ Policies and Procedures Prohibiting the Use of Brokerage Commissions to Finance Distribution.

While it will be the Trust’s general policy to seek to obtain the most favorable combination of price and execution available, in selecting a broker to execute portfolio transactions for the Fund, the Sub-Advisor may also give weight to the ability of a broker to furnish brokerage and research services to the Sub-Advisor. In negotiating commissions with a broker, the Sub-Advisor may therefore pay a higher commission than would otherwise be the case if no weight were given to the furnishing of these supplemental services, provided that the amount of such commission has been determined in good faith by the Sub-Advisor to be reasonable in relation to the value of the brokerage and research services provided by such broker, which services either produce a direct benefit to the Fund or assist the Sub-Advisor in carrying out its responsibilities to the Fund or its other clients. These services may include such matters as general economic and security market reviews, industry and company reviews, evaluations of securities and recommendations as to the purchase and sale of securities.

Purchases of a Fund’s portfolio securities also may be made directly from issuers or from underwriters. Where possible, purchase and sale transactions will be effected through dealers that specialize in the types of securities that the Fund will be holding, unless better executions are available elsewhere. Dealers and underwriters usually act as principals for their own account. Most debt securities are purchased and sold on a principal basis with the issuer, the issuer’s underwriter, or with a primary market-maker acting as a principal, with no brokerage commission being paid by the Fund. However, purchases from underwriters will include a concession paid by the issuer to the underwriter and purchases from dealers will include the spread between the bid and the asked price. If the execution and price offered by more than one dealer or underwriter are comparable, the order may be allocated to a dealer or underwriter which has provided such research or other services as mentioned above.

Some securities considered for investment by a Fund may also be appropriate for other clients served by the Funds’ Sub-Advisor. If the purchase or sale of securities consistent with the investment policies of the Fund and one or more of these other clients serviced by the Sub-Advisor is considered at or about the same time, transactions in such securities will be allocated among the Fund and the Sub-Advisor’s other clients in a manner deemed fair and reasonable by the Sub-Advisor. There is no specified formula for allocating such transactions. From time to time it may be in the best interest of the Fund (for example to reduce transactions costs or assure availability of securities) to either purchase or sell securities with other clients of the Fund’s Sub-Advisor. In the case of such “cross” transactions, the Sub-Advisor is required to follow procedures adopted by the Fund designed to ensure the transactions is fair to the Fund. The Sub-Advisor may utilize the services of affiliated broker-dealers to execute portfolio transactions for the Fund on an agency basis and may be paid brokerage commissions from the Fund for such services in accordance with rules adopted by the SEC.

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

Other Purchase Information

For the Class A shares, the underwriter’s commission (paid to the Distributor) is the sales charge shown in the Prospectus, less any applicable dealer concession. The dealer concession is paid to those firms selling shares as a member of the Funds’ broker-dealer network. The dealer concession is the same for all dealers. The

 

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Distributor may from time to time allow broker-dealers selling shares of the Funds to retain 100% of the sales charge. In such cases, the broker-dealer may be deemed an “underwriter” under the Securities Act of 1933, as amended.

The Investment Advisor, at its expense, may provide additional promotional incentives to financial intermediaries in connection with sales of the Funds. In some instances, such incentives may be made available only to financial intermediaries whose representatives have sold or are expected to sell significant amounts of such shares. Financial intermediaries may not use sales of the shares to qualify for the incentives to the extent such may be prohibited by the laws of any state in the United States.

Reduced Sales Charges for Class A Shares

Class A shares of the Funds may be purchased at a reduced sales charge as described below. Sales charges can be minimized in any of the following ways:

 

1. Reach “Break Points”: Increase the initial Class A investment amount to reach a higher discount level, as described in the Prospectus.

 

2. Right of Accumulation: An investor’s purchase of additional Class A shares may qualify for a cumulative quantity discount by combining a current purchase with certain other Class A shares already owned to calculate the sales charge break point for the investor’s next purchase (“Right of Accumulation”). The applicable shares charge is based on the total of:

 

  (i) The investor’s current purchase;

 

  (ii) The net asset value (valued at the close of business on the previous day) of (a) all Class A shares of the Fund held by the investor, and (b) all Class A shares of any other series fund of the Forward Funds which may be introduced and held by the investor; and

 

  (iii) The net asset value of all Class A shares owned by another shareholder eligible to combine their purchase with that of the investor into a single “purchase” (See “Combined Purchase Privilege” below).

 

3. Sign a Letter of Intent: Investors may purchase Class A shares of the Fund at a reduced sales charge by means of a written Letter of Intent (a “Letter”), which expresses the investor’s intention to invest a minimum of $25,000 of Class A shares of any Forward Fund within a period of 13 months. Upon the Fund’s receipt of the signed Letter, the shareholder will receive a discount equal to the dollar level specified in the Letter. If, however, the purchase level specified by the shareholder’s Letter has not been reached at the conclusion of the 13-month period, each purchase will be deemed made at the sales charge appropriate for the actual purchase amount.

Each purchase of shares under a Letter will be made at the public offering price applicable at the time of such purchase to a single transaction of the dollar amount indicated in such Letter. At the investor’s option, a Letter may include purchases of shares made not more than ninety days prior to the date the investor signed the Letter; however, the 13-month period during which the Letter is in effect will then begin on the date of the earliest purchase to be included. Investors do not receive credit for shares purchased by the reinvestment of distributions. Investors qualifying for the Combined Purchase Privilege (see below) may purchase shares under a single Letter. The Letter is not a binding obligation upon the investor to purchase the full amount indicated. The minimum initial investment under a Letter is 20% of such stated amount. Shares purchased with the first 5% of such amount will be held in escrow (while remaining registered in the name of the investor) to secure payment of the higher sales charge applicable to the shares actually purchased. If the full amount indicated is not purchased, the escrow account will be involuntarily redeemed to pay the additional sales charge, if necessary. Dividends and distributions on shares held in escrow, whether paid in cash or reinvested in additional Fund shares, are not subject to escrow. The escrow will be released when the full amount indicated has been purchased.

To the extent that an investor purchases more than the dollar amount indicated in the Letter and qualifies for a further reduction in the sales charge, the sales charge will be adjusted for the entire amount purchased at

 

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the end of the 13-month period, upon recovery from the investor’s dealer of its portion of the sales charge adjustment. Once received from the dealer, the sales charge adjustment will be used to purchase additional shares of the Fund at the then-current offering price applicable to the actual amount of the aggregate purchases. No sales charge adjustment will be made until the investor’s dealer returns any excess commissions previously received.

Investors making initial purchases who wish to enter into a Letter may complete the appropriate section of the Subscription Application Form. Current shareholders may call the Funds at (800) 999-6809 to receive the appropriate form.

 

4. Combined Purchase Privilege: Investors may combine the following investor accounts into one “purchase” or “holding” to qualify for a reduced sales charge:

 

  (i) An individual or “company,” as defined in Section 2(a)(8) of the 1940 Act (which includes corporations which are corporate affiliates of each other, but does not include those companies in existence less than six months or which have no purpose other than the purchase of shares of the Fund or other registered investment companies at a discount);

 

  (ii) An individual, his or her spouse and children under age 21, purchasing for his, her or their own account;

 

  (iii) A single purchase by a trustee or other fiduciary purchasing shares for a single trust, estate or single fiduciary account although more than one beneficiary is involved; or

 

  (iv) A single purchase for the employee benefit plans of a single employer.

To qualify for the Combined Purchase Privilege or obtain the Right of Accumulation on a purchase through a broker-dealer, when each such purchase is made the investor or dealer must provide the Distributor with sufficient information to verify that the purchase qualifies for the privilege or discount, such as account numbers or tax identification numbers for Forward Funds accounts eligible for aggregation. The investor must identify and provide information to Forward Funds or the investor’s financial intermediary, as applicable, regarding shares of Forward Funds held in all of the investor’s accounts (e.g., IRA, non-retirement, 529 plan, etc.) and the accounts of immediate family members (including siblings and parents-in-law) at Forward Funds or any other financial intermediary. Stated differently, the investor must identify to his or her registered representative the complete universe of eligible shareholder accounts in order to receive the maximum break point discount possible.

Other Redemption Information

Telephone Redemption and Exchange Privileges

As discussed in the Funds’ Prospectus, the telephone redemption and exchange privileges are available for all shareholder accounts except that only the telephone exchange privilege is available for retirement accounts. The privileges may be modified or terminated at any time. The privileges are subject to the conditions and provisions set forth below and in the Prospectus.

 

1. Telephone redemption and/or exchange instructions received in good order before the pricing of the Funds on any day on which the NYSE is open for business (a “Business Day”), but not later than 4:00 p.m., Eastern time, will be processed at that day’s closing net asset value. There generally is no fee for an exchange; however, there will be a 2.00% redemption fee on shares exchanged within 180 days of purchase. If you choose to receive the proceeds from your redemption via wire transfer, there is a $30.00 charge.

 

2. Telephone redemptions and/or exchange instructions should be made by calling (800) 999-6809.

 

3. The Transfer Agent will not permit exchanges in violation of any of the terms and conditions set forth in the Prospectus or herein.

 

4.

Telephone redemption requests must meet the following conditions to be accepted by the Transfer Agent: (a) Proceeds of the redemption must be mailed to the current address on the application. This address cannot

 

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reflect any change within the previous 30 days. (b) Certain account information will need to be provided for verification purposes before the redemption will be executed. (c) There is no limit on the number of telephone redemptions (where proceeds are being mailed to the address of record) that can be processed within a 30-day period. (d) The maximum amount which can be liquidated and sent to the address of record at any one time is $50,000.

Matters Affecting Redemptions

Payments to shareholders for shares redeemed will be made within seven days after receipt by the Transfer Agent of the request in proper form, except that the Trust may suspend the right of redemption or postpone the date of payment as to the Funds during any period when (a) trading on the NYSE is restricted as determined by the SEC or such exchange is closed for other than weekends and holidays; (b) an emergency exists as determined by the SEC making disposal of portfolio securities or valuation of net assets of the Funds not reasonably practicable; or (c) for such other period as the SEC may permit for the protection of the Funds’ shareholders. At various times, a Fund may be requested to redeem shares for which it has not yet received good payment. Accordingly, a Fund may delay the mailing of a redemption check until such time as the Fund has assured itself that good payment has been collected for the purchase of such shares, which may take up to 10 Business Days.

The Funds intend to pay in cash for all shares redeemed, but under abnormal conditions that make payment in cash unwise, the Fund may make payment wholly or partly in securities at their then current market value equal to the redemption price. In such case, an investor may incur brokerage costs in converting such securities to cash. In the event a Fund liquidates portfolio securities to meet redemptions, the Fund reserves the right to reduce the redemption price by an amount equivalent to the prorated cost of such liquidation not to exceed one percent of the net asset value of such shares.

In accordance with its 18f-1 election filed with the SEC, the Trust intends to redeem shares of the Funds solely in cash up to the lesser of $250,000 or 1.00% of the Fund’s net assets during any 90-day period for any one shareholder. In consideration of the best interests of the remaining shareholders, the Trust reserves the right to pay any redemption proceeds exceeding this amount in whole or in part by a distribution in-kind of securities held by the Fund in lieu of cash. It is highly unlikely that shares would ever be redeemed in-kind. When shares are redeemed in-kind, the redeeming shareholders should expect to incur transaction costs upon the disposition of the securities received in the distribution. In such cases, the shareholder may incur brokerage costs in converting the portfolio securities to cash.

The Trust has adopted procedures under which it may make redemptions-in-kind to shareholders who are affiliated persons of a Fund (as defined in Section 2(a)(3) of the 1940 Act). Under these procedures, the Trust generally may satisfy a redemption request from an affiliated person in-kind, provided that: (1) the redemption-in-kind is effected at approximately the affiliated shareholder’s proportionate share of the distributing Fund’s current net assets, and thus does not result in the dilution of the interests of the remaining shareholders; (2) the distributed securities are valued in the same manner as they are valued for purposes of computing the distributing Fund’s net asset value; (3) the redemption-in-kind is consistent with the Fund’s Prospectus and SAI; and (4) neither the affiliated shareholder nor any other party with the ability and the pecuniary incentive to influence the redemption-in-kind selects, or influences the selection of, the distributed securities.

Due to the relatively high cost of handling small investments, the Funds reserve the right, upon 60 days’ written notice, to redeem, at net asset value, the shares of any shareholder whose account has a value of less than $100 in a Fund. Before the Fund redeems such shares and sends the proceeds to the shareholder, it will notify the shareholder that the value of the shares in the account is less than the minimum amount and will allow the shareholder 60 days to make an additional investment in an amount that will increase the value of the account to at least $100 before the redemption is processed. This policy will not be implemented where the Trust has previously waived the minimum investment requirements or where the account value is a result of a decline in the net asset value per share.

 

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The holding period for Class C shares of the Funds acquired through an exchange will be calculated from the date that the initial purchase of Class C shares was made. The applicable CDSC amount will be based on the CDSC that applied to the Fund initially purchased and the holding period will be calculated from the date of such initial purchase.

