MEMORIAL FUNDS
N-1/A, 1998-02-19
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   As filed with the Securities and Exchange Commission on February 19, 1998

                                                           File Nos.   333-41461
                                                                       811-8529
 -------------------------------------------------------------------------------
                       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

 -------------------------------------------------------------------------------
                                 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
 -------------------------------------------------------------------------------
                               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
 -------------------------------------------------------------------------------

     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.



                                       1
<PAGE>




                              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
<PAGE>



                              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
<PAGE>



                                 MEMORIAL FUNDS

                                  TRUST SHARES



                                     [date]




                              GOVERNMENT BOND FUND


                               CORPORATE BOND FUND


                               GROWTH EQUITY FUND


                                VALUE EQUITY FUND









                                       5
<PAGE>






                                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
<PAGE>

   
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
<PAGE>


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
<PAGE>

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
<PAGE>

CORPORATE BOND FUND                                 13            40

INCOME FUND                                         16            49

GROWTH VALUE FUND                                   16            49
    




                                       12
<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  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
<PAGE>

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
<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 



                                       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 



                                       23
<PAGE>

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.
    



                                       24
<PAGE>

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.


                                       25
<PAGE>

   
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.


                                       26
<PAGE>

   
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 



                                       27
<PAGE>

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



                                       28
<PAGE>

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 



                                       29
<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 



                                       30
<PAGE>

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 



                                       31
<PAGE>

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.  
    

                                       32
<PAGE>

   
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.


                                       33
<PAGE>

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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<PAGE>

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



                                       35
<PAGE>

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



                                       36
<PAGE>

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


                                       37
<PAGE>

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



                                       38
<PAGE>

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 



                                       39
<PAGE>

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


                                       40
<PAGE>

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


                                       41
<PAGE>

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 



                                       42
<PAGE>

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.



                                       43
<PAGE>








                                 MEMORIAL FUNDS

                              INSTITUTIONAL SHARES



                                     [date]




                              GOVERNMENT BOND FUND


                               CORPORATE BOND FUND


                               GROWTH EQUITY FUND


                                VALUE EQUITY FUND









                                       44
<PAGE>





                                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.............................................



                                       45
<PAGE>

   
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.


                                       46
<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  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


                                       47
<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.
    


                                       48
<PAGE>

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.
    


                                       49
<PAGE>

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,



                                       59
<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.

                                       60
<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.


                                       61
<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


                                       62
<PAGE>

   
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.


                                       65
<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.


                                       66
<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.
    


                                       67
<PAGE>

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.


                                       68
<PAGE>

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").


                                       69
<PAGE>

   
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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<PAGE>

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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<PAGE>

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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<PAGE>

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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<PAGE>

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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<PAGE>

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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<PAGE>

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.





                                       81
<PAGE>

   
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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<PAGE>

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.


                                       84
<PAGE>

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 



                                       85
<PAGE>

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.




                                       86
<PAGE>

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 



                                       87
<PAGE>

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.





                                       88
<PAGE>

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.




                                       89
<PAGE>

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.




                                       90
<PAGE>

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.




                                       91
<PAGE>

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.




                                       92
<PAGE>

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 



                                       93
<PAGE>

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.



                                       94
<PAGE>

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



                                       95
<PAGE>

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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<PAGE>

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.




                                       97
<PAGE>

   
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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<PAGE>

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



                                       99
<PAGE>

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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<PAGE>

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.





                                      101
<PAGE>






                                 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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<PAGE>

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.




                                      103
<PAGE>

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.




                                      104
<PAGE>

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.




                                      105
<PAGE>

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.




                                      106
<PAGE>

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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<PAGE>

                                     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.

                                      108
<PAGE>

                  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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<PAGE>


         (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 


                                      110
<PAGE>


                  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


                                      111
<PAGE>


                  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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<PAGE>


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 


                                      113
<PAGE>


                    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").



                                      114
<PAGE>


                  (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



                                      115
<PAGE>


         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.

                                      116
<PAGE>

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.

                                      117
<PAGE>

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

                                      118
<PAGE>

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.

                                      119
<PAGE>


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.



                                      120
<PAGE>

                                   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


                                      121
<PAGE>




                               INDEX TO EXHIBITS

                                                            Sequential
     Exhibit                                                Page Number
     -------                                                -----------

     (5)(b)     Form of Investment Subadvisory Agreement





                                      122



                                                                  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 

                                      123
<PAGE>

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

                                      124
<PAGE>

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.
   
                                       125
<PAGE>

         (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.

                                      126
<PAGE>

         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 

                                      127
<PAGE>

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.

                                      128
<PAGE>

         (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,

                                      129
<PAGE>

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]

                                      130
<PAGE>




                                 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


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