As filed with the Securities and Exchange Commission on March 13, 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. 3
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 3
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.
<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)
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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'
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>
<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)
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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'
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>
<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)
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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, Independent 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>
<PAGE>
MEMORIAL FUNDS
TRUST SHARES
PROSPECTUS
March 13, 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 March 13, 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 (888) 263-5593 .
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.
<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.
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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
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 Investment 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.
3
<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 dividends daily 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.
4
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SHAREHOLDER TRANSACTION EXPENSES
(APPLICABLE TO EACH FUND)
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GOVERNMENT CORPORATE GROWTH EQUITY VALUE EQUITY
BOND FUND BOND FUND FUND FUND
---------- --------- ------------- ------------
Maximum sales charge on purchase None None None None
and reinvested dividends
Maximum deferred sales charge None None None None
Exchange Fee None None None None
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ANNUAL FUND OPERATING EXPENSES (1)
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
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GOVERNMENT CORPORATE GROWTH EQUITY VALUE EQUITY
BOND FUND BOND FUND FUND FUND
---------- --------- ------------- ------------
Investment Advisory Fees 0.35% 0.35% 0.45% 0.45%
Rule 12b-1 Fees 0.25% 0.25% 0.25% 0.25%
Other Expenses 0.65% 0.65% 0.85% 0.85%
Total Operating Expenses 1.25% 1.25% 1.55% 1.55%
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(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
CORPORATE BOND FUND $13 $40
GROWTH EQUITY FUND $16 $49
GROWTH VALUE FUND $16 $49
5
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2. INVESTMENT OBJECTIVES AND POLICIES
GOVERNMENT BOND FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to provide a high
level of income consistent with maximum credit protection and moderate
fluctuation in principal value. There is no assurance that the Fund will achieve
this objective.
INVESTMENT POLICIES. The Fund will invest at least 90 percent of its net assets
in a portfolio of fixed and variable rate U.S. Government Securities, including
zero coupon bonds issued or guaranteed by the U.S. Treasury and mortgage-backed
securities. The Fund may invest up to 10 percent of its net assets in corporate
debt securities.
The Fund may not invest more than 25 percent of its total assets in the
securities issued or guaranteed by any single agency or instrumentality of the
U.S. Government, except the U.S. Treasury, and may not invest more than 10
percent of its total assets in the securities of any other issuer.
The Fund invests in debt obligations with maturities (or average life in the
case of mortgage-backed and similar securities) ranging from overnight to 12
years. The Fund seeks to moderate fluctuations in the price of its shares by
structuring maturities of its investment portfolio in order to maintain a
duration between 75 percent and 125 percent of the duration of the Lehman
Brothers Government Bond Index, which was 5.20 years as of March 11, 1998.
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
6
<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 4.47 years as of March 11, 1998. 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.
7
<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
8
<PAGE>
the risks associated with them, see "A Detailed Description of the Funds'
Investments, Investment Strategies and Risks - Futures Contracts and 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 INVESTMENT 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 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
9
<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.
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
billion 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. Thomas A. Meyers, CFA, will be the Fund's Portfolio
Manager and is a Senior Vice President and Director of Marketing for CCM. Mr.
Meyers received his BA from Brown University in Providence, Rhode Island. Prior
to joining CCM in 1988, Mr. Meyers was a Securities Analyst for Capital Research
& Management 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
10
<PAGE>
Square Capital in Minneapolis, Minnesota. Mr. Joseph F. DeMichele is a Vice
President 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 and Portfolio Manager 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"). The
Fund's returns would be reduced to the extent its fees and expenses are higher
than the fees and expenses incurred by the separate accounts. Also, 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.
The Fund's performance will be calculated using the method required by the SEC,
which differs from the method used to calculate the performance of the separate
accounts.
<TABLE>
<S> <C> <C>
- --------------------------------------- -------------------------------------- --------------------------------------
YEARS(S) CCM'S COMPOSITE FOR THE CORPORATE LEHMAN BROTHERS CORPORATE BOND
BOND STYLE INDEX(2)
- --------------------------------------- -------------------------------------- --------------------------------------
Since Inception (7/1/1990) (1) 10.53% 9.74%
- --------------------------------------- -------------------------------------- --------------------------------------
5 Years (1993-1997) (1) 8.83% 8.45%
- --------------------------------------- -------------------------------------- --------------------------------------
3 Years (1995-1997) (1) 11.38% 11.65%
- --------------------------------------- -------------------------------------- --------------------------------------
1 Year (1997) (1) 10.05% 10.24%
- --------------------------------------- -------------------------------------- --------------------------------------
1993 13.57% 12.17%
- --------------------------------------- -------------------------------------- --------------------------------------
1994 (2.74%) (3.92%)
- --------------------------------------- -------------------------------------- --------------------------------------
1995 19.59% 22.24%
- --------------------------------------- -------------------------------------- --------------------------------------
1996 4.97% 3.29%
- --------------------------------------- -------------------------------------- --------------------------------------
1997 10.05% 10.24%
- --------------------------------------- -------------------------------------- --------------------------------------
</TABLE>
11
<PAGE>
(1) Average annual total returns through December 31, 1997.
(2) The Lehman Brother Corporate Bond Index represents taxable, U.S. dollar
denominated debt securities. The index is composed of all publicly issued, fixed
rate, nonconvertible investment grade debt registered under the Securities Act
of 1933. The index includes the industrial, finance, and utility sectors. The
index also includes "Yankee bonds," that is, debt registered and sold in the
United States by foreign issuers, including debt issued or guaranteed by foreign
sovereign governments, municipalities, or governmental or international
agencies. Performance figures for the Index do not reflect deduction of
brokerage commissions, or other transaction costs, nor is the Index subject to
management and other fees charged to the private accounts.
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 the Portfolio Manager for the Fund 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 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 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.
12
<PAGE>
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. The Fund's returns would be reduced to the extent its
fees and expenses are higher than the fees and expenses incurred by the separate
accounts. Also, 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.
The Fund's performance will be calculated using the method required by the SEC,
which differs from the method used to calculate the performance of the separate
accounts.
<TABLE>
<S> <C> <C>
- --------------------------------------- -------------------------------------- --------------------------------------
YEAR(S) DHJA'S COMPOSITE FOR THE GROWTH RUSSELL 1000 GROWTH INDEX(2)
EQUITY STYLE
- --------------------------------------- -------------------------------------- --------------------------------------
Since Inception (7/1/1988) (1) 17.6% 17.95%
- --------------------------------------- -------------------------------------- --------------------------------------
5 Years (1993-1997) (1) 18.8% 18.44%
- --------------------------------------- -------------------------------------- --------------------------------------
3 Years (1995-1997) (1) 28.4% 30.18%
- --------------------------------------- -------------------------------------- --------------------------------------
1 Year (1997) (1) 34.9% 30.48%
- --------------------------------------- -------------------------------------- --------------------------------------
1993 20.2% 2.90%
- --------------------------------------- -------------------------------------- --------------------------------------
1994 (6.9%) 2.66%
- --------------------------------------- -------------------------------------- --------------------------------------
1995 35.4% 37.19%
- --------------------------------------- -------------------------------------- --------------------------------------
1996 15.9% 23.23%
- --------------------------------------- -------------------------------------- --------------------------------------
1997 34.9% 30.48%
- --------------------------------------- -------------------------------------- --------------------------------------
</TABLE>
(1) Average annual total returns through December 31, 1997.
(2) The Russell 1000 Index measures the performance of the 1,000 largest
companies in the Russell 3000 Index, which represents approximately 90% of the
total market capitalization of the Russell 3000 Index. (The Russell 3000
consists of the 3,000 largest U.S. companies based on total market
capitalization; it represents approximately 98% of the investable U.S. equity
market.) When the Russell 1000 was last reconstituted, its average market
capitalization was approximately $7.6 billion, and its median market
capitalization was approximately $3.0 billion. The smallest company in the Index
had an approximate market capitalization of $1.1 billion. The Growth Index
measures the performance of those Russell 1000 companies with higher
price-to-book ratios and higher forecasted growth values. Performance figures
for the Index do not reflect deduction of brokerage commissions, or other
transaction costs, nor is the Index subject to management and other fees charged
to the private accounts.
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
in assets. 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. John Philip Ferguson, will be
the Fund's Portfolio Manager and has served as Vice President and a member of
the Investment Committee of BGCM since 1988. Mr. Ferguson received his Juris
Doctor from the University of
13
<PAGE>
Texas Law School, in Austin, Texas. 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, and a Financial Analyst for Criterion Investment Management Company in
Houston, Texas from 1985 to 1990.
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. The Fund's returns would be reduced to the extent its
fees and expenses are higher than the fees and expenses incurred by the separate
accounts. Also, 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.
The Fund's performance will be calculated using the method required by the SEC,
which differs from the method used to calculate the performance of the separate
accounts.
14
<PAGE>
<TABLE>
<S> <C> <C>
- --------------------------------------- -------------------------------------- --------------------------------------
YEAR(S) BGCM'S COMPOSITE FOR THE VALUE RUSSELL 1000 VALUE INDEX(2)
EQUITY STYLE
- --------------------------------------- -------------------------------------- --------------------------------------
10 Years (1988-1997) (1) 17.5% 18.16%
- --------------------------------------- -------------------------------------- --------------------------------------
5 Years (1993-1997) (1) 20.1% 21.36%
- --------------------------------------- -------------------------------------- --------------------------------------
3 Years (1995-1997) (1) 28.3% 31.52%
- --------------------------------------- -------------------------------------- --------------------------------------
1 Year (1997) (1) 29.6% 35.18%
- --------------------------------------- -------------------------------------- --------------------------------------
1993 23.0% 18.12%
- --------------------------------------- -------------------------------------- --------------------------------------
1994 (4.0%) (2.01%)
- --------------------------------------- -------------------------------------- --------------------------------------
1995 32.6% 38.34%
- --------------------------------------- -------------------------------------- --------------------------------------
1996 22.9% 21.63%
- --------------------------------------- -------------------------------------- --------------------------------------
1997 29.6% 35.18%
- --------------------------------------- -------------------------------------- --------------------------------------
</TABLE>
(1) Average annual total returns through December 31, 1997.
(2) The Russell 1000 Index measures the performance of the 1,000 largest
companies in the Russell 3000 Index, which represents approximately 90% of the
total market capitalization of the Russell 3000 Index. (The Russell 3000
consists of the 3,000 largest U.S. companies based on total market
capitalization; it represents approximately 98% of the investable U.S. equity
market.) When the Russell 1000 was last reconstituted, its average market
capitalization was approximately $7.6 billion, and its median market
capitalization was approximately $3.0 billion. The smallest company in the Index
had an approximate market capitalization of $1.1 billion. The Value Index
measures the performance of those Russell 1000 companies with lower
price-to-book ratios and lower forecasted growth values. Performance figures for
the Index do not reflect deduction of brokerage commissions, or other
transaction costs, nor is the Index subject to management and other fees charged
to the private accounts.
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
15
<PAGE>
On behalf of the Funds, the Trust has entered into an Administration Agreement
with Forum Administrative Services, LLC ("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 February 28, 1998, Forum administers investment companies and collective
investment funds with assets of approximately $45 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 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.
DISTRIBUTION EXPENSES. Under a distribution plan (the "Plan") adopted by the
Board, the Fund may reimburse FFSI for the distribution expenses incurred by
FFSI on behalf of a Fund. These expenses may include the cost of advertising and
promotional materials, providing prospective shareholders with a Fund's
prospectus, statement of additional information and shareholder reports,
reimbursing the Adviser for its distribution expenses and compensating others
who may provide assistance in distributing shares of a Fund. These expenses may
include costs of FFSI's offices such as rent, communications equipment, employee
salaries and overhead costs. The Trust will not reimburse FFSI for any
distribution expenses in any fiscal year of a Fund in excess of 0.25% of the
average daily net assets Fund's Trust class of shares. During the period in
which the Plan and the related Distribution Agreement are in effect, the Board
will from time to time determine the amount of distribution expense
reimbursement to be paid. Unreimbursed expenses of the Distributor incurred
during a fiscal year of the Trust may not be reimbursed by the Trust in future
years or after the termination of the Plan or the Distribution Agreement. To the
extent that the Funds engage in joint distribution activities, distribution
costs will be allocated among the participating Funds pro rata according to
their net assets.
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
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
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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 $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]
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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
An account application is included in this Prospectus. You may also 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.
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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.
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
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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) 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.
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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. 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 you will recognize any taxable gain or loss
upon redemption of the shares. If you wish to utilize the withdrawal plan, you
may do so by completing an application which may be obtained by writing or
calling FSS. The Trust may suspend a shareholder's withdrawal plan without
notice if the account contains insufficient funds to effect a withdrawal or if
the account balance is less than $1,000 at any time.
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REOPENING ACCOUNTS
You may reopen an account, without filing a new account application form, at any
time within one year after your account is closed, if the information on the
account application form on file with the Trust is still applicable.
7. DIVIDENDS AND TAX MATTERS
DIVIDENDS
The Fixed Income Funds declare dividends daily 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 by the amount of the dividend or distribution.
Furthermore, a dividend or distribution made shortly after the purchase of
Shares, although in effect a return of capital to you, will be taxable as
described above.
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Each Fund is required by federal law to withhold 31% of reportable payments
(which may include dividends, capital gain distributions and redemptions) paid
to a shareholder who fails to provide the Fund with a correct taxpayer
identification number or to make required certifications, or who is subject to
backup withholding.
Reports containing appropriate information with respect to the federal income
tax status of dividends and distributions paid during the year by each Fund will
be mailed to shareholders shortly after the close of each calendar year.
8. A DETAILED DESCRIPTION OF THE FUNDS' INVESTMENTS, INVESTMENT STRATEGIES AND
RISKS
IN GENERAL
This section describes in more detail the Funds' investments, the investment
practices and strategies that the Sub-advisers may employ for a Fund, and the
risks associated with these investments and practices.
A FURTHER DESCRIPTION OF THE FUNDS' INVESTMENT POLICIES,
INCLUDING ADDITIONAL FUNDAMENTAL POLICIES, IS CONTAINED IN THE SAI.
