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OMB APPROVAL
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OMB Number:3235-0307
Expires:May 31, 2000
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As filed with the Securities and Exchange Commission on April 28, 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. 8
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 11
MEMORIAL FUNDS
Two Portland Square
Portland, Maine 04101
207-879-1900
D. Blaine Riggle
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
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It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to Rule 485, paragraph (b)
[x] on May 1, 2000 pursuant to Rule 485, paragraph (b)
[ ] 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.
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[LOGO]
PROSPECTUS
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.
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TABLE OF CONTENTS
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RISK/RETURN SUMMARY 2
PERFORMANCE 5
FEE TABLES 8
INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND PRINCIPAL RISKS 9
MANAGEMENT 12
YOUR ACCOUNT 14
How to Contact the Funds 14
General Information 14
Buying Shares 14
Selling Shares 17
Exchange Privileges 18
SUBADVISER PAST PERFORMANCE 20
OTHER INFORMATION 22
FINANCIAL HIGHLIGHTS 23
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RISK/RETURN SUMMARY
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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 subadviser 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 INVESTMENT 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 equity
average earnings over the securities of domestic companies that its subadviser believes have superior growth
past few years and are potential and fundamental characteristics that are significantly better than the
expected to continue to market average and support internal earnings growth capability. The Fund only invests
show high levels of profit in companies that have a minimum market capitalization of $250 million at the time of
growth purchase, and seeks to maintain a minimum average weighted market capitalization of $5
billion.
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VALUE EQUITY FUND CONCEPTS TO UNDERSTAND
VALUE INVESTING means to
INVESTMENT GOAL Long-term capital appreciation. invest in stocks whose
prices are low relative to
PRINCIPAL INVESTMENT STRATEGY The Fund uses a "value investing" style by PRICE/EARNINGS RATIO means
investing under normal circumstances at least 65 percent of its total assets in the ratio of a company's
the equity securities of domestic companies that its subadviser believes are current market capitalization
under-priced relative to comparable securities determined by price/earnings divied by annual earnings per
ratios, cash flows or other measures. The Fund only invests in companies that share
have a minimum market capitalization of $250 million at the time of purchase and MARKET CAPITALIZATION of a
seeks to maintain a minimum average weighted market capitalization of $5 company means the value of
billion. the company's common stock
in the stock market
PRINCIPAL RISKS OF INVESTING IN THE FUNDS COMMON STOCK is ownership
shares in a corporation that
BOND FUNDS You could lose money on your investment in Government Bond Fund or in are sold initially by the
the stock market Corporate Bond Fund (each a "Bond Fund") and either Bond Fund corporation and then traded
could under-perform other investments. The principal risks of investing in a by investors
Bond Fund include:
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o Each Bond Fund's share price, yield and total return could fluctuate in
response the corporation and then to bond market movements traded by
investors
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 subadviser's judgment as to the value of a bond proves to be wrong
An investment in a Bond Fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency
EQUITY FUNDS You could lose money on your investment in Growth Equity Fund or
Value Equity Fund (each an "Equity Fund") 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 subadviser'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 an Equity Fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
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WHO MAY WANT TO INVEST IN THE FUNDS
You may want to purchase shares of a Bond Fund if:
o You seek income
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
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PERFORMANCE
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The following charts and tables provide some indication of the risks of
investing in each Fund by showing 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.
GOVERNMENT LEHMAN BROTHERS
YEAR(S) BOND FUND U.S. GOVERNMENT BOND INDEX(1)
1 Year -2.39% -2.24%
Since Inception (3/30/98) 3.03% 3.27%
(1) The Lehman Brothers U.S. Government Bond Index is composed of all publicly
issued, non-convertible, domestic debt of the U.S. Government or any agency
thereof. One cannot invest directly in the index.
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CORPORATE 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 -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 Corporate Bond Index.
CORPORATE LEHMAN BROTHERS
YEAR(S) BOND FUND CORPORATE BOND INDEX (1)
1 Year -1.77% -1.95%
Since Inception (3/30/98) 3.13% 2.74%
(1) The Lehman Brothers Corporate Bond Index is composed of all publicly issued,
fixed rate, non-convertible investment grade debt registered under the
Securities Act of 1933. One cannot invest directly in 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).
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The following table compares the Fund's average annual total returns as of
December 31, 1999 to the Russell 1000 Growth Index.
GROWTH RUSSELL 1000
YEAR(S) EQUITY FUND GROWTH INDEX (1)
1 Year 24.44% 33.16%
Since Inception (3/30/98) 26.23% 31.50%
(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 in 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.
VALUE S&P 500 RUSSELL 1000
YEAR(S) EQUITY FUND INDEX(1) VALUE INDEX(2)
1 Year -3.96% 21.04% 7.34%
Since Inception (3/30/98) -6.67% 19.46% 6.63%
(1) The S&P 500(R) Index is the Standard & Poor's 500 Index, a widely recognized
, unmanaged index of common stock. The index figures assume reinvestment of all
dividends paid by stock included in the index. One cannot invest directly in the
index. While both the S&P Index and Russell 1000 Growth Index are shown, the
subadviser believes that the S&P 500 Index more acurately represents the Fund's
industry diversification, capitalization range and risk characteristics.
(2) 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.
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FEE TABLE
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The following tables describe the fees and expenses that you will pay if you
invest in a Fund.
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SHAREHOLDER FEES GOVERNMENT BOND CORPORATE GROWTH VALUE EQUITY
(fees paid directly from your investment) FUND BOND FUND EQUITY FUND FUND
Maximum Sales Charge (Load) Imposed on
Purchases None None None None
Maximum Deferred Sales Charge (Load) None None None None
Maximum Sales Charge (Load) Imposed on
Reinvested Distributions None None None None
Redemption Fee None None None None
Exchange Fee None None None None
ANNUAL FUND OPERATING EXPENSES(1) GOVERNMENT BOND CORPORATE GROWTH VALUE EQUITY
(expenses that are deducted from Fund assets) FUND BOND FUND EQUITY FUND FUND
Advisory Fees 0.23% 0.23% 0.35% 0.35%
Distribution (12b-1) Fees None None None None
Other Expenses 0.56% 0.51% 0.74% 0.74%
Shareholder Services Fees 0.21% 0.21% 0.20% 0.20%
Miscellaneous 0.35% 0.30% 0.54% 0.54%
TOTAL ANNUAL FUND OPERATING EXPENSES 0.79% 0.74% 1.09% 1.09%
Fee Waiver and Expense Reimbursement(2) 0.06% 0.06% 0.09% 0.09%
Net Expenses 0.73% 0.68% 1.00% 1.00%
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(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.
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:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
GOVERNMENT BOND FUND $81 $253 $441 $982
CORPORATE BOND FUND $76 $238 $413 $923
GROWTH EQUITY FUND $111 $347 $602 $1,332
VALUE EQUITY FUND $111 $346 $600 $1,326
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INVESTMENT OBJECTIVES, PRINCIPAL
INVESTMENT STRATEGIES AND PRINCIPAL RISKS
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GOVERNMENT BOND FUND CONCEPTS TO UNDERSTAND
PREFERRED STOCK is a
INVESTMENT OBJECTIVE security that has certain
The investment objective of the Fund is to provide a high level of income rights separate from those
consistent with maximum credit protection and moderate fluctuation in principal conferred by common stock.
value. There is no assurance that the Fund will achieve this objective. Preferred stock seldom carries
voting rights, but pays
PRINCIPAL INVESTMENT STRATEGIES dividends and has liquidation
The Fund invests under normal circumstances at least 90 percent of its total preference over common
assets in a portfolio of fixed and variable rate U.S. Government Securities, stockholders
including zero coupon bonds issued or guaranteed by the U.S. Treasury and CONVERTIBLE SECURITY is a
mortgage-backed securities. The Fund may invest up to 10 percent of its total security such as preferred
assets in "investment grade" corporate debt instruments. stock or bonds that may be
converted into a specific
The Fund may not invest more than 25 percent of its total assets in the number of shares of common
securities issued or guaranteed by any single agency or instrumentality of the stock
U.S. Government, except the U.S. Treasury, and may not invest more than 10
percent of its total assets in ofthe 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 which was 5.35 years as of March 31, 2000.
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.
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 subadviser 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 similar 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, which was 5.61 years as of March 31, 2000.
</TABLE>
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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 subadviser 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 subadviser's opinion, generally unrecognized or misperceived by the market.
The subadviser 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
subadviser to be of comparable quality.
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 subadviser relies on stock selection to achieve its results,
rather than trying to time market fluctuations. In selecting stocks, the
subadviser 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
subadviser 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 have additional risks, such as the potential use of leverage by a
Fund through borrowings, securities lending and other investment techniques.
10
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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 an appropriate investment 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.
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 its investment objectives.
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MANAGEMENT
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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 subadvisers. The
Adviser has entered into investment sub-advisory agreements with the subadvisers
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 subadvisers.
SUBADVISERS/PORTFOLIO MANAGERS
The Adviser has retained the following subadvisers 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 subadviser to
that Fund. Each subadviser is registered or is exempt from registration as an
investment adviser under the Investment Advisers Act of 1940. The subadviser 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 $299 billion in assets. NTC brings together its registered and
bank investment advisors to offer investment products and services to both
personal and institutional markets. 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 $34.3 billion for individuals, corporations, insurance
companies, investment companies, pension plans, trusts and 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 1993. 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 $2 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.
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PPM AMERICA, INC. ("PPM"), 225 West Wacker Drive, Suite 1200, Chicago, Illinois
60606, manages the portfolio of VALUE EQUITY FUND. PPM presently manages
approximately $37 billion in assets. PPM's equity team manages approximately
$5.1 billion in large cap value assets for various institutional clients based
in the U.S. and abroad. PPM utilizes a team of investment professionals acting
together to manage the assets of the Fund. The team meets regularly to review
portfolio holdings and to discuss purchase and sale activity. The team adjusts
holdings in the Fund, as they deem appropriate, in the pursuit of the Fund's
objectives.
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 $67 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 the 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.
13
<PAGE>
YOUR ACCOUNT
- --------------------------------------------------------------------------------
HOW TO CONTACT THE FUNDS GENERAL INFORMATION
<TABLE>
<S> <C>
WRITE TO US AT: You pay no sales charge to purchase or sell (redeem) shares of a Fund. You may
Memorial Funds purchase and sell shares at the net asset value of a share or NAV next calculated
P.O. Box 446 after the Transfer Agent receives your request in proper form. If the Transfer
Portland, Maine 04112 Agent receives your request in proper form prior 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.
OVERNIGHT ADDRESS
Memorial Funds
Two Portland Square The Funds do not issue share certificates.
Portland, Maine 04101
You will receive annual statements and a confirmation of each transaction. You
TELEPHONE US TOLL-FREE AT: should verify the accuracy of all transactions in your account as soon as you
(888) 263-5593 receive your confirmation.
WIRE INVESTMENTS (OR ACH Each Fund reserves the right to impose minimum investment amounts and may
PAYMENTS) TO US AT: temporarily suspend (during unusual market conditions) or discontinue any service or
BankBoston privilege.
Boston, Massachusetts
ABA #011000390 WHEN AND HOW NAV IS DETERMINED Each Fund calculates its NAV as of the close of the
FOR CREDIT TO: New York Stock Exchange (normally 4:00 p.m., Eastern time) on each weekday except
Forum Shareholder days when the New York Stock Exchange is closed. The time at which NAV is
Services, LLC calculated may change in case of an emergency or if the New York Stock Exchange
Account # 541-54171 closes early. A Fund's NAV is determined by taking the market value of all
Memorial Funds securities owned by the fund (plus all other assets such as cash), subtracting all
(Your Name) liabilities and then dividing the result (net assets) by the number of shares
(Your Account Number) 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, as determined by the Board.
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 a 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
HOW TO MAKE PAYMENTS All investments must be in U.S. dollars and checks must be
drawn on U.S. banks.
CHECKS For individual, sole proprietorship, joint and 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 you to
purchase additional shares through an electronic transfer of money from your
checking or savings account. When you make an additional purchase 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.
</TABLE>
14
<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 The minimum initial investment for each Fund is $2,000.
There is no minimum additional investment.
Management of the Funds may choose to waive the initial investment minimum.
ACCOUNT REQUIREMENTS
<TABLE>
<S> <C>
TYPE OF ACCOUNT REQUIREMENT
INDIVIDUAL, SOLE PROPRIETORSHIP AND JOINT ACCOUNTS o Instructions must be signed by all persons
Individual accounts are owned by one person, as are sole required to sign exactly as their names appear on
proprietorship accounts. Joint accounts can have two or the account
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. o The custodian must sign instructions in a
manner indicating custodial capacity
BUSINESS ENTITIES o Submit a Corporate/Organization Resolution form or
similar document
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
INVESTMENT PROCEDURES
HOW TO OPEN AN ACCOUNT HOW 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
and/or a Corporate/Organization Resolution form confirmation statement or write us a letter
o Complete the application o Write your account number on your check.
o Mail us your application and a 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
and/or a Corporate/Organization Resolution form o Instruct your bank to wire your money to us
o Complete the application
o Call us to fax the completed application and we
will assign you an account number
o Mail us your original 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
and/or a Corporate/Organization Resolution form the application
o Complete the application o Attach a voided check to your application
o Call us to fax the completed application and we o Mail us the completed application and the
will assign you an account number voided check
o Mail us your original application
o Make an ACH payment
</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
15
<PAGE>
who, in the Fund's view, is 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.
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.
HOW 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 you provided bank account information
on your account application and your request is for $5,000 or more
o Call us with your request (unless you declined telephone redemption
privileges on your account application) (See "By Telephone") OR
o Mail us your request (See "By Mail")
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 the account is registered
o Additional form of identification
o Your proceeds will be:
o Mailed to you OR
o Wired to you (unless you did not provide bank account information on your
account application) (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 completed 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.
16
<PAGE>
WIRE REDEMPTIONS You may have your redemption proceeds wired to you if you
provided bank account information 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 WITHDRAWAL 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 can be sent
to your address of record by check or 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
most 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, a 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. A Fund will
not close your account if it falls below this amount solely as a result of a
reduction in your account's market value.
REDEMPTIONS 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 shares of any other Fund, also known as an
exchange, by telephone or in writing. You may also exchange Fund shares for
Institutional Service Shares of Daily Assets Government Fund (a series of the
Forum Funds). Because exchanges are treated as a sale and purchase, they may
have tax consequences.
REQUIREMENTS You may exchange 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 telephone exchange
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.
17
<PAGE>
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 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
18
<PAGE>
SUBADVISER PAST PERFORMANCE
- --------------------------------------------------------------------------------
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"), subadviser of
Corporate Bond Fund and Davis Hamilton Jackson & Associates, L.P. ("DHJA"),
subadviser of Growth Equity Fund. The private accounts of each subadviser have
investment objectives and investment policies, strategies and risks
substantially similar to those of the Fund that the subadviser manages. The
subadvisers do not manage registered investment companies with investment
objectives and investment policies, strategies and risks substantially similar
to those of the Fund. While each subadviser is primarily responsible for each
Fund's performance, 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.
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 or highest investment advisory
fees charged, brokerage commissions and execution costs paid by the subadvisers'
private accounts, without provision for federal or state income taxes. Custodial
fees, if any, were not included in the calculations.
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 ( i.e., lower) if the private accounts included in the composite had
been regulated as an investment company under the federal securities laws.
CONSECO CAPITAL MANAGEMENT, INC.
<TABLE>
<S> <C> <C>
CCM'S COMPOSITE FOR THE CORPORATE LEHMAN BROTHERS CORPORATE BOND
YEAR(S) BOND STYLE (1) 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) -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 is composed of all publicly issued,
fixed rate, non-convertible investment grade debt registered under the
Securities Act of 1933. One cannot invest directly in the index.
(3) Average annual returns through December 31, 1999.
19
<PAGE>
DAVIS HAMILTON JACKSON & ASSOCIATES, L.P.
<TABLE>
<S> <C> <C> <C>
DHJA'S COMPOSITE FOR THE GROWTH S&P 500 RUSSELL 1000 GROWTH
YEAR(S) EQUITY STYLE (1) INDEX(2) INDEX(3)
10 Years (1990-1999) (4) 19.3% 18.2% 20.3%
5 Years (1995-1999)(4) 29.4% 28.6% 32.4%
3 Years (1997-1999)(4) 32.1% 27.6% 34.1%
1 Year (1999) 24.4% 21.0% 33.1%
1995 35.4% 37.5% 37.2%
1996 15.9% 23.0% 23.1%
1997 34.9% 33.3% 30.5%
1998 37.5% 28.6% 38.7%
1999 24.4% 21.0% 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. DHJA's results for the period from January 1,
1993 through December 31, 1999 are valued monthly and the composites are asset
weighted. The composite for the time period of January 1, 1990 through December
31, 1992 does not include those portfolios that maintained restrictions which
prohibited DHJA from managing those accounts in a manner substantially similar
to the investment objectives and investment policies, strategies of the Fund.
(2) The S&P 500(R) Index is the Standard & Poor's 500 Index, a widely
recognized, unmanaged index of common stock. The index figures assume
reinvestment of all dividends paid by stocks included in the index. One cannot
invest directly in the index. While both the S&P 500 Index and the Russell 1000
Growth Index are shown, DHJA believes that the S&P 500 Index more accurately
represents the private accounts' industry diversification, capitalization range
and risk characteristics.
(3) 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 in the index.
(4) Average annual returns through December 31, 1999.
20
<PAGE>
OTHER INFORMATION
- --------------------------------------------------------------------------------
DISTRIBUTIONS
The Bond Funds declare distributions from net investment income daily and pay
those distributions monthly. The Equity Funds declare and pay those
distributions quarterly. 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 such that it will not be liable for
Federal income or excise tax.
A Fund's distribution of net investment income (including short-term capital
gain) is 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. A Fund's distribution of long-term capital gain, if any, may be
taxable to you as long-term capital gain regardless of how long you have held
your shares of the Fund. This determination is based upon how long the Fund
holds its investment. 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 you reports containing information about the income tax
status of distributions paid during the year after December 31 of each year. For
further information about the tax effects of investing in a Fund, including
state and local tax matters, please see the SAI and consult your tax adviser.
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 has corresponding investment objectives and investment policies to those of
the Fund.
21
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FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following tables are intended to help you understand each Fund's financial
performance. Total return in a 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 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
<TABLE>
<S> <C> <C>
12/31/99 12/31/98(1)
SELECTED DATA FOR A SINGLE SHARE
Beginning Net Asset Value $10.25 $10.00
Income From Investment Operations
Net investment income 0.51 0.39
Net gain (loss) on securities (realized and -0.75 0.39
unrealized)
Total From Investment Operations -0.24 0.78
Less Distributions
From net investment income -0.51 -0.39
From capital gain - -0.14
Total Distributions -0.51 -0.53
Ending Net Asset Value $ 9.50 $10.25
OTHER INFORMATION
Ratios to Average Net Assets:(2)
Expenses 0.73% 0.73%
Expenses (gross) (3) 0.79% 0.85%
Net Investment Income 5.17% 5.05%
Total Return -2.39% 7.96%
Portfolio Turnover Rate 25% 114%
Net Assets at End of Period (in thousands) $69,082 $65,676
</TABLE>
(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.
22
<PAGE>
CORPORATE BOND
FUND
Year Ended
<TABLE>
<S> <C> <C>
12/31/99 12/31/98(1)
SELECTED DATA FOR A SINGLE SHARE
Beginning Net Asset Value $10.09 $10.00
Income From Investment Operations
Net investment income 0.57 0.43
Net gain (loss) on securities (realized and -0.75 0.30
unrealized)
Total From Investment Operations -0.18 0.73
Less Distributions
From net investment income -0.57 -0.43
From capital gain - -0.21
Total Distributions -0.57 -0.64
Ending Net Asset Value $ 9.34 $10.09
OTHER INFORMATION
Ratios to Average Net Assets:(2)
Expenses 0.68% 0.63%
Expenses (gross) (3) 0.74% 0.76%
Net Investment Income 5.94% 5.60%
Total Return -1.77% 7.50%
Portfolio Turnover Rate 291% 377%
Net Assets at End of Period (in thousands) $152,391 $137,338
(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)
SELECTED DATA FOR A SINGLE SHARE
Beginning Net Asset Value $11.49 $10.00
Income From Investment Operations
Net investment income -0.01 0.01
Net gain (loss) on securities (realized and 2.05 2.09
unrealized)
Total From Investment Operations 2.66 2.10
Less Distributions
From net investment income -0.00(2) -0.01
From capital gain -1.56 -0.60
Return of capital -0.09 -
Total Distributions -1.65 -0.61
Ending Net Asset Value $12.50 $11.49
OTHER INFORMATION
Ratios to Average Net Assets:(3)
Expenses 1.00% 1.00%
Expenses (gross) (4) 1.09% 1.19%
Net Investment Income -0.10% 0.16%
Total Return 24.44% 20.97%
Portfolio Turnover Rate 108% 135%
Net Assets at End of Period (in thousands) $41,833 $26,426
(1) Institutional Shares of the Fund commenced operations on March 29, 1998.
(2) Distributions per share were $.00055.
(3) Annualized.
(4) Reflects expense ratio in absence of expense reimbursements and fee waivers.
</TABLE>
23
<PAGE>
VALUE EQUITY
FUND
Year Ended
<TABLE>
<S> <C> <C>
12/31/99 12/31/98(1)
SELECTED DATA FOR A SINGLE SHARE
Beginning Net Asset Value $ 9.19 $10.00
Income From Investment Operations
Net investment income 0.08 0.03
Net gain (loss) on securities (realized and -0.44 -0.81
unrealized)
Total From Investment Operations -0.36 -0.78
Less Distributions
From net investment income -0.08 -0.03
From capital gain - -
Total Distributions -0.08 -0.03
Ending Net Asset Value $ 8.75 $9.19
OTHER INFORMATION
Ratios to Average Net Assets:(2)
Expenses 1.00% 1.00%
Expenses (gross) (3) 1.09% 1.25%
Net Investment Income 0.90% 0.59%
Total Return -3.96% -7.76%
Portfolio Turnover Rate 60% 37%
Net Assets at End of Period (in thousands) $37,068 $30,670
</TABLE>
(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.
24
<PAGE>
<TABLE>
<S> <C>
FOR MORE INFORMATION [LOGO]
The following documents are available free upon request: GOVERNMENT BOND FUND
CORPORATE BOND FUND
ANNUAL/SEMI-ANNUAL REPORTS GROWTH EQUITY FUND
Each Fund will provide annual and semi-annual reports to shareholders that will
provide additional information about the Fund's investments. In each Fund's VALUE EQUITY FUND
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
P.O. Box 446
Portland, Maine 04112
(888) 263-5593
SECURITIES AND EXCHANGE COMMISSION INFORMATION
You can also review each Fund's reports and SAI at the Public Reference Room
of the Securities and Exchange Commission ("SEC"). The scheduled hours of
operation of the Public Reference Room may be obtained by calling the SEC at
(202) 942-8090. You can get copies of this information, for a fee, by e-mail or
by writing to:
Public Reference Room
Securities and Exchange Commission
Washington, D.C. 20549-0102
E-mail address: public [email protected]
Free copies of the reports and SAI are available from the SEC's Internet Web
Siteat http://www.sec.gov.
Memorial Funds
Two Portland Square
Portland, ME 04101
(888) 263-5593
Investment Company Act File No. 811-8529
</TABLE>
<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 PPM
America, Inc., 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.
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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.
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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.
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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
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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.
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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
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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.
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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
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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.
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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
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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)
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<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.
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<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, or securities lending
programs and 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.
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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.
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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
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<PAGE>
not be appropriate to compare a Fund's yield information directly to similar
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.
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<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
of six months in a Fund the following will be the relationship between average
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<PAGE>
cost per share ($14.35 in the example given) and average price per share:
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
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
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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 Vice President and
Treasurer Managing Director of Operations and Finance,
Two Portland Square Forum Financial Group since 9/99
Portland, Maine 04101 Member of the Board, Citibank Germany from
Born: October 1943 1991-1998
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 1954 Officer, various funds managed and distributed
by FAdS or FFS
D. Blaine Riggle Secretary Counsel, Forum Financial Group, LLC, since 1998
Associate Counsel, Wright Express Corporation
Two Portland Square (a Fleet credit card company), 3/97 - 1/98
Portland, Maine 04101 Associate at the law firm of Friedman, Babcock
Born: November 1966 & Gaythwaite, 1994 - 3/97
Officer, various funds managed and distributed
by FAdS or FFS
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Marcella A. Cote Assistant Secretary Senior Fund SpecialistForum 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: (a) review the
arrangements and scope of any audit; (b) 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; (c) consider the accountants' comments
with respect to the Trust's financial policies, procedures, and
internal accounting controls; and (d) 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.
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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(1)
- ------------------------------------- ------------------- ------------------- -------------------- -------------------
Christopher W. Hamm* $0 $0 $0 $0
John Y. Keffer* $0 $0 $0 $0
Jay Brammer(2) $0 $0 $0 $0
J.B. Goodwin $7000 $0 $0 $7,000
Robert Stillwell $6,500 $0 $0 $6,500
</TABLE>
(1) The Trust is not a member of a fund complex.
(2) The Trustee waived all compensation for the full fiscal year.
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.
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<PAGE>
Table 1 in Appendix B shows the dollar amount of the fees paid 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.
Each Fund pays Memorial Group, Inc. ("Memorial Group"), a shareholder service
fee of 0.25% 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 Investment Managers Group,
Inc. ("AMG"), a holding company that invests in investment management
firms, owns an interest in DHJA. The Executive Committee of DHJA,
comprised of Robert C. David and Jack R. Hamilton, is deemed to
control 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.
PPM America, Inc.("PPM"), 225 West Wacker Drive, Suite 1200, Chicago,
Illinois 60606, manages the portfolio of VALUE EQUITY FUND. On March
30, 2000, pursuant to a vote of the Board of Trustees of the Trust,
PPM became the sub-adviser to the Fund under an interm sub-advisory
agreement. Fund shareholders will meet on May 31, 2000 to decide
22
<PAGE>
whether to approve an investment sub-advisory agreement between the
Trust, Forum Investment Advisors, LLC and PPM (the "PPM Agreement").
