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As filed with the Securities and Exchange Commission on March 1, 2000
File Nos. 333-41461 and 811-8529
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
Post-Effective Amendment No. 7
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 10
MEMORIAL FUNDS
Two Portland Square
Portland, Maine 04101
207-879-1900
David Goldstein, Esq.
Forum Fund Services, LLC
Two Portland Square
Portland, Maine 04101
Copies to:
Anthony C.J. Nuland, Esq.
Seward & Kissel, LLC
1200 G Street, NW
Washington, D.C. 20005
- --------------------------------------------------------------------------------
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to Rule 485, paragraph (b)
[ ] on __________ pursuant to Rule 485, paragraph (b)
[x] 60 days after filing pursuant to Rule 485, paragraph (a)(1)
[ ] on _________________ pursuant to Rule 485, paragraph (a)(1)
[ ] 75 days after filing pursuant to Rule 485, paragraph (a)(2)
[ ] on _________________ pursuant to Rule 485, paragraph (a)(2)
[ ] this post-effective amendment designates a new effective date for a
[ ] previously filed post-effective amendment.
Title of series being registered: Government Bond Fund, Corporate Bond Fund,
Growth Equity Fund and Value Equity Fund.
The prospectus and SAI filed via EDGAR in post-effective amendment number 6 on
August 17, 1999, accession number 0001004402-99-000353 for Money Market Fund,
International Equity Fund and Equity Income Fund are incorporated by reference
into this registration statement.
<PAGE>
PROSPECTUS
[MEMORIAL FUNDS]
MAY 1, 2000
Government Bond Fund
Corporate Bond Fund
Growth Equity Fund
Value Equity Fund
Institutional Shares
SHARES OF EACH FUND ARE OFFERED TO INVESTORS WITHOUT ANY SALES CHARGE OR RULE
12B-1 (DISTRIBUTION) FEES.
The Securities and Exchange Commission has not approved or disapproved any
Fund's shares or determined whether this prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
TABLE OF CONTENTS
RISK/RETURN SUMMARY xx
FEE TABLES xx
INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES xx
AND PRINCIPAL RISKS
MANAGEMENT xx
YOUR ACCOUNT xx
How to Contact the Funds xx
General Information xx
Buying Shares xx
Selling Shares xx
Exchange Privileges xx
SUB-ADVISER PAST PERFORMANCE xx
OTHER INFORMATION xx
FINANCIAL HIGHLIGHTS xx
<PAGE>
<TABLE>
<S> <C>
RISK/RETURN SUMMARY
CONCEPTS TO UNDERSTAND GOVERNMENT BOND FUND
A DEBT OR FIXED INCOME
SECURITY is a security such INVESTMENT GOAL High level of income consistent with maximum credit protection and
as a bond or note that moderate fluctuation in principal value.
obligates the issuer to pay
the security owner a PRINCIPAL INVESTMENT STRATEGY The Fund invests under normal circumstances at least 90
specified sum of money at percent of its total assets in a portfolio of fixed and variable rate U.S. Government
set intervals as well as Securities, including zero coupon bonds issued or guaranteed by the U.S. Treasury and
repay the principal amount mortgage-backed securities. The Fund invests in securities with maturities (or average
of the security at its life in the case of mortgage-backed and similar securities) ranging from overnight to
maturity 30 years. The Fund seeks to moderate fluctuations in the price of its shares by
A BOND is a debt security structuring maturities of its investment portfolio in order to maintain a duration
with a long-term maturity, between 75 percent and 125 percent of the duration of the Lehman Brothers Government
usually 10 years or longer Bond Index.
MATURITY means the date at
which a debt security is CORPORATE BOND FUND
due and payable
DURATION is a measure of a INVESTMENT GOAL High level of current income consistent with capital preservation and
security's average life prudent investment risk.
that reflects the present
value of the security's PRINCIPAL INVESTMENT STRATEGY The Fund invests under normal circumstances at least 65
cash flow. Prices of percent of its total assets in corporate bonds. At least 80 percent of the Fund's
securities with longer total assets will be invested in securities that are rated, at the time of purchase,
durations will fluctuate in one of the three highest rating categories or are unrated and determined by its
more in response to changes sub-adviser to be of comparable quality. The Fund invests in securities with
in interest rates maturities (or average life in the case of mortgage-backed and similar securities)
UNITED STATES GOVERNMENT ranging from short-term (including overnight) to 30 years. The Fund seeks to moderate
SECURITY is a debt security fluctuation in the price of its shares by structuring maturities of its investment
issued by the United States portfolio in order to maintain a duration between 75 percent and 125 percent of the
or any of its agencies or duration of the Lehman Brothers Corporate Bond Index.
instrumentalities such as
the Government National GROWTH EQUITY FUND
Mortgage Association
GROWTH INVESTING means to INVESTMENT GOAL Long-term capital appreciation.
invest in stocks of
companies that have PRINCIPAL INVESTMEN STRATEGY The Fund uses a "growth investing" style by investing
exhibited faster than under normal circumstances at least 65 percent of its total assets in the securities
average earnings over the of domestic companies that its sub-adviser believes have suprerior growth potential and
past few years and are fundamental characteristics that are significantly better than the market average and
expected to continue to support internal earnings growth capability. The Fund only invests in companies that
show high levels have a minimum market capitalization of $250 million at the time of purchase, and seeks
of profit growth to maintain a minimum average weighted market capitalization of $5 billion.
<PAGE>
CONCEPTS TO UNDERSTAND VALUE EQUITY FUND
VALUE INVESTING means to
invest in stocks whose INVESTMENT GOAL Long-term capital appreciation.
prices are low relative to
stocks of comparable PRINCIPAL INVESTMENT STRATEGY The Fund uses a "value investing" style by investing
companies under normal circumstances at least 65 percent of its total assets in the equity
PRICE/EARNINGS RATIO means securities of domestic companies that its sub-adviser believes are under-priced
the ratio of a company's relative to comparable securities determined by price/earnings ratios, cash flows or
current market other measures. The Fund only invests in companies that have a minimum market
capitalization divided by capitalization of $250 million at the time of purchase and seeks to maintain a
annual earnings per share minimum average weighted market capitalization of $5 billion.
MARKET CAPITALIZATION of a
company means the value of
the company's common stock
in the stock market
COMMON STOCK is ownership
shares in a corporation that
are sold initially by the
corporation and then traded
by investors
</TABLE>
<PAGE>
PRINCIPAL RISKS OF INVESTING IN THE FUNDS
BOND FUNDS. You could lose money on your investment in Government Bond Fund or
Corporate Bond Fund (collectively the "Bond Funds") and either Bond Fund could
under-perform other investments. The principal risks of investing in a Bond Fund
include:
o Each Bond Fund's share price, yield and total return could fluctuate in
response to bond market movements o The value of most bonds could fall when
interest rates rise; the longer a bond's maturity and the lower its credit
quality, the more its value typically falls
o The default of an issuer could leave the Bond Fund with unpaid interest or
principal. This risk for Corporate Bond Fund is potentially greater as it
can invest in bonds with a lower credit rating than Government Bond Fund
o The Bond Funds may invest in mortgage-backed and other similar securities.
A decline in interest rates may result in losses in these securities'
values and a reduction in their yields as the holders of the assets backing
the securities prepay their debts
o The sub-adviser's judgment as to the value of a bond proves to be wrong
EQUITY FUNDS. You could lose money on your investment in Growth Equity Fund or
Value Equity Fund (collectively the "Equity Funds") and either Equity Fund could
under-perform other investments. The principal risks of investing in an Equity
Fund include:
o The stock market goes down
o The stock market continues to undervalue the stocks in an Equity Fund's
portfolio
o The sub-adviser's judgment as to the value of a stock proves to be wrong
o An Equity Fund's particular investment style falls out of favor with the
market
An investment in any Fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
governmental agency.
WHO MAY WANT TO INVEST IN THE FUNDS
You may want to purchase shares of a Bond Fund if:
o You seek income and more price stability than stocks offer
o You seek capital preservation
o You are pursuing a long-term goal
A Bond Fund may NOT be appropriate for you if:
o You want an investment that pursues market trends or focuses only on
particular sectors or industries
o You are pursuing a short-term goal or investing emergency reserves
You may want to purchase shares of an Equity Fund if:
o You are willing to tolerate significant changes in the value of your
investment
o You are pursuing a long-term goal
o You are willing to accept higher short-term risk
An Equity Fund may NOT be appropriate for you if:
o You want an investment that pursues market trends or focuses only on
particular sectors or industries
o You need regular income or stability of principal
o You are pursuing a short-term goal or investing emergency reserves
<PAGE>
PERFORMANCE INFORMATION
The following charts and tables illustrate each Fund's returns for the fiscal
year ended 1999. These charts and tables provide some indication of the risks of
investing in each Fund by showing changes in each Fund's performance and how
each Fund's returns compare to a broad measure of market performance.
PERFORMANCE INFORMATION REPRESENTS ONLY PAST PERFORMANCE AND DOES NOT
NECESSARILY INDICATE FUTURE RESULTS.
GOVERNMENT BOND FUND
The following chart shows the annual total return of the Fund for the full
calendar year the Fund has operated.
[EDGAR Representation of bar chart]
1999 -2.39%
During the period shown in the chart, the highest quarterly return was 0.51%
(for the quarter ended September 30, 1999) and the lowest quarterly return was
- -1.31% (for the quarter ended March 31, 1999).
The following table compares the Fund's average annual total returns as of
December 31, 1999 to the Lehman Brothers U.S. Government Bond Index.
<TABLE>
<S> <C> <C>
LEHMAN BROTHERS U.S. GOVERNMENT BOND
YEAR(S) GOVERNMENT BOND FUND INDEX(1)
1 Year -2.39% -2.24%
Since Inception (3/30/98) 3.03% 3.27%
</TABLE>
(1) The Lehman Brothers U.S. Government Bond Index is composed of all
publically issued, non-convertible, domestic debt of the U.S. Government or any
agency thereof. One cannot invest directly into the index.
CORPORATE BOND FUND
The following chart shows the annual total return of the Fund for the full
calendar year the Fund has operated.
<PAGE>
[EDGAR Representation of bar chart]
1999 -1.77%
During the period shown in the chart, the highest quarterly return was 0.67%
(for the quarter ended September 30, 1999) and the lowest quarterly return was
- -1.30% (for the quarter ended June 30, 1999).
The following table compares the Fund's average annual total returns as of
December 31, 1999 to the Lehman Brothers U.S. Government Bond Index.
<TABLE>
<S> <C> <C>
LEHMAN BROTHERS U.S. GOVERNMENT BOND
YEAR(S) CORPORATE BOND FUND INDEX (1)
1 Year -1.77% -1.95%
Since Inception (3/30/98) 3.13% 2.74%
</TABLE>
(1) The Lehman Brothers U.S. Government Bond Index is composed of all
publically issued, non-convertible, domestic debt of the U.S. Government or any
agency thereof. One cannot invest directly into the index.
GROWTH EQUITY FUND
The following chart shows the annual total return of the Fund for the full
calendar year the Fund has operated.
[EDGAR Representation of bar chart]
1999 24.44%
During the period shown in the chart, the highest quarterly return was 16.32%
(for the quarter ended December 31, 1999) and the lowest quarterly return was
- -5.25% (for the quarter ended September 30, 1999).
The following table compares the Fund's average annual total returns as of
December 31, 1999 to the Russell 1000 Growth Index.
<TABLE>
<S> <C> <C>
YEAR(S) GROWTH EQUITY FUND RUSSELL 1000 GROWTH INDEX (1)
1 Year 24.44% 33.16%
Since Inception (3/30/98) 26.23% 31.50%
</TABLE>
(1) The Russell 1000 Growth Index tracks stocks in the Russell 1000 index with
higher price-to-book ratios and higher forecasted growth values. One cannot
invest directly into the index.
VALUE EQUITY FUND
The following chart shows the annual total return of the Fund for the full
calendar year the Fund has operated.
[EDGAR Representation of bar chart]
1999 -3.96%
During the period shown in the chart, the highest quarterly return was 10.84%
(for the quarter ended June 30, 1999) and the lowest quarterly return was
- -11.23% (for the quarter ended September 30, 1999).
The following table compares the Fund's average annual total returns as of
December 31, 1999 to the Russell 1000 Value Index.
<TABLE>
<S> <C> <C>
YEAR(S) VALUE EQUITY FUND RUSSELL 1000 VALUE INDEX(1)
1 Year -3.96% 7.34%
Since Inception (3/30/98) -6.67% 6.63%
</TABLE>
(1) The Russell 1000 Value Index tracks stocks in the Russell 1000 index with
lower price-to-book ratios and lower forecasted growth values. One cannot invest
directly into the index.
<PAGE>
FEE TABLES
The following tables describe the fees and expenses that you will pay if you
invest in a Fund.
<TABLE>
<S> <C>
SHAREHOLDER FEES
(fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases None
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) Imposed on Reinvested Distributions None
Redemption Fee None
Exchange Fee None
ANNUAL FUND OPERATING EXPENSES(1)
(expenses that are deducted from Fund assets)
GOVERNMENT BOND FUND
Advisory Fees 0.23%
Distribution (12b-1) Fees None
Other Expenses 0.56%
Shareholder Service Fees 0.21%
Miscellaneous 0.35%
TOTAL ANNUAL FUND OPERATING EXPENSES 0.79%
Fee Waiver and Expense Reimbursement(2) 0.06%
Net Expenses 0.73%
CORPORATE BOND FUND
Advisory Fees 0.23%
Distribution (12b-1) Fees None
Other Expenses 0.51%
Shareholder Service Fees 0.21%
Miscellaneous 0.30%
TOTAL ANNUAL FUND OPERATING EXPENSES 0.74%
Fee Waiver and Expense Reimbursement(2) 0.06%
Net Expenses 0.68%
GROWTH EQUITY FUND
Advisory Fees 0.35%
Distribution (12b-1) Fees None
Other Expenses 0.74%
Shareholder Service Fees 0.20%
Miscellaneous 0.54%
TOTAL ANNUAL FUND OPERATING EXPENSES 1.09
Fee Waiver and Expense Reimbursement(2) 0.09%
Net Expenses 1.00%
VALUE EQUITY FUND
Advisory Fees 0.35%
Distribution (12b-1) Fees None
Other Expenses 0.74%
Shareholder Service Fees 0.20%
Miscellaneous 0.54%
TOTAL ANNUAL FUND OPERATING EXPENSES 1.09%
Fee Waiver and Expense Reimbursement(2) 0.09%
Net Expenses 1.00%
</TABLE>
(1) Based on amounts incurred during the Funds' fiscal year ended
December 31, 1999 as stated as a percentage of net assets.
(2) Based on certain contractual fee waivers and expense reimbursements
effective through April 30, 2001.
<PAGE>
EXAMPLE
The following is a hypothetical example intended to help you compare the cost of
investing in each Fund to the cost of investing in other mutual funds. This
example assumes a $10,000 investment in a Fund, a 5 percent annual return, that
the Fund's operating expenses remain the same as stated in the table above
(before waivers and reimbursements), and reinvestment of all distributions and
redemption at the end of each period. Although your actual costs may be higher
or lower, under these assumptions your costs would be:
<TABLE>
<S> <C> <C> <C> <C>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
GOVERNMENT BOND FUND $74 $253 $441 $982
CORPORATE BOND FUND $69 $238 $413 $923
GROWTH EQUITY FUND $102 $347 $602 $1,332
VALUE EQUITY FUND $102 $346 $600 $1,326
</TABLE>
<PAGE>
INVESTMENT OBJECTIVES, PRINCIPAL
INVESTMENT STRATEGIES AND PRINCIPAL RISKS
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.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests under normal circumstances at least 90 percent of its total
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 total
assets in "investment grade" corporate debt instruments.
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 securities with maturities (or average life in the case of
mortgage-backed and similar securities) ranging from overnight to 30 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.
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.
<PAGE>
CONCEPTS TO UNDERSTAND
PREFERRED STOCK is a security
that has certain rights
separate from those conferred
by common stock. Preferred
stock seldom carries voting
rights, but pays dividends
and have liquidation
preference over common
stockholders
CONVERTIBLE SECURITY is a
security such as preferred
stock or bonds that may be
converted into a specified
number of shares of common
stock
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests under normal circumstances at least 65 percent of its total
assets in corporate bonds. The Fund may also invest in U.S. Government
securities and mortgage-backed and other similar securities of private issuers.
At least 80 percent of the Fund's net assets 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 such as Standard and
Poor's or unrated and determined by its sub-adviser to be of comparable quality.
No more than 5 percent of the Fund's total assets will be in securities rated
below investment grade. The Fund's portfolio of corporate debt instruments will
have a minimum weighted average rating of A.
The Fund invests in securities with maturities (or average life in the case of
mortgage-backed and similiar securities) ranging from short-term (including
overnight) to 30 years. The Fund seeks to moderate fluctuation 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 Corporate Bond Index.
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.
PRINCIPAL INVESTMENT STRATEGIES
The Fund seeks to achieve its objective by investing under normal circumstances
at least 65 percent of its total assets in the common stock of domestic
companies. The Fund only invests in companies having a minimum market
capitalization of $250 million at the time of purchase, and seeks to maintain a
minimum average weighted market capitalization of $5 billion.
The Fund invests 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, at the time of
purchase, are investment grade securities or, if unrated, are determined by the
sub-adviser to be of comparable quality.
<PAGE>
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.
PRINCIPAL INVESTMENT STRATEGIES
The Fund seeks to attain its objective by investing under normal circumstances
at least 65 percent of its total assets in common stocks of domestic companies.
The Fund only invests in companies having a minimum market capitalization of
$250 million at the time of purchase, and seeks to maintain a minimum average
weighted market capitalization of $5 billion.
Using a value approach, the Fund seeks to invest in stocks that are underpriced
relative to other stocks, determined by price/earnings ratios, cash flows or
other measures. The sub-adviser relies on stock selection to achieve its
results, rather than trying to time market fluctuations. In selecting stocks,
the sub-adviser establishes 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, at the
time of purchase, are investment grade or, are unrated and determined by the
sub-adviser to be of comparable quality.
PRINCIPAL INVESTMENT RISKS
GENERALLY
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 each Fund have some risk. Among other things, the market
value of any security in which a Fund 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, have additional risks, such as the potential use of
leverage by a Fund through borrowings, securities lending, and other investment
techniques.
BOND FUNDS. The value of your investment in a Bond Fund 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 these Funds invest.
Your investment in 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 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. An additional risk is that issuers
will prepay fixed rate securities when interest rates fall, forcing the Fund to
invest in securities with lower interest rates than the prepaid securities. For
a Bond Fund investing in mortgage-backed and similar securities, there is also
the risk that a decline in interest rates may result in holders of the assets
backing the securities to prepay their debts, resulting in potential losses in
these securities' value and yield. Alternatively, rising interest rates may
reduce the amount of prepayments on the assets backing these securities, causing
the Fund's average maturity to rise and increasing the Fund's potential for
losses in value.
EQUITY FUNDS. An Equity Fund may be appropriate investments if you are seeking
long-term growth in your investment, and are willing to tolerate significant
fluctuations in the value of your investment in response to changes in the
market value of the stocks an Equity Fund holds. 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. The investment style for either or
both Equity Funds could fall out of favor with the market. In other words, if
investors lose interest in "growth" stocks, then the net asset value of Growth
Equity Fund could also decrease. Likewise, if "value" stocks decrease in value,
there could be a corresponding drop in the net asset value of Value Equity Fund.
<PAGE>
TEMPORARY DEFENSIVE POSITION A Fund may hold cash or cash equivalents such as
high quality money market instruments pending investment and to retain
flexibility in meeting redemptions and paying expenses. In addition, in order to
respond to adverse market, economic or other conditions, a Fund may assume a
temporary defensive position and invest without limit in these instruments. As a
result, a Fund may be unable to achieve their investment objectives.
<PAGE>
MANAGEMENT
The business of Memorial Funds (the "Trust") and each Fund is managed under the
direction of the Board of Trustees (the "Board"). The Board formulates the
general policies of each Fund and meets periodically to review each Fund's
performance, monitor investment activities and practices, and discuss other
matters affecting each Fund. Additional information regarding the Trustees, as
well as executive officers, may be found in the Statement of Additional
Information ("SAI").
ADVISER
Forum Investment Advisors, LLC (the "Adviser"), Two Portland Square, Portland,
Maine 04101, serves as investment adviser to the Funds. 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, the Adviser receives an advisory fee at
an annual rate of 0.35 percent of the average daily net assets of Value Equity
Fund and Growth Equity Fund and 0.23 percent of the average daily net assets of
Corporate Bond Fund and Government Bond Fund.
INVESTMENT CONSULTANT
To assist it in carrying out its responsibilities, the Adviser has retained
Wellesley Group, Inc., 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.
SUB-ADVISERS/PORTFOLIO MANAGERS
The Adviser has retained the following sub-advisers to render advisory services
and make daily investment decisions for each Fund. The day-to-day management of
each Fund is performed by a portfolio manager employed by each sub-adviser to
that Fund. Each sub-adviser is registered or is exempt from registration as an
investment adviser under the Investment Advisers Act of 1940. The sub-adviser
for each Fund and its portfolio manager's business experience and educational
background follow:
The Northern Trust Company ("NTC"), 50 South LaSalle Street, Chicago, Illinois
60675, manages the portfolio of Government Bond Fund. NTC presently manages
approximately $XXX billion in assets for endowments and foundations,
corporations, public funds and insurance companies. Mr. Monty Memler, CFA, is
the Fund's portfolio manager. He is a Vice President and a senior portfolio
manager for NTC and has been a member of the NTC fixed income team since 1990.
Mr. Memler holds a Masters in Business Administration from the University of
Chicago.
Conseco Capital Management, Inc. ("CCM"), 11825 N. Pennsylvania Street, Carmel,
Indiana 46032, manages the portfolio of Corporate Bond Fund. CCM presently
manages approximately $XXX billion for individuals, corporations, insurance
companies, investment companies, pension plans, trusts, estates, as well as
charitable organizations including foundations and endowments. Mr. Gregory Hahn,
CFA, is the Fund's portfolio manager. He has been a Senior Vice President of CCM
since 1989. Mr. Hahn holds a Masters in Business Administration from Indiana
University.
Davis Hamilton Jackson & Associates, L.P. ("DHJA"), Two Houston Center, 909
Fannin Street, Suite 550, Houston, Texas 77010, manages the portfolio of Growth
Equity Fund. DHJA currently manages approximately $XXX billion for institutions
and high net worth individuals and invests primarily in domestic equity
securities. Mr. J. Patrick Clegg, CFA, is the Fund's portfolio manager. Prior to
joining DHJA as a portfolio manager, he was a Principal and Director of Research
at Luther King Capital Management in Fort Worth, Texas from 1991 to 1996. Mr.
Clegg holds a Masters in Business Administration from the University of Texas.
Beutel, Goodman Capital Management ("BGCM"), 5847 San Felipe, Suite 4500,
Houston, Texas 77057-3011, manages the portfolio of Value Equity Fund. BGCM
currently manages approximately $XXX billion in assets. Mr. John Philip Ferguson
<PAGE>
is the Fund's portfolio manager. He 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.
OTHER SERVICE PROVIDERS
The Forum Financial Group of companies ("Forum") provides various services to
each Fund. As of March 31, 2000, Forum provided administration and distribution
services to investment companies and collective investment funds with assets of
approximately $XX billion.
Forum Fund Services, LLC, a registered broker-dealer and member of the National
Association of Securities Dealers, Inc., is the distributor (principal
underwriter) of each Fund's shares. The distributor acts as the agent of
Memorial Funds in connection with the offering of shares of each Fund. The
distributor may enter into arrangements with banks, broker-dealers or other
financial institutions through which investors may purchase or redeem shares and
may, at its own expense, compensate persons who provide services in connection
with the sale or expected sale of shares of each Fund.
Forum Shareholder Services, LLC (the "Transfer Agent") is each Fund's transfer
agent.
SHAREHOLDER SERVICES PLAN
The Trust has adopted a shareholder services plan permitting the Trust to
compensate financial institutions for acting as shareholder servicing agents for
their customers. Under this plan, the Trust has entered into an agreement with
Memorial Group, Inc., a corporation of which Christopher W. Hamm, the Chairman
of the Board and President of the Trust, is the sole shareholder. Memorial
Group, Inc. performs certain shareholder services not provided by Transfer Agent
and is paid fees at an annual rate of 0.25 percent of the average daily net
assets of the shares of the Fund owned by investors for which Memorial Group,
Inc. maintains a servicing relationship.
FUND EXPENSES
Each Fund pays for all of its expenses. Each Fund's expenses are comprised of
expenses attributable to the particular Fund as well as expenses not
attributable to any particular Fund that are allocated among the Funds. The
Adviser or other service providers may waive all or any portion of their fees,
which are accrued daily and paid monthly. Any waiver would have the effect of
increasing a Fund's performance for the period during which the waiver was in
effect.
<PAGE>
YOUR ACCOUNT
HOW TO CONTACT THE FUNDS
WRITE TO US AT:
Memorial Funds
P.O. Box 446
Portland, Maine 04112
TELEPHONE US TOLL-FREE AT:
(888) 263-5593
WIRE INVESTMENTS (OR ACH PAYMENTS) TO US AT:
BankBoston
Boston, Massachusetts
ABA#011000390
FOR CREDIT TO:
Forum Shareholder Services, LLC
Account # 541-54171
Memorial Funds
(Your name)
(Your Account Number)
(Your Social Security number or tax identification number)
GENERAL INFORMATION
You pay no sales charge to purchase or sell (redeem) shares of a Fund. Each Fund
purchases and sells shares at the net asset value per share or NAV next
calculated after the Transfer Agent receives your transaction request in proper
form. If the Transfer Agent receives your transaction request in proper form
priot to 4 p.m., your transaction will be priced at that day's NAV. A Fund will
not accept orders that request a particular day or price for the transaction or
any other special conditions.
The Funds do not issue share certificates.
You will receive annual statements and a conformation of each transaction. You
should verify the accuracy of all transactions in your account as soon as you
receive your confirmation.
Each Fund reserves the right to impose minimum investment amounts and may
temporarily suspend (during unusual market conditions) or discontinue any
service or priviledge.
WHEN AND HOW NAV IS DETERMINED. Each Fund calculates its NAV as of the close of
the New York Stock Exchange (normally 4:00 p.m., Eastern time) on each weekday
except days when the New York Stock Exchange is closed. The time at which NAV is
calculated may be changed in case of an emergency. A Fund's NAV is determined by
taking the market value of all securities owned by the fund (plus all other
assets such as cash), identification number) subtracting all liabilities and
then dividing the result (net assets) by the number of shares outstanding. Each
Fund values securities for which market quotations are readily available at
current market value. If market quotations are not readily available, a Fund
values securities at fair value.
TRANSACTIONS THROUGH THIRD PARTIES. If you invest through a broker or other
financial institution, the policies and fees charged by that institution may be
different than those of each Fund. Banks, brokers, retirement plans and
financial advisers may charge transaction fees and may set different minimum
investments or limitations on buying or selling shares. Consult a representative
of your financial institution or retirement plan for further information.
BUYING SHARES
All investments must be in U.S. dollars and checks must be drawn on U.S. banks.
CHECKS. For individual, Uniform Gifts to Minors Act ("UGMA") or Uniform Transfer
to Minors Act ("UTMA") accounts, the check must be made payable to "Memorial
Funds" or to one or more owners of the account and endorsed to "Memorial Funds."
For all other accounts, the check must be made payable on its face to "Memorial
Funds." No other method of check payment is acceptable (for instance, you may
not pay by travelers check).
PURCHASES BY AUTOMATED CLEARING HOUSE ("ACH") This service allows the purchase
of additional shares through an electronic transfer of money from a checking or
savings account. When an additional purchase is made by telephone, the Transfer
Agent will automatically debit your pre-designated bank account for the desired
amount. You may call (888) 263-5593 to request an ACH transaction.
<PAGE>
WIRES. Instruct your financial institution to make a Federal Funds wire payment
to us. Your financial institution may charge you a fee for this service.
MINIMUM INVESTMENTS. Each Fund accepts payments in the following minimum amount:
MINIMUM INITIAL MINIMUM ADDITIONAL INVESTMENT
INVESTMENT
$2,000 None
Management of the Funds may choose to waive the investment minimum.
ACCOUNT REQUIREMENTS
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TYPE OF ACCOUNT REQUIREMENT
INDIVIDUAL, SOLE PROPRIETORSHIP AND JOINT ACCOUNTS o Instructions must be signed by all persons required
Individual accounts are owned by one person, as are sole to sign (you choose who must sign) exactly as each
proprietorship accounts. name appears on the account
Joint accounts can have two or more owners (tenants)
GIFTS OR TRANSFERS TO A MINOR (UGMA, UTMA) o Depending on state laws, you can set up a
These custodial accounts provide a way to give money to a custodial account under the UGMA or the UTMA
child and obtain tax benefits. You can give up to o The trustee must sign instructions in a manner
$10,000 a year per child without paying Federal gift tax. indicating trustee capacity
BUSINESS ENTITIES o For entities with officers, provide an original
or certified copy of a resolution that identifies
the authorized signers for the account
o For entities with partners or other interested
parties, provide a certified partnership agreement
or organizational document, or certified pages from
the partnership agreement or organizational
document, that identify the partners or interested parties
TRUSTS o The trust must be established before an account
can be opened
o Provide a certified trust document, or the
pages from the trust document that identify the
trustees
<PAGE>
INVESTMENT PROCEDURES
TO OPEN AN ACCOUNT TO ADD TO YOUR ACCOUNT
BY CHECK BY CHECK
o Call or write us for an account application o Fill out an investment slip from a
o Complete the application confirmation statement OR
o Mail us your application and a check o Write a letter to us
o Write your account number on your check.
o Mail us the slip (or your letter) and a check
BY WIRE BY WIRE
o Call or write us for an account application o Call to notify us of your incoming wire
o Complete the application o Instruct your bank to wire your money to us
o Call us and we will assign you an account number
o Mail us your application
o Instruct your bank to wire your money to us
BY ACH PAYMENT BY SYSTEMATIC INVESTMENT
o Call or write us for an account application o Complete the Systematic Investment section of
o Complete the application the application
o Call us and we will assign you an account number o Attach a voided check to your application
o Mail us your application o Mail us the completed application and the
o Make an ACH payment voided check
</TABLE>
SYSTEMATIC INVESTMENTS. You may invest a specified amount of money in a Fund
once or twice a month on specified dates. These payments are taken from your
bank account by ACH payment. Systematic investments must be for at least $100.
LIMITATIONS ON PURCHASES. Each Fund reserves the right to refuse any purchase
(including exchange) request, particularly requests that could adversely affect
the Fund or its operations. This includes those from any individual or group
who, in the Fund's view, are likely to engage in excessive trading (usually
defined as more than four exchanges out of a Fund within a calendar year).