A Fund must invest in accordance with its investment objective and stated
investment policies. The holders of a majority of the outstanding voting
securities of the Fund must approve any change to a Fund's investment objective
or to an investment policy designated as fundamental. A majority of outstanding
voting securities means the lesser of 67% of the shares present or represented
at a shareholders' meeting at which the holders of more than 50% of the
outstanding shares are present or represented, or more than 50% of the
outstanding shares. Unless otherwise indicated, the investment policies of the
Funds are not fundamental and may be changed by the Board without shareholder
approval. A Fund will apply the percentage restrictions on its investments set
forth in its investment policies when the investment is made. If the percentage
of a Fund's assets committed to a particular investment or practice later
increases because of a change in the market values of a Fund's assets or
redemptions of Fund shares, it will not constitute a violation of the
limitation.
CORE AND GATEWAY (R)
Notwithstanding the Funds' other investment policies, each Fund may seek to
achieve its investment objective by converting to a Core and Gateway structure,
upon future action by the Board and notice to shareholders. If a Fund converts
to a Core and Gateway structure, it would seek to achieve its investment
objective by investing all or a portion of its assets in shares of another
diversified, open-end management investment company that has an investment
objective and investment policies substantially similar to that of the Fund.
FIXED INCOME SECURITIES AND THEIR CHARACTERISTICS.
INTEREST RATE RISK. All fixed income securities, including U.S. Government
Securities, can change in value when there is a change in interest rates or the
issuer's actual or perceived creditworthiness or ability to meet its
obligations. There is normally an inverse relationship between the market value
of securities sensitive to prevailing interest rates and actual changes in
interest rates. In other words, an increase in interest rates produces a
decrease in market value. Moreover, the longer the remaining maturity (and
duration) of a security, the greater will be the effect of interest rate changes
on the market value of that security. Changes in the ability of an issuer to
make payments of interest and principal and in the market's perception of an
issuer's creditworthiness will also affect the market value of the debt
securities of that issuer. The possibility exists that, the ability of any
issuer to pay, when due, the principal of and interest on its debt securities
may become impaired.
CREDIT RISK AND RATINGS. The FIXED INCOME FUNDS' investments are subject to
"credit risk" relating to the financial condition of the issuers of the
securities that each Fund holds. Each Fund attempts to limit its credit risk by
limiting its investment in securities rated in lower categories by a Nationally
Recognized Statistical Rating Organization ("NRSRO").
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The GOVERNMENT BOND FUND invests at least 90 percent of its net assets in U.S.
Government Securities. For this reason its exposure to credit risk is limited.
It may, however, invest up to 10 percent of its net assets in "investment grade"
corporate debt instruments. Accordingly, the Government Bond Fund may not
purchase any corporate debt instrument having a long-term rating for corporate
bonds, including convertible bonds, lower than are "Baa" in the case of Moody's
Investors Service ("Moody's") and "BBB" in the case of Standard & Poor's ("S&P")
and Fitch Investors Service, L.P. ("Fitch"); the lowest permissible long-term
investment grades for preferred stock are "Baa" in the case of Moody's and "BBB"
in the case of S&P and Fitch; and the lowest permissible short-term investment
grades for short-term debt, including commercial paper, are Prime-2 (P-2) in the
case of Moody's, A-2 in the case of S&P and F-2 in the case of Fitch. Although
considered investment grade, Moody's indicates that securities rated Baa have
speculative characteristics.
The CORPORATE BOND FUND also attempts to limit its credit risk by limiting its
investment in securities rated in lower categories by a Nationally Recognized
Statistical Rating Organization ("NRSRO"). At least 80 percent of the corporate
debt securities that the Fund purchases must be investment grade. No more than 5
percent of the Fund's net assets may be lower than investment grade. The Fund
will attempt to maintain a minimum average portfolio rating, on a dollar
weighted basis, of A by Moody's, S&P or Fitch.
The FIXED INCOME FUNDS also may purchase unrated securities if the portfolio
manager determines the security to be of comparable quality to a rated security
that the Fund may purchase. Unrated securities may not be as actively traded as
rated securities. Each Fund may retain a security whose rating has been lowered
below the Fund's lowest permissible rating category (or that are unrated and
determined by the Sub-adviser to be of comparable quality to securities whose
rating has been lowered below the Fund's lowest permissible rating category) if
the portfolio manager determines that retaining the security is in the best
interests of the Fund. Because a ratings downgrade often results in a reduction
in the market price of the security, sale of a downgraded security may result in
a loss.
U.S. GOVERNMENT SECURITIES. The FIXED INCOME FUNDS may invest in U.S. Government
Securities including U.S. Treasury Securities and obligations issued or
guaranteed by U.S. Government agencies and instrumentalities and backed by the
full faith and credit of the U.S. Government, such as those guaranteed by the
Small Business Administration or issued by the Government National Mortgage
Association ("Ginnie Mae").
The CORPORATE BOND FUND also may invest in securities supported primarily or
solely by the creditworthiness of the issuer, such as securities of the Federal
National Mortgage Association ("Fannie Mae"), the Federal Home Loan Mortgage
Corporation ("Freddie Mac") and the Tennessee Valley Authority. There is no
guarantee that the U.S. Government will support securities not backed by its
full faith and credit. Accordingly, although these securities have historically
involved little risk of loss of principal if held to maturity, they may involve
more risk than securities backed by the U.S. Government's full faith and credit.
VARIABLE AND FLOATING RATE SECURITIES. The FIXED INCOME FUNDS may invest in
securities that pay interest at rates that are adjusted periodically according
to a specified formula, usually with reference to some interest rate index or
market interest rate (the "underlying index"). Such adjustments minimize changes
in the market value of the obligation and, accordingly, enhance the ability of
the Fund to reduce fluctuations in its net asset value. Variable and floating
rate instruments are subject to changes in value based on changes in market
interest rates or changes in the issuer's creditworthiness.
There may not be an active secondary market for certain floating or variable
rate instruments which could make it difficult for a Fund to dispose of the
instrument during periods that the Fund is not entitled to exercise any demand
rights it may have. A Fund could, for this or other reasons, suffer a 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
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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, 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.
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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.
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
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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
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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 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
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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 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
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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, 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
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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 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
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<PAGE>
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
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.
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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
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
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<PAGE>
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 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
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<PAGE>
arising from that series' assets and, upon redeeming shares, will receive the
portion of the series' net assets represented by the redeemed shares.
As of the date of this Prospectus, Memorial Group, Inc. owns 100% of the shares
of each of the Funds. Trustee and President Christopher W. Hamm owns 100% of the
shares of Memorial Group, Inc.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE STATEMENT OF
ADDITIONAL INFORMATION AND THE FUNDS' OFFICIAL SALES LITERATURE IN CONNECTION
WITH THE OFFERING OF THE FUNDS' SHARES, AND IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
TRUST. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO
ANY PERSON TO WHOM, SUCH OFFER MAY NOT LAWFULLY BE MADE.
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<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........................
Transfer Agent..............................................................
Expenses of the Trust.......................................................
Custody.....................................................................
4. HOW TO BUY SHARES............................................................
Minimum Investment..........................................................
Purchase Procedures.........................................................
Initial Purchases...........................................................
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....................................................
Other Classes of Shares.....................................................
Shareholder Voting and Other Rights.........................................
<PAGE>
MEMORIAL FUNDS
INSTITUTIONAL SHARES
PROSPECTUS
March 13, 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 March 13, 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 (888) 263-5593 .
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.
<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
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<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 Investment 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.
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.")
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<PAGE>
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 Institutional 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 dividends daily 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.
SHAREHOLDER TRANSACTION EXPENSES
(APPLICABLE TO EACH FUND)
4
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
GOVERNMENT BOND CORPORATE BOND GROWTH VALUE
FUND FUND EQUITY FUND EQUITY FUND
--------------- --------------- ----------- -----------
Maximum sales charge on purchase and None None None None
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 CORPORATE GROWTH VALUE
BOND FUND BOND FUND EQUITY FUND EQUITY 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
CORPORATE BOND FUND $8 $24
GROWTH EQUITY FUND $10 $32
GROWTH VALUE FUND $10 $32
5
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2. INVESTMENT OBJECTIVES AND POLICIES
GOVERNMENT BOND FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to provide a high
level of income consistent with maximum credit protection and moderate
fluctuation in principal value. There is no assurance that the Fund will achieve
this objective.
INVESTMENT POLICIES. The Fund will invest at least 90 percent of its net assets
in a portfolio of fixed and variable rate U.S. Government Securities, including
zero coupon bonds issued or guaranteed by the U.S. Treasury and mortgage-backed
securities. The Fund may invest up to 10 percent of its net assets in corporate
debt securities.
The Fund may not invest more than 25 percent of its total assets in the
securities issued or guaranteed by any single agency or instrumentality of the
U.S. Government, except the U.S. Treasury, and may not invest more than 10
percent of its total assets in the securities of any other issuer.
The Fund invests in debt obligations with maturities (or average life in the
case of mortgage-backed and similar securities) ranging from overnight to 12
years. The Fund seeks to moderate fluctuations in the price of its Shares by
structuring maturities of its investment portfolio in order to maintain a
duration between 75 percent and 125 percent of the duration of the Lehman
Brothers Government Bond Index, which was 5.20 years as of March 11, 1998.
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 Securities and
Their Characteristics"). No more than 5 percent of the Fund's investments will
be in
6
<PAGE>
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 4.47 years as of March 11, 1998. 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. 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
7
<PAGE>
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 Options."
8
<PAGE>
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 INVESTMENT 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 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, 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.
9
<PAGE>
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.
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
billion 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. Thomas A. Meyers, CFA, will be the Fund's Portfolio
Manager and is a Senior Vice President and Director of Marketing for CCM. Mr.
Meyers received his BA from Brown University in Providence, Rhode Island. Prior
to joining CCM in 1988, Mr. Meyers was a Securities Analyst for Capital Research
& Management 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 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
10
<PAGE>
Senior Vice President and Portfolio Manager 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"). The
Fund's returns would be reduced to the extent its fees and expenses are higher
than the fees and expenses incurred by the separate accounts. Also, 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.
The Fund's performance will be calculated using the method required by the SEC,
which differs from the method used to calculate the performance of the separate
accounts.
<TABLE>
<S> <C> <C>
- --------------------------------------- -------------------------------------- --------------------------------------
YEAR(S) CCM'S COMPOSITE FOR THE CORPORATE LEHMAN BROTHERS CORPORATE BOND
BOND STYLE INDEX(2)
- --------------------------------------- -------------------------------------- --------------------------------------
Since Inception (7/1/1990)(1) 10.53% 9.74%
- --------------------------------------- -------------------------------------- --------------------------------------
5 Years (1993-1997)(1) 8.83% 8.45%
- --------------------------------------- -------------------------------------- --------------------------------------
3 Years (1995-1997)(1) 11.38% 11.65%
- --------------------------------------- -------------------------------------- --------------------------------------
1 Year (1997)(1) 10.05% 10.24%
- --------------------------------------- -------------------------------------- --------------------------------------
1993 13.57% 12.17%
- --------------------------------------- -------------------------------------- --------------------------------------
1994 (2.74%) (3.92%)
- --------------------------------------- -------------------------------------- --------------------------------------
1995 19.59% 22.24%
- --------------------------------------- -------------------------------------- --------------------------------------
1996 4.97% 3.29%
- --------------------------------------- -------------------------------------- --------------------------------------
1997 10.05% 10.24%
- --------------------------------------- -------------------------------------- --------------------------------------
</TABLE>
11
<PAGE>
(1) Average annual total returns through December 31, 1997.
(2) The Lehman Brother Corporate Bond Index represents taxable, U.S. dollar
denominated debt securities. The index is composed of all publicly issued, fixed
rate, nonconvertible investment grade debt registered under the Securities Act
of 1933. The index includes the industrial, finance, and utility sectors. The
index also includes "Yankee bonds," that is, debt registered and sold in the
United States by foreign issuers, including debt issued or guaranteed by foreign
sovereign governments, municipalities, or governmental or international
agencies. Performance figures for the Index do not reflect deduction of
brokerage commissions, or other transaction costs, nor is the Index subject to
management and other fees charged to the private accounts.
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 the Portfolio Manager for the Fund 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 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 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.
12
<PAGE>
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. The Fund's returns would be reduced to the extent its
fees and expenses are higher than the fees and expenses incurred by the separate
accounts. Also, 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.
The Fund's performance will be calculated using the method required by the SEC,
which differs from the method used to calculate the performance of the separate
accounts.
<TABLE>
<S> <C> <C>
- --------------------------------------- -------------------------------------- --------------------------------------
DHJA'S COMPOSITE FOR THE GROWTH RUSSELL 1000 GROWTH INDEX(2)
EQUITY STYLE
- --------------------------------------- -------------------------------------- --------------------------------------
Since Inception (7/1/1988) (1) 17.6% 17.95%
- --------------------------------------- -------------------------------------- --------------------------------------
5 Years (1993-1997) (1) 18.8% 18.44%
- --------------------------------------- -------------------------------------- --------------------------------------
3 Years (1995-1997) (1) 28.4% 30.18%
- --------------------------------------- -------------------------------------- --------------------------------------
1 Year (1997) (1) 34.9% 30.48%
- --------------------------------------- -------------------------------------- --------------------------------------
1993 20.2% 2.90%
- --------------------------------------- -------------------------------------- --------------------------------------
1994 (6.9%) 2.66%
- --------------------------------------- -------------------------------------- --------------------------------------
1995 35.4% 37.19%
- --------------------------------------- -------------------------------------- --------------------------------------
1996 15.9% 23.23%
- --------------------------------------- -------------------------------------- --------------------------------------
1997 34.9% 30.48%
- --------------------------------------- -------------------------------------- --------------------------------------
</TABLE>
(1) Average annual total returns through December 31, 1997.
(2) The Russell 1000 Index measures the performance of the 1,000 largest
companies in the Russell 3000 Index, which represents approximately 90% of the
total market capitalization of the Russell 3000 Index. (The Russell 3000
consists of the 3,000 largest U.S. companies based on total market
capitalization; it represents approximately 98% of the investable U.S. equity
market.) When the Russell 1000 was last reconstituted, its average market
capitalization was approximately $7.6 billion, and its median market
capitalization was approximately $3.0 billion. The smallest company in the Index
had an approximate market capitalization of $1.1 billion. The Growth Index
measures the performance of those Russell 1000 companies with higher
price-to-book ratios and higher forecasted growth values. Performance figures
for the Index do not reflect deduction of brokerage commissions, or other
transaction costs, nor is the Index subject to management and other fees charged
to the private accounts.
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
in assets. 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. John Philip Ferguson, will be
the Fund's Portfolio Manager and has served as Vice President and a member of
the Investment Committee of BGCM since 1988. Mr. Ferguson received his Juris
Doctor from the University of Texas Law School, in Austin, Texas. Mr. Forrest B.