If the Fund's shareholders approve the PPM Agreement, PPM will remain
the investment sub-adviser to the Fund. PPM is a Delaware corporation
that was organized in 1990 and is registered as an investment adviser
under the Advisers Act. PPM is an indirect wholly owned subsidiary of
Prudential plc, a UK financial services company. For its services,PPM
receives an advisory fee (excluding waivers) from the Adviser at an
annual rate of 0.30% of the Fund's average daily net assets.
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.
23
<PAGE>
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)
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 paid 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) 1.00% of the average
daily net assets of the Institutional Class of each Equity Fund; and (2) 0.75%
of the average daily net assets of the Institutional Class of Government Bond
Fund, 0.75% of the average daily net assets of the Institutional Class of
Corporate Bond Fund.
24
<PAGE>
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.
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 paid 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.
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<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 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 each Fund and each Fund's 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.
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<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.
27
<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.
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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.
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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 Trust 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.
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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.
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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.
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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
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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.
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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 with the SEC as an open-end, management investment
company (a "mutual fund") 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 additional
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.
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. 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.
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Each Fund reserves the right to invest in one or more other investment companies
in a Core and Gateway(R) structure.
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.
The Trust, the Adviser, the Subadvisers, and FFS have adopted codes of ethics
under Rule 17j-1 of the 1940 Act which are designed to eliminate conflicts of
interest between the Funds and personnel of the Funds, the Adviser, the
Subadvisers and FFS. The codes permit such personnel to invest in securities,
including securities that may be purchased or held by the Funds.
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.
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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.
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.
<TABLE>
<S> <C> <C>
CONTROLLING PERSON INFORMATION
PERCENTAGE OF
SHARES OWNED
SHAREHOLDER FUND (OR TRUST)
Southwest Guaranty Trust Company Government Bond Fund 45.04%
Southwest Guaranty Trust Company Value Equity Fund 26.88%
</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.
37
<PAGE>
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.
38
<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 but
AA may vary slightly from time to time because of economic conditions.
A+,A, Protction 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 for
BBB prudent investment. Considerable variability in risk during economic
BBB- cycles.
BB+ Below investment grade deemed likely to meet obligations when due.
BB Present or prospective financial protection factors fluctuate
BB- 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 be
B met when due. Financial protection factors will fluctuate widely
B- according to economic cycles, industry conditions and/or company
fortunes. Potential exists for frequesnt 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 securitie 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 tables show the dollar amount of fees paid 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>
ADVISORY FEE ADVISORY FEE WAIVED ADVISORY FEE
GOVERNMENT BOND FUND PAID RETAINED
Institutional Shares
Year Ended December 31, 1999 $154,352 $44,740 $109,612
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
ADVISORY FEE ADVISORY FEE ADVISORY FEE
CORPORATE BOND FUND PAID WAIVED RETAINED
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
ADVISORY FEE ADVISORY FEE ADVISORY FEE
GROWTH EQUITY FUND PAID WAIVED RETAINED
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
ADVISORY FEE ADVISORY FEE ADVISORY FEE
VALUE EQUITY FUND PAID WAIVED RETAINED
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
</TABLE>
B-1
<PAGE>
TABLE 2 - ADMINISTRATION FEES
The following tables show the dollar amount of fees paid to FAdS with respect to
each Fund.
ADMINISTRATION FEE
GOVERNMENT BOND FUND PAID
Institutional Shares
Year Ended December 31, 1999 $100,664
Period March 30, 1998-December 31, 1998 $52,647
Trust Shares
Period March 30, 1998-December 31, 1998 $32
ADMINISTRATION FEE
CORPORATE BOND FUND PAID
Institutional Shares
Year Ended December 31, 1999 $216,654
Period March 26, 1998-December 31, 1998 $135,972
ADMINISTRATION FEE
GROWTH EQUITY FUND PAID
Institutional Shares
Year Ended December 31, 1999 $60,690
Period March 30, 1998-December 31, 1998 $31,021
Trust Shares
Year Ended December 31, 1999 $768
Period March 30, 1998-December 31, 1998 $324
ADMINISTRATION FEE
VALUE EQUITY FUND PAID
Institutional Shares
Year Ended December 31, 1999 $56,271
Period March 30, 1998-December 31, 1998 $26,313
Trust Shares
Year Ended December 31, 1999 $541
Period March 30, 1998-December 31, 1998 $290
B-2
<PAGE>
TABLE 3 - ACCOUNTING FEES
The following tables show the dollar amount of fees paid 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.
<TABLE>
<S> <C> <C> <C>
ACCOUNTING FEE PAID ACCOUNTING FEE ACCOUNTING FEE
GOVERNMENT BOND FUND WAIVED 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
ACCOUNTING FEE PAID ACCOUNTING FEE ACCOUNTING FEE
CORPORATE BOND FUND WAIVED 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
ACCOUNTING FEE PAID ACCOUNTING FEE ACCOUNTING FEE
GROWTH EQUITY FUND WAIVED 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
ACCOUNTING FEE PAID ACCOUNTING FEE ACCOUNTING FEE
VALUE EQUITY FUND WAIVED 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 tables show the dollar amount of shareholder service fees paid 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.
TRANSFER AGENCY FEE TRANSFER AGENCY FEE TRANSFER AGENCY FEE
GOVERNMENT BOND FUND PAID 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
TRANSFER AGENCY FEE TRANSFER AGENCY FEE TRANSFER AGENCY FEE
CORPORATE BOND FUND PAID 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
TRANSFER AGENCY FEE TRANSFER AGENCY FEE TRANSFER AGENCY FEE
GROWTH EQUITY FUND PAID WAIVED RETAINED
Institutional Shares
Year Ended December 31, 1999 $36,083 $0 $36,083
Period March 30, 1998-December 31, 1998 $27,454 $0 $27,454
Trust Shares
Year Ended December 31, 1999 $675 $0 $675
Period March 30, 1998-December 31, 1998 $1,020 $765 $255
TRANSFER AGENCY FEE TRANSFER AGENCY FEE TRANSFER AGENCY FEE
VALUE EQUITY FUND PAID 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.
AGGREGATE COMMISSION
FUND PAID
Government Bond Fund
Year Ended December 31, 1999 $0
Period Ended December 31, 1998 $0
Corporate Bond Fund
Year Ended December 31, 1999 $0
Period Ended December 31, 1998 $0
Growth Equity Fund
Year Ended December 31, 1999 $71,000
Period Ended December 31, 1998 $76,818
Value Equity Fund
Year Ended December 31, 1999 $75,000
Period Ended December 31, 1998 $46,000
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.
<TABLE>
<S> <C> <C> <C>
FUND NAME AND ADDRESS SHARES % OF FUND
Government Bond Fund Southwest Guaranty Trust Company 3,302,288.073 45.04
10411 Westheimer Suite 200
Houston, TX 77042
Southwest Guaranty Trust Company 1,324,341.280 18.06
10411 Westheimer Suite 200
Houston, TX 77042
CNOM & Co. 555,706.456 7.58
C/O Nationsbank
P.O. Box 831575
Dallas, TX 75283-1575
First Union National Bank 541,821.790 7.39
1525 West Wt. Harris Blvd. #1151
Charlottle, NC 28288
Miter & Co. 452,735.295 6.17
C/O Marshall & Ilsley Trust Co.
P.O. Box 2977
Milwaukee, WI 53202-2977
Wells Fargo 433,900.134 5.92
FBO Cemetary Merchandise Trust
P.O. Box 9800
Calabasas, CA 91302
Corporate Bond Fund Miter & Co. 2,856,929.942 17.57
C/O Marshall & Ilsley Trust Co.
P.O. Box 2977
Milwaukee, WI 53202-2977
First Union National Bank 2,582,095.381 15.88
1525 West Wt. Harris Blvd. #1151
Charlotte, NC 28288
Southwest Guaranty Trust Company 2,362,452.587 14.53
10411 Westheimer Suite 200
Houston, TX 77042
Southwest Guaranty Trust Company 1,682,667.093 10.35
10411 Westheimer Suite 200
Houston, TX 77042
Var & Co. 1,154,351.456 7.10
C/O US Bank National Association
P.O. Box 64010
St. Paul, MN 55164-0010
B-6
<PAGE>
FUND NAME AND ADDRESS SHARES % OF FUND
First Union National Bank 999,154.411 6.15
1525 West Wt. Harris Blvd. #1151
Charlottle, NC 28288
Var & Co. 883,454.332 5.43
C/O US Bank National Association
P.O. Box 64010
St. Paul, MN 55164-0010
Growth Equity Fund Southwest Guaranty Trust Company 770,479.766 24.90
10411 Westheimer Suite 200
Houston, TX 77042
Miter & Co. 566,101.612 18.30
C/O Marshall & Ilsley Trust Co.
P.O. Box 2977
Milwaukee, WI 53202-2977
Var & Co. 448,994.872 14.51
C/O US Bank National Association
P.O. Box 64010
St. Paul, MN 55164-0010
First Union National Bank 437,855.025 14.51
1525 West Wt. Harris Blvd. #1151
Charlottle, NC 28288
Var & Co. 236,480.161 7.64
C/O US Bank National Association
P.O. Box 64010
St. Paul, MN 55164-0010
Southwest Guaranty Trust Company 218,412.886 7.06
10411 Westheimer Suite 200
Houston, TX 77042
Value Equity Fund Southwest Guaranty Trust Company 1,051,112.658 26.88
10411 Westheimer Suite 200
Houston, TX 77042
Miter & Co. 661,145.320 16.91
C/O Marshall & Ilsley Trust Co.
P.O. Box 2977
Milwaukee, WI 53202-2977
Var & Co. 616,252.549 15.76
C/O US Bank National Association
P.O. Box 64010
St. Paul, MN 55164-0010
First Union National Bank 498,098.195 12.74
1525 West Wt. Harris Blvd. #1151
Charlottle, NC 28288
B-7
<PAGE>
FUND NAME AND ADDRESS SHARES % OF FUND
Var & Co. 322,072.854 8.24
C/O US Bank National Association
P.O. Box 64010
St. Paul, MN 55164-0010
Southwest Guaranty Trust Company 308,696.620 7.90
10411 Westheimer Suite 200
Houston, TX 77042
</TABLE>
B-8
<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%
TABLE 2 - TOTAL RETURNS
The average annual total return of each class of each Fund for the period ended
December 31, 1999, was as follows.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NON STANDARDIZED RETURNS (WITHOUT A SALES LOAD)
CALENDAR
GOVERNMENT BOND ONE MONTH THREE YEAR TO ONE YEAR THREE FIVE YEARS TEN SINCE
FUND MONTHS DATE 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 MONTH THREE YEAR TO ONE YEAR THREE FIVE YEARS TEN SINCE
FUND MONTHS DATE YEARS YEARS INCEPTION
Institutional Shares -0.53% -0.46% -1.77% -1.77% N/A N/A N/A 3.13%
CALENDAR
GROWTH EQUITY ONE MONTH THREE YEAR TO ONE YEAR THREE FIVE YEARS TEN SINCE
FUND 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 MONTH THREE YEAR TO ONE YEAR THREE FIVE YEARS TEN SINCE
FUND MONTHS DATE YEARS YEARS INCEPTION
Trust Shares 3.46% 2.25% -3.75% -3.75% N/A N/A N/A -6.73%
Institutional Shares 3.20% 1.88% -3.96% -3.96% N/A N/A N/A -6.67%
</TABLE>
C-1
<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 March 13, 1998 as amended June
29, 1999 (see Note 2).
(2) Investment Subadvisory Agreement between Registrant, Forum
Investment Advisors, LLC and PPM America, Inc. dated March 30, 2000
(filed herewith).
(3) Investment Subadvisory Agreement between Registrant, Forum Investment
Advisors, LLC and Conseco Capital Management, Inc. dated March 13,
1998 (see Note 2).
(4) Investment Subadvisory Agreement between Registrant, Forum
Investment Advisors, LLC and Davis Hamilton Jackson & Associates, L.P.
dated March 13, 1998 (see Note 2).
(5) Investment Subadvisory Agreement between Registrant, Forum Investment
Advisors, LLC and The Northern Trust Company dated 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 (see Note 3).
(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 March 13, 1998 (see Note 2).
(3) Shareholder Service Agreement between Registrant and Memorial Group,
Inc., dated June 29, 1999 (see Note 3).
(4) Securities Lending Agency Agreement between Registrant and Investors
Bank & Trust Company dated January 31, 2000 (see Note 3).
(i)(1) Opinion of counsel to Registrant (see Note 4).
(2) Consent of Seward & Kissel, LLP (see Note 2).
(j) Consent of independent auditors (filed herewith).
(k) None.
(l) Investment Representation letter of original purchaser of shares of
Registrant (see Note 4).
(m) Rule 12b-1 Plan (see Note 5).
(n) 18f-3 Plan adopted by Registrant (see Note 2).
(p) (1) Code of Ethics adopted by Registrant (filed herewith).
(2) Joint Code of Ethics adopted by Forum Investment Advisors, LLC and
Forum Fund Services, LLC (filed herewith).
<PAGE>
(3) Code of Ethics adopted by PPM America, Inc. (filed herewith).
(4) Code of Ethics adopted by Conseco Capital Management, Inc. (filed
herewith).
(5) Code of Ethics adopted by Davis Hamilton Jackson & Associates, L.P.
(filed herewith).
(6) Code of Ethics adopted by The Northern Trust Company (filed herewith).
Other Exhibits:
Power of Attorney of Jay Brammer (see Note 4).
Power of Attorney of J.B. Goodwin (see Note 4).
Power of Attorney of Christopher W. Hamm (see Note 4).
Power of Attorney of Robert Stillwell (see Note 4).
Power of Attorney of John Y. Keffer (see Note 4).
- ---------------
Note:
1 Exhibit incorporated by reference as filed in initial N-1A 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 7 on March 1, 2000, accession number 0001004402-00-000158.
4 Exhibit incorporated by reference as filed in post-effective amendment
number 1 on March 18, 1998, accession number 0001004402-98- 000197.
5 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, (A) by the court or other body approving the
<PAGE>
settlement; (B) 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 (C) by written opinion of independent legal
counsel based upon a review of readily available facts (as opposed to a
full trial-type inquiry); provided, however, that any Shareholder may,
by appropriate legal proceedings, challenge any such determination by
the Trustees or by independent counsel.
(c) The rights of indemnification herein provided may be insured
against by policies maintained by the Trust, shall be severable, shall
not be exclusive of or affect any other rights to which any Covered
Person may now or hereafter be entitled, shall continue as to a Person
who has ceased to be a Covered Person and shall inure to the benefit of
the heirs, executors and administrators of such a Person. Nothing
contained herein shall affect any rights to indemnification to which
Trust personnel, other than Covered Persons, and other Persons may be
entitled by contract or otherwise under law.
(d) Expenses in connection with the preparation and presentation of a
defense to any claim, action, suit or proceeding of the character
described in Subsection 10.02(a) may be paid by the Trust or Series
from time to time prior to final disposition thereof upon receipt of an
undertaking by or on behalf of such Covered Person that such amount
will be paid over by him to the Trust or Series if it is ultimately
determined that he is not entitled to indemnification under this
Section 10.02; provided, however, that either (i) such Covered Person
shall have provided appropriate security for such undertaking, (ii) the
Trust is insured against losses arising out of any such advance
payments or (iii) either a majority of the Trustees who are neither
Interested Persons of the Trust nor parties to the matter, or
independent legal counsel in a written opinion, shall have determined,
based upon a review of readily available facts (as opposed to a
trial-type inquiry or full investigation), that there is reason to
believe that such Covered Person will be found entitled to
indemnification under Section 10.02.
Section 4 of the Investment Advisory 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,
<PAGE>
prior to confessing any Claim against the Forum Indemnitee, Forum or
the Forum Indemnitee does not give the Trust written notice of and
reasonable opportunity to defend against the claim in its own name or
in the name of the Forum Indemnitee.
(c) Forum agrees to indemnify and hold harmless the Trust, its
employees, agents, trustees and officers against and from any and all
claims, demands, actions, suits, judgments, liabilities, losses,
damages, costs, charges, reasonable counsel fees and other expenses of
every nature and character arising out of Forum's actions taken or
failures to act with respect to a Fund that are not consistent with the
standard of care set forth in Section 3(a). Forum shall not be required
to indemnify the Trust if, prior to confessing any Claim against the
Trust, the Trust does not give Forum written notice of and reasonable
opportunity to defend against the claim in its own name or in the name
of the Trust.
(d) A Forum Indemnitee shall not be liable for any action taken or
failure to act in good faith reliance upon:
(i) the advice of the Trust or of counsel, who may be counsel to
the Trust or counsel to Forum, and upon statements of accountants,
brokers and other persons reasonably believed in good faith by
Forum to be experts in the matter upon which they are consulted;
(ii) any oral instruction which it receives and which it
reasonably believes in good 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;
<PAGE>
(ii) any oral instruction which it receives and which it
reasonably believes in good faith was transmitted by the person or
persons authorized by the Board to give such oral instruction (the
Distributor shall have no duty or obligation to make any inquiry
or effort of certification of such oral instruction);
(iii) any written instruction or certified copy of any resolution
of the Board, and the Distributor may rely upon the genuineness of
any such document or copy thereof reasonably believed in good
faith by the Distributor to have been validly executed; or
(iv) any signature, instruction, request, letter of transmittal,
certificate, opinion of counsel, statement, instrument, report,
notice, consent, order, or other document reasonably believed in
good faith by the Distributor to be genuine and to have been
signed or presented by the Trust or other proper party or parties;
and the Distributor shall not be under any duty or obligation to
inquire into the validity or invalidity or authority or lack
thereof of any statement, oral or written instruction, resolution,
signature, request, letter of transmittal, certificate, opinion of
counsel, instrument, report, notice, consent, order, or any other
document or instrument which the Distributor reasonably believes
in good faith to be genuine.
(c) The Distributor shall not be responsible or liable for any failure
or delay in performance of its obligations under this Agreement arising
out of or caused, directly or indirectly, by circumstances beyond its
reasonable control including, without limitation, acts of civil or
military authority, national emergencies, labor difficulties, fire,
mechanical breakdowns, flood or catastrophe, acts of God, insurrection,
war, riots or failure of the mails, transportation, communication or
power supply. In addition, to the extent the Distributor's obligations
hereunder are to oversee or monitor the activities of third parties,
the Distributor shall not be liable for any failure or delay in the
performance of the Distributor's duties caused, directly or indirectly,
by the failure or delay of such third parties in performing their
respective duties or cooperating reasonably and in a timely manner with
the Distributor.
SECTION 8. INDEMNIFICATION
(a) The Trust will indemnify, defend and hold the Distributor, its
employees, agents, directors and officers and any person who controls
the Distributor within the meaning of section 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
<PAGE>
withheld unreasonably. The Trust shall advise the Distributor that it
will assume the defense of the suit and retain counsel within ten (10)
days of receipt of the notice of the claim. If the Trust assumes the
defense of any such suit and retains counsel, the defendants shall bear
the fees and expenses of any additional counsel that they retain. If
the Trust does not assume the defense of any such suit, or if
Distributor does not approve of counsel chosen by the Trust or has been
advised that it may have available defenses or claims that are not
available to or conflict with those available to the Trust, the Trust
will reimburse any Distributor Indemnitee named as defendant in such
suit for the reasonable fees and expenses of any counsel that person
retains. A Distributor Indemnitee shall not settle or confess any claim
without the prior written consent of the Trust, which consent shall not
be unreasonably withheld or delayed.
(c) The Distributor will indemnify, defend and hold the Trust and its
several officers and trustees (collectively, the "Trust Indemnitees"),
free and harmless from and against any and all claims, demands,
actions, suits, judgments, liabilities, losses, damages, costs,
charges, reasonable counsel fees and other expenses of every nature and
character (including the cost of investigating or defending such
claims, demands, actions, suits or liabilities and any reasonable
counsel fees incurred in connection therewith), but only to the extent
that such claims, demands, actions, suits, judgments, liabilities,
losses, damages, costs, charges, reasonable counsel fees and other
expenses result from, arise out of or are based upon:
(i) any alleged untrue statement of a material fact contained in
the Registration Statement or Prospectus or any alleged omission
of a material fact required to be stated or necessary to make the
statements therein not misleading, if such statement or omission
was made in reliance upon, and in conformity with, information
furnished to the Trust in writing in connection with the
preparation of the Registration Statement or Prospectus by or on
behalf of the Distributor; or
(ii) any act of, or omission by, Distributor or its sales
representatives that does not conform to the standard of care set
forth in Section 7 of this Agreement ("Trust Claims").
(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).
<PAGE>
(g) Each party agrees promptly to notify the other party of the
commencement of any litigation or proceeding of which it becomes aware
arising out of or in any way connected with the issuance or sale of
Shares.
(h) Nothing contained herein shall require the Trust to take any action
contrary to any provision of its Organic Documents or any applicable
statute or regulation or shall require the Distributor to take any
action contrary to any provision of its Articles of Incorporation or
Bylaws or any applicable statute or regulation; provided, however, that
neither the Trust nor the Distributor may amend their Organic Documents
or Articles of Incorporation and Bylaws, respectively, in any manner
that would result in a violation of a representation or warranty made
in this Agreement.
(i) Nothing contained in this section shall be construed to protect the
Distributor against any liability to the Trust or its security holders
to which the Distributor would otherwise be subject by reason of its
failure to satisfy the standard of care set forth in Section 7 of this
Agreement.
ITEM 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 F. Burns Director Forum Investment Advisors, LLC
................................... ..................................
Director Forum Financial Group, LLC
................................... ..................................
Officer other Forum affiliated companies
...........................................................................................................
<PAGE>
.................................... ................................... ..................................
Marc D. 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.
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. Unless otherwise indicated, the business address of each
business connection is 50 South LaSalle Street, Chicago, Illinois.
<TABLE>
<S> <C> <C>
Name Title Business Connection
.................................... ................................... ..................................
Duane L. Burnham Director NTC
................................... ..................................
Director Northern Trust Corporation
................................... ..................................
Retired Chairman of the Board and Abbott Laboratories
Chief Executive Officer 150 Field Drive
Suite 160
Lake Forest, Illinois 60045
................................... ..................................
Director Sara Lee Corporation
3 First National Plaza
Chicago, Illinois 60602
.................................... ................................... ..................................
Dolores E. Cross Director NTC
................................... ..................................
Director Northern Trust Corporation
................................... ..................................
President (6/99) Morris Brown College
Administration Building, 2nd Fl
643 Martin Luther King, Jr. Dr.
Atlanta, Georgia 30314
................................... ..................................
GE Fund Distinguished Professor The Graduate School and
of Leadership and Diversity - University Center
July 1998 to June 1999 The City University of NY
33 W 42nd Street, Room 1400N
New York, New York 10036
................................... ..................................
Former President, GE Fund General Electric Company
3135 Easton Turnpike
Fairfield, Connecticut 06432
................................... ..................................
Chicago State University Former President
95th Street at King Drive
Chicago, Illinois 60643
.................................... ................................... ..................................
<PAGE>
.................................... ................................... ..................................
Susan Crown Director NTC
................................... ..................................
Director Northern Trust Corporation
................................... ..................................
Vice President Henry Crown and Company
222 N. LaSalle Street
Suite 2000
Chicago, IL 60601
................................... ..................................
Director Baxter International, Inc.
One Baxter Parkway
Deerfield, Illinois 60015
................................... ..................................
Director Illinois Tool Works, Inc.
3600 W. Lake Avenue
Glenview, Illinois 60025
.................................... ................................... ..................................
John R. Goodwin Senior Vice President NTC
................................... ..................................
Director, Managing Director and NTQA
Chief Investment Officer
.................................... ................................... ..................................
Robert S. Hamada Director NTC
................................... ..................................
Director Northern Trust Corporation
................................... ..................................
Dean, Edward Eagle Brown University of Chicago Graduate
Distinguished Service Professor School of Business
of Finance 1101 East 58th Street
Chicago, Illinois 60637
................................... ..................................
Director A.M. Castle & Co.
3400 North Wolf Road
Franklin Park, Illinois 60131
................................... ..................................
Director Chicago Board of Trade
141 West Jackson Boulevard
Chicago, Illinois 60604
.................................... ................................... ..................................
Barry G. Hastings President, Chief Operating NTC
Officer and Director
................................... ..................................
President, Chief Operating Northern Trust Corporation
Officer and Director
................................... ..................................
Director Northern Trust of Florida
Corporation
700 Brickell Avenue
Miami, Florida 33131
................................... ..................................
Director Northern Trust of California
Corporation,
355 S. Grand Avenue
Los Angeles, California 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, Illinois 60603
................................... ..................................
Governor Chicago Stock Exchange
One Financial Plaza
440 S. LaSalle Street
Chicago, Illinois 60605
................................... ..................................
Director TC PipeLines GP
TransCanada PipeLines Tower
111 - 5th Avenue S.W.
Calgary, Alberta, Canada T2P 3Y6
................................... ..................................
Director Dreyer's Grand Ice Cream, Inc.
5929 College Avenue
Oakland, California 94618
................................... ..................................
Director Brambles USA, Inc.
400 N. Michigan Avenue
Chicago, IL 60611
.................................... ................................... ..................................
Arthur L. Kelly Director NTC
................................... ..................................
Director Northern Trust Corporation
................................... ..................................
Managing Partner KEL Enterprises L.P.
Two First National Plaza
20 S. Clark Street, Suite 2222
Chicago, Illinois 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 Road
Moline, IL 61265
................................... ..................................
Director Thyssen-Krupp Industries AG
Am Thyssenhaus 1
45128 Essen
Germany
................................... ..................................
Director Snap-on Incorporated
2801 80th Street
Kenosha, Wisconsin 53140
.................................... ................................... ..................................
Frederick A. Krehbiel Director NTC
................................... ..................................
Director Northern Trust Corporation
................................... ..................................