CANCELED OR FAILED PAYMENTS. Each Fund accepts checks and ACH transfers at full
value subject to collection. If your payment for shares is not received or you
pay with a check or ACH transfer that does not clear, your purchase will be
canceled. You will be responsible for any losses or expenses incurred by a Fund
or the Transfer Agent, and a Fund may redeem shares you own in the account (or
another identically registered account in any Fund) as reimbursement. Each Fund
and its agents have the right to reject or cancel any purchase, exchange, or
redemption due to nonpayment.
<PAGE>
SELLING SHARES
Each Fund processes redemption orders promptly and you will generally receive
redemption proceeds within a week. Delays may occur in cases of very large
redemptions, excessive trading or during unusual market conditions. If a Fund
has not yet collected payment for the shares you are selling, however, it may
delay sending redemption proceeds for up to 15 calendar days.
TO SELL SHARES FROM YOUR ACCOUNT
BY MAIL
o Prepare a written request including:
o Your name(s) and signature(s)
o Your account number
o The Fund name
o The dollar amount or number of shares you want to sell
o How and where to send your proceeds
o Obtain a signature guarantee (if required)
o Obtain other documentation (if required)
o Mail us your request and documentation
BY WIRE
o Wire requests are only available if:
o You have not declined wire redemption privileges on your account
application AND
o Your request is for $5,000 or more
o Call us with your request (if you have not declined telephone redemption
privileges) (See "By Telephone") OR
o Mail us your request (See "By Mail")
BY TELEPHONE
o Telephone requests are only available if you have not declined
telephone redemption privileges.
o Call us with your request
o Provide the following information:
o Your account number
o Exact name(s) in which account is registered
o Additional form of identification
o Your proceeds will be:
o Mailed to you OR
o Wired to you (if you have not declined wire redemption privileges - See "By
Wire")
SYSTEMATICALLY
o Complete the systematic withdrawal section of the application
o Attach a voided check to your application
o Mail us your complete application
TELEPHONE REDEMPTION PRIVILEGES. You may redeem your shares by telephone unless
you declined telephone redemption privileges on your account application. You
may be responsible for any fraudulent telephone order as long as the Transfer
Agent takes reasonable measures to verify the order.
WIRE REDEMPTION PRIVILEGES. You may redeem your shares by wire unless you
declined wire redemption privileges on your account application. The minimum
amount you may redeem by wire is $5,000. If you wish to make your wire request
by telephone, you must also have telephone redemption privileges.
SYSTEMATIC REDEMPTION. If you own shares of a Fund with an aggregate value of at
least $10,000, you may request a specified amount of money from your account
once a month or once a quarter on a specified date. These payments are sent from
your account to a designated bank account by ACH payment. Systematic requests
must be for at least $100.
SIGNATURE GUARANTEE REQUIREMENTS. To protect you and each Fund against fraud,
signatures on certain requests must have a "signature guarantee." A signature
guarantee verifies the authenticity of your signature. You can obtain one from
<PAGE>
more banking institutions or securities brokers, but not from a notary public.
For requests made in writing, a signature guarantee is required for any of the
following:
o Sales of over $50,000 worth of shares
o Changes to a shareholder's record name
o Redemption from an account for which the address or account registration
has changed within the last 30 days
o Sending redemption proceeds to any person, address, brokerage firm or
bank account not on record
o Sending redemption proceeds to an account with a different registration
(name or ownership) from yours
o Changes to systematic investment or withdrawal, distribution, telephone
redemption or exchange option or any other election in connection with your
account
SMALL ACCOUNTS. If the value of your account falls below $2,000, the Fund may
ask you to increase your balance. If the account value is still below $2,000
after 60 days, the Fund may close your account and send you the proceeds. The
Fund will not close your account if it falls below these amounts solely as a
result of a reduction in your account's market value.
REDEMPTION IN KIND. Each Fund reserves the right to pay redemption proceeds in
portfolio securities rather than cash. These redemptions "in kind" usually occur
if the amount requested is large enough to affect a Fund's operations (for
example, if it represents more than 1 percent of the Fund's assets).
LOST ACCOUNTS. The Transfer Agent will consider your account "lost" if
correspondence to your address of record is returned as undeliverable, unless
the Transfer Agent determines your new address.
When an account is "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 the Transfer Agent will be reinvested and the checks will be canceled.
EXCHANGE PRIVILEGES
You may sell your Fund shares and buy Institutional Shares of any other Fund,
also known as an exchange, by telephone or in writing. You may also exchange
Fund shares for Institutional class shares of Daily Assets Treasury Fund (a
series of the Forum Funds). Because exchanges are treated as a sale and
purchase, they may have tax consequences.
REQUIREMENTS. You may make exchanges only between identically registered
accounts (name(s), address and taxpayer ID number). There is currently no limit
on exchanges, but each Fund reserves the right to limit exchanges. You may
exchange your shares by mail or telephone, unless you declined the telephone
authorization privileges section on your account application. You may be
responsible for any fraudulent telephone order as long as the Transfer Agent
takes reasonable measures to verify the order.
HOW TO EXCHANGE
BY MAIL
o Prepare a written request including:
o Your name(s) and signature(s)
o Your account number
o The names of the funds out of and into which you are exchanging
o The dollar amount or number of shares you want to sell (and exchange)
o If opening a new account, complete an account application if you are
requesting different shareholder privileges
o Mail us your request and documentation
BY TELEPHONE
o Call us with your request (unless you declined telephone redemption
privileges on your account application)
o Provide the following information:
o Your account number
o Exact name(s) in which account is registered
o Additional form of identification
<PAGE>
The following tables set forth the performance data relating to the
historical performance of the private account clients (i.e., non-investment
company clients) managed by Conseco Capital Management, Inc. ("CCM"),
sub-adviser of Corporate Bond Fund, Davis Hamilton Jackson & Associates, L.P.
("DHJA"), sub-adviser of Growth Equity Fund, and Beutel, Goodman Capital
Management ("BGCM"), sub-adviser of Value Equity Fund. The private accounts of
each sub-adviser have investment objectives and investment policies, strategies
and risks substantially similar to those of the Fund that the sub-adviser
manages. The information presented does not represent the past performance of
any Fund. You should not consider this performance data as an indication of
future performance of each Fund.
Unless otherwise noted, the 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 these reports. All returns presented were calculated on a total return
basis, include the reinvestment of all dividends and interest, and takes into
account 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 sub-advisers' private accounts,
without provision for federal or state income taxes. Custodial fees, if any,
were not included in the calculations. Securities transactions are accounted for
on the trade date and accrual accounting is utilized. Cash and equivalents are
included in performance returns. Unless otherwise noted, results for the full
period are time-weighted and dollar weighted in accordance with AIMR standards.
You should be aware that the use of a methodology different from that
used below to calculate performance could result in different performance data.
Each Fund's performance is calculated using the method required by the U.S.
Securities and Exchange Commission ("SEC"), which differs from the method used
to calculate the performance of the private accounts. The private accounts are
not subject to the same types of expenses to which each 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 performance results for the private accounts would have
been adversely affected if the private accounts included in the composite had
been regulated as an investment companies under the federal securities laws.
CONSECO CAPITAL MANAGEMENT, INC.
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CCM'S COMPOSITE LEHMAN BROTHERS
YEAR(S) FOR THE CORPORATE
CORPORATE BOND STYLE (1) BOND INDEX(2)
Since Inception (7/1/1990)(3)............ 9.10% 8.32%
5 Years (1995-1999)(3)................. 8.32% 8.18%
3 Years (1997-1999)(3)................. 5.90% 5.48%
1 Year (1999)3............................ (0.28)% (1.95)%
1995................................................ 19.61% 22.25%
1996................................................ 4.97% 3.28%
1997................................................ 9.99% 10.23%
1998................................................. 8.30% 8.57%
1999.................................................. (0.28)% (1.95)%
</TABLE>
(1) The presentation above describes and contains twenty-three (23)
accounts valued, as of December 31, 1999, at $373.4 million.
(2) The Lehman Brothers 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. 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.
<PAGE>
(3) Average annual returns through December 31, 1999.
DAVIS HAMILTON JACKSON & ASSOCIATES, L.P.
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DHJA'S COMPOSITE RUSSELL 1000
FOR THE GROWTH
YEAR(S) GROWTH EQUITY STYLE (1) INDEX(2)
- ------- ----------------------- --------
10 Years (1990-1999) (3) 19.3% 20.3%
5 Years (1995-1999)(3)................. 29.4% 32.4%
3 Years (1997-1999)(3)................. 32.1% 34.1%
1 Year (1999)(3)............................. 24.4% 33.1%
1995................................................. 35.4% 37.2%
1996................................................. 15.9% 23.1%
1997................................................. 34.9% 30.5%
1998................................................. 37.5% 38.7%
1999................................................. 24.49% 33.1%
</TABLE>
(1) The presentation above describes and contains thirty-eight (38)
accounts valued, as of December 31, 1999, at $1.436 billion. DHJA's results for
the period of January 1, 1990 through December 31, 1992 were valued monthly and
the composites were equal weighted. DHJAs results for the period from January 1,
1993 through December 31, 1999 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. DHJA's 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, 1999.
Prior to January 1, 1993, not all fully discretionary portfolios were
represented in appropriate composites. DHJA's composite results for the period
of January 1, 1990 through December 31, 1992, include fully discretionary
accounts over $1.0 million that were managed in accordance with the quality
growth equity strategy
(2) The Russell 1000 Growth Index measures the performance of those
companies within the Russell 1000 Index 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.
(3) Average annual returns through December 31, 1999.
BEUTEL, GOODMAN CAPITAL MANAGEMENT
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BGCM'S COMPOSITE RUSSELL 1000
FOR THE VALUE
YEARS(S) VALUE EQUITY STYLE (1) INDEX (2)
- -------- ---------------------- ---------
10 Years (1990-1999)(3)............. 12.4% 15.6%
5 Years (1995-1999)(3)................. 15.1% 23.1%
3 Years (1997-1999)(3)................. 7.4% 18.8%
1 Year (1999)(3)............................. (4.2%) 7.4%
1995................................................. 32.6% 38.4%
1996............................................. 22.9% 21.6%
1997................................................ 29.6% 35.2%
1998................................................. (0.2%) 15.6%
1999.................................................. (4.2%) 7.4%
</TABLE>
(1) The composite above contains twenty-nine (29) accounts, valued as
of December 31, 1999 at $230,152,247. Prior to January 1, 1993. BGCM's
performance composite was equally-weighted. BGCM's results for the period from
January 1, 1993 through December 31, 1999 are time-weighted and dollar weighted
in accordance with AIMR standards.
<PAGE>
(2) The Russell 1000 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.
(3) Average annual returns through December 31, 1999.
OTHER INFORMATION
DISTRIBUTIONS
Distributions of net investment income are declared daily and paid monthly by
the Bond Funds and are declared and paid quarterly by the Equity Funds. Any net
capital gain realized by a Fund will be distributed at least annually.
All distributions are reinvested in additional shares, unless you elect to
receive distributions in cash. For Federal income tax purposes, distributions
are treated the same whether they are received in cash or reinvested. Shares
become entitled to receive distributions on the day after the shares are issued.
TAXES
Each Fund intends to operate in a manner so that it will not be liable for
Federal income or excise tax.
Distributions of net investment income or short-term capital gain are taxable to
you as ordinary income. A portion of the dividends paid by each Fund may be
eligible for the dividends-received deduction for corporate shareholders.
Distributions of long-term capital gain are taxable to you as long-term capital
gain regardless of how long you have held your shares. Distributions may also be
subject to state and local taxes.
Distributions of capital gain and the Equity Fund's distribution of net
investment income reduce the net asset value of the Funds' shares by the amount
of the distribution. If you purchase shares prior to these distributions, you
are taxed on the distribution even though the distribution represents a return
of your investment. The sale or exchange of Fund shares is a taxable transaction
for Federal income tax purposes.
Each Fund may be required to withhold U.S. federal income tax at the rate of 31%
of all taxable distributions payable to you if you fail to provide the Fund with
your correct taxpayer identification number or to make required certifications,
or if you have been notified by the IRS that you are subject to backup
withholding. Backup withholding is not an additional tax. Any amounts withheld
may be credited against your U.S. federal income tax liability.
Each Fund will mail reports containing information about the Fund's
distributions during the year to you after December 31 of each year. Consult
your tax adviser about the Federal, state and local tax consequences in your
particular circumstances.
ORGANIZATION
Memorial Funds is a Delaware business trust that is registered with the SEC as
an open-end, management investment company (a "mutual fund"). Each Fund is a
series of Memorial Funds. It is not intended that meetings of shareholders be
held except when required by Federal or Delaware law. All shareholders of each
Fund are entitled to vote at shareholders' meetings unless a matter is
determined to affect only a specific Fund (such as approval of an advisory
agreement for a Fund). From time to time, large shareholders may control a Fund
or Memorial Funds.
CORE AND GATEWAY(R)
Each Fund may seek to achieve its investment objective by investing all of its
assets in shares of another diversified, open-end management investment company
that have corresponding investment objectives and investment policies to those
of the Fund.
<PAGE>
FINANCIAL HIGHLIGHTS
The following table is intended to help you understand each Fund's Institutional
shares financial performance. Total return in the table represents the rate an
investor would have earned (or lost) on an investment in a Fund (assuming the
reinvestment of all distributions). This information has been audited by KPMG
Peat Marwick LLP. The Funds' financial statements and the auditor's report are
included in the Annual Report, which is available upon request, without charge.
GOVERNMENT BOND
FUND
YEAR ENDED
12/31/99 12/31/98(1)
SELECTED DATA FOR A SINGLE
SHARE
Beginning Net Asset XX $10.00
Value
Income From Investment XX
Operations
Net investment XX 0.39
income
Net gain (loss) on XX 0.39
securities (realized
and unrealized)
Total From Investment XX 0.78
Operations
Less Distributions XX
From net XX (0.39)
investment income
From capital gain XX (0.14)
Total Distributions XX (0.53)
Ending Net Asset Value XX $10.25
OTHER INFORMATION
Ratios to Average Net
Assets:(2)
Expenses XX 0.73%
Expenses (gross) (3) XX 0.85%
Net Investment Income XX 5.05%
Total Return XX 7.96%
Portfolio Turnover Rate XX 113.50%
Net Assets at End of $65,676
Period (in thousands)
(1) Institutional Shares of the Fund commenced operations on March 29, 1998.
(2) Annualized.
(3) Reflects expense ratio in absence of expense reimbursements and fee waivers.
CORPORATE BOND FUND
YEAR ENDED
12/31/99 12/31/98(1)
Beginning Net Asset XX $10.00
Value
Income From Investment
Operations
Net investment XX 0.43
income
Net gain (loss) on XX 0.30
securities (realized
and unrealized)
Total From Investment XX 0.73
Operations
Less Distributions
From net investment XX (0.43)
income
From capital gain XX (0.21)
Total Distributions XX (0.64)
Ending Net Asset Value XX $10.09
OTHER INFORMATION
Ratios to Average Net
Assets:(2)
Expenses XX 0.63%
Expenses (gross) (3) XX 0.76%
<PAGE>
Net Investment Income XX 5.60%
Total Return XX 7.50%
Portfolio Turnover Rate XX 377.36%
Net Assets at End of XX $137,338
Period (in thousands)
(1) Institutional Shares of the Fund commenced operations on March 25, 1998.
(2) Annualized.
(3) Reflects expense ratio in absence of expense reimbursements and fee waivers.
GROWTH EQUITY FUND
YEAR ENDED
12/31/99 12/31/98(1)
Beginning Net Asset XX $10.00
Value
Income From Investment
Operations
Net investment income XX 0.01
Net gain (loss) on XX 2.09
securities (realized
and unrealized)
Total From Investment XX 2.10
Operations
Less Distributions
From net investment XX (0.01)
income
From capital gain XX (0.60)
Total Distributions XX (0.61)
Ending Net Asset Value XX $11.49
OTHER INFORMATION
Ratios to Average Net
Assets:(2)
Expenses XX 1.00%
Expenses (gross) (3) XX 1.19%
Net Investment Income XX 0.16%
Total Return XX 20.97%
Portfolio Turnover Rate XX 135.38%
Net Assets at End of
Period (in thousands) XX $26,426
(1) Institutional Shares of the Fund commenced operations on March 29, 1998.
(2) Annualized.
(3) Reflects expense ratio in absence of expense reimbursements and fee waivers.
VALUE EQUITY FUND
YEAR ENDED
12/31/99 12/31/98(1)
Beginning Net Asset XX $10.00
Value
Income From Investment
Operations
Net investment income XX 0.03
Net gain (loss) on XX (0.81)
securities (realized
and unrealized)
Total From Investment XX (0.78)
Operations
Less Distributions
From net investment XX (0.03)
income
From capital gain XX -
Total Distributions XX (0.03)
Ending Net Asset Value XX $9.19
OTHER INFORMATION
Ratios to Average Net
Assets:(2)
Expenses XX 1.00%
Expenses (gross) (3) XX 1.25%
Net Investment Income XX 0.59%
Total Return XX (7.76%)
<PAGE>
Portfolio Turnover Rate XX 36.95%
Net Assets at End of
Period (in thousands) XX $30,670
(1) Institutional Shares of the Fund commenced operations on March 29, 1998.
(2) Annualized.
(3) Reflects expense ratio in absence of expense reimbursements and fee waivers.
<PAGE>
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FOR MORE INFORMATION
The following documents are available free upon request: GOVERNMENT BOND FUND
CORPORATE BOND FUND
ANNUAL/SEMI-ANNUAL REPORTS GROWTH EQUITY FUND
Additional information about each Fund's investments is available in the Funds' VALUE EQUITY FUND
annual and semi-annual reports to shareholders. In each Fund's annual report,
you will find a discussion of the market conditions and investment strategies
that significantly affected the Fund's performances during their last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
The SAI provides more detailed information about each Fund and is
incorporated by reference into this Prospectus.
CONTACTING THE FUNDS
You can get free copies of both reports and the SAI, request other information
and discuss your questions about each Fund by contacting your broker or the
Funds at:
Forum Shareholder Services, LLC
Two Portland Square
Portland, Maine 04101
888-263-5593
SECURITIES AND EXCHANGE COMMISSION INFORMATION
You can also review each Fund's reports and SAIs at the Public Reference
Room of the the Securities and Exchange Commission. You can get copies, for a
fee, by writing to the following: Memorial Funds
P.O. Box 446
Public Reference Room Portland, ME 04112
Securities and Exchange Commission 888-263-5593
Washington, D.C. 20549-6009
E-mail address: public [email protected]
Information on the hours of operation of the Public Reference Room may be
obtained by calling the Commission at (202)942-8090. Free copies of the reports
and SAIs are available from the Commission's Internet website at
http://www.sec.gov.
Investment Company Act File No. 811-8529.
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<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 2000
MEMORIAL FUNDS
GOVERNMENT BOND FUND
CORPORATE BOND FUND
GROWTH EQUITY FUND
VALUE EQUITY FUND
FUND INFORMATION:
Memorial Funds
Two Portland Square
Portland, Maine 04101
(888) 263-5593
INVESTMENT ADVISER:
Forum Investment Advisors, LLC
Two Portland Square
Portland, Maine 04101
ACCOUNT INFORMATION AND SHAREHOLDER SERVICES:
Forum Shareholder Services, LLC
P.O. Box 446
Portland, Maine 04112
(888) 263-5593
This Statement of Additional Information or SAI supplements the
Prospectuses dated May 1, 2000, as may be amended from time to time, offering
Institutional Shares of Government Bond Fund, Corporate Bond Fund, Growth Equity
Fund and Value Equity Fund (the "Funds"). This SAI is not a prospectus and
should only be read in conjunction with a prospectus. The Prospectuses may be
obtained, without charge, by contacting shareholder services at the address or
telephone number listed above.
Financial Statements for the Funds for the year ended December 31,
1999, included in the Annual Report to shareholders, are incorporated into this
SAI by reference. Copies of the Annual Report may be obtained, without charge,
by contacting shareholder services at the address or telephone number listed
above.
<PAGE>
TABLE OF CONTENTS
Glossary ...................................................... xx
1. Investment Policies and Risks.................................. xx
2. Investment Limitations......................................... xx
3. Performance Data and Advertising............................... xx
4. Management..................................................... xx
5. Portfolio Transactions......................................... xx
6. Additional Purchase and Redemption Information................. xx
7. Taxation ...................................................... xx
8. Other Matters.................................................. xx
Appendix A - Description of Securities Ratings.......................... A-1
Appendix B - Miscellaneous Tables....................................... B-1
Appendix C - Performance Data........................................... C-1
<PAGE>
GLOSSARY
"Adviser" means Forum Investment Advisors, LLC
"Board" means the Board of Trustees of the Trust.
"CFTC" means the U.S. Commodities Futures Trading Commission.
"Code" means the Internal Revenue Code of 1986, as amended.
"Custodian" means the custodian of each Fund's assets.
"FAdS" means Forum Administrative Services, LLC, administrator of each
Fund.
"FAcS" means Forum Accounting Services, LLC, the fund accountant of
each Fund.
"FFS" means Forum Fund Services, LLC, distributor of each Fund's
shares.
"Fitch" means Fitch IBCA, Inc.
"Fund" means each of the separate series of the Trust to which this SAI
relates as identified on the cover page.
"Moody's" means Moody's Investors Service.
"NAV" means net asset value.
"NRSRO" means a nationally recognized statistical rating organization.
"SEC" means the U.S. Securities and Exchange Commission.
"S&P" means Standard & Poor's.
"Stock Index Futures" means futures contracts that relate to broadly
based stock indices.
"Subadviser" means The Northern Trust Company, Conseco Capital
Management, Inc., Davis Hamilton Jackson & Associates, L.P. or Beutel,
Goodman Capital Management, as appropriate.
"Transfer Agent" means Forum Shareholder Services, LLC, the transfer
agent and distribution disbursing agent of each Fund.
"Trust" means Memorial Funds
"U.S. Government Securities" means obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities.
"U.S. Treasury Securities" means obligations issued or guaranteed by
the U.S. Treasury.
"1933 Act" means the Securities Act of 1933, as amended.
"1940 Act" means the Investment Company Act of 1940, as amended.
<PAGE>
1. INVESTMENT POLICIES AND RISKS
The following discussion supplements the disclosure in the prospectuses about
each Fund's investment techniques, strategies and risks.
A. SECURITY RATINGS INFORMATION
The Funds' investments in fixed income securities are subject to credit risk
relating to the financial condition of the issuers of the securities that the
Funds hold. To limit credit risk, each Fund generally may only invest its assets
in debt securities that are considered investment grade. Investment grade means
rated in the top four long-term rating categories or top two short-term rating
categories by an NRSRO, or unrated and determined by the Subadviser to be of
comparable quality. 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") have significant speculative characteristics
and generally involve greater volatility of price than investment grade
securities.
The lowest long-term ratings that are investment grade for corporate bonds,
including convertible bonds, are "Baa" in the case of Moody's and "BBB" in the
case of S&P and Fitch; for preferred stock are "Baa" in the case of Moody's and
"BBB" in the case of S&P and Fitch; and 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.
Unrated securities may not be as actively traded 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 the Subadviser to be of
comparable quality to securities whose rating has been lowered below the lowest
permissible rating category) if the Subadviser determines that retaining such
security is in the best interests of the Fund. Because a downgrade often results
in a reduction in the market price of the security, sale of a downgraded
security may result in a loss.
Moody's, S&P and other NRSROs are private services that provide ratings of the
credit quality of debt obligations, including convertible securities. 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.
Ratings are general and are not absolute standards of quality. Securities with
the same maturity, interest rate and rating may have different market prices. If
an issue of securities ceases to be rated or if its rating is reduced after it
is purchased by a Fund, the Subadviser will determine whether the Fund should
continue to hold the obligation. 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 Subadviser 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.
B. TEMPORARY DEFENSIVE POSITION
A Fund may assume a temporary defensive position and may invest without limit in
money market instruments that are of prime quality. Prime quality money market
instruments are those instruments that are rated in one of the two highest
short-term rating categories by an NRSRO or, if not rated, determined by the
Subadviser to be of comparable quality. Certain additional Funds may invest in
commercial paper as an investment and not as a temporary defensive position.
Except as noted below with respect to variable master demand notes, issues of
commercial paper normally have maturities of less than nine months and fixed
rates of return.
Money market instruments usually have maturities of one year or less and fixed
rates of return. The money market instruments in which a Fund may invest include
U.S. Government Securities, commercial paper, time deposits, bankers acceptances
and certificates of deposit of 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, corporate
notes and short-term bonds and money market mutual funds. The Funds may only
invest in money market mutual funds to the extent permitted by the 1940 Act.
<PAGE>
The money market instruments in which a Fund may invest may have variable or
floating rates of interest. 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 issuer of these
obligations often has the right, after a given period, to prepay the 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 7-day or shorter demand feature and there is no readily
available market for the obligation, it is treated as an illiquid security.
Variable amount master demand notes are unsecured demand notes that permit the
indebtedness thereunder to vary and provide for periodic adjustments in the
interest rate according to the terms of the instrument. Because master demand
notes are direct lending arrangements between a Fund and the issuer, they are
not normally traded. Although there is no secondary market in the notes, the
Fund may demand payment of principal and accrued interest at any time. Variable
amount master demand notes must satisfy the same criteria as set forth above for
commercial paper.
C. HEDGING AND OPTION INCOME STRATEGIES
A 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. A Fund
accomplishes a hedge by purchasing options or writing (selling) covered options
on securities in which it has invested or on any securities index based in whole
or in part on securities in which the Fund may invest. Options may trade on an
exchange or the over-the-counter market.
A Fund may invest in certain financial futures contracts and options contracts
in accordance with the policies described in this SAI. A Fund will only invest
in futures contracts, options on futures contracts and other options contracts
that are subject to the jurisdiction of the CFTC after filing a notice of
eligibility and otherwise complying with the requirements of Section 4.5 of the
rules of the CFTC. Under that section, a Fund will not enter into any futures
contract or option on a futures contract if, as a result, the aggregate initial
margins and premiums required to establish such positions would exceed 5% of a
Fund's net assets.
The Funds have no current intention of investing in futures contracts and
options thereon for purposes other than hedging. Growth Equity Fund and Value
Equity Fund (the "Equity Funds") may buy or sell stock index futures contracts,
such as contracts on the S&P 500 stock index. The Bond 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.
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. Likewise, no Fund may 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 may not exceed 50% of its total assets.
These instruments are often referred to as "derivatives," which may be defined
as financial instruments whose 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 may write any covered options. An option is covered if, as long as a
Fund is obligated under the option, it owns an offsetting position in the
underlying security or maintains cash, U.S. Government Securities or other
liquid, high-grade debt securities with a value at all times sufficient to cover
the Fund's obligation under the option.
No assurance can be given, however, that any hedging or option income strategy
will succeed in achieving its intended result.
<PAGE>
1. IN GENERAL
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 (or index)
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 (or a
cash amount equal to the value of the index) 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 (or index) at a specified price during the term of the
option. The writer of the put option, who receives the premium, has the
obligation to buy the underlying security (or receive a cash amount equal to the
value of the index), upon exercise at the exercise price during the option
period.
The amount of premium received or paid for an option 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 and interest
rates.
There are a limited number of options contracts on securities indices and option
contracts may not be available on all securities that a Fund may own or seek to
own.
Bond and stock index futures contracts are bilateral agreements in 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 securities comprising the index
is made. Generally, these futures contracts are closed out prior to the
expiration date of the contract.
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.
COVERED CALLS AND HEDGING. 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. Hedging or option income strategies include the writing and
purchase of exchange-traded and over-the-counter options on individual
securities or financial indices and the purchase and sale of financial futures
contracts and related options. Whether or not used for hedging purposes, these
investment techniques involve risks that are different in certain respects from
the investment risks associated with the other investments of a Fund. Principal
among such risks are: (1) the possible failure of such instruments as hedging
techniques in cases where the price movements of the securities underlying the
options or futures do not follow the price movements of the portfolio securities
subject to the hedge; (2) potentially unlimited loss associated with futures
transactions and the possible lack of a liquid secondary market for closing out
a futures position; and (3) possible losses resulting from the inability of the
Subadviser to correctly predict the direction of stock prices, interest rates
and other economic factors. To the extent a Fund invests in foreign securities,
it may also invest in options on foreign currencies, foreign currency futures
contracts and options on those futures contracts. 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.
Except as otherwise noted in this SAI, 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 at least one of the following conditions is
met. A Fund owns either an offsetting ("covered") position; or it owns cash,
U.S. Government Securities or other liquid securities (or other assets as may be
<PAGE>
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 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
Subadviser believes that a liquid secondary market for the option exists. When a
Fund purchases an OTC option, it relies on the dealer from whom 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.
Upon selling an option, a Fund receives a premium from the purchaser of the
option. Upon purchasing an option the Fund pays a premium to the seller of the
option. 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 call options on debt securities that the Fund's
Subadviser intends to include in the Fund's portfolio in order to fix the cost
of a future purchase. Call options may also be purchased to participate 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, this strategy would serve to limit the potential
loss to the Fund to the option premium paid. 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 Subadviser 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.
The 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.
<PAGE>
2. RISKS
The Fund's use of options subjects the Fund to certain investment risks and
transaction costs to which it might not otherwise be subject. These risks
include:
o Dependence on the Subadviser's ability to predict movements in the prices
of individual securities and fluctuations in the general securities
markets.
o Imperfect correlations between movements in the prices of options and
movements in the price of the securities (or indices) hedged or used for
cover, which may cause a given hedge not to achieve its objective.
o The fact that the skills and techniques needed to trade these instruments
are different from those needed to select the securities in which the Funds
invest.
o Lack of assurance that a liquid secondary market will exist for any
particular instrument at any particular time, which, among other things,
may hinder a Fund's ability to limit exposures by closing its positions.
o 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 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.
D. CONVERTIBLE SECURITIES
The Funds may only invest in convertible securities that are investment grade.
1. IN GENERAL
Convertible securities, which include convertible debt, convertible preferred
stock and other securities exchangeable under certain circumstances for shares
of common stock, are fixed income securities or preferred stock which generally
may be converted at a stated price within a specific amount of time into a
specified number of shares of common stock. 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 have
characteristics similar to nonconvertible debt securities or preferred equity in
that they ordinarily provide a stream of income with generally higher yields
than do those of common stocks of the same or similar issuers. These securities
are usually senior to common stock in a company's capital structure, but usually
are subordinated to non-convertible debt securities.
Convertible securities have unique investment characteristics in that they
generally have higher yields than common stocks, but lower yields than
comparable non-convertible securities. Convertible securities are less subject
to fluctuation in value than the underlying stock since they have fixed income
characteristics; and they provide the potential for capital appreciation if the
market price of the underlying common stock increases.
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 the 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.
2. RISKS
Investment in convertible securities generally entails less risk than investment
in the issuer's common stock. The extent to which such risk is reduced, however,
depends in large measure upon the degree to which the convertible security sells
above its value as a fixed income security. Convertible securities also are
subject to the risks of debt securities: that changes in interest rates could
<PAGE>
adversely affect a convertible security's value and that an issuer may default
on payments of interest or principal.