Bruch, Jr., CFA, has served as a Portfolio Manager of BGCM
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<PAGE>
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, and a Financial Analyst for Criterion Investment
Management Company in Houston, Texas from 1985 to 1990.
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. The Fund's returns would be reduced to the extent its
fees and expenses are higher than the fees and expenses incurred by the separate
accounts. Also, 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.
The Fund's performance will be calculated using the method required by the SEC,
which differs from the method used to calculate the performance of the separate
accounts.
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<TABLE>
<S> <C> <C>
- --------------------------------------- -------------------------------------- --------------------------------------
YEARS(S) BGCM'S COMPOSITE FOR THE VALUE RUSSELL 1000
EQUITY STYLE VALUE INDEX (2)
- --------------------------------------- -------------------------------------- --------------------------------------
10 Years (1988-1997) (1) 17.5% 18.16%
- --------------------------------------- -------------------------------------- --------------------------------------
5 Years (1993-1997) (1) 20.1% 21.36%
- --------------------------------------- -------------------------------------- --------------------------------------
3 Years (1995-1997) (1) 28.3% 31.52%
- --------------------------------------- -------------------------------------- --------------------------------------
1 Year (1997) (1) 29.6% 35.18%
- --------------------------------------- -------------------------------------- --------------------------------------
1993 23.0% 18.12%
- --------------------------------------- -------------------------------------- --------------------------------------
1994 (4.0%) (2.01%)
- --------------------------------------- -------------------------------------- --------------------------------------
1995 32.6% 38.34%
- --------------------------------------- -------------------------------------- --------------------------------------
1996 22.9% 21.63%
- --------------------------------------- -------------------------------------- --------------------------------------
1997 29.6% 35.18%
- --------------------------------------- -------------------------------------- --------------------------------------
</TABLE>
(1) Average annual total returns through December 31, 1997.
(2) The Russell 1000 Index measures the performance of the 1,000 largest
companies in the Russell 3000 Index, which represents approximately 90% of the
total market capitalization of the Russell 3000 Index. (The Russell 3000
consists of the 3,000 largest U.S. companies based on total market
capitalization; it represents approximately 98% of the investable U.S. equity
market.) When the Russell 1000 was last reconstituted, its average market
capitalization was approximately $7.6 billion, and its median market
capitalization was approximately $3.0 billion. The smallest company in the Index
had an approximate market capitalization of $1.1 billion. The Value Index
measures the performance of those Russell 1000 companies with lower
price-to-book ratios and lower forecasted growth values. Performance figures for
the Index do not reflect deduction of brokerage commissions, or other
transaction costs, nor is the Index subject to management and other fees charged
to the private accounts.
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.
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<PAGE>
ADMINISTRATOR
On behalf of the Fund, the Trust has entered into an Administration Agreement
with Forum Administrative Services, LLC ("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 February 28, 1998, Forum administers investment companies and collective
investment funds with assets of approximately $45 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 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
0.05% of the average daily net assets of the Institutional 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
Institutional 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
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
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<PAGE>
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. 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:
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.
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<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
An account application is included in this Prospectus. You may also obtain the
account application form necessary to open an account by writing the Trust at
the following address:
MEMORIAL FUNDS
P.O. BOX 446
PORTLAND, ME 04112
To participate in shareholder services not referenced on the account application
form and to change information on your account (such as addresses), you should
contact the Trust. The Trust reserves the right in the future to modify, limit
or terminate any shareholder privilege upon appropriate notice to shareholders
and to charge a fee for certain shareholder services, although no such fees are
currently contemplated. You may terminate your exercise of any privilege or
participation in any program at any time by writing to the Trust.
GENERAL INFORMATION
Fund Shares are continuously sold on any weekday except days when the New York
Stock Exchange is closed, normally New Year's Day, Martin Luther King Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas ("Fund Business Day"). The purchase price for a
share of a Fund equals its net asset value next-determined after acceptance of
an order in proper form.
Fund shares become entitled to receive dividends and distributions on the next
Fund Business Day after a purchase order is accepted.
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<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 redemption
request in proper form.
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<PAGE>
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 exchange, upon not less than 60 days' written notice, all
Institutional Shares in any Fund account whose aggregate net asset value is less
than $5 million immediately following any redemption with Trust Shares.
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
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<PAGE>
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.")
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 dividends daily 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, any shareholders of a Fund 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
21
<PAGE>
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.
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
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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").
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 securitie
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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 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
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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, 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.
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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.
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
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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 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.
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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 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.
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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 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
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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, 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
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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 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
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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 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%.
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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
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
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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.
As of the date of this Prospectus, Memorial Group, Inc. owns 100% of the shares
of each of the Funds. Trustee and President Christopher W. Hamm owns 100% of the
shares of Memorial Group, Inc.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE STATEMENT OF
ADDITIONAL INFORMATION AND THE FUNDS' OFFICIAL SALES LITERATURE IN CONNECTION
WITH THE OFFERING OF THE FUNDS' SHARES, AND IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
TRUST. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO
ANY PERSON TO WHOM, SUCH OFFER MAY NOT LAWFULLY BE MADE.
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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.......................................................
Transfer Agent..............................................................
Expenses of the Trust.......................................................
Custody.....................................................................
4. HOW TO BUY SHARES............................................................
Minimum Investment..........................................................
Purchase Procedures.........................................................
Initial Purchases...........................................................
Subsequent Purchases........................................................
Account Application.........................................................
General Information.........................................................
5. HOW TO SELL SHARES...........................................................
General Information.........................................................
Redemption Procedures.......................................................
Other Redemption Matters....................................................
6. OTHER SHAREHOLDER SERVICES...................................................
Exchanges...................................................................
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....................................................
Other Classes of Shares.....................................................
Shareholder Voting and Other Rights.........................................
<PAGE>
MEMORIAL FUNDS
INSTITUTIONAL SHARES
[date]
GOVERNMENT BOND FUND
CORPORATE BOND FUND
GROWTH EQUITY FUND
VALUE EQUITY FUND
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION:
MEMORIAL FUNDS
GOVERNMENT BOND FUND
CORPORATE BOND FUND
GROWTH EQUITY FUND
VALUE EQUITY FUND
Fund Information:
Forum Shareholder Services, LLC
P.O. Box 446
Two Portland Square
Portland, Maine 04101 Account Information and
(888) 263-5593 Shareholder Services:
Forum Shareholder Services, LLC.
P.O. Box 446
Portland, Maine 04112
(888)263-5593
Investment Adviser:
Forum Investment Advisors, LLC
Two Portland Square
Portland, ME 04101
STATEMENT OF ADDITIONAL INFORMATION
March 13, 1998
This Statement of Additional Information ("SAI") supplements the Prospectus
dated March 13, 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
<PAGE>
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 BankBoston, 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.
"FSS" 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 FSS.
"Trust" shall mean Memorial Funds, an open-end management investment
company registered under the 1940 Act.
"U.S. Government Securities" shall mean obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities.
"1933 Act" shall mean the Securities Act of 1933, as amended.
"1940 Act" shall mean the Investment Company Act of 1940, as amended.
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1. INVESTMENT POLICIES
The following discussion is intended to supplement the disclosure in the
Prospectus concerning each Fund's investments, investment techniques and
strategies and the risks associated therewith. No Fund may make any investment
or employ any investment technique or strategy unless otherwise permitted in a
Prospectus relating to that Fund or this SAI. For example, while the SAI
describes "when-issued" transactions below, only those Funds whose investment
policies, as described in the Prospectus or this SAI, allow the Fund to invest
in when-issued transactions may do so.
SECURITY RATINGS INFORMATION
Moody's, S&P and other NRSROs are private services that rate the credit quality
of debt obligations. A description of the range of ratings assigned to various
types of bonds and other securities by several NRSROs is included in Appendix A
to this SAI. The Funds may use these ratings to determine whether to purchase,
sell or hold a security. These ratings are general and are not absolute
standards of quality, however. Consequently, securities with the same maturity,
interest rate and rating may have different market prices. To the extent that
the ratings given by a NRSRO may change as a result of changes in such
organizations or their rating systems, the Sub-adviser will attempt to
substitute comparable ratings. Credit ratings attempt to evaluate the safety of
principal and interest payments and do not evaluate the risks of fluctuations in
market value. Also, rating agencies may fail to make timely changes in credit
ratings. An issuer's current financial condition may be better or worse than a
rating indicates.
A Fund may purchase unrated securities if its Sub-adviser determines the
security to be of comparable quality to a rated security that the Fund may
purchase. Unrated securities may not trade as actively as rated securities. A
Fund may retain securities whose rating has been lowered below the lowest
permissible rating category (or that are unrated and determined by its
Sub-adviser to be of comparable quality to securities whose rating has been
lowered below the lowest permissible rating category) if the Sub-adviser
determines that retaining such security is in the best interests of the Fund.
To limit credit risks, the Funds generally may only invest in securities that
are investment grade (rated in the top four long-term investment grades by an
NRSRO or in the top two short-term investment grades by an NRSRO.) Accordingly,
the lowest permissible long-term investment grades for corporate bonds,
including convertible bonds, are Baa in the case of Moody's and BBB in the case
of S&P and Fitch; the lowest permissible long-term investment grades for
preferred stock are baa in the case of Moody's and BBB in the case of S&P and
Fitch; and the lowest permissible short-term investment grades for short-term
debt, including commercial paper, are Prime-2 (P-2) in the case of Moody's, A-2
in the case of S&P and F-2 in the case of Fitch. All these ratings are generally
considered to be investment grade ratings, although Moody's indicates that
securities with long-term ratings of Baa have speculative characteristics.
Corporate Bond Fund may invest up to 5% of its assets in securities rated below
investment grade. Non-investment grade securities (commonly known as "junk
bonds") are predominantly speculative with respect to the capacity to pay
interest and repay principal and generally involve a greater volatility of price
than securities in higher-rated categories.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
Each Fixed Income Fund may purchase securities offered on a "when-issued" basis
and may purchase or sell securities on a "forward commitment" basis. When such
transactions are negotiated, the price, which is generally expressed in yield
terms, is fixed at the time the commitment is made, but delivery and payment for
the securities take place at a later date. Normally, the settlement date occurs
within two months after the transaction, but delayed settlements beyond two
months may be negotiated. During the period between a commitment and settlement,
no payment is made for the securities purchased by the purchaser and, thus, no
interest accrues to the purchaser from the transaction. At the time a Fund makes
the commitment to purchase securities on a when-issued or delayed delivery
basis, the Fund will record the transaction as a purchase and thereafter reflect
the value each day of such securities in determining its net asset value.
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The use of when-issued transactions and forward commitments enables the Fixed
Income Funds to hedge against anticipated changes in interest rates and prices.
For instance, in periods of rising interest rates and falling bond prices, a
Fund might sell securities which it owned on a forward commitment basis to limit
its exposure to falling prices. In periods of falling interest rates and rising
bond prices, a Fund might sell a security and purchase the same or a similar
security on a when-issued or forward commitment basis, thereby obtaining the
benefit of currently higher cash yields. However, if the Fund's Sub-adviser
forecasts incorrectly the direction of interest rate movements, the Fund might
be required to complete such when-issued or forward commitment transactions at
prices lower than the current market values.
The Funds enter into when-issued and forward commitment transactions only with
the intention of actually receiving or delivering the securities, as the case
may be. If a Fund subsequently chooses to dispose of its right to acquire a
when-issued security or its right to deliver or receive against a forward
commitment before the settlement date, it can incur a gain or loss. When-issued
securities may include bonds purchased on a "when, as and if issued" basis under
which the issuance of the securities depends upon the occurrence of a subsequent
event. Any significant commitment of a Fund's assets to the purchase of
securities on a "when, as and if issued" basis may increase the volatility of
its net asset value.
Each Fund will establish and maintain with its custodian a separate account with
cash, U.S. Government Securities and other liquid high-grade debt securities in
an amount at least equal to its commitments to purchase securities on a
when-issued or delayed delivery basis.
ILLIQUID SECURITIES
Each Fund may invest up to 15% of its net assets in illiquid securities. The
term "illiquid securities" for this purpose means securities that cannot be
disposed of within seven days in the ordinary course of business at
approximately the amount at which the Fund has valued the securities and
includes, among other things, purchased over-the-counter (OTC) options and
repurchase agreements maturing in more than seven days.
The Board is ultimately responsible for determining whether specific securities
are liquid or illiquid. The Board has delegated the function of making
day-to-day determinations of liquidity to the Advisers, pursuant to guidelines
approved by the Board. The Advisers take into account a number of factors in
reaching liquidity decisions, including but not limited to: (1) the frequency of
trades and quotations for the security; (2) the number of dealers willing to
purchase or sell the security and the number of other potential buyers; (3) the
willingness of dealers to undertake to make a market in the security; and (4)
the nature of the marketplace trades, including the time needed to dispose of
the security, the method of soliciting offers and the mechanics of the transfer.
The Adviser and the Sub-adviser for each Fund monitor the liquidity of the
securities in that Fund's portfolio and reports periodically on such decisions
to the Board.
CONVERTIBLE SECURITIES
The Funds may invest in convertible securities. A convertible security is a
bond, debenture, note, preferred stock or other security that may be converted
into or exchanged for a prescribed amount of common stock of the same or a
different issuer within a particular period of time at a specified price or
formula. A convertible security entitles the holder to receive interest paid or
accrued on debt or the dividend paid on preferred stock until the convertible
security matures or is redeemed, converted or exchanged. Before conversion,
convertible securities are similar to corresponding nonconvertible securities to
the extent that they ordinarily provide a stable stream of income with generally
higher yields than those of common stocks of the same or similar issuers.
Convertible securities rank senior to common stock in a corporation's capital
structure but are usually subordinated to comparable nonconvertible securities.
Although no securities investment is without some risk, investment in
convertible securities generally entails less risk than in the issuer's common
stock. However, the extent to which such risk is reduced depends in large
measure upon the degree to which the convertible security sells above its value
as a fixed income security. Convertible securities have unique investment
characteristics in that they generally (1) have higher yields than common
stocks, but lower yields than comparable non-convertible securities, (2) are
less subject to
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fluctuation in value than the underlying stocks since they have fixed income
characteristics and (3) provide the potential for capital appreciation if the
market price of the underlying common stock increases.