Chairman, Chief Executive Officer Molex Incorporated
and Director 2222 Wellington Court
Lisle, Illinois 60532-1682
................................... ..................................
Director DeVry, Inc.
One Tower Lane
Oakbrook Terrace, Illinois 60181
................................... ..................................
Director Tellabs, Inc.
4951 Indiana Avenue
Lisle, Illinois 60532
.................................... ................................... ..................................
Robert A. LaFleur Senior Vice President NTC
.................................... ................................... ..................................
James J. Mitchell, III President - Worldwide Operations NTC
and Technology and Executive Vice
President
................................... ..................................
Director The Northern Trust Company of
New York
40 Broad Street, 8th Fl.
New York, New York 10004
.................................... ................................... ..................................
<PAGE>
.................................... ................................... ..................................
William G. Mitchell Director NTC
................................... ..................................
Director Northern Trust Corporation
................................... ..................................
Director Peoples Energy Corporation
122 South Michigan Avenue
Chicago, Illinois 60603
................................... ..................................
Director The Sherwin-Williams Company
101 Prospect Avenue, N.W.
Cleveland, Ohio 44115-1075
.................................... ................................... ..................................
Edward J. Mooney Director NTC
................................... ..................................
Director Northern Trust Corporation
................................... ..................................
Chairman, Chief Executive Nalco Chemical Company
Officer, President and Director One Nalco Center
Naperville, Illinois 60563-1198
................................... ..................................
Director FMC Corporation
200 East Randolph
Chicago, IL 60601
.................................... ................................... ..................................
William A. Osborn Chairman and Chief Executive NTC
Officer
................................... ..................................
Director Northern Trust Corporation
................................... ..................................
Director NICOR, Inc.
1844 Ferry Road
Naperville, Illinois 60566
................................... ..................................
Director Nortrust Realty Management Inc.
................................... ..................................
Director Northern Futures Corporation
.................................... ................................... ..................................
Sheila A. Penrose President - Corporate and NTC
Institutional Services and
Executive Vice President
................................... ..................................
Director Northern Trust Global Advisors,
Inc.
29 Federal Street
Stamford, Connecticut 06901
................................... ..................................
Manager Northern Trust Retirement
Consulting
400 Perimeter Center Terrace
Suite 850
Atlanta, Georgia 30346
................................... ..................................
Director NTQA
.................................... ................................... ..................................
<PAGE>
.................................... ................................... ..................................
Perry R. Pero Vice Chairman and Chief Financial NTC
Officer
................................... ..................................
President and Director Northern Futures Corporation
................................... ..................................
President and Director Northern Investment Corporation
................................... ..................................
Director Northern Trust Global Advisors,
Inc.
29 Federal Street
Stamford, Connecticut 06901
................................... ..................................
Director Northern Trust Securities, Inc.
................................... ..................................
Director Nortrust Realty Management, Inc.
................................... ..................................
Director NTQA
.................................... ................................... ..................................
Stephen N. Potter Senior Vice President NTC
................................... ..................................
Director, Managing Director NTQA
.................................... ................................... ..................................
Peter L. Rossiter Executive Vice President and NTC
General Counsel
.................................... ................................... ..................................
Harold B. Smith Director NTS
.................................... ................................... ..................................
Director Northern Trust Corporation
................................... ..................................
Chairman of the Executive Illinois Tool Works Inc.
Committee and Director 3600 West Lake Avenue
Glenview, IL 60025-5811
................................... ..................................
Director W. W. Grainger, Inc.
5500 West Howard Street
Skokie, IL 60077
................................... ..................................
Trustee Northwestern Mutual Life
Insurance Company
720 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
.................................... ................................... ..................................
William D. Smithburg Director NTC
................................... ..................................
Director Northern Trust Corporation
................................... ..................................
Retired Chairman, President and The Quaker Oats Company
Chief Executive Officer 321 North State Street
Chicago, Illinois 60610
................................... ..................................
Director Abbott Laboratories
One Abbott Park Road
Abbott Park, Illinois 60675
................................... ..................................
Director Corning Incorporated
Corning, NY 14831
................................... ..................................
Trustee Prime Capital Corporation
10275 West Higgins Road
Suite 200
Rosemont, Illinois 60018
.................................... ................................... ..................................
<PAGE>
.................................... ................................... ..................................
James M. Snyder Executive Vice President NTC
................................... ..................................
Director Northern Trust Global Advisors,
Inc.
29 Federal Street
Stamford, Connecticut 06901
................................... ..................................
Chairman CEO and Director NTQA
.................................... ................................... ..................................
<PAGE>
.................................... ................................... ..................................
Bide L. Thomas Director NTC
................................... ..................................
Director Northern Trust Corporation
................................... ..................................
Director MYR Group Inc.
(formerly L.E. Myers Company)
2550 West Golf Road
Rolling Meadows, Illinois 60008
................................... ..................................
Director R. R. Donnelley & Sons Company
77 West Wacker Drive
Chicago, Illinois 60601
.................................... ................................... ..................................
Stephen B. Timbers President - Northern Trust Global NTC
Investments and Executive Vice
President
................................... ..................................
Director Northern Trust Global Advisors,
Inc.
29 Federal Street
Stamford, Connecticut 06901
................................... ..................................
Former President and CEO Zurich-Kemper Investments
222 Riverside Plaza
Chicago, Illinois 60606
................................... ..................................
Director LTV Steel Company
200 Public Square
Cleveland, Ohio 44114-2308
................................... ..................................
Director NTQA
................................... ..................................
President and Director Northern Investment Management
Company
.................................... ................................... ..................................
Jeffrey H. Wessel Executive Vice President NTC
................................... ..................................
President and Director NTQA
................................... ..................................
Director Northern Trust Global Advisors,
Inc.
29 Federal Street
Stamford, Connecticut 06901
................................... ..................................
Manager Northern Trust Retirement
Consulting
401 Perimeter Center Terrace
Suite 850
Atlanta, Georgia 30346
(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.
<PAGE>
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.
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
.................................... ................................... ..................................
Rollin M. Dick Director CCM
................................... ..................................
Executive Officer and Director Various affiliates of Conseco,
Inc.
................................... ..................................
Director Brightpoint, Inc.
6042 Corporate Drive
Indianapolis, Indiana 46278
.................................... ................................... ..................................
John Robert Kline Chief Financial Officer, CCM
Treasurer and Vice President
.................................... ................................... ..................................
Thomas Meyers Senior Vice President, Director CCM
of Marketing
................................... ..................................
Senior Vice President Conseco Mortgage Capital, Inc.
.................................... ................................... ..................................
Thomas J. Pence Senior Vice President CCM
.................................... ................................... ..................................
See Yeng Quek Vice President CCM
.................................... ................................... ..................................
Gregory Hahn Senior Vice President, Portfolio CCM
Manager
.................................... ................................... ..................................
William P. Kovacs Director, Vice President, Chief CCM
Compliance Officer and Secretary
................................... ..................................
Director, Vice President and Conseco Equity Sales, Inc.
Secretary
................................... ..................................
Director, Vice President and Conseco Securities, Inc.
Secretary
.................................... ................................... ..................................
John R. Kline Vice President, Finance and CCM
Treasurer
................................... ..................................
Vice President, Corporate Finance Conseco Services, LLC
.................................... ................................... ..................................
Jude T. Driscoll Vice President, Portfolio CCM
Management and Trading
................................... ..................................
Trader Previously, Nations Bank,
Charlotte, North Carolina
.................................... ................................... ..................................
Todd C. Thompson Second Vice President CCM
................................... ..................................
Assistant Investment Officer Previously, Public Employees
Retirement Systems of Ohio
.................................... ................................... ..................................
William T. Lissenden Director of Research CCM
................................... ..................................
Director, Taxable Fixed Income Previously, Prudential
Research and Product Management Securities, Inc., New York, New
York
................................... ..................................
Information as to the officers and directors of CCM is included in its
current Form ADV filed with the SEC and is incorporated by reference
herein.
(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.
Name Title Business Connection
.................................... .................................... .................................
Jack R. Hamilton President and Limited Partner DHJA
.................................... .................................... .................................
Robert C. Davis Secretary and Limited Partner DHJA
.................................... .................................... .................................
<PAGE>
...........................................................................................................
Alfred Jackson Limited Partner DHJA
.................................... .................................... .................................
Carla J. Evans Vice President - Administration DHJA
.................................... .................................... .................................
Jeffrey L. Sarff Chief Operating Officer and DHJA
Limited Partner
.................................... .................................... .................................
J. Patrick Clegg Limited Partner DHJA
.................................... .................................... .................................
James P. Webb Limited Partner DHJA
.................................... .................................... .................................
Catherine S. Woodruff Limited Partner DHJA
.................................... .................................... .................................
(e) PPM America, Inc.
The descriptions of PPM America, Inc. ("PPM") 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 PPM, 225 West Wacker
Drive, Suite 1200, Chicago, Illinois 60606, including any business
connections of a substantial nature, which they have had in the past
two (2) years. Unless otherwise indicated, the address of each company
listed is 225 West Wacker Drive, Suite 1200, Chicago, Illinois 60606
Name Title Business Connection
.................................... ................................... ...................................
Russell William Swanson President and Director PPM
.................................... ................................... ...................................
Mark Bernard Mandich Executive Vice President, PPM
Secretary, Chief Compliance
Officer and Director
.................................... ................................... ...................................
Fred John Stark III Executive Vice President, PPM
Secretary, Counsel and Director
</TABLE>
ITEM 27. PRINCIPAL UNDERWRITERS
(a) Forum Fund Services, LLC, Registrant's underwriter, serves 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 Vice President and Treasurer
.............................. ..................................... ....................................
John Y. Keffer Director Trustee
.............................. ..................................... ....................................
</TABLE>
(c) Not Applicable.
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
<PAGE>
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 certifies that it
meets all the requirements for effectiveness of this registration statement
under rule 485(b) under the Securities Act and 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 April 28, 2000.
MEMORIAL FUNDS
Christopher W. Hamm, President
/s/ Christopher W. Hamm
Pursuant to the requirements of the Securities Act of 1933, as amended, this
registration statement has been signed below by the following persons on April
28, 2000.
(a) Principal Executive Officer
/s/ Christopher W. Hamm
Christopher W. Hamm, President
(b) Principal Financial Officer
/s/ Ronald H. Hirsch
Ronald H. Hirsch, Treasurer
(c) All of the Trustees
/s/ Christopher W. Hamm
Christopher W. Hamm, Trustee
/s/ John Y. Keffer
John Y. Keffer, Trustee
Jay Brammer, Trustee
J.B. Goodwin, 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
(d)(2) Investment Subadvisory Agreement between Registrant, Forum Investment
Advisors, LLC and PPM America, Inc.
(j) Consent of independent auditors.
(p)(1) Code of Ethics adopted by Registrant.
(p)(2) Joint Code of Ethics adopted by Forum Investment Advisors, LLC and
Forum Fund Services, LLC.
(p)(3) Code of Ethics adopted by PPM America, Inc.
(p)(4) Code of Ethics adopted by Conseco Capital Management, Inc.
(p)(5) Code of Ethics adopted by Davis Hamilton Jackson & Associates, L.P.
(p)(6) Code of Ethics adopted by The Northern Trust Company.
<PAGE>
Exhibit (d)(2)
MEMORIAL FUNDS
SUBADVISORY AGREEMENT
AGREEMENT made as of the 30th day of March, 2000, by and among Memorial
Funds, a Delaware business trust, with its principal office and place of
business at Two Portland Square, Portland, Maine 04101 (the "Trust"), Forum
Investment Advisors, LLC, a Delaware limited liability company, with its
principal office and place of business at Two Portland Square, Portland, Maine
04101 (the "Adviser") and PPM America, Inc., a Delaware corporation, with its
principal office and place of business at 225 West Wacker Drive, Suite 1200,
Chicago, Illinois 60606 (the "Subadviser").
WHEREAS, Adviser has entered into an Investment Advisory Agreement
dated the 13th day of March, 1998, ("Advisory Agreement") with the Trust;
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended, (the "1940 Act"), as an open-end, management investment
company and may issue its shares of beneficial interest, no par value (the
"Shares"), in separate series;
WHEREAS, pursuant to the Advisory Agreement, and subject to the
direction and control of the Board of Trustees of the Trust (the "Board"), the
Adviser acts as investment adviser for each series of the Trust listed on
Schedule A hereto (each, a "Fund" and, collectively, the "Funds");
WHEREAS, the Trust and Adviser desire to retain the Subadviser to
perform investment advisory services for the Fund and Subadviser is willing to
provide those services on the terms and conditions set forth in this Agreement;
NOW THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, the Adviser and the Subadviser hereby agree as
follows:
SECTION 1. APPOINTMENT; DELIVERY OF DOCUMENTS
(a) The Trust and the Adviser hereby employ Subadviser, subject to the
direction and control of the Board, to manage the investment and reinvestment of
the assets in each Fund and, without limiting the generality of the foregoing,
to provide other services as specified herein. The Subadviser accepts this
employment and agrees to render its services for the compensation set forth
herein.
(b) In connection therewith, the Trust has delivered to the Subadviser
copies of (i) the Trust's Trust Instrument, (ii) the Trust's Registration
Statement and all amendments thereto filed with the U.S. Securities and Exchange
Commission ("SEC") pursuant to the Securities Act of 1933, as amended (the
"Securities Act"), or the 1940 Act (the "Registration Statement"), (iii) the
Trust's current Prospectuses and Statements of Additional Information of each
Fund (collectively, as currently in effect and as amended or supplemented, the
"Prospectus"), and (iv) all procedures adopted by the Trust with respect to any
Fund (I.E., repurchase agreement procedures), and shall promptly furnish the
Subadviser with all amendments of or supplements to the foregoing. The Trust
shall deliver to the Subadviser (x) a certified copy of the resolution of the
Board appointing the Subadviser and authorizing the execution and delivery of
this Agreement, (y) a copy of all proxy statements and related materials
relating to any Fund, and (z) any other documents, materials or information that
the Subadviser shall reasonably request to enable it to perform its duties
pursuant to this Agreement.
(c) The Subadviser has delivered to the Adviser and the Trust (i) a
copy of its Form ADV as most recently filed with the SEC and (ii) a copy of its
code of ethics complying with the requirements of Rule 17j-1 under the 1940 Act
(the "Code"). The Subadviser shall promptly furnish the Adviser and Trust with
all amendments of or supplements to the foregoing at least annually.
<PAGE>
SECTION 2. DUTIES OF THE TRUST AND ADVISER
(a) In order for the Subadviser to perform the services required by
this Agreement, the Trust and the Adviser (i) shall, cause all service providers
to the Trust to furnish information relating to any Fund to the Subadviser and
assist the Subadviser as may be required and (ii) shall ensure that the
Subadviser has reasonable access to all records and documents maintained by the
Adviser, the Trust or any service provider to the Trust.
(b) In order for the Subadviser to perform the services required by
this Agreement, the Adviser shall deliver to the Subadviser all material it
provides to the Board in accordance with the Advisory Agreement.
SECTION 3. DUTIES OF THE SUBADVISER
(a) The Subadviser is hereby authorized to make decisions with respect
to all purchases and sales of securities and other investment assets in each
Fund. This authority may be modified or revoked, in whole or in part, by the
Adviser upon reasonable notice to the Subadviser, such notice shall not be less
than 30 days. To carry out such decisions, the Subadviser is hereby authorized,
as agent and attorney-in-fact for the Trust, for the account of, at the risk of
and in the name of the Trust, to place orders and issue instructions with
respect to those transactions of the Funds. In all purchases, sales and other
transactions in securities and other investments for the Funds, the Subadviser
is authorized to exercise full discretion and act for the Trust in the same
manner and with the same force and effect as the Trust might or could do with
respect to such purchases, sales or other transactions, as well as with respect
to all other things necessary or incidental to the furtherance or conduct of
such purchases, sales or other transactions.
Consistent with Section 28(e) of the Securities Exchange Act of 1934,
as amended, the Subadviser may allocate brokerage on behalf of the Funds to
broker-dealers who provide research services. The Subadviser may aggregate sales
and purchase orders of the assets of the Funds with similar orders being made
simultaneously for other accounts advised by the Subadviser or its affiliates.
Whenever the Subadviser simultaneously places orders to purchase or sell the
same asset on behalf of a Fund and one or more other accounts advised by the
Subadviser, the Subadviser will allocate the order as to price and amount among
all such accounts in a manner the Subadviser believes to be equitable over time
to each account.
(b) The Subadviser will report to the Board at each meeting thereof as
reasonably requested by the Adviser or the Board all material changes in each
Fund caused by the Subadviser since the prior report, and will also keep the
Board informed of important developments affecting the Trust, the Funds and the
Subadviser, and on its own initiative, will furnish the Board from time to time
with such information as the Subadviser may believe appropriate for this
purpose, whether concerning the individual companies whose securities are
included in the Funds' holdings, the industries in which they engage, the
economic, social or political conditions prevailing in each country in which the
Funds maintain investments, or otherwise. The Subadviser will also furnish the
Board with such statistical and analytical information with respect to
investments of the Funds as the Subadviser may believe appropriate or as the
Board reasonably may request. In making purchases and sales of securities and
other investment assets for the Funds, the Subadviser will bear in mind the
policies set from time to time by the Board as well as the limitations imposed
by the Trust Instrument and Registration Statement, the limitations in the 1940
Act, the Securities Act, the Internal Revenue Code of 1986, as amended, and
other applicable laws and the investment objectives, policies and restrictions
of the Funds.
(c) The Subadviser will from time to time employ or associate with such
persons as the Subadviser believes to be particularly fitted to assist in the
execution of the Subadviser's duties hereunder, the cost of performance of such
duties to be borne and paid by the Subadviser. No obligation may be incurred on
the Trust's or Adviser's behalf in any such respect.
(d) The Subadviser will report to the Board all material matters
related to the Subadviser. On an annual basis, the Subadviser shall report on
its compliance with its Code to the Adviser and to the Board and upon the
written request of the Adviser or the Trust, the Subadviser shall permit the
Adviser and the Trust, or their respective representatives to examine the
reports required to be made to the Subadviser under the Code. The Subadviser
will notify the Adviser and the Trust of any change of control of the Subadviser
and any changes in the key personnel who are either the portfolio manager(s) of
<PAGE>
the Fund or senior management of the Subadviser, in each case prior to or
promptly after such change.
(e) The Subadviser will maintain records relating to its portfolio
transactions and placing and allocation of brokerage orders as are required to
be maintained by the Trust under the 1940 Act. The Subadviser shall prepare and
maintain, or cause to be prepared and maintained, in such form, for such periods
and in such locations as may be required by applicable law, all documents and
records relating to the services provided by the Subadviser pursuant to this
Agreement required to be prepared and maintained by the Subadviser or the Trust
pursuant to applicable law. To the extent permitted by law, the books and
records pertaining to the Trust which are in possession of the Subadviser shall
be the property of the Trust. With the consent of the Subadviser, the Adviser
and the Trust, or their respective representatives, may have access to such
books and records during the Subadviser's normal business hours, with such
consent not to be unreasonably withheld. Upon the reasonable request of the
Adviser or the Trust, copies of any such books and records shall be provided
promptly by the Subadviser to the Adviser and the Trust, or their respective
representatives.
(f) The Subadviser will cooperate with each Fund's independent public
accountants and shall take reasonable action to make all necessary information
available to the accountants for the performance of the accountants' duties.
(g) The Subadviser will provide the Funds' custodian and fund
accountant on each business day with such information relating to all
transactions concerning the Funds' assets under the Subadviser's control as the
custodian and fund accountant may reasonably require. In accordance with
procedures adopted by the Board, the Subadviser is responsible for assisting in
the fair valuation of all Fund assets and will use its reasonable efforts to
arrange for the provision of prices from parties who are not affiliated persons
of the Subadviser for each asset for which the Funds' fund accountant does not
obtain prices in the ordinary course of business.
(h) The Subadviser shall authorize and permit any of its directors,
officers and employees who may be elected as Trustees or officers of the Trust
to serve in the capacities in which they are elected.
(i) Except as otherwise agreed to by the Trust, the Adviser and the
Subadviser, during any period in which a Fund invests all (or substantially all)
of its investment assets in a registered, open-end management investment
company, or separate series thereof, in accordance with Section 12(d)(1)(E)
under the 1940 Act, the Subadviser shall have no duties or obligations pursuant
to this Agreement with respect to the Fund.
SECTION 4. COMPENSATION; EXPENSES
(a) In consideration of the foregoing, the Adviser shall pay the
Subadviser, with respect to each Fund, a fee at an annual rate as listed in
Appendix A hereto. Such fees shall be accrued by the Adviser daily and shall be
payable monthly in arrears on the first day of each calendar month for services
performed hereunder during the prior calendar month. If fees begin to accrue in
the middle of a month or if this Agreement terminates before the end of any
month, all fees for the period from that date to the end of that month or from
the beginning of that month to the date of termination, as the case may be,
shall be prorated according to the proportion that the period bears to the full
month in which the effectiveness or termination occurs. Upon the termination of
this Agreement with respect to a Fund, the Adviser shall pay to the Subadviser
such compensation as shall be payable prior to the effective date of
termination.
(b) The Subadviser may agree to waive all or part of its fees by
separate agreement.
(c) No fee shall be payable hereunder with respect to a Fund during any
period in which the Fund invests all (or substantially all) of its investment
assets in a registered, open-end, management investment company, or separate
series thereof, in accordance with Section 12(d)(1)(E) under the 1940 Act.
(d) The Subadviser will bear its own costs of providing services
hereunder. Other than as specifically indicated herein, the Subadviser shall not
be responsible for the Trust's or the Adviser's expenses, including, without
limitation: the expenses of organizing the Trust or any Fund and continuing its
existence; fees and expenses of Trustees and officers of the Trust; fees for
investment advisory services and administrative personnel and services; expenses
<PAGE>
incurred in the distribution of its shares, including expenses of administrative
support services, fees and expenses of preparing and printing its Registration
Statements under the Securities Act of 1933 and the 1940 Act, and any amendments
thereto; expenses of registering and qualifying the Trust, the Fund and shares
of the Fund under federal and state laws and regulation; expenses of preparing,
printing and distributing prospectuses (and any amendments thereto) to
shareholders; interest expense, taxes, fees and commissions of every kind;
expenses of issue (including cost of share certificates), purchase, repurchase
and redemption of shares including expenses attributable to a program of
periodic issue; charges and expenses of custodians, transfer agents, dividend
disbursing agents, shareholder servicing agents and registrars; printing and
mailing costs; auditing, accounting and legal expenses; reports to shareholders
and governmental officers and commissions; expenses of meetings of Trustees and
shareholders and proxy solicitations in connection with such meetings; insurance
expenses; association membership dues and such nonrecurring items as may arise,
including all losses and liabilities incurred in administrating the Trust and
the Fund. The Trust or the Adviser, as the case may be, shall reimburse the
Subadviser for any such expenses or other expenses of the Fund or the Adviser,
as may be reasonably incurred with prior notice by the Subadviser on behalf of
the Fund or the Adviser. The Subadviser shall keep and supply to the Trust and
the Adviser adequate records of all such expenses.
SECTION 5. STANDARD OF CARE
(a) The Trust and Adviser shall expect of the Subadviser, and the
Subadviser will give the Trust and Adviser the benefit of, the Subadviser's
reasonable best efforts in rendering its services hereunder. The Subadviser
shall not be liable to the Adviser, the Trust, any shareholder of the Trust, or
to any person, firm or organization for any mistake of judgment or any act or
omission in the course of, or connected with the rendering of its services
hereunder, except for lack of good faith, provided that nothing herein shall be
deemed to protect, or purport to protect, the Subadviser against any liability
to the Adviser, the Trust, any shareholder of the Trust, or to any person, firm
or organization to which the Subadviser would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of the
Subadviser's duties hereunder, or by reason of the Subadviser's reckless
disregard of its obligations and duties hereunder.
(b) The Subadviser shall not be liable to the Adviser or the Trust for
any action taken or failure to act in good faith reliance upon: (i) information,
instructions or requests, whether oral or written, with respect to a Fund that
the Subadviser reasonably believes were made by a duly authorized officer of the
Adviser or the Trust, (ii) the advice of counsel to the Subadviser, and (iii)
any written instruction or certified copy of any resolution of the Board.
(c) The Subadviser shall not be responsible or liable for any failure
or delay in performance of its obligations under this Agreement arising out of
or caused, directly or indirectly, by circumstances beyond its reasonable
control including, without limitation, acts of civil or military authority,
national emergencies, labor difficulties (other than those related to the
Subadviser's employees), fire, mechanical breakdowns, flood or catastrophe, acts
of God, insurrection, war, riots or failure of the mails, transportation,
communication or power supply.
SECTION 6. EFFECTIVENESS, DURATION AND TERMINATION
(a) This Agreement shall become effective with respect to a Fund
immediately upon the later of approval by a majority of the Trust's trustees who
are not parties to this Agreement or interested persons of any such party (other
than as trustees of the Trust) and, if required by applicable law, by a vote of
a majority of the outstanding voting securities of the Fund.
(b) This Agreement shall remain in effect with respect to a Fund for a
period of two years from the date of its effectiveness and shall continue in
effect for successive annual periods with respect to the Fund; provided that
such continuance is specifically approved at least annually (i) by the Board or
by the vote of a majority of the outstanding voting securities of the Fund, and,
in either case, (ii) by a majority of the Trust's trustees who are not parties
to this Agreement or interested persons of any such party (other than as
trustees of the Trust); provided further, however, that if the continuation of
this Agreement is not approved as to a Fund, the Subadviser may continue to
render to that Fund the services described herein in the manner and to the
extent permitted by the 1940 Act and the rules and regulations thereunder.
<PAGE>
(c) This Agreement may be terminated with respect to a Fund at any
time, without the payment of any penalty, (i) by the Board, by a vote of a
majority of the outstanding voting securities of the Fund or by the Adviser on
60 days' written notice to the Subadviser or (ii) by the Subadviser on 60 days'
written notice to the Trust. This Agreement shall terminate immediately (x) upon
its assignment or (y) upon termination of the Advisory Agreement.