3. VALUE OF CONVERTIBLE SECURITIES
The value of a convertible security is a function of its "investment value" and
its "conversion value". The investment value of a convertible security is
determined by comparing its yield with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege. The
conversion value is 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.
E. ILLIQUID AND RESTRICTED SECURITIES
No Fund may acquire securities or invest in repurchase agreements if, as a
result, more than 15% of the Fund's net assets (taken at current value) would be
invested in illiquid securities.
1. IN GENERAL
The term "illiquid securities" means securities that cannot be disposed of
within seven days in the ordinary course of business at approximately the amount
at which a Fund has valued the securities. Illiquid securities include
repurchase agreements not entitling the holder to payment of principal within
seven days, purchased over-the-counter options, securities which are not readily
marketable and restricted securities. Restricted securities, except as otherwise
determined by the Subadviser, are securities subject to contractual or legal
restrictions on resale because they have not been registered under the 1933 Act.
2. RISKS
Certain risks are associated with holding illiquid and restricted securities.
For instance, limitations on resale may have an adverse effect on the
marketability of a security and a Fund might also have to register a restricted
security in order to dispose of it, resulting in expense and delay. A Fund might
not be able to dispose of restricted or illiquid securities promptly or at
reasonable prices and might thereby experience difficulty satisfying
redemptions. There can be no assurance that a liquid market will exist for any
security at any particular time. Any security, including securities determined
by the Subadviser to be liquid, can become illiquid.
3. DETERMINING LIQUIDITY
The Board has the ultimate responsibility for determining whether specific
securities are liquid or illiquid and has delegated the function of making
determinations of liquidity to the Subadviser, pursuant to guidelines approved
by the Board. The Subadviser determines and monitors the liquidity of the
portfolio securities and reports periodically on its decisions to the Board. The
Subadviser takes 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.
<PAGE>
An institutional market has developed for certain restricted securities.
Accordingly, contractual or legal restrictions on the resale of a security may
not be indicative of the liquidity of the security. If such securities are
eligible for purchase by institutional buyers in accordance with Rule 144A under
the 1933 Act or other exemptions, the Subadviser may determine that the
securities are not illiquid.
F. WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
Government Bond Fund and Corporate Bond 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.
1. RISKS
The use of when-issued transactions and forward commitments enables Corporate
Bond Fund and Government Bond Fund 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 that 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 Subadviser 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 a separate account with cash, U.S.
Government Securities and other liquid securities in an amount at least equal to
its commitments to purchase securities on a when-issued or delayed delivery
basis.
G. MISCELLANEOUS FIXED INCOME SECURITIES
1. U.S. GOVERNMENT SECURITIES
Corporate Bond Fund and Government Bond Fund (the "Bond Funds"), as well as
Growth Equity Fund and Value Equity Fund if assuming a temporary defensive
position, 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").
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
<PAGE>
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.
2. VARIABLE AND FLOATING RATE SECURITIES
The Bond 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 Subadviser 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.
3. DEMAND NOTES
The Bond 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 Subadvisers continuously monitor the financial condition of the issuer to
determine the issuer's likely ability to make payment on demand.
4. GUARANTEED INVESTMENT CONTRACTS
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 Subadviser 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.
5. ZERO-COUPON SECURITIES
The Bond 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").
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.
<PAGE>
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.
6. MORTGAGE-BACKED SECURITIES
The Bond Funds may invest up to 25% of their total assets in mortgage-backed
securities. Government Bond Fund may only invest in mortgage-backed securities
issued by the government or government-related issuers described below.
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.
A. 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.
B. PRIVATELY ISSUED MORTGAGE-BACKED SECURITIES. 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.
C. 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
<PAGE>
the pools. In addition, many mortgages included in pools are insured through
private mortgage insurance companies.
D. 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.
E. 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.
F. 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.
G. 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.
H. COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). 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)
<PAGE>
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.
7. 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.
2. INVESTMENT LIMITATIONS
For purposes of all investment policies of the Funds: (1) the term 1940 Act
includes the rules thereunder, SEC interpretations and any exemptive order upon
which the Fund may rely; and (2) 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 any percentage restriction on
investment or utilization of assets is adhered to at the time an 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.
A fundamental policy of a Fund cannot be changed without the affirmative vote of
the lesser of: (1) 50% of the outstanding shares of the Fund; or (2) 67% of the
shares of the Fund present or represented at a shareholders meeting at which the
holders of more than 50% of the outstanding shares of the Fund are present or
represented. The Board may change a nonfundamental policy of a Fund without
shareholder approval.
A. FUNDAMENTAL LIMITATIONS
Each Fund's investment objective is fundamental. Each Fund has adopted the
following investment limitations, which are fundamental policies of the Fund.
<PAGE>
1. ISSUANCE OF SENIOR SECURITIES
No Fund may issue senior securities except pursuant to Section 18 of the 1940
Act and except that a Fund may borrow money subject to its investment limitation
on borrowing.
2. UNDERWRITING ACTIVITIES
No Fund may 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 1933 Act.
3. CONCENTRATION
No Fund may 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.
4. PURCHASES AND SALES OF REAL ESTATE
No Fund may 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. PURCHASES AND SALES OF COMMODITIES
No Fund may purchase or sell physical commodities or contracts, options or
options on contracts to purchase or sell physical commodities; provided that
currency and currency-related contracts and contracts on indices will not be
deemed to be physical commodities.
6. MAKING LOANS
No Fund may 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. DIVERSIFICATION
Each Fund is "diversified" as that term is defined in the 1940 Act. Accordingly,
no Fund may purchase a security if, as a result; (1) more than 5% of a Fund's
total assets would be invested in the securities of a single issuer; or (2) a
Fund would own more than 10% of the outstanding voting securities of a single
issuer. This limitation applies only to 75% of a Fund's total assets and does
not apply to U.S. Government Securities.
B. NONFUNDAMENTAL LIMITATIONS
Each Fund has adopted the following investment limitations, which are not
fundamental policies of the Fund.
1. BORROWING
No Fund's borrowings for other than temporary or emergency purposes or meeting
redemption requests may exceed an amount equal to 5% of the value of the Fund's
net assets.
<PAGE>
2. ILLIQUID SECURITIES
No Fund may acquire securities or invest in repurchase agreements with respect
to any securities if, as result, more than 15% of the Fund's net assets (taken
at current value) would be invested in illiquid securities
3. SHORT SALES
No Fund may make short sales of securities (except short sales against the box).
4. PURCHASES ON MARGIN
No Fund may 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, futures contracts and options on futures contracts.
5. UNSEASONED ISSUERS
No Fund may invest more than 5% of the value of the Fund's total assets in
securities (other than fully collateralized debt obligations) issued by
companies that have conducted continuous operations for less than three years.
6. PLEDGING
No Fund may pledge, mortgage, hypothecate or encumber any of its assets except
to secure permitted borrowings or to secure other permitted transactions. 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.
7. TRUSTEES' AND OFFICERS' HOLDINGS
No Fund may 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.
8. OIL, GAS OR MINERAL
No Fund may invest in interests in oil or gas or interests in other mineral
exploration or development programs.
3. PERFORMANCE DATA AND ADVERTISING
A. PERFORMANCE DATA
A Fund may quote performance in various ways. All performance information
supplied in advertising, sales literature, shareholder reports or other
materials is historical and is not intended to indicate future returns.
A Fund may compare any of its performance information with:
o Data published by independent evaluators such as Morningstar, Inc., Lipper
Analytical Services, Inc., IBC/Donoghue, Inc., CDA/Wiesenberger or other
companies which track the investment performance of investment companies
("Fund Tracking Companies").
o The performance of other mutual funds.
<PAGE>
o The performance of recognized stock, bond and other indices, including but
not limited to the Standard & Poor's 500(R) Index, the Russell 2000(R)
Index, the Russell MidcapTM Index, the Russell 1000(R) Value Index, the
Russell 2500(R) Index, the Morgan Stanley - Europe, Australian and Far East
Index, the Dow Jones Industrial Average, the Salomon Brothers Bond Index,
the Shearson Lehman Bond Index, U.S. Treasury bonds, bills or notes and
changes in the Consumer Price Index as published by the U.S. Department of
Commerce.
Performance information may be presented numerically or in a table, graph, or
similar illustration.
Indices are not used in the management of a Fund but rather are standards by
which the Fund's Subadviser and shareholders may compare the performance of the
Fund to an unmanaged composite of securities with similar, but not identical,
characteristics as the Fund.
A Fund may refer to: (1) general market performances over past time periods such
as those published by Ibbotson Associates (for instance, its "Stocks, Bonds,
Bills and Inflation Yearbook"); (2) mutual fund performance rankings and other
data published by Fund Tracking Companies; and (3) material and comparative
mutual fund data and ratings reported in independent periodicals, such as
newspapers and financial magazines.
A Fund's performance will fluctuate in response to market conditions and other
factors.
A Fund's performance may be quoted in terms of yield or total return. 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 for
all Funds, each 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 listing of certain performance data as of December 31, 1999 is contained in
Appendix C -- Performance Data.
B. PERFORMANCE CALCULATIONS
1. SEC YIELD
Standardized SEC yields for a Fund used in advertising are computed by dividing
the Fund's interest income (in accordance with specific standardized rules) for
a given 30 day or one month period, net of expenses, by the average number of
shares entitled to receive income 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 accordance with
specific standardized rules) in order to arrive at an annual percentage rate.
Capital gains and losses 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 of income from the Fund over the same period or the rate of income
reported in the Fund's financial statements.
Although published yield information is useful to you in reviewing a Fund's
performance, you should be aware that a Fund's yield fluctuates from day to day
and that the 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. Financial intermediaries may charge their customers that invest in a
Fund fees in connection with that investment. This will have the effect of
reducing the Fund's after-fee yield to those shareholders.
The yields of a Fund are not fixed or guaranteed, and an investment in a Fund is
not insured or guaranteed. Accordingly, yield information should not 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
<PAGE>
information regarding investment alternatives that are insured or guaranteed.
Yield is calculated according to the following formula:
a - b
Yield = 2[(------ + 1)6 - 1]
cd
Where:
a = dividends and interest earned during the
period
b = expenses accrued for the period (net of
reimbursements)
c = the average daily number of shares
outstanding during the period that were
entitled to receive dividends
d = the maximum offering price per share on the
last day of the period
2. TOTAL RETURN CALCULATIONS
A Fund's total return shows its overall change in value, including changes in
share price and assuming all of the Fund's distributions are reinvested.
AVERAGE ANNUAL TOTAL RETURN. Average annual total return is calculated using a
formula prescribed by the SEC. To calculate standard average annual total
returns, a Fund: (1) determines the growth or decline in value of a hypothetical
historical investment in a Fund over a stated period; and (2) calculates 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. For
example, a cumulative return of 100% over ten years would produce an average
annual total return of 7.18%. While average annual returns are a convenient
means of comparing investment alternatives, investors should realize that
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 Fund.
Average annual total return is calculated according to the following formula:
P (1+T) n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value:
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
Because average annual returns tend to smooth out variations in the Fund's
returns, shareholders should recognize that they are not the same as actual
year-by-year results.
OTHER MEASURES OF TOTAL RETURN. Standardized total return quotes may be
accompanied by non-standardized total return figures calculated by alternative
methods.
o A Fund may quote unaveraged or cumulative total returns, which reflect a
Fund's performance over a stated period of time.
o Total returns may be stated in their components of income and capital
(including capital gains and changes in share price) in order to illustrate
the relationship of these factors and their contributions to total return.
<PAGE>
Any total return may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments and/or a series of
redemptions over any time period
Period total return is calculated according to the following formula:
PT = (ERV/P-1)
Where:
PT = period total return
The other definitions are the same as in average annual total
return above
C. OTHER MATTERS
A Fund may also include various information in its advertising, sales
literature, shareholder reports or other materials including, but not limited
to: (1) portfolio holdings and portfolio allocation as of certain dates, such as
portfolio diversification by instrument type, by instrument, by location of
issuer or by maturity; (2) statements or illustrations relating to the
appropriateness of types of securities and/or mutual funds that may be employed
by an investor to meet specific financial goals, such as funding retirement,
paying for children's education and financially supporting aging parents; (3)
information (including charts and illustrations) showing the effects of
compounding interest (compounding is the process of earning interest on
principal plus interest that was earned earlier; interest can be compounded at
different intervals, such as annually, quarterly or daily); (4) information
relating to inflation and its effects on the dollar; (for example, after ten
years the purchasing power of $25,000 would shrink to $16,621, $14,968, $13,465
and $12,100, respectively, if the annual rates of inflation were 4%, 5%, 6% and
7%, respectively); (5) information regarding the effects of automatic investment
and systematic withdrawal plans, including the principal of dollar-cost
averaging; (6) biographical descriptions of the Fund's portfolio managers and
the portfolio management staff of the Fund's Subadviser, summaries of the views
of the portfolio managers with respect to the financial markets, or descriptions
of the nature of the Subadviser's and its staff's management techniques; (7) the
results of a hypothetical investment in the Fund over a given number of years,
including the amount that the investment would be at the end of the period; (8)
the effects of investing in a tax-deferred account, such as an individual
retirement account or Section 401(k) pension plan; (9) the net asset value, net
assets or number of shareholders of the Fund as of one or more dates; and (10) a
comparison of the Fund's operations to the operations of other funds or similar
investment products, such as a comparison of the nature and scope of regulation
of the products and the products' weighted average maturity, liquidity,
investment policies, and the manner of calculating and reporting performance.
As an example of compounding, $1,000 compounded annually at 9.00% will grow to
$1,090 at the end of the first year (an increase in $90) and $1,118 at the end
of the second year (an increase in $98). The extra $8 that was earned on the $90
interest from the first year is the compound interest. One thousand dollars
compounded annually at 9.00% will grow to $2,367 at the end of ten years and
$5,604 at the end of 20 years. Other examples of compounding are as follows: at
7% and 12% annually, $1,000 will grow to $1,967 and $3,106, respectively, at the
end of ten years and $3,870 and $9,646, respectively, at the end of twenty
years. These examples are for illustrative purposes only and are not indicative
of a Fund's performance.
A Fund may advertise information regarding the effects of automatic investment
and systematic withdrawal plans, including the principal of dollar cost
averaging. In a dollar-cost averaging program, an investor invests a fixed
dollar amount in a Fund at period intervals, thereby purchasing fewer shares
when prices are high and more shares when prices are low. While such a strategy
does not insure a profit or guard against a loss in a declining market, the
investor's average cost per share can be lower than if fixed numbers of shares
had been purchased at those intervals. In evaluating such a plan, investors
should consider their ability to continue purchasing shares through periods of
low price levels. For example, if an investor invests $100 a month for a period
<PAGE>
of six months in a Fund the following will be the relationship between average
cost per share ($14.35 in the example given) and average price per share:
<TABLE>
<S> <C> <C> <C>
SYSTEMATIC SHARE SHARES
PERIOD INVESTMENT PRICE PURCHASED
------ ---------- ----- ---------
1 $100 $10 10.00
2 $100 $12 8.33
3 $100 $15 6.67
4 $100 $20 5.00
5 $100 $18 5.56
6 $100 $16 6.25
---- --- ----
TOTAL AVERAGE TOTAL
INVESTED $600 PRICE $15.17 SHARES 41.81
</TABLE>
In connection with its advertisements, a Fund may provide "shareholder's
letters" which serve to provide shareholders or investors an introduction into
the Fund's, the Trust's or any of the Trust's service provider's policies or
business practices. For instance, advertisements may provide for a message from
the Fund's Subadviser that it has for more than twenty-five years been committed
to quality products and outstanding service to assist its customers in meeting
their financial goals and setting forth the reasons that the Subadviser believes
that it has been successful as a portfolio manager.
From time to time marketing materials may include a description of the Trust's
"manager of managers" structure which include the selection of an investment
consultant and sub-advisers and the criteria for their selection in terms of
asset size, investment expertise, reputation and staffing. Marketing materials
may include references to FAdS, a leading third party administrator, including
its expertise, staffing and assets under administration and distribution.
Marketing materials may explain that the Trust may be used as an investment
vehicle in many circumstances, including a cemetery merchandise trust, funeral
industry pre-need trusts, corporate retirement plans, IRAs, and other
association-related trusts.
4. MANAGEMENT
The business of the Trust is conducted under the direction of the Board. The
officers and Trustees of the Trust may be directors, officers or employees of
(and persons providing services to the Trust may include) FFS, its affiliates or
affiliates of the Trust.
A. TRUSTEES AND OFFICERS
TRUSTEES AND OFFICERS OF THE TRUST. The business and affairs of the Fund are
managed under the direction of the Board in compliance with the laws of the
state of Delaware. The names of the Trustees and officers of the Trust, their
position with the Trust, address, date of birth and 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.
<TABLE>
<S> <C> <C>
NAME, ADDRESS AND AGE POSITION(S) WITH FUND PRINCIPAL OCCUPATION(S) DURING THE PAST
FIVE YEARS
Christopher W. Hamm*, Chairman of the Board of President, Memorial Group, Inc. since 1998
Trustees, Executive Director, CIBC Oppenheimer 1996-98
5847 San Felipe, Suite 4545 President Vice President, Paine Webber 1993-96
Houston, Texas 77002 Valuation Committee, Member(1)
Born: March 1967
<PAGE>
John Y. Keffer* Trustee President and Director, Forum Financial
Valuation Committee, Member(1) Services, Inc. for more than five years
Two Portland Square Director and sole shareholder (directly and
Portland, Maine 04101 indirectly) Forum Financial Group LLC, which
Born: July 1942 owns (directly or indirectly) Forum
Administrative Services, LLC. Forum Shareholder
Services, LLC and Forum Investment Advisers, LLC
Officer, Director or Trustee, various funds
managed and distributed by FAdS or FFS
Jay Brammer Trustee Executive Vice President, Gibralter Properties,
Audit Committee, Member(2) Inc., a real estate holding company, since 1995
9000 Keystone Crossing, Suite Executive Vice President, Gibraltar Mausoleum
1000 Corp., 1980-95
Indianapolis, Indiana 46240
Born: August 1957
J.B. Goodwin Trustee President, JBGoodwin Company, a comprehensive
Audit Committee, Member(2) real estate and holding company, for more than
3933 Steck Avenue, B-101 five years
Austin, Texas 78759
Born: December 1949
Robert Stillwell Trustee Attorney, Baker & Botts, a law firm, for more
Audit Committee, Chairman(2) than five years
3000 One Shell Plaza
Houston, Texas 77002
Born: January 1937
Ronald H. Hirsch Treasurer
9/99 - Present. Managing Director of Operations
Two Portland Square and Finance, Forum Financial Group
Portland, Maine 04101 1991-1998 Member of the Board, Citibank Germany
Born: October 1943
Thomas G. Sheehan Vice President Managing Director and Counsel, Forum Financial
Group, LLC since 1993
Two Portland Square Special Counsel, Division of Investment
Portland, Maine 04101 Management SEC
Born: November 1968 Officer, various funds managed and distributed
by FAdS or FFS
D. Blaine Riggle Secretary Assistant Counsel, Forum Financial Group, LLC,
since 1998
Two Portland Square Associate Counsel, Wright Express Corporation
Portland, Maine 04101 (a Fleet credit card company), 3/97 - 1/98
Born: November 1966 Associate at the law firm of Friedman, Babcock
& Gaythwaite, 1994 - 3/97
Officer, various funds managed and distributed
by FAdS or FFS
<PAGE>
Marcella A. Cote Assistant Secretary Fund Administrator, Forum Financial Group, LLC,
since 1998
Two Portland Square Budget Analyst, State of Maine Department of
Portland, Maine 04101 Human Services, 2/97 - 5/98
Born: January 1947 Project Assistant, Muskie School of Public
Service, 1994 - 2/97
Officer, various funds managed and distributed
by FAdS or FFS
Dawn L. Taylor Assistant Treasurer Tax Manager, Forum Financial Group, LLC, since
1997
Two Portland Square Senior Tax Accountant, Purdy, Bingham &
Portland, Maine 04101 Burrell, LLC, 1/97 - 10/97
Born: May, 1964 Senior Fund Accountant, Forum Financial Group,
LLC, 9/94 - 1/97
Tax Consultant, New England Financial Services,
6/86 - 9/94 Officer,
various funds managed and distributed by FAdS or FFS
</TABLE>
(1) The Valuation Committee is responsible for determining and monitoring the
value of the Funds' assets.
(2) The Audit Committee is responsible for meeting with the Trust's independent
certified public accountants to: (1) review the arrangements and scope of any
audit; (2) discuss matters of concern relating to the Trust's financial
statements, including any adjustments to such statements recommended by the
accountants, or other results of any audit; (3) consider the accountants'
comments with respect to the Trust's financial policies, procedures, and
internal accounting controls; and (4) review any form of opinion the accountants
propose to render to the Trust.
B. COMPENSATION OF TRUSTEES AND OFFICERS
Each Trustee receives annual fees of $5,000 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.
Trustees that are affiliated with the Adviser receive no compensation for their
services or reimbursement for their associated expenses. No officer of the Trust
is compensated by the Trust.
<PAGE>
The following table sets forth the fees paid to each Trustee by the Trust for
the fiscal year ending December 31, 1999.
<TABLE>
<S> <C> <C> <C> <C>
Pension or
Retirement
Aggregate Benefits Accrued Estimated Annual Total
Compensation from as Part of Fund Benefits upon Compensation from
Name, Position Trust Expenses Retirement Trust
- ------------------------------------- ------------------- ------------------- -------------------- -------------------
Christopher W. Hamm* $0 $0 $0 $0
John Y. Keffer* $0 $0 $0 $0
Jay Brammer $0 $0 $0 $0
J.B. Goodwin $7000 $0 $0 $7,000
Robert Stillwell $6,500 $0 $0 $6,500
</TABLE>
C. INVESTMENT ADVISER
1. SERVICES OF ADVISER
The Adviser serves as investment adviser to each Fund pursuant to an investment
advisory agreement with the Trust. Under that agreement, the Adviser furnishes
at its own expense all services, facilities and personnel necessary in
connection with managing a Fund's investments and effecting portfolio
transactions for a Fund
2. OWNERSHIP OF ADVISER/AFFILIATIONS
The Adviser is 99% owned by Forum Trust and 1% owned by Forum Holdings Corp. I.
Forum Trust is 99% owned by Forum Financial Group, LLC of which Trustee John Y.
Keffer owns 98%. Forum Investment Advisors, LLC is registered as an investment
adviser with the SEC under the 1940 Act.
Ronald H. Hirsch,, Thomas G. Sheehan, D. Blaine Riggle, Marcella A. Cote and
Dawn L. Taylor are employed by the Adviser (or affiliates of the Adviser).
3. FEES
The Adviser's fee is calculated as a percentage of the applicable Fund's average
net assets. The fee is accrued daily by each Fund and is paid monthly based on
average net assets for the previous month. In addition to receiving its advisory
fee from each Fund, the Adviser may also act and be compensated as investment
manager for its clients with respect to assets that are invested in a Fund. If
an investor in a Fund also has a separately managed account with the Adviser
with assets invested in the Fund, the Adviser will credit an amount equal to all
or a portion of the fees received by the Adviser against any investment
management fee received from a client.
Table 1 in Appendix B shows the dollar amount of the fees payable by the Trust
to the Adviser, the amount of the fee waived by the Adviser and the actual fee
received by the Adviser. The Adviser has agreed to waive fees as shown in
Appendix B.
<PAGE>
Each Fund pays Memorial Group, Inc. ("Memorial Group"), an affiliate of the
Adviser, a shareholder service fee of .25% of the Fund's average daily net
assets for the provision of administrative and shareholder relations services.
Memorial Group may pay all or a portion of the shareholder servicing fee to
other entities, which may be affiliated persons of Memorial Group or of a Fund,
for providing services to specified shareholders.
4. OTHER PROVISIONS OF ADVISER'S AGREEMENT
The Adviser's agreement must be approved at least annually by the Board or by
vote of the shareholders, and in either case by a majority of the Trustees who
are not parties to the agreement or interested persons of any such party.
The Adviser's agreement is terminable without penalty by the Trust with respect
to a Fund on 60 days' written notice to the Adviser when authorized either by
vote of a majority of the Fund's shareholders or by a vote of a majority of the
Board, or by the Adviser on 60 days' written notice to the Trust. The agreement
will terminate immediately upon its assignment.
5. SUBADVISERS
To assist the Adviser 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 investment subadvisory agreements
with the Adviser (the "Subadvisory Agreements").
The Northern Trust Company ("NTC"), 50 South LaSalle Street, Chicago,
Illinois 60675, manages the portfolio of GOVERNMENT BOND FUND. NTC is
a wholly-owned subsidiary of Northern Trust Corporation, a Delaware
corporation that was incorporated in 1889. NTC is exempt from
registration as an investment adviser under the Investment Advisers
Act of 1940 ("Advisers Act"). For its services, NTC receives an
advisory fee (excluding waivers) from the Adviser at an annual rate
of 0.20% of the Fund's average daily net assets.
Conseco Capital Management, Inc. ("CCM"), 11825 N. Pennsylvania
Street, Carmel, Indiana 46032, manages the portfolio of 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. For its services, CCM receives an advisory fee (excluding
waivers) from the Adviser at an annual rate of 0.20% of the Fund's
average daily net assets.
Davis Hamilton Jackson & Associates, L.P. ("DHJA"), Two Houston
Center, 909 Fannin Street, Suite 550, Houston, Texas 77010, manages
the portfolio of GROWTH EQUITY FUND. DHJA is a limited partnership
formed under the laws of Delaware that is registered as an investment
adviser under the Advisers Act. Affiliated Managers Group, Inc.
("AMG"), a holding company that invests in investment management
firms, may be deemed to control DHJA due to an investment it has made
in DHJA. AMG does not participate in the day-to-day management or the
investment process of DHJA. For its services, DHJA receives an
advisory fee (excluding waivers) from the Adviser at an annual rate
of 0.30% of the Fund's average daily net assets.
Beutel, Goodman Capital Management ("BGCM"), 5847 San Felipe, Suite
4500, Houston,Texas 77057-3011, manages the portfolio of 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: 51% of BG Canada
is owned by its employees, 49% is owned by First International Asset
Management, Inc., a privately held company in Canada. BG Canada is
registered as an investment adviser with the Ontario and Quebec
Securities Commissions. For its services, BGCM receives an advisory
fee (excluding waivers) from the Adviser at an annual rate of 0.30%of
the Fund's average daily net assets.
<PAGE>
The Adviser pays a fee to each of the Subadvisers. These fees do not increase
the fees paid by shareholders of the Funds. The amount of the fees paid by the
Adviser 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 by
each Fund to the Adviser for investment advisory services will not vary as a
result of those negotiations.
The Adviser performs internal due diligence on each Subadviser and monitors each
Subadviser's performance using its proprietary investment adviser selection and
monitoring process. The Adviser will be responsible for communicating
performance targets and evaluations to Subadvisers, supervising each
Subadviser's compliance with the Fund's fundamental investment objectives and
policies, authorizing Subadvisers to engage in certain investment techniques for
the Fund, and recommending to the Board of Trustees whether sub-advisory
agreements should be renewed, modified or terminated. The Adviser also may from
time to time recommend that the Board replace one or more Subadvisers or appoint
additional Subadvisers, depending on the Adviser's assessment of what
combination of Subadvisers it believes will optimize each Fund's chances of
achieving its investment objectives. The sub-advisory agreements with respect to
the Funds are nearly identical to the Adviser's agreement, except for the fees
payable and certain other non-material matters.
D. DISTRIBUTOR
1. DISTRIBUTOR; SERVICES AND COMPENSATION OF DISTRIBUTOR
FFS, the distributor (also known as principal underwriter) of the shares of each
Fund, is located at Two Portland Square, Portland, Maine 04101. FFS is a
registered broker-dealer and is a member of the National Association of
Securities Dealers, Inc.
FFS, FAdS, FAcS, the Adviser and the Transfer Agent are each controlled
indirectly by Forum Financial Group, LLC. John Y. Keffer controls Forum
Financial Group, LLC.
Under its agreement with the Trust, FFS acts as the agent of the Trust in
connection with the offering of shares of the Funds. FFS continually distributes
shares of the Funds on a best efforts basis. FFS has no obligation to sell any
specific quantity of Fund shares.
2. OTHER PROVISIONS OF DISTRIBUTOR'S AGREEMENT
FFS's distribution agreement must be approved at least annually by the Board or
by vote of the shareholders, and in either case by a majority of the Trustees
who are not parties to the agreement or interested persons of any such party and
with respect to each class of a Fund for which there is an effective Plan,
Trustees who do not have any direct or indirect financial interest in any such
Plan applicable to the class or in any agreement to the Plan.
FFS's agreement is terminable without penalty by the Trust with respect to a
Fund on 60 days' written notice when authorized either by vote of a majority the
Fund's outstanding shareholders or by a vote of a majority of the Board, or by
FFS on 60 days' written notice to the Trust.
Under its agreement, FFS is not liable for any error of judgment or mistake of
law or for any act or omission in the performance of its duties to a Fund,
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 agreement.
Under its agreement, FFS and certain related parties (such as FFS's officers and
persons that control FFS) are indemnified by the Trust against any and all
claims and expenses in any way related to FFS's actions (or failures to act)
<PAGE>
that are consistent with FFS's contractual standard of care. This means that as
long as FFS satisfies its contractual duties, the Trust is responsible for the
costs of: (1) defending FFS against claims that FFS breached a duty it owed to
the Trust; and (2) paying judgments against FFS. The Trust is not required to
indemnify FFS if the Trust does not receive written notice of and reasonable
opportunity to defend against a claim against FFS in the Trust's own name or in
the name of FFS.
FFS 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,
in the case of Institutional shares, 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. When
purchasing shares of the Fund in this manner, you should acquaint yourself with
your institution's procedures and should read the Prospectus and this SAI in
conjunction with any materials and information provided by your 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.
E. OTHER FUND SERVICE PROVIDERS
1. ADMINISTRATOR
As administrator, pursuant to an agreement with the Trust, FAdS is responsible
for the supervision of the overall management of the Trust, providing the Trust
with general office facilities and providing persons satisfactory to the Board
to serve as officers of the Trust.
For its services, FAdS receives fees from each Fund at an annual rate as
follows: 0.15% of the average daily net assets under $150 million of each Fund
and 0.10% of the average daily net assets over $150 million of each Fund.
Notwithstanding the above, the minimum fee per Fund shall be $30,000 per year
($2,500 per month). The fees are accrued daily by the Funds and are paid monthly
in arrears on the first day of each calendar month for services performed under
the agreement during the prior calendar month.
Table 2 in Appendix B shows the dollar amount of the fees payable by the Trust
to FAdS, the amount of the fee waived by FAdS and the actual fee received by
FAdS.
FAdS's agreement is terminable without penalty by the Trust or by FAdS with
respect to a Fund on 60 days' written notice. Under the agreement, FAdS is not
liable for any error of judgment or mistake of law or for any act or omission in
the performance of its duties to a Fund, 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 agreement.