The value of a convertible security is a function of its "investment value"
(determined by its yield comparison with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and its
"conversion value" (the security's worth, at market value, if converted into the
underlying common stock). The investment value of a convertible security is
influenced by changes in interest rates, with investment value declining as
interest rates increase and increasing as interest rates decline. The credit
standing of the issuer and other factors also may affect the convertible
security's investment value. The conversion value of a convertible security is
determined by the market price of the underlying common stock. If the conversion
value is low relative to the investment value, the price of the convertible
security is governed principally by its investment value and generally the
conversion value decreases as the convertible security approaches maturity. To
the extent the market price of the underlying common stock approaches or exceeds
the conversion price, the price of the convertible security will be increasingly
influenced by its conversion value. In addition, a convertible security
generally will sell at a premium over its conversion value determined by the
extent to which investors place value on the right to acquire the underlying
common stock while holding a fixed income security.
A convertible security may be subject to redemption at the option of the issuer
at a price established in the convertible security's governing instrument. If a
convertible security held by a Fund is called for redemption, the Fund will be
required to permit the issuer to redeem the security, convert it into the
underlying common stock or sell it to a third party.
TEMPORARY DEFENSIVE POSITION
When a Fund assumes a temporary defensive position it may invest without limit
in (i) short-term U.S. Government Securities, (ii) certificates of deposit,
bankers' acceptances and interest-bearing savings deposits of commercial banks
doing business in the United States that have, at the time of investment, total
assets in excess of one billion dollars and that are insured by the Federal
Deposit Insurance Corporation, (iii) commercial paper of prime quality rated
Prime-2 or higher by Moody's or A-2 or higher by S&P or, if not rated,
determined by the Fund's Subadviser to be of comparable quality, (iv) repurchase
agreements covering any of the securities in which the Fund may invest directly
and (v) money market mutual funds.
OTHER INVESTMENT COMPANIES
The Funds may invest in the securities of other investment companies within the
limits proscribed by the 1940 Act. In addition to the Fund's expenses (including
the various fees), as a shareholder in another investment company, a Fund would
bear its pro rata portion of the other investment company's expenses (including
fees).
FUTURES CONTRACTS AND OPTIONS
Each Fund may seek to hedge against a decline in the value of securities it owns
or an increase in the price of securities that it plans to purchase through the
writing and purchase of exchange-traded and over-the-counter options and the
purchase and sale of futures contracts and options on those futures contracts.
The Equity Funds may buy or sell stock index futures contracts, such as
contracts on the S&P 500 stock index. The Fixed Income Funds may buy and sell
bond index futures contracts. In addition, all of the Funds may buy or sell
futures contracts on Treasury bills, Treasury bonds and other financial
instruments. The Funds may write covered options and buy options on the futures
contracts in which they may invest.
In addition, the Funds may write (sell) covered put and call options and may buy
put and call options on debt securities and bond indices. An option is covered
if, so long as the Fund is obligated under the option, it owns an offsetting
position in the underlying security, currency or futures contract or maintains
cash, U.S. Government Securities or other liquid, high-grade debt securities in
a segregated account with a value at all times sufficient to cover the Fund's
obligation under the option.
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The Funds' use of options and futures contracts would subject the Funds to
certain investment risks and transaction costs to which they might not otherwise
be subject. These risks include: (1) dependence on the Sub-adviser's ability to
predict movements in the prices of individual securities and fluctuations in the
general securities markets; (2) imperfect correlation between movements in the
prices of options, futures contracts or related options and movements in the
price of the securities hedged or used for cover; (3) the fact that skills and
techniques needed to trade these instruments are different from those needed to
select the other securities in which the Funds invest; (4) lack of assurance
that a liquid secondary market will exist for any particular instrument at any
particular time; and (5) the possible need to defer closing out of certain
options, futures contracts and related options to avoid adverse tax
consequences. Other risks include the inability of the Fund, as the writer of
covered call options, to benefit from the appreciation of the underlying
securities above the exercise price and the possible loss of the entire premium
paid for options purchased by the Fund.
The Funds have no current intention of investing in futures contracts and
options thereon for purposes other than hedging. No Fund may purchase any call
or put option on a futures contract if the premiums associated with all such
options held by the Fund would exceed 5 percent of the Fund's total assets as of
the date the option is purchased. No Fund may sell a put option if the exercise
value of all put options written by the Fund would exceed 50 percent of the
Fund's total assets or sell a call option if the exercise value of all call
options written by the Fund would exceed the value of the Fund's assets. In
addition, the current market value of all open futures positions held by a Fund
will not exceed 50 percent of its total assets.
A Fund will only invest in futures and options contracts after providing notice
to its shareholders and filing a notice of eligibility (if required) and
otherwise complying with the requirements of the Commodity Futures Trading
Commission ("CFTC"). The CFTC's rules provide that the Funds are permitted to
purchase such futures or options contracts only (1) for bona fide hedging
purposes within the meaning of the rules of the CFTC; provided, however, that in
the alternative with respect to each long position in a futures or options
contract entered into by a Fund, the underlying commodity value of such contract
at all times does not exceed the sum of cash, short-term United States debt
obligations or other United States dollar denominated short-term money market
instruments set aside for this purpose by the Fund, accrued profit on the
contract held with a futures commission merchant and cash proceeds from existing
Fund investments due in 30 days; and (2) subject to certain limitations.
HEDGING AND OPTIONS STRATEGIES
Each Fund may purchase or sell (write) put and call options on securities to
seek to hedge against a decline in the value of securities owned by it or an
increase in the price of securities which it plans to purchase through the
writing and purchase of exchange-traded and over-the-counter options on
individual securities or securities or financial indices and through the
purchase and sale of financial futures contracts and related options. These
investment techniques involve risks that are different in certain respects from
the investment risks associated with the other investments of a Fund. Use of
these instruments is subject to regulation by the SEC, the several options and
futures exchanges upon which options and futures are traded or the CFTC.
No assurance can be given, however, that any hedging or option income strategy
will succeed in achieving its intended result.
Except as otherwise noted in the Prospectus or herein, the Funds will not use
leverage in their options and hedging strategies. In the case of transactions
entered into as a hedge, a Fund will hold securities, currencies or other
options or futures positions whose values are expected to offset ("cover") its
obligations thereunder. A Fund will not enter into a hedging strategy that
exposes it to an obligation to another party unless it owns either (i) an
offsetting ("covered") position or (ii) cash, U.S. Government Securities or
other liquid securities (or other assets as may be permitted by the SEC) with a
value sufficient at all times to cover its potential obligations. When required
by applicable regulatory guidelines, the Funds will set aside cash, U.S.
Government Securities or other liquid securities (or other assets as may be
permitted by the SEC) in a segregated account with its custodian in the
prescribed amount. Any assets used for cover or held in a segregated account
cannot be sold or closed out while the hedging or option income strategy is
outstanding, unless they are replaced with similar assets. As a result, there is
a possibility
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that the use of cover or segregation involving a large percentage of a Fund's
assets could impede portfolio management or the Fund's ability to meet
redemption requests or other current obligations.
OPTIONS STRATEGIES
A Fund may purchase put and call options written by others and sell put and call
options covering specified individual securities, securities or financial
indices or currencies. A put option (sometimes called a "standby commitment")
gives the buyer of the option, upon payment of a premium, the right to deliver a
specified amount of currency to the writer of the option on or before a fixed
date at a predetermined price. A call option (sometimes called a "reverse
standby commitment") gives the purchaser of the option, upon payment of a
premium, the right to call upon the writer to deliver a specified amount of
currency on or before a fixed date, at a predetermined price. The predetermined
prices may be higher or lower than the market value of the underlying currency.
A Fund may buy or sell both exchange-traded and over-the-counter ("OTC")
options. A Fund will purchase or write an option only if that option is traded
on a recognized U.S. options exchange or if the sub-adviser believes that a
liquid secondary market for the option exists. When a Fund purchases an OTC
option, it relies on the dealer from which it has purchased the OTC option to
make or take delivery of the currency underlying the option. Failure by the
dealer to do so would result in the loss of the premium paid by the Fund as well
as the loss of the expected benefit of the transaction. OTC options and the
securities underlying these options currently are treated as illiquid securities
by the Funds.
When a Fund sells an option, it receives a premium from the purchaser. When a
Fund purchases an option, it pays a premium to the seller. The amount of premium
received or paid by the Fund is based upon certain factors, including the market
price of the underlying securities, index or currency, the relationship of the
exercise price to the market price, the historical price volatility of the
underlying assets, the option period, supply and demand and interest rates.
The Funds may purchase options on securities that the Fund's Sub-adviser intends
to include in the Fund's portfolio in order to fix the cost of a future
purchase. Call options may also be purchased as a means of participating in an
anticipated price increase of a security on a more limited risk basis than would
be possible if the security itself were purchased. If the price of the
underlying security declines, use of this strategy limits the potential loss to
the Fund to the premium paid for the options; conversely, if the market price of
the underlying security increases above the exercise price and the Fund either
sells or exercises the option, any profit eventually realized will be reduced by
the premium paid. A Fund may similarly purchase put options in order to hedge
against a decline in market value of securities held in its portfolio. The put
enables the Fund to sell the underlying security at the predetermined exercise
price; thus the potential for loss to the Fund is limited to the option premium
paid. If the market price of the underlying security is lower than the exercise
price of the put, any profit the Fund realizes on the sale of the security would
be reduced by the premium paid for the put option less any amount for which the
put may be sold.
A Sub-adviser may write call options when it believes that the market value of
the underlying security will not rise to a value greater than the exercise price
plus the premium received. Call options may also be written to provide limited
protection against a decrease in the market price of a security, in an amount
equal to the call premium received less any transaction costs.
Certain Funds may purchase and write put and call options on fixed income or
equity security indexes in much the same manner as the options discussed above,
except that index options may serve as a hedge against overall fluctuations in
the fixed income or equity securities markets (or market sectors) or as a means
of participating in an anticipated price increase in those markets. The
effectiveness of hedging techniques using index options will depend on the
extent to which price movements in the index selected correlate with price
movements of the securities which are being hedged. Index options are settled
exclusively in cash.
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
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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.
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
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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.
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
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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.
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:
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(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.
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
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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 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:
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<PAGE>
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.
TRUSTEES:
John Y. Keffer*, Trustee, has been President and Director of Forum
Financial Services, Inc. for more than five years. His address is Two
Portland Square, Portland, Maine 04101.
Christopher W. Hamm*, Trustee, has been the Executive Director of CIBC
Oppenheimer, since 1996. His address is 1600 Smith Street, Ste. 3100,
Houston, Texas 77002. Mr. Hamm was Vice President of Paine Webber from 1993
to 1996.
Jay Brammer, Trustee, has been Executive Vice President of Gibraltar
Properties, Inc., a real estate holding company, since 1995. His address is
9000 Keystone Crossing, Ste. 1000, Indianapolis, Indiana 46240. Mr. Brammer
was Executive Vice President of Gibraltar Masoleum Corp. from 1980 to 1995.
J.B. Goodwin, Trustee, has been President of JBGoodwin Company, a
comprehensive real estate and mortgage holding company, for more than five
years. His address is 3933 Steck Avenue, B-101, Austin, Texas 78759.
Robert Stillwell, Trustee, has been an attorney with the law firm of Baker
& Botts for more than five years. His address is 3000 One Shell Plaza,
Houston, Texas 77002.
OFFICERS:
CHRISTOPHER W. HAMM - President, has been the Executive Director of CIBC
Oppenheimer since 1996. Prior to that Mr. Hamm was Vice President of Paine
Webber from 1993 to 1996. His address is 1600 Smith Street, Ste. 3100,
Houston, Texas 77002.
SARA M. MORRIS, Treasurer, is a Managing Director, Forum Administrative
Services, LLC (and its predecessors in interest) with which she has been
associated since 1994. Prior thereto, from 1991 to 1994, Ms. Morris was
Controller of Wright Express Corporation (a national credit card company)
and for six years prior thereto was employed at Deloitte & Touche LLP as an
accountant. Ms. Morris is also an officer of various registered investment
companies for which Forum Financial Services, Inc. serves as manager,
administrator and/or distributor. Her address is Two Portland Square,
Portland, Maine 04101.
RICHARD C. BUTT, Vice President and Assistant Treasurer, is a Managing
Director of Forum Financial Corp. with which he has been associated since
May 1996. Prior thereto, from December 1994 to April 1996, Mr. Butt was a
Director of the Financial Services Consulting Practice, KPMG Peat Marwick
LLP. From November 1993 to August 1994, Mr. Butt was President of 440
Financial Distributors, Inc. a mutual fund administrator and distributor,
and prior thereto was Senior Vice President of 440 Financial Group, Inc.
Mr. Butt is also an officer of various registered investment companies for
which Forum Financial Services, Inc. serves as manager, administrator
and/or distributor. His address is Two Portland Square, Portland, Maine
04101.
MAX BERUEFFY, Vice President and Secretary, is a Managing Director and
Senior Counsel, Forum Financial Services, Inc., with which he has been
associated since 1994. Prior thereto, Mr. Berueffy was on the staff of the
U.S. Securities and Exchange Commission for seven years, first in the
appellate branch of the Office of the General Counsel, then as a counsel to
Commissioner Grundfest and finally as a senior special counsel in the
Division of Investment Management. His address is Two Portland Square,
Portland, Maine 04101.
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STEPHEN J. BARRETT, Assistant Secretary, is a Manager of Client Services,
Forum Financial Services, Inc., with which he has been associated since
September 1996. Prior to joining Forum, Mr. Barrett spent two and a half
years at Fidelity Investments where he served as a Senior Product Manager.
Prior to that, he was a Securities Analyst for two and a half years with
Bingham, Dana & Gould in Boston, Massachusetts. Mr. Barrett also is an
officer of various registered investment companies for which Forum
Financial Services, Inc. serves as manager, administrator and/or
distributor. His address is Two Portland Square, Portland, Maine 04101.
D. BLAINE RIGGLE, Assistant Secretary, is an Assistant Counsel, Forum
Financial Services, Inc., with which he has been associated since 1998.
Prior thereto, Mr. Riggle was Associate Counsel for Wright Express
Corporation from 1997 to 1998 and for three years thereto was an associate
with the law firm of Friedman, Babcock & Gaythwaite in Portland, Maine. His
address is Two Portland Square, Portland, Maine 04101.
Each Trustee of the Trust (other than John Y. Keffer and Christopher W. Hamm,
who are interested persons of the Trust) is paid $5,000 annually and $500 for
each Board meeting attended and is paid $500 for each committee meeting attended
on a date when a Board meeting is not held. Trustees are also reimbursed for
travel and related expenses incurred in attending meetings of the Board. No
officer of the Trust is compensated by the Trust. The Trust has not adopted any
form of retirement plan covering Trustees or officers.