The value of shares on redemption or repurchase may be more or less than the investor’s investment, depending upon the market value of the portfolio securities at the time of redemption or repurchase.

DETERMINATION OF SHARE PRICE

The net asset value (“NAV”) and offering price of the Funds’ shares will be determined once daily as of the close of trading on the NYSE (normally 4:00 p.m., Eastern Time) during each day on which the NYSE is open for trading. As of the date of this SAI, the NYSE is closed on the following holidays: New Year’s Day, Martin Luther King, Jr. Day, Presidents’ Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The offering price is the NAV per share plus any applicable sales charge. When you sell shares, you receive the NAV per share minus any applicable CDSC.

The NAV per share for a Fund for purposes of pricing sales and redemptions is calculated by dividing the value of all securities and other assets belonging to the Fund, less the liabilities charged to the Fund, by the number of shares of the Fund that have already been issued. The NAV of different Classes of shares of a Fund will differ due to differing Class expenses. The offering price is the NAV per share plus any applicable sales charge. When you sell shares, you receive the NAV per share minus any applicable CDSC. The price at which a purchase or redemption is effected is based on the next calculation of net asset value after the order is placed. Orders received by Financial Intermediaries prior to the close of trading on the NYSE will be confirmed at the offering price computed as of the close of trading on the NYSE (normally 4:00 p.m., Eastern time). It is the responsibility of the Financial Intermediary to insure that all orders are transmitted in a timely manner to the Fund. Orders received by Financial Intermediaries after the close of trading on the NYSE will be confirmed at the next computed offering price.

SHAREHOLDER SERVICES AND PRIVILEGES

For investors purchasing shares under a tax-qualified individual retirement or pension plan or under a group plan through a person designated for the collection and remittance of monies to be invested in shares on a periodic basis, the Fund may, in lieu of furnishing confirmations following each purchase of Fund shares, send statements no less frequently than quarterly, pursuant to the provisions of the Securities Exchange Act of 1934, as amended (“1934 Act”), and the rules thereunder. Such quarterly statements, which would be sent to the investor or to the person designated by the group for distribution to its members, will be sent after the end of each quarterly period and shall reflect all transactions in the investor’s account during the preceding quarter. All other shareholders will receive a confirmation of each new transaction in their accounts.

Certificates representing shares of the Funds will not be issued to shareholders. The Transfer Agent will maintain for each shareholder an account in which the registration and transfer of shares are recorded, and any transfers will be reflected by bookkeeping entry, without physical delivery.

The Transfer Agent will require that a shareholder provide requests in writing, accompanied by a valid Medallion Signature Guarantee, when changing certain information in an account, such as wiring instructions and address of record.

 

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Self-Employed and Corporate Retirement Plans

For self-employed individuals and corporate investors that wish to purchase shares, a Prototype Plan and Custody Agreement are available through the Trust. For further details, including the right to appoint a successor Custodian, see the Prototype Plan and Custody Agreements as provided by the Trust. Employers who wish to use shares of the Trust under a custodianship with another bank or trust company must make individual arrangements with such an institution.

Individual Retirement Accounts

Investors with earned income are eligible to purchase shares of the Funds under an individual retirement account (“IRA”) pursuant to Section 408(a) of the Code. An individual who creates an IRA may contribute annually certain dollar amounts of earned income, and an additional amount if there is a non-working spouse. Simplified Employee Pension Plans (“SEP IRA”), which employers may establish on behalf of their employees are also available. Full details on the IRA and SEP IRA are contained in Internal Revenue Service required disclosure statements, and the Custodian will not open an IRA until seven days after the investor has received such statement from the Trust. An IRA funded by shares of a Fund may also be used by employers who have adopted a SEP IRA.

Purchases of shares by Section 403(b) retirement plans and other retirement plans are also available. It is advisable for an investor considering the funding of any retirement plan to consult with an attorney or to obtain advice from a competent retirement plan consultant.

DIVIDENDS AND DISTRIBUTIONS

Shareholders have the privilege of reinvesting both income dividends and capital gain distributions, if any, in additional shares of the Funds at the then current net asset value, with no sales charge. Alternatively, a shareholder can elect at any time to receive dividends and/or capital gain distributions in cash.

In the absence of such an election, each purchase of shares of a Fund is made upon the condition and understanding that the Transfer Agent is automatically appointed the shareholder’s agent to receive the investor’s dividends and distributions upon all shares registered in the investor’s name and to reinvest them in full and fractional shares of the Fund at the applicable net asset value in effect at the close of business on the reinvestment date. A shareholder may still at any time after a purchase of shares of a Fund request that dividends and/or capital gain distributions be paid to the shareholder in cash.

If you elect to receive cash dividends and/or capital gains distributions and a check is returned as undelivered by the United States Postal Service, each Fund reserves the right to invest the check in additional shares of the Fund at the then-current net asset value and to convert your account’s election to automatic reinvestment of all distributions, until the Funds’ Transfer Agent receives a corrected address in writing from the number of account owners authorized on your application to change the registration. If the Transfer Agent receives no written communication from the account owner(s) and there are no purchases, sales or exchanges in your account for a period of time mandated by state law, then that state may require the Transfer Agent to turn over to the applicable state government the value of the account as well as any dividends or distributions paid.

After a dividend or capital gains distribution is paid, a Fund’s share price will drop by the amount of the dividend or distribution. If you have chosen to have your dividends or distributions paid to your account in additional shares, the total value of your account will not change after the dividend or distribution is paid. In such cases, while the value of each share will be lower, each reinvesting shareholder will own more shares. Reinvested shares will be purchased at the price in effect at the close of business on the day after the record date.

 

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TAX CONSIDERATIONS

The following discussion relates solely to U.S. federal income tax law as applicable to U.S. persons (i.e., U.S. citizens or residents and U.S. domestic corporations, trusts or estates) and certain foreign persons (i.e., non-U.S. persons) subject to tax under such law. The discussion does not address special tax rules applicable to certain classes of investors, such as tax-exempt entities, partnerships, insurance companies, and financial institutions. Dividends, capital gain distributions, and ownership of or gains realized on the redemption (including an exchange) of Fund shares also may be subject to state and local taxes. Shareholders should consult their own tax advisors as to the Federal, state or local tax consequences of ownership of shares of, and receipt of distributions from, a Fund in their particular circumstances.

The following discussion summarizes certain U.S. federal tax considerations generally affecting a Fund and its shareholders. This discussion is based upon present provisions of the Code, the regulations promulgated thereunder, and judicial and administrative ruling authorities, all of which are subject to change, which change may be retroactive. This discussion does not provide a detailed explanation of all tax consequences, and shareholders are advised to consult their own tax advisors with respect to the particular consequences to them of an investment in a Fund, as well as the tax consequences arising under the laws of any state, foreign country, or other taxing jurisdiction.

Qualification as a Regulated Investment Company

Each Fund intends to qualify as a regulated investment company (“RIC”) under the Code. To so qualify, the Fund must, among other things, in each taxable year: (a) derive at least 90% of its gross income from dividends, interest, payments with respect to securities loans, gains from the sale or other disposition of stock or securities and gains from the sale or other disposition of foreign currencies, net income derived from an interest in a qualified publicly traded partnership or other income (including gains from options, futures contracts and forward contracts) derived with respect to the Fund’s business of investing in stocks, securities or currencies and (b) diversify its holdings so that, at the end of each quarter, (i) at least 50% of the value of the Fund’s total assets (including borrowings for investment purposes, if any) is represented by cash and cash items, U.S. government securities, securities of other regulated investment companies, and other securities, with such other securities limited in respect of any one issuer to an amount not greater in value than 5% of the Fund’s total assets (including borrowings for investment purposes, if any) and to not more than 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of the Fund’s total assets (including borrowings for investment purposes, if any) is invested in the securities (other than U.S. government securities or securities of other regulated investment companies) of any one issuer, of any two or more issuers that the Fund controls and that are determined to be engaged in the same business or similar or related businesses or of one or more qualified publicly traded partnerships.

As a regulated investment company, a Fund generally is not subject to U.S. federal income tax on income and gains it distributes to shareholders, if at least the sum of 90% of the Fund’s investment company taxable income (which includes, among other items, dividends, interest and net short-term capital gains in excess of net long-term capital losses) and 90% of the Fund’s net tax-exempt interest income for the taxable year is distributed. Amounts not distributed on a timely basis in accordance with a calendar year distribution requirement also are subject to a nondeductible 4% excise tax. To prevent application of the excise tax, the Funds intend to make distributions in accordance with the calendar year distribution requirement.

If, in any taxable year, a Fund fails to qualify as a RIC under the Code or fails to meet the distribution requirement, it generally would be taxed in the same manner as an ordinary corporation and distributions to its shareholders would not be deductible by the Fund in computing its taxable income. In addition, the Fund’s distributions, to the extent derived from its current or accumulated earnings and profits, would constitute dividends (which may be eligible for the corporate-dividends received deduction) which are taxable to shareholders as ordinary income, or as qualifying dividends eligible for a reduced rate of tax as discussed below.

 

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If the Fund fails to qualify as a RIC in any year, it must pay out its earnings and profits accumulated in that year in order to qualify again as a RIC. Moreover, if the Fund failed to qualify as a RIC for a period greater than two taxable years, the Fund may be required to recognize any net built-in gains with respect to certain of its assets (the excess of the aggregate gains, including items of income, over aggregate losses that would have been realized if the Fund had been liquidated) in order to qualify as a RIC in a subsequent year.

Distributions

Dividends of investment company taxable income (including net short-term capital gains) are generally taxable to shareholders as ordinary income (subject to the discussion of qualifying dividends below), whether received in cash or reinvested in Fund shares. A Fund’s distributions of investment company taxable income may be eligible for the corporate dividends-received deduction to the extent attributable to the Fund’s dividend income from U.S. corporations, and if other applicable requirements are met. However, the alternative minimum tax applicable to corporations may reduce the benefit of the dividends-received deduction.

Distributions of net capital gains (the excess of net long-term capital gain over net short-term capital losses) designated by a Fund as capital gain dividends are taxable to shareholders, whether received in cash or reinvested in Fund shares, as long-term capital gain, regardless of the length of time the Fund’s shares have been held by a shareholder, and are not eligible for the dividends-received deduction. Any distributions that are not from the Funds’ investment company taxable income or net capital gains may be characterized as a return of capital to shareholders or, in some cases, as capital gains. Shareholders will be notified annually as to the federal tax status of dividends and distributions they receive and any tax withheld thereon.

The Funds expect to declare and pay dividends of net investment income and capital gain distributions, if any, annually in December.

Dividends, including capital gain dividends, declared in November or December with a record date in such month and paid during the following January will be treated as having been paid by the Funds and received by shareholders on December 31 of the calendar year in which declared, rather than the calendar year in which the dividends are actually received.

Distributions by a Fund reduce the net asset value of the Fund’s shares. Should a distribution reduce the net asset value below a shareholder’s cost basis, the distribution nevertheless may be taxable to the shareholder as ordinary income or capital gain as described above, even though, from an investment standpoint, it may constitute a partial return of capital. In particular, investors should be careful to consider the tax implication of buying shares just prior to a distribution by the Fund. The price of shares purchased at that time includes the amount of the forthcoming distribution, but the distribution will generally be taxable to the shareholder.

Current tax law generally provides for a maximum tax rate for individual taxpayers of 15% on long-term capital gains from sales and on certain qualifying dividends on corporate stock. The rate reductions do not apply to corporate taxpayers. Each Fund will be able to separately designate distributions of any qualifying long-term capital gains or qualifying dividends earned by the Fund that would be eligible for the lower maximum rate. A shareholder would also have to satisfy a more than 60-day holding period with respect to any distributions of qualifying dividends in order to obtain the benefit of the lower rate. Distributions from the Fund’s investments in bonds and other debt instruments will not generally qualify for the lower rates. Note that distributions of earnings from dividends paid by “qualified foreign corporations” can also qualify for the lower tax rates on qualifying dividends. Qualified foreign corporations are corporations incorporated in a U.S. possession, corporations whose stock is readily tradable on an established securities market in the U.S., and corporations eligible for the benefits of a comprehensive income tax treaty with the United States which satisfy certain other requirements. Passive foreign investment companies are not treated as “qualified foreign corporations.” The lower tax rates on long-term capital gains and qualifying dividends is scheduled to expire after 2010 in the absence of Congressional action.

 

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Sale or Other Disposition of Shares

Upon the redemption or exchange of shares, a shareholder will realize a taxable gain or loss depending upon the basis in the shares. Such gain or loss will be treated as capital gain or loss if the shares are capital assets in the shareholder’s hands; a gain will generally be taxed as long-term capital gain if the shareholder’s holding period is more than one year. A gain from disposition of shares held not more than one year will be treated as short-term capital gain. Any loss realized on a sale or exchange will be disallowed to the extent that the shares disposed of are replaced (including replacement through the reinvesting of dividends and capital gain distributions) within a period of 61 days, beginning 30 days before and ending 30 days after the disposition of the shares. In such a case, the basis of the shares acquired will be adjusted to reflect the disallowed loss. Any loss realized by a shareholder on the sale of Fund shares held by the shareholder for six months or less will be treated for federal income tax purposes as a long-term capital loss to the extent of any distributions of capital gain dividends received by the shareholder with respect to such shares. Any loss recognized on shares held for six months or less will be treated as long-term capital loss to the extent of any long-term capital gain distributions that were received with respect to the shares. Further, any loss recognized on shares held less than six months will be disallowed to the extent of any exempt interest dividends that were received with respect to such shares.

