As filed with the Securities and Exchange Commission on February 19, 1998
File Nos. 333-41461
811-8529
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. 1
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 1
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MEMORIAL FUNDS
(Exact Name of Registrant as Specified in its Charter)
Two Portland Square, Portland, Maine 04101
(Address of Principal Executive Office)
Registrant's Telephone Number, including Area Code: 207-879-1900
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Max Berueffy, Esq.
Forum Financial Services, Inc.
Two Portland Square
Portland, Maine 04101
(Name and Address of Agent for Service)
Copies to:
Anthony C.J. Nuland, Esq.
Seward & Kissel
1200 G Street, N.W.
Washington, D.C. 20005
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Approximate Date of Proposed Public Offering: As soon as practicable after
the effectiveness of the registration under the Securities Act of 1933.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, as
amended, Registrant hereby elects to register an indefinite number of shares of
Registrant and any series thereof hereinafter created.
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CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 404(A))
PART A
(Prospectus offering Trust Shares of Government Bond Fund, Corporate Bond Fund,
Growth Equity Fund and Value Equity Fund)
<TABLE>
<S> <C> <C>
FORM N-1A LOCATION IN PROSPECTUS
ITEM NO. (CAPTION)
- --------- ----------------------
Item 1. Cover Page: Cover Page
Item 2. Synopsis: Prospectus Summary
Item 3. Condensed Financial
Information: Not Applicable
Item 4. General Description
of Registrant: Prospectus Summary; Investment Objectives and
Policies; Detailed Description of Funds' Investment
Investments, Strategies and Risks; Other Information
Item 5. Management of the Fund: Prospectus Summary; Management
Item 6. Capital Stock and
Other Securities Investment Objectives and Policies; Detailed
Description of Funds' Investment Investments,
Strategies and Risks; Dividends and Tax Matters;
Other Information - The Trust and its Shares
Item 7. Purchase of Securities
Being Offered: How to Buy Shares; Other Shareholder Services; Other
Information - Determination of Net Asset Value;
Management
Item 8. Redemption or Repurchase
of Shares: How to Sell Shares; Other Shareholder Services
Item 9. Pending Legal Proceedings Not Applicable
</TABLE>
2
<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 404(A))
PART A
(Prospectus offering Institutional Shares of Government Bond Fund, Corporate
Bond Fund, Growth Equity Fund and Value Equity Fund)
<TABLE>
<S> <C> <C>
FORM N-1A LOCATION IN PROSPECTUS
ITEM NO. (CAPTION)
- --------- ----------------------
Item 1. Cover Page: Cover Page
Item 2. Synopsis: Prospectus Summary
Item 3. Condensed Financial
Information: Not Applicable
Item 4. General Description
of Registrant: Prospectus Summary; Investment Objectives and
Policies; Detailed Description of Funds' Investment
Investments, Strategies and Risks; Other Information
Item 5. Management of the Fund: Prospectus Summary; Management
Item 6. Capital Stock and
Other Securities Investment Objectives and Policies; Detailed
Description of Funds' Investment Investments,
Strategies and Risks; Dividends and Tax Matters;
Other Information - The Trust and its Shares
Item 7. Purchase of Securities
Being Offered: How to Buy Shares; Other Shareholder Services; Other
Information - Determination of Net Asset Value;
Management
Item 8. Redemption or Repurchase
of Shares: How to Sell Shares; Other Shareholder Services
Item 9. Pending Legal Proceedings Not Applicable
</TABLE>
3
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CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 404(A))
PART B
(Statement of Additional Information Trust Shares and Institutional Shares of
Government Bond Fund, Corporate Bond Fund, Growth Equity Fund and
Value Equity Fund)
<TABLE>
<S> <C> <C>
LOCATION IN STATEMENT
FORM N-1A OF ADDITIONAL INFORMATION
ITEM NO. (CAPTION)
- --------- -------------------------
Item 10. Cover Page: Cover Page
Item 11. Table of Contents: Cover Page
Item 12. General Information and History: Management; Other Information
Item 13. Investment Objectives and
Policies: Investment Policies; Investment Limitations
Item 14. Management of the Registrant: Management
Item 15. Control Persons and
Principal Holders of
Securities: Other Information
Item 16. Investment Advisory
and Other Services: Management; Other Information - Custodian, Counsel,
Auditors
Item 17. Brokerage Allocation
and Other Practices: Portfolio Transactions
Item 18. Capital Stock and
Other Securities: Other Information -- The Trust and Its Shares
Item 19. Purchase, Redemption and
Pricing of Securities Being
Offered: Determination of Net Asset Value; Additional Purchase
and Redemption Information
Item 20. Tax Status: Taxation
Item 21. Underwriters: Management
Item 22. Calculation of
Performance Data: Performance Data
Item 23. Financial Statements: Not Applicable
</TABLE>
4
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MEMORIAL FUNDS
TRUST SHARES
[date]
GOVERNMENT BOND FUND
CORPORATE BOND FUND
GROWTH EQUITY FUND
VALUE EQUITY FUND
5
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TABLE OF CONTENTS
1. PROSPECTUS SUMMARY.....................................................
Highlights of the Funds................................................
Expense Information....................................................
2. INVESTMENT OBJECTIVES AND POLICIES.....................................
Government Bond Fund...................................................
Corporate Bond Fund....................................................
Growth Equity Fund.....................................................
Value Equity Fund......................................................
3. MANAGEMENT.............................................................
Investment Advisory Services...........................................
Management, Administration and Distribution Services...................
Shareholder Servicing and Custody......................................
Expenses of the Funds..................................................
4. HOW TO BUY SHARES......................................................
Minimum Investment.....................................................
Purchase Procedures....................................................
Subsequent Purchases
Account Application....................................................
General Information....................................................
5. HOW TO SELL SHARES.....................................................
General Information....................................................
Redemption Procedures..................................................
Other Redemption Matters...............................................
6. OTHER SHAREHOLDER SERVICES.............................................
Exchanges..............................................................
Automatic Investment Plan..............................................
Individual Retirement Accounts.........................................
Automatic Withdrawal Plan..............................................
Reopening Accounts.....................................................
7. DIVIDENDS AND TAX MATTERS..............................................
Dividends..............................................................
Payment
Options................................................................
Tax Matters............................................................
8. DETAILED DESCRIPTION OF FUNDS' INVESTMENTS, STRATEGIES, AND RISKS
9. OTHER INFORMATION......................................................
Determination of Net Asset Value.......................................
Performance Information................................................
The Trust and Its Shares...............................................
Core and Gateway Structure.............................................
6
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
MEMORIAL FUNDS
TRUST SHARES
PRELIMINARY PROSPECTUS
SUBJECT TO COMPLETION
February 19, 1998
This Prospectus offers Trust class shares of the Government Bond Fund, Corporate
Bond Fund, Growth Equity Fund and Value Equity Fund (each a "Fund" and
collectively the "Funds"). The Funds are separate, diversified portfolios of the
Memorial Funds (the "Trust"), a registered, open-end, management investment
company.
THIS PROSPECTUS SETS FORTH CONCISELY IMPORTANT INFORMATION
THAT YOU SHOULD KNOW BEFORE INVESTING.
PLEASE READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE.
The Trust has filed with the Securities and Exchange Commission (the "SEC") a
Statement of Additional Information ("SAI") dated February 19, 1998, as may be
amended from time to time, which is available for reference on the SEC's Web
Site (http.//www.sec.gov). The SAI contains more detailed information about the
Trust and each of the Funds and is incorporated into this Prospectus by
reference. An investor may obtain a copy of the SAI without charge by contacting
the Trust's distributor, Forum Financial Services, Inc., at Two Portland Square,
Portland, Maine 04101 or by calling (800) xxx-xxxx or (207) xxx-xxxx.
THE MEMORIAL FUNDS ARE A FAMILY OF MUTUAL FUNDS. THE SHARES OF MUTUAL FUNDS ARE
NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FDIC, THE FEDERAL RESERVE
SYSTEM OR ANY OTHER GOVERNMENT AGENCY.
AN INVESTMENT IN SHARES OF ANY MUTUAL FUND IS SUBJECT TO INVESTMENT RISK,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
7
<PAGE>
1. PROSPECTUS SUMMARY
HIGHLIGHTS OF THE FUNDS
The following summary is qualified in its entirety by the more detailed
information contained in this Prospectus.
INVESTMENT OBJECTIVES AND POLICIES
FIXED INCOME FUNDS
The Memorial Funds includes two "Fixed Income" Funds, the GOVERNMENT BOND FUND
and the CORPORATE BOND FUND. These mutual funds invest primarily in bonds and
other fixed income securities. The Fixed Income Funds are designed principally
for investors that seek current income.
GOVERNMENT BOND FUND seeks to provide a high level of income consistent with
maximum credit protection and moderate fluctuation in principal value. The Fund
will seek to achieve this objective by investing at least 90 percent of its
assets in obligations issued or guaranteed as to principal and interest by the
United States Government, or by its agencies or instrumentalities , including
zero coupon bonds issued or guaranteed by the U.S. Treasury and mortgage backed
securities. ("U.S. Government Securities"). The Fund may also invest in
asset-backed securities. The Fund seeks to moderate fluctuations its volatility
by structuring maturities of its investment portfolio in order to maintain a
duration between 75 percent and 125 percent of the duration of the Lehman
Brothers Government Bond Index .
CORPORATE BOND FUND seeks to provide as high a level of current income as is
consistent with capital preservation and prudent investment risk. Under normal
circumstances, the Fund will seek to attain this objective by investing at least
65% of the value of the total assets in corporate bonds. The Fund may also
invest in U.S. Government Securities, mortgage-backed and asset-backed
securities. The Fund intends to maintain a duration between 75 percent and 125
percent of the Lehman Brothers Aggregate Bond Index.
EQUITY FUNDS
The Memorial Funds also includes two "Equity Funds" that invest primarily in the
common stock of domestic companies, the GROWTH EQUITY FUND and the VALUE EQUITY
FUND. The Equity Funds will invest only in companies with a minimum market
capitalization of $250 million at the time of purchase, and will seek to
maintain a minimum average weighted capitalization of $5 billion. A company's
market capitalization is the total market value of its outstanding common stock.
Although the investment disciplines of the Equity Funds differ, they are each
designed for investors seeking long term capital appreciation and able to
tolerate possibly significant fluctuation in the value of their investment.
GROWTH EQUITY FUND seeks long-term capital appreciation. It will seek to achieve
this objective by investing at least 65% of its assets in the common stock of
domestic companies that the Fund's sub-adviser believes have superior growth
potential and fundamental characteristics that are significantly better than the
market average and that support internal earnings growth capability.
VALUE EQUITY FUND also seeks long-term capital appreciation. It will seek to
attain this objective by investing at least 65% of its total assets in the
common stock of domestic companies. Using a value approach, the Fund will seek
to invest in stocks that are underpriced when measured against comparable
securities, determined by price/earnings ratios, cash flows or other measures.
SOME INVESTMENT CONSIDERATIONS
AND RISK FACTORS
IN GENERAL. There is no assurance that any Fund will achieve its investment
objective, and a Fund's net asset value and total return will fluctuate based
upon changes in the value of its portfolio securities. Upon redemption, an
8
<PAGE>
investment in a Fund may be worth more or less than its original value. No Fund,
by itself, provides a complete investment program.
All investments made by the Funds entail some risk. Among other things, the
market value of any security in which the Funds may invest is based upon the
market's perception of value and not necessarily the book value of an issuer or
other objective measure of the issuer's worth. Certain investments and
investment techniques, however, entail additional risks, such as the potential
use of leverage by certain Funds through borrowings, securities lending, and
other investment techniques. (See "A Detailed Description of the Funds'
Investments, Investment Strategies and Risks.") Similarly, a Fund's use of
mortgage- and asset-backed securities entails certain risks. (See "A Detailed
Description of the Funds' Investments, Investment Strategies and Risks
- --Mortgage-Backed Securities" and "-- Asset-Backed Securities.")
FIXED INCOME FUNDS. The value of your investment in one or both of the Fixed
Income Funds may change in response to changes in interest rates. An increase in
interest rates typically causes a fall in the value of the fixed income
securities in which the Funds invest. Your investment in the Corporate Bond Fund
is also subject to the risk that the financial condition of an issuer of a
security held by the Fund may cause it to default or become unable to pay
interest or principal due on the security. To limit this risk, at least 80
percent of the Corporate Bond Fund's investments in corporate debt securities
will be in securities rated A or better and the Fund will maintain a minimum
average rating of A.
EQUITY FUNDS. The Equity Funds may be appropriate investments for investors who
seek long term growth in their investment, but who are willing to tolerate
significant fluctuations in the value of their investment in response to changes
in the market value of the stocks the Funds hold. This type of market movement
may affect the price of the securities of a single issuer, a segment of the
domestic stock market, or the entire market.
PORTFOLIO MANAGEMENT
INVESTMENT ADVISER. Forum Advisors, LLC (the "Adviser"), serves as the
investment adviser for each Fund. The Adviser's responsibilities include
developing and reviewing the investment strategies and policies of each Fund,
and overseeing the performance of the investment sub-advisers ("Sub-advisers")
responsible for the day-to-day management of each Fund's investment portfolio.
See "Management - Investment Advisory Services."
INVESTMENT CONSULTANT. To assist it in carrying out its responsibilities, the
Adviser has retained Wellesley Group, Inc. ("Wellesley"). Wellesley provides
data with which the Adviser and the Board of Trustees of the Trust ("Board") can
monitor and evaluate the performance of the Funds and the Sub-advisers. If the
Board determines in the future to replace one of the current Sub-advisers, or
retain additional Sub-advisers to manage one or more of the Funds, Wellesley
will assist the Adviser and the Board in the selection of those Sub-advisers.
INVESTMENT SUB-ADVISERS. The Adviser has retained the following Sub-advisers to
render advisory services and make daily investment decisions for each Fund:
o The portfolio of the Government Bond Fund is managed by The Northern
Trust Company.
o The portfolio of the Corporate Bond Fund is managed by Conseco
Capital Management, Inc.
o The portfolio of the Growth Equity Fund is managed by Davis Hamilton,
Inc., d/b/a Davis Hamilton Jackson & Associates.
o The portfolio of the Value Equity Fund is managed by Beutel, Goodman
Capital Management.
9
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The Adviser is also responsible for monitoring the investments and the
performance of the Sub-advisers on behalf of each of the Funds. The Adviser and
the Sub-advisers collectively may be referred to herein as the "Advisers." See
"Management - Investment Advisory Services."
SHARES OF THE FUNDS
Each Fund currently offers two separate classes of shares:
TRUST SHARES are sold through this Prospectus and are offered primarily to
individual investors and smaller fiduciary, agency and custodial clients whose
investments are pooled in common or collective trusts managed by bank trust
departments, trust companies or their affiliates. Trust Shares are referred to
as "Shares" in this prospectus.
INSTITUTIONAL SHARES are offered by a separate prospectus. Institutional Shares
are designed for large institutional investors able to make an minimum initial
investment of $10 million, and are expected to incur lower expenses than Trust
Shares.
Shares of each class of a Fund have identical interests in the investment
portfolio of the Fund and, with certain exceptions, the same rights. (See "Other
Information -- The Trust and Its Shares.")
HOW TO BUY AND SELL SHARES
Shares of the Funds may be purchased or sold ("redeemed") on any weekday except
days that the New York Stock Exchange is closed, normally New Year's Day, Martin
Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas ("Fund Business Day"). The
Trust's transfer agent accepts orders to buy or sell Shares between 9:00 a.m and
6:00 p.m. (Eastern) on all Fund Business Days. Orders are executed at the net
asset value of the Fund's shares next determined after an order in proper form
is received.
You may buy or sell Shares by mail, by bank wire or through various financial
institutions. The minimum initial investment in Shares is $5,000, or $2,000 for
retirement accounts and automatic investment plans. The minimum subsequent
investment is $100. (See "How to Buy Shares" and "How to Sell Shares.")
EXCHANGES
Shareholders may exchange Trust Shares for Trust Shares of the other Funds or
for Institutional Service class shares of the Forum Daily Assets Government
Fund, a money market fund that is a separate series of Forum Funds. (See "Other
Shareholder Services -- Exchanges.")
SHAREHOLDER FEATURES
Each Fund offers an Automatic Investment Plan, Automatic Withdrawal Plan and
Directed Dividend Option. (See "Other Shareholder Services" and "Choosing a
Share Class.")
DIVIDENDS AND DISTRIBUTIONS
The Fixed Income Funds declare and pay dividends of net investment income
monthly. The Equity Funds declare and pay dividends of net investment income, if
any, quarterly. Each Fund's net capital gain, if any, is distributed annually.
All dividends and distributions are reinvested in additional Fund shares unless
the shareholder elects to have them paid in cash. (See "Dividends and Tax
Matters.")
EXPENSE INFORMATION
The following tables should help you understand the expenses that you will bear
if you invest in Shares of a Fund.
10
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SHAREHOLDER TRANSACTION EXPENSES
(APPLICABLE TO EACH FUND)
<TABLE>
<S> <C> <C> <C> <C>
GOVERNMENT BOND CORPORATE BOND GROWTH EQUITY FUND VALUE EQUITY FUND
FUND FUND
-------------------- ------------------- -------------------- -------------------
Maximum sales charge on None None None None
purchases and reinvested
dividends
Maximum deferred sales charge None None None None
Exchange Fee None None None None
ANNUAL FUND OPERATING EXPENSES (1)
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
GOVERNMENT BOND CORPORATE BOND GROWTH EQUITY FUND VALUE EQUITY FUND
FUND FUND
-------------------- ------------------- -------------------- -------------------
Investment Advisory Fees 0.35% 0.35% 0.45% 0.45%
Rule 12b-1 Fees None None None None
Other Expenses
Shareholder Service Fees 0.25% 0.25% 0.25% 0.25%
Miscellaneous 0.65% 0.65% 0.85% 0.85%
Total Operating Expenses 1.25% 1.25% 1.55% 1.55%
</TABLE>
(1) Annual Fund Operating Expenses are calculated as a percentage of each Fund's
average net assets assuming average net assets of at least $7.5 million. If the
average net assets of a Fund are lower in any given year, the expenses will be a
higher percentage of the Fund's assets. For a further description of the various
expenses associated with investing in the Funds (see "Management").
EXAMPLE
The following hypothetical example indicates the dollar amount of expenses that
you would pay if you invested $1,000 in a Fund's Shares, assuming that (a) the
Fund's expenses are as listed above, (b) the Fund has a 5% annual return and (c)
you reinvest all dividends and distributions paid by the Fund. The example does
not represent past or future expenses or return; actual expenses and return may
be more or less than indicated.
1 YEAR 3 YEARS
------ -------
GOVERNMENT BOND FUND 13 40
11
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CORPORATE BOND FUND 13 40
INCOME FUND 16 49
GROWTH VALUE FUND 16 49
12
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2. INVESTMENT OBJECTIVES AND POLICIES
GOVERNMENT BOND FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to provide a high
level of income consistent with maximum credit protection and moderate
fluctuation in principal value. There is no assurance that the Fund will achieve
this objective.
INVESTMENT POLICIES. The Fund will invest at least 90 percent of its net assets
in a portfolio of fixed and variable rate U.S. Government Securities, including
zero coupon bonds issued or guaranteed by the U.S. Treasury and mortgage backed
securities. The Fund may invest up to 10 percent of its net assets in corporate
debt securities.
The Fund may not invest more than 25 percent of its total assets in the
securities issued or guaranteed by any single agency or instrumentality of the
U.S. Government, except the U.S. Treasury, and may not invest more than 10
percent of its total assets in the securities of any other issuer.
The Fund invests in debt obligations with maturities (or average life in the
case of mortgage-backed and similar securities) ranging from overnight to 12
years. The Fund seeks to moderate fluctuations in the price of its shares by
structuring maturities of its investment portfolio in order to maintain a
duration between 75 percent and 125 percent of the duration of the Lehman
Brothers Government Bond Index, which was X.XX years as of [date]. Duration
measures the sensitivity of a debt security's price to changes in interest rates
- -- the longer the security's duration, the more its price will fluctuate in
response to changes in interest rates. The calculation of duration is based on
the present value of payments over the life of the debt obligation and takes
into account call rights and other features that may shorten the debt
obligation's life. Because earlier payments on a debt security have a higher
present value, duration of a security, except a zero-coupon security, generally
will be less than its stated maturity.
The Fund may also use options and futures contracts (both exchange-traded and
over-the-counter) to attempt to reduce the overall risk of its investments
("hedge"). The Fund's ability to use these strategies may be limited by market
considerations, regulatory limits and tax considerations. The Fund may write
covered call and put options, buy put and call options, buy and sell interest
rate and foreign currency futures contracts and buy options and write covered
options on those futures contracts. An option is covered if, so long as the Fund
is obligated under the option, it owns an offsetting position in the underlying
security or futures contract or maintains a segregated account of liquid debt
instruments with a value at all times sufficient to cover the Fund's obligations
under the option. Although the Fund will not engage in these transactions for
speculative purposes, there is a risk that changes in the value of a hedging
instrument will not match those of the investment being hedged. For a
description of these investment policies and the risks associated with them, see
"A Detailed Description of the Fund's Investments, Investment Strategies and
Risk Considerations."
CORPORATE BOND FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to provide as high
a level of current income as is consistent with capital preservation and prudent
investment risk. There is no assurance that the Fund will achieve this
objective.
INVESTMENT POLICIES. Under normal circumstances, the Fund will seek to attain
its investment objective by investing at least 65% of the value of the total
assets in corporate bonds. The Fund may also invest in U.S. Government
securities and mortgage-backed and asset-backed securities of private issuers
("U.S. Government Securities").
At least 80 percent of the Fund's investments in corporate debt will be in
securities that are rated, at the time of purchase, in one of the three highest
rating categories by a nationally recognized statistical rating organization
("NRSRO") such as Standard & Poor's, or which are unrated and determined by the
Sub-adviser to be of comparable
13
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quality. (See "A Detailed Description of the Fund's Investments, Investment
Strategies and Risks Fixed Income Securities and Their Characteristics.") No
more than 5 percent of the Fund's investments will be in securities rated below
investment grade, that is, below the fourth highest rating category. The Fund's
portfolio of corporate debt instruments will have a minimum weighted average
rating of A.
The Fund will invest primarily in debt obligations with maturities (or average
life in the case of mortgage-backed and similar securities) ranging from
short-term (including overnight) to 15 years. The Fund seeks to structure the
maturities of its investment portfolio in order to maintain a duration between
75 percent and 125 percent of the duration of the Lehman Brothers Aggregate Bond
Index, which was X.XX years as of [date]. Duration measures the sensitivity of a
debt security's price to changes in interest rates -- the longer the security's
duration, the more its price will fluctuate in response to changes in interest
rates. The calculation of duration is based on the present value of payments
over the life of the debt obligation and takes into account call rights and
other features that may shorten the debt obligation's life. Because earlier
payments on a debt security have a higher present value, duration of a security,
except a zero-coupon security, generally will be less than its stated maturity.
The Fund may invest up to 25 percent of its assets in mortgage- and asset-backed
securities. The Fund may enter into "dollar roll" transactions in connection
with its investments in mortgage-backed securities. The Fund may also invest in
zero-coupon securities, but will limit its investment in these securities,
except those issued through the U.S. Treasury's STRIPS program, to not more than
10 percent of the Fund's total assets. The Fund may also invest in securities
that are restricted as to disposition under the federal securities laws
(sometimes referred to as "private placements" or "restricted securities"). In
addition, the Fund may not invest more than 25 percent of its total assets in
securities issued or guaranteed by any single agency or instrumentality of the
U.S. Government, except the U.S. Treasury. For a discussion of these investments
and the risks associated with them see "A Detailed Description of the Funds'
Investments, Investment Strategies and Risks."
The Fund may also use futures contracts and options (both exchange-traded and
over-the-counter) to attempt to reduce the overall risk of its investments
("hedge"). The Fund's ability to use hedging strategies may be limited by market
considerations, regulatory limits and tax considerations. The Fund may write
covered call and put options, buy put and call options, buy and sell interest
rate futures contracts, and buy options and write covered options on those
futures contracts. An option is covered if, so long as the Fund is obligated
under the option, it owns an offsetting position in the underlying security or
futures contract or maintains a segregated account of liquid debt instruments
with a value at all times sufficient to cover the Fund's obligations under the
option. Although the Fund will not engage in these transaction for speculative
purposes, there is a risk that changes in the value of a hedging instrument will
not match those of the investment being hedged. For a description of these
investment practices and the risks associated with them, see "A Detailed
Description of the Funds' Investments, Investment Strategies and Risk
Considerations."
GROWTH EQUITY FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is long-term capital
appreciation. There is no assurance that the Fund will achieve this objective.
INVESTMENT POLICIES. The Fund will seek to achieve its objective by investing at
least 65% of its assets in the common stock of domestic companies. The Fund will
only invest in companies having a minimum market capitalization of $250 million
at the time of purchase, and will seek to maintain a minimum average weighted
capitalization of $5 billion. A company's market capitalization is the total
market value of its outstanding common stock.
The Fund will invest in the securities of issuers that its Sub-adviser believes
have superior growth potential and fundamental characteristics that are
significantly better than the market average and support internal earnings
growth capability. The Fund may invest in the securities of companies whose
growth potential is, in the Sub-adviser's opinion, generally unrecognized or
misperceived by the market. The Sub-adviser may also look to changes in a
company that involve a sharp increase in earnings, the hiring of new management
or measures taken to close the gap between the company's share price and
takeover/asset value.
14
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The Fund may also invest in preferred stocks and securities convertible into
common stock. The Fund will only purchase convertible securities that are rated,
at the time of purchase, within the four highest rating categories assigned by
an NRSRO or which are unrated and determined by the Sub-adviser to be of
comparable quality. Securities rated in these categories are generally
considered to be investment grade securities, although Moody's indicates that
securities rated Baa (the fourth highest category) have speculative
characteristics. A description of the rating categories of various NRSROs is
contained in the SAI.
The Fund may also use futures contracts and options (both exchange-traded and
over-the-counter) to attempt to reduce the overall risk of its investments
("hedge"). The Fund's ability to use hedging strategies may be limited by market
considerations, regulatory limits and tax considerations. The Fund may write
covered call and put options, buy put and call options, buy and sell interest
rate futures contracts, and buy options and write covered options on those
futures contracts. An option is covered if, so long as the Fund is obligated
under the option, it owns an offsetting position in the underlying security or
futures contract or maintains a segregated account of liquid debt instruments
with a value at all times sufficient to cover the Fund's obligations under the
option. Although the Fund will not engage in these transaction for speculative
purposes, there is a risk that changes in the value of a hedging instrument will
not match those of the investment being hedged. For a description of these
investment practices and the risks associated with them see "A Detailed
Description of the Funds' Investments, Investment Strategies and Risks - Futures
Contracts and Options."
VALUE EQUITY FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is long-term capital
appreciation. There is no assurance that the Fund will achieve this objective.
INVESTMENT POLICIES. The Fund will seek to attain this objective by investing at
least 65% of its total assets in common stocks of domestic companies. The Fund
will only invest in companies having a minimum market capitalization of $250
million at the time of purchase, and will seek to maintain a minimum average
weighted capitalization of $5 billion. A company's market capitalization is the
total market value of its outstanding common stock.
Using a value approach, the Fund will seek to invest in stocks that are
underpriced relative to comparable stocks, determined by price/earnings ratios,
cash flows or other measures. It is expected that the Sub-adviser will rely on
stock selection to achieve its results, rather than trying to time market
fluctuations. In selecting stocks, the Sub-adviser will establish valuation
parameters by using relative ratios or target prices to evaluate companies on
several levels.
The Fund may also invest in preferred stocks and securities convertible into
common stock. The Fund will only purchase convertible securities that are rated,
at the time of purchase, within the four highest rating categories assigned by
an NRSRO or which are unrated and determined by the Sub-adviser to be of
comparable quality. Securities rated in these categories are generally
considered to be investment grade securities, although Moody's indicates that
securities rated Baa (the fourth highest category) have speculative
characteristics. A description of the rating categories of various NRSROs is
contained in the SAI.
The Fund may also use futures contracts and options (both exchange-traded and
over-the-counter) to attempt to reduce the overall risk of its investments
("hedge"). The Fund's ability to use hedging strategies may be limited by market
considerations, regulatory limits and tax considerations. The Fund may write
covered call and put options, buy put and call options, buy and sell interest
rate futures contracts, and buy options and write covered options on those
futures contracts. An option is covered if, so long as the Fund is obligated
under the option, it owns an offsetting position in the underlying security or
futures contract or maintains a segregated account of liquid debt instruments
with a value at all times sufficient to cover the Fund's obligations under the
option. Although the Fund will not engage in these transaction for speculative
purposes, there is a risk that changes in the value of a hedging instrument will
not match those of the investment being hedged. For a description of these
investment practices and the risks associated with them see "A Detailed
Description of the Funds' Investments, Investment Strategies and Risks - Futures
Contracts and
15
<PAGE>
Options."
3. MANAGEMENT
The business of the Trust is managed under the direction of the Board. The Board
formulates the general policies of the Funds and meets periodically to review
the performance of the Funds, monitor their investment activities and practices,
and discuss other matters affecting the Funds and the Trust.
ADVISER
FORUM ADVISORS, LLC (the "Adviser"), Two Portland Square, Portland, Maine 04101,
serves as investment adviser to the Funds pursuant to an investment advisory
agreement with the Trust. Subject to the general control of the Board, the
Adviser is responsible for among other things, developing a continuing
investment program for each Fund in accordance with its investment objective,
reviewing the investment strategies and policies of each Fund, and advising the
Board on the selection of additional Sub-advisers.
The Adviser has entered into investment sub-advisory agreements with the
Sub-advisers to exercise investment discretion over the assets (or a portion of
assets) of each Fund.
For its services under the Investment Advisory Agreement, Forum receives the
following fees with respect to the following funds:
Advisory Fee
(as a percentage of average daily net assets)
Government Bond Fund 0.35
Corporate Bond Fund 0.35
Growth Equity Fund 0.45
Value Equity Fund 0.45
YEAR 2000 COMPLIANT. Like other mutual funds, financial and business
organizations and individuals around the world, the Funds could be adversely
affected if the computer systems used by the Adviser and other service providers
to the Funds do not properly process and calculate date-related information and
data from and after January 2000. The Adviser has taken steps to address the
Year 2000 issue with respect to the computer systems that it uses and to obtain
reasonable assurances that comparable steps are being taken by the Funds' other
major service providers. The Adviser does not anticipate that the move to the
Year 2000 will have a material impact on its ability to continue to provide the
Funds with service at current levels.
The Adviser was incorporated under the laws of Delaware in 1987 and is
registered under the Investment Advisers Act of 1940.
INVESTMENT CONSULTANT
To assist it in carrying out its responsibilities under the Investment Advisory
Agreement, the Adviser has retained Wellesley Group, Inc. ("Wellesley"), 800
South Street, Waltham, Massachusetts 02154, to provide data with which the
Adviser and the Board can monitor and evaluate the performance of the Funds and
the Sub-advisers.
If the Board decides to add or change Sub-advisers, Wellesley will assist the
Adviser and the Board in the selection of new Sub-advisers with proven long-term
investment performance and philosophy best suited to the goals and objectives of
the Fund for which the adviser is being considered. As a part of this selection
process, Wellesley will analyze statistical information relating to investments
and performance, and evaluate the risk and
16
<PAGE>
return profiles of the investment advisers under consideration. Wellesley will
also review such qualitative factors as the advisory firm's ownership,
organizational structure, business plan, client base, staff resources,
investment philosophy, research capabilities, investment decision-making
process, and risk management disciplines.
SUB-ADVISERS
The Adviser has retained the Sub-advisers to render advisory services and make
daily investment decisions for each Fund. The Adviser makes recommendations to
the Board regarding the selection and retention of these Sub-advisers. On an
ongoing basis, the Adviser evaluates the Sub-advisers and reports to the Board
concerning their investment results. The Adviser also reviews the investments
made for the Funds by the Sub-advisers to see that they comply with the Funds'
investment objectives, policies and restrictions.
The following Sub-advisers and individuals are primarily responsible for the
day-to-day management of the Funds:
THE NORTHERN TRUST COMPANY ("NTC"), 50 South LaSalle Street, Chicago, Illinois
60675, manages the portfolio of the GOVERNMENT BOND FUND. NTC is a wholly-owned
subsidiary of Northern Trust Corporation, a Delaware corporation that was
incorporated in 1889. NTC presently manages approximately $196 billion in assets
for endowments and foundations, corporations, public funds and insurance
companies. Mr. James Snyder, CFA, is Chief Investment Officer and Executive Vice
President for NTC. Mr. Snyder brings more than 25 years of experience managing
fixed income asset and holds a Masters in Business Administration in Finance
from DePaul University in Chicago, Illinois. Mr. Stephen Timbers, is President
of Northern Trust Global Investments and a Member of the Management Committee of
NTC. Prior to joining NTC, Mr. Timbers was President, Chief Executive Officer
and Chief Investment Officer of Zurich Kemper Investments, the investment
adviser to the Kemper Funds and the parent organization of Zurich Investment
Management, Inc. Prior to joining Kemper in 1987, Mr. Timbers was Executive Vice
President and Chief Investment Officer of the Portfolio Group, Inc. Mr. Timbers
holds a Masters in Business Administration from Harvard University in Cambridge,
Massachusetts. Mr. Mark J. Wirth, CFA, is Co-Director of Fixed Income and Senior
Vice President for NTC. Mr. Wirth co-manages NTC's fixed income management
division and leads NTC's fixed income effort as a senior strategist. Mr. Wirth
holds a Masters in Business Administration from the University of Wisconsin in
Madison, Wisconsin and has been in the industry since 1986. Mr. Monty Memler,
CFA, is a Vice President and Senior Portfolio Manager for NTC. Mr. Memler has
been a member of the fixed income team at NTC for seven years and holds a
Masters in Business Administration from the University of Chicago in Chicago,
Illinois and has been in the industry since 1986. Mr. Steven Schafer, CFA, is a
Second Vice President and Portfolio Manager for NTC. Mr. Schafer is responsible
for managing active and passive fixed income portfolios and holds a Masters in
Business Administration from the University of Chicago in Chicago, Illinois. Mr.
Schafer has been in the industry since 1990. Mr. Michael J. Lannan, CFA, is a
Vice President and Portfolio Manager for NTC. Mr. Lannan holds a Masters in
Business Administration from Depaul University in Chicago, Illinois and has been
in the industry since 1988. Mr. Peter T. Marchese, CFA, is a Second Vice
President and Portfolio Manager for NTC. Mr. Marchese holds a Masters in
Business Administration from the University of Wisconsin in Madison, Wisconsin
and has been in the industry since 1987.
The following table sets forth the performance data relating to the historical
performance of a separate account managed by NTC that has an investment
objective and investment policies, strategies and risks substantially similar to
those of Government Bond Fund. The data is provided to illustrate the past
performance of NTC in managing a substantially similar account as measured
against a specified market index and does not represent the performance of
Government Bond Fund. Investors should not consider this performance data as an
indication of future performance of the Government Bond Fund or of NTC.
All returns presented were calculated on a total return basis and include all
dividends and interest, accrued income and realized and unrealized gains and
losses. All returns reflect the deduction of investment advisory fees, brokerage
commissions, custodial fees and execution costs paid by the investment adviser's
private account, without provision for federal or state income taxes.
The presentation below describes and consists of the fully discretionary taxable
account managed by NTC that has an investment objective, and investment
policies, strategies and risks substantially similar to those of the Government
Bond Fund. Securities transactions are accounted for on the trade date and
accrual accounting is utilized. Cash and equivalents are included in performance
returns. The portfolio's performance data prior to January 11, 1993 is that of a
predecessor collective fund, adjusted to reflect the higher fees and expenses
applicable to the portfolio's Class A units. The inception date of the
collective fund reflects the date such collective fund was first managed in a
substantially similar manner and pursuant to the investment objectives of the
respective portfolio.
The private account is not subject to the same types of expenses to which the
Government Bond Fund is subject nor to the diversification requirements,
specific tax restrictions and investment limitations imposed by the 1940 Act or
Subchapter M of the Code. Consequently, the performance results for the private
account could have been adversely affected if the private account included in
the composite had been regulated as an investment company under the federal
securities laws. The presentation below describes and contains one (1) account
valued, as of December 31, 1997, at $515 million.
17
<PAGE>
The investment results of NTC's private account presented below are unaudited
and are not intended to predict or suggest the returns that might be experienced
by the Fund or an individual investor investing in the Government Bond Fund.
Investors should also be aware that the use of a methodology different from that
used below to calculate performance could result in different performance data.
<TABLE>
<S> <C> <C>
------------------------------- ------------------------------------ ------------------------------------
YEAR(S) NTC'S COMPOSITE FOR THE GOVERNMENT LEHMAN BROTHERS
BOND STYLE GOVERNMENT/CORPORATE INDEX(2)
------------------------------- ------------------------------------ ------------------------------------
10 Years (1988-1997) (1) 9.75% 9.15%
------------------------------- ------------------------------------ ------------------------------------
5 Years (1993-1997) (1) 8.26% 7.61%
------------------------------- ------------------------------------ ------------------------------------
3 Years (1995-1997) (1) 11.75% 10.43%
------------------------------- ------------------------------------ ------------------------------------
1 Year (1997) (1) 10.00% 9.75%
------------------------------- ------------------------------------ ------------------------------------
1993 10.84% 11.06%
------------------------------- ------------------------------------ ------------------------------------
1994 (3.84%) (3.51%)
------------------------------- ------------------------------------ ------------------------------------
1995 22.70% 19.24%
------------------------------- ------------------------------------ ------------------------------------
1996 3.39% 2.91%
------------------------------- ------------------------------------ ------------------------------------
1997 10.00% 9.75%
------------------------------- ------------------------------------ ------------------------------------
</TABLE>
(1) Average annual returns through December 31, 1997.
(2) The Lehman Brothers Intermediate Government/Corporate Index is a market
weighted index composed of over 3,500 securities, including U.S.
Treasuries, Agencies and U.S. Corporate Bonds. The index is unmanaged and
reflects the reinvestment of dividends.
CONSECO CAPITAL MANAGEMENT, INC. ("CCM"), 11825 N. Pennsylvania Street, Carmel,
Indiana 46032, manages the portfolio of the CORPORATE BOND FUND. CCM is a
Delaware corporation that was organized in 1981 and is registered as an
investment adviser under the Advisers Act. CCM is a wholly-owned subsidiary of
Conseco, Inc., a financial services holding company that owns or controls
several life insurance companies. CCM presently manages approximately $31
million for individuals, corporations, insurance companies, investment
companies, pension plans, trusts, estates, as well as charitable organizations
including foundations and endowments. Mr. Maxwell Bublitz, CFA, is President of
CCM and holds a Masters in Business Administration from the University of
Southern California in Los Angeles, California. Prior to joining CCM in 1987,
Mr. Bublitz was a Portfolio Manager for Transamerica Investment Services in Los
Angeles, California. Mr. Andrew S. Chow, CFA, is a Vice President for CCM and
holds a Masters in Business Administration from Carnegie Mellon University in
Pittsburgh, Pennsylvania. Prior to joining CCM in 1991, Mr. Chow was a Manager
of Quantitative Analysis at Washington Square Capital in Minneapolis, Minnesota.
Mr. Joseph F. DeMichele is a Vice President of Investments for CCM and holds a
Bachelor of Arts in Economics from the University of Pennsylvania in
Philadelphia, Pennsylvania. Prior to joining CCM in 1990, Mr. DeMichele was an
Assistant Trader for Salomon, Inc. in New York. Mr. Gregory Hahn, CFA, is a
Senior Vice President of Portfolio Analytics for CCM and holds a Masters in
Business Administration from Indiana University in Indianapolis, Indiana. Prior
to joining CCM in 1989, Mr. Hahn was a Fixed Income Portfolio Manager for
Unified Management in Indianapolis, Indiana. Mr. Gordon N. Smith, is a Vice
President and Portfolio Manager for CCM and holds a Masters in Finance from the
University of Wisconsin in Madison, Wisconsin. Prior to joining CCM in 1995, Mr.
Smith was a Portfolio Manager for Strong Capital Management in Menomonee Falls,
Wisconsin from 1989 to 1995.
The following table sets forth the performance data relating to the historical
performance of the separate accounts managed by CCM that have an investment
objective and investment policies, strategies and risks substantially similar to
those of Corporate Bond Fund. The data is provided to illustrate the past
performance of CCM in managing substantially similar accounts as measured
against a specified market index and does not represent the performance of
Corporate Bond Fund. Investors should not consider this performance data as an
indication of future performance of the Corporate Bond Fund or of CCM.
These investment results have been calculated and presented in compliance with
the Performance Presentation Standards of the Association of Investment
Management and Research ("AIMR"), retroactively applied to all time periods.
AIMR has not been involved with the preparation or review of this report. All
returns presented were calculated on a total return basis and include all
dividends and interest, accrued income and realized and unrealized gains and
losses. All returns reflect the deduction of the actual investment advisory
fees, brokerage commissions and execution costs paid by the investment adviser's
private accounts, without provision for federal or state income taxes. Custodial
fees, if any, were not included in the calculation.
The presentation below describes and consists of the fully discretionary taxable
or tax-exempt accounts managed by CCM that have an investment objective, and
investment policies, strategies and risks substantially similar to those of the
Corporate Bond Fund. Securities transactions are accounted for on the trade date
and accrual accounting is utilized. Cash and equivalents are included in
performance returns. Results for the full period are time-weighted and dollar
weighted in accordance with AIMR standards.
The private accounts are not subject to the same types of expenses to which the
Corporate Bond Fund is subject nor to the diversification requirements, specific
tax restrictions and investment limitations imposed by the 1940 Act or
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code").
Consequently, the performance results for the private accounts could have been
adversely affected if the private accounts included in the composite had been
regulated as an investment company under the federal securities laws. The
presentation below describes and contains six (6) accounts valued, as of
December 31, 1997, at $71.7 million.
The investment results of CCM's private accounts presented below are unaudited
and are not intended to predict or suggest the returns that might be experienced
by the Fund or an individual investor investing in the Corporate Bond Fund.
Investors should also be aware that the use of a methodology different from that
used below to calculate performance could result in different performance data.
18
<PAGE>
<TABLE>
<S> <C> <C>
----------------------------------- ---------------------------------- ----------------------------------
YEAR(S) CCM'S COMPOSITE FOR THE LEHMAN BROTHERS
CORPORATE BOND STYLE AGGREGATE BOND INDEX(2)
----------------------------------- ---------------------------------- ----------------------------------
Since Inception (7/1/1990) (1) 10.53% 9.02%
----------------------------------- ---------------------------------- ----------------------------------
5 Years (1993-1997) (1) 8.83% 7.48%
----------------------------------- ---------------------------------- ----------------------------------
3 Years (1995-1997) (1) 11.38% 10.42%
----------------------------------- ---------------------------------- ----------------------------------
1 Year (1997) (1) 10.05% 9.65%
----------------------------------- ---------------------------------- ----------------------------------
1993 13.57% 9.75%
----------------------------------- ---------------------------------- ----------------------------------
1994 (2.74%) (2.92%)
----------------------------------- ---------------------------------- ----------------------------------
1995 19.59% 18.47%
----------------------------------- ---------------------------------- ----------------------------------
1996 4.97% 3.63%
----------------------------------- ---------------------------------- ----------------------------------
1997 10.05% 9.65%
----------------------------------- ---------------------------------- ----------------------------------
</TABLE>
(1) Average annual returns through December 31, 1997.
(2) The Lehman Brothers Aggregate Bond Index represents securities that are
U.S. domestic, taxable, and dollar denominated. The index covers the U.S.
investment-grade fixed rate bond market, with index components for
government and corporate securities, mortgage pass-through securities, and
asset-backed securities. These major sectors are subdivided into more
specific indices that are calculated and reported on a regular basis.
19
<PAGE>
DAVIS HAMILTON, INC., D/B/A DAVIS HAMILTON JACKSON & ASSOCIATES ("DHJA"), Two
Houston Center, 909 Fannin, Suite 550, Houston, Texas 77010, manages the
portfolio of the GROWTH EQUITY FUND. DHJA is a corporation that was organized in
1988 under the laws of the State of Texas and is registered as an investment
adviser under the Advisers Act. DHJA currently manages approximately $2.2
billion for institutions and high net worth individuals and invests primarily in
domestic equity securities. Mr. Jack R. Hamilton, CFA, is the President and a
shareholder of DHJA, and received his Bachelor of Arts in Finance from Texas
Tech University in Lubbock, Texas. Prior to co-founding DHJA in 1988, Mr.
Hamilton was a Vice President at Citicorp Investment Management in Houston,
Texas. Mr. Robert C. Davis, CFA, is the Secretary, Treasurer and a shareholder
of DHJA, and received his M.A. in Economics from the University of Texas at
Arlington in Arlington, Texas. Prior to co-founding DHJA in 1988, Mr. Davis was
a Senior Vice President at Lovett Mitchell Webb & Garrison in Houston, Texas.
Mr. J. Patrick Clegg, CFA, is a Portfolio Manager of DHJA, and received his
M.B.A. from the University of Texas in Austin, Texas. Prior to joining DHJA in
1996, Mr. Clegg was a Principal and Director of Research at Luther King Capital
Management in Fort Worth, Texas.
The following table sets forth the performance data relating to the historical
performance of the separate accounts managed by DHJA that have an investment
objective and investment policies, strategies and risks substantially similar to
those of Growth Equity Fund. The data is provided to illustrate the past
performance of DHJA in managing substantially similar accounts as measured
against a specified market index and does not represent the performance of
Growth Equity Fund. Investors should not consider this performance data as an
indication of future performance of the Growth Equity Fund or of DHJA.
These investment results have been calculated and presented in compliance with
the Performance Presentation Standards of AIMR only for the period January 1,
1993 through December 31, 1997. Prior to January 1, 1993, not all fully
discretionary portfolios were represented in appropriate composites. Composite
results for the period of July 1, 1988 through December 31, 1992, include fully
discretionary accounts over $1.0 million that were managed in accordance with
the quality growth equity strategy. AIMR has not been involved with the
preparation or review of this report. All returns presented were calculated on a
total return basis and include all dividends and interest, accrued income and
realized and unrealized gains and losses. All returns reflect the deduction of
the highest investment advisory fee charged to any account, brokerage
commissions, execution costs and custodial fees paid by the investment adviser's
private accounts, without provision for federal or state income taxes.
The presentation below describes and consists of the fully discretionary taxable
or tax-exempt accounts managed by DHJA that have an investment objective, and
investment policies, strategies and risks substantially similar to those of the
Growth Equity Fund. Securities transactions are accounted for on the trade date
and accrual accounting is utilized. Cash and equivalents are included in
performance returns. Results for the period of July 1, 1988 through December 31,
1992 were valued monthly and the composites were equal weighted. Results for the
period from January 1, 1993 through December 31, 1997 are valued monthly and
portfolio returns have been weighted by using beginning-of-month market values
plus weighted cash flows in accordance with AIMR standards.