SECTION 7. ACTIVITIES OF THE SUBADVISER
Except to the extent necessary to perform its obligations hereunder,
nothing herein shall be deemed to limit or restrict the Subadviser's right, or
the right of any of the Subadviser's directors, officers or employees to engage
in any other business or to devote time and attention to the management or other
aspects of any other business, whether of a similar or dissimilar nature, or to
render services of any kind to any other corporation, trust, firm, individual or
association. In the performance of its duties hereunder, the Subadviser is and
shall be an independent contractor and unless otherwise expressly provided
herein or otherwise authorized in writing, shall have no authority to act for or
represent the Trust in any way or otherwise be deemed to be an agent of the
Trust or of the Adviser.
SECTION 8. REPRESENTATIONS OF SUBADVISER AND ADVISER
(a) The Subadviser represents and warrants that (i) it is either registered
as an investment adviser under the Investment Advisers Act of 1940, as
amended ("Advisers Act") (and will continue to be so registered for so
long as this Agreement remains in effect) or exempt from registration
under the Advisers Act, (ii) is not prohibited by the 1940 Act or the
Advisers Act from performing the services contemplated by this
Agreement, (iii) has met, and will seek to continue to meet for so long
as this Agreement remains in effect, any other applicable federal or
state requirements, or the applicable requirements of any
self-regulatory agency, necessary to be met in order to perform the
services contemplated by this Agreement, and (iv) will promptly notify
the Adviser and the Trust of the occurrence of any event that would
disqualify the Subadviser from serving as an investment adviser of an
investment company pursuant to Section 9(a) of the 1940 Act or
otherwise.
(b) The Adviser represents and warrants that (i) it is registered as an
investment adviser under the Advisers Act (and will continue to be so registered
for so long as this Agreement remains in effect), (ii) is not prohibited by the
1940 Act or the Advisers Act from performing the services contemplated by this
Agreement, and (iii) has met, and will seek to continue to meet for so long as
this Agreement remains in effect, any other applicable federal or state
requirements, or the applicable requirements of any self-regulatory agency,
necessary to be met in order to perform the services contemplated by this
Agreement.
SECTION 9. LIMITATION OF SHAREHOLDER AND TRUSTEE LIABILITY
The Trustees of the Trust and the shareholders of each Fund shall not
be liable for any obligations of the Trust or of the Funds under this Agreement,
and the Subadviser agrees that, in asserting any rights or claims under this
Agreement, it shall look only to the assets and property of the Trust or the
Fund to which the Subadviser's rights or claims relate in settlement of such
rights or claims, and not to the Trustees of the Trust or the shareholders of
the Funds.
SECTION 10. MISCELLANEOUS
(a) No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties hereto and approved by the Trust in the manner set forth in Section 6(b)
hereof.
(b) No amendment to this Agreement or the termination of this Agreement
with respect to a Fund shall effect this Agreement as it pertains to any other
Fund, nor shall any such amendment require the vote of the shareholders of any
other Fund.
(c) Neither party to this Agreement shall be liable to the other party
for consequential damages under any provision of this Agreement.
<PAGE>
(d) This Agreement shall be governed by, and the provisions of this
Agreement shall be construed and interpreted under and in accordance with, the
laws of the State of Delaware.
(e) This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject matter
hereof, whether oral or written.
(f) This Agreement may be executed by the parties hereto on any number
of counterparts, and all of the counterparts taken together shall be deemed to
constitute one and the same instrument.
(g) If any part, term or provision of this Agreement is held to be
illegal, in conflict with any law or otherwise invalid, the remaining portion or
portions shall be considered severable and not be affected, and the rights and
obligations of the parties shall be construed and enforced as if the Agreement
did not contain the particular part, term or provision held to be illegal or
invalid.
(h) Section headings in this Agreement are included for convenience
only and are not to be used to construe or interpret this Agreement.
(i) Notices, requests, instructions and communications received by the
parties at their respective principal places of business, or at such other
address as a party may have designated in writing, shall be deemed to have been
properly given.
(j) Notwithstanding any other provision of this Agreement, the parties
agree that the assets and liabilities of each Fund are separate and distinct
from the assets and liabilities of any other series of the Trust and that no
Fund or other series of the Trust shall be liable or shall be charged for any
debt, obligation or liability of any other Fund or series, whether arising under
this Agreement or otherwise.
(k) No affiliated person, employee, agent, director, officer or manager
of the Subadviser shall be liable at law or in equity for the Subadviser's
obligations under this Agreement.
(l) The terms "vote of a majority of the outstanding voting
securities", "interested person", "affiliated person," "control" and
"assignment" shall have the meanings ascribed thereto in the 1940 Act.
(m) Each of the undersigned warrants and represents that they have full
power and authority to sign this Agreement on behalf of the party indicated and
that their signature will bind the party indicated to the terms hereof and each
party hereto warrants and represents that this Agreement, when executed and
delivered, will constitute a legal, valid and binding obligation of the party,
enforceable against the party in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting the rights and remedies of creditors and secured parties.
<PAGE>
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
/s/ Thomas G. Sheehan
Thomas G. Sheehan
Vice President
FORUM INVESTMENT ADVISORS, LLC
/s/ John F. Burns
Name: John F. Burns
Title: Director
PPM AMERICA, INC.
/s/ F. John Stark
Name: F. John Stark
Title: Executive Vive President
<PAGE>
MEMORIAL FUNDS
SUBADVISORY AGREEMENT
Appendix A
<TABLE>
<S> <C>
PERCENTAGE OF THE AVERAGE ANNUAL DAILY NET ASSETS OF
FUNDS OF THE TRUST THE FUND REPRESENTED BY SHARES OWNED BY INVESTORS FOR
WHICH SUBADVISER PROVIDES SERVICES PURSUANT TO THIS
AGREEMENT
Value Equity Fund .30
</TABLE>
<PAGE>
Exhibit (j)
CONSENT OF INDEPENDENT AUDITORS
The Board of Trustees and Shareholders of
Memorial Funds:
We consent to the use of our report dated February 2, 2000 for Memorial
Funds incorporated herein by reference and to the references to our firm under
the captions "Financial Highlights" in the prospectus and "Independent Auditors"
in the Statement of Additional Information.
/s/ KPMG LLP
Boston, Massachusetts
May 1, 2000
<PAGE>
Exhibit (p)(1)
MEMORIAL FUNDS
CODE OF ETHICS
February 29, 2000
SECTION 1. INTRODUCTION
This Code of Ethics ("Code") has been adopted by the Memorial Funds
(the "Trust") with respect to each of its investment portfolios (each a "Fund")
to establish standards and procedures for the detection and prevention of
activities by which persons having knowledge of the investments and investment
intentions of a Fund may abuse their fiduciary duties to the Trust and to deal
with other types of conflict of interest situations.
Upon discovering a violation of the Code, the Board of Trustees (the
"Board") may impose such sanctions as it deems appropriate, including, among
other things, a letter of censure or suspension or termination of the employment
or other position of the violator.
SECTION 2. DEFINITIONS
(A) Access Person means:
(i) any Trust officer;
(ii) any trustees, including any independent trustee; and
(iii) any individual in a control relationship with a Fund who
obtains information concerning recommendations made to a Fund about the
purchase or sale of a security.
(B) Beneficial Owner means "beneficial owner" as defined in Rule
16a-1(a)(2) under the securities and Exchange Act of 1934 Act except that the
determination of direct or indirect beneficial ownership shall apply to all
Covered Securities which an Access Person owns or acquires. A beneficial owner
of a security is any person who, directly or indirectly, through any contract,
arrangement, understanding, relationship or otherwise, has or shares a direct or
indirect pecuniary interest (the opportunity, directly or indirectly, to profit
or share in any profit derived from a transaction in the subject securities) in
a security.
Indirect pecuniary interest in a security includes securities held by a
person's immediate family sharing the same household. Immediate family means any
child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law (including adoptive relationships).
(C) Control means the power to exercise a controlling influence over
the management or policies of a company, unless such power is solely the result
of an official position with such company.
(D) Covered Security means any security except:
(i) direct obligations of the Government of the United States;
(ii) bankers' acceptances and bank certificates of deposit;
(iii) commercial paper and debt instruments with a maturity at
issuance of less than 366 days and that are rated in one of
the two highest rating categories by a nationally recognized
statistical rating organization;
(iv) repurchase agreements covering any of the foregoing; and
(v) shares of registered open-end investment companies.
(E) Investment Personnel means any individual who controls the Trust
and who obtains information concerning recommendations made to the Trust
regarding the purchase or sale of securities by the Trust.
(F) Security Held or to be Acquired by the Trust means
<PAGE>
(i) any Covered Security which, within the most recent 15 days (x) is
or has been held by the Trust or (y) is being or has been considered by the
Trust or an investment adviser to the Trust for purchase by the applicable
Trust; and
(ii) any option to purchase or sell, and any security convertible into or
exchangeable for, a Covered Security.
(G) Purchase or sale includes, among other things, the writing of an option
to purchase or sell.
SECTION 3. PROHIBITED TRANSACTIONS
(A) PROHIBITION AGAINST FRAUDULENT CONDUCT. No Access Person shall use
any information concerning the investments or investment intentions of a Fund,
or the Access Person's ability to influence such investment intentions, for
personal gain or in a manner detrimental to the interests of a Fund.
In addition, no affiliated person of a Fund shall, directly or
indirectly in connection with the purchase or sale of a security held or to be
acquired by a Fund:
(i) employ any device, scheme or artifice to defraud a Fund;
(ii) make to a Fund or to a Fund's investment advisers or
distributor any untrue statement of a material fact or omit to state to
any of the foregoing a material fact necessary in order to make the
statements made, in light of the circumstances under which they are
made, not misleading;
(iii) engage in any act, practice, or course of business that
operates or would operate as a fraud or deceit upon a Fund; or
(iv) engage in any manipulative practice with respect to a Fund.
(B) OTHER PROHIBITED TRANSACTIONS. Access Persons are prohibited from:
(i) inducing or causing a Fund to take action or to fail to
take action, for personal benefit rather than for the benefit
of the Fund;
(ii) accepting anything other than of DE MINIMUS value or any other
preferential treatment from any entity with which a Fund does
business;
(iii) establishing or maintaining an account at any entity through
which securities transactions may be effected without written
notice to the designated Review Officer prior to establishing
such an account;
(iv) using knowledge of portfolio transactions of a Fund for
their personal benefit or the personal benefit of their
friends or relatives;
(v) violating the anti-fraud provisions of the federal or state
securities laws;
(vi) serving on the boards of directors of publicly traded
companies, absent prior authorization based upon a
determination by the Review Officer that the board service
would be consistent with the interests of the Fund and its
shareholders.
(C) UNDUE INFLUENCE; DISCLOSURE OF PERSONAL INTEREST. No Access Person
shall cause or attempt to cause any Fund to purchase, sell or hold any security
in a manner calculated to create any personal benefit to the Access Person. No
Access Person shall recommend any securities transactions for a Fund without
having disclosed the Access Person's interest, if any, in such securities or the
issuer thereof, including, without limitation:
(i) the Access Person's direct or indirect beneficial ownership
of any securities of such issuer;
(ii) any position with such issuer or its affiliates; and
(iii)any present or proposed business relationship between such
issuer or its affiliates, on the one hand, and such person
or any party in which such person has a significant
interest, on the other hand.
<PAGE>
(D) CORPORATE OPPORTUNITIES. All Access Persons are prohibited from
taking personal advantage of any opportunity properly belonging to a Fund.
(E) CONFIDENTIALITY. Except as required in the normal course of
carrying out an Access Person's business responsibilities, Access Persons are
prohibited from revealing information relating to the investment intentions or
activities of any Fund, or securities that are being considered for purchase or
sale on behalf of any Fund.
SECTION 4. REPORTING REQUIREMENTS
(A) ACCESS PERSON REPORTING. All Access Persons must report the
information described in this Section with respect to transactions in any
Covered Security in which the Access Person has, or by reason of such
transaction acquires, any direct or indirect beneficial ownership. All Access
Persons and Investment Personnel must report to the Review Officer unless they
are otherwise required to report to the distributor or an investment adviser of
the Trust or a Fund pursuant to a Code of Ethics adopted by those entities and
approved by the Trustees.
(B) TRUSTEE REPORTING. An independent trustee (a trustee who is not an
interested person of the Trust as defined in Section 2(a)(19) of the Investment
Company Act of 1940 Act) need only report a transaction if the trustee knew at
the time of the transaction or, in the ordinary course of fulfilling the
trustee's official duties as a trustee, should have known that, during the 15
day period immediately preceding or after the date of the transaction in a
Covered Security by the trustee, such Covered Security is or was purchased or
sold or was being considered for purchase or sale by a Fund or an investment
adviser to the Trust or a Fund.
(C) EXCLUSIONS FROM REPORTING. Purchases or sales of Covered Securities
in an account in which an Access Person has no direct or indirect influence or
control are not subject to the reporting requirements of this Section.
(D) INITIAL HOLDING REPORTS. No later than ten (10) days after the
person becomes an Access Person, an Access Person must report the following
information:
(i) the title, number of shares and principal amount of each
Covered Security in which the Access Person had any direct or
indirect beneficial ownership when the person became an Access
Person;
(ii) the name of any broker, dealer or bank with whom the Access
Person maintained an account in which any securities were held
for the direct or indirect benefit of the Access Person as of
the date the person became an Access Person; and
(iii) the date that the report is submitted by the Access Person.
(E) QUARTERLY TRANSACTION REPORTS. No later than ten (10) days after
the end of a calendar quarter, an Access Person must report the following
information:
(i) with respect to any transaction during the quarter in a Covered
Security in which the Access Person had, or by reason of such
transaction acquired, any direct or indirect beneficial
ownership:
(1) the date of the transaction, the title, the interest rate
and maturity date (if applicable), the number of shares and
the principal amount of each Covered Security involved;
(2) the nature of the transaction (i.e., purchase, sale or any
other type of acquisition or disposition);
(3) the price of the Covered Security at which the transaction
was effected;
(4) the name of the broker, dealer or bank with or through which
the transaction was effected; and
(5) the date that the report is submitted by the Access Person.
(ii) with respect to any account established by the Access Person in
which any securities were held during the quarter for the direct
or indirect benefit of the Access Person:
<PAGE>
(1) the name of the broker, dealer or bank with whom the Access
Person established the account;
(2) the date the account was established; and
(3) the date that the report is submitted by the Access Person.
(F) ANNUAL HOLDINGS REPORTS. Annually, an Access Person must report
the following information (which information must be current as of a date no
more than thirty (30) days before the report is submitted):
(i) the title, number of shares and principal amount of each
Covered Security in which the Access Person had any direct or
indirect beneficial ownership;
(ii) the name of any broker, dealer or bank with whom the Access
Person maintains an account in which any securities are held
for the direct or indirect benefit of the Access Person; and
(iii) the date that the report is submitted by the Access Person.
(G) CERTIFICATION OF COMPLIANCE. Each Access Person is required to
certify annually (in the form of Appendix A) that the Access Person has read and
understood the Code and recognizes that the Access Person is subject to the
Code. Further, each Access Person is required to certify annually that the
Access Person has complied with all the requirements of the Code and that the
Access Person has disclosed or reported all personal securities transactions
pursuant to the requirements of the Code.
(H) ALTERNATIVE REPORTING. The submission to the Review Officer of
duplicate broker trade confirmations and statements on all Covered Securities
transactions shall be deemed to satisfy these reporting requirements. The annual
holdings report may be satisfied by confirming annually, in writing, the
accuracy of the records maintained by the Review Officer and recording the date
of the confirmation.
(I) REPORT QUALIFICATION. Any report may contain a statement that the
report shall not be construed as an admission by the person making the report
that he or she has any direct or indirect beneficial ownership in the Covered
Securities to which the report relates.
(J) ACCOUNT OPENING PROCEDURES. Access Persons shall provide written
notice to the Review Officer prior to opening any account with any entity
through which a Covered Securities transaction may be effected. In
addition, all Access Persons will promptly:
(i) provide full access to the Trust, its agents and attorneys to
any and all records and documents which the Trust considers
relevant to any securities transactions or other matters
subject to the Code;
(ii) cooperate with the Trust, or its agents and attorneys, in
investigating any securities transactions or other matter
subject to the Code;
(iii) provide the Trust, its agents and attorneys with an
explanation (in writing if requested) of the facts and
circumstances surrounding any securities transaction or other
matter subject to the Code; and
(iv) promptly notify the Review Officer or such other individual as
the Trust may direct, in writing, from time to time, of any
incident of noncompliance with the Code by any Access Person.
SECTION 5. REVIEW OFFICER
(A) DUTIES OF REVIEW OFFICER. A Review Officer shall be appointed
by the Trust's President to:
(i) review all securities transaction and holdings reports and
shall maintain the names of persons responsible for reviewing
these reports;
(ii) identify all Access Persons who are required to make these
reports and promptly inform each Access Person of the
requirements of this Code;
(iii) compare, on a quarterly basis, all Access Person Covered
Securities transactions with each Fund's completed portfolio
transactions to determine whether a Code violation may have
occurred;
(iv) maintain a signed acknowledgment by each person who is then an
Access Person, in the form of Appendix A; and
<PAGE>
(v) identify persons who are Investment Personnel of the Trust
and inform those persons of their requirements to obtain
prior written approval from the Review Officer prior to
directly or indirectly acquiring ownership of a security in
any private placement or initial public offering.
(vi) Annually prepare a written report to the Trustees that
(1) describes any issues under the code of ethics or
procedures since the last report to the Trustees,
including, but not limited to, information about
material violations of the code or procedures and
sanctions imposed in response to the material
violations; and
(2) certifies that the Fund has adopted procedures
reasonably necessary to prevent Access Persons from
violating the code.
(B) POTENTIAL TRADE CONFLICT. When there appears to be a transaction
that conflicts with the Code, the designated Review Officer shall request a
written explanation of the Access Person's transaction. If after post-trade
review, it is determined that there has been a violation of the Code, a report
will be made by the designated Review Officer with a recommendation of
appropriate action to the Board.
(C) REQUIRED RECORDS. The Review Officer shall maintain and cause to be
maintained:
(i) a copy of any code of ethics adopted by the Trust which has
been in effect during the previous five (5) years in an easily
accessible place;
(ii) a record of any violation of any code of ethics, and of any
action taken as a result of such violation, in an easily
accessible place for at least five (5) years after the end of
the fiscal year in which the violation occurs;
(iii) a copy of each report made by an Access Person as required by
Section 4 of this Code for at least five (5) years after the
end of the fiscal year in which the report is made, the first
two (2) years in an easily accessible place;
(iv) a list of all persons who are, or within the past five years
have been, required to make reports or who were responsible
for reviewing these reports pursuant to any code of ethics
adopted by a Trust, in an easily accessible place;
(v) a copy of each written report and certification required
pursuant to Section 5(c) of this Code for at least five (5)
years after the end of the fiscal year in which it is made,
the first two (2) years in an easily accessible place; and
(vi) a record of any decision, and the reasons supporting the
decision, approving the acquisition by Investment Personnel of
securities under Section 5(a)(v) of this Code, for at least
five (5) years after the end of the fiscal year in which the
approval is granted.
SECTION 6. BOARD REVIEW
The Board of Trustees, including a majority of the independent
trustees, shall:
(i) approve the code of ethics of the Trust, the code of ethics of
each investment adviser and principal underwriter of the Trust
before initially retaining their services, and any material
changes to these codes within six months of such change;
(ii) base its approval of a code of ethics, and any material
changes to a code of ethics, on a determination that the code
contains provisions reasonably necessary to prevent access
persons (as defined in the respective codes) from engaging in
prohibited conduct;
(iii) receive, prior to approving a code or any amendment to a code,
a certification from the Trust, investment adviser or
principal underwriter that it has adopted procedures
reasonably necessary to prevent access persons from violating
the code; and
(iv) receive and consider, no less frequently than annually
(1) a written report from the Trust, investment adviser,
or principal underwriter describing any issues,
material violations or sanctions arising under the
Code; and
(2) a written certification from the Trust, investment adviser, or principal
underwriter, as applicable, that it has adopted procedures reasonably necessary
to prevent Access Persons from violating its code.
<PAGE>
MEMORIAL FUNDS
CODE OF ETHICS
APPENDIX A
ACCESS PERSON ACKNOWLEDGEMENT
I understand that I am an Access person as defined in the Memorial Funds Code of
Ethics. I have read and I understand the Code of Ethics and will comply with it
in all respects. In addition, I certify that I have complied with the
requirements of the Code of Ethics and I have disclosed or reported all personal
securities transactions required to be disclosed or reported pursuant to the
requirements of the Code.
Signature Date
Printed Name
THIS FORM MUST BE COMPLETED AND RETURNED TO THE TRUST'S REVIEW OFFICER:
NANETTE K. CHERN
C/O MEMORIAL FUNDS
TWO PORTLAND SQUARE
PORTLAND , ME 04101
<PAGE>
Exhibit (p)(2)
FORUM INVESTMENT ADVISORS, LLC
FORUM FUND SERVICES, LLC
CODE OF ETHICS
AS AMENDED JANUARY 17, 2000
INTRODUCTION
This Code of Ethics (the "Code") has been adopted by Forum Fund
Services, LLC ("FFS") and Forum Investment Advisors, LLC ("FIA" and collectively
with FFS, "Forum"). This Code pertains to Forum's investment advisory and
distribution services to registered management investment companies or series
thereof (each a "Fund"). In addition, this Code applies to employees of Forum's
commonly controlled companies who serve as officers of a Fund. This Code
establishes standards and procedures for the detection and prevention of
activities by which persons having knowledge of the investments and investment
intentions of a Fund may abuse their fiduciary duties to the Fund and addresses
other types of conflict of interest situations. Definitions of underlined terms
are included in Appendix A.
1. POLICY STATEMENT
Forum forbids any Access Person, Investment Personnel or Fund Officer
from engaging in any conduct which is contrary to this Code. In addition, due to
their positions, Forum also forbids any Access Person or Investment Personnel
from engaging in any conduct which is contrary to Forum's Insider Trading Policy
and Related Procedures. In addition, many persons subject to the Code are also
subject to the other restrictions or requirements which affect their ability to
open securities accounts, effect securities transactions, report securities
transactions, maintain information and documents in a confidential manner and
other matters relating to the proper discharge of your obligations to Forum.
These include contractual arrangements with Forum, policies adopted by Forum
concerning confidential information and documents and FFS' Compliance and
Supervisory Procedures Manual.
Forum has always held itself and its employees to the highest ethical
standards. While this Code is only one manifestation of those standards,
compliance with its provisions is essential. Failure to comply with this Code is
a very serious matter and may result in disciplinary action being taken. Such
action can include among other things, monetary fines, disgorgement of profits,
suspension or even termination of employment.
2. WHO IS COVERED BY THIS CODE
(a) All Access Persons and Investment Personnel, in each case only
with respect to those Funds as listed on Appendix B.
(b) Fund Officers, but only with respect to those Funds for which
they serve as Fund Officers as listed in Appendix B.
<PAGE>
3. PROHIBITED TRANSACTIONS
(A) PROHIBITION AGAINST FRAUDULENT CONDUCT. It is unlawful for Access
Persons, Investment Personnel and Fund Officers to use any information
concerning a security held or to be acquired by a Fund, or their ability to
influence any investment decisions, for personal gain or in a manner detrimental
to the interests of a Fund. In addition, they shall not, directly or indirectly:
(i) employ any device, scheme or artifice to defraud a Fund or
engage in any manipulative practice with respect to a Fund;
(ii) make to a Fund, any untrue statement of a material fact or
omit to state to a Fund a material fact necessary in order to
make the statements made, in light of the circumstances under
which they are made, not misleading; or
(iii) engage in any act, practice, or course of business which
operates or would operate as a fraud or deceit upon a Fund.
(B) BLACKOUT PERIOD. Access Persons and Investment Personnel shall not
purchase or sell a Covered Security in an account over which they have direct or
indirect influence or control on a day during which they know or should have
known a Fund has a pending "buy" or "sell" order in that same security until
that order is executed or withdrawn.
(C) ADDITIONAL INVESTMENT PERSONNEL BLACKOUT PERIOD. No Investment
Personnel shall purchase or sell a Covered Security within five calendar days
before or two calendar days after a Fund for which the Investment Personnel
makes or participates in making a recommendation trades in that security. Any
profits realized on trades within this proscribed period shall be disgorged.
This blackout period does not apply to money market mutual funds which are
advised by FIA.
(D) FUND OFFICER PROHIBITION. No Fund Officer shall directly or
indirectly seek to obtain information (other than that necessary to accomplish
the functions of the office) from any Fund portfolio manager regarding (i) the
status of any pending securities transaction for a Fund or (ii) the merits of
any securities transaction contemplated by the Fund Officer.
(E) BLACKOUT PERIOD EXCLUSIONS AND DEFINITIONS. The following
transactions shall not be prohibited by this Code and are not subject to the
limitations of Sections 3(b) and (c):
(i) purchases or sales over which you have no direct or indirect
influence or control (for this purpose, you are deemed to have
direct or indirect influence or control over the accounts of a
spouse, minor children and relatives residing in your home);
(ii) purchases which are part of an automatic dividend reinvestment
plan;
(iii) purchases or sales which are non-volitional on your part; and
<PAGE>
(iv) purchases effected upon the exercise of rights issued by an
issuer pro rata to all holders of a class of its securities,
to the extent such rights were acquired from such issuer.
Your trading shall be exempt from the limitations of Sections 3(b) and
(c) provided that (i) the market capitalization of a particular security exceeds
$1 billion and (ii) pending orders of FIA do not exceed two percent of the daily
average trading volume of the security for the prior 15 days.
For purposes of Sections 3(b) and (c), and subject to Section 3(g)
below, the (i) common stock and any fixed income security of an issuer shall not
be deemed to be the same security and (ii) non-convertible preferred stock of an
issuer shall be deemed to be the same security as the fixed income securities of
that issuer; and (iii) convertible preferred stock shall be deemed to be the
same security as both the common stock and fixed income securities of that
issuer.