In some cases, shareholders will not be permitted to take sales charges into account for purposes of determining the amount of gain or loss realized on the disposition of their shares. This prohibition generally applies where (1) the shareholder incurs a sales charge in acquiring Fund shares, (2) the shares are disposed of before the 91st day after the date on which they were acquired, and (3) the shareholder subsequently acquires shares of the same or another Fund and the otherwise applicable sales charge is reduced or eliminated under a “reinvestment right” received upon the initial purchase of shares. In that case, the gain or loss recognized will be determined by excluding from the tax basis of the shares exchanged all or a portion of the sales charge incurred in acquiring those shares. This exclusion applies to the extent that the otherwise applicable sales charge with respect to the newly acquired shares is reduced as a result of having incurred a sales charge initially. Sales charges affected by this rule are treated as if they were incurred with respect to the shares acquired under the reinvestment right. This provision may be applied to successive acquisitions of shares.

Backup Withholding

A Fund generally will be required to withhold federal income tax, currently at a rate of 28% (“backup withholding”) from dividends paid, capital gain distributions and redemption proceeds to a shareholder if (1) the shareholder fails to furnish the Funds with the shareholder’s correct taxpayer identification number or social security number and to make such certifications as the Funds may require, (2) the IRS notifies the shareholder or the Fund that the shareholder has failed to report properly certain interest and dividend income to the IRS and to respond to notices to that effect, or (3) when required to do so, the shareholder fails to certify that he is not subject to backup withholding. Any amounts withheld may be credited against the shareholder’s Federal income tax liability.

Foreign Shareholders

Taxation of a shareholder who, as to the United States, is a nonresident alien individual, foreign trust or estate, foreign corporation, or foreign partnership (“foreign shareholder”), depends on whether the income from the applicable Fund is “effectively connected” with a U.S. trade or business carried on by such shareholder.

If the income from the Fund is not effectively connected with a U.S. trade or business carried on by a foreign shareholder, ordinary income dividends will generally be subject to U.S. withholding tax at the rate of 30% (or, if applicable, a lower treaty rate) upon the gross amount of the dividend. However, subject to certain limitations and the receipt of further guidance from the U.S. Treasury, dividends paid to certain foreign shareholders may be exempt from U.S. tax through 2007 to the extent such dividends are attributable to qualified interest and/or net short-term capital gains, provided that the Funds elect to follow certain procedures. The Fund

 

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may choose to not follow such procedures and there can be no assurance as to the amount, if any, of dividends that would not be subject to withholding. The foreign shareholder would generally be exempt from U.S. federal income tax on gains realized on the sale of shares of the applicable Fund, capital gain dividends and amounts retained by the applicable Fund that are designated as undistributed capital gains. Note that the 15% rate of tax applicable to certain dividends (discussed above) does not apply to dividends paid to foreign shareholders.

If the income from the Fund is effectively connected with a U.S. trade or business carried on by a foreign shareholder, then ordinary income dividends, capital gain dividends and any gains realized upon the sale of shares of the Fund will be subject to U.S. federal income tax at the rates applicable to U.S. citizens or domestic corporations.

Foreign noncorporate shareholders may be subject to backup withholding on distributions that are otherwise exempt from withholding tax (or taxable at a reduced treaty rate) unless such shareholders furnish the Fund with proper certification of their foreign status.

Foreign shareholders may also be subject to U.S. Federal estate tax on the value of their shares. Foreign shareholders are urged to consult their own tax advisors with respect to the particular tax consequences to them of an investment in the Fund, including the applicability of foreign taxes.

Original Issue Discount

Certain debt securities acquired by a Fund may be treated as debt securities that were originally issued at a discount. Original issue discount can generally be defined as the difference between the price at which a security was issued and its stated redemption price at maturity. Although no cash income is actually received by the Fund, original issue discount that accrues on a debt security in a given year generally is treated for federal income tax purposes as interest and, therefore, such income would be subject to the distribution requirements of the Code.

Market Discount

Some debt securities may be purchased by a Fund at a discount which exceeds the original issue discount on such debt securities, if any. This additional discount represents market discount for federal income tax purposes. The gain realized on the disposition of any taxable debt security having market discount generally will be treated as ordinary income to the extent it does not exceed the accrued market discount on such debt security. If the amount of market discount is more than a de minimis amount, a portion of such market discount must be included as ordinary income (not capital gain) by the Fund in each taxable year in which the Fund owns an interest in such debt security and receives a principal payment on it. In particular, the Fund will be required to allocate that principal payment first to the portion of the market discount on the debt security that has accrued but has not previously been included in income. In general, the amount of market discount that must be included for each period is equal to the lesser of (i) the amount of market discount accruing during such period (plus any accrued market discount for prior periods not previously taken into account) or (ii) the amount of the principal payment with respect to such period. Generally, market discount accrues on a daily basis for each day the debt security is held by a Fund at a constant rate over the time remaining to the debt security’s maturity or, at the election of the Fund, at a constant yield to maturity which takes into account the semi-annual compounding of interest.

Options, Futures and Foreign Currency Forward Contracts; Straddle Rules

A Fund’s transactions in foreign currencies, forward contracts, options and futures contracts (including options and futures contracts on foreign currencies) will be subject to special provisions of the Code that, among other things, may affect the character of gains and losses realized by the Fund (that is, may affect whether gains or losses are ordinary or capital), accelerate recognition of income to the Fund, defer Fund losses, and affect the determination of whether capital gains and losses are treated as long-term or short-term capital gains or losses. These rules could therefore, in turn, affect the character, amount, and timing of distributions to shareholders.

 

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These provisions also may require the Fund to mark-to-market certain positions in its portfolio (that is, treat them as if they were sold), which may cause the Fund to recognize income without receiving cash to use to make distributions in amounts necessary to avoid income and excise taxes. The Fund will monitor its transactions and may make such tax elections as management deems appropriate with respect to foreign currency, options, futures contracts, forward contracts or hedged investments. The Fund’s status as a regulated investment company may limit its ability to engage in transactions involving foreign currency, futures, options and forward contracts.

Certain transactions undertaken by a Fund may result in “straddles” for federal income tax purposes. The straddle rules may affect the character of gains (or losses) realized by the Fund, and losses realized by the Fund on positions that are part of a straddle may be deferred under the straddle rules, rather than being taken into account in calculating the taxable income for the taxable year in which the losses are realized. In addition, certain carrying charges (including interest expense) associated with positions in a straddle may be required to be capitalized rather than deducted currently. Certain elections that the Funds may make with respect to its straddle positions may also affect the amount, character and timing of the recognition of gains or losses from the affected positions.

Dividend Rolls

A Fund may perform “dividend rolls.” A dividend roll is an arrangement in which a Fund purchases stock in a U.S. corporation that is about to pay a dividend. The Fund then collects the dividend. If applicable requirements are met, the dividend may qualify for the corporate “dividends-received deduction.” If so, the Fund’s distributions of investment company taxable income may in turn be eligible for the corporate dividends-received deduction (pursuant to which corporate shareholders of the Fund may exclude from income up to 70% of the portion of such qualifying distributions) to the extent attributable to its dividend income from U.S. corporations (including its income from dividend roll transactions if the applicable requirements are met). The Fund then sells the stock after the dividend is paid. This usually results in a short term capital loss. Dividend roll transactions are subject to less favorable tax treatment if the sale of the stock is prearranged or where there is otherwise no risk of loss during the holding period. Under those circumstances, the dividend would not qualify for the dividends-received deduction.

Constructive Sales

Under certain circumstances, a Fund may recognize a gain from a constructive sale of an “appreciated financial position” it holds if it enters into a short sale, forward contract or other transaction that substantially reduces the risk of loss with respect to the appreciated position. In that event, the Fund would be treated as if it had sold and immediately repurchased the property and would be taxed on any gain (but not loss) from the constructive sale. The character of gain from a constructive sale would depend upon the Fund’s holding period in the property. Loss would be recognized when the property was subsequently disposed of, and its character would depend on the Fund’s holding period and the application of various loss deferral provisions of the Code. Constructive sale treatment does not apply to transactions that are closed before the end of the 30th day after the close of the taxable year and where the Fund holds the appreciated financial position throughout the 60-day period beginning on the date the transaction is closed, if certain other conditions are met.

Foreign Taxation

Income received by a Fund from sources within foreign countries may be subject to withholding and other taxes imposed by such countries. Tax conventions between certain countries and the U.S. may reduce or eliminate such taxes.

Currency Fluctuation—Section 988 Gains and Losses

Gains or losses attributable to fluctuations in foreign currency exchange rates that occur between the time a Fund accrues income or other receivables or accrues expenses or other liabilities denominated in a foreign

 

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currency and the time the Fund actually collects such receivables or pay such liabilities generally are treated as ordinary income or loss. Similarly, on disposition of certain investments (including debt securities denominated in a foreign currency and certain futures contracts, forward contracts and options), gains or losses attributable to fluctuations in the value of foreign currency between the date of acquisition of the security or other instrument and the date of disposition also are treated as ordinary income or loss. These gains or losses, referred to under the Code as “section 988” gains or losses, may increase or decrease the amount of the Fund’s investment company taxable income available to be distributed to its shareholders as ordinary income.

Passive Foreign Investment Companies

The Funds may invest in the stock of foreign companies that may be classified under the Code as passive foreign investment companies (“PFICs”). In general, a foreign corporation is classified as a PFIC if at least one-half of its assets constitute passive assets (such as stocks or securities) or if 75% or more of its gross income is passive income (such as, but not limited to, interest, dividends and gain from the sale of securities). If a Fund receives an “excess distribution” with respect to PFIC stock, the Fund will generally be subject to tax on the distribution as if it were realized ratably over the period during which the Fund held the PFIC stock. The Fund will be subject to tax on the portion of an excess distribution that is allocated to prior Fund taxable years, and an interest factor will be added to the tax, as if it were payable in such prior taxable years. Certain distributions from a PFIC and gain from the sale of PFIC shares are treated as excess distributions. Excess distributions are taxable as ordinary income.

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

Other Investment Companies

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

Real Estate Investment Fund Investments

A Fund may invest in real estate investment trusts (“REITs”) that hold residual interests in real estate mortgage investment conduits (“REMICs”) or taxable mortgage pools (“TMPs”). Although the Sub-Advisor does not intend to invest Fund assets in REITs that hold primarily residual interests in REMICs or TMPs, under applicable Treasury regulations and other guidance, a portion of the Fund’s income from a REIT that is attributable to the REIT’s residual interest in a REMIC or an interest in a TMP (referred to in the Code as an “excess inclusion”) may be subject to federal income tax. Excess inclusion income of the Fund may be allocated to shareholders of the Fund in proportion to the dividends received by the shareholders, with the same tax consequences as if the shareholder directly held the REMIC residual interest or interest in the TMP. In general, excess inclusion income allocated to shareholders (i) cannot be offset by net operating losses (subject to a limited exception for certain thrift institutions), (ii) will constitute unrelated business taxable income to entities (including qualified pension plans, individual retirement accounts or other tax-exempt entities) subject to tax on unrelated business income, thereby potentially requiring such an entity to file a tax return and pay tax on such

 

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income, and (iii) in the case of a foreign shareholder, will not qualify for any reduction in U.S. federal withholding tax. In addition, if at any time during any taxable year a “disqualified organization” (as defined in the Code) is a record holder of Fund shares, then the Fund will be subject to a tax equal to that portion of its excess inclusion income for the taxable year that is allocable to the disqualified organization, multiplied by the highest federal income tax rate imposed on corporations. The Sub-Advisor has not historically invested in mortgage REITs or vehicles that primarily hold residual interest in REMICS or TMPs and does not intend to do so in the future.

Short Sales

Short sales are subject to special tax rules which will impact the character of gains and losses realized and affect the timing of income recognition. Short sales entered into by the Fund by increase the amount of ordinary income dividends received by shareholders and may impact the amount of qualified dividend income and income eligible for the dividends received deduction that it is able to pass through to shareholders.

Personal Holding Company

Based upon the number of shareholders of a Fund, the Fund could be considered to be a personal holding company (a “PHC”) under the Code. A company is considered a PHC if: (1) at least 60% of its income is derived from certain types of passive income (e.g., interest, dividends, rents, and royalties) and (2) at any time during the last half of the taxable year more than 50% in value of its outstanding stock is owned directly, or indirectly, by or for not more than 5 individuals. A company satisfying this test is taxed on its undistributed personal holding company income (“UPHCI”) at 15%. UPHCI is computed by making certain adjustments to taxable income, including a downward adjustment for distributions made to shareholders during the taxable year.