The private accounts are not subject to the same types of expenses to which the
Growth Equity Fund is subject nor to the diversification requirements, specific
tax restrictions and investment limitations imposed by the 1940 Act or
Subchapter M of the Code. Consequently, the performance results for the private
accounts could have been adversely affected if the private accounts included in
the composite had been regulated as an investment company under the federal
securities laws. The presentation below describes and contains forty-five (45)
accounts valued, as of December 31, 1997, at $1.032 billion.
20
<PAGE>
The investment results of DHJA's private accounts presented below are unaudited
and are not intended to predict or suggest the returns that might be experienced
by the Fund or an individual investor investing in the Growth Equity Fund.
Investors should also be aware that the use of a methodology different from that
used below to calculate performance could result in different performance data.
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------
DHJA'S COMPOSITE FOR THE S&P 500 INDEX
GROWTH EQUITY STYLE
- --------------------------------------------------------------------------------------------------------------
Since Inception (7/1/1988) (1) 17.6% 17.6%
- --------------------------------------------------------------------------------------------------------------
5 Years (1993-1997) (1) 18.8% 20.3%
- --------------------------------------------------------------------------------------------------------------
3 Years (1995-1997) (1) 28.4% 31.1%
- --------------------------------------------------------------------------------------------------------------
1 Year (1997) (1) 34.9% 33.3%
- --------------------------------------------------------------------------------------------------------------
1993 20.2% 10.1%
- --------------------------------------------------------------------------------------------------------------
1994 (6.9%) 1.3%
- --------------------------------------------------------------------------------------------------------------
1995 35.4% 37.5%
- --------------------------------------------------------------------------------------------------------------
1996 15.9% 23.0%
- --------------------------------------------------------------------------------------------------------------
1997 34.9% 33.3%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Average annual returns through December 31, 1997.
BEUTEL, GOODMAN CAPITAL MANAGEMENT ("BGCM"), 5847 San Felipe, Suite 4500,
Houston, Texas 77057-3011, manages the portfolio of the VALUE EQUITY FUND. BGCM
is a partnership that was organized in 1988 and is registered as an investment
adviser under the Advisers Act. BGCM has two general partners, Value Corp. and
Beutel, Goodman America Inc. Beutel, Goodman America Inc. is owned by BG Canada:
fifty-one percent of BG Canada is owned by its employees, forty-nine percent is
owned by Duff & Phelps, a U.S. public company listed on the New York Stock
Exchange. BG Canada is registered as an investment adviser with the Ontario and
Quebec Securities Commissions. BGCM currently manages approximately $1.9
billion. Mr. Richard J. Andrews, CFA, has served as President and a member of
the Investment Committee of BGCM since 1995. Mr. Andrews served as a Vice
President and member of the Investment Committee of BGCM from 1988 to 1995. Mr.
Andrews received his Masters in Business Administration from Amos Tuck,
Dartmouth College in Hanover, New Hampshire. Mr. Forrest B. Bruch, Jr., CFA, has
served as a Portfolio Manager of BGCM since 1995. Mr. Bruch received his Masters
in Business Administration from the University of Houston in Houston, Texas.
Prior to joining BGCM, Mr. Bruch was a Managing Director of Investments for
Savoy Capital in Houston, Texas from 1991 to 1994 and a First Vice President for
Paine Webber, Inc. in Houston, Texas in 1990. Mr. Carl Dinger, CFA, has served
as a Vice President and Portfolio Manager for BGCM since 1991. Mr. Dinger
received his Masters in Business Administration from Lehigh University. Prior to
joining BGCM in 1991, Mr. Dinger was an Analyst and Portfolio Manager for Bering
Corporation in Houston, Texas from 1988 to 1990. Mr. Frank McReynolds
Wozencraft, Jr., CFA, has served as a Vice President for BGCM since 1996 and a
Portfolio Manager since 1993. Mr. Wozencraft received his Masters of Management
from the J.L. Kellogg Graduate School of Management, Northwestern University, in
Evanston, Illinois. Prior to joining BGCM in 1993, Mr. Wozencraft was a
Financial Analyst for Hendricks Management Co., in Houston, Texas from 1992 to
1993.
The following table sets forth the performance data relating to the historical
performance of the separate accounts managed by BGCM that have an investment
objective and investment policies, strategies and risks substantially similar to
those of Value Equity Fund. The data is provided to illustrate the past
performance of BGCM in managing substantially similar accounts as measured
against a specified market index and does not represent the performance of Value
Equity Fund. Investors should not consider this performance data as an
indication of future performance of the Value Equity Fund or of BGCM.
As of January 1, 1993, these investment results have been calculated and
presented in compliance with the Performance Presentation Standards of AIMR.
AIMR has not been involved with the preparation or review of this report. All
returns presented were calculated on a total return basis and include all
dividends and interest, accrued income and realized and unrealized gains and
losses. All returns reflect the deduction of a combination of the highest
investment advisory fees from 1988 to 1989 and the actual investment advisory
fees charged to each account from 1990 through 1997, brokerage commissions and
execution costs paid by the investment adviser's private accounts, without
provision for federal or state income taxes. Custodial fees, if any, were not
included in the calculation.
21
<PAGE>
The presentation below describes and consists of the fully discretionary taxable
or tax-exempt accounts managed by BGCM that have an investment objective, and
investment policies, strategies and risks substantially similar to those of the
Value Equity Fund. The performance figures currently represent a size-weighted
average of the total return performance of all fully discretionary, non-wrap,
tax-exempt, fee paying U.S. equity portfolios over $100,000 in size that have
been managed for a full quarter. Prior to January 1, 1993, the composite was
equally-weighted. Prior to January 1, 1990, U.S. equity accounts managed by an
affiliate company are included; from January 1, 1990, only those portfolios
managed in the U.S. are included. Securities transactions are accounted for on
the trade date and accrual accounting is utilized. Cash and equivalents are
included in performance returns. Results for the period from January 1, 1993
through December 31, 1997 are time-weighted and dollar weighted in accordance
with AIMR standards.
The private accounts are not subject to the same types of expenses to which the
Value Equity Fund is subject nor to the diversification requirements, specific
tax restrictions and investment limitations imposed by the 1940 Act or
Subchapter M of the Code. Consequently, the performance results for the private
accounts could have been adversely affected if the private accounts included in
the composite had been regulated as an investment company under the federal
securities laws. The composite below contains seventy-nine (79) accounts, valued
as of December 31, 1997 at $611.9 million.
The investment results of BGCM's private accounts presented below are unaudited
and are not intended to predict or suggest the returns that might be experienced
by the Fund or an individual investor investing in the Value Equity Fund.
Investors should also be aware that the use of a methodology different from that
used below to calculate performance could result in different performance data.
<TABLE>
<S> <C> <C>
------------------------------ -------------------------------------- -------------------------------
YEAR(S) BGCM'S COMPOSITE FOR THE VALUE S&P 500 INDEX(2)
EQUITY STYLE
------------------------------ -------------------------------------- -------------------------------
10 Years (1988-1997) (1) 17.5% 18.1%
------------------------------ -------------------------------------- -------------------------------
5 Years (1993-1997) (1) 20.1% 20.3%
------------------------------ -------------------------------------- -------------------------------
3 Years (1995-1997) (1) 28.3% 31.2%
------------------------------ -------------------------------------- -------------------------------
1 Year (1997) (1) 29.6% 33.4%
------------------------------ -------------------------------------- -------------------------------
1993 23.0% 10.1%
------------------------------ -------------------------------------- -------------------------------
1994 (4.0%) 1.3%
------------------------------ -------------------------------------- -------------------------------
1995 32.6% 37.5%
------------------------------ -------------------------------------- -------------------------------
1996 22.9% 23.0%
------------------------------ -------------------------------------- -------------------------------
1997 29.6% 33.4%
------------------------------ -------------------------------------- -------------------------------
</TABLE>
(1) Average annual returns through December 31, 1997.
(2) The S&P 500 Index (the "Index") is a widely recognized, unmanaged index of
market activity based upon the aggregate performance of a selected
portfolio of publicly traded common stocks of five hundred (500)
industrial, transportation, utility and financial companies, regarded as
generally representative of the U.S. stock market. The Index is subject to
monthly adjustments to reflect the reinvestment of dividends and other
distributions. The Index reflects the total return of securities comprising
the Index, including changes in market prices as well as accrued investment
income, which is presumed to be reinvested. Performance figures for the
Index do not reflect deduction of transaction costs or expenses, including
management fees, brokerage commissions, or other expenses of investing.
22
<PAGE>
The Adviser performs internal due diligence on each Sub-adviser and monitors
each Sub-adviser's performance. The Adviser will be responsible for
communicating performance targets and evaluations to the Sub-advisers,
supervising each Sub-adviser's compliance with its Fund's fundamental investment
objectives and policies, authorizing Sub-advisers to engage in certain
investment techniques for the Funds, and recommending to the Board whether
sub-advisory agreements should be renewed, modified or terminated. The Adviser
pays a fee to each of the Sub-advisers. These fees are borne solely by the
Adviser and do not increase the fees paid by shareholders of the Funds. As of
the date of this Prospectus, the Adviser will pay NTC, CCM, DHJA, BGCM fees of
0.20%, 0.20%, 0.30%, and 0.30%, respectively, of the average daily net assets of
the Fund for which the Sub-adviser provides investment advisory services. The
amount of these fees may vary from time to time as a result of periodic
negotiations with the Sub-advisers and pursuant to certain factors described in
the SAI. The amount of advisory fees paid by each Fund will not vary as a result
of changes in the Sub-advisory fees, however.
The Adviser also may from time to time recommend that the Board replace one or
more Sub-advisers or appoint additional Sub-advisers, depending on the Adviser's
assessment of what combination of Sub-advisers it believes will optimize each
Fund's chances of achieving its investment objective. In the event that a
Sub-adviser ceased to provide investment advisory services for a Fund, the
Adviser would recommend to the Board a similarly qualified investment adviser to
replace the Sub-adviser but would not manage the Fund's portfolio.
Section 15(a) of the 1940 Act requires that a Fund's shareholders approve its
investment advisory contracts. As interpreted, this requirement applies to the
Sub-advisory contracts of the Funds. The Trust is applying to the SEC for a
conditional exemption from this shareholder approval requirement. The SEC has
granted such applications in the past, and the Trust expects it will receive the
requested exemption. Such relief is not certain, however. If the exemption is
granted, the Board would be able to appoint additional or replacement
Sub-advisers without Shareholder approval. The Board would not, however, be able
to replace the Adviser as investment adviser to any Fund without the approval of
that Fund's shareholders.
ADMINISTRATOR
On behalf of the Fund, the Trust has entered into an Administration Agreement
with Forum Administrative Services, Inc. ("Forum"). Under this agreement, Forum
is responsible for the supervision of the overall management of the Trust
(including the Trust's receipt of services for which it must pay), providing the
Trust with general office facilities and providing persons satisfactory to the
Board to serve as officers of the Trust. For these services, Forum receives a
fee computed and paid monthly at an annual rate of 0.15% of the average daily
net assets under $150 million, and 0.10% of the average daily assets over $150
million of each Fund, subject to an annual minimum of $30,000 per Fund.
As of the date of this prospectus, Forum administers investment companies and
collective investment funds with assets of approximately $xx billion.
DISTRIBUTOR
Pursuant to a Distribution Agreement with the Trust, Forum Financial Services,
Inc. ("FFSI") acts as distributor of the Fund's shares. FFSI acts as the agent
of the Trust in connection with the offering of shares of the Fund. FFSI
receives no compensation for its services under the Distribution Agreement. FFSI
may enter into arrangements with
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banks, broker-dealers or other financial institutions ("Selected Dealers")
through which investors may purchase or redeem shares. FFSI may, at its own
expense and from its own resources, compensate certain persons who provide
services in connection with the sale or expected sale of shares of the Fund.
Investors purchasing shares of the Fund through another financial institution
should read any materials and information provided by the financial institution
to acquaint themselves with its procedures and any fees that it may charge. FFSI
is a registered broker-dealer and is a member of the National Association of
Securities Dealers, Inc.
SHAREHOLDER SERVICES. The Trust has adopted a shareholder services plan
providing that the Trust may obtain the services of the Adviser and other
qualified financial institutions to act as shareholder servicing agents for
their customers. Under this plan, the Trust has authorized FAS to enter into
agreements pursuant to which the shareholder servicing agent performs certain
shareholder services not otherwise provided by the Funds' transfer agent. For
these services, the Trust pays the shareholder servicing agent a fee of up to
0.25% of the average daily net assets of the Investor Shares owned by investors
for which the shareholder servicing agent maintains a servicing relationship.
Among the services provided by shareholder servicing agents are: answering
customer inquiries regarding account matters; assisting shareholders in
designating and changing various account options; aggregating and processing
purchase and redemption orders and transmitting and receiving funds for
shareholder orders; transmitting, on behalf of the Trust, proxy statements,
prospectuses and shareholder reports to shareholders and tabulating proxies;
processing dividend payments and providing subaccounting services for Investor
Shares held beneficially; and providing such other services as the Trust or a
shareholder may request.
TRANSFER AGENT
The Trust has entered into a Transfer Agency Agreement with Forum Shareholder
Services, LLC ("FFS") pursuant to which FSS acts as the Fund's transfer agent
and dividend disbursing agent. FSS maintains an account for each shareholder of
the Trust (unless such accounts are maintained by sub-transfer agents), performs
other transfer agency functions and acts as dividend disbursing agent for the
Trust.
Pursuant to a separate agreement, Forum Accounting Services, LLC ("FAcS")
provides portfolio accounting services to each Fund. The Adviser, Forum, FFSI,
FSS and FAcS are members of the Forum Financial Group of companies which
together provide a full range of services to the investment company and
financial services industry. As of October 1, 1997, the Adviser, Forum, FSS,
FFSI, and FAcS were controlled by John Y. Keffer, and were located at Two
Portland Square, Portland, Maine, 04101.
EXPENSES OF THE TRUST
Each Fund's expenses comprise Trust expenses attributable to the Fund, and a pro
rata share of the Trust's expenses that are not attributable to a particular
Fund. The Adviser, Forum, FSS, FAcS or any other entity that provides services
for the Funds pursuant to a contract with the Trust, may waive all or a portion
of its fees, which are accrued daily, and paid monthly. Any such waiver, which
could be discontinued at any time, would have the effect of increasing the
Fund's performance for the period during which the waiver was in effect and
would not be recouped at a later date.
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CUSTODY
BankBoston serves as each Fund's custodian and may appoint subcustodians for the
foreign securities and other assets held in foreign countries.
4. HOW TO BUY SHARES
MINIMUM INVESTMENT
There is a $5,000 minimum for initial purchases ($2,000 for retirement accounts
and automatic investment plans) and a $100 minimum for subsequent purchases, of
Shares of each Fund. Either management of the Trust or FSS may in its discretion
waive the investment minimums. (See "Other Shareholder Services -- Automatic
Investment Plan" and "Dividends and Tax Matters.")
The Funds reserve the right to reject any subscription for the purchase of their
shares. Share certificates are issued only to shareholders of record upon their
written request and no certificates are issued for fractional shares.
PURCHASE PROCEDURES
INITIAL PURCHASES
THERE ARE THREE WAYS TO PURCHASE SHARES INITIALLY.
1. BY MAIL. You may send a check or money order (cash cannot be accepted) along
with a completed account application form to the Trust at the address listed
under "Account Application." Checks or money orders are accepted at full value
subject to collection. If a check or money order does not clear, the purchase
order will be canceled and the investor will be liable for any losses or fees
incurred by the Trust, FSS or Forum.
For individual or Uniform Gift to Minors Act accounts, the check or money order
used to purchase shares of a Fund must be made payable to "Memorial Funds" or to
one or more owners of that account and endorsed to "Memorial Funds." No other
method of payment by check will be accepted. For corporation, partnership,
trust, 401(k) plan or other non-individual type accounts, the check used to
purchase shares of a Fund must be made payable on its face to "Memorial Funds."
No other method of payment by check will be accepted. All purchases must be paid
in U.S. dollars; checks drawn on U.S. Banks. Payment by traveler's checks is
prohibited.
2. BY BANK WIRE. You make an initial investment in a Fund using the wire system
for transmittal of money among banks. You should first telephone FSS at (888)
263-5593 to obtain an account number. You should then instruct a bank to wire
your money immediately to:
BANKBOSTON
BOSTON, MASSACHUSETTS
ABA # 011000390
FOR CREDIT TO: FORUM FINANCIAL CORP.
ACCOUNT NO.: 541-54171
RE: MEMORIAL FUNDS
[NAME OF FUND] - TRUST SHARES
[INVESTOR'S NAME]
[INVESTOR'S ACCOUNT NUMBER]
You should then promptly complete and mail the account application form. Your
bank may charge for transmitting the money by bank wire. The Trust does not
charge you for the receipt of wire transfers. Payment by bank wire is treated as
a federal funds payment when received.
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3. THROUGH FINANCIAL INSTITUTIONS. You may also purchase Shares through certain
broker-dealers, banks and other financial institutions ("Processing
Organizations"). FSS and its affiliates may be Processing Organizations.
Processing Organizations may receive payments from Forum with respect to sales
of Trust Shares and may receive payments as a processing agent from FSS.
Financial institutions, including Processing Organizations, may charge their
customers a fee for their services and are responsible for promptly transmitting
purchase, redemption and other requests to the Funds.
If you purchase shares through a Processing Organization, you will be subject to
its procedures which may include charges, limitations, investment minimums,
cutoff times and restrictions in addition to, or different from, those
applicable to shareholders who invest in a Fund directly. You should acquaint
yourself with your institution's procedures and should read this Prospectus in
conjunction with any materials and information provided by their institution. If
you purchase a Fund's shares through a Processing Organization, you may or may
not be the shareholder of record and, subject to your institution's and the
Fund's procedures, may have Fund shares transferred into your name. There is
typically a three-day settlement period for purchases and redemptions through
broker-dealers. Certain Processing Organizations also may enter purchase orders
with payment to follow.
Certain shareholder services may not be available to you if you purchase shares
through a Processing Organization. You should contact your Processing
Organization for further information. The Trust may confirm purchases and
redemptions of a Processing Organization's customers directly to the Processing
Organization, which in turn will provide its customers with confirmations and
periodic statements. The Trust is not responsible for the failure of any
Processing Organization to carry out its obligations to its customer.
SUBSEQUENT PURCHASES
You may make subsequent purchases by mailing a check, by sending a bank wire or
through your Processing Organization as indicated above. All payments should
clearly indicate your name and account number.
ACCOUNT APPLICATION
You may obtain the account application form necessary to open an account by
writing the Trust at the following address:
MEMORIAL FUNDS
P.O. BOX 446
PORTLAND, ME 04112
To participate in shareholder services not referenced on the account application
form and to change information on your account (such as addresses), you should
contact the Trust. The Trust reserves the right in the future to modify, limit
or terminate any shareholder privilege upon appropriate notice to shareholders
and to charge a fee for certain shareholder services, although no such fees are
currently contemplated. You may terminate your exercise of any privilege or
participation in any program at any time by writing to the Trust.
GENERAL INFORMATION
Fund Shares are continuously sold on any weekday except days when the New York
Stock Exchange is closed, normally New Year's Day, Martin Luther King Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas ("Fund Business Day"). The purchase price for a
share of a Fund equals its net asset value next-determined after acceptance of
an order in proper form.
Fund shares become entitled to receive dividends and distributions on the next
Fund Business Day after a purchase order is accepted.
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All payments for Shares must be in U.S. dollars. All transactions in Fund shares
are effected through FSS, which accepts orders for redemptions and for
subsequent purchases only from shareholders of record. Shareholders of record
will receive from the Trust periodic statements listing all account activity
during the statement period.
For information regarding purchase and redemption of shareholder accounts,
please call Forum Shareholder Services at 1-888-263-5593.
5. HOW TO SELL SHARES
GENERAL INFORMATION
Fund Shares may be sold ("redeemed") at their net asset value on any Fund
Business Day. There is no minimum period of investment and no restriction on the
frequency of redemptions.
Fund shares are redeemed at the Fund's net asset value next determined after FSS
receives the redemption order in proper form (and any supporting documentation
that FSS may require). Redeemed shares are not entitled to receive dividends
declared after the day the redemption becomes effective.
Normally, redemption proceeds are paid immediately, but in no event later than
seven days, following receipt of a redemption order. Proceeds of redemption
requests (and exchanges), however, will not be paid unless any check used to
purchase the shares being redeemed has been cleared by the shareholder's bank,
which may take up to 15 days. This delay may be avoided by paying for shares
through wire transfers. Unless otherwise indicated, redemption proceeds normally
are paid by check mailed to the shareholder's record address. The right of
redemption may not be suspended nor the payment dates postponed for more than
seven days after the tender of the shares to a Fund, except when the New York
Stock Exchange is closed (or when trading on the Exchange is restricted) for any
reason other than its customary weekend or holiday closings, for any period
during which an emergency exists as a result of which disposal by the Fund of
its portfolio securities or determination by the Fund of the value of its net
assets is not reasonably practicable and for such other periods as the SEC may
permit.
REDEMPTION PROCEDURES
If you invested through a Processing Organization you may redeem your shares
through the Processing Organization as described above. If you invested directly
in a Fund, you may redeem your Shares as described below. If you wish to redeem
shares by telephone or receive redemption proceeds by bank wire, you must elect
these options by properly completing the appropriate sections of your account
application form. These privileges may not be available until several weeks
after your application is received. Shares for which certificates have been
issued may not be redeemed by telephone.
1. BY MAIL. You may redeem shares by sending a written request to FSS
accompanied by any share certificate that may have been issued to the
shareholder to evidence the shares being redeemed. All written requests for
redemption must be signed by the shareholder with signature guaranteed, and all
certificates submitted for redemption must be endorsed by the shareholder with
signature guaranteed. (See "How to Sell Shares -- Other Redemption Matters.")
2. BY TELEPHONE. If you have elected telephone redemption privileges, you may
request a redemption by calling FSS at (888) 263-5593 and providing your account
number, the exact name in which your shares are registered and your social
security or taxpayer identification number. In response to the telephone
redemption instruction, the Trust will mail a check to your record address or,
if you have elected wire redemption privileges, wire the proceeds. (See "How to
Sell Shares -- Other Redemption Matters.")
3. BY BANK WIRE. For redemptions of more than $5,000, if you have elected wire
redemption privileges, you may request a Fund to transmit proceeds of any
redemption over $5,000 by federal funds wire to a bank account that you
previously designated in writing. To request bank wire redemptions by telephone,
you also must have elected the telephone redemption privilege. Redemption
proceeds are transmitted by wire on the day after FSS receives a
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redemption request in proper form.
OTHER REDEMPTION MATTERS
To protect shareholders and the Funds against fraud, signatures on certain
requests must have a signature guarantee. Requests must be made in writing and
include a signature guarantee for any of the following transactions: (i) any
endorsement on a share certificate; (ii) instruction to change a shareholder's
record name; (iii) modification of a designated bank account for wire
redemptions; (iv) instruction regarding an Automatic Investment Plan or
Automatic Withdrawal Plan; (v) dividend and distribution election; (vi)
telephone redemption; (vii) exchange option election or any other option
election in connection with the shareholder's account; (viii) written
instruction to redeem Shares whose value exceeds $50,000; (ix) redemption in an
account in which the account address has changed within the last 30 days; (x)
redemption when the proceeds are deposited in a Memorial Funds account under a
different account registration; and (xi) the remitting of redemption proceeds to
any address, person or account for which there are not established standing
instructions on the account.
Signature guarantees may be provided by any bank, broker-dealer, national
securities exchange, credit union, savings association or other eligible
institution that is authorized to guarantee signatures and is acceptable to FSS.
Whenever a signature guarantee is required, the signature of each person
required to sign for the account must be guaranteed.
Shareholders who want to telephone redemption or exchange privileges must elect
those privileges. The Trust and FSS will employ reasonable procedures in order
to verify that telephone requests are genuine, including recording telephone
instructions and causing written confirmations of the resulting transactions to
be sent to shareholders. If the Trust and FSS did not employ such procedures,
they could be liable for losses due to unauthorized or fraudulent telephone
instructions. Shareholders should verify the accuracy of telephone instructions
immediately upon receipt of confirmation statements. During times of drastic
economic or market changes, telephone redemption and exchange privileges may be
difficult to implement. In the event that a shareholder is unable to reach FSS
by telephone, requests may be mailed or hand-delivered to FSS.
Due to the cost to the Trust of maintaining smaller accounts, the Trust reserves
the right to redeem, upon not less than 60 days' written notice, all shares in
any Fund account whose aggregate net asset value is less than $2,000 immediately
following any redemption.
FSS WILL DEEM A SHAREHOLDER'S ACCOUNT "LOST" IF CORRESPONDENCE TO THE
SHAREHOLDER'S ADDRESS OF RECORD IS RETURNED AS UNDELIVERABLE, UNLESS FSS
DETERMINES THE SHAREHOLDER'S NEW ADDRESS. WHEN AN ACCOUNT IS DEEMED LOST ALL
DISTRIBUTIONS ON THE ACCOUNT WILL BE REINVESTED IN ADDITIONAL SHARES OF THE
FUND. IN ADDITION, THE AMOUNT OF ANY OUTSTANDING (UNPAID FOR SIX MONTHS OR MORE)
CHECKS FOR DISTRIBUTIONS THAT HAVE BEEN RETURNED TO FSS WILL BE REINVESTED AND
THE CHECKS WILL BE CANCELED.
6. OTHER SHAREHOLDER SERVICES
EXCHANGES
Shareholders of one Fund may exchange their shares for Trust shares of any of
the other Memorial Funds, as well as for Institutional Service class shares of
Forum Daily Assets Government Fund. A prospectus for Daily Assets Government
Fund can be obtained by contacting FSS.
The Funds do not charge for exchanges, and there is currently no limit on the
number of exchanges you may make. The Funds reserve the right, however, to limit
excessive exchanges by any shareholder. Exchanges are subject to the fees
charged by, and the limitations (including minimum investment restrictions) of,
the Fund into which a shareholder is exchanging.
Exchanges may only be made between identically registered accounts or by opening
a new account. A new account application is required to open a new account
through an exchange if the new account will not have an identical
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registration and the same shareholder privileges as the account from which the
exchange is being made. You may exchange into a Fund only if that Fund's shares
may legally be sold in your state of residence.
Under federal tax law, an exchange is treated as a redemption and a purchase.
Accordingly, you may realize a capital gain or loss depending on whether the
value of the shares redeemed is more or less than your basis in the shares at
the time of the exchange transaction. Exchange procedures may be amended
materially or terminated by the Trust at any time upon 60 days' notice to
shareholders. (See "Additional Purchase and Redemption Information" in the SAI.)
1. EXCHANGES BY MAIL. You may make an exchange by sending a written request to
FSS accompanied by any share certificates for the shares to be exchanged. You
must sign all written requests for exchanges and endorse all certificates
submitted for exchange with your signature guaranteed. (See "How to Sell Shares
- -- Other Redemption Matters.")
2. EXCHANGES BY TELEPHONE. If you have elected telephone exchange privileges,
you may make a telephone exchange request by calling FSS at (888) 263-5593 and
providing the account number, the exact name in which the shareholder's shares
are registered and your social security or taxpayer identification number. (See
"How to Sell Shares -- Other Redemption Matters.")
AUTOMATIC INVESTMENT PLAN
Under the Funds' Automatic Investment Plan, you may authorize monthly amounts of
$100 or more to be withdrawn automatically from a designated bank account (other
than passbook savings) and sent to FSS for investment in Shares of a Fund. If
you wish to use this plan, you must complete an application which may be
obtained by writing or calling FSS. The Trust may modify or terminate the
automatic investment plan with respect to any shareholder if the Trust is unable
to settle any transaction with the shareholder's bank. If the Automatic
Investment Plan is terminated before the shareholder's account totals $2,000,
the Trust reserves the right to close the account in accordance with the
procedures described under "How to Sell Shares -- Other Redemption Matters."
INDIVIDUAL RETIREMENT ACCOUNTS
The Funds may be a suitable investment vehicle for part or all of the assets
held in individual retirement accounts ("IRAs"). An IRA account application form
may be obtained by contacting the Trust at (888) 263-5593 . Generally, all
contributions and investment earnings in an IRA will be tax-deferred until
withdrawn. Individuals may make tax-deductible IRA contributions of up to a
maximum of $2,000 annually. However, the deduction will be reduced if the
individual or, in the case of a married individual, either the individual or the
individual's spouse, is an active participant in an employer-sponsored
retirement plan and has adjusted gross income above certain levels.
The foregoing discussion regarding IRAs is based on regulations in effect as of
June 1, 1997 and summarizes only some of the important federal tax
considerations generally affecting IRA contributions made by individuals or
their employers. It is not intended as a substitute for tax planning. Investors
should consult their tax advisors with respect to their specific tax situations
as well as with respect to state and local taxes.
AUTOMATIC WITHDRAWAL PLAN
If your Shares in a single account total $1,000 or more, you may establish a
withdrawal plan to provide for the pre-authorized payment from your account of
$250 or more on a monthly, quarterly, semi-annual or annual basis. Under the
withdrawal plan, sufficient shares in your account are redeemed to provide the
amount of the periodic payment and
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<PAGE>
you will recognize any taxable gain or loss upon redemption of the shares. If
you wish to utilize the withdrawal plan, you may do so by completing an
application which may be obtained by writing or calling FSS. The Trust may
suspend a shareholder's withdrawal plan without notice if the account contains
insufficient funds to effect a withdrawal or if the account balance is less than
$1,000 at any time.
REOPENING ACCOUNTS
You may reopen an account, without filing a new account application form, at any
time within one year after your account is closed, if the information on the
account application form on file with the Trust is still applicable.
7. DIVIDENDS AND TAX MATTERS
DIVIDENDS
The Fixed Income Funds declare and pay dividends of net investment income
monthly. The Equity Funds declare and pay dividends of net investment income, if
any, quarterly. Each Fund's net capital gain, if any, is distributed annually.
All dividends and distributions are reinvested in additional Fund shares unless
the shareholder elects to have them paid in cash.
PAYMENT OPTIONS
You may choose to have dividends and distributions of a Fund reinvested in
shares of that Fund (the "Reinvestment Option"), to receive dividends and
distributions in cash (the "Cash Option") or to direct dividends and
distributions to be reinvested in shares of another Fund (the "Directed Dividend
Option"). All dividends and distributions are treated in the same manner for
federal income tax purposes whether received in cash or reinvested in shares of
a Fund.
Under the Reinvestment Option, all dividends and distributions of a Fund are
automatically invested in additional shares of that Fund. All dividends and
distributions are reinvested at a Fund's net asset value as of the payment date
of the dividend or distribution. You will be assigned this option unless you
select one of the other two options. Under the Cash Option, all dividends and
distributions are paid to the shareholder in cash. Under the Directed Dividend
Option, shareholders of a Fund whose shares in a single account of that Fund
total $10,000 or more may elect to have all dividends and distributions
reinvested in shares of another Fund, provided that those shares are eligible
for sale in the shareholder's state of residence. For further information
concerning the Directed Dividend Option, shareholders should contact FSS.
TAX MATTERS
Each Fund intends to qualify for each fiscal year to be taxed as a "regulated
investment company" under the Internal Revenue Code of 1986, as amended (the
"Code"). As such, each Fund will not be liable for federal income and excise
taxes on the net investment income and net capital gain distributed to its
shareholders. Because each Fund intends to distribute all of its net investment
income and net capital gain each year, each Fund should thereby avoid all
federal income and excise taxes.
Dividends paid by a Fund out of its net investment income (including net short-
term capital gain) are taxable to shareholders of the Fund as ordinary income.
Pursuant to the Taxpayer Relief Act of 1997, two different tax rates apply to
net capital gains--that is, the excess of net gains from capital assets held for
more than one year over net losses from capital assets held for not more than
one year. One rate (generally 28%) applies to net gains on capital assets held
for more than one year but not more than 18 months ("mid-term gains"), and a
second rate (generally 20%) applies to the balance of such net capital gains
("adjusted net capital gains"). Distributions of mid-term gains and adjusted net
capital gains will be taxable to shareholders as such, regardless of how long a
shareholder has held shares in the Fund. If a shareholder holds Shares for six
months or less and during that period receives a long-term capital gain
distribution, any loss realized on the sale of the Shares during that six-month
period will be a long-term capital loss to the extent of the distribution.
Dividends and distributions reduce the net asset value of the Fund paying the
dividend or distribution
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by the amount of the dividend or distribution. Furthermore, a dividend or
distribution made shortly after the purchase of Shares, although in effect a
return of capital to you, will be taxable as described above.
Each Fund is required by federal law to withhold 31% of reportable payments
(which may include dividends, capital gain distributions and redemptions) paid
to a shareholder who fails to provide the Fund with a correct taxpayer
identification number or to make required certifications, or who is subject to
backup withholding.
Reports containing appropriate information with respect to the federal income
tax status of dividends and distributions paid during the year by each Fund will
be mailed to shareholders shortly after the close of each calendar year.
8. A DETAILED DESCRIPTION OF THE FUNDS' INVESTMENTS,
INVESTMENT STRATEGIES AND RISKS
IN GENERAL
This section describes in more detail the Funds' investments, the investment
practices and strategies that the Sub-advisers may employ for a Fund, and the
risks associated with these investments and practices.
A FURTHER DESCRIPTION OF THE FUNDS' INVESTMENT POLICIES,
INCLUDING ADDITIONAL FUNDAMENTAL POLICIES, IS CONTAINED IN THE SAI.
A Fund must invest in accordance with its investment objective and stated
investment policies. The holders of a majority of the outstanding voting
securities of the Fund must approve any change to a Fund's investment objective
or to an investment policy designated as fundamental. A majority of outstanding
voting securities means the lesser of 67% of the shares present or represented
at a shareholders' meeting at which the holders of more than 50% of the
outstanding shares are present or represented, or more than 50% of the
outstanding shares. Unless otherwise indicated, the investment policies of the
Funds are not fundamental and may be changed by the Board without shareholder
approval. A Fund will apply the percentage restrictions on its investments set
forth in its investment policies when the investment is made. If the percentage
of a Fund's assets committed to a particular investment or practice later
increases because of a change in the market values of a Fund's assets or
redemptions of Fund shares, it will not constitute a violation of the
limitation.
CORE AND GATEWAY (R).
Notwithstanding the Funds' other investment policies, each Fund may seek to
achieve its investment objective by converting to a Core and Gateway structure,
upon future action by the Board and notice to shareholders. If a Fund converts
to a Core and Gateway structure, it would seek to achieve its investment
objective by investing all or a portion of its assets in shares of another
diversified, open-end management investment company that has an investment
objective and investment policies substantially similar to that of the Fund.
FIXED INCOME SECURITIES AND THEIR CHARACTERISTICS.
INTEREST RATE RISK. All fixed income securities, including U.S. Government
Securities, can change in value when there is a change in interest rates or the
issuer's actual or perceived creditworthiness or ability to meet its
obligations. There is normally an inverse relationship between the market value
of securities sensitive to prevailing interest rates and actual changes in
interest rates. In other words, an increase in interest rates produces a
decrease in market value. Moreover, the longer the remaining maturity (and
duration) of a security, the greater will be the effect of interest rate changes
on the market value of that security. Changes in the ability of an issuer to
make payments of interest and principal and in the market's perception of an
issuer's creditworthiness will also affect the market value of the debt
securities of that issuer. The possibility exists that, the ability of any
issuer to pay, when due, the principal of and interest on its debt securities
may become impaired.
CREDIT RISK AND RATINGS. The FIXED INCOME FUNDS' investments are subject to
"credit risk" relating to the financial condition of the issuers of the
securities that each Fund holds. Each Fund attempts to limit its credit risk by
limiting its
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investment in securities rated in lower categories by a Nationally Recognized
Statistical Rating Organization ("NRSRO").
The GOVERNMENT BOND FUND invests at least 90 percent of its net assets in U.S.
Government Securities. For this reason its exposure to credit risk is limited.
It may, however, invest up to 10 percent of its net assets in "investment grade"
corporate debt instruments. Accordingly, the Government Bond Fund may not
purchase any corporate debt instrument having a long-term rating for corporate
bonds, including convertible bonds, lower than are "Baa" in the case of Moody's
Investors Service ("Moody's") and "BBB" in the case of Standard & Poor's ("S&P")
and Fitch Investors Service, L.P. ("Fitch"); the lowest permissible long-term
investment grades for preferred stock are "Baa" in the case of Moody's and "BBB"
in the case of S&P and Fitch; and the lowest permissible short-term investment
grades for short-term debt, including commercial paper, are Prime-2 (P-2) in the
case of Moody's, A-2 in the case of S&P and F-2 in the case of Fitch.
The CORPORATE BOND FUND also attempts to limit its credit risk by limiting its
investment in securities rated in lower categories by a Nationally Recognized
Statistical Rating Organization ("NRSRO"). At least 80 percent of the corporate
debt securities that the Fund purchases must be investment grade. No more than 5
percent of the Fund's net assets may be lower than investment grade. The Fund
will attempt to maintain a minimum average portfolio rating, on a dollar
weighted basis, of A by Moody's, S&P or Fitch.
The FIXED INCOME FUNDS also may purchase unrated securities if the portfolio
manager determines the security to be of comparable quality to a rated security
that the Fund may purchase. Unrated securities may not be as actively traded as
rated securities. Each Fund may retain a security whose rating has been lowered
below the Fund's lowest permissible rating category (or that are unrated and
determined by the Sub-adviser to be of comparable quality to securities whose
rating has been lowered below the Fund's lowest permissible rating category) if
the portfolio manager determines that retaining the security is in the best
interests of the Fund. Because a ratings downgrade often results in a reduction
in the market price of the security, sale of a downgraded security may result in
a loss.
U.S. GOVERNMENT SECURITIES. The FIXED INCOME FUNDS may invest in U.S. Government
Securities including U.S. Treasury securities and obligations issued or
guaranteed by U.S. Government agencies and instrumentalities and backed by the
full faith and credit of the U.S. Government, such as those guaranteed by the
Small Business Administration or issued by the Government National Mortgage
Association ("Ginnie Mae").
The CORPORATE BOND FUND also may invest in securities supported primarily or
solely by the creditworthiness of the issuer, such as securities of the Federal
National Mortgage Association ("Fannie Mae"), the Federal Home Loan Mortgage
Corporation ("Freddie Mac") and the Tennessee Valley Authority. There is no
guarantee that the U.S. Government will support securities not backed by its
full faith and credit. Accordingly, although these securities have historically
involved little risk of loss of principal if held to maturity, they may involve
more risk than securities backed by the U.S. Government's full faith and credit.
VARIABLE AND FLOATING RATE SECURITIES. The FIXED INCOME FUNDS may invest in
securities that pay interest at rates that are adjusted periodically according
to a specified formula, usually with reference to some interest rate index or
market interest rate (the "underlying index"). Such adjustments minimize changes
in the market value of the obligation and, accordingly, enhance the ability of
the Fund to reduce fluctuations in its net asset value. Variable and floating
rate instruments are subject to changes in value based on changes in market
interest rates or changes in the issuer's creditworthiness.
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There may not be an active secondary market for certain floating or variable
rate instruments which could make it difficult for a Fund to dispose of the
instrument during periods that the Fund is not entitled to exercise any demand
rights it may have. A Fund could, for this or other reasons, suffer a loss with
respect to an instrument. A Fund's Sub-adviser monitors the liquidity of the
Fund's investment in variable and floating rate instruments, but there can be no
guarantee that an active secondary market will exist.
DEMAND NOTES. The FIXED INCOME FUNDS may purchase variable and floating rate
demand notes of corporations, which are unsecured obligations redeemable upon
not more than 30 days' notice. These obligations include master demand notes
that permit investment of fluctuating amounts at varying rates of interest
pursuant to direct arrangement with the issuer of the instrument. The issuers of
these obligations often have the right, after a given period, to prepay their
outstanding principal amount of the obligations upon a specified number of days'
notice. These obligations generally are not traded, nor generally is there an
established secondary market for these obligations. To the extent a demand note
does not have a seven day or shorter demand feature and there is no readily
available market for the obligation, it is treated as an illiquid security.
Although a Fund would generally not be able to resell a master demand note to a
third party, the Fund is entitled to demand payment from the issuer at any time.
The Sub-advisers continuously monitor the financial condition of the issuer to
determine the issuer's likely ability to make payment on demand.
GUARANTEED INVESTMENT CONTRACTS. The CORPORATE BOND FUND may invest in
guaranteed investment contracts ("GICs"). A GIC is an arrangement with an
insurance company under which the Fund contributes cash to the insurance
company's general account and the insurance company credits the contribution
with interest on a monthly basis. The interest rate is tied to a specified
market index and is guaranteed by the insurance company not to be less than a
certain minimum rate. The Fund will purchase a GIC only when the Sub-adviser has
determined that the GIC presents minimal credit risks to the Fund and is of
comparable quality to other instruments that the Fund may purchase.
ZERO-COUPON SECURITIES. The FIXED INCOME FUNDS may invest in separately traded
principal and interest components of securities issued or guaranteed by the U.S.
Treasury. These components are traded independently under the Treasury's
Separate Trading of Registered Interest and Principal of Securities ("STRIPS")
program or as Coupons Under Book Entry Safekeeping ("CUBES").
The CORPORATE BOND FUND may also invest in other types of related zero-coupon
securities. For instance, a number of banks and brokerage firms separate the
principal and interest portions of U.S. Treasury securities and sell them
separately in the form of receipts or certificates representing undivided
interests in these instruments. These instruments are generally held by a bank
in a custodial or trust account on behalf of the owners of the securities and
are known by various names, including Treasury Receipts ("TRs"), Treasury
Investment Growth Receipts ("TIGRs") and Certificates of Accrual on Treasury
Securities ("CATS"). Zero-coupon securities also may be issued by corporations
and municipalities.
Zero-coupon securities are sold at original issue discount and pay no interest
to holders prior to maturity, but the Fund must include a portion of the
original issue discount of the security as income. Because of this, zero-coupon
securities may be subject to greater fluctuation of market value than the other
securities in which the Fund may invest. The Fund distributes all of its net
investment income, and may have to sell portfolio securities to distribute
imputed income, which may occur at a time when the Sub-adviser would not have
chosen to sell such securities and which may result in a taxable gain or loss.
MORTGAGE-BACKED SECURITIES. The FIXED INCOME FUNDS may invest in mortgage-backed
securities. The GOVERNMENT BOND FUND may only invest in mortgage-backed
securities issued by the government or government-related issuers described
below. The CORPORATE BOND FUND may also invest in mortgage-backed securities of
private issuers.
Mortgage-backed securities represent an interest in a pool of mortgages
originated by lenders such as commercial banks, savings associations and
mortgage bankers and brokers. Mortgage-backed securities may be issued by
governmental or government-related entities or by non-governmental entities such
as special purpose trusts created by banks, savings associations, private
mortgage insurance companies or mortgage bankers.
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Interests in mortgage-backed securities differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal payments at maturity or on specified call dates. In
contrast, mortgage-backed securities provide monthly payments which consist of
interest and, in most cases, principal. In effect, these payments are a "pass-
through" of the monthly payments made by the individual borrowers on their
mortgage loans, net of any fees paid to the issuer or guarantor of the
securities or a mortgage loan servicer. Additional payments to holders of these
securities are caused by prepayments resulting from the sale or foreclosure of
the underlying property or refinancing of the underlying loans.
GOVERNMENT AND GOVERNMENT-RELATED GUARANTORS. The principal government guarantor
of mortgage-backed securities is Ginnie Mae, a wholly-owned United States
Government corporation within the Department of Housing and Urban Development.
Mortgage-backed securities are also issued by Fannie Mae, a government-sponsored
corporation owned entirely by private stockholders that is subject to general
regulation by the Secretary of Housing and Urban Development, and Freddie Mac, a
corporate instrumentality of the United States Government. While Fannie Mae and
Freddie Mac each guarantee the payment of principal and interest on the
securities they issue, unlike Ginnie Mae securities, their securities are not
backed by the full faith and credit of the United States Government.
PRIVATELY ISSUED MORTGAGE-BACKED SECURITIES. The Corporate Bond Fund may also
invest in mortgage-backed securities offered by private issuers. These include
pass-through securities comprised of pools of conventional mortgage loans;
mortgage-backed bonds (which are considered to be debt obligations of the
institution issuing the bonds and which are collateralized by mortgage loans);
and collateralized mortgage obligations ("CMOs"), which are described below.
Mortgage-backed securities issued by non-governmental issuers may offer a higher
rate of interest than securities issued by government issuers because of the
absence of direct or indirect government guarantees of payment. Many
non-governmental issuers or servicers of mortgage-backed securities, however,
guarantee timely payment of interest and principal on these securities. Timely
payment of interest and principal also may be supported by various forms of
insurance, including individual loan, title, pool and hazard policies.
UNDERLYING MORTGAGES. Pools of mortgages consist of whole mortgage loans or
participations in mortgage loans. The majority of these loans are made to
purchasers of 1-4 family homes, but may be made to purchasers of mobile homes or
other real estate interests. The terms and characteristics of the mortgage
instruments are generally uniform within a pool but may vary among pools. For
example, in addition to fixed-rate, fixed-term mortgages, the Funds may purchase
pools of variable rate mortgages, growing equity mortgages, graduated payment
mortgages and other types. Mortgage servicers impose qualification standards for
local lending institutions which originate mortgages for the pools as well as
credit standards and underwriting criteria for individual mortgages included in
the pools. In addition, many mortgages included in pools are insured through
private mortgage insurance companies.
LIQUIDITY AND MARKETABILITY. Generally, government and government-related
pass-through pools are highly liquid. While private conventional pools of
mortgages (pooled by non-government-related entities) have also achieved broad
market acceptance and an active secondary market has emerged, the market for
conventional pools is smaller and less liquid than the market for government and
government-related mortgage pools.
AVERAGE LIFE AND PREPAYMENTS. The average life of a pass-through pool varies
with the maturities of the underlying mortgage instruments. In addition, a
pool's terms may be shortened by unscheduled or early payments of principal and
interest on the underlying mortgages. Prepayments with respect to securities
during times of declining interest rates will tend to lower the return of a Fund
and may even result in losses to the Fund if the securities were acquired at a
premium. The occurrence of mortgage prepayments is affected by various factors
including the level of interest rates, general economic conditions, the location
and age of the mortgage and other social and demographic conditions. As
prepayment rates of individual pools vary widely, it is not possible to
accurately predict the average life of a particular pool. The assumed average
life of pools of mortgages having terms of 30 years or less is typically between
5 and 12 years.
YIELD CALCULATIONS. Yields on pass-through securities are typically quoted based
on the maturity of the underlying instruments and the associated average life
assumption. In periods of falling interest rates the rate of prepayment tends to
increase, thereby shortening the actual average life of a pool of mortgages.