(F) REQUIREMENT FOR PRECLEARANCE. Investment Personnel must obtain
prior written approval from the designated Review Officer before:
(i) directly or indirectly acquiring securities in an initial
public offering for which no public market in the same or
similar securities of the issue has previously existed; and
(ii) directly or indirectly acquiring securities in a private
placement. In determining whether to preclear the transaction,
the Review Officer designated under Section 5 shall consider,
among other factors, whether the investment opportunity should
be reserved for a Fund, and whether such opportunity is being
offered to the Investment Personnel by virtue of their
position with the Fund.
Any Investment Personnel of a Fund who has taken a personal position
through a private placement will be under an affirmative obligation to disclose
that position in writing to the Review Officer if they play a material role in
the Fund's subsequent investment decision regarding the same issuer; this
separate disclosure must be made even though the Investment Personnel has
previously disclosed the ownership of the privately placed security in
compliance with the preclearance requirements of this section. Once disclosure
is given, an independent review of the Fund's investment decision will be made.
(G) OTHER PROHIBITED TRANSACTIONS. Access Persons, Investment Personnel
and Fund Officers shall not:
(i) induce or cause a Fund to take action or to fail to take
action, for personal benefit rather than for the benefit of
the Fund;
(ii) accept anything other than of DE MINIMIS value or any other
preferential treatment from any broker-dealer or other entity
with which a Fund does business;
(iii) establish or maintain an account at a broker-dealer, bank or
other entity through which securities transactions may be
effected without written notice to the designated Review
Officer prior to establishing such an account;
<PAGE>
(iv) use knowledge of portfolio transactions of a Fund for your
personal benefit or the personal benefit of others;
(v) violate the anti-fraud provisions of the federal or state
securities laws;
(vi) serve on the boards of directors of publicly traded companies,
absent prior authorization based upon a determination by the
Review Officer that the board service would be consistent with
the interests of the Fund and its shareholders.
(H) UNDUE INFLUENCE. Access Persons, Investment Personnel and Fund
Officers shall not cause or attempt to cause any Fund to purchase, sell or hold
any security in a manner calculated to create any personal benefit to you. You
shall not recommend any securities transactions for a Fund without having
disclosed (through reports in accordance with Section 4, preclearance in
accordance with Section 3(f), or otherwise) your interest, if any, in such
securities or the issuer thereof, including, without limitation, (i) your
beneficial ownership of any securities of such issuer, (ii) any position with
such issuer or its affiliates and (iii) any present or proposed business
relationship between you (or any party in which you have a significant interest)
and such issuer or its affiliates.
(I) CORPORATE OPPORTUNITIES. Access Persons, Investment Personnel and
Fund Officers shall not take personal advantage of any opportunity properly
belonging to a Fund.
(J) CONFIDENTIALITY. Except as required in the normal course of
carrying out their business responsibilities, Access Persons, Investment
Personnel and Fund Officers shall not reveal information relating to the
investment intentions or activities of any Fund, or securities that are being
considered for purchase or sale on behalf of any Fund.
4. REPORTING REQUIREMENTS
(A) REPORTING. Access Persons, Investment Personnel and Fund Officers
must report the information described in this Section with respect to
transactions in any Covered Security in which they have, or by reason of such
transaction acquire, any direct or indirect beneficial ownership. They must
report to the designated Review Officer unless they are otherwise required by a
Fund, pursuant to a Code of Ethics adopted by the Fund, to report to the Fund or
another person.
(B) EXCLUSIONS FROM REPORTING. Purchases or sales in Covered Securities
in an account in which you have no direct or indirect influence or control are
not subject to the reporting requirements of this Section.
(C) INITIAL HOLDING REPORTS. No later than ten (10) days after you
become subject to this Code as set forth in Section 2, you must report the
following information:
(i) the title, number of shares and principal amount of each
Covered Security (whether or not publicly traded) in which you
have any direct or indirect beneficial ownership as of the
date you became subject to this Code;
<PAGE>
(ii) the name of any broker, dealer or bank with whom you
maintained an account in which any securities were held for
your direct or indirect benefit as of the date you became
subject to this Code; and
(iii) the date that the report is submitted.
(D) QUARTERLY TRANSACTION REPORTS. No later than ten (10) days after
the end of a calendar quarter, you must report the following information:
(i) with respect to any transaction during the quarter in a Covered
Security (whether or not publicly traded) in which you have, or
by reason of such transaction acquired, any direct or indirect
beneficial ownership:
(1) the date of the transaction, the title, the interest rate
and maturity date (if applicable), the number of shares and
the principal amount of each Covered Security involved;
(2) the nature of the transaction (i.e., purchase, sale or any
other type of acquisition or disposition);
(3) the price of the Covered Security at which the transaction
was effected;
(4) the name of the broker, dealer or bank with or through which
the transaction was effected; and
(5) the date that the report is submitted.
(ii) with respect to any account established by you in which any
Covered Securities (whether or not publicly traded) were held
during the quarter for your direct or indirect benefit:
(1) the name of the broker, dealer or bank with whom you
established the account;
(2) the date the account was established; and
(3) the date that the report is submitted.
(E) ANNUAL HOLDINGS REPORTS. Annually, you must report the following
information (which information must be current as of a date no more than thirty
(30) days before the report is submitted):
(i) the title, number of shares and principal amount of each
Covered Security (whether or not publicly traded) in which
you had any direct or indirect beneficial ownership;
(ii) the name of any broker, dealer or bank with whom you maintain
an account in which any
securities are held for your direct or indirect benefit; and
(iii) the date that the report is submitted.
(F) CERTIFICATION OF COMPLIANCE. You are required to certify annually
(in the form of Attachment A) that you have read and understood the Code and
recognize that you are subject to the Code. Further, you are required to certify
<PAGE>
annually that you have complied with all the requirements of the Code and you
have disclosed or reported all personal securities transactions pursuant to the
requirements of the Code.
(G) ALTERNATIVE REPORTING. The submission to the Review Officer of
duplicate broker trade confirmations and statements on all securities
transactions shall satisfy the reporting requirements of Section 4. The annual
holdings report may be satisfied by confirming annually, in writing, the
accuracy of the records maintained by the Review Officer and recording the date
of the confirmation.
(H) REPORT QUALIFICATION. Any report may contain a statement that the
report shall not be construed as an admission by the person making the report
that he or she has any direct or indirect beneficial ownership in the Covered
Securities to which the report relates.
(I) ACCOUNT OPENING PROCEDURES. You shall provide written notice to
the Review Officer prior to opening any account with any entity through which a
Covered Securities transaction may be effected. In addition, you will promptly:
(i) provide full access to a Fund, its agents and attorneys to any
and all records and documents which a Fund considers relevant
to any securities transactions or other matters subject to the
Code;
(ii) cooperate with a Fund, or its agents and attorneys, in
investigating any securities transactions or other matter
subject to the Code;
(iii) provide a Fund, its agents and attorneys with an explanation
(in writing if requested) of the facts and circumstances
surrounding any securities transaction or other matter subject
to the Code; and
(iv) promptly notify the Review Officer or such other individual as
a Fund may direct, in writing, from time to time, of any
incident of noncompliance with the Code by anyone subject to
this Code.
5. REVIEW OFFICER
(A) DUTIES OF REVIEW OFFICER. The Chief Compliance Officer of Forum
has been appointed by the Director of FIA and FFS as the Review Officer to:
(i) review all securities transaction and holdings reports and
shall maintain the names of persons responsible for reviewing
these reports;
(ii) identify all persons subject to this Code who are required to
make these reports and promptly inform each person of the
requirements of this Code;
(iii) compare, on a quarterly basis, all Covered Securities
transactions with each Fund's completed portfolio transactions
to determine whether a Code violation may have occurred;
(iv) maintain a signed acknowledgment by each person who is then
subject to this Code, in the form of Attachment A; and
(v) identify persons who are Investment Personnel of the Fund and
inform those persons of their requirements to obtain prior
written approval from the Review Officer prior to directly or
<PAGE>
indirectly acquiring ownership of a security in any private
placement or initial public offering.
(vi) exempt any Fund Officer from provisions of this Code if the
person is subject to similar requirements of a Fund's Code of
Ethics.
(B) POTENTIAL TRADE CONFLICT. When there appears to be a transaction
that conflicts with the Code, the Review Officer shall request a written
explanation of the person's transaction. If after post-trade review, it is
determined that there has been a violation of the Code, a report will be made by
the designated Review Officer with a recommendation of appropriate action to the
Director of FIA and FFS and a Fund's Board of Trustees (or Directors).
(C) REQUIRED RECORDS. The Review Officer shall maintain and cause to
be maintained:
(i) a copy of any code of ethics adopted by Forum which has been
in effect during the previous five (5) years in an easily
accessible place;
(ii) a record of any violation of any code of ethics, and of any
action taken as a result of such violation, in an easily
accessible place for at least five (5) years after the end of
the fiscal year in which the violation occurs;
(iii) a copy of each report made by anyone subject to this Code as
required by Section 4 for at least five (5) years after the
end of the fiscal year in which the report is made, the first
two (2) years in an easily accessible place;
(iv) a list of all persons who are, or within the past five years
have been, required to make reports or who were responsible
for reviewing these reports pursuant to any code of ethics
adopted by Forum, in an easily accessible place;
(v) a copy of each written report and certification required
pursuant to Section 5(e) of this Code for at least five (5)
years after the end of the fiscal year in which it is made,
the first two (2) years in an easily accessible place; and
(vi) a record of any decision, and the reasons supporting the
decision, approving the acquisition by Investment Personnel of
securities under Section 3(f) of this Code, for at least five
(5) years after the end of the fiscal year in which the
approval is granted.
(D) POST-TRADE REVIEW PROCESS. Following receipt of trade confirms and
statements, transactions will be screened for the following:
(i) SAME DAY TRADES: transactions by Access Persons and Investment
Personnel occurring on the same day as the purchase or sale of
the same security by a Fund for which they are an Access
Person or Investment Personnel.
(ii) PORTFOLIO MANAGER TRADES: transactions by Investment Personnel
within five calendar days before and two calendar days after a
Fund, for which the Investment Personnel makes or participates
in making a recommendation, trades in that security.
<PAGE>
(iii) FRAUDULENT CONDUCT: transaction by Access Persons, Investment
Personnel and Fund Officers which, within the most recent 15
days, is or has been held by a Fund or is being or has been
considered by a Fund or FIA for purchase by a Fund.
(iv) OTHER ACTIVITIES: transactions which may give the appearance
that an Access Person, Investment Personnel or Fund Officer
has executed transactions not in accordance with this Code.
(E) SUBMISSION TO FUND BOARD. The Review Officer shall annually
prepare a written report to the Board of Trustees (or Directors) of a Fund
listed in Appendix B that
(i) describes any issues under this Code or its procedures since
the last report to the Trustees, including, but not limited
to, information about material violations of the code or
procedures and sanctions imposed in response to the material
violations; and
(ii) certifies that the Fund has adopted procedures reasonably
necessary to prevent Access Persons, Investment Personnel and
Fund Officers from violating this code.
<PAGE>
FORUM CODE OF ETHICS
APPENDIX A
DEFINITIONS
(a) Access Person:
(i)(1) of FIA means each director or officer of FIA, any employee or
agent of FIA, or any company in a control relationship to FIA
who, in connection with the person's regular functions or
duties, makes, participates in or obtains information
regarding the purchase or sale of Covered Securities by a Fund
advised by FIA, or whose functions relate to the making of any
recommendations with respect to such purchases or sales; and
(i)(2) any natural person in a control relationship to FIA who
obtains information concerning recommendations made to a Fund
by FIA with regard to the purchase or sale of Covered
Securities by the Fund;
(ii) of FFS means each director or officer of FFS who in the
ordinary course of business makes, participates in or obtains
information regarding the purchase or sale of Covered
Securities for a Fund or whose functions or duties as part of
the ordinary course of business relate to the making of any
recommendation to a Fund regarding the purchase or sale of
Covered Securities.
(b) Act means the Investment Company Act of 1940, as amended.
(c) Beneficial Owner shall have the meaning as that set forth in Rule
16a-1(a)(2) under the Securities Exchange Act of 1934, as amended, except that
the determination of direct or indirect beneficial ownership shall apply to all
Covered Securities which an Access Person owns or acquires. A beneficial owner
of a security is any person who, directly or indirectly, through any contract,
arrangement, understanding, relationship or otherwise, has or shares a direct or
indirect pecuniary interest (the opportunity, directly or indirectly, to profit
or share in any profit derived from a transaction in the subject securities) in
a security.
Indirect pecuniary interest in a security includes securities held by a
person's immediate family sharing the same household. Immediate family means any
child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law (including adoptive relationships).
(d) Control means the power to exercise a controlling influence over the
management or policies of a company, unless this power is solely the result of
an official position with the company. Ownership of 25% or more of a company's
outstanding voting securities is presumed to give the holder thereof control
over the company. This presumption may be rebutted by the Review Officer based
upon the facts and circumstances of a given situation.
<PAGE>
(e) Covered Security means any security except:
(i) direct obligations of the Government of the United States;
(ii) bankers' acceptances and bank certificates of deposits;
(iii) commercial paper and debt instruments with a maturity at
issuance of less than 366 days and that are rated in one of
the two highest rating categories by a nationally recognized
statistical rating organization;
(iv) repurchase agreements covering any of the foregoing; and
(v) shares of registered open-end investment companies.
(f) Fund Officer means any employee of Forum or of a company commonly
controlled with Forum who is an officer or director/trustee of a Fund.
(h) Investment Personnel means
(i) any employee of FIA who, in connection with his or her regular
functions or duties, makes or participates in making
recommendations regarding the purchase or sale of securities
by a Fund managed by FIA; and
(ii) any individual who controls FIA or a Fund for which FIA is an
investment adviser and who obtains information concerning
recommendations made to the Fund regarding the purchase or
sale of securities by the Fund.
(i) Purchase or sale includes, among other things, the writing of an option
to purchase or sell.
(j) Security held or to be acquired by the Fund means
(i) any Covered Security which, within the most recent 15 days (x)
is or has been held by the applicable Fund or (y) is being or
has been considered by the applicable Fund or its investment
adviser for purchase by the applicable Fund; and
(ii) and any option to purchase or sell, and any security
convertible into or exchangeable for, a Covered Security.
<PAGE>
FORUM CODE OF ETHICS
APPENDIX B
LIST OF ACCESS PERSONS
(as amended March 20, 2000)
<TABLE>
<S> <C> <C> <C> <C> <C>
- ------------------------------ --------- -------- ----------------------------- ------------------------ --------------------
FIA AP IP AS OF DATE FUND END DATE
- ------------------------------ --------- -------- ----------------------------- ------------------------ --------------------
Berthy, Les C. X X September 1, 1989 FF
- ------------------------------ --------- -------- ----------------------------- ------------------------ --------------------
Burns, John X X July 1, 1999 FF/CTD
- ------------------------------ --------- -------- ----------------------------- ------------------------ --------------------
Fischer, Anthony R. X X January 1, 1998 CTD
- ------------------------------ --------- -------- ----------------------------- ------------------------ --------------------
Goldstein, David I. X June 1, 1997 FF/CTD
- ------------------------------ --------- -------- ----------------------------- ------------------------ --------------------
Kaplan, Mark D. X X March 20, 1996 FF/CTD
- ------------------------------ --------- -------- ----------------------------- ------------------------ --------------------
Keffer, John Y. X September 1, 1989 FF/CTD
- ------------------------------ --------- -------- ----------------------------- ------------------------ --------------------
Stillings, Dawn Marie X X January 1, 1998 FF/CTD
- ------------------------------ --------- -------- ----------------------------- ------------------------ --------------------
Hirsch, Ron X November 1, 1999 FF/CTD
- ------------------------------ --------- -------- ----------------------------- ------------------------ --------------------
FFS AP IP AS OF DATE FUND END DATE
- ------------------------------ --------- -------- ----------------------------- ------------------------ --------------------
Goldstein, David I. X September 1, 1991 All
- ------------------------------ --------- -------- ----------------------------- ------------------------ --------------------
Keffer, John Y. X June 9, 1986 All
- ------------------------------ --------- -------- ----------------------------- ------------------------ --------------------
Hirsch, Ron X November 1, 1999 All
- ------------------------------ --------- -------- ----------------------------- ------------------------ --------------------
FUND OFFICERS AP IP AS OF DATE OFFICER OR TRUSTEE OF END DATE
- ------------------------------ --------- -------- ----------------------------- ------------------------ --------------------
Barrett, Stephen J. September 28, 1998 CT, TC, ML, SS
- ------------------------------ --------- -------- ----------------------------- ------------------------ --------------------
Goldstein, David I. October 16, 1992 CT, FF
- ------------------------------ --------- -------- ----------------------------- ------------------------ --------------------
Hirsch, Ron October 28, 1999 SS, TC, CT, ML
- ------------------------------ --------- -------- ----------------------------- ------------------------ --------------------
Hong, Stacey E. May 19, 1998 CT, FF
- ------------------------------ --------- -------- ----------------------------- ------------------------ --------------------
Kaplan, Mark D. June 14, 1996 FF
- ------------------------------ --------- -------- ----------------------------- ------------------------ --------------------
Keffer, John Y. October 16, 1992 CT, FF, SS, TC
- ------------------------------ --------- -------- ----------------------------- ------------------------ --------------------
Klenk, Leslie K. May 19, 1998 FF
- ------------------------------ --------- -------- ----------------------------- ------------------------ --------------------
Riggle, D. Blaine March 9, 1998 CT, ML, SS, TC
- ------------------------------ --------- -------- ----------------------------- ------------------------ --------------------
Sheehan, Thomas G. July 26, 1994 CT, ML
- ------------------------------ --------- -------- ----------------------------- ------------------------ --------------------
Taylor, Dawn January 28, 1999 SS
- ------------------------------ --------- -------- ----------------------------- ------------------------ --------------------
</TABLE>
AP = Access Person; IP = Investment Personnel
FF = Forum Funds; CTD = Core Trust (Delaware); CT = Cutler Trust; TC = True
Crossing; Memorial = ML; SS = Sound Shore
<PAGE>
FORUM
CODE OF ETHICS
ATTACHMENT A
ACKNOWLEDGMENT
I understand that I am subject to Forum's Code of Ethics. I have read and I
understand the Forum Code of Ethics, as adopted by Forum Investment Advisors,
LLC and Forum Fund Services, LLC as amended January 17, 2000 and will comply
with it in all respects. In addition, I certify that I have complied with the
requirements of the Code of Ethics and I have disclosed or reported all personal
securities transactions required to be disclosed or reported pursuant to the
requirements of the Code.
Signature Date
Printed Name
THIS FORM MUST BE COMPLETED AND RETURNED TO FORUM'S COMPLIANCE DEPARTMENT:
COMPLIANCE MANAGER
FORUM FINANCIAL GROUP
TWO PORTLAND SQUARE
PORTLAND, ME 04101
<PAGE>
Exhibit (p)(3)
PPM HOLDINGS, INC.
PPM AMERICA, INC.
PPM FINANCE, INC.
PPM AMERICA FUNDS
CODE OF ETHICS AND CONDUCT
As an investment adviser, PPM America, Inc. ("PPMA") owes its clients
and shareholders of the PPM America Funds ("PPM Funds") the highest duty of
diligence and loyalty. Accordingly, one of the fundamental policies of PPMA is
to avoid any conflict of interest. In furtherance of this fundamental policy,
this Code of Ethics and Conduct ("Code") has been adopted by PPMA, by PPMA's
immediate parent company, PPM Holdings, Inc., by PPMA's affiliated company, PPM
Finance, Inc., and by the PPM Funds. PPMA, PPM Holdings and PPM Finance are
referred to collectively in the Code as "PPM". The PPM Funds have separately
adopted a Code of Ethics for the disinterested trustees.
The Code applies to each employee of PPM, including all executive
officers of PPMA, PPM Holdings or PPM Finance, and to all access persons of the
PPM Funds (each referred to collectively in the Code as an "Employee"). Each
Employee should consult with the Chief Compliance Officer of the PPM Company
with which the Employee is affiliated regarding any question about the Code or
other issues relating to PPM's fiduciary obligations to its clients BEFORE
taking any action. Please also remember that PPM has developed Policy and
Procedures Regarding Inside Information and Chinese Walls ("Inside Information
Policy"). Please refer to the Inside Information Policy as appropriate.
I. GENERAL STANDARDS
A. FAIR DEALING. Each Employee shall act in a manner consistent with
the obligation of PPM and each person covered by the Code to deal fairly with
all clients when taking investment action. Any investment ideas developed by an
Employee in the course of the Employee's work for PPM shall be made available
for use by PPM's clients PRIOR to any personal trading or investment by any
Employee based on such ideas, including trading or investment by an Employee
directly or indirectly.
B. PERSONAL SECURITIES TRANSACTIONS. No Employee may purchase or sell
any security in which the Employee has a beneficial interest except in
accordance with this Code. See Appendix A for examples of situations in which a
person covered by the Code will be deemed to have a beneficial interest in a
security for purposes of the Code. Specific prohibitions and reporting
requirements are contained in Sections III and IV of the Code.
C. GIFTS, FAVORS, AND GRATUITIES. An Employee may not accept any gift,
favor, gratuity or invitation offered by any broker, client, approved company
(I.E., a company whose securities are held by a PPM client, including PPM
Funds), supplier, or other person or organization with whom PPM has a business
<PAGE>
relationship, that creates a conflict between the Employee's personal financial
interest and the interests of PPM's clients. Specifically, an Employee may not
accept any such gift, favor, gratuity or invitation except those extended as a
customary courtesy of business life. Prohibited gifts or gratuities include the
receipt of any credit facility, personal investment opportunities or other
special treatment from any broker or dealer that is not available from that
broker or dealer to similarly situated customers not in the securities or
investment management business.
No Employee should offer any gift, favor, gratuity, or invitation that
influences decision-making or otherwise creates a conflict of interest on the
part of the intended recipient.
D. CONFIDENTIALITY. Information relating to any client's portfolio or
activities is strictly confidential and shall not be disclosed, orally or in
writing, to anyone outside PPM, unless that Employee has been specifically
authorized to release that information. For further guidance in this regard,
consult PPM's Press Policy and policy regarding Confidential Information and
Non-Competition.
E. SERVICE AS A DIRECTOR. No Employee shall serve on the board of
directors (or equivalent) of any company with a class of publicly-held
securities, unless such service has been authorized by PPM's Management
Committee. Board service increases the likelihood of possession of material,
non-public information. Please refer to PPM's Inside Information Policy.
F. EXEMPTIONS FROM THE CODE'S PROVISIONS. The purpose of the Code is to
prevent the damage that might result from a conflict between the interests of an
Employee of PPM and PPM's clients, not to impose undue financial burdens on
persons subject to the Code. For that reason, the Chief Compliance Officer has
the authority to grant an exemption, in advance of any proposed transaction,
from any provision of this Code except the provisions requiring reporting of
personal securities transactions if, in the judgment of the Chief Compliance
Officer, compliance with the provision of the Code would result in serious
financial hardship to the Employee and the requested exemption would not result
in any breach by PPM of its duties to its clients. EXEMPTION OF A PROPOSED
TRANSACTION FROM THE CODE IS EXPECTED TO BE GRANTED VERY RARELY.
II. TRANSACTIONS COVERED BY THE CODE
AND EXEMPT TRANSACTIONS
The Code regulates personal securities transactions as a part of the
effort by PPM to detect and prevent conduct that might create an actual or
potential conflict of interest with a client. The Code flatly prohibits certain
transactions and establishes reporting requirements for all transactions except
those listed as exempt in Section II.B.
A. TRANSACTIONS COVERED BY THE CODE. Every transaction in a
security by or for the benefit of an Employee is subject to the Code.
Security is defined very broadly for purposes of the Code. Transactions
involving options, warrants, and futures contracts are subject to the same
restrictions and procedures as those set forth in this Code with respect to the
underlying securities.
<PAGE>
The Code covers transactions in the personal account of an Employee,
the account of any member of the Employee's immediate family (including spouse,
minor children or any relative living in the Employee's home), any other account
in which the Employee has a direct or indirect financial or "beneficial"
ownership interest, or in any nonclient account controlled by or under the
influence of the Employee. As required by the Securities and Exchange
Commission, beneficial interest is defined broadly; see Appendix A to the Code
for examples of ownership arrangements covered by the Code. Having a beneficial
interest in a security for purposes of the Code is not necessarily the same
thing as ownership for other purposes (including, for example, tax purposes).
If you have any question about whether a transaction is covered by the
Code, contact the Chief Compliance Officer BEFORE taking any action.
B. EXEMPT TRANSACTIONS. The following transactions are exempt from the
reporting provisions of this Code:
1. purchases or sales effected in any account over which
an Employee has no direct or indirect influence or
control or in any account of the Employee which is
managed on a discretionary basis by a person other
than the Employee and with respect to which the
Employee does not in fact influence or control
purchase or sale transactions;
2. purchases or sales which are involuntary on the part
of the Employee (for example, the redemption of a
debt security by the issuer);
3. purchases which are part of an automatic dividend
reinvestment plan;
4. purchases of securities by exercising rights that
were issued pro rata to all holders of a class of
securities, but only if the Employee acquired the
rights directly from the issuer (and not by purchase
from someone other than the issuer), and sales of
rights that were acquired by the Employee by pro rata
issuance directly from the issuer; and
5. transactions involving: shares of registered open-end
mutual funds; securities issued by the United States
Government; bankers' acceptances; bank certificates
of deposit; commercial paper; short-term debt
securities issued or guaranteed by any agency or
instrumentality of the United States Government; or
other money market instruments designated by PPMA.
<PAGE>
III. PERSONAL INVESTMENT RULES
A. PROHIBITED TRANSACTIONS. The following transactions are prohibited:
1. FRONT-RUNNING. No Employee shall engage in "front-running"
an order or recommendation, even if the Employee is not
handling either the order or the recommendation and even if
the order or recommendation is for someone other than a
client of PPM. Front-running consists of executing a
transaction in the same or underlying securities, options,
rights, warrants, convertible securities, or other related
securities, in advance of block or large transactions of a
similar nature likely to affect the value of the securities,
based on the knowledge of the forthcoming transaction or
recommendation.