The following table provides the estimated aggregate compensation paid to each
Trustee. Estimates are presented for the fiscal year ended December 31, 1998.
<TABLE>
<S> <C> <C> <C> <C>
- --------------------------- ---------------------- ------------------------ ---------------------- ------------------
ACCRUED PENSION ANNUAL BENEFITS UPON
AGGREGATE BENEFITS RETIREMENT
TRUSTEE COMPENSATION TOTAL
- --------------------------- ---------------------- ------------------------ ---------------------- ------------------
John Y. Keffer* $0 $0 $0 $0
- --------------------------- ---------------------- ------------------------ ---------------------- ------------------
Christopher W. Hamm* $0 $0 $0 $0
- --------------------------- ---------------------- ------------------------ ---------------------- ------------------
Jay Brammer $7,000 $0 $0 $7,000
- --------------------------- ---------------------- ------------------------ ---------------------- ------------------
J.B. Goodwin $7,000 $0 $0 $7,000
- --------------------------- ---------------------- ------------------------ ---------------------- ------------------
Robert Stillwell $7,000 $0 $0 $7,000
- --------------------------- ---------------------- ------------------------ ---------------------- ------------------
</TABLE>
ADVISERS
Forum Investment Advisors, LLC ("Adviser"), 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"). 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 and reviewing the investment strategies and policies of
each Fund and overseeing the performance of the investment subadvisers
responsible for the day-to-day management of each Fund's portfolio. The Adviser
was incorporated under the laws of Delaware in 1987 and is registered under the
Investment Advisers Act of 1940.
For its services, the Adviser receives the following advisory fees with respect
to each Fund:
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
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<PAGE>
Value Equity Fund 0.45
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 Capital 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.
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
16
<PAGE>
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 fee, which may not exceed an annual rate of 0.25% of the average daily
net assets of each Fund attributable to Trust Shares.
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
17
<PAGE>
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 FSS 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.
FSS 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. FSS 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 FSS with
respect to assets of those customers or clients invested in the Funds. FSS, FFSI
or sub-transfer agents or processing agents retained by FSS 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 FSS or FFSI.
For its services under the Transfer Agency Agreement, FSS 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.
18
<PAGE>
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.
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.
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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 FSS 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 FSS to be genuine.
The records of FSS 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 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 FSS 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
20
<PAGE>
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
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
21
<PAGE>
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 AUDITORS
KPMG Peat Marwick LLP, 99 High Street, Boston, Massachusetts 02110, act as
independent auditors 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 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.
22
<PAGE>
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 March 13, 1998, Memorial Group, Inc., a Delaware corporation, owns 100% of
the shares of each fund as listed below. Trustee and President Christopher W.
Hamm owns 100% of the shares of Memorial Group, Inc. As of the same date, no
other officers or Trustees of the Trust owned any of the outstanding shares of
the Funds. 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>
<S> <C> <C>
FUND SHAREHOLDER INTEREST
- ---- ----------- --------
Government Bond Fund Memorial Group, Inc. 100%
Corporate Bond Fund Memorial Group, Inc. 100%
Growth Equity Fund Memorial Group, Inc. 100%
Value Equity Fund Memorial Group, Inc. 100%
</TABLE>
10. FINANCIAL STATEMENTS
Included in this Statement of Additional Information.
23
<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:
A-1
<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.
A-2
<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.
A-3
<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.
A-4
<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.
A-5
<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.
A-6
<PAGE>
THE MEMORIAL FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
MARCH 11, 1998
<TABLE>
<S> <C> <C> <C> <C>
GOVERNMENT CORPORATE GROWTH EQUITY VALUE EQUITY
BOND FUND BOND FUND FUND FUND
------------- --------------- ---------------- ----------------
ASSETS
Cash $25,000 $25,000 $25,000 $25,000
Deferred organization expense 30,000 30,000 30,000 30,000
------------- --------------- ---------------- ----------------
Total assets $55,000 $55,000 $55,000 $55,000
LIABILITIES
Accrued organization expenses 30,000 30,000 30,000 30,000
------------- --------------- ---------------- ----------------
NET ASSETS $25,000 $25,000 $25,000 $25,000
------------- --------------- ---------------- ----------------
Shares Outstanding (no par value, shares authorized
is unlimited) 2,500 2,500 2,500 2,500
------------- --------------- ---------------- ----------------
Net Asset Value, offering and redemption price
per share ($25,000/2,500 shares outstanding per fund) $10.00 $10.00 $10.00 $10.00
------------- --------------- ---------------- ----------------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
NOTES TO STATEMENTS OF ASSETS AND LIABILITIES
MARCH 11, 1998
Note 1 - Significant Accounting Policies:
(A) General: The Memorial Funds (the "Trust") is an open end management
investment company registered under the Investment Company Act of 1940, as
amended. The Company was established as a Delaware business trust organized
pursuant to a Declaration of Trust dated November 25, 1997. The Government Bond
Fund, Corporate Bond Fund, Growth Equity Fund and Value Equity Fund (each a
"Fund") are each separate, diversified series of the Trust. Each Fund presently
offers two classes of shares, Trust Shares and Institutional Shares. Shares of
each class have identical interests in the portfolio of the Fund and have the
same rights. As of March 11, 1998, the Funds had no operations other than
organizational matters and the issuance and sale of initial shares to Memorial
Group, Inc., on March 11, 1998.
(B) Organizational Expenses: Costs incurred by the Funds in connection with
their organization and the initial offering of their shares have been deferred
and will be amortized on a straight-line basis from the date upon which the
Funds will commence their investment activities, over a period of five years. If
any of the initial shares of a Fund are redeemed during the amortization period,
the redemption proceeds will be reduced by any unamortized organization expenses
in the same proportion as the number of shares being redeemed bears to the
number of initial shares outstanding at the time of such redemption.
(C) Federal Taxes: Each Fund intends to qualify for treatment as a regulated
investment company under the Internal Revenue Code and distribute all its
taxable income. In addition, by distributing in each calendar year substantially
all its net investment income, capital gains and certain other amounts, if any,
the Funds will not be subject to Federal excise tax. Therefore, no Federal
income or excise tax provision will be required.
Note 2 - Investment Adviser
Forum Investment Advisors, LLC (the "Adviser"), serves as the investment adviser
for each Fund. For its services, the Adviser is paid by the Government Bond Fund
and Corporate Bond Fund a fee at an annual rate of 0.35% of each Fund's average
daily net assets. The Growth Equity Fund and Value Equity Fund are charged a fee
at an annual rate of 0.45% of each Fund's average daily net assets.
The Adviser has retained the following sub-advisers to render advisory services
and make daily investment decisions for each Fund:
The Government Bond Fund is managed by The Northern Trust Company.
The Corporate Bond Fund is managed by Conseco Capital Management, Inc.
The Growth Equity Fund is managed by Davis, Hamilton, Jackson &
Associates
The Value Equity Fund is managed by Beutel, Goodman Capital Management
The sub-advisers are compensated by the Adviser.
Note 3 - Administrative, Accounting, Distribution and Shareholder Servicing Fees
Forum Administrative Services, LLC ("Forum") is the administrator of the Funds,
and is responsible for the supervision of the overall management of the Funds.
For these services, Forum receives a fee at an annual rate of 0.15% of each
Fund's average daily net assets under $150 million, and 0.10% of the average
daily net assets in excess of $150 million, subject to an annual minimum fee of
$30,000 for each Fund.
Forum Financial Services, Inc. ("FFSI") acts as distributor of each Fund's
shares. The Funds have adopted a distribution plan in accordance with Rule 12b-1
under the Investment Company Act of 1940, as amended (the "Plan"). Under the
provisions of the Plan, each Fund may reimburse FFSI up to an annual rate of
0.25% of each Fund's Trust Shares average daily net assets.
Forum Accounting Services, LLC provides portfolio accounting services to each
Fund.
Forum Shareholder Services, LLC acts as each Fund's transfer agent and dividend
disbursing agent.
<PAGE>
Independent Auditors' Report
The Board of Trustees and Shareholder
Memorial Funds:
We have audited the accompanying statements of assets and liabilities of
Government Bond Fund, Corporate Bond Fund, Growth Equity Fund, and Value Equity
Fund, portfolios of Memorial Funds (the Company) as of March 11, 1998. These
statements of assets and liabilities are the responsibility of the Company's
management. Our responsibility is to express an opinion on these statements of
assets and liabilities based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statements of assets and liabilities are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statements of assets and
liabilities. Our procedures included confirmation of cash in bank by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the statements of assets and liabilities referred to above
present fairly, in all material respects, the financial position of Government
Bond Fund, Corporate Bond Fund, Growth Equity Fund, and Value Equity Fund as of
March 11, 1998, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
March 11, 1998
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS.
Included in the Prospectus:
None.
Included in the Statement of Additional Information:
Statement of Assets and Liabilities as of March 11, 1998
Notes to Statements of Assets and Liabilities
Report of Independent Auditors
(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
<PAGE>
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.
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 (filed as
Exhibit 5(b) in PreEA No. 1 on February 19, 1998, accession
number 0001004402-98-000122).
(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) Form of Custodian Agreement between Registrant and
BankBoston (filed herewith).
<PAGE>
(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 (filed herewith).
(11) Consent of independent auditors (filed herewith).
(12) None.
(13) Investment Representation letter of original purchaser of
shares of Registrant (filed herewith).
(14) Not Applicable.
(15)* Form of Proposed Rule 12b-1 Plan (filed as Exhibit 9 in
PreEA No.2 filing on March 4, 1998, accession number
0001004402-98-000161).
(16) None.
Other Exhibits:
Power of Attorney of Jay Brammer (filed herewith).
Power of Attorney of J.B. Goodwin (filed herewith).
Power of Attorney of Christopher W. Hamm (filed herewith).
Power of Attorney of Robert Stillwell (filed herewith).
Power of Attorney of John Y. Keffer (filed herewith).
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES AS OF MARCH 1, 1998
NUMBER OF RECORD HOLDERS
Government Bond Fund 1
Corporate Bond Fund 1
Growth Equity Fund 1
Value Equity Fund 1
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
<PAGE>
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
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
<PAGE>
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 of the 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
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
<PAGE>
(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.
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;
<PAGE>
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 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
<PAGE>
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").
(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
<PAGE>
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
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.
<PAGE>
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.
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.
<PAGE>
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.
<PAGE>
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.
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 Company, 11825 N. Pennsylvania Street, Carmel, IN 46032; Director and
Executive Vice President, American Life & Casualty Insurance Company, 11825 N.
Pennsylvania Street, Carmel, IN 46032 ; Executive Vice President, American Life
& Casualty Marketing Division Company, 11825 N. Pennsylvania Street, Carmel, IN
46032; Director and Executive Vice President, Vulcan Life Insurance Company,
11825 N. Pennsylvania Street, Carmel, IN 46032; 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., 11825 N. Pennsylvania Street, Carmel, IN 46032; Director, MDS of New
Jersey, Inc., 11825 N. Pennsylvania Street, Carmel, IN 46032; Director and
Executive Vice President, Conseco Private Capital Group, Inc., 11825 N.
Pennsylvania Street, Carmel, IN 46032; 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, Executive
Vice President and Chief Financial Officer, Conseco Partnership Management,
Inc., 11825 N. Pennsylvania Street, Carmel, IN 46032; Director and Vice
Chairman, Conseco Risk Management, Inc., 11825 N. Pennsylvania Street, Carmel,
IN 46032; Director, Treasurer 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,
<PAGE>
Carmel, IN 46032; Director, Brightpoint, Inc., 6402 Corporate Drive,
Indianapolis, IN 46278; Director, General Acceptance Corporation, 1025 Acuff
Road, Ste. 400, Bloomington, IN 47404; Director and Executive Vice President,
Administrators Service Corporation, 11825 N. Pennsylvania Street, Carmel,
Indiana 46032; Director, Executive Vice President and Chief Financial Officer,
American Life Holdings, Inc., 11825 N. Pennsylvania Street, Carmel, Indiana
46032; Director, Executive Vice President and Chief Financial Officer, American
Travellers Life Insurance Company, 11825 N. Pennsylvania Street, Carmel, Indiana
46032; Director, Executive Vice President and Chief Financial Officer, Anchor
Corporation, 11825 N. Pennsylvania Street, Carmel, Indiana 46032; Director and
Executive Vice President, Association Management Corporation, 11825 N.
Pennsylvania Street, Carmel, Indiana 46032; Director, Executive Vice President
and Chief Financial Officer, Automobile Underwriters Corporation, 11825 N.
Pennsylvania Street, Carmel, Indiana 46032; Director, Executive Vice President
and Chief Financial Officer, Automobile Underwriters, Incorporated, 11825 N.
Pennsylvania Street, Carmel, Indiana 46032; Director, Avantec, Inc., 655 West
Carmel Drive, Carmel, Indiana 46032; Director, Executive Vice President and
Chief Financial Officer, Bankers Life and Casualty Company, 11825 N.
Pennsylvania Street, Carmel, Indiana 46032; Director, Executive Vice President
and Chief Financial Officer, Bankers Life Insurance Company of Illinois, 11825
N. Pennsylvania Street, Carmel, Indiana 46032; Director and Executive Vice
President, Business Information Group, Inc., 11825 N. Pennsylvania Street,
Carmel, Indiana 46032; Director, President and Treasurer, CNC Entertainment
Nevada, Inc., 11825 N. Pennsylvania Street, Carmel, Indiana 46032; Director,
Executive Vice President and Chief Financial Officer, C.P. Real Estate Services
Corp., 11825 N. Pennsylvania Street, Carmel, Indiana 46032; Director, CRM
Acquisition Company, 11825 N. Pennsylvania Street, Carmel, Indiana 46032;
Director, Executive Vice President and Chief Financial Officer, Capitol American
Financial Corporation, 11825 N. Pennsylvania Street, Carmel, Indiana 46032;
Director, Executive Vice President and Chief Financial Officer, Capitol American
Life Insurance Company, 11825 N. Pennsylvania Street, Carmel, Indiana 46032;
Director, Executive Vice President and Chief Financial Officer, Capitol
Insurance Company of Ohio, 11825 N. Pennsylvania Street, Carmel, Indiana 46032;
Director, Executive Vice President and Chief Financial Officer, Capitol National
Life Insurance Company, 11825 N. Pennsylvania Street, Carmel, Indiana 46032;
Director, Executive Vice President and Chief Financial Officer, Certified Life
Insurance Company, 11825 N. Pennsylvania Street, Carmel, Indiana 46032;
Director, Executive Vice President and Chief Financial Officer, Colonial Penn
Life Insurance Company, 11825 N. Pennsylvania Street, Carmel, Indiana 46032;
Director, Executive Vice President and Chief Financial Officer, Connecticut
National Life Insurance Company, 11825 N. Pennsylvania Street, Carmel, Indiana
46032; Director, Conseco Capital Management, Inc., 11825 N. Pennsylvania Street,
Carmel, Indiana 46032; Director, Conseco Entertainment, Inc., 11825 N.