EXPENSE LIMITATIONS. FAdS and Memorial Group, Inc. have undertaken to assume
certain expenses of the Funds (or waive its fees). This undertaking is designed
to place a maximum limit on expenses (including all fees to be paid to the
Adviser but excluding taxes, interest, brokerage commissions and other portfolio
transaction expenses and extraordinary expenses) of: (1) XX% of the average
daily net assets of the Institutional Class of each Equity Fund; and (2) XX% of
the average daily net assets of the Institutional Class of Government Bond Fund,
0.60% of the average daily net assets of the Institutional Class of Corporate
Bond Fund.
2. FUND ACCOUNTANT
As fund accountant, pursuant to an agreement with the Trust, FAcS provides fund
accounting services to each Fund. These services include calculating the NAV per
share of each Fund (and class) and preparing the Funds' financial statements and
tax returns.
<PAGE>
For its services, FAcS receives fees from each Fund at an annual rate of $36,000
plus certain share class charges . FAcS is paid additional surcharges of $12,000
per year for each additional share class of the Fund above one. The fees are
accrued daily by the Funds and are paid monthly based on the transactions and
positions for the previous month.
Table 3 in Appendix B shows the dollar amount of the fees payable by the Trust
to FAcS, the amount of the fee waived by FAcS and the actual fee received by
FAcS.
FAcS's agreement is terminable without penalty by the Trust or by FAcS with
respect to a Fund on 60 days' written notice. Under the agreement, FAcS is not
liable any act or omission in the performance of its duties to a Fund, 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 agreement. Under the agreement, in calculating a Fund's NAV per share, FAcS
is deemed not to have committed an error if the NAV per share it calculates is
within 1/10 of 1% of the actual NAV per share (after recalculation) or any loss
to a shareholder if the NAV difference is less than or equal to 1/2 of 1% or if
the loss in the shareholder's account is less than or equal to $10.00. In
addition, in calculating NAV per share FAcS is not liable for the errors of
others, including the companies that supply securities prices to FAcS and the
Funds.
3. TRANSFER AGENT
As transfer agent and distribution paying agent, pursuant to an agreement with
the Trust, the Transfer Agent maintains an account for each shareholder of
record of a Fund and is responsible for processing purchase and redemption
requests and paying distributions to shareholders of record. The Transfer Agent
is located at Two Portland Square, Portland, Maine 04101 and is registered as a
transfer agent with the SEC.
For its services, the Transfer Agent receives a fee from each Fund at an annual
rate of $24,000 for the first share class, $12,000 per additional share class
and $25.00 per shareholder account. The fees are accrued daily by the Funds and
are paid monthly in arrears. Table 4 in Appendix B shows the dollar amount of
the fees payable by the Trust to the Transfer Agent, the amount of the fee
waived by the Transfer Agent and the actual fee received by the Transfer Agent.
The Transfer Agent's agreement is terminable without penalty by the Trust or by
the Transfer Agent with respect to a Fund on 60 days' written notice. Under the
agreement, the Transfer Agent is not liable for any act or omission in the
performance of its duties to a Fund, except for willful misconduct, bad faith or
gross negligence in the performance of its duties under the agreement.
4. CUSTODIAN
As custodian, pursuant to an agreement with the Trust, Investors Bank & Trust
Company safeguards and controls the Funds' cash and securities, determines
income and collects interest on Fund investments. The Custodian may employ
foreign subcustodians to provide custody of a Fund's foreign assets. The
Custodian is located at 200 Clarendon Street, Boston, Massachusetts 02105.
For its services, the Custodian receives a fee from each Fund at an annual rate
as follows: (1) 0.02% of the average daily net assets of the Fund for the first
$100 million in Fund assets; (2) 0.015% of the average daily net assets of the
Fund for the next $100 million in Fund assets; and (3) 0.001% of the average
daily net assets of the Fund for remaining Fund assets. The Custodian is also
paid certain transaction fees. These fees are accrued daily by the Funds and are
paid monthly based on average net assets and transactions for the previous
month.
<PAGE>
5. LEGAL COUNSEL
Legal matters in connection with the issuance of shares of the Trust are passed
upon by the law firm of Seward & Kissel LLP, 1200 G Street, NW, Washington, DC
20005.
6. INDEPENDENT AUDITORS
KPMG Peat Marwick LLP, independent auditors, 99 High Street, Boston, MA 02110,
have been selected as auditors for each Fund. The auditors audit the annual
financial statements of the Funds and provide the Funds with an audit opinion.
The auditors also review certain regulatory filings of the Funds and the Funds'
tax returns.
5. PORTFOLIO TRANSACTIONS
A. HOW SECURITIES ARE PURCHASED AND SOLD
Purchases and sales of portfolio securities that are fixed income securities
(for instance, money market instruments and bonds, notes and bills) usually are
principal transactions. In a principal transaction, the party from whom the Fund
purchases or to whom the Fund sells is acting on its own behalf (and not as the
agent of some other party such as its customers). These securities normally are
purchased directly from the issuer or from an underwriter or market maker for
the securities. There usually are no brokerage commissions paid for these
securities.
Purchases and sales of portfolio securities that are equity securities (for
instance common stock and preferred stock) are generally effected; (1) if the
security is traded on an exchange, through brokers who charge commissions; and
(2) if the security is traded in the "over-the-counter" markets, in a principal
transaction directly from a market maker. In transactions on stock exchanges,
commissions are negotiated. When transactions are executed in an
over-the-counter market, the Subadviser will seek to deal with the primary
market makers; but when necessary in order to obtain best execution, the
Subadviser will utilize the services of others.
Purchases of securities from underwriters include a disclosed fixed 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 price.
In the case of fixed income and equity securities traded in the over-the-counter
markets, there is generally no stated commission, but the price usually includes
an undisclosed commission or markup.
B. COMMISSIONS PAID
Table 5 in Appendix B shows the aggregate brokerage commissions with respect to
each Fund. The data presented are for the past three fiscal years or a shorter
period if the Fund has been in operation for a shorter period, except as
otherwise noted. The table also indicates the reason for any material change in
the last two years in the amount of brokerage commissions paid by a Fund.
C. ADVISER RESPONSIBILITY FOR PURCHASES AND SALES
Each Subadviser places orders for the purchase and sale of securities with
brokers and dealers selected by and in the discretion of the Subadviser. No Fund
has any obligation to deal with any specific broker or dealer in the execution
of portfolio transactions. Allocations of transactions to brokers and dealers
and the frequency of transactions are determined by a Subadviser in its best
judgment and in a manner deemed to be in the best interest of the Fund rather
than by any formula.
Each Subadviser seeks "best execution" for all portfolio transactions. This
means that the Subadvisers seek the most favorable price and execution
available. A Subadviser's primary consideration in executing transactions for a
Fund is prompt execution of orders in an effective manner and at the most
favorable price available.
<PAGE>
1. CHOOSING BROKER-DEALERS
The Funds may not always pay the lowest commission or spread available. Rather,
in determining the amount of commissions (including certain dealer spreads) paid
in connection with securities transactions, the Subadviser of each Fund takes
into account factors such as size of the order, difficulty of execution,
efficiency of the executing broker's facilities (including the research services
described below) and any risk assumed by the executing broker.
Consistent with applicable rules and the Subadviser's duties, the Subadviser
may: (1) consider sales of shares of the Funds as a factor in the selection of
broker-dealers to execute portfolio transactions for a Fund; and (2) take into
account payments made by brokers effecting transactions for a Fund (these
payments may be made to the Fund or to other persons on behalf of the Fund for
services provided to the Fund for which those other persons would be obligated
to pay.
2. OBTAINING RESEARCH FROM BROKERS
Each Subadviser may give consideration to research services furnished by brokers
to the Subadviser for its use and may cause a Fund to pay these brokers a higher
amount of commission than may be charged by other brokers. This research is
designed to augment the Subadviser's own internal research and investment
strategy capabilities. This research may be used by the Subadviser in connection
with services to clients other than the Funds, and not all research services may
be used by the Subadviser in connection with the Funds. The Subadviser's fees
are not reduced by reason of the Subadviser's receipt of research services.
Each Subadviser has full brokerage discretion. It evaluates the range of quality
of a broker's services in placing trades including securing best price,
confidentiality, clearance and settlement capabilities, promptness of execution
and the financial stability of the broker-dealer. Under certain circumstances,
the value of research provided by a broker-dealer may be a factor in the
selection of a broker. This research would include reports that are common in
the industry. Typically, the research will be used to service all of the
Subadviser's accounts although a particular client may not benefit from all the
research received on each occasion. The nature of the services purchased for
clients include industry research reports and periodicals, quotation systems,
software for portfolio management and formal databases.
Occasionally, a Subadviser may place an order with a broker and pay a slightly
higher commission than another broker might charge. If this is done it will be
because of the Subadviser's need for specific research, for specific expertise a
firm may have in a particular type of transaction (due to factors such as size
or difficulty), or for speed/efficiency in execution. Since most of the
Subadvisers' brokerage commissions for research are for economic research on
specific companies or industries, and since the Subadvisers are involved with a
limited number of securities, most of the commission dollars spent for industry
and stock research directly benefit the Funds' shareholders.
There are occasions on which portfolio transactions may be executed as part of
concurrent authorizations to purchase or sell the same securities for more than
one account served by a Subadviser, some of which accounts may have similar
investment objectives. Although such concurrent authorizations potentially could
be either advantageous or disadvantageous to any one or more particular
accounts, they will be effected only when the Subadviser believes that to do so
will be in the best interest of the affected accounts. When such concurrent
authorizations occur, the objective will be to allocate the execution in a
manner, which is deemed equitable to the accounts involved. Clients are
typically allocated securities with prices averaged on a per-share or per-bond
basis.
In some cases, a client may direct a Subadviser to use a broker or dealer of the
client's choice. If the client directs the Subadviser to use a particular
broker, the Subadviser may not be authorized to negotiate commissions and may be
unable to obtain volume discounts or best execution. In these cases, there could
be some disparity in commission charges among these clients.
<PAGE>
3. COUNTERPARTY RISK
Each Subadviser monitors the creditworthiness of counterparties to its Fund's
transactions and intends to enter into a transaction only when it believes that
the counterparty presents minimal and appropriate credit risks.
4. TRANSACTIONS THROUGH AFFILIATES
The Subadvisers do not effect brokerage transactions through affiliates of the
Adviser or Subadviser (or affiliates of those persons).
5. OTHER ACCOUNTS OF THE ADVISER OR SUBADVISER
Investment decisions for the Funds are made independently from those for any
other account or investment company that is or may in the future become managed
by a Subadviser. Investment decisions are the product of many factors, including
basic suitability for the particular client involved. Thus, a particular
security may be bought or sold for certain clients even though it could have
been bought or sold for other clients at the same time. Likewise, a particular
security may be bought for one or more clients when one or more clients are
selling the security. In some instances, one client may sell a particular
security to another client. It also sometimes happens that two or more clients
simultaneously purchase or sell the same security. In that event, each day's
transactions in such security are, insofar as is possible, averaged as to price
and allocated between such clients in a manner which, in the respective
Subadviser's opinion, is equitable to each and in accordance with the amount
being purchased or sold by each. There may be circumstances when purchases or
sales of a portfolio security for one client could have an adverse effect on
another client that has a position in that security. In addition, when purchases
or sales of the same security for a Fund and other client accounts managed by
the Fund's Subadviser occurs contemporaneously, the purchase or sale orders may
be aggregated in order to obtain any price advantages available to large
denomination purchases or sales.
6. PORTFOLIO TURNOVER
The frequency of portfolio transactions of a Fund (the portfolio turnover rate)
will vary from year to year depending on many factors. Portfolio turnover rate
is reported in the Prospectus. 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 to a Fund and a possible increase in short-term capital gains or losses.
D. SECURITIES OF REGULAR BROKER-DEALERS
From time to time a Fund may acquire and hold securities issued by its "regular
brokers and dealers" or the parents of those brokers and dealers. For this
purpose, regular brokers and dealers means the 10 brokers or dealers that: (1)
received the greatest amount of brokerage commissions during the Fund's last
fiscal year; (2) engaged in the largest amount of principal transactions for
portfolio transactions of the Fund during the Fund's last fiscal year; or (3)
sold the largest amount of the Fund's shares during the Fund's last fiscal year.
During the past fiscal year, there were no regular brokers and dealers for any
Fund.
6. ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
A. GENERAL INFORMATION
Shareholders may effect purchases or redemptions or request any shareholder
privilege in person at the Transfer Agent's offices located at Two Portland
Square, Portland, Maine 04101.
<PAGE>
The Funds accept orders for the purchase or redemption of shares on any weekday
except days when the New York Stock Exchange is closed.
B. ADDITIONAL PURCHASE INFORMATION
Shares of each Fund are sold on a continuous basis by the distributor at net
asset value ("NAV") per share without any sales charge. Accordingly, the
offering price per share is the same as the NAV per share.
Fund shares are normally issued for cash only. In the Adviser or Subadviser's
discretion, however, a Fund may accept portfolio securities that meet the
investment objective and policies of a Fund as payment for Fund shares. A Fund
will only accept securities that: (1) are not restricted as to transfer by law
and are not illiquid; and (2) have a value that is readily ascertainable (and
not established only by valuation procedures).
1. IRAS
All contributions into an IRA through the automatic investing service are
treated as IRA contributions made during the year the investment is received.
2. UGMAS/UTMAS
If the trustee's name is not in the account registration of a gift or transfer
to minor ("UGMA/UTMA") account, the investor must provide a copy of the trust
document.
3. PURCHASES THROUGH FINANCIAL INSTITUTIONS
You may purchase and redeem shares through certain broker-dealers, banks and
other financial institutions. Financial institutions 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 financial institution, you will be subject to
the institution's procedures, which may include charges, limitations, investment
minimums, cutoff times and restrictions in addition to, or different from, those
applicable when you invest in a Fund directly. When you purchase a Fund's shares
through a financial institution, you may or may not be the shareholder of record
and, subject to your institution's procedures, you may have Fund shares
transferred into your name. There is typically a three-day settlement period for
purchases and redemptions through broker-dealers. Certain financial institutions
may also enter purchase orders with payment to follow.
You may not be eligible for certain shareholder services when you purchase
shares through a financial institution. Contact your institution for further
information. If you hold shares through a financial institution, the Funds may
confirm purchases and redemptions to the financial institution, which will
provide you with confirmations and periodic statements. The Funds are not
responsible for the failure of any financial institution to carry out its
obligations.
Investors purchasing shares of the Funds through a financial institution should
read any materials and information provided by the financial institution to
acquaint themselves with its procedures and any fees that the institution may
charge.
C. ADDITIONAL REDEMPTION INFORMATION
A Fund may redeem shares involuntarily to reimburse the 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.
<PAGE>
1. SUSPENSION OF RIGHT OF REDEMPTION
The right of redemption may not be suspended, except for any period during
which: (1) the New York Stock Exchange, Inc. is closed (other than customary
weekend and holiday closings) or during which the SECdetermines that trading
thereon is restricted; (2) an emergency (as determined by the SEC) exists as a
result of which disposal by a Fund of its securities is not reasonably
practicable or as a result of which it is not reasonably practicable for a Fund
fairly to determine the value of its net assets; or (3) the SEC may by order
permit for the protection of the shareholders of a Fund.
2. REDEMPTION-IN-KIND
Redemption proceeds normally are paid in cash. Payments may be made wholly or
partly in portfolio securities, however, if the Board determines conditions
exist which would make payment in cash detrimental to the best interests of a
Fund. If redemption proceeds are paid wholly or partly in portfolio securities,
brokerage costs may be incurred by the shareholder in converting the securities
to cash. The Trust has filed an election with the SEC pursuant to which a Fund
may only effect a redemption in portfolio securities if the particular
shareholder is redeeming more than $250,000 or 1% of the Fund's total net
assets, whichever is less, during any 90-day period.
D. NAV DETERMINATION
In determining a Fund's NAV per share, securities for which market quotations
are readily available are valued at current market value using the last reported
sales price. If no sale price is reported, the average of the last bid and ask
price is used. If no average price is available, the last bid price is used. If
market quotations are not readily available, then securities are valued at fair
value as determined by the Board (or its delegate).
E. DISTRIBUTIONS
Distributions of net investment income will be reinvested at a Fund's NAV per
share as of the last day of the period with respect to which the distribution is
paid. Distributions of capital gain will be reinvested at the NAV per share of a
Fund on the payment date for the distribution. Cash payments may be made more
than seven days following the date on which distributions would otherwise be
reinvested.
SHAREHOLDER SERVICES
RETIREMENT ACCOUNTS. The Funds may be a suitable investment vehicle for part or
all of the assets held in Traditional or Roth individual retirement accounts
(collectively, "IRAs"). Call the Funds at 1-888-263-5593 to obtain an IRA
account application. Generally, investment earnings in an IRA will be
tax-deferred until withdrawn. If certain requirements are met, investment
earnings held in a Roth IRA will not be taxed even when withdrawn. You may
contribute up to $2,000 annually to an IRA. Only contributions to Traditional
IRAs are tax-deductible. However, that deduction may be reduced if you or your
spouse is an active participant in an employer-sponsored retirement plan and you
(or you and your spouse) have adjusted gross income above certain levels. Your
ability to contribute to a Roth IRA also may be restricted if you or, if you are
married, you and your spouse have adjusted gross income above certain levels.
Your employer may also contribute to your IRA as part of a Savings Incentive
Match Plan for Employees, or "SIMPLE plan," established after December 31, 1996.
Under a SIMPLE plan, you may contribute up to $6,000 annually to your IRA, and
your employer must generally match such contributions up to 3% of your annual
salary. Alternatively, your employer may elect to contribute to your IRA 2% of
the lesser of your earned income or $160,000.
This information on IRAs is based on regulations in effect as of January 1, 1999
and summarizes only some of the important federal tax considerations affecting
IRA contributions. These comments are not meant to be a substitute for tax
planning. Consult your tax advisors about your specific tax situation.
<PAGE>
EXCHANGES
By making an exchange by telephone, you authorize the Transfer Agent to act on
telephonic instructions believed by the Transfer Agent to be genuine
instructions from any person representing himself or herself to be you. The
records of the Transfer Agent of such instructions are binding. The exchange
procedures may be modified or terminated at any time upon appropriate notice to
shareholders. For Federal income tax purposes, exchanges 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 the shareholder's basis in
such shares at the time of such transaction.
You may purchase, with the proceeds from a redemption of all or part of their
shares, shares of the same Fund of the Trust or a designated class of Daily
Assets Government Fund, a money market fund of Forum Funds.
7. TAXATION
The tax information set forth in the Prospectus and the information in this
section relates solely to U.S. federal income tax law and assumes that each Fund
qualifies as a regulated investment company (as discussed below). Such
information is only a summary of certain key federal income tax considerations
affecting each Fund and its shareholders that are not described in the
Prospectus. No attempt has been made to present a complete explanation of the
federal tax treatment of the Funds or the implications to shareholders. The
discussions here and in the Prospectus are not intended as substitutes for
careful tax planning.
This "Taxation" section is based on the Code and applicable regulations in
effect on the date hereof. Future legislative or administrative changes or court
decisions may significantly change the tax rules applicable to the Funds and
their shareholders. Any of these changes or court decisions may have a
retroactive effect.
ALL INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISOR AS TO THE FEDERAL, STATE,
LOCAL AND FOREIGN TAX PROVISIONS APPLICABLE TO THEM.
A. QUALIFICATION AS A REGULATED INVESTMENT COMPANY
Each Fund intends for each tax year to qualify as a "regulated investment
company" under the Code. This qualification does not involve governmental
supervision of management or investment practices or policies of a Fund.
The tax year-end of each Fund is December 31 (the same as the Fund's fiscal year
end).
1. MEANING OF QUALIFICATION
As a regulated investment company, a Fund will not be subject to federal income
tax on the portion of its investment company taxable income (i.e., taxable
interest, dividends, net short-term capital gains, and other taxable ordinary
income, net of expenses) and net capital gain (i.e., the excess of net long-term
capital gains over net short-term capital losses) that it distributes to
shareholders. In order to qualify to be taxed as a regulated investment company
a Fund must satisfy the following requirements:
o The Fund must distribute at least 90% of its investment company taxable
income for the tax year. (Certain distributions made by a Fund after the
close of its tax year are considered distributions attributable to the
previous tax year for purposes of satisfying this requirement.)
o The Fund must derive at least 90% of its gross income from certain types of
income derived with respect to its business of investing in securities.
<PAGE>
o The Fund must satisfy the following asset diversification test at the close
of each quarter of the Fund's tax year: (1) at least 50% of the value of
the Fund's assets must consist of cash and cash items, U.S. government
securities, securities of other regulated investment companies, and
securities of other issuers (as to which the Fund has not invested more
than 5% of the value of the Fund's total assets in securities of the issuer
and as to which the Fund does not hold more than 10% of the outstanding
voting securities of the issuer); and (2) no more than 25% of the value of
the Fund's total assets may be invested in the securities of any one issuer
(other than U.S. Government securities and securities of other regulated
investment companies), or in two or more issuers which the Fund controls
and which are engaged in the same or similar trades or businesses.
Each Fund generally intends to operate in a manner such that it will not be
liable for federal income tax.
2. FAILURE TO QUALIFY
If for any tax year a Fund does not qualify as a regulated investment company,
all of its taxable income (including its net capital gain) will be subject to
tax at regular corporate rates without any deduction for dividends to
shareholders, and the dividends will be taxable to the shareholders as ordinary
income to the extent of a Fund's current and accumulated earnings and profits. A
portion of these distributions generally may be eligible for the
dividends-received deduction in the case of corporate shareholders.
Failure to qualify as a regulated investment company would thus have a negative
impact on a Fund's income and performance. It is possible that a Fund will not
qualify as a regulated investment company in any given tax year.
B. FUND DISTRIBUTIONS
Each Fund anticipates distributing substantially all of its investment company
taxable income for each tax year. These distributions are taxable to
shareholders as ordinary income. In the case of Growth Equity Fund and Value
Equity Fund, a portion of these distributions may qualify for the 70%
dividends-received deduction for corporate shareholders.
Each Fund anticipates distributing substantially all of its net capital gain for
each tax year. These distributions generally are made only once a year, usually
in November or December, but the Funds may make additional distributions of net
capital gain at any time during the year. These distributions are taxable to
shareholders as long-term capital gain, regardless of how long a shareholder has
held shares. These distributions do not qualify for the dividends-received
deduction.
Each Fund may have capital loss carryovers (unutilized capital losses from prior
years). These capital loss carryovers (which can be used for up to eight years)
may be used to offset any current capital gain (whether short- or long-term).
All capital loss carryovers are listed in the Funds' financial statements. Any
such losses may not be carried back.
Distributions by a Fund that do not constitute ordinary income dividends or
capital gain dividends will be treated as a return of capital. Return of capital
distributions reduce the shareholder's tax basis in the shares and are treated
as gain from the sale of the shares to the extent the shareholder's basis would
be reduced below zero.
All distributions by a Fund will be treated in the manner described above
regardless of whether the distribution is paid in cash or reinvested in
additional shares of the Fund (or of another Fund). Shareholders receiving a
distribution in the form of additional shares will be treated as receiving a
distribution in an amount equal to the fair market value of the shares received,
determined as of the reinvestment date.
A shareholder may purchase shares whose net asset value at the time reflects
undistributed net investment income or recognized capital gain, or unrealized
appreciation in the value of the assets of a Fund. Distributions of these
amounts are taxable to the shareholder in the manner described above, although
the distribution economically constitutes a return of capital to the
shareholder.
<PAGE>
Shareholders purchasing shares of a Fund just prior to the ex-dividend date of a
distribution will be taxed on the entire amount of the distribution received,
even though the net asset value per share on the date of the purchase reflected
the amount of the distribution.
Ordinarily, shareholders are required to take distributions by a Fund into
account in the year in which they are made. A distribution declared in October,
November or December of any year and payable to shareholders of record on a
specified date in those months, however, is deemed to be received by the
shareholders (and made by the Fund) on December 31 of that calendar year if the
distribution is actually paid in January of the following year.
Shareholders will be advised annually as to the U.S. federal income tax
consequences of distributions made (or deemed made) to them during the year.
C. CERTAIN TAX RULES APPLICABLE TO THE FUNDS TRANSACTIONS
For federal income tax purposes, when put and call options purchased by a Fund
expire unexercised, the premiums paid by the Fund give rise to short- or
long-term capital losses at the time of expiration (depending on the length of
the respective exercise periods for the options). When put and call options
written by a Fund expire unexercised, the premiums received by the Fund give
rise to short-term capital gains at the time of expiration. When a Fund
exercises a call, the purchase price of the underlying security is increased by
the amount of the premium paid by the Fund. When a Fund exercises a put, the
proceeds from the sale of the underlying security are decreased by the premium
paid. When a put or call written by a Fund is exercised, the purchase price
(selling price in the case of a call) of the underlying security is decreased
(increased in the case of a call) for tax purposes by the premium received.
Certain listed options, regulated futures contracts and forward currency
contracts are considered "Section 1256 contracts" for federal income tax
purposes. Section 1256 contracts held by a Fund at the end of each tax year are
"marked to market" and treated for federal income tax purposes as though sold
for fair market value on the last business day of the tax year. Gains or losses
realized by a Fund on Section 1256 contracts generally is considered 60%
long-term and 40% short-term capital gains or losses. Each Fund can elect to
exempt its Section 1256 contracts, which are part of a "mixed straddle" (as
described below) from the application of Section 1256.
Any option, futures contract, or other position entered into or held by a Fund
in conjunction with any other position held by the 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: (1) the loss realized on
disposition of one position of a straddle may not be recognized to the extent
that the Fund has unrealized gains with respect to the other position in such
straddle; (2) the 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); (3) the 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; (4) losses recognized with respect to certain straddle
positions which would otherwise constitute short-term capital losses be treated
as long-term capital losses; and (5) 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.
If a Fund invests in the securities of foreign issuers, the Fund's income may be
subject to foreign withholding taxes.
D. FEDERAL EXCISE TAX
A 4% non-deductible excise tax is imposed on a regulated investment company that
fails to distribute in each calendar year an amount equal to: (1) 98% of its
ordinary taxable income for the calendar year; and (2) 98% of its capital gain
<PAGE>
net income for the one-year period ended on October 31 (or December 31, if
elected by the Fund) of the calendar year. The balance of the Fund's income must
be distributed during the next calendar year. A Fund will be treated as having
distributed any amount on which it is subject to income tax for any tax year.
For purposes of calculating the excise tax, each Fund: (1) reduces its capital
gain net income (but not below its net capital gain) by the amount of any net
ordinary loss for the calendar year and (2) excludes foreign currency gains and
losses incurred after October 31 of any year (or December 31 if it has made the
election described above) in determining the amount of ordinary taxable income
for the current calendar year. The Fund will include foreign currency gains and
losses incurred after October 31 in determining ordinary taxable income for the
succeeding calendar year.
Each Fund intends to make sufficient distributions of its ordinary taxable
income and capital gain net income prior to the end of each calendar year to
avoid liability for the excise tax. Investors should note, however, that a Fund
might in certain circumstances be required to liquidate portfolio investments to
make sufficient distributions to avoid excise tax liability.
E. SALE OR REDEMPTION OF SHARES
In general, a shareholder will recognize gain or loss on the sale or redemption
of shares of a Fund in an amount equal to the difference between the proceeds of
the sale or redemption and the shareholder's adjusted tax basis in the shares.
All or a portion of any loss so recognized may be disallowed if the shareholder
purchases (for example, by reinvesting dividends) other shares of the Fund
within 30 days before or after the sale or redemption (a so called "wash sale").
If disallowed, the loss will be reflected in an upward adjustment to the basis
of the shares purchased. In general, any gain or loss arising from the sale or
redemption of shares of a Fund will be considered capital gain or loss and will
be long-term capital gain or loss if the shares were held for longer than one
year. Any capital loss arising from the sale or redemption of shares held for
six months or less, however, is treated as a long-term capital loss to the
extent of the amount of capital gain distributions received on such shares. In
determining the holding period of such shares for this purpose, any period
during which a shareholder's risk of loss is offset by means of options, short
sales or similar transactions is not counted. Capital losses in any year are
deductible only to the extent of capital gains plus, in the case of a
non-corporate taxpayer, $3,000 of ordinary income.
F. BACKUP WITHHOLDING
A Fund will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of distributions, and the proceeds of redemptions of shares, paid
to any shareholder: (1) who has failed to provide its correct taxpayer
identification number; (2) who is subject to backup withholding by the IRS for
failure to report the receipt of interest or dividend income properly; or (3)
who has failed to certify to a Fund that it is not subject to backup withholding
or that it is a corporation or other "exempt recipient." Backup withholding is
not an additional tax; any amounts so withheld may be credited against a
shareholder's federal income tax liability or refunded.
G. FOREIGN SHAREHOLDERS
Taxation of a shareholder who under the Code is a nonresident alien individual,
foreign trust or estate, foreign corporation, or foreign partnership ("foreign
shareholder"), depends on whether the income from a Fund is "effectively
connected" with a U.S. trade or business carried on by the foreign shareholder.
If the income from a Fund is not effectively connected with a U.S. trade or
business carried on by a foreign shareholder, distributions of ordinary income
(and short-term capital gains) paid to a foreign shareholder will be subject to
U.S. withholding tax at the rate of 30% (or lower applicable treaty rate) upon
the gross amount of the distribution. The foreign shareholder generally would be
exempt from U.S. federal income tax on gain realized on the sale of shares of a
Fund and distributions of net capital gains from a Fund.
<PAGE>
If the income from a Fund is effectively connected with a U.S. trade or business
carried on by a foreign shareholder, then ordinary income distributions, capital
gain distributions, and any gain realized upon the sale of shares of a Fund will
be subject to U.S. federal income tax at the rates applicable to U.S. citizens
or U.S. corporations.
In the case of a noncorporate foreign shareholder, a Fund may be required to
withhold U.S. federal income tax at a rate of 31% on distributions that are
otherwise exempt from withholding (or taxable at a reduced treaty rate), unless
the shareholder furnishes the Fund with proper notification of its foreign
status.
The tax consequences to a foreign shareholder entitled to claim the benefits of
an applicable tax treaty might be different from those described herein.
The tax rules of other countries with respect to distributions from a Fund can
differ from the U.S. federal income taxation rules described above. These
foreign rules are not discussed herein. Foreign shareholders are urged to
consult their own tax advisers as to the consequences of foreign tax rules with
respect to an investment in a Fund.
H. STATE AND LOCAL TAXES
The tax rules of the various states of the U.S. and local jurisdictions with
respect to distributions from a Fund can differ from the U.S. federal income
taxation rules described above. These state and local rules are not discussed
herein. Shareholders are urged to consult their tax advisers as to the
consequences of state and local tax rules with respect to an investment in a
Fund.
8. OTHER MATTERS
GENERAL INFORMATION
The Trust was organized as a business trust under the laws of the State of
Delaware on November 26, 1997. The Trust has operated under that name and as an
investment company since that date.