2. SECURITIES ON RESTRICTED LISTS; INSIDE INFORMATION POLICY.
No Employee may purchase or sell any security prohibited by
the Inside Information Policy, including:
a. any security on the Firm Wide Restricted List; and
b. for Employees designated in the Inside Information
Policy as members of the Private Information Investment
and Access Groups, any security on the Private
Information Restricted List.
See the Inside Information Policy for more information and
definitions.
3. BLACKOUT PERIOD FOR CLIENT TRANSACTIONS. No Employee may
purchase or sell any security which: (a) is being purchased
or sold on behalf of a client (I.E., an order has been
entered but not executed for a client), (b) has been
purchased or sold by a client within the prior seven
calendar days, or (c) is being planned for purchase or sale
on any client's behalf within the next seven days.
Notwithstanding the prohibition in the preceding paragraph,
no blackout period will apply to any Exempt Transaction, as
defined in Section II.B. of the Code, or to any transaction
in a security which is being purchased or sold, has been
purchased or sold, or is being planned for purchase or sale,
on behalf of a PPMA client by a foreign affiliate of or
subadviser to PPMA.
4. PRE-APPROVAL OF PERSONAL SECURITIES TRANSACTIONS. No
Employee may initiate, recommend, or in any other way
participate in a personal securities transaction in a
security that is not an Exempt Transaction (as defined in
this Code) unless that transaction has been pre-approved as
described in III.B., below.
<PAGE>
5. INITIAL PUBLIC OFFERINGS. No Employee may purchase any
equity security or any security convertible into an equity
security in an initial public offering ("IPO") of that
security.
6. PRIVATE PLACEMENTS. No Employee may purchase any security in
a private placement without the prior written approval of
the Chief Compliance Officer.
7. SHORT SALES. No Employee may sell short any security that is
held in any PPMA client account.
8. DEALING WITH CLIENTS. No Employee may sell or purchase any
security to or from a client portfolio.
9. BETS. No Employee shall make a wager or bet of any kind on
the change in the price of any security or the value of any
securities index.
B. PROCEDURES FOR PRE-APPROVAL OF PERSONAL SECURITIES TRANSACTIONS.
1. TRANSACTIONS FOR WHICH PRE-APPROVAL IS REQUIRED. Except for
Exempt Transactions (as defined in Section II.B., above),
each Employee MUST obtain written approval to initiate,
recommend, or in any other way participate in a personal
securities transaction of any kind (including purchases,
sales, exercises and exchanges) from the Chief Compliance
Officer of PPMA or any other person designated by the Chief
Compliance Officer.
2. HOW TO REQUEST PRE-APPROVAL. Requests by an Employee for
prior approval of personal securities transactions must be
made in writing on PPM's standard Personal Trade Information
form ("PTI"). A copy of the PTI is attached as Appendix B.
In requesting pre-approval, an Employee must disclose any
relationship between the security proposed to be purchased
and any security held or planned to be acquired by any PPM
client (for example, the security proposed to be purchased
has been made available because of purchases of the same or
related securities by PPM clients).
3. APPROVAL BY A COMPLIANCE OFFICER. The reviewing Compliance
Officer shall mark his response on the PTI, give two copies
to the Employee and give the other copy to the Chief
Compliance Officer. A Compliance Officer will generally
approve a personal securities transaction if, in the
judgment of the Compliance Officer:
a. the transaction is not prohibited by the Code;
b. the transaction does not violate PPM's Inside
Information Policy; and
<PAGE>
c. the transaction does not involve a conflict of interest
or potential for a conflict of interest.
4. EXECUTING A PRE-APPROVED TRANSACTION. Pre-approval of a
securities transaction is effective for three New York
Stock Exchange trading days following the date approval
is granted.1 If an Employee becomes aware of a
significant change in the circumstances on which
approval was based before the transaction is executed,
the member shall bring that change in circumstances to
the attention of the Compliance Officer who approved
the transaction to determine whether the previously
granted approval should be revoked or modified.
If the transaction is executed, the Employee shall submit to
the Chief Compliance Officer a copy of the completed PTI
within two business days of execution of the transaction,
showing the terms of the transaction as executed. If the
transactions is not executed, the PTI should be returned to
the Chief Compliance Officer showing that the transaction
was not completed.
5. EFFECT OF PRE-APPROVAL. The approval of any personal
securities transaction by a Compliance Officer does not
relieve an Employee of that Employee's Responsibilities
under the federal securities laws, including those
relating to insider trading, or PPM's policies,
including this Code.
C. REPORTS OF PERSONAL INVESTMENTS AND TRANSACTIONS.
1. ACCOUNT AND HOLDINGS REPORT. Upon entering employment
with PPM and annually thereafter, every Employee must
submit to the Chief Compliance Officer a Personal
Securities Accounts and Holdings Report ("Personal
Securities Report") (a copy of which is attached as
Appendix C) with respect to every security and
securities account in which the Employee has or expects
to have a beneficial interest and every nonclient
account for which he or she exercises influence or
control over investment decisions.
As to securities accounts, the Personal Securities Report
requires the Employee to identify the brokerage firm at
which each such account is maintained, the title of the
account, the account number, and the names and addresses of
all individuals with a beneficial interest in the account.
When an Employee opens a new securities account, closes an
existing account, or no longer has influence or control over
an account, the Employee shall promptly notify the Chief
Compliance Officer in writing.
As to securities holdings, the Personal Securities Report
requires disclosure of the name of the security, the type of
security, the number of shares or principal amount (for debt
- ------------------------
1 Accordingly, approval for limit orders must be renewed every three business
days until the order is filled or withdrawn.
<PAGE>
securities), the nature of the Employee's interest in the
security, and the brokerage firm where it is held. An
Employee need not report securities obtained in Exempt
Transactions as described in Section II.B., above.
The annual submission of the Personal Securities Report is
due by February 28 of each year, reporting each Employee's
securities accounts and holdings as of December 31 of the
prior year. The Chief Compliance Officer shall keep a copy
of all Personal Securities Reports.
2. TRANSACTION REPORTING. Each Employee shall report all
completed personal securities transactions to the Chief
Compliance Officer by completing the PTI in accordance
with the procedures set forth in Section III.B., above.
3. CONFIRMATIONS AND STATEMENTS. Each Employee is
responsible for arranging to have confirmations and
monthly account statements for each account listed by
the Employee in the Employee's Personal Securities
Report sent by the broker or other entity holding the
account to the Chief Compliance Officer.
IV. ADMINISTRATION OF THE CODE
A. COMMUNICATIONS.
1. INITIAL COMMUNICATION AND CERTIFICATION. Upon adoption
of the Code or the commencement of employment, each
Employee of PPM is provided with a copy of the Code. At
that time, each Employee also is scheduled to discuss
the Code with the Chief Compliance Officer. Each
Employee is required to acknowledge his or her
understanding of the Code's prohibitions and
requirements by signing a Compliance Certificate and
returning it to the Chief Compliance Officer for
retention in PPM's files.
2. ANNUAL CERTIFICATION. Each year PPM recirculates the
Code to its Employees and requires that each of them
sign a Compliance Certificate and return the executed
copy to the Chief Compliance Officer.
3. QUESTIONS. Persons subject to the Code are encouraged
to direct any questions that may arise concerning the
Code and its prohibitions to the Chief Compliance
Officer.
B. REVIEW OF PERSONAL SECURITIES TRANSACTIONS.
1. REVIEW OF CONFIRMATIONS. Within five business days
after the receipt of a confirmation, the Chief
Compliance Officer or someone under his supervision
shall match the confirmation with the appropriate PTI,
to ensure that all trades have received prior
authorization, if required.
<PAGE>
If a confirmation discloses a securities transaction
which was required to be pre-approved, but for which
no prior written approval was obtained, or which was
executed after the prior approval expired, the Chief
Compliance Officer shall discuss the circumstances of
the transaction and the reason for the failure to
follow required procedures with the Employee and
shall make a written record of the matter. A copy of
that record shall be retained in that Employee's
personal securities transactions file. This action
does not preclude any other sanction for violation of
the Code.
2. MONTHLY REVIEW. On a monthly basis, the Chief
Compliance Officer or someone under his supervision
shall review each Employee's personal securities
transactions, using the PTIs, confirmations, and other
account documentation to look for indications of
improper personal securities transactions. The Chief
Compliance Officer shall discuss any questionable
transactions with the Employee who effected the trade
and make such other inquiries as the Chief Compliance
Officer in his discretion deems appropriate. The Chief
Compliance Officer shall make a written record of any
determination made and the reasons underlying that
determination.
C. RECORDKEEPING. The Chief Compliance Officer or someone under
his supervision shall maintain the records listed below for a period of five
years at PPM's principal place of business in an easily accessible place:
1. LIST OF PERSONS COVERED BY THE CODE. A list of all
Employees, which shall constitute a list of all persons
subject to the Code during the period.
2. COMPLIANCE CERTIFICATES. Compliance Certificates signed
by all Employees acknowledging receipt of copies of the
Code and acknowledging that they are subject to it,
and, in the case of Employees subject to the Code in
prior periods, certifying that he or she complied with
the Code during that prior period.
3. THE CODE. A copy of each code of ethics that has been
in effect at any time during the period.
4. REPORTS. A copy of each Personal Securities Report,
PTI, confirmation and monthly statement submitted by an
Employee and a record of any known violation and action
taken as a result thereof during the period.
D. ANNUAL REVIEW OF PROCEDURES. The Code shall be reviewed by
PPM's management on an annual basis to assess its effectiveness, in conjunction
with PPM's other policies and procedures, in preventing improper and illegal
personal securities trading by PPM's Employees.
<PAGE>
V. VIOLATIONS OF THE CODE
If the Chief Compliance Officer determines that a violation or possible
violation of any of the provisions of this Code has occurred, the Chief
Compliance Officer shall report that determination to the President of PPMA (or,
if the violation of the Code is believed to involve the President, appropriate
executive officers of PPM Limited). The Chief Compliance shall discuss the
matter with the Employee. If the President of PPMA agrees with the determination
of the Chief Compliance Officer, the Chief Compliance Officer shall promptly
report such violation to the Board of Directors of PPMA and/or to the Board of
Trustees of PPM Funds. PPMA's Board of Directors may impose such sanctions
against the Employee as it deems appropriate under the circumstances. Such
sanctions may include unwinding a transaction, forfeiture of any profit from a
transaction, reduction in salary, censure, suspension or termination of
employment.
Violations of this Code may also violate the federal securities laws.
Sanctions for violations of the federal securities laws, particularly violations
of the antifraud provisions, include fines, money damages, injunctions,
imprisonment, and bars from certain types of employment in the securities
business.
<PAGE>
Appendix A
Wrapper.doc
EXAMPLES OF BENEFICIAL OWNERSHIP
You will be deemed to have a beneficial interest in a security for
purposes of the Code in the circumstances listed below.
1. Securities held by you for your own benefit, whether such
securities are in bearer form, registered in your own name, or otherwise;
2. Securities held by others for your benefit (regardless of whether
or how such securities are registered), such as, for example, securities
held for you by custodians, brokers, relatives, executors, or
administrators;
3. Securities held by a pledgee for your account;
4. Securities held by a trust in which you have an interest. A
remainder interest will confer beneficial ownership only if you have power to
exercise or share investment control over the trust.
5. Securities held by you as trustee or co-trustee, where either you or
any member of your immediate family (I.E., spouse, children or descendants,
stepchildren, parents and their ancestors, and stepparents, in each case
treating a legal adoption as blood relationship) has an interest in the trust.
6. Securities held by a trust of which you are the settlor, if you
have the power to revoke the trust without obtaining the consent of all the
beneficiaries and have or share investment control;
7. Securities held by any non-public partnership in which you are a
partner to the extent of your interest in partnership capital or profits;
8. Securities held by a personal holding company controlled by you
alone or jointly with others;
9. Securities held in the name of your spouse unless legally
separated, or in the name of you and your spouse jointly;
10. Securities held in the name of your minor children or in the name
of any immediate family member of you or your spouse (including an adult child)
who is presently sharing your home. This applies even if the securities were not
received from you and the income from the securities is not actually used for
the maintenance of your household;
11. Securities held in the name of any person other than you and those
listed in paragraphs (9) and (10), above, if by reason of any contract,
understanding, relationship, agreement, or other arrangement you obtain benefits
substantially equivalent to those of ownership;
12. Securities held in the name of any person other than you, even
though you do not obtain benefits substantially equivalent to those of ownership
(as described in (11), above), if you can vest or revest title in yourself.
<PAGE>
Appendix B
PERSONAL TRADE INFORMATION
CONFIDENTIAL
Employee Name:__________________________________________
- --------------------------------------------------------------------------------
PART A: PRE-CLEARANCE
Securities Description:
Buy |_| Sell |_|
Quantity2:
Is this security or transaction related in any way to a security being
held, purchased or sold by PPM on behalf of a client?
No |_| Yes |_|
Give Details___________________________________________________________
PRE-APPROVAL SIGNATURE: DATE:
REMINDER: PRE-APPROVAL IS VALID FOR ONLY 3 NYSE TRADING DAYS FOLLOWING
THE DATE OF PRE-APPROVAL.
- --------------------------------------------------------------------------------
PART B: TRADE DETAIL
Buy |_| Sell |_|
Trade Date:___________ Quantity:___________ Price per Unit:____________
Broker:
Check here if the transaction was NOT executed: |_|
Employee Signature:__________________________________ Date:_______________
- --------------------------------------------------------------------------------
PART C: REVIEW
Reviewer's Notes:
Reviewer's Initials: Date of Review:
- -------------------------
2 For equity securities, enter the number of shares. For debt securities, enter
the par value.
<PAGE>
PERSONAL SECURITIES ACCOUNTS AND HOLDINGS REPORT
In accordance with PPM's Code of Ethics and Conduct (the "Code"),
please provide a list of all of your securities accounts and securities holdings
in which you have a beneficial interest. More detailed instructions are set
forth below. You will be asked to complete this report upon entering PPM's
employment and annually thereafter. In addition, during the course of the year,
if you open a new account or otherwise obtain a beneficial interest in a
securities account, the Code requires that you report that new account in
writing to the Chief Compliance Officer. If you have any question as to whether
a security account or holding should be reported on this Report, you should
consult with the Chief Compliance Officer.
1. Please provide a list identifying all securities accounts in which you
have a beneficial interest. See Appendix A to the Code for examples of
situations in which you will be deemed to have a beneficial interest in
a security. If you have any question as to whether an account should be
reported, you should consult with the Chief Compliance Officer.
<TABLE>
<S> <C> <C>
============================================= ====================== ===========================================
NAME OF ACCOUNT Account Number Name of Brokerage Firm
- --------------------------------------------- ---------------------- -------------------------------------------
- --------------------------------------------- ---------------------- -------------------------------------------
- --------------------------------------------- ---------------------- -------------------------------------------
- --------------------------------------------- ---------------------- -------------------------------------------
- --------------------------------------------- ---------------------- -------------------------------------------
- --------------------------------------------- ---------------------- -------------------------------------------
- --------------------------------------------- ---------------------- -------------------------------------------
- --------------------------------------------- ---------------------- -------------------------------------------
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- --------------------------------------------- ---------------------- -------------------------------------------
- --------------------------------------------- ---------------------- -------------------------------------------
- --------------------------------------------- ---------------------- -------------------------------------------
- --------------------------------------------- ---------------------- -------------------------------------------
- --------------------------------------------- ---------------------- -------------------------------------------
============================================= ====================== ===========================================
</TABLE>
NOTE: CONTINUE LISTING AS NECESSARY ON ADDITIONAL SHEETS
<PAGE>
2. Please provide a list of all securities in which you have a
beneficial interest. See Appendix A to the Code for examples of situations in
which you will be deemed to have a beneficial interest in a security. You need
not include securities that you obtained in Exempt Transactions as defined in
the Code. If you do not have any securities holdings to report, write NONE.
INSTEAD OF FILLING OUT THIS FORM, YOU MAY ATTACH COPIES OF THE MOST RECENT
STATEMENTS OF EACH OF THE ACCOUNTS LISTED ABOVE.
<TABLE>
<S> <C> <C> <C>
======================================== ================= ================ ======================================
Number of
Shares or
Type of Principal4
NAME OF SECURITY Security3 Amount Brokerage Firm Where Held
- ---------------------------------------- ----------------- ---------------- --------------------------------------
- ---------------------------------------- ----------------- ---------------- --------------------------------------
- ---------------------------------------- ----------------- ---------------- --------------------------------------
- ---------------------------------------- ----------------- ---------------- --------------------------------------
- ---------------------------------------- ----------------- ---------------- --------------------------------------
- ---------------------------------------- ----------------- ---------------- --------------------------------------
- ---------------------------------------- ----------------- ---------------- --------------------------------------
- ---------------------------------------- ----------------- ---------------- --------------------------------------
- ---------------------------------------- ----------------- ---------------- --------------------------------------
- ---------------------------------------- ----------------- ---------------- --------------------------------------
- ---------------------------------------- ----------------- ---------------- --------------------------------------
- ---------------------------------------- ----------------- ---------------- --------------------------------------
======================================== ================= ================ ======================================
</TABLE>
NOTE: CONTINUE LISTING AS NECESSARY ON ADDITIONAL SHEETS
I CERTIFY THAT THE STATEMENTS MADE BY ME ON THIS FORM ARE TRUE,
COMPLETE, AND CORRECT TO THE BEST OF MY KNOWLEDGE AND BELIEF AND ARE MADE IN
GOOD FAITH.
Date Signature
- ----------------------
3 Insert the following symbol as pertinent to indicate the type of security
held: C-common stock, P-preferred stock, O-option, W-warrant, D-debt security,
and X-other.
4 For Debt Securities.
<PAGE>
PPM AMERICA, INC.
COMPLIANCE CERTIFICATE
- -------------------------
NAME (PRINT OR TYPE)
This is to certify that the attached Code of Ethics and Conduct
("Code") was distributed and explained to me at a meeting held on
_____________________, 199___. I have read and understand the Code. I certify
that I will comply with these policies and procedures during the course of my
employment by PPM and that, since my last Compliance Certification (if any), I
have complied with the Code. Moreover, I agree to promptly report to the Chief
Compliance Officer any violation or possible violation of these policies and
procedures. I UNDERSTAND THAT VIOLATION OF THE CODE SHALL BE GROUNDS FOR
DISCIPLINARY ACTION OR DISMISSAL AND MAY ALSO BE A VIOLATION OF FEDERAL AND/OR
STATE SECURITIES LAWS.
- ------------------------------ ----------------------------------
Date Signature
<PAGE>
Exhibit (p)(4)
CODE OF ETHICS
FOR
CONSECO CAPITAL MANAGEMENT, INC.
I. STATEMENT OF POLICY:
This Code of Ethics (hereinafter "Code") is adopted under rule
17j-1 promulgated by the Securities and Exchange Commission pursuant to
Section 17(j) of the Investment Company Act of 1940 (the "Investment
Company Act") and under the Insider Trading and Securities Fraud
Enforcement Act of 1988 (the "Insider Trading Act"). In general, the
Investment Company Act and Rule 17j-1 impose an obligation on
registered investment companies and on certain registered investment
advisers and registered broker-dealers to adopt written compliance
procedures and a Code of Ethics covering securities activities of their
directors, officers and certain employees. This Code is designed to
ensure that those individuals who have access, due to their duties and
responsibilities with Conseco Capital Management, Inc. (hereinafter the
"Adviser") to material, non-public information regarding the activities
of the Adviser, or to information about the portfolio securities and
the activities of the Adviser and its Clients, do not intentionally use
such information for their personal benefit.
The Code is intended to cover all Access Persons (as
hereinafter defined) of the Adviser. All Access Persons are subject to
and bound by the terms of this Code. It is not the intention of this
Code to prohibit personal securities transactions by Access Persons,
but rather to prescribe rules designed to prevent actual and apparent
conflicts of interest. While it is not possible to specifically define
and prescribe rules addressing all possible situations in which
conflicts may arise, this Code sets forth the Adviser's policy
regarding conduct in those situations in which conflicts are most
likely to develop.
Every Access Person should keep the following general
principles in mind in discharging his or her obligations under the
Code:
(A) No Access Person should knowingly place his or her own
interests ahead of the Adviser or its Clients; and
(B) No Access Person should use knowledge of the activities of the
Adviser or its Clients to his or her profit or advantage.
II. DEFINITIONS:
(A) "Access Person" means any director, officer or Advisory Person of
the Adviser.
(B) "Adviser" means the investment adviser, Conseco Capital Management
, Inc.
(C) "Advisory Person" means any employee of the Adviser, or any
company or natural person in a control relationship to the
Adviser, who, in connection with his regular functions or duties,
makes, participates in, or obtains information regarding the
purchase or sale of a security by the Client, or whose functions
relate to the making of any recommendations with respect to such
purchases or sales.
(D) "Beneficial Ownership" shall be interpreted in the same manner
as it would be in determining whether a person is subject to
the provisions of Section 16 of the Securities Exchange Act of
1934 and the rules and regulations thereunder, except that it
applies to all securities which an Access Person has or
acquires. Beneficial ownership includes direct or indirect
pecuniary interest in securities, such as securities held by
members of a person's immediate family sharing the same
household.
<PAGE>
(E) "Board" means the Board of Directors of the Adviser.
(F) "Client" means any corporation, insurance company, individual,
pension plan, endowment, institution, investment company,
separate account, trust, business trust, or subsidiary of
Conseco, Inc. or its subsidiaries, who, for a fee, has
selected the Adviser to act on its behalf in the offering of
portfolio management, investment consulting, or other advisory
services.
(G) "Conseco" means Conseco, Inc.
(H) "Control" means the power to exercise a controlling influence
over the management of policies of a company (Section 2(a)(9)
of the Investment Company Act).
(I) "Designated Officer" means the Chief Compliance Officer or, in
his absence, the President of the Adviser.
(J) "Director" means a member of the Board of Directors of the
Adviser.
(K) "He" or "his" includes feminine gender.
(L) "Investment Company" means a company registered as such under
the Investment Company Act and for which the Adviser is the
investment adviser.
(M) "Purchase or sale of a security" includes, inter alia, the
writing of an option to purchase or sell a security and the
exercise of a stock option.
(N) "Security" includes any note, stock, treasury stock, bond,
debenture, evidence of indebtedness, certificate of interest or
participation in any profit-sharing agreement, collateral-trust
certificate, investment contract, limited partnership shares,
etc. (as defined in Section 2(a)(36) of the Investment Company
Act). "Security" shall not include shares of registered open-end
investment companies, securities issued by the United States
Government, short-term debt securities which are "government
securities" (meaning any security issued or guaranteed as to
principal or interest by the United States, or by any person
acting as an instrumentality of the United States government, per
Section 2(a)(16) of the Investment Company Act), bankers
acceptances, bank certificates of deposit, commercial paper, and
any other money market instrument as designated by the Board.
(O) A security is "being considered for purchase or sale" when a
recommendation has been made and communicated, or when a
person who participates in making recommendations performs
investigative or analytical work for the purpose of making a
recommendation or when there is an outstanding order to
purchase or sell that security for a Client.
III. EXEMPTED TRANSACTIONS:
The prohibitions of Section IV of this Code shall not apply to the
following transactions:
(A) Purchases or sales effected in any account over which the
Access Person has no direct or indirect influence or control;
(B) Purchases or sales which are non-volitional on the part of
either the Access Person or the Adviser;
(C) Purchases which are part of an automatic dividend reinvestment
plan;
(D) Purchases effected upon the exercise of rights issued by an
issuer pro rata to all holders of a class of its securities,
to the extent such rights were acquired from the issuer;
<PAGE>
(E) Purchases or sales of securities which are not eligible for
purchase or sale by any Client (any Access Person desiring to
engage in such a transaction should obtain the prior written
approval of the Designated Officer);
(F) Purchases or sales which receive prior written approval from
the Designated Officer because they are only remotely
potentially harmful to the Client because they are unlikely to
affect a highly institutional market, or because they are
clearly not related economically to the securities to be
purchased, sold or held by the Client;
(G) Purchases or sales of securities which are not then being
purchased or sold by the Adviser on behalf of any Client or
considered for purchase or sale by the Client, provided that
the Access Person has first obtained the prior written
approval of the Designated Officer;
(H) Purchases of securities which are then being sold or
considered for sale by the Adviser on behalf of the Client and
sales of securities which are then being purchased or
considered for purchase by the Adviser on behalf of the
Client. The Designated Officer must give prior written
permission and will require written explanations for all such
trades by an Access Person; and
(I) Purchases or sales of other securities of the same issuer
whose securities are being purchased or sold or considered for
purchase or sale by the Adviser on behalf of a Client. However
all equity securities of an issuer shall be deemed the same
security and all debt securities of an issuer shall be deemed
the same security.
The reporting requirements of Section V of the Code shall
remain applicable to all of the above transactions, except
that no person shall be required to make a report with respect
to the transactions listed in paragraphs (A), (B) and (C)
above.
IV. PROHIBITED TRANSACTIONS:
The following prohibitions shall apply to this Code:
A. Purchases and Sales of Securities.
No Access Person shall purchase or sell, directly or
indirectly, any security in which he has, or by reason of such
transaction acquires, any direct or indirect beneficial
ownership and which security to his knowledge at the time of
such purchase and sale:
(1) is being considered for purchase or sale by the
Adviser on behalf of any Client, or
(2) is being purchased or sold by the Adviser on behalf
of any Client.
It is the responsibility of every Access Person, prior to
effecting a purchase or sale of any security in which he has,
or acquires, any direct or indirect beneficial ownership, to
ascertain whether such security is being purchased or sold, or
is being considered for purchase or sale, by the Adviser for a
Client. In order to confirm that such security is not then
being purchased or sold or being considered for purchase or
sale on behalf of any Client, the Access Person must seek and
receive prior written clearance for the proposed trade from
the Designated Officer. The Designated Officer will first
review the Restricted Securities List. Subject to the
following paragraphs, if the security which the Access Person
wishes to trade is not on this List at the time in question,
the Designated Officer may clear the Access Person to trade
the security on that same day.