Conversely, in periods of rising rates the rate of prepayment tends to decrease,
thereby lengthening the actual average life of the pool. Actual prepayment
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experience may cause the yield to differ from the assumed average life yield.
Reinvestment of prepayments may occur at higher or lower interest rates than the
original investment, thus affecting the yield of a Fund.
ADJUSTABLE RATE MORTGAGE-BACKED SECURITIES. Adjustable rate mortgage-backed
securities ("ARMs") are securities that have interest rates that are reset at
periodic intervals, usually by reference to some interest rate index or market
interest rate. Although the rate adjustment feature may act as a buffer to
reduce sharp changes in the value of adjustable rate securities, these
securities are still subject to changes in value based on changes in market
interest rates or changes in the issuer's creditworthiness. Because of the
resetting of interest rates, adjustable rate securities are less likely than
non-adjustable rate securities of comparable quality and maturity to increase
significantly in value when market interest rates fall. Also, most adjustable
rate securities (or the underlying mortgages) are subject to caps or floors.
"Caps" limit the maximum amount by which the interest rate paid by the borrower
may change at each reset date or over the life of the loan and, accordingly,
fluctuation in interest rates above these levels could cause such mortgage
securities to "cap out" and to behave more like long-term, fixed-rate debt
securities. ARMs may have less risk of a decline in value during periods of
rapidly rising rates, but they also may have less potential for capital
appreciation than other debt securities of comparable maturities due to the
periodic adjustment of the interest rate on the underlying mortgages and due to
the likelihood of increased prepayments of mortgages as interest rates decline.
Furthermore, during periods of declining interest rates, income to a Fund will
decrease as the coupon rate resets along with the decline in interest rates.
During periods of rising interest rates, changes in the coupon rates of the
mortgages underlying the Fund's ARMs may lag behind changes in market interest
rates. This may result in a lower value until the interest rate resets to market
rates.
COLLATERALIZED MORTGAGE OBLIGATIONS. CMOs are debt obligations collateralized by
mortgages or mortgage pass-through securities issued by Ginnie Mae, Freddie Mac
or Fannie Mae or by pools of conventional mortgages ("Mortgage Assets"). CMOs
may be privately issued or U.S. Government Securities. Payments of principal and
interest on the Mortgage Assets are passed through to the holders of the CMOs on
the same schedule as they are received, although, certain classes (often
referred to as tranches) of CMOs have priority over other classes with respect
to the receipt of payments. Multi-class mortgage pass-through securities are
interests in trusts that hold Mortgage Assets and that have multiple classes
similar to those of CMOs. Unless the context indicates otherwise, references to
CMOs include multi-class mortgage pass-through securities. Payments of principal
of and interest on the underlying Mortgage Assets (and in the case of CMOs, any
reinvestment income thereon) provide funds to pay debt service on the CMOs or to
make scheduled distributions on the multi-class mortgage pass-through
securities. Parallel pay CMOs are structured to provide payments of principal on
each payment date to more than one class. These simultaneous payments are taken
into account in calculating the stated maturity date or final distribution date
of each class, which, as with other CMO structures, must be retired by its
stated maturity date or final distribution date but may be retired earlier.
Planned amortization class mortgage-based securities ("PAC Bonds") are a form of
parallel pay CMO. PAC Bonds are designed to provide relatively predictable
payments of principal provided that, among other things, the actual prepayment
experience on the underlying mortgage loans falls within a contemplated range.
If the actual prepayment experience on the underlying mortgage loans is at a
rate faster or slower than the contemplated range, or if deviations from other
assumptions occur, principal payments on a PAC Bond may be greater or smaller
than predicted. The magnitude of the contemplated range varies from one PAC Bond
to another; a narrower range increases the risk that prepayments will be greater
or smaller than contemplated. CMOs may have complicated structures and generally
involve more risks than simpler forms of mortgage-related securities.
ASSET-BACKED SECURITIES. The CORPORATE BOND FUND may invest in asset-backed
securities. These securities represent direct or indirect participations in, or
are secured by and payable from, assets other than mortgage-related assets such
as motor vehicle installment sales contracts, installment loan contracts, leases
of various types of real and personal property and receivables from revolving
credit (credit card) agreements. The Fund may not invest more than 15% of its
net assets in asset-backed securities that are backed by a particular type of
credit, for instance, credit card receivables. Asset-backed securities,
including adjustable rate asset-backed securities, have yield characteristics
similar to those of mortgage-related securities and, accordingly, are subject to
many of the same risks.
Assets are securitized through the use of trusts and special purpose
corporations that issue securities that are often backed by a pool of assets
representing the obligations of a number of different parties. Payments of
principal and interest may be guaranteed up to certain amounts and for a certain
time period by a letter of credit issued by a financial institution.
Asset-backed securities do not always have the benefit of a security interest in
collateral comparable to the
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security interests associated with mortgage-related securities. As a result, the
risk that recovery on repossessed collateral might be unavailable or inadequate
to support payments on asset-backed securities is greater for asset-backed
securities than for mortgage-related securities. In addition, because
asset-backed securities are relatively new, the market experience in these
securities is limited and the market's ability to sustain liquidity through all
phases of an interest rate or economic cycle has not been tested.
COMMON STOCK. The EQUITY FUNDS invest primarily in common stocks of domestic
issuers. Common stock represents an equity or ownership interest in a company.
Although an equity interest often gives a Fund the right to vote on measures
affecting the company's organization and operations, the Funds do not intend to
exercise control over the management of companies in which they invest. Common
stocks have a history of long-term growth in value, but their prices tend to
fluctuate in the shorter term.
PREFERRED STOCK. The EQUITY FUNDS may invest in preferred stock. Preferred stock
generally does not exhibit as great a potential for appreciation or depreciation
as common stock, although it ranks above common stock in its claim on income
from dividend payments or the recovery of investment or both. The owner of
preferred stock is a shareholder in a business and not, like a bondholder, a
creditor. Dividends paid to preferred stockholders are distributions of earnings
of a business in contrast to interest payments to bondholders which are expenses
of a business.
WARRANTS. The EQUITY FUNDS may invest in warrants. These are options to purchase
an equity security at a specified price at any time during the life of the
warrant. Unlike preferred stocks, warrants do not pay a dividend. Investments in
warrants involve certain risks, including the possible lack of a liquid market
for the resale of the warrants, potential price fluctuations as a result of
speculation or other factors and failure of the price of the underlying security
to reach a level at which the warrant can be prudently exercised (in which case
the warrant may expire without being exercised, resulting in the loss of a
Fund's entire investment therein).
CONVERTIBLE SECURITIES. All of the Funds may invest in securities that may be
converted into a pre-determined number of shares of the issuer's common stock at
stated price or formula within a specified time period. The holder of
convertible securities is entitled to receive interest paid or accrued on
convertible debt, or the dividend paid on convertible preferred stock, until the
convertible security matures or is redeemed, converted or exchanged.
Traditionally, convertible securities have paid dividends or interest greater
than common stocks, but less than fixed income or non-convertible debt
securities. Convertible securities typically rank before common stock, but after
non-convertible debt securities, in their claim on dividends paid by the issuer.
In general, the value of a convertible security is the higher of its investment
value (its value as a fixed income security) and its conversion value (the value
of the underlying shares of common stock if the security is converted). As a
fixed income security, the value of a convertible security generally increases
when interest rates decline and generally decreases when interest rates rise.
The value of a convertible security is, however, also influenced by the value of
the underlying common stock. By investing in a convertible security, a Fund may
participate in any capital appreciation or depreciation of a company's stock,
but to a lesser degree than its common stock.
A Fund may invest in preferred stock and convertible securities rated BBB or
higher by Standard & Poor's Corporation, Baa by Moody's Investors Service, Inc.,
or the equivalent in the case of unrated instruments. SEE "Description of
Securities Ratings" in Appendix A to the SAI.
FUTURES CONTRACTS AND OPTIONS. Each Fund may attempt to hedge against a decline
in the value of securities it owns or an increase in the price of securities it
plans to purchase through the use of options and the purchase and sale of
interest rate futures contracts and options on those futures contracts. These
instruments are often referred to as "derivatives," because their performance is
derived, at least in part, from the performance of another asset (such as a
security, currency or an index of securities). The Funds only may write (sell)
"covered" options. An option is covered if, so long as the Fund is obligated
under the option, it owns an offsetting position in the underlying security or
futures
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contract or maintains cash, U.S. Government Securities or other liquid debt
securities in a segregated account with a value at all times sufficient to cover
the Fund's obligation under the option. A Fund may enter into futures contracts
only if the aggregate of initial deposits for open futures contract positions
does not exceed 5% of the Fund's total assets.
RISK CONSIDERATIONS. A Fund's use of options and futures contracts subjects the
Fund to certain investment risks and transaction costs to which it might not
otherwise be subject. These risks include: (i) dependence on the Sub-adviser's
ability to predict movements in the prices of individual securities and
fluctuations in the general securities markets; (ii) imperfect correlations
between movements in the prices of options or futures contracts and movements in
the price of the securities hedged or used for cover which may cause a given
hedge not to achieve its objective; (iii) the fact that the skills and
techniques needed to trade these instruments are different from those needed to
select the other securities in which the Fund invests; (iv) lack of assurance
that a liquid secondary market will exist for any particular instrument at any
particular time, which, among other things, may limit a Fund's ability to limit
exposures by closing its positions; (v) the possible need to defer closing out
of certain options, futures contracts and related options to avoid adverse tax
consequences; and (vi) the potential for unlimited loss when investing in
futures contracts or writing options for which an offsetting position is not
held.
Other risks include the inability of a Fund, as the writer of covered call
options, to benefit from any appreciation of the underlying securities above the
exercise price and the possible loss of the entire premium paid for options
purchased by the Fund. In addition, the futures exchanges may limit the amount
of fluctuation permitted in certain futures contract prices during a single
trading day. A Fund may be forced, therefore, to liquidate or close out a
futures contract position at a disadvantageous price.
There can be no assurance that a liquid market will exist at a time when a Fund
seeks to close out a futures position or that a counterparty in an
over-the-counter option transaction will be able to perform its obligations.
There are a limited number of options on interest rate futures contracts and
exchange traded options contracts on fixed income securities. Accordingly,
hedging transactions involving these instruments may entail "cross-hedging." As
an example, a Fund may wish to hedge existing holdings of mortgage-backed
securities, but no listed options may exist on those securities. In that event,
the Fund's Sub-adviser may attempt to hedge the Fund's securities by the use of
options with respect to similar securities. The Fund may use various futures
contracts that are relatively new instruments without a significant trading
history. As a result, there can be no assurance that an active secondary market
in those contracts will develop or continue to exist.
LIMITATIONS. The Funds have no current intention of investing in futures
contracts and options thereon for purposes other than hedging. No Fund may
purchase any call or put option on a futures contract if the premiums associated
with all such options held by the Fund would exceed 5% of the Fund's total
assets as of the date the option is purchased. No Fund may sell a put option if
the exercise value of all put options written by the Fund would exceed 50% of
the Fund's total assets or sell a call option if the exercise value of all call
options written by the Fund would exceed the value of the Fund's assets. In
addition, the current market value of all open futures positions held by a Fund
will not exceed 50% of its total assets.
OPTIONS ON SECURITIES. A call option is a contract pursuant to which the
purchaser of the call option, in return for a premium paid, has the right to buy
the security underlying the option at a specified exercise price at any time
during the term of the option. The writer of the call option, who receives the
premium, has the obligation upon exercise of the option to deliver the
underlying security against payment of the exercise price during the option
period. A put option gives its purchaser, in return for a premium, the right to
sell the underlying security at a specified price during the term of the option.
The writer of the put, who receives the premium, has the obligation to buy the
underlying security, upon exercise at the exercise price during the option
period. The amount of premium received or paid is based upon certain factors,
including the market price of the underlying security or index, the relationship
of the exercise price to the market price, the historical price volatility of
the underlying security or index, the option period, supply and demand and
interest rates.
OPTIONS ON STOCK INDICES. A stock index assigns relative values to the stock
included in the index, and the index fluctuates with changes in the market
values of the stocks included in the index. Stock index options operate in the
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same way as the more traditional stock options except that exercises of stock
index options are effected with cash payments and do not involve delivery of
securities. Thus, upon exercise of a stock index option, the purchaser will
realize and the writer will pay an amount based on the differences between the
exercise price and the closing price of the stock index.
INDEX FUTURES CONTRACTS. Bond and stock index futures contracts are bilateral
agreements pursuant to which two parties agree to take or make delivery of an
amount of cash equal to a specified dollar amount times the difference between
the bond or stock index value at the close of trading of the contract and the
price at which the futures contract is originally struck. No physical delivery
of the fixed income or equity securities comprising the index is made.
Generally, futures contracts are closed out prior to the expiration date of the
contract.
OPTIONS ON FUTURES CONTRACTS. Options on futures contracts are similar to stock
options except that an option on a futures contract gives the purchaser the
right, in return for the premium paid, to assume a position in a futures
contract rather than to purchase or sell stock, at a specified exercise price at
any time during the period of the option. Upon exercise of the option, the
delivery of the futures position to the holder of the option will be accompanied
by transfer to the holder of an accumulated balance representing the amount by
which the market price of the futures contract exceeds, in the case of a call,
or is less than, in the case of a put, the exercise price of the option on the
future.
TECHNIQUES INVOLVING LEVERAGE. Leveraging involves special risks. The Funds may
borrow for other than temporary or emergency purposes, lend their securities,
and purchase securities on a when-issued or forward commitment basis, and engage
in dollar roll transactions. Each of these transactions involves the use of
"leverage" when cash made available to the Fund through the investment technique
is used to make additional portfolio investments. In addition, the use of swap
and related agreements may involve leverage. A Fund uses these investment
techniques only when the Sub-adviser to the Fund believes that the leveraging
and the returns available from investing the cash will provide the Fund's
shareholders with a potentially higher return.
Leverage exists when a Fund achieves the right to a return on a capital base
that exceeds the Fund's investment. Leverage creates the risk of magnified
capital losses which occur when losses affect an asset base, enlarged by
borrowings or the creation of liabilities, that exceeds the equity base of the
Fund.
The risks of leverage include a higher volatility of the net asset value of a
Fund's shares and the relatively greater effect on the net asset value of the
shares caused by favorable or adverse market movements or changes in the cost of
cash obtained by leveraging and the yield obtained from investing the cash. So
long as a Fund is able to realize a net return on its investment portfolio that
is higher than interest expense incurred, if any, leverage will result in higher
current net investment income being realized by the Fund than if the Fund were
not leveraged. On the other hand, interest rates change from time to time
depending upon such factors as supply and demand, monetary and tax policies and
investor expectations. Changes in such factors could cause the relationship
between the cost of leveraging and the yield to change so that rates involved in
the leveraging arrangement may substantially increase relative to the yield on
the obligations in which the proceeds of the leveraging have been invested. To
the extent that the interest expense involved in leveraging approaches the net
return on a Fund's investment portfolio, the benefit of leveraging will be
reduced, and, if the interest expense on borrowings were to exceed the net
return to shareholders, the Fund's use of leverage would result in a lower rate
of return than if the Fund were not leveraged. Similarly, the effect of leverage
in a declining market could be a greater decrease in net asset value per share
than if the Fund were not leveraged. In an extreme case, if a Fund's current
investment income were not sufficient to meet the interest expense of
leveraging, it could be necessary for the Fund to liquidate certain of its
investments at an inappropriate time. The use of leverage may be considered
speculative.
SEGREGATED ACCOUNT. To limit the risks involved in various transactions
involving leverage, the Trust's custodian will set aside and maintain in a
segregated account for each Fund cash, U.S. Government Securities and other
liquid, debt securities in accordance with SEC guidelines. The account's value,
which is marked to market daily, will be at least equal to the Fund's
commitments under these transactions. The Fund's commitments may include: (i)
the Fund's obligations to repurchase securities under a reverse repurchase
agreement, or settle when-issued and forward commitment transactions; (ii) the
greater of the market value of securities sold short or the value of the
securities at the time of the short sale (reduced by any margin deposit). The
use of a segregated account in connection with leveraged
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transactions may result in a Fund's portfolio being 100% leveraged.
BORROWING. As a fundamental investment policy, a Fund may borrow money for
temporary or emergency purposes, including the meeting of redemption requests,
in amounts up to 33 1/3% of a Fund's total assets. As a nonfundamental
investment policy, a Fund may not purchase portfolio securities if its
outstanding borrowings exceed 5% of its total assets or borrow for purposes
other than meeting redemptions in an amount exceeding 5% of the value of its
total assets at the time the borrowing is made.
Borrowing involves special risk considerations. Interest costs on borrowings may
fluctuate with changing market rates of interest and may partially offset or
exceed the return earned on borrowed funds (or on the assets that were retained
rather than sold to meet the needs for which funds were borrowed). Under adverse
market conditions, a Fund might need to sell portfolio securities to meet
interest or principal payments at a time when investment considerations would
not favor such sales.
REPURCHASE AGREEMENTS AND LENDING OF PORTFOLIO SECURITIES. Each Fund may seek
additional income by entering into repurchase agreements or by lending
securities from its portfolio to brokers, dealers and other financial
institutions. These investments may entail certain risks not associated with
direct investments in securities. For instance, in the event that bankruptcy or
similar proceedings were commenced against a counterparty in these transactions
or a counterparty defaulted on its obligations, a Fund might suffer a loss.
Repurchase agreements are transactions in which a Fund purchases a security and
simultaneously commits to resell that security to the seller at an agreed-upon
price on an agreed-upon future date, normally one to seven days later. The
resale price reflects a market rate of interest that is not related to the
coupon rate or maturity of the purchased security. When a Fund lends a security
it receives interest from the borrower or from investing cash collateral. The
Trust maintains possession of the purchased securities and any underlying
collateral in these transactions, the total market value of which on a
continuous basis is at least equal to the repurchase price or value of
securities loaned, plus accrued interest. The Funds may pay fees to arrange
securities loans and each Fund will, as a fundamental policy, limit securities
lending to not more than 331/3 % of the value of its total assets.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS. The FIXED INCOME FUNDS may
purchase securities on a "when-issued" or "forward commitment" basis. When a
fund purchases a security on a when-issued or forward commitment basis, the
price of the security is fixed when the commitment is made, but delivery and
payment for the securities take place at a later date. Normally, the settlement
occurs within three months after the transaction, but delayed settlements beyond
three months may be negotiated.
During the period between a commitment and settlement, no interest accrues to
the Fund. When a Fund commits to purchase securities in this manner, however,
the Fund immediately assumes the risk of ownership, including price fluctuation.
If the other party does not deliver or pay for a security purchased or sold by
the Fund, the Fund may incur a loss or miss an opportunity to make an
alternative investment. Any significant commitment of a Fund's assets committed
to the purchase of securities on a when-issued or forward commitment basis may
increase the volatility of its net asset value. Except for dollar roll
transactions, which are described below, each of the Fixed Income Funds limits
its investments in when-issued and forward commitment securities to 15% of the
value of the Fund's total assets.
A Fund may use when-issued transactions and forward commitments to hedge against
anticipated changes in interest rates and prices. If the Fund's Sub-adviser
forecasts incorrectly the direction of interest rate movements, however, the
Fund might be required to complete when-issued or forward transactions at prices
inferior to the current market values. The Funds enter into when-issued and
forward commitments only with the intention of actually receiving the
securities, but a Fund may sell the securities before the settlement date if
deemed advisable. If a Fund disposes of the right to acquire a when-issued
security prior to its acquisition or to dispose of its right to deliver or
receive against a forward commitment, it can incur a gain or loss.
DOLLAR ROLL TRANSACTIONS. Each FIXED INCOME FUND may enter into dollar roll
transactions in which the Fund sells fixed income securities, typically
mortgage-backed securities, and makes a commitment to purchase similar, but not
identical, securities at a later date from the same party. During the roll
period no payment is made for the securities purchased
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and no interest or principal payments on the security accrue to the Fund, but
the Fund assumes the risk of ownership. A Fund is compensated for entering into
dollar roll transactions by the difference between the current sales price and
the forward price for the future purchase, as well as by the interest earned on
the cash proceeds of the initial sale. Dollar roll transactions involve the risk
that the market value of the securities sold by a Fund may decline below the
price at which the Fund is committed to purchase similar securities. If the
buyer of securities under a dollar roll transaction becomes insolvent, the
Fund's use of the proceeds of the transaction may be restricted pending a
determination by the other party, or its trustee or receiver, whether to enforce
the Fund's obligation to repurchase the securities. The Funds will engage in
roll transactions for the purpose of acquiring securities for their portfolios
and not for investment leverage. Each Fixed Income Fund will limit its
obligations on dollar roll transactions to 35% of the Fund's net assets.
CONCENTRATION. As a fundamental investment policy, a Fund may not purchase a
security (other than U.S. Government Securities) if as a result more than 25% of
its net assets would be invested in a particular industry.
DIVERSIFICATION. As a fundamental investment policy, a Fund may not purchase a
security if, as a result (a) more than 5% of a Fund's total assets would be
invested in the securities of a single issuer, or (b) a Fund would own more than
10% of the outstanding voting securities of a single issuer. This limitation
applies only with respect to 75% of a Fund's total assets and does not apply to
U.S. Government Securities.
CASH AND TEMPORARY DEFENSIVE POSITIONS. A Fund will hold a certain portion of
its assets in cash or cash equivalents to retain flexibility in meeting
redemptions, paying expenses, and timing of new investments. Cash equivalents
may include (i) short-term obligations issued or guaranteed by the United States
Government, its agencies or instrumentalities ("U.S. Government Securities"),
(ii) certificates of deposit, bankers' acceptances and interest-bearing savings
deposits of commercial banks doing business in the United States that have an A+
rating from Standard & Poor's Corporation or an A-1+ rating from Moody's
Investors Service, Inc., (iii) commercial paper rated P-1 by Moody's Investors
Service, Inc. or A-1 by Standard & Poor's Corporation, (iv) repurchase
agreements covering any of the securities in which a Fund may invest directly,
and (v) money market mutual funds.
In addition, when a Sub-adviser believes that business or financial conditions
warrant, the Sub-adviser's Fund may assume a temporary defensive position.
During such periods, a Fund may invest without limit in cash or cash
equivalents. When and to the extent a Fund assumes a temporary defensive
position, it will not pursue its investment objective.
SHORT SALES. A Fund may not enter into short sales, except short sales "against
the box." In a short sale against the box, a Fund sells securities it owns, or
has the right to acquire at no additional cost. A Fund does not immediately
deliver the securities sold, however, and does not receive proceeds from the
sale until it does deliver the securities. A Fund may enter into a short sale
against the box to lock-in a gain or loss in one year, while deferring
recognition of the gain or loss until the next year. A Fund may also sell short
against the box to hedge against the risk that the price of a security may
decline. In such a case, to the extent a Fund limits its future losses in the
security, it limits its opportunity to achieve future gain in the security as
well. Pursuant to the Taxpayer Relief Act of 1997, if a Fund has unrealized gain
with respect to a security and enters into a short sale with respect to such
security, the Fund generally will be deemed to have sold the appreciated
security and this will recognize gain for tax purposes.
SECURITIES OF OTHER INVESTMENT COMPANIES. A Fund may invest in shares of other
investment companies to the extent permitted by the Investment Company Act of
1940 ("Investment Company Act"). To the extent a Fund invests in shares of an
investment company, it will bear its pro rata share of the other investment
company's expenses, such as investment advisory and distribution fees, and
operating expenses.
Each Fund reserves the right upon notification to shareholders to invest up to
100% of its investable assets in one or more other investment companies. If a
Fund elected to pursue its investment objective in this manner, its policies on
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concentration and diversification would apply to the assets of the investment
companies in which the Fund invests.
ILLIQUID AND RESTRICTED SECURITIES. A Fund may not purchase a security if, as a
result, more than 15 percent of its net assets would be invested in illiquid
securities. A security is considered ILLIQUID if it may not be sold or disposed
of in the ordinary course of business within seven days at approximately the
value at which a Fund has valued the security. Over-the-counter options,
repurchase agreements not entitling the holder to payment of principal in 7
days, and certain "restricted securities" may be illiquid.
A security is RESTRICTED if it is subject to contractual or legal restrictions
on resale to the general public. A liquid institutional market has developed,
however, for certain restricted securities such as repurchase agreements,
commercial paper, foreign securities and corporate bonds and notes. Thus,
restrictions on resale do not necessarily indicate the liquidity of the
security. For example, if a restricted security may be sold to certain
institutional buyers in accordance with Rule 144A under the Securities Act of
1933 or another exemption from registration under the Securities Act, the
Sub-adviser may determine that the security is liquid under guidelines adopted
by the Board. These guidelines take into account trading activity in the
securities and the availability of reliable pricing information, among other
factors. With other restricted securities, however, there can be no assurance
that a liquid market will exist for the security at any particular time. A Fund
might not be able to dispose of such securities promptly or at reasonable prices
and might thereby experience difficulty satisfying redemptions. A Fund treats
such holdings as illiquid.
PORTFOLIO TRANSACTIONS. Each Sub-adviser places orders for the purchase and sale
of assets it manages with brokers and dealers selected by, and in the discretion
of, the Sub-adviser. The Sub-advisers seek "best execution" for all portfolio
transactions, but a Fund may pay higher than the lowest available commission
rates when the Fund's Sub-adviser believes it is reasonable to do so in light of
the value of the brokerage and research services provided by the broker
effecting the transaction.
Subject to the policy of obtaining "best execution", each Sub-adviser may employ
broker-dealer affiliates (collectively "Affiliated Brokers") to effect brokerage
transactions. Payment of commissions to Affiliated Brokers is subject to
procedures adopted by the Board to provide that the commissions will not exceed
the usual and customary broker's commissions charged by unaffiliated brokers. No
specific portion of brokerage transactions will be directed to Affiliated
Brokers and in no event will a broker affiliated with the Sub-adviser directing
the transaction receive brokerage transactions in recognition of research
services provided to the Sub-adviser.
The frequency of portfolio transactions of a Fund (portfolio turnover rate) will
vary from year to year depending on many factors. From time to time a Fund may
engage in active short-term trading to take advantage of price movements
affecting individual issues, groups of issues or markets. An annual portfolio
turnover rate of 100% would occur if all of the securities in a fund were
replaced once in a period of one year. Higher portfolio turnover rates may
result in increased brokerage costs and a possible increase in short-term
capital gains or losses. Tax rules applicable to short-term trading may affect
the timing of a portfolio transactions or the ability to realize short-term
trading profits or establish short-term positions. It is estimated that each
Fund's portfolio turnover will be less than 100%.
9. OTHER INFORMATION
DETERMINATION OF NET ASSET VALUE
The net asset value per share of each class of each Fund is determined as of the
close of trading on the New York Stock Exchange (normally 4:00 p.m., Eastern
Time), on each Fund Business Day by dividing the value of the Fund's net assets
(I.E., the value of its securities and other assets less its liabilities) by the
number of shares outstanding at the time the determination is made. Securities
owned by a Fund for which market quotations are readily available are valued at
current market value or, in their absence, at fair value as determined by the
Board or pursuant to procedures approved by the Board.
PERFORMANCE INFORMATION
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A Fund's performance may be quoted in terms of yield or total return. All
performance information is based on historical results and is not intended to
indicate future performance. A Fund's yield is a way of showing the rate of
income the Fund earns on its investments as a percentage of the Fund's share
price. To calculate standardized yield, a Fund takes the income it earned from
its investments for a 30-day period (net of expenses), divides it by the average
number of shares entitled to receive dividends, and expresses the result as an
annualized percentage rate based on the Fund's share price at the end of the
30-day period. A Fund's total return shows its overall change in value,
including changes in share price and assuming all the Fund's dividends and
distributions are reinvested. A cumulative total return reflects a Fund's
performance over a stated period of time. An average annual total return
reflects the hypothetical annually compounded return that would have produced
the same cumulative total return if the Fund's performance had been constant
over the entire period. Because average annual returns tend to smooth out
variations in the Funds' returns, shareholders should recognize that they are
not the same as actual year-by-year results.
The Funds' advertisements may refer to ratings and rankings among similar mutual
funds by independent evaluators such as Morningstar, Inc., Lipper Analytical
Services, Inc. and IBC/Donoghue, Inc. In addition, the performance of a Fund may
be compared to securities indices. Indices are not used in the management of the
Funds but rather are standards by which the Advisers and shareholders may
compare the performance of a Fund to an unmanaged composite of securities with
similar, but not identical, characteristics. The Funds may also advertise the
historical performance of private accounts managed by the Sub-advisers to the
extent permitted by the National Association of Securities Dealers. Performance
information is not to be considered representative or indicative of a Fund's
future performance. All performance information for a Fund is calculated on a
class basis.
Federal banking rules generally permit a bank or bank affiliate to act as
investment adviser, transfer agent, or custodian to an investment company and to
purchase shares of the investment company as agent for and upon the order of a
customer and, in connection therewith, to retain a sales charge or similar
payment. The Adviser believes that the Trust and any bank or other bank
affiliate also may perform Processing Organization or similar services for the
Trust and its shareholders without violating applicable federal banking rules.
If a bank or bank affiliate were prohibited in the future from so acting,
changes in the operation of the Trust could occur and a shareholder serviced by
the bank or bank affiliate may no longer be able to avail itself of those
services. It is not expected that shareholders would suffer any adverse
financial consequences as a result of any of these occurrences.
THE TRUST AND ITS SHARES
The Trust has an unlimited number of authorized shares of beneficial interest.
The Board may, without shareholder approval, divide the authorized shares into
an unlimited number of separate portfolios or series (such as a Fund) and may
divide portfolios or series into classes of shares (such as Trust Shares); the
costs of doing so will be borne by the Trust. Currently the authorized shares of
the Trust are divided into four separate series.
OTHER CLASSES OF SHARES. The Funds currently issue two classes of shares, Trust
Shares and Institutional Shares. Institutional Shares are offered to large
institutional investors able to make a minimum investment of $10 million. Each
class of a Fund will have a different expense ratio and may have different
distribution fees. Each class' performance is affected by its expenses. For more
information on Institutional Shares of the Funds, investors may contact FSS at
(888) 263-5593 or the Funds' distributor. Investors may also contact their sales
representative to obtain information about the other classes.
SHAREHOLDER VOTING AND OTHER RIGHTS. Each share of each series of the Trust and
each class of shares has equal dividend, distribution, liquidation and voting
rights, and fractional shares have those rights proportionately, except that
expenses related to the distribution of the shares of each class (and certain
other expenses such as transfer agency and administration expenses) are borne
solely by those shares and each class votes separately with respect to the
provisions of any Rule 12b-1 plan which pertains to the class and other matters
for which separate class voting is appropriate under applicable law. Generally,
shares will be voted in the aggregate without reference to a particular series
or class, except if the matter affects only one series or class or voting by
series or class is required by law, in which case shares will be voted
separately by series or class, as appropriate. Delaware law does not require the
Trust to hold annual meetings of shareholders, and it is anticipated that
shareholder meetings will be held only when specifically required by federal or
state law. Shareholders (and Trustees) have available certain procedures for the
removal of Trustees. There are no conversion or preemptive rights in connection
with shares of the Trust. All shares when issued in accordance with the
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terms of the offering will be fully paid and nonassessable. Shares are
redeemable at net asset value, at the option of the shareholders, subject to any
contingent deferred sales charge that may apply. A shareholder in a series is
entitled to the shareholder's pro rata share of all dividends and distributions
arising from that series' assets and, upon redeeming shares, will receive the
portion of the series' net assets represented by the redeemed shares.
{25% SHAREHOLDERS] From time to time, these shareholders or other shareholders
may own a large percentage of the Shares of a Fund and, accordingly, may be able
to greatly affect (if not determine) the outcome of a shareholder vote.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE STATEMENT OF
ADDITIONAL INFORMATION AND THE FUNDS' OFFICIAL SALES LITERATURE IN CONNECTION
WITH THE OFFERING OF THE FUNDS' SHARES, AND IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
TRUST. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO
ANY PERSON TO WHOM, SUCH OFFER MAY NOT LAWFULLY BE MADE.
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MEMORIAL FUNDS
INSTITUTIONAL SHARES
[date]
GOVERNMENT BOND FUND
CORPORATE BOND FUND
GROWTH EQUITY FUND
VALUE EQUITY FUND
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TABLE OF CONTENTS
1. PROSPECTUS SUMMARY.....................................................
Highlights of the Funds................................................
Expense Information....................................................
2. INVESTMENT OBJECTIVES AND POLICIES.....................................
Government Bond Fund...................................................
Corporate Bond Fund....................................................
Growth Equity Fund.....................................................
Value Equity Fund......................................................
3. MANAGEMENT.............................................................
Investment Advisory Services...........................................
Management, Administration and Distribution Services...................
Shareholder Servicing and Custody......................................
Expenses of the Funds..................................................
4. HOW TO BUY SHARES......................................................
Minimum Investment.....................................................
Purchase Procedures....................................................
Subsequent Purchases
Account Application....................................................
General Information....................................................
5. HOW TO SELL SHARES.....................................................
General Information....................................................
Redemption Procedures..................................................
Other Redemption Matters...............................................
6. OTHER SHAREHOLDER SERVICES.............................................
Exchanges..............................................................
Automatic Investment Plan..............................................
Individual Retirement Accounts.........................................
Automatic Withdrawal Plan..............................................
Reopening Accounts.....................................................
7. DIVIDENDS AND TAX MATTERS..............................................
Dividends..............................................................
Payment
Options................................................................
Tax Matters............................................................
8. DETAILED DESCRIPTION OF FUNDS' INVESTMENTS, STRATEGIES, AND RISKS
9. OTHER INFORMATION......................................................
Determination of Net Asset Value.......................................
Performance Information................................................
The Trust and Its Shares...............................................
Core and Gateway Structure.............................................
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
MEMORIAL FUNDS
INSTITUTIONAL SHARES
PRELIMINARY PROSPECTUS
SUBJECT TO COMPLETION
February 19, 1998
This Prospectus offers Institutional class shares of the Government Bond Fund,
Corporate Bond Fund, Growth Equity Fund and Value Equity Fund (each a "Fund" and
collectively the "Funds"). The Funds are separate, diversified portfolios of the
Memorial Funds (the "Trust"), a registered, open-end, management investment
company.
THIS PROSPECTUS SETS FORTH CONCISELY IMPORTANT INFORMATION
THAT YOU SHOULD KNOW BEFORE INVESTING.
PLEASE READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE.
The Trust has filed with the Securities and Exchange Commission (the "SEC") a
Statement of Additional Information ("SAI") dated February 19, 1998, as may be
amended from time to time, which is available for reference on the SEC's Web
Site (http.//www.sec.gov). The SAI contains more detailed information about the
Trust and each of the Funds and is incorporated into this Prospectus by
reference. An investor may obtain a copy of the SAI without charge by contacting
the Trust's distributor, Forum Financial Services, Inc., at Two Portland Square,
Portland, Maine 04101 or by calling (800) xxx-xxxx or (207) xxx-xxxx.
THE MEMORIAL FUNDS ARE A FAMILY OF MUTUAL FUNDS. THE SHARES OF MUTUAL FUNDS ARE
NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FDIC, THE FEDERAL RESERVE
SYSTEM OR ANY OTHER GOVERNMENT AGENCY.
AN INVESTMENT IN SHARES OF ANY MUTUAL FUND IS SUBJECT TO INVESTMENT RISK,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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1. PROSPECTUS SUMMARY
HIGHLIGHTS OF THE FUNDS
The following summary is qualified in its entirety by the more detailed
information contained in this Prospectus.
INVESTMENT OBJECTIVES AND POLICIES
FIXED INCOME FUNDS
The Memorial Funds includes two "Fixed Income" Funds, the GOVERNMENT BOND FUND
and the CORPORATE BOND FUND. These mutual funds invest primarily in bonds and
other fixed income securities. The Fixed Income Funds are designed principally
for investors that seek current income.
GOVERNMENT BOND FUND seeks to provide a high level of income consistent with
maximum credit protection and moderate fluctuation in principal value. The Fund
will seek to achieve this objective by investing at least 90 percent of its
assets in obligations issued or guaranteed as to principal and interest by the
United States Government, or by its agencies or instrumentalities, including
zero coupon bonds issued or guaranteed by the U.S. Treasury and mortgage backed
securities. ("U.S. Government Securities"). The Fund may also invest in
asset-backed securities. The Fund seeks to moderate fluctuations its volatility
by structuring maturities of its investment portfolio in order to maintain a
duration between 75 percent and 125 percent of the duration of the Lehman
Brothers Government Bond Index .
CORPORATE BOND FUND seeks to provide as high a level of current income as is
consistent with capital preservation and prudent investment risk. Under normal
circumstances, the Fund will seek to attain this objective by investing at least
65% of the value of the total assets in corporate bonds . The Fund may also
invest in U.S. Government Securities and mortgage-backed and asset-backed
securities. The Fund intends to maintain a duration between 75 percent and 125
percent of the Lehman Brothers Aggregate Bond Index.
EQUITY FUNDS
The Memorial Funds also includes two "Equity Funds" that invest primarily in the
common stock of domestic companies, the GROWTH EQUITY FUND and the VALUE EQUITY
FUND (the "Equity Funds"). The Equity Funds will invest only in companies with a
minimum market capitalization of $250 million at the time of purchase, and will
seek to maintain a minimum average weighted capitalization of $5 billion. A
company's market capitalization is the total market value of its outstanding
common stock. Although the investment disciplines of the Equity Funds differ,
they are each designed for investors seeking long term capital appreciation and
able to tolerate possibly significant fluctuation in the value of their
investment.
GROWTH EQUITY FUND seeks long-term capital appreciation. It will seek to achieve
this objective by investing at least 65% of its assets in the common stock of
domestic companies that the Fund's sub-adviser believes have superior growth
potential and fundamental characteristics that are significantly better than the
market average and that support internal earnings growth capability.
VALUE EQUITY FUND also seeks long-term capital appreciation. It will seek to
attain this objective by investing at least 65% of its total assets in the
common stock of domestic companies. Using a value approach, the Fund will seek
to invest in stocks that are underpriced when measured against comparable
securities, determined by price/earnings ratios, cash flows or other measures.
SOME INVESTMENT CONSIDERATIONS
AND RISK FACTORS
IN GENERAL. There is no assurance that any Fund will achieve its investment
objective, and a Fund's net asset value and total return will fluctuate based
upon changes in the value of its portfolio securities. Upon redemption, an
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investment in a Fund may be worth more or less than its original value. No Fund,
by itself, provides a complete investment program.
All investments made by the Funds entail some risk. Among other things, the
market value of any security in which the Funds may invest is based upon the
market's perception of value and not necessarily the book value of an issuer or
other objective measure of the issuer's worth. Certain investments and
investment techniques, however, entail additional risks, such as the potential
use of leverage by certain Funds through borrowings, securities lending, and
other investment techniques. (See "A Detailed Description of the Funds'
Investments, Investment Strategies and Risks.") Similarly, a Fund's use of
mortgage- and asset-backed securities entails certain risks. (See "A Detailed
Description of the Funds' Investments, Investment Strategies and Risks
- --Mortgage-Backed Securities" and "-- Asset-Backed Securities.")
FIXED INCOME FUNDS. The value of your investment in one or both of the Fixed
Income Funds may change in response to changes in interest rates. An increase in
interest rates typically causes a fall in the value of the fixed income
securities in which the Funds invest. Your investment in the Corporate Bond Fund
is also subject to the risk that the financial condition of an issuer of a
security held by the Fund may cause it to default or become unable to pay
interest or principal due on the security. To limit this risk, at least 80
percent of the Corporate Bond Fund's investments in corporate debt securities
will be in securities rated A or better and the Fund will maintain a minimum
average rating of A.
EQUITY FUNDS. The Equity Funds may be appropriate investments for investors who
seek long term growth in their investment, but who are willing to tolerate
significant fluctuations in the value of their investment in response to changes
in the market value of the stocks the Funds hold. This type of market movement
may affect the price of the securities of a single issuer, a segment of the
domestic stock market, or the entire market.
PORTFOLIO MANAGEMENT
INVESTMENT ADVISER. Forum Advisors, LLC (the "Adviser"), serves as the
investment adviser for each Fund. The Adviser's responsibilities include
developing and reviewing the investment strategies and policies of each Fund,
and overseeing the performance of the investment sub-advisers ("Sub-advisers")
responsible for the day-to-day management of each Fund's investment portfolio.
See "Management - Investment Advisory Services."
INVESTMENT CONSULTANT. To assist it in carrying out its responsibilities, the
Adviser has retained Wellesley Group, Inc. ("Wellesley"). Wellesley provides
data with which the Adviser and the Board of Trustees of the Trust ("Board") can
monitor and evaluate the performance of the Funds and the Sub-advisers. If the
Board determines in the future to replace one of the current Sub-advisers, or
retain additional Sub-advisers to manage one or more of the Funds, Wellesley
will assist the Adviser and the Board in the selection of those Sub-advisers.
INVESTMENT SUB-ADVISERS. The Adviser has retained the following Sub-advisers to
render advisory services and make daily investment decisions for each Fund:
o The portfolio of the Government Bond Fund is managed by The Northern
Trust Company
o The portfolio of the Corporate Bond Fund is managed by Conseco
Capital Management, Inc. .
o The portfolio of the Growth Equity Fund is managed by Davis Hamilton,
Inc., d/b/a Davis Hamilton Jackson & Associates.
o The portfolio of the Value Equity Fund is managed by Beutel, Goodman
Capital Management.
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The Adviser is also responsible for monitoring the investments and the
performance of the Sub-advisers on behalf of each of the Funds. The Adviser and
the Sub-advisers collectively may be referred to herein as the "Advisers." See
"Management - Investment Advisory Services."
SHARES OF THE FUNDS
Each Fund currently offers two separate classes of shares:
INSTITUTIONAL SHARES are sold through this prospectus, and are offered to large
institutional investors able to make an minimum initial investment of $10
million, referred to as "Shares" in this prospectus.
TRUST SHARES are offered by separate prospectus. Trust Shares are designed
primarily for individual investors and smaller fiduciary, agency and custodial
clients whose investments are pooled in common or collective trusts managed by
bank trust departments, trust companies or their affiliates. Trust Shares are
expected to incur higher expenses than Institutional Shares.
Shares of each class of a Fund have identical interests in the investment
portfolio of the Fund and, with certain exceptions, the same rights. (See "Other
Information -- The Trust and Its Shares.")
HOW TO BUY AND SELL SHARES
Shares of the Funds may be purchased or sold ("redeemed") on any weekday except
days that the New York Stock Exchange is closed, normally New Year's Day, Martin
Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas ("Fund Business Day"). The
Trust's transfer agent accepts orders to buy or sell Shares between 9:00 a.m and
6:00 p.m. (Eastern) on all Fund Business Days. Orders are executed at the net
asset value of the Fund's shares next determined after an order in proper form
is received.
You may buy or sell Shares by mail, by bank wire or through various financial
institutions. The minimum initial investment in Shares is $10 million. There is
no minimum for subsequent investments. (See "How to Buy Shares" and "How to Sell
Shares.")
EXCHANGES
Shareholders may exchange Institutional Shares for Trust Shares of the other
Funds or for Institutional class shares of the Forum Daily Assets Government
Fund, a money market fund that is a separate series of Forum Funds. (See "Other
Shareholder Services -- Exchanges.")
DIVIDENDS AND DISTRIBUTIONS
The Fixed Income Funds declare and pay dividends of net investment income
monthly. The Equity Funds declare and pay dividends of net investment income, if
any, quarterly. Each Fund's net capital gain, if any, is distributed annually.
All dividends and distributions are reinvested in additional Fund shares unless
the shareholder elects to have them paid in cash. (See "Dividends and Tax
Matters.")
EXPENSE INFORMATION
The following tables should help you understand the expenses that you will bear
if you invest in Shares of a Fund.
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SHAREHOLDER TRANSACTION EXPENSES
(APPLICABLE TO EACH FUND)
<TABLE>
<S> <C> <C> <C> <C>
GOVERNMENT BOND CORPORATE BOND GROWTH EQUITY FUND VALUE EQUITY FUND
FUND FUND
-------------------- ------------------- -------------------- -------------------
Maximum sales charge on None None None None
purchases and reinvested
dividends
Maximum deferred sales charge None None None None
Exchange Fee None None None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES (1)
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
<TABLE>
<S> <C> <C> <C> <C>
GOVERNMENT BOND CORPORATE BOND GROWTH EQUITY FUND VALUE EQUITY FUND
FUND FUND
-------------------- ------------------- -------------------- -------------------
Investment Advisory Fees 0.35% 0.35% 0.45% 0.45%
Rule 12b-1 Fees None None None None
Other Expenses
Shareholder Service Fees 0.05% 0.05% 0.05% 0.05%
Miscellaneous 0.35% 0.35% 0.50% 0.50%
Total Operating Expenses 0.75% 0.75% 1.00% 1.00%
</TABLE>
(1) Annual Fund Operating Expenses are calculated as a percentage of each Fund's
average net assets assuming average net assets of at least $50 million. If the
average net assets of a Fund are lower in any given year, the expenses will be a
higher percentage of the Fund's assets. For a further description of the various
expenses associated with investing in the Funds, (see "Management").
EXAMPLE
The following hypothetical example indicates the dollar amount of expenses that
you would pay if you invested $1,000 in a Fund's Shares, assuming that (a) the
Fund's expenses are as listed above, (b) the Fund has a 5% annual return and (c)
you reinvest all dividends and distributions paid by the Fund. The example does
not represent past or future expenses or return; actual expenses and return may
be more or less than indicated.
1 YEAR 3 YEARS
------ -------
GOVERNMENT BOND FUND 8 24
50
<PAGE>
CORPORATE BOND FUND 8 24
INCOME FUND 10 32
GROWTH VALUE FUND 10 32
51
<PAGE>
2. INVESTMENT OBJECTIVES AND POLICIES
GOVERNMENT BOND FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to provide a high
level of income consistent with maximum credit protection and moderate
fluctuation in principal value. There is no assurance that the Fund will achieve
this objective.
INVESTMENT POLICIES. The Fund will invest at least 90 percent of its net assets
in a portfolio of fixed and variable rate U.S. Government Securities, including
zero coupon bonds issued or guaranteed by the U.S. Treasury and mortgage backed
securities. The Fund may invest up to 10 percent of its net assets in corporate
debt securities.
The Fund may not invest more than 25 percent of its total assets in the
securities issued or guaranteed by any single agency or instrumentality of the
U.S. Government, except the U.S. Treasury, and may not invest more than 10
percent of its total assets in the securities of any other issuer.