The Trust is registered as an open-end, management investment company under the
1940 Act. The Trust offers shares of beneficial interest in its series. As of
the date hereof, the Trust consisted of the following shares of beneficial
interest:
o Institutional Shares of each of Government Bond Fund, Corporate Bond Fund,
Growth Equity Fund and Value Equity Fund.
Prior to February 29, 2000, the Trust consisted of the following shares of
beneficial interest:
o Trust Shares of each of Government Bond Fund, Corporate Bond Fund, Growth
Equity Fund and Value Equity Fund.
On February 28, 2000, existing Trust Shares were reclassified as Institutional
Shares of beneficial interest.
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 series and may divide series into classes of
shares; the costs of doing so will be borne by the Trust.
Each Fund reserves the right to invest in one or more other investment companies
in a Core and Gateway(R) structure.
<PAGE>
The Trust and each Fund will continue indefinitely until terminated.
Not all Funds of the Trust may be available for sale in the state in which you
reside. Please check with your investment professional to determine a Fund's
availability.
2. SHAREHOLDER VOTING AND OTHER RIGHTS
Each share of each series of the Trust has equal dividend, distribution,
liquidation and voting rights, and fractional shares have those rights
proportionately. Generally, shares will be voted separately by individual series
except: (1) when required by applicable law, shares shall be voted in the
aggregate and not by individual series; and (2) when the Trustees have
determined that the matter affects the interests of more than one series, then
the shareholders of all such series shall be entitled to vote thereon. 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. 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 non-assessable.
A shareholder in a series is entitled to the shareholder's pro rata share of all
distributions arising from that series' assets and, upon redeeming shares, will
receive the portion of the series' net assets represented by the redeemed
shares.
A shareholder or shareholders representing 33 1/3% or more of the outstanding
shares entitled to vote may, as set forth in the Trust Instrument, call meetings
of the Trust (or Fund) for any purpose related to the Trust (or Fund),
including, in the case of a meeting of the Trust, the purpose of voting on
removal of one or more Trustees.
3. CERTAIN REORGANIZATION TRANSACTIONS
The Trust or any Fund may be terminated upon the sale of its assets to, or
merger with, another open-end, management investment company or series thereof,
or upon liquidation and distribution of its assets. Generally such terminations
must be approved by the vote of the holders of a majority of the outstanding
shares of the Trust or the Fund. The Trustees may, without prior shareholder
approval: (1) cause the Trust or any Fund to merge or consolidate with or into
one or more entities, if the surviving or resulting entity is the Trust or
another company registered as an open-end, management investment company under
the 1940 Act, or a series thereof; (2) cause any or all shares to be exchanged
under or pursuant to any state or federal statute to the extent permitted by
law; or (3) cause the Trust to incorporate or organize under the laws of any
state, commonwealth, territory, dependence, colony or possession of the United
States of America or in any foreign jurisdiction.
B. FUND OWNERSHIP
As of March 31, 2000, the percentage of shares owned by all officers and
trustees of the Trust as a group was as follows. To the extent officers and
trustees own less than 1% of the shares of each Fund (or of the Trust), the
table reflects "N/A" for not applicable.
PERCENTAGE OF SHARES
FUND (OR TRUST) OWNED
--------------- -----
The Trust N/A
Government Bond Fund N/A
Corporate Bond Fund N/A
Growth Equity Fund N/A
Value Equity Fund N/A
Also as of that date, certain shareholders of record owned 5% or more of each
Fund. Shareholders known by a Fund to own beneficially 5% or more ofthe Fund are
listed in Table 6 in Appendix B.
<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 of April 1, 2000, the following
persons beneficially owned 25% or more of the shares of a Fund (or of the Trust)
and may be deemed to control the Fund (or the Trust). For each person listed
that is a company, the jurisdiction under the laws of which the company is
organized (if applicable) and the company's parents are listed.
CONTROLLING PERSON INFORMATION
<TABLE>
<S> <C> <C>
PERCENTAGE OF
SHARES OWNED
SHAREHOLDER FUND (OR TRUST)
</TABLE>
C. LIMITATIONS ON SHAREHOLDERS' AND TRUSTEES' LIABILITY
Delaware law provides that Fund shareholders are entitled to the same
limitations of personal liability extended to stockholders of private
corporations for profit. In the past, the securities regulators of some states,
however, have indicated that they and the courts in their state may decline to
apply Delaware law on this point. The Trust Instrument contains an express
disclaimer of shareholder liability for the debts, liabilities, obligations and
expenses of the Trust and requires that a disclaimer be given in each bond, note
or contract, or other undertaking entered into or executed by the Trust or the
Trustees. The Trust's Trust Instrument (the document that governs the operation
of the Trust) provides that the shareholder, if held to be personally liable
solely by reason of being or having seen a shareholder of such series, shall be
entitled out of the assets the applicable series' property to be held harmless
from and indemnified against all losses and expenses arising from such
liability. The Trust Instrument also provides that each series shall, upon
request, assume the defense of any claim made against any shareholder for any
act or obligation of the series and satisfy any judgment thereon. Thus, the risk
of a shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which Delaware law does not apply, no contractual
limitation of liability was in effect, and the portfolio is unable to meet its
obligations. FAdS believes that, in view of the above, there is no risk of
personal liability to shareholders.
The Trust Instrument provides that the Trustees shall not be liable to any
person other than the Trust or its shareholders for any act, omission or
obligation of the Trust or any Trustee. In addition, the Trust Instrument
provides that the Trustees shall not be liable for any act, omission or any
conduct whatsoever in his capacity as a Trustee, provided that a Trustee is not
protected against any liability to which he would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office.
D. REGISTRATION STATEMENT
This SAI and the Prospectus do not contain all the information included in the
Trust's registration statement filed with the SEC under the 1933 Act with
respect to the securities offered hereby. The registration statement, including
the exhibits filed therewith, may be examined at the office of the SEC in
Washington, D.C.
Statements contained herein and in the Prospectus as to the contents of any
contract or other documents are not necessarily complete, and, in each instance,
are qualified by, the copy of such contract or other documents filed as exhibits
to the registration statement.
E. FINANCIAL STATEMENTS
The financial statements of the Funds for the year ended December 31, 1999
included in the Annual Report to shareholders of the Trust are incorporated
herein by reference. These financial statements include the schedule of
investments, statement of assets and liabilities, statement of operations,
statement of changes in net assets, financial highlights, notes and independent
auditors' report.
<PAGE>
APPENDIX A - DESCRIPTION OF SECURITIES RATINGS
A. CORPORATE BONDS (INCLUDING CONVERTIBLE BONDS)
1. MOODY'S INVESTORS SERVICE
AAA Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally
referred to as "gilt edged." 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.
AA Bonds that 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 that make
the long-term risk appear somewhat larger than the Aaa securities.
A Bonds that 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.
BAA Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured).
Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
BA Bonds that 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.
B Bonds that 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.
CAA Bonds that 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.
CA Bonds that are rated Ca represent obligations that are speculative
in a high degree. Such issues are often in default or have other
marked shortcomings.
C 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 Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa through Caa. The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates
a ranking in the lower end of that generic rating category.
A-1
<PAGE>
2. STANDARD AND POOR'S CORPORATION
AAA An obligation rated AAA has the highest rating assigned by Standard
& Poor's. The obligor's capacity to meet its financial commitment on
the obligation is extremely strong.
AA An obligation rated AA differs from the highest-rated obligations
only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
A An obligation rated A is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's
capacity to meet its financial commitment on the obligation is still
strong.
BBB An obligation rated BBB exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet
its financial commitment on the obligation.
NOTE Obligations rated BB, B, CCC, CC, and C are regarded as having
significant speculative characteristics. BB indicates the least
degree of speculation and C the highest. While such obligations will
likely have some quality and protective characteristics, large
uncertainties or major exposures to adverse conditions may outweigh
these.
BB An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions that
could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation.
B An obligation rated B is more vulnerable to nonpayment than
obligations rated BB, but the obligor currently has the capacity to
meet its financial commitment on the obligation. Adverse business,
financial, or economic conditions will likely impair the obligor's
capacity or willingness to meet its financial commitment on the
obligation.
CCC An obligation rated CCC is currently vulnerable to nonpayment, and
is dependent upon favorable business, financial, and economic
conditions for the obligor to meet its financial commitment on the
obligation. In the event of adverse business, financial, or economic
conditions, the obligor is not likely to have the capacity to meet
its financial commitment on the obligation.
CC An obligation rated CC is currently highly vulnerable to nonpayment.
C The C rating may be used to cover a situation where a bankruptcy
petition has been filed or similar action has been taken, but
payments on this obligation are being continued.
D An obligation rated D is in payment default. The D rating category
is used when payments on an obligation are not made on the date due
even if the applicable grace period has not expired, unless Standard
& Poor's believes that such payments will be made during such grace
period. The D rating also will be used upon the filing of a
bankruptcy petition or the taking of a similar action if payments on
an obligation are jeopardized.
NOTE Plus (+) or minus (-). 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.
The `r' symbol is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or
volatility of expected returns that are not addressed in the credit
rating. Examples include: obligations linked or indexed to equities,
currencies, or commodities; obligations exposed to severe prepayment
risk-such as interest-only or principal-only mortgage securities;
and obligations with unusually risky interest terms, such as inverse
floaters.
A-2
<PAGE>
3. DUFF & PHELPS CREDIT RATING CO.
AAA Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+ High credit quality. Protection factors are strong. Risk is modest
AA but may vary slightly from time to time because of economic
conditions.
A+,A, Protection factors are average but adequate. However, risk factors
A- are more variable in periods of greater economic stress.
BBB+ Below-average protection factors but still considered sufficient
BBB for prudent investment. Considerable variability in risk during
BBB- economic cycles.
BB+ Below investment grade but deemed likely to meet obligations when
BB due. Present or prospective financial protection factors
BB- fluctuate according to industry conditions. Overall quality may
move up or down frequently within this category.
B+ Below investment grade and possessing risk that obligations will
B not be met when due. Financial protection factors will fluctuate
B- widely according to economic cycles, industry conditions and/or
company fortunes. Potential exists for frequent changes in the
rating within this category or into a higher or lower rating
grade.
CCC Well below investment-grade securities. Considerable uncertainty
exists as to timely payment of principal, interest or preferred
dividends. Protection factors are narrow and risk can be
substantial with unfavorable economic/industry conditions, and/or
with unfavorable company developments.
DD Defaulted debt obligations. Issuer failed to meet scheduled
principal and/or interest payments.
DP Preferred stock with dividend arrearages.
4. FITCH IBCA, INC.
INVESTMENT GRADE
AAA Highest credit quality. `AAA' ratings denote the lowest expectation of
credit risk. They are assigned only in case of exceptionally strong
capacity for timely payment of financial commitments. This capacity is
highly unlikely to be adversely affected by foreseeable events.
AA Very high credit quality. `AA' ratings denote a very low expectation
of credit risk. They indicate very strong capacity for timely payment
of financial commitments. This capacity is not significantly
vulnerable to foreseeable events.
A High credit quality. `A' ratings denote a low expectation of credit
risk. The capacity for timely payment of financial commitments is
considered strong. This capacity may, nevertheless, be more vulnerable
to changes in circumstances or in economic conditions than is the case
for higher ratings.
A-3
<PAGE>
BBB Good credit quality. `BBB' ratings indicate that there is currently a
low expectation of credit risk. The capacity for timely payment of
financial commitments is considered adequate, but adverse changes in
circumstances and in economic conditions are more likely to impair
this capacity. This is the lowest investment-grade category.
SPECULATIVE GRADE
BB Speculative. `BB' ratings indicate that there is a possibility of
credit risk developing, particularly as the result of adverse
economic change over time; however, business or financial
alternatives may be available to allow financial commitments to be
met. Securities rated in this category are not investment grade.
B Highly speculative. `B' ratings indicate that significant credit risk
is present, but a limited margin of safety remains. Financial
commitments are currently being met; however, capacity for continued
payment is contingent upon a sustained, favorable business and
economic environment.
CCC, High default risk. Default is a real possibility. Capacity for
CC,C meeting financial commitments is solely reliant upon sustained,
favorable business or economic developments. A `CC' rating indicates
that default of some kind appears probable. `C' ratings signal
imminent default.
DDD, Default. Securities are not meeting current obligations and are
DD,D extremely speculative. `DDD' designates the highest potential for
recovery of amounts outstanding on any securities involved. For U.S.
corporates, for example,`DD' indicates expected recovery of 50% - 90%
of such outstandings, and `D' the lowest recovery potential, i.e.
below 50%.
PREFERRED STOCK
1. MOODY'S INVESTORS SERVICE
AAA An issue that is rated "aaa" is considered to be a top-quality
preferred stock. This rating indicates good asset protection and
the least risk of dividend impairment within the universe of
preferred stocks.
AA An issue that is rated "aa" is considered a high-grade preferred
stock. This rating indicates that there is a reasonable assurance
the earnings and asset protection will remain relatively well
maintained in the foreseeable future.
A An issue that is 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.
BAA An issue that is rated "baa" is considered to be a medium-grade
preferred stock, neither highly protected nor poorly secured.
Earnings and asset protection appear adequate at present but may be
questionable over any great length of time.
BA An issue which is 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.
B An issue that 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.
CAA An issue that 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.
A-4
<PAGE>
CA An issue that is rated "ca" is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of
eventual payments.
C This is the lowest rated class of preferred or preference stock.
Issues so rated can thus be regarded as having extremely poor
prospects of ever attaining any real investment standing.
NOTE Moody's applies numerical modifiers 1, 2, and 3 in each rating
classification: 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
issue ranks in the lower end of its generic rating category.
2. STANDARD & POOR'S
AAA This is the highest rating that may be assigned by Standard & Poor's
to a preferred stock issue and indicates an extremely strong
capacity to pay the preferred stock obligations.
AA 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.
A 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.
BBB 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.
BB, Preferred stock rated BB, B, and CCC is regarded, on balance,
B, as predominantly speculative with respect to the issuer's capacity
CCC to pay preferred stock obligations. BB indicates the lowest degree
of speculation and CCC the highest. While such issues will likely
have some quality and protective characteristics, large
uncertainties or major risk exposures to adverse conditions outweigh
these.
CC The rating CC is reserved for a preferred stock issue that is in
arrears on dividends or sinking fund payments, but that is currently
paying.
C A preferred stock rated C is a nonpaying issue.
D A preferred stock rated D is a nonpaying issue with the issuer in
default on debt instruments.
N.R. This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard
& Poor's does not rate a particular type of obligation as a matter
of policy.
NOTE Plus (+) or minus (-). To provide more detailed indications of
preferred stock quality, 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.
C. SHORT TERM RATINGS
1. MOODY'S INVESTORS SERVICE
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issuers:
PRIME-1 Issuers rated Prime-1 (or supporting institutions) 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:
A-5
<PAGE>
o Leading market positions in well-established industries.
o High rates of return on funds employed.
o Conservative capitalization structure with moderate
reliance on debt and ample asset protection.
o Broad margins in earnings coverage of fixed financial
charges and high internal cash generation.
o Well-established access to a range of financial markets and
assured sources of alternate liquidity.
PRIME-2 Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations.
This will normally be evidenced by many of the characteristics
cited above 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.
PRIME-3 Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term
obligations. The effect of industry characteristics and market
compositions may be more pronounced. Variability in earnings and
profitability may result in changes in the level of debt
protection measurements and may require relatively high
financial leverage. Adequate alternate liquidity is maintained.
NOT
PRIME Issuers rated Not Prime do not fall within any of the Prime
rating categories.
STANDARD & POOR'S
A-1 A short-term obligation rated A-1 is rated in the highest
category by Standard & Poor's. The obligor's capacity to meet
its financial commitment on the obligation is strong. Within
this category, certain obligations are designated with a plus
sign (+). This indicates that the obligor's capacity to meet its
financial commitment on these obligations is extremely strong.
A-2 A short-term obligation rated A-2 is somewhat more susceptible
to the adverse effects of changes in circumstances and economic
conditions than obligations in higher rating categories.
However, the obligor's capacity to meet its financial commitment
on the obligation is satisfactory.
A-3 A short-term obligation rated A-3 exhibits adequate protection
parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity of
the obligor to meet its financial commitment on the obligation.
B A short-term obligation rated B is regarded as having
significant speculative characteristics. The obligor currently
has the capacity to meet its financial commitment on the
obligation; however, it faces major ongoing uncertainties that
could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation.
C A short-term obligation rated C is currently vulnerable to
nonpayment and is dependent upon favorable business, financial,
and economic conditions for the obligor to meet its financial
commitment on the obligation.
D A short-term obligation rated D is in payment default. The D
rating category is used when payments on an obligation are not
made on the date due even if the applicable grace period has not
expired, unless Standard & Poor's believes that such payments
will be made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition or the taking of a
similar action if payments on an obligation are jeopardized.
A-6
<PAGE>
FITCH IBCA, INC.
F1 Obligations assigned this rating have the highest capacity for
timely repayment under Fitch IBCA's national rating scale for that
country, relative to other obligations in the same country. This
rating is automatically assigned to all obligations issued or
guaranteed by the sovereign state. Where issues possess a
particularly strong credit feature, a "+" is added to the assigned
rating.
F2 Obligations supported by a strong capacity for timely repayment
relative to other obligors in the same country. However, the
relative degree of risk is slightly higher than for issues
classified as `A1' and capacity for timely repayment may be
susceptible to adverse changes in business, economic, or financial
conditions.
F3 Obligations supported by an adequate capacity for timely repayment
relative to other obligors in the same country. Such capacity is
more susceptible to adverse changes in business, economic, or
financial conditions than for obligations in higher categories.
B Obligations for which the capacity for timely repayment is
uncertain relative to other obligors in the same country. The
capacity for timely repayment is susceptible to adverse changes in
business, economic, or financial conditions.
C Obligations for which there is a high risk of default to other
obligors in the same country or which are in default.
A-7
<PAGE>
APPENDIX B - MISCELLANEOUS TABLES
TABLE 1 - INVESTMENT ADVISORY FEES
The following Table shows the dollar amount of fees payable to the Adviser with
respect to each Fund, the amount of fee that was waived by the Adviser, if any,
and the actual fee received by the Adviser.
<TABLE>
<S> <C> <C> <C>
GOVERNMENT BOND FUND ADVISORY FEE PAYABLE ADVISORY FEE ADVISORY FEE RETAINED
WAIVED
Institutional Shares
Year Ended December 31, 1999 $154,352 $44,470 $109,882
Period March 30, 1998-December 31, 1998 $99,857 $42,530 $57,327
Trust Shares
Period March 30, 1998-December 31, 1998 $75 $40 $35
CORPORATE BOND FUND ADVISORY FEE PAYABLE ADVISORY FEE ADVISORY FEE RETAINED
WAIVED
Institutional Shares
Year Ended December 31, 1999 $332,876 $96,486 $236,390
Period March 26, 1998-December 31, 1998 $266,091 $118,031 $148,060
GROWTH EQUITY FUND ADVISORY FEE PAYABLE ADVISORY FEE ADVISORY FEE RETAINED
WAIVED
Institutional Shares
Year Ended December 31, 1999 $141,611 $24,853 $116,758
Period March 30, 1998-December 31, 1998 $82,725 $31,022 $51,703
Trust Shares
Year Ended December 31, 1999 $1,791 $310 $1,481
Period March 30, 1998-December 31, 1998 $881 $341 $540
VALUE EQUITY FUND ADVISORY FEE PAYABLE ADVISORY FEE ADVISORY FEE RETAINED
WAIVED
Institutional Shares
Year Ended December 31, 1999 $131,299 $22,597 $108,702
Period March 30, 1998-December 31, 1998 $70,265 $26,411 $43,854
Trust Shares
Year Ended December 31, 1999 $1,261 $219 $1,042
Period March 30, 1998-December 31, 1998 $793 $309 $484
B-1
<PAGE>
TABLE 2 - ADMINISTRATION FEES
The following Table shows the dollar amount of fees payable to FAdS with respect
to each Fund, the amount of fee that was waived by FAdS, if any, and the actual
fee received by FAdS.
GOVERNMENT BOND FUND ADMINISTRATION FEE ADMINISTRATION FEE ADMINISTRATION FEE
PAYABLE WAIVED RETAINED
Institutional Shares
Year Ended December 31, 1999 $100,664 $0 $100,664
Period March 30, 1998-December 31, 1998 $52,647 $0 $52,647
Trust Shares
Period March 30, 1998-December 31, 1998 $32 $0 $32
CORPORATE BOND FUND ADMINISTRATION FEE ADMINISTRATION FEE ADMINISTRATION FEE
PAYABLE WAIVED RETAINED
Institutional Shares
Year Ended December 31, 1999 $216,654 $0 $216,654
Period March 26, 1998-December 31, 1998 $135,972 $0 $135,972
GROWTH EQUITY FUND ADMINISTRATION FEE ADMINISTRATION FEE ADMINISTRATION FEE
PAYABLE WAIVED RETAINED
Institutional Shares
Year Ended December 31, 1999 $60,690 $0 60,690
Period March 30, 1998-December 31, 1998 $31,021 $0 $31,021
Trust Shares
Year Ended December 31, 1999 $768 $0 $768
Period March 30, 1998-December 31, 1998 $324 $0 $324
VALUE EQUITY FUND ADMINISTRATION FEE ADMINISTRATION FEE ADMINISTRATION FEE
PAYABLE WAIVED RETAINED
Institutional Shares
Year Ended December 31, 1999 $56,271 $0 $56,271
Period March 30, 1998-December 31, 1998 $36,313 $0 $36,313
Trust Shares
Year Ended December 31, 1999 $541 $0 $541
Period March 30, 1998-December 31, 1998 $290 $0 $290
B-2
<PAGE>
TABLE 3 - ACCOUNTING FEES
The following table shows the dollar amount of fees payable to FAcS with respect
to each Fund, the amount of fee that was waived by FAcS, if any, and the actual
fee received by FAcS.
GOVERNMENT BOND FUND ACCOUNTING FEE PAYABLE ACCOUNTING FEE WAIVED ACCOUNTING FEE
RETAINED
Institutional Shares
Year Ended December 31, 1999 $39,000 $0 $39,000
Period March 30, 1998-December 31, 1998 $27,637 $2,909 $24,728
Trust Shares
Period March 30, 1998-December 31, 1998 $621 $155 $466
CORPORATE BOND FUND ACCOUNTING FEE PAYABLE ACCOUNTING FEE WAIVED ACCOUNTING FEE
RETAINED
Institutional Shares
Year Ended December 31, 1999 $57,000 $0 $57,000
Period March 26, 1998-December 31, 1998 $31,581 $0 $31,581
GROWTH EQUITY FUND ACCOUNTING FEE PAYABLE ACCOUNTING FEE WAIVED ACCOUNTING FEE
RETAINED
Institutional Shares
Year Ended December 31, 1999 $50,364 $0 $50,364
Period March 30, 1998-December 31, 1998 $35,110 $2,827 $32,283
Trust Shares
Year Ended December 31, 1999 $636 $0 $636
Period March 30, 1998-December 31, 1998 $1,148 $237 $911
VALUE EQUITY FUND ACCOUNTING FEE PAYABLE ACCOUNTING FEE WAIVED ACCOUNTING FEE
RETAINED
Institutional Shares
Year Ended December 31, 1999 $50,515 $0 $50,515
Period March 30, 1998-December 31, 1998 $35,108 $2,829 $32,279
Trust Shares
Year Ended December 31, 1999 $485 $0 $485
Period March 30, 1998-December 31, 1998 $1,150 $236 $914
B-3
<PAGE>
TABLE 4 - TRANSFER AGENCY FEES
The following table shows the dollar amount of shareholder service fees payable
to the Transfer Agent with respect to Shares of each Fund, the amount of fee
that was waived by Transfer Agent, if any, and the actual fee received by
Transfer Agent.
GOVERNMENT BOND FUND TRANSFER AGENCY FEE TRANSFER AGENCY FEE TRANSFER AGENCY FEE
PAYABLE WAIVED RETAINED
Institutional Shares
Year Ended December 31, 1999 $24,601 $0 24,601
Period March 30, 1998-December 31, 1998 $19,899 $0 $19,899
Trust Shares
Period March 30, 1998-December 31, 1998 $474 $474 $0
CORPORATE BOND FUND TRANSFER AGENCY FEE TRANSFER AGENCY FEE TRANSFER AGENCY FEE
PAYABLE WAIVED RETAINED
Institutional Shares
Year Ended December 31, 1999 $25,020 $0 25,020
Period March 26, 1998-December 31, 1998 $19,851 $0 $19,851
GROWTH EQUITY FUND TRANSFER AGENCY FEE TRANSFER AGENCY FEE TRANSFER AGENCY FEE
PAYABLE WAIVED RETAINED
Institutional Shares
Year Ended December 31, 1999 $36,083 $0 $36,083
Period March 30, 1998-December 31, 1998 $27,453 $0 $27,454
Trust Shares
Year Ended December 31, 1999 $675 $0 $675
Period March 30, 1998-December 31, 1998 $1,020 $765 $255
VALUE EQUITY FUND TRANSFER AGENCY FEE TRANSFER AGENCY FEE TRANSFER AGENCY FEE
PAYABLE WAIVED RETAINED
Institutional Shares
Year Ended December 31, 1999 $36,137 $0 $36,137
Period March 30, 1998-December 31, 1998 $27,432 $0 $27,432
Trust Shares
Year Ended December 31, 1999 $489 $0 $489
Period March 30, 1998-December 31, 1998 $1,011 $760 $251
</TABLE>
B-4
<PAGE>
TABLE 5 - COMMISSIONS
The following table shows the aggregate brokerage commissions with respect to
each Fund that incurred brokerage costs. The data is for the past three fiscal
years or shorter period if the Fund has been in operation for a shorter period.
<TABLE>
<S> <C>
AGGREGATE COMMISSION
FUND PAID
Government Bond Fund
Year Ended December 31, 1999 $0
Year Ended December 31, 1998
Corporate Bond Fund
Year Ended December 31, 1999 $0
Year Ended December 31, 1998
Growth Equity Fund
Year Ended December 31, 1999 $0
Year Ended December 31, 1998
Value Equity Fund
Year Ended December 31, 1999 $0
Year Ended December 31, 1998
</TABLE>
B-5
<PAGE>
TABLE 6 - 5% SHAREHOLDERS
The following table lists the persons who owned of record 5% or more of the
outstanding shares of a Fund as of March 31, 2000.
FUND NAME AND ADDRESS SHARES % OF FUND
B-6
<PAGE>
APPENDIX C - PERFORMANCE DATA
TABLE 1 - YIELDS
For the 30-day period ended December 31, 1999, the annualized yield of
Institutional Shares of Government Bond Fund and Corporate Bond Fund was as
follows.
GOVERNMENT BOND FUND YIELD
Institutional Shares 5.52%
CORPORATE BOND FUND YIELD
Institutional Shares 6.88%
C-1
<PAGE>
TABLE 2 - TOTAL RETURNS
The average annual total return of each class of each Fund for the period ended
March 31, 2000, was as follows.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NON STANDARDIZED RETURNS (WITHOUT A SALES LOAD)
CALENDAR
GOVERNMENT BOND ONE THREE YEAR TO ONE THREE FIVE TEN YEARS SINCE
FUND MONTH MONTHS DATE YEAR YEARS YEARS INCEPTION
Institutional Shares -0.71% -0.58% -2.39% -2.39% N/A N/A N/A 3.03%
CALENDAR
CORPORATE BOND ONE THREE YEAR TO ONE THREE FIVE TEN YEARS SINCE
FUND MONTH MONTHS DATE YEAR YEARS YEARS INCEPTION
Institutional Shares 0.% -0.46% -1.77% -1.77% N/A N/A N/A 3.13%
CALENDAR
GROWTH EQUITY ONE THREE YEAR TO ONE YEAR THREE FIVE TEN YEARS SINCE
FUND MONTH MONTHS DATE YEARS YEARS INCEPTION
Trust Shares 7.69% 16.69% 24.56% 24.56% N/A N/A N/A 26.06%
Institutional Shares 7.48% 16.32% 24.44% 24.44% N/A N/A N/A 26.23%
CALENDAR
VALUE EQUITY ONE THREE YEAR TO ONE YEAR THREE FIVE TEN SINCE
FUND MONTH MONTHS DATE YEARS YEARS YEARS INCEPTION
Trust Shares 3.32% 2.11% -3.88% -3.88% N/A N/A N/A -6.80%
Institutional Shares 3.20% 1.88% -3.96% -3.96% N/A N/A N/A -6.67%
</TABLE>
C-2
<PAGE>
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS
(a) Copy of the Trust Instrument of the Registrant dated November 25, 1997
(see Note 1).
(b) Not Applicable.
(c) See Sections 2.02, 2.04 and 2.06 of the Trust Instrument filed as
Exhibit (a).
(d) (1) Investment Advisory Agreement between Registrant and Forum
Investment Advisors, LLC dated as of March 13, 1998 as amended June
29, 1999 (see Note 2).
(2) Investment Subadvisory Agreement between Registrant, Forum
Investment Advisors, LLC and Beutel, Goodman Capital Management
dated as of March 13, 1998 (see Note 2).
(3) Investment Subadvisory Agreement between Registrant, Forum
Investment Advisors, LLC and Conseco Capital Management, Inc.
dated as of March 13, 1998 (see Note 2).
(4) Investment Subadvisory Agreement between Registrant, Forum
Investment Advisors, LLC and Davis Hamilton Jackson & Associates,
L.P. dated as of March 13, 1998 (see Note 2).
(5) Investment Subadvisory Agreement between Registrant, Forum
Investment Advisors, LLC and The Northern Trust Company dated as of
March 13, 1998 (see Note 2).
(e) Distribution Agreement between Registrant and Forum Fund Services, LLC
dated as of May 1, 1999 (see Note 2).
(f) None.
(g) (1) Transfer Agency and Services Agreement between Registrant and Forum
Shareholder Services, LLC dated March 13, 1998 (see Note 2).
(2) Form of Custodian Agreement between Registrant and Investors Bank
& Trust Company (filed herewith).
(h) (1) Administration Agreement between Registrant and Forum
Administrative Services, LLC dated March 13, 1998 (see Note 2).
(2) Fund Accounting Agreement between Registrant and Forum Accounting
Services, LLC dated as of March 13, 1998 (see Note 2).
(3) Shareholder Service Agreement between Registrant and Memorial Group,
Inc., dated June 29, 1999 (filed herewith).
(4) Securities Lending Agency Agreement between Registrant and
Investors Bank & Trust Company dated as of January 31, 2000 (filed
herewith).
(i) (1) Opinion of counsel to Registrant (see Note 3).
(2) Consent of Seward & Kissel, LLP (see Note 2).
(j) Not applicable.
(k) None.
(l) Investment Representation letter of original purchaser of shares of
Registrant (see Note 3).
(m) Rule 12b-1 Plan (see Note 4).
(n) 18f-3 Plan adopted by Registrant (see Note 2).
(p) To be filed by amendment.
Other Exhibits:
Power of Attorney of Jay Brammer (see Note 3).
<PAGE>
Power of Attorney of J.B. Goodwin (see Note 3).