Pennsylvania Street, Carmel, Indiana 46032; Director, Executive Vice President
and Chief Financial Officer, Conseco Global Investments, Inc., 11825 N.
Pennsylvania Street, Carmel, Indiana 46032; Director, Executive Vice President
and Chief Financial Officer, Conseco Group Risk Management Company, 11825 N.
Pennsylvania Street, Carmel, Indiana 46032; Director, Executive Vice President
and Chief Financial Officer, Conseco Life Insurance Company, 11825 N.
Pennsylvania Street, Carmel, Indiana 46032; Director, Executive Vice President,
Chief Financial Officer and Treasurer, Conseco Life Insurance Company of New
York, 11825 N. Pennsylvania Street, Carmel, Indiana 46032; Executive Vice
President and Chief Financial Officer, Conseco Marketing, L.L.C., 11825 N.
Pennsylvania Street, Carmel, Indiana 46032; Director, Conseco Private Capital
Group, Inc., 11825 N. Pennsylvania Street, Carmel, Indiana 46032; Treasurer,
Executive Vice President and Chief Financial Officer, Conseco Services, L.L.C.,
11825 N. Pennsylvania Street, Carmel, Indiana 46032; Director and Executive Vice
President, Conseco Teleservices, Inc., 11825 N. Pennsylvania Street, Carmel,
Indiana 46032; Director, Executive Vice President and Chief Financial Officer,
Conseco Travel Services, Inc., 11825 N. Pennsylvania Street, Carmel, Indiana
46032; Director, Executive Vice President and Chief Financial Officer,
Continental Life & Accident Company, 11825 N. Pennsylvania Street, Carmel,
Indiana 46032; Director, Executive Vice President and Chief Financial Officer,
Continental Life Insurance Company, 11825 N. Pennsylvania Street, Carmel,
Indiana 46032; Director and Executive Vice President, Continental Marketing
Corporation of Illinois, Inc., 11825 N. Pennsylvania Street, Carmel, Indiana
46032; Director and Executive Vice President, DBP of Nevada, Inc., 11825 N.
Pennsylvania Street, Carmel, Indiana 46032; Director and Executive Vice
President, Design Benefit Plans, Inc., 11825 N. Pennsylvania Street, Carmel,
Indiana 46032; Director and Executive Vice President, Design Benefit Plans of
Oregon, Inc., 11825 N. Pennsylvania Street, Carmel, Indiana 46032; Director and
Executive Vice President, Direct Financial Services, Inc., 11825 N. Pennsylvania
Street, Carmel, Indiana 46032; Director, Executive Vice President and Chief
Financial Officer, Diversified National Corporation, 11825 N. Pennsylvania
Street, Carmel, Indiana 46032; Director, Executive Vice President and Chief
Financial Officer, Eagle Mortgage Company, Inc., 11825 N. Pennsylvania Street,
<PAGE>
Carmel, Indiana 46032; Director, Executive Vice President and Chief Financial
Officer, Eagles' National Corporation, 11825 N. Pennsylvania Street, Carmel,
Indiana 46032; Director, Executive Vice President and Chief Financial Officer,
Frontier National Life Insurance Company, 11825 N. Pennsylvania Street, Carmel,
Indiana 46032; Director, General Acceptance Corporation, 1025 Acuff Road, Suite
400, Bloomington, Indiana 47404; Director, Executive Vice President and Chief
Financial Officer, Hawthorne Advertising Agency Incorporated, 11825 N.
Pennsylvania Street, Carmel, Indiana 46032; Director, Executive Vice President
and Chief Financial Officer, Health and Life Insurance Company of America, 11825
N. Pennsylvania Street, Carmel, Indiana 46032; Director and Executive Vice
President, Healthscope, Inc., 11825 N. Pennsylvania Street, Carmel, Indiana
46032; Director, Executive Vice President and Chief Financial Officer,
Independent Processing Services, Inc., 11825 N. Pennsylvania Street, Carmel,
Indiana 46032; Director and Executive Vice President, Independent Savers Plan,
Inc., 11825 N. Pennsylvania Street, Carmel, Indiana 46032; Director, Integral
Technologies, Inc., 9855 Crosspointe Blvd., Suite 401, Indianapolis, Indiana
46256; Director and Executive Vice President, Integrated Networks, Inc., 11825
N. Pennsylvania Street, Carmel, Indiana 46032; Director, Interart, Inc., 1145
Sunrise Greetings Court, Bloomington, Indiana 47402; Director, InveStar
Insurance Agency, Inc. (OH); Director, Executive Vice President and Chief
Financial Officer, KP Acquisition Corporation, 11825 N. Pennsylvania Street,
Carmel, Indiana 46032; Director, Key-Art Publishing Corp., 8383 Craig Street,
Suite 290, Indianapolis, Indiana 46250; Director, Executive Vice President and
Chief Financial Officer, Lamar Life Insurance Company, 11825 N. Pennsylvania
Street, Carmel, Indiana 46032; Director and Executive Vice President, MNL
Marketing Corporation, 11825 N. Pennsylvania Street, Carmel, Indiana 46032;
Director, Executive Vice President and Chief Financial Officer, Manhattan
National Life Insurance Company, 11825 N. Pennsylvania Street, Carmel, Indiana
46032; Director, Monroe Guaranty Corporation, 11590 North Meridian St., Ste.
300, Carmel, Indiana 46032; Executive Vice President, Chief Financial Officer
and Treasurer, NACT, Inc., 11825 N. Pennsylvania Street, Carmel, Indiana 46032;
Director and Executive Vice President, National Benefit Plans, Inc., 11825 N.
Pennsylvania Street, Carmel, Indiana 46032; Director, Executive Vice President
and Chief Financial Officer, National Group Life Insurance Group, 11825 N.
Pennsylvania Street, Carmel, Indiana 46032; Director and Executive Vice
President, Network Air Medical Systems, Inc., 11825 N. Pennsylvania Street,
Carmel, Indiana 46032; Director, NewVoice Communications, Inc., 3900 South Old
State Road 37, Bloomington, Indiana 47401; Director and Executive Vice
President, PL Holdings, Inc., 11825 N. Pennsylvania Street, Carmel, Indiana
46032; Director and Executive Vice President, Partners Health Group, Inc., 11825
N. Pennsylvania Street, Carmel, Indiana 46032; Director and Executive Vice
President, Personal Healthcare, Inc., 11825 N. Pennsylvania Street, Carmel,
Indiana 46032; Director, Executive Vice President and Chief Financial Officer,
Philadelphia Life Insurance Company, 11825 N. Pennsylvania Street, Carmel,
Indiana 46032; Director and Executive Vice President, Pioneer Financial
Services, Inc., 11825 N. Pennsylvania Street, Carmel, Indiana 46032; Director,
Executive Vice President and Chief Financial Officer, Pioneer Life Insurance
Company, 11825 N. Pennsylvania Street, Carmel, Indiana 46032; Director and
Executive Vice President, Pioneer Savers Plan, Inc., 11825 N. Pennsylvania
Street, Carmel, Indiana 46032; Director, Powerway, Inc., 6919 Hillsdale Court,
Indianapolis, Indiana 46250; Director and Executive Vice President, Preferred
Health Choice, Inc., 11825 N. Pennsylvania Street, Carmel, Indiana 46032;
Director, Executive Vice President and Chief Financial Officer, Providential
Life Insurance Company, 11825 N. Pennsylvania Street, Carmel, Indiana 46032;
Director and Executive Vice President, Response Air Ambulance Network, Inc.,
11825 N. Pennsylvania Street, Carmel, Indiana 46032; Director and Executive Vice
President, Target Ad Group, Inc., 11825 N. Pennsylvania Street, Carmel, Indiana
46032; Director, Executive Vice President and Chief Financial Officer, Techno,
Company d/b/a/ Statesman Data Services, Inc., 11825 N. Pennsylvania Street,
Carmel, Indiana 46032; Director, Tier 4 Partners, L.L.C., 320 West 8th Street,
Suite 100, Bloomington, Indiana 47404; Director and Executive Vice President,
The Nations Health Plan, Inc., 11825 N. Pennsylvania Street, Carmel, Indiana
46032; Director, Executive Vice President and Chief Financial Officer, U.S.
Insurance Marketing, Inc., 11825 N. Pennsylvania Street, Carmel, Indiana 46032;
Director, Executive Vice President and Chief Financial Officer, United General
Life Insurance Company, 11825 N. Pennsylvania Street, Carmel, Indiana 46032;
Director and Executive Vice President, United Group Holdings, Inc., 11825 N.
Pennsylvania Street, Carmel, Indiana 46032; Director and Executive Vice
President, United Life Holdings, Inc., 11825 N. Pennsylvania Street, Carmel,
Indiana 46032; Director, Executive Vice President and Chief Financial Officer,
United Presidential Corporation, 11825 N. Pennsylvania Street, Carmel, Indiana
46032; Director, Executive Vice President and Chief Financial Officer, United
Presidential Life Insurance Company, 11825 N. Pennsylvania Street, Carmel,
Indiana 46032; Director, United-States Power Engineering Power Company, LLC,
3520 N. Washington Boulevard, Indianapolis, Indiana 46205; Director, Executive
Vice President and Chief Financial Officer, Wabash Life Insurance Company, 11825
<PAGE>
N. Pennsylvania Street, Carmel, Indiana 46032; Director, Executive Vice
President and Chief Financial Officer, Washington National Corporation, 11825 N.
Pennsylvania Street, Carmel, Indiana 46032; Director, Executive Vice President
and Chief Financial Officer, Washington National Development Company, 11825 N.
Pennsylvania Street, Carmel, Indiana 46032; Director, Executive Vice President
and Chief Financial Officer, Washington National Financial Services, Inc., 11825
N. Pennsylvania Street, Carmel, Indiana 46032; Director, Executive Vice
President and Chief Financial Officer, Washington National Insurance Company,
11825 N. Pennsylvania Street, Carmel, Indiana 46032; Director, Weiss
Communications, 6081 East 82nd Street, Suite 401, Indianapolis, Indiana 46250;
Director, Wells & Company, Inc., 11825 N. Pennsylvania Street, Carmel, Indiana
46032; Director, Wellsco, Inc., 11825 N. Pennsylvania Street, Carmel, Indiana
46032.
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
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
<PAGE>
Director and Chairman, Value Corp., 5847 San Felipe, Ste. 4550, Houston, TX
77057; Member, Board of Directors, Beutel, Goodman & Company, Ltd, 20 Eglinton
Avenue West, Ste. 2000, Toronto, Ontario MAR-1K8.
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; Trustee, Memorial Hermann Foundation, 7737 Southwest Freeway, Houston,
TX 77074; Advisory Trustee, Houston Ballet, 1921 West Bell, Houston, TX 77219.
Mr. Frank McReynolds Wozencraft, Jr., Vice President
Member, Board of Directors, DePelchin Children's Center, 100 Sandman, Houston,
TX 77007.
Mr. Keith McRedmond, Vice President
Mr. Stephen H. Pouns, Vice President and Member of the Management Committee
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. Suzanne L. Babin, Vice President
Mr. Forrest B. Bruch, II, Vice President
Mr. Harper B. Trammell, Vice President
Trustee, The Trammell Foundation, 4265 San Felipe, Houston, TX 77027; Member,
Board of Governors, The Fondren Foundation, P.O. Box 2558, Houston, TX
77252-8037..
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.
<PAGE>
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.
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.
<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 13th day of
March, 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 13th day of March, 1998.
SIGNATURES TITLE
(a) Principal Executive Officer
/s/ Max Berueffy Vice President
--------------------------- and Secretary
Max Berueffy
(b) Principal Financial and
Accounting Officer
/s/ Richard C. Butt Vice President and
--------------------------- Assistant Treasurer
Richard C. Butt
(c) All of the Trustees
Jay Brammer* Trustee
J.B. Goodwin* Trustee
Christopher W. Hamm* Trustee
John Y. Keffer* Trustee
Robert Stillwell* Trustee
*By: /s/ Max Berueffy
--------------------------
Max Berueffy, Attorney-in-Fact
<PAGE>
INDEX TO EXHIBITS
Sequential
Exhibit Page Number
- ------- -----------
(8()b) Form of Custodian Agreement between Registrant and BankBoston
(10) Opinion of counsel to Registrant
(11) Consent of independent auditors
(13) Investment Representation letter of original purchaser of shares of
Registrant
Other Exhibits:
Power of Attorney of Jay Brammer
Power of Attorney of J.B. Goodwin
Power of Attorney of Christopher W. Hamm
Power of Attorney of Robert Stillwell
Power of Attorney of John Y. Keffer
EXHIBIT (8)(B)
MEMORIAL FUNDS
CUSTODIAN AGREEMENT
Agreement dated as of March __, 1998, between Memorial Funds (the
"Fund"), on behalf of its portfolios listed in Exhibit A hereto, a Delaware
business trust operating as an open-end investment company under the Investment
Company Act of 1940, and BankBoston, a national banking association having its
principal office at 100 Federal Street, Boston, Massachusetts 02110 (the
"Custodian").
WHEREAS, the Fund desires that its Securities and cash shall be
hereafter held and administered by Custodian as the Fund's agent pursuant to the
terms of this Agreement; and
WHEREAS, the Custodian provides services in the ordinary course of its
business which will meet the Fund's needs as provided for hereinafter;
NOW, THEREFORE, in consideration of the mutual promises herein made,
the Fund and the Custodian agree as follows:
SECTION 1. DEFINITIONS.
"Bank" shall mean a bank as defined in Sec. 2(a)(5) of the Investment Company
Act of 1940.
"Securities" shall mean and include stocks, shares, bonds, debentures, notes,
money market instruments or other obligations and any certificates, receipts,
warrants or other instruments representing rights to receive, purchase, or
subscribe for the same, or evidencing or representing any other rights or
interests therein, or in any property or assets. Unless otherwise indicated
herein, "Securities" shall mean both U.S. and "foreign securities", as that term
is defined in Sec. 17(f) of the Investment Company Act of 1940.