The Fund invests in debt obligations with maturities (or average life in the
case of mortgage-backed and similar securities) ranging from overnight to 12
years. The Fund seeks to moderate fluctuations in the price of its shares by
structuring maturities of its investment portfolio in order to maintain a
duration between 75 percent and 125 percent of the duration of the Lehman
Brothers Government Bond Index, which was X.XX years as of [date]. Duration
measures the sensitivity of a debt security's price to changes in interest rates
- -- the longer the security's duration, the more its price will fluctuate in
response to changes in interest rates. The calculation of duration is based on
the present value of payments over the life of the debt obligation and takes
into account call rights and other features that may shorten the debt
obligation's life. Because earlier payments on a debt security have a higher
present value, duration of a security, except a zero-coupon security, generally
will be less than its stated maturity.
The Fund may also use options and futures contracts (both exchange-traded and
over-the-counter) to attempt to reduce the overall risk of its investments
("hedge"). The Fund's ability to use these strategies may be limited by market
considerations, regulatory limits and tax considerations. The Fund may write
covered call and put options, buy put and call options, buy and sell interest
rate and foreign currency futures contracts and buy options and write covered
options on those futures contracts. An option is covered if, so long as the Fund
is obligated under the option, it owns an offsetting position in the underlying
security or futures contract or maintains a segregated account of liquid debt
instruments with a value at all times sufficient to cover the Fund's obligations
under the option. Although the Fund will not engage in these transaction for
speculative purposes, there is a risk that changes in the value of a hedging
instrument will not match those of the investment being hedged. For a discussion
of these investment practices and the risks associated with them, see "A
Detailed Description of the Fund's Investments, Investment Strategies and
Risks."
CORPORATE BOND FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to provide as high
a level of current income as is consistent with capital preservation and prudent
investment risk. There is no assurance that the Fund will achieve this
objective.
INVESTMENT POLICIES. Under normal circumstances, the Fund will seek to attain
its investment objective by investing at least 65% of the value of the total
assets in corporate bonds. The Fund may also invest in U.S. Government
securities and mortgage-backed and asset-backed securities of private issuers
("U.S. Government Securities").
At least 80 percent of the Fund's investments in corporate debt will be in
securities that are rated, at the time of purchase, in one of the three highest
rating categories by a nationally recognized statistical rating organization
("NRSRO") such as Standard & Poor's, or which are unrated and determined by the
Sub-adviser to be of comparable quality. (See "A Detailed Description of the
Fund's Investments, Investment Strategies and Risks-Fixed Income
52
<PAGE>
Securities and Their Characteristics") No more than 5 percent of the Fund's
investments will be in securities rated below investment grade, that is below
the fourth highest rating category. The Fund's portfolio of corporate debt
instruments will have a minimum weighted average rating of A.
The Fund will invest primarily in debt obligations with maturities (or average
life in the case of mortgage-backed and similar securities) ranging from
short-term (including overnight) to 15 years. The Fund seeks to structure the
maturities of its investment portfolio in order to maintain a duration between
75 percent and 125 percent of the duration of the Lehman Brothers Aggregate Bond
Index, which was X.XX years as of [date]. Duration measures the sensitivity of a
debt security's price to changes in interest rates -- the longer the security's
duration, the more its price will fluctuate in response to changes in interest
rates. The calculation of duration is based on the present value of payments
over the life of the debt obligation and takes into account call rights and
other features that may shorten the debt obligation's life. Because earlier
payments on a debt security have a higher present value, duration of a security,
except a zero-coupon security, generally will be less than its stated maturity.
The Fund may invest up to 25 percent of its assets in mortgage- and asset-backed
securities. The Fund may enter into "dollar roll" transactions in connection
with its investments in mortgage-backed securities. The Fund may also invest in
zero-coupon securities, but will limit its investment in these securities,
except those issued through the U.S. Treasury's STRIPS program, to not more than
10 percent of the Fund's total assets. The Fund may also invest in securities
that are restricted as to disposition under the federal securities laws
(sometimes referred to as "private placements" or "restricted securities"). In
addition, the Fund may not invest more than 25 percent of its total assets in
securities issued or guaranteed by any single agency or instrumentality of the
U.S. Government, except the U.S. Treasury. For a discussion of these investments
and the risks associated with them see "A Detailed Description of the Funds'
Investments, Investment Strategies and Risks."
The Fund may also use futures contracts and options (both exchange-traded and
over-the-counter) to attempt to reduce the overall risk of its investments
("hedge"). The Fund's ability to use hedging strategies may be limited by market
considerations, regulatory limits and tax considerations. The Fund may write
covered call and put options, buy put and call options, buy and sell interest
rate futures contracts, and buy options and write covered options on those
futures contracts. An option is covered if, so long as the Fund is obligated
under the option, it owns an offsetting position in the underlying security or
futures contract or maintains a segregated account of liquid debt instruments
with a value at all times sufficient to cover the Fund's obligations under the
option. Although the Fund will not engage in these transaction for speculative
purposes, there is a risk that changes in the value of a hedging instrument will
not match those of the investment being hedged. For a discussion of these
investment practices and the risks associated with them, see "A Detailed
Description of the Fund's Investments, Investment Strategies and Risks."
GROWTH EQUITY FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is long-term capital
appreciation. There is no assurance that the Fund will achieve this objective.
INVESTMENT POLICIES. The Fund will seek to achieve its objective by investing at
least 65% of its assets in the common stock of domestic companies. The Fund will
only invest in companies having a minimum market capitalization of $250 million
at the time of purchase, and will seek to maintain a minimum average weighted
capitalization of $5 billion. A company's market capitalization is the total
market value of its outstanding common stock.
The Fund will invest in the securities of issuers that its Sub-adviser believes
have superior growth potential and fundamental characteristics that are
significantly better than the market average and support internal earnings
growth capability. The Fund may invest in the securities of companies whose
growth potential is, in the Sub-adviser's opinion, generally unrecognized or
misperceived by the market. The Sub-adviser may also look to changes in a
company that involve a sharp increase in earnings, the hiring of new management
or measures taken to close the gap between the company's share price and
takeover/asset value.
53
<PAGE>
The Fund may also invest in preferred stocks and securities convertible into
common stock. The Fund will only purchase convertible securities that are rated,
at the time of purchase, within the four highest rating categories assigned by
an NRSRO or which are unrated and determined by the Sub-adviser to be of
comparable quality. Securities rated in these categories are generally
considered to be investment grade securities, although Moody's indicates that
securities rated Baa (the fourth highest category) have speculative
characteristics. A description of the rating categories of various NRSROs is
contained in the SAI.
The Fund may also use futures contracts and options (both exchange-traded and
over-the-counter) to attempt to reduce the overall risk of its investments
("hedge"). The Fund's ability to use hedging strategies may be limited by market
considerations, regulatory limits and tax considerations. The Fund may write
covered call and put options, buy put and call options, buy and sell interest
rate futures contracts, and buy options and write covered options on those
futures contracts. An option is covered if, so long as the Fund is obligated
under the option, it owns an offsetting position in the underlying security or
futures contract or maintains a segregated account of liquid debt instruments
with a value at all times sufficient to cover the Fund's obligations under the
option. Although the Fund will not engage in these transaction for speculative
purposes, there is a risk that changes in the value of a hedging instrument will
not match those of the investment being hedged. For a description of these
investment practices and the risks associated with them see "A Detailed
Description of the Funds' Investments, Investment Strategies and Risks - Futures
Contracts and Options."
VALUE EQUITY FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is long-term capital
appreciation. There is no assurance that the Fund will achieve this objective.
INVESTMENT POLICIES. The Fund will seek to attain this objective by investing at
least 65% of its total assets in common stocks of domestic companies. The Fund
will only invest in companies having a minimum market capitalization of $250
million at the time of purchase, and will seek to maintain a minimum average
weighted capitalization of $5 billion. A company's market capitalization is the
total market value of its outstanding common stock.
Using a value approach, the Fund will seek to invest in stocks that are
underpriced relative to comparable stocks, determined by price/earnings ratios,
cash flows or other measures. It is expected that the Sub-adviser will rely on
stock selection to achieve its results, rather than trying to time market
fluctuations. In selecting stocks, the Sub-adviser will establish valuation
parameters , by using relative ratios or target prices to evaluate companies on
several levels.
The Fund may also invest in preferred stocks and securities convertible into
common stock. The Fund will only purchase convertible securities that are rated,
at the time of purchase, within the four highest rating categories assigned by
an NRSRO or which are unrated and determined by the Sub-adviser to be of
comparable quality. Securities rated in these categories are generally
considered to be investment grade securities, although Moody's indicates that
securities rated Baa (the fourth highest category) have speculative
characteristics. A description of the rating categories of various NRSROs is
contained in the SAI.
The Fund may also use futures contracts and options (both exchange-traded and
over-the-counter) to attempt to reduce the overall risk of its investments
("hedge"). The Fund's ability to use hedging strategies may be limited by market
considerations, regulatory limits and tax considerations. The Fund may write
covered call and put options, buy put and call options, buy and sell interest
rate futures contracts, and buy options and write covered options on those
futures contracts. An option is covered if, so long as the Fund is obligated
under the option, it owns an offsetting position in the underlying security or
futures contract or maintains a segregated account of liquid debt instruments
with a value at all times sufficient to cover the Fund's obligations under the
option. Although the Fund will not engage in these transaction for speculative
purposes, there is a risk that changes in the value of a hedging instrument will
not match those of the investment being hedged. For a description of these
investment practices and the risks associated with them see "A Detailed
Description of the Funds' Investments, Investment Strategies and Risks - Futures
Contracts and
54
<PAGE>
Options."
3. MANAGEMENT
The business of the Trust is managed under the direction of the Board. The Board
formulates the general policies of the Funds and meets periodically to review
the performance of the Funds, monitor their investment activities and practices,
and discuss other matters affecting the Funds and the Trust.
ADVISER
FORUM ADVISORS, LLC (the "Adviser"), Two Portland Square, Portland, Maine 04101,
serves as investment adviser to the Funds pursuant to an investment advisory
agreement with the Trust. Subject to the general control of the Board, the
Adviser is responsible for among other things, developing a continuing
investment program for each Fund in accordance with its investment objective,
reviewing the investment strategies and policies of each Fund, and advising the
Board on the selection of additional Sub-advisers.
The Adviser has entered into investment sub-advisory agreements with the
Sub-advisers to exercise investment discretion over the assets (or a portion of
assets) of each Fund.
For its services under the Investment Advisory Agreement, the Adviser receives
the following fees with respect to the following funds:
Advisory Fee
(as a percentage of average daily net assets)
Government Bond Fund 0.35
Corporate Bond Fund 0.35
Growth Equity Fund 0.45
Value Equity Fund 0.45
YEAR 2000 COMPLIANT. Like other mutual funds, financial and business
organizations and individuals around the world, the Funds could be adversely
affected if the computer systems used by the Adviser and other service providers
to the Funds do not properly process and calculate date-related information and
data from and after January 2000. The Adviser has taken steps to address the
Year 2000 issue with respect to the computer systems that it uses and to obtain
reasonable assurances that comparable steps are being taken by the Funds' other
major service providers. The Adviser does not anticipate that the move to the
Year 2000 will have a material impact on its ability to continue to provide the
Funds with service at current levels.
The Adviser was incorporated under the laws of Delaware in 1987 and is
registered under the Investment Advisers Act of 1940.
INVESTMENT CONSULTANT
To assist it in carrying out its responsibilities under the Investment Advisory
Agreement, the Adviser has retained Wellesley Group, Inc. ("Wellesley"), 800
South Street, Waltham, Massachusetts 02154, to provide data with which the
Adviser and the Board can monitor and evaluate the performance of the Funds and
the Sub-advisers.
If the Board decides to add or change Sub-advisers, Wellesley will assist the
Adviser and the Board in the selection of these new Sub-advisers with proven
long-term investment performance and philosophy best suited to the goals and
objectives of the Fund for which the adviser is being considered. As a part of
this selection process,
55
<PAGE>
Wellesley will analyze statistical information relating to investments and
performance, and evaluate the risk and return profiles of the investment
advisers under consideration. Wellesley will also review such qualitative
factors as the advisory firm's ownership, organizational structure, business
plan, client base, staff resources, investment philosophy, research
capabilities, investment decision-making process, and risk management
disciplines.
SUB-ADVISERS
The Adviser has retained the Sub-advisers to render advisory services and make
daily investment decisions for each Fund. The Adviser makes recommendations to
the Board regarding the selection and retention of these Sub-advisers. On an
ongoing basis, the Adviser evaluates the Sub-advisers and reports to the Board
concerning their investment results. The Adviser also reviews the investments
made for the Funds by the Sub-advisers to see that they comply with the Funds'
investment objectives, policies and restrictions.
The following Sub-advisers and individuals are primarily responsible for the
day-to-day management of the Funds:
THE NORTHERN TRUST COMPANY ("NTC"), 50 South LaSalle Street, Chicago, Illinois
60675, manages the portfolio of the GOVERNMENT BOND FUND. NTC is a wholly-owned
subsidiary of Northern Trust Corporation, a Delaware corporation that was
incorporated in 1889. NTC presently manages approximately $196 billion in assets
for endowments and foundations, corporations, public funds and insurance
companies. Mr. James Snyder, CFA, is Chief Investment Officer and Executive Vice
President for NTC. Mr. Snyder brings more than 25 years of experience managing
fixed income asset and holds a Masters in Business Administration in Finance
from DePaul University in Chicago, Illinois. Mr. Stephen Timbers, is President
of Northern Trust Global Investments and a Member of the Management Committee of
NTC. Prior to joining NTC, Mr. Timbers was President, Chief Executive Officer
and Chief Investment Officer of Zurich Kemper Investments, the investment
adviser to the Kemper Funds and the parent organization of Zurich Investment
Management, Inc. Prior to joining Kemper in 1987, Mr. Timbers was Executive Vice
President and Chief Investment Officer of the Portfolio Group, Inc. Mr. Timbers
holds a Masters in Business Administration from Harvard University in Cambridge,
Massachusetts. Mr. Mark J. Wirth, CFA, is Co-Director of Fixed Income and Senior
Vice President for NTC. Mr. Wirth co-manages NTC's fixed income management
division and leads NTC's fixed income effort as a senior strategist. Mr. Wirth
holds a Masters in Business Administration from the University of Wisconsin in
Madison, Wisconsin and has been in the industry since 1986. Mr. Monty Memler,
CFA, is a Vice President and Senior Portfolio Manager for NTC. Mr. Memler has
been a member of the fixed income team at NTC for seven years and holds a
Masters in Business Administration from the University of Chicago in Chicago,
Illinois and has been in the industry since 1986. Mr. Steven Schafer, CFA, is a
Second Vice President and Portfolio Manager for NTC. Mr. Schafer is responsible
for managing active and passive fixed income portfolios and holds a Masters in
Business Administration from the University of Chicago in Chicago, Illinois. Mr.
Schafer has been in the industry since 1990. Mr. Michael J. Lannan, CFA, is a
Vice President and Portfolio Manager for NTC. Mr. Lannan holds a Masters in
Business Administration from Depaul University in Chicago, Illinois and has been
in the industry since 1988. Mr. Peter T. Marchese, CFA, is a Second Vice
President and Portfolio Manager for NTC. Mr. Marchese holds a Masters in
Business Administration from the University of Wisconsin in Madison, Wisconsin
and has been in the industry since 1987.
The following table sets forth the performance data relating to the historical
performance of a separate account managed by NTC that has an investment
objective and investment policies, strategies and risks substantially similar to
those of Government Bond Fund. The data is provided to illustrate the past
performance of NTC in managing a substantially similar account as measured
against a specified market index and does not represent the performance of
Government Bond Fund. Investors should not consider this performance data as an
indication of future performance of the Government Bond Fund or of NTC.
All returns presented were calculated on a total return basis and include all
dividends and interest, accrued income and realized and unrealized gains and
losses. All returns reflect the deduction of investment advisory fees, brokerage
commissions, custodial fees and execution costs paid by the investment adviser's
private account, without provision for federal or state income taxes.
The presentation below describes and consists of the fully discretionary taxable
account managed by NTC that has an investment objective, and investment
policies, strategies and risks substantially similar to those of the Government
Bond Fund. Securities transactions are accounted for on the trade date and
accrual accounting is utilized. Cash and equivalents are included in performance
returns. The portfolio's performance data prior to January 11, 1993 is that of a
predecessor collective fund, adjusted to reflect the higher fees and expenses
applicable to the portfolio's Class A units. The inception date of the
collective fund reflects the date such collective fund was first managed in a
substantially similar manner and pursuant to the investment objectives of the
respective portfolio.
The private account is not subject to the same types of expenses to which the
Government Bond Fund is subject nor to the diversification requirements,
specific tax restrictions and investment limitations imposed by the 1940 Act or
Subchapter M of the Code. Consequently, the performance results for the private
account could have been adversely affected if the private account included in
the composite had been regulated as an investment company under the federal
securities laws. The presentation below describes and contains one (1) account
valued, as of December 31, 1997, at $515 million.
The investment results of NTC's private account presented below are unaudited
and are not intended to predict or suggest the returns that might be experienced
by the Fund or an individual investor investing in the Government Bond Fund.
Investors should also be aware that the use of a methodology different from that
used below to calculate performance could result in different performance data.
<TABLE>
<S> <C> <C>
------------------------------- ------------------------------------ ------------------------------------
YEAR(S) NTC'S COMPOSITE FOR THE GOVERNMENT LEHMAN BROTHERS
BOND STYLE GOVERNMENT/CORPORATE INDEX(2)
------------------------------- ------------------------------------ ------------------------------------
10 Years (1988-1997) (1) 9.75% 9.15%
------------------------------- ------------------------------------ ------------------------------------
5 Years (1993-1997) (1) 8.26% 7.61%
------------------------------- ------------------------------------ ------------------------------------
3 Years (1995-1997) (1) 11.75% 10.43%
------------------------------- ------------------------------------ ------------------------------------
1 Year (1997) (1) 10.00% 9.75%
------------------------------- ------------------------------------ ------------------------------------
1993 10.84% 11.06%
------------------------------- ------------------------------------ ------------------------------------
1994 (3.84%) (3.51%)
------------------------------- ------------------------------------ ------------------------------------
1995 22.70% 19.24%
------------------------------- ------------------------------------ ------------------------------------
1996 3.39% 2.91%
------------------------------- ------------------------------------ ------------------------------------
1997 10.00% 9.75%
------------------------------- ------------------------------------ ------------------------------------
</TABLE>
(1) Average annual returns through December 31, 1997.
(2) The Lehman Brothers Intermediate Government/Corporate Index is a market
weighted index composed of over 3,500 securities, including U.S.
Treasuries, Agencies and U.S. Corporate Bonds. The index is unmanaged and
reflects the reinvestment of dividends.
CONSECO CAPITAL MANAGEMENT, INC. ("CCM"), 11825 N. Pennsylvania Street, Carmel,
Indiana 46032, manages the portfolio of the CORPORATE BOND FUND. CCM is a
Delaware corporation that was organized in 1981 and is registered as an
investment adviser under the Advisers Act. CCM is a wholly-owned subsidiary of
Conseco, Inc., a financial services holding company that owns or controls
several life insurance companies. CCM presently manages approximately $31
million for individuals, corporations, insurance companies, investment
companies, pension plans, trusts, estates, as well as charitable organizations
including foundations and endowments. Mr. Maxwell Bublitz, CFA, is President of
CCM and holds a Masters in Business Administration from the University of
Southern California in Los Angeles, California. Prior to joining CCM in 1987,
Mr. Bublitz was a Portfolio Manager for Transamerica Investment Services in Los
Angeles, California. Mr. Andrew S. Chow, CFA, is a Vice President for CCM and
holds a Masters in Business Administration from Carnegie Mellon University in
Pittsburgh, Pennsylvania. Prior to joining CCM in 1991, Mr. Chow was a Manager
of Quantitative Analysis at Washington Square Capital in Minneapolis, Minnesota.
Mr. Joseph F. DeMichele is a Vice President of Investments for CCM and holds a
Bachelor of Arts in Economics from the University of Pennsylvania in
Philadelphia, Pennsylvania. Prior to
56
<PAGE>
joining CCM in 1990, Mr. DeMichele was an Assistant Trader for Salomon, Inc. in
New York. Mr. Gregory Hahn, CFA, is a Senior Vice President of Portfolio
Analytics for CCM and holds a Masters in Business Administration from Indiana
University in Indianapolis, Indiana. Prior to joining CCM in 1989, Mr. Hahn was
a Fixed Income Portfolio Manager for Unified Management in Indianapolis,
Indiana. Mr. Gordon N. Smith, is a Vice President and Portfolio Manager for CCM
and holds a Masters in Finance from the University of Wisconsin in Madison,
Wisconsin. Prior to joining CCM in 1995, Mr. Smith was a Portfolio Manager for
Strong Capital Management in Menomonee Falls, Wisconsin from 1989 to 1995.
The following table sets forth the performance data relating to the historical
performance of the separate accounts managed by CCM that have an investment
objective and investment policies, strategies and risks substantially similar to
those of Corporate Bond Fund. The data is provided to illustrate the past
performance of CCM in managing substantially similar accounts as measured
against a specified market index and does not represent the performance of
Corporate Bond Fund. Investors should not consider this performance data as an
indication of future performance of the Corporate Bond Fund or of CCM.
These investment results have been calculated and presented in compliance with
the Performance Presentation Standards of the Association of Investment
Management and Research ("AIMR"), retroactively applied to all time periods.
AIMR has not been involved with the preparation or review of this report. All
returns presented were calculated on a total return basis and include all
dividends and interest, accrued income and realized and unrealized gains and
losses. All returns reflect the deduction of the actual investment advisory
fees, brokerage commissions and execution costs paid by the investment adviser's
private accounts, without provision for federal or state income taxes. Custodial
fees, if any, were not included in the calculation.
The presentation below describes and consists of the fully discretionary taxable
or tax-exempt accounts managed by CCM that have an investment objective, and
investment policies, strategies and risks substantially similar to those of the
Corporate Bond Fund. Securities transactions are accounted for on the trade date
and accrual accounting is utilized. Cash and equivalents are included in
performance returns. Results for the full period are time-weighted and dollar
weighted in accordance with AIMR standards.
The private accounts are not subject to the same types of expenses to which the
Corporate Bond Fund is subject nor to the diversification requirements, specific
tax restrictions and investment limitations imposed by the 1940 Act or
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code").
Consequently, the performance results for the private accounts could have been
adversely affected if the private accounts included in the composite had been
regulated as an investment company under the federal securities laws. The
presentation below describes and contains six (6) accounts valued, as of
December 31, 1997, at $71.7 million.
The investment results of CCM's private accounts presented below are unaudited
and are not intended to predict or suggest the returns that might be experienced
by the Fund or an individual investor investing in the Corporate Bond Fund.
Investors should also be aware that the use of a methodology different from that
used below to calculate performance could result in different performance data.
57
<PAGE>
<TABLE>
<S> <C> <C>
----------------------------------- ---------------------------------- ----------------------------------
YEAR(S) CCM'S COMPOSITE FOR THE LEHMAN BROTHERS
CORPORATE BOND STYLE AGGREGATE BOND INDEX(2)
----------------------------------- ---------------------------------- ----------------------------------
Since Inception (7/1/1990) (1) 10.53% 9.02%
----------------------------------- ---------------------------------- ----------------------------------
5 Years (1993-1997) (1) 8.83% 7.48%
----------------------------------- ---------------------------------- ----------------------------------
3 Years (1995-1997) (1) 11.38% 10.42%
----------------------------------- ---------------------------------- ----------------------------------
1 Year (1997) (1) 10.05% 9.65%
----------------------------------- ---------------------------------- ----------------------------------
1993 13.57% 9.75%
----------------------------------- ---------------------------------- ----------------------------------
1994 (2.74%) (2.92%)
----------------------------------- ---------------------------------- ----------------------------------
1995 19.59% 18.47%
----------------------------------- ---------------------------------- ----------------------------------
1996 4.97% 3.63%
----------------------------------- ---------------------------------- ----------------------------------
1997 10.05% 9.65%
----------------------------------- ---------------------------------- ----------------------------------
</TABLE>
(1) Average annual returns through December 31, 1997.
(2) The Lehman Brothers Aggregate Bond Index represents securities that are
U.S. domestic, taxable, and dollar denominated. The index covers the U.S.
investment-grade fixed rate bond market, with index components for
government and corporate securities, mortgage pass-through securities, and
asset-backed securities. These major sectors are subdivided into more
specific indices that are calculated and reported on a regular basis.
DAVIS HAMILTON, INC., D/B/A DAVIS HAMILTON JACKSON & ASSOCIATES ("DHJA"), Two
Houston Center, 909 Fannin, Suite 550, Houston, Texas 77010 manages the
portfolio of the GROWTH EQUITY FUND. DHJA is a corporation that was organized in
1988 under the laws of the State of Texas and is registered as an investment
adviser under the Advisers Act. DHJA currently manages approximately $2.2
billion for institutions and high net worth individuals and invests primarily in
domestic equity securities. Mr. Jack R. Hamilton, CFA, is the President and a
shareholder of DHJA, and received his Bachelor of Arts in Finance from Texas
Tech University in Lubbock, Texas. Prior to co-founding DHJA in 1988, Mr.
Hamilton was a Vice President at Citicorp Investment Management in Houston,
Texas. Mr. Robert C. Davis, CFA, is the Secretary, Treasurer and a shareholder
of DHJA, and received his M.A. in Economics from the University of Texas at
Arlington in Arlington, Texas. Prior to co-founding DHJA in 1988, Mr. Davis was
a Senior Vice President at Lovett Mitchell Webb & Garrison in Houston, Texas.
Mr. J. Patrick Clegg, CFA, is a Portfolio Manager of DHJA, and received his
M.B.A. from the University of Texas in Austin, Texas. Prior to joining DHJA in
1996, Mr. Clegg was a Principal and Director of Research at Luther King Capital
Management in Fort Worth, Texas.
58
<PAGE>
The following table sets forth the performance data relating to the historical
performance of the separate accounts managed by DHJA that have an investment
objective and investment policies, strategies and risks substantially similar to
those of Growth Equity Fund. The data is provided to illustrate the past
performance of DHJA in managing substantially similar accounts as measured
against a specified market index and does not represent the performance of
Growth Equity Fund. Investors should not consider this performance data as an
indication of future performance of the Growth Equity Fund or of DHJA.
These investment results have been calculated and presented in compliance with
the Performance Presentation Standards of AIMR only for the period January 1,
1993 through December 31, 1997. Prior to January 1, 1993, not all fully
discretionary portfolios were represented in appropriate composites. Composite
results for the period of July 1, 1988 through December 31, 1992, include fully
discretionary accounts over $1.0 million that were managed in accordance with
the quality growth equity strategy. AIMR has not been involved with the
preparation or review of this report. All returns presented were calculated on a
total return basis and include all dividends and interest, accrued income and
realized and unrealized gains and losses. All returns reflect the deduction of
the highest investment advisory fee charged to any account, brokerage
commissions, execution costs and custodial fees paid by the investment adviser's
private accounts, without provision for federal or state income taxes.
The presentation below describes and consists of the fully discretionary taxable
or tax-exempt accounts managed by DHJA that have an investment objective, and
investment policies, strategies and risks substantially similar to those of the
Growth Equity Fund. Securities transactions are accounted for on the trade date
and accrual accounting is utilized. Cash and equivalents are included in
performance returns. Results for the period of July 1, 1988 through December 31,
1992 were valued monthly and the composites were equal weighted. Results for the
period from January 1, 1993 through December 31, 1997 are valued monthly and
portfolio returns have been weighted by using beginning-of-month market values
plus weighted cash flows in accordance with AIMR standards.
The private accounts are not subject to the same types of expenses to which the
Growth Equity Fund is subject nor to the diversification requirements, specific
tax restrictions and investment limitations imposed by the 1940 Act or
Subchapter M of the Code. Consequently, the performance results for the private
accounts could have been adversely affected if the private accounts included in
the composite had been regulated as an investment company under the federal
securities laws. The presentation below describes and contains forty-five (45)
accounts valued, as of December 31, 1997, at $1.032 billion.
The investment results of DHJA's private accounts presented below are unaudited
and are not intended to predict or suggest the returns that might be experienced
by the Fund or an individual investor investing in the Growth Equity Fund.
Investors should also be aware that the use of a methodology different from that
used below to calculate performance could result in different performance data.
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------
DHJA'S COMPOSITE FOR THE S&P 500 INDEX
GROWTH EQUITY STYLE
- --------------------------------------------------------------------------------------------------------------
Since Inception (7/1/1988) (1) 17.6% 17.6%
- --------------------------------------------------------------------------------------------------------------
5 Years (1993-1997) (1) 18.8% 20.3%
- --------------------------------------------------------------------------------------------------------------
3 Years (1995-1997) (1) 28.4% 31.1%
- --------------------------------------------------------------------------------------------------------------
1 Year (1997) (1) 34.9% 33.3%
- --------------------------------------------------------------------------------------------------------------
1993 20.2% 10.1%
- --------------------------------------------------------------------------------------------------------------
1994 (6.9%) 1.3%
- --------------------------------------------------------------------------------------------------------------
1995 35.4% 37.5%
- --------------------------------------------------------------------------------------------------------------
1996 15.9% 23.0%
- --------------------------------------------------------------------------------------------------------------
1997 34.9% 33.3%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Average annual returns through December 31, 1997.
BEUTEL, GOODMAN CAPITAL MANAGEMENT ("BGCM")5847 San Felipe, Suite 4500, Houston,
Texas 77057-3011 manages the portfolio of the VALUE EQUITY FUND. BGCM is a
partnership that was organized in 1988 and is registered as an investment
adviser under the Advisers Act. BGCM has two general partners, Value Corp. and
Beutel, Goodman America Inc. Beutel, Goodman America Inc. is owned by BG Canada:
fifty-one percent of BG Canada is owned by its employees, forty-nine percent is
owned by Duff & Phelps, a U.S. public company listed on the New York Stock
Exchange. BG Canada is registered as an investment adviser with the Ontario and
Quebec Securities Commissions. BGCM currently manages approximately $1.9
billion. Mr. Richard J. Andrews, CFA, has served as President and a member of
the Investment Committee of BGCM since 1995. Mr. Andrews served as a Vice
President and member of the Investment Committee of BGCM from 1988 to 1995. Mr.
Andrews received his Masters in Business Administration from Amos Tuck,
Dartmouth College in Hanover, New Hampshire. Mr. Forrest B. Bruch, Jr., CFA, has
served as a Portfolio Manager of BGCM since 1995. Mr. Bruch received his Masters
in Business Administration from the University of Houston in Houston, Texas.
Prior to joining BGCM, Mr. Bruch was a Managing Director of Investments for
Savoy Capital in Houston, Texas from 1991 to 1994 and a First Vice President for
Paine Webber, Inc. in Houston, Texas in 1990. Mr. Carl Dinger, CFA, has served
as a Vice President and Portfolio Manager for BGCM since 1991. Mr. Dinger
received his Masters in Business Administration from Lehigh University. Prior to
joining BGCM in 1991, Mr. Dinger was an Analyst and Portfolio Manager for Bering
Corporation in Houston, Texas from 1988 to 1990. Mr. Frank McReynolds
Wozencraft, Jr., CFA, has served as a Vice President for BGCM since 1996 and a
Portfolio Manager since 1993. Mr. Wozencraft received his Masters of Management
from the J.L. Kellogg Graduate School of Management, Northwestern University, in
Evanston,
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<PAGE>
Illinois. Prior to joining BGCM in 1993, Mr. Wozencraft was a Financial Analyst
for Hendricks Management Co., in Houston, Texas from 1992 to 1993.
The following table sets forth the performance data relating to the historical
performance of the separate accounts managed by BGCM that have an investment
objective and investment policies, strategies and risks substantially similar to
those of Value Equity Fund. The data is provided to illustrate the past
performance of BGCM in managing substantially similar accounts as measured
against a specified market index and does not represent the performance of Value
Equity Fund. Investors should not consider this performance data as an
indication of future performance of the Value Equity Fund or of BGCM.
As of January 1, 1993, these investment results have been calculated and
presented in compliance with the Performance Presentation Standards of AIMR.
AIMR has not been involved with the preparation or review of this report. All
returns presented were calculated on a total return basis and include all
dividends and interest, accrued income and realized and unrealized gains and
losses. All returns reflect the deduction of a combination of the highest
investment advisory fees from 1988 to 1989 and the actual investment advisory
fees charged to each account from 1990 through 1997, brokerage commissions and
execution costs paid by the investment adviser's private accounts, without
provision for federal or state income taxes. Custodial fees, if any, were not
included in the calculation.
The presentation below describes and consists of the fully discretionary taxable
or tax-exempt accounts managed by BGCM that have an investment objective, and
investment policies, strategies and risks substantially similar to those of the
Value Equity Fund. The performance figures currently represent a size-weighted
average of the total return performance of all fully discretionary, non-wrap,
tax-exempt, fee paying U.S. equity portfolios over $100,000 in size that have
been managed for a full quarter. Prior to January 1, 1993, the composite was
equally-weighted. Prior to January 1, 1990, U.S. equity accounts managed by an
affiliate company are included; from January 1, 1990, only those portfolios
managed in the U.S. are included. Securities transactions are accounted for on
the trade date and accrual accounting is utilized. Cash and equivalents are
included in performance returns. Results for the period from January 1, 1993
through December 31, 1997 are time-weighted and dollar weighted in accordance
with AIMR standards.
The private accounts are not subject to the same types of expenses to which the
Value Equity Fund is subject nor to the diversification requirements, specific
tax restrictions and investment limitations imposed by the 1940 Act or
Subchapter M of the Code. Consequently, the performance results for the private
accounts could have been adversely affected if the private accounts included in
the composite had been regulated as an investment company under the federal
securities laws. The composite below contains seventy-nine (79) accounts, valued
as of December 31, 1997 at $611.9 million.
The investment results of BGCM's private accounts presented below are unaudited
and are not intended to predict or suggest the returns that might be experienced
by the Fund or an individual investor investing in the Value Equity Fund.
Investors should also be aware that the use of a methodology different from that
used below to calculate performance could result in different performance data.
<TABLE>
<S> <C> <C>
------------------------------ -------------------------------------- -------------------------------
YEAR(S) BGCM'S COMPOSITE FOR THE VALUE S&P 500 INDEX(2)
EQUITY STYLE
------------------------------ -------------------------------------- -------------------------------
10 Years (1988-1997) (1) 17.5% 18.1%
------------------------------ -------------------------------------- -------------------------------
5 Years (1993-1997) (1) 20.1% 20.3%
------------------------------ -------------------------------------- -------------------------------
3 Years (1995-1997) (1) 28.3% 31.2%
------------------------------ -------------------------------------- -------------------------------
1 Year (1997) (1) 29.6% 33.4%
------------------------------ -------------------------------------- -------------------------------
1993 23.0% 10.1%
------------------------------ -------------------------------------- -------------------------------
1994 (4.0%) 1.3%
------------------------------ -------------------------------------- -------------------------------
1995 32.6% 37.5%
------------------------------ -------------------------------------- -------------------------------
1996 22.9% 23.0%
------------------------------ -------------------------------------- -------------------------------
1997 29.6% 33.4%
------------------------------ -------------------------------------- -------------------------------
</TABLE>
(1) Average annual returns through December 31, 1997.
(2) The S&P 500 Index (the "Index") is a widely recognized, unmanaged index of
market activity based upon the aggregate performance of a selected
portfolio of publicly traded common stocks of five hundred (500)
industrial, transportation, utility and financial companies, regarded as
generally representative of the U.S. stock market. The Index is subject to
monthly adjustments to reflect the reinvestment of dividends and other
distributions. The Index reflects the total return of securities comprising
the Index, including changes in market prices as well as accrued investment
income, which is presumed to be reinvested. Performance figures for the
Index do not reflect deduction of transaction costs or expenses, including
management fees, brokerage commissions, or other expenses of investing.
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<PAGE>
The Adviser performs internal due diligence on each Sub-adviser and monitors
each Sub-adviser's performance. The Adviser will be responsible for
communicating performance targets and evaluations to the Sub-advisers,
supervising each Sub-adviser's compliance with its Fund's fundamental investment
objectives and policies, authorizing Sub-advisers to engage in certain
investment techniques for the Funds, and recommending to the Board whether
sub-advisory agreements should be renewed, modified or terminated. The Adviser
pays a fee to each of the Sub-advisers. These fees are borne solely by the
Adviser and do not increase the fees paid by shareholders of the Funds. As of
the date of this Prospectus, the Adviser will pay NTC, CCM, DHJA, BGCM fees of
0.20%, 0.20%, 0.30%, and 0.30%, respectively, of the average daily net assets of
the Fund for which the Sub-adviser provides investment advisory services. The
amount of these fees may vary from time to time as a result of periodic
negotiations with the Sub-advisers and pursuant to certain factors described in
the SAI. The amount of advisory fees paid by each Fund will not vary as a result
of changes in the Sub-advisory fees, however.
The Adviser also may from time to time recommend that the Board replace one or
more Sub-advisers or appoint additional Sub-advisers, depending on the Adviser's
assessment of what combination of Sub-advisers it believes will optimize each
Fund's chances of achieving its investment objective. In the event that a
Sub-adviser ceased to provide investment advisory services for a Fund, the
Adviser would recommend to the Board a similarly qualified investment adviser to
replace the Sub-adviser but would not manage the Fund's portfolio.
Section 15(a) of the 1940 Act requires that a Fund's shareholders approve its
investment advisory contracts. As interpreted, this requirement applies to the
Sub-advisory contracts of the Funds. The Trust is applying to the SEC for a
conditional exemption from this shareholder approval requirement. The SEC has
granted such applications in the past, and the Trust expects it will receive the
requested exemption. Such relief is not certain, however. If the exemption is
granted, the Board would be able to appoint additional or replacement
Sub-advisers without Shareholder approval. The Board would not, however, be able
to replace the Adviser as investment adviser to any Fund without the approval of
that Fund's shareholders.
ADMINISTRATOR
On behalf of the Fund, the Trust has entered into an Administration Agreement
with Forum Administrative Services, Inc. ("Forum"). Under this agreement, Forum
is responsible for the supervision of the overall management of the Trust
(including the Trust's receipt of services for which it must pay), providing the
Trust with general office facilities and providing persons satisfactory to the
Board to serve as officers of the Trust. For these services, Forum receives a
fee computed and paid monthly at an annual rate of 0.15% of the average daily
net assets under $150 million, and 0.10% of the average daily assets over $150
million of each Fund, subject to an annual minimum of $30,000 per Fund.
As of the date of this prospectus, Forum administers investment companies and
collective investment funds with assets of approximately $xx billion.
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<PAGE>
DISTRIBUTOR
Pursuant to a Distribution Agreement with the Trust, Forum Financial Services,
Inc. ("FFSI") acts as distributor of the Fund's shares. FFSI acts as the agent
of the Trust in connection with the offering of shares of the Fund. FFSI
receives no compensation for its services under the Distribution Agreement. FFSI
may enter into arrangements with banks, broker-dealers or other financial
institutions ("Selected Dealers") through which investors may purchase or redeem
shares. FFSI may, at its own expense and from its own resources, compensate
certain persons who provide services in connection with the sale or expected
sale of shares of the Fund. Investors purchasing shares of the Fund through
another financial institution should read any materials and information provided
by the financial institution to acquaint themselves with its procedures and any
fees that it may charge. FFSI is a registered broker-dealer and is a member of
the National Association of Securities Dealers, Inc.
SHAREHOLDER SERVICES. The Trust has adopted a shareholder services plan
providing that the Trust may obtain the services of the Adviser and other
qualified financial institutions to act as shareholder servicing agents for
their customers. Under this plan, the Trust has authorized FAS to enter into
agreements pursuant to which the shareholder servicing agent performs certain
shareholder services not otherwise provided by the Funds' transfer agent. For
these services, the Trust pays the shareholder servicing agent a fee of up to
0.25% of the average daily net assets of the Investor Shares owned by investors
for which the shareholder servicing agent maintains a servicing relationship.
Among the services provided by shareholder servicing agents are: answering
customer inquiries regarding account matters; assisting shareholders in
designating and changing various account options; aggregating and processing
purchase and redemption orders and transmitting and receiving funds for
shareholder orders; transmitting, on behalf of the Trust, proxy statements,
prospectuses and shareholder reports to shareholders and tabulating proxies;
processing dividend payments and providing subaccounting services for Investor
Shares held beneficially; and providing such other services as the Trust or a
shareholder may request.
TRANSFER AGENT
The Trust has entered into a Transfer Agency Agreement with Forum Shareholder
Services, LLC ("FSS") pursuant to which FSS acts as the Fund's transfer agent
and dividend disbursing agent. FSS maintains an account for each shareholder of
the Trust (unless such accounts are maintained by sub-transfer agents), performs
other transfer agency functions and acts as dividend disbursing agent for the
Trust.
Pursuant to a separate agreement, Forum Accounting Services, LLC ("FAcS")
provides portfolio accounting services to each Fund. The Adviser, Forum, FFSI,
FSS and FAcS are members of the Forum Financial Group of companies which
together provide a full range of services to the investment company and
financial services industry. As of October 1, 1997, the Adviser, Forum, FSS,
FFSI, and FAcS were controlled by John Y. Keffer and were located at Two
Portland Square, Portland, Maine, 04101.
EXPENSES OF THE TRUST
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Each Fund's expenses comprise Trust expenses attributable to the Fund, and a pro
rata share of the Trust's expenses that are not attributable to a particular
Fund. The Adviser, Forum, FSS, FAcS or any other entity that provides services
for the Funds pursuant to a contract with the Trust, may waive all or a portion
of its fees, which are accrued daily, and paid monthly. Any such waiver, which
could be discontinued at any time, would have the effect of increasing the
Fund's performance for the period during which the waiver was in effect and
would not be recouped at a later date.
CUSTODY
BankBoston serves as each Fund's custodian and may appoint subcustodians for the
foreign securities and other assets held in foreign countries.
4. HOW TO BUY SHARES
MINIMUM INVESTMENT
There is a $10 million minimum for initial purchases of Shares of each Fund.
Either management of the Trust or FSS may in its discretion waive the investment
minimums. purchases. There is no minimum for subsequent purchases (See "Other
Shareholder Services -- Automatic Investment Plan" and "Dividends and Tax
Matters.")
The Funds reserve the right to reject any subscription for the purchase of their
shares. Share certificates are issued only to shareholders of record upon their
written request and no certificates are issued for fractional shares.
PURCHASE PROCEDURES
INITIAL PURCHASES
THERE ARE THREE WAYS TO PURCHASE SHARES INITIALLY.
1. BY MAIL. You may send a check or money order (cash cannot be accepted) along
with a completed account application form to the Trust at the address listed
under "Account Application." Checks or money orders are accepted at full value
subject to collection. If a check or money order does not clear, the purchase
order will be canceled and the investor will be liable for any losses or fees
incurred by the Trust, FSS or Forum.
For individual or Uniform Gift to Minors Act accounts, the check or money order
used to purchase shares of a Fund must be made payable to "Memorial Funds" or to
one or more owners of that account and endorsed to "Memorial Funds." No other
method of payment by check will be accepted. For corporation, partnership,
trust, 401(k) plan or other non-individual type accounts, the check used to
purchase shares of a Fund must be made payable on its face to "Memorial Funds."
No other method of payment by check will be accepted. All purchases must be paid
in U.S. dollars; checks must be drawn on U.S. banks. Payment by traveler's
checks is prohibited.
2. BY BANK WIRE. You make an initial investment in a Fund using the wire system
for transmittal of money among banks. You should first telephone FSS at (888)
263-5593 to obtain an account number. You should then instruct a bank to wire
your money immediately to:
63
<PAGE>
BANKBOSTON
BOSTON, MASSACHUSETTS
ABA # 011000390
FOR CREDIT TO: FORUM FINANCIAL CORP.
ACCOUNT NO.: 541-54171
RE: MEMORIAL FUNDS
[NAME OF FUND] - INSTITUTIONAL SHARES
[INVESTOR'S NAME]
[INVESTOR'S ACCOUNT NO.]
You should then promptly complete and mail the account application form. Your
bank may charge for transmitting the money by bank wire. The Trust does not
charge you for the receipt of wire transfers. Payment by bank wire is treated as
a federal funds payment when received.
3. THROUGH FINANCIAL INSTITUTIONS. You may also purchase Shares through certain
broker-dealers, banks and other financial institutions ("Processing
Organizations"). FSS and its affiliates may be Processing Organizations.
Processing Organizations may receive payments from Forum with respect to sales
of Trust Shares and may receive payments as a processing agent from FSS.
Financial institutions, including Processing Organizations, may charge their
customers a fee for their services and are responsible for promptly transmitting
purchase, redemption and other requests to the Funds.
If you purchase shares through a Processing Organization, you will be subject to
its procedures which may include charges, limitations, investment minimums,
cutoff times and restrictions in addition to, or different from, those
applicable to shareholders who invest in a Fund directly. You should acquaint
yourself with your institution's procedures and should read this Prospectus in
conjunction with any materials and information provided by their institution. If
you purchase a Fund's shares through a Processing Organization, you may or may
not be the shareholder of record and, subject to your institution's and the
Fund's procedures, may have Fund shares transferred into your name. There is
typically a three-day settlement period for purchases and redemptions through
broker-dealers. Certain Processing Organizations also may enter purchase orders
with payment to follow.
Certain shareholder services may not be available to you if you purchase shares
through a Processing Organization. You should contact your Processing
Organization for further information. The Trust may confirm purchases and
redemptions of a Processing Organization's customers directly to the Processing
Organization, which in turn will provide its customers with confirmations and
periodic statements. The Trust is not responsible for the failure of any
Processing Organization to carry out its obligations to its customer.
SUBSEQUENT PURCHASES
You may make subsequent purchases by mailing a check, by sending a bank wire or
through your Processing Organization as indicated above. All payments should
clearly indicate your name and account number.
ACCOUNT APPLICATION
You may obtain the account application form necessary to open an account by
writing the Trust at the following address:
MEMORIAL FUNDS
P.O. BOX 446
PORTLAND, ME 04112
64
<PAGE>
To participate in shareholder services not referenced on the account application
form and to change information on your account (such as addresses), you should
contact the Trust. The Trust reserves the right in the future to modify, limit
or terminate any shareholder privilege upon appropriate notice to shareholders
and to charge a fee for certain shareholder services, although no such fees are
currently contemplated. You may terminate your exercise of any privilege or
participation in any program at any time by writing to the Trust.
GENERAL INFORMATION
Fund Shares are continuously sold on any weekday except days when the New York
Stock Exchange is closed, normally New Year's Day, Martin Luther King Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas ("Fund Business Day"). The purchase price for a
share of a Fund equals its net asset value next-determined after acceptance of
an order in proper form.
Fund shares become entitled to receive dividends and distributions on the next
Fund Business Day after a purchase order is accepted.
All payments for Shares must be in U.S. dollars. All transactions in Fund shares
are effected through FSS, which accepts orders for redemptions and for
subsequent purchases only from shareholders of record. Shareholders of record
will receive from the Trust periodic statements listing all account activity
during the statement period.