Power of Attorney of Christopher W. Hamm (see Note 3).
Power of Attorney of Robert Stillwell (see Note 3).
Power of Attorney of John Y. Keffer (see Note 3).
- ---------------
Note:
1 Exhibit incorporated by reference as filed in initial N-1A filing on
December 4, 1997, accession number 0001004402-97-000244.
2 Exhibit incorporated by reference as filed in post-effective amendment
number 4 on April 29, 1999, accession number 0001004402-99-000244.
3 Exhibit incorporated by reference as filed in post-effective amendment
number 1 on March 18, 1998, accession number 0001004402-98- 000197.
4 Exhibit incorporated by reference as filed in pre-effective amendment
number 2 on March 4, 1998, accession number 0001004402-98-000161.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
ITEM 25. INDEMNIFICATION
Section 10.02 of the Registrant's Trust Instrument provides as follows:
SECTION 10.02 INDEMNIFICATION.
(a) Subject to the exceptions and limitations contained in Subsection
10.02(b): (i) every Person who is, or has been, a Trustee or officer of
the Trust (hereinafter referred to as a "Covered Person") shall be
indemnified by the Trust to the fullest extent permitted by law against
liability and against all expenses reasonably incurred or paid by him in
connection with any claim, action, suit or proceeding in which he
becomes involved as a party or otherwise by virtue of his being or
having been a Trustee or officer and against amounts paid or incurred by
him in the settlement thereof; (ii) the words "claim," "action," "suit,"
or "proceeding" shall apply to all claims, actions, suits or proceedings
(civil, criminal or other, including appeals), actual or threatened
while in office or thereafter, and the words "liability" and "expenses"
shall include, without limitation, attorneys' fees, costs, judgments,
amounts paid in settlement, fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Covered Person:
(i) who shall have been adjudicated by a court or body before which the
proceeding was brought (A) to be liable to the Trust or its
Shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct
of his office or (B) not to have acted in good faith in the reasonable
belief that his action was in the best interest of the Trust; or (ii)
in the event of a settlement, unless there has been a determination
that such Trustee or officer did not engage in willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in
the conduct of his office, (x) by the court or other body approving the
settlement; (y) by at least a majority of those Trustees who are
neither Interested Persons of the Trust nor are 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
<PAGE>
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 Agreements provides in substance as
follows:
SECTION 4. STANDARD OF CARE
The Trust shall expect of the Adviser, and the Adviser will give the
Trust the benefit of, the Adviser's best judgment and efforts in
rendering its services to the Trust, and as an inducement to the
Adviser's undertaking these services the Adviser shall not be liable
hereunder for any mistake of judgment or in any event whatsoever,
except for lack of good faith, breach of fiduciary duty, willful
misfeasance, bad faith or gross negligence in the performance of the
Adviser's duties hereunder, or by reason of the Adviser's reckless
disregard of its obligations and duties hereunder and except as
otherwise provided by law.
Section 3 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.
<PAGE>
(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 the person or persons transmitted
faith authorized by the Board to give such oral instruction. Forum
shall have no duty or obligation to make any inquiry or effort of
certification of such oral instruction;
(iii) any written instruction or certified copy of any resolution
of the Board, and Forum may rely upon the genuineness of any such
document or copy thereof reasonably believed in good faith by
Forum to have been validly executed; or
(iv) any signature, instruction, request, letter of transmittal,
certificate, opinion of counsel, statement, instrument, report,
notice, consent, order, or other document reasonably believed in
good faith by Forum to be genuine and to have been signed or
presented by the Trust or other proper party or parties; and no
Forum Indemnitee shall be under any duty or obligation to inquire
into the validity or invalidity or authority or lack thereof of
any statement, oral or written instruction, resolution, signature,
request, letter of transmittal, certificate, opinion of counsel,
instrument, report, notice, consent, order, or any other document
or instrument which Forum reasonably believes in good faith to be
genuine.
(e) Forum shall not be liable for the errors of other service
providers to the Trust including the errors of printing services
(other than to pursue all reasonable claims against the pricing
service based on the pricing services' standard contracts entered
into by Forum) and errors in information provided by an investment
adviser (including prices and pricing formulas and the untimely
transmission of trade information), custodian or transfer agent to
the Trust.
Sections 7 and 8 of the Distribution 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
<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 the Distributor to be genuine and to have been
signed or presented by the Trust or other proper party or parties;
and the Distributor shall not be under any duty or obligation to
inquire into the validity or invalidity or authority or lack
thereof of any statement, oral or written instruction, resolution,
signature, request, letter of transmittal, certificate, opinion of
counsel, instrument, report, notice, consent, order, or any other
document or instrument which the Distributor reasonably believes
in good faith to be genuine.
(c) The Distributor shall not be responsible or liable for any failure
or delay in performance of its obligations under this Agreement arising
out of or caused, directly or indirectly, by circumstances beyond its
reasonable control including, without limitation, acts of civil or
military authority, national emergencies, labor difficulties, fire,
mechanical breakdowns, flood or catastrophe, acts of God, insurrection,
war, riots or failure of the mails, transportation, communication or
power supply. In addition, to the extent the Distributor's obligations
hereunder are to oversee or monitor the activities of third parties,
the Distributor shall not be liable for any failure or delay in the
performance of the Distributor's duties caused, directly or indirectly,
by the failure or delay of such third parties in performing their
respective duties or cooperating reasonably and in a timely manner with
the Distributor.
SECTION 8. INDEMNIFICATION
(a) The Trust will indemnify, defend and hold the Distributor, its
employees, agents, directors and officers and any person who controls
the Distributor within the meaning of section 15 of the Securities Act
or section 20 of the 1934 Act ("Distributor Indemnitees") free and
harmless from and against any and all claims, demands, actions, suits,
judgments, liabilities, losses, damages, costs, charges, reasonable
counsel fees and other expenses of every nature and character
(including the cost of investigating or defending such claims, demands,
actions, suits or liabilities and any reasonable counsel fees incurred
in connection therewith) which any Distributor Indemnitee may incur,
under the Securities Act, or under common law or otherwise, arising out
of or based upon any alleged untrue statement of a material fact
contained in the Registration Statement or the Prospectuses or arising
out of or based upon any alleged omission to state a material fact
required to be stated in any one thereof or necessary to make the
statements in any one thereof not misleading, unless such statement or
omission was made in reliance upon, and in conformity with, information
furnished in writing to the Trust in connection with the preparation of
the Registration Statement or exhibits to the Registration Statement by
or on behalf of the Distributor ("Distributor Claims").
After receipt of the Distributor's notice of termination under Section
13(e), the Trust shall indemnify and hold each Distributor Indemnitee
free and harmless from and against any Distributor Claim; provided,
that the term Distributor Claim for purposes of this sentence shall
mean any Distributor Claim related to the matters for which the
Distributor has requested amendment to the Registration Statement and
for which the Trust has not filed a Required Amendment, regardless of
with respect to such matters whether any statement in or omission from
the Registration Statement was made in reliance upon, or in conformity
with, information furnished to the Trust by or on behalf of the
Distributor.
(b) The Trust may assume the defense of any suit brought to enforce any
Distributor Claim and may retain counsel of good standing chosen by the
Trust and approved by the Distributor, which approval shall not be
withheld unreasonably. The Trust shall advise the Distributor that it
will assume the defense of the suit and retain counsel within ten (10)
days of receipt of the notice of the claim. If the Trust assumes the
defense of any such suit and retains counsel, the defendants shall bear
the fees and expenses of any additional counsel that they retain. If
the Trust does not assume the defense of any such suit, or if
Distributor does not approve of counsel chosen by the Trust or has been
advised that it may have available defenses or claims that are not
available to or conflict with those available to the Trust, the Trust
will reimburse any Distributor Indemnitee named as defendant in such
suit for the reasonable fees and expenses of any counsel that person
retains. A Distributor Indemnitee shall not settle or confess any claim
without the prior written consent of the Trust, which consent shall not
be unreasonably withheld or delayed.
<PAGE>
(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 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.
<PAGE>
(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 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
(a) 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 Government Bond Fund, Corporate Bond Fund,
Value Equity Fund and Growth Equity Fund, constituting certain of Parts
A and B, respectively, of the Registration Statement are incorporated
by reference herein.
The following are the members of Forum Investment Advisors, LLC, Two
Portland Square, Portland, Maine 04101, including their business
connections, which are of a substantial nature.
Forum Holdings Corp. I., Member.
Forum Trust, LLC, Member.
Both Forum Holdings Corp. I. and Forum Trust are controlled
indirectly by John Y. Keffer, President of Forum Trust and Forum
Financial Group, LLC. Mr. Keffer is also a director and/or officer of
various registered investment companies for which the various Forum
Financial Group's operating subsidiaries provide services.
The following are the officers of Forum Investment Advisors, LLC,
including their business connections that are of a substantial nature.
Each officer may serve as an officer of various registered investment
companies for which the Forum Financial Group provides services.
<TABLE>
<S> <C> <C>
Name Title Business Connection
.................................... ................................... ..................................
David I. Goldstein Secretary Forum Investment Advisors, LLC
................................... ..................................
General Counsel Forum Financial Group, LLC
................................... ..................................
Officer other Forum affiliated companies
.................................... ................................... ..................................
John Burns Director Forum Investment Advisors, LLC
................................... ..................................
Director Forum Financial Group, LLC
................................... ..................................
Officer other Forum affiliated companies
.................................... ................................... ..................................
Marc Keffer Assistant Secretary Forum Investment Advisors, LLC
................................... ..................................
Corporate Counsel Forum Financial Group, LLC
................................... ..................................
Officer other Forum affiliated companies
</TABLE>
(b) The Northern Trust Company
The descriptions of The Northern Trust Company ("NTC") under the
caption "Management-Adviser" in the Prospectus and Statement of
Additional Information relating to Government Bond Fund constituting
certain of Parts A and B, respectively, of the Registration Statement
are incorporated by reference herein.
<PAGE>
The following are the directors and officers of NTC, 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.
<TABLE>
<S> <C> <C>
Name Title Business Connection
.................................... ................................... ..................................
Duane L. Burnham Director NTC
................................... ..................................
Director Northern Trust Corporation
................................... ..................................
Chairman and Chief Executive Abbott Laboratories, 100 Abbott
Officer Park Road, Abbott Park, IL
60064-3500
.................................... ................................... ..................................
Dr. Dolores E. Cross Director NTC
................................... ..................................
Director Northern Trust Corporation
................................... ..................................
President GE Fund, General Electric
Company, 3135 Easton Turnpike,
Fairfield, CT 06432
.................................... ................................... ..................................
Susan Crown Director NTC
................................... ..................................
Director Northern Trust Corporation
................................... ..................................
Vice President Henry Crown and Company, 222 N.
LaSalle Street, Suite 2000,
Chicago, IL 60601
.................................... ................................... ..................................
John R. Goodwin Senior Vice President NTC
.................................... ................................... ..................................
Robert S. Hamada Director NTC
................................... ..................................
Director Northern Trust Corporation
................................... ..................................
Dean, Edward Eagle Brown University of Chicago Graduate
Distinguished Service Professor School of Business, 1101 East
of Finance 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 NTC
Officer & Director
................................... ..................................
President, Chief Operating Northern Trust Corporation
Officer & Director
................................... ..................................
Director Northern Trust Securities, Inc.
................................... ..................................
Director Northern Trust of California
Corporation, 355 S. Grand
Avenue, Los Angeles, CA 90017
................................... ..................................
Vice Chairman of the Board & Northern Trust of Florida
Director Corporation, 700 Brickell
Avenue, Miami, FL 33131
................................... ..................................
Director Nortrust Realty Management, Inc.
.................................... ................................... ..................................
<PAGE>
.................................... ................................... ..................................
Robert A. Helman Director NTC
................................... ..................................
Director Northern Trust Corporation
................................... ..................................
Partner Mayer, Brown & Platt, 190 S.
LaSalle Street, 38th Fl.,
Chicago, IL 60603
................................... ..................................
Governor Chicago Stock Exchange, One
Financial Plaza, 440 S. LaSalle
St., Chicago, IL 60605
................................... ..................................
Director The Horsham Corporation, 24
Hazelton Avenue, Toronto,
Ontario, Canada M5R 2E2
................................... ..................................
Director Alberta Natural Gas Company,
Ltd., 2900, 240 Fourth Ave.,
N.W., Calgary, Alberta, Canada
T2P 4L7
................................... ..................................
Director Brambles USA, Inc., 400 N.
Michigan Avenue, Chicago, IL
60611
.................................... ................................... ..................................
Arthur L. Kelly Director NTC
................................... ..................................
Director Northern Trust Corporation
................................... ..................................
Managing Partner KEL Enterprises Ltd., Two First
National Plaza, 20 S. Clark
Street, Suite 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 NTC
................................... ..................................
Director Northern Trust Corporation
................................... ..................................
Chairman and Chief Executive Molex Incorporated, 2222
Officer 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 NTC
................................... ..................................
Director The Northern Trust Company of
New York, 40 Broad Street, 8th
Fl., New York, NY 10004
.................................... ................................... ..................................
Robert A. LaFleur Senior Vice President NTC
.................................... ................................... ..................................
Thomas L. Mallman Senior Vice President NTC
.................................... ................................... ..................................
<PAGE>
.................................... ................................... ..................................
James J. Mitchell, III Executive Vice President NTC
................................... ..................................
Director The Northern Trust Company of
New York, 40 Broad Street, 8th
Fl., New York, NY 10004
.................................... ................................... ..................................
William G. Mitchell Director NTC
................................... ..................................
Director Northern Trust Corporation
................................... ..................................
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 NTC
................................... ..................................
Director Northern Trust Corporation
................................... ..................................
Chairman, Chief Executive Nalco Chemical Company, One
Officer, President & Director Nalco Center, Naperville, IL
60563-1198
................................... ..................................
Director Morton International, Inc., 100
North Riverside Plaza, Chicago,
IL 60605
.................................... ................................... ..................................
William A. Osborn Chairman and Chief Executive NTC
Officer
................................... ..................................
Director Northern Trust Corporation
................................... ..................................
Director Northern Trust of California
Corporation, 355 S. Grand
Avenue, Los Angeles, CA 90017
................................... ..................................
Director Nortrust Realty Management Inc.
................................... ..................................
Director Northern Futures Corporation
.................................... ................................... ..................................
Sheila A. Penrose Executive Vice President NTC
................................... ..................................
Director Northern Trust Global Advisors,
Inc., 29 Federal Street,
Stamford, CT 06901
.................................... ................................... ..................................
Perry R. Pero Senior Executive Vice President, NTC
Chief Financial Officer and
Cashier
................................... ..................................
Director Northern Futures Corporation
................................... ..................................
Director Northern Trust Global Advisors,
Inc., 29 Federal Street
Stamford, CT 06901
................................... ..................................
Director Northern Trust Securities, Inc.
................................... ..................................
Director Nortrust Realty Management, Inc.
.................................... ................................... ..................................
<PAGE>
.................................... ................................... ..................................
Peter L. Rossiter Executive Vice President and NTC
General Counsel
................................... ..................................
Director Consolidated Communications
Inc., Illinois Consolidated
Telephone Company, 121 S. 17th
Street, Mattoon, IL 61938
................................... ..................................
Executive Vice President and Northern Trust Corporation
General Counsel
................................... ..................................
Chairman of the Executive Illinois Tool Works Inc. , 3600
Committee West Lake Avenue, Glenview, IL
60025-5811
................................... ..................................
Director Northern Trust Corporation
................................... ..................................
Director W. W. Grainger, Inc., 5500 West
Howard Street, Skokie, IL 60077
................................... ..................................
Trustee Northwestern Mutual Life, 720
East Wisconsin Avenue,
Milwaukee, WI 53202
.................................... ................................... ..................................
William D. Smithbur Director NTC
................................... ..................................
Director Northern Trust Corporation
................................... ..................................
Director Abbott Laboratories, One Abbott
Park Road, Abbott Park, IL 60675
................................... ..................................
Director Corning Incorporated, Corning,
NY 14831
................................... ..................................
Trustee Prime Capital Corporation, P.O.
Box 8460, Rolling Meadows, IL
60008
.................................... ................................... ..................................
James M. Snyder Executive Vice President NTC
.................................... ................................... ..................................
Bide L. Thomas Director NTC
................................... ..................................
Director Northern Trust Corporation
................................... ..................................
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
</TABLE>
(c) Conseco Capital Management, Inc
The descriptions of Conseco Capital Management, Inc., ("CCM") under the
caption "Management-Adviser" in the Prospectus and Statement of
Additional Information relating to Corporate Bond 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 CCM, 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. Unless otherwise indicated, the address of each
company listed is 11825 N. Pennsylvania Street, Carmel, Indiana 46032.
<TABLE>
<S> <C> <C>
Name Title Business Connection
.................................... ................................... ..................................
Nora Ann Bammann Vice President CCM
.................................... ................................... ..................................
Maxwell Bublitz President, Chief Executive CCM
Officer and Director
.................................... ................................... ..................................
Andrew S. Chow Vice President CCM
.................................... ................................... ..................................
Joseph F. DeMichele Vice President CCM
<PAGE>
.................................... ................................... ..................................
.................................... ................................... ..................................
Rollin M. Dick Director CCM
................................... ..................................
Director, Executive Vice American Life Holding Company,
President and Chief Financial
Officer
................................... ..................................
Director and Executive Vice American Life & Casualty
President Insurance Company
................................... ..................................
Executive Vice President American Life & Casualty
Marketing Division Company
................................... ..................................
Director and Executive Vice Vulcan Life Insurance Company
President
................................... ..................................
Director, Executive Vice CCP II Holdings Corp.
President and Chief Financial
Officer
................................... ..................................
Director, Executive Vice CNC Real Estate Inc.
President and Chief Financial
Officer
................................... ..................................
Director Marketing Distribution Systems
Consulting Group, Inc.
................................... ..................................
Director MDS of New Jersey, Inc.
................................... ..................................
Director and Executive Vice Conseco Private Capital Group,
President Inc.
................................... ..................................
Director, Executive Vice Beneficial Standard Life
President and Chief Financial Insurance Company
Officer
................................... ..................................
Director Conseco Mortgage Capital, Inc.
................................... ..................................
Director, Executive Vice Jefferson National Life
President and Chief Financial Insurance Company of Texas
Officer
................................... ..................................
Director, Executive Vice Great American Reserve Insurance
President and Chief Financial Company
Officer
................................... ..................................
Director, Executive Vice Conseco Partnership Management,
President and Chief Financial Inc.
Officer
................................... ..................................
Director and Vice Chairman Conseco Risk Management, Inc.
................................... ..................................
Director, Treasurer and Executive Conseco Securities, Inc.
Vice President
................................... ..................................
Director, Executive Vice National Fidelity Life Insurance
President and Chief Financial Company
Officer
................................... ..................................
Director, Executive Vice Bankers National Life Insurance
President and Chief Financial Company
Officer
................................... ..................................
Director, Executive Vice Conseco, Inc.
President and Chief Financial
Officer
................................... ..................................
Director, Executive Vice Lincoln American Life Insurance
President and Chief Financial Company
Officer
................................... ..................................
Director Brightpoint, Inc., 6402
Corporate Drive, Indianapolis,
IN 46278
................................... ..................................
<PAGE>
Rollin M. Dick (continued) Director General Acceptance Corporation,
1025 Acuff Road, Suite 400,
Bloomington, IN 47404
................................... ..................................
Director and Executive Vice Administrators Service
President Corporation
................................... ..................................
Director, Executive Vice American Life Holdings, Inc.
President and Chief Financial
Officer
................................... ..................................
Director, Executive Vice American Travelers Life
President and Chief Financial Insurance Company
Officer
................................... ..................................
Director, Executive Vice Anchor Corporation
President and Chief Financial
Officer
................................... ..................................
Director and Executive Vice Association Management
President Corporation
................................... ..................................
Director, Executive Vice Automobile Underwriters
President and Chief Financial Corporation
Officer
................................... ..................................
Director, Executive Vice Automobile Underwriters,
President and Chief Financial Incorporated
Officer
................................... ..................................
Director Avantec, Inc.
................................... ..................................
President and Chief Financial
Officer
................................... ..................................
Director, Executive Vice Bankers Life Insurance Company
President and Chief Financial of Illinois
Officer
................................... ..................................
Director and Executive Vice Business Information Group, Inc.
President
................................... ..................................
Director, President and Treasurer CNC Entertainment Nevada, Inc.
................................... ..................................
Director, Executive Vice C.P. Real Estate Services Corp.
President and Chief Financial
Officer
................................... ..................................
Director CRM Acquisition Company
................................... ..................................
Director, Executive Vice Capitol American Financial
President and Chief Financial Corporation
Officer
................................... ..................................
Director, Executive Vice Capitol American Life Insurance
President and Chief Financial Company
Officer
................................... ..................................
Director, Executive Vice Capitol Insurance Company of Ohio
President and Chief Financial
Officer
................................... ..................................
Director, Executive Vice Capitol National Life Insurance
President and Chief Financial Company
Officer
................................... ..................................
Director, Executive Vice Certified Life Insurance Company
President and Chief Financial
Officer
................................... ..................................
<PAGE>
Rollin M. Dick (continued) Director, Executive Vice Colonial Penn Life Insurance
President and Chief Financial Company
Officer
................................... ..................................
Director, Executive Vice Connecticut National Life
President and Chief Financial Insurance Company
Officer
................................... ..................................
Director CCM
................................... ..................................
Director Conseco Entertainment, Inc.
................................... ..................................
Director, Executive Vice Conseco Global Investments, Inc.
President and Chief Financial
Officer
................................... ..................................
Director, Executive Vice Conseco Group Risk Management
President and Chief Financial Company
Officer
................................... ..................................
Director, Executive Vice Conseco Life Insurance Company
President and Chief Financial
Officer
................................... ..................................
Director, Executive Vice Conseco Life Insurance Company
President, Chief Financial of New York
Officer and Treasurer
................................... ..................................
Executive Vice President and Conseco Marketing, L.L.C.
Chief Financial Officer
................................... ..................................
Director Conseco Private Capital Group,
Inc.
................................... ..................................
Treasurer, Executive Vice Conseco Services, L.L.C.
President and Chief Financial
Officer
................................... ..................................
Director and Executive Vice Conseco Teleservices, Inc.
President
................................... ..................................
Director, Executive Vice Conseco Travel Services, Inc.
President and Chief Financial
Officer
................................... ..................................
Director, Executive Vice Continental Life & Accident
President and Chief Financial Company
Officer
................................... ..................................
Director, Executive Vice Continental Life Insurance
President and Chief Financial Company
Officer
................................... ..................................
Director and Executive Vice Continental Marketing
President Corporation of Illinois, Inc.,
11825 N. Pennsylvania Street,
Carmel, Indiana 46032
................................... ..................................
Director and Executive Vice DBP of Nevada, Inc.
President
................................... ..................................
Director and Executive Vice Design Benefit Plans, Inc.
President
................................... ..................................
Director and Executive Vice Design Benefit Plans of Oregon,
President Inc.
................................... ..................................
Director and Executive Vice Direct Financial Services, Inc.
President
................................... ..................................
Director, Executive Vice Diversified National Corporation
President and Chief Financial
Officer
................................... ..................................
<PAGE>
................................... ..................................
Rollin M. Dick (continued) Director, Executive Vice Eagle Mortgage Company, Inc.
President and Chief Financial
Officer
................................... ..................................
Director, Executive Vice Eagles' National Corporation
President and Chief Financial
Officer
................................... ..................................
Executive Vice President and Frontier National Life Insurance
Chief Financial Officer Company
................................... ..................................
Director General Acceptance Corporation,
1025 Acuff Road, Suite 400,
Bloomington, Indiana 47404
................................... ..................................
Director, Executive Vice Hawthorne Advertising Agency
President and Chief Financial Incorporated
Officer
................................... ..................................
Director, Executive Vice Health and Life Insurance
President and Chief Financial Company of America
Officer
................................... ..................................
Director and Executive Vice Healthscope, Inc.
President
................................... ..................................
Director, Executive Vice Independent Processing Services,
President and Chief Financial Inc.
Officer
................................... ..................................
Director and Executive Vice Independent Savers Plan, Inc.
President
................................... ..................................
Director Integral Technologies, Inc.,
9855 Crosspointe Blvd., Suite
401, Indianapolis, Indiana 46256
................................... ..................................
Director and Executive Vice Integrated Networks, Inc.
President
................................... ..................................
Director Interart, Inc., 1145 Sunrise
Greetings Court, Bloomington,
Indiana 47402
................................... ..................................
Director InveStar Insurance Agency, Inc.
(OH)
................................... ..................................
Director, Executive Vice KP Acquisition Corporation
President and Chief Financial
Officer
................................... ..................................
Director Key-Art Publishing Corp., 8383
Craig Street, Suite 290,
Indianapolis, Indiana 46250
................................... ..................................
Director, Executive Vice Lamar Life Insurance Company
President and Chief Financial
Officer
................................... ..................................
Director and Executive Vice MNL Marketing Corporation
President
................................... ..................................
Director, Executive Vice Manhattan National Life
President and Chief Financial Insurance Company
Officer
................................... ..................................
Director Monroe Guaranty Corporation,
11590 North Meridian St., Suite
300, Carmel, Indiana 46032
................................... ..................................
Executive Vice President, Chief NACT, Inc.
Financial Officer and Treasurer
................................... ..................................
<PAGE>
................................... ..................................
Rollin M. Dick (continued) Director and Executive Vice National Benefit Plans, Inc.
President
................................... ..................................
Director, Executive Vice National Group Life Insurance
President and Chief Financial Group
Officer
................................... ..................................
Director and Executive Vice Network Air Medical Systems, Inc
President
................................... ..................................
Director NewVoice Communications, Inc.,
3900 South Old State Road 37,
Bloomington, Indiana 47401
................................... ..................................
Director and Executive Vice PL Holdings, Inc.
President
................................... ..................................
Director and Executive Vice Partners Health Group, Inc.
President
................................... ..................................
Director and Executive Vice Personal Healthcare, Inc.
President
................................... ..................................
Director, Executive Vice Philadelphia Life Insurance
President and Chief Financial Company
Officer
................................... ..................................
Director and Executive Vice Pioneer Financial Services, Inc.
President
................................... ..................................
Director, Executive Vice Pioneer Life Insurance Company
President and Chief Financial
Officer
................................... ..................................
Director and Executive Vice Pioneer Savers Plan, Inc.
President
................................... ..................................
Director Powerway, Inc., 6919 Hillsdale
Court, Indianapolis, Indiana
46250
................................... ..................................
Director and Executive Vice Preferred Health Choice, Inc.
President
................................... ..................................
Director, Executive Vice Providential Life Insurance
President and Chief Financial Company
Officer
................................... ..................................
Director and Executive Vice Response Air Ambulance Network,
President Inc.
................................... ..................................
Director and Executive Vice Target Ad Group, Inc.
President
................................... ..................................
Director, Executive Vice Techno, Company d/b/a/ Statesman
President and Chief Financial Data Services, Inc.
Officer
................................... ..................................
Director Tier 4 Partners, L.L.C., 320
West 8th Street, Suite 100,
Bloomington, Indiana 47404
................................... ..................................
Director and Executive Vice The Nations Health Plan, Inc.
President
................................... ..................................
Director, Executive Vice U.S. Insurance Marketing, Inc.
President and Chief Financial
Officer
................................... ..................................
Director, Executive Vice United General Life Insurance
President and Chief Financial Company
Officer
................................... ..................................
Director and Executive Vice United Group Holdings, Inc.
President
................................... ..................................
<PAGE>
................................... ..................................
Rollin M. Dick (continued) Director and Executive Vice United Life Holdings, Inc.
President
................................... ..................................
Director, Executive Vice United Presidential Corporation
President and Chief Financial
Officer
................................... ..................................
Director, Executive Vice United Presidential Life
President and Chief Financial Insurance Company
Officer
................................... ..................................
Director United-States Power Engineering
Power Company, LLC, 3520 N.
Washington Boulevard,
Indianapolis, Indiana 46205
................................... ..................................
Director, Executive Vice Wabash Life Insurance Company
President and Chief Financial
Officer
................................... ..................................
Director, Executive Vice Washington National Corporation
President and Chief Financial
Officer
................................... ..................................
Director, Executive Vice Washington National Development
President and Chief Financial Company
Officer
................................... ..................................
Director, Executive Vice Washington National Financial
President and Chief Financial Services, Inc.
Officer
................................... ..................................
Director, Executive Vice Washington National Insurance
President and Chief Financial Company
Officer
................................... ..................................
Director Weiss Communications, 6081 East
82nd Street, Suite 401,
Indianapolis, Indiana 46250
................................... ..................................
Director Wells & Company, Inc.
................................... ..................................
Director Wellsco, Inc.
.................................... ................................... ..................................
Steven English Chief Financial Officer, CCM
Treasurer and Second Vice
President
.................................... ................................... ..................................
William Ficca Vice President, Director of CCM
Research
.................................... ................................... ..................................
Albert Gutierrez Senior Vice President CCM
.................................... ................................... ..................................
William Latimer Vice President, Secretary and CCM
Director
................................... ..................................
Vice President, Secretary and GARCO Equity Sales, Inc.
Director
................................... ..................................
Vice President, Secretary and MDS Securities, Morris Plains, NJ
Director
.................................... ................................... ..................................
Thomas Meyers Senior Vice President, Director CCM
of Marketing
................................... ..................................
Senior Vice President Conseco Mortgage Capital, Inc.
.................................... ................................... ..................................
Thomas J. Pence Vice President CCM
.................................... ................................... ..................................
See Yeng Quek Vice President CCM
.................................... ................................... ..................................
Gregory Hahn Senior Vice President, Portfolio CCM
Manager
.................................... ................................... ..................................
Gordon N. Smith Vice President, Portfolio Manager CCM
.................................... ................................... ..................................
Andrew Sommers Vice President CCM
.................................... ................................... ..................................
</TABLE>
<PAGE>
(d) Davis Hamilton Jackson & Associates, L.P.
The descriptions of Davis Hamilton Jackson & Associates, L.P., ("DHJA")
under the caption "Management-Adviser" in the Prospectus and Statement
of Additional Information relating to Growth 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 DHJA Two Houston
Center, 909 Fannin, Suite 550, Houston, Texas 77010, including any
business connections of a substantial nature which they have had in the
past two (2) fiscal years.
<TABLE>
<S> <C> <C>
Name Title Business Connection
.................................... ................................... ..................................
Jack R. Hamilton President and Shareholder DHJA
.................................... ................................... ..................................
Robert C. Davis Secretary, Treasurer and DHJA
Shareholder
.................................... ................................... ..................................
Alfred Jackson Principal and Shareholder DHJA
.................................... ................................... ..................................
Carla J. Evans Vice President - Administration DHJA
.................................... ................................... ..................................
Jeffrey L. Sarff Chief Operating Officer DHJA
.................................... ................................... ..................................