"Officers' Certificate" shall mean a request or directions in writing or
confirmation of oral requests or directions in writing signed in the name of the
Fund by any two of the Chairman of the Executive Committee, the President, a
Vice President, the Secretary, the Clerk or the Treasurer of the Fund or any
other persons duly authorized to sign by the Board of Trustees or the Executive
Committee of the Fund.
"Account" shall mean a separate account for each of the portfolios listed in
Exhibit A.
SECTION 2. CUSTODIAN AS AGENT.
The Custodian is authorized to act under the terms of this Agreement as the
Fund's agent and shall be representing the Fund whenever acting within the scope
of the Agreement.
SECTION 3. NAMES. TITLES AND SIGNATURE OF FUND'S OFFICERS.
An Officer of the Fund will certify to the Custodian the names, titles, and
signatures of those persons authorized to sign the Officers' Certificates, as
well as names of the Board of Trustees and the Executive Committee, if any. Said
Officer, or his or her successor, will provide the Custodian with any changes
which may occur from time to time.
The Custodian is authorized to rely and act upon written and manually signed
instructions of any person or persons (if more than one, so indicated) named in
a separate list specifying those persons who may authorize the withdrawal of any
portion of the cash or Securities which will be furnished from time to time
signed by Officers of the Fund and certified by its Secretary or an Assistant
Secretary, ("Authorized Persons"). The Fund will provide the Custodian with
authenticated specimen signatures of Authorized Persons.
<PAGE>
The Custodian is further authorized to rely upon any instructions received by
any other means and identified as having been given or authorized by any
Authorized Person, regardless of whether such instructions shall in fact have
been authorized or given by any such persons; provided, that,
(a) the Custodian and the Fund shall have previously agreed in writing upon the
means of transmission and the method of identification for such instructions,
(b) the Custodian has not been notified by the Fund to cease to recognize such
means and methods, and
(c) such means and methods have in fact been used.
If the Fund should so choose to have dial-up or other means of direct access to
the Custodian's accounting system for Securities in custodial accounts, the
Custodian is also authorized to rely and act upon any instructions received by
the Custodian through the terminal device, regardless of whether such
instructions shall in fact have been given or authorized by the Fund provided
that such instructions are accompanied by passwords which have been mutually
agreed to in writing by the Custodian and the Fund and the Custodian has not
been notified by the Fund to cease recognizing such passwords.
Where dial-up or other direct means of access to the Custodian's accounting
system for cash or Securities is utilized, the Fund agrees to indemnify the
Custodian and hold it harmless from and against any and all liabilities, losses,
damages, costs, reasonable counsel fees, and other reasonable expenses of every
nature suffered or incurred by the Custodian by reason of or in connection with
the improper use, unauthorized use and misuse by the Fund or its employees of
any terminal device with access to the Custodian's accounting system for
Securities in Custodial Accounts, unless such losses, damages, etc., result from
negligent or wrongful acts of the Custodian, its employees or agents.
SECTION 4. RECEIPT AND DISBURSEMENT OF MONEY.
A. The Custodian shall open and maintain the Account, subject to debit only by a
draft or order by the Custodian acting pursuant to the terms of this Agreement.
The Custodian shall hold in the Account, subject to the provisions hereof, all
cash received by it from or for the account of the Fund.
1. The Custodian shall make payment of cash to the Account or shall debit the
Account only
(a) for the purchase of Securities for the portfolio of the Fund upon the
delivery of such Securities to the Custodian, registered in the name of the Fund
or of the nominee of the Custodian referred to in Section 9 below;
(b) for payments in connection with the conversion, exchange or surrender of
Securities owned or subscribed to by the Fund held by or to be delivered to the
Custodian;
(c) for payments in connection with the return of the cash collateral received
in connection with Securities loaned by the Fund;
(d) for payments in connection with futures contracts positions held by the
Fund;
(e) for payments of interest, dividends, taxes and in connection with rights
offerings; or
(f) for other proper Fund purposes.
All Securities accepted in connection with the purchase of such Securities, if
(a) usual in the course of local market practice or (b) specifically required in
instructions from the Fund, shall be accompanied by payment of, or a "due bill"
for, any dividends, interest or other distributions of the issue due the
purchaser.
<PAGE>
2. Except as hereinafter provided, the Custodian shall make any payment for
which it receives direction from an Authorized Person so long as such direction
(i) is (a) in writing (or is a facsimile transmission of a written direction),
(b) electronically transmitted to the Custodian as provided in Section 3 or (c)
when written or electronic directions cannot reasonably be given within the
relevant time period, orally when the person giving such direction assures the
Custodian that the directions will be confirmed in writing by an Authorized
Persons within twenty-four (24) hours and (ii) states that such payment is for a
purpose permitted under the terms of this subsection.
3. All funds received by the Custodian in connection with the sale, transfer,
exchange or loan of Securities will be credited to the Account in immediately
available funds as soon as reasonably possible on the date such received funds
are immediately available. Payments for purchase of Securities for the Account
made in immediately available funds will be charged against the Account on the
day of delivery of such Securities and all other payments will be charged on the
business day after the day of delivery.
A. The Custodian is hereby authorized and required to (a) collect on a timely
basis all income and other payments with respect to Securities held hereunder to
which the Fund shall be entitled either by law or pursuant to custom in the
securities business, and to credit such income to the Account, (b) detach and
present for payment all coupons and other income items requiring presentation as
and when they become due, (c) collect interest when due on Securities held
hereunder, and (d) endorse and collect all checks, drafts or other orders for
the payment of money received by the Custodian for the account of the Fund.
B. If the Custodian agrees to advance cash or Securities of the Custodian for
delivery on behalf of the Fund to a third party, any property received by the
Custodian on behalf of the Fund in respect of such delivery shall serve as
security for the Fund's obligation to repay such advance until such time as such
advance is repaid, and, in the case where such advance is extended for the
purchase of Securities which constitute "margin stock" under Regulation U of the
Board of Governors of the Federal Reserve System, such additional Securities of
the Fund, as shall be necessary for the Custodian, in the Custodian's reasonable
determination, to be in compliance with such Regulation U also shall constitute
security for the Fund's obligation to repay such advance. The Fund hereby grants
the Custodian a security interest in such property of the Fund to secure such
advance and agrees to repay such advance promptly without demand from the
Custodian (and in any event, as soon as reasonably practicable following any
demand by the Custodian), unless otherwise agreed by both parties. Should the
Fund fail to repay such advance as required, the Custodian shall be entitled
immediately to apply such security to the extent necessary to obtain repayment
of the advance, subject, in the case of Fund failure to make prompt repayment
without demand, to prior notice to the Fund.
SECTION 5. RECEIPT OF SECURITIES.
The Custodian shall hold in the Account, segregated at all times from those of
any other persons, firms or corporations, pursuant to the provisions hereof, all
Securities received by it from or for the account of the Fund. All such
Securities are to be held or disposed of by the Custodian for, and subject at
all times to the instructions of, the Fund pursuant to the terms of this
Agreement. The Custodian shall have no power or authority to assign,
hypothecate, pledge or otherwise dispose of any of the Securities and cash,
except pursuant to the directive of the Fund and only for the account of the
Fund as set forth in Section 7 of this Agreement.
The Custodian and its agents (including foreign subcustodians) may make
arrangements with Depository Trust Fund ("DTC") and other foreign or domestic
depositories or clearing agencies, including the Federal Reserve Bank and any
foreign depository or clearing agency, whereby certain Securities may be
deposited for the purpose of allowing transactions to be made by bookkeeping
entry without physical delivery of such Securities, subject to such restrictions
as may be agreed upon by the Custodian and the Fund. The Custodian shall
immediately commence procedures to replace Securities lost due to robbery,
burglary or theft while such Securities are within its control or that of its
agents or employees upon discovery of such loss.
SECTION 6. FOREIGN SUBCUSTODIANS AND OTHER AGENTS.
<PAGE>
(a) In the event the Custodian places Securities, pursuant to this Agreement,
with any foreign subcustodian, the Custodian agrees that it shall place such
Securities only with those foreign subcustodians which either satisfy the
requirements of "eligible foreign custodian" under Section 17(f) of the U. S.
Investment Company Act of 1940, or with respect to which exemptive relief has
been granted by the U. S. Securities and Exchange Commission from the
requirements of Section 17(f).
(b) With respect to any Securities to be placed with foreign subcustodians
pursuant to this section, the Custodian represents and warrants that during the
term of this Agreement it will carry Bankers Blanket Bond or similar insurance
for losses incurred as a result of such subcustodial arrangements.
(c) The Fund authorizes the Custodian to release any and all information
regarding Securities placed with foreign subcustodians hereunder as may be
required by court order of a court of competent jurisdiction.
(d) Custodian further agrees that:
1. it will provide foreign custody arrangements only through entities
approved by the Fund's Board of Trustees (the "Board") and only through
written custody agreements complying with Section 17(f) of the Investment
Company Act of 1940 and the rules and regulations thereunder;
2. it will (A) monitor compliance by each foreign subcustodian under any
agreement between the Custodian or subcustodian and each foreign
subcustodian (a "Custody Agreement") and report to the Board promptly any
noncompliance with a material term (as defined below) of any such
agreement; (B) monitor the status of the foreign subcustodians as "eligible
foreign subcustodians" and report to the Board promptly any failure to meet
that status; and (C) report to the Board annually concerning the continuing
eligibility status of the foreign subcustodians;
3. it will, upon the Board's request, provide the Board such information
relating to foreign subcustodians and specific foreign custody issues as
the Board may reasonably request in connection with the approval and
continuance of any foreign custody arrangement.
As used herein, a Material Term of a Custody Agreement shall mean a term which
provides that (i) the Custodian will be adequately indemnified and the
Securities so placed adequately insured in the event of loss; (ii) the
Securities will not be subject to any right, charge, security interest, lien or
claim of any kind in favor of the foreign subcustodian or its creditors (except
any claim for payment for the services provided by such subcustodian and any
related expenses; provided, however that the Custodian shall use its best
efforts promptly to release any such right, charge, security interest, lien or
claim on the assets, except to the extent such right, charge, security interest,
lien or claim arises with respect to a special request or requirement by the
Fund for services the cost of which and the expenses incurred in connection with
which the Fund has not paid or has declined to pay, it being agreed and
understood that, in the ordinary course, all payments for usual and routine
services rendered and expenses incurred by a subcustodian shall be the
obligation of the Custodian); (iii) beneficial ownership of the Securities will
be freely transferable without payment of money or value other than for safe
custody or administration; (iv) adequate records will be maintained identifying
the Securities as belonging to the Fund; (v) the Custodian's independent public
accountants will be given access to those records or the confirmation of the
contents of those records; and (vi) the Custodian will receive periodic reports
with respect to the safekeeping of the Securities, including, but not
necessarily limited to, notification of any transfer to or from the Account.
SECTION 7. TRANSFER, EXCHANGE AND REDELIVERY OF SECURITIES.
The Custodian (or a subcustodian or any other agent of the Custodian) shall have
sole power to release or deliver any Securities of the Fund held by the
Custodian (or such subcustodian or agent) pursuant to this Agreement. The
Custodian agrees (and will obtain an undertaking from each subcustodian or other
agent) that Securities held by the Custodian (or by a subcustodian or other
agent of the Custodian) will be transferred, exchanged or delivered only (a) for
sales of Securities for the account of the Fund in accordance with (i) "New York
Street Practice", (ii) predominant established practice in the relevant local
market, or (iii) specific instructions from the Fund; or
<PAGE>
(b) when Securities are called, redeemed or retired or otherwise become payable;
(c) for examination by any broker selling any such Securities in accordance with
"street delivery" custom or other relevant local market practice;
(d) in exchange for or upon conversion into other Securities whether pursuant to
any plan of merger, consolidation, reorganization, recapitalization or
readjustment, or otherwise;
(e) upon conversion of such Securities pursuant to their terms into other
Securities;
(f) upon exercise of subscription, purchase or other similar rights represented
by such Securities pursuant to their terms;
(g) for the purpose of exchanging interim receipts or temporary Securities for
definitive Securities;
(h) for the purpose of tendering Securities;
(i) for the purpose of delivering Securities lent by the Fund;
(j) for purposes of delivering collateral upon redelivery of Securities lent or
for purposes of delivering excess collateral; or
(k) for other proper Fund purposes.
As to any deliveries made by Custodian pursuant to items (b), (d), (e), (f),
(g), (i), (j) and (k), Securities in exchange therefor shall be deliverable to
the Custodian (or a subcustodian or other agent of the Custodian). The Custodian
may rely upon any written, electronic or oral instructions or an Officers'
Certificate relating thereto as provided for in Sections 3 and 4 above.
SECTION 8. THE CUSTODIAN'S ACTS WITHOUT INSTRUCTIONS.
Unless and until the Custodian receives instructions to the contrary, the
Custodian (or a subcustodian or other agent of the Custodian) shall:
(a) present for payment all coupons and other income items held by it for the
account of the Fund which call for payment upon presentation and hold the cash
received by it upon such payment in the Account;
(b) collect interest and cash dividends and other distributions, provide notice
to the Fund of receipts, and deposit to the Account;
(c) hold for the account of the Fund all stock dividends, rights and similar
Securities issued with respect to any Securities held by the Custodian under the
terms of this Agreement;
(d) execute as agent on behalf of the Fund all necessary ownership certificates
required by the Internal Revenue Code or the Income Tax Regulations of the
United States Treasury Department, the laws of any State or territory of the
United States, or, in the case of Securities held through foreign subcustodians,
the laws of the jurisdiction in which such Securities are held, now or hereafter
in effect, inserting the Fund's name on such certificates as the owner of the
Securities covered thereby, to the extent it may lawfully do so;
(e) use its best efforts, in cooperation with the Fund, to file such forms,
certificates and other documents as may be required to comply with all
applicable laws and regulations relating to withholding taxation applicable to
the Securities; and
<PAGE>
(f) use its best efforts to assist the Fund in obtaining any refund of local
taxes to which the Fund may have a reasonable claim.
The Fund agrees to furnish to the Custodian such information and to execute such
forms and other documents as the Custodian may reasonably request or as
otherwise may be reasonably necessary in connection with the Custodian's
performance of its obligations under clauses (e) and (f).
SECTION 9. REGISTRATION OF SECURITIES.