For information regarding purchase and redemption of shareholder accounts,
please call Forum Shareholder Services at 1-888-263-5593.
5. HOW TO SELL SHARES
GENERAL INFORMATION
Fund Shares may be sold ("redeemed") at their net asset value on any Fund
Business Day. There is no minimum period of investment and no restriction on the
frequency of redemptions.
Fund shares are redeemed at the Fund's net asset value next determined after FSS
receives the redemption order in proper form (and any supporting documentation
that FSS may require). Redeemed shares are not entitled to receive dividends
declared after the day the redemption becomes effective.
Normally, redemption proceeds are paid immediately, but in no event later than
seven days, following receipt of a redemption order. Proceeds of redemption
requests (and exchanges), however, will not be paid unless any check used to
purchase the shares being redeemed has been cleared by the shareholder's bank,
which may take up to 15 days. This delay may be avoided by paying for shares
through wire transfers. Unless otherwise indicated, redemption proceeds normally
are paid by check mailed to the shareholder's record address. The right of
redemption may not be suspended nor the payment dates postponed for more than
seven days after the tender of the shares to a Fund, except when the New York
Stock Exchange is closed (or when trading on the Exchange is restricted) for any
reason other than its customary weekend or holiday closings, for any period
during which an emergency exists as a result of which disposal by the Fund of
its portfolio securities or determination by the Fund of the value of its net
assets is not reasonably practicable and for such other periods as the SEC may
permit.
REDEMPTION PROCEDURES
If you invested through a Processing Organization you may redeem your shares
through the Processing Organization as described above. If you invested directly
in a Fund, you may redeem your Shares as described below. If you wish to redeem
shares by telephone or receive redemption proceeds by bank wire, you must elect
these options by properly completing the appropriate sections of your account
application form. These privileges may not be available until several weeks
after your application is received. Shares for which certificates have been
issued may not be redeemed by telephone.
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<PAGE>
1. BY MAIL. You may redeem shares by sending a written request to FSS
accompanied by any share certificate that may have been issued to the
shareholder to evidence the shares being redeemed. All written requests for
redemption must be signed by the shareholder with signature guaranteed, and all
certificates submitted for redemption must be endorsed by the shareholder with
signature guaranteed. (See "How to Sell Shares -- Other Redemption Matters.")
2. BY TELEPHONE. If you have elected telephone redemption privileges, you may
request a redemption by calling FSS at (888) 263-5593 and providing your account
number, the exact name in which your shares are registered and your social
security or taxpayer identification number. In response to the telephone
redemption instruction, the Trust will mail a check to your record address or,
if you have elected wire redemption privileges, wire the proceeds. (See "How to
Sell Shares -- Other Redemption Matters.")
3. BY BANK WIRE. For redemptions of more than $5,000, if you have elected wire
redemption privileges, you may request a Fund to transmit proceeds of any
redemption over $5,000 by federal funds wire to a bank account that you
previously designated in writing. To request bank wire redemptions by telephone,
you also must have elected the telephone redemption privilege. Redemption
proceeds are transmitted by wire on the day after FSS receives a redemption
request in proper form.
OTHER REDEMPTION MATTERS
To protect shareholders and the Funds against fraud, signatures on certain
requests must have a signature guarantee. Requests must be made in writing and
include a signature guarantee for any of the following transactions: (i) any
endorsement on a share certificate; (ii) instruction to change a shareholder's
record name; (iii) modification of a designated bank account for wire
redemptions; (iv) dividend and distribution election; (v) telephone redemption;
(vi) exchange option election or any other option election in connection with
the shareholder's account; (vii) written instruction to redeem Shares whose
value exceeds $50,000; (viii) redemption in an account in which the account
address has changed within the last 30 days; (ix) redemption when the proceeds
are deposited in a Memorial Funds account under a different account
registration; and (x) the remitting of redemption proceeds to any address,
person or account for which there are not established standing instructions on
the account.
Signature guarantees may be provided by any bank, broker-dealer, national
securities exchange, credit union, savings association or other eligible
institution that is authorized to guarantee signatures and is acceptable to FSS.
Whenever a signature guarantee is required, the signature of each person
required to sign for the account must be guaranteed.
Shareholders who want to telephone redemption or exchange privileges must elect
those privileges. The Trust and FSS will employ reasonable procedures in order
to verify that telephone requests are genuine, including recording telephone
instructions and causing written confirmations of the resulting transactions to
be sent to shareholders. If the Trust and FSS did not employ such procedures,
they could be liable for losses due to unauthorized or fraudulent telephone
instructions. Shareholders should verify the accuracy of telephone instructions
immediately upon receipt of confirmation statements. During times of drastic
economic or market changes, telephone redemption and exchange privileges may be
difficult to implement. In the event that a shareholder is unable to reach FSS
by telephone, requests may be mailed or hand-delivered to FSS.
Due to the cost to the Trust of maintaining smaller accounts, the Trust reserves
the right to redeem, upon not less than 60 days' written notice, all shares in
any Fund account whose aggregate net asset value is less than $[MINIMUM]
immediately following any redemption.
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<PAGE>
FSS WILL DEEM A SHAREHOLDER'S ACCOUNT "LOST" IF CORRESPONDENCE TO THE
SHAREHOLDER'S ADDRESS OF RECORD IS RETURNED AS UNDELIVERABLE, UNLESS FSS
DETERMINES THE SHAREHOLDER'S NEW ADDRESS. WHEN AN ACCOUNT IS DEEMED LOST ALL
DISTRIBUTIONS ON THE ACCOUNT WILL BE REINVESTED IN ADDITIONAL SHARES OF THE
FUND. IN ADDITION, THE AMOUNT OF ANY OUTSTANDING (UNPAID FOR SIX MONTHS OR MORE)
CHECKS FOR DISTRIBUTIONS THAT HAVE BEEN RETURNED TO FSS WILL BE REINVESTED AND
THE CHECKS WILL BE CANCELED.
6. OTHER SHAREHOLDER SERVICES
EXCHANGES
Shareholders of one Fund may exchange their shares for Institutional shares of
any of the other Memorial Funds, as well as for Institutional class shares of
Forum Daily Assets Treasury Fund. A prospectus for Daily Assets Government Fund
can be obtained by contacting FSS.
The Funds do not charge for exchanges, and there is currently no limit on the
number of exchanges you may make. The Funds reserve the right, however, to limit
excessive exchanges by any shareholder. Exchanges are subject to the fees
charged by, and the limitations (including minimum investment restrictions) of,
the Fund into which a shareholder is exchanging.
Exchanges may only be made between identically registered accounts or by opening
a new account. A new account application is required to open a new account
through an exchange if the new account will not have an identical registration
and the same shareholder privileges as the account from which the exchange is
being made. A shareholder may exchange into a Fund only if that Fund's shares
may legally be sold in the shareholder's state of residence.
Under federal tax law, an exchange is treated as a redemption and a purchase.
Accordingly, you may realize a capital gain or loss depending on whether the
value of the shares redeemed is more or less than your basis in the shares at
the time of the exchange transaction. Exchange procedures may be amended
materially or terminated by the Trust at any time upon 60 days' notice to
shareholders. (See "Additional Purchase and Redemption Information" in the SAI.)
1. EXCHANGES BY MAIL. You may make an exchange by sending a written request to
FSS accompanied by any share certificates for the shares to be exchanged. You
must sign all written requests for exchanges and endorse all certificates
submitted for exchange with your signature guaranteed. (See "How to Sell Shares
- -- Other Redemption Matters.")
2. EXCHANGES BY TELEPHONE. If you have elected telephone exchange privileges,
you may make a telephone exchange request by calling FSS at (888) 263-5593 and
providing the account number, the exact name in which the shareholder's shares
are registered and your social security or taxpayer identification number. (See
"How to Sell Shares -- Other Redemption Matters.")
AUTOMATIC WITHDRAWAL PLAN
If your Shares in a single account total $[MINIMUM ACCOUNT SIZE] or more, you
may establish a withdrawal plan to provide for the pre-authorized payment from
your account of $250 or more on a monthly, quarterly, semi-annual or annual
basis. Under the withdrawal plan, sufficient shares in your account are redeemed
to provide the amount of the periodic payment and you will recognize any taxable
gain or loss upon redemption of the shares. If you wish to utilize the
withdrawal plan, you may do so by completing an application which may be
obtained by writing or calling FSS. The Trust may suspend a shareholder's
withdrawal plan without notice if the account contains insufficient funds to
effect a withdrawal or if the account balance is less than $1,000 at any time.
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REOPENING ACCOUNTS
You may reopen an account, without filing a new account application form, at any
time within one year after your account is closed, if the information on the
account application form on file with the Trust is still applicable.
7. DIVIDENDS AND TAX MATTERS
DIVIDENDS
The Fixed Income Funds declare and pay dividends of net investment income
monthly. The Equity Funds declare and pay dividends of net investment income, if
any, quarterly. Each Fund's net capital gain, if any, is distributed annually.
All dividends and distributions are reinvested in additional Fund shares unless
the shareholder elects to have them paid in cash.
PAYMENT OPTIONS
You may choose to have dividends and distributions of a Fund reinvested in
shares of that Fund (the "Reinvestment Option"), to receive dividends and
distributions in cash (the "Cash Option") or to direct dividends and
distributions to be reinvested in shares of another Fund of the Trust (the
"Directed Dividend Option"). All dividends and distributions are treated in the
same manner for federal income tax purposes whether received in cash or
reinvested in shares of a Fund.
Under the Reinvestment Option, all dividends and distributions of a Fund are
automatically invested in additional shares of that Fund. All dividends and
distributions are reinvested at a Fund's net asset value as of the payment date
of the dividend or distribution. You will be assigned this option unless you
select one of the other two options. Under the Cash Option, all dividends and
distributions are paid to the shareholder in cash. Under the Directed Dividend
Option, shareholders of a Fund whose shares in a single account of that Fund
total $[MINIMUM ACCOUNT SIZE] or more may elect to have all dividends and
distributions reinvested in shares of another Fund , provided that those shares
are eligible for sale in the shareholder's state of residence. For further
information concerning the Directed Dividend Option, shareholders should contact
FSS.
TAX MATTERS
Each Fund intends to qualify for each fiscal year to be taxed as a "regulated
investment company" under the Internal Revenue Code of 1986, as amended (the
"Code"). As such, each Fund will not be liable for federal income and excise
taxes on the net investment income and net capital gain distributed to its
shareholders. Because each Fund intends to distribute all of its net investment
income and net capital gain each year, each Fund should thereby avoid all
federal income and excise taxes.
Dividends paid by a Fund out of its net investment income (including net short-
term capital gain) are taxable to shareholders of the Fund as ordinary income.
Pursuant to the Taxpayer Relief Act of 1997, two different tax rates apply to
net capital gains--that is, the excess of net gains from capital assets held for
more than one year over net losses from capital assets held for not more than
one year. One rate (generally 28%) applies to net gains on capital assets held
for more than one year but not more than 18 months ("mid-term gains"), and a
second rate (generally 20%) applies to the balance of such net capital gains
("adjusted net capital gains"). Distributions of mid-term gains and adjusted net
capital gains will be taxable to shareholders as such, regardless of how long a
shareholder has held shares in the Fund. If a shareholder holds Shares for six
months or less and during that period receives a long-term capital gain
distribution, any loss realized on the sale of the Shares during that six-month
period will be a long-term capital loss to the extent of the distribution.
Dividends and distributions reduce the net asset value of the Fund paying the
dividend or distribution by the amount of the dividend or distribution.
Furthermore, a dividend or distribution made shortly after the purchase of
Shares, although in effect a return of capital to you, will be taxable as
described above.
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Each Fund is required by federal law to withhold 31% of reportable payments
(which may include dividends, capital gain distributions and redemptions) paid
to a shareholder who fails to provide the Fund with a correct taxpayer
identification number or to make required certifications, or who is subject to
backup withholding.
Reports containing appropriate information with respect to the federal income
tax status of dividends and distributions paid during the year by each Fund will
be mailed to shareholders shortly after the close of each calendar year.
8. A DETAILED DESCRIPTION OF THE FUNDS' INVESTMENTS,
INVESTMENT STRATEGIES AND RISKS
IN GENERAL
This section describes in more detail the Funds' investments, the investment
practices and strategies that the Sub-advisers may employ for a Fund, and the
risks associated with these investments and practices.
A FURTHER DESCRIPTION OF THE FUNDS' INVESTMENT POLICIES,
INCLUDING ADDITIONAL FUNDAMENTAL POLICIES, IS CONTAINED IN THE SAI.
A Fund must invest in accordance with its investment objective and stated
investment policies. The holders of a majority of the outstanding voting
securities of the Fund must approve any change to a Fund's investment objective
or to an investment policy designated as fundamental. A majority of outstanding
voting securities means the lesser of 67% of the shares present or represented
at a shareholders' meeting at which the holders of more than 50% of the
outstanding shares are present or represented, or more than 50% of the
outstanding shares. Unless otherwise indicated, the investment policies of the
Funds are not fundamental and may be changed by the Board without shareholder
approval. A Fund will apply the percentage restrictions on its investments set
forth in its investment policies when the investment is made. If the percentage
of a Fund's assets committed to a particular investment or practice later
increases because of a change in the market values of a Fund's assets or
redemptions of Fund shares, it will not constitute a violation of the
limitation.
CORE AND GATEWAY (R).
Notwithstanding the Funds' other investment policies, each Fund may seek to
achieve its investment objective by converting to a Core and Gateway structure,
upon future action by the Board and notice to shareholders. If a Fund converts
to a Core and Gateway structure, it would seek to achieve its investment
objective by investing all or a portion of its assets in shares of another
diversified, open-end management investment company that has an investment
objective and investment policies substantially similar to that of the Fund.
FIXED INCOME SECURITIES AND THEIR CHARACTERISTICS.
INTEREST RATE RISK. All fixed income securities, including U.S. Government
Securities, can change in value when there is a change in interest rates or the
issuer's actual or perceived creditworthiness or ability to meet its
obligations. There is normally an inverse relationship between the market value
of securities sensitive to prevailing interest rates and actual changes in
interest rates. In other words, an increase in interest rates produces a
decrease in market value. Moreover, the longer the remaining maturity (and
duration) of a security, the greater will be the effect of interest rate changes
on the market value of that security. Changes in the ability of an issuer to
make payments of interest and principal and in the market's perception of an
issuer's creditworthiness will also affect the market value of the debt
securities of that issuer. The possibility exists that, the ability of any
issuer to pay, when due, the principal of and interest on its debt securities
may become impaired.
CREDIT RISK AND RATINGS. The FIXED INCOME FUNDS' investments are subject to
"credit risk" relating to the financial condition of the issuers of the
securities that each Fund holds. Each Fund attempts to limit its credit risk by
limiting its investment in securities rated in lower categories by a Nationally
Recognized Statistical Rating Organization ("NRSRO").
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The GOVERNMENT BOND FUND invests at least 90 percent of its net assets in U.S.
Government Securities. For this reason its exposure to credit risk is limited.
It may, however, invest up to 10 percent of its net assets in "investment grade"
corporate debt instruments. Accordingly, the Government Bond Fund may not
purchase any corporate debt instrument having a long-term rating for corporate
bonds, including convertible bonds, lower than are "Baa" in the case of Moody's
Investors Service ("Moody's") and "BBB" in the case of Standard & Poor's ("S&P")
and Fitch Investors Service, L.P. ("Fitch"); the lowest permissible long-term
investment grades for preferred stock are "Baa" in the case of Moody's and "BBB"
in the case of S&P and Fitch; and the lowest permissible short-term investment
grades for short-term debt, including commercial paper, are Prime-2 (P-2) in the
case of Moody's, A-2 in the case of S&P and F-2 in the case of Fitch. Although
considered investment grade, Moody's indicates that securities rated Baa have
speculative characteristics
The CORPORATE BOND FUND also attempts to limit its credit risk by limiting its
investment in securities rated in lower categories by a Nationally Recognized
Statistical Rating Organization ("NRSRO"). At least 80 percent of the corporate
debt securities that the Fund purchases must be investment grade. No more than 5
percent of the Fund's net assets may be lower than investment grade. The Fund
will attempt to maintain a minimum average portfolio rating, on a dollar
weighted basis, of A by Moody's, S&P or Fitch.
The FIXED INCOME FUNDS also may purchase unrated securities if the portfolio
manager determines the security to be of comparable quality to a rated security
that the Fund may purchase. Unrated securities may not be as actively traded as
rated securities. Each Fund may retain a security whose rating has been lowered
below the Fund's lowest permissible rating category (or that are unrated and
determined by the Sub-adviser to be of comparable quality to securities whose
rating has been lowered below the Fund's lowest permissible rating category) if
the portfolio manager determines that retaining the security is in the best
interests of the Fund. Because a ratings downgrade often results in a reduction
in the market price of the security, sale of a downgraded security may result in
a loss.
U.S. GOVERNMENT SECURITIES. The FIXED INCOME FUNDS may invest in U.S. Government
Securities including U.S. Treasury securities and obligations issued or
guaranteed by U.S. Government agencies and instrumentalities and backed by the
full faith and credit of the U.S. Government, such as those guaranteed by the
Small Business Administration or issued by the Government National Mortgage
Association ("Ginnie Mae").
The CORPORATE BOND FUND also may invest in securities supported primarily or
solely by the creditworthiness of the issuer, such as securities of the Federal
National Mortgage Association ("Fannie Mae"), the Federal Home Loan Mortgage
Corporation ("Freddie Mac") and the Tennessee Valley Authority. There is no
guarantee that the U.S. Government will support securities not backed by its
full faith and credit. Accordingly, although these securities have historically
involved little risk of loss of principal if held to maturity, they may involve
more risk than securities backed by the U.S. Government's full faith and credit.
VARIABLE AND FLOATING RATE SECURITIES. The FIXED INCOME FUNDS may invest in
securities that pay interest at rates that are adjusted periodically according
to a specified formula, usually with reference to some interest rate index or
market interest rate (the "underlying index"). Such adjustments minimize changes
in the market value of the obligation and, accordingly, enhance the ability of
the Fund to reduce fluctuations in its net asset value. Variable and floating
rate instruments are subject to changes in value based on changes in market
interest rates or changes in the issuer's creditworthiness.
There may not be an active secondary market for certain floating or variable
rate instruments which could make it difficult for a Fund to dispose of the
instrument during periods that the Fund is not entitled to exercise any demand
rights it may have. A Fund could, for this or other reasons, suffer a
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loss with respect to an instrument. A Fund's Sub-adviser monitors the liquidity
of the Fund's investment in variable and floating rate instruments, but there
can be no guarantee that an active secondary market will exist.
DEMAND NOTES. The FIXED INCOME FUNDS may purchase variable and floating rate
demand notes of corporations, which are unsecured obligations redeemable upon
not more than 30 days' notice. These obligations include master demand notes
that permit investment of fluctuating amounts at varying rates of interest
pursuant to direct arrangement with the issuer of the instrument. The issuers of
these obligations often have the right, after a given period, to prepay their
outstanding principal amount of the obligations upon a specified number of days'
notice. These obligations generally are not traded, nor generally is there an
established secondary market for these obligations. To the extent a demand note
does not have a seven day or shorter demand feature and there is no readily
available market for the obligation, it is treated as an illiquid security.
Although a Fund would generally not be able to resell a master demand note to a
third party, the Fund is entitled to demand payment from the issuer at any time.
The Sub-advisers continuously monitor the financial condition of the issuer to
determine the issuer's likely ability to make payment on demand.
GUARANTEED INVESTMENT CONTRACTS. The CORPORATE BOND FUND may invest in
guaranteed investment contracts ("GICs"). A GIC is an arrangement with an
insurance company under which the Fund contributes cash to the insurance
company's general account and the insurance company credits the contribution
with interest on a monthly basis. The interest rate is tied to a specified
market index and is guaranteed by the insurance company not to be less than a
certain minimum rate. The Fund will purchase a GIC only when the Sub-adviser has
determined that the GIC presents minimal credit risks to the Fund and is of
comparable quality to other instruments that the Fund may purchase.
ZERO-COUPON SECURITIES. The FIXED INCOME FUNDS may invest in separately traded
principal and interest components of securities issued or guaranteed by the U.S.
Treasury. These components are traded independently under the Treasury's
Separate Trading of Registered Interest and Principal of Securities ("STRIPS")
program or as Coupons Under Book Entry Safekeeping ("CUBES").
The CORPORATE BOND FUND may also invest in other types of related zero-coupon
securities. For instance, a number of banks and brokerage firms separate the
principal and interest portions of U.S. Treasury securities and sell them
separately in the form of receipts or certificates representing undivided
interests in these instruments. These instruments are generally held by a bank
in a custodial or trust account on behalf of the owners of the securities and
are known by various names, including Treasury Receipts ("TRs"), Treasury
Investment Growth Receipts ("TIGRs") and Certificates of Accrual on Treasury
Securities ("CATS"). Zero-coupon securities also may be issued by corporations
and municipalities.
Zero-coupon securities are sold at original issue discount and pay no interest
to holders prior to maturity, but the Fund must include a portion of the
original issue discount of the security as income. Because of this, zero-coupon
securities may be subject to greater fluctuation of market value than the other
securities in which the Fund may invest. The Fund distributes all of its net
investment income, and may have to sell portfolio securities to distribute
imputed income, which may occur at a time when the Sub-adviser would not have
chosen to sell such securities and which may result in a taxable gain or loss.
MORTGAGE-BACKED SECURITIES. The FIXED INCOME FUNDS may invest in mortgage-backed
securities. The GOVERNMENT BOND FUND may only invest in mortgage-backed
securities issued by the government or government-related issuers described
below. The CORPORATE BOND FUND may also invest in mortgage-backed securities of
private issuers.
Mortgage-backed securities represent an interest in a pool of mortgages
originated by lenders such as commercial banks, savings associations and
mortgage bankers and brokers. Mortgage-backed securities may be issued by
governmental or government-related entities or by non-governmental entities such
as special purpose trusts created by banks, savings associations, private
mortgage insurance companies or mortgage bankers.
Interests in mortgage-backed securities differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal payments at maturity or on specified call dates. In
contrast, mortgage-backed securities provide monthly payments which consist of
interest and, in most cases, principal. In effect,
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these payments are a "pass- through" of the monthly payments made by the
individual borrowers on their mortgage loans, net of any fees paid to the issuer
or guarantor of the securities or a mortgage loan servicer. Additional payments
to holders of these securities are caused by prepayments resulting from the sale
or foreclosure of the underlying property or refinancing of the underlying
loans.
GOVERNMENT AND GOVERNMENT-RELATED GUARANTORS. The principal government guarantor
of mortgage-backed securities is Ginnie Mae, a wholly-owned United States
Government corporation within the Department of Housing and Urban Development.
Mortgage-backed securities are also issued by Fannie Mae, a government-sponsored
corporation owned entirely by private stockholders that is subject to general
regulation by the Secretary of Housing and Urban Development, and Freddie Mac, a
corporate instrumentality of the United States Government. While Fannie Mae and
Freddie Mac each guarantee the payment of principal and interest on the
securities they issue, unlike Ginnie Mae securities, their securities are not
backed by the full faith and credit of the United States Government.
PRIVATELY ISSUED MORTGAGE-BACKED SECURITIES. The Corporate Bond Fund may also
invest in mortgage-backed securities offered by private issuers. These include
pass-through securities comprised of pools of conventional mortgage loans;
mortgage-backed bonds (which are considered to be debt obligations of the
institution issuing the bonds and which are collateralized by mortgage loans);
and collateralized mortgage obligations ("CMOs"), which are described below.
Mortgage-backed securities issued by non-governmental issuers may offer a higher
rate of interest than securities issued by government issuers because of the
absence of direct or indirect government guarantees of payment. Many
non-governmental issuers or servicers of mortgage-backed securities, however,
guarantee timely payment of interest and principal on these securities. Timely
payment of interest and principal also may be supported by various forms of
insurance, including individual loan, title, pool and hazard policies.
UNDERLYING MORTGAGES. Pools of mortgages consist of whole mortgage loans or
participations in mortgage loans. The majority of these loans are made to
purchasers of 1-4 family homes, but may be made to purchasers of mobile homes or
other real estate interests. The terms and characteristics of the mortgage
instruments are generally uniform within a pool but may vary among pools. For
example, in addition to fixed-rate, fixed-term mortgages, the Funds may purchase
pools of variable rate mortgages, growing equity mortgages, graduated payment
mortgages and other types. Mortgage servicers impose qualification standards for
local lending institutions which originate mortgages for the pools as well as
credit standards and underwriting criteria for individual mortgages included in
the pools. In addition, many mortgages included in pools are insured through
private mortgage insurance companies.
LIQUIDITY AND MARKETABILITY. Generally, government and government-related
pass-through pools are highly liquid. While private conventional pools of
mortgages (pooled by non-government-related entities) have also achieved broad
market acceptance and an active secondary market has emerged, the market for
conventional pools is smaller and less liquid than the market for government and
government-related mortgage pools.
AVERAGE LIFE AND PREPAYMENTS. The average life of a pass-through pool varies
with the maturities of the underlying mortgage instruments. In addition, a
pool's terms may be shortened by unscheduled or early payments of principal and
interest on the underlying mortgages. Prepayments with respect to securities
during times of declining interest rates will tend to lower the return of a Fund
and may even result in losses to the Fund if the securities were acquired at a
premium. The occurrence of mortgage prepayments is affected by various factors
including the level of interest rates, general economic conditions, the location
and age of the mortgage and other social and demographic conditions. As
prepayment rates of individual pools vary widely, it is not possible to
accurately predict the average life of a particular pool. The assumed average
life of pools of mortgages having terms of 30 years or less is typically between
5 and 12 years.
YIELD CALCULATIONS. Yields on pass-through securities are typically quoted based
on the maturity of the underlying instruments and the associated average life
assumption. In periods of falling interest rates the rate of prepayment tends to
increase, thereby shortening the actual average life of a pool of mortgages.
Conversely, in periods of rising rates the rate of prepayment tends to decrease,
thereby lengthening the actual average life of the pool. Actual prepayment
experience may cause the yield to differ from the assumed average life yield.
Reinvestment of prepayments may occur at higher or lower interest rates than the
original investment, thus affecting the yield of a Fund.
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ADJUSTABLE RATE MORTGAGE-BACKED SECURITIES. Adjustable rate mortgage-backed
securities ("ARMs") are securities that have interest rates that are reset at
periodic intervals, usually by reference to some interest rate index or market
interest rate. Although the rate adjustment feature may act as a buffer to
reduce sharp changes in the value of adjustable rate securities, these
securities are still subject to changes in value based on changes in market
interest rates or changes in the issuer's creditworthiness. Because of the
resetting of interest rates, adjustable rate securities are less likely than
non-adjustable rate securities of comparable quality and maturity to increase
significantly in value when market interest rates fall. Also, most adjustable
rate securities (or the underlying mortgages) are subject to caps or floors.
"Caps" limit the maximum amount by which the interest rate paid by the borrower
may change at each reset date or over the life of the loan and, accordingly,
fluctuation in interest rates above these levels could cause such mortgage
securities to "cap out" and to behave more like long-term, fixed-rate debt
securities. ARMs may have less risk of a decline in value during periods of
rapidly rising rates, but they also may have less potential for capital
appreciation than other debt securities of comparable maturities due to the
periodic adjustment of the interest rate on the underlying mortgages and due to
the likelihood of increased prepayments of mortgages as interest rates decline.
Furthermore, during periods of declining interest rates, income to a Fund will
decrease as the coupon rate resets along with the decline in interest rates.
During periods of rising interest rates, changes in the coupon rates of the
mortgages underlying the Fund's ARMs may lag behind changes in market interest
rates. This may result in a lower value until the interest rate resets to market
rates.
COLLATERALIZED MORTGAGE OBLIGATIONS. CMOs are debt obligations collateralized by
mortgages or mortgage pass-through securities issued by Ginnie Mae, Freddie Mac
or Fannie Mae or by pools of conventional mortgages ("Mortgage Assets"). CMOs
may be privately issued or U.S. Government Securities. Payments of principal and
interest on the Mortgage Assets are passed through to the holders of the CMOs on
the same schedule as they are received, although, certain classes (often
referred to as tranches) of CMOs have priority over other classes with respect
to the receipt of payments. Multi-class mortgage pass-through securities are
interests in trusts that hold Mortgage Assets and that have multiple classes
similar to those of CMOs. Unless the context indicates otherwise, references to
CMOs include multi-class mortgage pass-through securities. Payments of principal
of and interest on the underlying Mortgage Assets (and in the case of CMOs, any
reinvestment income thereon) provide funds to pay debt service on the CMOs or to
make scheduled distributions on the multi-class mortgage pass-through
securities. Parallel pay CMOs are structured to provide payments of principal on
each payment date to more than one class. These simultaneous payments are taken
into account in calculating the stated maturity date or final distribution date
of each class, which, as with other CMO structures, must be retired by its
stated maturity date or final distribution date but may be retired earlier.
Planned amortization class mortgage-based securities ("PAC Bonds") are a form of
parallel pay CMO. PAC Bonds are designed to provide relatively predictable
payments of principal provided that, among other things, the actual prepayment
experience on the underlying mortgage loans falls within a contemplated range.
If the actual prepayment experience on the underlying mortgage loans is at a
rate faster or slower than the contemplated range, or if deviations from other
assumptions occur, principal payments on a PAC Bond may be greater or smaller
than predicted. The magnitude of the contemplated range varies from one PAC Bond
to another; a narrower range increases the risk that prepayments will be greater
or smaller than contemplated. CMOs may have complicated structures and generally
involve more risks than simpler forms of mortgage-related securities.
ASSET-BACKED SECURITIES. The CORPORATE BOND FUND may invest in asset-backed
securities. These securities represent direct or indirect participations in, or
are secured by and payable from, assets other than mortgage-related assets such
as motor vehicle installment sales contracts, installment loan contracts, leases
of various types of real and personal property and receivables from revolving
credit (credit card) agreements. The Fund may not invest more than 15% of its
net assets in asset-backed securities that are backed by a particular type of
credit, for instance, credit card receivables. Asset-backed securities,
including adjustable rate asset-backed securities, have yield characteristics
similar to those of mortgage-related securities and, accordingly, are subject to
many of the same risks.
Assets are securitized through the use of trusts and special purpose
corporations that issue securities that are often backed by a pool of assets
representing the obligations of a number of different parties. Payments of
principal and interest may be guaranteed up to certain amounts and for a certain
time period by a letter of credit issued by a financial institution.
Asset-backed securities do not always have the benefit of a security interest in
collateral comparable to the security interests associated with mortgage-related
securities. As a result, the risk that recovery on repossessed collateral might
be unavailable or inadequate to support payments on asset-backed securities is
greater for asset-backed securities than for mortgage-related securities. In
addition, because asset-backed securities are relatively new, the
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market experience in these securities is limited and the market's ability to
sustain liquidity through all phases of an interest rate or economic cycle has
not been tested.
COMMON STOCK. The EQUITY FUNDS invest primarily in common stocks of domestic
issuers. Common stock represents an equity or ownership interest in a company.
Although an equity interest often gives a Fund the right to vote on measures
affecting the company's organization and operations, the Funds do not intend to
exercise control over the management of companies in which they invest. Common
stocks have a history of long-term growth in value, but their prices tend to
fluctuate in the shorter term.
PREFERRED STOCK. The EQUITY FUNDS may invest in preferred stock. Preferred stock
generally does not exhibit as great a potential for appreciation or depreciation
as common stock, although it ranks above common stock in its claim on income
from dividend payments or the recovery of investment or both. The owner of
preferred stock is a shareholder in a business and not, like a bondholder, a
creditor. Dividends paid to preferred stockholders are distributions of earnings
of a business in contrast to interest payments to bondholders which are expenses
of a business.
WARRANTS. The EQUITY FUNDS may invest in warrants. These are options to purchase
an equity security at a specified price at any time during the life of the
warrant. Unlike preferred stocks, warrants do not pay a dividend. Investments in
warrants involve certain risks, including the possible lack of a liquid market
for the resale of the warrants, potential price fluctuations as a result of
speculation or other factors and failure of the price of the underlying security
to reach a level at which the warrant can be prudently exercised (in which case
the warrant may expire without being exercised, resulting in the loss of a
Fund's entire investment therein).
CONVERTIBLE SECURITIES. All of the Funds may invest in securities that may be
converted into a pre-determined number of shares of the issuer's common stock at
stated price or formula within a specified time period. The holder of
convertible securities is entitled to receive interest paid or accrued on
convertible debt, or the dividend paid on convertible preferred stock, until the
convertible security matures or is redeemed, converted or exchanged.
Traditionally, convertible securities have paid dividends or interest greater
than common stocks, but less than fixed income or non-convertible debt
securities. Convertible securities typically rank before common stock, but after
non-convertible debt securities, in their claim on dividends paid by the issuer.
In general, the value of a convertible security is the higher of its investment
value (its value as a fixed income security) and its conversion value (the value
of the underlying shares of common stock if the security is converted). As a
fixed income security, the value of a convertible security generally increases
when interest rates decline and generally decreases when interest rates rise.
The value of a convertible security is, however, also influenced by the value of
the underlying common stock. By investing in a convertible security, a Fund may
participate in any capital appreciation or depreciation of a company's stock,
but to a lesser degree than its common stock.
A Fund may invest in preferred stock and convertible securities rated BBB or
higher by Standard & Poor's Corporation, Baa by Moody's Investors Service, Inc.,
or the equivalent in the case of unrated instruments. SEE "Description of
Securities Ratings" in Appendix A to the SAI.
FUTURES CONTRACTS AND OPTIONS. Each Fund may attempt to hedge against a decline
in the value of securities it owns or an increase in the price of securities it
plans to purchase through the use of options and the purchase and sale of
interest rate futures contracts and options on those futures contracts. These
instruments are often referred to as "derivatives," because their performance is
derived, at least in part, from the performance of another asset (such as a
security, currency or an index of securities). The Funds only may write (sell)
"covered" options. An option is covered if, so long as the Fund is obligated
under the option, it owns an offsetting position in the underlying security or
futures contract or maintains cash, U.S. Government Securities or other liquid
debt securities in a segregated account with a value at all times sufficient to
cover the Fund's obligation under the option. A Fund may enter into futures
contracts only if the aggregate of initial deposits for open futures contract
positions does not exceed 5% of the Fund's
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total assets.
RISK CONSIDERATIONS. A Fund's use of options and futures contracts subjects the
Fund to certain investment risks and transaction costs to which it might not
otherwise be subject. These risks include: (i) dependence on the Sub-adviser's
ability to predict movements in the prices of individual securities and
fluctuations in the general securities markets; (ii) imperfect correlations
between movements in the prices of options or futures contracts and movements in
the price of the securities hedged or used for cover which may cause a given
hedge not to achieve its objective; (iii) the fact that the skills and
techniques needed to trade these instruments are different from those needed to
select the other securities in which the Fund invests; (iv) lack of assurance
that a liquid secondary market will exist for any particular instrument at any
particular time, which, among other things, may limit a Fund's ability to limit
exposures by closing its positions; (v) the possible need to defer closing out
of certain options, futures contracts and related options to avoid adverse tax
consequences; and (vi) the potential for unlimited loss when investing in
futures contracts or writing options for which an offsetting position is not
held.
Other risks include the inability of a Fund, as the writer of covered call
options, to benefit from any appreciation of the underlying securities above the
exercise price and the possible loss of the entire premium paid for options
purchased by the Fund. In addition, the futures exchanges may limit the amount
of fluctuation permitted in certain futures contract prices during a single
trading day. A Fund may be forced, therefore, to liquidate or close out a
futures contract position at a disadvantageous price.
There can be no assurance that a liquid market will exist at a time when a Fund
seeks to close out a futures position or that a counterparty in an
over-the-counter option transaction will be able to perform its obligations.
There are a limited number of options on interest rate futures contracts and
exchange traded options contracts on fixed income securities. Accordingly,
hedging transactions involving these instruments may entail "cross-hedging." As
an example, a Fund may wish to hedge existing holdings of mortgage-backed
securities, but no listed options may exist on those securities. In that event,
the Fund's Sub-adviser may attempt to hedge the Fund's securities by the use of
options with respect to similar securities. The Fund may use various futures
contracts that are relatively new instruments without a significant trading
history. As a result, there can be no assurance that an active secondary market
in those contracts will develop or continue to exist.
LIMITATIONS. The Funds have no current intention of investing in futures
contracts and options thereon for purposes other than hedging. No Fund may
purchase any call or put option on a futures contract if the premiums associated
with all such options held by the Fund would exceed 5% of the Fund's total
assets as of the date the option is purchased. No Fund may sell a put option if
the exercise value of all put options written by the Fund would exceed 50% of
the Fund's total assets or sell a call option if the exercise value of all call
options written by the Fund would exceed the value of the Fund's assets. In
addition, the current market value of all open futures positions held by a Fund
will not exceed 50% of its total assets.
OPTIONS ON SECURITIES. A call option is a contract pursuant to which the
purchaser of the call option, in return for a premium paid, has the right to buy
the security underlying the option at a specified exercise price at any time
during the term of the option. The writer of the call option, who receives the
premium, has the obligation upon exercise of the option to deliver the
underlying security against payment of the exercise price during the option
period. A put option gives its purchaser, in return for a premium, the right to
sell the underlying security at a specified price during the term of the option.
The writer of the put, who receives the premium, has the obligation to buy the
underlying security, upon exercise at the exercise price during the option
period. The amount of premium received or paid is based upon certain factors,
including the market price of the underlying security or index, the relationship
of the exercise price to the market price, the historical price volatility of
the underlying security or index, the option period, supply and demand and
interest rates.
OPTIONS ON STOCK INDICES. A stock index assigns relative values to the stock
included in the index, and the index fluctuates with changes in the market
values of the stocks included in the index. Stock index options operate in the
same way as the more traditional stock options except that exercises of stock
index options are effected with cash payments and do not involve delivery of
securities. Thus, upon exercise of a stock index option, the purchaser will
realize and the writer will pay an amount based on the differences between the
exercise price and the closing price of
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the stock index.
INDEX FUTURES CONTRACTS. Bond and stock index futures contracts are bilateral
agreements pursuant to which two parties agree to take or make delivery of an
amount of cash equal to a specified dollar amount times the difference between
the bond or stock index value at the close of trading of the contract and the
price at which the futures contract is originally struck. No physical delivery
of the fixed income or equity securities comprising the index is made.
Generally, futures contracts are closed out prior to the expiration date of the
contract.
OPTIONS ON FUTURES CONTRACTS. Options on futures contracts are similar to stock
options except that an option on a futures contract gives the purchaser the
right, in return for the premium paid, to assume a position in a futures
contract rather than to purchase or sell stock, at a specified exercise price at
any time during the period of the option. Upon exercise of the option, the
delivery of the futures position to the holder of the option will be accompanied
by transfer to the holder of an accumulated balance representing the amount by
which the market price of the futures contract exceeds, in the case of a call,
or is less than, in the case of a put, the exercise price of the option on the
future.
TECHNIQUES INVOLVING LEVERAGE. Leveraging involves special risks. The Funds may
borrow for other than temporary or emergency purposes, lend their securities,
and purchase securities on a when-issued or forward commitment basis, and engage
in dollar roll transactions.. Each of these transactions involves the use of
"leverage" when cash made available to the Fund through the investment technique
is used to make additional portfolio investments. In addition, the use of swap
and related agreements may involve leverage. A Fund uses these investment
techniques only when the Sub-adviser to the Fund believes that the leveraging
and the returns available from investing the cash will provide the Fund's
shareholders with a potentially higher return.
Leverage exists when a Fund achieves the right to a return on a capital base
that exceeds the Fund's investment. Leverage creates the risk of magnified
capital losses which occur when losses affect an asset base, enlarged by
borrowings or the creation of liabilities, that exceeds the equity base of the
Fund.
The risks of leverage include a higher volatility of the net asset value of a
Fund's shares and the relatively greater effect on the net asset value of the
shares caused by favorable or adverse market movements or changes in the cost of
cash obtained by leveraging and the yield obtained from investing the cash. So
long as a Fund is able to realize a net return on its investment portfolio that
is higher than interest expense incurred, if any, leverage will result in higher
current net investment income being realized by the Fund than if the Fund were
not leveraged. On the other hand, interest rates change from time to time
depending upon such factors as supply and demand, monetary and tax policies and
investor expectations. Changes in such factors could cause the relationship
between the cost of leveraging and the yield to change so that rates involved in
the leveraging arrangement may substantially increase relative to the yield on
the obligations in which the proceeds of the leveraging have been invested. To
the extent that the interest expense involved in leveraging approaches the net
return on a Fund's investment portfolio, the benefit of leveraging will be
reduced, and, if the interest expense on borrowings were to exceed the net
return to shareholders, the Fund's use of leverage would result in a lower rate
of return than if the Fund were not leveraged. Similarly, the effect of leverage
in a declining market could be a greater decrease in net asset value per share
than if the Fund were not leveraged. In an extreme case, if a Fund's current
investment income were not sufficient to meet the interest expense of
leveraging, it could be necessary for the Fund to liquidate certain of its
investments at an inappropriate time. The use of leverage may be considered
speculative.
SEGREGATED ACCOUNT. To limit the risks involved in various transactions
involving leverage, the Trust's custodian will set aside and maintain in a
segregated account for each Fund cash, U.S. Government Securities and other
liquid, debt securities in accordance with SEC guidelines. The account's value,
which is marked to market daily, will be at least equal to the Fund's
commitments under these transactions. The Fund's commitments may include: (i)
the Fund's obligations to repurchase securities under a reverse repurchase
agreement, or settle when-issued and forward commitment transactions; (ii) the
greater of the market value of securities sold short or the value of the
securities at the time of the short sale (reduced by any margin deposit). The
use of a segregated account in connection with leveraged transactions may result
in a Fund's portfolio being 100% leveraged.
BORROWING. As a fundamental investment policy, a Fund may borrow money for
temporary or emergency purposes,
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including the meeting of redemption requests, in amounts up to 33 1/3% of a
Fund's total assets. As a nonfundamental investment policy, a Fund may not
purchase portfolio securities if its outstanding borrowings exceed 5% of its
total assets or borrow for purposes other than meeting redemptions in an amount
exceeding 5% of the value of its total assets at the time the borrowing is made.
Borrowing involves special risk considerations. Interest costs on borrowings may
fluctuate with changing market rates of interest and may partially offset or
exceed the return earned on borrowed funds (or on the assets that were retained
rather than sold to meet the needs for which funds were borrowed). Under adverse
market conditions, a Fund might need to sell portfolio securities to meet
interest or principal payments at a time when investment considerations would
not favor such sales.
REPURCHASE AGREEMENTS AND LENDING OF PORTFOLIO SECURITIES. Each Fund may seek
additional income by entering into repurchase agreements or by lending
securities from its portfolio to brokers, dealers and other financial
institutions. These investments may entail certain risks not associated with
direct investments in securities. For instance, in the event that bankruptcy or
similar proceedings were commenced against a counterparty in these transactions
or a counterparty defaulted on its obligations, a Fund might suffer a loss.
Repurchase agreements are transactions in which a Fund purchases a security and
simultaneously commits to resell that security to the seller at an agreed-upon
price on an agreed-upon future date, normally one to seven days later. The
resale price reflects a market rate of interest that is not related to the
coupon rate or maturity of the purchased security. When a Fund lends a security
it receives interest from the borrower or from investing cash collateral. The
Trust maintains possession of the purchased securities and any underlying
collateral in these transactions, the total market value of which on a
continuous basis is at least equal to the repurchase price or value of
securities loaned, plus accrued interest. The Funds may pay fees to arrange
securities loans and each Fund will, as a fundamental policy, limit securities
lending to not more than 331/3 % of the value of its total assets.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS. The FIXED INCOME FUNDS may
purchase securities on a "when-issued" or "forward commitment" basis. When a
fund purchases a security on a when-issued or forward commitment basis, the
price of the security is fixed when the commitment is made, but delivery and
payment for the securities take place at a later date. Normally, the settlement
occurs within three months after the transaction, but delayed settlements beyond
three months may be negotiated.
During the period between a commitment and settlement, no interest accrues to
the Fund. When a Fund commits to purchase securities in this manner, however,
the Fund immediately assumes the risk of ownership, including price fluctuation.
If the other party does not deliver or pay for a security purchased or sold by
the Fund, the Fund may incur a loss or miss and opportunity to make an
alternative investment. Any significant commitment of a Fund's assets committed
to the purchase of securities on a when-issued or forward commitment basis may
increase the volatility of its net asset value. Except for dollar roll
transactions, which are described below, each of the Fixed Income Funds limits
its investments in when-issued and forward commitment securities to 15% of the
value of the Fund's total assets.
A Fund may use when-issued transactions and forward commitments to hedge against
anticipated changes in interest rates and prices. If the Fund's Sub-adviser
forecasts incorrectly the direction of interest rate movements, however, the
Fund might be required to complete when-issued or forward transactions at prices
inferior to the current market values. The Funds enter into when-issued and
forward commitments only with the intention of actually receiving the
securities, but a Fund may sell the securities before the settlement date if
deemed advisable. If a Fund disposes of the right to acquire a when-issued
security prior to its acquisition or to dispose of its right to deliver or
receive against a forward commitment, it can incur a gain or loss.
DOLLAR ROLL TRANSACTIONS. Each FIXED INCOME FUND may enter into dollar roll
transactions in which the Fund sells fixed income securities, typically
mortgage-backed securities, and makes a commitment to purchase similar, but not
identical, securities at a later date from the same party. During the roll
period no payment is made for the securities purchased and no interest or
principal payments on the security accrue to the Fund, but the Fund assumes the
risk of ownership. A Fund is compensated for entering into dollar roll
transactions by the difference between the current sales price and the forward
price for the future purchase, as well as by the interest earned on the cash
proceeds of the initial sale. Dollar
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roll transactions involve the risk that the market value of the securities sold
by a Fund may decline below the price at which the Fund is committed to purchase
similar securities. If the buyer of securities under a dollar roll transaction
becomes insolvent, the Fund's use of the proceeds of the transaction may be
restricted pending a determination by the other party, or its trustee or
receiver, whether to enforce the Fund's obligation to repurchase the securities.
The Funds will engage in roll transactions for the purpose of acquiring
securities for their portfolios and not for investment leverage. Each Fixed
Income Fund will limit its obligations on dollar roll transactions to 35% of the
Fund's net assets.
CONCENTRATION. As a fundamental investment policy, a Fund may not purchase a
security (other than U.S. Government Securities) if as a result more than 25% of
its net assets would be invested in a particular industry.
DIVERSIFICATION. As a fundamental investment policy, a Fund may not purchase a
security if, as a result (a) more than 5% of a Fund's total assets would be
invested in the securities of a single issuer, or (b) a Fund would own more than
10% of the outstanding voting securities of a single issuer. This limitation
applies only with respect to 75% of a Fund's total assets and does not apply to
U.S. Government Securities.