The tax on UPHCI is in addition to any other tax. Under the Code, a regulated investment company that is also a PHC will also be taxed on any undistributed investment company taxable income at the highest corporate rate under the Code. The Fund intends to distribute sufficient taxable income to its shareholders in any applicable taxable period in which it is treated as a PHC to reduce or eliminate its UPHCI.

Other Tax Matters

A Fund is required to recognize income currently each taxable year for federal income tax purposes under the Code’s original issue discount rules in the amount of the unpaid, accrued interest with respect to bonds structured as zero coupon or deferred interest bonds or pay-in-kind securities, even though it receives no cash interest until the security’s maturity or payment date. As discussed above, in order to qualify for treatment as a regulated investment company, the Fund must distribute substantially all of its income to shareholders. Thus, the Fund may have to dispose of its portfolio securities under disadvantageous circumstances to generate cash or leverage itself by borrowing cash, so that it may satisfy the distribution requirement.

Exchange control regulations that may restrict repatriation of investment income, capital, or the proceeds of securities sales by foreign investors may limit the Fund’s ability to make sufficient distributions to satisfy the 90% and calendar year distribution requirements described above.

Different tax treatment, including penalties on certain excess contributions and deferrals, certain pre-retirement and post-retirement distributions and certain prohibited transactions, is accorded to accounts maintained as qualified retirement plans. Shareholders should consult their tax advisors for more information.

The foregoing discussion relates solely to U.S. federal income tax law as applicable to U.S. persons (i.e., U.S. citizens or residents and U.S. domestic corporations, partnerships, trusts or estates) subject to tax under such law. The discussion does not address special tax rules applicable to certain classes of investors, such as tax-exempt entities, insurance companies, and financial institutions. Dividends, capital gain distributions, and

 

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ownership of or gains realized on the redemption (including an exchange) of Fund shares also may be subject to state and local taxes. Shareholders should consult their own tax advisors as to the Federal, state or local tax consequences of ownership of shares of, and receipt of distributions from, the Fund in their particular circumstances.

Liquidation of Fund

The Board of Trustees of the Trust may determine to close and liquidate a Fund at any time, which may have adverse tax consequences to shareholders. In the event of the liquidation of a Fund, shareholders will receive a liquidating distribution in cash or in-kind equal to their proportionate interest in the Fund. A liquidating distribution may be a taxable event to shareholders, resulting in a gain or loss for tax purposes, depending upon a shareholders basis in his or her shares of the Fund.

GENERAL INFORMATION

Description of the Trust and Its Shares

The Trust consists of the portfolios described in the Prospectus and this SAI and fourteen other portfolios described in separate Prospectuses and SAIs. Each share represents an equal proportionate interest in a Forward Fund with other shares of that Fund, and is entitled to such dividends and distributions out of the income earned on the assets belonging to that Fund as are declared at the discretion of the Trustees. Shareholders are entitled to one vote for each share owned.

An annual or special meeting of shareholders to conduct necessary business is not required by the Declaration of Trust, the 1940 Act or other authority except, under certain circumstances, to elect Trustees, amend the Certificate of Trust, approve an investment advisory agreement and satisfy certain other requirements. To the extent that such a meeting is not required, the Trust may elect not to have an annual or special meeting.

The Trust will call a special meeting of shareholders for purposes of considering the removal of one or more Trustees upon written request from shareholders holding not less than 10% of the outstanding votes of the Trust. At such a meeting, a quorum of shareholders (constituting a majority of votes attributable to all outstanding shares of the Trust), by majority vote, has the power to remove one or more Trustees.

Control Persons and Principal Holders of Securities

As of [    ], 2007, no persons owned of record or beneficially 25% or greater of the Funds’ outstanding equity securities or 5% or greater of any class of the Funds’ outstanding shares.

Other Information

The Trust is registered with the SEC as an open-end management investment company. Such registration does not involve supervision of the management or policies of the Trust by any governmental agency. The Fund’s Prospectus and this SAI omit certain of the information contained in the Registration Statement filed with the SEC and copies of this information may be obtained from the SEC upon payment of the prescribed fee or examined at the SEC in Washington, D.C. without charge.

Investors in the Funds will be kept informed of their investments in the Funds through annual and semi-annual reports showing portfolio composition, statistical data and any other significant data, including financial statements audited by the independent registered public accountants.

 

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Custodian

BBH is the Trust’s custodian. Its principal business address is 40 Water Street, Boston, Massachusetts 02109. BBH is responsible for the custody of each Fund’s assets and, as foreign custody manager, will oversee the custody of any Fund assets held outside the United States. BBH takes no part in the decisions relating to the purchase or sale of the Trust’s portfolio securities.

Legal Counsel

Legal matters for the Trust are handled by Dechert LLP, 4675 MacArthur Court, Suite 1400, Newport Beach, CA 92660.

Independent Registered Public Accounting Firm

[    ], acts as the independent registered public accounting firm for the Trust.

FINANCIAL STATEMENTS

You may obtain a Prospectus, Annual Report or Semi-Annual Report (when available) at no charge by contacting the Trust at Forward Funds, P.O. Box 1345, Denver, CO 80201, or by calling (800) 999-6809.

 

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FORWARD FUNDS

PART C: OTHER INFORMATION

 

ITEM 23. EXHIBITS

 

(a)(1)

   Amended and Restated Agreement and Declaration of Trust of Forward Funds (the “Registrant”), incorporated by reference to Exhibit (a) to Post-Effective Amendment No. 40 to this Registration Statement filed with the Commission on April 30, 2007.

(a)(2)

   Revised Schedule A to the Amended and Restated Agreement and Declaration of Trust, incorporated by reference to Exhibit (a)(2) to Post-Effective Amendment No. 43 to this Registration Statement filed with the Commission on October 5, 2007.

(a)(3)

   Revised Schedule A to the Amended and Restated Agreement and Declaration of Trust, to be filed by subsequent amendment.

(b)

   Amended and Restated By-Laws of the Registrant, incorporated by reference to Exhibit (b) to Post-Effective Amendment No. 39 to this Registration Statement filed with the Commission on February 15, 2007.

(c)

   Not applicable.

(d)(1)

   Investment Management Agreement between the Registrant and Forward Management LLC (the “Advisor” or “Forward Management”) dated as of May 1, 2005 with respect to the Forward Emerald Growth Fund, the Forward Emerald Banking and Finance Fund, the Forward Emerald Opportunities Fund (formerly known as the Forward Emerald Technology Fund) (collectively, the “Forward Emerald Funds”), incorporated by reference to Exhibit (d)(1) to Post-Effective Amendment No. 28 to this Registration Statement filed with the Commission on April 27, 2005.

(d)(2)

   Investment Sub-Advisory Agreement among the Registrant, the Advisor and Emerald Mutual Fund Advisers Trust (f/k/a Emerald Advisers, Inc.) (“EMFAT”) dated as of May 1, 2005 with respect to the Forward Emerald Funds, incorporated by reference to Exhibit (d)(2) to Post-Effective Amendment No. 28 to this Registration Statement filed with the Commission on April 27, 2005.

(d)(3)

   Amended and Restated Investment Management Agreement between the Registrant and the Advisor dated as of September 7, 2006 with respect to the Forward Global Emerging Markets Fund, the Forward International Equity Fund, the Forward Hoover Mini-Cap Fund, the Forward Hoover Small Cap Equity Fund, the Forward International Small Companies Fund, the Forward Legato Fund, the Forward Progressive Real Estate Fund (formerly known as the Forward Uniplan Real Estate Investment Fund), the Sierra Club Equity Income Fund, the Sierra Club Stock Fund, the Forward Large Cap Equity Fund and the Forward Long/Short Credit Analysis Fund, filed herewith.

(d)(4)

   Amended and Restated Investment Management Agreement between the Registrant and the Advisor with respect to the Forward Global Emerging Markets Fund, the Forward International Equity Fund, the Forward Hoover Mini-Cap Fund, the Forward Hoover Small Cap Equity Fund, the Forward International Small Companies Fund, the Forward Legato Fund, the Forward Progressive Real Estate Fund, the Sierra Club Equity Income Fund, the Sierra Club Stock Fund, the Forward Large Cap Equity Fund, the Forward Long/Short Credit Analysis Fund, the Forward Asia Ex-Japan Equities Fund and the Forward Eastern Europe Equities Fund, to be filed by subsequent amendment.

(d)(5)

   Sub-Advisory Agreement among the Registrant, the Advisor and Pictet International Management Limited, now known as Pictet Asset Management Limited, dated as of July 1, 2005 with respect to the International Small Companies Fund, incorporated by reference to Exhibit (d)(4) to Post-Effective Amendment No. 30 to this Registration Statement filed with the Commission on June 29, 2005.

 

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(d)(6)

   Sub-Advisory Agreement among the Registrant, the Advisor and Pictet International Management Limited, now known as Pictet Asset Management Limited, dated as of July 1, 2005 with respect to the Forward Global Emerging Markets Fund, incorporated by reference to Exhibit (d)(5) to Post-Effective Amendment No. 35 to this Registration Statement filed with Commission on July 5, 2006.

(d)(7)

   Sub-Advisory Agreement among the Registrant, the Advisor and Pictet International Management Limited, now known as Pictet Asset Management Limited, dated as of September 1, 2005 with respect to the Forward International Equity Fund, incorporated by reference to Exhibit (d)(6) to Post-Effective Amendment No. 33 to this Registration Statement filed with the Commission on February 9, 2006.

(d)(8)

   Amended and Restated Sub-Advisory Agreement among the Registrant, the Advisor and Hoover Investment Management Co., LLC (“Hoover”) dated as of June 24, 2005 with respect to the Forward Hoover Small Cap Equity Fund, incorporated by reference to Exhibit (d)(7) to Post-Effective Amendment No. 33 to this Registration Statement filed with the Commission on February 9, 2006.

(d)(9)

   Amended and Restated Sub-Advisory Agreement among the Registrant, the Advisor and Hoover dated as of July 1, 2005 and amended and restated on January 3, 2006 with respect to the Forward Hoover Mini-Cap Fund, incorporated by reference to Exhibit (d)(8) to Post-Effective Amendment No. 38 to this Registration Statement filed with the Commission on December 27, 2006.

(d)(10)

   Sub-Advisory Agreement among the Registrant, the Advisor and Forward Uniplan Advisors, Inc. dated as of July 1, 2005 with respect to the Forward Progressive Real Estate Fund, incorporated by reference to Exhibit (d)(9) to Post-Effective Amendment No. 30 to this Registration Statement filed with the Commission on June 29, 2005.

(d)(11)

   Sub-Advisory Agreement among the Registrant, the Advisor and Netols Asset Management Inc. dated as of July 1, 2005 with respect to the Forward Legato Fund, incorporated by reference to Exhibit (d)(10) to Post-Effective Amendment No. 30 to this Registration Statement filed with the Commission on June 29, 2005.

(d)(12)

   Sub-Advisory Agreement among the Registrant, the Advisor and Riverbridge Partners, LLC dated as of July 1, 2005 with respect to the Forward Legato Fund, incorporated by reference to Exhibit (d)(11) to Post-Effective Amendment No. 30 to this Registration Statement filed with the Commission on June 29, 2005.

(d)(13)

   Sub-Advisory Agreement among the Registrant, the Advisor and Conestoga Capital Advisors, LLC dated as of July 1, 2005 with respect to the Forward Legato Fund, incorporated by reference to Exhibit (d)(12) to Post-Effective Amendment No. 30 to this Registration Statement filed with the Commission on June 29, 2005.

(d)(14)

   Amended and Restated Sub-Advisory Agreement among the Registrant, the Advisor and Forward Uniplan Advisors, Inc. dated as of July 1, 2005 and amended and restated on September 1, 2006 with respect to the Sierra Club Equity Income Fund, incorporated by reference to Exhibit (d)(13) to Post-Effective Amendment No. 39 to this Registration Statement filed with the Commission on February 15, 2007.

(d)(15)

   Sub-Advisory Agreement among the Registrant, the Advisor and Cedar Ridge Partners, LLC dated as of December 7, 2006 with respect to the Forward Long/Short Credit Analysis Fund, incorporated by reference to Exhibit (d)(15) to Post-Effective Amendment No. 38 to this Registration Statement filed with the Commission on December 27, 2006 .

(d)(16)

   Sub-Advisory Agreement among the Registrant, the Advisor and Piedmont Investment Advisors, LLC (“Piedmont”) dated as of July 11, 2007 with respect to the Forward Large Cap Equity Fund, incorporated by reference to Exhibit (d)(16) to Post-Effective Amendment No. 41 to this Registration Statement filed with the Commission on July 16, 2007.

(d)(17)

   Sub-Advisory Agreement among the Registrant, the Advisor and Pictet Asset Management SA dated October 5, 2007 with respect to the Forward International Fixed Income Fund, filed herewith.

 

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(d)(18)

   Sub-Advisory Agreement among the Registrant, the Advisor and Pictet International Management Limited with respect to the Forward Asia Ex-Japan Equities Fund, to be filed by subsequent amendment.