The Restricted Securities List is the list of those securities
which are either being considered for purchase or sale by the
Adviser on behalf of any Client (including securities which
are being held for trading and may be expected to be sold at
any time) and those securities being purchased or sold by the
Adviser on behalf of any Client. This List will be prepared
and updated each business day by the Adviser. The Restricted
Securities List shall contain all securities which the Adviser
on behalf of its Clients is purchasing or selling or
considering for purchase or sale. It will be the duty of the
<PAGE>
Adviser to place on the Restricted Securities List all such
securities as promptly as possible. If there is any type or
class of securities as to which the Adviser cannot readily
determine which securities it is trading or considering for
trade, such type or class of securities will be so identified
by the Adviser whether on the Restricted Securities List or
otherwise; any Access Person wishing to trade in any such
security must first seek and receive prior written clearance
for his trade from the Designated Officer. The Access Person
must submit a copy of any such clearance prior to or with his
report on such trade pursuant to Section V below.
Reliance on the above-mentioned prior written clearance by an
Access Person shall be conclusive evidence that such Person
was not aware that such security was being purchased or sold,
or considered for purchase or sale, as the case may be, except
in the case of an Access Person who because of his or her
position as trader, portfolio manager or securities analyst or
because of special access to knowledge concerning that
security had, or should have had, knowledge concerning such
purchase or sale of such consideration for purchase or sale.
In any event, no Access Person, who because of his or her
position has actual knowledge about the impending or actual
purchase or sale or consideration of a purchase or sale of a
security by the Adviser on behalf of any Client prior to the
publication of such security on the Restricted Securities
List, may purchase or sell such security until such security
is thereafter removed from the Restricted Securities List.
B. Purchases and Sales of Recommended Securities by Analysts or
Portfolio Managers.
No Access Person shall purchase or sell a security, in which
he has or acquires any direct or indirect beneficial interest,
following the preparation of a written recommendation by such
Access Person that such security be purchased or sold until
such time as it is determined that such recommendation will
not be acted upon or until such time as it is removed from the
Restricted Securities List, if longer.
Any Access Person who manages a Client's portfolio shall not
purchase or sell a security eligible for purchase by that
portfolio within seven calendar days before or after that
portfolio trades in that security; this prohibition does not
apply to a sale of such a security by such portfolio manager
within seven calendar days after a sale of such security by
that portfolio or to his purchase of such security within
seven calendar days after a purchase of such security by that
portfolio. Any profits realized on trades within the periods
proscribed in Sections IV.A. and IV.B. above must be disgorged
to the Adviser for the benefit of the affected Clients.
C. Receipt of Gifts, etc.
No Access Person or a member of his or her family shall seek
or accept gifts, favors, compensation or deals in securities
more favorable than those offered to the public from any
broker, dealer, investment adviser, financial institution or
other supplier of goods and services to the Adviser or from
any company whose securities have been purchased or sold or
considered for purchase or sale by the Adviser. The foregoing
provision shall not prohibit any benefit, direct or indirect,
in the form of compensation to the Access Person from any
entity under common control with the Adviser for bona fide
services rendered as an officer, member of the Board or
employee of such entity. This prohibition shall not apply to:
(1) lunches or dinners conducted for business purposes;
(2) cocktail parties or similar social gatherings
conducted for business purposes; or
(3) gifts of small value, usually in the nature of
reminder advertising, such as pens, calendars, etc.
<PAGE>
D. Material, Non-public Information and Insider Trading.
(1) General. No Access Person may buy or sell securities
on the basis of non-public "material information"
known by the Access Person or "tip" other persons
about such information. Any violation of these
restrictions may subject the Adviser and the Access
Person to serious criminal and civil liabilities and
sanctions, including up to $1 million in criminal
fines, up to 10 years in jail and civil penalties up
to three times the illegal profit gained or loss
avoided. In addition to governmental fines and other
sanctions, private actions brought by "professional
plaintiffs" against public companies and their
insiders have become quite common and can involve
substantial costs, both monetary and in terms of
time, even if the claim ultimately is dismissed.
Equally important, any appearance of impropriety on
the part of the Adviser or its insiders could impair
investor confidence in the Adviser and severely
damage its reputation and business relationships.
Accordingly, considerable care should be taken to
avoid even inadvertent violations. In light of these
restrictions, the Adviser has adopted a general
policy that the Adviser's personnel may not trade in
securities of Conseco, Inc. or its publicly-held
affiliates ("Conseco") or any other company while in
possession of non-public, material information. Each
Access Person should obtain approval from Conseco's
legal department prior to trading in Conseco
securities.
Each Access Person is also prohibited from directly
or indirectly disclosing material, non-public
information about any issuer to any other person,
including family members and relatives, except for
persons who have a legitimate need to know.
(2) Trading in Conseco or Client Securities. Each Access
Person and his family members who share his household
should not, under any circumstances, trade options
for, or sell "short," any securities of Conseco. No
Access Person shall buy or sell the equity securities
issued by any Client that is not affiliated with
Conseco, Inc. or the derivatives of such equity
securities without first obtaining written approval
from an appropriate representative of the Client.
(3) Material Information. The term "material
information," as used in this Statement of Policy,
means information relating to a company, its business
operations or securities, the public dissemination of
which would likely affect the market price of any of
its securities, or which would likely be considered
important by a reasonable investor in determining
whether to buy, sell or hold such securities. While
it is impossible to list all types of information
that might be deemed material under particular
circumstances, information dealing with the following
subjects is often found material: internal forecasts
or budgets; dividends; major new discoveries or
advances in research; acquisitions, including mergers
and tender offers; sales of substantial assets;
changes in debt ratings; significant writedowns of
assets or additions to reserves for bad debts or
contingent liabilities; liquidity problems;
extraordinary management developments; public
offerings; major price or marketing changes; labor
negotiations; and significant litigation or
investigations by governmental bodies. Information
about a company generally is not material if its
public dissemination would not have an impact on the
price of the company's publicly traded securities. It
should be noted that either positive or adverse
information may be material.
(4) No Use or Solicitation of Inside Information. No
Access Person shall utilize material, non-public
information about any issuer of securities in the
course of rendering investment advice or making
investment decisions on behalf of Clients. No Access
Person should solicit from any issuer of securities
any such material, non-public information. Any Access
Person inadvertently receiving non-public information
regarding securities held by any Client should notify
the Designated Officer or any Vice President of the
Adviser immediately.
<PAGE>
E. Confidentiality.
Serious problems could arise for the Adviser and any Access
Person by any unauthorized disclosure of internal information
about Conseco, Inc. or its affiliated companies including the
Adviser (the "Conseco Companies"), or a Client whether or not
for the purpose of facilitating improper trading in the
securities of a Conseco Company or a Client. It is the
Adviser's policy that no Access Person should discuss internal
Conseco Company or Client matters or developments with anyone
outside of the Conseco Companies (including family members,
relatives and friends), except as required in the performance
of his regular employment duties. Similarly, no Access Person
should discuss Conseco Company or Client affairs in public or
quasi-public areas where your conversation may be overhead
(e.g., restaurants, restrooms, elevators, etc.). This
prohibition also applies to inquiries about Conseco Companies
or Clients which may be made by the financial press,
investment analysts or others in the financial community. It
is important that all such communications on behalf of the
Conseco Companies or the Adviser be made only through
authorized individuals. If you receive any inquiries of this
nature, you should decline comment and refer the inquirer
directly to the Conseco Companies' investor relations
spokesman, James Rosensteele, at (317) 573-2893.
F. Initial Public Offerings.
No Access Person shall purchase a security, in which he by
reason of such transaction acquires any direct or indirect
beneficial interest, in an initial public offering.
G. Private Placements.
No Access Person shall purchase a security, in which he by
reason of such transaction acquires any direct or indirect
beneficial interest, in a private placement, without obtaining
the prior written approval of the Designated Officer. In
giving his approval, the Designated Officer must consider,
among other factors, whether the investment opportunity should
be reserved for a Client and whether the opportunity is being
offered to the individual by virtue of his position as an
Access Person. Any Access Person who has been authorized to so
acquire securities must disclose that investment when he plays
a part in any subsequent consideration of an investment in the
issuer by any Client. In such circumstances, such decision for
a Client to purchase securities of that issuer must be
reviewed independently by other investment personnel of the
Adviser who have no personal interest in the issuer.
H. Directorships of Publicly Traded Companies.
No Access Person may serve on the boards of directors (or
equivalent governing bodies) of publicly traded companies,
except the Board of Directors of the Adviser's parent company,
unless that Access Person first obtains in writing the prior
approval of the Designated Officer if the latter is satisfied
that the Access Person will normally be isolated from the
investment making decisions of the Adviser for its Clients.
<PAGE>
V. REPORTING REQUIREMENTS:
A. In General.
1. Every Access Person shall direct his broker to supply
to the Designated Officer, on a timely basis,
duplicate copies of confirmations of all security
transactions in which such Access Person has, or by
reason of such transaction acquires, any direct or
indirect beneficial ownership in the security and
copies of periodic statements for all securities
accounts.
2. Every Access Person shall report to the Designated
Officer the information with respect to the
transactions in any security in which such Access
Person has, or by reason of such transaction
acquires, any direct or indirect beneficial ownership
in the security; provided, however, that an Access
Person shall not be required to make a report with
respect to transactions effected for any account over
which such Access Person does not have any direct or
indirect influence or control.
3. Notwithstanding the above, an Access Person need not
duplicate information recorded pursuant to (i) Rule
204-2(a)(12) of the Investment Advisers Act of 1940,
or (ii) the confirmations and statements supplied
under paragraph V.A.1. above. The reporting under
this Code will satisfy that Rule.
4. A Director of the Adviser who is not otherwise an
Access Person need only report a transaction in a
security if such member, at the time of that
transaction, knew or, in the ordinary course of
fulfilling his official duties as a Director, should
have known that, during the 15-day period immediately
preceding or after the date of the transaction by the
Director, such security was purchased or sold by the
Adviser or was being considered for purchase or sale
by the Adviser. Any Director, who pursuant to the
preceding sentence is not required to report any
transaction in a security during the period in
question,need not make any other report or disclosure
of personal securities holdings during such period
under this Section V.
B. Report Contents.
Every report under Paragraph V.A.2. shall be made not later
than ten (10) days after the end of the calendar quarter in
which the transaction to which the report relates was
effected, and unless such information has been supplied under
paragraph V.A.1. above, shall contain the following
information:
(1) The date of the transaction, the title and the number
of shares or the principal amount of each security
involved;
(2) The nature of the transaction (i.e., purchase, sale
or any other type of acquisition or disposition);
(3) The price at which the transaction was effected; and
(4) The name of the broker, dealer or bank with or
through whom the transaction was effected.
Any such report may contain a statement that the report shall
not be construed as an admission of direct or indirect
beneficial ownership in said security.
<PAGE>
C. Review.
The Chief Compliance Officer shall review or supervise the
review of the personal securities transactions reported
pursuant to Section V. As part of the review, each such
reported securities transaction may be compared against the
portfolio transactions of Clients to determine whether a
violation of this Code may have occurred. If the Chief
Compliance Officer believes that a violation may have
occurred, he may submit the pertinent information regarding
the transaction to, and consult with the General Counsel of
Conseco. The Chief Compliance Officer shall evaluate whether a
material violation of this Code has occurred, taking into
account all the exemptions provided under Section III. Before
making any determination that a violation has occurred, the
Chief Compliance Officer shall give the person involved an
opportunity to supply additional information regarding the
transaction in question and shall consult with counsel, if
any, for the Access Person whose transaction is in question.
D. Annual Disclosure and Certification
Every Access Person shall disclose all securities in which he
has any direct or indirect beneficial ownership in the
securities upon the commencement of his employment and
thereafter on an annual basis. Every Access Person shall
certify annually that he has read and understands this Code of
Ethics and is subject thereto and that he has reported or
disclosed all personal securities trades required to be
reported or disclosed thereunder.
VI. SANCTIONS.
If the Chief Compliance Officer determines that a material violation of
the Code or of the Insider Trading Act has occurred, he shall provide a
written report of his determination to the Board, as is appropriate
under the circumstances, for such further action and sanctions as such
Board deems appropriate, which may include, but shall not be limited
to, a letter of censure, suspension with pay, termination of employment
or disgorgement of any profits realized on transactions in violation of
this Code. If a securities transaction of a Designated Officer is under
consideration, the General Counsel of Conseco shall act in all respects
in the manner prescribed herein for the Designated Officer.
VII. MISCELLANEOUS PROVISIONS.
A. Records.
The Chief Compliance Officer shall maintain records in the
manner and to the extent set forth below, which records may be
maintained on film or computer storage medium under conditions
described in Rule 31a-2(f)(1) under the 1940 Act and shall be
available for examination by representatives of the Securities
and Exchange Commission:
(1) A copy of this Code and any other code which is, or
at any time within the past five (5) years has been
in effect, shall be preserved in an easily accessible
place;
(2) A record of any violation of this Code and of any
action taken as a result of such violation shall be
preserved in an easily accessible place for a period
of not less than five (5) years following the end of
the fiscal year in which the violation occurs;
(3) A copy of each report made by the Access Person
pursuant to this Code shall be preserved for a period
of not less than five (5) years from the end of the
fiscal year in which it is made, the first two (2)
years in an easily accessible place; and
(4) A list of all persons who are, or within the past
five (5) years have been, required to make reports
pursuant to this Code shall be maintained in an
easily accessible place.
<PAGE>
B. Confidentiality of Reports.
All reports of securities transactions and any other
information filed with the Designated Officer or furnished to
any person pursuant to this Code shall be treated as
confidential, but are subject to review as provided herein and
by representatives of the Securities and Exchange Commission
or of the client investment company.
C. Interpretation of Provisions.
The Board may from time to time adopt such interpretation of
this Code as they deem appropriate.
D. Effect of Violation of this Code.
In adopting Rule 17j-1, the Commission specifically noted in
Investment Company Act Release No. IC-11421 (Oct. 31, 1980)
that a violation of any provision of a particular code of
ethics, such as this Code, would not be considered a per se
unlawful act prohibited by the general anti-fraud provisions
of that Rule. In adopting this Code of Ethics, it is not
intended that a violation of this Code is or should be
considered to be a violation of Rule 17j-1.
Attachments:
Certification of Compliance (To be signed by all Access Persons of the
Adviser) Annual Certification of Compliance (To be signed annually)
Report of Personal Securities Transactions (To report quarterly or for
single transactions) Prior Clearance Form (To be completed prior to
each transaction)
<PAGE>
[ATTACH PERSONAL SECURITIES TRANSACTIONS REPORT FORM AFTER ANNUAL
CERTIFICATION OF COMPLIANCE FORM]
<PAGE>
Exhibit (p)(5)
DAVIS HAMILTON JACKSON & ASSOCIATES, L.P.
MARCH 31, 2000
POLICIES AND PROCEDURES WITH REGARD TO CONDUCT
PURSUANT TO RULE 17J-1 UNDER
THE INVESTMENT COMPANY ACT OF 1940
AND
POLICIES AND PROCEDURES TO PREVENT MISUSE OF NON-PUBLIC
INFORMATION PURSUANT TO SECTION 204A OF THE
INVESTMENT ADVISERS ACT OF 1940
INTRODUCTION
Set forth below is the Code of Ethics (the "Code") of Davis Hamilton
Jackson & Associates L.P. (the "Company"), with respect to all registered
investment companies for which the Company acts as investment adviser or
sub-investment adviser, as required by Rule 17j-1 under the Investment Company
Act of 1940, as amended. The Code applies to every "access person" associated
with the Company and any mutual fund associated with the Company as described
above ("Funds"). An "access person" is any person who has access to or knowledge
of the investment advisory or investment management activities of the Company or
any person who participates in or is involved in the securities recommendations
which are made by the Company from time to time. The Code extends to the
activities of such "access persons" within and outside such person's duties at
the Company or any Fund. The Code governs conflicts of interest in personal
securities transactions that typically arise when persons associated with the
Company or the Funds invest in securities that are held or to be acquired by the
Funds or other accounts for which the Company acts as the investment adviser
("managed accounts").
Also set forth below are the Policies and Procedures (the "Policy
Statement") required by Section 204A of the Investment Advisers Act of 1940, as
amended, which are reasonably designed, taking into consideration the nature of
the business of the Company, to prevent the Company and any person associated
<PAGE>
with it from trading in securities while in possession of material, non-public
information ("insider trading").
Every person associated with the Company and the Funds must read,
acknowledge receipt and understanding of, and retain a copy of this Code and
Policy Statement. Any questions regarding the Code and Policy Statement should
be referred to the Company's Compliance Officer.
THE CODE AND POLICY STATEMENT
I. PROHIBITED CONDUCT
All access persons of the Company or any Fund are prohibited from
engaging in, or recommending, any securities transaction which places or appears
to place their own interests above that of any Fund or managed account.
Similarly, all access persons are prohibited from recommending securities
transactions by any Fund or managed account without disclosing his or her
interest, if any, in such securities or the issuer thereof, including without
limitation:
(a) any direct or indirect beneficial ownership of any securities
of such issuer; or its affiliates;
(b) any contemplated transaction by such person in such
securities; and
(c) any present or proposed business relationship between such
issuer or its affiliates and such person or any party in which
such person has a significant interest.
All access persons are prohibited from divulging the current portfolio
positions of any specific account, and current and anticipated portfolio
transactions, programs and studies of the Company, any Fund, or any managed
account to anyone unless it is properly within his or her duties to do so.
All access persons are prohibited from engaging in any securities
transaction, for their own benefit or the benefit of others, including Funds or
managed accounts, while in possession of material, non-public information
concerning such securities.
Individuals involved in the research and/or investment decision-making
process must notify the Executive Committee and the Compliance Officer if the
individual has a direct or indirect financial interest in a security being
considered for purchase in Funds or managed accounts.
<PAGE>
"Material" information means information for which there is a
substantial likelihood that a reasonable investor would consider it important in
making his or her investment decisions, or information that is reasonably
certain to have any effect on the price of a company's securities.
Information that should be considered material includes, but is not
limited to, dividend changes, earnings estimates, changes in previously released
earnings estimates, significant expansion or curtailment of operations, a
significant increase or decline in orders, significant new products or
discoveries, extraordinary borrowing, purchase or sale of substantial assets,
significant merger or acquisition proposals or agreements, major litigation,
liquidity problems, and extraordinary management developments.
"Material" information does not have to relate to a company's business.
For example, information about the contents of a forthcoming newspaper or
magazine article that is expected to affect the price of a security should be
considered material. Similarly, information concerning significant transactions
which the Company intends to execute on behalf of Funds or managed accounts
could be material information and is prohibited from being communicated.
Information is non-public until it has been effectively communicated to
the marketplace. One must be able to point to some fact to show that the
information has been made generally available to the investment community.
All access persons are prohibited from communicating material,
nonpublic information concerning any security to others unless it is properly
within his or her duties to do so. In the event any access person is uncertain
about whether he or she possesses material non-public information such person
should discuss the situation with the Company's Compliance Officer.
II. PENALTIES
Penalties for trading on or communicating material, non-public
information are severe, both for the individuals involved in such unlawful
conduct and their employers. A person can be subject to some or all of the
penalties below even if he or she does not personally benefit from the
violation. Penalties include:
<PAGE>
* CIVIL INJUNCTIONS;
* TREBLE DAMAGES;
* DISGORGEMENT OF PROFITS;
* JAIL SENTENCES of up to 10 years;
* FINES for the person who committed the violation of up to
three times the profit gained or loss avoided, whether or not
the person actually benefitted; and
* FINES for the employer or other controlling person of up to
the greater of $1,000,000 or three times the amount of the
profit gained or loss avoided.
Penalties for personal trading violations may include fines of up to
$10,000, as well as jail sentences of up to five years.
In addition, any violation of this Code and Policy Statement can be
expected to result in serious sanctions by the Company including dismissal of
the persons involved.
III. PROCEDURES FOR CLEARANCE OF PERSONAL
SECURITIES TRANSACTIONS
The following procedures have been established to aid access persons in
avoiding conflicts of interest and insider trading, and to aid the Company in
preventing, detecting and imposing sanctions against such conduct. Every access
person must follow these procedures or risk serious sanctions, including
dismissal, substantial personal liability and criminal penalties. If you have
any questions about these procedures you should consult the Compliance Officer.
Interpretive issues that arise under these procedures shall be decided by, and
are subject to the discretion of, the Compliance Officer, or, in the absence of
the Compliance Officer, the Secretary of the Company.
Except to the extent provided below, all access persons associated with
the Company, a Fund or a managed account are prohibited from engaging in any
personal securities transaction without obtaining prior approval from the
Compliance Officer, or, in the absence of the Compliance Officer, the Secretary
of the Company.
<PAGE>
The term "engaging in any personal securities transaction" means
purchasing or selling, directly or indirectly, any security in which the access
person has, or by reason of such transaction would acquire, any direct or
indirect beneficial ownership. This term covers not only the access person
himself but also includes his or her immediate family (including such person's
spouse, minor children, stepchildren and relatives of such person or such
person's spouse who are sharing such person's household), any other member of
the access person's immediate household, or any trust or estate of which the
access person or spouse is a trustee or other fiduciary or beneficiary or of
which his or her minor child is a beneficiary, or any person for whom the access
person directs or effects transactions under a power of attorney or otherwise,
PROVIDED, HOWEVER, that accounts in which the access person or members of his or
her family have an economic interest but do not participate in investment
decisions, such decisions being made exclusively by independent parties, are not
covered. See the explanation of "beneficial ownership" in Appendix A.
The term "security" has the meaning as set forth in Section 2(a)(36) of
the Investment Company Act of 1940, the text of which is also set forth in
Appendix A, except that the term does not include securities issued or
guaranteed by the United States government or its agencies or instrumentalities,
securities issued or guaranteed by a state government or its agencies,
instrumentalities or municipalities, bankers' acceptances, bank certificates of
deposit and time deposits, commercial paper, repurchase agreements and shares of
registered open-end investment companies which are intended to maintain constant
value of principal, i.e. "money-market funds."
Prior approval is not required for:
(a) transactions which are non-volitional on the part of the
access person;
(b) purchases which are part of an automatic dividend reinvestment
plan;
(c) purchases effected upon the exercise of rights issued by an
issuer pro rata to all holders of a class of securities, to
the extent such rights were acquired from such issuer;
(d) sales of such rights, as described in (c) above, so acquired;
(e) purchases or sales of open-end investment companies, unless
such companies are managed by the Company;
<PAGE>
(f) purchases or sales of equity securities with a total market
capitalization of less than $1 billion;
(g) transactions which, by themselves, have a value of $2,500 or
less;
(h) purchases or sales of derivatives provided they are not based
on a specific equity or fixed income security.
Transactions involving new issues (e.g., initial public offerings) or
privately offered securities often involve complex issues of potential conflicts
of interest or personal advantage. Transactions involving new public issues are
also subject to various SEC and NASD rules and regulations, including
restrictions on the purchase of so-called "hot issues" by persons associated
with a registered investment adviser. Therefore, no access person is permitted
to purchase securities in any "hot issue" public offering and no access person
is permitted to purchase securities in any public offering or any private
placement offering without obtaining prior approval of such purchase from the
Company's Compliance Officer, or, in the absence of the Compliance Officer, from
the Secretary of the Company. None of these officers may approve his or her own
transactions, but must obtain prior approval of his or her transactions from the
other officer.
All requests for prior approval of securities transactions shall be
submitted to the Compliance Officer by completing a Request for Prior Approval
of Personal Transactions, a sample of which is attached hereto as Appendix B.
The Compliance Officer, or, in the absence of the Compliance Officer,
the Secretary of the Company, shall promptly notify the access person whether
the request is approved or denied and record such action. A written record shall
be maintained by the Compliance Officer of all requests for approval received
and the action taken with respect to each request. It is expected that all
orders will be promptly entered after notification of approval. In any event,
clearance to enter an order shall be effective for only 24 hours after approval
is given.
Approval from the Compliance Officer for a proposed purchase or sale
ordinarily will be forthcoming whenever:
<PAGE>
(a) no Fund or managed account is purchasing or selling, or
considering for purchase or sale, such security;
(b) the access person represents that he or she does not possess
material, non-public information concerning the security
proposed to be purchased or sold; and
(c) it does not otherwise appear to the Compliance Officer, based
upon the facts available at the time the prior approval
request is made, that the transaction in question would amount
to insider trading.
IV. ADDITIONAL REPORTING OF PERSONAL SECURITIES TRANSACTIONS
Within 10 days of receiving this Code and Policy Statement, all access
persons, must submit to the Compliance Officer a statement of all securities in
which he or she presently has any direct or indirect beneficial ownership. Such
statement shall be in the format contained in Appendix C hereto. Such statement
will also be submitted by all new employees upon their employment by the
Company. If, after submitting the Statement of Security Holdings as described in
Appendix C, an person associated with the Company opens a brokerage account, he
or she is required to send written notification of such fact disclosing the name
and address of the broker and the account number of the account to the
Compliance Officer prior to engaging in any transactions through such account.
Annually on or before ten days after December 31 of each year, each
access person is required to submit to the Compliance Officer a statement of all
securities in which such person presently has a direct or indirect beneficial
ownership. Such information shall be submitted on a Statement of Security
Holdings in the form set forth in Appendix C.
All access persons engaging in any personal securities transactions
must provide the Compliance Officer with timely duplicate confirmations of such
securities transactions. In this regard, all access persons shall take such
steps as required by the Compliance Officer to ensure that (1) duplicate copies
of confirmations of securities transactions and (2) monthly statements of the
account are submitted to the Compliance Officer. Quarterly, on or before ten
days after the end of the calendar quarter, each access person shall submit a
written report to the Compliance Officer listing all securities transactions,
including any private placements, made for the account of such access person
during the quarter just ended. From time to time the Company may report or may
be required to report to the directors of any mutual fund for which the Company
<PAGE>
serves as investment adviser some or all of the information provided by the
Company's access persons pursuant to the requirements of this Code.