CASH AND TEMPORARY DEFENSIVE POSITIONS. A Fund will hold a certain portion of
its assets in cash or cash equivalents to retain flexibility in meeting
redemptions, paying expenses, and timing of new investments. Cash equivalents
may include (i) short-term obligations issued or guaranteed by the United States
Government, its agencies or instrumentalities ("U.S. Government Securities"),
(ii) certificates of deposit, bankers' acceptances and interest-bearing savings
deposits of commercial banks doing business in the United States that have an A+
rating from Standard & Poor's Corporation or an A-1+ rating from Moody's
Investors Service, Inc., (iii) commercial paper rated P-1 by Moody's Investors
Service, Inc. or A-1 by Standard & Poor's Corporation, (iv) repurchase
agreements covering any of the securities in which a Fund may invest directly,
and (v) money market mutual funds.
In addition, when a Fund's Sub-adviser believes that business or financial
conditions warrant, the Sub-Adviser's Fund may assume a temporary defensive
position. During such periods, a Fund may invest without limit in cash or cash
equivalents. When and to the extent a Fund assumes a temporary defensive
position, it will not pursue its investment objective.
SHORT SALES. A Fund may not enter into short sales, except short sales "against
the box." In a short sale against the box, a Fund sells securities it owns, or
has the right to acquire at no additional cost. A Fund does not immediately
deliver the securities sold, however, and does not receive proceeds from the
sale until it does deliver the securities. A Fund may enter into a short sale
against the box to lock-in a gain or loss in one year, while deferring
recognition of the gain or loss until the next year. A Fund may also sell short
against the box to hedge against the risk that the price of a security may
decline. In such a case, to the extent a Fund limits its future losses in the
security, it limits its opportunity to achieve future gain in the security as
well. Pursuant to the Taxpayer Relief Act of 1997, if a Fund has unrealized gain
with respect to a security and enters into a short sale with respect to such
security, the Fund generally will be deemed to have sold the appreciated
security and this will recognize gain for tax purposes.
SECURITIES OF OTHER INVESTMENT COMPANIES. A Fund may invest in shares of other
investment companies to the extent permitted by the Investment Company Act of
1940 ("Investment Company Act"). To the extent a Fund invests in shares of an
investment company, it will bear its pro rata share of the other investment
company's expenses, such as investment advisory and distribution fees, and
operating expenses.
Each Fund reserves the right upon notification to shareholders, to invest up to
100% of its investable assets in one or more other investment companies. If a
Fund elected to pursue its investment objective in this manner, its policies on
concentration and diversification would apply to the assets of the investment
companies in which the Fund invests.
ILLIQUID AND RESTRICTED SECURITIES. A Fund may not purchase a security if, as a
result, more than 15 percent of its
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net assets would be invested in illiquid securities. A security is considered
ILLIQUID if it may not be sold or disposed of in the ordinary course of business
within seven days at approximately the value at which a Fund has valued the
security. Over-the-counter options, repurchase agreements not entitling the
holder to payment of principal in 7 days, and certain "restricted securities"
may be illiquid.
A security is RESTRICTED if it is subject to contractual or legal restrictions
on resale to the general public. A liquid institutional market has developed,
however, for certain restricted securities such as repurchase agreements,
commercial paper, foreign securities and corporate bonds and notes. Thus,
restrictions on resale do not necessarily indicate the liquidity of the
security. For example, if a restricted security may be sold to certain
institutional buyers in accordance with Rule 144A under the Securities Act of
1933 or another exemption from registration under the Securities Act, the
Sub-adviser may determine that the security is liquid under guidelines adopted
by the Board. These guidelines take into account trading activity in the
securities and the availability of reliable pricing information, among other
factors. With other restricted securities, however, there can be no assurance
that a liquid market will exist for the security at any particular time. A Fund
might not be able to dispose of such securities promptly or at reasonable prices
and might thereby experience difficulty satisfying redemptions. A Fund treats
such holdings as illiquid.
PORTFOLIO TRANSACTIONS. Each Sub-adviser places orders for the purchase and sale
of assets it manages with brokers and dealers selected by, and in the discretion
of, the Sub-adviser. The Sub-advisers seek "best execution" for all portfolio
transactions, but a Fund may pay higher than the lowest available commission
rates when the Fund's Sub-adviser believes it is reasonable to do so in light of
the value of the brokerage and research services provided by the broker
effecting the transaction.
Subject to the policy of obtaining "best execution", each Sub-adviser may employ
broker-dealer affiliates (collectively "Affiliated Brokers") to effect brokerage
transactions. Payment of commissions to Affiliated Brokers is subject to
procedures adopted by the Board to provide that the commissions will not exceed
the usual and customary broker's commissions charged by unaffiliated brokers. No
specific portion of brokerage transactions will be directed to Affiliated
Brokers and in no event will a broker affiliated with the Sub-adviser directing
the transaction receive brokerage transactions in recognition of research
services provided to the Sub-adviser.
The frequency of portfolio transactions of a Fund (portfolio turnover rate) will
vary from year to year depending on many factors. From time to time a Fund may
engage in active short-term trading to take advantage of price movements
affecting individual issues, groups of issues or markets. An annual portfolio
turnover rate of 100% would occur if all of the securities in a fund were
replaced once in a period of one year. Higher portfolio turnover rates may
result in increased brokerage costs and a possible increase in short-term
capital gains or losses. Tax rules applicable to short-term trading may affect
the timing of a portfolio transactions or the ability to realize short-term
trading profits or establish short-term positions. It is estimated that each
Fund's portfolio turnover will be less than 100%.
9. OTHER INFORMATION
DETERMINATION OF NET ASSET VALUE
The net asset value per share of each class of each Fund is determined as of the
close of trading on the New York Stock Exchange (normally 4:00 p.m., Eastern
Time), on each Fund Business Day by dividing the value of the Fund's net assets
(I.E., the value of its securities and other assets less its liabilities) by the
number of shares outstanding at the time the determination is made. Securities
owned by a Fund for which market quotations are readily available are valued at
current market value or, in their absence, at fair value as determined by the
Board or pursuant to procedures approved by the Board.
PERFORMANCE INFORMATION
A Fund's performance may be quoted in terms of yield or total return. All
performance information is based on historical results and is not intended to
indicate future performance. A Fund's yield is a way of showing the rate of
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income the Fund earns on its investments as a percentage of the Fund's share
price. To calculate standardized yield, a Fund takes the income it earned from
its investments for a 30-day period (net of expenses), divides it by the average
number of shares entitled to receive dividends, and expresses the result as an
annualized percentage rate based on the Fund's share price at the end of the
30-day period. A Fund's total return shows its overall change in value,
including changes in share price and assuming all the Fund's dividends and
distributions are reinvested. A cumulative total return reflects a Fund's
performance over a stated period of time. An average annual total return
reflects the hypothetical annually compounded return that would have produced
the same cumulative total return if the Fund's performance had been constant
over the entire period. Because average annual returns tend to smooth out
variations in the Funds' returns, shareholders should recognize that they are
not the same as actual year-by-year results.
The Funds' advertisements may refer to ratings and rankings among similar mutual
funds by independent evaluators such as Morningstar, Inc., Lipper Analytical
Services, Inc. and IBC/Donoghue, Inc. In addition, the performance of a Fund may
be compared to securities indices. Indices are not used in the management of the
Funds but rather are standards by which the Advisers and shareholders may
compare the performance of a Fund to an unmanaged composite of securities with
similar, but not identical, characteristics. The Funds may also advertise the
historical performance of private accounts managed by the Sub-advisers to the
extent permitted by the National Association of Securities Dealers. Performance
information is not to be considered representative or indicative of a Fund's
future performance. All performance information for a Fund is calculated on a
class basis.
THE TRUST AND ITS SHARES
The Trust has an unlimited number of authorized shares of beneficial interest.
The Board may, without shareholder approval, divide the authorized shares into
an unlimited number of separate portfolios or series (such as a Fund) and may
divide portfolios or series into classes of shares (such as Trust Shares); the
costs of doing so will be borne by the Trust. Currently the authorized shares of
the Trust are divided into four separate series.
OTHER CLASSES OF SHARES. The Funds currently issue two classes of shares, Trust
Shares and Institutional Shares. Trust Shares are designed primarily for
individual investors and smaller fiduciary, agency and custodial clients whose
investments are pooled in common or collective trusts managed by bank trust
departments, trust companies or their affiliates.. Each class of a Fund will
have a different expense ratio and may have different distribution fees. Each
class' performance is affected by its expenses. For more information on Trust
Shares of the Funds, investors may contact FSS at (888) 263-5593 or the Funds'
distributor. Investors may also contact their sales representative to obtain
information about the other classes.
SHAREHOLDER VOTING AND OTHER RIGHTS. Each share of each series of the Trust and
each class of shares has equal dividend, distribution, liquidation and voting
rights, and fractional shares have those rights proportionately, except that
expenses related to the distribution of the shares of each class (and certain
other expenses such as transfer agency and administration expenses) are borne
solely by those shares and each class votes separately with respect to the
provisions of any Rule 12b-1 plan which pertains to the class and other matters
for which separate class voting is appropriate under applicable law. Generally,
shares will be voted in the aggregate without reference to a particular series
or class, except if the matter affects only one series or class or voting by
series or class is required by law, in which case shares will be voted
separately by series or class, as appropriate. Delaware law does not require the
Trust to hold annual meetings of shareholders, and it is anticipated that
shareholder meetings will be held only when specifically required by federal or
state law. Shareholders (and Trustees) have available certain procedures for the
removal of Trustees. There are no conversion or preemptive rights in connection
with shares of the Trust. All shares when issued in accordance with the terms of
the offering will be fully paid and nonassessable. Shares are redeemable at net
asset value, at the option of the shareholders, subject to any contingent
deferred sales charge that may apply. A shareholder in a series is entitled to
the shareholder's pro rata share of all dividends and distributions arising from
that series' assets and, upon redeeming shares, will receive the portion of the
series' net assets represented by the redeemed shares.
{25% SHAREHOLDERS] From time to time, these shareholders or other shareholders
may own a large percentage of the Shares of a Fund and, accordingly, may be able
to greatly affect (if not determine) the outcome of a shareholder vote.
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE STATEMENT OF
ADDITIONAL INFORMATION AND THE FUNDS' OFFICIAL SALES LITERATURE IN CONNECTION
WITH THE OFFERING OF THE FUNDS' SHARES, AND IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
TRUST. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO
ANY PERSON TO WHOM, SUCH OFFER MAY NOT LAWFULLY BE MADE.
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STATEMENT OF ADDITIONAL INFORMATION:
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY ANY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION DOES NOT CONSTITUTE A
PROSPECTUS.
MEMORIAL FUNDS
GOVERNMENT BOND FUND
CORPORATE BOND FUND
GROWTH EQUITY FUND
VALUE EQUITY FUND
- ----------------------------------------- --------------------------------------
Fund Information: Account Information and
Two Portland Square Shareholder Services:
Portland, Maine 04101
(800) XXX-XXXX Forum Financial Corp.
P.O. Box 446
Investment Adviser: Portland, Maine 04112
Forum Investment Advisors, LLC (207) XXX-XXXX
Two Portland Square (800) XXX-XXXX
Portland, ME 04101
- ---------------------------------------- ---------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
SUBJECT TO COMPLETION
February 19, 1998
This Statement of Additional Information ("SAI") supplements the Prospectus
dated February 19, 1998, offering shares of the Government Bond Fund, Corporate
Bond Fund, Growth Equity Fund and Value Equity Fund (each a "Fund" and
collectively the "Funds"). The Funds are each diversified portfolios of Memorial
Funds (the "Trust"), a registered open-end, management investment company. This
SAI should be read only in conjunction with the Prospectus, which you may obtain
without charge by contacting the Trust's Distributor, Forum Financial Services,
Inc., Two Portland Square, Portland, Maine 04101.
TABLE OF CONTENTS
PAGE
1. Investment Policies.................... 3
2. Investment Limitations................ 10
3. Performance Data.......................11
4. Management.............................13
5. Determination of Net Asset Value.......16
6. Portfolio Transactions.................16
7. Additional Purchase and..................
Redemption Information..............17
8. Taxation...............................18
9. Other Information......................19
10. Financial Statements...................20
Appendix A - Description of
Securities Ratings................A-1
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE PROSPECTUS.
THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE READ ONLY IN CONJUNCTION WITH
THE PROSPECTUS, A COPY OF WHICH MAY BE OBTAINED BY AN INVESTOR WITHOUT CHARGE.
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As used in this SAI, the following terms shall have the following meanings:
"Adviser" shall mean Forum Investment Advisors, LLC . "Advisers" shall
mean the Adviser and each of the investment subadvisers that provide
investment advice and portfolio management for one or more of the Funds
pursuant to an investment subadvisory agreement with the Adviser .
"Board" shall mean the Board of Trustees of the Trust.
"CFTC" shall mean the U.S. Commodities Futures Trading Commission.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Custodian" shall mean [custodian], or its successor, acting in its
capacity as custodian of a Fund.
"Equity Funds" shall mean the Growth Equity Fund and the Value Equity
Fund.
"FAdS" shall mean Forum Administrative Services, LLC, the Trust's
administrator.
"Fitch" shall mean Fitch Investors Service, L.P.
"Fixed Income Funds" shall mean the Government Bond Fund and the
Corporate Bond Fund.
"FFS" shall mean Forum Shareholder Services, LLC, the Trust's transfer
and dividend disbursing agent.
"FFSI" shall mean Forum Financial Services, Inc., the distributor of the
Trust's shares.
"Forum" shall mean the Adviser.
"Fund" shall mean each of the separate portfolios of the Trust identified
on the cover page of this Statement of Additional Information.
"Moody's" shall mean Moody's Investors Service, Inc.
"NRSRO" shall mean a nationally recognized statistical rating
organization.
"Processing Organization" shall have the meaning set forth in the
prospectus of the Funds.
"SEC" shall mean the U.S. Securities and Exchange Commission.
"S&P" shall mean Standard & Poor's Rating Group.
"Sub-adviser" shall mean each of the investment advisers that provide
investment advice and portfolio management for the Funds pursuant to
investment subadvisory agreements with Adviser.
"Transfer Agent" shall mean FFC.
"Trust" shall mean Memorial Funds, an open-end management investment
company registered under the 1940 Act.
"U.S. Government Securities" shall mean obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities.
"1933 Act" shall mean the Securities Act of 1933, as amended.
"1940 Act" shall mean the Investment Company Act of 1940, as amended.
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1. INVESTMENT POLICIES
The following discussion is intended to supplement the disclosure in the
Prospectus concerning each Fund's investments, investment techniques and
strategies and the risks associated therewith. No Fund may make any investment
or employ any investment technique or strategy unless otherwise permitted in a
Prospectus relating to that Fund or this SAI. For example, while the SAI
describes "when-issued" transactions below, only those Funds whose investment
policies, as described in the Prospectus or this SAI, allow the Fund to invest
in when-issued transactions may do so.
SECURITY RATINGS INFORMATION
Moody's, S&P and other NRSROs are private services that rate the credit quality
of debt obligations. A description of the range of ratings assigned to various
types of bonds and other securities by several NRSROs is included in Appendix A
to this SAI. The Funds may use these ratings to determine whether to purchase,
sell or hold a security. These ratings are general and are not absolute
standards of quality, however. Consequently, securities with the same maturity,
interest rate and rating may have different market prices. To the extent that
the ratings given by a NRSRO may change as a result of changes in such
organizations or their rating systems, the Sub-adviser will attempt to
substitute comparable ratings. Credit ratings attempt to evaluate the safety of
principal and interest payments and do not evaluate the risks of fluctuations in
market value. Also, rating agencies may fail to make timely changes in credit
ratings. An issuer's current financial condition may be better or worse than a
rating indicates.
A Fund may purchase unrated securities if its Sub-adviser determines the
security to be of comparable quality to a rated security that the Fund may
purchase. Unrated securities may not trade as actively as rated securities. A
Fund may retain securities whose rating has been lowered below the lowest
permissible rating category (or that are unrated and determined by its
Sub-adviser to be of comparable quality to securities whose rating has been
lowered below the lowest permissible rating category) if the Sub-adviser
determines that retaining such security is in the best interests of the Fund.
To limit credit risks, the Funds generally may only invest in securities that
are investment grade (rated in the top four long-term investment grades by an
NRSRO or in the top two short-term investment grades by an NRSRO.) Accordingly,
the lowest permissible long-term investment grades for corporate bonds,
including convertible bonds, are Baa in the case of Moody's and BBB in the case
of S&P and Fitch; the lowest permissible long-term investment grades for
preferred stock are baa in the case of Moody's and BBB in the case of S&P and
Fitch; and the lowest permissible short-term investment grades for short-term
debt, including commercial paper, are Prime-2 (P-2) in the case of Moody's, A-2
in the case of S&P and F-2 in the case of Fitch. All these ratings are generally
considered to be investment grade ratings, although Moody's indicates that
securities with long-term ratings of Baa have speculative characteristics.
Corporate Bond Fund may invest up to 5% of its assets in securities rated below
investment grade. Non-investment grade securities (commonly known as "junk
bonds") are predominantly speculative with respect to the capacity to pay
interest and repay principal and generally involve a greater volatility of price
than securities in higher-rated categories.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
Each Fixed Income Fund may purchase securities offered on a "when-issued" basis
and may purchase or sell securities on a "forward commitment" basis. When such
transactions are negotiated, the price, which is generally expressed in yield
terms, is fixed at the time the commitment is made, but delivery and payment for
the securities take place at a later date. Normally, the settlement date occurs
within two months after the transaction, but delayed settlements beyond two
months may be negotiated. During the period between a commitment and settlement,
no payment is made for the securities purchased by the purchaser and, thus, no
interest accrues to the purchaser from the transaction. At the time a Fund makes
the commitment to purchase securities on a when-issued or delayed delivery
basis, the Fund will record the transaction as a purchase and thereafter reflect
the value each day of such securities in determining its net asset value.
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The use of when-issued transactions and forward commitments enables the Fixed
Income Funds to hedge against anticipated changes in interest rates and prices.
For instance, in periods of rising interest rates and falling bond prices, a
Fund might sell securities which it owned on a forward commitment basis to limit
its exposure to falling prices. In periods of falling interest rates and rising
bond prices, a Fund might sell a security and purchase the same or a similar
security on a when-issued or forward commitment basis, thereby obtaining the
benefit of currently higher cash yields. However, if the Fund's Sub-adviser
forecasts incorrectly the direction of interest rate movements, the Fund might
be required to complete such when-issued or forward commitment transactions at
prices lower than the current market values.
The Funds enter into when-issued and forward commitment transactions only with
the intention of actually receiving or delivering the securities, as the case
may be. If a Fund subsequently chooses to dispose of its right to acquire a
when-issued security or its right to deliver or receive against a forward
commitment before the settlement date, it can incur a gain or loss. When-issued
securities may include bonds purchased on a "when, as and if issued" basis under
which the issuance of the securities depends upon the occurrence of a subsequent
event. Any significant commitment of a Fund's assets to the purchase of
securities on a "when, as and if issued" basis may increase the volatility of
its net asset value.
Each Fund will establish and maintain with its custodian a separate account with
cash, U.S. Government Securities and other liquid high-grade debt securities in
an amount at least equal to its commitments to purchase securities on a
when-issued or delayed delivery basis.
ILLIQUID SECURITIES
Each Fund may invest up to 15% of its net assets in illiquid securities. The
term "illiquid securities" for this purpose means securities that cannot be
disposed of within seven days in the ordinary course of business at
approximately the amount at which the Fund has valued the securities and
includes, among other things, purchased over-the-counter (OTC) options and
repurchase agreements maturing in more than seven days.
The Board is ultimately responsible for determining whether specific securities
are liquid or illiquid. The Board has delegated the function of making
day-to-day determinations of liquidity to the Advisers, pursuant to guidelines
approved by the Board. The Advisers take into account a number of factors in
reaching liquidity decisions, including but not limited to: (1) the frequency of
trades and quotations for the security; (2) the number of dealers willing to
purchase or sell the security and the number of other potential buyers; (3) the
willingness of dealers to undertake to make a market in the security; and (4)
the nature of the marketplace trades, including the time needed to dispose of
the security, the method of soliciting offers and the mechanics of the transfer.
The Adviser and the Sub-adviser for each Fund monitor the liquidity of the
securities in that Fund's portfolio and reports periodically on such decisions
to the Board.
CONVERTIBLE SECURITIES
The Funds may invest in convertible securities. A convertible security is a
bond, debenture, note, preferred stock or other security that may be converted
into or exchanged for a prescribed amount of common stock of the same or a
different issuer within a particular period of time at a specified price or
formula. A convertible security entitles the holder to receive interest paid or
accrued on debt or the dividend paid on preferred stock until the convertible
security matures or is redeemed, converted or exchanged. Before conversion,
convertible securities are similar to corresponding nonconvertible securities to
the extent that they ordinarily provide a stable stream of income with generally
higher yields than those of common stocks of the same or similar issuers.
Convertible securities rank senior to common stock in a corporation's capital
structure but are usually subordinated to comparable nonconvertible securities.
Although no securities investment is without some risk, investment in
convertible securities generally entails less risk than in the issuer's common
stock. However, the extent to which such risk is reduced depends in large
measure upon the degree to which the convertible security sells above its value
as a fixed income security. Convertible securities have unique investment
characteristics in that they generally (1) have higher yields than common
stocks, but lower yields than comparable non-convertible securities, (2) are
less subject to
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fluctuation in value than the underlying stocks since they have fixed income
characteristics and (3) provide the potential for capital appreciation if the
market price of the underlying common stock increases.
The value of a convertible security is a function of its "investment value"
(determined by its yield comparison with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and its
"conversion value" (the security's worth, at market value, if converted into the
underlying common stock). The investment value of a convertible security is
influenced by changes in interest rates, with investment value declining as
interest rates increase and increasing as interest rates decline. The credit
standing of the issuer and other factors also may affect the convertible
security's investment value. The conversion value of a convertible security is
determined by the market price of the underlying common stock. If the conversion
value is low relative to the investment value, the price of the convertible
security is governed principally by its investment value and generally the
conversion value decreases as the convertible security approaches maturity. To
the extent the market price of the underlying common stock approaches or exceeds
the conversion price, the price of the convertible security will be increasingly
influenced by its conversion value. In addition, a convertible security
generally will sell at a premium over its conversion value determined by the
extent to which investors place value on the right to acquire the underlying
common stock while holding a fixed income security.
A convertible security may be subject to redemption at the option of the issuer
at a price established in the convertible security's governing instrument. If a
convertible security held by a Fund is called for redemption, the Fund will be
required to permit the issuer to redeem the security, convert it into the
underlying common stock or sell it to a third party.
TEMPORARY DEFENSIVE POSITION.
When a Fund assumes a temporary defensive position it may invest without limit
in (i) short-term U.S. Government Securities, (ii) certificates of deposit,
bankers' acceptances and interest-bearing savings deposits of commercial banks
doing business in the United States that have, at the time of investment, total
assets in excess of one billion dollars and that are insured by the Federal
Deposit Insurance Corporation, (iii) commercial paper of prime quality rated
Prime-2 or higher by Moody's or A-2 or higher by S&P or, if not rated,
determined by the Fund's Subadviser to be of comparable quality, (iv) repurchase
agreements covering any of the securities in which the Fund may invest directly
and (v) money market mutual funds.
OTHER INVESTMENT COMPANIES
The Funds may invest in the securities of other investment companies within the
limits proscribed by the 1940 Act. In addition to the Fund's expenses (including
the various fees), as a shareholder in another investment company, a Fund would
bear its pro rata portion of the other investment company's expenses (including
fees).
FUTURES CONTRACTS AND OPTIONS
Each Fund may seek to hedge against a decline in the value of securities it owns
or an increase in the price of securities that it plans to purchase through the
writing and purchase of exchange-traded and over-the-counter options and the
purchase and sale of futures contracts and options on those futures contracts.
The Equity Funds may buy or sell stock index futures contracts, such as
contracts on the S&P 500 stock index. The Fixed Income Funds may buy and sell
bond index futures contracts. In addition, all of the Funds may buy or sell
futures contracts on Treasury bills, Treasury bonds and other financial
instruments. The Funds may write covered options and buy options on the futures
contracts in which they may invest.
In addition, the Funds may write (sell) covered put and call options and may buy
put and call options on debt securities and bond indices. An option is covered
if, so long as the Fund is obligated under the option, it owns an offsetting
position in the underlying security, currency or futures contract or maintains
cash, U.S. Government Securities or other liquid, high-grade debt securities in
a segregated account with a value at all times sufficient to cover the Fund's
obligation under the option.
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The Funds' use of options and futures contracts would subject the Funds to
certain investment risks and transaction costs to which they might not otherwise
be subject. These risks include: (1) dependence on the Sub-adviser's ability to
predict movements in the prices of individual securities and fluctuations in the
general securities markets; (2) imperfect correlation between movements in the
prices of options, futures contracts or related options and movements in the
price of the securities hedged or used for cover; (3) the fact that skills and
techniques needed to trade these instruments are different from those needed to
select the other securities in which the Funds invest; (4) lack of assurance
that a liquid secondary market will exist for any particular instrument at any
particular time; and (5) the possible need to defer closing out of certain
options, futures contracts and related options to avoid adverse tax
consequences. Other risks include the inability of the Fund, as the writer of
covered call options, to benefit from the appreciation of the underlying
securities above the exercise price and the possible loss of the entire premium
paid for options purchased by the Fund.
The Funds have no current intention of investing in futures contracts and
options thereon for purposes other than hedging. No Fund may purchase any call
or put option on a futures contract if the premiums associated with all such
options held by the Fund would exceed 5 percent of the Fund's total assets as of
the date the option is purchased. No Fund may sell a put option if the exercise
value of all put options written by the Fund would exceed 50 percent of the
Fund's total assets or sell a call option if the exercise value of all call
options written by the Fund would exceed the value of the Fund's assets. In
addition, the current market value of all open futures positions held by a Fund
will not exceed 50 percent of its total assets.
A Fund will only invest in futures and options contracts after providing notice
to its shareholders and filing a notice of eligibility (if required) and
otherwise complying with the requirements of the Commodity Futures Trading
Commission ("CFTC"). The CFTC's rules provide that the Funds are permitted to
purchase such futures or options contracts only (1) for bona fide hedging
purposes within the meaning of the rules of the CFTC; provided, however, that in
the alternative with respect to each long position in a futures or options
contract entered into by a Fund, the underlying commodity value of such contract
at all times does not exceed the sum of cash, short-term United States debt
obligations or other United States dollar denominated short-term money market
instruments set aside for this purpose by the Fund, accrued profit on the
contract held with a futures commission merchant and cash proceeds from existing
Fund investments due in 30 days; and (2) subject to certain limitations.
HEDGING AND OPTIONS STRATEGIES
Each Fund may purchase or sell (write) put and call options on securities to
seek to hedge against a decline in the value of securities owned by it or an
increase in the price of securities which it plans to purchase through the
writing and purchase of exchange-traded and over-the-counter options on
individual securities or securities or financial indices and through the
purchase and sale of financial futures contracts and related options. These
investment techniques involve risks that are different in certain respects from
the investment risks associated with the other investments of a Fund. Use of
these instruments is subject to regulation by the SEC, the several options and
futures exchanges upon which options and futures are traded or the CFTC.
No assurance can be given, however, that any hedging or option income strategy
will succeed in achieving its intended result.
Except as otherwise noted in the Prospectus or herein, the Funds will not use
leverage in their options and hedging strategies. In the case of transactions
entered into as a hedge, a Fund will hold securities, currencies or other
options or futures positions whose values are expected to offset ("cover") its
obligations thereunder. A Fund will not enter into a hedging strategy that
exposes it to an obligation to another party unless it owns either (i) an
offsetting ("covered") position or (ii) cash, U.S. Government Securities or
other liquid securities (or other assets as may be permitted by the SEC) with a
value sufficient at all times to cover its potential obligations. When required
by applicable regulatory guidelines, the Funds will set aside cash, U.S.
Government Securities or other liquid securities (or other assets as may be
permitted by the SEC) in a segregated account with its custodian in the
prescribed amount. Any assets used for cover or held in a segregated account
cannot be sold or closed out while the hedging or option income strategy is
outstanding, unless they are replaced with similar assets. As a result, there is
a possibility
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that the use of cover or segregation involving a large percentage
of a Fund's assets could impede portfolio management or the Fund's ability to
meet redemption requests or other current obligations.
OPTIONS STRATEGIES
A Fund may purchase put and call options written by others and sell put and call
options covering specified individual securities, securities or financial
indices or currencies. A put option (sometimes called a "standby commitment")
gives the buyer of the option, upon payment of a premium, the right to deliver a
specified amount of currency to the writer of the option on or before a fixed
date at a predetermined price. A call option (sometimes called a "reverse
standby commitment") gives the purchaser of the option, upon payment of a
premium, the right to call upon the writer to deliver a specified amount of
currency on or before a fixed date, at a predetermined price. The predetermined
prices may be higher or lower than the market value of the underlying currency.
A Fund may buy or sell both exchange-traded and over-the-counter ("OTC")
options. A Fund will purchase or write an option only if that option is traded
on a recognized U.S. options exchange or if the sub-adviser believes that a
liquid secondary market for the option exists. When a Fund purchases an OTC
option, it relies on the dealer from which it has purchased the OTC option to
make or take delivery of the currency underlying the option. Failure by the
dealer to do so would result in the loss of the premium paid by the Fund as well
as the loss of the expected benefit of the transaction. OTC options and the
securities underlying these options currently are treated as illiquid securities
by the Funds.
When a Fund sells an option, it receives a premium from the purchaser. When a
Fund purchases an option, it pays a premium to the seller. The amount of premium
received or paid by the Fund is based upon certain factors, including the market
price of the underlying securities, index or currency, the relationship of the
exercise price to the market price, the historical price volatility of the
underlying assets, the option period, supply and demand and interest rates.
The Funds may purchase options on securities that the Fund's Sub-adviser intends
to include in the Fund's portfolio in order to fix the cost of a future
purchase. Call options may also be purchased as a means of participating in an
anticipated price increase of a security on a more limited risk basis than would
be possible if the security itself were purchased. If the price of the
underlying security declines, use of this strategy limits the potential loss to
the Fund to the premium paid for the options; conversely, if the market price of
the underlying security increases above the exercise price and the Fund either
sells or exercises the option, any profit eventually realized will be reduced by
the premium paid. A Fund may similarly purchase put options in order to hedge
against a decline in market value of securities held in its portfolio. The put
enables the Fund to sell the underlying security at the predetermined exercise
price; thus the potential for loss to the Fund is limited to the option premium
paid. If the market price of the underlying security is lower than the exercise
price of the put, any profit the Fund realizes on the sale of the security would
be reduced by the premium paid for the put option less any amount for which the
put may be sold.
A Sub-adviser may write call options when it believes that the market value of
the underlying security will not rise to a value greater than the exercise price
plus the premium received. Call options may also be written to provide limited
protection against a decrease in the market price of a security, in an amount
equal to the call premium received less any transaction costs.
Certain Funds may purchase and write put and call options on fixed income or
equity security indexes in much the same manner as the options discussed above,
except that index options may serve as a hedge against overall fluctuations in
the fixed income or equity securities markets (or market sectors) or as a means
of participating in an anticipated price increase in those markets. The
effectiveness of hedging techniques using index options will depend on the
extent to which price movements in the index selected correlate with price
movements of the securities which are being hedged. Index options are settled
exclusively in cash.
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SPECIAL CHARACTERISTICS AND RISKS OF OPTIONS TRADING
A Fund may effectively terminate its right or obligation under an option
contract by entering into a closing transaction. For instance, if the Fund
wished to terminate its potential obligation to sell securities or currencies
under a call option it had written, it would purchase a call option of the same
type. Closing transactions essentially permit the Fund to realize profits or
limit losses on its options positions prior to the exercise or expiration of the
option. In addition:
(1) The successful use of options depends upon the Sub-adviser's ability
to forecast the direction of price fluctuations in the underlying
securities or currency markets, or in the case of an index option,
fluctuations in the market sector represented by the index.
(2) Options normally have expiration dates of up to nine months. Options
that expire unexercised have no value. Unless an option purchased by a
Fund is exercised or unless a closing transaction is effected with
respect to that position, a loss will be realized in the amount of the
premium paid.
(3) A position in an exchange-listed option may be closed out only on an
exchange that provides a market for identical options. Most
exchange-listed options relate to equity securities. Closing transactions
may be effected with respect to options traded in the over-the-counter
markets only by negotiating directly with the other party to the option
contract or in a secondary market for the option if such market exists.
There is no assurance that a liquid secondary market will exist for any
particular option at any specific time. If it is not possible to effect a
closing transaction, a Fund would have to exercise the option which it
purchased in order to realize any profit. The inability to effect a
closing transaction on an option written by a Fund may result in material
losses to the Fund.
(4) A Fund's activities in the options markets may result in a higher
portfolio turnover rate and additional brokerage costs.
(5) When a Fund enters into an over-the-counter contract with a
counterparty, the Fund will assume the risk that the counterparty will
fail to perform its obligations in which case the Fund could be worse off
than if the contract had not been entered into.
FUTURES STRATEGIES
A futures contract is a bilateral agreement wherein one party agrees to accept,
and the other party agrees to make, delivery of cash, an underlying debt
security or the currency as called for in the contract at a specified future
date and at a specified price. For futures contracts with respect to an index,
delivery is of an amount of cash equal to a specified dollar amount times the
difference between the index value at the time of the contract and the close of
trading of the contract.
A Fund may sell interest rate futures contracts in order to continue to receive
the income from a fixed income security, while endeavoring to avoid part of or
all of a decline in the market value of that security which would accompany an
increase in interest rates.
A Fund may purchase index futures contracts for several reasons: to simulate
full investment in the underlying index while retaining a cash balance for fund
management purposes, to facilitate trading, to reduce transactions costs, or to
seek higher investment returns when a futures contract is priced more
attractively than securities in the index.
A Fund may purchase call options on a futures contract as a means of obtaining
temporary exposure to market appreciation at limited risk. This strategy is
analogous to the purchase of a call option on an individual security, in that it
can be used as a temporary substitute for a position in the security itself.
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SPECIAL CHARACTERISTICS AND RISKS OF FUTURES AND RELATED OPTIONS TRADING
A Fund pays no price when it enters into a futures contract; rather, it deposits
(typically with its custodian in a segregated account in the name of the futures
broker) an amount of cash or U.S. Government Securities generally equal to 5% or
less of the contract value. This amount is known as initial margin. Subsequent
payments, called variation margin, to and from the broker, are made on a daily
basis as the value of the futures position varies. When writing a call on a
futures contract, variation margin must be deposited in accordance with
applicable exchange rules. The initial margin in futures transactions is in the
nature of a performance bond or good-faith deposit on the contract that is
returned to the Fund upon termination of the contract, assuming all contractual
obligations have been satisfied.
Holders and writers of futures and options on futures contracts can enter into
offsetting closing transactions, similar to closing transactions on options, by
selling or purchasing, respectively, a futures contract or related option with
the same terms as the position held or written. Positions in futures contracts
may be closed only on an exchange or board of trade providing a secondary market
for such futures contracts.
Under certain circumstances, futures exchanges may establish daily limits in the
amount that the price of a futures contract or related option may vary either up
or down from the previous day's settlement price. Once the daily limit has been
reached in a particular contract, no trades may be made that day at a price
beyond that limit. Prices could move to the daily limit for several consecutive
trading days with little or no trading and thereby prevent prompt liquidation of
positions. In such event, it may not be possible for a Fund to close a position,
and in the event of adverse price movements, it would have to make daily cash
payments of variation margin. In addition:
(1) Successful use by a Fund of futures contracts and related options
will depend upon the Sub-adviser's ability to predict movements in the
direction of the overall securities and currency markets, which requires
different skills and techniques than predicting changes in the prices of
individual securities. Moreover, futures contracts relate not to the
current level of the underlying instrument but to the anticipated levels
at some point in the future; thus, for example, trading of stock index
futures may not reflect the trading of the securities which are used to
formulate an index or even actual fluctuations in the relevant index
itself.
(2) The price of futures contracts may not correlate perfectly with
movement in the price of the hedged currencies due to price distortions
in the futures market or otherwise. There may be several reasons
unrelated to the value of the underlying currencies which causes this
situation to occur. As a result, a correct forecast of general market
trends may still not result in successful hedging through the use of
futures contracts over the short term.
(3) There is no assurance that a liquid secondary market will exist for
any particular contract at any particular time. In such event, it may not
be possible to close a position, and in the event of adverse price
movements, the Fund would continue to be required to make daily cash
payments of variation margin.
(4) Like other options, options on futures contracts have a limited life.
A Fund will not trade options on futures contracts on any exchange or
board of trade unless and until, in the Adviser's opinion, the market for
such options has developed sufficiently that the risks in connection with
options on futures transactions are not greater than the risks in
connection with futures transactions.
(5) Purchasers of options on futures contracts pay a premium in cash at
the time of purchase. This amount and the transaction costs is all that
is at risk. Sellers of options on futures contracts, however, must post
an initial margin and are subject to additional margin calls which could
be substantial in the event of adverse price movements.
(6) A Fund's activities in the futures markets may result in a higher
portfolio turnover rate and additional transaction costs in the form of
added brokerage commissions.
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COMMODITY FUTURES CONTRACTS AND COMMODITY OPTIONS
A Fund may invest in certain financial futures contracts and options contracts
in accordance with the policies described in the Prospectus and above. A Fund
will only invest in futures contracts, options on futures contracts and other
options contracts that are subject to the jurisdiction of the CFTC after filing
a notice of eligibility and otherwise complying with the requirements of Section
4.5 of the rules of the CFTC. Under that section, a Fund will not enter into any
futures contract or option on a futures contract if, as a result, the aggregate
initial margins and premiums required to establish such positions would exceed
5% of the Fund's net assets.
2. INVESTMENT LIMITATIONS
For purposes of all investment policies of the Fund, (i) the term 1940 Act
includes the rules thereunder, SEC interpretations and any exemptive order upon
which the Fund may rely and (ii) the term Code includes the rules thereunder,
IRS interpretations and any private letter ruling or similar authority upon
which the Fund may rely.
Except as required by the 1940 Act or the Code, if a Fund satisfies a percentage
restriction on an investment or investment technique when the investment is
made, a later change in percentage resulting from a change in the market values
of a Fund's assets or purchases and redemptions of shares will not be considered
a violation of the limitation.
FUNDAMENTAL INVESTMENT LIMITATIONS
Each Fund has adopted the following fundamental investment limitations
that cannot be changed without the affirmative vote of the lesser of (i) more
than 50% of the outstanding shares of a Fund or (ii) 67% of the shares of a Fund
present or represented at a shareholders meeting at which the holders of more
than 50% of the outstanding shares of a Fund are present or represented. No Fund
may:
(1) Purchase the securities of issuers (other than U.S. Government
Securities) conducting their business activity in the same industry if,
immediately after such purchase, the value of a Fund's investments in
such industry would comprise 25% or more of the value of its total
assets.
(2) Purchase a security if, as a result (a) more than 5% of a Fund's
total assets would be invested in the securities of a single issuer, or
(b) a Fund would own more than 10% of the outstanding voting securities
of a single issuer. This limitation applies only with respect to 75% of
a Fund's total assets and does not apply to U.S. Government Securities.
(3) Act as an underwriter of 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 for purpose of
the Securities Act of 1933.
(4) Purchase or sell real estate or any interest therein, except that a
Fund may invest in securities issued or guaranteed by corporate or
governmental entities secured by real estate or interests therein, such
as mortgage pass-throughs and collateralized mortgage obligations, or
issued by companies that invest in real estate or interests therein.
(5) Purchase or sell physical commodities or contracts, options or
options on contracts to purchase or sell physical commodities.
(6) Make loans to other persons except for the purchase of debt
securities that are otherwise permitted investments or loans of
portfolio securities through the use of repurchase agreements.
(7) Issue senior securities except pursuant to Section 18 of the
Investment Company Act and except that a Fund may borrow money subject
to its investment limitation on borrowing.
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OTHER INVESTMENT LIMITATIONS
Each Fund has adopted the following nonfundamental investment
limitations that may be changed by the Board without shareholder approval. No
Fund may:
(a) Pledge, mortgage or hypothecate its assets, except to secure
indebtedness permitted to be incurred by a Fund. The deposit in escrow
of securities in connection with the writing of put and call options,
collateralized loans of securities and collateral arrangements with
respect to margin for futures contracts are not deemed to be pledges or
hypothecations for this purpose.
(b) Make short sales of securities except short sales against the box.
(c) Purchase securities on margin except for the use of short-term
credit necessary for the clearance of purchases and sales of portfolio
securities, but a Fund may make margin deposits in connection with
permitted transactions in options.
(d) Purchase a security if, as a result, more than 15% of its net
assets would be invested in illiquid securities.
(e) Purchase portfolio securities if its outstanding borrowings exceed
5% of the value of its total assets or borrow for purposes other than
meeting redemptions in an amount exceeding 5% of the value of its total
assets at the time the borrowing is made.
(f) Invest more than 5% of its net assets in securities (other than
fully-collateralized debt obligations) issued by companies that have
conducted continuous operations for less than three years, including
the operations of predecessors, unless guaranteed as to principal and
interest by an issuer in whose securities a Fund could invest.
(g) Invest in or hold securities of any issuer if officers and Trustees
of the Trust or the Adviser, individually owning beneficially more than
1/2 of 1% of the securities of the issuer, in the aggregate own more
than 5% of the issuer's securities.
(h) Invest in interests in oil or gas or interests in other mineral
exploration or development programs.
3. PERFORMANCE DATA
The Funds may quote performance in various ways. All performance information
supplied by the Funds in advertising is historical and is not intended to
predict future returns. A Fund's net asset value, yield and total return
fluctuate in response to market conditions and other factors, and the value of
Fund shares when redeemed may be more or less than their original cost.
In performance advertising the Funds may compare any of their performance
information with data published by independent evaluators such as Morningstar,
Lipper Analytical Services, Inc., IBC/Donoghue, Inc., CDC/Wiesenberger or other
companies which track the investment performance of investment companies ("Fund
Tracking Companies"). In addition, a Fund may compare any of its performance
information with the performance of recognized stock, bond and other indexes,
including but not limited to the Salomon Brothers Bond Index, the Shearson
Lehman Bond Index, the Standard & Poor's 500 Composite Stock Price Index, the
Dow Jones Industrial Average, and changes in the Consumer Price Index as
published by the U.S. Department of Commerce. A Fund may refer in such materials
to mutual fund performance rankings and other data published by Fund Tracking
Companies. Performance advertising may also refer to discussions of a Fund and
comparative mutual fund data and ratings reported in independent periodicals,
such as newspapers and financial magazines.
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YIELD CALCULATIONS
Yields for a Fund used in advertising are computed by dividing the Fund's
interest income for a given 30-day or one-month period, net of expenses, by the
average number of shares entitled to receive distributions during the period,
dividing this figure by the Fund's net asset value per share at the end of the
period and annualizing the result (assuming compounding of income) in order to
arrive at an annual percentage rate. In general, interest income is reduced with
respect to bonds purchased at a premium over their par value by subtracting a
portion of the premium from income on a daily basis, and is increased with
respect to bonds purchased at a discount by adding a portion of the discount to
daily income. Capital gain and loss generally are excluded from these
calculations.
Income calculated for the purpose of determining a Fund's yield differs from
income as determined for other accounting purposes. Because of the different
accounting methods used, and because of the compounding assumed in yield
calculations, the yield quoted for a Fund may differ from the rate of
distribution the Fund paid over the same period or the rate of income reported
in the Fund's financial statements.
Although published yield information is useful to investors in reviewing a
Fund's performance, investors should be aware that a Fund's yield for any given
period is not an indication or representation by the Fund of future yields or
rates of return on the Fund's shares. Also, Processing Organizations may charge
their customers direct fees in connection with an investment in a Fund, which
will have the effect of reducing the Fund's net yield to those shareholders. The
yields of each Fund are not fixed or guaranteed, and an investment in a Fund is
not insured or guaranteed. Accordingly, yield information may not necessarily be
used to compare shares of a Fund with investment alternatives which, like money
market instruments or bank accounts, may provide a fixed rate of interest. Also,
it may not be appropriate to compare a Fund's yield information directly to
similar information regarding investment alternatives which are insured or
guaranteed.
TOTAL RETURN CALCULATIONS
Each of the Funds may advertise total return. Total returns quoted in
advertising reflect all aspects of a Fund's return, including the effect of
reinvesting dividends and capital gain distributions, and any change in the
Fund's net asset value per share over the period. Average annual returns are
calculated by determining the growth or decline in value of a hypothetical
historical investment in a Fund over a stated period, and then calculating the
annually compounded percentage rate that would have produced the same result if
the rate of growth or decline in value had been constant over the period. While
average annual returns are a convenient means of comparing investment
alternatives, investors should realize that the performance is not constant over
time but changes from year to year, and that average annual returns represent
averaged figures as opposed to the actual year-to-year performance of the Funds.
Average annual total return is calculated by finding the average annual
compounded rates of return of a hypothetical investment over a given period
according to the following formula:
n
P(1+T) = ERV
Where:
P = a hypothetical initial payment of $1,000; T =
average annual total return; n = number of years; and
ERV = ending redeemable value.
ERV is the value, at the end of the applicable period, of a hypothetical $1,000
payment made at the beginning of the applicable period.
In addition to average annual returns, each Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Total returns may be broken down into their components of
income and capital (including capital gain and changes in share price) in order
to illustrate the
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relationship of these factors and their contributions to total
return. Total returns, yields and other performance information may be quoted
numerically or in a table, graph or similar illustration.
Period total return is calculated according to the following formula:
PT = (ERV/P-1)
Where:
PT = period total return. The other definitions
are the same as in average annual total return
above.
4. MANAGEMENT
The trustees and officers of the Trust and their principal occupations during
the past five years are set forth below. Each Trustee who is an "interested
person" (as defined by the 1940 Act) of the Trust is indicated by an asterisk.
[INSERT TRUSTEES AND OFFICIALS]
The following table provides the estimated aggregate compensation paid to each
Trustee. The Trust has not adopted any form of retirement plan covering Trustees
or officers. Estimates are presented for the fiscal year ended March 31, 1998.
No officer of the Trust is compensated by the Trust.
<TABLE>
<S> <C> <C> <C> <C>
ACCRUED ANNUAL
AGGREGATE PENSION BENEFITS UPON TOTAL
TRUSTEE COMPENSATION BENEFITS RETIREMENT COMPENSATION
[INSERT ESTIMATED FUTURE PAYMENTS]
</TABLE>
ADVISERS
Forum Investment Advisors, LLC ("Forum"), Two Portland Square, Portland, Maine
04101, serves as investment adviser to the Funds pursuant to an investment
advisory agreement with the Trust (the "Advisory Agreement").