(d)(19)

   Sub-Advisory Agreement among the Registrant, the Advisor and Pictet International Management Limited with respect to the Forward Eastern Europe Equities Fund, to be filed by subsequent amendment.

(e)(1)(a)

   Distribution Agreement between the Registrant and ALPS Distributors, Inc. (“ALPS Distributors”) dated as of September 30, 2005, incorporated by reference to Exhibit (e) to Post-Effective Amendment No. 32 to this Registration Statement filed with the Commission on October 27, 2005.

(e)(1)(b)

   Addendum to Distribution Agreement between the Registrant and ALPS Distributors dated as of April 9, 2007, incorporated by reference to Exhibit (e)(1)(b) to Post-Effective Amendment No. 41 to this Registration Statement filed with the Commission on July 16, 2007.

(e)(1)(c)

   Amended Schedule A to the Distribution Agreement between the Registrant and ALPS Distributors, incorporated by reference to Exhibit (e)(1)(c) to Post-Effective Amendment No. 43 to this Registration Statement filed with the Commission on October 5, 2007.

(e)(1)(d)

   Amended Schedule A to the Distribution Agreement between the Registrant and ALPS Distributors, to be filed by subsequent amendment.

(f)

   None.

(g)(1)(a)

   Custodian Agreement between the Registrant and Brown Brothers Harriman & Co. (“BBH”), dated as of June 30, 2005 with respect to the Predecessor Funds, incorporated by reference to Exhibit (g)(2)(a) to Post-Effective Amendment No. 30 to this Registration Statement filed with the Commission on June 29, 2005.

(g)(1)(b)

   Amended Appendix A to the Custodian Agreement between the Registrant and BBH, incorporated by reference to Exhibit (g)(1)(b) to Post-Effective Amendment No. 43 to this Registration Statement filed with the Commission on October 5, 2007.

(g)(1)(c)

   Amended Appendix A to the Custodian Agreement between the Registrant and BBH, to be filed by subsequent amendment.

(h)(1)(a)

   Fund Accounting and Administration Agreement between the Registrant and ALPS Mutual Funds Services, Inc., now known as ALPS Fund Services, Inc. (“ALPS”) dated as of September 12, 2005, incorporated by reference to Exhibit (h)(1) to Post-Effective Amendment No. 32 to this Registration Statement filed with the Commission on October 27, 2005.

(h)(1)(b)

   Addendum to Fund Accounting and Administration Agreement between the Registrant and ALPS dated as of September 1, 2006, incorporated by reference to Exhibit (h)(1)(b) to Post-Effective Amendment No. 41 to this Registration Statement filed with the Commission on July 16, 2007.

(h)(1)(c)

   Second Addendum to Fund Accounting and Administration Agreement between the Registrant and ALPS dated as of April 9, 2007, incorporated by reference to Exhibit (h)(1)(c) to Post-Effective Amendment No. 41 to this Registration Statement filed with the Commission on July 16, 2007.

(h)(1)(d)

   Amended Appendix A to the Fund Accounting and Administration Agreement between the Registrant and ALPS, incorporated by reference to Exhibit (h)(1)(d) to Post-Effective Amendment No. 43 to this Registration Statement filed with the Commission on October 5, 2007.

(h)(1)(e)

   Amended Appendix A to the Fund Accounting and Administration Agreement between the Registrant and ALPS, to be filed by subsequent amendment.

(h)(1)(f)

   Amended Appendix C to the Fund Accounting and Administration Agreement between the Registrant and ALPS, incorporated by reference to Exhibit (h)(1)(c) to Post-Effective Amendment No. 38 to this Registration Statement filed with the Commission on December 27, 2006.

 

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(h)(2)(a)

   Transfer Agency and Service Agreement between the Registrant and ALPS dated as of September 12, 2005, incorporated by reference to Exhibit (h)(2)(a) to Post-Effective Amendment No. 32 to this Registration Statement filed with the Commission on October 27, 2005.

(h)(2)(b)

   Addendum to the Transfer Agent and Service Agreement between the Registrant and ALPS dated as of September 1, 2006, incorporated by reference to Exhibit (h)(2)(b) to Post-Effective Amendment No. 41 to this Registration Statement filed with the Commission on July 16, 2007.

(h)(2)(c)

   Second Addendum to Transfer Agent and Service Agreement between the Registrant and ALPS dated as of April 9, 2007, incorporated by reference to Exhibit (h)(2)(c) to Post-Effective Amendment No. 41 to this Registration Statement filed with the Commission on July 16, 2007.

(h)(2)(d)

   Amended Schedule A to the Transfer Agency and Service Agreement between the Registrant and ALPS, incorporated by reference to Exhibit (h)(2)(d) to Post-Effective Amendment No. 43 to this Registration Statement filed with the Commission on October 5, 2007.

(h)(2)(e)

   Amended Schedule A to the Transfer Agency and Service Agreement between the Registrant and ALPS, to be filed by subsequent amendment.

(h)(2)(f)

   Amended Schedule B to the Transfer Agency and Services Agreement between the Registrant and ALPS, incorporated by reference to Exhibit (h)(2)(c) to Post-Effective Amendment No. 38 to this Registration Statement filed with the Commission on December 27, 2006.

(h)(3)(a)

   Transfer Agent Interactive Client Services Agreement between the Registrant and ALPS dated as of September 12, 2005, incorporated by reference to Exhibit (h)(3)(b) to Post-Effective Amendment No. 32 to this Registration Statement filed with the Commission on October 27, 2005.

(h)(3)(b)

   Addendum to the Transfer Agent Interactive Client Services Agreement between the Registrant and ALPS dated as of September 1, 2006, incorporated by reference to Exhibit (h)(3)(b) to Post-Effective Amendment No. 41 to this Registration Statement filed with the Commission on July 16, 2007.

(h)(3)(c)

   Second Addendum to Transfer Agent Interactive Client Services Agreement between the Registrant and ALPS dated as of April 9, 2007, incorporated by reference to Exhibit (h)(3)(c) to Post-Effective Amendment No. 41 to this Registration Statement filed with the Commission on July 16, 2007.

(h)(3)(d)

   Amended Schedule I to the Transfer Agent Interactive Client Services Agreement between the Registrant and ALPS, incorporated by reference to Exhibit (h)(3)(d) to Post-Effective Amendment No. 43 to this Registration Statement filed with the Commission on October 5, 2007.

(h)(3)(e)

   Amended Schedule I to the Transfer Agent Interactive Client Services Agreement between the Registrant and ALPS, to be filed by subsequent amendment.

(h)(4)(a)

   Amended and Restated Shareholder Services Plan for the Class A, Class C, Investor Class and Institutional Class shares of each of the Forward Global Emerging Markets Fund, the Forward International Equity Fund, the Forward Hoover Mini-Cap Fund, the Forward Hoover Small Cap Equity Fund, the Forward International Small Companies Fund, the Forward Legato Fund, the Forward Progressive Real Estate Fund, the Sierra Club Stock Fund, the Forward Large Cap Equity Fund and the Forward Long/Short Credit Analysis Fund, incorporated by reference to Exhibit (h)(4) to Post-Effective Amendment No. 40 to this Registration Statement filed with the Commission on April 30, 2007.

(h)(4)(b)

   Amended Exhibit A to the Shareholder Services Plan for the Class A, Investor Class and Institutional Class shares of each of the Forward Global Emerging Markets Fund, the Forward International Equity Fund, the Forward Hoover Mini-Cap Fund, the Forward Hoover Small Cap Equity Fund, the Forward International Small Companies Fund, the Forward Legato Fund, the Forward Progressive Real Estate Fund, the Sierra Club Stock Fund, the Forward Large Cap Equity Fund, the Forward Long/Short Credit Analysis Fund and the Forward International Fixed Income Fund, incorporated by reference to Exhibit (h)(4)(b) to Post-Effective Amendment No. 43 to this Registration Statement filed with the Commission on October 5, 2007.

 

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(h)(4)(c)

   Amended Exhibit A to the Shareholder Services Plan for the Class A, Investor Class and Institutional Class shares of each of the Forward Global Emerging Markets Fund, the Forward International Equity Fund, the Forward Hoover Mini-Cap Fund, the Forward Hoover Small Cap Equity Fund, the Forward International Small Companies Fund, the Forward Legato Fund, the Forward Progressive Real Estate Fund, the Sierra Club Stock Fund, the Forward Large Cap Equity Fund, the Forward Long/Short Credit Analysis Fund, the Forward International Fixed Income Fund, the Forward Asia Ex-Japan Equities Fund and the Forward Eastern Europe Equities Fund, to be filed by subsequent amendment.

(h)(5)(a)

   Expense Limitation Agreement for the Forward International Equity Fund (Investor Class shares) dated as of May 1, 2007, incorporated by reference to Exhibit (h)(5)(a) to Post-Effective Amendment No. 40 to this Registration Statement filed with the Commission on April 30, 2007.

(h)(5)(b)

   Expense Limitation Agreement for the Forward International Equity Fund (Institutional Class shares) dated May 1, 2007, incorporated by reference to Exhibit (h)(5)(b) to Post-Effective Amendment No. 40 to this Registration Statement filed with the Commission on April 30, 2007.

(h)(5)(c)

   Expense Limitation Agreement for the Forward Global Emerging Markets Fund (Investor Class shares) dated as of January 2, 2007, incorporated by reference to Exhibit (h)(5)(b) to Post-Effective Amendment No. 39 to this Registration Statement filed with the Commission on February 15, 2007.

(h)(5)(d)

   Expense Limitation Agreement for the Forward Global Emerging Markets Fund (Institutional Class shares) dated as of January 2, 2007, incorporated by reference to Exhibit (h)(5)(c) to Post-Effective Amendment No. 39 to this Registration Statement filed with the Commission on February 15, 2007.

(h)(5)(e)

   Expense Limitation Agreement for the Forward International Small Companies Fund (Investor Class shares) dated as of January 2, 2007, incorporated by reference to Exhibit (h)(5)(e) to Post-Effective Amendment No. 41 to this Registration Statement filed with the Commission on July 16, 2007.

(h)(5)(f)

   Expense Limitation Agreement for the Forward International Small Companies Fund (Institutional Class shares) dated as of January, incorporated by reference to Exhibit (h)(5)(f) to Post-Effective Amendment No. 41 to this Registration Statement filed with the Commission on July 16, 2007.

(h)(5)(g)

   Expense Limitation Agreement for the Forward International Small Companies Fund (Class A shares) dated as of January 2, 2007, incorporated by reference to Exhibit (h)(5)(g) to Post-Effective Amendment No. 41 to this Registration Statement filed with the Commission on July 16, 2007.

(h)(5)(h)

   Expense Limitation Agreement for the Forward Legato Fund (Institutional Class shares) dated as of January 2, 2007, incorporated by reference to Exhibit (h)(5)(d) to Post-Effective Amendment No. 39 to this Registration Statement filed with the Commission on February 15, 2007.

(h)(5)(i)

   Expense Limitation Agreement for the Forward Legato Fund (Class A shares) dated as of January 2, 2007, incorporated by reference to Exhibit (h)(5)(e) to Post-Effective Amendment No. 39 to this Registration Statement filed with the Commission on February 15, 2007.

(h)(5)(j)

   Expense Limitation Agreement for the Sierra Club Stock Fund (Investor Class shares) dated as of May 1, 2007, incorporated by reference to Exhibit (h)(5)(g) to Post-Effective Amendment No. 40 to this Registration Statement filed with the Commission on April 30, 2007.

(h)(5)(k)

   Expense Limitation Agreement for the Sierra Club Stock Fund (Institutional Class shares) dated as of May 1, 2007, incorporated by reference to Exhibit (h)(5)(h) to Post-Effective Amendment No. 40 to this Registration Statement filed with the Commission on April 30, 2007.

(h)(5)(l)

   Expense Limitation Agreement for the Sierra Club Stock Fund (Class A shares) dated as of May 1, 2007, incorporated by reference to Exhibit (h)(5)(1) to Post-Effective Amendment No. 41 to this Registration Statement filed with the Commission on July 16, 2007.

 

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(h)(5)(m)

   Expense Limitation Agreement for the Sierra Club Equity Income Fund (Investor Class shares) dated as of January 2, 2007, incorporated by reference to Exhibit (h)(5)(g) to Post-Effective Amendment No. 39 to this Registration Statement filed with the Commission on February 15, 2007.

(h)(5)(n)

   Expense Limitation Agreement for the Sierra Club Equity Income Fund (Institutional Class shares) dated as of May 1, 2007, incorporated by reference to Exhibit (h)(5)(k) to Post-Effective Amendment No. 40 to this Registration Statement filed with the Commission on April 30, 2007.

(h)(5)(o)(1)

   Expense Limitation Agreement for the Forward Emerald Funds dated as of May 1, 2005, incorporated by reference to Exhibit (h)(6)(r) to Post-Effective Amendment No. 32 to this Registration Statement filed with the Commission on October 27, 2005.