(e) Beutel, Goodman Capital Management
The descriptions of Beutel, Goodman Capital Management ("BGCM") under
the caption "Management-Adviser" in the Prospectus and Statement of
Additional Information relating to 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 BGCM, 5847 San Felipe,
Suite 4550, Houston, Texas 77057-3011, including any business
connections of a substantial nature, which they have had in the past
two (2) fiscal years. Unless otherwise indicated, the address of each
company listed is 5847 San Felipe, Suite 4550, Houston, Texas
77057-3011.
Name Title Business Connection
.................................... ................................... ..................................
Robert F. McFarland Chairman, Member of the BGCM
Management Committee
................................... ..................................
Director and Chairman Value Corp
................................... ..................................
Member, Board of Directors Beutel, Goodman & Company, Ltd,
20 Eglinton Avenue West, Suite
2000, Toronto, Ontario MAR-1K8
.................................... ................................... ..................................
Richard J. Andrews President, Treasurer and Member BGCM
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.
................................... ..................................
President, Treasurer and Director Value Corp.
.................................... ................................... ..................................
<PAGE>
J. Philip Ferguson Vice President and Member of the BGCM
Management Committee
................................... ..................................
Vice President and Director Value Corp.
................................... ..................................
Trustee Memorial Hermann Foundation,
7737 Southwest Freeway, Houston,
TX 77074
................................... ..................................
Advisory Trustee Houston Ballet, 1921 West Bell,
Houston, TX 77219
.................................... ................................... ..................................
Keith McRedmond Vice President BGCM
.................................... ................................... ..................................
Stephen H. Pouns Vice President and Member of the BGCM
Management Committee
................................... ..................................
Vice President and Director Value Corp.
................................... ..................................
Trustee Memorial Hospital System, 7737
Southwest Freeway, Suite 250,
Houston, TX 77074
................................... ..................................
Director Memorial Foundation, 7737
Southwest Freeway, Suite 250,
Houston, TX 77074
................................... ..................................
Director The Methodist Home, 1111 Herring
Avenue, Waco, TX
.................................... ................................... ..................................
Lynette Murphy Vice President BGCM
.................................... ................................... ..................................
Forrest B. Bruch, II Vice President BGCM
.................................... ................................... ..................................
Harper B. Trammell Vice President BGCM
................................... ..................................
Trustee The Trammell Foundation
................................... ..................................
Member, Board of Governors The Fondren Foundation, P.O. Box
2558, Houston, TX 77252-8037
.................................... ................................... ..................................
</TABLE>
ITEM 27. PRINCIPAL UNDERWRITERS
(a) Forum Fund Services, LLC, Registrant's underwriter, or its affiliate,
Forum Financial Services, Inc., serve as underwriter for the following
investment companies registered under the Investment Company Act of
1940, as amended:
The Cutler Trust
Forum Funds
Monarch Funds
Sound Shore Fund, Inc.
TrueCrossing Funds
(b) The following officers of Forum Fund Services, LLC, Registrant's
underwriter, hold the following positions with registrant. Their
business address is Two Portland Square, Portland, Maine 04101.
<TABLE>
<S> <C> <C>
Name Position with Underwriter Position with Registrant
.............................. ..................................... ....................................
.............................. ..................................... ....................................
Ronald H. Hirsch Treasurer Treasurer
.............................. ..................................... ....................................
.............................. ..................................... ....................................
John Y. Keffer Director Trustee
.............................. ..................................... ....................................
</TABLE>
(c) Not Applicable.
<PAGE>
ITEM 28. LOCATION OF ACCOUNTS 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 Shareholder Services, LLC, 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, Investors
Bank & Trust Company, 200 Clarendon Street, Boston, Massachusetts 02116. 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 26 hereof.
ITEM 29. MANAGEMENT SERVICES
Not Applicable.
ITEM 30. UNDERTAKINGS
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, the Registrant has duly caused this
amendment to its registration statement to be signed on its behalf by the
undersigned, duly authorized in the City of Portland, State of Maine on March 1,
2000.
MEMORIAL FUNDS
Christopher W. Hamm, President
By: /s/ David I. Goldstein
------------------------
David I. Goldstein, Attorney-in-Fact*
Pursuant to the requirements of the Securities Act of 1933, as amended, this
registration statement has been signed below by the following persons on March
1, 2000.
(a) Principal Executive Officer
Christopher W. Hamm
By: /s/ David I. Goldstein
----------------------
David I. Goldstein, Attorney-in-Fact*
(b) Principal Financial Officer
/s/ Ronald H. Hirsch
Ronald H. Hirsch, Treasurer
(c) A majority of the Trustees
Jay Brammer, Trustee
J.B. Goodwin, Trustee
Christopher W. Hamm, Trustee
John Y. Keffer, Trustee
Robert Stillwell, Trustee
By: /s/ David I. Goldstein
-----------------------
David I. Goldstein, Attorney-in-Fact*
* Pursuant to powers of attorney filed as Other Exhibits to this
Registration Statement.
<PAGE>
INDEX TO EXHIBITS
(g)(2) Form of Custodian Agreement between Registrant and Investors Bank &
Trust Company.
(h)(3) Shareholder Service Agreement between Registrant and Memorial Group,
Inc., dated June 29, 1999.
(h)(4) Securities Lending Agency Agreement between Registrant and Investors
Bank & Trust Company dated as of January 31, 2000.
<PAGE>
Exhibit (g)(2)
FORM OF
CUSTODIAN AGREEMENT
MEMORIAL FUNDS
THIS AGREEMENT made as of this ___ day of _______, 199_, between,
Memorial Funds, a Delaware business trust, with its principal place of business
at Two Portland Square, Portland, Maine 04101 (hereinafter called the "Trust"),
and Investor Bank & Trust Company, a national banking association with its
principal place of business in Boston, Massachusetts (hereinafter called the
"Custodian").
WHEREAS, the Trust desires that the securities and cash of certain of
its separate series shall be hereafter held and administered by Custodian as the
Trust'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 Trust's needs as provided for hereinafter;
NOW, THEREFORE, in consideration of the mutual promises herein made,
the Trust and the Custodian agree as follows:
SECTION 1. DEFINITIONS
(a) "Account" shall mean the applicable custodial account maintained by
the Custodian on behalf of the Trust for each Fund. The Account of each Fund
shall be separate from the Account of each other Fund and the assets of a Fund's
Account shall not in any way be charged with the liabilities of any other Fund's
Account.
(b) "Bank" shall mean a bank as defined in Section 2(a)(5) of the 1940
Act.
(c) "Fund" shall mean each of the separate series of the Trust as
listed in Appendix A hereto and each other series of the Trust as may be made
subject to this Agreement by a writing between the Trust and the Custodian.
(d) "Securities" shall mean and include stocks, shares, bonds,
debentures, notes, money market instruments, "foreign securities," as that term
is defined in Rule 17f-5 under the 1940 Act, and 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.
(e) "Officers' Certificate" shall mean a request or direction in
writing or a written confirmation of an oral request or direction signed in the
name of the Trust by any two of the Officers of the Trust, the Chariman or any
other persons duly authorized to sign by the Board of Trustees of the Trust.
(f) "1940 Act" shall mean the United States Investment Company Act of
1940, as amended.
(g) "Officer of the Trust" shall mean any President, Vice-President,
Treasurer, Assistant Treasurer, Secretary of Assistant Secretary of the Trust.
(h) "Securities Depository" means a clearing corporation registered
under Section 17A of the Securities Exchange Act of 1934 which maintains a
system for the central handling of securities in which all securities of any
particular class or series of any issuer deposited within the system are treated
as fungible and may be transferred or pledged by bookkeeping entry without
physical delivery of the securities.
<PAGE>
(i) "Book-Entry securities" means securities issued by the Treasury of
the United States of America and Federal agencies and instrumentalities of the
United States of America that are maintained in the book-entry system provided
by the Federal Reserve Banks.
(j) "Book-Entry Account" means an account maintained by a Federal
Reserve Bank.
SECTION 2. CUSTODIAN AS AGENT
The Custodian is authorized to act under the terms of this Agreement as
the Trust's agent and to represent the Trust and a particular Fund of the Trust
whenever acting within the scope of the Agreement.
SECTION 3. NAMES, TITLES AND SIGNATURE OF FUND'S OFFICERS
(a) An Officer of the Trust 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. Said Officer, or his or her successor, will provide the Custodian
with any changes which may occur from time to time.
(b) The Custodian is authorized to rely and act upon written and
manually signed instructions of any person or persons (if Custodian has been
directed to act on the instructions of more than one person) identified on a
separate list ("Authorized Persons") of those persons who may authorize the
withdrawal of any portion of the cash or Securities contained in an Account
furnished to the Custodian from time to time and signed by an Officer of the
Trust and certified by its Secretary or an Assistant Secretary. The Trust will
provide the Custodian with authenticated specimen signatures of all Authorized
Persons.
(c) 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,
(i) the Custodian and the Trust shall have previously agreed in
writing upon the means of transmission and the method of identification for
such instructions;
(ii) the Custodian has not been notified by the Trust to cease to
recognize such means and methods; and
(iii) such means and methods have in fact been used.
(d) If the Trust should 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 Trust,
provided that such instructions are accompanied by passwords which have been
mutually agreed to in writing by the Custodian and the Trust and the Custodian
has not been notified by the Trust to cease recognizing such passwords.
When dial-up or other direct means of access to the Custodian's
accounting system for cash or Securities is utilized, the Trust 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 Trust or its employees of any terminal device with access to the Custodian's
accounting system for cash or 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 a separate Account with
respect to each Fund, 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 each
<PAGE>
Account, subject to the provisions hereof, all cash received by it from or for
the Account of the applicable Fund.
(b) With respect to the Account of each Fund, the Custodian shall make
payment of cash to the Account or shall debit the Account only:
(i) for the purchase of Securities for the portfolio of the Fund
upon the delivery of such Securities to the Custodian;
(ii) 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;
(iii) for payments in connection with the return of the cash
collateral received in connection with Securities loaned by the Fund;
(iv) for payments in connection with futures contracts positions
held by the Fund;
(v) for payments of interest, dividends, taxes and in connection
with rights offerings; or
(vi) 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.
(c) Except as hereinafter provided, the Custodian shall make any
payment for which it receives direction from an Authorized Person so long as
such direction 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) orally when written or electronic directions cannot reasonably
be given within the relevant time period, when the person giving the direction
is known to the Custodian's employee and when the person giving such direction
(I) assures the Custodian that the directions will be confirmed in writing by an
Authorized Person within twenty-four (24) hours and (ii) states that such
payment is for a purpose permitted under the terms of this subsection.
(d) All funds received by the Custodian in connection with the sale,
transfer, exchange or loan of Securities will be credited to the applicable
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 an 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.
(i) 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 a 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.
(ii) If the Custodian agrees to advance cash or Securities of the
Custodian for delivery on behalf of a 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
<PAGE>
reasonable determination, to be in compliance with such Regulation U
also shall constitute security for the Fund's obligation to repay such
advance. Each 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 a 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 a Fund's failure to
make prompt repayment without demand, to prior notice to the Fund.
SECTION 5. RECEIPT OF SECURITIES
(a) The Custodian shall hold in each Fund's Account, segregated at all
times from those of any other persons, firms or corporations (including the
Accounts of other Funds), pursuant to the provisions hereof, all Securities
received by it from or for the account of the applicable 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 applicable 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 applicable Fund and only for the account
of the Fund as set forth in Section 7 of this Agreement.
(b) The Trust hereby authorizes the Custodian to deposit assets
of the Funds of the Trust as follows:
(i) deposit with the Custodian or any other bank licensed and
examined by the United States or any state thereof;
(ii) deposit in the Custodian's account(s) with any Securities
Depository all or any part of the Securities as may from time to time
be held for the Trust; and
(iii) deposit Book-Entry Securities belonging to the Funds in a
Book-Entry Account maintained for the Custodian by a Federal Reserve
Bank.
So long as any deposit referred to in (ii) or (iii) above is maintained for the
Trust, the Custodian shall:
(A) deposit the Securities in an account that includes only assets held
by it for customers;
(B) with respect to Securities of the Trust transferred to the account,
identify as belonging to the Trust a quantity of securities in a
fungible bulk of securities that are registered in the name of the
Custodian or its nominee, or shown on the Custodian's account on the
books of the Securities Depository, the Book-Entry System, or the
Custodian's agent;
(C) promptly send to the Trust all reports the Custodian receives from
the appropriate Federal Reserve Bank or Securities Depository on its
respective system of internal accounting control; and
(D) send to the Trust such reports of the systems of internal
accounting control of the Custodian and its agents through which such
Securities are deposited as are available and as the Trust may
reasonably request from time to time.
The Custodian shall not waive any rights it may have against a Securities
Depository or Federal Reserve Bank. The Trust may elect to be subrogated to the
rights of the Custodian against the Securities Depository or Federal Reserve
Bank or any other person with respect to any claim that the Custodian may have
as a consequence of any loss or damage suffered by the Trust as a result of the
Custodian's use of the Securities Depository or Book-Entry account if and to the
extent that the Trust has not been made whole for any such loss or damage.
<PAGE>
SECTION 6. FOREIGN SUBCUSTODIANS AND OTHER AGENTS
(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 are
"eligible foreign custodians" as defined in Rule 17f-5 under the 1940 Act, 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).
The Custodian agrees further that in placing Securities with any such
foreign subcustodian, it will enter into a written subcustodian agreement which
shall provide that: (I) the Custodian will be adequately indemnified and the
Securities so placed adequately insured in the event of loss, as provided in
subsection 6(b); (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 Funds of the
Trust; (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 Accounts.
(b) In addition to the indemnities included in Section 13 hereof, the
Custodian agrees that the Custodian shall be liable to the Trust for any loss
which shall occur as a result of the failure of a subcustodian as listed in
exhibit B hereto to exercise reasonable care with respect to the safekeeping of
the Securities and cash of the Trust to the same extent that the Custodian would
be liable to the Trust if the Custodian were holding such Securities or cash in
New York.
(c) 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 a Bankers Blanket Bond or
similar insurance for losses incurred as a result of such sub-custodial
arrangements.
(d) The Trust 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.
(e) So long as Rule 17f-5 under the 1940 Act so requires the Trust's
Board of Trustees or Funds's investment adviser to review or monitor the
Custodian's global custody network, the Custodian shall (a) furnish annually to
the Trust information concerning the foreign sub-custodians employed by the
Custodian similar in kind and scope to that furnished to the Fund in connection
with the initial approval of this Agreement; (b) promptly inform the Trust in
the event that the custodian learns of (I) a material adverse change in the
financial condition of a foreign sub-custodian, (ii) any material loss of the
assets of a Fund or (iii) a foreign sub-custodian not the subject of an
exemptive order from the U.S. Securities and Exchange Commission ceasing, or
becoming likely to cease, to meet applicable minimum shareholders' equity
requirements.
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 a 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
<PAGE>
agent) that Securities held by the Custodian (or by a subcustodian or other
agent of the Custodian) will be transferred, exchanged or delivered only:
(i) for sales of Securities for the account of the Fund in accordance
with (A) "New York Street Practice", (B) predominant established
practice in the relevant local market, or (C) specific instructions
from the Fund;
(ii) when Securities are called, redeemed or retired or otherwise
become payable;
(iii) for examination by any broker selling any such Securities in
accordance with "street delivery" custom or other relevant local market
practice;
(iv) in exchange for or upon conversion into other Securities
whether pursuant to any plan of merger, consolidation, reorganization,
recapitalization or readjustment, or otherwise;
(v) upon conversion of such Securities pursuant to their terms into
other Securities;
(vi) upon exercise of subscription, purchase or other similar rights
represented by such Securities pursuant to their terms;
(vii) for the purpose of exchanging interim receipts or temporary
Securities for definitive Securities;
(viii) for the purpose of tendering Securities;
(ix) for the purpose of delivering Securities lent by the Fund;
(x) for purposes of delivering collateral upon redelivery of
Securities lent or for purposes of delivering excess collateral; or
(xi) for other proper Fund purposes.
As to any deliveries made by the Custodian pursuant to items (ii), (iv), (v),
(vi), (vii), (ix), (x) and (xi), 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 hereof.
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:
(i) present for payment all coupons and other income items held by it
for the account of each Fund which call for payment upon presentation
and hold the cash received by it upon such payment in the applicable
Account;
(ii) collect interest and cash dividends and other distributions,
provide notice to the Fund of receipts, and deposit to the Account;
(iii) 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;
(iv) execute as agent on behalf of the Fund all necessary ownership
certificates required by the United States Internal Revenue Code of
1986, as amended, 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
<PAGE>
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;
(v) 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
(vi) 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 Trust 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 (v) and (vi).
SECTION 9. REGISTRATION OF SECURITIES
(a) 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 Trust or the applicable Fund or a registered nominee of the
Trust or the Fund or a registered nominee of the Custodian or a subcustodian.
Securities deposited with a Securities Depository or with a foreign subcustodian
permitted under Section 6 may be registered in the nominee name of the
Securities Depository or such foreign subcustodian. The Custodian shall execute
and deliver all such certificates in connection therewith as may be required by
the applicable provisions of the United States Internal Revenue Code of 1986, as
amended, 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 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.
(b) The Trust 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 a Fund and which may from time to time be
registered in the name of a 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 a Fund except
in accordance with the instructions contained in an Officers' Certificate.
The Custodian shall deliver or have delivered to the Trust all notices,
proxies and proxy soliciting materials with relation to such Securities, such
proxies to be executed by the registered holder of such Securities (if
registered otherwise than in the name of a Fund), but without indicating the
manner in which such proxies are to be voted.
With respect to Securities deposited with a Securities Depository or a
foreign subcustodian, as provided for in Section 6 hereof, that may be
registered in the nominee name of the Securities Depository or the foreign
subcustodian, 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 Trust, on behalf of each 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
<PAGE>
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
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 Trust, on behalf of each 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 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 Trust and its trustees, officers, employees, and
agents from all taxes, charges, expenses, assessments, claims and liabilities
(including attorneys fees) incurred or assessed against the Trust 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. In
the event of any advance of cash for any purpose made by the Custodian resulting
from orders or instructions of a 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. MAINTENANCE OF RECORDS
The Custodian will maintain records with respect to each Fund,
including general ledgers, portfolio ledgers, subsidiary ledgers, if any,
appropriate journals or other records reflecting (I) Securities maintained in
the portfolio of a Fund, (ii) Securities borrowed, loaned or collateralizing
obligations of a Fund, (iii) monies borrowed and monies loaned (together with a
record of the collateral thereto and substitutions of such collateral), (iv)
dividends and interest received, and (v) dividends receivable and interest
accrued, in compliance with the rules and regulations of the 1940 Act, where
applicable.
SECTION 15. REPORTS BY THE CUSTODIAN
The Custodian will furnish to the Trust at the end of every month, and
at the close of each quarter of a Fund's fiscal year, a list of the portfolio
Securities and the aggregate amount of cash in each Account and will assist in
<PAGE>
the preparation of the financial data for the N-SAR annual report to be filed on
behalf of a Fund.
The Custodian shall furnish the Trust with such other reports
concerning transactions in the Accounts and/or the Securities 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 kept and preserved by the Custodian in the
manner and, in accordance with applicable rules and regulations under the 1940
Act, and shall be open to inspection and audit at reasonable times and upon
reasonable notice to the Custodian, by officers of any auditors employed by the
Trust (and such other persons as the Trust may designate from time to time). All
such books and records shall be the property of the Trust and the Custodian
shall forthwith upon the Trust's request, turn over to the Trust and cease to
retain in its files, records and documents created and maintained by the
Custodian pursuant to this Agreement, except that the Custodian may maintain
copies of any such files, records and documents to the extent needed for its
protection.
SECTION 16. FUND VALUATION - INTENTIONALLY LEFT BLANK
SECTION 17. TERMINATION AND ASSIGNMENT
(a) This agreement may be terminated with respect to one or more Funds
by the Trust or by the Custodian, immediately upon written notice from the Trust
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 Trust or by the Custodian on sixty (60) days' notice, given in writing
and sent by registered mail to the Custodian or the Trust as the case may be.
Upon termination of this Agreement, the Custodian shall deliver the Securities
and cash in the Account of the Funds for which this Agreement has been
terminated to the Trust as is designated in writing by the Trust 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 Trust under terms
similar to those of this Agreement, and the Trust shall be obligated to pay to
such transferee the then current rates of such transferee for services rendered
by it. The Custodian may decline, however, to transfer such amount of such
Securities equivalent to all fees and other sums owing by the applicable Fund to
the Custodian, and the Custodian shall have a charge against and security
interest in such amount until all monies owing to it have been paid or escrowed
to its satisfaction.
(b) This Agreement may not be assigned by the Custodian without the
consent of the Trust, authorized or approved by a resolution of the Trust's
Board of Trustees.
SECTION 18. 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 Trust or a 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 foreseeably result
in any loss or damage to the Trust or any Fund.
<PAGE>
SECTION 19. 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 20. 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 21. GOVERNING LAW
This Agreement shall be governed and construed in accordance with the
laws of the Commonwealth of Massachusetts.
SECTION 22. COUNTERPARTS
This agreement may be executed in several counterparts, each of which
is an original.
SECTION 23. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject matter
hereof, whether oral or written.
SECTION 24. NOTICES
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
(i) if to the Custodian, at: XXXXXXXX
XXXXXXXX
XXXXXXXX
(ii) if to the Trust, at: Two Portland Square
Portland, Maine 04101
Attention: Secretary
or to such other address as either party may notify the other in writing.
A copy of the Trust Instrument of the Trust has been delivered to the
Custodian is on file with the Secretary of the Trust and notice is hereby given
that this instrument is executed on behalf of the Trustees of the Trust as
Trustees, and the obligations of this instrument are not binding upon any of the
Trustees, officers, or shareholders of the Trust individually but binding only
upon assets and property of the applicable Fund of the Trust.
<PAGE>
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.
MEMORIAL FUNDS
By:
[Name]
[Title]
INVESTORS BANK & TRUST COMPANY
By:
[Name]
[Title]
<PAGE>
CUSTODIAN AGREEMENT
MEMORIAL FUNDS
APPENDIX A
FUNDS OF THE TRUST
AS OF
XXXXXXXXXXXX
Government Bond Fund
Corporate Bond Fund
Value Equity Fund
Growth Equity Fund
Money Market Fund
Equity Income Fund
International Equity Fund
<PAGE>
CUSTODIAN AGREEMENT
MEMORIAL FUNDS
APPENDIX B
SUBCUSTODIANS FOR WHICH THE CUSTODIAN IS LIABLE
COUNTRY SUBCUSTODIAN
<PAGE>
Exhibit (h)(3)
MEMORIAL FUNDS
SHAREHOLDER SERVICE AGREEMENT
INSTITUTIONAL CLASS
AGREEMENT made this 29th day of June, 1999, between Memorial Funds (the
"Trust"), a Delaware business trust registered under the Investment Company Act
of 1940, as amended (the "Act"), as an open-end management investment company,
which may issue its shares of beneficial interest in separate series, and
Memorial Group, Inc. (the "Institution"), a corporation organized under the laws
of the State of Delaware with its principal place of business at 5847 San
Felipe, Suite 4545, Houston, Texas 77057.
WHEREAS, the Trust has adopted a Shareholder Service Plan with respect
to the Institutional Class of shares of each series of the Trust (the "Service
Plan") under which the Trust pays fees to qualified financial institutions for
maintaining and providing services to shareholder accounts of each series of the
Trust; and
WHEREAS, the Trust desires that Institution perform certain service
activities with respect to the Institutional Class of shares of each series of
the Trust listed in Schedule A to this Agreement (each a "Fund" and
collectively, the "Funds") and Institution is willing to perform those services
on the terms and conditions set forth in this Agreement;
NOW, THEREFORE, for and in consideration of the representations,
covenants and agreements contained herein and other valuable consideration, the
undersigned parties do hereby agree as follows:
SECTION 1. SERVICE ACTIVITIES
In connection with providing services and maintaining shareholder
accounts of each Fund and Class with respect to its various customers,
Institution may provide services including: (a) establishing and maintaining
accounts and records relating to clients of Institution; (b) answering
shareholder inquiries regarding the manner in which purchases, exchanges and
redemptions of shares of the Trust may be effected and other matters pertaining
to the Trust's services; (c) providing necessary personnel and facilities to
establish and maintain shareholder accounts and records; (d) assisting
shareholders in arranging or processing purchase, exchange and redemption
transactions; (e) arranging for the wiring of funds; (f) integrating periodic
statements with other shareholder transactions; and (g) providing such other
related services as the shareholder may request. Institution shall not be
obligated to perform any specific service for its clients. Institution's
appointment shall be nonexclusive and the Trust may enter into similar
agreements with other persons.
<PAGE>
SECTION 2. COMPENSATION
(a) As compensation for Institution's service activities with respect
to each Fund, the Trust shall pay Institution fees in the amounts listed on
Schedule B to this Agreement (the "Payments").
(b) The Payments shall be accrued daily and paid monthly or at such
other interval as the Trust and Institution shall agree.
(c) On behalf of each Fund, Institution may spend such amounts and
incur such expenses as it deems appropriate or necessary on any service
activities. Such expenses may include compensation to employees and expenses,
including overhead and telephone and other communication expenses, of
Institution. Institution shall be solely liable for any expenses it incurs.
SECTION 3. REPRESENTATIONS OF INSTITUTION
Institution represents that:
(a) the compensation payable to it under this Agreement in connection
with the investment in any Fund of the assets of its customers (I) will be
disclosed by Institution to its customers, (ii) will be authorized by its
customers, and (iii) will not result in an excessive fee to Institution;
(b) if it is a member of the National Association of Securities Dealers
,Inc. ("NASD"), it shall abide by the Rules of Fair Practice of the NASD;
(c) it will, in connection with sales and offers to sell shares,
furnish to or otherwise insure that each person to whom any such sale or offer
is made receives a copy of the appropriate Fund's or Funds' then current
prospectus, as applicable;
(d) the performance of all its obligations hereunder will comply with
all applicable laws and regulations, including any applicable Federal securities
laws and any requirements to deliver confirmations to its customers, the
provisions of its charter documents and bylaws and all material contractual
obligations binding upon Institution; and
(e) it will promptly inform the Trust of any change in applicable laws
or regulations (or interpretations thereof) or in its charter or bylaws or
material contracts which would prevent or impair full performance of any of its
obligations hereunder.
SECTION 4. TRUST LITERATURE
Institution is not authorized to make any representations concerning
shares of any Fund except those contained in the appropriate then current
prospectus and statement of additional information ("SAI") and printed
information issued by the Trust as information supplemental to the prospectus.
<PAGE>
The Trust will supply Institution upon its request with prospectuses, SAIs,
reasonable quantities of supplemental sales literature and additional
information. Institution agrees not to use other advertising or sales material
relating to any Fund unless approved in writing by the Trust in advance of such
use.
SECTION 5. INDEMNIFICATION
Institution agrees to indemnify and hold harmless the Trust from any
claims, expenses, or liabilities incurred by the Trust as a result of any act or
omission of Institution in connection with its services under this Agreement.
SECTION 6. EFFECTIVENESS, DURATION AND TERMINATION
(a) This Agreement shall become effective on the date hereof and, upon
its effectiveness, shall supersede all previous agreements between the parties
covering the subject matter hereof.
(b) This Agreement may be terminated as follows:
(i) automatically in the event of the termination of the
Service Plan;
(ii) automatically in the event of the assignment of this
Agreement as defined in the Act; and
(iii) by either party to the Agreement without cause by
giving the other party at least sixty (60) days' written notice of its
intention to terminate.
SECTION 7. NOTICES
Any notice under this Agreement shall be in writing and shall be
addressed and delivered, or mailed postage prepaid, to the other party's
principal place of business, or to such other place as shall have been
previously specified by written notice given to the other party.
SECTION 8. AMENDMENTS
Subject to approval of material amendments to the form of this
Agreement by the Trust's Board of Trustees, this Agreement may be amended by the
parties at any time.
SECTION 9. USE OF THE TRUST'S NAME
Institution shall not use the name of the Trust on any checks, bank
drafts, bank statements or forms for other than internal use in a manner not
approved by the Trust prior thereto in writing; provided however, that the
approval of the Trust shall not be required for the use of the Trust's name
which merely refers in accurate and factual terms to the Trust in connection
<PAGE>
with Institution's role hereunder or which is required by any appropriate
regulatory, governmental or judicial authority; and further provided that in no
event shall such approval be unreasonably withheld or delayed.
SECTION 10. MISCELLANEOUS
(a) This Agreement shall be construed in accordance with the laws of
the State of New York.
(b) If any provision of this Agreement shall be held invalid by a court
decision, statute, rule or otherwise, the remainder of the Agreement shall not
be affected thereby.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
MEMORIAL FUNDS
By:/s/ Thomas G. Sheehan
Thomas G. Sheehan
Vice President
MEMORIAL GROUP, INC.
By:/s/ Christopher W. Hamm
Christopher W. Hamm
President
<PAGE>
MEMORIAL FUNDS
SHAREHOLDER SERVICE AGREEMENT
INSTITUTIONAL CLASS
SCHEDULE A
SERIES OF MEMORIAL FUNDS
Government Bond Fund
Corporate Bond Fund
Value Equity Fund
Growth Equity Fund
International Equity Fund
Money Market Fund
Equity Income Fund
<PAGE>
MEMORIAL FUNDS
SHAREHOLDER SERVICE AGREEMENT
INSTITUTIONAL CLASS
SCHEDULE B
PAYMENTS PURSUANT TO THE SERVICE PLAN
0.25% of the average annual daily net assets of the Institutional Class
of Government Bond Fund, Corporate Bond Fund, Value Equity Fund, Growth
Equity Fund, International Equity Fund, Money Market Fund and Equity
Income Fund represented by shares owned by investors for which
Institution provides services pursuant to this Agreement.
<PAGE>
Exhibit (h)(4)
SECURITIES LENDING AGENCY AGREEMENT
BETWEEN
INVESTORS BANK & TRUST COMPANY
AND
MEMORIAL FUNDS
<PAGE>
11
SECURITIES LENDING AGENCY AGREEMENT
AGREEMENT, dated as of January 31, 2000, between Memorial Funds, a
Delaware business trust, on behalf of the Portfolios listed on Schedule A, (the
"Lender"), and Investors Bank & Trust Company, a trust company organized and
existing under the laws of the Commonwealth of Massachusetts (the "Bank").
WHEREAS, the Bank currently acts as custodian for securities held by it
in the Account (as defined below) from time to time on behalf of the Lender; and
WHEREAS, the Lender desires to appoint the Bank as its agent for the
purpose of lending securities in the Account as more fully set forth below; and
WHEREAS, the Bank has agreed to act as the Lender's agent for such
purpose pursuant to the terms hereof;
NOW, THEREFORE, for and in consideration of the mutual promises set
forth herein, the parties hereto agree as follows:
1. Definitions.
Whenever used in this Agreement, unless the context otherwise requires,
the following words shall have the meanings set forth below. Capitalized terms
used but not defined herein shall have the meaning assigned to them in the
applicable Securities Borrowing Agreement.
1.1 "Account" shall mean the custodial account or accounts established
and maintained by the Bank on behalf of the Lender for the safekeeping of
securities and monies received by the Bank from time to time.