[INSERT FIA BUSINESS AND OWNERSHIP INFO]
To assist it in carrying out its responsibility, the Adviser has retained the
following Subadvisers to render advisory services and make daily investment
decisions for each Fund pursuant to an investment subadvisory agreements with
the Adviser (the "Subadvisory Agreements").
Government Bond Fund -- The Northern Trust Company
Corporate Bond Fund -- Conseco Capital Management, Inc.
Growth Equity Fund -- Davis Hamilton, Inc., d/b/a Davis Hamilton
Jackson & Associates
Value Equity Fund -- Beutel, Goodman Cappital Management
The amount of the fees paid by Forum to each Subadviser may vary from time to
time as a result of periodic negotiations with the Subadviser regarding such
matters as the nature and extent of the services (other than investment
selection and order placement activities) provided by the Subadviser to the
Fund, the increased cost and complexity of providing services to the Fund, the
investment record of the Subadviser in managing the Fund and the nature and
magnitude of the expenses incurred by the Subadviser in managing the Fund's
assets and by the Adviser in overseeing and administering management of the
Fund. However, the contractual fee payable to Forum by each Fund for investment
advisory services that is set forth in the Prospectus will not vary as a result
of those negotiations.
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The Advisers furnish at their own expense all services, facilities and personnel
necessary to perform their duties under the Advisory or Subadvisory Agreements.
The Advisory and Subadvisory Agreements provide, with respect to each Fund, for
an initial term of two years from its effective date and for its continuance in
effect for successive twelve-month periods thereafter, provided the agreement is
specifically approved at least annually by the Board or, with respect to each
Fund, by vote of the shareholders of that Fund, and in either case by a majority
of the directors who are not parties to the Advisory Agreement or interested
persons of any such party.
The Advisory and Subadvisory Agreements are terminable without penalty by the
Trust and by the Adviser, respectively, with respect to a Fund on 30 days'
written notice when authorized either by vote of the Fund's shareholders or by a
vote of a majority of the Board, or by the Adviser and the Subadviser,
respectively, on not less than 90 days' written notice, and will automatically
terminate in the event of its assignment. The Agreements also provide that, with
respect to each Fund, the Adviser shall not be liable for any error of judgment
or mistake of law or for any act or omission in the performance of its duties to
the Fund, except for willful misfeasance, bad faith or gross negligence in the
performance of the Adviser's duties or by reason of reckless disregard of its
obligations and duties under the Agreements. The Advisory and Subadvisory
Agreements provide that the Advisers may render services to others.
ADMINISTRATOR
Forum Administrative Services, LLC ("FAdS") acts as administrator to the Trust
pursuant to an Administration Agreement with the Trust. As administrator, FAdS
provides management and administrative services necessary to the operation of
the Trust (which include, among other responsibilities, negotiation of contracts
and fees with, and monitoring of performance and billing of, the transfer agent
and custodian and arranging for maintenance of books and records of the Trust),
and provides the Trust with general office facilities. The Administration
Agreement will remain in effect for a period of twelve months with respect to
each Fund and thereafter is automatically renewed each year for an additional
term of one year, provided that continuance is specifically approved at least
annually (i) by the Board or, with respect to a Fund, by a vote of a majority of
the outstanding voting securities of the Fund and (ii) by a vote of a majority
of Trustees of the Trust who are not parties of the Administration Agreement or
interested persons of any such party.
The Administration Agreement terminates automatically if it is assigned and may
be terminated without penalty with respect to the Fund by vote of the Fund's
shareholders or by either party on not more than 60 days' written notice. The
Administration Agreement also provides that FAdS shall not be liable for any
error of judgment or mistake of law or for any act or omission in the
administration or management of the Trust, except for willful misfeasance, bad
faith or gross negligence in the performance of its duties or by reason of
reckless disregard of its obligations and duties under the Administration
Agreement.
At the request of the Board, FAdS provides persons satisfactory to the Board to
serve as officers of the Trust. Those officers, as well as certain other
employees and Trustees of the Trust, may be directors, officers or employees of
FAdS, the Adviser, the Subadvisers or their affiliates.
DISTRIBUTOR
Forum Financial Services, Inc. ("FFSI"), an affiliate of FAdS, is the Trust's
distributor and acts as the agent of the Trust in connection with the offering
of shares of the Fund pursuant to a Distribution Agreement. The Distribution
Agreement will continue in effect for twelve months and will continue in effect
thereafter only if its continuance is specifically approved at least annually by
the Board or by vote of the shareholders entitled to vote thereon, and in either
case, by a majority of the Trustees who (i) are not parties to the Distribution
Agreement, (ii) are not interested persons of any such party or of the Trust and
(iii) with respect to any class for which the Trust has adopted a distribution
plan, have no direct or indirect financial interest in the operation of that
distribution plan or in the Distribution Agreement, at a meeting called for the
purpose of voting on the Distribution Agreement. All subscriptions for shares
obtained by FFSI are directed to the Trust for acceptance and are not binding on
the Trust until accepted by it. The Trust has adopted a distribution plan
pursuant to Rule 12b-1 under the 1940 Act (the "Plan") that authorizes the
payment to FFSI under the Distribution Services Agreement of a distribution
services
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fee, which may not exceed an annual rate of 0.05% and 0.30% of the average daily
net assets of each Fund attributable to Institutional Shares and Trust Shares,
respectively.
The Distribution Agreement provides that FFSI shall not be liable for any error
of judgment or mistake of law or in any event whatsoever, except for willful
misfeasance, bad faith or gross negligence in the performance of its duties or
by reason of reckless disregard of its obligations and duties under the
Distribution Agreement.
The Distribution Agreement is terminable with respect to the Fund without
penalty by the Trust on 60 days' written notice when authorized either by vote
of the Fund's shareholders or by a vote of a majority of the Board, or by FFSI
on 60 days' written notice. The Distribution Agreement will automatically
terminate in the event of its assignment.
FFSI may enter into agreements with selected broker-dealers, banks, or other
financial institutions for distribution of shares of the Fund. These financial
institutions may charge a fee for their services and may receive shareholders
service fees even though shares of the Fund are sold without sales charges or
distribution fees. These financial institutions may otherwise act as processing
agents, and will be responsible for promptly transmitting purchase, redemption
and other requests to the Fund.
Investors who purchase shares in this manner will be subject to the procedures
of the institution through whom they purchase shares, which may include charges,
investment minimums, cutoff times and other restrictions in addition to, or
different from, those listed herein. Information concerning any charges or
services will be provided to customers by the financial institution. Investors
purchasing shares of the Fund in this manner should acquaint themselves with
their institution's procedures and should read the Prospectus and this SAI in
conjunction with any materials and information provided by their institution.
The financial institution and not its customers will be the shareholder of
record, although customers may have the right to vote shares depending upon
their arrangement with the institution.
TRANSFER AGENT
Forum Shareholder Services, LLC ("FSS") acts as transfer agent of the Trust
pursuant to a transfer agency agreement (the "Transfer Agency Agreement"). The
Transfer Agency Agreement provides, with respect to each Fund, for an initial
term of one year from its effective date and for its continuance in effect for
successive twelve-month periods thereafter, provided that the agreement is
specifically approved at least annually by the Board or, with respect to a Fund,
by a vote of the shareholders of that Fund, and in either case by a majority of
the directors who are not parties to the Transfer Agency Agreement or interested
persons of any such party at a meeting called for the purpose of voting on the
Transfer Agency Agreement.
Among the responsibilities of FFC as agent for the Trust are: (1) answering
customer inquiries regarding account status and history, the manner in which
purchases and redemptions of shares of the Funds may be effected and certain
other matters pertaining to the Funds; (2) assisting shareholders in initiating
and changing account designations and addresses; (3) providing necessary
personnel and facilities to establish and maintain shareholder accounts and
records, assisting in processing purchase and redemption transactions and
receiving wired funds; (4) transmitting and receiving funds in connection with
customer orders to purchase or redeem shares; (5) verifying shareholder
signatures in connection with changes in the registration of shareholder
accounts; (6) furnishing periodic statements and confirmations of purchases and
redemptions; (7) arranging for the transmission of proxy statements, annual
reports, prospectuses and other communications from the Trust to its
shareholders; (8) arranging for the receipt, tabulation and transmission to the
Trust of proxies executed by shareholders with respect to meetings of
shareholders of the Trust; and (9) providing such other related services as the
Trust or a shareholder may reasonably request.
FFC or any sub-transfer agent or processing agent may also act and receive
compensation as custodian, investment manager, nominee, agent or fiduciary for
its customers or clients who are shareholders of the Funds with respect to
assets invested in the Funds. FFC or any sub-transfer agent or other processing
agent may elect to credit against the fees payable to it by its clients or
customers all or a portion of any fee received from the Trust or from FFC with
respect to assets of those customers or clients invested in the Funds. FFC, FFSI
or sub-transfer agents or processing
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agents retained by FFC may be Processing Organizations (as defined in the
Prospectus) and, in the case of sub- transfer agents or processing agents, may
also be affiliated persons of FFC or FFSI.
For its services under the Transfer Agency Agreement, FFC receives, with respect
to each Series: a fee of $24,000 per year; such amounts to be computed and paid
monthly in arrears by the Fund; and (iii) Annual Shareholder Account Fees of
$25.00 for a retail and $125.00 for an institutional shareholder account; such
fees to be computed as of the last business day of the prior month.
FUND ACCOUNTANT
Pursuant to a Fund Accounting Agreement, Forum Accounting Services, LLC,
("FAcS") prepares and maintains books and records of each Fund on behalf of the
Trust as required under the 1940 Act, calculates the net asset value per share
of each Fund and dividends and capital gain distributions and prepares periodic
reports to shareholders and the Securities and Exchange Commission. For its
services, FAcS receives from the Trust with respect to each Fund a fee of
$36,000 per year plus surcharges of $6,000 to $24,000 for specified asset
levels. FAcS is paid additional surcharges of $12,000 per year for each of the
following: a portfolio with more than a specified number of securities positions
and/or international positions; investments in derivative instruments;
percentages of assets invested in asset backed securities; and, a monthly
portfolio turnover rate of 10% or greater.
5. DETERMINATION OF NET ASSET VALUE
The Trust does not determine the Funds' net asset value on any day that the New
York Stock Exchange ("NYSE") is closed. The NYSE is normally closed on the
following holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Veterans' Day,
Thanksgiving and Christmas. The Trust determines the net asset value per share
of each Fund as of the close of trading on the NYSE (normally 4:00 p.m., Eastern
time) on each Fund Business Day by dividing the value of the Fund's net assets
(in other words, the value of its portfolio securities and other assets less its
liabilities) by the number of that Fund's shares outstanding at the time the
determination is made. Securities owned by a Fund for which market quotations
are readily available are valued at current market value, or, in their absence,
at fair value as determined by the Board. Purchases and redemptions are effected
at the time of the next determination of net asset value following the receipt
in proper form of any purchase or redemption order.
6. PORTFOLIO TRANSACTIONS
Purchases and sales of debt securities for the Fixed Income Funds usually are
principal transactions. Portfolio Securities for these Funds are normally
purchased directly from the issuer or from an underwriter or market maker for
the securities. There usually are no brokerage commissions paid for such
purchases. Purchases from underwriters of portfolio securities include a
commission or concession paid by the issuer to the underwriter, and purchases
from dealers serving as market makers include the spread between the bid and
asked prices.
The Equity Funds will, and the Fixed Income Funds may, effect purchases and
sales through brokers who charge commissions. Allocations of transactions to
brokers and dealers and the frequency of transactions are determined by the
Fund's Sub-adviser in its best judgment and in a manner deemed to be in the best
interest of shareholders of the Fund rather than by any formula. The primary
consideration is prompt execution of orders in an effective manner and at the
most favorable price available to the Fund.
A Fund may not always pay the lowest commission or spread available. Rather, in
determining the amount of commission, including certain dealer spreads, paid in
connection with Fund transactions, the Sub-adviser takes into account such
factors as size of the order, difficulty of execution, efficiency of the
executing broker's facilities (including the services described below) and any
risk assumed by the executing broker. The Sub-advisor may also take into account
payments made by brokers effecting transactions for a Fund (i) to the Fund or
(ii) to other persons on behalf of the Fund for services provided to it for
which it would be obligated to pay.
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In addition, a Sub-adviser may give consideration to research and investment
analysis services furnished by brokers or dealers to the Sub-adviser for its use
and may cause the Fund to pay these brokers a higher amount of commission than
may be charged by other brokers. Such research and analysis is of the types
described in Section 28(e)(3) of the Securities Exchange Act of 1934, as
amended, and is designed to augment the Sub-adviser's own internal research and
investment strategy capabilities. The Sub-adviser may use the research and
analysis in connection with services to clients other than the Fund, and the
Sub-adviser's fee is not reduced by reason of the Sub-adviser's receipt of the
research services.
Investment decisions for the Funds will be made independently from those for any
other account or investment company that is or may in the future become managed
by the Sub-advisers or their affiliates. If, however, a Fund and other
investment companies or accounts managed by one of the Sub-advisers are
contemporaneously engaged in the purchase or sale of the same security, the
transactions may be averaged as to price and allocated equitably to each
account. In some cases, this policy might adversely affect the price paid or
received by a Fund or the size of the position obtainable for the Fund. In
addition, when purchases or sales of the same security for a Fund and for other
investment companies and accounts managed by one of the Sub-advisers occur
contemporaneously, the purchase or sale orders may be aggregated in order to
obtain any price advantages available to large denomination purchases or sales.
In the future the Funds, consistent with the policy of obtaining best net
results, may conduct brokerage transactions through affiliates of those persons
or Forum. The Board has adopted procedures in conformity with applicable rules
under the 1940 Act to ensure that all brokerage commissions paid to these
persons are reasonable and fair.
7. ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of each Fund are sold on a continuous basis by the distributor on a best
efforts basis.
In addition to the situations described in the Prospectus under "Purchases and
Redemptions of Shares," the Trust may redeem shares involuntarily, from time to
time, to reimburse a Fund for any loss sustained by reason of the failure of a
shareholder to make full payment for shares purchased by the shareholder or to
collect any charge relating to transactions effected for the benefit of a
shareholder which is applicable to a Fund's shares as provided in the
Prospectus.
The Trust has filed a formal election with the Securities and Exchange
Commission pursuant to which a Fund will only effect a redemption in portfolio
securities if a shareholder is redeeming more than $250,000 or 1% of the Fund's
total net assets, whichever is less, during any 90-day period.
EXCHANGE PRIVILEGE
The exchange privilege permits shareholders of the Funds to exchange their
shares for shares of the same class of any other Fund of the Trust or a
designated class of shares of Daily Assets Cash Fund, a money market fund of
Forum Funds ("Participating Fund"). For Federal income tax purposes, exchange
transactions are treated as sales on which a purchaser will realize a capital
gain or loss depending on whether the value of the shares redeemed is more or
less than his basis in such shares at the time of the transaction.
By use of the exchange privilege, the shareholder authorizes FFC to act upon the
instruction of any person representing himself to either be, or to have the
authority to act on behalf of, the investor and believed by FFC to be genuine.
The records of FFC of such instructions are binding. Proceeds of an exchange
transaction may be invested in another Participating Fund in the name of the
shareholder.
Exchange transactions will be made on the basis of relative net asset values per
share at the time of the exchange transaction. Shares of any Participating Fund
may be redeemed and the proceeds used to purchase, without a sales charge,
shares of any other Participating Fund. The terms of the exchange privilege are
subject to change, and the privilege may be terminated by the Trust. However the
privilege will not be terminated, and no material change that
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restricts the availability of the privilege to shareholders will be implemented,
without reasonable advance notice to shareholders.
INDIVIDUAL RETIREMENT CUSTODIAL ACCOUNT
The Trust offers an individual retirement plan ("IRA") for individuals who wish
to use Trust shares of the Funds as a medium for funding individual retirement
savings. Under the IRA, distributions of net investment income and capital gain
will be automatically reinvested in the IRA established for the investor. The
Funds' custodian furnishes custodial services to the IRAs for a service fee.
Shareholders wishing to use a Fund's IRA should contact FFC for further details
and information.
8. TAXATION
Each Fund intends, for each taxable year, to qualify as a "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code").
Qualification as a regulated investment company under the Internal Revenue Code
of 1986 does not involve governmental supervision of management or investment
practices or policies. Investors should consult their own counsel for a complete
understanding of the requirements the Funds must meet to qualify for such
treatment. The information set forth in the Prospectus and the following
discussion relate solely to Federal income taxes on dividends and distributions
by a Fund and assume that each Fund qualifies as a regulated investment company.
Investors should consult their own counsel for further details and for the
application of state and local tax laws to the investor's particular situation.
The Equity Funds expect to derive a substantial amount of their gross income
(exclusive of capital gain) from dividends. Accordingly, that portion of the
Equity Funds' dividends so derived will qualify for the dividends-received
deduction for corporations to the extent attributable to certain qualifying
dividends received by the Fund from domestic corporations. The Fixed Income
Funds expect to derive substantially all of their gross income (exclusive of
capital gain) from sources other than dividends. Accordingly, it is expected
that only a small portion, if any, of the Fixed Income Funds' dividends or
distributions will qualify for the dividends-received deduction for
corporations. Capital gain distributions are not eligible for the dividends
received deduction for corporations.
Under the Code, gains or losses from the disposition of (i) foreign currencies,
(ii) debt securities denominated in a foreign currency, (iii) certain options on
foreign currencies or (iv) certain forward contracts denominated in a foreign
currency, that are attributed to fluctuations in the value of the foreign
currency between the date of acquisition of the asset and the date of its
disposition are treated as ordinary gain or loss. These gains or losses,
referred to under the Code as "Section 988" gains or losses, increase or
decrease the amount of a Fund's investment company taxable income available to
be distributed to shareholders as ordinary income, rather than affecting the
amount of the Fund's net capital gain. Because section 988 losses reduce the
amount of ordinary dividends a Fund will be allowed to distribute for a taxable
year, such losses may result in all or a portion of prior dividend distributions
for such year being recharacterized as non-taxable return of capital to
shareholders, rather than as an ordinary dividend, reducing each shareholder's
basis in his or her shares. To the extent that such distributions exceed such
shareholders' basis, each distribution will be treated as a gain from the sale
of shares. Under certain conditions, a Fund may elect to except from Section 988
any foreign currency gain or loss realized by a Fund on any regulated forward
contract, option or futures contract which would be "marked to market" under
Section 1256 of the Code if held on the last day of taxable year, as described
immediately below.
Certain listed options, regulated futures contracts and foreign exchange
contracts are considered "section 1256 contracts" for Federal income tax
purposes. Section 1256 contracts held by a Fund at the end of each taxable year
will be "marked to market" and treated for Federal income tax purposes as though
sold for fair market value on the last business day of such taxable year. Gain
or loss realized by a Fund on section 1256 contracts generally will be
considered 60% long-term and 40% short-term capital gain or loss. A Fund can
elect to exempt its section 1256 contracts which are part of a "mixed straddle"
from the application of section 1256.
With respect to equity or over-the-counter put and call options, gain or loss
realized by a Fund upon the lapse or sale of such options held by the Fund will
be either long-term or short-term capital gain or loss depending upon the
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respective Fund's holding period with respect to such option. However, gain or
loss realized upon the lapse or closing out of such options that are written by
a Fund will be treated as short-term capital gain or loss. In general, if a Fund
exercises an option, or if an option that a Fund has written is exercised, gain
or loss on the option will not be separately recognized but the premium received
or paid will be included in the calculation of gain or loss upon disposition of
the property underlying the option.
Any option, futures contract, or other position entered into or held by a Fund
in conjunction with any other position held by such Fund may constitute a
"straddle" for Federal income tax purposes. A straddle of which at least one,
but not all, the positions are section 1256 contracts may constitute a "mixed
straddle". In general, straddles are subject to certain rules that may affect
the character and timing of a Fund's gains and losses with respect to straddle
positions by requiring, among other things, that (i) loss realized on
disposition of one position of a straddle not be recognized to the extent that a
Fund has unrealized gains with respect to the other position in such straddle;
(ii) a Fund's holding period in straddle positions be suspended while the
straddle exists (possibly resulting in gain being treated as short-term capital
gain rather than long-term capital gain); (iii) losses recognized with respect
to certain straddle positions which are part of a mixed straddle and which are
non-section 1256 positions be treated as 60% long-term and 40% short-term
capital loss; (iv) losses recognized with respect to certain straddle positions
which would otherwise constitute short-term capital losses be treated as long-
term capital losses; and (v) the deduction of interest and carrying charges
attributable to certain straddle positions may be deferred. Various elections
are available to a Fund which may mitigate the effects of the straddle rules,
particularly with respect to mixed straddles. In general, the straddle rules
described above do not apply to any straddles held by a Fund all of the
offsetting positions of which consist of section 1256 contracts.
A Fund's investment in zero coupon securities will be subject to special
provisions of the Code which may cause the Fund to recognize income without
receiving cash necessary to pay dividends or make distributions in amounts
necessary to satisfy the distribution requirements for avoiding federal income
and excise taxes. In order to satisfy those distribution requirements the Fund
may be forced to sell other portfolio securities.
9. OTHER INFORMATION
CUSTODIAN
Pursuant to a Custodian Agreement, BankBoston acts as the custodian of the
Funds' assets. The custodian's responsibilities include safeguarding and
controlling the Funds' cash and securities, determining income and collecting
interest on Fund investments.
COUNSEL
Legal matters in connection with the issuance of shares of beneficial interest
of the Trust are passed upon by the law firm of Seward & Kissel, One Battery
Park Plaza, New York, New York 10004
INDEPENDENT ACCOUNTANTS
[auditors], act as independent accountants for the Funds.
THE TRUST AND ITS SHARES
The Trust was organized on November 26, 1997, as a Delaware business trust. The
Trust has an unlimited number of authorized shares of beneficial interest. The
Board may, without shareholder approval, divide the authorized shares into an
unlimited number of separate portfolios or series (such as the Funds) and may
divide portfolios or series into two or more classes of shares (such as Trust
and Institutional Shares). Currently the authorized shares of the Trust are
divided into 4 separate series.
Each share of each fund of the Trust and each class of shares has equal
dividend, distribution, liquidation and voting rights, and fractional shares
have those rights proportionately, except that expenses related to the
distribution of the
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shares of each class (and certain other expenses such as transfer agency and
administration expenses) are borne solely by those shares and each class votes
separately with respect to the provisions of any Rule 12b-1 plan which pertain
to the class and other matters for which separate class voting is appropriate
under applicable law. Generally, shares will be voted in the aggregate without
reference to a particular portfolio or class, except if the matter affects only
one portfolio or class or voting by portfolio or class is required by law, in
which case shares will be voted separately by portfolio or class, as
appropriate. Delaware law does not require the Trust to hold annual meetings of
shareholders, and it is anticipated that shareholder meetings will be held only
when specifically required by Federal or state law. Shareholders and Trustees
have available certain procedures for the removal of Trustees. There are no
conversion or preemptive rights in connection with shares of the Trust. All
shares when issued in accordance with the terms of the offering will be fully
paid and nonassessable. Shares are redeemable at net asset value, at the option
of the shareholders, subject to any contingent deferred sales charge that may
apply. A shareholder in a portfolio is entitled to the shareholder's pro rata
share of all dividends and distributions arising from that portfolio's assets
and, upon redeeming shares, will receive the portion of the portfolio's net
assets represented by the redeemed shares.
The Trust's shareholders are not personally liable for the obligations of the
Trust under Delaware law. The Delaware Business Trust Act (the "Delaware Act")
provides that a shareholder of a Delaware business trust shall be entitled to
the same limitation of liability extended to shareholders of private
corporations for profit. However, no similar statutory or other authority
limiting business trust shareholder liability exists in many other states. As a
result, to the extent that the Trust or a shareholder is subject to the
jurisdiction of courts in those states, the courts may not apply Delaware law,
and may thereby subject the Trust shareholders to liability. To guard against
this risk, the Trust Instrument of the Trust disclaims shareholder liability for
acts or obligations of the Trust and requires that notice of such disclaimer be
given in each agreement, obligation and instrument entered into by the Trust or
its Trustees, and provides for indemnification out of Trust property of any
shareholder held personally liable for the obligations of the Trust. Thus, the
risk of a shareholder incurring financial loss beyond his investment because of
shareholder liability is limited to circumstances in which (i) a court refuses
to apply Delaware law, (ii) no contractual limitation of liability is in effect,
and (iii) the Trust itself is unable to meet its obligations. In light of
Delaware law, the nature of the Trust's business, and the nature of its assets,
the Board believes that the risk of personal liability to a Trust shareholder is
extremely remote.
From time to time, certain shareholders may own a large percentage of the shares
of a Fund. Accordingly, those shareholders may be able to greatly affect (if not
determine) the outcome of a shareholder vote. As noted, certain of these
shareholders are known to the Trust to hold their shares of record only and have
no beneficial interest, including the right to vote, in the shares.
SHAREHOLDINGS
As of [date], 1998, the officers and Trustees of the Trust as a group owned less
than 1% of the outstanding shares of the Funds. Also as of that date, the
shareholder listed below owned more than 5% of the Fund or Funds identified.
Shareholders owning 25% or more of the shares of a Fund or of the Trust as a
whole may be deemed to be controlling persons. By reason of their substantial
holdings of shares, these persons may be able to require the Trust to hold a
shareholder meeting to vote on certain issues and may be able to determine the
outcome of any shareholder vote. As noted, certain of these shareholders are
known to the Trust to hold their shares of record only and have no beneficial
interest, including the right to vote, in the shares.
<TABLE>
FUND SHAREHOLDER INTEREST
----- ------------- ---------
<S> <C> <C>
</TABLE>
10. FINANCIAL STATEMENTS
Because the Funds had not commenced operations as of the date of this SAI,
financial statements for these Funds are not yet available.
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MEMORIAL FUNDS
APPENDIX A - DESCRIPTION OF SECURITIES RATINGS
1. CORPORATE BONDS
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
Moody's rates corporate bond issues, including convertible debt issues, as
follows:
Bonds which are rated Aaa are judged by Moody's to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high-
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
Bonds which are rated A possess many favorable investment attributes and are to
be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment some time in the future.
Bonds which are rated Baa are considered as medium grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payment and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Bonds which are rated Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Bonds which are rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Bonds which are rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
Bonds which are rated C are the lowest rated class of bonds and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
Note: Those bonds in the Aa, A, Baa, Ba or B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa1,
A1, Baa1, Ba1, and B1.
STANDARD AND POOR'S CORPORATION ("S&P")
S&P rates corporate bond issues, including convertible debt issues, as follows:
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Bonds rated AAA have the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
Bonds rated AA have a very strong capacity to pay interest and repay principal
and differ from the highest rated issues only in small degree.
Bonds rated A have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt rated in higher rated
categories.
Bonds rated BBB are regarded as having an adequate capacity to pay interest and
repay principal. Whereas they normally exhibit adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
weakened capacity to pay interest and repay principal for debt in this category
than in higher rated categories.
Bonds rated BB, B, CCC, CC and C are regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
bonds will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
Bonds rated BB have less near-term vulnerability to default than other
speculative issues. However, they face major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments.
Bonds rated B have a greater vulnerability to default but currently have the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal.
Bonds rated CCC have currently identifiable vulnerability to default, and are
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, they are not likely to have the
capacity to pay interest and repay principal.
Bonds rated CC typically are debt subordinated to senior debt which is assigned
an actual or implied CCC debt rating. This rating may also be used to indicate
imminent default.
The C rating may be used to cover a situation where a bankruptcy petition has
been filed, but debt service payments are continued. The rating Cl is reserved
for income bonds on which no interest is being paid.
Bonds are rated D when the issue is in payment default, or the obligor has filed
for bankruptcy. Bonds rated D are in payment default or the obligor has filed
for bankruptcy. The D rating category is used when interest payments or
principal payments are not made on the date due, even if the applicable grace
period has not expired, unless S&P believes that such payments will made during
such grace period.
Note: The ratings from AA to CCC may be modified by the addition of a plus (+)
or minus (-) sign to show the relative standing within the rating category.
FITCH INVESTORS SERVICE, INC. ("FITCH")
Fitch rates corporate bond issues, including convertible debt issues, as
follows:
AAA Bonds are considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
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AA Bonds are considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated AAA. Because bonds rated in the AAA
and AA categories are not significantly vulnerable to foreseeable future
developments, shorter-term debt of these issuers is generally rate F-1+.
A Bonds are considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB Bonds are considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds, and therefore
impair timely payment. The likelihood that the ratings of these bonds will fall
below investment grade is higher than for bonds with higher ratings.
BB Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C Bonds are in imminent default in payment of interest or principal.
DDD, DD, and D Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. DDD
represents the highest potential for recovery on these bonds, and D represents
the lowest potential for recovery.
Plus (+) and minus (-) signs are used with a rating symbol to indicate the
relative position of a credit within the rating category. Plus and minus signs,
however, are not used in the AAA, DDD, DD, or D categories.
2. PREFERRED STOCK
MOODY'S INVESTORS SERVICE, INC.
Moody's rates preferred stock as follows:
An issue rated aaa is considered to be a top-quality preferred stock. This
rating indicates good asset protection and the least risk of dividend impairment
among preferred stock issues.
An issue rated aa is considered a high-grade preferred stock. This rating
indicates that there is a reasonable assurance that earnings and asset
protection will remain relatively well maintained in the foreseeable future.
An issue rated a is considered to be an upper-medium grade preferred stock.
While risks are judged to be somewhat greater than in the aaa and aa
classification, earnings and asset protection are, nevertheless, expected to be
maintained at adequate levels.
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An issue rated baa is considered to be a medium-grade, neither highly protected
nor poorly secured. Earnings and asset protection appear adequate at present but
may be questionable over any great length of time.
An issue rated ba is considered to have speculative elements and its future
cannot be considered well assured. Earnings and asset protection may be very
moderate and not well safeguarded during adverse periods. Uncertainty of
position characterizes preferred stocks in this class.
An issue which is rated b generally lacks the characteristics of a desirable
investment. Assurance of dividend payments and maintenance of other terms of the
issue over any long period of time may be small.
An issue which is rated caa is likely to be in arrears on dividend payments.
This rating designation does not purport to indicate the future status of
payments.
An issue which is rated ca is speculative in a high degree and is likely to be
in arrears on dividends with little likelihood of eventual payment.
An issue which is rated c can be regarded as having extremely poor prospects of
ever attaining any real investment standing. This is the lowest rated class of
preferred or preference stock.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each rating
classification from aa through b in its preferred stock rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issuer ranks in the lower end of its generic rating
category.
STANDARD & POOR'S CORPORATION
S&P rates preferred stock as follows:
AAA is the highest rating that is assigned by S&P to a preferred stock issue and
indicates an extremely strong capacity to pay the preferred stock obligations.
A preferred stock issue rated AA also qualifies as a high-quality fixed income
security. The capacity to pay preferred stock obligations is very strong,
although not as overwhelming as for issues rated AAA.
An issue rated A is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
An issue rated BBB is regarded as backed by an adequate capacity to pay the
preferred stock obligations. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to make payments for a preferred stock in
this category than for issues in the A category.
Preferred stock rated BB, B, and CCC are regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay preferred stock
obligations. BB indicates the lowest degree of speculation and CCC the highest
degree of speculation. While such issues will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
The rating CC is reserved for a preferred stock issue in arrears on dividends or
sinking fund payments but that is currently paying.
A preferred stock rated C is a non-paying issue.
A preferred stock rated D is a non-paying issue with the issuer in default on
debt instruments.
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To provide more detailed indications of preferred stock quality, the ratings
from AA to CCC may be modified by the addition of a plus (+) or minus (-) sign
to show relative standing within the major rating categories.
3. SHORT-TERM DEBT (COMMERCIAL PAPER)
MOODY'S INVESTORS SERVICE, INC.
Moody's two highest ratings for short-term debt, including commercial paper, are
Prime-1 and Prime-2, both are judged investment grade, to indicate the relative
repayment ability of rated issuers.
Issuers rated Prime-1 have a superior ability for repayment of senior short-term
debt obligations. Prime-1 repayment ability will often be evidenced by many of
the following characteristics:
--- Leading market positions in well-established industries. ---
High rates of return on funds employed. --- Conservative
capitalization structure with moderate reliance on debt and ample
asset protection. --- Broad margins in earnings coverage of fixed
financial charges and high internal cash generation. ---
Well-established access to a range of financial markets and
assured sources of alternate liquidity.
Issuers rated Prime-2 by Moody's have a strong ability for repayment of senior
short-term debt obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1 but to a lesser degree. Earnings trends
and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
STANDARD AND POOR'S CORPORATION
S&P's two highest commercial paper ratings are A and B. Issues assigned an A
rating are regarded as having the greatest capacity for timely payment. Issues
in this category are delineated with the numbers 1, 2 and 3 to indicate the
relative degree of safety. An A-1 designation indicates that the degree of
safety regarding timely payment is either overwhelming or very strong. Those
issues determined to possess overwhelming safety characteristics are denoted
with a plus (+) sign designation. The capacity for timely payment on issues with
an A-2 designation is strong. However, the relative degree of safety is not as
high as for issues designated A-1. A-3 issues have a satisfactory capacity for
timely payment. They are, however, somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations. Issues rated B are regarded as having only an adequate capacity
for timely payment. However, such capacity may be damaged by changing conditions
or short-term adversities.
FITCH INVESTORS SERVICE, INC.
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
F-1+. Issues assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F-1. Issues assigned this rating reflect an assurance of timely payment only
slightly less in degree than issues rated F-1+.
F-2. Issues assigned this rating have a satisfactory degree of assurance for
timely payment, but the margin of safety is not as great as for issues assigned
F-1+ or F-1 ratings.
F-3. Issues assigned this rating have characteristics suggesting that the degree
of assurance for timely payment is adequate, however, near-term adverse changes
could cause these securities to be rated below investment grade.
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F-S. Issues assigned this rating have characteristics suggesting a minimal
degree of assurance for timely payment and are vulnerable to near-term adverse
changes in financial and economic conditions.
D. Issues assigned this rating are in actual or imminent payment default.
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PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS.
Included in the Prospectus:
Not Applicable.*
Included in the Statement of Additional Information:
Not Applicable.*
(B) EXHIBITS.
Note: * Indicates that the exhibit is incorporated herein by reference. All
references to a Post-Effective Amendment ("PEA") or Pre-Effective Amendment
("PreEA") are to PEAs and PreEAs to Registrant's Registration Statement on Form
N-1A as filed via EDGAR with the SEC.
(1)* Copy of the Trust Instrument of the Registrant dated November
25, 1997 (filed as Exhibit 1 in initial N-1A filing on
December 4, 1997, accession number 0001004402-97-000244).
(2) Not Applicable.
(3) Not Applicable.
(4) (a) Sections 2.02, 2.04 and 2.06 of Registrant's Trust
Instrument provide as follows:
SECTION 2.02 ISSUANCE OF SHARES. Subject to applicable law,
the Trustees in their discretion may, from time to time,
without vote of the Shareholders, issue Shares, in addition to
the then issued and Outstanding Shares and Shares held in the
treasury, to such party or parties and for such amount and
type of consideration, including cash or securities, at such
time or times and on such terms as the Trustees may deem
appropriate, and may in such manner acquire other assets
(including the acquisition of assets subject to, and in
connection with, the assumption of liabilities) and
businesses. In connection with any issuance of Shares, the
Trustees may issue fractional Shares and Shares held in the
treasury. The Trustees may from time to time divide or combine
the Shares into a greater or lesser number without thereby
changing the proportionate beneficial interests in the Trust.
Contributions to the Trust may be accepted for, and Shares
shall be redeemed as, whole Shares and/or 1/1,000th of a Share
or integral multiples thereof.
SECTION 2.04 TRANSFER OF SHARES. Except as otherwise provided
by the Trustees, Shares shall be transferable on the records
of the Trust only by the record holder thereof or by that
holder's agent thereunto duly authorized in writing, upon
delivery to the Trustees or the Transfer Agent of a duly
executed instrument of transfer and such evidence of the
genuineness of such execution and authorization and of such
other matters as may be required by the Trustees or Transfer
Agent. Upon such delivery the transfer shall be recorded on
the register of the Trust. Until such record is made, the
Shareholder of record shall be deemed to be the holder of such
Shares for all purposes hereunder and neither the Trustees nor
the Trust, nor any Transfer Agent or registrar nor any
officer, employee or agent of the Trust shall be affected by
any notice of the proposed transfer.
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SECTION 2.06 ESTABLISHMENT OF SERIES OR CLASS. The Trust
created hereby shall consist of one or more Series and
separate and distinct records shall be maintained by the Trust
for each Series and the assets associated with any such Series
shall be held and accounted for separately from the assets of
the Trust or any other Series. The Trustees may divide the
Shares of any Series into Classes. The Trustees shall have
full power and authority, in their sole discretion, and
without obtaining any prior authorization or vote of the
Shareholders of any Series, to establish and designate and to
change in any manner any such Series or Class and to fix such
preferences, voting powers, rights and privileges of such
Series or Classes as the Trustees may from time to time
determine, to divide or combine the Shares or any Series or
Classes into a greater or lesser number, to classify or
reclassify any issued Shares of any Series or Classes into one
or more Series or Classes, and to take such other action with
respect to the Shares as the Trustees may deem desirable. The
establishment and designation of any Series or Class shall be
effective when specified in the resolution of the Trustees
setting forth such establishment and designation and the
relative rights and preferences of the Shares of such Series
or Class.
All references to Shares in this Trust Instrument shall be
deemed to be Shares of any or all Series or Classes, as the
context may require. All provisions herein relating to the
Trust shall apply equally to each Series and each Class,
except as the context otherwise requires.
Each Share of a Series of the Trust shall represent an equal
beneficial interest in the net assets of such Series subject
to Section 2.08 and the preferences, rights and privileges of
each Class of that Series. Each holder of Shares of a Series
or Class thereof shall be entitled to receive the holder's pro
rata share of all distributions made with respect to such
Series or Class thereof. Upon redemption of Shares, such
Shareholder shall be paid solely out of the funds and property
of such Series of the Trust.
Each Series and Class thereof of the Trust and their
attributes will be set forth in Annex A to this Trust
Instrument.
(5) (a)* Form of Investment Advisory Agreement between
Registrant and Forum Advisors, Inc. (filed as
Exhibit 5(a) in initial N-1A filing on December
4, 1997, accession number 0001004402-97-000244).
(b) Form of Investment Subadvisory Agreement
(6)* Form of Distribution Agreement between Registrant and Forum
Financial Services, Inc. (filed as Exhibit 6 in initial N-1A
filing on December 4, 1997, accession number
0001004402-97-000244).
(7) None.
(8) (a)* Form of Transfer Agency Agreement between Registrant
and Forum Financial Corp. (filed as Exhibit 8(a) in initial
N-1A filing on December 4, 1997, accession number
0001004402-97-000244).
(b) Custodian Agreement
(9)* Form of Administration Agreement between Registrant and Forum
Administrative Services, LLC (filed as Exhibit 9 in initial
N-1A filing on December 4, 1997, accession number
0001004402-97-000244)
(10) Opinion of counsel to Registrant.
(11) Opinion of independent auditors.
(12) None.
(13) Investment Representation letter of original purchaser of
shares of Registrant.
(14) Not Applicable.
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(15)* Form of Rule 12b-1 Plan adopted by the Registrant (filed
as Exhibit 15 in initial N-1A filing on December 4, 1997,
accession number 0001004402-97-000244).
(16) None.
Other Exhibits*:
Powers of Attorney for the Registrant (filed as Other Exhibits
in initial N-1A filing on December 4, 1997, accession number
0001004402-97-000244).
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES AS OF DECEMBER 1, 1997
NUMBER OF RECORD HOLDERS
Government Bond Fund 0
Corporate Bond Fund 0
Growth Equity Fund 0
Value Equity Fund 0
ITEM 27. INDEMNIFICATION.
In accordance with Section 3803 of the Delaware Business Trust Act,
SECTION 10.02 of the Registrant's Trust Instrument provides as follows:
SECTION 10.02 INDEMNIFICATION.
(a) Subject to the exceptions and limitations contained in
Subsection 10.02(b): (i) every Person who is, or has been, a
Trustee or officer of the Trust (hereinafter referred to as a
"Covered Person") shall be indemnified by the Trust to the
fullest extent permitted by law against liability and against
all expenses reasonably incurred or paid by him in connection
with any claim, action, suit or proceeding in which he becomes
involved as a party or otherwise by virtue of his being or
having been a Trustee or officer and against amounts paid or
incurred by him in the settlement thereof; (ii) the words
"claim," "action," "suit," or "proceeding" shall apply to all
claims, actions, suits or proceedings (civil, criminal or
other, including appeals), actual or threatened while in
office or thereafter, and the words "liability" and "expenses"
shall include, without limitation, attorneys' fees, costs,
judgments, amounts paid in settlement, fines, penalties and
other liabilities.
(b) No indemnification shall be provided hereunder to a
Covered Person: (i) who shall have been adjudicated by a court
or body before which the proceeding was brought (A) to be
liable to the Trust or its Shareholders by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office or (B) not
to have acted in good faith in the reasonable belief that his
action was in the best interest of the Trust; or (ii) in the
event of a settlement, unless there has been a determination
that such Trustee or officer did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office, (x) by
the court or other body approving the settlement; (y) by at
least a majority of those Trustees who are neither Interested
Persons of the Trust nor are
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parties to the matter based upon
a review of readily available facts (as opposed to a full
trial-type inquiry); or (z) by written opinion of independent
legal counsel based upon a review of readily available facts
(as opposed to a full trial-type inquiry); provided, however,
that any Shareholder may, by appropriate legal proceedings,
challenge any such determination by the Trustees or by
independent counsel.
(c) The rights of indemnification herein provided may be
insured against by policies maintained by the Trust, shall be
severable, shall not be exclusive of or affect any other
rights to which any Covered Person may now or hereafter be
entitled, shall continue as to a Person who has ceased to be a
Covered Person and shall inure to the benefit of the heirs,
executors and administrators of such a Person. Nothing
contained herein shall affect any rights to indemnification to
which Trust personnel, other than Covered Persons, and other
Persons may be entitled by contract or otherwise under law.
(d) Expenses in connection with the preparation and
presentation of a defense to any claim, action, suit or
proceeding of the character described in Subsection 10.02(a)
may be paid by the Trust or Series from time to time prior to
final disposition thereof upon receipt of an undertaking by or
on behalf of such Covered Person that such amount will be paid
over by him to the Trust or Series if it is ultimately
determined that he is not entitled to indemnification under
this Section 10.02; provided, however, that either (i) such
Covered Person shall have provided appropriate security for
such undertaking, (ii) the Trust is insured against losses
arising out of any such advance payments or (iii) either a
majority of the Trustees who are neither Interested Persons of
the Trust nor parties to the matter, or independent legal
counsel in a written opinion, shall have determined, based
upon a review of readily available facts (as opposed to a
trial-type inquiry or full investigation), that there is
reason to believe that such Covered Person will be found
entitled to indemnification under Section 10.02.
Section 4 of the Investment Advisory Agreement provides in substance as follows:
SECTION 4. STANDARD OF CARE
The Trust shall expect of the Adviser, and the
Adviser will give the Trust the benefit of, the Adviser's best
judgment and efforts in rendering its services to the Trust,
and as an inducement to the Adviser's undertaking these
services the Adviser shall not be liable hereunder for any
mistake of judgment or in any event whatsoever, except for
lack of good faith, breach of fiduciary duty, willful
misfeasance, bad faith or gross negligence in the performance
of the Adviser's duties hereunder, or by reason of the
Adviser's reckless disregard of its obligations and duties
hereunder and except as otherwise provided by law.
Section 3 Administration Agreement provides as follows:
SECTION 3. STANDARD OF CARE AND RELIANCE
(a) Forum shall be under no duty to take any action except as
specifically set forth herein or as may be specifically agreed
to by Forum in writing. Forum shall use its best judgment and
efforts in rendering the services described in this Agreement.
Forum shall not be liable to the Trust or any of the Trust's
shareholders for any action or inaction of Forum relating to
any event whatsoever in the absence of bad faith, willful
misfeasance or gross negligence in the performance of Forum's
duties or obligations under this Agreement or by reason of
Forum's reckless disregard of its duties and obligations under
this Agreement.
(b) The Trust agrees to indemnify and hold harmless Forum, its
employees, agents, directors, officers and managers and any
person who controls Forum within the meaning of section 15 of
the Securities Act or section 20 of the Securities Exchange
Act of 1934, as amended, ("Forum
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Indemnitees") against and from any and all claims, demands,
actions, suits, judgments, liabilities, losses, damages,
costs, charges, reasonable counsel fees and other expenses
of every nature and character arising out of or in any way
related to Forum's actions taken or failures to act with
respect to a Fund that are consistent with the standard of
care set forth in Section 3(a) or based, if applicable, on
good faith reliance upon an item described in Section 3(d)
(a "Claim"). The Trust shall not be required to indemnify
any Forum Indemnitee if, prior to confessing any Claim
against the Forum Indemnitee, Forum or the Forum Indemnitee
does not give the Trust written notice of and reasonable
opportunity to defend against the claim in its own name or
in the name of the Forum Indemnitee.
(c) Forum agrees to indemnify and hold harmless the Trust, its
employees, agents, trustees and officers against and from any
and all claims, demands, actions, suits, judgments,
liabilities, losses, damages, costs, charges, reasonable
counsel fees and other expenses of every nature and character
arising out of Forum's actions taken or failures to act with
respect to a Fund that are not consistent with the standard of
care set forth in Section 3(a). Forum shall not be required to
indemnify the Trust if, prior to confessing any Claim against
the Trust, the Trust does not give Forum written notice of and
reasonable opportunity to defend against the claim in its own
name or in the name of the Trust.
(d) A Forum Indemnitee shall not be liable for any action
taken or failure to act in good faith reliance upon:
(i) the advice of the Trust or of counsel, who may be counsel
to the Trust or counsel to Forum, and upon statements of
accountants, brokers and other persons reasonably believed in
good faith by Forum to be experts in the matter upon which
they are consulted;
(ii) any oral instruction which it receives and which it
reasonably believes in good faith was transmitted by the
person or persons authorized by the Board to give such oral
instruction. Forum shall have no duty or obligation to make
any inquiry or effort of certification of such oral
instruction;
(iii) any written instruction or certified copy of any
resolution of the Board, and Forum may rely upon the
genuineness of any such document or copy thereof reasonably
believed in good faith by Forum to have been validly executed;
or
(iv) any signature, instruction, request, letter of
transmittal, certificate, opinion of counsel, statement,
instrument, report, notice, consent, order, or other document
reasonably believed in good faith by Forum to be genuine and
to have been signed or presented by the Trust or other proper
party or parties;
and no Forum Indemnitee shall be under any duty or obligation
to inquire into the validity or invalidity or authority or
lack thereof of any statement, oral or written instruction,
resolution, signature, request, letter of transmittal,
certificate, opinion of counsel, instrument, report, notice,
consent, order, or any other document or instrument which
Forum reasonably believes in good faith to be genuine.