(h)(5)(o)(2)

   Amended Exhibit A to the Expense Limitation Agreement for the Forward Emerald Funds dated as of May 1, 2006, incorporated by reference to Exhibit (h)(5)(r)(1) to Post-Effective Amendment No. 34 to this Registration Statement filed with the Commission on May 1, 2006.

(h)(5)(o)(3)

   Expense Limitation Agreement for Forward Emerald Opportunities Fund (Institutional Class shares) dated as of May 1, 2007, incorporated by reference to Exhibit (h)(5)(l)(3) to Post-Effective Amendment No. 40 to this Registration Statement filed with the Commission on April 30, 2007.

(h)(5)(o)(4)

   Expense Limitation Agreement for Forward Emerald Opportunities Fund (Class A shares) dated as of May 1, 2007, incorporated by reference to Exhibit (h)(5)(l)(4) to Post-Effective Amendment No. 40 to this Registration Statement filed with the Commission on April 30, 2007.

(h)(5)(o)(5)

   Expense Limitation Agreement for Forward Emerald Opportunities Fund (Class C shares) dated as of May 1, 2007, incorporated by reference to Exhibit (h)(5)(l)(5) to Post-Effective Amendment No. 40 to this Registration Statement filed with the Commission on April 30, 2007.

(h)(5)(p)

   Amended and Restated Expense Limitation Agreement for the Forward Large Cap Equity Fund (Class A shares) dated January 1, 2007, incorporated by reference to Exhibit (h)(5)(i) to Post-Effective Amendment No. 39 to this Registration Statement filed with the Commission on February 15, 2007.

(h)(5)(q)

   Amended and Restated Expense Limitation Agreement for the Forward Large Cap Equity Fund (Investor Class shares) dated January 1, 2007, incorporated by reference to Exhibit (h)(5)(j) to Post-Effective Amendment No. 39 to this Registration Statement filed with the Commission on February 15, 2007.

(h)(5)(r)

   Amended and Restated Expense Limitation Agreement for the Forward Large Cap Equity Fund (Institutional Class shares) dated January 1, 2007, incorporated by reference to Exhibit (h)(5)(k) to Post-Effective Amendment No. 39 to this Registration Statement filed with the Commission on February 15, 2007.

(h)(5)(s)

   Expense Limitation Agreement for the Forward International Fixed Income Fund (Investor Class shares) dated October 5, 2007, incorporated by reference to Exhibit (h)(5)(s) to Post-Effective Amendment No. 43 to this Registration Statement filed with the Commission on October 5, 2007.

(h)(5)(t)

   Expense Limitation Agreement for the Forward International Fixed Income Fund (Institutional Class shares) dated October 5, 2007, incorporated by reference to Exhibit (h)(5)(t) to Post-Effective Amendment No. 43 to this Registration Statement filed with the Commission on October 5, 2007.

(h)(5)(u)

   Expense Limitation Agreement for the Forward International Fixed Income Fund (Class A shares) dated October 5, 2007, incorporated by reference to Exhibit (h)(5)(u) to Post-Effective Amendment No. 43 to this Registration Statement filed with the Commission on October 5, 2007.

(h)(5)(v)

   Expense Limitation Agreement for the Forward International Fixed Income Fund (Class C shares) dated October 5, 2007, incorporated by reference to Exhibit (h)(5)(v) to Post-Effective Amendment No. 43 to this Registration Statement filed with the Commission on October 5, 2007.

(h)(5)(w)

   Expense Limitation Agreement for the Forward Asia Ex-Japan Equities Fund (Investor Class shares), to be filed by subsequent amendment.

 

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(h)(5)(x)

   Expense Limitation Agreement for the Forward Asia Ex-Japan Equities Fund (Institutional Class shares), to be filed by subsequent amendment.

(h)(5)(y)

   Expense Limitation Agreement for the Forward Asia Ex-Japan Equities Fund (Class A shares), to be filed by subsequent amendment.

(h)(5)(z)

   Expense Limitation Agreement for the Forward Asia Ex-Japan Equities Fund (Class C shares), to be filed by subsequent amendment.

(h)(5)(aa)

   Expense Limitation Agreement for the the Forward Eastern Europe Equities Fund (Investor Class shares), to be filed by subsequent amendment.

(h)(5)(bb)

   Expense Limitation Agreement for the the Forward Eastern Europe Equities Fund (Institutional Class shares), to be filed by subsequent amendment.

(h)(5)(cc)

   Expense Limitation Agreement for the the Forward Eastern Europe Equities Fund (Class A shares), to be filed by subsequent amendment.

(h)(5)(dd)

   Expense Limitation Agreement for the the Forward Eastern Europe Equities Fund (Class C shares), to be filed by subsequent amendment.

(h)(6)

   Compliance Support Services Agreement between the Registrant and the Advisor dated as of January 1, 2006, incorporated by reference to Exhibit (h)(6) to Post-Effective Amendment No. 33 to this Registration Statement filed with the Commission on February 9, 2006.

(i)(1)

   Revised legal opinion of Dechert LLP with respect to the Forward International Fixed Income Fund, filed herewith.

(i)(2)

   Legal opinion of Dechert LLP with respect to the Forward Asia Ex-Japan Equities Fund and Forward Eastern Europe Equities Fund, to be filed by subsequent amendment.

(j)(1)

   Powers of Attorney, incorporated by reference to Exhibit (j)(l) to Post-Effective Amendment No. 39 to this Registration Statement filed with the Commission on February 15, 2007.

(k)

   Not Applicable.

(l)

   Subscription Agreement between The HomeState Group and Forward Funds (f/k/a Emerald Mutual Funds), incorporated by reference to Exhibit (l)(3) to Post-Effective Amendment No. 26 to this Registration Statement filed with the Commission on February 28, 2005.

(m)(1)

   Distribution Services Agreement (Rule 12b-1 Plan) for Forward Emerald Growth Fund - Class A Shares, incorporated by reference to Exhibit (m)(1) to Post-Effective Amendment No. 32 to this Registration Statement filed with the Commission on October 27, 2005.

(m)(2)

   Distribution Services Agreement (Rule 12b-1 Plan) for Forward Emerald Banking and Finance Fund - Class A shares, incorporated by reference to Exhibit (m)(2) to Post-Effective Amendment No. 32 to this Registration Statement filed with the Commission on October 27, 2005.

(m)(3)

   Distribution Services Agreement (Rule 12b-1 Plan) for Forward Emerald Opportunities Fund - Class A Shares, incorporated by reference to Exhibit (m)(3) to Post-Effective Amendment No. 32 to this Registration Statement filed with the Commission on October 27, 2005.

(m)(4)

   Rule 12b-1 Distribution Plan (Rule 12b-1 Plan) for Forward Emerald Growth Fund, Forward Emerald Banking and Finance Fund and Forward Emerald Opportunities Fund - Class C Shares, incorporated by reference to Exhibit (m)(4) to Post-Effective Amendment No. 32 to this Registration Statement filed with the Commission on October 27, 2005.

 

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(m)(5)(a)

   Distribution Plan pursuant to Rule 12b-1 for the Investor Class shares of each of Forward Global Emerging Markets Fund, the Forward International Equity Fund, Forward Hoover Mini-Cap Fund, the Forward Hoover Small Cap Equity Fund, the Forward International Small Companies Fund, the Forward Progressive Real Estate Fund and the Sierra Club Stock Fund, incorporated by reference to Exhibit (m)(5) to Post-Effective Amendment No. 30 to this Registration Statement filed with the Commission on June 29, 2005.

(m)(5)(b)

   Amended Appendix A to the Distribution Plan pursuant to Rule 12b-1 for the Investor Class shares of each of the Forward Global Emerging Markets Fund, the Forward International Equity Fund, the Forward Hoover Mini-Cap Fund, the Forward Hoover Small Cap Equity Fund, the Forward International Small Companies Fund, the Forward Progressive Real Estate Fund, the Sierra Club Stock Fund, the Forward Large Cap Equity Fund and the Forward International Fixed Income Fund incorporated by reference to Exhibit (m)(5)(b) to Post-Effective Amendment No. 43 to this Registration Statement filed with the Commission on October 5, 2007.

(m)(5)(c)

   Amended Appendix A to the Distribution Plan pursuant to Rule 12b-1 for the Investor Class shares of each of the Forward Global Emerging Markets Fund, the Forward International Equity Fund, the Forward Hoover Mini-Cap Fund, the Forward Hoover Small Cap Equity Fund, the Forward International Small Companies Fund, the Forward Progressive Real Estate Fund, the Sierra Club Stock Fund, the Forward Large Cap Equity Fund, the Forward International Fixed Income Fund, the Forward Asia Ex-Japan Equities Fund and the Forward Eastern Europe Equities Fund, to be filed by subsequent amendment.

(m)(6)(a)

   Distribution Plan pursuant to Rule 12b-1 for the Class A shares of each of the Forward Hoover Small Cap Equity Fund, the Forward International Small Companies Fund, the Forward Legato Fund and the Sierra Club Stock Fund, incorporated by reference to Exhibit (m)(6) to Post-Effective Amendment No. 30 to this Registration Statement filed with the Commission on June 29, 2005.

(m)(6)(b)

   Amended Appendix A to the Distribution Plan pursuant to Rule 12b-1 for the Class A shares of each of the Forward Hoover Small Cap Equity Fund, the Forward International Small Companies Fund, the Forward Legato Fund, the Sierra Club Stock Fund, the Forward Large Cap Equity Fund and the Forward International Fixed Income Fund, incorporated by reference to Exhibit (m)(6)(b) to Post-Effective Amendment No. 43 to this Registration Statement filed with the Commission on October 5, 2007.

(m)(6)(c)

   Amended Appendix A to the Distribution Plan pursuant to Rule 12b-1 for the Class A shares of each of the Forward Hoover Small Cap Equity Fund, the Forward International Small Companies Fund, the Forward Legato Fund, the Sierra Club Stock Fund, the Forward Large Cap Equity Fund and the Forward International Fixed Income Fund, the Forward Asia Ex-Japan Equities Fund and the Forward Eastern Europe Equities Fund, to be filed by subsequent amendment.

(m)(7)

   Distribution Plan pursuant to Rule 12b-1 for the Class A shares of the Forward Long/Short Credit Analysis Fund, incorporated by reference to Exhibit (m)(7) to Post-Effective Amendment No. 38 to this Registration Statement filed with the Commission on December 27, 2006.

(m)(8)

   Distribution Plan pursuant to Rule 12b-1 for the Class C shares of the Forward Long/Short Credit Analysis Fund, incorporated by reference to Exhibit (m)(8) to Post-Effective Amendment No. 38 to this Registration Statement filed with the Commission on December 27, 2006.

(m)(9)

   Amended Appendix A to the Distribution Plan pursuant to Rule 12b-1 for the Class C shares of each of the Forward Long/Short Credit Analysis Fund and the Forward International Fixed Income Fund, incorporated by reference to Exhibit (m)(9) to Post-Effective Amendment No. 43 to this Registration Statement filed with the Commission on October 5, 2007.

(m)(10)

   Amended Appendix A to the Distribution Plan pursuant to Rule 12b-1 for the Class C shares of each of the Forward Long/Short Credit Analysis Fund, the Forward International Fixed Income Fund, the Forward Asia Ex-Japan Equities Fund and the Forward Eastern Europe Equities Fund, to be filed by subsequent amendment.

(n)(1)

   Multiple Class Plan pursuant to Rule 18f-3, incorporated by reference to Exhibit (n) to Post-Effective Amendment No. 40 to this Registration Statement filed with the Commission on April 30, 2007.

(o)

   Not applicable.

 

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(p)(1)

   Registrant’s Code of Ethics, incorporated by reference to Exhibit (p)(1) to Post-Effective Amendment No. 34 to this Registration Statement filed with the Commission on May 1, 2006.

(p)(2)

   Code of Ethics of the Advisor, incorporated by reference to Exhibit (p)(2) to Post-Effective Amendment No. 33 to this Registration Statement filed with the Commission on February 9, 2006.

(p)(3)

   Code of Ethics of Pictet International Management Limited, incorporated by reference to Exhibit (p)(3) to Post-Effective Amendment No. 35 to this Registration Statement filed with Commission on July 5, 2006.

(p)(4)

   Amended Code of Ethics of Hoover, incorporated by reference to Exhibit (p)(4) to Post-Effective Amendment No. 43 to this Registration Statement filed with the Commission on October 5, 2007

(p)(5)

   Code of Ethics of Forward Uniplan Advisors, Inc., incorporated by reference to Exhibit (p)(6) to Post-Effective Amendment No. 30 to this Registration Statement filed with the Commission on June 29, 2005.

(p)(6)

   Code of Ethics of Conestoga Capital Advisors, LLC, incorporated by reference to Exhibit (p)(7) to Post-Effective Amendment No. 30 to this Registration Statement filed with the Commission on June 29, 2005.

(p)(7)

   Amended Code of Ethics of Netols Asset Management Inc., incorporated by reference to Exhibit (p)(7) to Post-Effective Amendment No. 41 to this Registration Statement filed with the Commission on July 16, 2007.