The Compliance Officer shall send a letter, in the form annexed hereto
as Appendix D (which shall be signed by the access person), to the broker-dealer
or other entity in order to ensure receipt by the Company of duplicate
confirmations and monthly statements. All information relating to personal
securities received by the Compliance Officer shall be treated as "Personal and
Confidential" but will be available for inspection by the Executive Committee of
the Company, and by the appropriate regulatory agencies. Any report submitted by
an access person may contain a statement that the report shall not be construed
as an admission by the person making such report that the access person has any
direct or indirect beneficial ownership in the security to which the report
relates.
V. GUIDELINES TO CONSIDER BEFORE INVESTING
Before seeking approval for engaging in any personal securities
transaction, ask yourself the following questions:
i. Is the security you are considering also a security being
purchased or sold or subject to a program for purchase or sale
by a Fund or managed account?
ii. Is the security being considered for purchase or sale by a
Fund or other managed account? (A security is being considered
for purchase or sale whenever a recommendation to purchase or
sell such security has been made to an investment officer of a
Fund, or a Company Principal for a managed account, and such
person has not affirmatively rejected such recommendation).
With respect to securities about which you may have potential inside
information, before trading for yourself or others, including Funds or managed
accounts, ask yourself the following questions:
i. Is the information material? Is this information that an
investor would consider important in making his or her
investment decision? Is this information that would
substantially affect the market price of the securities if
generally disclosed?
ii. Is the information non-public? To whom has this information
been provided? Has the information been effectively
communicated to the marketplace by being published in the Dow
Jones newswire service, Reuters Economic Services, The Wall
Street Journal or other publications of general circulation?
If, after consideration of the items set forth above, there is any
unresolved question as to the applicability or interpretation of the foregoing
procedures or as to the propriety of trading on such information, you should
<PAGE>
contact the Compliance Officer before trading or communicating the information
to anyone.
VI. RESTRICTING ACCESS TO MATERIAL NON-PUBLIC INFORMATION
Information in your possession that you identify as material and
non-public may not be communicated to anyone, including persons within the
Company, except the Compliance Officer. In addition, care should be taken so
that such information is secure. For example, files containing material,
non-public information should be sealed and access to computer files containing
material non-public information should be restricted.
<PAGE>
DAVIS HAMILTON JACKSON & ASSOCIATES, L.P.
EMPLOYEE ACKNOWLEDGMENT
Code of Ethics and Statement of Policies and Procedures
I have received and read the Code of Ethics and Statement of Policies and
Procedures of Davis Hamilton Jackson & Associates, L.P. pertaining to conduct
pursuant to Rule 17j-1 under the Investment Company Act of 1940 and the
requirements of Section 204A of the Investment Advisors Act of 1940 dealing with
the misuse of material non-public information.
Signature
Employee's Name (Please Print)
Employee's Social Security Number
Date
<PAGE>
APPENDIX A
"BENEFICIAL OWNERSHIP"
Securities owned of record or held in your name are generally
considered to be beneficially owned by you.
Securities held in the name of any other person are deemed to be
beneficially owned by you if by reason of any contract, understanding,
relationship, agreement or other arrangement, you obtain therefrom benefits
substantially equivalent to those of ownership, including the power to vote, or
to direct the disposition of, such securities. Beneficial ownership includes
securities held by others for your benefit (regardless of record ownership),
e.g., securities held for you or members of your immediate family, defined
below, by agents, custodians, brokers, trustees, executors or other
administrators; securities owned by you, but which have not been transferred
into your name on the books of the company; securities which you have pledged;
or securities owned by a corporation that should be regarded as your personal
holding corporation. As a natural person, beneficial ownership is deemed to
include securities held in the name or for the benefit of your immediate family,
which includes your spouse, your minor children and stepchildren and your
relatives or relatives of your spouse who are sharing your home or who are
directors or officers of the company or its subsidiary, unless because of
special and countervailing circumstances, you do not enjoy benefits
substantially equivalent to those of ownership. Benefits substantially
equivalent to ownership include, for example, application of the income derived
from such securities to maintain a common home, to meet expenses which such
person otherwise would meet from other sources, and the ability to exercise a
controlling influence over the purchase, sale or voting of such securities. You
are also deemed the beneficial owner of securities held in the name of some
other person, even though you do not obtain benefits of ownership, if you can
vest or revest title in yourself at once, or at some future time.
In addition, the SEC has promulgated certain rules which provide that a
person shall be deemed the beneficial owner of a security if he has the right to
acquire beneficial ownership of such security at any time (within 60 days)
including but not limited to any right to acquire: (i) through the exercise of
any option, warrant or right; (ii) through the conversion of a security; or
(iii) pursuant to the power to revoke a trust, discretionary account, or similar
arrangement.
With respect to ownership of securities held in trust, beneficial
ownership includes the ownership of securities as a trustee in instances where
either you as trustee or a member of your "immediate family" have a vested
interest in the income or corpus of the trust, the ownership by you of a vested
beneficial interest in the trust and the ownership of securities as a settlor of
a trust in which you as the settlor have the power to revoke the trust without
obtaining the consent of the beneficiaries. Certain exceptions to these trust
beneficial ownership rules exist, including an exception for instances where
beneficial ownership is imposed solely by reason of your being settlor or
beneficiary of the securities held in trust and the ownership, acquisition and
disposition of such securities by the trust is made without your prior approval
as settlor or beneficiary. "Immediate family" of you as trustee means your son
or daughter (including your legally adopted child) or any descendant of either,
your stepson or stepdaughter, your father or mother or any ancestor of either,
your stepfather or stepmother and your spouse.
The SEC has promulgated rules with respect to indirect beneficial
ownership. To the extent that stockholders of a company use it as a personal
trading or investment medium and the company has no other substantial business,
stockholders are regarded as beneficial owners, to the extent of their
respective interests, of the stock thus invested or traded in. A general partner
in a partnership is considered to have indirect beneficial ownership in the
securities held by the partnership to the extent to his pro rata interest in the
<PAGE>
partnership. Indirect beneficial ownership is not, however, considered to exist
solely by reason of any indirect interest in portfolio securities held by any
holding company registered under the Public Utility Holding Company Act of 1935,
any investment company registered under the Investment Company Act of 1940, a
pension or retirement plan holding securities of an issuer whose employees
generally are beneficiaries of the plan and a business trust with over 25
beneficiaries.
Any person who, directly or indirectly, creates or uses a trust, proxy,
power of attorney, pooling arrangement or any other contract, arrangement, or
device with the purpose or effect of divesting such person of beneficial
ownership as part of a plan or scheme to evade the reporting requirements of the
Securities Exchange Act of 1934 shall be deemed the beneficial owner of such
security.
The final determination of beneficial ownership is a question to be
determined in light of the facts of a particular case. Thus, while you may
include security holdings of other members of your family, you may nonetheless
disclaim beneficial ownership of such securities.
"SECURITY"
The federal securities laws define "security" as any note, stock,
treasury stock, bond, debenture, evidence of indebtedness, certificate of
interest or participation in any profit-sharing agreement, collateral-trust
certificate, pre-organization certificate or subscription, transferable share,
investment contract, voting-trust certificate, certificate of deposit for a
security, fractional undivided interest in oil, gas, or other mineral rights,
any put, call, straddle, option, or privilege on any security (including a
certificate of deposit) or on any group or index of securities (including any
interest therein or based on the value thereof), or any put, call, straddle,
option, or privilege entered into on a national securities exchange relating to
foreign currency, or, in general, any interest or instrument commonly known as a
"security", or any certificate of interest or participation in, temporary or
interim certificate for, receipt for, guarantee of, or warrant or right to
subscribe to or purchase, any of the foregoing.
<PAGE>
APPENDIX B
<TABLE>
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
REQUEST FOR PRIOR APPROVAL OF PERSONAL TRANSACTIONS
DAVIS HAMILTON JACKSON & ASSOCIATES, L.P.
- ------------------------------------------------------------------------------------------------------------------------------------
ACCOUNT NAME: APPROVED BY:
-----------------------------------
-----------------------------------------
BROKER ACCOUNT NO.: APPROVAL DATE:
----------------------------------- -----------------------------------------
BROKERAGE FIRM: APPROVAL TIME:
----------------------------------- -----------------------------------------
- ------------------------------------------------------------------- --------------------------------------------------- ------------
==================
SELL
==================
Position
Eliminated SHARES TICKER SECURITY Trade Denied
[ ]
----------------------- -------------------- -------------------------------------- --------------------
[ ]
----------------------- -------------------- -------------------------------------- --------------------
[ ]
----------------------- -------------------- -------------------------------------- --------------------
[ ]
----------------------- -------------------- -------------------------------------- --------------------
==================
BUY
==================
Position
Eliminated SHARES TICKER SECURITY Trade Denied
[ ]
----------------------- -------------------- -------------------------------------- --------------------
[ ]
----------------------- -------------------- -------------------------------------- --------------------
[ ]
----------------------- -------------------- -------------------------------------- --------------------
[ ]
----------------------- -------------------- -------------------------------------- --------------------
</TABLE>
PLEASE NOTE: All trades must be approved by the Compliance Officer, Secretary or
President prior to execution. Submission of a request form constitutes a
representation that the person submitting the form does not possess material,
non-public information concerning the securities proposed to be purchased or
sold. If a security transaction is denied, a new request form must be submitted
and approved before any trade is permissible. If the trade is not executed
within 24 hours of approval, it must be re-approved.
<PAGE>
APPENDIX C
STATEMENT OF SECURITY HOLDINGS
As of ____________, ____
List all securities in which you, your immediate family, any other member of
your immediate household, or any trust or estate of which you or your spouse is
a trustee or fiduciary or beneficiary, or of which your minor child is a
beneficiary, or any person for whom you direct or effect transactions under a
power of attorney or otherwise maintain a beneficial interest. If none, write
NONE. Securities issued or guaranteed by the U.S. government or its agencies or
instrumentalities, securities issued or guaranteed by a state government, or one
of its agencies, instrumentalities or municipalities, bankers' acceptances, bank
certificates of deposit and time deposits, commercial paper, repurchase
agreements and shares of registered open-end investment companies which are
intended to maintain constant value of principal, i.e. "money-market funds",
need not be listed. Attach continuation sheets if necessary.
<TABLE>
<S> <C> <C>
- -------------------------------------------------- -------------------------- --------------------------------------
No. of Shares or
Name of Issuer Principal Amount Type of Security
- -------------------------------------------------- -------------------------- --------------------------------------
- -------------------------------------------------- -------------------------- --------------------------------------
- -------------------------------------------------- -------------------------- --------------------------------------
- -------------------------------------------------- -------------------------- --------------------------------------
- -------------------------------------------------- -------------------------- --------------------------------------
</TABLE>
I certify that the statements made by me on this form and any attached pages are
true, complete, and correct to the best of my knowledge and belief, and are made
in good faith.
Date:
Printed Name
Signature
Return Form directly to Compliance Officer
<PAGE>
APPENDIX D
Date
Contact
Broker/Dealer
Address
Dear Sirs:
This letter will serve as our request for duplicate trade confirms and
monthly statements pertaining to the account referenced below to be sent to the
Compliance Officer at the address indicated above.
Account Name:
Account Number:
Thank you for your assistance with this matter.
Sincerely yours,
Compliance Officer
I hereby notify you that I am an associated person of Davis Hamilton Jackson &
Associates, L.P. Please comply with the request set forth above.
Sincerely yours,
Signature
Print Name
<PAGE>
Exhibit (p)(6)
CODE OF ETHICS OF
THE NORTHERN TRUST COMPANY AND NORTHERN
TRUST QUANTITATIVE ADVISERS, INC.
AS INVESTMENT ADVISERS TO
REGISTERED INVESTMENT COMPANIES
This Code of Ethics ("the Code") has been adopted by The Northern Trust Company
and Northern Trust Quantitative Advisers, Inc. (collectively, "Northern") in
compliance with Rule 17j-1(b)(1) promulgated by the Securities and Exchange
Commission ("SEC") under the Investment Company Act of 1940. That rule requires
each investment adviser of a registered investment company to adopt a written
code of ethics. In certain respects the Code imposes requirements that exceed
those imposed by law.
The purpose of the Code is to establish general principles governing the conduct
of Northern's employees in connection with Northern's services as investment
adviser to registered investment companies, and to establish procedures to
enhance compliance with those general principles and, in particular, to prevent
Access Persons from engaging in any act, practice, or course of business
prohibited by SEC Rule 17j-1(a).
For the purposes of the Code, an Access Person is a Northern employee who, with
respect to any registered investment company for which Northern serves as
investment adviser (an "Investment Company"), (1) makes any recommendation,
participates in the determination of which recommendation shall be made, or
whose principal function or duties relate to the determination of which
recommendation shall be made to an Investment Company; or (2) who, in connection
with his or her duties, obtains any information concerning securities
recommendations being made by Northern to an Investment Company. For purposes of
the Code, an "Investment Person" -- which is a subcategory of all Access Persons
- - is a Northern employee who (1) is engaged in the management of securities held
by an Investment Company as a portfolio manager, co-manager or member of the
portfolio management team, whether or not that person is primarily engaged in
the management of other accounts (hereinafter a "Portfolio Manager"); or (2) is
engaged in investment research or fixed income research activities related to
securities held or to be acquired by an Investment Company; or (3) is engaged in
trade execution activities for Investment Company securities.
Rule 17j-1(a) renders it unlawful for any affiliated person of an investment
adviser of a registered investment company, in connection with the purchase or
sale, directly or indirectly, by such person of a security held or to be
acquired1 by such registered investment company --
1. To employ any device, scheme or artifice to defraud such registered
investment company;
2. To make to such registered investment company any untrue statement of a
material fact or omit to state to such registered investment company a
material fact necessary in order to make the statements made, in light
of the circumstances under which they were made, not misleading;
3. To engage in any act, practice, or course of business which operates or
would operate as a fraud or deceit upon such registered investment
company; or
4. To engage in any manipulative practice with respect to such registered
investment company.
PART I
GENERAL PRINCIPLES
A. The Code governs the conduct of each Access Person of Northern.
B. All Access Persons shall act at all times to give priority to the interests
of each Investment Company and to the interests of the shareholders of each
Investment Company. All Access Persons shall conduct all personal securities
<PAGE>
transactions consistent with the Code and in such manner as to avoid any actual
or potential conflict of interest or any abuse of the Access Person's position
of trust and responsibility with respect to any Investment Company. A
fundamental principle underlying the Code is that no Access Person should take
any inappropriate advantage of his or her position. In addition, Access Persons
are generally discouraged from engaging in short-term speculative trading,
excessive trading and trading which interferes with an employee's job
responsibilities. Compliance with the Code is a condition of employment of each
Access Person. Violation of any of the foregoing principles or of any other
specific provision of the Code is grounds for disciplinary action, including
termination of employment.
C. No Access Person shall engage in any of the conduct prohibited by Rule
17j-1(a), quoted above, in connection with an Investment Company.
D. Access Persons are subject to and must comply with the policy on Gifts,
Bequests, Meals, Entertainment and Loans from Client or Vendors to Staff Members
contained in the Northern Trust Corporation Guidelines Relating to Standards of
Conduct.
E. An Access Person should not serve as a member of a board of directors of a
publicly-held company. Exceptions to this policy require the written approval of
the Access Person's Business Unit Head or President.
F. Each Access Person shall certify annually on the prescribed form that he or
she has read and understood the Code, recognizes that he or she is subject
thereto, has complied with the Code, including the securities trading provisions
in Part II thereof, and will continue to comply with the Code so long as he or
she remains an Access Person.
G. The Chief Investment Officer of Northern shall designate a Review Officer who
shall review all reports of securities holdings and securities transactions
submitted pursuant to the Code or to Rule 17j-1 in order to seek to identify any
possible violation of the Code. The Review Officer shall report any apparent
violation of the Code to Northern's Chief Compliance Officer for appropriate
action.
H. Northern shall preserve in an easily accessible place:
o (i) a copy of the predecessor of the Code, of the Code and of any
amendments to the Code for a period of five years after it was last in
effect;
o (ii) a record of any violation of the Code and of any action taken as a
result of such violation, for a period of five years from the end of
the fiscal year in which the violation occurred;
o (iii) a copy of each report made by an Access Person pursuant to Rule
17j-1 for a period of five years from the end of the fiscal year in
which the report was made; and
o (iv) a list of all persons who are, or within the prior five years have
been, required to make reports pursuant to Rule 17j-1 and a list of all
persons responsible for reviewing such reports.
I. All questions of interpretation of provisions of the Code shall be submitted
in writing to and resolved by the General Counsel or his designee2 ("Legal
Counsel") and resolved by Legal Counsel. Pending resolution of any issue
submitted to Legal Counsel, any uncertainty about the scope of any provision of
the Code should be resolved in favor of a broader rather than narrower
interpretation. The General Counsel also reserves the right in appropriate
circumstances to grant waivers from any requirements under this Code.
PART II
PROVISIONS REGARDING PERSONAL SECURITIES TRANSACTIONS
The following provisions pertain to securities transactions in all accounts of
an Access Person (including accounts of an Investment Person or a Portfolio
Manager whenever specifically indicated). For purposes of these provisions, the
accounts of a person include all accounts in the name of the person, all
accounts of the person's spouse, all accounts of any minor children or other
relatives (by marriage or otherwise) living in the person's home and all such
accounts in which any of the foregoing persons has any beneficial ownership
interest or over which he or she exercises control or investment influence.
<PAGE>
References in this Part II to transactions by a person refer to transactions in
any account of the person as defined in this paragraph. Limitations on the scope
of the meaning of "all accounts of an Access Person" in the circumstances of a
particular person may be made in writing by Legal Counsel upon the written
request of an Access Person. Any such request shall set forth in reasonable
detail the facts and circumstances, and shall include an explanation why the
requested limitations will not enable the person to circumvent the objectives of
the Code.
A. All securities accounts of an Access Person shall be maintained at Northern
Trust Securities, Inc. ("NTSI"), or at another brokerage firm selected by the
Access Person, provided that notice pursuant to the prescribed form has been
provided by the Access Person to the Review Officer before placing any orders.
B. Duplicate confirmations for all transactions and duplicate statements for all
accounts of an Access Person, whether or not all such accounts are maintained at
NTSI, shall be provided by the broker/dealer directly to the Review Officer, who
shall review all such information to assure that each Access Person has complied
with the Code in all respects.
C. Each Access Person shall inform the Review Officer, using the prescribed
form, of all securities (whether or not publicly traded) in which the Access
Person has any beneficial ownership not later than ten (10) days after
commencing employment. Not later than January 30 each year, each Access Person
shall provide the Review Officer with a list of all securities (whether or not
publicly traded) in which the Access Person had any beneficial ownership as of
the preceding December 31. In lieu of a separate listing of holdings, where all
securities in question are held in an account with a broker-dealer, another bank
or other custodian, the Access Person may provide written certification of the
accuracy and completeness of statements provided by the Investment Person's
agent(s). An Access Person may exclude from such lists all securities of the
types described in footnote 4. The concept of beneficial ownership is defined in
footnote 5.
D. No Access Person shall engage in any securities transaction without prior
approval by the Review Officer. Requests for approval shall be submitted on the
prescribed form. The purpose of this "preclearance" requirement is to foster
compliance with other provisions of the Code. The preclearance requirement does
not apply to purchases of debt obligations issued or guaranteed by the United
States Government, its agencies or instrumentalities; high quality short-term
debt instruments, including but not limited to, bankers' acceptances, bank
certificates of deposit, commercial paper and repurchase agreements; shares of
registered open-end investment companies; and securities issued by Northern
Trust Corporation. Each approval for a proposed transaction shall be valid until
5 p.m. Central Time on the first day the financial markets are open for trading
following the day of approval.
E. The foregoing prohibition on the purchase of securities without prior
approval does extend to securities purchased in a private placement. The
purchase of securities in a private placement by an Investment Person must be
approved in writing by the Chief Investment Officer ("CIO"). In determining
whether an Investment Person's purchase of privately placed securities will be
approved, the CIO shall take into account, among other factors, whether the
investment opportunity should be reserved for an Investment Company and whether
the investment opportunity is being offered to the Investment Person by virtue
of his or her relationship to an Investment Company. The purchase of securities
in a private placement by the CIO must be approved in writing by the CIO's
immediate supervisor.
F. The fact of an Investment Person's ownership of privately placed securities
shall be disclosed to the CIO at any time when, to the knowledge of the
Investment Person, an Investment Company is considering the purchase or sale of
other securities issued by the issuer of the privately placed securities. This
separate disclosure must be made even though the Investment Person has
previously disclosed the ownership of the privately placed securities in
compliance with Parts II.C and II.E of the Code. No Investment Person may
participate in any investment decision on behalf of an Investment Company which
involves the issuer of securities whose privately placed securities are held by
the Investment person without first disclosing in writing the fact of his or her
ownership of the privately placed securities to the CIO and the Review Officer.
The CIO shall determine whether the proposed investment is consistent with the
Investment Company's investment objectives and is consistent with the best
interests of the Investment Company before the Investment Company may purchase
the security. The CIO's determination shall be in writing and forwarded to the
Review Officer.
<PAGE>
G. Restrictions Applicable to all Access Persons
1. No Access Person shall purchase any equity securities issued as part of
an initial public offering until three business days after the public
offering date.
2. No Access Person shall engage in a securities transaction at a time
when an Investment Company has a pending "buy" or "sell" order in that
same security until that order is executed or withdrawn.
3. No Access Person shall purchase or sell any security for a period of
five business days after the security has been added to the Guidance
List, the Institutional List or the International List. In addition, no
Access Person shall purchase or sell any security for a period of five
business days after the internal rating on a security within the
Guidance List has moved away from Neutral in either direction.
4. No Access Person shall engage in a securities transaction when the
Access Person knows at the time of the transaction that such security
is being considered for purchase or sale by an Investment Company.
H. In addition to the restrictions contained in Part II. G. above, no Portfolio
Manager shall engage in a securities transaction during the period beginning
seven calendar days before and ending seven calendar days after the day on which
an Investment Company managed, co-managed or for which the individual is part of
the portfolio management team has purchased or sold that same security.
I. The foregoing prohibitions on transactions by Access Persons and by Portfolio
Managers do not apply where the Investment Company in question limits its
investments to purchases of securities or derivatives for the purpose of
replicating a major stock or bond index.3
J. For purposes of the foregoing prohibitions, "securities transaction" does not
include a transaction in debt obligations issued or guaranteed by the United
States Government, its agencies or instrumentalities; high quality short-term
debt instruments, including but not limited to bankers' acceptances, bank
certificates of deposit, commercial paper and repurchase agreements, and shares
of registered open-end investment companies.
K. Personal securities transactions by Access Persons in stocks of companies
with market capitalization of $50 billion or more at the time of purchase or
sale are not subject to the blackout periods or pending buy or sell order
restrictions noted in Parts II G 2, 3 and 4 and H, above. However, such
transactions are still subject to the preclearance requirement noted in Part II
D, above.
L. Any profit realized as a result of any transaction that is not in compliance
with Part II of the Code must be disgorged to the Northern Trust Company
Charitable Trust for such disposition as such Charitable Trust determines in its
sole discretion.
M. In addition to the disgorgement penalty and consistent with the general
principles set forth in Part I, above, if review of an Access Person's personal
trading activity detects any abuse, appropriate disciplinary action may be
taken. Such action may include, but is not limited to, restricting the Access
person's ability to conduct personal securities transactions, imposing holding
periods on securities acquired by the Access Person or terminating the employee.
N. SEC Rule 17j-1(c) requires that each Access Person shall provide Northern
with the following information with respect to transactions in any security4 in
which such Access Person has, or by reason of such transaction acquires, any
direct or indirect beneficial ownership5 in the security: o (i) The date of the
transaction, the title and the number of shares, and the principal amount of
each security involved;
o (ii) The nature of the transaction (i.e., purchase, sale or any other
type of acquisition or disposition)
o (iii) The price at which the transaction was effected; and
o (iv) The name of the broker, dealer or bank with or through whom the
transaction was effected. Northern shall inform each Access Person who is under
a duty to make such reports. These reports must state the date the report is
submitted and must be submitted within 10 days after the end of the calendar
quarter in which the transaction to which the report relates was effected.
Northern will accept in lieu of such report duplicate trade confirmations and
monthly accounts statements, provided they contain the required information and
are received within the required time frame.
Revised December 1999
<PAGE>
FOOTNOTES
1 For these purposes, a security held or to be acquired by a registered
investment company is a security which, within the most recent 15 days, is or
has been held by the investment company or is being or has been considered by
it, or by Northern as adviser, for purchase by the investment company, and
includes an option to purchase or sell such a security.
2 Any written communication provided for under the Code may be accomplished by
facsimile or electronic transmission.
3 It should be noted, however, that the "blackout" periods specified in Part II
do not supersede, but rather supplement, the general prohibitions against
deceptive, fraudulent and manipulative practices in connection with securities
held or to be acquired by a registered investment company. See footnote 1 on
page 1.
4 For purposes of this requirement, "security" does not include securities
issued by the Government of the United States, bankers' acceptances, bank
certificates of deposit, commercial paper and shares of registered open-end
investment companies.
5 A person is a "beneficial owner" of a security for purposes of the Code and
Rule 17j-1 if he or she, directly or indirectly, through any contract,
arrangement, understanding, relationship or otherwise, has or shares a direct or
indirect pecuniary interest in the securities. A pecuniary interest means the
opportunity, directly or indirectly, to profit or share in any profit derived
from a transaction in the subject securities. An indirect pecuniary interest
includes, but is not limited to: (1) securities held by members of a person's
immediate family sharing the same household; (2) a general partner's
proportionate interest in the portfolio securities held by a general or limited
partnership; (3) a person's right to dividends that is separated or separable
from the underlying securities; (4) a person's interest in securities held by a
trust; and (5) a person's right to acquire securities through the exercise or
conversion of any derivative security, whether or not presently exercisable. An
indirect pecuniary interest would include, for example, the right of a Northern
employee to acquire Northern stock pursuant to an employee stock option.
<PAGE>