(e) Forum shall not be liable for the errors of other service
providers to the Trust including the errors of printing
services (other than to pursue all reasonable claims against
the pricing service based on the pricing services' standard
contracts entered into by Forum) and errors in information
provided by an investment adviser (including prices and
pricing formulas and the untimely transmission of trade
information), custodian or transfer agent to the Trust.
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Sections 7 and 8 of the Distribution Services Agreement provide:
SECTION 7. STANDARD OF CARE
(a) The Distributor shall use its best judgment and reasonable
efforts in rendering services to the Trust under this
Agreement but shall be under no duty to take any action except
as specifically set forth herein or as may be specifically
agreed to by the Distributor in writing. The Distributor shall
not be liable to the Trust or any of the Trust's shareholders
for any error of judgment or mistake of law, for any loss
arising out of any investment, or for any action or inaction
of the Distributor in the absence of bad faith, willful
misfeasance or gross negligence in the performance of the
Distributor's duties or obligations under this Agreement or by
reason or the Distributor's reckless disregard of its duties
and obligations under this Agreement
(b) The Distributor shall not be liable for any action taken
or failure to act in good faith reliance upon:
(i) the advice of the Trust or of counsel, who may be counsel
to the Trust or counsel to the Distributor;
(ii) any oral instruction which it receives and which it
reasonably believes in good faith was transmitted by the
person or persons authorized by the Board to give such oral
instruction (the Distributor shall have no duty or obligation
to make any inquiry or effort of certification of such oral
instruction);
(iii) any written instruction or certified copy of any
resolution of the Board, and the Distributor may rely upon the
genuineness of any such document or copy thereof reasonably
believed in good faith by the Distributor to have been validly
executed; or
(iv) any signature, instruction, request, letter of
transmittal, certificate, opinion of counsel, statement,
instrument, report, notice, consent, order, or other document
reasonably believed in good faith by the Distributor to be
genuine and to have been signed or presented by the Trust or
other proper party or parties;
and the Distributor shall not be under any duty or obligation
to inquire into the validity or invalidity or authority or
lack thereof of any statement, oral or written instruction,
resolution, signature, request, letter of transmittal,
certificate, opinion of counsel, instrument, report, notice,
consent, order, or any other document or instrument which the
Distributor reasonably believes in good faith to be genuine.
(c) The Distributor shall not be responsible or liable for
any failure or delay in performance of its obligations under
this Agreement arising out of or caused, directly or
indirectly, by circumstances beyond its reasonable control
including, without limitation, acts of civil or military
authority, national emergencies, labor difficulties, fire,
mechanical breakdowns, flood or catastrophe, acts of God,
insurrection, war, riots or failure of the mails,
transportation, communication or power supply. In addition,
to the extent the Distributor's obligations hereunder are to
oversee or monitor the activities of third parties, the
Distributor shall not be liable for any failure or delay in
the performance of the Distributor's duties caused, directly
or indirectly, by the failure or delay of such third parties
in performing their respective duties or cooperating
reasonably and in a timely manner with the Distributor.
SECTION 8. INDEMNIFICATION
(a) The Trust will indemnify, defend and hold the Distributor,
its employees, agents, directors and officers and any person
who controls the Distributor within the meaning of section
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15 of the Securities Act or section 20 of the 1934 Act
("Distributor Indemnitees") free and harmless from and
against any and all claims, demands, actions, suits,
judgments, liabilities, losses, damages, costs, charges,
reasonable counsel fees and other expenses of every nature
and character (including the cost of investigating or
defending such claims, demands, actions, suits or
liabilities and any reasonable counsel fees incurred in
connection therewith) which any Distributor Indemnitee may
incur, under the Securities Act, or under common law or
otherwise, arising out of or based upon any alleged untrue
statement of a material fact contained in the Registration
Statement or the Prospectuses or arising out of or based
upon any alleged omission to state a material fact required
to be stated in any one thereof or necessary to make the
statements in any one thereof not misleading, unless such
statement or omission was made in reliance upon, and in
conformity with, information furnished in writing to the
Trust in connection with the preparation of the Registration
Statement or exhibits to the Registration Statement by or on
behalf of the Distributor ("Distributor Claims").
After receipt of the Distributor's notice of termination under
Section 13(e), the Trust shall indemnify and hold each
Distributor Indemnitee free and harmless from and against any
Distributor Claim; provided, that the term Distributor Claim
for purposes of this sentence shall mean any Distributor Claim
related to the matters for which the Distributor has requested
amendment to the Registration Statement and for which the
Trust has not filed a Required Amendment, regardless of with
respect to such matters whether any statement in or omission
from the Registration Statement was made in reliance upon, or
in conformity with, information furnished to the Trust by or
on behalf of the Distributor.
(b) The Trust may assume the defense of any suit brought to
enforce any Distributor Claim and may retain counsel of good
standing chosen by the Trust and approved by the Distributor,
which approval shall not be withheld unreasonably. The Trust
shall advise the Distributor that it will assume the defense
of the suit and retain counsel within ten (10) days of receipt
of the notice of the claim. If the Trust assumes the defense
of any such suit and retains counsel, the defendants shall
bear the fees and expenses of any additional counsel that they
retain. If the Trust does not assume the defense of any such
suit, or if Distributor does not approve of counsel chosen by
the Trust or has been advised that it may have available
defenses or claims that are not available to or conflict with
those available to the Trust, the Trust will reimburse any
Distributor Indemnitee named as defendant in such suit for the
reasonable fees and expenses of any counsel that person
retains. A Distributor Indemnitee shall not settle or confess
any claim without the prior written consent of the Trust,
which consent shall not be unreasonably withheld or delayed.
(c) The Distributor will indemnify, defend and hold the Trust
and its several officers and trustees (collectively, the
"Trust Indemnitees"), free and harmless from and against any
and all claims, demands, actions, suits, judgments,
liabilities, losses, damages, costs, charges, reasonable
counsel fees and other expenses of every nature and character
(including the cost of investigating or defending such claims,
demands, actions, suits or liabilities and any reasonable
counsel fees incurred in connection therewith), but only to
the extent that such claims, demands, actions, suits,
judgments, liabilities, losses, damages, costs, charges,
reasonable counsel fees and other expenses result from, arise
out of or are based upon:
(i) any alleged untrue statement of a material fact
contained in the Registration Statement or Prospectus or any
alleged omission of a material fact required to be stated or
necessary to make the statements therein not misleading, if
such statement or omission was made in reliance upon, and in
conformity with, information furnished to the Trust in writing
in connection with the preparation of the Registration
Statement or Prospectus by or on behalf of the Distributor; or
(ii) any act of, or omission by, Distributor or its
sales representatives that does not conform to the standard of
care set forth in Section 7 of this Agreement ("Trust
Claims").
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(d) The Distributor may assume the defense of any suit brought
to enforce any Trust Claim and may retain counsel of good
standing chosen by the Distributor and approved by the Trust,
which approval shall not be withheld unreasonably. The
Distributor shall advise the Trust that it will assume the
defense of the suit and retain counsel within ten (10) days of
receipt of the notice of the claim. If the Distributor assumes
the defense of any such suit and retains counsel, the
defendants shall bear the fees and expenses of any additional
counsel that they retain. If the Distributor does not assume
the defense of any such suit, or if Trust does not approve of
counsel chosen by the Distributor or has been advised that it
may have available defenses or claims that are not available
to or conflict with those available to the Distributor, the
Distributor will reimburse any Trust Indemnitee named as
defendant in such suit for the reasonable fees and expenses of
any counsel that person retains. A Trust Indemnitee shall not
settle or confess any claim without the prior written consent
of the Distributor, which consent shall not be unreasonably
withheld or delayed.
(e) The Trust's and the Distributor's obligations to provide
indemnification under this Section is conditioned upon the
Trust or the Distributor receiving notice of any action
brought against a Distributor Indemnitee or Trust Indemnitee,
respectively, by the person against whom such action is
brought within twenty (20) days after the summons or other
first legal process is served. Such notice shall refer to the
person or persons against whom the action is brought. The
failure to provide such notice shall not relieve the party
entitled to such notice of any liability that it may have to
any Distributor Indemnitee or Trust Indemnitee except to the
extent that the ability of the party entitled to such notice
to defend such action has been materially adversely affected
by the failure to provide notice.
(f) The provisions of this Section and the parties'
representations and warranties in this Agreement shall remain
operative and in full force and effect regardless of any
investigation made by or on behalf of any Distributor
Indemnitee or Trust Indemnitee and shall survive the sale and
redemption of any Shares made pursuant to subscriptions
obtained by the Distributor. The indemnification provisions of
this Section will inure exclusively to the benefit of each
person that may be a Distributor Indemnitee or Trust
Indemnitee at any time and their respective successors and
assigns (it being intended that such persons be deemed to be
third party beneficiaries under this Agreement).
(g) Each party agrees promptly to notify the other party of
the commencement of any litigation or proceeding of which it
becomes aware arising out of or in any way connected with the
issuance or sale of Shares.
(h) Nothing contained herein shall require the Trust to take
any action contrary to any provision of its Organic Documents
or any applicable statute or regulation or shall require the
Distributor to take any action contrary to any provision of
its Articles of Incorporation or Bylaws or any applicable
statute or regulation; provided, however, that neither the
Trust nor the Distributor may amend their Organic Documents or
Articles of Incorporation and Bylaws, respectively, in any
manner that would result in a violation of a representation or
warranty made in this Agreement.
(i) Nothing contained in this section shall be construed to
protect the Distributor against any liability to the Trust or
its security holders to which the Distributor would otherwise
be subject by reason of its failure to satisfy the standard of
care set forth in Section 7 of this Agreement.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISERS.
Forum Investment Advisors, LLC
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The descriptions of Forum Investment Advisors, LLC under the caption
"Management-Adviser" in the Prospectus and Statement of Additional
Information relating to the Government Bond Fund, Corporate Bond Fund,
Growth Equity Fund and Value Equity Fund, constituting certain of Parts
A and B, respectively, of the Registration Statement are incorporated
by reference herein.
The following are the directors and officers of Forum Investment
Advisors, LLC, Two Portland Square, Portland, Maine 04101, including
their business connections which are of a substantial nature.
John Y. Keffer
Forum Holdings Corp., Member. Forum Financial Group, LLC., Member.
Both Forum Holdings Corp. and Forum Financial Group, LLC are
controlled by John Y. Keffer, President and Secretary of Forum
Financial Services, Inc. and of Forum Financial Corp. Mr. Keffer is a
director and/or officer of various registered investment companies for
which Forum Financial Services, Inc. serves as distributor.
William J. Lewis, Director.
Director of Forum Investment Advisors, LLC.
Sara M. Morris, Treasurer.
Chief Financial Officer, Forum Financial Services, Inc. Ms. Morris
serves as an officer of several other Forum affiliated companies. Ms.
Morris also serves as an officer of various registered investment
companies for which Forum Financial Services, Inc. serves as manager,
administrator and/or distributor.
David I. Goldstein, Secretary.
General Counsel, Forum Financial Group, LLC. Mr. Goldstein serves as
an officer of several other Forum affiliated companies. Mr. Goldstein
also serves as an officer of various registered investment companies
for which Forum Financial Services, Inc. serves as manager,
administrator and/or distributor.
Dana A. Lukens, Assistant Secretary.
Corporate Counsel, Forum Financial Group, LLC. Mr. Lukens also serves
as an officer of several other Forum affiliated companies.
Margaret J. Fenderson, Assistant Treasurer.
Corporate Accounting Manager, Forum Financial Group, LLC. Ms.
Fenderson also serves as an officer of several other Forum affiliated
companies.
I. The following are the directors and officers of The Northern Trust Company,
50 South LaSalle Street, Chicago, Illinois, 60675, including any business
connections of a substantial nature which they have had in the past two (2)
fiscal years.
Duane L. Burnham, Director
Director, Northern Trust Corporation, 50 S. LaSalle Street, Chicago, IL
60605; Chairman and Chief Executive Officer of Abbott Laboratories, 100 Abbott
Park Road, Abbott Park, IL 60064-3500.
Dr. Dolores E. Cross, Director
Director, Northern Trust Corporation, 50 S. LaSalle Street, Chicago, IL
60605; President, GE Fund, General Electric Company, 3135 Easton Turnpike,
Fairfield, CT 06432.
Susan Crown, Director
Director, Northern Trust Corporation, 50 S. LaSalle Street, Chicago, IL
60605; Vice President, Henry Crown and Company, 222 N. LaSalle Street, Ste.
2000, Chicago, IL 60601.
John R. Goodwin, Senior Vice President
Robert S. Hamada, Director
Director, Northern Trust Corporation, 50 S. LaSalle Street, Chicago, IL
60605; Dean, Edward Eagle Brown Distinguished Service Professor of Finance, The
University of Chicago Graduate School of Business, 1101 East 58th Street,
Chicago, IL 60637; Director, A.M. Castle & Co., 3400 North Wolf Road, Franklin
Park, IL 60131; Director, Chicago Board of Trade, 141 West Jackson Boulevard,
Chicago, IL 60604.
Barry G. Hastings, President, Chief Operating Officer & Director
President, Chief Operating Officer and Director, Northern Trust
Corporation, 50 S. LaSalle Street, Chicago, IL 60605; Director, Northern Trust
Securities, Inc., 50 S. LaSalle Street, Chicago, IL 60605; Director, Northern
Trust of California Corporation, 355 S. Grand Avenue, Los Angeles, CA 90017;
Vice Chairman of the Board & Director, Northern Trust of Florida Corporation,
700 Brickell Avenue, Miami, FL 33131; Director, Nortrust Realty Management,
Inc., 50 South LaSalle Street, Chicago, IL 60675.
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Robert A. Helman, Director
Director, Northern Trust Corporation, 50 S. LaSalle Street, Chicago, IL
60675; Partner, Mayer, Brown & Platt, 190 S. LaSalle Street, 38th Fl., Chicago,
IL 60603; Governor, Chicago Stock Exchange, One Financial Plaza, 440 S. LaSalle
St., Chicago, IL 60605; Director, The Horsham Corporation, 24 Hazelton Avenue,
Toronto, Ontario, Canada M5R 2E2; Director, Alberta Natural Gas Company, Ltd.,
2900, 240 Fourth Ave., N.W., Calgary, Alberta, Canada T2P 4L7; Director,
Brambles USA, Inc., 400 N. Michigan Avenue, Chicago, IL 60611.
Arthur L. Kelly, Director
Director, Northern Trust Corporation, 50 S. LaSalle Street, Chicago, IL
60675; Managing Partner, KEL Enterprises Ltd., Two First National Plaza, 20 S.
Clark Street, Ste. 2222, Chicago, IL 60603; Director, Bayerische Motoren
Werke(BMW) A.G. BMW Haus Petuelring 130 Postfach 40 02 40, D-8000 Munich 40
Germany; Director, Deere & Company, John Deere Rd., Moline, IL 61265; Director,
Nalco Chemical Company, One Nalco Center, Naperville, IL 60563-1198; Director,
Snap-on Incorporated, 2801 80th Street, Kenosha, WI 53140; Director, Tejas Gas
Corporation, 1301 McKinney St., Houston, TX 77010.
Frederick A. Krehbiel, Director
Director, Northern Trust Corporation, 50 South LaSalle Street, Chicago,
IL 60675; Chairman and Chief Executive Officer, Molex Incorporated, 2222
Wellington Court, Lisle, IL 60532-1682; Director, Nalco Chemical Company, One
Nalco Center, Naperville, IL 60563-1198; Director, Tellabs, Inc., 4951 Indiana
Avenue, Lisle, IL 60532.
Roger W. Kushla, Senior Vice President
Director, The Northern Trust Company of New York, 40 Broad Street, 8th
Fl., New York, NY 10004.
Robert A. LaFleur, Senior Vice President
Thomas L. Mallman, Senior Vice President
James J. Mitchell, III, Executive Vice President
Director, The Northern Trust Company of New York, 40 Broad Street, 8th
Fl., New York, NY 10004.
William G. Mitchell, Director
Director, Northern Trust Corporation, 50 South LaSalle Street, Chicago,
IL 60675; Director, The Interlake Corporation, 7701 Harger Road, Oak Brook, IL
60521-1488; Director, Peoples Energy Corporation, 122 South Michigan Avenue,
Chicago, IL 60603; Director, The Sherwin-Williams Company, 101 Prospect Avenue,
N.W., Cleveland, OH 44115-1075.
Edward J. Mooney, Director
Director, Northern Trust Corporation, 50 S. LaSalle, Chicago, IL 60675;
Chairman, Chief Executive Officer, President & Director, Nalco Chemical Company,
One Nalco Center, Naperville, IL 60563-1198; Director, Morton International,
Inc., 100 North Riverside Plaza, Chicago, IL 60605.
William A. Osborn, Chairman and Chief Executive Officer
Director, Northern Trust Corporation, 50 S. LaSalle Street, Chicago, IL
60675; Director, Northern Trust of California Corporation, 355 S. Grand Avenue,
Los Angeles, CA 90017; Director, Nortrust Realty Management Inc., 50 S. LaSalle
St., Chicago, IL 60675; Director, Northern Futures Corporation, 50 South LaSalle
Street, Chicago, IL 60675.
Sheila A. Penrose, Executive Vice President
Director, Northern Trust Global Advisors, Inc., 29 Federal Street,
Stamford, CT 06901.
Perry R. Pero, Senior Executive Vice President, Chief Financial Officer and
Cashier
Director, Northern Futures Corporation, 50 South LaSalle Street,
Chicago, IL 60675; Director, Northern Trust Global Advisors, Inc., 29 Federal
Street Stamford, CT 06901; Director, Northern Trust Securities, Inc., 50 South
LaSalle Street, Chicago, IL 60675; Director, Nortrust Realty Management, Inc.,
50 South LaSalle Street, Chicago, IL 60675.
Peter L. Rossiter, Executive Vice President and General Counsel
Director, Consolidated Communications Inc., Illinois Consolidated Telephone
Company, 121 S. 17th Street, Mattoon, IL 61938; Executive Vice President and
General Counsel, Northern Trust Corporation, 50 South LaSalle Street, Chicago,
IL 60675.
Harold B. Smith, Director
Chairman of the Executive Committee, Illinois Tool Works Inc., 3600
West Lake Avenue, Glenview, IL 60025-5811; Director, Northern Trust Corporation,
50 South LaSalle Street, Chicago, IL 60675; Director, W. W. Grainger, Inc., 5500
West Howard Street, Skokie, IL 60077; Trustee, Northwestern Mutual Life
Insurance Co., 720 East Wisconsin Avenue, Milwaukee, WI 53202.
William D. Smithburg, Director
Director, Northern Trust Corporation, 50 South LaSalle Street, Chicago,
IL 60675; Director, Abbott Laboratories, One Abbott Park Road, Abbott Park, IL
60675; Director, Corning Incorporated, Corning, NY 14831; Director, Prime
Capital Corporation, P.O. Box 8460, Rolling Meadows, IL 60008.
James M. Snyder, Executive Vice President
Bide L. Thomas, Director
Director, Northern Trust Corporation, 50 South LaSalle Street, Chicago, IL
60675; Director, MYR Group Inc. (formerly L.E. Myers Company), 2550 W. Golf Rd.,
Rolling Meadows, IL 60008; Director, R. R. Donnelley & Sons Company, 77 West
Wacker Drive, Chicago, IL 60601.
II. The following are the directors and officers of Conseco Capital Management,
Inc., 11825 N. Pennsylvania Street, Carmel, Indiana 46032, including any
business connections of a substantial nature which they have had in the past two
(2) fiscal years.
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Ms. Nora Ann Bammann, Vice President
Mr. Maxwell Bublitz, President, Chief Executive Officer and Director
Mr. Andrew S. Chow, Vice President
Mr. Joseph F. DeMichele, Vice President
Mr. Rollin M. Dick, Director
Director, Executive Vice President and Chief Financial Officer,
American Life Holding Corporation, Des Moines, IA; Director and Executive Vice
President, American Life & Casualty Insurance Company, Des Moines, IA; Director,
Executive Vice President and Chief Financial Officer, American Life Group, Inc.,
Des Moines, IA; Executive Vice President, American Life & Casualty Marketing
Division Company, Des Moines, IA; Director and Executive Vice President, Vulcan
Life Insurance Company, AL; Director, Executive Vice President and Chief
Financial Officer, CCP II Holdings Corp., 11825 N. Pennsylvania Street, Carmel,
IN 46032; Director, Executive Vice President and Chief Financial Officer, CNC
Real Estate Inc., 11825 N. Pennsylvania Street, Carmel, IN 46032; Director,
Marketing Distribution Systems Consulting Group, Inc., Morris Plains, NJ;
Director, MDS of New Jersey, Inc., Morris Plains, NJ; Director and Executive
Vice President, Conseco Private Capital Group, Inc., 11825 N. Pennsylvania
Street, Carmel, IN 46032; Director, Bankers Life Holding Corporation, Chicago,
IL; Director, Executive Vice President and Chief Financial Officer, Beneficial
Standard Life Insurance Company, 11825 N. Pennsylvania Street, Carmel, IN 46032;
Director, Conseco Mortgage Capital, Inc., 11825 N. Pennsylvania Street, Carmel,
IN 46032; Director, Executive Vice President and Chief Financial Officer,
Jefferson National Life Insurance Company of Texas, 11825 N. Pennsylvania
Street, Carmel, IN 46032; Director, Executive Vice President and Chief Financial
Officer, Great American Reserve Insurance Company, 11825 N. Pennsylvania Street,
Carmel, IN 46032; Director and Assistant Treasurer, GARCO Holding Corporation,
11825 N. Pennsylvania Street, Carmel, IN 46032; Director, Executive Vice
President and Chief Financial Officer, Conseco Partnership Management, Inc.,
11825 N. Pennsylvania Street, Carmel, IN 46032; Director, Conseco Risk
Management, Inc., 11825 N. Pennsylvania Street, Carmel, IN 46032; Director and
Executive Vice President, Conseco Securities, Inc., 11825 N. Pennsylvania
Street, Carmel, IN 46032; Director, Executive Vice President and Chief Financial
Officer, National Fidelity Life Insurance Company, 11825 N. Pennsylvania Street,
Carmel, IN 46032; Director, Executive Vice President and Chief Financial
Officer, Bankers National Life Insurance Company, 11825 N. Pennsylvania Street,
Carmel, IN 46032; Director, Executive Vice President and Chief Financial
Officer, Conseco, Inc., 11825 N. Pennsylvania Street, Carmel, IN 46032;
Director, Executive Vice President and Chief Financial Officer, Lincoln American
Life Insurance Company, 11825 N. Pennsylvania Street, Carmel, IN 46032;
Director, Brightpoint, Inc., Indianapolis, IN; Director, General Acceptance
Corporation, Bloomington, IN.
Mr. Steven English, Chief Financial Officer, Treasurer and Second Vice President
Mr. William Ficca, Vice President, Director of Research
Mr. Albert Gutierrez, Senior Vice President
Mr. William Latimer, Vice President, Secretary & Director
Vice President, Secretary and Director, GARCO Equity Sales, Inc., 11825
N. Pennsylvania Street, Carmel, IN 46032; Vice President, Secretary and
Director, MDS Securities, Morris Plains, NJ.
Mr. Thomas Meyers, Senior Vice President, Director of Marketing
Senior Vice President, Conseco Mortgage Capital, Inc., 11825 N.
Pennsylvania Street Carmel, IN 46032.
Mr. Thomas J. Pence, Vice President
Mr. See Yeng Quek, Vice President
Mr. Gregory Hahn, Senior Vice President, Portfolio Manager
Mr. Gordon N. Smith, Vice President, Portfolio Manager
Mr. Andrew Sommers, Vice President
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III. The following are the directors and officers of Davis Hamilton, Inc., d/b/a
Davis Hamilton Jackson & Associates, Two Houston Center, 909 Fannin, Ste. 550,
Houston, Texas 77010, including any business connections of a substantial nature
which they have had in the past two (2) fiscal years.
Mr. Jack R. Hamilton, President and Shareholder
Mr. Robert C. Davis, Secretary, Treasurer and Shareholder
Mr. Alfred Jackson, Principal and Shareholder
Mr. James P. Webb, Principal and Shareholder
Ms. Carla J. Evans, Vice President - Administration
Mr. Jeffrey L. Sarff, Chief Operating Officer
IV. The following are the directors and officers of Beutel, Goodman Capital
Management, 5847 San Felipe, Ste. 4550, Houston, Texas 77057-3011, including any
business connections of a substantial nature which they have had in the past two
(2) fiscal years.
Mr. Robert F. McFarland, Chairman, Member of the Management Committee
Director and Chairman, Value Corp., 5847 San Felipe, Ste. 4550, Houston, TX
77057.
Mr. Richard J. Andrews, President, Treasurer and Member of the Management
Committee
Director, Edna Gladney Fund, 2300 Hemphill, Ft. Worth, TX 76110; Director,
U.S. Coast Guard Academy Alumni Association, 15 Monhegan Avenue, New London, CT
06230-4195; Vice President, Beutel Goodman America, Inc., 5847 San Felipe, Ste.
4550, Houston, TX 77057-3011, President, Treasurer and Director, Value Corp.,
5847 San Felipe, Ste. 4550, Houston, TX 77057.
Mr. Carl Dinger, III, Vice President
Mr. John P. Ferguson, Vice President and Member of the Management Committee
Vice President and Director, Value Corp., 5847 San Felipe, Ste. 4550,
Houston, TX 77057.
Mr. Frank McReynolds Wozencraft, Jr., Vice President
Mr. Keith McRedmond, Vice President
Mr. Stephen H. Pouns, Vice President and Management Committee Member
Vice President and Director, Value Corp., 5847 San Felipe, Ste. 4550,
Houston, TX 77057; Trustee, Memorial Hospital System, 7737 Southwest Freeway,
Suite 250, Houston, TX 77074; Director, Memorial Foundation, 7737 Southwest
Freeway, Ste. 250, Houston, TX 77074; Director, The Methodist Home, 1111 Herring
Avenue, Waco, TX.
Ms. Lynette M. Murphy, Corporate Secretary
Ms. Suzanne L. Babin, Vice President
Mr. Bill Ashby, Senior Vice President
Mr. Denis Marsh, Senior Vice President
ITEM 29. PRINCIPAL UNDERWRITER.
(a) Forum Financial Services, Inc., Registrant's underwriter,
serves as underwriter to Core Trust (Delaware), The CRM Funds,
The Cutler Trust, Forum Funds, The Highland Family of Funds,
Monarch Funds, Norwest Funds, Norwest Select Funds and Sound
Shore Fund, Inc.
(b) John Y. Keffer, President of Forum Financial Services, Inc.,
is the Chairman and President of the Registrant. Sara M.
Morris is the Treasurer of Forum Financial Services. David I.
Goldstein, Secretary of Forum Financial Services, Inc., is the
Secretary of the Registrant. Margaret J. Fenderson is the
Assistant Treasurer of Forum Financial Services, Inc. and Dana
Lukens is the Assistant Secretary of Forum Financial Services,
Inc. Their business address is Two Portland Square, Portland,
Maine 04101.
(c) Not Applicable.
ITEM 30. LOCATION OF BOOKS AND RECORDS.
The majority of the accounts, books and other documents required to be
maintained by Section 31(a) of the Investment Company Act of 1940 and the Rules
thereunder are maintained at the offices of Forum Administrative Services, LLC
and Forum Financial Corp., Two Portland Square, Portland, Maine 04101. The
records required to be maintained under Rule 31a-1(b)(1) with respect to
journals of receipts and deliveries of securities and receipts and disbursements
of cash are maintained at the offices of the Registrant's custodian, BankBoston,
100 Federal Street, Boston, Massachusetts 02106. The records required to be
maintained under Rule 31a-1(b)(5), (6) and (9) are maintained at the offices of
the Registrant's adviser or subadviser, as listed in Item 28 hereof.
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ITEM 31. MANAGEMENT SERVICES.
Not Applicable.
ITEM 32. UNDERTAKINGS.
(i) Registrant undertakes to file a post-effective amendment, using
financial statements which need not be certified, within four to six
months from the latter of the effective date of Registrant's Securities
Act of 1933 Registration Statement relating to the prospectuses
offering those shares or the commencement of public shares of the
respective shares; and,
(ii) Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of Registrant's latest annual report to
shareholders relating to the portfolio or class thereof to which the
prospectus relates upon request and without charge.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this amendment to its
Registration Statement to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of Portland, and State of Maine on the 19th day of
February, 1998.
MEMORIAL FUNDS
By: /s/ Max Berueffy
------------------------------
Max Berueffy, President
Pursuant to the requirements of the Securities Act of 1933, this amendment to
the Registrant's Registration Statement has been signed below by the following
persons on the 19th day of February, 1998.
SIGNATURES TITLE
(a) Principal Executive Officer
/s/ Max Berueffy President
--------------------------- and Trustee
Max Berueffy
(b) Principal Financial and
Accounting Officer
/s/ Richard C. Butt Treasurer
---------------------------
Richard C. Butt
(c) All of the Trustees
/s/ Max Berueffy Trustee
---------------------------
Max Berueffy
/s/ Rebecca Hackmann Trustee
----------------------------
Rebecca Hackmann
/s/ Cheryl O. Tumlin Trustee
---------------------------
Cheryl O. Tumlin
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INDEX TO EXHIBITS
Sequential
Exhibit Page Number
------- -----------
(5)(b) Form of Investment Subadvisory Agreement
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EXHIBIT (5)(B)
<PAGE>
MEMORIAL FUNDS
SUBADVISORY AGREEMENT
AGREEMENT made as of the ___ day of _________, 19__, by and among
Memorial Funds, a Delaware business trust, with its principal office and place
of business at Two Portland Square, Portland, Maine 04101, (the "Trust"); Forum
Advisors, LLC, a [Situs of and Type of Organization], with its principal office
and place of business at [Adviser address], (the "Adviser") and [Name of
Subadviser], a [Situs of and Type of Organization], with its principal office
and place of business at [Adviser address], (the "Subadviser").
WHEREAS, Adviser has entered into an Investment Advisory Agreement
dated the ___ day of _________, 19__, ("Advisory Agreement") with the Trust;
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended, (the "1940 Act"), as an open-end, management investment
company and may issue its shares of beneficial interest, no par value (the
"Shares"), in separate series;
WHEREAS, pursuant to the Advisory Agreement, and subject to the
direction and control of the Board of Trustees of the Trust (the "Board"), the
Adviser acts as investment adviser for each series of the Trust listed on
Schedule A hereto (each, a "Fund" and, collectively, the "Funds");
WHEREAS, the Trust and Adviser desire to retain the Subadviser to
perform investment advisory services for the Fund and Subadviser is willing to
provide those services on the terms and conditions set forth in this Agreement;
NOW THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, the Adviser and the Subadviser hereby agree as
follows:
SECTION 1. APPOINTMENT; DELIVERY OF DOCUMENTS
(a) The Trust and the Adviser hereby employ Subadviser, subject to the
direction and control of the Board, to manage the investment and reinvestment of
the assets in each Fund and, without limiting the generality of the foregoing,
to provide other services as specified herein. The Subadviser accepts this
employment and agrees to render its services for the compensation set forth
herein.
(b) In connection therewith, the Trust has delivered to the Subadviser
copies of (i) the Trust's Trust Instrument and Bylaws (collectively, as amended
from time to time, "Organic Documents"), (ii) the Trust's Registration Statement
and all amendments thereto filed with the U.S. Securities and Exchange
Commission ("SEC") pursuant to the Securities Act of 1933, as amended (the
"Securities Act"), or the 1940 Act (the "Registration Statement"), (iii) the
Trust's current Prospectuses and Statements of Additional Information of each
Fund (collectively, as currently in effect and as amended or supplemented, the
"Prospectus"), and (iv) all procedures
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adopted by the Trust with respect to any Fund (I.E., repurchase agreement
procedures), and shall promptly furnish the Adviser with all amendments of or
supplements to the foregoing. The Adviser shall deliver to the Subadviser (x) a
certified copy of the resolution of the Board appointing the Subadviser and
authorizing the execution and delivery of this Agreement, (y) a copy of all
proxy statements and related materials relating to any Fund, and (z) any other
documents, materials or information that the Subadviser shall reasonably request
to enable it to perform its duties pursuant to this Agreement.
(c) The Subadviser has delivered to the Adviser and the Trust [(i) a
copy of its Form ADV as most recently filed with the SEC and (ii)] a copy of its
code of ethics complying with the requirements of Rule 17j-1 under the 1940 Act
(the "Code"). The Subadviser shall promptly furnish the Adviser and Trust with
all amendments of or supplements to the foregoing at least annually.
SECTION 2. DUTIES OF THE TRUST AND ADVISER
(a) In order for the Subadviser to perform the services required by
this Agreement, the Trust and the Adviser (i) shall, cause all service providers
to the Trust to furnish information relating to any Fund to the Subadviser and
assist the Subadviser as may be required and (ii) shall ensure that the
Subadviser has reasonable access to all records and documents maintained by the
Trust, or any service provider to the Trust.
(b) In order for the Subadviser to perform the services required by
this Agreement, the Adviser shall deliver to the Subadviser all material it
provides to the Board in accordance with the Advisory Agreement.
SECTION 3. DUTIES OF THE SUBADVISER
(a) The Subadviser will make decisions with respect to all purchases
and sales of securities and other investment assets in each Fund to the extent
such authority is delegated by the Adviser. To carry out such decisions, the
Subadviser is hereby authorized, as agent and attorney-in-fact for the Trust,
for the account of, at the risk of and in the name of the Trust, to place orders
and issue instructions with respect to those transactions of the Funds. In all
purchases, sales and other transactions in securities and other investments for
the Funds, the Subadviser is authorized to exercise full discretion and act for
the Trust in the same manner and with the same force and effect as the Trust
might or could do with respect to such purchases, sales or other transactions,
as well as with respect to all other things necessary or incidental to the
furtherance or conduct of such purchases, sales or other transactions.
Consistent with Section 28(e) of the Securities and Exchange Act of
1934, as amended, the Subadviser may allocate brokerage on behalf of the Funds
to broker-dealers who provide research services. The Subadviser may aggregate
sales and purchase orders of the assets of the Funds with similar orders being
made simultaneously for other accounts advised by the Subadviser or its
affiliates. Whenever the Subadviser simultaneously places orders to purchase or
sell the same asset on behalf of a Fund and one or more other accounts advised
by the Subadviser, the orders will
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be allocated as to price and amount among all such accounts in a manner believed
to be equitable over time to each account.
(b) The Subadviser will report to the Board at each meeting thereof as
requested by the Adviser or the Board all material changes in each Fund since
the prior report, and will also keep the Board informed of important
developments affecting the Trust, the Funds and the Subadviser, and on its own
initiative, will furnish the Board from time to time with such information as
the Subadviser may believe appropriate for this purpose, whether concerning the
individual companies whose securities are included in the Funds' holdings, the
industries in which they engage, the economic, social or political conditions
prevailing in each country in which the Funds maintain investments, or
otherwise. The Subadviser will also furnish the Board with such statistical and
analytical information with respect to investments of the Funds as the
Subadviser may believe appropriate or as the Board reasonably may request. In
making purchases and sales of securities and other investment assets for the
Funds, the Subadviser will bear in mind the policies set from time to time by
the Board as well as the limitations imposed by the Organic Documents and
Registration Statement, the limitations in the 1940 Act, the Securities Act, the
Internal Revenue Code of 1986, as amended, and other applicable laws and the
investment objectives, policies and restrictions of the Funds.
(c) The Subadviser will from time to time employ or associate with such
persons as the Subadviser believes to be particularly fitted to assist in the
execution of the Subadviser's duties hereunder, the cost of performance of such
duties to be borne and paid by the Subadviser. No obligation may be incurred on
the Trust's or Adviser's behalf in any such respect.
(d) The Subadviser will report to the Board all material matters
related to the Subadviser. On an annual basis, the Subadviser shall report on
its compliance with its Code to the Adviser and to the Board and upon the
written request of the Adviser or the Trust, the Subadviser shall permit the
Adviser and the Trust, or their respective representatives to examine the
reports required to be made to the Subadviser under the Code. The Subadviser
will notify the Adviser and the Trust of any change of control of the Subadviser
and any changes in the key personnel who are either the portfolio manager(s) of
the Fund or senior management of the Subadviser, in each case prior to or
promptly after such change.
(e) The Subadviser will maintain records relating to its portfolio
transactions and placing and allocation of brokerage orders as are required to
be maintained by the Trust under the 1940 Act. The Subadviser shall prepare and
maintain, or cause to be prepared and maintained, in such form, for such periods
and in such locations as may be required by applicable law, all documents and
records relating to the services provided by the Subadviser pursuant to this
Agreement required to be prepared and maintained by the Subadviser or the Trust
pursuant to applicable law. To the extent required by law, the books and records
pertaining to the Trust which are in possession of the Subadviser shall be the
property of the Trust. The Adviser and the Trust, or their respective
representatives, shall have access to such books and records at all times during
the Subadviser's normal business hours. Upon the reasonable request of the
Adviser or the Trust, copies of any such books and records shall be provided
promptly by the Subadviser to the Adviser and the Trust, or their respective
representatives.
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(f) The Subadviser will cooperate with each Fund's independent public
accountants and shall take reasonable action to make all necessary information
available to the accountants for the performance of the accountants' duties.
(g) The Subadviser will provide the Funds' custodian and fund
accountant on each business day with such information relating to all
transactions concerning the Funds' assets under the Subadviser's control as the
custodian and fund accountant may reasonably require. In accordance with
procedures adopted by the Board, the Subadviser is responsible for assisting in
the fair valuation of all Fund assets and will use its reasonable efforts to
arrange for the provision of prices from a parties who are not affiliated
persons of the Subadviser for each asset for which the Funds' fund accountant
does not obtain prices in the ordinary course of business.
(h) The Subadviser shall authorize and permit any of its directors,
officers and employees who may be elected as Trustees or officers of the Trust
to serve in the capacities in which they are elected.
(i) During any period in which the Fund invests all (or substantially
all) of its investment assets in a registered, open-end management investment
company, or separate series thereof, in accordance with Section 12(d)(1)(E)
under the 1940 Act, the Subadviser shall have no duties or obligations pursuant
to this Agreement other than the continuation of any ongoing duties that arose
before such investment.
SECTION 4. COMPENSATION; EXPENSES
(a) In consideration of the foregoing, the Adviser shall pay the
Subadviser, with respect to each Fund, a fee at an annual rate as listed in
Appendix A hereto. Such fees shall be accrued by the Adviser daily and shall be
payable monthly in arrears on the first day of each calendar month for services
performed hereunder during the prior calendar month. If fees begin to accrue in
the middle of a month or if this Agreement terminates before the end of any
month, all fees for the period from that date to the end of that month or from
the beginning of that month to the date of termination, as the case may be,
shall be prorated according to the proportion that the period bears to the full
month in which the effectiveness or termination occurs. Upon the termination of
this Agreement with respect to a Fund, the Adviser shall pay to the Subadviser
such compensation as shall be payable prior to the effective date of
termination.
(b) The Subadviser may agree to waive all or part of its fees by
separate agreement.
(c) No fee shall be payable hereunder with respect to a Fund during any
period in which the Fund invests all (or substantially all) of its investment
assets in a registered, open-end, management investment company, or separate
series thereof, in accordance with Section 12(d)(1)(E) under the 1940 Act.
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SECTION 5. STANDARD OF CARE
(a) The Trust and Adviser shall expect of the Subadviser, and the
Subadviser will give the Trust and Adviser the benefit of, the Subadviser's best
judgment and efforts in rendering its services hereunder. The Subadviser shall
not be liable to the Adviser or the Trust hereunder for any mistake of judgment
or in any event whatsoever, except for lack of good faith, provided that nothing
herein shall be deemed to protect, or purport to protect, the Subadviser against
any liability to the Adviser or the Trust to which the Subadviser would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of the Subadviser's duties hereunder, or by reason
of the Subadviser's reckless disregard of its obligations and duties hereunder.
(d) The Subadviser shall not be liable to the Adviser or the Trust for
any action taken or failure to act in good faith reliance upon: (i) information,
instructions or requests, whether oral or written, with respect to a Fund made
to the Subadviser by a duly authorized officer of the Adviser or the Trust, (ii)
the advice of counsel to the Trust, and (iii) any written instruction or
certified copy of any resolution of the Board.
(c) The Subadviser shall not be responsible or liable for any failure
or delay in performance of its obligations under this Agreement arising out of
or caused, directly or indirectly, by circumstances beyond its reasonable
control including, without limitation, acts of civil or military authority,
national emergencies, labor difficulties (other than those related to the
Subadviser's employees), fire, mechanical breakdowns, flood or catastrophe, acts
of God, insurrection, war, riots or failure of the mails, transportation,
communication or power supply.
SECTION 6. EFFECTIVENESS, DURATION AND TERMINATION
(a) This Agreement shall become effective with respect to a Fund
immediately upon the later of approval by a majority of the Trust's trustees who
are not parties to this Agreement or interested persons of any such party (other
than as trustees of the Trust) and, if required by applicable law, by a vote of
a majority of the outstanding voting securities of the Fund.
(b) This Agreement shall remain in effect with respect to a Fund for a
period of two years from the date of its effectiveness and shall continue in
effect for successive annual periods with respect to the Fund; provided that
such continuance is specifically approved at least annually (i) by the Board or
by the vote of a majority of the outstanding voting securities of the Fund, and,
in either case, (ii) by a majority of the Trust's trustees who are not parties
to this Agreement or interested persons of any such party (other than as
trustees of the Trust); provided further, however, that if the continuation of
this Agreement is not approved as to a Fund, the Subadviser may continue to
render to that Fund the services described herein in the manner and to the
extent permitted by the 1940 Act and the rules and regulations thereunder.
(c) This Agreement may be terminated with respect to a Fund at any
time, without the payment of any penalty, (i) by the Board, by a vote of a
majority of the outstanding voting securities of the Fund or by the Adviser on
[60] days' written notice to the Subadviser or (ii) by
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the Subadviser on 60 days' written notice to the Trust. This Agreement shall
terminate immediately (x) upon its assignment or (y) upon termination of the
Advisory Agreement.
SECTION 7. ACTIVITIES OF THE SUBADVISER
Except to the extent necessary to perform its obligations hereunder,
nothing herein shall be deemed to limit or restrict the Subadviser's right, or
the right of any of the Subadviser's [directors, officers] or employees to
engage in any other business or to devote time and attention to the management
or other aspects of any other business, whether of a similar or dissimilar
nature, or to render services of any kind to any other corporation, trust, firm,
individual or association.
SECTION 8. REPRESENTATIONS OF SUBADVISER.
The Subadviser represents and warrants that (i) it is either registered
as an investment Subadviser under the Investment Advisers Act of 1940, as
amended ("Advisers Act") (and will continue to be so registered for so long as
this Agreement remains in effect) or exempt from registration under the Advisers
Act, (ii) is not prohibited by the 1940 Act or the Advisers Act from performing
the services contemplated by this Agreement, (iii) has met, and will seek to
continue to meet for so long as this Agreement remains in effect, any other
applicable federal or state requirements, or the applicable requirements of any
self-regulatory agency, necessary to be met in order to perform the services
contemplated by this Agreement, and (iv) will promptly notify the Adviser and
the Trust of the occurrence of any event that would disqualify the Subadviser
from serving as an investment Subadviser of an investment company pursuant to
Section 9(a) of the 1940 Act or otherwise.
SECTION 10. LIMITATION OF SHAREHOLDER AND TRUSTEE LIABILITY
The Trustees of the Trust and the shareholders of each Fund shall not
be liable for any obligations of the Trust or of the Funds under this Agreement,
and the Subadviser agrees that, in asserting any rights or claims under this
Agreement, it shall look only to the assets and property of the Trust or the
Fund to which the Subadviser's rights or claims relate in settlement of such
rights or claims, and not to the Trustees of the Trust or the shareholders of
the Funds.
SECTION 11. MISCELLANEOUS
(a) No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties hereto and approved by the Trust in the manner set forth in Section 6(b)
hereof.
(b) No amendment to this Agreement or the termination of this Agreement
with respect to a Fund shall effect this Agreement as it pertains to any other
Fund, nor shall any such amendment require the vote of the shareholders of any
other Fund.
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(c) Neither party to this Agreement shall be liable to the other party
for consequential damages under any provision of this Agreement.
(d) This Agreement shall be governed by, and the provisions of this
Agreement shall be construed and interpreted under and in accordance with, the
laws of the [State of Delaware].
(e) This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject matter
hereof, whether oral or written.
(f) This Agreement may be executed by the parties hereto on any number
of counterparts, and all of the counterparts taken together shall be deemed to
constitute one and the same instrument.
(g) If any part, term or provision of this Agreement is held to be
illegal, in conflict with any law or otherwise invalid, the remaining portion or
portions shall be considered severable and not be affected, and the rights and
obligations of the parties shall be construed and enforced as if the Agreement
did not contain the particular part, term or provision held to be illegal or
invalid.
(h) Section headings in this Agreement are included for convenience
only and are not to be used to construe or interpret this Agreement.
(i) Notices, requests, instructions and communications received by the
parties at their respective principal places of business, or at such other
address as a party may have designated in writing, shall be deemed to have been
properly given.
(j) Notwithstanding any other provision of this Agreement, the parties
agree that the assets and liabilities of each Fund are separate and distinct
from the assets and liabilities of any other series of the Trust and that no
Fund or other series of the Trust shall be liable or shall be charged for any
debt, obligation or liability of any other Fund or series, whether arising under
this Agreement or otherwise.
(k) No affiliated person, employee, agent, director, officer or manager
of the Subadviser shall be liable at law or in equity for the Subadviser's
obligations under this Agreement.
(l) The terms "vote of a majority of the outstanding voting
securities", "interested person", "affiliated person," "control" and
"assignment" shall have the meanings ascribed thereto in the 1940 Act.
(m) Each of the undersigned warrants and represents that they have full
power and authority to sign this Agreement on behalf of the party indicated and
that their signature will bind the party indicated to the terms hereof and each
party hereto warrants and represents that this Agreement, when executed and
delivered, will constitute a legal, valid and binding obligation of the party,
enforceable against the party in accordance with its terms, subject to
bankruptcy,
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insolvency, reorganization, moratorium and other laws of general application
affecting the rights and remedies of creditors and secured parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
MEMORIAL FUNDS
------------------------------------
[Name]
[Title]
FORUM ADVISORS, LLC
------------------------------------
[Name]
[Title]
[SUBADVISER]
-----------------------------------
[Name]
[Title]
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MEMORIAL FUNDS
SUBADVISORY AGREEMENT
[Note - For Multiple Funds]
Appendix A
FEE AS A % OF THE ANNUAL
FUNDS OF THE TRUST AVERAGE DAILY NET ASSETS OF THE FUND
131