(p)(8)

   Code of Ethics of Riverbridge Partners, LLC, incorporated by reference to Exhibit (p)(9) to Post-Effective Amendment No. 35 to this Registration Statement filed with Commission on July 5, 2006.

(p)(9)

   Amended Code of Ethics of EMFAT, incorporated by reference to Exhibit (p)(9) to Post-Effective Amendment No. 38 to this Registration Statement filed with the Commission on December 27, 2006 .

(p)(10)

   Code of Ethics of ALPS Distributors, incorporated by reference to Exhibit (p)(12) to Post-Effective Amendment No. 34 to this Registration Statement filed with the Commission on May 1, 2006.

(p)(11)

   Code of Ethics of Cedar Ridge Partners, LLC, incorporated by reference to Exhibit (p)(12) to Post-Effective Amendment No. 38 to this Registration Statement filed with the Commission on December 27, 2006.

(p)(12)

   Code of Ethics of Piedmont, incorporated by reference to Exhibit (p)(7) to Post-Effective Amendment No. 41 to this Registration Statement filed with the Commission on July 16, 2007.

 

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ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUNDS.

Registrant is controlled by its Board of Trustees. Certain of Registrant’s trustees serve on the board of directors/trustees of certain other registered investment companies. (See “Management of the Funds – Trustees and Officers” in Part B hereof.)

 

ITEM 25. INDEMNIFICATION

The Registrant’s Amended and Restated Declaration of Trust (“Declaration of Trust”), attached as Exhibit (a) to Post-Effective Amendment No. 40 to this Registration Statement, and Amended and Restated By-Laws, attached as Exhibit (b) to Post-Effective Amendment No. 39 to this Registration Statement, provide among other things, that current and former trustees and officers who were or are a party, or are threatened to be made a party, to any proceeding or claim by reason of the fact that such person is or was a Trustee or officer of the Registrant, shall be indemnified against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with such proceeding, if it is determined that such person acted in good faith and reasonably believed: (a) that his conduct was in the Registrant’s best interests and (b) in the case of a criminal proceeding, that he had no reasonable cause to believe his conduct was unlawful; provided that, the trustees and officers of the Registrant shall not be entitled to indemnification or held harmless if such liabilities were a result of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such person’s office, or in respect of any claim or proceeding as to which such person shall have been adjudicated by a court or other competent body to be liable on the basis that personal benefit was improperly received by him, whether or not the benefit resulted from an action taken in the person’s official capacity.

The Distribution Agreement, filed as Exhibit (e) to Post-Effective Amendment No. 32 to this Registration Statement, provides for indemnification of ALPS Distributors, its officers and directors and any person who controls ALPS Distributors.

The Registrant has in effect a directors’ and officers’ liability policy covering specific types of errors and omissions.

Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be permitted to trustees, officers and controlling persons of the Registrant pursuant to such provisions of the Declaration of Trust, Underwriting Agreement, or statutes or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission (“SEC”), such indemnification is against public policy as expressed in said Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a trustee, officer or controlling person of the Registrant in the successful defense of any such action, suit or proceeding) is asserted by such trustee, officer or controlling person in connection with the shares of the Registrant, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

 

ITEM 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISORS

Forward Management performs investment advisory services for Registrant. The directors and officers of Forward Management and their other business affiliations for the past two fiscal years are:

 

Name and Title

  

Name and Address of other Business

Connections

  

Dates

  

Title, Capacity of Engagement,
Description of Business

J. Alan Reid, Jr., President   

ReFlow Management Co., LLC

433 California Street

Suite 1100

San Francisco, CA 94104

   August 2001 to present    President and Director, investment services company
  

ReFlow Fund

433 California Street

Suite 1100

San Francisco, CA 94104

   2002 to present    President and Director, investment services company

 

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FOLIOfn, Inc.

8000 Towers Crescent Drive

Suite 1500

Vienna, VA 22182

   2002 to present    Director, financial services company
  

Finaplex

601 Montgomery Street

Suite 1700

San Francisco, CA 94111

   2002 to present    Advisory Board Member, software company
  

SunGard Expert Solutions

8910 University Center Lane

Suite 700

San Diego, CA 92122

   1998 to present    Advisory Board Member, software company
Mary Curran, General Counsel and Secretary   

Forward Funds

433 California Street

Suite 1100

San Francisco, CA 94104

   2004 to June 2006    Chief Compliance Officer, registered investment company
  

ReFlow Management Co., LLC

433 California Street

Suite 1100

San Francisco, CA 94104

   June 2004 to present    Secretary, investment services company
Judith M. Rosenberg, Chief Compliance Officer   

ReFlow Management Co., LLC

433 California Street

Suite 1100

San Francisco, CA 94104

   July 2005 - present    Chief Compliance Officer, investment services company
  

Morgan Stanley

1585 Broadway

New York, NY 10036

   December 1984 - June 2005    Attorney, financial services company
Gordon P. Getty, Chairman of the Board   

ReFlow Management Co., LLC

433 California Street

Suite 1100

San Francisco, CA 94104

   August 2001 to present    Chairman of the Board, investment services company
Jeffrey P. Cusack, Director   

Rex

101 California Street, Suite 1950

San Francisco, CA 94111

   October 2005 to present    Managing Director, real estate finance company
  

ReFlow Management Co., LLC

433 California Street

Suite 1100

San Francisco, CA 94104

   June 2007 to present    Director, investment services company
  

JP Morgan

1 Bank Plaza

Chicago, IL

   August 2003 to October 2005    Executive Vice President, Private Client Services, private banking company

Philip D. DeFeo,

Director

  

Pacific Exchange

301 Pine Street

San Francisco, CA

   June 1999 - December 2005    Chairman and CEO, securities exchange

 

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   Computershare, Melbourne, Australia    January 2002 - present    Vice Chairman and Non-Executive Director, financial services provider
  

ReFlow Management Co., LLC

433 California Street

Suite 1100

San Francisco, CA 94104

   September 2005 to present    Director, investment services company
James J. Halligan, Director   

ReFlow Management Co., LLC

433 California Street

Suite 1100

San Francisco, CA 94104

   August 2001 to present    Director, investment services company
William A. Prezant, Director   

Prezant & Mollath

Attorneys at Law

6560 SW McCarran Blvd.

Reno, NV 89509

   1988 to present    Self-employed, law practice
  

Torrey International Strategy Partners

505 Park Avenue

5th Fl.

New York, NY 10022

   November 2002 to present    Manager (Director), registered investment company
  

Torrey US Strategy Partners

505 Park Avenue

5th Fl.

New York, NY 10022

   September 2002 to present    Manager (Director), registered investment company
  

ReFlow Management Co., LLC

433 California Street

Suite 1100

San Francisco, CA 94104

   September 2005 to present    Director, investment services company
  

Strategic Hotels & Resorts

777 West Wacker, Suite 4600

Chicago, IL 60601

   March 2006 to present    Director, Real Estate Investment Fund
  

MacGregor Golf Company

1000 Pecan Grove Drive

Albany, GA 31701

   December 2006 – present    Director, Golf Company
Toby Rosenblatt, Director   

Founders Investments Ltd.

3409 Pacific Avenue

San Francisco, CA 94118

   1999 to present    President, private investment company
  

BlackRock Funds

40 E. 52nd Street

New York, NY 10022

   March 2005 to present    Director (independent), mutual funds
  

MetLife Series Funds

Boston, MA

   2001 to March 2005    Director (independent), mutual funds and annuities
  

ReFlow Management Co., LLC

433 California Street

Suite 1100

San Francisco, CA 94104

   June 2007 to present    Director, investment services company

 

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State Street Research Mutual Funds

Boston, MA 02111

   1990 – March 2005    Director (independent), mutual funds
  

A.P. Pharma

123 Saginaw Drive

Redwood City, CA 94063

   1983 – present    Director, specialty pharmaceuticals company
  

Pharin Pharmaceuticals

123 Saginaw Drive

Redwood City, CA 94063

   1993 to present    Director, specialty pharmaceuticals company

Thomas E. Woodhouse,

Director

  

Minerva Office Management, Inc.

1325 Airmotive Way

Suite 340

Reno, Nevada 89502

   January 2002 to present    Trust Administrator, President; trust administration company
  

Vallejo Investments, Inc.

One Embarcadero Center

Suite 1050

San Francisco, CA 94111

   January 2002 to present    CEO, family office
  

ReFlow Management Co., LLC

433 California Street

Suite 1100

San Francisco, CA 94104

   August 2001 to present    Director, investment services company

EMFAT performs investment advisory services for Registrant. The trustees and officers of EMFAT and their other business affiliations for the past two fiscal years are:

 

Name and Title

  

Name and Address of Other Business
Connections

  

Dates

  

Title, Capacity of Engagement,
Description of Business

Kenneth Mertz

President, CIO

Portfolio Manager

  

Emerald Advisers

1703 Oregon Pike

Lancaster, PA 17601

   Since January 1, 1992    President, Portfolio Manager, Investment Adviser

Edward Pohl, CFO

Treasurer

  

Emerald Advisers

1703 Oregon Pike

Lancaster, PA 17601

   Since June 1, 2001    Chief Financial Officer, Chief Operating Officer, Investment Adviser
  

Emerald Fixed Income Advisers

1703 Oregon Pike

Lancaster, PA 17601

   Since February 1, 2006    Managing Director, Investment Adviser

Daniel Moyer

Executive Vice President

  

Emerald Advisers

1703 Oregon Pike

Lancaster, PA 17601

   Since October 1, 1992    Executive Vice President, Managing Director, Investment Adviser

James Meehan

Chief Compliance Officer

  

Emerald Advisers

1703 Oregon Pike

Lancaster, PA 17601

   Since May 1, 1999    Chief Compliance Officer, Investment Adviser
  

Emerald Fixed Income Advisers

1703 Oregon Pike

Lancaster, PA 17601

   Since February 1, 2006    Chief Compliance Officer, Investment Adviser
Stacy Sears   

Emerald Advisers

1703 Oregon Pike

Lancaster, PA 17601

   Since October 1, 1992    Senior Vice President, Portfolio Manager, Investment Adviser

 

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Pictet Asset Management Limited performs investment advisory services for Registrant. The directors and officers of Pictet Asset Management Limited and their other business affiliations for the past two fiscal year are:

 

Name and Title

  

Name and Address of Other Business
Connections

  

Dates

  

Title, Capacity of Engagement,
Description of Business

Rod Hearn   

Pictet (London) Ltd

Pictet Administration Services Ltd

Pictet Asset Management Ltd

 

Worldwide SICAV

1, Boulevard Royal

L-2449 LUXEMBOURG

 

Al Dar Islamic Fund, SICAV

1, Boulevard Royal

L-2449 LUXEMBOURG

   ongoing    Director
Nicholas Johnson   

Pictet (London) Ltd

Pictet Administration Services Ltd

Pictet Asset Management Ltd

   ongoing    Director
  

NPJ Asset Management LLP

11-12 Tokenhouse Yard

London, EC2R 7AS

   Since May 8, 2007    Director
Rolf Banz   

Pictet Asset Management SA

Pictet Asset Management Ltd

   ongoing    Director
Gavin Sharpe   

Helvea Limited

5 Royal Exchange Buildings London EC3V 3NL

 

Pictet (London) Ltd

Pictet Administration Services Ltd

Pictet Asset Management SA

Pictet Asset Management Ltd

Pictet Investment Company Limited

   ongoing    Chief Financial Officer and Director
Renaud De Planta   

Pictet & Cie

Pictet Asset Management SA

Pictet Asset Management Ltd

Pictet Canada L.P.

Pictet Holding LLP

   ongoing    Chief Executive Officer, Director
David Cawthrow   

Pictet Asset Management SA

Pictet Asset Management Ltd

Pictet Investment Company Limited

   Since June 27, 2005    Chief Compliance Officer
  

Morley Fund Management Intl. Inc.

1 Poultry, London EC2R 8EJ

   To June 24, 2005    Chief Compliance Officer
Christoph Lanter   

Pictet Asset Management SA

Pictet Asset Management Ltd

   ongoing    Head of Business Development and Client Relations
Nicholas Mustoe   

Pictet Asset Management SA

Pictet Asset Management Ltd

   ongoing    Head of Equities, Director

 

14


Table of Contents
  

Caduceus Estates Limited

Hermes Asset Management Limited

Hermes Focus Asset Management Europe Ltd

Hermes Focus Asset Management Limited

Hermes Investment Management Limited

Hermes Pensions Management Limited

Hermes Real Estate Investment Management Ltd

Leconport Estates

Leconport Properties

HCIF Index Sub Fund Limited

Hermes Absolute Return Fund (Guernsey) Limited

Hermes Commodities Investment Fund Limited

MEPC (1946) Limited

MEPC Limited

 

Addresses unknown – previous company

   To May 31, 2006    Director
Vincent Cornet   

Pictet Asset Management SA

Pictet Asset Management Ltd

   Since February 13, 2006    Head of Fixed Income
Olivier Ginguene    Pictet Asset Management SA Pictet Asset Management Ltd    Since August 2005    Head of Quantitative Investment
Marc Briol   

Pictet Asset Management SA

Pictet Asset Management Ltd

   ongoing   

Chief Operating

Officer

Pictet Asset Management SA performs investment advisory services for Registrant. The directors and officers of Pictet Asset Management SA and their other business affiliations for the past two fiscal year are:

 

Name and Title

  

Name and Address of Other Business
Connections

  

Dates

  

Title, Capacity of Engagement,
Description of Business

Rolf Banz   

Pictet Asset Management SA

Pictet Asset Management Ltd

   ongoing    Director and Chief Investment Architect and Product Manager
Gavin Sharpe   

Helvea Limited

5 Royal Exchange Buildings London EC3V 3NL

 

Pictet (London) Ltd

Pictet Administration Services Ltd

Pictet Asset Management SA

Pictet Asset Management Ltd

Pictet Investment Company Limited

   ongoing    Director and Chief Financial Officer
Renaud De Planta   

Pictet & Cie

Pictet Asset Management SA

Pictet Asset Management Ltd

Pictet Canada L.P.