1.2 "Approved Investment" shall mean any type of security,
participation or interest in property in which Cash Collateral may be invested
or reinvested, as set forth on Schedule I hereto (which may be amended from time
to time to add additional Approved Investments with the written consent of the
Bank and the Lender, or to delete any Approved Investment at the written
direction of the Lender).
1.3 "Authorized Person" shall be any officer of the Lender and any
other person, whether or not any such person is an officer or employee of the
Lender, duly authorized by corporate resolutions of the Board of Directors or
Trustees, as the case may be, of the Lender to give Oral and/or Written
Instructions on behalf of the Lender, such persons to be designated in a
Certificate which contains a specimen signature of such person.
1.4 "Book-Entry System" shall mean the Federal Reserve/Treasury
book-entry system for receiving and delivering Government Securities (as defined
herein), its successors and nominees.
1.5 "Borrower" shall mean any entity named on Schedule II hereto (as
such Schedule may be amended from time to time to add additional Borrowers with
the written consent of the Bank and the Lender, or to delete any Borrower at the
written direction of the Lender) or any affiliate of such named entity. The
Lender will promptly notify the Bank if at any time:
(a) any potential Borrower which is a broker-dealer registered
under the Securities Exchange Act of 1934 (the "1934 Act"), a broker-dealer
exempted from registration under Section 15(a)(1) of the 1934 Act as a dealer of
exempted Government securities, or a bank, has discretionary authority or
control with respect to the investment of any Securities available for Loan, or
(b) any potential Borrower not described in clause (a) above
is a party who is with respect to the Lender in such a position that a loan
would be considered a conflict of interest under applicable law.
<PAGE>
If the Lender provides such notice, the Bank shall take appropriate action to
prevent the Lender from engaging in a Loan with any potential Borrower so
identified by the Lender. The Bank shall be entitled to rely upon such notices
from the Lender (and the absence of such notices) in its operation of this
securities lending program.
1.6 "Cash Collateral" shall mean either fed funds or New York Clearing
House funds, as applicable for a particular loan of Securities.
1.7 "Certificate" shall mean any notice, instruction, schedule or other
instrument in writing, authorized or required by this Agreement to be given to
the Bank, which is actually received by the Bank and signed on behalf of the
Lender by an Authorized Person or a person reasonably believed by the Bank to be
an Authorized Person.
1.8 "Collateral" shall mean Cash Collateral unless the Bank and the
Lender have agreed in writing to additional collateral, including Government
Securities and Letters of Credit.
1.9 "Collateral Account" shall mean a segregated account established
and maintained by the Bank for the purpose of holding Collateral, Cash
Collateral and Approved Investments, interest, dividends and other payments and
distributions received with respect to Collateral and Approved Investments
("Distributions"), and any Securities Loan Fee paid by Borrowers in connection
with Securities loans hereunder.
1.10 "Depository" shall mean the Depository Trust Company,
Participant's Trust Company, Euroclear, and any other securities depository or
clearing agency (and their respective successors and nominees) authorized under
applicable law or regulation to act as a securities depository or clearing
agency, including any foreign securities depository approved by the Lender..
1.11 "Government Security" shall mean book-entry Treasury securities
(as defined in Subpart 0 of Treasury Department Circular No. 300, 31 C.F.R. 306)
and any other securities issued or fully guaranteed by the United States
government or any agency or instrumentality of the United States government.
1.12 "Letter of Credit" shall mean a clean, unconditional and
irrevocable letter of credit in favor of the Bank as agent for the Lender issued
by a bank named on Schedule III hereto as may be amended from time to time to
add additional banks by the written consent of the parties hereto, or to delete
any Bank at the written direction of the Lender.
1.13 "Oral Instructions" shall mean oral instructions actually received
by the Bank from an Authorized Person or from a person reasonably believed by
the Bank to be an Authorized Person.
1.14 "Rebate" shall mean the amount payable by the Lender to a Borrower
(as set forth in a Receipt) in connection with Securities loans at any time
collateralized by Cash Collateral.
1.15 "Receipt" shall mean an advice or confirmation setting forth the
terms of a particular loan of Securities hereunder, including, without
limitation, the Collateral with respect to such loan.
1.16 "Securities Borrowing Agreement" shall mean with, respect to any
Borrower, the agreement pursuant to which the Bank lends securities on behalf of
its customers (including the Lender) to such Borrower as may be amended from
time to time.
1.17 "Securities Loan Fee" shall mean the amount payable by a Borrower
to the Bank, as agent for the Lender, pursuant to the applicable Securities
Borrowing Agreement in connection with Securities loans, if any, collateralized
by Collateral other than Cash Collateral.
1.18 "Security" shall mean any Government Securities, non-U.S.
securities, common stock and other equity securities, bonds, debentures,
corporate debt securities, notes, mortgages or other obligations, and any
certificates, warrants or other instruments representing rights to receive,
purchase, or subscribe for the same, or evidencing or representing any other
rights or interests therein, which are available for lending pursuant to Section
2.2 of this Agreement.
<PAGE>
1.19 "Written Instructions" shall mean written communications actually
received by the Bank from an Authorized Person or from a person reasonably
believed by the Bank to be an Authorized Person by letter, memorandum, telegram,
cable, telex, telecopy facsimile, computer, video (CRT) terminal or other
on-line system, or any other method whereby the Bank is able to verify with a
reasonable degree of certainty the identity of the sender of such communications
or the sender is required to provide a password or other identification code.
2. Appointment; Scope of Agency Authority.
2.1 Appointment. The Lender hereby appoints the Bank as its agent to
lend Securities in the Account to Borrowers from time to time as hereinafter set
forth, and the Bank hereby accepts appointment as such agent and agrees to so
act.
2.2 Securities Subject to Lending. Unless the lender provides otherwise
inh writing to the Bank, all Securities maintained in the Account shall be
available for lending pursuant to this Agreement.
2.3 Securities Borrowing Agreement. The Lender hereby acknowledges
receipt of a Securities Borrowing Agreement with respect to each Borrower and
authorizes the Bank to lend Securities in the Account to Borrowers pursuant to
such agreements. The Bank shall promptly provide the Lender with copies of any
material amendments or changes to such agreements. The Lender may elect to
terminate any Borrower from Schedule II if it opposes the change.
2.4 Loan Opportunities. The Lender acknowledges and agrees that the
Bank shall have the right to decline to make any loans of Securities under any
Securities Borrowing Agreement and to discontinue lending under any Securities
Borrowing Agreement in its sole discretion and without notice to the Lender. The
Lender agrees that it shall have no claim against the Bank based on, or relating
to, loans made for other customers or for the Bank's own account, or loan
opportunities refused hereunder, whether or not the Bank has made fewer or more
loans for any other customer or for the Bank's own account than for the Lender,
and whether or not any loan for another customer or for the Bank's own account,
or the opportunity refused, could have resulted in loans made hereunder.
2.5 Use of Book-Entry System and Depositories. The Lender hereby
authorizes the Bank on a continuous and on-going basis, to deposit in the
Book-Entry System and any Depositories all Securities eligible for deposit
therein and to utilize the Book-Entry System and Depositories to the extent
possible in connection with its receipt and delivery of Securities, Collateral,
Approved Investments and monies under this Agreement. Where Securities,
Collateral (other than Cash Collateral) and Approved Investments eligible for
deposit in the Book-Entry System or a Depository are transferred to the Account,
the Bank shall identify as belonging to the Lender a quantity of securities in a
fungible bulk of securities shown on the Bank's account on the books of the
Book-Entry System or the applicable Depository. Securities, Collateral and
Approved Investments deposited in the Book-Entry System or a Deposit will be
represented in accounts which include only assets held by the Bank for
customers, including but not limited to accounts in which the Bank acts in a
fiduciary or agency capacity.
3. Representations and Warranties.
3.1 Lender's Representations The Lender hereby represents and warrants
to the Bank, which representations and warranties shall be deemed to be
continuing and to be reaffirmed on any day that a Securities loan hereunder is
outstanding, that:
(a) This Agreement has been approved and will be reapproved
annually by the Board of Directors/Trustees of the Lender; this Agreement is,
and each Securities loan and Approved Investment will be, legally and validly
entered into by the Lender, does not, and will not, violate any statute,
regulation, rule, order or, judgment binding on the Lender, or any provision of
the Lender's trust instrument or by-laws, or any agreement binding on the Lender
or affecting its property, and is enforceable against the Lender in accordance
with its terms, except as may be limited by bankruptcy, insolvency or similar
laws, or by equitable principles relating to or limiting creditors rights
generally;
(b) The person executing this Agreement and all Authorized
Persons acting on behalf of the Lender has and have been duly and properly
authorized to do so;
<PAGE>
(c) It is lending Securities as principal for its own account
and it will not transfer, assign or encumber its interest in, or rights with
respect to, any securities loans;
(d) All Securities subject to lending pursuant to Section 2.2
of this Agreement are free and clear of all liens, claims, security interests
and encumbrances, no such Security subject to lending has been sold and the
Lender has no present intention to sell any of the Securities subject to
lending. The Lender shall promptly notify the Bank in writing of any and all
Securities which are no longer subject to the representations contained in this
sub-paragraph (d).
3.2 Bank's Representations The Bank hereby represents and warrants to
the Lender, which representations and warranties shall be deemed to be
continuing and to be reaffirmed on any day that a Securities loan hereunder is
outstanding, that:
(a) This Agreement is legally and validly entered into by the
Bank, does not and will not, violate any statute, regulation, rule, order or,
judgment binding on the Bank, or any provision of the Bank's charter or by-laws,
or any agreement binding on the Bank or affecting its property, and is
enforceable against the Bank in accordance with its terms, except as may be
limited by bankruptcy, insolvency or similar laws, or by equitable principles
relating to or limiting creditors rights generally; and
(b) The person executing this Agreement on behalf of the Bank
and all persons acting on the Bank's behalf pursuant to this Agreement have been
duly and properly authorized to do so.
4. Securities Lending Transactions.
4.l Loan Initiation. From time to time the Bank may lend Securities to
Borrowers and deliver such Securities against receipt of Collateral in
accordance with the applicable Securities Borrowing Agreement. The Bank shall
deliver to the Lender a Receipt in connection with each loan made hereunder,
prior to settlement of such loan.
4.2 Receipt of Collateral; Approved Investments.
(a) For each loan hereunder the Bank shall (I) initially
receive Cash Collateral equivalent to no less than 102% of the market value of
the securities lent and (ii) thereafter shall request on a daily basis as
necessary additional Collateral, which for Cash Collateral shall be an amount
such that the value of the Cash Collateral in no event be equivalent to less
than 100% of the market value of the Securities lent (as determined in
accordance with the applicable Securities Borrowing Agreement), and the Bank is
hereby authorized and directed, without obtaining any further approval from the
Lender, to invest and reinvest all or substantially all of the Cash Collateral
received in any Approved Investment. The Bank shall credit all Collateral,
Approved Investments and Distributions received with respect to Collateral and
Approved Investments to the Collateral Account and mark its books and records to
identify the Lender's ownership thereof as appropriate.
(b) All Approved Investments shall be for the account and risk
of the Lender. To the extent any loss arising out of Approved Investments
results in a deficiency in the amount of Collateral available for return to a
Borrower pursuant to the Securities Borrowing Agreement, the Lender agrees to
pay the Bank on demand cash in an amount equal to such deficiency.
(c) Except as otherwise provided herein, all Collateral,
Approved Investments and Distributions credited to the Collateral Account shall
be controlled by, and subject only to the instructions of, the Bank, and the
Bank shall not be required to comply with any instructions of the Lender with
respect to the same.
4.3 Distributions on Loaned Securities. Except as provided in the next
sentence, all interests, dividends, and other distributions paid with respect to
loaned Securities shall be credited to the Lender's account on the date such
amounts are delivered by the Borrower to the Bank. Any non-cash distribution on
loaned Securities which is in the nature of a stock split or a stock dividend
shall be added to the applicable loan (and shall be considered to constitute
loaned Securities) as of the date such non-cash distribution is received by the
Borrower.
<PAGE>
4.4 Marks to Market. The Bank shall on each Business Day mark to market
in U.S. dollars the value of all Securities loaned hereunder and accordingly
receive and release Collateral in accordance with the applicable Securities
Borrowing Agreement.
4.5 Collateral Substitutions. The Bank shall accept substitutions of
Collateral in accordance with the applicable Securities Borrowing Agreement and
shall credit all such substitutions to the Collateral Account, provided however
that unless other Collateral has been mutually agreed upon in writing by the
Bank and the Lender, no other Collateral may be substituted for Cash Collateral.
4.6 Termination of Loans. The Bank shall terminate any Securities loan
to a Borrower in accordance with the applicable Securities Borrowing Agreement
as soon as practicable after:
(a) receipt by the Bank of a notice of termination pursuant to
the Securities Borrowing Agreement;
(b) receipt by the Bank of Written Instructions instructing it
to terminate a Securities loan;
(c) receipt by the Bank of Written Instructions deleting the
Borrower to whom such loan was made from Schedule II hereto;
(d) upon the Bank's becoming aware of the occurrence of any
default pursuant to the applicable Securities Borrowing Agreement requiring
termination of such loan; or
(e) whenever the Bank, in its sole discretion, elects to
terminate such loan.
4.7 Securities Loan Fee. The Bank shall receive any applicable
Securities Loan Fee paid by Borrowers pursuant to the Securities Borrowing
Agreement and credit all such amounts received to the Collateral Account.
4.8 The Borrower's Financial Condition. The Bank has delivered to the
Lender each of the Borrower's most recent statements that have been made
available to the Bank pursuant to the Securities Borrowing Agreements. The Bank
shall promptly deliver to the Lender all statements and financial information
subsequently delivered to the Bank and required to be furnished to the Bank
under the Securities Borrowing Agreements.
4.9 Transfer Taxes and Necessary Costs. All transfer taxes and
necessary costs with respect to the transfer of the loaned Securities by the
Lender to the Borrower and the Borrower to the Lender upon the termination of
the loan shall be paid by the Borrower in accordance with the applicable
Securities Borrowing Agreement.
4.10 Remedies Upon Default. In the event of any default by a Borrower
under the applicable Securities Borrowing Agreement, the Bank shall, after
consulting with the Lender, use its best efforts to pursue, on behalf of the
Lender, any remedies that the Bank or the Lender may have under the applicable
Securities Borrowing Agreement.
4.11 Bank's Obligation. Except as specifically set forth herein, or in
any applicable Securities Borrowing Agreement, the Bank shall have no duty or
obligation to take action to effect payment by a Borrower of any amounts owed by
such Borrower pursuant to the Securities Borrowing Agreement.
5. Concerning the Bank.
5.1 Standard of Care: Indemnification.
(a) It is expressly understood and agreed that in exercising
its rights and performing its obligations hereunder, the Bank owes no fiduciary
duty to the Lender. The Bank shall not be liable for any costs, expenses,
damages, liabilities or claims (including attorneys and accountants fees)
incurred by the Lender, except those costs, expenses, damages, liabilities or
claims arising out of the Bank's negligence, willful misconduct, bad faith, or
reckless disregard of its obligations and duties hereunder. The Bank shall have
no obligation hereunder for costs, expenses, damages, liabilities or claims
(including reasonable attorneys and accountants fees), which are sustained or
incurred by reason of any action or inaction by the Book-Entry System or any
Depository or their respective successors or nominees. In no event shall the
<PAGE>
Bank be liable for special, punitive or consequential damages, arising under or
in connection with this Agreement, even if previously informed of the
possibility of such damages.
(b) The Lender agrees to indemnify the Bank and to hold it
harmless from and against any and all costs, expenses, damages, liabilities or
claims, including reasonable fees and expenses of counsel, which the Bank may
sustain or incur or which may be asserted against the Bank by reason of or as a
result of any action taken or omitted by the Bank in connection with or arising
out of the Bank's operating under and in compliance with this Agreement, except
those costs, expenses, damages, liabilities or claims arising out of the Bank's
negligence, bad faith, willful misconduct, or reckless disregard of its
obligations and duties hereunder. The foregoing indemnity shall be a continuing
obligation of the Lender, its successors and assigns, notwithstanding the
termination of any loans hereunder or of this Agreement. Actions taken or
omitted in reasonable reliance upon Oral or Written Instructions, any
Certificate, or upon any information, order, indenture, stock certificate, power
of attorney, assignment, affidavit or other instrument reasonably believed by
the Bank to be genuine or bearing the signature of a person or persons
reasonably believed by the Bank to be genuine or bearing the signature of a
person or persons reasonably believed to be authorized to sign, countersign or
execute the same, shall be presumed to have been taken or omitted in good faith.
(c) The Bank agrees to indemnify the Lender and to hold it
harmless from and against any and all costs, expenses, damages, liabilities or
claims, including reasonable fees and expenses of counsel, which the Lender may
sustain or incur or which may be asserted against the Lender to the extent
arising out of the Bank's negligence, bad faith, willful misconduct, or reckless
disregard of its obligations and duties hereunder. The foregoing indemnity shall
be a continuing obligation of the Bank, its successors and assigns,
notwithstanding the termination of any loans hereunder or of this Agreement.
5.2 No Obligation to Inquire. Without limiting the generality of the
foregoing, the Bank shall be under no obligation to inquire into, and shall not
be liable for, the validity of the issue of any Securities at any time held in
the Account or Approved Investments held in the Collateral Account, or the
legality or propriety of any loans of Securities to Borrowers.
5.3 Advances, Overdrafts and Indebtedness; Security Interest.
(a) The Bank may, in its sole discretion, advance funds on
behalf of the Lender in order to pay to Borrowers any Rebates or to return to
Borrowers Cash Collateral to which they are entitled pursuant to the Securities
Borrowing Agreement. The Bank may also, in its sole discretion and as a matter
of bookkeeping convenience, credit the Account with interest, dividends or other
distributions payable on Securities prior to its actual receipt of final payment
therefor and the Lender agrees that such bookkeeping credits may also be
reflected on its books, and otherwise, as "immediately available" or "same day"
funds or by some similar characterization. Notwithstanding any such credit or
characterization, all such credits shall be conditional upon the Bank's actual
receipt of final payment and may be reversed by the Bank to the extent that
final payment is not received. If the Bank, in its sole discretion, permits the
Lender to use funds credited to the Account prior to receipt by the Bank of
final payment thereof, the Lender shall nonetheless, continue to bear the risk
of, and liability for, the Bank's non receipt of final payment in full.
(b) The Lender agrees to repay the Bank on demand the amount
of any advance or credit described in Section 5.3(a) above or any other amount
owed by the Lender hereunder plus accrued interest at a rate per annum (based on
a 360-day year for the actual number of days involved) as agreed to by the
parties from time to time. In order to secure repayment of any credit, advance,
overdraft or other indebtedness of the Lender to the Bank arising hereunder, the
Lender hereby agrees that the Bank shall have a continuing lien and security
interest, to the extent of any such amounts owing, in and to all assets now or
hereafter held in the Account and the Collateral Account, which is then in the
Bank's possession or control or in the possession or control of any third party
acting on the Bank's behalf. In this regard, the Bank shall be entitled to
charge any amounts owed to the Bank hereunder against any balance of account
standing to the credit of the Lender on the Bank's books and, without limiting
the foregoing, to all the rights and remedies of a pledgee under common law and
a secured party under the Massachusetts Uniform Commercial Code and/or any other
applicable laws and/or regulations as then in effect.
<PAGE>
(c) The rights of the Bank and the obligations of the Lender
under this Section are absolute and unconditional whether or not the Bank would
be entitled to indemnification pursuant to Section 5.l(b) hereof.
(d) For all purposes of this Agreement, payment with respect
to a transaction will not be "final" until the Bank shall have received
immediately available funds which under applicable law or rule are irreversible,
which are not subject to any security interest, levy or other encumbrance, and
which are specifically applicable, or deemed by the Bank to be specifically
applicable, to such transaction. A debit by the Bank to any other account of the
Lender maintained by the Bank or to an account of any third party to whom or for
whose account Securities have been delivered shall not constitute final payment
to the extent that such debit creates an overdraft or does not otherwise result
in the receipt by the Bank of immediately available, irreversible and
unencumbered funds.
5.4 Advice of Counsel The Bank may, with respect to questions of law,
apply for and obtain the advice and opinion of counsel to the Lender and shall
be fully protected with respect to anything done or omitted by it in good faith
in conformity with such advice or opinion.
5.5 No Collection Obligations. The Bank shall be under no obligation or
duty to take action to effect collection of any amounts payable in respect of
Securities or Approved Investments if such Securities or Approved Investments
are in default, or if payment is refused after due demand and presentation.
5.6 Pricing Methods. The Bank is authorized to utilize any recognized
pricing information service or any other reasonable means of valuation specified
in the applicable Securities Borrowing Agreement ("Pricing Methods") in order to
perform its valuation responsibilities with respect to loaned Securities,
Collateral and Approved Investments, and the Lender agrees to hold the Bank
harmless from and against any loss or damage suffered or incurred as a result of
errors or omissions of any such Pricing Methods.
5.7 Agent's Fee. In connection with each Securities loan hereunder the
Lender shall pay to the Bank a fee equal to 40% of (a) net realized income
derived from Approved Investments, plus (b) any Securities Loan Fee paid or
payable by the Borrower, minus (c) any Rebate paid by the Bank to the Borrower.
The Bank is authorized, on a monthly basis, to charge its fee and any other
amounts owed by the Lender hereunder against the Account and/or Collateral
Account.
5.8 Reliance On Certificates and Instructions. The Bank shall be
entitled to rely upon any Certificate, any information contained on any Schedule
hereto as may be amended in accordance with the terms hereof, and Written or
Oral Instruction actually received by the Bank and reasonably believed by the
Bank to be duly authorized and delivered. The Lender agrees to forward to the
Bank Written Instructions confirming Oral Instructions in such manner so that
such Written Instructions are received by the Bank by the close of business of
the same day that such Oral Instructions are given to the Bank. The Lender
agrees that the fact that such confirming Written Instructions are not received
on a timely basis or that contrary instructions are received by the Bank shall
in no way affect the validity or enforceability of the transactions authorized
by the Lender. The Bank will use reasonable efforts to report any subsequently
received contrary instructions. In this regard, the records of the Bank shall be
presumed to reflect accurately any Oral Instructions given by an Authorized
Person or a person reasonably believed by the Bank to be an Authorized Person.
5.9 Disclosure of Account Information. It is understood and agreed that
the Bank is authorized to supply any information regarding the Account which is
required by any law or governmental regulation now or hereafter in effect.
5.10 Statements. The Bank will at least daily furnish the Lender with
statements relating to loans hereunder.
5.11 Force Majeure. The Bank shall not be responsible or liable for any
failure or delay in the performance of its obligations under this Agreement
arising out of or caused, directly or indirectly, by acts of God, earthquakes,
fires, floods, storms or other disturbances of nature, epidemics, strikes,
riots, nationalization, expropriation, currency restrictions, acts of war, civil
war or terrorism, insurrection, nuclear fusion, fission or radiation, the
interruption, loss or malfunction of utilities, transportation, the
unavailability of energy sources and other similar happenings or events except
as results from the Bank's own gross negligence.
<PAGE>
5.12 No Implied Duties.
(a) The Bank shall have no duties or responsibilities
whatsoever except such duties and responsibilities as are specifically set forth
in this Agreement and in the applicable Securities Borrowing Agreement, and no
covenant or obligation shall be implied against the Bank in connection with this
Agreement.
(b)The Lender shall have no duties or responsibilities
whatsoever except such duties and responsibilities as are specifically set forth
in this Agreement, and no covenant or obligation shall be implied against the
Lender in connection with this Agreement.
6. Termination. This Agreement may be terminated at any time by either party
upon delivery to the other party of a written notice specifying the date of such
termination, which shall be not less than 60 days after the date of receipt of
such notice. Notwithstanding any such notice, this Agreement shall continue in
full force and effect with respect to all loans of Securities outstanding on the
date of termination.
7. Miscellaneous.
7.1 Exclusivity. The Lender agrees that it shall not enter into any
other agreement with any third party whereby such third party is permitted to
make loans on behalf of the Lender of any securities held by the Bank in the
Account from time to time.
7.2 Certificates. The Lender agrees to furnish to the Bank a new
Certificate in the event that any present Authorized Person ceases to be an
Authorized Person or in the event that any other Authorized Persons are
appointed and authorized. Until such new Certificate is received, the Bank shall
be fully protected in acting upon Oral Instructions or signatures of the present
Authorized Persons.
7.3 Notices.
(a) Any notice or other instrument in writing, authorized or
required by this Agreement to be given to the Bank, shall be sufficiently given
if addressed to the Bank and received by it at its offices at 200 Clarendon
Street, P.O. Box 9130, Boston, Massachusetts 02117-9130, Attention: Securities
Lending Department, , with a copy to: John E. Henry, General Counsel or at such
other place as the Bank may from time to time designate in writing.
(b) Any notice or other instrument in writing, authorized or
required by this Agreement to be given to the Lender shall be sufficiently given
if addressed to the Lender and mailed or delivered to it at its offices at 2
Portland Square, Portland, Maine 04101, or at such other place as the Lender may
from time to time designate in writing.
7.4 Cumulative Rights and No Waiver. Each and every right granted to a
party hereunder or under any other document delivered hereunder or in connection
herewith, or allowed it by law or equity, shall be cumulative and may be
exercised from time to time. No failure on the part of a party to exercise, and
no delay in exercising, any right will operate as a waiver thereof, nor will any
single or partial exercise by a party of any right preclude any other or future
exercise thereof or the exercise of any other right.
7.5 Severability. In case any provision in or obligation under this
Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining provisions or obligations
shall not in any way be affected or impaired thereby, and if any provision is
inapplicable to any person or circumstances, it shall nevertheless remain
applicable to all other persons and circumstances.
7.6 Amendments. This Agreement may not be amended or modified in any
manner except by a written agreement executed by both parties.
7.7 Successors and Assigns. This Agreement shall extend to and shall be
binding upon the parties hereto, and their respective successors and assigns;
provided, however, that this Agreement shall not be assignable by either party
without the written consent of the other, which consent shall not be
unreasonably withheld.
<PAGE>
7.8 Governing Law; Consent to Jurisdiction. This Agreement shall be
construed in accordance with the laws of the Commonwealth of Massachusetts
without regard to conflict of laws principles thereof. The Lender hereby
consents to the jurisdiction of a state or federal court situated in Boston,
Massachusetts in connection with any dispute arising hereunder.
7.9 No Third Party Beneficiaries. In performing hereunder, the Bank is
acting solely on behalf of the Lender and no contractual or service relationship
shall be deemed to be established hereby between the Bank and any other person.
7.10 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one instrument.
7.11 SIPA Notice. THE PROVISIONS OF THE SECURITIES INVESTOR PROTECTION
ACT OF 1970 MAY NOT PROTECT THE LENDER WITH RESPECT TO LOANS HEREUNDER AND,
THEREFORE, THE COLLATERAL DELIVERED TO THE BANK AS AGENT FOR THE LENDER MAY
CONSTITUTE THE ONLY SOURCE OF SATISFACTION OF A BORROWER'S OBLIGATION IN THE
EVENT SUCH BORROWER FAILS TO RETURN THE LOANED SECURITIES.
[Remainder of Page Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective corporate officers, thereunto duly authorized and
their respective corporate seals to be hereunto affixed, as of the day and year
first above written.
MEMORIAL FUNDS
By: /s/ Thomas Sheehan
Title: Vice President
INVESTORS BANK & TRUST COMPANY
By: /s/ Michael F. Rogers
Title: Executive Vice President
<PAGE>
SCHEDULE A
LIST OF PORTFOLIOS
Government Bond Fund
Corporate Bond Fund
Growth Equity Fund
Value Equity Fund
<PAGE>
SCHEDULE I
APPROVED INVESTMENTS
BANK OBLIGATIONS:
Bank Obligations with Domestic and Foreign Banks including Offshore Time
Deposits. All Banks obligations will have a short term rating of TBW-1,
A-1, or P-1 from Thompson Bankwatch, S & P or Moody's at time of purchase.
MONEY MARKET FUNDS
Institutional Money Market Funds with assets greater than $500 million,
including, without limitation, the Merrimac Cash Fund series of
Merrimac Funds*.
REPURCHASE AGREEMENTS
Collateral held by IBT or a third party subcustodian. Collateralized at a
minimum of 102%. Eligible Collateral includes US Government, Mortgage Backed
Securities, Commercial Paper (A-1 or P-1) & US Corporate Bonds (Investment
Grade)) with the following brokers.
ABN AMRO
Bear Stearns & Co, Inc
CS First Boston Corporation
Goldman Sachs & Co.
Lehman Brothers, Inc.
J.P. Morgan Securities, Inc.
Merrill Lynch Government Securities.
Morgan Stanley & Co. Inc.
PaineWebber, Inc
Prudential Securities, Inc
UBS Securities. Inc
COMMERCIAL PAPER
Must be rated A-1 by S&P or P-1 by Moodys at time of purchase.
CORPORATE BOND
Must have a Short Term rating of rated A-1 by S&P or P-1 by Moodys or
have a Long Term Rating of Investment Grade at time of purchase.
UNSECURED PROMISSORY NOTES (MASTER NOTES)
Must have a rating or Parental rating of A-1 by S&P or P-1 by Moodys at
time of purchase.
INSURANCE FUNDING AGREEMENTS
Must have a minimum Issuers Claim Paying Ability rating of A by S&P or
A by Duff and Phelps at time of purchase. Must be putable back to the
issuer within 90 days.
GENERAL
ALL INVESTMENTS WILL BE US DOLLAR DENOMINATED.
THE FINAL MATURITY FOR ANY SECURITY/ISSUE WILL BE LESS THAN ONE YEAR. ALL
INVESTMENTS WILL BE IN COMPLIANCE WITH INVESTMENT COMPANY ACT OF 1940.
ALL INVESTMENTS WILL MEET THE MINIMUM APPLICABLE CREDIT RATING ASSOCIATED WITH
EACH FUND AT TIME OF PURCHASE.
By:/s/ Thomas Sheehan
- ----------------------
* The Bank acts as investment adviser to and serves as custodian, administrator
and transfer agent of the Merrimac Funds.
<PAGE>
Title: Vice President
Date: January 31, 2000
<PAGE>
SCHEDULE II
APPROVED BORROWERS
Bank of America Securities LLC
Bear, Stearns Securities Corp.
Credit Suisse First Boston Corporation
Deutsche Bank Securities Inc. (includes BT Alex Brown Inc.)
Goldman, Sachs & Co.
Lehman Brothers Inc.
JP Morgan Securities Inc.
Merrill Lynch, Pierce, Fenner & Smith, Inc.
Morgan Stanley & Co. (includes Morgan Stanley Securities Services Inc.)
Prudential Securities, Inc.
Salomon Smith Barney Inc.
Warburg Dillon Reade Inc.
By: /s/ Thomas Sheehan
Title: Vice President
Date: January 31, 2000
<PAGE>
SCHEDULE III
LETTER OF CREDIT BANKS
[To be Determined]