Except as otherwise directed by an Officers' Certificate, the Custodian shall
register all Securities, except such as are in bearer form, in the name of the
Fund or a registered nominee of the Fund or a registered nominee of the
Custodian or a subcustodian. Securities deposited with DTC or a foreign
securities depository permitted under Section 5 may be registered in the nominee
name of DTC or such foreign securities depository. The Custodian shall execute
and deliver all such certificates in connection therewith as may be required by
the applicable provisions of the Internal Revenue Code, the laws of any State or
territory of the United States, or, in the case of Securities placed with
foreign subcustodians, the laws of the jurisdiction in which such Securities are
held. The Custodian shall maintain such books and records as may be necessary to
identify the specific Securities held by it hereunder at all times.
The Fund shall from time to time furnish the Custodian appropriate instruments
to enable the Custodian to hold or deliver in proper form for transfer, or to
register in the name of its registered nominee, any Securities which it may hold
for the account of the Fund and which may from time to time be registered in the
name of the Fund.
SECTION 10. VOTING AND OTHER ACTION.
Neither the Custodian nor any nominee of the Custodian or of DTC shall vote any
of the Securities held hereunder by or for the account of the Fund except in
accordance with the instructions contained in an Officers' Certificate.
The Custodian shall deliver or have delivered to the Fund all notices, including
notices of voluntary and nonvoluntary corporate actions, proxies and proxy
soliciting materials with relation to such Securities in a timely fashion in
accordance with industry standards. Such proxies are to be executed by the
registered holder of such Securities (if registered otherwise than in the name
of the Fund), but without indicating the manner in which such proxies are to be
voted.
With respect to Securities deposited with DTC or any other depository, including
a foreign subcustodian, as provided for in Section 6 hereof, where such
Securities may be registered in the nominee name of DTC, or other such
depository the Custodian shall request that the nominee shall not vote any of
such deposited Securities or execute any proxy to vote thereon or give any
consent or take any other action with respect thereto unless instructed to do so
by the Custodian following receipt by the Custodian of an Officers' Certificate.
SECTION 11. TRANSFER TAX AND OTHER DISBURSEMENTS.
The Fund shall pay or reimburse the Custodian from time to time for any transfer
taxes payable upon transfers of Securities made hereunder and for all other
necessary and proper disbursements and expenses made or incurred by the
Custodian in the performance of this Agreement, as required by U.S. law or the
laws of the jurisdiction in which the Securities are held, as the case may be.
The Custodian shall execute and deliver such certificates in connection with
Securities delivered to it or by it under this Agreement as may be required
under the laws of any jurisdiction to exempt from taxation any exemptible
transfers and/or deliveries of any such Securities.
SECTION 12. COMPENSATION AND THE CUSTODIAN'S EXPENSES.
<PAGE>
The Custodian shall be paid as compensation for its services pursuant to this
Agreement such compensation as may from time to time be agreed upon in writing
between the two parties.
SECTION 13. INDEMNIFICATION.
The Fund agrees to indemnify and hold harmless the Custodian and its employees,
agents and nominee from all taxes, charges, expenses, assessments, claims and
liabilities (including reasonable attorneys' fees) incurred or assessed against
them in connection with the performance of the Agreement, except such as may
arise from their own negligent action, negligent failure to act or willful
misconduct. The Custodian agrees to indemnify and hold harmless the Fund and its
trustees, officers, employees, and agents from all taxes, charges, expenses,
assessments, claims and liabilities (including attorneys fees) incurred or
assessed against the Fund in connection with the performance of the Agreement,
which may arise from negligent action, negligent failure to act or willful
misconduct on the part of the Custodian, the Custodian's nominee, depository or
other agents (including foreign subcustodians) or any of their respective
officers, employees, agents or nominees. In the event of any advance of cash for
any purpose made by the Custodian resulting from orders or instructions of the
Fund, or in the event that the Custodian or its nominee shall incur or be
assessed any taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Agreement, except such as may arise from
its or its nominee's own negligent action, negligent failure to act or willful
misconduct, any property at any time held for the account of the Fund shall be
security therefor.
Within a reasonable time after receipt by an indemnified party of notice of the
commencement of any action, such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party, notify in writing the
indemnifying party of the commencement thereof; and the omission so to notify
the indemnifying party will not relieve it from any liability hereunder as to
the particular item for which indemnification is then being sought, unless such
omission is a result of the failure to exercise reasonable care on the part of
the indemnified party. In case any such action is brought against an indemnified
party, and it notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein, and to assume the
defense thereof, with counsel who shall be to the reasonable satisfaction of
such indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party for any legal or
other expenses subsequently incurred by such indemnified party in connection
with the defense thereof other than reasonable costs of investigation. Any such
indemnifying party shall not be liable to any such indemnified party on account
of any settlement of any claim or action effected without the consent of such
indemnifying party.
SECTION 14. REPORTS BY THE CUSTODIAN.
The Custodian shall furnish the Fund daily with a statement of all transactions
and entries for the Account of the Fund. The Custodian shall furnish the Fund
with such reports covering Securities held by it or under its control as may be
agreed upon from time to time. The books and records of the Custodian pertaining
to its actions under this Agreement shall be open to inspection and audit at
reasonable times and upon reasonable notice to the Fund. All such books and
records shall be the property of the Fund (and such other persons as the Fund
may designate from time to time) and the Custodian shall forthwith upon the
Fund's request, turn over to the Fund and cease to retain in its files, records
and documents created and maintained by the Custodian pursuant to this
Agreement, which are no longer needed by the Custodian in performance of its
services or for its protection.
SECTION 15. ACCESS TO RECORDS
Custodian shall give the Fund and its independent auditors reasonable access to
the records of the Custodian and/or the foreign subcustodians holding Fund
assets with respect to the Fund's transactions or confirmation with respect to
the content of such records.
SECTION 16. TERMINATION AND ASSIGNMENT.
<PAGE>
This agreement may be terminated by the Fund or the Custodian, immediately upon
written notice from the Fund or the Custodian, as applicable, to the other
party, if the other party fails materially to perform its obligations hereunder,
and may otherwise be terminated by the Fund or by the Custodian on not less than
ninety (90) days' notice, given in writing and sent by registered mail to the
Custodian or the Fund as the case may be. Upon termination of this Agreement,
the Custodian shall deliver the Securities and cash in the account of the Fund
to such entity as is designated in writing by the Fund and in the absence of
such a designation may, but shall not be obligated to, deliver them to a bank or
trust company of the Custodian's own selection having an aggregate capital,
surplus and undivided profits as shown by its last published report of not less
than 50 million dollars ($50,000,000), the Securities and cash to be held by
such bank or trust company for the benefit of the Fund under terms similar to
those of this Agreement and the Fund to be obligated to pay to such transferee
the then current rates of such transferee for services rendered by it; provided,
however, that the Custodian may decline to transfer such amount of such
Securities equivalent to all fees and other sums owing by the Fund to the
Custodian, and the Custodian shall have a charge against and security interest
in such amount until all moneys owing to it have been paid, or escrowed to its
satisfaction.
This Agreement may not be assigned by the Custodian without the consent of the
Fund, authorized or approved by a resolution of the Fund's Board of Trustees.
SECTION 17. FORCE MAJEURE.
The Custodian shall not be liable or accountable for any loss or damage
resulting from any condition or event beyond its reasonable control; provided,
however, that the Custodian shall promptly use its best efforts to mitigate any
such loss or damage to the Fund as a result of any such condition or event. For
the purposes of the foregoing, the actions or inactions of the Custodian's
subcustodians and other agents shall not be deemed to be beyond the reasonable
control of the Custodian. In connection with the foregoing, the Custodian agrees
(and agrees that it will use its best efforts to obtain the undertaking of its
subcustodians and other agents to the effect) that the Custodian (and/or such
subcustodian or agent) shall maintain such alternate power sources for computer
and related systems and alternate channels for electronic communication with
such computers and related systems that the failure of the primary power source
and/or communications channel of the Custodian (and/or its subcustodians or
other agents) will not foreseeable result in any loss or damage to the Fund.
SECTION 18. THIRD PARTIES.
This Agreement shall be binding upon and the benefits hereof shall inure to the
parties hereto and their respective successors and assigns. However, nothing in
this Agreement shall give or be construed to give or confer upon any third party
any rights hereunder.
SECTION 19. AMENDMENTS.
The terms of this Agreement shall not be waived, altered, modified, amended,
supplemented or terminated in any manner whatsoever, except by written
instrument signed by both of the parties hereto.
SECTION 20. GOVERNING LAW.
This Agreement shall be governed and construed in accordance with the laws of
The Commonwealth of Massachusetts.
SECTION 21. COUNTERPARTS.
This agreement may be executed in several counterparts, each of which is an
original.
SECTION 22. NOTICES.
<PAGE>
All notices provided for herein shall be in writing and shall become effective
when deposited in the United States mail, postage prepaid and certified,
addressed
(a) if to the Custodian, at 150 Royall Street
Canton, MA 02021
Attention: WorldwideCustody-MS: 45-02-90
(b) if to the Fund, at Forum Financial Group
2 Portland Square
Portland, ME 04101
Attention: John Y. Keffer, President
or to such other address as either party may notify the other in writing.
Notice is hereby given that this instrument is executed on behalf of the
Trustees of the Fund as Trustees, and the obligations of this instrument are not
binding upon any of the Trustees, officers, or shareholders of any portfolio of
the Fund individually but binding only upon assets and property of the Fund. No
portfolio of the Fund shall be charged with the obligations of any other
portfolio of the Fund hereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized as of the date first
written above.
[FUND]
-------------------------------
Title: President
THE FIRST NATIONAL BANK OF BOSTON
--------------------------------
Juan C. Alvarez
Title: Administrative Manager
EXHIBIT A TO
---------------------
CUSTODY AGREEMENT DATED
EXHIBIT (10)
[Letterhead]
March 12, 1998
Memorial Funds
Two Portland Square
Portland, Maine 04101
Dear Sir or Madam:
We have acted as counsel for Memorial Funds, a Delaware business trust
with transferable shares (the "Trust"), in connection with the organization of
the Trust, the registration of the Trust under the Investment Company Act of
1940 (the "1940 Act") and the registration of an indefinite number of shares of
beneficial interest of each of the Trust's series (each a "Fund") under the
Securities Act of 1933.
As counsel for the Trust, we have participated in the preparation of
the Registration Statement on Form N-1A (the "Registration Statement") and the
prospectuses contained therein (the "Prospectuses") relating to such shares and
have examined and relied upon such records of the Trust and such other
documents, including certificates as to factual matters, as we have deemed
necessary to render the opinions expressed herein.
Based on such examination, we are of the opinion that:
1. The Trust has been duly organized and is validly existing as a
business trust with transferable shares of the type commonly called a Delaware
business trust.
2. The Trust is authorized to issue an unlimited number of shares. The
shares to be offered for sale by the Prospectuses (the "Shares") have been duly
and validly authorized by all requisite action of the Trustees of the Trust and
no action of the shareholders of the Trust is in connection therewith.
3. When the Shares have been duly sold, issued and paid for as
contemplated by the Prospectuses, they will be validly and legally issued, fully
paid and non-assessable by the Trust.
Our opinion above stated is expressed as members of the bar of the
District of Columbia and the State of New York. This opinion does not extend to
the securities or "blue sky" laws of any state.
We hereby consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement and to the
reference to our firm under the caption "Counsel" in the Statement of Additional
Information of the Funds.
Very truly yours,
/s/ SEWARD & KISSEL
SEWARD & KISSEL
EXHIBIT (11)
Consent of Independent Auditors
The Board of Trustees
Memorial Funds:
We consent to the use of our report dated March 11, 1998 included herein and to
the reference to our firm under the caption "Other Information - Independent
Auditors" in the Statement of Additional Information.
KPMG Peat Marwick LLP
Boston, Massachusetts
March 13, 1998
EXHIBIT (13)
MEMORIAL GROUP, INC.
March 10, 1998
Board of Trustees
Memorial Funds
Two Portland Square
Portland, Maine 04101
Ladies and Gentlemen:
This letter will confirm that the Memorial Group, Inc. is purchasing the
following series of shares (the "Seed Capital Shares") of the Memorial Funds in
consideration of $10.00 per share for investment purposes only and not with a
view to reselling or otherwise distributing those shares;
2500 Government Bond Fund
2500 Corporate Bond Fund
2500 Value Equity Fund
2500 Growth Equity Fund
for a total of 10,000 shares.
I agree and hereby undertake that, in the event that any of the Seed Capital
Shares are redeemed during the period of amortization of the Memorial Fund's
organizational expenses, the redemption proceeds will be reduced by any
unamortized organizational expense in the same proportion as the number of Seed
Capital Shares being redeemed bears to the number of Seed Capital Shares
outstanding at the time of redemption.
Sincerely,
/s/ Christopher W. Hamm
Christopher W. Hamm
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Jay Brammer constitutes and
appoints Max Berueffy and D. Blaine Riggle and each of them, as true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities to sign the
Registration Statement on Form N-1A and any or all amendments thereto of
Memorial Funds, and to file the same, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
/s/ Jay Brammer
Jay Brammer
Dated: March 9, 1998
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that J.B Goodwin constitutes and
appoints Max Berueffy and D. Blaine Riggle and each of them, as true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities to sign the
Registration Statement on Form N-1A and any or all amendments thereto of
Memorial Funds, and to file the same, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
/s/ J.B Goodwin
J.B Goodwin
Dated: March 9, 1998
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Christopher W. Hamm constitutes
and appoints Max Berueffy and D. Blaine Riggle and each of them, as true and
lawful attorneys-in-fact and agents with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities to sign the Registration Statement on Form N-1A and any or all
amendments thereto of Memorial Funds, and to file the same, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and agents full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ Christopher W. Hamm
Christopher W. Hamm
Dated: March 9, 1998
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Robert Stillwell constitutes and
appoints Max Berueffy and D. Blaine Riggle and each of them, as true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities to sign the
Registration Statement on Form N-1A and any or all amendments thereto of
Memorial Funds, and to file the same, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
/s/ Robert Stillwell
Robert Stillwell
Dated: March 9, 1998
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that John Y. Keffer constitutes and
appoints Max Berueffy and D. Blaine Riggle and each of them, as true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities to sign the
Registration Statement on Form N-1A and any or all amendments thereto of
Memorial Funds, and to file the same, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
/s/ John Y. Keffer
John Y. Keffer
Dated: March 9, 1998