Pictet Holding LLP

   ongoing    Partner, Chief Executive Officer and Director

 

15


Table of Contents
David Cawthrow   

Pictet Asset Management SA

Pictet Asset Management Ltd

Pictet Investment Company Limited

   Since June 27, 2005    Chief Compliance Officer
  

Morley Fund Management Intl. Inc.

1 Poultry, London EC2R 8EJ

   To June 24, 2005    Chief Compliance Officer
Marc Tonnerre    Pictet Asset Management SA    ongoing    Head of Compliance (Geneva)

Hoover performs investment advisory services for Registrant. The directors and officers of Hoover and their business affiliations for the past two fiscal years are:

 

Name and Title

  

Name and Address of Other Business
Connections

  

Dates

  

Title, Capacity of Engagement,
Description of Business

Irene G. Hoover, CFA; Managing Member and Chief Investment Officer    None      
Beverly Hoffmann, CFO and CCO    None      
Stephen J. Cullen, Director of Market Analysis and Equity Trading    None      
Nancy R. Rimington, Director of Client Service and Marketing    None      
David Schneider, Associate Portfolio Manager and Senior Analyst    None      
Jane M. Hecht, Director of Operations    None      

Forward Uniplan Advisors, Inc. performs investment advisory services for Registrant. The directors and officers of Forward Uniplan Advisors, Inc. and their business affiliations for the past two fiscal years are:

 

Name and Title

  

Name and Address of Other Business
Connections

  

Dates

  

Title, Capacity of Engagement,
Description of Business

Richard Imperiale

President

   None      

Netols Asset Management, Inc. performs investment advisory services for Registrant. The directors and officers of Netols Asset Management, Inc. and their business affiliations for the past two fiscal years are:

 

16


Table of Contents

Name and Title

  

Name and Address of Other Business
Connections

  

Dates

  

Title, Capacity of Engagement,
Description of Business

Jeffrey W. Netols

President and Portfolio Management

   None      

Riverbridge Partners, LLC performs investment advisory services for Registrant. The partners of Riverbridge Partners, LLC and their business affiliations for the past two fiscal years are:

 

Name and Title

  

Name and Address of Other Business
Connections

  

Dates

  

Title, Capacity of Engagement,
Description of Business

Mark Thompson

Principal

   None      

Rick Moulton

Principal

   None      

John Peyton

Principal

   None      

Robert Hensel

Principal

   None      

Philip Dobrzynski

Principal

   None      

Andrew Turner

Principal

   None      

Dana Feick

Principal

   None      

Conestoga Capital Advisors, LLC performs investment advisory services for Registrant. The directors and officers of Conestoga Capital Advisors, LLC and their business affiliations for the past two fiscal years are:

 

Name and Title

  

Name and Address of Other Business
Connections

  

Dates

  

Title, Capacity of Engagement,
Description of Business

William C. Martindale, Jr.

Managing Partner

   None      

W. Christopher Maxwell

Managing Partner

  

Maxwell Associates

20561 Rock Hall Avenue, Suite 6

Rock Hall, MD 21661

  

Since

January 1, 1997

  

Principal,

Consulting Services,

Consulting to Investment Management Firms

Robert M. Mitchell

Managing Partner

   None      

 

17


Table of Contents

Duane R. D’Orazio

Managing Partner

   None      

Mark S. Clewett

Director - Institutional Sales and Client Service

  

Delaware Investments

1 Commerce Square

Philadelphia, PA 19103

   January 1, 1996 - December 31, 2005   

Senior Vice President,

Institutional Sales, Investment Management

Piedmont Investment Advisors, LLC performs investment advisory services for Registrant. The directors and officers of Piedmont and their business affiliations for the past two fiscal years are:

 

Name and Title

  

Name and Address of Other Business
Connections

  

Dates

  

Title, Capacity of Engagement,
Description of Business

Isaac H. Green, President    None      
Bert Collins   

North Carolina Mutual Life Insurance Company

411 West Chapel Hill Street

Durham, NC 27701

   12/31/04 - present    Chairman, Board Member, Insurance Business

Dawn Alston Paige, Sr. V.P.

Piedmont

   None      
Andrew Silton   

AMS Financial Consulting Services, LLC

301 Highgrove Drive

Chapel Hill, NC 27516

   02/05 - present    President, Board Member, Consulting Services
Victor Hymes   

Legato Capital Management, LLC

433 California Street, 11th Floor

San Francisco, CA 94104

   02/28/07 - present   

President, Board Member,

Strategic Advisory Services

Charles L. Curry, Sr. V.P.

Piedmont

   None      

Sumali Sanyal, Sr. V.P.

Piedmont

   None      
Clifford Mpare, Sr. V.P. Piedmont    None      

Zaid Abdul-Aleem, V.P.

Piedmont

   None      

Clarissa Parker, V.P.

Piedmont

   None      

Della-Hood Laster, V. P.

Piedmont

   None      

Dina Falzon, V.P.

Piedmont

   None      

 

18


Table of Contents

Cedar Ridge Partners, LLC performs investment advisory services for Registrant. The partners of Cedar Ridge and their other business affiliations for the past two fiscal years are:

 

Name and Title

  

Name and Address of Other Business
Connections

  

Dates

  

Title, Capacity of Engagement,
Description of Business

Alan E. Hart, Managing Partner   

Bear Stearns & Co. Inc.

383 Madison Avenue

New York, NY 10179

   January 2004 - March 2004    Managing Director, Investment Banking - Municipal Finance
Guy J. Benstead, Partner   

Bear Stearns & Co. Inc.

383 Madison Avenue

New York, NY 10179

   January 2004 - March 2005    Managing Director, Institutional Fixed-Income Sales

 

ITEM 27. PRINCIPAL UNDERWRITERS

(a) The sole principal underwriter for each series of the registrant is ALPS Distributors, which acts as distributor for the Registrant and the following other funds: AARP Funds, Ameristock Mutual Fund, Inc.; Ameristock ETF Trust; BLDRS Index Fund Trust; Campbell Multi-Strategy Trust; CornerCap Group of Funds; DIAMONDS Trust; Drake Funds; Financial Investors Trust; Financial Investors Variable Insurance Trust; Fifth Third Funds; Firsthand Funds; Heartland Group, Inc.; Henssler Funds, Inc.; Holland Balanced Fund; Laudus Trust, Milestone Funds; PowerShares QQQ 100 Trust Series 1; Scottish Widows Investment Partnership; SPDR Trust; MidCap SPDR Trust; Select Sector SPDR Trust; State Street Institutional Investment Trust; Stonebridge Funds, Inc.; Stone Harbor Investment Funds; TDAX Funds, Inc.; Utopia Funds; W. P. Stewart Funds; Wasatch Funds; Westcore Trust; Williams Capital Liquid Assets Fund; and WisdomTree Trust.

ALPS Distributors is registered with the Securities and Exchange Commission as a broker-dealer and is a member of the Financial Industry Regulatory Authority. ALPS Distributors is located at 1290 Broadway, Suite 1100, Denver, CO 80203.

(b) To the best of Registrant’s knowledge, the directors and executive officers of ALPS Distributors, the distributor for Registrant, are as follows:

 

Name and Address*

  

Positions and Offices with

Underwriter

  

Positions and Offices

with Registrant

Edmund J. Burke    President, Director    None
Thomas A. Carter    Managing Director – Business Development, Director    None
Jeremy O. May   

Managing Director – Operations and Client Service,

Assistant Secretary, Director

   None
Cameron L. Miller    Director    None
John Donaldson    Chief Financial Officer    None
Robert J. Szydlowski    Chief Technology Officer    None
Diana Adams    Vice President, Controller, Treasurer    None
Tané T. Tyler    General Counsel, Secretary    None
Bradley J. Swenson    Chief Compliance Officer    None

* C/O ALPS Distributors, Inc., 1290 Broadway, Suite 1100, Denver, CO 80203.

(c) Commissions and other compensation received, directly or indirectly, from the Forward Funds during the last fiscal year by ALPS Distributors, the Registrant’s unaffiliated principal underwriter, were as follows:

 

19


Table of Contents

Net Underwriting

Discounts and

Commissions

  

Compensation on

Redemption and

Repurchase

  

Brokerage

Commissions

  

Other

Compensation

None    None    None    None

 

ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.

Certain accounts, books and other documents required to be maintained by Section 31(a) of the Investment Company Act of 1940 and the rules promulgated thereunder and the records relating to the duties of the Registrant’s transfer agent are maintained by ALPS, 1290 Broadway, Suite 1100, Denver, CO 80203. Records relating to the duties of the Registrant’s custodian are maintained by BBH, 40 Water Street, Boston, MA 02109. Certain other books and records are maintained at the offices of the Registrant at 433 California Street, 11th Floor, San Francisco, CA 94104.

 

ITEM 29. MANAGEMENT SERVICES

There are no management-related service contracts not discussed in Part A or Part B.

 

ITEM 30. UNDERTAKINGS

Not Applicable.

 

20


Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Francisco and the State of California, on this 12th day of October, 2007.

 

FORWARD FUNDS
/s/ J. ALAN REID, JR.
J. Alan Reid, Jr.
PRESIDENT

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the date indicated:

 

SIGNATURE

  

TITLE

 

DATE

/s/ J. ALAN REID, JR.

J. Alan Reid, Jr.

   President and Trustee   October 12, 2007

/s/ HAIG G. MARDIKIAN*

Haig G. Mardikian

   Trustee   October 12, 2007

/s/ DONALD O’CONNOR*

Donald O’Connor

   Trustee   October 12, 2007

/s/ DEWITT F. BOWMAN*

DeWitt F. Bowman

   Trustee   October 12, 2007

/s/ ROSALIND M. HEWSENIAN *

Rosalind M. Hewsenian

   Trustee   October 12, 2007

/s/ BARBARA TOLLE

Barbara Tolle

   Treasurer   October 12, 2007
*By:  

/s/ BARBARA TOLLE

Barbara Tolle

Attorney-in-Fact

    

 

21


Table of Contents

Exhibit List

 

Item #23  

Description

(d)(3)(a)   Amended and Restated Investment Management Agreement.
(d)(17)   Sub-Advisory Agreement among the Registrant, the Advisor and Pictet Asset Management SA.
(i)(1)   Revised legal opinion of Dechert LLP with respect to the Forward International Fixed Income Fund.

 

22


Dates Referenced Herein   and   Documents Incorporated by Reference

This ‘485APOS’ Filing    Date    Other Filings
12/2/09
12/1/09
6/2/09
6/1/09
1/31/09
6/30/08497,  N-CSRS,  N-PX,  NSAR-A
12/31/0724F-2NT,  N-CSR,  NSAR-B
12/1/07
Filed on:10/12/07
10/5/07485BPOS
9/28/0740-17G
7/16/07485APOS
7/11/07
5/8/07497
5/1/07485BPOS
4/30/0740-17G,  485BPOS
4/9/07
2/15/0740-17G/A,  485APOS
1/11/07
1/2/07
1/1/07
12/31/0624F-2NT,  N-CSR,  NSAR-B
12/27/06485BPOS
12/20/06
12/7/06
9/7/06
9/1/06
7/5/06485APOS
5/31/06
5/1/06485BPOS
2/13/06
2/9/06485APOS
2/1/06
1/3/06
1/1/06
12/31/0524F-2NT,  N-CSR,  NSAR-B,  NSAR-B/A
10/27/05485BPOS,  DEF 14A
9/30/05N-Q
9/12/05
9/1/05485APOS
7/1/05485BPOS
6/30/0524F-2NT,  N-CSR,  N-PX,  N-PX/A,  NSAR-B,  NSAR-B/A,  NT-NSAR
6/29/05485BPOS
6/27/05485BXT
6/24/05
5/1/05
4/27/05485BXT
4/7/05
2/28/05485APOS,  NSAR-A
2/1/05
6/1/01
5/1/99
1/1/97
1/1/96
10/1/92
8/26/92
1/1/92
 List all Filings 
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